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Equity Commonwealth (EQC -0.05%)
Q3 2020 Earnings Call
Oct 29, 2020, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Greetings, and welcome to Equity Commonwealth's Third Quarter 2020 Earnings Conference Call. [Operator Instructions] [Operator Instructions].
I would now like to turn the conference over to your host, Sarah Byrnes. Thank you. You may begin.
Sarah Byrnes -- Investor Relations
Thank you, Rob. Good morning, and thank you for joining us to discuss Equity Commonwealth's results for the quarter ending September 30, 2020. On the call today are David Helfand, President and CEO; David Weinberg, COO; and Adam Markman, CFO. Please be advised that certain matters discussed during this 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 yesterday's press release as well as the section titled Risk Factors in our most recent 10-K and in our most recent 10-Q for a discussion of factors that could cause actual results to materially differ from any forward-looking statements, including any statements regarding the overall impact of COVID-19.
The company assumes no obligation to update or supplement any forward-looking statements made today. We also post important information on our website at eqcre.com, including information that may be material. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's press release and supplemental containing our third quarter 2020 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results.
With that, I will turn the call over to David Helfand.
David Helfand -- President and Chief Executive Officer
Thanks, Sarah. Good morning. We appreciate you joining us today. I'll begin with brief comments on market conditions, review our third quarter results and provide an update on the company's current activities. First off, I'd like to again recognize our on-site people for their commitment as well as the broader EQC team who have risen to address the challenges created by the pandemic. Our buildings are open. And while many tenants continue to be cautious about their return, we've implemented precautionary measures to promote safety when they are ready to come back. Tenant utilization at our four properties is currently averaging around 10% a day. Office market activity in general was slow in the third quarter with lower leasing and sales volumes, reflective of a market that remains frozen. The limited number of deals that are getting done are typically those with credit in term. Delivery of new supply has pushed vacancy higher and an increase in sublease space availability will add pressure on lease economics.
Turning to EQC. Our four property portfolio, totaling 1.5 million square feet, was 87.7% leased at the end of the third quarter, down 230 basis points from the last quarter. The decline was largely the result of a buyout of a 23,000 square foot lease at Bridgepoint Square. Commenced occupancy increased 120 basis points to 85.1%, largely due to the leases at 17th Street Plaza in Denver, including Salesforce. Leasing activity continues to be slow, and we are actively engaged with our tenants to address their space needs, with most showing a preference for short-term extensions at this point. In the third quarter, we collected 98% of contractual rents, including 3% from the application of security deposits and letters of credit. In October, we've collected 97% of contractual rents, including 1% from security deposits and LCs. Same-property NOI was up 11.8% compared to the third quarter last year, largely due to a $1.3 million lease termination fee. Same-property cash NOI decreased 7.1% due to lower parking revenue.
Funds from operations of $0.03 per share for the quarter were significantly impacted by the decline in interest rates on our cash balances, which reduced FFO by $0.13 per share. Turning to the balance sheet. In July, we prepaid at par the outstanding $25.1 million, 5.7% mortgage loan on Capitol Tower in Downtown Austin. As a result, EQC has no debt and $123 million of convertible preferred outstanding. The disposition of three properties in the first half of 2020 generated $757 million of gross proceeds. During the third quarter, we declared a $3.50 per share special common distribution that was paid on October 20. We do not have any properties in the market for sale at this time. Since taking responsibility for EQC, we've sold 164 assets for $7.6 billion and used the proceeds to repay $3.3 billion of debt and preferred, a 1.2 million -- $1.2 billion of common distributions to our shareholders, repurchased $266 million of common stock and have a current cash balance of $3 billion or $24 a share.
Of course, we can't predict how the pandemic will play out, though it's likely to have profound consequences. In these dynamic and uncertain times, we will continue to be patient and evaluate a wide range of potential opportunities. As we look forward, we believe the strength of our team, our culture and our balance sheet will be competitive advantages.
And with that, I'd like to open the call to your questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from James Feldman with Bank of America. Please proceed with your question.
Elvis Rodriguez -- Bank of America -- Analyst
Good morning. This is Elvis Rodriguez on for Jamie. David, you touched upon the cash balance and the low interest rate. And I know in prior quarters, you've discussed perhaps investing on the liability side of the balance sheet to generate more interest for the company and some of the other things that you can do. How are you thinking about 12, 18 months out of what you do with the cash, if you don't find any attractive opportunities?
David Helfand -- President and Chief Executive Officer
David Weinberg, do you want to take that?
David Weinberg -- Executive Vice President and Chief Operating Officer
Sure. So, in terms of your initial comment, that is correct. As we've said before, we are considering a variety of opportunities to earn a little extra yield on our cash over some period of time. But like anything we do, when we look at an investment, we'll consider the return we're going to get, the risk we're taking. But in terms of how we think about the cash long term, we are still working hard trying to find investment opportunities. So, maintaining access and full access to our cash balance is important. Liquidity is a consideration in any investment we may make to earn a little extra yield. And as we look long term, we're working hard. We're talking to owners, brokers, lenders, trying to find opportunities, looking at a variety of sectors. So, as you referenced, 12, 18 months out, we're hoping we will have an opportunity to deploy that cash.
Adam Markman -- Executive Vice President, Chief Financial Officer and Treasurer
This is Adam. Just to add maybe a little bit of detail around the background of your question, Elvis. We had -- interest and another income net was $2.6 million for the quarter. That's down $16.8 million compared to the $19.4 million that we earned in the first quarter of 2019. That's because our average rate during the quarter was 37 basis points compared to 2.45% in the third quarter of 2019. So, you can see that with interest rates falling as dramatically as they have, we have felt the impact in terms of interest and other income earned.
Elvis Rodriguez -- Bank of America -- Analyst
Thank you. That's very helpful. And then just strategically, maybe for David, I know you've mentioned that you would be OK similar to Sam's investment in ELS, it'd be OK acquiring an asset class that's operationally intensive. Does coworking fall in that arena? Maybe acquiring a coworking company and building out with the real estate platform where you're more aligned as tenants need shorter leases going forward given work from home and some of the strategic things that may come out of COVID-19, is that fair to think that maybe like a coworking type of operational business where you can marry the real estate with the operating business is something you're considering?
David Helfand -- President and Chief Executive Officer
Let me make sure I clarify that what you're suggesting is the business we might consider is owning assets and running those office assets on a short-term basis in a shared office format?
Elvis Rodriguez -- Bank of America -- Analyst
Correct.
Adam Markman -- Executive Vice President, Chief Financial Officer and Treasurer
Yes. That is highly unlikely. I think we've been pretty consistent from the beginning suggesting that that business model is an upmarket business model and is very challenged, inevitable cyclical downturns, and we're seeing that right now, obviously. We do not subscribe to that model, certainly not with COVID. The idea of lots of sharing by people who don't know each other of office space or conference space or canteen or cafeteria, we don't subscribe to that, and it's highly unlikely. We think the shared office model is challenged fundamentally and specifically in COVID.
Elvis Rodriguez -- Bank of America -- Analyst
But in thinking about tenants are going to want shorter leases going forward. They're not going to want to take as much risk longer term, at least in the near term. Am I thinking about that incorrectly that you can't build sort of an enterprise-type business, instead of leasing seat by seat, but leasing shorter-term leases on an enterprise basis where you could perhaps make more money on a price per square foot leasing and shorter-term leases because you also own the real estate?
David Helfand -- President and Chief Executive Officer
Yes. What you described may be a compelling business. It's not one that we subscribe to.
Elvis Rodriguez -- Bank of America -- Analyst
Okay, thank you.
Operator
Our next question comes from Manny Korchman with Citi. Please proceed with your question.
Manny Korchman -- Citi -- Analyst
Hey, good morning, everyone. Maybe as a follow-up to Elvis' first question. One place that seems like you could get more income on your investment right now than you could. The last time we spoke is investing in other public securities where dividend yields have certainly risen. Is that somewhere that you're spending more time looking at opportunities to buy either as an entry into a combination or takeover or simply to get sort of better yield right now than you can get at those 38 basis points you mentioned?
David Helfand -- President and Chief Executive Officer
Yes, good morning, Manny. The answer is yes. I mean to say that we're spending more time, we have been, since the onset of this, monitoring the public companies to try and understand the look-through to implied cap rate and per pound and talked about on the last call, I think, with Michael that we sort of have two distinct approaches. One is what are we going to be, what kind of business are we going to invest in and build for the long term, and we are looking across sectors at that.
And then to your question specifically, yes, as a cash management tool, given the low yields that Adam referenced, we're actively considering deploying a small portion, right? We've managed the money conservatively because we think that's the right stewardship model. But right now, there are some very compelling, and I maybe even call them glaring and obvious discounts out there. And it might make sense to invest a portion of EQC's cash in those as a means to earn incremental yield without taking substantially more risk.
Manny Korchman -- Citi -- Analyst
And David, I mean, we've spoken about this in the past, but just wanted to sort of see if anything's changed. I guess, Sam has been out there, talking about offices which will rebound at some point while retail is a lot more challenged than that. Is that still sort of the company view?
David Helfand -- President and Chief Executive Officer
Yes. So, it's a company view. I think we've -- maybe we've confused people a little bit because one of the things we talked about is on the heels of pandemic and our discussions with Sam, he's encouraged us to reconsider all our preconceived notions, revisit assumptions and the like. And at that point, early on in the pandemic, we talked about broadening our aperture and including some things that we had previously said we're really not spending time on, and that included retail. But your description of Sam's view is also the house view of EQC that retail is challenged. And while we are exploring it and trying to understand the dynamics and what the opportunity is, it's probably a lower likelihood option than a number of other things that we're working on.
Manny Korchman -- Citi -- Analyst
All right. Thanks very much.
David Helfand -- President and Chief Executive Officer
Thank you, Emmanuel.
Operator
Ladies and gentlemen, we've reached the end of the question-and-answer session. I would now like to turn the call back over to David Helfand for closing comments.
David Helfand -- President and Chief Executive Officer
Yes. Thanks for joining us today, and be well. We look forward to communicating with you in the future.
Operator
[Operator Closing Remarks].
Duration: 11 minutes
Call participants:
Sarah Byrnes -- Investor Relations
David Helfand -- President and Chief Executive Officer
David Weinberg -- Executive Vice President and Chief Operating Officer
Adam Markman -- Executive Vice President, Chief Financial Officer and Treasurer
Elvis Rodriguez -- Bank of America -- Analyst
Manny Korchman -- Citi -- Analyst
