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Greetings, and welcome to Equity Commonwealth Fourth Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.
I would now like to turn the conference over to your host, Sarah Byrnes, Vice President, Investor Relations. Thank you. You may begin.
Thank you, Gavin. Good morning, and thank you for joining us to discuss Equity Commonwealth's results for the quarter and year ended December 31, 2019. Our speakers 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 annual report on Form 10-K 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 any forward-looking statements made today. We also post important information on our website at www.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 fourth quarter 2019 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.
Thanks, Sarah. Good morning and thank you for joining us. I'll begin with brief comments on market conditions, review our 2019 results and provide an update on the company's current activities.
U.S. economy grew 2.1% in the fourth quarter. For the full-year 2019, GDP rose 2.3% compared to 2.9% a year earlier. 145,000 new jobs were added in December, leaving the unemployment rate unchanged to 3.5%. Unemployment remains at a 50-year low. The RMS had its best year since 2014, up 26%, but still underperformed the broader market as the S&P 500 gained 32% and the NASDAQ was up 35%.
With respect to interest rates, the 10-year Treasury yield is roughly 1.6%, down 100 basis points from the end of 2018. The short end of the curve one-month LIBOR is 1.6% as well, down over 80 basis points from year-end 2018.
Turning to the mortgage market. The supply of debt capital remains inexpensive and available from diverse sources, including CMBS, banks, life companies and debt funds. Borrowing costs for 10-year fixed-rate loans have decreased to 100 basis points to 125 basis points from a year-ago, reflecting some spread compression. All-in rates for a moderately levered office property are plus or minus 3%.
The U.S. office market in 2019 added roughly 50 million square feet of new supply with existing inventory. Positive net absorption resulted in a vacancy rate falling 50 basis points to 12.1%, lower since 2007. New supply continues to run above long-term trend.
Office sales volume totaled $115 billion in 2019, a modest increase from a year earlier, driven by higher transaction volumes in tech-focused markets. Seattle, Boston, and San Francisco saw significantly higher volumes compared to 2018.
Turning to our business. 2019 was a productive year with the execution of some key leases, the sale of three properties for proceeds of $812 million, the repayment of $250 million of debt, and the $429 million special distribution. Same-property cash NOI was up 6.8% versus the prior year.
As we have discussed previously, we have been marketing three properties for sale. After a flurry of activity that culminated yesterday, we closed down the sale of our 286,000 square foot property at 109 Brookline in the Longwood Medical District of Boston for a gross sale price of $270 million. Proceeds after credits, primarily for contractual lease costs and transfer taxes, were $259.2 million.
In addition, we entered into a contract to sell Tower 333, a 435,000 square foot office property in Bellevue, Washington, that we leased to Amazon in 2018 for a gross sales price of $401.5 million. Proceeds after credits, primarily for contractual lease costs and transfer taxes, are expected to be approximately $317 million.
We continue to market the sale of 240,000 square foot Green and Harris Buildings in Georgetown. With all this disposition activity, I want to recognize the stellar team effort that produced these wins. Since taking responsibility for EQC in 2014, we sold 162 assets for a total of $7.2 billion; we have repaid $3.2 billion of debt and preferred; paid $734 million of common distributions; repurchased $245 million of common stock; and have a cash balance, including proceeds from yesterday's sale, of roughly $3 billion.
Through the conversion of a disparate portfolio of under-managed assets into cash, we have created value and optionality. Today, we're a fundamentally different company with a small portfolio of high-quality assets, a strong balance sheet and track record of consistent execution.
Our strategy will continue to be informed by market conditions, and we will be patient and disciplined in our evaluation of a broad range of investment options. We're spending considerable time evaluating opportunities in the office and office-adjacent businesses as well as other sectors where we see attractive fundamentals.
With a strong team, significant balance sheet capacity and patience, we're well positioned to pursue opportunities to create long-term value.
With that, I'll turn the call over to David.
Thank you, David, and good morning, everyone. The fourth quarter was another strong period of leasing, which finished off another successful year at EQC. In the quarter, we signed 153,000 square feet of leases, consisting of 90,000 square feet of new leases and 63,000 square feet of renewals.
Rental rates increased 10.1% on a GAAP basis and 1.5% on a cash basis. Our 7-property, 2.5 million square foot portfolio ended the quarter 94.7% leased, up 120 basis points from the third quarter and up 150 basis points year-over-year. Almost all our activity this quarter was at 17th Street Plaza in Denver.
We signed 141,000 square feet, including a new lease with Salesforce for 64,000 square feet. We are excited to have Salesforce in our building and believe its tenancy will attract other technology companies to the property. We also renewed and expanded KPMG and 70,000 square feet at 17th Street Plaza. With this activity, the property is 94% leased.
As we look back on 2019, we are very pleased with the work done by the EQC team. It was a productive year, especially in terms of value creation. We sold 3 properties: 1735 Market Street in Philadelphia, 600 108th Avenue in Bellevue and Research Park in Austin. With these dispositions, we exited Philadelphia and sold the other assets to buyers that were uniquely positioned to ascribe value to development opportunities.
In terms of leasing for the year, we signed 608,000 square feet, consisting of 232,000 square feet of new leases and 376,000 square feet of renewals. Rental rates increased to 11.6% on a GAAP basis and 2.3% on a cash basis.
In Boston, at 109 Brookline, we renewed Dana-Farber for 77,000 square feet and quickly backfilled a large move-out with a new 71,000 square foot lease with a software company. These deals stabilized the property at 99% leased. Given this occupancy and the unique features of this asset, such as its location near Fenway Park and the Longwood Medical District and its potential for lab conversion, we decided to take it to market.
Investors agreed it was a special opportunity, and there was significant interest from multiple well-capitalized buyers. Our largest lease of 2019 was at the Harris Building in Washington, D.C., where we extended Georgetown University in 129,000 square feet for two years. This lease, together with the previously signed 18-year 112,000 square foot lease with the British School at the Green Building, brought the property to 100% occupancy and positioned it to be marketed for sale.
Looking ahead in 2020, there are 151,000 square feet of leases rolling. This roll is at Bridgepoint Square in Austin; 17th Street Plaza in Denver; and 1250 H Street in Washington, DC. We expect to get almost all the space back. We are seeing strong interest across these properties and are working aggressively to address this roll.
With that, I will turn the call over to Adam.
Thanks, David. Good morning. I'll review our financial results for the quarter and the year. Funds from operations were $0.16 per share this quarter compared to $0.21 per share in the fourth quarter of 2018. Asset sales totaling $819 million over the comparative period negatively impacted FFO by $0.09 per share. An additional $0.01 decrease came from lower interest income.
Offsetting the effects of dispositions and lower interest earned on our bank deposits was $0.04 per share of interest expense savings, $0.01 per share of lower G&A and an additional $0.01 per share of lower loss on debt extinguishment.
Normalized FFO for the quarter was $0.16 per share compared to $0.21 a year-ago. As with FFO, normalized FFO was impacted by dispositions and lower interest income, partially offset by interest expense savings from debt repayments and lower G&A.
For the full-year, FFO was $0.73 per share compared to $0.59 in 2018. Asset dispositions were responsible for a per-share decline of $0.38. Offsetting this decline was $0.21 per share of higher interest income, $0.14 of lower interest expense, $0.05 per share of lower G&A expense and $0.02 per share of lower income tax. Better same-property results also added $0.04. Normalized FFO per share for the full-year was $0.78 compared to $0.69 in 2018.
Higher interest income and lower interest expense and G&A provided growth as did improved same-property performance inclusive of lease termination income. As was the case in each quarter of 2019, dispositions were an offset to growth.
Net operating income in the same-property portfolio was down 1.6% in the fourth quarter compared to a year-ago. The decrease was largely due to a roll-down in rent as part of Georgetown University's lease extension and the move-out of BT Americas from our property in Boston.
Additionally, real estate taxes were higher quarter-over-quarter. We benefited from leasing activity in Downtown Austin and Denver, which partially offset lower revenues and higher real estate taxes. For the quarter, same-property cash NOI was $15.6 million, 2.9% or $474,000 lower than in the fourth quarter of last year.
Improved parking revenue and higher reimbursement income kept revenue flat despite a roughly $730,000 decrease in rental income, primarily from the BT Americas move-out and free rent in Georgetown's renewal. Higher real estate taxes and HVAC expenditures drove expenses higher, causing the decline in fourth quarter cash NOI.
For modeling purposes, 109 Brookline and Tower 333 contributed $5.8 million of the fourth quarter's cash NOI. NOI for the fourth full-year was up 8.8% and cash NOI increased 6.8%. Leases commencing in Denver and Downtown Austin drove the growth as did the burn-off of free rent and contributions from higher expense reimbursements. This growth was partially offset by higher real estate taxes.
Turing to the balance sheet. Since 2014, we've repaid over $3.2 billion of debt and preferreds, and we currently have $3 billion or over $24 per share in cash. Liabilities include just $125 million mortgage in addition to $123 million of perpetual preferreds.
We're confident that our balance sheet and long-term relationships will provide access to debt capital, if and when needed. The sale of 109 Brookline generated sufficient REIT qualifying income to eliminate the need mentioned on prior calls to invest a portion of our cash and other REIT-qualifying investments in 2020.
Taxable gains from this disposition will total over $220 million and will require the payment of another special dividend. Assuming the sale of Tower 333, which is currently under contract, an incremental $190 million of taxable gain will be generated.
We will also generate taxable income in the normal course of our business which will impact the size of this year's distribution. We continue to look for opportunities where our team, liquidity and financial strength will provide a competitive advantage.
Thank you. And with that, we will open it up to Q&A.
[Operator Instructions] Our first question comes from the line of Manny Korchman with Citi. Please proceed with your question.
Hey, good morning everyone. Just given your comments on the large move-outs or expected move-outs at the assets you have left in the portfolio, should we then expect for you guys to wait to sell those until those are re-tenanted? So we're looking at something, call it, three or four or five quarters away? Or is there a chance that you sell them or sell the claim, if you will, of selling those less than lease?
Hey, Manny. It's David. I would say, right now, we're focused on selling the assets currently in the market. With respect to the lease roll, as I said in my prepared remarks, we're aggressively trying to get in front of that and backfill the space we will be getting back. And then the decisions around future dispositions, as always, we just kind of look at it as we go, and we'll make that decision, if and when it's appropriate.
David, just what are the specific –what's the specific timing of those – these roles or move-outs?
Sure. So out of the 151,000 square feet rolling, we expect to get back about 140,000 square feet. So I'll break that down in two different ways. First, in terms of timing. First quarter, about 50,000 square feet. Second quarter 4,000 square feet. Third quarter 30,000 square feet and fourth quarter 56,000 square feet. The other way to look at it is – it's coming from three properties, 17th Street Plaza in Denver, 53,000 square feet, 1250 H Street in D.C., 27,000 square feet and Bridgepoint Square in Austin, 60,000 square feet.
And is any of that space vacant now, making it easier to release?
Vacant now, I'm guessing without having specific information, it's likely that maybe a couple of the tenants, given the timing of their expirations, have moved out. But whether it's vacant or occupied, we are trying to lease the space today.
Thanks very much David.
[Operator Instructions] Our next question comes from the line of John Guinee with Stifel. Please proceed with your question.
Great. Excellent execution. Looks like you sold Brookline at $900 a foot and Seattle about – or Bellevue around $730 a foot. Does that make sense?
I clarify. So 109 Brookline, we sold at $946 a foot. The asset in Bellevue, Tower 333, we haven't sold yet. It's under contract. But at that gross price of $401.5 million, it's actually $922 a foot. It just so happens, you're looking at the net price. But because Amazon is just starting its build-out, there are significant credits we owe the buyer to cover those costs.
Great. Okay. And then David you mentioned a term I never heard before. You're looking at office portfolios and office-adjacent portfolios. Can you describe what that means?
Yes. For us, we just mean businesses that may have a different – specific business that have related office-type use, meaning could be medical, could be lab, could be other businesses that they are similar, but not the same as ours.
Okay. And then last question, you guys did an excellent job of buying a commodity portfolio and maximizing dispositions on 162 assets. And it appears to a lot of people that the markets you mentioned, the tech-driven markets, Seattle, Boston, San Francisco, are commanding very, very aggressive underwriting and low cap rates.
But what you're good at and what there's a lot of out there are commodity assets, commodity portfolio, not a lot of pricing power, but those might trade at a 8% cap instead of a 4% cap. Will you dive into the commodity business buy low, sell high again?
I think the way I look at is I'm not sure about the commodity term. We generally don't like commodity real estate, unless it's fundamentally mispriced. What we want to find is real estate where we think we can add long-term value. Maybe to answer your question more specifically, we're not set on any small subset of gateway markets.
If we saw value in a portfolio or a company that owned assets in other markets, some would call them secondary markets, we thought that we could have them through aggressive asset management and leasing and create long-term streams that grow. We'd be a buyer of those assets.
Great. Thank you.
Thank you, John.
We have reached the end of our question-and-answer session, and I would like to turn the call back over to Mr. David Helfand for any closing remarks.
Well, thank you. That was exhausting. We appreciate your interest, and we'll see many of you down in Florida. Thanks again.
This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.