Equity Commonwealth (NYSE: NYSE:EQC) has announced in its latest earnings call that the company will proceed with the wind down of operations and liquidation of assets in a strategic move to maximize shareholder value. This decision comes after the company's inability to find compelling investment opportunities and the uniquely challenging market conditions for selling office assets. The Board of Trustees has determined that the liquidation process is in the best interest of the shareholders, given the current real estate environment. Equity Commonwealth expects to file a preliminary proxy recommending the plan of sale and liquidation, with shareholder voting anticipated by December.
Key Takeaways
- Equity Commonwealth to wind down operations and liquidate assets, focusing on maximizing shareholder value.
- The current market for office assets is challenging, with low transaction volume and scarce debt availability.
- The company is marketing three assets for sale and plans to sell a fourth in Denver.
- Equity Commonwealth aims to complete the liquidation by the end of the second quarter of 2025.
- The company expects to maintain its REIT status for 2024 and 2025.
Company Outlook
- The Board of Trustees advises liquidation due to difficult market conditions and lack of compelling transactions.
- Shareholder approval of the plan of sale and liquidation is pending, with a vote expected by December.
- The wind down process is expected to be substantially completed by the end of the second quarter of 2025.
Bearish Highlights
- Office asset sales are hampered by the lowest transaction volume since 2010 and a 75% decrease from pre-COVID levels.
- Debt for office assets, when available, comes at high costs with double-digit interest rates.
Bullish Highlights
- Potential proceeds from asset sales could exceed the net book value of $234 million.
- The Denver asset, considered Class A, may attract more traditional, larger buyers due to its high occupancy rate.
Misses
- The company has not been able to execute a compelling transaction to create long-term shareholder value.
Q&A Highlights
- The three assets being marketed began the sales process in May, and buyer interest is still being gauged.
- The Denver asset, 1225 Seventeenth Street, has a different buyer profile and may trade sooner due to its Class A status.
- Estimated liquidation costs remain within the previously disclosed range of $0.40 to $0.50 per share.
- General and administrative costs are not expected to change significantly during the wind down.
This decision reflects the company's response to the current difficult market conditions and their commitment to shareholder interests. Equity Commonwealth will continue to provide updates to shareholders as the liquidation process progresses.
InvestingPro Insights
Equity Commonwealth (NYSE: EQC) has made a significant decision to wind down operations, a move that reflects a strategic shift to enhance shareholder value amidst a tough market for office assets. With the company's latest actions in mind, let's delve into some insights from InvestingPro that could be pertinent to investors following EQC's journey.
InvestingPro Data indicates a market capitalization of $2.19 billion for EQC, a testament to the company's scale even as it plans to liquidate assets. The P/E ratio stands at 23.31, suggesting that investors are paying $23.31 for every dollar of earnings, which is relatively moderate. Importantly, EQC's revenue for the last twelve months as of Q1 2024 is reported at $60.14 million, though this reflects a slight decline of 3.05% in revenue growth, aligning with the challenges the company has faced in the current real estate market.
Among the InvestingPro Tips, two are particularly noteworthy in the context of EQC's liquidation announcement. Firstly, the company has been aggressively buying back shares, a move often viewed as a signal of confidence from management in the company's value. Secondly, and perhaps providing a cushion during the liquidation process, EQC holds more cash than debt on its balance sheet, which could offer some financial flexibility during the transition.
Investors interested in a deeper dive into Equity Commonwealth's financial health can find additional InvestingPro Tips at https://www.investing.com/pro/EQC, where a total of 10 tips are available. These tips and metrics could be crucial for stakeholders to understand the company's strategic moves and its potential impact on their investments.
Full transcript - CommonWealth REIT (EQC) Q2 2024:
Operator: Good morning, and thanks for joining this call to discuss Equity Commonwealth's results for the quarter ending June 30, 2024, and an update on the company. [Operator Instructions]. As a reminder, this conference is being recorded. Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of federal securities laws. Please refer to the section titled Forward-Looking Statements in the press release issued yesterday as well as the section titled Risk Factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q for subsequent quarters. For discussion of factors that could cause the company's 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. The company posts important information on its website at www.eqcre.com, including information that may be material. The portion of today's remarks regarding the company's quarterly earnings also include certain non-GAAP financial measures. Please refer to yesterday's press release and supplemental containing the company's results for reconciliation of these non-GAAP measures to the company's GAAP financial results. On the call today are David Helfand, President and CEO; David Weinberg, COO; and Bill Griffiths, CFO. With that, I will turn the call over to David Helfand.
David Helfand: Thank you. Good morning, everyone. Thanks for joining us. Rather than spend time on the company's results for the quarter, the details of which are covered in our earnings release and other filings, I'd like to provide a general update on our business. As we discussed on last quarter's call, we have been evaluating potential investment opportunities in an effort to create long-term value for shareholders. After working through our pipeline, we have been unable to consummate a compelling transaction. As a result, our Board of Trustees has determined that it's advisable and in the best interest of our shareholders to proceed with the wind down of our operations and liquidation of our assets in order to maximize value for shareholders. The key gating factor in the wind down will be the timing of the sale of our 4 remaining properties. We disclosed last quarter that we had initiated the process to sell 3 of our 4 assets. Those properties, 1250 H in Washington, D.C. and our 2 assets in Austin are currently being marketed for sale. While our team is focused on achieving the best execution, it is important to understand that current market conditions for selling office assets are uniquely challenging. Transaction volume for the first 6 months of the year was the lowest since 2010 and down 75% from pre-COVID levels. Moreover, debt availability for office assets is scarce and when available is priced at double-digit coupons. Given the market environment, it's difficult to estimate both the timing and the proceeds from these sales. We're hopeful that the dispositions will generate proceeds in excess of our $234 million net book value for the assets. As it relates to the timing for the wind down, we expect to file a preliminary proxy by mid-September, recommending that our shareholders approve a plan of sale and liquidation. The proxy will be subject to review by the SEC and depending on the length of that process, we anticipate holding the shareholder vote no later than December. We also expect to begin marketing for sale our Denver asset, 1225 Seventeenth Street in early September with closing contingent on shareholder approval of the plan of sale. The plan of sale require the affirmative vote of 2/3 of our outstanding common shares to be approved. Assuming the plan of sale is approved by our shareholders, the next steps will be the redemption of the Series D preferred and distribution to shareholders of substantially all of our cash. Then once the remaining assets are sold, we expect to distribute the remaining proceeds shortly thereafter. This will likely be the last distribution of material value. We will then commence the NYSE delisting and SEC deregistration processes and various other administrative tasks with the goal of substantially winding down the company by the end of the second quarter of 2025. We continue to expect to qualify as a REIT in 2024 and 2025. While we don't have all the answers today and timing is uncertain, we are focused on executing the wind down process as efficiently as possible and we will continue to communicate with shareholders regarding our progress. We appreciate the support we have received from our shareholders and want to acknowledge the hard work and dedication of the EQC team. With that, David, Bill and I are happy to take your questions.
Operator: [Operator Instructions] Our first question is from Craig Mailman from Citi.
Nick Joseph: It's Nick Joseph here with Craig. So appreciate the new news and the update on the process. So maybe just starting with the 3 assets being marketing. Can you just talk through where those are in the process? I know the timing is uncertain, and I appreciate your comments on the debt capital markets, but just kind of buyer interest, pricing expectations and where each of those 3 stand right now?
David Weinberg: Nick, it's David. I'll take that one. So the sales of those 3 assets commenced in May. And unlike in the past, given the current market conditions that David described, it's just taking longer. So I'd say we're at the point now we're trying to gauge buyer interest. However, given the makeup of bidders and interested parties in the current environment as opposed into the past, it's harder to predict the timing and execution, so we're learning as we go, and we'll know more later.
Nick Joseph: And then just for the Denver asset. Is there anything unique about that asset that maybe will have a trade sooner rather than later? How do you think about it versus the 3 that are being marketed right now?
David Weinberg: Well, it has a different profile. So the 3 that are being marketed now are at least kind of in the 55% to 70% are B to B plus properties. So they're going to attract one set of buyers. The Denver asset currently is leased in the mid-80s. That's a great asset. It's Class A, so it should attract more interest from more traditional larger buyers. The wildcard there is in this environment, it is 700,000 square feet. And there are just a few comps for assets of that size for me to kind of have a feel for how that's going to play out.
Nick Joseph: And then just as you think about the liquidation costs, is there an estimate -- what the wind down will cost all in?
Bill Griffiths: Nick, it's Bill. We disclosed last quarter of $0.40 to $0.50 per share range. We're still comfortable with that, and I think there'll be more information forthcoming on that in the proxy.
Nick Joseph: Perfect. And then maybe just finally, just on G&A costs as the wind down occurs, will there be any change to comp and overhead through the liquidation date?
David Helfand: We don't expect it to be.
Nick Joseph: So is the 2Q run rate, a good run rate for the next 2 quarters, at least?
David Helfand: Sounds about right.
Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the floor back over to David Helfand for closing comments.
David Helfand: Thank you for your time today. We look forward to speaking to you and giving you more information as we gain it. Thank you.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.