Equity Commonwealth - Earnings Call - Q4 2024

Executive Summary

• EQC completed its asset sale program with the sale of its last remaining property (1225 Seventeenth Street Plaza, Denver) for $132.5M gross ($124.4M net after credits) and adopted liquidation basis accounting; net assets in liquidation were ~$178.9M at 12/31/24.
• The company raised its estimated aggregate liquidating distribution range to $20.55–$20.70 per common share (inclusive of the $19.00 initial distribution paid on 12/6/24), up from $20.00–$21.00 previously (11/15/24).
• Management anticipates the final distribution in mid-April 2025, expects NYSE delisting the day before payment, and does not anticipate any distributions from the liquidating trust thereafter.
• Q3 context: performance was pressured by a $50.2M impairment on the remaining properties and declining occupancy, with GAAP EPS swinging to ($0.26) in Q3 from $0.20 in Q2; cash balances remained strong ahead of liquidation.

What Went Well and What Went Wrong

• What Went Well

  • Fully executed disposition plan: “With this sale completed, we have successfully executed on the sale of all of the company's real estate assets.” (William Griffiths).
  • Improved shareholder return visibility: Raised total liquidating distribution range to $20.55–$20.70 per share; initial $19.00 distribution already paid (12/6/24).
  • Clear wind-down roadmap: Final distribution targeted mid-April, delisting timing specified, and plan to transfer residuals to a Maryland liquidating trust one-for-one.

• What Went Wrong

  • Office market headwinds: Management reiterated it is “a challenging time to sell office buildings,” highlighting transaction execution risk earlier in the process.
  • Q3 operating softness: Same property NOI fell 16% YoY and leased percentage declined to 69.7% (from 80.8% a year ago), underscoring deteriorating fundamentals prior to liquidation.
  • Non-cash impairment in Q3: A $50.2M impairment (including $16.3M on non-real estate assets tied to sales) drove Q3 GAAP EPS to ($0.26), reducing comparability and highlighting asset value pressure.

Transcript

Operator (participant)

Good afternoon, and thanks for joining this call to discuss Equity Commonwealth's progress for the year ended December 31, 2024, and an update on the wind-down process. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the key. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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 the 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, Quarterly Reports on Form 10-Q for subsequent quarters, and in our Definitive Proxy Statement on Schedule 14A filed on October 2, 2024, for a 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.eqc.com, including information that may be material. On the call today are David Helfand, President and CEO; David Weinberg, COO; and Bill Griffiths, CFO.With that, I'll turn the call over to Bill Griffiths.

Bill Griffiths (CFO)

Thanks. Good morning, everyone. Or good afternoon, everyone. Thanks for joining us. I'll review the company's progress for the year, as well as provide an update on our wind-down process. We are excited to announce that the sale of 1225 17th Street Plaza in Denver closed this past Tuesday, February 25th. The gross sale price was $132.5 million, and the net purchase price was approximately $124.4 million after credits primarily for contractual lease costs. With this sale completed, we have successfully executed on the sale of all of the company's real estate assets. Since taking responsibility for Equity Commonwealth in 2014, we have sold over $7.9 billion in assets, disposing of 168 properties and three land parcels totaling 45.8 million sq ft for an aggregate gross sales price of $7.2 billion, as well as $704.8 million of common shares of Select Income REIT.

In addition, we have retired $3.4 billion of debt and preferred shares, repurchased $652 million of our common shares, and paid $3.8 billion in distributions to our common shareholders. We also would like to update you on what we've accomplished since our last call in late October. At our November 12th special shareholder meeting, our shareholders approved the plan of sale with 99% of votes cast in favor of the plan. In December, we paid the liquidation preference and retired the Series D preferred shares for $123.3 million. Also, in December, we paid our common shareholders an initial liquidating distribution of $19 per share. Finally, we sold our four remaining properties: 1250 H Street in Washington, D.C. 206 East 9th Street and Bridgepoint Square in Austin, Texas, and 1225 17th Street Plaza in Denver, Colorado.

As a result of our plan of sale, we have adopted liquidation basis of accounting for our 2024 10-K in accordance with GAAP. Under this accounting method, assets are recognized at the amount expected to be collected, and our estimated expenses, including wind-down costs, are accrued in full as of December 31, 2024. Future quarter's financials will outline changes to the estimates in a statement of changes in net assets. As of December 31, our net assets in liquidation are approximately $179 million, which are estimated based on projected expenses to be incurred during the period required to complete the plan of sale. As a result, we are updating the estimated aggregate shareholder liquidating distribution range from $20-$21 per common share previously announced in November to an estimated range of $20.55-$20.70 per common share, inclusive of the $19 per share distribution paid in December.

Looking ahead, we anticipate making our final distribution in mid-April. Given the execution on the sale of all of our assets and the reasonable certainty of our remaining liabilities, this will be the last distribution made while we are a public company, and we do not anticipate any future distributions from the liquidating trust. We expect that the company's common shares will be delisted from the New York Stock Exchange the day before the final distribution payment date. Following that payment, we plan to move forward and transfer the remaining assets and liabilities to a Maryland liquidating trust, and the common shares will be converted into beneficial interest units in the trust on a one-for-one basis. Concurrently with the transfer, we expect that the company will be deregistered with the SEC. We expect to qualify as a REIT in 2025 until the transfer to the liquidating trust.

We've been focused on executing the wind-down process prudently and efficiently. We are proud of the progress to date, particularly with the sales of the four remaining assets over the last few months. We appreciate the support we've received from our shareholders and want to acknowledge the continued hard work and dedication of the EQC team. With that, David, David and I are happy to take your questions.

Operator (participant)

At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment, please, while we poll for questions. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we poll for questions. There are no questions at this time. At this point, I'd like to turn the call back over to management for closing comments.

Bill Griffiths (CFO)

Thanks again for joining us.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.