Equity Commonwealth (EQC)·Q1 2024 Earnings Summary

Executive Summary

• Q1 2024 diluted EPS was $0.22, up from $0.19 YoY and flat vs Q3 2023, driven by higher interest income; total revenues were $15.19M vs $15.58M YoY as office occupancy declined .
• FFO per diluted share rose to $0.26 vs $0.22 YoY; Normalized FFO was $0.25 vs $0.23, reflecting stronger interest and other income and lower income tax expense .
• Same property NOI increased 4.3% YoY, but same property cash NOI fell 6.9% YoY, with percent leased dropping to 75.4% from 81.6% a year ago; leasing activity was 18K sq ft with negative cash rent spreads (-2.8%) .
• Strategic catalyst: Management said “before the end of this year, we expect to either announce a transaction or move forward with a plan to wind down our business,” sharpening the timeline for capital deployment or liquidation—potentially stock-moving .
• Cash & equivalents stood at $2.17B and no debt; the press release quantifies cash at $19.95 per share, underscoring optionality amid weak office fundamentals .

What Went Well and What Went Wrong

What Went Well

• Interest and other income increased ($29.5M in Q1), supporting EPS/FFO despite lower property revenues; management cited higher average interest rates driving the YoY uplift .
• Same property NOI rose 4.3% YoY on lower pre‑leasing demolition costs and higher lease termination fees, partially offsetting occupancy pressure .
• Clear strategic messaging: “Before the end of this year, we expect to either announce a transaction or move forward with a plan to wind down our business,” reinforcing discipline and timeline certainty .

What Went Wrong

• Occupancy deterioration: percent leased fell to 75.4% (from 81.2% at 12/31/23 and 81.6% YoY); percent commenced dropped to 74.6% (from 80.0% and 77.0% YoY) .
• Cash NOI declined 6.9% YoY as lower commenced occupancy more than offset reduced demolition costs; GAAP/cash rent spreads on new/renewals were negative on cash (-2.8%) .
• Smaller leasing volume (18K sq ft) and rising capital intensity (TI+LC $58.93 per sq ft) could weigh on near‑term cash yields and extend the path to stabilizing occupancy .

Financial Results

Segment/property detail (Annualized Rental Revenue and occupancy as of Q1 2024):

KPIs (Q1 2024 unless noted):

Guidance Changes

No quantitative revenue/EPS/NOI guidance ranges were provided in Q1 2024 materials .

Earnings Call Themes & Trends

Management Commentary

• “Before the end of this year, we expect to either announce a transaction or move forward with a plan to wind down our business.” (Press release)
• “We have completed $7.6 billion of dispositions...distributed $1.8 billion...repurchased $652 million...repaid debt and preferred equity of $3.3 billion...generated a cash balance of $2.2 billion, or $19.95 per share.” (Press release business update)
• Q4 2023 call: “We expect to qualify as a REIT in 2024.” (Prepared remarks)

Q&A Highlights

• Governance/approvals: CFO clarified shareholder approval thresholds (e.g., issuance exceeding 20% of shares) and charter-related approvals regarding certain asset sales; context included Denver asset considerations .
• Wind-down cost magnitude: CEO discussed an estimated $0.40–$0.50 per share for wind-down (change-of-control severance, professional fees, other wind-down costs), indicating limited scope for foregoing such payments .
• Platform scalability: Management emphasized scalability, especially for industrial, with existing corporate staffing and property-level costs manageable if pursuing acquisitions .

Estimates Context

• Wall Street consensus via S&P Global: Not available through our data connector for EQC this quarter (mapping error prevented retrieval). We could not obtain consensus EPS/Revenue or FFO per share from S&P Global for Q1 2024.
• Implication: With no formal guidance and absent consensus, buyside models should center on interest income trajectory (cash yields), occupancy/lease pace, cash rent spreads, and potential wind-down timing and costs .

Key Takeaways for Investors

• Execution timeline is now explicit: expect a transaction announcement or wind-down plan before year-end—this binary outcome should anchor positioning and could catalyze the stock as details emerge .
• Earnings are largely a function of interest income on $2.17B cash; near-term property-level fundamentals (occupancy/rent spreads) are headwinds, so interest rate path remains key to EPS/FFO cadence .
• Office exposure concentrated in four assets; Denver remains the highest-quality contributor; weaker Austin/Washington assets drag occupancy—lease progress there is the swing factor for cash NOI .
• Capital intensity is rising on leasing (TI+LC ~$59/sq ft); expect cash yield pressure until occupancy stabilizes; this supports the optionality value of pursuing a wind-down vs incremental office reinvestment .
• With no new dividend and buyback capacity available, capital returns depend on the strategic outcome; a wind-down could crystallize value but entails costs (~$0.40–$0.50/share discussed on the call) .
• Trading view: near-term moves likely tied to any transaction leak/formal announcement and ongoing occupancy data; medium-term thesis is a sum-of-parts on cash plus property net assets adjusted for wind-down costs and timing .

Additional References (Q1 2024 materials access)

• Press release and supplemental package within 8‑K (Item 2.02), including full financial statements and definitions –.
• Earnings call transcript (May 2, 2024): open-source copies available online .
• Conference call announcement (BusinessWire) .