Earnings call transcript: Equity Commonwealth Q4 2024 outlines liquidation strategy

Equity Commonwealth (NYSE:EQC) announced its Q4 2024 earnings, revealing significant progress in its wind-down process. The company reported total asset sales of $7.9 billion and outlined plans for its final shareholder distribution. The company’s stock saw a decline of 6.36%, closing at $1.60, as it prepares for delisting and transition to a liquidating trust. According to InvestingPro data, EQC maintains excellent financial health with an overall score of 3.22 (rated "GREAT"), and the stock has delivered a robust 35.81% return over the past year. Analysis suggests the stock is currently trading below its Fair Value.

Key Takeaways

• Equity Commonwealth completed the sale of its final properties, marking a key milestone in its liquidation process.
• The company plans to delist from the NYSE and transition to a Maryland liquidating trust.
• A final shareholder distribution is expected in mid-April, with no future distributions anticipated.
• The stock price fell by 6.36% following the earnings announcement.

Company Performance

Equity Commonwealth has continued its strategic wind-down, having sold all its properties and adopted a liquidation basis of accounting. The company has been focused on maximizing shareholder value through asset sales and debt retirement. As of the latest quarter, the company has sold 168 properties and three land parcels, generating $7.2 billion, in addition to $704.8 million from Select Income REIT shares.

Financial Highlights

• Total (EPA:TTEF) asset sales: $7.9 billion
• Aggregate gross sales price: $7.2 billion
• Debt and preferred shares retired: $3.4 billion
• Common share repurchases: $652 million
• Distributions to shareholders: $3.8 billion
• Net assets in liquidation: Approximately $179 million

Market Reaction

Equity Commonwealth’s stock price decreased by 6.36% to $1.60 following the earnings announcement. This decline reflects investor sentiment regarding the company’s impending delisting and transition to a liquidating trust. The stock’s performance is within its 52-week range, which has seen a low of $1.40 and a high of $21.

Outlook & Guidance

The company expects to make its final shareholder distribution in mid-April, ranging from $20.55 to $20.70 per share. Equity Commonwealth plans to deregister with the SEC and transition to a Maryland liquidating trust. The company anticipates maintaining its REIT status in 2025 until the trust transfer is complete. No future distributions are expected.

Executive Commentary

Bill Griffiths, CFO, emphasized the company’s focus on executing the wind-down process efficiently. He stated, "We have sold over $7,900,000,000 in assets," highlighting the scale of the liquidation. Griffiths also noted, "This will be the last distribution made while we are a public company," underscoring the company’s transition phase.

Risks and Challenges

• Market volatility could impact the final distribution value.
• The transition to a liquidating trust involves regulatory and operational complexities.
• Investor sentiment may remain cautious due to the company’s delisting and lack of future distributions.
• The broader economic environment could affect the REIT market dynamics in 2025.
• Potential legal or financial challenges during the liquidation process.

The earnings call did not feature a Q&A session, as the company is primarily focused on concluding its operations and transitioning to a trust.

Full transcript - Equity Commonwealth (EQC) Q4 2024:

Conference Operator: Good afternoon and thanks for joining this call to discuss Equity Commonwealth’s progress for the year ended 12/31/2024, 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. 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 security 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 quarterly report on Form 10 ks. Quarterly reports on Form 10 Q for subsequent quarters and in our definitive proxy on Schedule 14a filed on 10/02/2024, 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.eqbre.com, including information that may be material. On the call today are David Helfen, President and CEO David Weinberg, COO and Bill Griffiths, CFO.

With that, I’ll turn the call over to Bill Griffith.

Bill Griffiths, CFO, Equity Commonwealth: 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 Seventeenth Street Plaza in Denver closed this past Tuesday, February 25.

The gross sale price was $132,500,000 and the net purchase price was approximately $124,400,000 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 EQC in 2014, we have sold over $7,900,000,000 in assets, disposing of 168 properties and three land parcels totaling 45,800,000 square feet for an aggregate gross sales price of $7,200,000,000 as well as $704,800,000 of common shares of Select Income REIT. In addition, we have retired three point four billion dollars of debt and preferred shares, repurchased $652,000,000 of our common shares and paid $3,800,000,000 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 12 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 $123,300,000 Also in December, we paid our common shareholders an initial liquidating distribution of $19 per share. And finally, we sold our four remaining properties, 1250 H Street in Washington, D. C, Two Zero Six East Ninth Street and Bridgepoint Square in Austin, Texas and 1225 Seventeenth Street Plaza in Denver, Colorado. As a result of our plan of sale, we have adopted liquidation basis of accounting for our twenty twenty four ten ks 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 12/31/2024. 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 and liquidation are approximately $179,000,000 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 to $21 per common share previously announced in November to an estimated range of $20.55 to $20.7 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 and I are happy to take your questions.

Conference Operator: 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, Equity Commonwealth: Thanks again for joining us.

Conference Operator: This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.

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