Equity Commonwealth (NYSE:EQC) Q3 2024 Earnings Call Transcript

Equity Commonwealth (NYSE:EQC) Q3 2024 Earnings Call Transcript October 24, 2024

Operator: Good morning and thanks for joining this call to discuss Equity Commonwealth’s Results for the Quarter Ending September 30, 2024, in an update on the Company. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. Please be advised that certain matters discussed during the 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, quarterly reports on Form 10-Q from subsequent quarters, and in our definitive proxy statement on Schedule 14A filed on October 2, 2024, 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 includes certain non-GAAP financial measures. Please refer to yesterday’s press release and supplemental containing the Company’s results for a 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. I’d like to provide some key updates on our progress since our last call at the end of July.

Our two Austin properties and our DC property are now under contract. These assets are held for sale on our September 30th balance sheet and we recognized a $50 million non-cash impairment charge in this quarter’s financials. The closing of these sales are expected to begin in early November and the buyers have posted non-refundable deposits. Pricing for the three sales, plus our expectation for Denver in total remains consistent with the $234 million estimate we discussed on last quarter’s call. The marketing of 1225 Seventeenth Street in Denver commenced in September, so it’s too early to provide an update on that process. We will provide more information on all of the dispositions as they progress. With respect to our upcoming special shareholder meeting, we’ve set a meeting date of November 12th for shareholders of record as of the close of business on October 1st to vote to approve the Plan of Sale as well as the related advisory vote on Say on Pay.

Plan of Sale requires the affirmative vote of two-thirds of our outstanding common shares to be approved. We continue to estimate the total distributions resulting from the Plan of Sale will be in the $19.50 to $21 per share range. Assuming shareholders approve the Plan of Sale, we will adopt liquidation basis accounting for our 2024 10-K. Under this method, assets are recognized at the amount expected to be collected and our estimated expenses, including wind-down costs will be accrued in full as of December 31, 2024. The year-end and future quarter’s financials will outline any changes to the estimates and a statement of changes in net assets. Following shareholder approval of the Plan of Sale and subject to Board approval, we will pay off the Series D preferred and declare a common distribution of $18 to $19 per share with the payments made in early December.

The exact amount of the common distribution will depend on the status of the dispositions at that time. After all the remaining assets are sold, which we currently estimate to be by the end of the first quarter of 2025, we will distribute substantially all of our remaining cash, net of a reserve for any remaining liabilities. Then, sometime in the second quarter of next year, we expect to commence the NYSE delisting and SEC deregistration processes, transfer the remaining assets and liabilities to a liquidating trust, and complete other administrative tasks with the goal of substantially winding down by the end of the second quarter. We continue to expect to qualify as REIT in 2024 and 2025. So far, the disposition process has gone reasonably smoothly, but it remains a challenging time to sell office buildings.

The ability to close one or more — the inability to close one or more of our dispositions will affect the timing for the overall wind down. We are focused at EQC on executing the wind-down process prudently and efficiently. We’ll continue to communicate our progress. 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, Bill and I are happy to take your questions.

Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Craig Mailman with Citi. Please proceed with your question.

Craig Mailman: Hey, good morning, guys. Just some clarifying questions to start. So, David, you said the Series B pref, is that going to be paid the same day as the initial distribution or is there — could there be a difference there? I just got some questions about when the exact timing of that, would be assuming the vote goes through on the planned date that you guys have in the proxy?

William Griffiths: Hey, Craig, it’s Bill. The Series D preferred will be paid first and then we expect to do the common distribution a few days later.

Craig Mailman: Okay. So the Series B will be within that 30-day window after the vote?

William Griffiths: Correct.

Craig Mailman: Okay. Perfect. And then on the asset sales, you guys have how much of a deposit is hard at this point of the total? Like, is it really difficult for the buyers to walk away, or is it an amount that if they can’t get financing, they’d be willing to kind of eat at this point?

David Weinberg: Well, it’s David. I guess it’s in the buyer’s perspective. Obviously, they can always walk regardless of the size of the deposit. The deposits range from 1% to 5% of the purchase prices, and two of the buyers are all cash. So it’s just one that is subject to financing risk.

Craig Mailman: Okay. Perfect. And I know you guys said these could start to close in November, but everything could be sold kind of by the end of first quarter, is — especially for the two buyers that are all cash. Is there an expected kind of close on those as of now? Or just trying to get a sense of the timing of these three assets relative to the timing of kind of the initial payment and whether that initial payment could be closer to the $19 a share or the $18 a share, just a pretty wide window.

David Weinberg: It’s hard to say because closings are subject to certain conditions such as estoppels, et cetera, and buyers have extension rights. So, as David alluded to and said specifically in his opening remarks, we expect them to begin in early November and then just kind of continue thereafter, and we’ll be providing updates accordingly.

Craig Mailman: Okay. And as of now, just from a distribution perspective, you guys are sitting on close to $20.20 of cash. And then assuming these three assets close, it’s, what, another $0.80 or so, so you’re at the full $21 from just these three assets. And then, assuming you back into it, feels like Denver’s about another, call it, $1.60 of value there. So you’re getting to $22.60. So are the wind-down costs coming in higher than the $50 million that you guys had talked about originally, or is that kind of still a good place to think about it?

William Griffiths: Well, to answer your second question first, the wind-down costs have not changed. So, no, they’re not coming in higher. And I’m just wondering in your math whether you’ve deducted the preferred in the cash.

Craig Mailman: Yes, that’s a good point. I forgot that. Okay. Perfect. Thank you for that clarification. All right. Awesome. Thank you, guys. And congrats on getting these done. Thanks.

William Griffiths: Thanks, Craig.

Operator: Thank you. We have no further questions at this time. Mr. Helfand, I would now like to turn the floor back over to you for closing comments.

David Helfand: Thank you, and thanks for your time this morning. As we said, we’ll continue to provide updates on our progress as we execute our Plan of Sale. Thank you.

Operator: Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.