CHICAGO — During a conference call held yesterday, executives of Equity Commonwealth (NYSE: EQC) announced that the Chicago-based office REIT is going to wind down its operations and liquidate its four remaining office assets.
David Helfand, president and CEO of Equity Commonwealth, cited “uniquely challenging market conditions” as the impetus behind the move as the company was previously pursuing a major acquisition that ultimately wasn’t executed.
“After working through our pipeline, we have been unable to consummate a compelling transaction,” said Helfand, who noted that the firm had also been trying to sell three of its remaining office properties as discussed in the first-quarter earnings call. “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 the liquidation of our assets in order to maximize value for shareholders.”
Equity Commonwealth was founded in 1986 by Barry Portnoy under the name CommonWealth REIT. In 2014, the late REIT champion and billionaire investor Sam Zell took over operations of the company alongside a new board of directors, including Helfand. The REIT was rebranded to Equity Commonwealth and began trading on the New York Stock Exchange under the symbol EQC.
Zell, who also founded Equity Residential, served as chairman of Equity Commonwealth from May 2014 until his death in May 2023.
Office liquidations
The company’s remaining office assets include 1250 H Street NW in Washington, D.C.; 17th Street Plaza in Denver; and Bridgepoint Square and Capitol Tower, both of which are in Austin, Texas. Helfand said that the D.C. and Austin office buildings are currently being marketed for sale and the company will begin marketing the Denver property in early September.
“We are hopeful that the dispositions will generate proceeds in excess of our $234 million net book value for the [D.C. and Austin] assets,” said Helfand. “Given the market environment, it’s difficult to estimate both the timing and the proceeds from the sales.”
Helfand also said that the “scarce” availability of debt for office transactions is compounding matters for the liquidation.
David Weinberg, executive vice president and chief operating officer of Equity Commonwealth, said that the D.C. and Austin office buildings are Class B assets and have occupancy in the 55 percent to 70 percent range.
“They are going to attract one set of buyers; we’re at the point now where we’re trying to gauge buyer interest,” said Weinberg. “The Denver asset currently is leased in the mid-80s, so it should attract more interest from more traditional larger buyers.”
At 700,000 square feet, 17th Street Plaza in Denver is larger than the other three properties in Equity Commonwealth’s portfolio. Weinberg mentioned that it will be difficult to estimate the timing and proceeds of the Denver sale.
“The wild card is… this environment,” he said. “There are just a few comps for assets of that size.”
Helfand said the sale of the Denver property is contingent on two-thirds majority shareholder approval of plan.
Other steps
Helfand said that outside of liquidating its office properties, Equity Commonwealth will redeem its Series D preferred stock and distribute to shareholders “substantially all of our cash.” The REIT’s cash and cash equivalents ended June 30, 2024 at a balance of $2.2 billion.
Equity Commonwealth will also distribute proceeds from the office sales as those are executed.
“This will likely be the last distribution of material value,” said Helfand.
The company will then delist the company from the New York Stock Exchange and de-register from the U.S. Securities and Exchange Commission (SEC).
“We continue to expect to qualify as a REIT in 2024 and 2025, with the goal of substantially winding down the company by the end of the second quarter of 2025,” said Helfand. “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.”
Equity Commonwealth’s stock price closed on Wednesday, July 31 at $20.37 per share, up slightly from $19.73 a year ago. Investors appeared to respond favorably to the news, as the price had closed at $19.94 per share the day before the conference call, Tuesday, June 30. Its six-month low was $18.20 per share in February.
— John Nelson