Q3 2024 Equity Commonwealth Earnings Call

Operator: Good morning and thanks for joining this call to discuss Equity Commonwealth's results for the quarter ending September 30th, 2024 in an update on the company.

Good morning, and thanks for joining this call to discuss equity common helps with the Commonwealth's results for the quarter ending September 30th 2024, and an update on the company.

Operator: At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 star key. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: At this time all participants are in a listen only mode.

Speaker Change: A question and answer session will follow the formal presentation.

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Operator: As a reminder, this conference is being recorded.

Speaker Change: As a reminder, this conference is being recorded.

Operator: 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 14-A filed on October 2, 2024 for discussion of factors that could cause the company's actual results to materially differ from any forward looking statement. The company assumes no obligation to update or supplement any forward-looking statements made today.

Please be advised that certain matters discussed during the conference call may constitute forward looking statements within the meaning of federal Securities laws.

Speaker Change: 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.

Speaker Change: Where do we reports on Form 10-Q for subsequent quarters.

Speaker Change: And in our definitive proxy statement on schedule 14, a filed on October 2nd 2024 for a discussion of factors that could cause the company's actual results to materially differ from any forward looking statements.

Speaker Change: The company assumes no obligation to update or supplement any forward looking statements made today.

Operator: The company posts important information on its website at www.eqcre.com, including information that may be material.

Speaker Change: The company posts important information on its website at www Dot EQ CRE dot com, including information that may be material.

Operator: 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.

Speaker Change: The portion of todays remarks regarding the Companys quarterly earnings also include certain non-GAAP financial measures.

Speaker Change: Please refer to yesterday's press release and supplemental containing the Companys results for a reconciliation of these non-GAAP measures to the company's GAAP financial results.

Operator: On the call today are David Helfand, President and CEO. David Weinberg, COO, and Bill Griffiths, CFO.

Speaker Change: On the call today are David Helfand, President and CEO.

Speaker Change: David Weinberg C O O and Bill Griffith CFO.

David Helfand: With that, I will turn the call over to David Helfand. Thank you. Good morning.

Speaker Change: With that I will turn the call over to David Helfand.

David Helfand: Thank you.

David Helfand: 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 financial. 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.

David Helfand: Morning, I'd like to provide some key updates on our progress since our last call.

David Helfand: The end of July.

David Helfand: Two Austin properties in our D. C property are now under contract.

David Helfand: Assets are held for sale on our September 30 balance sheet.

David Helfand: We recognized a $50 million noncash impairment charge in this quarters financials.

David Helfand: The closing of these sales are expected to begin in early November and the buyers have posted nonrefundable deposits.

David Helfand: 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.

David Helfand: The marketing of 1225 17th 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.

David Helfand: The marketing of 12 25, 17th 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 these dispositions as they progress.

David Helfand: 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 Seal 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 $21.00 per share range. Assuming shareholders approve the plan of sale, we will adopt liquidation basis accounting for our 2024 10-K.

David Helfand: With respect to our upcoming special shareholder meeting.

David Helfand: We've set a meeting date of November 12 for shareholders of record as of the close of business on October one.

David Helfand: To vote to approve the plan of sale as well as the related advisory vote.

David Helfand: Hey.

David Helfand: Plaintiffs y'all requires the affirmative vote of two thirds of our outstanding common shares to be approved.

David Helfand: We continue to estimate the total distributions, resulting to the plan of sale will be in the 1950 to $21 per share range.

David Helfand: Assuming shareholders approved the plan a sale, we will adopt liquidation basis accounting for our 2024 10-K.

David Helfand: 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 31st, 2024. The year-end and future quarters 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.

David Helfand: Under this method assets are recognized that the amount expected to be collected and our estimated expenses, including wind down costs will be accrued in full as of December 31 2024.

David Helfand: The year and in future quarters financials will outline any changes to the estimates in our statement of changes in net assets.

David Helfand: Following shareholder approval of the planned sale subject to board approval, we will pay off the series C preferred and declared a common distribution of 18 to $19 per share.

David Helfand: The payments made in early December.

David Helfand: The exact amount of the common distribution will depend on the status of the dispositions at that time.

David Helfand: 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.

David Helfand: After all the remaining assets are sold which we currently estimate to be at the end of the first quarter of 2025.

David Helfand: We will distribute substantially all of our remaining cash.

David Helfand: Net of a reserve for any remaining liabilities.

David Helfand: 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 substantially winding down by the end of the second quarter. continue to expect to qualify as REIT in 2024 and 2025.

David Helfand: And then sometime in the second quarter of next year, we expect to commence the NYSE listing and FCC registration processes.

David Helfand: Transfer the remaining assets and liabilities to a liquidating trust.

David Helfand: And complete other administrative tasks with the goal of substantially winding down by the end of the second quarter.

David Helfand: We continue to expect to qualify as REIT in 2024 and 2025.

David Helfand: So far the disposition process has gone reasonably smoothly, but it remains a challenging time to sell office buildings. The inability to close one or more of our dispositions will affect the timing for the overall wind-up. We are focused at EQC on executing the wind-down process prudently and efficiently. We'll continue to communicate our progress.

David Helfand: 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.

David Helfand: We are focused at EQT on executing the wind down process prudently and efficiently we'll continue to communicate our progress. We appreciate the support we receive from our shareholders someone who acknowledged the continued hard work and dedication of the EQT team with that Dave and Bill and I are happy to take your questions.

David Helfand: 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. Thank you.

Speaker Change: Thank you we will now be conducting a question and answer session.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would 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 star keys. One moment please while we poll for questions.

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Operator: Thank you.

Craig Mailman: Our first question comes from the line of Craig Mailman with Citi. Please proceed with your question.

Speaker Change: Thank you. Our first question comes from the line of Craig Mailman with Citi. Please proceed with your question.

Craig Mailman: 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 an approximate.

Speaker Change: Hey, good morning, guys.

Craig Mailman: Just some clarifying questions to start so David you said the series B Prefs is that going to be paid the same day as the initial distribution or is there could there be a difference there. It's got some questions about when the exact timing of that would be assuming the vote.

Craig Mailman: Goes through on the plant do you guys have in the proxy.

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

Bill Griffith: Hey, Craig its bill.

Speaker Change: The series D preferred will be paid first.

Bill Griffith: And then we expect to do the common distribution you know a few days later.

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

Craig Mailman: Okay. So the series B it would be within that 30 day window after the vote.

Bill Griffith: Correct.

Craig Mailman: Okay. and then, um...

Speaker Change: Okay, perfect and then.

Craig Mailman: 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, you know, if they can't get financing, they'd be willing to kind of eat at this point?

Speaker Change: On the asset sales you guys have how much of a deposit its hard at this point of the total.

Speaker Change: Is it really difficult for the buyers to walk away or is it an amount that you know if they can't get financing they'd be willing to try to eat at this point.

David Helfand: 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 one to 5%. of the Purchase Prices, and two of the buyers are all cash. So it's just one that is subject to finance.

Speaker Change: Well, David I guess, it's in the buyer's perspective, obviously, they can always work regardless of the size of the deposit.

Speaker Change: Posits ranged from 1% to 5%.

Speaker Change: Of the purchase prices and two of the buyers are all cash.

Speaker Change: So it's just one that is subject to financing risk.

Speaker Change: Okay.

Speaker Change:

Craig Mailman: 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?

Speaker Change: Perfect.

Speaker Change: I know you guys said this could start to close in November Hum, but everything could be sold kind of by the end of.

Speaker Change: First quarter is especially for the two buyers that are all cash.

Speaker Change: Is there and.

Speaker Change: I had 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 of the $18 a share it's a pretty wide window.

Bill Griffiths: It's hard to say because closings are subject to certain conditions, such as estoppels, etc., 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.

Speaker Change: It's hard to say because closings are subject to certain conditions, such as a stockholder et cetera, and buyers have extension rights.

Speaker Change: So as David alluded to in our specifically.

Speaker Change: Specifically in his opening remarks, we expect them to begin in early November.

Speaker Change: Then just kind of continue thereafter, I will be providing updates accordingly.

Craig Mailman: 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 another $0.80 or so. So you're at the full $21 from just these three assets. And then, you know, assuming you back into it, it feels like Denver's about another, call it $1.60 of value there. So you're getting to $22.60.

Speaker Change: Okay, and and as of now just from a distribution perspective, you guys are sitting on close to $20 20 of cash.

Speaker Change: And then assuming these three assets closets with another 80 sensor. So so you're at the full $21 from just these three assets and then assuming you back into it it feels like Denver is about another call. It dollar 60 of value there.

Speaker Change: So you get into 'twenty 260, so are the are the wind down costs coming in higher than the 50 million that you guys had talked about originally or is that.

Bill Griffiths: 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?

Speaker Change: And there's still a good place to think about it.

Bill Griffiths: Well, to answer your second question, first, the wind-out 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 or not. Oh, yes. That's a good point. I forgot that. Okay. Perfect.

Speaker Change: Well to answer your second question first the wind down costs have not changed.

Speaker Change: So no they're not coming in higher and I'm just wondering in your math, whether you deducted the preferred and the cash Oh, yes.

Speaker Change: Yes, that's a good point I forgot that.

Speaker Change: Okay perfect. Thank you for that for that clarification.

Craig Mailman: Thank you for that clarification.

Speaker Change:

Craig Mailman: All right, awesome, thank you guys and congrats on getting these done. Thanks. Thanks, Greg.

Speaker Change: Alright awesome. Thank you guys and congrats on getting these done thanks.

Speaker Change: Thanks, Greg.

Operator: Thank you. We have no further questions at this time.

Operator: Thank you. We have no further questions at this time.

Speaker Change: Thank you we have no further questions at this time, Mr Health and I would now like to turn the floor back over to you for closing comments.

David Helfand: Mr. Helfand, I would now like to turn the floor back over to you for closing comments. 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.

David Helfand: Mr. Helfand, I would now like to turn the floor back over to you for closing comments. 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.

Mr Health: Thank you and thanks for your time. This morning, as we said we will continue to provide updates on our progress as we are.

Speaker Change: Execute our plan of sale.

Operator: Thank you.

Mr Health: Thank you.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.

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.

Speaker Change: 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.

Operator: Thank you for your participation, and have a wonderful day.