Equity Commonwealth (NYSE:EQC) continued to steadily sell off its portfolio of real estate holdings, closing three more sales during the quarter, bringing its property count down to 13. As a result, cash flow kept declining. That trend doesn't show any signs of ending given that the company has more properties on the market and doesn't yet see a good opportunity to make acquisitions. 

Equity Commonwealth results: The raw numbers


Q1 2018

Q1 2017

Year-Over-Year Change

Normalized FFO

$17.5 million

$29.5 million


Normalized FFO per share




Data source: Equity Commonwealth. FFO = funds from operations.

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Image source: Getty Images.

What happened with Equity Commonwealth this quarter? 

Earnings continued declining with the property count:

  • Equity Commonwealth ended the quarter with just 13 properties in its retained portfolio. That's down from 16 last quarter and 28 in the year-ago period. Those property sales reduced FFO by $0.19 per share versus the year-ago period. However, the company partially offset this lost income by redeeming debt and generating interest income on its growing cash pile, which added $0.04 and $0.05 per share to FFO, respectively.
  • The retained portfolio was 88.6% leased during the quarter, which was down from 89.2% at the end of last year, but an improvement from 87.2% in the year-ago quarter. 
  • The company signed leases covering 117,000 square feet during the quarter, including 71,000 square feet of renewals and 46,000 square feet of new leases. Overall, the cash rental rates on those new and renewal leases were 10.8% higher than the previous ones in the same space. 
  • Equity Commonwealth completed several asset sales during the quarter, pulling in $785.2 million in total proceeds. In addition to that, the REIT agreed to sell another property and currently has three in various stages of the sales process.
  • The company used some of its cash to repay debt, including redeeming $175 million of 5.75% senior notes due in 2042 and paying off $400 million of loans. The REIT also authorized a new $150 million share repurchase program and bought back $88.1 million of its stock during the quarter.

What management had to say

CEO David Helfand provided an update on the company's accomplishments during the first-quarter call:

We continue to make progress on executing our plan. Year to date, we repaid $575 million of debt and invested $88 million in share repurchases. During the first quarter, we leased 117,000 square feet and our leasing pipeline is healthy. Finally, as expected, same-property cash NOI growth turned positive this quarter, the results of our strong leasing execution in the past two years.

Overall, the company continued making steady progress on its strategic plan to extract as much value out of its assets as possible. Recent actions included using the proceeds from asset sales to pay down debt and buy back stock while at the same time leasing up the space on its retained assets to boost their net operating income. 

Looking forward 

While Equity Commonwealth still has a few more properties it plans on selling, Helfand stated on the call that "we now own high-quality assets with embedded growth and value-creation opportunities in growth markets." As a result of that, as well as its cash-rich balance sheet, the company has "the option to grow off the base of high-quality assets and tremendous liquidity to pursue long-term value-creation opportunities." However, he went on to note that the "pricing environment to-date for high-quality assets does not, in our view, lend itself to achieving superior returns and as a result, we are being patient." That led him to conclude that "we will focus the balance of the year on aggressively leasing and managing our assets, preparing select properties for sale, and exploring investment opportunities."

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