Equity Commonwealth (NYSE:EQC) continued its strategy of slowly emptying its commercial real estate portfolio during the second quarter. The REIT closed the sale of two more assets, which brought its retained portfolio down to just seven properties. Those sales added to the company's cash-rich balance sheet, which now has virtually no debt after it repaid its remaining bonds during the quarter.

Equity Commonwealth results: The raw numbers


Q2 2019

Q2 2018

Year-Over-Year Change

Normalized FFO

$27.2 million

$20.8 million


Normalized FFO per share




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

What happened with Equity Commonwealth this quarter? 

Smart capital allocation continues to boost its results:

  • Equity Commonwealth sold two more properties in the second quarter. That brought its retained portfolio down to seven properties consisting of 2.5 million square feet of rentable space.
  • Despite those sales, which negatively impacted FFO by $0.08 per share, the company's FFO jumped about 30% thanks to how it used the proceeds from its sales. The company benefited from a $0.07 per share increase in interest income, a $0.03 per share boost from higher net operating income at its retained properties, and $0.02 per share in interest expense savings. 
  • Equity Commonwealth had leased 90.5% of the available space at its seven remaining properties at the end of June, which was down from 92% in the year-ago period. However, the company more than made up for that lower occupancy by signing higher rate leases as they expired over the past year. Those agreements helped boost its same-property net operating income by 22.5% year over year.
  • The company entered leases for 58,000 square feet during the quarter, including 15,000 of new agreements and 43,000 of renewals. On average, the rental rates on these contracts were 14.5% higher than the previous ones on the same space.
  • The REIT sold two properties during the quarter. It sold an office building in Washington state for $195 million and a research park in Texas for $165.5 million.
  • The company redeemed all $250 million of its senior notes due in September of 2020 during the quarter. As a result, it ended the period with $3.2 billion in cash -- down slightly from last quarter -- against just $26.1 million in total debt, which was a mortgage note.
Two people shaking hands with office buildings in the background.

Image source: Getty Images.

What management had to say 

CEO David Helfand commented on the quarter during the accompanying conference call. He noted that the company had a solid quarter as it sold two more properties while generating healthy growth in the net operating income of its retain assets. The CEO also noted the company currently has no properties on the market, which marks the first time in five years that it's not actively marketing assets.

Helfand pointed out that Equity Commonwealth is a fundamentally different company than it was a few years ago. It has converted a diverse portfolio of assets into cash, which created value and optionality. It now holds a small collection of high-quality assets and a strong balance sheet. 

Looking forward 

Helfand stated that market conditions would continue to dictate Equity Commonwealth's strategy. The company will remain patient and disciplined as it evaluates a broad range of investment opportunities, including non-office asset classes. With $3.2 billion in cash, the company is well positioned to create long-term value for shareholders.  

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