The shrink-to-grow turnaround plan at Equity Commonwealth (EQC -0.05%) is still in the middle of the shrinking phase. However, with each passing quarter, the company edges closer to its target to unload $3 billion in assets so that it can get down to a stronger core upon which to drive future growth. It's now $2.2 billion into the shrink phase, meaning it still has a bit more work to do before its management team can start rebuilding the company for growth. 

Equity Commonwealth results: The raw numbers


Q1 2016 Actuals

Q1 2015 Actuals

Growth (YOY)

Normalized FFO

$37.3 million

$72.0 million


Normalized FFO per share




Data source: Equity Commonwealth.

What happened with Equity Commonwealth this quarter? 
Equity Commonwealth's earnings continue to fall alongside its asset base:

  • During the quarter, the company sold three properties totaling 857,000 square feet, which brought in $122.6 million of gross proceeds. This brought the company's total property sales up to $2.2 billion.
  • These sales were the primary factor driving normalized FFO lower year over year. In fact, property sales affected normalized FFO by $0.29 per share, which was slightly offset by a $0.06-per-share benefit from lower interest expenses because the company used some of its asset sale proceeds to repay debt.
  • During the quarter, Equity's same-property portfolio was 91.4% leased, which is a little lower than last quarter's 92.2%, but above the year-ago quarter's 90.7%.

What management had to say 
Equity Commonwealth's management team wrote in the earnings release:


111 River Street. Image source: Equity Commonwealth.

The company continues to pursue its previously announced plan to sell approximately $3.0 billion of assets, creating capacity for future opportunities. As part of this plan, the company has sold $2.2 billion of assets to date, at a weighted average cap rate of approximately 7%. The company currently has 27 properties, including 111 River Street, totaling approximately 9 million square feet in various stages of the sale process.

Equity Commonwealth's management team is well on its way to hitting its $3 billion disposition target. Not only has it already closed $2.2 billion in property sales, but it also has another 27 properties up for sale, including 111 River Street, which it recently announced has gone under contract for a gross sales price of $235 million. If that sale goes through, the company would have completed 80% of its disposition target.

The company is currently using its property sale proceeds to bolster its balance sheet, and it now holds $1.7 billion of cash against just $1.3 billion of unsecured debt and $245 million of mortgage notes after redeeming $139.1 million of debt this past quarter. It's also buying back stock, repurchasing $25.5 million in shares during the quarter, and boosting its overall buyback authorization by $150 million, giving it $236.6 million for future buybacks. Finally, subsequent to the quarter's end, the company called for redemption all of its outstanding Series E preferred shares, totaling $275 million.

Looking forward 
Equity Commonwealth continues to march forward on its disposition plan, putting 27 more properties up for sale. Once this sales process is complete the company will move on to the next phase of its turnaround plan, which is to use its cash war chest to capture opportunities that will drive meaningful growth in normalized FFO.