Equity Commonwealth(EQC) - 2024 Q3 - Quarterly Report

PART I Financial Information This section provides the unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls assessment Financial Statements (unaudited) This section presents unaudited consolidated financial statements, highlighting a $2.44 billion asset base, a Q3 net loss due to impairment, and a strong cash position Condensed Consolidated Balance Sheets This section provides a summary of the company's assets, liabilities, and equity as of September 30, 2024, and December 31, 2023 Balance Sheet Summary (in thousands) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,225,150 | $2,160,535 | | Assets held for sale | $86,803 | $— | | Total assets | $2,441,130 | $2,425,041 | | Liabilities & Equity | | | | Total liabilities | $27,948 | $34,928 | | Total equity | $2,413,182 | $2,390,113 | | Total liabilities and equity | $2,441,130 | $2,425,041 | Condensed Consolidated Statements of Operations This section details the company's revenues, expenses, and net income or loss for the three and nine months ended September 30, 2024 and 2023 Statement of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $13,988 | $15,212 | $43,287 | $45,378 | | Loss on asset impairment | $50,226 | $— | $50,226 | $— | | Net (loss) income | $(26,227) | $26,232 | $23,417 | $64,819 | | Diluted EPS | $(0.26) | $0.22 | $0.16 | $0.53 | - The significant net loss in Q3 2024 was primarily driven by a $50.2 million loss on asset impairment, contrasting sharply with the net income reported in the prior year's quarter[7] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30 Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $88,454 | $86,443 | | Net cash used in investing activities | $(12,706) | $(4,613) | | Net cash used in financing activities | $(11,133) | $(536,264) | | Increase (decrease) in cash | $64,615 | $(454,434) | - The significant decrease in cash used in financing activities in 2024 compared to 2023 is mainly due to substantially lower distributions to common shareholders and fewer common share repurchases[13] Notes to Condensed Consolidated Financial Statements These notes detail the company's REIT business, a proposed liquidation plan, asset reclassification, a $50.2 million impairment, and equity compensation details - A Special Shareholder Meeting is scheduled for November 12, 2024, for shareholders to vote on a Plan of Sale and Dissolution of the Company. If approved, the company will adopt a liquidation basis of accounting[17] - As of September 30, 2024, the company's portfolio consisted of four properties (1.5 million square feet) and $2.2 billion of cash and cash equivalents[17] - Three properties (1250 H Street, NW; 206 East 9th Street; Bridgepoint Square) were classified as held for sale, leading to an impairment charge of $50.2 million to reduce their carrying value to an estimated fair value of $86.7 million[24][47] - The Board of Trustees authorized a new $150.0 million common share repurchase program effective from July 1, 2024, through June 30, 2025. No shares were repurchased under this program during the nine months ended September 30, 2024[28] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's strategic shift to liquidation, the impact of remote work on occupancy, and analyzes financial performance, liquidity, and non-GAAP measures Overview and Property Operations This section outlines the company's strategic pivot to liquidation and details the impact of market trends on property operations and occupancy rates - The Board of Trustees has determined that winding down operations and liquidating assets is in the best interest of shareholders, with a vote on the Plan of Sale scheduled for November 12, 2024[62][63] - The business continues to be negatively impacted by the slowdown in the office leasing market, with the comparable property portfolio's leased percentage falling from 91.5% at the end of 2019 to 69.7% as of September 30, 2024[62][64] Lease Expiration Schedule by Year (% of Leased Square Feet) | Year | % of Leased Square Feet Expiring | | :--- | :--- | | 2024 | 2.1% | | 2025 | 13.2% | | 2026 | 6.5% | | 2027 | 20.8% | | 2028 | 11.6% | | Thereafter | 45.8% | Results of Operations This section provides a detailed comparison of the company's operating results for the current and prior periods, highlighting key revenue and expense changes Q3 2024 vs Q3 2023 Results Comparison (in thousands) | Metric | Q3 2024 | Q3 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental revenue | $12,782 | $13,928 | $(1,146) | (8.2)% | | Net operating income (NOI) | $7,125 | $8,490 | $(1,365) | (16.1)% | | Net (loss) income | $(26,227) | $26,232 | $(52,459) | (200.0)% | - The Q3 2024 net loss was primarily caused by a $50.2 million impairment charge on properties held for sale. General and administrative expenses increased by $1.8 million (25.8%) due to higher legal and severance costs[74] Nine Months 2024 vs Nine Months 2023 Results Comparison (in thousands) | Metric | Nine Months 2024 | Nine Months 2023 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Rental revenue | $39,491 | $41,512 | $(2,021) | (4.9)% | | Net operating income (NOI) | $23,169 | $24,458 | $(1,289) | (5.3)% | | Net income | $23,417 | $64,819 | $(41,402) | (63.9)% | - For the nine-month period, general and administrative expenses decreased by $3.9 million, mainly because the 2023 period included $6.0 million in compensation expenses related to the passing of the former chairman[81] Liquidity and Capital Resources This section assesses the company's financial flexibility, including its cash position, expected funding sources, and capital management strategies - The company maintains significant liquidity with $2.2 billion in cash and cash equivalents as of September 30, 2024[86] - Future funding for operations and distributions is expected to come from cash balances, cash flow from operations, and proceeds from property sales as part of the proposed liquidation[86] FFO and Normalized FFO Reconciliation (in thousands) | Metric | Q3 2024 | Q3 2023 | Nine Months 2024 | Nine Months 2023 | | :--- | :--- | :--- | :--- | :--- | | FFO attributable to common shareholders | $26,204 | $28,664 | $80,369 | $72,059 | | Normalized FFO attributable to common shareholders | $27,373 | $28,557 | $81,056 | $78,461 | Quantitative and Qualitative Disclosures About Market Risk This section confirms no material changes to the company's market risk since the last Annual Report - The Company's market risk has not changed materially from the amounts and information reported in the Annual Report for the year ended December 31, 2023[102] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - Based on an evaluation as of September 30, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures are effective[103] - There have been no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[103] PART II Other Information This section covers legal proceedings, risk factors, other regulatory items, and a list of exhibits filed with the report Legal Proceedings The company is not currently involved in any litigation expected to have a material adverse effect - The company is not currently involved in any litigation, nor is any threatened, that would be expected to have a material adverse effect[105] Risk Factors This section reports no material changes to risk factors, except those related to the planned liquidation disclosed in prior filings - There have been no material changes to the risk factors previously disclosed in the Annual Report, other than those disclosed in the Q1 2024 10-Q and the Definitive Proxy Statement filed on October 2, 2024[106] Other Items (1B, 1C, 2, 3, 4, 5) This section confirms no unresolved staff comments, no material cybersecurity changes, no unregistered equity sales, no senior security defaults, and no mine safety disclosures - The report confirms no unresolved staff comments, no material cybersecurity changes, and no other reportable events under Items 2, 3, 4, and 5[107][108] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and XBRL data files - A list of exhibits filed with the Form 10-Q is provided, including governance documents, certifications required by Rule 13a-14(a), and Inline XBRL files[110]