Equity Commonwealth(EQC) - 2025 Q1 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements Presents the company's unaudited condensed consolidated financial statements, prepared on both liquidation and going concern bases Condensed Consolidated Statements of Net Assets (Liquidation Basis) Condensed Consolidated Statements of Net Assets (Liquidation Basis) (amounts in thousands) | ASSETS/LIABILITIES | March 31, 2025 | December 31, 2024 | | :----------------- | :------------- | :---------------- | | Real estate | $— | $132,500 | | Cash and cash equivalents | $227,271 | $160,511 | | Total assets | $227,657 | $293,624 | | Liabilities for estimated costs in excess of estimated receipts during liquidation | $50,996 | $100,019 | | Total liabilities | $51,162 | $114,769 | | Net assets in liquidation | $176,495 | $178,855 | - As of March 31, 2025, the company reported no real estate assets, a significant decrease from $132.5 million at December 31, 2024, reflecting the sale of its last property[10] - Cash and cash equivalents increased to $227.3 million from $160.5 million[10] - Liabilities for estimated costs in excess of estimated receipts during liquidation decreased by nearly 50% from $100.0 million to $51.0 million, indicating progress in settling liquidation-related obligations[10] Condensed Consolidated Statement of Changes in Net Assets (Liquidation Basis) Condensed Consolidated Statement of Changes in Net Assets (Liquidation Basis) (amounts in thousands) | Item | Three Months Ended March 31, 2025 | | :-------------------------------- | :-------------------------------- | | Net assets in liquidation, beginning of period | $178,855 | | Remeasurement of liabilities | $(2,360) | | Net decrease in liquidation value | $(2,360) | | Net assets in liquidation, end of period | $176,495 | - For the three months ended March 31, 2025, net assets in liquidation decreased by $2.36 million, primarily due to the remeasurement of liabilities[13] Condensed Consolidated Statement of Operations (Going Concern Basis) Condensed Consolidated Statement of Operations (Going Concern Basis) (amounts in thousands, except per share data) | Item | Three Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | | Total revenues | $15,190 | | Total expenses | $19,214 | | Interest and other income, net | $29,512 | | Net income | $25,458 | | Net income attributable to Equity Commonwealth common shareholders | $23,408 | | Basic EPS | $0.22 | | Diluted EPS | $0.22 | - For the three months ended March 31, 2024, the company reported total revenues of $15.19 million and total expenses of $19.21 million[15] - Net income attributable to common shareholders was $23.41 million, resulting in basic and diluted EPS of $0.22[15] Condensed Consolidated Statement of Equity (Going Concern Basis) Condensed Consolidated Statement of Equity (Going Concern Basis) (amounts in thousands, except share data) | Item | January 1, 2024 | March 31, 2024 | | :-------------------------------- | :-------------- | :------------- | | Total Equity Commonwealth Shareholders | $2,390,113 | $2,413,328 | | Net income | — | $25,405 | | Share-based compensation | — | $2,565 | | Distributions | — | $(1,752) | - From January 1, 2024, to March 31, 2024, total Equity Commonwealth Shareholders' equity increased from $2.39 billion to $2.41 billion, driven by net income and share-based compensation[17] Condensed Consolidated Statement of Cash Flows (Going Concern Basis) Condensed Consolidated Statement of Cash Flows (Going Concern Basis) (amounts in thousands) | Cash Flow Activity | Three Months Ended March 31, 2024 | | :----------------- | :-------------------------------- | | Operating Activities | $22,443 | | Investing Activities | $(5,055) | | Financing Activities | $(7,089) | | Increase in cash and cash equivalents | $10,299 | | Cash and cash equivalents at end of period | $2,170,834 | - For the three months ended March 31, 2024, net cash provided by operating activities was $22.44 million, leading to a net increase in cash and cash equivalents of $10.30 million[19] Notes to Condensed Consolidated Financial Statements Note 1. Business - Equity Commonwealth (EQC) is a real estate investment trust (REIT) that primarily owned and operated office properties in the United States[21] - As of March 31, 2025, the company did not own any properties and held $227.3 million in cash and cash equivalents with no outstanding debt[23] - The company paid a final cash liquidating distribution of $1.60 per common share ($172.4 million total) on April 22, 2025, bringing aggregate liquidating distributions to $20.60 per common share[24] - EQC's common shares were delisted from the NYSE on April 21, 2025, following the final distribution[25] Note 2. Plan of Sale - Shareholders approved the Plan of Sale on November 12, 2024, authorizing the company to sell remaining properties, wind down affairs, and distribute net proceeds[27] - The company expects to dissolve and transfer remaining assets and liabilities to a Liquidating Entity before the end of Q2 2025, with any future distributions expected to be nominal[29][30] Note 3. Summary of Significant Accounting Policies - The company adopted the liquidation basis of accounting as of November 1, 2024, following shareholder approval of the Plan of Sale[35] - Under the liquidation basis, assets are adjusted to estimated net realizable value, and liabilities are carried at contractual or estimated settlement amounts[35] - The company accrues estimated costs and revenues for liquidation activities, classified as a liability for estimated costs in excess of estimated receipts during liquidation[36] - As a result of the change to liquidation basis, the company no longer presents a consolidated balance sheet, statement of operations, equity, or cash flows for periods subsequent to October 31, 2024[39] Note 4. Liabilities for Estimated Costs in Excess of Estimated Receipts During Liquidation - The company estimates costs in excess of estimated receipts during liquidation, with the process anticipated to be complete by September 30, 2025[42] Change in Liabilities for Estimated Costs in Excess of Estimated Receipts During Liquidation (amounts in thousands) | Category | December 31, 2024 | Cash Payments (Receipts) | Remeasurement of Assets and Liabilities | March 31, 2025 | | :-------------------------------- | :---------------- | :----------------------- | :-------------------------------------- | :------------- | | Estimated net inflows from real estate | $1,125 | $(388) | $114 | $851 | | Estimated inflows from interest income | $3,493 | $(2,299) | $27 | $1,221 | | Liquidation transaction costs | $(41,819) | $5,397 | $(548) | $(36,970) | | General and administrative expenses | $(30,993) | $14,783 | $112 | $(16,098) | | Total liabilities for estimated costs in excess of estimated receipts during liquidation | $(100,019) | $51,222 | $(2,199) | $(50,996) | - Total liabilities for estimated costs in excess of estimated receipts during liquidation decreased from $100.0 million at December 31, 2024, to $51.0 million at March 31, 2025[43] Note 5. Net Assets in Liquidation - As of March 31, 2025, net assets in liquidation were $176.5 million, with 107,751,132 common shares outstanding[45] - Cumulative cash liquidating distributions to common shareholders totaled $2.2 billion ($20.60 per common share), including an initial $19.00 per share paid in December 2024 and a final $1.60 per share paid on April 22, 2025[45] Note 6. Real Estate Properties - On February 25, 2025, the company sold its last property, 1225 Seventeenth Street in Denver, Colorado, for a gross sale price of $132.5 million[47] - Property improvements, excluding tenant-funded, decreased significantly from $7.6 million in Q1 2024 to $0.1 million in Q1 2025[46] Rental Revenue (amounts in thousands) | Type | Three Months Ended March 31, 2024 | | :----------------- | :-------------------------------- | | Lease payments | $8,816 | | Variable lease payments | $5,077 | | Total Rental Revenue | $13,893 | Note 7. Shareholders' Equity - The company did not repurchase any common shares under its share repurchase program during Q1 2025, with $150.0 million remaining availability until June 30, 2025[50] - Employees surrendered 510,000 common shares in Q1 2025 to satisfy tax withholding obligations related to vested equity awards[51] - The company paid an initial cash liquidating distribution of $19.00 per common share ($2.0 billion total) in December 2024 and a final $1.60 per common share ($172.4 million total) on April 22, 2025[52] - One-time catch-up cash distributions totaling $30.0 million were paid to recipients of restricted stock units in February and March 2025[53][54] Note 8. Noncontrolling Interest - Noncontrolling interest represents the portion of OP Units not beneficially owned by the company, classified as permanent equity[55] - As of March 31, 2025, the noncontrolling ownership interest in the Operating Trust was 0.14%[56] Changes in Common Shares and Units (Three Months Ended March 31, 2025) | Item | Common Shares | OP Units and LTIP Units | Total | | :-------------------------------- | :------------ | :---------------------- | :---- | | Outstanding at January 1, 2025 | 107,335,177 | 148,103 | 107,483,280 | | Repurchase and surrender of shares | (510,000) | — | (510,000) | | OP Unit redemption | 52,549 | (52,549) | — | | Share-based compensation grants and vesting, net of forfeitures | 873,406 | 59,024 | 932,430 | | Outstanding at March 31, 2025 | 107,751,132 | 154,578 | 107,905,710 | | Noncontrolling ownership interest in the Operating Trust | | | 0.14 % | Note 9. Income Taxes - The company has elected to be taxed as a REIT and is generally not subject to federal and state income taxes, provided it meets distribution and other requirements[57] Income Tax Expense (amounts in thousands) | Item | Three Months Ended March 31, 2024 | | :----------------- | :-------------------------------- | | State and local | $(30) | | Income tax expense | $(30) | Note 10. Share-Based Compensation - A change in control occurred on February 25, 2025, due to the sale of its last property, resulting in the accelerated vesting of all unvested equity awards[61] - During Q1 2025, 873,406 RSUs vested, leading to the issuance of common shares[62] - The 2015 Omnibus Incentive Plan automatically terminated on March 18, 2025, preventing the issuance of new equity awards[70] - As of March 31, 2025, there were no unvested restricted shares or other equity units due to the change in control[68] Note 11. Fair Value of Assets and Liabilities - The fair value of financial instruments was not materially different from their carrying values as of March 31, 2025, and December 31, 2024[71] - As of March 31, 2025, the company had no tenants, eliminating concentrations of credit risk from rents receivable[71] Note 12. Earnings Per Common Share - For the three months ended March 31, 2024, both basic and diluted earnings per common share were $0.22[73] Earnings Per Common Share (amounts in thousands except per share amounts) | Item | Three Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | | Numerator for net income per share - basic | $23,408 | | Numerator for net income per share - diluted | $23,408 | | Weighted average common shares outstanding - basic | 107,216 | | Weighted average common shares outstanding - diluted | 108,224 | | Basic EPS | $0.22 | | Diluted EPS | $0.22 | Note 13. Segment Information - The company operated as one reportable segment, primarily focused on the ownership and operation of office properties[75] Note 14. Related Person Transactions - The company leases its corporate headquarters from an entity associated with Equity Group Investments (EGI)[79] - The lease term was extended through December 31, 2026, with annual payments of $0.4 million[80] - Expenses recognized under the lease for the three months ended March 31, 2024, were $0.1 million[81] Note 15. Subsequent Events - On April 11, 2025, the company filed a Form 25 for delisting its common shares from the NYSE, with the last trading day on April 21, 2025[82] - The final cash liquidating distribution of $1.60 per common share was paid on April 22, 2025[83] - The company intends to transfer remaining assets and liabilities to a Liquidating Entity and deregister with the SEC, likely before the end of Q2 2025[83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on the company's financial condition and operational results during its transition to liquidation OVERVIEW - Since 2014, the company executed a strategy of disposing of 168 properties for $7.2 billion, retired $3.4 billion of debt, and paid $4.0 billion in distributions[96] - Shareholders approved the Plan of Sale and Dissolution on November 12, 2024, with 85.5% of outstanding shares in favor[93] - As of March 31, 2025, the company owned no properties, held $227.3 million in cash, and had no debt[94] - The company paid its final cash liquidating distribution of $1.60 per common share on April 22, 2025, and delisted from the NYSE on April 21, 2025[94][95] RESULTS OF OPERATIONS - Due to the adoption of liquidation basis accounting as of November 1, 2024, current year results of operations are not comparable to the prior year[98] - As of March 31, 2025, the company had no remaining properties, having sold its last property on February 25, 2025[98] LIQUIDITY AND CAPITAL RESOURCES - As of March 31, 2025, the company had $227.3 million in cash and cash equivalents and no outstanding debt, which is expected to be sufficient to fund remaining obligations[99] - The company paid an initial cash liquidating distribution of $19.00 per common share ($2.0 billion total) in December 2024 and a final $1.60 per common share ($172.4 million total) on April 22, 2025[100][101] - No common shares were repurchased in Q1 2025, with $150.0 million remaining under the share repurchase program[101] NON-GAAP MEASURES - The company is no longer reporting Funds From Operations (FFO), Normalized Funds From Operations (NFFO), and Net Operating Income (NOI) due to the adoption of the Plan of Sale[103] RELATED PERSON TRANSACTIONS - Information regarding related person transactions is detailed in Note 14 to the condensed consolidated financial statements[104] Item 3. Quantitative and Qualitative Disclosures About Market Risk Reports no material changes to quantitative and qualitative disclosures about market risk from the most recent Annual Report - The company's market risk has not materially changed from the amounts and information reported in its Annual Report[105] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures with no material changes to internal controls during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[106] - There have been no material changes in internal control over financial reporting during the quarter ended March 31, 2025[107] PART II. Other Information Item 1. Legal Proceedings States the company is not involved in any litigation that would have a material adverse effect - The company is not currently involved in any litigation that would have a material adverse effect[109] Item 1A. Risk Factors Confirms no material changes to the risk factors previously disclosed in the company's Annual Report - No material changes to the risk factors previously disclosed in the Annual Report[110] Item 1B. Unresolved Staff Comments Reports no unresolved staff comments regarding the company's filings - There are no unresolved staff comments[111] Item 1C. Cybersecurity Confirms no material changes for cybersecurity previously disclosed in the company's Annual Report - No material changes for cybersecurity previously disclosed in the Annual Report[112] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details common shares surrendered by employees to satisfy tax withholding obligations related to vested equity awards - During the three months ended March 31, 2025, employees surrendered common shares to satisfy statutory tax withholding obligations for vested restricted common shares and restricted stock units[113] Common Shares Surrendered for Tax Withholding (Three Months Ended March 31, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :------------- | :------------------------------- | :--------------------------- | | January 2025 | 10,273 | $1.77 | | February 2025 | 133,245 | $1.68 | | March 2025 | 366,482 | $1.60 | | Total | 510,000 | $1.62 | Item 3. Defaults Upon Senior Securities Indicates this item is not applicable to the company - This item is not applicable[115] Item 4. Mine Safety Disclosures Indicates this item is not applicable to the company - This item is not applicable[116] Item 5. Other Information Reports that no officers or directors adopted or terminated any Rule 10b5-1 trading arrangements during the period - None of the company's officers or directors adopted or terminated any Rule 10b5-1(c) trading arrangements[117] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including certifications and Inline XBRL data - Key exhibits include the Plan of Sale and Dissolution, various Articles of Amendment and Restatement, Bylaws, Rule 13a-14(a) and Section 1350 Certifications, and Inline XBRL data[118] Signatures Contains the duly authorized signatures of the company's CEO and CFO, dated May 6, 2025 - The report was signed by David A. Helfand, Chair of the Board, President and Chief Executive Officer, and William H. Griffiths, Executive Vice President, Chief Financial Officer and Treasurer, on May 6, 2025[121]