Author Topic: EQC - Equity Commonwealth  (Read 27168 times)

thepupil

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Re: EQC - Equity Commonwealth
« Reply #30 on: June 29, 2015, 09:07:19 AM »
seeing reports sale of Aussie assets. They have $220MM USD gross book value and $206MM USD net book value. It looks like they will get about $230MM USD ($300MM AUD).  This will get rid of 8 buildings and 1.7MM square feet and get rid of the oddball australia exposure in the portfolio. They are wasting no time in dispensing of the non-core


http://www.fairfieldchampion.com.au/story/3178337/propertlylink-snaps-up-303-millon-in-assets/?cs=9

« Last Edit: June 29, 2015, 09:38:51 AM by thepupil »


thepupil

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Re: EQC - Equity Commonwealth
« Reply #31 on: June 29, 2015, 09:27:58 AM »
As of end of Q1, EQC had $2.597B of debt & preferred and $421MM of cash.

They paid down $138MM of unsecured bonds so that gets you to $2.459 and $283MM cash.

They then sold the two big portfolios which added $376MM of cash and $320MM of cash and got rid of $88MM of asset level debt so that gets you to $979MM of cash and $2.371 of debt + preferred.

They then sold Illinois center for $376MM and it had a $142MM loan on it so cash goes to $1.213B and debt goes to $2.229B.

They then just sold the australia portfolio for $230MM so cash should now be around $1.4B.

I may have missed something, but I think EQC now only $829MM of net debt and about 40% of its market cap in cash and about 10% of its market cap in un drawn credit revolver.
« Last Edit: June 29, 2015, 09:38:00 AM by thepupil »

thepupil

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thepupil

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Re: EQC - Equity Commonwealth
« Reply #33 on: August 05, 2015, 08:02:05 PM »
Updated for Illinois Center Sale and info from earnings

Capital Structure

http://ir.eqcre.com/Cache/1500074572.PDF?Y=&O=PDF&D=&fid=1500074572&T=&iid=102958

0 Drawn / $750MM Revolver
$400MM of Term Loans due 2020 and 2022 @ L +140 and L+180
$1,064MM Unsecured @ 6.17%, pretty much $250MM matures / year from 2016 on
$365MM of mortgage debt @ around 5%
$400MM of preferred @ 6.5% and 7.25%

$2,229 Debt and preferred
$3,536 Market Cap

$5,765 Total Capitalization

So for $5.7B you get $1.5B of cash in the hands of Sam Zell and crew and $4.2B of gross book value of properties.

The most recent supplemental shows that the remaining properties (after Illinois Center sale) throw off $590MM of annualized revenue. At a 56% cash NOI margin (what they did last q) that's $330MM of NOI which at an 8% cap is $4.1B and at a 6% cap is $5.5B.

So the current stock price implies that the remaining buildings are closer to an 8% cap, which considering that EQC has been unloading their low quality stuff in the mid 7's seems off.

It's not incredibly cheap, but it's easy to conclude the assets very nicely cover the stock price, the leverage is basically gone, and there's lots of opportunities to refi or simply pay down higher cost (6+%) debt, and optionality in the event they could make a distressed acquisition or merge or sell the company entirely.

I hope they address why there is no repurchase authorization on the call tomorrow.

EDIT:
Of course, another way to look at it is the existing estate of properties likely satisfies all covenants and fully supports the debt so that you are really buying $2B of equity ($4.2B-$2.2B debt and preferred) in real estate and $1.5B in cash for $3.5B and any upside / downside from delta in sales below / above the implied 7.8% cap rate goes to the $2B in real estate equity.

It's really saying the same thing a different way, but it shows that 40% of what you are buying is cash in arguably good hands and the other 60% is moderately levered (52% levered even if you think the properties are worth only $4.2B) decent RE at a 7.8% cap rate.

Really not much more to say than that.

It's a pretty simple story.

« Last Edit: August 05, 2015, 08:21:55 PM by thepupil »

thepupil

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Re: EQC - Equity Commonwealth
« Reply #34 on: August 24, 2015, 06:30:32 PM »
TOO SMALL!!!



Equity Commonwealth Announces $100 Million Share Repurchase Program
Mon August 24, 2015 7:11 PM|Business Wire  | About: EQC   
CHICAGO--(BUSINESS WIRE)-- Equity Commonwealth (EQC) announced today that its Board of Trustees has authorized the repurchase of up to $100 million of its outstanding common shares over the next 12 months.

Purchases made pursuant to the program will be made from time to time in the open market, in privately negotiated transactions or in other manners as permitted by federal securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The program may be suspended or discontinued at any time.

CorpRaider

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Re: EQC - Equity Commonwealth
« Reply #35 on: August 26, 2015, 06:21:29 AM »
Yeah I was going mock the impressive size.  I mean its just an authorization, put a big number in there.

thepupil

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Re: EQC - Equity Commonwealth
« Reply #36 on: September 14, 2015, 04:03:43 PM »
http://seekingalpha.com/pr/14670096-equity-commonwealth-completes-three-additional-sales-for-261-million-total-dispositions-of-1_7-billion-year-to-date

Nice....love how they authorized a small buyback and executed almost all of it in less than a month, buying back 2.6% of shares.

The sales look good.

The upstate NY portfolio are small assets (numbered 90-99 in the supplemental). These have gross book of $119MM and net book of $112MM. They are selling for $105MM. 88% of gross and 93% of net book. Will reduce their building count by another 10 buildings. -$14MM hit to gross book

185 Asylum street getting sold for $113.3MM compared to gross of $78MM and net of $73MM, 144% of  gross book and 154% of net book! +$35MM increase to gross book

16th and Race getting sold for $43MM compared to $36MM gross and $43MM net, +$7MM

All in all we have another $233MM of gross book converted into $261MM of cash (minus broker commissions and other cost of selling).

The building count keeps dropping and the portfolio is getting cleaned up. Sales of the lower quality buildings have been executed in an orderly fashion and they appear to be receiving decent prices.
They are now buying back stock at a rapid rate and there is virtually no net debt. So far so good. 

EDIT: new presentation attached

EDIT: The one concerning thing is the very low print of $72/foot for the vacant One Franklin Plaza (16th and Race), former GlaxoSmithKline offices in Philly. They've been trying to sell this forever. EQC's largest concentration is in Philly (3.9MM square feet between 1500 market,1735 Market, and 1600 Market,1525 Locust). These have gross book of $551MM ($141 / sq. foot). They are nicely occupied and not vacant, but it shows you what can happen when shit hits the fan.

EDIT: If you update my basic calculation for share repo's and asset sales to cash and resulting decrease in annualized revenue, it's $5.53B EV for $1.6B of cash and buildings throwing off $302MM NOI ($542MM @ 56% NOI margin), implying a 7.7% cap rate.


http://www.bizjournals.com/philadelphia/blog/real-estate/2013/11/a-vacant-one-franklin-plaza-comes-up.html

« Last Edit: September 14, 2015, 04:51:50 PM by thepupil »

thepupil

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Re: EQC - Equity Commonwealth
« Reply #37 on: November 04, 2015, 01:46:27 PM »
http://finance.yahoo.com/news/equity-commonwealth-reports-third-quarter-211500409.html

They are not kidding around with the asset sales. Looks like they got decent, but not spectacular prices for the buildings they sold in October, 15% below gross book.

Cleaning up the portfolio nicely and VERY cash rich. Same story as before.
« Last Edit: November 04, 2015, 01:54:15 PM by thepupil »

Peregrino

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Re: EQC - Equity Commonwealth
« Reply #38 on: November 09, 2015, 04:28:29 PM »
I would argue that the risk/reward balance has shifted unfavorably post this most recent set of asset sales. 

Pre-Q3 call, I had agreed with you that the portfolio was trading at too wide a discount ie, you could buy a portfolio worth between a 5.7 and a 6.5% cap rate for over 8%, or put differently you paid fair value for the properties and got the cash for free. 

But now - unless they paid off some debt along with the sales - you are getting a portfolio worth between a 5.7 and a 6.7% cap rate for ~7.5% net of cash, so the spread between the two values has narrowed considerably. 

Looked at differently, the remaining properties are worth about $20/share at a 6.25% cap rate and 56% NOI margin on $519MM of revenues and you're getting $14/share of cash.  So at a price of $27/share, your ratio of up/downside is about equal (downside PT of $20/share from $27 today if the cash is squandered or cap rates start to back up, and PT of $34 of on the upside).

To get to a minimum ratio of upside to downside of 3x, you need to believe that the remaining properties should trade lower than a 5.75% cap rate and I just don't see that being realistic.

thepupil

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Re: EQC - Equity Commonwealth
« Reply #39 on: November 09, 2015, 05:28:02 PM »
Welcome Peregrino and thank you for your thoughts.

I have trimmed recently at prices between $27-29 and mid $30's is kind of where I'd think about exiting completely. My first shares were purchased below $23 and average cost is $24. I'm basically a "size back up"  at $25, a trim at $28-$29 and a seller in the mid $30's.

I don't disagree with anything you are saying about fair value except for maybe your downside feels a touch too punitive. $20 / share would be $2.5B. they have no net debt and $3.9B of gross book in real estate. I don't think they'll squander the cash. They will pay off the high cost debt and have been pretty deliberate about not overpaying for acquisitions... I'm not saying it isn't possible but  just not consistent with what we know of Zell and team and not consistent with what's happening so far.

As for  requiring 3:1 upside to downside...I agree it does not fit that criteria if your downside case is $20. I don't agree with $20, but that's what make a market.

I personally just think about the investment like this "in today's  real estate market this is probably worth low to mid $30's and there is no net debt so if the real estate market takes a turn I'm not going to lose my shirt" (and have excess capital and low leverage in the hands of a good team/dealmaker). There are sexier and more complex stories out there but this works for me. Could it be cheaper? yes.

 I trust the capital allocators at the helm to issue stock or converts if the stock gets too expensive and I trust them to buy back stock if it gets too cheap (which they've demonstrated they are willing  and capable of doing), so I'll probably be less enthusiastic about selling as it approaches fair value than I normally would be.
« Last Edit: November 09, 2015, 06:07:42 PM by thepupil »