EQC - Equity Commonwealth

[thepupil]

they are distributing a $440mm taxable gain (less whatever they can offset it with), let's just call it $3.00 / share.

if you hold in an IRA, that's worth $3.00 / share.

if you hold it in a taxable account that's worth $3.00*(1-tax rate on dividends*). there's no "return of captital" or decrease in basis component to this, at least there wasn't on last year's big divvy.

EQC is worth more to a tax exempt owner, than a taxable owner (as with any pass through entity that distributes taxable income), but particularly so given the big distributions and that they are return of NAV rather than a return on NAV.

if you manage a portfolio with different types of taxable and tax deferred accounts, you put the short duration special situations and things with big distro's in the tax deferred accounts.

*even worse if you pay state income tax!

KJP: this isn't so much a discount to NAV story (though I am more comfy owning it at discounts). it is a "buy a pile of cash at / slightly below NAV in order to get long the Zell deal option" story. Or a "sell 5-10% higher on sentiment in a month or less since this is oddly volatile for a cash pile" story.

[oscarazocar]

Isn't the $3 taxable dividend offset by a capital loss of the same amount, all else equal?  I realize there is a time-shifting issue there for LT holders, but it seems to me no net value destruction.

[bizaro86]

It just has a branding problem. What would they trade at if it was a Sam Zell SPAC and they distributed a 1/2 warrant to every common share?

[CorpRaider]

Isn't the $3 taxable dividend offset by a capital loss of the same amount, all else equal?  I realize there is a time-shifting issue there for LT holders, but it seems to me no net value destruction.

You're right, it's not destroyed, a portion is transmuted into F-35s and riot gear.

LOL Bizarro.  I was a little put off by the new SPAC, but saw it's focused outside RE (and finance?).  I don't think he has done so well outside of RE...has he? 

[thepupil]

Isn't the $3 taxable dividend offset by a capital loss of the same amount, all else equal?  I realize there is a time-shifting issue there for LT holders, but it seems to me no net value destruction.

I had not thought about it like this.

i think my overall point stands (short duration / capital return / potential flips/trades go in the IRA), but I admit the tI hadn't thought about it like that.

you are saying the dividend reduces the overall value of the REIT and hence your eventual sale price, so you'll get $3 less in stock px when you sell and that will reduce your gain/increase your loss by $3, right?

[oscarazocar]

Correct.

There is an obvious arbitrage here where if the capital gains rate is higher than the dividend rate, one captures a spread by receiving the dividend and then selling the stock to lock in the short-term capital loss.  The qualified dividends rules exist to close that loophole, and mandate that to receive the qualified dividends tax rate, one has to hold the stock for 61 days in a 121 day period around the ex-dividend date.

[thepupil]

 

Equity Commonwealth Declares Special Cash Distribution of $3.50 Per Common Share
Business Wire
CHICAGO -- September 16, 2020
Equity Commonwealth (NYSE: EQC) announced today that its Board of Trustees has declared a special, one-time cash distribution of $3.50 per common share which will be paid on October 20, 2020 to shareholders of record on October 1, 2020.
The company currently expects the tax character of the 2020 special cash distribution to be largely capital gain. The company cannot provide any assurances that its current expectations will prove to be accurate. The actual tax characterization will be based on the company’s results of operations for the full year 2020. The company currently expects to announce the tax characterization of the 2020 distribution with its normal tax reporting in January 2021.

[thepupil]

down 4% since re-entering (maybe people don't like the new chairwoman or think it signals a deal isn't near?).

as recent VIC pitch notes, $29 = cash + remaining real estate at a 10 cap, $30 = cash + remaining at an 8.5 cap.

since it sold off by 4% and we now know that $3.50 (11.5% of market cap) will be returned, I would say downside has decreased.

Zell SPAC w/ no warrant dilution/founder's shares, with a multi-billion pile of cash.

downsides: not a SPAC in that no deal approval required, downside is not truly floored at NAV. unlimited time/will just sit and pay G&A unless they do a deal.

if you think there will be interesting opportunities in real estate, but want to outsource to Sam and Equity Group, this seems like very low downside optionality.

buying more.

[BG2008]

down 4% since re-entering (maybe people don't like the new chairwoman or think it signals a deal isn't near?).

as recent VIC pitch notes, $29 = cash + remaining real estate at a 10 cap, $30 = cash + remaining at an 8.5 cap.

since it sold off by 4% and we now know that $3.50 (11.5% of market cap) will be returned, I would say downside has decreased.

Zell SPAC w/ no warrant dilution/founder's shares, with a multi-billion pile of cash.

downsides: not a SPAC in that no deal approval required, downside is not truly floored at NAV. unlimited time/will just sit and pay G&A unless they do a deal.

if you think there will be interesting opportunities in real estate, but want to outsource to Sam and Equity Group, this seems like very low downside optionality.

buying more.

Equity Commonwealth Should be renamed "Zell Special Purpose Acquisition Corporation" and buy JGB Smith and rename it the "Amazon Real Asset Growth Hacking Vehicle (technically not lying and more sincere than towing a truck prototype up a hill)"   

70% pop guaranteed!

[merkhet]

down 4% since re-entering (maybe people don't like the new chairwoman or think it signals a deal isn't near?).

as recent VIC pitch notes, $29 = cash + remaining real estate at a 10 cap, $30 = cash + remaining at an 8.5 cap.

since it sold off by 4% and we now know that $3.50 (11.5% of market cap) will be returned, I would say downside has decreased.

Zell SPAC w/ no warrant dilution/founder's shares, with a multi-billion pile of cash.

downsides: not a SPAC in that no deal approval required, downside is not truly floored at NAV. unlimited time/will just sit and pay G&A unless they do a deal.

if you think there will be interesting opportunities in real estate, but want to outsource to Sam and Equity Group, this seems like very low downside optionality.

buying more.

Equity Commonwealth Should be renamed "Zell Special Purpose Acquisition Corporation" and buy JGB Smith and rename it the "Amazon Real Asset Growth Hacking Vehicle (technically not lying and more sincere than towing a truck prototype up a hill)"   

70% pop guaranteed!

LOL