EQC - Equity Commonwealth

[thepupil]

It is up to one to decide which risk one prefers to avoid: the risk of missing a “deal pop” or the risk of holding this and it doing nothing.

For someone like my parents retirement portfolio which is <70% stocks and <100% gross, a slug of this in place of cash/bonds doesn’t detract too much from the safety of the portfolio and offers som optionality.

For me, I just fund it with a touch of margin and don’t worry about it (it’s also 100% of my HSA right now, which maybe I don’t want in stocks right now).

I don’t mean to say that this is riskless, but this fell 15% from its absolute peak to absolute trough in the first part of 2020. It is a low risk instrument; arguably its value increases in bad times (though people will sell it for liquidity)

[valueinvestor]

It is up to one to decide which risk one prefers to avoid: the risk of missing a “deal pop” or the risk of holding this and it doing nothing.

For someone like my parents retirement portfolio which is <70% stocks and <100% gross, a slug of this in place of cash/bonds doesn’t detract too much from the safety of the portfolio and offers som optionality.

For me, I just fund it with a touch of margin and don’t worry about it (it’s also 100% of my HSA right now, which maybe I don’t want in stocks right now).

I don’t mean to say that this is riskless, but this fell 15% from its absolute peak to absolute trough in the first part of 2020. It is a low risk instrument; arguably its value increases in bad times (though people will sell it for liquidity)

Hey, I get it - but many are purchasing because the thesis is simple, safe, and/or because of Sam, and yet there's a huge key-man risk. He's not young and in a worldwide pandemic - I do not wish for it but he could get ill and possibly worse. What would the value of the stock be then?

It's the same with Tesla but with a lot more downside risk. Doesn't seem that he's doing much succession planning, like Elon.

It's not a stock in my view that's inherently safe as cash, hence not that great of an instrument.

[thepupil]

Equity Group is more than Sam Zell. The CEO of EQC (Helfand) was Equity Office Properties CIO, CEO of ELS, and has worked with Mr Z for 28 years, so I imagine he’s not dumb.

https://www.egizell.com/people/

 It’s definitely not cash in the purest form; cash didn’t fall 15% in March and cash can’t go up 20 % when it merges with Mack Cali in a deleveraging transaction (I don’t think that will happen, but it’s been speculated)

It has net cash of about $23.5/share and $2.9-$4.8/ share of building depending on your cap rate (6-10%), so it’s anywhere from a 4% discount to NAV (6 cap) and a 3% premium (10 cap) and then you have the sentiment swings that will lead to minor trading gains/losses before deal/liquidation, and like I said you don’t have the 18-24m shot clock like a SPAC.

I think if Zell got hit by a bus one would not impair capital in this. Maybe a one day 5-10% down followed by a recovery. Just my 2 cents. IIRC there have been some CC’s where Zell doesn’t even go on.
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[valueinvestor]

I agree with you - just think the market may not for a very long time. There's no way of knowing - secondly as an alternative to cash I would rather put into income-producing assets or hold straight cash. As you mentioned - it went down 15% during the Coronavirus when it didn't affect the business in any way. The same can go for Sam's inevitable but unwelcome passing. Will there be a pop? Maybe. But I think there's plenty of time to purchase the stock after the acquisition, especially during the digestion/integration of the acquisition.

By and large, I agree with your thesis, I wanted to provide an alternative view on the stock. The bears are not thinking the stock will go down, it just may be flat for a long time.

[thepupil]

Ya I think we agree here.

[CorpRaider]

I'm getting bored/annoyed with it, so it's probably due for a rip. 

I will say Zell often notes how he's the "ideas guy" who keeps his door open to his office.   

It seems to me his main idea is buy under managed real estate below replacement cost (and maybe stick to not fourth tier markets) and then sell same if it vastly exceeds replacement cost and a bunch of supply is obviously coming.  I also think he's honest and a straight shooter.  I would bet his people have picked up most of these ideas.

[Broeb22]

Equity Group is more than Sam Zell. The CEO of EQC (Helfand) was Equity Office Properties CIO, CEO of ELS, and has worked with Mr Z for 28 years, so I imagine he’s not dumb.

https://www.egizell.com/people/

 It’s definitely not cash in the purest form; cash didn’t fall 15% in March and cash can’t go up 20 % when it merges with Mack Cali in a deleveraging transaction (I don’t think that will happen, but it’s been speculated)

It has net cash of about $23.5/share and $2.9-$4.8/ share of building depending on your cap rate (6-10%), so it’s anywhere from a 4% discount to NAV (6 cap) and a 3% premium (10 cap) and then you have the sentiment swings that will lead to minor trading gains/losses before deal/liquidation, and like I said you don’t have the 18-24m shot clock like a SPAC.

I think if Zell got hit by a bus one would not impair capital in this. Maybe a one day 5-10% down followed by a recovery. Just my 2 cents. IIRC there have been some CC’s where Zell doesn’t even go on.
.

Equity is more Sam Zell? Ok, who? Who’s going to own selling everything you own and sitting on cash for years while Bruce Flatt and Blackstone are buying tens of billions annually? Liberty has Greg Maffei, IAC has Joey Levin, WEB has Ted, Todd, Ajit, and Greg. Who’s going to take the heat for the entire organization when they’re doing very little?

[thepupil]

they have an experienced management team that costs a pretty penny.

Part of the bear case is that EQC exists to take care of Zell's trusted consiglieri so I don't fully understand the pushback on key man risk being particularly high here.

they have overbuilt the company. it's just as developed/experienced as, if not more so than many SPACs and opportunistic PE funds (the relevant comps) or some dude buying portfolios for a distressed credit fund / multistrat fund.

the same DNA that built EQR, ELS, and top ticked EOP, is there and I'd argue it's more than Sam Zell, but i guess that's what makes a market. I doubt Zell is the one actually doing all the work, and probably hasn't been doing the nitty gritty for decades. Do I like EQC with his wisdom more than without. yes, absolutely.

i think this management team deserves trust. since they've taken over, they've done nothing but sell assets at or above NAV, return capital to shareholders, and patiently wait for something. They were rumored buyers of FCE (and in fact bought the stock on the open market), but BAM beat them out. We know with hindsight that would have been a home run because BAM has since exited FCE's life science portfolio at a ginormous markup. They have been a seller of assets since 2014 and the office REIT index has returned 0-2% since then depending on when you start generally, again depending on where you start EQC has returned mid single digits, in line with REIT index, all while going from levered to a cash pile. did i expect better, surely! but anyone who's just bought and held EQC since 2013 (without trading around or having realistic expectations*) would deserve their mid single digit return and hasn't been paying enough attention. they never set a timeline and have been pretty transparent throughout.

the opportunity cost of carrying this in a zero interest rate environment is quite low (unless you have an absolute no margin policy or something like that). it's a publicly traded real estate opportunity fund where you have to pay the commitment upfront; in exchange for that, there's better economics (vs paying on committed capital + incentive fee etc) and one click liquidity.

feel free to peruse the proxy
https://www.bamsec.com/filing/114036120009688?cik=803649

or read the bios
https://www.egizell.com/people/

or read about their other investments
https://www.egizell.com/portfolio/

*read the progression of the thread, many opportunities to size up/down or get in/out entirely along the way.