Activist investor Jonathan Litt is calling on Equity Commonwealth to liquidate the four remaining office properties in its portfolio and return the cash to shareholders.
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Litt, whose Land & Buildings Investment Management has a 3% stake in Chicago-based Equity Commonwealth, says the REIT has materially underperformed other REITs in recent years, citing just over a 1% average return for shareholders over the past decade.
In a letter to Equity Commonwealth's board, Litt wrote that office asset values and fundamentals have no imminent recovery in sight, though some transactions are starting to happen. Meanwhile, interest rates are expected to go down later this year, meaning Equity Commonwealth's interest income is likely to suffer as well, creating what Litt called “an anchor” on the company.
The bottom line is that the company needs to offload office assets now, he wrote.
“One-off office sales are occurring with increased regularity, as evidenced by numerous transactions announced by public REITs this earnings season,” Litt wrote in the letter. “The time is right to sell the remaining office assets.”
The company’s office portfolio is made up of one building in Denver, another building in Washington, D.C., and two properties in Austin, Texas, according to The Wall Street Journal. It has a market value of $2B, less than the $2.2B of cash on hand held by Equity Residential, Litt wrote in his letter.
About 10 years ago, Equity Commonwealth's shareholders booted the company's entire board, with Sam Zell and David Helfand taking over. Zell was the board chairman until his death in 2023, while Helfand is still president and CEO today.
Litt said that the company needed to make that move a decade before to reset its direction, and now a similar shakeup is needed.
“A new round of shareholder advocacy is required now,” Litt said in a statement. “If the Board continues to take its current stance, we are committed to exercising our rights as shareholders to send a clear message about the need for immediate action that is in the best interests of shareholders, not management.”
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