Risk/reward on $EQC seems very interesting.
First, some history. In '14, Corvex and Related Companies engaged in an activist campaign and ousted the former mgmt of CommonWealth REIT and set the stage for Sam Zell and his CIO at Equity Group to take over the mgmt of EQC 1/n

At that time, CommonWealth was externally managed by a family run RE group that made questionable acquisitions & destroyed shareholder value. After the departure of the legacy management team, CommonWealth changed its name to Equity Commonwealth and became internally managed.

Since the Zell team took over, EQC disposed of 161 properties for ~$7B & repaid $2.3B of debt/preferreds, paid dividends of $734M, repurchased $245M of stock & build a war chest of $2.8B of cash for acquisitions. Last three years of selling activity:

EQC now owns only 4 properties that generate cash NOI of approx. $35M which are worth perhaps $5/share at a 5.75% cap rate. With net cash/share of $26.50 (85% of market cap) and $5 of real estate, EQC is essentially trading at book value which is almost all cash.

Basically, an investment in EQC is an investment in a fund managed by Zell and team that pays a 1% management fee (SG&A represents about 1% of market cap) and no carry that is sitting on tons of cash ahead of a commercial real estate downturn.

Zell's previous office REIT, Equity Office Properties (EOP,) generated a compounded return of over 17% from '97 until its sale to Blackstone in '07.

Equity Group's other REITs & their respective track records:
Equity Residential 1993-present, 11.2% CAGR vs 9.6% for DJ REIT Index
Equity Lifestyle 1993-present, 16.1% CAGR vs 9.8% for DJ REIT

It is impossible to forecast FFO/share for a cash rich REIT seeking acquisitions but we can look at hypothetical scenarios at various cap rates.

If EQC invests $3.1B of cash w/ incremental $1.4B of debt at an 8.5% cap rate, it would add over $2 of FFO/share and at an 18x multiple equates to $40 of value or $45 inclusive of existing assets.

Every 50 bps of favorable cap rate on the purchase price would equate to an incremental $3 of equity value such that EQC is a potential double if the average cap rate on acquired assets is 11%. This analysis ignores time value/discounting future cash flows.

EQC is a bet on Zell acquiring distressed RE assets at attractive prices. Although not significant relative to his net worth, Zell owns ~$100M of stock and CEO, David Helfand, owns $20M.

Book value shouldn't erode while we wait for capital to be put to work as NOI from existing properties plus interest income on the cash more than covers the G&A. In sum, it’s an asymmetric risk/reward with little downside to book value.

In some respects EQC is a hedge on a deteriorating macro environment. The biggest risk is opportunity cost / dead money for a substantial period. EQC mgmt. are patient investors – note they haven’t made a single acquisition since taking over in 2014.

There is a lot of dry powder waiting to be deployed in upcoming RE downturn so the opportunities may never present themselves to EQC? In this scenario, the opportunity cost becomes even greater. But overall a good risk/reward over next few years.

I welcome any feedback/comments.