August 14, 2018
VIA EDGAR
Mr. Robert F. Telewicz Jr.
Branch Chief
United States Securities and Exchange Commission
Division of Corporate Finance
Office of Real Estate and Commodities, Mailstop 3233
100 F Street, N.E.
Washington, D.C. 20549
Re: Equity Commonwealth (the “Company”)
Form 10-K for the fiscal year ended December 31, 2017
Filed February 15, 2018 (the “Filing”)
File No. 001-09317
Dear Mr. Telewicz:
The Company is writing in response to your letter dated August 2, 2018. For your convenience, your original comment appears below in italicized text and is followed by the Company’s response.
Form 10-K for fiscal year ended December 31, 2017
Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview, page 27
1. We note your disclosure that as a result of your repositioning strategy you evaluated each of the real estate assets in your portfolio for impairment. We note similar disclosure included in your Form 10-K for the period ended December 31, 2015. Please explain to us why you have continued to recognize impairment charges in 2016, 2017 and 2018 if your entire portfolio was evaluated for impairment in 2015 in light of your repositioning strategy.
Company Response: The Company reviews its properties for impairment quarterly, or whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. For the information of the staff, page F-11 of the 2017 Annual Report on Form 10-K discusses this policy.
In December of 2016, our Board of Trustees adopted an office repositioning strategy. Prior to that time, the Company was executing on its disposition strategy, which our Board of Trustees implemented in October 2014 upon internalizing our management structure.
When performing our impairment analysis, we compare the current carrying value of the asset to the estimated undiscounted cash flows that are directly associated with the use and ultimate disposition of the asset. Our estimated cash flows are based on several key assumptions, including rental rates, costs
Mr. Robert F. Telewicz Jr.
August 14, 2018
of tenant improvements, leasing commissions and assumptions regarding the residual value upon disposition, including the exit capitalization rate. These key assumptions are subjective in nature and could differ materially from actual results. In conjunction with the Company’s disposition strategy, our estimated holding periods are updated from time-to-time based upon a multitude of factors, such as solicited/unsolicited offers, broker opinions of value, other dispositions in the same or nearby markets, leasing activity and significant tenant losses. Updated market information and holding periods are then considered when conducting the impairment analyses and have resulted in impairments taken subsequent to December 31, 2015.
2. For each impaired property in 2016, 2017 and 2018, tell us the holding period assumed for the property in your impairment analysis performed in 2015 and the rationale behind that holding period given your repositioning strategy.
Company Response: As noted in our response # 1, our estimated holding periods are updated from time to time based upon a multitude of factors such as solicited/unsolicited offers, broker opinions of value, other dispositions in the same or nearby markets, leasing activity and significant tenant losses. These estimated holding periods generally range from 1-20 years. In light of the Company’s disposition strategy, the Company assumed shorter holding periods for certain properties. The holding periods and rationale for those holding periods assumed as of December 31, 2015 for each property impaired subsequent to December 31, 2015 are outlined in the table below:
2-year holding period- See Note 1 below for details.
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Property |
City, State |
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111 Monument Circle |
Indianapolis, Indiana |
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101-115 W. Washington Street |
Indianapolis, Indiana |
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100 East Wisconsin Avenue |
Milwaukee, Wisconsin |
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111 Market Place |
Baltimore, Maryland |
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25 S. Charles Street |
Baltimore, Maryland |
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820 W. Diamond |
Gaithersburg, Maryland |
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2250 Pilot Knob Road |
Mendota Heights, Minnesota |
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411 Farwell Avenue |
South St. Paul, Minnesota |
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Danac Stiles Business Park |
Rockville, Maryland |
4-year holding period- See Note 2 below for details.
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Property |
City, State |
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625 Crane Street |
Aurora, Illinois |
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Cabot Business Park Land |
Mansfield, Massachusetts |
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4700 Belleview Avenue |
Kansas City, Missouri |
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777 East Eisenhower Parkway |
Ann Arbor, Michigan |
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97 Newberry Road |
East Windsor, Connecticut |
Mr. Robert F. Telewicz Jr.
August 14, 2018
20-year holding period- See Note 3 below for details.
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Property |
City, State |
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Parkshore Plaza |
Folsom, California |
Note 1: 2-year holding period for properties classified as ready to market on the Company’s disposition pipeline report.
Note 2: 4-year holding period for properties classified as under consideration on the Company’s disposition pipeline report.
Note 3: 20-year holding period for properties not considered to be sales candidates as of December 31, 2015. Parkshore Plaza was in the midst of a repositioning that entailed converting a single-tenant building into a multi-tenant building. Additionally, the property was encumbered by a mortgage loan that included a parent guarantee. It was assumed at the time these issues would take considerable time to resolve.
The Company appreciates your comments and welcomes the opportunity to discuss with you the responses provided above. Please call me at 312-646-2839 if you have any questions or require additional information.
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Sincerely, | |
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Equity Commonwealth | |
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By: |
/s/ Adam Markman |
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Adam Markman |
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Treasurer & Chief Financial Officer |