0000803649-19-000071.txt : 20190731 0000803649-19-000071.hdr.sgml : 20190731 20190731162413 ACCESSION NUMBER: 0000803649-19-000071 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20190731 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190731 DATE AS OF CHANGE: 20190731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Equity Commonwealth CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09317 FILM NUMBER: 19989084 BUSINESS ADDRESS: STREET 1: TWO NORTH RIVERSIDE PLAZA STREET 2: SUITE 2100 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 312.646.2800 MAIL ADDRESS: STREET 1: TWO NORTH RIVERSIDE PLAZA STREET 2: SUITE 2100 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: CommonWealth REIT DATE OF NAME CHANGE: 20100702 FORMER COMPANY: FORMER CONFORMED NAME: HRPT PROPERTIES TRUST DATE OF NAME CHANGE: 19980701 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST DATE OF NAME CHANGE: 19940811 8-K 1 eqc630198kearnings.htm 8-K Document
 




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): July 31, 2019

EQUITY COMMONWEALTH
(Exact Name of Registrant as Specified in Its Charter)

Maryland
(State or Other Jurisdiction of Incorporation)
 
1-9317
 
04-6558834
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
Two North Riverside Plaza,
Suite 2100, Chicago, IL
 

60606
(Address of Principal Executive Offices)
 
(Zip Code)
(312) 646-2800
(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title Of Each Class
 
Trading Symbol
 
Name of Each Exchange On Which Registered
Common Shares of Beneficial Interest
 
EQC
 
New York Stock Exchange
6 1/2% Series D Cumulative Convertible Preferred Shares of Beneficial Interest
 
EQCpD
 
New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
 
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o









Item 2.02. Results of Operations and Financial Condition.
On July 31, 2019, Equity Commonwealth, or the Company, issued a press release setting forth the Company’s results of operations and financial condition for the quarter ended June 30, 2019, and also provided certain supplemental operating and financial data for the quarter ended June 30, 2019.  Copies of the Company’s press release and supplemental operating and financial data are furnished as Exhibits 99.1 and 99.2 hereto, respectively.
Item 9.01.  Financial Statements and Exhibits.
(d)          Exhibits
99.1         Press Release Dated July 31, 2019.



2




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
EQUITY COMMONWEALTH
 
By:
/s/ Adam S. Markman
 
Name:
Adam S. Markman
 
Title:
Executive Vice President, Chief
 
 
Financial Officer and Treasurer
Date: July 31, 2019




EX-99.1 2 eqc63019ex991.htm EXHIBIT 99.1 Exhibit
Exhibit 99.1

earningslogoa18.jpg
Two North Riverside Plaza, Suite 2100, Chicago, Illinois 60606

            
Equity Commonwealth Reports Second Quarter 2019 Results

Chicago - July 31, 2019 - Equity Commonwealth (NYSE: EQC) today reported financial results for the quarter ended June 30, 2019. All per share results are reported on a diluted basis.

Financial results for the quarter ended June 30, 2019
Net income attributable to common shareholders was $240.3 million, or $1.93 per share, for the quarter ended June 30, 2019. This compares to net income attributable to common shareholders of $35.0 million, or $0.29 per share, for the quarter ended June 30, 2018. The increase in net income was primarily due to gains from property sales.

Funds from Operations (FFO), as defined by the National Association of Real Estate Investment Trusts, for the quarter ended June 30, 2019, were $20.5 million, or $0.17 per share. This compares to FFO for the quarter ended June 30, 2018 of $20.8 million, or $0.17 per share. The following items impacted FFO for the quarter ended June 30, 2019, compared to the corresponding 2018 period:
($0.08) per share of decrease in income from properties sold;
($0.04) per share of loss on early extinguishment of debt;
$0.07 per share of increase in interest and other income;
$0.03 per share of increase in same property NOI; and
$0.02 per of share of interest expense savings.

Normalized FFO was $27.2 million, or $0.22 per share. This compares to Normalized FFO for the quarter ended June 30, 2018 of $20.8 million, or $0.17 per share. The following items impacted Normalized FFO for the quarter ended June 30, 2019, compared to the corresponding 2018 period:
($0.08) per share of decrease in income from properties sold;
$0.07 per share of increase in interest and other income;
$0.03 per share of increase in same property cash NOI and termination income; and
$0.02 per share of interest expense savings.

Normalized FFO begins with FFO and eliminates certain items that we view as nonrecurring or impacting comparability from period to period. Definitions of FFO, Normalized FFO and reconciliations to net income, determined in accordance with U.S. generally accepted accounting principles, or GAAP, are included at the end of this press release.

For the quarter ended June 30, 2019, the company’s cash balance was $3.2 billion. Total debt outstanding was $26.1 million.

The weighted average number of diluted common shares outstanding when calculating net income per share for the quarter ended June 30, 2019 was 125,862,172 shares, compared to 122,649,382 for the quarter ended June 30, 2018. The weighted average number of diluted common shares outstanding when calculating FFO or Normalized FFO per share for the quarter ended June 30, 2019 was 123,344,972 shares, compared to 122,692,289 for the quarter ended June 30, 2018.

Same property results for the quarter ended June 30, 2019
The companys same property portfolio at the end of the quarter consisted of 7 properties totaling 2.5 million square feet. Operating results were as follows:
The same property portfolio was 90.5% leased as of June 30, 2019, compared to 92.0% as of March 31, 2019, and 92.0% as of June 30, 2018.

1


The same property portfolio commenced occupancy was 89.7% as of June 30, 2019, compared to 91.1% as of March 31, 2019, and 88.5% as of June 30, 2018.
Same property NOI increased 22.5% when compared to the same period in 2018.
Same property cash NOI increased 11.0% when compared to the same period in 2018.
The company entered into leases for approximately 58,000 square feet, including new leases for approximately 15,000 square feet and renewal leases for approximately 43,000 square feet.
GAAP rental rates on new and renewal leases were 14.5% higher compared to prior GAAP rental rates for the same space.
Cash rental rates on new and renewal leases were 9.1% higher compared to prior cash rental rates for the same space.

The definitions and reconciliations of same property NOI and same property cash NOI to net income, determined in accordance with GAAP, are included at the end of this press release. The same property portfolio includes properties continuously owned from April 1, 2018 through June 30, 2019 and excludes properties sold or classified as held for sale at the end of the period.

Significant events during the quarter ended June 30, 2019
The company redeemed, on June 28, 2019, all $250 million of its 5.875% Senior Unsecured Notes due September 15, 2020.
The company sold 600 108th Avenue NE in Bellevue, WA, for a gross price of $195 million. The property includes a 254,510 square foot office building and additional development rights.
The company sold Research Park in Austin, TX, for a gross price of $165.5 million. The asset includes a 1,100,000 square foot flex property on 188 acres.

Earnings Conference Call & Supplemental Data
Equity Commonwealth will host a conference call to discuss second quarter results on Thursday, August 1, 2019, at 9:00 A.M. CDT. The conference call will be available via live audio webcast on the Investor Relations section of the companys website (www.eqcre.com). A replay of the audio webcast will also be available following the call.

A copy of EQCs Second Quarter 2019 Supplemental Operating and Financial Data is available on the Investor Relations section of EQCs website at www.eqcre.com.

About Equity Commonwealth
Equity Commonwealth (NYSE: EQC) is a Chicago based, internally managed and self-advised real estate investment trust (REIT) with commercial office properties in the United States. As of July 31, 2019, EQCs portfolio comprised 7 properties and 2.5 million square feet.

Regulation FD Disclosures
We intend to use any of the following to comply with our disclosure obligations under Regulation FD: press releases, SEC filings, public conference calls, or our website. We routinely post important information on our website at www.eqcre.com, including information that may be deemed to be material. We encourage investors and others interested in the company to monitor these distribution channels for material disclosures.

Forward-Looking Statements
Some of the statements contained in this press release constitute forward-looking statements within the meaning of the federal securities laws including, but not limited to, statements pertaining to the marketing of certain properties for sale, consummating any sales, and future share repurchases. Any forward-looking statements contained in this press release are intended to be made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as may, will, should, expects, intends, plans, anticipates, believes, estimates, predicts, or potential or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

2



The forward-looking statements contained in this press release reflect the company’s current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause the company’s actual results to differ significantly from those expressed in any forward-looking statement. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause the company’s future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in the company’s Annual Report on Form 10-K for the year ended December 31, 2018.



Contact:
Sarah Byrnes, Investor Relations
(312) 646-2801
ir@eqcre.com









    




3

CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)


 
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
85,627

 
$
135,142

Buildings and improvements
571,342

 
1,004,500

 
656,969

 
1,139,642

Accumulated depreciation
(193,166
)
 
(375,968
)
 
463,803

 
763,674

Acquired real estate leases, net
92

 
275

Cash and cash equivalents
3,180,548

 
2,400,803

Marketable securities

 
249,602

Restricted cash
2,310

 
3,298

Rents receivable
19,735

 
51,089

Other assets, net
35,683

 
62,031

Total assets
$
3,702,171

 
$
3,530,772

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Senior unsecured debt, net
$

 
$
248,473

Mortgage notes payable, net
26,091

 
26,482

Accounts payable, accrued expenses and other
36,903

 
62,368

Rent collected in advance
3,554

 
9,451

Total liabilities
$
66,548

 
$
346,774

 
 
 
 
Shareholders' equity:
 
 
 
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;
 
 
 
Series D preferred shares; 6 1/2% cumulative convertible; 4,915,196 shares issued and outstanding, aggregate liquidation preference of $122,880
$
119,263

 
$
119,263

Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 121,922,120 and 121,572,155 shares issued and outstanding, respectively
1,219

 
1,216

Additional paid in capital
4,308,049

 
4,305,974

Cumulative net income
3,323,778

 
2,870,974

Cumulative other comprehensive loss

 
(342
)
Cumulative common distributions
(3,420,406
)
 
(3,420,548
)
Cumulative preferred distributions
(697,730
)
 
(693,736
)
Total shareholders’ equity
3,634,173

 
3,182,801

Noncontrolling interest
1,450

 
1,197

Total equity
$
3,635,623

 
$
3,183,998

Total liabilities and equity
$
3,702,171

 
$
3,530,772



4

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)



 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Rental revenue
$
30,574

 
$
45,569

 
$
69,464

 
$
100,842

Other revenue
2,794

 
3,067

 
5,656

 
6,382

Total revenues
$
33,368

 
$
48,636

 
$
75,120

 
$
107,224

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operating expenses
$
10,974

 
$
19,521

 
$
26,754

 
$
44,120

Depreciation and amortization
7,561

 
13,021

 
16,146

 
26,924

General and administrative
9,533

 
11,222

 
21,629

 
24,561

Loss on asset impairment

 

 

 
12,087

Total expenses
$
28,068

 
$
43,764

 
$
64,529

 
$
107,692

 
 
 
 
 
 
 
 
Interest and other income, net
20,695

 
12,668

 
38,470

 
18,448

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $154, $645, $319 and $1,446, respectively)
(4,070
)
 
(6,350
)
 
(8,276
)
 
(16,465
)
Loss on early extinguishment of debt
(6,374
)
 
(1,536
)
 
(6,374
)
 
(6,403
)
Gain on sale of properties, net
227,166

 
26,937

 
420,203

 
232,148

Income before income taxes
242,717

 
36,591

 
454,614

 
227,260

Income tax (expense) benefit
(340
)
 
456

 
(1,640
)
 
(2,551
)
Net income
$
242,377

 
$
37,047

 
$
452,974

 
$
224,709

Net income attributable to noncontrolling interest
(91
)
 
(14
)
 
(170
)
 
(77
)
Net income attributable to Equity Commonwealth
$
242,286

 
$
37,033

 
$
452,804

 
$
224,632

Preferred distributions
(1,997
)
 
(1,997
)
 
(3,994
)
 
(3,994
)
Net income attributable to Equity Commonwealth common shareholders
$
240,289

 
$
35,036

 
$
448,810

 
$
220,638

Weighted average common shares outstanding — basic (1)
122,122

 
121,822

 
122,041

 
122,839

Weighted average common shares outstanding — diluted (1)
125,862

 
122,649

 
125,841

 
126,027

 
 
 
 
 
 
 
 
Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
1.97

 
$
0.29

 
$
3.68

 
$
1.80

Diluted
$
1.93

 
$
0.29

 
$
3.60

 
$
1.78

 
 
 
 
 
 
 
 
Certain reclassifications were made to conform the prior period to our presentation of the condensed consolidated statements of operations due to the impact of adopting ASU 2016-02.  Amounts that were previously disclosed as "Tenant reimbursements and other income" are now included in "Rental revenue" and are no longer presented as a separate line item.  Parking revenues that do not represent components of leases and were previously disclosed as "Rental income" are now included in "Other revenue."  Subsequent to January 1, 2019, provisions for credit losses are included in "Rental revenue."  Provisions for credit losses prior to January 1, 2019 were disclosed as "Operating expenses" and were not reclassified to conform prior periods to the current presentation.
(1)
Weighted average common shares outstanding for the three months ended June 30, 2019 and 2018 includes 220 and 362 unvested, earned RSUs, respectively. Weighted average common shares outstanding for the six months ended June 30, 2019 and 2018 includes 203 and 335 unvested, earned RSUs, respectively.

5

CALCULATION OF FUNDS FROM OPERATIONS (FFO) AND NORMALIZED FFO
(amounts in thousands, except per share data)


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Calculation of FFO
 
 
 
 
 
 
 
Net income
$
242,377

 
$
37,047

 
$
452,974

 
$
224,709

Real estate depreciation and amortization
7,283

 
12,717

 
15,560

 
26,320

Loss on asset impairment

 

 

 
12,087

Gain on sale of properties, net
(227,166
)
 
(26,937
)
 
(420,203
)
 
(232,148
)
FFO attributable to Equity Commonwealth
22,494

 
22,827

 
48,331

 
30,968

Preferred distributions
(1,997
)
 
(1,997
)
 
(3,994
)
 
(3,994
)
FFO attributable to EQC common shareholders and unitholders
$
20,497

 
$
20,830

 
$
44,337

 
$
26,974

 
 
 
 
 
 
 
 
Calculation of Normalized FFO
 
 
 
 
 
 
 
FFO attributable to EQC common shareholders and unitholders
$
20,497

 
$
20,830

 
$
44,337

 
$
26,974

Lease value amortization
(39
)
 
(18
)
 
(78
)
 
80

Straight line rent adjustments
(11
)
 
(1,022
)
 
(848
)
 
(2,550
)
Loss on early extinguishment of debt
6,374

 
1,536

 
6,374

 
6,403

Loss on sale of securities

 

 

 
4,987

Income taxes related to gains on property sales, net
415

 
(496
)
 
565

 
2,473

Normalized FFO attributable to EQC common shareholders and unitholders
$
27,236

 
$
20,830

 
$
50,350

 
$
38,367

 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding -- basic (1)
122,168

 
121,865

 
122,087

 
122,882

Weighted average common shares and units outstanding -- diluted (1)
123,345

 
122,692

 
123,324

 
123,707

 
 
 
 
 
 
 
 
FFO attributable to EQC common shareholders and unitholders per share and unit -- basic & diluted
$
0.17

 
$
0.17

 
$
0.36

 
$
0.22

Normalized FFO attributable to EQC common shareholders and unitholders per share and unit -- basic & diluted
$
0.22

 
$
0.17

 
$
0.41

 
$
0.31

(1)
Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the three months ended June 30, 2019 and 2018 include 46 and 43 LTIP/Operating Partnership Units, respectively, that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only). Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the six months ended June 30, 2019 and 2018 include 46 and 43 LTIP/Operating Partnership Units, respectively, that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only).





6



We compute FFO in accordance with standards established by NAREIT. NAREIT defines FFO as net income (loss), calculated in accordance with GAAP, excluding real estate depreciation and amortization, gains (or losses) from sales of depreciable property, impairment of depreciable real estate, and our portion of these items related to equity investees and noncontrolling interests.  Our calculation of Normalized FFO differs from NAREIT’s definition of FFO because we exclude certain items that we view as nonrecurring or impacting comparability from period to period.  FFO and Normalized FFO are supplemental non-GAAP financial measures. We consider FFO and Normalized FFO to be appropriate measures of operating performance for a REIT, along with net income (loss), net income (loss) attributable to EQC common shareholders, and cash flow from operating activities.
 
We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs.  FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income (loss), net income (loss) attributable to EQC common shareholders, or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs.  These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders, and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.




7

CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)


 
For the Three Months Ended
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
 
 
 
 
 
 
Rental revenue
$
30,574

 
$
38,890

 
$
39,756

 
$
43,770

 
$
45,569

Other revenue
2,794

 
2,862

 
3,169

 
3,103

 
3,067

Operating expenses
(10,974
)
 
(15,780
)
 
(15,539
)
 
(20,257
)
 
(19,521
)
NOI
$
22,394

 
$
25,972

 
$
27,386

 
$
26,616

 
$
29,115

Straight line rent adjustments
(11
)
 
(837
)
 
(986
)
 
(1,435
)
 
(1,022
)
Lease value amortization
(39
)
 
(39
)
 
(22
)
 
(4
)
 
(18
)
Lease termination fees
(2,188
)
 

 
(19
)
 
(395
)
 
(1,557
)
Cash Basis NOI
$
20,156

 
$
25,096

 
$
26,359

 
$
24,782

 
$
26,518

Cash Basis NOI from non-same properties (1)
(2,666
)
 
(7,853
)
 
(10,273
)
 
(8,756
)
 
(10,767
)
Same Property Cash Basis NOI
$
17,490

 
$
17,243

 
$
16,086

 
$
16,026

 
$
15,751

Non-cash rental income and lease termination fees from same properties
1,950

 
(165
)
 
(137
)
 
(180
)
 
113

Same Property NOI
$
19,440

 
$
17,078

 
$
15,949

 
$
15,846

 
$
15,864

 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to GAAP Net Income:
 
 
 
 
 
 
 
 
 
Same Property NOI
$
19,440

 
$
17,078

 
$
15,949

 
$
15,846

 
$
15,864

Non-cash rental income and lease termination fees from same properties
(1,950
)
 
165

 
137

 
180

 
(113
)
Same Property Cash Basis NOI
$
17,490

 
$
17,243

 
$
16,086

 
$
16,026

 
$
15,751

Cash Basis NOI from non-same properties (1)
2,666

 
7,853

 
10,273

 
8,756

 
10,767

Cash Basis NOI
$
20,156

 
$
25,096

 
$
26,359

 
$
24,782

 
$
26,518

Straight line rent adjustments
11

 
837

 
986

 
1,435

 
1,022

Lease value amortization
39

 
39

 
22

 
4

 
18

Lease termination fees
2,188

 

 
19

 
395

 
1,557

NOI
$
22,394

 
$
25,972

 
$
27,386

 
$
26,616

 
$
29,115

Depreciation and amortization
(7,561
)
 
(8,585
)
 
(10,830
)
 
(11,287
)
 
(13,021
)
General and administrative
(9,533
)
 
(12,096
)
 
(8,973
)
 
(10,905
)
 
(11,222
)
Interest and other income, net
20,695

 
17,775

 
15,741

 
12,626

 
12,668

Interest expense
(4,070
)
 
(4,206
)
 
(5,035
)
 
(5,085
)
 
(6,350
)
Loss on early extinguishment of debt
(6,374
)
 

 
(719
)
 

 
(1,536
)
Gain (loss) on sale of properties, net
227,166

 
193,037

 
(1,608
)
 
20,877

 
26,937

Income before income taxes
$
242,717

 
$
211,897

 
$
15,962

 
$
32,842

 
$
36,591

Income tax (expense) benefit
(340
)
 
(1,300
)
 
(540
)
 
(65
)
 
456

Net income
$
242,377

 
$
210,597

 
$
15,422

 
$
32,777

 
$
37,047

 
 
 
 
 
 
 
 
 
 
Same Property capitalized external legal costs(2)
N/A

 
N/A

 
$

 
$
14

 
$
75


(1
)
Cash Basis NOI from non-same properties for all periods presented includes the operations of properties disposed or classified as held for sale at the end of the period.
(2
)
Effective January 1, 2019, with the adoption of ASU 2016-02, we no longer capitalize external legal costs incurred when we enter into leases. We did not recast the comparative prior periods presented for the external legal leasing costs capitalized in those periods.



8

CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)


 
For the Six Months Ended June 30,
 
2019
 
2018
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
Rental revenue
$
69,464

 
$
100,842

Other revenue
5,656

 
6,382

Operating expenses
(26,754
)
 
(44,120
)
NOI
$
48,366

 
$
63,104

Straight line rent adjustments
(848
)
 
(2,550
)
Lease value amortization
(78
)
 
80

Lease termination fees
(2,188
)
 
(2,522
)
Cash Basis NOI
$
45,252

 
$
58,112

Cash Basis NOI from non-same properties (1)
(10,519
)
 
(27,021
)
Same Property Cash Basis NOI
$
34,733

 
$
31,091

Non-cash rental income and lease termination fees from same properties
1,785

 
435

Same Property NOI
$
36,518

 
$
31,526

 
 
 
 
Reconciliation of Same Property NOI to GAAP Net Income:
 
 
 
Same Property NOI
$
36,518

 
$
31,526

Non-cash rental income and lease termination fees from same properties
(1,785
)
 
(435
)
Same Property Cash Basis NOI
$
34,733

 
$
31,091

Cash Basis NOI from non-same properties (1)
10,519

 
27,021

Cash Basis NOI
$
45,252

 
$
58,112

Straight line rent adjustments
848

 
2,550

Lease value amortization
78

 
(80
)
Lease termination fees
2,188

 
2,522

NOI
$
48,366

 
$
63,104

Depreciation and amortization
(16,146
)
 
(26,924
)
General and administrative
(21,629
)
 
(24,561
)
Loss on asset impairment

 
(12,087
)
Interest and other income, net
38,470

 
18,448

Interest expense
(8,276
)
 
(16,465
)
Loss on early extinguishment of debt
(6,374
)
 
(6,403
)
Gain on sale of properties, net
420,203

 
232,148

Income before income taxes
$
454,614

 
$
227,260

Income tax expense
(1,640
)
 
(2,551
)
Net income
$
452,974

 
$
224,709

 
 
 
 
Same Property capitalized external legal costs(2)
N/A

 
$
176


(1
)
Cash Basis NOI from non-same properties for all periods presented includes the operations of properties disposed or classified as held for sale at the end of the period.
(2
)
Effective January 1, 2019, with the adoption of ASU 2016-02, we no longer capitalize external legal costs incurred when we enter into leases. We did not recast the comparative prior periods presented for the external legal leasing costs capitalized in those periods.




9


NOI is income from our real estate including lease termination fees received from tenants less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions and corporate level expenses. Cash Basis NOI is NOI excluding the effects of straight line rent adjustments, lease value amortization, and lease termination fees. The quarter-to-date same property versions of these measures include the results of properties continuously owned from April 1, 2018 through June 30, 2019. The year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2018 through June 30, 2019. Properties classified as held for sale within our condensed consolidated balance sheets are excluded from the same property versions of these measures.
 
We consider these supplemental non-GAAP financial measures to be appropriate supplemental measures to net income (loss) because they may help to understand the operations of our properties. We use these measures internally to evaluate property level performance, and we believe that they provide useful information to investors regarding our results of operations because they reflect only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. Cash Basis NOI is among the factors considered with respect to acquisition, disposition and financing decisions. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income (loss), net income (loss) attributable to Equity Commonwealth common shareholders, or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders, and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows. Other REITs and real estate companies may calculate these measures differently than we do.


10
EX-99.2 3 eqc63019ex992.htm EXHIBIT 99.2 Exhibit
Exhibit 99.2




a4propbanner33119a02.jpg

Equity Commonwealth
Supplemental Operating
and Financial Data

Second Quarter 2019

eqcblueboxonlya09.jpg



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Two North Riverside Plaza                                Sarah Byrnes
Suite 2100                                        (312) 646-2801
Chicago, IL 60606                                    ir@eqcre.com
(312) 646-2800                                        www.eqcre.com





TABLE OF CONTENTS

Corporate Information
 
Company Profile and Investor Information
 
 
 
Financial Information
 
Key Financial Data
 
Condensed Consolidated Balance Sheets
 
Additional Balance Sheet Information
 
Condensed Consolidated Statements of Operations
 
Calculation of Same Property Net Operating Income (NOI) and Same Property Cash Basis NOI
 
Same Property Results of Operations
 
Calculation of EBITDA, EBITDAre, and Adjusted EBITDAre
 
Calculation of Funds from Operations (FFO) and Normalized FFO
 
Debt Summary
 
Leverage Ratios, Coverage Ratios and Public Debt Covenants
 
Acquisitions and Dispositions
 
 
 
Portfolio Information
 
Property Detail
 
Leasing Summary
 
Same Property Leasing Summary
 
Capital Summary - Expenditures & Same Property Leasing Commitments
 
Tenants Representing 2% or More of Annualized Rental Revenue
 
Same Property Lease Expiration Schedule
 
 
 
Additional Support
 
Common & Potential Common Shares
 
Definitions
 
 
 
Forward-Looking Statements
 
 
 
Some of the statements contained in this presentation constitute forward-looking statements within the meaning of the federal securities laws including, but not limited to, statements pertaining to our capital resources, portfolio performance, results of operations or anticipated market conditions. Any forward-looking statements contained in this presentation are intended to be made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
 
 
 
The forward-looking statements contained in this presentation reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.
 
 
 
Regulation FD Disclosures
 
 
 
 
We intend to use any of the following to comply with our disclosure obligations under Regulation FD: press releases, SEC filings, public conference calls, or our website. We routinely post important information on our website at www.eqcre.com, including information that may be deemed to be material. We encourage investors and others interested in the company to monitor these distribution channels for material disclosures.

2


COMPANY PROFILE AND INVESTOR INFORMATION

Equity Commonwealth (NYSE: EQC) is a Chicago based, internally managed and self-advised real estate investment trust (REIT) with commercial office properties in the United States.
Same Property Statistics
No. of
 
 
 
 Properties
Sq. Feet
% Leased
% Commenced
7
2,469
90.5%
89.7%
 NYSE Trading Symbols
 Common Stock: EQC
 Preferred Stock Series D: EQCPD
 
Board of Trustees
Sam Zell (Chairman)
 
David A. Helfand
 
Kenneth Shea
James S. Corl
 
Peter Linneman (Lead Independent Trustee)
 
Gerald A. Spector
Martin L. Edelman
 
James L. Lozier, Jr.
 
James A. Star
Edward A. Glickman
 
Mary Jane Robertson
 
 
 
 
 
 
 
 
 
 
 
 
Senior Management
David A. Helfand
 
David S. Weinberg
 
 
President and Chief Executive Officer
 
Executive Vice President and
 
 
 
 
Chief Operating Officer
 
 
 
 
 
 
 
Adam S. Markman
 
Orrin S. Shifrin
 
 
Executive Vice President,
 
Executive Vice President,
 
 
Chief Financial Officer and Treasurer
 
General Counsel and Secretary
 
 
Equity Research Coverage (1)
Bank of America / Merrill Lynch
James Feldman
(646) 855-5808
james.feldman@baml.com
Citigroup
Michael Bilerman
(212) 816-1383
michael.bilerman@citi.com
Green Street Advisors
Daniel Ismail
(949) 640-8780
dismail@greenstreetadvisors.com
JMP Securities
Mitch Germain
(212) 906-3546
mgermain@jmpsecurities.com
Stifel Nicolaus
John Guinee
(443) 224-1307
jwguinee@stifel.com
 
 
 
 









Certain terms are defined in the definitions section of this document.
 
 
(1)
Any opinions, estimates or forecasts regarding EQC's performance made by these analysts do not represent opinions, forecasts or predictions of EQC or its management. EQC does not by its reference to the analysts above imply its endorsement of or concurrence with any information, conclusions or recommendations provided by any of these analysts.

3


KEY FINANCIAL DATA
(amounts in thousands, except per share data)

 
 
As of and for the Three Months Ended
 
 
6/30/2019

 
3/31/2019

 
12/31/2018

 
9/30/2018

 
6/30/2018

OPERATING INFORMATION
 
Ending property count (1)
7

 
9

 
10

 
11

 
13

 
Ending square footage (1)(2)
2,469

 
3,833

 
5,120

 
5,410

 
6,341

 
Percent leased (1)
90.5
 %
 
94.4
 %
 
94.8
 %
 
94.0
 %
 
89.8
 %
 
Percent commenced (1)
89.7
 %
 
93.7
 %
 
91.2
 %
 
91.3
 %
 
87.7
 %
 
Net income attributable to EQC common shareholders
$
240,289

 
$
208,521

 
$
13,420

 
$
30,767

 
$
35,036

 
Adjusted EBITDAre (3)
33,556

 
31,651

 
34,154

 
30,454

 
30,561

SAME PROPERTY OPERATING INFORMATION
 
Ending square footage
2,469

 
2,469

 
2,469

 
2,469

 
2,474

 
Percent leased
90.5
 %
 
92.0
 %
 
93.2
 %
 
93.1
 %
 
92.0
 %
 
Percent commenced
89.7
 %
 
91.1
 %
 
91.6
 %
 
91.1
 %
 
88.5
 %
 
Same Property NOI (3)
$
19,440

 
$
17,078

 
$
15,949

 
$
15,846

 
$
15,864

 
Same Property Cash Basis NOI (3)
17,490

 
17,243

 
16,086

 
16,026

 
15,751

 
Same Property NOI margin
66.7
 %
 
64.3
 %
 
61.9
 %
 
61.6
 %
 
63.1
 %
 
Same Property Cash Basis NOI margin
64.3
 %
 
64.5
 %
 
62.2
 %
 
61.8
 %
 
62.9
 %
SHARES OUTSTANDING AND PER SHARE DATA (4)
 
Shares Outstanding at End of Period
 
 
 
 
 
 
 
 
 
 
Common stock outstanding (5)
121,922

 
121,900

 
121,572

 
121,483

 
121,483

 
Dilutive restricted share units (RSUs), Operating Partnership Units, and LTIP Units (4)
1,443

 
1,566

 
1,809

 
1,414

 
1,235

 
Dilutive Series D Convertible Preferred Shares outstanding (6)
2,563

 
2,563

 

 

 

 
Preferred Stock Outstanding (6)
4,915

 
4,915

 
4,915

 
4,915

 
4,915

 
Weighted Average Shares Outstanding - GAAP
 
 
 
 
 
 
 
 
 
 
Basic (5)
122,122

 
121,960

 
121,749

 
121,845

 
121,822

 
Diluted (5)
125,862

 
125,822

 
123,376

 
122,851

 
122,649

 
Distributions Declared Per Common Share
$

 
$

 
$

 
$
2.50

 
$

BALANCE SHEET
 
Total assets
$
3,702,171

 
$
3,713,937

 
$
3,530,772

 
$
3,813,728

 
$
3,776,874

 
Total liabilities
66,548

 
322,376

 
346,774

 
644,217

 
334,565

ENTERPRISE VALUE
 
Total debt (book value)
$
26,091

 
$
274,977

 
$
274,955

 
$
279,901

 
$
280,012

 
Less: Cash and cash equivalents
(3,180,548
)
 
(3,069,501
)
 
(2,400,803
)
 
(2,673,328
)
 
(2,507,117
)
 
Plus: Market value of preferred shares
135,561

 
134,480

 
124,109

 
128,451

 
127,943

 
Plus: Market value of diluted common shares
4,011,848

 
4,036,090

 
3,698,580

 
3,943,753

 
3,865,605

 
Total enterprise value
$
992,952

 
$
1,376,046

 
$
1,696,841

 
$
1,678,777

 
$
1,766,443

RATIOS
 
Net debt / enterprise value
(317.7
)%
 
(203.1
)%
 
(125.3
)%
 
(142.6
)%
 
(126.1
)%
 
Net debt / annualized adjusted EBITDAre (3)
(23.5)x

 
(22.1)x

 
(15.6)x

 
(19.6)x

 
(18.2)x

 
Adjusted EBITDAre (3) / interest expense
8.2x

 
7.5x

 
6.8x

 
6.0x

 
4.8x

(1)
Excludes properties classified as held for sale as of the end of the period.
(2)
Changes in total square footage result from property dispositions, reclassifications, and remeasurement.
(3)
Non-GAAP financial measures are defined and reconciled to the most directly comparable GAAP measure herein.
(4)
Restricted share units (RSUs) and LTIP Units are equity awards that contain both service and market-based vesting components. Refer to the schedule of Common & Potential Common Shares for information regarding RSUs and LTIP Units and their impact on weighted average shares outstanding.
(5)
Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding.
(6)
As of June 30, 2019, we had 4,915 series D preferred shares outstanding that were convertible into 2,563 common shares. The series D preferred shares are dilutive for GAAP EPS for the three months ended June 30, 2019 and March 31, 2019, and are anti-dilutive for GAAP EPS for all other periods presented. Refer to the schedule of Common & Potential Common Shares for information regarding the series D preferred shares and their impact on diluted weighted average shares outstanding for EPS, FFO per share and Normalized FFO per share.

4


CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)

 
June 30, 2019
 
December 31, 2018
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
85,627

 
$
135,142

Buildings and improvements
571,342

 
1,004,500

 
656,969

 
1,139,642

Accumulated depreciation
(193,166
)
 
(375,968
)
 
463,803

 
763,674

Acquired real estate leases, net
92

 
275

Cash and cash equivalents
3,180,548

 
2,400,803

Marketable securities

 
249,602

Restricted cash
2,310

 
3,298

Rents receivable
19,735

 
51,089

Other assets, net
35,683

 
62,031

Total assets
$
3,702,171

 
$
3,530,772

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Senior unsecured debt, net
$

 
$
248,473

Mortgage notes payable, net
26,091

 
26,482

Accounts payable, accrued expenses and other
36,903

 
62,368

Rent collected in advance
3,554

 
9,451

Total liabilities
$
66,548

 
$
346,774

 
 
 
 
Shareholders' equity:
 
 
 
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;
 
 
 
Series D preferred shares; 6 1/2% cumulative convertible; 4,915,196 shares issued and outstanding, aggregate liquidation preference of $122,880
$
119,263

 
$
119,263

Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 121,922,120 and 121,572,155 shares issued and outstanding, respectively
1,219

 
1,216

Additional paid in capital
4,308,049

 
4,305,974

Cumulative net income
3,323,778

 
2,870,974

Cumulative other comprehensive loss

 
(342
)
Cumulative common distributions
(3,420,406
)
 
(3,420,548
)
Cumulative preferred distributions
(697,730
)
 
(693,736
)
Total shareholders’ equity
3,634,173

 
3,182,801

Noncontrolling interest
1,450

 
1,197

Total equity
$
3,635,623

 
$
3,183,998

Total liabilities and equity
$
3,702,171

 
$
3,530,772



5


ADDITIONAL BALANCE SHEET INFORMATION
(amounts in thousands)

 
June 30, 2019
December 31, 2018
Additional Balance Sheet Information
 
 
 
 
 
Straight-line rents receivable
$
16,846

$
47,393

Accounts receivable
2,889

3,696

Rents receivable
$
19,735

$
51,089

 
 
 
Capitalized lease incentives, net
$
1,844

$
4,308

Deferred leasing costs, net
24,060

51,123

Other
9,779

6,600

Other assets, net
$
35,683

$
62,031

 
 
 
Accounts payable
$
2,636

$
2,932

Accrued interest
98

4,432

Accrued taxes
5,926

13,228

Accrued capital expenditures
3,992

13,540

Accrued leasing costs
5,372

6,181

Assumed real estate lease obligations, net
39

117

Security deposits
3,333

4,137

Other accrued liabilities
15,507

17,801

Accounts payable and accrued expenses
$
36,903

$
62,368



6


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 
 
 
 
 
 
 
Rental revenue
$
30,574

 
$
45,569

 
$
69,464

 
$
100,842

Other revenue
2,794

 
3,067

 
5,656

 
6,382

Total revenues
$
33,368

 
$
48,636

 
$
75,120

 
$
107,224

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operating expenses
$
10,974

 
$
19,521

 
$
26,754

 
$
44,120

Depreciation and amortization
7,561

 
13,021

 
16,146

 
26,924

General and administrative
9,533

 
11,222

 
21,629

 
24,561

Loss on asset impairment

 

 

 
12,087

Total expenses
$
28,068

 
$
43,764

 
$
64,529

 
$
107,692

 
 
 
 
 
 
 
 
Interest and other income, net
20,695

 
12,668

 
38,470

 
18,448

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $154, $645, $319 and $1,446, respectively)
(4,070
)
 
(6,350
)
 
(8,276
)
 
(16,465
)
Loss on early extinguishment of debt
(6,374
)
 
(1,536
)
 
(6,374
)
 
(6,403
)
Gain on sale of properties, net
227,166

 
26,937

 
420,203

 
232,148

Income before income taxes
242,717

 
36,591

 
454,614

 
227,260

Income tax (expense) benefit
(340
)
 
456

 
(1,640
)
 
(2,551
)
Net income
$
242,377

 
$
37,047

 
$
452,974

 
$
224,709

Net income attributable to noncontrolling interest
(91
)
 
(14
)
 
(170
)
 
(77
)
Net income attributable to Equity Commonwealth
$
242,286

 
$
37,033

 
$
452,804

 
$
224,632

Preferred distributions
(1,997
)
 
(1,997
)
 
(3,994
)
 
(3,994
)
Net income attributable to Equity Commonwealth common shareholders
$
240,289

 
$
35,036

 
$
448,810

 
$
220,638

 
 
 
 
 
 
 
 
Weighted average common shares outstanding — basic (1)
122,122

 
121,822

 
122,041

 
122,839

Weighted average common shares outstanding — diluted (1)
125,862

 
122,649

 
125,841

 
126,027

 
 
 
 
 
 
 
 
Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
1.97

 
$
0.29

 
$
3.68

 
$
1.80

Diluted
$
1.93

 
$
0.29

 
$
3.60

 
$
1.78

Certain reclassifications were made to conform the prior period to our presentation of the condensed consolidated statements of operations due to the impact of adopting ASU 2016-02.  Amounts that were previously disclosed as "Tenant reimbursements and other income" are now included in "Rental revenue" and are no longer presented as a separate line item.  Parking revenues that do not represent components of leases and were previously disclosed as "Rental income" are now included in "Other revenue."  Subsequent to January 1, 2019, provisions for credit losses are included in "Rental revenue."  Provisions for credit losses prior to January 1, 2019 were disclosed as "Operating expenses" and were not reclassified to conform prior periods to the current presentation.
 
 
(1
)
Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding.

7


CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)

 
For the Three Months Ended
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
 
 
 
 
 
 
Rental revenue
$
30,574

 
$
38,890

 
$
39,756

 
$
43,770

 
$
45,569

Other revenue
2,794

 
2,862

 
3,169

 
3,103

 
3,067

Operating expenses
(10,974
)
 
(15,780
)
 
(15,539
)
 
(20,257
)
 
(19,521
)
NOI
$
22,394

 
$
25,972

 
$
27,386

 
$
26,616

 
$
29,115

Straight line rent adjustments
(11
)
 
(837
)
 
(986
)
 
(1,435
)
 
(1,022
)
Lease value amortization
(39
)
 
(39
)
 
(22
)
 
(4
)
 
(18
)
Lease termination fees
(2,188
)
 

 
(19
)
 
(395
)
 
(1,557
)
Cash Basis NOI
$
20,156

 
$
25,096

 
$
26,359

 
$
24,782

 
$
26,518

Cash Basis NOI from non-same properties (1)
(2,666
)
 
(7,853
)
 
(10,273
)
 
(8,756
)
 
(10,767
)
Same Property Cash Basis NOI
$
17,490

 
$
17,243

 
$
16,086

 
$
16,026

 
$
15,751

Non-cash rental income and lease termination fees from same properties
1,950

 
(165
)
 
(137
)
 
(180
)
 
113

Same Property NOI
$
19,440

 
$
17,078

 
$
15,949

 
$
15,846

 
$
15,864

 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to GAAP Net Income:
 
 
 
 
 
 
 
 
 
Same Property NOI
$
19,440

 
$
17,078

 
$
15,949

 
$
15,846

 
$
15,864

Non-cash rental income and lease termination fees from same properties
(1,950
)
 
165

 
137

 
180

 
(113
)
Same Property Cash Basis NOI
$
17,490

 
$
17,243

 
$
16,086

 
$
16,026

 
$
15,751

Cash Basis NOI from non-same properties (1)
2,666

 
7,853

 
10,273

 
8,756

 
10,767

Cash Basis NOI
$
20,156

 
$
25,096

 
$
26,359

 
$
24,782

 
$
26,518

Straight line rent adjustments
11

 
837

 
986

 
1,435

 
1,022

Lease value amortization
39

 
39

 
22

 
4

 
18

Lease termination fees
2,188

 

 
19

 
395

 
1,557

NOI
$
22,394

 
$
25,972

 
$
27,386

 
$
26,616

 
$
29,115

Depreciation and amortization
(7,561
)
 
(8,585
)
 
(10,830
)
 
(11,287
)
 
(13,021
)
General and administrative
(9,533
)
 
(12,096
)
 
(8,973
)
 
(10,905
)
 
(11,222
)
Interest and other income, net
20,695

 
17,775

 
15,741

 
12,626

 
12,668

Interest expense
(4,070
)
 
(4,206
)
 
(5,035
)
 
(5,085
)
 
(6,350
)
Loss on early extinguishment of debt
(6,374
)
 

 
(719
)
 

 
(1,536
)
Gain (loss) on sale of properties, net
227,166

 
193,037

 
(1,608
)
 
20,877

 
26,937

Income before income taxes
$
242,717

 
$
211,897

 
$
15,962

 
$
32,842

 
$
36,591

Income tax (expense) benefit
(340
)
 
(1,300
)
 
(540
)
 
(65
)
 
456

Net income
$
242,377

 
$
210,597

 
$
15,422

 
$
32,777

 
$
37,047

 
 
 
 
 
 
 
 
 
 
Same Property capitalized external legal costs(2)
N/A

 
N/A

 
$

 
$
14

 
$
75

(1)
Cash Basis NOI from non-same properties for all periods presented includes the operations of properties disposed or classified as held for sale at the end of the period.
(2)
Effective January 1, 2019, with the adoption of ASU 2016-02, we no longer capitalize external legal costs incurred when we enter into leases. We did not recast the comparative prior periods presented for the external legal leasing costs capitalized in those periods.
 
 

8


CALCULATION OF SAME PROPERTY NET OPERATING INCOME (NOI) AND SAME PROPERTY CASH BASIS NOI
(amounts in thousands)

 
For the Six Months Ended June 30,
 
2019
 
2018
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
Rental revenue
$
69,464

 
$
100,842

Other revenue
5,656

 
6,382

Operating expenses
(26,754
)
 
(44,120
)
NOI
$
48,366

 
$
63,104

Straight line rent adjustments
(848
)
 
(2,550
)
Lease value amortization
(78
)
 
80

Lease termination fees
(2,188
)
 
(2,522
)
Cash Basis NOI
$
45,252

 
$
58,112

Cash Basis NOI from non-same properties (1)
(10,519
)
 
(27,021
)
Same Property Cash Basis NOI
$
34,733

 
$
31,091

Non-cash rental income and lease termination fees from same properties
1,785

 
435

Same Property NOI
$
36,518

 
$
31,526

 
 
 
 
Reconciliation of Same Property NOI to GAAP Net Income:
 
 
 
Same Property NOI
$
36,518

 
$
31,526

Non-cash rental income and lease termination fees from same properties
(1,785
)
 
(435
)
Same Property Cash Basis NOI
$
34,733

 
$
31,091

Cash Basis NOI from non-same properties (1)
10,519

 
27,021

Cash Basis NOI
$
45,252

 
$
58,112

Straight line rent adjustments
848

 
2,550

Lease value amortization
78

 
(80
)
Lease termination fees
2,188

 
2,522

NOI
$
48,366

 
$
63,104

Depreciation and amortization
(16,146
)
 
(26,924
)
General and administrative
(21,629
)
 
(24,561
)
Loss on asset impairment

 
(12,087
)
Interest and other income, net
38,470

 
18,448

Interest expense
(8,276
)
 
(16,465
)
Loss on early extinguishment of debt
(6,374
)
 
(6,403
)
Gain on sale of properties, net
420,203

 
232,148

Income before income taxes
$
454,614

 
$
227,260

Income tax expense
(1,640
)
 
(2,551
)
Net income
$
452,974

 
$
224,709

 
 
 
 
Same Property capitalized external legal costs(2)
N/A

 
$
176


(1)
Cash Basis NOI from non-same properties for all periods presented includes the operations of properties disposed or classified as held for sale at the end of the period.
(2)
Effective January 1, 2019, with the adoption of ASU 2016-02, we no longer capitalize external legal costs incurred when we enter into leases. We did not recast the comparative prior periods presented for the external legal leasing costs capitalized in those periods.


9


SAME PROPERTY RESULTS OF OPERATIONS
(dollars and square feet in thousands)


 
As of and for the Three Months Ended June 30,
 
As of and for the Six Months Ended June 30,
 
2019
 
2018
 
% Change
 
2019
 
2018
 
% Change
Properties
7

 
7

 
 
 
7

 
7

 
 
Square Feet (1)
2,469

 
2,474

 
 
 
2,469

 
2,474

 
 
% Leased
90.5
%
 
92.0
%
 
(1.5
)%
 
90.5
%
 
92.0
%
 
(1.5
)%
% Commenced
89.7
%
 
88.5
%
 
1.2
 %
 
89.7
%
 
88.5
%
 
1.2
 %
 
 
 
 
 
 
 
 
 
 
 
 
Rental revenue
$
24,536

 
$
22,624

 
8.5
 %
 
$
48,924

 
$
44,690

 
9.5
 %
Other revenue
2,651

 
2,421

 
9.5
 %
 
5,004

 
4,698

 
6.5
 %
Straight line rent adjustment
(277
)
 
105

 
 
 
(481
)
 
278

 
 
Lease value amortization
39

 
8

 
 
 
78

 
15

 
 
Lease termination fees
2,188

 

 
 
 
2,188

 
142

 
 
Total revenue
29,137

 
25,158

 
15.8
 %
 
55,713

 
49,823

 
11.8
 %
Operating expenses
(9,697
)
 
(9,294
)
 
4.3
 %
 
(19,195
)
 
(18,297
)
 
4.9
 %
NOI
$
19,440

 
$
15,864

 
22.5
 %
 
$
36,518

 
$
31,526

 
15.8
 %
NOI Margin
66.7
%
 
63.1
%
 
 
 
65.5
%
 
63.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight line rent adjustment
$
277

 
$
(105
)
 
 
 
$
481

 
$
(278
)
 
 
Lease value amortization
(39
)
 
(8
)
 
 
 
(78
)
 
(15
)
 
 
Lease termination fees
(2,188
)
 

 
 
 
(2,188
)
 
(142
)
 
 
Cash Basis NOI
$
17,490

 
$
15,751

 
11.0
 %
 
34,733

 
31,091

 
11.7
 %
Cash Basis NOI Margin
64.3
%
 
62.9
%
 
 
 
64.4
%
 
63.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property capitalized external legal costs(2)
N/A

 
$
75

 
 
 
N/A

 
$
176

 
 

(1
)
The change in total square footage results from remeasurement.
(2
)
Effective January 1, 2019, with the adoption of ASU 2016-02, we no longer capitalize external legal costs incurred when we enter into leases. We did not recast the comparative prior periods presented for the external legal leasing costs capitalized in those periods.


10


CALCULATION OF EBITDA, EBITDAre, AND ADJUSTED EBITDAre
(amounts in thousands)


 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Net income
$
242,377

 
$
37,047

 
$
452,974

 
$
224,709

Interest expense
4,070

 
6,350

 
8,276

 
16,465

Income tax expense (benefit)
340

 
(456
)
 
1,640

 
2,551

Depreciation and amortization
7,561

 
13,021

 
16,146

 
26,924

EBITDA
$
254,348

 
$
55,962

 
$
479,036

 
$
270,649

Loss on asset impairment

 

 

 
12,087

Gain on sale of properties, net
(227,166
)
 
(26,937
)
 
(420,203
)
 
(232,148
)
EBITDAre
$
27,182

 
$
29,025

 
$
58,833

 
$
50,588

Loss on early extinguishment of debt
6,374

 
1,536

 
6,374

 
6,403

Loss on sale of securities

 

 

 
4,987

Adjusted EBITDAre
$
33,556

 
$
30,561

 
$
65,207

 
$
61,978


 
 


11


CALCULATION OF FUNDS FROM OPERATIONS (FFO) AND NORMALIZED FFO
(amounts in thousands, except per share data)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Calculation of FFO
 
 
 
 
 
 
 
Net income
$
242,377

 
$
37,047

 
$
452,974

 
$
224,709

Real estate depreciation and amortization
7,283

 
12,717

 
15,560

 
26,320

Loss on asset impairment

 

 

 
12,087

Gain on sale of properties, net
(227,166
)
 
(26,937
)
 
(420,203
)
 
(232,148
)
FFO attributable to Equity Commonwealth
22,494

 
22,827

 
48,331

 
30,968

Preferred distributions
(1,997
)
 
(1,997
)
 
(3,994
)
 
(3,994
)
FFO attributable to EQC common shareholders and unitholders
$
20,497

 
$
20,830

 
$
44,337

 
$
26,974

 
 
 
 
 
 
 
 
Calculation of Normalized FFO
 
 
 
 
 
 
 
FFO attributable to EQC common shareholders and unitholders
$
20,497

 
$
20,830

 
$
44,337

 
$
26,974

Lease value amortization
(39
)
 
(18
)
 
(78
)
 
80

Straight line rent adjustments
(11
)
 
(1,022
)
 
(848
)
 
(2,550
)
Loss on early extinguishment of debt
6,374

 
1,536

 
6,374

 
6,403

Loss on sale of securities

 

 

 
4,987

Income taxes related to gains on property sales, net
415

 
(496
)
 
565

 
2,473

Normalized FFO attributable to EQC common shareholders and unitholders
$
27,236

 
$
20,830

 
$
50,350

 
$
38,367

 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding -- basic (1)
122,168

 
121,865

 
122,087

 
122,882

Weighted average common shares and units outstanding -- diluted (1)
123,345

 
122,692

 
123,324

 
123,707

FFO attributable to EQC common shareholders and unitholders per share and unit -- basic & diluted
$
0.17

 
$
0.17

 
$
0.36

 
$
0.22

Normalized FFO attributable to EQC common shareholders and unitholders per share and unit -- basic & diluted
$
0.22

 
$
0.17

 
$
0.41

 
$
0.31

(1)
Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the three months ended June 30, 2019 and 2018 include 46 and 43 LTIP/Operating Partnership Units, respectively, that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only). Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the six months ended June 30, 2019 and 2018 include 46 and 43 LTIP/Operating Partnership Units, respectively, that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only). Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares and units outstanding.

12

DEBT SUMMARY
As of June 30, 2019
(dollars in thousands)

 
Interest Rate
 
Principal Balance
 
Maturity Date
Open at Par Date
 
Due at Maturity
 
Years to Maturity
Secured Debt:
 
 
 
 
 
 
 
 
 
 
Secured Fixed Rate Debt:
 
 
 
 
 
 
 
 
 
 
206 East 9th Street (1)
5.69
%
 
$
25,719

 
1/5/2021
7/5/2020
 
$
24,836

 
1.5


Scheduled Principal Payments During Period
Year:
 
Secured Fixed Rate Debt
 
Interest Rate
 
 
 
 
 
2019
 
$
286

 
5.7
%
2020
 
597

 
5.7
%
2021
 
24,836

 
5.7
%
Thereafter
 

 
%
 
 
$
25,719

(1) 
5.7
%
 
 
(1)
Total debt outstanding as of June 30, 2019, including net unamortized premiums and deferred financing fees was $26,091.







13


LEVERAGE RATIOS, COVERAGE RATIOS AND PUBLIC DEBT COVENANTS
(dollars in thousands)

 
As of and for the Three Months Ended
 
6/30/2019

 
3/31/2019

 
12/31/2018

 
9/30/2018

 
6/30/2018

Leverage Ratios
 
 
 
 
 
 
 
 
 
Total debt / total assets
0.7
 %
 
7.4
 %
 
7.8
 %
 
7.3
 %
 
7.4
 %
Total debt / total market capitalization
0.6
 %
 
6.2
 %
 
6.7
 %
 
6.4
 %
 
6.6
 %
Total debt + preferred stock / total market capitalization
3.9
 %
 
9.2
 %
 
9.7
 %
 
9.4
 %
 
9.5
 %
Total debt / annualized adjusted EBITDAre (1)
0.2x

 
2.2x

 
2.0x

 
2.3x

 
2.3x

Total debt + preferred stock / annualized adjusted EBITDAre (1)
1.2x

 
3.2x

 
2.9x

 
3.4x

 
3.3x

Net debt / enterprise value
(317.7
)%
 
(203.1
)%
 
(125.3
)%
 
(142.6
)%
 
(126.1
)%
Net debt + preferred stock / enterprise value
(304.0
)%
 
(193.3
)%
 
(118.0
)%
 
(134.9
)%
 
(118.8
)%
Net debt / annualized adjusted EBITDAre (1)
(23.5)x

 
(22.1)x

 
(15.6)x

 
(19.6)x

 
(18.2)x

Net debt + preferred stock / annualized adjusted EBITDAre (1)
(22.5)x

 
(21.0)x

 
(14.7)x

 
(18.6)x

 
(17.2)x

Secured debt / total assets
0.7
 %
 
0.7
 %
 
0.8
 %
 
0.8
 %
 
0.8
 %
 
 
 
 
 
 
 
 
 
 
Coverage Ratios
 
 
 
 
 
 
 
 
 
Adjusted EBITDAre / interest expense (1)
8.2x

 
7.5x

 
6.8x

 
6.0x

 
4.8x

Adjusted EBITDAre / interest expense + preferred distributions (1)
5.5x

 
5.1x

 
4.9x

 
4.3x

 
3.7x

 
 
 
 
 
 
 
 
 
 
Public Debt Covenants (2)
 
 
 
 
 
 
 
 
 
Debt / adjusted total assets (3) (maximum 60%)
N/A

 
7.0
 %
 
7.2
 %
 
6.8
 %
 
6.8
 %
Secured debt / adjusted total assets (3) (maximum 40%)
N/A

 
0.7
 %
 
0.7
 %
 
0.8
 %
 
0.8
 %
Consolidated income available for debt service / debt service (minimum 1.5x)
N/A

 
5.8x

 
6.2x

 
4.6x

 
4.6x

Total unencumbered assets (3) / unsecured debt (minimum 150% / 200%)
N/A

 
1,550
 %
 
1,520
 %
 
1,629
 %
 
1,624
 %
(1)
Refer to the calculation of EBITDA, EBITDAre, and Adjusted EBITDAre for a reconciliation of these measures to Net income.
(2)
After the redemption of our 5.875% senior unsecured notes due 2020 on June 28, 2019, we no longer have any notes outstanding under our public debt indenture and related supplements, collectively the Indenture, and we are no longer required to maintain the financial ratio covenants prescribed in the Indenture.  As a result, we are no longer rated by the rating agencies.
(3)
Adjusted total assets and total unencumbered assets includes original cost of real estate assets plus capital improvements, both calculated in accordance with GAAP, and excludes depreciation and amortization, accounts receivable, other intangible assets, and impairment write downs, if any.

14


ACQUISITIONS AND DISPOSITIONS
(dollars in thousands)

Acquisitions
None
Dispositions
Property/Portfolio
City
State
No. of Properties
Sq. Feet (1)
 
% Leased(1)
 
Gross Sales Price
 
Net Book Value (1)
 
Annualized Rental Revenue (1)
1735 Market Street (2)
Philadelphia
PA
1
1,286,936

 
92.8
%
 
$
451,600

 
$
192,094

 
$
37,313

Total Q1 Dispositions
 
1

1,286,936

 
92.8
%
 
$
451,600

 
$
192,094

 
$
37,313

 
 
 
 
 
 
 
 
 
 
 
 
 
600 108th Avenue NE (3)
Bellevue
WA
1
254,510

 
97.0
%
 
$
195,000

 
$
34,481

 
$
9,561

Research Park (4)
Austin
TX
1
1,110,007

 
99.1
%
 
165,500

 
70,576

 
13,126

Total Q2 Dispositions
 
2

1,364,517

 
98.7
%
 
$
360,500

 
$
105,057

 
$
22,687

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Disposed Year-to-Date
 
3

2,651,453

 
95.8
%
 
$
812,100

 
$
297,151

 
$
60,000

The dispositions above resulted in a gain on sale of properties, net of $227.2 million and $420.2 million for the three and six months ended June 30, 2019, respectively.
      
(1
)
As of the quarter-ended preceding each sale.
(2
)
Proceeds from the sale of 1735 Market Street were approximately $435.4 million after credits for capital costs, contractual lease costs, and rent abatements.
(3
)
The property includes an office building and additional development rights.
(4
)
There is consideration of $2.0 million being held in escrow related to the sale of this property.  To the extent any of these proceeds are ultimately released to the company, the gain on sale will increase.


15

PROPERTY DETAIL
As of June 30, 2019
(sorted by annualized rental revenue, dollars in thousands)

Same Property Portfolio(1)
Property
City, State
Type
No. of Buildings
Square Feet
% Leased
% Comm-enced
Annualized Rental Revenue
Undepreciated Book Value
Net Book Value
Year Acquired
Weighted Average Year Built or Substantially Renovated (2)
1
1225 Seventeenth Street
Denver, CO
Office
1

695,372
86.6
%
86.1
%
$
25,500

$
164,547

$
126,805

2009
1982
 
(17th Street Plaza)
 
 
 
 
 
 
 
 
 
 
 
2
333 108th Avenue NE
Bellevue, WA
Office
1

435,406
99.3
%
99.3
%
22,652

153,525

118,648

2009
2008
 
(Tower 333)
 
 
 
 
 
 
 
 
 
 
 
3
Bridgepoint Square
Austin, TX
Office
5

440,007
83.6
%
82.1
%
14,168

101,430

54,808

1997
1995
4
109 Brookline Avenue
Boston, MA
Office
1

285,556
94.6
%
94.6
%
11,386

47,812

25,273

1995
1915
5
1250 H Street, NW
Washington, D.C.
Office
1

196,490
86.7
%
86.7
%
9,396

75,596

40,884

1998
1992
6
206 East 9th Street
Austin, TX
Office
1

175,510
86.1
%
80.1
%
7,409

51,709

43,935

2012
1984
 
(Capitol Tower)
 
 
 
 
 
 
 
 
 
 
 
7
Georgetown-Green and Harris Buildings
Washington, D.C.
Office
2

240,475
100.0
%
100.0
%
6,911

62,350

53,450

2009
2006
 
Total Same Properties
 
 
12

2,468,816
90.5
%
89.7
%
$
97,422

$
656,969

$
463,803

2005
1984
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Excludes properties disposed prior to July 1, 2019.
(2)
Weighted based on square feet.

16


LEASING SUMMARY
(dollars and square feet in thousands, except per square foot data)

 
 
As of and for the Three Months Ended
 
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
Properties (1)
 
7

 
9

 
10

 
11

 
13

Total square feet (1)(2)
 
2,469

 
3,833

 
5,120

 
5,410

 
6,341

Percentage leased
 
90.5
%
 
94.4
%
 
94.8
%
 
94.0
 %
 
89.8
%
Percentage commenced
 
89.7
%
 
93.7
%
 
91.2
%
 
91.3
 %
 
87.7
%
 
 
 
 
 
 
 
 
 
 
 
Total Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
58

 
108

 
173

 
563

 
292

Lease term (years)
 
3.0

 
4.5

 
7.0

 
14.4

 
9.4

Starting cash rent
 
$
45.83

 
$
54.98

 
$
45.01

 
$
47.36

 
$
39.44

Percent change in cash rent (3)
 
9.1
%
 
8.0
%
 
10.0
%
 
(1.2
)%
 
10.4
%
Percent change in GAAP rent (3)
 
14.5
%
 
17.9
%
 
22.5
%
 
11.0
 %
 
23.6
%
Total TI & LC per square foot (4)
 
$
11.49

 
$
24.78

 
$
46.00

 
$
118.03

 
$
59.54

Total TI & LC per sq. ft. per year of lease term (4)
 
$
3.83

 
$
5.56

 
$
6.60

 
$
8.22

 
$
6.36

 
 
 
 
 
 
 
 
 
 
 
Renewal Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
43

 
95

 
93

 
1

 
103

Lease term (years)
 
2.5

 
4.5

 
6.7

 
5.0

 
5.2

Starting cash rent
 
$
43.58

 
$
56.78

 
$
43.12

 
$
67.85

 
$
39.01

Percent change in cash rent (3)
 
8.6
%
 
8.2
%
 
6.5
%
 
0.0
 %
 
12.0
%
Percent change in GAAP rent (3)
 
13.9
%
 
18.4
%
 
19.4
%
 
17.0
 %
 
20.2
%
Total TI & LC per square foot (4)
 
$
7.93

 
$
22.18

 
$
32.95

 
$
2.50

 
$
40.07

Total TI & LC per sq. ft. per year of lease term (4)
 
$
3.12

 
$
4.96

 
$
4.95

 
$
0.50

 
$
7.75

 
 
 
 
 
 
 
 
 
 
 
New Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
15

 
13

 
80

 
562

 
189

Lease term (years)
 
4.3

 
4.3

 
7.3

 
14.4

 
11.6

Starting cash rent
 
$
52.43

 
$
42.25

 
$
47.23

 
$
47.32

 
$
39.67

Percent change in cash rent (3)
 
21.2
%
 
4.7
%
 
18.8
%
 
(1.2
)%
 
9.6
%
Percent change in GAAP rent (3)
 
27.2
%
 
7.4
%
 
30.3
%
 
11.0
 %
 
25.5
%
Total TI & LC per square foot (4)
 
$
21.93

 
$
43.16

 
$
61.27

 
$
118.28

 
$
70.12

Total TI & LC per sq. ft. per year of lease term (4)
 
$
5.05

 
$
10.02

 
$
8.35

 
$
8.23

 
$
6.03

The above leasing summary is based on leases executed during the periods indicated, and excludes leasing activity for assets during the quarter in which the asset was sold or classified as held for sale.
 
 
(1)
Excludes properties classified as held for sale at the end of the period.
(2)
Changes in total square footage result from property dispositions, reclassifications, and remeasurement.
(3)
Percent change in GAAP and cash rent is a comparison of current rent, including tenant expense reimbursements, if any, to the rent, including tenant expense reimbursements, if any, last received for the same space on a GAAP and cash basis, respectively. Cash rent is calculated before deducting any initial period free rent. New leasing in suites vacant longer than 2 years was excluded from the calculation.
(4)
Includes tenant improvements (TI) and leasing commissions (LC).


17


SAME PROPERTY LEASING SUMMARY
(dollars and square feet in thousands, except per square foot data)

 
 
As of and for the Three Months Ended
 
 
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
Properties
 
7

 
7

 
7

 
7

 
7

Total square feet (1)
 
2,469

 
2,469

 
2,469

 
2,469

 
2,474

Percentage leased
 
90.5
%
 
92.0
%
 
93.2
%
 
93.1
 %
 
92.0
%
Percentage commenced
 
89.7
%
 
91.1
%
 
91.6
%
 
91.1
 %
 
88.5
%
 
 
 
 
 
 
 
 
 
 
 
Total Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
58

 
99

 
42

 
464

 
170

Lease term (years)
 
3.0

 
4.6

 
7.3

 
15.1

 
5.2

Starting cash rent
 
$
45.83

 
$
55.73

 
$
56.83

 
$
49.91

 
$
43.00

Percent change in cash rent (2)
 
9.1
%
 
7.6
%
 
25.8
%
 
(1.2
)%
 
15.4
%
Percent change in GAAP rent (2)
 
14.5
%
 
17.7
%
 
35.9
%
 
11.0
 %
 
24.9
%
Total TI & LC per square foot (3)
 
$
11.49

 
$
25.95

 
$
52.43

 
$
123.35

 
$
45.52

Total TI & LC per sq. ft. per year of lease term (3)
 
$
3.83

 
$
5.62

 
$
7.20

 
$
8.15

 
$
8.83

 
 
 
 
 
 
 
 
 
 
 
Renewal Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
43

 
88

 
13

 
1

 
87

Lease term (years)
 
2.5

 
4.7

 
5.2

 
5.0

 
5.2

Starting cash rent
 
$
43.58

 
$
57.58

 
$
46.03

 
$
67.85

 
$
40.71

Percent change in cash rent (2)
 
8.6
%
 
7.8
%
 
26.6
%
 
0.0
 %
 
16.3
%
Percent change in GAAP rent (2)
 
13.9
%
 
18.2
%
 
30.4
%
 
17.0
 %
 
23.9
%
Total TI & LC per square foot (3)
 
$
7.93

 
$
23.72

 
$
19.12

 
$
2.50

 
$
44.92

Total TI & LC per sq. ft. per year of lease term (3)
 
$
3.12

 
$
5.07

 
$
3.66

 
$
0.50

 
$
8.64

 
 
 
 
 
 
 
 
 
 
 
New Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
15

 
11

 
29

 
463

 
83

Lease term (years)
 
4.3

 
4.2

 
8.2

 
15.2

 
5.1

Starting cash rent
 
$
52.43

 
$
41.59

 
$
61.89

 
$
49.86

 
$
45.42

Percent change in cash rent (2)
 
21.2
%
 
0.3
%
 
25.2
%
 
(1.2
)%
 
14.7
%
Percent change in GAAP rent (2)
 
27.2
%
 
2.6
%
 
40.0
%
 
10.9
 %
 
25.7
%
Total TI & LC per square foot (3)
 
$
21.93

 
$
43.06

 
$
68.02

 
$
123.66

 
$
46.16

Total TI & LC per sq. ft. per year of lease term (3)
 
$
5.05

 
$
10.35

 
$
8.25

 
$
8.16

 
$
9.04

The above leasing summary is based on leases executed during the periods indicated.
 
 
(1)
Changes in total square footage result from remeasurement.
(2)
Percent change in GAAP and cash rent is a comparison of current rent, including tenant expense reimbursements, if any, to the rent, including tenant expense reimbursements, if any, last received for the same space on a GAAP and cash basis, respectively. Cash rent is calculated before deducting any initial period free rent. New leasing in suites vacant longer than 2 years was excluded from the calculation.
(3)
Includes tenant improvements (TI) and leasing commissions (LC).


18

CAPITAL SUMMARY
EXPENDITURES & SAME PROPERTY LEASING COMMITMENTS
(dollars and square feet in thousands)

CAPITAL SUMMARY
Three Months Ended
EXPENDITURES
6/30/2019
 
3/31/2019
 
12/31/2018
 
9/30/2018
 
6/30/2018
Tenant improvements
$
2,491

 
$
2,450

 
$
11,078

 
$
11,490

 
$
13,773

Leasing costs (1)
374

 
843

 
2,224

 
11,699

 
4,909

Building improvements (2)
2,328

 
1,256

 
1,936

 
2,223

 
2,936

Total capital expenditures
$
5,193

 
$
4,549

 
$
15,238

 
$
25,412

 
$
21,618

 
 
 
 
 
 
 
 
 
 
Average square feet during period (3)
3,151

 
4,477

 
5,265

 
5,876

 
6,619

 
 
 
 
 
 
 
 
 
 
Building improvements per average total sq. ft. during period
$
0.74

 
$
0.28

 
$
0.37

 
$
0.38

 
$
0.44


CAPITAL SUMMARY
 
Three Months Ended
SAME PROPERTY LEASING COMMITMENTS
 
June 30, 2019
 
 
New Leases
 
Renewal Leases
 
Total
Square feet leased during the period
 
15

 
43

 
58

Total TI & LC (4)
 
$
329

 
$
341

 
$
670

Total TI & LC per square foot (4)
 
$
21.93

 
$
7.93

 
$
11.49

Weighted average lease term by square foot (years)
 
4.3

 
2.5

 
3.0

Total TI & LC per square foot per year of lease term (4)
 
$
5.05

 
$
3.12

 
$
3.83

(1)
Legal leasing costs are no longer capitalized after December 31, 2018. Periods presented before 2019 include both capitalized leasing commissions and capitalized legal leasing expenses.
(2)
Tenant-funded capital expenditures are excluded.
(3)
Average square feet during each period includes properties held for sale at the end of each period.
(4)
Includes tenant improvements (TI) and leasing commissions (LC).


19

TENANTS REPRESENTING 2% OR MORE OF ANNUALIZED RENTAL REVENUE
As of June 30, 2019
(square feet in thousands)


 
 
Tenant
 
Square Feet (1)
 
% of Total Sq. Ft. (1)
 
% of Annualized Rental Revenue
 
Weighted Average Remaining Lease Term
1

 
Expedia, Inc. (2)
 
427

 
19.1
%
 
22.7
%
 
0.5
2

 
Georgetown University (3)
 
240

 
10.7
%
 
7.1
%
 
0.3
3

 
Beth Israel Deaconess Medical Center, Inc.
 
117

 
5.2
%
 
4.1
%
 
4.3
4

 
Dana-Farber Cancer Institute, Inc.
 
77

 
3.4
%
 
3.7
%
 
10.2
5

 
Equinor Energy Services, Inc.
 
77

 
3.4
%
 
3.3
%
 
4.5
6

 
BT Americas, Inc.
 
59

 
2.6
%
 
3.1
%
 
0.1
7

 
KPMG, LLP
 
66

 
3.0
%
 
2.7
%
 
3.6
8

 
CBRE, Inc. (4)
 
40

 
1.8
%
 
2.0
%
 
8.8
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
1,103

 
49.2
%
 
48.7
%
 
2.3
(1)
Square footage as of June 30, 2019 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants.
(2)
During the third quarter of 2018, an affiliate of Amazon.com, Inc. entered into a new 16-year lease for 429,012 square feet, including all of the Expedia, Inc. space. The lease commences in 2020.
(3)
Georgetown University's leased space includes 111,600 square feet that are sublet to another tenant. During the fourth quarter of 2017, the other tenant committed to lease the 111,600 square feet space through September 30, 2037 directly from EQC. The lease commences on October 1, 2019.
(4)
We reported a weighted average remaining lease term for CBRE, Inc. of 10.0 years in our March 31, 2019 Quarterly Report on Form 10-Q and in our March 31, 2019 Supplemental Operating and Financial Data. The correct weighted average remaining lease term for CBRE, Inc. as of March 31, 2019 was 9.0 years.
 
 


20

SAME PROPERTY LEASE EXPIRATION SCHEDULE
As of June 30, 2019
(dollars and sq. ft. in thousands)

Year
 
Number of Tenants Expiring
 
Leased Sq. Ft. Expiring (1)
 
% of Leased Sq. Ft. Expiring
 
Cumulative % of Leased Sq. Ft. Expiring
 
Annualized Rental Revenue Expiring (2)
 
% of Annualized Rental Revenue Expiring
 
Cumulative % of Annualized Rental Revenue Expiring
2019
 
15
 
215
 
9.6
%
 
9.6
%
 
$
7,592

 
7.8
%
 
7.8
%
2020
 
21
 
131
 
5.9
%
 
15.5
%
 
5,752

 
5.9
%
 
13.7
%
2021
 
22
 
196
 
8.8
%
 
24.3
%
 
8,139

 
8.5
%
 
22.2
%
2022
 
14
 
212
 
9.5
%
 
33.8
%
 
7,937

 
8.1
%
 
30.3
%
2023
 
17
 
234
 
10.5
%
 
44.3
%
 
10,132

 
10.3
%
 
40.6
%
2024
 
14
 
273
 
12.2
%
 
56.5
%
 
10,745

 
11.0
%
 
51.6
%
2025
 
7
 
94
 
4.2
%
 
60.7
%
 
6,275

 
6.4
%
 
58.0
%
2026
 
8
 
80
 
3.6
%
 
64.3
%
 
3,491

 
3.6
%
 
61.6
%
2027
 
2
 
35
 
1.6
%
 
65.9
%
 
1,530

 
1.6
%
 
63.2
%
2028
 
3
 
59
 
2.6
%
 
68.5
%
 
2,916

 
3.0
%
 
66.2
%
Thereafter
 
10
 
705
 
31.5
%
 
100.0
%
 
32,913

 
33.8
%
 
100.0
%
    Total
 
133
 
2,234
 
100.0
%
 
 
 
$
97,422

 
100.0
%
 
 
Weighted average remaining
 
 
 
 
 
 
 
 
 
 
    lease term (in years)
 
7.4

 
 
 
 
 
7.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Square footage as of June 30, 2019 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants. The year expiring corresponds to the latest-expiring signed lease for a given suite. Thus, backfilled suites expire in the year stipulated by the new lease.
(2)
Excludes the Annualized Rental Revenue of space that is leased but not commenced.

21


COMMON & POTENTIAL COMMON SHARES
(share amounts in thousands)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
Weighted Average Share Calculation - GAAP EPS
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic (1)
122,122

 
121,822

 
122,041

 
122,839

Weighted average Series D preferred shares convertible to common shares
2,563

 

 
2,563

 
2,363

Weighted average dilutive RSUs and LTIP Units (2)
1,177

 
827

 
1,237

 
825

Weighted average common shares outstanding - diluted (1)
125,862

 
122,649

 
125,841

 
126,027

 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
Weighted Average Share and Unit Calculation - FFO and Normalized FFO per share and unit
2019
 
2018
 
2019
 
2018
Weighted average EQC common shares outstanding (1)
122,122

 
121,822

 
122,041

 
122,839

Weighted average Operating Partnership Units outstanding (3)
14

 
1

 
12

 
1

Weighted average time-based LTIP Units (2)(3)
32

 
42

 
34

 
42

Weighted average common shares and units outstanding - basic (1)
122,168

 
121,865

 
122,087

 
122,882

Weighted average dilutive RSUs and market-based LTIP Units (2)
1,177

 
827

 
1,237

 
825

Weighted average common shares and units outstanding - diluted (1)
123,345

 
122,692

 
123,324

 
123,707

Rollforward of Share Count to June 30, 2019
 
 
Series D Preferred Shares (4)
 
EQC Common Shares (5)
Outstanding on December 31, 2018
 
 
4,915

 
121,572

Issuance of restricted shares and shares earned from RSUs, net (6)
 
 

 
350

Outstanding on June 30, 2019
 
 
4,915

 
121,922

Common shares issuable from RSUs, Operating Partnership Units, and LTIP Units as measured on June 30, 2019 (2)
 
 
 
 
1,443

Potential common shares as measured on June 30, 2019 (7)
 
 
 
 
123,365

(1
)
Weighted average common shares outstanding for the three months ended June 30, 2019 and 2018 includes 220 and 362 unvested, earned RSUs, respectively. Weighted average common shares outstanding for the six months ended June 30, 2019 and 2018 includes 203 and 335 unvested, earned RSUs, respectively.
(2
)
We have granted RSUs and LTIP Units to certain employees, officers, and trustees. RSUs and LTIP Units contain service and market-based vesting components.
(3
)
Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic include time-based LTIP Units and Operating Partnership Units that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only).
(4
)
As of June 30, 2019, we had 4,915 series D preferred shares that were convertible into 2,563 common shares. The series D preferred shares are dilutive for GAAP EPS for the three and six months ended June 30, 2019 and for the six months ended June 30, 2018. They are antidilutive for FFO per common share and Normalized FFO per common share for all periods presented.
(5
)
EQC common shares include unvested restricted shares and unvested earned RSUs.
(6
)
This amount is net of forfeitures and shares surrendered to satisfy statutory tax witholding obligations.
(7
)
Potential common shares as measured on June 30, 2019, exclude 4,915 series D preferred shares outstanding that were convertible into 2,563 common shares.

22


DEFINITIONS

Annualized Rental Revenue
Annualized Rental Revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of June 30, 2019, plus estimated recurring expense reimbursements; excludes lease value amortization, straight line rent adjustments, abated (“free”) rent periods and parking revenue. We calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported, adding abated rent, and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues. The annualized rental revenue of disposed properties is presented for the quarter-ended preceding each disposition.
Annualized rental revenue is a forward-looking non-GAAP measure. Annualized rental revenue cannot be reconciled to a comparable GAAP measure without unreasonable efforts, primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported, whereas historical GAAP measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates.
Building Improvements
Building improvements are expenditures to replace obsolete building components or extend the useful life of existing assets.
Consolidated Income Available for Debt Service
Consolidated income available for debt service is earnings from operations excluding interest expense, depreciation and amortization, taxes, and certain items that we view as nonrecurring or impacting comparability from period to period, determined together with debt service on a pro forma basis for the four consecutive fiscal quarters most recently ended.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), EBITDAre, and Adjusted EBITDAre
We calculate EBITDA as net income (loss) excluding interest expense, income tax expense, and depreciation and amortization.
We calculate EBITDAre in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT). NAREIT defines EBITDAre as net income (loss), calculated in accordance with GAAP, plus interest expense, plus income tax expense, plus depreciation and amortization, plus (minus) losses and gains on the disposition of depreciated property, plus impairment write-downs of depreciated property and investments in unconsolidated joint ventures, plus adjustments to reflect the entity's share of EBITDAre of unconsolidated joint ventures. Our calculation of Adjusted EBITDAre differs from our calculations of EBITDA and EBITDAre because we exclude certain items that we view as nonrecurring or impacting comparability from period to period. EBITDA, EBITDAre, and Adjusted EBITDAre are supplemental non-GAAP financial measures.
We consider EBITDA, EBITDAre and Adjusted EBITDAre to be appropriate measures of our operating performance, along with net income (loss), net income (loss) attributable to EQC common shareholders, and cash flow from operating activities. We believe that EBITDA, EBITDAre, and Adjusted EBITDAre provide useful information to investors because by excluding the effects of certain historical amounts, such as interest, depreciation and amortization expense, EBITDA, EBITDAre, and Adjusted EBITDAre may facilitate a comparison of current operating performance with our past operating performance. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss), net income (loss) attributable to EQC common shareholders, or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders, and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (loss) and condensed consolidated statements of cash flows. Other REITs and real estate companies may calculate EBITDA, EBITDAre and Adjusted EBITDAre differently than we do.
Annualized Adjusted EBITDAre
Annualized Adjusted EBITDAre is Adjusted EBITDAre for the three months ended June 30, 2019 multiplied by four.
Enterprise Value
Enterprise value is net debt plus the market value of our preferred shares plus the market value of our common shares.
Funds from Operations (FFO) and Normalized FFO
We compute FFO in accordance with standards established by NAREIT. NAREIT defines FFO as net income (loss), calculated in accordance with GAAP, excluding real estate depreciation and amortization, gains (or losses) from sales of depreciable property, impairment of depreciable real estate, and our portion of these items related to equity investees and noncontrolling interests.  Our calculation of Normalized FFO differs from NAREIT’s definition of FFO because we exclude certain items that we view as nonrecurring or impacting comparability from period to period.  FFO and Normalized FFO are supplemental non-GAAP financial measures. We consider FFO and Normalized FFO to be appropriate measures of operating performance for a REIT, along with net income (loss), net income (loss) attributable to EQC common shareholders, and cash flow from operating activities.

23


DEFINITIONS

We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs.  FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income (loss), net income (loss) attributable to EQC common shareholders, or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs.  These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders, and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.
Leasing Costs
Leasing costs include leasing commissions (LCs) and related legal expenses.
LTIP Units
LTIP Units are a class of beneficial interests in EQC Operating Trust (the Operating Trust) that may be issued to employees, officers, or trustees of the Operating Trust, EQC, or their subsidiaries.
Net Debt
Net debt is total debt minus cash and cash equivalents.
Net Operating Income (NOI), Same Property NOI, Cash Basis NOI, and Same Property Cash Basis NOI
NOI is income from our real estate including lease termination fees received from tenants less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions and corporate level expenses. Cash Basis NOI is NOI excluding the effects of straight line rent adjustments, lease value amortization, and lease termination fees. The quarter-to-date same property versions of these measures include the results of properties continuously owned from April 1, 2018 through June 30, 2019. The year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2018 through June 30, 2019. Properties classified as held for sale within our condensed consolidated balance sheets are excluded from the same property versions of these measures.
We consider these supplemental non-GAAP financial measures to be appropriate supplemental measures to net income (loss) because they may help to understand the operations of our properties. We use these measures internally to evaluate property level performance, and we believe that they provide useful information to investors regarding our results of operations because they reflect only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. Cash Basis NOI is among the factors considered with respect to acquisition, disposition and financing decisions. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income (loss), net income (loss) attributable to Equity Commonwealth common shareholders, or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders, and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows. Other REITs and real estate companies may calculate these measures differently than we do.
Net Book Value
Net book value represents the carrying value of real estate properties after depreciation and amortization, purchase price allocations, and impairment write-downs, if any.
NOI Margin
NOI Margin is NOI (or the same property or cash basis derivations of NOI defined above) divided by the total revenues used to calculate NOI (or its derivation).
Operating Partnership Units
Operating Partnership Units are beneficial interests in the Operating Trust.
Other Revenue
Other revenue is primarily comprised of parking revenue that does not represent a component of a lease.
Percentage Commenced
Percentage commenced includes space subject to leases that have commenced, whether or not the tenant is in a free rent period.


24


DEFINITIONS

Percentage Leased
Percentage leased includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but not occupied or is being offered for sublease by tenants.
Rental Revenue
Rental revenue is primarily comprised of minimum lease payments from tenants, including tenant reimbursements. In addition, rental revenue includes lease termination fees and straight line rent adjustments.
Same Properties
Our quarter-to-date same property portfolio is comprised of those properties continuously owned from April 1, 2018 through June 30, 2019. Our year-to-date same property portfolio is comprised of those properties continuously owned from January 1, 2018 through June 30, 2019. Properties classified as held for sale within our condensed consolidated balance sheets are excluded.
Tenant Improvements
Tenant improvements are capital expenditures to improve tenant spaces.
Total Debt
Total debt is the aggregate balance of the following line items on our condensed consolidated balance sheets: senior unsecured debt, net, and mortgage notes payable, net.
Undepreciated Book Value
Undepreciated book value represents the carrying value of real estate properties after purchase price allocations, and impairment write-downs, if any.



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