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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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): March 26, 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))

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 2.01 Completion of Acquisition or Disposition of Assets.

On March 26, 2019, Equity Commonwealth, a Maryland real estate investment trust (the "Company"), by and through its primary operating subsidiary, EQC Operating Trust (the “Operating Trust”), and another subsidiary (collectively, "Sellers"), closed on the previously announced sale of 100% of the equity interests in the fee simple owner of 1735 Market Street in Philadelphia, Pennsylvania, to certain affiliates of Silverstein/Arden 1735 Market Holdco LP for a gross sale price of $451.6 million.  Proceeds after credits for capital costs, contractual lease costs, and rent abatements were $435.4 million.

1735 Market Street is an approximately 1.3 million square foot, Class A, office property located in the Market West submarket of Philadelphia, Pennsylvania.

Item 7.01 Regulation FD Disclosure.

In addition to the required pro forma financial information presented below pursuant to Item 9.01, we have included calculations of the net operating income and cash basis net operating income for 1735 Market Street, as well as reconciliations of such numbers to operating income, in Exhibit 99.2 to this Current Report on Form 8-K, which are incorporated herein solely for purposes of this Item 7.01 disclosure.

The information in this Item 7.01 disclosure, including Exhibit 99.2, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section. In addition, the information in this Item 7.01 disclosure, including Exhibit 99.2, shall not be incorporated by reference into the filings of the Company under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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.

Item 9.01 Financial Statements and Exhibits.
 
(b)    Pro forma financial information

The pro forma financial information of the Company as adjusted to give effect to the sale of 1735 Market Street is presented in the unaudited pro forma condensed consolidated financial statements filed as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference.

(d) Exhibits
Exhibit Number
 
Description
99.1
 
99.2
 
 




















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/ Orrin S. Shifrin
 
Name:
Orrin S. Shifrin
 
Title:
Executive Vice President, General Counsel and Secretary
 
 
Date: March 27, 2019
 
 
 



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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1

Unaudited Pro Forma Condensed Consolidated Financial Statements

On January 29, 2019, Equity Commonwealth, a Maryland real estate investment trust (the “Company”), by and through its primary operating subsidiary, EQC Operating Trust (the “Operating Trust”), and another subsidiary (collectively, “Sellers”), entered into a sale agreement (the “Sale Agreement”) with Silverstein/Arden 1735 Market Holdco LP (“Purchaser”), pursuant to which Sellers agreed to convey to Purchaser or its assignees 100% of the equity interests in the fee simple owner of 1735 Market Street in Philadelphia, Pennsylvania, for a gross sale price of $451.6 million (the "Transaction"). The Transaction closed on March 26, 2019. Proceeds after credits for capital costs, contractual lease costs, and rent abatements were $435.4 million.

The accompanying Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2018 presents Equity Commonwealth's historical amounts, adjusted for the effects of the Transaction, as if 1735 Market Street had been disposed of on December 31, 2018. The accompanying Pro Forma Condensed Consolidated Balance Sheet is unaudited and is not necessarily indicative of what Equity Commonwealth's actual financial position would have been had the Transaction actually occurred on December 31, 2018, nor does it purport to represent Equity Commonwealth's future financial position.

The accompanying Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2018 presents Equity Commonwealth's historical amounts, adjusted for the effects of the Transaction, as if 1735 Market Street had been disposed of on January 1, 2018. The accompanying Pro Forma Condensed Consolidated Statement of Operations is unaudited and is not necessarily indicative of what Equity Commonwealth's actual results of operations would have been had the Transaction actually occurred on January 1, 2018, nor does it purport to represent Equity Commonwealth's future results of operations.

These Unaudited Condensed Pro Forma Consolidated Financial Statements should be read in conjunction with the Company's historical consolidated financial statements and notes thereto as of and for the year ended December 31, 2018, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 14, 2019.





Equity Commonwealth
Pro Forma Condensed Consolidated Balance Sheet
December 31, 2018
(Unaudited and in thousands)

 
Historical (1)
 
Transaction (2)
 
Pro Forma
ASSETS
 
 
 
 
 
Real estate properties:
 
 
 
 
 
Land
$
135,142

 
$
(24,747
)
 
$
110,395

Buildings and improvements
1,004,500

 
(303,771
)
 
700,729

 
1,139,642

 
(328,518
)
 
811,124

Accumulated depreciation
(375,968
)
 
136,425

 
(239,543
)
 
763,674

 
(192,093
)
 
571,581

Acquired real estate leases, net
275

 

 
275

Cash and cash equivalents
2,400,803

 
435,353

(2a)
2,824,866

 
 
 
(11,290
)
(2b)
 
Marketable securities
249,602

 

 
249,602

Restricted cash
3,298

 

 
3,298

Rents receivable, net
51,089

 
(20,193
)
 
30,896

Other assets, net
62,031

 
(22,727
)
 
39,304

Total assets
$
3,530,772

 
$
189,050

 
$
3,719,822

 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
Senior unsecured debt, net
$
248,473

 
$

 
$
248,473

Mortgage notes payable, net
26,482

 

 
26,482

Accounts payable, accrued expenses and other
62,368

 
(1,765
)
 
60,603

Rent collected in advance
9,451

 
(3,444
)
 
6,007

Total liabilities
346,774

 
(5,209
)
 
341,565

 
 
 
 
 
 
Shareholders' equity:
 
 
 
 
 
Series D preferred shares
119,263

 

 
119,263

Common shares
1,216

 

 
1,216

Additional paid in capital
4,305,974

 
(73
)
(2c)
4,305,901

Cumulative net income
2,870,974

 
194,259

(2d)
3,065,233

Cumulative other comprehensive loss
(342
)
 

 
(342
)
Cumulative common distributions
(3,420,548
)
 

 
(3,420,548
)
Cumulative preferred distributions
(693,736
)
 

 
(693,736
)
Total shareholders’ equity
3,182,801

 
194,186

 
3,376,987

Noncontrolling interest
1,197

 
73

(2c)
1,270

Total equity
3,183,998

 
194,259

 
3,378,257

Total liabilities and equity
$
3,530,772

 
$
189,050

 
$
3,719,822

See accompanying notes.






Equity Commonwealth
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2018
(Unaudited and in thousands, except per share amounts)
 
Historical (3)
 
Transaction (4)
 
Pro Forma
Revenues:
 
 
 
 
 
Rental income
$
144,425

 
$
(25,869
)
 
$
118,556

Tenant reimbursements and other income
52,597

 
(12,510
)
 
40,087

Total revenues
197,022

 
(38,379
)
 
158,643

Expenses:
 
 
 
 
 
Operating expenses
79,916

 
(17,086
)
 
62,830

Depreciation and amortization
49,041

 
(12,826
)
 
36,215

General and administrative
44,439

 

 
44,439

Loss on asset impairment
12,087

 

 
12,087

Total expenses
185,483

 
(29,912
)
 
155,571

Operating income
11,539

 
(8,467
)
 
3,072

Interest and other income, net
46,815

 

 
46,815

Interest expense
(26,585
)
 

 
(26,585
)
Loss on early extinguishment of debt
(7,122
)
 

 
(7,122
)
Gain on sale of properties, net
251,417

 

 
251,417

Income before income taxes
276,064

 
(8,467
)
 
267,597

Income tax expense
(3,156
)
 

 
(3,156
)
Net income
272,908

 
(8,467
)
 
264,441

Net income attributable to noncontrolling interest
(95
)
 
3

(4a)
(92
)
Net income attributable to Equity Commonwealth
272,813

 
(8,464
)
 
264,349

Preferred distributions
(7,988
)
 

 
(7,988
)
Net income attributable to Equity Commonwealth common shareholders
$
264,825

 
$
(8,464
)
 
$
256,361

 
 
 
 
 
 
Weighted average common shares outstanding — basic
122,314

 
 
 
122,314

Weighted average common shares outstanding — diluted
123,385

 
 
 
123,385

Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
Basic
$
2.17

 
 
 
$
2.10

Diluted
$
2.15

 
 
 
$
2.08

See accompanying notes.







Equity Commonwealth
Notes to Pro Forma Condensed Consolidated Balance Sheet
December 31, 2018
(Unaudited)

(1) Historical Balances - Reflects the consolidated balance sheet of the Company as contained in its historical consolidated financial statements included in its Annual Report on Form 10-K as of and for the year ended December 31, 2018 previously filed with the SEC on February 14, 2019.

(2) Transaction - Represents the de-recognition of carrying amounts at December 31, 2018 for the assets and the related accumulated depreciation and working capital assets and liabilities related to 1735 Market Street.

a.
Represents the net cash proceeds from the sale including settlement of net working capital.

b.
Reflects the estimated transaction costs the Company will incur at or near closing in order to complete the disposition. The estimated transaction costs approximate 2.5% of the gross sales price and include transfer tax. These costs are not included in the pro forma condensed consolidated statement of operations for the year ended December 31, 2018 because they represent non-recurring charges that result directly from the transaction and will be included in the consolidated financial results of the Company within twelve months of the transaction.

c.
Reflects the reallocation of total equity and Noncontrolling interest based on the Noncontrolling interest ownership of EQC Operating Trust.

d.
Reflects the estimated gain on sale of 1735 Market Street, which is reduced by the estimated transaction costs discussed above. The estimated gain is not included in the pro forma condensed consolidated statement of operations for the year ended December 31, 2018 as it represents a non-recurring item that results directly from the transaction and will be included in the consolidated financial results of the Company within twelve months of the transaction.







Equity Commonwealth
Notes to Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2018
(Unaudited)

(3) Historical Balances - Reflects the consolidated statement of operations of the Company as contained in its historical consolidated financial statements included in its Annual Report on Form 10-K as of and for the year ended December 31, 2018 previously filed with the SEC on February 14, 2019.

(4) Transaction - Represents the historical combined revenues and expenses of 1735 Market Street for the year ended December 31, 2018 as if the disposition had occurred on January 1, 2018.

a.
Reflects the allocation of results between the controlling interests and the noncontrolling interests based on the noncontrolling interests weighted average ownership of 0.04% of EQC Operating Trust for the year ended December 31, 2018.



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Section 3: EX-99.2 (EXHIBIT 99.2)

Exhibit


Exhibit 99.2

Calculation of 1735 Market Street Net Operating Income (NOI) and 1735 Market Street Cash Basis NOI
(amounts in thousands)

 
Three Months
 
Year
 
Ended
 
Ended
 
December 31, 2018
Calculation of 1735 Market Street NOI and 1735 Market Street Cash Basis NOI:
 
 
 
Rental income
$
6,946

 
$
25,869

Tenant reimbursements and other income
3,391

 
12,510

Operating expenses
(4,414
)
 
(17,086
)
1735 Market Street NOI
$
5,923

 
$
21,293

Straight line rent adjustments
(1,012
)
 
(3,704
)
1735 Market Street Cash Basis NOI
$
4,911

 
$
17,589

 
 
 
 
Reconciliation of 1735 Market Street NOI to 1735 Market Street GAAP Operating Income:
 
 
 
1735 Market Street Cash Basis NOI
$
4,911

 
$
17,589

Straight line rent adjustments
1,012

 
3,704

1735 Market Street NOI
$
5,923

 
$
21,293

Depreciation and amortization
(3,371
)
 
(12,826
)
1735 Market Street Operating Income
$
2,552

 
$
8,467




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