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Section 1: 10-Q (10-Q)

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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended September 30, 2019
OR
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9317
EQUITY COMMONWEALTH
(Exact Name of Registrant as Specified in Its Charter)
Maryland04-6558834
(State or Other Jurisdiction of Incorporation or Organization)(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)

 Securities registered pursuant to Section 12(b) of the Exchange Act:
Title Of Each ClassTrading SymbolName of Each Exchange On Which Registered
Common Shares of Beneficial InterestEQCThe New York Stock Exchange
6 1/2% Series D Cumulative Convertible Preferred Shares of Beneficial InterestEQCpDThe New York Stock Exchange
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ý
Number of registrant’s common shares of beneficial interest, $0.01 par value per share, outstanding as of October 25, 2019:  121,924,199.



Table of Contents
EQUITY COMMONWEALTH
 
FORM 10-Q
 
September 30, 2019
 
INDEX
 
  Page
 
 
 
 
 
 
 
 
 




Table of Contents
 
EXPLANATORY NOTE
 
References in this Quarterly Report on Form 10-Q to the Company, EQC, we, us or our, refer to Equity Commonwealth and its consolidated subsidiaries as of September 30, 2019, unless the context indicates otherwise.

i

Table of Contents
PART I.      Financial Information

Item 1.         Financial Statements.
EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
September 30,
2019
December 31,
2018
(audited)
ASSETS
Real estate properties:
Land$85,627  $135,142  
Buildings and improvements572,714  1,004,500  
658,341  1,139,642  
Accumulated depreciation(197,847) (375,968) 
460,494  763,674  
Cash and cash equivalents3,205,775  2,400,803  
Marketable securities  249,602  
Restricted cash4,456  3,298  
Rents receivable19,347  51,089  
Other assets, net41,271  62,306  
Total assets$3,731,343  $3,530,772  
LIABILITIES AND EQUITY
Senior unsecured debt, net$  $248,473  
Mortgage notes payable, net25,896  26,482  
Accounts payable, accrued expenses and other38,218  58,300  
Rent collected in advance3,533  9,451  
Distributions payable435,583  4,068  
Total liabilities503,230  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;
   121,924,199 and 121,572,155 shares issued and outstanding, respectively
1,219  1,216  
Additional paid in capital4,310,353  4,305,974  
Cumulative net income3,347,664  2,870,974  
Cumulative other comprehensive loss  (342) 
Cumulative common distributions(3,851,947) (3,420,548) 
Cumulative preferred distributions(699,727) (693,736) 
Total shareholders’ equity3,226,825  3,182,801  
Noncontrolling interest1,288  1,197  
Total equity3,228,113  3,183,998  
Total liabilities and equity$3,731,343  $3,530,772  
See accompanying notes.
1

Table of Contents
EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2019201820192018
Revenues:
Rental revenue$23,995  $43,770  $93,459  $144,612  
Other revenue2,740  3,103  8,396  9,485  
Total revenues26,735  46,873  101,855  154,097  
Expenses:
Operating expenses9,923  20,257  36,677  64,377  
Depreciation and amortization5,939  11,287  22,085  38,211  
General and administrative8,523  10,905  30,152  35,466  
Loss on asset impairment      12,087  
Total expenses24,385  42,449  88,914  150,141  
Interest and other income, net19,401  12,626  57,871  31,074  
Interest expense (including net amortization of debt discounts,
   premiums and deferred financing fees of $(55), $559, $264 and
   $2,005, respectively)
(321) (5,085) (8,597) (21,550) 
Loss on early extinguishment of debt    (6,374) (6,403) 
Gain on sale of properties, net
1,945  20,877  422,148  253,025  
Income before income taxes
23,375  32,842  477,989  260,102  
Income tax benefit (expense)521  (65) (1,119) (2,616) 
Net income23,896  32,777  476,870  257,486  
Net income attributable to noncontrolling interest(10) (13) (180) (90) 
Net income attributable to Equity Commonwealth$23,886  $32,764  $476,690  $257,396  
Preferred distributions(1,997) (1,997) (5,991) (5,991) 
Net income attributable to Equity Commonwealth common shareholders
$21,889  $30,767  $470,699  $251,405  
Weighted average common shares outstanding — basic122,140  121,845  122,075  122,504  
Weighted average common shares outstanding — diluted123,564  122,851  125,938  123,389  
Earnings per common share attributable to Equity Commonwealth common shareholders:
Basic$0.18  $0.25  $3.86  $2.05  
Diluted
$0.18  $0.25  $3.79  $2.04  
Distributions declared per common share$3.50  $2.50  $3.50  $2.50  

See accompanying notes.
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Table of Contents
EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands)
(unaudited)
Three Months Ended
September 30, 
 Nine Months Ended
September 30, 
 
2019201820192018
Net income$23,896  $32,777  $476,870  $257,486  
Other comprehensive income, net of tax:
Unrealized gain on derivative instruments      456  
Unrealized gain on marketable securities  463  342  535  
Total comprehensive income23,896  33,240  477,212  258,477  
Comprehensive income attributable to the noncontrolling interest
(10) (13) (180) (90) 
Total comprehensive income attributable to Equity Commonwealth
$23,886  $33,227  $477,032  $258,387  

See accompanying notes.

3

Table of Contents
EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(amounts in thousands, except share data)
(unaudited)
 Equity Commonwealth Shareholders
Preferred SharesCommon Shares
Series D
Number
of
Shares
Preferred
Shares
Cumulative
Preferred
Distributions
Number
of
Shares
Common
Shares
Cumulative
Common
Distributions
Additional
Paid
in
Capital
Cumulative
Net
Income
Cumulative Other Comprehensive LossNoncontrolling InterestTotal
Balance at July 1, 2019
4,915,196  $119,263  $(697,730) 121,922,120  $1,219  $(3,420,406) $4,308,049  $3,323,778  $—  $1,450  $3,635,623  
Net income
—  —  —  —  —  —  —  23,886  —  10  23,896  
Share-based compensation
—  —  —  2,079  —  —  3,078  —  —  330  3,408  
Distributions
—  —  (1,997) —  —  (431,541) —  —  —  (1,276) (434,814) 
Adjustment for noncontrolling interest
—  —  —  —  —  —  (774) —  —  774  —  
Balance at September 30, 2019
4,915,196  $119,263  $(699,727) 121,924,199  $1,219  $(3,851,947) $4,310,353  $3,347,664  $—  $1,288  $3,228,113  
Balance at January 1, 2019
4,915,196  $119,263  $(693,736) 121,572,155  $1,216  $(3,420,548) $4,305,974  $2,870,974  $(342) $1,197  $3,183,998  
Net income—  —  —  —  —  —  —  476,690  —  180  476,870  
Unrealized gain on marketable securities
—  —  —  —  —  —  —  —  342  —  342  
Repurchase of shares—  —  —  (168,327) (2) —  (5,485) —  —  —  (5,487) 
Share-based compensation—  —  —  520,371  5  —  10,056  —  —  995  11,056  
Distributions—  —  (5,991) —  —  (431,399) —  —  —  (1,276) (438,666) 
Adjustment for noncontrolling interest
—  —  —  —  —  —  (192) —  —  192  —  
Balance at September 30, 2019
4,915,196  $119,263  $(699,727) 121,924,199  $1,219  $(3,851,947) $4,310,353  $3,347,664  $—  $1,288  $3,228,113  

See accompanying notes.













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Table of Contents
EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Continued)
(amounts in thousands, except share data)
(unaudited)
 Equity Commonwealth Shareholders
Preferred SharesCommon Shares
Series D
Number
of
Shares
Preferred
Shares
Cumulative
Preferred
Distributions
Number
of
Shares
Common
Shares
Cumulative
Common
Distributions
Additional
Paid
in
Capital
Cumulative
Net
Income
Cumulative Other Comprehensive LossNoncontrolling InterestTotal
Balance at July 1, 2018
4,915,196  $119,263  $(689,742) 121,482,673  $1,215  $(3,111,868) $4,300,822  $2,822,793  $(1,469) $1,295  $3,442,309  
Net income
—  —  —  —  —  —  —  32,764  —  13  32,777  
Unrealized gain on marketable securities
—  —  —  —  —  —  —  —  463  —  463  
Share-based compensation
—  —  —  —  —  —  4,864  —  —  333  5,197  
Distributions
—  —  (3,994) —  —  (307,127) —  —  —  (114) (311,235) 
Adjustment for noncontrolling interest
—  —  —  —  —  —  334  —  —  (334) —  
Balance at September 30, 2018
4,915,196  $119,263  $(693,736) 121,482,673  $1,215  $(3,418,995) $4,306,020  $2,855,557  $(1,006) $1,193  $3,169,511  
Balance at January 1, 2018
4,915,196  $119,263  $(685,748) 124,217,616  $1,242  $(3,111,868) $4,380,313  $2,596,259  $(95) $1,129  $3,300,495  
Reclassification pursuant to change in accounting principle
—  —  —  —  —  —  —  1,902  (1,902) —  —  
Net income—  —  —  —  —  —  —  257,396  —  90  257,486  
Unrealized gain on derivative instruments
—  —  —  —  —  —  —  —  456  —  456  
Unrealized gain on marketable securities—  —  —  —  —  —  —  —  535  —  535  
Repurchase of shares—  —  —  (3,027,557) (30) —  (89,880) —  —  —  (89,910) 
Share-based compensation—  —  —  292,614  3  —  14,686  —  —  988  15,677  
Contributions—  —  —  —  —  —  —  —  —  1  1  
Distributions—  —  (7,988) —  —  (307,127) —  —  —  (114) (315,229) 
Adjustment for noncontrolling interest—  —  —  —  —  —  901  —  —  (901) —  
Balance at September 30, 2018
4,915,196  $119,263  $(693,736) 121,482,673  $1,215  $(3,418,995) $4,306,020  $2,855,557  $(1,006) $1,193  $3,169,511  

See accompanying notes.
5

Table of Contents
EQUITY COMMONWEALTH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Nine Months Ended September 30,
20192018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$476,870  $257,486  
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation18,608  31,144  
Net amortization of debt discounts, premiums and deferred financing fees264  2,005  
Straight line rental income(349) (3,985) 
Amortization of acquired real estate leases158  2,015  
Other amortization3,146  4,834  
Amortization of right-of-use asset549  —  
Share-based compensation11,056  15,677  
Loss on asset impairment  12,087  
Loss on marketable securities  4,987  
Loss on early extinguishment of debt6,374  6,403  
Net gain on sale of properties(422,148) (253,025) 
Loss on sale of real estate mortgage receivable  2,117  
Change in assets and liabilities:
Rents receivable and other assets(11,072) (19,749) 
Accounts payable, accrued expenses and other(7,158) (6,523) 
Rent collected in advance(2,204) (4,926) 
Cash provided by operating activities74,094  50,547  
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate improvements(21,416) (41,718) 
Insurance proceeds received  1,443  
Proceeds from sale of properties, net771,787  954,334  
Proceeds from sale of real estate mortgage receivable  5,599  
Proceeds from maturity of marketable securities250,000    
Proceeds from sale of marketable securities  23,933  
Cash provided by investing activities1,000,371  943,591  
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase and retirement of common shares(5,487) (89,910) 
Payments on borrowings(255,697) (575,792) 
Contributions from holders of noncontrolling interest  1  
Distributions to common shareholders(1,160)   
Distributions to preferred shareholders(5,991) (5,991) 
Cash used in financing activities(268,335) (671,692) 
Increase in cash, cash equivalents, and restricted cash806,130  322,446  
Cash, cash equivalents, and restricted cash at beginning of period2,404,101  2,360,590  
Cash, cash equivalents, and restricted cash at end of period$3,210,231  $2,683,036  
See accompanying notes.


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Table of Contents
EQUITY COMMONWEALTH 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(amounts in thousands)
(unaudited)

Nine Months Ended September 30,
20192018
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid$