Toggle SGML Header (+)


Section 1: 10-K (10-K)

eqc-20191231
0000803649false2019FY--12-310.91.81.42.350.1250.3P12MP12MP12MP12MP6MP10YP4YP3YP3YP1YP1YP5Y00008036492019-01-012019-12-310000803649us-gaap:CommonClassAMember2019-01-012019-12-310000803649us-gaap:SeriesDPreferredStockMember2019-01-012019-12-31iso4217:USD00008036492019-06-28xbrli:shares00008036492020-02-0600008036492019-12-3100008036492018-12-31iso4217:USDxbrli:shares0000803649us-gaap:SeriesDPreferredStockMember2018-12-310000803649us-gaap:SeriesDPreferredStockMember2019-12-31xbrli:pure0000803649us-gaap:SeriesDPreferredStockMember2017-01-012017-12-310000803649us-gaap:SeriesDPreferredStockMember2019-01-012019-12-310000803649us-gaap:SeriesDPreferredStockMember2018-01-012018-12-3100008036492018-01-012018-12-3100008036492017-01-012017-12-310000803649us-gaap:PreferredStockMemberus-gaap:SeriesDPreferredStockMember2016-12-310000803649eqc:CumulativePreferredDistributionsMember2016-12-310000803649us-gaap:CommonStockMember2016-12-310000803649eqc:CumulativeCommonDistributionsMember2016-12-310000803649us-gaap:AdditionalPaidInCapitalMember2016-12-310000803649us-gaap:RetainedEarningsMember2016-12-310000803649us-gaap:AccumulatedOtherComprehensiveIncomeMember2016-12-310000803649us-gaap:NoncontrollingInterestMember2016-12-3100008036492016-12-310000803649us-gaap:RetainedEarningsMember2017-01-012017-12-310000803649us-gaap:NoncontrollingInterestMember2017-01-012017-12-310000803649us-gaap:AccumulatedOtherComprehensiveIncomeMember2017-01-012017-12-310000803649us-gaap:CommonStockMember2017-01-012017-12-310000803649us-gaap:AdditionalPaidInCapitalMember2017-01-012017-12-310000803649eqc:CumulativePreferredDistributionsMember2017-01-012017-12-310000803649us-gaap:PreferredStockMemberus-gaap:SeriesDPreferredStockMember2017-12-310000803649eqc:CumulativePreferredDistributionsMember2017-12-310000803649us-gaap:CommonStockMember2017-12-310000803649eqc:CumulativeCommonDistributionsMember2017-12-310000803649us-gaap:AdditionalPaidInCapitalMember2017-12-310000803649us-gaap:RetainedEarningsMember2017-12-310000803649us-gaap:AccumulatedOtherComprehensiveIncomeMember2017-12-310000803649us-gaap:NoncontrollingInterestMember2017-12-3100008036492017-12-310000803649us-gaap:RetainedEarningsMember2018-01-012018-12-310000803649us-gaap:NoncontrollingInterestMember2018-01-012018-12-310000803649us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-01-012018-12-310000803649us-gaap:RetainedEarningsMember2018-01-010000803649us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-01-010000803649us-gaap:CommonStockMember2018-01-012018-12-310000803649us-gaap:AdditionalPaidInCapitalMember2018-01-012018-12-310000803649eqc:CumulativePreferredDistributionsMember2018-01-012018-12-310000803649eqc:CumulativeCommonDistributionsMember2018-01-012018-12-310000803649us-gaap:PreferredStockMemberus-gaap:SeriesDPreferredStockMember2018-12-310000803649eqc:CumulativePreferredDistributionsMember2018-12-310000803649us-gaap:CommonStockMember2018-12-310000803649eqc:CumulativeCommonDistributionsMember2018-12-310000803649us-gaap:AdditionalPaidInCapitalMember2018-12-310000803649us-gaap:RetainedEarningsMember2018-12-310000803649us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310000803649us-gaap:NoncontrollingInterestMember2018-12-310000803649us-gaap:RetainedEarningsMember2019-01-012019-12-310000803649us-gaap:NoncontrollingInterestMember2019-01-012019-12-310000803649us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-310000803649us-gaap:CommonStockMember2019-01-012019-12-310000803649us-gaap:AdditionalPaidInCapitalMember2019-01-012019-12-310000803649eqc:CumulativePreferredDistributionsMember2019-01-012019-12-310000803649eqc:CumulativeCommonDistributionsMember2019-01-012019-12-310000803649us-gaap:PreferredStockMemberus-gaap:SeriesDPreferredStockMember2019-12-310000803649eqc:CumulativePreferredDistributionsMember2019-12-310000803649us-gaap:CommonStockMember2019-12-310000803649eqc:CumulativeCommonDistributionsMember2019-12-310000803649us-gaap:AdditionalPaidInCapitalMember2019-12-310000803649us-gaap:RetainedEarningsMember2019-12-310000803649us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310000803649us-gaap:NoncontrollingInterestMember2019-12-310000803649eqc:EQCOperatingTrustMember2019-12-31eqc:property0000803649us-gaap:ConsolidatedPropertiesMember2019-12-31eqc:buildingutr:sqft0000803649us-gaap:BuildingAndBuildingImprovementsMembersrt:MaximumMember2019-01-012019-12-310000803649eqc:PersonalPropertyMembersrt:MaximumMember2019-01-012019-12-310000803649us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember2019-12-310000803649us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember2018-12-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:MarketStreetPhiladelphiaPA1735Member2019-03-012019-03-310000803649eqc:A600108thAvenueNEMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2019-04-012019-04-300000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:ResearchParkMember2019-06-012019-06-300000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2019-01-012019-12-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:MarketStreetPhiladelphiaPA1735Member2019-03-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:MarketStreetPhiladelphiaPA1735Member2019-01-012019-12-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:MarketStreetPhiladelphiaPA1735Member2018-01-012018-12-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:MarketStreetPhiladelphiaPA1735Member2017-01-012017-12-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:ResearchParkMember2019-01-012019-12-310000803649eqc:A1600MarketStreetMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2018-02-012018-02-280000803649eqc:A600WestChicagoAvenueMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2018-02-012018-02-280000803649eqc:A507350755085SSyracuseStreetMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2018-03-012018-03-310000803649eqc:A1601DryCreekDriveMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2018-05-012018-05-310000803649eqc:A777EastEisenhowerParkwayMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2018-08-012018-08-310000803649eqc:A8750BrynMawrAvenueMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2018-09-012018-09-300000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:A97NewberryRoadMember2018-12-012018-12-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2018-01-012018-12-310000803649eqc:A600WestChicagoAvenueMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2019-01-012019-12-310000803649eqc:A600WestChicagoAvenueMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2018-01-012018-12-310000803649eqc:A600WestChicagoAvenueMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2017-01-012017-12-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2017-01-012017-12-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2017-12-310000803649us-gaap:AccountingStandardsUpdate201601Memberus-gaap:RetainedEarningsMember2018-01-010000803649us-gaap:AccountingStandardsUpdate201601Memberus-gaap:AccumulatedOtherComprehensiveIncomeMember2018-01-010000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:SaleofPropertiesResultinginGainsandLossesMember2013-01-012013-01-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:SaleofPropertiesResultinginGainsandLossesMember2018-08-012018-08-310000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:SaleofPropertiesResultinginGainsandLossesMember2018-01-012018-12-310000803649eqc:PropertyOneMembereqc:SaleofPropertiesResultinginGainsandLossesMember2012-04-012012-04-300000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2017-09-012017-09-300000803649us-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMemberus-gaap:MortgageReceivablesMember2017-01-012017-12-310000803649us-gaap:UnsecuredDebtMembereqc:SeniorNotesFivePointEightSevenFivePercentDue2020Member2019-06-280000803649us-gaap:UnsecuredDebtMembereqc:SeniorNotesFivePointEightSevenFivePercentDue2020Member2019-12-310000803649us-gaap:UnsecuredDebtMembereqc:SeniorNotesFivePointEightSevenFivePercentDue2020Member2018-12-310000803649eqc:East9thStreetAustinTX206Memberus-gaap:SecuredDebtMember2019-12-310000803649eqc:East9thStreetAustinTX206Memberus-gaap:SecuredDebtMember2018-12-310000803649eqc:LoanFacilityFiveYearTermAndSevenYearTermMemberus-gaap:RevolvingCreditFacilityMember2018-05-042018-05-040000803649eqc:LoanFacilityFiveYearTermMemberus-gaap:RevolvingCreditFacilityMember2018-05-042018-05-040000803649eqc:LoanFacilitySevenYearTermMemberus-gaap:RevolvingCreditFacilityMember2018-05-042018-05-040000803649us-gaap:LineOfCreditMembereqc:UnsecuredRevolvingCreditFacilityMemberus-gaap:RevolvingCreditFacilityMember2018-12-262018-12-260000803649eqc:SeniorNotesFivePointEightSevenFivePercentDue2020Member2019-06-282019-06-280000803649eqc:SeniorNotesFivePointEightSevenFivePercentDue2020Member2019-06-280000803649eqc:SeniorNotesFivePointEightSevenFivePercentDue2020Member2019-01-012019-12-310000803649eqc:FivePointSevenFivePercentSeniorUnsecuredNotesDue2042Member2018-03-072018-03-070000803649eqc:FivePointSevenFivePercentSeniorUnsecuredNotesDue2042Member2018-03-070000803649eqc:SeniorNotesSixPointSixFivePercentDue2018Member2017-07-152017-07-150000803649eqc:SeniorNotesSixPointSixFivePercentDue2018Member2017-07-150000803649eqc:SeniorNotesSixPointSixFivePercentDue2018Member2017-01-012017-12-310000803649us-gaap:MortgagesMember2019-12-310000803649us-gaap:MortgagesMembereqc:A97NewberryRoadMember2018-12-012018-12-310000803649eqc:StilesLaneNorthHavenCT33Memberus-gaap:MortgagesMember2017-12-012017-12-310000803649eqc:StilesLaneNorthHavenCT33Memberus-gaap:MortgagesMember2017-01-012017-12-310000803649eqc:ParkshorePlazaMemberus-gaap:MortgagesMember2017-04-012017-04-300000803649eqc:ParkshorePlazaMemberus-gaap:MortgagesMember2017-01-012017-12-310000803649eqc:LoanFacilityFiveYearTermMembersrt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2018-05-042018-05-040000803649eqc:LoanFacilityFiveYearTermMembersrt:MaximumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2018-05-042018-05-040000803649srt:MinimumMemberus-gaap:LondonInterbankOfferedRateLIBORMembereqc:LoanFacilitySevenYearTermMember2018-05-042018-05-040000803649srt:MaximumMemberus-gaap:LondonInterbankOfferedRateLIBORMembereqc:LoanFacilitySevenYearTermMember2018-05-042018-05-040000803649srt:MinimumMemberus-gaap:RevolvingCreditFacilityMember2018-05-042018-05-040000803649srt:MaximumMemberus-gaap:RevolvingCreditFacilityMember2018-05-042018-05-040000803649us-gaap:CommonStockMember2016-03-170000803649us-gaap:CommonStockMember2016-03-172016-03-170000803649us-gaap:CommonStockMember2017-03-012017-03-310000803649us-gaap:CommonStockMember2017-03-150000803649us-gaap:CommonStockMember2017-03-152017-03-150000803649us-gaap:CommonStockMember2018-03-012018-03-310000803649us-gaap:CommonStockMember2018-03-140000803649us-gaap:CommonStockMember2018-03-142018-03-140000803649us-gaap:CommonStockMember2019-03-012019-03-310000803649us-gaap:CommonStockMember2019-03-130000803649us-gaap:CommonStockMember2019-03-132019-03-130000803649us-gaap:CommonStockMember2019-01-012019-12-310000803649us-gaap:CommonStockMember2018-01-012018-12-310000803649us-gaap:CommonStockMember2017-01-012017-12-310000803649us-gaap:CommonStockMember2019-12-3100008036492019-09-242019-09-2400008036492019-10-232019-10-2300008036492018-10-232018-10-2300008036492018-10-092018-10-0900008036492019-02-012019-02-280000803649us-gaap:SeriesDPreferredStockMember2019-10-080000803649us-gaap:SeriesDPreferredStockMember2018-10-100000803649us-gaap:SeriesDPreferredStockMember2018-10-090000803649us-gaap:SeriesDPreferredStockMember2019-02-152019-02-150000803649us-gaap:SeriesDPreferredStockMember2019-01-112019-01-110000803649us-gaap:SeriesDPreferredStockMember2019-04-112019-04-110000803649us-gaap:SeriesDPreferredStockMember2019-05-152019-05-150000803649us-gaap:SeriesDPreferredStockMember2019-07-122019-07-120000803649us-gaap:SeriesDPreferredStockMember2019-08-152019-08-150000803649us-gaap:SeriesDPreferredStockMember2019-10-112019-10-110000803649us-gaap:SeriesDPreferredStockMember2019-11-152019-11-150000803649us-gaap:CommonClassAMember2018-12-310000803649us-gaap:NoncontrollingInterestMembereqc:LongTermIncentivePlanUnitsAndOperatingPartnershipUnitsMember2018-12-310000803649eqc:CommonStockLongTermIncentivePlanUnitsAndOperatingPartnershipUnitsMember2018-12-310000803649us-gaap:NoncontrollingInterestMembereqc:LongTermIncentivePlanUnitsAndOperatingPartnershipUnitsMember2019-01-012019-12-310000803649eqc:CommonStockLongTermIncentivePlanUnitsAndOperatingPartnershipUnitsMember2019-01-012019-12-310000803649us-gaap:CommonClassAMember2019-12-310000803649us-gaap:NoncontrollingInterestMembereqc:LongTermIncentivePlanUnitsAndOperatingPartnershipUnitsMember2019-12-310000803649eqc:CommonStockLongTermIncentivePlanUnitsAndOperatingPartnershipUnitsMember2019-12-310000803649eqc:EquityCommonwealthMember2019-12-310000803649eqc:EQCOperatingTrustMember2018-12-310000803649eqc:EQCOperatingTrustMember2017-12-310000803649us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2018-12-310000803649us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2019-01-012019-12-310000803649us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2019-12-310000803649us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2017-12-310000803649us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2017-12-310000803649us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2017-12-310000803649us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2018-01-012018-12-310000803649us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember2018-01-012018-12-310000803649us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember2018-12-310000803649us-gaap:AociIncludingPortionAttributableToNoncontrollingInterestMember2018-12-310000803649us-gaap:InterestRateCapMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-310000803649us-gaap:InterestRateCapMemberus-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2018-01-012018-12-310000803649us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2019-01-012019-12-310000803649us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember2018-01-012018-12-310000803649eqc:EquityCommonwealth2015OmnibusIncentivePlanMember2019-06-200000803649eqc:EquityCommonwealth2015OmnibusIncentivePlanMember2015-06-162015-06-160000803649eqc:EquityCommonwealth2015OmnibusIncentivePlanMembersrt:MaximumMember2019-12-310000803649us-gaap:RestrictedStockMember2019-01-012019-12-310000803649us-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-31eqc:tranche0000803649us-gaap:ShareBasedCompensationAwardTrancheOneMemberus-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-310000803649us-gaap:ShareBasedCompensationAwardTrancheTwoMemberus-gaap:RestrictedStockUnitsRSUMember2019-01-012019-12-310000803649eqc:LongTermIncentivePlanUnitsMember2019-12-310000803649us-gaap:RestrictedStockUnitsRSUMember2019-12-31eqc:trustee0000803649us-gaap:RestrictedStockMember2019-06-200000803649us-gaap:RestrictedStockMember2019-06-202019-06-200000803649us-gaap:RestrictedStockMembereqc:IndependentTrusteeMember2019-06-202019-06-200000803649eqc:LongTermIncentivePlanUnitsMember2019-06-202019-06-200000803649us-gaap:RestrictedStockMember2019-01-292019-01-290000803649eqc:RestrictedStockUnitsRSUsTargetMember2019-01-292019-01-290000803649eqc:RestrictedStockUnitsRSUsMaximumMember2019-01-292019-01-290000803649us-gaap:RestrictedStockUnitsRSUMember2018-10-282018-10-2800008036492018-10-280000803649us-gaap:RestrictedStockMember2018-06-200000803649us-gaap:RestrictedStockMember2018-06-202018-06-200000803649us-gaap:RestrictedStockMembereqc:IndependentTrusteeMember2018-06-202018-06-200000803649eqc:TimeBasedLongTermIncentivePlanUnitsMember2018-06-202018-06-200000803649us-gaap:RestrictedStockMember2018-01-292018-01-290000803649eqc:RestrictedStockUnitsRSUsTargetMember2018-01-292018-01-290000803649eqc:RestrictedStockUnitsRSUsMaximumMember2018-01-292018-01-290000803649us-gaap:RestrictedStockUnitsRSUMember2017-11-082017-11-0800008036492017-11-080000803649us-gaap:RestrictedStockMember2017-06-200000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMember2017-06-202017-06-200000803649eqc:IndependentTrusteeMembereqc:TimeBasedLongTermIncentivePlanUnitsMember2017-06-202017-06-200000803649us-gaap:RestrictedStockMember2017-06-202017-06-200000803649eqc:TimeBasedLongTermIncentivePlanUnitsMember2017-06-202017-06-200000803649eqc:TimeBasedLongTermIncentivePlanUnitsTargetMember2017-01-242017-01-240000803649eqc:MarketBasedLongTermIncentivePlanUnitsTargetMember2017-01-242017-01-240000803649eqc:LongTermIncentivePlanUnitsMaximumMember2017-01-242017-01-240000803649us-gaap:RestrictedStockMember2017-01-242017-01-240000803649eqc:RestrictedStockUnitsRSUsTargetMember2017-01-242017-01-240000803649eqc:RestrictedStockUnitsRSUsMaximumMember2017-01-242017-01-240000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMember2016-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsMember2016-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMember2017-01-012017-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsMember2017-01-012017-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMember2017-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsMember2017-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMember2018-01-012018-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsMember2018-01-012018-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMember2018-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsMember2018-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMember2019-01-012019-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsMember2019-01-012019-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMember2019-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsMember2019-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMembersrt:ScenarioForecastMember2020-01-012020-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMembersrt:ScenarioForecastMember2021-01-012021-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMembersrt:ScenarioForecastMember2022-01-012022-12-310000803649eqc:RestrictedStockAndTimeBasedLongTermIncentivePlanUnitsMembersrt:ScenarioForecastMember2023-01-012023-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsTargetMember2019-01-012019-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsTargetMember2018-01-012018-12-310000803649eqc:RestrictedStockUnitsRSUsAndMarketBasedLongTermIncentivePlanUnitsTargetMember2017-01-012017-12-310000803649eqc:RestrictedStockUnitsRSUsMaximumMember2019-01-012019-12-310000803649eqc:RestrictedStockUnitsRSUsMaximumMember2018-01-012018-12-310000803649eqc:RestrictedStockUnitsRSUsMaximumMember2017-01-012017-12-310000803649us-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-12-310000803649us-gaap:GeneralAndAdministrativeExpenseMember2018-01-012018-12-310000803649us-gaap:GeneralAndAdministrativeExpenseMember2017-01-012017-12-310000803649srt:MinimumMember2019-01-012019-12-310000803649srt:MaximumMember2019-01-012019-12-310000803649us-gaap:FairValueMeasurementsRecurringMemberus-gaap:AvailableforsaleSecuritiesMember2019-12-310000803649us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel1Memberus-gaap:AvailableforsaleSecuritiesMember2019-12-310000803649us-gaap:FairValueMeasurementsRecurringMemberus-gaap:AvailableforsaleSecuritiesMemberus-gaap:FairValueInputsLevel2Member2019-12-310000803649us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:AvailableforsaleSecuritiesMember2019-12-3100008036492018-01-012018-03-310000803649us-gaap:CarryingReportedAmountFairValueDisclosureMembereqc:DispositionPlanMemberus-gaap:FairValueMeasurementsNonrecurringMember2018-03-310000803649us-gaap:FairValueInputsLevel3Memberus-gaap:MarketApproachValuationTechniqueMembereqc:RealEstateHeldForSaleMember2018-03-310000803649us-gaap:CarryingReportedAmountFairValueDisclosureMember2019-12-310000803649us-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-310000803649us-gaap:CarryingReportedAmountFairValueDisclosureMember2018-12-310000803649us-gaap:EstimateOfFairValueFairValueDisclosureMember2018-12-310000803649us-gaap:SalesRevenueNetMembereqc:TenantMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-12-310000803649us-gaap:SalesRevenueNetMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-12-310000803649us-gaap:RestrictedStockUnitsRSUMember2018-01-012018-12-310000803649us-gaap:RestrictedStockUnitsRSUMember2017-01-012017-12-310000803649eqc:LongTermIncentivePlanUnitsMember2019-01-012019-12-310000803649eqc:LongTermIncentivePlanUnitsMember2018-01-012018-12-310000803649eqc:LongTermIncentivePlanUnitsMember2017-01-012017-12-310000803649us-gaap:SeriesDPreferredStockMember2018-01-012018-12-310000803649us-gaap:SeriesDPreferredStockMember2017-01-012017-12-310000803649eqc:LongTermIncentivePlanUnitsMember2019-01-012019-12-310000803649eqc:LongTermIncentivePlanUnitsMember2018-01-012018-12-310000803649eqc:LongTermIncentivePlanUnitsMember2017-01-012017-12-310000803649eqc:OperatingPartnershipUnitsMember2019-01-012019-12-310000803649eqc:OperatingPartnershipUnitsMember2018-01-012018-12-310000803649eqc:OperatingPartnershipUnitsMember2017-01-012017-12-31eqc:segment0000803649eqc:ExpediaMembereqc:RevenuesMemberus-gaap:CustomerConcentrationRiskMember2019-01-012019-12-310000803649eqc:TwoNorthRiversidePlazaJointVentureLimitedPartnershipMember2019-12-31eqc:option0000803649eqc:TwoNorthRiversidePlazaJointVentureLimitedPartnershipMember2019-01-012019-12-310000803649eqc:TwoNorthRiversidePlazaJointVentureLimitedPartnershipMember2018-01-012018-12-310000803649eqc:TwoNorthRiversidePlazaJointVentureLimitedPartnershipMember2017-01-012017-12-310000803649eqc:TwoNorthRiversidePlazaJointVentureLimitedPartnershipMember2018-12-3100008036492019-01-012019-03-3100008036492019-04-012019-06-3000008036492019-07-012019-09-3000008036492019-10-012019-12-3100008036492018-04-012018-06-3000008036492018-07-012018-09-3000008036492018-10-012018-12-310000803649srt:ScenarioForecastMemberus-gaap:SeriesDPreferredStockMember2020-02-182020-02-180000803649us-gaap:SubsequentEventMemberus-gaap:SeriesDPreferredStockMember2020-01-102020-01-100000803649us-gaap:SubsequentEventMembereqc:BrooklineAvenueBostonMA109Memberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-02-120000803649us-gaap:SubsequentEventMembereqc:BrooklineAvenueBostonMA109Memberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMember2020-02-122020-02-120000803649us-gaap:SubsequentEventMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:OneHundredAndEighthAvenueNEBellevueWA333Member2020-02-120000803649us-gaap:SubsequentEventMemberus-gaap:DisposalGroupDisposedOfBySaleNotDiscontinuedOperationsMembereqc:OneHundredAndEighthAvenueNEBellevueWA333Member2020-02-122020-02-120000803649eqc:SeventeenthStreetDenverCO1225Member2019-12-310000803649eqc:HStreetNWWashingtonDC1250Member2019-12-310000803649eqc:GeorgetownGreenAndHarrisBuildingsWashingtonDCMember2019-12-310000803649eqc:BrooklineAvenueBostonMA109Member2019-12-310000803649eqc:East9thStreetAustinTX206Member2019-12-310000803649eqc:BridgepointParkwayAustinTXMember2019-12-310000803649eqc:OneHundredAndEighthAvenueNEBellevueWA333Member2019-12-310000803649us-gaap:RealEstateMember2016-12-310000803649us-gaap:RealEstateMember2017-01-012017-12-310000803649us-gaap:RealEstateMember2017-12-310000803649us-gaap:RealEstateMember2018-01-012018-12-310000803649us-gaap:RealEstateMember2018-12-310000803649us-gaap:RealEstateMember2019-01-012019-12-310000803649us-gaap:RealEstateMember2019-12-310000803649srt:MaximumMemberus-gaap:BuildingAndBuildingImprovementsMember2019-01-012019-12-310000803649eqc:PersonalPropertyMembersrt:MaximumMember2019-01-012019-12-31



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the fiscal year ended December 31, 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, ChicagoIL
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 Act:
Title Of Each ClassTrading SymbolName of Each Exchange On Which Registered
Common Shares of Beneficial InterestEQCNew York Stock Exchange
6.50% Series D Cumulative Convertible Preferred Shares of Beneficial InterestEQCpDNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý    No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý
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, a 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 filerxAccelerated filero
Non-accelerated fileroSmaller 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
The aggregate market value of the voting common shares of beneficial ownership, $0.01 par value, or common shares, of the registrant held by non-affiliates was approximately $3.9 billion based on the $32.52 closing price per common share on the New York Stock Exchange on June 28, 2019. For purposes of calculating the aggregate market value of shares held by non-affiliates, we have assumed that all outstanding shares are held by non-affiliates, except for shares held by each of our trustees, executive officers, and any 10% or greater stockholders. These assumptions should not be deemed to constitute an admission that all trustees, executive officers, and 10% or greater stockholders are, in fact, affiliates of our company, or that there are not other persons who may be deemed to be affiliates of our company. Further information concerning shareholdings of our trustees, officers, and principal stockholders is included or incorporated by reference in Part III, Item 12 of this Annual Report on Form 10-K.
Number of registrant’s common shares outstanding as of February 6, 2020:  122,009,257.
DOCUMENTS INCORPORATED BY REFERENCE
Certain Information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K is incorporated herein by reference to the definitive Proxy Statement for the 2020 Annual Meeting of Shareholders, or the definitive Proxy Statement, which Equity Commonwealth intends to file no later than 120 days after the end of its fiscal year ended December 31, 2019.





FORWARD LOOKING STATEMENTS
Some of the statements contained in this Annual Report on Form 10-K 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 Annual Report on Form 10-K are intended to be made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. 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.
 
Any forward-looking statements contained in this Annual Report on Form 10-K 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 this Annual Report on Form 10-K.



EQUITY COMMONWEALTH
2019 FORM 10-K ANNUAL REPORT

Table of Contents







EXPLANATORY NOTE
 
References in this Annual Report on Form 10-K to "the Company", "EQC", "we", "us" or "our", refer to Equity Commonwealth and its consolidated subsidiaries as of December 31, 2019, unless the context indicates otherwise.

PART I
Item 1.    Business.
The Company.    We are an internally managed and self-advised real estate investment trust, or REIT, primarily engaged in the ownership and operation of office buildings in the United States. We were formed in 1986 under Maryland law and we have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, or the Code. The Company operates as what is commonly referred to as an umbrella partnership real estate investment trust, or UPREIT, conducting substantially all of its activities through EQC Operating Trust, a Maryland real estate investment trust, or the Operating Trust.
The Company beneficially owned 99.96% of the outstanding shares of beneficial interest, designated as units, in the Operating Trust, or OP Units, as of December 31, 2019, and the Company is the sole trustee of the Operating Trust.  As the sole trustee, the Company generally has the power under the declaration of trust of the Operating Trust to manage and conduct the business of the Operating Trust, subject to certain limited approval and voting rights of other holders of OP Units.

At December 31, 2019, our portfolio consisted of seven properties, with a total of 2.5 million square feet. Over the past six years, we disposed of 161 properties and three land parcels totaling 43.3 million square feet for an aggregate gross sales price of $6.2 billion, as well as $704.8 million of common shares of Select Income REIT. The remaining seven properties were 94.7% leased and had 89.0% commenced occupancy as of December 31, 2019. In 2019, the Company completed three property dispositions totaling $812.1 million. In addition, in February 2020, the Company sold 109 Brookline Avenue for a gross sale price of $270.0 million, and in February 2020, the Company entered into an agreement to sell 333 108th Avenue NE for a gross sale price of $401.5 million. We currently have one other property totaling 0.2 million square feet for sale.
We remain focused on creating value through proactive asset management and improving operating results, while evaluating opportunities to invest capital in high-quality assets or businesses in favorable markets that offer a compelling risk-reward profile. We have generated significant proceeds from dispositions. Since 2014, we have used these proceeds to retire $3.2 billion of debt and preferred shares, paid $733.6 million in distributions to our shareholders and have $2.8 billion of cash and cash equivalents as of December 31, 2019. To create a foundation for long-term growth, the set of opportunities that we pursue in the future may include acquisitions and/or investments in office or non-office property types. Alternatively, we may decide to sell, liquidate or otherwise exit our business through one or more transactions if we believe doing so will maximize shareholder value.
As of December 31, 2019, we had 28 full-time employees. Our principal executive offices are located at Two North Riverside Plaza, Suite 2100, Chicago, Illinois 60606, our telephone number is (312) 646-2800 and our website is www.eqcre.com. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this Annual Report on Form 10-K unless expressly noted.
Policies with Respect to Certain Activities
The discussion below sets forth certain additional information regarding our investment, repositioning, disposition and financing policies. These policies are established by our Board of Trustees and may be changed by our Board of Trustees at any time without shareholder approval.
Investment Policies.    In evaluating potential investments and asset sales, we consider various factors, including but not limited to the following:
the type of property;
the historical and projected rents received and likely to be received from the property;
the historical and expected operating expenses, including real estate taxes, incurred and expected to be incurred at the property;
the growth, tax and regulatory environments of the market in which the property is located;
the quality and credit worthiness of the property's tenants;
occupancy and demand for similar properties in the same or nearby markets;
1



the construction quality, physical condition and design of the property, and expected capital expenditures that may be needed to be made to the property;
the location of the property; and
the pricing of comparable properties as evidenced by recent market sales.
We have no policies that specifically limit the percentage of our assets that may be invested in any individual property, in any one type of property, in properties in one geographic area, in properties leased to any one tenant, in properties leased to an affiliated group of tenants, in real estate joint ventures or in participating, convertible or other types of mortgages. We have in the past provided seller financing for properties we have sold and may do so again in the future.
In the past, we have considered the possibility of entering into mergers or strategic combinations with other companies. We may undertake such considerations in the future.
Office Repositioning Strategy.    Our office repositioning strategy is to own and acquire, at a discount to replacement cost, high-quality multi-tenant assets in markets and sub-markets with favorable long-term supply and demand fundamentals. Our efforts in the office sector will primarily be focused on larger buildings in central business districts and major urban areas that offer an attractive quality of life, including opportunities for tenants to live and play in close proximity to where they work, with a preference for markets that have above average limitations on new supply.
Financing Policies.    Our Board of Trustees may determine to seek additional capital through equity offerings, debt financings, retention of cash flows in excess of distributions to shareholders or a combination of these methods. One of our properties is encumbered by a mortgage. To the extent that our Board of Trustees decides to obtain additional debt financing, we may do so on an unsecured basis or a secured basis, subject to limitations in existing financing or other contractual arrangements; we may seek to obtain lines of credit or to issue securities senior to our common and/or preferred shares, including preferred shares or debt securities which may be convertible into common shares or be accompanied by warrants to purchase common shares; or we may engage in transactions which involve a sale or other conveyance of properties to affiliated or unaffiliated entities. We may finance acquisitions and/or investments by using retained cash flow from operations and dispositions, by the issuance of additional equity securities or debt, by assuming outstanding mortgage debt on the acquired properties or by an exchange of properties. The proceeds from any of our financings may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions and/or investments and expansions of existing or new properties or businesses. We may from time to time re-evaluate and modify our financing policies in light of then current market conditions, relative availability and costs of debt and equity capital, the changing values of properties, growth and acquisition and/or investment opportunities and other factors, and we may increase or decrease our ratio of debt to total capitalization.
Competition.    Investing in and operating real estate is a highly competitive business. We compete against other REITs, numerous financial institutions, individuals and public and private companies who are actively engaged in the real estate business. Also, we compete for tenants and investments based on a number of factors including pricing, underwriting criteria and reputation. Our ability to successfully compete is also impacted by economic and population trends, availability of acceptable acquisition and/or investment opportunities, our ability to negotiate beneficial leasing and investment terms, availability and cost of capital and new and existing laws and regulations. Some of our competitors are dominant in selected geographic markets, including in markets in which we operate. Some of our competitors have greater financial and other resources than we have.
For additional information on competition and the risks associated with our business, please see "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K.
Environmental and Climate Change Matters.    Under various federal, state and local laws related to environmental, health and safety matters, owners, former owners, operators and tenants of real estate may be subject to liabilities resulting from the presence of hazardous substances, waste or petroleum products at, on, under, or emanating from such real estate, including costs for investigating and remediating or removing hazardous substances present at or migrating from such properties, liabilities for property damage or personal injuries, natural resource damages, and costs and losses arising from property use restrictions or diminution in value. We, or our tenants, also may incur liability for failing to comply with environmental, health and safety laws. We do not believe that there are environmental conditions or issues at any of our properties that have had or will have a material adverse effect on us. However, no assurances can be given that conditions or issues are not present at our properties or that costs we may be required to incur in the future to remediate contamination or comply with environmental, health and safety laws will not have a material adverse effect on our business or financial condition.
We estimate the cost to remove hazardous substances or address environmental issues at some of our properties based in part on environmental surveys and analyses conducted on our properties.
2



Some of our properties have been or may be impacted by releases of hazardous substances or petroleum products. Such contamination may arise from a variety of sources, including historic uses of our properties for commercial or industrial purposes, spills of such materials at adjacent properties, or releases from tanks used on our properties to store petroleum or hazardous substances. In addition, certain of our properties are on sites upon which or are adjacent to or near other properties upon which others, including former owners or tenants, have engaged, or may in the future engage, in activities that may release petroleum products or other hazardous or toxic substances. Though we have reviewed these properties for potential environmental liabilities, we cannot assure that we have identified all potential environmental liabilities.
Certain of our buildings contain asbestos. We believe any asbestos in our buildings is contained in accordance with current regulations. If we remove the asbestos or renovate or demolish these properties, certain environmental regulations govern the manner in which the asbestos must be handled and removed, which could result in increased costs.
For more information regarding environmental matters and their possible adverse impact on us, see "Risk Factors—Risks Related to Our Business—We could incur significant costs and liabilities with respect to environmental matters” in Part I, Item 1A of this Annual Report on Form 10-K.
The current political debate about climate change has resulted in various treaties, laws and regulations which are intended to impact carbon emissions. We believe these laws may cause energy costs at our properties to increase, but we do not expect the direct impact of these increases to be material to our results of operations because the increased costs either would be the responsibility of our tenants directly or in large part may be passed through by us to our tenants as additional lease payments. Laws enacted to mitigate climate change may cause us to make material investments in our properties which could materially and adversely affect our financial condition. We evaluate ways to improve the energy efficiency at all of our properties. For more information regarding climate change matters and their possible adverse impact on us, see "Risk Factors—Risks Related to Our Business—We may be adversely affected by laws, regulations or other issues related to climate change" in Part I, Item 1A of this Annual Report on Form 10-K.
Regulation FD Disclosures and Internet Website
We 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.
Copies of our Corporate Governance Guidelines, Code of Business Conduct and Ethics and the charters of our Audit, Compensation and Nominating and Corporate Governance committees are posted on our website and may be obtained free of charge by writing to our Secretary, Equity Commonwealth, Two North Riverside Plaza, Suite 2100, Chicago, Illinois 60606. We make available, free of charge, on our website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the SEC. Any shareholder or other interested party who desires to communicate with our Board of Trustees, or our non-management Trustees, individually or as a group, may do so by contacting our investor relations department through our website. Our website address is included in this Annual Report on Form 10-K as a textual reference only and the information on the website is not incorporated by reference into this Annual Report on Form 10-K.

RISK FACTORS
Item 1A.    Risk Factors.
Our business faces many risks. The risks described below may not be the only risks we face but are the risks we know of that we believe may be material at this time. Additional risks that we do not yet know of, or that we currently think are immaterial, may also impair our business operations or financial results. If any of the events or circumstances described in the following risks occurs, our business, financial condition or results of operations could suffer and the trading price of our securities could decline. Investors and prospective investors should consider the following risks and the information contained under the heading "Forward Looking Statements" before deciding whether to invest in our securities.
3



Risks Related to Our Business
We may be unsuccessful in repositioning our portfolio, which could materially and adversely affect us, including our growth prospects and our stockholders' return on investment.

We have generated significant proceeds from dispositions in connection with our repositioning strategy and continue to evaluate opportunities for acquisitions and/or investments both in and outside the office sector. We are seeking to reinvest the significant cash balances we have accumulated from such dispositions, but we cannot provide any assurances that we will be successful. The ability of our management team to reposition our portfolio depends substantially on identifying acquisitions and/or investments that we believe are strategically compelling and completing such transactions on favorable terms. If we are unable to complete acquisitions or investments, then we will be unable to complete our repositioning efforts, which could materially and adversely affect us, including our growth prospects and our stockholders' return on investment.
We may make acquisitions and/or investments that are viewed unfavorably by our investors, which could negatively affect our stock price.

We may make acquisitions and/or investments that are viewed unfavorably by our investors. We evaluate a range of investments in various office and non-office property types, including portfolios of properties, individual properties and businesses, that vary in significance from relatively minor initial investments to transformative transactions. Our investors may view an acquisition and/or investment that we make unfavorably for a number of reasons, including because they believe we overvalued the acquired assets or business, they disfavor the property type, quality or location of the acquired assets or business, they view the initial investment as small and therefore requiring substantially more time to complete the portfolio repositioning, or they disfavor the management or other personnel involved in the acquired business. If we make a significant acquisition and/or investment that is viewed unfavorably by our investors, then our stock price could be negatively affected.

We may incur significant costs pursuing acquisition and/or investment opportunities that we may not consummate, which could adversely affect our results of operations.

We may incur significant costs pursuing acquisitions and/or investments that we never consummate. For example, when we investigate acquisition and/or investment opportunities, we typically incur expenses exploring such opportunities. Such costs include those related to due diligence and legal, advisory and consulting fees. The incurrence of failed pursuit costs could adversely affect our results of operations.

If we are unable to successfully complete any acquisitions and/or investments, we may decide to sell, liquidate or otherwise exit our business in one or more transactions, which could negatively impact our stockholders' return on investment.

We may not be successful in making acquisitions and/or investments using the significant cash we have accumulated from prior dispositions. Our ability to identify and consummate acquisitions and/or investments in properties or businesses is subject to significant risks, including the following:

we may be unable to identify attractive acquisition and/or investment opportunities;
we may be unable to make acquisitions and/or investments at favorable prices;
we may be unable to make an acquisition and/or investment because of competition from other real estate investors, such as private real estate companies, publicly traded REITs and institutional investment funds; and
we may be unable to finance acquisitions and/or investments on favorable terms or at all.

If we are unable to successfully complete any acquisitions and/or investments, we may sell or liquidate the Company or otherwise exit our business through one or more transactions. The Board of Trustees and management regularly evaluate the best course of action for the Company and have not set a timetable for making any decision regarding a sale, liquidation or exit of the Company, and the timing of any such sale, liquidation or exit may be viewed unfavorably. If a sale, liquidation or exit of the Company occurs, or does not occur in a time frame viewed favorably, our common shareholders' return on investment could be negatively impacted.

We may encounter unanticipated difficulties relating to acquired properties or businesses, which may inhibit our growth and have a material adverse effect on us.

Even if we are able to make acquisitions and/or investments on favorable terms, we might encounter unanticipated difficulties and expenditures relating to acquired properties or businesses. For example, notwithstanding pre-investment due diligence, we could acquire a property or business that contains undisclosed defects in design or construction. Similarly,
4



properties or businesses we acquire may be subject to unknown liabilities without any recourse or with only limited recourse, such as liabilities for clean-up of environmental contamination, claims by customers, vendors or other persons dealing with the former owners of the properties or business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties or businesses. In addition, after our acquisition of a property and/or business, the market in which the acquired property or business is located may experience unexpected changes that adversely affect the property or business’ value. The occupancy of properties that we acquire may decline during our ownership, and rents that are in effect at the time a property is acquired may decline thereafter. Also, our property operating and capital costs for acquisitions and/or investments may be higher than we anticipate and acquisitions in properties and/or businesses may not yield the returns we expect and may result in shareholder dilution. We may not integrate properties or businesses we acquire successfully or anticipated synergies, revenues, cost-savings or operating metrics may not be achieved or may be less than we estimated. If we acquire any non-office properties or businesses, we may encounter different risks specific to owning or operating such non-office properties or businesses, which may delay or impede our operating results and growth prospects. For these reasons, among others, our business plan to acquire additional properties or businesses may not be successful.

We may make dispositions on unfavorable terms or that result in reputational harm.

Our strategy in the office sector focuses on owning larger office buildings in central business districts and major urban areas in markets and sub-markets with favorable long-term supply and demand fundamentals. In order to execute this plan, we may seek to dispose of additional assets, but we may not be able to find attractive sale opportunities for such assets or we may not be able to complete sales in a timely manner, if at all. Our ability to continue to sell certain of our properties, and the prices we receive in any such sales, may be negatively affected by many factors. In particular, these factors could arise from weakness in or the lack of an established market for a property, the illiquid nature of real estate assets, changes in the financial condition or prospects of tenants and prospective purchasers, a limited number of prospective purchasers in certain markets, increase in the cost of or lack of availability of debt, the number of competing properties on the market, a deterioration in current local, national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. In addition, provisions of the Code relating to REITs may limit our ability to sell properties. See risk factor below “Risks Related to Our Taxation as a REIT—The tax on “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for U.S. federal income tax purposes.” For these reasons, we may be unable to sell certain of our properties for an extended period of time or at all, our business plan to sell certain of our properties may not succeed, and we may incur reputational harm.

We may co-invest in joint ventures with third parties, and any such joint venture could be adversely affected by the capital markets, lack of sole decision-making authority, reliance on joint venture partners’ financial condition and any disputes that may arise between us and our joint venture partners.
We may co-invest with third parties through partnerships, joint ventures or other structures in which we acquire noncontrolling interests in, or share responsibility for, managing the affairs of a business, property, partnership, co-tenancy or other entity. If we enter into any such joint venture or similar ownership structure, we may not be in a position to exercise sole decision-making authority regarding the properties owned through such joint ventures or similar ownership structure. In addition, investments in joint ventures may, under certain circumstances, involve risks not present when a third party is not involved, including potential deadlocks in making major decisions, restrictions on our ability to exit the joint venture, reliance on joint venture partners and the possibility that a joint venture partner might become bankrupt or fail to fund its share of required capital contributions, thus exposing us to liabilities in excess of our share of the joint venture or jeopardizing our REIT status. Joint venture partners may have business interests or goals that are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. We may, in specific circumstances, be liable for the actions of our joint venture partners. In addition, any disputes that may arise between us and joint venture partners may result in litigation or arbitration that would increase its expenses. Any of the foregoing may have a material adverse effect on our business, financial condition and results of operations.

We may not decrease our general and administrative expenses proportionally with any further reduction in the size of our portfolio, which could have a negative effect on our results of operations.
 
Because our current strategy is to grow through acquisitions and/or investments, we maintain a level of staffing that we believe will enable us to effectively identify acquisition and/or investment opportunities and integrate any acquisitions and/or investments that we complete. As a result of this strategy, our general and administrative expenses may be higher than if we were not seeking growth through acquisitions and/or investments. If we are unable to grow through acquisitions and/or investments, and do not decrease our general and administrative expenses proportionally as we sell assets, our profitability and our results of operations could be adversely affected.

5



The failure of one or more of our tenants to pay rent could materially and adversely affect us, including our results of operations.

Our performance depends on the financial condition of our tenants and their ability to fulfill their lease obligations by paying their rental payments in a timely manner. As a result of our disposition activity, as of December 31, 2019, our portfolio was comprised of seven properties, and the failure of one or more of our tenants to pay all or a substantial portion of their rent obligations could materially and adversely affect us. We would be harmed if one or more of our major tenants, or a number of our smaller tenants, were to experience financial difficulties, including bankruptcy, insolvency, or a general downturn of business. As of December 31, 2019, the 9 largest tenants in our operating portfolio represented approximately 47.7% of our annualized rental revenue, and 22.9% of our annualized rental revenue was derived from our largest tenant. The inability of a major tenant to pay rent, or the bankruptcy or insolvency of a major tenant, would adversely affect income. If any of our major tenants, or a significant number of our smaller tenants, were to experience a downturn in their business, or a weakening of their financial condition, such an event could have an adverse effect on our investment and our financial condition.

We derive substantially all of our revenues from seven properties, and losses at any such properties could materially and adversely affect us.

As of December 31, 2019, we owned seven office properties and approximately 84.5% of our annualized rental revenue was derived from our five largest properties. Events that negatively impact one or more of our properties, such as a natural disaster, could have a large adverse effect on our results of operations. Such losses could have a material adverse effect on our business.

We may be unable to renew leases, re-lease properties as leases expire or lease vacant spaces on favorable terms, which could materially and adversely affect us.

As of December 31, 2019, leases representing 6.5% of our portfolio square footage and 7.5% of our annualized rental revenue will expire by the end of 2020 and leases representing 16.5% of our portfolio square footage and 15.3% of our annualized rental revenue will expire by the end of 2021. For more information on how we calculate lease expirations, please see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Property Operations.” We expect that many of our current tenants will decline to renew their leases when they expire in 2020, and other tenants may also decline for any reason to renew their leases. We also cannot assure you that any leases that are renewed will have terms as economically favorable as the expiring lease terms. If tenants do not renew their leases as they expire, we cannot provide any assurance that we will be able to find new tenants or that our properties will be re-leased at rental rates equal to or above the current rates in place. To attract new tenants, we may be required to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options. We may experience significant costs in connection with re-leasing our properties, which could materially and adversely affect us. Our inability to renew leases, re-lease properties as leases expire or lease vacant space on favorable terms could materially and adversely affect us.

Significant competition for tenants may reduce rents which could materially and adversely affect us.

All of our properties face competition for tenants. Some competing properties may be newer, better located or more attractive to tenants. Competing owners may offer available space at lower rents than we offer at our properties. This competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge.

Disruptions to the real estate market may reduce the overall demand for office space, which could materially and adversely affect our results of operations.

As of December 31, 2019, our portfolio was comprised of seven office properties. Shared office spaces, telecommuting, flexible work schedules and teleconferencing have impacted the office real estate market, including a trend for companies to utilize shared office spaces and co-working spaces, particularly in central business districts. To the extent this trend continues, it may reduce the overall demand for our office space, which could materially and adversely affect our results of operations.

Our reliance upon CBRE, Inc., or CBRE, for third party property management may have a negative effect on our financial condition and results of operations.

We have engaged CBRE to provide property management services for our properties pursuant to a master property management agreement. The successful operation and management of our properties requires significant coordination between us and CBRE. Additionally, CBRE can terminate the property management agreement, as a whole or as to any one or more of our properties, without cause upon providing three months’ notice, and we are permitted to terminate the property management
6



agreement, as a whole or as to any one or more of our properties, without cause upon 60 days’ notice. If we are unable to successfully coordinate with CBRE with respect to property management or the property management agreement with CBRE is terminated, in whole or in part, our operations could be disrupted, which may have a negative effect on our financial condition and results of operations.

If market and economic conditions decline, it could materially and adversely affect our business, financial condition and results of operations.

We are unable to predict with any certainty whether economic conditions will decline, remain stable or improve. If current economic conditions deteriorate, business layoffs, downsizing, industry slowdowns and other similar factors that affect our tenants could negatively impact commercial real estate fundamentals and result in lower occupancy, lower rental rates and declining values in our real estate portfolio. Additionally, the cost and availability of credit and the commercial real estate market generally may be adversely affected by an unstable political environment globally and in the U.S., high levels of unemployment, insufficient consumer demand or confidence, the impacts of changes in the U.S. federal budgetary process, changes in regulatory environments and other macro-economic factors. Deteriorating economic conditions could also have an impact on our lenders or tenants, causing them to fail to meet their obligations to us. No assurances can be given that the current economic conditions will remain stable or improve, and if market and economic conditions weaken, our ability to lease our properties and increase or maintain rental rates may be affected, which would have a material adverse effect on our business, financial condition and results of operations.

Political instability and regulatory uncertainty could adversely affect our occupancy rates, rental rates, rent collections and the overall value of our assets, which could have an adverse effect on our results of operations.

As a result of political instability and regulatory uncertainty associated with the United States government and other state and local governments, or our tenants responses to such instability or uncertainty, there may be significant economic disruption in the jurisdictions in which we operate and own properties. Political instability may have consequences such as disruptions in government operations, higher interest rates, inflation, increased market volatility or recession. If these or similar consequences were to materialize, we may have difficulty in collecting rents, attracting new tenants and renewing leases, any of which could materially impact our results of operations. Also, elements of our business are dependent on various local, state and federal government agencies for oversight and approval, and disruptions in government operations or regulatory uncertainty could inhibit our operations and materially affect our results of operations.

The loss of key personnel, including one or more of our senior management team, could materially and adversely affect us.

Our success, including our ability to execute our repositioning strategy and manage our operations, depends to a significant degree upon the efforts of our senior management team. Our senior management team has extensive experience and a strong reputation in the real estate industry, which aid us in identifying opportunities, having opportunities brought to us, and negotiating with tenants. If we lost one or more members of our senior management team, it could materially and adversely affect us.

Changes in capital markets may adversely affect the value of an investment in our shares.

Although interest rates remain below historical long term averages, interest rates have become more volatile. Increases in interest rates may adversely affect us and the value of an investment in our shares, including in the following ways:
An increase in interest rates could decrease the amount buyers may be willing to pay for our properties, thereby reducing the market value of our properties and limiting our ability to sell properties or to obtain mortgage financing secured by our properties. Increased interest rates may increase the cost of financing property acquisitions and/or investments to the extent we utilize leverage for those acquisitions and/or investments and may result in a reduction in our acquisitions and/or investments to the extent we reduce the amount we offer to pay for such acquisition and/or investment, due to the effect of increased interest rates, to a price that sellers may not accept.
We currently do not have any outstanding variable rate debt. However, to the extent we incur any such debt in the future, our interest costs will increase when interest rates rise, which could adversely affect our cash flow, ability to pay principal and interest on debt, cost of refinancing debt when it becomes due and ability to make or sustain distributions to our shareholders. Additionally, if we choose to hedge any interest rate risk, we cannot assure that any such hedge will be effective or that our hedging counterparty will meet its obligations to us.

7



Future impairment charges could have a material adverse effect on our results of operations in the period for which the charge occurs.

We periodically evaluate the recoverability of the carrying values of each of the real estate assets that comprise our portfolio. In undertaking our portfolio reviews, we comprehensively review our portfolio to evaluate whether there is any indication that the carrying value of the real estate properties (including any related amortizable intangible assets or liabilities) may not be recoverable, including by projecting property operating performance for the anticipated hold period and general market conditions. During the year ended December 31, 2019, we did not record any loss on asset impairment. We recorded impairment charges of $12.1 million and $19.7 million during the years ended December 31, 2018 and 2017, respectively, in accordance with our impairment analysis procedures. There can be no assurance that we will not take additional charges in the future related to the impairment of our assets.

As part of the evaluation of our portfolio, we compare the current carrying value of the asset to the estimated undiscounted cash flows that are directly associated with the use and ultimate disposition of the asset. Our estimated cash flows are based on several key assumptions, including anticipated hold periods, assumptions regarding the residual value upon disposition, including the exit capitalization rate, rental rates, costs of tenant improvements, and leasing commissions. These key assumptions are subjective in nature and could differ materially from actual results. Additionally, changes in our repositioning strategy or changes in the marketplace may alter the hold period of an asset or asset group, which may result in an impairment loss and such loss could be material to the Company's financial condition or operating performance. To the extent that the carrying value of the asset exceeds the estimated undiscounted cash flows, an impairment loss is recognized equal to the excess of carrying value over fair value. Any future impairment could have a material adverse effect on our results of operations in the period in which the charge is taken.

A lack of any limitation on our debt could result in our becoming more highly leveraged.

Our governing documents do not limit the amount of indebtedness we may incur. Accordingly, we may incur additional debt in connection with future acquisitions and/or investments in properties or businesses, or otherwise. We might become more highly leveraged as a result, and our financial condition, results of operations and cash available for distribution to shareholders might be negatively affected, and the risk of default on our indebtedness could increase.

If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately report our financial results.

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of internal controls, we may discover material weaknesses or significant deficiencies in our internal controls. As a result of weaknesses that may be identified in our internal controls, we may also identify certain deficiencies in some of our disclosure controls and procedures that we believe require remediation. If we discover weaknesses, we will make efforts to improve our internal and disclosure controls. However, there is no assurance that we will be successful. Any failure to maintain effective controls or timely effect any necessary improvement of our internal and disclosure controls could harm operating results or cause us to fail to meet our reporting obligations, which could affect our ability to remain listed with the New York Stock Exchange, or NYSE. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the per share trading price of our securities.

We may become subject to litigation, which could materially and adversely affect us.

We may become subject to litigation, including, but not limited to, claims relating to our operations, corporate transactions, dispositions and acquisitions and/or investments and otherwise in the ordinary course of our business. Some of these claims could result in significant defense costs and potentially significant judgments against us, which may not be covered by insurance. Protracted litigation also may divert management’s and our Trustees’ attention away from our business. We cannot provide any assurance regarding the outcome of any claims that may arise in the future. We also have agreed to indemnify our present and former trustees, officers and property managers in connection with litigation in which they are named or threatened to be named in their capacity as a party, which can be expensive. Any fines, judgments or settlements that exceed our insurance coverage and any indemnification costs that we are required to pay could materially and adversely affect us.

8



We could incur significant costs and liabilities in connection with our dispositions of properties.
In connection with our dispositions of properties, we typically provide indemnification to the purchasers. To the extent that any claims are asserted by purchasers and we are required to indemnify them, our results of operations could be significantly affected.
We could incur significant costs and liabilities with respect to environmental matters.
Under various federal, state and local laws and regulations, as the current or former owners or operators of real estate, we may be liable for costs and damages resulting from the presence or release of hazardous substances, including waste or petroleum products, at, on, in, under or from such property, including costs for investigation, removal or remediation of such contamination and for natural resource damages arising from such contamination. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or property damage, adversely affect our ability to lease, sell or rent such property, or adversely affect our ability to borrow using such property as collateral. Environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. If contamination is discovered on our properties, environmental laws also may impose restrictions on the manner in which those properties may be used or businesses may be operated, and these restrictions may require significant expenditures. Additionally, we may remain responsible for costs and liabilities arising from environmental issues related to representations and warranties we make in sales agreements for properties of which we have disposed. We also may be liable for the costs of removal or remediation of hazardous substances or waste at disposal or treatment facilities if we arranged for disposal or treatment of hazardous substances at such facilities, whether or not we own or operate such facility.

Some of our current or sold properties have been or may be impacted by releases of hazardous substances or petroleum products. Such contamination may arise from a variety of sources, including historic uses of our properties for commercial or industrial purposes, spills of such materials at adjacent properties, or releases from tanks used on our properties to store petroleum or hazardous substances. In addition, certain of our current or sold properties are or were on sites upon which, or are or were adjacent to or near, other properties upon which others, including former owners or tenants, have engaged, or may in the future engage, in activities that may release petroleum products or other hazardous or toxic substances.
We, our tenants, and our properties are subject to various federal, state and local regulatory requirements related to environmental, health and safety matters, such as environmental laws, state and local fire and safety requirements, building codes and land use regulations. Failure to comply with these requirements could subject us or our tenants to governmental fines or private litigant damage awards. In addition, compliance with these requirements, including new requirements or stricter interpretation of existing requirements, may require us or our tenants to incur significant expenditures. We do not know whether existing requirements will change or whether future requirements, including any requirements that may emerge from pending or future climate change laws or regulations, will develop. Environmental noncompliance liability also could impact a tenant’s ability to make rental payments to us, and our reputation could be negatively affected if we or our tenant’s violate environmental laws or regulations.

Buildings and other structures on properties that we currently own or operate or formerly owned or operated or those we acquire or operate in the future contain, may contain, or may have contained, asbestos-containing material (or ACM). Environmental, health and safety laws require that ACM be properly managed and maintained, and include requirements to undertake special precautions, such as removal or abatement, if ACM would be disturbed during maintenance, renovation, or demolition of a building, potentially resulting in substantial costs. Moreover, laws regarding ACM may impose fines and penalties on owners, employers and operators, and we may be subject to liability for releases of ACM into the air in our current or sold buildings and third parties may seek recovery from owners or operators of real property for personal injury associated with ACM.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues also can stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. The presence of mold or other airborne contaminants in our current or sold buildings could expose us to costs and liabilities to address these issues, including from third parties if property damage or personal injury occurs.
9



We may be adversely affected by laws, regulations or other issues related to climate change.

If we become subject to laws or regulations related to climate change, our business, results of operations and financial condition could be impacted adversely. The federal government has enacted, and some of the states and localities in which we operate may enact certain climate change laws and regulations or have begun regulating carbon footprints and greenhouse gas emissions. Although these laws and regulations have not had any known material adverse effects on our business to date, they could result in substantial costs, including compliance costs, increased energy costs, retrofit costs and construction costs, including monitoring and reporting costs, and capital expenditures for environmental control facilities and other new equipment. Furthermore, our reputation could be negatively affected if we violate climate change laws or regulations. We cannot predict how future laws and regulations, or future interpretations of current laws and regulations, related to climate change will affect our business, results of operations and financial condition. Lastly, the potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures. These impacts may adversely affect our business, financial condition and results of operations.
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information and to manage or support a variety of our business processes, including financial transactions and maintenance of records, which may include personal identifying information of tenants and lease data. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmitting and storing confidential tenant information, such as individually identifiable information relating to financial accounts. As our reliance on technology has increased, so have the risks posed to our systems, both internal and those we have outsourced to third party service providers. In addition, information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyber attacks. Although we have taken steps to protect the security of the data maintained in our information systems, it is possible that our security measures will not be able to prevent the systems' improper functioning, or the improper disclosure of personally identifiable information such as in the event of cyber attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers, including ransom attacks, and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper function, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could materially and adversely affect us.

Risks Related to the Real Estate Industry

Real estate ownership creates risks and liabilities that could have a material adverse effect on us, including our results of operations and financial condition.

Our economic performance and the value of our real estate assets, and consequently the value of our securities, are subject to risks inherently associated with real estate ownership, including:

changes in supply of or demand for properties in areas in which we own buildings;
the illiquid nature of real estate markets, which limits our ability to sell our assets rapidly or to respond to changing market conditions;
the subjectivity of real estate valuations and changes in such valuations over time;
property and casualty losses;
the ongoing need for property maintenance and repair, and the need to make expenditures due to changes in governmental regulations, including the Americans with Disabilities Act;
the inability of tenants to pay rent;
competition from the development of new properties in the markets in which we own property and the quality of such competition, such as the attractiveness of our properties as compared to our competitors' properties based on considerations such as convenience of location, rental rates, amenities and safety record;
civil unrest, acts of war, acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured losses), and other factors beyond our control;
legislative, tax and regulatory developments that may occur at the federal, state and local levels that have direct or indirect impact on the ownership, leasing and operation of our properties; and
litigation incidental to our business.

10



If any of the foregoing events occur, our properties may not generate revenues sufficient to meet our operating expenses, including debt service and capital expenditures, and our cash flow and ability to pay distributions to our shareholders will be adversely affected.

Potential losses may not be covered by insurance exposing us to potential risk of loss.
We do not carry insurance for generally uninsurable losses such as loss from riots, war or acts of God. Some of our policies, such as those covering losses due to terrorism, hurricanes, earthquakes and floods, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover all losses. If we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance proceeds to replace a property after it has been damaged or destroyed. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

Insurance coverage on our properties may be expensive or difficult to obtain, exposing us to potential risk of loss.

In the future, we may be unable to renew or duplicate our current insurance coverage at adequate levels or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts, environmental liabilities, or other catastrophic events including hurricanes and floods, or, if offered, the expense of obtaining these types of insurance may not be justified. We therefore may cease to have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property after a covered period of time, but still remain obligated for any mortgage debt or other financial obligations related to the property. We cannot guarantee that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Events such as these could adversely affect our results of operations and our ability to meet our obligations.

Actual or threatened terrorist attacks, crimes, shootings, other acts of violence or other incidents beyond our control may adversely affect our ability to generate revenues and the value of our properties.

We have significant investments in large metropolitan markets that have been or may be in the future the targets of actual or threatened terrorism attacks, crimes, shootings, other acts of violence or other incidents beyond our control. As a result, some tenants in these markets may choose to relocate their businesses to other markets or to lower-profile office buildings within these markets that may be perceived to be less likely targets of future incidents. This could result in an overall decrease in the demand for office space in these markets generally or in our properties in particular, which could increase vacancies in our properties or necessitate that we lease our properties on less favorable terms or both. In addition, future terrorist attacks or other acts of violence at our properties could directly or indirectly damage our properties, both physically and financially, or cause losses that materially exceed our insurance coverage. If such an incident was to occur, we may lose tenants or be forced to close a property for some time. In addition, we may be exposed to civil liability, which could adversely affect us. As a result of the foregoing, our ability to generate revenues and the value of our properties could decline materially.

Changes in accounting pronouncements may materially and adversely affect our financial statements, our tenants’ credit quality and our ability to secure long-term leases and renewal options.
Accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Uncertainties posed by various initiatives of accounting standard-setting by the Financial Accounting Standards Board and the Securities and Exchange Commission, which create and interpret applicable accounting standards for U.S. companies, may change the financial accounting and reporting standards or their interpretation and application of these standards that govern the preparation of our financial statements. These changes could have a material impact on our reported financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in potentially material restatements of prior period financial statements. Similarly, these changes could have a material impact on our tenants’ reported financial condition or results of operations or could affect our tenants’ preferences regarding leasing real estate.

The Financial Accounting Standards Board issued an accounting standard, effective for us for reporting periods beginning after December 15, 2018, that requires companies to capitalize all leases on their balance sheets by recognizing a lessee's rights and obligations. Many companies that account for certain leases on an "off balance sheet" basis will be required
11



to account for such leases "on balance sheet." This change will remove many of the differences in the way companies account for owned property and leased property, and could have a material effect on various aspects of our tenants' businesses, including their credit quality and the factors they consider in deciding whether to own or lease properties. The new standard could cause companies that lease properties to prefer shorter lease terms, in an effort to reduce the leasing liability required to be recorded on their balance sheets. The new standard could also make lease renewal options less attractive, as, under certain circumstances, the rule would require a tenant to assume that a renewal right will be exercised and accrue a liability relating to the longer lease term.

Risks Related to Our Securities

We may not distribute any of our significant existing cash balances to shareholders, which could be viewed unfavorably by investors and materially and adversely affect our company.

Any distributions will be made at the discretion of our Board of Trustees and will depend upon various factors that our Board deems relevant. We currently hold a significant amount of cash ($2.8 billion as of December 31, 2019) which enables us to pursue acquisitions and/or investments and, as a result, we may elect not to distribute any of our existing cash to our shareholders. For 2020, the timing and amount of any potential distributions in connection with gains recognized upon dispositions of properties and/or net income from operations are uncertain. To the extent that our actual distributions in 2020 are less than expected by investors, it could materially and adversely affect our company.

Our cash may be subject to a risk of loss and we may be exposed to fluctuations in the market values of our investments.

Our assets include a significant amount of cash held in investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. We currently invest the majority of our cash in bank deposits with investment grade financial institutions. We have and may in the future invest in a variety of other investments as part of our cash management strategy. Nearly all of our cash and bank deposits are not insured by the Federal Deposit Insurance Corporation, or the FDIC. Therefore, our cash and any bank deposits or other investments that we now hold or may acquire in the future may be subject to risks, including the risk of loss or of reduced value or liquidity.

Changes in market conditions could adversely affect the market price of our common shares.

As with other publicly traded equity securities, the value of our common shares depends on various market conditions that may change from time-to-time. Among the market conditions that may affect the value of our common shares are the following:
the extent of investor interest in our securities;
the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;
our underlying asset value;
national and global economic conditions;
interest rates;
changes in tax laws;
our financial performance; and
general stock and bond market conditions.
The market value of our common shares is based primarily upon the market’s perception of our growth potential and our current and potential future earnings and cash dividends. Consequently, our common shares may trade at prices that are greater or less than our net asset value per common share. If our future earnings or cash dividends are less than expected, it is likely that the market price of our common shares will diminish.
Any notes we may issue will be effectively subordinated to the debts of our subsidiaries and our secured debt.
We conduct substantially all of our business through, and substantially all of our properties are owned by, our subsidiaries. Consequently, our ability to pay debt service on any notes we issue in the future will be dependent upon the cash flow of our subsidiaries and payments by those subsidiaries to us as dividends or otherwise. Our subsidiaries are separate legal entities and have their own liabilities. Payments due on any notes we may issue will be effectively subordinated to liabilities of
12



our subsidiaries, including guaranty liabilities. As of December 31, 2019, our subsidiaries had $25.7 million of debt (including net unamortized premiums and net unamortized deferred financing costs). Any notes we may issue will be, effectively subordinated to any secured debt with regard to our assets pledged to secure those debts.
There may be no public market for notes we may issue and one may not develop.
Generally, any notes we may issue will be a new issue for which no trading market currently exists. We may not list our notes on any securities exchange or seek approval for price quotations to be made available through any automated quotation system. We cannot assure that an active trading market for any of our notes will exist in the future. Even if a market develops, the liquidity of the trading market for any of our notes and the market price quoted for any such notes may be adversely affected by changes in the overall market for fixed income securities, by changes in our financial performance or prospects, or by changes in the prospects for REITs or for the real estate industry generally.
The number of our common shares available for future issuance or sale could adversely affect the per share trading price of our common shares and may be dilutive to current shareholders.

Our declaration of trust authorizes our Board of Trustees to, among other things, issue additional shares of capital stock without stockholder approval. We cannot predict whether future issuances or sales of our common shares or the availability of shares for resale in the open market will decrease the per share trading price of our common shares. The issuance of substantial numbers of our common shares in the public market, including, but not limited to, in connection with any future transaction involving the Company or upon conversion of our Series D preferred shares, or the perception that such issuances might occur, could adversely affect the per share trading price of our common shares. In addition, we may issue our common shares or other long-term equity awards under the Equity Commonwealth 2015 Omnibus Incentive Plan, as amended. Any such future issuances may be dilutive to existing shareholders.
Conversion of our series D preferred shares may dilute the ownership interests of existing shareholders.
The conversion of some or all of our series D preferred shares may dilute the ownership interests of existing shareholders.
Risks Related to Our Organization and Structure
Ownership limitations and certain provisions in our declaration of trust and bylaws, as well as certain provisions of Maryland law, may deter, delay or prevent a change in our control or unsolicited acquisition proposals.
Our declaration of trust and bylaws prohibit any shareholder other than certain persons who have been exempted by our Board of Trustees from owning (directly and by attribution) more than 9.8% of the number or value of shares of any class or series of our outstanding shares of beneficial interest, including our common shares. These provisions are intended to assist with our REIT compliance under the Code and otherwise promote our orderly governance. However, these provisions also inhibit acquisitions of a significant stake in us and may deter, delay or prevent a change in our control or unsolicited acquisition proposals that a shareholder may consider favorable.
Additionally, provisions contained in our declaration of trust and bylaws or under Maryland law may have a similar impact, including, for example, provisions relating to: the authority of our Board of Trustees to fill most vacancies on our Board of Trustees; the fact that only the Chairman of the Board of Trustees, our Chief Executive Officer, our President, a majority of our Trustees or the holders of 10% of our common shares may call a special meeting of shareholders; and advance notice requirements for shareholder proposals.
Furthermore, our Board of Trustees has the authority to create and issue new classes or series of shares (including shares with voting rights and other rights and privileges that may deter a change in control) and issue additional common shares. The authorization and issuance of a new class of capital stock or additional common shares could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders' best interests.
Certain provisions of Maryland law could inhibit changes in control.
Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
“business combination moratorium/fair price” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair price and super-majority shareholder voting requirements on these combinations; and
13



“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares” from a party other than the issuer) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two thirds of all the votes entitled to be cast on the matter, excluding all interested shares, and are subject to redemption in certain circumstances.
We have opted out of these provisions of Maryland law. However, our Board of Trustees may opt to make these provisions applicable to us at any time without obtaining shareholder approval.

Certain provisions in the organizational documents of the Operating Trust may delay, defer or prevent unsolicited acquisitions of us or changes in our control.

Provisions in the organizational documents of the Operating Trust may delay, defer or prevent a transaction or a change of control that might involve a premium price for the Company’s common shares. These provisions include, among others:

redemption rights of qualifying parties;
a provision that we may not be removed as the trustee of the Operating Trust with or without cause;
transfer restrictions on the OP Units held directly or indirectly by us;
our ability as trustee in some cases to amend the organizational documents of the Operating Partnership without the consent of the other holders of OP Units;
the right of the holders of OP Units to consent to mergers involving us under specified circumstances; and
the right of the holders of OP Units to consent to our withdrawal as the sole trustee of the Operating Trust.
These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some shareholders might consider such proposals, if made, desirable.
As an UPREIT, we are a holding company with no direct operations and will rely on distributions received from the Operating Trust to make distributions to our shareholders.
We are a holding company and conduct all of our operations through the Operating Trust. We do not have, apart from our ownership of the OP Units, any independent operations. As a result, we will rely on distributions from the Operating Trust to make any distributions to our shareholders we might declare on our common shares and to meet any of our obligations, including tax liability on taxable income allocated to us from the Operating Trust (which might not make distributions to our company equal to the tax on such allocated taxable income). The ability of subsidiaries of the Operating Trust to make distributions to the Operating Trust, and the ability of the Operating Trust to make distributions to us in turn, will depend on their operating results and on the terms of any financing arrangements into which they have entered. Such financing arrangements may contain lockbox arrangements, reserve requirements, covenants and other provisions that prohibit or otherwise restrict the distribution of funds, including upon default thereunder. In addition, because we are a holding company, the claims of our shareholders as common shareholders of our company will be structurally subordinated to all existing and future liabilities and other obligations (whether or not for borrowed money) and any preferred equity of the Operating Trust and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of the Operating Trust and its subsidiaries will be able to satisfy the claims of our common shareholders only after all of our and the Operating Trust’s and its subsidiaries’ liabilities and other obligations and any preferred equity have been paid in full.
We may acquire properties or portfolios of properties or businesses through tax-deferred contribution transactions, which could result in shareholder dilution and limit our ability to sell such assets.

In the future, we may acquire properties or portfolios of properties or businesses through tax-deferred contribution transactions in exchange for OP Units in the Operating Trust, which may result in shareholder dilution. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax lives of the acquired properties, and may require that we agree to protect the contributors’ abilities to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell or finance an asset at a time, or on terms, that would be favorable absent such restrictions.
14



Future issuances of OP Units would reduce our ownership interest in the Operating Trust and may result in shareholder dilution.
As of December 31, 2019, we beneficially owned 99.96% of the outstanding OP Units. Our Operating Trust may, in connection with our acquisition of additional properties or otherwise, issue OP Units to third parties. Additionally, we have and may in the future issue long-term equity awards convertible into OP Units (LTIP Units) to trustees, officers, or employees. Such issuances of OP Units, or the conversion of LTIP Units into OP Units, would reduce our ownership in the Operating Trust and, consequently, our share of distributions from the Operating Trust. Because OP Units may be redeemed (sometimes subject to vesting or performance achievements) for, at our election, cash or common shares, additional common shares may be issued in respect of any such redeemed OP Units, which would dilute existing shareholders. Our shareholders do not have any voting rights with respect to any such issuances, redemptions or other operational activities of the Operating Trust.
Our recourse against Trustees and officers may be limited by the limited rights granted to our shareholders in our declaration of trust.
Our declaration of trust limits the liability of our Trustees and officers to us and our shareholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our Trustees and officers will not have any liability to us and our shareholders for money damages other than liability resulting from:
actual receipt of an improper benefit or profit in money, property or services; or
active and deliberate dishonesty by the Trustee or officer that was established by a final judgment as being material to the cause of action adjudicated.
Our declaration of trust and bylaws require us to indemnify any present or former Trustee or officer, to the maximum extent permitted by Maryland law, who is made or threatened to be made a party to a proceeding by reason of his or her service in that capacity. In addition, we may be obligated to pay or reimburse the expenses incurred by our present and former Trustees and officers without requiring a preliminary determination of their ultimate entitlement to indemnification. As a result, we and our shareholders may have more limited rights against our present and former Trustees and officers than might otherwise exist absent the provisions in our declaration of trust and bylaws or that might exist with other companies, which could limit your recourse in the event of actions not in your best interest.
Conflicts of interest could arise in the future between the interests of the Company’s shareholders and the interests of other holders of OP Units, which may impede business decisions that could benefit our shareholders.
Conflicts of interest may exist or could arise in the future as a result of the relationships between the Company and its affiliates, on the one hand, and the Operating Trust or holders of OP Units, on the other. Our trustees and officers have duties to the Company and its shareholders under applicable Maryland law in connection with their management of the Company. At the same time, we, as trustee, have fiduciary duties to the Operating Trust and to the holders of all OP Units under Maryland law in connection with the management of the Operating Trust. The Company’s duties as trustee to the Operating Trust and its Unitholders may come into conflict with the duties of our trustees and officers to the Company and our shareholders.
Additionally, the organizational documents of the Operating Trust expressly limit our liability by providing that the Company will not be liable for monetary or other damages or otherwise for losses sustained, liabilities incurred or benefits not derived in connection with such decisions unless the Company acted with willful misfeasance, bad faith, gross negligence or reckless disregard of duty, and the act or omission was material to the matter giving rise to the loss, liability or benefit not derived. Moreover, the organizational documents of the Operating Trust provide that the Operating Trust may indemnify, and pay or reimburse reasonable expenses to, the Company and the Company’s and the Operating Trust’s present or former unitholders, trustees, officers or agents and any other persons acting on behalf of the Company that the Company may designate from and against all claims and liabilities by reason of his, her or its service in such capacity. The Operating Trust has the power, with the approval of the Company, to provide such indemnification and advancement of expenses. The provisions of Maryland law that allow the fiduciary duties of a trustee to be modified by such organizational documents have not been resolved in a court of law, and we have not obtained an opinion of counsel covering the provisions set forth in the organizational documents of the Operating Trust that purport to waive or restrict our fiduciary duties that would be in effect were it not for such organizational documents.
Shareholder litigation against us or our Trustees and officers may be referred to binding arbitration proceedings which may increase our risk of default.
Our bylaws provide that actions by our shareholders against us or against our Trustees and officers, including derivative and class actions, may be referred to binding arbitration proceedings. As a result, our shareholders would not be able to pursue litigation for these disputes in courts against us or our Trustees and officers if the disputes were referred to arbitration. In
15



addition, the ability to collect attorneys' fees or other damages may be limited, which may discourage attorneys from agreeing to represent parties wishing to commence such a proceeding.
We may change our operational, financing and investment policies without shareholder approval and we may become more highly leveraged, which may increase our risk of default under our debt obligations.
Our Board of Trustees determines our operational, financing and investment policies and may amend or revise our policies, including our policies with respect to our intention to qualify for taxation as a REIT, acquisitions and/or investments, dispositions, growth, operations, indebtedness, capitalization and distributions, or approve transactions that deviate from these policies, without a vote of, or notice to, our shareholders. Policy changes could adversely affect the market value of our common shares and our ability to make distributions to our shareholders. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. We could become more highly leveraged, which could result in an increase in our debt service costs. Higher leverage also increases the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk.
Risks Related to Our Taxation as a REIT
Qualifying as a REIT involves highly technical and complex provisions of the Code.

Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification. Our qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis.

New legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. H.R. 1, the Tax Cuts and Jobs Act, the tax reform legislation passed on December 22, 2017, makes fundamental changes to the individual and corporate tax laws that may materially impact us and our shareholders. Certain rules applicable to REITs are particularly difficult to interpret or to apply in the case of REITs investing in real estate mortgage loans that are acquired at a discount, subject to work-outs or modifications, or reasonably expected to be in default at the time of acquisition. In addition, our ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which we have no control or only limited influence, including in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.
If we do not qualify as a REIT or fail to remain qualified as a REIT, we will be subject to U.S. federal income tax and potentially to additional state and local taxes which would reduce the amount of cash available for distribution to our shareholders.

We believe that we have been organized and have operated, and will continue to be organized and to operate, in a manner to allow us to qualify us to be taxed under the Code as a REIT. However, we cannot be certain that, upon review or audit, the IRS will agree with this conclusion. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT. We do not intend to request a ruling from the IRS as to our REIT qualification.

As a REIT, we generally do not pay U.S. federal income tax on our net income that we distribute currently to our shareholders. However, actual qualification as a REIT under the Code depends on satisfying complex statutory requirements, for which there are only limited judicial and administrative interpretations. Many of the REIT requirements, however, are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers. We also are required to distribute to our shareholders with respect to each year at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains). Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT.

If we fail to qualify as a REIT for U.S. federal income tax purposes, and are unable to avail ourselves of certain savings provisions set forth in the Code, we likely would be subject to U.S. federal income tax at regular corporate rates. As a taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or
16



pass through long term capital gains to individual shareholders at favorable rates. We also could be subject to the U.S. federal alternative minimum tax (for taxable years beginning before December 31, 2017) and possibly increased state and local taxes. We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions. If we failed to qualify as a REIT, we likely would have to pay significant income taxes, which likely would reduce our net earnings available for investment or distribution to our shareholders. If we fail to qualify as a REIT, such failure may adversely affect our ability to raise capital and to service our debt.  This likely would have a significant adverse effect on our earnings and the value of our securities. In addition, we would no longer be required to pay any distributions to shareholders. If we fail to qualify as a REIT for U.S. federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure.

Distributions to our shareholders may be taxed at rates that are higher than the 20% tax rate currently in effect for qualified dividends paid by “C” corporations, which could cause some investors to view an investment in REITs to be less attractive.

Beginning in 2018, under H.R. 1, distributions paid by REITs to noncorporate shareholders generally are eligible for rates that are 20% lower than ordinary income tax rates.  For those shareholders who pay income tax at the top marginal rate of 37%, the tax rate applicable to distributions paid by REITs would be 29.6%, which is higher than the 20% tax rate currently applicable to qualified dividend income paid by “C” corporations.  The more favorable tax rates currently available for corporate dividends may cause investors who are individuals, trusts and estates to perceive that an investment in a REIT is less attractive than an investment in a non-REIT entity that pays dividends, thereby reducing the demand and market price of our shares.

REIT distribution requirements could adversely affect our ability to execute our business plan.

We generally must distribute annually at least 90% of our “REIT taxable income” (determined before the deduction for dividends paid and excluding net capital gains) in order for U.S. federal corporate income tax not to apply to earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. We intend to make distributions to our shareholders to comply with the REIT requirements of the Code and avoid entity-level taxes.

From time to time, we may generate taxable income greater than our income for financial reporting purposes prepared in accordance with U.S. generally accepted accounting principles, or GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash or between the deduction of expenses and actual payment of those expenses may occur. For example, under amendments to the Code made by H.R. 1, income must be accrued for U.S. federal income tax purposes no later than when such income is taken into account as revenue in our financial statements, subject to certain exceptions, which could create mismatches between REIT taxable income and the receipt of cash attributable to such income. In addition, newly-proposed Treasury regulations could limit the deduction we may claim for our proportionate share of the compensation expense attributable to the remuneration paid by the Operating Trust for services performed by certain of our highly-ranked and highly-compensated employees, which could create mismatches between REIT taxable income and cash available for distribution. If we do not have other funds available in these situations we could be required to (i) borrow funds on unfavorable terms, (ii) sell investments at disadvantageous prices, (iii) distribute amounts that would otherwise be invested in future acquisitions and/or investments, or (iv) make a taxable distribution of our common shares as part of a distribution in which shareholders may elect to receive our common shares or (subject to a limit measured as a percentage of the total distribution) cash to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement. These alternatives could increase our costs or reduce our shareholders' equity. Thus, compliance with the REIT requirements may hinder our ability to grow, which could adversely affect the value of our shares.

Even if we qualify and remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

Even if we qualify and remain qualified for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, excise taxes, state or local income, property and transfer taxes, such as mortgage recording taxes, and other taxes. We are subject to U.S. federal and state income tax (and any applicable non-U.S. taxes) on the net income earned by our taxable REIT subsidiaries. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to U.S. federal income tax on that income because not all states and
17



localities treat REITs the same way they are treated for federal U.S. income tax purposes. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our shareholders.

Complying with REIT requirements may force us to forgo and/or liquidate otherwise attractive investment opportunities.

To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% (25% for taxable years beginning before January 1, 2018) of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries, or TRS, and, effective for our taxable year that began on January 1, 2016 and all future taxable years, no more than 25% of the value of our assets can be represented by debt instruments issued by “publicly offered REITs.” If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio, or contribute to a TRS, otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income, increasing our income tax liability, and reducing amounts available for distribution to our stockholders. In addition, we may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution, and may be unable to pursue investments (or, in some cases, forego the sale of such investments) that would be otherwise advantageous to us in order to satisfy the source-of-income or asset-diversification requirements for qualifying as a REIT. Thus, compliance with the REIT requirements may hinder our ability to make, and, in certain cases, maintain ownership of certain attractive investments.

The tax on “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for U.S. federal income tax purposes.

A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Our Trustees have adopted an office repositioning strategy to own and acquire at a discount to replacement cost high-quality, multi-tenant assets in markets and sub-markets with favorable long-term supply and demand fundamentals. Our efforts in the office sector will primarily be focused on larger buildings in central business districts and major urban areas that offer an attractive quality of life, including opportunities for tenants to live and play in close proximity to where they work, with a preference for markets that have above average limitations on new supply. We believe that the dispositions related to the repositioning of our portfolio along with other dispositions that we have made or that we might make in the future will not be subject to the 100% penalty tax; however, because application of the prohibited transactions tax could be based on an analysis of all of the facts and circumstances, there can be no assurance that the gains on our prior real estate sales have not, or any future real estate sales will not, be subject to the 100% prohibited transaction tax.

With less rental revenue from the fewer properties, in order to comply with the 75% gross income test, we may be required to invest in debt obligations secured by mortgages on real property, such as mortgage-backed securities (MBS), which have more risks than investments in cash and cash equivalents.

One of the gross income requirements a REIT must satisfy each taxable year is that at least 75% of its gross income (excluding gross income from prohibited transactions and qualifying hedges) generally must be derived directly or indirectly from investments relating to real property or mortgages on real property. As of December 31, 2019, we had equity interests in seven office properties and cash and cash equivalents of $2.8 billion. With fewer income-producing real properties, we receive less rental revenue as a percentage of our total revenue. In order to comply with the 75% gross income test for each taxable year, we may be required to invest more of our assets in debt obligations secured by mortgages on real property, such as MBS, rather than cash and cash equivalents. Those mortgage debt obligations, such as MBS, have more risks than investments in cash and cash equivalents, including, but limited to, risks relating to default on payment obligations, prepayment and interest rate fluctuations. In addition, we may engage certain third parties to facilitate our investment in MBS or other mortgage debt obligations, and, as a result, we rely on such third parties to successfully invest our assets.

18



Our ownership of TRSs has been and will continue to be limited and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s length terms.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% (25% for taxable years beginning before January 1, 2018) of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, for taxable years prior to 2018, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s length basis.

TRSs that we have formed are subject to and will continue to be subject to U.S. federal, state and local income tax on their taxable income, and their after-tax net income is available for distribution to us but is not required to be distributed by such TRSs to us. We believe that the aggregate value of the stock and securities of our TRSs has been and we anticipate that the aggregate value will continue to be less than 20% (25% for taxable years beginning before January 1, 2018) of the value of our total assets (including our TRS stock and securities). Furthermore, we have monitored and will continue to monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations. In addition, we have scrutinized and will continue to scrutinize all of our transactions with TRSs to ensure that they are entered into on arm’s length terms to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the TRS limitation discussed above or to avoid application of the 100% excise tax discussed above.

 Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code limit our ability to hedge our liabilities. Generally, income from a hedging transaction into which we enter to manage risk of interest rate fluctuations with respect to borrowings, including gain from the disposition of such hedging transactions, to the extent the hedging transactions hedge indebtedness incurred by us to acquire or carry real estate assets does not constitute “gross income” for purposes of the 75% or 95% gross income tests, provided we properly identify the hedge pursuant to the applicable sections of the Code and Treasury regulations. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary. This could increase the cost of our hedging activities because our taxable REIT subsidiary would be subject to tax on income or gains resulting from hedges entered into by it or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in our taxable REIT subsidiary will generally not provide any tax benefit, except for being carried forward for use against future taxable income in our taxable REIT subsidiary, provided, however, losses in our taxable REIT subsidiary arising in taxable years beginning after December 31, 2017 may only be deducted against 80% of future taxable income in the taxable REIT subsidiary.

There is a risk of changes in the tax law applicable to REITs.

The IRS, the United States Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and other guidance. We cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted. Any legislative action may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us and/or our shareholders. In particular, H.R. 1, which generally takes effect for taxable years beginning on or after January 1, 2018 (subject to certain exceptions), makes many significant changes to the U.S. federal income tax laws that may profoundly impact the taxation of individuals and corporations (both regular C corporations as well as corporations that have elected to be taxed as REITs). A number of changes that affect noncorporate taxpayers will expire at the end of 2025 unless Congress acts to extend them. These changes will impact us and our shareholders in various ways, some of which may be adverse or potentially adverse compared to prior law. To date, while the IRS has issued guidance with respect to certain of the new provisions, there remain interpretive issues that will require further clarification. It is likely that technical corrections legislation will be needed for certain aspects of the new law and give proper effect to Congressional intent. There can be no assurance, however, that technical clarifications or changes needed to prevent unintended or unforeseen tax consequences will be enacted by Congress in the near future.
19



Item 1B.    Unresolved Staff Comments.
None.

Item 2.    Properties.
General.    At December 31, 2019, we had real estate investments totaling approximately $662.1 million in seven properties (12 buildings), that were leased to 129 tenants. We account for the operations of all our properties in one reporting segment. At December 31, 2019, we owned the following real estate (dollars in thousands):
PropertyStateNumber of
Buildings
Undepreciated
Carrying
Value
Depreciated
Carrying
Value
Annualized
Rental
Revenue(1)
1225 Seventeenth Street (17th Street Plaza)CO $165,096  $124,554  $25,701  
1250 H Street, NWDC 75,680  39,778  9,510  
Georgetown-Green and Harris BuildingsDC 62,298  52,890  6,183  
109 Brookline AvenueMA 51,317  28,069  8,772  
206 East 9th Street (Capitol Tower)TX 51,774  43,214  9,358  
Bridgepoint SquareTX 102,369  53,988  14,486  
333 108th Avenue NE (Tower 333)WA 153,587  116,928  22,661  
Total12  $662,121  $459,421  $96,671  
(1)Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of December 31, 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.  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.
At December 31, 2019, one property (one building) was encumbered by a mortgage note payable totaling $25.7 million (including a net unamortized premium and net unamortized deferred financing costs). For more information regarding this mortgage note, see Note 7 of the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

Item 3. Legal Proceedings.
 
We are or may become a party to various legal proceedings. We are not currently involved in any litigation nor, to our knowledge, is any litigation threatened against us where the outcome would, in our judgment based on information currently available to us, have a material adverse effect on the Company.

Item 4.    Mine Safety Disclosures.
Not applicable.

20



PART II
Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common shares are traded on the NYSE (symbol: EQC). As of February 6, 2020, there were 1,106 shareholders of record of our common shares. However, because many of our common shares are held by brokers and other institutions on behalf of shareholders, we believe that there are considerably more beneficial holders of our common shares than record holders.
Distributions
Under our governing documents and Maryland law, distributions to our shareholders are to be authorized and declared by our Board of Trustees.
On September 24, 2019, our Board of Trustees declared a special, one-time cash distribution of $3.50 per common share/unit to shareholders/unitholders of record on October 7, 2019. On October 23, 2019, we paid this distribution to such shareholders/unitholders in the aggregate amount of $427.7 million.

On September 26, 2018, our Board of Trustees declared a special, one-time cash distribution of $2.50 per common share/unit to shareholders/unitholders of record on October 9, 2018. On October 23, 2018, we paid this distribution to such shareholders/unitholders in the aggregate amount of $304.7 million. In February 2019, the number of earned awards for certain recipients of the Company's restricted stock units was determined. Pursuant to the terms of such awards, we paid a one-time catch-up cash distribution of $2.50 per common share/unit to these recipients in the aggregate amount of $1.2 million upon such determination.

The timing and amount of future distributions is determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including, but not limited to, our results of operations, our financial condition, debt and equity capital available to us, our expectations of our future capital requirements and operating performance, including our FFO, our Normalized FFO, and our cash available for distribution, restrictive covenants in our financial or other contractual arrangements (including those in our senior notes indenture), tax law requirements to qualify for taxation as and to remain a REIT, restrictions under Maryland law and our expected needs and availability of cash to pay our obligations and fund acquisitions. If our taxable income exceeds our net operating loss carryforwards, we will likely be required to make a distribution. Whether we will make a distribution in 2020 and the timing of any such distribution remains uncertain. There can be no assurance that we will pay distributions in the future.

Issuer Repurchases

Common Share Repurchase Program

On March 14, 2018, our Board of Trustees authorized the repurchase of up to $150.0 million of our outstanding common shares over the twelve month period following the date of authorization. In March 2019, this share repurchase authorization, of which $130.9 million was not utilized, expired. On March 13, 2019, our Board of Trustees authorized the repurchase of up to an additional $150.0 million of our outstanding common shares over the twelve month period following the date of authorization.

During the year ended December 31, 2019, we did not purchase any common shares under our common share repurchase program. The $150.0 million of remaining authorization available under our share repurchase program as of December 31, 2019 is scheduled to expire on March 13, 2020.

Surrender of Common Shares for Tax Withholding

During the year ended December 31, 2019, certain of our employees surrendered common shares owned by them to satisfy their statutory tax withholding obligations in connection with the vesting of restricted common shares and restricted stock units. 
 
Unregistered Sales of Securities

There were no unregistered sales of equity securities during the year ended December 31, 2019.

21



Performance Graph

Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act or the Exchange Act that might incorporate SEC filings, in whole or in part, the following performance graph will not be incorporated by reference into any such filings.

The following graph compares the cumulative total shareholder return of our common shares for the period from December 31, 2014 to December 31, 2019, to the Nareit All REITs Index, Standard & Poor’s 500 Index (S&P 500 Index), and to the Nareit Equity Office Index over the same period. The graph assumes an investment of $100.00 in our common shares and each index and the reinvestment of all distributions. The shareholder return shown on the graph below is not indicative of future performance.

402788553_eqc-20191231_g1.jpg

Period Ended
Index12/31/201412/31/201512/31/201612/31/201712/31/201812/31/2019
Equity Commonwealth$100.00  $108.02  $117.80  $118.85  $126.89  $154.37  
Nareit All REITs Index$100.00  $102.29  $111.79  $122.14  $117.14  $150.01  
S&P 500 Index$100.00  $101.38  $113.51  $138.29  $132.23  $173.86  
Nareit Equity Office Index$100.00  $100.29  $113.49  $119.45  $102.13  $134.22  
Source: S&P Global Market Intelligence

22



Item 6.    Selected Financial Data.
The following table sets forth selected financial data for the periods and dates indicated. This data should be read in conjunction with, and is qualified in its entirety by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 and the consolidated financial statements and accompanying notes included in "Exhibits and Financial Statement Schedules" in Part IV, Item 15 of this Annual Report on Form 10-K. Reclassifications have been made to the prior years' financial statements to conform to the current year's presentation. Amounts are in thousands, except per share data.
 Year Ended December 31,
Operating Data20192018201720162015
Total revenues$127,850  $197,022  $340,571  $500,680  $714,891  
Expenses:
Operating expenses
46,418  79,916  141,425  200,706  324,948  
Depreciation and amortization
28,122  49,041  90,708  131,806  194,001  
General and administrative
38,442  44,439  47,760  50,256  57,457  
Loss on asset impairment
—  12,087  19,714  58,476  17,162  
Total expenses
112,982  185,483  299,607  441,244  593,568  
Interest and other income, net72,392  46,815  26,380  10,331  5,989  
Interest expense(8,908) (26,585) (52,183) (84,329) (107,316) 
(Loss) gain on early extinguishment of debt(6,374) (7,122) (493) (2,680) 6,661  
Foreign currency exchange loss
—  —  —  (5) (8,857) 
Gain on sale of properties, net
422,172  251,417  15,498  250,886  84,421  
Income before income taxes
494,150  276,064  30,166  233,639  102,221  
Income tax expense(1,284) (3,156) (500) (745) (2,364) 
Net income492,866  272,908  29,666  232,894  99,857  
Net income attributable to noncontrolling interest
(186) (95) (10) —  —  
Net income attributable to Equity Commonwealth492,680  272,813  29,656  232,894  99,857  
Preferred distributions(7,988) (7,988) (7,988) (17,956) (27,924) 
Excess fair value of consideration paid over carrying value of preferred shares
—  —  —  (9,609) —  
Net income attributable to Equity Commonwelath common
shareholders
$484,692  $264,825  $21,668  $205,329  $71,933  
Weighted average common shares outstanding—basic
122,091  122,314  124,125  125,474  128,621  
Weighted average common shares outstanding—diluted
126,260  123,385  125,129  126,768  129,437  
Basic earnings per common share attributable to Equity Commonwealth common shareholders:
$3.97  $2.17  $0.17  $1.64  $0.56  
Diluted earnings per common share attributable to Equity Commonwealth common shareholders:
$3.90  $2.15  $0.17  $1.62  $0.56  
Common distributions declared$3.50  $2.50  $—  $—  $—  

 December 31,
Balance Sheet Data20192018201720162015
Real estate properties(1)
$662,121  $1,139,642  $1,747,611  $2,856,890  $3,887,352  
Total assets3,319,377  3,530,772  4,236,945  4,526,075  5,231,164  
Total indebtedness, net25,691  274,955  848,578  1,141,667  1,697,116  
Total shareholders' equity
3,244,577  3,182,801  3,299,366  3,260,447  3,368,487  
Noncontrolling interest1,295  1,197  1,129  —  —  
Total equity3,245,872  3,138,998  3,300,495  3,260,447  3,368,487  
(1)Excludes value of acquired real estate leases.

23



Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included in Part IV, Item 15 of this Annual Report on Form 10-K. This section of this Annual Report on Form 10-K generally discusses 2019 and 2018 items and year-to-year comparisons between 2019 and 2018. Discussions of 2017 items and year-to-year comparisons between 2018 and 2017 that are not included in this Annual Report on Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

OVERVIEW
 
We are an internally managed and self-advised REIT primarily engaged in the ownership and operation of office properties in the United States. We were formed in 1986 under Maryland law. The Company operates as what is commonly referred to as an umbrella partnership real estate investment trust, or UPREIT, conducting substantially all of its activities through the Operating Trust. As of December 31, 2019, the Company beneficially owned 99.96% of the outstanding OP Units.

At December 31, 2019, our portfolio consisted of seven properties (12 buildings), with a combined 2.5 million square feet and a total undepreciated book value of $662.1 million, and a depreciated book value of $459.4 million. As of December 31, 2019, we had $2.8 billion of cash and cash equivalents.

As of December 31, 2019, our overall portfolio was 94.7% leased. During the year ended December 31, 2019, we entered into leases, excluding leasing activity for assets during the quarter in which the asset was sold or classified as held for sale, for 617,000 square feet, including lease renewals for 383,000 square feet and new leases for 234,000 square feet.  Leases entered into during the year ended December 31, 2019, including both lease renewals and new leases, had weighted average cash rental rates that were approximately 2.5% higher than prior rental rates for the same space and weighted average GAAP rental rates that were approximately 11.7% higher than prior rental rates for the same space.  The change in GAAP rents is different than the change in cash rents due to differences in the amount of rent abatements, the magnitude and timing of contractual rent increases over the lease term, and the length of term for the newly executed leases compared to the prior leases.
 
During the year ended December 31, 2019, we sold three properties (six buildings) with a combined 2.7 million square feet for an aggregate gross sales price of $812.1 million, excluding credits and closing costs. During the year ended December 31, 2018, we sold seven properties (nine buildings) with a combined 4.4 million square feet for an aggregate gross sales price of $1.0 billion, excluding credits and closing costs. During the year ended December 31, 2019, we redeemed an aggregate of $250.0 million of outstanding unsecured notes. Additionally, in February 2020, we sold our 0.3 million square foot property at 109 Brookline Avenue for a gross sale price of $270.0 million, and in February 2020, we entered into a contract to sell our 0.4 million square foot property at 333 108th Avenue NE for a gross sale price of $401.5 million. We currently have one other property totaling 0.2 million square feet for sale. For more information regarding these transactions, see Notes 3 and 19 of the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. As we have sold assets, our income from operations has declined.

On September 24, 2019, our Board of Trustees declared a special, one-time cash distribution of $3.50 per common share/unit to shareholders/unitholders of record on October 7, 2019. On October 23, 2019, we paid this distribution to such shareholders/unitholders in the aggregate amount of $427.7 million.

We have engaged CBRE, Inc. (CBRE) to provide property management services for our properties. We pay CBRE a property-by-property management fee and may engage CBRE from time-to-time to perform project management services, such as coordinating and overseeing the completion of tenant improvements and other capital projects at the properties. We reimburse CBRE for certain expenses incurred in the performance of its duties, including certain personnel and equipment costs. For the years ended December 31, 2019 and 2018, we incurred expenses of $5.2 million and $9.2 million, respectively, related to our property management agreement with CBRE, for property management fees, typically calculated as a percentage of the properties' revenues, and salary and benefits reimbursements for property personnel, such as property managers, engineers and maintenance staff.  As of December 31, 2019 and 2018, we had amounts payable pursuant to these services of $0.6 million and $0.8 million, respectively.

We continue to execute our office repositioning strategy to own and acquire at a discount to replacement cost high-quality, multi-tenant office assets in markets and sub-markets with favorable long-term supply and demand fundamentals. We expect our efforts in the office sector to continue to be primarily focused on larger buildings in central business districts and
24



major urban areas that offer an attractive quality of life, including opportunities for tenants to live and play in close proximity to where they work, with a preference for markets that have above average limitations on new supply. We currently target such efforts towards acquiring portfolios of properties or pursuing other large acquisitions as opposed to purchasing individual properties, although we may acquire individual properties if opportunities to do so are consistent with our strategy. However, to create a foundation for long-term growth, the set of opportunities that we pursue in the future may include acquisitions and/or investments in office or non-office property types.

In repositioning our portfolio, we may sell additional properties, depending on market conditions. With the progress we have had executing dispositions, and the strength and liquidity of our balance sheet, we are in a position to increasingly shift our focus to capital allocation. We intend to use our capital for acquisitions and/or investments in new properties or businesses, repay debt, repurchase common shares or make distributions that further our long-term strategic goals.

We may be unable to identify suitable investment opportunities. If we do not redeploy capital, we will strive to achieve a sale, liquidation or otherwise exit our business in one or more transactions in a manner that optimizes shareholder value. We are unable to predict if or when we will make a determination to sell, liquidate or otherwise exit our business.

Property Operations
 
Leased occupancy data for 2019 and 2018 is as follows (square feet in thousands):
All Properties(1)Comparable Properties(2)
As of December 31,As of December 31,
2019201820192018
Total properties 10    
Total square feet2,469  5,120  2,469  2,469  
Percent leased(3)94.7 %94.8 %94.7 %93.2 %

(1)Excludes properties sold.
(2)Based on properties owned continuously from January 1, 2018 through December 31, 2019 and excludes properties sold.
(3)Percent 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.
 
The weighted average lease term based on square feet for leases entered into during the year ended December 31, 2019 was 4.9 years.  Commitments made for leasing expenditures and concessions, such as tenant improvements and leasing commissions, for leases entered into during the year ended December 31, 2019, excluding leasing activity for assets during the quarter in which the asset was sold or classified as held for sale, totaled $25.5 million, or $41.30 per square foot on average (approximately $8.37 per square foot per year of the lease term).
 
25



As of December 31, 2019, approximately 6.5% of our leased square feet and 7.5% of our annualized rental revenue, determined as set forth below, are included in leases scheduled to expire through December 31, 2020.  Renewal and new leases and rental rates at which available space may be relet in the future will depend on prevailing market conditions at the times these leases are negotiated.  We believe that the in-place cash rents for leases expiring in 2020, that have not been backfilled, are below market. Lease expirations by year, as of December 31, 2019, are as follows (square feet and dollars in thousands):
Year
Number
of Tenants Expiring
Leased Square
 Feet Expiring(1)
% of Leased Square Feet Expiring(1)
Cumulative
% of Leased Square
Feet Expiring(1)
Annualized Rental
Revenue Expiring(2)
% of
Annualized Rental
Revenue Expiring
Cumulative
% of
Annualized Rental Revenue Expiring
202017  151  6.5 %6.5 %$7,227  7.5 %7.5 %
202123  235  10.0 %16.5 %7,530  7.8 %15.3 %
202213  154  6.6 %23.1 %8,036  8.3 %23.6 %
202321  276  11.8 %34.9 %11,843  12.3 %35.9 %
202415  275  11.7 %46.6 %11,427  11.8 %47.7 %
202511  163  7.0 %53.6 %4,962  5.1 %52.8 %
2026 80  3.4 %57.0 %3,574  3.7 %56.5 %
2027 142  6.1 %63.1 %2,051  2.1 %58.6 %
2028 59  2.5 %65.6 %2,923  3.0 %61.6 %
2029 194  8.3 %73.9 %9,012  9.3 %70.9 %
Thereafter 610  26.1 %100.0 %28,086  29.1 %100.0 %
129  2,339  100.0 %$96,671  100.0 %
Weighted average remaining lease term (in years):
7.5  7.9  

(1)Leased Square Feet as of December 31, 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 Leased Square Feet 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)Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of December 31, 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.  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.

26



A principal source of funds for our operations is rents from tenants at our properties.  Rents are generally received from our tenants monthly in advance.  As of December 31, 2019, tenants representing 2.0% or more of our total annualized rental revenue were as follows (square feet in thousands):
TenantSquare Feet(1)% of Total Leased Square Feet(1)% of Annualized Rental Revenue(2)Weighted Average Remaining Lease Term
1.
Expedia, Inc.(3)
427  18.3 %22.9 %—  
2.Dana-Farber Cancer Institute, Inc.77  3.3 %4.1 %9.7  
3.Beth Israel Deaconess Medical Center, Inc.117  5.0 %4.1 %3.8  
4.British International School of Washington112  4.8 %3.5 %17.8  
5.Equinor Energy Services, Inc.77  3.3 %3.4 %4.0  
6.Georgetown University129  5.5 %2.9 %1.8  
7.KPMG, LLP87  3.7 %2.8 %7.8  
8.Crowdstrike, Inc.36  1.5 %2.0 %4.8  
9.CBRE, Inc.40  1.7 %2.0 %8.3  
Total1,102  47.1 %47.7 %4.4  (4) 

(1)Total Leased Square Feet as of December 31, 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)Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of December 31, 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.  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.
(3)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 Amazon lease is expected to commence in the third quarter of 2020.
(4)The weighted average remaining lease term including leases that have been backfilled with new tenants is 10.9 years.

Financing Activities

On June 28, 2019, we redeemed all $250.0 million of our 5.875% senior unsecured notes due 2020 and recognized a loss on early extinguishment of debt of $6.4 million for the year ended December 31, 2019 from prepayment fees, the write off of unamortized deferred financing fees and the write off of an unamortized discount. As of December 31, 2019, our only debt consists of one $25.4 million mortgage note payable.
For more information regarding our financing sources and activities, please see the section captioned “Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” below.

27



RESULTS OF OPERATIONS

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Comparable Properties Results(1)Other Properties Results(2)Consolidated Results
Year Ended December 31,
20192018$ Change% Change2019201820192018$ Change% Change
(in thousands)
Rental revenue(3)$97,960  $91,735  6,225  6.8 %$18,909  $92,633  $116,869  $184,368  $(67,499) (36.6)%
Other revenue(3)
10,316  9,572  744  7.8 %665  3,082  10,981  12,654  (1,673) (13.2)%
Operating expenses
(39,384) (37,985) (1,399) 3.7 %(7,034) (41,931) (46,418) (79,916) 33,498  (41.9)%
Net operating income(4)$68,892  $63,322  $5,570  8.8 %$12,540  $53,784  81,432  117,106  (35,674) (30.5)%
Other expenses:
Depreciation and amortization28,122  49,041  (20,919) (42.7)%
General and administrative38,442  44,439  (5,997) (13.5)%
Loss on asset impairment—  12,087  (12,087) (100.0)%
Total other expenses66,564  105,567  (39,003) (36.9)%
Interest and other income, net72,392  46,815  25,577  54.6 %
Interest expense(8,908) (26,585) 17,677  (66.5)%
Loss on early extinguishment of debt(6,374) (7,122) 748  (10.5)%
Gain on sale of properties, net
422,172  251,417  170,755  67.9 %
Income before income taxes
494,150  276,064  218,086  79.0 %
Income tax expense(1,284) (3,156) 1,872  (59.3)%
Net income492,866  272,908  219,958  80.6 %
Net income attributable to noncontrolling interest(186) (95) (91) 95.8 %
Net income attributable to Equity Commonwealth492,680  272,813  219,867  80.6 %
Preferred distributions(7,988) (7,988) —  — %
Net income attributable to Equity Commonwealth common shareholders
$484,692  $264,825  $219,867  83.0 %
(1)Comparable properties consist of 7 properties (12 buildings) we owned continuously from January 1, 2018 to December 31, 2019.
(2)Other properties consist of properties sold.
(3)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 Accounting Standards Update 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.
(4)We define net operating income, or NOI, as shown above, as 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.  For a discussion of why we consider NOI to be an appropriate supplemental measure to net income as well as a reconciliation of NOI to net income, the most directly comparable financial measure under GAAP reported on our consolidated financial statements, please see "Liquidity and Capital Resources - Property Net Operating Income (NOI)."

Rental revenue. Rental revenue decreased $67.5 million, or 36.6%, in the 2019 period, compared to the 2018 period, primarily due to the properties sold in 2019 and 2018. Rental revenue at the comparable properties increased $6.2 million, or 6.8%, in the 2019 period, compared to the 2018 period, primarily due to leasing activity, a $2.1 million increase in lease termination fees and a $2.7 million increase in escalations and real estate tax recoveries.

Rental revenue includes increases for straight line rent adjustments totaling $0.4 million in the 2019 period and $5.0 million in the 2018 period, and net increases (reductions) for amortization of acquired real estate leases and assumed real estate lease obligations totaling $0.1 million in the 2019 period and $(0.1) million in the 2018 period. Rental income also includes the recognition of lease termination fees totaling $2.2 million in the 2019 period and $2.9 million in the 2018 period.

28



Other revenue. Other revenue, which primarily includes parking revenue, decreased $1.7 million, or 13.2% in the 2019 period, compared to the 2018 period, primarily due to the properties sold in 2019 and 2018. Other revenue increased $0.7 million, or 7.8%, at the comparable properties in the 2019 period, compared to the 2018 period primarily due to increased parking revenue during the 2019 period.

Operating expenses. Operating expenses decreased $33.5 million, or 41.9%, in the 2019 period, compared to the 2018 period, primarily due to the properties sold in 2019 and 2018. Operating expenses at our comparable properties increased $1.4 million, or 3.7%, primarily due to a $1.8 million increase in real estate tax expense, partially offset by a $0.9 million decrease in utility expense.
Depreciation and amortization. Depreciation and amortization decreased $20.9 million, or 42.7%, in the 2019 period, compared to the 2018 period, primarily due to the properties sold in 2019 and 2018.

General and administrative. General and administrative expenses decreased $6.0 million, or 13.5% in the 2019 period, compared to the 2018 period, primarily due to a $5.7 million decrease in share-based compensation expense and a $1.7 million decrease in payroll expenses as a result of a staffing reduction, partially offset by a $1.6 million increase in compensation expenses related to severance from $1.8 million in the 2018 period to $3.4 million in the 2019 period.

Loss on asset impairment. We recorded impairment charges of $12.1 million in the 2018 period related to 777 East Eisenhower Parkway and 97 Newberry Road, based upon the shortening of our expected period of ownership and updated market information in accordance with our impairment analysis procedures. We did not record any impairment charges in the 2019 period.

Interest and other income, net. Interest and other income, net increased $25.6 million, or 54.6%, in the 2019 period, compared to the 2018 period, primarily due to $17.5 million of additional interest received on higher invested balances and higher average interest rates in 2019, a $5.0 million loss on the sale of marketable securities in the 2018 period and a $2.1 million loss on the sale of a real estate mortgage receivable in 2018. This mortgage receivable of $7.7 million represented mortgage financing we provided upon the sale of three properties in 2013.
Interest expense. Interest expense decreased $17.7 million, or 66.5%, in the 2019 period, compared to the 2018 period, primarily due to the prepayment in March 2018 of all $175.0 million of our 5.75% senior unsecured notes due 2042, the redemption at par of the total $400.0 million outstanding under our 5-year and 7-year term loans in May 2018, the termination of our credit agreement in December 2018, the redemption in June 2019 of all $250 million of our 5.875% senior unsecured notes due 2020 and a decrease in amortization of deferred financing fees.
Loss on early extinguishment of debt. The loss on early extinguishment of debt of $6.4 million in the 2019 period reflects the write off of unamortized deferred financing fees, the write off of an unamortized discount and prepayment fees related to the redemption of all $250 million of our 5.875% senior unsecured notes due 2020. The loss on early extinguishment of debt of $7.1 million in the 2018 period reflects the write off of unamortized deferred financing fees related to our redemption at par of the total $400.0 million outstanding under our 5-year and 7-year term loans, the write off of unamortized deferred financing fees related to our repayment at par of all $175.0 million of our 5.75% senior unsecured notes due 2042, prepayment fees and the write off of unamortized deferred financing fees related to our repayment of $4.9 million of mortgage debt at 97 Newberry Road and the write off of unamortized deferred financing fees related to our termination of the credit agreement

Gain on sale of properties, net. Gain on sale of properties, net increased $170.8 million, or 67.9%, in the 2019 period, compared to the 2018 period. Gain on sale of properties, net in the 2019 period primarily related to the following (dollars in thousands):
AssetGain on Sale
1735 Market Street$192,985  
600 108th Avenue NE149,009  
Research Park78,158  
$420,152  

29



Gain on sale of properties, net in the 2018 period primarily relates to the following (dollars in thousands):
AssetGain (Loss) on Sale
1600 Market Street$54,599  
600 West Chicago Avenue107,790  
5073, 5075, & 5085 S. Syracuse Street42,762  
1601 Dry Creek Drive26,979  
777 East Eisenhower Parkway5,308  
8750 Bryn Mawr Avenue15,194  
97 Newberry Road(1,174) 
$251,458  

Income tax expense. Income tax expense decreased $1.9 million, or 59.3%, in the 2019 period, compared to the 2018 period, primarily due to a decrease in state and local taxes as a result of the sale of properties.

Net income attributable to noncontrolling interest. In 2019, 2018 and 2017, we granted LTIP Units to certain of our trustees and employees. As these LTIP Units vest, they automatically convert to operating partnership units, or OP Units. The net income attributable to noncontrolling interest of $0.2 million in the 2019 period and $0.1 million in the 2018 period relates to the allocation of net income to the LTIP/OP Unit holders.


Inflation
Inflation in the past several years in the United States has been modest. Future inflation might have either positive or negative impacts on our business. Inflation might cause the value of our real estate to increase. Inflation might also cause our costs of equity and debt capital and operating costs to increase. An increase in our capital costs or in our operating costs may result in decreased earnings unless it is offset by increased revenues. Further inflation may permit us to increase rents upon lease renewal or enter new leases above the previous rent amounts for the leased space.
In the event we incur any variable rate debt in the future, we may enter into interest rate hedge arrangements in order to mitigate the adverse impact of any increased cost of debt capital in the event of material inflation. The decision to enter into these agreements will be based on various factors, including the amount of any floating rate debt outstanding, our belief that material interest rate increases are likely to occur, the costs of and our expected benefit from these agreements and upon requirements of our borrowing arrangements.
In periods of rapid inflation, our tenants' operating costs may increase faster than revenues, which may have an adverse impact upon us if our tenants' operating income becomes insufficient to pay our rent. To mitigate the adverse impact of tenant financial distress upon us, we require many of our tenants to provide guarantees or security for our rent.

LIQUIDITY AND CAPITAL RESOURCES
 
Our Operating Liquidity and Resources
 
As of December 31, 2019, we had $2.8 billion of cash and cash equivalents.  We expect to use our cash balances, cash flow from our operations and proceeds of any future property sales to fund our operations, repay debt, make distributions, repurchase our common shares, make acquisitions and/or investments in properties or businesses, fund tenant improvements and leasing costs and for other general business purposes.  We believe our cash balances and the cash flow from our operations will be sufficient to fund our ordinary course activities.

Our future cash flows from operating activities will depend primarily upon our:
 
ability to maintain or improve the occupancy of, and the rental rates at, our properties;
 
ability to control operating and financing expense increases at our properties; and
 
ability to purchase additional properties, which produce rents, less property operating expenses, in excess of our costs of acquisition capital.
30



 
In addition, our future cash flows will also depend in part on interest income earned on our invested cash balances.

Volatility in energy costs and real estate taxes may cause our future operating expenses to fluctuate; however, the impact of these fluctuations is expected to be partially offset by the pass through of operating expenses to our tenants pursuant to lease terms, although there can be no assurance that we will be able to successfully offset these expenses or that doing so would not negatively impact our competitive position or business. 
 
Cash flows provided by (used in) operating, investing and financing activities were $98.9 million, $995.7 million and $(698.1) million, respectively, for the year ended December 31, 2019, and $89.5 million, $942.1 million and $(988.1) million, respectively, for the year ended December 31, 2018.  Changes in these three categories of our cash flows between 2019 and 2018 are primarily related to a decrease in property net operating income (as the result of property dispositions), an increase in interest income (as a result of additional interest received on higher invested balances and higher average interest rates in 2019), real estate improvements, dispositions of properties, proceeds from sales and maturities of marketable securities, repayments of debt, repurchase of our common shares and distributions to our common shareholders.
 
Our Investment and Financing Liquidity and Resources
 
On June 28, 2019, we redeemed all $250.0 million of our 5.875% senior unsecured notes due 2020 and recognized a loss on early extinguishment of debt of $6.4 million for the year ended December 31, 2019 from prepayment fees, the write off of unamortized deferred financing fees and the write off of an unamortized discount. As of December 31, 2019, our only debt consists of one $25.4 million mortgage note payable.

On September 24, 2019, our Board of Trustees declared a special, one-time cash distribution of $3.50 per common share/unit to shareholders/unitholders of record on October 7, 2019. On October 23, 2019, we paid this distribution to such shareholders/unitholders in the aggregate amount of $427.7 million.

During the year ended December 31, 2019, we paid an aggregate of $8.0 million of distributions on our series D preferred shares.  On January 10, 2020, our Board of Trustees declared a dividend of $0.40625 per series D preferred share, which will be paid on February 18, 2020 to shareholders of record on January 30, 2020.

On March 13, 2019, our Board of Trustees authorized the repurchase of up to $150.0 million of our outstanding common shares over the twelve month period following the date of authorization. During the year ended December 31, 2019, we did not repurchase any of our common shares under our share repurchase program. The $150.0 million of remaining authorization available under our share repurchase program as of December 31, 2019 is scheduled to expire on March 13, 2020.

Our outstanding debt maturity and interest rate as of December 31, 2019, were as follows (dollars in thousands):
Scheduled Principal Payments During Period
YearSecured Fixed Rate Debt(1)Interest Rate(2)
2020$597  5.7 %
202124,836  5.7 %
Thereafter—  — %
$25,433  5.7 %

(1)Total debt outstanding as of December 31, 2019, including net unamortized premiums and net unamortized deferred financing costs, was $25,691.
(2)Contractual interest rate.
 
For further information about our indebtedness, see Note 7 of the Notes to Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K, which is incorporated herein by reference.
As the maturity date of our debt approaches, we may explore alternatives to repay the amount due. Such alternatives may include using our cash balances, incurring additional debt and issuing new equity securities. We have an effective shelf registration statement that allows us to issue certain types of public securities on an expedited basis, but it does not apply to debt securities nor does it assure that there will be buyers for any such securities.
31



We believe that we will have access to various types of financings, including debt or equity offerings, to fund any future acquisitions and/or investments and to pay our debt and other obligations as they become due. Although we are not currently rated by the debt rating agencies, the completion and the costs of any future debt transactions will depend primarily upon market conditions and our credit ratings at such time, if any. We have no control over market conditions. Our credit ratings will depend upon evaluations by credit rating agencies of our business practices and plans and, in particular, whether we appear to have the ability to maintain our earnings, to space our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably foreseeable adverse changes. We intend to conduct our business activities in a manner which will continue to afford us reasonable access to capital for investment and financing activities. However, there can be no assurance regarding our ability to complete any debt or equity offerings or that our cost of any future public or private financings will not increase.
During the year ended December 31, 2019, we sold three properties (six buildings) with a combined 2.7 million square feet for an aggregate sales price of $812.1 million, excluding credits and closing costs.  In February 2020, we sold our 0.3 million square foot property at 109 Brookline Avenue for a gross sale price of $270.0 million, and in February 2020, we entered into a contract to sell our 0.4 million square foot property at 333 108th Avenue NE for a gross sale price of $401.5 million. For more information regarding these transactions, see Notes 3 and 19 of the Notes to Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K, which are incorporated herein by reference.

During the years ended December 31, 2019, 2018 and 2017 amounts capitalized at our properties, including properties sold or classified as held for sale, for tenant improvements, leasing costs and building improvements were as follows (amounts in thousands):
Years Ended December 31,
201920182017
Tenant improvements(1)
$7,529  $47,248  $29,161  
Leasing costs(2)
5,409  21,674  16,073  
Building improvements(3)
6,366  9,046  25,880  

(1)Tenant improvements include capital expenditures to improve tenants’ space.
(2)Leasing costs include leasing commissions and related legal expenses.
(3)Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets. Tenant-funded capital expenditures are excluded.
 
During the year ended December 31, 2019, commitments made for expenditures in connection with leasing space at our properties, excluding leasing activity for assets during the quarter in which the asset was sold or classified as held for sale, were as follows (dollar and square foot measures in thousands):
New
Leases
RenewalsTotal
Square feet leased during the period234