Equity Commonwealth - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - July 30, 2018

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Exhibit 99.2





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Equity Commonwealth
Supplemental Operating
and Financial Data

Second Quarter 2018

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







TABLE OF CONTENTS

Corporate Information
 
Company Profile and Investor Information
 
 
 
Financial Information
 
Key Financial Data
 
Condensed Consolidated Balance Sheets
 
Additional Balance Sheet Information
 
Condensed Consolidated Statements of Operations
 
Calculation of Same Property Net Operating Income (NOI) and Same Property Cash Basis NOI
 
Same Property Results of Operations
 
Calculation of EBITDA, EBITDAre, and Adjusted EBITDAre
 
Calculation of Funds from Operations (FFO) and Normalized FFO
 
Debt Summary
 
Debt Maturity Schedule
 
Leverage Ratios, Coverage Ratios and Public Debt Covenants
 
Acquisitions and Dispositions
 
 
 
Portfolio Information
 
Property Detail
 
Leasing Summary
 
Same Property Leasing Summary
 
Capital Summary - Expenditures & Same Property Leasing Commitments
 
Tenants Representing 1.5% or More of Annualized Rental Revenue
 
Same Property Lease Expiration Schedule
 
Disposed Property Detail
 
 
 
Additional Support
 
Common & Potential Common Shares
 
Definitions
 
 
 
Forward-Looking Statements
 
 
 
Some of the statements contained in this presentation constitute forward-looking statements within the meaning of the federal securities laws. Any forward-looking statements contained in this presentation are intended to be made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, 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 particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions are forward-looking statements. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
 
 
 
The forward-looking statements contained in this presentation reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, see the sections entitled “Risk Factors” in our most recent Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q.
 
 
 
Regulation FD Disclosures
 
 
 
 
We intend to use any of the following to comply with our disclosure obligations under Regulation FD: press releases, SEC filings, public conference calls, or our website. We routinely post important information on our website at www.eqcre.com, including information that may be deemed to be material. We encourage investors and others interested in the company to monitor these distribution channels for material disclosures.

2

COMPANY PROFILE AND INVESTOR INFORMATION

Equity Commonwealth (NYSE: EQC) is an internally managed and self-advised real estate investment trust (REIT) with commercial office properties throughout the United States.
Same Property Statistics
No. of
 
 
 
 Properties
Sq. Feet
% Leased
% Commenced
13
6,341
89.8%
87.7%
 Senior Unsecured Debt Ratings
 
 
 NYSE Trading Symbols
 Moody's: Baa2
 
 
 Common Stock: EQC
 Standard & Poor's: BBB-
 
 
 Preferred Stock Series D: EQCPD
 
 
 
 
Board of Trustees
Sam Zell (Chairman)
 
David A. Helfand
 
Kenneth Shea
James S. Corl
 
Peter Linneman (Lead Independent Trustee)
 
Gerald A. Spector
Martin L. Edelman
 
James L. Lozier, Jr.
 
James A. Star
Edward A. Glickman
 
Mary Jane Robertson
 
 
 
 
 
 
 
Senior Management
David A. Helfand
 
David S. Weinberg
 
 
President and Chief Executive Officer
 
Executive Vice President and
 
 
 
 
Chief Operating Officer
 
 
 
 
 
 
 
Adam S. Markman
 
Orrin S. Shifrin
 
 
Executive Vice President,
 
Executive Vice President,
 
 
Chief Financial Officer and Treasurer
 
General Counsel and Secretary
 
 
Equity Research Coverage (1)
Bank of America / Merrill Lynch
James Feldman
(646) 855-5808
james.feldman@baml.com
Citigroup
Michael Bilerman
(212) 816-1383
michael.bilerman@citi.com
Green Street Advisors
Jed Reagan
(949) 640-8780
jreagan@greenstreetadvisors.com
JMP Securities
Mitch Germain
(212) 906-3546
mgermain@jmpsecurities.com
Stifel Nicolaus
John Guinee
(443) 224-1307
jwguinee@stifel.com
 
 
 
 
Debt Research Coverage (1)
J.P.Morgan
Mark Streeter
(212) 834-5086
mark.streeter@jpmorgan.com
Wells Fargo Securities
Thierry Perrein
(704) 410-3262
thierry.perrein@wellsfargo.com
 
 
 
 
Rating Agencies (1)
Moody's Investors Service
Lori Marks
(212) 553-1098
lori.marks@moodys.com
Standard & Poor's
Anita Ogbara
(212) 438-5077
anita.ogbara@standardandpoors.com

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

3

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

 
 
As of and for the Three Months Ended
 
 
6/30/2018

 
3/31/2018

 
12/31/2017

 
9/30/2017

 
6/30/2017

OPERATING INFORMATION
 
Ending property count (1)
13

 
13

 
16

 
20

 
21

 
Ending square footage (1)(2)
6,341

 
6,344

 
8,706

 
11,031

 
11,651

 
Percent leased (1)
89.8
 %
 
88.6
 %
 
91.9
 %
 
88.3
 %
 
88.4
 %
 
Percent commenced (1)
87.7
 %
 
83.5
 %
 
89.2
 %
 
85.5
 %
 
86.3
 %
 
Net income (loss) attributable to EQC common shareholders
$
35,036

 
$
185,602

 
$
(23,558
)
 
$
31,215

 
$
(7,806
)
 
Adjusted EBITDAre (3)
30,561

 
31,417

 
37,309

 
41,325

 
48,374

SAME PROPERTY OPERATING INFORMATION
 
Ending square footage (1)
6,341

 
6,344

 
6,343

 
6,343

 
6,324

 
Percent leased
89.8
 %
 
88.6
 %
 
89.2
 %
 
88.7
 %
 
87.5
 %
 
Percent commenced
87.7
 %
 
83.5
 %
 
85.4
 %
 
85.2
 %
 
84.8
 %
 
Same Property NOI (3)
$
27,713

 
$
26,056

 
$
26,798

 
$
27,525

 
$
27,018

 
Same Property Cash Basis NOI (3)
25,743

 
24,143

 
24,953

 
24,241

 
22,918

 
Same Property NOI margin
59.6
 %
 
59.0
 %
 
61.0
 %
 
61.3
 %
 
61.6
 %
 
Same Property Cash Basis NOI margin
57.8
 %
 
57.2
 %
 
59.3
 %
 
58.3
 %
 
57.6
 %
SHARES OUTSTANDING AND PER SHARE DATA (4)
 
Shares Outstanding at End of Period
 
 
 
 
 
 
 
 
 
 
Common stock outstanding - basic (5)
121,483

 
121,457

 
124,218

 
124,089

 
124,089

 
Dilutive restricted share units (RSUs), Operating Partnership Units, and LTIP Units (4)
1,235

 
1,377

 
673

 
1,085

 
1,191

 
Dilutive Series D Convertible Preferred Shares outstanding (6)
—

 
2,363

 
—

 
—

 
—

 
Preferred Stock Outstanding (6)
4,915

 
4,915

 
4,915

 
4,915

 
4,915

 
Weighted Average Shares Outstanding - GAAP
 
 
 
 
 
 
 
 
 
 
Basic (5)
121,822

 
123,867

 
124,293

 
124,089

 
124,067

 
Diluted (5)
122,649

 
127,097

 
124,293

 
125,175

 
124,067

BALANCE SHEET
 
Total assets
$
3,776,874

 
$
4,137,306

 
$
4,236,945

 
$
4,260,289

 
$
4,491,116

 
Total liabilities
334,565

 
735,827

 
936,450

 
935,590

 
1,204,655

ENTERPRISE VALUE
 
Total debt (book value)
$
280,012

 
$
678,527

 
$
848,578

 
$
850,576

 
$
1,100,355

 
Less: Cash and cash equivalents
(2,507,117
)
 
(2,837,671
)
 
(2,351,693
)
 
(2,233,077
)
 
(1,967,549
)
 
Plus: Market value of preferred shares (at end of period)
127,943

 
127,746

 
129,462

 
130,892

 
127,992

 
Plus: Market value of diluted common shares (at end of period)
3,865,605

 
3,767,312

 
3,810,414

 
3,805,309

 
3,958,870

 
Total enterprise value
$
1,766,443

 
$
1,735,914

 
$
2,436,761

 
$
2,553,700

 
$
3,219,668

RATIOS
 
Net debt / enterprise value
(126.1
)%
 
(124.4
)%
 
(61.7
)%
 
(54.1
)%
 
(26.9
)%
 
Net debt / annualized adjusted EBITDAre (3)
(18.2)x

 
(17.2)x

 
(10.1)x

 
(8.4)x

 
(4.5)x

 
Adjusted EBITDAre (3) / interest expense
4.8x

 
3.1x

 
3.5x

 
3.6x

 
3.3x

(1)
Excludes properties classified as held for sale and land parcels.
(2)
Changes in total square footage result from property dispositions, reclassifications, and remeasurement.
(3)
Non-GAAP financial measures are defined and reconciled to the most directly comparable GAAP measure, herein.
(4)
Restricted share units (RSUs) and LTIP Units are equity awards that contain both service and market-based vesting components. Refer to the schedule of Common & Potential Common Shares for information regarding RSUs and LTIP Units and their impact on weighted average shares outstanding.
(5)
Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding.
(6)
As of June 30, 2018, we had 4,915 series D preferred shares outstanding that were convertible into 2,363 common shares. The series D preferred shares are dilutive for GAAP EPS for the three months ended March 31, 2018, and are anti-dilutive for GAAP EPS for all other periods presented. Refer to the schedule of Common & Potential Common Shares for information regarding the series D preferred shares and their impact on diluted weighted average shares outstanding for EPS, FFO per share and Normalized FFO per share.

4

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

 
June 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
146,700

 
$
191,775

Buildings and improvements
1,117,446

 
1,555,836

 
1,264,146

 
1,747,611

Accumulated depreciation
(387,888
)
 
(450,718
)
 
876,258

 
1,296,893

Assets held for sale
—

 
97,688

Acquired real estate leases, net
2,946

 
23,847

Cash and cash equivalents
2,507,117

 
2,351,693

Marketable securities
248,275

 
276,928

Restricted cash
8,419

 
8,897

Rents receivable, net of allowance for doubtful accounts of $5,101 and $4,771, respectively
57,347

 
93,436

Other assets, net
76,512

 
87,563

Total assets
$
3,776,874

 
$
4,236,945

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Revolving credit facility
$
—

 
$
—

Senior unsecured debt, net
248,048

 
815,984

Mortgage notes payable, net
31,964

 
32,594

Liabilities related to properties held for sale
—

 
1,840

Accounts payable, accrued expenses and other
44,380

 
74,956

Rent collected in advance
10,173

 
11,076

Total liabilities
$
334,565

 
$
936,450

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

 
$
119,263

Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 121,482,673 and 124,217,616 shares issued and outstanding, respectively
1,215

 
1,242

Additional paid in capital
4,300,822

 
4,380,313

Cumulative net income
2,822,793

 
2,596,259

Cumulative other comprehensive loss
(1,469
)
 
(95
)
Cumulative common distributions
(3,111,868
)
 
(3,111,868
)
Cumulative preferred distributions
(689,742
)
 
(685,748
)
Total shareholders’ equity
3,441,014

 
3,299,366

Noncontrolling interest
1,295

 
1,129

Total equity
$
3,442,309

 
$
3,300,495

Total liabilities and equity
$
3,776,874

 
$
4,236,945



5

ADDITIONAL BALANCE SHEET INFORMATION
(amounts in thousands)

 
June 30, 2018
December 31, 2017
Additional Balance Sheet Information
 
 
 
 
 
Straight-line rents receivable, net of allowance for doubtful accounts
$
51,629

$
87,190

Accounts receivable, net of allowance for doubtful accounts
5,718

6,246

Rents receivable, net of allowance for doubtful accounts
$
57,347

$
93,436

 
 
 
Capitalized lease incentives, net
$
5,940

$
6,508

Deferred financing fees, net
942

1,749

Deferred leasing costs, net
49,238

63,539

Other
20,392

15,767

Other assets, net
$
76,512

$
87,563

 
 
 
Accounts payable
$
4,815

$
5,175

Accrued interest
4,832

7,517

Accrued taxes
11,286

28,015

Accrued capital expenditures
4,539

7,168

Accrued leasing costs
2,082

3,630

Assumed real estate lease obligations, net
393

1,001

Security deposits
4,262

4,735

Other accrued liabilities
12,171

17,715

Accounts payable and accrued expenses
$
44,380

$
74,956



6

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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Revenues:
 
 
 
 
 
 
 
Rental income
$
35,211

 
$
74,352

 
$
78,760

 
$
154,557

Tenant reimbursements and other income
13,425

 
17,247

 
28,464

 
36,593

Total revenues
$
48,636

 
$
91,599

 
$
107,224

 
$
191,150

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operating expenses
$
19,521

 
$
37,284

 
$
44,120

 
$
78,371

Depreciation and amortization
13,021

 
23,922

 
26,924

 
50,837

General and administrative
11,222

 
11,960

 
24,561

 
24,038

Loss on asset impairment
—

 
18,428

 
12,087

 
19,714

Total expenses
$
43,764

 
$
91,594

 
$
107,692

 
$
172,960

 
 
 
 
 
 
 
 
Operating income (loss)
$
4,872

 
$
5

 
$
(468
)
 
$
18,190

 
 
 
 
 
 
 
 
Interest and other income, net
12,668

 
6,019

 
18,448

 
10,391

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $645, $849, $1,446 and $1,562, respectively)
(6,350
)
 
(14,863
)
 
(16,465
)
 
(29,877
)
Loss on early extinguishment of debt
(1,536
)
 
(63
)
 
(6,403
)
 
(63
)
Gain on sale of properties, net
26,937

 
3,136

 
232,148

 
19,590

Income (loss) before income taxes
36,591

 
(5,766
)
 
227,260

 
18,231

Income tax benefit (expense)
456

 
(45
)
 
(2,551
)
 
(220
)
Net income (loss)
$
37,047

 
$
(5,811
)
 
$
224,709

 
$
18,011

Net (income) loss attributable to noncontrolling interest
(14
)
 
2

 
(77
)
 
(6
)
Net income (loss) attributable to Equity Commonwealth
$
37,033

 
$
(5,809
)
 
$
224,632

 
$
18,005

Preferred distributions
(1,997
)
 
(1,997
)
 
(3,994
)
 
(3,994
)
Net income (loss) attributable to Equity Commonwealth common shareholders
$
35,036

 
$
(7,806
)
 
$
220,638

 
$
14,011

 
 
 
 
 
 
 
 
Weighted average common shares outstanding — basic (1)
121,822

 
124,067

 
122,839

 
124,057

Weighted average common shares outstanding — diluted (1)
122,649

 
124,067

 
126,027

 
125,203

 
 
 
 
 
 
 
 
Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
0.29

 
$
(0.06
)
 
$
1.80

 
$
0.11

Diluted
$
0.29

 
$
(0.06
)
 
$
1.78

 
$
0.11

(1
)
Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding.

7

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

 
For the Three Months Ended
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
 
 
 
 
 
 
Rental income
$
35,211

 
$
43,549

 
$
54,672

 
$
61,091

 
$
74,352

Tenant reimbursements and other income
13,425

 
15,039

 
16,951

 
16,707

 
17,247

Operating expenses
(19,521
)
 
(24,599
)
 
(30,674
)
 
(32,380
)
 
(37,284
)
NOI
$
29,115

 
$
33,989

 
$
40,949

 
$
45,418

 
$
54,315

Straight line rent adjustments
(1,022
)
 
(1,528
)
 
(1,938
)
 
(3,557
)
 
(4,543
)
Lease value amortization
(18
)
 
98

 
295

 
388

 
518

Lease termination fees
(1,557
)
 
(965
)
 
(942
)
 
(1,477
)
 
(814
)
Cash Basis NOI
$
26,518

 
$
31,594

 
$
38,364

 
$
40,772

 
$
49,476

Cash Basis NOI from non-same properties (1)
(775
)
 
(7,451
)
 
(13,411
)
 
(16,531
)
 
(26,558
)
Same Property Cash Basis NOI
$
25,743

 
$
24,143

 
$
24,953

 
$
24,241

 
$
22,918

Non-cash rental income and lease termination fees from same properties
1,970

 
1,913

 
1,845

 
3,284

 
4,100

Same Property NOI
$
27,713

 
$
26,056

 
$
26,798

 
$
27,525

 
$
27,018

 
 
 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
 
 
 
 
 
 
Same Property NOI
$
27,713

 
$
26,056

 
$
26,798

 
$
27,525

 
$
27,018

Non-cash rental income and lease termination fees from same properties
(1,970
)
 
(1,913
)
 
(1,845
)
 
(3,284
)
 
(4,100
)
Same Property Cash Basis NOI
$
25,743

 
$
24,143

 
$
24,953

 
$
24,241

 
$
22,918

Cash Basis NOI from non-same properties (1)
775

 
7,451

 
13,411

 
16,531

 
26,558

Cash Basis NOI
$
26,518

 
$
31,594

 
$
38,364

 
$
40,772

 
$
49,476

Straight line rent adjustments
1,022

 
1,528

 
1,938

 
3,557

 
4,543

Lease value amortization
18

 
(98
)
 
(295
)
 
(388
)
 
(518
)
Lease termination fees
1,557

 
965

 
942

 
1,477

 
814

NOI
$
29,115

 
$
33,989

 
$
40,949

 
$
45,418

 
$
54,315

Depreciation and amortization
(13,021
)
 
(13,903
)
 
(18,738
)
 
(21,133
)
 
(23,922
)
General and administrative
(11,222
)
 
(13,339
)
 
(12,033
)
 
(11,689
)
 
(11,960
)
Loss on asset impairment
—

 
(12,087
)
 
—

 
—

 
(18,428
)
Operating Income (Loss)
$
4,872

 
$
(5,340
)
 
$
10,178

 
$
12,596

 
$
5

(1)
Cash Basis NOI from non-same properties for all periods presented includes the operations of properties disposed or classified as held for sale and land parcels.
 
 

8

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

 
For the Six Months Ended June 30,
 
2018
 
2017
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
Rental income
$
78,760

 
$
154,557

Tenant reimbursements and other income
28,464

 
36,593

Operating expenses
(44,120
)
 
(78,371
)
NOI
$
63,104

 
$
112,779

Straight line rent adjustments
(2,550
)
 
(8,930
)
Lease value amortization
80

 
1,091

Lease termination fees
(2,522
)
 
(2,525
)
Cash Basis NOI
$
58,112

 
$
102,415

Cash Basis NOI from non-same properties (1)
(8,226
)
 
(56,356
)
Same Property Cash Basis NOI
$
49,886

 
$
46,059

Non-cash rental income and lease termination fees from same properties
3,883

 
7,568

Same Property NOI
$
53,769

 
$
53,627

 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
Same Property NOI
$
53,769

 
$
53,627

Non-cash rental income and lease termination fees from same properties
(3,883
)
 
(7,568
)
Same Property Cash Basis NOI
$
49,886

 
$
46,059

Cash Basis NOI from non-same properties (1)
8,226

 
56,356

Cash Basis NOI
$
58,112

 
$
102,415

Straight line rent adjustments
2,550

 
8,930

Lease value amortization
(80
)
 
(1,091
)
Lease termination fees
2,522

 
2,525

NOI
$
63,104

 
$
112,779

Depreciation and amortization
(26,924
)
 
(50,837
)
General and administrative
(24,561
)
 
(24,038
)
Loss on asset impairment
(12,087
)
 
(19,714
)
Operating (Loss) Income
$
(468
)
 
$
18,190


(1)
Cash Basis NOI from non-same properties for all periods presented includes the operations of properties disposed or classified as held for sale and land parcels.


9

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


 
As of and for the Three Months Ended June 30,
 
As of and for the Six Months Ended June 30,
 
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Properties
13

 
13

 
 
 
13

 
13

 
 
Square Feet (1)
6,341

 
6,324

 
 
 
6,341

 
6,324

 
 
% Leased
89.8
%
 
87.5
%
 
2.3
%
 
89.8
%
 
87.5
%
 
2.3
%
% Commenced
87.7
%
 
84.8
%
 
2.9
%
 
87.7
%
 
84.8
%
 
2.9
%
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
31,877

 
$
28,139

 
13.3
%
 
$
62,365

 
$
56,645

 
10.1
%
Tenant reimbursements and other income
12,636

 
11,645

 
8.5
%
 
24,385

 
23,904

 
2.0
%
Straight line rent adjustment
1,530

 
3,302

 
 
 
2,863

 
6,737

 
 
Lease value amortization
18

 
(16
)
 
 
 
38

 
(85
)
 
 
Lease termination fees
422

 
814

 
 
 
982

 
916

 
 
Total revenue
46,483

 
43,884

 
5.9
%
 
90,633

 
88,117

 
2.9
%
Operating expenses
(18,770
)
 
(16,866
)
 
11.3
%
 
(36,864
)
 
(34,490
)
 
6.9
%
NOI
$
27,713

 
$
27,018

 
2.6
%
 
$
53,769

 
$
53,627

 
0.3
%
NOI Margin
59.6
%
 
61.6
%
 
 
 
59.3
%
 
60.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight line rent adjustment
$
(1,530
)
 
$
(3,302
)
 
 
 
$
(2,863
)
 
$
(6,737
)
 
 
Lease value amortization
(18
)
 
16

 
 
 
(38
)
 
85

 
 
Lease termination fees
(422
)
 
(814
)
 
 
 
(982
)
 
(916
)
 
 
Cash Basis NOI
$
25,743

 
$
22,918

 
12.3
%
 
49,886

 
46,059

 
8.3
%
Cash Basis NOI Margin
57.8
%
 
57.6
%
 
 
 
57.5
%
 
57.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1
)
The change in total square footage results from remeasurement.


10

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


 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
$
37,047

 
$
(5,811
)
 
$
224,709

 
$
18,011

Interest expense
6,350

 
14,863

 
16,465

 
29,877

Income tax (benefit) expense
(456
)
 
45

 
2,551

 
220

Depreciation and amortization
13,021

 
23,922

 
26,924

 
50,837

EBITDA
$
55,962

 
$
33,019

 
$
270,649

 
$
98,945

Loss on asset impairment
—

 
18,428

 
12,087

 
19,714

Gain on sale of properties, net
(26,937
)
 
(3,136
)
 
(232,148
)
 
(19,590
)
EBITDAre
$
29,025

 
$
48,311

 
$
50,588

 
$
99,069

Loss on early extinguishment of debt
1,536

 
63

 
6,403

 
63

Loss on sale of securities
—

 
—

 
4,987

 
—

Adjusted EBITDAre
$
30,561

 
$
48,374

 
$
61,978

 
$
99,132


 
 


11

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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2018
 
2017
 
2018
 
2017
Calculation of FFO
 
 
 
 
 
 
 
Net income (loss)
$
37,047

 
$
(5,811
)
 
$
224,709

 
$
18,011

Real estate depreciation and amortization
12,717

 
23,619

 
26,320

 
50,235

Loss on asset impairment
—

 
18,428

 
12,087

 
19,714

Gain on sale of properties, net
(26,937
)
 
(3,136
)
 
(232,148
)
 
(19,590
)
FFO attributable to Equity Commonwealth
22,827

 
33,100

 
30,968

 
68,370

Preferred distributions
(1,997
)
 
(1,997
)
 
(3,994
)
 
(3,994
)
FFO attributable to EQC common shareholders and unitholders
$
20,830

 
$
31,103

 
$
26,974

 
$
64,376

 
 
 
 
 
 
 
 
Calculation of Normalized FFO
 
 
 
 
 
 
 
FFO attributable to EQC common shareholders and unitholders
$
20,830

 
$
31,103

 
$
26,974

 
$
64,376

Lease value amortization
(18
)
 
518

 
80

 
1,091

Straight line rent adjustments
(1,022
)
 
(4,543
)
 
(2,550
)
 
(8,930
)
Loss on early extinguishment of debt
1,536

 
63

 
6,403

 
63

Income taxes related to gains on property sales
(496
)
 
—

 
2,473

 
—

Loss on sale of securities
—

 
—

 
4,987

 
—

Normalized FFO attributable to EQC common shareholders and unitholders
$
20,830

 
$
27,141

 
$
38,367

 
$
56,600

 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding -- basic (1)
121,865

 
124,106

 
122,882

 
124,091

Weighted average common shares and units outstanding -- diluted (1)
122,692

 
125,256

 
123,707

 
125,203

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

 
$
0.25

 
$
0.22

 
$
0.52

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

 
$
0.25

 
$
0.22

 
$
0.51

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

 
$
0.22

 
$
0.31

 
$
0.46

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

 
$
0.22

 
$
0.31

 
$
0.45

(1)
Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the three and six months ended June 30, 2018 include 42 LTIP/Operating Partnership Units that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only). Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic for the three and six months ended June 30, 2017 include 39 and 34 LTIP/Operating Partnership Units, respectively, that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only). Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares and units outstanding.

12
DEBT SUMMARY
As of June 30, 2018
(dollars in thousands)

 
Interest Rate
 
Principal Balance
 
Maturity Date
Open at Par Date
 
Due at Maturity
 
Years to Maturity
Unsecured Debt:
 
 
 
 
 
 
 
 
 
 
Unsecured Floating Rate Debt:
 
 
 
 
 
 
 
 
 
 
Revolving credit facility (LIBOR + 105 bps) (1)
3.14
%
 
$
—

 
1/28/2019
Open
 
$
—

 
0.6

Total / weighted average unsecured floating rate debt
3.14
%
 
$
—

 
 
 
 
$
—

 
0.6

 
 
 
 
 
 
 
 
 
 
 
Unsecured Fixed Rate Debt:
 
 
 
 
 
 
 
 
 
 
5.875% Senior Unsecured Notes Due 2020
5.88
%
 
$
250,000

 
9/15/2020
3/15/2020
 
$
250,000

 
2.2

Total / weighted average unsecured fixed rate debt
5.88
%
 
$
250,000

 
 
 
 
$
250,000

 
2.2

 
 
 
 
 
 
 
 
 
 
 
Secured Debt:
 
 
 
 
 
 
 
 
 
 
Secured Fixed Rate Debt:
 
 
 
 
 
 
 
 
 
 
206 East 9th Street
5.69
%
 
$
26,270

 
1/5/2021
7/5/2020
 
$
24,836

 
2.5

97 Newberry Road
5.71
%
 
5,144

 
3/1/2026
None
 
—

 
7.7

Total / weighted average secured fixed rate debt
5.69
%
 
$
31,414

 
 
 
 
$
24,836

 
3.4

 
 
 
 
 
 
 
 
 
 
 
Total / weighted average (2)
5.86
%
 
$
281,414

 
 
 
 
$
274,836

 
2.3

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Represents amounts outstanding on EQC's $750,000 revolving credit facility as of June 30, 2018. The interest rate presented is as of June 30, 2018, and equals LIBOR plus 1.05%. We also pay a 20 basis point facility fee annually. The spread over LIBOR and the facility fee vary depending upon EQC's credit rating.
(2)
Total debt outstanding as of June 30, 2018, including net unamortized premiums, discounts, and deferred financing fees was $280,012. Net unamortized deferred financing fees related to our revolving credit facility of $942 are included in other assets, net on our condensed consolidated balance sheet as of June 30, 2018.
 
 

13

DEBT MATURITY SCHEDULE
(dollars in thousands)

Scheduled Principal Payments During Period
Year
Unsecured Fixed Rate Debt
 
Secured Fixed Rate Debt
 
Total
 
Weighted Average Interest Rate
 
 
 
 
 
 
 
 
2018
$
—

 
$
537

 
$
537

 
5.7
%
2019
—

 
1,126

 
1,126

 
5.7
%
2020
250,000

 
1,189

 
251,189

 
5.9
%
2021
—

 
25,463

 
25,463

 
5.7
%
2022
—

 
663

 
663

 
5.7
%
2023
—

 
702

 
702

 
5.7
%
2024
—

 
743

 
743

 
5.7
%
2025
—

 
787

 
787

 
5.7
%
2026
—

 
204

 
204

 
5.7
%
2027
—

 
—

 
—

 
—
%
Thereafter
—

 
—

 
—

 
—
%
Total
$
250,000

 
$
31,414


$
281,414

(1) 
5.9
%
 
 
 
 
 
 
 
 
Percent
88.8
%
 
11.2
%
 
100.0
%
 
 
(1)
Total debt outstanding as of June 30, 2018, including net unamortized premiums, discounts, and deferred financing fees was $280,012. Net unamortized deferred financing fees related to our revolving credit facility of $942 are included in other assets, net on our condensed consolidated balance sheet as of June 30, 2018.

14

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

 
As of and for the Three Months Ended
 
6/30/2018

 
3/31/2018

 
12/31/2017

 
9/30/2017

 
6/30/2017

 
Leverage Ratios
 
 
 
 
 
 
 
 
 
 
Total debt / total assets
7.4
 %
 
16.4
 %
 
20.0
 %
 
20.0
 %
 
24.5
 %
 
Total debt / total market capitalization
6.6
 %
 
14.8
 %
 
17.7
 %
 
17.8
 %
 
21.2
 %
 
Total debt + preferred stock / total market capitalization
9.5
 %
 
17.6
 %
 
20.4
 %
 
20.5
 %
 
23.7
 %
 
Total debt / annualized adjusted EBITDAre (1)
2.3x

 
5.4x

 
5.7x

 
5.1x

 
5.7x

 
Total debt + preferred stock / annualized adjusted EBITDAre (1)
3.3x

 
6.4x

 
6.6x

 
5.9x

 
6.3x

 
Net debt / enterprise value
(126.1
)%
 
(124.4
)%
 
(61.7
)%
 
(54.1
)%
 
(26.9
)%
 
Net debt + preferred stock / enterprise value
(118.8
)%
 
(117.0
)%
 
(56.4
)%
 
(49.0
)%
 
(23.0
)%
 
Net debt / annualized adjusted EBITDAre (1)
(18.2)x

 
(17.2)x

 
(10.1)x

 
(8.4)x

 
(4.5)x

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

 
(16.2)x

 
(9.2)x

 
(7.6)x

 
(3.8)x

 
Secured debt / total assets
0.8
 %
 
0.8
 %
 
0.8
 %
 
0.8
 %
 
0.8
 %
 
Variable rate debt / total debt
—
 %
 
59.0
 %
 
47.1
 %
 
47.0
 %
 
36.4
 %
 
Variable rate debt / total assets
—
 %
 
9.7
 %
 
9.4
 %
 
9.4
 %
 
8.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
Coverage Ratios
 
 
 
 
 
 
 
 
 
 
Adjusted EBITDAre / interest expense (1)
4.8x

 
3.1x

 
3.5x

 
3.6x

 
3.3x

 
Adjusted EBITDAre / interest expense + preferred distributions (1)
3.7x

 
2.6x

 
2.9x

 
3.1x

 
2.9x

 
 
 
 
 
 
 
 
 
 
 
 
Public Debt Covenants
 
 
 
 
 
 
 
 
 
 
Debt / adjusted total assets (2) (maximum 60%)
6.8
 %
 
15.2
 %
 
18.2
 %
 
18.0
 %
 
22.1
 %
 
Secured debt / adjusted total assets (2) (maximum 40%)
0.8
 %
 
0.7
 %
 
0.7
 %
 
0.7
 %
 
0.7
 %
 
Consolidated income available for debt service / debt service (minimum 1.5x)
4.6x

 
2.8x

 
3.3x

 
3.5x

 
3.1x

 
Total unencumbered assets (2) / unsecured debt (minimum 150% / 200%)
1,623.7
 %
 
680.7
 %
 
553.0
 %
 
567.1
 %
 
459.7
 %
 
(1)
Refer to the calculation of EBITDA, EBITDAre and Adjusted EBITDAre for a reconciliation of these measures to Net income.
(2)
Adjusted total assets and total unencumbered assets includes original cost of real estate assets plus capital improvements, both calculated in accordance with GAAP, and excludes depreciation and amortization, accounts receivable, other intangible assets and impairment write downs, if any.

15

ACQUISITIONS AND DISPOSITIONS
(dollars in thousands)

Acquisitions
None
Dispositions
Property/Portfolio
City
State
No. of Properties
Sq. Feet (1)
 
% Leased(1)
 
Gross Sales Price
 
Net Book Value (1)
 
Annualized Rental Revenue (1)
1600 Market Street
Philadelphia
PA
1
825,968

 
84.7
%
 
$
160,000

 
$
76,066

 
$
19,219

600 West Chicago Avenue (2)
Chicago
IL
1
1,561,477

 
99.2
%
 
510,000
 
343,111
 
53,193
5073, 5075, & 5085 S. Syracuse Street
Denver
CO
1
248,493

 
100.0
%
 
115,186
 
52,323
 
7,601
Total Q1 Dispositions
 
3

2,635,938

 
94.7
%
 
$
785,186

 
$
471,500

 
$
80,013

 
 
 
 
 
 
 
 
 
 
 
 
 
1601 Dry Creek Drive
Longmont
CO
1
552,865

 
100.0
%
 
$
68,500

 
$
24,786

 
$
9,115

Total Q2 Dispositions
 
1

552,865

 
100.0
%
 
$
68,500

 
$
24,786

 
$
9,115

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Disposed Year-to-Date
 
4

3,188,803

 
95.6
%
 
$
853,686

 
$
496,286

 
$
89,128

 
 
 
 
 
 
 
 
 
 
 
 
 
The dispositions above resulted in a gain on sale of properties of $26.9 million and $232.1 million for the three and six months ended June 30, 2018, respectively.
      
(1
)
As of the quarter-ended preceding each sale.
(2
)
Proceeds from the sale of 600 West Chicago Avenue were approximately $488 million after credits for capital, contractual lease costs, and rent abatement.
 
 
 
 


16
PROPERTY DETAIL
As of June 30, 2018
(sorted by annualized rental revenue, dollars in thousands)

Same Property Portfolio(1)
Property
City, State
Type
No. of Buildings
Square Feet
% Leased
% Comm-enced
Annualized Rental Revenue
Undepreciated Book Value
Net Book Value
Year Acquired
Weighted Average Year Built or Substantially Renovated (2)
1
1735 Market Street
Philadelphia, PA
Office
1

1,286,936
83.4
%
82.3
%
$
36,607

$
322,627

$
191,935

1998
1990
2
1225 Seventeenth Street
Denver, CO
Office
1

695,372
87.6
%
84.5
%
22,302

159,252

126,728

2009
1982
3
333 108th Avenue NE
Bellevue, WA
Office
1

440,565
100.0
%
100.0
%
21,846

153,527

122,213

2009
2008
4
8750 Bryn Mawr Avenue
Chicago, IL
Office
2

636,078
95.5
%
91.2
%
17,041

111,243

91,873

2010
2005
5
Bridgepoint Square
Austin, TX
Office
5

440,007
91.6
%
84.6
%
13,523

96,074

52,222

1997
1995
6
Research Park
Austin, TX
Flex
4

1,110,007
98.0
%
98.0
%
12,040

98,340

61,986

1998
1976
7
109 Brookline Avenue
Boston, MA
Office
1

285,556
94.6
%
94.6
%
11,012

47,579

26,406

1995
1915
8
600 108th Avenue NE
Bellevue, WA
Office
1

254,510
95.5
%
95.5
%
8,917

51,537

35,188

2004
2012
9
1250 H Street, NW
Washington, D.C.
Office
1

196,490
89.7
%
84.9
%
8,860

74,381

42,384

1998
1992
10
Georgetown-Green and Harris Buildings
Washington, D.C.
Office
2

240,475
100.0
%
100.0
%
6,710

60,023

52,072

2009
2006
11
206 East 9th Street
Austin, TX
Office
1

175,510
78.3
%
63.6
%
5,591

50,191

43,809

2012
1984
12
777 East Eisenhower Parkway
Ann Arbor, MI
Office
1

290,530
39.8
%
39.8
%
2,989

27,969

21,652

2010
2006
13
97 Newberry Road
East Windsor, CT
Industrial
1

289,386
100.0
%
100.0
%
1,923

11,403

7,790

2006
1989
 
Total Same Properties
 
 
22

6,341,422

89.8
%
87.7
%
$
169,361

$
1,264,146

$
876,258

2003
1988
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property NOI & Cash Basis NOI Composition
Q2 2018 NOI
% of NOI
Q2 2018 Cash Basis NOI
% of Cash Basis NOI
 
 
 
 
 
 
Top 5 Properties
 
 
$
16,820

60.7
%
$
15,223

59.1
%
 
 
 
 
 
 
All other properties (8 properties)
 
10,893

39.3
%
10,520

40.9
%
 
 
 
 
 
 
Total (13 properties)
 
 
$
27,713

100.0
%
$
25,743

100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Excludes properties disposed prior to July 1, 2018.
(2)
Weighted based on square feet.
 
 

17

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

 
 
As of and for the Three Months Ended
 
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
Properties (1)
 
13

 
13

 
16

 
20

 
21

Total square feet (1)(2)
 
6,341

 
6,344

 
8,706

 
11,031

 
11,651

Percentage leased
 
89.8
%
 
88.6
%
 
91.9
%
 
88.3
%
 
88.4
%
Percentage commenced
 
87.7
%
 
83.5
%
 
89.2
%
 
85.5
%
 
86.3
%
 
 
 
 
 
 
 
 
 
 
 
Total Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
292

 
117

 
248

 
273

 
448

Lease term (years)
 
9.4

 
7.8

 
11.5

 
7.5

 
6.8

Starting cash rent
 
$
39.44

 
$
36.29

 
$
33.36

 
$
33.49

 
$
32.18

Percent change in cash rent (3)
 
10.4
%
 
2.8
%
 
6.8
%
 
2.3
%
 
10.7
%
Percent change in GAAP rent (3)
 
23.6
%
 
10.8
%
 
19.0
%
 
7.8
%
 
17.6
%
Total TI & LC per square foot (4)
 
$
59.54

 
$
59.23

 
$
36.91

 
$
40.37

 
$
33.84

Total TI & LC per sq. ft. per year of lease term (4)
 
$
6.36

 
$
7.56

 
$
3.20

 
$
5.35

 
$
4.94

 
 
 
 
 
 
 
 
 
 
 
Renewal Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
103

 
71

 
171

 
81

 
252

Lease term (years)
 
5.2

 
7.2

 
13.4

 
4.0

 
7.7

Starting cash rent
 
$
39.01

 
$
36.93

 
$
33.06

 
$
35.52

 
$
33.07

Percent change in cash rent (3)
 
12.0
%
 
1.7
%
 
6.2
%
 
3.7
%
 
11.2
%
Percent change in GAAP rent (3)
 
20.2
%
 
9.5
%
 
20.7
%
 
10.9
%
 
14.7
%
Total TI & LC per square foot (4)
 
$
40.07

 
$
55.07

 
$
33.67

 
$
18.00

 
$
31.56

Total TI & LC per sq. ft. per year of lease term (4)
 
$
7.75

 
$
7.61

 
$
2.52

 
$
4.51

 
$
4.10

 
 
 
 
 
 
 
 
 
 
 
New Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
189

 
46

 
77

 
192

 
196

Lease term (years)
 
11.6

 
8.7

 
7.5

 
9.0

 
5.7

Starting cash rent
 
$
39.67

 
$
35.34

 
$
34.02

 
$
32.63

 
$
31.03

Percent change in cash rent (3)
 
9.6
%
 
6.7
%
 
9.0
%
 
1.5
%
 
9.9
%
Percent change in GAAP rent (3)
 
25.5
%
 
15.3
%
 
13.4
%
 
6.4
%
 
22.0
%
Total TI & LC per square foot (4)
 
$
70.12

 
$
65.55

 
$
44.06

 
$
49.75

 
$
36.76

Total TI & LC per sq. ft. per year of lease term (4)
 
$
6.03

 
$
7.49

 
$
5.88

 
$
5.51

 
$
6.39

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


18

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

 
 
As of and for the Three Months Ended
 
 
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
Properties
 
13

 
13

 
13

 
13

 
13

Total square feet (1)
 
6,341

 
6,344

 
6,343

 
6,343

 
6,324

Percentage leased
 
89.8
%
 
88.6
%
 
89.2
%
 
88.7
%
 
87.5
%
Percentage commenced
 
87.7
%
 
83.5
%
 
85.4
%
 
85.2
%
 
84.8
%
 
 
 
 
 
 
 
 
 
 
 
Total Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
292

 
117

 
248

 
205

 
150

Lease term (years)
 
9.4

 
7.8

 
11.5

 
7.3

 
6.0

Starting cash rent
 
$
39.44

 
$
36.29

 
$
33.36

 
$
36.33

 
$
44.53

Percent change in cash rent (2)
 
10.4
%
 
2.8
%
 
6.8
%
 
5.6
%
 
10.6
%
Percent change in GAAP rent (2)
 
23.6
%
 
10.8
%
 
19.0
%
 
10.1
%
 
13.3
%
Total TI & LC per square foot (3)
 
$
59.54

 
$
59.23

 
$
36.91

 
$
43.27

 
$
47.00

Total TI & LC per sq. ft. per year of lease term (3)
 
$
6.36

 
$
7.56

 
$
3.20

 
$
5.96

 
$
7.79

 
 
 
 
 
 
 
 
 
 
 
Renewal Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
103

 
71

 
171

 
52

 
93

Lease term (years)
 
5.2

 
7.2

 
13.4

 
4.0

 
4.2

Starting cash rent
 
$
39.01

 
$
36.93

 
$
33.06

 
$
42.49

 
$
47.31

Percent change in cash rent (2)
 
12.0
%
 
1.7
%
 
6.2
%
 
5.5
%
 
7.8
%
Percent change in GAAP rent (2)
 
20.2
%
 
9.5
%
 
20.7
%
 
9.7
%
 
8.2
%
Total TI & LC per square foot (3)
 
$
40.07

 
$
55.07

 
$
33.67

 
$
19.95

 
$
24.58

Total TI & LC per sq. ft. per year of lease term (3)
 
$
7.75

 
$
7.61

 
$
2.52

 
$
5.00

 
$
5.84

 
 
 
 
 
 
 
 
 
 
 
New Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
189

 
46

 
77

 
153

 
57

Lease term (years)
 
11.6

 
8.7

 
7.5

 
8.4

 
9.0

Starting cash rent
 
$
39.67

 
$
35.34

 
$
34.02

 
$
34.25

 
$
40.03

Percent change in cash rent (2)
 
9.6
%
 
6.7
%
 
9.0
%
 
5.7
%
 
16.8
%
Percent change in GAAP rent (2)
 
25.5
%
 
15.3
%
 
13.4
%
 
10.3
%
 
24.6
%
Total TI & LC per square foot (3)
 
$
70.12

 
$
65.55

 
$
44.06

 
$
51.14

 
$
83.27

Total TI & LC per sq. ft. per year of lease term (3)
 
$
6.03

 
$
7.49

 
$
5.88

 
$
6.11

 
$
9.27

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


19
CAPITAL SUMMARY
EXPENDITURES & SAME PROPERTY LEASING COMMITMENTS
(dollars and square feet in thousands)

CAPITAL SUMMARY
Three Months Ended
EXPENDITURES
6/30/2018
 
3/31/2018
 
12/31/2017
 
9/30/2017
 
6/30/2017
Tenant improvements
$
13,773

 
$
10,907

 
$
6,410

 
$
3,015

 
$
10,309

Leasing costs
4,909

 
2,842

 
3,408

 
3,070

 
4,978

Building improvements (1)
2,936

 
1,951

 
5,311

 
8,469

 
7,315

Total capital expenditures
$
21,618

 
$
15,700

 
$
15,129

 
$
14,554

 
$
22,602

 
 
 
 
 
 
 
 
 
 
Average square feet during period (2)
6,619

 
8,214

 
10,282

 
12,722

 
14,818

 
 
 
 
 
 
 
 
 
 
Building improvements per average total sq. ft. during period
$
0.44

 
$
0.24

 
$
0.52

 
$
0.67

 
$
0.49


CAPITAL SUMMARY
 
Three Months Ended
SAME PROPERTY LEASING COMMITMENTS
 
June 30, 2018
 
 
New Leases
 
Renewal Leases
 
Total
Square feet leased during the period
 
189

 
103

 
292

Total TI & LC (3)
 
$
13,253

 
$
4,127

 
$
17,380

Total TI & LC per square foot (3)
 
$
70.12

 
$
40.07

 
$
59.54

Weighted average lease term by square foot (years)
 
11.6

 
5.2

 
9.4

Total TI & LC per sq. ft. per year of lease term (3)
 
$
6.03

 
$
7.75

 
$
6.36

(1)
Tenant-funded capital expenditures are excluded.
(2)
Average square feet during each period includes properties held for sale at the end of each period.
(3)
Includes tenant improvements (TI) and leasing commissions (LC).


20
TENANTS REPRESENTING 1.5% OR MORE OF ANNUALIZED RENTAL REVENUE
As of June 30, 2018
(square feet in thousands)


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

 
Expedia, Inc.
 
427

 
7.5
%
 
12.5
%
 
1.5
2

 
Flex Ltd.
 
1,051

 
18.5
%
 
6.5
%
 
11.5
3

 
Ballard Spahr LLP
 
219

 
3.8
%
 
5.0
%
 
11.6
4

 
Georgetown University (2)
 
240

 
4.2
%
 
4.0
%
 
1.3
5

 
Beth Israel Deaconess Medical Center, Inc.
 
117

 
2.1
%
 
2.2
%
 
5.0
6

 
Dana-Farber Cancer Institute, Inc.
 
77

 
1.4
%
 
2.1
%
 
6.5
7

 
Alcan Corporation
 
71

 
1.2
%
 
1.8
%
 
4.8
8

 
BT Americas, Inc.
 
59

 
1.0
%
 
1.7
%
 
1.1
9

 
Equinor Energy Services, Inc. (3)
 
89

 
1.6
%
 
1.7
%
 
5.0
10

 
KPMG, LLP
 
66

 
1.2
%
 
1.5
%
 
4.6
 
 
Total
 
2,416

 
42.5
%
 
39.0
%
 
7.4
(1)
Square footage as of June 30, 2018 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)
Georgetown University's leased space includes 111,600 square feet that are sublet to another tenant. During the fourth quarter of 2017, the other tenant committed to lease this space through September 30, 2037.
(3)
Formerly known as Statoil Oil & Gas LP.


21
SAME PROPERTY LEASE EXPIRATION SCHEDULE
As of June 30, 2018
(dollars and sq. ft. in thousands)

Year
 
Number of Tenants Expiring
 
Leased Sq. Ft. Expiring (1)
 
% of Leased Sq. Ft. Expiring
 
Cumulative % of Leased Sq. Ft. Expiring
 
Annualized Rental Revenue Expiring (2)
 
% of Annualized Rental Revenue Expiring
 
Cumulative % of Annualized Rental Revenue Expiring
2018
 
18
 
99
 
1.7
%
 
1.7
%
 
$
3,646

 
2.2
%
 
2.2
%
2019
 
50
 
564
 
9.9
%
 
11.6
%
 
21,196

 
12.5
%
 
14.7
%
2020
 
37
 
876
 
15.4
%
 
27.0
%
 
31,454

 
18.6
%
 
33.3
%
2021
 
37
 
268
 
4.7
%
 
31.7
%
 
8,451

 
5.0
%
 
38.3
%
2022
 
32
 
406
 
7.1
%
 
38.8
%
 
13,758

 
8.1
%
 
46.4
%
2023
 
35
 
440
 
7.7
%
 
46.5
%
 
16,618

 
9.8
%
 
56.2
%
2024
 
15
 
268
 
4.7
%
 
51.2
%
 
8,203

 
4.8
%
 
61.0
%
2025
 
13
 
209
 
3.7
%
 
54.9
%
 
8,271

 
4.9
%
 
65.9
%
2026
 
9
 
139
 
2.4
%
 
57.3
%
 
5,039

 
3.0
%
 
68.9
%
2027
 
11
 
198
 
3.5
%
 
60.8
%
 
7,502

 
4.4
%
 
73.3
%
Thereafter
 
35
 
2,227
 
39.2
%
 
100.0
%
 
45,223

 
26.7
%
 
100.0
%
    Total
 
292
 
5,694
 
100.0
%
 
 
 
$
169,361

 
100.0
%
 
 
Weighted average remaining
 
 
 
 
 
 
 
 
 
 
    lease term (in years)
 
7.1

 
 
 
 
 
6.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Square footage as of June 30, 2018 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants. The year expiring corresponds to the latest-expiring signed lease for a given suite. Thus, backfilled suites expire in the year stipulated by the new lease.
(2)
Excludes the Annualized Rental Revenue of space that is leased but not commenced.

22

DISPOSED PROPERTY DETAIL (1) 
(dollars in thousands)

 
Property
 
City and State
 
No. of Bldgs.
 
Sq. Feet
 
% Leased
 
Annualized Rental Revenue
 
Undepreciated Book Value
 
Net Book Value
 
Year Acquired
Weighted Average Year Built or Substantially Renovated (2)
1
1600 Market Street
 
Philadelphia
PA
 
1
 
825,968
 
84.7
%
 
$
19,219

 
$
138,130

 
$
76,066

 
1998
1983

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
600 West Chicago Avenue
 
Chicago
IL
 
2
 
1,561,477
 
99.2
%
 
53,193
 
401,062
 
343,111
 
2011
2001

3
5073, 5075, & 5085 S. Syracuse Street
 
Denver
CO
 
1
 
248,493
 
100.0
%
 
7,601
 
63,610
 
52,323
 
2010
2007

Total Q1 2018 Dispositions
 
4
 
2,635,938
 
94.7
%
 
$
80,013

 
$
602,802

 
$
471,500

 
2007
1996

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
1601 Dry Creek Drive
 
Longmont
CO
 
1

 
552,865

 
100.0
%
 
9,115

 
35,479

 
24,786

 
2004
1982
Total Q2 2018 Dispositions
 
1

 
552,865

 
100.0
%
 
$
9,115

 
$
35,479

 
$
24,786

 
2004
1982
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Disposed Year-to-Date
 
5

 
3,188,803

 
95.6
%
 
$
89,128

 
$
638,281

 
$
496,286

 
2006
1994

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Statistics for disposed properties are presented as of the quarter-ended preceding each sale.
(2
)
Weighted based on square feet.
 
 

23

COMMON & POTENTIAL COMMON SHARES
(share amounts in thousands)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
Weighted Average Share Calculation - GAAP EPS
2018
 
2017
 
2018
 
2017
 
 
 
 
 
 
 
 
Weighted average common shares outstanding - basic (1)
121,822

 
124,067

 
122,839

 
124,057

Weighted average Series D preferred shares convertible to common shares (2)
—

 
—

 
2,363

 
—

Weighted average dilutive RSUs and LTIP Units (3)
827

 
—

 
825

 
1,146

Weighted average common shares outstanding - diluted
122,649

 
124,067

 
126,027

 
125,203

 
 
 
 
 
 
 
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
Weighted Average Share and Unit Calculation - FFO and Normalized FFO per share and unit
2018
 
2017
 
2018
 
2017
Weighted average EQC common shares outstanding (1)
121,822

 
124,067

 
122,839

 
124,057

Weighted average Operating Partnership Units outstanding (4)
1

 
—

 
1

 
—

Weighted average time-based LTIP Units (3)(4)
42

 
39

 
42

 
34

Weighted average common shares and units outstanding - basic
121,865

 
124,106

 
122,882

 
124,091

Weighted average dilutive RSUs and market-based LTIP Units (3)
827

 
1,150

 
825

 
1,112

Weighted average common shares and units outstanding - diluted
122,692

 
125,256

 
123,707

 
125,203

Rollforward of Share Count to June 30, 2018
 
 
Series D Preferred Shares(2)
 
EQC Common Shares(5)
Outstanding on December 31, 2017
 
 
4,915

 
124,218

Repurchase of common shares
 
 
 
 
(2,970
)
Issuance of restricted shares and shares earned from RSUs, net (6)
 
 
—

 
235

Outstanding on June 30, 2018
 
 
4,915

 
121,483

Series D preferred shares convertible into common shares on June 30, 2018 (2)
 
 
 
 
2,363

Common shares issuable from RSUs, Operating Partnership Units, and LTIP Units as measured on June 30, 2018 (3)
 
 
 
 
1,235

Potential common shares as measured on June 30, 2018
 
 
 
 
125,081

(1
)
Weighted average common shares outstanding for the three months ended June 30, 2018 and 2017 includes 362 and 0 unvested, earned RSUs, respectively. Weighted average common shares outstanding for the six months ended June 30, 2018 and 2017 includes 335 and 0 unvested, earned RSUs, respectively.
(2
)
As of June 30, 2018, we had 4,915 series D preferred shares outstanding that were convertible into 2,363 common shares. The series D preferred shares are dilutive for GAAP EPS for the six months ended June 30, 2018. They are anti-dilutive for all other periods and measures presented.
(3
)
We have granted RSUs and LTIP Units to certain employees, officers, and trustees. RSUs and LTIP Units contain service and market-based vesting components.
(4
)
Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share and unit - basic include time-based LTIP Units and Operating Partnership Units that are excluded from the calculation of basic earnings per common share attributable to EQC common shareholders (only).
(5
)
EQC common shares include unvested restricted shares and unvested earned RSUs.
(6
)
This amount is net of forfeitures and shares surrendered to satisfy statutory tax witholding obligations.

24

DEFINITIONS

Annualized Rental Revenue
Annualized Rental Revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of June 30, 2018, plus estimated recurring expense reimbursements; includes triple net lease rents and excludes lease value amortization, straight line rent adjustments, abated (“free”) rent periods and parking revenue. We calculate Annualized Rental Revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported, adding abated rent, and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues. The Annualized Rental Revenue of disposed properties is presented for the quarter-ended preceding each disposition.
Annualized Rental Revenue is a forward-looking non-GAAP measure. Annualized Rental Revenue cannot be reconciled to a comparable GAAP measure without unreasonable efforts, primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported, whereas historical GAAP measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates.
Building Improvements
Building improvements are expenditures to replace obsolete building components or extend the useful life of existing assets.
Consolidated Income Available for Debt Service
Consolidated income available for debt service is earnings from operations excluding interest expense, depreciation and amortization, taxes, and certain items that we view as nonrecurring or impacting comparability from period to period, determined together with debt service on a pro forma basis for the four consecutive fiscal quarters most recently ended.
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA), EBITDAre, and Adjusted EBITDAre
We calculate EBITDA as net income (loss) excluding interest expense, income tax expense, and depreciation and amortization.
We calculate EBITDAre in accordance with standards established by the National Association of Real Estate Investment Trusts (NAREIT). NAREIT defines EBITDAre as net income (loss), calculated in accordance with GAAP, plus interest expense, plus income tax expense, plus depreciation and amortization, plus (minus) losses and gains on the disposition of depreciated property, plus impairment write-downs of depreciated property and investments in unconsolidated joint ventures, plus adjustments to reflect the entity's share of EBITDAre of unconsolidated joint ventures. Our calculation of Adjusted EBITDAre differs from our calculations of EBITDA and EBITDAre because we exclude certain items that we view as nonrecurring or impacting comparability from period to period. EBITDA, EBITDAre, and Adjusted EBITDAre are supplemental non-GAAP financial measures.
We consider EBITDA, EBITDAre and Adjusted EBITDAre to be appropriate measures of our operating performance, along with net income (loss), net income (loss) attributable to EQC common shareholders, operating income (loss) and cash flow from operating activities. We believe that EBITDA, EBITDAre, and Adjusted EBITDAre provide useful information to investors because by excluding the effects of certain historical amounts, such as interest, depreciation and amortization expense, EBITDA, EBITDAre, and Adjusted EBITDAre may facilitate a comparison of current operating performance with our past operating performance. EBITDA, EBITDAre and Adjusted EBITDAre do not represent cash generated by operating activities in accordance with GAAP and should not be considered alternatives to net income (loss), net income (loss) attributable to EQC common shareholders, operating income (loss) or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders, operating income (loss) and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income (loss) and condensed consolidated statements of cash flows. Other REITs and real estate companies may calculate EBITDA, EBITDAre and Adjusted EBITDAre differently than we do.
Annualized Adjusted EBITDAre
Annualized Adjusted EBITDAre is Adjusted EBITDAre for the three months ended June 30, 2018 multiplied by four.
Enterprise Value
Enterprise value is net debt plus the market value of our preferred shares plus the market value of our common shares.
Funds from Operations (FFO) and Normalized FFO
We compute FFO in accordance with standards established by NAREIT. NAREIT defines FFO as net income (loss), calculated in accordance with GAAP, excluding real estate depreciation and amortization, gains (or losses) from sales of depreciable property, impairment of depreciable real estate, and our portion of these items related to equity investees and noncontrolling interests.  Our calculation of Normalized FFO differs from NAREIT’s definition of FFO because we exclude certain items that we view as nonrecurring or impacting comparability from period to period.  FFO and Normalized FFO are supplemental non-GAAP financial measures. We consider FFO and Normalized FFO to be appropriate measures of operating performance for a REIT, along with net income (loss), net income (loss) attributable to EQC common shareholders, operating income (loss) and cash flow from operating activities.

25

DEFINITIONS

We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs.  FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income (loss), net income (loss) attributable to EQC common shareholders, operating income (loss) or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs.  These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders, operating income (loss) and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.
Leasing Costs
Leasing costs primarily consist of leasing commissions (LCs) and related legal expenses.
LTIP Units
LTIP Units are a class of beneficial interests in EQC Operating Trust (the Operating Trust) that may be issued to employees, officers, or trustees of the Operating Trust, EQC, or their subsidiaries.
Net Debt
Net debt is total debt minus cash and cash equivalents.
Net Operating Income (NOI), Same Property NOI, Cash Basis NOI, and Same Property Cash Basis NOI
NOI is income from our real estate operations including lease termination fees received from tenants less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions and corporate level expenses. Cash Basis NOI is NOI excluding the effects of straight line rent adjustments, lease value amortization, and lease termination fees. The quarter-to-date same property versions of these measures include the results of properties continuously owned from April 1, 2017 through June 30, 2018. The year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2017 through June 30, 2018. Land parcels and properties classified as held for sale within our condensed consolidated balance sheets are excluded from the same property versions of these measures.
We consider these supplemental non-GAAP financial measures to be appropriate supplemental measures to net income (loss) because they help to understand the operations of our properties. We use these measures internally to evaluate property level performance, and we believe that they provide useful information to investors regarding our results of operations because they reflect only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs. Cash Basis NOI is among the factors considered with respect to acquisition, disposition and financing decisions. These measures do not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income (loss), net income (loss) attributable to EQC common shareholders, operating income (loss) or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income (loss), net income (loss) attributable to EQC common shareholders, operating income (loss) and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows. Other REITs and real estate companies may calculate these measures differently than we do.
Net Book Value
Net book value represents the carrying value of real estate properties after depreciation and amortization, purchase price allocations, and impairment write-downs, if any.
NOI Margin
NOI Margin is NOI (or the same property or cash basis derivations of NOI defined above) divided by the total revenues used to calculate NOI (or its derivation).
Operating Partnership Units
Operating Partnership Units are beneficial interests in the Operating Trust.
Percentage Commenced
Percentage commenced includes space subject to leases that have commenced, whether or not the tenant is in a free rent period.


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DEFINITIONS

Percentage Leased
Percentage leased includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but not occupied or is being offered for sublease by tenants.
Same Properties
Our quarter-to-date same property portfolio is comprised of those properties continuously owned from April 1, 2017 through June 30, 2018. Our year-to-date same property portfolio is comprised of those properties continuously owned from January 1, 2017 through June 30, 2018. Land parcels and properties classified as held for sale within our condensed consolidated balance sheets are excluded.
Tenant Improvements
Tenant improvements are capital expenditures to improve tenant spaces.
Total Debt
Total debt is the aggregate balance of the following line items on our condensed consolidated balance sheets: revolving credit facility, senior unsecured debt, net, and mortgage notes payable, net.
Undepreciated Book Value
Undepreciated book value represents the carrying value of real estate properties after purchase price allocations, impairment write-downs, and currency adjustments, if any.


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