EX-99.2 3 eqc93017ex992.htm EXHIBIT 99.2 Exhibit
Exhibit 99.2




supplogoq12016a05.jpg


Supplemental Operating and Financial Data

Third Quarter 2017








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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 and Adjusted EBITDA
 
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
 
Top Properties by Annualized Rental Revenue
 
Leasing Summary
 
Same Property Leasing Summary
 
Capital Summary - Expenditures & Leasing Commitments
 
Tenants Representing 1.5% or More of Annualized Rental Revenue
 
Same Property Lease Expiration Schedule
 
Property Detail
 
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 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
20
11,031
88.3%
85.5%
 Senior Unsecured Debt Ratings
 
 
 NYSE Trading Symbols
 Moody's: Baa3
 
 
 Common Stock: EQC
 Standard & Poor's: BBB-
 
 
 Preferred Stock Series D: EQCPD
 
 
 
 5.75% Senior Notes due 2042: EQCO
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
Nader Abadi
(212) 438-3506
nader.abadi@spglobal.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
 
 
9/30/2017

 
6/30/2017

 
3/31/2017

 
12/31/2016

 
9/30/2016

OPERATING INFORMATION
 
Ending property count (1)
20

 
21

 
28

 
33

 
37

 
Ending square footage (1)(2)
11,031

 
11,651

 
14,593

 
16,053

 
16,710

 
Percent leased (1)
88.3
 %
 
88.4
 %
 
89.0
 %
 
91.1
 %
 
91.2
 %
 
Total revenues
$
77,798

 
$
91,599

 
$
99,551

 
$
103,546

 
$
114,632

 
Net income (loss)
33,224

 
(5,811
)
 
23,822

 
12,260

 
86,388

 
Net income (loss) attributable to EQC common shareholders
31,215

 
(7,806
)
 
21,817

 
10,263

 
84,391

 
NOI (3)
45,418

 
54,315

 
58,464

 
60,804

 
65,319

 
Cash Basis NOI (3)
40,772

 
49,476

 
52,939

 
55,963

 
61,422

 
Adjusted EBITDA (3)
41,325

 
48,374

 
50,758

 
52,461

 
54,917

 
NOI margin
58.4
 %
 
59.3
 %
 
58.7
 %
 
58.7
 %
 
57.0
 %
 
Cash Basis NOI margin
55.7
 %
 
57.0
 %
 
56.3
 %
 
56.7
 %
 
55.5
 %
 
FFO attributable to EQC common shareholders and unitholders (3)
26,989

 
31,103

 
33,273

 
28,077

 
31,129

 
Normalized FFO attributable to EQC common shareholders and unitholders (3)
24,023

 
27,141

 
29,459

 
29,601

 
28,919

SHARES OUTSTANDING AND PER SHARE DATA (4)
 
Shares Outstanding at End of Period
 
 
 
 
 
 
 
 
 
 
Common stock outstanding - basic (includes unvested restricted shares)
124,089

 
124,089

 
124,064

 
123,994

 
125,533

 
Dilutive restricted share units ("RSUs") and LTIP Units(4)
1,085

 
1,191

 
1,165

 
1,027

 
1,035

 
Dilutive Series D Convertible Preferred Shares outstanding(5)
—

 
—

 
—

 
—

 
—

 
Preferred Stock outstanding (5)
4,915

 
4,915

 
4,915

 
4,915

 
4,915

 
Weighted Average Shares Outstanding - GAAP
 
 
 
 
 
 
 
 
 
 
Basic (6)
124,089

 
124,067

 
124,047

 
125,021

 
125,533

 
Diluted (6)
125,175

 
124,067

 
125,150

 
126,048

 
126,568

 
Net income (loss) attributable to EQC common shareholders - basic
$
0.25

 
$
(0.06
)
 
$
0.18

 
$
0.08

 
$
0.67

 
Net income (loss) attributable to EQC common shareholders - diluted
0.25

 
(0.06
)
 
0.17

 
0.08

 
0.67

 
Normalized FFO(3) attributable to EQC common shareholders and unitholders - diluted
0.19

 
0.22

 
0.24

 
0.23

 
0.23

BALANCE SHEET
 
Total assets
$
4,260,289

 
$
4,491,116

 
$
4,518,756

 
$
4,526,075

 
$
4,965,767

 
Total liabilities
935,590

 
1,204,655

 
1,232,231

 
1,265,628

 
1,676,727

ENTERPRISE VALUE
 
Total debt (book value)
$
850,576

 
$1,100,355
 
$1,141,628
 
$1,141,667
 
$
1,557,260

 
Less: Cash and cash equivalents
(2,233,077
)
 
(1,967,549
)
 
(1,888,537
)
 
(2,094,674
)
 
(2,405,174
)
 
Plus: Market value of preferred shares (at end of period)
130,892

 
127,992

 
125,632

 
125,731

 
133,202

 
Plus: Market value of diluted common shares (at end of period)
3,805,309

 
3,958,870

 
3,909,662

 
3,780,649

 
3,824,864

 
Total enterprise value
$
2,553,700

 
$
3,219,668

 
$
3,288,385

 
$
2,953,373

 
$
3,110,152

RATIOS
 
Net debt / enterprise value
(54.1
)%
 
(26.9
)%
 
(22.7
)%
 
(32.3
)%
 
(27.3
)%
 
Net debt / annualized adjusted EBITDA (3)
(8.4)x

 
(4.5)x

 
(3.7)x

 
(4.5)x

 
(3.9)x

 
Adjusted EBITDA (3) / interest expense
3.6x

 
3.3x

 
3.4x

 
2.7x

 
2.6x

(1)
Excludes properties classified as held for sale. As of December 31, 2016, land parcels are excluded from the property count.
(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. None of the RSUs or LTIP Units have vested. 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)
As of September 30, 2017, we had 4,915 series D preferred shares outstanding that were convertible into 2,363 common shares. Given this conversion ratio relative to our current common stock price, we exclude these shares from dilutive shares outstanding on September 30, 2017. 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.
(6)
Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding.

4

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

 
September 30, 2017
 
December 31, 2016
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
216,957

 
$
286,186

Buildings and improvements
1,841,230

 
2,570,704

 
2,058,187

 
2,856,890

Accumulated depreciation
(554,411
)
 
(755,255
)
 
1,503,776

 
2,101,635

Acquired real estate leases, net
28,108

 
48,281

Cash and cash equivalents
2,233,077

 
2,094,674

Marketable securities
279,626

 
—

Restricted cash
7,657

 
6,532

Rents receivable, net of allowance for doubtful accounts of $4,217 and $5,105, respectively
107,832

 
152,031

Other assets, net
100,213

 
122,922

Total assets
$
4,260,289

 
$
4,526,075

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Revolving credit facility
$
—

 
$
—

Senior unsecured debt, net
815,577

 
1,063,950

Mortgage notes payable, net
34,999

 
77,717

Accounts payable and accrued expenses
63,506

 
95,395

Assumed real estate lease obligations, net
1,215

 
1,946

Rent collected in advance
14,355

 
18,460

Security deposits
5,938

 
8,160

Total liabilities
$
935,590

 
$
1,265,628

 
 
 
 
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; 124,089,443 and 123,994,465 shares issued and outstanding, respectively
1,241

 
1,240

Additional paid in capital
4,378,184

 
4,363,177

Cumulative net income
2,617,820

 
2,566,603

Cumulative other comprehensive income (loss)
2,671

 
(208
)
Cumulative common distributions
(3,111,868
)
 
(3,111,868
)
Cumulative preferred distributions
(683,751
)
 
(677,760
)
Total shareholders’ equity
3,323,560

 
3,260,447

Noncontrolling interest
1,139

 
—

Total equity
$
3,324,699

 
$
3,260,447

Total liabilities and equity
$
4,260,289

 
$
4,526,075



5

ADDITIONAL BALANCE SHEET INFORMATION
(amounts in thousands)

 
September 30, 2017
December 31, 2016
Additional Balance Sheet Information
 
 
 
 
 
Straight-line rents receivable, net of allowance for doubtful accounts
$
101,219

$
141,637

Accounts receivable, net of allowance for doubtful accounts
6,613

10,394

Rents receivable, net of allowance for doubtful accounts
$
107,832

$
152,031

 
 
 
Capitalized lease incentives, net
$
5,800

$
7,664

Deferred financing fees, net
2,153

3,365

Deferred leasing costs, net
69,521

92,623

Other
22,739

19,270

Other assets, net
$
100,213

$
122,922

 
 
 
Accounts payable
$
5,150

$
5,159

Accrued interest
3,898

15,265

Accrued taxes
22,602

26,819

Accrued capital expenditures
7,262

11,138

Accrued leasing costs
5,224

10,828

Other accrued liabilities
19,370

26,186

Accounts payable and accrued expenses
$
63,506

$
95,395



6

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Rental income
$
61,091

 
$
92,722

 
$
215,648

 
$
324,345

Tenant reimbursements and other income
16,707

 
21,910

 
53,300

 
72,789

Total revenues
$
77,798

 
$
114,632

 
$
268,948

 
$
397,134

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
Operating expenses
$
32,380

 
$
49,313

 
$
110,751

 
$
157,964

Depreciation and amortization
21,133

 
29,184

 
71,970

 
102,766

General and administrative
11,689

 
13,277

 
35,727

 
38,766

Loss on asset impairment
—

 
—

 
19,714

 
43,736

Total expenses
$
65,202

 
$
91,774

 
$
238,162

 
$
343,232

 
 
 
 
 
 
 
 
Operating income
$
12,596

 
$
22,858

 
$
30,786

 
$
53,902

 
 
 
 
 
 
 
 
Interest and other income
7,596

 
3,013

 
17,987

 
7,184

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $784, $948, $2,346 and $2,880, respectively)
(11,510
)
 
(21,427
)
 
(41,387
)
 
(65,074
)
Loss on early extinguishment of debt
(203
)
 
—

 
(266
)
 
(118
)
Foreign currency exchange loss
—

 
—

 
—

 
(5
)
Gain on sale of properties, net
25,080

 
82,169

 
44,670

 
225,210

Income before income taxes
33,559

 
86,613

 
51,790

 
221,099

Income tax expense
(335
)
 
(225
)
 
(555
)
 
(465
)
Net income
$
33,224

 
$
86,388

 
$
51,235

 
$
220,634

Net income attributable to noncontrolling interest
(12
)
 
—

 
(18
)
 
—

Net income attributable to Equity Commonwealth
$
33,212

 
$
86,388

 
$
51,217

 
$
220,634

Preferred distributions
(1,997
)
 
(1,997
)
 
(5,991
)
 
(15,959
)
Excess fair value of consideration paid over carrying value of preferred shares (1)
—

 
—

 
—

 
(9,609
)
Net income attributable to Equity Commonwealth common shareholders
$
31,215

 
$
84,391

 
$
45,226

 
$
195,066

Weighted average common shares outstanding — basic (2)
124,089

 
125,533

 
124,068

 
125,627

Weighted average common shares outstanding — diluted (2)
125,175

 
126,568

 
125,194

 
127,009

 
 
 
 
 
 
 
 
Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
0.25

 
$
0.67

 
$
0.36

 
$
1.55

Diluted
$
0.25

 
$
0.67

 
$
0.36

 
$
1.54

(1
)
On May 15, 2016, we redeemed all of our 11,000,000 outstanding series E preferred shares at a price of $25.00 per share, for a total of $275.0 million, plus any accrued and unpaid dividends. The redemption payment occurred on May 16, 2016 (the first business day following the redemption date). We recorded $9.6 million related to the excess fair value of consideration paid over the carrying value of the preferred shares as a reduction to net income attributable to Equity Commonwealth common shareholders for the nine months ended September 30, 2016.
(2
)
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
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Calculation of Same Property NOI and Same Property Cash Basis NOI:
 
 
 
 
 
 
 
Rental income
$
61,091

 
$
92,722

 
$
215,648

 
$
324,345

Tenant reimbursements and other income
16,707

 
21,910

 
53,300

 
72,789

Operating expenses
(32,380
)
 
(49,313
)
 
(110,751
)
 
(157,964
)
NOI
$
45,418

 
$
65,319

 
$
158,197

 
$
239,170

Straight line rent adjustments
(3,557
)
 
(2,954
)
 
(12,487
)
 
(12,384
)
Lease value amortization
388

 
882

 
1,479

 
5,870

Lease termination fees
(1,477
)
 
(1,825
)
 
(4,002
)
 
(19,569
)
Cash Basis NOI
$
40,772

 
$
61,422

 
$
143,187

 
$
213,087

Cash Basis NOI from non-same properties (1)
(2,917
)
 
(21,810
)
 
(29,784
)
 
(93,796
)
Same Property Cash Basis NOI
$
37,855

 
$
39,612

 
$
113,403

 
$
119,291

Non-cash rental income and lease termination fees from same properties
4,728

 
1,069

 
13,507

 
7,450

Same Property NOI
$
42,583

 
$
40,681

 
$
126,910

 
$
126,741

 
 
 
 
 
 
 
 
Reconciliation of Same Property NOI to GAAP Operating Income:
 
 
 
 
 
 
 
Same Property NOI
$
42,583

 
$
40,681

 
$
126,910

 
$
126,741

Non-cash rental income and lease termination fees from same properties
(4,728
)
 
(1,069
)
 
(13,507
)
 
(7,450
)
Same Property Cash Basis NOI
$
37,855

 
$
39,612

 
$
113,403

 
$
119,291

Cash Basis NOI from non-same properties (1)
2,917

 
21,810

 
29,784

 
93,796

Cash Basis NOI
$
40,772

 
$
61,422

 
$
143,187

 
$
213,087

Straight line rent adjustments
3,557

 
2,954

 
12,487

 
12,384

Lease value amortization
(388
)
 
(882
)
 
(1,479
)
 
(5,870
)
Lease termination fees
1,477

 
1,825

 
4,002

 
19,569

NOI
$
45,418

 
$
65,319

 
$
158,197

 
$
239,170

Depreciation and amortization
(21,133
)
 
(29,184
)
 
(71,970
)
 
(102,766
)
General and administrative
(11,689
)
 
(13,277
)
 
(35,727
)
 
(38,766
)
Loss on asset impairment
—

 
—

 
(19,714
)
 
(43,736
)
Operating Income
$
12,596

 
$
22,858

 
$
30,786

 
$
53,902

(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

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


 
As of and for the Three Months Ended September 30,
 
As of and for the Nine Months Ended September 30,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
Properties
20

 
20

 
 
 
20

 
20

 
 
Square Feet(1)
11,031

 
10,931

 
 
 
11,031

 
10,931

 
 
% Leased
88.3
%
 
89.6
%
 
(1.3
)%
 
88.3
%
 
89.6
%
 
(1.3
)%
% Commenced
85.5
%
 
87.0
%
 
(1.5
)%
 
85.5
%
 
87.0
%
 
(1.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
Rental income
$
52,364

 
$
53,982

 
(3.0
)%
 
$
155,173

 
$
157,482

 
(1.5
)%
Tenant reimbursements and other income
16,346

 
16,219

 
0.8
 %
 
50,040

 
47,870

 
4.5
 %
Straight line rent adjustment
3,560

 
1,520

 
 
 
12,138

 
8,270

 
 
Lease value amortization
(309
)
 
(516
)
 
 
 
(1,023
)
 
(1,476
)
 
 
Lease termination fees
1,477

 
65

 
 
 
2,392

 
656

 
 
Total revenue
73,438

 
71,270

 
3.0
 %
 
218,720

 
212,802

 
2.8
 %
Operating expenses
(30,855
)
 
(30,589
)
 
0.9
 %
 
(91,810
)
 
(86,061
)
 
6.7
 %
NOI
$
42,583

 
$
40,681

 
4.7
 %
 
$
126,910

 
$
126,741

 
0.1
 %
NOI Margin
58.0
%
 
57.1
%
 
 
 
58.0
%
 
59.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Straight line rent adjustment
$
(3,560
)
 
$
(1,520
)
 
 
 
$
(12,138
)
 
$
(8,270
)
 
 
Lease value amortization
309

 
516

 
 
 
1,023

 
1,476

 
 
Lease termination fees
(1,477
)
 
(65
)
 
 
 
(2,392
)
 
(656
)
 
 
Cash Basis NOI
$
37,855

 
$
39,612

 
(4.4
)%
 
113,403

 
119,291

 
(4.9
)%
Cash Basis NOI Margin
55.1
%
 
56.4
%
 
 
 
55.3
%
 
58.1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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


9

CALCULATION OF EBITDA AND ADJUSTED EBITDA
(amounts in thousands)


 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net income
$
33,224

 
$
86,388

 
$
51,235

 
$
220,634

Interest expense
11,510

 
21,427

 
41,387

 
65,074

Income tax expense
335

 
225

 
555

 
465

Depreciation and amortization
21,133

 
29,184

 
71,970

 
102,766

EBITDA
$
66,202

 
$
137,224

 
$
165,147

 
$
388,939

Loss on asset impairment
—

 
—

 
19,714

 
43,736

Loss on early extinguishment of debt
203

 
—

 
266

 
118

Transition-related expenses (1)
—

 
(138
)
 
—

 
999

Gain on sale of properties, net
(25,080
)
 
(82,169
)
 
(44,670
)
 
(225,210
)
Foreign currency exchange loss
—

 
—

 
—

 
5

Adjusted EBITDA
$
41,325

 
$
54,917

 
$
140,457

 
$
208,587


(1)
Transition related expenses are primarily related to the shareholder-approved liability for the reimbursement of expenses incurred by Related/Corvex beginning in February 2013 in connection with their consent solicitations to remove the former Trustees, elect the new Board of Trustees and engage in related litigation. No transition related expenses were incurred during 2017. There is no future obligation to pay any amounts under the shareholder-approved agreement to Related/Corvex.
 
 


10

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Calculation of FFO
 
 
 
 
 
 
 
Net income
$
33,224

 
$
86,388

 
$
51,235

 
$
220,634

Real estate depreciation and amortization
20,842

 
28,907

 
71,077

 
102,015

Loss on asset impairment
—

 
—

 
19,714

 
43,736

Gain on sale of properties, net
(25,080
)
 
(82,169
)
 
(44,670
)
 
(225,210
)
FFO attributable to Equity Commonwealth
28,986

 
33,126

 
97,356

 
141,175

Preferred distributions
(1,997
)
 
(1,997
)
 
(5,991
)
 
(15,959
)
Excess fair value of consideration paid over carrying value of preferred shares (1)
—

 
—

 
—

 
(9,609
)
FFO attributable to EQC common shareholders and unitholders
$
26,989

 
$
31,129

 
$
91,365

 
$
115,607

 
 
 
 
 
 
 
 
Calculation of Normalized FFO
 
 
 
 
 
 
 
FFO attributable to EQC common shareholders and unitholders
$
26,989

 
$
31,129

 
$
91,365

 
$
115,607

Lease value amortization
388

 
882

 
1,479

 
5,870

Straight line rent adjustments
(3,557
)
 
(2,954
)
 
(12,487
)
 
(12,384
)
Loss on early extinguishment of debt
203

 
—

 
266

 
118

Transition related expenses (2)
—

 
(138
)
 
—

 
999

Foreign currency exchange loss
—

 
—

 
—

 
5

Excess fair value of consideration paid over carrying value of preferred shares (1)
—

 
—

 
—

 
9,609

Normalized FFO attributable to EQC common shareholders and unitholders
$
24,023

 
$
28,919

 
$
80,623

 
$
119,824

 
 
 
 
 
 
 
 
Weighted average common shares and units outstanding -- basic (3)
124,132

 
125,533

 
124,105

 
125,627

Weighted average common shares and units outstanding -- diluted (3)
125,175

 
126,568

 
125,194

 
127,009

FFO attributable to EQC common shareholders and unitholders per share -- basic
$
0.22

 
$
0.25

 
$
0.74

 
$
0.92

FFO attributable to EQC common shareholders and unitholders per share -- diluted
$
0.22

 
$
0.25

 
$
0.73

 
$
0.91

Normalized FFO attributable to EQC common shareholders and unitholders per share -- basic
$
0.19

 
$
0.23

 
$
0.65

 
$
0.95

Normalized FFO attributable to EQC common shareholders and unitholders per share -- diluted
$
0.19

 
$
0.23

 
$
0.64

 
$
0.94

(1)
On May 15, 2016, we redeemed all of our 11,000,000 outstanding series E preferred shares at a price of $25.00 per share, for a total of $275.0 million, plus any accrued and unpaid dividends. The redemption payment occurred on May 16, 2016 (the first business day following the redemption date). We recorded $9.6 million related to the excess fair value of consideration paid over the carrying value of the preferred shares as a reduction to net income attributable to Equity Commonwealth common shareholders for the nine months ended September 30, 2016.
(2)
Transition related expenses are primarily related to the shareholder-approved liability for the reimbursement of expenses incurred by Related/Corvex beginning in February 2013 in connection with their consent solicitations to remove the former Trustees, elect the new Board of Trustees and engage in related litigation. No transition related expenses were incurred during 2017. There is no future obligation to pay any amounts under the shareholder-approved agreement to Related/Corvex.
(3)
Refer to the schedule of Common & Potential Common Shares for information regarding the components of our weighted average common shares outstanding.

11
DEBT SUMMARY
As of September 30, 2017
(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 + 125 bps) (1)
2.48
%
 
$
—

 
1/28/2019
Open
 
$
—

 
1.3

Term loan (LIBOR + 140 bps) (2)
2.63
%
 
200,000

 
1/28/2020
Open
 
200,000

 
2.3

Term loan (LIBOR + 180 bps) (2)
3.03
%
 
200,000

 
1/28/2022
Open
 
200,000

 
4.3

Total / weighted average unsecured floating rate debt
2.83
%
 
$
400,000

 
 
 
 
$
400,000

 
3.3

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

 
9/15/2020
3/15/2020
 
$
250,000

 
3.0

5.75% Senior Unsecured Notes Due 2042
5.75
%
 
175,000

 
8/1/2042
Open
 
175,000

 
24.9

Total / weighted average unsecured fixed rate debt
5.83
%
 
$
425,000

 
 
 
 
$
425,000

 
12.0

 
 
 
 
 
 
 
 
 
 
 
Secured Debt:
 
 
 
 
 
 
 
 
 
 
Secured Fixed Rate Debt:
 
 
 
 
 
 
 
 
 
 
206 East 9th Street
5.69
%
 
$
26,666

 
1/5/2021
7/5/2020
 
$
24,836

 
3.3

33 Stiles Lane
6.75
%
 
2,119

 
3/1/2022
12/1/2021
 
—

 
4.4

97 Newberry Road
5.71
%
 
5,532

 
3/1/2026
None
 
—

 
8.4

Total / weighted average secured fixed rate debt
5.76
%
 
$
34,317

 
 
 
 
$
24,836

 
4.2

 
 
 
 
 
 
 
 
 
 
 
Total / weighted average (3)
4.43
%
 
$
859,317

 
 
 
 
$
849,836

 
7.6

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Represents amounts outstanding on EQC's $750,000 revolving credit facility as of September 30, 2017. The interest rate presented is as of September 30, 2017, and equals LIBOR plus 1.25%. We also pay a 25 basis point facility fee annually. The spread over LIBOR and the facility fee vary depending upon EQC's credit rating.
(2)
Represents amounts outstanding on EQC's term loans as of September 30, 2017. The interest rate presented is as of September 30, 2017, and equals LIBOR plus 1.4% for the loan maturing on January 28, 2020, and LIBOR plus 1.8% for the loan maturing January 28, 2022. The spreads over LIBOR vary depending upon EQC's credit rating. We entered into an interest rate cap with coverage effective April 1, 2016 that caps LIBOR at 2.5% until March 1, 2019.
(3)
Total debt outstanding as of September 30, 2017, including net unamortized premiums, discounts, and deferred financing fees was $850,576. Net unamortized deferred financing fees related to our revolving credit facility of $2,153 are included in other assets, net on our condensed consolidated balance sheet as of September 30, 2017.

12

DEBT MATURITY SCHEDULE
(dollars in thousands)

Scheduled Principal Payments During Period
Year
Unsecured Floating Rate Debt
 
Unsecured Fixed Rate Debt
 
Secured Fixed Rate Debt
 
Total
 
Weighted Average Interest Rate
 
 
 
 
 
 
 
 
 
 
2017
$
—

 
$
—

 
$
359

 
$
359

 
6.0
%
2018
—

 
—

 
1,487

 
1,487

 
6.0
%
2019
—

 
—

 
1,580

 
1,580

 
6.0
%
2020
200,000

(1) 
250,000

 
1,674

 
451,674

 
4.4
%
2021
—

 
—

 
25,982

 
25,982

 
5.7
%
2022
200,000

(1) 
—

 
799

 
200,799

 
3.0
%
2023
—

 
—

 
702

 
702

 
5.7
%
2024
—

 
—

 
743

 
743

 
5.7
%
2025
—

 
—

 
787

 
787

 
5.7
%
2026
—

 
—

 
204

 
204

 
5.7
%
Thereafter
—

 
175,000

(2) 
—

 
175,000

 
5.8
%
Total
$
400,000

 
$
425,000

 
$
34,317


$
859,317

(3) 
4.4
%
 
 
 
 
 
 
 
 
 
 
Percent
46.5
%
 
49.5
%
 
4.0
%
 
100.0
%
 
 
(1)
Represents amounts outstanding on EQC's term loans as of September 30, 2017. The interest rate presented is as of September 30, 2017, and equals LIBOR plus 1.4% for the loan maturing on January 28, 2020, and LIBOR plus 1.8% for the loan maturing January 28, 2022. The spreads over LIBOR vary depending upon EQC's credit rating. We entered into an interest rate cap with coverage effective April 1, 2016 that caps LIBOR at 2.5% until March 1, 2019.
(2)
The 5.75% senior unsecured notes due 2042 are callable at par through maturity.
(3)
Total debt outstanding as of September 30, 2017, including net unamortized premiums, discounts, and deferred financing fees was $850,576. Net unamortized deferred financing fees related to our revolving credit facility of $2,153 are included in other assets, net on our condensed consolidated balance sheet as of September 30, 2017.

13

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

 
As of and for the Three Months Ended
 
9/30/2017

 
6/30/2017

 
3/31/2017

 
12/31/2016

 
9/30/2016

Leverage Ratios
 
 
 
 
 
 
 
 
 
Total debt / total assets
20.0
 %
 
24.5
 %
 
25.3
 %
 
25.2
 %
 
31.4
 %
Total debt / total market capitalization
17.8
 %
 
21.2
 %
 
22.1
 %
 
22.6
 %
 
28.2
 %
Total debt + preferred stock / total market capitalization
20.5
 %
 
23.7
 %
 
24.5
 %
 
25.1
 %
 
30.7
 %
Total debt / annualized adjusted EBITDA (1)
5.1x

 
5.7x

 
5.6x

 
5.4x

 
7.1x

Total debt + preferred stock / annualized adjusted EBITDA (1)
5.9x

 
6.3x

 
6.2x

 
6.0x

 
7.7x

Net debt / enterprise value
(54.1
)%
 
(26.9
)%
 
(22.7
)%
 
(32.3
)%
 
(27.3
)%
Net debt + preferred stock / enterprise value
(49.0
)%
 
(23.0
)%
 
(18.9
)%
 
(28.0
)%
 
(23.0
)%
Net debt / annualized adjusted EBITDA (1)
(8.4)x

 
(4.5)x

 
(3.7)x

 
(4.5)x

 
(3.9)x

Net debt + preferred stock / annualized adjusted EBITDA (1)
(7.6)x

 
(3.8)x

 
(3.1)x

 
(3.9)x

 
(3.3)x

Secured debt / total assets
0.8
 %
 
0.8
 %
 
1.7
 %
 
1.7
 %
 
4.9
 %
Variable rate debt (2) / total debt
47.0
 %
 
36.4
 %
 
35.0
 %
 
35.0
 %
 
25.7
 %
Variable rate debt (2) / total assets
9.4
 %
 
8.9
 %
 
8.9
 %
 
8.8
 %
 
8.1
 %
 
 
 
 
 
 
 
 
 
 
Coverage Ratios
 
 
 
 
 
 
 
 
 
Adjusted EBITDA / interest expense (1)
3.6x

 
3.3x

 
3.4x

 
2.7x

 
2.6x

Adjusted EBITDA / interest expense + preferred distributions (1)
3.1x

 
2.9x

 
3.0x

 
2.5x

 
2.3x

 
 
 
 
 
 
 
 
 
 
Public Debt Covenants
 
 
 
 
 
 
 
 
 
Debt / adjusted total assets (3) (maximum 60%)
18.0
 %
 
22.1
 %
 
22.3
 %
 
21.9
 %
 
27.6
 %
Secured debt / adjusted total assets (3) (maximum 40%)
0.7
 %
 
0.7
 %
 
1.5
 %
 
1.5
 %
 
4.3
 %
Consolidated income available for debt service / debt service (minimum 1.5x)
3.5x

 
3.1x

 
3.2x

 
3.3x

 
2.3x

Total unencumbered assets (3) / unsecured debt (minimum 150% / 200%)
567.1
 %
 
459.7
 %
 
468.3
 %
 
475.9
 %
 
392.0
 %
(1)
Refer to the calculation of EBITDA and Adjusted EBITDA for a reconciliation of these measures to Net income.
(2)
We entered into an interest rate cap with coverage effective April 1, 2016 that caps LIBOR at 2.5% until March 1, 2019.
(3)
Adjusted total assets and total unencumbered assets includes original cost of real estate assets plus capital improvements, both calculated in accordance with GAAP, and excludes depreciation and amortization, accounts receivable, other intangible assets and impairment write downs, if any.

14

ACQUISITIONS AND DISPOSITIONS
(dollars in thousands)

Acquisitions
None
Dispositions
Property/Portfolio
City
State
No. of Properties
Sq. Feet (1)
 
% Leased(1)
 
Gross Sales Price
 
Net Book Value (1)
 
Annualized Rental Revenue (1)
111 Market Place
Baltimore
MD
1

589,380

 
95.4
%
 
$
60,100

(2) 
$
44,199

 
$
12,583

Seton Center
Austin
TX
2

237,824

 
95.6
%
 
52,450

 
27,141

 
6,295

Cabot Business Park Land
Mansfield
MA
—

—

 
—
%
 
575

 
575

 
—

Total Q1 Dispositions
 
3

827,204

 
95.4
%
 
$
113,125

 
$
71,915

 
$
18,878

 
 
 
 
 
 
 
 
 
 
 
 
 
Parkshore Plaza
Folsom
CA
1

271,072

 
73.1
%
 
$
40,000

 
$
38,494

 
$
4,280

25 S. Charles Street
Baltimore
MD
1

359,254

 
94.2
%
 
24,500

 
23,335

 
8,746

802 Delaware Avenue
Wilmington
DE
1

240,780

 
100.0
%
 
34,000

 
18,997

 
4,291

Total Q2 Dispositions
 
3

871,106


89.2
%
 
$
98,500

 
$
80,826

 
$
17,317

 
 
 
 
 
 
 
 
 
 
 
 
 
1500 Market Street
Philadelphia
PA
1

1,759,193

 
91.2
%
 
$
328,000

 
$
220,215

 
$
39,321

Five-Property Portfolio (3)
Multiple
 
5

1,002,095

 
92.1
%
 
84,000

 
80,625

 
14,306

6600 North Military Trail
Boca Raton
FL
1

639,825

 
100.0
%
 
132,050

 
124,713

 
16,994

Total Q3 Dispositions
 
7

3,401,113

 
93.1
%
 
$
544,050

 
$
425,553

 
$
70,621

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Disposed Year-to-Date
 
13

5,099,423

 
92.8
%
 
$
755,675

 
$
578,294

 
$
106,816

The dispositions above resulted in a gain on sale of properties of $25.1 million and $44.7 million for the three and nine months ended September 30, 2017, respectively.
      
(1
)
As of the quarter-ended preceding each sale.
(2
)
Proceeds from the sale of 111 Market Place were $44.1 million net of credits for contractual lease costs, capital and rent abatements.
(3
)
The Five-Property Portfolio consists of 820 W. Diamond (Maryland), Danac Stiles Business Park (Maryland), 2250 Pilot Knob Road (Minnesota), 411 Farwell Avenue (Minnesota), and 4700 Belleview Avenue (Missouri).


15
TOP PROPERTIES BY ANNUALIZED RENTAL REVENUE
As of September 30, 2017
(sorted by annualized rental revenue, dollars in thousands)

Property
City
State
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 (1)
1
600 West Chicago Avenue
Chicago
IL
2

1,571,280
98.4
%
95.6
%
$
50,132

$
399,173

$
344,316

2011
2001
2
1735 Market Street
Philadelphia
PA
1

1,286,936
81.0
%
67.2
%
29,382

311,139

187,949

1998
1990
3
1225 Seventeenth Street
Denver
CO
1

695,372
82.6
%
80.7
%
22,270

158,951

129,275

2009
1982
4
333 108th Avenue NE
Bellevue
WA
1

440,565
100.0
%
100.0
%
21,110

153,666

125,121

2009
2008
5
1600 Market Street
Philadelphia
PA
1

825,968
84.0
%
82.3
%
19,119

137,677

76,620

1998
1983
6
8750 Bryn Mawr Avenue
Chicago
IL
2

636,078
93.2
%
93.2
%
17,153

96,615

80,032

2010
2005
7
Bridgepoint Square
Austin
TX
5

440,007
92.3
%
92.3
%
12,279

94,316

52,434

1997
1995
8
Foster Plaza
Pittsburgh
PA
8

727,743
82.7
%
80.6
%
11,876

76,599

53,185

2005
1993
9
Research Park
Austin
TX
4

1,110,007
98.0
%
98.0
%
11,573

93,466

59,186

1998
1976
10
109 Brookline Avenue
Boston
MA
1

285,556
99.7
%
99.7
%
10,371

48,152

26,721

1995
1915
 
Subtotal (10 properties)
 
 
26

8,019,512

90.7
%
87.4
%
$
205,265

$
1,569,754

$
1,134,839

 
 
 
All other properties (10 properties)
 
18

3,011,257

81.9
%
80.5
%
61,602

488,433

368,937

 
 
 
Total (20 properties)
 
44

11,030,769

88.3
%
85.5
%
$
266,867

$
2,058,187

$
1,503,776

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Same Property NOI & Cash Basis NOI Composition
Q3 2017 NOI
% of NOI
Q3 2017 Cash Basis NOI
% of Cash Basis NOI
 
 
 
 
 
 
Top 10 Properties
 
 
$
31,727

74.5
%
$
27,248

72.0
%
 
 
 
 
 
 
All other properties (10 properties)
 
10,856

25.5
%
10,607

28.0
%
 
 
 
 
 
 
Total (20 properties)
 
 
$
42,583

100.0
%
$
37,855

100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

(1)
Weighted based on square feet.
 
 

16

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

 
 
As of and for the Three Months Ended
 
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
9/30/2016
Properties (1)
 
20

 
21

 
28

 
33

 
37

Total square feet (1)(2)
 
11,031

 
11,651

 
14,593

 
16,053

 
16,710

Percentage leased
 
88.3
%
 
88.4
%
 
89.0
 %
 
91.1
%
 
91.2
 %
 
 
 
 
 
 
 
 
 
 
 
Total Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
273

 
448

 
331

 
1,411

 
237

Lease term (years)
 
7.5

 
6.8

 
11.8

 
10.3

 
7.4

Starting cash rent
 
$
33.49

 
$
32.18

 
$
32.69

 
$
16.98

 
$
27.28

Percent change in cash rent (3)
 
2.3
%
 
10.7
%
 
(4.9
)%
 
7.3
%
 
(5.8
)%
Percent change in GAAP rent (3)
 
7.8
%
 
17.6
%
 
21.6
 %
 
20.2
%
 
9.0
 %
Total TI & LC per square foot (4)
 
$
40.37

 
$
33.84

 
$
28.88

 
$
32.52

 
$
47.05

Total TI & LC per sq. ft. per year of lease term (4)
 
$
5.35

 
$
4.94

 
$
2.44

 
$
3.16

 
$
6.38

 
 
 
 
 
 
 
 
 
 
 
Renewal Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
81

 
252

 
264

 
1,190

 
46

Lease term (years)
 
4.0

 
7.7

 
13.0

 
9.6

 
4.9

Starting cash rent
 
$
35.52

 
$
33.07

 
$
31.68

 
$
13.89

 
$
37.77

Percent change in cash rent (3)
 
3.7
%
 
11.2
%
 
(7.2
)%
 
3.9
%
 
14.6
 %
Percent change in GAAP rent (3)
 
10.9
%
 
14.7
%
 
22.8
 %
 
16.2
%
 
24.1
 %
Total TI & LC per square foot (4)
 
$
18.00

 
$
31.56

 
$
25.58

 
$
21.14

 
$
24.13

Total TI & LC per sq. ft. per year of lease term (4)
 
$
4.51

 
$
4.10

 
$
1.97

 
$
2.19

 
$
4.92

 
 
 
 
 
 
 
 
 
 
 
New Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
192

 
196

 
67

 
221

 
191

Lease term (years)
 
9.0

 
5.7

 
7.4

 
13.8

 
8.0

Starting cash rent
 
$
32.63

 
$
31.03

 
$
36.74

 
$
33.61

 
$
24.76

Percent change in cash rent (3)
 
1.5
%
 
9.9
%
 
8.4
 %
 
15.8
%
 
(12.6
)%
Percent change in GAAP rent (3)
 
6.4
%
 
22.0
%
 
15.8
 %
 
30.9
%
 
3.4
 %
Total TI & LC per square foot (4)
 
$
49.75

 
$
36.76

 
$
42.02

 
$
93.85

 
$
52.57

Total TI & LC per sq. ft. per year of lease term (4)
 
$
5.51

 
$
6.39

 
$
5.70

 
$
6.79

 
$
6.59

The above leasing summary is based on leases executed during the periods indicated.
 
 
(1)
Excludes properties classified as held for sale. As of December 31, 2016, land parcels are excluded from the property count.
(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 (rent before deducting any initial period free 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. New leasing in suites vacant longer than 2 years was excluded from the calculation.
(4)
Includes tenant improvements (TI) and leasing commissions (LC).


17

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

 
 
As of and for the Three Months Ended
 
 
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
9/30/2016
Properties
 
20

 
20

 
20

 
20

 
20

Total square feet (1)
 
11,031

 
11,011

 
10,952

 
10,954

 
10,931

Percentage leased
 
88.3
%
 
87.7
%
 
87.5
 %
 
90.3
%
 
89.6
 %
Percentage commenced
 
85.5
%
 
85.5
%
 
85.0
 %
 
87.9
%
 
87.0
 %
 
 
 
 
 
 
 
 
 
 
 
Total Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
273

 
448

 
328

 
1,411

 
110

Lease term (years)
 
7.5

 
6.8

 
11.9

 
10.3

 
4.3

Starting cash rent
 
$
33.49

 
$
32.18

 
$
32.63

 
$
16.98

 
$
34.04

Percent change in cash rent (2)
 
2.3
%
 
10.7
%
 
(4.9
)%
 
7.3
%
 
4.1
 %
Percent change in GAAP rent (2)
 
7.8
%
 
17.6
%
 
21.8
 %
 
20.2
%
 
10.4
 %
Total TI & LC per square foot (3)
 
$
40.37

 
$
33.84

 
$
29.12

 
$
32.52

 
$
28.04

Total TI & LC per sq. ft. per year of lease term (3)
 
$
5.35

 
$
4.94

 
$
2.44

 
$
3.16

 
$
6.55

 
 
 
 
 
 
 
 
 
 
 
Renewal Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
81

 
252

 
260

 
1,190

 
46

Lease term (years)
 
4.0

 
7.7

 
13.1

 
9.6

 
4.9

Starting cash rent
 
$
35.52

 
$
33.07

 
$
31.63

 
$
13.89

 
$
37.77

Percent change in cash rent (2)
 
3.7
%
 
11.2
%
 
(7.3
)%
 
3.9
%
 
14.6
 %
Percent change in GAAP rent (2)
 
10.9
%
 
14.7
%
 
23.0
 %
 
16.2
%
 
24.1
 %
Total TI & LC per square foot (3)
 
$
18.00

 
$
31.56

 
$
25.94

 
$
21.14

 
$
24.13

Total TI & LC per sq. ft. per year of lease term (3)
 
$
4.51

 
$
4.10

 
$
1.98

 
$
2.19

 
$
4.92

 
 
 
 
 
 
 
 
 
 
 
New Leases
 
 
 
 
 
 
 
 
 
 
Square feet
 
192

 
196

 
68

 
221

 
64

Lease term (years)
 
9.0

 
5.7

 
7.3

 
13.8

 
3.8

Starting cash rent
 
$
32.63

 
$
31.03

 
$
36.47

 
$
33.61

 
$
31.34

Percent change in cash rent (2)
 
1.5
%
 
9.9
%
 
8.5
 %
 
15.8
%
 
(8.1
)%
Percent change in GAAP rent (2)
 
6.4
%
 
22.0
%
 
15.9
 %
 
30.9
%
 
(5.7
)%
Total TI & LC per square foot (3)
 
$
49.75

 
$
36.75

 
$
41.33

 
$
93.85

 
$
30.86

Total TI & LC per sq. ft. per year of lease term (3)
 
$
5.51

 
$
6.39

 
$
5.66

 
$
6.79

 
$
8.06

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 (rent before deducting any initial period free 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. New leasing in suites vacant longer than 2 years was excluded from the calculation.
(3)
Includes tenant improvements (TI) and leasing commissions (LC).


18
CAPITAL SUMMARY
EXPENDITURES & LEASING COMMITMENTS
(dollars and square feet in thousands)

CAPITAL SUMMARY
Three Months Ended
EXPENDITURES
9/30/2017
 
6/30/2017
 
3/31/2017
 
12/31/2016
 
9/30/2016
Tenant improvements
$
3,015

 
$
10,309

 
$
9,427

 
$
15,636

 
$
20,411

Leasing costs
3,070

 
4,978

 
4,617

 
11,663

 
2,292

Building improvements (1)
8,469

 
7,315

 
4,785

 
6,571

 
8,942

Total capital expenditures
$
14,554

 
$
22,602

 
$
18,829

 
$
33,870

 
$
31,645

 
 
 
 
 
 
 
 
 
 
Average square feet during period (2)
12,722

 
14,818

 
15,639

 
16,382

 
19,454

 
 
 
 
 
 
 
 
 
 
Building improvements per average total sq. ft. during period
$
0.67

 
$
0.49

 
$
0.31

 
$
0.40

 
$
0.46


CAPITAL SUMMARY
 
Three Months Ended
LEASING COMMITMENTS
 
September 30, 2017
 
 
New Leases
 
Renewal Leases
 
Total
Rentable square feet leased during the period
 
192

 
81

 
273

Total TI & LC (3)
 
$
9,577

 
$
1,455

 
$
11,032

Total TI & LC per square foot (3)
 
$
49.75

 
$
18.00

 
$
40.37

Weighted average lease term by square foot (years)
 
9.0

 
4.0

 
7.5

Total TI & LC per sq. ft. per year of lease term (3)
 
$
5.51

 
$
4.51

 
$
5.35

(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).


19
TENANTS REPRESENTING 1.5% OR MORE OF ANNUALIZED RENTAL REVENUE
As of September 30, 2017
(square feet in thousands)


 
 
Tenant
 
Square Feet (2)
 
% of Total Sq. Ft. (1)
 
% of Annualized Rental Revenue
 
Weighted Average Remaining Lease Term
1

 
Expedia, Inc.
 
427

 
4.4
%
 
7.7
%
 
2.3
2

 
Groupon, Inc. (2)
 
376

 
3.9
%
 
4.5
%
 
8.4
3

 
PNC Financial Services Group
 
363

 
3.7
%
 
4.1
%
 
9.3
4

 
Flextronics International Ltd.
 
1,051

 
10.8
%
 
3.9
%
 
12.3
5

 
Ballard Spahr LLP
 
219

 
2.2
%
 
3.0
%
 
12.4
6

 
RE/MAX Holdings, Inc.
 
248

 
2.5
%
 
2.8
%
 
10.7
7

 
Georgetown University
 
240

 
2.5
%
 
2.5
%
 
2.1
8

 
Echo Global Logistics, Inc.
 
223

 
2.3
%
 
2.2
%
 
10.1
9

 
West Corporation
 
336

 
3.5
%
 
2.2
%
 
11.5
10

 
Wm. Wrigley Jr. Company
 
150

 
1.5
%
 
2.1
%
 
4.4
11

 
ProQuest, LLC
 
131

 
1.3
%
 
1.6
%
 
3.7
12

 
Level 3 Communications, LLC
 
95

 
1.0
%
 
1.6
%
 
8.4
13

 
Jump Operations, LLC
 
113

 
1.2
%
 
1.5
%
 
3.3
 
 
Total
 
3,972

 
40.8
%
 
39.7
%
 
8.7
(1)
Square footage as of September 30, 2017 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.
(2)
Groupon, Inc. statistics include 207,536 square feet that are sublet from Bankers Life and Casualty Company.


20
SAME PROPERTY LEASE EXPIRATION SCHEDULE
As of September 30, 2017
(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
2017
 
17
 
128
 
1.3
%
 
1.3
%
 
$
2,949

 
1.1
%
 
1.1
%
2018
 
73
 
542
 
5.6
%
 
6.9
%
 
16,195

 
6.1
%
 
7.2
%
2019
 
82
 
1,116
 
11.5
%
 
18.4
%
 
33,693

 
12.6
%
 
19.8
%
2020
 
72
 
1,296
 
13.3
%
 
31.7
%
 
40,522

 
15.2
%
 
35.0
%
2021
 
58
 
836
 
8.6
%
 
40.3
%
 
25,405

 
9.4
%
 
44.4
%
2022
 
40
 
637
 
6.5
%
 
46.8
%
 
20,732

 
7.8
%
 
52.2
%
2023
 
41
 
598
 
6.1
%
 
52.9
%
 
19,479

 
7.3
%
 
59.5
%
2024
 
10
 
145
 
1.5
%
 
54.4
%
 
4,697

 
1.8
%
 
61.3
%
2025
 
16
 
345
 
3.5
%
 
57.9
%
 
10,868

 
4.1
%
 
65.4
%
2026
 
11
 
579
 
6.0
%
 
63.9
%
 
18,232

 
6.8
%
 
72.2
%
Thereafter
 
61
 
3,514
 
36.1
%
 
100.0
%
 
74,095

 
27.8
%
 
100.0
%
    Total
 
481
 
9,736
 
100.0
%
 
 
 
$
266,867

 
100.0
%
 
 
Weighted average remaining
 
 
 
 
 
 
 
 
 
 
    lease term (in years)
 
6.9

 
 
 
 
 
6.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Square footage as of September 30, 2017 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.
(2)
Excludes the Annualized Rental Revenue of space that is leased but not commenced.

21
PROPERTY DETAIL (1) 
As of September 30, 2017
(sorted by geographic location, dollars in thousands)

Office Properties
 
Property
City and State
No. of Bldgs.
Sq. Feet
% Leased
% Comm-enced
Annualized Rental Revenue
Undepreciated Book Value
Net Book Value
Year Acquired (2)
Weighted Average Year Built or Substantially Renovated (2)
1
1225 Seventeenth Street
Denver
CO
1

695,372

82.6
%
80.7
%
22,270

158,951

129,275

2009
1982
2
5073, 5075, & 5085 S. Syracuse Street
Denver
CO
1

248,493

100.0
%
100.0
%
7,601

63,610

52,691

2010
2007
3
1601 Dry Creek Drive
Longmont
CO
1

552,865

100.0
%
100.0
%
9,017

34,589

24,073

2004
1982
4
1250 H Street, NW
Washington
DC
1

196,489

92.1
%
91.1
%
9,429

74,333

44,006

1998
1992
5
Georgetown-Green and Harris Buildings
Washington
DC
2

240,475

100.0
%
100.0
%
6,605

60,023

52,747

2009
2006
6
600 West Chicago Avenue
Chicago
IL
2

1,571,280

98.4
%
95.6
%
50,132

399,173

344,316

2011
2001
7
8750 Bryn Mawr Avenue
Chicago
IL
2

636,078

93.2
%
93.2
%
17,153

96,615

80,032

2010
2005
8
109 Brookline Avenue
Boston
MA
1

285,556

99.7
%
99.7
%
10,371

48,152

26,721

1995
1915
9
East Eisenhower Parkway
Ann Arbor
MI
2

421,208

55.1
%
48.4
%
6,195

57,386

48,094

2010
2006
10
Cherrington Corporate Center
Moon Township
PA
7

454,700

64.2
%
62.0
%
5,966

72,053

47,812

1998; 1999
1997
11
1600 Market Street
Philadelphia
PA
1

825,968

84.0
%
82.3
%
19,119

137,677

76,620

1998
1983
12
1735 Market Street
Philadelphia
PA
1

1,286,936

81.0
%
67.2
%
29,382

311,139

187,949

1998
1990
13
Foster Plaza
Pittsburgh
PA
8

727,743

82.7
%
80.6
%
11,876

76,599

53,185

2005
1993
14
206 East 9th Street
Austin
TX
1

175,510

78.3
%
78.3
%
6,273

50,115

44,286

2012
1984
15
Bridgepoint Square
Austin
TX
5

440,007

92.3
%
92.3
%
12,279

94,316

52,434

1997
1995
16
Research Park
Austin
TX
4

1,110,007

98.0
%
98.0
%
11,573

93,466

59,186

1998
1976
17
333 108th Avenue NE
Bellevue
WA
1

440,565

100.0
%
100.0
%
21,110

153,666

125,121

2009
2008
18
600 108th Avenue NE
Bellevue
WA
1

256,830

97.1
%
95.9
%
8,279

51,238

35,982

2004
2012
Subtotal Office Properties
42

10,566,082

89.0
%
86.1
%
$
264,630

$
2,033,101

$
1,484,530

2004
1991
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Industrial/Flex Properties
 
Property
City and State
No. of Bldgs.
Sq. Feet
% Leased
% Comm-enced
Annualized Rental Revenue
Undepreciated Book Value
Net Book Value
Year Acquired (2)
Weighted Average Year Built or Substantially Renovated (2)
19
97 Newberry Road
East Windsor
CT
1

289,386

100.0
%
100.0
%
$
1,909

$
15,350

$
11,942

2006
1989
20
33 Stiles Lane
North Haven
CT
1

175,301

25.1
%
25.1
%
328

9,736

7,304

2006
2002
Subtotal Industrial/Flex
2

464,687

71.7
%
71.7
%
$
2,237

$
25,086

$
19,246

2006
1994
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Same Properties
 
44

11,030,769

88.3
%
85.5
%
$
266,867

$
2,058,187

$
1,503,776

2004
1991
 
 
 
 
 
 
 
 
 
 
 
 
 
 
625 Crane Street (Land)
Aurora
IL
—

—

—
%
—
%
—

—

—

2007
—
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Portfolio
 
44

11,030,769

88.3
%
85.5
%
$
266,867

$
2,058,187

$
1,503,776

2004
1991
(1
)
Excludes properties disposed prior to October 1, 2017.
(2
)
Weighted based on square feet.
 
 


22

DISPOSED PROPERTY DETAIL (1) 
(dollars in thousands)

 
Property
 
City and State/Country
 
No. of Bldgs.
 
Sq. Feet
 
% Leased
 
Annualized Rental Revenue
 
Undepreciated Book Value
 
Net Book Value
 
Year Acquired (2)
Weighted Average Year Built or Substantially Renovated (2)
1
111 Market Place
 
Baltimore
MD
 
1
 
589,380
 
95.4
%
 
$
12,583

 
$
71,555

 
$
44,199

 
2003
1990

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2
4515 Seton Center Parkway
 
Austin
TX
 
1
 
117,265
 
98.9
%
 
3,650
 
23,130
 
13,381
 
1999
1996

3
4516 Seton Center Parkway
 
Austin
TX
 
1
 
120,559
 
92.3
%
 
2,645
 
24,257
 
13,760
 
1999
1998

 
Subtotal Seton Center
 
 
 
 
2
 
237,824
 
95.6
%
 
$
6,295

 
$
47,387

 
$
27,141

 
1999
1997

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Cabot Business Park Land
 
Mansfield
MA
 
—

 
—

 
—
%
 
—

 
575
 
575
 
2003
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Q1 2017 Dispositions
 
3
 
827,204
 
95.4
%
 
$
18,878

 
$
119,517

 
$
71,915

 
2002
1992

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
Parkshore Plaza
 
Folsom
CA
 
4
 
271,072
 
73.1
%
 
4,280
 
45,578
 
38,494
 
2011
1999

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5
25 S. Charles Street
 
Baltimore
MD
 
1
 
359,254
 
94.2
%
 
8,746
 
37,218
 
23,335
 
2004
1972

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6
802 Delaware Avenue
 
Wilmington
DE
 
1
 
240,780
 
100.0
%
 
4,291
 
43,496
 
18,997
 
1998
1986

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Q2 2017 Dispositions
 
6
 
871,106
 
89.2
%
 
$
17,317

 
$
126,292

 
$
80,826

 
2005
1984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7
1500 Market Street
 
Philadelphia
PA
 
1
 
1,759,193
 
91.2
%
 
39,321
 
312,448
 
220,215
 
2002
1974

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
8
820 W. Diamond
 
Gaithersburg
MD
 
1
 
134,933
 
88.7
%
 
3,156
 
32,651
 
19,283
 
1997
1995

9
Danac Stiles Business Park
 
Rockville
MD
 
3
 
276,637
 
86.1
%
 
7,170
 
62,950
 
41,141
 
2004
2002

10
2250 Pilot Knob Road
 
Mendota Heights
MN
 
1
 
87,183
 
100.0
%
 
931
 
6,309
 
3,298
 
1998
1995

11
411 Farwell Avenue
 
South St. Paul
MN
 
1
 
422,727
 
100.0
%
 
1,907
 
15,597
 
11,298
 
2004
1970

12
4700 Belleview Avenue
 
Kansas City
MO
 
1
 
80,615
 
68.5
%
 
1,142
 
7,004
 
5,605
 
2008
1986

 
Subtotal Five-Property Portfolio
 
 
 
 
7
 
1,002,095
 
92.1
%
 
14,306
 
124,511
 
80,625
 
2002
1986

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
13
6600 North Military Trail
 
Boca Raton
FL
 
3
 
639,825
 
100.0
%
 
16,994
 
145,808
 
124,713
 
2011
2008

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Q3 2017 Dispositions
 
11
 
3,401,113
 
93.1
%
 
$
70,621

 
$
582,767

 
$
425,553

 
2004
1984

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Disposed Year-to-Date
 
20
 
5,099,423
 
92.8
%
 
$
106,816

 
$
828,576


$
578,294

 
2004
1985

(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
 
Nine Months Ended
 
September 30,
 
September 30,
Weighted Average Share Calculation
2017
 
2016
 
2017
 
2016
Weighted average EQC common shares outstanding
123,173

 
124,624

 
123,152

 
124,727

Weighted average restricted shares outstanding
916

 
909

 
916

 
900

Weighted average common shares outstanding - basic - GAAP EPS(1)
124,089

 
125,533

 
124,068

 
125,627

Weighted average number of dilutive RSUs and LTIP Units(2)
1,086

 
1,035

 
1,126

 
1,382

Weighted average common shares outstanding - diluted - GAAP EPS, FFO & Normalized FFO
125,175

 
126,568

 
125,194

 
127,009

Rollforward of Share Count to September 30, 2017
 
 
Series D Preferred Shares(3)
 
EQC Common Shares(4)
Outstanding on December 31, 2016
 
 
4,915

 
123,994

Issuance of restricted shares, net of forfeitures
 
 
—

 
95

Outstanding on September 30, 2017
 
 
4,915

 
124,089

Series D preferred shares convertible into common shares on September 30, 2017(3)
 
 
 
 
2,363

Common shares issuable from RSUs and LTIP Units as measured on September 30, 2017(2)
 
 
 
 
1,085

Potential common shares as measured on September 30, 2017
 
 
 
 
127,537

(1
)
Our calculations of FFO and Normalized FFO attributable to EQC common shareholders and unitholders per share - basic for the three and nine months ended September 30, 2017 includes 43 and 37 LTIP Units, respectively, that are excluded from the calculation of basic earnings per common share attributable only to Equity Commonwealth common shareholders.
(2
)
As of September 30, 2017, we had granted RSUs and LTIP Units to certain employees, officers, and trustees. RSUs and LTIP Units contain service and market-based vesting components. None of the RSUs or LTIP Units have vested.  If the market-based vesting component of these awards was measured as of September 30, 2017, and 2016, 1,085 and 1,035 common shares would be issued, respectively. Using a weighted average basis, 1,086 and 1,035 common shares are reflected in diluted earnings per share, FFO per share, and Normalized FFO per share for the three months ended September 30, 2017 and 2016, respectively, and 1,126 and 1,382 common shares are reflected in diluted earnings per share, FFO per share, and Normalized FFO per share for the nine months ended September 30, 2017 and 2016, respectively.
(3
)
As of September 30, 2017, we had 4,915 series D preferred shares outstanding that were convertible into 2,363 common shares. The series D preferred shares are anti-dilutive for GAAP EPS, FFO per common share and Normalized FFO per common share for all periods presented.
(4
)
EQC common shares include unvested restricted shares.

24

DEFINITIONS

Annualized Rental Revenue
Annualized Rental Revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of September 30, 2017, 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) and Adjusted EBITDA
We calculate EBITDA as net income (loss) excluding 1) interest expense, 2) income tax expense, and 3) depreciation and amortization. Our calculation of Adjusted EBITDA differs from our calculation of EBITDA because we exclude certain items that we view as nonrecurring or impacting comparability from period to period. EBITDA and Adjusted EBITDA are supplemental non-GAAP financial measures.
We consider EBITDA and Adjusted EBITDA 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 and Adjusted EBITDA provide useful information to investors because by excluding the effects of certain historical amounts, such as interest, depreciation and amortization expense, EBITDA and Adjusted EBITDA may facilitate a comparison of current operating performance with our past operating performance. EBITDA and Adjusted EBITDA 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 and Adjusted EBITDA differently than we do.
Annualized Adjusted EBITDA
Annualized Adjusted EBITDA is Adjusted EBITDA for the three months ended September 30, 2017 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 the National Association of Real Estate Investment Trusts (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 Equity Commonwealth common shareholders, operating income (loss) and cash flow from operating activities.
We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs.  FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income (loss), net income (loss) attributable to Equity Commonwealth 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

25

DEFINITIONS

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 Equity Commonwealth 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 ("LC"'s) and related legal expenses.
LTIP Units
LTIP Units are a class of beneficial interests in EQC Operating Trust (the "Operating Trust") that may be issued to employees, officers, or trustees of the Operating Trust, EQC, or their subsidiaries.
Net Debt
Net debt is total debt minus cash and cash equivalents.
Net Operating Income (NOI), Same Property NOI, Cash Basis NOI, and Same Property Cash Basis NOI
NOI is income from our real estate including lease termination fees received from tenants less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions and corporate level expenses. Cash Basis NOI is NOI excluding the effects of straight line rent adjustments, lease value amortization, and lease termination fees. The quarter-to-date same property versions of these measures include the results of properties continuously owned from July 1, 2016 through September 30, 2017. The year-to-date same property versions of these measures include the results of properties continuously owned from January 1, 2016 through September 30, 2017. 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 Equity Commonwealth 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 Equity Commonwealth 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, impairment write-downs, and currency adjustments, 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).
Percentage Commenced
Percentage commenced includes space subject to leases that have commenced, whether or not the tenant is in a free rent period.
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 July 1, 2016 through September 30, 2017. Our year-to-date same property portfolio is comprised of those properties continuously owned from January 1, 2016 through September 30, 2017. Land parcels and properties classified as held for sale within our condensed consolidated balance sheets are excluded.

26

DEFINITIONS


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.


27