eqc-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-9317

EQUITY COMMONWEALTH

(Exact Name of Registrant as Specified in Its Charter)


Maryland						04-6558834
(State or Other Jurisdiction of Incorporation or Organization)						(IRS Employer Identification No.)

Two North Riverside Plaza, Suite 2100, Chicago, IL						60606
(Address of Principal Executive Offices)						(Zip Code)
(312) 646-2800
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title Of Each Class

Trading Symbol

Name of Each Exchange On Which Registered

Common Shares of Beneficial Interest

EQC

The New York Stock Exchange

6.50% Series D Cumulative Convertible Preferred Shares of Beneficial Interest

EQCpD

The New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Number of registrant’s common shares of beneficial interest, $0.01 par value per share, outstanding as of May 1, 2023: 109,701,592.

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EQUITY COMMONWEALTH

FORM 10-Q

March 31, 2023

INDEX


		Page

PART I	Financial Information

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Operations	2

	Condensed Consolidated Statements of Equity	3

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4.	Controls and Procedures	22

PART II	Other Information

Item 1.	Legal Proceedings	23

Item 1A.	Risk Factors	23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3.	Defaults Upon Senior Securities	23

Item 4.	Mine Safety Disclosures	23

Item 5.	Other Information	23

Item 6.	Exhibits	24

	Signatures	25

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EXPLANATORY NOTE

References in this Quarterly Report on Form 10-Q to the “Company,” “EQC,” “we,” “us” or “our,” refer to Equity Commonwealth and its consolidated subsidiaries as of March 31, 2023, unless the context indicates otherwise.

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PART I. Financial Information

Item 1. Financial Statements.

EQUITY COMMONWEALTH

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)


	March 31, 2023		December 31, 2022
			(audited)
ASSETS
Real estate properties:
Land	$	44,060	$	44,060
Buildings and improvements	364,155		364,063
	408,215		408,123
Accumulated depreciation	(171,379)		(169,530)
	236,836		238,593


Cash and cash equivalents	2,128,688		2,582,222


Rents receivable	15,606		16,009
Other assets, net	18,194		18,061
Total assets	$	2,399,324	$	2,854,885

LIABILITIES AND EQUITY



Accounts payable, accrued expenses and other	$	19,642	$	25,935

Rent collected in advance	2,815		2,355

Distributions payable	7,795		2,863
Total liabilities	30,252		31,153

Shareholders’ equity:
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;
Series D preferred shares; 6.50% 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; 109,701,592 and 109,428,252 shares issued and outstanding, respectively	1,097		1,094
Additional paid in capital	3,976,643		3,979,566
Cumulative net income	3,858,500		3,835,815

Cumulative common distributions	(4,866,401)		(4,393,522)
Cumulative preferred distributions	(727,685)		(725,688)
Total shareholders’ equity	2,361,417		2,816,528
Noncontrolling interest	7,655		7,204
Total equity	2,369,072		2,823,732
Total liabilities and equity	$	2,399,324	$	2,854,885

See accompanying notes.

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EQUITY COMMONWEALTH

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share data)

(unaudited)


	Three Months Ended March 31,
		2023		2022
Revenues:
Rental revenue		$	14,226	$	15,840
Other revenue		1,350		846
Total revenues		15,576		16,686
Expenses:
Operating expenses		7,256		4,533
Depreciation and amortization		4,310		4,412
General and administrative		8,555		8,002

Total expenses		20,121		16,947
Interest and other income, net		28,376		1,574




Income before income taxes		23,831		1,313
Income tax expense		(1,080)		(8)
Net income		22,751		1,305
Net income attributable to noncontrolling interest		(66)		(3)
Net income attributable to Equity Commonwealth		22,685		1,302
Preferred distributions		(1,997)		(1,997)


Net income (loss) attributable to Equity Commonwealth common shareholders		$	20,688	$	(695)



Weighted average common shares outstanding — basic		109,720		113,740
Weighted average common shares outstanding — diluted		111,300		113,740
Earnings per common share attributable to Equity Commonwealth common shareholders:
Basic		$	0.19	$	(0.01)
Diluted		$	0.19	$	(0.01)

Distributions declared per common share		$	4.25	$	—

See accompanying notes.

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EQUITY COMMONWEALTH

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(amounts in thousands, except share data)

(unaudited)


	Equity Commonwealth Shareholders
	Number of Series D Preferred Shares	Series D Preferred Shares		Number of Common Shares	Common Shares		Additional Paid in Capital		Cumulative Net Income		Cumulative Common Distributions		Cumulative Preferred Distributions		Noncontrolling Interest		Total











Balance at January 1, 2023	4,915,196	$	119,263	109,428,252	$	1,094	$	3,979,566	$	3,835,815	$	(4,393,522)	$	(725,688)	$	7,204	$	2,823,732

Net income	—	—		—	—		—		22,685		—		—		66		22,751



Surrender of shares for tax withholding	—	—		(134,193)	(1)		(3,394)		—		—		—		—		(3,395)
Share-based compensation	—	—		407,533	4		2,654		—		—		—		330		2,988

Distributions	—	—		—	—		—		—		(472,879)		(1,997)		(2,128)		(477,004)

Adjustment for noncontrolling interest	—	—		—	—		(2,183)		—		—		—		2,183		—
Balance at March 31, 2023	4,915,196	$	119,263	109,701,592	$	1,097	$	3,976,643	$	3,858,500	$	(4,866,401)	$	(727,685)	$	7,655	$	2,369,072

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EQUITY COMMONWEALTH

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)

(amounts in thousands, except share data)

(unaudited)


	Equity Commonwealth Shareholders
	Number of Series D Preferred Shares	Series D Preferred Shares		Number of Common Shares	Common Shares		Additional Paid in Capital		Cumulative Net Income		Cumulative Common Distributions		Cumulative Preferred Distributions		Noncontrolling Interest		Total













Balance at January 1, 2022	4,915,196	$	119,263	115,205,818	$	1,152	$	4,128,656	$	3,798,552	$	(4,281,195)	$	(717,700)	$	6,542	$	3,055,270

Net income	—	—		—	—		—		1,302		—		—		3		1,305


Repurchase of shares	—	—		(2,851,030)	(29)		(73,715)		—		—		—		—		(73,744)
Surrender of shares for tax withholding	—	—		(159,566)	(1)		(4,132)		—		—		—		—		(4,133)
Share-based compensation	—	—		475,179	5		2,847		—		—		—		324		3,176
Contributions	—	—		—	—		—		—		—		—		1		1
Distributions	—	—		—	—		—		—		369		(1,997)		20		(1,608)

Adjustment for noncontrolling interest	—	—		—	—		(400)		—		—		—		400		—
Balance at March 31, 2022	4,915,196	$	119,263	112,670,401	$	1,127	$	4,053,256	$	3,799,854	$	(4,280,826)	$	(719,697)	$	7,290	$	2,980,267

See accompanying notes.

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EQUITY COMMONWEALTH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)


	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	22,751	$	1,305
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	3,719		3,776

Straight-line rental income	279		10

Other amortization	591		636

Share-based compensation	2,988		3,176






Change in assets and liabilities:
Rents receivable and other assets	(662)		(1,265)
Accounts payable, accrued expenses and other	(7,018)		(4,468)
Rent collected in advance	460		(254)

Net cash provided by operating activities	23,108		2,916

CASH FLOWS FROM INVESTING ACTIVITIES:

Real estate improvements	(1,175)		(650)







Cash used in investing activities	(1,175)		(650)

CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase and retirement of common shares	(3,395)		(77,877)





Contributions from holders of noncontrolling interest	—		1
Distributions to common shareholders	(468,232)		(1,462)
Distributions to preferred shareholders	(1,997)		(1,997)
Distributions to holders of noncontrolling interest	(1,843)		—

Net cash used in financing activities	(475,467)		(81,335)

Decrease in cash and cash equivalents	(453,534)		(79,069)
Cash and cash equivalents at beginning of period	2,582,222		2,800,998
Cash and cash equivalents at end of period	$	2,128,688	$	2,721,929

See accompanying notes.

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EQUITY COMMONWEALTH

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(amounts in thousands)

(unaudited)


	Three Months Ended March 31,
	2023		2022
SUPPLEMENTAL CASH FLOW INFORMATION:

Taxes refunded, net	$	(9)	$	(12)

NON-CASH INVESTING ACTIVITIES:


Accrued capital expenditures	$	1,710	$	703


NON-CASH FINANCING ACTIVITIES:
Distributions payable	$	7,795	$	514

See accompanying notes.

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EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Business

Equity Commonwealth, or the Company, is a real estate investment trust, or REIT, formed in 1986 under the laws of the State of Maryland. Our business is primarily the ownership and operation of office properties in the United States.

The Company operates in an umbrella partnership real estate investment trust, or UPREIT, and conducts substantially all of its activities through EQC Operating Trust, a Maryland real estate investment trust, or the Operating Trust. The Company beneficially owned 99.68% of the outstanding shares of beneficial interest, designated as units, in the Operating Trust, or OP Units, as of March 31, 2023, and the Company is the sole trustee of the Operating Trust. As the sole trustee, the Company generally has the power under the declaration of trust of the Operating Trust to manage and conduct the business of the Operating Trust, subject to certain limited approval and voting rights of other holders of OP Units.

At March 31, 2023, our portfolio consisted of four properties (eight buildings), with a combined 1.5 million square feet, and we had $2.1 billion of cash and cash equivalents.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of EQC have been prepared without audit. Certain information and footnote disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are appropriate. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K, or our Annual Report, for the year ended December 31, 2022. Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.

In the opinion of our management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included. All intercompany transactions and balances with or among our subsidiaries have been eliminated. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts. Actual results could differ from those estimates. Significant estimates in the condensed consolidated financial statements include the assessment of the collectability of rental revenue, purchase price allocations, useful lives of fixed assets and impairment of real estate and intangible assets.

Dollar amounts presented may be approximate. Share amounts are presented in whole numbers, except where noted.

Note 3. Real Estate Properties

During the three months ended March 31, 2023 and 2022, we made improvements, excluding tenant-funded improvements, to our properties totaling $2.0 million and $0.8 million, respectively.

Property Dispositions:

We did not sell any properties during the three months ended March 31, 2023 or 2022.

SEC Form 10-Q filed by Equity Commonwealth