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) |
Large accelerated filer x | Accelerated filer o | |
Non-accelerated filer o | Smaller reporting company o | |
(Do not check if a smaller reporting company) |
Page | ||
June 30, 2016 | December 31, 2015 | ||||||
(audited) | |||||||
ASSETS | |||||||
Real estate properties: | |||||||
Land | $ | 328,351 | $ | 389,410 | |||
Buildings and improvements | 3,074,591 | 3,497,942 | |||||
3,402,942 | 3,887,352 | ||||||
Accumulated depreciation | (828,786 | ) | (898,939 | ) | |||
2,574,156 | 2,988,413 | ||||||
Properties held for sale | 150,766 | — | |||||
Acquired real estate leases, net | 70,724 | 88,760 | |||||
Cash and cash equivalents | 1,772,337 | 1,802,729 | |||||
Restricted cash | 33,777 | 32,245 | |||||
Rents receivable, net of allowance for doubtful accounts of $4,431 and $7,715, respectively | 169,800 | 174,676 | |||||
Other assets, net | 140,215 | 144,341 | |||||
Total assets | $ | 4,911,775 | $ | 5,231,164 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Senior unsecured debt, net | $ | 1,312,707 | $ | 1,450,606 | |||
Mortgage notes payable, net | 244,850 | 246,510 | |||||
Liabilities related to properties held for sale | 1,687 | — | |||||
Accounts payable and accrued expenses | 117,363 | 123,587 | |||||
Assumed real estate lease obligations, net | 2,761 | 4,296 | |||||
Rent collected in advance | 24,615 | 27,340 | |||||
Security deposits | 9,154 | 10,338 | |||||
Total liabilities | 1,713,137 | 1,862,677 | |||||
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 | |||||
Series E preferred shares; 7 1/4% cumulative redeemable on or after May 15, 2016; 0 and 11,000,000 shares issued and outstanding, respectively, aggregate liquidation preference $0 and $275,000, respectively | — | 265,391 | |||||
Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 125,533,376 and 126,349,914 shares issued and outstanding, respectively | 1,255 | 1,263 | |||||
Additional paid in capital | 4,398,033 | 4,414,611 | |||||
Cumulative net income | 2,467,955 | 2,333,709 | |||||
Cumulative other comprehensive loss | (2,234 | ) | (3,687 | ) | |||
Cumulative common distributions | (3,111,868 | ) | (3,111,868 | ) | |||
Cumulative preferred distributions | (673,766 | ) | (650,195 | ) | |||
Total shareholders’ equity | 3,198,638 | 3,368,487 | |||||
Total liabilities and shareholders’ equity | $ | 4,911,775 | $ | 5,231,164 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Revenues: | |||||||||||||||
Rental income | $ | 121,735 | $ | 163,697 | $ | 231,623 | $ | 331,669 | |||||||
Tenant reimbursements and other income | 23,632 | 39,997 | 50,879 | 85,080 | |||||||||||
Total revenues | 145,367 | 203,694 | 282,502 | 416,749 | |||||||||||
Expenses: | |||||||||||||||
Operating expenses | 51,393 | 89,686 | 108,651 | 187,557 | |||||||||||
Depreciation and amortization | 37,331 | 53,637 | 73,582 | 116,336 | |||||||||||
General and administrative | 12,177 | 10,911 | 25,489 | 27,469 | |||||||||||
Loss on asset impairment | 43,736 | 15,258 | 43,736 | 17,162 | |||||||||||
Total expenses | 144,637 | 169,492 | 251,458 | 348,524 | |||||||||||
Operating income | 730 | 34,202 | 31,044 | 68,225 | |||||||||||
Interest and other income | 2,204 | 728 | 4,171 | 4,176 | |||||||||||
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $949, $(177), $1,932 and $(148), respectively) | (21,300 | ) | (27,973 | ) | (43,647 | ) | (57,815 | ) | |||||||
Gain (loss) on early extinguishment of debt | — | 10,426 | (118 | ) | 9,998 | ||||||||||
Foreign currency exchange gain (loss) | — | 856 | (5 | ) | 856 | ||||||||||
Gain (loss) on sale of properties | 106,375 | (2,708 | ) | 143,041 | 3,160 | ||||||||||
Income before income taxes | 88,009 | 15,531 | 134,486 | 28,600 | |||||||||||
Income tax expense | (165 | ) | (2,915 | ) | (240 | ) | (2,354 | ) | |||||||
Net income | 87,844 | 12,616 | 134,246 | 26,246 | |||||||||||
Preferred distributions | (6,981 | ) | (6,981 | ) | (13,962 | ) | (13,962 | ) | |||||||
Excess fair value of consideration paid over carrying value of preferred shares | (9,609 | ) | — | (9,609 | ) | — | |||||||||
Net income attributable to Equity Commonwealth common shareholders | $ | 71,254 | $ | 5,635 | $ | 110,675 | $ | 12,284 | |||||||
Weighted average common shares outstanding — basic | 125,508 | 129,733 | 125,674 | 129,714 | |||||||||||
Weighted average common shares outstanding — diluted | 126,937 | 130,537 | 127,229 | 130,205 | |||||||||||
Earnings per common share attributable to Equity Commonwealth common shareholders: | |||||||||||||||
Basic | $ | 0.57 | $ | 0.04 | $ | 0.88 | $ | 0.09 | |||||||
Diluted | $ | 0.56 | $ | 0.04 | $ | 0.87 | $ | 0.09 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income | $ | 87,844 | $ | 12,616 | $ | 134,246 | $ | 26,246 | |||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||
Unrealized gain (loss) on derivative instruments and other assets | 780 | 958 | 1,453 | (1,664 | ) | ||||||||||
Foreign currency translation adjustments | — | 65,307 | — | 48,917 | |||||||||||
Total comprehensive income | $ | 88,624 | $ | 78,881 | $ | 135,699 | $ | 73,499 |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income | $ | 134,246 | $ | 26,246 | |||
Adjustments to reconcile net income to cash provided by operating activities: | |||||||
Depreciation | 55,799 | 86,374 | |||||
Net amortization of debt discounts, premiums and deferred financing fees | 1,932 | (148 | ) | ||||
Straight line rental income | (9,430 | ) | (1,611 | ) | |||
Amortization of acquired real estate leases | 14,834 | 20,413 | |||||
Other amortization | 7,937 | 12,782 | |||||
Share-based compensation | 8,977 | 8,110 | |||||
Loss on asset impairment | 43,736 | 17,162 | |||||
Loss (gain) on early extinguishment of debt | 118 | (9,998 | ) | ||||
Foreign currency exchange loss (gain) | 5 | (856 | ) | ||||
Net gain on sale of properties | (143,041 | ) | (3,160 | ) | |||
Change in assets and liabilities: | |||||||
Restricted cash | (4,115 | ) | (2,917 | ) | |||
Rents receivable and other assets | (13,727 | ) | (20,429 | ) | |||
Accounts payable and accrued expenses | (1,970 | ) | (847 | ) | |||
Rent collected in advance | (1,651 | ) | (8,539 | ) | |||
Security deposits | 224 | 597 | |||||
Cash provided by operating activities | 93,874 | 123,179 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Real estate improvements | (60,289 | ) | (28,623 | ) | |||
Principal payments received from direct financing lease | — | 3,789 | |||||
Proceeds from sale of properties, net | 388,774 | 962,003 | |||||
Proceeds from sale of securities | — | 27,068 | |||||
Decrease (increase) in restricted cash | 2,583 | (2,313 | ) | ||||
Cash provided by investing activities | 331,068 | 961,924 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Purchase and retirement of common shares | (25,563 | ) | — | ||||
Redemption of preferred shares | (275,000 | ) | — | ||||
Payments on borrowings | (140,749 | ) | (141,908 | ) | |||
Deferred financing fees | (52 | ) | (7,143 | ) | |||
Distributions to preferred shareholders | (13,962 | ) | (13,962 | ) | |||
Cash used in financing activities | (455,326 | ) | (163,013 | ) | |||
Effect of exchange rate changes on cash | (8 | ) | 296 | ||||
(Decrease) increase in cash and cash equivalents | (30,392 | ) | 922,386 | ||||
Cash and cash equivalents at beginning of period | 1,802,729 | 364,516 | |||||
Cash and cash equivalents at end of period | $ | 1,772,337 | $ | 1,286,902 |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | |||||||
Interest paid | $ | 45,021 | $ | 62,094 | |||
Taxes paid | 103 | 3,088 | |||||
NON-CASH INVESTING ACTIVITIES: | |||||||
Increase in capital expenditures recorded as liabilities | $ | 728 | $ | 523 |
Balance Sheet as of December 31, 2015 | Originally Reported | Effect of Change | As Adjusted | ||||||
Other assets, net | 157,549 | (13,208 | ) | 144,341 | |||||
Senior unsecured debt, net | 1,460,592 | (9,986 | ) | 1,450,606 | |||||
Mortgage notes payable, net | 249,732 | (3,222 | ) | 246,510 |
Asset | Date Sold | Number of Properties | Number of Buildings | Square Footage | Gross Sales Price | ||||||||||
Property | |||||||||||||||
111 River Street | July 2016 | 1 | 1 | 566,215 | $ | 235,000 | |||||||||
Portfolio of properties | |||||||||||||||
128 Crews Drive | July 2016 | 1 | 1 | 185,600 | |||||||||||
111 Southchase Boulevard | July 2016 | 1 | 1 | 168,087 | |||||||||||
1043 Global Avenue | July 2016 | 1 | 1 | 450,000 | |||||||||||
South Carolina industrial portfolio | 3 | 3 | 803,687 | $ | 30,000 | ||||||||||
4 | 4 | 1,369,902 | $ | 265,000 |
June 30, 2016 | |||
Real estate properties | $ | 136,299 | |
Acquired real estate leases | 1,751 | ||
Other assets, net | 12,716 | ||
Properties held for sale | $ | 150,766 | |
Accounts payable and accrued expenses | $ | 674 | |
Assumed real estate lease obligations | 403 | ||
Rent collected in advance | 266 | ||
Security deposits | 344 | ||
Liabilities related to properties held for sale | $ | 1,687 |
Asset | Date Sold | Number of Properties | Number of Buildings | Square Footage | Gross Sales Price | Gain on Sale | |||||||||||||
Properties | |||||||||||||||||||
Executive Park | February 2016 | 1 | 9 | 427,443 | $ | 50,865 | $ | 16,532 | |||||||||||
3330 N Washington Boulevard | March 2016 | 1 | 1 | 55,719 | 11,250 | 5,457 | |||||||||||||
111 East Kilbourn Avenue | March 2016 | 1 | 1 | 373,669 | 60,500 | 14,677 | |||||||||||||
1525 Locust Street | April 2016 | 1 | 1 | 98,009 | 17,700 | 8,956 | |||||||||||||
633 Ahua Street | April 2016 | 1 | 1 | 93,141 | 29,000 | 15,963 | |||||||||||||
Lakewood on the Park | May 2016 | 1 | 2 | 180,558 | 37,100 | 13,616 | |||||||||||||
Leased Land | June 2016 | 1 | 7 | — | 48,450 | 15,914 | |||||||||||||
9110 East Nichols Avenue | June 2016 | 1 | 1 | 143,958 | 17,200 | 642 | |||||||||||||
Portfolios of properties | |||||||||||||||||||
812 San Antonio Street | May 2016 | 1 | 1 | 59,321 | |||||||||||||||
1601 Rio Grande Street | May 2016 | 1 | 1 | 56,219 | |||||||||||||||
Downtown Austin portfolio | 2 | 2 | 115,540 | $ | 32,600 | $ | 20,584 | ||||||||||||
785 Schilinger Road South | June 2016 | 1 | 1 | 72,000 | |||||||||||||||
401 Vine Street | June 2016 | 1 | 1 | 53,980 | |||||||||||||||
633 Frazier Drive | June 2016 | 1 | 1 | 150,000 | |||||||||||||||
9840 Gateway Boulevard North | June 2016 | 1 | 1 | 72,000 | |||||||||||||||
3003 South Expressway 281 | June 2016 | 1 | 1 | 150,000 | |||||||||||||||
1331 North Center Parkway | June 2016 | 1 | 1 | 53,980 | |||||||||||||||
Movie theater portfolio | 6 | 6 | 551,960 | $ | 109,100 | $ | 30,595 | ||||||||||||
16 | 31 | 2,039,997 | $ | 413,765 | $ | 142,936 |
Declaration Date | Record Date | Payment Date | Series D Dividend Per Share | Series E Dividend Per Share | ||||||||
January 26, 2016 | February 5, 2016 | February 16, 2016 | $ | 0.40625 | $ | 0.453125 | ||||||
April 15, 2016 | April 25, 2016 | May 16, 2016 | $ | 0.40625 | $ | 0.453125 |
Unrealized Loss on Derivative Instruments | |||
Balance as of April 1, 2016 | $ | (3,014 | ) |
Other comprehensive loss before reclassifications | (326 | ) | |
Amounts reclassified from cumulative other comprehensive loss to net income | 1,106 | ||
Net current period other comprehensive income | 780 | ||
Balance as of June 30, 2016 | $ | (2,234 | ) |
Unrealized Loss on Derivative Instruments | |||
Balance as of January 1, 2016 | $ | (3,687 | ) |
Other comprehensive loss before reclassifications | (771 | ) | |
Amounts reclassified from cumulative other comprehensive loss to net income | 2,224 | ||
Net current period other comprehensive income | 1,453 | ||
Balance as of June 30, 2016 | $ | (2,234 | ) |
Amounts Reclassified from Cumulative Other Comprehensive Loss to Net Income | ||||||||||
Details about Cumulative Other Comprehensive Loss Components | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | Affected Line Items in the Statement of Operations | |||||||
Interest rate swap contracts | $ | 1,106 | $ | 2,224 | Interest expense |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Current: | |||||||||||||||
State | $ | 165 | $ | 90 | $ | 240 | $ | 180 | |||||||
Federal | — | 525 | — | 525 | |||||||||||
Foreign | — | 2,450 | — | 2,404 | |||||||||||
165 | 3,065 | 240 | 3,109 | ||||||||||||
Deferred: | |||||||||||||||
Foreign | — | (150 | ) | — | (755 | ) | |||||||||
— | (150 | ) | — | (755 | ) | ||||||||||
Income tax expense | $ | 165 | $ | 2,915 | $ | 240 | $ | 2,354 |
Interest Rate Derivative | Number of Instruments | Notional Amount (in thousands) | |||||
Interest rate swap | 2 | $ | 168,616 | ||||
Interest rate cap | 1 | $ | 400,000 |
Fair Value as of | ||||||||||
Interest Rate Derivative Designated as Hedging Instrument | Balance Sheet Location | June 30, 2016 | December 31, 2015 | |||||||
Pay-fixed swaps | Accounts payable and accrued expenses | $ | (1,828 | ) | $ | (3,687 | ) | |||
Interest rate cap | Other assets | $ | 117 | $ | — |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Balance at beginning of period | $ | (3,014 | ) | $ | (6,921 | ) | $ | (3,687 | ) | $ | (7,462 | ) | |||
Amount of loss recognized in cumulative other comprehensive loss | (326 | ) | (274 | ) | (771 | ) | (960 | ) | |||||||
Amount of loss reclassified from cumulative other comprehensive loss into interest expense | 1,106 | 1,232 | 2,224 | 2,459 | |||||||||||
Unrealized gain on derivative instruments | 780 | 958 | 1,453 | 1,499 | |||||||||||
Balance at end of period | $ | (2,234 | ) | $ | (5,963 | ) | $ | (2,234 | ) | $ | (5,963 | ) |
2016 | |||
Fair value of RSUs granted | $ | 38.80 | |
Expected term (years) | 4 | ||
Expected volatility | — | ||
Expected dividend yield | 1.86 | % | |
Risk-free rate | 1.07 | % |
Fair Value at June 30, 2016 Using | ||||||||||||||||
Quoted Prices in Active Markets for Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
Description | Total | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Recurring Fair Value Measurements: | ||||||||||||||||
Effective portion of interest rate swap contracts | $ | (1,828 | ) | $ | — | $ | (1,828 | ) | $ | — | ||||||
Effective portion of interest rate cap contract | 117 | — | 117 | — | ||||||||||||
Derivative liability | (8,375 | ) | — | — | (8,375 | ) |
Description | Fair Value at June 30, 2016 | Primary Valuation Technique | Unobservable Inputs | Rate | ||||||
Derivative liability | $ | 8,375 | Monte Carlo simulation | Risk-free rate | 0.20% | |||||
Volatility | 20.0% |
June 30, 2016 | December 31, 2015 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
Senior unsecured debt and mortgage notes payable, net | $ | 1,557,557 | $ | 1,623,934 | $ | 1,697,116 | $ | 1,749,211 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Numerator for earnings per common share - basic and diluted: | |||||||||||||||
Net income | $ | 87,844 | $ | 12,616 | $ | 134,246 | $ | 26,246 | |||||||
Preferred distributions | (6,981 | ) | (6,981 | ) | (13,962 | ) | (13,962 | ) | |||||||
Excess fair value of consideration paid over carrying value of preferred shares | (9,609 | ) | — | (9,609 | ) | — | |||||||||
Numerator for net income per share | $ | 71,254 | $ | 5,635 | $ | 110,675 | $ | 12,284 | |||||||
Denominator for earnings per common share - basic and diluted: | |||||||||||||||
Weighted average number of common shares outstanding - basic | 125,508 | 129,733 | 125,674 | 129,714 | |||||||||||
Weighted average number of common shares outstanding - diluted(1) | 126,937 | 130,537 | 127,229 | 130,205 | |||||||||||
Net income per common share attributable to Equity Commonwealth common shareholders: | |||||||||||||||
Basic | $ | 0.57 | $ | 0.04 | $ | 0.88 | $ | 0.09 | |||||||
Diluted | $ | 0.56 | $ | 0.04 | $ | 0.87 | $ | 0.09 | |||||||
Anti-dilutive securities: | |||||||||||||||
Effect of Series D preferred shares; 6 1/2% cumulative convertible(2) | 2,363 | 2,363 | 2,363 | 2,363 |
(1) | As of June 30, 2016, we had granted RSUs to certain employees, officers, and the chairman of the Board of Trustees. The RSUs contain both service and market-based vesting components. None of the RSUs have vested. If the market-based vesting component was measured as of June 30, 2016, and 2015, 1,429 and 803 common shares would be issued to the RSU holders, respectively. Using a weighted average basis, 1,429 and 804 common shares are reflected in diluted earnings per share for the three months ended June 30, 2016 and 2015, respectively and 1,555 and 491 common shares are reflected in diluted earnings per share for the six months ended June 30, 2016 and 2015, respectively. |
(2) | The Series D preferred shares are excluded from the diluted earnings per share calculation because including the Series D preferred shares would also require that the preferred distributions be added back to net income, resulting in anti-dilution during the periods presented. |
• | assets that do not offer an opportunity to create a competitive advantage; |
• | assets that are less than 150,000 square feet; |
• | assets that are not office buildings; |
• | assets that are not located in the U.S.; or |
• | assets that produce a low cash yield or require significant capital expenditures. |
All Properties(1) | Comparable Properties(2) | ||||||||||
As of June 30, | As of June 30, | ||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||
Total properties | 45 | 86 | 45 | 45 | |||||||
Total square feet | 20,675 | 29,357 | 20,675 | 20,542 | |||||||
Percent leased(3) | 90.3 | % | 90.6 | % | 90.3 | % | 91.3 | % |
(1) | Excludes properties sold or classified as held for sale in the period. |
(2) | Based on properties owned continuously from January 1, 2015 through June 30, 2016, and excludes properties sold or classified as held for sale during the period. |
(3) | Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases and (ii) space which is leased but is not occupied or is being offered for sublease by tenants. |
Year | Number of Tenants Expiring | Leased Square Feet Expiring(1) | % of Leased Square Feet Expiring(1) | Cumulative % of Leased Square Feet Expiring(1) | Annualized Rental Revenue Expiring(2) | % of Annualized Rental Revenue Expiring | Cumulative % of Annualized Rental Revenue Expiring | |||||||||||||||
2016 | 75 | 372 | 2.0 | % | 2.0 | % | $ | 5,843 | 1.3 | % | 1.3 | % | ||||||||||
2017 | 124 | 1,284 | 6.9 | % | 8.9 | % | 34,836 | 7.9 | % | 9.2 | % | |||||||||||
2018 | 115 | 1,762 | 9.4 | % | 18.3 | % | 41,764 | 9.5 | % | 18.7 | % | |||||||||||
2019 | 116 | 1,476 | 7.9 | % | 26.2 | % | 37,059 | 8.4 | % | 27.1 | % | |||||||||||
2020 | 111 | 3,989 | 21.3 | % | 47.5 | % | 78,497 | 17.8 | % | 44.9 | % | |||||||||||
2021 | 93 | 2,068 | 11.1 | % | 58.6 | % | 53,202 | 12.1 | % | 57.0 | % | |||||||||||
2022 | 43 | 836 | 4.5 | % | 63.1 | % | 26,787 | 6.1 | % | 63.1 | % | |||||||||||
2023 | 51 | 1,716 | 9.2 | % | 72.3 | % | 47,351 | 10.8 | % | 73.9 | % | |||||||||||
2024 | 20 | 614 | 3.3 | % | 75.6 | % | 11,087 | 2.5 | % | 76.4 | % | |||||||||||
2025 | 23 | 967 | 5.2 | % | 80.8 | % | 26,098 | 5.9 | % | 82.3 | % | |||||||||||
Thereafter | 54 | 3,594 | 19.2 | % | 100.0 | % | 77,833 | 17.7 | % | 100.0 | % | |||||||||||
825 | 18,678 | 100.0 | % | $ | 440,357 | 100.0 | % | |||||||||||||||
Weighted average remaining lease term (in years): | 5.8 | 5.7 |
(1) | Square footage is pursuant to existing leases as of June 30, 2016, excluding leases related to properties classified as held for sale, and includes (i) space being fitted out for occupancy and (ii) space which is leased but is not occupied or is being offered for sublease. |
(2) | Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of June 30, 2016, 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. 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. |
Tenant(1) | Square Feet(2) | % of Total Square Feet(2) | % of Annualized Rental Revenue(3) | Weighted Average Remaining Lease Term | ||||||||
1. | Expedia, Inc. | 427 | 2.3 | % | 4.3 | % | 3.4 | |||||
2. | PNC Financial Services Group | 583 | 3.1 | % | 3.8 | % | 4.7 | |||||
3. | Office Depot, Inc. | 640 | 3.4 | % | 3.7 | % | 7.3 | |||||
4. | Groupon, Inc. (4) | 376 | 2.0 | % | 2.7 | % | 9.6 | |||||
5. | Flextronics International Ltd. | 1,051 | 5.6 | % | 2.4 | % | 3.5 | |||||
6. | Jones Day | 343 | 1.8 | % | 2.0 | % | 10.0 | |||||
7. | Ballard Spahr LLP | 217 | 1.2 | % | 1.8 | % | 13.6 | |||||
8. | Towers Watson & Co | 302 | 1.6 | % | 1.7 | % | 4.0 | |||||
9. | RE/MAX Holdings, Inc. | 248 | 1.3 | % | 1.7 | % | 11.8 | |||||
10. | Exelon Corporation | 296 | 1.6 | % | 1.5 | % | 1.9 | |||||
11. | University of Pennsylvania Health System | 267 | 1.4 | % | 1.5 | % | 9.3 | |||||
12. | Georgetown University | 240 | 1.3 | % | 1.4 | % | 3.2 | |||||
13. | Wm. Wrigley Jr. Company | 150 | 0.8 | % | 1.3 | % | 5.6 | |||||
14. | J.P. Morgan Chase & Co. | 197 | 1.1 | % | 1.3 | % | 8.5 | |||||
15. | West Corporation | 336 | 1.8 | % | 1.2 | % | 12.6 | |||||
16. | The United States Government | 144 | 0.8 | % | 1.1 | % | 1.8 | |||||
17. | Truven Health Analytics | 179 | 1.0 | % | 1.1 | % | 0.7 | |||||
18. | M&T Bank Corporation | 218 | 1.2 | % | 1.1 | % | 2.3 | |||||
19. | TheraCom, LLC | 156 | 0.8 | % | 1.0 | % | 6.6 | |||||
20. | Level 3 Communications, Inc. | 95 | 0.5 | % | 1.0 | % | 9.6 | |||||
21. | Baxalta, Inc. | 260 | 1.4 | % | 1.0 | % | 12.1 | |||||
22. | Capital One Financial Corp. | 241 | 1.3 | % | 1.0 | % | 2.5 | |||||
Total | 6,966 | 37.3 | % | 39.6 | % | 6.3 |
(1) | Tenants located in properties classified as held for sale are excluded. |
(2) | Square footage is pursuant to existing leases as of June 30, 2016, and includes (i) space being fitted out for occupancy and (ii) space which is leased but is not occupied or is being offered for sublease. |
(3) | Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of June 30, 2016, 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. 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. |
(4) | Groupon, Inc. statistics include 207,536 square feet that are sublet from Bankers Life and Casualty Company. |
Comparable Properties Results(1) | Other Properties Results(2) | Consolidated Results | ||||||||||||||||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||||||||||||||||||
2016 | 2015 | $ Change | % Change | 2016 | 2015 | 2016 | 2015 | $ Change | % Change | |||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Rental income | 111,408 | 96,130 | 15,278 | 15.9 | % | 10,327 | 67,567 | 121,735 | 163,697 | (41,962 | ) | (25.6 | )% | |||||||||||||||||||
Tenant reimbursements and other income | 22,157 | 24,417 | (2,260 | ) | (9.3 | )% | 1,475 | 15,580 | 23,632 | 39,997 | (16,365 | ) | (40.9 | )% | ||||||||||||||||||
Operating expenses | (47,254 | ) | (48,118 | ) | 864 | (1.8 | )% | (4,139 | ) | (41,568 | ) | (51,393 | ) | (89,686 | ) | 38,293 | (42.7 | )% | ||||||||||||||
Net operating income(3) | 86,311 | 72,429 | 13,882 | 19.2 | % | 7,663 | 41,579 | 93,974 | 114,008 | (20,034 | ) | (17.6 | )% | |||||||||||||||||||
Other expenses: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 37,331 | 53,637 | (16,306 | ) | (30.4 | )% | ||||||||||||||||||||||||||
General and administrative | 12,177 | 10,911 | 1,266 | 11.6 | % | |||||||||||||||||||||||||||
Loss on asset impairment | 43,736 | 15,258 | 28,478 | 186.6 | % | |||||||||||||||||||||||||||
Total other expenses | 93,244 | 79,806 | 13,438 | 16.8 | % | |||||||||||||||||||||||||||
Operating income | 730 | 34,202 | (33,472 | ) | (97.9 | )% | ||||||||||||||||||||||||||
Interest and other income | 2,204 | 728 | 1,476 | 202.7 | % | |||||||||||||||||||||||||||
Interest expense | (21,300 | ) | (27,973 | ) | 6,673 | (23.9 | )% | |||||||||||||||||||||||||
Gain on early extinguishment of debt | — | 10,426 | (10,426 | ) | (100.0 | )% | ||||||||||||||||||||||||||
Foreign currency exchange gain | — | 856 | (856 | ) | (100.0 | )% | ||||||||||||||||||||||||||
Gain (loss) on sale of properties | 106,375 | (2,708 | ) | 109,083 | (4,028.2 | )% | ||||||||||||||||||||||||||
Income before income taxes | 88,009 | 15,531 | 72,478 | 466.7 | % | |||||||||||||||||||||||||||
Income tax expense | (165 | ) | (2,915 | ) | 2,750 | (94.3 | )% | |||||||||||||||||||||||||
Net income | 87,844 | 12,616 | 75,228 | 596.3 | % | |||||||||||||||||||||||||||
Preferred distributions | (6,981 | ) | (6,981 | ) | — | — | % | |||||||||||||||||||||||||
Excess fair value of consideration paid over carrying value of preferred shares | (9,609 | ) | — | (9,609 | ) | (100.0 | )% | |||||||||||||||||||||||||
Net income attributable to Equity Commonwealth common shareholders | $ | 71,254 | $ | 5,635 | $ | 65,619 | 1,164.5 | % |
(1) | Comparable properties consist of 45 properties (92 buildings) we owned continuously from April 1, 2015 to June 30, 2016. |
(2) | Other properties consist of properties sold and classified as held for sale. |
(3) | We calculate net operating income, or NOI, as shown above. We define NOI as income from our real estate including lease termination fees received from tenants less our property operating expenses. NOI excludes amortization of capitalized tenant improvement costs and leasing commissions. We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties. We use NOI internally to evaluate property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects 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. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, net income attributable to Equity Commonwealth common shareholders, operating income or cash flow from operating activities, determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs. This measure should be considered in conjunction with net income, net income attributable to Equity Commonwealth common shareholders, operating income and cash flow from operating activities as presented in our consolidated statements of operations, consolidated statements of comprehensive income and consolidated statements of cash flows. Other REITs and real estate companies may calculate NOI differently than we do. |
Comparable Properties Results(1) | Other Properties Results(2) | Consolidated Results | ||||||||||||||||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||||||||||
2016 | 2015 | $ Change | % Change | 2016 | 2015 | 2016 | 2015 | $ Change | % Change | |||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||
Rental income | 207,355 | 188,707 | 18,648 | 9.9 | % | 24,268 | 142,962 | 231,623 | 331,669 | (100,046 | ) | (30.2 | )% | |||||||||||||||||||
Tenant reimbursements and other income | 45,780 | 48,489 | (2,709 | ) | (5.6 | )% | 5,099 | 36,591 | 50,879 | 85,080 | (34,201 | ) | (40.2 | )% | ||||||||||||||||||
Operating expenses | (98,594 | ) | (98,091 | ) | (503 | ) | 0.5 | % | (10,057 | ) | (89,466 | ) | (108,651 | ) | (187,557 | ) | 78,906 | (42.1 | )% | |||||||||||||
Net operating income(3) | 154,541 | 139,105 | 15,436 | 11.1 | % | 19,310 | 90,087 | 173,851 | 229,192 | (55,341 | ) | (24.1 | )% | |||||||||||||||||||
Other expenses: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 73,582 | 116,336 | (42,754 | ) | (36.8 | )% | ||||||||||||||||||||||||||
General and administrative | 25,489 | 27,469 | (1,980 | ) | (7.2 | )% | ||||||||||||||||||||||||||
Loss on asset impairment | 43,736 | 17,162 | 26,574 | 154.8 | % | |||||||||||||||||||||||||||
Total other expenses | 142,807 | 160,967 | (18,160 | ) | (11.3 | )% | ||||||||||||||||||||||||||
Operating income | 31,044 | 68,225 | (37,181 | ) | (54.5 | )% | ||||||||||||||||||||||||||
Interest and other income | 4,171 | 4,176 | (5 | ) | (0.1 | )% | ||||||||||||||||||||||||||
Interest expense | (43,647 | ) | (57,815 | ) | 14,168 | (24.5 | )% | |||||||||||||||||||||||||
(Loss) gain on early extinguishment of debt | (118 | ) | 9,998 | (10,116 | ) | (101.2 | )% | |||||||||||||||||||||||||
Foreign currency exchange (loss) gain | (5 | ) | 856 | (861 | ) | (100.6 | )% | |||||||||||||||||||||||||
Gain on sale of properties | 143,041 | 3,160 | 139,881 | 4,426.6 | % | |||||||||||||||||||||||||||
Income before income taxes | 134,486 | 28,600 | 105,886 | 370.2 | % | |||||||||||||||||||||||||||
Income tax expense | (240 | ) | (2,354 | ) | 2,114 | (89.8 | )% | |||||||||||||||||||||||||
Net income | 134,246 | 26,246 | 108,000 | 411.5 | % | |||||||||||||||||||||||||||
Preferred distributions | (13,962 | ) | (13,962 | ) | — | — | % | |||||||||||||||||||||||||
Excess fair value of consideration paid over carrying value of preferred shares | (9,609 | ) | — | (9,609 | ) | (100.0 | )% | |||||||||||||||||||||||||
Net income attributable to Equity Commonwealth common shareholders | $ | 110,675 | $ | 12,284 | $ | 98,391 | 801.0 | % |
(1) | Comparable properties consist of 45 properties (92 buildings) we owned continuously from January 1, 2015 to June 30, 2016. |
(2) | Other properties consist of properties sold and classified as held for sale. |
(3) | See Note 3 on page 26 for further information regarding NOI. |
• | ability to purchase additional properties which produce rents, less property operating expenses, in excess of our costs of acquisition capital. |
Scheduled Principal Payments During Period | |||||||||||||||||||
Year | Unsecured Floating Rate Debt | Unsecured Fixed Rate Debt | Secured Fixed Rate Debt | Total(1) | Weighted Average Interest Rate(2) | ||||||||||||||
2016 | $ | — | $ | — | $ | 1,701 | $ | 1,701 | 5.8 | % | |||||||||
2017 | — | 250,000 | 44,865 | 294,865 | 6.2 | % | |||||||||||||
2018 | — | 250,000 | 3,847 | 253,847 | 6.6 | % | |||||||||||||
2019 | — | — | 164,613 | (3) | 164,613 | 5.7 | % | ||||||||||||
2020 | 200,000 | 250,000 | 1,674 | 451,674 | 4.1 | % | |||||||||||||
2021 | — | — | 25,982 | 25,982 | 5.7 | % | |||||||||||||
2022 | 200,000 | — | 799 | 200,799 | 2.3 | % | |||||||||||||
2023 | — | — | 702 | 702 | 5.7 | % | |||||||||||||
2024 | — | — | 743 | 743 | 5.7 | % | |||||||||||||
2025 | — | — | 787 | 787 | 5.7 | % | |||||||||||||
Thereafter | — | 175,000 | (4) | 204 | 175,204 | 5.7 | % | ||||||||||||
$ | 400,000 | $ | 925,000 | $ | 245,917 | $ | 1,570,917 | 5.0 | % |
(1) | Total debt outstanding as of June 30, 2016, including net unamortized premiums and discounts and net unamortized deferred financing costs, equals $1,557,557. |
(2) | Weighted based on current contractual interest rates. |
(3) | We have a mortgage loan with an aggregate outstanding principal balance as of June 30, 2016 of $168,616 secured by 1735 Market Street that matures in 2019. Interest on this loan is payable at a rate equal to a spread over LIBOR, but the interest rate has been fixed by a cash flow hedge which sets the rate at approximately 5.66% per year until December 1, 2016. |
(4) | The 5.75% senior unsecured notes due 2042 are callable at par on or after August 1, 2017. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Tenant improvements(1) | $ | 19,537 | $ | 11,734 | $ | 44,928 | $ | 19,901 | |||||||
Leasing costs(2) | 10,609 | 9,698 | 20,374 | 20,566 | |||||||||||
Building improvements(3) | 7,713 | 5,175 | 14,254 | 7,925 |
(1) | Tenant improvements include capital expenditures to improve tenants’ space. |
(2) | Leasing costs include leasing related costs such as brokerage commissions and legal expenses. |
(3) | Building improvements generally include expenditures to replace obsolete building components and expenditures that extend the useful life of existing assets. Tenant-funded capital expenditures are excluded. |
New Leases | Renewals | Total | |||||||||
Rentable square feet leased during the period | 495 | 307 | 802 | ||||||||
Tenant improvements and leasing commissions | $ | 33,438 | $ | 5,735 | $ | 39,173 | |||||
Tenant improvements and leasing commissions per rentable square foot | $ | 67.56 | $ | 18.68 | $ | 48.85 | |||||
Weighted average lease term by square foot (years) | 10.2 | 5.5 | 8.4 | ||||||||
Total tenant improvements and leasing commissions per rentable square foot per year | $ | 6.64 | $ | 3.42 | $ | 5.84 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Reconciliation to FFO: | |||||||||||||||
Net income | $ | 87,844 | $ | 12,616 | $ | 134,246 | $ | 26,246 | |||||||
Real estate depreciation and amortization | 37,064 | 53,637 | 73,108 | 116,336 | |||||||||||
Loss on asset impairment | 43,736 | 15,258 | 43,736 | 17,162 | |||||||||||
Gain (loss) on sale of properties | (106,375 | ) | 2,708 | (143,041 | ) | (3,160 | ) | ||||||||
FFO attributable to Equity Commonwealth | 62,269 | 84,219 | 108,049 | 156,584 | |||||||||||
Preferred distributions | (6,981 | ) | (6,981 | ) | (13,962 | ) | (13,962 | ) | |||||||
Excess fair value of consideration paid over carrying value of preferred shares | (9,609 | ) | — | (9,609 | ) | — | |||||||||
FFO attributable to Equity Commonwealth common shareholders | $ | 45,679 | $ | 77,238 | $ | 84,478 | $ | 142,622 | |||||||
Reconciliation to Normalized FFO: | |||||||||||||||
FFO available for Equity Commonwealth common shareholders | $ | 45,679 | $ | 77,238 | $ | 84,478 | $ | 142,622 | |||||||
Lease value amortization | 3,867 | 1,793 | 4,988 | 3,267 | |||||||||||
Straight line rent adjustments | (5,599 | ) | (1,864 | ) | (9,430 | ) | (1,683 | ) | |||||||
(Gain) loss on early extinguishment of debt | — | (10,426 | ) | 118 | (9,998 | ) | |||||||||
Minimum cash rent from direct financing lease | — | 2,032 | — | 4,064 | |||||||||||
Interest earned from direct financing lease | — | (119 | ) | — | (260 | ) | |||||||||
Shareholder litigation costs and transition-related expenses | 35 | (215 | ) | 1,137 | 3,257 | ||||||||||
Transition services fee | — | 180 | — | 2,415 | |||||||||||
Gain on sale of securities | — | — | — | (3,080 | ) | ||||||||||
Foreign currency exchange (gain) loss | — | (856 | ) | 5 | (856 | ) | |||||||||
Excess fair value of consideration paid over carrying value of preferred shares | 9,609 | — | 9,609 | — | |||||||||||
Normalized FFO attributable to Equity Commonwealth common shareholders | $ | 53,591 | $ | 67,763 | $ | 90,905 | $ | 139,748 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Rental income | $ | 121,735 | $ | 163,697 | $ | 231,623 | $ | 331,669 | |||||||
Tenant reimbursements and other income | 23,632 | 39,997 | 50,879 | 85,080 | |||||||||||
Operating expenses | (51,393 | ) | (89,686 | ) | (108,651 | ) | (187,557 | ) | |||||||
NOI | $ | 93,974 | $ | 114,008 | $ | 173,851 | $ | 229,192 | |||||||
NOI | $ | 93,974 | $ | 114,008 | $ | 173,851 | $ | 229,192 | |||||||
Depreciation and amortization | (37,331 | ) | (53,637 | ) | (73,582 | ) | (116,336 | ) | |||||||
General and administrative | (12,177 | ) | (10,911 | ) | (25,489 | ) | (27,469 | ) | |||||||
Loss on asset impairment | (43,736 | ) | (15,258 | ) | (43,736 | ) | (17,162 | ) | |||||||
Operating income | 730 | 34,202 | 31,044 | 68,225 | |||||||||||
Interest and other income | 2,204 | 728 | 4,171 | 4,176 | |||||||||||
Interest expense | (21,300 | ) | (27,973 | ) | (43,647 | ) | (57,815 | ) | |||||||
Gain (loss) on early extinguishment of debt | — | 10,426 | (118 | ) | 9,998 | ||||||||||
Foreign currency exchange gain (loss) | — | 856 | (5 | ) | 856 | ||||||||||
Gain (loss) on sale of properties | 106,375 | (2,708 | ) | 143,041 | 3,160 | ||||||||||
Income from continuing operations before income taxes | 88,009 | 15,531 | 134,486 | 28,600 | |||||||||||
Income tax expense | (165 | ) | (2,915 | ) | (240 | ) | (2,354 | ) | |||||||
Net income | $ | 87,844 | $ | 12,616 | $ | 134,246 | $ | 26,246 |
Debt | Principal Balance(1) | Annual Interest Rate(1) | Annual Interest Expense(1) | Maturity | Interest Payment Due | ||||||||||
6.250% senior unsecured notes due 2017 | $ | 250,000 | 6.25 | % | $ | 15,625 | 6/15/2017 | Semi-Annually | |||||||
6.650% senior unsecured notes due 2018 | 250,000 | 6.65 | % | 16,625 | 1/15/2018 | Semi-Annually | |||||||||
5.875% senior unsecured notes due 2020 | 250,000 | 5.88 | % | 14,688 | 9/15/2020 | Semi-Annually | |||||||||
5.750% senior unsecured notes due 2042 | 175,000 | 5.75 | % | 10,063 | 8/1/2042 | (2) | Quarterly | ||||||||
$ | 925,000 | $ | 57,001 |
(1) | The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions and issuance costs at the time we issued these debts. For more information, see Note 5 to the notes to our condensed consolidated financial statements included in Part I, Item I of this Quarterly Report. |
(2) | The 5.75% senior unsecured notes due 2042 are callable at par on or after August 1, 2017. |
Debt | Principal Balance(1) | Annual Interest Rate(1) | Annual Interest Expense(1) | Maturity | Interest Payment Due | ||||||||||
Parkshore Plaza | $ | 41,275 | 5.67 | % | $ | 2,373 | 5/1/2017 | Monthly | |||||||
1735 Market Place | 168,616 | 5.66 | % | (2) | 9,650 | 12/2/2019 | Monthly | ||||||||
206 East 9th Street | 27,281 | 5.69 | % | 1,601 | 1/5/2021 | Monthly | |||||||||
33 Stiles Lane | 2,603 | 6.75 | % | 201 | 3/1/2022 | Monthly | |||||||||
97 Newberry Road | 6,142 | 5.71 | % | 378 | 3/1/2026 | Monthly | |||||||||
$ | 245,917 | $ | 14,203 |
(1) | The principal balance, annual interest rate and annual interest expense are the amounts stated in the applicable contracts. In accordance with GAAP, our carrying values and recorded interest expense may differ from these amounts because of market conditions and issuance costs at the time we assumed or issued these debts. For more information, see Note 5 to the notes to our condensed consolidated financial statements included in Part I, Item I of this Quarterly Report. |
(2) | Interest on this loan is payable at a rate equal to a spread over LIBOR, but the interest rate has been fixed by a cash flow hedge which sets the rate at approximately 5.66% until December 1, 2016. The floating interest rate at June 30, 2016 was 3.09%. |
Impact of Changes in Interest Rates | |||||||||
Total Interest | |||||||||
Interest Rate Per Year(1) | Outstanding Debt | Expense Per Year | |||||||
Term loans at June 30, 2016 | 1.87%/2.27% | $ | 400,000 | $ | 8,260 | ||||
100 basis point increase | 2.87%/3.27% | $ | 400,000 | $ | 12,260 |
(1) | Based on the interest rates and outstanding borrowings of our floating rate debt as of June 30, 2016. |
Exhibit Number | Description |
3.1 | Articles of Amendment and Restatement of Declaration of Trust of the Company, dated July 1, 1994, as amended to date. (Incorporated by reference to the Company’s Current Report on Form 8-K filed August 1, 2014.) |
3.2 | Articles Supplementary, dated October 10, 2006. (Incorporated by reference to the Company’s Current Report on Form 8-K filed October 11, 2006.) |
3.3 | Articles Supplementary, dated May 31, 2011. (Incorporated by reference to the Company’s Current Report on Form 8-K filed May 31, 2011.) |
3.4 | Second Amended and Restated Bylaws of the Company, adopted July 31, 2014. (Incorporated by reference to the Company’s Current Report on Form 8-K filed August 1, 2014.) |
4.1 | Form of Common Share Certificate. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.) |
4.2 | Form of 61/2% Series D Cumulative Convertible Preferred Share Certificate. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.) |
4.3 | Indenture, dated as of July 9, 1997, between the Company and State Street Bank and Trust Company, as Trustee. (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997, File Number 001-09317.) |
4.4 | Supplemental Indenture No. 17, dated as of June 25, 2007, between the Company and U.S. Bank, relating to the Company’s 6.25% Senior Notes due 2017, including form thereof. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, File Number 001-09317.) |
4.5 | Supplemental Indenture No. 18, dated as of September 18, 2007, between the Company and U.S. Bank, relating to the Company’s 6.65% Senior Notes due 2018, including form thereof. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, File Number 001-09317.) |
4.6 | Supplemental Indenture No. 20, dated as of September 17, 2010, between the Company and U.S. Bank, relating to the Company’s 5.875% Senior Notes due 2020, including form thereof. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2010.) |
4.7 | Supplemental Indenture No. 21, dated as of July 25, 2012, between the Company and U.S. Bank, relating to the Company’s 5.75% Senior Notes due 2042, including form thereof. (Incorporated by reference to the Company’s Registration Statement on Form 8-A dated July 25, 2012.) |
10.1 | Form of Restricted Stock Agreement for Trustees under Equity Commonwealth 2015 Equity Incentive Plan. (Incorporated by reference to the Registrant’s Annual Report on Form 8-K filed June 15, 2016, File Number 001-09317.) |
31.1 | Rule 13a-14(a) Certification. (Filed herewith.) |
31.2 | Rule 13a-14(a) Certification. (Filed herewith.) |
32.1 | Section 1350 Certification. (Furnished herewith.) |
101.1 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Cash Flows and (v) related notes to these condensed consolidated financial statements, tagged as blocks of text and in detail. (Filed herewith.) |
EQUITY COMMONWEALTH | ||
By: | /s/ David A. Helfand | |
David A. Helfand | ||
President and Chief Executive Officer | ||
Dated: July 29, 2016 | ||
By: | /s/ Adam S. Markman | |
Adam S. Markman | ||
Executive Vice President, Chief Financial Officer and Treasurer | ||
Dated: July 29, 2016 |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | July 29, 2016 | /s/ David A. Helfand | |
David A. Helfand | |||
President and Chief Executive Officer | |||
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | July 29, 2016 | /s/Adam S. Markman | |
Adam S. Markman | |||
Executive Vice President, Chief | |||
Financial Officer and Treasurer | |||
Certification Pursuant to 18 U.S.C. Sec. 1350 |
1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ David A. Helfand | /s/ Adam S. Markman | |
David A. Helfand | Adam S. Markman | |
President and Chief Executive Officer | Executive Vice President, Chief Financial Officer | |
and Treasurer | ||
Date: July 29, 2016 | ||
Document and Entity Information - shares |
6 Months Ended | |
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Jun. 30, 2016 |
Jul. 25, 2016 |
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Document and Entity Information | ||
Entity Registrant Name | Equity Commonwealth | |
Entity Central Index Key | 0000803649 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 125,533,376 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q2 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Income Statement [Abstract] | ||||
Amortization of debt discounts, premiums and deferred financing fees | $ 949 | $ (177) | $ 1,932 | $ (148) |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
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Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 87,844 | $ 12,616 | $ 134,246 | $ 26,246 |
Other comprehensive income (loss), net of tax: | ||||
Unrealized gain (loss) on derivative instruments and other assets | 780 | 958 | 1,453 | (1,664) |
Foreign currency translation adjustments | 0 | 65,307 | 0 | 48,917 |
Total comprehensive income | $ 88,624 | $ 78,881 | $ 135,699 | $ 73,499 |
Basis of Presentation |
6 Months Ended |
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Jun. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | 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 adequate to make the information presented not misleading. However, 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 (Annual Report) for the year ended December 31, 2015. 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. Reclassifications have been made to the prior years’ 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 allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets and impairment of real estate and intangible assets. Share amounts are presented in whole numbers, except where noted. |
Recent Accounting Pronouncements |
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New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recent Accounting Pronouncements | Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires more timely recognition of credit losses associated with financial assets. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. We are currently in the process of evaluating the impact, if any, the adoption of this ASU will have on our condensed consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, but early adoption is permitted. We are currently in the process of evaluating the impact the adoption of this ASU will have on our condensed consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. The ASU also requires lessees or lessors to capitalize only initial direct costs of leases. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, but early adoption is permitted. We are currently in the process of evaluating the impact the adoption of this ASU will have on our condensed consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. This update is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently in the process of evaluating the impact, if any, the adoption of this ASU will have on our condensed consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We adopted this standard on January 1, 2016 and made the following reclassifications to the prior years' consolidated balance sheet to conform to the current year's presentation (in thousands):
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. We adopted ASU 2014-08 on January 1, 2015, and determined that our 2016 dispositions, 2015 dispositions and properties held for sale as of June 30, 2016 do not individually represent a strategic shift, as defined by the standard, that has or will have a major effect on our operations and financial results. As a result, the 2016 and 2015 dispositions and properties held for sale have not been presented as discontinued operations in the statements of operations. |
Real Estate Properties |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Real Estate Properties | Real Estate Properties During the six months ended June 30, 2016 and 2015, we made improvements, excluding tenant-funded improvements, to our properties totaling $59.2 million and $27.8 million, respectively. Properties Held For Sale: We classify all properties that meet the criteria outlined in the Property, Plant and Equipment Topic of the FASB Accounting Standards Codification (Codification) as held for sale on our condensed consolidated balance sheets. As of December 31, 2015, we had no properties classified as held for sale. As of June 30, 2016, we classified the following properties as held for sale (dollars in thousands):
Summarized balance sheet information for all properties classified as held for sale is as follows (in thousands):
Property Dispositions: During the six months ended June 30, 2016, we sold the following properties (dollars in thousands):
During the year ended December 31, 2015, we disposed of 91 properties (135 buildings) and one land parcel with a combined 18.9 million square feet for an aggregate gross sales price of $2.0 billion, excluding closing costs. |
Real Estate Mortgages Receivable |
6 Months Ended |
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Jun. 30, 2016 | |
Mortgage Loans on Real Estate [Abstract] | |
Real Estate Mortgages Receivable | Real Estate Mortgages Receivable As of June 30, 2016 and December 31, 2015, we had total real estate mortgages receivable with an aggregate carrying value of $8.1 million included in other assets in our condensed consolidated balance sheets. We provided mortgage financing totaling $7.7 million at 6.0% per annum in connection with our sale of three suburban office and industrial properties (18 buildings) in January 2013 in Dearborn, MI; this real estate mortgage requires monthly interest payments and matures on January 24, 2023. We also provided mortgage financing totaling $0.4 million at 6.0% per annum in connection with our sale of a suburban office property in Salina, NY in April 2012. This real estate mortgage requires monthly interest payments and matures on April 30, 2019. We monitor the payment history of the borrowers and have determined that no allowance for losses related to these real estate mortgages receivable were necessary at June 30, 2016, and December 31, 2015. |
Indebtedness |
6 Months Ended |
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Jun. 30, 2016 | |
Debt Disclosure [Abstract] | |
Indebtedness | Indebtedness Unsecured Revolving Credit Facility and Term Loan: We are party to a credit agreement pursuant to which the lenders agreed to provide a $750.0 million unsecured revolving credit facility, a $200.0 million 5-year term loan facility, and a $200.0 million 7-year term loan facility. The revolving credit facility has a scheduled maturity date of January 28, 2019, which maturity date may be extended for up to two additional periods of six months at our option subject to satisfaction of certain conditions and the payment of an extension fee of 0.075% of the aggregate amount available under the revolving credit facility. The 5-year term loan and the 7-year term loan have scheduled maturity dates of January 28, 2020 and January 28, 2022, respectively. The credit agreement permits us to utilize up to $100.0 million of the revolving credit facility for the issuance of letters of credit. Amounts outstanding under the credit agreement generally may be prepaid at any time without premium or penalty, subject to certain exceptions. We have the right to request increases in the aggregate maximum amount of borrowings available under the revolving credit facility and term loans up to an additional $1.15 billion, subject to certain conditions. Borrowings under the 5-year term loan and 7-year term loan will, subject to certain exceptions, bear interest at a LIBOR rate plus a margin of 90 to 180 basis points for the 5-year term loan and 140 to 235 basis points for the 7-year term loan, in each case depending on our credit rating. Borrowings under the revolving credit facility will, subject to certain exceptions, bear interest at a rate equal to, at our option, either a LIBOR rate or a base rate plus a margin of 87.5 to 155 basis points for LIBOR rate advances and 0 to 55 basis points for base rate advances, in each case depending on our credit rating. In addition, we are required to pay a facility fee of 12.5 to 30 basis points, depending on our credit rating, on the borrowings available under the revolving credit facility, whether or not utilized. Borrowings under our revolving credit facility currently bear interest at LIBOR plus a spread, which was 125 basis points as of June 30, 2016. As of June 30, 2016, the interest rate payable on borrowings under our revolving credit facility was 1.72%. As of June 30, 2016, we had no balance outstanding and $750.0 million available under our revolving credit facility and the facility fee as of June 30, 2016 was 0.25%. Our term loans currently bear interest at a rate of LIBOR plus a spread, which was 140 and 180 basis points for the 5-year and 7-year term loan, respectively, as of June 30, 2016. As of June 30, 2016, the interest rates for the amounts outstanding under our 5-year term loan and 7-year term loan were 1.87% and 2.27%, respectively. As of June 30, 2016, we had $200.0 million outstanding under each of our 5-year and 7-year term loans. Debt Covenants: Our public debt indenture and related supplements and our credit agreement contain a number of financial and other covenants, including covenants that restrict our ability to incur indebtedness or to make distributions under certain circumstances and require us to maintain financial ratios and a minimum net worth. At June 30, 2016, we believe we were in compliance with all of our respective covenants under our public debt indenture and related supplements and our credit agreement. Senior Unsecured Notes: On February 16, 2016, we redeemed at par $139.1 million of our 6.25% senior unsecured notes due 2016 and recognized a loss on early extinguishment of debt of $0.1 million from the write-off of an unamortized discount and unamortized deferred financing fees for the six months ended June 30, 2016. Mortgage Notes Payable: At June 30, 2016, five of our properties (8 buildings) with an aggregate net book value of $291.6 million had secured mortgage notes totaling $244.9 million (including net premiums and discounts and unamortized deferred financing fees) maturing from 2017 through 2026. |
Shareholders' Equity |
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Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity | Shareholders’ Equity Common Share Issuances: See Note 10 for information regarding equity issuances related to share-based compensation. Common Share Repurchases: On August 24, 2015, our Board of Trustees approved a common share repurchase plan, which authorizes the repurchase of up to $100.0 million of our outstanding common shares over the twelve month period following the date of authorization. On September 14, 2015, our Board of Trustees authorized the repurchase of up to an additional $100.0 million of our outstanding common shares over the twelve month period following the date of authorization. On March 17, 2016, our Board of Trustees authorized the repurchase of up to an additional $150.0 million of our outstanding common shares over the twelve month period following the date of authorization. During the six months ended June 30, 2016, we purchased and retired 983,789 of our common shares at a weighted average price of $25.94 per share, for a total of $25.5 million. Since the inception of the common share repurchase plan through June 30, 2016, we have purchased and retired a total of 4,394,089 of our common shares at a weighted average price of $25.80 per share, for a total of $113.4 million. We have $236.6 million remaining available under our share repurchase program as of June 30, 2016, of which $86.6 million is scheduled to expire in September 2016. Preferred Share Redemption: 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 common shareholders for the three and six months ended June 30, 2016. Preferred Share Distributions: In 2016, our Board of Trustees declared distributions on our series D preferred shares and series E cumulative redeemable preferred shares to date as follows:
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Cumulative Other Comprehensive Loss |
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Cumulative Other Comprehensive Loss | Cumulative Other Comprehensive Loss The following tables present the amounts recognized in cumulative other comprehensive loss for the three and six months ended June 30, 2016 (in thousands):
The following table presents reclassifications out of cumulative other comprehensive loss for the three and six months ended June 30, 2016 (in thousands):
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Income Taxes |
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Income Taxes | Income Taxes We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and are generally not subject to federal and state income taxes provided we distribute a sufficient amount of our taxable income to our shareholders and meet other requirements for qualifying as a REIT. We are also subject to certain state and local taxes without regard to our REIT status. In prior periods, we were subject to Australian taxes. Our provision for income taxes consists of the following (in thousands):
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Derivative Instruments |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments | Derivative Instruments Risk Management Objective of Using Derivatives We are exposed to certain risks relating to our ongoing business operations, including the effect of changes in interest rates. The only risk we currently manage by using derivative instruments is related to our interest rate risk. We may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. We do not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, we only enter into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which we and our affiliates may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations. Cash Flow Hedges of Interest Rate Risk Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we periodically use interest rate swaps, caps, or other similar instruments as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in cumulative other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2016, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. Amounts reported in cumulative other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next twelve months, we estimate that an additional $1.8 million will be reclassified from cumulative other comprehensive loss as an increase to interest expense. We have interest rate swap agreements to manage our interest rate risk exposure on $168.6 million of mortgage debt due 2019, which require interest at a spread over LIBOR. The interest rate swap agreements utilized by us qualify as cash flow hedges and effectively modify our exposure to interest rate risk by converting our floating interest rate debt to a fixed interest rate basis for this loan through December 1, 2016, thus reducing the impact of interest rate changes on future interest expense. On March 4, 2016, we purchased an interest rate cap with a LIBOR strike price of 2.50%. The interest rate cap, effective April 1, 2016, has a notional amount of $400.0 million and a maturity date of March 1, 2019. As of June 30, 2016, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 (amounts in thousands):
The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2016 and 2015 (amounts in thousands):
Credit-risk-related Contingent Features Our agreements with each of our derivative counterparties contain a provision providing that if we default or are capable of being declared in default on any of our indebtedness, we could also be declared in default on our derivative obligations. As of June 30, 2016, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $2.2 million. As of June 30, 2016, we have not posted any collateral related to these agreements and were not in breach of any agreement provisions. If we had breached any of these provisions, we could have been required to settle our obligations under the agreements at their aggregate termination value of $2.2 million at June 30, 2016. |
Share-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||
Share-Based Compensation | Share-Based Compensation Equity Commonwealth 2015 Omnibus Incentive Plan On January 26, 2016, the Board of Trustees approved an amendment to the 2015 Omnibus Incentive Plan (as amended, the 2015 Incentive Plan) to allow the Compensation Committee (Committee) to authorize in an award agreement a transfer of all or a part of certain equity awards not for value to a “family member” (as defined in the 2015 Incentive Plan). Recipients of the Company’s restricted shares have the same voting rights as any other common shareholder. During the period of restriction, the Company’s unvested restricted shareholders are eligible to receive dividend payments on their shares at the same rate and on the same date as any other common shareholder. Recipients of the Company’s restricted stock units (RSUs) are entitled to receive dividends with respect to the common shares underlying the RSUs if and when the RSUs are earned, at which time the recipient will be entitled to receive an amount in cash equal to the aggregate amount of ordinary cash dividends that would have been paid in respect of the common shares underlying the recipient’s earned RSUs had such common shares been issued to the recipient on the first day of the performance period. To the extent that an award does not vest, the dividends will be forfeited. 2016 Equity Award Activity On June 16, 2016, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the nine independent Trustees $0.1 million in restricted shares as part of their compensation for the 2016-2017 year of service on the Board of Trustees. These awards equated to 3,463 shares per Trustee, for a total of 31,167 shares, valued at $28.88 per share, the closing price of our common shares on the NYSE on that day. These shares vest one year after the date of the award. On January 26, 2016, the Committee approved a grant of 136,623 restricted common shares and 277,386 RSUs at target to the Company’s officers, certain employees and to Mr. Zell, the Chairman of our Board of Trustees, as part of their compensation for fiscal year 2015. The restricted shares are service based awards and vest over a four-year period. The restricted shares were granted on January 26, 2016 and were valued at $26.93 per share, the closing price of our common shares on the New York Stock Exchange (NYSE) on that day. The RSUs are market based awards with a service condition and grant recipients may earn the RSU grants based on the Company’s total shareholder return (TSR) relative to the TSR's for the constituent REITs that comprise the NAREIT Office Index for the performance period of January 26, 2016 - January 26, 2019. Following the end of the performance period on January 26, 2019, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting on January 26, 2019 and the remaining 50% of the earned award vesting on January 26, 2020, subject to the grant recipient’s continued employment. Compensation expense for the RSU awards was determined using a Monte Carlo simulation model and is being recognized ratably from the grant date to the vesting date of each tranche. During the three and six months ended June 30, 2016, due to employee terminations, 539 restricted shares were forfeited with an average price per share value at grant date of $26.82, and 1,094 RSUs were forfeited with an average per share fair value at grant date of $38.72. 2015 Equity Award Activity On June 16, 2015, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the nine independent Trustees $0.1 million in restricted shares as part of their compensation for the 2015-2016 year of service on the Board of Trustees. These awards equated to 3,843 shares per Trustee, for a total of 34,587 shares, valued at $26.02 per share, the closing price of our common shares on the NYSE on that day. These shares vested one year after the date of the award. On January 28, 2015, the Committee approved a grant of 126,319 restricted common shares and 256,467 RSUs at target to the Company’s officers, certain employees and to Mr. Zell, the Chairman of our Board of Trustees, as part of their compensation for fiscal year 2014. The restricted shares are service based awards and vest over a four-year period. The restricted shares were granted on January 28, 2015 and were valued at $26.58 per share, the closing price of our common shares on the NYSE on that day. The RSUs are market based awards with a service condition and grant recipients may earn the RSU grants based on the Company’s total shareholder return (TSR) relative to the TSR's for the constituent REITs that comprise the NAREIT Office Index for the performance period of January 28, 2015 - January 28, 2018. Following the end of the performance period on January 28, 2018, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting on January 28, 2018 and the remaining 50% of the earned award vesting on January 28, 2019, subject to the grant recipient’s continued employment. Compensation expense for the RSU awards was determined using a Monte Carlo simulation model and is being recognized ratably from the grant date to the vesting date of each tranche. Outstanding Equity Awards As of June 30, 2016, the estimated future compensation expense for all unvested restricted share grants was $15.8 million. Compensation expense for the restricted share awards is being recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The weighted average period over which the future compensation expense will be recorded for the restricted shares is approximately 2.5 years. As of June 30, 2016, the estimated future compensation expense for all unvested RSUs was $25.3 million. The weighted average period over which the future compensation expense will be recorded for the RSUs is approximately 2.4 years. The assumptions and fair values for the RSUs granted for the six months ended June 30, 2016 are included in the following table on a per share basis.
During the three months ended June 30, 2016 and 2015, we recorded $4.6 million and $4.1 million, respectively, and during the six months ended June 30, 2016 and 2015, we recorded $9.0 million and $8.1 million, respectively, of compensation expense, net of forfeitures, in general and administrative expense for grants to our Board of Trustees and the Company's employees related to our Plan. At June 30, 2016, 2,358,464 common shares remain available for issuance under the Plan. |
Fair Value of Assets and Liabilities |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities | Fair Value of Assets and Liabilities The table below presents certain of our assets and liabilities measured at fair value during 2016, categorized by the level of inputs used in the valuation of each asset and liability (dollars in thousands):
Effective Portion of Interest Rate Swap and Cap Contracts The fair value of our interest rate swap and cap contracts is determined using the net discounted cash flows of each derivative based on the market based interest rate curve (level 2 inputs) and adjusted for our credit spread and the actual and estimated credit spreads of the counterparties (level 3 inputs). Although we have determined that the majority of the inputs used to value our derivatives fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties. As of June 30, 2016, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified as level 2 inputs in the fair value hierarchy. Derivative Liability On July 31, 2014, our shareholders voted to approve the reimbursement of expenses incurred by Related Fund Management, LLC and Corvex Management LP (Related/Corvex) (see Note 14 for additional information). Approximately $16.7 million was paid during the year ended December 31, 2014. Approximately $8.4 million was to be reimbursed only if the average closing price of our common shares was at least $26.00 (as adjusted for any share splits or share dividends) during the one year period after the date on which the reimbursement was approved by shareholders, and the remaining approximately $8.4 million will be reimbursed only if the average closing price of our common shares is at least $26.00 (as adjusted for any share splits or share dividends) during the one year period between the first and second anniversaries of the date on which the reimbursement was approved by shareholders. The average closing price of our common shares was at least $26.00 during the first one year period after the date on which the reimbursement was approved by shareholders, and as a result, in August 2015 we paid $8.4 million to Related/Corvex. The potential future reimbursement of $8.4 million for the second one year period represents a derivative instrument as codified in ASC 815 Derivatives and Hedging which requires the potential future reimbursement to be recorded at fair value at each reporting date. The fair value of the derivative liability as of June 30, 2016 and December 31, 2015 was $8.4 million and $7.2 million, respectively. We recognized expense of $42,000 and $1.2 million for the three and six months ended June 30, 2016, respectively, which was recorded in general and administrative expenses in our condensed consolidated statement of operations for such periods. The valuation techniques and significant unobservable inputs used for our level 3 fair value measurement at June 30, 2016 were as follows:
Properties Held and Used As part of our disposition plan, and pursuant to our accounting policy, in 2016, we evaluated the recoverability of the carrying values of each of the real estate assets that comprised our portfolio and determined that due to the shortening of the expected periods of ownership as a result of the disposition plan and current estimates of market value, it was necessary to reduce the net book value of a portion of the real estate assets in our portfolio to their estimated fair values. We anticipate the potential disposition of certain properties prior to the end of their remaining useful lives. As a result, we recorded an impairment charge related to 111 Monument Circle, 101-115 W. Washington Street and 100 East Wisconsin Avenue of $43.7 million for the three and six months ended June 30, 2016 in accordance with our impairment analysis procedures. We determined these impairments based on third party offer prices and independent third party broker information, which are level 2 inputs according to the fair value hierarchy established in ASC 820. We reduced the aggregate carrying value of these properties from $308.6 million to their estimated fair value of $264.9 million. We evaluated each of our properties and determined there were no additional valuation adjustments necessary at June 30, 2016. Financial Instruments In addition to the assets and liabilities described in the above table, our financial instruments include our cash and cash equivalents, real estate mortgages receivable, restricted cash, senior unsecured debt and mortgage notes payable. At June 30, 2016 and December 31, 2015, the fair value of these additional financial instruments were not materially different from their carrying values, except as follows (in thousands):
The fair values of our senior notes and mortgage notes payable are based on estimates using discounted cash flow analyses and currently prevailing interest rates adjusted by credit risk spreads (level 3 inputs). Our cash and cash equivalents consists of cash maintained in time deposits, depository accounts and money market accounts. From time-to-time we may also invest in various U.S. government securities. We continually monitor the credit ratings of the financial institutions holding our deposits to minimize our exposure to credit risk. Throughout the year, we have cash balances in excess of federally insured limits deposited with various financial institutions. We do not believe we are exposed to any significant credit risk on cash and cash equivalents. Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable; however, as of June 30, 2016, no single tenant of ours is responsible for more than 4.5% of our total annualized rents. Our derivative financial instruments, including interest rate swaps and cap, are entered with major financial institutions and we monitor the amount of credit exposure to any one counterparty. |
Earnings Per Common Share |
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Earnings Per Common Share | Earnings Per Common Share The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands except per share amounts):
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Segment Information |
6 Months Ended |
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Jun. 30, 2016 | |
Segment Reporting [Abstract] | |
Segment Information | Segment Information Our primary business is the ownership and operation of office properties, and we currently have one reportable segment. Due to significant dispositions during 2015, during the fourth quarter of 2015, we changed the composition of our operating segments from two reportable segments (central business district properties and suburban properties) to one reportable segment. This change was made based on the financial information reviewed and used by the chief operating decision maker to make operating decisions, assess performance, develop strategy and allocate capital resources. More than 90% of our revenues are from office properties. |
Related Person Transactions |
6 Months Ended |
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Jun. 30, 2016 | |
Related Party Transactions [Abstract] | |
Related Person Transactions | Related Person Transactions The following discussion includes a description of our related person transactions for the six months ended June 30, 2016 and 2015. Certain of these related person transactions, and their approvals, occurred prior to the election of our new Board of Trustees at the special meeting of shareholders held on May 23, 2014 (Special Meeting) and the appointment of our current executive officers following the Special Meeting. The disclosure below under “—Transactions with Prior Related Persons” describes our transactions and approvals with our prior related persons. Related Person Transactions Following the Special Meeting: Equity Group Investments and associated entities: Effective July 20, 2015, we entered into a lease with Two North Riverside Plaza Joint Venture Limited Partnership, an entity associated with Mr. Zell, our Chairman, to occupy office space on the twentieth and twenty-first floors of Two North Riverside Plaza in Chicago, Illinois (20th/21st Floor Office Lease). The initial term of the lease is approximately five years, with one 5-year renewal option. The lease payment is approximately $0.5 million for the initial year beginning in 2016, and $0.8 million to $0.9 million annually thereafter. This lease was approved by the Audit Committee of the Board of Trustees on June 16, 2015. We recently completed improvements to the office space utilizing the $0.7 million tenant improvement allowance provided for by the lease. In connection with the 20th/21st Floor Office Lease, effective February 1, 2016, we entered into a lease with Two North Riverside Plaza Joint Venture Limited Partnership, an entity associated with Mr. Zell, our Chairman, for storage space in the basement of Two North Riverside Plaza, in Chicago, Illinois. The lease expires December 31, 2020, however each party has the right to terminate on 30 days' prior written notice, and the payment is nominal. This lease was approved by the Audit Committee of the Board of Trustees. Effective June 1, 2014, we entered into a one-year license agreement with Equity Group Investments, a private investment firm (Equity Group), to use office space on the sixth floor at Two North Riverside Plaza in Chicago, Illinois. The license fee was $0.2 million for the initial year. The license fee included the non-exclusive use of additional areas on the sixth floor (such as conference rooms and common areas), certain administrative services (such as mail room services and reception desk staffing), office equipment, office furniture, supplies, licensee’s share of building operating expenses and real estate taxes and access to one parking space. Mr. Zell, our Chairman, is the Chairman and Chief Executive Officer of Equity Group, and Mr. Helfand, our President and Chief Executive Officer, is the Co-President of Equity Group. This license agreement was approved by the Audit Committee of the Board of Trustees and was scheduled to expire on May 31, 2015. On May 4, 2015, the Audit Committee of the Board of Trustees approved an agreement to extend the term of the license agreement through November 30, 2015. The license fee payment is approximately $0.1 million for the extended term. On November 2, 2015, the Audit Committee of the Board of Trustees approved an agreement to extend the term of the license agreement through January 31, 2016, for a maximum license fee payment of approximately $0.1 million. The extension of the license agreement was terminated as of December 30, 2015. Effective July 31, 2014, we entered into a sublease with Equity Residential Management, L.L.C. to occupy office space on the tenth floor of Two North Riverside Plaza in Chicago, Illinois. Equity Residential Management, L.L.C. leases the space from Two North Riverside Plaza Joint Venture Limited Partnership, an entity associated with Mr. Zell, our Chairman. The initial term of the sublease was approximately seven months commencing on or about October 22, 2014, expiring on May 31, 2015, with one 3-month renewal option. The sublease payment was approximately $0.2 million for the initial term. This sublease was approved by the Audit Committee of the Board of Trustees. On May 4, 2015, the Audit Committee of the Board of Trustees approved an agreement to extend the term of the sublease through November 30, 2015. The sublease payment was approximately $0.2 million for the extended term. On November 2, 2015, the Audit Committee of the Board of Trustees approved an agreement to extend the term of the license agreement through January 31, 2016, for a maximum sublease payment of approximately $0.1 million. The extension of the sublease agreement was terminated as of December 30, 2015. Related/Corvex: On July 31, 2014, at the reconvened session of our 2014 annual meeting of shareholders, our shareholders voted to approve the reimbursement of approximately $33.5 million of expenses incurred by Related/Corvex since February 2013 in connection with their consent solicitations to remove our former Trustees and elect the new Board of Trustees and to engage in related litigation. Approximately $16.7 million was paid during the year ended December 31, 2014. Approximately $8.4 million was to be reimbursed only if the average closing price of our common shares is at least $26.00 (as adjusted for any share splits or share dividends) during the one year period after the date on which the reimbursement was approved by shareholders, and the remaining approximately $8.4 million will be reimbursed only if the average closing price of our common shares is at least $26.00 (as adjusted for any share splits or share dividends) during the one year period between the first and second anniversaries of the date on which the reimbursement was approved by shareholders. The average closing price of our common shares was at least $26.00 during the first one year period after the date on which the reimbursement was approved by shareholders, and as a result, in August 2015 we paid $8.4 million to Related/Corvex. Transactions with Prior Related Persons: Termination and Cooperation Agreement: On September 30, 2014, we entered into a termination and cooperation agreement (Cooperation Agreement) with Reit Management & Research LLC (RMR) and RMR Australia Asset Management Pty Ltd (together, Former Manager). Under the terms of the agreement, the existing business and property management agreements with RMR terminated effective September 30, 2014. Pursuant to the Cooperation Agreement, through February 28, 2015, Former Manager agreed to use best efforts to assist us in the transition of our management and operations. We paid Former Manager $1.2 million per month for transition services from October 1, 2014 to February 28, 2015, which included continued management and other services for the Australian assets pursuant to the Australian Management Agreement. Beginning March 1, 2015, we agreed to pay Former Manager $0.1 million per month until we no longer required such services or until the Australia Management Agreement was terminated, which was terminated in the third quarter of 2015, effective October 31, 2015. There is no future obligation to pay any fees to Former Manager. |
Subsequent Events |
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Jun. 30, 2016 | |
Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events In July 2016, in a series of transactions, we sold four properties (four buildings), with 1,369,902 square feet for $265.0 million, excluding closing costs. These properties were classified as held for sale as of June 30, 2016 (see Note 3). In July 2016, we sold Sky Park Centre (two buildings), with 63,485 square feet for $13.7 million, excluding closing costs and Raintree Industrial Park (12 buildings), with 563,182 square feet for $11.5 million, excluding closing costs. |
Basis of Presentation (Policies) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | 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 adequate to make the information presented not misleading. However, 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 (Annual Report) for the year ended December 31, 2015. 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. Reclassifications have been made to the prior years’ 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 allowance for doubtful accounts, purchase price allocations, useful lives of fixed assets and impairment of real estate and intangible assets. Share amounts are presented in whole numbers, except where noted. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires more timely recognition of credit losses associated with financial assets. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. Early adoption is permitted for fiscal years, and interim periods within those years, beginning after December 15, 2018. We are currently in the process of evaluating the impact, if any, the adoption of this ASU will have on our condensed consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, but early adoption is permitted. We are currently in the process of evaluating the impact the adoption of this ASU will have on our condensed consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. The ASU also requires lessees or lessors to capitalize only initial direct costs of leases. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, but early adoption is permitted. We are currently in the process of evaluating the impact the adoption of this ASU will have on our condensed consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. This update is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently in the process of evaluating the impact, if any, the adoption of this ASU will have on our condensed consolidated financial statements. In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We adopted this standard on January 1, 2016 and made the following reclassifications to the prior years' consolidated balance sheet to conform to the current year's presentation (in thousands):
In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. We adopted ASU 2014-08 on January 1, 2015, and determined that our 2016 dispositions, 2015 dispositions and properties held for sale as of June 30, 2016 do not individually represent a strategic shift, as defined by the standard, that has or will have a major effect on our operations and financial results. As a result, the 2016 and 2015 dispositions and properties held for sale have not been presented as discontinued operations in the statements of operations. |
Recent Accounting Pronouncements (Tables) |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Pronouncement | We adopted this standard on January 1, 2016 and made the following reclassifications to the prior years' consolidated balance sheet to conform to the current year's presentation (in thousands):
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Real Estate Properties (Tables) |
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Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Properties Held for Sale and Balance Sheet Information for all Properties Classified as Held for sale | As of June 30, 2016, we classified the following properties as held for sale (dollars in thousands):
Summarized balance sheet information for all properties classified as held for sale is as follows (in thousands):
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Summary of Properties Sold and Income Statement Information for Properties Disposed of | During the six months ended June 30, 2016, we sold the following properties (dollars in thousands):
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Shareholders' Equity (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity Note [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Declared Distributions | In 2016, our Board of Trustees declared distributions on our series D preferred shares and series E cumulative redeemable preferred shares to date as follows:
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Cumulative Other Comprehensive Loss (Tables) |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Amounts Recognized in Cumulative Other Comprehensive Loss | The following tables present the amounts recognized in cumulative other comprehensive loss for the three and six months ended June 30, 2016 (in thousands):
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Schedule of Reclassifications Out of Cumulative Other Comprehensive Loss | The following table presents reclassifications out of cumulative other comprehensive loss for the three and six months ended June 30, 2016 (in thousands):
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Income Taxes (Tables) |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Provision for Income Taxes | Our provision for income taxes consists of the following (in thousands):
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Derivative Instruments (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Outstanding Interest Rate Derivatives Designated as Cash Flow Hedges of Interest Rate Risk | As of June 30, 2016, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
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Schedule of Fair Value of Derivative Financial Instruments | The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 (amounts in thousands):
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Schedule of Gain or Loss Recognized on Interest Rate Derivatives Designated as Cash Flow Hedges | The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and six months ended June 30, 2016 and 2015 (amounts in thousands):
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Share-Based Compensation (Tables) |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||
Restricted stock units | |||||||||||||||||||||||||||||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||||||||||||||||||||||||||||
Summary of Assumptions and Fair Values for Restricted Stock Units Granted in the Period | The assumptions and fair values for the RSUs granted for the six months ended June 30, 2016 are included in the following table on a per share basis.
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Fair Value of Assets and Liabilities (Tables) |
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Assets and Liabilities Measured at Fair Value | The table below presents certain of our assets and liabilities measured at fair value during 2016, categorized by the level of inputs used in the valuation of each asset and liability (dollars in thousands):
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Schedule of Valuation Techniques and Significant Unobservable Inputs used for Level 3 Fair Value Measurements | The valuation techniques and significant unobservable inputs used for our level 3 fair value measurement at June 30, 2016 were as follows:
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Schedule of Fair Value and Carrying Value of Financial Instruments | At June 30, 2016 and December 31, 2015, the fair value of these additional financial instruments were not materially different from their carrying values, except as follows (in thousands):
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Earnings Per Common Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Computation of Basic and Diluted Earnings Per Share | The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands except per share amounts):
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Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
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New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Other assets, net | $ 140,215 | $ 144,341 |
Senior unsecured debt, net | 1,312,707 | 1,450,606 |
Mortgage notes payable, net | $ 244,850 | 246,510 |
ASU 2015-03 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Other assets, net | 144,341 | |
Senior unsecured debt, net | 1,450,606 | |
Mortgage notes payable, net | 246,510 | |
ASU 2015-03 | Originally Reported | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Other assets, net | 157,549 | |
Senior unsecured debt, net | 1,460,592 | |
Mortgage notes payable, net | 249,732 | |
ASU 2015-03 | Effect of Change | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Other assets, net | (13,208) | |
Senior unsecured debt, net | (9,986) | |
Mortgage notes payable, net | $ (3,222) |
Real Estate Properties - Narrative (Details) $ in Thousands |
1 Months Ended | 6 Months Ended | 12 Months Ended | |
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Jan. 31, 2013
building
|
Jun. 30, 2016
USD ($)
ft²
building
|
Jun. 30, 2015
USD ($)
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Dec. 31, 2015
USD ($)
ft²
land_parcel
building
property
|
|
Real Estate Properties [Line Items] | ||||
Real estate improvements | $ | $ 59,200 | $ 27,800 | ||
Number of properties held for sale | property | 0 | |||
Number of buildings sold | building | 18 | |||
Disposed of by Sale | ||||
Real Estate Properties [Line Items] | ||||
Number of properties sold | property | 91 | |||
Number of buildings sold | building | 31 | 135 | ||
Number of land parcels | land_parcel | 1 | |||
Square Footage (in sqft) | ft² | 2,039,997 | 18,900,000 | ||
Gross sales price | $ | $ 413,765 | $ 2,000,000 |
Real Estate Properties - Summary of Balance Sheet Information for all Properties Classified as Held for sale (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
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Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Liabilities related to properties held for sale | $ 1,687 | $ 0 |
Held-for-sale | ||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | ||
Real estate properties | 136,299 | |
Acquired real estate leases | 1,751 | |
Other assets, net | 12,716 | |
Properties held for sale | 150,766 | |
Accounts payable and accrued expenses | 674 | |
Assumed real estate lease obligations | 403 | |
Rent collected in advance | 266 | |
Security deposits | 344 | |
Liabilities related to properties held for sale | $ 1,687 |
Real Estate Mortgages Receivable - Narrative (Details) |
1 Months Ended | |||
---|---|---|---|---|
Jan. 31, 2013
USD ($)
building
property
|
Apr. 30, 2012
USD ($)
|
Jun. 30, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
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Mortgage Loans on Real Estate [Abstract] | ||||
Total real estate mortgage receivable included in other assets, carrying value | $ 8,100,000 | $ 8,100,000 | ||
Mortgage financing related to sale of suburban property | $ 7,700,000 | $ 400,000 | ||
Interest rate on real estate mortgage receivable, percent | 6.00% | 6.00% | ||
Number of properties sold or agreed to be sold | property | 3 | |||
Number of buildings sold | building | 18 | |||
Allowance for mortgage receivables | $ 0 | $ 0 |
Shareholders' Equity - Schedule of Declared Distributions (Details) - $ / shares |
May 16, 2016 |
Apr. 15, 2016 |
Feb. 16, 2016 |
Jan. 26, 2016 |
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Series D | ||||
Class of Stock [Line Items] | ||||
Dividend declared (in USD per share) | $ 0.40625 | $ 0.40625 | ||
Dividends paid (in USD per share) | $ 0.40625 | $ 0.40625 | ||
Series E | ||||
Class of Stock [Line Items] | ||||
Dividend declared (in USD per share) | $ 0.453125 | $ 0.453125 | ||
Dividends paid (in USD per share) | $ 0.453125 | $ 0.453125 |
Cumulative Other Comprehensive Loss - Schedule of Amounts Recognized in Cumulative Other Comprehensive Loss (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2016 |
Jun. 30, 2016 |
|
Amounts recognized in cumulative other comprehensive income (Loss) by component | ||
Beginning of Period | $ (3,687) | |
Balance as of June 30, 2016 | $ (2,234) | (2,234) |
Unrealized Loss on Derivative Instruments | ||
Amounts recognized in cumulative other comprehensive income (Loss) by component | ||
Beginning of Period | (3,014) | (3,687) |
Other comprehensive loss before reclassifications | (326) | (771) |
Amounts reclassified from cumulative other comprehensive loss to net income | 1,106 | 2,224 |
Net current period other comprehensive income | 780 | 1,453 |
Balance as of June 30, 2016 | $ (2,234) | $ (2,234) |
Cumulative Other Comprehensive Loss - Schedule of Reclassifications Out of Cumulative Other Comprehensive Loss (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Reclassifications out of cumulative other comprehensive income (Loss) | ||||
Interest expense | $ 21,300 | $ 27,973 | $ 43,647 | $ 57,815 |
Amounts Reclassified from Cumulative Other Comprehensive Loss to Net Income | Interest rate swap contracts | ||||
Reclassifications out of cumulative other comprehensive income (Loss) | ||||
Interest expense | $ 1,106 | $ 2,224 |
Income Taxes - Schedule of Provision for Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Current: | ||||
State | $ 165 | $ 90 | $ 240 | $ 180 |
Federal | 0 | 525 | 0 | 525 |
Foreign | 0 | 2,450 | 0 | 2,404 |
Current income tax expense (benefit) | 165 | 3,065 | 240 | 3,109 |
Deferred: | ||||
Foreign | 0 | (150) | 0 | (755) |
Deferred income tax expense (benefit) | 0 | (150) | 0 | (755) |
Income tax expense | $ 165 | $ 2,915 | $ 240 | $ 2,354 |
Derivative Instruments - Narrative (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Mar. 04, 2016 |
|
Derivative [Line Items] | ||
Aggregate termination value | $ 2,200 | |
Interest rate swap | ||
Derivative [Line Items] | ||
Fair value of derivatives in a net liability position | 2,200 | |
Cash flow hedging | Designated as hedging instrument | ||
Derivative [Line Items] | ||
Estimated gain (loss) reclassification from OCI to income | 1,800 | |
Cash flow hedging | Designated as hedging instrument | Interest rate swap | ||
Derivative [Line Items] | ||
Amount of hedged item | $ 168,600 | |
Derivative, variable interest rate, percent | LIBOR | |
Notional Amount (in thousands) | $ 168,616 | |
Cash flow hedging | Designated as hedging instrument | Interest rate cap | ||
Derivative [Line Items] | ||
Notional Amount (in thousands) | $ 400,000 | |
LIBOR | Interest rate cap | ||
Derivative [Line Items] | ||
Derivative, cap interest rate, percent | 2.50% |
Derivative Instruments - Schedule of Outstanding Interest Rate Derivatives Designated as Cash Flow Hedges of Interest Rate Risk (Details) - Cash flow hedging - Designated as hedging instrument $ in Thousands |
Jun. 30, 2016
USD ($)
financial_instrument
|
---|---|
Interest rate swap | |
Derivative [Line Items] | |
Number of Instruments | financial_instrument | 2 |
Notional Amount (in thousands) | $ | $ 168,616 |
Interest rate cap | |
Derivative [Line Items] | |
Number of Instruments | financial_instrument | 1 |
Notional Amount (in thousands) | $ | $ 400,000 |
Derivative Instruments - Schedule of Fair Value of Derivative Financial Instruments (Details) - Cash flow hedging - Designated as hedging instrument - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Interest rate swap | Accounts payable and accrued expenses | ||
Derivatives, Fair Value [Line Items] | ||
Interest Rate Derivative Designated as Hedging Instrument | $ (1,828) | $ (3,687) |
Interest rate cap | Other Assets | ||
Derivatives, Fair Value [Line Items] | ||
Interest Rate Derivative Designated as Hedging Instrument | $ 117 | $ 0 |
Derivative Instruments - Schedule of Gain or Loss Recognized on Interest Rate Derivatives Designated as Cash Flow Hedges (Details) - Cash flow hedging - Designated as hedging instrument - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Derivative | ||||
Balance at beginning of period | $ (3,014) | $ (6,921) | $ (3,687) | $ (7,462) |
Amount of loss recognized in cumulative other comprehensive loss | (326) | (274) | (771) | (960) |
Amount of loss reclassified from cumulative other comprehensive loss into interest expense | 1,106 | 1,232 | 2,224 | 2,459 |
Unrealized gain on derivative instruments | 780 | 958 | 1,453 | 1,499 |
Balance at end of period | $ (2,234) | $ (5,963) | $ (2,234) | $ (5,963) |
Share-Based Compensation - Summary of Assumptions and Fair Values for Restricted Stock Units Granted in the Period (Details) - Restricted stock units |
6 Months Ended |
---|---|
Jun. 30, 2016
$ / shares
| |
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract] | |
Fair value of RSUs granted (in dollars per share) | $ 38.80 |
Expected term (years) | 4 years |
Expected volatility | 0.00% |
Expected dividend yield | 1.86% |
Risk-free rate | 1.07% |
Fair Value of Assets and Liabilities - Schedule of Valuation Techniques and Significant Unobservable Inputs Used for Level 3 Fair Value Measurements (Details) - Derivative liability - Level 3 - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Fair Value of Assets and Liabilities | ||
Derivative liability | $ 8,375 | $ 7,200 |
Risk-free rate | 0.20% | |
Volatility | 20.00% |
Fair Value of Assets and Liabilities - Schedule of Fair Value and Carrying Value of Financial Instruments (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Carrying Amount | ||
Fair value of financial instruments | ||
Senior unsecured debt and mortgage notes payable, net | $ 1,557,557 | $ 1,697,116 |
Fair Value | ||
Fair value of financial instruments | ||
Senior unsecured debt and mortgage notes payable, net | $ 1,623,934 | $ 1,749,211 |
Earnings Per Common Share - Schedule of Computation of Basic and Diluted Earnings Per Share (Footnote) (Details) - Restricted stock units - shares |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items] | ||||
RSUs vested (in shares) | 0 | |||
Common shares issued (in shares) | 1,429,000 | 803,000 | 1,429,000 | 803,000 |
Weighted average common shares outstanding — diluted (in shares) | 1,429,000 | 804,000 | 1,555,000 | 491,000 |
Segment Information - Narrative (Details) - segment |
6 Months Ended | 9 Months Ended |
---|---|---|
Jun. 30, 2016 |
Sep. 30, 2015 |
|
Segment Reporting [Abstract] | ||
Number of reportable segments | 1 | 2 |
Percentage of revenue from office properties (more than) | 90.00% |
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