Some of the statements contained in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the federal securities laws including, but not limited to, statements pertaining to our capital resources, portfolio performance, results of operations or anticipated market conditions. Any forward-looking statements contained in this Annual Report on Form 10-K are intended to be made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Any forward-looking statements contained in this Annual Report on Form 10-K reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could cause our future results to differ materially from any forward-looking statements, see the section entitled “Risk Factors” in this Annual Report on Form 10-K.

References in this Annual Report on Form 10-K to "the Company", "EQC", "we", "us" or "our", refer to Equity Commonwealth and its consolidated subsidiaries as of December 31, 2018,2019, unless the context indicates otherwise.

The Company beneficially owned 99.96% of the outstanding shares of beneficial interest, designated as units, in the Operating Trust, (OP Units)or OP Units, as of December 31, 2018,2019, and the Company is the sole trustee of the Operating Trust.  As the sole trustee, the Company generally has the power under the declaration of trust of the Operating Trust to manage and conduct the business of the Operating Trust, subject to certain limited approval and voting rights of other holders of OP Units.

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

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

properties or businesses we acquire may be subject to unknown liabilities without any recourse or with only limited recourse, such as liabilities for clean-up of environmental contamination, claims by customers, vendors or other persons dealing with the former owners of the properties or business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.properties or businesses. In addition, after our acquisition of a property and/or business, the market in which the acquired property or business is located may experience unexpected changes that adversely affect the property'sproperty or business’ value. The occupancy of properties that we acquire may decline during our ownership, and rents that are in effect at the time a property is acquired may decline thereafter. Also, our property operating and capital costs for acquisitions and/or investments may be higher than we anticipate and acquisitions ofin properties and/or businesses may not yield the returns we expect and may result in shareholder dilution. We may not integrate properties or businesses we acquire successfully or

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

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

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

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our

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

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

Any distributions will be made at the discretion of our Board of Trustees and will depend upon various factors that our Board deems relevant. We currently hold a significant amount of cash and marketable securities ($2.72.8 billion as of December 31, 2018)2019) which enables us to pursue acquisitions and/or investments and, as a result, we may elect not to distribute any of our existing cash to our shareholders. For 2019,2020, the timing and amount of any potential distributions in connection with gains recognized upon dispositions of properties and/or net income from operations are uncertain. To the extent that our actual distributions in 20192020 are less than expected by investors, it could materially and adversely affect our company.

Our assets include a significant amount of cash that we investheld in investments that are intended to preserve principal value and maintain a high degree of liquidity while providing current income. We currently invest the majority of our cash in bank

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

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

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

To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% (25% for taxable years beginning before January 1, 2018) of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries, (TRS)or TRS, and, effective for our taxable year that began on January 1, 2016 and all future taxable years, no more than 25% of the value of our assets can be represented by debt instruments issued by “publicly offered REITs.” If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate from our portfolio, or

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

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

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

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

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

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

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

The timing and amount of future distributions is determined at the discretion of our Board of Trustees and will depend upon various factors that our Board of Trustees deems relevant, including, but not limited to, our results of operations, our financial condition, debt and equity capital available to us, our expectations of our future capital requirements and operating performance, including our FFO, our Normalized FFO, and our cash available for distribution, restrictive covenants in our financial or other contractual arrangements (including those in our senior notes indenture), tax law requirements to qualify for taxation as and to remain a REIT, restrictions under Maryland law and our expected needs and availability of cash to pay our obligations and fund acquisitions. If our taxable income exceeds our net operating loss carryforwards, we will likely be required to make a distribution. Whether we will make a distribution in 20192020 and the timing of any such distribution remains uncertain. There can be no assurance that we will pay distributions in the future.

On March 15, 2017,14, 2018, 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. In March 2018,2019, this share repurchase authorization, of which $81.0$130.9 million was not utilized, expired. On March 14, 2018,13, 2019, our Board of Trustees authorized the repurchase of up to an additional $150.0 million of our outstanding common shares over the twelve month period following the date of authorization.

During the year ended December 31, 2018, we purchased and retired 2,970,209 of our common shares at a weighted average price of $29.67 per share for a total investment of $88.1 million, of which $69.0 million was under the March 2017 authorization and $19.1 million was under the March 2018 authorization. During the year ended December 31, 2017,2019, we did not purchase any common shares under our common share repurchase program. The $130.9$150.0 million of remaining authorization available under our share repurchase program as of December 31, 20182019 is scheduled to expire on March 14, 2019.13, 2020.

During the year ended December 31, 2018,2019, certain of our employees surrendered common shares owned by them to satisfy their statutory tax withholding obligations in connection with the vesting of restricted common shares and restricted stock units. 

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

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

At December 31, 2018,2019, our portfolio consisted of 10seven properties (18(12 buildings), with a combined 5.12.5 million square feet forand a total undepreciated book value of $1.1 billion$662.1 million, and a depreciated book value of $0.8 billion. We currently have three properties totaling 2.7 million square feet for sale.$459.4 million. As of December 31, 2019, we had $2.8 billion of cash and cash equivalents.

As of December 31, 2018,2019, our overall portfolio was 94.8%94.7% leased. During the year ended December 31, 2018,2019, we entered into leases, excluding leasing activity for assets during the quarter in which the asset was sold or classified as held for sale, for 1,145,000617,000 square feet, including lease renewals for 268,000383,000 square feet and new leases for 877,000234,000 square feet.  Leases entered into during the year ended December 31, 2018,2019, including both lease renewals and new leases, had weighted average cash rental rates that were approximately 3.2%2.5% higher than prior rental rates for the same space and weighted average GAAP rental rates that were approximately 15.2%11.7% higher than prior rental rates for the same space.  The change in GAAP rents is different than the change in cash rents due to differences in the amount of rent abatements, the magnitude and timing of contractual rent increases over the lease term, and the yearslength of term for the newly executed leases compared to the prior leases.

 

During the year ended December 31, 2019, we sold three properties (six buildings) with a combined 2.7 million square feet for an aggregate gross sales price of $812.1 million, excluding credits and closing costs. During the year ended December 31, 2018, we sold seven properties (nine buildings) with a combined 4.4 million square feet for an aggregate gross sales price of $1.0 billion, excluding credits and closing costs. During the year ended December 31, 2017,2019, we sold 16 properties (37 buildings) and two land parcels with a combined 6.6 million square feet for an aggregate gross sales price of $862.6 million, excluding credits and closing costs. We have generated significant proceeds from our dispositions to date and have cash and cash equivalents and marketable securities of $2.7 billion as of December 31, 2018. During the year ended December 31, 2018, we repaid an aggregate of $400.0 million in outstanding term loans and redeemed an aggregate of $175.0$250.0 million of outstanding unsecured notes. Additionally, in January 2019, certainFebruary 2020, we sold our 0.3 million square foot property at 109 Brookline Avenue for a gross sale price of our subsidiaries$270.0 million, and in February 2020, we entered into a contract to sell 100% of the equity interests in the fee simple owner of our 1.30.4 million square foot property at 1735 Market Street,333 108th Avenue NE for a salesgross sale price of $451.6$401.5 million. We currently have one other property totaling 0.2 million excluding credits and closing costs.square feet for sale. For more information regarding these transactions, see Notes 3 and 2019 of the Notes to Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. As we have sold assets, our income from operations has also declined.

On September 26, 2018,24, 2019, our Board of Trustees declared a special, one-time cash distribution of $2.50$3.50 per common share/unit to shareholders/unitholders of record on October 9, 2018.7, 2019. On October 23, 2018,2019, we paid this distribution to such shareholders/unitholders in the aggregate amount of $304.7$427.7 million.

We have engaged CBRE, Inc. (CBRE) to provide property management services for our properties. We pay CBRE a property-by-property management fee and may engage CBRE from time-to-time to perform project management services, such

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

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

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

Leased occupancy data for 20182019 and 20172018 is as follows (square feet in thousands):

The weighted average lease term based on square feet for leases entered into during the year ended December 31, 20182019 was 11.34.9 years.  Commitments made for leasing expenditures and concessions, such as tenant improvements and leasing commissions, for leases entered into during the year ended December 31, 20182019, excluding leasing activity for assets during the quarter in which the asset was sold or classified as held for sale, totaled $98.7$25.5 million, or $86.22$41.30 per square foot on average (approximately $7.63$8.37 per square foot per year of the lease term).

 

As of December 31, 2018,2019, approximately 10.0%6.5% of our leased square feet and 11.4%7.5% of our annualized rental revenue, determined as set forth below, are included in leases scheduled to expire through December 31, 2019.2020.  Renewal and new leases and rental rates at which available space may be relet in the future will depend on prevailing market conditions at the times these leases are negotiated.  We believe that the in-place cash rents for leases expiring in 2019,2020, that have not been backfilled, are slightly abovebelow market. Lease expirations by year, as of December 31, 2018,2019, are as follows (square feet and dollars in thousands):