SECURITIES AND EXCHANGE COMMISSION



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

~~(312)~~

~~646-2800~~

(Registrant’s Telephone Number, Including Area Code)

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

Title Of Each Class

Trading Symbol

Name of Each Exchange On Which Registered

Common Shares of Beneficial Interest

EQC

The New York Stock Exchange

~~6 1/2%~~6.50% Series D Cumulative Convertible Preferred Shares of Beneficial Interest

EQCpD

The New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Number of registrant’s common shares of beneficial interest, $0.01 par value per share, outstanding as of July ~~26, 2019: 121,921,801.~~

24, 2020: 121,521,624.

References in this Quarterly Report on Form 10-Q to the ~~Company, EQC, we, us~~“Company,” “EQC,” “we,” “us” or ~~our,~~“our,” refer to Equity Commonwealth and its consolidated subsidiaries as of June 30, ~~2019,~~2020, unless the context indicates otherwise.

Table of Contents

PART I. Financial Information

Item 1. Financial Statements.

EQUITY COMMONWEALTH

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

(unaudited)


	June 30, 2019			December 31, 2018				June 30, 2020		December 31, 2019
				(audited)						(audited)
ASSETS							ASSETS
Real estate properties:							Real estate properties:
Land	$	85,627		$	135,142		Land	$	44,060	$	85,627
Buildings and improvements	571,342			1,004,500			Buildings and improvements	353,665		576,494
	656,969			1,139,642				397,725		662,121
Accumulated depreciation	(193,166		)	(375,968		)	Accumulated depreciation	(139,061)		(202,700)
	463,803			763,674				258,664		459,421
Acquired real estate leases, net	92			275

Cash and cash equivalents	3,180,548			2,400,803			Cash and cash equivalents	3,437,775		2,795,642
Marketable securities	—			249,602

Restricted cash	2,310			3,298			Restricted cash	4,103		5,003
Rents receivable	19,735			51,089			Rents receivable	13,968		19,554
Other assets, net	35,683			62,031			Other assets, net	18,645		39,757
Total assets	$	3,702,171		$	3,530,772		Total assets	$	3,733,155	$	3,319,377

LIABILITIES AND EQUITY							LIABILITIES AND EQUITY
Senior unsecured debt, net	$	—		$	248,473

Mortgage notes payable, net	26,091			26,482			Mortgage notes payable, net	$	25,281	$	25,691

Accounts payable, accrued expenses and other	36,903			62,368			Accounts payable, accrued expenses and other	25,821		37,153

Rent collected in advance	3,554			9,451			Rent collected in advance	2,521		3,127

Distributions payable							Distributions payable	5,791		7,534
Total liabilities	66,548			346,774			Total liabilities	59,414		73,505

Shareholders' equity:
Shareholders’ equity:							Shareholders’ equity:
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;							Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;
Series D preferred shares; 6 1/2% cumulative convertible; 4,915,196 shares issued and outstanding, aggregate liquidation preference of $122,880	119,263			119,263
Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 121,922,120 and 121,572,155 shares issued and outstanding, respectively	1,219			1,216
Series D preferred shares; 6.50% cumulative convertible; 4,915,196 shares issued and outstanding, aggregate liquidation preference of $122,880							Series D preferred shares; 6.50% cumulative convertible; 4,915,196 shares issued and outstanding, aggregate liquidation preference of $122,880	119,263		119,263
Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 121,521,624 and 121,924,199 shares issued and outstanding, respectively							Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 121,521,624 and 121,924,199 shares issued and outstanding, respectively	1,215		1,219
Additional paid in capital	4,308,049			4,305,974			Additional paid in capital	4,288,245		4,313,831
Cumulative net income	3,323,778			2,870,974			Cumulative net income	3,816,245		3,363,654
Cumulative other comprehensive loss	—			(342		)

Cumulative common distributions	(3,420,406		)	(3,420,548		)	Cumulative common distributions	(3,852,856)		(3,851,666)
Cumulative preferred distributions	(697,730		)	(693,736		)	Cumulative preferred distributions	(705,718)		(701,724)
Total shareholders’ equity	3,634,173			3,182,801			Total shareholders’ equity	3,666,394		3,244,577
Noncontrolling interest	1,450			1,197			Noncontrolling interest	7,347		1,295
Total equity	3,635,623			3,183,998			Total equity	3,673,741		3,245,872
Total liabilities and equity	$	3,702,171		$	3,530,772		Total liabilities and equity	$	3,733,155	$	3,319,377

See accompanying notes.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Revenues:
Rental revenue	$	15,248	$	30,574	$	32,391	$	69,464
Other revenue	1,017		2,794		2,694		5,656
Total revenues	16,265		33,368		35,085		75,120
Expenses:
Operating expenses	6,677		10,974		15,438		26,754
Depreciation and amortization	4,398		7,561		9,512		16,146
General and administrative	8,302		9,533		18,906		21,629

Total expenses	19,377		28,068		43,856		64,529
Interest and other income, net	4,443		20,695		16,338		38,470
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $(60), $154, $(116) and $319, respectively)	(302)		(4,070)		(611)		(8,276)
Loss on early extinguishment of debt	—		(6,374)		—		(6,374)

Gain on sale of properties, net	26,916		227,166		446,536		420,203
Income before income taxes	27,945		242,717		453,492		454,614
Income tax expense	(59)		(340)		(99)		(1,640)
Net income	27,886		242,377		453,393		452,974
Net income attributable to noncontrolling interest	(54)		(91)		(802)		(170)
Net income attributable to Equity Commonwealth	27,832		242,286		452,591		452,804
Preferred distributions	(1,997)		(1,997)		(3,994)		(3,994)


Net income attributable to Equity Commonwealth common shareholders	$	25,835	$	240,289	$	448,597	$	448,810



Weighted average common shares outstanding — basic	121,655		122,122		121,901		122,041
Weighted average common shares outstanding — diluted	123,255		125,862		126,358		125,841
Earnings per common share attributable to Equity Commonwealth common shareholders:
Basic	$	0.21	$	1.97	$	3.68	$	3.68
Diluted	$	0.21	$	1.93	$	3.58	$	3.60

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Revenues:
Rental revenue $ 30,574
$ 45,569
$ 69,464
$ 100,842
Other revenue 2,794
3,067
5,656
6,382
Total revenues 33,368
48,636
75,120
107,224
Expenses:
Operating expenses 10,974
19,521
26,754
44,120
Depreciation and amortization 7,561
13,021
16,146
26,924
General and administrative 9,533
11,222
21,629
24,561
Loss on asset impairment —
—
—
12,087
Total expenses 28,068
43,764
64,529
107,692
Interest and other income, net 20,695
12,668
38,470
18,448
Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $154, $645, $319 and $1,446, respectively) (4,070 ) (6,350 ) (8,276 ) (16,465 )
Loss on early extinguishment of debt (6,374 ) (1,536 ) (6,374 ) (6,403 )
Gain on sale of properties, net 227,166
26,937
420,203
232,148
Income before income taxes 242,717
36,591
454,614
227,260
Income tax (expense) benefit (340 ) 456
(1,640 ) (2,551 )
Net income 242,377
37,047
452,974
224,709
Net income attributable to noncontrolling interest (91 ) (14 ) (170 ) (77 )
Net income attributable to Equity Commonwealth $ 242,286
$ 37,033
$ 452,804
$ 224,632
Preferred distributions (1,997 ) (1,997 ) (3,994 ) (3,994 )
Net income attributable to Equity Commonwealth common shareholders $ 240,289
$ 35,036
$ 448,810
$ 220,638

Weighted average common shares outstanding — basic 122,122
121,822
122,041
122,839
Weighted average common shares outstanding — diluted 125,862
122,649
125,841
126,027
Earnings per common share attributable to Equity Commonwealth common shareholders:
Basic $ 1.97
$ 0.29
$ 3.68
$ 1.80
Diluted $ 1.93
$ 0.29
$ 3.60
$ 1.78

Three Months Ended
June 30, Six Months Ended
June 30,
2019 2018 2019 2018
Net income $ 242,377
$ 37,047
$ 452,974
$ 224,709

Other comprehensive income, net of tax:
Unrealized gain on derivative instruments —
339
—
456
Unrealized gain on marketable securities —
298
342
72
Total comprehensive income 242,377
37,684
453,316
225,237
Comprehensive income attributable to the noncontrolling interest (91 ) (14 ) (170 ) (77 )
Total comprehensive income attributable to Equity Commonwealth $ 242,286
$ 37,670
$ 453,146
$ 225,160


	Six Months Ended June 30,
	2020		2019
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	732	$	12,291
Taxes (refunded) paid, net	(1,555)		2,873

NON-CASH INVESTING ACTIVITIES:

Recognition of right-of-use asset and lease liability	$	—	$	1,503
Accrued capital expenditures	$	2,733	$	3,992


NON-CASH FINANCING ACTIVITIES:
Distributions payable	$	5,791	$	2,766

Six Months Ended June 30,
2019 2018
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 12,291
$ 17,704
Taxes paid, net 2,873
2,417

NON-CASH INVESTING ACTIVITIES:
Recognition of right-of-use asset and lease liability $ 1,503
$ —
Accrued capital expenditures $ 3,992
$ 4,539

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows (in thousands):


	June 30,
	2020		2019
Cash and cash equivalents	$	3,437,775	$	3,180,548
Restricted cash	4,103		2,310
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows	$	3,441,878	$	3,182,858

June 30,
2019 2018
Cash and cash equivalents $ 3,180,548
$ 2,507,117
Restricted cash 2,310
8,419
Total cash, cash equivalents, and restricted cash shown in the statements of cash flows $ 3,182,858
$ 2,515,536

Table of Contents

EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

On November 10, 2016, the Company converted to what is commonly referred to as an umbrella partnership real estate investment trust, or UPREIT. In connection with this conversion, the Company contributed substantially all of its assets to EQC Operating Trust, a Maryland real estate investment trust, or the Operating Trust, and the Operating Trust assumed substantially all of the Company’s liabilities pursuant to a contribution and assignment agreement between the Company and the Operating Trust.

~~The~~Since that time, the Company ~~now conducts~~has conducted and intends to continue to conduct substantially all of its activities through the Operating Trust. The Company beneficially owned ~~99.96%~~99.8% of the outstanding shares of beneficial interest, designated as units, in the Operating Trust, or OP Units, as of June 30, ~~2019,~~2020, and the Company is the sole trustee of the Operating Trust. As the sole trustee, the Company generally has the power under the declaration of trust of the Operating Trust to manage and conduct the business of the Operating Trust, subject to certain limited approval and voting rights of other holders of OP Units.

At June 30, ~~2019,~~2020, our portfolio consisted of 74 properties ~~(12~~(8 buildings), with a combined ~~2.5~~1.5 million square feet. As of June 30, ~~2019,~~2020, we had ~~$3.2~~$3.4 billion of cash and cash equivalents.

Basis of Presentation

The accompanying condensed consolidated financial statements of EQC have been prepared without audit. Certain information and footnote disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted. We believe the disclosures made are appropriate. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K, or our Annual Report, for the year ended December 31, ~~2018.~~2019. Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.

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

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

Share amounts are presented in whole numbers, except where noted.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of FASB Accounting Standards Codification, or ASC 820. This update is effective for fiscal years beginning after December 15, 2019, and for interim periods within those fiscal years. We ~~do not expect the adoption of~~adopted ASU 2018-13 ~~to have a material impact on our consolidated financial statements.~~

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. This update is effective for

~~EQUITY COMMONWEALTH~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. We adopted ASU 2018-07~~ on January 1, ~~2019,~~2020, and the adoption did not have a material impact on our consolidated financial statements.

Table of Contents

EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In June 2016, the FASB issued 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 evaluating the impact, if any, that the adoption of~~adopted ASU 2016-13 ~~will have on our consolidated financial statements.~~

In February 2016, the FASB issued ASU 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. ASU 2016-02 supersedes previous leasing standards. For leases where we are the lessor, we account for these leases using an approach that is substantially equivalent to previous guidance prior to the adoption of ASU 2016-02. Additionally, under ASU 2016-02, lessors may only capitalize incremental direct leasing costs. For leases in which we are the lessee, we recognize a right-of-use asset and a lease liability equal to the present value of the minimum lease payments, with rent expense being recognized on a straight-line basis and the right of use asset being reduced when lease payments are made.

In July 2018, the FASB issued ASU 2018-11 to provide entities with relief from the costs of implementing certain aspects of ASU 2016-02. The amendment to the new leases standard includes a practical expedient that provides lessors an option not to separate lease and non-lease components when certain criteria are met and instead account for those components as a single component under the new leases standard. The amendment also provides a transition option that permits the application of the new guidance as of the adoption date rather than to all periods presented. We elected the practical expedient to account for both our lease (primarily base rent) and non-lease (primarily tenant reimbursements) components as a single component under the leases standard and elected the new transition option. We adopted these pronouncements on January 1, ~~2019,~~2020, and the adoption did not have a material impact on our consolidated financial ~~statements, both as a lessor and as a lessee.~~statements.

Certain reclassifications were made to conform the prior period to our presentation of the condensed consolidated statements of operations as a result of adopting ASU 2016-02. Amounts that were previously disclosed as "Tenant reimbursements and other income" are now included in "Rental revenue" and are no longer presented as a separate line item. Parking revenues that do not represent components of leases and were previously disclosed as "Rental income" are now included in "Other revenue." Subsequent to January 1, 2019, provisions for credit losses are included in "Rental revenue." Provisions for credit losses prior to January 1, 2019 were disclosed as "Operating expenses" and were not reclassified to conform prior periods to the current presentation.

During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we made improvements, excluding tenant-funded improvements, to our properties totaling ~~$8.5~~$4.3 million and ~~$29.6~~$8.5 million, respectively.

~~EQUITY COMMONWEALTH~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

Property Dispositions:

During the six months ended June 30, 2020, we sold the following properties, which did not represent strategic shifts under ASC Topic 205 (dollars in thousands):

333 108^th Avenue NE(2)

(1)Gross sale price is before credits, primarily for contractual lease costs, and transfer taxes.

(2)The sale represents an individually significant disposition. The operating results of this property are included in continuing operations for all periods presented through the date of sale. Net income related to this property was $28,000 and $3.7 million for the three months ended June 30, 2020 and 2019, respectively, and $193.2 million, of which $194.4 million related to the gain on sale, and $7.3 million for the six months ended June 30, 2020 and 2019, respectively.

During the six months ended June 30, 2019, we sold the following properties, which did not represent a strategic shift under ASC Topic 205 (dollars in thousands):

Property Date Sold Number of
Properties Number of
Buildings
Square
Footage
Gross Sales Price Gain on Sale
1735 Market Street(1)
March 2019 1
1
1,286,936
$ 451,600
$ 192,985
600 108^th Avenue NE(2)
April 2019 1
1
254,510
195,000
149,009
Research Park(3)
June 2019 1
4
1,110,007
165,500
78,158
3
6
2,651,453
$ 812,100
$ 420,152


Property	Date Sold	Number of Properties	Number of Buildings	Square Footage	Gross Sale Price(1)		Gain on Sale
1735 Market Street(2)	March 2019	1	1	1,286,936	$	451,600	$	192,985
600 108^th Avenue NE(3)	April 2019	1	1	254,510	195,000		149,009
Research Park(4)	June 2019	1	4	1,110,007	165,500		78,158
		3	6	2,651,453	$	812,100	$	420,152

(1)Gross sale price is before credits for capital costs, contractual lease costs and rent abatements.

(2)Certain of our subsidiaries sold 100.0% of the equity interests in the fee simple owner of this property. The sale represents an individually significant disposition. The operating results of this property are included in continuing operations for all periods presented through the date of sale. Net income related to this property was $0.1 million and $197.2 million (of which $193.0 million related to the gain on sale) for the three and six months ended June 30, 2019, respectively.

(3)The property includes an office building and additional developmental rights.

(4)There was consideration of $2.0 million being held in escrow related to the sale of this property in 2019. In June 2020, these proceeds were released to the Company, and we recorded an additional $2.0 million gain on the sale for the three and six months ended June 30, 2020.

Table of Contents

EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The ~~future minimum~~FASB has issued additional guidance for companies to account for any COVID-19 related rent concessions in the form of FASB staff and board members’ remarks at the April 8, 2020 public meeting and the FASB staff question-and-answer document issued on April 10, 2020. We have elected the practical expedient to account for COVID-19 related rent concessions as if they were part of the enforceable rights and obligations of the parties under the existing lease ~~payments, excluding tenant reimbursement revenue, scheduled~~contract. This policy has been elected for our lessor portfolio for any rent deferrals, and we have elected to ~~be received by us during~~treat the ~~current terms of our~~related leases as ofif they are unchanged. For the three months ended June 30, ~~2019 are as follows (in thousands):~~

2020, we deferred collection of approximately $42,000 of rental income on revenue that was recognized in the three months ended June 30, 2020.

2019 $ 33,114
2020 53,642
2021 58,692
2022 52,368
2023 46,859
Thereafter 340,138
$ 584,813

Rental revenue consists of the following (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Lease payments	$	9,983	$	20,429	$	21,753	$	48,334
Variable lease payments	5,265		10,145		10,638		21,130
Rental revenue	$	15,248	$	30,574	$	32,391	$	69,464

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Lease payments $ 20,429
$ 30,628
$ 48,334
$ 70,164
Variable lease payments 10,145
14,941
21,130
30,678
Rental revenue $ 30,574
$ 45,569
$ 69,464
$ 100,842

As of December 31, 2018, our marketable securities consisted of United States Treasury notes and were classified as available-for-sale. The United States Treasury notes matured in January and February 2019, and as of June 30, 2019, we do not have any marketable securities.

~~EQUITY COMMONWEALTH~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

~~Below is a summary of our marketable securities as of December 31, 2018 (in thousands):~~

December 31, 2018
Amortized Cost Unrealized Loss Estimated Fair Value
Marketable securities $ 249,944
$ (342 ) $ 249,602

~~Note 5.~~ Indebtedness

~~Senior Unsecured Notes:~~

After the redemption of our 5.875% senior unsecured notes due 2020 on June 28, 2019, we no longer have any notes outstanding under our public debt indenture and related supplements, collectively the Indenture, and we are no longer required to maintain the financial ratio covenants prescribed in the Indenture. As a result, we are no longer rated by the rating agencies.

Mortgage Note Payable:

At June 30, ~~2019, one~~2020, 1 of our properties with an aggregate net book value of ~~$43.9~~$42.8 million had a secured mortgage note totaling ~~$26.1~~$25.3 million (including a net premium and unamortized deferred financing fees) maturing in 2021. As of July 5, 2020, we repaid this mortgage debt at par (see Note 13).

Common Share Issuances:

See Note 108 for information regarding equity issuances related to share-based compensation.

Common Share Repurchases:

On March 13, 2019, our Board of Trustees authorized the repurchase of up to $150.0 million of our outstanding common shares over the twelve months following the date of ~~authorization.~~authorization, or the March 2019 Authorization. In March 2020, this share repurchase authorization, of which $129.2 million was not utilized, expired. During the six months ended June 30, ~~2019,~~2020, we ~~did not repurchase any~~repurchased 711,000 of our common shares under the March 2019 Authorization, at a weighted average price of $29.31 per share, for a total investment of $20.8 million. On March 10, 2020, our ~~share~~Board of Trustees authorized the repurchase ~~program. The~~of up to an additional $150.0 million of ~~remaining~~our outstanding common shares over the twelve months following the date of authorization, ~~available under our share repurchase program as~~none of ~~June 30, 2019 is scheduled to expire on March 13, 2020.~~which has been utilized.

During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, certain of our employees surrendered ~~168,327~~183,466 and ~~57,348~~168,327 common shares owned by them, respectively, to satisfy their statutory tax withholding obligations in connection with the vesting of such common ~~shares.~~shares pursuant to our equity compensation plans.

Common Share and Unit Distribution:

On September 26, 2018, our Board of Trustees declared a special, one-time cash distribution of $2.50 per common share/unit to shareholders/unitholders of record on October 9, 2018. On October 23, 2018, we paid this distribution to such shareholders/unitholders in the aggregate amount of $304.7 million. In February ~~2019,~~2020, the number of earned awards for certain recipients of the ~~Company's~~Company’s restricted stock units and market-based LTIP Units was determined. Pursuant to the terms of such awards, we paid a one-time catch-up cash distribution ~~of $2.50 per common share/unit~~ to these recipients in the aggregate amount of ~~$1.2~~$2.9 million ~~upon~~for distributions to common shareholders and unitholders declared by our Board of Trustees during such ~~determination.~~awards' performance measurement period.

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EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Preferred Share Distributions:

In ~~2019,~~2020, our Board of Trustees declared distributions on our series D preferred shares to date as follows:

Declaration Date

Record Date

Payment Date

Series D Dividend Per Share

January 10, 2020

January 30, 2020

February 18, 2020

0.40625

April 9, 2020

April 29, 2020

May 15, 2020

0.40625

July 8, 2020

July 29, 2020

August 17, 2020

0.40625

Declaration Date Record Date Payment Date Series D Dividend Per Share
January 11, 2019 January 30, 2019 February 15, 2019 $ 0.40625
April 11, 2019 April 29, 2019 May 15, 2019 $ 0.40625
July 12, 2019 July 30, 2019 August 15, 2019 $ 0.40625

Noncontrolling interest represents the portion of the OP Units not beneficially owned by the Company. The ownership of an OP Unit and a common share of beneficial interest have essentially the same economic characteristics. Distributions with respect to OP Units will generally mirror distributions with respect to the Company’s common shares. Unitholders (other than the Company) generally have the right, commencing six months from the date of issuance of such OP Units, to cause the Operating Trust to redeem their OP Units in exchange for cash or, at the option of the Company, common shares of the Company on a ~~one-for-one~~1-for-one basis. As sole trustee, the Company ~~will have~~has the sole discretion to elect whether the redemption right will be satisfied by the Company in cash or the Company’s common shares. As a result, the Noncontrolling interest is classified as permanent equity. As of June 30, ~~2019,~~2020, the portion of the Operating Trust not beneficially owned by the Company is in the form of OP Units and LTIP Units (see Note 108 for a description of LTIP Units). LTIP Units may be subject to additional vesting requirements.

The following table presents the changes in Equity Commonwealth’s issued and outstanding common shares and units for the six months ended June 30, ~~2019:~~2020:

The carrying value of the Noncontrolling interest is allocated based on the number of OP Units and LTIP Units in proportion to the number of OP Units and LTIP Units plus the number of common shares. We adjust the Noncontrolling interest balance at the end of each period to reflect the noncontrolling partners’ interest in the net assets of the Operating Trust. Net income is allocated to the Noncontrolling interest in the Operating Trust based on the weighted average ownership percentage during the period. Equity Commonwealth’s weighted average ownership interest in the Operating Trust was ~~99.96%~~99.81% and ~~99.96%~~99.84% for the three and six months ended June 30, ~~2019,~~2020, respectively.

~~Note 8. Cumulative Other Comprehensive Loss~~

~~The following table presents the amounts recognized in cumulative other comprehensive loss for the six months ended June 30, 2019 (in thousands):~~

Unrealized Loss on Marketable Securities
Balance as of January 1, 2019 $ (342 )

Other comprehensive income 342

Balance as of June 30, 2019 $ —

~~EQUITY COMMONWEALTH~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

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. WeHowever, we are ~~also~~ subject to certain state and local taxes without regard to our REIT status.

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EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Our provision for income taxes consists of the following (in thousands):

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Current:
State and local $ (340 ) $ 456
$ (640 ) $ (2,551 )

Deferred:
State and local —
—
(1,000 ) —

Income tax (expense) benefit $ (340 ) $ 456
$ (1,640 ) $ (2,551 )

~~During the six months ended June 30, 2019, we recorded $1.0 million related to an uncertain tax position, as part of our income tax provision.~~

Note ~~10.~~8. Share-Based Compensation

At our annual meeting of shareholders on June 20, 2019, our shareholders approved an amendment to the Equity Commonwealth 2015 Omnibus Incentive Plan to increase the number of common shares of beneficial interest authorized thereunder by 2,500,000.

Recipients of the Company’s restricted shares have the same voting rights as any other common shareholder. During the period of restriction, holders of unvested restricted shares are eligible to receive dividend payments on their shares at the same rate and on the same date as any other common shareholder. The restricted shares are service based awards and vest over a ~~four-year~~four-year period.

Recipients of the Company’s restricted stock units, or 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 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 related to unvested RSUs will be forfeited. The RSUs are market-based awards with a service condition and recipients may earn RSUs based on the Company’s total shareholder return, or TSR, relative to the TSRs of the companies that comprise the ~~NAREIT~~Nareit Office Index over a ~~three-year~~three-year performance period. Following the end of the ~~three-year~~three-year performance period, the number of earned awards will be determined. The earned awards vest in ~~two~~2 tranches with 50% of the earned award vesting following the end of the performance period on the date the Compensation Committee of our Board of Trustees, or the Committee, determines the level of achievement of the performance metric and the remaining 50% of the earned award vesting approximately one year thereafter, subject to the grant recipient’s continued employment. Compensation expense for the RSUs is determined using a Monte Carlo simulation model and is recognized ratably from the grant date to the vesting date of each tranche.

LTIP Units are a class of beneficial interests in the Operating Trust that may be issued to employees, officers or trustees of the Operating Trust, the Company or their subsidiaries. Time-based LTIP Units have the same general characteristics as restricted shares and market-based LTIP Units have the same general characteristics as RSUs. Each LTIP Unit will convert automatically into an OP Unit on a ~~one-for-one~~1-for-one basis when the LTIP Unit becomes vested and its capital account is equalized with the per-unit capital account of the OP Units. Holders of LTIP Units generally will be entitled to receive the same per-unit distributions as the other outstanding OP Units in the Operating Trust, except that market-based LTIP Units will not participate

~~EQUITY COMMONWEALTH~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

in distributions until expiration of the applicable performance period, at which time any earned market-based LTIP Units generally will become entitled to receive a catch-up distribution for the periods prior to such time.

2020 Equity Award Activity

During the six months ended June 30, 2020, 387,729 RSUs vested, and, as a result, we issued 387,729 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding obligations (see Note 5).

On June 23, 2020, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the 9 independent Trustees $0.1 million in restricted shares or time-based LTIP Units as part of their compensation for the 2020-2021 year of service on the Board of Trustees. These awards equated to 3,184 shares or time-based LTIP Units per Trustee, for a total of 19,104 shares and 9,552 time-based LTIP Units, valued at $31.41 per share and unit, the closing price of our common shares on the New York Stock Exchange, or the NYSE, on that day. These shares and time-based LTIP Units vest one year after the date of the award.

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EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On January 27, 2020, the Committee approved grants in the aggregate amount of 20,116 time-based LTIP Units, 40,841 market-based LTIP Units at target (101,796 market-based LTIP Units at maximum), 85,058 restricted shares and 172,697 RSUs at target (430,447 RSUs at maximum) to the Company’s officers, certain employees, an eligible consultant and to Mr. Zell, the Chairman of our Board of Trustees, as part of their compensation for fiscal year 2019. The restricted shares and time-based LTIP Units were valued at $32.81 per share and per unit, the closing price of our common shares on the New York Stock Exchange (NYSE) on the grant date. The assumptions and fair value for the RSUs and market-based LTIP Units granted during the six months ended June 30, 2020 are included in the following table on a per share and per unit basis.


	2020
Fair value of market-based awards granted	$	40.17
Expected term (years)	4
Expected volatility	12.39		%

Risk-free rate	1.41		%

2019 Equity Award Activity

During the six months ended June 30, 2019, 382,413 RSUs vested, and, as a result, we issued 382,413 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding ~~obligations (see Note 6).~~obligations.

On June 20, 2019, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the ~~nine~~9 independent Trustees $0.1 million in restricted shares or time-based LTIP Units as part of their compensation for the 2019-2020 year of service on the Board of Trustees. These awards equated to 2,940 shares or time-based LTIP Units per Trustee, for a total of 23,520 shares and 2,940 time-based LTIP Units, valued at $34.01 per share and unit, the closing price of our common shares on the ~~New York Stock Exchange (NYSE)~~NYSE on that day. These shares and time-based LTIP Units vest one year after the date of the award.

On January 29, 2019, the Committee approved grants in the aggregate amount of 112,359 restricted shares and 228,128 RSUs at target (568,609 RSUs at maximum) 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 2018. The restricted shares ~~granted on January 29, 2019~~ were valued at $31.77 per share, the closing price of our common shares on the NYSE on that day. The assumptions and fair value for the RSUs granted during the six months ended June 30, 2019 are included in the following table on a per share basis.

2019
Fair value of RSUs granted $ 39.65
Expected term (years) 4
Expected volatility 13.98 %
Risk-free rate 2.52 %

~~2018 Equity Award Activity~~

During the six months ended June 30, 2018, 141,605 RSUs vested, and, as a result, we issued 141,605 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding obligations (see Note 6).

On June 20, 2018, 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 or time-based LTIP Units as part of their compensation for the 2018-2019 year of service on the Board of Trustees. These awards equated to 3,200 shares or time-based LTIP Units per Trustee, for a total of 25,600 shares and 3,200 time-based LTIP Units, valued at $31.25 per share and unit, the closing price of our common shares on the New York Stock Exchange (NYSE) on that day. These shares and time-based LTIP Units vested one year after the date of the award.

On January 29, 2018, the Committee approved grants in the aggregate amount of 125,409 restricted shares and 254,615 RSUs at target (634,628 RSUs at maximum) 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 2017. The restricted shares were valued at $29.78 per share, the closing price of our common shares on the NYSE on the grant date. The RSUs were valued at ~~$37.13~~$39.65 per share, their fair value on the grant date.

Outstanding Equity Awards

As of June 30, ~~2019,~~2020, the estimated future compensation expense for all unvested restricted shares and time-based LTIP Units was ~~$8.2~~$8.1 million. Compensation expense for the restricted share and time-based LTIP Unit 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 and time-based LTIP units is approximately 2.5 years.

~~EQUITY COMMONWEALTH~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)~~

As of June 30, ~~2019,~~2020, the estimated future compensation expense for all unvested RSUs and market-based LTIP Units was ~~$16.7~~$15.9 million. The weighted average period over which the future compensation expense will be recorded for the RSUs and market-based LTIP Units is approximately 2.4 years.

During the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we recorded ~~$3.7~~$3.3 million and ~~$5.1~~$3.7 million, respectively, and during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we recorded ~~$7.6~~$6.6 million and ~~$10.5~~$7.6 million, respectively, of compensation expense, net of forfeitures, in general and administrative expense for grants to our trustees and employees related to our equity compensation plans. Compensation expense recorded during the three months ended June 30, 2020 and 2019 includes $0.0 million and $0.3 million, respectively, and compensation expense recorded during the six months ended June 30, 2020 and 2019 includes $18,000 and ~~2018 includes~~ $0.8 ~~million and $0.4~~ million, respectively, of accelerated vesting due to staffing reductions. Forfeitures are recognized as they occur. At June 30, ~~2019, 2,857,696~~2020, 2,291,799 shares/units remain available for issuance under the Equity Commonwealth 2015 Omnibus Incentive Plan, as amended.

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EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

As of June 30, ~~2019,~~2020, we do ~~not~~0t have any assets or liabilities measured at fair value.

Financial Instruments

Our financial instruments include our cash and cash equivalents, restricted cash ~~marketable securities, senior unsecured debt~~ and mortgage note payable. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair value of these additional financial instruments ~~were~~was not materially different from their carrying values, except as follows (in thousands):

June 30, 2019 December 31, 2018
Principal Balance Fair Value Principal Balance Fair Value
Senior unsecured debt and mortgage note payable $ 25,719
$ 26,588
$ 276,000
$ 283,214

The fair values of our senior notes are based on quoted market prices (level 2 inputs), and the fair value of our mortgage note payable is based on estimates using discounted cash flow analyses and currently prevailing interest rates adjusted by credit risk spreads (level 3 inputs).

Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable. As of June 30, ~~2019, we have one tenant that is responsible for 22.7% of our total annualized rents, and~~2020, no ~~other~~ single tenant of ours is responsible for more than ~~10.0%~~5.0% of our ~~total annualized rents.~~consolidated revenues.

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EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands except per share amounts):

Weighted average number of common shares outstanding - basic(1)

Series D preferred shares; 6.50% cumulative convertible(4)

Effect of Series D preferred shares; 6.50% cumulative convertible(4)

Effect of OP Units(5)

(1) The three months ended June 30, 2020 and 2019, include 150 and 220 weighted-average, unvested, earned RSUs, respectively, and the six months ended June 30, 2020 and 2019, include 164 and 203 weighted-average, unvested, earned RSUs, respectively.

(2) Represents weighted-average number of common shares that would have been issued if the quarter-end was the measurement date for unvested, unearned RSUs.

(3) Represents the weighted-average dilutive shares issuable from LTIP Units if the quarter-end was the measurement date for the periods shown.

(4) The Series D preferred shares are excluded from the diluted earnings per share calculation for the three months ended June 30, 2020 because including the Series D preferred shares would also require that the preferred distributions be added back to net income, resulting in anti-dilution.

(5) Beneficial interests in the Operating Trust.

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Numerator for earnings per common share - basic:

Net income $ 242,377
$ 37,047
$ 452,974
$ 224,709
Net income attributable to noncontrolling interest (91 ) (14 ) (170 ) (77 )
Preferred distributions (1,997 ) (1,997 ) (3,994 ) (3,994 )
Numerator for net income per share - basic $ 240,289
$ 35,036
$ 448,810

$ 220,638

Numerator for earnings per common share - diluted:
Net income $ 242,377
$ 37,047
$ 452,974
$ 224,709
Net income attributable to noncontrolling interests (91 ) (14 ) (170 ) (77 )
Preferred distributions —
(1,997 ) —
—
Numerator for net income per share - diluted $ 242,286
$ 35,036
$ 452,804
$ 224,632

Denominator for earnings per common share - basic and diluted:
Weighted average number of common shares outstanding - basic(1)
122,122
121,822
122,041
122,839
RSUs(2)
1,005
762
1,064
746
LTIP Units(3)
172
65
173
79
Series D preferred shares; 6 1/2% cumulative convertible(4)
2,563
—
2,563
2,363
Weighted average number of common shares outstanding - diluted 125,862
122,649
125,841
126,027

Net income per common share attributable to Equity Commonwealth common shareholders:
Basic $ 1.97
$ 0.29
$ 3.68
$ 1.80
Diluted $ 1.93
$ 0.29
$ 3.60
$ 1.78

Anti-dilutive securities:
Effect of Series D preferred shares; 6 1/2% cumulative convertible(4)
—
2,363
—
—
Effect of LTIP Units 32
42
34
42
Effect of OP Units(5)
14
1
12
1

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~~(1)~~	The three months ended June 30, 2019 and 2018, includes 220 and 362 weighted-average, unvested, earned RSUs, respectively, and the six months ended June 30, 2019 and 2018, includes 203 and 335 weighted-average, unvested, earned RSUs, respectively.


~~(2)~~	~~Represents weighted-average number of common shares that would have been issued if the quarter-end was the measurement date for unvested, unearned RSUs.~~


~~(3)~~	~~Represents the weighted-average dilutive shares issuable from LTIP Units if the quarter-end was the measurement date for the periods shown.~~


~~(4)~~	The Series D preferred shares are excluded from the diluted earnings per share calculation for the three months ended June 30, 2018 because including the Series D preferred shares would also require that the preferred distributions be added back to net income, resulting in anti-dilution.

EQUITY COMMONWEALTH

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Our primary business is the ownership and operation of office properties, and we currently have ~~one~~1 reportable segment. ~~More than 90%~~NaN percent of our revenues for the six months ended June 30, ~~2019~~2020 were from office properties.

The following discussion includes a description of our related person transactions for the six months ended June 30, ~~2019~~2020 and ~~2018.~~2019.

Two North Riverside Plaza Joint Venture Limited Partnership: We have 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~~, which had an initial term of ~~the lease is~~ approximately five ~~years, expiring in~~years. The 20th/21st Floor Office Lease expires December ~~2020, with one 5-year renewal option.~~31, 2020. We made improvements to the office space utilizing the $0.7 million tenant improvement allowance pursuant to the lease. In connection with the 20th/21st Floor Office Lease, we also have a storage lease with Two North Riverside Plaza Joint Venture Limited Partnership for storage space in the basement of Two North Riverside Plaza. The storage lease expires December 31, 2020; however, each party has the right to terminate on 30 ~~days'~~days’ prior written notice. During the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we recognized expense of ~~$0.3~~$0.2 million and ~~$0.2~~$0.3 million, respectively, and during the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we recognized expense of $0.5 million and ~~$0.4~~$0.5 million, respectively, pursuant to the 20^th/21^st Floor Office Lease and the related storage space.

As of July 5, 2020, we repaid at par $25.1 million of mortgage debt at 206 East 9th Street.

On July ~~12, 2019,~~8, 2020, our Board of Trustees declared a dividend of $0.40625 per series D preferred share, which will be paid on August ~~15, 2019~~17, 2020 to shareholders of record on July ~~30, 2019.~~29, 2020.

The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q, and in our Annual Report.

Some of the statements contained in this Quarterly Report on Form 10-Q 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.~~conditions, including our statements regarding the overall impact of COVID-19 on the foregoing to the extent we make any such statements. Any forward-looking statements contained in this Quarterly Report on Form 10-Q 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.

The forward-looking statements contained in this Quarterly Report on Form 10-Q 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 our Annual ~~Report.~~Report and in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.

We are an internally managed and self-advised REIT primarily engaged in the ownership and operation of office properties 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 June 30, 2020, the Company beneficially owned 99.80% of the outstanding OP Units.

At June 30, ~~2019,~~2020, our portfolio consisted of 7four properties ~~(12~~(eight buildings), with a combined ~~2.5~~1.5 million square feet ~~for~~and a total undepreciated book value of ~~$657.0~~$397.7 million, and a depreciated book value of ~~$463.8~~$258.7 million. As of June 30, 2020, we had $3.4 billion of cash and cash equivalents.

We use leasing and occupancy metrics to evaluate the performance of our properties. These metrics provide useful information to investors because they reflect the leasing activity and vacant space at the properties and may facilitate comparisons of our leasing and occupancy metrics with other REITs and real estate companies.

As of June 30, ~~2019,~~2020, our overall portfolio was ~~90.5%~~90.1% leased. During the three months ended June 30, ~~2019,~~2020, we entered into ~~leases, excluding leasing activity~~one new lease for ~~assets during the quarter in which the asset was sold, for 58,000 square feet, including lease renewals for 43,000~~22,000 square feet, and no lease renewals. The new ~~leases for 15,000 square feet. Renewal leases~~lease entered into during the three months ended June 30, ~~2019~~2020 had weighted average cash and GAAP rental rates that were approximately ~~8.6% higher~~4.8% lower and 13.9% higher, respectively, compared to prior rental rates for the same space, and new leases entered into during the three months ended June 30, 2019 had weighted average cash and GAAP rental rates that were approximately 21.2% higher and 27.2%2.3% higher, respectively, 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 length of term for the newly executed leases compared to the prior leases. Percent change in GAAP and cash rents is a comparison of current rent, including estimated tenant expense reimbursements, if any, to the rent, including actual/projected tenant expense reimbursements, if any, last received for the same space on a GAAP and cash basis, respectively. Cash rent during the reporting period is calculated before deducting any initial period free rent.

During the six months ended June 30, ~~2019,~~2020, we sold three properties ~~(six buildings)~~ with a combined ~~2.7~~1.0 million square feet for an aggregate gross ~~sales~~sale price of ~~$812.1 million, excluding credits and closing costs.~~$756.5 million. For more information regarding these transactions, see Note 3 to the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. ~~We have generated significant proceeds from our dispositions to date and have cash and cash equivalents~~

Table of ~~$3.2 billion as of June 30, 2019. As we have sold assets, our income from operations has also declined.~~Contents

We have engaged CBRE, Inc., or 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 as coordinating and overseeing the completion of tenant improvements and other capital projects at the properties. We reimburse CBRE for certain expenses incurred in the performance of its duties, including certain personnel and equipment

costs. For the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we incurred expenses of ~~$1.2~~$0.7 million and ~~$2.2~~$1.2 million, respectively, and for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, we incurred expenses of ~~$3.0~~$1.7 million and ~~$5.2~~$3.0 million, respectively, related to our property management agreement with CBRE, for property management fees, typically calculated as a percentage of ~~property~~the properties’ revenues, and salary and benefits reimbursements for property personnel, such as property managers, engineers and maintenance staff. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, we had amounts payable pursuant to these services of ~~$0.5~~$0.3 million and ~~$0.8~~$0.6 million, respectively.

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 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 currently target such efforts towards acquiring portfolios of properties or pursuing other large acquisitions as opposed to purchasing individual properties, although we may acquire individual properties if opportunities to do so are consistent with our strategy. The set of opportunities that we pursue in the future may include acquisitions in the office sector as well as other property types in order to create a foundation for long-term growth.

In ~~executing this strategy,~~connection with repositioning our portfolio, we may sell additional properties, depending on market conditions. With the progress we have ~~had~~made 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~~may use our capital ~~to purchase~~for acquisitions and/or investments in new properties or businesses, ~~repay debt, buy back common~~repurchase shares or make ~~other investments or~~ distributions that further our long-term strategic goals.

The set of opportunities that we pursue may include acquisitions and/or investments in office or non-office property types. We expect any efforts in the office sector to be primarily focused on multi-tenant office assets that can be acquired at a discount to replacement cost in markets and sub-markets with favorable long-term supply and demand fundamentals.

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 Company~~otherwise 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~~otherwise exit our business.

Our business may be impacted by the ~~Company.~~evolving COVID-19 outbreak. Since first surfacing, the outbreak has spread throughout the world and has significantly impacted the United States. The pandemic has led to severe business disruptions, including a dramatic decline in economic activity generally. The duration of the business disruption is unknown at this time. We and the vast majority of our tenants are currently working remotely and are subject to government imposed restrictions. For the three months ended June 30, 2020, in our comparable property portfolio, we collected 99% of contractual rents, including 5% from the application of security deposits and letters of credit. In July 2020, to date we have collected 97% of contractual rents, including 4% from the application of security deposits and letters of credit. We currently are not able to estimate the full impact of the COVID-19 outbreak on our business.

Property Operations

Leased occupancy data for ~~2019~~2020 and ~~2018~~2019 are as follows (square feet in thousands):


	All Properties						Comparable Properties(1)
	As of June 30,						As of June 30,
	2020		2019		2020		2019
Total properties	4		7		4		4
Total square feet	1,507		2,469		1,507		1,507
Percent leased(2)	90.1	%	90.5	%	90.1	%	85.7	%

All Properties(1) Comparable Properties(2)
As of June 30, As of June 30,
2019 2018 2019 2018
Total properties 7
13
7
7
Total square feet 2,469
6,341
2,469
2,474
Percent leased(3)
90.5 % 89.8 % 90.5 % 92.0 %

(1)Based on properties owned continuously from January 1, 2019 through June 30, 2020, and excludes properties sold.


~~(1)~~	~~Excludes properties sold or classified as held for sale as of the end of the period.~~


~~(2)~~	~~Based on properties owned continuously from January 1, 2018 through June 30, 2019, and excludes properties sold or classified as held for sale as of the end of the period.~~


~~(3)~~	Percent leased includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space that is leased but not occupied or is being offered for sublease by tenants.

(2)Percent leased is the percent of space subject to signed leases. Percent leased is disclosed to quantify the ratio of leased square feet to rentable square feet and provides useful information as to the proportion of rentable square feet subject to a lease.

The ~~weighted average~~ lease term ~~based on square feet~~ for ~~leases~~the lease entered into during the three months ended June 30, ~~2019~~2020 was ~~3.0~~8.0 years. Commitments made for leasing expenditures and concessions, such as tenant improvements and leasing commissions, for ~~leases~~the lease entered into during the three months ended June 30, ~~2019~~2020 totaled ~~$0.7~~$1.8 million, or ~~$11.49~~$80.63 per square foot on average (approximately ~~$3.83~~$10.08 per square foot per year of the lease term).

As of June 30, ~~2019,~~2020, approximately ~~9.6%~~4.8% of our leased square feet and ~~7.8%~~5.6% 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 for the remainder of ~~2019,~~2020, that have not been

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backfilled, are slightly above market. Lease expirations by year, as of June 30, ~~2019,~~2020, are as follows (square feet and dollars in thousands):


Year	Number of Tenants Expiring(1)	Leased Square Feet Expiring(2)	% of Leased Square Feet Expiring(2)		Cumulative % of Leased Square Feet Expiring(2)		Annualized Rental Revenue Expiring(3)		% of Annualized Rental Revenue Expiring		Cumulative % of Annualized Rental Revenue Expiring
2020	12	65	4.8	%	4.8	%	$	3,289	5.6	%	5.6	%
2021	21	106	7.8	%	12.6	%	4,758		8.1	%	13.7	%
2022	12	119	8.8	%	21.4	%	6,083		10.3	%	24.0	%
2023	18	215	15.8	%	37.2	%	10,404		17.6	%	41.6	%
2024	14	201	14.8	%	52.0	%	9,159		15.5	%	57.1	%
2025	12	167	12.3	%	64.3	%	5,748		9.7	%	66.8	%
2026	8	80	5.9	%	70.2	%	3,625		6.1	%	72.9	%
2027	5	97	7.2	%	77.4	%	2,811		4.8	%	77.7	%
2028	4	81	6.0	%	83.4	%	2,963		5.0	%	82.7	%
2029	5	117	8.6	%	92.0	%	5,645		9.6	%	92.3	%
Thereafter	6	108	8.0	%	100.0	%	4,536		7.7	%	100.0	%
	117	1,356	100.0	%			$	59,021	100.0	%

Weighted average remaining lease term (in years):			4.9						4.7

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
2019 15
215
9.6 % 9.6 % $ 7,592
7.8 % 7.8 %
2020 21
131
5.9 % 15.5 % 5,752
5.9 % 13.7 %
2021 22
196
8.8 % 24.3 % 8,139
8.5 % 22.2 %
2022 14
212
9.5 % 33.8 % 7,937
8.1 % 30.3 %
2023 17
234
10.5 % 44.3 % 10,132
10.3 % 40.6 %
2024 14
273
12.2 % 56.5 % 10,745
11.0 % 51.6 %
2025 7
94
4.2 % 60.7 % 6,275
6.4 % 58.0 %
2026 8
80
3.6 % 64.3 % 3,491
3.6 % 61.6 %
2027 2
35
1.6 % 65.9 % 1,530
1.6 % 63.2 %
2028 3
59
2.6 % 68.5 % 2,916
3.0 % 66.2 %
Thereafter 10
705
31.5 % 100.0 % 32,913
33.8 % 100.0 %
133
2,234
100.0 % $ 97,422
100.0 %

Weighted average remaining lease term (in years): 7.4
7.8

(1)Tenants with leases expiring in multiple years are counted in each year they expire.

~~(1)~~

Leased Square Feet as of June 30, 2019 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants. The Leased Square Feet Expiring corresponds to the latest-expiring signed lease for a given suite. Thus, backfilled suites expire in the year stipulated by the new lease.

~~(2)~~

Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of June 30, 2019, plus estimated recurring expense reimbursements. Annualized rental revenue 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.

(2)Leased Square Feet as of June 30, 2020 includes space subject to leases that have commenced for revenue recognition purposes in accordance with GAAP, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants. The Leased Square Feet Expiring corresponds to the latest-expiring signed lease for a given suite. Thus, backfilled suites expire in the year stipulated by the new lease.

(3)Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of June 30, 2020, plus estimated recurring expense reimbursements; 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.

The principal source of funds for our operations is rents from tenants at our properties. Rents are generally received from our tenants monthly in advance. As of June 30, ~~2019,~~2020, tenants representing ~~2.0%~~2.5% or more of our total annualized rental revenue were as follows (square feet in thousands):


Tenant			Square Feet(1)			% of Total Leased Square Feet(1)			% of Annualized Rental Revenue(2)		Weighted Average Remaining Lease Term
1.	Equinor Energy Services, Inc.	80		5.9	%		5.8	%		3.5
2.	KPMG, LLP	71		5.2	%		5.0	%		8.9
3.	Crowdstrike, Inc.	36		2.7	%		3.5	%		4.3
4.	CBRE, Inc.	40		2.9	%		3.4	%		7.8
5.	International Dairy Foods Association(3)	23		1.7	%		2.6	%		6.0
6.	Kazoo, Inc.	26		1.9	%		2.5	%		1.6
7.	Alden Torch Financial, LLC	34		2.5	%		2.5	%		6.7

	Total	310		22.8	%		25.3	%		5.8

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Tenant Square Feet(1) % of Total Leased Square Feet(1) % of Annualized Rental Revenue(2) Weighted Average Remaining Lease Term
1.
Expedia, Inc.(3)
427
19.1 % 22.7 % 0.5
2.
Georgetown University(4)
240
10.7 % 7.1 % 0.3
3. Beth Israel Deaconess Medical Center, Inc. 117
5.2 % 4.1 % 4.3
4. Dana-Farber Cancer Institute, Inc. 77
3.4 % 3.7 % 10.2
5. Equinor Energy Services, Inc. 77
3.4 % 3.3 % 4.5
6. BT Americas, Inc. 59
2.6 % 3.1 % 0.1
7. KPMG, LLP 66
3.0 % 2.7 % 3.6
8.
CBRE, Inc.(5)
40
1.8 % 2.0 % 8.8
Total 1,103
49.2 % 48.7 % 2.3


~~(1)~~	(1)Total Leased Square Feet as of June 30, 2019 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants.

~~(2)~~

Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of June 30, 2019, plus estimated recurring expense reimbursements; 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.


~~(3)~~	~~During the third quarter of 2018, an affiliate of Amazon.com, Inc. entered into a new 16-year lease for 429,012 square feet, including all of the Expedia, Inc. space. The lease commences in 2020.~~


~~(4)~~	Georgetown University's leased space includes 111,600 square feet that are sublet to another tenant. During the fourth quarter of 2017, the other tenant committed to lease the 111,600 square feet space through September 30, 2037 directly from the Company. The lease commences on October 1, 2019.


~~(5)~~	We reported a weighted average remaining lease term for CBRE, Inc. of 10.0 years in our March 31, 2019 Quarterly Report on Form 10-Q. The correct weighted average remaining lease term for CBRE, Inc. as of March 31, 2019 was 9.0 years.

~~Financing Activities~~

On June 28, 2019, we redeemed all $250.0 million of our 5.875% senior unsecured notes due 2020 and recognized a loss on early extinguishment of debt of $6.4 million for the three and six months ended June 30, 2019 from prepayment fees, the write off of unamortized deferred financing fees and the write off of an unamortized discount. As of June 30, ~~2019,~~2020 includes space subject to leases that have commenced, space being fitted out for occupancy pursuant to existing leases, and space which is leased but is not occupied or is being offered for sublease by tenants.

(2)Annualized rental revenue is annualized contractual rents from our ~~only debt consists~~tenants pursuant to leases which have commenced as of ~~one $25.7 million mortgage note payable.~~June 30, 2020, plus estimated recurring expense reimbursements; 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.

(3)Approximately 10,000 square feet of International Dairy Foods Association's space expires in 2034. Of the remaining 13,000 square feet, 6,500 square feet expire in 2021 and 6,500 square feet has been backfilled by other tenants until 2022.

Regulation FD Disclosures

We ~~intend to~~ use any of the following to comply with our disclosure obligations under Regulation FD: press releases, SEC filings, public conference calls, or our website. We routinely post important information on our website at www.eqcre.com, including information that may be deemed to be material. We encourage investors and others interested in the Company to monitor these distribution channels for material disclosures. Our website address is included in this Quarterly Report as a textual reference only and the information on the website is not incorporated by reference into this Quarterly Report.

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RESULTS OF OPERATIONS

Three Months Ended June 30, ~~2019,~~2020, Compared to Three Months Ended June 30, ~~2018~~

2019


																														Comparable Properties Results(1)															Other Properties Results(2)													Consolidated Results
	Comparable Properties Results(1)											Other Properties Results(2)						Consolidated Results												Three Months Ended June 30,
	Three Months Ended June 30,																													2020		2019		$ Change		% Change		2020		2019		2020			2019				$ Change				% Change
	2019			2018			$ Change			% Change		2019			2018			2019			2018			$ Change			% Change			(dollars in thousands)
	(dollars in thousands)
Rental revenue(3)	$	26,486		$	22,737		$	3,749		16.5	%	$	4,088		$	22,832		$	30,574		$	45,569		$	(14,995	)	(32.9	)%
Other revenue(3)	2,651			2,421			230			9.5	%	143			646			2,794			3,067			(273		)	(8.9	)%
Rental revenue																													Rental revenue	$	14,044	$	16,384	$	(2,340)	(14.3)	%	$	1,204��	$	14,190	$	15,248		$	30,574			$	(15,326)			(50.1)	%
Other revenue																													Other revenue	933		1,534		(601)		(39.2)	%	84		1,260		1,017			2,794				(1,777)				(63.6)	%
Operating expenses	(9,697		)	(9,294		)	(403		)	4.3	%	(1,277		)	(10,227		)	(10,974		)	(19,521		)	8,547			(43.8	)%	Operating expenses	(6,503)		(6,776)		273		(4.0)	%	(174)		(4,198)		(6,677)			(10,974)				4,297				(39.2)	%
Net operating income(4)	$	19,440		$	15,864		$	3,576		22.5	%	$	2,954		$	13,251		22,394			29,115			(6,721		)	(23.1	)%
Net operating income(3)																													Net operating income(3)	$	8,474	$	11,142	$	(2,668)	(23.9)	%	$	1,114	$	11,252	9,588			22,394				(12,806)				(57.2)	%
Other expenses:																													Other expenses:
Depreciation and amortization	Depreciation and amortization																	7,561			13,021			(5,460		)	(41.9	)%	Depreciation and amortization															4,398			7,561				(3,163)				(41.8)		%
General and administrative	General and administrative																	9,533			11,222			(1,689		)	(15.1	)%	General and administrative															8,302			9,533				(1,231)				(12.9)		%

Total other expenses	Total other expenses																	17,094			24,243			(7,149		)	(29.5	)%	Total other expenses															12,700			17,094				(4,394)				(25.7)		%
Interest and other income, net	Interest and other income, net																	20,695			12,668			8,027			63.4	%	Interest and other income, net															4,443			20,695				(16,252)				(78.5)		%
Interest expense																		(4,070		)	(6,350		)	2,280			(35.9	)%	Interest expense													(302)			(4,070)				3,768				(92.6)	%
Loss on early extinguishment of debt	Loss on early extinguishment of debt																	(6,374		)	(1,536		)	(4,838		)	315.0	%	Loss on early extinguishment of debt																		—				(6,374)				6,374				(100.0)	%
Gain on sale of properties, net	Gain on sale of properties, net																	227,166			26,937			200,229			743.3	%	Gain on sale of properties, net															26,916			227,166				(200,250)				(88.2)		%
Income before income taxes	Income before income taxes																	242,717			36,591			206,126			563.3	%	Income before income taxes																		27,945				242,717				(214,772)				(88.5)	%
Income tax (expense) benefit																		(340		)	456			(796		)	(174.6	)%
Income tax expense																													Income tax expense															(59)			(340)				281				(82.6)		%
Net income																		242,377			37,047			205,330			554.2	%	Net income													27,886			242,377				(214,491)				(88.5)	%
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest																	(91		)	(14		)	(77		)	550.0	%	Net income attributable to noncontrolling interest																						(54)				(91)				37		(40.7)	%
Net income attributable to Equity Commonwealth	Net income attributable to Equity Commonwealth																	242,286			37,033			205,253			554.2	%	Net income attributable to Equity Commonwealth																						27,832				242,286				(214,454)		(88.5)	%
Preferred distributions																		(1,997		)	(1,997		)	—			—	%	Preferred distributions													(1,997)			(1,997)				—				—	%

Net income attributable to Equity Commonwealth common shareholders	Net income attributable to Equity Commonwealth common shareholders																	$	240,289		$	35,036		$	205,253		585.8	%	Net income attributable to Equity Commonwealth common shareholders																		$	25,835			$	240,289			$	(214,454)			(89.2)	%

(1)Comparable properties consist of four properties we owned continuously from April 1, 2019 to June 30, 2020.

(2)Other properties consist of properties sold.

(3)We define net operating income, or 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 and corporate level expenses. For a discussion of why we consider NOI to be an appropriate supplemental measure to net income as well as a reconciliation of NOI to net income, the most directly comparable financial measure under GAAP reported on our consolidated financial statements, please see "- Liquidity and Capital Resources - Property Net Operating Income (NOI)."

Rental revenue. Rental revenue decreased ~~$15.0~~$15.3 million, or ~~32.9%~~50.1%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the properties sold in ~~2019~~2020 and ~~2018.~~2019. Rental revenue ~~increased $3.7 million, or 16.5%,~~ at the comparable properties decreased $2.3 million, or 14.3%, in the 2020 period, compared to the 2019 period, primarily due to ~~an increase in commenced occupancy,~~ a $2.2 million ~~increase~~decrease in lease termination ~~fees and a $0.8 million increase in escalations resulting from increases in commenced occupancy and real estate tax recoveries.~~fees.

~~$39,000~~ $0 in the ~~2019~~2020 period and ~~$18,000~~$39,000 in the ~~2018~~2019 period. Rental revenue also includes the recognition of lease termination fees totaling $0 in the 2020 period and $2.2 million in the 2019 ~~period and $1.6 million in the 2018~~ period.

Other revenue. Other revenue, which primarily includes parking revenue, decreased ~~$0.3~~$1.8 million, or ~~8.9%~~63.6%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the properties sold in ~~2019~~2020 and ~~2018. Parking~~2019. Other revenue decreased $0.6 million, or 39.2%, at the comparable properties ~~increased $0.2 million, or 9.5%,~~ in the ~~2019~~2020 period, compared to the ~~2018 period.~~2019 period, primarily due to decreased parking revenue during the 2020 period as a result of the COVID-19 outbreak.

Operating expenses. Operating expenses decreased ~~$8.5~~$4.3 million, or ~~43.8%~~39.2%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the properties sold in ~~2019~~2020 and ~~2018.~~2019. Operating expenses ~~increased $0.4~~decreased $0.3 million, or ~~4.3%~~4.0%, at the comparable

Depreciation and amortization. Depreciation and amortization decreased ~~$5.5~~$3.2 million, or ~~41.9%~~41.8%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period primarily due to properties sold in ~~2019~~2020 and ~~2018.~~2019.

General and administrative. General and administrative expenses decreased ~~$1.7~~$1.2 million, or ~~15.1%~~12.9%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to a ~~$1.7~~$0.9 million decrease in ~~share-based~~ compensation ~~expense and~~expenses related to severance, a ~~$0.6~~$0.1 million decrease in payroll expenses as a result of a staffing reduction ~~partially offset by $0.9~~and a $0.1 million ofdecrease in share-based compensation ~~expenses related to severance in the 2019 period.~~expense.

Interest and other income, net. Interest and other income, net ~~increased $8.0~~decreased $16.3 million, or ~~63.4%~~78.5% in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to ~~$7.8~~$16.2 million ~~of additional~~less interest received ~~on higher invested balances and higher~~from lower average interest ~~rates in 2019.~~rates.

Interest expense. Interest expense decreased ~~$2.3~~$3.8 million, or ~~35.9%~~92.6%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the redemption ~~at par~~in June 2019 of ~~the total $400.0~~all $250 million ~~outstanding under our 5-year and 7-year term loans in May 2018, the termination~~ of our ~~credit agreement in December 2018~~5.875% senior unsecured notes due 2020 and a decrease in amortization of a discount and amortization of deferred financing fees.

Loss on early extinguishment of debt. The loss on early extinguishment of debt of $6.4 million in the 2019 period reflects the write off of unamortized deferred financing fees, the write off of an unamortized discount and prepayment fees related to the redemption of all $250 million of our 5.875% senior unsecured notes due 2020. The loss on early extinguishment of debt of $1.5 million in the 2018 period reflects the write off of unamortized deferred financing fees related to the redemption at par of the total $400.0 million outstanding under our 5-year and 7-year term loans.

Gain on sale of properties, net. Gain on sale of properties, net ~~increased $200.2~~decreased $200.3 million, or 88.2%, in the ~~2019~~2020 period, as compared to the ~~2018~~2019 period. Gain on sale of properties, net in the 2020 period related to the following (dollars in thousands):


Asset	Gain on Sale, Net
Georgetown-Green and Harris Buildings	$	24,916
Research Park(1)	2,000
	$	26,916

(1)There was consideration of $2.0 million being held in escrow related to the sale of this property in 2019. In June 2020, these proceeds were released to the Company, and we recorded an additional $2.0 million gain on the sale for the three months ended June 30, 2020.

Asset Gain on Sale, Net
600 108th Avenue NE $ 149,009
Research Park 78,158
$ 227,167

~~Gain on sale of properties, net in the 2018 period primarily relates~~related to the following (dollars in thousands):


Asset	Gain on Sale, Net
600 108th Avenue NE	$	149,009
Research Park	78,158
	$	227,167

Asset Gain on Sale, Net
1601 Dry Creek Drive $ 26,992

Income tax ~~(expense) benefit.~~expense. InIncome tax expense decreased $0.3 million, or 82.6%, in the 2020 period, compared to the 2019 period, ~~we recorded income tax expense of $0.3 million and in the 2018 period, we recorded income tax benefit of $0.5 million. The change in income taxes is~~ primarily due to ~~the adjustment of state and local apportionment factors based on the sales of properties and~~a decrease in state and local taxes ~~incurred upon~~as a result of the sale of properties.

Net income attributable to noncontrolling interest. In ~~2019, 2018 and~~ 2017 through 2020, we granted LTIP Units to certain of our trustees and employees. ~~The net~~Net income attributable to noncontrolling interest ~~of $91,000~~decreased $37,000, or 40.7% in the 2020 period, compared to the 2019 period, ~~and $14,000~~primarily due to a decrease in net income, partially offset by the measurement of LTIP Units in the ~~2018 period relates to the allocation~~2020 period.

Table of ~~net income to the LTIP Unit holders.~~Contents

RESULTS OF OPERATIONS

Six Months Ended June 30, ~~2019,~~2020, Compared to Six Months Ended June 30, ~~2018~~2019


	Comparable Properties Results(1)															Other Properties Results(2)													Consolidated Results
	Six Months Ended June 30,
	2020		2019		$ Change		% Change		2020		2019		2020			2019				$ Change				% Change
	(dollars in thousands)
Rental revenue	$	28,130	$	30,499	$	(2,369)	(7.8)	%	$	4,261	$	38,965	$	32,391		$	69,464			$	(37,073)			(53.4)	%
Other revenue	2,466		2,963		(497)		(16.8)	%	228		2,693		2,694			5,656				(2,962)				(52.4)	%
Operating expenses	(13,371)		(13,257)		(114)		0.9	%	(2,067)		(13,497)		(15,438)			(26,754)				11,316				(42.3)	%
Net operating income(3)	$	17,225	$	20,205	$	(2,980)	(14.7)	%	$	2,422	$	28,161	19,647			48,366				(28,719)				(59.4)	%
Other expenses:
Depreciation and amortization															9,512			16,146				(6,634)				(41.1)		%
General and administrative															18,906			21,629				(2,723)				(12.6)		%

Total other expenses															28,418			37,775				(9,357)				(24.8)		%
Interest and other income, net															16,338			38,470				(22,132)				(57.5)		%
Interest expense													(611)			(8,276)				7,665				(92.6)	%
Loss on early extinguishment of debt																		—				(6,374)				6,374				(100.0)	%
Gain on sale of properties, net															446,536			420,203				26,333				6.3		%
Income before income taxes																		453,492				454,614				(1,122)				(0.2)	%
Income tax expense															(99)			(1,640)				1,541				(94.0)		%
Net income													453,393			452,974				419				0.1	%
Net income attributable to noncontrolling interests																						(802)				(170)				(632)		371.8	%
Net income attributable to Equity Commonwealth																						452,591				452,804				(213)		—	%
Preferred distributions													(3,994)			(3,994)				—				—	%


Net income attributable to Equity Commonwealth common shareholders																		$	448,597			$	448,810			$	(213)			—	%

Comparable Properties Results(1) Other Properties Results(2) Consolidated Results
Six Months Ended June 30,
2019 2018 $ Change % Change 2019 2018 2019 2018 $ Change % Change
(dollars in thousands)
Rental revenue(3) $ 50,709
$ 45,125
$ 5,584
12.4 % $ 18,755
$ 55,717
$ 69,464
$ 100,842
$ (31,378 ) (31.1 )%
Other revenue(3) 5,004
4,698
306
6.5 % 652
1,684
5,656
6,382
(726 ) (11.4 )%
Operating expenses (19,195 ) (18,297 ) (898 ) 4.9 % (7,559 ) (25,823 ) (26,754 ) (44,120 ) 17,366
(39.4 )%
Net operating income(4) $ 36,518
$ 31,526
$ 4,992
15.8 % $ 11,848
$ 31,578
48,366
63,104
(14,738 ) (23.4 )%
Other expenses:
Depreciation and amortization 16,146
26,924
(10,778 ) (40.0 )%
General and administrative 21,629
24,561
(2,932 ) (11.9 )%
Loss on asset impairment —
12,087
(12,087 ) (100.0 )%
Total other expenses 37,775
63,572
(25,797 ) (40.6 )%
Interest and other income, net 38,470
18,448
20,022
108.5 %
Interest expense (8,276 ) (16,465 ) 8,189
(49.7 )%
Loss on early extinguishment of debt (6,374 ) (6,403 ) 29
(0.5 )%
Gain on sale of properties, net 420,203
232,148
188,055
81.0 %
Income before income taxes 454,614
227,260
227,354
100.0 %
Income tax expense (1,640 ) (2,551 ) 911
(35.7 )%
Net income 452,974
224,709
228,265
101.6 %
Net income attributable to noncontrolling interests (170 ) (77 ) (93 ) 120.8 %
Net income attributable to Equity Commonwealth 452,804
224,632
228,172
101.6 %
Preferred distributions (3,994 ) (3,994 ) —
— %
Net income attributable to Equity Commonwealth common shareholders $ 448,810
$ 220,638
$ 228,172
103.4 %

(1)Comparable properties consist of four properties we owned continuously from January 1, 2019 to June 30, 2020.


~~(1)~~	~~Comparable properties consist of 7 properties (12 buildings) we owned continuously from January 1, 2018 to June 30, 2019.~~


~~(2)~~	~~Other properties consist of properties sold or classified as held for sale as of the end of the period.~~

(2)Other properties consist of properties sold.

~~(3)~~

Certain reclassifications were made to conform the prior period to our presentation of the condensed consolidated statements of operations due to the impact of adopting ASU 2016-02. Amounts that were previously disclosed as "Tenant reimbursements and other income" are now included in "Rental revenue" and are no longer presented as a separate line item. Parking revenues that do not represent components of leases and were previously disclosed as "Rental income" are now included in "Other revenue." Subsequent to January 1, 2019, provisions for credit losses are included in "Rental revenue." Provisions for credit losses prior to January 1, 2019 were disclosed as "Operating expenses" and were not reclassified to conform prior periods to the current presentation.

(3)We define net operating income, or 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 and corporate level expenses. For a discussion of why we consider NOI to be an appropriate supplemental measure to net income as well as a reconciliation of NOI to net income, the most directly comparable financial measure under GAAP reported on our consolidated financial statements, please see the section entitled “- Liquidity and Capital Resources - Property Net Operating Income (NOI).”


~~(4)~~	~~See Note 4 on page 22 for further information regarding NOI.~~

Rental revenue. Rental revenue decreased ~~$31.4~~$37.1 million, or ~~31.1%~~53.4%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the properties sold in ~~2019~~2020 and ~~2018.~~2019. Rental revenue at the comparable properties ~~increased $5.6~~decreased $2.4 million, or ~~12.4%~~7.8%, in the 2020 period, compared to the 2019 period, primarily due to ~~an increase in commenced occupancy,~~ a ~~$2.0~~$2.2 million ~~increase~~decrease in lease termination ~~fees and a $1.8 million increase in escalations resulting from increases in commenced occupancy and real estate tax recoveries.~~fees.

Rental revenue includes (decreases) increases for straight line rent adjustments totaling $(0.7) million in the 2020 period and $0.8 million in the 2019 period, and ~~$2.6 million in the 2018 period, and~~ net increases ~~(reductions)~~ for amortization of ~~acquired real estate leases and~~ assumed real estate lease obligations totaling $0 in the 2020 period and $0.1 million in the 2019 ~~period and $(0.1) million in the 2018~~ period. Rental revenue also includes the recognition of lease termination fees totaling $0 in the 2020 period and $2.2 million in the 2019 ~~period and $2.5 million in the 2018~~ period.

Other revenue. Other revenue, which primarily includes parking revenue, decreased ~~$0.7~~$3.0 million, or ~~11.4%~~52.4%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the properties sold in ~~2019~~2020 and ~~2018. Parking~~2019. Other revenue decreased $0.5 million, or 16.8%, at the comparable properties ~~increased $0.3 million, or 6.5%,~~ in the ~~2019~~2020 period, compared to the ~~2018 period.~~2019 period, primarily due to decreased parking revenue during the 2020 period as a result of the COVID-19 outbreak.

Operating expenses. Operating expenses decreased ~~$17.4~~$11.3 million, or ~~39.4%~~42.3%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the properties sold in ~~2019~~2020 and ~~2018.~~2019. Operating expenses increased ~~$0.9~~$0.1 million, or ~~4.9%~~0.9%, at the comparable properties in the 2020 period, compared to the 2019 period, primarily due to a ~~$1.2~~$0.2 million increase in ~~real estate tax~~HVAC expense and a

Table of Contents

$0.1 million increase in salaries and benefits expense, partially offset by a ~~$0.5~~$0.2 million decrease in ~~utility~~utilities expense and a $0.1 million decrease in maintenance and repairs expense.

Depreciation and amortization. Depreciation and amortization decreased ~~$10.8~~$6.6 million, or ~~40.0%~~41.1%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the properties sold in ~~2019~~2020 and ~~2018.~~2019.

General and administrative. General and administrative expenses decreased ~~$2.9~~$2.7 million, or ~~11.9%~~12.6%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to a ~~$3.2~~$3.1 million decrease in ~~share-based~~ compensation ~~expense and~~expenses related to severance, a ~~$0.9~~$0.6 million decrease in payroll expenses as a result of a staffing reduction and a $0.3 million decrease in share-based compensation expense, partially offset by a ~~$1.4~~$1.6 million increase in ~~compensation expenses~~state franchise taxes largely related to ~~severance from $1.8 million in the 2018 period to $3.2 million in the 2019 period.~~property sales.

~~Loss on asset impairment.~~ We recorded impairment charges of $12.1 million in the 2018 period related to 777 East Eisenhower Parkway and 97 Newberry Road, based upon the shortening of our expected period of ownership and updated market information in accordance with our impairment analysis procedures. We did not record any impairment charges in the 2019 period.

Interest and other income, net. Interest and other income, net ~~increased $20.0~~decreased $22.1 million, or ~~108.5%~~57.5%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to ~~$13.9~~$21.0 million ~~of additional~~less interest received ~~on higher invested balances and higher~~from lower average interest ~~rates in 2019 and a $5.0 million loss on the sale of marketable securities in the 2018 period.~~rates.

Interest expense. Interest expense decreased ~~$8.2~~$7.7 million, or ~~49.7%~~92.6%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to the ~~prepayment~~redemption in ~~March 2018~~June 2019 of all ~~$175.0~~$250 million of our ~~5.75%~~5.875% senior unsecured notes due ~~2042, the redemption at par of the total $400.0 million outstanding under our 5-year and 7-year term loans in May 2018, the termination of our credit agreement in December 2018~~2020 and a decrease in amortization of a discount and amortization of deferred financing fees.

Loss on early extinguishment of debt. The loss on early extinguishment of debt of $6.4 million in the 2019 period reflects the write off of unamortized deferred financing fees, the write off of an unamortized discount and prepayment fees related to the redemption of all $250 million of our 5.875% senior unsecured notes due 2020. The loss on early extinguishment of debt of $6.4 million in the 2018 period reflects the write off of unamortized deferred financing fees related to our redemption at par of the total $400.0 million outstanding under our 5-year and 7-year term loans and the write off of unamortized deferred financing fees related to our repayment at par of our 5.75% senior unsecured notes due 2042.

Gain on sale of properties, net. Gain on sale of properties, net increased ~~$188.1~~$26.3 million, or 6.3%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period. Gain on sale of properties, net in the 2020 period primarily related to the following (dollars in thousands):


Asset	Gain on Sale, Net
109 Brookline Avenue	$	225,190
333 108^th Avenue NE	194,424
Georgetown-Green and Harris Buildings	24,916
Research Park(1)	2,000
	$	446,530

Gain on sale of properties, net in the 2019 period primarily ~~relates to the following (dollars in thousands):~~

Asset Gain on Sale, Net
1735 Market Street $ 192,985
600 108th Avenue NE 149,009
Research Park 78,158
$ 420,152

~~Gain on sale of properties, net in the 2018 period primarily relates~~related to the following (dollars in thousands):


Asset	Gain on Sale, Net
1735 Market Street	$	192,985
600 108th Avenue NE	149,009
Research Park	78,158
	$	420,152

Asset Gain on Sale, Net
1600 Market Street $ 54,599
600 West Chicago Avenue 107,830
5073, 5075, & 5085 S. Syracuse Street 42,762
1601 Dry Creek Drive 26,992
$ 232,183

Income tax expense. Income tax expense decreased ~~$0.9~~$1.5 million, or 94.0%, in the ~~2019~~2020 period, compared to the ~~2018~~2019 period, primarily due to a decrease in state and local taxes ~~incurred upon~~as a result of the sale of properties.

Net income attributable to noncontrolling interest. In ~~2019, 2018 and~~ 2017 through 2020, we granted LTIP Units to certain of our trustees and employees. ~~The net~~Net income attributable to noncontrolling interest ~~of $0.2~~increased $0.6 million, or 371.8% in the 2020 period, compared to the 2019 period, ~~and $0.1 million~~primarily due to the measurement of LTIP Units in the ~~2018 period relates to the allocation~~2020 period.

Table of ~~net income to the LTIP Unit holders.~~Contents

LIQUIDITY AND CAPITAL RESOURCES

Our Operating Liquidity and Resources

As of June 30, ~~2019,~~2020, we had ~~$3.2~~$3.4 billion of cash and cash equivalents. We expect to use our cash balances, cash flow from our operations and proceeds of any future property sales to fund our operations, make distributions, repurchase our common shares, ~~acquire assets~~make acquisitions and/or investments in properties or businesses, fund tenant improvements and leasing costs and for other general business purposes. We believe our cash balances and the cash flow from our operations will be sufficient to fund our ordinary course activities.

Our future cash flows from operating activities will depend ~~primarily~~on our ability to collect rent from our current tenants under their leases. Our ability to collect rent in the near term may be adversely impacted by the market disruption caused by the COVID-19 outbreak. We cannot predict the ultimate impact of the pandemic on our results of operations.

Our future cash flows from operating activities will also depend upon our:

•ability to maintain or improve the occupancy of, and the rental rates at, our properties;

•ability to control operating and financing expense increases at our properties; and

•ability to purchase additional properties, which produce rents, less property operating expenses, in excess of our costs of acquisition capital.

In addition, our cash flows will depend in part on interest income earned on our invested cash balances.

Volatility in energy costs and real estate taxes may cause our future operating expenses to fluctuate; however, the impact of these fluctuations is expected to be partially offset by the pass through of operating expenses to our tenants pursuant to lease terms, although there can be no assurance that we will be able to successfully offset these expenses or that doing so would not negatively impact our competitive position or business.

~~Cash~~Net cash flows provided by (used in) operating, investing and financing activities were $23.2 million, $652.1 million and $(34.1) million, respectively, for the six months ended June 30, 2020, and $41.2 million, $1.0 billion and $(266.2) million, respectively, for the six months ended June 30, ~~2019, and $23.9 million, $800.5 million and $(669.4) million, respectively, for the six months ended June 30, 2018.~~2019. Changes in these three categories of our cash flows between ~~2019~~2020 and ~~2018~~2019 are primarily related to a decrease in property net operating income (as a result of property dispositions), ~~an increase~~a decrease in interest income (as a result of ~~additional interest received on higher invested balances and higher~~lower average interest rates in ~~2019)~~2020), a decrease in real estate improvements, dispositions of properties, proceeds from ~~sales and~~ maturities of marketable securities, repayments of debt and repurchase of our common shares.

Our Investment and Financing Liquidity and Resources

On June 28, 2019, we redeemed all $250.0 million of our 5.875% senior unsecured notes due 2020 and recognized a loss on early extinguishment of debt of $6.4 million for the three and six months ended June 30, 2019 from prepayment fees, the write off of unamortized deferred financing fees and the write off of an unamortized discount. As of June 30, 2019, our only debt consists of one $25.7 million mortgage note payable.

During the six months ended June 30, ~~2019,~~2020, we paid an aggregate of $4.0 million of distributions on our series D preferred shares. On July ~~12, 2019,~~8, 2020, our Board of Trustees declared a dividend of $0.40625 per series D preferred share, which will be paid on August ~~15, 2019~~17, 2020 to shareholders of record on July 29, 2020.

During the six months ended June 30, ~~2019.~~

2020, we repurchased 711,000 of our common shares under the March 2019 Authorization, at a weighted average price of $29.31 per share, for a total investment of $20.8 million. On March ~~13, 2019,~~10, 2020, our Board of Trustees authorized the repurchase of up to an additional $150.0 million of our outstanding common shares over the twelve months following the date of ~~authorization. During the six months ended June 30, 2019, we did not repurchase any~~authorization, none of ~~our common shares under our share repurchase program. The $150.0 million~~which has been utilized.

Table of ~~remaining authorization available under our share repurchase program as of June 30, 2019 is scheduled to expire on March 13, 2020.~~Contents

Our outstanding debt maturity and interest rate as of June 30, ~~2019,~~2020, were as follows (dollars in thousands):


	Scheduled Principal Payments During Period
Year	Secured Fixed Rate Debt(1)		Interest Rate(2)
2020	$	303	5.69	%
2021	24,836		5.69	%
Thereafter	—		—	%
	$	25,139	5.69	%

Scheduled Principal Payments During Period
Year Secured Fixed Rate Debt(1) Interest Rate(2)
2019 $ 286
5.7 %
2020 597
5.7 %
2021 24,836
5.7 %
Thereafter —
— %
$ 25,719
5.7 %

(1)Total debt outstanding as of June 30, 2020, including net unamortized premiums and net unamortized deferred financing costs, was $25.3 million, all of which is related to a mortgage on our building at 206 East 9th Street. As of July 5, 2020, we repaid this mortgage debt at par for $25.1 million.


~~(1)~~	~~Total debt outstanding as of June 30, 2019, including net unamortized premiums and net unamortized deferred financing costs, was $26,091.~~


~~(2)~~	~~Contractual interest rate.~~

(2)Contractual interest rate.

For further information about our indebtedness, see Note 54 to the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

~~As the maturity date of our debt approaches, we~~We may explore alternatives to repay the amount due. Such alternatives may include using our cash balances, incurring additional debt and issuing new equity securities, and entering into a new revolving credit facility. We have an effective shelf registration statement that allows us to issue certain types of public securities on an expedited basis, but it does not apply to debt securities nor does it assure that there will be buyers for any such securities.

~~We believe that we will have access to~~utilize various types of financings, including debt or equity, ~~offerings,~~ to fund ~~any~~ future acquisitions ~~and to pay our~~and/or investments. Although we are not currently rated by the debt ~~and other obligations as they become due. The~~rating agencies, the completion and the costs of any future debt transactions will depend primarily upon market conditions and our credit ratings at such ~~time.~~time, if any. We have no control over market conditions. ~~Our~~Any credit ratings will depend upon evaluations by credit rating agencies of our business practices and plans and, in particular, whether we appear to have the ability to maintain our earnings, to space our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably foreseeable adverse changes. We intend to conduct our business activities in a manner which will continue to afford us reasonable access to capital for investment and financing activities. However, there can be no assurance regarding our ability to complete any debt or equity offerings or that our cost of any future public or private financings will not increase.

During the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, amounts capitalized at our properties, including properties sold, ~~or classified as held for sale,~~ for tenant improvements, leasing costs and building improvements were as follows (amounts in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Tenant improvements(1)	$	2,448	$	2,491	$	3,325	$	4,941
Leasing costs(2)	299		374		1,245		1,217
Building improvements(3)	611		2,328		962		3,584

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Tenant improvements(1)
$ 2,491
$ 13,773
$ 4,941
$ 24,680
Leasing costs(2)
374
4,909
1,217
7,751
Building improvements(3)
2,328
2,936
3,584
4,887

(1)Tenant improvements include capital expenditures to improve tenants’ space.


~~(1)~~	~~Tenant improvements include capital expenditures to improve tenants’ spaces.~~


~~(2)~~	~~Leasing costs include leasing commissions and related 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.

(2)Leasing costs include leasing commissions and related 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.

During the three months ended June 30, ~~2019,~~2020, commitments made for expenditures in connection with leasing space at our properties, excluding leasing activity for assets during the quarter in which the asset was sold, ~~or classified as held for sale,~~ were as follows (dollar and square foot measures in thousands):


	New Leases		Renewals		Total
Square feet leased during the period	22		—		22
Tenant improvements and leasing commissions	$	1,774	$	—	$	1,774
Tenant improvements and leasing commissions per square foot	$	80.63	$	—	$	80.63
Weighted average lease term by square foot (years)(1)	8.0		—		8.0
Tenant improvements and leasing commissions per square foot per year	$	10.08	$	—	$	10.08

New
Leases
Renewals Total
Rentable square feet leased during the period 15
43
58
Tenant improvements and leasing commissions $ 329
$ 341
$ 670
Tenant improvements and leasing commissions per rentable square foot $ 21.93
$ 7.93
$ 11.49
Weighted average lease term by square foot (years) 4.3
2.5
3.0
Total tenant improvements and leasing commissions per rentable square foot per year $ 5.05
$ 3.12
$ 3.83

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~~Debt Covenants~~(1)For renewal lease terms, if the existing rents of an original lease term are modified, the new term starts at the rent modification date. Weighted average lease term generally excludes renewal options.

After the redemption of our 5.875% senior unsecured notes due 2020 on June 28, 2019, we no longer have any notes outstanding under the Indenture, and we are no longer required to maintain the financial ratio covenants prescribed in the Indenture. As a result, we are no longer rated by the rating agencies.

Off Balance Sheet Arrangements

As of June 30, ~~2019,~~2020, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. ~~We had no swaps or hedges as of June 30, 2019.~~

Funds from Operations (FFO) and Normalized FFO

We compute FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, or ~~NAREIT. NAREIT~~Nareit. Nareit defines FFO as net income (loss), calculated in accordance with GAAP, excluding real estate depreciation and amortization, gains (or losses) from sales of depreciable property, impairment of depreciable real estate, and our portion of these items related to equity investees and non-controlling interests. Our calculation of Normalized FFO differs from ~~NAREIT’s~~Nareit’s definition of FFO because we exclude certain items that we view as nonrecurring or impacting comparability from period to period. We consider FFO and Normalized FFO to be appropriate measures of operating performance for a REIT, along with net income, net income attributable to Equity Commonwealth common shareholders and cash flow from operating activities.

We believe that FFO and Normalized FFO provide useful information to investors because by excluding the effects of certain historical amounts, such as depreciation expense, FFO and Normalized FFO may facilitate a comparison of our operating performance between periods and with other REITs. FFO and Normalized FFO do not represent cash generated by operating activities in accordance with GAAP and should not be considered as alternatives to net income, net income attributable to Equity Commonwealth common shareholders or cash flow from operating activities, determined in accordance with GAAP, or as indicators of our financial performance or liquidity, nor are these measures necessarily indicative of sufficient cash flow to fund all of our needs. These measures should be considered in conjunction with net income, net income attributable to Equity Commonwealth common shareholders and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows. Other REITs and real estate companies may calculate FFO and Normalized FFO differently than we do.

Table of Contents

The following table provides a reconciliation of net income to FFO attributable to Equity Commonwealth common shareholders and unitholders and a calculation to Normalized FFO attributable to Equity Commonwealth common shareholders and unitholders (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Reconciliation to FFO:
Net income	$	27,886	$	242,377	$	453,393	$	452,974
Real estate depreciation and amortization	4,174		7,283		9,055		15,560

Gain on sale of properties, net	(26,916)		(227,166)		(446,536)		(420,203)
FFO attributable to Equity Commonwealth	5,144		22,494		15,912		48,331
Preferred distributions	(1,997)		(1,997)		(3,994)		(3,994)

FFO attributable to Equity Commonwealth common shareholders and unitholders	$	3,147	$	20,497	$	11,918	$	44,337

Reconciliation to Normalized FFO:
FFO attributable to Equity Commonwealth common shareholders and unitholders	$	3,147	$	20,497	$	11,918	$	44,337
Lease value amortization	—		(39)		—		(78)
Straight line rent adjustments	515		(11)		713		(848)
Loss on early extinguishment of debt	—		6,374		—		6,374


Taxes related to property sales included in general and administrative	10		—		1,458		—
Taxes related to property sales, net included in income tax expense	44		415		79		565

Normalized FFO attributable to Equity Commonwealth common shareholders and unitholders	$	3,716	$	27,236	$	14,168	$	50,350

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Reconciliation to FFO:
Net income $ 242,377
$ 37,047
$ 452,974
$ 224,709
Real estate depreciation and amortization 7,283
12,717
15,560
26,320
Loss on asset impairment —
—
—
12,087
Gain on sale of properties, net (227,166 ) (26,937 ) (420,203 ) (232,148 )
FFO attributable to Equity Commonwealth 22,494
22,827
48,331
30,968
Preferred distributions (1,997 ) (1,997 ) (3,994 ) (3,994 )
FFO attributable to Equity Commonwealth common shareholders and unitholders $ 20,497
$ 20,830
$ 44,337
$ 26,974

Reconciliation to Normalized FFO:

FFO attributable to Equity Commonwealth common shareholders and unitholders $ 20,497
$ 20,830
$ 44,337
$ 26,974
Lease value amortization (39 ) (18 ) (78 ) 80
Straight line rent adjustments (11 ) (1,022 ) (848 ) (2,550 )
Loss on early extinguishment of debt 6,374
1,536
6,374
6,403
Loss on sale of securities —
—
—
4,987
Income taxes related to gains on property sales, net 415
(496 ) 565
2,473
Normalized FFO attributable to Equity Commonwealth common shareholders and unitholders $ 27,236
$ 20,830
$ 50,350
$ 38,367

Property Net Operating Income (NOI)

We use property net operating income, or NOI, to evaluate the performance of our properties. 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 and corporate level expenses.

The following table includes the reconciliation of NOI to net income, the most directly comparable financial measure under GAAP reported in our consolidated financial statements. We consider NOI to be an appropriate supplemental measure to net income because it may help 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 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 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.

Table of Contents

A reconciliation of NOI to net income for the three and six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, is as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Rental revenue	$	15,248	$	30,574	$	32,391	$	69,464
Other revenue	1,017		2,794		2,694		5,656
Operating expenses	(6,677)		(10,974)		(15,438)		(26,754)
NOI	$	9,588	$	22,394	$	19,647	$	48,366

NOI	$	9,588	$	22,394	$	19,647	$	48,366
Depreciation and amortization	(4,398)		(7,561)		(9,512)		(16,146)
General and administrative	(8,302)		(9,533)		(18,906)		(21,629)

Interest and other income, net	4,443		20,695		16,338		38,470
Interest expense	(302)		(4,070)		(611)		(8,276)
Loss on early extinguishment of debt	—		(6,374)		—		(6,374)
Gain on sale of properties, net	26,916		227,166		446,536		420,203
Income before income taxes	27,945		242,717		453,492		454,614
Income tax expense	(59)		(340)		(99)		(1,640)
Net income	$	27,886	$	242,377	$	453,393	$	452,974

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Rental revenue $ 30,574
$ 45,569
$ 69,464
$ 100,842
Other revenue 2,794
3,067
5,656
6,382
Operating expenses (10,974 ) (19,521 ) (26,754 ) (44,120 )
NOI $ 22,394
$ 29,115
$ 48,366
$ 63,104

NOI $ 22,394
$ 29,115
$ 48,366
$ 63,104
Depreciation and amortization (7,561 ) (13,021 ) (16,146 ) (26,924 )
General and administrative (9,533 ) (11,222 ) (21,629 ) (24,561 )
Loss on asset impairment —
—
—
(12,087 )
Interest and other income, net 20,695
12,668
38,470
18,448
Interest expense (4,070 ) (6,350 ) (8,276 ) (16,465 )
Loss on early extinguishment of debt (6,374 ) (1,536 ) (6,374 ) (6,403 )
Gain on sale of properties, net 227,166
26,937
420,203
232,148
Income before income taxes 242,717
36,591
454,614
227,260
Income tax (expense) benefit (340 ) 456
(1,640 ) (2,551 )
Net income $ 242,377
$ 37,047
$ 452,974
$ 224,709

Related Person Transactions

For information about our related person transactions, ~~and about the risks that may arise as a result of these related person transactions and relationships,~~ see Note 1412 to the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The ~~Company's~~Company’s market risk has not changed materially from the amounts and information reported in Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report.

Item 4. Controls and Procedures.

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer, of the effectiveness of our disclosure controls and procedures pursuant to the Exchange Act Rule 13a-15 and Rule 15d-15. Based upon that evaluation, our President and Chief Executive Officer and our Executive Vice President, Chief Financial Officer and Treasurer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal control over financial reporting during the quarter ended June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. Other Information

Item 1. Legal Proceedings.

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.

Item 1A. Risk Factors.

~~There~~The risk factors relating to or impacted by the COVID-19 outbreak that were previously disclosed in our Quarterly Report on Form 10-Q for the three months ended March 31, 2020 contained certain financial-related information which has been updated for the three months ended June 30, 2020 in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q.

Other than as set forth above, there have been no material changes to the risk factors ~~relating to the Company~~previously disclosed in our Annual Report.

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

~~Surrender of Common Shares for Tax Withholding~~Not applicable.

During the three months ended June 30, 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 table summarizes all of these repurchases during the three months ended June 30, 2019:~~

Period
Total Number of Shares Purchased(1)
Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number or Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
April 2019 656
$ 31.55
N/A N/A
May 2019 2,348
$ 32.49
N/A N/A
June 2019 1,410
$ 33.59
N/A N/A
Total 4,414
$ 32.70

(1) The number of shares repurchased represents common shares surrendered by certain of our employees to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted common shares and restricted stock units of beneficial interest. With respect to these shares, the price paid per share is based on the closing price of our common shares as of the date of the determination of the statutory minimum federal and state tax obligations.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.



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		Articles Supplementary, dated March 14, 2018. (Incorporated by reference to the Company’s Current Report on Form 8-K filed March 15, 2018.)

3.5		~~Third~~Fourth Amended and Restated Bylaws of the Company, adopted ~~March 15, 2017~~April 2, 2020. (Incorporated by reference to the ~~Company's Quarterly~~Company’s Current Report on Form ~~10-Q for the quarter ended March 31, 2017.~~8-K filed April 3, 2020.)

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/~~6 1/2% 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~~31.1		Rule 13a-14(a) Certification .~~Indenture, dated as of July 9, 1997, between the Company and State Street Bank and Trust Company, as Trustee. (Incorporated by reference to Exhibit 4.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997, File Number 001-09317.)~~

~~10.1~~	~~Amendment No. 2 to the Equity Commonwealth 2015 Omnibus Incentive Plan. (+) (Incorporated by reference to the Company's Registration Statement on Form S-8 filed July 16, 2019.)~~

~~10.2~~	~~Change in Control Agreement, dated as of April 24, 2019, by and between the Company, Equity Commonwealth Management LLC and David Helfand. (†)~~ (Filed herewith.)

~~31.1~~31.2		Rule 13a-14(a) Certification. ~~(Filed~~(Filed herewith.)

~~31.2~~32.1		~~Rule 13a-14(a) Certification. (Filed herewith.)~~

~~32.1~~	Section 1350 Certification. (Furnished herewith.)

~~101.1~~101		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2019,~~2020, formatted in Inline 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 Equity, (v) the Condensed Consolidated Statements of Cash Flows and ~~(v)~~(vi) related notes to these condensed consolidated financial statements, tagged as blocks of text and in detail. (Filed herewith.)

~~+ Management contract or compensatory plan or arrangement.~~

† Pursuant to Instruction 2 of Item 601 of Regulation S-K, Registrant has omitted certain change in control agreements (the “Omitted CIC Agreements”), which are substantially identical in all material respects except as to the parties thereto, the dates of execution, or other details. The below schedule identifies the Omitted CIC Agreements. The only term in the Omitted CIC Agreements that differs from the change in control agreement filed herewith is the term of coverage under the Company’s group health plan, which is 24 months under Section 3(a)(iv) of the Omitted CIC Agreements. The Registrant hereby agrees to file the Omitted CIC Agreements upon request by the Commission.

~~Schedule~~


1.104			~~Change~~Cover Page Interactive Data File (formatted as Inline XBRL and contained in ~~Control Agreement, dated as of April 24, 2019, by and between the Company, Equity Commonwealth Management LLC and Adam Markman.~~Exhibit 101).


2.	~~Change in Control Agreement, dated as of April 24, 2019, by and between the Company, Equity Commonwealth Management LLC and David Weinberg.~~


3.	~~Change in Control Agreement, dated as of April 24, 2019, by and between the Company, Equity Commonwealth Management LLC and Orrin Shifrin.~~

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EQUITY COMMONWEALTH

~~EQUITY COMMONWEALTH~~

By:

~~By:~~

/s/ David A. Helfand

David A. Helfand

President and Chief Executive Officer

Dated:

~~August 1, 2019~~July 30, 2020

By:

/s/ Adam S. Markman

Adam S. Markman

Executive Vice President, Chief Financial Officer and Treasurer

Dated:

~~August 1, 2019~~July 30, 2020


	Six Months Ended June 30,							Six Months Ended June 30,
	2019			2018				2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:							CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	452,974		$	224,709		Net income	$	453,393	$	452,974
Adjustments to reconcile net income to cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	13,531			21,740			Depreciation	8,105		13,531
Net amortization of debt discounts, premiums and deferred financing fees	319			1,446			Net amortization of debt discounts, premiums and deferred financing fees	(116)		319
Straight line rental income	(848		)	(2,550		)	Straight line rental income	713		(848)
Amortization of acquired real estate leases	105			1,562			Amortization of acquired real estate leases	—		105
Other amortization	2,375			3,505			Other amortization	1,407		2,375
Amortization of right-of-use asset	364			—			Amortization of right-of-use asset	379		364
Share-based compensation	7,648			10,480			Share-based compensation	6,571		7,648
Loss on asset impairment	—			12,087
Loss on marketable securities	—			4,987

Loss on early extinguishment of debt	6,374			6,403			Loss on early extinguishment of debt	—		6,374
Net gain on sale of properties	(420,203		)	(232,148		)	Net gain on sale of properties	(446,536)		(420,203)

Change in assets and liabilities:							Change in assets and liabilities:
Rents receivable and other assets	(8,036		)	(16,856		)	Rents receivable and other assets	515		(8,036)
Accounts payable, accrued expenses and other	(11,179		)	(8,514		)	Accounts payable, accrued expenses and other	(576)		(11,179)
Rent collected in advance	(2,183		)	(2,971		)	Rent collected in advance	(606)		(2,183)
Cash provided by operating activities	41,241			23,880

Net cash provided by operating activities							Net cash provided by operating activities	23,249		41,241

CASH FLOWS FROM INVESTING ACTIVITIES:							CASH FLOWS FROM INVESTING ACTIVITIES:

Real estate improvements	(18,073		)	(32,203		)	Real estate improvements	(2,937)		(18,073)
Insurance proceeds received	—			1,443

Proceeds from sale of properties, net	771,787			807,322			Proceeds from sale of properties, net	655,053		771,787

Proceeds from maturity of marketable securities	250,000			—			Proceeds from maturity of marketable securities	—		250,000
Proceeds from sale of marketable securities	—			23,933
Cash provided by investing activities	1,003,714			800,495

Net cash provided by investing activities							Net cash provided by investing activities	652,116		1,003,714

CASH FLOWS FROM FINANCING ACTIVITIES:							CASH FLOWS FROM FINANCING ACTIVITIES:

Repurchase and retirement of common shares	(5,487		)	(89,910		)	Repurchase and retirement of common shares	(26,881)		(5,487)

Payments on borrowings	(255,557		)	(575,526		)	Payments on borrowings	(294)		(255,557)

Contributions from holders of noncontrolling interest	—			1			Contributions from holders of noncontrolling interest	1		—
Distributions to common shareholders	(1,160		)	—			Distributions to common shareholders	(1,936)		(1,160)
Distributions to preferred shareholders	(3,994		)	(3,994		)	Distributions to preferred shareholders	(3,994)		(3,994)
Cash used in financing activities	(266,198		)	(669,429		)
Distributions to holders of noncontrolling interest							Distributions to holders of noncontrolling interest	(997)		—
Redemption of noncontrolling interest							Redemption of noncontrolling interest	(31)		—
Net cash used in financing activities							Net cash used in financing activities	(34,132)		(266,198)

Increase in cash, cash equivalents, and restricted cash	778,757			154,946			Increase in cash, cash equivalents, and restricted cash	641,233		778,757
Cash, cash equivalents, and restricted cash at beginning of period	2,404,101			2,360,590			Cash, cash equivalents, and restricted cash at beginning of period	2,800,645		2,404,101
Cash, cash equivalents, and restricted cash at end of period	$	3,182,858		$	2,515,536		Cash, cash equivalents, and restricted cash at end of period	$	3,441,878	$	3,182,858



	Common Shares		OP Units and LTIP Units	Total
Outstanding at January 1, 2019	121,572,155		45,720	121,617,875
Repurchase of shares	(168,327	)	—	(168,327	)
Restricted share grants, time-based LTIP Unit grants and vested restricted stock units	518,292		2,940	521,232
Outstanding at June 30, 2019	121,922,120		48,660	121,970,780
Noncontrolling ownership interest in the Operating Trust				0.04	%


	Common Shares	OP Units and LTIP Units	Total
Outstanding at January 1, 2020	121,924,199	48,660	121,972,859
Repurchase of shares	(894,466)	—	(894,466)
OP Unit redemption	—	(1,000)	(1,000)
Share-based compensation grants and vesting, net of forfeitures	491,891	195,856	687,747
Outstanding at June 30, 2020	121,521,624	243,516	121,765,140
Noncontrolling ownership interest in the Operating Trust			0.20	%


			Page

PART I		Financial Information	~~Page~~

~~PART I~~Item 1.		~~Financial Information~~

~~Item 1.~~	Financial Statements (unaudited)

		Condensed Consolidated Balance Sheets	1

		Condensed Consolidated Statements of Operations	2

		Condensed Consolidated Statements of Comprehensive Income	3

		Condensed Consolidated Statements of Equity	4

		Condensed Consolidated Statements of Cash Flows	6

		Notes to Condensed Consolidated Financial Statements	8

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	3029

Item 4.		Controls and Procedures	3029

PART II		Other Information

Item 1.		Legal Proceedings	3130

Item 1A.		Risk Factors	3130

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3130

Item 3.		Defaults Upon Senior Securities	3130

Item 4.		Mine Safety Disclosures	3130

Item 5.		Other Information	3130

Item 6.		Exhibits	3231

		Signatures	3432


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net income	$	27,886	$	242,377	$	453,393	$	452,974

Other comprehensive income, net of tax:

Unrealized gain on marketable securities	—		—		—		342
Total comprehensive income	27,886		242,377		453,393		453,316
Comprehensive income attributable to the noncontrolling interest	(54)		(91)		(802)		(170)
Total comprehensive income attributable to Equity Commonwealth	$	27,832	$	242,286	$	452,591	$	453,146


																														Equity Commonwealth Shareholders
	Equity Commonwealth Shareholders																													Number of Series D Preferred Shares	Series D Preferred Shares		Number of Common Shares	Common Shares		Additional Paid in Capital		Cumulative Net Income		Cumulative Common Distributions		Cumulative Preferred Distributions		Noncontrolling Interest		Total
Balance at April 1, 2020																													Balance at April 1, 2020	4,915,196	$	119,263	121,502,520	$	1,215	$	4,285,266	$	3,788,413	$	(3,852,856)	$	(703,721)	$	7,034	$	3,644,614
Net income																													Net income	—	—		—	—		—		27,832		—		—		54		27,886
	Preferred Shares						Common Shares
	Series D
Share-based compensation																													Share-based compensation	—	—		19,104	—		2,906		—		—		—		362		3,268
Contributions																													Contributions	—	—		—	—		—		—		—		—		1		1
Distributions																													Distributions	—	—		—	—		—		—		—		(1,997)		—		(1,997)
Redemption of noncontrolling interest																													Redemption of noncontrolling interest	—	—		—	—		—		—		—		—		(31)		(31)
Adjustment for noncontrolling interest																													Adjustment for noncontrolling interest	—	—		—	—		73		—		—		—		(73)		—
Balance at June 30, 2020																													Balance at June 30, 2020	4,915,196	$	119,263	121,521,624	$	1,215	$	4,288,245	$	3,816,245	$	(3,852,856)	$	(705,718)	$	7,347	$	3,673,741
	Number of Shares	Preferred Shares		Cumulative Preferred Distributions			Number of Shares		Common Shares			Cumulative Common Distributions			Additional Paid in Capital			Cumulative Net Income		Cumulative Other Comprehensive Loss			Noncontrolling Interest			Total
Balance at April 1, 2019	4,915,196	$	119,263	$	(695,733	)	121,899,625		$	1,219		$	(3,420,512	)	$	4,304,560		$	3,081,492	$	—		$	1,272		$	3,391,561
Balance at January 1, 2020																													Balance at January 1, 2020	4,915,196	$	119,263	121,924,199	$	1,219	$	4,313,831	$	3,363,654	$	(3,851,666)	$	(701,724)	$	1,295	$	3,245,872

Net income	—	—		—			—		—			—			—			242,286		—			91			242,377			Net income	—	—		—	—		—		452,591		—		—		802		453,393

Repurchase of shares	—	—		—			(4,414	)	—			—			(145		)	—		—			—			(145		)	Repurchase of shares	—	—		(711,000)	(7)		(20,862)		—		—		—		—		(20,869)
Surrender of shares for tax withholding																													Surrender of shares for tax withholding	—	—		(183,466)	(2)		(6,010)		—		—		—		—		(6,012)
Share-based compensation	—	—		—			26,909		—			—			3,393			—		—			328			3,721			Share-based compensation	—	—		491,891	5		5,859		—		—		—		707		6,571
Contributions																													Contributions	—	—		—	—		—		—		—		—		1		1
Distributions	—	—		(1,997		)	—		—			106			—			—		—			—			(1,891		)	Distributions	—	—		—	—		—		—		(1,190)		(3,994)		—		(5,184)
Redemption of noncontrolling interest																													Redemption of noncontrolling interest	—	—		—	—		—		—		—		—		(31)		(31)
Adjustment for noncontrolling interest	—	—		—			—		—			—			241			—		—			(241		)	—			Adjustment for noncontrolling interest	—	—		—	—		(4,573)		—		—		—		4,573		—
Balance at June 30, 2019	4,915,196	$	119,263	$	(697,730	)	121,922,120		$	1,219		$	(3,420,406	)	$	4,308,049		$	3,323,778	$	—		$	1,450		$	3,635,623

Balance at January 1, 2019	4,915,196	$	119,263	$	(693,736	)	121,572,155		$	1,216		$	(3,420,548	)	$	4,305,974		$	2,870,974	$	(342	)	$	1,197		$	3,183,998
Net income	—	—		—			—		—			—			—			452,804		—			170			452,974
Unrealized gain on marketable securities	—	—		—			—		—			—			—			—		342			—			342
Repurchase of shares	—	—		—			(168,327	)	(2		)	—			(5,485		)	—		—			—			(5,487		)
Share-based compensation	—	—		—			518,292		5			—			6,978			—		—			665			7,648
Distributions	—	—		(3,994		)	—		—			142			—			—		—			—			(3,852		)
Adjustment for noncontrolling interest	—	—		—			—		—			—			582			—		—			(582		)	—
Balance at June 30, 2019	4,915,196	$	119,263	$	(697,730	)	121,922,120		$	1,219		$	(3,420,406	)	$	4,308,049		$	3,323,778	$	—		$	1,450		$	3,635,623
Balance at June 30, 2020																													Balance at June 30, 2020	4,915,196	$	119,263	121,521,624	$	1,215	$	4,288,245	$	3,816,245	$	(3,852,856)	$	(705,718)	$	7,347	$	3,673,741


Property	Date Sold	Number of Properties	Number of Buildings	Square Footage	Gross Sale Price(1)		Gain on Sale
109 Brookline Avenue	February 2020	1	1	285,556	$	270,000	$	225,190
333 108^th Avenue NE(2)	March 2020	1	1	435,406	401,500		194,424
Georgetown-Green and Harris Buildings	May 2020	1	2	240,475	85,000		24,916


		3	4	961,437	$	756,500	$	444,530


~~(2)~~	~~The property includes an office building and additional development rights.~~


~~(3)~~	There is consideration of $2.0 million being held in escrow related to the sale of this property. To the extent any of these proceeds are ultimately released to the Company, the gain on sale will increase.



2019	$	33,114
2020	53,642
2021	58,692
2022	52,368
2023	46,859
Thereafter	340,138
	$	584,813



	December 31, 2018
	Amortized Cost		Unrealized Loss			Estimated Fair Value
Marketable securities	$	249,944	$	(342	)	$	249,602



	Unrealized Loss on Marketable Securities
Balance as of January 1, 2019	$	(342	)

Other comprehensive income	342

Balance as of June 30, 2019	$	—



	2019
Fair value of RSUs granted	$	39.65
Expected term (years)	4
Expected volatility	13.98		%
Risk-free rate	2.52		%



	June 30, 2019				December 31, 2018
	Principal Balance		Fair Value		Principal Balance		Fair Value
Senior unsecured debt and mortgage note payable	$	25,719	$	26,588	$	276,000	$	283,214


	June 30, 2020						December 31, 2019
	Principal Balance		Fair Value		Principal Balance		Fair Value
Mortgage note payable	$	25,139	$	25,139	$	25,433	$	26,071



	All Properties(1)				Comparable Properties(2)
	As of June 30,				As of June 30,
	2019		2018		2019		2018
Total properties	7		13		7		7
Total square feet	2,469		6,341		2,469		2,474
Percent leased(3)	90.5	%	89.8	%	90.5	%	92.0	%



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
2019	15	215	9.6	%	9.6	%	$	7,592	7.8	%	7.8	%
2020	21	131	5.9	%	15.5	%	5,752		5.9	%	13.7	%
2021	22	196	8.8	%	24.3	%	8,139		8.5	%	22.2	%
2022	14	212	9.5	%	33.8	%	7,937		8.1	%	30.3	%
2023	17	234	10.5	%	44.3	%	10,132		10.3	%	40.6	%
2024	14	273	12.2	%	56.5	%	10,745		11.0	%	51.6	%
2025	7	94	4.2	%	60.7	%	6,275		6.4	%	58.0	%
2026	8	80	3.6	%	64.3	%	3,491		3.6	%	61.6	%
2027	2	35	1.6	%	65.9	%	1,530		1.6	%	63.2	%
2028	3	59	2.6	%	68.5	%	2,916		3.0	%	66.2	%
Thereafter	10	705	31.5	%	100.0	%	32,913		33.8	%	100.0	%
	133	2,234	100.0	%			$	97,422	100.0	%

Weighted average remaining lease term (in years):		7.4					7.8



Asset	Gain on Sale, Net
1600 Market Street	$	54,599
600 West Chicago Avenue	107,830
5073, 5075, & 5085 S. Syracuse Street	42,762
1601 Dry Creek Drive	26,992
	$	232,183



Period	Total Number of Shares Purchased(1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number or Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
April 2019	656	$	31.55	N/A	N/A
May 2019	2,348	$	32.49	N/A	N/A
June 2019	1,410	$	33.59	N/A	N/A
Total	4,414	$	32.70