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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
ý      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended September 30, 2016
OR
 
o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9317
EQUITY COMMONWEALTH
(Exact Name of Registrant as Specified in Its Charter)
Maryland
 
04-6558834
(State or Other Jurisdiction of Incorporation or Organization)
 
(IRS Employer Identification No.)
Two North Riverside Plaza, Suite 2100, Chicago, IL
 
60606
(Address of Principal Executive Offices)
 
(Zip Code)
(312) 646-2800
(Registrant’s Telephone Number, Including Area Code)
 
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check One):
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý
Number of registrant’s common shares of beneficial interest, $0.01 par value per share, outstanding as of October 27, 2016125,532,523.
 


Table of Contents

EQUITY COMMONWEALTH
 
FORM 10-Q
 
September 30, 2016
 
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Table of Contents


 
EXPLANATORY NOTE
 
References in this Quarterly Report on Form 10-Q to the Company, EQC, we, us or our, refer to Equity Commonwealth and its consolidated subsidiaries as of September 30, 2016, unless the context indicates otherwise.


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PART I.      Financial Information

Item 1.         Financial Statements.

EQUITY COMMONWEALTH
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
 
September 30,
2016
 
December 31,
2015
 
 
 
(audited)
ASSETS
 
 
 
Real estate properties:
 
 
 
Land
$
293,225

 
$
389,410

Buildings and improvements
2,642,588

 
3,497,942

 
2,935,813

 
3,887,352

Accumulated depreciation
(751,882
)
 
(898,939
)
 
2,183,931

 
2,988,413

Properties held for sale
13,463

 

Acquired real estate leases, net
52,017

 
88,760

Cash and cash equivalents
2,405,174

 
1,802,729

Restricted cash
36,755

 
32,245

Rents receivable, net of allowance for doubtful accounts of $4,515 and $7,715, respectively
150,728

 
174,676

Other assets, net
123,699

 
144,341

Total assets
$
4,965,767

 
$
5,231,164

 
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Senior unsecured debt, net
$
1,313,267

 
$
1,450,606

Mortgage notes payable, net
243,993

 
246,510

Liabilities related to properties held for sale
667

 

Accounts payable and accrued expenses
87,003

 
123,587

Assumed real estate lease obligations, net
2,140

 
4,296

Rent collected in advance
21,529

 
27,340

Security deposits
8,128

 
10,338

Total liabilities
1,676,727

 
1,862,677

 
 
 
 
Shareholders’ equity:
 
 
 
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;
 
 
 
Series D preferred shares; 6 1/2% cumulative convertible; 4,915,196 shares issued and outstanding, aggregate liquidation preference of $122,880
119,263

 
119,263

Series E preferred shares; 7 1/4% cumulative redeemable on or after May 15, 2016; 0 and 11,000,000 shares issued and outstanding, respectively, aggregate liquidation preference $0 and $275,000, respectively

 
265,391

Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized; 125,532,523 and 126,349,914 shares issued and outstanding, respectively
1,255

 
1,263

Additional paid in capital
4,402,927

 
4,414,611

Cumulative net income
2,554,343

 
2,333,709

Cumulative other comprehensive loss
(1,117
)
 
(3,687
)
Cumulative common distributions
(3,111,868
)
 
(3,111,868
)
Cumulative preferred distributions
(675,763
)
 
(650,195
)
Total shareholders’ equity
3,289,040

 
3,368,487

Total liabilities and shareholders’ equity
$
4,965,767

 
$
5,231,164

See accompanying notes.

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Table of Contents

EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Revenues:
 
 
 
 
 
 
 
Rental income
$
92,722

 
$
125,459

 
$
324,345

 
$
457,128

Tenant reimbursements and other income
21,910

 
33,749

 
72,789

 
118,829

Total revenues
114,632

 
159,208

 
397,134

 
575,957

Expenses:
 
 
 
 
 
 
 
Operating expenses
49,313

 
73,571

 
157,964

 
261,128

Depreciation and amortization
29,184

 
40,522

 
102,766

 
156,858

General and administrative
13,277

 
16,249

 
38,766

 
43,718

Loss on asset impairment

 

 
43,736

 
17,162

Total expenses
91,774

 
130,342

 
343,232

 
478,866

Operating income
22,858

 
28,866

 
53,902

 
97,091

Interest and other income
3,013

 
637

 
7,184

 
4,813

Interest expense (including net amortization of debt discounts, premiums and deferred financing fees of $948, $171, $2,880 and $23, respectively)
(21,427
)
 
(25,111
)
 
(65,074
)
 
(82,926
)
(Loss) gain on early extinguishment of debt

 
(3,887
)
 
(118
)
 
6,111

Foreign currency exchange loss

 
(9,809
)
 
(5
)
 
(8,953
)
Gain on sale of properties
82,169

 
39,793

 
225,210

 
42,953

Income before income taxes
86,613

 
30,489

 
221,099

 
59,089

Income tax expense
(225
)
 
(23
)
 
(465
)
 
(2,377
)
Net income
86,388

 
30,466

 
220,634

 
56,712

Preferred distributions
(1,997
)
 
(6,981
)
 
(15,959
)
 
(20,943
)
Excess fair value of consideration paid over carrying value of preferred shares

 

 
(9,609
)
 

Net income attributable to Equity Commonwealth common shareholders
$
84,391

 
$
23,485

 
$
195,066

 
$
35,769

 
 
 
 
 
 
 
 
Weighted average common shares outstanding — basic
125,533

 
128,739

 
125,627

 
129,386

Weighted average common shares outstanding — diluted
126,568

 
129,878

 
127,009

 
130,093

Earnings per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
0.67

 
$
0.18

 
$
1.55

 
$
0.28

Diluted
$
0.67

 
$
0.18

 
$
1.54

 
$
0.27


See accompanying notes.

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EQUITY COMMONWEALTH
 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(amounts in thousands)
(unaudited)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
86,388

 
$
30,466

 
$
220,634

 
$
56,712

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized gain (loss) on derivative instruments and other assets
1,117

 
821

 
2,570

 
(843
)
Foreign currency translation adjustments

 

 

 
48,917

Total comprehensive income
$
87,505

 
$
31,287

 
$
223,204

 
$
104,786


See accompanying notes.


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EQUITY COMMONWEALTH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
 
Nine Months Ended September 30,
 
2016
 
2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
220,634

 
$
56,712

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation
79,128

 
117,239

Net amortization of debt discounts, premiums and deferred financing fees
2,880

 
23

Straight line rental income
(12,384
)
 
(3,512
)
Amortization of acquired real estate leases
18,289

 
28,386

Other amortization
11,219

 
17,224

Share-based compensation
13,871

 
11,765

Loss on asset impairment
43,736

 
17,162

Loss (gain) on early extinguishment of debt
118

 
(6,111
)
Foreign currency exchange loss
5

 
8,953

Net gain on sale of properties
(225,210
)
 
(42,953
)
Change in assets and liabilities:
 
 
 
Restricted cash
(6,119
)
 
(6,275
)
Rents receivable and other assets
(20,474
)
 
(46,607
)
Accounts payable and accrued expenses
(5,303
)
 
(5,769
)
Rent collected in advance
(3,912
)
 
(6,112
)
Security deposits
234

 
1,298

Cash provided by operating activities
116,712

 
141,423

 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Real estate improvements
(92,106
)
 
(43,396
)
Principal payments received from direct financing lease

 
5,717

Proceeds from sale of properties, net
1,034,403

 
1,425,590

Proceeds from sale of securities

 
27,068

Decrease (increase) in restricted cash
1,609

 
(3,238
)
Cash provided by investing activities
943,906

 
1,411,741

 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Purchase and retirement of common shares
(25,563
)
 
(87,983
)
Redemption of preferred shares
(275,000
)
 

Payments on borrowings
(141,591
)
 
(142,868
)
Deferred financing fees
(52
)
 
(7,143
)
Distributions to preferred shareholders
(15,959
)
 
(20,943
)
Cash used in financing activities
(458,165
)
 
(258,937
)
 
 
 
 
Effect of exchange rate changes on cash
(8
)
 
(9,581
)
 
 
 
 
Increase in cash and cash equivalents
602,445

 
1,284,646

Cash and cash equivalents at beginning of period
1,802,729

 
364,516

Cash and cash equivalents at end of period
$
2,405,174

 
$
1,649,162

See accompanying notes.

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EQUITY COMMONWEALTH 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(amounts in thousands)
(unaudited)

 
Nine Months Ended September 30,
 
2016
 
2015
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
Interest paid
$
69,373

 
$
93,598

Taxes paid
103

 
5,853

 
 
 
 
NON-CASH INVESTING ACTIVITIES:
 
 
 
Increase (decrease) in capital expenditures recorded as liabilities
$
3,191

 
$
(9,753
)

See accompanying notes.


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EQUITY COMMONWEALTH
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 1.  Basis of Presentation

The accompanying condensed consolidated financial statements of EQC have been prepared without audit.  Certain information and footnote disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K (Annual Report) for the year ended December 31, 2015.  Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.

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

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

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

Note 2.  Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This update is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. We are currently in the process of evaluating the impact, if any, the adoption of this ASU will have on our condensed consolidated financial statements.

In 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 in the process of evaluating the impact, if any, the adoption of this ASU will have on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods, but early adoption is permitted. We are currently in the process of evaluating the impact the adoption of this ASU will have on our condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases, which amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. The ASU also requires lessees or lessors to capitalize only initial direct costs of leases. This update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, but early adoption is permitted. We are currently in the process of evaluating the impact the adoption of this ASU will have on our condensed consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which provides guidance for revenue recognition. This update is effective for interim and annual reporting periods beginning after December 15, 2017.  We

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EQUITY COMMONWEALTH
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


are currently in the process of evaluating the impact, if any, the adoption of this ASU will have on our condensed consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of as a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We adopted this standard on January 1, 2016 and made the following reclassifications to the prior years' consolidated balance sheet to conform to the current year's presentation (in thousands):
Balance Sheet as of December 31, 2015
 
Originally Reported
 
Effect of Change
 
As Adjusted
Other assets, net
 
157,549

 
(13,208
)
 
144,341

Senior unsecured debt, net
 
1,460,592

 
(9,986
)
 
1,450,606

Mortgage notes payable, net
 
249,732

 
(3,222
)
 
246,510


In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, or ASU 2014-08.  ASU 2014-08 changes the criteria for reporting a discontinued operation.  Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation.  We adopted ASU 2014-08 on January 1, 2015, and determined that our 2016 dispositions, 2015 dispositions and properties held for sale as of September 30, 2016 do not individually represent a strategic shift, as defined by the standard, that has or will have a major effect on our operations and financial results. As a result, the 2016 and 2015 dispositions and properties held for sale have not been presented as discontinued operations in the statements of operations.

Note 3.  Real Estate Properties

During the nine months ended September 30, 2016 and 2015, we made improvements, excluding tenant-funded improvements, to our properties totaling $88.5 million and $46.7 million, respectively.

Properties Held For Sale:

We classify all properties that meet the criteria outlined in the Property, Plant and Equipment Topic of the FASB Accounting Standards Codification (Codification) as held for sale on our condensed consolidated balance sheets.  As of December 31, 2015, we had no properties classified as held for sale. As of September 30, 2016, we classified the following property as held for sale (dollars in thousands):
Asset
 
Date Sold
 
Number of
Properties
 
Number of
Buildings
 
Square
Footage
 
Gross Sales Price
7800 Shoal Creek Boulevard
 
October 2016
 
1

 
4

 
151,917

 
$
29,210


Summarized balance sheet information for the property classified as held for sale is as follows (in thousands):
 
September 30, 2016
Real estate properties
$
12,952

Other assets, net
511

Properties held for sale
$
13,463

 
 
Accounts payable and accrued expenses
$
337

Rent collected in advance
19

Security deposits
311

Liabilities related to properties held for sale
$
667



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EQUITY COMMONWEALTH
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Property Dispositions:

During the nine months ended September 30, 2016, we sold the following properties (dollars in thousands):

Asset
 
Date Sold
 
Number of
Properties
 
Number of
Buildings
 
Square
Footage
 
Gross Sales Price
 
Gain (Loss) on Sale
Properties
 
 
 
 
 
 
 
 
 
 
 
 
Executive Park
 
February 2016
 
1

 
9

 
427,443

 
$
50,865

 
$
16,531

3330 N Washington Boulevard
 
March 2016
 
1

 
1

 
55,719

 
11,250

 
5,455

111 East Kilbourn Avenue
 
March 2016
 
1

 
1

 
373,669

 
60,500

 
14,677

1525 Locust Street
 
April 2016
 
1

 
1

 
98,009

 
17,700

 
8,956

633 Ahua Street
 
April 2016
 
1

 
1

 
93,141

 
29,000

 
15,963

Lakewood on the Park
 
May 2016
 
1

 
2

 
180,558

 
37,100

 
13,616

Leased Land
 
June 2016
 
1

 
7

 

 
48,450

 
15,914

9110 East Nichols Avenue
 
June 2016
 
1

 
1

 
143,958

 
17,200

 
642

111 River Street(1)
 
July 2016
 
1

 
1

 
566,215

 
235,000

 
78,240

Sky Park Centre
 
July 2016
 
1

 
2

 
63,485

 
13,700

 
4,745

Raintree Industrial Park
 
July 2016
 
1

 
12

 
563,182

 
11,500

 
(653
)
8701 N Mopac
 
August 2016
 
1

 
1

 
121,901

 
21,500

 
8,394

 
 
 
 
 
 
 
 
 
 
 
 
 
Portfolios of properties
 
 
 
 
 
 
 
 
 
 
 
 
812 San Antonio Street
 
May 2016
 
1

 
1

 
59,321

 
 
 
 
1601 Rio Grande Street
 
May 2016
 
1

 
1

 
56,219

 
 
 
 
Downtown Austin portfolio
 
 
 
2

 
2

 
115,540

 
$
32,600

 
$
20,584

 
 
 
 
 
 
 
 
 
 
 
 
 
785 Schilinger Road South
 
June 2016
 
1

 
1

 
72,000

 
 
 
 
401 Vine Street
 
June 2016
 
1

 
1

 
53,980

 
 
 
 
633 Frazier Drive
 
June 2016
 
1

 
1

 
150,000

 
 
 
 
9840 Gateway Boulevard North
 
June 2016
 
1

 
1

 
72,000

 
 
 
 
3003 South Expressway 281
 
June 2016
 
1

 
1

 
150,000

 
 
 
 
1331 North Center Parkway
 
June 2016
 
1

 
1

 
53,980

 
 
 
 
Movie theater portfolio
 
 
 
6

 
6

 
551,960

 
$
109,100

 
$
30,595

 
 
 
 
 
 
 
 
 
 
 
 
 
128 Crews Drive
 
July 2016
 
1

 
1

 
185,600

 
 
 
 
111 Southchase Boulevard
 
July 2016
 
1

 
1

 
168,087

 
 
 
 
1043 Global Avenue
 
July 2016
 
1

 
1

 
450,000

 
 
 
 
South Carolina industrial portfolio
 
 
 
3

 
3

 
803,687

 
$
30,000

 
$
7,244

 
 
 
 
 
 
 
 
 
 
 
 
 
100 East Wisconsin Avenue
 
August 2016
 
1

 
1

 
435,067

 
 
 
 
111 Monument Circle
 
August 2016
 
1

 
2

 
1,121,764

 
 
 
 
101-115 W. Washington Street
 
August 2016
 
1

 
1

 
634,058

 
 
 
 
North Point Office Complex
 
August 2016
 
1

 
2

 
873,335

 
 
 
 
Midwest portfolio
 
 
 
4

 
6

 
3,064,224

 
$
416,900

 
$
(15,808
)
 
 
 
 
27

 
56

 
7,222,691

 
$
1,142,365

 
$
225,095


(1)
Property sale represented a leasehold interest. 


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EQUITY COMMONWEALTH
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


During the year ended December 31, 2015, we disposed of 91 properties (135 buildings) and one land parcel with a combined 18.9 million square feet for an aggregate gross sales price of $2.0 billion, excluding closing costs.

Note 4.  Real Estate Mortgages Receivable
 
As of September 30, 2016 and December 31, 2015, we had total real estate mortgages receivable with an aggregate carrying value of $8.1 million included in other assets in our condensed consolidated balance sheets.  We provided mortgage financing totaling $7.7 million at 6.0% per annum in connection with our sale of three suburban office and industrial properties (18 buildings) in January 2013 in Dearborn, MI; this real estate mortgage requires monthly interest payments and matures on January 24, 2023.  We also provided mortgage financing totaling $0.4 million at 6.0% per annum in connection with our sale of a suburban office property in Salina, NY in April 2012. This real estate mortgage requires monthly interest payments and matures on April 30, 2019.

We monitor the payment history of the borrowers and have determined that no allowance for losses related to these real estate mortgages receivable was necessary at September 30, 2016, and December 31, 2015

Note 5.  Indebtedness
 
Unsecured Revolving Credit Facility and Term Loan:
We are party to a credit agreement pursuant to which the lenders agreed to provide a $750.0 million unsecured revolving credit facility, a $200.0 million 5-year term loan facility, and a $200.0 million 7-year term loan facility. The revolving credit facility has a scheduled maturity date of January 28, 2019, which maturity date may be extended for up to two additional periods of six months at our option subject to satisfaction of certain conditions and the payment of an extension fee of 0.075% of the aggregate amount available under the revolving credit facility. The 5-year term loan and the 7-year term loan have scheduled maturity dates of January 28, 2020 and January 28, 2022, respectively.

The credit agreement permits us to utilize up to $100.0 million of the revolving credit facility for the issuance of letters of credit. Amounts outstanding under the credit agreement generally may be prepaid at any time without premium or penalty, subject to certain exceptions. We have the right to request increases in the aggregate maximum amount of borrowings available under the revolving credit facility and term loans up to an additional $1.15 billion, subject to certain conditions.
    
Borrowings under the 5-year term loan and 7-year term loan will, subject to certain exceptions, bear interest at a LIBOR rate plus a margin of 90 to 180 basis points for the 5-year term loan and 140 to 235 basis points for the 7-year term loan, in each case depending on our credit rating. Borrowings under the revolving credit facility will, subject to certain exceptions, bear interest at a rate equal to, at our option, either a LIBOR rate or a base rate plus a margin of 87.5 to 155 basis points for LIBOR rate advances and 0 to 55 basis points for base rate advances, in each case depending on our credit rating. In addition, we are required to pay a facility fee of 12.5 to 30 basis points, depending on our credit rating, on the borrowings available under the revolving credit facility, whether or not utilized.

Borrowings under our revolving credit facility currently bear interest at LIBOR plus a spread, which was 125 basis points as of September 30, 2016.  As of September 30, 2016, the interest rate payable on borrowings under our revolving credit facility was 1.78%.  As of September 30, 2016, we had no balance outstanding and $750.0 million available under our revolving credit facility and the facility fee as of September 30, 2016 was 0.25%. Our term loans currently bear interest at a rate of LIBOR plus a spread, which was 140 and 180 basis points for the 5-year and 7-year term loan, respectively, as of September 30, 2016.  As of September 30, 2016, the interest rates for the amounts outstanding under our 5-year term loan and 7-year term loan were 1.93% and 2.33%, respectively.  As of September 30, 2016, we had $200.0 million outstanding under each of our 5-year and 7-year term loans.

Debt Covenants:
 
Our public debt indenture and related supplements and our credit agreement contain a number of financial and other covenants, including covenants that restrict our ability to incur indebtedness or to make distributions under certain circumstances and require us to maintain financial ratios and a minimum net worth.  At September 30, 2016, we believe we

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were in compliance with all of our respective covenants under our public debt indenture and related supplements and our credit agreement.

Senior Unsecured Notes:

At September 30, 2016, we had senior unsecured notes of $925.0 million (excluding net discounts and unamortized deferred financing fees) maturing from 2017 through 2042.

On February 16, 2016, we redeemed at par $139.1 million of our 6.25% senior unsecured notes due 2016 and recognized a loss on early extinguishment of debt of $0.1 million from the write-off of an unamortized discount and unamortized deferred financing fees for the nine months ended September 30, 2016.

Mortgage Notes Payable:
 
At September 30, 2016, five of our properties (8 buildings) with an aggregate net book value of $293.3 million had secured mortgage notes totaling $244.0 million (including net premiums and unamortized deferred financing fees) maturing from 2017 through 2026.

Note 6.  Shareholders’ Equity
 
Common Share Issuances:

See Note 10 for information regarding equity issuances related to share-based compensation.

Common Share Repurchases:

On August 24, 2015, our Board of Trustees approved a common share repurchase plan, which authorizes the repurchase of up to $100.0 million of our outstanding common shares over the twelve month period following the date of authorization. On September 14, 2015, our Board of Trustees authorized the repurchase of up to an additional $100.0 million of our outstanding common shares over the twelve month period following the date of authorization. On March 17, 2016, our Board of Trustees authorized the repurchase of up to an additional $150.0 million of our outstanding common shares over the twelve month period following the date of authorization. During the nine months ended September 30, 2016, we purchased and retired 983,789 of our common shares at a weighted average price of $25.94 per share, for a total of $25.5 million. Since the inception of the common share repurchase plan through September 30, 2016, we have purchased and retired a total of 4,394,089 of our common shares at a weighted average price of $25.80 per share, for a total of $113.4 million. In August and September 2016, the first two share repurchase authorizations, of which $86.6 million was not utilized, expired. The $150.0 million of remaining authorization available under our share repurchase program as of September 30, 2016 is scheduled to expire in March 2017.

Preferred Share Redemption:

On May 15, 2016, we redeemed all of our 11,000,000 outstanding series E preferred shares at a price of $25.00 per share, for a total of $275.0 million, plus any accrued and unpaid dividends. The redemption payment occurred on May 16, 2016 (the first business day following the redemption date). We recorded $9.6 million related to the excess fair value of consideration paid over the carrying value of the preferred shares as a reduction to net income attributable to common shareholders for the nine months ended September 30, 2016.


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Preferred Share Distributions:

In 2016, our Board of Trustees declared distributions on our series D preferred shares and series E cumulative redeemable preferred shares to date as follows:

Declaration Date
 
Record Date
 
Payment Date
 
Series D Dividend Per Share
 
Series E Dividend Per Share
January 26, 2016
 
February 5, 2016
 
February 16, 2016
 
$
0.40625

 
$
0.453125

April 15, 2016
 
April 25, 2016
 
May 16, 2016
 
$
0.40625

 
$
0.453125

July 11, 2016
 
July 29, 2016
 
August 15, 2016
 
$
0.40625

 
$

October 10, 2016
 
October 28, 2016
 
November 15, 2016
 
$
0.40625

 
$


Note 7.  Cumulative Other Comprehensive Loss
 
The following tables present the amounts recognized in cumulative other comprehensive loss for the three and nine months ended September 30, 2016 (in thousands):
 
 
Unrealized Loss on Derivative Instruments
Balance as of July 1, 2016
$
(2,234
)
 
 
Other comprehensive income before reclassifications
23

Amounts reclassified from cumulative other comprehensive loss to net income
1,094

Net current period other comprehensive income
1,117

 
 
Balance as of September 30, 2016
$
(1,117
)

 
Unrealized Loss on Derivative Instruments
Balance as of January 1, 2016
$
(3,687
)
 
 
Other comprehensive loss before reclassifications
(748
)
Amounts reclassified from cumulative other comprehensive loss to net income
3,318

Net current period other comprehensive income
2,570

 
 
Balance as of September 30, 2016
$
(1,117
)

The following table presents reclassifications out of cumulative other comprehensive loss for the three and nine months ended September 30, 2016 (in thousands):
 
 
 
Amounts Reclassified from Cumulative Other Comprehensive Loss to Net Income
 
 
Details about Cumulative Other Comprehensive Loss Components
 
Three Months Ended September 30, 2016
 
Nine Months Ended September 30, 2016
 
Affected Line Items in the Statement of Operations
Interest rate swap contracts
 
$
1,094

 
$
3,318

 
Interest expense
 
Note 8.  Income Taxes
 
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and are generally not subject to federal and state income taxes provided we distribute a sufficient amount of our taxable income to our shareholders and meet other requirements for qualifying as a REIT.  We are also subject to certain state and local taxes without regard to our REIT status. In prior periods, we were subject to Australian taxes. 

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Our provision for income taxes consists of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Current:
 
 
 
 
 
 
 
State
$
225

 
$
90

 
$
465

 
$
270

Federal

 

 

 
525

Foreign

 
(67
)
 

 
2,337

 
225

 
23

 
465

 
3,132

Deferred:
 
 
 
 
 
 
 
Foreign

 

 

 
(755
)
 

 

 

 
(755
)
Income tax expense
$
225

 
$
23

 
$
465

 
$
2,377


Note 9.  Derivative Instruments

Risk Management Objective of Using Derivatives

We are exposed to certain risks relating to our ongoing business operations, including the effect of changes in interest rates.  The only risk we currently manage by using derivative instruments is related to our interest rate risk. 

We may use derivative financial instruments, including interest rate swaps, caps, options, floors and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. We do not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, we only enter into derivative financial instruments with counterparties with high credit ratings or with major financial institutions with which we and our affiliates may also have other financial relationships. We do not anticipate that any of the counterparties will fail to meet their obligations.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we periodically use interest rate swaps, caps, or other similar instruments as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in cumulative other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During 2016, such derivatives were used to hedge the variable cash flows associated with variable-rate debt. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

Amounts reported in cumulative other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next twelve months, we estimate that an additional $0.7 million will be reclassified from cumulative other comprehensive loss as an increase to interest expense.

We have interest rate swap agreements to manage our interest rate risk exposure on $168.1 million of mortgage debt due 2019, which require interest at a spread over LIBOR.  The interest rate swap agreements utilized by us qualify as cash flow hedges and effectively modify our exposure to interest rate risk by converting our floating interest rate debt to a fixed interest rate basis for this loan through December 1, 2016, thus reducing the impact of interest rate changes on future interest expense. 


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On March 4, 2016, we purchased an interest rate cap with a LIBOR strike price of 2.50%. The interest rate cap, effective April 1, 2016, has a notional amount of $400.0 million and a maturity date of March 1, 2019.

As of September 30, 2016, we had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:
Interest Rate Derivative
 
Number of Instruments
 
Notional Amount (in thousands)
Interest rate swap
 
2

 
$
168,103

Interest rate cap
 
1

 
$
400,000


The table below presents the fair value of our derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of September 30, 2016 and December 31, 2015 (amounts in thousands):
 
 
 
 
Fair Value as of
Interest Rate Derivative Designated as Hedging Instrument
 
Balance Sheet Location
 
September 30,
2016
 
December 31,
2015
Pay-fixed swaps
 
Accounts payable and accrued expenses
 
$
(707
)
 
$
(3,687
)
Interest rate cap
 
Other assets
 
$
112

 
$


The table below details the location in the financial statements of the gain or loss recognized on interest rate derivatives designated as cash flow hedges for the three and nine months ended September 30, 2016 and 2015 (amounts in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Amount of gain (loss) recognized in cumulative other comprehensive loss
$
23

 
$
(418
)
 
$
(748
)
 
$
(1,378
)
Amount of loss reclassified from cumulative other comprehensive loss into interest expense
1,094

 
1,239

 
3,318

 
3,698


Credit-risk-related Contingent Features

Our agreements with each of our derivative counterparties contain a provision providing that if we default or are capable of being declared in default on any of our indebtedness, we could also be declared in default on our derivative obligations.

As of September 30, 2016, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $1.1 million. As of September 30, 2016, we have not posted any collateral related to these agreements and were not in breach of any agreement provisions. If we had breached any of these provisions, we could have been required to settle our obligations under the agreements at their aggregate termination value of $1.1 million at September 30, 2016.

Note 10. Share-Based Compensation
Equity Commonwealth 2015 Omnibus Incentive Plan

On January 26, 2016, the Board of Trustees approved an amendment to the 2015 Omnibus Incentive Plan (as amended, the 2015 Incentive Plan) to allow the Compensation Committee (Committee) to authorize in an award agreement a transfer of all or a part of certain equity awards not for value to a “family member” (as defined in the 2015 Incentive Plan).

Recipients of the Company’s restricted shares have the same voting rights as any other common shareholder. During the period of restriction, the Company’s unvested restricted shareholders are eligible to receive dividend payments on their shares at the same rate and on the same date as any other common shareholder. Recipients of the Company’s restricted stock units (RSUs) are entitled to receive dividends with respect to the common shares underlying the RSUs if and when the RSUs are earned, at which time the recipient will be entitled to receive an amount in cash equal to the aggregate amount of cash dividends that would have been paid in respect of the common shares underlying the recipient’s earned RSUs had such common

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shares been issued to the recipient on the first day of the performance period. To the extent that an award does not vest, the dividends will be forfeited.

2016 Equity Award Activity

On June 16, 2016, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the nine independent Trustees $0.1 million in restricted shares as part of their compensation for the 2016-2017 year of service on the Board of Trustees. These awards equated to 3,463 shares per Trustee, for a total of 31,167 shares, valued at $28.88 per share, the closing price of our common shares on the New York Stock Exchange (NYSE) on that day. These shares vest one year after the date of the award.
On January 26, 2016, the Committee approved a grant of 136,623 restricted common shares and 277,386 RSUs at target to the Company’s officers, certain employees and to Mr. Zell, the Chairman of our Board of Trustees, as part of their compensation for fiscal year 2015.  
The restricted shares are service based awards and vest over a four-year period. The restricted shares were granted on January 26, 2016 and were valued at $26.93 per share, the closing price of our common shares on the NYSE on that day.
The RSUs are market based awards with a service condition and recipients may earn the RSU grants based on the Company’s total shareholder return (TSR) relative to the TSR's for the constituent REITs that comprise the NAREIT Office Index for the performance period of January 26, 2016 - January 26, 2019. Following the end of the performance period on January 26, 2019, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting on January 26, 2019 and the remaining 50% of the earned award vesting on January 26, 2020, subject to the grant recipient’s continued employment. Compensation expense for the RSU awards was determined using a Monte Carlo simulation model and is being recognized ratably from the grant date to the vesting date of each tranche.

During the nine months ended September 30, 2016, due to employee departures, 539 restricted shares were forfeited with an average price per share value at grant date of $26.82, and 1,094 RSUs were forfeited with an average per share fair value at grant date of $38.72.

2015 Equity Award Activity

On June 16, 2015, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the nine independent Trustees $0.1 million in restricted shares as part of their compensation for the 2015-2016 year of service on the Board of Trustees. These awards equated to 3,843 shares per Trustee, for a total of 34,587 shares, valued at $26.02 per share, the closing price of our common shares on the NYSE on that day. These shares vested one year after the date of the award.
On January 28, 2015, the Committee approved a grant of 126,319 restricted common shares and 256,467 RSUs at target to the Company’s officers, certain employees and to Mr. Zell, the Chairman of our Board of Trustees, as part of their compensation for fiscal year 2014.  
The restricted shares are service based awards and vest over a four-year period. The restricted shares were granted on January 28, 2015 and were valued at $26.58 per share, the closing price of our common shares on the NYSE on that day.
The RSUs are market based awards with a service condition and recipients may earn the RSU grants based on the Company’s total shareholder return (TSR) relative to the TSR's for the constituent REITs that comprise the NAREIT Office Index for the performance period of January 28, 2015 - January 28, 2018. Following the end of the performance period on January 28, 2018, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting on January 28, 2018 and the remaining 50% of the earned award vesting on January 28, 2019, subject to the grant recipient’s continued employment. Compensation expense for the RSU awards was determined using a Monte Carlo simulation model and is being recognized ratably from the grant date to the vesting date of each tranche.
During the nine months ended September 30, 2015, 8,115 restricted shares were forfeited with an average per share fair value at grant date of $26.64, and 16,475 RSUs were forfeited with an average per share fair value at grant date of $20.50.


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Outstanding Equity Awards
As of September 30, 2016, the estimated future compensation expense for all unvested restricted share grants was $14.1 million. Compensation expense for the restricted share awards is being recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The weighted average period over which the future compensation expense will be recorded for the restricted shares is approximately 2.3 years.
As of September 30, 2016, the estimated future compensation expense for all unvested RSUs was $22.2 million. The weighted average period over which the future compensation expense will be recorded for the RSUs is approximately 2.2 years.
The assumptions and fair values for the RSUs granted for the nine months ended September 30, 2016 are included in the following table on a per share basis.
 
2016
Fair value of RSUs granted
$
38.80

Expected term (years)
4

Expected volatility

Expected dividend yield
1.86
%
Risk-free rate
1.07
%
During the three months ended September 30, 2016 and 2015, we recorded $4.9 million and $3.7 million, respectively, and during the nine months ended September 30, 2016 and 2015, we recorded $13.9 million and $11.8 million, respectively, of compensation expense, net of forfeitures, in general and administrative expense for grants to our Board of Trustees and the Company's employees related to our Plan. At September 30, 2016, 2,358,464 common shares remain available for issuance under the Plan.
Note 11.  Fair Value of Assets and Liabilities
 
The table below presents certain of our assets and liabilities measured at fair value during 2016, categorized by the level of inputs used in the valuation of each asset and liability (dollars in thousands):
 
 
 
 
 
Fair Value at September 30, 2016 Using
 
 
 
 
Quoted Prices in Active Markets for
Identical Assets
 
Significant Other
Observable Inputs
 
Significant Unobservable
Inputs
Description
 
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Recurring Fair Value Measurements:
 
 
 
 
 
 
 
 
Effective portion of interest rate swap contracts
 
$
(707
)
 
$

 
$
(707
)
 
$

Effective portion of interest rate cap contract
 
112

 

 
112

 


Effective Portion of Interest Rate Swap and Cap Contracts

The fair value of our interest rate swap and cap contracts is determined using the net discounted cash flows of each derivative based on the market based interest rate curve (level 2 inputs) and adjusted for our credit spread and the actual and estimated credit spreads of the counterparties (level 3 inputs).  Although we have determined that the majority of the inputs used to value our derivatives fall within level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and the counterparties.  As of September 30, 2016, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives.  As a result, we have determined that our derivative valuations in their entirety are classified as level 2 inputs in the fair value hierarchy.


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Derivative Liability

On July 31, 2014, our shareholders voted to approve the reimbursement of verified expenses incurred by Related Fund Management, LLC and Corvex Management LP (Related/Corvex) (see Note 14 for additional information). Approximately $16.7 million was paid during the year ended December 31, 2014. Up to $8.4 million was to be reimbursed only if the average closing price of our common shares was at least $26.00 (as adjusted for any share splits or share dividends) during the one year period after the date on which the reimbursement was approved by shareholders, and up to $8.4 million was to be reimbursed only if the average closing price of our common shares was at least $26.00 (as adjusted for any share splits or share dividends) during the one year period between the first and second anniversaries of the date on which the reimbursement was approved by shareholders. The average closing price of our common shares was at least $26.00 during both the first and second one year periods after the date on which the reimbursement was approved by shareholders, and as a result, in August 2016 and 2015 we paid an $8.2 million final payment and $8.4 million, respectively, to Related/Corvex.

Prior to the payment of the reimbursement in August 2016, the potential future reimbursement of $8.4 million for the second one year period represented a derivative instrument as codified in ASC 815 Derivatives and Hedging which required the potential future reimbursement to be recorded at fair value at each reporting date. The fair value of the derivative liability as of September 30, 2016 and December 31, 2015 was $0 and $7.2 million, respectively. We recognized (income) expense of $(0.1) million and $1.0 million for the three and nine months ended September 30, 2016, respectively, which was recorded in general and administrative expenses in our condensed consolidated statement of operations for such periods.

Properties Held and Used

As part of our disposition plan, and pursuant to our accounting policy, in 2016, we evaluated the recoverability of the carrying values of each of the real estate assets that comprised our portfolio and determined that due to the shortening of the expected periods of ownership as a result of the disposition plan and current estimates of market value, it was necessary to reduce the net book value of a portion of the real estate assets in our portfolio to their estimated fair values. We anticipate the potential disposition of certain properties prior to the end of their remaining useful lives. As a result, in the second quarter, we recorded an impairment charge related to 111 Monument Circle, 101-115 W. Washington Street and 100 East Wisconsin Avenue of $43.7 million for the nine months ended September 30, 2016 in accordance with our impairment analysis procedures. We determined these impairments based on third party offer prices and independent third party broker information, which are level 2 inputs according to the fair value hierarchy established in ASC 820. We reduced the aggregate carrying value of these properties from $308.6 million to their estimated fair value of $264.9 million. These properties were sold in August 2016 (see Note 3 for additional information). We evaluated each of our properties and determined there were no additional valuation adjustments necessary at September 30, 2016.

Financial Instruments

In addition to the assets and liabilities described in the above table, our financial instruments include our cash and cash equivalents, real estate mortgages receivable, restricted cash, senior unsecured debt and mortgage notes payable.  At September 30, 2016 and December 31, 2015, the fair value of these additional financial instruments were not materially different from their carrying values, except as follows (in thousands):
 
 
September 30, 2016
 
December 31, 2015
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Senior unsecured debt and mortgage notes payable, net
$
1,557,260

 
$
1,618,274

 
$
1,697,116

 
$
1,749,211

 
The fair values of our senior notes and mortgage notes payable are based on estimates using discounted cash flow analyses and currently prevailing interest rates adjusted by credit risk spreads (level 3 inputs).

Our cash and cash equivalents consists of cash maintained in time deposits, depository accounts and money market accounts.  From time-to-time we may also invest in various U.S. government securities.  We continually monitor the credit ratings of the financial institutions holding our deposits to minimize our exposure to credit risk.  Throughout the year, we have cash balances in excess of federally insured limits deposited with various financial institutions. We do not believe we are exposed to any significant credit risk on cash and cash equivalents.

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Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable; however, as of September 30, 2016, no single tenant of ours is responsible for more than 5.5% of our total annualized rents.
 
Our derivative financial instruments, including interest rate swaps and cap, are entered with major financial institutions and we monitor the amount of credit exposure to any one counterparty.

Note 12.  Earnings Per Common Share

The following table sets forth the computation of basic and diluted earnings per share (amounts in thousands except per share amounts):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Numerator for earnings per common share - basic and diluted:
 

 
 

 
 
 
 
Net income
$
86,388

 
$
30,466

 
$
220,634

 
$
56,712

Preferred distributions
(1,997
)
 
(6,981
)
 
(15,959
)
 
(20,943
)
Excess fair value of consideration paid over carrying value of preferred shares

 

 
(9,609
)
 

Numerator for net income per share
$
84,391

 
$
23,485

 
$
195,066


$
35,769

 
 
 
 
 
 
 
 
Denominator for earnings per common share - basic and diluted:
 
 
 
 
 
 
 
Weighted average number of common shares outstanding - basic
125,533

 
128,739

 
125,627

 
129,386

Weighted average number of common shares outstanding - diluted(1)
126,568

 
129,878

 
127,009

 
130,093

 
 
 
 
 
 
 
 
Net income per common share attributable to Equity Commonwealth common shareholders:
 
 
 
 
 
 
 
Basic
$
0.67

 
$
0.18

 
$
1.55

 
$
0.28

Diluted
$
0.67

 
$
0.18

 
$
1.54

 
$
0.27

 
 
 
 
 
 
 
 
Anti-dilutive securities:
 
 
 
 
 
 
 
Effect of Series D preferred shares; 6 1/2% cumulative convertible(2)
2,363

 
2,363

 
2,363

 
2,363


(1)
As of September 30, 2016, we had granted RSUs to certain employees, officers, and the chairman of the Board of Trustees.  The RSUs contain both service and market-based vesting components.  None of the RSUs have vested. If the market-based vesting component was measured as of September 30, 2016, and 2015, 1,035 and 1,139 common shares would be issued to the RSU holders, respectively. Using a weighted average basis, 1,035 and 1,139 common shares are reflected in diluted earnings per share for the three months ended September 30, 2016 and 2015, respectively and 1,382 and 707 common shares are reflected in diluted earnings per share for the nine months ended September 30, 2016 and 2015, respectively.
(2)
The Series D preferred shares are excluded from the diluted earnings per share calculation because including the Series D preferred shares would also require that the preferred distributions be added back to net income, resulting in anti-dilution during the periods presented.

Note 13.  Segment Information
 
Our primary business is the ownership and operation of office properties, and we currently have one reportable segment.  Due to significant dispositions, during the fourth quarter of 2015, we changed the composition of our operating segments from two reportable segments (central business district properties and suburban properties) to one reportable segment.  This change

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was made based on the financial information reviewed and used by the chief operating decision maker to make operating decisions, assess performance, develop strategy and allocate capital resources. More than 95% of our revenues for the nine months ended September 30, 2016 are from office properties. 

Note 14.  Related Person Transactions
 
The following discussion includes a description of our related person transactions for the nine months ended September 30, 2016 and 2015.

Related Person Transactions Following the Special Meeting:
 
Equity Group Investments and associated entities: 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 initial term of the lease is approximately five years, with one 5-year renewal option. We recently completed improvements to the office space utilizing the $0.7 million tenant improvement allowance provided for by the lease. In connection with the 20th/21st Floor Office Lease, we also have a lease with Two North Riverside Plaza Joint Venture Limited Partnership for storage space in the basement of Two North Riverside Plaza. The lease expires December 31, 2020, however each party has the right to terminate on 30 days' prior written notice. During the three and nine months ended September 30, 2016, we recognized expense of $0.2 million and $0.6 million, respectively, pursuant to the 20th/21st Floor Office Lease and the related storage space.

We had a license agreement with Equity Group Investments, a private investment firm (Equity Group), to use office space on the sixth floor at Two North Riverside Plaza. The license fee included the non-exclusive use of additional areas on the sixth floor (such as conference rooms and common areas), certain administrative services (such as mail room services and reception desk staffing), office equipment, office furniture, supplies, licensee’s share of building operating expenses and real estate taxes and access to one parking space. Mr. Zell, our Chairman, is the Chairman and Chief Executive Officer of Equity Group, and Mr. Helfand, our President and Chief Executive Officer, is the Co-President of Equity Group. The license agreement was terminated as of December 30, 2015. During the three and nine months ended September 30, 2015, we recognized expense of $46,000 and $0.1 million, respectively, pursuant to the license agreement.

We had a sublease with Equity Residential Management, L.L.C. to occupy office space on the tenth floor of Two North Riverside Plaza. Equity Residential Management, L.L.C. leases the space from Two North Riverside Plaza Joint Venture Limited Partnership. The sublease agreement was terminated as of December 30, 2015. During the three and nine months ended September 30, 2015, we recognized expense of $0.1 million and $0.3 million, respectively, pursuant to the tenth floor office sublease.

Related/Corvex: On July 31, 2014, at the reconvened session of our 2014 annual meeting of shareholders, our shareholders voted to approve the reimbursement of approximately $33.5 million of verified expenses incurred by Related/Corvex since February 2013 in connection with their consent solicitations to remove our former Trustees and elect the new Board of Trustees and to engage in related litigation. Approximately $16.7 million was paid during the year ended December 31, 2014.  Up to $8.4 million was to be reimbursed only if the average closing price of our common shares was at least $26.00 (as adjusted for any share splits or share dividends) during the one year period after the date on which the reimbursement was approved by shareholders, and up to $8.4 million was to be reimbursed only if the average closing price of our common shares was at least $26.00 (as adjusted for any share splits or share dividends) during the one year period between the first and second anniversaries of the date on which the reimbursement was approved by shareholders. The average closing price of our common shares was at least $26.00 during both the first and second one year periods after the date on which the reimbursement was approved by shareholders, and as a result, in August 2016 and 2015 we paid an $8.2 million final payment and $8.4 million, respectively, to Related/Corvex.

Transactions with Prior Related Persons:

Certain related person transactions, and their approvals, relate to Reit Management & Research LLC (RMR) and RMR Australia Asset Management Pty Ltd (together, Former Manager) or occurred prior to the election of our new Board of Trustees at the special meeting of shareholders held on May 23, 2014 (Special Meeting) and the appointment of our current executive officers following the Special Meeting, as described below.

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EQUITY COMMONWEALTH
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


 
Termination and Cooperation Agreement: On September 30, 2014, we entered into a termination and cooperation agreement (Cooperation Agreement) with Former Manager. Under the terms of the agreement, the existing business and property management agreements with RMR terminated effective September 30, 2014.

Pursuant to the Cooperation Agreement, through February 28, 2015, Former Manager agreed to use best efforts to assist us in the transition of our management and operations. We paid Former Manager $1.2 million per month for transition services from October 1, 2014 to February 28, 2015, which included continued management and other services for the Australian assets pursuant to the Australian Management Agreement. Beginning March 1, 2015, we agreed to pay Former Manager $0.1 million per month until we no longer required such services or until the Australia Management Agreement was terminated, which was terminated in the third quarter of 2015, effective October 31, 2015. There is no future obligation to pay any fees to Former Manager.

Note 15.  Subsequent Events
 
In October 2016, we sold one property (four buildings), with 151,917 square feet for $29.2 million, excluding closing costs.  This property was classified as held for sale as of September 30, 2016 (see Note 3).

In October 2016, we purchased a parcel of land adjacent to our Research Park property in Austin, Texas for $2.8 million.

On November 1, 2016, we delivered notice of our intent to redeem at par our $250 million 6.25% senior unsecured notes due 2017 on December 15, 2016.  The notes will be redeemed for cash at a price equal to 100% of the principal amount of the notes plus any accrued and unpaid interest up to, but excluding, the redemption date.




    




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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included in this Quarterly Report, and in our Annual Report.

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

OVERVIEW
 
We are an internally managed and self-advised REIT engaged in the ownership and operation primarily of office buildings throughout the United States. We were formed in 1986 under Maryland law.

At September 30, 2016, our portfolio, excluding properties held for sale, included 37 properties (67 buildings) with a combined 16.7 million square feet for a total investment of $2.9 billion at cost and a depreciated book value of $2.2 billion.

As of September 30, 2016, our overall portfolio was 91.2% leased. During the three months ended September 30, 2016, we entered into leases for 237,000 square feet, including lease renewals for 46,000 square feet and new leases for 191,000 square feet.  Renewal leases entered into during the three months ended September 30, 2016 had weighted average cash and GAAP rental rates that were approximately 14.6% higher and 24.2% higher, respectively, as compared to prior rental rates for the same space, and new leases entered into during the three months ended September 30, 2016 had weighted average cash and GAAP rental rates that were approximately 12.6% lower and 3.4% 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 years of term for the newly executed leases compared to the prior leases.

Throughout 2016, our management team has continued to focus on executing our plan to reshape our portfolio in order to create long-term value for shareholders. We are continuing to dispose of properties that do not meet our long-term goals. Specifically, we continue to implement the strategy adopted by our Board of Trustees to consider disposing of assets that have one or more of the following attributes:

assets that do not offer an opportunity to create a competitive advantage;
assets that are less than 150,000 square feet;
assets that are not office buildings;
assets that are not located in the U.S.; or
assets that produce a low cash yield or require significant capital expenditures.


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We are in the process of executing this strategy and, depending on market conditions, will likely sell additional properties. During the year ended December 31, 2015, we disposed of 91 properties (135 buildings) and one land parcel with a combined 18.9 million square feet for an aggregate gross sales price of $2.0 billion, excluding closing costs.

During the nine months ended September 30, 2016, we sold 27 properties (56 buildings) with a combined 7.2 million square feet for an aggregate gross sales price of $1.1 billion, excluding closing costs. In October 2016, we sold one property (four buildings), with 151,917 square feet for $29.2 million, excluding closing costs. This property was classified as held for sale as of September 30, 2016. For more information regarding this transaction, see Notes 3 and 15 to the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.

We have generated significant proceeds from our dispositions to date and have a cash balance of $2.4 billion as of September 30, 2016. We expect to reinvest the capital received from dispositions to purchase new properties, repay debt, buy back common shares or make other investments or distributions that further our long-term strategic goals. However, we may not be able to make suitable acquisitions or other investments with the proceeds from the dispositions. In addition, as our real estate investments have decreased, our income from operations has also declined.

As part of the disposition plan noted above, and pursuant to our accounting policy, in 2016, we evaluated the recoverability of the carrying values of each of the real estate assets that comprised our portfolio and determined that due to the shortening of the expected periods of ownership as a result of the disposition plan and current estimates of market value, it was necessary to reduce the net book value of a portion of the real estate assets in our portfolio to their estimated fair values. As a result, we recorded an impairment charge of $43.7 million for the nine months ended September 30, 2016 in accordance with our impairment analysis procedures.

The Board of Trustees intends to make a decision about declaring a dividend on our common shares of beneficial ownership after evaluation of the Company's taxable income, including gains or losses from asset sales. The Board of Trustees has regularly reviewed our dividend policy and will continue to do so, at least annually.

We have engaged CBRE, Inc. (CBRE) to provide property management services for our properties. We pay CBRE a property-by-property management fee and may engage CBRE from time-to-time to perform project management services, such 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 September 30, 2016 and 2015, we incurred expenses of $6.3 million and $9.8 million, respectively, and for the nine months ended September 30, 2016 and 2015, we incurred expenses of $20.6 million and $34.6 million, respectively, related to our property management agreement with CBRE, for property management fees, typically calculated as a portion of the properties' revenues, and salary and benefits reimbursements for property personnel, such as property managers, engineers and maintenance staff.  As of September 30, 2016 and December 31, 2015, we had amounts payable pursuant to these services of $3.5 million.

Property Operations

Leased occupancy data for 2016 and 2015 are as follows (square feet in thousands):
 
 
All Properties(1)
 
Comparable Properties(2)
 
As of September 30,
 
As of September 30,
 
2016
 
2015
 
2016
 
2015
Total properties
37

 
67

 
37

 
37

Total square feet
16,710

 
25,258

 
16,710

 
16,635

Percent leased(3)
91.2
%
 
91.9
%
 
91.2
%
 
92.5
%

(1)
Excludes properties sold or classified as held for sale in the period. 
(2)
Based on properties owned continuously from January 1, 2015 through September 30, 2016, and excludes properties sold or classified as held for sale during the period.
(3)
Percent leased includes (i) space being fitted out for occupancy pursuant to existing leases and (ii) space which is leased but is not occupied or is being offered for sublease by tenants.
 

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The weighted average lease term based on square feet for leases entered into during the three months ended September 30, 2016 was 7.4 years.  Commitments made for leasing expenditures and concessions, such as tenant improvements and leasing commissions, for leases entered into during the three months ended September 30, 2016 totaled $11.0 million, or $47.06 per square foot on average (approximately $6.37 per square foot per year of the lease term).
 
As of September 30, 2016, approximately 1.5% of our leased square feet and 0.6% of our annualized rental revenue, determined as set forth below, are included in leases scheduled to expire through December 31, 2016.  Renewed 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 2016 are slightly above market. Lease expirations by year, as of September 30, 2016, are as follows (square feet and dollars in thousands):
Year
 
Number
of Tenants Expiring
 
Leased Square
 Feet Expiring(1)
 
% of Leased
Square Feet Expiring(1)
 
Cumulative
% of Leased Square
Feet Expiring(1)
 
Annualized Rental
Revenue Expiring(2)
 
% of
Annualized Rental
Revenue Expiring
 
Cumulative
% of
Annualized Rental Revenue Expiring
2016
 
42

 
221

 
1.5
%
 
1.5
%
 
$
2,448

 
0.6
%
 
0.6
%
2017
 
88

 
974

 
6.4
%
 
7.9
%
 
26,180

 
6.9
%
 
7.5
%
2018
 
79

 
1,117

 
7.3
%
 
15.2
%
 
34,152

 
9.1
%
 
16.6
%
2019
 
89

 
1,269

 
8.3
%
 
23.5
%
 
31,916

 
8.5
%
 
25.1
%
2020
 
80

 
3,313

 
21.7
%
 
45.2
%
 
63,570

 
16.9
%
 
42.0
%
2021
 
71

 
1,641

 
10.8
%
 
56.0
%
 
46,947

 
12.4
%
 
54.4
%
2022
 
37

 
755

 
5.0
%
 
61.0
%
 
26,668

 
7.1
%
 
61.5
%
2023
 
46

 
1,602

 
10.5
%
 
71.5
%
 
45,963

 
12.2
%
 
73.7
%
2024
 
19

 
601

 
3.9
%
 
75.4
%
 
10,932

 
2.9
%
 
76.6
%
2025
 
18

 
729

 
4.8
%
 
80.2
%
 
20,039

 
5.3
%
 
81.9
%
Thereafter
 
44

 
3,011

 
19.8
%
 
100.0
%
 
68,227

 
18.1
%
 
100.0
%
 
 
613

 
15,233

 
100.0
%
 
 
 
$
377,042

 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average remaining lease term (in years):
 
 
 
5.8

 
 
 
 
 
5.6

 
 
 
 

(1)
Square footage is pursuant to existing leases as of September 30, 2016, excluding leases related to properties classified as held for sale, and includes (i) space being fitted out for occupancy and (ii) space which is leased but is not occupied or is being offered for sublease. 
(2)
Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of September 30, 2016, plus estimated recurring expense reimbursements; includes triple net lease rents and excludes lease value amortization, straight line rent adjustments, abated ("free") rent periods and parking revenue. We calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported, adding abated rent, and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues.  Annualized rental revenue is a forward-looking non-GAAP measure.  Annualized rental revenue cannot be reconciled to a comparable GAAP measure without unreasonable efforts, primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported, whereas historical GAAP measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates.
 
 

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A principal source of funds for our operations is rents from tenants at our properties.  Rents are generally received from our tenants monthly in advance, except from our government tenants, who usually pay rents monthly in arrears.  As of September 30, 2016, tenants representing 1% or more of our total annualized rental revenue were as follows (square feet in thousands):
Tenant(1)
 
Square Feet(2)
 
% of Total Square Feet(2)
 
% of Annualized Rental Revenue(3)
 
Weighted Average Remaining Lease Term
1.
Expedia, Inc.
 
427

 
2.8
%
 
5.3
%
 
3.2
2.
Office Depot, Inc.
 
640

 
4.2
%
 
4.4
%
 
7.1
3.
PNC Financial Services Group
 
368

 
2.4
%
 
3.2
%
 
4.7
4.
Groupon, Inc. (4)
 
376

 
2.5
%
 
3.1
%
 
9.3
5.
Flextronics International Ltd.
 
1,051

 
6.9
%
 
2.9
%
 
3.2
6.
University of Pennsylvania Health System
 
267

 
1.8
%
 
2.2
%
 
9.1
7.
Ballard Spahr LLP
 
217

 
1.4
%
 
2.1
%
 
13.4
8.
RE/MAX Holdings, Inc.
 
248

 
1.6
%
 
2.0
%
 
11.6
9.
Exelon Corporation
 
183

 
1.2
%
 
1.8
%
 
1.7
10.
Georgetown University
 
240

 
1.6
%
 
1.7
%
 
3.0
11.
Towers Watson & Co
 
251

 
1.6
%
 
1.7
%
 
3.5
12.
M&T Bank Corporation
 
211

 
1.4
%
 
1.6
%
 
2.0
13.
Wm. Wrigley Jr. Company
 
150

 
1.0
%
 
1.5
%
 
5.3
14.
West Corporation
 
336

 
2.2
%
 
1.4
%
 
12.4
15.
Truven Health Analytics
 
179

 
1.2
%
 
1.3
%
 
0.4
16.
TheraCom, LLC
 
156

 
1.0
%
 
1.2
%
 
6.3
17.
Baxalta, Inc.
 
260

 
1.7
%
 
1.2
%
 
11.8
18.
Level 3 Communications, Inc.
 
95

 
0.6
%
 
1.1
%
 
9.3
19.
Capital One Financial Corp.
 
241

 
1.6
%
 
1.1
%
 
2.3
20.
The United States Government
 
107

 
1.6
%
 
1.1
%
 
0.9
21.
ProQuest, LLC
 
131

 
0.9
%
 
1.1
%
 
4.6
 
Total
 
6,134

 
41.2
%
 
43.0
%
 
5.9

(1)
Tenants located in properties classified as held for sale are excluded.
(2)
Square footage is pursuant to existing leases as of September 30, 2016, and includes (i) space being fitted out for occupancy and (ii) space which is leased but is not occupied or is being offered for sublease. 
(3)
Annualized rental revenue is annualized contractual rents from our tenants pursuant to leases which have commenced as of September 30, 2016, plus estimated recurring expense reimbursements; includes triple net lease rents and excludes lease value amortization, straight line rent adjustments, abated ("free") rent periods and parking revenue. We calculate annualized rental revenue by aggregating the recurring billings outlined above for the most recent month during the quarter reported, adding abated rent, and multiplying the sum by 12 to provide an estimation of near-term potentially-recurring revenues.  Annualized rental revenue is a forward-looking non-GAAP measure.  Annualized rental revenue cannot be reconciled to a comparable GAAP measure without unreasonable efforts, primarily due to the fact that it is calculated from the billings of tenants in the most recent month at the most recent rental rates during the quarter reported, whereas historical GAAP measures include billings from a potentially different group of tenants over multiple months at potentially different rental rates.
(4)
Groupon, Inc. statistics include 207,536 square feet that are sublet from Bankers Life and Casualty Company.
 
Financing Activities

On May 15, 2016, we redeemed all of our 11,000,000 outstanding series E preferred shares at a price of $25.00 per share, for a total of $275.0 million, plus any accrued and unpaid dividends. The redemption payment occurred on May 16, 2016 (the first business day following the redemption date).

On February 16, 2016, we redeemed at par $139.1 million of our 6.25% senior unsecured notes due 2016 and recognized a loss on early extinguishment of debt of $0.1 million from the write-off of an unamortized discount and unamortized deferred financing fees for the nine months ended September 30, 2016.

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Table of Contents


On March 4, 2016, we purchased an interest rate cap with a LIBOR strike price of 2.50%. The interest rate cap, effective April 1, 2016, has a notional amount of $400.0 million and a maturity date of March 1, 2019.

For more information regarding our financing sources and activities, please see the section captioned “Liquidity and Capital Resources—Our Investment and Financing Liquidity and Resources” below.


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Table of Contents

RESULTS OF OPERATIONS 

Three Months Ended September 30, 2016, Compared to Three Months Ended September 30, 2015
 
Comparable Properties Results(1)
 
Other Properties Results(2)
 
Consolidated Results
 
Three Months Ended September 30,
 
2016
 
2015
 
$ Change
 
% Change
 
2016
 
2015
 
2016
 
2015
 
$ Change
 
% Change
 
(in thousands)
Rental income
$
81,574

 
$
77,465

 
$
4,109

 
5.3
 %
 
$
11,148

 
$
47,994

 
$
92,722

 
$
125,459

 
$
(32,737
)
 
(26.1
)%
Tenant reimbursements and other income
18,783

 
20,777

 
(1,994
)
 
(9.6
)%
 
3,127

 
12,972

 
21,910

 
33,749

 
(11,839
)
 
(35.1
)%
Operating expenses
(42,408
)
 
(42,230
)
 
(178
)
 
0.4
 %
 
(6,905
)
 
(31,341
)
 
(49,313
)
 
(73,571
)
 
24,258

 
(33.0
)%
Net operating income(3)
$
57,949

 
$
56,012

 
$
1,937

 
3.5
 %
 
$
7,370

 
$
29,625

 
65,319

 
85,637

 
(20,318
)
 
(23.7
)%
Other expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
29,184

 
40,522

 
(11,338
)
 
(28.0
)%
General and administrative
 
 
 
 
 
 
 
 
 
 
 
 
13,277

 
16,249

 
(2,972
)
 
(18.3
)%
Total other expenses
 
 
 
 
 
 
 
 
 
 
 
42,461

 
56,771

 
(14,310
)
 
(25.2
)%
Operating income
 
 
 
 
 
 
 
 
 
 
 
 
22,858

 
28,866

 
(6,008
)
 
(20.8
)%
Interest and other income
 
 
 
 
 
 
 
 
 
 
 
 
3,013

 
637

 
2,376

 
373.0
 %
Interest expense
 
 
 
 
 
 
 
 
 
 
 
 
(21,427
)
 
(25,111
)
 
3,684

 
(14.7
)%
Loss on early extinguishment of debt
 
 
 
 
 
 
 
 
 

 
(3,887
)
 
3,887

 
(100.0
)%
Foreign currency exchange loss
 
 
 
 
 
 
 
 
 
 
 

 
(9,809
)
 
9,809

 
(100.0
)%
Gain on sale of properties
 
 
 
 
 
 
 
 
 
 
 
82,169

 
39,793

 
42,376

 
106.5
 %
Income before income taxes
 
 
 
 
 
 
 
 
 
86,613

 
30,489

 
56,124

 
184.1
 %
Income tax expense
 
 
 
 
 
 
 
 
 
 
 
(225
)
 
(23
)
 
(202
)
 
878.3
 %
Net income
 
 
 
 
 
 
 
 
 
 
 
 
86,388

 
30,466

 
55,922