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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
For the quarterly period ended June 30, 2022
OR
         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)
Maryland04-6558834
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)
Two North Riverside Plaza, Suite 2100, Chicago, IL
60606
(Address of Principal Executive Offices)(Zip Code)
(312) 646-2800
(Registrant’s Telephone Number, Including Area Code)

 Securities registered pursuant to Section 12(b) of the Exchange Act:
Title Of Each ClassTrading SymbolName of Each Exchange On Which Registered
Common Shares of Beneficial InterestEQCThe New York Stock Exchange
6.50% Series D Cumulative Convertible Preferred Shares of Beneficial InterestEQCpDThe New York Stock Exchange
Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý  No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ý  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ý
Number of registrant’s common shares of beneficial interest, $0.01 par value per share, outstanding as of July 28, 2022:  111,241,842.



EQUITY COMMONWEALTH
 
FORM 10-Q
 
June 30, 2022
 
INDEX




 
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 June 30, 2022, unless the context indicates otherwise.

i

PART I.      Financial Information

Item 1.         Financial Statements.
EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
(unaudited)
June 30,
2022
December 31,
2021
(audited)
ASSETS
Real estate properties:
Land$44,060 $44,060 
Buildings and improvements363,990 362,042 
408,050 406,102 
Accumulated depreciation(163,451)(156,439)
244,599 249,663 
Cash and cash equivalents2,691,503 2,800,998 
Rents receivable15,960 15,549 
Other assets, net16,418 15,173 
Total assets$2,968,480 $3,081,383 
LIABILITIES AND EQUITY
Accounts payable, accrued expenses and other$18,619 $19,762 
Rent collected in advance2,763 3,986 
Distributions payable1,276 2,365 
Total liabilities22,658 26,113 
Shareholders’ equity:
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;
Series D preferred shares; 6.50% cumulative convertible; 4,915,196 shares issued and
   outstanding, aggregate liquidation preference of $122,880
119,263 119,263 
Common shares of beneficial interest, $0.01 par value: 350,000,000 shares authorized;
   111,241,842 and 115,205,818 shares issued and outstanding, respectively
1,112 1,152 
Additional paid in capital4,018,440 4,128,656 
Cumulative net income3,802,750 3,798,552 
Cumulative common distributions(4,281,442)(4,281,195)
Cumulative preferred distributions(721,694)(717,700)
Total shareholders’ equity2,938,429 3,048,728 
Noncontrolling interest7,393 6,542 
Total equity2,945,822 3,055,270 
Total liabilities and equity$2,968,480 $3,081,383 
See accompanying notes.
1

EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenues:
Rental revenue$14,426 $14,114 $30,266 $28,283 
Other revenue1,115 761 1,961 1,443 
Total revenues15,541 14,875 32,227 29,726 
Expenses:
Operating expenses6,592 6,588 11,125 13,209 
Depreciation and amortization4,313 4,432 8,725 8,783 
General and administrative7,646 7,390 15,648 23,119 
Total expenses18,551 18,410 35,498 45,111 
Interest and other income, net5,963 1,626 7,537 3,469 
Income (loss) before income taxes
2,953 (1,909)4,266 (11,916)
Income tax expense(50)(31)(58)(62)
Net income (loss)2,903 (1,940)4,208 (11,978)
Net (income) loss attributable to noncontrolling interest(7)4 (10)24 
Net income (loss) attributable to Equity Commonwealth2,896 (1,936)4,198 (11,954)
Preferred distributions(1,997)(1,997)(3,994)(3,994)
Net income (loss) attributable to Equity Commonwealth common shareholders
$899 $(3,933)$204 $(15,948)
Weighted average common shares outstanding — basic112,005 122,189 112,868 122,096 
Weighted average common shares outstanding — diluted113,380 122,189 113,785 122,096 
Earnings per common share attributable to Equity Commonwealth common shareholders:
Basic$0.01 $(0.03)$0.00 $(0.13)
Diluted
$0.01 $(0.03)$0.00 $(0.13)

See accompanying notes.
2

EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(amounts in thousands, except share data)
(unaudited)
 Equity Commonwealth Shareholders
Number of Series D Preferred SharesSeries D Preferred
Shares
Number of Common SharesCommon
Shares
Additional
Paid
in
Capital
Cumulative
Net
Income
Cumulative
Common
Distributions
Cumulative
Preferred
Distributions
Noncontrolling InterestTotal
Balance at April 1, 2022
4,915,196 $119,263 112,670,401 $1,127 $4,053,256 $3,799,854 $(4,280,826)$(719,697)$7,290 $2,980,267 
Net income
— — — — — 2,896 — — 7 2,903 
Repurchase of shares
— — (1,446,026)(14)(37,541)— — — — (37,555)
Surrender of shares for tax withholding— — (940)(1)(26)— — — — (27)
Share-based compensation
— — 18,407 — 2,611 — — — 382 2,993 
Distributions
— — — — — — (616)(1,997)(146)(2,759)
Adjustment for noncontrolling interest
— — — — 140 — — — (140)— 
Balance at June 30, 2022
4,915,196 $119,263 111,241,842 $1,112 $4,018,440 $3,802,750 $(4,281,442)$(721,694)$7,393 $2,945,822 
Balance at January 1, 2022
4,915,196 $119,263 115,205,818 $1,152 $4,128,656 $3,798,552 $(4,281,195)$(717,700)$6,542 $3,055,270 
Net income— — — — — 4,198 — — 10 4,208 
Repurchase of shares— — (4,297,056)(43)(111,256)— — — — (111,299)
Surrender of shares for tax withholding— — (160,506)(2)(4,158)— — — — (4,160)
Share-based compensation— — 493,586 5 5,458 — — — 706 6,169 
Contributions— — — — — — — — 1 1 
Distributions— — — — — — (247)(3,994)(126)(4,367)
Adjustment for noncontrolling interest
— — — — (260)— — — 260 — 
Balance at June 30, 2022
4,915,196 $119,263 111,241,842 $1,112 $4,018,440 $3,802,750 $(4,281,442)$(721,694)$7,393 $2,945,822 














3

EQUITY COMMONWEALTH
 CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (CONTINUED)
(amounts in thousands, except share data)
(unaudited)
 Equity Commonwealth Shareholders
Number of Series D Preferred SharesSeries D Preferred
Shares
Number of Common
Shares
Common
Shares
Additional
Paid
in
Capital
Cumulative
Net
Income
Cumulative
Common
Distributions
Cumulative
Preferred
Distributions
Noncontrolling InterestTotal
Balance at April 1, 2021
4,915,196 $119,263 121,916,875 $1,219 $4,295,226 $3,804,930 $(4,283,753)$(711,709)$6,442 $3,231,618 
Net loss
— — — — — (1,936)— — (4)(1,940)
Surrender of shares for tax withholding— — (33,695)— (948)— — — — (948)
Share-based compensation
— — 57,175 — 2,683 — — — 231 2,914 
Distributions
— — — — — — 2,083 (1,997)106 192 
Adjustment for noncontrolling interest
— — — — 236 — — — (236)— 
Balance at June 30, 2021
4,915,196 $119,263 121,940,355 $1,219 $4,297,197 $3,802,994 $(4,281,670)$(713,706)$6,539 $3,231,836 
Balance at January 1, 2021
4,915,196 $119,263 121,522,555 $1,215 $4,294,632 $3,814,948 $(4,283,668)$(709,712)$6,486 $3,243,164 
Net loss— — — — — (11,954)— — (24)(11,978)
Surrender of shares for tax withholding— — (244,029)(2)(7,039)— — — — (7,041)
Share-based compensation— — 661,829 6 9,088 — — — 507 9,601 
Distributions— — — — — — 1,998 (3,994)86 (1,910)
Adjustment for noncontrolling interest— — — — 516 — — — (516)— 
Balance at June 30, 2021
4,915,196 $119,263 121,940,355 $1,219 $4,297,197 $3,802,994 $(4,281,670)$(713,706)$6,539 $3,231,836 

See accompanying notes.
4

EQUITY COMMONWEALTH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
Six Months Ended June 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)$4,208 $(11,978)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation7,476 7,531 
Straight-line rental income(90)(868)
Other amortization1,249 1,252 
Share-based compensation6,169 9,601 
Change in assets and liabilities:
Rents receivable and other assets(2,336)327 
Accounts payable, accrued expenses and other(1,507)(2,199)
Rent collected in advance(1,223)(555)
Net cash provided by operating activities13,946 3,111 
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate improvements(2,527)(4,074)
Payment of transaction costs (3,382)
Net cash used in investing activities(2,527)(7,456)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase and retirement of common shares(115,459)(7,041)
Contributions from holders of noncontrolling interest1  
Distributions to common shareholders(1,462)(6,024)
Distributions to preferred shareholders(3,994)(3,994)
Distributions to holders of noncontrolling interest (33)
Net cash used in financing activities(120,914)(17,092)
Decrease in cash and cash equivalents(109,495)(21,437)
Cash and cash equivalents at beginning of period2,800,998 2,987,225 
Cash and cash equivalents at end of period$2,691,503 $2,965,788 
See accompanying notes.
















5

EQUITY COMMONWEALTH 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(amounts in thousands)
(unaudited)
Six Months Ended June 30,
20222021
SUPPLEMENTAL CASH FLOW INFORMATION:
Taxes paid, net$108 $263 
NON-CASH INVESTING ACTIVITIES:
Accrued capital expenditures$315 $854 
NON-CASH FINANCING ACTIVITIES:
Distributions payable$1,276 $2,850 
See accompanying notes.

6


EQUITY COMMONWEALTH
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Business

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

The Company operates in an umbrella partnership real estate investment trust, or UPREIT, and conducts substantially all of its activities through EQC Operating Trust, a Maryland real estate investment trust, or the Operating Trust. The Company beneficially owned 99.75% of the outstanding shares of beneficial interest, designated as units, in the Operating Trust, or OP Units, as of June 30, 2022, 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, 2022, our portfolio consisted of four properties (eight buildings), with a combined 1.5 million square feet. As of June 30, 2022, we had $2.7 billion of cash and cash equivalents.

Note 2.  Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements of EQC have been prepared without audit.  Certain information and footnote disclosures required by U.S. generally accepted accounting principles, or GAAP, for complete financial statements have been condensed or omitted.  We believe the disclosures made are appropriate.  The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in our Annual Report on Form 10-K, or our Annual Report, for the year ended December 31, 2021.  Capitalized terms used, but not defined in this Quarterly Report, have the same meanings as in our Annual Report.

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

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

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

Note 3.  Real Estate Properties

During the six months ended June 30, 2022 and 2021, we made improvements, excluding tenant-funded improvements, to our properties totaling $2.3 million and $3.9 million, respectively.

Property Dispositions:

We did not sell any properties during the six months ended June 30, 2022 or 2021.

7


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

Lease Payments

Rental revenue consists of the following (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Lease payments$9,308 $9,192 $19,411 $18,449 
Variable lease payments5,118 4,922 10,855 9,834 
Rental revenue$14,426 $14,114 $30,266 $28,283 

Note 4.  Shareholders’ Equity
 
Common Share Issuances:

See Note 7 for information regarding equity issuances related to share-based compensation.

Common Share Repurchases:

During the six months ended June 30, 2022, we repurchased an aggregate of 4,297,056 of our common shares at a weighted average price of $25.86 per share, for a total investment of $111.1 million. As of June 30, 2022, we had $164.7 million of remaining availability under our share repurchase program, of which $14.7 million is scheduled to expire on December 31, 2022, and $150.0 million is scheduled to expire on June 30, 2023.

During the six months ended June 30, 2022 and 2021, certain of our employees and former employees surrendered 160,506 and 244,029 common shares owned by them, respectively, to satisfy their statutory tax withholding obligations in connection with the vesting of such common shares pursuant to our equity compensation plans.

Common Share and Unit Distribution:

In February 2022, the number of earned awards for recipients of the Company’s restricted stock units granted in January 2019 was determined. Pursuant to the terms of such awards, we paid a one-time catch-up cash distribution to these recipients in the aggregate amount of $1.5 million for distributions to common shareholders declared by our Board of Trustees during such awards’ performance measurement period.

Preferred Share Distributions:

In 2022, our Board of Trustees declared distributions on our series D preferred shares to date as follows:
Declaration DateRecord DatePayment DateSeries D Dividend Per Share
January 11, 2022January 28, 2022February 15, 2022$0.40625 
April 11, 2022April 29, 2022May 16, 2022$0.40625 
July 14, 2022July 29, 2022August 15, 2022$0.40625 

Note 5.  Noncontrolling Interest

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 basis. As sole trustee, the Company 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, 2022, the portion of the Operating Trust not beneficially owned by the Company is in the form of OP Units and LTIP Units (see Note 7 for a description of LTIP Units). LTIP Units may be subject to additional vesting requirements.
8


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


The following table presents the changes in Equity Commonwealth’s issued and outstanding common shares and units for the six months ended June 30, 2022:
Common SharesOP Units and LTIP UnitsTotal
Outstanding at January 1, 2022
115,205,818 247,217 115,453,035 
Repurchase and surrender of shares(4,457,562) (4,457,562)
Share-based compensation grants and vesting, net of forfeitures
493,586 32,675 526,261 
Outstanding at June 30, 2022
111,241,842 279,892 111,521,734 
Noncontrolling ownership interest in the Operating Trust0.25 %
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 99.75% and 99.76% for the three and six months ended June 30, 2022, respectively.

Note 6.  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.  However, we are subject to certain state and local taxes without regard to our REIT status.

Our provision for income taxes consists of the following (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Current:
State and local
$(50)$(31)$(58)$(62)
Income tax expense$(50)$(31)$(58)$(62)

Note 7. Share-Based Compensation
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 service period determined by the Compensation Committee of our Board of Trustees, or the Compensation Committee.

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 to 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 Office Index over a three-year performance period. Following the end of the three-year performance period, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting following the end of the performance period on the date the Compensation 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.

9


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

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 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 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.
2022 Equity Award Activity

During the six months ended June 30, 2022, 382,993 RSUs vested, and, as a result, we issued 382,993 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding obligations (see Note 4).
On June 21, 2022, in accordance with the Company’s compensation program for independent Trustees, the Committee awarded each of the six independent Trustees $0.1 million in restricted shares or time-based LTIP Units as part of their compensation for the 2022-2023 year of service on the Board of Trustees. These awards equated to 3,604 shares or time-based LTIP Units per Trustee, for a total of 18,020 shares and 3,604 time-based LTIP Units, valued at $27.75 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, on June 21, 2023.
On January 26, 2022, the Compensation Committee approved grants in the aggregate amount of 29,071 time-based LTIP Units, 59,024 market-based LTIP Units at target (147,117 market-based LTIP Units at maximum) 92,573 restricted shares and 187,951 RSUs at target (468,468 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 2021. The restricted shares and time-based LTIP Units were valued at $25.50 per share/unit, the closing price of our common shares on the 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, 2022 are included in the following table on a per share/unit basis.
 2022
Fair value of market-based awards granted$35.11
Expected term (years)4
Expected volatility17.04 %
Risk-free rate1.39 %
2021 Equity Award Activity

During the six months ended June 30, 2021, 520,858 RSUs vested, and, as a result, we issued 520,858 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding obligations.
On June 23, 2021, in accordance with the Company’s compensation program for independent Trustees, the Committee awarded each of the six independent Trustees $0.1 million in restricted shares or time-based LTIP Units as part of their compensation for the 2021-2022 year of service on the Board of Trustees. These awards equated to 3,701 shares or time-based LTIP Units per Trustee, for a total of 18,505 shares and 3,701 time-based LTIP Units, valued at $27.02 per share and unit, the closing price of our common shares on the NYSE on that day. These shares and time-based LTIP Units vested on June 23, 2022.
On January 25, 2021, the Compensation Committee approved grants in the aggregate amount of 122,466 restricted shares and 248,646 RSUs at target (619,750 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 2020. The restricted shares were valued at $28.25 per share, the closing price of our common shares on the NYSE on the grant date. The RSUs were valued at $37.87 per share, their fair value on the grant date.
10


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

Outstanding Equity Awards
As of June 30, 2022, the estimated future compensation expense for all unvested restricted shares and time-based LTIP Units was $6.8 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.
As of June 30, 2022, the estimated future compensation expense for all unvested RSUs and market-based LTIP Units was $14.8 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, 2022 and 2021, we recorded $3.0 million and $2.9 million, respectively, and during the six months ended June 30, 2022 and 2021, we recorded $6.2 million and $9.6 million, respectively, of compensation expense, net of forfeitures, in general and administrative expense for grants to our trustees, eligible consultants and employees related to our equity compensation plans. Compensation expense recorded during the three months ended June 30, 2022 and 2021 includes $0.1 million and $0, respectively, of accelerated vesting due to staffing reductions, and compensation expense recorded during the six months ended June 30, 2022 and 2021 includes $0.4 million and $3.4 million, respectively, of accelerated vesting due to staffing reductions. Forfeitures are recognized as they occur. At June 30, 2022, 1,126,571 shares/units remain available for issuance under the Equity Commonwealth 2015 Omnibus Incentive Plan, as amended.

Note 8.  Fair Value of Assets and Liabilities
 
As of June 30, 2022, we do not have any assets or liabilities measured at fair value.

Financial Instruments

Our financial instruments include our cash and cash equivalents.  At June 30, 2022 and December 31, 2021, the fair value of these financial instruments was not different from their carrying values.
 
Other financial instruments that potentially subject us to concentrations of credit risk consist principally of rents receivable. As of June 30, 2022, no single tenant of ours is responsible for more than 10% of our consolidated revenues.

11


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

Note 9.  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 June 30,Six Months Ended June 30,
 2022202120222021
Numerator for earnings per common share - basic:  
Net income (loss)$2,903 $(1,940)$4,208 $(11,978)
Net (income) loss attributable to noncontrolling interest(7)4 (10)24 
Preferred distributions(1,997)(1,997)(3,994)(3,994)
Numerator for net income (loss) per share - basic$899 $(3,933)$204 $(15,948)
Numerator for earnings per common share - diluted:
Net income (loss)
$2,903 $(1,940)$4,208 $(11,978)
Net (income) loss attributable to noncontrolling interest(7)4 (10)24 
Preferred distributions(1,997)(1,997)(3,994)(3,994)
Numerator for net income (loss) per share - diluted$899 $(3,933)$204 $(15,948)
Denominator for earnings per common share - basic and diluted:
Weighted average number of common shares outstanding - basic(1)
112,005 122,189 112,868 122,096 
RSUs(2)
1,158  757  
LTIP Units(3)
217  160  
Weighted average number of common shares outstanding - diluted113,380 122,189 113,785 122,096 
Net income (loss) per common share attributable to Equity Commonwealth common shareholders:
Basic
$0.01 $(0.03)$0.00 $(0.13)
Diluted
$0.01 $(0.03)$0.00 $(0.13)
Anti-dilutive securities(4):
Effect of Series D preferred shares; 6.50% cumulative convertible
3,237 3,237 3,237 3,237 
Effect of RSUs(2)
 466  657 
Effect of LTIP Units(3)
 65  107 
Effect of OP Units(5)
277 215 272 193 

(1) The three months ended June 30, 2022 and 2021, include 86 and 266 weighted-average, unvested, earned RSUs, respectively, and the six months ended June 30, 2022 and 2021, include 124 and 251 weighted-average, unvested, earned RSUs, respectively.
(2) Represents the 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 and six months ended June 30, 2022 and 2021, because including the Series D preferred shares would also require that the preferred distributions be added back to net income (loss), resulting in anti-dilution. The RSUs and market-based LTIP Units are excluded from the diluted earnings per share calculation for the three and six months ended June 30, 2021 because including them results in anti-dilution.
12


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

(5) Beneficial interests in the Operating Trust.

Note 10.  Segment Information
 
Our primary business is the ownership and operation of office properties, and we currently have one reportable segment.  One hundred percent of our revenues for the six months ended June 30, 2022 were from office properties. 

Note 11.  Related Person Transactions
 
The following discussion includes a description of our related person transactions for the six months ended June 30, 2022 and 2021.

Two North Riverside Plaza Joint Venture Limited Partnership: We entered into a lease on July 20, 2015 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 was approximately five years, expiring on December 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 had a storage lease with Two North Riverside Plaza Joint Venture Limited Partnership for storage space in the basement of Two North Riverside Plaza, which we terminated, effective August 31, 2020.

In December 2020, we entered into an amendment to the 20th/21st Floor Office Lease extending the lease term for one year, through December 31, 2021, with no renewal options. The lease payment for the extended term was $0.3 million. In December 2021, we entered into a second amendment to the 20th/21st Floor Office Lease extending the lease term for one year, through December 31, 2022, with no renewal options. The lease payment for the second extended term is $0.4 million.

During the three months ended June 30, 2022 and 2021, we recognized expense of $0.1 million and $0.1 million, respectively, and during the six months ended June 30, 2022 and 2021, we recognized expense of $0.2 million and $0.2 million, respectively, pursuant to the 20th/21st Floor Office Lease. As of June 30, 2022 and December 31, 2021, we did not have any amounts due to Two North Riverside Plaza Joint Venture Limited Partnership pursuant to the 20th/21st Floor Office Lease.

Note 12.  Subsequent Events

Preferred Share Distribution

On July 14, 2022, our Board of Trustees declared a dividend of $0.40625 per series D preferred share, which will be paid on August 15, 2022 to shareholders of record on July 29, 2022.
13

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 on Form 10-Q, and in our Annual Report.

FORWARD-LOOKING STATEMENTS
 
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 anticipated business strategies, goals, policies and objectives, capital resources and financing, portfolio performance, lease expiration schedules, results of operations or anticipated market conditions, including our statements regarding remote working trends and the overall impact of COVID-19, and changing laws, statutes, regulations, and the interpretations thereof, on the foregoing. 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. You can identify forward-looking statements by the use of forward-looking terminology, including but not limited to, “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
 
Any forward-looking statements contained in this 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 most recent Annual Report and in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.

OVERVIEW
 
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 an UPREIT, conducting substantially all of its activities through the Operating Trust. As of June 30, 2022, the Company beneficially owned 99.75% of the outstanding OP Units.

At June 30, 2022, our portfolio consisted of four properties (eight buildings), with a combined 1.5 million square feet. As of June 30, 2022, we had $2.7 billion of cash and cash equivalents.

We use leasing and occupancy metrics to evaluate the performance of our properties. We believe 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, 2022, our overall portfolio was 84.8% leased. During the three months ended June 30, 2022, we entered into leases for 34,000 square feet, including lease renewals for 6,000 square feet and new leases for 28,000 square feet. The renewal leases entered into during the three months ended June 30, 2022 had cash and GAAP rental rates that were approximately 4.9% higher and 9.6% higher, respectively, compared to prior rental rates for the same space. The new leases entered into during the three months ended June 30, 2022 were excluded from the weighted average cash and GAAP rental rate calculations because the suites were vacant longer than two years. 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.
14


We have engaged CBRE, Inc., or CBRE, to provide property management services. 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, 2022 and 2021, we incurred expenses of $0.7 million and $0.7 million, respectively, and for the six months ended June 30, 2022 and 2021, we incurred expenses of $1.5 million and $1.5 million, respectively, related to our property management agreement with CBRE, for property management fees, typically calculated as a percentage of the properties’ revenues, and salary and benefits reimbursements for property personnel, such as property managers, engineers and maintenance staff.  As of June 30, 2022 and December 31, 2021, we had amounts payable pursuant to these services of $0.2 million and $0.3 million, respectively.

After executing on our disposition strategy and evaluating a variety of opportunities to invest our capital, on May 4, 2021, we entered into a merger agreement to acquire Monmouth Real Estate Investment Corporation, or Monmouth, a publicly-traded industrial REIT. On August 31, 2021, following Monmouth’s failure to obtain shareholder approval of the merger, in accordance with the terms of the merger agreement, we terminated the merger agreement.

Following the termination of the merger agreement with Monmouth, we shifted our focus to capital allocation and are continuing to evaluate investment opportunities. We are seeking to use the strength and liquidity of our balance sheet for investments in high-quality assets or businesses in a range of property types that offer a compelling risk-reward profile. We may also determine to sell, liquidate or otherwise exit our business if we believe doing so will maximize shareholder value.

Our business has been and is continuing to be impacted by the COVID-19 virus. In addition, our business has been and is continuing to be impacted by tenant uncertainty regarding office space needs given the evolving remote working trends. Many of our employees and the majority of our tenants' employees are currently working at least in part remotely. Overall, our business has experienced a significant reduction in leasing interest and activity when compared to pre-pandemic levels. As of June 30, 2022 and December 31, 2019, our comparable property portfolio was 84.8% and 91.5% leased, respectively. The duration of these business disruptions continues to be unknown at this time, and we currently are not able to estimate the full impact of the COVID-19 virus and remote working trends on our business.

Property Operations

Leased occupancy data for 2022 and 2021 are as follows (square feet in thousands):
All PropertiesComparable Properties(1)
As of June 30,As of June 30,
2022202120222021
Total properties
Total square feet1,507 1,507 1,507 1,507 
Percent leased(2)
84.8 %83.1 %84.8 %83.1 %

(1)Based on properties owned continuously from January 1, 2021 through June 30, 2022.
(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 we believe 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 entered into during the three months ended June 30, 2022 was 6.0 years.  Commitments made for leasing expenditures and concessions, such as tenant improvements and leasing commissions, for the leases entered into during the three months ended June 30, 2022 totaled $2.2 million, or $66.31 per square foot on average (approximately $10.98 per square foot per year of the lease term).
 
As of June 30, 2022, approximately 4.7% of our leased square feet and 5.6% of our annualized rental revenue, determined as set forth below, are included in leases scheduled to expire through December 31, 2022.  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 2022, that have not been backfilled, are approximately market. Lease expirations by year, as of June 30, 2022, are as follows (square feet and dollars in thousands):
15

YearNumber
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
202260 4.7 %4.7 %$3,362 5.6 %5.6 %
202319 210 16.4 %21.1 %9,664 16.1 %21.7 %
202418 227 17.9 %39.0 %10,707 17.9 %39.6 %
202512 155 12.1 %51.1 %7,048 11.7 %51.3 %
202667 5.2 %56.3 %3,268 5.4 %56.7 %
202714 176 13.8 %70.1 %8,325 13.9 %70.6 %
202882 6.4 %76.5 %3,635 6.1 %76.7 %
2029145 11.3 %87.8 %6,970 11.6 %88.3 %
203087 6.8 %94.6 %2,910 4.8 %93.1 %
203112 0.9 %95.5 %590 1.0 %94.1 %
Thereafter57 4.5 %100.0 %3,541 5.9 %100.0 %
101 1,278 100.0 %$60,020 100.0 %
Weighted average remaining lease term (in years):
4.0 4.1 

(1)Tenants with leases expiring in multiple years are counted in each year they expire.
(2)Leased Square Feet as of June 30, 2022 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, 2022, 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