Exhibit 99.1
Unaudited Pro Forma Condensed Consolidated Financial Statements
On January 29, 2019, Equity Commonwealth, a Maryland real estate investment trust (the “Company”), by and through its primary operating subsidiary, EQC Operating Trust (the “Operating Trust”), and another subsidiary (collectively, “Sellers”), entered into a sale agreement (the “Sale Agreement”) with Silverstein/Arden 1735 Market Holdco LP (“Purchaser”), pursuant to which Sellers agreed to convey to Purchaser or its assignees 100% of the equity interests in the fee simple owner of 1735 Market Street in Philadelphia, Pennsylvania, for a gross sale price of $451.6 million (the "Transaction"). The Transaction closed on March 26, 2019. Proceeds after credits for capital costs, contractual lease costs, and rent abatements were $435.4 million.
The accompanying Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2018 presents Equity Commonwealth's historical amounts, adjusted for the effects of the Transaction, as if 1735 Market Street had been disposed of on December 31, 2018. The accompanying Pro Forma Condensed Consolidated Balance Sheet is unaudited and is not necessarily indicative of what Equity Commonwealth's actual financial position would have been had the Transaction actually occurred on December 31, 2018, nor does it purport to represent Equity Commonwealth's future financial position.
The accompanying Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2018 presents Equity Commonwealth's historical amounts, adjusted for the effects of the Transaction, as if 1735 Market Street had been disposed of on January 1, 2018. The accompanying Pro Forma Condensed Consolidated Statement of Operations is unaudited and is not necessarily indicative of what Equity Commonwealth's actual results of operations would have been had the Transaction actually occurred on January 1, 2018, nor does it purport to represent Equity Commonwealth's future results of operations.
These Unaudited Condensed Pro Forma Consolidated Financial Statements should be read in conjunction with the Company's historical consolidated financial statements and notes thereto as of and for the year ended December 31, 2018, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on February 14, 2019.
Equity Commonwealth
Pro Forma Condensed Consolidated Balance Sheet
December 31, 2018
(Unaudited and in thousands)
|
| | | | | | | | | | | |
| | Historical (1) | | Transaction (2) | | Pro Forma |
| ASSETS | | | | | |
| Real estate properties: | | | | | |
| Land | $ | 135,142 |
| | $ | (24,747 | ) | | $ | 110,395 |
|
| Buildings and improvements | 1,004,500 |
| | (303,771 | ) | | 700,729 |
|
| | 1,139,642 |
| | (328,518 | ) | | 811,124 |
|
| Accumulated depreciation | (375,968 | ) | | 136,425 |
| | (239,543 | ) |
| | 763,674 |
| | (192,093 | ) | | 571,581 |
|
| Acquired real estate leases, net | 275 |
| | — |
| | 275 |
|
| Cash and cash equivalents | 2,400,803 |
| | 435,353 |
| (2a) | 2,824,866 |
|
| | | | (11,290 | ) | (2b) | |
| Marketable securities | 249,602 |
| | — |
| | 249,602 |
|
| Restricted cash | 3,298 |
| | — |
| | 3,298 |
|
| Rents receivable, net | 51,089 |
| | (20,193 | ) | | 30,896 |
|
| Other assets, net | 62,031 |
| | (22,727 | ) | | 39,304 |
|
| Total assets | $ | 3,530,772 |
| | $ | 189,050 |
| | $ | 3,719,822 |
|
| | | | | | |
| LIABILITIES AND EQUITY | | | | | |
| Senior unsecured debt, net | $ | 248,473 |
| | $ | — |
| | $ | 248,473 |
|
| Mortgage notes payable, net | 26,482 |
| | — |
| | 26,482 |
|
| Accounts payable, accrued expenses and other | 62,368 |
| | (1,765 | ) | | 60,603 |
|
| Rent collected in advance | 9,451 |
| | (3,444 | ) | | 6,007 |
|
| Total liabilities | 346,774 |
| | (5,209 | ) | | 341,565 |
|
| | | | | | |
| Shareholders' equity: | | | | | |
| Series D preferred shares | 119,263 |
| | — |
| | 119,263 |
|
| Common shares | 1,216 |
| | — |
| | 1,216 |
|
| Additional paid in capital | 4,305,974 |
| | (73 | ) | (2c) | 4,305,901 |
|
| Cumulative net income | 2,870,974 |
| | 194,259 |
| (2d) | 3,065,233 |
|
| Cumulative other comprehensive loss | (342 | ) | | — |
| | (342 | ) |
| Cumulative common distributions | (3,420,548 | ) | | — |
| | (3,420,548 | ) |
| Cumulative preferred distributions | (693,736 | ) | | — |
| | (693,736 | ) |
| Total shareholders’ equity | 3,182,801 |
| | 194,186 |
| | 3,376,987 |
|
| Noncontrolling interest | 1,197 |
| | 73 |
| (2c) | 1,270 |
|
| Total equity | 3,183,998 |
| | 194,259 |
| | 3,378,257 |
|
| Total liabilities and equity | $ | 3,530,772 |
| | $ | 189,050 |
| | $ | 3,719,822 |
|
See accompanying notes.
Equity Commonwealth
Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2018
(Unaudited and in thousands, except per share amounts)
|
| | | | | | | | | | | |
| | Historical (3) | | Transaction (4) | | Pro Forma |
| Revenues: | | | | | |
| Rental income | $ | 144,425 |
| | $ | (25,869 | ) | | $ | 118,556 |
|
| Tenant reimbursements and other income | 52,597 |
| | (12,510 | ) | | 40,087 |
|
| Total revenues | 197,022 |
| | (38,379 | ) | | 158,643 |
|
| Expenses: | | | | | |
| Operating expenses | 79,916 |
| | (17,086 | ) | | 62,830 |
|
| Depreciation and amortization | 49,041 |
| | (12,826 | ) | | 36,215 |
|
| General and administrative | 44,439 |
| | — |
| | 44,439 |
|
| Loss on asset impairment | 12,087 |
| | — |
| | 12,087 |
|
| Total expenses | 185,483 |
| | (29,912 | ) | | 155,571 |
|
| Operating income | 11,539 |
| | (8,467 | ) | | 3,072 |
|
| Interest and other income, net | 46,815 |
| | — |
| | 46,815 |
|
| Interest expense | (26,585 | ) | | — |
| | (26,585 | ) |
| Loss on early extinguishment of debt | (7,122 | ) | | — |
| | (7,122 | ) |
| Gain on sale of properties, net | 251,417 |
| | — |
| | 251,417 |
|
| Income before income taxes | 276,064 |
| | (8,467 | ) | | 267,597 |
|
| Income tax expense | (3,156 | ) | | — |
| | (3,156 | ) |
| Net income | 272,908 |
| | (8,467 | ) | | 264,441 |
|
| Net income attributable to noncontrolling interest | (95 | ) | | 3 |
| (4a) | (92 | ) |
| Net income attributable to Equity Commonwealth | 272,813 |
| | (8,464 | ) | | 264,349 |
|
| Preferred distributions | (7,988 | ) | | — |
| | (7,988 | ) |
| Net income attributable to Equity Commonwealth common shareholders | $ | 264,825 |
| | $ | (8,464 | ) | | $ | 256,361 |
|
| | | | | | |
| Weighted average common shares outstanding — basic | 122,314 |
| | | | 122,314 |
|
| Weighted average common shares outstanding — diluted | 123,385 |
| | | | 123,385 |
|
| Earnings per common share attributable to Equity Commonwealth common shareholders: | | | | | |
| Basic | $ | 2.17 |
| | | | $ | 2.10 |
|
| Diluted | $ | 2.15 |
| | | | $ | 2.08 |
|
See accompanying notes.
Equity Commonwealth
Notes to Pro Forma Condensed Consolidated Balance Sheet
December 31, 2018
(Unaudited)
(1) Historical Balances - Reflects the consolidated balance sheet of the Company as contained in its historical consolidated financial statements included in its Annual Report on Form 10-K as of and for the year ended December 31, 2018 previously filed with the SEC on February 14, 2019.
(2) Transaction - Represents the de-recognition of carrying amounts at December 31, 2018 for the assets and the related accumulated depreciation and working capital assets and liabilities related to 1735 Market Street.
| |
| a. | Represents the net cash proceeds from the sale including settlement of net working capital. |
| |
| b. | Reflects the estimated transaction costs the Company will incur at or near closing in order to complete the disposition. The estimated transaction costs approximate 2.5% of the gross sales price and include transfer tax. These costs are not included in the pro forma condensed consolidated statement of operations for the year ended December 31, 2018 because they represent non-recurring charges that result directly from the transaction and will be included in the consolidated financial results of the Company within twelve months of the transaction. |
| |
| c. | Reflects the reallocation of total equity and Noncontrolling interest based on the Noncontrolling interest ownership of EQC Operating Trust. |
| |
| d. | Reflects the estimated gain on sale of 1735 Market Street, which is reduced by the estimated transaction costs discussed above. The estimated gain is not included in the pro forma condensed consolidated statement of operations for the year ended December 31, 2018 as it represents a non-recurring item that results directly from the transaction and will be included in the consolidated financial results of the Company within twelve months of the transaction. |
Equity Commonwealth
Notes to Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2018
(Unaudited)
(3) Historical Balances - Reflects the consolidated statement of operations of the Company as contained in its historical consolidated financial statements included in its Annual Report on Form 10-K as of and for the year ended December 31, 2018 previously filed with the SEC on February 14, 2019.
(4) Transaction - Represents the historical combined revenues and expenses of 1735 Market Street for the year ended December 31, 2018 as if the disposition had occurred on January 1, 2018.
| |
| a. | Reflects the allocation of results between the controlling interests and the noncontrolling interests based on the noncontrolling interests weighted average ownership of 0.04% of EQC Operating Trust for the year ended December 31, 2018. |
