Sarah Byrnes - Vice President, IR David Helfand - Chief Executive Officer Adam Markman - Chief Financial Officer David Weinberg - Chief Operating Officer.

Michael Bilerman - Citi John Bejjani - Green Street Advisors John Guinee - Stifel Jamie Feldman - Bank of America Merrill Lynch Manny Cordesman - Citi Rich Moore - RBC Capital Markets.

Greetings and welcome to the Equity Commonwealth Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Sarah Byrnes, Vice President of Investor Relations. Thank you. Sarah, you may begin..

Thank you, Jessica. Good morning and thank you for joining us to discuss Equity Commonwealth's results for the quarter ended June 30, 2015. Our speakers today are David Helfand, our CEO; Adam Markman, our CFO, and David Weinberg, our COO.

Please be advised that certain matters discussed during this conference call may constitute forward-looking statements within the meaning of federal securities laws. We refer you to the documents that we file from time to time with the SEC, which refer to these and other factors that could adversely affect the company's results.

The company assumes no obligation to update or supplement any statements that become untrue because of subsequent events. Today's remarks also include certain non-GAAP financial measures.

Please refer to yesterday's press release announcing our second quarter 2015 results for a reconciliation of these non-GAAP performance measures to our GAAP financial results, which is available on our Web site. With that, I will turn the call over to David Helfand..

Thanks, Sarah. Thank you for joining us this morning. I will begin today with an update on our progress executing on our business plan. Adam Markman will discuss our financial results and David Weinberg will provide a summary of operations and our leasing efforts. We have made meaningful progress executing our disposition program.

In addition, our focus on improving operating performance is beginning to produce results. The overall operating environment continues to trend positively. Conditions vary across our markets but generally fundamentals were improving modestly with supply still below long-term trend.

Year to date we have completed nearly 2 million square feet of leasing in our same property portfolio, including 1.2 million square feet of new leasing. For the quarter, leased occupancy increased 110 basis points sequentially and 10 basis points year-over-year.

While our leasing activity shows healthy improvement over last year, previously discussed known move outs and contractions likely will counter this momentum over the balance of the year. We continue to focus on broker engagement and increased leasing velocity as the primary means of driving occupancy improvement and growth.

The investment sales market remains robust with transaction volumes up 35% nationally year-to-date, evidencing the breadth of buyer demand. Against that backdrop, our disposition program has shown similar strength. We are seeing strong demand from a broad range of motivated buyers.

Pricing so far has met our expectations and continues to support our view that the portfolio is undervalued.

Since announcing our plans in February to dispose off $2 billion-$3 billion of assets, we have closed on 69 properties comprising 13 million square feet for a gross sales price of $1.5 billion at a weighted average cap rate in the mid-7% range. These numbers include the Illinois Center sale which closed earlier this week.

I'll spend a few minutes discussing these dispositions in a bit more detail. In May, we sold a 78% leased, geographically dispersed 5.3 million square feet portfolio of industrial assets for $376 million. Pricing was in the high 7% cap rate.

The portfolio was comprised primarily of smaller properties with an average building size of 100,000 square feet in secondary and tertiary markets. The buyer was a private equity firm.

In June, we sold a 3 million square foot portfolio of five CBD office buildings and one suburban office park in Birmingham, Alabama; New Orleans, Louisiana; Greensboro, North Carolina and Columbia, South Carolina, for a price of $417 million at a cap rate in the low 8% range. The buyer was a private real estate company.

Also in June we exited Australia for a total sales price of $233 million. The Australian assets totaled 1.8 million square feet and consisted of a CBD office property in Sydney and 10 flex and industrial assets in 10 cities spread across the continent.

The office asset was priced at a low 8% cap rate and the industrial building traded at low 10% cap rate. The buyer was an Australian owner-operator. In addition, in June we closed on the sale of two properties in St. Louis that were 78% leased and totaled 165,000 square feet for a price of $14.3 million at a mid-8% cap rate.

And we also sold a 100% leased 105,000 square feet property in Sorrento, California for $23.5 million at a cap rate of approximately 7%. During the quarter we classified two properties as held for sale.

Subsequent to quarter end, we completed the sale of one of the properties, Illinois Center, located in Chicago's East Loop submarket, for $376 million at a mid-5% cap rate.

The 2.1 million square foot property was 72% leased with approximately 600 square feet of vacant space in a highly competitive sub-market requires a significant capital investment. The buyer was a private real estate company.

We have one remaining asset class that is held of sale, 16th and Race in downtown Philly, a vacant 600,000 square foot building that has negative NOI of about $2 million annually. We expect close on the sale of this in the third quarter subject to certain closing conditions being met.

We are currently in various stages of marketing for sale of 22 office properties comprising over 5.5 million square feet. As in the past, we will provide additional details on asset sales after they have closed.

Given the strength of the investment sales market and our success to date, we are targeting dispositions at the high end of our $2 billion to $3 billion range and will likely accomplish this sooner than originally anticipated.

Our disposition efforts to date have allowed us to capitalize on the current market environment to cull the portfolio in an orderly methodical fashion and build capacity for future opportunities. We continue to work asset by asset with an eye towards generating internal growth and maximizing value across the portfolio.

With that I will turn the call over to Adam Markman..

Thanks, David. Good morning. I will cover our financial results for the quarter, give an update on the balance sheet and discuss our tax position following the recent disposition activity. Same property cash NOI for the 86 property portfolio we owned at quarter end, was up 1.3% from a year ago.

The increase in same property cash NOI was largely a result of lower operating expenses including lower property management cost. Same property GAAP NOI was up 6.3% from a year ago.

This increase was due to onetime non-cash items in the second quarter of 2014 related to a restructuring and to a tenant bankruptcy that negatively impacted results during that period. FFO for the quarter was $0.59 per share compared to $0.70 per share a year ago.

Normalized FFO which generally excludes non-cash items and other items which affect comparability, was $0.52 per share compared to $0.66 per share last year.

The decrease in normalized FFO primarily stems from property sales in 2014 and 2015 that generated $0.13 per share of the decline and an additional $0.11 per share resulting from the sale of our interest in Select Income REIT in 2014. Partially offsetting this was $0.08 per share of lower interest expense and $0.06 per share of G&A savings.

Total overhead was $10.9 million which was less than half of what we spent in the second quarter of 2014. This savings is primarily due to the incentive management fee in the prior period payable to RMR, the company's former external advisor, and to lower shareholder litigation and transition expenses this past quarter.

The impact of further legacy shareholder litigation and transition related expenses is likely to be lower going forward. Subsequent to quarter-end, we remitted the second of three potential reimbursements to Related/Corvex for the agreement voted on by shareholders last year.

We also settled five of the six outstanding legacy shareholder litigation matters for a total of $450,000. In summary, our remaining financial obligation to eth former external advisor is de minimis and legacy transition related expenses should continue to moderate.

Recurring G&A year-to-date totaled $21.8 million and is trending lower than originally expected. This is largely due to actuals coming in lower than the conservative amounts we originally budgeted across the board.

We continue to expect recurring G&A to grow to a stabilized level of $55 million over the next few years but we currently expect 2015 to come in below $50 million. Turning to the balance sheet. We continue to build capacity by improving our debt profile and reducing interest expense.

As we mentioned last quarter, in May we redeemed $139 million of our 5.75% senior notes due in November. We also completed a consensual foreclosure at 225 Water Street in Jacksonville, Florida, which was encumbered with a $40 million mortgage.

In addition, we have prepaid three mortgages relating to sold assets totaling $190 million inclusive of the debt on Illinois Center. All told, we prepaid over $1.1 billion in debt since the second quarter of 2014. Our balance sheet is healthy and we believe we are well positioned for the future.

I would like to highlight a few things regarding the balance sheet. First, we ended the quarter with roughly $10 per share in cash and we had two properties under contract with hard money deposited, Illinois Center in Chicago and 16th and Race in Philadelphia.

The accounting treatment is such that these real estate assets will move to properties held for sale, although the $142 million mortgage loan on Illinois Center stay within mortgage notes payable on the balance sheet. We closed on the sale of Illinois Center subsequent to quarter end and [diffused] [ph] the mortgage debt.

Adding the proceeds from this sale increases our cash balance to over $1.5 billion or nearly $12 per share. As I mentioned, our current cash and cash equivalents are $1.5 billion. We continue to evaluate all available uses of proceeds including debt repayment, new investment opportunity and other capital allocation alternatives.

We have no maturities remaining in 2015 although we have the option to prepay $116 million, 5.24% mortgage loan at par in the fourth quarter. In 2016, there are an additional $600 million of debt repayment opportunity with a weighted average interest rate just over 6%. Also, our $275 million of 7.25% Series E preferred is callable in May.

These liabilities total $992 million and have a weighted average coupon of about 6.3%, which depending on other uses of capital that we find, may prove to be an effective use of our liquidity. During the quarter the company completed the sale of $1.1 billion of assets.

As a result of these sales, we recognized a $2.7 million book loss for the three months ended June 30, 2015. This book loss was driven by a $63 million foreign currency translation loss which is the cumulative impact of the change in exchange rates over our period of ownership of the recently sold Australian property.

The dispositions year-to-date have resulted in a taxable loss. Based on what's been sold and what's currently in the market for sale, we expect to recognize a taxable loss for the full year 2015. With that I will turn the call over to David Weinberg, our Chief Operating Officer..

Thank you, Adam and good morning everyone. I will walk you through the latest on operations, update you on our top markets and give you a little more color on our improving operating metrics. Let me begin with leasing, looking at the same property portfolio as of June 30, 2015.

During the second quarter, we signed 97 leases totaling 1 million square feet, 512,000 square feet of new leases and 518,000 square feet of renewals. This is our second consecutive quarter of strong new leasing activity. Year-to-date new leasing totaled 1.2 million square feet which exceeds all of the new leases signed during the five prior quarters.

In total, cash rents were down 1.9% and GAAP rents were up 5.4%. We continue to see significant cash rent roll ups in markets like Bellevue, Denver and Austin. In other markets like Indianapolis, cash rents have been rolling down. In Philadelphia cash rents rolled down 10% and GAAP rents were up 3%.

Our largest new deal this quarter was a 168,000 square foot as-is lease, actually our largest first quarter moveout at our industrial building at 111 Southchase Boulevard near Greenville, South Carolina. We backfilled this space with just over three months of downtime.

Also in the second quarter, as discussed on our last call, the Bank of New York Mellon signed a 48,000 square foot, 11 year renewal, as part of a downsize at 1735 Market in Philadelphia. They will be vacating 150,000 square feet in the third quarter and another 40,000 square feet in the first quarter of 2016.

Same property leased occupancy improved 110 basis points to 90.6% compared to the first quarter 2015. A result of strong leasing and minimal rollover in the quarter. Based on our portfolio today, we have 1.4 million square feet of leases expiring in the balance of this year, which includes 100,000 square feet of month-to-month [tenant] [ph].

Of the remaining 1.3 million square feet, we expect 300,000 square feet will renew and we expect 1 million square feet of vacates or downsize split evenly in the third and fourth quarters. This includes 240,000 square feet of 1735 Market and 117,000 square feet of 600, West Chicago.

We have done a significant amount of new leasing this year and our leasing pipeline is strong. With these expected moveouts, it will be challenging to maintain occupancy for the same property portfolio. Turning to some of our larger assets. As I mentioned, approximately 240,000 square feet of the known vacates in 2015 are at 1735 Market.

The 1.3 million square foot asset historically has been well occupied and experience very little roll. As discussed in previous calls, we expect an additional 260,000 square feet to vacate in 2016, largely due to the SMC move out. In total, approximately 500,000 square feet will vacate at this property over the next year.

This is one of the premier buildings in Philadelphia's CBD, a market which continues to improve and our limited blocks are available throughout this space. We have good leasing activity at 1735 Market and believe we are well positioned to backfill this space.

Our largest current vacancy is at 1500 Market in Philadelphia, a 1.8 million square foot property that is also known as Center Square. This is currently 79.5% leased. Subsequent quarter end, we signed a new exceeded thousand square foot lease and are working on another deal that will take the property to approximately 90%.

600 West Chicago is a 1.5 million square foot property located in the Chicago's strongest submarket, River North, with a market vacancy rate of 8%.

It is the old Montgomery Ward's ware house building located along the Chicago River, offering exposed brick, large windows, high ceiling and large open floor place that cater to today's new economy companies. The property's unique real estate warrants a refreshed business plan.

We are improving the food options, adding elevators, upgrading the common areas, building out a new 6400 square foot roof top deck with unobstructed views of Chicago's skyline. We believe these upgrades helped us subsequent quarter end execute a 375,000 square foot lease with Groupon to retain its headquarters through 2025.

This includes an expansion of 60,000 square feet. We are also working on leases with two additional existing tenants. If these leases are executed and taking into account the 117,000 square foot move out later in this year, the lease occupancy of 600 West Chicago should be around 91%.

We continue to reach out to the leasing community, emphasizing our focus on responsiveness and execution. This past quarter we have brought 15 of our third party leasing brokers to Chicago to discuss market dynamics and challenge them to identify ways we can improve our leasing efforts.

In addition to leasing, we are focused on other areas of operations. We are working on the 2016 budget which will be zero based and benefit from us having a full year of operational experience and great insight into the asset.

We will also have a more thorough analysis of short and long-term capital needs which will enable us to better identify opportunity to best capital at attractive rates of return. We also continue to underwrite acquisitions.

We are looking for opportunistic investments where we can add value where we have an advantage which allows us to buy in on a reasonable basis and underwrite attractive risk adjusted returns.

While it is a very competitive market with assets trading in high prices and low yields, based on our team's past experiences, we believe investments meeting our criteria exist. We have not found such opportunities to date but we will keep looking. In terms of our markets, it is more the same, consistent with the rent roll ups I referenced earlier.

Belleview, Denver and Austin continue to be very strong but supply is increasing in each of them. Chicago has tightened with more tenants moving from the suburbs to the CBD. Indianapolis is in a holding pattern with a vacancy rate of 20%, and Philadelphia is getting tighter. It's vacancy rate is around 11% and lower in the trophy assets.

We are starting to see tenants move into Philly's CBD with about 25% of the year-to-date leasing activity attributable to such relocations. Finally, I would like to spend a few minutes walking you through the improving profile of our portfolio following on what was a very busy quarter on the disposition front.

When we initially took over in the second quarter of 2014, EQC was a collection of 156 properties comprising 43 million square feet with 86.7% leased. Our assets were located in 114 cities. On our call six months ago, we shared our view that was an under-managed and under-valued collection of asset.

Year-to-date, including the assets held for sale, we have disposed of over 13 million square feet of real estate and have exited 52 cities and Australia. These sold assets had an average leased occupancy of 78% and average property size of 196,000 square feet. NOI margins of 47% and annual rental revenue per leased square foot of $19.10.

Today we have a higher quality portfolio in fewer and better markets that we expect will provide greater rent growth and stability going forward. At the end of the second quarter 2015, our same property portfolio was 86 properties comprising 29.4 million square feet that was 90.6% leased. Compared to last quarter, cash NOI margins improved 54% to 58%.

Average property size increased to 278,000 to 342,000 square feet and annualized rental revenue per leased square feet increased 5%. These numbers are indicative of the progress we have made and we believe we are moving in the right direction. With that, we will open it up to Q&A..

[Operator Instructions] Our first question is from Manny Cordesman with Citi. You may proceed with your question..

It's Michael Bilerman. I had two questions. One was on G&A and the second was on use of proceeds. Maybe just starting on G&A. I am curious, Adam, you talked about coming in a little bit below so far this year and being at $11 million this quarter but rising to $55 million.

And I guess I am surprised that if you look down all the suburban office peers, they are all squarely in the 30 to upper 30s. Parkway is at 32, Cousins is at 20, Columbia is at 30, Piedmont is at 32, OFC is at 38, [indiscernible] at 30, Brandywine is at 30, Highwoods at 37.

So I guess why is it to manage Commonwealth is costing $55 million when a good part of the company now is sitting in cash..

One of the hardest thing to do is to compare G&A across the company. There are many opportunities that we and our peers have to allocate expenses that could be either at the corporate level or the property level, to anywhere that we chose.

What we have done here, and I think it's part of who we are and it's part of the legacy of where we have come from, is to be as conservative with our G&A as is possible. So there is nobody in our asset management group, there is nobody in our real estate analytics group that gets allocated to the property level.

So you are truly seeing the full cost of running this company in that line item. And I think that’s pretty unique relative to the peer group..

So do you think then we should be deducting off NOI somewhere between $10 million and $15 million on an annualized basis to make it comparable to your peer set or look at NOI less G&A.

Because effectively if you are saying that the peers are putting more into the properties, your NAV than would screen higher if people are not taking a deduction for G&A..

That’s right. The cash goes up somewhere and whether it's higher NOI margins or lower G&A, how you treat that I will have to leave up to you..

So you don’t see anything particular in terms of expense at Commonwealth relative to all the peers ever in that 30 zip code that is materially different? There is nothing in there that you have come in and said we are spending too much money on x, y and z, now we can't get ourselves out of or something..

No. We don’t see anything that we can identify in that way..

And then just talking about use of proceeds and, Adam, you walked through some of the debt and preferred which would delever the company dramatically further. But can you talk a little bit about sort of the acquisition landscape.

I think you guys talked about some of the -- looking at some opportunistic deals that didn’t fall through, they fell through.

Maybe talk a little bit about, sort of office versus other property types and at what point do you sort of expand your scope of what you are looking at? Do you have anything that’s on the docket right now?.

It's David Helfand. With regards to deals, we have been underwriting things we have investigated. I would say there is a recurring theme, probably not surprising, high per pounds relative to replacement cost and low yield, particularly in gateway markets. We have looked at a number of things.

We have looked at some portfolios and to date we have not found anything that we find actionable. I think the second part of your question, if we have missed to get the things outside the office side. We have looked at a number of things.

One of the great parts about hanging out with Sam and having Sam be a part of Equity Commonwealth is he challenges us to look at a variety of things, to understand vale and risk and opportunity across more than just the office side. We have looked at a few things, not have gone much beyond basic exploratory.

And I think we have been clear in saying that we are going to continue to look at opportunities within the environment we are in. It's going to be challenging to find something compelling and I think that’s the reason you are seeing us be active on the dispo side because we think value is there.

Realizable values are in excess of our value of the real estate on a long-term basis..

Could you just give a little bit of color on sort of what, like types of things you explored in terms of the risk spectrum? Is it development type deals, is it net lease on the other end of the spectrum? I mean what if Equity Commonwealth were to put proceeds out in terms of what you are looking for, where does is fall within that risk spectrum in terms of the type of assets you are looking for? And then the second part is, what sort of property types does it fall into? Was it retail, was it mixed use, was it multi-family, was it industrial? Where did it fall on that spectrum?.

I am not sure I quite got the first part of the question, let me take the second and then maybe you can reiterate it. Most of what we look at has been office related in one form or another.

And we have looked at portfolios, we have looked at individual assets and we have generally looked in markets that either we are in today or we have depth of experience in our previous days with Equity Office. And maybe you want to repeat the first question..

Yes. Whether you are looking at more speculative things in terms of development yields versus long-term net lease in terms of what type of things you are going -- you talked about some opportunistic, maybe lease up things. I didn’t know if you were looking at maybe some long duration stable income, if that’s what you wanted to put in the portfolio.

I am just trying to get a sense of where along the risk spectrum you would want to put this cash to work?.

I don’t think we think of it that way in terms of where along the risk spectrum because what we are trying to do is couple risk with opportunity or return. So we are looking at some things that would be considered low risk but maybe structurally they have an issue that allows us to enter at an attractive basis.

We are looking at some things that would be, by your terms more speculative, but for whatever reason we were trying to determine if we have some edge, some value add where we could derisk that opportunity and on attractive risk-adjusted returns. I don’t think we are driven by a specific view of how much risk we are willing to take.

It's really driven by are we being paid to take the risk we are taking..

Thank you. Our next question comes from John Bejjani with Green Street Advisors. Please proceed with your question..

Can you provide any additional color on which markets are in the batch of properties currently being marketed for sale? And when all set and done with the disposition program, how much of the suburban portfolio do you expect to still own?.

Hey, John, it's David Weinberg. As we have done in prior calls, we will not be commenting on our disposition pipeline until those deals flows. And then in terms of your second question, as we have always said before, we are looking and reviewing our entire portfolio.

We are trying to identify the assets that we don’t think either make sense to own long-term. We believe we can get priced today at a very attractive valuation and then we are going to continue and analyze it and continue to work the portfolio over time..

All right. And then for the $800 million portfolio of assets you sold earlier this year, you mentioned you didn’t see any pricing pressure from the upward move in interest rates.

Are you starting to see any impact on cap rates now further into the year for the current batch of properties just given where bond yields -- or corporate bond yields have gone..

We have not seen any impact on pricing today..

Okay. And last question from me. So as you guys consider, you have mentioned in the past you conserve the possibility of share repurchases.

How wide of a discount to underlying asset value do you view as necessary to make such a move?.

Well, when we talked about the potential use of the significant proceeds that we have been able to generate so far, we have talked about lots of different options and included in that is the share buyback. We are very early on in this process.

This is going to be a hard part I think for investors and we have kind of sent the warning shot out every time we have been on the call that patience is what we are hoping for.

We have lots to evaluate and we have lots to still do in terms of this disposition program and while we have regular conversations about all of our capital allocation alternatives with Sam and rest of the board, we are just not yet -- haven't yet made a decision..

So in back half of 2015 you don't have much pre-payables left. I think you mentioned somewhere around $100 million-$200 million.

Would that not free up some of your cash if the valuation was right to repurchase stock?.

It might..

Thank you. The next question we have comes from John Guinee with Stifel. You may proceed with your question..

Gentlemen, this is great fun.

Do you have smiles on your face or are you frowning as you are answering these questions?.

We smile when we hear your name in the queue John..

Great. Someone had said at the last NAREIT, I don’t want to be another subscale BS $3 billion office REIT. There is a lot of those out there right now.

Are they are on your radar screen?.

Yes, to run away from..

Have a great weekend. No other question..

Thank you. The next question we have is from Jamie Feldman with Bank of America Merrill Lynch. You may proceed with your question..

Can you talk a little bit about operating expenses in the portfolio and how much more room you think there is to increase margins?.

You know we have benefitted from our relationship with CBRE and we have been able to drive down the property management expense which is the main driver of the expense savings that you have seen.

We are continuing to work hard on that aspect of the business where in the midst of our 2016 budgeting process and it's a zero based process where we are going to build from the ground up each expense line item ad make sure that it could be supported and justified.

We hope out of that process and out of the buying power that we have as a large company and that CBRE has as an even larger manager of assets, that we will continue to reap benefits. But as we have said from the beginning, the real way to create NOI is with the revenue side of this business.

Better lease retention, better new leasing, higher rental rates and we are focused obviously on that part of the business as well..

Okay. And then I apologize if I missed it, I got on late. Did you guys discuss the special dividend or thoughts on where you are standing now if you have to redistribute capital..

We noted in prepared remarks that the sales to date have generated taxable losses and we further said that that in combination with our operating taxable income and taxable gains and losses likely to be generated through sales during the rest of the year will leave us with a next tax loss for 2015.

But that’s all we have commented on in terms of anything related to the distribution..

Okay. And then I know you had said in your comments that you do not think yields that you are really --you know find that attractive.

But with cash returning almost zero versus 4%-5% yield below the historical average, like how do you balance that? And would it be accretive to earnings even if you did go for some high quality below average historical yields? Is it tempting to just pull the trigger? How do you guys think about that internally?.

I think we are thinking about long-term creation, NAV creation and we are trying to be patient and not worry about the fact that for the short-term the cash is not earning the same as an asset purchase. We want to find something we can sink our teeth in to create value over the long-term and we are doing our best to be patient to find it..

Thank you. Our next question is a follow-up from the line of Manny Cordesman with Citi. You may begin with your question..

It's Manny here.

Can you just give us an idea of why G&A would go up next year, I think you said it's going to $55 million, you are annualizing about $10 million less than that if we just annualize your 2Q run rate?.

Yes. Just to make sure I am clear, I didn’t say that we would go up to $55 million next year, it's trending up to $55 million as we get the stabilization.

And that stabilization is primarily one thing and that is that what we have running through the financial statements now is one year of long-term incentive comp and if our compensation of committee and the board of directors determine that we will be awarded long-term comp every year as part of our compensation program, then you will see that ramp up over time because there is a four-year vesting period.

So you see a year's worth today, you are going to see two year's worth assuming again that there is long-term comp two years next year ramping up to year four where you will finally start to see burning off this original long-term incentive plan..

Our last question today is from the line of Rich Moore with RBC Capital Markets. You may proceed with your question..

How much time do you have left to do 10-31 exchanges on some of these properties that you have sold? Is that sort of winding down, I guess, if you wanted to take advantage of that..

Well, since we have generated taxable losses, our focus hasn’t been on exchanging..

No, I guess that’s a good point. Right. Okay. Also I want to ask you, you guys aren't over-levered and I assume you could still access the [venture] [ph] bond market.

So I am curious why de-levering further is one of the options you are considering?.

It's simply about use of proceeds. If we can delever at north of 6.2 weighted average yield on a risk adjusted basis, that seems attractive potentially. Again, relative to whatever else we might see between now and then. And of course it does preclude us from going back into the bond market.

We still don’t have that debt capacity and it would be likely that as we grow the company, which is our goal over time, that we would utilize that capacity going forward..

And I would just add that the debt we are paying off is above market debt. So if we had a need and wanted the debt, we could access it at more attractive prices..

Right. I am thinking debt is so cheap at the moment that doing a bond or replace the bond almost seems to make more sense to me.

What do you guys think you would be able to -- what kind of pricing you think you would be able to get on a bond if you did one today?.

I think part of what we are doing as part of the overall business plan is enhancing our relationship with the rating agencies. We have already had movement, some positive movement with the agencies. I think our view is that a solid BBB credit should be a solid BBB credit.

And hopefully, progress with the agencies will match our timing with accessing the bond markets and I am sure you know what BBB pricing is, but all debt is cheap today and BBB is particularly attractive..

Okay.

So you guys would probably wait for some improvement from the rating agencies before you do something?.

We may do that. Certainly it's something that we are focused on. We are working with them and making sure that those lines of communications are open so that our debt costs go down over time..

Thank you. There are no further questions at this time. I would like to turn the conference back over to David Helfand for any closing remarks..

Thank you. Just want to take a minute and recognize the efforts of the EQC team. We had some late nights, especially the Australian deal team, and plenty of challenges. What's remarkable is how much could be achieved by a committed group working together as a team.

We are proud of what we have accomplished to date and excited about the opportunities that lie ahead. I want to thank you for joining us today. We appreciate your interest in Equity Commonwealth. Thank you..

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation..