Equity Office Properties Trust (NYSE: EOP) today reported results
for the third quarter 2006. �We continue to reposition our
portfolio to take advantage of the positive momentum in office
markets,� commented Richard D. Kincaid, president and chief
executive officer of Equity Office. �Rental rates have increased in
virtually all of our strategic markets, with an overall increase in
asking rents of 8.6% in the third quarter, as compared to a year
ago. Occupancy in our portfolio has increased to over 91% driven by
improving fundamentals throughout the country and strong leasing
results.� Financial and Operating Results For the third quarter
2006, Equity Office reported a net loss of $139.4 million with a
diluted loss per share of $0.40, compared to net income of $93.7
million in the third quarter 2005, or $0.23 per share on a diluted
basis. The third quarter 2006 loss was caused by a previously
announced non-cash impairment charge of $188.9 million taken in
anticipation of future asset sales. The company expects to
recognize gains in excess of $700 million, assuming all of the
proposed dispositions close at targeted prices and provided current
market conditions continue. Gains from property sales in third
quarter 2006 were $58.5 million, substantially all of which is
included in this $700 million estimate. Quarterly results also
included severance costs of $21.8 million related to a previously
announced company reorganization. For the nine months ended
September 30, 2006, the company reported a net loss of $6.0 million
with a diluted loss per share of $0.02, compared to a net loss of
$10.8 million, or a net loss of $0.03 per share on a diluted basis
in 2005. There were non-cash impairment and severance charges in
both comparable year-to-date periods. The nine-month 2006 results
included $177.1 million of gains on assets sold. Funds From
Operations For the third quarter 2006, Funds From Operations (FFO)
available to common shareholders resulted in a net loss of $3.4
million, or a loss of $0.01 per share on a diluted basis. FFO for
the same period in 2005 totaled $227.7 million, or $0.50 per share
on a diluted basis. Third quarter 2006 FFO included non-cash
impairment and severance charges totaling $0.54 per diluted share.
For the nine months ended September 30, 2006, FFO available to
common shareholders totaled $448.7 million or $1.11 per share on a
diluted basis. FFO for the same period in 2005 totaled $427.2
million, or $0.94 per share on a diluted basis. There were non-cash
impairment and severance charges in both comparable nine-month
periods. Also, the year-to-date 2005 results included one
significant lease termination fee of $48.7 million, or $0.11 per
diluted share. The attachment to this press release reconciles FFO
to net income/loss, the most directly comparable GAAP measure.
Financial Results Summary Listed below are significant financial
statement items that affect comparability of GAAP net income/loss
between periods. For the three months ended September 30, For the
nine months ended September 30, 2006� 2005� 2006� 2005� (Dollars in
thousands, except per share amounts) Amount Per Share � Diluted
Amount Per Share � Diluted Amount Per Share � Diluted Amount Per
Share � Diluted Impairments, loss on sales of real estate, and
assets held for sale (a) $(188,928) $(0.49) $(3,533) $(0.01)
$(190,131) $(0.47) $(384,119) $(0.84) Gains on sales of real estate
(a) 58,494� 0.15� 78,533� 0.17� 177,082� 0.44� 182,427� 0.40�
Hurricane related charges 2,000� 0.01� (12,506) (0.03) 2,000� 0.00�
(12,506) (0.03) Severance charges (a) (21,751) (0.06) (2,718)
(0.01) (24,847) (0.06) (7,112) (0.02) Income from early lease
terminations (a) 2,914� 0.01� 4,558� 0.01� 12,331� 0.03� 66,816�
0.15� � Total (b) $(147,271) $(0.38) $64,334� $0.14� $(23,565)
$(0.06) $(154,494) $(0.34) (a) Includes amounts from continuing
operations, discontinued operations and our share of joint
ventures. (b) The total per share amounts may not total the sum of
the individual per share amounts due to rounding. Effective January
1, 2006, in accordance with GAAP, EOP consolidated the assets,
liabilities and results of operations of 18 joint ventures that
were previously accounted for under the equity method. This
consolidation did not impact net income or FFO, but did impact
various line items on the statement of operations, making
comparisons difficult. The attachment to this release, Impact of
EITF 04-5, reflects the impact on both the balance sheet and
statement of operations as a result of this change. Same-Store
Revenue and Net Operating Income In the third quarter, same-store
property operating revenues increased 4.3% on a year-over-year
basis as a result of occupancy gains, higher tenant reimbursements,
and market rent growth. Year-to-date same-store revenues increased
.8%. The comparable 2005 year-to-date period included income from
one significant lease termination. Same-store property net
operating income (NOI), excluding income from early lease
terminations and the effects of Hurricane Katrina, decreased 0.2%
in the third quarter 2006 from the same period in 2005, and
increased 0.5% on a year-to-date comparison from the same period in
2005. Quarterly and year-to-date property operating margins have
declined as a result of higher utility costs and repairs and
maintenance expenses. Leasing Results On a same-store basis,
occupancy increased to 91.9% at quarter-end, up from 90.2% at the
end of the third quarter last year. EOP�s effective office
portfolio occupancy was 91.1% at September 30, 2006, compared to
89.3% at September 30, 2005. The effective office portfolio
represents the company�s economic interest in the properties, which
is used to derive GAAP net income. In third quarter 2006, the
company leased 3.7 million square feet, compared to 5.3 million
square feet in third quarter 2005 on a larger portfolio. For the
first nine months of 2006, the company leased 12.7 million square
feet, compared to 15.6 million square feet for the same period in
2005. Tenant improvements and leasing costs for leases that
commenced during the third quarter 2006 were $20.66 per square foot
on a weighted average basis, compared to $20.59 per square foot in
the third quarter 2005. Tenant improvements and leasing costs for
leases that commenced during the nine months ended September 30,
2006, were $18.23 per square foot on a weighted average basis,
compared to $19.58 per square foot during the same period in 2005.
Investment Activity �Given strong investor interest in office
properties, we are marketing 16 million to 18 million square feet
or $3 billion to $3.5 billion of assets for sale,� commented
Kincaid. �We feel confident in our ability to execute a disposition
program of this size, provided market conditions continue.� In the
third quarter 2006, Equity Office sold 2.5 million square feet for
$435.0 million. Year-to-date through October 30, the company sold
assets totaling 5.7 million square feet for $966.4 million. EOP has
recognized gains of approximately $177.1 million from property
sales year-to-date through September 30, 2006. During the third
quarter 2006, Equity Office acquired 1.6 million square feet of
assets for $768.9 million, which included the acquisition of 1540
Broadway in New York City. Year-to-date through October 30, the
company acquired over $1.1 billion of assets totaling 2.9 million
square feet, including recent acquisitions in Miami, Florida. 2006
/ 2007 Outlook Given the anticipated size of Equity Office�s
current disposition program, 2006 and 2007 guidance assumes the
sale of $3 billion to $3.5 billion of assets at targeted pricing
levels. Guidance does not include any future impairments,
acquisitions not currently under contract, share repurchases, or
any dilutive impact of convertible debt, which, if significant,
could materially impact guidance. Furthermore, future gains and
losses are excluded from current guidance, and will be recognized
and included in guidance updates as asset sales close. 2006� � �
2007� Diluted EPS ($0.07) to $0.08 $0.33 to $0.48 Less: Gain on
Sales of Real Estate through September 30, 2006 ($0.44) --� Plus:
Real Estate Depreciation and Amortization $2.10� � � $1.92� Diluted
FFO per share $1.59 to $1.74 � � $2.25 to $2.40 The primary
assumptions used in calculating the 2006 and 2007 EPS and FFO per
share guidance ranges include: 2006� 2007� Year-End Effective
Office Portfolio Occupancy 91% to 92% 92% to 94% Income from Early
Lease Terminations $15 million to $20 million $10 million to $15
million Deferred Rental Revenue $35 million to $40 million $15
million to $20 million G&A Expense(excluding severance) $160
million to $170 million $150 million to $160 million Same-Store
Property Net Operating Income Growth(a) 0% to 1% 1% to 2% Tenant
Improvements and Leasing Costs $20.00 to $21.50 per square foot
$20.00 to $21.50 per square foot � (a) excluding income from early
lease terminations and hurricane related charges Conference Call
Details Management will discuss its third quarter 2006 results on
Equity Office�s earnings conference call scheduled for Tuesday,
October 31, 2006, at 10:00 a.m. Central. The conference call
telephone number is 888-283-0069. Participants should dial in 15
minutes before the scheduled start of the call. The pass code to
access the call is "EOP." Participants calling from outside of the
United States should dial 210-795-9226. A replay of the call will
be available until November 7, 2006, by calling 800-756-0715. No
pass code is necessary. For callers outside of the United States,
the replay telephone number is 203-369-3427. A live webcast of the
conference call will be available in listen-only mode at
www.equityoffice.com and at www.fulldisclosure.com. In addition to
the information provided in this release, Equity Office publishes a
quarterly Supplemental Operating and Financial Data Report, which
can be found at www.equityoffice.com in the Investor Relations
section, and as part of a Form 8-K furnished to the Securities and
Exchange Commission (SEC). Hard copies of the Supplemental
Operating and Financial Data Report are also available via mail by
calling 800-692-5304. Forward - Looking Statements This release
includes certain �forward-looking statements� within the meaning of
the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on management�s present
expectations and beliefs about future events. As with any
projection or forecast, these statements are inherently susceptible
to uncertainty and changes in circumstances. Important factors that
could cause actual results to differ materially from those
reflected in such forward-looking statements and that should be
considered in evaluating this release and the outlook of Equity
Office include, but are not limited to, changes in economic,
business and competitive conditions, and other factors affecting
the operation of the business of Equity Office. These and other
risks and uncertainties are detailed from time to time in Equity
Office�s filings with the SEC, including its Form 10-K filed on
March 15, 2006, as amended by Part II � Item 1A of our Form 10-Q
filed on August 8, 2006. Equity Office is under no obligation, and
expressly disclaims any obligation, to update or alter its
forward-looking statements, whether as a result of changes, new
information, subsequent events or otherwise. Equity Office
Properties Trust (NYSE: EOP), operating through its various
subsidiaries and affiliates, is the nation's largest publicly held
office building owner and manager with a total office portfolio of
581 buildings comprising 109.2 million square feet in 16 states and
the District of Columbia. Equity Office has an ownership presence
in 24 Metropolitan Statistical Areas (MSAs) and in 100 submarkets,
enabling it to provide a wide range of office solutions for local,
regional and national customers. For more company information visit
the Equity Office web site at http://www.equityoffice.com. Equity
Office Properties Trust Impact of EITF 04-5 � In accordance with
Emerging Issues Task Force 04-5, Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have
Certain Rights ("EITF 04-5"), effective January 1, 2006 Equity
Office consolidated the assets, liabilities and results of
operations of 18 joint ventures that it previously accounted for
under the equity method. Prior periods have not been restated for
this change. The table below summarizes the effect on Equity
Office's assets and liabilities as a result of the consolidation of
these joint ventures. � As of January 1, 2006 (Dollars in
thousands) Increase in investments in real estate, net of
accumulated depreciation $ 2,556,549� Decrease in investments in
unconsolidated joint ventures $ 844,591� Increase in mortgage debt,
net of discounts $ 681,986� Increase in minority interests -
partially owned properties $ 1,205,236� Increase in net other
assets and liabilities $ 175,264� Change in total shareholders'
equity $ -� Prior to January 1, 2006, Equity Office's share of the
net income from these joint ventures was included in "Income from
investments in unconsolidated joint ventures" on the consolidated
statements of operations. Upon consolidation, Equity Office�s
results of operations include the revenues and expenses of these
joint ventures and an allocation to the minority interest partners
for their share of the net income. The consolidation of the joint
ventures did not impact net income available to common shareholders
or funds from operations available to common shareholders. The
table below summarizes the effect on Equity Office's results of
operations for the three and nine months ended September 30, 2006
as a result of the consolidation of these joint ventures. � For the
three months ended September 30, 2006 � For the nine months ended
September 30, 2006 (Dollars in thousands) � Increase in total
revenues $ 104,487� $ 305,162� Increase in total operating expenses
$ 75,381� $ 216,927� Increase in other expense (primarily interest
expense) $ 9,410� $ 27,581� Decrease in income from investments in
unconsolidated joint ventures $ 10,043� $ 30,478� Increase in
minority interests - partially owned properties $ 9,653� $ 30,176�
Change in income from continuing operations $ -� $ -� � Equity
Office Properties Trust Consolidated Statements of Operations
(Unaudited) � For the three months ended September 30, For the nine
months ended September 30, 2006� 2005� 2006� 2005� (Dollars in
thousands, except per share amounts) Revenues: Rental $661,808�
$563,347� $1,969,655� $1,676,432� Tenant reimbursements 143,380�
100,466� 389,406� 277,658� Parking 36,967� 28,512� 109,221� 82,828�
Other 16,867� 8,926� 50,165� 84,682� Fee income 1,402� 5,314�
3,796� 13,788� Total revenues 860,424� 706,565� 2,522,243�
2,135,388� Expenses: Depreciation 194,940� 158,428� 572,990�
467,361� Amortization 31,038� 24,009� 99,613� 66,210� Real estate
taxes 108,225� 83,813� 313,944� 246,346� Insurance 7,381� 16,208�
24,347� 28,520� Repairs and maintenance 107,452� 76,947� 301,136�
221,263� Property operating 116,804� 86,257� 310,716� 235,151�
Ground rent 6,332� 6,097� 18,864� 16,208� General and
administrative 60,830� 43,007� 144,529� 121,254� Impairment 54,406�
-� 54,406� 24,382� Total expenses 687,408� 494,766� 1,840,545�
1,426,695� Operating income 173,016� 211,799� 681,698� 708,693� �
Other income (expense): Interest and dividend income 6,799� 3,960�
16,074� 10,570� Interest: Expense incurred (231,424) (195,721)
(679,043) (615,823) Amortization of deferred financing costs and
prepayment expenses (3,819) (3,362) (9,780) (8,751) Total other
income (expense) (228,444) (195,123) (672,749) (614,004) � (Loss)
income before income taxes, allocation to minority interests,
income from investments in unconsolidated joint ventures and (loss)
gain on sales of real estate (55,428) 16,676� 8,949� 94,689� Income
taxes (1,335) (456) (2,398) (1,346) Minority Interests: EOP
Partnership 15,456� (10,711) 665� 1,212� Partially owned properties
(12,325) (2,442) (38,840) (7,969) Income from investments in
unconsolidated joint ventures (including gain (loss) on sales of
real estate of $0, $29, $(91) and $17,405, respectively) 315�
10,683� 405� 48,882� (Loss) gain on sales of real estate (219)
47,406� 314� 47,433� (Loss) income from continuing operations
(53,536) 61,156� (30,905) 182,901� Discontinued operations
(including net gain (loss) on sales of real estate and provision
for (loss) on properties held for sale of $58,713, $27,565,
$175,656 and $(55,975), respectively) (77,211) 41,290� 51,037�
(167,625) Net (loss) income (130,747) 102,446� 20,132� 15,276�
Preferred distributions (8,700) (8,700) (26,102) (26,102) Net
(loss) income available to common shareholders ($139,447) $93,746�
($5,970) ($10,826) � � (Loss) earnings per share - basic: (Loss)
income from continuing operations per share ($0.20) $0.14� ($0.14)
$0.34� � Net (loss) income available to common shareholders per
share ($0.40) $0.23� ($0.02) ($0.03) � Weighted average Common
Shares outstanding 348,434,284� 408,511,485� 360,406,786�
405,866,866� � (Loss) earnings per share - diluted: (Loss) income
from continuing operations per share ($0.20) $0.14� ($0.14) $0.34�
� Net (loss) income available to common shareholders per share
($0.40) $0.23� ($0.02) ($0.03) � Weighted average Common Shares
outstanding and dilutive potential common shares 387,833,388�
457,343,521� 400,765,403� 455,370,659� � Distributions declared per
Common Share outstanding $0.33� $0.50� $0.99� $1.50� � Equity
Office Properties Trust Consolidated Balance Sheets � September 30,
2006 (Unaudited) December 31, 2005 (Dollars in thousands, except
per share amounts) Assets: Investments in real estate $26,063,916�
$22,929,606� Developments in process 662,339� 567,129� Land
available for development 148,006� 176,868� Investments in real
estate held for sale, net of accumulated depreciation 16,896�
92,233� Accumulated depreciation (3,958,587) (3,333,694)
Investments in real estate, net of accumulated depreciation
22,932,570� 20,432,142� Cash and cash equivalents 196,371� 78,164�
Tenant and other receivables (net of allowance for doubtful
accounts of $9,538 and $8,853, respectively) 88,217� 94,858�
Deferred rent receivable 569,594� 496,826� Escrow deposits and
restricted cash 336,501� 38,658� Investments in unconsolidated
joint ventures 118,085� 947,989� Deferred financing costs (net of
accumulated amortization of $50,093 and $45,920, respectively)
92,755� 58,809� Deferred leasing costs and other related
intangibles (net of accumulated amortization of $345,640 and
$232,024, respectively) 705,288� 522,926� Prepaid expenses and
other assets 261,044� 303,181� Total Assets $25,300,425�
$22,973,553� � Liabilities, Minority Interests, Mandatorily
Redeemable Preferred Shares and Shareholders� Equity: Liabilities:
Mortgage debt (net of (discounts) of $(4,626) and $(5,185),
respectively) $3,219,288� $2,164,198� Unsecured notes (net of
(discounts) of $(24,204) and $(23,936), respectively) 9,982,289�
9,032,620� Lines of credit 1,886,000� 1,631,000� Accounts payable
and accrued expenses 634,299� 574,225� Distribution payable
131,711� 3,736� Other liabilities (net of (discounts) of $(23,393)
and $(25,597), respectively) 633,286� 483,468� Commitments and
contingencies -� -� Total Liabilities 16,486,873� 13,889,247� �
Minority Interests: EOP Partnership 685,667� 863,923� Partially
owned properties 1,464,829� 172,278� Total Minority Interests
2,150,496� 1,036,201� � Mandatorily Redeemable Preferred Shares:
5.25% Series B Convertible, Cumulative Redeemable Preferred Shares,
liquidation preference $50.00 per share, 5,989,930 issued and
outstanding 299,497� 299,497� � Shareholders' Equity: Preferred
Shares, 100,000,000 authorized: 7.75% Series G Cumulative
Redeemable Preferred Shares, liquidation preference $25.00 per
share, 8,500,000 issued and outstanding 212,500� 212,500� Common
Shares, $0.01 par value; 750,000,000 shares authorized, 351,246,022
and 380,674,998 issued and outstanding, respectively 3,512� 3,807�
Other Shareholders' Equity: Additional paid in capital 8,712,587�
9,745,819� Deferred compensation -� (533) Dividends in excess of
accumulated earnings (2,514,139) (2,156,627) Accumulated other
comprehensive loss (net of accumulated amortization of $17,060 and
$11,948, respectively) (50,901) (56,358) Total Shareholders' Equity
6,363,559� 7,748,608� Total Liabilities, Minority Interests,
Mandatorily Redeemable Preferred Shares and Shareholders� Equity
$25,300,425� $22,973,553� � Equity Office Properties Trust
Reconciliation of Net (Loss) Income to Funds From Operations
("FFO") � For the three months ended September 30, 2006� 2005�
(Dollars in thousands, except per share amounts) Reconciliation of
net (loss) income to FFO (a): Net (loss) income ($130,747)
$102,446� Adjustments: Plus depreciation and amortization: Included
in income from continuing operations and discontinued operations
229,701� 193,688� Included in income from investments in
unconsolidated joint ventures 2,952� 12,926� Allocated to minority
interests in partially owned properties (17,632) (1,440) Non-real
estate related depreciation and amortization (5,016) (3,407) Less
net gain on sales of real estate: Included in income from
continuing operations and discontinued operations (58,494) (78,505)
Included in income from investments in unconsolidated joint
ventures -� (29) Less minority interests in EOP Partnership share
of the above adjustments (15,304) (12,006) FFO 5,460� 213,673�
Preferred distributions (8,700) (8,700) FFO available to common
shareholders - basic ($3,240) $204,973� Net (loss) income available
to common shareholders per share - basic ($0.40) $0.23� FFO
available to common shareholders per share - basic ($0.01) $0.50� �
� Adjustments to arrive at net (loss) income and FFO available to
common shareholders: Net Loss FFO (b) Net Income FFO (b) Net (loss)
income and FFO ($130,747) $5,460� $102,446� $213,673� Preferred
distributions (8,700) (8,700) (8,700) (8,700) Net (loss) income and
FFO available to common shareholders (139,447) (3,240) 93,746�
204,973� Net (loss) income allocated to minority interests in EOP
Partnership (15,456) (15,456) 10,711� 10,711� Minority interests in
EOP Partnership share of the above adjustments -� 15,304� -�
12,006� Net (loss) income and FFO available to common shareholders
- diluted ($154,903) ($3,392) $104,457� $227,690� � Weighted
average Common Shares and dilutive potential common shares
outstanding 387,833,388� 393,266,923� 457,343,521� 457,343,521� �
Net (loss) income and FFO available to common shareholders per
share - diluted ($0.40) ($0.01) $0.23� $0.50� � � Common Shares and
common share equivalents Weighted average Common Shares outstanding
(used for both net (loss) income and FFO basic per share
calculation) 348,434,284� 408,511,485� Effect of dilutive potential
common shares: Units 39,399,104� 44,335,877� Share options and
restricted shares which are dilutive to both net (loss) income and
FFO -� 4,496,159� Weighted average Common Shares and dilutive
potential common shares used for net (loss) income available to
common shareholders 387,833,388� 457,343,521� Impact of share
options and restricted shares which are dilutive to FFO but not
dilutive to net (loss) income 5,433,535� -� Weighted average Common
Shares and dilutive potential common shares used for the
calculation of FFO available to common shareholders 393,266,923�
457,343,521� � (a) FFO is a non-GAAP financial measure. The most
directly comparable GAAP measure is net (loss) income, to which it
is reconciled. See definition below. � (b) FFO for the three months
ended September 30, 2006 and 2005 includes $188.9 million and $3.5
million, respectively, of non-cash impairment charges and losses on
properties sold and properties held for sale, which is equivalent
to $0.48 and $0.01 per share on a diluted basis, respectively.
These charges are not added back to net (loss) income when
calculating FFO. � FFO Definition: FFO is defined as net (loss)
income, computed in accordance with accounting principles generally
accepted in the United States ("GAAP"), excluding gains from sales
of properties (but including losses from sales of properties,
impairments and provisions for losses on properties held for sale),
plus real estate related depreciation and amortization. Adjustments
for unconsolidated partnerships and joint ventures are calculated
to reflect FFO on the same basis. Equity Office believes that FFO
is helpful to investors as one of several measures of the
performance of an equity REIT. Equity Office further believes that
by excluding the effect of depreciation, amortization and gains
from sales of real estate, all of which are based on historical
costs and which may be of limited relevance in evaluating current
performance, FFO can facilitate comparisons of operating
performance between periods and between other equity REITs.
Investors should review FFO, along with GAAP net (loss) income when
trying to understand an equity REIT�s operating performance. Equity
Office computes FFO in accordance with its interpretation of the
standards established by the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT"), which may
not be comparable to FFO reported by other equity REITs that do not
define the term in accordance with the current NAREIT definition or
that interpret the current NAREIT definition differently than
Equity Office does. FFO does not represent cash generated from
operating activities in accordance with GAAP, nor does it represent
cash available to pay distributions and should not be considered as
an alternative to net (loss) income, determined in accordance with
GAAP, as an indication of Equity Office's financial performance, or
to cash flow from operating activities, determined in accordance
with GAAP, as a measure of its liquidity, nor is it indicative of
funds available to fund its cash needs, including its ability to
make cash distributions. � Equity Office Properties Trust
Reconciliation of Net Income to Funds From Operations
("FFO")(continued) � For the nine months ended September 30, 2006�
2005� (Dollars in thousands, except per share amounts)
Reconciliation of net income to FFO (a): Net income $20,132�
$15,276� Adjustments: Plus depreciation and amortization: Included
in income from continuing operations and discontinued operations
689,006� 598,572� Included in income from investments in
unconsolidated joint ventures 8,613� 37,974� Allocated to minority
interests in partially owned properties (51,771) (4,419) Non-real
estate related depreciation and amortization (13,411) (10,429) Less
net gain on sales of real estate: Included in income from
continuing operations and discontinued operations (177,173)
(194,721) Included in income from investments in unconsolidated
joint ventures (b) 91� (17,405) Allocated to minority interests in
partially owned properties -� 29,699� Less minority interests in
EOP Partnership share of the above adjustments (45,615) (44,228)
FFO 429,872� 410,319� Preferred distributions (26,102) (26,102) FFO
available to common shareholders - basic $403,770� $384,217� Net
(loss) available to common shareholders per share - basic ($0.02)
($0.03) FFO available to common shareholders per share - basic
$1.12� $0.95� � Adjustments to arrive at net (loss) and FFO
available to common shareholders: Net Income (Loss) FFO (c) Net
Income (Loss) FFO (c) Net income and FFO $20,132� $429,872�
$15,276� $410,319� Preferred distributions (26,102) (26,102)
(26,102) (26,102) Net (loss) and FFO available to common
shareholders (5,970) 403,770� (10,826) 384,217� Net (loss)
allocated to minority interests in EOP Partnership (665) (665)
(1,212) (1,212) Minority interests in EOP Partnership share of the
above adjustments -� 45,615� -� 44,228� Net (loss) and FFO
available to common shareholders - diluted ($6,635) $448,720�
($12,038) $427,233� � Weighted average Common Shares and dilutive
potential common shares outstanding 400,765,403� 405,660,072�
455,370,659� 455,370,659� � Net (loss) and FFO available to common
shareholders per share - diluted ($0.02) $1.11� ($0.03) $0.94� � �
Common Shares and common share equivalents Weighted average Common
Shares outstanding (used for both net (loss) and FFO basic per
share calculation) 360,406,786� 405,866,866� Effect of dilutive
potential common shares: Units 40,358,617� 45,682,227� Share
options and restricted shares which are dilutive to both net (loss)
and FFO -� 3,821,566� Weighted average Common Shares and dilutive
potential common shares used for net (loss) available to common
shareholders 400,765,403� 455,370,659� Impact of share options and
restricted shares which are dilutive to FFO but not dilutive to net
(loss) 4,894,669� -� Weighted average Common Shares and dilutive
potential common shares used for the calculation of FFO available
to common shareholders 405,660,072� 455,370,659� � (a) FFO is a
non-GAAP financial measure. The most directly comparable GAAP
measure is net income, to which it is reconciled. See definition
below. � (b) The loss for the nine months ended September 30, 2006
represents an adjustment to the gain previously recorded on
properties sold in prior periods. � (c) FFO for the nine months
ended September 30, 2006 and 2005 includes $190.1 million and
$384.1 million, respectively, of non-cash impairment charges and
losses on properties sold and properties held for sale, which is
equivalent to $0.47 and $0.84 per share on a diluted basis,
respectively. These charges are not added back to net income when
calculating FFO. � FFO Definition: FFO is defined as net income,
computed in accordance with accounting principles generally
accepted in the United States ("GAAP"), excluding gains from sales
of properties (but including losses from sales of properties,
impairments and provisions for losses on properties held for sale),
plus real estate related depreciation and amortization. Adjustments
for unconsolidated partnerships and joint ventures are calculated
to reflect FFO on the same basis. Equity Office believes that FFO
is helpful to investors as one of several measures of the
performance of an equity REIT. Equity Office further believes that
by excluding the effect of depreciation, amortization and gains
from sales of real estate, all of which are based on historical
costs and which may be of limited relevance in evaluating current
performance, FFO can facilitate comparisons of operating
performance between periods and between other equity REITs.
Investors should review FFO, along with GAAP net income when trying
to understand an equity REIT�s operating performance. Equity Office
computes FFO in accordance with its interpretation of the standards
established by the Board of Governors of the National Association
of Real Estate Investment Trusts ("NAREIT"), which may not be
comparable to FFO reported by other equity REITs that do not define
the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than Equity
Office does. FFO does not represent cash generated from operating
activities in accordance with GAAP, nor does it represent cash
available to pay distributions and should not be considered as an
alternative to net income, determined in accordance with GAAP, as
an indication of Equity Office's financial performance, or to cash
flow from operating activities, determined in accordance with GAAP,
as a measure of its liquidity, nor is it indicative of funds
available to fund its cash needs, including its ability to make
cash distributions. Equity Office Properties Trust Consolidated
Statements of Cash Flows � � For the three months ended September
30, For the nine months ended September 30, 2006� 2005� 2006� 2005�
(Dollars in thousands, unaudited) Operating Activities: Net (loss)
income $ (130,747) $ 102,446� $ 20,132� $ 15,276� Adjustments to
reconcile net (loss) income to net cash provided by operating
activities: Depreciation and amortization 236,308� 199,635�
709,067� 614,148� Compensation expense related to restricted shares
and stock options 4,263� 6,628� 18,499� 19,950� Income from
investments in unconsolidated joint ventures (315) (10,683) (405)
(48,882) Net distributions from (contributions to) unconsolidated
joint ventures 505� 19,834� (2,087) 43,444� Net (gain) loss on
sales of real estate and provision for loss on properties held for
sale (58,494) (74,971) (175,970) 8,542� Impairment 188,928� -�
188,928� 180,856� Provision for doubtful accounts 604� 1,847�
4,443� 5,376� (Loss) income allocated to minority interests (3,131)
13,153� 38,175� 37,197� Other -� -� -� 448� Changes in assets and
liabilities: (Increase) decrease in rent receivable (11,236)
14,421� 15,971� 14,930� (Increase) in deferred rent receivable
(9,920) (14,768) (36,711) (51,443) Decrease in prepaid expenses and
other assets 641� 37,392� 44,788� 13,890� Increase (decrease) in
accounts payable and accrued expenses 34,602� 7,450� (24,020)
(52,318) Increase (decrease) in other liabilities 1,023� 14,861�
(18,513) (15,841) Net cash provided by operating activities
253,031� 317,245� 782,297� 785,573� Investing Activities: Property
acquisitions (including deposits made for property acquisitions)
(771,064) (655,428) (935,687) (1,020,214) Property dispositions
(including deposits received for property dispositions) 266,666�
312,077� 508,842� 1,620,855� Increase in cash upon consolidation of
certain joint ventures -� -� 51,357� -� Distributions from
(investments in) unconsolidated joint ventures 2,385� 124,395�
(11,040) 186,696� Capital and tenant improvements (including
development costs) (116,136) (90,945) (339,561) (241,908) Lease
commissions and other costs (26,548) (39,723) (91,133) (93,473)
Decrease in escrow deposits and restricted cash 46,291� 453,859�
117,948� 587,489� Net cash (used for) provided by investing
activities (598,406) 104,235� (699,274) 1,039,445� Financing
Activities: Proceeds from mortgage debt -� -� 584,107� 150�
Principal payments on mortgage debt (213,067) (534,356) (227,891)
(889,877) Proceeds from unsecured notes -� 10,389� 1,470,000�
38,758� Repayment of unsecured notes (50,000) (150,000) (550,063)
(675,000) Proceeds from lines of credit 4,253,400� 4,106,300�
19,130,399� 8,106,900� Repayment of lines of credit (3,516,200)
(3,988,300) (18,875,399) (7,843,900) Payments of loan costs and
offering costs (8,335) (7,302) (11,067) (7,361) Settlement of
interest rate swap agreements -� (8,677) -� (8,677) Contributions
from minority interests in partially owned properties related to
repayment of mortgage debt 48,705� -� 48,705� -� Distributions to
minority interests in partially owned properties (18,697) (1,457)
(57,497) (9,317) Proceeds from exercise of stock options 43,690�
16,832� 128,868� 138,374� Distributions to common shareholders and
unitholders (128,517) (227,382) (264,395) (454,140) Repurchase of
Common Shares (2,929) (99,564) (1,217,649) (107,322) Redemption of
Units (10,885) -� (98,791) (50,676) Payment of preferred
distributions (8,047) (8,047) (24,143) (24,143) Net cash provided
by (used for) financing activities 389,118� (891,564) 35,184�
(1,786,231) Net increase (decrease) in cash and cash equivalents
43,743� (470,084) 118,207� 38,787� Cash and cash equivalents at the
beginning of the period 152,628� 615,997� 78,164� 107,126� Cash and
cash equivalents at the end of the period $ 196,371� $ 145,913� $
196,371� $ 145,913� Equity Office Properties Trust Consolidated
Statements of Cash Flows (continued) � For the three months ended
September 30, For the nine months ended September 30, 2006� 2005�
2006� 2005� (Dollars in thousands, unaudited) Supplemental
Information: Interest paid during the period (including capitalized
interest of $9,139, $47, $16,179 and $51, respectively) $ 256,309�
$ 246,243� $ 711,913� $ 675,352� Non-Cash Investing and Financing
Activities: Investing Activities: Escrow deposits related to
property dispositions $ (160,122) $ (489,115) $ (392,719) $
(639,439) Mortgage loan repayment as a result of a property
disposition $ -� $ -� $ -� $ (13,386) Mortgage loan assumed upon
acquisition of a property $ -� $ -� $ 15,200� $ 44,975� Units
issued in connection with a property acquisition $ -� $ -� $ -� $
3,339� Changes in accounts due to consolidation of certain joint
ventures: Decrease in investments in unconsolidated joint ventures
$ -� $ -� $ (844,591) $ -� Increase in investments in real estate $
-� $ -� $ 2,843,118� $ -� Increase in accumulated depreciation $ -�
$ -� $ (286,569) $ -� Increase in mortgage debt, net of discounts $
-� $ -� $ (681,986) $ -� Increase in minority interests - partially
owned properties $ -� $ -� $ (1,205,236) $ -� Increase in other
assets and liabilities $ -� $ -� $ 123,907� $ -� Changes in
accounts due to partial sale of real estate: Increase in investment
in unconsolidated joint ventures $ -� $ 36,349� $ -� $ 36,349�
Decrease in investments in real estate $ -� $ (43,931) $ -� $
(43,931) Decrease in accumulated depreciation $ -� $ 8,403� $ -� $
8,403� Increase in other assets and liabilities $ -� $ (940) $ -� $
(940) Financing Activities: Mortgage loan repayment as a result of
a property disposition $ -� $ -� $ -� $ 13,386� Mortgage loan
assumed upon acquisition of a property $ -� $ -� $ (15,200) $
(44,975) Units issued in connection with a property acquisition $
-� $ -� $ -� $ (3,339) Equity Office Properties Trust (NYSE: EOP)
today reported results for the third quarter 2006. "We continue to
reposition our portfolio to take advantage of the positive momentum
in office markets," commented Richard D. Kincaid, president and
chief executive officer of Equity Office. "Rental rates have
increased in virtually all of our strategic markets, with an
overall increase in asking rents of 8.6% in the third quarter, as
compared to a year ago. Occupancy in our portfolio has increased to
over 91% driven by improving fundamentals throughout the country
and strong leasing results." Financial and Operating Results For
the third quarter 2006, Equity Office reported a net loss of $139.4
million with a diluted loss per share of $0.40, compared to net
income of $93.7 million in the third quarter 2005, or $0.23 per
share on a diluted basis. The third quarter 2006 loss was caused by
a previously announced non-cash impairment charge of $188.9 million
taken in anticipation of future asset sales. The company expects to
recognize gains in excess of $700 million, assuming all of the
proposed dispositions close at targeted prices and provided current
market conditions continue. Gains from property sales in third
quarter 2006 were $58.5 million, substantially all of which is
included in this $700 million estimate. Quarterly results also
included severance costs of $21.8 million related to a previously
announced company reorganization. For the nine months ended
September 30, 2006, the company reported a net loss of $6.0 million
with a diluted loss per share of $0.02, compared to a net loss of
$10.8 million, or a net loss of $0.03 per share on a diluted basis
in 2005. There were non-cash impairment and severance charges in
both comparable year-to-date periods. The nine-month 2006 results
included $177.1 million of gains on assets sold. Funds From
Operations For the third quarter 2006, Funds From Operations (FFO)
available to common shareholders resulted in a net loss of $3.4
million, or a loss of $0.01 per share on a diluted basis. FFO for
the same period in 2005 totaled $227.7 million, or $0.50 per share
on a diluted basis. Third quarter 2006 FFO included non-cash
impairment and severance charges totaling $0.54 per diluted share.
For the nine months ended September 30, 2006, FFO available to
common shareholders totaled $448.7 million or $1.11 per share on a
diluted basis. FFO for the same period in 2005 totaled $427.2
million, or $0.94 per share on a diluted basis. There were non-cash
impairment and severance charges in both comparable nine-month
periods. Also, the year-to-date 2005 results included one
significant lease termination fee of $48.7 million, or $0.11 per
diluted share. The attachment to this press release reconciles FFO
to net income/loss, the most directly comparable GAAP measure.
Financial Results Summary Listed below are significant financial
statement items that affect comparability of GAAP net income/loss
between periods. -0- *T For the three months ended September 30,
---------------------------------------- 2006 2005
---------------------------------------- (Dollars in thousands,
except Per Share Per Share per share amounts) Amount - Diluted
Amount - Diluted
---------------------------------------------------------------------
Impairments, loss on sales of real estate, and assets held for sale
(a) $(188,928) $(0.49) $(3,533) $(0.01) Gains on sales of real
estate (a) 58,494 0.15 78,533 0.17 Hurricane related charges 2,000
0.01 (12,506) (0.03) Severance charges (a) (21,751) (0.06) (2,718)
(0.01) Income from early lease terminations (a) 2,914 0.01 4,558
0.01 ---------------------------------------- Total (b) $(147,271)
$(0.38) $64,334 $0.14 ======================================== For
the nine months ended September 30,
---------------------------------------- 2006 2005
---------------------------------------- (Dollars in thousands,
except Per Share Per Share per share amounts) Amount - Diluted
Amount - Diluted
---------------------------------------------------------------------
Impairments, loss on sales of real estate, and assets held for sale
(a) $(190,131) $(0.47)$(384,119) $(0.84) Gains on sales of real
estate (a) 177,082 0.44 182,427 0.40 Hurricane related charges
2,000 0.00 (12,506) (0.03) Severance charges (a) (24,847) (0.06)
(7,112) (0.02) Income from early lease terminations (a) 12,331 0.03
66,816 0.15 ---------------------------------------- Total (b)
$(23,565) $(0.06)$(154,494) $(0.34)
======================================== *T (a) Includes amounts
from continuing operations, discontinued operations and our share
of joint ventures. (b) The total per share amounts may not total
the sum of the individual per share amounts due to rounding.
Effective January 1, 2006, in accordance with GAAP, EOP
consolidated the assets, liabilities and results of operations of
18 joint ventures that were previously accounted for under the
equity method. This consolidation did not impact net income or FFO,
but did impact various line items on the statement of operations,
making comparisons difficult. The attachment to this release,
Impact of EITF 04-5, reflects the impact on both the balance sheet
and statement of operations as a result of this change. Same-Store
Revenue and Net Operating Income In the third quarter, same-store
property operating revenues increased 4.3% on a year-over-year
basis as a result of occupancy gains, higher tenant reimbursements,
and market rent growth. Year-to-date same-store revenues increased
.8%. The comparable 2005 year-to-date period included income from
one significant lease termination. Same-store property net
operating income (NOI), excluding income from early lease
terminations and the effects of Hurricane Katrina, decreased 0.2%
in the third quarter 2006 from the same period in 2005, and
increased 0.5% on a year-to-date comparison from the same period in
2005. Quarterly and year-to-date property operating margins have
declined as a result of higher utility costs and repairs and
maintenance expenses. Leasing Results On a same-store basis,
occupancy increased to 91.9% at quarter-end, up from 90.2% at the
end of the third quarter last year. EOP's effective office
portfolio occupancy was 91.1% at September 30, 2006, compared to
89.3% at September 30, 2005. The effective office portfolio
represents the company's economic interest in the properties, which
is used to derive GAAP net income. In third quarter 2006, the
company leased 3.7 million square feet, compared to 5.3 million
square feet in third quarter 2005 on a larger portfolio. For the
first nine months of 2006, the company leased 12.7 million square
feet, compared to 15.6 million square feet for the same period in
2005. Tenant improvements and leasing costs for leases that
commenced during the third quarter 2006 were $20.66 per square foot
on a weighted average basis, compared to $20.59 per square foot in
the third quarter 2005. Tenant improvements and leasing costs for
leases that commenced during the nine months ended September 30,
2006, were $18.23 per square foot on a weighted average basis,
compared to $19.58 per square foot during the same period in 2005.
Investment Activity "Given strong investor interest in office
properties, we are marketing 16 million to 18 million square feet
or $3 billion to $3.5 billion of assets for sale," commented
Kincaid. "We feel confident in our ability to execute a disposition
program of this size, provided market conditions continue." In the
third quarter 2006, Equity Office sold 2.5 million square feet for
$435.0 million. Year-to-date through October 30, the company sold
assets totaling 5.7 million square feet for $966.4 million. EOP has
recognized gains of approximately $177.1 million from property
sales year-to-date through September 30, 2006. During the third
quarter 2006, Equity Office acquired 1.6 million square feet of
assets for $768.9 million, which included the acquisition of 1540
Broadway in New York City. Year-to-date through October 30, the
company acquired over $1.1 billion of assets totaling 2.9 million
square feet, including recent acquisitions in Miami, Florida. 2006
/ 2007 Outlook Given the anticipated size of Equity Office's
current disposition program, 2006 and 2007 guidance assumes the
sale of $3 billion to $3.5 billion of assets at targeted pricing
levels. Guidance does not include any future impairments,
acquisitions not currently under contract, share repurchases, or
any dilutive impact of convertible debt, which, if significant,
could materially impact guidance. Furthermore, future gains and
losses are excluded from current guidance, and will be recognized
and included in guidance updates as asset sales close. -0- *T 2006
2007 ---------------------------------- Diluted EPS ($0.07) to
$0.08 $0.33 to $0.48 Less: Gain on Sales of Real Estate through
September 30, 2006 ($0.44) -- Plus: Real Estate Depreciation and
Amortization $2.10 $1.92 ---------------------------------- Diluted
FFO per share $1.59 to $1.74 $2.25 to $2.40
================================== *T The primary assumptions used
in calculating the 2006 and 2007 EPS and FFO per share guidance
ranges include: -0- *T 2006 2007 Year-End Effective Office
Portfolio Occupancy 91% to 92% 92% to 94% Income from Early Lease
$15 million to $10 million to Terminations $20 million $15 million
Deferred Rental Revenue $35 million to $15 million to $40 million
$20 million G&A Expense $160 million to $150 million to
(excluding severance) $170 million $160 million Same-Store Property
Net Operating Income Growth(a) 0% to 1% 1% to 2% Tenant
Improvements and Leasing $20.00 to $21.50 $20.00 to $21.50 Costs
per square foot per square foot (a) excluding income from early
lease terminations and hurricane related charges *T Conference Call
Details Management will discuss its third quarter 2006 results on
Equity Office's earnings conference call scheduled for Tuesday,
October 31, 2006, at 10:00 a.m. Central. The conference call
telephone number is 888-283-0069. Participants should dial in 15
minutes before the scheduled start of the call. The pass code to
access the call is "EOP." Participants calling from outside of the
United States should dial 210-795-9226. A replay of the call will
be available until November 7, 2006, by calling 800-756-0715. No
pass code is necessary. For callers outside of the United States,
the replay telephone number is 203-369-3427. A live webcast of the
conference call will be available in listen-only mode at
www.equityoffice.com and at www.fulldisclosure.com. In addition to
the information provided in this release, Equity Office publishes a
quarterly Supplemental Operating and Financial Data Report, which
can be found at www.equityoffice.com in the Investor Relations
section, and as part of a Form 8-K furnished to the Securities and
Exchange Commission (SEC). Hard copies of the Supplemental
Operating and Financial Data Report are also available via mail by
calling 800-692-5304. Forward - Looking Statements This release
includes certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are based on management's present
expectations and beliefs about future events. As with any
projection or forecast, these statements are inherently susceptible
to uncertainty and changes in circumstances. Important factors that
could cause actual results to differ materially from those
reflected in such forward-looking statements and that should be
considered in evaluating this release and the outlook of Equity
Office include, but are not limited to, changes in economic,
business and competitive conditions, and other factors affecting
the operation of the business of Equity Office. These and other
risks and uncertainties are detailed from time to time in Equity
Office's filings with the SEC, including its Form 10-K filed on
March 15, 2006, as amended by Part II - Item 1A of our Form 10-Q
filed on August 8, 2006. Equity Office is under no obligation, and
expressly disclaims any obligation, to update or alter its
forward-looking statements, whether as a result of changes, new
information, subsequent events or otherwise. Equity Office
Properties Trust (NYSE: EOP), operating through its various
subsidiaries and affiliates, is the nation's largest publicly held
office building owner and manager with a total office portfolio of
581 buildings comprising 109.2 million square feet in 16 states and
the District of Columbia. Equity Office has an ownership presence
in 24 Metropolitan Statistical Areas (MSAs) and in 100 submarkets,
enabling it to provide a wide range of office solutions for local,
regional and national customers. For more company information visit
the Equity Office web site at http://www.equityoffice.com. -0- *T
Equity Office Properties Trust Impact of EITF 04-5 In accordance
with Emerging Issues Task Force 04-5, Determining Whether a General
Partner, or the General Partners as a Group, Controls a Limited
Partnership or Similar Entity When the Limited Partners Have
Certain Rights ("EITF 04-5"), effective January 1, 2006 Equity
Office consolidated the assets, liabilities and results of
operations of 18 joint ventures that it previously accounted for
under the equity method. Prior periods have not been restated for
this change. The table below summarizes the effect on Equity
Office's assets and liabilities as a result of the consolidation of
these joint ventures. As of January 1, 2006
------------------------- (Dollars in thousands) Increase in
investments in real estate, net of accumulated depreciation
$2,556,549 Decrease in investments in unconsolidated joint ventures
$844,591 Increase in mortgage debt, net of discounts $681,986
Increase in minority interests - partially owned properties
$1,205,236 Increase in net other assets and liabilities $175,264
Change in total shareholders' equity $- *T -0- *T Prior to January
1, 2006, Equity Office's share of the net income from these joint
ventures was included in "Income from investments in unconsolidated
joint ventures" on the consolidated statements of operations. Upon
consolidation, Equity Office's results of operations include the
revenues and expenses of these joint ventures and an allocation to
the minority interest partners for their share of the net income.
The consolidation of the joint ventures did not impact net income
available to common shareholders or funds from operations available
to common shareholders. The table below summarizes the effect on
Equity Office's results of operations for the three and nine months
ended September 30, 2006 as a result of the consolidation of these
joint ventures. For the three For the nine months ended months
ended September 30, September 30, 2006 2006
------------------------------- (Dollars in thousands) Increase in
total revenues $104,487 $305,162 Increase in total operating
expenses $75,381 $216,927 Increase in other expense (primarily
interest expense) $9,410 $27,581 Decrease in income from
investments in unconsolidated joint ventures $10,043 $30,478
Increase in minority interests - partially owned properties $9,653
$30,176 Change in income from continuing operations $- $- *T -0- *T
Equity Office Properties Trust Consolidated Statements of
Operations (Unaudited) For the three months ended For the nine
months ended September 30, September 30, --------------------------
------------------------- 2006 2005 2006 2005 ------------
------------- ------------ ------------ (Dollars in thousands,
except per share amounts) Revenues: Rental $661,808 $563,347
$1,969,655 $1,676,432 Tenant reimbursements 143,380 100,466 389,406
277,658 Parking 36,967 28,512 109,221 82,828 Other 16,867 8,926
50,165 84,682 Fee income 1,402 5,314 3,796 13,788 ------------
------------- ------------ ------------ Total revenues 860,424
706,565 2,522,243 2,135,388 ------------ ------------- ------------
------------ Expenses: Depreciation 194,940 158,428 572,990 467,361
Amortization 31,038 24,009 99,613 66,210 Real estate taxes 108,225
83,813 313,944 246,346 Insurance 7,381 16,208 24,347 28,520 Repairs
and maintenance 107,452 76,947 301,136 221,263 Property operating
116,804 86,257 310,716 235,151 Ground rent 6,332 6,097 18,864
16,208 General and administrative 60,830 43,007 144,529 121,254
Impairment 54,406 - 54,406 24,382 ------------ -------------
------------ ------------ Total expenses 687,408 494,766 1,840,545
1,426,695 ------------ ------------- ------------ ------------
Operating income 173,016 211,799 681,698 708,693 ------------
------------- ------------ ------------ Other income (expense):
Interest and dividend income 6,799 3,960 16,074 10,570 Interest:
Expense incurred (231,424) (195,721) (679,043) (615,823)
Amortization of deferred financing costs and prepayment expenses
(3,819) (3,362) (9,780) (8,751) ------------ -------------
------------ ------------ Total other income (expense) (228,444)
(195,123) (672,749) (614,004) ------------ -------------
------------ ------------ (Loss) income before income taxes,
allocation to minority interests, income from investments in
unconsolidated joint ventures and (loss) gain on sales of real
estate (55,428) 16,676 8,949 94,689 Income taxes (1,335) (456)
(2,398) (1,346) Minority Interests: EOP Partnership 15,456 (10,711)
665 1,212 Partially owned properties (12,325) (2,442) (38,840)
(7,969) Income from investments in unconsolidated joint ventures
(including gain (loss) on sales of real estate of $0, $29, $(91)
and $17,405, respectively) 315 10,683 405 48,882 (Loss) gain on
sales of real estate (219) 47,406 314 47,433 ------------
------------- ------------ ------------ (Loss) income from
continuing operations (53,536) 61,156 (30,905) 182,901 Discontinued
operations (including net gain (loss) on sales of real estate and
provision for (loss) on properties held for sale of $58,713,
$27,565, $175,656 and $(55,975), respectively) (77,211) 41,290
51,037 (167,625) ------------ ------------- ------------
------------ Net (loss) income (130,747) 102,446 20,132 15,276
Preferred distributions (8,700) (8,700) (26,102) (26,102)
------------ ------------- ------------ ------------ Net (loss)
income available to common shareholders ($139,447) $93,746 ($5,970)
($10,826) ============ ============= ============ ============
(Loss) earnings per share - basic: (Loss) income from continuing
operations per share ($0.20) $0.14 ($0.14) $0.34 ============
============= ============ ============ Net (loss) income available
to common shareholders per share ($0.40) $0.23 ($0.02) ($0.03)
============ ============= ============ ============ Weighted
average Common Shares outstanding 348,434,284 408,511,485
360,406,786 405,866,866 ============ ============= ============
============ (Loss) earnings per share - diluted: (Loss) income
from continuing operations per share ($0.20) $0.14 ($0.14) $0.34
============ ============= ============ ============ Net (loss)
income available to common shareholders per share ($0.40) $0.23
($0.02) ($0.03) ============ ============= ============
============ Weighted average Common Shares outstanding and
dilutive potential common shares 387,833,388 457,343,521
400,765,403 455,370,659 ============ ============= ============
============ Distributions declared per Common Share outstanding
$0.33 $0.50 $0.99 $1.50 ============ ============= ============
============ *T -0- *T Equity Office Properties Trust Consolidated
Balance Sheets September 30, 2006 (Unaudited) December 31, 2005
----------------------------------- (Dollars in thousands, except
per share amounts) Assets: Investments in real estate $26,063,916
$22,929,606 Developments in process 662,339 567,129 Land available
for development 148,006 176,868 Investments in real estate held for
sale, net of accumulated depreciation 16,896 92,233 Accumulated
depreciation (3,958,587) (3,333,694)
----------------------------------- Investments in real estate, net
of accumulated depreciation 22,932,570 20,432,142 Cash and cash
equivalents 196,371 78,164 Tenant and other receivables (net of
allowance for doubtful accounts of $9,538 and $8,853, respectively)
88,217 94,858 Deferred rent receivable 569,594 496,826 Escrow
deposits and restricted cash 336,501 38,658 Investments in
unconsolidated joint ventures 118,085 947,989 Deferred financing
costs (net of accumulated amortization of $50,093 and $45,920,
respectively) 92,755 58,809 Deferred leasing costs and other
related intangibles (net of accumulated amortization of $345,640
and $232,024, respectively) 705,288 522,926 Prepaid expenses and
other assets 261,044 303,181 -----------------------------------
Total Assets $25,300,425 $22,973,553
=================================== Liabilities, Minority
Interests, Mandatorily Redeemable Preferred Shares and
Shareholders' Equity: Liabilities: Mortgage debt (net of
(discounts) of $(4,626) and $(5,185), respectively) $3,219,288
$2,164,198 Unsecured notes (net of (discounts) of $(24,204) and
$(23,936), respectively) 9,982,289 9,032,620 Lines of credit
1,886,000 1,631,000 Accounts payable and accrued expenses 634,299
574,225 Distribution payable 131,711 3,736 Other liabilities (net
of (discounts) of $(23,393) and $(25,597), respectively) 633,286
483,468 Commitments and contingencies - -
----------------------------------- Total Liabilities 16,486,873
13,889,247 ----------------------------------- Minority Interests:
EOP Partnership 685,667 863,923 Partially owned properties
1,464,829 172,278 ----------------------------------- Total
Minority Interests 2,150,496 1,036,201
----------------------------------- Mandatorily Redeemable
Preferred Shares: 5.25% Series B Convertible, Cumulative Redeemable
Preferred Shares, liquidation preference $50.00 per share,
5,989,930 issued and outstanding 299,497 299,497
----------------------------------- Shareholders' Equity: Preferred
Shares, 100,000,000 authorized: 7.75% Series G Cumulative
Redeemable Preferred Shares, liquidation preference $25.00 per
share, 8,500,000 issued and outstanding 212,500 212,500 Common
Shares, $0.01 par value; 750,000,000 shares authorized, 351,246,022
and 380,674,998 issued and outstanding, respectively 3,512 3,807
Other Shareholders' Equity: Additional paid in capital 8,712,587
9,745,819 Deferred compensation - (533) Dividends in excess of
accumulated earnings (2,514,139) (2,156,627) Accumulated other
comprehensive loss (net of accumulated amortization of $17,060 and
$11,948, respectively) (50,901) (56,358)
----------------------------------- Total Shareholders' Equity
6,363,559 7,748,608 ----------------------------------- Total
Liabilities, Minority Interests, Mandatorily Redeemable Preferred
Shares and Shareholders' Equity $25,300,425 $22,973,553
=================================== *T -0- *T Equity Office
Properties Trust Reconciliation of Net (Loss) Income to Funds From
Operations ("FFO") For the three months ended September 30,
------------------------------ 2006 2005 ---------------
-------------- (Dollars in thousands, except per share amounts)
Reconciliation of net (loss) income to FFO (a): Net (loss) income
($130,747) $102,446 Adjustments: Plus depreciation and
amortization: Included in income from continuing operations and
discontinued operations 229,701 193,688 Included in income from
investments in unconsolidated joint ventures 2,952 12,926 Allocated
to minority interests in partially owned properties (17,632)
(1,440) Non-real estate related depreciation and amortization
(5,016) (3,407) Less net gain on sales of real estate: Included in
income from continuing operations and discontinued operations
(58,494) (78,505) Included in income from investments in
unconsolidated joint ventures - (29) Less minority interests in EOP
Partnership share of the above adjustments (15,304) (12,006)
---------- --------- FFO 5,460 213,673 Preferred distributions
(8,700) (8,700) ---------- --------- FFO available to common
shareholders - basic ($3,240) $204,973 ========== ========= Net
(loss) income available to common shareholders per share - basic
($0.40) $0.23 ========== ========= FFO available to common
shareholders per share - basic ($0.01) $0.50 ========== =========
*T -0- *T Adjustments to arrive at net (loss) income and FFO
available to common shareholders: Net Loss FFO (b) Net Income FFO
(b) ------------------------ ------------------------ Net (loss)
income and FFO ($130,747) $5,460 $102,446 $213,673 Preferred
distributions (8,700) (8,700) (8,700) (8,700)
------------------------ ------------------------ Net (loss) income
and FFO available to common shareholders (139,447) (3,240) 93,746
204,973 Net (loss) income allocated to minority interests in EOP
Partnership (15,456) (15,456) 10,711 10,711 Minority interests in
EOP Partnership share of the above adjustments - 15,304 - 12,006
------------------------ ------------------------ Net (loss) income
and FFO available to common shareholders - diluted ($154,903)
($3,392) $104,457 $227,690 ========================
======================== Weighted average Common Shares and
dilutive potential common shares outstanding 387,833,388
393,266,923 457,343,521 457,343,521 ========================
======================== Net (loss) income and FFO available to
common shareholders per share - diluted ($0.40) ($0.01) $0.23 $0.50
======================== ======================== *T -0- *T Common
Shares and common share equivalents
------------------------------------------- Weighted average Common
Shares outstanding (used for both net (loss) income and FFO basic
per share calculation) 348,434,284 408,511,485 Effect of dilutive
potential common shares: Units 39,399,104 44,335,877 Share options
and restricted shares which are dilutive to both net (loss) income
and FFO - 4,496,159 --------------------- --------------------
Weighted average Common Shares and dilutive potential common shares
used for net (loss) income available to common shareholders
387,833,388 457,343,521 Impact of share options and restricted
shares which are dilutive to FFO but not dilutive to net (loss)
income 5,433,535 - --------------------- --------------------
Weighted average Common Shares and dilutive potential common shares
used for the calculation of FFO available to common shareholders
393,266,923 457,343,521 ===================== ====================
(a) FFO is a non-GAAP financial measure. The most directly
comparable GAAP measure is net (loss) income, to which it is
reconciled. See definition below. (b) FFO for the three months
ended September 30, 2006 and 2005 includes $188.9 million and $3.5
million, respectively, of non-cash impairment charges and losses on
properties sold and properties held for sale, which is equivalent
to $0.48 and $0.01 per share on a diluted basis, respectively.
These charges are not added back to net (loss) income when
calculating FFO. *T FFO Definition: FFO is defined as net (loss)
income, computed in accordance with accounting principles generally
accepted in the United States ("GAAP"), excluding gains from sales
of properties (but including losses from sales of properties,
impairments and provisions for losses on properties held for sale),
plus real estate related depreciation and amortization. Adjustments
for unconsolidated partnerships and joint ventures are calculated
to reflect FFO on the same basis. Equity Office believes that FFO
is helpful to investors as one of several measures of the
performance of an equity REIT. Equity Office further believes that
by excluding the effect of depreciation, amortization and gains
from sales of real estate, all of which are based on historical
costs and which may be of limited relevance in evaluating current
performance, FFO can facilitate comparisons of operating
performance between periods and between other equity REITs.
Investors should review FFO, along with GAAP net (loss) income when
trying to understand an equity REIT's operating performance. Equity
Office computes FFO in accordance with its interpretation of the
standards established by the Board of Governors of the National
Association of Real Estate Investment Trusts ("NAREIT"), which may
not be comparable to FFO reported by other equity REITs that do not
define the term in accordance with the current NAREIT definition or
that interpret the current NAREIT definition differently than
Equity Office does. FFO does not represent cash generated from
operating activities in accordance with GAAP, nor does it represent
cash available to pay distributions and should not be considered as
an alternative to net (loss) income, determined in accordance with
GAAP, as an indication of Equity Office's financial performance, or
to cash flow from operating activities, determined in accordance
with GAAP, as a measure of its liquidity, nor is it indicative of
funds available to fund its cash needs, including its ability to
make cash distributions. -0- *T Equity Office Properties Trust
Reconciliation of Net Income to Funds From Operations
("FFO")(continued) For the nine months ended September 30,
------------------------------ 2006 2005 ---------------
-------------- (Dollars in thousands, except per share amounts)
Reconciliation of net income to FFO (a): Net income $20,132 $15,276
Adjustments: Plus depreciation and amortization: Included in income
from continuing operations and discontinued operations 689,006
598,572 Included in income from investments in unconsolidated joint
ventures 8,613 37,974 Allocated to minority interests in partially
owned properties (51,771) (4,419) Non-real estate related
depreciation and amortization (13,411) (10,429) Less net gain on
sales of real estate: Included in income from continuing operations
and discontinued operations (177,173) (194,721) Included in income
from investments in unconsolidated joint ventures (b) 91 (17,405)
Allocated to minority interests in partially owned properties -
29,699 Less minority interests in EOP Partnership share of the
above adjustments (45,615) (44,228) --------- --------- FFO 429,872
410,319 Preferred distributions (26,102) (26,102) ---------
--------- FFO available to common shareholders - basic $403,770
$384,217 ========= ========= Net (loss) available to common
shareholders per share - basic ($0.02) ($0.03) ========= =========
FFO available to common shareholders per share - basic $1.12 $0.95
========= ========= *T -0- *T Adjustments to arrive at net (loss)
and FFO available to Net Income Net Income common shareholders:
(Loss) FFO (c) (Loss) FFO (c) ------------------------
------------------------ Net income and FFO $20,132 $429,872
$15,276 $410,319 Preferred distributions (26,102) (26,102) (26,102)
(26,102) ------------------------ ------------------------ Net
(loss) and FFO available to common shareholders (5,970) 403,770
(10,826) 384,217 Net (loss) allocated to minority interests in EOP
Partnership (665) (665) (1,212) (1,212) Minority interests in EOP
Partnership share of the above adjustments - 45,615 - 44,228
------------------------ ------------------------ Net (loss) and
FFO available to common shareholders - diluted ($6,635) $448,720
($12,038) $427,233 ========================
======================== Weighted average Common Shares and
dilutive potential common shares outstanding 400,765,403
405,660,072 455,370,659 455,370,659 ========================
======================== Net (loss) and FFO available to common
shareholders per share - diluted ($0.02) $1.11 ($0.03) $0.94
======================== ======================== *T -0- *T Common
Shares and common share equivalents
------------------------------------------- Weighted average Common
Shares outstanding (used for both net (loss) and FFO basic per
share calculation) 360,406,786 405,866,866 Effect of dilutive
potential common shares: Units 40,358,617 45,682,227 Share options
and restricted shares which are dilutive to both net (loss) and FFO
- 3,821,566 --------------------- -------------------- Weighted
average Common Shares and dilutive potential common shares used for
net (loss) available to common shareholders 400,765,403 455,370,659
Impact of share options and restricted shares which are dilutive to
FFO but not dilutive to net (loss) 4,894,669 -
--------------------- -------------------- Weighted average Common
Shares and dilutive potential common shares used for the
calculation of FFO available to common shareholders 405,660,072
455,370,659 ===================== ==================== (a) FFO is a
non-GAAP financial measure. The most directly comparable GAAP
measure is net income, to which it is reconciled. See definition
below. (b) The loss for the nine months ended September 30, 2006
represents an adjustment to the gain previously recorded on
properties sold in prior periods. (c) FFO for the nine months ended
September 30, 2006 and 2005 includes $190.1 million and $384.1
million, respectively, of non-cash impairment charges and losses on
properties sold and properties held for sale, which is equivalent
to $0.47 and $0.84 per share on a diluted basis, respectively.
These charges are not added back to net income when calculating
FFO. *T FFO Definition: FFO is defined as net income, computed in
accordance with accounting principles generally accepted in the
United States ("GAAP"), excluding gains from sales of properties
(but including losses from sales of properties, impairments and
provisions for losses on properties held for sale), plus real
estate related depreciation and amortization. Adjustments for
unconsolidated partnerships and joint ventures are calculated to
reflect FFO on the same basis. Equity Office believes that FFO is
helpful to investors as one of several measures of the performance
of an equity REIT. Equity Office further believes that by excluding
the effect of depreciation, amortization and gains from sales of
real estate, all of which are based on historical costs and which
may be of limited relevance in evaluating current performance, FFO
can facilitate comparisons of operating performance between periods
and between other equity REITs. Investors should review FFO, along
with GAAP net income when trying to understand an equity REIT's
operating performance. Equity Office computes FFO in accordance
with its interpretation of the standards established by the Board
of Governors of the National Association of Real Estate Investment
Trusts ("NAREIT"), which may not be comparable to FFO reported by
other equity REITs that do not define the term in accordance with
the current NAREIT definition or that interpret the current NAREIT
definition differently than Equity Office does. FFO does not
represent cash generated from operating activities in accordance
with GAAP, nor does it represent cash available to pay
distributions and should not be considered as an alternative to net
income, determined in accordance with GAAP, as an indication of
Equity Office's financial performance, or to cash flow from
operating activities, determined in accordance with GAAP, as a
measure of its liquidity, nor is it indicative of funds available
to fund its cash needs, including its ability to make cash
distributions. -0- *T Equity Office Properties Trust Consolidated
Statements of Cash Flows For the three months For the nine months
ended September 30, ended September 30,
------------------------------------------------ 2006 2005 2006
2005 ----------- ----------- ------------ ----------- (Dollars in
thousands, unaudited) Operating Activities: Net (loss) income
$(130,747) $102,446 $20,132 $15,276 Adjustments to reconcile net
(loss) income to net cash provided by operating activities:
Depreciation and amortization 236,308 199,635 709,067 614,148
Compensation expense related to restricted shares and stock options
4,263 6,628 18,499 19,950 Income from investments in unconsolidated
joint ventures (315) (10,683) (405) (48,882) Net distributions from
(contributions to) unconsolidated joint ventures 505 19,834 (2,087)
43,444 Net (gain) loss on sales of real estate and provision for
loss on properties held for sale (58,494) (74,971) (175,970) 8,542
Impairment 188,928 - 188,928 180,856 Provision for doubtful
accounts 604 1,847 4,443 5,376 (Loss) income allocated to minority
interests (3,131) 13,153 38,175 37,197 Other - - - 448 Changes in
assets and liabilities: (Increase) decrease in rent receivable
(11,236) 14,421 15,971 14,930 (Increase) in deferred rent
receivable (9,920) (14,768) (36,711) (51,443) Decrease in prepaid
expenses and other assets 641 37,392 44,788 13,890 Increase
(decrease) in accounts payable and accrued expenses 34,602 7,450
(24,020) (52,318) Increase (decrease) in other liabilities 1,023
14,861 (18,513) (15,841) ----------- ----------- ------------
----------- Net cash provided by operating activities 253,031
317,245 782,297 785,573 ----------- ----------- ------------
----------- Investing Activities: Property acquisitions (including
deposits made for property acquisitions) (771,064) (655,428)
(935,687) (1,020,214) Property dispositions (including deposits
received for property dispositions) 266,666 312,077 508,842
1,620,855 Increase in cash upon consolidation of certain joint
ventures - - 51,357 - Distributions from (investments in)
unconsolidated joint ventures 2,385 124,395 (11,040) 186,696
Capital and tenant improvements (including development costs)
(116,136) (90,945) (339,561) (241,908) Lease commissions and other
costs (26,548) (39,723) (91,133) (93,473) Decrease in escrow
deposits and restricted cash 46,291 453,859 117,948 587,489
----------- ----------- ------------ ----------- Net cash (used
for) provided by investing activities (598,406) 104,235 (699,274)
1,039,445 ----------- ----------- ------------ -----------
Financing Activities: Proceeds from mortgage debt - - 584,107 150
Principal payments on mortgage debt (213,067) (534,356) (227,891)
(889,877) Proceeds from unsecured notes - 10,389 1,470,000 38,758
Repayment of unsecured notes (50,000) (150,000) (550,063) (675,000)
Proceeds from lines of credit 4,253,400 4,106,300 19,130,399
8,106,900 Repayment of lines of credit (3,516,200) (3,988,300)
(18,875,399) (7,843,900) Payments of loan costs and offering costs
(8,335) (7,302) (11,067) (7,361) Settlement of interest rate swap
agreements - (8,677) - (8,677) Contributions from minority
interests in partially owned properties related to repayment of
mortgage debt 48,705 - 48,705 - Distributions to minority interests
in partially owned properties (18,697) (1,457) (57,497) (9,317)
Proceeds from exercise of stock options 43,690 16,832 128,868
138,374 Distributions to common shareholders and unitholders
(128,517) (227,382) (264,395) (454,140) Repurchase of Common Shares
(2,929) (99,564) (1,217,649) (107,322) Redemption of Units (10,885)
- (98,791) (50,676) Payment of preferred distributions (8,047)
(8,047) (24,143) (24,143) ----------- ----------- ------------
----------- Net cash provided by (used for) financing activities
389,118 (891,564) 35,184 (1,786,231) ----------- -----------
------------ ----------- Net increase (decrease) in cash and cash
equivalents 43,743 (470,084) 118,207 38,787 Cash and cash
equivalents at the beginning of the period 152,628 615,997 78,164
107,126 ----------- ----------- ------------ ----------- Cash and
cash equivalents at the end of the period $196,371 $145,913
$196,371 $145,913 =========== =========== ============ ===========
*T -0- *T Equity Office Properties Trust Consolidated Statements of
Cash Flows (continued) For the three months For the nine months
ended September 30, ended September 30, ---------------------
----------------------- 2006 2005 2006 2005 ---------- ----------
------------ ---------- (Dollars in thousands, unaudited)
Supplemental Information: Interest paid during the period
(including capitalized interest of $9,139, $47, $16,179 and $51,
respectively) $256,309 $246,243 $711,913 $675,352 ==========
========== ============ ========== Non-Cash Investing and Financing
Activities: Investing Activities: Escrow deposits related to
property dispositions $(160,122) $(489,115) $(392,719) $(639,439)
========== ========== ============ ========== Mortgage loan
repayment as a result of a property disposition $- $- $- $(13,386)
========== ========== ============ ========== Mortgage loan assumed
upon acquisition of a property $- $- $15,200 $44,975 ==========
========== ============ ========== Units issued in connection with
a property acquisition $- $- $- $3,339 ========== ==========
============ ========== Changes in accounts due to consolidation of
certain joint ventures: Decrease in investments in unconsolidated
joint ventures $- $- $(844,591) $- ========== ==========
============ ========== Increase in investments in real estate $-
$- $2,843,118 $- ========== ========== ============ ==========
Increase in accumulated depreciation $- $- $(286,569) $- ==========
========== ============ ========== Increase in mortgage debt, net
of discounts $- $- $(681,986) $- ========== ========== ============
========== Increase in minority interests - partially owned
properties $- $- $(1,205,236) $- ========== ========== ============
========== Increase in other assets and liabilities $- $- $123,907
$- ========== ========== ============ ========== Changes in
accounts due to partial sale of real estate: Increase in investment
in unconsolidated joint ventures $- $36,349 $- $36,349 ==========
========== ============ ========== Decrease in investments in real
estate $- $(43,931) $- $(43,931) ========== ========== ============
========== Decrease in accumulated depreciation $- $8,403 $- $8,403
========== ========== ============ ========== Increase in other
assets and liabilities $- $(940) $- $(940) ========== ==========
============ ========== Financing Activities: Mortgage loan
repayment as a result of a property disposition $- $- $- $13,386
========== ========== ============ ========== Mortgage loan assumed
upon acquisition of a property $- $- $(15,200) $(44,975) ==========
========== ============ ========== Units issued in connection with
a property acquisition $- $- $- $(3,339) ========== ==========
============ ========== *T
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