EOP Equity Office Properties Tru

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