Equity Office (NYSE:EOP)
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Equity Office Properties Trust (NYSE:EOP) today
announced results for the second quarter ended June 30, 2005.
"Our second quarter results reflect our accelerated plan to sell
$2 billion to $3 billion of non-strategic assets, and to further
position our portfolio in targeted markets," commented Richard D.
Kincaid, president and chief executive officer of Equity Office. "We
are starting to see the benefits of improved job growth and increased
office occupancy in all of our markets, and anticipate closing the
year with portfolio occupancy in the 90% range."
For second quarter 2005, net income available to common
shareholders totaled a net loss of $205.4 million, which equates to a
net loss of $0.51 of diluted earnings per share (EPS). Comparatively,
net income available to common shareholders in the second quarter of
2004 totaled $100.6 million with diluted EPS of $0.25.
The second quarter 2005 results included a $180.9 million non-cash
impairment charge which was related to the reduction in the intended
holding period for assets that the company intends to sell in the next
12 months, $165.9 million of losses on assets that were sold during
second quarter, and $20.3 million of losses on certain assets sold
subsequent to quarter-end. The total charges were $367.0 million or
$0.81 per diluted share. The second quarter 2005 results also included
EOP's share of net gains of $79.6 million, or $0.18 per diluted share,
on real estate sold. The company anticipates the future gains on the
assets it intends to sell in the next 12 months will exceed the second
quarter non-cash impairment charge.
Net income available to common shareholders for the first six
months of 2005 totaled a net loss of $104.6 million, or a loss of
$0.26 per diluted share. This compares to net income available to
common shareholders for the same period in 2004 of $165.9 million with
diluted EPS of $0.41.
Funds from operations available to common shareholders plus
assumed conversions (FFO) for the second quarter 2005 on a diluted
basis, totaled a loss of $98.0 million, which equates to a loss of
$0.22 per share on a diluted basis. FFO for the same period in 2004
was $310.2 million, or $0.68 per share on a diluted basis. Second
quarter 2005 FFO included non-cash charges of $367.0 million for
completed or expected asset sales; however, in accordance with the
National Association of Real Estate Investment Trusts' definition of
FFO, the gains from real estate sold were excluded.
FFO for the first six months of 2005 totaled $199.5 million or
$0.44 per share on a diluted basis, compared to $612.7 million or
$1.33 per share on a diluted basis for the first half of 2004. The
attachment to this press release reconciles FFO and FFO per share to
net loss/income and net loss/income per share, respectively, the most
directly comparable GAAP measures.
For second quarter 2005, same-store property net operating income
(defined as property operating revenues, including straight-line
rents, less property operating expenses), excluding lease
terminations, decreased 1.6%, as compared to the second quarter of
2004. For the first half of 2005, same-store net operating income,
excluding lease terminations, decreased 1.5%, as compared to the same
period last year.
Improved Market Fundamentals and Portfolio Repositioning Drive
Occupancy Gains
EOP's effective office portfolio occupancy was 88.4% at June 30,
2005, compared to 86.0% at June 30, 2004. The effective office
portfolio represents the company's economic interest in the properties
upon which the net income is generated and recognized in accordance
with GAAP.
Lease termination fees from continuing operations, including EOP's
share of those recognized as income from unconsolidated joint
ventures, totaled $10.7 million for second quarter 2005, compared to
$7.8 million for second quarter 2004. Lease termination fees for the
first six months of 2005 totaled $61.9 million, of which $44.4 million
was from a single transaction. Lease termination fees for the first
half of 2004 were $29.9 million.
Tenant improvements and leasing commissions for the office leases
that commenced during second quarter 2005 were $21.70 per square foot
on a weighted average basis, compared to $16.52 per square foot in the
second quarter 2004. For the first six months of 2005, weighted
average tenant improvements and leasing commissions were $19.07, as
compared to $16.80 in the first half of 2004.
Year-to-Date EOP Sells $2 Billion of Assets and Announces
Acquisitions of $989 Million
In the second quarter 2005, EOP sold 60 assets totaling 7.5
million square feet for $1.3 billion. Subsequent to quarter-end, EOP
sold $374.8 million of assets, including a 75% interest in 201 Mission
and 580 California in San Francisco, CA. Following is the list of
assets, totaling 1.8 million square feet, which the company sold after
June 30, 2005:
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Property Location
The Orchard Sacramento, CA
Stadium Towers Land Anaheim, CA
Texaco Center/601 Garage New Orleans, LA
Meier Mountain View Buildings Mountain View, CA
Ravendale at Central Mountain View, CA
Bayside Corporate Center Foster City, CA
Vintage Park Industrial Foster City, CA
Vintage Park Office Building III Foster City, CA
Ridder Park San Jose, CA
Creekside I and II San Jose, CA
Aspect Telecommunications San Jose, CA
Redwood Shores Redwood City, CA
*T
Year-to-date as of August 1, 2005, the company has sold $2.0
billion of assets, totaling approximately 11.5 million square feet.
During second quarter 2005, EOP acquired 15 buildings, totaling
1.3 million square feet, for approximately $286.7 million. Subsequent
to quarter-end, EOP purchased 25 Mall Road in Burlington, MA; The
Lakes in Santa Rosa, CA; and 333 Twin Dolphin in Redwood Shores, CA
for a total of $129.0 million. The previously announced acquisition of
1095 Avenue of the Americas, located in New York City, is anticipated
to close in third quarter 2005. As of August 1, 2005, EOP has
announced, including 1095 Avenue of the Americas, $988.9 million of
acquisition activity for the year.
Conference Call Details
Management will discuss its second quarter 2005 results on EOP's
earnings conference call scheduled for Tuesday, August 2, 2005, at
10:00 a.m. CT. 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 August 10, 2005, by calling
866-403-8767. No pass code is necessary. For callers outside of the
United States, the replay telephone number is 203-369-0598. A live
webcast of the conference call will be available in listen-only mode
at www.equityoffice.com and at www.earnings.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.
The company anticipates holding its third quarter conference call
at 10:00 a.m. CT on November 1, 2005.
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, the following: declines in overall activity in our markets
have adversely affected our operating results and are expected to
continue to adversely affect our operating results until market
conditions further improve; in order to continue to pay distributions
to our common shareholders at current levels, we must borrow funds or
sell assets; we expect to be a net seller of real estate in 2005,
which will further reduce our income from continuing operations and
funds from operations and may result in gains or losses on sales of
real estate and impairment charges; our ability to dispose of assets
on terms we find acceptable will be subject to market conditions we do
not control; we may not be successful in closing all of our pending
investment transactions; our properties face significant competition;
we face potential adverse effects from tenant bankruptcies or
insolvencies; competition for acquisitions or an oversupply of
properties for sale could adversely affect us; and an earthquake or
terrorist act could adversely affect our business and such losses, or
other potential losses, may not be fully covered by insurance.
These and other risks and uncertainties are detailed from time to
time in Equity Office's filings with the SEC, including its 2004 Form
10-K filed on March 16, 2005 and Form 8-K filed on May 20, 2005.
Equity Office is under no obligation to, 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 625 buildings comprising 116.9 million square feet in 18 states and
the District of Columbia. Equity Office has an ownership presence in
26 Metropolitan Statistical Areas (MSAs) and in 110 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.
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Equity Office Properties Trust
Consolidated Statements of Operations
(Unaudited)
For the three months For the six months
ended ended
June 30, June 30,
---------------------------------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
(Dollars in thousands, except per share amounts)
Revenues:
Rental $610,323 $601,163 $1,213,978 $1,193,156
Tenant
reimbursements 94,992 103,817 191,003 200,238
Parking 29,134 27,427 57,272 54,867
Other 18,947 12,674 77,718 37,630
Fee income 3,697 3,849 8,474 6,909
------------ ------------ ------------ ------------
Total revenues 757,093 748,930 1,548,445 1,492,800
------------ ------------ ------------ ------------
Expenses:
Depreciation 171,582 157,375 337,666 312,276
Amortization 22,788 17,288 45,146 33,831
Real estate taxes 88,904 94,579 176,673 172,174
Insurance 8,038 7,404 14,743 16,039
Repairs and
maintenance 82,031 77,917 158,003 152,095
Property operating 104,595 96,901 208,687 197,460
Ground rent 5,262 5,034 10,572 10,365
Corporate general and
administrative 15,218 13,709 32,391 25,018
Impairment 180,856 - 180,856 -
------------ ------------ ------------ ------------
Total expenses 679,274 470,207 1,164,737 919,258
------------ ------------ ------------ ------------
Operating income 77,819 278,723 383,708 573,542
------------ ------------ ------------ ------------
Other income (expense):
Interest and
dividend income 3,646 2,405 6,862 3,721
Realized gain on
settlement of
derivatives and
sale of marketable
securities - 24,016 3 24,016
Interest:
Expense incurred (207,932) (208,684) (420,704) (412,819)
Amortization of
deferred financing
costs and
prepayment
expenses (2,597) (2,175) (5,396) (4,312)
------------ ------------ ------------ ------------
Total other
income
(expense) (206,883) (184,438) (419,235) (389,394)
------------ ------------ ------------ ------------
(Loss) income before income
taxes, allocation to minority
interests and income from
investments in
unconsolidated
joint ventures (129,064) 94,285 (35,527) 184,148
Income taxes (438) (1,333) (901) (1,069)
Minority Interests:
EOP Partnership 23,677 (12,110) 11,923 (20,059)
Partially owned
properties (2,503) (2,647) (5,527) (5,536)
Income from investments in
unconsolidated joint ventures
(including gain on sales of
real estate of $17,376,
$0, $17,376 and $0,
respectively) 28,681 12,554 38,199 24,967
------------ ------------ ------------ ------------
(Loss) income from
continuing
operations (79,647) 90,749 8,167 182,451
Discontinued operations
(including net (loss) gain on
sales of real estate and
provision for loss on
properties held for sale
of $(94,220), $1,927,
$(83,513) and $4,122,
respectively) (117,094) 18,759 (95,337) 38,793
------------ ------------ ------------ ------------
(Loss) income before
cumulative effect of a
change in accounting
principle (196,741) 109,508 (87,170) 221,244
Cumulative effect
of a change in
accounting principle - - - (33,697)
------------ ------------ ------------ ------------
Net (loss) income (196,741) 109,508 (87,170) 187,547
Preferred
distributions (8,701) (8,944) (17,402) (21,692)
------------ ------------ ------------ ------------
Net (loss) income
available to common
shareholders ($205,442) $100,564 ($104,572) $165,855
============ ============ ============ ============
(Loss) earnings per share
- basic:
(Loss) income from
continuing operations
per share ($0.25) $0.21 ($0.05) $0.40
============ ============ ============ ============
Net (loss) income
available to common
shareholders per
share ($0.51) $0.25 ($0.26) $0.41
============ ============ ============ ============
Weighted average
Common Shares
outstanding 406,164,577 400,846,907 404,514,824 400,255,725
============ ============ ============ ============
(Loss) earnings per share
- diluted:
(Loss) income from
continuing operations
per share ($0.25) $0.21 ($0.05) $0.40
============ ============ ============ ============
Net (loss) income
available to common
shareholders per
share ($0.51) $0.25 ($0.26) $0.41
============ ============ ============ ============
Weighted average
Common Shares
outstanding and
dilutive potential
common shares 451,728,242 450,533,841 450,881,385 450,840,364
============ ============ ============ ============
Distributions
declared per
Common Share
outstanding $0.50 $0.50 $1.00 $1.00
============ ============ ============ ============
Equity Office Properties Trust
Consolidated Balance Sheets
June 30, 2005 December 31,
(Unaudited) 2004
------------------------------
(Dollars in thousands,
except per share amounts)
Assets:
Investments in real estate $23,350,900 $24,876,625
Developments in process 18,780 40,492
Land available for development 239,220 252,524
Investments in real estate held for
sale, net of accumulated depreciation 55,875 118,672
Accumulated depreciation (3,146,426) (3,148,137)
------------------------------
Investments in real estate, net
of accumulated depreciation 20,518,349 22,140,176
Cash and cash equivalents 615,997 107,126
Tenant and other receivables (net of
allowance for doubtful accounts of
$6,709 and $6,908, respectively) 74,092 75,775
Deferred rent receivable 486,238 478,184
Escrow deposits and restricted cash 129,571 48,784
Investments in unconsolidated joint
ventures 1,068,969 1,117,143
Deferred financing costs (net of
accumulated amortization of $54,612
and $59,748, respectively) 55,266 61,734
Deferred leasing costs and other
related intangibles (net of
accumulated amortization of $217,499
and $193,348, respectively) 460,566 450,625
Prepaid expenses and other assets 228,435 191,992
------------------------------
Total Assets $23,637,483 $24,671,539
==============================
Liabilities, Minority Interests, Mandatorily
Redeemable Preferred Shares and Shareholders'
Equity:
Liabilities:
Mortgage debt (net of (discounts) of
$(12,306) and $(13,683), respectively) $2,286,662 $2,609,067
Unsecured notes (net of (discounts) of
$(15,236) and $(38,362), respectively) 9,179,054 9,652,392
Lines of credit 693,000 548,000
Accounts payable and accrued expenses 490,840 556,851
Distribution payable 230,008 2,652
Other liabilities (net of (discounts)
of $(27,067) and $(28,536), respectively) 436,337 484,378
Commitments and contingencies - -
------------------------------
Total Liabilities 13,315,901 13,853,340
------------------------------
Minority Interests:
EOP Partnership 948,739 1,065,376
Partially owned properties 173,884 182,041
------------------------------
Total Minority Interests 1,122,623 1,247,417
------------------------------
Mandatorily Redeemable Preferred Shares:
5.25% Series B Convertible, Cumulative
Redeemable Preferred Shares, liquidation
preference $50.00 per share, 5,989,930
and 5,990,000 issued and outstanding,
respectively 299,497 299,500
------------------------------
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,
410,041,083 and 403,842,441 issued
and outstanding, respectively 4,100 4,038
Other Shareholders' Equity:
Additional paid in capital 10,616,065 10,479,305
Deferred compensation (1,114) (1,916)
Dividends in excess of accumulated
earnings (1,872,508) (1,359,722)
Accumulated other comprehensive
loss (net of accumulated
amortization of $8,541 and
$5,133, respectively) (59,581) (62,923)
------------------------------
Total Shareholders' Equity 8,899,462 9,271,282
------------------------------
Total Liabilities, Minority
Interests, Mandatorily
Redeemable Preferred Shares and
Shareholders' Equity $23,637,483 $24,671,539
==============================
Equity Office Properties Trust
Reconciliation of Net (Loss) Income to Funds From Operations ("FFO")
For the three months ended June 30,
---------------------------------------------------
2005 2004
----------------------- ------------------------
Dollars Per Weighted Dollars Per Weighted
Average Share Average
(b) Share (b)
---------------------------------------------------
(Dollars in thousands, except per share amounts)
Reconciliation of net
(loss) income to
FFO (a):
Net (loss) income ($196,741) ($0.48) $109,508 $0.27
Plus real estate related
depreciation and amortization
less gain and losses on sales
of real estate, including our
share of those items from
unconsolidated joint ventures
and adjusted for minority
interests' share in
partially owned
properties 131,110 0.32 192,325 0.48
Less minority interests
in EOP Partnership share
of add back for real
estate related depreciation
and amortization and gain
and losses on sales
of real estate (13,158) (0.03) (20,627) (0.05)
------------------------ ------------------------
FFO (78,789) (0.19) 281,206 0.70
Preferred distributions (8,701) (0.02) (8,944) (0.02)
------------------------ ------------------------
FFO available to common
shareholders -
basic ($87,490) ($0.22)(d) $272,262 $0.68
======================== ========================
Adjustments to arrive at
FFO available to common
shareholders plus
assumed conversions: Net Income FFO Net Income FFO
------------------------ ------------------------
Net (loss) income
and FFO ($196,741) ($78,789) $109,508 $281,206
Preferred distributions (8,701) (8,701) (8,944) (8,944)
------------------------ ------------------------
Net (loss) income and
FFO available to
common shareholders (205,442) (87,490) 100,564 272,262
Net (loss) income
allocated to minority
interests in EOP
Partnership (23,677) (23,677) 12,110 12,110
Minority interests in
EOP Partnership share
of add back for real
estate related depreciation
and amortization and gain
and losses on sales of
real estate - 13,158 - 20,627
Preferred distributions on
Series B preferred shares,
of which are assumed to be
converted into Common
Shares (c) - - - 5,236
------------------------ ------------------------
Net (loss) income and
FFO available to common
shareholders plus
assumed conversions ($229,119) ($98,009) $112,674 $310,235
======================== ========================
Weighted average Common Shares,
dilutive potential common
shares plus assumed
conversions
outstanding 451,728,242 451,728,242 450,533,841 458,923,195
======================== ========================
Net (loss) income and
FFO available to common
shareholders plus
assumed conversions
per share ($0.51) ($0.22)(d) $0.25 $0.68
======================== ========================
Common Shares and common share equivalents
-------------------------------------------
Weighted average Common Shares
outstanding (used for both net
(loss) income and FFO basic
per share calculation) 406,164,577 400,846,907
Redemption of Units
for Common Shares 45,563,665 48,398,598
Impact of share options and
restricted shares which are
dilutive to both net income
and FFO - 1,288,336
------------ ------------
Weighted average Common Shares
and dilutive potential
common shares used for net
(loss) income available to
common shareholders 451,728,242 450,533,841
Impact of conversion of
Series B preferred
shares (c) - 8,389,354
------------ ------------
Weighted average Common Shares,
dilutive potential common
shares plus assumed
conversions used for the
calculation of FFO available
to common shareholders
plus assumed conversions 451,728,242 458,923,195
============ ============
(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 per share may not total the sum of the per share components in
the reconciliation due to rounding.
(c) The Series B preferred shares are not dilutive to EPS for each
quarter presented or FFO per share for the three months ended June 30,
2005, but are dilutive to FFO per share for the three months ended
June 30, 2004.
(d) FFO for the three months ended June 30, 2005 includes
approximately $367.0 million of non-cash charges relating to
properties sold or properties we intend to sell, which is equivalent
to $0.81 per share on a diluted basis. This charge is not added back
to net 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 and losses from sales of properties (but not
impairments and provisions for losses on properties held for sale),
plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect funds from operations on the same basis. We
believe that FFO is helpful to investors as one of several measures of
the performance of an equity REIT. We further believe that by
excluding the effect of depreciation, amortization and gains and
losses 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. We compute FFO in
accordance with standards established by NAREIT, which may not be
comparable to FFO reported by other REITs that do not define the term
in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than we do. 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 our financial
performance, or to cash flow from operating activities, determined in
accordance with GAAP, as a measure of our liquidity, nor is it
indicative of funds available to fund our cash needs, including our
ability to make cash distributions.
Equity Office Properties Trust
Reconciliation of Net (Loss) Income to Funds From Operations ("FFO")
For the six months ended June 30,
---------------------------------------------------
2005 2004
------------------------ -------------------------
Dollars Per Weighted Dollars Per Weighted
Average Share Average
(b) Share (b)
---------------------------------------------------
(Dollars in thousands, except per share amounts)
Reconciliation of net
(loss) income to
FFO (a):
Net (loss) income ($87,170) ($0.22) $187,547 $0.47
Plus real estate related
depreciation and
amortization less gain
and losses on sales of
real estate, including
our share of those
items from unconsolidated
joint ventures and adjusted
for minority interests'
share in partially
owned properties 316,038 0.78 383,892 0.96
Plus cumulative
effect of a change in
accounting principle - - 33,697 0.08
Less minority interests in EOP
Partnership share of add back
for real estate related
depreciation and amortization,
gain and losses on sales of
real estate and cumulative
effect of a change in
accounting
principle (32,346) (0.08) (45,056) (0.11)
------------------------ ------------------------
FFO 196,522 0.49 560,080 1.40
Preferred
distributions (17,402) (0.04) (21,692) (0.05)
------------------------ ------------------------
FFO available to
common shareholders
- basic $179,120 $0.44(d) $538,388 $1.35
======================== ========================
Adjustments to arrive
at FFO available to
common shareholders
plus assumed
conversions: Net Income FFO Net Income FFO
------------------------ ------------------------
Net (loss) income
and FFO ($87,170) $196,522 $187,547 $560,080
Preferred
distributions (17,402) (17,402) (21,692) (21,692)
------------------------ ------------------------
Net (loss) income
and FFO available
to common
shareholders (104,572) 179,120 165,855 538,388
Net (loss) income
allocated to minority
interests in EOP
Partnership (11,923) (11,923) 20,059 20,059
Minority interests in
EOP Partnership share
of add back for real
estate related depreciation
and amortization, gain and
losses on sales of real
estate and cumulative
effect of a change in
accounting
principle - 32,346 - 45,056
Preferred distributions on
Series B preferred shares,
of which are assumed to be
converted into Common
Shares (c) - - - 9,167
------------------------ ------------------------
Net (loss) income and
FFO available to
common shareholders
plus assumed
conversions ($116,495) $199,543 $185,914 $612,670
======================== ========================
Weighted average Common
Shares, dilutive
potential common
shares plus assumed
conversions
outstanding 450,881,385 454,101,167 450,840,364 459,229,718
======================== ========================
Net (loss) income
and FFO available
to common shareholders
plus assumed
conversions per share ($0.26) $0.44(d) $0.41 $1.33
======================== ========================
Common Shares and common share equivalents
------------------------------------------
Weighted average Common Shares
outstanding (used for both
net (loss) income and FFO
basic per share calculation) 404,514,824 400,255,725
Redemption of Units for
Common Shares 46,366,561 48,646,371
Impact of share options
and restricted shares
which are dilutive to both
net income and FFO - 1,938,268
------------ ------------
Weighted average Common Shares
and dilutive potential common
shares used for net (loss)
income available to common
shareholders 450,881,385 450,840,364
Impact of conversion of
Series B preferred shares (c) - 8,389,354
Impact of share options and
restricted shares
which are dilutive to FFO
but not dilutive to
net (loss) 3,219,782 -
------------ ------------
Weighted average Common
Shares, dilutive potential
common shares plus
assumed conversions
used for the calculation
of FFO available to common
shareholders plus assumed
conversions 454,101,167 459,229,718
============ ============
(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 per share may not total the sum of the per share components in
the reconciliation due to rounding.
(c) The Series B preferred shares are not dilutive to EPS for each
period presented or FFO per share for the six months ended June 30,
2005 but are dilutive to FFO per share for the six months ended June
30, 2004.
(d) FFO for the six months ended June 30, 2005 includes approximately
$380.6 million of non-cash charges relating to properties sold or
properties we intend to sell, which is equivalent to $0.84 per share
on a diluted basis. This charge is not added back to net 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 and losses from sales of properties (but not
impairments and provisions for losses on properties held for sale),
plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures are
calculated to reflect funds from operations on the same basis. We
believe that FFO is helpful to investors as one of several measures of
the performance of an equity REIT. We further believe that by
excluding the effect of depreciation, amortization and gains and
losses 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. We compute FFO in
accordance with standards established by NAREIT, which may not be
comparable to FFO reported by other REITs that do not define the term
in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than we do. 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 our financial
performance, or to cash flow from operating activities, determined in
accordance with GAAP, as a measure of our liquidity, nor is it
indicative of funds available to fund our cash needs, including our
ability to make cash distributions.
Equity Office Properties Trust
Consolidated Statements of Cash Flows
For the three months For the six months
ended June 30, ended June 30,
---------------------------------------------
2005 2004 2005 2004
--------- ----------- ----------- -----------
(Dollars in thousands, unaudited)
Operating Activities:
Net (loss) income $(196,741) $109,508 $(87,170) $187,547
Adjustments to reconcile
net (loss) income to
net cash provided by
operating activities:
Depreciation and amortization
(including discontinued
operations) 208,077 193,039 414,513 380,998
Ineffective portion of
swap settlement
payment included in
interest expense - - - 212
Compensation expense
related to restricted
shares and stock options 5,917 4,812 13,322 10,245
Prepayment penalty on
early extinguishment of
debt in connection with
a property disposition - - 448 -
Income from investments
in unconsolidated joint
ventures (28,681) (12,554) (38,199) (24,967)
Net distributions from
unconsolidated joint
ventures 17,506 16,967 23,610 25,016
Net loss (gain) on sales
of real estate and
provision for loss on
properties held for
sale 94,220 (1,927) 83,513 (4,122)
Impairment 180,856 - 180,856 -
Cumulative effect of a
change in accounting
principle - - - 33,697
Provision for doubtful
accounts 1,114 1,543 3,529 739
Income allocated to
minority interests
(including discontinued
operations) 8,809 15,025 24,044 26,190
Changes in assets and
liabilities:
Decrease in rent
receivable 344 10,547 509 10,508
(Increase) in
deferred rent
receivable (19,193) (23,925) (36,675) (52,386)
Decrease (increase)
in prepaid expenses
and other assets 17,202 (6,531) (23,502) 51,072
Increase (decrease)
in accounts payable
and accrued expenses 33,254 58,115 (59,768) (58,004)
(Decrease) in other
liabilities (23,531) (21,611) (30,702) (20,014)
----------- ----------- ----------- -----------
Net cash provided
by operating
activities 299,153 343,008 468,328 566,731
----------- ----------- ----------- -----------
Investing Activities:
Deposits made for
future property
acquisitions (59,747) (2,500) (63,756) (2,500)
Property acquisitions (234,331) (54,204) (301,030) (116,981)
Deposits received for
future property
dispositions 2,000 - 4,000 -
Property dispositions 1,167,669 215,280 1,304,778 233,469
Distributions from
unconsolidated joint
ventures 62,301 - 62,301 -
Capital and tenant
improvements (74,557) (122,160) (150,963) (243,549)
Lease commissions and
other costs (29,381) (29,051) (53,750) (60,875)
Decrease in escrow
deposits and
restricted cash 2,696 15,144 133,630 47,211
----------- ----------- ----------- -----------
Net cash provided by
(used for) investing
activities 836,650 22,509 935,210 (143,225)
----------- ----------- ----------- -----------
Financing Activities:
Proceeds from mortgage
debt 150 - 150 -
Principal payments on
mortgage debt (251,764) (36,950) (355,521) (209,239)
Proceeds from unsecured
notes 14,025 49,035 28,369 1,040,275
Repayment of unsecured
notes - (450,000) (525,000) (850,000)
Proceeds from lines of
credit 1,877,600 1,437,400 4,000,600 2,886,000
Repayment of lines of
credit (2,053,600) (1,066,900) (3,855,600) (2,843,700)
Payments of loan costs
and offering costs 6 (223) (59) (1,548)
Settlement of interest
rate swap agreements - - - (69,130)
Distributions to
minority interests in
partially owned
properties (2,158) (14,007) (7,860) (16,111)
Proceeds from exercise
of stock options 78,282 747 121,542 39,803
Distributions to common
shareholders and
unitholders (226,758) (224,408) (226,758) (225,244)
Repurchase of Common
Shares (5,029) (32,808) (7,758) (36,583)
Redemption of Units (44,810) (1,071) (50,676) (1,866)
Repurchase of preferred
shares - - - (114,073)
Payment of preferred
distributions (8,048) (8,049) (16,096) (16,671)
----------- ----------- ----------- -----------
Net cash (used for)
financing activities (622,104) (347,234) (894,667) (418,087)
----------- ----------- ----------- -----------
Net increase in cash
and cash equivalents 513,699 18,283 508,871 5,419
Cash and cash
equivalents at the
beginning of the
period 102,298 56,534 107,126 69,398
----------- ----------- ----------- -----------
Cash and cash
equivalents at the end
of the period $615,997 $74,817 $615,997 $74,817
=========== =========== =========== ===========
Supplemental Information:
Interest paid during
the period, including
a reduction of interest
expense for capitalized
interest of $4,
$1,633, $4 and
$3,663, respectively $158,689 $166,486 $429,109 $414,971
=========== =========== =========== ===========
Non-Cash Investing and
Financing Activities:
Investing Activities:
Escrow deposits related
to property
dispositions $(8,811) $(30,616) $(150,324) $(30,616)
=========== =========== =========== ===========
Mortgage loan repayment
as a result of a
property disposition
(including prepayment
expense of $375 in 2004) $- $(5,830) $(13,386) $(5,830)
=========== =========== =========== ===========
Units issued in
connection with a
property acquisition $3,339 $50 $3,339 $50
=========== =========== =========== ===========
Mortgage loan assumed
upon acquisition of
property $44,975 $- $44,975 $82,970
=========== =========== =========== ===========
Changes in accounts due
to consolidation of
existing interest in a
property as a result
of acquiring the
remaining economic
interest:
Decrease in
investment in
unconsolidated
joint ventures $- $- $- $(157,659)
=========== =========== =========== ===========
Increase in
investment in
real estate $- $- $- $612,411
=========== =========== =========== ===========
Increase in
accumulated
depreciation $- $- $- $(44,440)
=========== =========== =========== ===========
Increase in
mortgage debt $- $- $- $(451,285)
=========== =========== =========== ===========
Increase in other
assets and
liabilities $- $- $- $40,973
=========== =========== =========== ===========
Financing Activities:
Mortgage loan repayment
as a result of a
property disposition
(including prepayment
expense of $375
in 2004) $- $5,830 $13,386 $5,830
=========== =========== =========== ===========
Mortgage loan assumed
upon acquisition of
property $(44,975) $- $(44,975) $-
=========== =========== =========== ===========
*T