Equity Office Properties Trust (NYSE: EOP) today reported results
for the fourth quarter and full year 2006. For the fourth quarter
2006, Equity Office reported net income available to common
shareholders of $313.1 million and diluted earnings per share of
$0.87, compared to net income of $19.0 million and diluted earnings
per share of $0.05 in the fourth quarter 2005. For the full year
ended December 31, 2006, the company reported net income of $307.2
million and diluted earnings per share of $0.86, compared to net
income of $8.1 million and diluted earnings per share of $0.02 in
2005. Funds From Operations For the fourth quarter 2006, Funds From
Operations (FFO) available to common shareholders was $215.2
million and diluted FFO per share was $0.54. FFO for the fourth
quarter 2005 was $181.1 million and diluted FFO per share was
$0.41. For 2006, FFO totaled $663.9 million and diluted FFO per
share was $1.64. FFO for 2005 was $608.3 million and diluted FFO
per share was $1.35. The attachment to this press release
reconciles FFO to net income, the most directly comparable GAAP
measure. Financial Results Summary The following table includes
significant financial statement items that affect the comparability
of GAAP net income between periods. For the three months ended
December 31, For the years ended December 31, 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 and loss on sales of
real estate and assets held for sale (a) $(4,509) $(0.01) $(41,882)
$(0.10) $(194,640) $(0.49) $(426,001) $(0.94) Gain on sales of real
estate, net of minority interest in partially-owned properties�(a)
362,100� 0.91� 45,596� 0.10� 539,182� 1.35� 228,024� 0.50�
Hurricane-related charges --� --� (23,307) (0.05) 2,000� 0.01�
(35,812) (0.08) Severance charges (a) (4,839) (0.01) (3,991) (0.01)
(29,686) (0.07) (11,104) (0.02) Merger-related costs (2,823) (0.01)
--� --� (2,823) (0.01) --� ---� Income from early lease
terminations (a) 6,555� 0.02� 13,210� 0.03� 18,886� 0.05� 80,028�
0.18� � Total (b) $356,484� $0.90� $(10,374) $(0.02) $332,919�
$0.84� $(164,865) $(0.36) (a) Includes amounts from continuing
operations, discontinued operations and our share of unconsolidated
joint ventures. (b) The total per share amounts may not total the
sum of the individual per share amounts due to rounding. 2006
Guidance Compared to 2006 Actual Results Equity Office provided
updated guidance for 2006 on October 31, 2006, in connection with
the third quarter 2006 earnings release. Listed below is a
comparison of previously issued guidance to actual results. 2006
Guidance Actual 2006 Results Diluted EPS $(0.07) to $0.08 $0.86�
Less: Gain on Sales of Real Estate (a) (0.44) (1.35) Plus: Real
Estate Depreciation and Amortization 2.10� 2.17� Other --� (0.04)
Diluted FFO per share $1.59 to $1.74 $1.64� (a) The gain on sales
of real estate was $0.44 through September 30, 2006, and $1.35 for
the full year 2006. The primary assumptions used in calculating the
2006 guidance ranges included: � 2006 Guidance Actual 2006 Results
Year-End Effective Office Portfolio Occupancy 91% to 92% 92.2%
Income from Early Lease Terminations $15 million to $20 million
$18.9 million Deferred Rental Revenue $35 million to $40 million
$38.5 million G&A Expense (a) $160 million to $170 million
$169.4 million Same Store Property NOI Growth (a) 0% to 1% 1.4%
Tenant Improvements andLeasing Costs $20.00 to $21.50 persquare
foot $21.10 persquare foot (a) G&A expense excludes severance
and merger-related costs. Same Store Property Net Operating Income
(NOI) excludes income from early lease terminations and
hurricane-related charges. Same Store Property Operating Revenues
and Net Operating Income Fourth quarter 2006 same store property
operating revenues increased 2.9% as compared to fourth quarter
2005 as a result of occupancy gains, higher tenant reimbursements,
and market rent growth. Same store property operating revenues for
the full year increased 1.2% as compared to 2005. Fourth quarter
2006 same store property net operating income (NOI), excluding
income from early lease terminations and the effects of Hurricane
Katrina, increased 4.0% as compared to fourth quarter 2005. Same
store NOI for the full year, excluding income from early lease
terminations and the effects of Hurricane Katrina, increased 1.4%
as compared to 2005. Leasing Results The same store portfolio
occupancy increased to 92.9% at quarter-end from 90.1% at the end
of the third quarter 2005. EOP�s effective office portfolio
occupancy was 92.2% at December 31, 2006, compared to 90.4% at
December 31, 2005. The effective office portfolio represents the
company�s economic interest in the properties, which is used to
derive GAAP net income. In the fourth quarter 2006, the company
leased 5.2 million square feet, compared to 4.5 million square feet
in the fourth quarter 2005. For 2006, the company leased 17.9
million square feet, compared to 20.1 million square feet in 2005.
Tenant improvements and leasing costs for leases that commenced
during the fourth quarter 2006 were $28.48 per square foot on a
weighted average basis, compared to $22.45 per square foot in the
fourth quarter 2005. Tenant improvements and leasing costs for
leases that commenced during 2006 were $21.10 per square foot on a
weighted average basis, compared to $20.23 per square foot during
2005. Investment Activity In the fourth quarter 2006, Equity Office
sold 6.5 million square feet of assets for $1.4 billion and
acquired 1.3 million square feet for $479.6 million. For the full
year, Equity Office sold 11.7 million square feet of assets for
$2.2 billion and acquired 3.6 million square feet for $1.4 billion.
In 2007 through January 29, Equity Office sold 545,784 square feet
of assets for $176.7 million and acquired 246,771 square feet for
$114.3 million. Conference Call Information Equity Office will not
be holding a conference call related to the release of the fourth
quarter and full year earnings results. 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, operating through its various subsidiaries and
affiliates, is the nation's largest publicly held office building
owner and manager with a total office portfolio consisting of whole
or partial interests in 543 buildings comprising 103.1 million
square feet in 16 states and the District of Columbia, as of
December 31, 2006. Equity Office has an ownership presence in 24
Metropolitan Statistical Areas (MSAs) and in 98 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 website 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 months and year ended December 31, 2006 as
a result of the consolidation of these joint ventures. � � For the
three months endedDecember 31, 2006 � For the year endedDecember
31, 2006 (Dollars in thousands) Increase in total revenues $
106,547� $ 411,709� Increase in total operating expenses $ 82,259�
$ 299,186� Increase in other expense (primarily interest expense) $
6,844� $ 34,425� Decrease in income from investments in
unconsolidated joint ventures $ 11,546� $ 42,024� Increase in
minority interests - partially owned properties $ 5,898� $ 36,074�
Change in income from continuing operations $ -� $ -� Equity Office
Properties Trust Consolidated Statements of Operations (Unaudited)
� � For the three months ended December 31, For the years ended
December 31, 2006� 2005� 2006� 2005� (Dollars in thousands, except
per share amounts) Revenues: Rental $651,502� $554,105� $2,542,593�
$2,153,395� Tenant reimbursements 156,948� 116,456� 520,127�
371,106� Parking 39,065� 26,615� 144,384� 105,818� Other 19,842�
17,754� 68,749� 100,181� Fee income 5,458� 3,952� 9,254� 17,740�
Total revenues 872,815� 718,882� 3,285,107� 2,748,240� Expenses:
Depreciation 201,622� 156,716� 747,165� 597,813� Amortization
45,883� 24,637� 142,655� 88,383� Real estate taxes 100,743� 77,678�
397,971� 308,574� Insurance 9,948� 28,682� 31,689� 54,976� Repairs
and maintenance 115,388� 99,081� 390,443� 306,492� Property
operating 106,985� 83,468� 412,481� 304,652� Ground rent 6,184�
5,014� 24,302� 20,489� General and administrative 56,789� 48,443�
201,318� 169,697� Impairment -� 8,294� 10,117� 30,441� Total
expenses 643,542� 532,013� 2,358,141� 1,881,517� Operating income
229,273� 186,869� 926,966� 866,723� � Other income (expense):
Interest and dividend income 8,520� 5,357� 24,331� 15,761� Realized
gain on settlement of derivatives and sale of marketable securities
-� -� 256� 157� Interest: Expense incurred (235,690) (202,601)
(914,083) (817,677) Amortization of deferred financing costs and
prepayment expenses (3,861) (3,132) (13,755) (11,961) Total other
income (expense) (231,031) (200,376) (903,251) (813,720) � (Loss)
income before income taxes, allocation to minority interests,
income from investments in unconsolidated joint ventures and gain
(loss) on sales of real estate (1,758) (13,507) 23,715� 53,003�
Income taxes (1,020) 1,621� (3,397) 296� Minority Interests: EOP
Partnership (34,747) (2,119) (34,082) (907) Partially owned
properties (7,671) (1,856) (46,511) (9,825) Income from investments
in unconsolidated joint ventures (including gain (loss) on sales of
real estate of $0, $9,093, $(91) and $26,499, respectively) 1,039�
20,114� 1,444� 68,996� Gain (loss) on sales of real estate 56,538�
(1,098) 56,852� 46,308� Income (loss) from continuing operations
12,381� 3,155� (1,979) 157,871� Discontinued operations (including
net gain on sales of real estate and provision for (loss) on
properties held for sale of $301,053, $33,866, $476,709 and
$(22,082), respectively) 308,454� 24,508� 342,946� (114,932) Net
income 320,835� 27,663� 340,967� 42,939� Preferred distributions
(7,705) (8,701) (33,807) (34,803) Net income available to common
shareholders $313,130� $18,962� $307,160� $8,136� � � Earnings per
share - basic: Income (loss) from continuing operations available
to common shareholders per share $0.10� ($0.01) $0.00� $0.28� � Net
income available to common shareholders per share $0.89� $0.05�
$0.86� $0.02� � Weighted average Common Shares outstanding
350,843,878� 395,008,978� 357,997,357� 403,147,751� � Earnings per
share - diluted: Income (loss) from continuing operations available
to common shareholders per share $0.10� ($0.01) $0.00� $0.27� � Net
income available to common shareholders per share $0.87� $0.05�
$0.86� $0.02� � Weighted average Common Shares outstanding and
dilutive potential common shares 397,945,609� 438,774,607�
397,947,822� 452,046,455� � Distributions declared per Common Share
outstanding $0.33� $0.50� $1.32� $2.00� Equity Office Properties
Trust Consolidated Balance Sheets � December 31, 2006 (Unaudited)
�December 31, 2005 (Dollars in thousands, except per share amounts)
Assets: Investments in real estate $25,467,496� $22,914,757�
Developments in process 726,116� 567,129� Land available for
development 167,171� 176,868� Investments in real estate held for
sale, net of accumulated depreciation 28,757� 104,132� Accumulated
depreciation (4,010,988) (3,330,744) Investments in real estate,
net of accumulated depreciation 22,378,552� 20,432,142� Cash and
cash equivalents 153,870� 78,164� Tenant and other receivables (net
of allowance for doubtful accounts of $13,316 and $8,853,
respectively) 124,464� 94,858� Deferred rent receivable 564,095�
496,826� Escrow deposits and restricted cash 313,626� 38,658�
Investments in unconsolidated joint ventures 108,679� 947,989�
Deferred financing costs (net of accumulated amortization of
$52,232 and $45,920, respectively) 89,982� 58,809� Deferred leasing
costs and other related intangibles (net of accumulated
amortization of $358,916 and $232,024, respectively) 725,800�
522,926� Prepaid expenses and other assets 313,892� 303,181� Total
Assets $24,772,960� $22,973,553� � Liabilities, Minority Interests,
Mandatorily Redeemable Preferred Shares and Shareholders� Equity:
Liabilities: Mortgage debt (net of (discounts) of $(3,139) and
$(5,185), respectively) $3,477,012� $2,164,198� Unsecured notes
(net of (discounts) of $(23,992) and $(23,936), respectively)
9,879,457� 9,032,620� Lines of credit 1,040,000� 1,631,000�
Accounts payable and accrued expenses 725,807� 574,225�
Distribution payable 2,496� 3,736� Other liabilities (net of
(discounts) of $(22,658) and $(25,597), respectively) 671,514�
483,468� Commitments and contingencies -� -� Total Liabilities
15,796,286� 13,889,247� � Minority Interests: EOP Partnership
701,493� 863,923� Partially owned properties 1,396,059� 172,278�
Total Minority Interests 2,097,552� 1,036,201� � Mandatorily
Redeemable Preferred Shares: 5.25% Series B Convertible, Cumulative
Redeemable Preferred Shares, liquidation preference $50.00 per
share, 2,953,057 and 5,989,930 issued and outstanding, respectively
147,653� 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, 356,529,391 and
380,674,998 issued and outstanding, respectively 3,565� 3,807�
Other Shareholders' Equity: Additional paid in capital 8,881,555�
9,745,819� Deferred compensation -� (533) Dividends in excess of
accumulated earnings (2,318,406) (2,156,627) Accumulated other
comprehensive loss (net of accumulated amortization of $18,763 and
$11,948, respectively) (47,745) (56,358) Total Shareholders' Equity
6,731,469� 7,748,608� Total Liabilities, Minority Interests,
Mandatorily Redeemable Preferred Shares and Shareholders� Equity
$24,772,960� $22,973,553� � Equity Office Properties Trust
Reconciliation of Net Income to Funds From Operations ("FFO") � �
For the three months ended December 31, 2006� 2005� (Dollars in
thousands, except per share amounts) Reconciliation of net income
to FFO (a): Net income $320,835� $27,663� Adjustments: Plus
depreciation and amortization: Included in income from continuing
operations and discontinued operations 253,907� 198,869� Included
in income from investments in unconsolidated joint ventures 3,054�
13,408� Allocated to minority interests in partially owned
properties (23,978) (1,488) Non-real estate related depreciation
and amortization (3,594) (5,178) Less net gain on sales of real
estate: Included in income from continuing operations and
discontinued operations (362,100) (36,503) Included in income from
investments in unconsolidated joint ventures -� (9,093) Less
minority interests in EOP Partnership share of the above
adjustments 13,391� (15,882) FFO 201,515� 171,796� Preferred
distributions (7,705) (8,701) FFO available to common shareholders
- basic $193,810� $163,095� Net income available to common
shareholders per share - basic $0.89� $0.05� FFO available to
common shareholders per share - basic $0.55� $0.41� � � Adjustments
to arrive at net income and FFO available to common shareholders:
Net Income �FFO (b) Net Income �FFO (b) Net income and FFO
$320,835� $201,515� $27,663� $171,796� Preferred distributions
(7,705) (7,705) (8,701) (8,701) Net income and FFO available to
common shareholders 313,130� 193,810� 18,962� 163,095� Net income
allocated to minority interests in EOP Partnership 34,747� 34,747�
2,119� 2,119� Minority interests in EOP Partnership share of the
above adjustments -� (13,391) -� 15,882� Net income and FFO
available to common shareholders - diluted $347,877� $215,166�
$21,081� $181,096� � Weighted average Common Shares and dilutive
potential common shares outstanding 397,945,609� 397,945,609�
438,774,607� 441,667,793� � Net income and FFO available to common
shareholders per share - diluted $0.87� $0.54� $0.05� $0.41� � �
Common Shares and common share equivalents Weighted average Common
Shares outstanding (used for both net income and FFO basic per
share calculation) 350,843,878� 395,008,978� Effect of dilutive
potential common shares: Units 38,739,326� 43,765,629� $1.5 billion
exchangeable notes which are dilutive to both net income and FFO
1,381,116� -� Share options and restricted shares which are
dilutive to both net income and FFO 6,981,289� -� Weighted average
Common Shares and dilutive potential common shares used for net
income available to common shareholders 397,945,609� 438,774,607�
Impact of share options and restricted shares which are dilutive to
FFO but not dilutive to net income -� 2,893,186� Weighted average
Common Shares and dilutive potential common shares used for the
calculation of FFO available to common shareholders 397,945,609�
441,667,793� � (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) FFO for the three months
ended December 31, 2006 and 2005 includes $4.5 million and $41.9
million, respectively, of non-cash impairment charges and losses on
properties sold and properties held for sale, which is equivalent
to $0.01 and $0.09 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 Reconciliation of Net
Income to Funds From Operations ("FFO") (continued) � � For the
years ended December 31, 2006� 2005� (Dollars in thousands, except
per share amounts) Reconciliation of net income to FFO (a): Net
income $340,967� $42,939� Adjustments: Plus depreciation and
amortization: Included in income from continuing operations and
discontinued operations 942,913� 797,441� Included in income from
investments in unconsolidated joint ventures 11,667� 51,382�
Allocated to minority interests in partially owned properties
(75,749) (5,907) Non-real estate related depreciation and
amortization (17,005) (15,606) Less net gain on sales of real
estate: Included in income from continuing operations and
discontinued operations (539,273) (231,223) Included in income from
investments in unconsolidated joint ventures (b) 91� (26,499)
Allocated to minority interests in partially owned properties -�
29,699� Less minority interests in EOP Partnership share of the
above adjustments (32,224) (60,127) FFO 631,387� 582,099� Preferred
distributions (33,807) (34,803) FFO available to common
shareholders - basic $597,580� $547,296� Net income available to
common shareholders per share - basic $0.86� $0.02� FFO available
to common shareholders per share - basic $1.67� $1.36� � �
Adjustments to arrive at net income and FFO available to common
shareholders: Net Income �FFO (c) Net Income �FFO (c) Net income
and FFO $340,967� $631,387� $42,939� $582,099� Preferred
distributions (33,807) (33,807) (34,803) (34,803) Net income and
FFO available to common shareholders 307,160� 597,580� 8,136�
547,296� Net income allocated to minority interests in EOP
Partnership 34,082� 34,082� 907� 907� Minority interests in EOP
Partnership share of the above adjustments -� 32,224� -� 60,127�
Net income and FFO available to common shareholders - diluted
$341,242� $663,886� $9,043� $608,330� � Weighted average Common
Shares and dilutive potential common shares outstanding
397,947,822� 403,784,706� 452,046,455� 452,046,455� � Net income
and FFO available to common shareholders per share - diluted $0.86�
$1.64� $0.02� $1.35� � � Common Shares and common share equivalents
Weighted average Common Shares outstanding (used for both net
income and FFO basic per share calculation) 357,997,357�
403,147,751� Effect of dilutive potential common shares: Units
39,950,465� 45,199,136� Share options and restricted shares which
are dilutive to both net income and FFO -� 3,699,568� Weighted
average Common Shares and dilutive potential common shares used for
net income available to common shareholders 397,947,822�
452,046,455� Impact of share options and restricted shares which
are dilutive to FFO but not dilutive to net income 5,836,884� -�
Weighted average Common Shares and dilutive potential common shares
used for the calculation of FFO available to common shareholders
403,784,706� 452,046,455� � (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 year ended December 31, 2006 represents an adjustment to the
gain previously recorded on properties sold in prior periods. � (c)
FFO for the years ended December 31, 2006 and 2005 includes $194.6
million and $426.0 million, respectively, of non-cash impairment
charges and losses on properties sold and properties held for sale,
which is equivalent to $0.48 and $0.94 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 December
31, For the years ended December 31, 2006� 2005� 2006� 2005�
(Dollars in thousands, unaudited) Operating Activities: Net income
$ 320,835� $ 27,663� $ 340,967� $ 42,939� Adjustments to reconcile
net income to net cash provided by operating activities:
Depreciation and amortization 258,524� 204,024� 967,591� 818,172�
Compensation expense related to restricted shares and stock options
5,183� 3,937� 23,682� 23,887� Income from investments in
unconsolidated joint ventures (1,039) (20,114) (1,444) (68,996) Net
(contributions to) distributions from unconsolidated joint ventures
(2,279) 9,246� (4,366) 52,690� Net (gain) on sales of real estate
and provision for loss on properties held for sale (357,591)
(32,768) (533,561) (24,226) Impairment -� 38,147� 188,928� 219,003�
Provision for doubtful accounts 1,636� 1,052� 6,079� 6,428� Income
allocated to minority interests 42,418� 3,900� 80,593� 41,097�
Other -� -� -� 448� Changes in assets and liabilities: (Increase)
in rent receivable (35,932) (36,863) (19,961) (21,933) (Increase)
in deferred rent receivable (15,537) (12,012) (52,248) (63,455)
(Increase) in prepaid expenses and other assets (47,743) (48,470)
(2,955) (34,580) Increase in accounts payable and accrued expenses
47,426� 54,540� 23,406� 2,222� (Decrease) increase in other
liabilities (2,308) 10,135� (20,821) (5,706) Net cash provided by
operating activities 213,593� 202,417� 995,890� 987,990� Investing
Activities: Property acquisitions (including deposits made for
property acquisitions) (268,601) (246,370) (1,204,288) (1,266,584)
Property dispositions (including deposits received for property
dispositions) 660,613� 208,099� 1,169,455� 1,828,954� Increase in
cash upon consolidation of certain joint ventures -� -� 51,357� -�
Distributions from (investments in) unconsolidated joint ventures
-� 51,543� (11,040) 238,239� Capital and tenant improvements
(including development costs) (180,121) (128,687) (519,682)
(370,595) Lease commissions and other costs (49,443) (29,251)
(140,576) (122,724) Decrease in escrow deposits and restricted cash
709,692� 76,634� 827,640� 664,123� Investments in notes receivable
-� (50,000) -� (50,000) Net cash provided by (used for) investing
activities 872,140� (118,032) 172,866� 921,413� Financing
Activities: Proceeds from mortgage debt 101,683� 518,705� 685,790�
518,855� Principal payments on mortgage debt (7,787) (187,445)
(235,678) (1,077,322) Proceeds from unsecured notes -� 1,791�
1,470,000� 40,549� Repayment of unsecured notes (103,044) -�
(653,107) (675,000) Proceeds from lines of credit 2,867,460�
5,760,370� 21,997,859� 13,867,270� Repayment of lines of credit
(3,713,460) (4,940,370) (22,588,859) (12,784,270) Payments of loan
costs and offering costs (480) (1,559) (11,547) (8,920) Settlement
of interest rate swap agreements -� -� -� (8,677) Contributions
from minority interests in partially owned properties related to
repayment of mortgage debt -� -� 48,705� -� Distributions to
minority interests in partially owned properties (10,983) (1,891)
(68,480) (11,208) Proceeds from exercise of stock options 19,332�
3,608� 148,200� 141,982� Distributions to common shareholders and
unitholders (258,588) (439,639) (522,983) (893,779) Repurchase of
Common Shares (142) (851,807) (1,217,791) (959,129) Redemption of
Units (14,177) (5,849) (112,968) (56,525) Payment of preferred
distributions (8,048) (8,048) (32,191) (32,191) Net cash (used for)
financing activities (1,128,234) (152,134) (1,093,050) (1,938,365)
Net (decrease) increase in cash and cash equivalents (42,501)
(67,749) 75,706� (28,962) Cash and cash equivalents at the
beginning of the period 196,371� 145,913� 78,164� 107,126� Cash and
cash equivalents at the end of the period $ 153,870� $ 78,164� $
153,870� $ 78,164� Equity Office Properties Trust Consolidated
Statements of Cash Flows (continued) � � � For the three months
ended December 31, For the years ended December 31, 2006� 2005�
2006� 2005� (Dollars in thousands, unaudited) Supplemental
Information: Interest paid during the period (including capitalized
interest of $10,107, $390, $26,286 and $441, respectively) $
186,819� $ 153,857� $ 898,732� $ 829,209� Non-Cash Investing and
Financing Activities: Investing Activities: Escrow deposits related
to property dispositions $ (703,922) $ -� $ (1,096,641) $ (639,439)
Mortgage loan repayment as a result of a property disposition $ -�
$ -� $ -� $ (13,386) Mortgage loan assumed upon acquisition of a
property $ 178,476� $ 73,512� $ 193,676� $ 118,487� Loan issued in
connection with a property disposition $ -� $ (66,300) $ -� $
(66,300) Units issued in connection with a property acquisition $
-� $ -� $ -� $ 3,339� Changes in accounts due to consolidation of
certain joint ventures upon adoption of a new accounting standard
and upon acquisition: � Decrease in investments in unconsolidated
joint ventures $ -� $ -� $ (844,591) $ -� Increase in investments
in real estate $ 135,891� $ -� $ 3,032,691� $ -� Increase in
accumulated depreciation $ (21,111) $ -� $ (307,680) $ -� Increase
in mortgage debt, net of discounts $ (81,171) $ -� $ (763,157) $ -�
Increase in minority interests - partially owned properties $
(41,775) $ -� $ (1,299,848) $ -� Increase in other assets and
liabilities $ 4,516� $ -� $ 127,578� $ -� Changes in accounts due
to partial sale of real estate: Increase in investment in
unconsolidated joint ventures $ -� $ -� $ -� $ 36,349� Decrease in
investments in real estate $ -� $ -� $ -� $ (43,931) Decrease in
accumulated depreciation $ -� $ -� $ -� $ 8,403� Decrease in other
assets and liabilities $ -� $ -� $ -� $ (940) Financing Activities:
Mortgage loan repayment as a result of a property disposition $ -�
$ -� $ -� $ 13,386� Mortgage loan assumed upon acquisition of a
property $ (178,476) $ (73,512) $ (193,676) $ (118,487) Loan issued
in connection with a property disposition $ -� $ 66,300� $ -� $
66,300� Units issued in connection with a property acquisition $ -�
$ -� $ -� $ (3,339)
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