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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: -0- *T 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. -0- *T 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