Segment Information

3 Months Ended

Mar. 31, 2015

Segment Reporting [Abstract]

Segment Information

Segment Information

Our primary business is the ownership and operation of office properties.  We account for each of our individual properties as a separate operating segment.  We have aggregated our separate operating segments into two reportable segments based on our primary method of internal reporting: CBD properties and suburban properties.  More than 90% of our CBD and suburban properties are office properties.  Each of our reportable segments includes properties with similar operating and economic characteristics that are subject to unique supply and demand conditions.  Our operating segments (i.e., our individual properties) are managed and operated consistently in accordance with our standard operating procedures.  We use property net operating income, or NOI, to evaluate the performance of our operating segments.  We define NOI as income from our real estate including lease termination fees received from tenants less our property operating expenses, which expenses include property marketing costs.  NOI excludes amortization of capitalized tenant improvement costs and leasing commissions. 

As of March 31, 2015, we owned 40 CBD properties (53 buildings) and 114 suburban properties (206 buildings).  Property level information by operating segment as of March 31, 2015, and for the three months ended March 31, 2015 and 2014, is as follows (in thousands):

	As of March 31,
	2015	2014
Square feet:
CBD properties	21,893	21,889
Suburban properties	20,859	21,024
Total properties(1)	42,752	42,913

 (1) Square footage of properties owned as of the respective dates and excludes properties held for sale as of March 31, 2014.

	Three Months Ended March 31,
	2015		2014
Rental income:
CBD properties	$	109,843	$	110,239
Suburban properties	58,129		61,801
Total properties	$	167,972	$	172,040
Tenant reimbursements and other income:
CBD properties	$	29,697	$	30,241
Suburban properties	15,386		14,979
Total properties	$	45,083	$	45,220
NOI:
CBD properties	$	73,947	$	73,170
Suburban properties	41,237		42,359
Total properties	$	115,184	$	115,529

As of March 31, 2015, our investments in CBD properties and suburban properties, net of accumulated depreciation, were $2,941.8 million and $1,691.4 million, respectively.

The following table includes the reconciliation of NOI to net income, the most directly comparable financial measure under GAAP reported in our condensed consolidated financial statements.  We consider NOI to be an appropriate supplemental measure to net income because it may help both investors and management to understand the operations of our properties.  We use NOI internally to evaluate individual, regional and combined property level performance, and we believe that NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level and may facilitate comparisons of our operating performance between periods and with other REITs.  The calculation of NOI excludes certain components of net income in order to provide results that are more closely related to our properties’ results of operations.  NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, net income attributable to Equity Commonwealth common shareholders, operating income or cash flow from operating activities, determined in accordance with GAAP, or as an indicator of our financial performance or liquidity, nor is this measure necessarily indicative of sufficient cash flow to fund all of our needs.  This measure should be considered in conjunction with net income, net income attributable to Equity Commonwealth common shareholders, operating income and cash flow from operating activities as presented in our condensed consolidated statements of operations, condensed consolidated statements of comprehensive (loss) income and condensed consolidated statements of cash flows.  Other REITs and real estate companies may calculate NOI differently than we do. 

A reconciliation of NOI to net income for the three months ended March 31, 2015 and 2014, is as follows (in thousands):

	Three Months Ended March 31,
	2015			2014
Rental income	$	167,972		$	172,040
Tenant reimbursements and other income	45,083			45,220
Operating expenses	(97,871		)	(101,731		)
NOI	$	115,184		$	115,529
NOI	$	115,184		$	115,529
Depreciation and amortization	(62,699		)	(51,649		)
General and administrative	(16,558		)	(24,848		)
Loss (reversal of loss) on asset impairment	(1,904		)	4,761
Acquisition related costs	—			(5		)
Operating income	34,023			43,788
Interest and other income	3,448			384
Interest expense	(29,842		)	(37,935		)
Loss on early extinguishment of debt	(428		)	—
Gain on issuance of shares by an equity investee	—			109
Gain on sale of properties	5,868			—
Income from continuing operations before income taxes and equity in earnings of investees	13,069			6,346
Income tax benefit (expense)	561			(555		)
Equity in earnings of investees	—			10,934
Income from continuing operations	13,630			16,725
Income from discontinued operations	—			4,011
Loss on asset impairment from discontinued operations	—			(288		)
Net income	$	13,630		$	20,448