Segment Information

6 Months Ended

Jun. 30, 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.  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.  NOI excludes amortization of capitalized tenant improvement costs and leasing commissions. 

As of June 30, 2015, we owned 29 CBD properties (41 buildings) and 57 suburban properties (135 buildings), excluding assets held for sale as of June 30, 2015.  Property level information by operating segment as of June 30, 2015, and for the three and six months ended June 30, 2015 and 2014, is as follows (in thousands):

	As of June 30,
	2015	2014
Square feet:
CBD properties	15,769	21,892
Suburban properties	13,616	21,028
Total properties(1)	29,385	42,920

 (1) Square footage of properties owned as of the respective dates.

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Rental income:
CBD properties	$	108,349	$	106,094	$	218,192	$	216,333
Suburban properties	55,348		66,313		113,477		128,114
Total properties	$	163,697	$	172,407	$	331,669	$	344,447
Tenant reimbursements and other income:
CBD properties	$	27,683	$	28,465	$	57,380	$	58,706
Suburban properties	12,314		14,322		27,700		29,301
Total properties	$	39,997	$	42,787	$	85,080	$	88,007
NOI:
CBD properties	$	75,566	$	71,996	$	149,513	$	145,166
Suburban properties	38,442		50,497		79,679		92,856
Total properties	$	114,008	$	122,493	$	229,192	$	238,022

As of June 30, 2015, our investments in CBD properties and suburban properties, net of accumulated depreciation, were $2,182.7 million and $1,195.5 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.  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 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 and six months ended June 30, 2015 and 2014, is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Rental income	$	163,697		$	172,407		$	331,669		$	344,447
Tenant reimbursements and other income	39,997			42,787			85,080			88,007
Operating expenses	(89,686		)	(92,701		)	(187,557		)	(194,432		)
NOI	$	114,008		$	122,493		$	229,192		$	238,022
NOI	$	114,008		$	122,493		$	229,192		$	238,022
Depreciation and amortization	(53,637		)	(59,831		)	(116,336		)	(111,480		)
General and administrative	(10,911		)	(24,097		)	(27,469		)	(48,945		)
Loss on asset impairment	(15,258		)	(22,683		)	(17,162		)	(17,922		)
Acquisition related costs	—			—			—			(5		)
Operating income	34,202			15,882			68,225			59,670
Interest and other income	728			281			4,176			665
Interest expense	(27,973		)	(37,899		)	(57,815		)	(75,834		)
Gain on early extinguishment of debt	10,426			—			9,998			—
Loss on sale of equity investments	—			(33		)	—			(33		)
Gain on issuance of shares by an equity investee	—			16,911			—			17,020
Foreign currency exchange gain	856			—			856			—
(Loss) gain on sale of properties	(2,708		)	—			3,160			—
Income (loss) from continuing operations before income taxes and equity in earnings of investees	15,531			(4,858		)	28,600			1,488
Income tax expense	(2,915		)	(908		)	(2,354		)	(1,463		)
Equity in earnings of investees	—			12,454			—			23,388
Income from continuing operations	12,616			6,688			26,246			23,413
Income from discontinued operations	—			4,114			—			8,125
Loss on asset impairment from discontinued operations	—			(2,072		)	—			(2,360		)
Loss on early extinguishment of debt from discontinued operations	—			(3,345		)	—			(3,345		)
Net income	$	12,616		$	5,385		$	26,246		$	25,833