Segment Information

9 Months Ended

Sep. 30, 2015

Segment Reporting [Abstract]

Segment Information

Segment Information

Our primary business is the ownership and operation of office properties.  We have two reportable segments based on our primary method of internal reporting: CBD properties and suburban properties.  More than 90% of our revenues from CBD and suburban properties are from 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 September 30, 2015, we owned 24 CBD properties (31 buildings) and 43 suburban properties (101 buildings), excluding assets held for sale as of September 30, 2015.  Property level information by operating segment as of September 30, 2015, and for the three and nine months ended September 30, 2015 and 2014, is as follows (in thousands):

	As of September 30,
	2015	2014
Square feet:
CBD properties	13,975	21,892
Suburban properties	11,311	21,027
Total properties(1)	25,286	42,919

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Rental income:
CBD properties	$	85,494	$	109,822	$	303,686	$	326,155
Suburban properties	39,965		64,394		153,442		192,508
Total properties	$	125,459	$	174,216	$	457,128	$	518,663
Tenant reimbursements and other income:
CBD properties	$	23,054	$	27,653	$	80,434	$	86,359
Suburban properties	10,695		14,726		38,395		44,027
Total properties	$	33,749	$	42,379	$	118,829	$	130,386
NOI:
CBD properties	$	53,564	$	71,596	$	203,077	$	216,762
Suburban properties	32,073		45,607		111,752		138,463
Total properties	$	85,637	$	117,203	$	314,829	$	355,225

As of September 30, 2015, our investments in CBD properties and suburban properties, net of accumulated depreciation, were $2,027.3 million and $1,060.9 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 nine months ended September 30, 2015 and 2014, is as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Rental income	$	125,459		$	174,216		$	457,128		$	518,663
Tenant reimbursements and other income	33,749			42,379			118,829			130,386
Operating expenses	(73,571		)	(99,392		)	(261,128		)	(293,824		)
NOI	$	85,637		$	117,203		$	314,829		$	355,225
NOI	$	85,637		$	117,203		$	314,829		$	355,225
Depreciation and amortization	(40,522		)	(57,213		)	(156,858		)	(168,693		)
General and administrative	(16,249		)	(47,450		)	(43,718		)	(96,395		)
Loss on asset impairment	—			—			(17,162		)	(17,922		)
Acquisition related costs	—			—			—			(5		)
Operating income	28,866			12,540			97,091			72,210
Interest and other income	637			406			4,813			1,071
Interest expense	(25,111		)	(35,245		)	(82,926		)	(111,079		)
(Loss) gain on early extinguishment of debt	(3,887		)	6,699			6,111			6,699
Gain on sale of equity investments	—			171,754			—			171,721
Gain on issuance of shares by an equity investee	—			—			—			17,020
Foreign currency exchange loss	(9,809		)	—			(8,953		)	—
Gain on sale of properties	39,793			—			42,953			—
Income from continuing operations before income taxes and equity in earnings of investees	30,489			156,154			59,089			157,642
Income tax expense	(23		)	(703		)	(2,377		)	(2,166		)
Equity in earnings of investees	—			1,072			—			24,460
Income from continuing operations	30,466			156,523			56,712			179,936
Income from discontinued operations	—			95			—			8,220
Gain (loss) on asset impairment from discontinued operations	—			122			—			(2,238		)
Loss on early extinguishment of debt from discontinued operations	—			—			—			(3,345		)
Net income	$	30,466		$	156,740		$	56,712		$	182,573