Equity Office Announces Fourth Quarter Results

    Business Editors

    CHICAGO--(BUSINESS WIRE)--Feb. 2, 2005--Equity Office Properties Trust (NYSE:EOP) reported results today for the fourth quarter ended December 31, 2004. Net income available to common shareholders totaled $61.3 million, which equates to $0.15 of diluted earnings per share (EPS). Comparatively, net income available to common shareholders in the fourth quarter of 2003 totaled $201.4 million with diluted EPS of $0.50. Fourth quarter 2003 results included net gains on the sale of real estate, including those accounted for in discontinued operations, of $115.7 million, versus $20.0 million in fourth quarter 2004.
    Net income available to common shareholders for the full year 2004, after a third quarter non-cash impairment charge of approximately $229.2 million or $0.51 of diluted EPS, totaled $98.2 million with diluted EPS of $0.24. This compares to net income available to common shareholders in 2003 of $603.2 million, with diluted EPS of $1.50. Full year 2003 results include $168.1 million of gains on the sale of real estate, compared to $27.4 million in 2004.
    Funds from operations (FFO) available to common shareholders, plus assumed conversions, for the fourth quarter 2004, totaled $283.3 million, or $0.62 per share on a diluted basis, as compared to FFO for the same period in 2003 of $320.6 million, or $0.70 per share on a diluted basis.
    FFO for the full year 2004, after the third quarter non-cash impairment charge of $229.2 million or $0.51 of FFO per share on a diluted basis, totaled $931.7 million, or $2.07 per diluted share, compared to $1.29 billion, or $2.80 per share on a diluted basis for the same period in 2003. The attachment to this press release reconciles FFO and FFO per share to net income and net income per share, respectively, the most directly comparable GAAP measures.
    In addition to the impairment charge, EPS and FFO declines in quarter and full-year comparisons to the prior year were the result of lower rents on new and renewal leases, an increase in real estate taxes, unamortized costs associated with redeeming the Senior Exchangeable Notes and the Series C Preferred Shares, and the cumulative impact of reduced net income from asset sales since the beginning of 2003. EPS also included significant gains on the sale of real estate in 2003. In fourth quarter 2004, EPS was impacted by higher depreciation and amortization costs. Full year 2004 EPS was impacted by a charge for the cumulative effect of a change in accounting principle resulting from the consolidation of a variable interest entity.
    Same-store property net operating income (defined as property operating revenues, including straight-line rents, less property operating expenses), excluding lease terminations, for the fourth quarter 2004 decreased 3.9%, as compared to the fourth quarter of 2003, and decreased 4.4% for full year 2004, compared to the same period in 2003.

    Leasing and Occupancy Results

    EOP's office portfolio occupancy at December 31, 2004, increased to 87.7%, compared to occupancy of 86.7% at the end of the third quarter 2004, and 86.3% at December 31, 2003. Occupancy in the same- store portfolio was also 87.7% at year-end.
    "We are seeing indications that the economic recovery is translating into increased activity in the office market," commented Richard D. Kincaid, president and chief executive officer of Equity Office. "Positive net absorption and the lowest level of office construction since 1997 in most of our markets have contributed to improvements in occupancy. As the recovery begins to take hold and job growth increases, we are focused on improving economics in the markets where we can, retaining customers, increasing occupancy, and limiting lease capital costs. While it will take time for deal economics to improve across the board, we are encouraged by the overall leasing environment as we enter 2005."
    Lease termination fees from continuing operations, including those recognized as income from unconsolidated joint ventures, totaled $16.9 million for the fourth quarter 2004 compared to $10.4 million for third quarter 2004, and $27.0 million for fourth quarter 2003.
    Tenant improvement and lease costs (TI/LC) for the office leases that commenced during the fourth quarter 2004 totaled $19.15 per square foot on a weighted average basis. This compares to weighted average TI/LC costs of $22.66 per square foot in the third quarter 2004, and $21.83 per square foot in the fourth quarter of 2003. TI/LC for the office leases that commenced in 2004 totaled $18.70 per square foot on a weighted average basis, compared to $19.05 per square foot in 2003.

    Investment Activity

    During the fourth quarter 2004, EOP acquired seven buildings for $118.3 million totaling 504,257 square feet. These transactions included the acquisition of La Jolla Executive Tower in La Jolla, CA; Westech 360 in Austin, TX; and Shoreline Office Center in Mill Valley, CA. The company also acquired the remaining interest in Foundry Square II in San Francisco, CA, for $2.7 million, and vacant land parcels adjacent to La Jolla Centre I and II in San Diego, CA, for $5.5 million. For the full year, EOP completed the purchase of 27 office buildings, four land parcels and the remaining economic interest in three office properties for a total of approximately $952.0 million.
    In the fourth quarter 2004, EOP sold a total of $192.3 million of assets, which included majority ownership interests in 1601 and 1700 Market Street in Philadelphia, PA; three industrial buildings in Oakland, CA; and an industrial building in Fremont, CA.
    For the full year 2004, EOP had $684.2 million of dispositions, including five office buildings, 71 industrial properties, a vacant land parcel, a minority interest in a building in Houston, TX, and a majority interest in two office properties in Philadelphia, PA.
    On January 21, 2005, EOP closed on the $25.0 million acquisition of Summit at Douglas Ridge, a 92,941-square-foot office building located in the Roseville sub-market of Sacramento, CA. With the addition of Summit to the portfolio, EOP owns approximately 794,000 square feet in the Roseville sub-market.
    Subsequent to year-end, the company sold Northland Plaza in Bloomington, MN, for approximately $43 million; 3010 and 3030 Olcott in Santa Clara, CA, for approximately $2.0 million; and our 87.5% interest in Water's Edge in Playa Vista, CA, for approximately $85.5 million. The year-to-date 2005 dispositions total is approximately $130.5 million, comprising 569,600 square feet.

    EPS and FFO Guidance

    Equity Office is updating the 2005 EPS and FFO guidance previously reported in the company's third quarter earnings release.

Guidance for 2005

Diluted EPS $0.65 to $0.80 Plus: Real Estate Depreciation and Amortization $1.86 Less: Adjustment related to assumed conversion of Series B preferred shares ($0.01) --------------- Diluted FFO per share $2.50 to $2.65 ---------------

    The primary assumptions used for the 2005 FFO and EPS guidance ranges include:

Year-End Office Portfolio Occupancy 88.5% to 90.0% Lease Termination Fees(a) $60 to $70 million Property Operating Margins 62.0% to 62.5% Deferred Rental Revenue $50 to $60 million Corporate G&A Expense $50 to $55 million Same-Store Net Operating Income Change -1.5% to 0% (excluding lease termination fees) Estimated Tenant Improvements/Leasing $18 to $20 per square foot Commissions (office)

(a) Previous assumptions were revised to include the effect of a substantial lease termination fee in first quarter 2005 as previously disclosed in a December 20, 2004, 8K filing with the SEC.

    The guidance ranges do not include the effects of future acquisitions or gains or losses from dispositions. The guidance ranges also do not include the effects of any future impairments that could arise as a result of either asset sales or market conditions, or by changes in holding periods. By definition, FFO does not include gains or losses on the sale of properties, but does include impairment charges and provisions for losses on properties held for sale.

    Conference Call Details

    Management will discuss its fourth quarter and year-end 2004 results on EOP's earnings conference call scheduled for Thursday, February 3, 2005, at 10:00 a.m. CST. 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 North America should dial 210-795-9226. A replay of the call will be available until February 10, 2005 by calling 888-445-8558. No pass code is necessary. For callers outside of North America, the replay telephone number is 402-998-1330.
    A live webcast of the conference call will be available in listen-only mode at www.equityoffice.com and at www.fulldisclosure.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 SEC. Hard copies of the Supplemental Operating and Financial Data Report are also available via mail by calling 800-692-5304.

    Forward - Looking Statements

    Certain matters discussed in this release are forward-looking statements within the meaning of the federal securities laws. Although Equity Office believes the expectations reflected in these forward-looking statements are based on reasonable assumptions, forward-looking statements are not guarantees of future performance, and Equity Office can give no assurance that its expectations will be realized. Actual results may differ materially from those indicated by such forward-looking statements due to a variety of risks and uncertainties, many of which are beyond Equity Office's ability to control or predict. Among these risks and uncertainties are changes in general economic conditions and the extent of any tenant bankruptcies and insolvencies; Equity Office's ability to maintain and increase occupancy; Equity Office's ability to timely lease or re-lease space at anticipated net effective rents, calculated after giving effect to any required tenant improvement and leasing costs as well as rent concessions; the extent, duration and strength of any economic recovery; the amount of lease termination fees, if any; the cost and availability of debt and equity financing; Equity Office's ability to acquire and dispose of certain of its assets from time to time on acceptable terms; the effect of any impairment charges associated with asset dispositions, market conditions or changes in holding periods; Equity Office's ability to realize anticipated cost savings and to otherwise create and realize economic benefits of scale; Equity Office's ability to obtain, at a reasonable cost, adequate insurance coverage for catastrophic events, such as earthquakes and terrorist acts; and other risks and uncertainties detailed from time to time in Equity Office's filings with the SEC, including its 2003 Form 10-K and Form 8-K filed with the SEC on March 22, 2004. Equity Office assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
    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 portfolio of 696 buildings comprising 125.3 million square feet in 18 states and the District of Columbia. Equity Office has an ownership presence in 27 Metropolitan Statistical Areas (MSAs) and in 123 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.

    (Summary Financial Information Attached)

Equity Office Properties Trust Consolidated Statements of Operations (Unaudited)

For the three months ended For the years ended December 31, December 31, -------------------------- ------------------------ 2004 2003 2004 2003 ------------ ------------ ----------- ------------ (Dollars in thousands, except per share amounts) Revenues: Rental $649,479 $625,399 $2,554,471 $2,490,291 Tenant reimbursements 113,767 120,680 432,733 431,516 Parking 30,036 28,788 117,448 111,160 Other 22,149 33,036 76,973 88,323 Fee income 4,097 5,430 14,226 15,861 ------------ ------------ ------------ ------------ Total revenues 819,528 813,333 3,195,851 3,137,151 ------------ ------------ ------------ ------------ Expenses: Depreciation 194,106 174,456 701,216 637,441 Amortization 27,225 20,197 82,469 64,473 Real estate taxes 90,288 84,966 367,610 344,625 Insurance 10,415 8,340 37,938 27,877 Repairs and maintenance 100,705 97,788 350,059 332,140 Property operating 109,847 101,320 428,891 405,996 Ground rent 6,314 5,287 25,467 20,287 Corporate general and administrative 14,034 17,807 52,242 62,479 Impairment - 7,500 228,272 7,500 ------------ ------------ ------------ ------------ Total expenses 552,934 517,661 2,274,164 1,902,818 ------------ ------------ ------------ ------------ Operating income 266,594 295,672 921,687 1,234,333 ------------ ------------ ------------ ------------

Other income (expense): Interest and dividend income 2,755 2,307 8,302 12,580 Realized gain on settlement of derivatives and sale of marketable securities 223 836 28,976 9,286 Interest: Expense incurred (213,360) (201,866) (835,385) (819,730) Amortization of deferred financing costs and prepayment expenses (8,238) (1,541) (15,337) (6,976) ------------ ------------ ------------ ------------ Total other income (expense) (218,620) (200,264) (813,444) (804,840) ------------ ------------ ------------ ------------

Income before income taxes, allocation to minority interests, income from investments in unconsolidated joint ventures and gain on sales of real estate 47,974 95,408 108,243 429,493 Income taxes 215 (3,107) (2,012) (5,388) Minority Interests: EOP Partnership (7,316) (24,671) (11,747) (74,152) Partially owned properties (2,413) (1,917) (10,973) (8,080) Income from investments in unconsolidated joint ventures 12,675 16,964 50,304 79,882 Gain on sales of real estate 21,686 99,110 21,901 99,110 ------------ ------------ ------------ ------------ Income from continuing operations 72,821 181,787 155,716 520,865 Discontinued operations (including net (loss) gain on sales of real estate and property held for sale of ($1,666), $16,554, $5,473, and $61,953, respectively) (2,782) 30,157 15,288 134,197 ------------ ------------ ------------ ------------ Income before cumulative effect of a change in accounting principle 70,039 211,944 171,004 655,062 Cumulative effect of a change in accounting principle - - (33,697) - ------------ ------------ ------------ ------------ Net income 70,039 211,944 137,307 655,062 Preferred distributions (8,700) (10,508) (39,093) (51,872) ------------ ------------ ------------ ------------ Net income available to common shareholders $61,339 $201,436 $98,214 $603,190 ============ ============ ============ ============

Earnings per share - basic: Income from continuing operations per share $0.16 $0.44 $0.29 $1.21 ============ ============ ============ ============

Net income available to common shareholders per share $0.15 $0.51 $0.25 $1.50 ============ ============ ============ ============

Weighted average Common Shares outstanding 401,415,162 398,214,473 400,755,733 401,016,093 ============ ============ ============ ============

Earnings per share - diluted: Income from continuing operations per share $0.16 $0.44 $0.28 $1.20 ============ ============ ============ ============

Net income available to common shareholders per share $0.15 $0.50 $0.24 $1.50 ============ ============ ============ ============

Weighted average Common Shares outstanding and dilutive potential common shares 451,053,706 449,600,540 450,997,247 452,561,353 ============ ============ ============ ============

Distributions declared per Common Share outstanding $0.50 $0.50 $2.00 $2.00 ============ ============ ============ ============

Equity Office Properties Trust Consolidated Balance Sheets

December 31, 2004 December 31, 2003 (Unaudited) ----------------------------------- (Dollars in thousands, except per share amounts) Assets: Investments in real estate $24,970,416 $23,934,848 Developments in process 40,492 75,232 Land available for development 252,524 251,151 Investments in real estate held for sale, net of accumulated depreciation 41,255 43,911 Accumulated depreciation (3,164,511) (2,571,002) ----------------------------------- Investments in real estate, net of accumulated depreciation 22,140,176 21,734,140 Cash and cash equivalents 107,126 69,398 Tenant and other receivables (net of allowance for doubtful accounts of $6,908 and $6,490, respectively) 75,775 79,880 Deferred rent receivable 478,184 379,329 Escrow deposits and restricted cash 48,784 75,186 Investments in unconsolidated joint ventures 1,117,143 1,127,232 Deferred financing costs (net of accumulated amortization of $59,748 and $48,176, respectively) 61,734 64,337 Deferred leasing costs and other related intangibles (net of accumulated amortization of $193,348 and $157,445, respectively) 450,625 314,568 Prepaid expenses and other assets (net of discounts of $2,304 and $66,200, respectively) 191,992 344,940 ----------------------------------- Total Assets $24,671,539 $24,189,010 ===================================

Liabilities, Minority Interests, Mandatorily Redeemable Preferred Shares and Shareholders' Equity: Liabilities: Mortgage debt (net of (discounts) of $(13,683) and $(13,663), respectively) $2,609,067 $2,315,889 Unsecured notes (net of (discounts) premiums of $(38,362) and $12,412, respectively) 9,652,392 8,828,912 Lines of credit 548,000 334,000 Accounts payable and accrued expenses 556,851 573,069 Distribution payable 2,652 3,899 Other liabilities (net of (discounts) of $(28,536) and $0, respectively) 484,378 398,273 Commitments and contingencies - - ----------------------------------- Total Liabilities 13,853,340 12,454,042 -----------------------------------

Minority Interests: EOP Partnership 1,065,376 1,191,741 Partially owned properties 182,041 183,863 ----------------------------------- Total Minority Interests 1,247,417 1,375,604 -----------------------------------

Mandatorily Redeemable Preferred Shares: 5.25% Series B Convertible, Cumulative Redeemable Preferred Shares, liquidation preference $50.00 per share, 5,990,000 issued and outstanding 299,500 299,500 -----------------------------------

Shareholders' Equity: Preferred Shares, 100,000,000 authorized: 8.625% Series C Cumulative Redeemable Preferred Shares, liquidation preference $25.00 per share, 0 and 4,562,900 issued and outstanding, respectively - 114,073 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, 403,842,441 and 400,460,388 issued and outstanding, respectively 4,038 4,005 Other Shareholders' Equity: Additional paid in capital 10,479,305 10,396,864 Deferred compensation (1,916) (5,889) Dividends in excess of accumulated earnings (1,359,722) (652,036) Accumulated other comprehensive loss (net of accumulated amortization of $5,133 and $(73), respectively) (62,923) (9,653) ----------------------------------- Total Shareholders' Equity 9,271,282 10,059,864 ----------------------------------- Total Liabilities, Minority Interests, Mandatorily Redeemable Preferred Shares and Shareholders' Equity $24,671,539 $24,189,010 ===================================

Equity Office Properties Trust Reconciliation of Net Income to Funds From Operations ("FFO")

For the three months ended December 31, ------------------------------------------------- 2004 2003 ------------------------ ------------------------ Per Weighted Per Weighted Average Average Dollars Share (b) Dollars Share (b) ------------------------------------------------- (Dollars in thousands, except per share amounts) Reconciliation of net income to FFO (a): Net income $70,039 $0.17 $211,944 $0.53 Plus real estate related depreciation and amortization and less net gain (loss) 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 210,089 0.52 90,554 0.23 Less minority interests in EOP Partnership share of add back for real estate related depreciation and amortization and net gain (loss) on sales of real estate (22,159) (0.06) (9,913) (0.02) ------------------------ ------------------------ FFO 257,969 0.64 292,585 0.73 Preferred distributions (8,700) (0.02) (10,508) (0.03) ------------------------ ------------------------ FFO available to common shareholders - basic $249,269 $0.62 $282,077 $0.71 ======================== ========================

Adjustments to arrive at FFO available to common shareholders plus assumed conversions: Net Income FFO Net Income FFO ------------------------ ------------------------ Net income and FFO $70,039 $257,969 $211,944 $292,585 Preferred distributions (8,700) (8,700) (10,508) (10,508) ------------------------ ------------------------ Net income and FFO available to common shareholders 61,339 249,269 201,436 282,077 Net income allocated to minority interests in EOP Partnership 7,316 7,316 24,671 24,671 Minority interests in EOP Partnership share of add back for real estate related depreciation and amortization and net gain (loss) on sales of real estate - 22,159 - 9,913 Preferred distributions on Series B preferred shares which are assumed to be converted into Common Shares (c) - 4,584 - 3,931 ------------------------ ------------------------ Net income and FFO available to common shareholders plus assumed conversions $68,655 $283,328 $226,107 $320,592 ======================== ========================

Weighted average Common Shares, dilutive potential common shares plus assumed conversions outstanding 451,053,706 459,443,060 449,600,540 457,989,894 ======================== ========================

Net income and FFO available to common shareholders plus assumed conversions per share $0.15 $0.62 $0.50 $0.70 ======================== ========================

Common Shares and common share equivalents ------------------------------------------ Weighted average Common Shares outstanding (used for both net income and FFO basic per share calculation) 401,415,162 398,214,473 Redemption of Units for Common Shares 47,561,248 49,163,698 Impact of share options and restricted shares which are dilutive to both net income and FFO 2,077,296 2,222,369 ------------ ------------ Weighted average Common Shares and dilutive potential common shares used for net income available to common shareholders 451,053,706 449,600,540 Impact of conversion of Series B preferred shares (c) 8,389,354 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 459,443,060 457,989,894 ============ ============

(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 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 but are dilutive to FFO per share for each period presented.

FFO Definition:

FFO is defined as net income, computed in accordance with accounting principles generally accepted in the United States ("GAAP"), excluding gains or losses from sales of properties, 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 or 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 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 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 Income to Funds From Operations ("FFO")

For the years ended December 31, ---------------------------------------------------- 2004 2003 ------------------------ ------------------------ Per Weighted Per Weighted Average Average Dollars Share (b) Dollars Share (b) ---------------------------------------------------- (Dollars in thousands, except per share amounts) Reconciliation of net income to FFO (a): Net income $137,307 $0.34 $655,062 $1.63 Plus real estate related depreciation and amortization and less net gain (loss) 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 788,029 1.97 596,481 1.49 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, net gain (loss) on sales of real estate and cumulative effect of a change in accounting principle (87,784) (0.22) (65,381) (0.16) ------------------------ ------------------------ FFO 871,249 2.17 1,186,162 2.96 Preferred distributions (39,093) (0.10) (51,872) (0.13) ------------------------ ------------------------ FFO available to common shareholders - basic $832,156 $2.08(d) $1,134,290 $2.83 ======================== ========================

Adjustments to arrive at FFO available to common shareholders plus assumed conversions: Net Income FFO Net Income FFO ------------------------ ------------------------ Net income and FFO $137,307 $871,249 $655,062 $1,186,162 Preferred distributions (39,093) (39,093) (51,872) (51,872) ------------------------ ------------------------ Net income and FFO available to common shareholders 98,214 832,156 603,190 1,134,290 Net income allocated to minority interests in EOP Partnership 11,747 11,747 74,152 74,152 Minority interests in EOP Partnership share of add back for real estate related depreciation and amortization, net gain (loss) on sales of real estate and cumulative effect of a change in accounting principle - 87,784 - 65,381 Preferred distributions on Series B preferred shares which are assumed to be converted into Common Shares (c) - - - 15,724 ------------------------ ------------------------ Net income and FFO available to common shareholders plus assumed conversions $109,961 $931,687 $677,342 $1,289,547 ======================== ========================

Weighted average Common Shares, dilutive potential common shares plus assumed conversions outstanding 450,997,247 450,997,247 452,561,353 460,950,707 ======================== ========================

Net income and FFO available to common shareholders plus assumed conversions per share $0.24 $2.07(d) $1.50 $2.80 ======================== ========================

Common Shares and common share equivalents ------------------------------------------ Weighted average Common Shares outstanding (used for both net income and FFO basic per share calculation) 400,755,733 401,016,093 Redemption of Units for Common Shares 48,163,569 49,578,372 Impact of share options and restricted shares which are dilutive to both net income and FFO 2,077,945 1,966,888 ------------ ------------ Weighted average Common Shares and dilutive potential common shares used for net income available to common shareholders 450,997,247 452,561,353 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 450,997,247 460,950,707 ============ ============

(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 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 and are not dilutive to FFO per share for the year ended December 31, 2004 but are dilutive to FFO per share for the year ended December 31, 2003.

(d) FFO per share for the year ended December 31, 2004 includes a $229.2 million non-cash impairment charge, or $0.51 per share on a diluted basis, recorded in the third quarter 2004. By definition, impairment 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 or losses from sales of properties, 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 or 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 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 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.

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CONTACT: Equity Office Beth Coronelli, 312-466-3286 (Investors/Analysts) Terry Holt, 312-466-3102 (Media)

KEYWORD: ILLINOIS INDUSTRY KEYWORD: REAL ESTATE BUILDING/CONSTRUCTION BANKING EARNINGS CONFERENCE CALLS SOURCE: Equity Office

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