PRENTISS PROPERTIES TRUST/MD, 424B4, 1996-10-18

PRENTISS PROPERTIES TRUST/MD
424B4, 1996-10-18
REAL ESTATE INVESTMENT TRUSTS

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<PAGE>
RULE NO. 424B4
PROSPECTUS REGISTRATION NO. 333-9863

16,000,000 SHARES [LOGO OF PRENTISS
Prentiss Properties Trust PROPERTIES TRUST
COMMON SHARES OF BENEFICIAL INTEREST APPEARS HERE]
---------------

Prentiss Properties Trust (together with its subsidiaries, the "Company") is
a self-administered and self-managed real estate investment trust that has
been formed to continue and expand the national office and industrial property
acquisition, ownership, management, leasing, development and construction
businesses of Prentiss Properties Limited, Inc. and its affiliates (the
"Prentiss Group"). Upon the closing of this offering, the Company, through
Prentiss Properties Acquisition Partners, L.P. (the "Operating Partnership"),
will own interests in 87 office and industrial properties (the "Properties")
with approximately 8.9 million net rentable square feet. As of June 30, 1996,
the Properties were approximately 92% leased to 378 tenants. The Company
intends to continue the Prentiss Group's strategy of focusing its operations
in select markets throughout the nation and will initially operate in 21
markets throughout the U.S.

All of the 16,000,000 shares of beneficial interest ("Common Shares")
offered hereby are being offered by the Company. In addition, 1,888,200 Common
Shares (representing an investment of approximately $37.8 million based on the
initial public offering price) are being concurrently placed with The American
Airlines, Inc. Master Fixed Benefit Trust, the Ameritech Pension Trust and the
Public Employee Retirement System of Idaho in exchange for a portion of their
interests in the Operating Partnership.

Prior to this offering, there has been no public market for the Common
Shares. See "Underwriting" for information relating to the factors considered
in determining the initial public offering price. Upon completion of this
offering, management will own approximately 15.4% of the Company on a
consolidated basis. The Company's Common Shares have been approved for listing
on the New York Stock Exchange, subject to official notice of issuance, under
the symbol "PP."
---------------

SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON SHARES INCLUDING, AMONG OTHERS:

. The consideration to be paid for the Properties and other assets to be
acquired may exceed their fair market value; therefore, the market value of
the Common Shares may not reflect the fair market value of the Company's
assets;
. Conflicts of interest relating to the formation of the Company and the
operation of its business;
. Limitations on ownership of Common Shares initially to 8.5% of the
outstanding Common Shares, which may deter third parties from seeking to
control or acquire the Company;
. Taxation of the Company as a corporation if it fails to qualify as a REIT,
and the Company's inexperience in operating as a REIT; and
. Risks associated with reliance on major tenants including the risk of any
such tenant's inability to make rent payments.
---------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................. $20.00 $1.30 $18.70
- --------------------------------------------------------------------------------
Total(3).............................. $320,000,000 $20,800,000 $299,200,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at
approximately $3,100,000.
(3) The Company has granted the Underwriters an option to purchase up to an
aggregate of 2,400,000 Common Shares to cover overallotments. If all of
such shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $368,000,000,
$23,920,000 and $344,080,000, respectively. See "Underwriting."
---------------

The Common Shares offered by this Prospectus are offered by the Underwriters
subject to prior sale, withdrawal, cancellation or modification of the offer
without notice, to delivery to and acceptance by the Underwriters and to
certain further conditions. It is expected that delivery of the Common Shares
offered hereby will be made at the offices of Lehman Brothers Inc., New York,
New York on or about October 22, 1996.
---------------
LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
PRINCIPAL FINANCIAL SECURITIES, INC. RAYMOND JAMES & ASSOCIATES, INC.
October 17, 1996
<PAGE>

[INSERT PROPERTY LOCATION MAP AND PROPERTY PHOTOGRAPHS]

THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

----------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZATION, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY....................................................... 1
The Company............................................................. 1
Risk Factors............................................................ 2
Business and Growth Strategies.......................................... 3
Business Strategy....................................................... 3
Growth Strategies....................................................... 4
Properties.............................................................. 6
Structure of the Company................................................ 8
Benefits to Related Parties............................................. 9
The Offering............................................................ 10
Use of Proceeds......................................................... 10
Distributions........................................................... 10
Tax Status of the Company............................................... 11
Summary Financial Information........................................... 12
RISK FACTORS............................................................. 16
Price to be Paid for Properties, Common Shares and Other Assets May
Exceed Their Fair Market Value......................................... 16
Conflicts of Interests in the Formation Transactions and the Business
of the Company......................................................... 16
Anti-takeover Effect of Ownership Limit, Staggered Board and Power to
Issue Additional Shares................................................ 18
Tax Risks............................................................... 19
ERISA Risks............................................................. 20
Real Estate Financing Risks............................................. 20
Reliance on Major Tenants............................................... 21
Geographic Concentration in Texas, in Dallas and in Atlanta............. 21
Changes in Policies Without Shareholder Approval; No Limitation on
Debt................................................................... 22
Risks Associated with Rapid Growth; Risks Associated with the Acquisi-
tion of Substantial New Properties; Lack of Operating History.......... 22
Dependence on Key Personnel ............................................ 22
Control of Management................................................... 22
Real Estate Investment Risks............................................ 23
Risks of Third-Party Property Management, Leasing, Development and Con-
struction Business and Related Services................................ 26
Benefits to Managing Underwriter........................................ 27
Absence of Prior Public Market for Common Shares........................ 27
Immediate and Substantial Dilution...................................... 27
Possible Adverse Effect of Market Interest Rates on Price of Common
Shares................................................................. 28
Possible Adverse Effect of Shares Available for Future Sale on Price
of Common Shares....................................................... 28
THE COMPANY.............................................................. 29
General................................................................. 29
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
History................................................................. 29
Operations.............................................................. 30
BUSINESS OBJECTIVES...................................................... 32
Business Strategy....................................................... 32
Growth Strategies....................................................... 34
Third-Party Management.................................................. 37
Financing Strategies.................................................... 40
USE OF PROCEEDS.......................................................... 41
DISTRIBUTION POLICY...................................................... 43
CAPITALIZATION........................................................... 46
DILUTION................................................................. 47
SELECTED FINANCIAL INFORMATION........................................... 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS........................................................... 52
Overview................................................................ 52
Comparison of the Six Months Ended June 30, 1996 to the Six Months
Ended June 30, 1995.................................................... 52
Comparison of Year Ended December 31, 1995 to Year Ended December 31,
1994................................................................... 53
Comparison of Year Ended December 31, 1994 to Year Ended December 31,
1993................................................................... 53
Comparison of Pro Forma Six Months Ended June 30, 1996 to Historical
Six Months Ended June 30, 1996......................................... 54
Comparison of Pro Forma Year Ended December 31, 1995 to Historical
Year Ended December 31, 1995........................................... 55
Liquidity and Capital Resources......................................... 55
Inflation............................................................... 58
PROPERTIES............................................................... 58
General................................................................. 58
Location of Properties; Market Overview................................. 60
Los Angeles............................................................ 61
Austin................................................................. 62
Dallas/Fort Worth...................................................... 62
Detroit................................................................ 65
Kansas City............................................................ 66
Milwaukee.............................................................. 67
Washington, D.C. (including Northern Virginia)......................... 68
Baltimore.............................................................. 69
Atlanta................................................................ 70
Office Properties....................................................... 70
Industrial Properties................................................... 80
Option Properties....................................................... 88
Option Parcels.......................................................... 90
Historical Non-Incremental Revenue-Generating Capital Expenditures...... 92
Historical Incremental Revenue-Generating Tenant Improvement Costs
and Leasing Commissions................................................ 92
Prentiss Properties Service Business.................................... 93
Insurance............................................................... 93
Environmental Matters................................................... 93
</TABLE>

i
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes that (i) the transactions
relating to the formation of the Company (the "Formation Transactions") are
consummated and (ii) the Underwriters' overallotment option is not exercised.
Unless the context otherwise requires, all references in this Prospectus to the
(i) "Company" shall mean Prentiss Properties Trust and its subsidiaries on a
consolidated basis, including (a) Prentiss Properties I, Inc. (the "General
Partner"), (b) Prentiss Properties Acquisition Partners, L.P. (the "Operating
Partnership") and its subsidiaries, (c) Prentiss Properties Run Deep, Inc. and
affiliates (collectively, the "Manager"), and (d) entities through which the
Operating Partnership owns interests in certain of the Properties; (ii)
"Prentiss Group" shall mean Prentiss Properties Limited, Inc. ("PPL"), the
companies and partnerships affiliated with PPL and Michael V. Prentiss, Thomas
F. August, Dennis J. DuBois and Richard B. Bradshaw, Jr. (the "Prentiss
Principals"); and (iii) "Common Shares" shall mean the Company's common shares
of beneficial interest, par value $.01 per share. Capitalized terms used but
not defined herein shall have the meanings set forth in the Glossary.

THE COMPANY

The Company is a self-administered and self-managed real estate investment
trust ("REIT") that has been formed to continue and expand the national office
and industrial property acquisition, ownership, management, leasing,
development and construction businesses of the Prentiss Group. Upon the closing
of this offering (the "Offering") of Common Shares, the Company will own a
diversified portfolio of 87 office and industrial properties (the "Properties")
with approximately 8.9 million net rentable square feet. The Properties are
located in 10 major U.S. markets and consist of 28 office buildings (the
"Office Properties") containing approximately 3.8 million net rentable square
feet and 59 industrial buildings (the "Industrial Properties") containing
approximately 5.0 million net rentable square feet. The Prentiss Group
developed 11 of the Office Properties containing approximately 2.0 million net
rentable square feet. As of June 30, 1996, the Office Properties were
approximately 95% leased to 264 tenants, and the Industrial Properties were
approximately 90% leased to 114 tenants. The Company believes that upon the
closing of this Offering, it will be one of the 20 largest managers of office
and industrial properties in the U.S., managing approximately 39 million square
feet in 339 office and industrial properties that are owned by the Company and
by third parties, and that are leased to approximately 2,200 tenants. The
Company intends to continue the Prentiss Group's strategy of focusing its
operations in select markets throughout the nation and will initially operate
in 21 markets throughout the U.S.

The Company operates from its Dallas, Texas headquarters and its four other
regional offices (Los Angeles, California; Chicago, Illinois; Washington, D.C.;
and Atlanta, Georgia). The Company is a full-service real estate company with
approximately 600 employees and in-house expertise in acquisitions,
development, property management, leasing, facilities management, corporate
services, finance, tax, construction, dispositions, marketing, accounting and
real estate law. The 11 senior executives, which include the four Prentiss
Principals (Michael V. Prentiss, Thomas F. August, Dennis J. DuBois and Richard
B. Bradshaw, Jr.), Richard J. Bartel (the Chief Operating Officer of Property
Management), Mark R. Doran (the Treasurer), and the managing directors of each
of the Company's five regions, have an average of 19 years experience in the
real estate industry and an average tenure of 11 years with the Prentiss Group
and its predecessors. Upon completion of the Offering, management will, in the
aggregate, own approximately 15.4% of the Company on a consolidated basis. See
"Management--Trustees and Executive Officers".

The Company will seek to maximize the profitability of the Properties by
continuing the Prentiss Group's success in renewing leases, maintaining high
occupancy rates, increasing rental rates and reducing operating costs. The
Company will also seek to grow through the acquisition of additional office and
industrial properties and through development, primarily on a build-to-suit
basis. The Company believes that its five regional offices, presence in 21
markets throughout the U.S., diversified base of approximately 2,200 tenants
and existing relationships with 45 management clients will provide it with a
competitive advantage in identifying and competing for new office and
industrial acquisition and development opportunities nationally. Additionally,
the Company believes that its existing infrastructure from its extensive
property management operations will allow it to grow in new and existing
markets without the substantial cost of opening new offices or hiring and
training new employees.
<PAGE>

RISK FACTORS

An investment in the Common Shares involves various risks, and prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to an investment in the Company. Such risks include, among others:

. The valuation of the Properties was not based on third-party appraisals,
and the market value of the Common Shares may exceed the aggregate fair
market value of the Company's portfolio of Properties;

. conflicts of interests between the Company and the Prentiss Principals,
who will serve as executive officers, in relation to the Formation
Transactions and business decisions regarding the Company, which
conflicts of interest could result in decisions that do not fully reflect
the interests of all of the Company's shareholders;

. anti-takeover effect of limiting ownership of the shares of beneficial
interest of the Company initially to 8.5% of the number of outstanding
Common Shares or 9.8% of the number of outstanding Preferred Shares of
any class of shares (other than for Michael V. Prentiss, for whom the
ownership limitation initially is 15%) and of certain other provisions
contained in the organizational documents of the Company, which could
delay, defer or prevent a transaction that might involve a premium price
for the Common Shares or otherwise be in the best interests of the
holders of Common Shares;

. taxation of the Company as a regular corporation if it fails to qualify
as a REIT, and the Company's inexperience in operating as a REIT;

. risks associated with reliance on major tenants, of which the largest
accounted for approximately 22%, and five others accounted for
approximately 17% in the aggregate, of the Company's 1995 annual Base
Rent (as defined herein) from the Properties, including the risk of any
such tenant's inability to make rent payments;

. risks associated with borrowing, such as the possibilities that (i) the
Company's debt service on variable rate indebtedness could increase, (ii)
the Company may not be able to refinance outstanding indebtedness upon
maturity or refinance such indebtedness on favorable terms and (iii) the
Company's properties may be foreclosed upon if it cannot make required
debt service payments;

. risks arising from the ability of the Company's Board of Trustees to
change the Company's investment, financing, borrowing, distribution and
other policies at any time without shareholder approval;

. concentration of 27 of the 87 Properties in Texas, including 15
Properties located in the Dallas area, and concentration of nine of the
Properties in the Atlanta area, which concentrations subject the Company
to risks associated with local market conditions;

. real estate investment considerations, such as the effect of economic and
other conditions on property cash flows and values, the inability of a
property to generate revenue sufficient to meet operating expenses,
potential liability for costs of removal or remediation of hazardous or
toxic substances on a property, and the illiquidity of real estate
investments, all of which may affect the Company's ability to make
distributions to its shareholders;

. risks associated with the ownership, acquisition, development,
construction and management of office and industrial properties,
including the risks of abandonment of development, unexpected
construction costs or delays, newly developed or acquired properties'
failure to perform as expected, and failure to obtain or delays in
obtaining governmental permits and authorizations and termination of
management contracts;

. absence of a prior market for the Common Shares, lack of assurances that
an active trading market will develop or that Common Shares will trade at
or above the initial public offering price, and potential negative effect
of rising market interest rates on the market price of the Common Shares;
and

. immediate and substantial dilution of $4.69 per share in the net tangible
book value of the Common Shares purchased hereby based on the Offering
Price.

2
<PAGE>

BUSINESS AND GROWTH STRATEGIES

BUSINESS STRATEGY

GEOGRAPHIC PROPERTY BREAKDOWN

<TABLE>
<CAPTION>
NET RENTABLE SQUARE
NUMBER OF FOOTAGE
PROPERTIES (IN THOUSANDS)
------------------- --------------------
MARKET OWNED MANAGED TOTAL OWNED MANAGED TOTAL
- ------ ----- ------- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
WESTERN REGION:
Phoenix, Arizona...................... -- 5 5 -- 534 534
Los Angeles, California............... 18 113 131 1,253 8,055 9,308
Oakland, California................... -- 16 16 -- 1,610 1,610
Sacramento, California................ -- 15 15 -- 1,510 1,510
San Francisco, California............. -- 10 10 -- 1,651 1,651
--- --- --- ----- ------ ------
Subtotal Western Region.............. 18 159 177 1,253 13,360 14,613
SOUTHWEST REGION:
Denver, Colorado...................... -- 1 1 -- 190 190
Amarillo, Texas....................... -- 3 3 -- 482 482
Austin, Texas(/1/).................... 7 1 8 1,112 389 1,501
Dallas, Texas......................... 15 31 46 2,027 6,071 8,098
Fort Worth, Texas..................... -- 1 1 -- 1,008 1,008
Houston, Texas........................ 5 4 9 75 955 1,030
--- --- --- ----- ------ ------
Subtotal Southwest Region............ 27 41 68 3,214 9,095 12,309
MIDWEST REGION:
Chicago, Illinois..................... -- 8 8 -- 618 618
Southfield, Michigan(/2/)............. 1 -- 1 242 -- 242
Kansas City, Missouri................. 7 -- 7 1,341 -- 1,341
Milwaukee, Wisconsin.................. 17 -- 17 1,218 -- 1,218
--- --- --- ----- ------ ------
Subtotal Midwest Region.............. 25 8 33 2,801 618 3,419
MID-ATLANTIC REGION:
Washington, D.C....................... -- 5 5 -- 1,316 1,316
Baltimore, Maryland................... 6 -- 6 731 -- 731
Northern New Jersey................... -- 1 1 -- 263 263
Northern Virginia..................... 2 23 25 337 2,482 2,819
--- --- --- ----- ------ ------
Subtotal Mid-Atlantic Region......... 8 29 37 1,068 4,061 5,129
SOUTHEAST REGION:
Orlando, Florida...................... -- 3 3 -- 523 523
Atlanta, Georgia...................... 9 12 21 530 2,626 3,156
--- --- --- ----- ------ ------
Subtotal Southeast Region............ 9 15 24 530 3,149 3,679
Total.............................. 87 252 339 8,866 30,283 39,149
=== === === ===== ====== ======
</TABLE>
- --------
(/1/) The Company owns a non-controlling 49.9% interest in the general
partnership that owns a leasehold interest in the seven owned Broadmoor
Austin Properties in Austin, Texas.
(/2/) The Company owns 100% of a leasehold interest in the One Northwestern
Plaza Property in Southfield, Michigan.

3
<PAGE>

GROWTH STRATEGIES

Internal Growth

The Company's internal growth strategy is to increase cash flow at the
Properties and any future properties primarily by (a) renewing or replacing
expiring leases with new leases at higher rental rates, (b) maintaining lease
renewal rates, (c) operating in markets with the potential for rental growth,
(d) improving occupancy rates in its existing portfolio and in new properties
that are acquired, and (e) applying its benchmarking and best practices
methodologies to identify and capitalize on cost reduction opportunities.

. Since 1993, the Prentiss Group has maintained average year-end occupancy
rates of approximately 94% and 93%, respectively, for those Office
Properties and Industrial Properties under its management during that
period.

. The Company will continue the Prentiss Group's use of benchmarking and
best practices methodologies to compare performance indicators at its
owned or managed properties to a variety of standardized measures. These
methodologies enable the Company to identify and replicate practices used
at the best performing properties, and reduce operating costs at other
properties. Based on publicly available statistics compiled by the
Building Owners and Managers Association, the Company believes that the
annual operating costs at each of the Properties it has managed since
1991 have been 8% to 16% less than the average annual operating costs for
comparable buildings.

External Growth

The Company intends to pursue an external growth strategy to enable
shareholders to benefit from potential value to be realized from acquisitions,
development, redevelopment, and opportunities generated by the Company's
property management operations. The Company's external growth strategies
include:

. acquiring office and industrial buildings priced lower than replacement
cost, with an emphasis onClass A suburban office buildings and industrial
buildings;

. redeveloping properties owned by the Company;

. developing office and industrial buildings primarily on a build-to-suit
basis; and

. expanding the Company's third-party property management, leasing and
facilities management business.

The Company believes that its substantial experience in the real estate
business will enable it to effectively address the risks associated with its
external growth strategy, including the risks that investments in acquisitions,
development and redevelopment will fail to perform in accordance with
expectations and that management contracts may not be renewed upon expiration.
See "Risk Factors."

Acquisitions. The Company intends to continue the Prentiss Group's strategy
of opportunistic investment, particularly in assets that are (i) managed by the
Company and become available for sale, (ii) performing at a level believed to
be substantially below potential due to identifiable management weaknesses or
temporary market conditions, (iii) encumbered by indebtedness that is in
default or is not performing or (iv) held or controlled by short-term owners
(such as assets held by insurance companies and financial institutions under
regulatory pressure to sell). Since 1991, the Prentiss Group has acquired
approximately $272 million of office properties and approximately $103 million
of industrial properties, including approximately $77 million of office
properties acquired from third-party management clients. The Company believes
that its five regional offices, presence in 21 markets throughout the U.S.,
diversified base of approximately 2,200 tenants and existing relationships with
45 management clients will provide it with contacts and market knowledge that
will enable it to capitalize on favorable investment opportunities in its
markets throughout the U.S. as opportunities arise. The Company has options to
acquire interests in three office buildings containing approximately 1.4
million net rentable square feet and four industrial buildings containing
approximately 268,000 net rentable square feet. See "Properties--Option
Properties." The Company intends to fund future acquisitions with proceeds from
credit

4
<PAGE>

facilities, long-term secured and unsecured indebtedness and the issuance of
additional equity securities. The success of the Company's acquisition strategy
depends upon the Company's access to capital. See "Business Objectives--
Financing Strategies."

Redevelopment. The Company will pursue selectively the redevelopment of its
Properties and of any other properties acquired as opportunities arise. For
example, the Company is currently implementing its redevelopment strategy at
the Cumberland Office Park Properties, which are situated in an under-utilized
development within the Northwest submarket of Atlanta. These Properties are a
mixture of low-rise and mid-rise buildings built between 1972 and 1980. Upon
acquiring the Cumberland Office Park Properties in 1991, the Prentiss Group
applied for and received approval to rezone the properties to permit up to 1.1
million square feet of additional office space. Although the Cumberland Office
Park Properties are currently fully leased, the Company believes that their
long-term value potential lies in the redevelopment of those sites currently
occupied by smaller, older, less functional buildings into new Class A suburban
office buildings. In 1995, the Prentiss Group began implementing this strategy
by demolishing a single-story 7,500 square-foot building on a site that will
accommodate up to 280,000 net rentable square feet of new improvements. The
Company is currently seeking tenants for a 140,000 net rentable square foot
office building that the Company intends to build when it secures such tenants.
The Company makes decisions regarding such capital expenditures after
performing a cost/benefit analysis of the projected long-term returns from its
investments. While the Company will seek to minimize lease-up risks by pre-
leasing the space, it must consider the other risks of development activity,
such as cost overruns, construction delays and refinancing risks before
commencing redevelopments at Cumberland or other sites. See "Risk Factors."

Development. The Company intends to continue developing industrial and office
properties primarily on a build-to-suit basis, but will also consider selective
opportunities for speculative development of industrial properties and
development of office properties where significant pre-leasing is possible.
Since 1980, the Prentiss Group and its predecessors have developed for itself
or third parties 31 office buildings comprising approximately 16.3 million net
rentable square feet (including 11 of the Office Properties comprising
approximately 2.0 million net rentable square feet) and 25 industrial buildings
comprising approximately 3.2 million net rentable square feet. With landmark
projects such as Broadmoor Austin in Austin, Park West in Dallas, Fairview Park
in Northern Virginia, Burnett Plaza in Fort Worth, and Continental Executive
Parke in Chicago, the Company expects to benefit from the Prentiss Group's
national reputation as a leading developer that produces quality properties
within budget. The Company owns six development parcels comprising
approximately 21.4 acres that can support approximately 1.4 million square feet
of net rentable space. See "Business Objectives--Growth Strategies--
Development" and "Properties." The Company also has options to acquire
interests in five development parcels comprising approximately 109.8 acres that
can support approximately 1.3 million square feet of net rentable space for
industrial use and three development parcels comprising approximately 27.3
acres that can support approximately 775,000 net rentable square feet of office
development. See "Properties--Option Parcels." See "Business Objectives--Growth
Strategies--Acquisitions" and "Properties--Option Parcels."

Third-Party Management. The Company manages, in addition to the Properties,
approximately 30 million net rentable square feet of office and industrial
space owned by third parties. The managed properties are located in 17 markets
and contain over 1,800 tenants. In addition to property management and leasing,
the Company offers a full range of related services for a fee, including tenant
construction, marketing, insurance, accounting, tax, real estate law,
acquisition, disposition, facilities management, corporate services and asset
management (collectively, the "Prentiss Properties Service Business"). Fees for
these services are generally negotiated on a case-by-case basis and vary based
on the scope of the services. The Prentiss Properties Service Business serves a
broad base of 45 clients including pension funds, corporate real estate users,
real estate investment groups and real estate advisory firms. The Company
believes that management and leasing assignments will help it to expand its
base of national tenants, achieve economies of scale with its property
management systems and provide access

5
<PAGE>

to acquisition and development opportunities nationally without incurring the
substantial cost of opening new offices and hiring and training new employees.
The Company believes it will benefit from the increasing trend of institutional
owners of real estate retaining sophisticated national service providers for
their property management needs. Since 1989, approximately 60% of the Prentiss
Group's new third-party management business has come from existing customers.
The Company believes that its long-term customer base will continue to provide
a stable source of fee income and opportunities to expand on existing
relationships. See "Business Objectives--Financing Strategies."

Financing Strategy

The Company intends to maintain a debt policy (the "Debt Limitation")
limiting the Company's total combined indebtedness plus its pro rata share of
indebtedness of unconsolidated investments ("Joint Venture Debt") to 50% of the
Company's total equity market capitalization plus its combined indebtedness and
pro rata share of Joint Venture Debt ("Total Market Capitalization"). However,
the Company's organizational documents do not limit the amount of indebtedness
that the Company may incur. At the closing of the Offering, the Company will
have outstanding combined indebtedness of approximately $66.2 million or 13.5%
of total market capitalization (excluding its pro rata share of Joint Venture
Debt) and will have outstanding total indebtedness, including its pro rata
share of Joint Venture Debt, of approximately $136.1 million or 24.3% of Total
Market Capitalization. The Predecessor Company, as defined in "Selected
Financial Information" herein, had total outstanding indebtedness as a
percentage of its total debt plus equity of 40.3% as of June 30, 1996 and
30.9%, 29.3% and 17.9% as of December 31, 1995, December 31, 1994 and December
31, 1993, respectively. As of the Closing Date, the Company will have the
capacity to borrow an additional $286.9 million under the Debt Limitation. The
Company has entered into negotiations with Bank One, Texas, N.A. and
NationsBank of Texas, N.A. to obtain a $100 million line of credit (the "Line
of Credit"). The Company intends to close on the Line of Credit
contemporaneously with the closing of the Offering. See "Risk Factors." The
Line of Credit is expected to be used primarily to finance the acquisition and
development of additional properties and the redevelopment of properties owned
by the Company. The Company believes that its access to capital through the
Line of Credit and other sources of private financing, as well as its access to
the public capital markets, will provide it with a competitive advantage in
acquisitions and developments over certain competitive bidders which may have
to qualify their bids with financing contingencies or which have less access to
capital.

PROPERTIES

The Properties consist of the 28 Office Properties comprising approximately
3.8 million net rentable square feet and the 59 Industrial Properties
comprising approximately 5.0 million net rentable square feet. All of the
Properties are wholly owned by the Company (through its subsidiaries), except
the Broadmoor Austin Properties, which are owned by a joint venture in which
the Company owns a 49.9% managing general partnership interest, and One
Northwestern Plaza, in which the Company owns a 100% leasehold interest. The
Company also owns six development parcels (the "Development Parcels") which can
support approximately 1.4 million net rentable square feet of development and
has options to acquire interests in (a) three office buildings containing
approximately 1.4 million net rentable square feet, (b) four industrial
buildings containing approximately 268,000 net rentable square feet, (c) five
development parcels that can support approximately 1.3 million net rentable
square feet of industrial space and (d) three development parcels that can
support approximately 775,000 net rentable square feet of office space (the
"Options"). See "Properties--Option Properties" and "--Option Parcels."

6
<PAGE>

The following chart contains certain information regarding the Properties:

<TABLE>
<CAPTION>
NET PERCENT
RENTABLE LEASED
YEAR BUILT/ NUMBER SQUARE AS OF
PROPERTY NAME MARKET RENOVATED OF BUILDINGS FEET JUNE 30, 1996
- ------------- ----------------- ----------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
Cumberland Office
Park.................. Atlanta, GA 1972-1980 9 530,228 97%
One Northwestern
Plaza(/1/)............ Southfield, MI 1989 1 241,751 93
Broadmoor Austin(/2/).. Austin, TX 1991 7 1,112,236 100
Park West.............. Dallas, TX 1982-1989 3 727,545 100
5307 East Mockingbird.. Dallas, TX 1979/1993 1 118,316 80
Walnut Glen Tower...... Dallas, TX 1985 1 464,289 81
Cottonwood Office
Center................ Dallas, TX 1986 3 164,111 99
Plaza on Bachman
Creek................. Dallas, TX 1986 1 125,903 90
3141 Fairview Park
Drive................. Northern Virginia 1988 1 192,108 89
8521 Leesburg Pike..... Northern Virginia 1984/1993 1 145,257 93
--- --------- ---
Subtotal/weighted average for Office Properties....... 28 3,821,744 95%
--- --------- ---
INDUSTRIAL PROPERTIES:
Pacific Gateway
Center................ Los Angeles, CA 1972-1984 18 1,252,708 92%
8869 Greenwood......... Baltimore, MD 1986-1987 1 89,582 74
1329 Western Ave....... Baltimore, MD 1988 1 185,600 95
Deep Run 1&2........... Baltimore, MD 1988 2 169,112 100
4611 Mercedes Drive.... Baltimore, MD 1990 1 178,133 100
9050 Junction Drive.... Baltimore, MD 1989 1 108,350 100
Northland Park......... Kansas City, MO 1975-1980 4 925,007 100
North Topping Street... Kansas City, MO 1975-1980 1 119,118 100
Airworld Drive......... Kansas City, MO 1975-1980 1 200,000 0(/3/)
107th Terrace.......... Kansas City, MO 1975-1980 1 96,700 100
Nicholson III.......... Dallas, TX 1981 3 155,712 91
13425 Branchview....... Dallas, TX 1970 1 121,250 100
1002 Avenue T.......... Dallas, TX 1981 1 100,000 100
1625 Vantage Drive..... Dallas, TX 1984 1 50,000 100
West Loop Business
Park.................. Houston, TX 1986 5 75,231 92
Airport Properties..... Milwaukee, WI 1970-1980 12 572,953 98
Oakcreek Properties.... Milwaukee, WI 1970-1979 2 232,000 100
North West Properties.. Milwaukee, WI 1973-1987 3 413,371 83
--- --------- ---
Subtotal/weighted average for Industrial Properties... 59 5,044,827 90%
--- --------- ---
Consolidated total/weighted average for all
Properties........................................... 87 8,866,571 92%
=== ========= ===
</TABLE>
- --------
(/1/) The Company owns a 100% leasehold interest in this Property.
(/2/) The Company owns a 49.9% interest in the general partnership which owns a
100% leasehold interest in these Properties. The Company accounts for its
interest in this partnership under the equity method.
(/3/) On October 1, 1996, the Company executed a lease for 100% of the net
rentable area at the Airworld Drive Property. The tenant will begin
paying rent under such lease in the first quarter of 1997.

7
<PAGE>

STRUCTURE OF THE COMPANY

The following chart illustrates the structure of the Company and beneficial
ownership of the Company and its two principal operating subsidiaries, the
Operating Partnership and the Manager, after the completion of the Formation
Transactions and the closing of the Offering. See "Formation Transactions."

THE COMPANY

<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
COMMON SHARES COMMON SHARES
BEFORE EXCHANGE AFTER EXCHANGE
OWNER OF UNITS OF UNITS
----- --------------- --------------
<S> <C> <C>
Public Investors.............................. 89.4% 75.7%
Management(/1/)............................... --% 15.4%
Continuing Investors(/2/)..................... 10.6% 8.9%
</TABLE>

THE OPERATING PARTNERSHIP

<TABLE>
<CAPTION>
OWNERSHIP INTEREST OWNERSHIP INTEREST
BEFORE EXCHANGE AFTER EXCHANGE
OWNER OF UNITS OF UNITS
----- ------------------ ------------------
<S> <C> <C>
Company(/3/)......................... 84.6% 100.0%
Management(/1/)...................... 15.4% --%
</TABLE>

THE MANAGER

<TABLE>
<CAPTION>
VOTING NON-VOTING TOTAL
OWNER COMMON STOCK COMMON STOCK EQUITY INTEREST
----- ------------ ------------ ---------------
<S> <C> <C> <C>
Operating Partnership(/4/).... --% 100.0% 95.0%
Michael V. Prentiss(/5/)...... 100.0% --% 5.0%
</TABLE>
- --------
(/1/) Includes entities wholly owned by one or more Prentiss Principals, all of
whom are receiving units of limited partnership interest in the Operating
Partnership ("Units") in exchange for their interests in the assets that
are being acquired by the Operating Partnership in the Formation
Transactions. See "Formation Transactions."
(/2/) The "Continuing Investors" are The American Airlines, Inc. Master Fixed
Benefit Trust, the Ameritech Pension Trust and the Public Employee
Retirement System of Idaho, each of whom will receive cash and Common
Shares in the Formation Transactions in exchange for their interests in
the Operating Partnership. See "The Company--History."
(/3/) Includes a 0.2% interest owned by the General Partner.
(/4/) The Operating Partnership also owns promissory notes of the Manager with
initial aggregate principal balances of approximately $34.75 million. See
"Formation Transactions." As a result of the Operating Partnership's
ownership of non-voting common stock and debt of the Manager, the
Company, through the Operating Partnership, expects to receive most of
the after-tax economic benefits of the Manager. See "Business
Objectives--Third-Party Management."
(/5/) The voting common stock of the Manager is owned by a corporation that is
wholly owned by Michael V. Prentiss.

8
<PAGE>

The value of the Company has been derived from (i) a capitalization of the
Company's adjusted pro forma consolidated cash flow available for distribution
to its shareholders, (ii) an analysis of the Company's potential for growth,
(iii) comparisons to other office and industrial REITs, and (iv) other factors
set forth in "Underwriting." The value of the Company has not been determined
on a property-by-property basis. The Company's percentage interest in the
Operating Partnership was determined based upon the percentage of estimated
cash available for distribution required to pay estimated distributions at an
annual rate equal to 8.00% of the Offering Price on the Common Shares to be
outstanding upon completion of the Offering.

BENEFITS TO RELATED PARTIES

The Prentiss Group, including the Prentiss Principals, will realize certain
benefits as a result of the Offering and the Formation Transactions (see
"Formation Transactions"), including the following:

. Members of the Prentiss Group will receive a total of 3,259,763 Units in
consideration for their interests in the Properties, the Development
Parcels, the Options and the Prentiss Properties Service Business in
connection with the Formation Transactions. These Units (representing
approximately 15.4% of the equity interests in the Company on a
consolidated basis) will have a total value of approximately $65.2
million based on the Offering Price, compared to a net tangible book
value of the assets contributed to the Operating Partnership by the
Prentiss Group of approximately $4.7 million. The Company believes that
the net tangible book value of the individual assets contributed to the
Operating Partnership by the Prentiss Group (which reflects the
historical cost of such assets less accumulated depreciation) is less
than the aggregate current market value of such assets.

. Members of the Prentiss Group will realize an immediate increase of $45.2
million in the net tangible book value of their original $4.7 million
investment in the Company. The immediate increase is derived from the
difference between the net tangible assets per share before and after the
Formation Transactions multiplied by the 3,259,763 Units to be received
by the Prentiss Group as consideration for the assets transferred to the
Company. See "Dilution."

. Any time after two years following the date of the closing of the
Offering (the "Closing Date"), the members of the Prentiss Group holding
Units may, in accordance with the terms of the second amended and
restated agreement of limited partnership of the Operating Partnership
(the "Operating Partnership Agreement"), exchange all or a portion of
such Units for cash or, at the election of the Company, Common Shares on
a one-for-one basis. The Company currently expects that it will not elect
to pay cash for Units in connection with any such exchange request, but
instead will exchange Common Shares for such Units.

. Messrs. Prentiss and August will enter into employment agreements with
the Company. See "Management--Employment Agreements."

. The Company will grant to the Prentiss Principals, 41 other employees of
the Company and the five independent trustees of the Company (the
"Independent Trustees") options to purchase an aggregate of 1,291,439
Common Shares under the Company's 1996 Share Incentive Plan at the
Offering Price, subject to certain vesting requirements. See
"Management--1996 Share Incentive Plan."

. The Formation Transactions may provide the members of the Prentiss Group
with increased liquidity and, until the disposition of certain assets
contributed to the Company, with continued deferral of the taxable gain
associated with those assets.

. PPL currently manages 18 industrial buildings located in Torrance,
California (the Pacific Gateway Properties) that the Company will
purchase from an affiliate of the Prentiss Group, The Prentiss/Copley
Investment Group ("PCIG"). After the closing of the Offering, PPL will
receive approximately $500,000 of the seller's proceeds from the sale of
these Properties as partial repayment of a note from PCIG

9
<PAGE>

payable upon termination of certain management contracts (the "Termination
Fee Note"). The Prentiss Group will receive no other payments from the
proceeds of the sale of these Properties.

. The Company has agreed to maintain at least $1.3 million of indebtedness
secured by certain of the Properties outstanding for three years and to
permit certain Prentiss Group members to guaranty such debt through
December 31, 1998 in order to defer certain tax consequences associated
with the Formation Transactions.

Additional information concerning benefits to executive officers, trustees
and significant shareholders of the Company is set forth under "Formation
Transactions" and "Certain Relationships and Transactions."

THE OFFERING

All of the Common Shares offered hereby are being sold by the Company.

<TABLE>
<S> <C>
Common Shares Offered by the Company........................... 16,000,000

Common Shares and Units Outstanding After the Offering......... 21,147,963(/1/)

New York Stock Exchange Symbol................................. "PP"
</TABLE>
- --------
(/1/) Includes 3,259,763 Units issued to the Prentiss Group in the Formation
Transactions and the 1,888,200 Common Shares being placed with The
American Airlines, Inc. Master Fixed Benefit Trust, the Ameritech Pension
Trust and the Public Employee Retirement System of Idaho in the Formation
Transactions as consideration for a portion of their interests in the
Operating Partnership. See "Formation Transactions." Excludes 2,400,000
Common Shares issuable upon exercise of the Underwriters' overallotment
option and 1,291,439 Common Shares reserved for issuance upon exercise of
options to be granted pursuant to the 1996 Share Incentive Plan in
connection with the Offering.

USE OF PROCEEDS

The net cash proceeds to the Company from the Offering will be used for the
acquisition of a portion of the interests in the Properties and other assets,
the repayment of mortgage and other indebtedness (including prepayment
penalties), and for working capital. Approximately $54.0 million of the net
proceeds will be used to acquire interests in Properties from an affiliate of
Lehman Brothers Inc. ("Lehman"), the lead managing underwriter of the Offering,
and approximately $64.5 million will be used to repay an affiliate of Lehman
certain mortgage indebtedness secured by certain Properties.

DISTRIBUTIONS

The Company intends to pay regular quarterly distributions to the holders of
Common Shares. The first distribution, for the period commencing on the Closing
Date and ending on December 31, 1996, is expected to be approximately $.31 per
Common Share, which is equivalent to a quarterly distribution of $.40 per share
and an annual distribution of $1.60 per share, or 8.00% of the Offering Price.
The Company has established the initial annual distribution rate based on the
Company's estimate of cash available for distribution for the 12 months
following the Offering, which was derived from the Company's Pro Forma Funds
from Operations (as defined in Note 6 of "Summary Financial Information") for
the 12 months ended June 30, 1996. Funds from Operations does not represent
cash generated from operating activities in accordance with GAAP and should not
be considered as an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity or ability to make
distributions. The expected distribution for the 12 months following

10
<PAGE>

completion of the Offering will equal approximately 91.5% of the estimated cash
available for distribution for the twelve months ending June 30, 1997. The
Company intends to maintain its initial distribution rate for at least 12
months following the consummation of the Offering unless actual results of
operations, economic conditions or other factors differ from the assumptions
used in calculating the estimate. The Company does not intend to reduce the
expected distribution per share if the Underwriters' overallotment option is
exercised. Based on the Company's estimated results of operations for the 12
months ending June 30, 1997, the Company estimates that approximately 19.7% of
the anticipated initial annual distribution to shareholders will represent a
return of capital for federal income tax purposes and that the Company would
have been required to distribute $22.9 million or $1.28 per share during such
12-month period in order to maintain its status as a REIT. If future taxable
income increases above or decreases below the estimated taxable income for the
12 months following the Offering, the percentage of the anticipated initial
annual distribution representing a return of capital will decrease or increase,
respectively. See "Distribution Policy" for the calculation of estimated pro
forma cash available for distributions and related assumptions. Future
distributions by the Company will be at the discretion of the Board of Trustees
and will depend on the actual cash available for distribution, its financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Code (see "Federal Income Tax Considerations--
Requirements for Qualification"), and such other factors as the Board of
Trustees deems relevant. See "Risk Factors--Changes in Policies Without
Shareholder Approval."

TAX STATUS OF THE COMPANY

The Company intends to qualify and will elect to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code"), commencing with its short taxable year ending December 31, 1996. If
the Company qualifies for taxation as a REIT, the Company generally will not be
subject to federal corporate income tax on its taxable income that is
distributed to its shareholders. A REIT is subject to a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 95% of its annual taxable income. Although the
Company does not intend to request a ruling from the Internal Revenue Service
(the "Service") as to its REIT status, the Company will receive at the closing
of the Offering an opinion of its legal counsel that the Company will qualify
to be taxed as a REIT under the Code, which opinion will be based on certain
assumptions and representations and will not be binding on the Service or any
court. Even if the Company qualifies for taxation as a REIT, the Company may be
subject to certain federal, state and local taxes on its income and property.
Failure to qualify as a REIT would subject the Company to tax (including any
applicable minimum tax) on its taxable income at regular corporate rates, and
distributions to the Company's shareholders in any such year would not be
deductible by the Company. See "Risk Factors--Tax Risks" and "--Anti-takeover
Effect of Ownership Limit, Staggered Board and Power to Issue Additional
Shares" and "Federal Income Tax Considerations--Taxation of the Company."

11
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following table sets forth (i) summary combined financial data for the
Predecessor Company on a historical basis, and (ii) pro forma financial data
for the Company at and for the six months ended June 30, 1996 and for the year
ended December 31, 1995. The combined financial statements of the Predecessor
Company include (i) 100% of the assets and results of operations from 47
Properties owned by the Operating Partnership for the periods presented; (ii)
100% of the assets and results of operations of the 3141 Fairview Park Drive
Property for the portion of the periods in which the Prentiss Group owned the
Property, (iii) a 25% equity investment in the Broadmoor Austin Properties;
(iv) a 15% equity investment in the Park West C2 Property for the portion of
the periods in which the Prentiss Group owned its 15% non-controlling interest;
and (v) results of operations of the Prentiss Properties Service Business
(conducted primarily by PPL). The Properties owned by the Operating Partnership
prior to the Formation Transactions consisted of Cumberland Office Park, 5307
East Mockingbird, Walnut Glen Tower, 8521 Leesburg Pike, all of the Industrial
Properties in Baltimore, Maryland except 9050 Junction Drive, and all of the
Industrial Properties in Kansas City, Missouri, Dallas, Texas and Milwaukee,
Wisconsin. The selected financial data at and for the six months ended June 30,
1996 and June 30, 1995 are derived from unaudited financial statements. The
unaudited financial information includes all adjustments (consisting of normal
recurring adjustments) that management considers necessary for fair
presentation of the financial position and results of operations for these
periods. Operating results for the six months ended June 30, 1996 are not
necessarily indicative of the results to be expected for the entire year ending
December 31, 1996. The following data should be read in conjunction with (i)
the pro forma financial statements and notes thereto of the Company; (ii) the
historical financial statements and notes thereto for the Predecessor Company
and Acquisition Properties; and (iii) "Management's Discussion and Analysis of
Financial Condition and Results of Operations," each included elsewhere in this
Prospectus.

Historical operating results, including net income, may not be comparable to
future operating results. In addition, the Company believes that the book value
of the Properties, which reflects historical costs of such real estate assets
less accumulated depreciation, is not indicative of the fair value of the
Properties.

Pro forma information is presented as if the Formation Transactions and the
completion of the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds" had occurred at the beginning of the pro
forma periods presented with respect to the pro forma operating data and at
June 30, 1996 with respect to the pro forma balance sheet data. The pro forma
information is based upon certain assumptions that are included in the notes to
the pro forma financial statements included elsewhere in this Prospectus. The
pro forma financial information is unaudited and is not necessarily indicative
of what the financial position and results of operations of the Company would
have been as of the dates and for the periods indicated, nor does it purport to
represent or project the financial position and results of operations for
future periods.

12
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------- --------------------------------------------------------------
HISTORICAL HISTORICAL
PRO FORMA ------------------ PRO FORMA ------------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- -------- -------- --------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Rental income......... $ 31,888(/1/) $ 16,340 $ 14,527 $62,724(/1/) $ 29,423 $ 25,256 $ 14,412 $ 8,169 $ 5,194
Fee and other
income(/2/).......... 984 10,357 9,906 1,919 25,741 26,702 23,609 24,278 35,346
-------- -------- -------- ------- -------- -------- -------- -------- --------
Total revenues....... 32,872 26,697 24,433 64,643 55,164 51,958 38,021 32,447 40,540
Operating
expenses(/2/)........ 10,856(/1/) 14,752 14,176 21,365(/1/) 31,127 33,178 28,667 31,925 35,848
Real estate taxes..... 2,694(/1/) 1,709 1,547 5,456(/1/) 3,030 2,691 1,631 712 428
Interest expense...... 2,697 3,306 1,944 5,395 3,882 3,191 1,444 491 60
Real estate
depreciation and
amortization......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Other depreciation and
amortization......... -- 4 53 -- 106 106 106 106 96
Equity in joint
venture and
subsidiary(/2/)...... 1,957 19 29 7,307 11 13 (4) 2 211
-------- -------- -------- ------- -------- -------- -------- -------- --------
Income (loss) before
gain on sale of
property and minority
interest............. 12,133 3,376 3,305 26,916 9,970 7,354 2,857 (2,685) 3,598
Gain on sale of
property............. -- -- -- -- -- 1,718 -- -- --
Minority
interest(/3/)........ (1,868) -- -- (4,145) -- -- -- -- --
-------- -------- -------- ------- -------- -------- -------- -------- --------
Net income (loss).... $ 10,265 $ 3,376 $ 3,305 $22,771 $ 9,970 $ 9,072 $ 2,857 $ (2,685) $ 3,598
======== ======== ======== ======= ======== ======== ======== ======== ========
Net income per
share(/8/)........... $ .66 -- -- $ 1.46 -- -- -- -- --
Weighted average
number shares
outstanding(/8/)..... 15,633 -- -- 15,633 -- -- -- -- --
BALANCE SHEET DATA (END OF
PERIOD):
Real estate, before
accumulated
depreciation(/4/)... $378,308 $173,439 -- -- $153,148 $151,673 $ 89,116 $ 42,561 $ 24,508
Real estate, after
accumulated
depreciation(/4/)... 364,216 159,347 -- -- 141,368 144,366 85,549 41,182 24,082
Cash................. 8,699 1,936 -- -- 1,033 9,133 1,605 8,004 3,202
Total assets......... 404,889 175,291 -- -- 154,635 164,307 117,819 53,327 29,900
Debt on real
estate(/4/)......... 66,200 68,787 -- -- 46,442 46,732 20,473 10,186 717
Total liabilities.... 70,901 73,488 -- -- 50,769 51,713 23,773 11,480 1,759
Stockholders'
equity.............. 282,554 101,803 103,866 112,594 94,046 41,847 28,141
OTHER DATA (END OF
PERIOD):
EBITDA (Company's
84.6% share)(/5/).... $ 16,346 $ 8,660 $ 7,369 $31,997 $ 17,772 $ 13,611 $ 6,534 $ (161) $ 3,607
======== ======== ======== ======= ======== ======== ======== ======== ========
Funds from Operations
(Company's 84.6%
share)(/6/).......... $ 16,637 $ 6,334 $ 6,162 $35,448 $ 15,324 $ 11,750 $ 6,136 $ 253 $ 4,146
======== ======== ======== ======= ======== ======== ======== ======== ========
Cash flow from
operations........... -- $ 8,011 $ 6,341 -- $ 16,238 $ 13,059 $ 6,115 $ (755) $ 4,241
Cash flow from
investing............ -- $(22,014) $ (2,577) -- $ (4,301) $(40,909) $(71,977) $(20,133) $(25,541)
Cash flow from
financing............ -- $ 14,906 $(10,886) -- $(20,037) $ 35,378 $ 59,463 $ 25,690 $ 24,502
PROPERTY DATA (END OF
PERIOD):(/7/)
Number of Properties.. 87 56 54 87 55 54 47 23 16
Total GLA in sq. ft... 8,866 6,515 5,979 8,866 6,323 5,976 4,793 2,733 1,650
Occupancy %........... 92% 92% 97% 95% 97% 96% 95% 97% 94%
</TABLE>
- --------
(/1/Rental)income, Property related operating expenses, and Real estate taxes
for the pro forma six months ended June 30, 1996 and the pro forma year
ended December 31, 1995 are provided in further detail below:
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS PRO FORMA YEAR
ENDED JUNE 30, 1996 ENDED DECEMBER 31, 1995
--------------------------- ---------------------------
OFFICE INDUSTRIAL TOTAL OFFICE INDUSTRIAL TOTAL
------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
PROPERTY OPERATING
DATA(A)
Base Rent............... $18,486 $8,555 $27,041 $36,621 $16,302 $52,923
Other(b)................ 199 178 377 (117) 242 125
Recoverables............ 3,529 941 4,470 7,328 2,348 9,676
------- ------ ------- ------- ------- -------
Rental Income.......... $22,214 $9,674 $31,888 $43,832 $18,892 $62,724
======= ====== ======= ======= ======= =======
Property related
operating expenses..... 7,443 1,397 8,840 15,292 2,279 17,571
Real estate taxes....... 1,644 1,050 2,694 3,488 1,968 5,456
------- ------ ------- ------- ------- -------
Rental income in excess
of certain operating
expenses and real
estate taxes.......... $13,127 $7,227 $20,354 $25,052 $14,645 $39,697
======= ====== ======= ======= ======= =======
Percent of total....... 64.5% 35.5% 100.0% 63.1% 36.9% 100.0%
==== ==== ===== ==== ==== =====
</TABLE>

13
<PAGE>

(a) Excludes the Company's 49.9% interest in the Broadmoor Austin Properties
which are accounted for on the equity method.
(b) "Other" includes the effect of straightlining rental income as required
by GAAP.

(/2/The)Manager's operations are combined with the property operations in the
historical statements and are accounted for under the equity method in the
pro forma statements; therefore, the historical statements include the
Manager's revenues and expenses on a gross basis in the respective income
and expense line items and the pro forma statements present the Manager's
net operations in the line item titled "Equity in joint venture and
subsidiary." See "Business Objectives--Third-Party Management."

Equity in joint venture and subsidiary includes the Company's 25% and 49.9%
interest in the partnership owning the Broadmoor Austin Properties (the
"Broadmoor Austin Partnership") on a historical and pro forma basis,
respectively, which is accounted for on the equity method for all periods
presented. For more information on the operations and accounts of the
Broadmoor Austin Partnership, refer to footnote (12) in the footnotes to the
Predecessor Company's financial statements.

Equity in joint venture and subsidiary on a historical basis also includes
the 15% general partnership interest owned by members of the Prentiss Group
in the Park West C2 Property. The operations and accounts are combined on a
pro forma basis.

(/3/Represents)the approximate 15.4% interest in the Operating Partnership
which will be owned by the Prentiss Principals and certain other members of
management.

(/4/The)pro forma balance sheet as of June 30, 1996 reflects the Company's
investment in the Broadmoor Austin Property using the equity method of
accounting. As a result, the Company's 49.9% share of the Broadmoor Austin
Partnership's real estate and related debt are not shown in the line items
titled "Real estate, before accumulated depreciation," "Real estate, after
accumulated depreciation" and "Debt on real estate." The following schedule
represents the Balance Sheet Data as of June 30, 1996 on a pro forma basis
as if the Company's share of the Broadmoor Austin Partnership's real estate
and related debt thereon were included. This presentation is provided for
informational purposes only:
<TABLE>
<CAPTION>
PRO FORMA 6/30/96 ADJUSTMENTS PRO FORMA 6/30/96
BALANCE SHEET FOR COMBINING BROADMOOR'S BALANCE SHEET DATA
DATA AS PRESENTED 49.9% OWNERSHIP BROADMOOR COMBINED
----------------- ------------------------- ------------------
<S> <C> <C> <C>
Real estate, before
accumulated
depreciation........... $378,308 $54,004 $432,312
Real estate, after
accumulated
depreciation........... $364,216 $48,564 $412,780
Debt on real estate..... $ 66,200 $69,860 $136,060
</TABLE>

(/5/Does)not include the Company's 84.6% share of the operations in the
entities accounted for under the equity method; such amounts are $5,439 and
$14,935 for the pro forma six months ended June 30, 1996 and the pro forma
year ended December 31, 1995, respectively. EBITDA means operating income
before mortgage and other interest, income taxes, depreciation and
amortization. The Company believes EBITDA is useful to investors as an
indicator of the Company's ability to service debt and pay cash
distributions. EBITDA, as calculated by the Company, is not comparable to
EBITDA reported by other REITs that do not define EBITDA exactly as the
Company defines that term. EBITDA does not represent cash generated from
operating activities in accordance with GAAP, and should not be considered
as an alternative to operating income or net income as an indicator of
performance or as an alternative to cash flows from operating activities as
an indicator of liquidity. EBITDA does not include the amounts reflected in
"Equity in joint venture and subsidiary," nor does it add back the
depreciation, interest and taxes included therein. The Company's EBITDA for
the respective periods is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA --------------- FORMA ----------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------- ------ ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA
Net Income (loss)....... $10,265 $ 3,376 $3,305 $22,771 $ 9,970 $ 9,072 $2,857 $(2,685) $3,598
Add:
Interest expense....... 2,697 3,306 1,944 5,395 3,882 3,191 1,444 491 60
Real estate
depreciation and
amortization.......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Other depreciation and
amortization.......... -- 4 53 -- 106 106 106 106 96
Minority interest...... 1,868 -- -- 4,145 -- -- -- -- --
Less:
Gain on sale of
property.............. -- -- -- -- -- (1,718) -- -- --
Equity in joint venture
and subsidiary........ (1,957) (19) (29) (7,307) (11) (13) 4 (2) (211)
------- ------- ------ ------- ------- ------- ------ ------- ------
EBITDA.................. $19,322 $10,236 $8,710 $37,822 $21,007 $16,089 $7,723 $ (190) $4,264
------- ------- ------ ------- ------- ------- ------ ------- ------
EBITDA (Company's 84.6%
share)................. $16,346 $ 8,660 $7,369 $31,997 $17,772 $13,611 $6,534 $ (161) $3,607
======= ======= ====== ======= ======= ======= ====== ======= ======
</TABLE>

14
<PAGE>

(/6/) The Company generally considers Funds from Operations an appropriate
measure of liquidity of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. "Funds from
Operations" as defined by the National Association of Real Estate
Investment Trusts ("NAREIT") means net income (computed in accordance
with GAAP) excluding gains (or losses) from debt restructuring and sales
of property, plus depreciation and amortization on real estate assets,
and after adjustments for unconsolidated partnerships and joint ventures.
The Company's Funds from Operations are not comparable to Funds from
Operations reported by other REITs that do not define that term using the
current NAREIT definition. The Company believes that in order to
facilitate a clear understanding of the combined historical operating
results of the Prentiss Group and the Company, Funds from Operations
should be examined in conjunction with net income (loss) as presented in
the audited combined financial statements and information included
elsewhere in this Prospectus. Funds from Operations does not represent
cash generated from operating activities in accordance with GAAP and
should not be considered as an alternative to net income as an indication
of the Company's performance or to cash flows as a measure of liquidity
or ability to make distributions. The Company's Funds from Operations for
the respective periods is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA ------------- FORMA ---------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------ ------ ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUNDS FROM OPERATIONS
Net Income (loss)....... $10,265 $3,376 $3,305 $22,771 $ 9,970 $ 9,072 $2,857 $(2,685) $3,598
Add:
Real estate
depreciation and
amortization.......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Real estate
depreciation and
amortization of
unconsolidated joint
ventures.............. 1,084 542 542 2,167 1,084 1,084 1,084 1,084 582
Minority interest...... 1,868 -- -- 4,145 -- -- -- -- --
Less:
Gain on sale of
property.............. -- -- -- -- -- (1,718) -- -- --
------- ------ ------ ------- ------- ------- ------ ------- ------
Funds from Operations... $19,666 $7,487 $7,284 $41,901 $18,114 $13,889 $7,253 $ 299 $4,901
------- ------ ------ ------- ------- ------- ------ ------- ------
Funds from Operations
(Company's 84.6%
Share)................. $16,637 $6,334 $6,162 $35,448 $15,324 $11,750 $6,136 $ 253 $4,146
======= ====== ====== ======= ======= ======= ====== ======= ======
</TABLE>

(/7/) The Property Data includes information on the Broadmoor Austin, Park West
C2 and 3141 Fairview Park Drive Properties only for the end of the
periods subsequent to the Prentiss Group's acquisition of an ownership
interest in the respective Properties.
(/8/) Weighted average number of shares outstanding excludes the 1,888,200
shares of Common Stock issued to the Continuing Investors and the 367,430
shares of Common Stock, the net proceeds from which are to be used for
capital reserves and working capital of the Company. If total shares
outstanding of 17,888,200 were used in the Net income per share
calculation, the Net income per share would be $.57 and $1.27.

15
<PAGE>

RISK FACTORS

An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making a
decision to purchase Common Shares in the Offering.

PRICE TO BE PAID FOR PROPERTIES, COMMON SHARES AND OTHER ASSETS MAY EXCEED
THEIR FAIR MARKET VALUE

No independent valuations or appraisals were obtained in connection with the
Formation Transactions except with respect to the Properties that were owned
by the Operating Partnership prior to the Offering, and it is possible that
the aggregate market value of the Common Shares may exceed their proportionate
share of the fair market value of the Company's assets. The valuation of the
Company has been derived from a capitalization of the Company's pro forma
adjusted Funds from Operations, estimated cash available for distribution, the
Company's potential for growth and the other factors referred to in
"Underwriting." There can be no assurance that the price paid by the Company
for its Properties and other assets will not exceed their fair market value.

The valuation of Prentiss Properties Service Business has been derived
primarily from a capitalization of the revenue derived from PPL's contracts
with third parties for management, leasing, development and construction
services. Upon consummation of the Offering, the Company, through the
Operating Partnership and the Manager, expects to provide these same services
to third parties. These contracts are generally terminable upon 30 days notice
by either party or upon sale of the property. In valuing the Prentiss
Properties Service Business, the Company has assumed that these third-party
contracts will remain in effect. In the event any of these contracts is
terminated, the Company's revenues would be adversely affected. Accordingly,
if all or a substantial portion of these contracts were to be terminated
following the consummation of the Offering, the initial value assigned to the
Prentiss Properties Service Business by the Company would not be indicative of
its true fair market value.

CONFLICTS OF INTERESTS IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY

FORMATION TRANSACTIONS NOT AT ARM'S LENGTH. The Formation Transactions are
not the result of arm's-length negotiations. The Prentiss Principals
(including Messrs. Prentiss, August, DuBois and Bradshaw, who are founders and
owners of PPL and senior executive officers of the Company) have preexisting
ownership interests in certain Properties, the Prentiss Properties Service
Business and certain of the other assets to be acquired by the Company through
their direct or indirect interests in the Prentiss Group, and will receive,
directly or indirectly, Units in exchange for such interests in the Formation
Transactions. There will be no independent valuation or appraisal of the
interests contributed to the Company by the Prentiss Group in connection with
the Formation Transactions. Accordingly, there can be no assurance that the
price paid by the Company for those assets does not exceed the value of the
assets acquired by the Company.

BENEFITS TO PRENTISS GROUP AND PRENTISS PRINCIPALS. The Prentiss Group and
the Prentiss Principals (including Messrs. Prentiss, August, DuBois and
Bradshaw, who are founders and owners of PPL and senior executive officers of
the Company) will receive material benefits from the Formation Transactions
that will not generally be received by other persons participating in the
formation of the Company. Because these persons were involved in structuring
the Formation Transactions, they had the ability to influence the type and
level of benefits they received. As such, these persons may have interests
that conflict with the interests of others participating in the Formation
Transactions and with the interests of persons acquiring Common Shares in the
Offering. The type and level of benefits the Prentiss Group will receive may
have been different if they had not participated in structuring the Formation
Transactions. These benefits include, but are not limited to, the following:
(i) receipt of an aggregate of 3,259,763 Units (valued at approximately $65.2
million, based on the Offering Price); (ii) receipt by the Prentiss
Principals, 41 employees of the Company and the Independent Trustees of
options to purchase an aggregate of 1,291,439 Common Shares under the
Company's 1996 Share

16
<PAGE>

Incentive Plan at the Offering Price, subject to certain vesting requirements,
which will have an aggregate purchase price of approximately $25.8 million
based on the Offering Price; (iii) deferral of certain tax consequences to
members of the Prentiss Group from the conveyances of their interests in the
Properties to the Operating Partnership; (iv) entry by Messrs. Prentiss and
August into employment agreements with the Company; and (v) receipt by PPL of
a payment of approximately $500,000 as partial repayment under the Termination
Fee Note from PCIG's proceeds of the sale of 18 of the Properties. See
"Formation Transactions--Benefits to Related Parties" and "Management--1996
Share Incentive Plan," "--Executive Compensation" and "--Employment
Agreements." The Prentiss Group's initial investment in the Company was $4.7
million. Therefore, in addition to the benefits listed above, the net tangible
book value of the Prentiss Group's initial investment in the Company will
increase by approximately $45.2 million upon the completion of the Offering.
The Company will have options on certain properties, development parcels and
partnerships owned by PCIG which, if exercised, would result in additional
payments to PPL under the Termination Fee Note. See "Properties--Option
Properties" and "--Option Parcels."

RISK OF LESS VIGOROUS ENFORCEMENT OF TERMS OF CONTRIBUTION AND OTHER
AGREEMENTS. The Prentiss Principals each, directly or indirectly, have
ownership interests in certain of the Properties and in the other assets to be
acquired by the Company. Following the consummation of the Offering and the
Formation Transactions, the Company, under the agreements relating to the
contribution of such interests, will be entitled to indemnification and
damages in the event of breaches of representations or warranties. Each of the
Prentiss Principals have entered into employment and/or noncompetition
agreements with the Company pursuant to which they have agreed not to engage
in certain business activities in competition with the Company. See
"Management--Employment Agreements." To the extent that the Company chooses to
enforce its rights under any of these contribution or employment and/or
noncompetition agreements, it may determine to pursue available remedies, such
as actions for damages or injunctive relief, less vigorously than it otherwise
might because of its desire to maintain its ongoing relationship with the
individual involved.

RISK OF DIFFERING OBJECTIVES BETWEEN PRENTISS PRINCIPALS AND COMPANY UPON
SALE, REFINANCING OR PREPAYMENT OF INDEBTEDNESS OF PROPERTIES. As holders of
Units, the Prentiss Principals and affiliates may have unrealized taxable gain
associated with their interests in certain Properties contributed to the
Operating Partnership. Because the Prentiss Principals may suffer different
and more adverse tax consequences than the Company upon the sale or
refinancing of those Properties, the Prentiss Principals and the Company may
have different objectives regarding the appropriate pricing and timing of any
sale or refinancing of such Properties. While the Company (through the General
Partner) has the exclusive authority as to whether and on what terms to sell
or refinance an individual Property, the Prentiss Principals through their
status as senior executives and/or Trustees of the Company and those members
of the Company's management and Board of Trustees who directly or indirectly
hold Units (i.e., Messrs. Prentiss, August, DuBois and Bradshaw) may influence
the Company not to sell, or refinance or prepay the indebtedness associated
with, the Properties even though such event might otherwise be financially
advantageous to the Company, or may influence the Company to refinance
Properties with a high level of debt. See "Policies With Respect to Certain
Activities--Conflict of Interest Policies." The Company has agreed that it
shall not dispose of The Plaza on Bachman Creek prior to December 31, 1999,
unless such disposition is structured as a tax-deferred like-kind exchange
under Section 1031 of the Code.

RISKS THAT POLICIES WITH RESPECT TO CONFLICTS OF INTERESTS MAY NOT ELIMINATE
INFLUENCE OF CONFLICTS. The Company has adopted certain policies relating to
conflicts of interest. These policies include a bylaw provision requiring all
transactions in which executive officers or trustees have a conflicting
interest to that of the Company to be approved by a majority of the
Independent Trustees or by the holders of a majority of the Common Shares held
by disinterested shareholders. There can be no assurance that the Company's
policies will be successful in eliminating the influence of such conflicts,
and if they are not successful, decisions could be made that might fail to
reflect fully the interests of all shareholders. The Company's Declaration of
Trust includes a provision permitting each individual Trustee, including each
Independent Trustee, to engage in the type of business activities conducted by
the Company without first presenting any investment opportunities to the
Company, even though such investment opportunities may be within the scope of
the Company's investment policies. See "Policies with Respect to Certain
Activities--Conflict of Interest Policies."

17
<PAGE>

ANTI-TAKEOVER EFFECT OF OWNERSHIP LIMIT, STAGGERED BOARD AND POWER TO ISSUE
ADDITIONAL SHARES

POTENTIAL EFFECTS OF OWNERSHIP LIMITATION. For the Company to maintain its
qualification as a REIT under the Code, not more than 50% in value of the
outstanding shares of beneficial interest of the Company may be owned,
directly or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) at any time during the last half of the Company's
taxable year (other than the first taxable year for which the election to be
treated as a REIT has been made).

To ensure that the Company will not fail to qualify as a REIT under this and
other tests under the Code, the Company's Declaration of Trust, subject to
certain exceptions, authorizes the trustees to take such actions as are
necessary and desirable to preserve its qualification as a REIT and to limit
any person to direct or indirect ownership of no more than (i) 8.5% (the
"Ownership Limit") of the number of the outstanding Common Shares, except for
Michael V. Prentiss, who may own initially no more than 15% of the number of
such outstanding shares or (ii) 9.8% of the number of outstanding Preferred
Shares of any series of Preferred Shares. The Ownership Limit will adjust
upward to a maximum of 9.8%, and the limit applicable to Mr. Prentiss will
adjust downward to a minimum of 9.8%, in proportion to any reduction in Mr.
Prentiss' direct or indirect consolidated percentage ownership of the Company
as a result of additional issuances of securities by the Company or the
Operating Partnership or dispositions or redemption of the Units held directly
or indirectly by Mr. Prentiss. The Company's Board of Trustees, upon receipt
of a ruling from the Service, an opinion of counsel or other evidence
satisfactory to the Board and upon such other conditions as the Board may
establish, may exempt a proposed transferee from the Ownership Limit. However,
the Board may not grant an exemption from the Ownership Limit to any proposed
transferee whose ownership, direct or indirect, of shares of beneficial
interest of the Company in excess of the Ownership Limit would result in the
termination of the Company's status as a REIT. See "Description of Shares of
Beneficial Interest--Restrictions on Transfer." The foregoing restrictions on
transferability and ownership will continue to apply until (i) the Board of
Trustees determines that it is no longer in the best interests of the Company
to attempt to qualify, or to continue to qualify, as a REIT and (ii) there is
an affirmative vote of a majority of the votes entitled to be cast on such
matter at a regular or special meeting of the shareholders of the Company.

The Ownership Limit may have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a
premium price for the Common Shares or otherwise be in the best interest of
the shareholders. See "Description of Shares of Beneficial Interest--
Restrictions on Transfer."

POTENTIAL EFFECTS OF STAGGERED BOARD. The Company's Board of Trustees is
divided into three classes. The initial terms of the first, second and third
classes will expire in 1997, 1998, and 1999, respectively. Beginning in 1997,
trustees of each class will be chosen for three-year terms upon the expiration
of their current terms and each year one class of trustees will be elected by
the shareholders. The staggered terms of trustees may reduce the possibility
of a tender offer or an attempt to change control of the Company, even though
a tender offer or change in control might be in the best interest of the
shareholders. See "Certain Provisions of Maryland Law and of the Company's
Declaration of Trust and Bylaws--Classification of the Board of Trustees."

POTENTIAL EFFECTS OF ISSUANCE OF ADDITIONAL SHARES. The Company's
Declaration of Trust authorizes the Board of Trustees to (i) amend the
Declaration of Trust, without shareholder approval, to increase or decrease
the aggregate number of shares of beneficial interest or the number of shares
of beneficial interest of any class, including Common Shares, that the Company
has the authority to issue, (ii) cause the Company to issue additional
authorized but unissued Common or Preferred Shares and (iii) classify or
reclassify any unissued Common Shares and Preferred Shares and to set the
preferences, rights and other terms of such classified or unclassified shares.
See "Description of Shares of Beneficial Interest." Although the Board of
Trustees has no such intention to do so at the present time, it could
establish a class or series of shares of beneficial interest that could,
depending on the terms of such series, delay, defer or prevent a transaction
or a change in control of the Company that might involve a premium price for
the Common Shares or otherwise be in the best interest of the shareholders.
The Declaration of Trust and Bylaws of the Company also contain other
provisions that may have

18
<PAGE>

the effect of delaying, deferring or preventing a transaction or a change in
control of the Company that might involve a premium price for the Common
Shares or otherwise be in the best interest of the shareholders. See "Certain
Provisions of Maryland Law and of the Company's Declaration of Trust and
Bylaws--Removal of Trustees," "--Control Share Acquisitions" and "--Advance
Notice of Trustee Nominations and New Business."

TAX RISKS

FAILURE TO QUALIFY AS A REIT. The Company intends to operate so as to
qualify as a REIT for federal income tax purposes. Although the Company has
not requested, and does not expect to request, a ruling from the Service that
it qualifies as a REIT, it will receive at the closing of the Offering an
opinion of its counsel that, based on certain assumptions and representations,
it so qualifies. Investors should be aware, however, that opinions of counsel
are not binding on the Service or any court. The REIT qualification opinion
only represents the view of counsel to the Company based on counsel's review
and analysis of existing law, which includes no controlling precedent.
Furthermore, both the validity of the opinion and the qualification of the
Company as a REIT will depend on the Company's continuing ability to meet
various requirements concerning, among other things, the ownership of its
outstanding stock, the nature of its assets, the sources of its income, and
the amount of its distributions to its shareholders. Because the Company has
no history of operating so as to qualify as a REIT, there can be no assurance
that the Company will do so successfully. See "Federal Income Tax
Considerations--Taxation of the Company."

If the Company were to fail to qualify as a REIT for any taxable year, the
Company would not be allowed a deduction for distributions to its shareholders
in computing its taxable income and would be subject to federal income tax
(including any applicable minimum tax) on its taxable income at regular
corporate rates. Unless entitled to relief under certain Code provisions, the
Company also would be disqualified from treatment as a REIT for the four
taxable years following the year during which qualification was lost. As a
result, cash available for distribution would be reduced for each of the years
involved. Although the Company intends to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Board of Trustees, with the consent of
shareholders holding at least two-thirds of all the outstanding Common Shares,
to revoke the REIT election. See "Federal Income Tax Considerations."

REIT MINIMUM DISTRIBUTION REQUIREMENTS; POSSIBLE INCURRENCE OF ADDITIONAL
DEBT. In order to qualify as a REIT, the Company generally will be required
each year to distribute to its shareholders at least 95% of its net taxable
income (excluding any net capital gain). In addition, the Company will be
subject to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by it with respect to any calendar year are less
than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of its
capital gain net income for that year, and (iii) 100% of its undistributed
taxable income from prior years.

The Company intends to make distributions to its shareholders to comply with
the 95% distribution requirement and to avoid the nondeductible excise tax.
The Company's income will consist primarily of its share of the income of the
Operating Partnership, and the cash available for distribution by the Company
to its shareholders will consist of its share of cash distributions from the
Operating Partnership. Differences in timing between (i) the actual receipt of
income and actual payment of deductible expenses and (ii) the inclusion of
such income and deduction of such expenses in arriving at taxable income of
the Company could require the Company, through the Operating Partnership, to
borrow funds on a short-term basis to meet the 95% distribution requirement
and to avoid the nondeductible excise tax. The requirement to distribute a
substantial portion of the Company's net taxable income could cause the
Company to distribute amounts that otherwise would be spent on future
acquisitions, unanticipated capital expenditures or repayment of debt, which
would require the Company to borrow funds or to sell assets to fund the costs
of such items.

FAILURE OF THE OPERATING PARTNERSHIP TO BE CLASSIFIED AS A PARTNERSHIP FOR
FEDERAL INCOME TAX PURPOSES; NEGATIVE IMPACT ON REIT STATUS. Although the
Company has not requested, and does not expect to request, a ruling from the
Service that the Operating Partnership (and each of its Noncorporate
Subsidiaries, as defined in "Federal Income Tax Considerations") will be
classified as partnerships for federal income tax

19
<PAGE>

purposes, the Company will receive at the closing of the Offering an opinion
of its counsel stating that the Operating Partnership (and each Noncorporate
Subsidiary) will be classified as a partnership, and not as a corporation or
an association taxable as a corporation for federal income tax purposes. If
the Service were to challenge successfully the tax status of the Operating
Partnership (or a Noncorporate Subsidiary) as a partnership for federal income
tax purposes, the Operating Partnership (or the Noncorporate Subsidiary) would
be taxable as a corporation. In such event, the Company likely would cease to
qualify as a REIT for a variety of reasons. Furthermore, the imposition of a
corporate income tax on the Operating Partnership would reduce substantially
the amount of cash available for distribution from the Operating Partnership
to the Company and its shareholders. See "Federal Income Tax Considerations--
Tax Aspects of the Operating Partnership and the Noncorporate Subsidiaries."

ERISA RISKS

The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and section 4975 of the Code prohibit certain transactions that involve (i)
certain pension, profit-sharing, employee benefit, or retirement plans or
individual retirement accounts (each, a "Plan") and (ii) the assets of a Plan.
A "party in interest" or "disqualified person" with respect to a Plan will be
subject to (x) an initial 5% excise tax on the amount involved in any
prohibited transaction involving the assets of the Plan and (y) an excise tax
equal to 100% of the amount involved if any prohibited transaction is not
corrected. Consequently, the fiduciary of a Plan contemplating an investment
in the Common Shares should consider whether the Company, any other person
associated with the issuance of the Common Shares, or any affiliate of the
foregoing is or might become a "party in interest" or "disqualified person"
with respect to the Plan. In such a case, the acquisition or holding of Common
Shares by or on behalf of the Plan could be considered to give rise to a
prohibited transaction under ERISA and the Code. See '"ERISA Considerations--
Employee Benefit Plans, Tax Qualified Retirement Plans, and IRAs."

Regulations of the Department of Labor that define "plan assets" (the "Plan
Asset Regulations") provide that in some situations, when a Plan acquires an
equity interest in an entity, the Plan's assets include both the equity
interest and an undivided interest in each of the underlying assets of the
entity, unless one or more exceptions specified in the Plan Asset Regulations
are satisfied. In such a case, certain transactions that the Company might
enter into in the ordinary course of its business and operations might
constitute "prohibited transactions" under ERISA and the Code. The assets of
the Company should not be deemed to be "plan assets" of any Plan that invests
in the Common Shares. See "ERISA Considerations--Status of the Company and the
Partnership (and the Subsidiary Partnerships) under ERISA."

REAL ESTATE FINANCING RISKS

RISING INTEREST RATES. The Company will obtain mortgage loans with an
initial principal balance of approximately $56.2 million in connection with
the Formation Transactions that will bear interest at a variable rate equal to
one-month LIBOR plus 165 basis points (approximately 5.44% per annum based on
one-month LIBOR in effect on September 26, 1996). In addition, the Company
anticipates that advances under the Line of Credit will bear interest at a
variable rate equal to one-month LIBOR plus between 150 and 250 basis points
(approximately 7.09% and 8.09%, respectively, per annum based upon the one-
month LIBOR on September 26, 1996). In addition, the Company may incur
additional indebtedness in the future that also bears interest at variable
rates. Variable rate debt creates higher debt service requirements if market
interest rates increase, which would adversely affect the Company's cash flow
and the amounts available for distributions to its shareholders. The Company
may in the future engage in transactions to limit its exposure to rising
interest rates as appropriate and cost effective. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

DEBT FINANCING AND POTENTIAL ADVERSE EFFECTS ON CASH FLOWS AND
DISTRIBUTIONS. The Company will be subject to risks normally associated with
debt financing, including the risk that the Company's cash flow will be
insufficient to pay distributions at expected levels and meet required
payments of principal and interest, the

20
<PAGE>

risk that indebtedness on the Properties (which will not have been fully
amortized at maturity in all cases) will not be able to be refinanced or that
the terms of such refinancing will not be as favorable as the terms of
existing indebtedness. Upon consummation of the Offering and the Formation
Transactions, the Company expects to have outstanding indebtedness, including
the Company's pro rata share of Joint Venture Debt (approximately $69.9
million), of approximately $136.1 million, all of which will be secured by
certain of the Properties, with maturities ranging from 1999 to 2001,
including approximately $56.2 million of indebtedness due in 1999. If
principal payments due at maturity cannot be refinanced, extended or paid with
proceeds of other capital transactions, such as the issuance of new equity
capital, the Company expects that its cash flow will not be sufficient in all
years to pay distributions at expected levels and to repay all maturing debt.
Furthermore, if prevailing interest rates or other factors at the time of
refinancing result in higher interest rates upon refinancing, the interest
expense relating to such refinanced indebtedness would increase, which would
adversely affect the Company's cash flow and the amounts available for
distributions to its shareholders. If a property or properties are mortgaged
to secure payment of indebtedness and the Company is unable to meet mortgage
payments, the property could be foreclosed upon by or otherwise transferred to
the mortgagee with a consequent loss of income and asset value to the Company.

CONSTRUCTION LOANS AND RISKS ASSOCIATED WITH SALE OR FORECLOSURE. If new
developments are financed through construction loans, there is a risk that
upon completion of construction, permanent financing for newly developed
properties may not be available or may be available only on disadvantageous
terms. In the event that the Company is unable to obtain permanent financing
for a developed property on favorable terms, it could be forced to sell such
property at a loss or the property could be foreclosed upon by the lender and
result in loss of income and asset value to the Company.

RELIANCE ON MAJOR TENANTS

On a pro forma basis during the year ended December 31, 1995, the Company's
largest tenant, International Business Machines Corporation ("IBM"), accounted
for approximately 22% of the Company's pro forma total 1995 annual Base Rent
on the Properties. The Company's two leases with IBM expire in 1999 and 2006.
See "Properties--Office Properties." In addition, five other tenants
collectively accounted for approximately 17% of the Company's pro forma total
1995 annual Base Rent. One of those tenants, who accounted for approximately
6.3% of the Company's total 1995 annual Base Rent, has announced that it will
not renew its lease with the Company when it expires in July 1998, and the
Company's cash flow would be adversely affected if a new tenant or tenants are
not located to lease that space. See "Properties--Office Properties--
Description of Office Properties--Walnut Glen Tower (Dallas, TX)." The Company
would also be adversely affected in the event of bankruptcy or insolvency of,
or a downturn in the business of, any major tenants which resulted in a
failure or delay in the tenants' rent payments.

GEOGRAPHIC CONCENTRATIONS IN TEXAS, IN DALLAS AND IN ATLANTA

Twenty-seven of the Company's 87 Properties are located in Texas, including
15 Properties located in the Dallas area, and nine of the Properties are
located in Atlanta, Georgia. Like other real estate markets, these commercial
real estate markets have experienced economic downturns in the past, and
future declines in any of these economies or real estate markets could
adversely affect the Company's cash available for distribution. The Company's
financial performance and its ability to make distributions to shareholders
are therefore dependent on the economic conditions in Texas, Dallas and
Atlanta. The Company's revenues and the value of its Properties may be
affected by a number of factors, including the local economic climate (which
may be adversely impacted by business layoffs or downsizing, industry
slowdowns, changing demographics and other factors) and local real estate
conditions (such as oversupply of or reduced demand for office, industrial and
other competing commercial properties). There can be no assurance as to the
continued growth of the Texas, Dallas and Atlanta area economies or the future
growth rate of the Company.

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CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL; NO LIMITATION ON DEBT

The investment, financing, borrowing and distribution policies, including
the Debt Limitation, of the Company and its policies with respect to all other
activities, including growth, capitalization and operations, will be
determined by the Board of Trustees. The Company's Debt Limitation is a policy
limiting the Company's total combined indebtedness plus its pro rata share of
Joint Venture Debt to 50% or less of the Company's Total Market
Capitalization, but the organizational documents of the Company do not contain
any limitation on the amount of indebtedness the Company may incur. Although
the Company's Board of Trustees has no present intention to do so, these
policies may be amended or revised at any time and from time to time at the
discretion of the Board of Trustees without a vote of the shareholders of the
Company. A change in these policies could adversely affect the Company's
financial condition, results of operations or the market price of the Common
Shares. See "Policies with Respect to Certain Activities."

RISKS ASSOCIATED WITH RAPID GROWTH; RISKS ASSOCIATED WITH THE ACQUISITION OF
SUBSTANTIAL NEW PROPERTIES; LACK OF OPERATING HISTORY

The Company may experience a period of rapid growth. The Company's ability
to manage its growth effectively will require it to integrate successfully its
new acquisitions into its existing management structure. Ten of the Properties
have relatively short or no operating history under management by affiliates
of the Prentiss Group. The Prentiss Group has had limited control over the
operation of these Properties, and such Properties may have characteristics or
deficiencies unknown to the Company affecting their valuation or revenue
potential. The operating performance of these Properties may decline under the
Company's management.

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the efforts of its executive officers,
particularly Messrs. Prentiss and August. The loss of their services could
have an adverse effect on the operations of the Company. Prior to the
consummation of the Offering, each of Messrs. Prentiss and August will enter
into an employment agreement with the Company. See "Management--Employment
Agreements." Certain assets of the Prentiss Group are not being contributed to
the Company and certain of the executive officers of the Company, including
Messrs. Prentiss and August, may devote some of their management time towards
those excluded assets. See "The Properties--Prentiss Group Assets Not Acquired
by the Company."

CONTROL OF MANAGEMENT

None of the trustees or officers of the Company is selling any Common Shares
in the Offering. Upon completion of the Offering, all trustees and executive
officers of the Company as a group will beneficially own approximately 15.4%
of the total issued and outstanding Common Shares and Units (which will be
exchangeable by the holders for cash or, at the election of the General
Partner, Common Shares on a one-for-one basis after two years). See "Principal
and Management Shareholders." The Company currently expects that the General
Partner will elect to exchange such Units for Common Shares. Mr. Prentiss will
serve as Chairman and Chief Executive Officer of the Company. Mr. August will
serve as President and Chief Operating Officer of the Company. Mr. DuBois will
serve as Executive Vice President of the Company and Mr. Bradshaw will serve
as Executive Vice President and National Director of Corporate Development of
the Company. In addition, Mr. Prentiss serves as the initial Trustee of the
Company. Accordingly, such persons will have substantial influence on the
Company, which influence might not be consistent with the interests of other
shareholders, and may in the future have a substantial influence on the
outcome of any matters submitted to the Company's shareholders for approval if
all of their Units are exchanged for Common Shares. See "--Conflicts of
Interests in the Formation Transactions and the Business of the Company."

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REAL ESTATE INVESTMENT RISKS

GENERAL RISKS. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of income generated and expenses incurred. If the
Properties do not generate revenues sufficient to meet operating expenses,
including debt service, tenant improvements, leasing commissions and other
capital expenditures, the Company may have to borrow additional amounts to
cover fixed costs and the Company's cash flow and ability to make
distributions to its shareholders will be adversely affected.

The Company's revenues and the value of its properties may be adversely
affected by a number of factors, including the national, state and local
economic climate and real estate conditions (such as oversupply of or reduced
demand for space and changes in market rental rates); the perceptions of
prospective tenants of the safety, convenience and attractiveness of the
properties; the ability of the owner to provide adequate management,
maintenance and insurance; the ability to collect on a timely basis all rent
from tenants; the expense of periodically renovating, repairing and reletting
spaces; and increasing operating costs (including real estate taxes and
utilities) which may not be passed through to tenants. Certain significant
expenditures associated with investments in real estate (such as mortgage
payments, real estate taxes, insurance and maintenance costs) are generally
not reduced when circumstances cause a reduction in rental revenues from the
property. In addition, real estate values and income from properties are also
affected by such factors as compliance with laws, including tax laws, interest
rate levels and the availability of financing. Also, the amount of available
net rentable square feet of commercial property is often affected by market
conditions and may therefore fluctuate over time.

TENANT DEFAULTS AND BANKRUPTCY. A significant portion of the Company's
income will be derived from rental income on the Properties and, consequently,
the Company's distributable cash flow and ability to make expected
distributions to shareholders would be adversely affected if a significant
number of tenants of the Properties failed to meet their lease obligations. At
any time, a tenant of the Properties may seek the protection of the bankruptcy
laws, which could result in delays in rental payments or in the rejection and
termination of such tenant's lease and thereby cause a reduction in the
Company's cash flow and the amounts available for distributions to its
shareholders. No assurance can be given that tenants will not file for
bankruptcy protection in the future or, if any tenants file, that they will
affirm their leases and continue to make rental payments in a timely manner.
In addition, a tenant from time to time may experience a downturn in its
business which may weaken its financial condition and result in the failure to
make rental payments when due. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, the Company's cash
flow and the amounts available for distributions to its shareholders may be
adversely affected.

OPERATING RISKS. The Properties are subject to operating risks common to
commercial real estate in general, any and all of which may adversely affect
occupancy or rental rates. The Properties are subject to increases in
operating expenses such as cleaning; electricity; heating, ventilation and air
conditioning; elevator repair and maintenance; insurance and administrative
costs; and other general costs associated with security, landscaping, repairs
and maintenance. While the Company's tenants generally are obligated to pay a
portion of these escalating costs, there can be no assurance that tenants will
agree to pay such costs upon renewal or that new tenants will agree to pay
such costs. If operating expenses increase, the local rental market may limit
the extent to which rents may be increased to meet increased expenses without
decreasing occupancy rates. While the Company implements cost-saving incentive
measures at each of its Properties, the Company's ability to make
distributions to stockholders could be adversely affected if operating
expenses increase without a corresponding increase in revenues.

RISKS OF NON-RENEWAL OF LEASES AND NON-RELETTING OF SPACE. The Company will
be subject to the risk that upon expiration of leases for space located in the
Properties, the leases may not be renewed, the space may not be relet or the
terms of renewal or reletting (including the cost of required renovations) may
be less favorable than current lease terms. Leases on a total of approximately
4% and 9% of the total net rentable square feet in the Properties will expire
in the second half of 1996 and in 1997, respectively. The Company has
established initial and annual reserves for renovation and reletting expenses,
which take into consideration its views of both

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the current and expected business conditions in the appropriate markets, but
no assurance can be given that these reserves will be sufficient to cover such
expenses. Furthermore, because PPL has managed four Properties for less than
six months, the Company's estimate of projected leasing commissions and tenant
improvement costs for renewing leases at these Properties may be understated.
If the Company were unable to relet promptly or renew the leases for all or a
substantial portion of this space, if the rental rates upon such renewal or
reletting were significantly lower than expected rates or if its reserves for
these purposes proved inadequate, then the Company's cash flow and ability to
make expected distributions to shareholders may be adversely affected.

COMPETITION. Numerous office and industrial properties compete with the
Properties in attracting tenants to lease space. Some of these competing
properties are newer, better located or better capitalized than the Company's
Properties.

POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state, and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on, under or in such property.
Such laws often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability to
borrow using such real property as collateral. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of and exposure to hazardous
substances, including asbestos-containing materials ("ACMs") into the air, and
third parties may seek recovery from owners or operators of real properties
for personal injury or property damage associated with exposure to released
hazardous substances, including ACMs. As the owner of the Properties, the
Company may be potentially liable for any such costs. Phase I environmental
site assessments ("ESAs") have been obtained on all of the Properties. The
purpose of Phase I ESAs is to identify potential sources of contamination for
which the Company may be responsible and to assess the status of environmental
regulatory compliance. For a number of the Properties, the Phase I ESAs
referenced prior Phase II ESA's obtained on such Properties. Phase II ESAs
generally involve more invasive procedures than Phase I ESAs, such as soil
sampling and testing or the installation and monitoring of groundwater wells.

The ESAs for the Industrial Properties located in Milwaukee, Wisconsin
revealed lead contamination near the property lines of two of the Properties
and the Development Parcel adjacent to those Properties. In addition, the ESAs
for the Pacific Gateway Center Properties detected certain ground-water
contamination at the site. The Operating Partnership, the owner of the
Industrial Properties in Milwaukee, Wisconsin prior to the Offering, and PCIG,
the owner of the Pacific Gateway Center Properties prior to the Offering, have
entered into arrangements with the prior owners or operators of these
Properties that will inure to the benefit of the Company and should limit the
Company's exposure to losses from the environmental contamination at those
Properties. See "Properties--Environmental Matters." The Company believes that
even without these arrangements, the Company's effective share of any costs to
remediate contamination of both of these sites would not have a material
adverse affect on the Company's financial statements.

Except as noted above, the ESAs have not revealed any environmental
condition, liability or compliance concern that the Company believes would
have a material adverse affect on the Company's business, assets or results of
operations, nor is the Company aware of any such condition, liability or
concern. It is possible that the ESAs relating to any one of the Properties do
not reveal all environmental conditions, liabilities or compliance concerns or
that there are material environmental conditions, liabilities or compliance
concerns that arose at a Property after the related ESA report was completed
of which the Company is otherwise unaware.

EFFECT OF AMERICANS WITH DISABILITIES ACT COMPLIANCE ON CASH FLOW AND
DISTRIBUTIONS. Under the Americans with Disabilities Act of 1990 (the "ADA"),
all public accommodations and commercial facilities are required to meet
certain federal requirements related to access and use by disabled persons.
Compliance with the ADA requirements could require removal of access barriers
and non-compliance could result in imposition of fines by the U.S. government
or an award of damages to private litigants. Although the Company believes
that

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<PAGE>

the Properties are substantially in compliance with these requirements, a
determination that the Company is not in compliance with the ADA could result
in the imposition of fines or an award of damages to private litigants. If the
Company were required to make unanticipated expenditures to comply with the
ADA, the Company's cash flow and the amounts available for distributions to
its shareholders may be adversely affected.

CHANGES IN LAWS. Because increases in income, service or transfer taxes are
generally not passed through to tenants under leases, such increases may
adversely affect the Company's cash flow and its ability to make distributions
to shareholders. The Properties also are subject to various federal, state and
local regulatory requirements and to state and local fire and life-safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company and could have an adverse effect on the Company's cash flow and
expected distributions.

UNINSURED LOSS. The Company will initially carry comprehensive liability,
fire, flood (where appropriate), extended coverage and rental loss insurance
with respect to the Properties with policy specifications and insured limits
customarily carried for similar properties. There are, however, certain types
of losses (such as from wars or earthquakes in Properties located outside of
California) that may be either uninsurable or not economically insurable.
Should an uninsured loss or a loss in excess of insured limits occur, the
Company could lose both its capital invested in a property, as well as the
anticipated future revenue from such property, and would continue to be
obligated on any mortgagee indebtedness or other obligations related to the
property. Any such loss would adversely affect the business of the Company and
its financial condition and results of operations.

RISKS INVOLVED IN PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT
VENTURES. Following the completion of the Offering, the Company, through the
Operating Partnership, will own a 49.9% general partnership interest in the
entity that owns a leasehold interest in the Broadmoor Austin Office
Properties in Austin, Texas. Through this general partnership interest, the
Company will act as managing partner and have the sole authority to conduct
the business and affairs of the Broadmoor Austin Partnership subject to
certain limitations. See "Properties--Office Properties--Description of Office
Properties." The Company will also own minority interests in a general
partnership that owns an industrial building in Itasca, Illinois. See
"Properties--Industrial Properties." To avoid a technical termination of the
Broadmoor Austin Partnership for tax purposes, the Prentiss Group will
continue to own a 0.1% interest, which the Company will have an option to
acquire beginning one year and one day after the Closing Date. IBM, the tenant
leasing 100% of the space at the Property, will own the remaining 50%
interest.

The Company may also participate with other entities in property ownership
through joint ventures or partnerships. Partnership or joint venture
investments may, under certain circumstances, involve risks not otherwise
present, including the possibility that the Company's partners or co-venturers
might become bankrupt, that such partners or co-venturers might at any time
have economic or other business interests or goals that are inconsistent with
the business interests or goals of the Company, and that such partners or co-
venturers may be in a position to take action contrary to the instructions or
the requests of the Company or contrary to the Company's policies or
objectives, including the Company's policy with respect to maintaining its
qualification as a REIT. The Company will, however, seek to maintain
sufficient control of such partnerships or joint ventures to permit the
Company's business objectives to be achieved. There is no limitation under the
Company's organizational documents as to the amount of available funds that
may be invested in partnerships or joint ventures.

In addition, the Company may in the future acquire either a limited
partnership interest in a property partnership without partnership management
responsibility or a co-venturer interest or co-general partnership interest in
a property partnership with shared responsibility for managing the affairs of
a property partnership or joint venture and, therefore, will not be in a
position to exercise sole decision-making authority regarding the property
partnership or joint venture.

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<PAGE>

RISKS ASSOCIATED WITH ILLIQUIDITY OF REAL ESTATE. Equity real estate
investments are relatively illiquid. Such liquidity will tend to limit the
ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions. In addition, the Code limits the ability of a
REIT to sell properties held for fewer than four years, which may affect the
Company's ability to sell properties without adversely affecting returns to
holders of Common Shares.

RISKS ASSOCIATED WITH ACQUISITION, REDEVELOPMENT, DEVELOPMENT AND
CONSTRUCTION. The Company intends to acquire office and industrial properties
to the extent that they can be acquired on advantageous terms and meet the
Company's investment criteria. See "Business Objectives--Growth Strategies--
Acquisition Strategies." Acquisitions of office and industrial properties
entail risks that investments will fail to perform in accordance with
expectations. Estimates of the costs of improvements to bring an acquired
property up to standards established for the market position intended for that
property may prove inaccurate. In addition, there are general investment risks
associated with any new real estate investment.

The Company intends to continue redevelopment, development and construction
of office and industrial buildings in accordance with the Company's growth
policies. See "Business Objectives--Growth Strategies." Risks associated with
the Company's redevelopment, development and construction activities may
include: abandonment of redevelopment or development opportunities;
construction costs of a property exceeding original estimates, possibly making
the property uneconomical; occupancy rates and rents at a newly renovated or
completed property may not be sufficient to make the property profitable;
financing may not be available on favorable terms for redevelopment or
development of a property; permanent financing may not be available on
favorable terms to replace a short-term construction loan and construction and
lease-up may not be completed on schedule, resulting in increased debt service
expense and construction costs. In addition, new redevelopment or development
activities, regardless of whether they are ultimately successful, typically
require a substantial portion of management's time and attention.
Redevelopment or development activities are also subject to risks relating to
the inability to obtain, or delays in obtaining, all necessary zoning, land-
use, building, occupancy and other required governmental permits and
authorizations.

RISKS ASSOCIATED WITH CONTINUING ENTITIES AND MANAGER. The Operating
Partnership and its subsidiaries, including the Manager, have been in
existence for varying lengths of time up to 10 years. See "The Company--
History." As a result, the Operating Partnership and its subsidiaries are
subject to all of the potential liabilities of an existing company. Although
the Prentiss Group formed the Operating Partnership and a member of the
Prentiss Group has served as its general partner since inception, there can be
no assurances that there are no current liabilities and will not be any future
liabilities arising from prior activities that are unknown and, therefore, not
disclosed in this Prospectus.

RISKS OF THIRD-PARTY PROPERTY MANAGEMENT, LEASING, DEVELOPMENT AND
CONSTRUCTION BUSINESS AND RELATED SERVICES

RISKS ASSOCIATED WITH TERMINATION OF MANAGEMENT AND LEASING CONTRACTS. The
Company, through the Operating Partnership and the Manager, intends to pursue
the management, leasing, development and construction of properties owned by
third parties. Risks associated with these activities include the risk that
the related contracts (which are typically cancelable upon 30-days notice or
upon certain events, including sale of the property) will be terminated by the
property owner or will be lost in connection with a sale of such property,
that contracts may not be renewed upon expiration or may not be renewed on
terms consistent with current terms and that the rental revenues upon which
management, leasing and development fees are based will decline as a result of
general real estate market conditions or specific market factors affecting
properties managed, leased or developed by the Company, resulting in decreased
management or leasing fee income.

ADVERSE CONSEQUENCES OF LACK OF CONTROL OVER THE BUSINESS OF THE
MANAGER. The capital stock of the Manager will be divided into two classes:
voting common stock, all of which will be owned by a corporation wholly-owned
by Michael V. Prentiss, and nonvoting common stock, all of which will be held
by the Company, through the Operating Partnership. The voting common stock and
the nonvoting common stock represent 5%

26
<PAGE>

and 95%, respectively, of the ownership interests in the Manager. Michael V.
Prentiss, as the indirect holder of all of the Manager's voting common stock,
will have the ability to elect the directors of the Manager. The Company will
not be able to elect directors and, therefore, will not be able to influence
the day-to-day management decisions of such entity. As a result, the board of
directors and management of the Manager may implement business policies or
decisions that would not have been implemented by persons controlled by the
Company and that are adverse to the interests of the Company or that lead to
adverse financial results, which could adversely impact the Company's net
operating income and cash flow.

ADVERSE CONSEQUENCE OF REIT STATUS ON THE THIRD-PARTY BUSINESS. Certain
requirements for REIT qualification may in the future limit the Company's
ability to increase the third-party management, leasing, development and
construction operations conducted, and related services offered, by the
Operating Partnership and the Manager without jeopardizing the Company's
qualification as a REIT. See "Federal Income Tax Considerations --Failure to
Qualify."

BENEFITS TO MANAGING UNDERWRITER

Lehman, the lead managing underwriter of the Offering, and certain of its
affiliates will receive material benefits from the Offering and the Formation
Transactions in addition to underwriting discounts and commissions. The
Company will pay Lehman an advisory fee equal to 0.5% of the gross proceeds of
the Offering (including any exercise of the Underwriters' overallotment
option) for advisory services in connection with the evaluation, analysis and
structuring of the Company's formation as a REIT. Affiliates of Lehman (i)
will receive $54.0 million of the net proceeds as consideration for the sale
of such affiliates' interests in certain of the Properties to the Company in
the Formation Transactions, (ii) will be repaid mortgage loans in the
principal amount of approximately $64.5 million made to certain affiliates of
the Company prior to the Offering and (iii) have delivered commitments to make
two mortgage loans available to the Company in the aggregate principal amount
of $56.2 million. See "Use of Proceeds," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Underwriting." Lehman may in the future securitize the
mortgage loans made to the Company and may receive fees in connection with
such transactions. A.G. Edwards & Sons, Inc. is acting as a "qualified
independent underwriter" in the Offering and will recommend the maximum
initial public offering price for the Common Shares. See "Underwriting."

ABSENCE OF PRIOR PUBLIC MARKET FOR COMMON SHARES

Prior to the Offering, there has been no public market for the Common Shares
and there can be no assurance that an active trading market will develop or be
sustained or that Common Shares will be resold at or above the Offering Price.
The Company has applied for listing of the Common Shares on the New York Stock
Exchange (the "NYSE"). The Offering Price of the Common Shares has been
determined by agreement among the Company and the Underwriters and may not be
indicative of the market price for the Common Shares after the Offering. See
"Formation Transactions--Valuation of the Company and Properties" and
"Underwriting." The market value of the Common Shares could be substantially
affected by general market conditions, including changes in interest rates.
Moreover, numerous other factors, such as regulatory action and changes in tax
laws, could have a significant impact on the future market price of the Common
Shares. There also can be no assurances that, upon listing, the Company will
continue to meet the criteria for continued listing of the Common Shares on
the NYSE.

IMMEDIATE AND SUBSTANTIAL DILUTION

As set forth more fully under "Dilution," the Properties and other assets to
be contributed by the Prentiss Principals in exchange for Units have a pro
forma net tangible book value of $1.45 per share and the interests in the
Operating Partnership to be contributed by the Continuing Investors in
exchange for Common Shares have a pro forma net tangible book value of $15.74
per share. As a result, the pro forma net tangible book value per share of the
assets of the Company after the Offering will be substantially less than the
Offering Price per share.

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<PAGE>

Accordingly, purchasers of the Common Shares offered hereby will experience
immediate and substantial dilution of $4.69 per share in the net tangible book
value of the Common Shares based on the Offering Price. See "Dilution."

POSSIBLE ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES

One of the factors that will influence the market price of the Common Shares
in public markets will be the annual distribution rate on the Common Shares.
An increase in market interest rates may lead prospective purchasers of the
Common Shares to demand a higher annual distribution rate from future
distributions. Such an increase in the required distribution rate may
adversely affect the market price of the Common Shares.

POSSIBLE ADVERSE EFFECT OF SHARES AVAILABLE FOR FUTURE SALE ON PRICE OF COMMON
SHARES

Sales of a substantial number of Common Shares, or the perception that such
sales could occur, could adversely affect prevailing market prices of the
Common Shares. In addition to the Common Shares offered by the Company in the
Offering, the Company will place 1,888,200 Common Shares with the Continuing
Investors and 3,259,763 Units will be issued to the Prentiss Group in the
Formation Transactions. See "Formation Transactions." The Continuing Investors
will not be permitted to offer, sell, contract to sell or otherwise dispose of
their Common Shares, except in certain circumstances, for one year after the
closing of the Offering. The Prentiss Principals will not be permitted to
offer, sell, contract to sell or otherwise dispose of Units, except in certain
circumstances, for two years after the closing of the Offering. See "Shares
Available for Future Sale." At the conclusion of such periods, the Common
Shares held by the Continuing Investors and upon the subsequent exchange of
Units, the Common Shares received therefor may be sold in the public market
pursuant to shelf registration statements which the Company is obligated to
file on behalf of the Continuing Investors and the Prentiss Principals, or
pursuant to any available exemptions from registration.

Options to purchase a total of 1,291,439 Common Shares will be granted to
certain executive officers, employees and trustees upon the closing of the
Offering. See "Management--Compensation of Trustees," "--Executive
Compensation" and "--1996 Share Incentive Plan." No prediction can be made
about the effect that future sales of Common Shares will have on the market
prices of shares.

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<PAGE>

THE COMPANY

GENERAL

The Company has been formed to continue and expand the national, office and
industrial property acquisition, ownership, management, leasing, development
and construction businesses of the Prentiss Group. Upon the closing of this
Offering, the Company will own interests in a diversified portfolio of 87
office and industrial properties with approximately 8.9 million net rentable
square feet. The Properties are located in 10 major U.S. markets and consist
of the 28 Office Properties containing approximately 3.8 million net rentable
square feet and the 59 Industrial Properties containing approximately 5.0
million net rentable square feet. The Prentiss Group developed 11 of the
Office Properties containing approximately 2.0 million square feet. As of June
30, 1996, the Office Properties were approximately 95% leased to 264 tenants,
and the Industrial Properties were approximately 90% leased to 114 tenants.
The Company believes that upon the closing of this Offering, it will be one of
the 20 largest managers of office and industrial properties in the U.S.,
managing approximately 39 million square feet in 339 office and industrial
properties that are owned by the Company and by third parties, and that are
leased to approximately 2,200 tenants. The Company intends to continue the
Prentiss Group's strategy of focusing its operations in select markets
throughout the nation and will initially operate in 21 markets throughout the
U.S.

The Company operates from its Dallas, Texas headquarters and its four other
regional offices (Los Angeles, California; Chicago, Illinois; Washington,
D.C.; and Atlanta, Georgia). The Company is a full service real estate company
with approximately 600 employees and in-house expertise in acquisitions,
development, property management, leasing, facilities management, corporate
services, finance, tax, construction, disposition, marketing, accounting and
real estate law. The 11 senior executives, which include the four Prentiss
Principals, Richard J. Bartel (the Chief Operating Officer of Property
Management), Mark R. Doran (the Treasurer), and the managing directors of each
of the Company's five regions, have an average of 19 years experience in the
real estate industry and an average tenure of 11 years with the Prentiss Group
and its predecessors. Upon completion of the Offering, management will, in the
aggregate, own approximately 15.4% of the Company on a consolidated basis. See
"Management--Trustees and Executive Officers."

The Company will seek to maximize the profitability of the Properties by
continuing the Prentiss Group's success in renewing leases, maintaining high
occupancy rates, increasing rental rates, and reducing operating costs. The
Company will also seek to grow through the acquisition of additional office
and industrial properties and through development, primarily on a build-to-
suit basis. The Company believes that its five regional offices, presence in
21 markets throughout the U.S., diversified base of approximately 2,200
tenants and existing relationships with 45 management clients will provide it
with a competitive advantage in identifying and competing for new office and
industrial acquisition and development opportunities nationally. Additionally,
the Company expects that its existing infrastructure from its extensive
property management operation will allow it to grow in new and existing
markets without the substantial cost of opening new offices or hiring and
training new employees.

The Company is a Maryland real estate investment trust which expects to
qualify as a REIT for federal income tax purposes, and will be self-
administered and self-managed. See "Federal Income Tax Considerations." The
Company's principal executive offices are located at 1717 Main Street, Suite
5000, Dallas, Texas 75201, and its telephone number is (214) 761-1440.

HISTORY

In 1979, Michael V. Prentiss opened an office for The Cadillac Fairview
Corporation Limited ("Cadillac Fairview") in Dallas, Texas to conduct Cadillac
Fairview's U.S. operations. Under the leadership of Mr. Prentiss, the Dallas
office became the headquarters for Cadillac Fairview's largest business unit,
Cadillac Fairview Urban Development, Inc. ("Cadillac Urban"), which developed
and operated more than 35 million square feet of office buildings, mixed-use
centers, hotels and suburban office parks in the U.S. and Canada during the
early 1980's.

29
<PAGE>

In 1987, a Prentiss Group affiliate and Boston-based Copley Real Estate
Advisors, Inc. formed PCIG to acquire substantially all of the U.S. office and
industrial assets of Cadillac Fairview. PCIG's objective was to manage,
develop and sell the Cadillac Fairview portfolio over a 15-year period.
Initially, PCIG's portfolio included more than 100 properties and 17 million
square feet of office and industrial space. PCIG currently owns 6.6 million
net rentable square feet of office and industrial properties, all of which is
being marketed for sale. It is expected that by year-end 1996, only 1.3
million square feet, or approximately 4% of the total square footage that the
Company managed for third parties on June 30, 1996, will remain under PCIG
ownership. At the time of PCIG's formation, Mr. Prentiss, along with Thomas F.
August, Dennis J. DuBois and Richard B. Bradshaw, Jr., also founded Prentiss
Properties Limited, Inc. (PPL) to manage all of PCIG's properties.
Substantially all of Cadillac Fairview's officers and employees transferred to
PPL. PPL also managed and leased properties for unaffiliated third parties,
and by 1996 had more than 30 million square feet under management. In 1989,
PPL expanded its services to include portfolio management and disposition
services for government agencies, including the Resolution Trust Corporation,
the Federal Savings and Loan Insurance Corporation and the Federal Deposit
Insurance Corporation, as well as ownership of properties for its own account.

In 1991, the Prentiss Group formed Prentiss Properties Acquisition Partners,
L.P. (the Operating Partnership), a closed-end commingled real estate
investment limited partnership capitalized with $102.5 million of equity, $100
million of which was raised from four U.S. pension funds and $2.5 million of
which was contributed by a PPL affiliate. The Operating Partnership's
objective was to acquire under-performing institutional quality office and
industrial properties throughout the U.S. Prior to the Offering, the Operating
Partnership owned 47 office and industrial properties, all of which will be
owned by the Company, through the Operating Partnership, after the completion
of the Offering and Formation Transactions. See "Selected Financial
Information." Three of the four original investors in the Operating
Partnership (The American Airlines, Inc. Master Fixed Benefit Trust, the
Ameritech Pension Trust and the Public Employee Retirement System of Idaho)
will continue as investors in the Company.

OPERATIONS

The Company is organized into five regions with its headquarters in Dallas,
Texas and four regional offices in Los Angeles, California; Chicago, Illinois;
Washington, D.C.; and Atlanta, Georgia. Managing Directors lead each region,
and each region has development, acquisition, property management,
construction and client development expertise. The following table summarizes
the operations and organization of the five regional offices and the Company's
headquarters office.

<TABLE>
<CAPTION>
NET RENTABLE
SQUARE FEET
NUMBER NUMBER NUMBER (IN THOUSANDS)
OF OF OF ---------------
REGION MANAGING DIRECTOR STATES OFFICES EMPLOYEES OWNED MANAGED
- ------ --------------------- ------ ------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
West.................... David C. Robertson 10 46 169 1,253 13,360
Southwest............... Jeffry T. Courtwright 6 47 183 3,214 9,095
Midwest................. Lawrence J. Krueger 14 14 17 2,801 618
Mid-Atlantic............ Robert K. Wiberg 13 15 65 1,068 4,061
Southeast............... James B. Meyer 7 13 52 530 3,149
Headquarters............ -- -- 1 114 -- --
--- --- --- ------ -------
Total......................................... 50 136 600 8,866 30,283
=== === === ====== =======
</TABLE>

West Region. In the Company's West region, which includes 10 states, the
Company has 169 employees and approximately 14.6 million square feet under
management at 46 locations. The Company has 10 locations under management in
the San Francisco Bay area, nine locations under management in Sacramento,
California, 20 locations under management in Southern California, and six
locations under management in Phoenix, Arizona. The Company's primary markets
are Los Angeles, Oakland, and San Francisco, California. The Company owns 18
industrial buildings containing approximately 1.3 million net rentable square
feet in Los Angeles (Torrance), California. The Company manages two office
buildings that PPL developed, the approximately 435,000 net

30
<PAGE>

rentable square foot 6500 Wilshire Boulevard in Los Angeles and the
approximately 271,000 net rentable square foot World Savings Center in Oakland
in which the Company has an option to purchase an interest. See "Option
Properties." The Company manages approximately 3.5 million net rentable square
feet of industrial space in two major industrial parks in Southern
California--Los Angeles Industrial Center and Orange County Industrial Center.
The Company has three facilities management assignments for major corporations
and has multiple property management and leasing assignments for pension
funds, pension fund advisors, individuals and corporations.

Southwest Region. In the Company's Southwest region, which includes six
states, the Company has 183 employees and approximately 12.3 million square
feet under management at 47 locations. The Company's primary markets in the
Southwest region include Austin and Dallas, Texas. The Company owns 16 office
buildings containing approximately 2.7 million net rentable square feet and 11
industrial buildings containing 502,193 net rentable square feet in this
region. The Company also has options to acquire interests in the Burnett Plaza
office building in Fort Worth, Texas containing approximately 1.0 million net
rentable square feet, approximately 4.7 acres in the Park West Office Park in
Dallas, Texas, on which approximately 350,000 net rentable square feet of
office space may be built, and a total of approximately 30.0 acres in the Park
West Commerce Center in Dallas, Texas, on which 640,000 net rentable square
feet of industrial space may be built. See "Properties--Option Properties" and
"Option Parcels." PPL has developed more than 6 million net rentable square
feet of office and industrial space in Texas, including the approximately 1.1
million net rentable square foot Broadmoor Austin Properties in Austin, the
approximately 1.5 million net rentable square foot Bank One Center in Dallas,
the approximately 1.3 million net rentable square foot 1700 Pacific Street
building in Dallas, and the approximately 1.0 million square foot Burnett
Plaza office building in Fort Worth. PPL also developed approximately 1.6
million net rentable square feet of office and hotel space at the Park West
Office Park in suburban Dallas, which the Company manages and in which the
Park West Office Properties are located.

Midwest Region. In the Company's Midwest region, which includes 14 states,
the Company has 17 employees and approximately 3.4 million square feet under
management at 14 locations. The Company's primary markets in the Midwest
region include Milwaukee, Wisconsin; Kansas City, Missouri; Southfield,
Michigan; and Chicago, Illinois. The Company owns 17 industrial buildings in
Milwaukee, containing an aggregate of 1,218,324 net rentable square feet,
seven industrial buildings in Kansas City, containing an aggregate of
1,340,825 net rentable square feet and a leasehold interest in an office
building in Southfield, Michigan containing 241,751 net rentable square feet.
The Company also has options to purchase four industrial buildings containing
an aggregate of 265,085 net rentable square feet in Chicago, Illinois. The
buildings are part of the Continental Executive Parke, a high-end office and
distribution park in the northern suburbs of Chicago that was developed by PPL
and is managed by the Company. The Company also has options to acquire a total
of approximately 46.2 acres at Continental Executive Parke on which
approximately 225,000 and 350,000 net rentable square feet of office and
industrial space, respectively may be built. See "Properties--Option
Properties" and "Option Parcels."

Mid-Atlantic Region. In the Company's Mid-Atlantic region, which includes 13
states and the District of Columbia, the Company has 65 employees and
approximately 5.1 million net rentable square feet under management at 15
locations. The Company's primary markets in the Mid-Atlantic region are
Northern Virginia; Baltimore, Maryland; Washington, D.C.; and Northern New
Jersey. The Company owns 3141 Fairview Park Drive, a 192,108 net rentable
square foot Class A office building in Fairfax County, Virginia; 8521 Leesburg
Pike, a 145,257 net rentable square foot Class A office building in Tyson's
Corner, Virginia and six industrial buildings in Baltimore containing an
aggregate of 730,777 net rentable square feet. In Northern Virginia the
Company also has options to acquire interests in (i) the approximately 116,000
net rentable square foot Seven Fairview Park office building and (ii)
approximately 6.4 acres in Fairview Park, on which approximately 200,000 net
rentable square feet of office space may be built. See "Properties--Option
Properties" and "Option Parcels." The Company manages Fairview Park, a 220
acre office park in Fairfax County, Virginia on which PPL has developed 1.125
million net rentable square feet of office space (including Seven Fairview
Park) and on which the Company's 3141 Fairview Park Drive Property is located.
The Company also manages the approximately 762,000 net rentable square foot
Techworld Plaza in Washington, D.C.

31
<PAGE>

Southeast Region. In the Company's Southeast region, which includes seven
states, the Company has 52 employees and approximately 3.7 million net
rentable square feet under management at 13 locations. The Company's primary
markets in the Southeast region are Atlanta, Georgia and Orlando, Florida. In
Atlanta, the Company owns the approximately 530,228 net rentable square foot
Cumberland Office Park and manages approximately 2.6 million net rentable
square feet of property owned by third parties. The Company also has an option
to acquire approximately 49.8 acres near Hartsfield International Airport in
Atlanta, on which approximately 280,000 net rentable square feet of industrial
space may be built. See "Properties--Option Parcels." The Company's management
projects in Atlanta include the One Atlantic Center building in Midtown
Atlanta which PPL developed in partnership with IBM. PPL was named "Office
Development Firm of the Year" in 1995 by the Georgia Chapter of the National
Association of Industrial and Office Parks for PPL's role in developing the
approximately 1.7 million net rentable square foot Atlanta Federal Center. The
Company also manages approximately 523,000 net rentable square feet in
Orlando, Florida.

Headquarters. While the regional managing directors are responsible for
overseeing all management decisions in their regions, the Company's Chief
Executive Officer and President make all final decisions on capital
allocation, acquisition, development and financing and the Company's Chief
Operating Officer of Property Management supervises property management
operations to ensure quality and consistency throughout all of the Company's
regions. The Company's headquarters in Dallas, Texas supports the regional
offices by providing numerous services including accounting, information
systems, real estate law, insurance, human resources, and training. The
Company's central accounting and reporting group features 50 accountants and
20 Certified Public Accountants. It produces more than 50 quarterly reports
and 30 monthly reports for internal and external clients. The Company's
information systems group includes 15 employees who are designated to set
standards for the Company's information systems to maintain compatibility and
improve quality levels throughout the Company's regions. The Company's in-
house legal department reviews all legal documents relating to financing to
insure consistency. The Company's insurance group sponsors the MgmtPlus+
Preferred Risk Real Estate Insurance Program through which a leading insurance
broker offers the Company and its clients insurance coverage specifically
designed for real estate. See "Properties--Insurance." The Company's human
resources group manages employee benefits and employment issues for all
Company employees. The Company's training organization, Prentiss Properties
University, provides regularly scheduled classes and seminars on subjects
related to real estate and finance for the Company's employees and clients.

BUSINESS OBJECTIVES

BUSINESS STRATEGY

The Company's primary objective is to maximize shareholder value through
increases in distributable cash flow per share and appreciation in the value
of the Common Shares. The Company intends to achieve this objective through a
combination of internal and external growth. The Company's internal growth
strategy is to increase cash flow at the Properties and any future properties
primarily by (a) renewing or replacing expiring leases with new leases at
higher rental rates, (b) maintaining high lease renewal rates, (c) operating
in markets with the potential for rental growth, (d) improving occupancy rates
in its existing portfolio and in new properties that are acquired, and (e)
applying its benchmarking and best practices methodologies to identify and
capitalize on cost reduction opportunities. The Company intends to pursue an
external growth strategy to enable shareholders to benefit from potential
value to be realized from acquisitions, development, redevelopment, and
opportunities generated by the Company's property management operations. The
Company's external growth strategies are to (i) acquire existing industrial
and office buildings that meet its acquisition criteria and are located in
markets where acquisition cost is less than replacement cost; (ii) selectively
redevelop existing office and industrial buildings that it currently owns or
acquires; (iii) develop new office and industrial buildings primarily on a
build-to-suit, and, where appropriate, speculative, basis; and (iv) expand its
third-party property management, leasing and facilities management businesses.
The Company believes that its substantial experience in the real estate
business will enable it to effectively address the risks associated with its
external growth strategy, including the risks that investments in
acquisitions, development and redevelopment will fail to perform in accordance
with expectations and that management contracts may not be renewed upon
expiration. See "Risk Factors."

32
<PAGE>

The Company initially intends to focus its growth activities in certain of
its existing markets, and expects later to seek growth opportunities in new
markets that exhibit favorable investment environments. The markets in which
the Company will seek initially to grow its portfolio of office properties
include Southern California; Northern California; Chicago, Illinois; Northern
Virginia; and Atlanta, Georgia. The markets in which the Company will
initially seek to grow its portfolio of industrial properties include Southern
California; Dallas, Texas; Chicago, Illinois; Washington, D.C.; Baltimore,
Maryland; and Atlanta, Georgia. The Company believes that its existing
operations in these markets will (a) provide a competitive advantage in
identifying acquisition and development opportunities in these markets and (b)
allow it to assimilate new properties into its portfolio with minimal
integration issues and without incurring significant incremental
administrative expenses. The following table sets forth certain information
regarding the properties that are owned or managed by the Company in 21
markets throughout the U.S.

GEOGRAPHIC PROPERTY BREAKDOWN

<TABLE>
<CAPTION>
NET RENTABLE SQUARE
NUMBER OF FOOTAGE
PROPERTIES (IN THOUSANDS)
------------------- --------------------
MARKET OWNED MANAGED TOTAL OWNED MANAGED TOTAL
- ------ ----- ------- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C>
WESTERN REGION:
Phoenix, Arizona..................... -- 5 5 -- 534 534
Los Angeles, California.............. 18 113 131 1,253 8,055 9,308
Oakland, California.................. -- 16 16 -- 1,610 1,610
Sacramento, California............... -- 15 15 -- 1,510 1,510
San Francisco, California............ -- 10 10 -- 1,651 1,651
--- --- --- ----- ------ ------
Subtotal Western Region.............. 18 159 177 1,253 13,360 14,613
SOUTHWEST REGION:
Denver, Colorado .................... -- 1 1 -- 190 190
Amarillo, Texas...................... -- 3 3 -- 482 482
Austin, Texas(/1/)................... 7 1 8 1,112 389 1,501
Dallas, Texas........................ 15 31 46 2,027 6,071 8,098
Fort Worth, Texas.................... -- 1 1 -- 1,008 1,008
Houston, Texas....................... 5 4 9 75 955 1,030
--- --- --- ----- ------ ------
Subtotal Southwest Region............ 27 41 68 3,214 9,095 12,309
MIDWEST REGION:
Chicago, Illinois.................... -- 8 8 -- 618 618
Southfield, Michigan(/2/)............ 1 -- 1 242 -- 242
Kansas City, Missouri................ 7 -- 7 1,341 -- 1,341
Milwaukee, Wisconsin................. 17 -- 17 1,218 -- 1,218
--- --- --- ----- ------ ------
Subtotal Midwest Region.............. 25 8 33 2,801 618 3,419
MID-ATLANTIC REGION:
Washington, D.C...................... -- 5 5 -- 1,316 1,316
Baltimore, Maryland.................. 6 -- 6 731 -- 731
Northern New Jersey.................. -- 1 1 -- 263 263
Northern Virginia.................... 2 23 25 337 2,482 2,819
--- --- --- ----- ------ ------
Subtotal Mid-Atlantic Region......... 8 29 37 1,068 4,061 5,129
SOUTHEAST REGION:
Orlando, Florida..................... -- 3 3 -- 523 523
Atlanta, Georgia..................... 9 12 21 530 2,626 3,156
--- --- --- ----- ------ ------
Subtotal Southeast Region............ 9 15 24 530 3,149 3,679
Total.............................. 87 252 339 8,866 30,283 39,149
=== === === ===== ====== ======
</TABLE>
- --------
(/1/) The Company owns a 49.9% interest in the general partnership that owns a
leasehold interest in the Broadmoor Austin Properties in Austin, Texas.
(/2/) The Company owns 100% of a leasehold interest in the One Northwestern
Plaza Property in Southfield, Michigan.

33
<PAGE>

GROWTH STRATEGIES

Internal Growth

The Company will seek to maximize the profitability of the Properties by
continuing the Prentiss Group's success in renewing leases, maintaining high
occupancy rates, increasing rental rates, and reducing operating costs. The
Company intends to increase rental revenues by negotiating leases that include
increases in rent during the lease term, by replacing expiring leases with new
leases at higher rental rates and by improving occupancy rates. The Company
will seek to continue the Prentiss Group's success at renewing existing
leases, which reduces the cost of lease rollovers, reduces rental revenue
fluctuations and enhances long-term relationships with national tenants that
may have space needs in the Company's other markets. Since January 1, 1993,
the Prentiss Group has renewed approximately 66% of expiring leases with the
same tenants at those Properties that were owned or managed by the Prentiss
Group since January 1, 1993. Additionally, the Company has maintained average
year-end occupancy rates of approximately 94% and 93%, respectively, for those
Office Properties and Industrial Properties owned or managed during that
period.

The Company intends to continue the Prentiss Group's efforts to reduce
operating and administrative costs by performing many functions (e.g.,
engineering, tax and legal) in-house instead of hiring third parties and by
employing PPL's benchmarking and best practices methodologies. The Company's
benchmarking program compares operating costs and efficiencies of each
property with other Company properties and with other office and industrial
properties. Under the program, the Company conducts monthly evaluations of 40
key performance indicators at each building and compares the results to a
variety of benchmarks (e.g., specific buildings, portfolios, regions, the
industry). The Company's best practices methodology involves continuously
analyzing the benchmarking data, investigating properties that perform better
than the norm and regularly disseminating and sharing information with respect
to the best practices employed at the better performing properties throughout
the Company's management system. By employing these methodologies, the Company
believes that it can continue to capitalize on opportunities to reduce
operating costs and operate the Properties more efficiently and effectively.
Based on publicly available statistics compiled by the Building Owners and
Managers Association, the Company believes that the annual operating costs at
each of the Properties it has managed since 1991 have been 8% to 16% lower
than the average annual operating costs for comparable buildings.

Acquisitions

The Company intends to continue the Prentiss Group's strategy of
opportunistic investment, particularly in assets that are (i) managed by the
Company and become available for sale, (ii) performing at a level believed to
be substantially below potential due to identifiable management weaknesses or
temporary market conditions, (iii) encumbered by indebtedness that is in
default or is not performing or (iv) held or controlled by short-term owners
(such as assets held by insurance companies and financial institutions under
regulatory pressure to sell). Since 1991, the Prentiss Group has acquired
approximately $272 million of office properties and approximately $103 million
of industrial properties, including approximately $77 million of office
properties acquired from third-party management clients. The Company believes
that its five regional offices, presence in 21 markets throughout the U.S.,
diversified base of approximately 2,200 tenants and existing relationships
with 45 different management clients will provide it with a competitive
advantage in identifying and competing for new acquisition and development
opportunities in the office and industrial property sectors in major markets
in the U.S. The Company intends to fund future acquisitions with proceeds from
the Line of Credit, long-term secured and unsecured indebtedness and the
issuance of additional equity securities. The success of the Company's
acquisition strategy depends upon the Company's access to capital. See "--
Financing Strategy."

In evaluating potential acquisition opportunities, the Company will continue
to rely on the experience of its employees and on its internal research
capabilities in considering a number of factors, including: (i) whether the
property is strategically located within its market; (ii) the construction
quality and condition of the property; (iii) the occupancy of and demand for
properties of a similar type in the same geographic market; (iv) whether the
property is capable of increased cash flow after benefiting from the Company's
renovations, refurbishment

34
<PAGE>

and upgrades; (v) whether the property is priced below replacement cost,
thereby enabling the Company to operate the property at lower rents than those
realized from newly developed properties; (vi) whether the property is able to
generate returns at or above levels of expected growth and appreciation in the
property's value; and (vii) whether there is existing demand for the property
from one or more of the Company's tenants or customers. Further, the Company
believes its development expertise gives it the advantage of identifying the
potential for improvement in an acquisition opportunity which might not be
apparent to a buyer without similar development expertise.

In several instances, the Prentiss Group has purchased buildings with
substantial vacancies at reduced prices having first identified a particular
tenant that would occupy the space immediately. For example, the Prentiss
Group identified the 8521 Leesburg Pike Office Property in Tyson's Corner,
Virginia because of its location within one of Northern Virginia's best sub-
markets, its low occupancy (40%) and its functional design. Through its
operations and presence in the local market, the Prentiss Group identified
several potential tenants actively looking for large contiguous blocks of
space in the market. The Prentiss Group's research projected a significant
decrease of supply and consequently a significant near-term increase in rental
rates. The prior owner of the Property, an insurance company, was not
motivated to spend the time or capital required to reposition the Property.
The Prentiss Group used its local relationships, national reputation and
proven ability to finance acquisitions to acquire the Property. As part of its
asset management strategy, the Prentiss Group upgraded the common areas,
garage, exterior walkways and entrances. Additionally, the Prentiss Group
installed an energy management system and made other equipment upgrades which
significantly reduced operating costs. Eighteen months after the purchase, the
Property was 94% leased, physically improved and financially stabilized. Due
to conservative assumptions in the Prentiss Group's acquisition budget and
improving market conditions, the largest lease in the building, which covers
more than 50% of net rentable square feet at this Property, is 25% higher than
original projections. See "Properties."

The Company has options to acquire interests in seven office and industrial
properties (the "Option Properties") containing a total of approximately 1.7
million net rentable square feet, all of which it currently manages:

OPTION PROPERTIES(/1/)
<TABLE>
<CAPTION>
1995 NET
OPERATING
NUMBER OF NET RENTABLE PERCENTAGE INCOME
PROPERTY LOCATION BUILDINGS SQUARE FEET LEASED(/2/) ($000S)
- -------- -------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Burnett
Plaza........ Fort Worth, Texas 1 1,008,141 90% $11,551
Wood Dale 1 &
2............ Chicago, Illinois 2 116,076 100% 493
155 Alexandra
Way.......... Chicago, Illinois 1 110,000 100% 386
Lincolnshire.. Chicago, Illinois 1 42,009 100% 121
Seven Fairview
Park(/3/).... Northern Virginia 1 115,992 100% 1,732(/4/)
World Savings
Center(/5/).. Oakland, California 1 271,055 94% 3,159(/6/)
--- --------- --- -------
Total/Weighted Average.......... 7 1,663,273 93% $17,442
=== ========= === =======
</TABLE>
- --------
(/1/) Although the Company has executed option agreements with respect to the
Option Properties, the exercise of these options is subject to various
contingencies, including the determination of purchase price, certain
lease renewals and certain debt restructurings and therefore they cannot
be termed probable at this time. These properties are not reflected in the
pro forma financial statements. The option purchase prices or the manner
in which they would be determined if the options were exercised are set
out in "Properties--Option Properties."

(/2/) As of June 30, 1996.
(/3/) The Company has an option to acquire PCIG's 33% partnership interest in
the partnership that owns this office building. See "Properties--Option
Properties."
(/4/) In the event that the Company exercised its option to acquire PCIG's
interest in the partnership, it would be entitled to 33% of the income
from the property.
(/5/) The Company has an option to acquire PCIG's 67% partnership interest in
the partnership that owns this office building. See "Properties--Option
Properties."
(/6/) In the event that the Company exercised its option to acquire PCIG's
interest in the partnership, it would be entitled to 67% of the income
from the property.

35
<PAGE>

Redevelopment

The Company will pursue selectively the redevelopment of its Properties and
of any other properties acquired as opportunities arise. For example, the
Company is currently implementing its redevelopment strategy at the Cumberland
Office Park Properties, which are situated in an under-utilized development
within the Northwest submarket of Atlanta. These Properties are a mixture of
low-rise and mid-rise buildings built between 1972 and 1980. Upon acquiring
the Cumberland Office Park Properties in 1991, the Prentiss Group applied for
and received approval to rezone the properties to permit up to 1.1 million
square feet of additional office space. Although the Cumberland Office Park
Properties are currently fully leased, the Company believes that their long-
term value potential lies in the redevelopment of those sites currently
occupied by smaller, older, less functional buildings into new Class A
suburban office buildings. In 1995, the Prentiss Group began implementing this
strategy by demolishing a single-story 7,500 square-foot building on a site
that will accommodate up to 280,000 net rentable square feet of new
improvements. The Company is currently seeking future tenants for a 140,000
net rentable square foot office building that the Company intends to build
when it secures such tenants. The Company makes decisions regarding such
capital expenditures after performing a cost/benefit analysis of the projected
long-term returns from its investments. While the Company will seek to
minimize lease-up risks by pre-leasing the space, it must consider the other
risks of development activity, such as cost overruns, construction delays and
refinancing risks before commencing this or other redevelopments at Cumberland
or other sites. See "Risk Factors."

Development

In addition to acquisition and redevelopment opportunities, the Company
expects to develop properties selectively in markets with favorable
supply/demand characteristics. The Company intends to develop properties in
which it controls all aspects of the development process, including site
selection, project concept, design and construction, financing, leasing and
property management. The Company intends to continue developing industrial and
office properties primarily on a build-to-suit basis, but it will also
consider selective opportunities for speculative development of industrial
properties and development of office properties when significant pre-leasing
is possible. Since 1980, the Prentiss Group and its predecessors have
developed for itself or third parties 31 office buildings containing
approximately 16.3 million net rentable square feet (including 11 of the
Office Properties containing approximately 2.0 million square feet) and 25
industrial buildings containing approximately 3.2 million net rentable square
feet. With landmark projects such as Broadmoor Austin in Austin (approximately
1.1 million net rentable square feet), Park West in Dallas (approximately 1.6
million net rentable square feet), Fairview Park in Northern Virginia
(approximately 1.5 million net rentable square feet), Burnett Plaza in Fort
Worth (approximately 1.0 million net rentable square feet) and Continental
Executive Parke in Chicago (approximately 3.2 million net rentable square
feet), the Company expects to benefit from the Prentiss Group's national
reputation as a leading developer that produces quality properties within
budget.

36
<PAGE>

The Company owns or has options to acquire the following 14 development
parcels, each of which is located either within an industrial park developed
by PPL or adjacent to one of the Company's Properties, except for the parcel
located in Atlanta, Georgia.

<TABLE>
<CAPTION>
PARCEL MAXIMUM
ACREAGE ADJACENT PROPERTY/ DEVELOPMENT COMPANY'S
(APPROX.) GENERAL LOCATION MARKET (SQUARE FEET) INTEREST
--------- ------------------ ------ ------------- ---------
<S> <C> <C> <C> <C>
OFFICE:
1.6 Cumberland Office Park Atlanta, GA 280,000 Fee
4.2 Walnut Glen Dallas, TX 500,000 Fee
2.0 Broadmoor Austin Austin, TX 200,000 Leasehold(/1/)
6.4 3141 Fairview Park Drive Northern Virginia 200,000 Option
4.7 Park West Dallas, TX 350,000 Option(/2/)
16.2 Continental Executive Parke Chicago, IL 225,000 Option
----
---------
35.1 1,755,000
----
---------
INDUSTRIAL:
3.6 Airworld Drive Kansas City, MO 100,000 Fee
6.0 Airport Properties Milwaukee, WI 250,000 Fee
4.0 Airport Properties Milwaukee, WI 50,000 Fee
15.2 Park West Commerce Center Dallas, TX 320,000 Option(/3/)
14.8 Park West Commerce Center Dallas, TX 320,000 Option
3.7 Continental Executive Parke Chicago, IL 50,000 Option(/3/)
26.3 Continental Executive Parke Chicago, IL 300,000 Option
49.8 Airport Industrial Park Atlanta, GA 280,000 Option
----
---------
123.4 1,670,000
-----
---------
158.5 3,425,000
=====
=========
</TABLE>
- --------
(/1/) The Company owns a 49.9% interest in the general partnership that owns the
leasehold interest in this parcel.
(/2/) The Company has an option to acquire a 50% partnership interest in the
partnership owning this parcel.
(/3/) The Company is obligated to purchase each of these parcels if a building
permit has been obtained before January 1, 1997, and if a building permit
has not been obtained by such date, the Company will have an option to
purchase the parcel at any time. See "The Properties--Option Parcels."

THIRD-PARTY MANAGEMENT

Business Profile

At June 30, 1996, the Company managed approximately 250 office and
industrial properties for 45 third-party management clients. These properties
are located in 17 markets throughout the U.S., contain approximately 30
million net rentable square feet and are leased to over 1,800 tenants.

The Company's management business serves a broad base of clients, including
major financial institutions and pension funds, large corporate users, real
estate advisory firms and real estate investment groups. The Company believes
it has successfully developed and maintained relationships with its clients,
having served its ten largest management clients (measured by total revenues)
for an average of 5.5 years. Since 1989, approximately 60% of new third-party
management business has been generated from existing clients.

37
<PAGE>

The following table sets forth the number of properties, total net rentable
square feet and occupancy for the properties managed by PPL as of June 30,
1996 and for each of the five years ended December 31, 1995:

MANAGED PROPERTIES

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
MANAGED OFFICE PROPERTIES
Number...................... 122 113 69 117 83 69
Total Net Rentable Square
Feet....................... 21,237 18,650 15,951 23,232 16,862 14,619
Occupancy %................. 85% 87% 82% 88% 88% 83%
MANAGED INDUSTRIAL PROPERTIES
Number...................... 130 148 155 164 144 155
Total Net Rentable Square
Feet....................... 9,046 10,361 9,888 11,158 10,322 12,891
Occupancy %................. 98% 94% 94% 87% 87% 89%
TOTAL MANAGED PROPERTIES
Number...................... 252 261 224 281 227 224
Total Net Rentable Square
Feet....................... 30,283 29,011 25,839 34,390 27,184 27,510
Occupancy %................. 90% 90% 87% 87% 88% 85%
Number of Third-Party
Owners..................... 45 38 36 37 24 18
</TABLE>

In addition to property management and leasing, the Company offers its
clients a full range of related services including tenant construction,
marketing, insurance, accounting, tax, real estate law, acquisition,
disposition, facilities management, corporate services and asset management.

Historical Third Party Management Revenues and Expenses

The structure of the Company results in (a) certain third-party management
activities being reported in the Company's financial statements on the equity
method of accounting (ie., on a net basis without separate reporting of
revenues and expenses), and (b) the remaining third party activity being
reported on a consolidated basis. See "--Accounting and Economics" below for
further information. The following sets forth all third-party management
revenues less direct costs, as adjusted in the Company's pro forma financial
statements, for the year ended December 31, 1995:

<TABLE>
<S> <C>
Total revenues.......................................... $25,580 (/1/)
Direct costs ........................................... (22,454)(/1/)
Pro forma adjustments:
Income taxes.......................................... (1,511)(/2/)(a)
Rent reduction........................................ 300 (/2/)(b)
Fees from Company-owned properties.................... (719)(/2/)(c)
Other fees............................................ (1,887)(/2/)(d)
General and administration ........................... 216 (/2/)(e)
Salaries.............................................. 1,371 (/2/)(f)
Special compensation ................................. 4,334 (/2/)(g)
-------
Adjusted direct costs related to third party manage-
ment................................................... 20,350
-------
Adjusted third party management revenues in excess of
adjusted direct costs.................................. $ 5,230
Non-Company portion..................................... (360)(/3/)
-------
Company portion......................................... 4,870 (/4/)
=======
</TABLE>
- --------
(/1/) See Note 9 to the Combined Financial Statements of the Predecessor Company
on page F-35.
(/2/) See the following adjustments in Note 6C of the Pro Forma Combined
Financial Information of the Company on pages F-17 and F-18: (a) 6C(2);
(b) 6C(2); (c) 6C(4); (d) 6C(6); (e) 6C(8); (f) 6C(8); and (g) 6C(9).
(/3/) See Note 6C(3) of the Pro Forma Combined Financial Information of the
Company. Represents the portion of the Manager's net income not owned by
the Company.
(/4/) Represents approximately 11.5% of the Company's estimated Funds from
Operations for the twelve months ended June 30, 1997. See "Distribution
Policy."

38
<PAGE>

Benefits of Third Party Management Business

The Company believes that the third-party management business provides it
with several important benefits. These benefits include (i) knowledge of
acquisition and development opportunities in markets throughout the country,
(ii) access to a national tenant base of 1,800 tenants, many of whom have
space needs in multiple markets, (iii) economies of scale with its property
management systems and service providers and (iv) a large and established
infrastructure from which the Company can implement its external growth
strategies.

Growth Strategy

The Company intends to focus future growth of its management business on the
expansion of profitable long-term arrangements with existing clients and on
high margin business and large spaces for new clients. The Company will target
long-term relationships with clients who need high-quality property services
and who have intermediate to long-term ownership objectives. The Company
believes that its long-term relationships with its customer base will provide
a stable source of fee income. Furthermore, the Company believes it will
benefit from the increasing trend of institutional owners of real estate
consolidating their property management relationships with sophisticated
national service providers.

The Company uses several tools to measure its customers' satisfaction. The
primary tool is the REACT customer survey program, which measures management
performance from the perspective of both building owners and tenants and
compares the results to those of other managers. REACT is administered and
compiled by CEL & Associates, Inc., an independent third-party. Results of the
Spring 1996 REACT survey for all office properties managed by the Company are
shown as follows by region (85%-100% is considered "outstanding" based on
benchmarking studies by CEL & Associates, Inc.):

<TABLE>
<CAPTION>
REGION(/1/) BUILDING OWNER TENANTS
----------- -------------- -------
<S> <C> <C>
West............................................... 94.9% 84.7%
Southwest.......................................... 83.8% 84.3%
Mid-Atlantic....................................... 94.8% 86.9%
Southeast.......................................... 92.3% 86.5%
----- -----
Average............................................ 91.4% 85.6%
</TABLE>
- --------
(/1/) The Company owns only one Office Property in its Midwest region and has
managed that Property since March 1, 1996. The Company manages no other
office buildings in this region.

Contract Terms

The Company's third-party service contracts vary in length of term and
generally provide for management fees ranging from 1% to 3% of gross revenues
plus recovery of the costs of on-site personnel, and leasing commissions at
market rates. The contracts typically assign the responsibility for management
of property operations, marketing and property-level accounting to the
Company. While many contracts are terminable on 30-days notice in accordance
with industry practice, the Company believes that it will benefit from the
Prentiss Group's long-term relationships with key clients.

Accounting and Economics

In order for the Company to maintain its status as a REIT, upon completion
of the Offering the Operating Partnership will contribute to the Manager the
majority of the third-party management contracts assigned to it by the
Prentiss Group, while the remainder of the contracts will remain at the
Operating Partnership. In exchange for the contracts contributed to the
Manager, the Operating Partnership will receive (i) all of the non-voting
common stock of the Manager, which stock shall represent 95% of the ownership
interest in each such company, and (ii) promissory notes in the aggregate
original principal amount of $34.75 million. See "Formation Transactions."

Due to the Operating Partnership's ownership of this non-controlling, non-
voting interest in the Manager, the Manager is reported in the Company's Pro
Forma Financial Statements contained in this Prospectus, and will

39
<PAGE>

be accounted for going forward, under the equity method of accounting.
Accordingly, the combined operating statements for the Company will reflect
its 95% interest in the net profit from the Manager in the "Equity in joint
venture and subsidiary" line item. This financial line item also includes the
Company's share of net income from its 49.9% interest in the Broadmoor Austin
Partnership, which amount totaled $0.3 million and $0.5 million for the pro
forma six months ended June 30, 1996 and the pro forma year ended December 31,
1995, respectively. The gross revenues and gross expenses from those contracts
which remain at the Operating Partnership level will continue to be included
in the Company's combined operating statements in the "Management fees"
"Property operating and maintenance", "General office and administration" and
"Personnel costs, net" line items. Through the Operating Partnership's
ownership of (a) the non-voting equity interests and (b) the debt interests in
the Manager, the Company expects to receive most of the after-tax economic
benefits from the Manager's third-party management business.

FINANCING STRATEGIES

The Company's Debt Limitation policy limits its total combined indebtedness
plus its pro rata share of Joint Venture Debt to 50% of the Company's Total
Market Capitalization. The Company's organizational documents, however do not
limit the amount of indebtedness that the Company may incur. At the closing of
the Offering, the Company will have outstanding combined indebtedness of
approximately $66.2 million, or 13.5% of total market capitalization
(excluding its pro rata share of Joint Venture Debt), and will have
outstanding total indebtedness, including its pro rata share of Joint Venture
Debt, of approximately $136.1 million, or approximately 24.3% of Total Market
Capitalization. The Predecesssor Company, as defined in "Selected Financial
Information" herein, had total outstanding indebtedness of 40.3% of its total
debt plus equity as of June 30, 1996 and 30.9%, 29.3% and 17.9% as of December
31, 1995, December 31, 1994 and December 31, 1993, respectively. To the extent
that the Underwriters' overallotment option to purchase 2,400,000 Common
Shares is exercised, the Company expects to use the additional net proceeds of
up to approximately $44.6 million to repay certain indebtedness incurred in
connection with the Formation Transactions. If the Underwriters' overallotment
option is exercised in full and the proceeds therefrom are used to repay
outstanding indebtedness, the Company's combined outstanding indebtedness
after such repayment would be $91.4 million or 16.3% of its Total Market
Capitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Assuming the overallotment option is not exercised, the Company will have the
capacity to borrow up to $286.9 million under the Debt Limitation. The Company
has entered into negotiations with Bank One, Texas, N.A. and NationsBank of
Texas, N.A. to obtain the $100 million Line of Credit. The Company intends to
close on the Line of Credit contemporaneously with the closing of the
Offering, but there can be no assurances that the Company will obtain the Line
of Credit. The Line of Credit may be used, among other things, to finance the
acquisition or development of additional properties and the redevelopment of
properties owned by the Company. The Company believes that its access to
capital through the Line of Credit and other sources of private financing, as
well as its access to the public capital markets, will provide it with a
competitive advantage in acquisitions and developments over certain
competitive bidders which may have to qualify their bids with financing
contingencies or which have less access to capital. Acquisition financings
through the Line of Credit and other sources of unsecured financing may be
subject to certain risks. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." In addition, the Company also enjoys a competitive advantage over
many bidders because of the ability to fund or partially fund acquisitions
through the issuance of Units to the sellers of such properties, which may, in
certain circumstances, defer a seller's tax consequences related to the
transfer of those properties.

40
<PAGE>

USE OF PROCEEDS

The net cash proceeds to the Company from the Offering, after deducting the
underwriting discount and estimated expenses of the Offering, are estimated to
be approximately $294.5 million (approximately $339.1 million if the
Underwriters' overallotment option is exercised in full). In connection with
the Formation Transactions, the Company is also obtaining two mortgage loans
with an aggregate principal balance of approximately $56.2 million from an
affiliate of Lehman, the lead managing underwriter. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Underwriting." None of the net cash
proceeds from the Offering is being paid to any member of the Prentiss Group
or any officer, director or affiliate of the Company. The net cash proceeds of
the Offering and the two mortgage loans will be used by the Company as
follows: (i) approximately $238.3 million to acquire interests in the
Properties, including approximately $54.0 million to acquire interests in the
Properties from an affiliate of Lehman; (ii) approximately $100.7 million to
repay certain mortgage indebtedness secured by the Properties as set forth in
the table below, including approximately $64.5 million which will be repaid to
an affiliate of Lehman; (iii) approximately $1.1 million for prepayment
penalties associated with debt from lenders unaffiliated with Lehman; (iv) to
establish $7.1 million in reserves for capital expenditures; (v) to establish
a cash balance of approximately $2.8 million for working capital purposes;
(vi) to pay approximately $625,000 in financing fees relating to the Line of
Credit; and (vii) to pay approximately $100,000 in financing costs relating to
the two mortgage loans referenced above. Of the $10 million in reserves for
capital expenditures and working capital, $3 million will be contributed in
the form of an investment to the Manager. The Company currently has no
agreements or understandings to purchase any properties other than the
Properties and the Options. See "Properties--General, --Option Properties and
- --Option Parcels."

Certain information regarding the indebtedness to be repaid is set forth
below:

DEBT TO BE REPAID WITH A PORTION OF OFFERING PROCEEDS

<TABLE>
<CAPTION>
PROPERTY MATURITY DATE INTEREST RATE AMOUNT TO BE REPAID(/1/)
- -------- ------------- ------------- ------------------------
<S> <C> <C> <C>
Walnut Glen Tower....... January 31, 2001 7.500% $ 4,396,368(/2/)
8521 Leesburg Pike...... September 1, 1999 8.500% 5,062,727
Northland Park(/3/)..... July 1, 1999 8.750% 9,500,000
North Topping Street,
Airworld Drive,
107th Terrace(/3/)..... October 1, 2001 8.300% 3,435,182
Nicholson III,
13425 Branchview
and 1002 Avenue T...... October 1, 2001 8.300% 3,464,818
Milwaukee
Industrials(/3/)....... May 1, 2000 8.125% 10,323,479
3141 Fairview Park
Drive.................. February 21, 1999 LIBOR + 3.50%(/4/) 22,500,000(/5/)(/6/)
Bachman Creek........... September 1, 1997 LIBOR + 1.65%(/4/) 6,500,000(/6/)
Park West C2............ March 31, 1997 LIBOR + 3.00%(/4/) 35,517,327(/6/)
------------
Total...................................................... $100,699,901
============
</TABLE>
Although the indebtedness secured by the 3141 Fairview Park Drive, Bachman
Creek and Park West C2 Properties was incurred in the last 12 months, there
are no prepayment penalties associated with such indebtedness.
- --------
(/1/) The Company estimates that the indebtedness to be repaid with a portion of
the proceeds of the Offering had a weighted average interest rate of
approximately 8.4% and a weighted average maturity of approximately 2.0
years as of September 30, 1996. Exact repayment amounts may differ due to
amortization.
(/2/) Represents prepayment of principal. Following such prepayment the loan
will have a principal balance of approximately $10.0 million and only
payments of interest will be due until maturity.
(/3/) In connection with the Formation Transactions, the Company is obtaining a
mortgage loan with an initial principal balance of $40 million that will
be secured by a lien on all of the Company's Industrial Properties in
Kansas City, Missouri and Milwaukee, Wisconsin. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

41
<PAGE>

(/4/) 30 Day LIBOR of 5.44% as of September 26, 1996 was used for calculation
of the weighted average interest rate in Note (1) above.
(/5/) Includes two notes, one in the amount of $19 million with a maturity date
of February 21, 1999, and the second in the amount of $3.5 million with a
maturity date of February 21, 1997.
(/6/) Financing provided by an affiliate of Lehman.

To the extent the Underwriters' overallotment option to purchase up to
2,400,000 Common Shares is exercised in full, the Company expects to use the
additional net proceeds of up to approximately $44.6 million to repay certain
indebtedness incurred in connection with the Formation Transactions. If the
Underwriters' overallotment option is exercised in full and the proceeds
therefrom are used to repay outstanding indebtedness, the Company's total
outstanding indebtedness after such repayment would be $91.4 million or 16.3%
of its Total Market Capitalization. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

Pending application of net proceeds, the Company will invest such portion
of the net proceeds in interest-bearing accounts and short-term, interest-
bearing securities, which are consistent with the Company's intention to qualify
for taxation as a REIT.

42
<PAGE>

DISTRIBUTION POLICY

The Company intends to pay regular quarterly distributions to its
shareholders. The first distribution, for the period commencing on the Closing
Date and ending December 31, 1996, is expected to be approximately $.31
per Common Share, which is equivalent to a quarterly distribution of $0.40 per
Common Share and an annual distribution of $1.60 per Common Share, or 8.00% of
the Offering Price. The Company does not expect to change its estimated
initial distribution per Common Share if the Underwriters' overallotment
option is exercised. See "Formation Transactions."

The Company's initial intended annual distribution rate is based on an
estimate of cash flow that will be available for distribution. This estimate
is based on historical cash flows provided by operations of the Prentiss Group
for the 12 months ended June 30, 1996. Except as reflected in the table below
and the notes thereto, investing and financing activities are not expected to
have a material adverse effect on estimated cash available for distributions.
The estimate of Funds from Operations is being made solely for the purpose of
setting the initial distribution rate and is not intended to be a prediction
or forecast of the Company's results of operations or of its liquidity.

The following table illustrates the adjustments made by the Company to its
pro forma Funds from Operations for the 12 months ended June 30, 1996 in order
to calculate initial estimated distributions.

<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA)
----------------------
<S> <C>
Pro forma net income (before minority interest of
$4,145) for the year ended December 31, 1995.......... $ 26,916
Real estate depreciation............................. 9,991
Real estate amortization............................. 2,827
Broadmoor depreciation(/1/).......................... 2,167
--------
Pro forma Funds from Operations, year ended December
31, 1995(/2/)......................................... 41,901
Less: Pro forma Funds from Operations for the six
months ended June 30, 1995.......................... (18,594)
Add: Pro forma Funds from Operations for the six
months ended June 30, 1996.......................... 19,666
--------
Pro forma Funds from Operations, 12 months ended June
30, 1996(/2/)......................................... $ 42,973
========
Adjustments:
Contractual net increases in rent(/3/)............... 1,451
Reduction in cash received from the Manager(/4/)..... (1,924)
--------
Estimated Funds from Operations for the twelve months
ended June 30, 1997(/2/).............................. $ 42,500
========
Estimated capital expenditures(/5/).................. (4,256)
Straight line rent accrual adjustments............... (1,544)
Amortization of non-real estate assets(/6/).......... 287
--------
Estimated cash available for distributions............. $ 36,987
========
Estimated initial annual distributions................. $ 33,837
========
Company's share of estimated initial annual
distributions......................................... $ 28,626
========
Payout ratio based on estimated cash available for
distributions(/7/).................................... 91.5%
========
</TABLE>
- --------
(/1/) The Broadmoor depreciation adjustment represents the Company's share of
the depreciation recognized on the Broadmoor Austin Office Properties by
the joint venture that owns these properties which are accounted for
using the equity method.
(/2/) The Company generally considers Funds from Operations an appropriate
measure of liquidity of an equity REIT because industry analysts have
accepted it as a performance measure of equity REITs. Funds from
Operations, as defined by NAREIT, represents net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization
on real estate assets and after adjustments for unconsolidated
partnerships and joint ventures. Funds from Operations, therefore, does
not represent cash generated from operating activities in accordance with
GAAP and should not be considered an alternative to net income as an
indication of the Company's performance or to cash flow as a measure of
liquidity or the ability to pay distributions. Pro forma Funds from
Operations for the six months ended June 30, 1996 and 1995 was calculated
as follows:

43
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1995
-------- --------
<S> <C> <C>
Pro forma net income (before minority interest of $1,868
and $1,724)............................................ $ 12,133 $ 11,194
Adjustments:
Real estate depreciation............................... 5,072 4,960
Real estate amortization............................... 1,377 1,356
Broadmoor depreciation................................. 1,084 1,084
-------- --------
Pro forma Funds from Operations......................... $ 19,666 $ 18,594
======== ========
Pro forma Funds from Operations (Company's 84.6%
share)................................................. $ 16,637 $ 15,731
======== ========
</TABLE>

(/3/) Represents the effect on Estimated Funds from Operations for the 12
months ended June 30, 1997 from the net change in rental revenue from (i)
lease renewals and new leases that have been signed since June 30, 1996,
(ii) existing leases expiring after June 30, 1996, and (iii) certain
contractual rent increases and decreases under leases in effect as of
June 30, 1996. With respect to (ii) above, any space subject to a lease
expiring after June 30, 1996 that had not been renewed or released as of
September 10, 1996 was assumed to remain unleased. Through September 10,
1996, the Prentiss Group had renewed the leases on approximately 54% of
the space subject to leases expiring between June 30, 1996 and June 30,
1997 and had renewed or re-leased approximately 97% of the space that was
(a) subject to leases expiring between June 30, 1996 and June 30, 1997 or
(b) vacant as of that date.

(/4/) Represents an estimated reduction in cash from the Manager due to fee
income adjustments, net of taxes, as detailed below.

<TABLE>
<S> <C>
Net reduction in the annual fee income recognized by the Manager... $(3,482)
Income tax savings on reduction of fee income...................... 1,219
-------
Net reduction in Manager's income.................................. (2,263)
-------
Company's 95% share of Manager's reduction......................... (2,150)
Add: Interest income due under the installment note from the
Manager to the Company excluded from Equity in joint venture and
subsidiary........................................................ 226
-------
Total net reduction................................................ $(1,924)
=======
</TABLE>

(/5/) Includes $4,066 of estimated capital expenditures for the Properties and
$190 for the Company's annual cost of furniture, fixtures and equipment.
The estimated capital expenditures of $4,066 were derived by adding (i)
an estimate of the tenant improvements and leasing commissions required
for all signed new leases or renewals for the period from July 1, 1996 to
June 30, 1997 and (ii) an estimate of the capital improvements to be made
at each Property.

The analysis below is a comparison of the estimated amount to (a) the
historical actual costs incurred (which represents the average costs for
the years 1993-1995) and (b) an estimated amount based on the historical
average rates.

In addition to the $4,066 estimated annual unreimbursed capital
expenditure provision, the Company will set aside $7.1 million of the net
Offering proceeds for estimated specific non-recurring capital
expenditures and leasing costs, including tenant improvements and leasing
commissions for currently vacant space in the Walnut Glen Office
Property, re-leasing costs for the major leases of the Park West C2 and
Walnut Glen Office Properties, which expire in October 1999 and July
1998, respectively, and the 21,000 square foot expansion of one of the
Milwaukee Industrial Properties. Unused portions of the funds, if any,
will be applied to reduce outstanding indebtedness. See "Properties--
Office Properties," "--Industrial Properties" and "--Historical Non-
Incremental Revenue-Generating Capital Expenditures."

<TABLE>
<CAPTION>
NON-INCREMENTAL TENANT
IMPROVEMENT AND LEASING CAPITAL IMPROVEMENTS
-------------------------------- --------------------------------
OFFICE INDUSTRIAL OFFICE INDUSTRIAL
---------------- --------------- --------------- ---------------- TOTAL
PER SQ FT TOTAL PER SQ FT TOTAL PER SQ FT TOTAL PER SQ FT TOTAL AMOUNT
--------- ------ --------- ----- --------- ----- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated Amounts....... $5.92 $2,025 $1.10 $459 $0.15 $573 $0.20 $1,009 $4,066
Historical Averages..... $5.78 $1,930 $1.06 $906 $0.15 $363 $0.16 $ 716 $3,915
Estimated Amounts based
on Historical Average
Rates.................. $5.78 $1,978 $1.06 $442 $0.15 $573 $0.16 $ 807 $3,800
</TABLE>

(/6/) Represents the amortization of deferred financing costs which is
reflected as an expense in the pro forma financial statements of the
Company. The Company's pro forma statements reflect no draw downs under
its $100 million Line of Credit. The Line of Credit will have a fee of
$625 that will amortize at $208 per year for three years. The Company
will incur an additional $12 of amortization on the remaining $10 million
of debt on the Walnut Glen Property and $67 of amortization on the $100
financing expenses incurred in connection with the borrowings from an
affiliate of Lehman.

(/7/) The Company's payout ratio is calculated by dividing the Estimated
initial annual distributions by the Estimated cash available for
distributions.

44
<PAGE>

The Company believes that its estimated cash available for distributions
constitutes a reasonable basis for setting the initial distribution rate on
the Common Shares and intends to maintain its initial distribution rate for
the 12 months following the Offering unless actual results from operations,
economic conditions or other factors differ from the assumptions used in its
estimate. The actual return that the Company will realize and the amount
available for distributions to shareholders will be affected by a number of
factors, including the revenues received from the Properties, the
distributions received from the Operating Partnership, the operating expenses
of the Company, the interest expense incurred on its borrowings and
unanticipated capital expenditures. No assurance can be given that the
Company's estimate will prove accurate. In addition, pro forma results of
operations do not purport to present the actual results that can be expected
for future periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Funds from Operation."

The Company anticipates that Funds from Operations will exceed earnings and
profits due to non-cash expenses, primarily depreciation and amortization,
expected to be incurred by the Company. Distributions by the Company to the
extent of its current or accumulated earnings and profits for federal income
tax purposes, other than capital gain dividends, will be taxable to
shareholders as ordinary dividend income. Capital gain dividends generally
will be treated as long-term capital gain. Distributions in excess of earnings
and profits generally will be treated as a non-taxable reduction of the
shareholder's basis in the Common Shares to the extent thereof, and thereafter
as capital gain. Distributions treated as a non-taxable reduction in basis
will have the effect of deferring taxation until the sale of a shareholder's
Common Shares. The Company does not intend to reduce the expected initial
distribution per share if the Underwriters' overallotment option is exercised.
Based on the Company's estimated results of operations for the 12 months
ending June 30, 1997, the Company estimates that approximately 19.7% of the
anticipated initial annual distribution to shareholders will represent a
return of capital for federal income tax purposes and that the Company would
have been required to distribute $22.9 million or $1.28 per share during such
12-month period in order to maintain its status as a REIT. If actual Funds
from Operations or taxable income varies from these amounts, the percentage of
distributions which represents a return of capital may be materially
different. In addition, the percentage of distributions may vary substantially
in future years. For a discussion of the tax treatment of distributions to
holders of Common Shares, see "Federal Income Tax Considerations--Taxation of
Taxable U.S. Shareholders" and "--Taxation of Non-U.S. Shareholders." In order
to qualify to be taxed as a REIT, the Company must make annual distributions
to shareholders of at least 95% of its REIT taxable income (determined by
excluding any net capital gain), which the Company anticipates will be less
than its share of adjusted Funds from Operations. Under certain circumstances,
the Company may be required to make distributions in excess of cash available
for distribution in order to meet such distribution requirements. In such a
case, the Company may find it necessary to arrange for short-term (or possibly
long-term) borrowings or to raise funds through the issuance of preferred
shares or additional Common Shares.

Future distributions by the Company will be at the discretion of the Board
of Trustees and will depend on the actual Funds from Operations of the
Company, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code (see "Federal
Income Tax Considerations--Requirements for Qualification"), and such other
factors as the Board of Trustees deems relevant. See "Risk Factors--Changes in
Policies Without Shareholder Approval."

45
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1996 and on a pro forma basis assuming completion of the Formation
Transactions and the Offering and the application of the assumed net proceeds
therefrom as if such transactions had occurred on June 30, 1996. See "Use of
Proceeds." The information set forth in the table should be read in
conjunction with the combined financial statements of the Company and notes
thereto included elsewhere in this Prospectus, the pro forma financial
information and notes thereto included elsewhere in this Prospectus and the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------
HISTORICAL PRO FORMA
----------------- ----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
DEBT................................... $ 68,787 $ 66,200(/1/)
---------------- ----------------
MINORITY INTEREST...................... -- 51,434
---------------- ----------------
SHAREHOLDERS' EQUITY:
Common Shares, $.01 par value per
share; 100,000,000 authorized; 100
issued and outstanding and
17,888,200 issued and outstanding on
a pro forma basis(/2/).............. -- 179(/2/)
Preferred shares, $.01 par value per
share, 20,000,000 authorized, no
shares issued or outstanding........ -- --
Additional paid-in capital........... -- 332,085
Note receivable(/3/)................. -- 34,750
Accumulated equity (deficit) of
continuing interests................ 101,803 (84,460)
---------------- ----------------
Total shareholders' equity........... 101,803 282,554
---------------- ----------------
Total capitalization................. $ 170,590 $ 400,188
================ ================
</TABLE>
- --------
(/1/) Excludes the Company's pro rata share of indebtedness of the partnership
that owns the Broadmoor Austin Properties. For more detailed information
on the operations and accounts of Broadmoor Austin, refer to footnote
(12) in the notes to the Predecessor Company's financial statements.
(/2/) Does not include Common Shares reserved for issuance upon (i) possible
exchange of 3,259,763 Units issued and outstanding after the Offering and
(ii) exercise of 1,291,439 options to be granted pursuant to the 1996
Share Incentive Plan effective upon the completion of the Offering. See
"Management--1996 Share Incentive Plan."
(/3/) Certain contracts will be contributed by the Prentiss Group to the
Operating Partnership as described under "The Offering." The Operating
Partnership will contribute the majority of the contracts to the Manager
in exchange for notes in the aggragate principal amount of $34.75
million. The notes bear interest at 13% per year and have interest only
payments for the first three years with a subsequent 10-year
amortization. Due to the affiliation of the Manager and the Operating
Partnership, the notes have been classified in Shareholders' equity. Due
to the capital nature of this transaction, interest income and expense
amounts are recorded directly to Shareholders' equity.

46
<PAGE>

DILUTION

The initial price per share to the public of the Common Shares offered
hereby exceeds the net tangible book value per share immediately following
consummation of the Offering and the other Formation Transactions. Therefore,
the Continuing Investors and holders of Units issued in connection with the
Formation Transactions (the Prentiss Principals, directly or indirectly, and
other management members) will realize an immediate increase in the net
tangible book value of their Common Shares and Units, respectively, while
purchasers of the Common Shares in the Offering will realize an immediate
dilution in the net tangible book value of their shares. Pro forma net
tangible book value per share is determined by subtracting the Company's total
liabilities from its total tangible assets and dividing the remainder by the
number of Common Shares and Units that will be outstanding after the Offering.
The following table illustrates the dilution to purchasers of shares sold in
the Offering, based on the Offering Price of $20.00 per share.

<TABLE>
<S> <C> <C>
Initial price per share to the public........................... $20.00
Pro forma net tangible book value per share as of June 30,
1996 prior to the Offering, attributable to Units issued to
Prentiss Principals (/1/).................................... $ 1.45
Pro forma net tangible book value per share as of June 30,
1996 prior to the Offering, attributable to Common Shares
issued to Continuing Investors............................... $15.74
Decrease in net tangible book value per share attributable to
payments by purchasers of Common Shares in the Offering ..... $(1.88)
------
Pro forma net tangible book value per share as of June 30, 1996
after the Offering (/2/)....................................... $15.31
------
Dilution per share sold in the Offering......................... $ 4.69
======
</TABLE>
- --------
(/1/) Based on the Pro Forma Combined Balance Sheet contained elsewhere in this
Prospectus.
(/2/) Based on pro forma shareholders' equity of $282,554 and minority
interests in the Operating Partnership of $51,434, net of intangible
assets of $10,246, divided by 21,147,963 Common Shares outstanding. This
assumes all Units have been converted into Common Shares.

The following table sets forth the number of Common Shares offered to the
public hereby, the total price to be paid for the Common Shares offered
hereby, the number of Common Shares placed with the Continuing Investors in
the Formation Transactions and Units issued to the Prentiss Principals in
connection with the Formation Transactions, the pro forma net book value as of
June 30, 1996 attributable to the Common Shares and Units issued directly or
indirectly to the Continuing Investors and the Prentiss Principals,
respectively, the book value as of June 30, 1996 of the assets contributed to
the Operating Partnership and the purchase price per Common Share in the
Offering and book value of the contributions per Common Share issued to the
Continuing Investors or Unit.

<TABLE>
<CAPTION>
CASH/BOOK VALUE OF
SHARES/UNITS ISSUED TOTAL CONTRIBUTIONS PURCHASE PRICE/
BY THE COMPANY TO THE COMPANY(/1/) BOOK VALUE/
-------------------- ------------------- OF CONTRIBUTIONS
SHARES/UNITS PERCENT AMOUNT(/1/) PERCENT PER SHARE/UNIT(/2/)
------------ ------- ----------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Common Shares offered by
the Company to the
Public................. 16,000 75.7% $320,000 90.3% $20.00
Units issued to Prentiss
Principals............. 3,260 15.4 4,721 1.3 1.45
Common Shares placed
with the Continuing
Investors.............. 1,888 8.9 29,722 8.4 15.74
------ ----- -------- -----
Total................. 21,148 100.0% $354,443 100.0%
</TABLE>
- --------
(/1/) Based on the June 30, 1996 net book value of the assets to be contributed
in connection with the Formation Transactions, net of liabilities to be
assumed.
(/2/) Before deducting the Underwriters' discount and estimated expenses of the
Offering.

47
<PAGE>

SELECTED FINANCIAL INFORMATION

The following table sets forth (i) selected combined financial data for the
Predecessor Company on a historical basis, and (ii) pro forma financial data
for the Company at and for the six months ended June 30, 1996 and for the year
ended December 31, 1995. The combined financial statements of the Predecessor
Company include (i) 100% of the assets and results of operations from 47
Properties owned by the Operating Partnership for the periods presented, (ii)
100% of the assets and results of operations of the 3141 Fairview Park Drive
Property for the portion of the periods in which the Prentiss Group owned the
Property, (iii) a 25% equity investment in the Broadmoor Austin Properties,
(iv) a 15% equity investment in the Park West C2 Property for the portion of
the periods in which the Prentiss Group owned its 15% non-controlling
interest, and (v) results of operations of some of the Prentiss Properties
Service Business (conducted primarily by PPL). The Properties owned by the
Operating Partnership prior to the Formation Transactions include Cumberland
Office Park, 5307 East Mockingbird, Walnut Glen Tower, 8521 Leesburg Pike, all
of the Industrial Properties in Baltimore except 9050 Junction Drive, and all
of the Industrial Properties in Kansas City, Missouri, Dallas, Texas, and
Milwaukee, Wisconsin. The selected financial data at and for the six months
ended June 30, 1996 and June 30, 1995 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments
(consisting of normal recurring adjustments) that management considers
necessary for a fair presentation of the financial position and results of
operations for those periods. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results to be expected for the
entire year ending December 31, 1996. The following data should be read in
conjunction with (i) the pro forma financial statements and notes thereto of
the Company; (ii) the historical financial statements and notes thereto for
the Predecessor Company and the Acquisition Properties; and
(iii) "Management's Discussion and Analysis of Financial Condition and Results
of Operations," each included elsewhere in this Prospectus.

Historical operating results may not be comparable to future operating
results. In addition, the Company believes that the book value of the
Properties, which reflects historical costs of such real estate assets less
accumulated depreciation, is not indicative of the fair value of the
Properties.

Pro forma information is presented as if (i) the transfer of the Properties,
the Prentiss Properties Service Business and other assets of the Prentiss
Group to be contributed to the Company and (ii) the completion of the Offering
and the application of the net proceeds therefrom as described under "Use of
Proceeds" had occurred at the beginning of the pro forma periods with respect
to the pro forma operating data and at June 30, 1996 with respect to the pro
forma balance sheet data. The pro forma information is based upon certain
assumptions that are included in the notes to the pro forma financial
statements included elsewhere in this Prospectus. The pro forma financial
information is unaudited and is not necessarily indicative of what the
financial position and results of operations of the Company would have been as
of the dates and for the periods indicated, nor does it purport to represent
or project the financial position and results of operations for future
periods.

48
<PAGE>

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------- --------------------------------------------------------------
HISTORICAL HISTORICAL
PRO FORMA ------------------ PRO FORMA ------------------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
--------- -------- -------- --------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Rental income......... $ 31,888(/1/) $ 16,340 $ 14,527 $62,724(/1/) $ 29,423 $ 25,256 $ 14,412 $ 8,169 $ 5,194
Fee and other
income(/2/).......... 984 10,357 9,906 1,919 25,741 26,702 23,609 24,278 35,346
-------- -------- -------- ------- -------- -------- -------- -------- --------
Total revenues....... 32,872 26,697 24,433 64,643 55,164 51,958 38,021 32,447 40,540
Operating
expenses(/2/)........ 10,856(/1/) 14,752 14,176 21,365(/1/) 31,127 33,178 28,667 31,925 35,848
Real estate taxes..... 2,694(/1/) 1,709 1,547 5,456(/1/) 3,030 2,691 1,631 712 428
Interest expense...... 2,697 3,306 1,944 5,395 3,882 3,191 1,444 491 60
Real estate
depreciation and
amortization......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Other depreciation and
amortization......... -- 4 53 -- 106 106 106 106 96
Equity in joint
venture and
subsidiary(/2/)...... 1,957 19 29 7,307 11 13 (4) 2 211
-------- -------- -------- ------- -------- -------- -------- -------- --------
Income (loss) before
gain on sale of
property and minority
interest............. 12,133 3,376 3,305 26,916 9,970 7,354 2,857 (2,685) 3,598
Gain on sale of
property............. -- -- -- -- -- 1,718 -- -- --
Minority
interest(/3/)........ (1,868) -- -- (4,145) -- -- -- -- --
-------- -------- -------- ------- -------- -------- -------- -------- --------
Net income (loss).... $ 10,265 $ 3,376 $ 3,305 $22,771 $ 9,970 $ 9,072 $ 2,857 $ (2,685) $ 3,598
======== ======== ======== ======= ======== ======== ======== ======== ========
Net income per
share(/8/)........... $ .66 -- -- $ 1.46 -- -- -- -- --
Weighted average
number shares
outstanding(/8/)..... 15,633 -- -- 15,633 -- -- -- -- --
BALANCE SHEET DATA (END OF
PERIOD):
Real estate, before
accumulated
depreciation(/4/)... $378,308 $173,439 -- -- $153,148 $151,673 $ 89,116 $ 42,561 $ 24,508
Real estate, after
accumulated
depreciation(/4/)... 364,216 159,347 -- -- 141,368 144,366 85,549 41,182 24,082
Cash................. 8,699 1,936 -- -- 1,033 9,133 1,605 8,004 3,202
Total assets......... 404,889 175,291 -- -- 154,635 164,307 117,819 53,327 29,900
Debt on real
estate(/4/)......... 66,200 68,787 -- -- 46,442 46,732 20,473 10,186 717
Total liabilities.... 70,901 73,488 -- -- 50,769 51,713 23,773 11,480 1,759
Stockholders'
equity.............. 282,554 101,803 103,866 112,594 94,046 41,847 28,141
OTHER DATA (END OF
PERIOD):
EBITDA (Company's
84.6% share)(/5/).... $ 16,346 $ 8,660 $ 7,369 $31,997 $ 17,772 $ 13,611 $ 6,534 $ (161) $ 3,607
======== ======== ======== ======= ======== ======== ======== ======== ========
Funds from Operations
(Company's 84.6%
share)(/6/).......... $ 16,637 $ 6,334 $ 6,162 $35,448 $ 15,324 $ 11,750 $ 6,136 $ 253 $ 4,146
======== ======== ======== ======= ======== ======== ======== ======== ========
Cash flow from
operations........... -- $ 8,011 $ 6,341 -- $ 16,238 $ 13,059 $ 6,115 $ (755) $ 4,241
Cash flow from
investing............ -- $(22,014) $ (2,577) -- $ (4,301) $(40,909) $(71,977) $(20,133) $(25,541)
Cash flow from
financing............ -- $ 14,906 $(10,886) -- $(20,037) $ 35,378 $ 59,463 $ 25,690 $ 24,502
PROPERTY DATA (END OF
PERIOD):(/6/)
Number of Properties.. 87 56 54 87 55 54 47 23 16
Total GLA in sq. ft... 8,866 6,515 5,979 8,866 6,323 5,976 4,793 2,733 1,650
Occupancy %........... 92% 92% 97% 95% 97% 96% 95% 97% 94%
</TABLE>
- --------
(/1/) Rental income, Property related operating expenses, and Real estate taxes
for the pro forma six months ended June 30, 1996 and the pro forma year
ended December 31, 1995 are provided in further detail below:
<TABLE>
<CAPTION>
PRO FORMA SIX MONTHS PRO FORMA YEAR
ENDED JUNE 30, 1996 ENDED DECEMBER 31, 1995
--------------------------- ---------------------------
OFFICE INDUSTRIAL TOTAL OFFICE INDUSTRIAL TOTAL
------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
PROPERTY OPERATING
DATA(A)
Base Rent............... $18,486 $8,555 $27,041 $36,621 $16,302 $52,923
Other(b)................ 199 178 377 (117) 242 125
Recoverables............ 3,529 941 4,470 7,328 2,348 9,676
------- ------ ------- ------- ------- -------
Rental Income.......... $22,214 $9,674 $31,888 $43,832 $18,892 $62,724
======= ====== ======= ======= ======= =======
Property related
operating expenses..... 7,443 1,397 8,840 15,292 2,279 17,571
Real estate taxes....... 1,644 1,050 2,694 3,488 1,968 5,456
------- ------ ------- ------- ------- -------
Rental income in excess
of certain operating
expenses and real
estate taxes.......... $13,127 $7,227 $20,354 $25,052 $14,645 $39,697
======= ====== ======= ======= ======= =======
Percent of total........ 64.5% 35.5% 100.0% 63.1% 36.9% 100.0%
======= ====== ======= ======= ======= =======
</TABLE>

49
<PAGE>

(a) Excludes the Company's 49.9% interest in the Broadmoor Austin
Properties which are accounted for under the equity method.
(b) "Other" includes the effect of straightlining rental income as
required by GAAP.

(/2/) The Manager's operations are combined with the property operations in the
historical statements and are accounted for under the equity method in
the pro forma statements; therefore, the historical statements include
the Manager's revenues and expenses on a gross basis in the respective
income and expense line items and the pro forma statements present the
Manager's net operations in the line item titled "Equity in joint venture
and subsidiary." See "Business Objectives--Third-Party Management."

Equity in joint venture and subsidiary includes the Company's 25% and
49.9% interest in the partnership owning the Broadmoor Austin Partnership
on a historical and pro forma basis, respectively, which is accounted for
on the equity method for all periods presented. For more information on
the operations and accounts of the Broadmoor Austin Partnership, refer to
footnote (12) in the footnotes to the Predecessor Company's financial
statements.

Equity in joint venture and subsidiary on a historical basis also
includes the 15% general partnership interest owned by members of the
Prentiss Group in the Park West C2 Property. The operations and accounts
are combined on a pro forma basis.

(/3/) Represents the approximate 15.4% interest in the Operating Partnership
which will be owned by the Prentiss Principals.

(/4/) The pro forma balance sheet as of June 30, 1996 reflects the Company's
investment in the Broadmoor Austin Property using the equity method of
accounting. As a result, the Company's 49.9% share of the Broadmoor
Austin Partnership's real estate and related debt are not shown in the
line items titled "Real estate, before accumulated depreciation," "Real
estate, after accumulated depreciation" and "Debt on real estate." The
following schedule represents the Balance Sheet Data as of June 30, 1996
on a pro forma basis as if the Company's share of the Broadmoor Austin
Partnership's real estate and related debt thereon were included. This
presentation is provided for informational purposes only:

<TABLE>
<CAPTION>
PRO FORMA 6/30/96 ADJUSTMENTS PRO FORMA 6/30/96
BALANCE SHEET FOR COMBINING BROADMOOR'S BALANCE SHEET DATA
DATA AS PRESENTED 49.9% OWNERSHIP BROADMOOR COMBINED
----------------- ------------------------- ------------------
<S> <C> <C> <C>
Real estate before
accumulated
depreciation........... $378,308 $54,004 $432,312
Real estate after
accumulated
depreciation........... $364,216 $48,564 $412,780
Debt on real estate..... $ 66,200 $69,860 $136,060
</TABLE>

(/5/) Does not include the Company's 84.6% share of the operations in the
entities accounted for under the equity method; such amounts are $5,439
and $14,935 for the pro forma six months ended June 30, 1996 and the pro
forma year ended December 31, 1995, respectively. EBITDA means operating
income before mortgage and other interest, income taxes, depreciation and
amortization. The Company believes EBITDA is useful to investors as an
indicator of the Company's ability to service debt or pay cash
distributions. EBITDA, as calculated by the Company, is not comparable to
EBITDA reported by other REITs that do not define EBITDA exactly as the
Company defines that term. EBITDA does not represent cash generated from
operating activities in accordance with GAAP and should not be considered
as an alternative to operating income or net income as an indicator of
performance or as an alternative to cash flows from operating activities
as an indicator of liquidity. EBITDA does not include the amounts
reflected in "Equity in joint venture and subsidiary," nor does it add
back the depreciation, interest and taxes included therein. The Company's
EBITDA for the respective periods is calculated as follows:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ -------------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA --------------- FORMA ----------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------- ------ ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA
Net Income (loss)....... $10,265 $ 3,376 $3,305 $22,771 $ 9,970 $ 9,072 $2,857 $(2,685) $3,598
Add:
Interest expense....... 2,697 3,306 1,944 5,395 3,882 3,191 1,444 491 60
Real estate
depreciation and
amortization.......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Other depreciation and
amortization.......... -- 4 53 -- 106 106 106 106 96
Minority interest...... 1,868 -- -- 4,145 -- -- -- -- --
Less:
Gain on sale of
property.............. -- -- -- -- -- (1,718) -- -- --
Equity in joint venture
and subsidiary........ (1,957) (19) (29) (7,307) (11) (13) 4 (2) (211)
------- ------- ------ ------- ------- ------- ------ ------- ------
EBITDA.................. $19,322 $10,236 $8,710 $37,822 $21,007 $16,089 $7,723 $ (190) $4,264
------- ------- ------ ------- ------- ------- ------ ------- ------
EBITDA (Company's 84.6%
share)................. $16,346 $ 8,660 $7,369 $31,997 $17,772 $13,611 $6,534 $ (161) $3,607
======= ======= ====== ======= ======= ======= ====== ======= ======
</TABLE>

50
<PAGE>

unconsolidated partnerships and joint ventures. The Company's Funds from
Operations are not comparable to Funds from Operations reported by other
REITs that do not define that term using the current NAREIT definition.
The Company believes that in order to facilitate a clear understanding of
the combined historical operating results of the Prentiss Group and the
Company, Funds from Operations should be examined in conjunction with net
income (loss) as presented in the audited combined financial statements
and information included elsewhere in this Prospectus. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to
net income as an indication of the Company's performance or to cash flows
as a measure of liquidity or ability to make distributions. The Company's
Funds from Operations for the respective periods is calculated as
follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- -----------------------------------------------
PRO HISTORICAL PRO HISTORICAL
FORMA ------------- FORMA ---------------------------------------
1996 1996 1995 1995 1995 1994 1993 1992 1991
------- ------ ------ ------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FUNDS FROM OPERATIONS
Net Income (loss)....... $10,265 $3,376 $3,305 $22,771 $ 9,970 $ 9,072 $2,857 $(2,685) $3,598
Add:
Real estate
depreciation and
amortization.......... 6,449 3,569 3,437 12,818 7,060 5,451 3,312 1,900 721
Real estate
depreciation and
amortization of
unconsolidated joint
ventures.............. 1,084 542 542 2,167 1,084 1,084 1,084 1,084 582
Minority interest...... 1,868 -- -- 4,145 -- -- -- -- --
Less:
Gain on sale of
property.............. -- -- -- -- -- (1,718) -- -- --
------- ------ ------ ------- ------- ------- ------ ------- ------
Funds from Operations... $19,666 $7,487 $7,284 $41,901 $18,114 $13,889 $7,253 $ 299 $4,901
------- ------ ------ ------- ------- ------- ------ ------- ------
Funds from Operations
(Company's 84.6%
Share)................. $16,637 $6,334 $6,162 $35,448 $15,324 $11,750 $6,136 $ 253 $4,146
======= ====== ====== ======= ======= ======= ====== ======= ======
</TABLE>

(/7/) The Property Data includes information on the Broadmoor Austin, Park West
C2 and 3141 Fairview Park Drive Properties only for the end of the
periods subsequent to the Prentiss Group's acquisition of an ownership
interest in the respective Properties.
(/8/) Weighted average number of shares outstanding excludes the 1,888,200
shares of Common Stock issued to the Continuing Investors and 367,430
shares of Common Stock, the net proceeds of which are to be used for
capital reserves and working capital of the Company. If total shares
outstanding of 17,888,200 were used in the Net income per share
calculation, the Net income per share would be $.57 and $1.27.

51
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the "Selected
Financial Information" and the historical and pro forma financial statements
appearing elsewhere in this Prospectus. The following discussion is based
primarily on the Combined Financial Statements of the Predecessor Company for
the periods prior to the completion of the Offering and Formation
Transactions. The combined financial statements of the Predecessor Company
include (i) the results of operations from 47 properties for the periods
presented, (ii) the results of operations of the 3141 Fairview Park Drive
property for the portion of the periods after a Prentiss Group member acquired
the property, (iii) a 25% equity interest in the Broadmoor Austin properties,
(iv) a 15% equity interest in the Park West C2 property for the portion of the
periods in which the Prentiss Group owned a non-controlling interest, and (v)
results of operations of the Prentiss Properties Service Business conducted
primarily by PPL in the period presented. The Properties owned by the
Operating Partnership prior to the Formation Transactions consist of
Cumberland Office Park, 5307 East Mockingbird, Walnut Glen Tower, 8521
Leesburg Pike, all of the Industrial Properties in Baltimore, Maryland except
9050 Junction Drive, and all of the Industrial Properties in Kansas City,
Missouri, Dallas, Texas and Milwaukee, Wisconsin.

Historical results set forth in the "Selected Financial Information," the
Combined Financial Statements of the Predecessor Company, and the Pro Forma
Financial Statements of the Company should not be taken as an indication of
future operations of the Company.

OVERVIEW

The Company operates commercial office and industrial properties throughout
the United States. The Company generally receives real estate operating
revenues from wholly-owned properties and from interests in real estate joint
ventures. The Company also receives service revenues from its development,
management, sale and leasing contracts for owned properties as well as for
real estate owned by unrelated third parties.

COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 TO THE SIX MONTHS ENDED JUNE
30, 1995

Total Revenues increased by $2,264,000, or 9.3%, to $26,697,000 in the first
six months of 1996 from $24,433,000 in the first six months of 1995 due to
increases in rental revenues and fee and other income. Rental revenues
increased by $1,813,000, or 12.5%, to $16,340,000 from $14,527,000 primarily
as a result of the addition of 3141 Fairview Park Drive which increased rental
revenues by $1,269,000. The remaining increase in rental income of $544,000
was due to an increase in rental rates net of a decrease in occupancy. The
increase related to the rental rate increases is approximately $884,000, and
the decrease related to occupancy is approximately $340,000. Fee and other
income increased by $451,000, or 4.6%, from $9,906,000 to $10,357,000
primarily due to an increase in management fees of $476,000, an increase in
development fees of $216,000, offset by a decrease in leasing and tenant
services fees of $112,000 and a decrease in sale, other fees and other income
of $129,000. The increase in management fees was related to the addition of
new contracts during the period.

Total Expenses increased $2,183,000, or 10.3%, to $23,340,000 in the first
six months of 1996 from $21,157,000 in the same period of 1995. Operating
expenses increased by $821,000, or 4.3%, to $20,034,000 from $19,213,000. The
Manager had a decrease in operating expenses of $405,000. This decrease was
primarily attributable to a reduction in development related expenses. The
properties had an increase in operating expenses of $1,226,000. This increase
was comprised of increases in property operating and maintenance expenses of
$981,000, an increase of $162,000 in real estate taxes and an increase of
$83,000 in depreciation and amortization. Approximately $564,000 of the
increase in property operating expenses was attributable to the addition of
the 3141 Fairview Park Drive building and the remainder of the increase,
$417,000, was related to an increase in operating expenses of the existing
portfolio. Mortgage interest expense increased $1,362,000, or 70.1%, to
$3,306,000 from $1,944,000, primarily as a result of the 3141 Fairview Park
Drive acquisition and related debt thereon.

52
<PAGE>

Net Income for the six months ended June 30, 1996 increased $71,000, or
2.1%, to $3,376,000 from $3,305,000 for the same period of 1995. The increase
in net income was the result of the increase in total revenues of $2,264,000,
offset by the increase in total expenses of $2,183,000 and a decrease in
income from equity investments of $10,000.

COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994

Total Revenues increased by $3,206,000, or 6.2%, to $55,164,000 for the year
ended December 31, 1995 from $51,958,000 for the same period in 1994. Rental
revenues increased $4,167,000, or 16.5%, to $29,423,000 from $25,256,000
primarily as a result of the Company's acquisition of certain Industrial
Properties in Baltimore, Maryland and 8521 Leesburg Pike in late 1994 and two
additional Industrial Properties in Kansas City, Missouri in May 1994. These
property additions accounted for approximately $2,936,000 of the increase in
rental income, the remaining increase in rental income of approximately
$1,231,000 was the result of increased rental rates and occupancy rates in the
existing portfolio which are estimated at $943,000 and $288,000, respectively.
Fee and other income decreased $961,000, or 3.6%, to $25,741,000 from
$26,702,000, primarily due to a decrease in development fees of $5,141,000 and
a decrease in leasing and tenant services fees of $1,901,000, offset by an
increase in sale, other fees and other income of $6,081,000. The decrease in
development fees was primarily due to the recognition of a significant fee in
1994 coupled with low development activity during 1995. The leasing and tenant
services fee decreases were due to higher space rollover and leasing activity
in 1994. Sale and other fees increased due to property sales and fees received
as a result of contract termination payments.

Total Expenses increased by $588,000, or 1.3%, to $45,205,000 for the year
ended December 31, 1995 from $44,617,000 for the same period in 1994.
Operating expenses decreased by $103,000, or 0.2%, to $41,323,000 from
$41,426,000. Operating expenses includes a decrease of $1,131,000 in
compensation of the Manager's shareholders. Shareholder compensation was based
on earnings of the Manager and was a means of distributing those earnings to
the shareholders. The Manager had other decreases in operating expenses of
$1,795,000 which primarily was related to personnel cost reductions. Operating
expenses of the properties increased by $2,823,000. This increase was
comprised of an increase in property operating and maintenance expenses of
$875,000, an increase of $339,000 in real estate taxes and an increase of
$1,609,000 in depreciation and amortization. Approximately $1,969,000 of the
increase in property operating expense was attributable to the property
additions discussed previously and the remainder of the increase, $854,000,
was attributable to increased occupancy and an increase in amortization
expense. Mortgage interest expense increased $691,000, or 21.7%, to $3,882,000
for the year ended December 31, 1995 from $3,191,000 for 1994. This increase
was primarily the result of new financing related to acquisitions during the
period along with additional financing obtained on the Dallas Industrial
Properties.

Gains on sale of property for the year ended December 31, 1995 was $0. Gains
on sale of property for the year ended December 31, 1994 was $1,718,000. This
gain was the result of the sale of an industrial building in Ontario,
California. The property was purchased in 1993.

Net income for the year ended December 31, 1995 increased by $898,000, or
9.9%, to $9,970,000 from $9,072,000 for 1994. As discussed above, the increase
in net income was the result of an increase in total revenues of $3,206,000,
offset by an increase in total expenses of $588,000, a decrease in income from
equity investments of $2,000 and a decrease in gains on sale of property of
$1,718,000.

COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993

Total Revenues increased by $13,937,000, or 36.7%, to $51,958,000 for the
year ended December 31, 1994 from $38,021,000 for the year ended December 31,
1993. Rental revenues increased by $10,844,000, or 75.2%, to $25,256,000 for
the year ended December 31, 1994 from $14,412,000 for the year ended December
31, 1993. The primary reason for this increase was acquisitions during the
period of the Walnut Glen Tower, 8521 Leesburg Pike, five industrial buildings
in Baltimore, Maryland and two additional industrial buildings in Kansas City,
Missouri. Property acquisition activity accounted for approximately
$10,695,000 of the increase in rental

53
<PAGE>

income; the remaining increase in rental income of approximately $149,000 was
the result of increased occupancy rates in the existing portfolio net of
decreased rental rates which were approximately $339,000 and ($190,000),
respectively. Fee and other income increased by $3,093,000, or 13.1%, to
$26,702,000 for the year ended December 31, 1994 from $23,609,000 for the year
ended December 31, 1993. The increase was primarily attributable to an
increase in development fees of $2,217,000, an increase in leasing and tenant
services fees of $1,229,000, a decrease of $1,230,000 in management fees and
an increase in sale, other fees and other income of $877,000. The increase in
development fees was primarily due to the recognition of a significant fee in
1994. The increases in leasing and tenant services fees were due to higher
space rollover and leasing activity during 1994. The decrease in management
fees reflects the discontinuance of certain contracts. Sale, other fees and
other income increased due to increased property sales and fees received as a
result of contract termination payments.

Total Expenses increased by $9,457,000, or 26.9%, to $44,617,000 for the
year ended December 31, 1994 from $35,160,000 for the year ended December 31,
1993. Operating expenses increased by $7,710,000, or 22.9%, to $41,426,000 for
the year ended December 31, 1994 from $33,716,000 for the year ended
December 31, 1993. The primary reason for this increase was the acquisitions
of the above-mentioned properties along with an increase of $1,528,000 in
operating expense of the Manager. The Manager's operating expense increase was
comprised of an increase of $2,755,000 in shareholder compensation and a
decrease in other operating expenses of $1,227,000. Shareholder compensation
was based on earnings of the Manager and was a means of distributing those
earnings to the shareholders. The decrease in other operating expenses of the
Manager was primarily related to a decrease in professional fees and other
general and administrative expenses. Operating expense of the properties
increased by $6,182,000. This increase was comprised of an increase in
property operating and maintenance expenses of $2,983,000, an increase of
$1,060,000 in real estate taxes and an increase of $2,139,000 in depreciation
and amortization. The increase in property operating expenses was primarily
attributable to the property additions discussed previously. Mortgage interest
expense increased by $1,747,000, or 121%, to $3,191,000 for the year ended
December 31, 1994 from $1,444,000 for the year ended December 31, 1993. This
increase was primarily the result of new financing placed on Properties in
Milwaukee, Wisconsin along with financing obtained upon the purchase of Walnut
Glen Tower.

Gains on sale property for the year ended December 31, 1994 was $1,718,000.
This gain was the result of the sale of an industrial building in Ontario,
California. The building was purchased in 1993. Gain on sale of property for
the year ended December 31, 1993 was $0.

Net income for the year ended December 31, 1994 increased by $6,215,000, or
218%, to $9,072,000 from $2,857,000 for the year ended December 31, 1993. As
discussed above, the increase in net income was the result of an increase in
total revenues of $13,937,000, an increase in income from equity investments
of $17,000 and an increase in gain on sale of property of $1,718,000, offset
by an increase in total expenses of $9,457,000.

COMPARISON OF PRO FORMA SIX MONTHS ENDED JUNE 30, 1996 TO HISTORICAL SIX
MONTHS ENDED JUNE 30, 1996

For the six months ended June 30, 1996, pro forma rental income, property
expenses and depreciation and amortization were higher than the historical
amounts as a result of the Company's ownership in the pro forma period of
certain properties acquired after June 30, 1996, the results of which
properties are not included in the historical financial data. In addition, the
decrease in the pro forma period of fee income by $9,448,000, or 91.2%,
general office and administrative expenses by $1,867,000 or 63.1%, and
personnel costs by $6,002,000, or 86.7%, primarily results from the Company's
contribution of certain contracts to the Manager in the pro forma period, net
of additional expenses associated with being a public company. See "Formation
Transactions." The $6,000, or .2%, net increase in interest expense in the pro
forma period, is attributable to mortgage loans acquired concurrent with the
Offering, net of a reduction of interest expense due to the repayment of
certain mortgage loans. The decrease in non-cash interest expense by $615,000,
or 81.1%, in the pro forma period results from the write-off of deferred
financing costs associated with mortgage debt repaid (including deferred
financing costs associated with the acquisition of 3141 Fairview Park Drive
during the period) concurrent with the

54
<PAGE>

Offering, net of the amortization of deferred financing costs incurred in
connection with the terms of the Line of Credit and borrowings from an
affiliate of Lehman.

COMPARISON OF PRO FORMA YEAR ENDED DECEMBER 31, 1995 TO HISTORICAL YEAR ENDED
DECEMBER 31, 1995

For the year ended December 31, 1995, pro forma rental income, property
expenses and depreciation and amortization were higher than the historical
amounts as a result of the Company's ownership in the pro forma period of
certain properties acquired after December 31, 1995, the results of which
Properties are not included in the historical financial data. In addition, the
decrease in the pro forma period of fee income by $23,927,000, or 93.0%,
general office and administrative expenses by $4,281,000, or 68.0%, and
personnel costs by $15,356,000, or 89.6%, results primarily from the Company's
contribution of certain contracts to the Manager in the pro forma period, net
of additional expenses associated with being a public company. The $1,325,000,
or 35.0%, increase in interest expense in the pro forma period is attributable
to mortgage loans acquired concurrent with the Offering, net of a reduction of
interest expense due to the repayment of certain mortgage loans. The increase
in non-cash interest expense by $188,000, or 189.9%, in the pro forma period
results from the write-off of deferred financing costs associated with
mortgage debt repaid concurrent with the Offering, net of the amortization of
deferred financing costs incurred in connection with the terms of the Line of
Credit and borrowings from an affiliate of Lehman.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents were $1.9 million and $2.0 million at June 30,
1996 and June 30, 1995, respectively. The decrease in cash and cash
equivalents is primarily a result of cash flows used by investing activities
exceeding those provided by operating and financing activities. Net cash
provided by operating activities for the six months ended June 30, 1996
increased by $1.7 million compared to the six months ended June 30, 1995. The
increase was primarily attributable to an increase in cash flow provided by
the Properties and an increase in accounts payable and other liabilities. Net
cash used by investing activities increased by $19.5 million for the six
months ended June 30, 1996 compared to the six months ended June 30, 1995. The
primary reason for this increase was the purchase of the 3141 Fairview Drive
Property. Net cash provided by financing activities increased $25.8 million
for the six months ended June 30, 1996 as compared to the six months ended
June 30, 1995. The primary reason for the increase was $22.5 million of new
real estate loans.

Cash and cash equivalents were $1.0 million and $9.1 million at December 31,
1995 and 1994, respectively. The decrease in cash and cash equivalents is
primarily a result of cash flows used by investing activities exceeding those
provided by operating and financing activities. Net cash provided by operating
activities in 1995 increased by $3.2 million compared to 1994. The increase
was primarily attributable to the incremental increase in cash flow from
operations provided by Properties acquired in 1994 and an approximately $1.9
million increase in earnings from the Manager. The increase in the Manager's
earnings was primarily due to reductions in operating expenses. Net cash used
by investing activities in 1995 decreased by $36.6 million compared to 1994.
The decrease was primarily a result of the acquisition of properties in 1994.
These acquisitions were funded primarily through capital contributions and the
addition of new real estate loans. Net cash provided by (used in) financing
activities in 1995 decreased by $55.4 million compared to 1994. The decrease
was primarily attributable to partner distributions of $15.3 million in 1995
compared to partner contributions, and new real estate loans of $12.1 million
and $27.1 million, respectively, in 1994.

Cash and cash equivalents were $9.1 million and $1.6 million at December 31,
1994 and 1993, respectively. The increase in cash and cash equivalents is
primarily attributable to cash flows provided by operating activities and
financing activities exceeding cash flows used by investing activities. Net
cash provided by operating activities increased in 1994 by $6.9 million in
comparison to 1993. The increase was primarily attributable to property
acquisitions in both 1994 and 1993 and an approximately $1.5 million increase
in earnings from the Manager. The increase in earnings from the Manager was
primarily related to increased fee income from its development and leasing
activities. Net cash used by investing activities decreased in 1994 by $31.1
million in

55
<PAGE>

comparison to 1993. The decrease was primarily the result of the release of
$23 million in escrowed funds from partners' 1993 capital contributions and
proceeds from the sale of properties of $7.9 million. Net cash provided by
financing activities decreased in 1994 by $24.1 million compared to 1993. The
decrease was primarily attributable to partner contributions of $12.1 million
in 1994 compared to $49.9 million in 1993, offset by new real estate loans of
$27.1 million in 1994 compared to $10.3 million in 1993.

Upon the closing of the Offering, the Company will have total outstanding
indebtedness including the Company's pro rata share of Joint Venture Debt of
approximately $136.1 million (the "Mortgage Debt"), which will be secured by
34 of the Properties. The Mortgage Debt will represent approximately 24.3% of
the Company's Total Market Capitalization at the closing of the Offering.
Approximately $56.2 million of the Mortgage Debt consists of two mortgage
loans that the Company is obtaining from an affiliate of Lehman in connection
with the Formation Transactions. The proceeds of these three mortgage loans
will be used to fund a portion of the Company's acquisition of interests in
the Properties. The remainder of the Mortgage Debt consists of prior
indebtedness of the Prentiss Group that is secured by certain of the
Properties and is not being fully repaid with the net proceeds of the
Offering. The following table sets forth certain information regarding the
Mortgage Debt immediately after the closing of the Offering.

REMAINING MORTGAGE DEBT

<TABLE>
<CAPTION>
PRINCIPAL INTEREST ANNUAL
PROPERTY(IES) AMOUNT RATE AMORTIZATION MATURITY PAYMENT
------------- ------------ ---------------- ------------ -------------------- -----------
<S> <C> <C> <C> <C> <C>
Park West E1 and E2..... $ 16,200,000 LIBOR+1.65%(/1/) None November 1, 1999 $ 1,148,580
All Industrial
Properties in Kansas
City, MO and Milwaukee,
WI..................... 40,000,000 LIBOR+1.65%(/1/) None November 1, 1999 2,836,000
Walnut Glen............. 10,000,000 7.500% None January 31, 2001 750,000
Broadmoor Austin........ 69,860,000(/2/) 9.750% None April 1, 2001 6,811,350
------
------------ -------------------- -----------
Total/Weighted Average.. $136,060,000 8.486% August 25, 2000(/3/) $11,545,930
</TABLE>
- --------
(/1/) 30 day LIBOR of 5.44% as of September 26, 1996, was used for calculation
of the weighted average rate in the table above.
(/2/) The Company, through the Operating Partnership, will own a 49.9% general
partnership interest in the entity that owns the Broadmoor Austin
Properties, which interest is accounted for under the equity method of
accounting. The amount shown reflects the Company's proportionate share
of the mortgage indebtedness secured by the Property.
(/3/) The Company's remaining mortgage debt will have a weighted average
maturity of 3.9 years.

If the Underwriters exercise all or a portion of their overallotment
option, the Company expects to use the additional proceeds to (i) repay the
$16.2 million mortgage loan secured by the Park West E1 and E2 Properties and
(ii) repay a portion of the $40.0 million mortgage loan secured by the
Industrial Properties located in Kansas City, Missouri and Milwaukee, Wisconsin.
If the Underwriters exercise in full their overallotment option to purchase
2,400,000 Common Shares and the Company applies the additional net proceeds of
approximately $44.6 million to repay indebtedness as described above, the
Company's combined indebtedness plus its pro rata share of Joint Venture Debt
would be $91.4 million or 16.3% of its Total Market Capitalization. The Company
may refinance all or a portion of the variable rate mortgage debt not repaid
with the proceeds (if any) of the Underwriter's overallotment option with long-
term fixed rate mortgage debt secured by the same Properties. During the period
between the Closing Date and any such refinancings, the Company may manage the
variable rate interest risk by using interest rate swaps and hedging instruments
as deemed appropriate by management.

The Company has entered into negotiations with Bank One, Texas, N.A. and
NationsBank of Texas, N.A. to obtain the $100 million Line of Credit. The
Company intends to close on the Line of Credit contemporaneously with the
closing of the Offering, but there can be no assurances that the Company will
do so. The Company believes that the Line of Credit is adequate for its needs
initially. The Company intends to use proceeds from the Line of Credit to fund
future acquisitions and development, including the acquisition of the Option
Properties, and redevelopment of properties owned by the Company.

56
<PAGE>

Pursuant to the Debt Limitation, the Company's combined indebtedness plus
its pro rata share of Joint Venture Debt is limited so that at the time such
debt is incurred, it does not exceed 50% of the Company's Total Market
Capitalization. The Predecessor Company as defined in "Selected Financial
Information" had total outstanding indebtedness of 40.3% of total debt plus
equity as of June 30, 1996 and 30.9%, 29.3% and 17.9% as of December 31, 1995,
December 31, 1994 and December 31, 1993, respectively. At the closing of the
Offering, the Company will have outstanding combined indebtedness of
approximately $66.2 million or approximately 13.5% of total market
capitalization (excluding its pro rata share of Joint Venture Debt) and,
together with its pro rata share of Joint Venture Debt, will have total
outstanding indebtedness of approximately $136.1 million, or approximately
24.3% of Total Market Capitalization. As of the Closing Date, the Company will
have the approximate capacity to borrow up to an additional $286.9 million
under the Debt Limitation. The amount of indebtedness that the Company may
incur, and the policies with respect thereto, are not limited by the Company's
Declaration of Trust and Bylaws, and are solely within the discretion of the
Company's Board of Trustees. See "Risk Factors--Changes in Policies Without
Shareholder Approval; No Limitation on Debt."

The Company's operating properties require periodic investments of capital
for tenant-related capital expenditures and for general capital improvements.
For the years ended December 31, 1995, 1994 and 1993, the Company's recurring
non-incremental revenue generating capital expenditures in its Properties have
been $4,740,341, $3,545,184 and $3,457,303, respectively. See "Properties"--
Historical Non-Incremental Revenue-Generating Capital Expenditures." The
Company has estimated its annual recurring capital costs to be $4,066,000 or
$6.07 per square foot of improved office space and $1.30 per square foot of
improved industrial space. See "Properties Historical Incremental Revenue-
Generating Tenant Improvement Costs and Leasing Commissions. The Company
believes its estimate of capital expenditures is conservative given the
historical results discussed above along with its detailed forecast of these
costs for the prospective twelve month period. In addition, the Company will
set aside approximately $7.1 million of the net Offering proceeds for certain
estimated non-recurring capital expenditures and leasing costs, including
tenant improvements and leasing commissions for currently vacant space in the
Walnut Glen Office Property, re-leasing costs associated with the major leases
of the Park West and Walnut Glen Office Properties, which expire in October
1999 and July 1998, respectively, and the 21,000 square foot expansion of one
of the Milwaukee Industrial Properties. Unused portions of the funds will be
applied to reduce outstanding indebtedness.

Following the closing of the Offering, the Company will have approximately
$2.8 million in working capital. The Company has considered its short-term
liquidity needs and the adequacy of adjusted pro forma cash flows and other
expected liquidity sources to meet these needs. The Company believes that its
principal short-term liquidity needs are to fund normal recurring expenses,
debt service requirements and the minimum distribution required to maintain
the Company's REIT qualification under the Code. The Company anticipates that
these needs will be fully funded from the Company's initial working capital
and the cash flows provided by operating activities and, when necessary to
fund shortfalls resulting from the timing of collections of accounts
receivable in the ordinary course of business, the Line of Credit.

The Company expects to meet its long-term liquidity requirements for the
funding of activities such as development, property acquisitions, scheduled
debt maturities, major renovations, expansions and other non-recurring capital
improvements through long-term secured and unsecured indebtedness and the
issuance of additional equity securities from the Company and the Operating
Partnership. The Company also intends to use proceeds from the Line of Credit
to fund property acquisitions, development, redevelopment, expansions and
capital improvements on an interim basis.

The Company expects to make distributions to its shareholders primarily
based on its distributions from the Operating Partnership. The Operating
Partnership's income will be derived primarily from lease revenues from the
Properties and, to a limited extent, from fees generated by its office and
industrial real estate management, leasing development and construction
business and from the Manager. The Manager's sole source of income will be
fees generated by its office and industrial real estate management, leasing,
development and construction business.

57
<PAGE>

INFLATION

Most of the leases on the Properties require tenants to pay increases in
operating expenses, including common area charges and real estate taxes,
thereby reducing the impact on the Company of the adverse effects of
inflation. Leases also vary in term from one to 15 years, further reducing the
impact on the Company of the adverse effects of inflation.

PROPERTIES

GENERAL

Upon the completion of the Offering, the Company will own or have an
interest in a diversified portfolio of 87 Properties comprising approximately
8.9 million net rentable square feet. The Properties are located in 10 major
markets throughout the U.S. The Properties consist of the 28 Office Properties
comprising approximately 3.8 million net rentable square feet and the 59
Industrial Properties comprising 5.0 million net rentable square feet. As of
June 30, 1996, the Properties were approximately 92% leased to 378 tenants.
The Company also owns the six Development Parcels comprising approximately
21.4 acres that can support approximately 1.4 million square feet of net
rentable space. Three of the Development Parcels are zoned for office use and
three are zoned for industrial use. In addition, the Company has options to
acquire interests in three office buildings containing approximately 1.4
million net rentable square feet, four industrial buildings containing
approximately 268,000 net rentable square feet, three development parcels that
can support approximately 775,000 net rentable square feet of office space and
five development parcels that can support approximately 1.3 million net
rentable square feet of industrial space. See "--Option Properties," "--Option
Parcels" and "Business Objectives--Growth Strategies--Acquisitions" and "--
Development."

58
<PAGE>

Set forth below is a summary of the Company's Properties. For additional
information regarding the Office Properties see "--Office Properties" and for
additional information regarding the Industrial Properties, see "--Industrial
Properties."

PROPERTY DATA
<TABLE>
<CAPTION>
TOTAL ANNUAL
PERCENT BASE BASE EFFECTIVE
NET LEASED RENT FOR RENT RENT PER
YEAR(S) NUMBER RENTABLE AS OF YEAR PERCENT PER LEASED
BUILT/ OF SQUARE JUNE 30, ENDED OF TOTAL SQUARE SQUARE
PROPERTY NAME MARKET RENOVATED BUILDINGS FEET 1996 12/31/95(/3/) PORTFOLIO FOOT FOOT(/4/)
------------- ------ --------- --------- -------- -------- ------------- --------- ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES:
Cumberland Office
Park............... Atlanta, GA 1972-1980 9 530,228 97% $ 6,141 10% $11.70 $ 3.31
One Northwestern
Plaza(/1/)......... Southfield, MI 1989 1 241,751 93 4,772 8 21.12 15.40
Broadmoor
Austin(/2/)........ Austin, TX 1991 7 1,112,236 100 8,824 14 15.87 15.16
Park West........... Dallas, TX 1982-1989 3 727,545 100 9,978 16 13.87 9.05
5307 East
Mockingbird........ Dallas, TX 1979/1993 1 118,316 80 679 1 9.06 1.17
Walnut Glen Tower... Dallas, TX 1985 1 464,289 81 7,254 12 17.74 11.04
Cottonwood Office
Center............. Dallas, TX 1986 3 164,111 99 1,922 3 12.32 8.17
Plaza on Bachman
Creek.............. Dallas, TX 1986 1 125,903 90 1,155 2 11.57 5.23
3141 Fairview Pk.
Drive.............. Northern Virginia 1988 1 192,108 89 2,780 5 19.25 7.24
8521 Leesburg Pike.. Northern Virginia 1984/1993 1 145,257 93 1,940 3 16.97 10.24
--- --------- --- ------- --- ------ ------
Subtotal/weighted average for Office Properties.. 28 3,821,744 95% $45,445 74% $15.18 $10.22
=== ========= === ======= === ====== ======
INDUSTRIAL
PROPERTIES:
Pacific Gateway
Center............. Los Angeles, CA 1972-1984 18 1,252,708 92% $ 4,855 8% $ 4.25 $ 3.70
8869 Greenwood...... Baltimore, MD 1986-1987 1 89,582 74 296 * 3.29 2.75
1329 Western Ave.... Baltimore, MD 1988 1 185,600 95 713 1 4.79 4.14
Deep Run 1&2........ Baltimore, MD 1988 2 169,112 100 629 1 3.72 3.55
4611 Mercedes
Drive.............. Baltimore, MD 1990 1 178,133 100 711 1 3.99 3.64
9050 Junction
Drive.............. Baltimore, MD 1989 1 108,350 100 395 1 3.66 4.33
Northland Park...... Kansas City, MO 1975-1980 4 925,007 100 2,312 4 2.50 1.97
North Topping
Street............. Kansas City, MO 1975-1980 1 119,118 100 276 * 2.32 1.87
Airworld Drive...... Kansas City, MO 1975-1980 1 200,000 0(/5/) 358 1 1.79 1.61
107th Terrace....... Kansas City, MO 1975-1980 1 96,700 100 244 * 2.52 2.35
Nicholson III....... Dallas, TX 1981 3 155,712 91 468 1 3.90 2.53
13425 Branchview.... Dallas, TX 1970 1 121,250 100 274 * 2.26 2.10
1002 Avenue T....... Dallas, TX 1981 1 100,000 100 233 * 2.33 2.37
1625 Vantage Drive.. Dallas, TX 1984 1 50,000 100 193 * 3.86 3.72
West Loop Business
Park............... Houston, TX 1986 5 75,231 92 508 1 6.96 6.96
Airport Properties.. Milwaukee, WI 1970-1980 12 572,953 98 1,906 3 3.48 3.25
Oak Creek
Properties......... Milwaukee, WI 1970-1979 2 232,000 100 673 1 2.90 2.51
North West
Properties......... Milwaukee, WI 1973-1987 3 413,371 83 1,258 2 3.04 3.21
--- --------- --- ------- --- ------ ------
Subtotal/weighted average for Industrial
Properties...................................... 59 5,044,827 90% $16,302 26% $ 3.31 $ 3.04
=== ========= === ======= === ====== ======
Consolidated total/ weighted average for all
Properties 100%................................. 87 8,866,571 92% $61,747 100% $ 8.48 $ 6.13
=== ========= === ======= === ====== ======
</TABLE>
- --------
* Less than one percent
(/1/) The Operating Partnership owns a 100% leasehold interest in this
Property.
(/2/) The Operating Partnership owns a 49.9% interest in the general
partnership that owns a 100% leasehold interest in these Properties. The
Company accounts for its interest in this partnership under the equity
method. The net rentable square feet for these Properties reflects the
entire Properties and the Base Rent data for the Properties reflects the
Company's receipt of 49.9% of such rent.
(/3/) "Base Rent" means the fixed base rental amount paid by a tenant under the
terms of the related lease agreement, which amount generally does not
include payments on account of real estate taxes, operating expense
escalations and utility charges.
(/4/) "Effective Rent" is Base Rent net of any operating cost recovery portion,
less amortization of the related leasing costs, plus the effect of
straight-lining rent steps.
(/5/) On October 1, 1996, the Company executed a lease for 100% of the net
rentable area at the Airworld Drive Property. The tenant will begin
paying rent on such lease in the first quarter of 1997.

59
<PAGE>

LOCATION OF PROPERTIES; MARKET OVERVIEW

The Properties are located in 10 major markets and in every region of the
U.S. The following tables indicate, by the net rentable square feet and 1995
Base Rent, respectively, the Properties by location and type of property at
December 31, 1995:

NET RENTABLE SQUARE FEET OF PROPERTIES
BY LOCATION AND TYPE OF PROPERTY

<TABLE>
<CAPTION>
NUMBER OF OFFICE INDUSTRIAL PERCENT OF
LOCATION PROPERTIES PROPERTIES PROPERTIES TOTAL TOTAL
-------- ---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Los Angeles, CA......... 18 -- 1,252,708 1,252,708 14%
Atlanta, GA............. 9 530,228 -- 530,228 6
Baltimore, MD........... 6 -- 730,777 730,777 8
Southfield, MI.......... 1 241,751 -- 241,751 3
Kansas City, MO......... 7 -- 1,340,825 1,340,825 15
Austin, TX.............. 7 1,112,236 -- 1,112,236 12
Dallas, TX.............. 15 1,600,164 426,962 2,027,126 23
Houston, TX............. 5 -- 75,231 75,231 1
Northern Virginia....... 2 337,365 -- 337,365 4
Milwaukee, WI........... 17 -- 1,218,324 1,218,324 14
--- --------- --------- --------- ---
Total................... 87 3,821,744 5,044,827 8,866,571 100%
=== ========= ========= ========= ===
Percent of Total........ 43% 57% 100%
========= ========= =========
Number of Properties.... 28 59 87
========= ========= =========
</TABLE>

The following table sets forth the 1995 annual Base Rent of the
Properties by location and type of property:

1995 BASE RENT PER LEASED SQUARE FOOT AND
EFFECTIVE RENT PER LEASED SQUARE FOOT OF PROPERTIES
BY LOCATION AND TYPE OF PROPERTY

<TABLE>
<CAPTION>
1995 BASE RENT 1995 EFFECTIVE RENT
1995 BASE RENT PER LEASED SQUARE FOOT PER LEASED SQUARE FOOT
-------------------------------------- ---------------------------- ----------------------------
NUMBER PERCENT
OF OFFICE INDUSTRIAL OF OFFICE INDUSTRIAL OFFICE INDUSTRIAL
LOCATION PROPERTIES PROPERTIES PROPERTIES TOTAL TOTAL PROPERTIES PROPERTIES TOTAL PROPERTIES PROPERTIES TOTAL
-------- ---------- ---------- ---------- ------- ------- ---------- ---------- ------ ---------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Los Angeles,
CA............. 18 $ -- $ 4,855 $ 4,855 8% $ -- $4.25 $ 4.25 $ -- $3.70 $ 3.70
Atlanta, GA..... 9 6,141 -- 6,141 10 11.70 -- 11.70 3.31 -- 3.31
Baltimore, MD... 6 -- 2,744 2,744 4 -- 3.95 3.95 -- 3.61 3.61
Southfield, MI.. 1 4,772 -- 4,772 8 21.12 -- 21.12 15.40 -- 15.40
Kansas City,
MO............. 7 -- 3,190 3,190 5 -- 2.38 2.38 -- 1.94 1.94
Austin,
TX(/1/)........ 7 8,824 -- 8,824 14 15.87 -- 15.87 15.16 -- 15.16
Dallas, TX...... 15 20,988 1,168 22,156 36 14.40 2.86 11.87 8.65 2.51 7.40
Houston, TX..... 5 -- 508 508 1 -- 6.96 6.96 -- 6.96 6.96
Northern
Virginia....... 2 4,720 -- 4,720 8 18.27 -- 18.27 8.44 -- 8.44
Milwaukee, WI... 17 -- 3,837 3,837 6 -- 3.29 3.29 -- 3.09 3.09
--- ------- ------- ------- --- ------ ----- ------ ------ ----- ------
Total........... 87 $45,445 $16,302 $61,747 100% $15.18 $3.31 $ 8.48 $10.22 $3.04 $ 6.13
=== ======= ======= ======= === ====== ===== ====== ====== ===== ======
Percent of
Total.......... 74% 26% 100%
======= ======= =======
Number of
Properties..... 28 59 87
======= ======= =======
</TABLE>
- --------
(/1/) Base Rent calculation for the Broadmoor Austin Properties reflects the
Company's 49.9% interest in the partnership that owns a leasehold
interest in the Properties.

60
<PAGE>

The following table sets forth an economic summary of the Company's major
markets:

ECONOMIC SUMMARY OF COMPANY'S MAJOR MARKETS

<TABLE>
<CAPTION>
TOTAL TOTAL
SIZE OF PMSA POPULATION JOB UNEMPLOY- OFFICE INDUSTRIAL
REGION AND MARKET POPULATION(/1/) GROWTH(/2/) GROWTH(/3/) MENT RATE(/4/) STOCK (SF) STOCK (SF)
----------------- --------------- ----------- ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
WESTERN REGION:
Phoenix................. 2,583,582 14.5% 5.8% 3.8% 42,600,000 152,500,000
Los Angeles............. 9,138,789 3.1% 1.2% 8.3% 158,400,000 794,000,000
Oakland................. 2,165,411 5.5% 1.4% 5.1% 38,900,000 228,000,000
Sacramento.............. 1,456,955 8.7% 3.1% 6.2% 33,900,000 124,700,000
San Francisco........... 1,645,815 2.6% 0.6% 4.3% 68,200,000 93,800,000
SOUTHWEST REGION:
Austin.................. 999,936 18.2% 6.3% 3.5% 20,300,000 42,800,000
Dallas.................. 2,957,910 10.5% 4.1% 4.8% 111,100,000 286,400,000
Fort Worth.............. 1,491,965 9.6% 3.4% 4.7% 22,600,000 163,800,000
Houston................. 3,710,844 11.7% 2.8% 6.2% 135,900,000 198,000,000
Denver.................. 1,831,308 12.8% 3.5% 4.2% 63,900,000 167,200,000
MIDWEST REGION:
Chicago................. 7,724,770 4.2% 2.0% 5.2% 187,400,000 844,900,000
Milwaukee............... 1,457,939 1.8% 1.6% 4.0% 24,404,775 191,244,500
Detroit................. 4,320,203 1.3% 3.0% 4.5% 61,200,000 384,400,000
Kansas City............. 1,663,453 5.1% 3.0% 4.4% 33,400,000 194,200,000
MID-ATLANTIC REGION:
Washington, DC/Northern
Virginia(/5/).......... 4,509,932 6.8% 1.8% 4.3% 213,600,000 138,600,000
Baltimore............... 2,469,985 3.7% 1.2% 5.9% 41,200,000 167,500,000
Northern New
Jersey(/6/)............ 8,255,741 2.6% 1.3% 6.2% 121,122,000 698,200,000
SOUTHEAST REGION:
Orlando................. 1,390,574 13.5% 3.7% 4.0% 17,800,000 75,300,000
Atlanta, GA............. 3,431,983 16.0% 5.5% 4.0% 89,300,000 278,200,000
National Average........ -- 5.6% 2.6% 5.5% -- --
</TABLE>
- --------
Source: Prepared by the Company using data from U.S. Department of Commerce,
U.S. Department of Labor Statistics, Torto Wheaton Research, Valuation
International and The Polacheck Company.
(/1/) Size of population in the primary metropolitan statistical area ("PMSA")
as of July 1, 1995
(/2/) Total growth from April 1, 1990 to July 1, 1995.
(/3/) Compounded annual growth for the three years ended June 30, 1996.
(/4/) As of June 30, 1996.
(/5/) Includes the three major market areas of the District of Columbia,
Northern Virginia, and Suburban Maryland.
(/6/) Consists of six MSA's Middlesex-Somerset-Hunterdon, Newark, Bergen-
Passaic, Trenton, Monmouth-Ocean, and Jersey City.

Following are discussions of the markets where the Company's Properties are
located. The information included therein is based on the Company's knowledge
of the markets and other information deemed reliable by the Company.

Los Angeles

Los Angeles is the second largest metropolitan area in the U.S. with a
population of 9.1 million as of July 1, 1995. The area had population growth
of 3.1% from 1990 to 1995. The compounded average annual job growth rate for
the three years ended June 30, 1996 was 1.2%. The unemployment rate as of June
30, 1996 was 8.3%. Major employers in the area are Hughes Aircraft (21,000
employees), Kaiser Permanente (19,500 employees), Northrop Grumman (18,500
employees) and McDonnell-Douglas (18,400 employees).

The Company owns 18 Industrial Properties in Los Angeles with more than 1.2
million net rentable square feet, representing approximately 25% of the
Company's total industrial square footage. The properties are located in the
Torrance submarket of the South Bay Industrial Sector. The Company also
manages 28 office properties and 85 industrial properties in the Los Angeles
market.

The Los Angeles industrial market is one of the largest in the U.S.
consisting of approximately 760,000,000 net rentable square feet of industrial
space. The overall vacancy rate for the market was approximately 8% at

61
<PAGE>

March 31, 1996. The South Bay Industrial Sector contains approximately
194,000,000 net rentable square feet of industrial space and had a vacancy
rate of approximately 10% at March 31, 1996. The Torrance submarket of the
South Bay Industrial Sector contains approximately 26 million net rentable
square feet of industrial space. This submarket has excellent access to the
San Diego Freeway, the Harbor Freeway and the Artesia Freeway all of which are
located within one mile of the Company's Properties. Torrance also has
convenient access to Los Angeles International Airport and the Ports of Long
Beach and Los Angeles. The South Bay area has benefitted from the growth in
international trade through area ports in Los Angeles and Long Beach, and the
availability of large blocks of high quality space. The Los Angeles Customs
District now handles more cargo than any other district in the U.S. Conditions
are expected to continue to improve as the Alameda Corridor project
progresses. This project is an 18-mile fixed route between the Ports of Los
Angeles and Long Beach, linking rail and truck traffic to area warehouses,
rail yards and factories. The South Bay Industrial Sector continues to recover
from the federal government's cutbacks in defense spending. The overall
economic activity in this sector was stimulated by an $18 billion defense
contract awarded to Long Beach's McDonnell-Douglas in 1995. The Company
estimates that supply, vacancy rate and market rent for industrial space in
the Torrance submarket in the period 1991-1995 were approximately as follows:

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Supply(/1/).......................... 25,900 25,900 25,900 25,900 26,000
Vacancy rate......................... 17.1% 16.2% 14.6% 10.9% 11.3%
Market rent(/2/)..................... N/A N/A N/A $1.28 $1.40
</TABLE>
--------
Table prepared by the Company based on information that the Company believes
is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.

Austin

The metropolitan area of Austin, the capital of Texas, has a population of
approximately 1.0 million as of July 1, 1995. Between 1990 and 1995, the
Austin metropolitan area's population increased 18.2%. According to statistics
compiled by the U.S. Government, Bureau of Labor Statistics, Austin
experienced a 33% growth in jobs from December 1990 to December 1995 as
compared to the National Average of 7.6% for the same period. The compounded
annual job growth rate for the three years ended June 30, 1996 was 6.3%. The
unemployment rate as of June 30, 1996 was 3.5%. The two largest public sector
employers in the area are the State of Texas and the University of Texas-
Austin. The University of Texas-Austin, the third-largest public university in
the country with nearly 48,000 students enrolled in the 1995-96 school year,
employs approximately 20,000 people. The largest private sector employers are
Motorola (7,500 employees), IBM (6,800 employees), and Dell Computers (4,500
employees). Austin is home to approximately 825 high-tech firms employing
nearly 85,000 people. Motorola and Advanced Micro Devices recently opened $1
billion facilities in Austin and Samsung Electronics has announced its plans
to build a $1.3 billion semiconductor plant, which is expected to employ
approximately 1,600 people.

The Company owns seven Office Properties in Austin which contain
approximately 1.1 million aggregate net rentable square feet. These properties
are located in the Northwest submarket of Austin. The Company also manages one
office property in the Austin market. Austin's suburban office sector is one
of the tightest in the U.S. with occupancies of at least 90% in five of the
six non-CBD office submarkets as of year end 1995. The Northwest submarket is
Austin's dominant non-CBD office submarket with an inventory totaling almost
5.5 million net rentable square feet. The Northwest submarket has some of the
highest rental rates in metropolitan Austin and had a 4% vacancy rate at the
end of 1995.

Dallas/Fort Worth

Dallas/Fort Worth is the nation's eighth-largest consolidated metropolitan
area with a total population of 4.4 million as of July 1, 1995. The area had
compounded population growth rate of 10.2% from 1990 to 1995. The compounded
annual job growth rate for the three years ended June 30, 1996 was 3.9%. Eight
cities in the Dallas area have over 100,000 residents. The unemployment rate
was 4.8% at June 30, 1996. The major

62
<PAGE>

employers in the metropolitan area are AMR Corporation, the parent company of
American Airlines (29,000 employees), Texas Instruments (22,500 employees) and
Lockheed Martin (12,500 employees). Other large private sector employers
include Kroger and Electronic Data Systems (EDS), each of which employs over
10,000 people.

Dallas continues to be a leading choice for corporate relocations. In the
first quarter of 1996, Quaker State Corporation moved its corporate
headquarters from Oil City, Pennsylvania to Las Colinas in Irving, leasing
125,000 net rentable square feet of space vacated by Exxon, which moved to a
new world headquarters facility also in Las Colinas. Pizza Hut moved its
national headquarters to Dallas from Wichita, Kansas, filling one of the last
available office buildings along Dallas' North Tollway. Netcom On-line, a
California based Internet service provider, opened a Dallas office in one of
the Park West buildings originally built by the Prentiss Group and managed by
the Company.

Five of the Company's Office Properties, representing 35% of its total
office square footage, and four of the Company's Industrial Properties,
representing 8% of its industrial square footage, are located in the
Dallas/Fort Worth metropolitan area. The Company also manages 16 office
properties and 17 industrial properties in this market. The Dallas area real
estate market has improved dramatically over the past three years, as have the
submarkets in which the Company's Properties are located. Dallas is the
location of the Company's corporate headquarters and Southwest regional
office.

DALLAS SUBMARKETS

North Central Expressway. The Company's Walnut Glen and 5307 Mockingbird
Office Properties are located in the North Central Expressway submarket, which
extends from downtown Dallas north to the LBJ Freeway (Interstate 635). This
submarket contains 7.4 million net rentable square feet of office space and
had a vacancy rate of 18% as of March 31, 1996, down significantly from a peak
of 38% at year-end 1991. The North Central submarket is located in close
proximity to the prime residential areas of Dallas and offers numerous
amenities, including restaurants, shopping areas and hotels.

Central Expressway (I-75), one of the principal north-south arteries serving
Dallas and the northern suburbs, is currently undergoing a $500 million
improvement project which commenced in the mid-1980s. The completion of the
initial phases of this development project, combined with the tight vacancy
conditions of less than 10% in neighboring submarkets, have contributed to the
improving occupancy and rental rate trends that the North Central submarket
has experienced in recent years. The Company expects that these trends will
continue as additional phases of the improvement project are completed. The
Company estimates that demand, new supply, vacancy rate and market rent for
office space in this submarket in the period 1991-1995 and the first quarter
of 1996 were approximately as follows:

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996(/3/)
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Demand(/1/)................ (1,020) 304 131 474 312 250
New supply(/1/)............ -- -- -- -- -- --
Vacancy rate............... 37.8% 33.7% 32.2% 25.6% 21.3% 18.0%
Market rent(/2/)........... $12.12 $12.11 $11.71 $12.27 $13.30 $14.13
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.
(/3/) Through March 31, 1996.

West LBJ Freeway. The Company's Park West Properties are located in the Park
West Office Park in the heart of the West LBJ submarket, which is located
along the LBJ Freeway within one mile of Interstate 35. This submarket
provides convenient access to Dallas-Fort Worth International Airport ("DFW
Airport") via the LBJ Freeway and to downtown Dallas and Love Field via I-35.
This submarket contains 2.6 million square feet of office space. The Company
estimates that demand, new supply, vacancy rate and market rent for multi-
tenant office space in this submarket in the period 1991-1995 and the first
quarter of 1996 were approximately as follows:

63
<PAGE>

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996(/3/)
------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Demand(/1/)................ 284 120 (119) 236 (25) (10)
New supply(/1/)............ -- -- -- -- -- --
Vacancy rate............... 14.7% 10.5% 14.7% 6.3% 7.7% 8.06%
Market rent(/2/)........... $12.79 $12.68 $12.30 $12.61 $14.06 $15.08
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.
(/3/) Through March 31, 1996.

Las Colinas. Las Colinas is a 12,000 acre master-planned office, retail,
hotel and residential community located in Irving, Texas. Las Colinas is
approximately 10 minutes from DFW Airport and approximately 15 and 25 minutes,
respectively, from downtown Dallas and Fort Worth. Las Colinas has its own
CBD, consisting of a number of high-rise office buildings around Lake Carolyn,
known as the Las Colinas Urban Center. The Company's Cottonwood Office Center
Properties are located in the North Irving Subsection on the western border of
the office development of Las Colinas. This submarket contains 4.9 million net
rentable square feet of multi-tenant office space and had a vacancy rate of
6.25% as of March 31, 1996. The Company estimates that demand, new supply,
vacancy rate and market rent for multitenant office space in this subsection
of the submarket in the period 1991-1995 and the first quarter of 1996 were
approximately as follows:

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996(/3/)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Demand(/1/)............... (235) 80 487 326 68 40
New supply(/1/)........... -- -- -- -- -- --
Vacancy rate.............. 24.5% 23% 14.9% 8.2% 6.4% 6.3%
Market rent(/2/).......... $13.17 $12.79 $12.16 $13.40 $15.08 $15.91
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.
(/3/) Through March 31, 1996.

Valwood Industrial Market. The Valwood industrial market (which includes the
Nicholson III and the 13425 Branchview Industrial Properties) encompasses an
area approximately two and one half miles to the west of the intersection of
the LBJ and Stemmons Freeways. The Valwood industrial market consists of
approximately 25 million net rentable square feet of industrial space and had
a 9.5% vacancy rate as of March 31, 1996. The Valwood industrial market
appeals to national firms seeking a central location in Dallas' traditional
industrial corridor, with functional buildings and a plentiful labor supply.
Among the firms with a large presence in the Valwood Industrial District are
Minyards, Boise Cascade, Motorola, Duracell, Stanley Works and Toys 'R Us.

The area is convenient to the Dallas CBD, North Dallas, DFW Airport and the
Mid-Cities (Arlington and Grand Prairie). Continued migration of Dallas'
suburban population to the north should serve to establish Valwood as the
economic industrial center of the Dallas metropolitan area. The Company
estimates that demand, new supply, vacancy rate and market rent for industrial
space-warehouse in this submarket in the period 1991-1995 and the first
quarter of 1996 were approximately as follows:

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996(/3/)
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Demand(/1/)..................... (272) 174 1,166 575 1,041 (703)
New supply(/1/)................. 113 -- -- 418 1,229 127
Vacancy rate.................... 13.1% 12.1% 7.2% 5.8% 6.3% 9.7%
Market rent(/2/)................ $3.51 $3.58 $3.67 $3.70 $3.76 $3.73
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.
(/3/) Through March 31, 1996.

64
<PAGE>

Carrollton/Farmers Branch Industrial Market. The Carrollton/Farmers Branch
industrial market straddles the cities of Farmers Branch and Carrollton. The
Company's 1625 Vantage Drive Industrial Property is located in this submarket.
This submarket extends approximately three miles east from the intersection of
the LBJ Freeway and Stemmons Freeway to the North Dallas Tollway.

The Carrollton/Farmers Branch industrial market is home to numerous national
and regional companies including Whirlpool, Chrysler, CompUSA, Neiman Marcus
and Lennox. These companies are attracted to this submarket because of its
location, access to the local customer base and the ability to distribute
regionally and nationally via the freeway network and rail service. This
submarket contains approximately 25.2 million net rentable square feet of
industrial space with a vacancy rate of 5.1% at March 31, 1996. The Company
estimates that demand, new supply, vacancy rate and market rent for industrial
space-warehouse in this submarket in the period 1991-1995 and the first
quarter of 1996 were approximately as follows:

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996(/3/)
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Demand(/1/)..................... 184 323 151 524 (280) (80)
New supply(/1/)................. 104 3 25 7 214 42
Vacancy rate.................... 8.7% 6.5% 5.3% 2.7% 4.4% 4.8%
Market rent(/2/)................ $3.25 $3.26 $3.27 $3.32 $3.47 $3.50
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.
(/3/) Through March 31, 1996.

Great Southwest/CentrePort Industrial Market. The Great Southwest/CentrePort
industrial market contains approximately 41.3 million net rentable square feet
of industrial space and had a vacancy rate of 3.4% at March 31, 1996. The
submarket is further divided into the North and South Great Southwest
Industrial Districts.

The Company's 1002 Avenue T Industrial Property is located in the north
sector of this submarket which is between State Highway 183 and I-30. This
submarket is one of the largest industrial submarkets in the Dallas area and
appeals to firms seeking a location in the heart of the Dallas/Fort Worth area
with a plentiful labor supply. The Company estimates that demand, new supply,
vacancy rate and market rent for industrial space-warehouse in this submarket
in the period 1991-1995 and the first quarter of 1996 were approximately as
follows:

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996(/3/)
----- ----- ----- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Demand(/1/)..................... 124 1,202 (259) 2,740 1,952 (277)
New supply(/1/)................. 104 33 25 70 214 42
Vacancy rate.................... 13.0% 11.0% 11.6% 5.2% 2.1% 3.0%
Market rent(/2/)................ $2.98 $2.89 $2.94 $2.87 $3.09 $3.09
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.
(/3/) Through March 31, 1996.

Detroit

Detroit is the sixth largest metropolitan area in the U.S. with a population
of 4.3 million as of July 1, 1995. The area had an average population growth
rate of 1.3% from 1990 to 1995. The compounded annual job growth rate for the
three years ended June 30, 1996 was 3.0%. The unemployment rate was 4.5% as of
June 30, 1996. The Big Three automakers remain the largest local private
sector employers. Within the six-county metropolitan region, Ford employs
79,000 workers, General Motors 68,000 workers, and Chrysler 39,000 workers.
Other large

65
<PAGE>

private sector employers include Electronic Data Systems (14,000 employees),
Detroit Medical Center (12,900 employees) and Henry Ford Health System (7,400
employees).

The Company owns one Property in Detroit, a 241,751 square foot Class A
Office in the Southfield submarket. Southfield is the largest suburban office
market in metropolitan Detroit with an inventory of approximately 12.6 million
net rentable square feet of Class A and B office space. The Company estimates
that absorption, vacancy rate and market rent for Class A and B office space
in this submarket in the period 1992-1995 were approximately as follows:

<TABLE>
<CAPTION>
1992 1993 1994 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Absorption................................... 60 267 203 255
Vacancy rate................................. 24.6% 22.9% 15.4% 14.3%
Market rent(/2/)............................. $17.45 $17.07 $16.50 $17.27
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.

Kansas City

Kansas City is the 24th largest metropolitan area in the country with a
population of approximately 1.7 million as of July 1, 1995. The Kansas City
market has exhibited steady economic and demographic trends, which makes it an
attractive market for investment despite its relatively small size. The area
had population growth of 5.1% from 1990 to 1995. The compounded annual job
growth rate for the three years ended June 30, 1996 was 3.0%. The unemployment
rate as of June 30, 1996 was 4.4%. Major employers in the Kansas City area
include Sprint (9,000 employees), Health Midwest (8,000 employees) and
Hallmark Cards (7,000 employees).

The Company owns seven Industrial Properties with an aggregate of
approximately 1.3 million net rentable square feet in the Kansas City
metropolitan area. The Kansas City metropolitan area contains approximately
167 million net rentable square feet of industrial space. The vacancy rate for
Kansas City industrial properties was 4% at June 30, 1996. The Company's
Kansas City Industrial Properties are located in three submarkets, North
Kansas City, Executive Park and Airport Industrial.

North Kansas City is an independent municipality that has access to most
major thoroughfares in Kansas City. This submarket has over 19 million net
rentable square feet of industrial space with a 9% vacancy rate as of June 30,
1996. Among the incentives that draw companies to the North Kansas City
submarket are the low income taxes, lack of inventory property tax and the
lowest property tax in the Kansas City metropolitan area.

The Executive Park submarket is an industrial area four miles northeast of
the CBD. Executive Park attracts companies looking for newer buildings and
Missouri's low-cost base. Executive Park contains approximately 15.5 million
net rentable square feet of industrial space and had a 9% vacancy rate as of
March 31, 1996.

The Airport Industrial submarket is in the northern industrial area of
Kansas City. The area contains approximately 1.9 million net rentable square
feet with a 21% vacancy rate. The vacancy rate increased dramatically in the
first quarter of 1996 because of Sony Corporation's relocation out of the
Company's 200,000 net rentable square foot building in the Airworld Industrial
Park ("Airworld"). Airworld is the centerpiece of this submarket, holding 70%
of the industrial base. Its attractions include proximity to the airport, good
freeway access, available labor supply, lower occupancy costs and high-quality
telecommunications and electrical infrastructure.

The Company estimates that absorption, vacancy rate and market rent for
industrial space in the Kansas City market in the period 1991-1995 were
approximately as follows:

66
<PAGE>

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Absorption(/1/)......... 2.2 1.05 2.8 (3.85) 2.99
Supply(/1/)............. 163.4 164.4 165.2 165.8 166.8
Vacancy rate............ 4% 4% 3% 6% 4%
Market rent(/2/)........ $2.00-3.50 $2.25-3.50 $2.25-4.00 $2.25-3.50 $2.50-4.00
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In millions of square feet.
(/2/) Per square foot.

Milwaukee

Milwaukee is the 25th largest metropolitan area in the United States with a
population of 1.5 million as of July 1, 1995. The area had population growth
of 1.8% from 1990 to 1995. The compounded annual job growth rate for the three
years ended June 30, 1996 was 1.6%. The unemployment rate was 4.0% as of June
30, 1996. Milwaukee's unemployment rate has remained lower than the national
average for the past nine years due largely to the stability of the industrial
base which employs 22% of Milwaukee's workforce. Milwaukee ranks number one
nationally in the manufacturing of industrial equipment such as industrial
controls, mining machinery, hoists, drives and gears. Major employers in the
Milwaukee area include Aurora Health Care, Inc. (9,407 employees), Covenant
Healthcare System, Inc. (8,758 employees), Briggs and Stratton Corp. (7,000
employees) and Ameritech (8,600 employees).

The Company owns 17 Industrial Properties in the Milwaukee area with an
aggregate of approximately 1.2 million net rentable square feet. The four-
county Milwaukee metropolitan area contains a total industrial inventory of
over 5,000 buildings comprising approximately 200 million net rentable square
feet. The 1995 occupancy rate is 97%, up from 1994's rate of 95%. Milwaukee's
largest concentration of industrial space (130.4 million net rentable square
feet or 68% of the total market) is in Milwaukee County which includes the
Airport/Oak Creek and Northwest Milwaukee submarkets. The Milwaukee County
submarkets have benefitted from the increase in air freight activity at
General Mitchell International Airport over the last 10 to 15 years.

The Airport/Oak Creek submarket has approximately 2.9 million net rentable
square feet with a vacancy rate of 2.9%. Twelve of the Company's Properties in
the Airport/Oak Creek submarket are adjacent to General Mitchell International
Airport. Four of the buildings are serviced by the 500 Line and Chicago
Northwestern railroads. Access is provided by IH-43, IH-94 and South Howell
Street.

At March 31, 1996, the Northwest Milwaukee submarket has more than 1.9
million net rentable square feet of industrial space. The remaining three
Properties are in the northwest Milwaukee submarket. Access to the industrial
park in which these Properties are located is provided by IH-894 and State
Highway 18.

The Company estimates that supply, vacancy rate and market rent for
industrial space in the Milwaukee County, Airport and Northwest Milwaukee
submarkets in the period 1991-1995 were approximately as follows:

<TABLE>
<CAPTION>
MILWAUKEE COUNTY
-------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Supply(/1/)..................... 129,800 128,600 128,800 128,900 129,400
Vacancy rate.................... 7.3% 7.5% 7.3% 7.1% 5.3%
Market rent(/2/)................ $2.00 $2.10 $2.25 $2.30 $2.30
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.

67
<PAGE>

<TABLE>
<CAPTION>
AIRPORT
---------------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Supply(/1/)............................... 2,900 2,900 2,900 2,900 2,900
Vacancy rate.............................. 10.9% 9.7% 9.9% 10.0% 3.5%
Market rent(/2/).......................... $2.50 $2.50 $2.75 $3.00 $3.00
--------
Table prepared by the Company based on information that the Company
(/1/) In thousandsbofesquarelfeet.ieves is reliable.
(/2/) Per square foot.

<CAPTION>
NORTHWEST MILWAUKEE
---------------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Supply(/1/)............................... 1,900 1,900 1,900 1,900 1,900
Vacancy rate.............................. 9.2% 2.4% 4.2% 6.1% 5.2%
Market rent(/2/).......................... $2.50 $2.50 $2.75 $2.75 $3.00
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.

Washington, D.C. (including Northern Virginia)

The population of the Washington, D.C. metropolitan area, which includes
Northern Virginia was 4.5 million as of July 1, 1995. The Washington, D.C.
metropolitan area had an average population growth rate of 6.8% from 1990 to
1995. The compounded annual job growth rate for the three years ended June 30,
1996 was 1.8%. The unemployment rate was 4.3% as of June 30, 1996.

The Company owns two Office Properties in Northern Virginia. Northern
Virginia is the largest office market in the Washington, D.C. metropolitan
area, with 99.8 million net rentable square feet of office space, nearly two-
thirds of which was built in the past ten years. The vacancy rate in this
market at December 31, 1995 was 9.3%. Northern Virginia is an attractive
market for government agencies, expanding high tech and communication firms,
and firms and associations looking to leave the District of Columbia for less
expensive office space. Outside of the public sector, the largest employers in
Northern Virginia include Giant Food (19,000 employees), Marriott Corporation
(11,000 employees), Inova Health System (10,000 employees), Walter Reed Army
Medical Center (8,800 employees), Medlantic Healthcare Group (8,300
employees), MCI (5,300 employees) and Washington Hospital Center (5,200
employees).

The Company's Properties, 3141 Fairview Park and 8521 Leesburg, are located
in Fairfax County, which contains 63 million net rentable square feet
representing over 60% of the office inventory in Northern Virginia. Fairfax
County is one of the prime growth centers in the Washington, D.C. metropolitan
area. Located west of Washington, D.C., linked by a sophisticated
transportation system and served by a highly educated labor force, Fairfax
County has numerous characteristics that have attracted many corporate users
of office space.

8521 Leesburg and 3141 Fairview are located more specifically in the Tyson's
Corner and Merrifield submarkets, respectively, of Fairfax County. The Tyson's
Corner office market has grown significantly over the past 20 years and is
currently one of the county's largest office markets with more than 19 million
square feet of existing space. The vacancy rate at March 31, 1996 was 8.5%.

Tyson's Corner has a number of amenities. A wide range of hotels have opened
to serve business travelers and provide conference facilities. The expansion
of the Tyson's Shopping Center, the opening of the Galleria regional shopping
center and the high end shops at Fairfax Square, including Tiffany's, Hermes
and Gucci, have established Tyson's Corner as a premier retail location in
Northern Virginia. In addition, Tyson's Corner has many multifamily projects
which are located near its business districts.

The Merrifield submarket is centered around the intersection of the Capital
Beltway and U.S. Route 50. This market has experienced strong development
since 1980 and has an inventory of 4.9 million net rentable

68
<PAGE>

square feet of office space as of September, 1995. Fairview Park is situated
in the heart of the Merrifield office market and offers a unique, high quality
planned environment. Fairview Park's tenants include several Fortune 500
firms, including Bell Atlantic, Computer Sciences Corporation and IBM. The
Merrifield vacancy rate at September 30, 1995 was approximately 4.0%.
Merrifield offers a highly accessible location with less congestion than
Tyson's Corner. Merrifield is midway between Dulles and National airports and
is conveniently located twenty minutes from the District of Columbia. The
Company estimates that demand, new supply, vacancy rate and market rent for
office space in this submarket in the period 1991-1995 and the six-months
ended June 30, 1996 were approximately as follows:

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996(3)
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Demand(/1/)................. 3,883 2,790 1,311 2,300 3,000 3,000
New supply(/1/)............. 1,100 1,002 932 347 597 1,000
Vacancy rate................ 16.0% 15.3% 12.9% 11.3% 9.0% 8.0%
Market rent(/2/)............ $21.57 $18.54 $16.95 $17.50 $18.50 $20.00
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.
(/3/) Through June 30, 1996.

Baltimore

Baltimore is the 17th largest metropolitan area in the U.S. with a
population of 2.5 million as of July 1, 1995. The area had population growth
of 3.7% from 1990 to 1995. The compounded annual job growth rate for the three
years ended June 30, 1996 was 1.2%. The unemployment rate was 5.9% as of June
30, 1996. Baltimore is the home of one of the top five seaports on the eastern
seaboard. Major employers in the metropolitan area are John Hopkins University
(18,000 employees), Helix Health (9,300 employees) and Westinghouse Electronic
Systems Group (8,800 employees).

The Company has six Industrial Properties in the Baltimore metropolitan area
with an aggregate of 730,777 net rentable square feet. Metropolitan Baltimore
contains a total of approximately 46.8 million square feet of industrial
space. The vacancy rate as of June 30, 1996 was 9.3%. The Company's Properties
are located in the Harford County and Howard County submarkets.

Harford County contains 5.9 million net rentable square feet of industrial
space with a 3.3% vacancy rate as of June 30, 1996. It is the site of several
large corporate distribution facilities including facilities occupied by GE,
Procter & Gamble, Pier 1 Imports, Clorox Company and The Gap. Saks Fifth
Avenue is currently building a 450,000 net rentable square foot distribution
facility in this county. Harford County also is a strong build-to-suit market.

Howard County is located in the Baltimore Washington Corridor. This
submarket contains 17.6 million square feet of industrial space and had a
vacancy rate of 7.9% as of March 31, 1996. Access within the corridor is
provided by I-95 and Route 1.

The Company estimates that supply, absorption, vacancy rate and market rent
for industrial space in the Baltimore/Washington Corridor (including Anne
Arundel and Howard Counties) and the Harford County submarkets are as follows:

<TABLE>
<CAPTION>
BALTIMORE/WASHINGTON CORRIDOR
--------------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Supply(/1/).......................... 26,300 26,800 28,200 28,800 29,700
Absorption(/1/)...................... 279 1,366 1,157 1,251 1,600
Vacancy rate......................... 24.5% 21.0% 19.2% 14.5% 6.9%
Market rent(/2/)..................... $3.78 $3.65 $3.85 $3.95 $4.54
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.

69
<PAGE>

<TABLE>
<CAPTION>
HARFORD COUNTY
---------------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Supply(/1/)............................... 5,600 5,900 6,100 6,400 6,500
Absorption(/1/)........................... 172 276 462 215 620
Vacancy rate.............................. 28.0% 14.1% 6.4% 4.7% 3.9%
Market rent(/2/).......................... $3.50 $3.95 $4.07 $4.12 $4.92
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.

Atlanta

Atlanta has a population of 3.4 million as of July 1, 1995 and is one of the
fastest growing metropolitan areas in the United States. The area had
population growth of 16.0% from 1990 to 1995. The average annual job growth
rate for the three years ended June 30, 1996 was 5.5%. The unemployment rate
was 4.0% as of June 30, 1996. Major employers in the metropolitan area are
Delta Airlines (23,000 employees), AT&T (20,000 employees), Bell South (16,000
employees) and Emory University (14,000 employees). Atlanta is the home of the
Georgia World Congress Center, the second largest convention center in the
country at 2.8 million square feet, and the Atlanta Market Center, a four-
building complex with 500,000 square feet of exhibit and meeting space.
Hartsfield International Airport is the busiest airport in the world.

The Company owns nine Office Properties with 530,228 net rentable square
feet in Atlanta. The overall vacancy rate for Atlanta as of March 31, 1996 was
9.3%. Atlanta's office market totals 89.5 million square feet. The Company
also manages two office properties and ten industrial properties in Atlanta.
The Company's Cumberland Office Properties are located in the Northwest
submarket.

The Northwest submarket has approximately 235 office projects consisting of
approximately 17.8 million square feet of net rentable space. Of this space
approximately 8.6 million net rentable square feet are considered Class B,
with a vacancy rate of 10.4%. This submarket is the second largest area in the
Atlanta market and contains 20% of the office space. The Company's strategy is
to selectively redevelop Cumberland into a mixture of new Class A buildings
and high-quality, functional Class B buildings. The Company estimates that
supply, absorption, vacancy rate and market rents for multi-tenant office
space in the Northwest submarket in the period 1991-1995 were approximately as
follows:

<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Supply(/1/).......................... 17,505 17,690 17,929 17,946 17,905
Absorption........................... 705 824 402 576 239
Vacancy rate......................... 20% 16% 15% 12% 10%
Market rent (Class A)................ $21.03 $21.13 $21.50 $21.99 $22.21
Market rent (Class B)(/2/)........... $13.97 $13.68 $13.68 $14.36 $15.37
</TABLE>
--------
Table prepared by the Company based on information that the Company
believes is reliable.
(/1/) In thousands of square feet.
(/2/) Per square foot.

OFFICE PROPERTIES

General

The Company's 28 Office Properties comprise approximately 3.8 million net
rentable square feet and are located in five major markets: Atlanta, Georgia;
Southfield (Detroit), Michigan; Austin, Texas; Dallas, Texas; and Northern
Virginia. Eleven of the 28 Office Properties were developed by the Prentiss
Group and all of the Office Properties are currently managed by PPL. The
weighted average age of the Office Properties is 10 years. As of June 30,
1996, the Office Properties were 95% leased to 264 tenants. The total 1995
annual Base Rent of

70
<PAGE>

the Office Properties was approximately $45.4 million, and the average 1995
Base Rent per leased square foot was $15.18. Except as noted in the
description of the One Northwestern Plaza and Broadmoor Austin Properties
below, the Company owns the entire fee interest in the Office Properties. See
"--Description of Office Properties."

The space leases on the Office Properties generally have original lease
terms ranging from one year to 15 years. A typical lease requires (i) payment
of Base Rent, (ii) payment of base utility charges, (iii) payment of the
tenant's proportionate share of real estate tax, common area and other
operating expense escalations over a base year, and (iv) payment of overtime
HVAC and electrical use. Under these leases, the Company is typically
responsible for external and structural repairs and repairs relating to the
common areas. Some of the leases have renewal options of varying duration
which extend the original lease terms, typically at either market rent or
negotiated rental rates set forth in the lease.

Historical Occupancy and Rental Information

The following table sets forth as of the dates indicated certain information
regarding the Office Properties that have been managed by PPL since 1991.

OFFICE PROPERTIES MANAGED BY PPL SINCE 1991
HISTORICAL OCCUPANCY AND RENTAL RATES

<TABLE>
<CAPTION>
TOTAL NET
RENTABLE PERCENTAGE AVERAGE ANNUAL
SQUARE FEET LEASED AT BASE RENT PER
DATE (IN THOUSANDS) PERIOD END LEASED SQUARE FOOT(/1/)(/2/)
- ---- -------------- ---------- ----------------------------
<S> <C> <C> <C>
June 30, 1996............ 3,822 95% $15.13
December 31, 1995........ 3,414 96 14.58
December 31, 1994........ 3,337 94 14.55
December 31, 1993........ 2,687 94 14.18
December 31, 1992........ 2,569 93 14.25
December 31, 1991........ 2,569 84 12.57
</TABLE>
- --------
(/1/) Calculated as total annualized Base Rent for the previous 12 months
divided by the total leased square feet at period end.
(/2/) Represents actual Base Rent for the previous 12 months from signed leases
for the period except that only 49.9% of the Base Rent from the Broadmoor
Austin Properties is included in the calculations of total annual Base
Rent, reflecting the Company's 49.9% interest in the partnership owning
the leasehold interest in those Properties.

71
<PAGE>

Lease Expirations

The following table sets forth a schedule of the lease expirations for the
Office Properties for leases in place as of June 30, 1996, assuming that none
of the tenants exercises renewal options or termination rights, if any:

OFFICE PROPERTIES LEASE EXPIRATIONS

<TABLE>
<CAPTION>
TOTAL NET PERCENTAGE
RENTABLE LEASED AT 2006 &
PROPERTY SQ. FT. 6/30/96 1996(/1/) 1997 1998 1999 2000 2001 2002 2003 2004 2005 THEREAFTER
-------- --------- -------- --------- ------- ------- ------- ------- ------- ------ -------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cumberland Office
Park............. 530,228 97% 41,974 60,950 175,275 80,130 116,834 24,370 -- -- -- -- --
One Northwestern
Plaza............ 241,751 93% 19,859 14,307 36,757 6,913 31,091 39,915 10,460 -- 62,600 -- --
Broadmoor
Austin........... 1,112,236 100% -- -- -- -- -- -- -- -- -- -- 1,112,236
Park West........ 727,545 100% 16,147 18,661 31,024 325,523 11,280 5,549 7,100 182,739 125,966 -- --
5307 East
Mockingbird...... 118,316 80% 8,280 8,937 21,937 36,141 8,287 4,239 7,073 -- -- -- --
Walnut Glen
Tower............ 464,289 81% 5,143 52,735 188,862 38,288 11,312 70,825 -- -- -- 9,879 --
Cottonwood Office
Center........... 164,111 99% 7,870 83,922 8,089 -- 44,515 -- -- -- -- -- --
Plaza on Bachman
Creek............ 125,903 90% 2,509 4,054 18,719 7,236 43,841 -- 28,827 -- -- -- --
3141 Fairview
Park Drive....... 192,108 89% 29,398 3,063 14,824 34,783 14,383 33,090 16,814 -- -- 1,486 --
8521 Leesburg
Pike............. 145,257 93% 7,656 7,575 -- 22,297 93,810 4,651 -- -- -- -- --
--------- ---- --------- ------- ------- ------- ------- ------- ------ -------- -------- ------ ---------
Total/Weighted
Average......... 3,821,744 95%
========= ====

Square Footage
Under Leases
Expiring In...... 138,836 254,204 495,487 551,311 375,353 182,639 70,274 182,739 188,566 11,365 1,112,236
------- ------- ------- ------- ------- ------- ------ ------- ------- ------ ---------
Percentage of
Square Feet Under
Expiring Leases.. 4% 7% 14% 15% 11% 5% 2% 5% 5% -- 32%
Annual Base Rent
of Expiring
Leases (in
thousands)....... $1,934 $3,275 $8,060 $8,617 $6,095 $2,950 $1,090 $3,289 $3,473 $184 $11,030(/2/)
Percentage of
Annual
Base Rent(/3/)... 4% 7% 16% 17% 12% 6% 2% 7% 7% -- 22%
Base Rent Per Net
Rentable Square
Feet Under
Expiring Leases.. $13.93 $12.88 $16.27 $15.63 $16.24 $16.15 $15.51 $18.42 $16.19 $19.83
Number of
Expiring Leases.. 50 49 48 50 32 23 6 1 2 2 1
</TABLE>
- ----
(/1/) July 1, 1996 to December 31, 1996.
(/2/) Represents the Company's 49.9% interest in the annual Base Rent from the
leases on the Broadmoor Austin Properties.
(/3/) Calculated by dividing annual Base Rent as adjusted for contractual
increases expiring during each period by the total Base Rent inclusive of
contractual increases.

72
<PAGE>

Leasing Activity

The following table sets forth for the Office Properties that have been
managed by the Company since 1993 a schedule regarding the number of leases
signed, total net rentable square feet, the annualized Base Rent per leased
square foot and effective rent per leased square foot for the years 1993 (the
year that PPL began recording such historical leasing information) through
1995 and for the six months ended June 30, 1996.

OFFICE PROPERTIES MANAGED BY THE COMPANY SINCE 1993
HISTORICAL LEASING ACTIVITY

<TABLE>
<CAPTION>
ANNUALIZED EFFECTIVE
BASE RENT RENT PER
NUMBER OF RENTABLE PER LEASED LEASED
PERIOD LEASES SQUARE FEET SQUARE FOOT SQUARE FOOT(/1/)
------ --------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
January 1, 1996 through June 30, 1996........... 35 144,949 $14.74 $12.63
1995............................................ 81 389,395 14.72 11.86
1994............................................ 83 432,241 11.72 10.13
1993............................................ 55 208,815 11.09 8.88
</TABLE>
- --------
(/1/) Equals aggregate Base Rent received over all lease transactions with
respect to such Office Properties during the period minus all tenant
improvements, leasing commissions and concessions from all lease
transactions during the period, divided by the lease terms (in months),
multiplied by 12 and then divided by the total net rentable square feet
leased under all lease transactions during the period.

73
<PAGE>

Tenant Information

The Office Properties are leased to 264 tenants which engage in a variety of
businesses including computer services, telecommunications, insurance and food
and beverage services. During the year ended 1995, the largest tenant in the
Office Properties, IBM, accounted for approximately 22.2% of the Company's pro
forma annual Base Rent for that period. Sixty-four percent of IBM's annual
Base Rent is derived from a lease at the Company's Broadmoor Austin Property,
which expires in 2006. The Company and IBM own 49.9% and 50.0% interests,
respectively, in the Broadmoor Austin Partnership that owns a long-term ground
lease on that Property. The Prentiss Group will continue to own a 0.1%
interest in this partnership, which the Company will have an option to acquire
one year and one day after the Closing Date. The remaining 36% of IBM's
portion of the Company's pro forma 1995 Base Rent is derived from a lease at
the Park West C2 Property, which expires in 1999. The following table sets
forth the annual Base Rent as of December 31, 1995 derived from the 20 largest
tenants at the Office Properties.

OFFICE PROPERTIES
20 LARGEST TENANTS BY 1995 ANNUAL BASE RENT

<TABLE>
<CAPTION>
TOTAL NET RENTABLE ANNUAL PERCENTAGE OF MONTHS
SQUARE FEET BASE RENT ANNUAL REMAINING
TENANT (IN THOUSANDS) (IN THOUSANDS) BASE RENT AFTER JUNE 30, 1996
------ ------------------ -------------- ------------- -------------------
<S> <C> <C> <C> <C>
IBM..................... 1,382 $13,709/(1)/ 22.2% 117
Dr. Pepper/(2)/......... 168 3,887 6.3 25
Hoechst Celanese........ 205 3,108 5.0 86
The Wyatt Company....... 63 1,404 2.3 94
Medaphis Corporation.... 92 1,166 1.9 44
MCI Communications...... 63 1,153 1.9 46
Sprint Communications... 125 1,039 1.7 97
Liberty Mutual Life
Insurance.............. 84 1,024 1.7 15
Sandwell, Inc........... 52 596 1.0 20
Hewlett Packard......... 21 509 0.8 64
Express One............. 37 479 0.8 44
GTE..................... 35 412 0.7 42
Intergraph Corporation.. 24 396 0.6 27
R.R. Donnelley & Sons... 17 381 0.6 39
Total System Services... 33 379 0.6 7
Tower Marketing......... 29 375 0.6 74
General Reinsurance..... 26 353 0.6 50
The Weather Channel..... 33 337 0.6 22
TCC Communications...... 24 322 0.5 22
Blum Consulting......... 19 315 0.5 60
----- ------- ----
Total................... 2,532 $31,344 50.9%
===== ======= ====
</TABLE>
- --------
/(1)/ Includes approximately $4.9 million derived from a lease at the Company's
Park West C2 Property and approximately $8.8 million derived from a lease
at the Company's Broadmoor Austin Properties, which amount reflects the
Company's 49.9% interest in the total annual Base Rent from those
Properties.
/(2)/ Dr. Pepper recently announced that it intends not to renew its lease at
the Walnut Glen Tower Property when it expires in July 1998.

74
<PAGE>

The following table sets forth information relating to the diversity of the
Company's tenants at the Office Properties based upon net rentable square feet
under lease as of June 30, 1996:

OFFICE PROPERTIES
DISTRIBUTION OF LEASES BY SIZE OF SPACE

<TABLE>
<CAPTION>
TOTAL ANNUAL
SQUARE FOOTAGE NUMBER OF PERCENT OF SQUARE PERCENT OF BASE RENT PERCENT OF
UNDER LEASE LEASES TOTAL FEET TOTAL (IN THOUSANDS) TOTAL
-------------- --------- ---------- --------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Less than 10,000........ 207 78% 585,801 16% $ 7,804 17%
10,000--20,000.......... 36 14 487,676 14 6,636 14
20,001--40,000.......... 12 5 349,092 10 5,222 12
40,001--60,000.......... 1 0 59,158 2 629 1
60,001--80,000.......... 2 1 138,572 4 2,603 6
80,001--100,000......... 1 0 83,922 2 1,024 2
100,001 and over........ 5 2 1,858,789 52 22,101 48
--- --- --------- --- ------- ---
Total................... 264 100% 3,563,010 100% $46,019 100%
=== === ========= === ======= ===
</TABLE>

Description of Office Properties

Cumberland Office Park (Atlanta, GA). Cumberland Office Park is a campus-
style office facility comprised of nine one to five-story office buildings.
These Properties were developed between 1972 and 1980 and contain a total of
530,288 net rentable square feet. Upon acquiring the property in 1991, the
Prentiss Group applied for and received approval for rezoning to allow up to
1.1 million square feet of additional development. The Properties are located
at the intersection of I-285 and Paces Ferry Road, in the heart of Atlanta's
Northwest submarket, and have convenient access to all parts of the Atlanta
metropolitan area, especially the central business district and the airport.
Amenities found either within the complex or within a few minutes drive
include hotels, restaurants, shopping malls, athletic clubs, day care centers,
banks and postal facilities. As of June 30, 1996, the Properties were 97%
leased, and the average 1995 annual Base Rental rate was $11.70 per leased
square foot. Major tenants at Cumberland Office Park include Medaphis
Corporation ("Medaphis") (approximately 102,000 net rentable square feet with
an option to expand by approximately 22,000 net rentable square feet), GTE
Communications (approximately 36,000 net rentable square feet) and Cap
Logistics (approximately 35,000 net rentable square feet) under leases that
expire in 2000, 1999 and 2001, respectively. The aggregate net rentable square
footage of leases expiring in 1996 (after June 30), 1997 and 1998 represent
5%, 7% and 33% of the net rentable square footage of this office park,
respectively. Medaphis, a provider of billing and business services to
physicians and hospitals, is the only tenant that leases more than 10% of the
net rentable square feet of the Cumberland Office Properties. Under the terms
of the current lease, Medaphis paid the owner of these Properties
approximately $1.2 million in Base Rent in 1995 and has an option to renew its
lease for one to three years at market rates upon 13 days notice.

One Northwestern Plaza (Southfield, MI). One Northwestern Plaza is a 13-
story, Class A suburban office building. The building was developed in 1989
and contains 241,751 net rentable square feet with heated underground parking
facilities. The Company owns the entire leasehold interest in the Property
which expires in 2054. The main lobby is a two-story atrium with prominent
main entrances on the east and west sides of the building. Amenities within
the Property include a restaurant, sundry shop, florist/gift shop, travel
agency, hair salon, dentist, jewelry store, stock broker and mail room. The
building is located at the intersection of I-696 and Northwestern Highway. As
of June 30, 1996, the Property was 93% leased, and the 1995 annual Base Rent
was $21.12 per leased square foot. The Property's major tenants are The Wyatt
Company (approximately 62,000 net rentable square feet), Intergraph
Corporation (approximately 21,000 net rentable square feet) and Prudential
Insurance (approximately 11,000 net rentable square feet), under leases that
expire in 2004, 1998 and 1996, respectively. The aggregate net rentable square
footage of leases expiring in 1996 (after June 30), 1997 and 1998 represent
13%, 11% and 14% of this Property's net rentable square footage, respectively.

Broadmoor Austin (Austin, TX). Broadmoor Austin is a seven-building, campus-
style, Class A office complex consisting of one single story, three six-story
and three eight-story office buildings. The Properties were

75
<PAGE>

developed by PPL in 1991 and contain 1,112,236 net rentable square feet and
parking for approximately 3,000 cars. The land on which the building is
located is currently leased from IBM for $150,000 per year through 2005 and
$300,000 per year through 2015 under a long-term ground lease expiring no
earlier than 2015. The ground lease may be renewed for two successive terms of
25 years at the Company's option. After March 2015, yearly rent for the ground
lease will be equal to (i) 90% of fair market value, but not less than
$300,000 per year in the first renewal period and (ii) fair market value, but
not less than $300,000 per year in the second renewal period. The Company owns
a 49.9% managing general partnership interest in the partnership owning the
leasehold interest. The Prentiss Group will continue to own a 0.1% interest in
this partnership, which the Company will have an option to acquire one year
and one day after the Closing Date. IBM owns the other 50.0% interest in that
partnership. The Properties are located on 62 acres which includes four acres
for future development. IBM has the right to terminate the ground lease with
respect to 83 acres at no cost and it expects to exercise this right after it
obtains certain governmental approvals necessary for a planned development.
Until such time, the Company is the nominal owner of those 83 acres with no
rights to develop them. The Properties are located in northwest Austin, at
MoPac (Loop 1) and FM 1325 (Burnett Road), one mile north of Highway 183. The
Properties are adjacent to a 563-acre IBM software manufacturing and
operations facility. IBM has leased 100% of the rentable area of the
Properties since March 1991 under an occupancy lease with an initial term of
15 years with three five-year renewal options. The occupancy lease with IBM
provides for annual rent payments of approximately $17.6 million per year
through March 2001 and approximately $22.1 million from April 2001 through
March 2006. After March 2006, the rent payments under the occupancy lease
shall be 90% of fair market value but not less than approximately $22.1
million per year in each renewal term. The average 1995 annual Base Rent was
$15.87 per square foot. The Properties represent IBM's first centralized
office complex in Austin and accommodate approximately 3,500 IBM employees.

Park West (Dallas, TX). Park West consists of three office buildings
containing a total of 727,545 net rentable square feet, which are located in
the Park West Office Park. The Park West Office Park is part of the Park West
Master Plan, which consists of 350 acres located along the LBJ Freeway less
than one mile west of I-35. The location provides direct access along the LBJ
Freeway to DFW Airport, and to downtown Dallas and Love Field via I-35. The
Park West Master Plan includes an extensive package of amenities including
restaurants, full-service banking, travel agency, athletic club and jogging
trails and a Doubletree Hotel.

Park West C2 is a seven-story, Class A office building. The building was
developed by PPL in 1989 and contains 344,216 net rentable square feet with an
adjacent five-story garage. The exterior of the building is architecture
concrete with black aggregate and full-height windows of silver dual-pane
glass. As of June 30, 1996, the building was 100% leased, and the average 1995
annual Base Rent was $16.22 per leased square foot. The building's principal
tenants are IBM (approximately 270,000 net rentable square feet), Ultimate
Corporation (approximately 18,000 net rentable square feet) and CIGNA
(approximately 15,000 net rentable square feet), under leases expiring in
1999, 1999 and 2002 respectively. The aggregate net rentable square footage of
leases expiring in 1996 (after June 30), 1997 and 1998 represent 2%, 0% and 0%
of this building's net rentable square footage, respectively.

Park West E1 is an eight-story, Class A office building. The Property was
developed by PPL in 1982 and contains 182,739 net rentable square feet with a
627 car, free standing parking garage. As of June 30, 1996, the Property was
100% leased to Hoechst Celanese Corporation ("HCC") under a lease that expires
in July 2003. HCC, a large multinational textile, chemical and pharmaceutical
company, is the only tenant that leases more than 10% of the net rentable area
in the Park West Properties. Under the current lease, HCC paid the owner of
the property approximately $3.1 million in Base Rent in 1995 and has an option
to renew the lease. The average 1995 annual Base Rent for Park West E1 was
$14.62 per leased square foot.

Park West E2 is an eight story, Class A office building located adjacent to
Park West E2. The Property contains 200,590 net rentable square feet and was
developed by PPL in 1985. It contains a free standing parking garage and
bridges connecting the fourth through seventh floors to Park West E1 and to an
adjacent building. Both Park West E2 and E1 are constructed of pre-cast
concrete panels and full-height dual pane glass. As of June 30, 1996, the
building was 99% leased, and the average 1995 annual Base Rent was $9.17 per
leased square foot. The building's principal tenants are Sprint Communication
(approximately 125,000 net rentable square feet)

76
<PAGE>

and Hoechst Celanese Corporation (approximately 22,000 net rentable square
feet). The aggregate net rentable square footage of leases expiring in 1996
(after June 30), 1997 and 1998 represent 0%, 1% and 6% of this Property's net
rentable square footage, respectively.

5307 East Mockingbird (Dallas, TX). 5307 East Mockingbird is a ten-story
suburban office building. The Property was developed in 1979 and contains
118,316 net rentable square feet with an attached six-story garage. Both the
building and the parking structure are reinforced concrete structures. Tenant
common areas and office spaces were renovated in 1993 with upgraded carpet,
wall coverings and recessed lighting. The Property is located on the northeast
corner of the intersection of North Central Expressway and East Mockingbird.
The North Central Expressway is undergoing a substantial renovation that is
expected to increase access to and visibility of the Property. The renovation
is expected to be completed in 2000. Local amenities include proximity to
various restaurants, theaters and retail centers, including North Park Mall.
As of June 30, 1996, the Property was 80% leased, and the average 1995 annual
Base Rent was $9.06 per leased square foot. The Property's major tenants are
Staff Benefits, Inc. (approximately 13,000 net rentable square feet),
Guarantee Federal Bank, F.S.B. (approximately 12,000 net rentable square feet)
and Cardinal Communications (approximately 7,000 net rentable square feet)
under leases that expire in 1998, 1999 and 2002, respectively. The aggregate
net rentable square footage of leases expiring in 1996 (after June 30), 1997
and 1998 represent 4%, 9% and 27% of this Property's net rentable square
footage, respectively.

Walnut Glen Tower (Dallas, TX). Walnut Glen is an 18-story, Class A suburban
office building. The Property was developed in 1985 and contains 466,289 net
rentable square feet with an adjacent six-story garage. The building is
situated around a full-height atrium with an 84-foot waterfall and consists of
a reinforced concrete and structural steel frame, and a polished granite and
insulated glass interior. Walnut Glen is located in the North Central Corridor
of Dallas, Texas and has direct access to North Central Expressway with easy
access to the LBJ Freeway and downtown Dallas. As of June 30, 1996, the
Property was 81% leased, and the average 1995 annual Base Rent was $17.74 per
leased square foot. The major tenants of Walnut Glen are Dr. Pepper/Cadbury
North America (approximately 205,000 net rentable square feet), General
Reinsurance (approximately 26,000 net rentable square feet), and the American
Association of Retired Persons (approximately 7,000 net rentable square feet)
under leases that expire in 1999, 2001 and 2001, respectively. Dr.
Pepper/Cadbury North America, a soft drink and candy manufacturer, is the only
tenant occupying more than 10% of the space at the Property. Under the terms
of the related lease, Dr.Pepper/Cadbury paid the owner of the Property $3.9
million in 1995. Although Dr.Pepper/Cadbury has an option to renew the lease,
Dr. Pepper/Cadbury recently informed the Company that it intends to relocate
its offices from this Property when its current lease expires in 1998. The
aggregate net rentable square footage of leases expiring in 1996 (after June
30), 1997 and 1998 represent 7%, 7% and 48% of the Property's net rentable
square footage, respectively. As part of the Formation Transactions, the
Company will also acquire a 4.2 acre parcel adjacent to the Property which can
support approximately 500,000 net rentable square feet of new office
development. The parcel is currently ground leased to a restaurant.

Cottonwood Office Center (Dallas, TX). Cottonwood Office Center is a Class A
suburban office complex consisting of two two-story buildings and one three-
story building. The three Properties were developed in 1986 and contain a
total of 164,111 net rentable square feet. The Properties have surface and
underground parking. All three buildings are connected via a glass-enclosed
atrium. The Properties are located at 2110 Walnut Hill Lane, on the western
border of the office development of Las Colinas. The majority of the building
has a view of the golf course at the Cottonwood Valley Country Club. As of
June 30, 1996, the Properties were 99% leased, and the average 1995 annual
Base Rent was $12.32 per leased square foot. The Properties' major tenants
include Liberty Mutual Life Insurance Company (approximately 96,000 net
rentable square feet), Glade Properties (approximately 17,000 net rentable
square feet) and GTE Visnet Incorporated (approximately 11,000 net rentable
square feet) under leases that expire in 2004, 2000 and 2000, respectively.
The aggregate net rentable square footage of leases expiring in 1996 (after
June 30), 1997 and 1998 represent 5%, 0% and 5% of the Properties' net
rentable square footage, respectively.

The Plaza on Bachman Creek (Dallas, TX). The Plaza on Bachman Creek is a
seven-story, Class A suburban office building. The Property was developed in
1986 and contains 125,903 net rentable square feet.

77
<PAGE>

The interior of the building includes a two-story atrium lobby that is
finished in travertine and polished verde marble. This Property is situated on
an eight-acre site, which includes an adjacent 248 room Embassy Suites hotel
and four-story, 72,000 square foot office building of similar design. Common
areas for all three buildings are controlled through a condominium agreement.
Total parking provided for all three buildings is for 1,066 cars. The Plaza on
Bachman Creek is located at the intersection of Northwest Highway and Lemmon
Avenue. Major business centers and transportation facilities are easily
accessible via Stemmons Freeway, LBJ Freeway and the North Dallas Tollway. In
addition, Love Field is one mile to the south and DFW Airport is 11 miles to
the west. As of June 30, 1996, the Property was 90% leased, and the average
1995 annual Base Rent was $11.57 per square foot. The Property's major tenants
are Express One (approximately 37,000 net rentable square feet) and Tower
Marketing (approximately 29,000 net rentable square feet) under leases that
expire in 2000 and 2002, respectively. The Company intends to relocate its
headquarters to this Property in the fourth quarter of 1996 and to lease
approximately 37,000 net rentable square feet at this building under a lease
that expires in 2001. The aggregate net rentable square footage of leases
expiring in 1996 (after June 30), 1997 and 1998, represent 0%, 3% and 0% of
the Property's net rentable square footage, respectively.

3141 Fairview Park Drive (Northern Virginia). 3141 Fairview Park Drive is an
eight-story, Class A suburban office building. The Property was developed by
PPL in 1988 and contains 192,108 net rentable square feet. The building shares
an adjacent parking garage with a Marriott Hotel. The exterior of the building
is composed of granite and glass with a slate roof and dormer windows on the
top floor. The Property overlooks a retail court and expansive tiered
fountain. The main lobby of the building features a 28-foot high barrel-
vaulted ceiling. The Property is located in the Fairfax County submarket of
Northern Virginia and is the centerpiece of Fairview Park, a 220-acre master-
planned office community developed by the Prentiss Group. As of June 30, 1996,
the Property was 89% leased, and the average 1995 annual Base Rent was $19.25
per square foot. The Property's major tenants include Hewlett-Packard
(approximately 21,000 net rentable square feet), Equitable Life (approximately
17,000 net rentable square feet) and R.R. Donnelley & Sons (approximately
17,000 net rentable square feet) under leases that expire in 2001, 2002 and
1999. The aggregate net rentable square footage of leases expiring in 1996
(after June 30), 1997 and 1998 represent 34%, 1% and 7% of the Property's net
rentable square footage, respectively.

8521 Leesburg Pike (Northern Virginia). 8521 Leesburg Pike is a seven-story,
Class A suburban office building. The Property was developed in 1984 and was
substantially renovated in 1993. It contains 145,257 net rentable square feet
with an adjacent four-story garage. The building's exterior is composed of an
acid washed pre-cast curtain wall and has green tinted double pane insulating
glass. The Property's lobby features marble floors, marble wainscot and
painted drywall finishes. The Property is located in Tyson's Corner, Virginia,
near the intersection of Leesburg Pike and the Dulles Access Road. The Tyson's
Corner submarket of Northern Virginia has evolved from a regional retail
shopping center and low-cost offices for high-tech firms to one of the largest
office markets in the country. There are a number of amenities in the Tyson's
Corner area, including day-care centers, luxury hotels, such as the Ritz-
Carlton, and retail shops, including Tiffany's, Hermes and Gucci. As of June
30, 1996 the Property was 93% leased, and the average 1995 annual Base Rent
was $16.97 per square foot. The Property's major tenants are MCI
Telecommunications (approximately 84,000 net rentable square feet), Optical
Data Systems (approximately 7,000 net rentable square feet) and Wolf & Cohen
(approximately 5,000 net rentable square feet) under leases that expire in
2000, 1997 and 2001, respectively. The aggregate net rentable square footage
of leases expiring in 1996 (after June 30), 1997 and 1998 represent 0%, 5% and
0% of the Property's net rentable square footage, respectively.

78
<PAGE>

The following table sets forth additional information regarding each of the
Office Properties.

OFFICE PROPERTIES -- ADDITIONAL DATA

<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP
PERCENTAGE INTEREST NUMBER
OWNERSHIP (GROUND OF PERCENT NUMBER
AFTER LEASE YEAR LAND NUMBER FLOORS RENTABLE LEASED OF
FORMATION EXPIRATION DEVELOPED/ YEAR AREA OF PER SQUARE AS OF TENANT
PROPERTY TRANSACTION DATE)/(1)/ RENOVATED ACQUIRED ACRES BLDGS. BLDG. FEET 6/30/96 LEASES
-------- ----------- ---------- ---------- -------- ----- ------ ------ --------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cumberland 100% Fee 1972-1980 1991 46.7 9 1-5 530,228 97% 76
Office Park.....
One Northwestern 100% Leasehold 1989 1996 8.9 1 14 241,751 93% 30
Plaza...........
(6/30/54)
Broadmoor 50% Leasehold 1991 1991 62.0/(3)/ 7 6-8 1,112,236 100% 1
Austin/(2)/..... (3/31/65)
Park West....... 100% Fee 1989 1995 19.3 3 7-8 727,545 100% 24
5307 East 100% Fee 1979/1993 1993 1.7 1 10 118,316 80% 38
Mockingbird.....
Walnut Glen 100% Fee 1985 1994 10.0/(4)/ 1 18 464,289 81% 35
Tower...........
Cottonwood 100% Fee 1986 1996 4.8 3 2-3 164,111 99% 8
Office Center...
Plaza on Bachman 100% Fee 1986 1996 2.9 1 7 125,903 90% 9
Creek...........
3141 Fairview 100% Fee 1988 1996 5.6 1 8 192,108 89% 29
Park Drive......
8521 Leesburg 100% Fee 1984/1993 1994 3.3 1 7 145,257 93% 14
Pike............
----- --- --------- --- ---
Total--Office
Properties...... 165.2 28 3,821,744 95% 264
===== === ========= === ===
<CAPTION>
SQUARE FEET
LEASED BY
SIGNIFICANT
SIGNIFICANT TENANTS
PROPERTY TENANTS (NAME) (IN THOUSANDS)
-------- ------------------------- --------------
<S> <C> <C>
Cumberland Medaphis Corp............ 92
Office Park.....
Sandwell Inc............. 52
One Northwestern The Wyatt Company........ 63
Plaza...........
Intergraph Corporation... 24
Broadmoor IBM...................... 1,112
Austin/(2)/.....
Park West....... IBM...................... 270
Hoechst Celanese......... 183
5307 East Staff Benefits, Inc...... 13
Mockingbird.....
Guaranty Federal Bank.... 12
Walnut Glen Dr. Pepper............... 168
Tower...........
General Reinsurance...... 26
Cottonwood Liberty Mutual Life...... 84
Office Center...
GTE Visnet Incorporated.. 11
Plaza on Bachman Express One.............. 37
Creek...........
Tower Marketing.......... 29
3141 Fairview Hewlett Packard.......... 21
Park Drive......
RR Donnelley............. 17
8521 Leesburg MCI Communications....... 63
Pike............
Coscan Homes............. 13
--------------
Total--Office
Properties...... 2,290
==============
</TABLE>
- ----
/(1)/ Ground lease expirations assume exercise of renewal options by the
lessee.
/(2)/ The Base Rent data reflects the Company's 49.9% interest in the general
partnership owning the leasehold interest in these Properties.
/(3)/ Initially approximately 145 acres. IBM has the right to terminate the
ground lease with respect to 83 acres at no cost to the Company, after
IBM obtains certain governmental approvals necessary for a planned
development by it on that site. Until such time the Company is the
nominal owner of those 83 acres with no rights to develop them.
/(4)/ 3.2 acres are ground leased to an adjoining restaurant.

79
<PAGE>

INDUSTRIAL PROPERTIES

The 59 Industrial Properties comprise approximately 5.0 million square feet
of net rentable area and are located in six major markets: Los Angeles,
California; Baltimore, Maryland; Kansas City, Missouri; Dallas, Texas;
Houston, Texas and Milwaukee, Wisconsin. As of June 30, 1996, the Industrial
Properties were 90% leased to 114 tenants. The total 1995 annual Base Rent of
the Industrial Properties was approximately $16.3 million and average 1995
Base Rent per leased square foot of the Industrial Properties was $3.31. The
Company owns 100% of the Industrial Properties.

The current leases on the Industrial Properties generally have original
lease terms ranging from one to 15 years. A typical lease requires (i) payment
of Base Rent, (ii) payment of base utility charges, and (iii) payment of
tenant's proportionate share of fixed costs subject to an expense stop or base
year. Some of the leases have renewal options of varying duration which extend
the original lease terms, typically at either market rent or negotiated rental
rates set forth in the lease.

Historical Occupancy and Rental Information

The following table sets forth certain information regarding those
Industrial Properties that have been managed by PPL since 1991.

INDUSTRIAL PROPERTIES MANAGED BY PPL SINCE 1991
HISTORICAL OCCUPANCY AND RENTAL RATES

<TABLE>
<CAPTION>
TOTAL RENTABLE PERCENTAGE AVERAGE ANNUAL
SQUARE FEET LEASED AT BASE RENT PER
DATE (IN THOUSANDS) PERIOD END LEASED SQUARE FOOT/(1)/
- ---- -------------- ---------- -----------------------
<S> <C> <C> <C>
June 30, 1996................. 4,937 92% $3.57
December 31, 1995............. 4,937 96 3.31
December 31, 1994............. 4,862 94 3.12
December 31, 1993............. 4,032 93 3.38
December 31, 1992............. 2,334 86 4.17
December 31, 1991............. 1,253 77 6.40
</TABLE>
- --------
/(1)/ Calculated as total annualized Base Rent for the previous twelve months
divided by the total leased square feet at period end.

80
<PAGE>

Lease Expirations

The following table sets forth a schedule of the lease expirations for the
Industrial Properties for leases in place as of June 30, 1996 assuming that
none of the tenants exercises renewal options or termination rights, if any:

INDUSTRIAL PROPERTIES LEASE EXPIRATIONS

<TABLE>
<CAPTION>
TOTAL NET PERCENTAGE
RENTABLE LEASED AT
PROPERTY SQ. FT. 6/30/96 1996(/1/) 1997 1998 1999
-------- --------- ---------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Pacific Gateway Center............................................ 1,252,708 92% 50,000 134,409 112,045 129,719
Baltimore Industrials:
8869 Greenwood.................................................. 89,582 74% -- -- 22,914 43,754
1329 Western Avenue............................................. 185,600 95% -- 30,000 -- 35,916
Deep Run 1 & 2.................................................. 169,112 100% -- -- 81,198 --
4611 Mercedes Drive............................................. 178,133 100% -- -- -- --
9050 Junction Drive............................................. 108,350 100% -- -- -- --
--------- ---- --------- -------- ---------- --------
Total Baltimore Industrial........................................ 730,777 96% -- 30,000 104,112 79,670
Kansas City
Industrials:
Northland Park.................................................. 925,007 100% 62,082 158,287 236,704 151,920
North Topping Street............................................ 119,118 100% -- -- 100,750 --
Airworld Drive.................................................. 200,000 0% -- -- -- --
107th Terrace................................................... 96,700 100% -- -- -- --
--------- ---- --------- -------- ---------- --------
Total Kansas City Industrial...................................... 1,340,825 85%
Dallas 62,082 158,287 337,454 151,920
Nicholson III................................................... 155,712 91%
13425 Brachview................................................. 121,250 100% 6,264 6,264 12,528 30,096
1002 Avenue T................................................... 100,000 100% -- -- -- --
1625 Vantage Drive.............................................. 50,000 100% -- -- 100,000 --
--------- ---- -- -- -- 50,000
Total Dallas Industrial........................................... 426,962 97% --------- -------- ---------- --------
West Loop Business Park........................................... 75,231 92% 6,264 6,264 112,528 80,096
Milwaukee 17,775 26,382 -- 5,682
Industrials:
Airport Properties.............................................. 572,953 98% 31,770 32,364 258,710 77,282
Oak Creek Properties............................................ 232,000 100% -- 112,000 120,000 --
North West Properties........................................... 413,371 83% -- -- -- 169,800
--------- ---- --------- -------- ---------- --------
Total Milwaukee 31,770 144,364 378,710 247,082
Industrial........................................................ 1,218,324 93%
--------- ---- 167,891 499,706 1,044,849 694,169
Total Weighted Average............................................ 5,044,827 90% --------- -------- ---------- --------
========= ==== 4% 11% 23% 15%
Square Footage Under Leases Expiring In.......................... $705 $1,921 $3,257 $2,516
Percentage of Square Feet Under Expiring Leases.................. 4% 10% 17% 13%
Annual Base Rent of Expiring Leases (in thousands)............... $4.20 $3.84 $3.12 $3.62
Percentage of Annual Base Rent(/2/).............................. 13 16 22 25
Base Rent Per Net Rentable Square Feet Under Expiring Leases.....
Number of Leases Expiring.........

<CAPTION>
PROPERTY 2000 2001 2002 2003 2004 2005
-------- ---------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Pacific Gateway Center........................................... 534,130 51,731 -- 50,814 40,136 54,188
Baltimore Industrials:
8869 Greenwood................................................. -- -- -- -- -- --
1329 Western Avenue............................................ 66,000 27,600 17,352 -- -- --
Deep Run 1 & 2................................................. 87,914 -- -- -- -- --
4611 Mercedes Drive............................................ 178,133 -- -- -- -- --
9050 Junction Drive............................................ -- -- -- -- -- 108,350
---------- -------- ------- ------- ------- --------
Total Baltimore Industrial....................................... 332,047 27,600 17,352 -- -- 108,350
Kansas City
Industrials:
Northland Park................................................. 308,532 -- -- -- -- --
North Topping Street........................................... 18,368 -- -- -- -- --
Airworld Drive................................................. -- -- -- -- -- --
107th Terrace.................................................. -- 96,700 -- -- -- --
---------- -------- ------- ------- ------- --------
Total Kansas City
Industrial....................................................... 326,900 96,700 -- -- -- --
Dallas
Nicholson III.................................................. 52,800 33,000 -- -- -- --
13425 Brachview................................................ -- 121,250 -- -- -- --
1002 Avenue T.................................................. -- -- -- -- -- --
1625 Vantage Drive............................................. -- -- -- -- -- --
---------- -------- ------- ------- ------- --------
Total Dallas Industrial.......................................... 52,800 154,250 -- -- -- --
West Loop Business Park.......................................... -- -- -- -- -- 14,800
Milwaukee Industrials:
Airport Properties.............................................. 49,605 67,704 37,740 -- -- --
Oak Creek Properties............................................ -- -- -- -- -- --
North West Properties........................................... 119,160 -- -- -- 54,811 --
---------- -------- ------- ------- ------- --------
Total Milwaukee Industrial....................................... 168,765 67,704 37,740 -- 54,811 --
Total Weighted Average..........
Square Footage Under Leases Expiring In.......................... 1,414,642 397,985 55,092 50,814 94,947 177,338
---------- -------- ------- ------- ------- --------
Percentage of Square Feet Under Expiring Leases.................. 30% 9% 1% 1% 2% 4%
Annual Base Rent of Expiring Leases (in thousands)............... $7,347 $1,309 $285 $291 $407 $1,036
Percentage of Annual Base Rent(/2/).............................. 39% 7% 1% 2% 2% 5%
Base Rent Per Net Rentable Square Feet Under Expiring Leases..... $5.19 $3.29 $5.17 $5.73 $4.29 $5.84
Number of Leases Expiring........................................ 22 8 2 1 2 3
</TABLE>

- -----------
(/1/) July 1, 1996 to December 31, 1996
(/2/) Calculated by dividing annual Base Rent as adjusted for contractual
increases expiring during each period by the total base rent inclusive
of contractual increases.

81
<PAGE>

Leasing Activity

The following table sets forth a schedule regarding the Industrial
Properties of number of leases signed, total net rentable square feet, the
annualized base rent per leased square foot and effective rent per leased square
foot for the years 1993 (the year that PPL began recording such historical
leasing information) to 1995 and the six months ended June 30, 1996.

INDUSTRIAL PROPERTIES MANAGED BY THE COMPANY SINCE 1993
HISTORICAL LEASING ACTIVITY

<TABLE>
<CAPTION>
ANNUALIZED EFFECTIVE
BASE RENT RENT PER
NUMBER OF RENTABLE PER LEASED LEASED
PERIOD LEASES SQUARE FEET SQUARE FOOT SQUARE FOOT(/1/)
------ --------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
January 1, 1996 through
June 30, 1996............. 16 628,564 $3.15 $2.97
1995....................... 38 1,644,064 3.85 3.53
1994....................... 28 771,934 3.20 2.89
1993....................... 23 974,437 3.50 3.05
</TABLE>
- --------
(/1/) Equals aggregate Base Rent received over all lease transactions with
respect to such Industrial Properties during the period minus all tenant
improvements, leasing commissions and concessions from all lease
transactions during the period, divided by the lease terms (in months),
multiplied by 12 and then divided by the total net rentable square feet
leased under all lease transactions during the period.

Tenant Information

The Industrial Properties are leased to 114 tenants which engage in a
variety of businesses including electronics, tire manufacturing and food
systems. The following table sets forth the annual base rent as of December 31,
1995 derived from the 15 largest tenants at the Industrial Properties.

INDUSTRIAL PROPERTIES
15 LARGEST TENANTS BY 1995 ANNUAL BASE RENT

<TABLE>
<CAPTION>
MONTHS
TOTAL NET RENTABLE ANNUAL PERCENTAGE REMAINING
SQUARE FEET BASE RENT OF TOTAL AFTER
TENANT (IN THOUSANDS) (IN THOUSANDS) BASE RENT JUNE 30, 1996
------ ------------------ -------------- ---------- -------------
<S> <C> <C> <C> <C>
Nippon Express USA...... 353 $1,308 2.2% 54
Crown Cork & Seal....... 178 677 1.1 46
Dunlop Tire
Corporation............ 230 525 0.9 49
Distribution Services... 163 386 0.6 8
General Electric
Company................ 118 382 0.6 16(/1/)
Pepsico Food Systems.... 120 354 0.6 19
Elite Spice............. 89 331 0.5 46
Distribution
Specialists............ 112 319 0.5 17
Ambrosia Chocolate...... 101 318 0.5 40
Bradley Corp............ 119 316 0.5 54
Serv-Tech............... 67 304 0.5 12
Northwestern Mutual
Life................... 100 301 0.5 144
Fujitsu-Ten
Corporation............ 76 301 0.5 39
Tate Access Floors...... 81 288 0.5 21
Standard
Communications......... 54 282 0.5 109
----- ------ ----
Total............... 1,961 $6,392 10.4%
===== ====== ====
</TABLE>
- --------
(/1/) Represents the weighted average of a lease for 56,000 net rentable square
feet which expires in November 1998 and a lease for 62,000 net rentable
square feet which expires in November 1996.

82
<PAGE>

The following table sets forth information relating to the diversity of the
tenants at the Industrial Properties based upon square feet under lease at
June 30, 1996:

INDUSTRIAL PROPERTIES
DISTRIBUTION OF LEASES BY SIZE OF SPACE

<TABLE>
<CAPTION>
TOTAL ANNUAL
SQUARE FOOTAGE NUMBER OF PERCENT OF NET RENTABLE PERCENT OF BASE RENT PERCENT OF
UNDER LEASE LEASES TOTAL SQUARE FEET TOTAL (IN THOUSANDS) TOTAL
-------------- ---------- ---------- ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Less than 10,000........ 33 29% 182,815 4% $ 808,643 5%
10,001-20,000........... 18 16 270,252 6 1,096,994 7
20,001-40,000........... 18 16 522,414 11 2,196,729 14
40,001-60,000........... 20 18 972,455 21 3,973,186 25
60,001-80,000........... 6 5 400,931 9 1,502,736 9
80,001-100,000.......... 6 5 529,569 12 1,516,196 10
100,001 and over........ 13 11 1,718,997 37 4,801,234 30
--- --- --------- --- ----------- ---
Total............... 114 100% 4,597,433 100% $15,895,718 100%
=== === ========= === =========== ===
</TABLE>

Industrial Properties Descriptions

LOS ANGELES INDUSTRIAL PROPERTIES.

Pacific Gateway Center. Pacific Gateway Center is an industrial complex
composed of 18 buildings containing 1,252,708 net rentable square feet. The
Property's major tenants are Nippon Express USA, R.R. Donnelley & Sons,
Fujitsu-Ten Corporation, Toyota Motor Sales and Shimadzu. The Properties are
located in Torrance, California, approximately 14 miles south of downtown Los
Angeles and approximately 10 miles from the ports of Long Beach and Los
Angeles and Los Angeles International Airport. Pacific Gateway Center is
within one mile from each of the San Diego (405) Freeway, the Harbor (110)
Freeway and the Artesia (91) Freeway. The Torrance submarket contains
approximately 26 million net square feet and includes the Los Angeles
Enterprise Zone (in which Pacific Gateway Center is located), which provides
tenants with various tax and cost benefits.

BALTIMORE INDUSTRIAL PROPERTIES. The Company owns six Industrial Properties
containing 730,777 net rentable square feet in five locations throughout the
Baltimore/Washington Industrial Corridor (the "BWI Corridor"). The BWI
Corridor contains approximately 55 million square feet of distribution,
warehouse and research property in five counties. Howard County and Anne
Arundel County contain the primary bulk distribution/warehouse inventory for
the BWI Corridor, a total of 41 million square feet in seven major industrial
parks. The Baltimore Industrial Properties consist of 8869 Greenwood, 1329
Western Avenue, Deep Run 1 & 2, 4611 Mercedes Drive and 9050 Junction Drive.

8869 Greenwood. 8869 Greenwood is a multi-tenant warehouse/distribution
building containing 89,582 net rentable square feet. The Property's major
tenants are Mid-Atlantic Coca-Cola, Systems Connection and Wilmar Industries.
The Property is located in Howard County and is part of Corridor Industrial
Park which is an eleven building industrial park totaling 1.4 million net
rentable square feet.

1329 Western Avenue. 1329 Western Avenue is a multi-tenant bulk distribution
building containing 185,600 net rentable square feet, of which 14,500 square
feet are devoted to office area. The Property's major tenants are Holt Paper
and Chemical and Electronic Data Systems, Inc. The Property is located at 1329
Western Avenue, Baltimore, Maryland, in the Southwest submarket of the BWI
Corridor. This submarket contains approximately 7.2 million net rentable
square feet of industrial/warehouse space. 5.2 million net rentable square
feet of this submarket was constructed prior to 1960. Only one million square
feet has been constructed since 1980.

83
<PAGE>

Deep Run 1 & 2. Deep Run 1 & 2 are two warehouses containing a total of
169,112 net rentable square feet. Elite Spice and Tate Access Floors currently
lease 100% of Deep Run 1 and 2, respectively. The Properties are located at
7151 and 7155 Montevideo Road, Jessup, Maryland, on the Route 1 Corridor
submarket of the BWI Corridor. This submarket contains approximately 8.6
million square feet of industrial/warehouse space that on average was
constructed in 1982. This submarket has a strategic location with proximity to
the Port of Baltimore and excellent access to major trucking routes.

4611 Mercedes Drive. 4611 Mercedes Drive is a one-story
warehouse/distribution facility containing 178,133 net rentable square feet.
Crown, Cork & Seal currently leases 100% of the Property. The Property is
located at 4611 Mercedes Drive, Belcamp, Maryland, in the Harford County
submarket of the northeast corridor of Maryland. This submarket contains 44
buildings totaling over 6,750,000 net rentable square feet. The Property is
part of Riverside Park, an industrial park consisting of 19 buildings totaling
approximately 2,400,000 net rentable square feet. Harford County has grown
into a significant location for warehouse/distribution activities during the
past several years, as a number of Fortune 500 companies have moved into this
submarket.

9050 Junction. 9050 Junction is a bulk industrial building containing
108,350 net rentable square feet. Professional Mailing currently leases 100%
of the Property. The Property is located in the Annapolis Junction Business
Park in Savage (Howard County), Maryland. The Annapolis Junction Business Park
is strategically located in the southeastern quadrant of the intersection of
Route 1 and Route 32 in the heart of the BWI Corridor. This location affords
the Property convenient access to the area's major roadways such as Route 32,
which intersects with I-95, approximately 1.5 miles west of the Property.

KANSAS CITY INDUSTRIAL PROPERTIES. The Company owns seven Industrial
Properties containing 1,340,825 net rentable square feet in four locations
throughout Kansas City, Missouri. The Kansas City Industrial Properties
consist of Northland Park, North Topping Street, Airworld Drive and 107th
Terrace.

Northland Park. Northland Park is an industrial complex composed of four
warehouse/distribution facilities containing 925,007 net rentable square feet.
The Property is located in North Kansas City, Missouri, in the Paseo
Industrial District. The Paseo Industrial District contains over 13 million
net rentable square feet of industrial and warehouse space with minimal land
available for future development. North Kansas City has access to all three of
the interstate highways in Kansas City. Other incentives of this independent
municipality are the low income taxes, lack of an inventory property tax and
the lowest property tax in the Kansas City metroplex.

North Topping Street. North Topping Street is an industrial warehouse
building containing 119,118 net rentable square feet. The Property's major
clients are Quality Warehouse and Porteous Realty Investments. The Property is
located at 1501-1599 North Topping Street, in Executive Park, an industrial
area four miles northeast of the central business district. Executive Park
draws companies looking for newer product with Missouri's low cost base.
Executive Park contains approximately 7.5 million net rentable square feet of
industrial and warehouse space.

Airworld Drive. Airworld Drive is a warehouse building containing 200,000
net rentable square feet. The Property is currently not leased. On October 1,
1996, the Company executed a lease for 100% of the net rentable area at the
Airworld Drive Property. The tenant will commence the payment of rent on such
lease in the first quarter of 1997. The Property is located at 107 NW Airworld
Drive, Kansas City, Missouri. Airworld Drive is part of the Airworld Center,
which is a 330 acre master planned office and industrial park located in the
Airport Industrial submarket in the northern industrial area of Kansas City,
Missouri. The Airport submarket contains approximately 1.9 million net
rentable square feet of industrial and warehouse space. The centerpieces of
this submarket are Airworld Center and Executive Hills North, an office park.
Airworld Center's attraction for tenants includes proximity to the airport,
good freeway access, available labor supply, lower occupancy costs and high
quality telecommunications and electrical infrastructure. The Company also
owns a 3.6 acre development parcel adjacent to this Property.

84
<PAGE>

107th Terrace. 107th Terrace is a warehouse building containing 96,700 net
rentable square feet. Sony Corporation currently leases 100% of the Property.
The Property is located at 8281 NW Airworld Drive, Kansas City, Missouri. The
Property is also part of the Airworld Center.

DALLAS INDUSTRIAL PROPERTIES. The Company's Industrial Properties in Dallas,
Texas consist of four complexes containing warehouse, distribution,
manufacturing, service and technical center space. The four complexes making
up the Dallas Industrial Properties are: Nicholson III, 13425 Branchview Lane,
1002 Avenue T, and 1526 Vantage Drive.

Nicholson III. Nicholson III is a three building industrial distribution,
warehousing and service center complex containing 155,712 net rentable square
feet. The Properties' major tenants are DFW Water Quality, Inc. and Aloe
Commodities, Inc. The Properties are located at 12901 Nicholson Road, Farmers
Branch, Texas, in the Valwood Industrial submarket, which is just outside the
Valwood Improvement District. The Properties have very good freeway access to
all parts of the city, via I-35 and I-635.

13425 Branchview Lane. 13425 Branchview Lane is an industrial distribution
and warehousing property containing 121,250 net rentable square feet. Iron
Mountain Records Management currently leases 100% of the Property. The
Property is located at 13425 Branchview Lane, Farmers Branch, Texas, 200 yards
off the I-35 access road and close to the LBJ Freeway. The Property is in the
Valwood Industrial submarket, which is just outside the Valwood Improvement
District. The Valwood Industrial submarket is among the largest and highest
quality in the Dallas area with approximately 25 million square feet of
industrial space.

1002 Avenue T. 1002 Avenue T is a distribution and warehousing facility
containing 100,000 net rentable square feet. The Room Store currently leases
100% of the Property. The Property is located at 1002 Avenue T, Grand Prairie,
Texas, in the north section of the Great Southwest/CentrePort Industrial
District, the second largest submarket in the Dallas area. The northern
section of the Great Southwest/CentrePort Industrial District is distinguished
from the southern section by the quality of the building and the restrictive
codes and covenants enacted to protect the image of this submarket. This
Property is of equal distance from the Central Business Districts of both
Dallas and Fort Worth and is ten minutes from DFW Airport.

1625 Vantage Drive. 1625 Vantage Drive is a single-story industrial
distribution building containing 50,000 net rentable square feet, of which
6,000 square feet are devoted to office area. Dal-Ton Shippers Association
currently leases 100% of the Property. The Property is located at 1625 Vantage
Drive, Carrollton, Texas, in the Carrollton/Farmers Branch submarket which
contains approximately 25 million net rentable square feet of industrial
property. This area has a history of strong occupancies with
warehouse/distribution lease rates above the citywide average. The submarket
is well placed in close proximity to the employment centers in North Dallas,
the Dallas North Tollway and I-35E.

HOUSTON INDUSTRIAL PROPERTIES.

West Loop Business Park. The West Loop Business Park is a service center
development located in the northwest area of Houston, Texas. The Properties
consist of five one-story buildings containing a total of 75,231 square feet.
The Properties' major tenants are Houston Cellular and Sawyer and Associates.
The Properties are part of Western Loop Business Park, a twelve-building mixed
use business park located just off the west loop of Interstate 610 in the
Galleria area of Houston.

MILWAUKEE INDUSTRIAL PROPERTIES. The Company owns 17 Industrial Properties
containing approximately 1.2 million net rentable square feet in three
locations in Milwaukee, Wisconsin. The buildings were built between the years
of 1970 to 1987. The Milwaukee Industrial Properties are made up of three
groups of properties: the Airport Properties, the Oakwood Properties and the
North West Properties.

Airport Properties. The Airport Properties consist of 12 Industrial
Properties containing a total of 572,953 net rentable square feet. The major
tenants at these Properties are General Electric Company and Northwestern
Mutual Life. The Airport Properties are located adjacent to General Mitchell
International Airport.

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<PAGE>

In addition to the buildings, the Company owns two Development Parcels
totaling 10 acres adjacent to the Airport Properties. The acreage will support
up to 300,000 square feet of new development. A 21,000 square foot expansion
of Building 10 for Airborne Express, which will utilize approximately 1.5
acres adjacent to the existing structure, began construction in September of
1996.

Oak Creek Properties. The Oak Creek Properties consist of two
warehouse/distribution centers, Buildings 7 and 13, containing approximately
232,000 net rentable square feet. Pepsico and Distribution Specialists
currently lease 100% of Building 7 and 13, respectively. The Oak Creek
Properties are located in the Airport/Oak Creek submarket, just southwest of
the General Mitchell International Airport.

North West Properties. The North West Properties consist of three
warehouse/distribution centers, Buildings 14, 15 and 18, containing a total of
413,371 net rentable square feet. Ambrosia Chocolate and the Bradley
Corporation currently lease 100% of Buildings 14 and 15, respectively.
Building 18 is currently unoccupied. The North West Properties are located in
the Bradley Industrial Park which is located in northwestern suburban
Milwaukee near the town of Brown Deer.

86
<PAGE>

The following table sets forth additional information for each of the
Industrial Properties.

INDUSTRIAL PROPERTIES--ADDITIONAL DATA

<TABLE>
<CAPTION>
COMPANY'S
PERCENTAGE
OWNERSHIP NET PERCENT
AFTER OWNERSHIP LAND RENTABLE LEASED NUMBER OF
FORMATION INTEREST YEAR YEAR AREA NUMBER SQUARE AS OF TENANT
PROPERTY TRANSACTIONS DATE) DEVELOPED ACQUIRED ACRES OF BLDGS. FEET 6/30/96 LEASES
-------- ------------ --------- --------- -------- ----- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOS ANGELES
INDUSTRIALS:
Pacific Gateway
Center.......... 100% Fee 1972-1984 1996 68.0 18 1,252,708 92% 22
BALTIMORE
INDUSTRIALS:
8869 Greenwood.. 100% Fee 1986-1987 1993 5.0 1 89,582 74% 3
1329 Western
Avenue.......... 100% Fee 1988 1994 14.4 1 185,600 95% 7
Deep Run 1 & 2.. 100% Fee 1988 1994 10.7 2 169,112 100% 3
4611 Mercedes
Drive........... 100% Fee 1990 1994 10.2 1 178,133 100% 1
9050 Junction 100% Fee 1989 1993 7.0 1 108,350 100% 1
Drive...........
KANSAS CITY
INDUSTRIALS:
Northland Park.. 100% Fee 1975-1980 1992 40.1 4 925,007 100% 13
North Topping
Street.......... 100% Fee 1975-1980 1993 5.9 1 119,118 100% 3
Airworld Drive.. 100% Fee 1975-1980 1994 13.1 1 200,000 0%/(1)/ 0
107th Terrace... 100% Fee 1975-1980 1994 6.3 1 96,700 100% 1
DALLAS
INDUSTRIALS:
Nicholson III... 100% Fee 1981 1992 7.2 3 155,712 91% 12
13425
Branchview...... 100% Fee 1970 1993 5.5 1 121,250 100% 1
1002 Avenue T... 100% Fee 1981 1993 4.6 1 100,000 100% 1
1625 Vantage
Drive........... 100% Fee 1984 1993 3.9 1 50,000 100% 1
HOUSTON
INDUSTRIALS:
West Loop
Business Park... 100% Fee 1986 1995 6.7 5 75,231 92% 12
MILWAUKEE
INDUSTRIALS:
Airport
Properties...... 100% Fee 1970-1980 1993 34.5 12 572,953 98% 27
Oak Creek
Properties...... 100% Fee 1970-1979 1993 12.1 2 232,000 100% 2
North West
Properties...... 100% Fee 1973-1987 1993 23.7 3 413,371 83% 4
----- --- --------- ---- ---
Total--
Industrial
Properties...... 278.9 59 5,044,827 90% 114
===== === ========= ==== ===
<CAPTION>
SQUARE FEET
LEASED BY
MAJOR
SIGNIFICANT TENANTS
PROPERTY TENANTS (NAME) (IN THOUSANDS)
-------- ------------------------------ --------------
<S> <C> <C>
LOS ANGELES
INDUSTRIALS:
Pacific Gateway
Center.......... Fujitsu-Ten Corp. ............ 76
Nippon Express ............... 353
BALTIMORE
INDUSTRIALS:
8869 Greenwood.. Wilmar Industries ............ 29
Systems Connection ........... 23
1329 Western
Avenue.......... Winchester Homes ............. 48
Electr. Data Systems Corp. ... 28
Deep Run 1 & 2.. Elite Spice .................. 88
Tate Access Floors ........... 81
4611 Mercedes
Drive........... Crown Cork and Steel ......... 178
9050 Junction Professional Mailing and
Drive........... Distribution Services ........ 108
KANSAS CITY
INDUSTRIALS:
Northland Park.. Dunlop Tire Corp. ............ 230
Distribution Services ........ 162
North Topping
Street.......... Quality Warehouse ............ 86
Porteous Realty Investments .. 18
Airworld Drive..
107th Terrace... Sony Electronics ............. 97
DALLAS
INDUSTRIALS:
Nicholson III... DFW Water Quality, Inc. ...... 33
Aloe Commodities Int'l ....... 20
13425
Branchview...... Iron Mtn. Records Mgmt. ...... 121
1002 Avenue T... The Room Store ............... 100
1625 Vantage
Drive........... Dal-Ton Shippers ............. 50
HOUSTON
INDUSTRIALS:
West Loop
Business Park... Houston Cellular ............. 15
Sawyer and Associates ........ 12
MILWAUKEE
INDUSTRIALS:
Airport
Properties...... General Electric Company ..... 118
Northwestern Mutual Life ..... 100
Oak Creek
Properties...... Pepsico Food Systems ......... 120
Distribution Specialists ..... 112
North West
Properties...... Bradley Corp. ................ 119
Ambrosia Chocolate ........... 101
--------------
Total--
Industrial
Properties...... 2,826
==============
</TABLE>
- ----
/(1)/ On October 1, 1996, the Company executed lease for 100% of the net
rentable area at the Airworld Drive Property. The tenant will begin
paying rent on such lease in the first quarter of 1997.

87
<PAGE>

OPTION PROPERTIES

The Company has options to acquire interests in three office buildings
containing approximately 1.4 million net rentable square feet and four
industrial buildings containing approximately 268,000 net rentable square
feet. All of the Option Properties are managed by the Company. Although the
Company will succeed to the option rights of the Prentiss Group with respect
to the Option Properties, the exercise of these options is subject to various
contingencies, including the determination of purchase price, certain lease
renewals and certain debt restructurings, and therefore they cannot be termed
probable. The following table sets forth the location, number of buildings,
net rentable square feet, occupancy (as of June 30, 1996) and 1995 net
operating income for each Option Property. The decision to exercise the
Options is subject to approval by the Board of Trustees (including a majority
of the Independent Trustees) of the Company.

OPTION PROPERTIES

<TABLE>
<CAPTION>
1995 NET
PROPERTY NUMBER OF NET RENTABLE PERCENTAGE OPERATING
PROPERTY LOCATION TYPE BUILDINGS SQUARE FEET LEASED INCOME
- -------- -------- -------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Burnett Plaza........... Fort Worth, Texas Office 1 1,008,141 90% $11,551
Wood Dale 1 & 2......... Chicago, Illinois Industrial 2 116,076 100% 493
155 Alexandra Way....... Chicago, Illinois Industrial 1 110,000 100% 386
Lincolnshire............ Chicago, Illinois Industrial 1 42,009 100% 121
Seven Fairview Park..... Northern Virginia Office 1 115,992 100% 1,732
World Savings Center.... Oakland, California Office 1 271,055 94% 3,159
--- --------- --- -------
Total/Weighted Average................................. 7 1,663,273 93% $17,442
=== ========= === =======
</TABLE>

Burnett Plaza

Burnett Plaza is a 40-story, Class A office building located in downtown
Fort Worth, Texas. The building was developed by PPL in 1983 and contains
1,008,141 net rentable square feet with an attached parking facility. The
building is constructed primarily of reinforced concrete with an exterior of
architectural concrete and grey insulating glass set in dark anodized aluminum
frames. Interior spaces are large and column-free making them suitable for
larger users. PPL currently manages this property. Major tenants of the
building are Union Pacific Resource Corporation ("UPRC") and Meridian Oil,
which occupy approximately 439,000 and 204,000 square feet of area,
respectively, under leases that expire in 1998 and 2013, respectively.

The building is located at 801 Cherry Street, Fort Worth, Texas, in a block
bounded by Burnett Park and Tenth, Cherry and Seventh streets. This location
provides access to downtown Fort Worth and DFW Airport and can be seen from
surrounding freeways. Located on the southwestern side of the Fort Worth
central business district, Burnett Plaza is close to Fort Worth's more
exclusive residential neighborhoods and its primary cultural and educational
centers, such as the Kimball Art Museum, the Amon Carter Museum of Western Art
and the Fort Worth Zoological Park.

The Company has a contingent agreement to purchase 100% of the partnership
interests of the current owner of Burnett Plaza, within 18 months after the
closing of the Offering, for an aggregate purchase price of $118 million,
including approximately $8 million in Units (the number of which shall be
based on the price of the Common Shares at the time of purchase) and the
assumption of $110 million of debt secured by the property. The current owner
of Burnett Plaza is a member of the Prentiss Group. If acquired, the purchase
will be recorded at the historical cost, with any excess paid recorded as a
distribution. If the Company purchases the partnership interests in Burnett
Plaza, it intends to pay down immediately $32 million of the approximately
$110 million of mortgage debt on the property. The remaining approximately $78
million of mortgage debt will have a term of ten years. For the first seven
years of such term, the loan will accrue interest at 7.625% per annum, and for
the remainder of the term will accrue interest at a rate equal to 1.70% over
the interest rate on comparable term Treasury notes at the time of such rate
change but not less than 7.625%. At any time during the first seven years

88
<PAGE>

of the term of the loan, however, the Company has the option of fixing the
interest rate for the remainder of the term of the loan at a rate equal to
1.70% over the interest rate on comparable term Treasury Notes at the time
that the Company exercises such option, but not less than 7.625%. If approved
by the Board, the Company must close under the contingent purchase agreement
if, within the 18 month period, UPRC, which currently leases approximately
439,000 net rentable square feet, enters into a new or amended lease extending
the term of its current lease beyond its 1998 expiration and modifying its
terms. The purchase price was determined assuming that under the new UPRC
lease, the property would have an annual net operating income of approximately
$10.8 million, producing a contribution to the Company's annual Funds from
Operations of approximately $4.85 million and a Funds from Operations yield of
12.125%. If UPRC executes a lease on terms different from those proposed by
the Company but covering substantially all of the square footage covered by
the current lease, the purchase price for the building will be adjusted to
maintain the Company's Funds from Operations yield from the property at
12.125%. If UPRC does not execute a new lease for substantially the same
square footage, the Company has no obligation to purchase Burnett Plaza.
Although the current owner of Burnett Plaza is currently negotiating the terms
of a new lease with UPRC, there are no assurances that UPRC will execute a new
lease or, therefore, that the Company will acquire the property.

The Company also has an option to acquire Burnett Plaza for its fair market
value as determined by appraisal within 30 months after the closing of the
Offering if UPRC does not execute a new lease or executes a lease for
substantially less space. The Company does not intend to exercise the option
unless one or more tenants are secured to occupy substantially all of the
space currently leased to and vacated by UPRC. The current owner of Burnett
Plaza is not currently seeking replacement tenants for the UPRC lease because
discussions with UPRC are ongoing and the space would not be available until
1998. There are no assurances that the space currently leased by UPRC will be
leased within the option period if UPRC does not renew its lease, or that the
Company will exercise the option. Upon the expiration of the option period,
the Company will thereafter have a right of first offer with respect to
Burnett Plaza. Notwithstanding the Company's option and right of first offer,
if the UPRC lease is not renewed within 18 months, there are no assurances
that the current owner will have funds sufficient to pay debt service to the
mortgage lender (in light of the potential loss of all or a portion of the
UPRC rental income) or that the lender will not foreclose on Burnett Plaza as
a result of other defaults by the current owner. If the mortgage lender
forecloses on Burnett Plaza, the Company's option and right of first refusal
on that property will terminate.

Chicago Industrial Buildings

The Company has options to purchase from PCIG the four industrial properties
in Chicago, Illinois listed above (the "Chicago Industrial Buildings") at fair
market value less an amount equal to 50% of a market rate real estate
commission. The Company tendered an offer to purchase the Chicago Industrial
Buildings for $10.5 million. The Company's offer was not accepted, and the
fair market value of the properties is being determined by appraisal. Upon
such determination the Company will have 30 days to decide whether to exercise
any or all of the options. Consequently, there can be no assurances that the
fair market value for any or all of the Chicago Industrial Buildings will be
acceptable to the Company, and further there can be no assurances as to the
timing of the purchases of the Chicago Industrial Buildings or the purchase
price that the Company will pay for them.

Wood Dale 1 and 2. Wood Dale 1 and 2 is a two-building industrial,
distribution, warehouse and servicing complex containing 116,076 net rentable
square feet. The major tenants are Vacumette Corporation, Sun Chemical and
General Electric Company. The buildings are located in Wood Dale (DuPage
County), Illinois.

155 Alexandra Way. 155 Alexandra Way is an industrial distribution,
warehouse and servicing building containing 110,000 net rentable square feet.
Michelin Tire Corporation currently leases 100% of the building. The building
is located in Carol Stream (DuPage County), Illinois.

Lincolnshire. Lincolnshire is an industrial distribution, warehouse and
servicing building containing 42,009 net rentable square feet. Food Equipment
Technologies currently leases 100% of the building. The building is located in
Lincolnshire (Lake County), Illinois.

89
<PAGE>

Seven Fairview Park

The Company has an option to acquire from PCIG a 33% interest in Seven
Fairview Park, a 6-story office building containing 115,992 net rentable
square feet. The building was completed in 1986. The property is located in
Fairview Park in Fairfax, Virginia near the Company's 3141 Fairview Park Drive
Property. The property is occupied 100% by Computer Sciences Corp. through
October 1999. The option price will be the fair market value as determined by
the parties or, if they cannot agree, by appraisal, less an amount equal to
50% of a market rate real estate commission. The Company believes that the
debt outstanding on the property may exceed the value of the property and will
seek to restructure the debt, buy-out one or more of the other partners and/or
restructure or renew the current lease before exercising its option.

World Savings Center

The Company has an option to acquire from PCIG a 67% interest in World
Savings Center, a 17-story office building containing 271,055 square feet
located adjacent to Lake Merritt in downtown Oakland, California, for $1. The
building was completed in 1985 and was 94% occupied as of June 30, 1996. World
Savings and Loan ("World Savings") leases 147,174 net rentable square feet, or
54% of the net rentable area, through November 2000. Larson, Burnham and
Trutnen leases 69,081 net rentable square feet, or 26% of the net rentable
area, through December 31, 1999. The Company believes that the debt
outstanding on the property exceeds the value of the property and the Company
will seek a debt restructuring before or in conjunction with exercising its
option. In addition, any transaction must preserve World Savings' tax position
in the partnership.

OPTION PARCELS

The Company has contingent purchase agreements and/or options and rights of
first refusal to acquire the following eight Development Parcels, each of
which is located within an industrial or office park developed by PPL, except
for the Development Parcel located in Atlanta, Georgia.

<TABLE>
<CAPTION>
PARCEL MAXIMUM
ACREAGE DEVELOPMENT
(APPROX.) LOCATION/ADJACENT PROPERTY MARKET (SQUARE FEET)
--------- -------------------------- ------ -------------
OFFICE:
<C> <S> <C> <C>
6.4 3141 Fairview Park Drive Northern Virginia 200,000
4.7 Park West Dallas, TX 350,000
16.2 Continental Executive Parke Chicago, IL 225,000
----- ---------
27.3 775,000
----- ---------
INDUSTRIAL:
15.2 Park West Commerce Center Dallas, TX 320,000
14.8 Park West Commerce Center Dallas, TX 320,000
3.7 Continental Executive Parke Chicago, IL 50,000
26.3 Continental Executive Parke Chicago, IL 300,000
49.8 Airport Industrial Park Atlanta, GA 280,000
----- ---------
109.8 1,270,000
----- ---------
137.1 2,045,000
===== =========
</TABLE>

The Company is succeeding to the rights of the Prentiss Group with respect
to all of the options described below. Other than with respect to two parcels
that will be acquired if certain events occur (as described below) and two
parcels for which the price is fixed if purchased by February 15, 1997 (as
described in the next sentence), the Company will exercise an option, if at
all, by submitting a price offer to the owner. If the owner rejects the offer,
the price at which the Company can exercise the option will be determined by
appraisal. With respect to the 14.8 acre parcel in Park West Commerce Center
and the 26.3 acre parcel in Continental Executive Parke, the Prentiss Group
and the owner have agreed on an option price if the parcels are purchased by
February 15, 1997. If the Company does not exercise its options on these
parcels by such time, the option price will be determined by the process
described above. In addition, the Company has a right of first refusal on such
parcels through February 15, 1998. The Company expects that any such pricing
process could take several months from the date

90
<PAGE>

the Company makes its initial price offer. Once the purchase price is
determined, the Company has 30 days to decide whether to exercise its option.
With respect to the office development parcels, the Company will seek build-
to-suit tenants for any development thereon, but has not yet indentified such
tenants and does not currently intend to develop offices on a speculative
basis. The decision as to whether or not to exercise the Company's option to
purchase any Development Parcel from the Prentiss Group or PCIG will be
subject to approval of the Board of Trustees (including a majority of the
Independent Trustees).

The Company, on January 1, 1997, will acquire from the Prentiss Group (i) a
15.2 acre Development Parcel located in the Park West Commerce Center in
Coppell, Texas, a northwest suburb of Dallas near the DFW Airport, and (ii) a
3.7 acre Development Parcel in Continental Executive Parke ("CEP") in Vernon
Hills (near Chicago), Illinois, if a building permit has been obtained by that
time for construction on either parcel. Both parcels are zoned for industrial
use and can support approximately 320,000 and 50,000 net rentable square feet
of development, respectively. The Prentiss Group intends to commence the
development of industrial warehouse distribution buildings on these sites in
January 1997. If a building permit on either parcel has been obtained by that
time, the Company will, on January 1, 1997, acquire the Prentiss Group's
interest in both of these Development Parcels at its cost (including
acquisition, development, financing and construction costs, if any), and
complete any development on either property. If a building permit has not been
obtained on either parcel at that time, the Company will have the option to
acquire either parcel, at any time, at a cost equal to the Prentiss Group's
costs up to the closing of the acquisition. The Prentiss Group may seek to
enter into joint ventures for the development of either of the parcels, and
the Company would succeed to the Prentiss Group's joint venture interest if
the Company exercises the option, including any rights to receive management,
development, or leasing fees and expense reimbursements. The Park West
Commerce Center and CEP were developed by PPL.

The Company also holds an option to purchase from PCIG a 14.8 acre parcel of
development land in the Park West Commerce Center in Dallas adjacent to the
15.2 acre parcel described above. This parcel is zoned for industrial use and
can also support approximately 320,000 net rentable square feet of
development. The parcel may be purchased in increments. The option period
expires on February 15, 1998.

The Company also holds an option to purchase from PCIG three parcels of
development land totaling approximately 26.3 acres in CEP adjacent to the 3.7
acre parcel described above. The parcels consist of five separate lots, are
zoned for industrial use and can support a total of 300,000 net rentable
square feet of development. Each parcel may be purchased in increments. The
option period expires on February 15, 1998. In addition, the Company has an
option to purchase two additional parcels totaling approximately 16.2 acres in
CEP from PCIG. The parcels are zoned for industrial or office use and can
support an additional 225,000 square feet of development. Each parcel can be
purchased separately. The option expires on February 15, 1997.

The Prentiss Group has pursued an agreement to develop, construct and manage
a 280,000 net rentable square foot distribution facility to be 100% long-term
leased to Federal Express on the 49.8 acres of land near the Hartsfield
International Airport in Atlanta, Georgia. Commencement of development is
subject to negotiation of the definitive development and lease agreement with
Federal Express and an agreement with a construction lender. The Prentiss
Group estimates that the development and construction would cost approximately
$18.0 million and be completed within 15 months after breaking ground. The
Company has the option to assume the Prentiss Group's rights and obligations
in connection with this arrangement for a price equal to any third-party costs
incurred by the Prentiss Group at the date of exercise and to assume Federal
Express' contract to purchase the land for approximately $4.6 million. The
option will expire June 30, 1997.

The Company has an option to acquire PCIG's 50% interest in Park West C1, a
4.7 acre tract of land located in the Park West Office Park in Dallas, Texas
adjacent to the Company's Park West Properties. The tract is zoned for office
use and can support up to 350,000 net rentable square feet of development. The
option expires on February 15, 1997.

Finally, the Company has an option to purchase from an unaffiliated
partnership a 6.4 acre development parcel of land in the Fairview Park
development. This parcel is zoned for office use and can support 200,000 net
rentable square feet of development. The option will expire on February 15,
1997.

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<PAGE>

HISTORICAL NON-INCREMENTAL REVENUE-GENERATING CAPITAL EXPENDITURES

The following table sets forth annual and per square foot recurring, non-
incremental revenue-generating capital improvements and non-incremental
revenue-generating tenant improvement costs and leasing commissions to retain
revenues attributable to existing leased space for the period 1993 through
1995 for the Office Properties and the Industrial Properties. Revenue-
generating tenant improvement costs and leasing commissions are not included
in the table set forth below. The historical capital expenditures are not
necessarily indicative of future recurring non-incremental revenue-generating
capital expenditures or non-incremental revenue-generating tenant improvement
costs or leasing commissions.

<TABLE>
<CAPTION>
1995-1993
1995 1994 1993 AVERAGE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NON-INCREMENTAL REVENUE-GENERATING
CAPITAL IMPROVEMENTS
Office Properties
Annual.......................... $ 592,117 $ 168,279 $ 328,526 $ 362,974
Per Square Foot................. .22 .06 .16 .15
Industrial Properties
Annual.......................... $ 905,479 $ 423,912 $ 817,381 $ 715,591
Per Square Foot................. 0.19 0.09 0.20 0.16
NON-INCREMENTAL REVENUE-GENERATING
TENANT IMPROVEMENT COSTS
AND LEASING COMMISSIONS
Office Properties
Annual tenant improvement
costs.......................... $1,411,699 $1,216,335 $ 896,031 $1,174,688
Annual leasing commissions...... 650,563 1,173,639 442,066 755,423
Per square foot improved........ 4.11 2.52 5.10 3.52
Per square foot leased.......... 1.89 2.43 2.52 2.26
---------- ---------- ---------- ----------
Total per square foot
improved/leased................ $ 6.00 $ 4.95 $ 7.62 $ 5.78
Industrial Properties
Annual tenant improvement
costs.......................... $ 465,877 $ 286,092 $ 555,247 $ 435,739
Annual leasing commissions...... 714,606 276,927 418,052 469,862
Per square foot improved........ 0.34 0.47 0.94 0.51
Per square foot leased.......... 0.52 0.46 0.71 0.55
---------- ---------- ---------- ----------
Total per square foot
improved/leased................ $ 0.86 $ 0.93 $ 1.65 $ 1.06
TOTAL NON-INCREMENTAL REVENUE-
GENERATING CAPITAL EXPENDITURES
Office Properties................. $2,654,379 $2,558,253 $1,666,623 $2,293,085
Industrial Properties............. 2,085,962 986,931 1,790,680 1,621,192
---------- ---------- ---------- ----------
Total........................... $4,740,341 $3,545,184 $3,457,303 $3,914,277
</TABLE>

HISTORICAL INCREMENTAL REVENUE-GENERATING TENANT IMPROVEMENT COSTS AND LEASING
COMMISSIONS

The following table sets forth annual and per square foot incremental
revenue-generating tenant improvement costs and leasing commissions for the
period 1993 through 1995 for the Office Properties and the Industrial
Properties. There were no historical incremental revenue-generating capital
expenditures. The foregoing table provides all remaining tenant improvement
costs and leasing commissions not included in the table set forth above for
the Properties. Incremental revenue-generating tenant improvement costs and
leasing

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<PAGE>

commissions generally relate to vacant space that is not generating income.
The historical incremental revenue-generating tenant improvement costs and
leasing commissions set forth below are not necessarily indicative of future
incremental revenue-generating tenant improvement costs and leasing
commissions.

<TABLE>
<CAPTION>
1995-1993
1995 1994 1993 AVERAGE
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
INCREMENTAL REVENUE-GENERATING TENANT
IMPROVEMENT COSTS AND LEASING COMMISSIONS
Office Properties
Annual tenant improvements.............. $2,318,668 $758,987 $483,274 $1,186,976
Annual leasing commissions.............. 744,493 347,843 185,095 425,810
Per square foot improved................ $ 7.86 $ 3.59 $ 9.41 $ 6.38
Per square foot leased.................. 2.52 1.64 3.60 2.29
---------- -------- -------- ----------
Total per square foot improved/leased... $ 10.38 $ 5.23 $ 13.01 $ 8.67
Industrial Properties
Annual tenant improvements.............. $ 588,315 $246,880 $777,912 $ 537,702
Annual leasing commissions.............. 214,407 108,853 189,011 170,756
Per square foot improved................ $ 2.26 $ 1.70 $ 2.12 $ 2.09
Per square foot leased.................. 0.82 0.75 0.52 0.66
---------- -------- -------- ----------
Total per square foot improved/leased... $ 3.08 $ 2.45 $ 2.64 $ 2.75
</TABLE>

PRENTISS PROPERTIES SERVICE BUSINESS

The Company manages approximately 250 office and industrial properties owned
by third parties with approximately 30 million net rentable square feet leased
to over 1,800 tenants. These properties are owned by over 45 different clients
and are located in 17 markets throughout the U.S. In addition to property
management and leasing, the Company offers its clients a full range of related
services including tenant construction, marketing, insurance, accounting, tax,
real estate law, acquisition, disposition, facilities management, corporate
services and asset management. See "Business Objectives--Third-Party
Management."

INSURANCE

The Company will keep in force comprehensive insurance, including liability,
fire, workers' compensation, extended coverage, rental loss and, when
available on reasonable commercial terms, flood and earthquake insurance, with
policy specifications, limits and deductibles customarily carried for similar
properties. The Company currently maintains a $20 million blanket earthquake
policy on the Properties it manages and the Properties it owns in California.
Certain types of losses, however (generally of a catastrophic nature such as
acts of war, earthquakes for properties located outside of California, etc.),
are either uninsurable or are not economically insurable. Certain types of
losses, such as those arising from subsidence activity, are insurable only to
the extent that certain standard policy exceptions to insurability are waived
by agreement with the insurer. See "Risk Factors--Real Estate Investment
Risks--Uninsured Loss." The Company believes, however, that the Properties are
adequately insured in accordance with industry standards.

In 1995, an affiliate of PPL invested in a managing general agency which is
a leading insurance broker. Through the MgmtPlus+ Preferred Risk Real Estate
Insurance Program sponsored by PPL, the agency has offered its clients
insurance cost savings, better asset protection, higher limits and improved
claims handling through insurance coverage specifically designed for real
estate. The PPL affiliate earned distributions of $54,000 in 1995 from its
investment in the managing general agency. In connection with the Formation
Transactions, a subsidiary of the Operating Partnership will acquire the
investment in the managing general agency.

ENVIRONMENTAL MATTERS

In connection with the ownership and operation of the Properties, the
Company or the Operating Partnership, as the case may be, may be potentially
liable for costs associated with the removal or remediation

93
<PAGE>

of certain hazardous or toxic substances or the release of or exposure to
hazardous substances, including ACMs, into the air. See "Risk Factors--Real
Estate Investment Risks--Possible Environmental Liabilities."

Phase I ESAs have been obtained on all of the Properties prior to the
closing of the Offering to identify potential sources of contamination for
which the Properties may be responsible and to assess the status of
environmental regulatory compliance. The Phase I ESAs included historical
reviews of the Properties, reviews of certain public records, preliminary
investigations of the lots and surrounding properties, screening for the
presence of asbestos, PCBs and underground storage tanks, and the preparation
and issuance of a written report. The Phase I ESAs did not include invasive
procedures, such as soil sampling or ground water analysis.

For a number of the Properties, the Phase I ESAs referenced prior Phase II
ESAs obtained on such Properties. Phase II ESAs generally involve more
invasive procedures than Phase I ESAs, such as soil sampling and testing or
the installation and monitoring of groundwater wells. Except as noted below,
the ESAs have not revealed any environmental condition, liability or
compliance concern that the Company believes would have a material adverse
affect on the Company's business, assets or results of operations nor is the
Company aware of any such condition, liability or concern.

The land (the "Plant Site") underlying one industrial complex containing
eighteen Industrial Properties, Pacific Gateway Center ("PGC"), was formerly
the site of a synthetic rubber manufacturing plant (the "Plant") owned by the
United States Government and subsequently owned or operated by numerous
companies, including Shell Oil Company ("Shell") and Dow Chemical Company
("Dow"). During the operation of the Plant, wastes were disposed of in pits
and ponds located just to the south of PGC (the "Plant Site Affected Area").
In 1994, the Plant Site Affected Area was deeded back to Shell by the Prentiss
Group affiliate that owned the property, and Shell agreed to indemnify the
Prentiss Group affiliate and any successors in interest against (i) any costs
of remediation of the Plant Site Affected Area and (ii) any suit for damages
for personal injury or property damage brought by neighboring landowners.

Environmental studies conducted by Dow and Shell on the Plant Site have
detected the presence of groundwater contamination about 60 feet below the
surface of the Plant Site, which appears to be related to the operations of
the Plant. Limited soil contamination has also been found on parcels in the
area, including parcels that will be owned by the Company. In July 1991, the
United States Environmental Protection Agency ("EPA") proposed that the Plant
Site be listed on the National Priorities List ("NPL") of Superfund sites.
Comments were submitted to the EPA challenging the proposal, and no action was
taken by the EPA. On June 17, 1996, the EPA re-proposed that the Plant Site
Affected Area be listed on the NPL. At this time, the Company cannot predict
whether the EPA will promulgate the proposed listing of the Plant Site
Affected Area. In addition, PGC is located about one block east of an existing
Superfund site, the Montrose Chemical Superfund Site. Contaminants associated
with this site have been detected in the groundwater in the vicinity of PGC.
Contamination also has been found in groundwater to the south of the Plant
Site Affected Area (the "Study Area"). According to reports prepared by or on
behalf of Shell and Dow, this contamination appears to be associated with
leaks from pipelines located in that area.

All past and present owners of the land underlying PGC, including the United
States Government, Dow, Shell and the current owner, in which a Prentiss Group
affiliate is a general partner, are Potentially Responsible Parties for the
investigation and remediation of the Plant Site. The current owner executed an
indemnification agreement with Shell. Shell agrees to (i) indemnify and hold
harmless any successor of the current owner, including the Company and any
subsequent purchasers, tenants and lenders, from any liability relating to
clean up or remediation costs for the Plant Site or for any contamination
resulting from the interrelationship of (a) the Montrose Chemical Superfund
Site and/or the Study Area and (b) the Plant Site, and (ii) indemnify and hold
harmless any successor of the current owner, including the Company, from any
liability arising out of any third party tort claims for personal injury or
property damage. While this indemnity does not extend to claims for diminution
in value or consequential damages resulting from the remediation of the
property or Shell's actions, any affected party, including the Company, would
have the right to make a claim for any such damages against the responsible
party.

94
<PAGE>

The Company believes that its effective share of any costs to remediate the
Plant Site will not have a material adverse effect on the Company. The Company
believes that despite its possible technical liability as an owner or operator
of contaminated property, existing evidence makes clear that the contamination
of concern to the regulatory agencies did not result from the present use of
the Plant Site as an industrial park. Further, the Company believes that the
indemnifications from Shell will protect the Company against any future costs
of a material nature.

The ESAs for the Industrial Properties located in Milwaukee, Wisconsin,
revealed lead contamination in some of the soil near the property lines of two
of the Properties and the Development Parcel adjacent to those Properties (the
"Milwaukee Affected Areas"). The ESAs and the Wisconsin Department of Natural
Resources ("WDNR") have concluded that the contamination is the result of
unauthorized placement of contaminated soil by the owner of a vacant lot that
is located between the two Properties and the Development Parcel. The
placement occurred prior to the acquisition of these Industrial Properties by
the Prentiss Group affiliate that currently owns the Properties. The
contaminated soil consists of foundry sand which was found to contain lead in
excess of acceptable trace levels. According to the ESA, the contamination
does not affect the groundwater and is not likely to migrate or leech into
adjoining land or groundwater in the future. Upon discovery of the
unauthorized placement, the Company brought suit against the owner of the
vacant lot, the generators of the contaminated soil and the prior owner of the
Properties. A settlement to the lawsuit has been entered into under which (i)
the Company has transferred the Milwaukee Affected Areas (a total of
approximately 1.6 acres) to the owner of the vacant lot in exchange for
$100,000 and (ii) the owner of the vacant lot and the generators of the
contaminated soil agreed to assume all responsibility for the remediation of
the contaminated soil. The court has entered a finding that the Company was
not in the chain of ownership of the Milwaukee Affected Areas. Based on all
available information, the Company does not believe that it will incur any
liability with respect to this contamination.

In addition to these matters, it is possible that the ESAs related to any
one of the Properties do not reveal all environmental conditions, liabilities
or compliance concerns or that there are material environmental conditions,
liabilities or compliance concerns that arose at a Property after the related
ESA report was completed of which the Company is otherwise unaware.

Except as noted above, the Company believes that the Properties are in
compliance in all material respects with all federal, state and local laws,
ordinances and regulations regarding hazardous or toxic substances and other
environmental matters. Neither the Company nor, to the knowledge of the
Company, any of the current owners of the Properties has been notified by any
governmental authority of any material noncompliance, liability or claim
relating to hazardous or toxic substances or other environmental substances in
connection with any of its present or former properties.

DEPRECIATION OF SIGNIFICANT PROPERTIES

For federal income tax purposes, the basis, net of accumulated depreciation,
in the Properties of the Company and the Operating Partnership was
approximately $367 million at December 31, 1995. The real property associated
with the Properties (other than land) generally will be depreciated for
federal income tax purposes over 40 years using the straight line method. For
financial reporting purposes, the Properties are recorded at their historical
cost and are depreciated using the straight line method over their estimated
useful lives, typically 40 years. The federal tax basis on the Cumberland
Office Park Properties equals approximately $11.0 million for the land and
approximately $16.9 million for the building. The federal tax basis on the
Park West Properties equals approximately $11.8 million for the land and
approximately $65.9 million for the building. Depreciation is taken on the
Walnut Glen Property, with the federal tax basis equaling approximately $5.4
million for the land and approximately $32.6 million for the building. The
federal tax basis on the Pacific Gateway Center Properties equals
approximately $6.5 million for the land and approximately $36.1 million for
the buildings. Depreciation on these properties is computed on the straight
line method at a rate of 2.5% and the life claimed with respect to the
buildings is 40 years. IBM, which owns a 50% interest in the partnership
owning the Broadmoor Austin Properties, takes all of the depreciation
allocated to those Office Properties.

95
<PAGE>

REAL ESTATE TAXES ON SIGNIFICANT PROPERTIES

The annual real estate taxes paid on the Broadmoor Austin Properties were
approximately $2.1 million, of which the Company would have been responsible
for the payment of 49.9% had the Offering been completed prior to the time
such taxes were due. The Austin real estate tax is 2.394% of assessed value.
The Dallas real estate tax rate is 3.868% of assessed value. The 1995 annual
real estate taxes paid on the Walnut Glen Property were $667,389. The Atlanta
real estate tax rate is 2.607% of assessed value. The 1995 annual real estate
taxes paid on the Cumberland Office Park Properties were $418,482. The 1995
annual real estate taxes paid on Pacific Gateway Center Properties were
$328,906.

OCCUPANCY AND EFFECTIVE RENT AT SIGNIFICANT PROPERTIES

The following table sets forth year end occupancy of and effective rent at
the Companies significant Properties for 1991 through 1995.

<TABLE>
<CAPTION>
OCCUPANCY AT DECEMBER 31, ANNUAL EFFECTIVE RENT
------------------------------------- ------------------------------------
SIGNIFICANT PROPERTIES 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
---------------------- ----- ----- ----- ----- ----- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Broadmoor Austin ....... 100% 100% 100% 100% 100% $15.16 $15.16 $15.16 $15.16 $15.16
Cumberland Office Park.. 97 91 87 84 80 3.21 3.29 2.95 3.41 4.61
Walnut Glen............. 86 89 87 92 94 11.17 12.08 (1) (1) (1)
Park West............... 96 98 98 84 71 8.89 10.01 10.40 11.13 11.52
Pacific Gateway Center.. 92 87 92 77 77 3.70 3.57 5.17 5.25 5.15
</TABLE>
- --------
(/1/) Data not available.

LEASE EXPIRATIONS ON SIGNIFICANT PROPERTIES
<TABLE>
<CAPTION>
1996(/1/) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
--------- ------ ------- ------- ------- ------ ----- ------- ------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CUMBERLAND OFFICE PARK
Square Footage Expir-
ing.................... 41,974 60,950 175,275 80,130 116,834 24,370 -- -- -- -- --
Number of Tenants Expir-
ing.................... 17 19 21 10 6 3 -- -- -- -- --
Base Rent Expir-
ing(/2/)............... $ 563 $ 680 $ 1,998 $ 973 $ 1,754 $ 391 -- -- -- -- --
Base Rent Expiration as
a Percent of Total Ex-
pirations in that
Year................... 21% 13% 18% 9% 13% 9% -- -- -- -- --
Base Rent Expiration as
a Percent of Total Base
Rent Expirations(/3/).. 1% 1% 3% 1% 3% 1% -- -- -- -- --
BROADMOOR AUSTIN
Square Footage Expir-
ing.................... -- -- -- -- -- -- -- -- -- -- 1,112,236
Number of Tenants Expir-
ing.................... -- -- -- -- -- -- -- -- -- -- 1
Base Rent Expir-
ing(/2/)(/4/).......... -- -- -- -- -- -- -- -- -- -- $ 11,030
Base Rent Expiration as
a Percent of Total Ex-
pirations in that
Year................... -- -- -- -- -- -- -- -- -- -- 100%
Base Rent Expiration as
a Percent of Total Base
Rent Expirations(/3/).. -- -- -- -- -- -- -- -- -- -- 16%
PARK WEST
Square Footage Expir-
ing.................... 16,147 18,661 31,025 325,523 11,282 5,549 7,100 182,739 125,966 -- --
Number of Tenants Expir-
ing.................... 3 3 5 5 2 2 2 1 1 -- --
Base Rent Expir-
ing(/2/)............... $ 170 $ 158 $ 239 $ 5,479 $ 169 $ 59 $ 91 $ 3,289 $ 1,764 -- --
Base Rent Expiration as
a Percent of Total Ex-
pirations in that
Year................... 6% 3% 2% 49% 1% 1% 7% 92% 45% -- --
Base Rent Expiration as
a Percent of Total Base
Rent Expirations(/3/).. 0% 0% 0% 8% 0% 0% 0% 5% 3% -- --
WALNUT GLEN TOWER --
Square Footage Expir-
ing.................... 5,143 52,735 188,862 38,288 11,312 70,825 -- -- -- 9,879 --
Number of Tenants Expir-
ing.................... 3 9 4 9 3 6 -- -- -- 1 --
Base Rent Expir-
ing(/2/)............... $ 38 $ 806 $ 4,462 $ 538 $ 154 $1,156 -- -- -- 174 --
Base Rent Expiration as
a Percent of Total Ex-
pirations in that
Year................... 1% 16% 39% 5% 1% 27% -- -- -- 14% --
Base Rent Expiration as
a Percent of Total Base
Rent Expirations(/3/).. 0% 1% 6% 1% 0% 2% -- -- -- 0% --
</TABLE>

96
<PAGE>

<TABLE>
<CAPTION>
1996(/1/) 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
--------- ------- ------- ------- ------- ------ ---- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PACIFIC GATEWAY CENTER
Square Footage Expir-
ing.................... 50,000 134,409 112,045 129,719 534,130 51,731 0 50,814 40,136 54,188 --
Number of Tenants Expir-
ing.................... 1 3 2 3 9 1 0 1 1 1 --
Base Rent Expir-
ing(/2/)............... $ 210 $ 718 $ 514 $ 576 $ 4,487 $ 222 $ 0 $ 291 $ 212 $ 321 --
Base Rent Expiration as
a Percent of Total Ex-
pirations in that
Year................... 8% 14% 5% 5% 33% 5% 0% 8% 5% 26% --
Base Rent Expiration as
a Percent of Total Base
Rent Expirations(/3/).. 0% 1% 1% 1% 6% 0% 0% 0% 0% 0% --
</TABLE>
- --------
(1)July 1, 1996 through December 31, 1996
(2) Base Rent (in thousands) as adjusted for contractual increases expiring
each period.
(3) Calculated by dividing annual Base Rent as adjusted for contractual
increases expiring during each period by the total Base Rent inclusive of
contractual increases to the end of the term.
(4) Represents the Company's 49.9% interest in the annual Base Rent from the
leases on the Broadmoor Austin Properties.

LEGAL PROCEEDINGS

The Company, the General Partner and the Manager have no operating history
and are not currently parties to any legal proceedings. Additionally, neither
the Operating Partnership, nor any Prentiss Group member (other than in a
representative capacity), is presently subject to any material litigation or,
to the Company's knowledge, has any litigation been threatened against the
Company, the Prentiss Group or the Prentiss Principals, other than routine
actions and administrative proceedings substantially all of which are expected
to be covered by liability insurance and in the aggregate which are not
expected to have a material adverse effect on the business or financial
condition of the Company.

PRENTISS GROUP ASSETS NOT ACQUIRED BY THE COMPANY

PPL and certain other entities owned by the Prentiss Principals will retain
certain assets and liabilities which will not be transferred to the Company in
the Formation Transactions. These assets either were determined to be
inconsistent with the Company's investment objectives or are not continuing
businesses. The most significant excluded assets include the Burnett Plaza
office building (which the Company has an option to purchase); a 5% interest
in a partnership that owns an industrial development near Philadelphia,
Pennsylvania that the Prentiss Group intends to sell in the near future; a 25%
interest in a general partnership which owns an industrial building in Itasca,
Illinois containing approximately 71,000 net rentable square feet; a 71%
interest in a partnership that owns a 5% profits interest in a leasehold
interest in 50.4 acres zoned for industrial use at O'Hare International
Airport; the Termination Fee Note; fee receivables relating to prior
development projects of the Prentiss Group, including non-recurring fees
relating to the Atlanta Federal Center and the Atlanta Criminal Justice
Center; minority interests in distressed assets that are being sold or are
soon to be sold; assets and liabilities of the Prentiss Group relating to
contracts and partnerships with the Resolution Trust Corporation and the
Federal Deposit Insurance Corporation, all of which are expected to expire or
dissolve by the end of 1997; mortgage brokerage contracts within the Prentiss
Group that are scheduled to be sold; and interests in inactive corporate
affiliates.

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<PAGE>

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of certain investment, financing and other
policies of the Company. These policies have been determined by the Company's
Board of Trustees and may be amended or revised from time to time without the
approval of the Company's shareholders, except (i) the Company may not change
its policy of holding its assets and conducting its businesses only through
the Operating Partnership and its subsidiaries, including the General Partner
and the Manager, or joint ventures in which it or a subsidiary is a partner,
without the consent of the Limited Partners as provided in the Operating
Partnership Agreement, (ii) changes in certain policies with respect to
conflicts of interest must be consistent with legal requirements, and (iii)
the Company cannot take any action intended to terminate its qualification as
a REIT without the approval of the holders of a majority of the outstanding
Common Shares.

INVESTMENT POLICIES

The Company will conduct all of its investment activities through the
Operating Partnership and its subsidiaries, including joint ventures in which
it is a partner. The Company's investment objectives are to provide quarterly
cash distributions and achieve long-term capital appreciation through
increases in the value of the Company. For a discussion of the Company's
Properties and its development, acquisition and other strategic objectives,
see "Properties" and "Business Objectives."

The Company may purchase income-producing office and industrial and other
types of properties for long-term investment, expand and improve the
Properties or other properties purchased, or sell such real estate properties,
in whole or in part, when circumstances warrant. The Company may also
participate with third parties in property ownership, through joint ventures
or other types of co-ownership. Equity investments may be subject to existing
mortgage financing and other indebtedness or such financing or indebtedness as
may be incurred in connection with acquiring or refinancing these investments.
Debt service with respect to such financing or indebtedness will have a
priority over any distributions with respect to the Common Shares.

While the Company's current portfolio consists of, and the Company's
business objectives emphasize, equity investments in office and industrial
real estate, the Company may, at the discretion of the Board of Trustees,
invest in other types of equity real estate investments, mortgages (including
participation in convertible mortgages) and other real estate interests. Other
than the limitations described in the succeeding paragraph, future development
or investment activities will not be limited to any geographic area or product
type or to a specified percentage of the Company's assets. While the Company
intends to diversify in terms of property location, size and market, the
Company does not have any limit on the amount or percentage of its assets that
may be invested in any one property or any one market area.

Subject to the limitations on ownership of certain types of assets and the
gross income tests imposed by the Code, the Company also may invest in the
securities of other REITs, other entities engaged in real estate activities or
other issuers, including for the purpose of exercising control over such
entities. See "Federal Income Tax Considerations--Requirements for
Qualification--Income Tests" and "--Requirements for Qualification--Asset
Tests." The Company may enter into joint ventures or partnerships for the
purpose of obtaining an equity interest in a particular property in accordance
with the Company's investment policies. Such investments may permit the
Company to own interests in larger assets without unduly restricting
diversification and, therefore, add flexibility in structuring its portfolio.
The Company will not enter into a joint venture or partnership to make an
investment that would not otherwise meet its investment policies. Investments
in such securities are also subject to the Company's policy not to be treated
as an investment company under the Investment Company Act of 1940.

FINANCING POLICIES

The Company's Debt Limitation is a policy of incurring debt only if upon
such incurrence the ratio of the Company's combined indebtedness plus its pro
rata share of Joint Venture Debt would be 50% or less of the

98
<PAGE>

Company's Total Market Capitalization. Upon completion of the Offering and the
Formation Transactions, the Company's combined indebtedness will be
approximately $66.2 million or approximately 13.5% of total market
capitalization (excluding its pro rata share of Joint Venture Debt), and,
together with its pro rata share of Joint Venture Debt its outstanding total
indebtedness will be approximately $136.1 million or approximately 24.3% of
the Company's Total Market Capitalization. The ratio, which is based, in part,
upon the aggregate market value of the outstanding Common Shares on a fully
diluted basis, will fluctuate with changes in the price of the Common Shares
(and the issuance of additional Common Shares or Preferred Shares, if any) and
differ from a debt to book capitalization ratio, which is based upon book
values. A company's debt to book capitalization ratio may not reflect the
current income potential of its assets and operations, and the Company
believes that a debt to Total Market Capitalization ratio provides a more
appropriate indication of leverage for a company whose assets are primarily
income-producing real estate. The Company's Declaration of Trust and Bylaws do
not, however, limit the amount or percentage of indebtedness that the Company
may incur. Accordingly, the Board of Trustees could alter or eliminate this
policy at will. The Company may from time to time modify its debt policy in
light of current economic conditions, relative costs of debt and equity
capital, market values of its properties, general conditions in the market for
debt and equity securities, fluctuations in the market price of Common Shares,
growth opportunities, the Company's continued REIT qualification requirements
and other factors. Accordingly, the Company may increase or decrease its debt
to market capitalization ratio beyond the limits described above.

To the extent that the Board of Trustees decides to obtain additional
capital, the Company may raise such capital through additional equity
offerings (including offerings of senior securities), debt financings or
retention of cash available for distribution (subject to provisions in the
Code concerning taxability of undistributed REIT income), or a combination of
these methods. As long as the Operating Partnership is in existence, the net
proceeds of the sale of Common Shares by the Company will be transferred to
the Operating Partnership in exchange for that number of Units in the
Operating Partnership equal to the number of Common Shares sold by the
Company. The Company presently anticipates that any additional borrowings
would be made through the Operating Partnership, although the Company may
incur indebtedness directly and loan the proceeds to the Operating
Partnership. Borrowings may be unsecured or may be secured by any or all of
the assets of the Company, the Operating Partnership or any existing or new
property owning partnership and may have full or limited recourse to all or
any portion of the assets of the Company, the Operating Partnership or any
existing or new property owning partnership. Indebtedness incurred by the
Company may be in the form of bank borrowings, purchase money obligations to
sellers of properties, publicly or privately placed debt instruments or
financing from institutional investors or other lenders. The proceeds from any
borrowings by the Company may be used for working capital, to refinance
existing indebtedness or to finance acquisitions, expansions or the
development of new properties, and for the payment of distributions. See
"Federal Income Tax Considerations." Other than restrictions that may be
imposed by lenders from time to time in connection with outstanding
indebtedness, the Company has no established limit on the number or amount of
mortgages that may be placed on any single property or on its portfolio as a
whole.

CONFLICT OF INTEREST POLICIES

The Company has adopted certain policies and entered into certain agreements
designed to minimize potential conflicts of interest. See "Management--
Employment Agreements." The Company's Board of Trustees is subject to certain
provisions of Maryland law, which are designed to eliminate or minimize
certain potential conflicts of interest. However, there can be no assurance
that these policies always will be successful in eliminating the influence of
such conflicts, and if they are not successful, decisions could be made that
might fail to reflect fully the interests of all shareholders.

Declaration of Trust and Bylaw Provisions

The Company's Declaration of Trust, with limited exceptions, requires that a
majority of the Company's Board of Trustees be comprised of persons who are
not officers or employees of the Company or any Affiliate, or Affiliates of
any lessee of any property of the Company. The Declaration of Trust provides
that such Independent Trustee requirement may not be amended, altered, changed
or repealed without the affirmative vote

99
<PAGE>

of two-thirds of all of the votes entitled to be cast on the matter
outstanding shares of the Company entitled to vote. In addition, the Company's
Bylaws provide that any transaction involving the Company, including the
purchase, sale, lease or mortgage of any real estate asset or any other
transaction, in which a trustee or officer of the Company, or any Affiliate of
the foregoing, has any direct or indirect interest other than solely as a
result of his status as a trustee, officer or shareholder of the Company, must
be approved by a majority of the trustees, including a majority of the
Independent Trustees, even if the Independent Trustees constitute less than a
quorum. The Declaration of Trust also includes a provision permitting each
Trustee, including Independent Trustees, to engage in the type of business
activities conducted by the Company without first presenting any investment
opportunities to the Company even though such investment opportunities may be
within the scope of the Company's investment policies. These provisions are
subject to any non-competition agreements that may exist. See "Management--
Employment Agreements."

Employment Agreements

At the Closing of the Offering, Michael V. Prentiss and Thomas F. August
will enter into an employment and noncompetition agreement with the Company
that will, subject to certain limited exceptions, prohibit them from engaging
in activities that compete with the Company's businesses during the term of
their employment by the Company and for a period ending two years after the
termination of their employment with the Company. See "Management--Employment
Agreements."

The Operating Partnership

A conflict of interest may arise between the Company and the other Limited
Partners of the Operating Partnership, including the Prentiss Principals, due
to the possibility that a disproportionately large share of any gain
recognized from the sale of any of the Properties contributed by the Limited
Partners, directly or indirectly, to the Operating Partnership will be
allocated to the Limited Partners. The Operating Partnership Agreement gives
the General Partner, a wholly-owned subsidiary of the Company, full, complete
and exclusive discretion in managing and controlling the business of the
Operating Partnership and in making all decisions affecting the business and
assets of the Operating Partnership. In addition, the Company's Bylaws provide
that any transaction (including the sale of a real estate asset) involving the
Company in which an advisor, trustee, officer or shareholder of the Company,
or any Affiliate of the foregoing, has a direct or indirect interest other
than solely as a result of his status as an advisor, trustee, officer, or
shareholder of the Company, must be approved by a majority of the Independent
Trustees. Pursuant to the Operating Partnership Agreement, the Limited
Partners have agreed that in the event of any conflict in the fiduciary duties
owed by the Company to its shareholders, and by the General Partner to such
Limited Partners, the General Partner will fulfill its fiduciary duties to
such Limited Partners by acting in the best interests of the Company's
shareholders. In addition, the General Partner is not responsible for any
misconduct or negligence on the part of its agents, provided that the General
Partner appointed such agents in good faith.

Provisions of Maryland Law

Pursuant to Maryland law (the jurisdiction under which the Company is
organized), each Trustee is required to discharge his duties in good faith,
with the care an ordinarily prudent person in a like position would exercise
under similar circumstances and in a manner he reasonably believes to be in
the best interest of the Company. In addition, under Maryland law, a contract
or transaction between the Company and any of its Trustees or between the
Company and a corporation, firm or other entity in which a Trustee is a
director or has a material financial interest is not void or voidable solely
because of (a) the common directorship or interest, (b) the presence of the
Trustee at the meeting of the Board or a committee of the Board that
authorizes or approves or ratifies the contract or transaction or (c) the
counting of the vote of the Trustee for the authorization, approval or
ratification of the contract or transaction if (i) after disclosure of the
interest, the transaction is authorized, approved or ratified, by the
affirmative vote of a majority of the disinterested Trustees, or by the
affirmative vote of a majority of the votes cast by shareholders entitled to
vote other than the votes of shares owned of record or beneficially by the
interested Trustee or corporation, firm or other entity, or (ii) the
transaction is fair and reasonable to the Company.

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<PAGE>

POLICIES WITH RESPECT TO OTHER ACTIVITIES

The Company has authority to offer shares of beneficial interest or other
securities and to repurchase or otherwise reacquire its shares or any other
securities and may engage in such activities in the future. As described under
"Shares Available for Future Sale," the Company expects to issue Common Shares
to holders of Units upon exercise of their Exchange Rights. The Company has
not issued Common Shares, interests or any other securities to date, except in
connection with the formation of the Company. The Company has no outstanding
loans to other entities or persons, including its officers and Trustees. The
Company has not engaged in trading, underwriting or agency distribution or
sale of securities of other issuers, nor has the Company invested in the
securities of other issuers other than the Operating Partnership for the
purpose of exercising control and does not intend to do so in the future. The
Company makes and intends to continue to make investments in such a way that
it will not be treated as an investment company under the Investment Company
Act of 1940. The Company's policies with respect to such activities may be
reviewed and modified or amended from time to time by the Company's Board of
Trustees without approval of shareholders.

At all times, the Company intends to make investments in such a manner
consistent with the requirements of the Code for the Company to qualify as a
REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the Company's Board of Trustees, with the consent of
the holders of two-thirds of the outstanding Common Shares, determines that it
is no longer in the best interests of the Company to qualify as a REIT.

WORKING CAPITAL RESERVES

The Company will maintain working capital reserves in amounts that the Board
of Trustees determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and investments.

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<PAGE>

MANAGEMENT

TRUSTEES AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
Trustees and executive officers of the Company immediately after the closing
of the Offering:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael V. Prentiss..... 53 Chief Executive Officer and Chairman of the Board of
Trustees (Term will expire in 1999)
Thomas F. August*....... 48 President, Chief Operating Officer and Trustee (Term will
expire in 1998)
Thomas J. Hynes*........ 57 Independent Trustee (Term will expire in 1999)
Barry J. C. Parker*..... 49 Independent Trustee (Term will expire in 1999)
Dr. Leonard M. Riggs, 53
Jr.*................... Independent Trustee (Term will expire in 1998)
Ronald G. Steinhart*.... 56 Independent Trustee (Term will expire in 1998)
Lawrence A. Wilson*..... 61 Independent Trustee (Term will expire in 1997)
Dennis J. DuBois........ 50 Executive Vice President
Richard B. Bradshaw, 44 Executive Vice President and National Director of Corporate
Jr..................... Development
Richard J. Bartel....... 45 Executive Vice President--Financial Operations and
Administration, and Chief Operating Officer--Property
Management
Mark R. Doran........... 42 Executive Vice President and Treasurer
Lawrence J. Krueger..... 40 Executive Vice President and Managing Director, Midwest
Region
Jeffry T. Courtwright... 36 Senior Vice President and Managing Director, Southwest
Region
James B. Meyer.......... 37 Senior Vice President and Managing Director, Southeast
Region
David Robertson......... 39 Senior Vice President and Managing Director, Western Region
Robert K. Wiberg........ 41 Senior Vice President and Managing Director, Mid-Atlantic
Region
</TABLE>
- --------
* Has agreed to become a Trustee prior to the consummation of the Offering.

The following are biographical summaries of the Trustees and executive
officers of the Company:

Michael V. Prentiss serves as Chairman of the Board and Chief Executive
Officer of the Company. Mr. Prentiss, the founder and majority owner of PPL,
has over 25 years experience in real estate development, acquisitions, and
investment management and has acquired or developed properties with an
aggregate value in excess of $2 billion. From 1987 to 1992 he served as
President and Chief Executive Officer of PPL, and since 1992, he has served as
its Chairman and Chief Executive Officer. From 1978 to 1987, Mr. Prentiss
served as President of Cadillac Urban, Executive Vice President and member of
the Board of Trustees of Cadillac Fairview, and a member of Cadillac
Fairview's Executive Committee. Cadillac Urban was the largest business unit
of Cadillac Fairview, responsible for all of its office, mixed-use and
suburban office park development activity in the U.S. and Canada. Prior to
1978, Mr. Prentiss was President of Ackerman Development Company. Mr. Prentiss
is a Baker Scholar graduate of the Harvard Graduate School of Business
Administration. He holds a Bachelor of Science degree in Civil Engineering and
a B.A. degree in Business Administration from Washington State University.

Thomas F. August serves as President and Chief Operating Officer and will
serve as a Trustee of the Company. Mr. August has served as President and
Chief Operating Officer of PPL since 1992. From 1987 to 1992, Mr. August
served as Executive Vice President and Chief Financial Officer of PPL. From
1985 to 1987, Mr. August served in executive capacities with Cadillac Urban.
Prior to joining Cadillac Urban in 1985, Mr. August was Senior Vice President
of Finance for Oxford Properties, Inc., in Denver, Colorado, an affiliate of a
privately-held Canadian real estate firm. Previously, he was a Vice President
of Citibank, responsible for real estate lending activities in the upper
Midwest. Mr. August holds a B.A. degree from Brandeis University and an M.B.A.
degree from Boston University.

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<PAGE>

Thomas J. Hynes will serve as an Independent Trustee of the Company. Mr.
Hynes is President and Chief Executive Officer of Meredith & Grew
Incorporated, a Boston-based real estate brokerage firm, and has served in
that capacity since 1988. Mr. Hynes has been employed by Meredith & Grew
Incorporated since 1965 in which time he has held various offices. Mr. Hynes
holds a B.A. degree from Boston College.

Barry J. C. Parker will serve as an Independent Trustee of the Company. Mr.
Parker is the immediate past Chairman of the Board, President and Chief
Executive Officer of County Seat, Inc., a nationwide chain of 740 specialty
apparel stores. Prior to joining County Seat, Inc. in 1985, Mr. Parker worked
for the Children's Place, Inc. for 10 years and held various offices with that
company including Senior Vice President and Chief Financial Officer, and Vice
President and General Merchandising Manager. Mr. Parker worked for Federated
Department Stores, Inc. prior to 1975 and held various management positions
with that company's F&R Lazarus Department Store division. Mr. Parker holds a
B.A. degree from Washington University in St. Louis and an M.B.A. degree from
the University of Pennsylvania's Wharton School of Finance and Commerce.

Dr. Leonard M. Riggs, Jr. will serve as an Independent Trustee of the
Company. Dr. Riggs is Chairman and Chief Executive Officer of EmCare, Holdings
Inc., a publicly-held physician practice management company specializing in
emergency medicine. Dr. Riggs founded EmCare Holdings, Inc. as Emergency
Health Service Associates in 1972. Dr. Riggs has also served as the Director
of Emergency Medicine at Baylor University Medical Center since 1974. Dr.
Riggs is past president of the American College of Emergency Physicians and is
a director and member of the compensation committee of American Oncology
Resources, Inc. He holds a B.S. degree from Centenary College of Shreveport,
Louisiana and an M.D. degree from the University of Texas Southwestern Medical
School in Dallas, Texas.

Ronald G. Steinhart will serve as an Independent Trustee of the Company. Mr.
Steinhart is Chairman and Chief Executive Officer of Banc One Texas, N.A. and
has served in that capacity since 1995. He was also appointed as Regional
Executive for Banc One Corporation's operations in Oklahoma, Arizona, Colorado
and Utah earlier this year. Prior to 1995, Mr. Steinhart served as President
and Chief Operating Officer of Banc One Texas, N.A. to which he was appointed
in 1992 in connection with the merger of Team Bank into Banc One Texas, N.A.
Prior to that merger, Mr. Steinhart served as Chairman and Chief Executive
Officer of Team Bank, which he founded as Deposit Guaranty Bank in 1988. Mr.
Steinhart served as President and Chief Operating Officer of InterFirst
Corporation from 1981 to 1987. Prior to joining InterFirst Corporation in
1980, Mr. Steinhart organized investors to charter and purchase six banks. Mr.
Steinhart holds a B.A. degree in accounting and a M.S. in finance from the
University of Texas in Austin. He is also a Certified Public Accountant.

Lawrence A. Wilson will serve as an Independent Trustee of the Company. Mr.
Wilson is President and Chief Executive Officer of HCB Contractors, a
construction and project management company that is a subsidiary of the Beck
Group. Mr. Wilson also serves as a director of TU Electric. Mr. Wilson holds a
L.L.B. degree from the Woodrow Wilson College of Law in Atlanta, Georgia and
is a graduate of the Emory University Advanced Management Program.

Dennis J. DuBois serves as Executive Vice President of the Company. Mr.
DuBois served as Executive Vice President of PPL since 1994 and from 1987 to
1993 as its General Counsel. He has more than 22 years of real estate
experience in acquisitions, development and leasing of major buildings and
mixed-use urban properties. Beginning in 1981, Mr. DuBois served as General
Counsel for Cadillac Urban. Before joining Cadillac Urban in 1981, Mr. DuBois
was a partner in a prominent Baltimore law firm. Mr. DuBois holds a B.A.
degree from the University of Massachusetts and a J.D. from the University of
Maryland Law School. He is a member of the Order of the Coif and a member of
the Bar in the state of Maryland.

Richard B. Bradshaw, Jr. serves as Executive Vice President and National
Director of Corporate Development of the Company, overseeing the property
management, leasing and new business development functions. Mr. Bradshaw has
served PPL in that capacity since 1995. Prior to 1995, he was Executive Vice
President of PPL in charge of development for its eastern region. Prior to
1987, Mr. Bradshaw was Senior Vice

103
<PAGE>

President of Cadillac Urban, where he was involved with a variety of Cadillac
Urban's real estate projects. Mr. Bradshaw holds a B.A. degree in Business
Administration from the University of Georgia and is a Harvard Business School
PMD graduate. He is a member of the Board of Trustees of Central Atlanta
Progress and the Midtown Alliance, and serves on the Urban Land Institute's
Regional Steering Committee.

Richard J. Bartel serves as Executive Vice President--Financial Operations
and Administration and Chief Operating Officer--Property Management of the
Company. Since 1995, Mr. Bartel has served in similar capacities for PPL,
overseeing the operating aspects of its property management business,
including quality control, management training and day-to-day operations. He
also directs financial operations and administration, including accounting and
reporting, taxes, insurance and human resources. Mr. Bartel served as Senior
Vice President of Financial Operations of PPL from 1989 to 1995, Vice
President of Financial Operations of PPL from 1987 to 1989 and Vice President
of Financial Operations of Cadillac Urban from 1986 to 1987. Mr. Bartel holds
a B.S. degree in Accounting from the University of Illinois and a Masters in
Management from Northwestern University's Kellogg Graduate School of
Management. He is also a Certified Public Accountant.

Mark R. Doran serves as Executive Vice President and Treasurer of the
Company. Mr. Doran is responsible for securing interim and long-term financing
and establishing and maintaining relationships with project financing sources.
In 1992 and 1993, Mr. Doran served as Senior Vice President and Treasurer of
PPL, and in 1990 and 1991 he served as its Vice President and Treasurer. Prior
to joining PPL in 1990, Mr. Doran served as Senior Vice President for Lincoln
Property Company, where he was responsible for the financing of Lincoln's
commercial projects throughout the United States. Mr. Doran holds an M.B.A.
degree and a B.B.A. degree in Accounting from Baylor University and is a
member of the Urban Land Institute.

Lawrence J. Krueger serves as Executive Vice President and the Managing
Director of the Company's Midwest region. Mr. Krueger has served in that
capacity for PPL since 1994. He also has primary responsibility for the
development and construction of the 525-acre Continental Executive Parke
office and light industrial complex in suburban Chicago. He served as Senior
Vice President--Development of PPL from 1990 to 1994, Vice President--
Development of PPL from 1987 to 1990 and Vice President--Development Cadillac
Urban from 1986 to 1997. Mr. Krueger holds a B.A. degree in Business from
Indiana University and a Masters degree in Urban Land Economics and Real
Estate Investment Analysis from the University of Wisconsin, Madison. He is a
member of the National Association of Industrial and Office Parks, the
Industrial Development Research Council and the Japan-American Society of
Chicago.

Jeffry T. Courtwright serves as Senior Vice President and the Managing
Director of the Company's Southwest region. He is also responsible for
development and construction activities for the approximately 1.6 million
square foot Park West Office Park, and Park West Commerce Center, a 366-acre
industrial park, both in suburban Dallas. From 1993 to 1995, Mr. Courtwright
was Senior Vice President of Lincoln Property Company in Dallas, where he
handled leasing, property development and business development. Mr.
Courtwright holds a B.A. in Business from Southern Methodist University, is a
licensed real estate broker in Texas, a council member of the National
Association of Industrial and Office Parks and a member of the Executive
Committee for the Board of Directors of the Central Dallas Association.

James B. Meyer serves as Senior Vice President and the Managing Director of
the Company's Southeast region. Mr. Meyer has served as Senior Vice President
and Managing Director of PPL since 1995, was Senior Vice President from 1994
to 1995 and was a Vice President from 1990 to 1994. Mr. Meyer was also
responsible for the acquisition of the 500,000 square foot Cumberland Office
Park in Atlanta and the development and sale of One Atlantic Center (IBM
Tower), a 1.1 million net rentable square foot landmark building in Midtown
Atlanta. Prior to 1990, Mr. Meyer worked in various capacities for Cadillac
Fairview, which he joined in 1984. Mr. Meyer holds an M.B.A. from the
University of Pennsylvania's Wharton School of Finance and Commerce and a B.S.
degree in civil engineering from Purdue University. He has served on the
Boards of the Midtown Alliance, Downtown Atlanta Partnership, and numerous
other civic and professional organizations.

104
<PAGE>

David Robertson serves as Senior Vice President and the Managing Director of
the Company's Western region. Mr. Robertson has served as a Senior Vice
President and Managing Director of PPL since 1995, a Vice President since 1993
and a General Manager since 1990. From 1986 to 1990, he worked in various
capacities for Cadillac Fairview. Before joining Cadillac Fairview in 1986,
Mr. Robertson was responsible for the management of various properties for
Gerald D. Hines Interests and Henry S. Miller Management Corporation in
Dallas. Mr. Robertson holds a California Real Estate License, and is a
candidate for the Certified Property Manager designation from the Institute of
Real Estate Management. He received a B.S. in banking and finance from
Mississippi State University, and is actively involved in the Institute of
Real Estate Management and the Building Owners and Managers Association.

Robert K. Wiberg serves as Senior Vice President and the Managing Director
of the Company's Mid-Atlantic region. Mr. Wiberg has served as a Senior Vice
President and Managing Director of PPL since 1995 and a Vice President for
Development and Acquisitions since 1990. Prior to joining Cadillac Fairview in
1984, Mr. Wiberg was employed by Coldwell Banker in its Los Angeles office. As
Vice President of Development and Acquisitions, Mr. Wiberg was responsible for
PPL's development in Washington, D.C. and Northern Virginia, including the
Fairview Park project. Mr. Wiberg holds an M.B.A. degree from the University
of California, at Berkeley; a Masters degree in City and Regional Planning
from Harvard University, and a B.A. degree from Cornell University.

BOARD OF TRUSTEES

The business and affairs of the Company will be managed under the direction
of the Board of Trustees, which will initially have seven members, five of
whom will be Independent Trustees. Mr. Prentiss presently serves as the sole
Trustee of the Company. Before the consummation of the Offerings, Messrs.
August, Hynes, Parker, Steinhart and Wilson and Dr. Riggs will become
Trustees.

Pursuant to the terms of the Company's Declaration of Trust, the Trustees
are divided into three classes. One class will hold office initially for a
term expiring at the annual meeting of shareholders to be held in 1997, a
second class will hold office initially for a term expiring at the annual
meeting of shareholders to be held in 1998, and a third class will hold office
initially for a term expiring at the annual meeting of shareholders to be held
in 1999. At each annual meeting of the shareholders of the Company, the
successors to the class of Trustees whose terms expire at that meeting will be
elected to hold office for a term continuing until the annual meeting of
shareholders held in the third year following the year of their election and
the election and qualification of their successors. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws."

The Continuing Investors have a right, exercisable within one year of the
Closing of the Offering, to nominate one person acceptable to management as a
Trustee. The Company is obligated to facilitate a shareholder vote on such
nominee at a special shareholders meeting to be called upon such nomination.
At such meeting, management will endorse the nominee for election as a Trustee
for a term expiring no less than one year after the election. If elected, such
nominee will have such rights, powers and obligations as any other single
Trustee of the Company possesses. Such a Trustee will not be an Independent
Trustee.

COMMITTEES OF THE BOARD OF TRUSTEES

Audit Committee. Within 30 days following consummation of the Offering, the
Board of Trustees of the Company will establish an Audit Committee that will
consist of not less than two members, all of whom shall be Independent
Trustees. The Audit Committee will make recommendations concerning the
engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's internal
accounting controls.

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<PAGE>

Executive Compensation Committee. The Board of Trustees will also establish
a Compensation Committee (the "Compensation Committee") comprised of two or
more of the Independent Trustees to determine compensation for the Company's
executive officers and to implement the Company's 1996 Share Incentive Plan.

The Board of Trustees does not have a standing nominating committee. The
full Board of Trustees performs the functions of such a committee.

COMPENSATION OF TRUSTEES

The Company intends to pay its Trustees who are not officers of the Company
fees for their services as trustees. Each such Trustee will receive annual
compensation of $10,000 in Common Shares payable quarterly and a fee of $1,250
plus expenses for attendance in person at each meeting of the Board of
Trustees, $250 for each telephonic meeting of the Board of Trustees and $500
for each committee meeting attended. In addition, each such Trustee will
receive options under the 1996 Trustees' Share Incentive Plan (the "Trustees'
Plan") to purchase 10,000 Common Shares at an exercise price equal to the
Offering Price, which options will vest in equal installments over a four-year
period on the anniversary of the date of grant. Officers of the Company who
are Trustees will not be paid any trustee fees.

EXECUTIVE COMPENSATION

The Company was organized as a Maryland real estate investment trust in July
1996, and paid no cash compensation to its executive officers for the year
ended December 31, 1995.

The following table sets forth the base compensation to be awarded to each
of the five most highly compensated executive officers of the Company during
the fiscal year ending December 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS AND
NAME AND PRINCIPAL POSITION SALARY/(1)/ OPTIONS/(2)/
- --------------------------- ------------ ------------
<S> <C> <C>
Michael V. Prentiss
Chairman of the Board of Trustees and Chief Executive Officer..... $180,000 386,762
Thomas F. August
President and Chief Operating Officer............................. 175,000 173,944
Richard J. Bartel
Executive Vice President--Financial Operations and Administration
and Chief Operating Officer--Property Management.................. 160,000 75,000
Richard B. Bradshaw
Executive Vice President--National Director of Corporate
Development....................................................... 150,000 64,366
Dennis J. DuBois
Executive Vice President.......................................... 150,000 39,366
</TABLE>
- --------
/(1)/ Amounts given are annualized projections for fiscal year 1996 which ends
December 31, 1996. Does not include bonuses that may be paid to the above
individuals. See "Incentive Compensation."
/(2)/ Upon the effective date of the Offering, options to purchase a total of
1,291,439 Common Shares will be granted to Trustees and employees of the
Company under the 1996 Share Incentive Plan (the "1996 Plan") and
Trustees' Plan at a price equal to the Offering Price. In addition, the
Company will award under the 1996 Plan options to purchase 2,000 Common
Shares at the then-current trading price at the time of the award to each
employee achieving a combined 10 years of service with the Prentiss Group
and the Company. In 1996, those awards are expected to total
approximately 20,000 options. See "1996 Share Incentive Plan."

106
<PAGE>

OPTION GRANTS IN FISCAL YEAR 1996/(1)/

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF TOTAL ANNUAL RATES OF SHARE
OPTIONS PRICE APPRECIATION FOR
GRANTED OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED /(1)/ FISCAL YEAR PER SHARE /(2)/ DATE 5% 10%
---- ------------- ---------------- --------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael V. Prentiss..... 386,762 29.9% $20.00 October 16, 2006 $4,864,649 $12,327,979
Thomas F. August........ 173,944 13.5% 20.00 October 16, 2006 2,187,848 5,544,439
Richard J. Bartel....... 75,000 5.8% 20.00 October 16, 2006 943,342 2,390,614
Richard B. Bradshaw..... 64,366 5.0% 20.00 October 16, 2006 809,588 2,051,656
Dennis J. DuBois........ 39,366 3.0% 20.00 October 16, 2006 495,141 1,254,785
</TABLE>
- --------
/(1)/ The options will become exercisable for one-third of the covered shares
(disregarding fractional shares if any) on the first and second
anniversaries of the date of grant, and for the balance of the covered
shares on the third anniversary of the date of grant.
/(2)/ Based on the Offering Price.

EMPLOYMENT AGREEMENTS

Messrs. Prentiss and August will enter into employment agreements with the
Company. Each agreement will be for an initial term of three years, which will
be automatically renewed for successive one-year periods unless otherwise
terminated. The agreements will provide for base annual compensation (as set
forth in "--Executive Compensation" above) and incentive compensation to be
determined by the Compensation Committee (within the terms set forth in "--
Incentive Compensation Program" below). Each employment agreement provides
that the Compensation Committee may approve increases in the base salaries.
Each of the employment agreements provides for certain severance payments in
the event of disability or termination by the Company without cause or by the
employee with cause. No other employee of the Company will be employed
pursuant to an employment agreement.

The terms of Messrs. Prentiss's and August's employment agreements require
that Messrs. Prentiss and August devote substantially all of their business
time to the affairs of the Company. These agreements also, subject to certain
exceptions, prohibit them from engaging, directly or indirectly, during the
term of their employment or the Noncompetition Period (as defined below), in
any activity anywhere in the U.S. that competes with the Company (the
"Competitive Activities"). These provisions of each employment agreement
survive the termination of such agreement until the expiration of the
Noncompetition Period. The "Noncompetition Period" is the period beginning on
the date of the termination of employment with the Company and ending on the
second anniversary of such date.

Messrs. Bradshaw and DuBois will enter into noncompetition agreements with
the Company that, subject to certain limited exceptions, prohibit them from
engaging, directly or indirectly, in Competitive Activities in the
Southeastern U.S. and the Southwestern U.S., respectively, during the
Noncompetition Period. In the event of an involuntary termination of Mr.
Bradshaw's or Mr. Dubois' employment, these agreements do not prohibit the
related officer from engaging in Competitive Activities, but, during the
Noncompetition Period, do prohibit the related officer from (1) soliciting any
employee of the Company to leave his or her job and (ii) soliciting any client
or identified potential client of the Company during the Noncompetition
Period.

1996 SHARE INCENTIVE PLAN

Prior to the Offering, the Board of Trustees will adopt, and the sole
shareholder of the Company will approve, the 1996 Plan for the purpose of
attracting and retaining executive officers, directors and employees. The 1996
Plan will be administered by the Compensation Committee of the Board of
Trustees, or its delegate. The Compensation Committee may not delegate its
authority with respect to grants and awards to individuals subject to Section
16 of the Exchange Act. As used in this summary, the term "Administrator"
means the Compensation Committee or its delegate, as appropriate.

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<PAGE>

Officers and other employees of the Company, the Operating Partnership and
designated subsidiaries, including the Manager, generally will be eligible to
participate in the 1996 Plan. The Administrator selects the individuals who
will participate in the 1996 Plan ("Participants"). No Participant may be
granted, in any calendar year, options that cover more than 390,000 Common
Shares or Share Appreciation Rights ("SARs") that cover more than 390,000
Common Shares. Options granted with tandem SARs shall be treated as a single
award for purposes of applying the limitation in the preceding sentence. No
Participant may be issued, in any calendar year, more than 50,000 Common
Shares pursuant to an award of Restricted Shares (defined below) or
Performance Shares (defined below) for more than 50,000 Common Shares.

The 1996 Plan authorizes the issuance of up to 2,030,000 Common Shares. The
Plan provides for the grant of (i) share options not intended to qualify as
incentive stock options under Section 422 of the Code, (ii) Performance
Shares, (iii) SARs, issued alone or in tandem with options, (iv) Restricted
Shares, which are contingent upon the attainment of performance goals or
subject to vesting requirements or other restrictions and (v) incentive
awards. The Administrator shall prescribe the conditions which must occur for
Restricted Shares to vest or for Performance Shares to vest and incentive
awards to be earned.

In connection with the grant of options under the 1996 Plan, the
Administrator will determine the option exercise period and any vesting
requirements. The initial options granted under the Plan will have 10-year
terms and will become exercisable for one-third of the covered shares
(disregarding fractional shares, if any) on the first and second anniversaries
of the date of grant, and for the balance of the shares on the third
anniversary of the date of grant subject to acceleration of vesting upon a
change in control of the Company (as defined in the 1996 Plan). An option may
be exercised for any number of whole shares less than the full number for
which the option could be exercised. A Participant will have no rights as a
shareholder with respect to Common Shares subject to his or her option until
the option is exercised. To the extent an option has not become exercisable at
the time of a Participant's termination of employment, it will be forfeited
unless the Administrator exercises its discretion to accelerate vesting for
the Participant. If a Participant is terminated due to dishonesty or similar
reasons, all unexercised options, whether vested or unvested, will be
forfeited. Any Common Shares subject to options which are forfeited (or expire
without exercise) pursuant to the vesting requirement or other terms
established at the time of grant will again be available for grant under the
1996 Plan. The exercise price of options granted under the 1996 Plan may not
be less than the fair market value of the Common Shares on the date of grant.
Payment of the exercise price of an option granted under the 1996 Plan may be
made in cash, cash equivalents acceptable to the Compensation Committee or, if
permitted by the option agreement, by exchanging Common Shares having a fair
market value equal to the option exercise price.

On the effective date of the Offering, options for 1,291,439 Common Shares
will be granted to employees and officers, including the officers named in "--
Executive Compensation" above, at an exercise price equal to the Offering
Price.

No option, SAR, Restricted Shares, incentive award or Performance Shares may
be granted under the 1996 Plan after December 31, 2006. The Board may amend or
terminate the 1996 Plan at any time, but an amendment will not become
effective without shareholder approval if the amendment materially (i)
increases the number of shares that may be issued under the 1996 Plan (other
than an adjustment or automatic increase described above); (ii) changes the
eligibility requirements; or (iii) increases the benefits that may be provided
under the 1996 Plan. No amendment will affect a Participant's outstanding
award without the Participant's consent.

INCENTIVE COMPENSATION

The Company may award incentive compensation to employees of the Company and
its subsidiaries, including incentive awards under the 1996 Plan that may be
earned on the attainment of performance objectives stated with respect to
criteria described above or other performance-related criteria. The
Compensation Committee may, in its discretion, approve bonuses to executive
officers and certain other officers and key employees if the Company achieves
Company-wide, regional and/or business unit performance objectives determined
by it each year. To the extent a bonus exceeds 100% of such an employee's base
salary, the Company may pay such excess in Restricted Shares.

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THE TRUSTEES' PLAN

Prior to the Offering, the Board of Trustees will also adopt, and the
Company's sole shareholder will approve, the Trustees' Plan to provide
incentives to attract and retain Independent Trustees.

The Trustees' Plan provides for the grant of options and the award of Common
Shares to each eligible Trustee of the Company. No Trustee who is an employee
of the Company, the Operating Partnership, or designated subsidiaries,
including the Manager, is eligible to participate in the Trustees' Plan.

The Trustees' Plan provides that each Independent Trustee who is a member of
the Board of Trustees on the effective date of the Offering (a "Founding
Trustee") will be granted an option for 10,000 Common Shares at an exercise
price equal to the Offering Price. Each Independent Trustee who is not a
Founding Trustee will receive an option for 10,000 Common Shares on the date
of the first Board of Trustees meeting following the annual meeting of
shareholders at which the Independent Trustee is first elected to the Board of
Trustees; provided, however, that an Independent Trustee (other than a
Founding Trustee) who is first elected or appointed to the Board of Trustees
other than at an annual meeting of shareholders shall receive an option for
10,000 Common Shares on the date of such election or appointment. The exercise
price of options granted in accordance with the preceding sentence shall be
the fair market value of a Common Share on the date of grant. The exercise
price of options granted under the Trustees' Plan may be paid in cash,
acceptable cash equivalents, Common Shares or a combination thereof. Options
issued under the Trustees' Plan are exercisable for ten years from the date of
grant.

An option granted under the Trustees' Plan shall become exercisable for
2,500 shares on each of the first through fourth anniversaries of the date of
grant, provided that Trustee is a member of the Board of Trustees on such
anniversary date. To the extent an option has become exercisable under the
Trustees' Plan, it may be exercised whether or not the Trustee is a member of
the Board on the date or dates of exercise. An option may be exercised for any
number of whole shares less than the full number for which the option could be
exercised. A Trustee will have no rights as a shareholder with respect to
Common Shares subject to his or her option until the option is exercised.

Each Independent Trustee will also receive quarterly an award of Common
Shares. Awards will be made on each March 1, June 1, September 1 and December
1 (each date, a "Quarterly Award Date") during the term of the Trustees' Plan.
Each Independent Trustee will receive, on each Quarterly Award Date on which
he or she is a member of the Board of Trustees, the number of Common Shares
having a fair market value on that date that as nearly as possible equals, but
does not exceed, $2,500. A Trustee will be immediately and fully vested in all
such Common Shares awarded to him or her under the Trustees' Plan.

The terms of outstanding options, the number of Common Shares for which
options will thereafter be awarded, and the number of Common Shares to be
awarded on a Quarterly Award Date shall be subject to adjustment in the event
of a share dividend, share split, combination, reclassification,
recapitalization or other similar event.

The Trustees' Plan provides that the Board of Trustees may amend or
terminate the Trustees' Plan, but the Trustees' Plan may not be amended more
than once every six months other than to comply with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act of 1974, or the
rules thereunder. An amendment will not become effective without shareholder
approval if the amendment materially changes the eligibility requirements or
increases the benefits that may be provided under the Trustees' Plan. No
options for Common Shares may be granted and no Common Shares may be awarded
under the Trustees' Plan after December 31, 2002.

SAVINGS PLAN

The Company intends to assume and continue, and the Operating Partnership
and designated subsidiaries, including the Manager (each, a "Participating
Employer"), intend to adopt, the Employee Savings Plan & Trust

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<PAGE>

(the "401(k) Plan") of PPL which was originally adopted in 1987. Prior service
with PPL will be credited in full as service with the Company or a
Participating Employer for all purposes under the 401(k) Plan, including
eligibility and vesting.

Each employee of the Company and a Participating Employer may enroll in the
401(k) Plan on March 1, June 1, September 1, and December 1 after completing
one year and 1,000 hours of service and attaining age 21 (an enrolled employee
is a "Plan Participant"). Plan Participants are immediately vested in their
pre-tax and after-tax contributions, matching and discretionary Company
contributions, and earnings thereon.

The 401(k) Plan permits each Plan Participant to elect to defer up to 15% of
base compensation, subject to the annual statutory limitation ($9,500 for
1996) prescribed by Section 402(g) of the Code, on a pre-tax basis. Plan
Participants may also elect to make an after-tax contribution of up to 8% of
their base compensation. The Company and the Participating Employers will make
matching contributions equal to 25% of amounts deferred up to $500 in
deferrals. The Company and the Participating Employers may also make annual
contributions if the Company achieves certain performance objectives to be
determined on an annual basis by the Compensation Committee. Matching and
discretionary contributions will be made in cash or Common Shares.

SHARE PURCHASE PLAN

Prior to the Offering, the Company will adopt a "Share Purchase Plan." Under
the Share Purchase Plan, employees of the Company, the Operating Partnership,
and designated subsidiaries, including the Manager, will be able to purchase
Common Shares directly from the Company at a 15% discount to the then-current
market value at the date of purchase. Purchases may be made by any employee
with more than one full year of continuous employment on the last business day
each of June and December. An employee's purchases, on an annual basis, under
the Share Purchase Plan will be limited to the lesser of 15% of the employee's
base salary or $20,000. The maximum number of Common Shares that may be
purchased under the Share Purchase Plan is 500,000. Employees who participate
in the plan described in the preceeding sentence will recognize income, and
the Company will be allowed a business expense deduction, equal to the
discount at the time of a purchase.

INDEMNIFICATION

For a description of the limitation of liability and indemnification rights
of the Company's officers and Trustees, see "Certain Provisions of Maryland
Law and of the Company's Declaration of Trust and Bylaws--Limitation of
Liability and Indemnification."

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FORMATION TRANSACTIONS

The Company was formed to continue and expand the Prentiss Group's national
acquisition, property management, leasing, development and construction
businesses and to acquire the 87 Properties. Prior to or simultaneous with the
closing of the Offering, the Company will engage in the Formation Transactions
described below, which are designed to consolidate the ownership of the
Properties and the Prentiss Properties Service Business in the Company, to
facilitate the Offering and to enable the Company to qualify as a REIT
commencing with its short taxable year ending December 31, 1996.

FORMATION TRANSACTIONS

The Formation Transactions include the following, which will occur in
connection with the closing of the Offering:

. The Company will sell to the public 16,000,000 Common Shares and will
issue 1,888,200 Common Shares to the Continuing Investors in exchange for
a portion of their interests in the Operating Partnership. The Company
will transfer (i) approximately 30.2% of the net proceeds of the Offering
to the current limited partners of the Operating Partnership, which
include the Continuing Investors, in exchange for the remaining portion
of their interests in the Operating Partnership, (ii) 69.6% directly to
the Operating Partnership in exchange for Units, and (iii) approximately
.2% of the net proceeds of the Offering to the General Partner, which the
General Partner will in turn contribute to the Operating Partnership in
exchange for a 0.2% general partnership interest in the Operating
Partnership. After the completion of the Offering, the Company will have
issued a total of 17,888,200 Common Shares and will own, either directly
or through the General Partner, 17,888,200 Units. The total value of the
consideration being paid by the Company (cash, Units and Common Shares)
to the pre-Offering partners of the Operating Partnership is
approximately $126.6 million.

. The Operating Partnership is an affiliate of the Prentiss Group. The
Prentiss Group members who collectively serve as the general partner of
the Operating Partnership will contribute to the Operating Partnership
all of their interests in the Properties and certain management contracts
of PPL in exchange for 3,259,763 Units. The acquisition of the various
Prentiss Group interests will be accounted for at their historical cost
with any excess paid recorded as a distribution. Members of the Prentiss
Group will realize an immediate increase of $45.2 million in the net
tangible book value of their original $4.7 million investment in the
Company.

. The interests of the pre-Offering limited partners of the Operating
Partnership will be acquired by the Company with Common Shares and cash.
The pre-Offering limited partners will receive $88,804 in cash and
1,888,200 Common Shares for their interests. The acquisition of the
Continuing Investors' interests will be accounted for using purchase
accounting based on the cash paid and the value of the Common Shares
issued to them, resulting in an incremental increase in the basis of the
Predecessor Company's real estate.

. The Prentiss Group member which currently serves as general partner of
the Operating Partnership will convert its interest into a limited
partnership interest and will distribute the Units representing such
interest to its partners, all of whom are members of the Prentiss Group
and will be limited partners of the Operating Partnership.

. The Units received by the Prentiss Group in connection with the Formation
Transactions will have a total value of approximately $65.2 million based
on the Offering Price of $20 per Common Share and will be redeemable for
cash or Common Shares on a one for one basis, no earlier than two years
after the Closing Date.

. A corporation wholly owned by Michael Prentiss, the Chairman and Chief
Executive Officer of the Company, will contribute cash in an amount equal
to 5% of the equity value of the Manager in exchange for all of the
voting common stock of the Manager, which stock shall represent 5% of the
ownership interest in each such company. The Manager will record the
receipt of cash and the 5% voting interest.

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<PAGE>

The Manager has been included in the pro forma financial information under
the equity method of accounting due to the Operating Partnership's
ownership of a non-controlling, non-voting interest in the Manager.

. The Operating Partnership will contribute a portion of the Prentiss
Properties Service Business as required for the Company to maintain its
status as a REIT to the Manager in exchange for all of the non-voting
common stock of the Manager, which stock shall represent 95% of the
ownership interest in each such company, and promissory notes in the
aggregate principal amount of $34.75 million, bearing interest at an
annual rate of 13%. Accrued interest on the outstanding principal balance
of the notes shall be paid monthly. No principal on the notes will be due
in the first three years, after which time 10% of the initial principal
balance will be repaid each year for 10 years. Due to the affiliation of
the Manager and the Operating Partnership, the Notes have been classified
in shareholders' equity. Due to the capital nature of this transaction,
interest income and expense amounts are recorded directly to
shareholders' equity.

. The Operating Partnership will borrow $56.2 million from an affiliate of
Lehman to fund the acquisition of a portion of the Properties.

. The Operating Partnership will use approximately $54.0 million of the net
proceeds of the Offering to acquire interests in certain Properties from
an affiliate of Lehman, and will use approximately $64.5 million of the
net proceeds of the Offering to repay mortgage loans made by an affiliate
of Lehman and secured by certain of such Properties.

. The Operating Partnership will use approximately $149.6 million of the
net proceeds of the Offering (and the proceeds from the loans from an
affiliate of Lehman) to acquire certain Properties from an affiliate of
the Prentiss Group.

. The Operating Partnership will use approximately $36.2 million of the net
proceeds of the Offering to repay indebtedness secured by certain
Properties currently held by the Operating Partnership or to be acquired
from the Prentiss Group. "Certain Relationships and Transactions."

. The Operating Partnership will use approximately $34.6 million of the net
proceeds of the Offering (and the proceeds from the loans from an
affiliate of Lehman) to acquire certain Properties from a third party.

. The Operating Partnership will use approximately $1.1 million of the net
proceeds of the Offering to pay prepayment penalties associated with all
of the debt to be repaid in the Formation Transactions. The accounting
treatment for the prepayment penalties will be a charge to equity.

EFFECTS OF THE FORMATION TRANSACTIONS

As a result of the transactions involved in the formation of the Company
(including the Offering), the Company initially will hold directly or
indirectly approximately 84.6% of the Units in the Operating Partnership, and
the remaining Units will be held directly or indirectly by the Prentiss
Principals. Immediately following completion of the Offering, purchasers of
Common Shares in the Offering will hold approximately 75.7% of the
consolidated equity of the Company, the Prentiss Principals will directly or
indirectly hold approximately 15.4% and the Continuing Investors will hold
approximately 8.9% of the consolidated equity of the Company.

In addition to the 47 Properties owned by the Operating Partnership prior to
the Offering, the Operating Partnership will own (i) 100% of the fee interest
in 20 Properties, (ii) 99% general partnership interests of two limited
partnerships that own, in the aggregate, three Properties, the 1% limited
partner of which is the Manager, (iii) a 98.01% general partnership interest
of a limited partnership that owns one Property, the 1.99% limited partner of
which is the Manager, (iv) 99% limited partnership interests in six limited
partnerships that each own one Property, the 1% general partner of which is a
limited partnership in which the Operating Partnership owns a 99% general
partnership interest, (v) a 49.9% general partnership interest in a general
partnership that owns a leasehold interest in seven Properties, (vi) a 99%
general partnership interest in a limited partnership that owns the management
contracts with respect to the Properties owned, directly or indirectly, by the
Operating Partnership before the completion of the Formation Transactions,
(vii) a 99% interest as the managing member of a limited liability company
that owns (A) the title insurance agency that underwrites policies on
properties

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located in Texas (including the policies obtained on the Texas Properties in
connection with the Formation Transactions) and (B) a 1% interest in, and
contract rights with respect to, the insurance agency that underwrites the
policies in the Company's MgmtPlus+ insurance program (see "Properties--
Insurance"), the 1% member of which limited liability company is the Manager,
and (viii) all of the nonvoting stock of the Manager, representing 95% of the
beneficial interests therein, with a corporation wholly owned by Michael V.
Prentiss owning all of the voting stock of the Manager, representing 5% of the
beneficial interests therein.

VALUATION OF THE COMPANY AND PROPERTIES

Neither the Prentiss Group nor the Company sought or obtained any third
party determination of the value of the assets contributed to the Operating
Partnership in connection with the Formation Transactions, except with respect
to the 47 Properties owned by the Operating Partnership prior to the Offering.
With respect to those Properties, an appraisal was performed in June 1996 by
Landauer Associates, Inc., solely to assist the Prentiss Group in determining
the purchase prices payable to the current partners of the Operating
Partnership, including the Continuing Investors and the Prentiss Group member
serving as managing general partner, for their interests therein.

The Total Market Capitalization of the Company at the Offering Price may not
be indicative of, and may exceed: (i) the aggregate appraised values of the
Properties and other assets to be acquired by the Company if appraisals had
been obtained on all such assets in connection with the formation of the
Company, and (ii) the fair market value of the Properties and such other
assets. The value of the Company has been derived from a capitalization of the
Company's pro forma consolidated cash flow, as adjusted, available for
distribution to its shareholders, the Company's potential for growth and
comparisons to other REITs and other factors set forth in "Underwriting." This
methodology has been used because the Company believes it is appropriate to
value the Company as an ongoing business, rather than through values that
could be obtained from a liquidation of the Company or of its individual
assets. No assurance can be given that the Offering Price will be an
indication of the actual value of the Common Shares, which will be determined
by market conditions and other factors. The Company's percentage interest in
the Operating Partnership was determined based upon the percentage of
estimated cash available for distribution required to pay estimated
distributions at an annual rate equal to 8.00% of the Offering Price on the
Common Shares to be outstanding upon completion of the Offering. The
distribution rate was derived by comparison to distribution rates of other
REITs that the Company believes may be comparable and in light of current
market conditions. The percentage of Common Shares allocated to the purchasers
of shares sold by the Company in the Offering (75.7%) is equal to the
percentage of estimated pro forma cash flow available for distribution
necessary to pay the targeted distribution rate and the remaining equity of
the Company was allocated to members of the Prentiss Group and Continuing
Investors. Thus, the aggregate number of Restricted Shares and Units allocated
to persons participating in the formation of the Company was not based on a
valuation of the assets contributed other than the range of estimated values
that the public market may place on the Company as a whole. See "Risk
Factors--Prices to be Paid for Properties."

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CERTAIN RELATIONSHIPS AND TRANSACTIONS

See "Formation Transactions" for a summary of certain related party
transactions that will be consummated prior to or simultaneously with the
closing of the Offering.

BENEFITS TO RELATED PARTIES

The Prentiss Group, including the Prentiss Principals, will realize certain
benefits as a result of the Offering and the Formation Transactions, including
the following:

Receipt of Units by the Prentiss Group. Members of the Prentiss Group will
receive a total of 3,259,763 Units in consideration for their interests in the
Properties, the Development Parcels, the Options and the Prentiss Properties
Service Business in connection with the Formation Transactions. These Units
(representing approximately 15.4% of the equity interests in the Company on a
consolidated basis) will have a total value of approximately $65.2 million
based on the Offering Price of the Common Shares, compared to a net tangible
book value of the assets contributed to the Operating Partnership by the
Prentiss Group of approximately $4.7 million. The Company believes that the
net tangible book value of the individual assets contributed to the Operating
Partnership by the Prentiss Group (which reflects the historical cost of such
assets less accumulated depreciation), is less than the aggregate current
market value of such assets. Any time after two years following the Closing
Date, the members of the Prentiss Group holding Units may, in accordance with
the Operating Partnership Agreement, exchange all or a portion of such Units
for cash or, at the election of the Company, Common Shares on a one-for-one
basis. The Company currently expects that it will not elect to pay cash for
Units in connection with any such exchange request, but instead will exchange
Common Shares for such Units. The Units may provide the members of the
Prentiss Group with increased liquidity and, until disposition of certain
assets contributed to the Company, with continued deferral of the taxable gain
associated with those assets.

Increase in Prentiss Group's Net Tangible Investment. Members of the
Prentiss Group will realize an immediate increase of $45.2 million in the net
tangible book value of their original $4.7 million investment in the Company.
The immediate increase is derived from the difference between the net tangible
assets per share before and after the Formation Transactions multiplied by the
3,259,763 Units of to be received as consideration. See "Dilution."

Messrs. Prentiss and August Employment Agreements. Messrs. Prentiss and
August will enter into employment agreements with the Company. See
"Management--Employment Agreements."

Options Granted. The Company will grant to the Prentiss Principals, 41
employees of the Company and the Independent Trustees, options to purchase an
aggregate of 1,291,439 Common Shares under the Company's 1996 Share Incentive
Plan at the Offering Price, subject to certain vesting requirements. See
"Management--1996 Share Incentive Plan."

Maintenance of Debt for Benefit of Prentiss Principals. The Company has
agreed to maintain at least $1.3 million of indebtedness secured by certain of
the Properties outstanding for three years and to permit certain Prentiss
Group members to guaranty such debt through December 31, 1998 in order to
defer certain tax consequences associated with the Formation Transactions.

Restriction on Certain Transfers of The Plaza on Bachman Creek. The Company
has agreed that it shall not dispose of The Plaza on Bachman Creek prior to
December 31, 1999, unless such disposition is structured as a tax-deferred
like-kind exchange under Section 1031 of the Code, in order to defer certain
tax consequences associated with the transfer of the Property to the Company
by the Prentiss Group.

REPAYMENT OF TERMINATION FEE NOTE

PPL holds (and after the Formation Transactions will continue to hold) the
Termination Fee Note from PCIG which is paid with the proceeds of sales of
properties owned by PCIG. The Company will acquire the PGC Properties from
PCIG that in the Formation Transactions and subsequent to the Offering, PPL
will receive a payment from the seller of approximately $500,000 of the sale
proceeds from those Properties under the Termination Fee Note. The Company
will have certain options on properties and development parcels owned by PCIG
which, if exercised, would result in additional payments to PPL under the
Termination Fee Note. See "Properties--Option Properties" and "--Option
Parcels."

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TRANSACTIONS WITH AFFILIATES OF LEHMAN

In connection with the Offering, (i) affiliates of Lehman will receive $54.0
million of the net proceeds as consideration for the sale of such affiliates'
interests in certain of the Properties to the Company in the Formation
Transactions, (ii) an affiliate of Lehman will be repaid mortgage loans in the
principal amount of approximately $64.5 million made by it to certain
affiliates of the Company prior to the Offering and (iii) an affiliate of
Lehman has provided commitments to make two mortgage loans available to the
Company in the aggregate principal amount of $56.2 million. See
"Underwriting," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Results."

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PRINCIPAL AND MANAGEMENT SHAREHOLDERS

The following table sets forth the beneficial ownership of Common Shares
of (i) each person who is a shareholder of the Company owning more than 5% of
the beneficial interest in the Company, (ii) each person who is a trustee or
executive officer of the Company and (iii) the trustees and executive officers
of the Company as a group. Unless otherwise indicated in the footnotes, all of
such interests are owned directly, and the indicated person or entity has sole
voting and investment power. The number of shares represents the number of
Common Shares the person is expected to hold plus the number of shares for which
Units expected to be held by the person are redeemable (if the Company elects to
issue Common Shares rather than pay cash upon such redemption). The extent to
which the persons will hold Common Shares as opposed to Units is set forth in
the notes.

<TABLE>
<CAPTION>
NUMBER OF SHARES AND
UNITS BENEFICIALLY
OWNED AFTER PERCENT OF ALL COMMON PERCENT OF ALL
NAME OF BENEFICIAL OWNER THE OFFERING SHARES AND UNITS(/1/) COMMON SHARES(/1/)
- ------------------------ -------------------- --------------------- ------------------
<S> <C> <C> <C>
Michael V.
Prentiss(/2/)(/3/)..... 2,554,981 12.08% 12.50%
Thomas F.
August(/2/)(/4/)....... 338,351 1.60% 1.86%
Thomas J. Hynes(/5/).... 500 * *
Barry J.C. Parker(/5/).. 500 * *
Dr. Leonard Riggs,
Jr.(/5/)............... 500 * *
Ronald G.
Steinhart(/5/)......... 500 * *
Lawrence A.
Wilson(/5/)............ 500 * *
Richard B. Bradshaw,
Jr.(/2/)(/6/).......... 158,457 0.75% .88%
Dennis J.
DuBois(/2/)(/7/)....... 207,961 .98% 1.15%
Richard J. Bartel(/8/).. -- -- --
Mark R. Doran(/9/)...... -- -- --
Lawrence J.
Krueger(/8/)........... -- -- --
Jeffry T.
Courtwright(/1//0/).... -- -- --
James B. Meyer(/1//0/).. -- -- --
David
Robertson(/1//0/)...... -- -- --
Robert K.
Wiberg(/1//0/)......... -- -- --
All Trustees and
executive officers (11
persons)............... 3,262,250 15.42% 15.42%
</TABLE>
- --------
* Less than 1%.
(/1/) Assumes that all Units held by the person are redeemed for Common Shares.
The total number of Common Shares outstanding used in calculating the
percentage of all Common Shares and Units assumes that all of the Units
held by other persons are redeemed for Common Shares. The total number of
Common Shares outstanding used in calculating the percentage of all
Common Stock assumes that none of the Units held by other persons are
redeemed for Common Shares.
(/2/) Includes the principal's allocable share of Units held by PPL and various
other Prentiss Group entities (including the trust discussed in 3 below)
which received units in the Formation Transactions, in exchange for
interests in Properties or the Prentiss Properties Service Business.
(/3/) Excludes 386,762 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant. Includes Units
redeemable for 336,000 Common Shares which are held in a trust of which
Mr. Prentiss is a trustee, and in which Mr. Prentiss disclaims beneficial
ownership.
(/4/) Excludes 173,944 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
(/5/) The Independent Trustees will receive a fee of $10,000 per year payable
quarterly in Common Shares. The table includes the shares to be issued in
the year following the closing of the Offering, based on the Offering
Price. Excludes 10,500 Common Shares issuable upon the exercise of
options granted under the Trustees' Plan, which vest in equal
installments over a four-year period on the anniversary date of the
grant.
(/6/) Excludes 64,366 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
(/7/) Excludes 39,366 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
(/8/) Excludes 75,000 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
(/9/) Excludes 50,000 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.
(/10/) Excludes 25,000 Common Shares issuable upon the exercise of options
granted under the 1996 Plan, which vest in equal installments on each of
the first three anniversaries of the date of the grant.

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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST

The following summary of the terms of the shares of beneficial interest of
the Company does not purport to be complete and is subject to and qualified in
its entirety by reference to the Declaration of Trust and Bylaws of the
Company, copies of which are exhibits to the Registration Statement of which
this Prospectus is a part. See "Additional Information."

GENERAL

The Declaration of Trust of the Company provides that the Company may issue
up to 100,000,000 Common Shares and 20,000,000 preferred shares of beneficial
interest, $0.01 par value per share ("Preferred Shares"). Upon completion of
this Offering and the related transactions, 17,888,200 Common Shares will be
issued and outstanding (20,288,200 shares if the Underwriters' overallotment
option is exercised in full) and no Preferred Shares will be issued and
outstanding. As permitted by the Maryland statute governing real estate
investment trusts formed as trusts (the "Maryland REIT Law"), the Declaration
of Trust contains a provision permitting the Board of Trustees, without any
action by the shareholders of the Trust, to amend the Declaration of Trust to
increase or decrease the aggregate number of shares of beneficial interest or
the number of shares of any class of shares of beneficial interest that the
Trust has authority to issue. The Company believes that the power of the Board
of Trustees to issue additional shares of beneficial interest will provide the
Company with increased flexibility in structuring possible future financings
and acquisitions and in meeting other needs that might arise. The additional
shares of beneficial interest, including possibly Common Shares, will be
available for issuance without further action by the Company's shareholders,
unless action by the shareholders is required by applicable law or the rules
of any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Trustees currently
has no intention of doing so, it could authorize the Company to issue a class
or series that could, depending on the terms of such class or series, delay,
defer or prevent a transaction or a change in control of the Company that
might involve a premium price for the Common Shares and might otherwise be in
the best interests of the shareholders.

Both the Maryland REIT Law and the Company's Declaration of Trust provide
that no shareholder of the Company will be personally liable for any
obligation of the Company solely as a result of his status as a shareholder of
the Company. The Company's Bylaws further provide that the Company shall
indemnify each shareholder against any claim or liability to which the
shareholder may become subject by reason of his being or having been a
shareholder or former shareholder and that the Company shall pay or reimburse
each shareholder or former shareholder for all legal and other expenses
reasonably incurred by him in connection with any claim or liability. Inasmuch
as the Company carries public liability insurance which it considers adequate,
any risk of personal liability to shareholders is limited to situations in
which the Company's assets plus its insurance coverage would be insufficient
to satisfy the claims against the Company and its shareholders.

COMMON SHARES

All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or
series of beneficial interest and to the provisions of the Company's
Declaration of Trust regarding the restriction of the transfer of shares of
beneficial interest, holders of Common Shares are entitled to receive
dividends on shares if, as and when authorized and declared by the Board of
Trustees of the Company out of assets legally available therefor and to share
ratably in the assets of the Company legally available for distribution to its
shareholders in the event of its liquidation, dissolution or winding-up after
payment of, or adequate provision for, all known debts and liabilities of the
Company.

Each outstanding Common Share entitles the holder to one vote on all matters
submitted to a vote of shareholders, including the election of trustees, and,
except as provided with respect to any other class or series of shares of
beneficial interest, the holders of such Common Shares possess the exclusive
voting power. There is no cumulative voting in the election of trustees, which
means that the holders of a majority of the outstanding Common Shares can
elect all of the trustees then standing for election and the holders of the
remaining shares will not be able to elect any trustees.

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Holders of Common Shares have no preference, conversion, sinking fund,
redemption or appraisal rights and have no preemptive rights to subscribe for
any securities of the Company. Subject to the provisions of the Declaration of
Trust regarding the restriction on transfer of shares of beneficial interest,
Common Shares have equal dividend, distribution, liquidation and other rights.

Under the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge unless
approved by the affirmative vote of shareholders holding at least two-thirds
of the shares entitled to vote on the matter unless a lesser percentage (but
not less than a majority of all the votes entitled to be cast on the matter)
is set forth in the real estate investment trust's declaration of trust. The
Company's Declaration of Trust provides for approval by a majority of all the
votes entitled to be cast on the matter in all situations permitting or
requiring action by the shareholders except with respect to: (a) the
intentional disqualification of the Company as a real estate investment trust
or revocation of its election to be taxed as a real estate investment trust
(which requires the affirmative vote of the holders of a majority of the
number of Common Shares entitled to vote on such matter at a meeting of the
shareholders of the Company); (b) the election of trustees (which requires a
plurality of all the votes cast at a meeting of shareholders of the Company at
which a quorum is present); (c) the removal of trustees (which requires the
affirmative vote of the holders of two thirds of the outstanding shares of
beneficial interest of the Company entitled to vote generally in the election
of trustees); (d) the amendment or repeal of the Independent Trustee provision
in the Declaration of Trust (which requires the affirmative vote the holders
of two-thirds of the outstanding shares entitled to vote on the matter); (e)
the amendment of the Declaration of Trust by shareholders (which requires the
affirmative vote of a majority of votes entitled to be cast on the matter,
except under certain circumstances specified in the Declaration of Trust which
require the affirmative vote of two-thirds of all the votes entitled to be
cast on the matter); and (f) the dissolution of the Company (which requires
the affirmative vote of two-thirds of all the votes entitled to be cast on the
matter). As allowed under the Maryland REIT Law, the Company's Declaration of
Trust permits the trustees by a two-thirds vote to amend the declaration of
trust from time to time to qualify as a real estate investment trust under the
Code or the Maryland REIT Law without the approval of the shareholders. As
permitted by the Maryland REIT Law, the Declaration of Trust contains a
provision permitting the Board of Trustees, without any action by the
shareholders of the Trust, to amend the Declaration of Trust to increase or
decrease the aggregate number of shares of beneficial interest or the number
of shares of any class of shares of beneficial interest that the Trust has
authority to issue.

CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES

The Declaration of Trust authorizes the Board of Trustees to classify any
unissued Preferred Shares and to reclassify any previously classified but
unissued Preferred Shares of any series from time to time in one or more
series, as authorized by the Board of Trustees. Prior to issuance of shares of
each series, the Board of Trustees is required by the Maryland REIT Law and
the Company's Declaration of Trust to set for each such series, subject to the
provisions of the Company's Declaration of Trust regarding the restriction on
transfer of shares of beneficial interest, the terms, the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such series. Thus, the Board of Trustees could authorize
the issuance of Preferred Shares with terms and conditions which could have
the effect of delaying, deferring or preventing a transaction or a change in
control of the Company that might involve a premium price for holders of
Common Shares or otherwise might be in their best interest. As of the date
hereof, no Preferred Shares are outstanding and the Company has no present
plans to issue any Preferred Shares.

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of beneficial
interest. Specifically, not more than 50% in value of the Company's
outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year, and the

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Company must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a
shorter taxable year. See "Federal Income Tax Considerations--Requirements for
Qualification."

Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Declaration of Trust, subject to certain
exceptions described below, provides that no person may own, or be deemed to
own by virtue of the attribution provisions of the Code, more than (i) 8.5% of
the number of outstanding Common Shares, except for Michael V. Prentiss, who
may own initially no more than 15.0% of the number of such outstanding shares
or (ii) 9.8% of the number of outstanding Preferred Shares of any series of
Preferred Shares (the "Ownership Limitation"). The Ownership Limitation with
respect to the Common Shares will be increased, to a maximum of 9.8%, and the
ownership limit applicable to Mr. Prentiss will be decreased, subject to a
minimum percentage equal to the Ownership Limitation in proportion to any
reduction in Mr. Prentiss' direct or indirect percentage ownership of the
Company as a result of additional issuances or dispositions of securities of
the Company or redemptions of Units held directly or indirectly by Mr.
Prentiss. Any transfer of Common or Preferred Shares that would (i) result in
any person (other than Mr. Prentiss with respect to Common Shares) owning,
directly or indirectly, Common or Preferred Shares in excess of the Ownership
Limitation, (ii) result in Mr. Prentiss owning directly or indirectly in
excess of 15.0% of the number of outstanding Common Shares (or the decreased
percentage that may be applicable), (iii) result in the Common and Preferred
Shares being owned by fewer than 100 persons (determined without reference to
any rules of attribution), (iv) result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, or (v) cause the Company to
own, directly or constructively, 10% or more of the ownership interests in a
tenant of the Company's or the Operating Partnership's real property, within
the meaning of Section 856 (d) (2) (B) of the Code, shall be null and void,
and the intended transferee will acquire no rights in such Common or Preferred
Shares.

Subject to certain exceptions described below, if any purported transfer of
Common or Preferred Shares would (i) result in any person owning, directly or
indirectly, Common or Preferred Shares in excess of the Ownership Limitation,
(ii) result in Mr. Prentiss owning directly or indirectly in excess of 15.0%
of the number of outstanding Common Shares (or the decreased percentage that
may be applicable), (iii) result in the Common and Preferred Shares being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iv) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, or (v) cause the Company to own,
directly or constructively, 10% or more of the ownership interests in a tenant
of the Company's or the Operating Partnership's real property, within the
meaning of Section 856(d)(2)(B) of the Code, the Common or Preferred Shares
will be designated as "Shares-in-Trust" and transferred automatically to a
trust (the "Share Trust") effective on the day before the purported transfer
of such Common or Preferred Shares. The record holder of the Common or
Preferred Shares that are designated as Shares-in-Trust (the "Prohibited
Owner") will be required to submit such number of Common or Preferred Shares
to the Company for registration in the name of the Share Trust. The Share
Trustee will be designated by the Company, but will not be affiliated with the
Company. The beneficiary of the Share Trust (the "Beneficiary") will be one or
more charitable organizations that are named by the Company.

Shares-in-Trust will remain issued and outstanding Common or Preferred
Shares and will be entitled to the same rights and privileges as all other
shares of the same class or series. The Share Trust will receive all dividends
and distributions on the Shares-in-Trust and will hold such dividends and
distributions in trust for the benefit of the Beneficiary. The Share Trustee
will vote all Shares-in-Trust. The Share Trustee will designate a permitted
transferee of the Shares-in-Trust, provided that the permitted transferee (i)
purchases such Shares-in-Trust for valuable consideration and (ii) acquires
such Shares-in-Trust without such acquisition resulting in a transfer to
another Share Trust and resulting in the redesignation of such Common or
Preferred Shares as Shares-in-Trust.

The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Share Trust the amount of any dividends or distributions received
by the Prohibited Owner (i) that are attributable to any Shares-in-Trust and
(ii) the record date for which was on or after the date that such shares
became Shares-in-Trust. The

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Prohibited Owner generally will receive from the Share Trustee the lesser of
(i) the price per share such Prohibited Owner paid for the Common or Preferred
Shares that were designated as Shares-in-Trust (or, in the case of a gift or
devise, the Market Price (as defined below) per share on the date of such
transfer) and (ii) the price per share received by the Share Trustee from the
sale of such Shares-in-Trust. Any amounts received by the Share Trustee in
excess of the amounts to be paid to the Prohibited Owner will be distributed
to the Beneficiary.

The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in
the case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the Market Price per share on the date that the Company, or
its designee, accepts such offer. The Company will have the right to accept
such offer for a period of ninety days after the later of (i) the date of the
purported transfer which resulted in such Shares-in-Trust and (ii) the date
the Company determines in good faith that a transfer resulting in such Shares-
in-Trust occurred.

"Market Price" on any date shall mean the average of the Closing Price (as
defined below) for the five consecutive Trading Days (as defined below) ending
on such date. The "Closing Price" on any date shall mean the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if the Common or
Preferred Shares are not listed or admitted to trading on the NYSE, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Common or Preferred Shares are listed or admitted to trading or, if
the Common or Preferred Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal
automated quotations system that may then be in use or, if the Common or
Preferred Shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Common or Preferred Shares selected by the Board of
Trustees. "Trading Day" shall mean a day on which the principal national
securities exchange on which the Common or Preferred Shares are listed or
admitted to trading is open for the transaction of business or, if the Common
or Preferred Shares are not listed or admitted to trading on any national
securities exchange, shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.

Any person who acquires or attempts to acquire Common or Preferred Shares in
violation of the foregoing restrictions, or any person who owned Common or
Preferred Shares that were transferred to a Share Trust, will be required (i)
to give immediately written notice to the Company of such event and (ii) to
provide to the Company such other information as the Company may request in
order to determine the effect, if any, of such transfer on the Company's
status as a REIT.

The Declaration of Trust requires all persons who own, directly or
indirectly, more than 5% (or such lower percentages as required pursuant to
regulations under the Code) of the outstanding Common and Preferred Shares,
within 30 days after January 1 of each year, to provide to the Company a
written statement or affidavit stating the name and address of such direct or
indirect owner, the number of Common and Preferred Shares owned directly or
indirectly, and a description of how such shares are held. In addition, each
direct or indirect shareholder shall provide to the Company such additional
information as the Company may request in order to determine the effect, if
any, of such ownership on the Company's status as a REIT and to ensure
compliance with the Ownership Limitation.

The Ownership Limitation generally will not apply to the acquisition of
Common or Preferred Shares by an underwriter that participates in a public
offering of such shares. In addition, the Board of Trustees, upon receipt

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of a ruling from the Service or an opinion of counsel and upon such other
conditions as the Board of Trustees may direct, may exempt a person from the
Ownership Limitation under certain circumstances. However, the Board may not
grant an exemption from the Ownership Limit to any proposed transferee whose
ownership, direct or indirect, of shares of beneficial interest of the Company
in excess of the Ownership Limit would result in the termination of the
Company's status as a REIT. The foregoing restrictions will continue to apply
until (i) the Board of Trustees determines that it is no longer in the best
interests of the Company to attempt to qualify, or to continue to qualify, as
a REIT and (ii) there is an affirmative vote of a majority of the votes
entitled to be cast on such matter at a regular or special meeting of the
shareholders of the Company.

The Ownership Limitation could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for the Common Shares or otherwise be in the best
interest of the shareholders of the Company.

All certificates representing Common or Preferred Shares will bear a legend
referring to the restrictions described above.

CERTAIN PROVISIONS OF MARYLAND LAW
AND OF THE COMPANY'S DECLARATION
OF TRUST AND BYLAWS

The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company is subject to and qualified in
its entirety by reference to Maryland law and to the Declaration of Trust and
Bylaws of the Company.

CLASSIFICATION OF THE BOARD OF TRUSTEES

The Bylaws provide that the number of trustees of the Company may be
established by the Board of Trustees but may not be fewer than three nor more
than nine. At the closing of the Offering, there will be seven Trustees. The
Trustees may increase or decrease the number of Trustees by a vote of at least
80% of the members of the Board of Trustees, provided that the number of
Trustees shall never be less than the number required by Maryland law and that
the tenure of office of a Trustee shall not be affected by any decrease in the
number of Trustees. Any vacancy will be filled, including a vacancy created by
an increase in the number of Trustees, at any regular meeting or at any
special meeting called for that purpose, by a majority of the remaining
Trustees.

Pursuant to the Declaration of Trust, the Board of Trustees is divided into
three classes of trustees. The initial terms of the first, second and third
class will expire in 1997, 1998 and 1999, respectively. Beginning in 1997,
Trustees of each class are chosen for three-year terms upon the expiration of
their current terms and each year one class of trustees will be elected by the
shareholders. The Company believes that classification of the Board of
Trustees will help to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Trustees.
Holders of Common Shares will have no right to cumulative voting in the
election of Trustees. Consequently, at each annual meeting of shareholders,
the holders of a majority of the Common Shares are able to elect all of the
successors of the class of trustees whose terms expire at that meeting.

The classified board provision could have the effect of making the
replacement of incumbent trustees more time consuming and difficult. At least
two annual meetings of shareholders, instead of one, will generally be
required to effect a change in a majority of the Board of Trustees. The
staggered terms of Trustees may reduce the possibility of a tender offer or an
attempt to change control of the Company or other transaction that might

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involve a premium price for holders of Common Shares, even though a tender
offer, change of control or other transaction might be in the best interest of
the shareholders.

REMOVAL OF TRUSTEES

The Declaration of Trust provides that a Trustee may be removed with or
without cause upon the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of Trustees. This provision, when coupled
with the provision in the Bylaws authorizing the Board of Trustees to fill
vacant trusteeships, precludes shareholders from removing incumbent Trustees,
except upon a substantial affirmative vote, and filling the vacancies created
by such removal with their own nominees.

BUSINESS COMBINATIONS

Under the MGCL, as applicable to Maryland real estate investment trusts,
certain "business combinations" (including a merger, consolidation, share
exchange or, in certain circumstances, an asset transfer or issuance or
reclassification of equity securities) between a Maryland real estate
investment trust and any person who beneficially owns ten percent or more of
the voting power of the trust's shares or an affiliate of the trust who, at
any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting stock of the Trust (an "Interested Shareholder") or an
affiliate of such an Interested Shareholder are prohibited for five years
after the most recent date on which the Interested Shareholder becomes an
Interested Shareholder. Thereafter, any such business combination must be
recommended by the board of trustees of such trust and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by
holders of outstanding voting shares of beneficial interest of the trust and
(b) two-thirds of the votes entitled to be cast by holders of voting shares of
the trust other than shares held by the Interested Shareholder with whom (or
with whose affiliate) the business combination is to be effected, unless,
among other conditions, the trust's common shareholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are approved or exempted by the board
of trustees of the trust prior to the time that the Interested Shareholder
becomes an Interested Shareholder. The Company's Board of Trustees intends to
resolve to opt out of the business combination provisions of the MGCL.

CONTROL SHARE ACQUISITIONS

The MGCL, as applicable to Maryland real estate investment trusts, provides
that control shares (as defined below) of a Maryland real estate investment
trust acquired in a "control share acquisition" have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be
cast on the matter, excluding shares of beneficial interest owned by the
acquiror, by officers or by trustees who are employees of the trust. "Control
Shares" are voting shares of beneficial interest which, if aggregated with all
other such shares of beneficial interest previously acquired by the acquiror
or in respect of which the acquiror is able to exercise or direct the exercise
of voting power (except solely by virtue of a revocable proxy), would entitle
the acquiror to exercise voting power in electing trustees within one of the
following ranges of voting power: (i) one-fifth or more but less than one-
third, (ii) one-third or more but less than a majority, or (iii) a majority or
more of all voting power. Control Shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
shareholder approval. A "control share acquisition" means the acquisition of
Control Shares, subject to certain exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself
present the question at any shareholders meeting.

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If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the trust may redeem any
or all of the Control Shares (except those for which voting rights have
previously been approved) for fair value determined, without regard to the
absence of voting rights for the Control Shares, as of the date of the last
control share acquisition by the acquiror or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for Control Shares are approved at a shareholders meeting and
the acquiror becomes entitled to vote a majority of the shares entitled to
vote, all other shareholders may exercise appraisal rights. The fair value of
the shares as determined for purposes of such appraisal rights may not be less
than the highest price per share paid by the acquiror in the control share
acquisition.

The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust.

The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of the
Company's Common or Preferred Shares. There can be no assurance that such
provision will not be amended or eliminated at any time in the future.

AMENDMENT

The Declaration of Trust may be amended with the approval of at least a
majority of all of the votes entitled to be cast on the matter, provided, that
certain provisions of the Declaration of Trust regarding (i) the Company's
Board of Trustees, (ii) the restrictions on transfer of the Common Shares and
the Preferred Shares, (iii) amendments to the Declaration of Trust by the
Trustees and the shareholders of the Company, and (iv) the termination of the
Company may not be amended, altered, changed or repealed without the approval
of two-thirds of all of the votes entitled to be cast on these matters. In
addition, the Declaration of Trust may be amended by the Board of Trustees,
without shareholder approval to conform the Declaration of Trust to the
Maryland REIT law. The Company's Bylaws may be amended or altered exclusively
by the Board of Trustees.

LIMITATION OF LIABILITY AND INDEMNIFICATION

The Maryland REIT Law permits a Maryland real estate investment trust to
include in its Declaration of Trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit
or profit in money, property or services or (b) active and deliberate
dishonesty established by a final judgment as being material to the cause of
action. The Declaration of Trust of the Company contains such a provision
which limits such liability to the maximum extent permitted by Maryland law.

The Declaration of Trust of the Company authorizes it, to the maximum extent
permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to (a) any present or former Trustee or officer or (b) any individual who,
while a Trustee of the Company and at the request of the Company, serves or
has served another real estate investment trust, corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
trustee, director, officer, partner of such real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer or partner of such real
estate investment trust, corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may
incur by reason of his status as a present or former shareholder, Trustee, or
officer of the Company. The Bylaws of the Company obligate it, to the maximum
extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former Trustee or officer who is made a party to the proceeding by
reason of his service in that capacity, or (b) any individual who, while a
Trustee of the Company and at the request of the Company, serves or has served
another real estate investment trust corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a trustee, director,
officer or partner of such real estate investment trust corporation,
partnership, joint venture, trust, employee

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benefit plan or any other enterprise and who is made a party to the proceeding
by reason of his service in that capacity against any claim or liability to
which he may become subject by reason of such status. The Declaration of Trust
and Bylaws also permit the Company to indemnify and advance expenses to any
person who served a predecessor of the Company in any of the capacities
described above and to any employee or agent of the Company or a predecessor
of the Company. The Bylaws require the Company to indemnify each Trustee or
officer who has been successful, on the merits or otherwise, in the defense of
any proceeding to which he is made a party by reason of his service in that
capacity.

The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a)
the act or omission of the director or officer was material to the matter
giving rise to the proceeding and (i) was committed in bad faith or (ii) was
the result of active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services
or (c) in the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was unlawful. However, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In accordance with the MGCL, the Bylaws of
the Company require it, as a condition to advancing expenses, to obtain (a) a
written affirmation by the director or officer of his good faith belief that
he has met the standard of conduct necessary for indemnification by the
Company as authorized by the Bylaws and (b) a written statement by or on his
behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.

OPERATIONS

The Company is generally prohibited from engaging in certain activities,
including incurring consolidated indebtedness, in the aggregate, in excess of
the Debt Limitation and acquiring or holding property or engaging in any
activity that would cause the Company to fail to qualify as a real estate
investment trust.

DISSOLUTION OF THE COMPANY

Pursuant to the Company's Declaration of Trust, and subject to the
provisions of any class or series of shares of beneficial interest of the
Company then outstanding, the shareholders of the Company, at any meeting
thereof, may dissolve the Company by the affirmative vote of two-thirds of all
of the votes entitled to be cast on the matter.

ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS

The Bylaws of the Company provide that (a) with respect to an annual meeting
of shareholders, nominations of persons for election to the Board of Trustees
and the proposal of business to be considered by shareholders may be made only
(i) pursuant to the Company's notice of the meeting, (ii) by the Board of
Trustees or (iii) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and
(b) with respect to special meetings of Shareholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of shareholders and nominations of persons for election to the Board of
Trustees may be made only (i) pursuant to the Company's notice of the meeting,
(ii) by the Board of Trustees or, (iii) provided that the Board of Trustees
has determined that Trustees shall be elected at such meeting, by a
shareholder who is entitled to vote at the meeting and has complied with the
advance notice provisions set forth in the Bylaws.

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS

The provisions of the Declaration of Trust on classification of the Board of
Trustees, the removal of Trustees and the restrictions on the transfer of
shares of beneficial interest and the advance notice provisions of

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the Bylaws could have the affect of delaying, deferring or preventing a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Shares or otherwise be in their best interest.
Also, if the resolution of the Board of Trustees opting out of the business
combination statute or the provisions of the Bylaws electing not to be
governed by the control share acquisition statute are rescinded, such statutes
could have a similar effect.

MARYLAND ASSET REQUIREMENTS

To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires at least 75% of the value of the Company's
assets to be held, directly or indirectly, in real estate assets, mortgages or
mortgage related securities, government securities, cash and cash equivalent
items, including high-grade short term securities and receivables. The
Maryland REIT Law also prohibits the Company from using or applying land for
farming, agricultural, horticultural or similar purposes.

TRANSFER AGENT

The transfer agent and registrar for the Company's Common Shares is the
First Chicago Trust Company of New York.

SHARES AVAILABLE FOR FUTURE SALE

Upon the closing of the Offering and the Formation Transactions, the Company
will have 17,888,200 Common Shares issued and outstanding (20,288,200 Common
Shares if the Underwriter's overallotment option is exercised in full),
3,259,763 Common Shares will be reserved for issuance upon redemption of Units
and 2,030,000 Common Shares will be reserved for issuance under the 1996 Plan.
The Common Shares issued in the Offering will be freely tradeable by persons
other than "Affiliates" of the Company without restriction under the
Securities Act of 1933, as amended (the "Securities Act"), subject to certain
limitations on ownership set forth in the Declaration of Trust. See
"Description of Shares of Beneficial Interest--Restrictions on Transfer."

Pursuant to the Operating Partnership Agreement, the Limited Partners (other
than the Company) have Exchange Rights which, beginning two years from the
date of the closing of the Offering, enable them to cause the Operating
Partnership to exchange their Units for cash or, at the option of the General
Partner, Common Shares on a one-for-one basis.

The Common Shares issued to the Continuing Investors and the Common Shares
that will be issuable to holders of Units upon exercise of the Exchange Rights
will be "restricted" securities under the meaning of Rule 144 promulgated
under the Securities Act ("Rule 144") and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including exemptions contained in Rule 144. As described below, the
Company has granted the holders registration rights with respect to such
Common Shares.

In general, under Rule 144 as currently in effect, if two years have elapsed
since the later of the date of acquisition of restricted shares from the
Company or any "Affiliate" of the Company, as that term is defined under the
Securities Act, the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding Common Shares or the average weekly
trading volume of the Common Shares during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 also are subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. If three years have elapsed
since the date of acquisition of restricted shares from the Company or from
any Affiliate of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an Affiliate of the Company at any time during the
three months preceding a sale, such person would be entitled to sell such
shares in the public market under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements.

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The Company has agreed to file, as soon as practicable after (i) one year
from the Closing Date, a registration statement with the Commission for the
purpose of registering the sale of the 1,888,200 Common Shares placed with
Continuing Investors, and (ii) two years from the Closing Date, a registration
statement with the Commission for the purpose of registering the sale of the
3,259,763 Common Shares to be issuable upon redemption of the Units. The
Company will use its best efforts to have each of the registration statements
declared effective and to keep it effective for a period of two years. Upon
effectiveness of the related registration statements, those persons holding
Common Shares upon redemption of the applicable Units other than "Affiliates"
of the Company, as that term is defined under the Securities Act may sell such
shares in the secondary market without being subject to the volume limitations
or other requirements of Rule 144. The Operating Partnership will bear
expenses incident to the registration requirements, except that such expenses
shall not include any underwriting discounts or commissions, Commission or
state securities registration fees, transfer taxes or certain other fees or
taxes relating to such shares. Registration rights may be granted to future
sellers of properties to the Operating Partnership who elect to receive, in
lieu of cash, Common Shares, Units, or other securities convertible into
Common Shares.

Prior to the Offering there has been no public market for the Common Shares.
The Common Shares have been approved for listing on the NYSE, subject to
official notice of issuance, under the symbol "PP".

No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Shares prevailing from time to time. Sales of substantial
amounts of Common Shares, or the perception that such sales could occur, may
affect adversely prevailing market prices of the Common Shares. See "Risk
Factors--Effect of Shares Available for Future Sale on Price of Common Shares"
and "Operating Partnership Agreement--Transferability of Interests."

For a description of certain restrictions on transfers of Common Shares held
by certain shareholders of the Company, see "Underwriting."

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OPERATING PARTNERSHIP AGREEMENT

The following summary of the material terms of the Operating Partnership
Agreement, and the descriptions of certain provisions thereof set forth
elsewhere in this Prospectus, is qualified in its entirety by reference to the
Operating Partnership Agreement, which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.

MANAGEMENT

The Operating Partnership has been organized as a Delaware limited
partnership pursuant to the terms of the Second Amended and Restated Agreement
of Limited Partnership of the Operating Partnership (the "Operating Partnership
Agreement"). Pursuant to the Operating Partnership Agreement, the General
Partner, as the sole general partner of the Partnership, has full, exclusive
and complete responsibility and discretion in the management and control of the
Operating Partnership, and the Limited Partners have no authority in their
capacity as Limited Partners to transact business for, or participate in the
management activities or decisions of, the Operating Partnership except as
required by applicable law. However, any amendment to the Operating Partnership
Agreement that would (i) adversely affect the Exchange Rights (as defined
herein), (ii) adversely affect the Limited Partners' rights to receive cash
distributions, (iii) alter the Operating Partnership's allocations of income or
loss, or (iv) impose on the Limited Partners any obligations to make additional
contributions to the capital of the Operating Partnership, requires the consent
of Limited Partners (other than the General Partner) holding more than two-
thirds of the Units held by such partners.

TRANSFERABILITY OF INTERESTS

The General Partner may not voluntarily withdraw from the Operating
Partnership or transfer or assign its interest in the Operating Partnership
unless the transaction in which such withdrawal or transfer occurs results in
the Limited Partners receiving property in an amount equal to the amount they
would have received had they exercised their Exchange Rights immediately prior
to such transaction, or unless the successor to the General Partner contributes
substantially all of its assets to the Operating Partnership in return for an
interest in the Operating Partnership. With certain limited exceptions, the
Limited Partners may not transfer their interests in the Operating Partnership,
in whole or in part, without the written consent of the General Partner, which
consent the General Partner may withhold in its sole discretion. The General
Partner may not consent to any transfer that would cause the Operating
Partnership to be treated as a corporation for federal income tax purposes.

The Company may not engage in any transaction resulting in a change of
control of the Company (a "Transaction") unless in connection with the
Transaction the Limited Partners receive or have the right to receive cash or
other property equal to the product of the number of shares of Common Stock
into which each Unit is then exchangeable and the greatest amount of cash,
securities or other property paid in the Transaction to the holder of one
Common Share in consideration of one Common Share. If, in connection with the
Transaction, a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than fifty (50%) of the outstanding Common
Shares, each holder of Units will receive, or will have the right to elect to
receive, the greatest amount of cash, securities, or other property which such
holder would have received had it exercised its right to redemption and
received shares of Common Stock in exchange for its Units immediately prior to
the expiration of such purchase, tender or exchange offer and had thereupon
accepted such purchase, tender or exchange offer.

Notwithstanding the foregoing paragraph, the Company may merge, or otherwise
combine its assets, with another entity if, immediately after such merger or
other combination, substantially all of the assets of the surviving entity,
other than Units held by the Company, are contributed to the Operating
Partnership as a capital contribution in exchange for Units with a fair market
value, as reasonably determined by the Company, equal to the agreed value of
the assets so contributed.

In respect of any Transaction described in the preceding two paragraphs, the
Company is required to use its commercially reasonable efforts to structure
such Transaction to avoid causing the Limited Partners to recognize gain for
federal income tax purposes by virtue of the occurrence of or their
participation in such Transaction, provided such efforts are consistent with
the exercise of the Board of Trustees' fiduciary duty under applicable law.

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CAPITAL CONTRIBUTION

The Company will contribute to the Operating Partnership, approximately
69.6% of the net proceeds of the Offering in exchange for the issuance to the
Company of Units to be held by the Company. The Company will contribute to the
General Partner and the General Partner will contribute to the Operating
Partnership approximately 0.2% of the net proceeds of the Offering in exchange
for a 0.2% general partnership interest in the Operating Partnership to be
held by the General Partner. The Company will transfer the remaining 30.2% of
the net proceeds of the Offering to the pre-Offering limited partners of the
Operating Partnership, which include the Continuing Investors, in exchange for
interests in the Operating Partnership. After the completion of the Offering,
the Company will have issued a total of 17,888,200 Common Shares and will own,
either directly or through the General Partner, 17,888,200 Units. Although the
Operating Partnership will receive the net proceeds of the Offering, the
Company and the General Partner will be deemed to have made a capital
contribution to the Operating Partnership in the amount of the gross proceeds
of the Offering and the Operating Partnership will be deemed simultaneously to
have paid the underwriter's discount and other expenses paid or incurred in
connection with the Offering. Following the closing of the Offering the
Limited Partners (other than the Company) that are members of the Prentiss
Group, including the Prentiss Principals, will collectively own approximately
15.4% of the outstanding Units. The Operating Partnership Agreement provides
that if the Operating Partnership requires additional funds at any time or
from time to time in excess of funds available to the Operating Partnership
from borrowing or capital contributions, the General Partner or the Company
may borrow such funds from a financial institution or other lender and lend
such funds to the Operating Partnership on the same terms and conditions as
are applicable to the General Partner's or the Company's, as applicable,
borrowing of such funds. Moreover, the General Partner is authorized to cause
the Operating Partnership to issue partnership interests for less than fair
market value if the Company (i) has concluded in good faith that such issuance
is in the best interest of the Company and the Operating Partnership and (ii)
the General Partner makes a capital contribution in an amount equal to the
proceeds of such issuance. Under the Operating Partnership Agreement, the
General Partner generally is obligated to contribute or cause the Company to
contribute the proceeds of a share offering by the Company as additional
capital to the Operating Partnership. Upon such contribution, the General
Partner or the Company, as applicable, will receive additional Units and the
General Partner's or the Company's, as applicable, percentage interest in the
Operating Partnership will be increased on a proportionate basis based upon
the amount of such additional capital contributions. Conversely, the
percentage interests of the Limited Partners will be decreased on a
proportionate basis in the event of additional capital contributions by the
General Partner or the Company. In addition, if the General Partner or the
Company contributes additional capital to the Operating Partnership, the
General Partner will revalue the property of the Operating Partnership to its
fair market value (as determined by the General Partner) and the capital
accounts of the partners will be adjusted to reflect the manner in which the
unrealized gain or loss inherent in such property (that has not been reflected
in the capital accounts previously) would be allocated among the partners
under the terms of the Operating Partnership Agreement if there were a taxable
disposition of such property for such fair market value on the date of the
revaluation.

EXCHANGE RIGHTS

Pursuant to the Operating Partnership Agreement, the Limited Partners (other
than the Company) have exchange rights ("Exchange Rights") that enable them to
cause the Operating Partnership to exchange their Units for cash, or at the
option of the General Partner, Common Shares on a one-for-one basis. The
exchange price will be paid in cash in the event that the issuance of Common
Shares to the exchanging Limited Partner would (i) result in any person
owning, directly or indirectly, Common Shares in excess of the Ownership
Limitation, (ii) result in shares of beneficial interest of the Company being
owned by fewer than 100 persons (determined without reference to any rules of
attribution), (iii) result in the Company being "closely held" within the
meaning of Section 856(h) of the Code, (iv) cause the Company to own, actually
or constructively, 10% or more of the ownership interest in a tenant of the
Company's or the Operating Partnership's real property, within the meaning of
Section 856(d)(2)(B) of the Code, or (v) cause the acquisition of Common
Shares by such redeeming Limited Partner to be "integrated" with any other
distribution of Common Shares for purposes of complying with the Securities
Act. The Exchange Rights may be exercised by the Limited Partners at any time

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after the second anniversary of the date of the closing of the Offering,
provided that not more than two exchanges may occur during each calendar year
and each Limited Partner may not exercise the Exchange Right for less than
1,000 Units or, if such Limited Partner holds less than 1,000 Units, all of
the Units held by such Limited Partner. See "Federal Income Tax
Considerations--Tax Aspects of the Operating Partnership." After the closing
of the Offering the aggregate number of Common Shares issuable upon exercise
of the Exchange Rights will be approximately 3,259,763. The number of Common
Shares issuable upon exercise of the Exchange Rights will be adjusted upon the
occurrence of share splits, mergers, consolidations or similar pro rata share
transactions, which otherwise would have the effect of diluting the ownership
interests of the Limited Partners or the shareholders of the Company.

REGISTRATION RIGHTS

For a description of certain registration rights held by the Limited
Partners, see "Shares Available for Future Sale."

OPERATIONS

The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable the Company to satisfy the
requirements for being classified as a REIT for federal tax purposes, to avoid
any federal income or excise tax liability imposed by the Code, and to ensure
that the Operating Partnership will not be classified as a "publicly traded
partnership" for purposes of Section 7704 of the Code.

In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, the Operating Partnership will pay all
administrative costs and expenses of the Company and the General Partner
(collectively, the "Company Expenses") and the Company Expenses will be
treated as expenses of the Operating Partnership. The Company Expenses
generally will include (i) all expenses relating to the formation and
continuity of existence of the Company and the General Partner, (ii) all
expenses relating to the public offering and registration of securities by the
Company, (iii) all expenses associated with the preparation and filing of any
periodic reports by the Company under federal, state or local laws or
regulations, (iv) all expenses associated with compliance by the Company and
the General Partner with laws, rules and regulations promulgated by any
regulatory body and (v) all other operating or administrative costs of the
General Partner incurred in the ordinary course of its business on behalf of
the Partnership.

DISTRIBUTIONS

The Operating Partnership Agreement provides that the Operating Partnership
shall distribute cash from operations (including net sale or refinancing
proceeds, but excluding net proceeds from the sale of the Operating
Partnership's property in connection with the liquidation of the Operating
Partnership) on a quarterly (or, at the election of the General Partner, more
frequent) basis, in amounts determined by the General Partner in its sole
discretion, to the partners in accordance with their respective percentage
interests in the Operating Partnership. Upon liquidation of the Operating
Partnership, after payment of, or adequate provision for, debts and
obligations of the Operating Partnership, including any partner loans, any
remaining assets of the Operating Partnership will be distributed to all
partners with positive capital accounts in accordance with their respective
positive capital account balances.

ALLOCATIONS

Income, gain and loss of the Operating Partnership for each fiscal year
generally is allocated among the partners in accordance with their respective
interests in the Operating Partnership, subject to compliance with the
provisions of Code Sections 704(b) and 704(c) and Treasury Regulations
promulgated thereunder.

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TERM

The Operating Partnership shall continue until December 31, 2050, or until
sooner dissolved upon (i) the bankruptcy, dissolution or withdrawal of the
General Partner (unless the Limited Partners elect to continue the Operating
Partnership), (ii) the sale or other disposition of all or substantially all
the assets of the Operating Partnership, (iii) the redemption of all limited
partnership interests in the Partnership (other than those held by the
Company, if any), or (iv) the election by the General Partner.

FIDUCIARY DUTY

The Limited Partners have agreed that in the event of any conflict in the
fiduciary duties owed by the Company to its shareholders and by the General
Partner to such Limited Partners, the General Partner will fulfill its
fiduciary duties to such limited partnership by acting in the best interests
of the Company's shareholders.

TAX MATTERS

Pursuant to the Operating Partnership Agreement, the General Partner is the
tax matters partner of the Operating Partnership and, as such, has authority
to handle tax audits and to make tax elections under the Code on behalf of the
Operating Partnership.

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FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of material federal income tax considerations
that may be relevant to a prospective holder of Common Shares in the Company.
Hunton & Williams has acted as counsel to the Company and has reviewed this
summary and is of the opinion that it fairly summarizes the federal income tax
considerations that will be material to a holder of the Common Shares. The
discussion contained herein does not address all aspects of taxation that may
be relevant to particular shareholders in light of their personal investment
or tax circumstances, or to certain types of shareholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations, and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.

The statements in this discussion and the opinion of Hunton & Williams are
based on current provisions of the Code, existing, temporary, and currently
proposed Treasury Regulations promulgated under the Code, the legislative
history of the Code, existing administrative rulings and practices of the
Service, and judicial decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions, which may be
retroactive in effect, will not affect the accuracy of any statements in this
Prospectus with respect to the transactions entered into or contemplated prior
to the effective date of such changes.

EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE PURCHASE, OWNERSHIP, AND
SALE OF THE COMMON SHARES AND OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF
SUCH PURCHASE, OWNERSHIP, SALE, AND ELECTION, AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.

TAXATION OF THE COMPANY

The Company currently has in effect an election to be taxed as a pass-
through entity under Subchapter S of the Code, but intends to revoke its S
election on the day prior to the closing of the Offering. The Company plans to
make an election to be taxed as a REIT under sections 856 through 860 of the
Code, effective for its short taxable year beginning on the day prior to the
Closing of the Offering and ending on December 31, 1996. The Company believes
that, commencing with such taxable year, it will be organized and will operate
in such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can
be given that the Company will operate in a manner so as to qualify or remain
qualified as a REIT.

The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.

Hunton & Williams has acted as counsel to the Company in connection with the
Offering and the Company's election to be taxed as a REIT. In the opinion of
Hunton & Williams, assuming that the elections and other procedural steps
described in this discussion of "Federal Income Tax Considerations" are
completed by the Company in a timely fashion, the Company's organization and
proposed method of operation will enable it to qualify to be taxed as a REIT
under the Code commencing with the Company's short taxable year beginning the
day prior to the closing of the Offering and ending December 31, 1996, and for
its future taxable years. Investors should be aware, however, that opinions of
counsel are not binding upon the Service or any court. It must be emphasized
that Hunton & Williams' opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters, including representations regarding the nature of the Company's
properties and the future conduct of its business. Such factual assumptions
and representations are described below in this discussion of "Federal Income
Tax Considerations" and are set out in the federal

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income tax opinion that will be delivered by Hunton & Williams at the closing
of the Offering. Moreover, such qualification and taxation as a REIT depends
upon the Company's ability to meet on a continuing basis, through actual
annual operating results, distribution levels, and share ownership, the
various qualification tests imposed under the Code discussed below. Hunton &
Williams will not review the Company's compliance with those tests on a
continuing basis. Accordingly, no assurance can be given that the actual
results of the Company's operations for any particular taxable year will
satisfy such requirements. For a discussion of the tax consequences of failure
to qualify as a REIT, see "Failure to Qualify."

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income tax on its net income that is distributed
currently to its shareholders. That treatment substantially eliminates the
"double taxation" (i.e., taxation at both the corporate and shareholder
levels) that generally results from investment in a corporation. However, the
Company will be subject to federal income tax in the following circumstances.
First, the Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference, if any. Third, if
the Company has (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in the
ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest corporate rate
on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to
customers in the ordinary course of business), such income will be subject to
a 100% tax. Fifth, if the Company should fail to satisfy the 75% gross income
test or the 95% gross income test (as discussed below), and nonetheless has
maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on the net income attributable to
the greater of the amount by which the Company fails the 75% or 95% gross
income test. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii)
any undistributed taxable income from prior periods, the Company would be
subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed. Seventh, if the Company acquires any asset
from a C corporation (i.e., a corporation generally subject to full corporate-
level tax) in a transaction in which the basis of the asset in the Company's
hands is determined by reference to the basis of the asset (or any other
asset) in the hands of the C corporation and the Company recognizes gain on
the disposition of such asset during the 10-year period beginning on the date
on which such asset was acquired by the Company, then to the extent of such
asset's "built-in-gain" (i.e., the excess of the fair market value of such
asset at the time of acquisition by the Company over the adjusted basis in
such asset at such time), such gain will be subject to tax at the highest
regular corporate rate applicable (as provided in Treasury Regulations that
have not yet been promulgated). The results described above with respect to
the recognition of "built-in-gain" assume that the Company will make an
election pursuant to IRS Notice 88-19 if it were to make any such acquisition.

REQUIREMENTS FOR QUALIFICATION

The Code defines a REIT as a corporation, trust, or association (i) that is
managed by one or more trustees or directors; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation,
but for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the
Code; (v) the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding shares of which is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of each taxable year (the
"5/50 Rule"); (vii) that makes an election to be a REIT (or has made such
election for a previous taxable year) and satisfies all relevant filing and
other administrative requirements established by the Service that must be met
in order to elect and maintain REIT status; (viii) that uses a calendar year
for federal income tax purposes and complies with the recordkeeping
requirements of the Code and Treasury Regulations promulgated thereunder; and
(ix) that meets certain other tests, described below, regarding the nature of
its income and assets. The Code provides that

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conditions (i) to (iv), inclusive, must be met during the entire taxable year
and that condition (v) must be met during at least 335 days of a taxable year
of 12 months, or during a proportionate part of a taxable year of less than 12
months. Conditions (v) and (vi) will not apply until after the first taxable
year for which an election is made by the Company to be taxed as a REIT. For
purposes of determining stock ownership under the 5/50 Rule, a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of
a trust permanently set aside or used exclusively for charitable purposes
generally is considered an individual. A trust that is a qualified trust under
Code section 401(a), however, generally is not considered an individual and
beneficiaries of such trust are treated as holding shares of a REIT in
proportion to their actuarial interests in such trust for purposes of the 5/50
Rule.

Prior to the consummation of the Offering, the Company did not satisfy
conditions (v) and (vi) in the preceding paragraph. The Company anticipates
issuing sufficient Common Shares with sufficient diversity of ownership
pursuant to the Offering to allow it to satisfy requirements (v) and (vi). In
addition, the Company's Declaration of Trust provides for restrictions
regarding transfer of the Common Shares that are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
clauses (v) and (vi) above. Such transfer restrictions are described in
"Description of Shares of Beneficial Interest--Restrictions on Transfer."

The Company currently has one subsidiary, the General Partner, and may have
additional subsidiaries in the future. Code section 856(i) provides that a
corporation that is a "qualified REIT subsidiary" shall not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a "qualified REIT subsidiary" shall be treated as
assets, liabilities, and items of income, deduction, and credit of the REIT. A
"qualified REIT subsidiary" is a corporation, all of the capital stock of
which has been held by the REIT at all times during the period such
corporation was in existence. Thus, in applying the requirements described
herein, any "qualified REIT subsidiaries" of the Company will be ignored, and
all assets, liabilities, and items of income, deduction, and credit of such
subsidiaries will be treated as assets, liabilities, and items of income,
deduction, and credit of the Company. The General Partner is a "qualified REIT
subsidiary." The General Partner, therefore, will not be subject to federal
corporate income taxation, although it may be subject to state and local
taxation.

In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate
share of the assets of the partnership and will be deemed to be entitled to
the gross income of the partnership attributable to such share. In addition,
the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of section 856 of the Code, including
satisfying the gross income and asset tests described below. Thus, the
Company's proportionate share of the assets, liabilities, and items of income
of the Operating Partnership and the noncorporate subsidiaries of the
Operating Partnership (the "Noncorporate Subsidiaries") will be treated as
assets, liabilities, and items of income of the Company for purposes of
applying the requirements described herein.

Income Tests

In order for the Company to qualify and to maintain its qualification as a
REIT, three requirements relating to the Company's gross income must be
satisfied annually. First, at least 75% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year
must consist of defined types of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or
temporary investment income. Second, at least 95% of the Company's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property or temporary investments, and
from dividends, other types of interest, and gain from the sale or disposition
of stock or securities, or from any combination of the foregoing. Third, not
more than 30% of the Company's gross income (including gross income from
prohibited transactions) for each taxable year may be gain from the sale or
other disposition of (i) stock or securities held for less than one year, (ii)
dealer property that is not foreclosure property, and (iii) certain real
property held for less than four years (apart from involuntary conversions and
sales of foreclosure property). The specific application of these tests to the
Company is discussed below.

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The rent received by the Company from its tenants ("Rent") will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above only if several conditions are met. First, the amount of
rent must not be based, in whole or in part, on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, the Code
provides that rents received from a tenant will not qualify as "rents from
real property" in satisfying the gross income tests if the Company, or a
direct or indirect owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property
will not qualify as "rents from real property." Finally, for the Rent to
qualify as "rents from real property," the Company generally must not operate
or manage the Properties or furnish or render services to the tenants of such
Properties, other than through an "independent contractor" who is adequately
compensated and from whom the Company derives no revenue. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the Company are "usually or customarily rendered" in connection
with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant."

The Company does not anticipate charging Rent for any portion of any
Property that is based, in whole or in part, on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages
of receipts of sales, as described above). Furthermore, the Company has
represented that, with respect to other properties that it may acquire in the
future, it will not charge Rent for any portion of any property that is based,
in whole or in part, on the income or profits of any person to the extent that
the receipt of such Rent would jeopardize the Company's status as a REIT. In
addition, the Company does not anticipate receiving any Rent from a Related
Party Tenant, and the Company has represented that, to the extent that it
receives Rent from a Related Party Tenant in the future, such Rent will not
cause the Company to fail to satisfy either the 75% or 95% gross income test.
The Company also does not anticipate that the Rent attributable to personal
property leased in connection with any lease (a "Lease") of real property will
exceed 15% of the total Rent received under the Lease. The Company has
represented that, in the future, it will not allow the Rent attributable to
personal property leased in connection with any Lease of real property to
exceed 15% of the total Rent received under the Lease, if the receipt of such
Rent would cause the Company to fail to satisfy either the 75% or 95% gross
income test.

Through the Operating Partnership, the Noncorporate Subsidiaries, and the
Manager, none of which constitutes a qualifying independent contractor, the
Company will provide certain services to its tenants. The Company believes
(and has represented to Hunton & Williams) that all such services will be
considered "usually or customarily rendered" in connection with the rental of
space for occupancy only and will not otherwise be considered "rendered to the
occupant," so that the provision of such services will not jeopardize the
qualification of the Rent as "rents from real property." In the case of any
services that are not "usual and customary" under the foregoing rules, the
Company intends to employ qualifying independent contractors to provide such
services. Furthermore, the Company has represented that it will not provide
noncustomary services with respect to other properties that it acquires in the
future (other than through a qualifying independent contractor) to the extent
that the provision of such services would cause the Company to fail to satisfy
either the 75% or 95% gross income test.

If any portion of the Rent does not qualify as "rents from real property"
because the Rent attributable to personal property leased in connection with
any Lease of real property exceeds 15% of the total Rent received under the
Lease for a taxable year, the portion of the Rent that is attributable to
personal property will not be qualifying income for purposes of either the 75%
or 95% gross income test. Thus, if the Rent attributable to personal property,
plus any other income received by the Company during a taxable year that is
not qualifying income for purposes of the 95% gross income test, exceeds 5% of
the Company's gross income during such year, the Company likely would lose its
REIT status. If, however, any portion of the Rent received under a Lease does
not qualify as "rents from real property" because either (i) the Rent is
considered based on the income or

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profits of any person or (ii) the tenant is a Related Party Tenant, none of
the Rent received by the Company under such Lease would qualify as "rents from
real property." In that case, if the Rent received by the Company under such
Lease, plus any other income received by the Company during the taxable year
that is not qualifying income for purposes of the 95% gross income test,
exceeds 5% of the Company's gross income for such year, the Company likely
would lose its REIT status. Finally, if any portion of the Rent does not
qualify as "rents from real property" because the Company furnishes
noncustomary services with respect to a Property other than through a
qualifying independent contractor, none of the Rent received by the Company
with respect to the related Property would qualify as "rents from real
property." In that case, if the Rent received by the Company with respect to
the related Property, plus any other income received by the Company during the
taxable year that is not qualifying income for purposes of the 95% gross
income test, exceeds 5% of the Company's gross income for such year, the
Company would lose its REIT status.

The Company, through the Operating Partnership, may receive certain types of
income that will not qualify for purposes of the 75% or 95% gross income test.
In particular, dividends paid with respect to the stock of the Manager owned
by the Operating Partnership will be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. In addition, the
Operating Partnership, through a Noncorporate Subsidiary, will receive its
allocable shares of fees received by the Noncorporate Subsidiary in
consideration of the performance of certain services with respect to
Properties that are owned, directly or indirectly, by the Operating
Partnership. Although the law is not entirely clear, to the extent that the
Operating Partnership owns, directly or indirectly, an interest in such
Properties and an interest in the Noncorporate Subsidiary, such fees should be
disregarded for purposes of the 75% and 95% gross income tests. The Operating
Partnership, through a Noncorporate Subsidiary, also may provide services to
third parties. Any fees received in exchange for such services will not be
qualifying income for purposes of the 75% and 95% gross income tests.
Furthermore, to the extent that the Company receives interest that is accrued
on the late payment of the Rent, such amounts will not qualify as "rents from
real property" and, thus, will not be qualifying income for purposes of the
75% gross income test, but instead will be treated as interest that qualifies
for the 95% gross income test. The Company believes that the aggregate amount
of any such nonqualifying income in any taxable year will not cause the
Company to fail to satisfy either the 75% or 95% gross income test.

It is possible that, from time to time, the Company or the Operating
Partnership will enter into hedging transactions with respect to one or more
of its assets or liabilities. Any such hedging transactions could take a
variety of forms, including interest rate swap contracts, interest rate cap or
floor contracts, futures or forward contracts, and options. To the extent that
the Company or the Operating Partnership enters into an interest rate swap or
cap contract to hedge any variable rate indebtedness incurred to acquire or
carry real estate assets, any periodic income or gain from the disposition of
such contract should be qualifying income for purposes of the 95% gross income
test, but not the 75% gross income test. Furthermore, any such contract would
be considered a "security" for purposes of applying the 30% gross income test.
To the extent that the Company or the Operating Partnership hedges with other
types of financial instruments or in other situations, it may not be entirely
clear how the income from those transactions will be treated for purposes of
the various income tests that apply to REITs under the Code. The Company
intends to structure any hedging transactions in a manner that does not
jeopardize its status as a REIT.

Based on the foregoing, Hunton & Williams is of the opinion that the Rent
will qualify as "rents from real property" for purposes of the 75% and 95%
gross income tests, and that the Company's proposed method of operation will
enable it to satisfy the 75% and 95% gross income tests. As described above,
the opinion of Hunton & Williams is based upon an analysis of all the facts
and circumstances and upon rulings and judicial decisions involving situations
that are considered to be analogous, as well as representations by the Company
and assumptions that are described above and set out in the federal income tax
opinion of Hunton & Williams to be delivered at the closing of the Offering.
Opinions of counsel are not binding upon the Service or any court.
Accordingly, there can be no complete assurance that the Service will not
assert successfully a contrary position and, therefore, prevent the Company
from qualifying as a REIT.

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If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it nevertheless may qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. Those
relief provisions generally will be available if the Company's failure to meet
such tests is due to reasonable cause and not due to willful neglect, the
Company attaches a schedule of the sources of its income to its return, and
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of those relief provisions. As
discussed above in "Federal Income Tax Considerations--Taxation of the
Company," even if those relief provisions apply, a 100% tax would be imposed
on the net income attributable to the greater of the amount by which the
Company fails the 75% or 95% gross income test. No such relief is available
for violations of the 30% income test.

Asset Tests

The Company, at the close of each quarter of each taxable year, also must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of the Company's total assets must be represented by cash or cash
items (including certain receivables), government securities, "real estate
assets," or, in cases where the Company raises new capital through stock or
long-term (at least five-year) debt offerings, temporary investments in stock
or debt instruments during the one-year period following the Company's receipt
of such capital. The term "real estate assets" includes interests in real
property, interests in mortgages on real property to the extent the principal
balance of a mortgage does not exceed the value of the associated real
property, and shares of other REITs. For purposes of the 75% asset test, the
term "interest in real property" includes an interest in land and improvements
thereon, such as buildings or other inherently permanent structures (including
items that are structural components of such buildings or structures), a
leasehold of real property, and an option to acquire real property (or a
leasehold of real property). Second, of the investments not included in the
75% asset class, the value of any one issuer's securities owned by the Company
may not exceed 5% of the value of the Company's total assets and the Company
may not own more than 10% of any one issuer's outstanding voting securities
(except for its interests in the Operating Partnership, the Noncorporate
Subsidiaries, the General Partner, and any other qualified REIT subsidiary).

For purposes of the asset tests, the Company will be deemed to own its
proportionate share of the assets of the Operating Partnership and each
Noncorporate Subsidiary, rather than its interests in those entities. The
Operating Partnership will own 100% of the nonvoting common stock of the
Manager. The Company has represented that, as of the date of the Offering, (i)
at least 75% of the value of its total assets will be represented by real
estate assets, cash and cash items (including receivables), and government
securities and (ii) it will not own (A) securities of any one issuer the value
of which exceeds 5% of the value of the Company's total assets or (B) more
than 10% of any one issuer's outstanding voting securities (except for its
interests in the Operating Partnership, the Noncorporate Subsidiaries, the
General Partner, and any other qualified REIT subsidiary). In addition, the
Company has represented that it will not acquire or dispose, or cause the
Operating Partnership to acquire or dispose, of assets in the future in a way
that would cause it to violate either asset test. Based on the foregoing,
Hunton & Williams is of the opinion that the Company will satisfy both asset
tests for REIT status.

If the Company should fail to satisfy the asset tests at the end of a
calendar quarter, such a failure would not cause it to lose its REIT status if
(i) it satisfied the asset tests at the close of the preceding calendar
quarter and (ii) the discrepancy between the value of the Company's assets and
the asset tests either did not exist immediately after the acquisition of any
particular asset or was not wholly or partly caused by such an acquisition
(i.e., the discrepancy arose from changes in the market values of its assets).
If the condition described in clause (ii) of the preceding sentence were not
satisfied, the Company still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.

Distribution Requirements

The Company, in order to qualify as a REIT, is required to distribute with
respect to each taxable year dividends (other than capital gain dividends) to
its shareholders in an aggregate amount at least equal to (i) the

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sum of (A) 95% of its "REIT taxable income" (computed without regard to the
dividends paid deduction and its net capital gain) and (B) 95% of the net
income (after tax), if any, from foreclosure property, minus (ii) the sum of
certain items of noncash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if
declared before the Company timely files its federal income tax return for
such year and if paid on or before the first regular dividend payment date
after such declaration. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of
its "REIT taxable income," as adjusted, it will be subject to tax thereon at
regular ordinary and capital gains corporate tax rates. Furthermore, if the
Company should fail to distribute during each calendar year at least the sum
of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT
capital gain income for such year, and (iii) any undistributed taxable income
from prior periods, the Company would be subject to a 4% nondeductible excise
tax on the excess of such required distribution over the amounts actually
distributed. The Company intends to make timely distributions sufficient to
satisfy the annual distribution requirements.

It is possible that, from time to time, the Company may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of
such expenses in arriving at its REIT taxable income. Further, it is possible
that, from time to time, the Company may be allocated a share of net capital
gain attributable to the sale of depreciated property that exceeds its
allocable share of cash attributable to that sale. Therefore, the Company may
have less cash than is necessary to meet its annual 95% distribution
requirement or to avoid corporate income tax or the excise tax imposed on
certain undistributed income. In such a situation, the Company may find it
necessary to arrange for short-term (or possibly long-term) borrowings or to
raise funds through the issuance of Preferred Shares or additional Common
Shares.

Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirements for a year by paying "deficiency dividends"
to its shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Although the Company may be
able to avoid being taxed on amounts distributed as deficiency dividends, it
will be required to pay to the Service interest based upon the amount of any
deduction taken for deficiency dividends.

Recordkeeping Requirements

Pursuant to applicable Treasury Regulations, in order to be able to elect to
be taxed as a REIT, the Company must maintain certain records and request on
an annual basis certain information from its shareholders designed to disclose
the actual ownership of its outstanding shares. The Company intends to comply
with such requirements.

Partnership Anti-Abuse Rule

The U.S. Treasury Department has issued a final regulation (the "Anti-Abuse
Rule") under the partnership provisions of the Code (the "Partnership
Provisions") that authorizes the Service, in certain "abusive" transactions
involving partnerships, to disregard the form of the transaction and recast it
for federal tax purposes as the Service deems appropriate. The Anti-Abuse Rule
applies where a partnership is formed or utilized in connection with a
transaction (or series of related transactions) with a principal purpose of
substantially reducing the present value of the partners' aggregate federal
tax liability in a manner inconsistent with the intent of the Partnership
Provisions. The Anti-Abuse Rule states that the Partnership Provisions are
intended to permit taxpayers to conduct joint business (including investment)
activities through a flexible economic arrangement that accurately reflects
the partners' economic agreement and clearly reflects the partners' income
without incurring any entity-level tax. The purposes for structuring a
transaction involving a partnership are determined based on all of the facts
and circumstances, including a comparison of the purported business purpose
for a transaction and the claimed tax benefits resulting from the transaction.
A reduction in the present value of the partners' aggregate federal tax
liability through the use of a partnership does not, by itself, establish
inconsistency with the intent of the Partnership Provisions.

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The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partnership
interest. The limited partners of the partnership contribute real property
assets to the partnership, subject to liabilities that exceed their respective
aggregate bases in such property. In addition, some of the limited partners
have the right, beginning two years after the formation of the partnership, to
require the redemption of their limited partnership interests in exchange for
cash or REIT stock (at the REIT's option) equal to the fair market value of
their respective interests in the partnership at the time of the redemption.
The example concludes that the use of the partnership is not inconsistent with
the intent of the Partnership Provisions and, thus, cannot be recast by the
Service. Based on the foregoing, Hunton & Williams is of the opinion that the
Anti-Abuse Rule will not have any adverse impact on the Company's ability to
qualify as a REIT. However, the Exchange Rights do not conform in all respects
to the redemption rights contained in the foregoing example. Moreover, the
Anti-Abuse Rule is extraordinarily broad in scope and is applied based on an
analysis of all of the facts and circumstances. As a result, there can be no
assurance that the Service will not attempt to apply the Anti-Abuse Rule to
the Company. If the conditions of the Anti-Abuse Rule are met, the Service is
authorized to take appropriate enforcement action, including disregarding the
Operating Partnership for federal tax purposes or treating one or more of its
partners as nonpartners. Any such action potentially could jeopardize the
Company's status as a REIT.

FAILURE TO QUALIFY

If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to the Company's shareholders in any
year in which the Company fails to qualify will not be deductible by the
Company nor will they be required to be made. In such event, to the extent of
current and accumulated earnings and profits, all distributions to
shareholders will be taxable as ordinary income and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from taxation as a
REIT for the four taxable years following the year during which the Company
ceased to qualify as a REIT. It is not possible to state whether in all
circumstances the Company would be entitled to such statutory relief.

TAXATION OF TAXABLE U.S. SHAREHOLDERS

As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. shareholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. shareholder" means a holder of Common Shares that
for U.S. federal income tax purposes is (i) a citizen or resident of the U.S.,
(ii) a corporation, partnership, or other entity created or organized in or
under the laws of the U.S. or of any political subdivision thereof, or (iii)
an estate or trust the income of which is subject to U.S. federal income
taxation regardless of its source. Distributions that are designated as
capital gain dividends will be taxed as long-term capital gains (to the extent
they do not exceed the Company's actual net capital gain for the taxable year)
without regard to the period for which the shareholder has held his Common
Shares. However, corporate shareholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Shares, but rather will reduce the adjusted basis of such
shares. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a shareholder's
Common Shares, such distributions will be included in income as long-term
capital gain (or short-term capital gain if the Common Shares have been held
for one year or less), assuming the Common Shares are capital assets in the
hands of the shareholder. In addition, any distribution declared by the
Company in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated
as both paid by the Company and received by the shareholder on December 31 of
such year, provided that the distribution is actually paid by the Company
during January of the following calendar year.

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Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. Instead, such losses would
be carried over by the Company for potential offset against its future income
(subject to certain limitations). Taxable distributions from the Company and
gain from the disposition of the Common Shares will not be treated as passive
activity income and, therefore, shareholders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which a shareholder is a limited partner) against such
income. In addition, taxable distributions from the Company generally will be
treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of Common Shares (or
distributions treated as such), however, will be treated as investment income
only if the shareholder so elects, in which case such capital gains will be
taxed at ordinary income rates. The Company will notify shareholders after the
close of the Company's taxable year as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and capital gain.

TAXATION OF SHAREHOLDERS ON THE DISPOSITION OF THE COMMON SHARES

In general, any gain or loss realized upon a taxable disposition of the
Common Shares by a shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Common Shares have been held
for more than one year and otherwise as short-term capital gain or loss.
However, any loss upon a sale or exchange of Common Shares by a shareholder
who has held such shares for six months or less (after applying certain
holding period rules), will be treated as a long-term capital loss to the
extent of distributions from the Company required to be treated by such
shareholder as long-term capital gain. All or a portion of any loss realized
upon a taxable disposition of the Common Shares may be disallowed if other
Common Shares are purchased within 30 days before or after the disposition.

CAPITAL GAINS AND LOSSES

A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is
39.6%, and the tax rate on net capital gains applicable to individuals is 28%.
Thus, the tax rate differential between capital gain and ordinary income for
individuals may be significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against an individual's
ordinary income only up to a maximum annual amount of $3,000. Unused capital
losses may be carried forward. All net capital gain of a corporate taxpayer is
subject to tax at ordinary corporate rates. A corporate taxpayer can deduct
capital losses only to the extent of capital gains, with unused losses being
carried back three years and forward five years.

INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING

The Company will report to its U.S. shareholders and to the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with the applicable requirements of
the backup withholding rules. A shareholder who does not provide the Company
with his correct taxpayer identification number also may be subject to
penalties imposed by the Service. Any amount paid as backup withholding will
be creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their nonforeign status to the Company.
The Service issued proposed regulations in April 1996 regarding the backup
withholding rules as applied to Non-U.S. Shareholders. Those proposed
regulations would alter the current system of backup withholding compliance.
See "--Taxation of Non-U.S. Shareholders."

TAXATION OF TAX-EXEMPT SHAREHOLDERS

Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are

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subject to taxation on their unrelated business taxable income ("UBTI"). While
many investments in real estate generate UBTI, the Service has issued a
published ruling that dividend distributions from a REIT to an exempt employee
pension trust do not constitute UBTI, provided that the shares of the REIT are
not otherwise used in an unrelated trade or business of the exempt employee
pension trust. Based on that ruling, amounts distributed by the Company to
Exempt Organizations generally should not constitute UBTI. However, if an
Exempt Organization finances its acquisition of the Common Shares with debt, a
portion of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions from the Company as UBTI. In addition, in certain circumstances,
a pension trust that owns more than 10% of the Company's shares is required to
treat a percentage of the dividends from the Company as UBTI (the "UBTI
Percentage"). The UBTI Percentage is the gross income derived by the Company
from an unrelated trade or business (determined as if the Company were a
pension trust) divided by the gross income of the Company for the year in
which the dividends are paid. The UBTI rule applies to a pension trust holding
more than 10% of the Company's stock only if (i) the UBTI Percentage is at
least 5%, (ii) the Company qualifies as a REIT by reason of the modification
of the 5/50 Rule that allows the beneficiaries of the pension trust to be
treated as holding shares of the Company in proportion to their actuarial
interests in the pension trust, and (iii) either (A) one pension trust owns
more than 25% of the value of the Company's shares or (B) a group of pension
trusts individually holding more than 10% of the value of the Company's shares
collectively owns more than 50% of the value of the Company's shares.

TAXATION OF NON-U.S. SHAREHOLDERS

The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex and no
attempt will be made herein to provide more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS
TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH
REGARD TO AN INVESTMENT IN THE COMMON SHARES, INCLUDING ANY REPORTING
REQUIREMENTS.

Distributions to Non-U.S. Shareholders that are not attributable to gain
from sales or exchanges by the Company of U.S. real property interests and are
not designated by the Company as capital gains dividends will be treated as
dividends of ordinary income to the extent that they are made out of current
or accumulated earnings and profits of the Company. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross
amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the Common
Shares is treated as effectively connected with the Non-U.S. Shareholder's
conduct of a U.S. trade or business, the Non-U.S. Shareholder generally will
be subject to federal income tax at graduated rates, in the same manner as
U.S. shareholders are taxed with respect to such distributions (and also may
be subject to the 30% branch profits tax in the case of a Non-U.S. Shareholder
that is a non-U.S. corporation). The Company expects to withhold U.S. income
tax at the rate of 30% on the gross amount of any such distributions made to a
Non-U.S. Shareholder unless (i) a lower treaty rate applies and any required
form evidencing eligibility for that reduced rate is filed with the Company or
(ii) the Non-U.S. Shareholder files an IRS Form 4224 with the Company claiming
that the distribution is effectively connected income. The Service issued
proposed regulations in April 1996 that would modify the manner in which the
Company complies with the withholding requirements. Distributions in excess of
current and accumulated earnings and profits of the Company will not be
taxable to a shareholder to the extent that such distributions do not exceed
the adjusted basis of the shareholder's Common Shares, but rather will reduce
the adjusted basis of such shares. To the extent that distributions in excess
of current and accumulated earnings and profits exceed the adjusted basis of a
Non-U.S. Shareholder's Common Shares, such distributions will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his Common Shares, as described below.
Because it generally cannot be determined at the time a distribution is made

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whether or not such distribution will be in excess of current and accumulated
earnings and profits, the entire amount of any distribution normally will be
subject to withholding at the same rate as a dividend. Amounts so withheld,
however are refundable to the extent it is determined subsequently that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of the Company.

In August 1996, the U.S. Congress passed the Small Business Job Protection
Act of 1996, which requires the Company to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits. That
statute is effective for distributions made after August 20, 1996.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution, to the extent that the Company does not do
so any portion of a distribution not subject to withholding at a rate of 30%
will be subject to withholding at a rate of 10%.

For any year in which the Company qualifies as a REIT, distributions that
are attributable to gain from sales or exchanges by the Company of U.S. real
property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, distributions attributable to gain from sales of
U.S. real property interests are taxed to a Non-U.S. Shareholder as if such
gain were effectively connected with a U.S. business. Non-U.S. Shareholders
thus would be taxed at the normal capital gain rates applicable to U.S.
shareholders (subject to applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals).
Distributions subject to FIRPTA also may be subject to the 30% branch profits
tax in the hands of a non-U.S. corporate shareholder not entitled to treaty
relief or exemption. The Company is required to withhold 35% of any
distribution that is designated by the Company as a capital gains dividend.
The amount withheld is creditable against the Non-U.S. Shareholder's FIRPTA
tax liability.

Gain recognized by a Non-U.S. Shareholder upon a sale of his Common Shares
generally will not be taxed under FIRPTA if the Company is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. It is currently anticipated that the
Company will be a "domestically controlled REIT" and, therefore, the sale of
the Common Shares will not be subject to taxation under FIRPTA. However,
because the Common Shares will be publicly traded, no assurance can be given
that the Company will be a "domestically controlled REIT." Furthermore, gain
not subject to FIRPTA will be taxable to a Non-U.S. Shareholder if (i)
investment in the Common Shares is effectively connected with the Non-U.S.
Shareholder's U.S. trade or business, in which case the Non-U.S. Shareholder
will be subject to the same treatment as U.S. shareholders with respect to
such gain, or (ii) the Non-U.S. Shareholder is a nonresident alien individual
who was present in the U.S. for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien individual
will be subject to a 30% tax on the individual's capital gains. If the gain on
the sale of the Common Shares were to be subject to taxation under FIRPTA, the
Non-U.S. Shareholder would be subject to the same treatment as U.S.
shareholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident
alien individuals, and the possible application of the 30% branch profits tax
in the case of non-U.S. corporations).

OTHER TAX CONSEQUENCES

The Company, the General Partner, the Operating Partnership, the Manager, a
Noncorporate Subsidiary, or the Company's shareholders may be subject to state
or local taxation in various state or local jurisdictions, including those in
which it or they own property, transact business, or reside. The state and
local tax treatment of the Company and its shareholders may not conform to the
federal income tax consequences discussed above. CONSEQUENTLY, PROSPECTIVE
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF
STATE AND LOCAL TAX LAWS ON AN INVESTMENT IN THE COMPANY.

In particular, the State of Texas imposes a franchise tax upon corporations
and limited liability companies that do business in Texas, including REITs
that are organized as corporations. The Texas franchise tax imposed

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on a corporation doing business in Texas generally is equal to the greater of
(i) .25% of its "taxable capital" (generally, its financial accounting net
worth with certain adjustments) apportioned to Texas; or (ii) 4.5% of its
"taxable earned surplus" (generally, its federal taxable income with certain
adjustments) apportioned to Texas. A corporation's taxable capital and taxable
earned surplus are apportioned to Texas based upon a fraction, the numerator
of which is the corporation's gross receipts from business transacted in Texas
and the denominator of which is the corporation's gross receipts from all
sources.

Because the Company will be organized as a Maryland real estate investment
trust, and not as a corporation or a limited liability company, the Company
should not be subject to Texas franchise tax. Similarly, neither the Operating
Partnership nor any Noncorporate Subsidiary organized as a partnership should
be subject to the Texas franchise tax. The Company will request a ruling from
the office of the Texas State Comptroller of Public Accounts (the
"Comptroller"), the administrative agency that administers the Texas franchise
tax, that neither the Company, the Operating Partnership nor any Noncorporate
Subsidiary organized as a partnership will be subject to the Texas franchise
tax. There can be no assurance, however, that the Texas legislature, which
next meets in regular session in 1997, will not expand the scope of the Texas
franchise tax to apply to trusts such as the Company or partnerships such as
the Operating Partnership or the Noncorporate Subsidiaries that are organized
as partnerships.

Both the General Partner and the Manager will be organized as corporations.
Furthermore, the General Partner will be the general partner of a partnership
doing business in Texas (i.e., the Operating Partnership) and will register in
the State of Texas as a foreign corporation qualified to transact business in
Texas. Similarly, the Manager will conduct business in Texas and will register
in the State of Texas as a foreign corporation qualified to transact business
in Texas. Accordingly, both the General Partner and the Manager will be
subject to the Texas franchise tax. Finally, one of the Noncorporate
Subsidiaries, Riverside Industrial, LLC, is organized as a limited liability
company, will conduct business in Texas and will register in the State of
Texas as a foreign limited liability company qualified to transact business in
Texas. Accordingly, that Noncorporate Subsidiary also will be subject to the
Texas franchise tax.

Coopers & Lybrand L.L.P., special tax consultant to the Company ("Coopers &
Lybrand"), has reviewed the discussion in this section with respect to Texas
franchise tax matters and is of the opinion that it fairly summarizes the
Texas franchise tax considerations that will be material to the Company. The
opinion rendered by Coopers & Lybrand is not binding upon the Comptroller or
any court. Furthermore, Coopers & Lybrand expresses no opinion with respect to
(i) any federal or other state tax considerations affecting the Company
including, but not limited to, other taxes imposed by the State of Texas; or
(ii) any of the tax considerations affecting a holder of Common Shares
including, but not limited to, the Texas franchise tax implications to a
holder of owning Common Shares.

TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE NONCORPORATE SUBSIDIARIES

The following discussion summarizes certain federal income tax
considerations applicable to the Company's direct or indirect investment in
the Operating Partnership and the Noncorporate Subsidiaries (each of the
Operating Partnership and the Noncorporate Subsidiaries is referred to herein
as a "Partnership"). The discussion does not cover state or local tax laws or
any federal tax laws other than income tax laws.

Classification as a Partnership

The Company will be entitled to include in its income its distributive share
of each Partnership's income and to deduct its distributive share of each
Partnership's losses only if each Partnership is classified for federal income
tax purposes as a partnership rather than as a corporation or an association
taxable as a corporation. An organization formed as a partnership will be
treated as a partnership, rather than as a corporation, for federal income tax
purposes if it (i) has no more than two of the four corporate characteristics
that the Treasury Regulations use to distinguish a partnership from a
corporation for tax purposes and (ii) is not a "publicly traded" partnership.
Those four corporate characteristics are continuity of life, centralization of
management,

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limited liability, and free transferability of interests. A publicly traded
partnership is a partnership whose interests are traded on an established
securities market or are readily tradable on a secondary market (or the
substantial equivalent thereof). A publicly traded partnership will be treated
as a corporation for federal income tax purposes unless at least 90% of such
partnership's gross income for a taxable year consists of "qualifying income"
under Section 7704(d) of the Code, which generally includes any income that is
qualifying income for purposes of the 95% gross income test applicable to
REITs (the "90% Passive-Type Income Exception"). See "--Requirements for
Qualification--Income Tests."

The U.S. Treasury Department recently issued regulations effective for
taxable years beginning after December 31, 1995 (the "PTP Regulations") that
provide limited safe harbors from the definition of a publicly traded
partnership. Pursuant to one of those safe harbors, (the "Private Placement
Exclusion"), interests in a partnership will not be treated as readily
tradable on a secondary market or the substantial equivalent thereof if (i)
all interests in the partnership were issued in a transaction (or
transactions) that was not required to be registered under the Securities Act
of 1933, and (ii) the partnership does not have more than 100 partners at any
time during the partnership's taxable year. In determining the number of
partners in a partnership, a person owning an interest in a flow-through
entity (i.e., a partnership, grantor trust, or S corporation) that owns an
interest in the partnership is treated as a partner in such partnership only
if (a) substantially all of the value of the owner's interest in the flow-
through entity is attributable to the flow-through entity's interest (direct
or indirect) in the partnership and (b) a principal purpose of the use of the
tiered arrangement is to permit the partnership to satisfy the 100-partner
limitation. Each Partnership qualifies for the Private Placement Exclusion. If
the Operating Partnership is considered a publicly traded partnership under
the PTP Regulations because it is deemed to have more than 100 partners, such
Partnership should not be treated as a corporation because it should be
eligible for the 90% Passive-Type Income Exception.

The Company has not requested, and does not intend to request, a ruling from
the Service that each Partnership will be classified as a partnership for
federal income tax purposes. Instead, Hunton & Williams is of the opinion
that, based on certain factual assumptions and representations, each
Partnership does not possess more than two corporate characteristics and will
not be treated as a publicly traded partnership and, thus, will be treated for
federal income tax purposes as a partnership and not as a corporation or an
association taxable as a corporation, or a publicly traded partnership. Unlike
a tax ruling, an opinion of counsel is not binding upon the Service, and no
assurance can be given that the Service will not challenge the status of each
Partnership as a partnership for federal income tax purposes. If such
challenge were sustained by a court, the Partnership would be treated as a
corporation for federal income tax purposes, as described below. In addition,
the opinion of Hunton & Williams is based on existing law, which is to a great
extent the result of administrative and judicial interpretation. No assurance
can be given that administrative or judicial changes would not modify the
conclusions expressed in the opinion.

If for any reason one of the Partnerships were taxable as a corporation,
rather than as a partnership, for federal income tax purposes, the Company
would not be able to qualify as a REIT. See "Federal Income Tax
Considerations--Requirements for Qualification--Income Tests" and "--
Requirements for Qualification--Asset Tests." In addition, any change in a
Partnership's status for tax purposes might be treated as a taxable event, in
which case the Company might incur a tax liability without any related cash
distribution. See "Federal Income Tax Considerations--Requirements for
Qualification--Distribution Requirements." Further, items of income and
deduction of such Partnership would not pass through to its partners, and its
partners would be treated as shareholders for tax purposes. Consequently, such
Partnership would be required to pay income tax at corporate tax rates on its
net income, and distributions to its partners would constitute dividends that
would not be deductible in computing such Partnership's taxable income.

Income Taxation of the Partnerships and their Partners

Partners, Not Partnerships, Subject to Tax. A partnership is not a taxable
entity for federal income tax purposes. Rather, the Company will be required
to take into account its allocable share of each Partnership's income, gains,
losses, deductions, and credits for any taxable year of such Partnership
ending within or with the

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taxable year of the Company, without regard to whether the Company has
received or will receive any distribution from such Partnership.

Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under section 704(b) of the Code if they
do not comply with the provisions of section 704(b) of the Code and the
Treasury Regulations promulgated thereunder. If an allocation is not
recognized for federal income tax purposes, the item subject to the allocation
will be reallocated in accordance with the partners' interests in the
partnership, which will be determined by taking into account all of the facts
and circumstances relating to the economic arrangement of the partners with
respect to such item. Each Partnership's allocations of taxable income and
loss are intended to comply with the requirements of section 704(b) of the
Code and the Treasury Regulations promulgated thereunder.

Tax Allocations With Respect to Contributed Properties. Pursuant to section
704(c) of the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal
income tax purposes in a manner such that the contributor is charged with, or
benefits from, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain
or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution. The Treasury
Department recently issued regulations requiring partnerships to use a
"reasonable method" for allocating items affected by section 704(c) of the
Code and outlining several reasonable allocation methods. The Operating
Partnership plans to elect to use the traditional method for allocating Code
section 704(c) items with respect to the Properties it acquires in exchange
for Units.

Under the Operating Partnership Agreement, depreciation or amortization
deductions of the Operating Partnership generally will be allocated among the
partners in accordance with their respective interests in the Operating
Partnership, except to the extent that the Operating Partnership is required
under Code section 704(c) to use a method for allocating tax depreciation
deductions attributable to the Properties that results in the Company
receiving a disproportionately large share of such deductions. In addition,
gain on the sale of a Property contributed to the Operating Partnership by a
member of the Prentiss Group in exchange for Units will be specially allocated
to such member to the extent of any "built-in" gain with respect to such
Property for federal income tax purposes. Depending on the allocation method
elected under Code section 704(c), it is possible that the Company (i) may be
allocated lower amounts of depreciation deductions for tax purposes with
respect to contributed Properties than would be allocated to the Company if
such Properties were to have a tax basis equal to their fair market value at
the time of contribution and (ii) may be allocated taxable gain in the event
of a sale of such contributed Properties in excess of the economic profit
allocated to the Company as a result of such sale. These allocations may cause
the Company to recognize taxable income in excess of cash proceeds, which
might adversely affect the Company's ability to comply with the REIT
distribution requirements, although the Company does not anticipate that this
event will occur. The foregoing principles also will affect the calculation of
the Company's earnings and profits for purposes of determining which portion
of the Company's distributions is taxable as a dividend. The allocations
described in this paragraph may result in a higher portion of the Company's
distributions being taxed as a dividend than would have occurred had the
Company purchased the Properties for cash.

Basis in Operating Partnership Interest. The Company's adjusted tax basis in
its partnership interest in the Operating Partnership generally is equal to
(i) the amount of cash and the basis of any other property contributed to the
Operating Partnership by the Company, (ii) increased by (A) its allocable
share of the Operating Partnership's income and (B) its allocable share of
indebtedness of the Operating Partnership, and (iii) reduced, but not below
zero, by (A) the Company's allocable share of the Operating Partnership's loss
and (B) the amount of cash distributed to the Company, including constructive
cash distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.

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If the allocation of the Company's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Company's
partnership interest in the Operating Partnership below zero, the recognition
of such loss will be deferred until such time as the recognition of such loss
would not reduce the Company's adjusted tax basis below zero. To the extent
that the Operating Partnership's distributions, or any decrease in the
Company's share of the indebtedness of the Operating Partnership (such
decrease being considered a constructive cash distribution to the partners),
would reduce the Company's adjusted tax basis below zero, such distributions
(including such constructive distributions) will constitute taxable income to
the Company. Such distributions and constructive distributions normally will
be characterized as capital gain, and, if the Company's partnership interest
in the Operating Partnership has been held for longer than the long-term
capital gain holding period (currently one year), the distributions and
constructive distributions will constitute long-term capital gain.

SALE OF THE OPERATING PARTNERSHIP'S OR A NONCORPORATE SUBSIDIARY'S PROPERTY

Generally, any gain realized by the Operating Partnership or a Noncorporate
Subsidiary on the sale of property held for more than one year will be long-
term capital gain, except for any portion of such gain that is treated as
depreciation or cost recovery recapture. Any gain recognized by the Operating
Partnership or a Noncorporate Subsidiary on the disposition of the Properties
contributed by the Prentiss Group in exchange for Units will be allocated
first to the applicable members of the Prentiss Group under section 704(c) of
the Code to the extent of their "built-in gain" on those Properties for
federal income tax purposes. The Limited Partners' "built-in gain" on the
Properties sold will equal the excess of the Limited Partners' proportionate
share of the book value of those Properties over the Limited Partners' tax
basis allocable to those Properties at the time of the sale. Any remaining
gain recognized by the Operating Partnership or a Noncorporate Subsidiary on
the disposition of the contributed Properties, and any gain recognized upon
the disposition of the Properties acquired by the Operating Partnership for
cash, will be allocated among the partners in accordance with their respective
percentage interests in the Operating Partnership or such Noncorporate
Subsidiary. The Bylaws of the Company provide that any decision to sell any
real estate asset in which a trustee, or officer of the Company, or any
Affiliate of the foregoing, has a direct or indirect interest, will be made by
a majority of the Trustees including a majority of the Independent Trustees.
See "Policies with Respect to Certain Activities--Conflict of Interest
Policies--Declaration of Trust and Bylaw Provisions."

The Company's share of any gain realized by the Operating Partnership or a
Noncorporate Subsidiary on the sale of any property held by the Operating
Partnership or a Noncorporate Subsidiary as inventory or other property held
primarily for sale to customers in the ordinary course of the Operating
Partnership's or a Noncorporate Subsidiary's trade or business will be treated
as income from a prohibited transaction that is subject to a 100% penalty tax.
Such prohibited transaction income also may have an adverse effect upon the
Company's ability to satisfy the income tests for REIT status. See "Federal
Income Tax Considerations--Requirements For Qualification--Income Tests"
above. The Company, however, does not presently intend to allow the Operating
Partnership or a Noncorporate Subsidiary to acquire or hold any property that
represents inventory or other property held primarily for sale to customers in
the ordinary course of the Company's, the Operating Partnership's or a
Noncorporate Subsidiary's trade or business.

MANAGER

The Operating Partnership owns 100% of the nonvoting stock of each Manager.
Such stock represents in the aggregate a 95% economic interest in each
Manager. The Operating Partnership also holds notes issued by each Manager in
the aggregate initial principal amount of $34.75 million. By virtue of its
ownership of the Operating Partnership, the Company is considered to own its
pro rata share of such stock and notes.

As noted above, for the Company to qualify as a REIT the Company's
proportionate share of the value of the equity and debt securities of each
Manager held by the Operating Partnership may not exceed 5% of the total value
of the Company's assets. In addition, the Company's proportionate share of a
Manager's equity securities may not constitute more than 10% of the voting
securities of a Manager. The Company does not own, directly or through the
Operating Partnership, any of the voting securities of a Manager. In addition,
the Company

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believes its proportionate share of the value of the equity and debt
securities of each Manager held by the Operating Partnership does not exceed
5% of the total value of the Company's assets. If the Service were to
successfully challenge these determinations, however, the Company likely would
fail to qualify as a REIT.

The Manager will be organized as a corporation and will pay federal, state
and local income taxes on its taxable income at normal corporate rates. Any
such taxes will reduce amounts available for distribution by the Manager which
in turn will reduce amounts available for distribution to the Company's
stockholders.

ERISA CONSIDERATIONS

The following is a summary of material considerations arising under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
prohibited transaction provisions of section 4975 of the Code that may be
relevant to a prospective purchaser (including, with respect to the discussion
contained in "--Status of the Company and the Partnership under ERISA," to a
prospective purchaser that is not an employee benefit plan, another tax-
qualified retirement plan, or an individual retirement account ("IRA")). The
discussion does not purport to deal with all aspects of ERISA or section 4975
of the Code that may be relevant to particular shareholders (including plans
subject to Title I of ERISA, other retirement plans and IRAs subject to the
prohibited transaction provisions of section 4975 of the Code, and
governmental plans or church plans that are exempt from ERISA and section 4975
of the Code but that may be subject to state law requirements) in light of
their particular circumstances.

The discussion is based on current provisions of ERISA and the Code,
existing and currently proposed regulations under ERISA and the Code, the
legislative history of ERISA and the Code, existing administrative rulings of
the Department of Labor ("DOL") and reported judicial decisions. No assurance
can be given that legislative, judicial, or administrative changes will not
affect the accuracy of any statements herein with respect to transactions
entered into or contemplated prior to the effective date of such changes.

A FIDUCIARY MAKING THE DECISION TO INVEST IN THE COMMON SHARES ON BEHALF OF
A PROSPECTIVE PURCHASER THAT IS AN EMPLOYEE BENEFIT PLAN, A TAX-QUALIFIED
RETIREMENT PLAN, OR AN IRA IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR
REGARDING THE SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE
CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP, OR SALE OF THE
COMMON SHARES BY SUCH PLAN OR IRA.

EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS, AND IRAS

Each fiduciary of a pension, profit-sharing, or other employee benefit plan
(an "ERISA Plan") subject to Title I of ERISA should consider carefully
whether an investment in the Common Shares is consistent with his fiduciary
responsibilities under ERISA. In particular, the fiduciary requirements of
Part 4 of Title I of ERISA require a ERISA Plan's investments to be (i)
prudent and in the best interests of the ERISA Plan, its participants, and its
beneficiaries, (ii) diversified in order to minimize the risk of large losses,
unless it is clearly prudent not to do so, and (iii) authorized under the
terms of the ERISA Plan's governing documents (provided the documents are
consistent with ERISA). In determining whether an investment in the Common
Shares is prudent for purposes of ERISA, the appropriate fiduciary of a ERISA
Plan should consider all of the facts and circumstances, including whether the
investment is reasonably designed, as a part of the ERISA Plan's portfolio for
which the fiduciary has investment responsibility, to meet the objectives of
the ERISA Plan, taking into consideration the risk of loss and opportunity for
gain (or other return) from the investment, the diversification, cash flow,
and funding requirements of the ERISA Plan's portfolio. A fiduciary also
should take into account the nature of the Company's business, the management
of the Company, the length of the Company's operating history, the fact that
certain investment properties may not have been identified yet, and the
possibility of the recognition of UBTI.

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The fiduciary of an IRA or of a qualified retirement plan not subject to
Title I of ERISA because it is a governmental or church plan or because it
does not cover common law employees (a "Non-ERISA Plan") should consider that
such an IRA or Non-ERISA Plan may only make investments that are authorized by
the appropriate governing documents and under applicable state law.

Fiduciaries of ERISA Plans and persons making the investment decision for an
IRA or other Non-ERISA Plan should consider the application of the prohibited
transaction provisions of ERISA and the Code in making their investment
decision. A "party in interest" or "disqualified person" with respect to an
ERISA Plan or with respect to a Non-ERISA Plan or IRA subject to Code section
4975 is subject to (i) an initial 5% excise tax on the amount involved in any
prohibited transaction involving the assets of the plan or IRA and (ii) an
excise tax equal to 100% of the amount involved if any prohibited transaction
is not corrected. If the disqualified person who engages in the transaction is
the individual on behalf of whom an IRA is maintained (or his beneficiary),
the IRA will lose its tax-exempt status and its assets will be deemed to have
been distributed to such individual in a taxable distribution (and no excise
tax will be imposed) on account of the prohibited transaction. In addition, a
fiduciary who permits an ERISA Plan to engage in a transaction that the
fiduciary knows or should know is a prohibited transaction may be liable to
the ERISA Plan for any loss the ERISA Plan incurs as a result of the
transaction or for any profits earned by the fiduciary in the transaction.

STATUS OF THE COMPANY AND THE PARTNERSHIP (AND THE SUBSIDIARY PARTNERSHIPS)
UNDER ERISA

The following section discusses certain principles that apply in determining
whether the fiduciary requirements of ERISA and the prohibited transaction
provisions of ERISA and the Code apply to an entity because one or more
investors in the equity interests in the entity is an ERISA Plan or is a Non-
ERISA Plan or IRA subject to section 4975 of the Code. An ERISA Plan fiduciary
also should consider the relevance of those principles to ERISA's prohibition
on improper delegation of control over or responsibility for "plan assets" and
ERISA's imposition of co-fiduciary liability on a fiduciary who participates
in, permits (by action or inaction) the occurrence of, or fails to remedy a
known breach by another fiduciary.

If the assets of the Company are deemed to be "plan assets" under ERISA, (i)
the prudence standards and other provisions of Part 4 of Title I of ERISA
would be applicable to any transactions involving the Company's assets, (ii)
persons who exercise any authority over the Company's assets, or who provide
investment advice to the Company, would (for purposes of the fiduciary
responsibility provisions of ERISA) be fiduciaries of each ERISA Plan that
acquires Common Shares, and transactions involving the Company's assets
undertaken at their direction or pursuant to their advice might violate their
fiduciary responsibilities under ERISA, especially with regard to conflicts of
interest, (iii) a fiduciary exercising his investment discretion over the
assets of an ERISA Plan to cause it to acquire or hold the Common Shares could
be liable under Part 4 of Title I of ERISA for transactions entered into by
the Company that do not conform to ERISA standards of prudence and fiduciary
responsibility, and (iv) certain transactions that the Company might enter
into in the ordinary course of its business and operations might constitute
"prohibited transactions" under ERISA and the Code.

Regulations of the DOL defining "plan assets" (the "Plan Asset Regulations")
generally provide that when an ERISA Plan or Non-ERISA Plan or IRA acquires a
security that is an equity interest in an entity and the security is neither a
"publicly-offered security" nor a security issued by an investment company
registered under the Investment Company Act of 1940, the ERISA or Non-ERISA
Plan's or IRA's assets include both the equity interest and an undivided
interest in each of the underlying assets of the issuer of such equity
interest, unless one or more exceptions specified in the Plan Asset
Regulations are satisfied.

The Plan Asset Regulations define a publicly-offered security as a security
that is "widely-held," "freely transferable," and either part of a class of
securities registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or sold pursuant to an effective registration statement
under the Securities Act (provided the securities are registered under the
Exchange Act within 120 days after the end of the fiscal year of the issuer
during which the offering occurred). The Common Shares are being sold in an
offering registered under the Securities Act and will be registered under the
Exchange Act. The Plan Asset Regulations provide that a

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security is "widely held" only if it is part of a class of securities that is
owned by 100 or more investors independent of the issuer and of one another. A
security will not fail to be widely held because the number of independent
investors falls below 100 subsequent to the initial public offering as a
result of events beyond the issuer's control. The Company anticipates that
upon completion of the Offering, the Common Shares will be "widely held."

The Plan Asset Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The Plan Asset Regulations further provide
that where a security is part of an offering in which the minimum investment
is $10,000 or less (as is the case with this Offering), certain restrictions
ordinarily will not, alone or in combination, affect a finding that such
securities are freely transferable. The restrictions on transfer enumerated in
the Plan Asset Regulations as not affecting that finding include: (i) any
restriction on or prohibition against any transfer or assignment that would
result in the termination or reclassification of an entity for federal or
state tax purposes, or that otherwise would violate any federal or state law
or court order, (ii) any requirement that advance notice of a transfer or
assignment be given to the issuer, (iii) any administrative procedure that
establishes an effective date, or an event (such as completion of an
offering), prior to which a transfer or assignment will not be effective, and
(iv) any limitation or restriction on transfer or assignment that is not
imposed by the issuer or a person acting on behalf of the issuer. The Company
believes that the restrictions imposed under the Declaration of Trust on the
transfer of the Company's shares of beneficial interest will not result in the
failure of the Common Shares to be "freely transferable." The Company also is
not aware of any other facts or circumstances limiting the transferability of
the Common Shares that are not enumerated in the Plan Asset Regulations as
those not affecting free transferability, and the Company does not intend to
impose in the future (or to permit any person to impose on its behalf) any
limitations or restrictions on transfer that would not be among the enumerated
permissible limitations or restrictions. The Plan Asset Regulations only
establish a presumption in favor of a finding of free transferability, and no
assurance can be given that the DOL or the Treasury Department will not reach
a contrary conclusion.

Assuming that the Common Shares will be "widely held" and that no other
facts and circumstances other than those referred to in the preceding
paragraph exist that restrict transferability of the Common Shares, the Common
Shares should be publicly offered securities and the assets of the Company
should not be deemed to be "plan assets" of any ERISA Plan, IRA, or Non-ERISA
Plan that invests in the Common Shares.

The Plan Asset Regulations also will apply in determining whether the assets
of the Operating Partnership (and the Subsidiary Partnerships) will be deemed
to be "plan assets." The partnership interests in the Operating Partnership
and the Subsidiary Partnerships will not be publicly-offered securities.
Nevertheless, if the Common Shares constitute publicly-offered securities, the
indirect investment in the Partnership and the Subsidiary Partnerships by
ERISA Plans, IRAs, or Non-ERISA Plans subject to section 4975 of the Code
through their ownership of Common Shares will not cause the assets of the
Operating Partnership or the Subsidiary Partnerships to be treated as "plan
assets" of such shareholders.

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UNDERWRITING

Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), for whom Lehman Brothers Inc.,
Alex. Brown & Sons Incorporated, A.G. Edwards & Sons, Inc., Prudential
Securities Incorporated, Smith Barney Inc., Principal Financial Securities,
Inc. and Raymond James & Associates, Inc. are acting as representatives (the
"Representatives"), and each of the Underwriters has severally agreed to
purchase, the respective number of Common Shares set forth below opposite
their respective names.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ----------
<S> <C>
Lehman Brothers Inc. ............................................ 1,679,290
Alex. Brown & Sons Incorporated.................................. 1,679,285
A. G. Edwards & Sons, Inc. ...................................... 1,679,285
Prudential Securities Incorporated............................... 1,679,285
Smith Barney Inc. ............................................... 1,679,285
Principal Financial Securities, Inc. ............................ 1,679,285
Raymond James & Associates, Inc. ................................ 1,679,285
Bear, Stearns & Co. Inc. ........................................ 215,000
CS First Boston Corporation...................................... 215,000
Dean Witter Reynolds Inc. ....................................... 215,000
Donaldson, Lufkin & Jenrette Securities Corporation.............. 215,000
EVEREN Securities, Inc. ......................................... 215,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated............... 215,000
Oppenheimer & Co., Inc. ......................................... 215,000
Paine Webber Incorporated........................................ 215,000
Salomon Brothers Inc............................................. 215,000
Advest, Inc. .................................................... 110,000
J.C. Bradford & Co. ............................................. 110,000
Branch, Cabell and Company....................................... 110,000
Crowell, Weedon & Co. ........................................... 110,000
Fahnestock & Co. Inc. ........................................... 110,000
First of Michigan Corporation.................................... 110,000
First Southwest Company.......................................... 110,000
Friedman, Billings, Ramsey & Co., Inc. .......................... 110,000
Genesis Merchant Group Securities................................ 110,000
Edward D. Jones & Co. ........................................... 110,000
Legg Mason Wood Walker, Incorporated............................. 110,000
McDonald & Company Securities, Inc. ............................. 110,000
Pennsylvania Merchant Group Ltd. ................................ 110,000
Piper Jaffray Inc. .............................................. 110,000
Rauscher Pierce Refsnes, Inc. ................................... 110,000
The Robinson-Humphrey Company, Inc. ............................. 110,000
Scott & Stringfellow, Inc. ...................................... 110,000
Southwest Securities Inc. ....................................... 110,000
Stifel, Nicolaus & Company, Incorporated......................... 110,000
Sutro & Co. Incorporated......................................... 110,000
Wheat, First-Securities, Inc. ................................... 110,000
----------
Total........................................................ 16,000,000
==========
</TABLE>

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The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the Common Shares are subject to certain conditions precedent and
that if any of the foregoing Common Shares are purchased by the Underwriters
pursuant to the Underwriting Agreement, all such Common Shares must be so
purchased.

The Company has been advised by the Underwriters that they propose to offer
the Common Shares directly to the public at the initial public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
public offering price less a concession not in excess of $.78 per share. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $.10 per share to certain other underwriters or to certain other
brokers or dealers. After the initial public offering, the public offering
price, the concession to selected dealers and the reallowance to other dealers
may be changed by the Representatives.

The Company has granted to the Underwriters an option to purchase up to an
additional 2,400,000 Common Shares at the initial public offering price less
underwriting discounts and commissions, solely to cover overallotments, if
any. The Underwriters may exercise this option at any time up to 30 days after
the date of this Prospectus. To the extent that the Underwriters exercise this
option, each of the Underwriters will be obligated, subject to certain
conditions, to purchase a number of additional Common Shares proportionate to
such Underwriter's initial commitment reflected in the foregoing table.

The Company has agreed that it will not, without the prior written consent
of Lehman Brothers Inc., offer for sale, contract to sell, sell or otherwise
dispose of, directly or indirectly, any Common Shares (other than shares
offered hereby, shares issued pursuant to the 1996 Share Incentive Plan and
any Units or Common Shares that may be issued in connection with any
acquisition of a property), or sell or grant options, rights or warrants with
respect to any Common Shares (other than the grant of options pursuant to the
1996 Share Incentive Plan), for a period of six months after the consummation
of the Offering. Each of the officers, Trustees and affiliates of the Company
who have acquired Units in connection with the organization of the Company and
the Formation Transactions has entered into agreements with the Underwriters
providing that, subject to certain exceptions, such holders of Units will not
sell any Units prior to the second anniversary of the Closing Date, without
the consent of the Company and Lehman Brothers Inc. Each of the Continuing
Investors (The American Airlines, Inc. Master Fixed Benefit Trust, the
Ameritech Pension Trust and the Public Employee Retirement System of Idaho)
has agreed that, subject to certain exceptions, it will not sell any Common
Shares prior to the first anniversary of the Closing Date. The Company has
agreed that it will place directly with the Continuing Investors 1,888,200
Common Shares (representing an investment of approximately $37.8 million based
on the Offering Price) in exchange for a portion of their interests in the
Operating Partnership.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.

The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Prior to the Offering, there has been no public market for the Common
Shares. Consequently, the Offering Price was determined by negotiations among
the Company and the Representatives. Among the principal factors considered in
such negotiations were prevailing market and general economic conditions,
dividend yields and Funds from Operations multiples of comparable publicly
traded REITs, the revenues and earnings of the Company in recent periods, the
current financial position of the Company and estimates of the business
potential and earnings prospects of the Company. Additionally, consideration
was given to the general status of the securities market, the market
conditions for new issues of securities and the demand for securities of
comparable companies at the times the offerings are made.

Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment
banking services for the Company, for which customary compensation has been
received. The Company will pay an advisory fee equal to 0.5% of the gross
proceeds of the Offering

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(including any exercise of the Underwriters' overallotment option) to Lehman
Brothers Inc. for advisory services in connection with the evaluation,
analysis and structuring of the Company's formation as a REIT. In connection
with the Offering, (i) affiliates of Lehman Brothers Inc. will receive $54.0
million of the net proceeds as consideration for the sale of such affiliates'
interests in certain of the Properties to the Company in the Formation
Transactions, (ii) an affiliate of Lehman Brothers Inc. will be repaid
mortgage loans in the principal amount of approximately $64.5 million made by
it to certain affiliates of the Company prior to the Offering and (iii) an
affiliate of Lehman Brothers Inc. has delivered commitments to make two
mortgage loans available to the Company in the aggregate principal amount of
$56.2 million. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

Although the Conduct Rules of the National Association of Securities
Dealers, Inc. exempt REITs from the conflict of interest provisions thereof,
because affiliates of Lehman Brothers Inc. will receive more than 10% of the
net proceeds of the Offering as consideration for the sale of interests in
certain of the properties and in repayment of currently outstanding
indebtedness, the Underwriters have determined to conduct the Offering in
accordance with the applicable provisions of Rule 2720 of the Conduct Rules.
In accordance with these requirements, A.G. Edwards & Sons, Inc. (the
"Independent Underwriter") is assuming the responsibilities of acting as
"qualified independent underwriter," and will recommend the maximum initial
public offering price for the Common Shares in compliance with the
requirements of the Conduct Rules. In connection with the Offering, the
Independent Underwriter is performing due diligence investigations and is
reviewing and participating in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. The initial
public offering price of the Common Shares will be no higher than the price
recommended by the Independent Underwriter.

Principal Mutual Life Insurance Company ("Principal Mutual"), an affiliate
of Principal Financial Securities, Inc., will receive approximately $18.4
million of the net proceeds of the Offering as consideration for the sale of
Principal Mutual's interests in two Properties in the Formation Transactions.
In addition, as of June 30, 1996 Principal Mutual occupied approximately 6,650
square feet of the Company's One Northwestern Plaza Property in Southfield,
Michigan (approximately 2.8% of the net rentable square feet) pursuant to
leases which expire June 30, 1997. Total annual base rent under Principal
Mutual's leases was approximately $147,533 as of June 30, 1996. As of June 30,
1996, The Prudential Insurance Company of America occupied approximately
11,470 square feet of One Northwestern Plaza (approximately 4.7% of the net
rentable square feet) pursuant to a lease which expires December 31, 1996.
Total annual base rent under The Prudential Insurance Company of America's
lease was approximately $270,533 as of June 30, 1996.

The Common Shares have been approved for listing on the NYSE under the
symbol "PP," subject to official notice of issuance.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Hunton &
Williams, Richmond, Virginia and for the Underwriters by Rogers & Wells, New
York, New York. Hunton & Williams and Rogers & Wells will rely on Ballard
Spahr Andrews & Ingersoll, Baltimore, Maryland as to certain matters of
Maryland law.

EXPERTS

The balance sheet of Prentiss Properties Trust as of July 12, 1996, the
combined balance sheets of the Predecessor Company as of December 31, 1995 and
1994, and the related combined statements of income, owners' equity, and cash
flows for each of the three years in the period ended December 31, 1995 and
the financial statement schedule, the combined statements of revenues and
certain operating expenses of the Prentiss Group Acquisition Properties for
each of the three years in the period ended December 31, 1995, the combined

151
<PAGE>

statements of revenues and certain operating expenses of the Other Acquisition
Properties for the year ended December 31, 1995, and the statement of revenues
and certain operating expenses of Bachman Creek and Park West E1 and E2
Properties for the year ended December 31, 1995, as listed on the Index to
Financial Statements on page F-1, included in this Prospectus, have been
included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. The description of Texas franchise tax matters set
forth in the Prospectus under the heading "Federal Income Tax Considerations--
Other Tax Consequences" is based upon the opinion of Coopers & Lybrand L.L.P.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-11 under the Securities Act and the rules and regulations promulgated
thereunder, with respect to the Common Shares offered pursuant to this
Prospectus. This Prospectus, which is part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits and financial statement schedules thereto. For further
information with respect to the Company and the Common Shares, reference is
made to the Registration Statement and such exhibits and financial statement
schedules, copies of which may be examined without charge at or obtained upon
payment of prescribed fees from, the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and will also be available for inspection and copying at the regional offices
of the Commission located at 13th Floor, 7 World Trade Center, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. The Commission maintains a Website at http:/www.sec.gov, and
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission (including the
Company) can be obtained from that site.

Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement
are not necessarily complete, and each such statement is qualified in its
entirety by reference to the full text of such contract or document.

The Company will be required to file reports and other information with the
Commission pursuant to the Securities Exchange Act of 1934. In addition to
applicable legal or NYSE requirements, if any, holders of Common Shares will
receive annual reports containing audited financial statements with a report
thereon by the Company's independent certified public accounts, and quarterly
reports containing unaudited financial information for each of the first three
quarters of each fiscal year.

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<PAGE>

GLOSSARY

Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus.

"401(k) Plan" means the Employee Savings Plan & Trust of PPL that will be
assumed and continued by the Company.

"5/50 Rule" means not more than 50% in value of the outstanding shares is
owned, directly or indirectly, by five or fewer individuals during the last
half of each taxable year.

"90% Passive-Type Income Exception" means that a publicly traded partnership
will be treated as a corporation for federal income tax purposes unless at
least 90% of such partnership's income for a taxable year consists of certain
passive-type income.

"ACMs" means asbestos-containing materials.

"ADA" means the Americans with Disabilities Act of 1990.

"ADS" means the alternative depreciation system of depreciation.

"Affiliate" means (i) any person that, directly or indirectly, controls or
is controlled by or is under common control with such person, (ii) any other
person that owns, beneficially, directly or indirectly, five percent (5%) or
more of the outstanding capital stock, shares or equity interests of such
person, or (iii) any officer, director, employee, partner or trustee of such
person or any person controlling, controlled by or under common control with
such person (excluding trustees and persons serving in similar capacities who
are not otherwise an Affiliate of such person). The term "person" means and
includes individuals, corporations, general and limited partnerships, stock
companies or associations, joint ventures, associations, companies, trusts,
banks, trust companies, land trusts, business trusts, or other entities and
governments and agencies and political subdivisions thereof. For the purposes
of this definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests.

"Anti-Abuse Rule" means a final regulation issued by the United States
Treasury Department under the Partnership Provisions that authorizes the
Service, in certain "abusive" transactions involving partnerships, to
disregard the form of the transaction and recast it for federal tax purposes
as the Service deems appropriate.

"Beneficiary" means the beneficiary of the Share Trust.

"Broadmoor Austin Partnership" means the partnership owning the Broadmoor
Austin Property in which the Company owns a 49.9% interest.

"BWI Corridor" means the Baltimore/Washington Industrial Corridor.

"Bylaws" means the Company's Bylaws.

"Cadillac Fairview" means The Cadillac Fairview Corporate Limited and its
subsidiaries, including Corporate Limited Urban Development.

"CBD" means Central Business District.

"Chicago Industrial Buildings" means the four industrial buildings located
in Chicago, Illinois as to which the Company will have options to acquire
after the completion of the Formation Transactions.

G-1
<PAGE>

"Closing Date" means the date of the closing of the Offering.

"Closing Price" means the last sale price, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange or, if the Common or Preferred Shares
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Common or Preferred Shares are listed or admitted to trading or, if
the Common or Preferred Shares are not listed or admitted to trading on any
national securities exchange, the last quoted price, or if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Common or
Preferred Shares are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Common or Preferred Shares selected by the Board of
Trustees.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the Securities and Exchange Commission.

"Common Shares" means common shares of beneficial interest, $.01 par value
per share, of the Company.

"Company" means Prentiss Properties Trust and, where applicable, its
subsidiaries on a consolidated basis.

"Company Expenses" means administrative costs and expenses of the Company
and the General Partner.

"Compensation Committee" means the committee comprised of two or more of the
Independent Trustees established by the Board of Trustees to determine
compensation for the Company's executive officers and to implement the
Company's 1996 Share Incentive Plan.

"Competitive Activities" means engaging in, directly or indirectly, the
acquisition, development, construction, operation, management or leasing of
any office or industrial real estate property anywhere in the U.S. that the
Company conducts its affairs.

"Continuing Investors" means The American Airlines, Inc. Master Fixed
Benefit Trust, the Ameritech Pension Trust and the Public Employee Retirement
System of Idaho each of whom will receive Common Shares in the Formation
Transactions in exchange for a portion their limited partnership interests in
the Operating Partnership.

"Control Share Acquisition" means the acquisition of Control Shares, subject
to certain exceptions.

"Control Shares" means shares of beneficial interest that, if aggregated
with all other such shares of beneficial interest of the Company previously
acquired by the acquiror, would entitle the acquiror to exercise voting power
in electing trustees within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less
than a majority, or (iii) a majority of all voting power, but does not include
shares which the acquiring person is then entitled to vote as a result of
having previously obtained shareholder approval.

"Debt Limitation" means the limitation on indebtedness that the Company
intends to maintain by limiting the Company's total combined indebtedness plus
its pro rata share of Joint Venture Debt to 50% of the Company's Total Market
Capitalization.

"Declaration of Trust" means the amended and restated Declaration of Trust
of the Company.

"Development Parcels" means the six parcels of land owned by the Company
that are adjacent to certain of the Properties.

G-2
<PAGE>

"DFW Airport" means Dallas-Fort Worth International Airport.

"Dow" means the Dow Chemical Corporation.

"Dr. Pepper/Cadbury" means Dr. Pepper/Cadbury North American.

"EPA" means the United States Environmental Protection Agency.

"ESAs" means the Phase I environmental site assessments obtained by the
Company on all of the Properties prior to the closing of the Offering.

"Exchange Rights" means the right of Limited Partners to exchange all or a
portion of their units for Common Shares on a one-for-one basis pursuant to
the terms of the Operating Partnership Agreement.

"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.

"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.

"Formation Transactions" means principal transactions in connection with the
formation of the Company and the acquisition of interests in the Properties by
the Operating Partnership.

"General Partner" means Prentiss Properties I, Inc., as general partner of
the Operating Partnership.

"HCC" means Hoechst Celanese Corporation.

"IBM" means International Business Machines Corporation.

"Independent Trustees" means a trustee of the Company that is not an officer
or employee of the Company, any affiliate of an officer or employee or any
affiliate of (i) any advisor to the Company under an advisory agreement, (ii)
any lessee of any property of the Company, (iii) any subsidiary of the Company
or (iv) any partnership that is an affiliate of the Company.

"Industrial Properties" means the 59 industrial buildings that the Company
will own after the completion of the Formation Transactions.

"Interested Shareholder" means a beneficial owner of ten percent or more of
the voting power of the then outstanding voting shares of beneficial interest
of a trust or an affiliate thereof.

"ISO" means share options of the Company that qualify as incentive share
options.

"Joint Venture Debt" means indebtedness of unconsolidated investments.

"Lease" means a lease of real property to which the Company is a party.

"Lehman" means Lehman Brothers Inc.

"LIBOR" means the London Interbank Offered Rate.

"Limited Partners" means the limited partners of the Operating Partnership
after the completion of the Formation Transactions.

"Line of Credit" means the $100 million line of credit that the Company
intends to obtain simultaneously with the closing of the Offering.

"MACRS" means the modified accelerated cost recovery system of depreciation.

"Manager" means Prentiss Properties Run Deep, Inc. and certain affiliates in
which an entity controlled by Michael V. Prentiss owns 100% of the voting
stock (representing five percent of the equity) and the Operating Partnership
owns 100% of the non-voting stock (representing 95% of the equity).

G-3
<PAGE>

"Market Price" means the average of the Closing Price for the five
consecutive Trading Days.

"Maryland REIT Law" means Title 8 of the Corporations and Associations
Article of the Annotated Code of Maryland, as amended.

"Medaphis" means the Mephasis Corporation.

"MGCL" means the Maryland General Corporation Law, as amended.

"Milwaukee Affected Areas" means the land on two Industrial Properties and a
Development Parcel in Milwaukee, Wisconsin on which lead-contaminated soil has
been found.

"Mortgage Debt" means the approximately $136.1 million of indebtedness
secured by 34 Properties that the Company will have outstanding after the
closing of the Offering.

"NAREIT" means National Association of Real Estate Investment Trusts, Inc.

"Non-U.S. Shareholders" means nonresident alien individuals, foreign
corporations, foreign partnerships and other foreign shareholders.

"Noncompetition Period" means the period set forth in employment and
noncompetition agreements with Michael V. Prentiss and Thomas F. August during
which Messrs. Prentiss and August are prohibited from engaging, directly or
indirectly, in any Competitive Activities.

"NPL" means the National Priorities List of Superfund sites.

"NQSO" means share options of the Company that do not qualify as incentive
share options.

"NYSE" means the New York Stock Exchange.

"Offering" means the offering of Common Shares hereby.

"Offering Price" means $20.00.

"Office Properties" means the 28 office buildings that the Company will own
after the completion of the Formation Transactions.

"Operating Partnership" means Prentiss Properties Acquisition Partners, L.P.

"Operating Partnership Agreement" means the partnership agreement of the
Operating Partnership.

"Options" means the Option Properties and the Option Parcels.

"Option Parcels" means the eight development parcels in which the Company
has certain options to acquire interests.

"Option Properties" means the three office buildings and four industrial
buildings in which the Company has options to acquire interests.

"Ownership Limitation" means the ownership of more than 8.5% of the number
of the outstanding Common Shares or 9.8% of the number of outstanding
Preferred Shares, except for Michael V. Prentiss, who may own initially no
more than 15% of the number of such outstanding shares or 9.8% of the number
of outstanding Preferred Shares of any series of Preferred Shares.

"Partnership" means each of the Operating Partnership and the Noncorporate
Subsidiaries.

"Partnership Provisions" means partnership provisions of the Code.

"PCIG" means Prentiss/Copley Investment Group.

"PGC" means the Pacific Gateway Center, an industrial complex containing 18
Industrial Properties.

"Plant Site" means the former synthetic rubber manufacturing plant owned by
the United States government located at the Plant Site.

G-4
<PAGE>

"Plant Site Affected Area" means the area south of the Plant Site on which
wastes from the Operation of the Plant was disposed.

"PMSA" means Primary Metropolitan Statistical Area.

"PPL" means Prentiss Properties Limited, Inc.

"Predecessor Company" means (i) 100% of the assets and results of operations
from 47 Properties for the periods presented, (ii) 100% of the assets and
results of operations of the 3141 Fairview Park Drive Property for the portion
of the periods after a Prentiss Group member acquired the Property, (iii)
49.9% of the assets and results of operations of the Broadmoor Austin
Properties; (iv) 15% of the assets and results of operations from the Park
West Property for the portion of the periods in which the Prentiss Group owned
a non-controlling interest, and (v) results of operations of the Prentiss
Properties Service Businesses conducted primarily by PPL in the periods
presented.

"Preferred Shares" means the preferred shares of beneficial interest, $.01
par value per share, of the Company.

"Prentiss Group" means Prentiss Properties Limited, Inc., the companies and
partnerships affiliated with PPL and the Prentiss Principals and their
affiliates.

"Prentiss Principals" means Michael V. Prentiss, Thomas F. August, Dennis J.
DuBois and Richard B. Bradshaw, Jr.

"Prentiss Properties Service Business" means PPL's office and industrial
property management, leasing, development and construction businesses that the
Company will acquire in the Formation Transactions.

"Private Placement Exclusion" means the safe harbor from the definition of a
publicly traded partnership as provided for in the PTP Regulations.

"Prohibited Owner" means the record holder of the Common or Preferred Shares
that are designated as Shares-in-Trust.

"Properties" means, collectively, the Industrial Properties and the Office
Properties.

"PTP Regulations" means regulations recently issued by the United States
Treasury Department effective for taxable years beginning after December 31,
1995 that provide limited safe harbors from the definition of a publicly
traded partnership.

"Purchase Agreement" means the purchase agreement whereby the Company has
agreed to sell to the Underwriters, and each of the Underwriters has severally
agreed to purchase, a certain number of Common Shares as set forth therein.

"REIT" means real estate investment trust.

"Related Party Tenant" means the Company, or an owner of 10% or more of the
Company, directly or constructively owns 10% or more of a tenant.

"Rent" means rent received by the Company from its tenants.

"Restricted Shares" means restricted Common Shares of the Company.

"Rule 144" means Rule 144 promulgated under the Securities Act.

G-5
<PAGE>

"Securities Act" means the Securities Act of 1933, as amended.

"Service" means the U.S. Internal Revenue Service.

"Share Trust" means a trust which holds Common or Preferred Shares of the
Company which have been designated as Shares-in-Trust.

"Shares-in-Trust" means Common or Preferred Shares which are transferred
automatically to the Share Trust.

"Shell" means the Shell Oil Company.

"Study Area" means the area south of the Plant Site Affected Area in which
the contamination of ground water has been found.

"Termination Fee Note" means the promissory note from a Prentiss Group
affiliate to PPL which is paid with the proceeds of sales of properties owned
by the affiliate.

"Total Market Capitalization" means the Company's combined equity market
capitalization plus its combined indebtedness and its pro rata share of Joint
Venture Debt.

"Trading Day" means a day on which the principal national securities
exchange on which the Common or Preferred Shares are listed or admitted to
trading is open for the transaction of business or, if the Common or Preferred
Shares are not listed or admitted to trading on any national securities
exchange, shall mean any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by
law or executive order to close.

"Trustees" means trustees of the Company.

"UBTI" means unrelated business taxable income.

"UBTI Percentage" means the percentage of dividends treated as UBTI in
certain circumstances where a pension trust owns more than 10% of the
Company's shares.

"Underwriters" means the Underwriters named in this Prospectus.

"Units" means units of limited partnership interest in the Operating
Partnership.

"UPRC" means Union Pacific Resource Corporation.

"WDNR" means the Wisconsin Department of Natural Resources.

G-6
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Combined Financial Information
Pro Forma Combined Balance Sheet as of June 30, 1996.................... F-2
Pro Forma Combined Statement of Income for the six months ended June 30,
1996................................................................... F-3
Pro Forma Combined Statement of Income for the year ended December 31,
1995................................................................... F-4
Notes and Management's Assumptions to the Pro Forma Combined Financial
Information............................................................ F-5
Prentiss Properties Trust
Report of Independent Accountants....................................... F-20
Balance Sheet as of July 12, 1996....................................... F-21
Notes to Balance Sheet.................................................. F-22
Predecessor Company
Report of Independent Accountants....................................... F-25
Combined Balance Sheets as of June 30, 1996 (unaudited) and as of Decem-
ber 31, 1995 and 1994.................................................. F-26
Combined Statements of Income for the six-month periods ended June 30,
1996 and 1995
(unaudited) and for the years ended December 31, 1995, 1994 and 1993... F-27
Combined Statements of Owners' Equity for the six-month period ended
June 30, 1996 (unaudited) and for the years ended December 31, 1995,
1994 and 1993.......................................................... F-28
Combined Statements of Cash Flows for the six-month periods ended June
30, 1996 and 1995 (unaudited) and for the years ended December 31,
1995, 1994 and 1993.................................................... F-29
Notes to Combined Financial Statements.................................. F-30
Schedule III: Real Estate and Accumulated Depreciation as of December
31, 1995............................................................... F-44
Prentiss Group Acquisition Properties
Report of Independent Accountants....................................... F-46
Combined Statements of Revenues and Certain Operating Expenses for the
six-month periods ended June 30, 1996 and 1995 (unaudited) and for the
years ended December 31, 1995, 1994 and 1993........................... F-47
Notes to Combined Statements of Revenues and Certain Operating Ex-
penses................................................................. F-48
Other Acquisition Properties
Report of Independent Accountants....................................... F-50
Combined Statements of Revenues and Certain Operating Expenses for the
six-month periods ended June 30, 1996 and 1995 (unaudited) and for the
years ended December 31, 1995 and 1994 and 1993 (unaudited)............ F-51
Notes to Combined Statements of Revenues and Certain Operating Ex-
penses................................................................. F-52
Bachman Creek and Park West E1 and E2 Properties
Report of Independent Accountants....................................... F-53
Combined Statements of Revenues and Certain Operating Expenses for the
six-month periods ended June 30, 1996 and 1995 (unaudited) and for the
year ended December 31, 1995........................................... F-54
Notes to Combined Statements of Revenues and Certain Operating Ex-
penses................................................................. F-55
</TABLE>

F-1
<PAGE>

PRENTISS PROPERTIES TRUST

PRO FORMA COMBINED BALANCE SHEET

JUNE 30, 1996

(UNAUDITED)
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 5)
----------------------------------------------------------------------
BACHMAN CREEK,
PARK WEST
THE E1 AND E2 PRENTISS
PRENTISS GROUP AND OTHER PROPERTIES
PREDECESSOR ACQUISITION ACQUISITION THE OTHER TRUST
COMPANY PROPERTIES (A)(I) PROPERTIES (B)(I) OFFERING (C)(I) ADJUSTMENTS (D)(I) PRO FORMA
----------- ----------------- ----------------- --------------- ------------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Real estate............. $173,439 $87,682 $ 90,739 $ -- $ 26,448 $378,308
Less: accumulated
depreciation......... (14,092) -- -- -- -- (14,092)
-------- ------- -------- -------- -------- --------
159,347 87,682 90,739 -- 26,448 364,216
Deferred charges and
other assets, net.... 8,543 -- -- -- (1,117) 7,426
Receivables, net...... 2,605 -- -- -- -- 2,605
Escrowed funds........ 1,810 -- -- -- -- 1,810
Cash and cash
equivalents.......... 1,936 (86,632) (71,439) 294,500 (129,666) 8,699
Investments in limited
partnership and joint
venture.............. 1,050 -- -- -- 19,083 20,133
-------- ------- -------- -------- -------- --------
Total Assets........ $175,291 $ 1,050 $ 19,300 $294,500 $(85,252) $404,889
======== ======= ======== ======== ======== ========
Liabilities and
Shareholders' Equity:
Debt on real estate... $ 68,787 $ -- $ 16,200 $ -- $(18,787) $ 66,200
Accounts payable and
other liabilities.... 4,181 -- -- -- -- 4,181
Amounts due to
affiliates........... 520 -- -- -- -- 520
-------- ------- -------- -------- -------- --------
Total Liabilities... 73,488 -- 16,200 -- (18,787) 70,901
-------- ------- -------- -------- -------- --------
Minority interest....... -- -- -- -- 51,434 51,434
-------- ------- -------- -------- -------- --------
Shareholders' Equity:
Common shares......... -- -- -- 160 19 179
Additional paid-in
capital.............. -- -- -- 294,340 37,745 332,085
Note receivable....... -- -- -- -- 34,750 34,750
Accumulated equity
(deficit) of
continuing
interests............ 101,803 1,050 3,100 -- (190,413) (84,460)
-------- ------- -------- -------- -------- --------
Total Shareholders'
Equity............. 101,803 1,050 3,100 294,500 (117,899) 282,554
-------- ------- -------- -------- -------- --------
Total Liabilities
and Shareholders'
Equity............. $175,291 $ 1,050 $ 19,300 $294,500 $(85,252) $404,889
======== ======= ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-2
<PAGE>

PRENTISS PROPERTIES TRUST

PRO FORMA COMBINED STATEMENT OF INCOME

SIX MONTHS ENDED JUNE 30, 1996

(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 5)
----------------------------------------------------------
BACHMAN CREEK,
THE PARK WEST E1 AND E2 PRENTISS
PRENTISS GROUP AND OTHER PROPERTIES
PREDECESSOR ACQUISITION ACQUISITION OTHER TRUST
COMPANY PROPERTIES (A)(II) PROPERTIES (B)(II) ADJUSTMENTS (D)(II) PRO FORMA
----------- ------------------ ------------------- ------------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......... $ 16,340 $7,688 $7,554 $ 306 $ 31,888
Management fees....... 5,004 -- -- (4,566) 438
Development, leasing,
sales and other
fees................. 5,353 65 10 (4,882) 546
-------- ------ ------ -------- ----------
Total revenues...... 26,697 7,753 7,564 (9,142) 32,872
Expenses:
Property operating and
maintenance.......... 4,872 1,919 2,405 (356) 8,840
Real estate taxes..... 1,709 448 500 37 2,694
General office and
administration....... 2,957 5 -- (1,867) 1,095
Personnel costs, net.. 6,923 -- -- (6,002) 921
Interest expense...... 2,548 -- -- 6 2,554
Interest expense (non-
cash)................ 758 -- -- (615) 143
Depreciation and
amortization......... 3,573 -- -- 2,876 6,449
-------- ------ ------ -------- ----------
Total expenses...... 23,340 2,372 2,905 (5,921) 22,696
Equity in joint
venture and
subsidiary........... 19 -- -- 1,938 1,957
-------- ------ ------ -------- ----------
Income before minority
interest 3,376 5,381 4,659 (1,283) 12,133
Minority interest..... -- -- -- (1,868) (1,868)
-------- ------ ------ -------- ----------
Net income.............. $ 3,376 $5,381 $4,659 $ (3,151) $ 10,265
======== ====== ====== ======== ==========
Net income per share.... $ .66
==========
Weighted average number
of shares outstanding.. 15,632,570
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE>

PRENTISS PROPERTIES TRUST

PRO FORMA COMBINED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31, 1995

(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS (NOTE 6)
---------------------------------------------------
BACHMAN CREEK,
THE PARK WEST E1 AND E2 PRENTISS
PRENTISS GROUP AND OTHER PROPERTIES
PREDECESSOR ACQUISITION ACQUISITION OTHER TRUST
COMPANY PROPERTIES (A) PROPERTIES (B) ADJUSTMENTS (C) PRO FORMA
----------- -------------- -------------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......... $29,423 $17,563 $15,128 $ 610 $ 62,724
Management fees....... 9,979 -- -- (9,021) 958
Development, leasing,
sales and other
fees................. 15,762 36 69 (14,906) 961
------- ------- ------- -------- ----------
Total revenues...... 55,164 17,599 15,197 (23,317) 64,643
Expenses:
Property operating and
maintenance.......... 7,696 5,546 5,120 (791) 17,571
Real estate taxes..... 3,030 912 1,441 73 5,456
General office and
administration....... 6,293 -- -- (4,281) 2,012
Personnel costs, net.. 17,138 -- -- (15,356) 1,782
Interest expense...... 3,783 -- -- 1,325 5,108
Interest expense
(non-cash)........... 99 -- -- 188 287
Depreciation and
amortization......... 7,166 -- -- 5,652 12,818
------- ------- ------- -------- ----------
Total expenses...... 45,205 6,458 6,561 (13,190) 45,034
Equity in joint
venture and
subsidiary........... 11 -- -- 7,296 7,307
------- ------- ------- -------- ----------
Income before minority
interest............... 9,970 11,141 8,636 (2,831) 26,916
Minority interest..... -- -- -- (4,145) (4,145)
------- ------- ------- -------- ----------
Net income.............. $ 9,970 $11,141 $ 8,636 $ (6,976) $ 22,771
======= ======= ======= ======== ==========
Net income per share.... $ 1.46
==========
Weighted average number
of shares outstanding.. 15,632,570
==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION

(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. ORGANIZATION:

Prentiss Properties Trust (the "Company") was organized in the state of
Maryland on July 12, 1996. The Company intends to qualify as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended,
commencing with its taxable year ending December 31, 1996. The Company will
acquire a sole general partnership interest in Prentiss Properties Acquisition
Partners, L.P. (the "Operating Partnership") through the Company's wholly
owned subsidiary Prentiss Properties I, Inc., a Delaware corporation, and will
own an 84.6% limited partnership interest in the Operating Partnership
directly.

The Company has been formed to succeed to substantially all of the interests
of Prentiss Properties Limited, Inc. ("PPL") and its affiliates in (i) a
portfolio of office and industrial properties and (ii) the national
acquisition, property management, leasing, development and construction
businesses of PPL and its affiliates. The acquisition, property management,
leasing, development and construction businesses will be carried out directly
by the Operating Partnership and by the Company's majority-owned affiliates
(the "Manager").

The Company has had no operations to date.

2. FORMATION TRANSACTIONS:

The Offering

The Company has filed a registration statement on Form S-11 with the
Securities and Exchange Commission with respect to the public offering (the
"Offering") of 16,000,000 Common shares (exclusive of 2,400,000 Common shares
subject to the underwriters' over-allotment option and 1,888,200 Common shares
being concurrently sold by the Company to certain limited partners, not
affiliated with the Prentiss Group, for their interests in the Properties, as
defined below) at an estimated initial offering price of $20.00 per share. The
Company will use some of the net proceeds from the Offering to purchase
certain limited partners' interests in the Operating Partnership and will
contribute the remaining net proceeds to the Operating Partnership in exchange
for 17,888,200 partnership units ("Units"), representing an approximate 84.6%
interest, in the Operating Partnership.

The Operating Partnership is an affiliate of the Prentiss Group (as defined
below). The Prentiss Group members who collectively serve as the general
partner of the Operating Partnership will contribute to the Operating
Partnership all of their interests in the Properties (as defined below) and
certain management contracts of PPL (the "Contracts") in exchange for
3,259,763 Units. The acquisition of the various Prentiss Group interests will
be accounted for at their historical cost with any excess paid recorded as a
distribution.

The interests of the limited partners of the Operating Partnership will be
acquired by the Company with Common shares and cash. The limited partners will
receive for their interests, $88,804 in cash and 1,888,200 Common shares for a
total consideration of approximately $126,600 (including certain related
transfer costs estimated to be $691), for their interests. The acquisition of
the limited partners interests will be accounted for using purchase accounting
based on the cash paid and the value of the Common shares issued, resulting in
an incremental increase in the basis of the Predecessor Company's real estate.

The Properties

Upon consummation of the Offering and certain related transactions
(collectively, the "Formation Transactions"), the Company will own 87
properties (the "Properties"), including 28 office and 59 industrial

F-5
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

properties, located in 10 major markets throughout the U.S. and containing 8.9
million net rentable square feet. The Properties consist of the following:

(a) twelve office properties and thirty-five industrial properties
collectively, the Operating Partnership and its subsidiaries. The Operating
Partnership and its subsidiaries will be acquired as described under "The
Offering".

(b) a 49.9% non-controlling interest in seven properties (collectively,
the "Broadmoor Austin office properties"). A 24.9% joint venture interest
in the Broadmoor Austin office properties will be contributed to the
Operating Partnership upon consummation of the Offering by Michael V.
Prentiss, Thomas F. August, Dennis J. DuBois and Richard B. Bradshaw or
entities owned, directly or indirectly, by one or more of such persons
(such individuals and entities being referred to collectively herein as the
"Prentiss Group"), in exchange for Units. An additional 25% interest in the
Broadmoor Austin office properties will be purchased from a third party for
$17,133. The Operating Partnership will have an option to acquire an
additional .1% interest in the Broadmoor Austin office properties after the
Formation Transactions, which would increase the Operating Partnership's
ownership in Broadmoor Austin to 50%. The option may be exercised at any
time one year and one day after the Offering.

(c) the 3141 Fairview Park Drive office property, which will be
contributed to the Operating Partnership by the Prentiss Group in exchange
for Units and $22,583 of net proceeds of the Offering to be used to repay
$22,500 of debt and certain transfer costs (estimated to be $83) of the
Property; the Park West C2 office property, in which a 15% interest will be
contributed to the Operating Partnership by the Prentiss Group in exchange
for Units and of which the remaining 85% will be acquired by the Operating
Partnership with $43,032 of net proceeds; and the 18 industrial properties
comprising Pacific Gateway Center, which will be acquired from an affiliate
of the Prentiss Group upon the closing of the Offering with cash totalling
$43,600.

(d) an additional six industrial properties and seven office properties.
The Park West E1 and E2 office properties will be acquired from an
unaffiliated third party with net proceeds totalling $34,600. The interest
in Bachman Creek will be contributed by the Prentiss Group to the Company
in exchange for Units and the assumption and repayment of debt totalling
$6,527 (inclusive of $27 in closing costs) from an affiliate of Lehman
Brothers Inc. The remaining 10 properties will be acquired from affiliates
of Lehman Brothers Inc. in exchange for $46,512.

The Contracts

The Contracts will be contributed by the Prentiss Group to the Operating
Partnership as described under "The Offering." The Operating Partnership will
contribute the majority of the Contracts to the Manager in exchange for notes
in the aggregate amount of $34,750. The notes bear interest at 13% per year
and have interest only payments for the first three years with a subsequent
10-year amortization. Due to the affiliation of the Manager and the Operating
Partnership, the notes have been classified in Shareholders' equity. Due to
the capital nature of this transaction, interest income and expense amounts
are recorded directly to Shareholders' equity.

The Line of Credit

Concurrent with the consummation of the Offering, the Operating Partnership
intends to enter into a three-year, $100,000 revolving credit facility (the
"Line of Credit") under which the Operating Partnership may borrow to finance
the acquisition of additional properties and for other corporate purposes,
including to obtain additional working capital. The Company anticipates that
borrowings under the Line of Credit will bear interest at LIBOR plus an
additional percentage and will be secured by first mortgage liens on certain
of the Properties and may be secured by other properties acquired by the
Company and will be guaranteed by the Company. The Company expects that an
origination fee of approximately $625 will be paid to obtain the Line of
Credit.

F-6
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

Approximately $100,800 of the net proceeds of the Offering will be used to
repay certain mortgage indebtedness secured by the Properties as set forth in
the table below, including approximately $64,500 which will be repaid to an
affiliate of Lehman Brothers Inc. Concurrent with the Offering, the Company
will obtain mortgage loans with an aggregate principal amount totalling
$56,200 from an affiliate of Lehman Brothers Inc.

Certain information regarding the indebtedness to be repaid is set forth
below:

DEBT TO BE REPAID WITH A PORTION OF OFFERING PROCEEDS

<TABLE>
<CAPTION>
PROPERTY MATURITY DATE INTEREST RATE AMOUNT TO BE REPAID
- ----------------------- ----------------- ------------- -------------------
<S> <C> <C> <C>
Walnut Glen Tower...... January 31, 2001 7.500% $4,479(/1/)
8521 Leesburg Pike..... September 1, 1999 8.500% 5,085(/1/)
Northland Park......... July 1, 1999 8.750% 9,500
North Topping Street... October 1, 2001 8.300% 3,435
Airworld Drive, 107th
Terrace
Nicholson III, 13425... October 1, 2001 8.300% 3,465
Branchview and 1002
Avenue T
Milwaukee Industrial... May 1, 2000 8.125% 10,323
3141 Fairview Park
Drive................. February 21, 1999 LIBOR + 3.50% 22,500(/2/)(/3/)
Bachman Creek.......... September 1, 1997 LIBOR + 1.65% 6,500(/3/)
Park West.............. March 31, 1997 LIBOR + 3.00% 35,517(/3/)
</TABLE>
- --------
(/1/) The amounts to be repaid are based on the actual debt balances as of the
June 30, 1996 balance sheet. The actual amounts that will be repaid will
differ due to amortization of the principal balance of the debt.
(/2/) The amount includes two notes, one with a face amount of $19,000 and a
maturity date of February 21, 1999, and the second with a face amount of
$3,500 and a maturity date of February 21, 1997.
(/3/) Debt to be repaid to an affiliate of Lehman Brothers Inc.

3. BASIS OF PRESENTATION:

The accompanying unaudited pro forma financial information has been prepared
based upon certain pro forma adjustments to the historical combined financial
statements of Prentiss Properties Acquisition Partners, L.P., the operations
of PPL, a 50% equity investment in Austex Associates L.P. ("Austex"), which
holds a 50% interest in the Broadmoor Austin office properties, the accounts
of Fairview Eleven Investors L.P. ("3141 Fairview Park Drive") from February
23, 1996 through June 30, 1996 and a 15% equity investment in Park West C2
Associates ("Park West C2") from September 5, 1995 through June 30, 1996
(collectively, the "Predecessor Company"). The pro forma adjustments reflect
the Offering, the purchase of properties affiliated with the Prentiss Group
(the "Prentiss Group Acquisition Properties"), the Other Acquisition
Properties and other adjustments (for purposes of the pro forma financial
information, Bachman Creek and Park West E1 and E2 are included in the Other
Acquisition Properties).

The pro forma balance sheet of the Company as of June 30, 1996 has been
prepared as if the Formation Transactions, as discussed above, had been
consummated on June 30, 1996. The pro forma statements of income for the six
months ended June 30, 1996 and for the year ended December 31, 1995, have been
prepared as if the Formation Transactions had been consummated at the
beginning of the fiscal year presented or January 1, 1995, and carried forward
through the interim period presented.

F-7
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

Effective September 5, 1995, the Prentiss Group acquired a 15% non-
controlling interest in Park West C2. This investment is accounted for in the
Predecessor Company's combined financial statements under the equity method of
accounting. On February 23, 1996, the Prentiss Group acquired the 3141
Fairview Park Drive property. Subsequent to the acquisition, operations of the
3141 Fairview Park Drive property are reflected in the combined financial
statements of the Predecessor Company.

The Manager has been included in the pro forma financial information under
the equity method of accounting due to the Operating Partnership's ownership
of a non-controlling, non-voting interest.

Information regarding the Prentiss Group Acquisition Properties is presented
separately from the Predecessor Company financial data for those properties
not owned by the Prentiss Group during the periods presented. The Other
Acquisition Properties are presented separately from the Predecessor Company
financial data as the acquisition of such properties will close subsequent to
June 30, 1996, concurrent with the consummation of the Offering.

The unaudited pro forma financial information is not necessarily indicative
of what the actual financial position would have been at June 30, 1996, or
what the actual results of operations would have been for the six months ended
June 30, 1996, or for the year ended December 31, 1995, had the Formation
Transactions been consummated on June 30, 1996, or January 1, 1995 and carried
forward through the interim period presented, nor do they purport to present
the future financial position or results of operations of the Company.

The pro forma financial information should be read in conjunction with the
historical combined financial statements and notes thereto of the Predecessor
Company, the Prentiss Group Acquisition Properties, the Other Acquisition
Properties and the Bachman Creek and Park West E1 and E2 Properties.

4. ASSUMPTIONS:

Certain assumptions regarding the operations of the Company have been made
in connection with the preparation of the pro forma financial information.
These assumptions are as follows:

(a) The pro forma financial information assumes that the Company has
elected to be, and qualified as, a REIT for federal income tax purposes and
has distributed all of its taxable income for the applicable periods, and,
therefore, incurred no federal income tax liabilities.

(b) Rental income has been recognized on a straight-line method of
accounting in accordance with generally accepted accounting principles.

(d) General and administrative expenses historically incurred by the
Properties and the Predecessor Company have been adjusted to reflect the
self-administered structure of the Company and the additional expenses of
being a public company.

(e) The Company will relocate its corporate offices, to a property to be
acquired by the Company concurrent with the offering, resulting in an
approximate pre-tax savings of $300 per year. The relocation is expected to
occur in or around October 1996.

(f) Pro forma net income per share has been calculated using 15,632,570
Common shares as the weighted average number of shares outstanding during
the pro forma period reflecting the issuance of 16,000,000 Common shares to
the public in the Offering, excluding 367,430 shares, the net proceeds from
which are used for capital reserves and working capital of the Company, and
excluding 1,888,200 Common shares to three of the continuing limited
partners (the "Continuing Investors") in the Operating Partnership.

F-8
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

5. PRO FORMA ADJUSTMENTS FOR JUNE 30, 1996:

A. The Prentiss Group Acquisition Properties:

(i) Balance Sheet

The balance sheet reflects the acquisition of the Park West C2 and the
Pacific Gateway Center properties. The purchase price of Park West C2
(including certain related transfer costs estimated to be $82) is $44,082. The
acquisition of Park West C2 will be consummated pursuant to a cash payment of
$43,032 to an affiliate of Lehman Brothers Inc. for its 85% interest in the
property, repayment of debt on the property and related transfer costs, and an
issuance of Units valued at $1,050 for the Prentiss Group's 15% interest in
the property, resulting in an increase in Real estate of $44,082 and an
increase in Accumulated equity (deficit) of continuing interests of $1,050
(see June 30, 1996 Balance Sheet adjustment D(4) for additional information).
The Pacific Gateway Center property will be acquired with cash of $43,600
(including certain related transfer costs estimated to be $225). The 3141
Fairview Park Drive property was purchased by the Prentiss Group in February
1996 and, therefore, is included in the balance sheet of the Predecessor
Company at June 30, 1996. The aggregate purchase price of Park West C2
($44,082) and Pacific Gateway Center ($43,600) is $87,682 and is reflected in
Real estate on the pro forma balance sheet. The aggregate cash paid for Park
West C2 ($43,032) and Pacific Gateway Center ($43,600) is $86,632 and is
reflected in Cash and cash equivalents on the pro forma balance sheet.

(ii) Statement of Income

The statement of income reflects the historical operations of the Prentiss
Group Acquisition Properties. Operations for the 3141 Fairview Park Drive
property are included in the Predecessor Company's combined financial
statements from February 23, 1996 (the date of acquisition by the Prentiss
Group) through June 30, 1996. Operations for this property prior to its
acquisition by the Prentiss Group and the operations of Park West C2 and
Pacific Gateway Center for the six months ended June 30, 1996 are reflected in
the Prentiss Group Acquisition Properties financial information as presented
in the table below:

<TABLE>
<CAPTION>
3141 FAIRVIEW PARK WEST PACIFIC
PARK DRIVE C2 GATEWAY CENTER TOTAL
------------- --------- -------------- ------
<S> <C> <C> <C> <C>
Rental income................... $489 $4,286 $2,913 $7,688
Other income.................... 2 34 29 65
---- ------ ------ ------
Total revenues................ 491 4,320 2,942 7,753
Property operating and
maintenance.................... 215 1,043 661 1,919
Real estate taxes............... 33 325 90 448
Other expenses.................. 1 4 -- 5
---- ------ ------ ------
Total expenses................ 249 1,372 751 2,372
---- ------ ------ ------
Revenues in excess of certain
operating expenses............. $242 $2,948 $2,191 $5,381
==== ====== ====== ======
</TABLE>

The table below presents operations for the 3141 Fairview Park Drive
property, both prior and subsequent to its acquisition by the Prentiss Group.

<TABLE>
<CAPTION>
3141 FAIRVIEW PARK DRIVE
-------------------------------------
OPERATIONS
TOTAL INCLUDED IN
FOR THE OPERATIONS PRENTISS
SIX MONTHS INCLUDED IN GROUP
ENDED PREDECESSOR ACQUISITION
JUNE 30, 1996 COMPANY PROPERTIES
------------- ----------- -----------
<S> <C> <C> <C>
Rental income........................... $1,758 $1,269 $489
Other income............................ 11 9 2
------ ------ ----
Total revenues........................ 1,769 1,278 491
Property operating and maintenance...... 684 469 215
Real estate taxes....................... 128 95 33
Other expenses.......................... 1 -- 1
------ ------ ----
Total expenses........................ 813 564 249
------ ------ ----
Revenues in excess of certain operating
expenses............................... $ 956 $ 714 $242
====== ====== ====
</TABLE>

F-9
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

B. Bachman Creek, Park West E1 and E2 and Other Acquisition Properties:

(i) Balance Sheet

The balance sheet reflects the purchase of the One Northwestern, Cottonwood,
West Loop Business Park, 9050 Junction Drive, Bachman Creek and Park West E1
and E2 properties. The purchase price of these properties (including certain
related transfer costs estimated to be $539) is $90,739. The acquisition of
the properties will be consummated pursuant to a cash payment of $87,639 and
the issuance of $3,100 in Units for the Prentiss Group's equity interest in
Bachman Creek. A portion of the properties will be acquired pursuant to a
$16,200 mortgage loan to be secured by the Park West E1 and E2 properties. The
net cash impact of the $87,639 cash payment and the $16,200 mortgage loan is
$71,439 and is reflected in Cash and cash equivalents on the pro forma balance
sheet.

(ii) Statement of Income

Reliable historical financial information for the West Loop Business Park
properties, to be acquired for $3,261, is not available. Accordingly,
operating results for the Other Acquisition Properties excludes the operations
of the West Loop Business Park properties for all periods presented. The
statement of income reflects the historical operations of One Northwestern,
Cottonwood, 9050 Junction Drive and the Bachman Creek and Park West E1 and E2
properties for the six months ended June 30, 1996 as follows:

<TABLE>
<CAPTION>
BACHMAN CREEK,
SUBTOTAL PARK WEST E1
SUBTOTAL BACHMAN AND E2
OTHER PARK PARK CREEK AND AND OTHER
ONE 9050 ACQUISITION BACHMAN WEST WEST PARK WEST ACQUISITIONS
NORTHWESTERN COTTONWOOD JUNCTION PROPERTIES CREEK E1 E2 E1 AND E2 PROPERTIES
------------ ---------- -------- ----------- ------- ------ ------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income........... $ 2,631 $1,104 $241 $3,976 $742 $1,462 $1,374 $3,578 $7,554
Other income............ 2 1 -- 3 3 2 2 7 10
------- ------ ---- ------ ---- ------ ------ ------ ------
Total revenues........ 2,633 1,105 241 3,979 745 1,464 1,376 3,585 7,564
Property operating and
maintenance............ 711 409 14 1,134 251 496 524 1,271 2,405
Real estate taxes....... 229 204 -- 433 66 -- 1 67 500
------- ------ ---- ------ ---- ------ ------ ------ ------
Total expenses........ 940 613 14 1,567 317 496 525 1,338 2,905
------- ------ ---- ------ ---- ------ ------ ------ ------
Revenues in excess of
certain operating
expenses............... $ 1,693 $ 492 $227 $2,412 $428 $ 968 $ 851 $2,247 $4,659
======= ====== ==== ====== ==== ====== ====== ====== ======
</TABLE>

C. The Offering:

(i) Balance Sheet

Reflects the initial capitalization of the Company and the issuance of
16,000,000 Common shares in connection with the Offering at an assumed initial
public offering price of $20.00 per share. The estimated costs of the
Offering, totalling $25,500 have been reflected as an offset to Additional
paid-in capital. The resulting net proceeds of the Offering total $294,500. An
additional 1,888,200 Common shares will be issued to the Continuing Investors.

F-10
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

D. Other Adjustments:

(i) Balance Sheet

The following Pro Forma Adjustment Summary table summarizes the pro forma
adjustments made in the June 30, 1996 Prentiss Properties Trust Balance Sheet.
The column totals reflect the net adjustments presented in the Balance Sheet
on F-2. The summary below should be read in conjunction with the following
notes.

PRO FORMA ADJUSTMENT SUMMARY
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
INVEST.
DEFERRED CASH & IN LTD. DEBT ON SHARE-
PRO FORMA REAL FINANCING CASH PARTNERSHIP REAL MINORITY HOLDERS'
ADJUSTMENT ESTATE COSTS, NET EQUIV. & JV ESTATE INTEREST EQUITY
----------- ------- ---------- --------- ----------- ------- -------- --------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
5D(i)(1) Purchase of limited
partners' interests..... $26,365 $ (88,804) $ 62,439
5D(i)(2) Transfer costs paid..... 83 (83)
5D(i)(3) Deferred financing
costs, net.............. $(1,117) (725) 1,842
5D(i)(4) Equity investments...... (20,133) $19,083 1,050
5D(i)(5) Mortgage loan repayment,
net..................... (18,787) $18,787
5D(i)(6) Debt prepayment
penalties............... (1,134) 1,134
5D(i)(7) Prentiss Group
ownership............... $(51,434) 51,434
5D(i)(8) Contribution of
contracts............... 0
------- ------- --------- ------- ------- -------- --------
Pro Forma other
adjustments total....... $26,448 $(1,117) $(129,666) $19,083 $18,787 $(51,434) $117,899
======= ======= ========= ======= ======= ======== ========
</TABLE>

(1) Reflects the incremental increase in basis of the Predecessor Company's
Real estate resulting from the purchase of the limited partners' interest of
97.5% in the Operating Partnership. The limited partners will receive $88,804
in cash (including certain of related transfer costs estimated to be $691) for
certain of their interests in the Operating Partnership. The Continuing
Investors will be issued 1,888,200 Common shares, at an estimated offering
price of $20 per share, for their interests. The reduction of the 97.5%
limited partners' interest in the Operating Partnership is derived by
multiplying their ownership interest by the Operating Partnership's historical
equity. The remaining difference represents the incremental increase in basis
of the Predecessor Company's Real estate. The purchase of the limited
partners' interest in the Operating Partnership is reflected in the balance
sheet as follows:

<TABLE>
<CAPTION>
ACCUMULATED
EQUITY TOTAL
ADDITIONAL (DEFICIT) OF SHARE-
REAL COMMON PAID-IN CONTINUING HOLDERS'
CASH ESTATE STOCK CAPITAL INTERESTS EQUITY
-------- ------- ------ ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Cash payment for limited
partners' interest..... $(88,804) -- -- -- -- --
Common shares issued for
Continuing Investors'
interest............... -- -- $(19) $(37,745) -- $(37,764)
Equity of limited part-
ners in Prentiss
Properties Acquisition
Partners, L.P. ........ -- -- -- -- $100,203 100,203
Step-up in basis for ac-
quisition of limited
partners' interest..... -- $26,365 -- -- -- --
-------- ------- --------
$(88,804) $26,365 $ 62,439
======== ======= ========
</TABLE>

(2) Represents the transfer costs paid and the corresponding increase in
basis of the 3141 Fairview Park Drive property totalling $83 in connection
with the contribution of the property by the Prentiss Group concurrent with
the Offering.

F-11
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

(3) Represents the write-off to Shareholders' equity of previously
capitalized deferred financing costs on mortgage loans to be repaid concurrent
with the Offering as well as prepaid offering costs, offset by the
capitalization of a $625 financing fee to be incurred on the Line of Credit
and a $100 financing fee to be incurred on the borrowings from an affiliate of
Lehman Brothers Inc. as follows:

<TABLE>
<S> <C>
Deferred financing costs to be written-off......................... $(1,659)
Prepaid offering costs............................................. (183)
Financing fees to be capitalized................................... 725
-------
Deferred financing costs, net.................................... $(1,117)
=======
</TABLE>

(4) Reflects the net increase in Investments in limited partnership and
joint venture as a result of the acquisition of the remaining 50% interest in
Austex and contribution of working capital to the Manager, net of the pro
forma adjustment to reverse the Prentiss Group's prior equity interest in the
Park West C2 property, which is included in both the Predecessor Company and
Prentiss Group Acquisition Properties as detailed below:

<TABLE>
<S> <C>
Acquisition price for the 50% interest in Austex.................... $17,133
Cash contributed to the Manager by the Operating Partnership........ 3,000
-------
20,133
Adjustment to reverse the equity interest in Park West C2........... (1,050)
-------
Net increase in equity investments................................ $19,083
=======
</TABLE>

(5) Reflects the expected paydown of outstanding mortgage loans of the
Predecessor Company properties in the amount of $58,787 with proceeds from the
Offering, net of the assumption of new debt totalling $40,000 as follows:

<TABLE>
<S> <C>
Walnut Glen....................................................... $ (4,479)
8521 Leesburg Pike................................................ (5,085)
Kansas City Industrials(/1/)...................................... (9,500)
Kansas City/Dallas Industrials(/2/)............................... (6,900)
Milwaukee Industrials............................................. (10,323)
3141 Fairview Park Drive.......................................... (22,500)
--------
Total debt repayment............................................ (58,787)
Debt acquired concurrent with the Offering........................ 40,000
--------
Net mortgage loan repayments.................................... $(18,787)
========
</TABLE>
- --------
(/1/Includes)the Northland Park properties
(/2/Includes)the North Topping Street, Airworld Drive, 107th Terrace,
Nicholson III, 13425 Branchview and 1002 Avenue T properties

(6) Reflects the prepayment penalties on early retirement of mortgage loans
charged directly to pro forma Shareholders' equity:

<TABLE>
<S> <C>
Prepayment penalty on debt repayment of mortgage loan on Walnut
Glen............................................................... $ 134
Prepayment penalty on debt repayment of mortgage loan on Northland
Park............................................................... 456
Prepayment penalty on debt repayment of mortgage loan on other
Kansas City Industrials............................................ 186
Prepayment penalty on debt repayment of mortgage loan on Milwaukee
Industrials........................................................ 358
------
Debt prepayment penalties......................................... $1,134
======
</TABLE>

(7) Represents the equity attributable to Units owned by the Prentiss Group.
The Company, through its wholly owned subsidiary, is the sole general partner
of the Operating Partnership and will own approximately 84.6% of the Operating
Partnership. The Prentiss Group will own in the aggregate 3,259,763 Units,
which will represent an approximate 15.4% minority interest in the Operating
Partnership. The minority interest is reported as the equity of the Operating
Partnership multiplied by the Prentiss Group's ownership percentage in the
Operating Partnership.

F-12
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

(8) The Contracts as described under "The Offering" will be contributed by
the Prentiss Group to the Operating Partnership in exchange for Units. The
Operating Partnership will contribute the majority of the Contracts to the
Manager in exchange for notes in the aggregate amount of $34,750. The notes
bear interest at 13% per year and have interest only payments for the first
three years with a subsequent 10-year amortization. Due to the affiliation of
the Manager and the Operating Partnership, the notes have been classified in
Shareholders' equity and has been accounted for as an increase to Note
receivable and a decrease to Accumulated equity (deficit) of continuing
interest resulting in a net zero effect to Total Shareholders' Equity.

(ii) Statement of Income

The following Pro Forma Adjustment Summary table summarizes the other pro
forma adjustments made in the Prentiss Properties Trust Statement of Income
for the six months ended June 30, 1996. The column totals reflect the net
adjustments presented on the Statement of Income on F-3. The summary below
should be read in conjunction with the following notes.

PRO FORMA ADJUSTMENT SUMMARY
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
PROPERTY REAL GEN PER- INTEREST
PRO FORMA RENTAL MGMT OTHER OPERATING ESTATE OFFICE & SONNEL INTEREST EXPENSE DEPR & INVEST
ADJUSTMENT INCOME FEES FEES & MAINT. TAXES ADMIN COSTS EXPENSE NON-CASH AMORT INCOME
---------- ------ ------- ------- --------- ------ -------- ------- -------- -------- ------ ------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5D(ii)(1) Estimated
operations of
Westloop....... $306 $ 68 $37
5D(ii)(2) Assignment of
contracts...... $(4,183) $(4,081) $(1,638) $(4,997)
5D(ii)(3) Equity
investment
income......... $1,690
5D(ii)(4) Management of
REIT prop...... (383) (383)
5D(ii)(5) Acquisition and
management of
REIT prop...... (41)
5D(ii)(6) Other fees &
recoveries..... (801)
5D(ii)(7) Advisory fees.. (444)
5D(ii)(8) Prop mgmt g&a
and salaries... 182 (828)
5D(ii)(9) Special comp... (177)
5D(ii)(10) Mortgage
interest....... $ 6
5D(ii)(11) Amortization of
deferred
financing
costs.......... $(615)
5D(ii)(12) Depreciation
expense........ $2,876
5D(ii)(13) Consolidation
of Austex...... 33 248
5D(ii)(14) Prentiss Group
ownership......
---- ------- ------- ----- --- ------- ------- --- ----- ------ ------
Pro Forma other
adjustments
total.......... $306 $(4,566) $(4,882) $(356) $37 $(1,867) $(6,002) $ 6 $(615) $2,876 $1,938
==== ======= ======= ===== === ======= ======= === ===== ====== ======
<CAPTION>
MINORITY
INTEREST
---------- ---------
<C>

$(1,868)
---------
$(1,868)
=========
</TABLE>

(1) Represents the estimated operations of the West Loop Business Park
properties to be acquired concurrent with the Offering, including Rental
income of $306, Property operating and maintenance expense of $68 and Real
estate tax expense of $37.

(2) In connection with the Formation Transactions, certain third-party
management contracts will be assigned to the Manager in return for $34,750 in
notes payable to the Operating Partnership. As a result of the assignment,
current operating income, expenses and overhead attributable to the contracts
will be reflected in the operations of the Manager as detailed below:

<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Management fees..................................................... $ 4,183
Other fees and recoveries........................................... 4,081
General and administrative.......................................... (1,638)
Personnel cost, net................................................. (4,997)
-------
Manager contract income........................................... $ 1,629
=======
</TABLE>

F-13
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

In addition to the above, the Manager will benefit from a reduction in
occupancy cost totalling $150, resulting in net income to the Manager of
$1,779.

(3) The Operating Partnership will hold a 95% economic interest in the
Manager and record an equity interest of $1,690 on the $1,779 net income.

(4) Represents the intercompany elimination of Management fee revenues and
expenses (Property operating and maintenance) of $383 as a result of the in-
house management of the Company's properties.

(5) Represents a reduction in property management fee expense (Property
operating and maintenance) of $41 previously paid to a third party. Subsequent
to the Offering, these properties will be owned and managed by the Company.

(6) Reflects a reduction of $801 in recovery revenues, received from
property owners, as a result of certain tax and legal services performed in
the operations of the Predecessor Company that will not be performed by the
Company subsequent to formation.

(7) Reflects the decrease of $444 in fees formerly paid by the Predecessor
Company to an affiliate for acquisition and advisory services performed.

(8) Reflects an increase of $182 and a decrease of $828 in General office
and administration expense and Personnel costs, net, respectively. The
increase in General office and administration results from an adjustment to
reflect the estimated additional costs of operating as a public company, net
of a reduction in costs primarily attributable to certain tax and legal
services performed historically that will not be performed by the Company
subsequent to formation. The decrease in Personnel costs, net, results from a
reduction in base salary to be earned by the Prentiss Principals subsequent to
formation as well as a reduction in salary expense resulting from the tax and
legal services that will not be performed by the Company subsequent to
formation:

<TABLE>
<CAPTION>
GENERAL OFFICE
AND PERSONNEL
ADMINISTRATION COST
-------------- ---------
<S> <C> <C>
Increase due to public company expenses........... $ 425 --
(Decrease) in Prentiss Principals salaries........ -- $(400)
(Decrease) in other Personnel costs............... -- (428)
(Decrease) in other General office and administra-
tion expense..................................... (243) --
----- ------
Net Increase (decrease) in expenses............. $ 182 $ (828)
===== ======
</TABLE>

(9) Reflects the decrease of $177 in compensation paid to the Prentiss
Principals. As a privately held company, PPL distributed a portion of
quarterly cash flow, in the form of compensation, to the Prentiss Principals.
Subsequent to the Offering, this compensation will no longer be paid.

(10) Reflects the net increase in Interest expense as a result of the
assumption of debt in connection with the acquisition of certain properties,
less a decrease in Interest expense as a result of the repayment of a portion
of the existing mortgage indebtedness. The following outlines the debt to be
outstanding subsequent to the Offering and the corresponding interest expense:

<TABLE>
<CAPTION>
PRINCIPAL INTEREST
PROPERTY(IES) AMOUNT RATE INTEREST
------------- --------- -------- --------
<S> <C> <C> <C>
Industrial properties in Kansas City, MO and
Milwaukee, WI(/1/)............................ $40,000 8.00% $3,200
Walnut Glen.................................... 10,000 7.50% 750
Park West E1 and E2(/2/)....................... 16,200 7.15% 1,158
------
Pro forma annual Interest expense............. 5,108
======
Pro forma Interest expense for six months
ended June 30, 1996.......................... 2,554
Historical Interest expense for six months
ended June 30, 1996.......................... 2,548
------
Pro forma Interest expense adjustment......... $ 6
======
</TABLE>

F-14
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

- --------
(/1/Although)the mortgage loan secured by the Industrial properties in Kansas
City, MO and Milwaukee, WI will initially bear interest at an annual rate
equal to the 30 day LIBOR plus 1.65%, the Company intends to subsequently
fix the rate at approximately 8.00%. Accordingly, the higher rate is used
in the calculation of interest expense.
(/2/The)Mortgage loans to be obtained concurrent with the Offering and to be
secured by the Park West E1 and E2 properties will bear interest at an
annual rate equal to the 30 day LIBOR plus 1.65%. The 30 day LIBOR of
5.50%, as of June 30, 1996, was used in the calculation.

(11) Reflects the net decrease of $615 in the amortization of Deferred
financing costs (Interest expense, non-cash) as a result of $104 and $33 in
amortization of the $625 fee on the Line of Credit and $100 fee on borrowings,
respectively, less a reduction of $752 in amortization of Deferred financing
costs to be written-off concurrent with the Offering.

(12) Reflects the net increase in Depreciation and amortization expense as a
result of the acquisition of properties and the related step-up in basis in
connection with the Offering, less a reduction in amortization of
organizational costs to be written-off concurrent with the Offering. The
following outlines the components of the net increase:
<TABLE>
<CAPTION>
PRO FORMA SIX
PURCHASE PRICE PURCHASE PRICE MONTH
PURCHASE ASSIGNED TO ASSIGNED TO DEPRECIABLE DEPRECIATION AND
PRICE LAND BUILDING LIFE AMORTIZATION
-------- -------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Office Properties:
One Northwestern
Plaza................. $27,459 $ -- $27,459 40 years $ 343
Park West C2........... 44,082 6,632 37,450 40 years 468
Cottonwood Office
Center................ 11,283 1,685 9,598 30 years 160
Plaza on Bachman
Creek................. 9,627 1,426 8,201 40 years 103
3141 Fairview Park
Drive................. 22,583 3,663 18,920 40 years 237
Park West E1 and E2.... 34,600 5,000 29,600 40 years 370
Industrial Properties:
Pacific Gateway
Center................ 43,600 7,888 35,712 30 years 595
9050 Junction Drive.... 4,509 676 3,833 30 years 64
Depreciation of step-up
in basis of Predecessor
Company
properties(/1/)........ 420
Amortization of excess
purchase price of
Austex(/2/)........... 120
Decrease in
amortization of
organizational costs.. (4)
------
Net increase in
Depreciation and
amortization expense.. $2,876
======
</TABLE>

(/1/) The increase in Depreciation and amortization expense in connection
with the acquisition and step-up in basis of the limited partners'
interests in the Predecessor Company is calculated as follows:

<TABLE>
<S> <C>
Incremental step-up in basis of properties........................ $26,365
Estimated weighted average useful life (years).................... 31.4
-------
Increase in annual depreciation expense......................... $ 840
=======
Pro forma increase in depreciation expense for the six month
period ended June 30, 1996....................................... $ 420
=======
</TABLE>
(/2/) The amortization of the excess purchase price of Austex is calculated
as follows:

<TABLE>
<S> <C>
Purchase price paid for 50% interest in Austex..................... $17,133
Book value of net assets purchased................................. 7,542
-------
Excess purchase price............................................ 9,591
Amortization period (in years)................................... 40
-------
Annual amortization............................................ $ 240
=======
Pro forma amortization for the six months ended June 30, 1996...... $ 120
=======
</TABLE>

F-15
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

(13) Reflects the net Investment income and General office and
administration expenses of $248 and $33, respectively, as a result of the pro
forma consolidation of Austex.

(14) Represents net income attributable to the Prentiss Group's minority
interest in the Operating Partnership. The Company, through its wholly owned
subsidiary, is the sole general partner and will own approximately 84.6% of
the Operating Partnership. The Prentiss Group will own in the aggregate
approximately 15.4% of the Operating Partnership.

6. PRO FORMA ADJUSTMENTS FOR DECEMBER 31, 1995:

A. The Prentiss Group Acquisition Properties:

The statement of income reflects the historical operations of the Prentiss
Group Acquisition Properties for the year ended December 31, 1995 as follows:
<TABLE>
<CAPTION>
3141 FAIRVIEW PARK WEST PACIFIC GATEWAY
PARK DRIVE C2 CENTER TOTAL
------------- --------- --------------- -------
<S> <C> <C> <C> <C>
Rental income................. $3,667 $8,365 $5,531 $17,563
Other income.................. 5 31 -- 36
------ ------ ------ -------
Total revenues.............. 3,672 8,396 5,531 17,599
Property operating and
maintenance.................. 1,608 2,463 1,475 5,546
Real estate taxes............. 196 592 124 912
------ ------ ------ -------
Total expenses.............. 1,804 3,055 1,599 6,458
------ ------ ------ -------
Revenues in excess of certain
operating expenses........... $1,868 $5,341 $3,932 $11,141
====== ====== ====== =======
</TABLE>

B. Bachman Creek, Park West E1 and E2 and Other Acquisition Properties:

The statement of income reflects the historical operations of One
Northwestern, Cottonwood, 9050 Junction Drive and the Bachman Creek and Park
West E1 and E2 properties for the year ended December 31, 1995 as follows:

<TABLE>
<CAPTION>
BACHMAN
CREEK,
SUBTOTAL PARK WEST
SUBTOTAL BACHMAN E1 AND E2
OTHER PARK PARK CREEK AND AND OTHER
ONE COTTON- 9050 ACQUISITION BACHMAN WEST WEST PARK WEST ACQUISITION
NORTHWESTERN WOOD JUNCTION PROPERTIES CREEK E1 E2 E1 AND E2 PROPERTIES
------------ ------- -------- ----------- ------- ------ ------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Rental income........... $5,436 $2,270 $505 $8,211 $1,182 $2,823 $2,912 $6,917 $15,128
Other income............ 59 1 -- 60 2 2 5 9 69
------ ------ ---- ------ ------ ------ ------ ------ -------
Total revenues.......... 5,495 2,271 505 8,271 1,184 2,825 2,917 6,926 15,197
Property operating and
maintenance............ 1,548 818 54 2,420 536 1,017 1,147 2,700 5,120
Real estate taxes....... 440 219 -- 659 123 314 345 782 1,441
------ ------ ---- ------ ------ ------ ------ ------ -------
Total expenses.......... 1,988 1,037 54 3,079 659 1,331 1,492 3,482 6,561
------ ------ ---- ------ ------ ------ ------ ------ -------
Revenues in excess of
certain operating ex-
penses................. $3,507 $1,234 $451 $5,192 $ 525 $1,494 $1,425 $3,444 $ 8,636
====== ====== ==== ====== ====== ====== ====== ====== =======
</TABLE>

F-16
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

C. Other Adjustments:

The following Pro Forma Adjustment Summary table summarizes the other pro
forma adjustments made in the Prentiss Properties Trust Statement of Income
for the year ended December 31, 1995. The column totals reflect the net
adjustments presented on the Statement of Income on F-4. The summary below
should be read in conjunction with the following notes.

PROFORMA ADJUSTMENT SUMMARY
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
PROPERTY REAL GEN PER- INTEREST
PRO FORMA RENTAL MGMT OTHER OPERATING ESTATE OFFICE & SONNEL INTEREST EXPENSE DEPR & INVEST
ADJUSTMENTS INCOME FEES FEES & MAINT. TAXES ADMIN COSTS EXPENSE NON-CASH AMORT INCOME
----------- ------ ------- -------- --------- ------ -------- -------- -------- -------- ------ ------
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6C(1) Estimated
operations of
Westloop........ $610 $ 137 $73
6C(2) Assignment of
contracts....... $(8,310) $(13,011) $(3,256) $(9,651)
6C(3) Equity
investment
income.......... $6,843
6C(4) Management of
REIT prop....... (711) (8) (719)
6C(5) Acquisition and
management of
REIT prop....... (209)
6C(6) Other fees &
recoveries...... (1,887)
6C(7) Advisory fees... (858)
6C(8) Prop mgmt g&a
and salaries.... (216) (1,371)
6C(9) Special comp.... (4,334)
6C(10) Mortgage
interest........ $1,325
6C(11) Amortization of
deferred
financing
costs........... $188
6C(12) Depreciation
expense......... $5,652
6C(13) Consolidation of
Austex.......... 49 453
6C(14) Prentiss Group
ownership.......
---- ------- -------- ----- --- ------- -------- ------ ---- ------ ------
Pro forma other
adjustments
total........... $610 $(9,021) $(14,906) $(791) $73 $(4,281) $(15,356) $1,325 $188 $5,652 $7,296
==== ======= ======== ===== === ======= ======== ====== ==== ====== ======
<CAPTION>
MINORITY
INTEREST
----------- ---------
<C>

$(4,145)
---------
$(4,145)
=========
</TABLE>

(1) Represents the estimated operations of the West Loop Business Park
properties to be acquired concurrent with the Offering, including Rental
income of $610, Property operating and maintenance expense of $137 and Real
estate tax expense of $73.

(2) In connection with the Formation Transactions, certain third-party
management contracts will be assigned to the Manager in return for $34,750 in
notes payable to the Operating Partnership. As a result of the assignment, a
portion of the current operating income, expenses and overhead will be
reflected in the operations of the Manager as detailed below:

<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Management fees.................................................... $ 8,310
Other fees and recoveries.......................................... 13,011
General office and administrative.................................. (3,256)
Personnel cost, net................................................ (9,651)
-------
Manager contract income $ 8,414
=======
</TABLE>

F-17
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

In addition to the above, the Manager will incur income tax expense
estimated at $1,511 and will benefit from a reduction in occupancy cost
totalling $300, resulting in net income to the Manager of $7,203.

(3) The Operating Partnership will hold a 95% economic interest in the
Manager and record an equity interest of $6,843 on the $7,203 of net income.

(4) Represents the intercompany elimination of Management and Recovery fee
revenues of $711 and $8, respectively, and Management fee expenses (Property
operating and maintenance) of $719 as a result of in-house management of the
Company's properties.

(5) Represents a reduction in property management fee expense (Property
operating and maintenance) of $209 previously paid to a third party.
Subsequent to the Offering, these properties will be owned and managed by the
Company.

(6) Reflects a reduction of $1,887 in recovery revenues, received from
property owners, as a result of certain tax and legal services performed in
the operations of the Predecessor Company that will not be performed by the
Company subsequent to formation, accompanied by an additional reduction for
recoveries earned by the Predecessor Company which exceed the Company's
estimate of recoveries to be earned subsequent to formation.

(7) Reflects the decrease of $858 in fees formerly paid by the Predecessor
Company to an affiliate for acquisition and advisory services performed.

(8) Reflects a decrease of $216 and $1,371 in General office and
administration expense and Personnel costs, net, respectively. The decrease in
General office and administration results from an adjustment to reflect the
estimated additional costs of operating as a public company, net of a
reduction in costs primarily attributable to certain tax and legal services
performed historically that will not be performed by the Company subsequent to
formation as well as costs directly related to Prentiss Group projects that
will not be transferred to the Company in the Formation Transactions. The
decrease in Personnel costs, net, results from a reduction in base salary to
be earned by the Prentiss Principals subsequent to formation as well as a
reduction in salary expense resulting from the tax and legal services that
will not be performed by the Company subsequent to formation.

<TABLE>
<CAPTION>
GENERAL OFFICE
AND PERSONNEL
ADMINISTRATION COSTS
-------------- ---------
<S> <C> <C>
Increase due to public company expenses........... $ 850 --
(Decrease) in Prentiss Principals salaries........ -- $ (800)
(Decrease) in other Personnel costs............... -- (571)
(Decrease) in General office and administration
expense.......................................... (1,066) --
------- -------
Net decrease in expenses........................ $ (216) $(1,371)
======= =======
</TABLE>

(9) Reflects the decrease of $4,334 in compensation paid to the Prentiss
Principals. As a privately held company, PPL distributed a portion of annual
cash flow, in the form of compensation, to the Prentiss Principals. Subsequent
to the Offering, this compensation will no longer be paid.

<TABLE>
<CAPTION>
PRINCIPAL INTEREST
PROPERTY(IES) AMOUNT RATE INTEREST
- ------------- --------- -------- --------
<S> <C> <C> <C>
Industrial properties in Kansas City, MO and
Milwaukee, WI(/1/)............................... $40,000 8.00% $3,200
Walnut Glen....................................... 10,000 7.50% 750
Park West E1 and E2(/2/).......................... 16,200 7.15% 1,158
------
Pro forma annual Interest expense............... 5,108
======
Historical Interest expense for year ended
December 31, 1995.............................. 3,783
------
Pro forma Interest expense adjustment........... $1,325
======
</TABLE>

F-18
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES AND MANAGEMENT'S ASSUMPTIONS TO THE
PRO FORMA COMBINED FINANCIAL INFORMATION--(CONTINUED)

- --------
(/1/Although)the mortgage loan secured by the Industrial properties in Kansas
City, MO and Milwaukee, WI will initially bear interest at an annual rate
equal to the 30 day LIBOR plus 1.65%, the Company intends to subsequently
fix the rate at approximately 8.00%. Accordingly, the higher rate is used
in the calculation of interest expense.
(/2/The)mortgage loans to be obtained concurrent with the Offering and to be
secured by the Park West E1 and E2 properties will bear interest at an
annual rate equal to the 30 day LIBOR plus 1.65%. The 30 day LIBOR of
5.50%, as of June 30, 1996, was used in the calculation.

(11) Reflects the net increase of $188 in the amortization of deferred
financing costs (Interest expense, non-cash) as a result of $208 and $67 in
amortization of the $625 fee on the Line of Credit and $100 fee on borrowings
respectively, less a reduction of $87 in amortization of deferred financing
costs to be written-off concurrent with the Offering.

(12) Reflects the net increase in Depreciation and amortization expense as a
result of the acquisition of properties and related step-up in basis in
connection with the Offering, less a reduction in amortization of
organizational costs to be written-off concurrent with the Offering. The
following outlines the components of the net increase:
<TABLE>
<CAPTION>
PURCHASE PRO FORMA
PURCHASE PRICE ANNUAL
PRICE ASSIGNED DEPRECIATION
PURCHASE ASSIGNED TO DEPRECIABLE AND
PRICE TO LAND BUILDING LIFE AMORTIZATION
-------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Office Properties:
One Northwestern
Plaza................ $27,459 $ -- $27,459 40 years $ 686
Park West C2.......... 44,082 6,632 37,450 40 years 936
Cottonwood Office
Center............... 11,283 1,685 9,598 30 years 320
Plaza on Bachman
Creek................ 9,627 1,426 8,201 40 years 205
3141 Fairview Park
Drive................ 22,583 3,663 18,920 40 years 473
Park West E1 and E2... 34,600 5,000 29,600 40 years 740
Industrial Properties:
Pacific Gateway
Center............... 43,600 7,888 35,712 30 years 1,190
9050 Junction Drive... 4,509 676 3,833 30 years 128
Depreciation of step-up
in basis of
Predecessor Company
Properties(/1/)........ 840
Amortization of excess
purchase price of
Austex(/2/).......... 240
Decrease in
amortization of
organizational
costs................ (106)
------
Net increase in
Depreciation and
Amortization......... $5,652
======
</TABLE>
- --------
(/1/) The increase in Depreciation and amortization expense in
connection with the acquisition and step-up in basis of the limited
partners' interests in the Predecessor Company is calculated as
follows:

<TABLE>
<S> <C>
Incremental step-up in basis of properties.......................... $26,365
Estimated weighted average useful life (years)...................... 31.4
-------
Increase in annual depreciation expense........................... $ 840
=======
</TABLE>

(/2/) The amortization of the excess purchase price of Austex is calculated
as follows:

<TABLE>
<S> <C>
Purchase price paid for 50% interest in Austex...................... $17,133
Book value of net assets purchased.................................. 7,542
-------
Excess purchase price............................................... 9,591
Amortization period (in years)...................................... 40
-------
Annual amortization................................................. $ 240
=======
</TABLE>

(13) Reflects the net Investment income, and General office and
administration expenses of $453 and $49, respectively, as a result of the pro
forma consolidation of Austex.

(14) Represents Net income attributable to the Prentiss Group's minority
interest in the Operating Partnership. The Company, through its wholly owned
subsidiary, is the sole general partner and will own approximately 84.6% of
the Operating Partnership. The Prentiss Group will own in the aggregate
approximately 15.4% of the Operating Partnership.

F-19
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Prentiss Properties Trust

We have audited the accompanying balance sheet of Prentiss Properties Trust
as of July 12, 1996. This balance sheet is the responsibility of the
management of Prentiss Properties Trust. Our responsibility is to express an
opinion on the balance sheet based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Prentiss Properties Trust as of
July 12, 1996 in conformity with generally accepted accounting principles.

Coopers & Lybrand L.L.P.

July 15, 1996
Dallas, Texas

F-20
<PAGE>

PRENTISS PROPERTIES TRUST

BALANCE SHEET
JULY 12, 1996
(DOLLARS IN THOUSANDS)

ASSETS
<TABLE>
<S> <C>
Cash.................................................................. $ 1
----
$ 1
====

SHAREHOLDERS' EQUITY

Shareholders' equity:
Common shares, $.01 par value, 100,000 shares authorized, 1,000
issued and outstanding.............................................. $--
Additional paid-in capital........................................... 1
----
$ 1
====
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-21
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES TO BALANCE SHEET

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. ORGANIZATION:

Prentiss Properties Trust (the "Company"), was organized in the state of
Maryland on July 12, 1996 with $1 capitalization. The Company intends to
qualify as a real estate investment trust ("REIT") under the Internal Revenue
Code commencing with its taxable year ended December 31, 1996. The Company
will acquire a sole general partnership interest in Prentiss Properties
Acquisition Partners, L.P. (the "Operating Partnership") through the Company's
wholly owned subsidiary Prentiss Properties I, Inc., a Delaware corporation
and will own an 84.6% limited partnership interest in the Operating
Partnership directly.

The Company has been formed to succeed to substantially all of the interests
of Prentiss Properties Limited, Inc. ("PPL") and its affiliates in (i) a
portfolio of office and industrial properties and (ii) the national
acquisition, property management, leasing, development and construction
businesses of PPL and its affiliates. The acquisition, property management,
leasing, development and construction businesses will be carried out by the
Operating Partnership and the Company's majority-owned affiliates, (the
"Manager").

The Company has had no operations to date.

2. FORMATION TRANSACTIONS:

The Offering

The Company has filed a registration statement on Form S-11 with the
Securities and Exchange Commission with respect to the public offering (the
"Offering") of 16,000,000 Common shares (exclusive of 2,400,000 Common shares
subject to the underwriter's over-allotment option and 1,888,200 Common shares
being concurrently sold by the Company to certain limited partners, not
affiliated with the Prentiss Group, for their interests in the Properties, as
defined below) at an estimated initial offering price of $20.00 per share. The
Company will use some of the net proceeds from the Offering to purchase
certain limited partners' interests in the Operating Partnership and will
contribute the remaining net proceeds to the Operating Partnership in exchange
for 17,888,200 partnership units (the "Units"), representing an approximate
84.6% interest, in the Operating Partnership.

The Operating Partnership is an affiliate of the Prentiss Group (as defined
below). The Prentiss Group members who collectively serve as the general
partner of the Operating Partnership will contribute to the Operating
Partnership all of its interests in the Properties (as defined below) and
certain management contracts of PPL (the "Contracts") in exchange for
3,259,763 Units. The acquisition of the various Prentiss Group interests will
be accounted for at their historical cost with any excess paid recorded as a
distribution.

The interests of the limited partners of the Operating Partnership will be
acquired by the Company with Common shares and cash. The limited partners will
receive $88,804 in cash and 1,888,200 Common shares for a total consideration
of approximately $126,600 (including certain related transfer costs estimated
to be $691) for their interests. The acquisition of the limited partners
interests will be accounted for using purchase accounting based on the cash
paid and the value of the Common Shares issued, resulting in an incremental
increase in the basis of the Predecessor Company's real estate.

The Properties

Upon consummation of the Offering and certain related transactions
(collectively, the "Formation Transactions"), the Company will own 87
properties, 28 office and 59 industrial (the "Properties") located in 10 major
markets throughout the U.S. and containing 8.9 million net rentable square
feet.

F-22
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES TO BALANCE SHEET--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The Line of Credit

Concurrent with the consummation of the Offering, the Operating Partnership
intends to enter into a three-year, $100,000 revolving credit facility (the
"Line of Credit") under which the Operating Partnership may borrow to finance
the acquisition of additional properties and for other corporate purposes,
including to obtain additional working capital. The Company anticipates that
borrowings under the Line of Credit will bear interest at LIBOR plus an
additional percentage and will be secured by first mortgage liens on certain
of the properties and may be secured by other properties acquired by the
Company and will be guaranteed by the Company. The Company believes that an
origination fee of approximately $625 will be paid to secure the Line of
Credit.

3. INCENTIVE, SAVINGS AND SHARE PURCHASE PLANS:

The Company intends to adopt the 1996 Share Incentive Plan (the "1996
Incentive Plan"), a non-employee Trustees' Share Incentive Plan (the
"Trustees' Plan"), an Employee Savings Plan & Trust (the "401(k) Plan") and a
Share Purchase Plan (the "Share Purchase Plan").

The 1996 Incentive Plan

The 1996 Incentive Plan is designed to provide incentives to attract, retain
and motivate Officers and other employees (the "Participants") of the Company
and its subsidiaries, including the Manager. The 1996 Incentive Plan
authorizes the issuance of up to 2,030,000 Common shares, plus automatic
increases equal to 8% of newly issued and outstanding Common shares of the
Company. The 1996 Incentive Plan provides for the grant of (i) Share Options,
(ii) Performance Shares, (iii) Share Appreciation Rights ("SARs"), (iv) Share
Awards, and (v) Incentive Awards.

The administrator will prescribe the conditions which must occur for
Restricted Shares and Performance Shares to vest or Incentive Awards to be
earned. In connection with the grant of options under the 1996 Plan, the
administrator will determine the option exercise period and any vesting
requirements. On the effective date of the Offering, options for 1,291,439
Common shares will be granted to the Participants, at an exercise price equal
to the Offering Price. The initial options granted under this Plan will have
10-year terms and will become exercisable for one-third of the covered shares
on the first and second anniversaries of the date of grant, and for the
balance of the shares on the third anniversary of the date of grant subject to
the acceleration of vesting upon a change in control of the Company. No
Participants may be granted, in any calendar year, options that cover more
than 390,000 Common shares or SARs that cover more than 390,000 Common shares.

The Trustees' Plan

Prior to the Offering the Company will adopt the Trustees' Plan to provide
incentives to attract and retain Independent Trustees. The Trustees Plan
provides for the grant of options and the award of Common shares to each
eligible Trustee of the Company. Under the Trustees' Plan, each Independent
Trustee who is not an employee of the Company will receive, upon closing of
the Offering, options to purchase 10,000 Common shares at an exercise price
equal to the Offering Price. An option granted under the Trustees' Plan shall
become exercisable for 2,500 shares on each of the first through fourth
anniversaries of the date of grant, provided the Trustee is a member of the
Board of Trustees on such anniversary date. Each Independent Trustee will also
receive quarterly awards of Common shares on which he or she is a member of
the Board of Trustees, for a number of Common shares having a fair market
value on the date that as nearly as possible equals, but does not exceed,
$2,500.

F-23
<PAGE>

PRENTISS PROPERTIES TRUST

NOTES TO BALANCE SHEET--(CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The Trustees' Plan provides that the Board of Trustees may amend or
terminate the Trustees' Plan. No options for Common shares may be granted and
no Common shares will be awarded under the Trustees Plan after December 31,
2002.

401(k) Plan

The Company intends to assume and continue to adopt the 401(k) Plan of PPL
which was originally adopted in 1987. Prior service with PPL will be credited
in full as service with the Company or a Participating Employer for all
purposes under the 401(k) Plan including eligibility and vesting.

Each employee of the Company and a Participating Employer may enroll in the
401(k) Plan after completing 1,000 hours of service and attaining age 21. Plan
participants are immediately vested in their pre-tax and after tax
contributions, matching and discretionary Company contributions, and earnings.

The 401(k) Plan permits each Plan Participant to elect to defer up to 15% of
base compensation, subject to limitation on a pre-tax basis. Plan Participants
may also elect to make an after-tax contribution of up to 8% of their base
compensation. The Company and the participating employers will make matching
contributions equal to 25% of amounts deferred up to five hundred dollars in
deferrals. The Company and the participating employers may also make annual
contributions if the Company achieves certain performance objectives to be
determined on an annual basis by the Compensation Committee. Matching and
discretionary contributions will be made in cash or Common shares.

Share Purchase Plan

Prior to the Offering, the Company will adopt the Share Purchase Plan. Under
this plan, employees of the Company, the Operating Partnership and designated
subsidiaries, including the Manager, will be able to purchase Common shares
directly from the Company at a 15% discount to the then current market value
at the date of purchase. Purchases may be made by any employee with more than
one full year of continuous employment, limited to the lesser of 15% of the
employees base salary or $20,000. The maximum number of Common shares that may
be purchased under the Share Purchase Plan is 500,000.

F-24
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners and Owners of
the Predecessor Company

We have audited the accompanying combined balance sheets of the Predecessor
Company as of December 31, 1995 and 1994, and the related combined statements
of income, owners' equity, and cash flows for each of the three years in the
period ended December 31, 1995 and the financial statement schedule included
on the index at F-1 of this Prospectus. These financial statements are the
responsibility of the management of the Predecessor Company. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Predecessor Company as of December 31, 1995 and 1994, and the combined results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be set forth therein.

Coopers & Lybrand L.L.P.

July 15, 1996
Dallas, Texas

F-25
<PAGE>

PREDECESSOR COMPANY

COMBINED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------
1996 1995 1994
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Assets:
Real estate.................................. $173,439 $153,148 $151,673
Less: accumulated depreciation............. (14,092) (11,780) (7,307)
-------- -------- --------
159,347 141,368 144,366
Deferred charges and other assets, net....... 8,543 7,135 6,848
Receivables, net............................. 2,605 2,755 2,340
Escrowed funds............................... 1,810 1,294 1,569
Cash and cash equivalents.................... 1,936 1,033 9,133
Investments in limited partnership and joint
venture..................................... 1,050 1,050 51
-------- -------- --------
Total Assets............................... $175,291 $154,635 $164,307
======== ======== ========
Liabilities and Owners' Equity:
Debt on real estate.......................... $ 68,787 $ 46,442 $ 46,732
Accounts payable and other liabilities....... 4,181 3,622 4,378
Amounts due to affiliates.................... 520 705 603
-------- -------- --------
Total Liabilities.......................... 73,488 50,769 51,713
Commitments and contingencies
Owners' Equity............................... 101,803 103,866 112,594
-------- -------- --------
Total Liabilities and Owners' Equity....... $175,291 $154,635 $164,307
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-26
<PAGE>

PREDECESSOR COMPANY

COMBINED STATEMENTS OF INCOME

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- --------------------------
1996 1995 1995 1994 1993
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income............ $ 16,340 $ 14,527 $ 29,423 $ 25,256 $ 14,412
Management fees ......... 5,004 4,528 9,979 9,810 11,040
Development, leasing,
sales and other fees.... 5,353 5,378 15,762 16,892 12,569
-------- -------- -------- -------- --------
Total revenues......... 26,697 24,433 55,164 51,958 38,021
Expenses:
Property operating and
maintenance............. 4,872 3,891 7,696 7,040 4,204
Real estate taxes........ 1,709 1,547 3,030 2,691 1,631
General office and admin-
istration............... 2,957 3,509 6,293 5,323 6,265
Personnel costs, net..... 6,923 6,776 17,138 20,815 18,198
Interest expense......... 2,548 1,894 3,783 3,120 1,404
Interest expense (non-
cash)................... 758 50 99 71 40
Depreciation and amorti-
zation.................. 3,573 3,490 7,166 5,557 3,418
-------- -------- -------- -------- --------
Total expenses......... 23,340 21,157 45,205 44,617 35,160
Equity (loss) in joint
venture................. 19 29 11 13 (4)
-------- -------- -------- -------- --------
Income before gain on sale
of property............... 3,376 3,305 9,970 7,354 2,857
Gain on sale of proper-
ty...................... -- -- -- 1,718 --
-------- -------- -------- -------- --------
Net income............... $ 3,376 $ 3,305 $ 9,970 $ 9,072 $ 2,857
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-27
<PAGE>

PREDECESSOR COMPANY

COMBINED STATEMENTS OF OWNERS' EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C>
Balance at January 1, 1993............................................ $ 41,847
Net income.......................................................... 2,857
Contributions....................................................... 49,900
Distributions of PPL income......................................... (558)
--------
Balance at December 31, 1993.......................................... 94,046
Net income.......................................................... 9,072
Contributions....................................................... 12,139
Distributions of PPL income......................................... (2,663)
--------
Balance at December 31, 1994.......................................... 112,594
Net income.......................................................... 9,970
Distributions....................................................... (15,250)
Distributions of PPL income......................................... (4,498)
Equity on purchase of Park West C2.................................. 1,050
--------
Balance at December 31, 1995.......................................... 103,866
Net income (unaudited).............................................. 3,376
Distributions (unaudited)........................................... (3,625)
Distributions of PPL income (unaudited)............................. (1,814)
--------
Balance at June 30, 1996 (unaudited).................................. $101,803
========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-28
<PAGE>

PREDECESSOR COMPANY

COMBINED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ----------------------------
1996 1995 1995 1994 1993
----------- ----------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income............. $ 3,376 $ 3,305 $ 9,970 $ 9,072 $ 2,857
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Gain on sale of prop-
erty................ -- -- -- (1,718) --
Depreciation and am-
ortization.......... 3,573 3,490 7,166 5,557 3,418
Amortization of de-
ferred financing
costs............... 758 50 99 71 40
Increase in Receiv-
ables............... 295 (118) (265) (654) (1,686)
Increase (decrease)
in Provision for
doubtful accounts... (145) (178) (150) 310 100
Decrease (increase)
in Organization
costs and other
assets.............. (5) 204 113 (609) (209)
Decrease (increase)
in Escrowed funds... (215) 235 (93) (698) (211)
(Decrease) increase
in Accounts payable
and other
liabilities......... 559 (667) (756) 1,557 1,529
(Decrease) increase
in Amounts due to
affiliates.......... (185) 15 102 124 216
(Equity) loss in
joint venture....... (19) (29) (11) (13) 4
Decrease in Other.... 19 34 63 60 57
-------- ------- -------- -------- --------
Cash flows provided by
operating activities.... 8,011 6,341 16,238 13,059 6,115
Cash flows from investing
activities:
Acquisition of Real es-
tate.................. (19,946) -- -- (68,114) (45,271)
Proceeds from sale of
Real estate........... -- -- -- 7,894 --
Investment in Real es-
tate.................. (1,767) (2,945) (4,669) (3,742) (2,995)
(Increase) decrease in
Escrowed funds........ (301) 368 368 23,053 (23,711)
-------- ------- -------- -------- --------
Cash flows used in in-
vesting activities...... (22,014) (2,577) (4,301) (40,909) (71,977)
Cash flows from financing
activities:
Partners' contributions
...................... -- -- -- 12,139 49,900
Partners' distribu-
tions................. (3,625) (9,900) (15,250) -- --
Funding of Debt on Real
estate................ 22,500 -- -- 27,100 10,323
Repayment of Debt on
Real estate........... (155) (142) (289) (841) (36)
Financing costs of Debt
on Real estate........ (2,000) -- -- (357) (166)
Distributions of PPL
income................ (1,814) (844) (4,498) (2,663) (558)
-------- ------- -------- -------- --------
Cash flows provided by
(used in) financing
activities.............. 14,906 (10,886) (20,037) 35,378 59,463
Net increase (decrease)
in Cash and cash
equivalents............. 903 (7,122) (8,100) 7,528 (6,399)
Cash and cash equiva-
lents, beginning of
year.................... 1,033 9,133 9,133 1,605 8,004
-------- ------- -------- -------- --------
Cash and cash equiva-
lents, end of year...... $ 1,936 $ 2,011 $ 1,033 $ 9,133 $ 1,605
======== ======= ======== ======== ========
Supplemental cash flow
information:
Cash paid for inter-
est................... $ 2,550 $ 1,896 $ 3,786 $ 2,946 $ 1,333
======== ======= ======== ======== ========
Net (prepaids) liabili-
ties assumed in con-
nection with the ac-
quisition of Real es-
tate.................. $ -- $ -- $ -- $ (44) $ 261
======== ======= ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements

F-29
<PAGE>

PREDECESSOR COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

(1) ORGANIZATION AND BASIS OF PRESENTATION

The accompanying combined financial statements of the Predecessor Company
include the accounts of Prentiss Properties Acquisition Partners, L.P. ("the
Operating Partnership"), the operations of Prentiss Properties Limited, Inc.
("PPL"), a 50% equity investment in Austex Associates L.P. ("Austex"), the
accounts of Fairview Eleven Investors L.P. ("3141 Fairview Park Drive") from
February 23, 1996 through June 30, 1996, and a 15% equity investment in Park
West C2 Associates ("Park West C2") from September 5, 1995 through June 30,
1996. The accounts are presented on a combined basis as the above properties
are under the control of common investors (the "Prentiss Group"), common
ownership interest, common management, and are subject to the expected
formation of Prentiss Properties Trust (the "Trust").

The Trust is expected to be formed with the intent of qualifying as a Real
Estate Investment Trust ("REIT") under the Internal Revenue Code of 1986, as
amended. The Trust expects to raise equity through an initial public offering
(the "Offering") and has structured the business combination so that the
limited partners receive cash and Common shares and the Prentiss Group will
receive partnership units ("Units"). The proceeds from the Offering will be
used to purchase the general partnership interest in the Operating Partnership
and other properties through the Trust's wholly owned subsidiary, Prentiss
Properties I, Inc., a Delaware corporation to be formed prior to consummation
of the Offering. Prentiss Properties I, Inc. will be the sole general partner
and majority owner of the Operating Partnership, which will hold the operating
assets and liabilities of the Trust.

The following schedules summarize the Predecessor Company's interest in the
properties. All properties have been combined by the Predecessor Company
unless otherwise indicated in the notes.

Properties at December 31, 1995:

<TABLE>
<CAPTION>
PREDECESSOR PREDECESSOR
NUMBER OF COMPANY COMPANY
PROPERTIES OWNERSHIP % LOCATION NOTES
---------- ----------- ----------------- -----------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
Cumberland Office Park.. 9 100% Atlanta, GA
Broadmoor Austin........ 7 25% Austin, TX (A)
Park West C2............ 1 15% Dallas, TX (B)
5307 East Mockingbird... 1 100% Dallas, TX
Walnut Glen Tower....... 1 100% Dallas, TX
8521 Leesburg Pike...... 1 100% Tysons Corner, VA
INDUSTRIAL PROPERTIES
Baltimore Industrial.... 5 100% Baltimore, MD (C)
Kansas City Industrial.. 7 100% Kansas City, MO
Dallas Industrial....... 6 100% Dallas, TX
Milwaukee Industrial.... 17 100% Milwaukee, WI

Property acquired during the six months ended June 30, 1996:

OFFICE PROPERTY
3141 Fairview Park
Drive.................. 1 100% Merrifield, VA
</TABLE>

(A) The Predecessor Company holds a non-controlling 50% interest in Austex
Associates, L.P. which owns a non-controlling 50% interest in the general
partnership that owns a leasehold interest in the Broadmoor Austin Associates
Joint Venture. The Broadmoor Austin Associates Joint Venture owns and operates
an office complex in Austin, Texas, consisting of seven properties. The
Predecessor Company accounts for its 50% investment in Austex Associates, L.P.
using the equity method of accounting.

F-30
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(B) The Predecessor Company holds a non-controlling 15% general partnership
interest and accounts for the investment using the equity method of
accounting.

(C) Four of the five Baltimore Industrial properties are owned by three
partnerships which are wholly owned by the Predecessor Company.

All significant intercompany transactions have been eliminated in the
combined financial statements.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Real Estate

Real estate and leasehold improvements are stated at the lower of
depreciated cost or net realizable value. In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," the
Partnership will record impairment losses on long-lived assets used in
operation, when events and circumstances indicate that the assets might be
impaired and the estimated undiscounted cash flows to be generated by those
assets are less than the carrying amounts of those assets. No such impairment
losses have been recognized to date.

Depreciation on buildings and improvements is provided under the straight-
line method over an estimated useful life of thirty to fifty years for office
buildings and twenty-five years for industrial buildings.

When assets are sold or retired, their costs and related accumulated
depreciation are removed from the accounts with the resulting gains or losses
reflected in net income or (loss).

Deferred Charges

Deferred financing costs are recorded at cost and are being amortized over
the life of the related debt. Leasing commissions and leasehold improvements
are deferred and amortized over the terms of the related leases. Other
deferred charges are amortized over terms applicable to the expenditure.

Organization Costs

Organization costs are recorded at cost and are being amortized over five
years using the straight-line method.

Income Taxes

No provision for income taxes is necessary in the financial statements of
the Predecessor Company since the Predecessor Company's statements combine the
operations and balances of partnerships and an S-corporation neither of which
is directly subject to income tax. The tax effect of its activities accrues to
the individual partners and or principals of the respective entity.

Leases

The Predecessor Company, as lessor, has retained substantially all of the
risks and benefits of ownership and accounts for its leases as operating
leases.

F-31
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and investments with
maturities of three months or less when purchased.

Revenue Recognition

Rental income is recognized over the terms of the leases as it is earned.

Management company income, principally Management fees and Recoveries, are
recognized as earned. Other income, including (1) development fees are
recognized ratably over each project's development period, as defined; (2)
leasing fees are generally recognized upon tenant occupancy of the leased
premises unless such fees are irrevocably due and payable upon lease
execution, in which case recognition occurs on the lease execution date; (3)
sales fees are recognized upon completion of the asset sale; and (4)
termination fees are recognized when earned.

Distributions of PPL Income

PPL will retain certain assets and liabilities which will not be transferred
to the Operating Partnership pursuant to the expected formation of the Trust.
These assets and liabilities are inconsistent with the Company's investment
objectives or are not continuing businesses. All revenues and expenses related
to the management contracts to be contributed to the Operating Partnership
upon formation, are reflected in the accompanying financial statements. The
Combined Statements of Owners' Equity and the Combined Statements of Cash
Flows reflect the distributions of the PPL income, as the benefit of each
period's net income from these contracts has been distributed to the
principals of PPL.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Unaudited Interim Statements

The combined financial statements as of June 30, 1996 and for the six months
ended June 30, 1996 and 1995 are unaudited. In the opinion of management, all
adjustments (consisting solely of normal recurring adjustments) necessary for
a fair presentation of such combined financial statements have been included.
The results of operations for the six months ended June 30, 1996 are not
necessarily indicative of the Predecessor Company's future results of
operations for the full year ending December 31, 1996.

(3) REAL ESTATE

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Land...................................... $ 35,724 $ 32,061 $ 31,661
Buildings and improvements................ 137,715 121,087 120,012
-------- -------- --------
Total................................... 173,439 153,148 151,673
Less: Accumulated depreciation............ (14,092) (11,780) (7,307)
-------- -------- --------
$159,347 $141,368 $144,366
======== ======== ========
</TABLE>

Depreciation expense on Real estate for the six-month periods ended June 30,
1996 and 1995 and the years ended December 31, 1995, 1994 and 1993 was $2,312,
$2,202, $4,473, $4,008 and $2,188, respectively.

F-32
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

On February 23, 1996, the Predecessor Company acquired the 3141 Fairview
Park Drive Property located in Northern Virginia at a purchase price of
$22,500 from an affiliate of the Prentiss Group.

(4) RECEIVABLES

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Rents and services....................... $1,446 $1,697 $1,775
Accruable rental income.................. 1,372 1,327 989
Other.................................... 6 95 90
------ ------ ------
Total................................ 2,824 3,119 2,854
Less: Allowance for doubtful accounts.... (219) (364) (514)
------ ------ ------
$2,605 $2,755 $2,340
====== ====== ======
</TABLE>

Accruable rental income represents rental income earned in excess of rent
payments received pursuant to the terms of the individual lease agreements.

(5) DEFERRED CHARGES AND OTHER ASSETS

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred Charges......................... $16,298 $12,876 $9,682
Less: Accumulated amortization......... (8,614) (6,599) (3,911)
------- ------- ------
Deferred charges, net.................. $ 7,684 $ 6,277 $5,771
======= ======= ======
Organization costs....................... $ 525 $ 525 $ 525
Prepaid and other assets................. 859 854 967
------- ------- ------
1,384 1,379 1,492
Less: Accumulated amortization......... (525) (521) (415)
------- ------- ------
Organization costs and other assets,
net................................... $ 859 $ 858 $1,077
======= ======= ======
</TABLE>

(6) ESCROWED FUNDS

Escrowed funds as of June 30, 1996 and December 31, 1995 are comprised of
funds held for the payment of real estate taxes. Escrowed funds as of December
31, 1994 consist of funds held for the payment of real estate taxes and for
the purchase of an industrial building in Milwaukee, Wisconsin, totalling
$1,319 and $250, respectively. As the acquisition of the industrial building
did not occur, the Escrowed funds related thereto were reimbursed to the
Predecessor Company in February 1995.

F-33
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(7) DEBT ON REAL ESTATE

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
OFFICE PROPERTIES
Walnut Glen Tower......................... $14,479 $14,599 $14,824
3141 Fairview Park Drive
Note (1)................................. 19,000 -- --
Note (2)................................. 3,500 -- --
8521 Leesburg Pike........................ 5,085 5,120 5,185
INDUSTRIAL PROPERTIES
Kansas City Industrials
Insurance Company(1)..................... 8,000 8,000 8,000
Insurance Company(2)..................... 1,500 1,500 1,500
Kansas City/Dallas Industrials............ 6,900 6,900 6,900
Milwaukee................................. 10,323 10,323 10,323
------- ------- -------
$68,787 $46,442 $46,732
======= ======= =======
</TABLE>

Walnut Glen Tower--The loan, which is payable to an insurance company and
collateralized by certain of the Predecessor Company's real estate, bears
interest at 7.5% per annum. Principal and interest, based on a 25-year
amortization schedule, are payable on the first day of each month through
January 31, 2001, at which time all unpaid principal and interest are due. The
loan is prepayable at any time upon payment of a penalty.

3141 Fairview Park Drive--On February 23, 1996, the Prentiss Group acquired
the 3141 Fairview Park Drive property. Pursuant to the purchase, the Prentiss
Group executed two notes with an affiliate of Lehman Brothers Inc. to finance
the transaction. The first note (Note [1]) calls for interest only payments of
LIBOR plus 3.5% until maturity on February 21, 1999. The second note (Note
[2]) calls for interest only payments at the pay rate, (the pay rate is
defined as the net operating cash flows of the property) until maturity on
February 21, 1997.

8521 Leesburg Pike--The note, which is payable to a mortgage company and
collateralized by certain of the Predecessor Company's real estate, bears
interest at 8.5% per annum. Principal and interest, based on a 25-year
amortization schedule, are payable on the first day of each month through
September 1, 1999, at which time all unpaid principal and interest are due.
The loan is prepayable in full with no penalty.

Kansas City Industrials--The Predecessor Company entered into a nonrecourse
loan agreement with two insurance companies, totalling $9,500. Interest only
is payable monthly at 8.75% per annum until July 1, 1999, at which time the
principal balance is due and payable. The loan, which is collateralized by
certain of the Predecessor Company's real estate located in Kansas City,
Missouri, is prepayable at any time upon payment of a penalty.

Kansas City/Dallas Industrials--The Predecessor Company is also indebted in
connection with a nonrecourse loan agreement entered into on September 13,
1994, totalling $7,500. The loan is payable to an insurance company. A total
of $6,900 was drawn under the agreement and the remaining commitment was
canceled. Interest only is payable at 8.3% per annum until October 1, 2001, at
which time the principal balance is due and payable. The loan, which is
collateralized by certain of the Predecessor Company's real estate located in
Dallas, Texas, and Kansas City, Missouri, is prepayable at any time upon
payment of a penalty.

Milwaukee--On April 8, 1993, the Predecessor Company entered into two
nonrecourse loan agreements with an insurance company, totalling $10,950. A
total of $10,323 was drawn under these agreements and the remaining
commitments were canceled. Interest only is payable monthly at 8.125% per
annum until May 1, 2000, at which time the principal balance is due and
payable. The loans, which are collateralized by certain of the Predecessor
Company's real estate located in Milwaukee, Wisconsin, are prepayable at any
time upon payment of a penalty.

F-34
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Cumberland--On March 31, 1994, the Predecessor Company repaid a nonrecourse
loan assumed in connection with the January 1991 acquisition of Cumberland
Office Park. The note was collateralized by a portion of the real estate
located in the park. The note, which was payable to an insurance company, bore
interest at 8.5% per annum. Principal and interest, based on a twenty-year
amortization schedule, was payable on the first day of each month through
April 1, 1994, at which time a balloon payment of $640 was due.

Principal repayments of Debt on real estate at December 31, 1995, are due
approximately as follows:

<TABLE>
<S> <C>
Years ending December 31:
1996.............................................................. $ 313
1997.............................................................. 339
1998.............................................................. 366
1999.............................................................. 14,696
2000.............................................................. 10,652
Thereafter........................................................ 20,076
-------
$46,442
=======
</TABLE>

(8) ACCOUNTS PAYABLE AND OTHER LIABILITIES

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable and other liabilities... $2,902 $2,481 $3,296
Advance rent and deposits................ 1,279 1,141 1,082
------ ------ ------
$4,181 $3,622 $4,378
====== ====== ======
</TABLE>

(9) MANAGEMENT COMPANY COSTS

As discussed in footnote (2) under Revenue Recognition, management company
income is comprised of Management fees and Development, leasing, sales and
other fees. Due to the nature of the management company as a service industry
business, the direct costs incurred in generating the various fee income of
the management company are comprised primarily of Personnel costs and General
office and administration expenses, which can be identified in total, yet are
not specifically identifiable between fee types. The following illustrates the
management company income and the costs attributable to the generation of the
management company income:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1995 1994 1993
-------- --------------- ------- -------
<S> <C> <C> <C> <C> <C>
Management company income......... $ 10,297 $9,798 $25,580 $26,505 $23,469
Direct costs...................... 9,364 9,765 22,454 25,380 23,852
-------- ------- ------- ------- -------
Net management company income..... $ 933 $ 33 $ 3,126 $ 1,125 $ (383)
======== ======= ======= ======= =======
</TABLE>

(10) LEASING ACTIVITIES

The future minimum lease payments to be received by the Predecessor Company
and its three wholly-owned partnerships as of December 31, 1995 under
noncancelable operating leases, which expire on various dates through 2013,
are as follows:

<TABLE>
<S> <C>
Years ending December 31:
1996................................................................ $25,836
1997................................................................ 22,831
1998................................................................ 17,848
1999................................................................ 11,734
2000................................................................ 5,442
Thereafter.......................................................... 4,323
-------
$88,014
=======
</TABLE>

F-35
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

The geographic concentration of the future minimum lease payments to be
received are detailed as follows:

<TABLE>
<S> <C>
LOCATION AMOUNT
-------- -------
Milwaukee, WI........................................................ $12,778
Dallas, TX........................................................... 30,934
Kansas City, MO...................................................... 9,630
Atlanta, GA.......................................................... 17,296
Tysons Corner, VA.................................................... 9,471
Baltimore, MD........................................................ 7,905
-------
$88,014
=======
</TABLE>
One major tenant represented 13% of the Predecessor Company's total rental
income for the year ended December 31, 1995.

The Predecessor Company leases certain office space from an insurance
company. The lease commenced on May 14, 1988. On December 9, 1992, the
Predecessor Company signed an amendment to the original lease effective May 1,
1993, whereby modifying the rental rate to match current market rental rates
for the area. The Predecessor Company has the right to terminate the lease
upon thirty days written notice. If the Predecessor Company elects to
terminate the lease during the year ended December 31, 1996, a termination
penalty expected to range from approximately $108 to $174 will be payable to
the landlord. The Predecessor Company has a dispute, with the landlord, as to
the calculation of the termination penalty. The dispute has not been resolved
and the Predecessor Company has elected to disclose the maximum range of
termination penalty it considers to be payable under the lease agreement. The
future minimum lease payments which are due under this operating lease, which
has been amended to expire on April 30, 1998, are as follows:

<TABLE>
<S> <C>
Years ending December 31:
1996............................................................ $ 452
1997............................................................ 445
1998............................................................ 148
------
$1,045
======
</TABLE>

The lease described above contains no renewal options and requires that the
Predecessor Company pay its pro rata share of operating costs and utilities.
Under the terms of this lease, rental expense, including operating costs and
utilities, incurred during the six months ended June 30, 1996 and 1995 and
years ended December 31, 1995, 1994 and 1993, was approximately $391, $396,
$801, $797 and $900, respectively.

The Predecessor Company also occupies office space in certain properties it
manages. The costs of operating these property management offices are borne
entirely by the respective owners.

(11) RELATED PARTY TRANSACTIONS

Prentiss Properties Investors, Inc., an affiliate of the Predecessor
Company, provides acquisition and other advisory services to the Predecessor
Company pursuant to an asset management agreement. Asset management fees
charged to the Predecessor Company during the six-month periods ended June 30,
1996 and 1995 and the years ended December 31, 1995, 1994 and 1993, totalled
$444, $429, $858, $699 and $594, respectively.

Under the terms of various management and development agreements, the
Predecessor Company receives cost reimbursements and property management,
development, leasing and tenant service fees from certain affiliates in which
the Prentiss Group have ownership interests. Cost reimbursements are comprised
primarily of salary and employee benefit recoveries and reimbursements of
certain administrative costs. During the six months

F-36
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

ended June 30, 1996 and 1995 and the years ended December 31, 1995, 1994 and
1993, fees and cost reimbursements derived from these agreements totalled
$6,741, $11,590, $21,590, $23,345, $21,362, respectively.

Amounts due to affiliates at June 30, 1996, December 31, 1995 and 1994,
consisted primarily of asset management fees and property management and
leasing fees due to PPL and other affiliates of the Predecessor Company.

The financing for the acquisition of the 3141 Fairview Park Drive property
was provided by an affiliate of Lehman Brothers Inc. The financing provided
for an additional $2,000 representing financing costs to be repaid pursuant to
the terms of the loan.

In 1987, a Prentiss Group affiliate and a third party formed The
Prentiss/Copley Investment Group ("PCIG") to acquire substantially all of the
U.S. office and industrial assets of Cadillac Fairview. PCIG has been in the
process of liquidating its remaining assets for the past several years. PPL
manages the PCIG properties under contractual management agreements. Fees are
payable to PPL upon early termination of the management agreements. In 1995,
PPL recognized $6,384 in termination fee revenue related to these contracts.
Benefits of any future termination fees will be retained by the Prentiss
Group.

(12) INVESTMENT IN LIMITED PARTNERSHIP AND JOINT VENTURE

The Predecessor Company accounts for its 25% investment in Broadmoor Austin
Associates Joint Venture and its 15% investment in Park West C2 using the
equity method of accounting and thus, reports its share of income and losses
based on its ownership interest in the respective entities.

Presented below are the financial statements of Broadmoor Austin Associates
Joint Venture, a significant unconsolidated subsidiary:

BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Income-producing property, net.............................. $ 98,406 $100,571
Deferred leasing and other charges, net..................... 21,783 23,951
Accruable rental income..................................... 8,744 7,444
Cash and cash equivalents................................... 3,538 3,541
-------- --------
Total assets.............................................. $132,471 $135,507
======== ========
LIABILITIES AND VENTURERS' DEFICIT
Debt on income property..................................... $140,000 $140,000
Accounts payable and other liabilities...................... 3,444 3,454
Amounts due to venturers and affiliates..................... 86 34
-------- --------
Total liabilities......................................... 143,530 143,488
Venturers' deficit.......................................... (11,059) (7,981)
-------- --------
Total liabilities and venturers' deficit.................. $132,471 $135,507
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-37
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Rental operations:
Rental income........................................ $19,776 $19,789 $19,811
Property operating expenses.......................... 836 845 875
------- ------- -------
18,940 18,944 18,936
Interest expense, net.................................. 13,529 13,559 13,577
Ground rent............................................ 150 150 150
Depreciation and amortization.......................... 4,333 4,332 4,332
------- ------- -------
Net income......................................... $ 928 $ 903 $ 877
======= ======= =======
</TABLE>

BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
STATEMENTS OF VENTURERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AALP IBM TOTAL
------- ------- --------
<S> <C> <C> <C>
Venturers' deficit, January 1, 1993................ (958) (957) (1,915)
Distributions to venturers......................... (1,957) (1,957) (3,914)
Net Income......................................... 439 438 877
------- ------- --------
Venturers' deficit, December 31, 1993.............. $(2,476) $(2,476) $ (4,952)
Distributions to venturers......................... (1,966) (1,966) (3,932)
Net income......................................... 451 452 903
------- ------- --------
Venturers' deficit, December 31, 1994.............. (3,991) (3,990) (7,981)
Distributions to venturers......................... (2,003) (2,003) (4,006)
Net income......................................... 464 464 928
------- ------- --------
Venturers' deficit, December 31, 1995.............. $(5,530) $(5,529) $(11,059)
======= ======= ========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-38
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 928 $ 903 $ 877
Charge not requiring current cash outlay:
Depreciation and amortization................... 4,333 4,332 4,332
Increase in accruable rental income............... (1,300) (1,305) (1,302)
(Increase) decrease in other assets............... (2) 2 3
(Decrease) increase in accounts payable and other
liabilities...................................... (10) 3 (1,557)
Increase (decrease) in amounts due to venturers
and affiliates................................... 52 (26) (20)
------- ------- -------
Net cash provided by operating activities....... 4,001 3,909 2,333
------- ------- -------
Cash flows from financing activities:
Distributions to venturers........................ (4,006) (3,933) (3,913)
------- ------- -------
Net cash used in financing activities........... (4,006) (3,933) (3,913)
------- ------- -------
Net decrease in cash and cash equivalents......... (5) (24) (1,580)
Cash and cash equivalents, beginning of year...... 3,529 3,553 5,133
------- ------- -------
Cash and cash equivalents, end of year............ $ 3,524 $ 3,529 $ 3,553
======= ======= =======
Supplemental information:
Interest paid................................... $13,650 $13,650 $13,641
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-39
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

BROADMOOR AUSTIN ASSOCIATES JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

I.ORGANIZATION AND ACCOUNTING POLICIES:

Broadmoor Austin Associates Joint Venture (the "Venture"), a joint
venture between Austex Associates Limited Partnership ("AALP"), as managing
venturer, and International Business Machines Corporation ("IBM"), was
formed for the purpose of owning, constructing and operating an office
complex in Austin, Texas. The significant accounting policies of the
Venture are as follows:

Venture formation:

The Venture was formed effective April 26, 1990, pursuant to a joint
venture agreement between IBM (99%) and 11,000 Burnet Road Corporation
("Burnet") (1%), a wholly-owned subsidiary of IBM.

On May 9, 1990, the joint venture agreement was amended and restated,
whereby AALP purchased from IBM a 49% interest in the Venture and all the
outstanding shares of stock in Burnet. Pursuant to the terms of this
agreement, AALP and IBM each now effectively hold a 50% interest in the
Venture.

Income-producing property:

The Income-producing property, which became operational on various dates
between April 1, 1991 and August 19, 1991, is recorded at cost.
Depreciation on buildings and improvements is provided under the straight-
line method over an estimated useful life of 50 years. The Venture analyzes
potential impairment of the Income-producing property by using recent
appraisals, other indicators of current market conditions or undiscounted
cash flows.

Deferred leasing and other charges:

Leasing charges are deferred and amortized over the term of the related
lease. Other deferred charges are amortized over terms appropriate to the
expenditure.

Income taxes:

No provision for income taxes is necessary in the financial statements of
the Venture because, as a venture, it is not subject to income tax and the
tax effect of its activities accrues to the individual venturers.

Leases:

The Venture, as a lessor, has retained substantially all of the risks and
benefits of ownership and accounts for its lease as an operating lease.
Rental income is recognized over the term of the lease as it is earned.
Accruable rental income represents rental income earned in excess of rent
payments received pursuant to the terms of the lease agreement.

Assets held for leasing purposes are classified as Income-producing
property.

As a lessee, the Venture accounts for its lease as an operating lease
(Note VII).

Cash and cash equivalents:

For purposes of reporting cash flows, cash and cash equivalents consist
of cash on hand and investments with maturities of three months or less.

F-40
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

Use of estimates in the preparation of financial statements:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.

II.INCOME PRODUCING PROPERTY:

<TABLE>
<CAPTION>
1995 1994
----------------------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Land................................................. $ 425 $ 425
Buildings and improvements........................... 107,800 107,800
---------- -----------
108,225 108,225
Accumulated depreciation............................. 9,819 7,654
---------- -----------
$ 98,406 $ 100,571
========== ===========
</TABLE>

III.DEFERRED LEASING AND OTHER CHARGES:

<TABLE>
<CAPTION>
1995 1994
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Deferred leasing and other charges.................. 31,616 31,616
Accumulated amortization............................ 9,833 7,665
----------- -----------
$ 21,783 $ 23,951
=========== ===========

IV.CASH AND CASH EQUIVALENTS:

<CAPTION>
1995 1994
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Cash and short-term deposits........................ $ 3,524 $ 3,529
Other assets........................................ 14 12
----------- -----------
$ 3,538 $ 3,541
=========== ===========

V.DEBT ON INCOME PROPERTY:

The Venture entered into a loan agreement with a Texas financial
institution totalling $140,000. Advances under the agreement are secured by
the Real estate and bear interest at 9.75%, which is payable quarterly.
Borrowings under the agreement, which are repayable on or before April 1,
2001, are guaranteed by AALP and IBM.

VI.ACCOUNTS PAYABLE AND OTHER LIABILITIES:

<CAPTION>
1995 1994
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Accounts payable and other liabilities.............. $ 3 $ 13
Accrued interest.................................... 3,441 3,441
----------- -----------
$ 3,444 $ 3,454
=========== ===========
</TABLE>

F-41
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

VII.LEASING ACTIVITIES:

The future minimum lease payments to be received by the Venture under the
noncancellable operating lease, which expires in 2006, are as follows:

<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Year ending December
1996............................................ $ 17,648
1997............................................ 17,648
1998............................................ 17,648
1999............................................ 17,648
2000............................................ 17,648
Subsequent to 2000.............................. 114,712
--------
$202,952
========

As a lessee, the Venture is obligated to IBM under a noncancellable
operating ground lease which expires on March 31, 2015. The future minimum
lease payments are due as follows:

<CAPTION>
(THOUSANDS OF DOLLARS)
<S> <C>
Year ending December
1996............................................ $ 150
1997............................................ 150
1998............................................ 150
1999............................................ 150
2000............................................ 150
Subsequent to 2000.............................. 3,638
--------
$ 4,388
========
</TABLE>

VIII. RELATED PARTY TRANSACTIONS

IBM is the sole lessee of the Real estate under a 15-year lease. The
lease commenced on various dates between April 1, 1991 and August 19, 1991.
Rental income for the years ended December 31, 1995, 1994 and 1993, and
accruable rental income receivable at December 31, 1995 and 1994, were
derived solely from this lease.

The management agreement provides for the payment of management fees to
an affiliate of AALP. During the years ended December 31, 1995, 1994 and
1993, management fees charged to the Venture totalled $407 each year.

Amounts due to venturers and affiliates at December 31, 1995 and 1994,
consisted of operating cost recoveries payable to IBM and management fees
payable to an affiliate of AALP.

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments," requires disclosure about the fair value of
all financial assets and liabilities for which it is practicable to estimate.
Cash and short-term deposits, accounts receivable, accounts payable and other
liabilities are carried at amounts that reasonably approximate their fair
values. There is no quoted market value available for any of the Predecessor
Company's financial instruments. The mortgage notes payable of the Predecessor
Company are at fixed rates of interest or fixed rates plus LIBOR which
approximate current market rates. Management believes that the carrying amount
of the Predecessor Company's financial instruments at June 30, 1996 and
December 31, 1995 and 1994 approximates fair value.

F-42
<PAGE>

PREDECESSOR COMPANY

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)

(14) SAVINGS PLAN (IN WHOLE DOLLARS)

Effective October 16, 1987, the Predecessor Company adopted a 401(k) Savings
Plan (the "Plan") for its employees. Under the Plan, as amended, employees,
age 21 and older, are eligible to participate in the Plan after they have
completed one year and 1,000 hours of service.

Wages eligible for contribution to the Plan include bonuses, overtime pay
and commissions. Participants who have authorized a pre-tax contribution of 2%
or more may also elect to make an after-tax contribution of up to 8% of their
wages.

The Plan provides that matching employer contributions are to be determined
at the discretion of the Predecessor Company. The Predecessor Company matches
25% of the first $500 contributed by its employees. The cost to the
Predecessor Company of this matching for the six months ended June 30, 1996
and 1995 and the years ended December 31, 1995, 1994 and 1993 were $30,000,
$32,000, $36,000, $41,000 and $50,000, respectively. In addition the
Predecessor Company elected to match employee contributions with a
discretionary match. The discretionary matching contributions for the six
months ended June 30, 1996 and 1995 and the years ended December 31, 1995,
1994 and 1993 were $0, $0, $0, $76,000 and $127,000, respectively.

Participants are immediately vested in their pre-tax and after-tax
contributions, the Predecessor Company's matching contributions and earnings
thereon.

(15) COMMITMENTS AND CONTINGENCIES

Legal Matters

The Predecessor Company is subject to various legal proceedings and claims
that arise in the ordinary course of business. These matters are generally
covered by insurance. Management believes that the final outcome of such
matters will not have a material adverse effect on the financial position,
results of operations or liquidity of the Predecessor Company.

Environmental Matters

The Company has obtained Phase I environmental site assessments ("ESAs") for
all properties involved in the offering. The ESAs for the Industrial
Properties located in Milwaukee, Wisconsin, revealed lead contamination near
the property lines of two of the buildings and the development parcel adjacent
to the site. The ESA states that the contamination is probably the result of
unauthorized dumping of contaminated soil by the owner of a vacant lot that is
located between the two buildings and the development parcel. The dumping
occurred prior to the acquisition of the Milwaukee Industrials by the Prentiss
group affiliate which currently owns the properties. Upon discovery of the
unauthorized dumping, the Prentiss group affiliate brought suit against the
owner of the vacant lot, the generators of the contaminated soil and the prior
owner of the properties. The contaminated soil consists of foundry sand which
was found to contain lead in excess of acceptable trace levels. According to
the ESA, the contamination does not affect the groundwater and is not likely
to migrate or leech into adjoining land. A settlement to the lawsuit has been
approved by the court negotiated under which (i) the Company has transferred
the affected areas (a total of approximately 1.2 acres) to the owner of the
vacant lot in exchange for $100,000 and (ii) the owner of the vacant lot and
the generators of the contaminated soil agreed to assume all responsibility
for the remediation of the contaminated soil. The court has entered a finding
that the Operating Partnership was not in the chain of title of the
contaminated area. It is Management's opinion that any outcome of this
environmental matter will not have a material impact on the financial
statements.

F-43
<PAGE>

SCHEDULE III
PREDECESSOR COMPANY

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
GROSS AMOUNT
INITIAL COST CARRIED AT CLOSE OF PERIOD
-------------------- COSTS ----------------------------------
BUILDINGS CAPITALIZED
AND SUBSEQUENT LAND AND BUILDING AND
PROPERTY NAME LOCATION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION IMPROVEMENTS IMPROVEMENTS TOTAL
------------- ----------------- ------------ ------- ------------ -------------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Proper-
ties:
Cumberland
Office Park..... Atlanta, GA $ -- $10,987 $ 13,226 $ 819 $11,020 $ 14,012 $ 25,032
5307 East
Mockingbird..... Dallas, TX -- 870 1,976 264 874 2,236 3,110
Walnut Glen
Tower........... Dallas, TX 14,599 5,400 32,669 213 5,400 32,882 38,282
8521 Leesburg
Pike............ Tysons Corner, VA 5,120 2,130 5,955 158 2,130 6,113 8,243
Industrial Prop-
erties:
8869 Greenwood.. Baltimore, MD -- 425 1,701 153 425 1,854 2,279
1329 Western
Avenue.......... Baltimore, MD -- 800 4,854 5 800 4,859 5,659
Deep Run 1&2.... Baltimore, MD -- 1,400 3,947 128 1,400 4,075 5,475
4611 Mercedes
Drive........... Baltimore, MD -- 865 4,600 50 865 4,650 5,515
Northland Park.. Kansas City, MO 9,500 2,710 12,677 163 2,710 12,840 15,550
North Topping
Street.......... Kansas City, MO 986 425 1,505 -- 425 1,505 1,930
Airworld Drive.. Kansas City, MO 1,413 722 2,736 -- 722 2,736 3,458
107th Terrace... Kansas City, MO 1,037 276 1,728 -- 276 1,728 2,004
Nicholson III... Dallas, TX 1,500 700 1,758 82 700 1,840 2,540
13425
Branchview...... Dallas, TX 954 310 1,795 7 310 1,802 2,112
1002 Avenue T... Dallas, TX 1,010 300 1,831 177 300 2,008 2,308
1625 Vantage.... Dallas, TX -- 145 1,067 1 145 1,068 1,213
Airport
Properties...... Milwaukee, WI 10,323 1,649 11,783 861 2,034 12,259 14,293
Oakcreek
Properties...... Milwaukee, WI -- 494 3,795 103 495 3,897 4,392
North West
Properties...... Milwaukee, WI -- 1,030 8,357 366 1,030 8,723 9,753
----------------- ------- ------- -------- ------ ------- -------- --------
$46,442 $31,638 $117,960 $3,550 $32,061 $121,087 $153,148
======= ======= ======== ====== ======= ======== ========
<CAPTION>
DEPRECIABLE
ACCUMULATED DATE OF DATE LIVES
PROPERTY NAME DEPRECIATION CONSTRUCTION ACQUIRED (YEARS)
------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Office Proper-
ties:
Cumberland (1)
Office Park..... $ 2,262 1972-1980 01/16/91
5307 East (1)
Mockingbird..... 218 1979 01/28/93
Walnut Glen (1)
Tower........... 2,187 1985 01/01/94
8521 Leesburg (1)
Pike............ 274 1984 08/17/94
Industrial Prop-
erties:
8869 Greenwood.. 151 1986-1987 12/27/93 (1)
1329 Western (1)
Avenue.......... 251 1988 09/19/94
Deep Run 1&2.... 213 1988 09/01/94 (1)
4611 Mercedes (1)
Drive........... 187 1990 12/27/94
Northland Park.. 2,024 1975-1980 01/23/92 (1)
North Topping (1)
Street.......... 175 1975-1980 02/01/93
Airworld Drive.. 178 1975-1980 05/16/94 (1)
107th Terrace... 113 1975-1980 05/16/94 (1)
Nicholson III... 242 1981 09/16/92 (1)
13425 (1)
Branchview...... 177 1970 07/23/93
1002 Avenue T... 209 1981 05/05/93 (1)
1625 Vantage.... 106 1984 07/26/93 (1)
Airport (1)
Properties...... 1,392 1970-1980 02/11/93
Oakcreek (1)
Properties...... 445 1970-1979 02/11/93
North West (1)
Properties...... 976 1973-1987 02/11/93
------------
$11,780
============
</TABLE>
- ----
/(1)/ Buildings and improvements--25 to 40 years.
/(2)/ The aggregate cost for federal income tax purposes was approximately
$155,761.

F-44
<PAGE>

PREDECESSOR COMPANY

REAL ESTATE AND ACCUMULATED DEPRECIATION

(DOLLARS IN THOUSANDS)

A summary of activity for Real estate and Accumulated depreciation is as
follows:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Real estate:
Balance at beginning of year....................... $151,673 $ 89,116 $42,561
Improvements..................................... 1,475 580 1,023
Acquisition of Real estate....................... -- 68,070 45,532
Disposition of Real estate....................... -- (6,093) --
-------- -------- -------
Balance at end of year........................... $153,148 $151,673 $89,116
======== ======== =======
Accumulated depreciation:
Balance at beginning of year..................... 7,307 3,567 1,379
Depreciation expense............................. 4,473 4,008 2,188
Accumulated depreciation on Real estate sold..... -- (268) --
-------- -------- -------
Balance at end of year........................... $ 11,780 $ 7,307 $ 3,567
======== ======== =======
</TABLE>

F-45
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Prentiss Properties Trust

We have audited the accompanying combined statements of revenues and certain
operating expenses of The Prentiss Group Acquisition Properties for each of
the three years in the period ended December 31, 1995. These statements of
revenues and certain operating expenses are the responsibility of The Prentiss
Group Acquisition Properties' owners. Our responsibility is to express an
opinion on the statements of revenues and certain operating expenses based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of revenues and
certain operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements of revenues and certain operating expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statements of revenues and certain expense. We believe that our audits
provide a reasonable basis for our opinion.

The accompanying statements of revenues and certain operating expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the registration
statement on Form S-11 of Prentiss Properties Trust), as described in Note 1,
and are not intended to be a complete presentation of the Properties' revenues
and expenses.

In our opinion, the statements of revenues and certain operating expenses
referred to above present fairly, in all material respects, the revenues and
certain operating expenses described in Note 1 of The Prentiss Group
Acquisition Properties for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.

Coopers & Lybrand L.L.P.

July 15, 1996
Dallas, Texas

F-46
<PAGE>

THE PRENTISS GROUP ACQUISITION PROPERTIES

COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

The accompanying notes are an integral part of this financial statement.

F-47
<PAGE>

THE PRENTISS GROUP AQUISITION PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

1. BASIS OF PRESENTATION:

The combined statements of revenues and certain operating expenses for the
six months ended June 30, 1996 and 1995 and for the years ended December 31,
1995, 1994 and 1993 relate to the operations of the Fairview Eleven Investors
L.P. ("3141 Fairview Park Drive"), Park West C-2 Associates ("Park West C2")
and the Pacific Gateway Center ("PGC") properties, owned by an affiliate of
the Prentiss Group and managed by the Prentiss Group for a period of time
during the period for which information is presented. The Prentiss Group
acquired 3141 Fairview Park Drive from the affiliate on February 23, 1996 and
a 15% non-controlling interest in Park West C2 in September 1995. The Prentiss
Group currently holds no ownership interest in Pacific Gateway Center. These
properties are to be acquired by Prentiss Properties Trust concurrent with the
consummation of the Offering for an aggregate purchase price, (including
closing cost and the assumption and repayment of debt), of $109,215 in cash
and the disbursement of Operating Partnership Units for the Prentiss Group's
15% ownership in the Park West C2 property. For the 3141 Fairview Park Drive
property acquired between January 1, 1996 and June 30, 1996 and the properties
for which a controlling interest was not owned at June 30, 1996, operations
prior to the date of acquisition are presented as part of the Prentiss Group
Acquisition Properties and operations subsequent to the acquisition are
presented as part of the Predecessor Company, as shown below in the table.

<TABLE>
<CAPTION>
COMBINED OPERATIONS
----------------------------------------------------
TOTAL FOR THE
SIX MONTHS ENDED PERIOD SUBSEQUENT PERIOD PRIOR
JUNE 30, 1996 TO ACQUISITION(1) TO ACQUISITION(2)
---------------- ----------------- -----------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Rental income.......... $8,957 $1,269 $7,688
Other income........... 74 9 65
------ ------ ------
Total revenues....... 9,031 1,278 7,753
Certain operating ex-
penses:
Real estate taxes...... 543 95 448
Repairs and mainte-
nance................. 796 208 588
Property management.... 876 112 764
Utilities.............. 617 146 471
Insurance.............. 99 3 96
Other.................. 5 -- 5
------ ------ ------
Total certain operat-
ing expenses........ 2,936 564 2,372
Revenues in excess of
certain operating ex-
penses.................. $6,095 $ 714 $5,381
====== ====== ======
</TABLE>
- --------
/(1)/ Included in the Predecessor Company.
/(2)/ Included in the Prentiss Group Acquisition Properties.

The accompanying combined statements exclude certain expenses such as
interest, depreciation and amortization and other costs not directly related
to the future operations of these properties that may not be comparable to the
expenses expected to be incurred in the proposed future operations of these
properties. Management is not aware of any material factors relating to these
properties which would cause the reported financial information not to be
necessarily indicative of future operating results.

Revenue and Expense Recognition

The combined statements of revenues and certain expenses have been prepared
on the accrual basis of accounting.

F-48
<PAGE>

THE PRENTISS GROUP ACQUISITION PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

Rental income is recorded when due from tenants. The effects of scheduled
rent increases and rental concessions, if any, are recognized on a straight-
line basis over the term of the tenant's lease.

Future Rental Revenues

The properties are leased to tenants under net operating leases. Minimum
lease payments receivable, excluding tenant reimbursements of expenses, under
noncancellable operating leases in effect as of December 31, 1995 are
approximately as follows:

<TABLE>
<S> <C>
1996................................................................. $12,441
1997................................................................. 11,035
1998................................................................. 10,240
1999................................................................. 8,242
2000................................................................. 2,916
Thereafter........................................................... 3,447
-------
$48,321
=======
</TABLE>

Use of Estimates

The preparation of the combined statements of revenues and certain operating
expenses requires management to make estimates and assumptions that affect the
reported amounts, revenues and certain operating expenses during the reporting
period. Actual results could differ from those estimates.

2. RELATED PARTY TRANSACTIONS:

Under the terms of management and development agreements, the Prentiss Group
Acquisition Properties pay management and certain other fees to the
Predecessor Company. During the six months ended June 30, 1996 and 1995 and
the years ended December 31, 1995, 1994, and 1993, fees incurred under these
agreements totalled $229, $265, $528, $545 and $563, respectively.

3. ENVIRONMENTAL MATTERS:

The area where PGC is now located (the "Plant Site") was formerly the site
of a synthetic rubber manufacturing plant owned by the United States
Government and subsequently owned or operated by Shell Oil Company and Dow
Chemical Company. During the operation of the plant, wastes were disposed of
in pits and ponds just to the south of what is now PGC. Environmental studies
have detected groundwater contamination. Also, limited soil contamination
around and in certain other areas of PGC has been detected, including parcels
that will be owned by the Company. The EPA has named as Potentially
Responsible Parties ("PRPs") for the investigation and remediation of the
Plant Site, all owners of the land underlying PGC, including the United States
Government, Dow, Shell, and the current owner, a Prentiss Group affiliate.

The Prentiss Group executed a settlement agreement with Shell that
indemnifies and hold harmless the current owner and successors from liability
or clean up or remediation, and third party tort claims for injury to person
or damage to property, but not claims for diminution in value or consequential
damages relating to remediation.

Management believes that its share of any costs to remediate the Plant Site
will not have a material adverse affect on the Company. The Company believes
that despite its possible technical liability as an owner of contaminated
property, existing evidence indicates that contamination of concern to the
regulatory agencies did not result from the present use of the site. Further,
the Company believes that the indemnifications from Shell will protect the
Company against any future costs of a material nature. It is Management's
opinion that even without the arrangements, the Company's effective share of
any costs to remediate contamination of this site would not have a material
adverse effect on the financial statements.

F-49
<PAGE>

REPORT OF INDEPENDENT ACCOUNTS

To the Board of Directors
Prentiss Properties Trust

We have audited the accompanying combined statement of revenues and certain
operating expenses of The Other Acquisition Properties for the year ended
December 31, 1995. The statement of revenues and certain operating expenses is
the responsibility of The Other Acquisition Properties' owners. Our
responsibility is to express an opinion on the statement of revenues and
certain operating expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of revenues and certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
statement of revenues and certain operating expenses. We believe that our
audit provides a reasonable basis for our opinion.

The accompanying statement of revenues and certain operating expenses was
prepared for the purpose of complying with rules and regulations of the
Securities and Exchange Commission (for inclusion in the registration
statement on Form S-11 of Prentiss Properties Trust), as described in Note 1,
and is not intended to be a complete presentation of the Properties' revenues
and expenses and may not be comparable to results from proposed future
operations of the Properties.

In our opinion, the statement of revenues and certain operating expenses
referred to above presents fairly, in all material respects, the revenues and
certain operating expenses described in Note 1 of The Other Acquisition
Properties for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.

Coopers & Lybrand L.L.P.

July 15, 1996
Dallas, Texas

F-50
<PAGE>

THE OTHER ACQUISITION PROPERTIES

COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------
1996 1995 1995 1994 1993
----------- ----------- ------ ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rental income......... $3,976 $4,175 $8,211 $7,148 $5,990
Other income.......... 3 29 60 55 82
------ ------ ------ ------ ------
Total revenues...... 3,979 4,204 8,271 7,203 6,072
Certain operating ex-
penses:
Real estate taxes..... 433 424 659 734 647
Repairs and mainte-
nance................ 63 151 335 379 278
Property management... 624 572 1,169 1,121 947
Utilities............. 421 405 857 868 851
Insurance............. 26 31 59 48 16
------ ------ ------ ------ ------
Total certain oper-
ating expenses..... 1,567 1,583 3,079 3,150 2,739
Revenues in excess of
certain operating ex-
penses................. $2,412 $2,621 $5,192 $4,053 $3,333
====== ====== ====== ====== ======
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-51
<PAGE>

THE OTHER ACQUISITION PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

1. BASIS OF PRESENTATION:

The combined statements of revenues and certain operating expenses for the
six months ended June 30, 1996 and 1995 and for the years ended December 31,
1995 and 1994 relate to the operations of One Northwestern (consisting of one
property/building), Cottonwood (consisting of three properties/buildings) and
9050 Junction Drive (consisting of one property/building), which are to be
acquired by Prentiss Properties Trust from an affiliate of Lehman Brothers
Inc. concurrent with the consummation of the Offering for an aggregate
purchase price, including closing costs, of $43,251. The combined statement of
revenues and certain operating expenses for the year ended December 31, 1993
includes the operations of One Northwestern and Cottonwood and the operations
of 9050 Junction Drive for the period subsequent to the acquisition of the
property by an affiliate of Lehman Brothers Inc. in August 1993. The
operations of the 9050 Junction Drive property for the period between January
1, 1993 and the acquisition date are not considered material to the 1993
presentation.

The combined statements of revenues and certain operating expenses have been
prepared on the accrual basis of accounting.

Revenue and Expense Recognition

Rental income is recorded when due from tenants. The effects of scheduled
rent increases and rental concessions, if any, are recognized on a straight-
line basis over the term of the tenant's lease.

Future Rental Revenues

The properties are leased to tenants under net operating leases. Minimum
lease payments receivable, excluding tenant reimbursement of expenses, under
noncancellable operating leases in effect as of December 31, 1995, are
approximately as follows:

<TABLE>
<S> <C>
1996................................................................. $ 5,818
1997................................................................. 5,457
1998................................................................. 4,453
1999................................................................. 4,113
2000................................................................. 3,408
Thereafter........................................................... 8,739
-------
$31,988
=======
</TABLE>

Use of Estimates

2. RELATED PARTY TRANSACTIONS:

PPL assumed management of the One Northwestern and Cottonwood properties on
March 1, 1996. Under the terms of the management and development agreements,
the properties pay management and certain other fees to the Predecessor
Company. During the six months ended June 30, 1996, fees incurred under these
agreements totalled $66.

F-52
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors Prentiss Properties Trust

We have audited the accompanying combined statement of revenues and certain
operating expenses of Bachman Creek and Park West E1 and E2 Properties for the
year ended December 31, 1995. This statement of revenues and certain operating
expenses is the responsibility of the Bachman Creek owners. Our responsibility
is to express an opinion on the statement of revenues and certain operating
expenses based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the combined statements of revenues
and certain operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of revenues and certain operating expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation
of the statement of revenues and certain operating expenses. We believe that
our audit provides a reasonable basis for our opinion.

The accompanying combined statement of revenues and certain operating
expenses was prepared for the purpose of complying with rules and regulations
of the Securities and Exchange Commission (for inclusion in the registration
Form S-11 of Prentiss Properties Trust), as described in Note 1, and is not
intended to be a complete presentation of the Property's revenues and expenses
and may not be comparable to results from proposed future operations of the
Properties.

In our opinion, the combined statement of revenues and certain operating
expenses referred to above presents fairly, in all material respects, the
revenues and certain operating expenses described in Note 1 of Bachman Creek
and Park West E1 and E2 for the year ended December 31, 1995, in conformity
with generally accepted accounting principles.

Coopers & Lybrand l.l.p.

August 30, 1996
Dallas, Texas

F-53
<PAGE>

BACHMAN CREEK AND PARK WEST E1 AND E2 PROPERTIES

COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------------------- ------------
1996 1995 1995
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues:
Rental income.......................... $3,578 $3,680 $6,917
Other income........................... 7 3 9
------ ------ ------
Total revenues....................... 3,585 3,683 6,926
Certain operating expenses:
Real estate taxes...................... 67 66 782
Repairs and maintenance................ 114 117 230
Property management.................... 774 773 1,505
Utilities.............................. 375 470 917
Insurance.............................. 8 13 48
------ ------ ------
Total certain operating expenses..... 1,338 1,439 3,482
Revenues in excess of certain operating
expenses................................ $2,247 $2,244 $3,444
====== ====== ======
</TABLE>

The accompanying notes are an integral part of this financial statement.

F-54
<PAGE>

BACHMAN CREEK AND PARK WEST E1 AND E2 PROPERTIES

NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

1. BASIS OF PRESENTATION:

The combined statements of revenues and certain operating expenses for the
six months ended June 30, 1996 and 1995 and for the year ended December 31,
1995 relate to the operations of the Bachman Creek and Park West E1 and E2
Properties which are to be acquired by Prentiss Properties Trust concurrent
with the consummation of the Offering for an aggregate purchase price,
including closing costs, of $41,127 in cash, the assumption and repayment of
debt and Operating Partnership Units for the equity interest of the Prentiss
Group in the Bachman Creek property.

The accompanying combined statements exclude certain expenses such as
interest, depreciation and amortization and other costs not directly related
to the future operations of this property that may not be comparable to the
expenses expected to be incurred in the proposed future operations of this
property. Management is not aware of any material factors relating to this
property which would cause the reported financial information not to be
necessarily indicative of future operating results.

Revenue and Expense Recognition

The combined statements of revenues and certain operating expenses have been
prepared on the accrual basis of accounting.

Rental income is recorded when due from tenants. The effects of scheduled
rent increases and rental concessions, if any, are recognized on a straight-
line basis over the term of the tenant's lease.

Future Rental Revenues

The property is leased to tenants under net operating leases. Minimum lease
payments receivable, excluding tenant reimbursement of expenses, under
noncancellable operating leases in effect as of December 31, 1995, are
approximately as follows:

<TABLE>
<S> <C>
1996................................................................. $ 6,071
1997................................................................. 6,190
1998................................................................. 6,197
1999................................................................. 5,793
2000................................................................. 5,392
Thereafter........................................................... 15,565
-------
$45,208
=======
</TABLE>

Use of Estimates

2. RELATED PARTY TRANSACTIONS:

Under the terms of management and development agreements, Bachman Creek and
ParkWest E1 and E2 pays management and certain other fees to the Predecessor
Company. During the six months ended June 30, 1996 and 1995 and the year ended
December 31, 1995, fees incurred under these agreements totalled $86, $101 and
$191, respectively.

F-55
<PAGE>

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- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

-----------------

SUMMARY TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 16
The Company.............................................................. 29
Business Objectives...................................................... 32
Use of Proceeds.......................................................... 41
Distribution Policy...................................................... 43
Capitalization........................................................... 46
Dilution................................................................. 47
Selected Financial Information........................................... 48
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 52
Properties............................................................... 58
Policies with Respect to Certain Activities.............................. 98
Management............................................................... 102
Formation Transactions................................................... 111
Certain Relationships and Transactions................................... 114
Principal and Management Shareholders.................................... 116
Description of Shares of Beneficial Interest............................. 117
Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws........................................................ 121
Shares Available for Future Sale......................................... 125
Operating Partnership Agreement.......................................... 127
Federal Income Tax Considerations........................................ 131
ERISA Considerations..................................................... 146
Underwriting............................................................. 149
Legal Matters............................................................ 151
Experts.................................................................. 151
Additional Information................................................... 152
Glossary................................................................. G-1
Financial Statements..................................................... F-1
</TABLE>

-----------------
UNTIL NOVEMBER 10, 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF THE DEALERS TO DELIVER A PRO-
SPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

16,000,000 SHARES

[LOGO OF PRENTISS PROPERTIES TRUST APPEARS]
Prentiss Properties Trust

COMMON SHARES OF
BENEFICIAL INTEREST

-----------------

PROSPECTUS
OCTOBER 17, 1996

-----------------

LEHMAN BROTHERS
ALEX. BROWN & SONS
INCORPORATED
A.G. EDWARDS & SONS, INC.
PRUDENTIAL SECURITIES INCORPORATED
SMITH BARNEY INC.
PRINCIPAL FINANCIAL SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.

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