<PAGE> 1
As filed with the Securities and Exchange Commission on October 16, 1997
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) OCTOBER 1, 1997
EQUITY OFFICE PROPERTIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 1-13115 36-4151656
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.)
TWO NORTH RIVERSIDE PLAZA, SUITE 2200
CHICAGO, ILLINOIS 60606
(ADDRESS OR PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (312) 466-3300
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITIONS
As used herein, the term "Company" means either Equity Office Properties Trust,
a Maryland real estate investment trust, alone as an entity, or, as the
context may require, the consolidated enterprise consisting of Equity Office
Properties Trust, EOP Operating Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), and their subsidiaries. The
Company acquired 20 office properties and two parking facilities during the
period from July 11, 1997 through October 7, 1997. The cash portion of these
transactions was financed primarily through the Company's revolving line of
credit, term credit facility and working capital. Descriptions of the
acquired properties are as follows.
ADAMS-WABASH PARKING GARAGE
The Company acquired the Adams-Wabash Parking Garage from an unaffiliated
party for $25 million in cash on August 11, 1997. The parking facility is
located in downtown Chicago, Illinois and consists of 670 parking spaces.
COLUMBUS AMERICA PROPERTIES
The Company acquired two office properties and one parking facility in New
Orleans, Louisiana on September 3. 1997. The purchase price was $140 million
of which approximately $49.1 million was paid in EOP Operating Limited
Partnership units at a price of $29 per unit and $90.9 million in cash.
The two office properties are LL&E Tower, a 36-story, 545,157 square-foot
building, and Texaco Center, a 32-story 619,714 square-foot building. The
acquisition also includes 601 Tchoupitoulas Garage, a 9.5 story parking
facility with 759 parking spaces. All three are centrally located in downtown
New Orleans. The office buildings were each 82% occupied as of September 30,
1997.
PRUDENTIAL PROPERTIES
The Company acquired six office properties in Houston and Dallas, Texas and
Philadelphia, Pennsylvania on October 1, 1997. The purchase price was $289
million, of which $211.9 million was paid in cash, $6.0 million of liabilities
was assumed and the remaining $71.1 million was paid in EOP Operating Limited
Partnership units at a price of $24.50 per unit.
The six office properties consist of approximately 2.5 million square feet.
The six properties are Destec Tower, a 25-story, 574,216 square-foot office
building in the Westchase area of Houston; Brookhollow Central I, II, and III,
a 800,688 square-foot office complex in suburban Houston; 8080 Central, a
17-story, 283,707 square-foot office building in the North Central Expressway
submarket of Dallas; and 1700 Market, a 32-story, 825,547 square-foot office
building in the Market Street West area of downtown Philadelphia. The average
occupancy for the entire portfolio was 81.4% as of September 30, 1997.
550 SOUTH HOPE STREET
The Company acquired 550 South Hope Street, a 27-story tower consisting of
566,434 square feet and is located in the center of the downtown business
district of Los Angeles, California on October 6, 1997. The purchase price was
$99.5 million and was paid in cash. The property was 84% occupied as of
September 30, 1997.
2
<PAGE> 3
10 & 30 SOUTH WACKER DRIVE
The Company acquired the 10 & 30 South Wacker Drive buildings in Chicago,
Illinois for a cash purchase price of $462 million on October 7, 1997. The
twin 40-story towers include 2,016,023 million square feet of office space
flanking the north and south ends of the Chicago Mercantile Exchange. The
property was 97% occupied as of September 30, 1997.
ACORN PROPERTIES
The Company acquired nine office properties in suburban Philadelphia from an
unaffiliated party totalling approximately 853,867 square feet of office
space on October 7, 1997. The purchase price for all nine office
properties was approximately $127.5 million, which was paid in a combination
of cash, an aggregate of approximately $20 million of EOP Operating Limited
Partnership units at a price of $28.775 per unit, and the assumption of debt.
The nine office properties are Four Falls Corporate Center, consisting
of 254,355 square-feet which was 99.0% occupied as of September 30, 1997; Oak
Hill Plaza, consisting of 164,360 square-feet which was 100.0% occupied as of
September 30, 1997; Walnut Hill Plaza, consisting of 149,716 square-feet which
was 97.0% occupied as of September 30, 1997; ; Two Valley Square, consisting of
70,622 square-feet which was 100.0% occupied as of September 30, 1997; Four
Valley Square, consisting of 49,757 square-feet which was 100.0% occupied as of
September 30, 1997; Five Valley Square, consisting of 18,564 square-feet which
was 100.0% occupied as of September 30, 1997; One Devon Square, consisting of
77,267 square-feet which was 100.0% occupied as of September 30, 1997; Two
Devon Square, consisting of 63,226 square-feet which was 90.0% occupied as of
September 30, 1997; and Three Devon Square, consisting of 6,000 square-feet
which was 100.0% occupied as of September 30, 1997.
3
<PAGE> 4
ITEM 5. OTHER EVENTS
The Company expects to acquire two additional office properties within the
next 45 days from the seller of the Acorn Properties. The purchase price is
expected to be $17.2 million. The office properties are One Valley Square and
Three Valley Square, both located in suburban Philadelphia, Pennsylvania, and
consisting of 70,289 and 84,605 rentable square feet, respectively. The
financial statements for these properties are included in the Combined
Statement of Revenue and Certain Expenses for the Acorn Properties in Item 7.
4
<PAGE> 5
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro Forma Financial Statements.
(b) Financial Statements of acquired and probable real
estate properties.
5
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITY OFFICE PROPERTIES TRUST
Date: October 16, 1997 By: /s/ Richard D. Kincaid
---------------- --------------------
Richard D. Kincaid
Executive Vice President,
Chief Financial Officer
6
<PAGE> 7
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The accompanying unaudited pro forma condensed combined balance sheet
as of June 30, 1997 reflects the following transactions which all occurred
subsequent to June 30, 1997: (a) the acquisition of 20 office properties and the
acquisition of 2 parking facilities; (b) distributions to capital partners and
financing activities; (c) the transactions that occurred in connection with the
consolidation of the entities which comprise the predecessors ("Equity Office
Predecessors") of the Company (the "Consolidation") and the initial public
offering (the "Offering"), including the sale of $603,750,000 of common shares
of beneficial interest $0.01 par value per share ("Common Shares") and the use
of the net proceeds for the repayment of debt as of June 30, 1997; (d) the $180
million private debt offering and the use of the proceeds to repay the line of
credit; (e) the issuance of $74 million of Common Shares; and (f) draws on the
$1.5 billion unsecured credit facility to fund acquisitions, repay mortgage
indebtedness and repay the line of credit.
The accompanying unaudited pro forma condensed combined statement of
operations for the six months ended June 30, 1997 reflects the following
transactions as if they had occurred on January 1, 1997: (a) the acquisition
of 31 office properties and 6 parking facilities acquired between January 1,
1997 and October 7, 1997, the probable acquisition of two office properties
and the disposition of two office properties; (b) the $180 million private
debt offering which occurred on September 3, 1997; (c) the Consolidation and
the Offering and the decrease in interest expense resulting from the use of
the net proceeds for the repayment of mortgage debt; and (d) the decrease in
interest expense from draws on the $1.5 billion unsecured credit facility used
to refinance existing debt.
The accompanying unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1996 reflects the following
transactions as if they occurred on January 1, 1996: (a) the acquisition of 41
office properties and 13 parking facilities acquired between January 1, 1996
and October 7, 1997, the probable acquisition of two office properties and the
disposition of two office properties; (b) the $180 million private debt
offering which occurred on September 3, 1997; (c) the Consolidation and the
Offering and the decrease in interest expense resulting form the use of
proceeds for the repayment of mortgage debt; and (d) the decrease in interest
expense resulting from draws on the $1.5 billion unsecured credit facility used
to refinance existing debt.
The accompanying unaudited pro forma condensed combined financial
statements have been prepared by management of the Company and do not purport
to be indicative of the results which would actually have been obtained had the
transactions described above been completed on the dates indicated or which may
be obtained in the future. The pro forma condensed combined financial
statements should be read in conjunction with the accompanying notes to the pro
forma condensed combined financial statements, the combined financial
statements of the Company included in the Company's Form S-11 dated July 7,
1997 and Quarterly Report on Form 10-Q dated June 30, 1997 and the statements
of revenue and certain expenses for the acquired properties (included elsewhere
herein).
7
<PAGE> 8
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cash Used for Consolidation
Equity Office Financing Pro Forma
Predecessors Activities Adjustments
----------------------------------------------------------------
ASSETS (A) (B)
<S> <C> <C> <C>
Investment in real estate, net $ 3,773,034 $ - $ 1,053,859 (C)
Cash and cash equivalents 242,985 (146,893) (14,356) (D)
Rents and other receivables 62,789 - (57,582) (E)
Escrow deposits and restricted cash 30,740 - -
Investment in unconsolidated joint venture 73,073 - 13,977 (F)
Other assets 95,737 - (72,892) (G)
----------------------------------------------------------------
TOTAL ASSETS $ 4,278,358 $ (146,893) $ 923,006
================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage debt $ 1,944,407 $ - $ (20,302) (H)
Notes payable - 180,000 -
Revolving line of credit/term loan 272,625 (260,000) -
Distribution payable 66,893 (66,893) -
Other liabilities 100,156 - (1,886) (I)
----------------------------------------------------------------
TOTAL LIABILITIES 2,384,081 (146,893) (22,188)
================================================================
Minority interests:
Operating Partnership - - 249,481 (J)
Partially owned properties 8,552 - -
Owners' equity 1,885,725 - (1,885,725) (K)
Common shares - - 1,229 (L)
Paid in capital - - 2,580,209 (M)
----------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,278,358 $ (146,893) $ 923,006
================================================================
<CAPTION>
Offering
Pro Forma Adjustments Subtotal New Acquisitions
----------------------------------------------------------------
ASSETS (N) (U)
<S> <C> <C> <C>
Investment in real estate, net $ - $ 4,826,893 $ 1,160,200
Cash and cash equivalents (51,798) (O) 29,938 (999,317)
Rents and other receivables - 5,207 -
Escrow deposits and restricted cash - 30,740 -
Investment in unconsolidated joint venture - 87,050 -
Other assets (2,193) (P) 20,652 -
----------------------------------------------------------------
TOTAL ASSETS $ (53,991) $ 5,000,480 $ 160,883
================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage debt $ (598,394) (Q) $ 1,325,711 $ 14,749
Notes payable - 180,000 -
Revolving line of credit/term loan - 12,625 -
Distribution payable - - -
Other liabilities - 98,270 6,000
----------------------------------------------------------------
TOTAL LIABILITIES (598,394) 1,616,606 20,749
================================================================
Minority interests:
Operating Partnership (4,361) (R) 245,120 -
Partially owned properties - 8,552 -
- -
Owners' equity - - -
Common shares 288 (S) 1,517 -
Paid in capital 548,476 (T) 3,128,685 140,134
----------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ (53,991) $ 5,000,480 $ 160,883
================================================================
<CAPTION>
Equity Office
Properties Trust
Other Activity Pro forma
------------------------------------
ASSETS
<S> <C> <C>
Investment in real estate, net $ - $ 5,987,093
Cash and cash equivalents 973,772 (V) 4,393
Rents and other receivables - 5,207
Escrow deposits and restricted cash - 30,740
Investment in unconsolidated joint venture - 87,050
Other assets 3,964 (W) 24,616
------------------------------------
TOTAL ASSETS $ 977,736 $ 6,139,099
====================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage debt $ (234,402) (X) $ 1,106,058
Notes payable - 180,000
Revolving line of credit/term loan 1,140,719 (Y) 1,153,344
Distribution payable - -
Other liabilities - 104,270
------------------------------------
TOTAL LIABILITIES 906,317 2,543,672
====================================
Minority interests:
Operating Partnership 113,383 (Z) 358,503
Partially owned properties - 8,552
Owners' equity - -
Common shares 30 (AA) 1,547
Paid in capital (41,994) (AB) 3,226,825
------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 977,736 $ 6,139,099
====================================
</TABLE>
8
<PAGE> 9
EQUITY OFFICE PROPERTIES TRUST
Pro Forma Condensed Combined Statement of Operations
For the six months ended June 30, 1997
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Equity Office 1997 Acquired Financing
Predecessors Properties Dispositions Activity
---------------- ------------- ------------ ---------
(AC) (AD)
<S> <C> <C> <C> <C>
Revenues:
Rental $ 241,736 $ 17,269 $ (2,587) $ -
Tenant reimbursements 40,256 5,945 (24) -
Parking 19,950 172 (378) -
Other 6,270 670 (188) -
Fees from noncombined affiliates 2,440 - - -
Interest 9,134 65 (9) -
----------- --------- --------- --------
Total revenues 319,786 24,121 (3,186) -
----------- --------- --------- --------
Expenses:
Property operating $ 120,109 10,633 (1,403) -
Interest 76,301 - (36) 7,762(AE)
Depreciation 52,661 3,607 (397) -
Amortization 7,748 - (54) -
General and administrative 14,726 - - -
----------- --------- --------- --------
271,545 14,240 (1,890) 7,762
----------- --------- --------- --------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items 48,241 9,881 (1,296) (7,762)
Minority interests:
Operating Partnership - - - -
Partially owned properties (879) - - -
Income from investment in unconsolidated joint ventures 2,025 1,109 - -
Gain on sale of real estate 12,510 - (12,510) -
----------- --------- --------- --------
Income before extraordinary items 61,897 10,990 (13,806) (7,762)
Extraordinary items (275) - 275 -
----------- --------- --------- --------
Net income $ 61,622 $ 10,990 $ (13,531) $(7,762)
=========== ========= ========= ========
Net income per Common Share
Weighted average Common Shares outstanding
<CAPTION>
Offering
Consolidation Pro Forma
Activity Adjustments Subtotal New Acquisitions
------------- -------------- ----------- ----------------
(AC)
<S> <C> <C> <C> <C>
Revenues:
Rental $ 11,281 (AF) - $ 267,699 $58,232
Tenant reimbursements - - 46,177 17,048
Parking - - 19,744 4,897
Other - - 6,752 1,395
Fees from noncombined affiliates - - 2,440 -
Interest - - 9,190 -
-------- --------- --------- --------
Total revenues 11,281 - 352,002 81,572
-------- --------- --------- --------
Expenses:
Property operating - - 129,339 31,314
Interest - (22,858) (AJ) 61,169 32,217
Depreciation 11,856 (AG) - 67,727 13,052
Amortization (5,161) (AH) - 2,533 -
General and administrative - 1,200 (AK) 15,926 -
-------- --------- --------- --------
6,695 (21,658) 276,694 76,583
-------- --------- --------- --------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items 4,586 21,658 75,308 4,989
Minority interests:
Operating Partnership (4,924) (AI) (706) (AI) (5,630) (2,821) (AI)
Partially owned properties (28) (AI) - (907) -
Income from investment in unconsolidated joint ventures - - 3,134 -
Gain on sale of real estate - - - -
-------- --------- --------- --------
Income before extraordinary items (366) 20,952 71,905 2,168
Extraordinary items - - - -
-------- --------- --------- --------
Net income $ (366) $ 20,952 $ 71,905 $ 2,168
======== ========= ========= ========
Net income per Common Share $ 0.47 (AN)
=========
Weighted average Common Shares outstanding 151,678
=========
<CAPTION>
Equity Office
Other Financing Properties Trust Pro
Activity Forma
--------------- ----------------------
<S> <C> <C>
Revenues:
Rental $ - $325,931
Tenant reimbursements - 63,225
Parking - 24,641
Other - 8,147
Fees from noncombined affiliates - 2,440
Interest - 9,190
-------- --------
Total revenues - 433,574
-------- --------
Expenses:
Property operating - 160,653
Interest (4,513)(AL) 88,873
Depreciation 80,779
Amortization 2,413 (AM) 4,946
General and administrative 15,926
-------- --------
(2,100) 351,177
-------- --------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items 2,100 82,397
Minority interests:
Operating Partnership (8,451)
Partially owned properties (907)
Income from investment in unconsolidated joint ventures 3,134
Gain on sale of real estate -
-------- --------
Income before extraordinary items 2,100 76,173
Extraordinary items -
-------- --------
Net income $ 2,100 $ 76,173
======== ========
Net income per Common Share $ 0.49 (AN)
========
Weighted average Common Shares outstanding 154,696
========
</TABLE>
9
<PAGE> 10
EQUITY OFFICE PROPERTIES TRUST
Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Equity Office 1996 Acquired 1997 Acquired
Predecessors Properties Properties
-------------- ------------- --------------
(AC) (AC)
<S> <C> <C> <C>
Revenues:
Rental $ 386,481 $ 53,340 $ 55,557
Tenant reimbursements 62,036 9,967 16,053
Parking 27,253 13,518 1,074
Other 17,626 1,797 1,945
Fees from noncombined affiliates 5,120 - -
Interest 9,608 - 249
---------- --------- ----------
508,124 78,622 74,878
---------- --------- ----------
Expenses
Property operating 201,067 30,971 33,550
Interest 119,595 24,178 -
Depreciation 82,905 13,090 11,951
Amortization 13,332 - -
General and administrative 23,145 - -
---------- --------- ----------
440,044 68,239 45,501
---------- --------- ----------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items 68,080 10,383 29,377
Minority interests:
Operating Partnership
Partially owned properties (2,086) - -
Income from investment in unconsolidated joint ventures 2,093 - 2,632 (AF)
Gain on sale of real estate 5,338 - -
---------- --------- ----------
Income before extraordinary items 73,425 10,383 32,009
Extraordinary items - - -
---------- --------- ----------
Net income $73,425 $10,383 $32,009
========== ========= ==========
Net income per Common Share
Weighted average Common Shares outstanding
<CAPTION>
Consolidation
Dispositions Financing Activity Activity
------------ ------------------ --------------
(AD)
<S> <C> <C> <C>
Revenues:
Rental $ (8,303) - $ 19,516 (AF)
Tenant reimbursements (88) - -
Parking (1,462) - -
Other (99) - -
Fees from noncombined affiliates - -
Interest (7) - -
--------- ---------- ---------
(9,959) 19,516
--------- ---------- ---------
Expenses
Property operating (4,778) -
Interest (956) 13,717 (AE)
Depreciation (1,941) - 23,712 (AG)
Amortization (346) - (8,591)(AH)
General and administrative - - -
--------- ---------- ---------
(8,021) (13,717) 15,121
--------- ---------- ---------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items (1,938) (13,717) 4,395
Minority interests:
Operating Partnership - - (8,739) (AI)
Partially owned properties - - (56) (AI)
Income from investment in unconsolidated joint ventures - - -
Gain on sale of real estate - - -
--------- ---------- ---------
Income before extraordinary items (1,938) (13,717) (4,400)
--------- ---------- ---------
Extraordinary items
Net income $ (1,938) $ (13,717) $ (4,400)
========= ========== =========
Net income per Common Share
Weighted average Common Shares outstanding
<CAPTION>
Offering
Pro Forma
Adjustments Subtotal New Acquisitions
----------- -------- ----------------
<S> <C> <C> <C> (AC)
Revenues:
Rental $ - $ 506,591 $ 109,393
Tenant reimbursements - 87,968 32,434
Parking - 40,383 9,162
Other - 21,269 3,147
Fees from noncombined affiliates - 5,120
Interest - 9,850
---------- ---------- ---------
- 671,181 154,136
---------- ---------- ---------
Expenses
Property operating - 260,810 63,430
Interest (43,041) (AJ) 113,493 62,854
Depreciation - 129,717 26,105
Amortization - 4,395 -
General and administrative 2,400 (AK) 25,545 -
--------- ---------- ---------
(40,641) 533,960 152,389
--------- ---------- ---------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items 40,641 137,221 1,747
Minority interests:
Operating Partnership (1,414) (AI) (10,153) (3,774) (AI)
Partially owned properties - (2,142) -
Income from investment in unconsolidated joint ventures - 4,725 -
Gain on sale of real estate - 5,338 -
--------- ---------- ---------
Income before extraordinary items 39,227 134,989 (2,027)
Extraordinary items - - -
--------- --------- ---------
Net income $ 39,227 $ 134,989 $ (2,027)
========= ========= =========
Net income per Common Share $0.89 (AN)
=========
Weighted average Common Shares outstanding 151,678
=========
<CAPTION>
Equity Office
Other Financing Properties Trust Pro
Activity Forms
--------------- --------------------
<S> <C> <C>
Revenues:
Rental $ - $ 615,984
Tenant reimbursements - 120,402
Parking - 49,545
Other - 24,416
Fees from noncombined affiliates - 5,120
Interest - 9,850
--------- -----------
- 825,317
--------- -----------
Expenses
Property operating - 324,240
Interest (2,111) (AL) 174,236
Depreciation - 155,822
Amortization 4,224 (AM) 8,619
General and administrative - 25,545
--------- -----------
(2,113) 688,462
--------- -----------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items (2,113) 136,855
Minority interests:
Operating Partnership - (13,927)
Partially owned properties - (2,142)
Income from investment in unconsolidated joint ventures - 4,725
Gain on sale of real estate - 5,338
--------- -----------
Income before extraordinary items (2,113) 130,849
Extraordinary items - -
--------- -----------
Net income $ (2,113) $ 130,849
========= ===========
Net income per Common Share $ 0.85 (AN)
===========
Weighted average Common Shares outstanding 154,696
===========
</TABLE>
10
<PAGE> 11
Equity Office Properties Trust
Notes to Pro Forma Condensed Combined Balance Sheet
June 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Basis of Presentation. The contribution to the Operating Partnership of ZML Partners Limited Partnership's, ZML Partners Limited
partnership II's, ZML Partners Limited Partnership III's and ZML Partners Limited Partnership IV's (collectively the "ZML
Partners") respective interests in the office properties and parking facilities and Equity Group Investments, Inc., an Illinois
Corporation ("EGI") interest in the office property and asset management business and parking facilities management business
(collectively the "Management Business") in exchange for units of partnership interest in the Operating Partnership ("Units") and
Common Shares typically would be accounted for at the historical cost of those interests, similar to a pooling of interests. Due to
the relatively small percentage of these interests, however, such interests, together with all remaining non-affiliated interests,
have been accounted for using the purchase method of accounting, based on the fair value of the Common Shares and Units issued.
(A) To reflect $ (146.9) million of net cash used for events that occurred subsequent to June 30, 1997,
as follows:
<S> <C>
Private debt offering completed on September 3, 1997 $ 180,000,000
Paydown of revolving credit facility from private debt offering
proceeds and available cash (260,000,000)
Payments of $ 66.9 million distribution payable to capital
partners of ZML Fund I, ZML Fund II, ZML Fund III and ZML Fund IV,
(collectively, the "ZML Funds") which distributions occurred in connection
with the Consolidation and the Offering (66,893,300)
---------------------
Total $ (146,893,300)
=====================
<CAPTION>
(B) To record the Consolidation based upon the issuance of 122.9 million Common Shares, at a price of $21.00
per share, in exchange for 91.2% of the ownership interest in the Operating Partnership that is owned by the
Company. In addition, 11.9 million Units in the Operating Partnership were issued in exchange for 8.8% of
the ownership interest in the Operating Partnership that is not owned by the Company. After giving effect
to the Offering, the Company owned 92.7% of the Operating Partnership.
(C) To record the allocation of estimated equity value in excess of book value ("net equity value") to investment
in real estate based on the issuance of Common Shares and Units in connection with the Consolidation,
as follows:
<S> <C>
Issuance of 134.8 million Common Shares and Units at $21
per share/Unit $ 2,830,919,200
---------------------
Less book value of owners' equity before adjustments to
reflect the estimated net equity value of assets:
Historical owners' equity of Equity Office Predecessors (1,885,725,000)
Costs associated with the Consolidation (see Note (D)). 14,356,000
---------------------
(1,871,369,000)
---------------------
Total share/Unit value in excess of book value $ 959,550,200
=====================
Allocation of excess value to assets and liabilities based on
relative differences between book value and
estimated net equity value:
Decrease in other assets (see Note (G)). $ (72,892,000)
Decrease in accounts receivable related to net deferred rent
(see Note (E)). (57,581,900)
Decrease in other deferred liabilities (see Note (I)). 1,885,800
Decrease in mortgage indebtedness resulting from adjustment
to fair value (see Note (H)). 20,302,000
Increase in investments in unconsolidated joint ventures
(see Note (F)). 13,977,000
Adjustments to the basis of the investment in real estate, net 1,053,859,300
---------------------
Total adjustments $ 959,550,200
=====================
</TABLE>
<TABLE>
<S><C>
(D) To reflect the costs associated with the Consolidation.
(E) To eliminate the deferred rent receivable, which arose from the historical straight-lining of rents
(see Note (C)).
(F) To increase the basis of the investments in unconsolidated joint ventures accounted for on the equity
method (see Note (C)).
(G) To eliminate the $ 72.9 million of other assets, consisting of lease acquisition costs,
deferred loan costs and organization costs that were written off as a result of the Consolidation
(see Note (C)).
(H) To reflect the adjustment to reduce the assumed Equity Office Predecessors debt to its fair value
(calculated as of May 31, 1997); this amount is subject to change based on the actual date of
repayment and changes in interest rates (see Note (C)).
</TABLE>
11
<PAGE> 12
<TABLE>
<S><C>
(I) To eliminate the deferred ground rent payable, which arose from the historical straight-lining of rents
(see Note (C)).
(J) To reflect the recognition of minority interest ownership in the Operating Partnership, estimated to be
8.81%, that was not owned by the Company as a result of the Consolidation but prior to the effect of the
Offering. Minority interests was calculated as follows:
Pro forma equity of the Operating Partnership, net of Equity Office
Predecessors' historical minority interests of
$ 8,552,000 related to partially owned properties
(see Note (C)). $ 2,830,919,200
Percentage of Units in the Operating Partnership which are not owned by
the Company 8.81%
Minority interests in the equity of the Operating Partnership as of --------------------
June 30, 1997 $ 249,481,400
====================
(K) To reclassify Equity Office Predecessors owners' equity.
(L) To record par value of 122.9 million Common Shares issued in the Consolidation with a par value of
$0.01 per share.
(M) To reflect the net increase to paid in capital associated with the issuance of Common Shares and
certain other transactions related to the Consolidation, as summarized below:
Costs associated with the Consolidation (see Note (D)). $ (14,356,000)
Adjustments to assets and liabilities resulting from issuance of Common
Shares and Units (see Note (C)). 959,550,200
Reclassification of owners' equity (see Note (K)). 1,885,725,000
Par value of 122.9 million Common Shares (see Note (L)). (1,229,000)
Allocation of minority interests in the equity of the Operating
Partnership (see Note (J)). (249,481,400)
--------------------
Net increase to paid-in capital $ 2,580,208,800
====================
(N) To record the Offering based upon issuance 28.75 million Common Shares, at $21.00
per share, in exchange for 17.6% of the ownership interest in the Operating Partnership.
(O) To reflect the following:
Gross proceeds from the sale of 28.75 million Common Shares,
$0.01 par value per share, at $ 21.00 per share $ 603,750,000
Transaction, registration and issuance costs (42,271,800)
--------------------
Net proceeds 561,478,200
Repayment of mortgage debt and other indebtedness secured by
properties owned by the Company (see Note (Q) (598,394,000)
Prepayment penalties on retired mortgage debt and other indebtedness
(calculated as of May 31, 1997) (14,882,000)
--------------------
Net decrease in cash at June 30, 1997 $ (51,797,800)
====================
(P) To record the write-off of unamortized loan costs related to the debt repaid from proceeds of the Offering
(see Note (Q)
(Q) To reflect the debt repaid from net proceeds of the Offering and cash held by Equity Office Predecessors
(see below).
The fair value of debt was computed by discounting the projected debt service payments for each loan
based on the spread between the market rate and the effective rate, including the amortization of loan
origination costs, for each year.
Debt repaid from net proceeds of the Offering and cash held by Equity Office Predecessors:
Property Maturity Date Interest Rate Amount Repaid
-----------------------------------------------------------------------------------------------------
60 Spear 1-Dec-99 9.01% $ 9,240,200
CIGNA Center 1-Dec-99 9.01% 727,600
Summit Office Center 1-Dec-99 9.01% 5,821,000
Tampa Commons 1-Dec-99 9.01% 14,783,700
First Union Center 1-Dec-99 9.01% 16,492,800
Intercontinental Center 1-Dec-99 9.01% 6,184,800
Four Forest 1-Dec-99 9.01% 16,953,600
Dominion Tower 1-Dec-99 9.01% 23,283,900
</TABLE>
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
Northborough Tower 1-Dec-99 9.01% 6,985,200
500 Marquette Building 1-Dec-99 9.01% 11,253,900
Atrium Tower 1-Dec-99 9.01% 1,600,800
Sarasota City Center 1-Dec-99 9.01% 11,642,000
University Tower 1-Dec-99 9.01% 11,132,600
1111 19th Street 1-Dec-99 9.01% 18,627,100
1 & 2 Stamford/300 Atlantic 29-Mar-00 LIBOR + 2.25% 75,202,500
850 Third Avenue 20-Mar-02 8.79% 54,099,500
Two California Plaza 21-Aug-03 LIBOR + 2% 54,404,000
One North Franklin 31-Dec-02 LIBOR + 1% 65,150,400
One and Two Paces West 21-Mar-98 LIBOR + 1.875% 47,700,000
2010 Main Plaza 13-Dec-97 LIBOR + 1.875% 25,900,000
1920 Main Plaza 29-Sep-01 LIBOR + 2% 30,569,900
One American Center 31-Oct-00 8.50% 44,250,000
28 State Street 19-Dec-99 LIBOR + 2.25% 46,388,600
--------------
Total 598,394,100
==============
<CAPTION>
The amounts reflected above are based on the balances at June 30, 1997. The actual amounts repaid
were different to the extent of any amortization of loan balances which occurred prior to the actual date of
repayment.
(R) To adjust minority interests in the Operating Partnership to reflect the Offering, calculated as follows:
<S> <C>
Shareholders' equity prior to the Offering (see Notes
(M) and (N)). $ 2,581,437,800
Minority interests in the Operating Partnership prior to the
Offering (see Note (J)). 249,481,400
---------------------
2,830,919,200
Net proceeds from the Offering (see Note (O)). 561,478,300
Prepayment penalties (see Note (O)). (14,882,000)
Unamortized loan costs on repaid debt (see Note (P)). (2,193,000)
---------------------
Post-Offering shareholders' equity before allocation to
minority interests in the Operating Partnership 3,375,322,500
Percentage of Units in the Operating Partnership which are
not owned by the Company 7.26%
---------------------
Minority interest in the equity of the Operating Partnership
after the Offering 245,120,700
Pre-Offering pro forma minority interest in the Operating
Partnership (see Note (J)). (249,481,400)
---------------------
Adjustment to minority interest in the Operating Partnership
to reflect the Offering $ (4,360,700)
=====================
<CAPTION>
(S) To record par value of 28.75 million Common Shares in the Offering with a par value
$0.01 per share.
(T) To reflect the net increase to paid in capital associated with the issuance of Common Shares
and certain other transactions related to the Offering, as summarized below:
<S> <C>
Net proceeds from the sale of 28.75 million Common Shares, net of $ 42.3
million of issuance costs (see Note (O)). $ 561,478,300
Par value of 28.75 million Common Shares (see Note (S)). (287,500)
Unamortized loan costs written-off related to debt repaid from proceeds of the
Offering (see Note (P)). (2,193,000)
Prepayment penalties on retired mortgage debt (see Note (O)). (14,882,000)
Adjustment to minority interests in the Operating Partnership as a result of the
Offering (see Note (R)). 4,360,700
----------------
Net increase to paid in capital $ 548,476,500
================
<CAPTION>
(U) To reflect the following acquisitions and probable acquisitions (collectively, the "New Acquisitions"):
VALUE OF OP UNITS
TOTAL PURCHASE PRICE CASH PAID LIABILITIES ASSUMED ISSUED
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adams-Wabash Parking Facility $ 25,000,000 $ 25,000,000 $ -- $ --
Prudential Properties 289,000,000 211,950,000 6,000,000 71,050,000
Acorn Properties 144,700,000 109,950,715 14,749,285 20,000,000
Columbus America Properties 140,000,000 90,916,200 -- 49,083,800
10 & 30 South Wacker Drive 462,000,000 462,000,000 -- --
550 South Hope Street 99,500,000 99,500,000 -- --
-----------------------------------------------------------------------------
Total $ 1,160,200,000 $ 999,316,915 $ 20,749,285 $ 140,133,800
=============================================================================
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
(V) To record the following transactions:
Sale of 3,018,367 Common Shares @ $24.50 per share to the seller of the
Prudential Properties on October 1, 1997 $ 73,950,000
Draws on the $1.5 billion unsecured credit facility to fund New Acquisitions (see
Note (U)) 904,697,000
Payment of underwriting fees related to the $1.5 billion unsecured credit facility (4,875,000)
-----------------
Total 973,772,000
=================
(W) To record the write-off of unamortized loan costs of $4.9 million related to the debt repaid from draws on the $1.5 billion
unsecured credit facility (see Note (X) and payment of underwriting fees of $4.9 million related to the $1.5 billion
unsecured credit facility.
(X) To reflect the debt repaid from draws on the $1.5 billion unsecured credit facility and to write-off the mark-to-market
adjustment for the following properties recorded at the time of the Consolidation and the Offering, based on the outstanding
principal balances as of June 30, 1997:
<CAPTION>
Property Maturity Date Interest Rate Amount Repaid
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt repaid:
1601 Market LIBOR + 1.25% June 30, 2001 $ 24,229,400
1620 L Street 8.00% February 4, 2000 21,167,800
9400 NCX LIBOR + 1.65% May 10, 2001 14,247,400
Bank One Center LIBOR + 1.1% March 19, 1999 83,875,000
NationsBank 8.00% December 1, 2003 18,907,200
North Central Plaza LIBOR + 1.75% August 3, 1999 14,968,500
San Jacinto LIBOR + 1.125% December 13, 1998 18,212,300
Sterling Plaza LIBOR + 1.75% December 8, 1998 15,664,600
The Quadrant EURODOLLAR + 2.0% May 31, 1999 18,000,000
Union Square EURODOLLAR + 2.0% May 31, 1999 6,750,000
-----------------
Total 236,022,200
-----------------
Less: write-off of mark-to-market adjustments for debt repaid above:
San Jacinto 33,000
Nationsbank 310,000
Bank One 1,277,000
-----------------
1,620,000
-----------------
Total decrease in mortgage debt $ 234,402,200
=================
(Y) To record draws on the $1.5 billion unsecured credit facility and paydowns on the $600 million unsecured credit facility
as follows:
Draws to fund acquisitions (see Note (V)). $ 904,697,000
Draws to repay mortgage debt (see Not (X)). 236,022,200
-----------------
Total $ 1,140,719,200
=================
(Z) To adjust minority interests in the Operating Partnership to reflect the New Acquisitions (See Note (U))
and the sale of Common Shares (see Note (V)).
Shareholders' equity prior to the OP Units issued for New Acquisitions and the issuance of
Common Shares to the seller of the Prudential Properties: $ 3,130,202,000
Minority interests in the Operating Partnership after the Offering (See Note (R)). 245,120,000
-----------------
Total 3,375,322,000
Units issued for New Acquisitions (See Note (U)) 140,133,800
Common Shares issued to the seller of the Prudential Properties (See Note (V)) 73,950,000
-----------------
Shareholders' equity after the New Acquisitions and issuance of Common Shares 3,589,405,800
Percentage of Units not owned by Equity Office Properties Trust 9.99%
Minority interests in the equity of the Operating Partnership after the New Acquisitions -----------------
and the issuance of Common Shares to the seller of the Prudential Properties 358,503,600
Minority interests in the equity of the Operating Partnership after the Offering 245,120,000
Adjustment to minority interests in the Operating Partnership to reflect the New -----------------
Acquisitions and issuance of Common Shares to the seller of the Prudential Properties $ 113,383,600
=================
(AA) To record the par value of 3.0 million Common Shares issued to the seller of the Prudential Properties.
(AB) To reflect the net increase in paid in capital associated with the issuance of Common Shares to the seller of the
Prudential Properties and the repayment of mortgage debt:
Issuance of Common Shares to the seller of the Prudential Properties at $24.50 per share $ 73,950,000
Less: par value (30,200)
Write-off of unamortized loan costs related to debt repaid from draws on the $1.5 billion
unsecured credit facility (see Note (W)). (910,600)
Write-off of mark-to-market adjustment on debt repaid with the $1.5 billion unsecured credit
facility (see Note (X)). (1,620,000)
Adjustment to minority interests in the Operating Partnership (see Note (Z)). (113,383,600)
-----------------
Total $ (41,994,400)
=================
</TABLE>
14
<PAGE> 15
EQUITY OFFICE PROPERTIES TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(AC) To reflect the operations and the depreciation expense for a) the pro forma
condensed combined statement of operations for the six months ended June
30, 1997; for the period from January 1, 1997 through the earlier of the
date of acquisition, or June 30, 1997, as applicable, for properties
acquired in 1997 and b) the pro forma condensed combined statement of
operations for the year ended December 31, 1996; for the period from
January 1, 1996 through the date of acquisition for properties acquired in
1996, or December 31, 1996 for the properties acquired in 1997, for the
following properties. Interest expense was also adjusted, where
applicable, to reflect six months and a full year, for the six months ended
June 30, 1997 and the year ended December 31, 1996, respectively.
<TABLE>
<CAPTION>
Acquired Property Date Acquired Period Reference
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
1601 Market Street January 18, 1996 A
Promenade II June 14, 1996 A
Two California Plaza August 23, 1996 A
BP Tower September 4, 1996 A
SunTrust Center September 18, 1996 A
Reston Town Center October 22, 1996 A
One Phoenix Plaza December 4, 1996 A
Colonnade I December 4, 1996 A
Boston Harbor Garage December 10, 1996 A
Milwaukee Center Parking Garage December 18, 1996 A
15th & Sansom Streets Garage December 27, 1996 A
1616 Chancellor Street Garage December 27, 1996 A
Juniper/Locusts Streets Garage December 27, 1996 A
1616 Sansom Street Garage December 27, 1996 A
1111 Sansom Street Garage December 27, 1996 A
1 177 Broad Street January 29, 1997 B
Biltmore Apartments January 29, 1997 B
3 Preston Commons March 21, 1997 B
1 Oakbrook Terrace Tower April 16, 1997 B
4 50% Interest in Civic Parking L.L.C. April 16, 1997 B
1 One Maritime Plaza April 21, 1997 B
1 Smith Barney Tower April 29, 1997 B
1 201 Mission Street April 30, 1997 B
1 30 N. LaSalle June 13, 1997 B
1 Adams-Wabash Parking Facility August 11, 1997 C
21 Columbus America Properties September 3, 1997 C
6 Prudential Properties October 1, 1997 C
1 550 South Hope Street October 6, 1997 C
2 10 & 30 South Wacker Drive October 7, 1997 C
11 Acorn Properties October 7, 1997 C and D
</TABLE>
Note A: Included in the pro forma condensed combined statement of
operations for the year ended December 31, 1996, in the column
entitled "1996 Acquired Properties".
Note B: Included in the pro forma condensed combined statement of
operations for the year ended December 31, 1996 and for the six
months ended June 30, 1997, in the column entitled "1997 Acquired
Properties".
Note C: Included in the pro forma condensed combined statement of
operations for the year ended year ended December 31, 1996 and for
the six months ended June 30, 1997 in the column entitled "New
Acquisitions".
15
<PAGE> 16
Note D: The Acorn Properties consist of eleven properties. Nine
properties were acquired on October 7, 1997. The other two
properties are expected to close in November 1997.
The depreciation adjustments $3.6 million in the "1997 Acquired
Properties" column and the $13.1 million in the "New Acquisitions" column
for the six months ended June 30, 1997 and the depreciation adjustment of
$13.1 million in the "1996 Acquired Properties" column, the $12.0 million
in the "1997 Acquired Properties" column and the $26.1 million in the "New
Acquisitions" column for the year ended December 31, 1996 are based on
the cost to acquire the above listed properties, assuming that 10% of the
purchase price is allocated to land and the depreciable lives are
40 years. Depreciation is computed using the straight-line method.
(AD) To eliminate the operations of Barton Oaks Plaza II and 8383 Wilshire for
the six months ended June 30, 1997 and for the year ended December 31,
1996, which were sold in January and May, 1997, respectively.
(AE) To reflect the additional interest expense on debt obtained in the six
months ended June 30, 1997 on properties acquired before 1997 and to
reflect the private debt offering and paydown of the revolving credit
facility for the six months ended June 30, 1997 and the year ended December
31, 1996.
(AF) To reflect the adjustment for the straight-line effect of scheduled rent
increase, assuming the Consolidation and Offering closed on January 1, 1997
and 1996, respectively, for the pro forma condensed combined statement of
operations for the six months ended June 30, 1997 and the year ended
December 31, 1996, respectively.
(AG) To reflect depreciation expense related to the adjustment to record the net
equity value of the investment in real estate for the six months ended June
30, 1997 and for the year ended December 31, 1996, on a straight-line
basis, as follows:
<TABLE>
<CAPTION>
For the six months For the year ended
ended June 30, 1997 December 31, 1996
------------------- -------------------
<S> <C> <C>
Adjustment to the basis of the $ 1,053,859,000 $ 1,053,859,000
investment in real estate (see
Note (C)
Less: Portion allocated to land,
estimated to be 10% (105,385,900) (105,385,900)
------------------- -------------------
Depreciable basis $ 948,473,100 $ 948,473,100
=================== ===================
Depreciation expense based on an
estimated useful life of 40 years $ 11,855,900 $ 23,711,800
=================== ===================
</TABLE>
(AH) To eliminate the $7.7 million and $13.3 million of amortization
historically recognized by Equity Office Predecessors as a result of the
write-off of deferred loan costs, lease acquisition costs and
organization costs (see Note (G), net of the $2.5 million and $4.4
million amortization of the discount required to record the mortgage debt
at fair value based upon the issuance of Common Shares and Units, and the
$0.1 million and $0.3 million of amortization relating to disposed
properties for the six months ended June 30, 1997 and the year ended
December 31, 1996, respectively.
(AI) To reflect the estimated 8.81% minority interests ownership in the
Operating Partnership and to reflect the 5% economic interest that the
Company does not own in Equity Office Properties Management Corp. (the
"Management Corp."), as follows:
<TABLE>
<CAPTION>
For the six months For the year ended
ended June 30, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
Minority interests allocation of income before
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
Offering pro forma adjustments $ 4,924,000 $ 8,739,000
Minority interests allocation of income resulting
from Offering pro forma adjustments 706,000 1,413,800
Minority interests allocation of income resulting
from New Acquisitions and issuance of Common
Shares to the seller of the Prudential Properties 2,821,000 3,774,000
------------------- ------------------
Net income allocated to minority interests
ownership in the Operating Partnership $ 8,451,000 $13,926,800
=================== ==================
Historical ownership interest in partially owned
properties $ 879,000 $ 2,086,000
------------------- ------------------
Fees from noncombined affiliates 2,440,000 5,120,000
Management Corp. expenses 1,880,000 4,000,000
------------------- ------------------
Estimated Management Corp. net income 560,000 1,120,000
------------------- ------------------
Minority interest 5% economic interest in the
Management Corp. 28,000 56,000
------------------- ------------------
Net income allocated to minority interests
ownership in partially owned properties $ 907,000 $ 2,142,000
=================== ==================
</TABLE>
(AJ) To reflect the reduction of interest expense associated with the $15.0
million of mortgage debt on Denver Corporate Center Towers II and III
repaid in May 1997 and the $598.4 million repaid with net proceeds of the
Offering and cash held by Equity Office Predecessors (see Note (Q)).
(AK) To reflect additional general and administrative expenses expected to be
incurred as a result of reporting as a public company, as follows:
<TABLE>
<CAPTION>
For the six months For the year ended
ended June 30, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
Directors and officers insurance $ 250,000 $ 500,000
Printing and mailing 250,000 500,000
Trustees and directors fees 150,000 300,000
Investor relations 150,000 300,000
Other 400,000 800,000
------------------- ------------------
Total $ 1,200,000 $ 2,400,000
=================== ==================
</TABLE>
(AL) To reflect the reduction of interest expense associated with the $236
million of mortgage debt and the balance on the $600 million line of credit
repaid from draws on the $1.5 billion unsecured credit facility
(see Note (X)).
(AM) To eliminate the $0.8 million and $0.7 million of amortization recorded
on the mark-to-market adjustment on debt repaid from draws on the $1.5
billion unsecured credit facility and to record $3.3 million and $4.9
million of amortization for the underwriting fees associated with the $1.5
billion unsecured credit facility for the six months ended June 30, 1997
and the year ended December 31, 1996, respectively.
(AN) Net income per Common Share is based upon 151.7 million Common Shares
outstanding upon completion of the Consolidation and the Offering,
and pro forma net income per Common Shares is based upon 154.7 million
Common Shares assumed to be outstanding upon acquisition of the New
Acquisitions and the issuance of Common Shares to the seller of the
Prudential Properties.
17
<PAGE> 18
Consent of Independent Auditors
We consent to the use of our reports indicated below in this Current Report on
Form 8-K of Equity Office Properties Trust.
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS DATE OF AUDITOR'S REPORT
- --------------------------------------- ---------------------------------------
<S> <C>
Combined Statement of Revenue and
Certain Expenses of the Columbus
America Properties for the year ended
December 31, 1996 September 3, 1997
Combined Statement of Revenue and
Certain Expenses of the Prudential
Properties for the year ended December
31, 1996 September 3, 1997
Statement of Revenue and Certain
Expenses of 550 South Hope Street for
the year ended March 31, 1997 September 24, 1997
Combined Statement of Revenue and
Certain Expenses of the Acorn
Properties for the year ended December
31, 1996 September 9, 1997
Combined Statement of Revenue and
Certain Expenses of 10 & 30 South
Wacker Drive for the year ended
December 31, 1996 September 5, 1997
</TABLE>
ERNST & YOUNG LLP
Chicago, Illinois
October 15, 1997
18
<PAGE> 19
Report of Independent Auditors
The Board of Trustees of
Equity Office Properties Trust
We have audited the accompanying combined Statement of Revenue and Certain
Expenses of the Columbus America Properties (the Properties) as described in
Note 2 for the year ended December 31, 1996. The combined Statement of Revenue
and Certain Expenses is the responsibility of the Properties' management. Our
responsibility is to express an opinion on the combined Statement of Revenue
and Certain 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 Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying combined Statement of Revenue and Certain Expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, for inclusion in the Current Report on Form
8-K of Equity Office Properties Trust as described in Note 1, and is not
intended to be a complete presentation of the Properties' revenue and expenses.
In our opinion, the combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the combined revenue and
certain expenses of the Properties described in Note 2 for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 3, 1997
19
<PAGE> 20
Columbus America Properties
Combined Statements of Revenue and Certain Expenses
(Amounts in Thousands)
<TABLE>
<CAPTION>
JANUARY 1, 1997
THROUGH
YEAR ENDED JULY 31, 1997
DECEMBER 31, 1996 (UNAUDITED)
-----------------------------------------
<S> <C> <C>
REVENUE
Base rents $15,620 $ 8,814
Tenant reimbursements 654 176
Parking income 2,356 1,460
Other income 165 111
----------------- ----------------------
Total revenue 18,795 10,561
----------------- ----------------------
EXPENSES
Property operating and maintenance 4,888 2,770
Real estate taxes 1,318 769
Management fee 786 403
Insurance 191 127
----------------- ----------------------
Total expenses 7,183 4,069
----------------- ----------------------
Revenue in excess of certain expenses $11,612 $ 6,492
================= ======================
</TABLE>
See accompanying notes.
20
<PAGE> 21
Columbus America Properties
Notes to Combined Statements of Revenue and Certain Expenses
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined Statements of Revenue and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Current Report on Form
8-K of Equity Office Properties Trust. The accompanying financial statements
are not representative of the actual operations of the Properties, as defined
in Note 2, for the periods presented nor indicative of future operations as
certain expenses, primarily depreciation, amortization and interest expense,
which may not be comparable to the expenses expected to be incurred by Equity
Office Properties Trust in future operations of the Properties, have been
excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the combined Statements of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of the combined
revenue and expenses during the reporting periods. Actual results could differ
from these estimates.
Unaudited Interim Statement
In the opinion of management, the interim financial statement reflects all
adjustments necessary for a fair presentation of the results of the interim
period. All such adjustments are of a normal, recurring nature.
21
<PAGE> 22
Columbus America Properties
Notes to Combined Statement of Revenue and Certain Expenses (continued)
2. DESCRIPTION OF PROPERTIES
The accompanying combined Statements of Revenue and Certain Expenses relate to
the combined operations of the Columbus America Properties (the "Properties"),
which are all located in New Orleans, Louisiana. The Properties have been
presented on a combined basis because the Properties are under common ownership
and management. The Properties listed below were acquired on September 3, 1997
for $140 million by Equity Office Properties Trust from an unrelated party.
PROPERTY NAME TYPE OF FACILITY RENTABLE SQUARE FEET
- ----------------- ---------------- --------------------
LL & E Tower office building 545,157
Texaco Center office building 619,714
601 Tchoupitoulas parking facility 759(A)
(A) Represents number of parking spaces.
The accompanying combined Statements of Revenue and Certain Expenses include
the operations of the 601 Tchoupitoulas parking facility.
3. RENTALS
LL&E Tower and Texaco Center have entered into tenant leases that provide for
tenants to share in the operating expenses and real estate taxes on a pro rata
basis, as defined.
4. RELATED PARTY TRANSACTIONS
The office buildings were managed by an affiliated party to the seller. The
management agreements provided for a fee based on a percentage of gross
receipts, as defined by each of the office buildings' individual management
agreements, excluding any receipts from the parking garage.
During the year ended December 31, 1996, the parking facility was also managed
by an affiliated party to the seller. The management agreement provided for a
flat fee of $12,500 per month.
During the year ended December 31, 1996, LL&E Tower leased space to parties
affiliated with the seller. Rental income from those leases was approximately
$240,000 in 1996.
22
<PAGE> 23
Report of Independent Auditors
The Board of Trustees of
Equity Office Properties Trust
We have audited the accompanying combined Statement of Revenue and Certain
Expenses of the Prudential Properties (the Properties) as described in Note 2
for the year ended December 31, 1996. The combined Statement of Revenue and
Certain Expenses is the responsibility of the Properties' management. Our
responsibility is to express an opinion on the combined Statement of Revenue
and Certain 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 Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying combined Statement of Revenue and Certain Expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Current Report on Form
8-K of Equity Office Properties Trust as described in Note 1, and is not
intended to be a complete presentation of the Properties' combined revenue and
expenses.
In our opinion, the combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the combined revenue and
certain expenses of the Properties described in Note 2 for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 3, 1997
23
<PAGE> 24
Prudential Properties
Combined Statements of Revenue and Certain Expenses
(Amounts in thousands)
<TABLE>
<CAPTION>
JANUARY 1, 1997
THROUGH
YEAR ENDED AUGUST 31, 1997
DECEMBER 31, 1996 (UNAUDITED)
----------------------------------------
<S> <C> <C>
REVENUE
Base rents $29,743 $21,626
Tenant reimbursements 2,367 1,645
Parking income 2,013 1,561
Other income 529 778
----------------- ---------------
Total revenue 34,652 25,610
----------------- ---------------
EXPENSES
Property operating and maintenance 13,239 8,687
Real estate taxes 4,414 3,112
Management fees 719 514
Insurance 446 361
----------------- ---------------
Total expenses 18,818 12,674
----------------- ---------------
Revenue in excess of certain expenses $15,834 $12,936
================= ===============
</TABLE>
See accompanying notes.
24
<PAGE> 25
Prudential Properties
Notes to Combined Statements of Revenue and Certain Expenses
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined Statements of Revenue and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Current Report on Form
8-K of Equity Office Properties Trust. The accompanying financial statements
are not representative of the actual operations of the Properties, as defined
in Note 2, for the periods presented nor indicative of future operations as
certain expenses, primarily depreciation, amortization and interest expense,
which may not be comparable to the expenses expected to be incurred by Equity
Office Properties Trust in future operations of the Properties, have been
excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the combined Statements of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of the combined
revenue and expenses during the reporting periods. Actual results could differ
from these estimates.
Unaudited Interim Statement
In the opinion of management, the interim financial statement reflects all
adjustments necessary for a fair presentation of the results of the interim
period. All such adjustments are of a normal, recurring nature.
2. DESCRIPTION OF PROPERTIES
The accompanying combined Statements of Revenue and Certain Expenses relate to
the combined operations of the Prudential Properties (the "Properties").
Equity Office Properties Trust expects to acquire the Properties for
approximately $290 million from an unrelated party. The Properties have been
presented on a combined basis because all of the Properties are under common
control and management. The following Properties are included in the combined
financial statements:
25
<PAGE> 26
Prudential Properties
Notes to Combined Statements of Revenue and Certain Expenses (continued)
2. DESCRIPTION OF PROPERTIES (CONTINUED)
APPROXIMATE
RENTABLE
PROPERTY NAME LOCATION SQUARE FOOTAGE
------------- -------- --------------
Brookhollow Central I, II, and III Houston, TX 800,688
Destec Tower Houston, TX 574,216
8080 Central Dallas, TX 283,707
1700 Market Philadelphia, PA 825,547
--------------
2,484,158
==============
3. RENTALS
The Properties have entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis, as
defined.
4. RELATED PARTY TRANSACTIONS
The Properties were managed by an affiliated party to the seller. The
management agreements provided for fees of 1.5% to 3.0% of gross receipts, as
defined.
Insurance premiums are paid to and coverage is provided by an affiliated party
to the seller.
26
<PAGE> 27
Report of Independent Auditors
The Board of Trustees of
Equity Office Properties Trust
We have audited the accompanying Statement of Revenue and Certain Expenses of
550 South Hope Street (the Property) as described in Note 2 for the year ended
March 31, 1997. The Statement of Revenue and Certain Expenses are the
responsibility of the Property's management. Our responsibility is to express
an opinion on the Statement of Revenue and Certain 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 Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission, for inclusion in the Current Report on Form 8-K of Equity
Office Properties Trust as described in Note 1, and is not intended to be a
complete presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses of
the Property described in Note 2 for the year ended March 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 24, 1997
27
<PAGE> 28
550 South Hope Street
Statements of Revenue and Certain Expenses
(Amounts in thousands)
<TABLE>
<CAPTION>
APRIL 1, 1997 THROUGH
YEAR ENDED JULY 31, 1997
MARCH 31, 1997 (UNAUDITED)
-----------------------------------------
<S> <C> <C>
REVENUE
Base rents $ 7,602 $2,972
Tenant reimbursements 3,840 1,398
Parking income 1,273 423
Other income 19 7
-------------- ----------------
Total revenue 12,734 4,800
-------------- ----------------
EXPENSES
Property operating and maintenance 3,992 1,302
Real estate taxes 801 251
Management fee 140 58
Insurance 605 152
-------------- ----------------
Total expenses 5,538 1,763
-------------- ----------------
Revenue in excess of certain expenses $ 7,196 $3,037
============== ================
</TABLE>
See accompanying notes.
28
<PAGE> 29
550 South Hope Street
Notes to Statements of Revenue and Certain Expenses
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Statements of Revenue and Certain Expenses were prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K of Equity
Office Properties Trust. The accompanying statements are not representative of
the actual operations of the Property, as defined in Note 2, for the periods
presented nor indicative of future operations as certain expenses, primarily
depreciation, amortization and interest expense, which may not be comparable to
the expenses expected to be incurred by Equity Office Properties Trust in
future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statements of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of the revenue and
expenses during the reporting periods. Actual results could differ from these
estimates.
Unaudited Interim Statement
In the opinion of management, the interim financial statement reflects all
adjustments necessary for a fair presentation of the results of the interim
period. All such adjustments are of a normal, recurring nature.
2. DESCRIPTION OF PROPERTY
The accompanying Statements of Revenue and Certain Expenses relate to the
operations of 550 South Hope Street, an office building with approximately
566,434 rentable square feet, located in Los Angeles, California (the
"Property"). It is anticipated that Equity Office Properties Trust will acquire
the Property for $99.5 million from an unrelated party.
29
<PAGE> 30
550 South Hope Street
Notes to Statements of Revenue and Certain Expenses (continued)
3. RENTALS
The Property has entered into tenant leases that provide for tenants to share
in the operating expenses and real estate taxes on a pro rata basis, as
defined.
30
<PAGE> 31
Report of Independent Auditors
The Board of Trustees of
Equity Office Properties Trust
We have audited the accompanying combined Statement of Revenue and Certain
Expenses of the Acorn Properties (the Properties) as described in Note 2 for
the year ended December 31, 1996. The combined Statement of Revenue and
Certain Expenses is the responsibility of the Properties' management. Our
responsibility is to express an opinion on the combined Statement of Revenue
and Certain 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 Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying combined Statement of Revenue and Certain Expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Current Report on Form
8-K of Equity Offices Properties Trust as described in Note 1, and is not
intended to be a complete presentation of the Properties' combined revenue and
expenses.
In our opinion, the combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the combined revenue and
certain expenses of the Properties described in Note 2 for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 9, 1997
31
<PAGE> 32
Acorn Properties
Combined Statements Of Revenue And Certain Expenses
(Amounts in thousands)
<TABLE>
<CAPTION>
JANUARY 1, 1997
THROUGH
YEAR ENDED JULY 31, 1997
DECEMBER 31, 1996 (UNAUDITED)
-----------------------------------
<S> <C> <C>
REVENUE
Base rents $16,999 $11,592
Tenant reimbursements 2,055 1,327
Other income 202 181
-----------------------------------
Total revenue 19,256 13,100
-----------------------------------
EXPENSES
Property operating and maintenance 4,526 2,665
Real estate taxes 1,378 853
Management fees 649 428
Insurance 160 92
-----------------------------------
Total expenses 6,713 4,038
-----------------------------------
Revenue in excess of certain expenses $12,543 $ 9,062
===================================
</TABLE>
See accompanying notes.
32
<PAGE> 33
Acorn Properties
Notes to Combined Statements of Revenue and Certain Expenses
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined Statements of Revenue and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Current Report on Form
8-K of Equity Office Properties Trust. The accompanying financial statements
are not representative of the actual operations of the Properties, as defined
in Note 2, for the periods presented nor indicative of future operations as
certain expenses, primarily depreciation, amortization and interest expense,
which may not be comparable to the expenses expected to be incurred by Equity
Office Properties Trust in future operations of the Properties, have been
excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the combined Statements of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of the combined
revenue and expenses during the reporting periods. Actual results could differ
from these estimates.
Unaudited Interim Statement
In the opinion of management, the interim financial statement reflects all
adjustments necessary for a fair presentation of the results of the interim
period. All such adjustments are of a normal, recurring nature.
2. DESCRIPTION OF PROPERTIES
The accompanying combined Statements of Revenue and Certain Expenses relate to
the combined operations of the Acorn Properties (the "Properties"). Equity
Office Properties Trust expects to acquire an 89% managing general partnership
interest in each of the partnerships that hold title to the Properties for
approximately $144.7 million, including the assumption of debt. The Acorn
Properties have been presented on a combined basis because all of the
Properties are under common control and management. The following Properties
are included in the combined financial statements:
33
<PAGE> 34
Acorn Properties
Notes to Combined Statements of Revenue and Certain Expenses (continued)
2. DESCRIPTION OF PROPERTIES (CONTINUED)
<TABLE>
<CAPTION>
APPROXIMATE
RENTABLE
PROPERTY NAME LOCATION SQUARE FOOTAGE
------------- -------- --------------
<S> <C> <C>
One Valley Square Plymouth Meeting, PA 70,289
Two Valley Square Plymouth Meeting, PA 70,622
Three Valley Square Plymouth Meeting, PA 84,605
Four Valley Square Plymouth Meeting, PA 49,757
Five Valley Square Plymouth Meeting, PA 18,564
Oak Hill Plaza King of Prussia, PA 164,360
Walnut Hill Plaza King of Prussia, PA 149,716
One Devon Square Wayne, PA 77,267
Two Devon Square Wayne, PA 63,226
Three Devon Square (a) Wayne, PA 6,000
Four Falls Corporate Center Conshohocken, PA 254,355
--------------
1,008,761
==============
</TABLE>
(a) In addition, this property includes land leased to a third party.
3. RENTALS
The Properties have entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis, as
defined.
4. RELATED PARTY TRANSACTIONS
The Properties were managed by an affiliated party to the sellers. The
management agreements provided for a fee of 4% of gross receipts, as defined.
Janitorial services were provided by an affiliated party to the sellers.
During the year ended December 31, 1996, the Properties incurred approximately
$714,000 in janitorial fees.
34
<PAGE> 35
Report of Independent Auditors
The Board of Trustees of
Equity Office Properties Trust
We have audited the accompanying combined Statement of Revenue and Certain
Expenses of 10 & 30 South Wacker Drive (the Properties) as described in Note 2
for the year ended December 31, 1996. The combined Statement of Revenue and
Certain Expenses is the responsibility of the Properties' management. Our
responsibility is to express an opinion on the combined Statement of Revenue
and Certain 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 Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the
Statement of Revenue and Certain Expenses. An audit also includes assessing
the basis of accounting used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for
our opinion.
The accompanying combined Statement of Revenue and Certain Expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, for inclusion in the Current Report on Form
8-K of Equity Office Properties Trust as described in Note 1, and is not
intended to be a complete presentation of the Properties' revenue and expenses.
In our opinion, the combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the combined revenue and
certain expenses of the Properties described in Note 2 for the year ended
December 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 5, 1997
35
<PAGE> 36
10 & 30 South Wacker Drive
Combined Statements of Revenue and Certain Expenses
(Amounts in thousands)
<TABLE>
<CAPTION>
JANUARY 1, 1997
THROUGH
YEAR ENDED JULY 31, 1997
DECEMBER 31, 1996 (UNAUDITED)
-----------------------------------------
<S> <C> <C>
REVENUE
Base rents $38,739 $23,388
Tenant reimbursements 23,518 14,604
Parking income 1,188 786
Other income 2,232 643
----------------- ----------------------
Total revenue 65,677 39,421
----------------- ----------------------
EXPENSES
Property operating and maintenance 9,891 5,370
Real estate taxes 16,600 9,683
Management fee 1,233 754
Insurance 403 160
----------------- ----------------------
Total expenses 28,127 15,967
----------------- ----------------------
Revenue in excess of certain expenses $37,550 $23,454
================= ======================
</TABLE>
See accompanying notes.
36
<PAGE> 37
10 & 30 South Wacker Drive
Notes to Combined Statements of Revenue and Certain Expenses
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined Statements of Revenue and Certain Expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Current Report on Form
8-K of Equity Office Properties Trust. The accompanying combined statements
are not representative of the actual operations of the Properties, as defined
in Note 2, for the periods presented nor indicative of future operations as
certain expenses, primarily depreciation, amortization and interest expense,
which may not be comparable to the expenses expected to be incurred by Equity
Office Properties Trust in future operations of the Properties, have been
excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the combined Statements of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of the combined
revenue and expenses during the reporting periods. Actual results could differ
from these estimates.
Unaudited Interim Statement
In the opinion of management, the interim financial statement reflects all
adjustments necessary for a fair presentation of the results of the interim
period. All such adjustments are of a normal, recurring nature.
2. DESCRIPTION OF PROPERTIES
The accompanying combined Statements of Revenue and Certain Expenses relate to
the combined operations of 10 & 30 South Wacker Drive, two office buildings
with approximately 2,016,023 rentable square feet, located in Chicago, Illinois
(the "Properties"). The Properties have been presented on a combined basis
because the Properties were under common ownership and management. It is
anticipated that the Properties will be acquired for $462 million by Equity
Office Properties Trust from an unrelated party.
37
<PAGE> 38
10 & 30 South Wacker Drive
Notes to Combined Statement of Revenue and Certain Expenses (continued)
2. DESCRIPTION OF PROPERTIES (CONTINUED)
The Properties are part of a complex of attached properties which includes
another property, The Chicago Mercantile Exchange (the "Merc") that is not
anticipated to be acquired by Equity Office Properties Trust and has not been
included in these financial statements. There is an easement agreement between
the Properties and the Merc, which provides for pro rata sharing of certain
common area operating costs. The Properties pro rata share of these common
area operating costs have been included in these financial statements.
During the year ended December 31, 1996, the Merc leased approximately 365,700
rentable square feet in the Properties.
3. RENTALS
The Properties have entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis, as
defined.
38
