EQUITY OFFICE PROPERTIES TRUST
10-Q, 1998-11-06
REAL ESTATE INVESTMENT TRUSTS
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<PAGE>   1

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                        
                                   FORM 10-Q

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

              For the quarterly period ended SEPTEMBER 30, 1998 or


         [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                                        
                        Commission File Number:  1-13115

                         EQUITY OFFICE PROPERTIES TRUST
             (Exact name of registrant as specified in its charter)

               Maryland                               36-4151656
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    incorporation or organization)   

      Two North Riverside Plaza
    Suite 2200, Chicago, Illinois                        60606
(Address of principal executive offices)               (Zip Code)

                                 (312) 466-3300
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes   X    No 
                                        -----     -----

                      APPLICABLE ONLY TO CORPORATE ISSUERS

On November 4, 1998, 259,940,445 of the Registrant's Common Shares of Beneficial
Interest were outstanding.

<PAGE>   2


                        PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

                        EQUITY OFFICE PROPERTIES TRUST
                         CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                    September 30,
                                                                        1998       December 31,
                                                                     (Unaudited)      1997
                                                                    -----------    -----------
                                                                       (Dollars in thousands,
                                                                       except per share data)
<S>                                                                 <C>            <C>
Assets:
  Investment in real estate.....................................    $12,710,343    $10,746,424    
  Developments in process.......................................        276,312        259,718    
  Land available for development................................         63,154         34,872    
  Accumulated depreciation......................................       (272,680)       (64,695)   
                                                                    -----------    -----------    
                                                                     12,777,129     10,976,319    
  Cash and cash equivalents.....................................        140,356        228,853    
  Tenant and other receivables (net of                                                            
     allowance for doubtful accounts of $504                                                      
     and $675, respectively)....................................         42,818         32,531    
  Deferred rent receivable......................................         70,338         20,050    
  Escrow deposits and restricted cash...........................         36,775         25,772    
  Investment in unconsolidated joint ventures...................        370,552        387,332    
  Deferred financing costs (net of accumulated                                                    
     amortization of $1,815 and $1,855, respectively)...........         54,884          5,090    
  Deferred leasing costs (net of accumulated                                                      
     amortization of $6,420 and $1,473, respectively) ..........         51,257         26,994    
   Prepaid expenses and other assets............................         87,725         48,731    
                                                                    -----------    -----------    
        Total Assets............................................    $13,631,834    $11,751,672    
                                                                    ===========    ===========    
                                                                                                  
Liabilities and Shareholders' Equity:                                                             
  Mortgage debt (including a net premium                                                          
     of $1,974 and $1,157, respectively)........................    $ 2,097,405    $ 2,063,017    
  Unsecured notes  (including a net                                                               
     premium of $4,398 and $0, respectively)....................      2,459,398        180,000    
  Lines of credit ..............................................      1,115,312      2,041,300    
  Accounts payable and accrued expenses.........................        269,982        260,401    
  Due to affiliates.............................................            952            733    
  Dividend/distribution payable.................................        107,154          1,191    
  Other liabilities.............................................         94,991         45,055    
                                                                    -----------    -----------    
        Total Liabilities.......................................      6,145,194      4,591,697    
                                                                    -----------    -----------    
  Commitments and contingencies (Note 13).......................                                                  
  Minority Interests:                                                                             
    Operating Partnership.......................................        713,739        725,206    
    Partially owned properties..................................         30,122         29,612    
                                                                    -----------    -----------    
        Total Minority Interests................................        743,861        754,818    
                                                                    -----------    -----------    
  Shareholders' Equity:
     Preferred Shares, 100,000,000 authorized:
         8.98% Series A Cumulative Redeemable Preferred 
          Shares, liquidation preference $25.00 per 
          share, 8,000,000 issued and outstanding...............        200,000        200,000
         5.25% Series B Convertible, Cumulative 
          Redeemable Preferred Shares, liquidation 
          preference $50.00 per share, 6,000,000 issued 
          and outstanding.......................................        300,000             --
     Common Shares, $0.01 par value; 750,000,000 
          shares authorized, 252,868,950 and 250,030,403
          issued, 252,366,210 and 249,527,663 
          outstanding...........................................          2,524          2,495  
     Additional paid in capital.................................      6,283,398      6,219,511  
     Dividends in excess of accumulated                                                         
          earnings..............................................        (43,143)       (16,849) 
                                                                    -----------    -----------  
        Total Shareholders' Equity..............................      6,742,779      6,405,157  
                                                                    -----------    -----------  
        Total Liabilities and Shareholders' Equity..............    $13,631,834    $11,751,672  
                                                                    ===========    ===========  
</TABLE>

                            See accompanying notes.


                                       2
<PAGE>   3

      EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
        AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENT OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>                                                                                                                      
                                                     
                                                                                                
                                                     Equity Office Properties Trust             Equity Office 
                                                --------------------------------------------   Predecessors for
                                                   For the Three          For the period       the period from
                                                    Months Ended        from July 11, 1997     July 1, 1997 to
                                                 September 30, 1998   to September 30, 1997     July 10, 1997
                                                --------------------  ----------------------   ----------------
                                                        (Dollars in thousands, except per share data)
<S>                                                     <C>                   <C>                    <C>
Revenues:
 Rental.......................................           $339,169                 $124,962            $14,410
 Tenant reimbursements........................             61,729                   23,614              2,985
 Parking......................................             24,659                   12,653              1,141
 Other........................................              4,246                    1,061                269
 Fees from noncombined affiliates.............              5,102                    1,331                 70
 Interest / dividends.........................              2,028                      947                443
                                                --------------------  ----------------------   ----------------
   Total revenues.............................            436,933                  164,568             19,318
                                                --------------------  ----------------------   ----------------
Expenses:
 Interest:
  Expense incurred............................             91,240                   25,793              4,180
  Amortization of deferred financing costs....              1,073                    1,374                410
 Depreciation.................................             74,557                   22,787              4,718
 Amortization.................................              2,200                        -                497
 Real estate taxes............................             51,197                   18,317              2,326
 Insurance....................................              1,832                    1,255                245
 Repairs and maintenance......................             48,033                   19,651              2,412
 Property operating...........................             52,115                   22,539              2,123
 Ground rent..................................              1,813                    1,123                 70
 General and administrative...................             16,697                    5,855              2,475
                                                --------------------  ----------------------   ----------------
   Total expenses.............................            340,757                  118,694             19,456
                                                --------------------  ----------------------   ----------------
Income before allocation to minority interests,
 income from investment in unconsolidated joint  
 ventures and extraordinary items.............             96,176                   45,874               (138)
Minority Interests:
 Operating Partnership........................             (9,310)                  (2,587)                 -
 Partially owned properties...................               (572)                    (279)               (33)
Income from investment in unconsolidated joint
 ventures.....................................              3,129                    1,426                (43)
                                                --------------------  ----------------------   ----------------
Income before extraordinary items.............             89,423                   44,434               (214)
Extraordinary items...........................                  -                  (12,930)                 -
                                                --------------------  ----------------------   ----------------
Net income....................................             89,423                   31,504               (214)
Preferred dividends...........................             (8,427)                       -                  -
                                                --------------------  ----------------------   ----------------
Net income available for Common Shares........            $80,996                  $31,504              $(214)
                                                ====================  ======================   ================
Net income available per weighted average
 Common Share outstanding - Basic.............               $.32                     $.21
                                                ====================  ======================   
Weighted average Common Shares outstanding -
 Basic........................................        252,241,995              151,691,121
                                                ====================  ======================   
Net income available per weighted average
 Common Share outstanding - Diluted...........               $.32                     $.21
                                                ====================  ======================   
Weighted average Common Shares outstanding-
 Diluted......................................        281,929,910              165,384,651
                                                ====================  ======================  
</TABLE>

                            See accompanying notes.

                                       3




<PAGE>   4

      EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
        AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENT OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                                                  
                                                      Equity Office Properties Trust             Equity Office
                                                --------------------------------------------   Predecessors for
                                                    For the Nine          For the period        the period from
                                                    Months Ended        from July 11, 1997      January 1, 1997
                                                 September 30, 1998   to September 30, 1997     to July 10, 1997
                                                --------------------  ----------------------   ----------------
                                                        (Dollars in thousands, except per share data)      
<S>                                                     <C>                     <C>                <C>
Revenues:
 Rental....................................                 $937,070               $124,962           $256,146
 Tenant reimbursements.....................                  170,472                 23,614             43,241
 Parking...................................                   69,266                 12,653             21,091
 Other.....................................                   17,886                  1,061              6,539
 Fees from noncombined affiliates.........                     7,766                  1,331              2,510
 Interest / dividends......................                    8,237                    947              9,577
                                                --------------------  ---------------------    ---------------
   Total revenues..........................                1,210,697                164,568            339,104
                                                --------------------  ---------------------    ---------------
Expenses:
 Interest:
  Expense incurred.........................                  237,194                 25,793             80,481
  Amortization of deferred financing costs.                    5,149                  1,374              2,771
 Depreciation..............................                  207,987                 22,787             57,379
 Amortization..............................                    4,947                      -              5,884
 Real estate taxes.........................                  148,769                 18,317             34,000
 Insurance.................................                    5,703                  1,255              3,060
 Repairs and maintenance.................                    134,710                 19,651             45,540
 Property operating........................                  137,330                 22,539             42,309
 Ground rent...............................                    5,385                  1,123              2,376
 General and administrative...............                    45,137                  5,855             17,201
                                                --------------------  ---------------------    ---------------
   Total expenses.........................                   932,311                118,694            291,001
                                                --------------------  ---------------------    ---------------
Income before allocation to minority 
 interests, income from investment in 
 unconsolidated joint ventures, gain on 
 sales of real estate and extraordinary 
 items.....................................                 278,386                  45,874             48,103
Minority Interests:
 Operating Partnership.....................                 (26,336)                 (2,587)                 -
 Partially owned properties................                  (1,608)                   (279)              (912)
Income from investment in unconsolidated 
 joint ventures............................                   8,155                   1,426              1,982
Gain on sale of real estate................                       -                       -             12,510
                                                -------------------   ---------------------    ---------------
Income before extraordinary items..........                 258,597                  44,434             61,683
Extraordinary items........................                  (7,506)                (12,930)              (274)
                                                -------------------   ---------------------    ---------------
Net income.................................                 251,091                  31,504             61,409
Preferred dividends........................                 (23,130)                      -                  -
                                                -------------------   ---------------------    ---------------
Net income available for Common Shares.....                $227,961                 $31,504            $61,409
                                                ===================   =====================    ===============
Net income available per weighted average
 Common Share outstanding - Basic..........                    $.91                    $.21
                                                ===================   =====================
Weighted average Common Shares
 outstanding - Basic.......................             251,071,623             151,691,121
                                                ===================   =====================
Net income available per weighted average
 Common Share outstanding - Diluted........                    $.90                    $.21
                                                ===================   =====================
Weighted average Common Shares
 outstanding - Diluted.....................             281,207,972             165,384,651
                                                ===================   =====================
</TABLE>

                            See accompanying notes.



                                       4



<PAGE>   5

      EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS
        AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENT OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>                                                                                                       
                                                                                                         
                                                              Equity Office Properties Trust            Equity Office  
                                                        --------------------------------------------   Predecessors for
                                                            For the Nine          For the period        the period from 
                                                            Months Ended        from July 11, 1997      January 1, 1997 
                                                         September 30, 1998   to September 30, 1997     to July 10, 1997
                                                        --------------------  ----------------------   ----------------
                                                                            (Dollars in thousands)
<S>                                                             <C>                      <C>                 <C>
Operating Activities:                                                                                                            
Net income before preferred dividends..............             $251,091                 $31,504             $61,409
Adjustments to reconcile net income to net 
 cash provided by operating activities:
 Depreciation and amortization.....................              218,083                  24,161              66,034
 Amortization of premiums/discounts on unsecured 
  notes and terminated interest rate protection
  agreements.......................................                2,083                       -                   -
 Compensation related to restricted shares issued
  to employees.....................................                2,167                       -                   -
 (Income) from unconsolidated joint ventures.......               (8,155)                 (1,426)             (1,982)
 (Gain) on sale of real estate.....................                    -                       -             (12,510)
 Extraordinary items...............................                7,506                  12,930                 274
 Provision for doubtful accounts...................                  185                   1,556               1,175
 Allocation to minority interests..................               27,944                   2,866                 912
 Changes in assets and liabilities:
  (Increase) decrease in rents receivable..........              (10,472)                  5,297               2,664
  (Increase) in deferred rent receivables..........              (50,288)                (10,213)             (8,061)
  Decrease (increase) in prepaid expenses and
    other assets...................................                5,961                 (27,742)             (8,839)
  Increase in accounts payable and accrued
    expenses.......................................                9,581                  12,504               2,916
  Increase (decrease) in due to affiliates.........                  219                  (1,678)               (722)
  Increase (decrease) in other liabilities.........               50,235                   9,906              (7,310)
                                                        --------------------  ----------------------   ----------------
  Net cash provided by operating activities........              506,140                  59,665              95,960
                                                        --------------------  ----------------------   ----------------
Investing Activities:
 Property acquisitions.............................           (1,730,507)                (26,025)           (531,968)
 Payments for capital and tenant improvements......             (116,122)                (42,587)            (59,511)
 Proceeds from sales of real estate................                    -                       -              72,078
 Distributions from (investments in) unconsolidated   
  joint ventures...................................                8,973                   1,535             (44,260)
 Payments of lease acquisition costs...............              (29,210)                 (6,331)             (9,260)
 Investment in preferred securities................              (48,500)                      -                   -
 (Increase) decrease in escrow deposits and
   restricted cash.................................              (11,003)                (12,226)              1,853
                                                         -------------------  ----------------------   ----------------
   Net cash (used for) investing activities........           (1,926,369)                (85,634)           (571,068)
                                                        --------------------  ----------------------   ----------------
</TABLE>

                            See accompanying notes.



                                       5
<PAGE>   6
         



      EQUITY OFFICE PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS
  AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENT OF CASH FLOWS - (CONTINUED)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                    
                                                                   Equity Office Properties Trust             Equity Office
                                                             --------------------------------------------   Predecessors for
                                                                 For the Nine          For the period        the period from
                                                                 Months Ended        from July 11, 1997      January 1, 1997
                                                              September 30, 1998   to September 30, 1997     to July 10, 1997
                                                             --------------------  ----------------------   ----------------
<S>                                                            <C>                          <C>                <C>
Financing Activities:
 Proceeds from Common Shares, net of offering
  costs................................................                43,985               564,506                      -
 Proceeds from exercise of options.....................                15,024                     -                      -
 Redemption of Units...................................                   (33)                    -                      -
 Dividends/distributions to shareholders and unit
  holders..............................................              (179,737)                    -                      -
 Payment of preferred dividends........................               (21,124)                    -                      -
 Proceeds from sale of preferred shares, net of
  offering costs.......................................               289,329                     -                      -
 Payment of offering costs.............................                  (117)                    -                      -
 Capital contributions.................................                     -                     -                287,949
 Capital distributions.................................                     -                     -               (288,652)
 (Distributions to) minority interest in partially
  owned properties.....................................                (1,098)               (1,355)                (3,401)
 Cash contributed from net assets at the IPO...........                     -               181,163                      -
 Proceeds from mortgage debt...........................                 9,029                 1,697                154,090
 Proceeds from unsecured notes.........................             2,279,572               180,000                      -
 Proceeds from lines of credit.........................             3,915,500               425,125                218,000
 Principal payments on mortgage debt..................                (23,567)             (691,714)               (47,472)
 Principal payments on lines of credit.................            (4,934,885)             (486,625)               (72,500)
 Payments of loan costs................................               (21,869)               (1,327)                (1,889)
 Termination of interest rate protection agreements....               (38,277)                    -                      -
 Prepayment penalties on early extinguishments of
  debt.................................................                     -               (12,877)                  (274)
                                                                  -----------             ---------              ---------  
 Net cash provided by financing activities.............             1,331,732               158,593                245,851
                                                                  -----------             ---------              ---------  
 Net (decrease) increase in cash and cash equivalents                 (88,497)              132,624               (229,257)
 Cash and cash equivalents at the beginning of the                                                               
   period..............................................               228,853                    25                410,420
                                                                  -----------             ---------              ---------  
  Cash and cash equivalents at the end of the period...           $   140,356             $ 132,649              $ 181,163
                                                                  ===========             =========              =========  
SUPPLEMENTAL INFORMATION:                                                                                        
 Interest paid during the period, including                                                                      
 capitalized interest of $10,357, $1,711 and $3,669,                                                             
 respectively..........................................           $   215,205             $  30,273              $  82,969 
                                                                  ===========             =========              =========  
</TABLE>                                                          

                            See accompanying notes.


                                       6

<PAGE>   7
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)


     Definitions of Terms: Capitalized terms used but not defined herein are as
defined in the Company's Annual Report on Form 10-K, as amended by Form 10-K/A,
for the year ended December 31, 1997 (the "Form 10-K").

     The consolidated financial statements of the Company and the combined
financial statements of Equity Office Predecessors have been prepared pursuant
to the Securities and Exchange Commission ("SEC") rules and regulations.  The
following notes highlight significant changes to the notes to the December 31,
1997 audited consolidated and combined financial statements of Equity Office
Properties Trust and Equity Office Predecessors and should be read in
conjunction with the financial statements and notes thereto included in the Form
10-K and present interim disclosures as required by the SEC.

NOTE 1 - BUSINESS

     As used herein, "Company" means Equity Office Properties Trust, a Maryland
real estate investment trust, together with its subsidiaries including EOP
Operating Limited Partnership, a Delaware limited partnership (the "Operating
Partnership"), and the predecessors thereof ("Equity Office Predecessors"). The
Company was formed on October 9, 1996 to continue and expand the national office
property business organized by Mr. Samuel Zell, Chairman of the Board of
Trustees of the Company, and to complete the consolidation of the Equity Office
Predecessors (the "Consolidation").  The Company completed its initial public
offering (the "IPO") on July 11, 1997.  The Company is a fully integrated,
self-administered and self-managed real estate company engaged in acquiring,
owning, managing, leasing and renovating office properties and parking
facilities.  The Company elected to be taxed as a real estate investment trust
("REIT") for federal income tax purposes and generally will not be subject to
federal income tax if it distributes 100% of its taxable income and complies
with a number of organizational and operational requirements. As of September
30, 1998, the Company owned or had an interest in 285 office properties (the
"Office Properties") containing approximately 74.1 million rentable square feet
of office space and owned 17 stand-alone parking facilities (the "Parking
Facilities" and, together with the Office Properties, the "Properties")
containing approximately 16,749 parking spaces.  The weighted average occupancy
for the Office Properties at September 30, 1998 was approximately 94.6%.  The
Office Properties are located in 82 submarkets in 39 markets in 24 states and
the District of Columbia. The Office Properties, by rentable square feet, are
located approximately 52% in central business districts ("CBDs") and 48% in
suburban markets.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation. The Company owns all of its assets and conducts
substantially all of its business through the Operating Partnership.  The
Company is the managing general partner of the Operating Partnership.  Due to
the Company's ability as general partner to control the Operating Partnership
and various other subsidiaries, each such entity has been consolidated with the
Company for financial reporting purposes. The Consolidation and the Beacon
Merger were accounted for as purchases in accordance with Accounting Principles
Board Opinion No. 16.  Accordingly, the fair value of the consideration given by
the Company was used as the valuation basis for the transactions.  The assets
acquired and liabilities assumed by the Company were recorded at their fair
value as of the closing dates of the Consolidation and the Beacon Merger,
respectively, and the excess of the purchase price over the related historical
basis of the net assets acquired was allocated primarily to investment in real
estate.

     The combined financial statements of Equity Office Predecessors prior to
the Consolidation included interests in the Properties of the ZML Opportunity
Partnerships together with their limited and general partners and the Management
Business.

     Use of Estimates. The preparation of the consolidated financial statements
of the Company and the combined financial statements of Equity Office
Predecessors 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 periods.  Actual results could differ
from those estimates.

     Unaudited Interim Statements. The consolidated financial statements of the
Company as of and for the three and nine months ended September 30, 1998, the
period from July 11, 1997 to September 30, 1997, and the combined financial 


                                       7


<PAGE>   8
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)




statements of Equity Office Predecessors for the period from July 1, 1997 to
July 10, 1997 and January 1, 1997 to July 10, 1997 and related footnote
disclosures are unaudited.  In the opinion of  management, such financial
statements reflect all adjustments necessary for a fair presentation of the
results of the interim periods.  All such adjustments are of a normal, recurring
nature.

     Reclassifications. Certain reclassifications have been made to the
previously reported 1997 statements in order to provide comparability with the
1998 statements reported herein.  These reclassifications have not changed the
1997 results or owners' equity.

NOTE 3 - INVESTMENT IN REAL ESTATE

     During the nine months ended September 30, 1998, the Company acquired the
Properties listed below.  Each Property was purchased from an unaffiliated party
and was funded from the Company's Credit Facilities, working capital, assumption
of mortgage debt, issuance of promissory notes and/or issuance of Units.

<TABLE>
<CAPTION>
                                                                                                        
    Date                                                                            Rentable         Total
  Acquired        Property                                     Location           Square Feet     Acquisition Cost
- -----------     ------------------------------------------  -----------------     ------------    -----------------
                                                                                                   (in thousands)
<S>             <C>                                          <C>                  <C>                 <C>
   1/29/98      BP Tower Garage                              Cleveland, OH                -        $   10,224
   3/18/98      100 Summer Street                            Boston, MA           1,037,801           222,695
   3/31/98      The Tower at New England Executive Park (a)  Burlington, MA         195,228            27,931
    4/2/98      Westbrook Corporate Center Vacant Land       Westchester, IL              -             3,973
   4/21/98      Denver Post Tower                            Denver, CO             579,999            52,836
   4/29/98      301 Howard Street and 215 Fremont Street (b) San Francisco, CA      570,891            89,928
   4/30/98      410 17th Street                              Denver, CO             388,953            44,637
   4/30/98      One Tabor Center (c)                         Denver, CO             674,278           144,260
   4/30/98      Trinity Place                                Denver, CO             189,163            18,991
   5/14/98      Dominion Plaza                               Denver, CO             571,468            59,764
   5/19/98      Millenium Plaza                              Englewood, CO          330,033            46,061
   5/22/98      James K. Polk Building and the Zachary
                 Taylor Building (d)                         Arlington, VA          902,371           153,452
    6/1/98      Walker Building                              Washington, D.C.        75,456             8,624
   6/26/98      Columbia Seafirst Center                     Seattle, WA          1,537,932           401,738
    7/2/98      Northland Plaza                              Bloomington, MN        296,965            47,051
   7/15/98      4949 Syracuse                                Denver, CO              62,633             8,255
   7/15/98      Metropoint I and Metropoint III vacant land  Denver, CO             263,719            45,697
   7/15/98      One Park Square                              Albuquerque, NM        262,020            36,311
   7/15/98      Park Avenue Tower (e)                        New York, NY           550,894           244,880
   7/15/98      Terrace Building                             Englewood, CO          115,408            15,430
   7/15/98      The Solarium                                 Englewood, CO          162,817            19,467
   7/29/98      Second and Spring                            Seattle, WA            134,871            19,684
   9/30/98      Colonnade I, II and III (f)                  Dallas, TX             984,254           151,601
                                                                                  ---------        ----------
                                                                                  9,887,154        $1,873,490
                                                                                  =========        ==========
</TABLE>

(a)  The Tower at New England Executive Park Property was approximately 36.5% 
     leased at acquisition and is currently undergoing a significant renovation 
     in an effort to re-tenant the Property.
(b)  The 215 Fremont Street Property is currently vacant and is expected to
     undergo a significant renovation and extensive seismic retrofitting prior
     to re-tenanting.
(c)  The total acquisition cost of the One Tabor Center Property of 
     approximately $144.3 million includes vacant land of approximately $15.0 
     million and a 1,694 space parking facility.
(d)  Total acquisition cost of approximately $153.5 million represents the cost
     to acquire the remaining 90% limited partnership interest in the James K.
     Polk Building and the Zachary Taylor Building.
(e)  The Company acquired a $290 million first mortgage note secured by the
     Park Avenue Tower Property for approximately $244.9 million.  In
     accordance with certain agreements concerning the first mortgage note, the
     Company controls the financial and operational decisions for the Property
     and is entitled to substantially all cash flow and residual profit. 





                                       8

<PAGE>   9

         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)




     Accordingly, the Company consolidated the financial position and results 
     of operations of the Property.
(f)  The Colonnade III Property was acquired by the Company from an unaffiliated
     party and is approximately 68% leased as of September 30, 1998.  The seller
     of the Property may be entitled to receive an earnout payment for leases
     executed in accordance with terms outlined in the purchase agreement.  The
     maximum earnout payment is approximately $2.5 million.

NOTE 4 - INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

     The following is a summary of the Company's ownership in the unconsolidated
joint ventures:


<TABLE>
<CAPTION>
                                                        
                                                                        Company's Ownership
                                                                        as of September 30,
Entity                                   Property                              1998
- ----------------------------------     -------------------------------  ------------------
<S>                                    <C>                               <C>
EOP - Orange, L.L.C. and EOP -
Ramlessview Investors, L.L.C. (a)      500 Orange Tower                       100%
Civic Parking, L.L.C. (b)......        St. Louis Parking Garages               50%
Wright Runstad Associates Limited
 Partnership (c)......                 N/A                                   28.5%
One Post Office Square Associates
 (d)......................             One Post Office                         50%
BeaMetFed, Inc. (e)............        75-101 Federal Street                   52%
Rowes Wharf Associates (f).....        Rowes Wharf                             50%
Lehndorff Four Oaks Place Associates
 (g).................                  Four Oaks Place                       2.55%
Metropoint II Associates (h)...        Metropoint II                           70%
WRC Sunset North, L.L.C. (i)...        Sunset North Corporate Campus           80%
</TABLE>

(a)  The Company owns a mortgage note receivable secured by the Property and
     land underlying and adjacent to the Property.

(b)  The Company owns a 50% membership interest.

(c)  The Company owns a 28.5% non-controlling interest in a property management
     and development company (see Note 13).

(d)  The Company is a 50% general partner in the joint venture.

(e)  The Company is a shareholder in the corporation (a private REIT) which owns
     the Property.

(f)  The Company owns a 50% equity interest in the Property and, subject to a
     subparticipation which the Company expects to redeem for approximately
     $500,000, 50% of a first mortgage.

(g)  The Company owns a 3% general partner interest in this general partnership
     which owns an 85% general partnership interest in the Property.

(h)  In July 1998, the Company entered into a joint venture agreement with
     an unaffiliated party to develop Metropoint II, a $22.5 million, 150,000
     square foot office building, which is currently under construction in the
     Denver Tech Center.  The Company acquired a 70% interest in the joint
     venture, while the unaffiliated party retained a 30% interest and will
     continue as the developer of the project.  The Company has invested
     approximately $3.0 million in this project as of September 30, 1998.  A
     buy/sell option may be exercised to acquire the other venturer's interest
     by either the Company or its joint venture partner if certain conditions
     are met as defined in the joint venture agreement.

(i)  In July 1998, the Company entered into a joint venture agreement with
     Wright Runstad Associates Limited Partnership, an affiliated party, to
     develop Sunset North Corporate Campus, a three building, 462,000
     square-foot office complex in Bellevue, Washington.  Development of the
     campus is estimated to cost approximately $98.0 million. The Company will
     own 80% of the project during its development and will have the option to
     acquire the remaining 20% interest once stabilized occupancy has been
     achieved.  The Company has invested approximately $21.4 million in this
     project as of September 30, 1998.  A buy / sell option may be exercised to
     acquire the other venturer's interest by either the Company or the joint
     venture partner if certain conditions are met as defined in its joint
     venture agreement.

     These investments are accounted for utilizing the equity method of
accounting except for the Company's investment in Lehndorff Four Oaks Place
Associates, which is accounted for utilizing the cost method of accounting. 







                                       9
<PAGE>   10
       EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
          NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                (Unaudited)



Under the equity method of accounting, the net equity investment of the Company
is reflected on the consolidated balance sheets, and the consolidated and
combined statements of operations include the Company's share of net income or
loss from the unconsolidated joint ventures.  As a result of purchase method
accounting for the Beacon Merger and the Consolidation, any difference between
the carrying amount of these investments on the balance sheet of the Company and
the underlying equity in net assets is amortized as an adjustment to income from
unconsolidated joint ventures over 40 years.

     Combined summarized financial information of the unconsolidated joint
ventures is as follows:





<TABLE>
<CAPTION>
                                                          September 30, 1998            December  31, 1997
                                                          -------------------          -------------------
                                                                        (Dollars in thousands)
<S>                                                                 <C>                         <C>     
Balance Sheets:
 Real estate, net.......................................            $467,878                      $523,670    
 Other assets...........................................              75,629                        73,450    
                                                                    --------                      --------    
  Total Assets..........................................            $543,507                      $597,120    
                                                                    ========                      ========    
 Mortgage debt..........................................            $239,635                      $344,427    
 Other liabilities......................................              13,244                        15,271    
 Partners' and shareholders' equity.....................             290,628                       237,422    
                                                                    --------                      --------    
  Total Liabilities and Partners' and                                                                         
  Shareholders' Equity..................................            $543,507                      $597,120    
                                                                    ========                      ========    
Company's share of equity...............................            $149,550                      $155,522    
Excess of cost of investments over the net book value                                                         
 of underlying net assets, net of accumulated                                                                 
 depreciation  of $4,294 and $99, respectively..........             221,002                       231,810    
                                                                    --------                      --------    
Carrying value of investments in unconsolidated joint                                                         
 ventures...............................................            $370,552                      $387,332    
                                                                    ========                      ========    
                                                                                                              
Company's share of unconsolidated mortgage debt...........          $121,268                       $92,400    
                                                                    ========                      ========    

<CAPTION>




                                                 For the three months ended        For the nine months ended
                                                 ---------------------------      ----------------------------
                                                 September 30, September 30,      September 30,  September 30,
                                                     1998           1997               1998           1997
                                                 ------------- -------------      -------------  -------------
                                                                     (Dollars in thousands)
<S>                                              <C>           <C>                <C>            <C>
Statement of Operations:                        
 Revenues..................................          $26,297        $3,798            $82,319         $8,442      
                                                     -------        ------            -------         ------      
 Operating expenses........................            9,999           759             28,923          1,564      
 Interest expense..........................            4,462             -             12,640              -      
 Depreciation and amortization.............            4,463           765             14,296          1,793      
                                                     -------        ------            -------         ------      
  Total expenses...........................           18,924         1,524             55,859          3,357
                                                     -------        ------            -------         ------
  Net income...............................          $ 7,373        $2,274            $26,460         $5,085      
                                                     =======        ======            =======         ======      
 Company's share of net income.............          $ 3,129        $1,383            $ 8,155         $3,408      
                                                     =======        ======            =======         ======      
 Company's share of  interest expense......          $ 2,259        $    -            $ 6,385         $    -      
                                                     =======        ======            =======         ======      
 Company's share of depreciation and                                                                              
  amortization (real estate  related)......          $ 3,513        $  517            $10,729         $1,330      
                                                     =======        ======            =======         ======      

</TABLE>

NOTE 5 - INVESTMENT IN PREFERRED SECURITIES

     On July 28, 1998, the Company completed the purchase of 50,000 shares of
Capital Trust 8.25% Step Up Convertible Trust Preferred Securities, $1,000
liquidation preference per share, for $48.5 million, in a private placement.
Mr. Zell, Chairman of the Board of Trustees of the Company, is also Chairman of
the Board of Capital Trust.  The preferred shares are convertible at any time
by the holders into common shares of Capital Trust at a conversion price of 





                                       10
<PAGE>   11

         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)

$11.70, reflecting a 30% conversion premium over Capital Trust's common share
price at the close of business on July 24, 1998.  The preferred shares are
non-callable for five years, and have a 20-year maturity. The quarterly dividend
was paid on September 30, 1998, and is payable each calendar quarter
thereafter; commencing in year seven, the dividend will increase by 75 basis
points per annum.  In connection with the investment, Capital Trust has granted
the Company and other investors the right to participate in certain strategic
lending opportunities.  The Company classified this investment with other assets
on the balance sheet.

NOTE 6 -  MORTGAGE DEBT

     On July 1, 1998, the Company repaid the mortgage note on the 175 Federal
Street Property in the amount of approximately $12.5 million.

NOTE 7 -  UNSECURED NOTES

     The Operating Partnership filed a registration statement, which was
declared effective on June 18, 1998, relating to an offer to exchange the $180
Million Notes, the $1.25 billion of unsecured notes (the "$1.25 Billion Notes")
and the $250 million of 6.376% Mandatory Par Put Remarketed Securities (the
"$250 Million MOPPRS") for registered securities of the Operating Partnership
with terms identical in all material respects to the terms of the existing
notes.  This exchange offer expired on July 30, 1998.

     The Operating Partnership filed a registration statement, which was
declared effective on July 22, 1998, relating to the issuance from time to time
of up to $2.0 billion of unsecured debt securities and warrants exercisable for
debt securities in amounts, at initial prices and on terms to be determined at
the time of offering.  The securities may be issued separately or together, in
separate series in amounts, at prices and on terms described in one or more
supplements to the prospectus.

     The Operating Partnership filed a registration statement, which was
declared effective on September 4, 1998, relating to an offer to exchange (a)
$775 million of unsecured notes issued in June 1998 (the "$775 Million Notes");
(b) 300,000 warrants to purchase an additional $300 million in unsecured notes
at a later date; and (c) portions of the $1.25 Billion Notes and $250 Million
MOPPRS for registered securities of the Operating Partnership with terms
identical in all material respects to the terms of the existing notes.  This
exchange offer expired on October 27, 1998.

NOTE 8 - LINES OF CREDIT

     In connection with the acquisition of 4949 Syracuse, Metropoint I, One Park
Square, The Solarium and the Terrace Building on July 15, 1998, the Company
issued approximately $54.0 million in promissory notes secured by letters of
credit. The promissory notes are due 120 days after the acquisition of the
Properties and are payable in cash or Common Shares at the Company's option.
The promissory notes bear interest at approximately 4.7% per annum. On August
21, 1998, the Company repaid approximately $25.6 million of the promissory
notes.

     On August 14, 1998, the Operating Partnership closed a new $328 million
unsecured term loan facility  (the "$328 Million Credit Facility") with J.P.
Morgan.  The $328 Million Credit Facility is priced at 90-day LIBOR plus 80
basis points and is prepayable on any interest payment date.  The $328 Million
Credit Facility matures on August 15, 2000.  The proceeds from the $328 Million
Credit Facility were used to pay down the $1.0 Billion Credit Facility.

     On September 22, 1998, the Operating Partnership closed a new $200 million
unsecured term loan facility (the "$200 Million Credit Facility") with The Chase
Manhattan Bank.  Interest accrues under the $200 Million Credit Facility at an
initial rate of LIBOR plus 50 basis points with a facility fee equal to 20 basis
points per annum.  Pricing for the first twelve months is based on a matrix tied
to the Company's credit rating and may be reset after the first twelve months
for an additional six months and again after eighteen months for an additional
six months for a ten basis point fee.  The proceeds of the $200 Million Credit
Facility were used to pay down the $1.0 Billion Credit Facility.






                                       11
<PAGE>   12


         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)


NOTE 9 - SHAREHOLDERS' EQUITY

     On July 15, 1998, the Board of Trustees of the Company declared a third
quarter dividend for the 6,000,000 shares of 5.25% Series B Convertible,
Cumulative Redeemable Preferred Shares, $50 liquidation preference per share
(the "Series B Preferred Shares") of $.65625 per share, based on a full
quarterly distribution and an annual distribution of $2.625 per share.  The
distribution was paid on August 17, 1998, to holders of record as of August 3,
1998.

     On August 17, 1998, the Board of Trustees of the Company declared a third
quarter dividend for the Series A Preferred Shares of $.56125 per share.  The
distribution was paid on September 15, 1998 to holders of record as of September
1, 1998.

     On September 18, 1998, the Board of Trustees of the Company declared a
third quarter dividend in the amount of $0.37 per Common Share/Unit, based on a
full quarterly distribution and an annual distribution rate of $1.48 per Common
Share/Unit. The distribution was paid on October 9, 1998, to common
shareholders / unit holders of record as of September 30, 1998.

     In connection with the acquisition of the Second and Spring Property on
July 29, 1998, the Operating Partnership issued 178,976 Units.

     The Company filed a registration statement, which was declared effective on
July 22, 1998, relating to the registration of $1.5 billion of Common Shares,
preferred shares of beneficial interest and warrants to be issued at prices and
on terms to be determined at the time of offering.  The Company may issue the
securities separately or together, in separate series, in amounts, at prices and
on terms described in one or more supplements to the prospectus.

     The Company filed a registration statement which was declared effective on
July 22, 1998, relating to the resale by a selling shareholder of the 1,628,009
Common Shares issued in a private placement in April 1998.

     The Company filed a registration statement, which was declared effective on
September 4, 1998, relating to the resale by certain selling shareholders of
20,210,129 Common Shares previously issued in various property acquisitions or
for cash or which may be issuable upon redemption of Units previously issued in
various Property acquisitions. 

     The Company filed a registration statement, which was declared effective on
September 4, 1998, relating to the resale of the Series B Preferred Shares. The
shares were required to be registered under the terms of a registration rights
agreement entered into at the time of the original private placement. The
Company will receive no proceeds of any sales of the Series B Preferred Shares.

     The following table presents the changes in the issued and outstanding
Common Shares and Units for the nine months ended September 30, 1998:


<TABLE>
                                                     Common Shares            Units
                                                    ---------------       ------------
<S>                                                <C>                 <C>
Balance at January 1, 1998. . . . . . . . . . . . .    249,527,663         29,159,688
Sale of Common Shares . . . . . . . . . . . . . . .      1,628,009                  -
Common Shares issued through exercise of options. .        787,883                  -
Conversion of Units into Common Shares. . . . . . .        422,655           (422,655)
Redemption of Units . . . . . . . . . . . . . . . .              -             (1,167)
Units issued in exchange for property acquisition .              -            182,344
                                                       -----------         ---------- 
Balance at September 30, 1998 . . . . . . . . . . .    252,366,210         28,918,210
                                                       ===========         ========== 
</TABLE>

     The Company's ownership interest in the Operating Partnership as of
September 30, 1998 was approximately 89.7%.






                                       12
<PAGE>   13
         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)


NOTE 10 - EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per Common Share:


<TABLE>
<CAPTION>
                                                                                                    For the period
                                                    For the Three Months   For the Nine Months            from
                                                           Ended                  Ended             July 11, 1997 to
(Dollars in thousands, except per share data)        September 30, 1998    September 30, 1998      September 30, 1997
- --------------------------------------------------  ---------------------  --------------------    ------------------ 
<S>                                                  <C>                    <C>                    <C>
NUMERATOR:
 Net income available to Common Shares before
  extraordinary items.............................      $    $80,996            $    235,467            $     44,434
 Extraordinary items..............................                 -                  (7,506)                (12,930)
                                                        ------------            ------------            ------------
 Numerator for basic earnings per share-income                                                          
  available to Common Shares......................            80,996                 227,961                  31,504
 Minority interest in Operating Partnership                    9,310                  26,336                   2,587
                                                        ------------            ------------            ------------
 Numerator for diluted earnings per share - income                                                      
  available to Common Shares......................           $90,306                $254,297                 $34,091
                                                        ============            ============            ============  
DENOMINATOR:                                                                                            
 Denominator for basic earnings per share -                                                             
  weighted average Common Shares.................        252,241,995             251,071,623            $151,691,121
                                                        ------------            ------------            ------------
 Effect of dilutive securities:                                                                         
  Conversion of Units to Common Shares............        28,981,320              29,005,447              12,455,590
  Share options...................................           706,595               1,130,902               1,237,940
                                                        ------------            ------------            ------------
 Dilutive potential Common Shares.................        29,687,915              30,136,349              13,693,530
                                                        ------------            ------------            ------------
 Denominator for diluted earnings per share -                                                           
  adjusted weighted average shares and assumed                                                          
  conversions.....................................       281,929,910             281,207,972             165,384,651
                                                        ============            ============            ============
Basic Earnings Available to Common Shares per                                                           
  Weighted Average Common Share:                                                                        
 Net income before extraordinary items                  $        .32            $        .94            $        .29
 Extraordinary items                                               -                    (.03)                   (.08)
                                                        ------------            ------------            ------------
 Net income per Common Share                            $        .32            $        .91            $        .21
                                                        ============            ============            ============  
                                                                                                        
Diluted Earnings Available to Common Shares Per                                                         
  Weighted Average Common Share:                                                                        
 Net income before extraordinary items                  $        .32            $        .93            $        .28
 Extraordinary items                                               -                    (.03)                   (.07)
                                                        ------------            ------------            ------------
 Net income per Common Share                            $        .32            $        .90            $        .21
                                                        ============            ============            ============  
</TABLE>


     Options to purchase 2,970,468 Common Shares at a weighted average exercise
price of $30.26 per Common Share, warrants to purchase 5,000,000 Common Shares
at an exercise price of $39.375 per Common Share and the Series B Preferred
Shares at a conversion price of $35.70 per Common Share were outstanding during
the three months ended September 30, 1998 and were not included in the
computation of diluted earnings per share for the three months ended September
30, 1998 since they would have an antidilutive effect.  In addition, options to
purchase 2,929,825 Common Shares at a weighted average exercise price of $30.31
per Common Share, warrants to purchase 5,000,000 Common Shares at an exercise
price of $39.375 per Common Share and the Series B Preferred Shares at a
conversion price of $35.70 per Common Share were outstanding during the nine
months ended September 30, 1998 and were not included in the computation of
diluted earnings per share for the nine months ended September 30, 1998, since
they would have an antidilutive effect.  In addition, options to purchase
726,500 Common Shares at a weighted average exercise price of $32.93 per Common
Share were outstanding during the period from July 11, 1997 to September 30,

                                                                    

                                       13                                    
<PAGE>   14
        EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)



1997 and were not included in the computation of diluted earnings per share for
the period from July 11, 1997 to September 30, 1997, since they would have an
antidilutive effect.

NOTE 11 - PRO FORMA STATEMENT OF OPERATIONS

     The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended September 30, 1998 reflects the following
transactions as if they had occurred on January 1, 1998: (a) the acquisition of
27 Office Properties, and one parking facility, acquired during the nine months
ended September 30, 1998; (b) the purchase of the remaining partnership
interests in one of the Company's unconsolidated joint ventures; (c) the
February 1998 $1.5 Billion Notes Offering; (d) the Series B Preferred Offering;
(e) the increase in the $600 Million Credit Facility to $1.0 billion; (f) the
UIT Offering in April 1998, (g) the June 1998 $775 Million Notes Offering and
(h) the $48.5 million investment in preferred shares of Capital Trust.

     The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended September 30, 1997 reflects the following
transactions as if they had occurred on January 1, 1997: (a) the acquisition of
66 Office Properties, including 20 Office Properties acquired by Beacon prior to
the Beacon Merger, and seven Parking Facilities, including an interest in four
Parking Facilities, acquired during the year ended December 31, 1997; (b) the
disposition of three office properties; (c) the $180 Million Notes Offering
which closed on September 3, 1997; (d) the transactions that occurred in
connection with the Consolidation of Equity Office Predecessors and the IPO
which closed on July 11, 1997, and the decrease in interest expense resulting
from the use of the net proceeds for the repayment of mortgage debt; (e) the net
change in interest expense from draws on the $1.5 Billion Credit Facility used
to refinance existing mortgage debt; (f) the Beacon Merger; (g) the acquisition
of 27 Office Properties and one parking facility acquired between January 1,
1998 and September 30, 1998: (h) the purchase of the remaining partnership
interest in one of the Company's unconsolidated joint ventures; (i) the February
1998 $1.5 Billion Notes Offering (j) the Series B Preferred Offering; (k) the
increase in the $600 Million Credit Facility to $1.0 billion; (l) the UIT
Offering; (m) the June 1998 $775 Million Notes Offering and (n) the $48.5
million investment in preferred shares of Capital Trust.

     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.
<TABLE>
<CAPTION>


                                    For the nine months ended September 30,
                                  --------------------------------------------
                                           1998                   1997
                                     ----------------       ----------------
                                  (Dollars in thousands except per share data)
<S>                                 <C>                    <C>
Total Revenues....................        $1,302,226             $1,239,989
                                    ================       ================
Income before extraordinary
 items............................          $250,292               $199,266
                                    ================       ================
Net income available for
Common Shares.....................          $217,468               $158,791
                                    ================       ================
Net income per Common Share -
 Basic............................              $.86                   $.63
                                    ================       ================
Common Shares Outstanding -
 Basic............................       252,237,000            251,156,000
                                    ================       ================
Net income per Common Share -
Diluted...........................              $.86                   $.63
                                    ================       ================
Common Shares Outstanding -
Diluted...........................       282,373,000            282,257,000
                                    ================       ================
</TABLE>




                                       14

<PAGE>   15

         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)

NOTE 12 - NON-CASH INVESTING AND FINANCING ACTIVITIES

Additional supplemental disclosures of non-cash investing and financing
activities are as follows:
<TABLE>
<CAPTION>



                                                For the Nine           For the period
                                                Months Ended         from July 11, 1997
                                             September 30, 1998     to September 30, 1997
                                             ------------------     ----------------------
<S>                                          <C>                                <C>
Mortgage loans assumed / promissory 
 notes issued through property
 acquisitions.......................             $141,506                         $90,000
                                             ==================     =======================
Units issued through property                                       
 acquisitions.......................               $4,698                         $49,100
                                             ==================     =======================
Mortgage loans and line of credit                                   
 assumed in the Consolidation.......                   --                      $2,196,708
                                             ==================     =======================
Net liabilities assumed in the                                      
 Consolidation......................                   --                         $62,706
                                             ==================     =======================
Common Shares and Units issued in                                   
 the Consolidation.................                    --                      $2,830,918
                                             ==================     =======================


</TABLE>

NOTE 13 -  COMMITMENTS AND CONTINGENCIES

     Concentration of Credit Risk. The Company maintains its cash and cash
equivalents at financial institutions.  The combined account balances at each
institution periodically exceed FDIC insurance coverage, and, as a result,
there is a concentration of credit risk related to amounts on deposit in excess
of FDIC insurance coverage.  Management of the Company believes that the risk is
not significant.  The Company from time to time enters into interest rate
protection agreements to effectively convert floating rate debt to a fixed rate
basis, as well as to hedge anticipated financing transactions.  The Company
believes it has limited exposure to the extent of non-performance by the swap
counterparties since each counterparty is a major U.S. financial institution,
and management does not anticipate their non-performance.  Currently, the
Company has one interest rate protection agreement which effectively fixed the
interest rate on a $93.6 million loan at 6.94% through the maturity of the loan
on June 30, 2000.

     Environmental. The Company, as an owner of real estate, is subject to
various environmental laws of federal and local governments.  Compliance by the
Company with existing laws has not had a material adverse effect on the
Company's financial condition and results of operations, and management does not
believe it will have such an impact in the future.  However, the Company cannot
predict the impact of new or changed laws or regulations on its current
Properties or on properties that it may acquire in the future.

     Litigation. The Company has become a party to various legal actions
resulting from the operational activities transferred to the Operating
Partnership in connection with the Consolidation and the Beacon Merger. These
actions are incidental to the transferred business and management does not
believe that these actions will have a material adverse effect on the Company.

     The Company is involved in continuing discussions with its joint venture
partner in One Post Office Square and Rowes Wharf, which were acquired in
connection with the Beacon Merger, with respect to the Company's control over
property management of such Properties.  The joint venture partner did not
consent to the transfer to the Company of Beacon's joint venture interest in
these Properties. Although the Company believes that such consent was not
required, unless the Company is able to reach an agreement with respect to
day-to-day management of such Properties, it is possible that the joint venture
partner could challenge the transfer of such Properties in the Beacon Merger, or
seek to trigger the buy-sell remedy found in the joint venture documents.







                                       15
<PAGE>   16


         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)


     Neither the Company nor any of the Properties is presently subject to any
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Properties, other than actions
which the Company does not believe to be material, or routine actions for
negligence and other claims and administrative proceedings arising in the
ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on the liquidity, business, results of operations or
financial condition of the Company.

     Geographical. The Company carries earthquake insurance on all of the
Properties, including  those located in California, subject to coverage
limitations which the Company believes are commercially reasonable.  In light of
the California earthquake risk, California building codes since the early 1970's
have established construction standards for all new buildings.  The current and
strictest construction standards were adopted in 1987.  Of the 44 Properties
located in California, 13 have been built since January 1, 1988 and the Company
believes that all of the Properties were constructed in full compliance with the
applicable standards existing at the time of construction. No assurance can be
given that material losses in excess of insurance proceeds will not occur in the
future.

     Commitments. In February 1998, the Company entered into a contract to
purchase the Rand Tower Garage in Minneapolis, Minnesota upon completion of the
parking structure. The purchase price for this 589 space parking facility will
be approximately $19.2 million and is scheduled for completion in March 1999.
This transaction is contingent upon certain terms and conditions as set forth in
the purchase agreement.  There can be no assurance that this transaction will be
consummated as described above.

     In March 1998, the Board of Trustees of the Company approved the purchase
of Prominence in Buckhead, an office building development in Atlanta, Georgia.
The property, which will consist of a 430,000 square foot office building and
1,350 parking spaces, is expected to be acquired upon its anticipated completion
in August 1999. The purchase will also include an 11.88-acre site that may be
used to develop Phase II of Prominence. The purchase price for the described
assets and amounts to be incurred for tenanting the property will be
approximately $88.2 million. This transaction is contingent upon certain terms
and conditions as set forth in the purchase agreement. There can be no assurance
that this transaction will be consummated as described above.

     In July 1998, the Company entered into an agreement to purchase World Trade
Center East Project in Seattle, Washington.  The property will consist of a
181,000 square foot office building and is scheduled for shell completion in
March 1999 and is 100% preleased to a single tenant.  After the tenant takes
full occupancy in early 2000, the Company is expected to purchase the building
for approximately $38.6 million. This transaction is contingent upon certain
terms and conditions as set forth in the purchase agreement. There can be no
assurance that this transaction will be consummated as described above.

     In accordance with the agreement governing the Company's investment in the
Wright Runstad Associates Limited Partnership ("WRALP") (see Note 4), the
Company has agreed to make available to WRALP up to $20.0 million in additional
financing or credit support for future development.  As of September 30, 1998,
no amounts have been funded pursuant to this agreement.

     Contingencies. Effective as of August 13, 1998, the Company amended a
pre-existing put option agreement with certain sellers of the Wright Runstad
Properties (the "WR Holders").  The WR Holders have the option on August 13,
1999 to require the Company to purchase all or a portion of the 3,435,688 Common
Shares, issued at acquisition, at a price equal to $31.50 per Common Share.
Prior to August 13, 1999, if the WR Holders sell all or a portion of their
Common Shares to a third party for a price less than $29.10625 per Common Share,
then the Company shall pay to the WR Holders an amount equal to the difference
between such sale price and $29.10625 multiplied by the number of Common Shares
sold, not to exceed $3.00 per Common Share. Any amounts paid by the Company as a
result of such sales, calculated as the difference between the sale price and
$29.10625 not exceeding $3.00 per Common Share, shall be recorded as a reduction
of shareholders' equity.  For options exercised on August 13, 1999, any amounts
paid up to $29.10625 per Common Share would be reflected as a reduction to
shareholders' equity; the portion of any amounts paid in excess of $29.10625 per
Common Share (not to exceed $31.50 per Common Share) would be expensed by the
Company.  The portion expensed would not exceed $2.39375 per Common Share.


                                        
                                       16

<PAGE>   17

         EQUITY OFFICE PROPERTIES TRUST AND EQUITY OFFICE PREDECESSORS
            NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
                                  (Unaudited)

     Effective as of  September 3, 1998, the Company amended its pre-existing
put option agreement with the seller of the Columbus America Properties (the
"CA Holder") related to 1,692,546 Units issued at acquisition.   The CA Holder
has the option at any time after January 1, 1999 until the earlier of a)
September 3, 2000 or b) the date the CA Holder has converted all of its Units to
Common Shares, to require the Company to purchase the Units at a price equal to
$29.00 per Unit. Under the terms of the agreement, prior to September 3, 1999,
the option shall be limited to an aggregate of 846,273 Units. In the event of
any option exercise, the Company will recognize any cash paid as a reduction of
minority interest.

NOTE 14 - SUBSEQUENT EVENTS

     The following significant transactions relating to the Company occurred
during the period from October 1, 1998 to November 5, 1998:

1)   On October 1, 1998, the Company acquired Worldwide Plaza from an
     unaffiliated party.  The Property consists of approximately 1.7 million
     total square feet and is located in New York City.  The 47-story building
     includes 1,575,445 square feet of office space, as well as 20,788 square
     feet of retail space in the office tower's arcade and was more than 98%
     leased as of September 30, 1998.  The acquisition also includes a
     controlling financial interest in an entertainment component that features
     108,000 square feet of retail, a health club and movie theaters, as well as
     a 473-space parking garage.  The complex also includes a residential
     condominium tower that was not acquired by the Company.  The $578.0 million
     purchase price specified in the purchase contract was adjusted to $624.6
     million for the following: (a) the assumption of a $268.6 million mortgage
     with an estimated mark to market adjustment of $11.2 million; (b) the
     assumption of a deferred real estate tax liability with a present value of
     approximately $31.2 million; (c) the issuance of 6,861,166 Units with an
     estimated fair value of $171.9 million based on a fair value of $25.05 per
     Unit; (d) a cash payment of approximately $110.1 million; (e) closing and
     transaction costs of approximately $4.2 million; and (f) the issuance of a
     transferable put option on the Units exercisable only on the third
     anniversary of closing with an estimated fair value of $27.4 million.  This
     option entitles its holder to additional Common Shares, the number of which
     shall be determined using a formula based on the extent, if any, that the
     Common Shares are then trading at less than $29.05 per share.

2)   On October 15, 1998, the Board of Trustees of the Company declared a fourth
     quarter dividend for the Series B Preferred Shares of $.65625 per share,
     based on a full quarterly distribution and an annual distribution of $2.625
     per share.  The distribution will be paid on November 16, 1998 to holders
     of record as of November 2, 1998.

3)   On November 5, 1998, the Company sold First Union Center, One Clearlake
     Centre, Tampa Commons and the Westshore Center for approximately $124.0
     million to various unaffiliated parties.  The properties are located in
     Florida and consist of approximately .9 million square feet.  In addition,
     the Company repaid the mortgage note encumbering Westshore Center of
     approximately $7.2 million and approximately $1.8 million of additional
     debt on properties that were cross-collateralized with the Westshore Center
     mortgage note at closing. The Company classified these properties as held
     for disposition as of September 30, 1998. As of September 30, 1998, the net
     book value of these properties was approximately $110.8 million.  Net
     income of these properties for the nine months ended September 30, 1998 was
     approximately $7.2 million. 

4)   The Company is in negotiations with the lender of the mortgage note secured
     by the 150 Federal Street Property that matured on November 1, 1998, to
     extend the term. This transaction is contingent upon negotiations with the
     lender. There can be no assurance that this transaction will be consummated
     as described above. 

                                       17

<PAGE>   18
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

OVERVIEW

     The following discussion and analysis of the consolidated financial
condition and consolidated and combined results of operations should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Combined Financial Statements of Equity Office Predecessors, and Notes thereto
contained herein.  All references to the historical activities of the Company
prior to July 11, 1997, the date of the Company's initial public offering (the
"IPO") contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" refer to the activities of the Equity
Office Predecessors. Terms employed herein as defined terms, but without
definition, shall have the meaning set forth in the Company's Annual Report on
Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 1997.
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" including without limitation, the "Year
2000" disclosure, which are not historical facts may be forward-looking
statements within the meaning of Section 21E of the Exchange Act.  The Company
intends such forward-looking statements to be covered by the safe harbor
provisions for forward looking statements contained in Section 21E of the
Exchange Act and are included for purposes of complying therewith.  Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected.  Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of September 30, 1998.

     During the period from January 1, 1998 to September 30, 1998, the Company
acquired an additional 27 Office Properties containing approximately 8.7 million
square feet and one parking facility.  The aggregate purchase price for these
acquisitions was approximately $1.7 billion. Excluded in these figures is the
James K. Polk Building and the Zachary Taylor Building containing approximately
902,371 square feet which the Company owned a 10% interest and acquired the
remaining 90% interest for approximately $153.5 million on May 22, 1998.  Also
excluded in these figures is the 215 Fremont Street Property acquired on April
29, 1998, which contains approximately 265,000 square feet and is expected to
undergo a major redevelopment prior to re-tenanting.  In addition, the Company
was active in the capital markets.  Below is a schedule of significant capital
events that have taken place:


*    In February 1998, the Company completed the $1.25 Billion Notes Offering
     and the $250 Million MOPPRS Offering.
*    In February 1998, the Company completed the $300 Million Series B 
     Preferred Shares Offering.
*    In April 1998, the Company completed a private placement of 1,628,009
     Common Shares at $28.5625 per share for net proceeds of approximately 
     $44.1 million.
*    In June 1998, the Company completed the private placement of the $775
     Million Notes and 300,000 warrants (the "$775 Million Notes Offering") for
     a potential additional $300 million in unsecured notes.
*    In July 1998, the Company completed the purchase of $48.5 million of
     Capital Trust 8.25% Step Up Convertible Trust Preferred Securities.
*    In August 1998, the Operating Partnership closed on the $328 Million Credit
     Facility.
*    In September 1998, the Operating Partnership closed on the $200 Million
     Credit Facility.
*    In September 1998, the Board of Trustees of the Company increased the
     annual dividend amount for  Common Shares/Units to $1.48 per Common 
     Share/Unit from $1.28 per Common Share/Unit.


RESULTS OF OPERATIONS

GENERAL

     The following discussion is based primarily on the Consolidated Financial
Statements of the Company and the Combined Financial Statements of Equity Office
Predecessors, as applicable, as of September 30, 1998 and December  31, 1997 and
for the three and nine month periods ended September 30, 1998 and 1997,
respectively.

     The Company receives income primarily from rental revenue from the Office
Properties (including reimbursements from tenants for certain operating costs)
and from parking revenue from Office Properties and stand-alone Parking
Facilities.

     As of September 30, 1998, the Company owned or had an interest in 285
Office Properties totaling approximately 74.1 million square feet, and 17
stand-alone Parking Facilities with approximately 16,749 spaces (the "Total
Portfolio").  Of the Total Portfolio, 82 of these Office Properties totaling
approximately 28.7 million square feet and ten Parking Facilities were acquired
prior to January 1, 1997; 176 Office Properties totaling approximately 36.6
million square feet and seven Parking Facilities were acquired in 1997; and 27
Office Properties totaling approximately 8.7 million square feet were acquired
during the nine months ended September 30, 1998.  As a result of this rapid
growth in the size of the Total Portfolio, the financial data presented shows
large increases in revenues and expenses from period to period.  For the
foregoing reasons, the Company does not believe its period to period financial
data are comparable. Therefore, the analysis below shows changes resulting from
Properties that were held during the entire period for the periods being
compared (the "Core Portfolio") and the changes in the Total Portfolio.  The
Core Portfolio for the comparison between the nine months ended September 30,
1998 and 1997 consists of 81 Office Properties totaling approximately 28.2
million square feet and ten Parking Facilities acquired prior to January 1,
1997. The Core Portfolio for the comparison between the three months ended
September 30, 1998 and 1997 consists of 91 Office Properties totaling
approximately 32.2 million square feet and 14 Parking Facilities acquired prior
to July 1, 1997. The Core Portfolio for these comparisons excludes Barton Oaks






                                       18
<PAGE>   19


Plaza II, a 118,529 square foot office property which was sold in January 1997,
and 8383 Wilshire, a 417,463 square foot office property, which was sold in May
1997.  The 28 State Street Property, a 570,040 square foot Office Property
acquired by the Company on January 23, 1995, was undergoing major redevelopment
until May 1997 and is excluded from the Core Portfolio in the comparison for the
nine months ended September 30, 1998 and 1997, and included in the Core
Portfolio in the comparison for the three months ended September 30, 1998 and
1997.

COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997.

The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio which consists of 91 Office Properties
and 14 Parking Facilities acquired or placed in service prior to July 1, 1997.

<TABLE>
<CAPTION>
                                                 TOTAL PORTFOLIO                       CORE PORTFOLIO
                                      -----------------------------------   ------------------------------------
                                                        INCREASE/   %                        INCREASE/     %
                                       1998     1997   (DECREASE) CHANGE     1998      1997  (DECREASE)  CHANGE
                                      -----------------------------------   ------------------------------------
                                                                 (DOLLARS IN THOUSANDS)

<S>                               <C>       <C>       <C>       <C>      <C>       <C>       <C>      <C>
Property revenues                   $429,803  $181,095  $248,708    137.3% $185,505  $179,789  $ 5,716      3.2%
Fees from noncombined affiliates       5,102     1,401     3,701    264.2         -         -        -        -
Interest/dividend income               2,028     1,390       638     45.9       298       280       18      6.4
                                    --------  --------  --------  -------  --------  --------  -------   ------
    Total revenues                   436,933   183,886   253,047    137.6   185,803   180,069    5,734      3.2
                                    --------  --------  --------  -------  --------  --------  -------   ------

Interest expense                      91,240    29,973    61,267    204.4    20,975    24,901   (3,926)   (15.8)
Depreciation and amortization         77,830    29,786    48,044    161.3    33,808    28,736    5,072     17.7
Property operating expenses          153,177    68,868    84,309    122.4    66,554    68,256   (1,702)    (2.5)
Ground rent                            1,813     1,193       620     52.0     1,109     1,192      (83)    (7.0)
General and administrative            16,697     8,330     8,367    100.4         -       102     (102)  (100.0)
                                    --------  --------  --------  -------  --------  --------  -------   ------
    Total expenses                   340,757   138,150   202,607    146.7   122,446   123,187     (741)    (0.6)
                                    --------  --------  --------  -------  --------  --------  -------   ------
Income before allocation to
  minority interests, income from
  investment in unconsolidated
  joint ventures and extraordinary
  items                               96,176    45,736    50,440    110.3    63,357    56,882    6,475     11.4
Minority interests                    (9,882)   (2,899)   (6,983)   240.9      (559)     (312)    (247)    79.2
Income from unconsolidated
  joint ventures                       3,129     1,383     1,746    126.2       815       557      258     46.3
Extraordinary items                        -   (12,930)   12,930   (100.0)        -   (12,930)  12,930   (100.0)
                                    --------  --------  --------  -------  --------  --------  -------   ------
Net income                          $ 89,423  $ 31,290  $ 58,133    185.8% $ 63,613  $ 44,197  $19,416     43.9%
                                    ========  ========  ========  =======  ========  ========  =======   ======

Property revenues less property
  operating expenses before
  depreciation and amortization,
  general and administrative,
  ground rent and interest expense  $276,626  $112,227  $164,399    146.5% $118,951  $111,533  $ 7,418      6.7%
                                    ========  ========  ========  =======  ========  ========  =======   ======
</TABLE>

Property Revenues: The increase in rental revenues, tenant reimbursements,
parking income and other income ("Property Revenues") in the Core Portfolio
resulted from a combination of occupancy and rental rate increases.  The
weighted average occupancy of the Core Portfolio increased from approximately
92.3% at July 1, 1997 to 95.3% as of September 30, 1998.  This increase
represents approximately 1.0 million square feet of additional occupancy in the
Core Portfolio between July 1, 1997 and September 30, 1998.  Property Revenues
for the Total Portfolio include lease termination fees of approximately $2.3
million and $.9 million for the three months ended September 30, 1998 and 1997,
respectively, and Property Revenues for the Core Portfolio include lease
termination fees of approximately $.5 million and $.9 million for the three
months ended September 30, 1998 and 1997, respectively, (which are included in
the "other revenue" category on the consolidated and combined statements of
operations). These fees are related to specific tenants who have paid a fee to
terminate their lease obligations before the end of the contractual term of the
lease. Although the Company has historically experienced similar levels of such
termination fees, there is no way of predicting the timing or amounts of future
lease termination fees. The straight-line rent adjustment included in rental
revenues for the Total Portfolio for the three months ended September 30, 1998
and 1997 was approximately $17.7 million and $8.7 million, respectively. The
straight-line rent adjustment included in rental revenues for the Core Portfolio
for the three months ended September 30, 1998 and 1997 was approximately $8.2
million and $9.7 million, respectively.

Interest/Dividend Income: Interest/dividend income for the Total Portfolio
increased by approximately $.6 million to $2.0 million for the three months
ended September 30, 1998, compared to $1.4 million for the three months ended
September 30, 1997, mainly as a result of dividend income earned during the
three months ended September 30, 1998 of approximately $.7 million on the
Company's $48.5 million investment in 50,000 shares of Capital Trust's 8.25%
Step-Up Convertible Trust Preferred Securities. The $.7 million represents a pro
rata distribution for the three months ended September 30, 1998 since the
Company made its investment on July 28, 1998.






                                       19
<PAGE>   20



Interest Expense: Interest expense increased approximately $61.3 million for the
Total Portfolio to $91.2 million for the three months ended September 30, 1998
compared to $30.0 million for the three months ended September 30, 1997. This
increase resulted from having higher debt outstanding in the third quarter of
1998 than during the comparable period of 1997. The increase in total debt and
the related increase in interest expense was directly attributable to Property
acquisitions and as a result, the Company's total debt as a percentage of total
assets increased from approximately 32.0% of total assets at September 30, 1997
to 41.6% of total assets at September 30, 1998, and the Company's interest
coverage ratio decreased from approximately 3.6 times in 1997 to 2.9 times in
1998. Although the Company's total debt has increased, the weighted average
interest rate on the Company's debt decreased from approximately 7.4% at
September 30, 1997 to approximately 7.0% at September 30, 1998.  The decrease in
interest expense in the Core Portfolio of approximately $3.9 million is
primarily due to the pay down of outstanding indebtedness with the IPO proceeds
and the replacement of secured debt with unsecured debt.

Depreciation and Amortization: Depreciation and amortization expense for the
Total Portfolio increased by approximately $48.0 million to $77.8 million for
the three months ended September 30, 1998, compared to $29.8 million for the
three months ended September 30, 1997, as a result of Properties acquired and
capital and tenant improvements made at Properties during 1998 and 1997.
Depreciation and amortization expense for the Core Portfolio increased by
approximately $5.1 million to $33.8 million for the three months ended September
30, 1998, compared to $28.7 million for the three months ended September 30,
1997, as a result of capital and tenant improvements made at the Properties.

Property Operating Expenses: Real estate taxes and insurance, repairs and
maintenance, and property operating expenses ("Property Operating Expenses")
decreased approximately $1.7 million for the Core Portfolio to $66.6 million for
the three months ended September 30, 1998 compared to $68.3 million for the
three months ended September 30, 1997 mainly as a result of real estate taxes.
Real estate taxes decreased approximately $1.6 million from the prior period of
which approximately $2.7 million related to a reduction in real estate tax
expense recognized during the three months ended September 30, 1998, as a result
of successful tax appeals and lower property tax assessments on certain
properties partially offset by an increase in real estate tax expense as a
result of higher property tax assessments and tax rates in certain markets.
Insurance expense decreased approximately $.5 million from the prior period as a
result of lower premiums incurred during the current period as a result of the
Company's ability to achieve economies of scale on its insurance coverage.

General and Administrative Expenses:  General and administrative expenses
increased by approximately $8.4 million to $16.7 million for the three months
ended September 30, 1998, compared to $8.3 million for the three months ended
September 30, 1997.  General and administrative expenses as a percentage of
total revenues was approximately 3.8% and 4.5% for the three months ended
September 30, 1998 and 1997, respectively.  The primary reasons for the increase
in general and administrative expenses are the significant increase in the size
of the Company's portfolio and increased expenses associated with becoming a
public company.  While general and administrative expenses will continue to
increase as the size of the Company's portfolio increases, it is anticipated
that the Company will realize increased economies of scale with future growth.





                                       20
<PAGE>   21


COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997.

The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio which consists of 81 Office Properties
and ten Parking Facilities acquired or placed in service prior to January 1,
1997.

<TABLE>
<CAPTION>
                                               TOTAL PORTFOLIO                        CORE PORTFOLIO
                                   ---------------------------------------  -------------------------------------
                                                         INCREASE/    %                        INCREASE/     %
                                       1998       1997   (DECREASE) CHANGE     1998     1997   (DECREASE)  CHANGE
                                   ----------   -------  ---------  ------  --------  -------  ---------  -------
                                                                (DOLLARS IN THOUSANDS)

<S>                               <C>         <C>       <C>       <C>     <C>       <C>       <C>       <C>
Property revenues                   $1,194,694   489,307  $705,387   144.2% $481,696  $447,625   $34,071      7.6%
Fees from noncombined affiliates         7,766     3,841     3,925   102.2         -         -         -        -
Interest/dividend income                 8,237    10,524    (2,287)  (21.7)      775     1,359      (584)   (43.0)
                                    ----------  --------  --------  ------  --------  --------   -------   ------
  Total revenues                     1,210,697   503,672   707,025   140.4   482,471   448,984    33,487      7.5
                                    ----------  --------  --------  ------  --------  --------   -------   ------

Interest expense                       237,194   106,274   130,920   123.2    62,765    98,971   (36,206)   (36.6)
Depreciation and amortization          218,083    90,195   127,888   141.8    85,222    81,045     4,177      5.2
Property operating expenses            426,512   186,671   239,841   128.5   170,349   168,570     1,779      1.1
Ground rent                              5,385     3,499     1,886    53.9     3,335     3,449      (114)    (3.3)
General and administrative              45,137    23,056    22,081    95.8       210       180        30     16.7
                                    ----------  --------  --------  ------  --------  --------  --------   ------
  Total expenses                       932,311   409,695   522,616   127.6   321,881   352,215   (30,334)    (8.6)
                                    ----------  --------  --------  ------  --------  --------   -------   ------
                                  
Income before allocation to
  minority interests, income from
  investment in unconsolidated
  joint ventures, gain on sale of
  real estate and extraordinary
  items                                278,386    93,977   184,409   196.2   160,590    96,769    63,821     66.0
Minority interests                     (27,944)   (3,778)  (24,166)  639.7    (1,539)   (1,191)     (348)    29.2
Income from unconsolidated
  joint ventures                         8,155     3,408     4,747   139.3     1,816     1,796        20      1.1
Gain on sale of real estate and
  extraordinary items                   (7,506)     (694)   (6,812)  981.6         -   (12,885)   12,885   (100.0)
                                    ----------  --------  --------  ------  --------  --------  --------   ------
Net income                          $  251,091  $ 92,913  $158,178   170.2% $160,867  $ 84,489   $76,378     90.4%
                                    ==========  ========  ========  ======  ========  ========   =======   ======

Property revenues less property
  operating expenses before
  depreciation and amortization,
  general and administrative,
  ground rent and interest expense  $  768,182  $302,636  $465,546   153.8% $311,347  $279,055   $32,292     11.6%
                                    ==========  ========  ========  ======  ========  ========   =======   ======
</TABLE>

Property Revenues: The increase in rental revenues, tenant reimbursements,
parking income and other income ("Property Revenues") in the Core Portfolio
resulted from a combination of occupancy and rental rate increases.  The
weighted average occupancy of the Core Portfolio increased from approximately
92.1% at January 1, 1997 to 95.9% as of September 30, 1998.  This increase
represents approximately 1.1 million square feet of additional occupancy in the
Core Portfolio between January 1, 1997 and September 30, 1998.  Property
Revenues for the Total Portfolio include lease termination fees of approximately
$10.4 million and $3.6 million for the nine months ended September 30, 1998 and
1997, respectively, and Property Revenues for the Core Portfolio include lease
termination fees of $2.3 million and $3.6 million for the nine months ended
September 30, 1998 and 1997, respectively (which are included in the other
revenue category on the consolidated and combined statements of operations).
These fees are related to specific tenants who have paid a fee to terminate
their lease obligations before the end of the contractual term of the lease.
Although the Company has historically experienced similar levels of such
termination fees, there is no way of predicting the timing or amounts of future
lease termination fees. The straight-line rent adjustment included in rental
revenues for the Total Portfolio for the nine months ended September 30, 1998
and 1997 was approximately $50.4 million and $16.4 million, respectively. The
straight-line rent adjustment included in rental revenues for the Core Portfolio
for the nine months ended September 30, 1998 and 1997 was approximately $20.8
million and $16.2 million, respectively.

Interest/Dividend Income: Interest/dividend income for the Total Portfolio
decreased by approximately $2.3 million to $8.2 million for the nine months
ended September 30, 1998, compared to $10.5 million for the nine months ended
September 30, 1997. Prior to the Consolidation, each of the entities involved in
the Consolidation needed to maintain separate cash reserves which in the
aggregate were higher than the cash reserves the Company maintains going
forward.  Due to the availability of borrowings under the Credit Facilities, the
Company currently maintains lower cash reserves which are targeted to be between
$25 to $50 million (although the cash balance may at times be more or less in
anticipation of pending acquisitions or other transactions).  Although the lower
cash balance will result in lower interest income in future periods, this loss
in income is expected to be offset by savings on interest expense on the Credit
Facilities.  The decrease in interest income was partially offset by dividend
income earned during the three months ended September 30, 1998 of approximately
$.7 million on the Company's $48.5 million investment in 50,000 shares of
Capital Trust's 8.25% Step-Up Convertible Trust Preferred Securities.  The $.7
million represents a pro rata distribution for the three months ended September
30, 1998 since the Company made its investment on July 28, 1998.




                                       21
<PAGE>   22


Interest Expense: Interest expense increased by approximately $130.9 million for
the Total Portfolio to $237.2 million for the nine months ended September 30,
1998 compared to $106.3 million for the nine months ended September 30, 1997.
This increase resulted from having higher debt outstanding in the nine months
ended September 30, 1998 than during the comparable period of 1997. The increase
in total debt and the related increase in interest expense was directly
attributable to Property acquisitions and as a result, the Company's total debt
as a percentage of total assets increased from approximately 32.0% of total
assets at September 30, 1997 to 41.6% of total assets at September 30, 1998, and
the Company's interest coverage ratio increased from approximately 2.8 times in
1997 to 3.1 times in 1998. Although the Company's total debt increased, the
weighted average interest rate on the Company's debt decreased from
approximately 7.4% at September 30, 1997 to approximately 7.0% at September 30,
1998.  The decrease in interest expense in the Core Portfolio of approximately
$36.2 million is primarily due to the paydown of outstanding indebtedness with
the IPO proceeds and the replacement of secured debt with unsecured debt.

Depreciation and Amortization: Depreciation and amortization expense increased
for the Total Portfolio by approximately $127.9 million to $218.1 million for
the nine months ended September 30, 1998, compared to $90.2 million for the nine
months ended September 30, 1997 as a result of Properties acquired and capital
and tenant improvements made at the Properties during 1998 and 1997 and the
recording of substantially all the Company's assets and liabilities at their
fair market value in connection with the Consolidation and the IPO.
Depreciation and amortization expense increased for the Core Portfolio by
approximately $4.2 million to $85.2 million for the nine months ended September
30, 1998, compared to $81.0 million for the nine months ended September 30,
1997, as a result of capital and tenant improvements made at the Properties.

Property Operating Expenses: Real estate taxes and insurance, repairs and
maintenance, and property operating expenses ("Property Operating Expenses")
increased approximately $1.8 million for the Core Portfolio to $170.3 million
for the nine months ended September 30, 1998 compared to $168.6 million for the
nine months ended September 30, 1997 as a result of the following:  Real estate
taxes increased approximately $5.4 million from the prior period of which
approximately $5.9 million related to a reduction in real estate tax expense
recognized during the nine months ended September 30, 1997, as a result of
successful tax appeals and lower property tax assessments on certain Properties.
This was partially offset by tax reductions and increases in real estate taxes
as a result of higher property tax assessments and tax rates in certain markets
in 1998. Repairs and maintenance decreased approximately $2.2 million from the
prior period of which approximately $1.0 million related to a nonrecurring
expenditure at a single building incurred during the nine months ended September
30, 1997. Insurance expense decreased approximately $1.1 million from the prior
period as a result of lower premiums incurred during the current period as a
result of the Company's ability to achieve economies of scale on its insurance
coverage.

General and Administrative Expenses: General and administrative expenses
increased by approximately $22.1 million to $45.1 million for the nine months
ended September 30, 1998, compared to $23.1 million for the nine months ended
September 30, 1997.  General and administrative expenses as a percentage of
total revenues was approximately 3.7% and 4.6% for the nine months ended
September 30, 1998 and 1997, respectively.  The primary reasons for the increase
in general and administrative expenses are the significant increase in the size
of the Company's portfolio and increased expenses associated with becoming a
public company.  While general and administrative expenses will continue to
increase as the size of the Company's portfolio increases, it is anticipated
that the Company will realize increased economies of scale with future growth.





                                       22
<PAGE>   23


PARKING OPERATIONS

The Total Portfolio and Core Portfolio selected operating information for the
three and nine months ended September 30, 1998 and 1997 presented above includes
results of operations from the Parking Facilities.  Summarized information for
the Parking Facilities is presented below.

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1998 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1997.

<TABLE>
<CAPTION>
                                        TOTAL PARKING PORTFOLIO               CORE PARKING PORTFOLIO
                                 -----------------------------------   ----------------------------------
                                                 INCREASE/    %                        INCREASE/     %
                                   1998    1997  (DECREASE) CHANGE      1998    1997   (DECREASE)  CHANGE
                                 ------- ------  ---------  ------     ------ -------  --------- --------
                                                           (DOLLARS IN THOUSANDS)

<S>                            <C>      <C>      <C>       <C>      <C>     <C>      <C>        <C>
Property revenues                 $7,350  $6,311    $1,039     16.5%   $5,651  $5,652   $    (1)       -
Interest income                        2      35       (33)   (94.3)        2      86       (84)   (97.7)%
                                  ------  ------    ------   ------    ------  ------   -------  -------
    Total revenues                 7,352   6,346     1,006     15.9     5,653   5,738       (85)    (1.5)
                                  ------  ------    ------   ------    ------  ------   -------  -------
Interest expense                   1,424     475       949    200.0     1,424     475       949    200.0
Depreciation and amortization      1,475   1,068       407     38.1     1,164     986       178     18.1
Property operating expenses        1,901   1,071       830     77.5     1,445     904       541     59.8
                                  ------  ------    ------   ------    ------  ------   -------  -------
    Total expenses                 4,800   2,614     2,186     83.6     4,033   2,365     1,668     70.5
                                  ------  ------    ------   ------    ------  ------   -------  -------

Income before allocation to
  minority interests and income
  from investment in
  unconsolidated joint ventures    2,552   3,732    (1,180)   (31.6)    1,620   3,373    (1,753)   (52.0)
Minority interests                   (84)    (79)       (5)     6.3       (84)    (79)       (5)     6.3
Income from unconsolidated
  joint ventures                     363     825      (462)   (56.0)      363     825      (462)   (56.0)
                                  ------  ------    ------   ------    ------  ------   -------  -------
Net income                        $2,831  $4,478   $(1,647)   (36.8)%  $1,899  $4,119   $(2,220)   (53.9)%
                                  ======  ======    ======   ======    ======  ======   =======  =======

Property revenues less property
  operating expenses before
  depreciation and amortization
  and interest expense            $5,449  $5,240   $   209     4.0%    $4,206  $4,748   $  (542)   (11.4)%
                                  ======  ======    ======   ======    ======  ======   =======  =======
</TABLE>

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1998 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997.
 
<TABLE>
<CAPTION>
                                         TOTAL PARKING PORTFOLIO                 CORE PARKING PORTFOLIO
                                 -------------------------------------    -----------------------------------
                                                     INCREASE/    %                         INCREASE/    %
                                    1998     1997   (DECREASE)  CHANGE      1998     1997   (DECREASE) CHANGE
                                 --------  -------  ---------  -------    -------  -------  ---------  ------
                                                             (DOLLARS IN THOUSANDS)

<S>                               <C>      <C>        <C>       <C>     <C>      <C>      <C>       <C>       
Property revenues                 $21,793  $16,282    $5,511      33.8%   $16,691  $15,623   $ 1,068      6.8%        
Interest income                        39      149      (110)    (73.8)        39      310      (271)   (87.4)        
                                  -------  -------    ------   -------    -------  -------   -------   ------
    Total revenues                 21,832   16,431     5,401      32.9     16,730   15,933       797      5.0         
                                  -------  -------    ------   -------    -------  -------   -------   ------

Interest expense                    4,117    2,566     1,551      60.4      4,117    2,528     1,589     62.9
Depreciation and amortization       4,326    2,703     1,623      60.0      3,395    2,665       730     27.4
Property operating expenses         5,998    3,458     2,540      73.5      4,653    3,388     1,265     37.3
                                  -------  -------    ------   -------    -------  -------   -------   ------
    Total expenses                 14,441    8,727     5,714      65.5     12,165    8,581     3,584     41.8
                                  -------  -------    ------   -------    -------  -------   -------   ------

Income before allocation to
  minority interests and income
  from investment in
  unconsolidated joint ventures     7,391    7,704      (313)     (4.1)     4,565    7,352    (2,787)   (37.9)  
Minority interests                   (228)    (200)      (28)     14.0       (228)    (200)      (28)    14.0  
Income from unconsolidated
  joint ventures                    1,474    1,611      (137)     (8.5)         -        -         -        -   
                                  -------  -------   -------   -------    -------  -------   -------   ------
Net income                        $ 8,637  $ 9,115   $  (478)     (5.2)%  $ 4,337  $ 7,152   $(2,815)   (39.4)% 
                                  =======  =======   =======   =======    =======  =======   =======   ======

Property revenues less property
  operating expenses before
  depreciation and amortization
  and interest expense            $15,795  $12,824   $ 2,971      23.2%   $12,038  $12,235   $  (197)    (1.6)%
                                  =======  =======   =======    ======    =======  =======   =======   ======

</TABLE>



                                      23



<PAGE>   24

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

     Net cash provided from operations represents the primary source of
liquidity to fund distributions, debt service, recurring capital costs and
non-revenue enhancing tenant improvements.  Prior to the IPO, the Company made
annual distributions equal to approximately 100% of taxable income.  Cash
generated in excess of taxable income (resulting primarily from non-cash items
such as depreciation and amortization) was retained for working capital and to
fund capital improvements and non-revenue enhancing tenant improvements.  The
Company currently intends to continue to make, but has not contractually bound
itself to make, regular quarterly distributions to holders of Series A Preferred
Shares, Series B Preferred Shares, Common Shares and Units. The Company
established annual distribution rates as follows: 8.98% per annum ($2.245 per
share) for each Series A Preferred Share, 5.25% per annum ($2.625 per share) for
each Series B Preferred Share, and $1.48 per annum per Common Share and Unit.
The Company increased its Common Share and Unit distribution from $1.28 per
annum to $1.48 per annum effective for the quarter ended September 30, 1998.

     The Company intends to continue to fund recurring capital costs and
non-revenue enhancing tenant improvements from cash from operations and draws
under the $1.0 Billion Credit Facility.  The Company also expects that the $1.0
Billion Credit Facility will provide for temporary working capital,
unanticipated cash needs, and funding of acquisitions.

     The anticipated size of the Company's distributions will not allow the
Company, using only cash from operations, to retire all of its debt as it comes
due and, therefore, the Company will be required to repay maturing debt with
funds from debt and/or equity financing.

DEBT FINANCING

     The table below summarizes the mortgage debt, unsecured notes and Credit
Facility indebtedness outstanding at September 30, 1998 and December 31, 1997,
including a net premium on mortgage debt and unsecured notes (net of accumulated
amortization of approximately $2.8 million and $2.1 million) of approximately
$6.4 million and $1.2 million, respectively, recorded in connection with the
Company's Consolidation, debt assumed in connection with certain of the
Company's acquisitions, and unsecured notes.


(Dollars in thousands)                   SEPTEMBER 30, 1998   DECEMBER 31, 1997
- -------------------------------         -------------------- -------------------
DEBT SUMMARY:
Balance
  Fixed rate...............................    $4,592,064          $2,219,496
  Variable rate............................     1,080,051           2,064,821
                                               ----------          ----------
    Total..................................    $5,672,115          $4,284,317
                                               ==========          ==========

Percent of total debt:
  Fixed rate...............................            81%               51.8%
  Variable rate............................            19%               48.2%
                                               ----------          ----------
    Total..................................         100.0%              100.0%
                                               ==========          ==========

Weighted average interest
rate at end of period:
  Fixed rate...............................           7.2%                7.5%
  Variable rate............................           6.4%                6.9%
                                               ----------          ----------
    Weighted average.......................           7.0%                7.2%
                                               ==========          ==========

     The majority of the variable rate debt shown above bore interest at various
LIBOR-based floating interest rates. The weighted average spread of the
Company's interest rate over the average LIBOR rate of 5.6% at September 30,
1998 was approximately .8%.





                                       24
<PAGE>   25


MORTGAGE FINANCING

     As of September 30, 1998, the Company's total mortgage debt (excluding the
Company's share of unconsolidated debt of approximately $121.3 million)
consisted of approximately $2.1 billion of fixed rate debt with a weighted
average interest rate of approximately 7.5% and $32.6 million of variable rate
debt bearing interest at the 30-day LIBOR plus 1.0%.  The Company's mortgage
debt at September 30, 1998 will mature as follows:


               DOLLARS IN THOUSANDS
               --------------------
               1998..................................   $  108,161
               1999..................................       52,908
               2000..................................      146,026
               2001..................................      433,179
               2002..................................       69,779
               Thereafter............................    1,285,378
                                                        ----------
                  Subtotal...........................    2,095,431
               Net premium (net of accumulated
                amortization of $2.9 million)........        1,974
                                                        ----------
               Total.................................   $2,097,405
                                                        ==========

     The instruments encumbering the Properties restrict transfer of the
Properties, prohibit liens and require payment of taxes on the Properties,
maintenance of the Property in good condition, maintenance of insurance on the
Property and obtaining lender consent to leases with material tenants.

CREDIT FACILITIES

     Lines of Credit. On May 29, 1998, the Company amended and restated the $600
Million Credit Facility to a $1.0 billion unsecured revolving credit facility
(the "$1.0 Billion Credit Facility").  The $1.0 Billion Credit Facility matures
on May 29, 2001.  The Company incurred fees of approximately $2.5 million at the
closing of the $1.0 Billion Credit Facility which will be amortized over the
term along with approximately $1.0 million of unamortized deferred financing
costs on the $600 Million Credit Facility which will also be amortized over the
term.  The interest rate is based on the Company's investment grade credit
rating on its unsecured debt and is currently LIBOR plus 60 basis points and the
facility fee is equal to 20 basis points.  In addition, a competitive bid
option, whereby the lenders participating in the facility bid on the interest
rate to be charged, is available for up to $350 million of the facility.  The
outstanding balance on the $1.0 Billion Credit Facility was approximately $519.5
million as of September 30, 1998.  Subsequent to September 30, 1998, the Company
borrowed an additional $110.0 million on the $1.0 Billion Credit Facility.

     On August 14, 1998, the Operating Partnership closed on the $328 Million
Credit Facility.  The facility is priced at 90-day LIBOR plus 80 basis points
and is prepayable on any interest payment date.  The facility matures on August
15, 2000.  The proceeds from the facility were used to pay down the $1.0 Billion
Credit Facility.

     On September 22, 1998, the Operating Partnership closed on the $200 Million
Credit Facility. Interest accrues under the $200 Million Credit Facility at an
initial rate of LIBOR plus 50 basis points with a facility fee equal to 20 basis
points per annum.  Pricing for the first twelve months is based on a matrix tied
to the Company's credit rating and may be reset after the first twelve months
for an additional six months and again after eighteen months for an additional
six months for a ten basis point fee. The proceeds from the facility were used
to pay down the $1.0 Billion Credit Facility.

UNSECURED NOTES

     $180 Million Notes Offering.  In September 1997, the Company completed the
$180 Million Notes Offering.  The terms of the $180 Million Notes Offering
consist of four tranches with maturities from seven to ten years.

     $1.25 Billion Notes Offering. In February 1998, the Company completed the
$1.25 Billion Notes Offering.  The $1.25 Billion Notes consist of four tranches
with maturities of five to twenty years.  

     $250 MandatOry Par Put Remarketed Securities Offering. In February 1998,
the Company completed the $250 Million MOPPRS Offering.  The $250 Million MOPPRS
are subject to mandatory tender on February 15, 2002.

     $775 Million Unsecured Notes and 300,000 warrants offering. In June 1998,
the Company completed the $775 Million Notes Offering.  The $775 Million Notes
consist of three tranches with maturities of six to thirty years.







                                       25
<PAGE>   26



The table below summarizes the Company's unsecured notes as of September 30,
1998:


                                            AMOUNT         STATED     EFFECTIVE
        TRANCHE                         (IN THOUSANDS)      RATE       RATE (a)
- ------------------------            ------------------- ----------- ------------
4 Year MOPPRS due 2002                  $   250,000        6.38%        6.30%
5 Year Notes due 2003                       300,000        6.38%        6.73%
6 Year Notes due 2004                       250,000        6.50%        6.68%
7 Year Notes due 2004                        30,000        7.24%        7.26%
7 Year Notes due 2005                       400,000        6.63%        7.02%
8 Year Notes due 2005                        50,000        7.36%        7.69%
9 Year Notes due 2006                        50,000        7.44%        7.74%
9 Year Notes due 2007                       300,000        6.76%        6.76%
10 Year Notes due 2007                       50,000        7.41%        7.70%
10 Year Notes due 2008                      300,000        6.75%        7.01%
20 Year Notes due 2018                      250,000        7.25%        7.54%
30 Year Notes due 2028                      225,000        7.25%        7.31%
                                        ------------     --------     --------
  Subtotal                                2,455,000        6.76%        6.97%
                                                         ========     ========
Net premium (net of accumulated
     amortization of $.2 million)             4,398
                                        ------------
  Total                                 $ 2,459,398
                                        ============

(a)  Includes the cost of the terminated interest rate protection agreements,
     offering and transaction costs, the premium on the warrants and the
     discount on unsecured notes.

     The Operating Partnership filed a registration statement, which was
declared effective on June 18, 1998, relating to an offer to exchange the $180
Million Notes, the $1.25 Billion Notes and the $250 Million MOPPRS for
registered securities of the Operating Partnership with terms identical in all
material respects to the terms of the existing notes.  This exchange offer
expired on July 30, 1998.

     The Operating Partnership filed a registration statement, which was
declared effective on July 22, 1998, related to the issuance from time to time
of up to $2.0 billion of unsecured debt securities and warrants exercisable for
debt securities in amounts, at initial prices and on terms to be determined at
the time of offering.  The securities may be issued separately or together, in
separate series in amounts, at prices and on terms described in one or more
supplements to the prospectus.

     The Operating Partnership filed a registration statement which was declared
effective on September 4, 1998, relating to an offer to exchange (a) the $775
Million Notes; (b) 300,000 warrants to purchase an additional $300 million in
unsecured notes at a later date; and (c) portions of the $1.25 Billion Notes and
$250 Million MOPPRS for registered securities of the Operating Partnership with
terms identical in all material respects to the terms of the existing notes.
This exchange offer expired on October 27, 1998.

     Restrictions and Covenants. Agreements or instruments relating to the
unsecured notes and lines of credit contain certain restrictions and
requirements regarding total debt to assets ratios, secured debt to total assets
ratios, debt service coverage ratios, minimum ratio of unencumbered assets to
unsecured debt and other limitations.

EQUITY SECURITIES

Below is a summary of the equity securities issued in connection with various
transactions occurring since June 30, 1998:

- -    During the three months ended September 30, 1998 there were 23,079 share 
     options exercised, 178,976 Units issued in connection with a Property
     acquisition and 265,079 Units were converted into Common Shares on a
     one-for-one basis.






                                       26
<PAGE>   27

CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 1998  COMPARED TO SEPTEMBER 30, 1997

     Cash and cash equivalents decreased by approximately $88.5 million, to
$140.4 million at September 30, 1998, from $228.9 million at December 31, 1997.
This decrease was the result of approximately $506.1 million provided by
operating activities, $1,926.4 million used for investing activities and
$1,331.7 million provided by financing activities.  Net cash provided by
operating activities increased by approximately $350.5 million to approximately
$506.1 million from $155.6 million primarily due to the additional cash flow
generated by the increase in the number of Properties owned.  Net cash used for
investing activities increased by approximately $1,269.7 million from $656.7
million to $1,926.4 million mainly due to an increase in the amount of real
estate assets purchased during the nine months ended September 30, 1998 compared
to the nine months ended September 30, 1997. Net cash provided by financing
activities increased by approximately $927.3 million from $404.4 million to
$1,331.7 million due primarily to the proceeds from the unsecured notes
offerings reduced primarily by a net pay down in the Company's Credit Facilities
and distributions to common shareholders, unitholders and preferred
shareholders.

CAPITAL IMPROVEMENTS

     The Company has a history of acquiring and repositioning undercapitalized
and poorly managed properties, many of which have required significant capital
improvements due to deferred maintenance and/or required substantial renovation
to enable them to compete effectively.  A number of the Properties also have had
significant amounts of shell space requiring build out at the time of
acquisition.  The Company takes these capital improvements and revenue enhancing
tenant improvements into consideration at the time of acquisition in determining
the amount of equity and debt financing required to purchase the property and
fund the improvements.  Therefore, capital improvements made during the first
five years after acquisition of these Properties are treated separately from
typical recurring capital expenditures, non-revenue enhancing tenant
improvements and leasing commissions required once these Properties have reached
stabilized occupancy, and deferred maintenance and renovations planned at the
time of acquisition have been completed.  Capital improvements, (including
tenant improvements and leasing commissions for shell space), for the nine
months ended September 30, 1998 were approximately $21.5 million or .29 per
square foot.  These amounts exclude capital and tenant improvements of
approximately $42.0 million incurred for the nine months ended September 30,
1998 for developments in process.

     The Company considers capital expenditures to be recurring expenditures
relating to the on-going maintenance of the Office Properties.  The table below
summarizes capital expenditures for the nine months ended September 30, 1998.
The capital expenditures set forth below are not necessarily indicative of
future capital expenditures.


                                      FOR THE NINE MONTHS ENDED
                                         SEPTEMBER 30, 1998
                                      ------------------------
Number of Office Properties                      285
Rentable Square Feet (in millions)              74.1
Capital Expenditures per square foot             .07






                                       27
<PAGE>   28

TENANT IMPROVEMENTS AND LEASING COMMISSION COSTS

     The Company distinguishes its tenant improvements and leasing commissions
between those that are revenue enhancing (i.e.,  required for space which is
vacant at the time of acquisition or that has been vacant for nine months or
more) and non-revenue enhancing (i.e., required to maintain the revenue being
generated from currently leased space).  The table below summarizes the revenue
enhancing and non-revenue enhancing tenant improvements and leasing commissions
for the nine months ended September 30, 1998 excluding amounts attributable to
developments in process.  The tenant improvement and leasing commission costs
set forth below are presented on an aggregate basis and do not reflect
significant regional variations and, in any event, are not necessarily
indicative of future tenant improvement and leasing commission costs:


                                                       FOR THE NINE MONTHS ENDED
                                                          SEPTEMBER 30, 1998
                                                       -------------------------
Number of Office Properties                                       285
Rentable square feet (in millions)                               74.1
Revenue enhancing tenant improvements and leasing
  commissions:
  Amounts (in thousands)                                      $27,524
  Per square foot improved                                      16.23  (1)
  Per total square foot                                          0.50  (2)
Non-revenue enhancing tenant improvements and leasing
  commissions:
Renewal space
  Amounts (in thousands)                                      $20,346
  Per square foot improved                                       8.09  (1)
  Per total square foot                                           .37  (2)
Retenanted space
  Amounts (in thousands)                                      $23,634
  Per square foot improved                                      16.90  (1)
  Per total square foot                                           .43  (2)
                                                            ----------
Total non-revenue enhancing (in thousands)                    $43,980
Per square foot improved                                        11.24  (1)
Per total square foot                                             .80  (2)


(1)  The per square foot calculations as of September 30, 1998 are calculated
     taking the total dollars anticipated to be incurred on tenant improvements
     for tenants taking occupancy during the nine months ended September 30,
     1998, divided by the total square footage being improved or total building
     square footage.  The actual amounts incurred as of September 30, 1998 for
     revenue enhancing, non-revenue enhancing renewal and released space were
     approximately $19.5 million, $18.4 million and $35.6 million,
     respectively.
(2)  The amounts shown have been annualized to reflect a full year of comparable
     operation.  The actual costs per total square foot as of September 30, 1998
     for revenue enhancing and non-revenue enhancing renewal and retenanted
     space were $.38, $.28 and $.32, respectively. 




                                       28
<PAGE>   29


DEVELOPMENT

     In connection with the Beacon Merger and other acquisitions, the Company
acquired certain Properties that are currently in various stages of development
or pre-development.  The Company funds these developments with proceeds from
working capital and the Credit Facilities.  Specifically identifiable direct and
indirect acquisition, development and construction costs are capitalized
including, where applicable, salaries and related costs, real estate taxes,
interest and certain pre-construction costs essential to the development of a
property.  As of September 30, 1998, the Company has incurred approximately
$276.3 million of costs in connection with the Properties being developed.
     The Company has entered into agreements to purchase the following
properties upon their completion:
     1)  The Rand Tower Garage located in Minneapolis, Minnesota will be
         purchased upon completion anticipated to be in March 1999.
         The purchase price for this 589 space parking facility will be
         approximately $19.2 million.
     2)  The Prominence in Buckhead, an office building under development in
         the Buckhead sub-market of Atlanta, Georgia, will consist of a
         430,000 square foot office building and 1,350 parking spaces, will be
         acquired upon its completion anticipated to be in August 1999.
         The purchase price will also include an 11.88-acre site that may be
         used to develop Phase II of Prominence.  There are no immediate plans
         to develop the 11.88-acre site, which is zoned for a 420,000 square
         foot office tower.  The purchase price for the described assets and 
         amounts to be incurred for tenanting the property will be approximately
         $88.2 million. 
     3)  In July 1998, the Company's Board of Trustees approved the purchase of
         the World Trade Center East Project in Seattle, Washington upon its
         anticipated completion in March 1999.  The property will consist of 
         187,000 square feet and will cost approximately $38.6 million.

     The above transactions are contingent upon certain terms and conditions as
set forth in their respective purchase agreements.  There can be no assurance
that these transactions will be consummated as described above.

     In addition to the properties described above, the Company also owns
various land parcels available for development, however, no significant
development activity is taking place on these sites at this time.

YEAR 2000

Overview of Y2K Problem

     The Year 2000 or "Y2K" problem refers to the inability of many existing
computer programs to properly recognize a year that begins with "20" instead of
the familiar "19".  If left uncorrected, many computer programs having
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000.  The failure to accurately recognize the year 2000 and other
key dates could result in a variety of problems from data miscalculations to the
failure of entire systems.  

The Year 2000 Program

     In the early months of 1998, the Company formed a Year 2000 committee for
the purpose of creating a program (the "Program") to identify, understand and
address the myriad of issues associated with the Y2K problem. Such committee is
comprised of representatives from senior management and various departments at
the home and regional offices, including the legal, engineering,
telecommunications, information systems and office services departments. Due to
the wide ranging implications of the Y2K problem, management decided to carry
out the Program in multiple phases over the remainder of 1998 and 1999. What
follows is a description of the activities that have been or are expected to be
conducted in each phase of the Program, including a summary of the results
obtained to date and a time table for completion. Although many of the phases of
the Program are being carried out simultaneously, the various phases will be
discussed separately.

Phase One - Assessing the Company's Y2K Readiness

     The initial step in assessing the Company's Y2K readiness consists of
conducting a study to identify any systems that are date sensitive and,
accordingly, could have potential Y2K problems.  The study includes an
examination of information technology  and non-information technology systems at
the Company's home and regional offices and at the Company's Properties.



                                       29
<PAGE>   30



For the most part, the initial step of identifying systems has been completed by
our information services department and building engineers through a combination
of physical inspections and informational interviews with Company employees. A
portion of such work with respect to the Company's secondary systems (described
below) remains to be done and will be handled with the assistance of an outside
consultant.  A review of the telecommunications systems is being conducted by
one of our affiliates.

     After identifying systems that could have a potential Y2K problem, the
Company is attempting to determine which of the systems actually have a Y2K
problem. Much of the required information is within the exclusive control of the
Company's vendors and manufacturers, who are being contacted through standard
form letters and telephone calls requesting information.  In the case of
building management systems, a database was compiled for the types of equipment,
names of manufacturers and model numbers.  The Company's regional engineers are
each responsible for gathering information on the Y2K compliance of specific
systems. In addition to examining the Company's systems for compliance, we
continue to assess the progress of the Building Owners and Managers Association
("BOMA"), the General Services Administration ("GSA") and other industry leaders
that are monitoring the compliance efforts of the major utility and
telecommunications companies.  The following is a summary of the Phase One
results obtained to date.

Building Management Systems

The Company has identified six categories of building management systems in
which we have the most exposure to potential Y2K problems.  These categories
include:


- -    Building automation (e.g. energy management, HVAC)
- -    Security card access
- -    Fire and life safety
- -    Elevator 
- -    Garage revenue control
- -    Office equipment


     In April 1998, our field staff began gathering data to catalog the
equipment in all of our buildings. To date, we have received approximately 75%
of the information requested. We do not expect to receive 100% of the
information requested due to a number of non-responsive vendors or unavailable
information. By the end of November 1998, a preliminary Y2K compliance study of
the building management systems outlined above is expected to be completed for
all the Company's buildings.  Following review of such studies, management
expects to be able to determine the Company's state of readiness as to the
building management systems. 


Information Systems

Our information systems fall into four general categories: accounting and
property management, network operating systems, desktop software and secondary
systems.

Accounting and Property Management

Management believes that we have determined our exposure with respect to our
accounting and property management software.  Specifically, although the general
ledger system is compliant, the accounts payable and property management
systems are not.  Upgrades from the vendor will be available in the fourth
quarter of 1998. Our current expected schedule for compliance is as follows:


- -    System testing - Complete
- -    Test software upgrades - November, 1998
- -    Begin installation of upgrades -- First Quarter 1999
- -    Full Y2K compliance - Second Quarter 1999


Network Operating Systems

Management believes that network operating servers are currently approximately
75% compliant.  For the remaining 25%, Novell, the manufacturer, is providing
software that is expected to bring the servers into Y2K compliance.  Upgrades of
our network operating systems are expected to be installed in the first 






                                       30
<PAGE>   31


and second quarters 1999, bringing the network operating servers into full
compliance.  Management believes that testing of this new software will not be
necessary, as it has already been proven in the industry to be Y2K compliant.

Desktop Software

We believe we have reviewed all of our desktop systems and software
applications, identified those that are not in compliance and compiled a list of
necessary upgrades. The efforts to ready our desktop systems for Y2K are being
directed towards a broader Company initiative referred to as EO 2000.  As part
of the EO 2000 program, we currently intend to install Windows 98 and Microsoft
Office 97 in all field and home office desktop systems.

Our time frame for EO 2000 is expected to be as follows:

- -    Systems (hardware and software) testing for Y2K compliance - complete
- -    Begin installing updated software that will also provide Y2K compliance -
     November 1998
- -    Complete installation/full compliance - October 1999


Secondary Information Systems

Our "secondary" information systems include, but are not limited to: payroll,
human resources, fixed-asset system, and forecasting modeling software, which
provides projections on property returns and other items.  We are also reviewing
internally developed software, such as our budget program and tenant-services
system. As discussed above, we intend to retain a third party consultant during
the fourth quarter of 1998 to assist us in identifying and assessing the Y2K
compliance of the secondary systems.  Thereafter, a time table for the
replacement or upgrade of any non-compliant secondary systems will be developed.

Telecommunication Systems

In general, we believe that our internal telephone systems are not date
sensitive and should not be materially affected by Y2K problems.  Although there
could be some convenience issues such as inaccurate voice-mail message date
stamps, such problems are not expected to be material and, in large part, should
be corrected prior to the year 2000.

Phase Two - Determining the Cost of Achieving Y2K Readiness and Implementing
the Y2K Action Plan

In large part, the work to date on Phase One of the Program has been performed
by our employees without additional cost to the Company.  Although we intend to
retain a third party consultant to assist us in completing Phase One, the cost
of such consultant cannot currently be determined.  Likewise, we have not yet
analyzed the studies of the building management systems or completed the action
plan for the 1999 property budgets. Such information should be available by the
end of November, 1998. It is our belief that a large part of the cost of
bringing the building management system into compliance will be considered to be
an operating expense that is reimbursable to the Company under most tenant
leases.  The estimated cost of the EO 2000 initiative is $1.7 million.  Most of
the work related to EO 2000 is not Y2K related. Based upon review of the studies
and the formulation of the building operational budgets for 1999, management
will develop an action plan for bringing the building management systems into
compliance.  


Phase Three - Assessing the Risks to the Company of Non-Compliance


Management does not believe that the impact of the Y2K problem will have a
material adverse effect on the Company's financial condition and results of
operations. Such belief is based on our analysis of the risks to the Company
related to both our own potential Y2K problems discussed above and our
assessment of the Y2K problems of our vendors, suppliers and customers.  






                                       31
<PAGE>   32

Failure of Building Management Systems

Management believes that the Y2K risks to the Company's financial condition and
operation associated with a failure of building management systems is immaterial
due to the fact that each of the Company's Properties have, for the most part,
separate building management systems.  Accordingly, a Y2K problem that is
experienced at one building should have no effect on the other Company
buildings.  In addition, based upon the study results received to date, we
believe that we will have sufficient time to correct those system problems
within our control before the year 2000. We have already begun preliminary
testing of building systems at several of our buildings sites, including
Westbrook Corporate Center, Two California Plaza and State Street Bank Building.
Testing of essential building management systems will continue throughout 1999.

In the event we do experience a failure of essential building management systems
at one or more of our buildings, whether due to a failure of one of our systems
or an interruption of utilities, management believes that the individual tenant
leases will protect us from claims of constructive eviction or other remedies
that could result in a termination of lease rights. It is also management's
belief that most of our leases eliminate, limit or quantify the rights of a
tenant to receive an abatement under such circumstances.  Although there is
always a risk of claims being brought on a non-contractual basis (e.g. in tort),
it is our belief that our efforts to identify and solve Y2K problems will
minimize such risk.  We have also attempted to allocate the risk of
non-compliance to the vendors and manufacturers of the building management and
information systems by establishing standard riders and addenda to be attached
to new contracts for systems using time sensitive data. Management believes that
although there is no assurance that adequate coverage will be available at a
commercially reasonable cost, we may attempt to contract for insurance to
minimize the risks of Y2K liability.

Failure of Information Systems

Since the Company's major source of income is rental payments under long term
leases, the failure of key information systems is not expected to have a
material adverse effect on the Company's financial condition and results of
operations. Even if we were to experience problems with the information systems,
the payment of rent under the leases would not be excused. In addition, we
expect to correct those information system problems within our control before
the year 2000, thereby minimizing or avoiding the increased cost of correcting
problems after the fact.

The Y2K Problems of Our Vendors

The success of our business is not closely tied to the operations of any one
manufacturer, vendor or supplier. Accordingly, if any of our manufacturers,
vendors or suppliers ceases to conduct business due to Y2K related problems, we
expect to be able to contract with alternate providers without experiencing any
material adverse effect on the Company's financial condition and results of
operations.

The Y2K Problems of Our Customers

Due to our broad customer/tenant base, the success of our business is not
closely tied to the success of any particular tenant. Accordingly, management
believes that there should not be a material adverse effect on the Company's
financial condition and results of operations if any one of our tenants ceases
to conduct business (and pay rent) due to Y2K related problems.  As part of our
efforts to keep our tenants advised as to the steps we are taking to address
potential Y2K problems, we have also requested that such tenants provide us with
periodic updates as to their Y2K readiness.

Doomsday Scenario

We are aware that it is generally believed that the world's Y2K problem, if
uncorrected, may result in an economic crisis of global proportions.  We are
unable to determine whether such predictions are true or false.  As mentioned
above, we expect that the nature of our income (rent from good credit tenants
under long term leases) should serve as a hedge against any short term
disruptions of business. However, if the doomsday scenarios prove true, we
assume that all companies (including ours) will experience the effects in one
way or another.

Phase Four - Developing Contingency Plans

We currently do not have a contingency plan in place. Once we have proceeded
further in the completion of the initial phases of the Program, contingency
plans are expected to be developed.

INFLATION

     Substantially all of the office leases require the tenant to pay, as
additional rent, a portion of any increases in real estate taxes (except, in the
case of certain California leases, which limit the ability of the landlord to
pass through to the tenants the effect of increased real estate taxes
attributable to a sale of real property interests) and operating expenses over a
base amount.  In addition, many of the office leases provide for fixed increases
in base rent or indexed escalations (based on the Consumer Price Index or other
measures). The Company believes that inflationary increases in expenses will be
offset, in part, by the expense reimbursements and contractual rent increases
described above.



                                       32
<PAGE>   33


FUNDS FROM OPERATIONS

     Management of the Company believes Funds from Operations, as defined by the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), to be an
appropriate measure of performance for an equity REIT.  While Funds from
Operations is a relevant and widely used measure of operating performance of
equity REITs, it does not represent cash flow from operations or net income as
defined by generally accepted accounting principles ("GAAP"), and it should not
be considered as an alternative to these indicators in evaluating liquidity or
operating performance of the Company.

     The following table reflects the calculation of the Company's and Equity
Office Predecessors' Funds from Operations for the three month periods ended
September 30, 1998 and 1997 on a historical basis:


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED SEPTEMBER 30,
                                                           ----------------------------------
(Dollars in thousands)                                        1998               1997  (a)
- ---------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>
Income before allocation to minority interests, income 
   from investment in unconsolidated joint ventures and
   extraordinary items:                                      $    96,176         $  45,736
Add back (deduct):
   (Income) allocated to minority interests for partially 
     owned properties                                               (572)             (312)
   Income from investment in unconsolidated
     joint ventures                                                3,129             1,383
   Depreciation and amortization (real estate
     related)                                                     80,388            26,715
   Net amortization of net premium on mortgage debt                  285             1,267
   Preferred dividends                                            (8,427)                -
                                                             ------------       -----------
Funds from Operations before effect of adjusting
   straight-line rental revenue and expense included in
   Funds from Operations to a cash basis (b)                     170,979            74,789
   Deferred rental revenue                                       (17,686)           (8,705)
   Deferred rental expense                                           654               549
                                                             ------------       -----------
Funds from Operations excluding straight-line rental
   revenue and expense adjustments                           $   153,947        $   66,633
                                                             ============       ===========

Operating Partnership Funds from Operations                  $   170,979        $   74,789
Company's share of Operating Partnership                            89.7%             92.4%
                                                             ------------       -----------
Company's share of Funds from Operations                     $   153,359        $   69,141
                                                             ============       ===========

Cash Flow Provided By (Used For):
   Operating Activities                                      $   160,449        $   64,952
   Investing Activities                                      $  (650,384)       $  (84,069)
   Financing Activities (c)                                  $   577,540        $   89,919


Ratio of earnings to combined fixed charges and
   preferred share distributions                                     1.8               2.3
</TABLE>

(a)  Represents the combined results of Equity Office Predecessors for the
     period from July 1, 1997 to July 10, 1997 and the Company from July 11,
     1997 to September 30, 1997.
(b)  The White Paper on Funds from Operations approved by the Board of Governors
     of the National Association of Real Estate Investment Trusts ("NAREIT") in
     March 1995 defines Funds from Operations as net income (loss) (computed in
     accordance with GAAP), excluding gains (or losses) from debt restructuring
     and sales of properties, plus real estate related depreciation and
     amortization and after adjustments for unconsolidated partnerships and
     joint ventures.  The Company believes that Funds from Operations is helpful
     to investors as a measure of the performance of an equity REIT because,
     along with cash flow from operating activities, financing activities and
     investing activities, it provides investors with an indication of the
     ability of the Company to incur and service debt, to make capital
     expenditures and to fund other cash needs.  The Company computes Funds from
     Operations in accordance with standards established by NAREIT which may not
     be comparable to Funds from Operations reported by other REITs that do not
     define the term in accordance with the current NAREIT definition or that
     interpret the current NAREIT definition differently than the Company.
     Funds from Operations does not represent cash generated from operating
     activities in accordance with GAAP nor does it represent cash available to
     pay distributions and should not be considered as an alternative to net
     income (determined in accordance with GAAP) as an indication of the
     Company's financial performance or to cash flow from operating activities
     (determined in accordance with GAAP) as a measure of the Company's
     liquidity, nor is it indicative of funds available to fund the Company's
     cash needs, including its ability to make cash distributions.
(c)  For the quarter ended September 30, 1997, cash flow provided by financing
     activities includes approximately $181.1 million in cash contributed from
     Equity Office Predecessors in connection with the Consolidation.



                                       33
<PAGE>   34


     The following table reflects the calculation of the Company's and Equity
Office Predecessors' Funds from Operations for the nine month periods ended
September 30, 1998 and 1997 on a historical basis:

<TABLE>
<CAPTION>

                                                          NINE MONTHS ENDED SEPTEMBER 30,
                                                       ------------------------------------
(Dollars in thousands)                                        1998               1997  (a)
- -------------------------------------------------------------------------------------------
<S>                                                    <C>                   <C>
Income before allocation to minority interests, income 
   from investment in unconsolidated joint ventures, 
   gain on sales of real estate and extraordinary items:    $    278,386        $   93,977
Add back (deduct):
   (Income) allocated to minority interests for partially 
     owned properties                                             (1,608)           (1,191)
   Income from investment in unconsolidated
     joint ventures                                                8,155             3,408
   Depreciation and amortization (real estate
     related)                                                    223,386            85,709
   Net amortization of net premium on mortgage debt                  816             1,267
   Preferred dividends                                           (23,130)                -
                                                            --------------      -----------
Funds from Operations before effect of adjusting
   straight-line rental revenue and expense included in
   Funds from Operations to a cash basis (b)                     486,005           183,170
   Deferred rental revenue                                       (50,406)          (16,395)
   Deferred rental expense                                         1,960             1,647
                                                            --------------      -----------
Funds from Operations excluding straight-line rental
   revenue and expense adjustments                          $    437,559        $  168,422
                                                            ==============      ===========

Operating Partnership Funds from Operations                 $    486,005        $  183,170
                                                                                ===========
Company's share of Operating Partnership                            89.6%
                                                            --------------
Company's share of Funds from Operations                    $    435,674
                                                            ==============

Cash Flow Provided By (Used For):  
   Operating Activities                                     $    506,140        $  155,625
   Investing Activities                                     $ (1,926,369)       $ (656,702)
   Financing Activities (c)                                 $  1,331,732        $  404,444


Ratio of earnings to combined fixed charges and
   preferred share distributions                                     1.9               1.8
</TABLE>

(a)  Represents the combined results of Equity Office Predecessors for the
     period from January 1, 1997 to July 10, 1997 and the Company from July 11,
     1997 to September 30, 1997.
(b)  The White Paper on Funds from Operations approved by the Board of Governors
     of the National Association of Real Estate Investment Trusts ("NAREIT") in
     March 1995 defines Funds from Operations as net income (loss) (computed in
     accordance with GAAP), excluding gains (or losses) from debt restructuring
     and sales of properties, plus real estate related depreciation and
     amortization and after adjustments for unconsolidated partnerships and
     joint ventures.  The Company believes that Funds from Operations is helpful
     to investors as a measure of the performance of an equity REIT because,
     along with cash flow from operating activities, financing activities and
     investing activities, it provides investors with an indication of the
     ability of the Company to incur and service debt, to make capital
     expenditures and to fund other cash needs.  The Company computes Funds from
     Operations in accordance with standards established by NAREIT which may not
     be comparable to Funds from Operations reported by other REITs that do not
     define the term in accordance with the current NAREIT definition or that
     interpret the current NAREIT definition differently than the Company.
     Funds from Operations does not represent cash generated from operating
     activities in accordance with GAAP nor does it represent cash available to
     pay distributions and should not be considered as an alternative to net
     income (determined in accordance with GAAP) as an indication of the
     Company's financial performance or to cash flow from operating activities
     (determined in accordance with GAAP) as a measure of the Company's
     liquidity, nor is it indicative of funds available to fund the Company's
     cash needs, including its ability to make cash distributions.
(c)  For the nine months ended September 30, 1997, cash flow provided by
     financing activities includes approximately $181.1 million in cash
     contributed from Equity Office Predecessors in connection with the
     Consolidation.


                                       34
<PAGE>   35


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

          (27) Financial Data Schedule

(b)  Reports on Form 8-K:

     (1)  A report on Form 8-K, dated September 3, 1998 containing Item 7.

     (2)  A report on Form 8-K, dated September 30, 1998 containing Item 5 and
          Item 7.






                                       35
<PAGE>   36


                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                               EQUITY OFFICE PROPERTIES TRUST
<TABLE>

<S>                                    <C>
Date:  November 5, 1998                   By: /s/  Stanley M. Stevens
       ----------------                            ---------------------------------------------
                                                   Stanley M. Stevens
                                                   Executive Vice President, Chief Legal Counsel and
                                                   Secretary

Date:  November 5, 1998                   By: /s/  Richard D. Kincaid
       ----------------                            ---------------------------------------------
                                                   Richard D. Kincaid
                                                   Executive Vice President, Chief Financial Officer
</TABLE>




                                       36



<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   9-MOS
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-START>                             JAN-01-1998
<PERIOD-END>                               SEP-30-1998
<CASH>                                         177,131
<SECURITIES>                                         0
<RECEIVABLES>                                  113,156
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                               564,418
<PP&E>                                      13,049,809
<DEPRECIATION>                               (272,680)
<TOTAL-ASSETS>                              13,631,834
<CURRENT-LIABILITIES>                          473,079
<BONDS>                                      5,672,115
                                0
                                    500,000
<COMMON>                                         2,524
<OTHER-SE>                                   6,984,116
<TOTAL-LIABILITY-AND-EQUITY>                13,631,834
<SALES>                                              0
<TOTAL-REVENUES>                             1,210,697
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                               738,036
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                             237,194
<INCOME-PRETAX>                                      0
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                            235,467
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                (7,506)
<CHANGES>                                            0
<NET-INCOME>                                   227,961
<EPS-PRIMARY>                                     0.91
<EPS-DILUTED>                                     0.90
        

</TABLE>


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