<PAGE> 1
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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 JUNE 30, 2000 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)
<TABLE>
<S> <C>
MARYLAND 36-4151656
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO NORTH RIVERSIDE PLAZA 60606
SUITE 2100, CHICAGO, ILLINOIS (Zip Code)
(Address of principal executive offices)
</TABLE>
(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 August 9, 2000, 302,566,523 of the registrant's Common Shares were
outstanding.
--------------------------------------------------------------------------------
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) JUNE 30, 2000 DECEMBER 31, 1999
------------------------------------------------------------ ------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Investment in real estate................................. $17,287,478 $12,847,389
Developments in process................................... 87,192 229,225
Land available for development............................ 94,194 125,926
Accumulated depreciation.................................. (768,527) (630,387)
----------- -----------
Investment in real estate, net of accumulated
depreciation............................................ 16,700,337 12,572,153
Cash and cash equivalents................................. 82,354 2,338
Tenant and other receivables (net of allowance for
doubtful accounts of $3,852 and $1,244, respectively)... 52,424 54,497
Deferred rent receivable.................................. 165,016 138,697
Escrow deposits and restricted cash....................... 173,002 19,754
Investment in unconsolidated joint ventures............... 946,966 865,863
Deferred financing costs (net of accumulated amortization
of $19,568 and $14,863, respectively)................... 65,012 55,196
Deferred leasing costs (net of accumulated amortization of
$31,298 and $22,461, respectively)...................... 124,314 97,743
Prepaid expenses and other assets (net of discount on note
receivable of $64,152 and $62,393 respectively)......... 350,683 239,817
----------- -----------
Total Assets........................................ $18,660,108 $14,046,058
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage debt (including a net (discount)/premium of
$(20,383) and $10,574, respectively).................... $ 2,986,676 $ 1,743,871
Unsecured notes (including a net (discount)/premium of
$(508) and $47,
respectively)........................................... 4,154,492 3,655,047
Lines of credit........................................... 1,452,000 453,000
Accounts payable and accrued expenses..................... 374,077 318,003
Dividend/distribution payable............................. 148,762 5,446
Other liabilities......................................... 227,055 161,164
----------- -----------
Total Liabilities................................... 9,343,062 6,336,531
----------- -----------
Commitments and contingencies
Minority Interests:
Operating Partnership................................... 1,108,936 844,427
Partially owned properties.............................. 201,324 39,027
----------- -----------
Total Minority Interests............................ 1,310,260 883,454
----------- -----------
Shareholders' Equity:
Preferred Shares, 100,000,000 authorized:
8.98% Series A Cumulative Redeemable Preferred Shares,
liquidation preference $25.00 per share, 7,994,000 and
8,000,000 issued and outstanding, respectively......... 199,850 200,000
5.25% Series B Convertible, Cumulative Redeemable
Preferred Shares, liquidation preference $50.00 per
share, 6,000,000 issued and outstanding................ 300,000 300,000
8.625% Series C Cumulative Redeemable Preferred Shares,
liquidation preference $25.00 per share, 4,562,900 and
4,600,000 issued and outstanding, respectively......... 114,073 115,000
Common Shares, $0.01 par value; 750,000,000 shares
authorized, 301,132,281 and 251,582,434 issued and
outstanding, respectively............................... 3,011 2,516
Additional paid in capital................................ 7,484,869 6,269,259
Dividends in excess of accumulated earnings............... (86,471) (71,640)
Accumulated other comprehensive income.................... (8,546) 10,938
----------- -----------
Total Shareholders' Equity.......................... 8,006,786 6,826,073
----------- -----------
Total Liabilities and Shareholders' Equity.......... $18,660,108 $14,046,058
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE> 3
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
JUNE 30,
----------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999
------------------------------------------------------- ------------ ------------
<S> <C> <C>
REVENUES:
Rental............................................... $ 379,115 $ 372,171
Tenant reimbursements................................ 68,982 69,468
Parking.............................................. 26,398 28,663
Other................................................ 11,233 6,886
Fee income........................................... 2,507 2,045
Interest/dividends................................... 8,617 2,046
------------ ------------
Total revenues.............................. 496,852 481,279
------------ ------------
EXPENSES:
Interest:
Expense incurred.................................. 111,303 102,920
Amortization of deferred financing costs.......... 1,101 1,426
Depreciation......................................... 84,397 83,626
Amortization......................................... 5,153 3,117
Real estate taxes.................................... 59,930 62,237
Insurance............................................ 2,711 2,359
Repairs and maintenance.............................. 53,105 50,463
Property operating................................... 49,715 48,333
Ground rent.......................................... 2,438 1,548
General and administrative........................... 22,089 20,714
------------ ------------
Total expenses.............................. 391,942 376,743
------------ ------------
Income before allocation to minority interests, income
from investment in unconsolidated joint ventures, net
gain on sales of real estate and extraordinary
items................................................ 104,910 104,536
Minority Interests:
Operating Partnership................................ (16,854) (10,131)
Partially owned properties........................... (1,931) (353)
Income from investment in unconsolidated joint
ventures............................................. 13,389 3,215
Net gain on sales of real estate....................... 36,998 8,085
------------ ------------
Income before extraordinary items...................... 136,512 105,352
Extraordinary items.................................... (264) (7,135)
------------ ------------
Net income............................................. 136,248 98,217
Put option settlement.................................. (1,031) --
Preferred distributions................................ (10,883) (10,907)
------------ ------------
Net income available for Common Shares................. $ 124,334 $ 87,310
============ ============
Net income available per weighted average Common Share
outstanding -- Basic................................. $ 0.49 $ 0.34
============ ============
Weighted average Common Shares outstanding -- Basic.... 254,186,184 258,525,258
============ ============
Net income available per weighted average Common Share
and common share equivalent outstanding -- Diluted... $ 0.48 $ 0.33
============ ============
Weighted average Common Shares and common share
equivalents outstanding -- Diluted................... 291,674,501 290,946,853
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
----------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999
------------------------------------------------------------ ------------ ------------
<S> <C> <C>
REVENUES:
Rental.................................................... $ 737,481 $ 741,310
Tenant reimbursements..................................... 131,965 137,627
Parking................................................... 53,129 56,122
Other..................................................... 24,089 12,360
Fee income................................................ 4,742 3,907
Interest/dividends........................................ 14,321 5,087
------------ ------------
Total revenues.................................... 965,727 956,413
------------ ------------
EXPENSES:
Interest:
Expense incurred....................................... 211,835 207,400
Amortization of deferred financing costs............... 2,478 2,172
Depreciation.............................................. 168,286 166,538
Amortization.............................................. 9,539 6,018
Real estate taxes......................................... 117,840 124,038
Insurance................................................. 5,451 4,681
Repairs and maintenance................................... 101,004 101,847
Property operating........................................ 96,503 96,541
Ground rent............................................... 4,462 3,394
General and administrative................................ 41,740 38,964
------------ ------------
Total expenses.................................... 759,138 751,593
------------ ------------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, net gain on
sales of real estate and extraordinary items.............. 206,589 204,820
Minority Interests:
Operating Partnership..................................... (29,270) (18,801)
Partially owned properties................................ (2,484) (898)
Income from investment in unconsolidated joint ventures..... 24,763 5,050
Net gain on sales of real estate............................ 40,860 8,085
------------ ------------
Income before extraordinary items........................... 240,458 198,256
Extraordinary items......................................... (875) (10,318)
------------ ------------
Net income.................................................. 239,583 187,938
Put option settlement....................................... (2,061) --
Preferred distributions, net................................ (21,580) (21,788)
------------ ------------
Net income available for Common Shares...................... $ 215,942 $ 166,150
============ ============
Net income available per weighted average Common Share
outstanding -- Basic...................................... $ 0.86 $ 0.64
============ ============
Weighted average Common Shares outstanding -- Basic......... 250,940,740 259,241,557
============ ============
Net income available per weighted average Common Share and
common share equivalent outstanding -- Diluted............ $ 0.85 $ 0.64
============ ============
Weighted average Common Shares and common share equivalents
outstanding -- Diluted.................................... 287,924,827 291,190,435
============ ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
-------------------- -------------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
---------------------------------------------------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net income.......................................... $136,248 $98,217 $239,583 $187,938
Other comprehensive income:
Unrealized holding losses arising during the
period......................................... (46,117) -- (18,577) --
Less: reclassification adjustment for the transfer
of 250,000 shares of Cornerstone common stock
to merger acquisition cost........... (907) -- (907) --
-------- ------- -------- --------
Comprehensive income................................ $ 89,224 $98,217 $220,099 $187,938
======== ======= ======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
(DOLLARS IN THOUSANDS) 2000 1999
------------------------------------------------------------ ----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income before put option settlement and preferred
distributions, net..................................... $ 239,583 $ 187,938
Adjustments to reconcile net income before put option
settlement and preferred distributions, net, to net
cash provided by operating activities:
Depreciation and amortization.......................... 180,303 174,728
Amortization of premiums/discounts on unsecured notes
and terminated interest rate protection agreements.... 1,970 1,825
Amortization of deferred revenue included in other
income................................................ (2,166) --
Compensation related to restricted shares issued to
employees............................................. 3,724 2,452
Income from unconsolidated joint ventures.............. (24,763) (5,050)
Net gain on sales of real estate....................... (40,860) (8,085)
Extraordinary items.................................... 875 10,318
Provision for doubtful accounts........................ 494 565
Allocation to minority interests....................... 31,754 19,699
Changes in assets and liabilities:
Decrease (increase) in rents receivable.............. 9,738 (4,767)
(Increase) in deferred rent receivables.............. (26,319) (30,985)
(Increase)decrease in prepaid expenses and other
assets.............................................. (961) 13,422
(Decrease) in accounts payable and accrued
expenses............................................ (4,264) (26,398)
Increase in due to affiliates........................ -- 192
Increase in other liabilities........................ 9,350 4,869
----------- -----------
Net cash provided by operating activities......... 378,458 340,723
----------- -----------
INVESTING ACTIVITIES:
Property acquisitions..................................... (19,508) (119,655)
Acquisition of Cornerstone Properties..................... (1,158,742) --
Property dispositions..................................... 309,049 --
Payments for capital and tenant improvements.............. (113,002) (93,787)
Payments of disposition costs for sales of real estate.... -- (1,349)
Distributions from unconsolidated joint ventures.......... 124,601 7,707
Investments in unconsolidated joint ventures.............. (8,206) (20,286)
Payments of lease acquisition costs....................... (34,497) (17,882)
Investment in securities.................................. (83,047) --
Investment in notes receivable............................ (1,000) --
(Increase) decrease in escrow deposits and restricted
cash................................................... (8,738) 4,474
----------- -----------
Net cash (used for) investing activities.......... (993,090) (240,778)
----------- -----------
</TABLE>
6
<PAGE> 7
EQUITY OFFICE PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
(DOLLARS IN THOUSANDS) 2000 1999
------------------------------------------------------------ ----------- -----------
<S> <C> <C>
FINANCING ACTIVITIES:
Repurchase of Common Shares............................... (119,633) --
Proceeds from exercise of share options................... 26,615 1,796
Redemption of Units for cash.............................. (3,780) --
Dividends/distributions to shareholders and unitholders... (120,381) (108,379)
Payment of preferred distributions........................ (21,767) (22,007)
Repurchase of preferred shares, including transaction
costs.................................................. (890) --
Payment of offering costs................................. (4) (558)
Distributions to minority interest in partially owned
properties............................................. (5,696) (144)
Proceeds from mortgage debt............................... 190,000 3,374
Proceeds from unsecured notes............................. 499,320 1,195,587
Proceeds from lines of credit............................. 3,031,800 482,700
Principal payments on mortgage debt....................... (318,047) (507,870)
Principal payments on lines of credit..................... (2,448,341) (1,150,700)
Payments of loan costs.................................... (14,548) (11,341)
Prepayment penalties on early extinguishment of debt...... -- (13,566)
----------- -----------
Net cash provided by (used for) financing
activities...................................... 694,648 (131,108)
----------- -----------
Net increase (decrease) in cash and cash equivalents...... 80,016 (31,163)
Cash and cash equivalents at the beginning of the
period................................................. 2,338 67,080
----------- -----------
Cash and cash equivalents at the end of the period........ $ 82,354 $ 35,917
=========== ===========
SUPPLEMENTAL INFORMATION:
Interest paid during the period, including capitalized
interest of $8,417 and $7,415, respectively............ $ 200,054 $ 187,859
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Mortgage loans and line of credit assumed through
Cornerstone Merger..................................... $ 1,720,449 $ --
=========== ===========
Net liabilities assumed through Cornerstone Merger........ $ 34,507 $ --
=========== ===========
Minority interest in partially owned properties assumed
through Cornerstone Merger............................. $ 165,154 $ --
=========== ===========
Common Shares, options and Units issued through
Cornerstone Merger..................................... $ 1,577,260 $ --
=========== ===========
Escrow deposits used for property acquisitions............ $ 8,138 $ 120,798
=========== ===========
Escrow deposits provided by property dispositions......... $ (145,001) $ (95,956)
=========== ===========
Mortgage loan assumed through property acquisition........ $ 65,661 $ --
=========== ===========
</TABLE>
See accompanying notes.
7
<PAGE> 8
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DEFINITION OF TERMS. Capitalized terms used but not defined herein are as
defined in the Company's Annual Report on Form 10-K for the year ended December
31, 1999 (the "Form 10-K").
The consolidated financial statements of the Company 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, 1999 audited consolidated and combined financial statements of
Equity Office Properties Trust 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 AND FORMATION OF THE COMPANY
As used herein, "Company" means Equity Office Properties Trust, a Maryland
real estate investment trust, together with its subsidiaries, including the
Operating Partnership. 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. The Company completed its 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 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 June 30, 2000, the Company
owned or had an interest in 381 office properties (the "Office Properties")
containing approximately 97.3 million rentable square feet of office space and
owned nine stand-alone parking facilities (the "Parking Facilities" and,
together with the Office Properties, the "Properties") containing approximately
14,244 parking spaces. The weighted average occupancy of the Office Properties
at June 30, 2000 was approximately 94.1%. The Office Properties are located in
104 submarkets in 38 markets in 24 states and the District of Columbia. The
Office Properties, by rentable square feet, are located approximately 50% in
CBDs and 50% in suburban markets.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's assets, which include investments in joint ventures, are
primarily owned by, and its operations are substantially conducted through, the
Operating Partnership. The Company is the general partner of the Operating
Partnership. Due to the Company's ability as general partner to control the
Operating Partnership and various other property-holding entities and other
subsidiaries, each such entity has been consolidated with the Company for
financial reporting purposes.
The Cornerstone Merger (as defined in Note 3) was accounted for using the
purchase method in accordance with Accounting Principles Board Opinion No. 16.
The fair value of the consideration given by the Company in the Cornerstone
Merger was used as the valuation basis for the merger. The assets acquired and
the liabilities assumed of Cornerstone were recorded at their relative fair
values as of June 19, 2000 (the "Cornerstone Closing Date"). The results of
operations of the Cornerstone properties for the period from the Cornerstone
Closing Date through June 30, 2000 are included in the Company's consolidated
statements of operations.
Use of Estimates
The preparation of the consolidated financial statements of the Company in
conformity with accounting principles generally accepted in the United States
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.
8
<PAGE> 9
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unaudited Interim Statements
The consolidated financial statements of the Company as of and for the
three and six months ended June 30, 2000 and 1999 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 1999
statements in order to provide comparability with the 2000 statements reported
herein. These reclassifications have not changed the 1999 results or
shareholders' equity.
NOTE 3 -- CORNERSTONE MERGER
On June 19, 2000, the Company, the Operating Partnership, Cornerstone
Properties Inc. ("Cornerstone") and Cornerstone Properties Limited Partnership
("Cornerstone Partnership") consummated the merger of Cornerstone with and into
the Company and Cornerstone Partnership with and into the Operating Partnership
(the "Cornerstone Merger") at a cost of approximately $4.5 billion. The purchase
price consisted of:
(i) the Company's issuance of approximately 51.3 million Common Shares
valued at $24.68 per share and the issuance of stock options for a total of
approximately $1,271.3 million;
(ii) the Operating Partnership's issuance of approximately 12.4
million Units to third parties valued at $24.68 per Unit for a total of
approximately $306.0 million;
(iii) the cash redemption of approximately 58.6 million Cornerstone
common shares valued at $18.00 per share for a total of approximately
$1,053.9 million;
(iv) the cash redemption of approximately 3.0 million Cornerstone
preferred shares valued at $18.00 per share for a total of approximately
$57.6 million, plus accrued but unpaid dividends;
(v) the assumption of approximately $1,304.9 million of secured debt
and $415.5 million of unsecured debt;
(vi) the payment of merger costs of approximately $72.1 million; and
(vii) the assumption of net liabilities of approximately $9.6 million.
The cash portion of the Cornerstone Merger of approximately $1.2 billion
was partially funded from the $1.0 Billion Credit Facility and a new revolving
credit facility. Concurrently with the Cornerstone Merger, the Company borrowed
$1.0 billion from the $1.0 Billion Credit Facility and amended the facility into
a term loan (the "Term Loan"). The Term Loan bears interest at LIBOR plus 80
basis points and matures on May 29, 2001. If the Company obtains net proceeds
from the disposition of a Property, (excluding proceeds from a tax-deferred
property disposition), the issuance of unsecured notes or the issuance of Common
Shares/Units, the net proceeds must be used to repay any amounts outstanding
under the Term Loan up to the then current unpaid balance of the Term Loan.
The remaining cash consideration in the Cornerstone Merger was funded from
a new $1.0 billion revolving credit facility obtained at the time of the merger
(the "Line of Credit"). The Line of Credit bears interest at LIBOR plus 60 basis
points and matures on June 19, 2003. There is also a facility fee of $2.0
million per annum on the Line of Credit payable quarterly. In addition, the
Company assumed interest rate protection agreements in the notional amount of
$250 million effectively converting a portion of the Line
9
<PAGE> 10
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of Credit to a fixed-blended interest rate of 4.6%. The interest rate protection
agreements terminate in December 2000 and January 2001.
As a result of the Cornerstone Merger, the Company acquired an interest in
82 Office Properties containing approximately 18.9 million square feet of office
space. In addition, in connection with the merger, the Board of Trustees of the
Company was increased from 11 to 14 members. The new members are William Wilson
III, formerly chairman of the board of Cornerstone, John S. Moody, formerly
president and chief executive officer of Cornerstone, and Jan H.W.R. van der
Vlist, director of real estate for Stichting Pensioenfonds voor de Gezondheid,
Gaestelijke en Meatschappelljke Belangen.
NOTE 4 -- ACQUISITIONS
On April 10, 2000, the Company acquired the remaining 30% interest in
Metropoint II for approximately $8.3 million in cash. Metropoint II was a
development project which was completed in May 1999. The Office Property
consists of approximately 150,181 square feet and is located in Denver,
Colorado.
On June 30, 2000, the Company acquired the remaining 20% interest in Sunset
North Corporate Campus from Wright Runstad Associates Limited Partnership
("WRALP"), an affiliate of the Company, for approximately $14.9 million in cash.
Upon acquisition of the property, the Company assumed and immediately repaid a
$65.7 million mortgage note secured by the property. Sunset North Corporate
Campus was a development project which was completed in December 1999. The
project consists of three Office Properties containing approximately 460,629
square feet and is located in Bellevue, Washington.
Prior to the acquisition of the remaining interests in Metropoint II and
Sunset North Corporate Campus, the Company accounted for its interest in these
properties under the equity method of accounting and classified its net equity
investment as investment in unconsolidated joint ventures on the consolidated
balance sheet and its interest in the net income from investment in
unconsolidated joint ventures was reflected in the consolidated statements of
operations. Upon the acquisition of the remaining interest in the Properties,
the Company consolidated the financial condition and results of operations of
Metropoint II and Sunset North Corporate Campus.
On May 23, 2000, the Company acquired a vacant parcel of land located in
Fairfax, Virginia, for approximately $8.1 million in cash from an unaffiliated
party.
NOTE 5 -- DISPOSITIONS
On May 17, 2000, the Company disposed of 11 parking facilities containing
6,992 parking spaces for approximately $180 million in cash to an unaffiliated
party. The parking facilities disposed of were 1111 Sansom St., 15th and Sansom
St., 1602-34 Chancellor, 1616 Sansom St., Boston Harbor, Capitol Commons, Forbes
and Allies, Juniper/Locust, Milwaukee Center, and Riverfront/Stanwix. The sale
resulted in a gain of approximately $23.9 million.
On June 2, 2000, the Company entered into a joint venture agreement with an
unaffiliated party and sold a 49.9% interest in Bank of America Tower for
approximately $209.6 million resulting in a gain on sale of approximately $13.1
million. The property consists of approximately 1,537,932 square feet and is
located in Seattle, Washington. Prior to the sale, the Company consolidated the
financial condition and results of operations of the property. Upon the sale,
the Company retained a 50.1% equity interest in the property and shares equally
in the control of operations and major decisions of the property. Therefore, the
Company accounts for its interest under the equity method of accounting and
classifies its net equity investment of approximately $106.0 million as
investment in unconsolidated joint ventures on the consolidated balance sheet
and its interest in the net income is reflected in the consolidated statement of
operations as income from investment in unconsolidated joint ventures. At close,
the joint venture obtained a $195 million mortgage secured by the property. The
note bears interest at LIBOR plus 1.15% and matures on December 14, 2004. As
10
<PAGE> 11
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
a condition of the mortgage, the joint venture purchased a 7.85% LIBOR based
interest rate cap, thereby capping the effective interest rate on the mortgage
at 9.0% for three years.
On June 30, 2000, the Company disposed of Park Plaza, which was acquired in
connection with the Cornerstone Merger, to an unaffiliated party for
approximately $17.5 million in cash. The 87,040 square foot office property is
located in Pleasanton, California. There was no gain or loss on the sale of the
property.
NOTE 6 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The Company has several investments in unconsolidated joint ventures
consisting of Office Properties, Parking Facilities, a management company and a
company that provides fully-furnished office space to tenants. Combined
summarized financial information of the unconsolidated joint ventures is as
follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
(DOLLARS IN THOUSANDS) 2000 1999
---------------------- ---------- ------------
<S> <C> <C>
Balance Sheets:
Real estate, net.......................................... $2,120,041 $1,719,417
Other assets.............................................. 124,354 106,211
---------- ----------
Total Assets...................................... $2,244,395 $1,825,628
========== ==========
Mortgage debt............................................. $ 752,792 $ 559,344
Other liabilities......................................... 61,916 58,793
Partners' and shareholders' equity........................ 1,429,687 1,207,491
---------- ----------
Total Liabilities and Partners' and Shareholders'
Equity.......................................... $2,244,395 $1,825,628
========== ==========
Company's share of equity................................... $ 796,135 $ 696,502
Net excess of cost of investments over the net book value of
underlying net assets, net of accumulated depreciation of
$14,235 and $11,679, respectively......................... 150,831 169,361
---------- ----------
Carrying value of investments in unconsolidated joint
ventures.................................................. $ 946,966 $ 865,863
========== ==========
Company's share of unconsolidated mortgage debt............. $ 351,759 $ 264,751
========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------- ------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
---------------------- --------- --------- -------- -------
<S> <C> <C> <C> <C>
Statements of Operations:
Revenues............................................ $78,531 $26,593 $149,801 $51,976
------- ------- -------- -------
Expenses:
Interest expense................................. 10,622 4,456 21,363 8,903
Depreciation and amortization.................... 13,348 4,536 25,420 8,639
Operating expenses............................... 29,195 9,817 57,173 20,424
------- ------- -------- -------
Total expenses.............................. 53,165 18,809 103,956 37,966
------- ------- -------- -------
Net income.......................................... $25,366 $ 7,784 $ 45,845 $14,010
======= ======= ======== =======
Company's share of net income......................... $13,389 $ 3,215 $ 24,763 $ 5,050
======= ======= ======== =======
Company's share of interest expense................... $ 4,833 $ 2,197 $ 9,947 $ 4,397
======= ======= ======== =======
Company's share of depreciation and amortization (real
estate related)..................................... $ 8,584 $ 3,647 $ 15,843 $ 7,131
======= ======= ======== =======
</TABLE>
During the three months ended June 30, 2000, the Company acquired the
remaining interests in Metropoint II and Sunset North Corporate Campus, which
were previously accounted for under the equity method of accounting (see Note 4
for additional disclosure). In addition, the Company acquired a 50%
11
<PAGE> 12
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
interest in One Post in connection with the Cornerstone Merger. The Company also
sold a 49.9% interest in Bank of America Tower and accounts for its remaining
investment under the equity method of accounting (see Note 5 for additional
disclosure).
NOTE 7 -- INVESTMENTS IN SECURITIES
On April 18, 2000, the Company entered into a new agreement with Captivate
Network, Inc. ("Captivate") providing for the installation of Captivate's
electronic media display video units within the elevator cabs of certain
specified Office Properties. In return for allowing Captivate access to
approximately 60.1 million square feet of office space, Captivate issued
approximately 2.0 million stock purchase warrants to the Company (subject to
adjustment). In addition, the Company invested approximately $8.0 million in
Series C and Series D Preferred Shares of Captivate. The warrants were recorded
at fair value as deferred revenue and are amortized to other revenue over the
term of the licensing agreements. The Series C and Series D Preferred Shares
were recorded at cost.
On May 31, 2000, the Company invested approximately $75 million in Series A
Convertible Cumulative Preferred Stock of HQ Global Workplaces, Inc. ("HQ") and
obtained one seat on the Board of Directors of HQ. The Series A Convertible
Cumulative Preferred Stock has an initial dividend rate of 13.5% per annum and
increases by 50 basis points each year. The preferred stock is redeemable in
2004, matures in 2007, and may be converted to HQ common stock upon a qualifying
merger or initial public offering of HQ. In addition, the preferred stock
includes detachable warrants that are convertible into common stock.
In connection with the investment, the Company and HQ entered into a joint
venture agreement to own and develop full service business centers in the Office
Properties. The Company and HQ will contribute approximately $5 million to the
joint venture to fund the initial development of business centers. The Company's
investment in the joint venture will be accounted for under the equity method of
accounting.
In connection with the Cornerstone Merger (see Note 3), the Company
acquired common stock and warrants in various companies as follows:
<TABLE>
<CAPTION>
NUMBER OF COMMON/ NUMBER OF
COMPANY PREFERRED SHARES WARRANTS
------- ----------------- ----------
<S> <C> <C>
Allied Riser Communications ("ARC")..................... 245,292 341,666
Broadband Office Inc. ("BBO")........................... 110,846 --
Captivate............................................... 402,539 382,208
Cypress Communications ("Cypress")...................... 828,947 794,280
</TABLE>
The common shares and warrants of the companies were valued as of the
Cornerstone Merger date based on their respective fair values. A portion of the
fair value of the common shares and warrants were also recorded to unearned
revenue and are being amortized over the remaining term of the agreements the
Company assumed from Cornerstone in the merger.
The terms of the Company's investment in 50,000 shares of 8.25% Preferred
Securities of Capital Trust was amended as follows:
- 60% of the Company's investment, or approximately $30 million of the
preferred securities the Company owns were amended as follows:
- The coupon rate of 8.25% will remain fixed for two more years.
Thereafter, the rate will increase to the greater of:
a. 10%, increasing by 75 basis points per annum commencing October 1,
2004, or
b. a rate equal to Capital Trust's then dividend per common share
divided by $7.00;
12
<PAGE> 13
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- The conversion price will decrease from $11.70 to $7.00 per share;
- The common share equivalent will be fixed at 4,285,714 shares; and
- The call date will be extended one year to September 30, 2004.
- 40% of the Company's investment, or approximately $20 million of the
preferred securities the Company owns were amended as follows:
- The coupon rate of 8.25% will increase to 13.0% and remain fixed until
October 1, 2004 when it will increase by 75 basis points per annum;
- The conversion feature is eliminated; and
- The preferred securities may be called at any time.
- The co-investment right will be terminated.
NOTE 8 -- MORTGAGE DEBT
The Company obtained a mortgage note secured by Park Avenue Tower and 850
Third Avenue in the amount of $190.0 million. The mortgage note matures in June
2010 and has a fixed interest rate of 8.47% per annum. The Company used the
proceeds to pay down the Line of Credit.
NOTE 9 -- LINES OF CREDIT
On April 10, 2000, the Company repaid the Chase Term Loan in the amount of
$100 million with proceeds from the $1.0 Billion Credit Facility.
In connection with the Cornerstone Merger, the Company amended its existing
$1.0 Billion Credit Facility and obtained a new $1.0 billion Line of Credit. See
Note 3 -- Cornerstone Merger for additional information.
NOTE 10 -- SHAREHOLDERS' EQUITY
Common Shares
The following table presents the changes in the Company's issued and
outstanding Common Shares since April 1, 2000 (excluding Units of 45,170,128 and
33,163,406 outstanding at June 30, 2000 and March 31, 2000, respectively, which
are convertible into Common Shares on a one-for-one basis, or the cash
equivalent thereof, subject to certain restrictions):
<TABLE>
<S> <C>
OUTSTANDING AT MARCH 31, 2000............................... 248,329,132
Issued in Cornerstone Merger................................ 51,274,811
Issued through exercise of options.......................... 1,120,155
Issued through redemption of Units.......................... 392,083
Restricted Shares issued/cancelled, net..................... 16,100
-----------
OUTSTANDING AT JUNE 30, 2000................................ 301,132,281
===========
</TABLE>
Ownership of Operating Partnership
The Company's ownership in the Operating Partnership was approximately
87.0% and 88.0% as of June 30, 2000 and December 31, 1999, respectively.
13
<PAGE> 14
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dividends/Distributions
The following table summarizes the dividends/distributions paid or declared
on Common Share/Unit holders and preferred shareholders during the three months
ended June 30, 2000:
<TABLE>
<CAPTION>
DIVIDEND/
DISTRIBUTION
AMOUNT DATE PAID RECORD DATE
------------ -------------- --------------
<S> <C> <C> <C>
Common Shares/Units............................ $ 0.42 July 17, 2000 June 30, 2000
Series A Preferred Shares...................... $ 0.56125 June 15, 2000 June 1, 2000
Series B Preferred Shares...................... $ 0.65625 May 15,2000 May 1, 2000
Series C Preferred Shares...................... $0.5390625 June 15, 2000 June 1, 2000
</TABLE>
14
<PAGE> 15
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per Common Share:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 2000 1999
--------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income available for Common Shares before
net gain on sales of real estate and
extraordinary items........................ $ 89,073 $ 86,360 $ 177,430 $ 168,383
Net gain on sales of real estate (excluding
allocation to minority interests of $1,473
for the three and six months ended June 30,
2000)...................................... 35,525 8,085 39,387 8,085
Extraordinary items.......................... (264) (7,135) (875) (10,318)
------------ ------------ ------------ ------------
Numerator for basic earnings per share -- net
income available for Common Shares......... 124,334 87,310 215,942 166,150
Minority interest in Operating Partnership... 16,854 10,131 29,270 18,801
------------ ------------ ------------ ------------
Numerator for diluted earnings per
share -- net income available for Common
Shares and common share equivalents........ $ 141,188 $ 97,441 $ 245,212 $ 184,951
============ ============ ============ ============
DENOMINATOR:
Denominator for basic earnings per share --
weighted average Common Shares............. 254,186,184 258,525,258 250,940,740 259,241,557
------------ ------------ ------------ ------------
Effect of dilutive securities:
Redemption of Units to Common Shares....... 34,619,767 30,073,234 34,152,557 29,335,240
Share options, put options and restricted
stock.................................... 2,868,550 2,348,361 2,831,530 2,613,638
------------ ------------ ------------ ------------
Dilutive potential Common Shares............. 37,488,317 32,421,595 36,984,087 31,948,878
------------ ------------ ------------ ------------
Denominator for diluted earnings per share --
adjusted weighted average shares and
assumed conversions........................ 291,674,501 290,946,853 287,924,827 291,190,435
============ ============ ============ ============
BASIC EARNINGS AVAILABLE FOR COMMON SHARES PER
WEIGHTED AVERAGE COMMON SHARE:
Net income before net gain on sales of real
estate and extraordinary items, net of
minority interests......................... $ 0.37 $ 0.33 $ 0.73 $ 0.65
Net gain on sales of real estate, net of
minority interests......................... 0.12 0.03 0.13 0.03
Extraordinary items, net of minority
interests.................................. -- (0.02) -- (0.04)
------------ ------------ ------------ ------------
Net income................................... $ 0.49 $ 0.34 $ 0.86 $ 0.64
============ ============ ============ ============
DILUTED EARNINGS AVAILABLE FOR COMMON SHARES
AND COMMON SHARE EQUIVALENTS PER WEIGHTED
AVERAGE COMMON SHARE AND COMMON SHARE
EQUIVALENT:
Net income before net gain on sales of real
estate and extraordinary items............. $ 0.36 $ 0.33 $ 0.71 $ 0.64
Net gain on sales of real estate............. 0.12 0.03 0.14 0.03
Extraordinary items.......................... -- (0.03) -- (0.03)
------------ ------------ ------------ ------------
Net income................................... $ 0.48 $ 0.33 $ 0.85 $ 0.64
============ ============ ============ ============
</TABLE>
15
<PAGE> 16
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following securities were not included in the computation of diluted
earnings per share since they would have an antidilutive effect:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
WEIGHTED AVERAGE ----------------------- -----------------------
ANTIDILUTIVE SECURITIES EXERCISE PRICE 2000 1999 2000 1999
----------------------- ---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Share options................ $30.020 3,387,660 -- -- --
Share options................ $30.080 -- 3,440,835 -- --
Share options................ $29.920 -- -- 3,412,451 --
Share options................ $30.050 -- -- -- 3,470,835
Series B Preferred Shares.... $35.700 6,000,000 6,000,000 6,000,000 6,000,000
Warrants..................... $39.375 5,000,000 5,000,000 5,000,000 5,000,000
---------- ---------- ---------- ----------
Total...... 14,387,660 14,440,835 14,412,451 14,470,835
========== ========== ========== ==========
</TABLE>
NOTE 12 -- SEGMENT INFORMATION
As discussed in Note 1, the Company's primary business is the ownership and
operation of Office Properties. The Company's long-term tenants are in a variety
of businesses and no single tenant, by itself, is material to the Company's
business. Information related to this segment for the three and six months ended
June 30, 2000 and June 30, 1999 is set forth below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
------------------------------------------------------------------------------
JUNE 30, 2000 JUNE 30, 1999
-------------------------------------- -------------------------------------
CORPORATE CORPORATE
OFFICE AND OFFICE AND
(DOLLARS IN THOUSANDS) PROPERTIES OTHER CONSOLIDATED PROPERTIES OTHER CONSOLIDATED
------------------------------------------------- ----------- --------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Property Operating Revenues...................... $ 478,046 $ 7,682 $ 485,728 $ 468,216 $ 8,972 $ 477,188
Property Operating Expenses...................... (162,872) (2,589) (165,461) (161,337) (2,055) (163,392)
----------- -------- ----------- ---------- -------- ---------
Net operating income........................... 315,174 5,093 320,267 306,879 6,917 313,796
----------- -------- ----------- ---------- -------- ---------
Adjustments to arrive at net income:
Other revenues................................. 454 10,670 11,124 461 3,630 4,091
Interest expense(1)............................ (30,825) (80,478) (111,303) (31,251) (71,669) (102,920)
Depreciation and amortization.................. (87,721) (2,930) (90,651) (84,680) (3,489) (88,169)
Ground rent.................................... (2,432) (6) (2,438) (1,536) (12) (1,548)
General and administrative..................... (613) (21,476) (22,089) (289) (20,425) (20,714)
----------- -------- ----------- ---------- -------- ---------
Total adjustments to arrive at net income...... (121,137) (94,220) (215,357) (117,295) (91,965) (209,260)
----------- -------- ----------- ---------- -------- ---------
Income before allocation to minority interests,
income from investment in unconsolidated joint
ventures, net gain on sales of real estate and
extraordinary items............................ 194,037 (89,127) 104,910 189,584 (85,048) 104,536
Minority interests............................... (589) (18,196) (18,785) (395) (10,089) (10,484)
Income from investment in unconsolidated joint
ventures....................................... 13,490 (101) 13,389 2,667 548 3,215
Net gain on sales of real estate................. 13,478 23,520 36,998 8,085 -- 8,085
Extraordinary items.............................. -- (264) (264) (7,135) -- (7,135)
----------- -------- ----------- ---------- -------- ---------
Net income....................................... $ 220,416 $(84,168) $ 136,248 $ 192,806 $(94,589) $ 98,217
=========== ======== =========== ========== ======== =========
Capital and tenant improvements.................. $ 58,519 $ 4,458 $ 62,977 $ 46,267 $ 2,378 $ 48,645
=========== ======== =========== ========== ======== =========
Total Assets..................................... $17,971,303 $688,805 $18,660,108
=========== ======== ===========
</TABLE>
16
<PAGE> 17
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------------------------------------------------------------
JUNE 30, 2000 JUNE 30, 1999
-------------------------------------- -------------------------------------
CORPORATE CORPORATE
OFFICE AND OFFICE AND
(DOLLARS IN THOUSANDS) PROPERTIES OTHER CONSOLIDATED PROPERTIES OTHER CONSOLIDATED
------------------------------------------------- ----------- --------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Property Operating Revenues...................... $ 929,038 $ 17,626 $ 946,664 $ 929,672 $ 17,747 $ 947,419
Property Operating Expenses...................... (315,518) (5,280) (320,798) (323,087) (4,020) (327,107)
----------- --------- ----------- ---------- --------- ---------
Net operating income........................... 613,520 12,346 625,866 606,585 13,727 620,312
----------- --------- ----------- ---------- --------- ---------
Adjustments to arrive at net income:
Other revenues................................. 874 18,189 19,063 1,092 7,902 8,994
Interest expense(1)............................ (58,330) (153,505) (211,835) (68,852) (138,548) (207,400)
Depreciation and amortization.................. (173,178) (7,125) (180,303) (168,465) (6,263) (174,728)
Ground rent.................................... (4,443) (19) (4,462) (3,369) (25) (3,394)
General and administrative..................... (725) (41,015) (41,740) (449) (38,515) (38,964)
----------- --------- ----------- ---------- --------- ---------
Total adjustments to arrive at net income...... (235,802) (183,475) (419,277) (240,043) (175,449) (415,492)
----------- --------- ----------- ---------- --------- ---------
Income before allocation to minority interests,
income from investment in unconsolidated joint
ventures, net gain on sales of real estate and
extraordinary items............................ 377,718 (171,129) 206,589 366,542 (161,722) 204,820
Minority interests............................... (1,027) (30,727) (31,754) (705) (18,994) (19,699)
Income from investment in unconsolidated joint
ventures....................................... 24,851 (88) 24,763 4,416 634 5,050
Net gain on sales of real estate................. 17,340 23,520 40,860 8,085 -- 8,085
Extraordinary items.............................. (611) (264) (875) (10,318) -- (10,318)
----------- --------- ----------- ---------- --------- ---------
Net income....................................... $ 418,271 $(178,688) $ 239,583 $ 368,020 $(180,082) $ 187,938
=========== ========= =========== ========== ========= =========
Capital and tenant improvements.................. $ 103,867 $ 9,135 $ 113,002 $ 88,078 $ 5,709 $ 93,787
=========== ========= =========== ========== ========= =========
Total Assets..................................... $17,971,303 $688,805 $18,660,108
=========== ========= ===========
</TABLE>
---------------
(1) Interest expense for the Office Properties does not include an allocation of
interest expense on corporate unsecured debt.
NOTE 13 -- PRO FORMA STATEMENTS OF OPERATIONS (UNAUDITED)
The pro forma data presented below are included to illustrate the effect on
the Company's operations as a result of the Cornerstone Merger as if it had
happened on January 1, 1999. The pro forma condensed combined statements of
operations 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
Cornerstone Merger been completed on January 1, 1999, or which may be obtained
in the future.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999
------------------------------------------------------------ --------------- ---------------
<S> <C> <C>
Total revenues.............................................. $ 1,246,019 $ 1,263,774
Net income available for Common Shares...................... $ 269,519 $ 178,788
Net income per Common Share -- Basic........................ $ .90 $ .58
Common Shares outstanding -- Basic.......................... 298,834,794 308,208,437
Net income per Common Share -- Diluted...................... $ .89 $ .58
Common Shares outstanding -- Diluted........................ 347,773,181 354,800,870
</TABLE>
NOTE 14 -- 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 typically exceed
FDIC insurance coverage and, as a result, there is a concentration
17
<PAGE> 18
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 Cornerstone 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.
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.
Commitments
In July 1998, the Company entered into an agreement to purchase the World
Trade Center project in Seattle, Washington. The property consists of
approximately 186,787 square feet of office space and is 100% preleased to a
single tenant. The Company expects to acquire the property in late August 2000
for approximately $39.0 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
WRALP, the Company agreed to make available to WRALP up to $20.0 million in
additional financing or credit support for future development. As of June 30,
2000, no amounts have been funded pursuant to this agreement. However, the
Company has guaranteed WRALP's line of credit, which has an outstanding balance
of approximately $12.9 million as of June 30, 2000.
The Company and Wilson/Equity Office, LLC, entered into an agreement to
purchase a 12.9 acre vacant land parcel in San Raphael, California for
approximately $30.3 million from an unaffiliated party. The Company's interest
in this joint venture is 60%. The Company also has an interest in Wilson/Equity
Office, LLC which was formed in June 2000 and operated under an interim
operating agreement. This agreement was subsequently finalized on August 1,
2000. The 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.
Contingencies
On August 13, 2000 (or August 13, 2001 at the option of the WR Holders),
the WR Holders can require the Company to purchase all or a portion of the
remaining 1,717,844 Common Shares issued to them at a price equal to $31.50 per
Common Share. Prior to such date, if the WR Holders sell all or a portion of
their Common Shares to a third party for a price less than $29.10625, then the
Company is obligated to pay to the WR Holders for each Common Share sold at such
lower price an amount equal to the difference between
18
<PAGE> 19
EQUITY OFFICE PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$29.10625 and such lower price, not to exceed $3.00 per Common Share. Any
amounts paid by the Company as a result of such sales will be recorded as a
reduction in shareholders' equity. For put options exercised on August 13, 2000,
any amounts paid up to $29.10625 per Common Share would be reflected as a
reduction in shareholders' equity and the portion of any amounts paid in excess
of $29.10625 per Common Share (not to exceed $2.39375 per Common Share up to an
aggregate of approximately $4.1 million) will be reflected as a preferred
distribution. The $4.1 million portion of the total potential payment is being
amortized by the Company on a straight-line basis over the period between August
13, 1999 and August 13, 2000. The Company will not incur any loss on this
transaction if the put option is not exercised.
In connection with the acquisition of Worldwide Plaza on October 1, 1998,
the Company issued a transferable put option on the 6,861,166 Units which is
exercisable only on the third anniversary of closing with an estimated fair
value of approximately $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.
NOTE 15 -- SUBSEQUENT EVENTS
1. In July, 2000, the Board of Trustees of the Company declared a third
quarter distribution on the Series B Preferred Shares of $0.65625 per share. The
distribution will be paid on August 15, 2000 to holders of record as of August
1, 2000.
2. On July 11, 2000, the Company acquired Two Lafayette Center, a 130,704
square foot office building in Washington, D.C., for approximately $29.0 million
in cash from an unaffiliated party.
3. In July 2000, the Company invested approximately $3.5 million in Series
C Preferred Stock of Broadband which are convertible into Broadband common
shares. The annual dividend of 8.0% per share is payable only if declared and is
not cumulative.
4. As of August 1, 2000, the Company finalized an agreement with Wilson
Investors, LLC, an entity affiliated with William Wilson and certain other
former officers and employees of Cornerstone Properties, to form Wilson/Equity
Office, LLC for the purpose of providing (directly or indirectly) development
management services and acquiring, owning, operating and holding various
projects. The Company has a 49.9% interest in this limited liability company.
5. On August 3, 2000, the Company and an unaffiliated party acquired a 45%
equity interest and a debt interest in an entity that owns 1301 Avenue of the
Americas, a 1.77 million square foot office building located in Midtown
Manhattan in New York. The Company's share of the total investment is
approximately $163.0 million. In addition, the Company and its joint venture
partner purchased options to acquire the remaining 55% equity interest over a
period of three and one-half to eight years at a value as described in the
option agreements.
6. On August 7, 2000, the Operating Partnership issued $360 million of
unsecured notes due 2010 (the "$360 Million Notes") in an offering to
institutional investors (the "$360 Million Notes Offering"). The net proceeds
after discount and offering expenses were approximately $356.2 million and will
be used to repay amounts outstanding on the Term Loan. The $360 Million Notes
bear interest at a stated rate of 8.1% per annum and have an effective annual
rate of 8.2% per annum.
7. In August 2000, the joint venture owner of One Post Office Square
refinanced the mortgage note secured by the property which matured on July 1,
2000. The principal amount of the new debt is $110 million due July 2005 and
bears interest at LIBOR plus 45 basis points. The Company purchased a 9.05%
LIBOR based interest rate cap, thereby capping the effective interest rate on
the mortgage note at 9.50% for three years. The Company assigned the cap to the
joint venture, of which the Company owns 50%, effectively capping the Company's
share of the interest expense.
19
<PAGE> 20
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 results of operations should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto contained
herein. Terms employed herein as defined terms, but without definition, shall
have the meaning set forth in the financial statements. Statements contained in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" including without limitation, the "Developments" and "Market Risks"
disclosures, which are not historical facts may be forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934 (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. Such statements are subject to certain risks
and uncertainties which could cause actual results to differ materially from
those projected or anticipated. Readers are cautioned not to place undue
reliance on these forward-looking statements which speak only as of June 30,
2000. Among the factors about which the Company has made assumptions are the
following:
- The Company's ability to successfully integrate Cornerstone's operations
into those of the Company;
- Future economic conditions which may impact upon the demand for office
space and tenant ability to pay rent, either at current or increased
levels;
- Prevailing interest rates;
- The extent of any inflation on operating expenses;
- The Company's ability to reduce various expenses as a percentage of
revenues;
- The Company's continuing ability to pay amounts due to its noteholders
and preferred shareholders prior to any distribution to holders of its
Common Shares;
- The cost to complete and lease-up pending developments;
- The Company's continued access to adequate credit facilities or other
debt financing on acceptable terms; and
- The demand from the Company's customers for office-related services.
During the six months ended June 30, 2000, the Company completed the
following key transactions:
- Acquired Cornerstone Properties Inc. (see Cornerstone Merger section in
this MD&A for additional information);
- Converted its existing $1.0 billion revolving credit facility into a Term
Loan and obtained a new Line of Credit in connection with the Cornerstone
Merger;
- Sold 11 parking facilities for approximately $180.0 million;
- Sold two office properties and a development parcel for approximately
$65.2 million;
- Sold a 49.9% interest in an Office Property for approximately $209.6
million;
- Issued $500 million of unsecured notes due March 2006 with an effective
interest rate of 8.6% per annum;
- Obtained a $190 million mortgage note on Park Avenue Tower and 850 Third
Avenue;
- Invested approximately $75.0 million in convertible preferred stock of HQ
Global Workplaces, Inc., a provider of temporary office suites; and
- Invested approximately $8.0 million in preferred stock of Captivate, a
provider of video screens in elevator cabs.
20
<PAGE> 21
RESULTS OF OPERATIONS
GENERAL
The following discussion is based primarily on the Consolidated Financial
Statements of the Company as of June 30, 2000 and December 31, 1999 and for the
three and six months ended June 30, 2000 and 1999.
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 Parking Facilities.
Below is a summary of the Company's acquisition and disposition activity
since January 1, 1999. The buildings and total square feet shown include
Properties the Company owns in joint ventures with other partners and reflects
the total square footage of the Properties. Excluding the joint venture
partner's share of the square feet of these Properties, the Company effectively
owned approximately 91.4 million square feet of office space as of June 30,
2000.
<TABLE>
<CAPTION>
OFFICE PROPERTIES PARKING FACILITIES
----------------------------- ------------------
BUILDINGS TOTAL SQUARE FEET GARAGES SPACES
--------- ----------------- -------- -------
<S> <C> <C> <C> <C>
Properties owned as of:
January 1, 1999.................................... 284 75,100,727 19 18,059
Acquisitions..................................... 10 1,947,639 1 2,575
Developments placed in service................... 4 610,810 1 589
Dispositions..................................... (4) (668,796) -- --
Remeasurements................................... -- 25,230 -- 42
Reclassifications(1)............................. -- -- (1) (759)
--- ---------- --- ------
December 31, 1999.................................. 294 77,015,610 20 20,506
Developments placed in service................... 1 180,000 -- --
Dispositions..................................... (1) (247,891) -- --
Remeasurements................................... -- 20,100 -- --
--- ---------- --- ------
March 31, 2000..................................... 294 76,967,819 20 20,506
Acquisitions..................................... 82 18,896,980 -- --
Dispositions..................................... (1) (87,040) (11) (6,992)
Developments placed in service................... 6 1,504,303 -- --
Remeasurements................................... -- -- -- 730
--- ---------- --- ------
June 30, 2000 ("Total Portfolio").................. 381 97,282,062 9 14,244
=== ========== === ======
</TABLE>
---------------
(1) The 601 Tchoupitoulas garage previously was considered a stand-alone garage
and included in the number of parking facilities owned by the Company.
Effective with the second quarter of 1999, this garage is no longer
considered a stand-alone parking facility.
As a result of the acquisition and disposition of properties, the financial
data presented shows changes in revenues and expenses from period-to-period.
Therefore, the Company does not believe its period to period financial data
necessarily are comparable. The following analysis 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.
As reflected in the tables below, property revenues include rental
revenues, reimbursements from tenants for certain expenses, parking revenue and
other property operating revenues. Property operating expenses include real
estate taxes, insurance, repairs and maintenance and other property operating
expenses.
21
<PAGE> 22
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO JUNE 30, 1999
The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 270 Office Properties and
seven Parking Facilities acquired or placed in service on or prior to April 1,
1999.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE/ % INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE 2000 1999 (DECREASE) CHANGE
---------------------------------- -------- -------- ---------- ------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues................. $485,728 $477,188 $ 8,540 1.8% $443,726 $413,024 $30,702 7.4%
Fee income........................ 2,507 2,045 462 22.6 -- -- -- --
Interest/dividend income.......... 8,617 2,046 6,571 321.2 385 477 (92) (19.3)
-------- -------- ------- ----- -------- -------- ------- ------
Total revenues............ 496,852 481,279 15,573 3.2 444,111 413,501 30,610 7.4
-------- -------- ------- ----- -------- -------- ------- ------
Interest expense.................. 111,303 102,920 8,383 8.1 29,870 31,311 (1,441) (4.6)
Depreciation and amortization..... 90,651 88,169 2,482 2.8 80,507 75,753 4,754 6.3
Property operating expenses....... 165,461 163,392 2,069 1.3 152,312 140,542 11,770 8.4
Ground rent....................... 2,438 1,548 890 57.5 2,302 1,535 767 50.0
General and administrative........ 22,089 20,714 1,375 6.6 254 245 9 3.7
-------- -------- ------- ----- -------- -------- ------- ------
Total expenses............ 391,942 376,743 15,199 4.0 265,245 249,386 15,859 6.4
-------- -------- ------- ----- -------- -------- ------- ------
Income before allocation to
minority interests, income from
investment in unconsolidated
joint ventures, net gain on
sales of real estate and
extraordinary items............. 104,910 104,536 374 0.4 178,866 164,115 14,751 9.0
Minority interests................ (18,785) (10,484) (8,301) 79.2 (418) (391) (27) 6.9
Income from investment in
unconsolidated joint ventures... 13,389 3,215 10,174 316.5 3,647 2,945 702 23.8
Net gain on sales of real
estate.......................... 36,998 8,085 28,913 357.6 -- -- -- --
Extraordinary items............... (264) (7,135) 6,871 (96.3) -- (7,135) 7,135 (100.0)
-------- -------- ------- ----- -------- -------- ------- ------
Net income........................ $136,248 $ 98,217 $38,031 38.7% $182,095 $159,534 $22,561 14.1%
======== ======== ======= ===== ======== ======== ======= ======
Property revenues less property
operating expenses before
depreciation and amortization,
general and administrative,
ground rent and interest
expense......................... $320,267 $313,796 $ 6,471 2.1% $291,414 $272,482 $18,932 6.9%
======== ======== ======= ===== ======== ======== ======= ======
Straight-line rent adjustment..... $ 15,525 $ 15,233 $ 292 1.9% $ 13,594 $ 14,142 $ (548) (3.9)%
======== ======== ======= ===== ======== ======== ======= ======
Lease termination fees............ $ 5,045 $ 3,126 $ 1,919 61.4% $ 4,596 $ 1,149 $ 3,447 300.0%
======== ======== ======= ===== ======== ======== ======= ======
</TABLE>
Property Revenues
The increase in property revenues in the Core Portfolio resulted from an
increase in rental rates and an increase in occupancy. The weighted average
occupancy of the Core Portfolio increased from 94.2% at April 1, 1999 to 94.8%
at June 30, 2000. This increase represents approximately 0.7 million square feet
in the Core Portfolio between April 1, 1999 and June 30, 2000. Included in
Property Revenues are lease termination fees. These fees relate to specific
tenants who have paid a fee to terminate their lease obligations before the end
of the contractual term of their lease. Although the Company has received these
fees in the past, a prediction of the timing or amounts of future fees cannot be
made.
Interest/Dividend Income
Total Portfolio interest/dividend income increased as a result of the
Company's $73.9 million investment in a Tranche B note as part of the Sun
America Center debt restructuring in September 1999. The Company's share of the
face amount of the Tranche B note is approximately $136.0 million and the note
matures on August 31, 2014. The note accrues interest at a stated rate of 7.25%
per annum. The Company also earned dividend revenue from its $75 million
investment in Series A Convertible Preferred Stock of HG Global Workplaces, Inc.
in May 2000 which has an initial dividend rate of 13.5% per annum and increases
by 50 basis
22
<PAGE> 23
points each year through maturity in 2007. The Company also earned interest
income from property disposition proceeds held in escrow accounts. The amounts
in escrow will be utilized for property acquisitions or returned to the Company.
Interest Expense
Total Portfolio interest expense increased from the prior period as a
result of having a higher average outstanding debt balance as compared to the
prior period and an increase in the weighted average interest rate. In addition,
the following statistics for each period for the Total Portfolio are as follows:
- Total debt to total assets increased to 46.1% from 42.2%;
- Interest coverage ratio remained stable at 2.9 times; and
- Weighted average interest rate increased to 7.5% from 7.0%.
Core Portfolio interest expense decreased from the prior period due to the
paydown of mortgage debt on certain Properties. Interest expense on the
unsecured notes and the lines of credit is not reflected in the Core Portfolio.
Depreciation and Amortization
Total Portfolio depreciation and amortization expense increased from the
prior period as a result of Properties acquired and capital and tenant
improvements made during the periods. Core Portfolio depreciation and
amortization expense increased as a result of capital and tenant improvements.
Property Operating Expenses
Core Portfolio property operating expenses increased mainly as a result of
real estate taxes and other operating expenses. Real estate taxes increased
approximately $3.7 million due to higher property tax assessments and other
operating expenses increased approximately $8.1 million primarily due to higher
repairs and maintenance costs and general property operating expenses.
General and Administrative Expenses
General and administrative expenses increased due to an increase in the
number of employees at the corporate office as a result of the establishment of
new revenue-producing business groups such as Access and the hiring of
additional personnel in other corporate groups, primarily the information
technology group. Although general and administrative expenses are expected to
increase along with any increase in the size of the Company's portfolio, it is
also anticipated that the Company will realize economies of scale with future
growth, should it occur.
Income from Investment in Unconsolidated Joint Ventures
Income from investment in unconsolidated joint ventures increased for the
Total Portfolio due to the partial sale of twelve Office Properties in December
1999 and one Office Property in June 2000. The Company retained an equity
interest in these Office Properties and accounts for its remaining interest
under the equity method of accounting. Prior to the sale, the Company
consolidated the results of operations of such Office Properties.
23
<PAGE> 24
Comparison of the six months ended June 30, 2000 to June 30, 1999
The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 267 Office Properties and
seven Parking Facilities acquired or placed in service on or prior to January 1,
1999.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
----------------------------------------- -----------------------------------------
INCREASE/ % INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE 2000 1999 (DECREASE) CHANGE
----------------------------- -------- -------- ---------- ------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues............ $946,664 $947,419 $ (755) (.1)% $863,949 $808,441 $55,508 6.9%
Fee income................... 4,742 3,907 835 21.4 -- -- -- --
Interest/dividend income..... 14,321 5,087 9,234 181.5 803 1,043 (240) (23.0)
-------- -------- -------- ----- -------- -------- ------- -----
Total revenues....... 965,727 956,413 9,314 1.0 864,752 809,484 55,268 6.8
-------- -------- -------- ----- -------- -------- ------- -----
Interest expense............. 211,835 207,400 4,435 2.1 60,284 68,395 (8,111) (11.9)
Depreciation and
amortization............... 180,303 174,728 5,575 3.2 160,893 148,514 12,379 8.3
Property operating
expenses................... 320,798 327,107 (6,309) (1.9) 294,894 277,188 17,706 6.4
Ground rent.................. 4,462 3,394 1,068 31.5 4,326 3,369 957 28.4
General and administrative... 41,740 38,964 2,776 7.1 235 405 (170) (42.0)
-------- -------- -------- ----- -------- -------- ------- -----
Total expenses....... 759,138 751,593 7,545 1.0 520,632 497,871 22,761 4.6
-------- -------- -------- ----- -------- -------- ------- -----
Income before allocation to
minority interests, income
from investment in
unconsolidated joint
ventures, net gains of
sales of real estate and
extraordinary items........ 206,589 204,820 1,769 0.9 344,120 311,613 32,507 10.4
Minority interests........... (31,754) (19,699) (12,055) 61.2 (855) (696) (159) 22.8
Income from investment in
unconsolidated joint
ventures................... 24,763 5,050 19,713 390.4 6,210 5,104 1,106 21.7
Net gain on sales of real
estate..................... 40,860 8,085 32,775 405.4 -- -- -- --
Extraordinary items.......... (875) (10,318) 9,443 (91.5) (611) (9,527) 8,916 (93.6)
-------- -------- -------- ----- -------- -------- ------- -----
Net income................... $239,583 $187,938 $ 51,645 27.5% $348,864 $306,494 $42,370 13.8%
======== ======== ======== ===== ======== ======== ======= =====
Property revenues less
property operating expenses
before depreciation and
amortization, general and
administrative, ground rent
and interest expense....... $625,866 $620,312 $ 5,554 0.9% $569,055 $531,253 $37,802 7.1%
======== ======== ======== ===== ======== ======== ======= =====
Straight-line rent
adjustment................. $ 28,232 $ 31,773 $ (3,541) (11.1)% $ 25,507 $ 29,542 $(4,035) (13.7)%
======== ======== ======== ===== ======== ======== ======= =====
Lease termination fees....... $ 12,273 $ 5,256 $ 7,017 133.5% $ 11,719 $ 2,342 $ 9,377 400.4%
======== ======== ======== ===== ======== ======== ======= =====
</TABLE>
Property Revenues
The increase in property revenues in the Core Portfolio resulted from an
increase in rental rates partially offset by a decrease in occupancy. The
weighted average occupancy of the Core Portfolio decreased from 95.3% at January
1, 1999 to 94.8% at June 30, 2000. Included in Property Revenues are lease
termination fees. These fees relate to specific tenants who have paid a fee to
terminate their lease obligations before the end of the contractual term of
their lease. Although the Company has received these fees in the past, a
prediction of the timing or amounts of future fees cannot be made.
Interest/Dividend Income
Total Portfolio interest/dividend income increased as a result of the
Company's $73.9 million investment in a Tranche B note as part of the Sun
America Center debt restructuring in September 1999. The Company's share of the
face amount of the Tranche B note is approximately $136.0 million and the note
matures on August 31, 2014. The note accrues interest at a stated rate of 7.25%
per annum. The Company also earned dividend revenue from its $75 million
investment in Series A Convertible Preferred Stock of HG Global Workplaces, Inc.
in May 2000 which has an initial dividend rate of 13.5% per annum and increases
by 50 basis
24
<PAGE> 25
points each year through maturity in 2007. The Company also earned interest
income from property disposition proceeds held in escrow accounts. The amounts
in escrow will be utilized for property acquisitions or returned to the Company.
Interest Expense
Total Portfolio interest expense increased from the prior period as a
result of having a higher average outstanding debt balance as compared to the
prior period and an increase in the weighted average interest rate. In addition,
the following statistics for each period for the Total Portfolio are as follows:
- Total debt to total assets increased to 46.1% from 42.2%;
- Interest coverage ratio remained stable at 2.9 times; and
- Weighted average interest rate increased to 7.5% from 7.0%.
Core Portfolio interest expense decreased from the prior period due to the
paydown of mortgage debt on certain Properties. Interest expense on the
unsecured notes and the lines of credit is not reflected in the Core Portfolio.
Depreciation and Amortization
Total Portfolio depreciation and amortization expense increased from the
prior period as a result of Properties acquired and capital and tenant
improvements made during the periods. Core portfolio depreciation and
amortization expense increased as a result of capital and tenant improvements.
Property Operating Expenses
Core Portfolio property operating expenses increased mainly as a result of
real estate taxes and other operating expenses. Real estate taxes increased
approximately $7.3 million due to higher property tax assessments, repairs and
maintenance expense increased approximately $5.1 million and other operating
expenses increased $5.3 million including a one time charge related to a change
in the employee benefit program.
General and Administrative Expenses
General and administrative expenses increased due to an increase in the
number of employees at the corporate office as a result of the establishment of
new revenue-producing business groups such as Access and the hiring of
additional personnel in other corporate groups, primarily the information
technology group. Although general and administrative expenses are expected to
increase along with any increase in the size of the Company's portfolio, it is
also anticipated that the Company will realize economies of scale with future
growth, should it occur.
Income from Investment in Unconsolidated Joint Ventures
Income from investment in unconsolidated joint ventures increased for the
Total Portfolio due to the partial sale of twelve Office Properties in December
1999 and one Office Property in June 2000. The Company retained an equity
interest in these Office Properties and accounts for its remaining interest
under the equity method of accounting. Prior to the sale, the Company
consolidated the results of operations of such Office Properties.
25
<PAGE> 26
PARKING OPERATIONS
The Total Portfolio and Core Portfolio selected operating information for
the three and six months ended June 30, 2000 and 1999 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 JUNE 30, 2000 TO JUNE 30, 1999
The table below represents selected operating information for the Parking
Facilities included in the Total Portfolio and the Core Portfolio consisting of
seven Parking Facilities acquired prior to April 1, 1999.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
---------------------------------------- -------------------------------------
INCREASE/ % INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE 2000 1999 (DECREASE) CHANGE
---------------------- ------- ------ ---------- -------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues.................. $ 7,682 $8,972 $(1,290) (14.4)% $4,151 $3,505 $646 18.4%
Interest/dividend income........... 1,227 93 1,134 1,219.4 -- 38 (38) (100.0)
------- ------ ------- -------- ------ ------ ---- ------
Total revenues............. 8,909 9,065 (156) (1.7) $4,151 3,543 608 17.2
------- ------ ------- -------- ------ ------ ---- ------
Interest expense................... 675 748 (73) (9.8) 611 619 (8) (1.3)
Depreciation and amortization...... 738 1,910 (1,172) (61.3) 643 605 38 6.3
Property operating expenses........ 2,589 2,055 534 26.0 1,087 999 88 8.8
Ground rent........................ 6 12 (6) (50.0) -- -- -- --
General and administrative......... 23 149 (126) (84.6) -- -- -- --
------- ------ ------- -------- ------ ------ ---- ------
Total expenses............. 4,031 4,874 (843) (17.3) 2,341 2,223 118 5.3
------- ------ ------- -------- ------ ------ ---- ------
Income before allocation to
minority interests, income from
investment in unconsolidated
joint ventures and net gain from
sales of real estate and
extraordinary items.............. 4,878 4,191 687 16.4 1,810 1,320 490 37.1
Minority interests................. (1,342) 42 (1,384) (3,295.2) -- -- -- --
Income from investment in
unconsolidated joint ventures.... 440 359 81 22.6 440 359 81 22.6
Net gain on sales of real estate
and extraordinary items.......... 23,257 -- 23,257 -- -- -- -- --
------- ------ ------- -------- ------ ------ ---- ------
Net income......................... $27,233 $4,592 $22,641 493.1% $2,250 $1,679 $571 34.0%
======= ====== ======= ======== ====== ====== ==== ======
Property revenues less property
operating expenses before
depreciation and amortization,
general and administrative,
ground rent and interest
expense.......................... $ 5,093 $6,917 $(1,824) (26.4)% $3,064 $2,506 $558 22.3%
======= ====== ======= ======== ====== ====== ==== ======
</TABLE>
26
<PAGE> 27
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO JUNE 30, 1999
The table below represents selected operating information for the Parking
Facilities included in the Total Portfolio and the Core Portfolio consisting of
seven Parking Facilities acquired prior to January 1, 1999.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
---------------------------------------- -------------------------------------
INCREASE/ % INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE 2000 1999 (DECREASE) CHANGE
---------------------------------------- ------- ------- ---------- ------- ------ ------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues....................... $17,626 $17,747 $ (121) (0.7)% $8,147 $7,277 $870 12.0%
Interest/dividend income................ 1,335 96 1,239 1,290.6 -- 38 (38) (100.0)
------- ------- ------- ------- ------ ------ ---- ------
Total revenues.................. 18,961 17,843 1,118 6.3 8,147 7,315 832 11.4
------- ------- ------- ------- ------ ------ ---- ------
Interest expense........................ 1,415 1,676 (261) (15.6) 1,224 1,233 (9) (0.7)
Depreciation and amortization........... 2,489 3,293 (804) (24.4) 1,287 1,210 77 6.4
Property operating expenses............. 5,280 4,020 1,260 31.3 2,184 1,941 243 12.5
Ground rent............................. 19 25 (6) (24.0) -- -- -- --
General and administrative.............. 24 125 (101) (80.8) -- -- -- --
------- ------- ------- ------- ------ ------ ---- ------
Total expenses.................. 9,227 9,139 88 1.0 4,695 4,384 311 7.1
------- ------- ------- ------- ------ ------ ---- ------
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures and net
gain from sales of real estate and
extraordinary items................... 9,734 8,704 1,030 11.8 3,452 2,931 521 17.8
Minority interests...................... (1,457) (193) (1,264) 654.9 -- -- -- --
Income from investment in unconsolidated
joint ventures........................ 794 768 26 3.4 794 768 26 3.4
Net gain from sales of real estate and
extraordinary items................... 23,257 -- 23,257 -- -- -- -- --
------- ------- ------- ------- ------ ------ ---- ------
Net income.............................. $32,328 $ 9,279 $23,049 248.4% $4,246 $3,699 $547 14.8%
======= ======= ======= ======= ====== ====== ==== ======
Property revenues less property
operating expenses before depreciation
and amortization, general and
administrative, ground rent and
interest expense...................... $12,346 $13,727 $(1,381) (10.1)% $5,963 $5,336 $627 11.8%
======= ======= ======= ======= ====== ====== ==== ======
</TABLE>
27
<PAGE> 28
PROPERTY DISPOSITIONS
The Company has disposed or partially disposed of the following properties
since January 1, 1999:
<TABLE>
<CAPTION>
YEAR PROPERTY
---- ------------------------------------------------------------
<S> <C> <C>
2000 Sarasota City Center Boston Harbor
Media Center Capital Commons
1111 Sansom St. Forbes and Allies
15th & Sansom St. Juniper/Locust
1602-34 Chancellor Milwaukee Center
1616 Sansom St. Riverfront/Stanwix
Bank of America (1) Park Plaza
1999 Atrium Towers SunTrust Center (1)
5100 Brookline Promenade II (1)
215 Fremont Street Pasadena Towers (1)
One Columbus Preston Commons (1)
10&30 South Wacker (1) Sterling Plaza (1)
Bank One Center (1)
</TABLE>
After the Company sold the above properties, the Company continued as the
property manager for several of the properties. Below is a summary of the
results of operations of these properties through their respective disposition
dates:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 2000 ENDED JUNE 30,
------------------------ ------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
-------------------------------------------------- -------------- ------- ------- --------
<S> <C> <C> <C> <C>
Property revenues................................. $11,720 $63,857 $29,070 $123,989
Interest income................................... 6 22 17 90
------- ------- ------- --------
Total revenues.......................... 11,726 63,879 29,087 124,079
------- ------- ------- --------
Interest expense.................................. 65 2,922 192 6,194
Depreciation and amortization..................... 1,737 10,591 5,347 20,941
Property operating expenses....................... 3,133 20,777 7,840 41,986
General and administrative........................ 25 192 152 169
------- ------- ------- --------
Total expenses.......................... 4,960 34,482 13,531 69,290
------- ------- ------- --------
Income before allocation to minority interests,
net gain on sales of real estate and
extraordinary items............................. 6,766 29,397 15,556 54,789
Minority interest -- partially owned properties... (1,342) 39 (1,457) (202)
Gain on sales of real estate and extraordinary
items........................................... 36,735 8,085 40,596 7,294
------- ------- ------- --------
Net income........................................ $42,159 $37,521 $54,695 $ 61,881
======= ======= ======= ========
Property revenues less property operating expenses
before depreciation and amortization, general
and administrative and interest expense......... $ 8,587 $43,080 $21,230 $ 82,003
======= ======= ======= ========
</TABLE>
-------------------------
(1) These Office Properties were partially sold. The Company accounts for its
remaining interest in these Office Properties under the equity method of
accounting.
28
<PAGE> 29
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. In order to qualify as a REIT for
federal income tax purposes, the Company must distribute at least 95% of its
REIT taxable income (excluding capital gains). Accordingly, the Company
currently intends to continue to make, but has not contractually bound itself to
make, regular quarterly distributions to holders of Common Shares/Units and
preferred shares. Subject to the foregoing, the Company has established annual
distribution rates as follows:
- $1.68 per annum per Common Share/Unit;
- 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
- 8.625% per annum ($2.15625 per share) for each Series C Preferred Share.
The Company intends to continue to fund distributions, debt service,
recurring capital costs and non-revenue enhancing tenant improvements from cash
from operations and borrowings under its credit facilities. The Company also
expects that its unsecured credit facilities will provide for temporary working
capital, the funding of capital improvements and revenue enhancing tenant
improvements, unanticipated cash needs and funding of acquisitions and
development costs.
Since 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, the Company will be required to repay maturing debt with funds from
debt and/or equity financing. There can be no assurance that such financing will
be available on acceptable terms.
Debt Financing
The table below summarizes the mortgage debt, unsecured notes and lines of
credit indebtedness outstanding at June 30, 2000 and December 31, 1999,
including a net unamortized (discount)/premium on mortgage debt of $(20,383) and
$10,574, respectively, and a net unamortized (discount)/premium on unsecured
notes of $(508) and $47, respectively, recorded in connection with property
acquisitions, mergers and the issuance of unsecured notes.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) JUNE 30, 2000 DECEMBER 31, 1999
------------------------------------------------------------ ------------- -----------------
<S> <C> <C>
DEBT SUMMARY:
BALANCE
Fixed rate................................................ $7,006,020 $5,272,608
Variable rate............................................. 1,587,148 579,310
---------- ----------
Total.................................................. $8,593,168 $5,851,918
========== ==========
PERCENT OF TOTAL DEBT:
Fixed rate................................................ 81.5% 90.1%
Variable rate............................................. 18.5% 9.9%
---------- ----------
Total.................................................. 100.0% 100.0%
========== ==========
EFFECTIVE INTEREST RATE AT END OF PERIOD:
Fixed rate................................................ 7.4% 7.1%
Variable rate............................................. 7.7% 7.4%
---------- ----------
Effective interest rate................................ 7.5% 7.2%
========== ==========
</TABLE>
A majority of the variable rate debt shown above bears interest at an
interest rate based on various spreads over LIBOR.
29
<PAGE> 30
MORTGAGE FINANCING
As of June 30, 2000, the Company's total mortgage debt (excluding the
Company's share of unconsolidated debt of approximately $351.8 million)
consisted of approximately $2.9 billion of fixed-rate debt with a weighted
average interest rate of approximately 7.8% and $135.1 million of variable rate
debt based on various spreads over LIBOR or the prime rate. The Company's
mortgage debt at June 30, 2000 will mature as follows:
<TABLE>
<CAPTION>
Dollars in thousands
-------------------------------------------------------------------------
<S> <C>
2000........................................................ $ 85,055
2001........................................................ 262,729
2002........................................................ 130,485
2003........................................................ 200,001
2004........................................................ 325,493
Thereafter.................................................. 2,003,296
----------
Subtotal.................................................... 3,007,059
Net discount (net of accumulated amortization of $2.0
million).................................................. (20,383)
----------
Total............................................. $2,986,676
==========
</TABLE>
The instruments encumbering the Properties restrict transfer of the
respective Properties subject to the terms of the mortgage, prohibit additional
liens and require payment of real estate taxes on the Properties, maintenance of
the Properties in good condition, maintenance of insurance on the Properties and
obtaining lender consent to material tenant leases..
CREDIT FACILITIES
The cash portion of the Cornerstone Merger of approximately $1.2 billion
was partially funded from the $1.0 Billion Credit Facility and a new revolving
credit facility. Concurrently with the merger, the Company fully borrowed $1.0
billion under the $1.0 Billion Credit Facility and amended the facility into a
term loan (the "Term Loan"). The Term Loan bears interest at LIBOR plus 80 basis
points and matures on May 29, 2001. If the Company obtains net proceeds from the
disposition of a Property (excluding proceeds from a tax-deferred property
disposition), the issuance of unsecured notes or the issuance of Common
Shares/Units the net proceeds must be used to repay any amounts outstanding
under the Term Loan up to the then current unpaid balance of the Term Loan.
The remaining cash consideration of the Cornerstone Merger was funded from
a new $1.0 billion revolving credit facility obtained at the time of the merger
(the "Line of Credit"). The Line of Credit bears interest at LIBOR plus 60 basis
points and matures on June 19, 2003. There is also a facility fee of $2.0
million per annum on the Line of Credit payable quarterly. In addition, the
Company assumed interest rate protection agreements in the notional amount of
$250 million effectively converting a portion of the Line of Credit to a
fixed-blended interest rate of 4.6%. The interest rate protection agreements
terminate in December 2000 and January 2001.
On April 10, 2000, the Company repaid the Chase Term Loan in the amount of
$100 million with proceeds from the $1.0 Billion Credit Facility.
30
<PAGE> 31
UNSECURED NOTES
The table below summarizes the Company's unsecured notes as of August 7,
2000:
<TABLE>
<CAPTION>
TRANCHE AMOUNT STATED RATE EFFECTIVE RATE(1)
------- ----------- ----------- -----------------
(Dollars in
thousands)
<S> <C> <C> <C>
3 Year Notes due 2002.......................... $ 200,000 6.4% 6.6%
4 Year MOPPRS due 2002(2)...................... 250,000 6.4% 6.3%
5 Year Notes due 2003.......................... 300,000 6.4% 6.8%
5 Year Notes due 2004.......................... 300,000 6.5% 6.7%
6 Year Notes due 2004.......................... 250,000 6.5% 6.7%
7 Year Notes due 2004.......................... 30,000 7.2% 7.3%
7 Year Notes due 2005.......................... 400,000 6.6% 7.0%
8 Year Notes due 2005.......................... 50,000 7.4% 7.7%
6 Year Notes due 2006(3)....................... 500,000 8.4% 8.6%
9 Year Notes due 2006.......................... 50,000 7.4% 7.7%
9 Year Notes due 2007.......................... 300,000 6.8% 6.8%
10 Year Notes due 2007......................... 50,000 7.4% 7.7%
10 Year Notes due 2008......................... 300,000 6.8% 7.0%
10 Year Notes due 2009......................... 500,000 6.8% 6.9%
10 Year Notes due 2010(4)...................... 360,000 8.1% 8.2%
20 Year Notes due 2018......................... 250,000 7.3% 7.6%
30 Year Notes due 2028......................... 225,000 7.3% 7.3%
30 Year Notes due 2029......................... 200,000 7.5% 7.6%
---------- --- ---
Subtotal............................. $4,515,000 7.1% 7.2%
=== ===
Net discount (net of accumulated
amortization)...................... (1,275)
----------
Total................................ $4,513,725
==========
</TABLE>
---------------
(1) Includes the cost of terminated interest rate protection agreements,
offering and transaction costs and premiums and discounts on certain
unsecured notes.
(2) The MOPPRS are subject to mandatory redemption in 2002 but do not mature
until 2012.
(3) On March 21, 2000 the Operating Partnership issued the $500 Million Notes
due March 15, 2006. The net proceeds after discount, offering expenses and a
terminated treasury lock agreement were approximately $493.5 million and
were used to repay amounts outstanding on the $1.0 Billion Credit Facility.
(4) On August 7, 2000, the Operating Partnership issued $360 Million Notes due
August 1, 2010. The net proceeds after discount and offering expenses were
approximately $356.2 million and will be used to repay amounts outstanding
on the Term Loan.
The Company previously filed a shelf 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 Company issued $2.0 billion of unsecured notes under
this registration statement. In August 2000, the Company registered an
additional $60 million of unsecured debt securities in connection with the $360
Million Notes Offering.
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.
31
<PAGE> 32
EQUITY SECURITIES
A summary of the activity of the Company's Common Shares and Units during
the three months ended June 30, 2000, is as follows:
<TABLE>
<CAPTION>
COMMON SHARES UNITS TOTAL
------------- ---------- -----------
<S> <C> <C> <C>
Balance at March 31, 2000............................ 248,329,132 33,163,406 281,492,538
Issued in the Cornerstone Merger................... 51,274,811 12,398,805 63,673,616
Units redeemed for Common Shares................... 392,083 (392,083) --
Restricted Shares issued/cancelled, net............ 16,100 -- 16,100
Share options exercised............................ 1,120,155 -- 1,120,155
----------- ---------- -----------
Balance at June 30, 2000............................. 301,132,281 45,170,128 346,302,409
=========== ========== ===========
</TABLE>
INVESTMENTS IN SECURITIES
The Company owns equity interests in several companies that provide
communication and other services to tenants or amenities. The equity interests
are in the form of common stock and vested and unvested warrants to acquire
common stock. Below is a summary of these investments as of June 30, 2000:
<TABLE>
<CAPTION>
SQUARE FEET CAPITAL SHARES MARKET
COMPANY (IN MILLIONS) SYMBOL INVESTMENT RECEIVED WARRANTS RECEIVED VALUE
------- ------------- -------------- ---------- --------- ----------------- ----------
(Dollars (Dollars
in in
thousands) thousands)
<S> <C> <C> <C> <C> <C> <C>
Allied Riser
Corporation........... 97 ARCC $ 3,438 861,720 1,731,875 $36,683
Broadband Office........ 59 Privately Held -- 2,437,885 -- 1,460
Captivate............... 73 Privately Held 9,705 2,253,835 2,373,798 19,974
OnSite (a).............. 22 Privately Held -- -- -- --
Cypress................. 17 CYCO 7,858 828,947 794,280 8,417
------- --------- --------- -------
Total......... $21,001 6,382,387 4,899,953 $66,534
======= ========= ========= =======
</TABLE>
---------------
(a) The Company entered into an agreement with OnSite Access, Inc. ("OnSite"),
a facilities based provider of broadband data, video and voice
communications services, delivered over fiber optic networks designed,
constructed and owned by OnSite in large- and medium-sized office
buildings. OnSite will provide its services to tenants in certain Office
Properties. In return for access to the Office Properties, OnSite is
obligated to grant the Company warrants to acquire common shares of OnSite
for $2.36 per share.
32
<PAGE> 33
CORNERSTONE MERGER
On June 19, 2000, the Company, the Operating Partnership, Cornerstone
Properties Inc. ("Cornerstone") and Cornerstone Properties Limited Partnership
("Cornerstone Partnership") consummated the merger of Cornerstone with and into
the Company and Cornerstone Partnership with and into the Operating Partnership
(the "Cornerstone Merger") at a cost of approximately $4.5 billion. The purchase
price consisted of:
(i) the Company's issuance of approximately 51.3 million Common Shares
valued at $24.68 per share and the issuance of stock options for a total of
approximately $1,271.3 million;
(ii) the Operating Partnership's issuance of approximately 12.4
million Units to third parties valued at $24.68 per Unit for a total of
approximately $306.0 million;
(iii) the cash redemption of approximately 58.6 million Cornerstone
common shares valued at $18.00 per share for a total of approximately
$1,053.9 million;
(iv) the cash redemption of approximately 3.0 million Cornerstone
preferred shares valued at $18.00 per share for a total of approximately
$57.6 million, plus accrued but unpaid dividends;
(v) the assumption of approximately $1,304.9 million of secured debt
and $415.5 million of unsecured debt;
(vi) the payment of merger costs of approximately $72.1 million; and
(vii) the assumption of net liabilities of approximately $9.6 million.
The cash portion of the Cornerstone Merger of approximately $1.2 billion
was partially funded from the $1.0 Billion Credit Facility and a new revolving
credit facility. See Credit Facilities above for further disclosure.
MARKET RISK
Since December 31, 1999, there have been no material changes in the
information regarding market risk that was provided in the Company's Form 10-K
for the year ended December 31, 1999.
CAPITAL IMPROVEMENTS
The following capital improvements, tenant improvements and leasing
commission information excludes the properties acquired in the Cornerstone
Merger since the merger date was June 19, 2000.
The Company considers capital improvements and revenue enhancing tenant
improvements when a property is acquired in determining the amount of equity and
debt financing required to purchase the property and fund the improvements.
Therefore, capital improvements made in the year of acquisition and the
following two years, 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 six months ended June 30, 2000 were
approximately $17.8 million or $0.23 per square foot. These amounts exclude
capital and tenant improvements of approximately $48.7 million for developments.
The Company considers capital expenditures to be recurring expenditures
relating to the ongoing maintenance of the Office Properties. The table below
summarizes capital expenditures for the six months ended June 30, 2000. The
capital expenditures set forth below are not necessarily indicative of future
capital expenditures.
<TABLE>
<S> <C>
Number of Office Properties................................. 300
Rentable square feet (in millions).......................... 78.5
Capital expenditures per square foot........................ $0.10
</TABLE>
33
<PAGE> 34
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 six months ended June 30, 2000. 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 improvements and leasing commission costs:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
(DOLLARS IN THOUSANDS) JUNE 30, 2000(1)
------------------------------------------------------------ ------------------------
<S> <C>
Number of Office Properties................................. 300
Rentable square feet (in millions).......................... 78.5
Revenue enhancing tenant improvements and leasing
commissions:
Amounts (in thousands).................................... $34,529
Per square foot improved.................................. $ 34.91
Per total square foot (annualized)........................ $ 0.88
Non-revenue enhancing tenant improvements and leasing
commissions:
Renewal space:
Amounts (in thousands).................................... $19,296
Per square foot improved.................................. $ 6.18
Per total square foot (annualized)........................ $ 0.49
Retenanted space:
Amounts (in thousands).................................... $42,410
Per square foot improved.................................. $ 13.32
Per total square foot (annualized)........................ $ 1.08
-------
Total non-revenue enhancing (in thousands).................. $61,706
Per square foot improved.................................... $ 9.78
Per total square foot (annualized).......................... $ 1.57
</TABLE>
---------------
(1) The per square foot calculations as of June 30, 2000 are calculated taking
the total dollars anticipated to be incurred on tenant improvements for
tenants taking occupancy during the six months ended June 30, 2000, divided
by the total square footage being improved or total building square footage.
The actual amounts incurred as of June 30, 2000 for revenue enhancing,
non-revenue enhancing renewal and retenanted space are summarized below:
<TABLE>
<CAPTION>
(Dollars in millions)
--------------------------------------------------------------------
<S> <C>
Revenue enhancing........................................... $16.9
Non-revenue enhancing renewal............................... $ 7.1
Non-revenue enhancing retenanted............................ $36.8
</TABLE>
34
<PAGE> 35
DEVELOPMENTS
The Company currently owns several Properties in various stages of
development or pre-development. The Company funds these developments with
proceeds from working capital and the line of credit. Specifically identifiable
direct 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. The Properties under development as of June 30, 2000 are as follows:
<TABLE>
<CAPTION>
TOTAL
ESTIMATED PLACED PERCENT ESTIMATED
PROPERTY LOCATION IN SERVICE DATE(A) LEASED SQUARE FEET COSTS INCURRED COSTS(A)
-------- ---------------- ------------------ ------- ----------- -------------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED
Seaport Plaza............... Redwood City, CA 4Q/2000 100% 160,000 $26,957 $ 41,300
Parkside Towers............. Foster City, CA 4Q/2001 96% 398,000 44,406 131,400
--- --------- ------- --------
97% 558,000 71,363 172,700
--- --------- ------- --------
TAKE-OUT PROJECT
World Trade Center (b)...... Seattle, WA 3Q/2000 100% 186,787 171 39,000
--- --------- ------- --------
OTHER DEVELOPMENTS(C)
San Francisco,
First and Howard............ CA 1Q/02-1Q/03 0% 1,260,000 6,334 424,000
Concar...................... San Mateo, CA 3Q/2002 0% 200,000 4,089 69,000
San Francisco,
Ferry Building.............. CA 3Q/2002 0% 225,000 4,645 84,000
Larkspur Landing............ Larkspur, CA 3Q/2003 0% 168,000 590 45,000
--- --------- ------- --------
0% 1,853,000 15,658 622,000
--- --------- ------- --------
Grand Total/Weighted Average 28% 2,597,787 $87,192 $833,700
=== ========= ======= ========
</TABLE>
---------------
(a) The Estimated Placed in Service Date represents the date the certificate of
occupancy has been or is anticipated to be obtained. Subsequent to obtaining
the certificate of occupancy, the property will undergo a lease-up period.
The Total Estimated Costs include amounts attributable to tenanting the
Property. These numbers are estimates and may be subject to change upon
completion of the development.
(b) The Company expects to acquire this property in August 2000. This
transaction is contingent upon certain terms and conditions as set forth in
its purchase agreement. There can be no assurance that this transaction will
be consummated.
(c) These joint ventures were acquired in the Cornerstone Merger and are in
various stages of development or pre-development. The Company is currently
evaluating these developments including the participation of additional
joint venture partners and potential construction financing. With the
exception of First and Howard (which is subject to certain third party
conditions not under control of the Company), the Company's Board of
Trustees has not yet approved these developments. The Total Estimated Costs
(which represent 100% of the total development cost) shown are preliminary
and, along with the Estimated Placed in Service Date, are subject to
numerous factors over which the Company may have little or no control. There
can be no assurance that these developments will be commenced or completed.
In addition to the properties described above, the Company owns various
land parcels available for development. However, no significant development
activity is taking place on these sites at this time.
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.
35
<PAGE> 36
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 Funds from
Operations for the three and six months ended June 30, 2000 and 1999 on an
historical basis:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------
(DOLLARS IN THOUSANDS) 2000 1999
------------------------------------------------------------ --------- ---------
<S> <C> <C>
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, net gain on
sales of real estate and extraordinary items.............. $ 104,910 $ 104,536
Add back (deduct):
(Income) allocated to minority interests for partially
owned properties (excluding allocation of gain on sale
of real estate)........................................ (458) (353)
Income from investments in unconsolidated joint
ventures............................................... 13,389 3,215
Depreciation and amortization (real estate related)....... 97,298 90,143
Put option settlement..................................... (1,031) --
Preferred distributions................................... (10,883) (10,907)
--------- ---------
Funds from Operations(1).................................... 203,225 186,634
Less deferred rental revenue.............................. (15,525) (15,233)
Plus deferred rental expense.............................. 615 463
--------- ---------
Adjusted Funds from Operations.............................. $ 188,315 $ 171,864
========= =========
Cash Flow Provided By (Used For):
Operating Activities...................................... $ 268,969 $ 237,811
Investing Activities...................................... $(927,161) $ (86,845)
Financing Activities...................................... $ 724,170 $(157,015)
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
(DOLLARS IN THOUSANDS) 2000 1999
------------------------------------------------------------ ------------ ----------
<S> <C> <C>
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, net gain on
sales of real estate and extraordinary items.............. $ 206,589 $ 204,820
Add back (deduct):
(Income) allocated to minority interests for partially
owned properties (excluding allocation of gain on sale
of real estate)........................................ (1,011) (898)
Income from investments in unconsolidated joint
ventures............................................... 24,763 5,050
Depreciation and amortization (real estate related)....... 192,084 179,231
Put option settlement..................................... (2,061) --
Preferred distributions................................... (21,580) (21,788)
----------- ---------
Funds from Operations(1).................................... 398,784 366,415
Less deferred rental revenue.............................. (28,232) (31,773)
Plus deferred rental expense.............................. 1,116 1,116
----------- ---------
Adjusted Funds from Operations.............................. $ 371,668 $ 335,758
=========== =========
Cash Flow Provided By (Used For):
Operating Activities...................................... $ 378,458 $ 340,723
Investing Activities...................................... $ (993,090) $(240,778)
Financing Activities...................................... $ 694,648 $(131,108)
</TABLE>
---------------
(1) 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. In November 1999, NAREIT issued a National Policy Bulletin
effective January 1, 2000 clarifying the definition of FFO to include all
operating results, both recurring and non-recurring, except those defined as
extraordinary under GAAP. In accordance with this NAREIT Bulletin, the
Company will no longer adjust for the amortization of discounts and premiums
on mortgages when calculating FFO. Accordingly, the Company restated the
prior period data for comparative purposes. 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.
37
<PAGE> 38
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about quantitative and qualitative disclosures about market
risk is incorporated herein by reference from the "Market Risk" discussion under
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 4, 2000, the Company held its 2000 annual meeting of shareholders.
The 2000 annual meeting was called for the following purposes: (1) to elect two
trustees of the Company to serve until the 2003 annual meeting of shareholders;
(2) to approve amendments to the Company's declaration of trust regarding voting
requirements for business combinations; (3) to approve an amendment to the
Company's bylaws regarding voting by electronic means; and (4) to transact such
other business as may properly come before the meeting or any adjournment or
postponement thereof.
The following table sets both the names of the trustees elected at the 2000
annual meeting for new three-year terms and the number of votes cast for and
withheld for each trustee:
<TABLE>
<CAPTION>
WITHHOLD
AUTHORITY
TRUSTEES FOR TO VOTE
-------- -------- ---------
<S> <C> <C>
David K. McKown............................................. 201,184,170 212,151
Sheli Z. Rosenberg.......................................... 201,114,906 281,415
</TABLE>
The names of each of the other trustees whose terms of office continued
after the 2000 annual meeting are as follows: Samuel Zell, Thomas E. Dobrowski,
Jerry M. Reinsdorf, H. Jon Runstad, Edwin N. Sidman, Timothy H. Callahan, D.J.
Andre de Bock, William M. Goodyear and James D. Harper, Jr. Mr. Runstad
subsequently resigned as a Trustee in July 2000.
The vote tabulation on the amendments to the Company's declaration of trust
regarding voting requirements for business combinations was as follows:
178,468,753 votes (71.98% of the total votes entitled to be cast) were cast for
approval of the amendments to the Company's declaration of trust, 13,779,185
votes (5.57% of the total votes entitled to be cast) were cast against such
approval, and there were 121,840 abstentions (.049 % of the total votes entitled
to be cast) and 9,026,543 broker non-votes (3.64% of the total votes entitled to
be cast).
The vote tabulation on the amendment of the Company's bylaws regarding
voting by electronic means was as follows: 201,174,856 votes (81.13% of the
total votes entitled to be cast) were cast for approval of the amendment of the
Company's bylaws, 114,087 votes ( .046% of the total votes entitled to be cast)
were cast against such approval, and there were 107,328 abstentions ( .043% of
the total votes entitled to be cast) and no broker non-votes.
On June 19, 2000, the Company held a special meeting of its common
shareholders to consider and vote on a proposal to approve (a) the agreement and
plan of merger, dated as of February 11, 2000, as amended, by and among the
Company, the Operating Partnership, Cornerstone and Cornerstone Partnership and
(b) the merger of Cornerstone with and into the Company. At the special meeting,
195,575,293 votes ( 78.72% of the total votes entitled to be cast) were cast for
approval of the merger agreement and the merger 64,548 votes (.03% of the total
votes entitled to be cast) were cast against such approval and there were
178,806 abstentions (.07% of the total votes entitled to be cast) and no broker
non-votes.
38
<PAGE> 39
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME
------- ------------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated February 11, 2000,
among the Company, the Operating Partnership, Cornerstone
and Cornerstone Partnership (incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated February 11, 2000)
2.2 -- First Amendment to Agreement and Plan of Merger, dated
May 11, 2000 by and among the Company, the Operating
Partnership, Cornerstone and Cornerstone Partnership
(incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated May 2, 2000)
3.1 -- Articles of Amendment and Restatement of Declaration of
Trust of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on
Form S-11 (Reg. No. 333-26629))
3.2 -- Articles Supplementary of the Company, dated December 15,
1997 and filed with the Maryland Department of
Assessments and Taxation on December 17, 1997
(incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended)
3.3 -- Articles Supplementary of the Company, dated February 18,
1998 and filed with the Maryland Department of
Assessments and Taxation on February 19, 1998
(incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended)
3.4 -- Articles Supplementary of the Company, dated December 1,
1998 and filed with the Maryland Department of
Assessments and Taxation on December 4, 1998
(incorporated herein by reference to Exhibit 4.3 to the
Company's Registration Statement on Form 8-A dated
December 1, 1998)
3.5 -- Articles Supplementary of the Company, dated February 28,
2000 and filed with the Maryland Department of
Assessments and Taxation on March 17, 2000 (incorporated
herein by reference to Exhibit 3.5 to the Company's Form
10-K for the year ended December 31, 1999, as amended)
3.6 -- Articles of Amendment to the Company's Declaration of
Trust relating to amendments to Sections 8.2 and 8.4
(incorporated herein by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated May 2, 2000)
3.7 -- Exhibit A to the Maryland Articles of Merger filed by the
Company on June 19, 2000 with the Maryland Department of
Assessments and Taxation setting forth amendments to the
Company's Declaration of Trust effected as part of the
merger of Cornerstone with and into the Company
(incorporated herein by reference to Exhibit 99.4 to the
Company's Current Report on Form 8-K dated June 19, 2000)
3.8 -- Amendments to Article II, Section 9, Article IV, Sections
8.1 through 8.5 and Article VII, Sections 1, 2 and 5 of
the Company's Bylaws (incorporated herein by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K
dated May 2, 2000).
3.9 -- Amended Bylaws of the Company (incorporated herein by
reference to Exhibit 99.5 to the Company's Current Report
on Form 8-K dated June 19, 2000)
10.1 -- Revolving Credit Agreement for $1,000,000,000 Revolving
Credit Facility dated as of May 12, 2000 among the
Operating Partnership and the Banks listed therein
(incorporated herein by reference to Exhibit 99.7.1 of
the Company's Current Report on form 8-K dated June 19,
2000)
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME
------- ------------
<C> <S>
10.2 -- Guaranty of Payment -- No. 1, made as of May 12, 2000,
between the Company and Bank of America, N.A.
(incorporated herein by reference to Exhibit 99.7.2 to
the Company's Current Report on Form 8-K dated June 19,
2000)
10.3 -- Guaranty of Payment -- No. 2, made as of May 12, 2000
between the Company and Bank of America, N.A.
(incorporated herein by reference to Exhibit 99.7.3 to
the Company's Current Report on Form 8-K dated June 19,
2000)
10.4 -- Third Amendment and Restated Credit Agreement for
$1,000,000,000 Credit Facility dated as of May 12, 2000
among the Operating Partnership and the Banks listed
therein (incorporated herein by reference to Exhibit
99.8.1 to the Company's Current Report on Form 8-K dated
June 19, 2000)
10.5 -- Second Amended and Restated Guaranty of Payment, made as
of May 12, 2000, between the Company and Bank of America,
N.A. (incorporated herein by reference to Exhibit 99.8.2
to the Company's Current Report on Form 8-K dated June
19, 2000)
10.6 -- Voting Agreement, dated February 11, 2000, by and among
the Company, the Operating Partnership, WCP Services,
Inc., and Stichting Pensioenfonds voor de Gezondheid,
Geestelijke en Maatschappelijke Belangen (incorporated
herein by reference to Exhibit 10.2 to the Company's
Current Report or Form 8-K dated February 11, 2000)
10.7 -- Eleventh Amendment to Agreement of the Limited
Partnership of the Operating Partnership (incorporated
herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated May 2, 2000)
10.8 -- First Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (incorporated
herein by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated May 2, 2000)
10.9 -- Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (incorporated
herein by reference to Exhibit 99.6 of the Company's
Current Report on Form 8-K dated June 19, 2000)
10.10 -- Form of indemnification agreement entered into as of June
19, 2000 with John S. Moody, Jan H.W.R. van der Vlist and
William Wilson III (incorporated herein by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, as amended)
10.11 -- Form of $360,000,000 8.10% Note due August 1, 2010 of the
Operating Partnership (incorporated by reference to
Exhibit 4.1 to the Operating Partnership's Current Report
on Form 8-K dated August 2, 2000)
27.1 -- Financial Data Schedule
</TABLE>
40
<PAGE> 41
(B) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K dated May 2, 2000 announcing
that (a) the Company, as general partner of the Operating Partnership, had
approved the Eleventh Amendment to the Agreement of Limited Partnership of the
Operating Partnership, which amended Sections 7.4, 8.5.C and 14.1B thereof, and
the First Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, which integrated the partnership agreement and the prior amendments
thereto into one document and incorporated into the partnership agreement
certain changes in applicable federal income tax laws, (b) the Company's
shareholders had approved at the 2000 annual meeting of shareholders certain
amendments to Sections 8.2 and 8.4 of the Company's declaration of trust
regarding voting requirements for business combinations and amendments to the
Company's bylaws relating to voting by electronic means, (c) the Company's board
of trustees had approved certain other bylaw amendments, which clarified the
authority of the Company to use uncertificated securities and corrected certain
section references and related matters in the bylaws, and (d) the Company, the
Operating Partnership, Cornerstone and Cornerstone Partnership had entered into
the First Amendment to the Agreement and Plan of Merger.
The Company filed a Current Report on Form 8-K dated June 19, 2000
announcing completion of the merger of Cornerstone with and into the Company and
furnishing the required historical financial statements of Cornerstone and the
required pro forma financial information relating to that transaction.
41
<PAGE> 42
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
Date: August 14, 2000 By: /s/ STANLEY M. STEVENS
-------------------------------------
Stanley M. Stevens
Executive Vice President,
Chief Legal Counsel and Secretary
Date: August 14, 2000 By: /s/ RICHARD D. KINCAID
-------------------------------------
Richard D. Kincaid
Executive Vice President,
Chief Financial Officer
42
<PAGE> 43
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME
------- ------------
<C> <S>
2.1 -- Agreement and Plan of Merger, dated February 11, 2000,
among the Company, the Operating Partnership, Cornerstone
and Cornerstone Partnership (incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K dated February 11, 2000)
2.2 -- First Amendment to Agreement and Plan of Merger, dated
May 11, 2000 by and among the Company, the Operating
Partnership, Cornerstone and Cornerstone Partnership
(incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated May 2, 2000)
3.1 -- Articles of Amendment and Restatement of Declaration of
Trust of the Company (incorporated herein by reference to
Exhibit 3.1 to the Company's Registration Statement on
Form S-11 (Reg. No. 333-26629))
3.2 -- Articles Supplementary of the Company, dated December 15,
1997 and filed with the Maryland Department of
Assessments and Taxation on December 17, 1997
(incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended)
3.3 -- Articles Supplementary of the Company, dated February 18,
1998 and filed with the Maryland Department of
Assessments and Taxation on February 19, 1998
(incorporated by reference to Exhibit 3.3 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended)
3.4 -- Articles Supplementary of the Company, dated December 1,
1998 and filed with the Maryland Department of
Assessments and Taxation on December 4, 1998
(incorporated herein by reference to Exhibit 4.3 to the
Company's Registration Statement on Form 8-A dated
December 1, 1998)
3.5 -- Articles Supplementary of the Company, dated February 28,
2000 and filed with the Maryland Department of
Assessments and Taxation on March 17, 2000 (incorporated
herein by reference to Exhibit 3.5 to the Company's Form
10-K for the year ended December 31, 1999, as amended)
3.6 -- Articles of Amendment to the Company's Declaration of
Trust relating to amendments to Sections 8.2 and 8.4
(incorporated herein by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K dated May 2, 2000)
3.7 -- Exhibit A to the Maryland Articles of Merger filed by the
Company on June 19, 2000 with the Maryland Department of
Assessments and Taxation setting forth amendments to the
Company's Declaration of Trust effected as part of the
merger of Cornerstone with and into the Company
(incorporated herein by reference to Exhibit 99.4 to the
Company's Current Report on Form 8-K dated June 19, 2000)
3.8 -- Amendments to Article II, Section 9, Article IV, Sections
8.1 through 8.5 and Article VII, Sections 1, 2 and 5 of
the Company's Bylaws (incorporated herein by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K
dated May 2, 2000).
3.9 -- Amended Bylaws of the Company (incorporated herein by
reference to Exhibit 99.5 to the Company's Current Report
on Form 8-K dated June 19, 2000)
10.1 -- Revolving Credit Agreement for $1,000,000,000 Revolving
Credit Facility dated as of May 12, 2000 among the
Operating Partnership and the Banks listed therein
(incorporated herein by reference to Exhibit 99.7.1 of
the Company's Current Report on form 8-K dated June 19,
2000)
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT NAME
------- ------------
<C> <S>
10.2 -- Guaranty of Payment -- No. 1, made as of May 12, 2000,
between the Company and Bank of America, N.A.
(incorporated herein by reference to Exhibit 99.7.2 to
the Company's Current Report on Form 8-K dated June 19,
2000)
10.3 -- Guaranty of Payment -- No. 2, made as of May 12, 2000
between the Company and Bank of America, N.A.
(incorporated herein by reference to Exhibit 99.7.3 to
the Company's Current Report on Form 8-K dated June 19,
2000)
10.4 -- Third Amendment and Restated Credit Agreement for
$1,000,000,000 Credit Facility dated as of May 12, 2000
among the Operating Partnership and the Banks listed
therein (incorporated herein by reference to Exhibit
99.8.1 to the Company's Current Report on Form 8-K dated
June 19, 2000)
10.5 -- Second Amended and Restated Guaranty of Payment, made as
of May 12, 2000, between the Company and Bank of America,
N.A. (incorporated herein by reference to Exhibit 99.8.2
to the Company's Current Report on Form 8-K dated June
19, 2000)
10.6 -- Voting Agreement, dated February 11, 2000, by and among
the Company, the Operating Partnership, WCP Services,
Inc., and Stichting Pensioenfonds voor de Gezondheid,
Geestelijke en Maatschappelijke Belangen (incorporated
herein by reference to Exhibit 10.2 to the Company's
Current Report or Form 8-K dated February 11, 2000)
10.7 -- Eleventh Amendment to Agreement of the Limited
Partnership of the Operating Partnership (incorporated
herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K dated May 2, 2000)
10.8 -- First Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (incorporated
herein by reference to Exhibit 10.2 to the Company's
Current Report on Form 8-K dated May 2, 2000)
10.9 -- Second Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (incorporated
herein by reference to Exhibit 99.6 of the Company's
Current Report on Form 8-K dated June 19, 2000)
10.10 -- Form of indemnification agreement entered into as of June
19, 2000 with John S. Moody, Jan H.W.R. van der Vlist and
William Wilson III (incorporated herein by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1997)
10.11 -- Form of $360,000,000 8.10% Note due August 1, 2010 of the
Operating Partnership (incorporated by reference to
Exhibit 4.1 to the Operating Partnership's Current Report
on Form 8-K dated August 2, 2000)
27.1 -- Financial Data Schedule
</TABLE>
