<PAGE> 1
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): JUNE 19, 2000
EQUITY OFFICE PROPERTIES TRUST
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 1-13115 36-4151656
--------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File (I.R.S. Employer
incorporation or organization) Number) Identification No.)
TWO NORTH RIVERSIDE PLAZA
SUITE 2100, CHICAGO, ILLINOIS 60606
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 466-3300
---------------
NOT APPLICABLE
--------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
================================================================================
Exhibit Index is on page 12.
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 19, 2000, Equity Office, Cornerstone Properties Inc., EOP
Operating Limited Partnership and Cornerstone Properties Limited Partnership
completed their mergers. Upon completion of the mergers, Equity Office owned and
operated a portfolio of 378 buildings representing 96.8 million square feet of
office space in 24 states and the District of Columbia.
Under the terms of the merger agreement, each outstanding Cornerstone
Partnership unit was converted into 0.7009 of a class A unit of EOP Partnership
in the merger of Cornerstone Partnership with and into EOP Partnership. EOP
Partnership issued a total of 104,713,067 class A units in the partnership
merger, including 92,314,264 class A units that were issued to Cornerstone
Properties Inc., the general partner of Cornerstone Partnership. In addition,
EOP Partnership issued to Cornerstone 3,030,303 series D convertible preferred
units, convertible into 2,123,939 class A units of EOP Partnership, in exchange
for 3,030,303 convertible preferred units of Cornerstone Partnership held by
Cornerstone.
Following the partnership merger, Cornerstone was merged with and into
Equity Office, the general partner of EOP Partnership. In the merger of
Cornerstone with and into Equity Office, Equity Office acquired the 92,314,264
class A units and 3,030,303 series D convertible units of EOP Partnership owned
by Cornerstone following the partnership merger, and each outstanding share of
Cornerstone common stock was exchangeable either for $18.00 in cash, without
interest, or 0.7009 of an Equity Office common share, subject to proration if
either the cash election or the share election was oversubscribed, and the
outstanding Cornerstone 7% cumulative convertible preferred stock was converted
into the right to receive $18.00 per share in cash plus accrued dividends to the
closing date. The aggregate consideration paid by Equity Office in the merger of
Cornerstone with and into Equity Office consisted of approximately $1.1
billion in cash and 51,274,811 Equity Office common shares. Equity Office
obtained the cash portion of the merger consideration from EOP Partnership in
exchange for 43,163,392 class A units previously owned by Equity Office prior to
the partnership merger. Following the merger of Cornerstone into Equity Office,
Equity Office converted the 3,030,303 Series D convertible units into 2,123,939
class A units of EOP Partnership.
After giving effect to all of the foregoing transactions, EOP
Partnership had a total of 345,335,596 issued and outstanding class A units, of
which 300,165,470 were owned by Equity Office and the remainder were held by
third parties, and 7,994,000 issued and outstanding series A preferred units,
6,000,000 issued and outstanding series B preferred units and 4,562,900 issued
and outstanding series C preferred units, all of which were owned by Equity
Office.
After giving effect to the foregoing transactions, Equity Office had a
total of 300,165,470 issued and outstanding common shares, 7,994,000 issued and
outstanding
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<PAGE> 3
series A preferred shares, 6,000,000 series B convertible, cumulative preferred
shares and 4,562,900 issued and outstanding series C preferred shares.
In connection with these transactions, EOP Partnership and its
subsidiaries assumed approximately $1.8 billion of debt of Cornerstone
Partnership and its subsidiaries. In addition, EOP Partnership recently closed a
new $1 billion unsecured credit facility which matures in May 2003, with a
one-year extension option. Approximately 97% of amounts drawn under the new
credit facility will be guaranteed by Equity Office. EOP Partnership's existing
$1 billion revolver was fully drawn upon at the closing of the above described
mergers and matures in May 2001.
Effective as of the closing of the merger of Cornerstone with and into
Equity Office, the Equity Office Board of Trustees was expanded from 11 to 14.
The new members are William Wilson III, formerly chairman of the board of
Cornerstone (for a term of office expiring at the 2003 annual meeting of
shareholders); John S. Moody, formerly president and chief executive officer of
Cornerstone (for a term of office expiring at the 2002 annual meeting of
shareholders); and Jan H.W. R. van der Vlist, director of real estate for PGGM
(for a term of office expiring at the 2003 annual meeting of shareholders).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of business acquired.
Audited Consolidated Financial Statements of Cornerstone as of December
31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and 1997
(incorporated by reference to pages F-1 to F-30 of Cornerstone's 1999 Annual
Report on Form 10-K, File No. 1-12681, as filed with the SEC on March 27, 2000,
and attached hereto as Exhibit 99.1).
Condensed Consolidated Financial Statements of Cornerstone as of March
31, 2000 and for the three months ended March 31, 2000 and 1999 (incorporated
herein by reference to pages 2 to 19 of Cornerstone's Form 10-Q for the quarter
ended March 31, 2000, File No. 1-12681, as filed with the SEC on May 15, 2000,
and attached hereto as Exhibit 99.2).
(b) Pro forma financial information.
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<PAGE> 4
The required pro forma financial information is set forth below.
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY OFFICE EQUITY OFFICE
PROPERTIES CORNERSTONE PROPERTIES
TRUST PROPERTIES INC. MERGER AND OTHER TRUST
HISTORICAL HISTORICAL ADJUSTMENTS (A) PRO FORMA
------------------------------------------------------ ----------------
ASSETS:
<S> <C> <C> <C> <C>
Investment in real estate, net $ 12,497,425 $ 3,814,740 $ 568,749 (B) $ 16,880,914
Cash and cash equivalents 16,376 27,199 - (C) 43,575
Rent and other receivables 193,622 102,811 (84,203) (D) 212,230
Escrow deposits and restricted cash 68,258 71,844 - 140,102
Investment in unconsolidated joint
ventures 875,459 31,827 8,275 (B) 915,561
Prepaid expenses and other assets 438,693 105,677 (49,897) (E) 494,473
------------------------------------------------------ ----------------
TOTAL ASSETS $ 14,089,833 $ 4,154,098 $ 442,924 $ 18,686,855
====================================================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Mortgage debt $ 1,576,367 $ 1,383,111 $ (49,053) (F) $ 2,910,425
Unsecured notes 4,154,417 - - 4,154,417
Lines of credit 232,000 355,100 1,186,472 (G) 1,773,572
Dividend/distribution payable 121,478 29,714 - 151,192
Other liabilities 403,090 117,090 - 520,180
------------------------------------------------------ ----------------
TOTAL LIABILITIES 6,487,352 1,885,015 1,137,419 9,509,786
------------------------------------------------------ ----------------
Commitments and contingencies
Minority Interests:
EOP Partnership 818,628 283,221 47,373 (H) 1,149,222
Partially owned properties 40,006 22,977 - 62,983
------------------------------------------------------ ----------------
TOTAL MINORITY INTERESTS 858,634 306,198 47,373 1,212,205
------------------------------------------------------ ----------------
Shareholders' Equity:
Preferred shares 613,923 50,000 (50,000) (I) 613,923
Common shares 2,483 - 495 (J) 2,978
Additional paid in capital 6,127,441 1,912,885 (692,363) (K) 7,347,963
------------------------------------------------------ ----------------
TOTAL SHAREHOLDERS' EQUITY 6,743,847 1,962,885 (741,868) 7,964,864
------------------------------------------------------ ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,089,833 $ 4,154,098 $ 442,924 $ 18,686,855
====================================================== ================
</TABLE>
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<PAGE> 5
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EQUITY OFFICE CORNERSTONE MERGER EQUITY OFFICE
PROPERTIES TRUST PROPERTIES INC. AND OTHER PROPERTIES TRUST
HISTORICAL HISTORICAL ADJUSTMENTS (A) PRO FORMA
------------------------------------------------------- --------------------
<S> <C> <C> <C> <C>
REVENUES:
Rental ................................ $ 358,366 $ 113,585 $ 1,594 (L) $ 473,545
Tenant reimbursements ................. 62,983 26,592 - 89,575
Parking ............................... 26,731 6,748 - 33,479
Other ................................. 12,856 1,681 - 14,537
Fee income ............................ 2,235 - - 2,235
Interest/dividends .................... 5,704 2,240 - 7,944
------------------------------------------------------- --------------------
Total revenues ........................ 468,875 150,846 1,594 621,315
------------------------------------------------------- --------------------
EXPENSES:
Interest:
Expense incurred .................. 100,532 30,516 21,448 (M) 152,496
Amortization of deferred financing
costs ........................... 1,377 523 1,752 (N) 3,652
Depreciation .......................... 83,889 21,879 3,021 (O) 108,789
Amortization .......................... 4,386 2,470 (2,470)(P) 4,386
Real estate taxes ..................... 57,910 18,137 - 76,047
Insurance ............................. 2,740 753 - 3,493
Repairs and maintenance ............... 47,899 11,942 - 59,841
Property operating .................... 46,788 14,340 - 61,128
Ground rent ........................... 2,024 345 - 2,369
General and administrative ............ 19,651 7,023 - (Q) 26,674
------------------------------------------------------- --------------------
Total expenses ........................ 367,196 107,928 23,751 498,875
------------------------------------------------------- --------------------
Income before allocation to minority interests,
income from investment in unconsolidated
joint ventures and net gain on sales of
real estate ........................... 101,679 42,918 (22,157) 122,440
Minority Interests:
EOP Partnership ....................... (12,416) (5,436) 704 (R) (17,148)
Partially owned properties ............ (553) (1,474) - (2,027)
Income from investment in unconsolidated joint
ventures .............................. 11,374 110 (44) (S) 11,440
Carrying value in excess of market value of
assets held for sale................... - (803) - (803)
Net gain on sales of real estate ........... 3,862 2,260 - 6,122
------------------------------------------------------- --------------------
Net income from continuing operations ...... 103,946 37,575 (21,497) 120,024
Put option settlement ...................... (1,030) - - (1,030)
Preferred distributions .................... (10,697) (875) 875 (T) (10,697)
------------------------------------------------------- --------------------
Net income from continuing operations before
extraordinary items available for
common shares ......................... $ 92,219 $ 36,700 $ (20,622) $ 108,297
======================================================= ====================
Net income from continuing operations before
extraordinary items per weighted average
common share outstanding - basic ...... $ 0.37 (U) $ 0.36 (U)
==================== ====================
Weighted average common shares outstanding -
basic ................................. 247,695,287 297,170,441
==================== ====================
Net income from continuing operations before
extraordinary items per weighted average
common share outstanding - diluted .... $ 0.37 (U) $ 0.36 (U)
==================== ====================
Weighted average common shares outstanding -
diluted ............................... 283,568,648 347,379,891
==================== ====================
</TABLE>
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<PAGE> 6
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
EQUITY OFFICE CORNERSTONE MERGER
PROPERTIES TRUST PROPERTIES INC. AND OTHER
HISTORICAL HISTORICAL ADJUSTMENTS (A)
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Rental ............................................ $ 1,493,196 $ 455,204 $ 6,181 (L)
Tenant reimbursements ............................. 281,358 121,385 -
Parking ........................................... 112,204 27,343 -
Other ............................................. 32,298 5,730 -
Fee income ........................................ 8,939 2,677 -
Interest/dividends ................................ 14,248 4,211 -
----------------------------------------------------------
Total revenues ............................... 1,942,243 616,550 6,181
----------------------------------------------------------
Expenses:
Interest:
Expense incurred .............................. 413,995 135,755 89,816 (M)
Amortization of deferred financing costs ...... 4,693 2,004 3,669 (N)
Depreciation ...................................... 339,751 87,971 12,086 (O)
Amortization ...................................... 14,545 8,755 (8,755)(P)
Real estate taxes ................................. 243,778 71,554 -
Insurance ......................................... 9,589 3,548 -
Repairs and maintenance ........................... 209,630 74,728 -
Property operating ................................ 199,879 52,947 -
Ground rent ....................................... 6,887 1,407 -
General and administrative ........................ 80,927 27,006 - (Q)
----------------------------------------------------------
Total expenses ............................... 1,523,674 465,675 96,816
----------------------------------------------------------
Income before allocation to minority interests,
income from investment in unconsolidated
joint ventures and net gain on sales of real
estate ............................................ 418,569 150,875 (90,635)
Minority Interests:
EOP Partnership ................................... (48,172) (34,982) 1,574 (R)
Partially owned properties ........................ (1,981) (5,755) -
Income from investment in unconsolidated joint
ventures .......................................... 13,824 898 (176)(S)
Net gain on sales of real estate ......................... 59,661 131,034 -
----------------------------------------------------------
Net income from continuing operations .................... 441,901 242,070 (89,237)
Put option settlement .................................... (5,658) - -
Preferred distributions .................................. (43,603) (3,500) 3,500 (T)
----------------------------------------------------------
Net income from continuing operations before extraordinary
items and cumulative effect of a change in
accounting principle available for common shares .. $ 392,640 $ 238,570 $ (85,737)
==========================================================
Net income from continuing operations before extraordinary
items and cumulative effect of a change in
accounting principle per weighted average
common share outstanding - basic .................. $ 1.53 (U)
=============
Weighted average common shares outstanding - basic ....... 256,045,895
=============
Net income from continuing operations before extraordinary
items and cumulative effect of a change in
accounting principle per weighted average
common share outstanding - diluted ................ $ 1.51 (U)
=============
Weighted average common shares outstanding - diluted ..... 291,157,204
=============
</TABLE>
<TABLE>
<CAPTION>
EQUITY OFFICE
PROPERTIES TRUST
PRO FORMA
------------------------------------------------------------ -----------------------
<S> <C>
Revenues:
Rental ............................................ $ 1,954,581
Tenant reimbursements ............................. 402,743
Parking ........................................... 139,547
Other ............................................. 38,028
Fee income ........................................ 11,616
Interest/dividends ................................ 18,459
-------------
Total revenues ............................... 2,564,974
-------------
Expenses:
Interest:
Expense incurred .............................. 639,566
Amortization of deferred financing costs ...... 10,366
Depreciation ...................................... 439,808
Amortization ...................................... 14,545
Real estate taxes ................................. 315,332
Insurance ......................................... 13,137
Repairs and maintenance ........................... 284,358
Property operating ................................ 252,826
Ground rent ....................................... 8,294
General and administrative ........................ 107,933
-------------
Total expenses ............................... 2,086,165
-------------
Income before allocation to minority interests,
income from investment in unconsolidated
joint ventures and net gain on sales of real
estate ............................................ 478,809
Minority Interests:
EOP Partnership ................................... (81,580)
Partially owned properties ........................ (7,736)
Income from investment in unconsolidated joint
ventures .......................................... 14,546
Net gain on sales of real estate ......................... 190,695
-------------
Net income from continuing operations .................... 594,734
Put option settlement .................................... (5,658)
Preferred distributions .................................. (43,603)
-------------
Net income from continuing operations before extraordinary
items and cumulative effect of a change in
accounting principle available for common shares .. $ 545,473
=============
Net income from continuing operations before extraordinary
items and cumulative effect of a change in
accounting principle per weighted average
common share outstanding - basic .................. $ 1.79 (U)
=============
Weighted average common shares outstanding - basic ....... 305,424,355
=============
Net income from continuing operations before extraordinary
items and cumulative effect of a change in
accounting principle per weighted average
common share outstanding - diluted ................ $ 1.77 (U)
=============
Weighted average common shares outstanding - diluted ..... 354,965,413
=============
</TABLE>
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<PAGE> 7
EQUITY OFFICE PROPERTIES TRUST
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) Represents adjustments to record the merger between Equity Office and
Cornerstone based upon the assumed purchase price of $4.6 billion assuming a
market value of $24.6818 per share of Equity Office's common shares. The
calculation of the merger acquisition cost is as follows:
<TABLE>
<S> <C> <C>
Issuance of 49.5 million Equity Office common shares and 13.4 million
EOP Partnership units based on a .7009 exchange rate in exchange
for 70.6 million shares of Cornerstone common stock and 19.1 million
Cornerstone Partnership units (see Note H) $ 1,551,611
Cash portion of merger consideration:
Cornerstone common stock (58,551,525 @ $18.00) 1,053,927
Cornerstone preferred stock (3,030,303 @ $18.00) 54,545 1,108,472
-------------------
Equity Office's current ownership of 250,700 shares of
Cornerstone common stock 4,387
Assumption of Cornerstone's total liabilities 1,885,015
Adjustment to Cornerstone's mortgage debt to reflect
market value (see Note F) (49,053)
Cornerstone's minority interest allocation for
partially owned properties 22,977
Merger costs (see calculation below) 78,000
-------------
Total merger acquisition cost $ 4,601,409
=============
The following is a calculation of estimated merger costs:
Employee termination costs $ 43,800
Investment advisory fees 15,000
Transfer taxes 10,000
Legal, accounting and other fees 7,700
Loan assumption fees 1,500
-------------
Total merger acquisition cost $ 78,000
=============
(B) Represents the estimated increase in Cornerstone's investment in real estate
based upon the merger acquisition cost to reflect the allocation to other
tangible assets of Cornerstone being acquired:
Meger acquisition cost (see Note A) $ 4,601,409
-------------
Less basis of Cornerstone's net assets acquired:
Investment in real estate, net 3,814,740
Cash and cash equivalents 27,199
Rent and other receivables (excluding $84.2 million of
deferred rents receivable) 18,608
Escrow deposits and restricted cash 71,844
Investment in unconsolidated joint ventures 31,827
Prepaid expenses and other assets (excluding $45.5 million
of deferred leasing, financing and other costs (see Note E)) 60,167
-------------
Subtotal 4,024,385
-------------
Adjustment to record fair value of Cornerstone's investment in
real estate and investment in unconsolidated joint ventures, net 577,024
Less adjustment allocated to investment in unconsolidated joint ventures (8,275)
-------------
Adjustment allocated to investment in real estate $ 568,749
=============
(C) There was no change in cash and cash equivalents as a result of the
following transactions:
Anticipated borrowings on additional credit facilities to
finance the cash portion of the merger (see Note G) $ 1,186,472
Less cash portion of merger consideration (see Note A) (1,108,472)
Less merger costs (see Note A) (78,000)
-------------
Net adjustment to cash and cash equivalents $ -
=============
(D) Represents the elimination of Cornerstone's deferred rents receivable which
arose from the historical straight-lining of rental revenue.
(E) Represents an adjustment for the following:
Cornerstone's deferred leasing, financing and other costs which
were not assigned any value in the allocation of the merger
acquisition cost $ (45,510)
Transfer of Equity Office's current ownership of 250,700 shares
of Cornerstone common stock to merger acquisition cost (see Note A) (4,387)
-------------
Total $ (49,897)
=============
(F) To adjust Cornerstone's mortage debt to market value.
(G) To reflect borrowings on additional credit facilities to finance the cash
portion of the merger as follows:
Cash portion of merger consideration (See Note A) $ 1,108,472
Merger costs (See Note A) 78,000
-------------
Borrowings on additional credit facilities $ 1,186,472
=============
(H) To adjust minority interests in the EOP Partnership to reflect the merger as
follows:
</TABLE>
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<PAGE> 8
<TABLE>
<S> <C>
Equity Office historical common shareholders' equity and minority
interests in EOP Partnership $ 6,948,552
Cornerstone historical common shareholders' equity and minority
interests in Cornerstone Partnership 2,196,106
Pro forma adjustments to common shareholders' equity (644,495)
-------------
Total 8,500,163
Minority interests ownership percentage of EOP Partnership after
the merger (see below) 13.52%
-------------
Minority interest ownership of EOP Partnership after the merger 1,149,222
Less historical minority interest ownership of EOP Partnership
prior to the merger (818,628)
Less historical minority interest ownership of Cornerstone
Partnership prior to the merger (283,221)
-------------
Adjustment to minority interest ownership of EOP
Partnership to reflect the merger $ 47,373
=============
The 13.52% minority interests ownership of EOP Partnership is calculated as follows:
</TABLE>
<TABLE>
<CAPTION>
Shares Units Shares and Units
-------------------------------------------------
<S> <C> <C> <C>
Shares of Cornerstone common stock and Cornerstone Partnership
units outstanding at March 31, 2000 129,390,261 19,103,202 148,493,463
Less shares of Cornerstone common stock redeemed for
cash (see Note A) (58,551,525) - (58,551,525)
Less shares of Cornerstone common stock currently held
by Equity Office (see Note A) (250,700) - (250,700)
------------------------------------------------
Shares of Cornerstone common stock and Cornerstone Partnership
units to be converted in the merger into Equity Office
common shares and EOP Partnership units at an exchange
rate of .7009 70,588,036 19,103,202 89,691,238
================================================
Equity Office common shares and EOP Partnership units
to be issued in the merger 49,475,154 13,389,434 62,864,588
Equity Office common shares and EOP Partnership units
outstanding at March 31, 2000 248,329,132 33,163,406 281,492,538
------------------------------------------------
Equity Office common shares and EOP Partnership units
outstanding after the merger 297,804,286 46,552,840 344,357,126
================================================
Minority interests ownership percentage of EOP Partnership 13.52%
===================
Equity Office ownership percentage of EOP Partnership 86.48%
===================
</TABLE>
(I) To record the redemption of Cornerstone's preferred stock into cash (see
Note A).
(J) To record the par value of 49.5 million Equity Office common shares issued
to Cornerstone common stockholders.
(K) To reflect the net decrease in additional paid in capital associated with
the merger as follows:
<TABLE>
<S> <C>
Issuance of 49.5 million Equity Office common shares and 13.4 million
EOP Partnership units at the .7009 exchange rate, in exchange for 70.6
million shares of Cornerstone common stock and 19.1 million Cornerstone
Partnership units (see Note H) $ 1,551,611
Less par value of Equity Office common shares issued to Cornerstone common
stockholders (see Note J) (495)
Adjustment to minority interests in EOP Partnership (see Note H) (47,373)
Less historical minority interests in the ownership of Cornerstone Partnership (283,221)
Less Cornerstone's historical additional paid in capital (1,912,885)
--------------
Net decrease in paid in capital $ (692,363)
==============
</TABLE>
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<PAGE> 9
(L) To reflect the adjustment for the straight-line effect of scheduled rent
increases.
(M) To reflect the additional interest expense incurred from the additional
credit facilities to finance the cash portion of the merger:
<TABLE>
<CAPTION>
For the three
months ended For the year ended
March 31, 2000 December 31, 1999
----------------------------------------
<S> <C> <C>
Additional borrowings from credit facilities (see Note G ) $1,186,472 $1,186,472
Weighted average interest rate on the line of credit during the period 7.23% 7.57%
----------------------------------------
Additional annual interest expense 85,790 $ 89,816
----------------------------------------
Additional interest expense for the period $ 21,448
==================
</TABLE>
(N) To reflect additional amortization of the adjustment to Cornerstone's
mortgage debt to market value.
(O) To reflect additional depreciation expense related to the adjustment to the
investment in real estate
<TABLE>
<S> <C>
Adjustment to investment in real estate (see Note B) .............................. $568,749
Portion allocated to building and improvements .................................... 85%
--------
Adjustment to the depreciable basis of Cornerstone's investment in real estate, net $483,436
========
Additional depreciation expense based on an estimated useful life of 40 years
for the year ended December 31, 1999 .............................................. $ 12,086
========
Additional depreciation expense based on an estimated useful life of 40 years
for the three months ended March 31, 2000 ......................................... $ 3,021
========
</TABLE>
(P) To reverse Cornerstone's historical amortization of deferred lease
commissions due to the write-off of deferred lease commissions as a result
of the merger (see Note E).
(Q) Management has estimated that there will be a reduction of annual general
and administrative expenses as a result of the merger of approximately $18.0
million on a pro forma basis . The general and administrative expense
savings have not been included in the pro forma condensed combined statement
of operations. There can be no assurance that Equity Office will be
successful in realizing such anticipated cost savings.
(R) To adjust the minority interests income allocation to EOP Partnership after
the merger to 13.67% and 13.01% for the three months ended March 31, 2000,
and the year ended December 31, 1999, respectively.
(S) To reflect the additional depreciation expense on the adjustment to the
depreciable basis of Cornerstone's investment in unconsolidated joint
ventures.
<TABLE>
<S> <C>
Adjustment to the basis of the investment in unconsolidated joint ventures ......................... $8,275
Portion allocated to building and improvements ..................................................... 85%
------
Adjustment to the depreciable basis of Cornerstone's investment in unconsolidated joint ventures ... $7,034
======
Decrease in income from investment in unconsolidated joint ventures due to additional
depreciation expense pertaining to the adjustment to the basis of the investment in joint ventures
based on an estimated useful life of 40 years for the year ended December 31, 1999 ............... $ 176
======
based on an estimated useful life of 40 years for the three months ended March 31, 2000 .......... $ 44
======
</TABLE>
(T) To adjust Cornerstone's preferred distributions assuming the shares of
Cornerstone preferred stock were redeemed for cash on January 1, 2000 and
1999, respectively.
(U) The following table sets forth the computation of basic and diluted earnings
per common share:
<TABLE>
<CAPTION>
For the three months ended March 31, 2000
--------------------------------------------------
Numerator Historical Pro forma
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income from continuing operations before extraordinary
items and net gain on sales of real estate available for
common shares ............................................... $ 88,357 $ 102,978
Net gain on sales of real estate .............................. 3,862 5,319
--------------------------------------------------
Numerator for basic earnings per share - net income from
continuing operations before extraordinary items
available for common shares ................................. 92,219 108,297
Minority interest in EOP Partnership 12,416 17,148
Interest expense on convertible promissory note - 192
--------------------------------------------------
Numerator for diluted earnings per share - net income from
continuing operations before extraordinary items
available for common shares ................................. $ 104,635 $ 125,637
--------------------------------------------------
Denominator
-------------------------------------------------------------------
Denominator for basic earnings per share - weighted average
common shares 247,695,287 297,170,441
--------------------------------------------------
Denominator for diluted earnings per share - weighted average
common shares 283,568,648 347,379,891
--------------------------------------------------
Basic
-------------------------------------------------------------------
Net income from continuing operations before extraordinary
items and net gain on sales of real estate available for
common shares ................................................. $ 0.36 $ 0.35
Net gain on sales of real estate ................................ 0.01 0.01
--------------------------------------------------
Net income from continuing operations before extraordinary
items available for common shares ............................ $ 0.37 $ 0.36
==================================================
Diluted
-------------------------------------------------------------------
Net income from continuing operations before extraordinary
items and net gain on sales of real estate available for
common shares ................................................ $ 0.36 $ 0.35
Net gain on sales of real estate ................................ 0.01 0.01
--------------------------------------------------
Net income from continuing operations before extraordinary
items available for common shares ............................ $ 0.37 $ 0.36
==================================================
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1999
--------------------------------------------------
Numerator Historical Pro forma
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income from continuing operations before extraordinary
items, cumulative effect of a change in accounting
principle and net gain on sales of real estate available for
common shares ............................................... $ 332,979 $ 354,778
Net gain on sales of real estate .............................. 59,661 190,695
--------------------------------------------------
Numerator for basic earnings per share - net income from
continuing operations before extraordinary items and
cumulative effect of a change in accounting principle
available for common shares ................................. 392,640 545,473
Minority interest in EOP Partnership 48,172 81,580
Interest expense on convertible promissory note - 746
--------------------------------------------------
Numerator for diluted earnings per share - net income from
continuing operations before extraordinary items and
cumulative effect of a change in accounting principle
available for common shares ................................. $ 440,812 $ 627,799
--------------------------------------------------
Denominator
-------------------------------------------------------------------
Denominator for basic earnings per share - weighted average
common shares 256,045,895 305,424,355
--------------------------------------------------
Denominator for diluted earnings per share - weighted average
common shares 291,157,204 354,965,413
--------------------------------------------------
Basic
-------------------------------------------------------------------
Net income from continuing operations before extraordinary
items, cumulative effect of a change in accounting
principle and net gain on sales of real estate available for
common shares ................................................. $ 1.30 $ 1.16
Net gain on sales of real estate ................................ 0.23 0.63
--------------------------------------------------
Net income from continuing operations before extraordinary
items and cumulative effect of a change in accounting
principle available for common shares ........................ $ 1.53 $ 1.79
==================================================
Diluted
-------------------------------------------------------------------
Net income from continuing operations before extraordinary
items, cumulative effect of a change in accounting
principle and net gain on sales of real estate available for
common shares ................................................ $ 1.31 $ 1.23
Net gain on sales of real estate ................................ 0.20 0.54
--------------------------------------------------
Net income from continuing operations before extraordinary
items and cumulative effect of a change in accounting
principle available for common shares ........................ $ 1.51 $ 1.77
==================================================
</TABLE>
-9-
<PAGE> 10
(c) Exhibits.
Exhibit
Number Exhibit Description
--------- -------------------
2.1 Agreement and Plan of Merger, dated as of February
11, 2000, as amended on May 11, 2000, among Equity
Office, EOP Partnership, Cornerstone and Cornerstone
Partnership (incorporated by reference to Annex A to
the joint proxy statement/prospectus included in
Equity Office's Registration Statement on Form S-4,
as amended, as filed with the SEC (File No.
333-33600).
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Audited Consolidated Financial Statements of
Cornerstone as of December 31, 1999 and 1998 and for
the years ended December 31, 1999, 1998 and 1997
(pages F-1 to F-30 of Cornerstone's 1999 Annual
Report on Form 10-K, File No. 1-12681, as filed with
the SEC on March 27, 2000).
99.2 Condensed Consolidated Financial Statements of
Cornerstone as of March 31, 2000 and for the three
months ended March 31, 2000 and 1999 (Part I
of Cornerstone's Form 10-Q for the quarter ended
March 31, 2000, File No. 1-12681, as filed with the
SEC on May 15, 2000).
99.3 Voting Agreement, dated February 11, 2000, by and
among Equity Office, EOP Partnership, WCP Services,
Inc. and Stichting Pensioenfends voor de Gezondheid,
Geestelijke en Maatschappelijke Belagen (incorporated
herein by reference to Exhibit 10.2 of Equity
Office's Form 8-K dated February 16, 2000).
99.4 Exhibit A to the Maryland Articles of Merger filed by
Equity Office on June 19, 2000 with the Maryland
Department of Assessments and Taxation setting forth
amendments to Equity Office's Declaration of Trust
effected as part of the merger of Cornerstone with
and into Equity Office.
99.5 Amended Bylaws of Equity Office.
99.6 Second Amended and Restated Agreement of Limited
Partnership of EOP Partnership.
99.7.1 Revolving Credit Agreement for $1,000,000,000
Revolving Credit Facility dated as of May 12, 2000
among EOP Operating Limited Partnership and the Banks
listed therein.
99.7.2 Guaranty of Payment -- No. 1, made as of May 12,
2000 between Equity Office Properties Trust and Bank
of America, N.A.
99.7.3 Guaranty of Payment -- No. 2, made as of May 12, 2000
between Equity Office Properties Trust and Bank of
America, N.A.
99.8.1 Third Amended and Restated Credit Agreement for
$1,000,000,000 Credit Facility dated as of May 12,
2000 among EOP Operating Limited Partnership and the
Banks listed therein.
99.8.2 Second Amended and Restated Guaranty of Payment, made
as of May 12, 2000, between Equity Office Properties
Trust and Bank of America, N.A.
-10-
<PAGE> 11
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 hereunto duly authorized.
EQUITY OFFICE PROPERTIES TRUST
Date: June 30, 2000 By: /s/ Stanley M. Stevens
-----------------------------
Stanley M. Stevens
Executive Vice President, Chief
Legal Counsel and Secretary
-11-
<PAGE> 12
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
------- ------------------- ----
2.1 Agreement and Plan of Merger, dated as of February
11, 2000, as amended on May 11, 2000, among Equity
Office, EOP Partnership, Cornerstone and Cornerstone
Partnership (incorporated by reference to Annex A to
the joint proxy statement/prospectus included in
Equity Office's Registration Statement on Form S-4,
as amended, as filed with the SEC (File No.
333-33600).
23.1 Consent of PricewaterhouseCoopers LLP.
99.1 Audited Consolidated Financial Statements of
Cornerstone as of December 31, 1999 and 1998 and for
the years ended December 31, 1999, 1998 and 1997
(pages F-1 to F-30 of Cornerstone's 1999 Annual
Report on Form 10-K, File No. 1-12681, filed with the
SEC on March 27, 2000).
99.2 Condensed Consolidated Financial Statements of
Cornerstone as of March 31, 2000 and for the three
months ended March 31, 2000 and 1999 (Part I
of Cornerstone's Form 10-Q for the quarter ended
March 31, 2000, File No. 1-12681, filed with the SEC
on May 15, 2000).
99.3 Voting Agreement, dated February 11, 2000, by and
among Equity Office, EOP Partnership, WCP Services,
Inc. and Stichting Pensioenfends voor de Gezondheid,
Geestelijke en Maatschappelijke Belagen (incorporated
herein by reference to Exhibit 10.2 of Equity
Office's Form 8-K dated February 16, 2000).
99.4 Exhibit A to the Maryland Articles of Merger filed by
Equity Office on June 19, 2000 with the Maryland
Department of Assessments and Taxation setting forth
amendments to Equity Office's Declaration of Trust
effected as part of the merger of Cornerstone with
and into Equity Office.
99.5 Amended Bylaws of Equity Office.
99.6 Second Amended and Restated Agreement of Limited
Partnership of EOP Partnership.
99.7.1 Revolving Credit Agreement for $1,000,000,000
Revolving Credit Facility dated as of May 12, 2000
among EOP Operating Limited Partnership and the Banks
listed therein.
99.7.2 Guaranty of Payment -- No. 1, made as of May 12,
2000, between Equity Office Properties Trust and Bank
of America, N.A.
99.7.3 Guaranty of Payment -- No. 2, made as of May 12, 2000
between Equity Office Properties Trust and Bank of
America, N.A.
99.8.1 Third Amended and Restated Credit Agreement for
$1,000,000,000 Credit Facility dated as of May 12,
2000 among EOP Operating Limited Partnership and the
Banks listed therein.
99.8.2 Second Amended and Restated Guaranty of Payment, made
as of May 12, 2000, between Equity Office Properties
Trust and Bank of America, N.A.
-12-
