<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 7, 1999
EOP OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-13625 36-4156801
(State or other jurisdiction of incorporation (Commission File (I.R.S. Employer Identification No.)
or organization) Number)
</TABLE>
TWO NORTH RIVERSIDE PLAZA, 60606
SUITE 2200, CHICAGO, ILLINOIS (Zip Code)
(Address of principal executive offices)
(312) 466-3300
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
ACQUISITIONS
As used herein, the term "Company" means EOP Operating Limited Partnership, a
Delaware limited partnership, alone as an entity, or as the context may require,
the consolidated enterprise consisting of Equity Office Properties Trust, a
Maryland real estate investment trust, and their subsidiaries. Capitalized terms
used but not defined in this Current Report on Form 8-K are as defined in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, as
amended. The Company previously reported significant acquisitions through July
2, 1998 on a current report on Form 8-K dated June 26, 1998. The Company
acquired 16 Office Properties and two Parking Facilities during the period from
July 3, 1998 through January 7, 1999. The cash portion of these transactions
was financed through the Company's lines of credit and working capital.
Descriptions of the acquired properties are as follows.
4949 SOUTH SYRACUSE
The Company acquired 4949 South Syracuse located in Denver, Colorado from an
unaffiliated party for approximately $8.3 million on July 15, 1998. The
acquisition was paid for with a combination of approximately $4.5 million in
cash and a note of the Company in the amount of $3.8 million, which the Company
has since paid in full. The office building contains approximately 62,633
square feet of office space and was approximately 86.4% occupied as of December
31, 1998.
METROPOINT I
The Company acquired Metropoint I located in Denver, Colorado from an
unaffiliated party for approximately $43.7 million on July 15, 1998. The
acquisition was paid for with a combination of approximately $25.9 million in
cash and a note of the Company in the amount of $17.8 million, which the
Company has since paid in full. The office building contains approximately
263,719 square feet of office space and was approximately 96.7% occupied as of
December 31, 1998.
ONE PARK SQUARE
The Company acquired One Park Square located in Albuquerque, New Mexico from an
unaffiliated party for approximately $36.3 million on July 15, 1998. The
acquisition was paid for with a combination of approximately $26.1 million in
cash and a note of the Company in the amount of $10.2 million, which the
Company has since paid in full. The office building contains approximately
262,020 square feet of office space in four buildings and was approximately
81.8% occupied as of December 31, 1998.
TERRACE BUILDING
The Company acquired Terrace Building located in Englewood, Colorado from an
unaffiliated party for approximately $15.4 million on July 15, 1998. The
acquisition was paid for with a combination of approximately $9.3 million in
cash and a note of the Company in the amount of $6.1 million, which the Company
has since paid in full. The office building contains approximately 115,408
square feet of office space and was approximately 83.6% occupied as of December
31, 1998.
2
<PAGE> 3
THE SOLARIUM
The Company acquired The Solarium located in Englewood, Colorado from an
unaffiliated party for approximately $19.5 million on July 15, 1998. The
acquisition was paid for with a combination of approximately $8.3 million in
cash and a note of the Company in the amount of $11.2 million, which the
Company has since paid in full. The office building contains approximately
162,817 square feet of office space and was approximately 99.4% occupied as of
December 31, 1998.
PARK AVENUE TOWER
The Company acquired a $295.0 million first mortgage note secured by Park Avenue
Tower located in New York, New York from an unaffiliated party for approximately
$245.1 million in cash on July 15, 1998. The office building contains
approximately 550,894 square feet of office space and was approximately 99.5%
occupied as of December 31, 1998.
SECOND AND SPRING
The Company acquired Second and Spring located in Seattle, Washington from an
unaffiliated party for approximately $19.7 million on July 29, 1998. The
acquisition was paid for with a combination of approximately $15.1 million in
cash and $4.6 million in Units. The office building contains approximately
134,871 square feet of office space and was approximately 80.6% occupied as of
December 31, 1998.
COLONNADE I, II AND III
The Company acquired Colonnade I, II and III located in Dallas, Texas from an
unaffiliated party for approximately $151.9 million in cash on September 30,
1998. The acquisition includes three office buildings totaling 984,254 square
feet of office space. Colonnade I and II contain approximately 606,615 square
feet of office space and were approximately 93.9% occupied as of December 31,
1998. Colonnade I and II were acquired for approximately $90.4 million.
Colonnade III contains approximately 377,639 square feet of office space and
was approximately 68.0% leased as of December 31, 1998. Colonnade III was
acquired upon completion of construction for approximately $61.5 million, and
is subject to an additional earnout payment not to exceed $2.5 million.
WORLDWIDE PLAZA
The Company acquired Worldwide Plaza located in New York, New York from an
unaffiliated party on October 1, 1998. The $578.0 million purchase price
specified in the purchase contract was adjusted to $624.6 million for the
following: (a) the assumption of a $268.6 million first mortgage with an
estimated mark to market adjustment of $11.2 million; (b) the assumption of a
deferred real estate tax liability (a portion of which is expected to be
received from tenants) with a present value of $31.2 million; (c) the issuance
of 6,861,166 Units with an estimated fair value of $171.9 million based on a
fair value of $25.05 per Unit; (d) a cash payment of approximately $110.1
million; (e) closing and transaction costs of approximately $4.2 million; and
(f) the issuance of a transferable put option on Units 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. The
office building consists of approximately 1,575,445 square feet of office space
and approximately 20,788 square feet of retail space. The acquisition also
includes a controlling financial interest in an amenities component that
consists of approximately 108,391 square feet of retail space, a health club
and movie theaters, and a 473-space parking garage. The complex also includes a
residential condominium tower that was not acquired by the Company. The entire
property was approximately 98.8% occupied as of December 31, 1998.
3
<PAGE> 4
FORBES GARAGE AND ALLIES GARAGE
The Company acquired a leasehold interest in the Forbes Garage and Allies Garage
located in Pittsburgh, Pennsylvania from an unaffiliated party for approximately
$31.3 million on December 17, 1998. The lease is for a term of 50 years with
four five-year options to renew. Pursuant to the lease, the Company is required
to make annual rent payments of $172,500 and is required to make certain
capital improvements to the garages of approximately $10.0 million during the
first 10 years of the lease.
TEXAS COMMERCE TOWER
The Company acquired Texas Commerce Tower located in Irving, Texas from an
unaffiliated party for approximately $55.2 million in cash on January 7, 1999.
The office building contains approximately 357,121 square feet of office space
and 12,013 square feet of retail space and was approximately 96.8% occupied as
of December 31, 1998.
COMPUTER ASSOCIATES TOWER
The Company acquired Computer Associates Tower located in Irving, Texas from an
unaffiliated party for approximately $51.2 million in cash on January 7, 1999.
The office building contains approximately 345,539 square feet of office space
and approximately 15,276 square feet of retail space and was approximately 97.5%
occupied as of December 31, 1998.
4
<PAGE> 5
ITEM 5. OTHER EVENTS
CITY CENTER BELLEVUE
The Company expects to acquire City Center Bellevue located in Bellevue,
Washington from an unaffiliated party for approximately $115.9 million. The
office building contains approximately 448,881 square feet of office space
23,706 square feet of retail space and was approximately 99.0% occupied as of
December 31, 1998.
5
<PAGE> 6
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro Forma Financial Statements
(b) Financial statements for acquired properties.
6
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
EOP OPERATING LIMITED PARTNERSHIP
By: Equity Office Properties Trust,
its managing general partner
Date: January 20, 1999 By: /s/ STANLEY M. STEVENS
---------------------------------
Stanley M. Stevens
Executive Vice President,
Chief Legal Counsel and Secretary
7
<PAGE> 8
EOP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
Capitalized terms used herein are as defined in the Company's Annual Report
on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 1997
and the Company's Form 10-Q for the nine months ended September 30, 1998.
The accompanying unaudited Pro Forma Condensed Combined Balance Sheet as of
September 30, 1998 reflects the following transactions which all occurred or are
expected to occur subsequent to September 30, 1998: (a) the acquisition or
probable acquisition of four office properties and two parking facilities; (b)
the disposition of five office properties; and (c) the $115.0 million Series C
Cumulative Redeemable Preferred Share Offering (the "Series C Offering").
The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended September 30, 1998 reflects the following
transactions as if they had occurred on January 1, 1998: (a) the acquisition of
26 Office Properties, and one parking facility, acquired during the nine months
ended September 30, 1998; (b) the acquisition of three Office Properties and two
Parking Facilities, acquired between October 1, 1998 and January 7, 1999; (c)
the purchase of the remaining partnership interests in one of the Company's
unconsolidated joint ventures; (d) the probable acquisition of one office
property; (e) the disposition of 5 office properties; (f) the Series B and
Series C Preferred Shares Offerings; (g) the February 1998 and June 1998 Notes
Offerings; (h) the increase in the $600 Million Credit Facility to $1.0 billion;
and (i) the $48.5 million investment in preferred shares of Capital Trust and
(j) the UIT Offering.
The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1997 reflects the following
transactions as if they had occurred on January 1, 1997: (a) the acquisition of
66 office properties, including 20 office properties acquired by Beacon prior to
the Beacon Merger, and seven parking facilities, including an interest in four
parking facilities, acquired during the year ended December 31, 1997; (b) the
disposition of three office properties; (c) the $180 million private debt
offering (the "$180 Million Notes Offering") which occurred on September 3,
1997; (d) the transactions that occurred in connection with the consolidation of
the entities which comprise the predecessors ("Equity Office Predecessors") of
the Company (the "Consolidation") and the initial public offering (the "IPO"),
which closed on July 11, 1997, and the decrease in interest expense resulting
from the use of the net proceeds for the repayment of mortgage debt; (e) the net
change in interest expense from draws on the $1.5 Billion Credit Facility used
to refinance existing mortgage debt; (f) the Beacon Merger; (g) the acquisition
of 29 Office Properties and two Parking Facilities acquired between January 1,
1998 and January 7, 1999; (h) the purchase of the remaining partnership interest
in one of the Company's unconsolidated joint ventures; (i) the probable
acquisition of one office property; (j) the disposition of five office
properties; (k) the Series B and Series C Preferred Shares Offerings; (l) the
February 1998 and June 1998 Notes Offerings; (m) the increase in the $600
Million Credit Facility to $1.0 billion; and (n) the $48.5 million investment in
preferred shares of Capital Trust and (o) the UIT Offering.
The accompanying unaudited pro forma condensed combined financial
statements have been prepared by management of the Company and do not purport to
be indicative of the results which would actually have been obtained had the
transactions described above been completed on the dates indicated or which may
be obtained in the future. The pro forma condensed combined financial statements
should be read in conjunction with the accompanying notes to the pro forma
condensed combined financial statements as of and for the nine months ended
September 30, 1998 and the year ended December 31, 1997, included elsewhere
herein.
-1-
<PAGE> 9
EOP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 Acquired
Properties and
EOP Operating Probable Series C Preferred
Limited Partnership Acquisitions 1998 Dispositions Share Offering
-----------------------------------------------------------------------------------
ASSETS (A) (B) (G)
<S> <C> <C> <C> <C>
Investment in real estate, net $ 12,777,129 $ 878,135 $ (117,185) (C) $ -
Cash and cash equivalents 140,356 (126,848) - -
Rents and other receivables 113,156 - (854) (C) -
Escrow deposits and restricted cash 36,775 (119,503) 119,503 (D) -
Investment in unconsolidated joint ventures 370,552 - - -
Other assets 193,866 - (1,192) (C) -
-----------------------------------------------------------------------------------
TOTAL ASSETS $ 13,631,834 $ 631,784 $ 272 $ -
===================================================================================
LIABILITIES AND PARTNERS' CAPITAL
Mortgage debt $ 2,097,405 $ 279,821 $ (8,991) (E) $ -
Notes Payable 2,459,398 - - -
Revolving line of credit / term loan 1,115,312 119,034 - (111,078) (H)
Distribution payable 107,154 - - -
Other liabilities 365,925 33,619 (3,171) (C) -
-----------------------------------------------------------------------------------
TOTAL LIABILITIES 6,145,194 432,474 (12,162) (111,078)
Minority Interests:
Partially owned properties 30,122 - - -
Preferred Units (100,000 authorized and
18,800 issued) 500,000 - - 115,000 (I)
General Partners 115,503 - - -
Limited Partners 6,841,015 199,310 12,434 (F) (3,922) (J)
-----------------------------------------------------------------------------------
TOTAL LIABILITIES PARTNERS' CAPITAL $ 13,631,834 $ 631,784 $ 272 $ -
===================================================================================
EOP Operating
Limited Partnership
Pro Forma
------------------------
ASSETS
Investment in real estate, net $ 13,538,079
Cash and cash equivalents 13,508
Rents and other receivables 112,302
Escrow deposits and restricted cash 36,775
Investment in unconsolidated joint ventures 370,552
Other assets 192,674
------------------------
TOTAL ASSETS $ 14,263,890
========================
LIABILITIES AND PARTNERS' CAPITAL
Mortgage debt $ 2,368,235 (K)
Notes Payable 2,459,398 (K)
Revolving line of credit / term loan 1,123,268 (K)
Distribution payable 107,154
Other liabilities 396,373
------------------------
TOTAL LIABILITIES 6,454,428
Minority Interests:
Partially owned properties 30,122
Preferred Units (100,000 authorized and
18,800 issued) 615,000
General Partners 115,503
Limited Partners 7,048,837
------------------------
TOTAL LIABILITIES PARTNERS' CAPITAL $ 14,263,890
========================
</TABLE>
<PAGE> 10
EOP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 Acquired
EOP Operating Properties, Probable February 1998 and
Limited Partnership Acquisitions and Series B and Series C June 1998 Notes
Historical Dispositions Preferred Offerings Offerings
------------------- -------------------- --------------------- -----------------
(L) (Y)
<S> <C> <C> <C> <C>
REVENUES:
Rental $ 937,070 $ 121,413 $ - $ -
Tenant reimbursements 170,472 25,615 - -
Parking 69,266 6,567 - -
Other 17,886 831 - -
Fees from noncombined affiliates 7,766 - - -
Interest 8,237 - - -
------------------- -------------------- --------------------- -----------------
Total revenues 1,210,697 154,426 - -
------------------- -------------------- --------------------- -----------------
EXPENSES:
Property operating 431,897 54,817 - -
Interest 242,343 74,008 (8,189) (Z) 2,474 AB
Depreciation 207,987 30,579 - -
Amortization 4,947 - - -
General and administrative 45,137 - - -
------------------- -------------------- --------------------- -----------------
Total expenses 932,311 159,404 (8,189) 2,474
------------------- -------------------- --------------------- -----------------
Income before allocation to minority
interests and income from investment
in unconsolidated joint ventures 278,386 (4,978) 8,189 (2,474)
Minority interests:
Partially owned properties (1,608) - - -
Income from investment in unconsolidated
joint ventures 8,155 (651) - -
------------------- -------------------- --------------------- -----------------
Net income from continuing operations 284,933 (5,629) 8,189 (2,474)
Preferred distributions (23,130) - (9,627) (AA) -
------------------- -------------------- --------------------- -----------------
Net income available for Units $ 261,803 $ (5,629) $ (1,438) $ (2,474)
=================== ==================== ===================== =================
Net income available per weighted average
Unit outstanding (Basic) $ 0.94
=============
Weighted average Units outstanding (Basic) 280,077
=============
Net income available per weighted average
Unit outstanding (Diluted) $ 0.93
=============
Weighted Average Units
outstanding (Diluted) 281,208
=============
EOP Operating
Other Capital Limited Partnership
Transactions Pro Forma
---------------- --------------------
REVENUES:
Rental $ - $ 1,058,483
Tenant reimbursements - 196,087
Parking - 75,833
Other - 18,717
Fees from noncombined affiliates - 7,766
Interest 2,063 (AC) 10,300
---------------- --------------------
Total revenues 2,063 1,367,186
---------------- --------------------
EXPENSES:
Property operating - 486,714
Interest 865 (AD) 311,501
Depreciation - 238,566
Amortization - 4,947
General and administrative - 45,137
---------------- --------------------
Total expenses 865 1,086,865
---------------- --------------------
Income before allocation to minority
interests and income from investment
in unconsolidated joint ventures 1,198 280,321
Minority interests:
Partially owned properties - (1,608)
Income from investment in unconsolidated
joint ventures - 7,504
---------------- --------------------
Net income from continuing operations 1,198 286,217
Preferred distributions - (32,757)
---------------- --------------------
Net income available for Units $ 1,198 $ 253,460
================ ====================
Net income available per weighted average
Unit outstanding (Basic) $ 0.88
====================
Weighted average Units outstanding (Basic) 288,688
====================
Net income available per weighted average
Unit outstanding (Diluted) $ 0.87
====================
Weighted average Units outstanding (Diluted) 290,143
====================
</TABLE>
<PAGE> 11
EOP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
EOP
OPERATING BEACON BEACON
LIMITED 1997 CONSOLIDATION PROPERTIES MERGER AND
PARTNERSHIP ACQUIRED DISPOSI- FINANCING AND IPO L.P. HISTORICAL
HISTORICAL PROPERTIES TIONS ACTIVITY ADJUSTMENTS HISTORICAL ADJUSTMENTS
---------- ---------- ------- --------- ------------ ---------- -----------
(D) (E) (F) (L)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental $570,379 $245,032 $(5,645) $ -- $ 8,983(H) $299,196 $5,834(M)
Tenant reimbursements 106,437 54,560 (62) -- -- 39,856 --
Parking 47,051 17,229 (573) -- -- -- --
Other 9,863 4,307 (431) -- -- 11,907 --
Fees from noncombined
affiliates 4,950 -- -- -- -- 3,090 --
Interest/dividends 13,392 69 -- -- -- 10,067 --
-------- -------- ------- -------- -------- -------- ------
Total revenues 752,072 321,197 (6,711) -- 8,983 364,116 5,834
-------- -------- ------- -------- -------- -------- ------
Expenses:
Property operating 282,964 124,069 (2,710) -- -- 107,905 --
Interest 164,105 94,782 (36) 16,606(G) (27,042)(I) 52,344 943(N)
Depreciation 122,074 56,550 (2,071) -- 2,737(J) 65,034 5,374(O)
Amortization 7,357 -- (54) -- -- 4,209 --
General and administrative 34,891 2,185 (283) -- 1,800(K) 37,455 --(P)
-------- -------- ------- -------- -------- -------- ------
Total expenses 611,391 277,586 (5,154) 16,606 (22,505) 266,947 6,317
-------- -------- ------- -------- -------- -------- ------
Income before allocation to minority
interests and income from investment
in unconsolidated joint ventures 140,681 43,611 (1,557) (16,606) 31,488 97,169 (483)
Minority interests:
Partially owned properties (1,701) -- -- -- -- -- --
Income from investment in
unconsolidated joint ventures 5,155 1,581 -- -- -- 6,087 --
-------- -------- ------- -------- -------- -------- ------
Net income from continuing
operations 144,135 45,192 (1,557) (16,606) 31,488 103,256 (483)
Preferred distributions (649) (7,962) -- -- -- (9,349) --
-------- -------- ------- -------- -------- -------- ------
Net income available for Units $143,486 $ 37,230 $(1,557) $(16,606) $ 31,488 $ 93,907 $ (483)
======== ======== ======= ======== ======== ======== ======
Net income available per
weighted average Unit
outstanding (Basic)
Weighted average Units
outstanding (Basic)
Net income available per
weighted average Unit
outstanding (Diluted)
Weighted average Units
outstanding (Diluted)
</TABLE>
-2-
<PAGE> 12
EOP OPERATING LIMITED PARTNERSHIP
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 ACQUIRED
PROPERTIES, PROBABLE FEBRUARY 1998 AND
ACQUISITIONS AND SERIES B AND SERIES C JUNE 1998 NOTES
DISPOSITIONS PREFERRED OFFERINGS OFFERINGS
-------------------- --------------------- -----------------
(Y)
<S> <C> <C> <C>
REVENUES:
Rental $ 229,929 $ - $ -
Tenant reimbursements 37,159 - -
Parking 11,543 - -
Other 2,188 - -
Fees from noncombined affiliates - - -
Interest - - -
-------------------- --------------------- -----------------
Total revenues 280,819 - -
-------------------- --------------------- -----------------
EXPENSES:
Property operating 102,626 - -
Interest 148,386 (27,640) (Z) 4,214 (AB)
Depreciation 54,758 - -
Amortization - - -
General and administrative - - -
-------------------- --------------------- -----------------
Total expenses 306,770 (27,640) 4,214
-------------------- --------------------- -----------------
Income before allocation to minority interests and
income from investment in unconsolidated
joint ventures (25,951) 27,640 (4,214)
Minority interests:
Partially owned properties - - -
Income from investment in unconsolidated joint
ventures (1,847) - -
-------------------- --------------------- -----------------
Net income from continuing operations (27,798) 27,640 (4,214)
Preferred distributions - (25,669) (AA)
-------------------- --------------------- -----------------
Net income available for Units $ (27,798) $ 1,971 $ (4,214)
==================== ===================== =================
Net income available per weighted average
Unit outstanding (Basic)
Weighted average Units outstanding (Basic)
Net income available per weighted average
Unit outstanding (Diluted)
Weighted average Units outstanding (Diluted)
EOP OPERATING
OTHER CAPITAL LIMITED PARTNERSHIP
TRANSACTIONS PRO FORMA
----------------- ---------------------
REVENUES:
Rental $ - $ 1,353,708
Tenant reimbursements - 237,950
Parking - 75,250
Other - 27,834
Fees from noncombined affiliates - 8,040
Interest 4,125 (AC) 27,653
----------------- ---------------------
Total revenues 4,125 1,730,435
----------------- ---------------------
EXPENSES:
Property operating - 614,854
Interest 410 (AD) 428,072
Depreciation - 304,456
Amortization - 11,512
General and administrative - 76,048
----------------- ---------------------
Total expenses 410 1,434,942
----------------- ---------------------
Income before allocation to minority interests and
income from investment in unconsolidated
joint ventures 3,715 295,493
Minority interests:
Partially owned properties - (1,701)
Income from investment in unconsolidated joint
ventures - 10,976
----------------- ---------------------
Net income from continuing operations 3,715 304,768
Preferred distributions (43,629)
----------------- ---------------------
Net income available for Units $ 3,715 $ 261,139
================= =====================
Net income available per weighted average
Unit outstanding (Basic) $ 0.91
=====================
Weighted Average Units Outstanding (Basic) 287,359
=====================
Net income available per weighted average
Unit outstanding (Diluted) $ 0.90
=====================
Weighted Average Units Outstanding (Diluted) 289,136
=====================
</TABLE>
<PAGE> 13
EOP OPERATING LIMITED PARTNERSHIP
NOTES TO THE PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
A. To reflect the following acquisitions during the period from October 1,
1998 to January 7, 1999 and the probable acquisition:
<TABLE>
<CAPTION>
LIABILITIES
DATE PURCHASE CASH ASSUMED OR VALUE OF UNITS VALUE OF PUT
PROPERTY ACQUIRED PRICE PAID ISSUED ISSUED OPTIONS ISSUED
<S> <C> <C> <C> <C> <C> <C>
Worldwide Plaza (1) $624,629 $114,269 $311,050 $171,865 $27,445
Forbes Garage and Allies Garage (2) 31,251 28,862 $2,389 -- --
Texas Commerce January 7, 1999 106,351 106,351 -- -- --
and Computer Associates
City Center Bellevue Probable 115,903 115,903 -- -- --
------- ------- -------- -------- -------
Total $878,134 $365,385 $313,439 $171,865 $27,445
======== ======== ======== ======== =======
</TABLE>
(1) On October 1, 1998, the Company acquired Worldwide Plaza from an
unaffiliated party. The $578.0 million purchase price specified in
the purchase contract was adjusted to $624.6 million for the
following: (a) the assumption of a $268.6 million mortgage with an
estimated mark to market adjustment of $11.2 million; (b) the
assumption of a deferred real estate tax liability (a portion of which
is expected to be received from tenants) with a present value of
approximately $31.2 million; (c) the issuance of 6,861,166 Units with
an estimated fair value of $171.9 million based on a fair value of
$25.05 per Unit; (d) a cash payment of approximately $110.1 million;
(e) closing and transaction costs of approximately $4.2 million; and
(f) the issuance of a transferable put option on the Units exercisable
only on the third anniversary of closing with an estimated fair value
of $27.4 million. This option entitles its holder to additional Common
Shares, the number of which shall be determined using a formula based
on the extent, if any, that the Common Shares are then trading at less
than $29.05 per share.
(2) On December 17, 1998, the Company acquired a leasehold interest in the
Forbes Garage and Allies Garage. The transaction was accounted for as a
capital lease where the initial cost includes a one-time initial lease
fee of $28.0 million, the present value of the future minimum lease
payments of $2,389 and closing costs of $862.
B. To reflect the sales of First Union Center, One Clearlake Centre, Tampa
Commons and Westshore Center on November 5, 1998 and the Walker Building
on November 12, 1998.
C. To write-off the book value of the disposed properties investment in
real estate, rents and other receivables, other assets and other
liabilities.
D. Cash from sales proceeds held in escrow to be used in tax-deferred
exchanges in future acquisitions.
E. To reflect the payoff of mortgage debt encumbering certain properties.
F. To reflect the gain on sales of real estate.
G. To reflect the Series C Offering of $115 million consisting of 4,600,000
shares of 8.625% Series C Preferred Shares, liquidation preference of
$25.00 per share.
-3-
<PAGE> 14
H. To reflect the paydown of the $1.0 Billion Credit Facility with the net
proceeds of the Series C Offering as follows:
Gross Proceeds $115,000
Less: Underwriting and other costs (3,922)
---------
Net proceeds $111,078
=========
I. To reflect the Series C Offering.
J. To reflect the underwriting and other costs incurred in connection with
the Series C Offering.
K. Scheduled payments of principal on total indebtedness for each of the
next five years and thereafter, on a pro forma basis are as follows:
1998 $ 197,169
1999 52,908
2000 146,026
2001 1,467,585
2002 319,779
Thereafter 3,749,925
----------
Subtotal 5,933,392
Net premium (net of accumulated
amortization of $2.1 million) 17,509
----------
Total $5,950,901
==========
L. Represents the consolidated historical statement of operations of the
Company for the nine months ended September 30, 1998 for the Pro Forma
Condensed Combined Statement of Operations for the nine months ended
September 30, 1998 and the combined historical statements of operations
of the Company for the period from July 11, 1997 to December 31, 1997
and Equity Office Predecessors for the period from January 1, 1997 to
July 10, 1997, for the Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1997.
M. To reflect the operations and the depreciation expense for properties
acquired in 1997 for the period from January 1, 1997 through the date of
acquisition. Interest expense was also adjusted, where applicable, to a
full year, for the year ended December 31, 1997.
<TABLE>
<CAPTION>
NOTE
PROPERTY DATE ACQUIRED REFERENCE
-------- ------------- ---------
<S> <C> <C>
177 Broad Street January 29, 1997
Biltmore Apartments January 29, 1997
Preston Commons March 21, 1997
Oakbrook Terrace Tower April 16, 1997
50% Interest in Civic Parking, L.L.C April 16, 1997
One Maritime Plaza April 21, 1997 (1)
10880 Wilshire Boulevard April 23, 1997 (1)
Smith Barney Tower April 29, 1997
201 Mission Street April 30, 1997
Centerpointe I and II April 30, 1997 (1)
Westbrook Corporate Center May 23, 1997 (1)
225 Franklin Street June 4, 1997 (1)
30 N. LaSalle June 13, 1997
Sunnyvale Business Center July 1, 1997 (1)
Adams-Wabash Parking Facility August 11, 1997
Columbus America Properties September 3, 1997
</TABLE>
-4-
<PAGE> 15
<TABLE>
<CAPTION>
NOTE
PROPERTY DATE ACQUIRED REFERENCE
-------- ------------- ---------
<S> <C> <C>
Civic Opera Building October 1, 1997 (1)
Prudential Properties October 1, 1997
550 South Hope Street October 6, 1997
10 & 30 South Wacker Drive October 7, 1997
Acorn Properties October 7, 1997
200 West Adams October 8, 1997 (1)
One Lafayette Centre October 17, 1997
Lakeside Office Park October 20, 1997 (1)
Acorn Properties November 21, 1997
PPM Properties November 24, 1997
LaSalle Office Plaza November 25, 1997
Stanwix Parking Facility November 25, 1997
101 North Wacker December 11, 1997 (1)
Wright Runstad Properties December 17, 1997
Wright Runstad Associates Limited
Partnership December 17, 1997
</TABLE>
(1) Represents properties acquired during 1997 by Beacon prior to the
Beacon Merger.
The depreciation adjustment of $56.6 million in the "1997 Acquired
Properties" column in the statement of operations for the year ended
December 31, 1997, is based on the cost to acquire the above listed
properties, assuming that 10% of the purchase price is allocated to land
and the depreciable lives are 40 years. Depreciation is computed using
the straight-line method.
N. To eliminate the operations of Barton Oaks Plaza II, Westlakes Office
Park and 8383 Wilshire for the year ended December 31, 1997. Barton
Oaks Plaza II was sold in January 1997 and Westlakes Office Park and
8383 Wilshire were sold in May 1997.
O. To reflect the additional interest expense on debt obtained in the year
ended December 31, 1997 on properties acquired before 1997 and to
reflect the $180 Million Notes Offering which occurred on September 3,
1997, and the resulting paydown of the revolving credit facility, and to
reflect the $235.3 million of mortgage indebtedness repaid from draws on
the $1.5 Billion Credit Facility and the repayment of the revolving
credit facility balance. The adjustment also eliminates amortization
expense recorded on the mark-to-market adjustment on debt repaid from
draws on the $1.5 Billion Credit Facility and reflects amortization
related to the fees associated with the $1.5 Billion Credit Facility for
the year ended December 31, 1997, as follows:
<TABLE>
<CAPTION>
<S> <C>
Additional interest from debt obtained during 1997 on properties
acquired before 1997 $ 1,042
Additional interest on $180 Million Notes Offering 9,218
Additional interest on $1.5 Billion Credit Facility 24,126
Decrease in interest from repayment of mortgage indebtedness (13,263)
Decrease in interest from repayment of the revolving credit
facility (8,052)
Amortization of fees associated with the $1.5 Billion Credit
Facility 5,018
Eliminate amortization expense recorded on mark to market
adjustment on debt repaid with the $1.5 Billion Credit
Facility (1,483)
--------
Total $ 16,606
========
</TABLE>
P. To reflect the adjustment for the straight-line effect of scheduled rent
increases, assuming the Consolidation and the IPO closed on January 1,
1997.
-5-
<PAGE> 16
Q. To reflect the net decrease in interest expense associated with the
$15.0 million of mortgage debt on Denver Corporate Center Towers II and
III repaid in May 1997 and the $598.4 million repaid with the net
proceeds of the IPO and cash held by Equity Office Predecessors. In
addition, to eliminate the $5.9 million of amortization historically
recognized as a result of the write-off of deferred loan costs, net of
the $4.1 million amortization of the discount required to record the
mortgage debt at fair value recorded in connection with the
Consolidation and the IPO.
R. To reflect depreciation expense related to the adjustment to record the
net equity value of the investment in real estate for the year ended
December 31, 1997, on a straight-line basis, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Historical investment in real estate before accumulated
depreciation at time of IPO $5,022,946
Less: Portion allocated to land estimated to be 10% (502,295)
----------
Depreciable basis $4,520,651
==========
Depreciation expense based on an estimated useful
life of 40 years $ 113,016
Less: Historical depreciation expense related to properties
contributed at the Consolidation and IPO (106,888)
Less: Pro forma depreciation expense on properties acquired
in 1997 prior to the Consolidation and the IPO (3,391)
----------
Depreciation expense adjustment $ 2,737
==========
</TABLE>
S. To reflect additional general and administrative expenses expected to be
incurred as a result of reporting as a public entity as follows:
Trustees' and officers' insurance $ 375
Printing and mailing 375
Trustees' fees 225
Investor relations 225
Other 600
------
Total $1,800
======
T. Represents Beacon's historical statement of operations prior to the
Beacon Merger for the period from January 1, 1997 to December 18, 1997.
U. To reflect the adjustment for the straight-line effect of scheduled rent
increases, assuming the Beacon Merger closed on January 1, 1997.
V. To reflect amortization of mark-to-market adjustment of Beacon's
mortgage debt.
W. To reflect the depreciation expense related to the adjustment to
record the net equity value of the investment in real estate and
investment in joint ventures on a straight-line basis for the year
ended December 31, 1997 associated with the Beacon Merger, as follows:
Investment in real estate for Beacon Properties $4,204,502
Less: Portion allocated to land (515,022)
----------
Pro Forma depreciable basis of Beacon's investment in
real estate, net $3,689,480
==========
Depreciation expense based on an estimated useful life
of 40 years $ 92,237
Less: Historical expense related to the Beacon
Properties, including the period from December 19, 1997
to December 31, 1997 after the Beacon Merger (73,393)
Less: Pro Forma depreciation expense on Beacon's 1997
acquired properties (13,470)
----------
Adjustment to depreciation expense $ 5,374
==========
-6-
<PAGE> 17
X. Management has estimated that there will be a reduction of general and
administrative expenses as a result of the Beacon Merger, as follows.
The general and administrative expenses savings have not been included
in the pro forma condensed combined statement of operations. There can
be no assurance that the Company will be successful in realizing such
anticipated cost savings.
Salaries and benefits $16,500
Rent 1,200
Office and computer expenses 1,600
Investor relations 1,600
Other 1,100
-------
Total $22,000
Y. To reflect or make a reduction for the operations and the depreciation
expense for the following properties acquired or disposed of in 1998 for
(a) the pro forma condensed combined statement of operations for the
nine months ended September 30, 1998; for the period from January 1,
1998 through the earlier of the date of acquisition/disposition or
September 30, 1998, as applicable, and (b) the pro forma condensed
combined statement of operations for the year ended December 31, 1997,
for the period from January 1, 1997 to December 31, 1997. Interest
expense was also adjusted, where applicable, to reflect nine months and
a full year, for the nine months ended September 30, 1998 and the year
ended December 31, 1997, respectively.
<TABLE>
<CAPTION>
PROPERTY DATE ACQUIRED
- -------- -------------
<S> <C>
BP Tower Garage January 29, 1998
100 Summer Street March 18, 1998
The Tower at New England Executive Park March 31, 1998
Denver Post Tower April 21, 1998
301 Howard and 215 Fremont April 29, 1998
Miller Global Portfolio (1)
Millennium Plaza May 19, 1998
Polk & Taylor(2) May 22, 1998
Walker Building June 1, 1998
Columbia Seafirst Center June 26, 1998
Northland Plaza July 2, 1998
Park Avenue Tower July 15, 1998
Second and Spring July 29, 1998
Colonnade I and II September 30, 1998
Worldwide Plaza October 1, 1998
Forbes Garage and Allies Garage December 17, 1998
Texas Commerce Tower and Computer Associates Tower January 7, 1999
City Center Bellevue Probable Acquisition
PROPERTY DATE DISPOSED
- -------- -------------
First Union Center November 5, 1998
One Clearlake Centre November 5, 1998
Tampa Commons November 5, 1998
Westshore Center November 5, 1998
Walker Building November 12, 1998
</TABLE>
(1) The Company acquired four properties on April 30, 1998 and one property
on May 15, 1998 and the remaining eight properties on July 15, 1998.
The depreciation adjustment of $30,579 million for the nine months ended
September 30, 1998 and $54,758 million for the year ended December 31,
1997 is based on the cost to acquire the properties
-7-
<PAGE> 18
described above assuming that 10% of the purchase price is allocated to
land and the depreciable lives are 40 years. Depreciation is computed
using the straight-line method.
(2) Income from investment in unconsolidated joint ventures and mortgage
receivables has been adjusted for the acquisition of the remaining 90%
interest in Polk & Taylor.
Z. To reflect the decrease in interest expense in connection with the paydown
of the Credit Facilities with the net proceeds of the Series B and Series C
Preferred Offerings.
<TABLE>
<CAPTION>
Nine
Months
Ended Year Ended
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Decrease in interest expense from Series B Offering $2,774 $19,976
Decrease in interest expense from Series C Offering 5,415 7,664
------ -------
Decrease in interest expense $8,189 $27,640
====== =======
</TABLE>
AA. To reflect preferred dividends in connection with the Series B and
Series C Preferred Offerings of 5.25% and 8.625% per annum,
respectively, as follows:
<TABLE>
<CAPTION>
Nine
Months
Ended Year Ended
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Increase in preferred dividends from Series B Offering $2,188 $15,750
Increase in preferred dividends from Series C Offering 7,439 9,919
------ -------
Increase in preferred dividends $9,627 $25,669
====== =======
</TABLE>
AB. To reflect the net increase in interest expense in connection with the
February 1998 and June 1998 Notes Offerings and the paydown of the
revolving credit facility and the $1.5 Billion Credit Facility with the
net proceeds of the February 1998 and June 1998 Notes Offerings and to
reflect amortization of the financing costs incurred in connection with
the February 1998 and June 1998 Notes Offering.
<TABLE>
<CAPTION>
Nine
Months
Ended Year Ended
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Net increase in interest expense from February 1998 Offering $ 508 $3,735
Net increase in interest expense from June 1998 Offering 1,966 479
------ ------
Increase in interest expense $2,474 $4,214
====== ======
</TABLE>
-8-
<PAGE> 19
AC. To reflect income from our investment in Capital Trust.
AD. To reflect the net increase in interest expense in connection with the
paydown of the Credit Facilities with the net proceeds of the UIT
Offering and the increase in the Credit Facilities from our investment
in Capital Trust as follows:
<TABLE>
<CAPTION>
Nine
Months
Ended Year Ended
September 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Increase in interest expense from investment in $1,625 $ 3,450
Capital Trust
Decrease in interest expense from UIT Offering (760) (3,040)
------ -------
Net increase in interest expense $ 865 $ 410
====== =======
</TABLE>
-9-
<PAGE> 20
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-3) and related Prospectus of EOP Operating Limited Partnership for the
registration of: $2.0 billion debt securities and debt warrants (registration
statement no. 333-58689), of our reports included in the Current Report of EOP
Operating Limited Partnership on Form 8-K dated January 7, 1999, filed with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
DATE OF AUDITORS'
FINANCIAL STATEMENTS REPORT
-------------------
<S> <C>
Statement of Revenue and Certain Expenses of Park Avenue Tower
for the year ended December 31, 1997.................... July 3, 1998
Combined Statement of Revenue and Certain Expenses of Worldwide
Plaza for the year ended December 31, 1997.............. October 2, 1998
</TABLE>
ERNST & YOUNG LLP
Chicago, Illinois
January 19, 1999
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees
Equity Office Properties Trust
We have audited the accompanying Statement of Revenue and Certain Expenses of
Park Avenue Tower (the Property) as described in Note 2 for the year ended
December 31, 1997. The Statement of Revenue and Certain Expenses is the
responsibility of the Property's management. Our responsibility is to express an
opinion on the Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures made in the Statement of Revenue
and Certain Expenses. An audit also includes assessing the basis of accounting
used and significant estimates made by management, as well as evaluating the
overall presentation of the Statement of Revenue and Certain Expenses. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission, for inclusion in a Current Report on Form 8-K of Equity
Office Properties Trust as described in Note 1, and is not intended to be a
complete presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses
described in Note 1 of the Property for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
July 3, 1998
<PAGE> 22
PARK AVENUE TOWER
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1998
YEAR ENDED THROUGH
DECEMBER 31, 1997 MAY 31, 1998
----------------- ----------------
REVENUE (UNAUDITED)
<S> <C> <C>
Base rents........................... $ 27,817 $ 12,098
Tenant reimbursements................ 2,319 991
-------- --------
Total revenue..................... 30,136 13,089
-------- --------
EXPENSES
Property operating and maintenance... 4,135 1,774
Real estate taxes.................... 6,606 2,649
Management fee....................... 275 68
Insurance............................ 70 27
-------- --------
Total expenses.................... 11,086 4,518
-------- --------
Revenue in excess of certain expenses.... $ 19,050 $ 8,571
======== ========
</TABLE>
See accompanying notes.
<PAGE> 23
PARK AVENUE TOWER
NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying statements of revenue and certain expenses were prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in a Current Report on Form 8-K of Equity
Office Properties Trust. The accompanying statements are not representative of
the actual operations of the property, as described in Note 2, for the periods
presented nor indicative of future operations as certain expenses, primarily
depreciation, amortization and interest expense, which may not be comparable to
the expenses expected to be incurred by Equity Office Properties Trust in future
operations of the property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the
related leases. Expenses are recognized in the period in which they are
incurred.
Use of Estimates
The preparation of the statements of revenue and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of the revenue
and certain expenses during the reporting periods. Actual results could differ
from these estimates.
Unaudited Interim Statement
In the opinion of management, the interim financial statement reflects all
adjustments necessary for a fair presentation of the results of the interim
period. All such adjustments are of a normal, recurring nature.
2. DESCRIPTION OF PROPERTY
The accompanying statements of revenue and certain expenses relate to the
operations of Park Avenue Tower, an office building with approximately 551,000
rentable square feet, located in New York City, New York (the "Property"). A
single tenant, IBM, leased approximately 56% of the building as of December 31,
1997. On July 15, 1998, Equity Office Properties Trust acquired the mortgage
encumbering the Property for approximately $245 million from an unrelated party.
3. RENTALS
The Property has entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis, as
defined.
<PAGE> 24
PARK AVENUE TOWER
NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES
4. RELATED PARTY TRANSACTIONS
During January and February of the year ended December 31, 1997, the
Property was managed by an affiliate of the owner of the Property. The
management fees paid to the affiliate were approximately $158,000 (2.5% of
gross revenue).
In 1997, fees of approximately $460,500 were paid for security services,
$1,352,100 was paid for contractual cleaning services and $9,800 was paid
for non-contractual cleaning services to affiliates of the owner of the
Property. The affiliates are related to the owner of the Property through
common ownership.
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees
Equity Office Properties Trust
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Worldwide Plaza (the Property) as described in Note 2 for the year
ended December 31, 1997. The Combined Statement of Revenue and Certain Expenses
is the responsibility of the Property's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Combined Statement of Revenue and Certain Expenses
is free from material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures made in the Combined
Statement of Revenue and Certain Expenses. An audit also includes assessing the
basis of accounting used and significant estimates made by management, as well
as evaluating the overall presentation of the Combined Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission, for inclusion in a Current Report on Form 8-K of Equity
Office Properties Trust as described in Note 1, and is not intended to be a
complete presentation of the Property's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the combined revenue and
certain expenses described in Note 1 of the Property for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
October 2, 1998
<PAGE> 26
WORLDWIDE PLAZA
COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1998
DECEMBER 31, 1997 THROUGH
AUGUST 31, 1998
----------------- ---------------
REVENUE (UNAUDITED)
<S> <C> <C>
Base rents............................................ $ 52,818 $ 36,531
Tenant reimbursements................................. 15,203 15,731
-------- --------
Total revenue...................................... 68,021 52,262
-------- --------
EXPENSES
Property operating and maintenance.................... 8,936 6,244
Real estate taxes..................................... 13,709 10,325
Management fee........................................ 750 650
Insurance............................................. 386 159
-------- --------
Total expenses..................................... 23,781 17,378
-------- --------
Revenue in excess of certain expenses..................... $ 44,240 $ 34,884
======== ========
</TABLE>
See accompanying notes.
<PAGE> 27
WORLDWIDE PLAZA
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined statements of revenue and certain expenses were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in a Current Report on Form 8-K
of Equity Office Properties Trust. The accompanying statements are not
representative of the actual operations of the property, as described in Note 2,
for the periods presented nor indicative of future operations as certain
expenses, primarily depreciation, amortization and interest expense, which may
not be comparable to the expenses expected to be incurred by Equity Office
Properties Trust in future operations of the property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the
related leases. Expenses are recognized in the period in which they are
incurred.
Use of Estimates
The preparation of the combined statements of revenue and certain expenses
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of the
revenue and certain expenses during the reporting periods. Actual results could
differ from these estimates.
Unaudited Interim Statement
In the opinion of management, the interim financial statement reflects all
adjustments necessary for a fair presentation of the results of the interim
period. All such adjustments are of a normal, recurring nature.
2. DESCRIPTION OF PROPERTY
The accompanying combined statements of revenue and certain expenses relate to
the operations of Worldwide Plaza, an office building with approximately
1,600,000 rentable square feet and a commercial complex including retail stores,
a theater, a health club and a parking garage (the "Amenities"), located in New
York City, New York (the office building' together with the Amenities' are
referred to as the "Property"). Two tenants of the office building, Ogilvy &
Mather and Cravath, Swaine & Moore, occupied approximately 37% and 27% of the
building, respectively, as of December 31, 1997. On October 1, 1998, Equity
Office Properties Trust acquired the office building and made an investment in
the mortgages underlying the Amenities for approximately $625 million.
3. RENTALS
The Property has entered into tenant leases that provide for tenants to share in
the operating expenses and real estate taxes on a pro rata basis, as defined.
<PAGE> 28
WORLDWIDE PLAZA
NOTES TO COMBINED STATEMENTS OF REVENUE AND CERTAIN EXPENSES
4. RELATED PARTY TRANSACTIONS
For the year ended December 31, 1997, the Property was managed by an affiliated
party to the previous owner of the office property. The management fees paid to
the affiliate were approximately $750,000 (approximately 1.0% of gross revenue).
For the year ended December 31, 1997, the Amenities received $245,004 in
reimbursements for maintenance and security services from a residential
condominium which is attached to the Property. For the year ended December 31,
1997, the Amenities paid $263,968 to the residential condominium for its share
of general common area expenses and cooling tower expenses.
5. REAL ESTATE TAXES
The Property has been granted a real estate tax deferral under the Industrial
and Commercial Incentive Program ("ICIP") of the City of New York. The benefits
available for commercial projects are based on an exemption base which is the
increased assessed value due to the improvements made during the first three
years of the benefit period. The ICIP extends over a 20-year benefit period with
tax deferred benefits to the Property as follows:
In the first three benefit years, there is a 100% deferral of the real estate
taxes resulting from the increase in assessed value due to improvements. In
years 4 to 7, the amount of real estate taxes that were deferred is decreased by
20% per year. In years 8 to 10, there are no deferral benefits, but previously
deferred taxes are not due. During years 11 to 20, the total amount of deferred
real estate taxes (applicable to years 1 to 7) is repaid at a rate of 10% per
year. As of July 1, 1997, the Property began its tenth year of the 20-year
benefit period.
