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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 1-13625
EOP OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
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DELAWARE 36-4156801
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization) 60606
TWO NORTH RIVERSIDE PLAZA, (Zip Code)
SUITE 2100, CHICAGO, ILLINOIS
(Address of principal executive offices)
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(312) 466-3300
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest ("Units")
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Units held by non-affiliates of the
registrant as of March 1, 2000 was $6,600,295,958.
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EOP OPERATING LIMITED PARTNERSHIP
TABLE OF CONTENTS
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PAGE
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PART I.
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 25
Item 4. Submission of Matters to a Vote of Security Holders......... 25
PART II.
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters......................................... 25
Item 6. Selected Financial Data..................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 29
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 50
Item 8. Financial Statements........................................ 51
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 91
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 91
Item 11. Executive Compensation...................................... 94
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 99
Item 13. Certain Relationships and Related Transactions.............. 100
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 104
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PART I
ITEM 1. BUSINESS.
THE COMPANY
As used herein, the terms "we," "us," "our," "EOP Partnership" "Operating
Partnership" or the "Company" refer to EOP Operating Limited Partnership, a
Delaware limited partnership, individually or together with its subsidiaries and
predecessors. Together with our sole managing general partner, Equity Office
Properties Trust, a Maryland real estate investment trust ("Equity Office" or
the "Trust"), we were formed to continue and expand the national office property
business organized by Mr. Samuel Zell, the Chairman of the Board of Equity
Office, and to complete the consolidation of our predecessors. We are a fully
integrated, self-managed real estate company engaged in acquiring, owning,
managing and leasing office properties and parking facilities.
As of December 31, 1999, we owned or had an interest in 294 office
properties containing approximately 77.0 million rentable square feet of office
space (the "Office Properties") and owned 20 stand-alone parking facilities
containing approximately 20,506 parking spaces (the "Parking Facilities" and,
together with the Office Properties, The "Properties"). The weighted average
occupancy for the Office Properties at December 31, 1999 was approximately
93.7%. The Office Properties are located in 81 submarkets in 35 markets in 23
states and the District of Columbia. The Office Properties, by rentable square
feet, are located approximately 52% in central business districts ("CBDs") and
48% in suburban markets.
Equity Office has elected to be taxed as a real estate investment trust, or
"REIT", for federal income tax purposes. To facilitate maintenance of Equity
Office's qualification as a REIT for federal income tax purposes, we generally
conduct the management of properties that are not wholly owned by us and our
subsidiaries and certain other business activities through taxable corporations
in which we own substantially all of the equity but little or no voting stock.
We refer to these corporations as our "noncontrolled subsidiaries."
Our executive offices are located at Two North Riverside Plaza, Suite 2100,
Chicago, Illinois 60606, and our telephone number is (312) 466-3300.
ACQUISITION ACTIVITY
During the period from 1987 through 1999, we invested approximately $12.9
billion, averaging $2.2 billion annually for the five years ended December 31,
1999, calculated on a cost basis, in acquisitions of institutional quality
office properties and parking facilities throughout the United States. During
the year ended December 31, 1999, we completed six acquisition transactions in
which we acquired ten office properties, containing an aggregate of
approximately 1.9 million square feet of rentable space and one parking facility
containing 589 spaces. The aggregate consideration we paid for these
acquisitions during 1999 was approximately $393.2 million, comprised of $315.5
million in cash, $24.5 million in units of limited partnership interest in EOP
Partnership and $53.2 million in assumed liabilities.
PROPOSED ACQUISITION OF CORNERSTONE PROPERTIES LIMITED PARTNERSHIP
On February 11, 2000, Equity Office, EOP Partnership, Cornerstone
Properties Inc. ("Cornerstone") and Cornerstone Properties Limited Partnership
("Cornerstone Partnership") entered into a merger agreement where Cornerstone
will merge with and into Equity Office and Cornerstone Partnership will merge
with and into EOP Partnership. The total merger consideration will be
approximately $4.6 billion, including the assumption of approximately $1.8
billion in debt, the payment of $1.1 billion in cash and the issuance of
approximately 63.6 million new Equity Office common shares and EOP Partnership
units. Cornerstone common stockholders may elect to receive $18.00 per share in
cash, plus any accrued but unpaid dividends, or 0.7009 of an Equity Office
common share based on a prevailing transaction price of $25.68125 per Equity
Office common share, subject to proration. Cornerstone's convertible preferred
stockholders will receive $18.00 per share in cash. Cornerstone Partnership
unitholders will receive 0.7009 units of EOP Partner-
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ship, plus any accrued but unpaid distributions. We intend to finance the $1.1
billion cash portion of the purchase price by obtaining additional term loans,
issuing unsecured notes or amending our existing line of credit.
The merger is expected to be completed in the third quarter of 2000 and is
subject to the approval of Equity Office shareholders and Cornerstone
stockholders and other customary conditions. Cornerstone is a fully integrated
REIT and currently owns 86 office properties in the U.S. totaling over 18.5
million square feet, and has an additional $884 million of projects under
development. If the merger is completed, we will own approximately 380 office
properties consisting of approximately 95.5 million square feet.
RECENT FINANCING TRANSACTION
On March 21, 2000, EOP Partnership issued $500 million in unsecured notes
due March 2006. The $500 million notes have a fixed coupon rate of approximately
8.4% per annum and an effective rate of approximately 8.5% per annum. We
received net proceeds of approximately $496.2 million, which were used to
paydown our line of credit.
BUSINESS AND GROWTH STRATEGIES
Our primary business objective is to achieve sustainable long-term growth
in cash flow and portfolio value. We intend to achieve this objective by owning
and operating institutional quality office buildings and providing a superior
level of service to tenants across the United States. We have historically
supplemented this strategy through our ownership of Parking Facilities and
intend, in the future, to supplement further this strategy through Access, a
strategic business service unit that provides office space customers access to
business products and services.
INTERNAL GROWTH. We believe that our future internal growth will come from
(a) lease up of vacant space, (b) tenant roll-over at increased rents where
market conditions permit, (c) repositioning of certain properties which have not
yet achieved stabilization, (d) ancillary revenues generated from providing
business products and services to tenants through Access, (e) reduction of
various expenses as a percentage of revenues, and (f) capital market
efficiencies.
As of December 31, 1999, 4.9 million rentable square feet of our office
property space was vacant. During the period from December 31, 1999 through
December 31, 2004, 5,364 leases for 44.8 million rentable square feet of space
are scheduled to expire. As of December 31, 1999, the average rent for this
space was $24.55 per square foot. The actual rental rates at which available
space will be relet will depend on prevailing market factors at the time.
We own various undeveloped land on which office space could be developed,
assuming our receipt of all necessary permits and licenses. Our policy is to
develop land only when market conditions warrant. Although we may develop
certain properties ourselves, a portion of this activity may be conducted with
joint venture partners.
EXTERNAL GROWTH. Assuming that capital is available to us on reasonable
terms, we expect to actively pursue, over the long term, acquisitions of
additional office properties. Properties may be acquired separately or as part
of a portfolio, and may be acquired for cash and/or in exchange for our equity
or debt securities. Such acquisitions may be customary real estate transactions,
joint ventures, and/or mergers or other business combinations.
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EMPLOYEES
As of December 31, 1999, we had approximately 1,733 employees providing
in-house expertise in:
- property management
- real estate services
- leasing
- finance
- tax
- acquisition
- development
- disposition
- marketing
- accounting
- information systems
- law
Our five most senior executives have an average tenure of 9.5 years with us
or our affiliates and an average of 21 years experience in the real estate
industry.
EXECUTIVE AND SENIOR OFFICERS OF EQUITY OFFICE
The following executive and senior officers of Equity Office currently hold
the offices indicated.
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NAME AGE OFFICE HELD
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Timothy H. Callahan.... 49 President and Chief Executive Officer
Richard D. Kincaid..... 38 Executive Vice President and Chief Financial Officer
Michael A. Steele...... 53 Executive Vice President -- Real Estate Operations and Chief
Operating Officer
Stanley M. Stevens..... 51 Executive Vice President, Chief Legal Counsel and Secretary
David A. Helfand....... 35 Executive Vice President -- New Business Development
Peter H. Adams......... 53 Senior Vice President -- Pacific Region
Stephen M. Briggs...... 41 Senior Vice President -- Financial Reporting and Accounting
Sybil J. Ellis......... 46 Senior Vice President -- Real Estate Investments
Maureen O. Fear........ 43 Senior Vice President -- Treasurer
Debra L. Ferruzzi...... 39 Senior Vice President and Executive Advisor
Frank Frankini......... 45 Senior Vice President -- Design & Construction
Peter D. Johnston...... 43 Senior Vice President -- Southwest Region
Kim J. Koehn........... 44 Senior Vice President -- West Region
Frances P. Lewis....... 46 Senior Vice President -- Corporate Communications
Anita A. Loch.......... 52 Senior Vice President -- Human Resources
Gregory S. Mancuso..... 42 Senior Vice President -- Information Systems
Diane M. Morefield..... 41 Senior Vice President -- Investor Relations
Christopher P. Mundy... 38 Senior Vice President -- Northeast Region
David H. Naus.......... 44 Senior Vice President -- Real Estate Investments
Arvid J. Povilaitis.... 39 Senior Vice President -- Central Region
John C. Schneider...... 41 Senior Vice President -- Legal and Associate General Counsel
for Property Operations
Mark E. Scully......... 41 Senior Vice President -- Southeast Region
Michael E. Sheinkop.... 37 Senior Vice President -- Real Estate Services
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Timothy H. Callahan has been a trustee, Chief Executive Officer and
President of Equity Office since October 1996. Mr. Callahan served on the Board
of Managers and was the Chief Executive Officer of Equity Office Holdings, L.L.C
("EOH"), and Equity Office Properties, L.L.C. ("EOP LLC"), predecessors of the
Company, from August 1996 until October 1997. Mr. Callahan was Executive Vice
President and Chief
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Financial Officer of Equity Group Investments, Inc. ("EGI"), an owner, manager
and financier of real estate and corporate investments, from January 1995 until
August 1996, was Executive Vice President of EGI from November 1994 through
January 1995 and was Senior Vice President of EGI from July 1992 until November
1994. Mr. Callahan was Vice President -- Finance of the Edward J. DeBartolo
Corporation, a developer, owner and operator of shopping centers, in Youngstown,
Ohio, from July 1988 until July 1992. Mr. Callahan was employed by Chemical
Bank, a commercial bank located in New York, New York, from July 1973 until
March 1987.
Richard D. Kincaid has been Executive Vice President and Chief Financial
Officer of Equity Office since March 1997 and was Senior Vice President and
Chief Financial Officer of the Company from October 1996 until March 1997. Mr.
Kincaid was Senior Vice President and Chief Financial Officer of EOH from July
1995 until October 1997. Mr. Kincaid was Senior Vice President of EGI from
February 1995 until July 1995. Mr. Kincaid was Senior Vice President of the
Yarmouth Group, a real estate investment company in New York, New York, from
August 1994 until February 1995. Mr. Kincaid was Senior Vice
President -- Finance for EGI from December 1993 until July 1994. Mr. Kincaid was
Vice President -- Finance for EGI from August 1990 until December 1993. Mr.
Kincaid was Vice President for Barclays Bank PLC, a commercial bank located in
Chicago, Illinois, from August 1987 until August 1990.
Michael A. Steele has been Executive Vice President -- Real Estate
Operations and Chief Operating Officer for Equity Office since March 1998 and
was Executive Vice President -- Real Estate Operations of the Company from
October 1996 until February 1998. Mr. Steele was President and Chief Operating
Officer of EOP LLC from July 1995 until October 1997. Mr. Steele was Executive
Vice President of EOH from July 1995 until October 1997. Mr. Steele was
President and Chief Operating Officer of Equity Office Properties, Inc., a
subsidiary of EGI which provided real estate property management services ("EOP,
Inc."), from November 1993 through October 1995. Mr. Steele was President and
Chief Executive Officer of First Office Management, a former division of Equity
Property Management, Inc., that provided real estate property management
services ("FOM"), from June 1992 until October 1993. Mr. Steele was Senior Vice
President and regional director for Rubloff, Inc., a full service real estate
company in Chicago, Illinois, from April 1987 until June 1992.
Stanley M. Stevens has been Executive Vice President, Chief Legal Counsel
and Secretary of the Equity Office since October 1996. Mr. Stevens was Executive
Vice President and General Counsel of EOH from September 1996 until October
1997. Mr. Stevens was a vice president of Rosenberg & Liebentritt, P.C., a law
firm in Chicago, Illinois, from December 1993 until September 1996. Mr. Stevens
was a partner at Rudnick & Wolfe, a national law firm based in Chicago,
Illinois, from October 1987 until December 1993.
David A. Helfand has been Executive Vice President -- New Business
Development of Equity Office since February 2000 and was its Senior Vice
President -- New Business Development from July 1998 to February 2000. Mr.
Helfand was Managing Director of Equity International Properties, Ltd. from
December 1997 until July 1998. Mr. Helfand was Chief Executive Officer of
Manufactured Home Communities, Inc. from August 1996 until December 1997 and was
President of Manufactured Home Communities, Inc. from January 1995 until July
1996. From December 1992 until February 1995, Mr. Helfand was Chief Financial
Officer and from March 1994 until January 1995, he was Vice President of
Manufactured Home Communities, Inc. Since May 1995, Mr. Helfand has been a
member of the Board of Directors of Manufactured Home Communities, Inc.
Peter H. Adams has been Senior Vice President -- Pacific Region of Equity
Office since March 1998 and was Regional Vice President -- Pacific Region of the
Company from March 1997 until February 1998. Mr. Adams was Vice President
- -- Group Manager of EOH from July 1994 until July 1995, and Vice
President -- Regional Manager from July 1995 until March 1997. Mr. Adams was
President of Adams Equities, a private real estate consulting firm, from 1990 to
1994.
Stephen M. Briggs has been Senior Vice President -- Accounting and
Financial Reporting of Equity Office since April 1999. Mr. Briggs was Vice
President -- Accounting and Financial Reporting of the Company from July 1997
until March 1999. Mr. Briggs was Vice President -- Financial Accounting of EOP,
Inc. from November 1993 until July 1997.
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Sybil J. Ellis has been Senior Vice President -- Real Estate Investments of
Equity Office since December 1999. Ms. Ellis was Senior Vice
President -- Acquisitions of the Company from March 1997 until December 1999.
Ms. Ellis was Senior Vice President -- Acquisitions of EOH from July 1995 until
October 1997. Ms. Ellis was Senior Vice President -- Acquisitions of EOP, Inc.
from July 1994 through July 1995 and was Vice President -- Acquisitions of EOP,
Inc. from November 1993 until July 1994. Ms. Ellis was Vice
President -- Acquisitions of EAM from March 1990 until October 1993.
Maureen O. Fear has been Senior Vice President -- Treasurer of Equity
Office since November 1998. Ms. Fear was Assistant Treasurer of Comdisco, Inc.
from 1992 until November 1998. From 1989 until 1992, Ms. Fear was Cash Manager
of Comdisco, Inc. and from 1984 until 1989, Ms. Fear was Transaction Analyst,
Private Placement Group of Comdisco, Inc.
Debra L. Ferruzzi has been Senior Vice President and Executive Advisor of
Equity Office since June 1998. Ms. Ferruzzi was Senior Vice President -- Finance
for EGI from December 1995 until June 1998. Ms. Ferruzzi was Vice President of
EAM from December 1992 until December 1995. She was employed by EGI from 1982
until May 1998.
Frank Frankini has been Senior Vice President -- Design and Construction of
Equity Office since March 1997. Mr. Frankini was Senior Vice President -- Design
and Construction of EOP LLC from July 1995 until October 1997. Mr. Frankini was
Senior Vice President -- Engineering and Operations of EOP, Inc. from November
1993 until July 1995. Mr. Frankini was Senior Vice President -- Engineering and
Operations of FOM from October 1990 until October 1993. Mr. Frankini was
National Director of Engineering and Operations for Rubloff, Inc., a full
service real estate company in Chicago, Illinois, from October 1984 until
October 1990.
Peter D. Johnston has been Senior Vice President -- Southwest Region of
Equity Office since March 1998 and was Regional Vice President -- Southwest
Region from January 1998 until February 1998. Mr. Johnston was Senior Vice
President -- National Accounts from April 1993 until February 1998.
Kim J. Koehn has been Senior Vice President -- West Region of Equity Office
since March 1998 and was Regional Vice President -- West Region from March 1997
until February 1998 and was also Regional Vice President Southwest Region from
March 1997 until December 1997. Mr. Koehn was Senior Vice President -- Asset
Management of EOH from December 1995 to February 1997. Mr. Koehn was a Vice
President of EOH from June 1993 until December 1995.
Frances P. Lewis has been Senior Vice President -- Corporate Communications
of Equity Office since April 1997. Ms. Lewis was Vice President -- Corporate
Communications of EGI from November 1994 until April 1997. Ms. Lewis was Vice
President -- Publications of EGI from September 1988 until October 1994.
Anita A. Loch has been Senior Vice President -- Human Resources of Equity
Office since January 1999. Ms. Loch was Vice President of Human Resources of
Moore Corporation, Ltd., a manufacturer, seller and distributor of business
communication products, from 1997 until December 1998. From 1992 until 1997, Ms.
Loch was Vice President of Human Resources of Continental Can Europe, White Cap,
Inc. Division.
Gregory S. Mancuso has been Senior Vice President -- Information Systems of
Equity Office since October 1998. Mr. Mancuso was Senior Vice President,
Business Systems Integration Group of ERE Yarmouth, an international real estate
consulting company, from 1997 until September 1998. Mr. Mancuso was Senior Vice
President/CIO of The Yarmouth Group, Inc., from 1994 until 1997, and was Senior
Vice President of The Yarmouth Group, Inc. from 1991 until 1994. Mr. Mancuso
held various positions at The Yarmouth Group, Inc. from 1982 through 1997.
Diane M. Morefield has been Senior Vice President -- Investor Relations
since January 1999 and was Senior Vice President -- Finance/Capital Markets of
Equity Office from July 1997 until December 1998. Ms. Morefield was Senior
Manager in the Corporate Finance practice of Deloitte & Touche, a public
accounting and consulting firm, from November 1994 until July 1997. Ms.
Morefield was Executive Vice President of the Fordham Company, a real estate
development company located in Chicago, Illinois, from
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November 1993 until November 1994. Ms. Morefield was Vice President and Team
Leader for the Real Estate Group division, in the Midwest, of Barclays Bank PLC
from August 1983 until November 1993.
Christopher P. Mundy has been Senior Vice President -- Northeast Region of
Equity Office since March 1998, and was Regional Vice President -- Northeast
Region from July 1997 until February 1998. Mr. Mundy was Vice
President -- Leasing of EOH from November 1991 until July 1997.
David H. Naus has been Senior Vice President -- Real Estate Investments of
Equity Office since December 1999. Mr. Naus was Senior Vice
President -- Acquisitions of the Company from March 1997 until December 1999.
Mr. Naus was Senior Vice President -- Acquisitions for EOH from December 1995
until October 1997. Mr. Naus was Vice President -- Acquisitions of EOH from July
1995 until December 1995. Mr. Naus was Vice President -- Acquisitions of EOP,
Inc. from November 1993 until July 1995. Mr. Naus was Vice
President -- Acquisitions of EAM from November 1992 until November 1993. Mr.
Naus was Vice President of EAM from October 1988 until November 1992.
Arvid A. Povilaitis has been Senior Vice President -- Central Region of
Equity Office since March 1998 and was Regional Vice President -- Central Region
from March 1997 until February 1998. Mr. Povilaitis was Vice President -- Asset
Management of EOH from August 1994 until February 1997. Mr. Povilaitis was Vice
President Investment Properties of Strategic Realty Advisors, Inc., a real
estate and advisory company, from January 1994 until August 1994. Mr. Povilaitis
was employed at VMS Realty Partners, a sponsor of public and private real estate
limited partnerships, from January 1983 until January 1994, most recently
serving as Second Vice President.
John C. Schneider has been Senior Vice President -- Legal and Associate
General Counsel for Property Operations of Equity Office since July 1998. From
January 1997 until June 1998, Mr. Schneider was a Vice President of the Company.
From January 1994 until December 1996, Mr. Schneider was a vice president of
Rosenberg & Liebentritt, P.C.
Mark E. Scully has been Senior Vice President -- Southeast Region of Equity
Office since March 1998 and was Regional Vice President for the Southeast Region
from March 1997 until February 1998. Mr. Scully was Vice President -- Regional
Leasing Director of EOH from January 1995 until February 1997. Mr. Scully was
Regional Leasing Director of EOH from September 1991 until December 1994.
Michael E. Sheinkop has been Senior Vice President -- Real Estate Services
of the Company since January 1999 and was Senior Vice President -- Portfolio
Management of the Company from November 1997 until December 1998. Mr. Sheinkop
was Senior Vice President -- Divisional Manager of EOH from March 1997 until
October 1997 and for the Company from March 1997 through December 1997. Mr.
Sheinkop was Senior Vice President -- Asset Management of EOH from December 1995
until February 1997. Mr. Sheinkop was Vice President -- Asset Management of EOH
from July 1995 until December 1995. Mr. Sheinkop was Vice President -- Asset
Management of EOP, Inc. from November 1993 until July 1995. Mr. Sheinkop was
Vice President of EAM from March 1990 until November 1993.
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RISK FACTORS
Set forth below are the risks that we believe are material to investors who
purchase or own our units of limited partnership interest. Our units of limited
partnership interest are redeemable on a one-for-one basis for Equity Office
common shares or their cash equivalent, at the election of Equity Office. We
refer to our units as our "securities" and the investors who own units as our
"securityholders."
WE MAY BE UNABLE TO MANAGE EFFECTIVELY OUR RAPID GROWTH AND EXPANSION INTO
NEW MARKETS. We have grown rapidly since Equity Office's initial public offering
in July 1997. As of December 31, 1999, we owned interests in 294 office
properties containing 77.0 million square feet. On a square footage basis, our
office portfolio grew by 139%, from the time of our initial public offering in
July 1997 through the end of 1999. If we do not effectively manage our rapid
growth, we may not be able to make expected distributions to our securityholders
and the market value of our securities may decline.
OUR PERFORMANCE AND SECURITIES VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH
THE REAL ESTATE INDUSTRY. If we do not generate income sufficient to pay our
expenses, service our debt and maintain our properties, we may not be able to
make expected distributions to our securityholders. As a real estate company, we
are susceptible to the following real estate industry risks:
- downturns in the national, regional and local economic conditions where
our properties are located;
- local conditions such as an oversupply of office properties or a
reduction in demand for office properties;
- the attractiveness of our properties to tenants;
- competition from other available office properties;
- changes in market rental rates and the need to periodically repair,
renovate and relet space;
- our ability to collect rent from tenants; and
- our ability to pay for adequate maintenance, insurance and other
operating costs, including real estate taxes that may increase over time
as markets stabilize, and that are not necessarily reduced when
circumstances such as market factors and competition cause a reduction in
income from the property.
WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE. When our
tenants decide not to renew their leases upon expiration, we may not be able to
relet the space. Even if the tenants do renew or we can relet the space, the
terms of renewal or reletting, including the cost of required renovations, may
be less favorable than current lease terms or less favorable than the market has
anticipated in the valuation of our securities. From now through December 31,
2004, leases will expire on a total of 62% of the currently occupied rentable
square feet at our properties. If we are unable to promptly renew the leases or
relet this space, or if the rental rates upon a renewal or reletting are
significantly lower than expected rates, then our cash flow and ability to
service debt and make distributions to securityholders would be adversely
affected.
NEW ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED. Assuming we are able to
obtain capital on commercially reasonable terms, we intend to continue to
actively acquire office properties. Newly acquired properties may fail to
perform as expected. We may underestimate the costs necessary to bring an
acquired property up to standards established for its intended market position.
COMPETITION FOR ACQUISITIONS COULD RESULT IN INCREASED PRICES FOR
PROPERTIES. We expect other major real estate investors with significant capital
to compete with us for attractive investment opportunities. These competitors
include publicly traded REITs, private REITs, investment banking firms and
private institutional investment funds. This competition could increase prices
for office properties.
BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO SELL
PROPERTIES WHEN APPROPRIATE. Real estate investments generally cannot be sold
quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. This inability to respond to changes in the
performance of our investments could adversely affect our ability to service
debt and make distributions to our securityholders. In addition, our ability to
realize the full economic value from the sale of some of our assets may be
limited by
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potential adverse tax consequences to us or to Equity Office or by agreements
that we have entered into in connection with the acquisition of some of our
properties that may limit our ability to sell our assets.
SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE. We carry comprehensive
liability, fire, extended coverage and rental loss insurance on all of our
properties. There are, however, some types of losses, such as lease and other
contract claims, that generally are not insured. Should an uninsured loss or a
loss in excess of insured limits occur, we could lose all or a portion of the
capital we have invested in a property, as well as the anticipated future
revenue from the property. Nevertheless, we might remain obligated for any
mortgage debt or other financial obligations related to the property.
We carry earthquake insurance on all of our properties, including those
located in California. Our earthquake policies are subject, however, to coverage
limitations. We cannot guarantee that material losses in excess of insurance
proceeds will not occur in the future.
WE DO NOT CONTROL THE DECISIONS OF JOINT VENTURES OR PARTNERSHIPS IN WHICH
WE HOLD LESS THAN A CONTROLLING INTEREST. We from time to time invest in joint
ventures or partnerships in which we do not hold a controlling interest. These
investments involve risks that are not present with assets in which we own a
controlling interest, including the possibility that our co-venturers or
partners might at any time have economic or other business interests or goals
that are inconsistent with our business interests or goals. Because we lack a
controlling interest, our co-venturers or partners may be in a position to take
action contrary to our instructions or requests or contrary to our policies or
objectives. There is no limitation under our organizational documents as to the
amount of available funds that we may invest in joint ventures or partnerships.
SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. Our
business is subject to risks normally associated with debt financing. If
principal payments due at maturity cannot be refinanced, extended or paid with
proceeds of other capital transactions, such as new equity capital, our cash
flow will not be sufficient in all years to repay all maturing debt. If
prevailing interest rates or other factors at the time of refinancing, such as
the possible reluctance of lenders to make commercial real estate loans, result
in higher interest rates, increased interest expense would adversely affect cash
flow and our ability to service debt and make distributions to our
securityholders.
WE ARE OBLIGATED TO COMPLY WITH FINANCIAL COVENANTS IN OUR DEBT THAT COULD
RESTRICT OUR RANGE OF OPERATING ACTIVITIES. The mortgages on our properties
contain customary negative covenants, including limitations on our ability,
without the prior consent of the lender, to further mortgage the property, to
enter into new leases outside of stipulated guidelines or to materially modify
existing leases. In addition, our credit facility contains customary
requirements to, and restrictions and other limitations on our ability to incur
debt, including debt to assets ratios, secured debt to total assets ratios, debt
service coverage ratios and minimum ratios of unencumbered assets to unsecured
debt. The indenture under which our senior unsecured debt is issued contains
financial and operating covenants including coverage ratios and limitations on
our ability to incur secured and unsecured debt. These covenants will reduce our
flexibility in conducting our operations and create a risk of default on our
debt if we cannot continue to satisfy them.
OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING. Our debt to market capitalization ratio, which we calculate as total
debt as a percentage of total debt plus the value of our preferred units and the
market value of our units, was approximately 43.3% as of December 31, 1999. Our
leverage could have important consequences to our securityholders, including
affecting our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, development or other general
corporate purposes and making us more vulnerable to a downturn in business or
the economy generally.
RISING INTEREST RATES COULD ADVERSELY AFFECT OUR CASH FLOW. Advances under
our credit facility bear interest at a variable rate based upon LIBOR. We may
borrow additional money with variable interest rates in the future, and may
enter into other transactions to limit our exposure to rising interest rates as
we determine to be appropriate and cost effective. Increases in interest rates,
or the loss of the benefits of hedging agreements, would increase our interest
expenses, which would adversely affect cash flow and our ability to service our
debt and make distributions to our securityholders.
10
<PAGE> 11
WE DO NOT CONTROL OUR MANAGEMENT AND SERVICES BUSINESSES. To facilitate
maintenance of Equity Office's REIT qualification, we have "noncontrolled
subsidiaries" that provide management and other services for properties that we
do not wholly own. While we generally own at least 95% of the economic interest
in the noncontrolled subsidiaries, their voting stock is owned directly or
indirectly by private companies controlled by Mr. Zell or in the case of Real
State Insurance Corporation and Equity Business Centers Corp., key officers of
Equity Office. Therefore, we do not control the timing or amount of
distributions, the management, business policies, or operation of the
noncontrolled subsidiaries. As of December 31, 1999, we had seven active
noncontrolled subsidiaries, including:
- Equity Office Properties Management Corp. and Beacon Property Management
Corporation, referred to as the "management companies," which manage
several properties that we do not wholly own;
- Beacon Construction Company, Inc., which provides third-party
construction services;
- Beacon Design Corp., which holds a partnership interest in the Riverside
development project;
- EOP Office Company, which owns a noncontrolling interest in Wright
Runstad Associates Limited Partnership, a provider of third-party
development and management services;
- Real State Insurance Corporation which provides risk management and
insurance services for our properties and whose voting stock is owned
directly or indirectly by Tim Callahan, Michael Steele, Richard Kincaid,
Stanley Stevens and David Helfand; and
- Equity Business Centers Corp., whose voting stock is owned directly or
indirectly by Tim Callahan, Michael Steele, Richard Kincaid and Stanley
Stevens, which owns an interest in Regus Equity Business Centers Corp.,
which operates business centers in our properties.
MR. ZELL'S AFFILIATES CONTROL OUR MANAGEMENT AND SERVICES BUSINESSES AND
SOME OF THE PROPERTIES WHICH WE MANAGE BUT DO NOT OWN. The management companies
provide property management services and asset management services to several
properties, some of which are owned or controlled by affiliates of Mr. Zell.
Most of these management contracts were not negotiated on an arm's length basis.
While we believe that the management fees received from these properties are at
current market rates, we cannot assure our securityholders that these management
fees will equal at all times those fees that would be charged by an unaffiliated
third party. In this regard, Mr. Zell controls and has a substantial interest in
the private company which has voting control of the management companies.
MR. ZELL AND HIS AFFILIATES CONTINUE TO BE INVOLVED IN OTHER INVESTMENT
ACTIVITIES. Although Mr. Zell entered into a noncompetition agreement at the
time of Equity Office's initial public offering, he and his affiliates have a
broad and varied range of investment interests, including interests in other
real estate investment companies. Mr. Zell's continued involvement in other
investment activities could result in competition for us as well as management
decisions which might not reflect the interests of our securityholders. Mr.
Zell's noncompetition agreement does not apply to activities outside the United
States.
ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY. Federal, state and
local laws and regulations relating to the protection of the environment may
require a current or previous owner or operator of real estate to investigate
and clean up hazardous or toxic substances or petroleum product releases at that
property. If unidentified environmental problems arise, we may have to make
substantial payments which could adversely affect our cash flow and our ability
to make distributions to our securityholders because:
- the owner or operator may have to pay a governmental entity or third
parties for property damage and for investigation and clean-up costs
incurred by these parties in connection with the contamination;
- these laws typically impose clean-up responsibility and liability without
regard to whether the owner or operator knew or caused the presence of
the contaminants;
- even if more that one person may have been responsible for the
contamination, each person covered by the environmental laws may be held
responsible for all of the clean-up costs incurred; and
- third parties may sue the owner or operator of a site for damages and
costs resulting from environmental contamination emanating from that
site.
11
<PAGE> 12
Environmental laws also govern the presence, maintenance and removal of
asbestos. These laws require that owners or operators of buildings containing
asbestos:
- properly manage and maintain the asbestos;
- notify and train those who may come into contact with asbestos; and
- undertake special precautions, including removal or other abatement, if
asbestos would be disturbed during renovation or demolition of a
building.
These laws may impose fines and penalties on building owners or operators who
fail to comply with these requirements and may allow third parties to seek
recovery from owners or operators for personal injury associated with exposure
to asbestos fibers.
Independent environmental consultants have conducted Phase I environmental
site assessments at all of our properties. These assessments included, at a
minimum, a visual inspection of the properties and the surrounding areas, an
examination of current and historical uses of the properties and the surrounding
areas and a review of relevant state, federal and historical documents. Where
appropriate, on a property by property basis, these consultants have conducted
additional testing, including sampling for asbestos, for lead in drinking water,
for soil contamination where underground storage tanks are or were located or
where other past site usages create a potential environmental problem, and for
contamination in groundwater.
These environmental assessments have not revealed any environmental
liabilities at the properties that would require us to make payments of amounts
material to our business, nor are we aware of any material environmental
liability. A number of the office properties contain asbestos, but most of these
buildings contain only minor amounts. We believe this asbestos is in good
condition and almost none of it is easily crumbled so as to cause the release of
asbestos fibers. We are currently properly managing and maintaining all of the
asbestos and are following other requirements relating to asbestos. The presence
of asbestos should not present a significant risk as long as compliance with
these requirements continues.
For a few of our properties, the environmental assessments note potential
offsite sources of contamination such as underground storage tanks. For some of
the properties, the environmental assessments note previous uses, such as the
former presence of underground storage tanks. In most of these cases, follow-up
soil and/or groundwater sampling has not identified evidence of significant
contamination. In the few cases where contamination has been found, existing
plans to mitigate and monitor the sites and/or financial commitments from some
prior owners and tenants to cover costs related to mitigation should prevent the
contamination from becoming a significant liability for us.
WE ARE DEPENDENT ON KEY PERSONNEL. We depend on the efforts of Mr. Zell and
Equity Office's executive officers, particularly Mr. Callahan. If they were to
resign, our operations could be adversely affected. Equity Office does not have
employment agreements with Mr. Zell or any of its executive officers.
CONTINGENT OR UNDISCLOSED LIABILITIES ACQUIRED IN MERGERS OR SIMILAR
TRANSACTIONS COULD REQUIRE US TO MAKE SUBSTANTIAL PAYMENTS. The properties which
we acquired in our formation and in our 1997 merger with Beacon Properties L.P.
were acquired subject to liabilities and without any recourse with respect to
unknown liabilities. In addition, we have acquired numerous other properties
where we have only limited recourse with respect to unknown liabilities. As a
result, if liabilities were asserted against us based upon any of those
properties, we might have to pay substantial sums to settle it, which could
adversely affect our cash flow and our ability to service debt and make
distributions to our securityholders. Unknown liabilities with respect to
properties acquired might include:
- liabilities for clean-up or remediation of undisclosed environmental
conditions;
- unasserted claims of tenants, vendors or other persons dealing with the
former owners of the properties;
- liabilities incurred in the ordinary course of business; and
- claims for indemnification by general partners, directors, officers and
others indemnified by the former owners of the properties.
12
<PAGE> 13
WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL FOR FUTURE GROWTH. To
qualify as a REIT, Equity Office must distribute to its shareholders each year
at least 95% of its net taxable income, excluding any net capital gain. For
taxable years beginning after December 31, 2000, this REIT distribution
requirement will be 90%. Our partnership agreement generally requires us to
distribute substantially all of our net cash revenues each quarter and to make
reasonable efforts to distribute to Equity Office enough cash for it to meet the
95% distribution requirement. Because of these distribution requirements, it is
not likely that we will be able to fund all future capital needs, including for
acquisitions, from income from operations. Therefore, we will have to rely on
third-party sources of capital which may or may not be available on favorable
terms or at all. Our access to third-party sources of capital depends on a
number of things, including the market's perception of our growth potential and
our current and potential future earnings. Moreover, additional equity offerings
may result in substantial dilution of our shareholders' interests, and
additional debt financing may substantially increase our leverage.
EQUITY OFFICE INTENDS TO QUALIFY AS A REIT, BUT WE CANNOT GUARANTEE THAT IT
WILL QUALIFY. We believe that Equity Office has qualified for taxation as a REIT
for federal income tax purposes since 1997. Equity Office plans to continue to
meet the requirements for taxation as a REIT, but we cannot guarantee that it
will qualify as a REIT. Many of the REIT requirements are highly technical and
complex. The determination that Equity Office is a REIT requires an analysis of
various factual matters and circumstances that may not be totally within its
control. For example, to qualify as a REIT, at least 95% of Equity Office's
gross income must come from sources that are itemized in the REIT tax laws. It
is also required to distribute to shareholders at least 95% of its REIT taxable
income, excluding capital gains. For taxable years beginning after December 31,
2000, this REIT distribution requirement will be 90%. The fact that Equity
Office holds its assets through us and our subsidiaries further complicates the
application of the REIT requirements. Even a technical or inadvertent mistake
could jeopardize Equity Office's REIT status. Furthermore, Congress and the IRS
might make changes to the tax laws and regulations, and the courts might issue
new rulings that make it more difficult, or impossible, for Equity Office to
remain qualified as a REIT. We do not believe, however, that any pending or
proposed tax law changes would jeopardize Equity Office's REIT status.
If Equity Office failed to qualify as a REIT, Equity Office would be
subject to federal income tax at regular corporate rates. Also, unless the IRS
granted relief under statutory provisions, Equity Office would remain
disqualified as a REIT for the four years following the year it first failed to
qualify. If Equity Office failed to qualify as a REIT, it would have to pay
significant income taxes. This would likely have a significant adverse effect on
the value of its securities. In addition, Equity Office would no longer be
required to make any distributions to its shareholders, but we would still be
required to distribute quarterly substantially all of our net cash revenues to
our securityholders, including Equity Office.
EQUITY OFFICE PAYS SOME TAXES. Even if Equity Office qualifies as a REIT,
it may still be required to pay some federal, state and local taxes on its
income and property. In addition, any net taxable income earned directly by the
noncontrolled subsidiaries is subject to federal, state and local corporate tax.
We expect that some or all of the noncontrolled subsidiaries will elect, under
recently enacted REIT tax laws, to be treated as "taxable REIT subsidiaries"
after December 31, 2000. A taxable REIT subsidiary will be a fully taxable
corporation and will be limited in its ability to deduct interest payments made
to us. In addition, Equity Office will be subject to a 100% penalty tax on its
share of some payments that we receive if the economic arrangements between
Equity Office, us, our tenants, and the taxable REIT subsidiary are not
comparable to similar arrangements between unrelated parties.
WE INTEND TO QUALIFY AS A PARTNERSHIP, BUT CANNOT GUARANTEE THAT WE WILL
QUALIFY. We intend to qualify as a partnership for federal income tax purposes.
However, we will be treated as a corporation for federal income tax purposes if
we are a "publicly traded partnership," unless at least 90% of our income is
qualifying income as defined in the tax code. Qualifying income for the 90% test
generally includes passive income, such as real property rents, dividends and
interest. The income requirements applicable to REITs and the definition of
qualifying income for purposes of this 90% test are similar in most respects. We
believe that we would meet this qualifying income test, but cannot guarantee
that we would. If we were to be taxed as a corporation, we would incur
substantial tax liabilities, Equity Office would fail to qualify as a REIT for
tax purposes and Equity Office's and our ability to raise additional capital
would be impaired.
13
<PAGE> 14
ITEM 2. PROPERTIES
All capitalized terms used herein and not otherwise defined shall have the
meaning given in the Financial Statements set forth in Item 8.
GENERAL
The Company's portfolio (based on revenue and square footage) is the
largest portfolio of office properties of any publicly traded, full-service
office company in the United States. As of December 31, 1999, the Company owned
or had an interest in 294 Office Properties containing approximately 77.0
million rentable square feet of office space and owned 20 stand-alone Parking
Facilities containing approximately 20,506 parking spaces. The Office Properties
are located in 81 submarkets in 35 markets in 23 states and the District of
Columbia. The Office Properties, by rentable square feet, are located
approximately 52% in CBDs and 48% in suburban markets. As of December 31, 1999,
the Office Properties were, on a weighted average basis, 93.7% occupied by a
total of 6,347 tenants, with no single tenant accounting for more than 1.6% of
the Company's aggregate annualized rent (except for the U.S. General Services
Administration, which accounted for 3.2% of annualized rent).
All property data is as of December 31, 1999.
OFFICE PROPERTIES BY REGION
<TABLE>
<CAPTION>
PERCENT
OF TOTAL PERCENT OF ANNUALIZED
APPROXIMATE PORTFOLIO ANNUALIZED PORTFOLIO NUMBER RENT
NUMBER OF RENTABLE RENTABLE PERCENT RENT ANNUALIZED OF PER OCCUPIED
BUILDINGS SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a) RENT LEASES SQUARE FOOT(a)
--------- ----------- ----------- -------- ---------- ---------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Central.............. 30 12,932,307 16.8% 96.1% $ 301,135 16.8% 1,166 $24,22
Northeast............ 89 21,099,721 27.4% 97.3% 629,982 35.1% 1,446 $30.68
Southeast............ 49 8,618,522 11.2% 90.4% 151,550 8.4% 621 $19.45
Southwest............ 34 11,599,431 15.1% 91.6% 204,946 11.4% 1,152 $19.28
West................. 42 12,428,878 16.1% 92.1% 256,365 14.3% 1,248 $22.41
Pacific.............. 50 10,336,751 13.4% 90.2% 249,541 13.9% 714 $26.77
--- ---------- ------ ----- ---------- ------ ----- ------
Portfolio Total/
Weighted Aver-
age............. 294 77,015,610 100.0% 93.7% $1,793,519 100.0% 6,347 $24.86
=== ========== ====== ===== ========== ====== ===== ======
</TABLE>
(a) Annualized Rent is the monthly contractual rent under existing leases as of
December 31, 1999, multiplied by 12. This amount reflects total base rent
before any rent abatements, but includes expense reimbursements, which may
be estimates. Total rent abatements for leases in effect as of December 31,
1999, for the 12 months ending December 31, 2000, are approximately $7.0
million.
14
<PAGE> 15
OFFICE PROPERTY STATISTICS
<TABLE>
<CAPTION>
PERCENT
OF TOTAL PERCENT OF
APPROXIMATE PORTFOLIO ANNUALIZED PORTFOLIO
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT ANNUALIZED
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a) RENT
- -------------- --------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CENTRAL REGION
Chicago
Central Loop
161 N. Clark................ 1 1992 1,010,520 1.3% 99.7% $ 25,184 1.4%
200 West Adams.............. 1 1985/1996 677,222 0.9% 87.9% 13,471 0.8%
30 N. LaSalle Street(b)..... 1 1974/1990 925,950 1.2% 99.6% 20,826 1.2%
One North Franklin.......... 1 1991 617,592 0.8% 97.4% 14,840 0.8%
Lake County
Tri-State International..... 5 1986 546,263 0.7% 96.5% 12,575 0.7%
O'Hare
Presidents Plaza............ 4 1980-1982 815,604 1.1% 98.4% 17,810 1.0%
1700 Higgins................ 1 1986 133,876 0.2% 95.8% 2,401 0.1%
Oak Brook
AT&T Plaza.................. 1 1984 224,847 0.3% 96.9% 5,148 0.3%
Oakbrook Terrace Tower...... 1 1988 772,928 1.0% 91.8% 17,519 1.0%
Westbrook Corporate
Center..................... 5 1985-1996 1,107,372 1.4% 93.8% 28,653 1.6%
West Loop
10 & 30 S. Wacker (d)....... 2 1983-1987 2,003,288 2.6% 97.2% 65,849 3.7%
101 N. Wacker............... 1 1980/1990 575,294 0.7% 98.7% 13,364 0.7%
Civic Opera House........... 1 1929/1996 841,778 1.1% 97.9% 15,303 0.9%
Cleveland
Downtown
BP Tower.................... 1 1985 1,242,144 1.6% 95.4% 20,470 1.1%
Columbus
Suburban
Community Corporate
Center..................... 1 1987 250,169 0.3% 99.8% 4,997 0.3%
One Crosswoods Center....... 1 1984 129,583 0.2% 87.2% 2,189 0.1%
Indianapolis
Downtown
Bank One Center/Tower
(b)(d)..................... 2 1990 1,057,877 1.4% 93.9% 20,536 1.1%
--- ---------- ------ ------ ---------- ------
CENTRAL REGION TOTAL/WEIGHTED
AVERAGE....................... 30 12,932,307 16.8% 96.1% 301,135 16.8%
--- ---------- ------ ------ ---------- ------
NORTHEAST REGION
Boston
East Cambridge
One Canal Park.............. 1 1987 98,154 0.1% 100.0% 3,032 0.2%
Riverview I & II............ 2 1985-1986 263,892 0.3% 100.0% 7,629 0.4%
Ten Canal Park.............. 1 1987 110,843 0.1% 100.0% 2,520 0.1%
Financial District
100 Summer Street........... 1 1974/1990 1,037,801 1.3% 96.1% 32,396 1.8%
150 Federal Street.......... 1 1988 529,730 0.7% 99.8% 17,191 1.0%
175 Federal Street.......... 1 1977 207,366 0.3% 99.8% 6,012 0.3%
2 Oliver Street-147 Milk
Street..................... 1 1988 270,302 0.4% 98.7% 6,146 0.3%
225 Franklin Street......... 1 1966/1996 916,722 1.2% 100.0% 37,156 2.1%
28 State Street............. 1 1968/1997 570,040 0.7% 100.0% 23,322 1.3%
75-101 Federal Street(c).... 2 1988 811,054 1.1% 96.9% 27,253 1.5%
One Post Office Square(d)... 1 1981 765,780 1.0% 100.0% 26,436 1.5%
Rowes Wharf(b)(d)........... 3 1987 344,698 0.4% 100.0% 14,070 0.8%
Russia Wharf................ 1 1978-1982 312,833 0.4% 97.3% 5,891 0.3%
South Station(b)............ 1 1988 178,959 0.2% 99.8% 6,971 0.4%
Government Center
Center Plaza................ 1 1969 637,069 0.8% 96.8% 18,264 1.0%
<CAPTION>
ANNUALIZED
RENT
PRIMARY MARKET NUMBER OF PER OCCUPIED
SUB MARKET LEASES SQUARE FOOT(a)
- -------------- --------- ---------------
<S> <C> <C>
CENTRAL REGION
Chicago
Central Loop
161 N. Clark................ 48 $25.00
200 West Adams.............. 84 $22.62
30 N. LaSalle Street(b)..... 130 $22.59
One North Franklin.......... 46 $24.68
Lake County
Tri-State International..... 43 $23.86
O'Hare
Presidents Plaza............ 65 $22.18
1700 Higgins................ 13 $18.73
Oak Brook
AT&T Plaza.................. 26 $23.63
Oakbrook Terrace Tower...... 60 $24.68
Westbrook Corporate
Center..................... 96 $27.58
West Loop
10 & 30 S. Wacker (d)....... 122 $33.82
101 N. Wacker............... 40 $23.53
Civic Opera House........... 213 $18.57
Cleveland
Downtown
BP Tower.................... 40 $17.27
Columbus
Suburban
Community Corporate
Center..................... 35 $20.02
One Crosswoods Center....... 15 $19.36
Indianapolis
Downtown
Bank One Center/Tower
(b)(d)..................... 90 $20.67
----- ------
CENTRAL REGION TOTAL/WEIGHTED
AVERAGE....................... 1,166 $24.22
----- ------
NORTHEAST REGION
Boston
East Cambridge
One Canal Park.............. 8 $30.89
Riverview I & II............ 4 $28.91
Ten Canal Park.............. 1 $22.74
Financial District
100 Summer Street........... 29 $32.50
150 Federal Street.......... 23 $32.51
175 Federal Street.......... 31 $29.07
2 Oliver Street-147 Milk
Street..................... 41 $23.03
225 Franklin Street......... 18 $40.53
28 State Street............. 27 $40.91
75-101 Federal Street(c).... 68 $34.67
One Post Office Square(d)... 52 $34.52
Rowes Wharf(b)(d)........... 46 $40.82
Russia Wharf................ 55 $19.35
South Station(b)............ 34 $39.01
Government Center
Center Plaza................ 83 $29.61
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
PERCENT
OF TOTAL PERCENT OF
APPROXIMATE PORTFOLIO ANNUALIZED PORTFOLIO
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT ANNUALIZED
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a) RENT
- -------------- --------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Northwest
Crosby Corporate Center..... 6 1996 337,285 0.4% 100.0% 5,458 0.3%
Crosby Corporate Center
II(e)...................... 3 1998 257,528 0.3% 78.0% 4,373 0.2%
New England Executive
Park....................... 8 1970-1985 760,118 1.0% 95.4% 17,827 1.0%
New England Executive Park
17......................... 1 1979 56,890 0.1% 83.8% 1,270 0.1%
The Tower at New England
Executive Park(f).......... 1 1971/1999 194,911 0.3% 51.8% 2,345 0.1%
South
Westwood Business Center.... 1 1985 164,985 0.2% 86.7% 3,128 0.2%
West
Wellesley Office Park 1-4... 4 1962-1970 216,420 0.3% 99.9% 5,729 0.3%
Wellesley 5-7............... 3 1972-1984 362,421 0.5% 97.3% 9,741 0.5%
Wellesley 8................. 1 1960/1996 62,952 0.1% 100.0% 1,819 0.1%
New York
Columbus Circle
Worldwide Plaza(g).......... 1 1989 1,704,624 2.2% 99.1% 73,137 4.1%
Park/Lexington
Park Avenue Tower(h)........ 1 1986 550,894 0.7% 99.5% 40,607 2.3%
Third Avenue
850 Third Avenue............ 1 1960/1996 562,567 0.7% 100.0% 18,444 1.0%
Philadelphia
Center City
1601 Market Street.......... 1 1970 681,289 0.9% 96.4% 13,053 0.7%
1700 Market Street.......... 1 1969 841,172 1.1% 97.3% 16,391 0.9%
Conshohocken
Four Falls Corporate
Center(d).................. 1 1988 254,355 0.3% 98.4% 6,570 0.4%
King of Prussia/Valley Forge
Oak Hill Plaza(d)........... 1 1982 164,360 0.2% 100.0% 3,126 0.2%
Walnut Hill Plaza(d)........ 1 1985 149,716 0.2% 100.0% 3,163 0.2%
Main Line
One Devon Square(b)(d)...... 1 1984 73,267 0.1% 56.0% 799 0.0%
Two Devon Square(d)......... 1 1985 63,226 0.1% 100.0% 1,073 0.1%
Three Devon Square(b)(d).... 1 1985 6,000 0.0% 100.0% 174 0.0%
Plymouth Meeting/Blue Bell
One Valley Square(d)........ 1 1982 70,289 0.1% 95.8% 1,320 0.1%
Two Valley Square(d)........ 1 1990 70,622 0.1% 100.0% 1,393 0.1%
Three Valley Square(d)...... 1 1984 84,605 0.1% 67.5% 1,315 0.1%
Four and Five Valley
Square(d).................. 2 1988 68,321 0.1% 100.0% 1,426 0.1%
Stamford
Shelton
Shelton Pointe.............. 1 1985/1993 159,848 0.2% 88.1% 2,593 0.1%
Stamford
One Stamford Plaza.......... 1 1986/1994 212,244 0.3% 94.9% 5,158 0.3%
Two Stamford Plaza.......... 1 1986/1994 253,020 0.3% 93.9% 6,762 0.4%
Three Stamford Plaza........ 1 1980/1994 241,575 0.3% 100.0% 5,747 0.3%
Four Stamford Plaza......... 1 1979/1994 260,581 0.3% 96.3% 5,639 0.3%
177 Broad Street............ 1 1989 187,573 0.2% 99.4% 4,657 0.3%
300 Atlantic Street......... 1 1987/1996 272,458 0.4% 100.0% 7,786 0.4%
Canterbury Green(b)......... 1 1987 224,405 0.3% 100.0% 6,635 0.4%
Washington D.C.
CBD
1111 19th Street............ 1 1979/1993 252,014 0.3% 100.0% 7,733 0.4%
1620 L Street............... 1 1989 156,272 0.2% 100.0% 4,597 0.3%
One Lafayette Centre........ 1 1980/1993 314,634 0.4% 90.4% 9,169 0.5%
East End
1333 H Street............... 1 1982 244,585 0.3% 100.0% 7,036 0.4%
Alexandria/Old Town
1600 Duke Street............ 1 1985 68,770 0.1% 100.0% 1,099 0.1%
Crystal City
Polk and Taylor Buildings... 2 1970 902,371 1.2% 100.0% 24,662 1.4%
<CAPTION>
ANNUALIZED
RENT
PRIMARY MARKET NUMBER OF PER OCCUPIED
SUB MARKET LEASES SQUARE FOOT(a)
- -------------- --------- ---------------
<S> <C> <C>
Northwest
Crosby Corporate Center..... 6 $16.18
Crosby Corporate Center
II(e)...................... 6 $21.77
New England Executive
Park....................... 77 $24.58
New England Executive Park
17......................... 2 $26.65
The Tower at New England
Executive Park(f).......... 8 $23.21
South
Westwood Business Center.... 17 $21.87
West
Wellesley Office Park 1-4... 42 $26.50
Wellesley 5-7............... 40 $27.62
Wellesley 8................. 1 $28.89
New York
Columbus Circle
Worldwide Plaza(g).......... 25 $43.30
Park/Lexington
Park Avenue Tower(h)........ 25 $74.11
Third Avenue
850 Third Avenue............ 27 $32.79
Philadelphia
Center City
1601 Market Street.......... 75 $19.87
1700 Market Street.......... 66 $20.04
Conshohocken
Four Falls Corporate
Center(d).................. 39 $26.25
King of Prussia/Valley Forge
Oak Hill Plaza(d)........... 4 $19.02
Walnut Hill Plaza(d)........ 23 $21.13
Main Line
One Devon Square(b)(d)...... 6 $19.46
Two Devon Square(d)......... 6 $16.96
Three Devon Square(b)(d).... 1 $29.03
Plymouth Meeting/Blue Bell
One Valley Square(d)........ 5 $19.61
Two Valley Square(d)........ 7 $19.72
Three Valley Square(d)...... 6 $23.02
Four and Five Valley
Square(d).................. 5 $20.87
Stamford
Shelton
Shelton Pointe.............. 14 $18.42
Stamford
One Stamford Plaza.......... 10 $25.61
Two Stamford Plaza.......... 20 $28.45
Three Stamford Plaza........ 13 $23.79
Four Stamford Plaza......... 9 $22.47
177 Broad Street............ 14 $24.97
300 Atlantic Street......... 20 $28.58
Canterbury Green(b)......... 16 $29.57
Washington D.C.
CBD
1111 19th Street............ 28 $30.68
1620 L Street............... 19 $29.41
One Lafayette Centre........ 21 $32.23
East End
1333 H Street............... 21 $28.77
Alexandria/Old Town
1600 Duke Street............ 9 $15.97
Crystal City
Polk and Taylor Buildings... 9 $27.33
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
PERCENT
OF TOTAL PERCENT OF
APPROXIMATE PORTFOLIO ANNUALIZED PORTFOLIO
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT ANNUALIZED
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a) RENT
- -------------- --------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fairfax/Center
Centerpointe I & II......... 2 1988-1990 407,723 0.5% 100.0% 8,123 0.5%
Fair Oaks Plaza............. 1 1986 177,917 0.2% 95.6% 3,456 0.2%
Herndon/Dulles
Northridge I................ 1 1988 124,319 0.2% 100.0% 3,134 0.2%
Reston
Reston Town Center(b)....... 3 1990 726,045 0.9% 99.6% 21,142 1.2%
Rosslyn/Ballston
1300 North 17th Street...... 1 1980 380,199 0.5% 98.0% 9,924 0.6%
1616 N. Fort Myer Drive..... 1 1974 292,826 0.4% 100.0% 7,480 0.4%
Tyson's Corner
E. J. Randolph.............. 1 1983 164,906 0.2% 100.0% 3,883 0.2%
John Marshall I............. 1 1981 261,376 0.3% 100.0% 5,595 0.3%
--- ---------- ------ ------ ---------- ------
NORTHEAST REGION TOTAL/WEIGHTED
AVERAGE....................... 89 21,099,721 27.4% 97.3% 629,982 35.1%
--- ---------- ------ ------ ---------- ------
SOUTHEAST REGION
Atlanta
Buckhead
Prominence in Buckhead(i)... 1 1999 424,635 0.6% 26.9% 2,554 0.1%
Central Perimeter
Central Park................ 2 1986 612,733 0.8% 87.4% 11,762 0.7%
One Perimeter Center........ 4 1972-1986 1,265,245 1.6% 93.5% 23,431 1.3%
Two Perimeter Center........ 11 1971-1985 980,708 1.3% 98.0% 16,884 0.9%
Three Perimeter Center...... 14 1970-1989 572,629 0.7% 72.3% 8,010 0.4%
Four Perimeter Center....... 3 1978-1981 483,796 0.6% 92.9% 8,758 0.5%
Lakeside Office Park........ 5 1972-1978 390,721 0.5% 91.2% 6,262 0.3%
Midtown
Promenade II(d)............. 1 1990 770,840 1.0% 99.1% 17,567 1.0%
Northwest
Paces West.................. 2 1988 641,263 0.8% 99.1% 13,545 0.8%
Charlotte
Uptown
Wachovia Center............. 1 1972/1994 581,666 0.8% 92.5% 6,476 0.4%
Nashville
Downtown
Bank of America Plaza....... 1 1977/1995 421,513 0.5% 96.0% 6,069 0.3%
Norfolk
Norfolk
Dominion Tower(d)........... 1 1987 403,276 0.5% 98.3% 6,784 0.4%
Orlando
Central Business District
SunTrust Center(d).......... 1 1988 640,385 0.8% 99.9% 15,531 0.9%
Raleigh/Durham
South Durham
University Tower............ 1 1987/1992 181,221 0.2% 100.0% 3,765 0.2%
Sarasota
Downtown
Sarasota City Center........ 1 1989 247,891 0.3% 88.5% 4,152 0.2%
--- ---------- ------ ------ ---------- ------
SOUTHEAST REGION TOTAL/WEIGHTED
AVERAGE....................... 49 8,618,522 11.2% 90.4% 151,550 8.4%
--- ---------- ------ ------ ---------- ------
SOUTHWEST REGION
Austin
CBD
One American Center(b)...... 1 1984 505,770 0.7% 99.2% 11,649 0.6%
One Congress Plaza.......... 1 1987 517,849 0.7% 94.4% 11,124 0.6%
San Jacinto Center.......... 1 1987 403,329 0.5% 100.0% 9,281 0.5%
<CAPTION>
ANNUALIZED
RENT
PRIMARY MARKET NUMBER OF PER OCCUPIED
SUB MARKET LEASES SQUARE FOOT(a)
- -------------- --------- ---------------
<S> <C> <C>
Fairfax/Center
Centerpointe I & II......... 11 $19.92
Fair Oaks Plaza............. 34 $20.32
Herndon/Dulles
Northridge I................ 1 $25.21
Reston
Reston Town Center(b)....... 82 $29.25
Rosslyn/Ballston
1300 North 17th Street...... 28 $26.64
1616 N. Fort Myer Drive..... 12 $25.54
Tyson's Corner
E. J. Randolph.............. 14 $23.55
John Marshall I............. 2 $21.41
----- ------
NORTHEAST REGION TOTAL/WEIGHTED
AVERAGE....................... 1,446 $30.68
----- ------
SOUTHEAST REGION
Atlanta
Buckhead
Prominence in Buckhead(i)... 6 $22.40
Central Perimeter
Central Park................ 57 $21.97
One Perimeter Center........ 132 $19.80
Two Perimeter Center........ 64 $17.58
Three Perimeter Center...... 48 $19.35
Four Perimeter Center....... 8 $19.49
Lakeside Office Park........ 35 $17.57
Midtown
Promenade II(d)............. 25 $23.00
Northwest
Paces West.................. 44 $21.31
Charlotte
Uptown
Wachovia Center............. 9 $12.04
Nashville
Downtown
Bank of America Plaza....... 20 $15.00
Norfolk
Norfolk
Dominion Tower(d)........... 52 $17.11
Orlando
Central Business District
SunTrust Center(d).......... 53 $24.27
Raleigh/Durham
South Durham
University Tower............ 35 $20.78
Sarasota
Downtown
Sarasota City Center........ 33 $18.92
----- ------
SOUTHEAST REGION TOTAL/WEIGHTED
AVERAGE....................... 621 $19.45
----- ------
SOUTHWEST REGION
Austin
CBD
One American Center(b)...... 30 $23.22
One Congress Plaza.......... 46 $22.76
San Jacinto Center.......... 39 $23.01
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
PERCENT
OF TOTAL PERCENT OF
APPROXIMATE PORTFOLIO ANNUALIZED PORTFOLIO
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT ANNUALIZED
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a) RENT
- -------------- --------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dallas
Far North Dallas
Colonnade I & II............ 2 1983-1985 606,615 0.8% 90.9% 12,092 0.7%
Colonnade III............... 1 1998 377,639 0.5% 81.3% 8,213 0.5%
Las Colinas
Computer Associates Tower... 1 1988 360,815 0.5% 85.8% 7,441 0.4%
Texas Commerce Tower........ 1 1985 369,134 0.5% 98.6% 8,451 0.5%
LBJ/Quorum
Four Forest Plaza(d)........ 1 1985 394,324 0.5% 83.5% 6,178 0.3%
Lakeside Square............. 1 1987 397,328 0.5% 92.6% 7,185 0.4%
North Central Plaza Three... 1 1986/1994 346,575 0.5% 80.7% 5,187 0.3%
N. Central Expressway
9400 NCX.................... 1 1981/1995 379,556 0.5% 90.9% 5,277 0.3%
Eighty-Eighty Central....... 1 1984/1995 283,707 0.4% 87.2% 4,480 0.2%
Preston Center
Preston Commons(d).......... 3 1986 418,604 0.5% 83.1% 7,279 0.4%
Sterling Plaza(d)........... 1 1984/1994 302,747 0.4% 82.3% 5,119 0.3%
Ft. Worth
W/SW Fort Worth
Summitt Office Park......... 2 1974/1993 239,095 0.3% 92.1% 2,977 0.2%
Houston
Galleria/West Loop
San Felipe Plaza(d)......... 1 1984 959,466 1.2% 92.2% 15,987 0.9%
North Loop/Northwest
Brookhollow Central......... 3 1972-1981 797,971 1.0% 96.4% 12,854 0.7%
North/North Belt
Intercontinental Center..... 1 1983/1991 194,801 0.3% 98.3% 3,143 0.2%
Northborough Tower(d)....... 1 1983/1990 207,908 0.3% 95.9% 2,982 0.2%
West
2500 CityWest............... 1 1982 574,216 0.7% 99.9% 12,436 0.7%
New Orleans
CBD
LL&E Tower.................. 1 1987 545,157 0.7% 92.8% 8,391 0.5%
Texaco Center............... 1 1984 619,714 0.8% 86.1% 9,302 0.5%
Metairie/E. Jefferson
One Lakeway Center.......... 1 1981/1996 289,112 0.4% 98.0% 4,765 0.3%
Two Lakeway Center.......... 1 1984/1996 440,826 0.6% 94.7% 7,167 0.4%
Three Lakeway Center........ 1 1987/1996 462,890 0.6% 92.0% 7,282 0.4%
San Antonio
Northwest
Colonnade I................. 1 1983 168,637 0.2% 96.0% 2,698 0.2%
Northwest Center............ 1 1984/1994 241,248 0.3% 92.4% 3,503 0.2%
Union Square................ 1 1986 194,398 0.3% 75.5% 2,502 0.1%
--- ---------- ------ ------ ---------- ------
SOUTHWEST REGION TOTAL/WEIGHTED
AVERAGE....................... 34 11,599,431 15.1% 91.6% 204,946 11.4%
--- ---------- ------ ------ ---------- ------
WEST REGION
Albuquerque
Downtown
500 Marquette Building...... 1 1985 230,022 0.3% 92.2% 3,407 0.2%
Uptown
One Park Square............. 4 1985 262,020 0.3% 72.0% 3,453 0.2%
Anchorage
Midtown
Calais Office Center(b)..... 2 1975 190,599 0.2% 98.5% 3,677 0.2%
Denver
Downtown
410 17th Street............. 1 1978 388,953 0.5% 88.3% 5,827 0.3%
Denver Post Tower(b)........ 1 1984 579,999 0.8% 93.6% 9,097 0.5%
Dominion Plaza.............. 1 1983 571,468 0.7% 89.4% 8,049 0.4%
Tabor Center................ 2 1985 674,278 0.9% 85.4% 13,966 0.8%
Trinity Place............... 1 1983 189,163 0.2% 84.7% 2,431 0.1%
Southeast
4949 S. Syracuse............ 1 1982 62,633 0.1% 82.6% 1,053 0.1%
<CAPTION>
ANNUALIZED
RENT
PRIMARY MARKET NUMBER OF PER OCCUPIED
SUB MARKET LEASES SQUARE FOOT(a)
- -------------- --------- ---------------
<S> <C> <C>
Dallas
Far North Dallas
Colonnade I & II............ 67 $21.93
Colonnade III............... 14 $26.75
Las Colinas
Computer Associates Tower... 15 $24.04
Texas Commerce Tower........ 30 $23.22
LBJ/Quorum
Four Forest Plaza(d)........ 49 $18.76
Lakeside Square............. 21 $19.53
North Central Plaza Three... 30 $18.54
N. Central Expressway
9400 NCX.................... 66 $15.29
Eighty-Eighty Central....... 34 $18.11
Preston Center
Preston Commons(d).......... 70 $20.92
Sterling Plaza(d)........... 67 $20.54
Ft. Worth
W/SW Fort Worth
Summitt Office Park......... 57 $13.52
Houston
Galleria/West Loop
San Felipe Plaza(d)......... 116 $18.06
North Loop/Northwest
Brookhollow Central......... 58 $16.70
North/North Belt
Intercontinental Center..... 10 $16.41
Northborough Tower(d)....... 15 $14.96
West
2500 CityWest............... 26 $21.68
New Orleans
CBD
LL&E Tower.................. 34 $16.58
Texaco Center............... 23 $17.44
Metairie/E. Jefferson
One Lakeway Center.......... 39 $16.82
Two Lakeway Center.......... 71 $17.17
Three Lakeway Center........ 47 $17.10
San Antonio
Northwest
Colonnade I................. 27 $16.66
Northwest Center............ 32 $15.71
Union Square................ 19 $17.05
----- ------
SOUTHWEST REGION TOTAL/WEIGHTED
AVERAGE....................... 1,152 $19.28
----- ------
WEST REGION
Albuquerque
Downtown
500 Marquette Building...... 34 $16.06
Uptown
One Park Square............. 43 $18.30
Anchorage
Midtown
Calais Office Center(b)..... 35 $19.58
Denver
Downtown
410 17th Street............. 74 $16.96
Denver Post Tower(b)........ 30 $16.75
Dominion Plaza.............. 68 $15.75
Tabor Center................ 134 $24.26
Trinity Place............... 44 $15.18
Southeast
4949 S. Syracuse............ 7 $20.37
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
PERCENT
OF TOTAL PERCENT OF
APPROXIMATE PORTFOLIO ANNUALIZED PORTFOLIO
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT ANNUALIZED
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(a) RENT
- -------------- --------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Denver Corporate Center II &
III........................ 2 1981/93-97 358,357 0.5% 100.0% 7,030 0.4%
Metropoint.................. 1 1987 263,719 0.3% 87.2% 5,018 0.3%
Metropoint II(d)(j)......... 1 1999 150,181 0.2% 85.7% 3,067 0.2%
Terrace Building............ 1 1982 115,408 0.1% 90.1% 2,142 0.1%
Millennium Plaza............ 1 1982 330,033 0.4% 100.0% 7,600 0.4%
Solarium.................... 1 1982 162,817 0.2% 82.2% 2,624 0.1%
The Quadrant................ 1 1985 313,302 0.4% 95.1% 6,595 0.4%
Minneapolis
I-494
Northland Plaza............. 1 1985 296,965 0.4% 94.9% 7,414 0.4%
Minneapolis CBD
LaSalle Plaza............... 1 1991 588,908 0.8% 98.8% 15,994 0.9%
Phoenix
Central Corridor
49 East Thomas Road(k)...... 1 1974/1993 18,892 0.0% 73.3% 136 0.0%
One Phoenix Plaza(l)........ 1 1989 586,403 0.8% 100.0% 8,116 0.5%
Portland
Downtown
1001 Fifth Avenue(b)........ 1 1980 368,138 0.5% 94.1% 6,549 0.4%
Seattle
Bellevue CBD
City Center Bellevue........ 1 1987 472,587 0.6% 97.6% 11,323 0.6%
One Bellevue Center(b)...... 1 1983 344,715 0.4% 95.1% 7,777 0.4%
Rainier Plaza(b)............ 1 1986 410,855 0.5% 98.5% 10,136 0.6%
Sunset North Corporate
Campus(d)(m)............... 3 1999 460,629 0.6% 55.5% 7,141 0.4%
CBD
1111 Third Avenue........... 1 1980 528,282 0.7% 89.0% 10,136 0.6%
Bank of America Tower....... 2 1985 1,537,932 2.0% 98.4% 40,068 2.2%
Nordstrom Medical Tower..... 1 1986 101,431 0.1% 87.3% 2,387 0.1%
Second and Seneca
Buildings.................. 2 1991 480,272 0.6% 96.2% 10,936 0.6%
Second and Spring
Building................... 1 1906/1989 134,871 0.2% 79.1% 2,486 0.1%
Wells Fargo Center.......... 1 1983 915,883 1.2% 94.7% 23,323 1.3%
St. Louis
Mid County
Interco Corporate Tower..... 1 1986 339,163 0.4% 93.6% 7,408 0.4%
--- ---------- ------ ------ ---------- ------
WEST REGION TOTAL/WEIGHTED
AVERAGE....................... 42 12,428,878 16.1% 92.1% 256,365 14.3%
--- ---------- ------ ------ ---------- ------
PACIFIC REGION
Los Angeles
Downtown
550 S. Hope................. 1 1991 566,434 0.7% 86.8% 10,607 0.6%
Two California Plaza(b)..... 1 1992 1,329,809 1.7% 57.2% 20,522 1.1%
Pasadena
Pasadena Towers(d).......... 2 1990-91 439,367 0.6% 89.0% 10,690 0.6%
Los Angeles
Westwood
10880 Wilshire
Boulevard(b)............... 1 1970/1992 534,047 0.7% 96.7% 15,890 0.9%
10960 Wilshire Boulevard.... 1 1971/1992 543,804 0.7% 98.3% 16,113 0.9%
Orange County
Airport Office Area
1920 Main Plaza............. 1 1988 305,662 0.4% 89.7% 6,296 0.4%
2010 Main Plaza............. 1 1988 280,882 0.4% 95.0% 7,624 0.4%
Anaheim Stadium Area
500 Orange Tower(n)......... 1 1988 290,765 0.4% 92.8% 5,288 0.3%
Orange County
Town & Country
1100 Executive Tower........ 1 1987 366,747 0.5% 100.0% 7,055 0.4%
San Diego
The Plaza at La Jolla
Village(d)................. 5 1987-1990 635,419 0.8% 94.3% 15,261 0.9%
Smith Barney Tower.......... 1 1987 187,999 0.2% 78.8% 3,722 0.2%
<CAPTION>
ANNUALIZED
RENT
PRIMARY MARKET NUMBER OF PER OCCUPIED
SUB MARKET LEASES SQUARE FOOT(a)
- -------------- --------- ---------------
<S> <C> <C>
Denver Corporate Center II &
III........................ 12 $19.62
Metropoint.................. 20 $21.83
Metropoint II(d)(j)......... 8 $23.82
Terrace Building............ 20 $20.60
Millennium Plaza............ 3 $23.03
Solarium.................... 26 $19.60
The Quadrant................ 35 $22.14
Minneapolis
I-494
Northland Plaza............. 53 $26.30
Minneapolis CBD
LaSalle Plaza............... 38 $27.48
Phoenix
Central Corridor
49 East Thomas Road(k)...... 13 $ 9.80
One Phoenix Plaza(l)........ 1 $13.84
Portland
Downtown
1001 Fifth Avenue(b)........ 57 $18.90
Seattle
Bellevue CBD
City Center Bellevue........ 76 $24.54
One Bellevue Center(b)...... 30 $23.72
Rainier Plaza(b)............ 57 $25.06
Sunset North Corporate
Campus(d)(m)............... 5 $27.91
CBD
1111 Third Avenue........... 40 $21.56
Bank of America Tower....... 142 $26.48
Nordstrom Medical Tower..... 16 $26.94
Second and Seneca
Buildings.................. 28 $23.66
Second and Spring
Building................... 4 $23.31
Wells Fargo Center.......... 68 $26.89
St. Louis
Mid County
Interco Corporate Tower..... 27 $23.35
----- ------
WEST REGION TOTAL/WEIGHTED
AVERAGE....................... 1,248 $22.41
----- ------
PACIFIC REGION
Los Angeles
Downtown
550 S. Hope................. 37 $21.58
Two California Plaza(b)..... 35 $26.97
Pasadena
Pasadena Towers(d).......... 35 $27.33
Los Angeles
Westwood
10880 Wilshire
Boulevard(b)............... 46 $30.76
10960 Wilshire Boulevard.... 31 $30.13
Orange County
Airport Office Area
1920 Main Plaza............. 40 $22.97
2010 Main Plaza............. 30 $28.58
Anaheim Stadium Area
500 Orange Tower(n)......... 47 $19.61
Orange County
Town & Country
1100 Executive Tower........ 22 $19.24
San Diego
The Plaza at La Jolla
Village(d)................. 81 $25.47
Smith Barney Tower.......... 23 $25.12
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
PERCENT
OF TOTAL PERCENT OF
APPROXIMATE PORTFOLIO ANNUALIZED PORTFOLIO
PRIMARY MARKET NUMBER OF YEAR BUILT/ RENTABLE RENTABLE PERCENT RENT ANNUALIZED
SUB MARKET BUILDINGS RENOVATED SQUARE FEET SQUARE FEET OCCUPIED (000'S)(A) RENT
- -------------- --------- ----------- ----------- -------------------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
San Francisco
Financial District
201 Mission Street.......... 1 1981 483,289 0.6% 99.7% 13,322 0.7%
301 Howard Building......... 1 1988 307,396 0.4% 94.9% 9,197 0.5%
580 California.............. 1 1984 313,012 0.4% 98.7% 10,253 0.6%
60 Spear Street Building.... 1 1967/1987 133,782 0.2% 98.2% 3,486 0.2%
One Maritime Plaza.......... 1 1967/1990 534,878 0.7% 97.5% 17,118 1.0%
One Market(b)............... 1 1976/1995 1,460,081 1.9% 92.8% 41,050 2.3%
San Jose
Mountain View
Shoreline Technology Park... 12 1985-1991 726,508 0.9% 100.0% 15,114 0.8%
Palo Alto
Palo Alto Square(b)......... 6 1971/1985 320,468 0.4% 98.3% 11,344 0.6%
Santa Clara
Lake Marriott Business
Park....................... 7 1981 401,402 0.5% 99.0% 6,368 0.4%
Sunnyvale
Sunnyvale Business Center... 3 1990 175,000 0.2% 100.0% 3,219 0.2%
--- ---------- ------ ------ ---------- ------
PACIFIC REGION TOTAL/WEIGHTED
AVERAGE....................... 50 10,336,751 13.4% 90.2% 249,541 13.9%
--- ---------- ------ ------ ---------- ------
PORTFOLIO TOTAL/WEIGHTED
AVERAGE....................... 294 77,015,610 100.0% 93.7% $1,793,519 100.0%
=== ========== ====== ====== ========== ======
<CAPTION>
ANNUALIZED
RENT
PRIMARY MARKET NUMBER OF PER OCCUPIED
SUB MARKET LEASES SQUARE FOOT(A)
- -------------- --------- ---------------
<S> <C> <C>
San Francisco
Financial District
201 Mission Street.......... 20 $27.66
301 Howard Building......... 30 $31.54
580 California.............. 23 $33.18
60 Spear Street Building.... 8 $26.54
One Maritime Plaza.......... 37 $32.81
One Market(b)............... 116 $30.31
San Jose
Mountain View
Shoreline Technology Park... 12 $20.80
Palo Alto
Palo Alto Square(b)......... 23 $36.00
Santa Clara
Lake Marriott Business
Park....................... 15 $16.03
Sunnyvale
Sunnyvale Business Center... 3 $18.40
----- ------
PACIFIC REGION TOTAL/WEIGHTED
AVERAGE....................... 714 $26.77
----- ------
PORTFOLIO TOTAL/WEIGHTED
AVERAGE....................... 6,347 $24.86
===== ======
</TABLE>
- ---------------
(a) Annualized Rent is the monthly contractual rent under existing leases as of
December 31, 1999, multiplied by 12. This amount reflects total base rent
before any rent abatements, but includes expense reimbursements, which may
be estimates. Total rent abatements for leases in effect as of December 31,
1999, for the 12 months ending December 31, 2000, are approximately $7.0
million.
(b) All or a portion of this Office Property is held subject to a ground lease
with the exception of Denver Post Tower which is subject to an air rights
lease.
(c) This Office Property is held in a private real estate investment trust in
which the Company and the Trust owns 51.6% of the outstanding shares.
(d) This Office Property is held in a partnership with an unaffiliated third
party and, in the case of San Felipe Plaza and Sunset North Corporate
Campus, an affiliated party.
(e) This Office Property was a development project placed in-service in
November 1998. It is currently 78.0% occupied.
(f) This Office Property completed a major redevelopment in June 1999. The
property currently is 51.8% occupied and 64.3% leased, with occupancy to
take place some time in the future.
(g) The Company's interest in the amenities component of this Office Property
is primarily attributable to its ownership of mortgage indebtedness
encumbering the theatre/plaza, retail, health club and parking facilities
associated therewith.
(h) The Company acquired a first mortgage note secured by this Office Property.
In accordance with certain agreements concerning the first mortgage note,
the Company controls financial and operational decisions for the Property
and is entitled to substantially all cash flow and residual profit.
Accordingly, the Company consolidated the financial position and results of
operations of the Property.
(i) This Office Property was a development project purchased and placed
in-service in July 1999. It is currently 26.9% occupied and 57.9% leased,
with occupancy to take place some time in the future.
(j) This was a development project that was placed in-service in May 1999. It
is currently 85.7% occupied and 95.0% leased, with occupancy to take place
some time in the future.
(k) This Office Property was purchased in conjunction with the purchase of One
Phoenix Plaza for the sole purpose of providing additional parking for the
tenants of One Phoenix Plaza.
(l) This Office Property is 100% leased to a single tenant on a triple net
basis, whereby the tenant pays for certain operating expenses directly
rather than reimbursing the Company. The amounts shown above for
annualized rent include the amounts of reimbursement of expenses paid by
the Company but do not make any adjustments for expenses paid directly by
the tenant.
20
<PAGE> 21
(m) This Office Property was a development project placed in-service in December
1999. It is currently 55.6% occupied and 96.9% leased with occupancy to take
place some time in the future.
(n) This Office Property is held subject to an interest in the improvements at
the Property held by an unaffiliated third party. In addition, the Company
has a mortgage interest in such improvements.
PARKING FACILITIES
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF MANAGEMENT
REGION PROPERTY NAME STATE CITY SPACES GARAGES COMPANY
- ------ -------------------------------------- ----- ------------ --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION
Adams-Wabash Garage(a) IL Chicago 670 1 Standard Parking
Theater District Garage(a)(b) IL Chicago 1,020 1 Standard Parking
203 North LaSalle Garage(a)(b) IL Chicago 1,196 1 Standard Parking
Capitol Commons Garage(b)(c) IN Indianapolis 986 1 Central Parking
Milwaukee Center Garage(a)(c) WI Milwaukee 815 1 Standard Parking
NORTHEAST REGION
Boston Harbor Garage MA Boston 1,380 1 Standard Parking
1616 Sansom Street Garage(a) PA Philadelphia 240 1 Central Parking
1111 Sansom Street Garage(a) PA Philadelphia 250 1 Central Parking
Juniper/Locust Street Garage(a) PA Philadelphia 541 1 Central Parking
15th & Sansom Street Garage(a) PA Philadelphia 313 1 Central Parking
1602-34 Chancellor Garage(a) PA Philadelphia 416 1 Central Parking
Riverfront Center PA Pittsburgh 741 1 Standard Parking
Forbes & Allies Garage(a)(d) PA Pittsburgh 1,310 2 Central Parking
MacArthur Airport NY Islip 2,575 1 Standard Parking
WEST REGION
517 Marquette Garage(a) MN Minneapolis 589 1 Standard Parking
St. Louis Parking Garages(a)(e) MO St. Louis 7,464 4 Central Parking
------ ---
TOTAL EOP STAND-ALONE 20,506 20
TOTAL EOP PORTFOLIO 67,178 83
------ ---
GRAND TOTAL 87,684 103
====== ===
</TABLE>
- ---------------
(a) Each of these parking Facilities is operated by the designated third-party
service companies (each, a "Service Company") under a lease agreement
whereby the Company and the Service Company share the gross receipts from
the parking operation or the Company receives a fixed payment from the
Service Company, and the Company bears none of the operational expenses.
(b) Each of these Parking Facilities is held in a partnership with an
unaffiliated third party. The Company or a Subsidiary is the managing
general partner of each such partnership.
(c) This Parking Facility is held subject to a ground lease.
(d) The Company acquired a leasehold interest in this parking facility. 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 ten years of the
lease. The Company has accounted for this transaction as a capital lease.
(e) The Company has a 50% membership interest in a portfolio of four Parking
Facilities serving the St. Louis, Missouri area.
TENANTS
As of December 31, 1999, the Office Properties were leased to 6,347
tenants; no single tenant accounted for more than 1.6% of the Company's
aggregate annualized rent or 1.2% of the aggregate occupied square feet (except
for the U.S. General Services Administration, acting on behalf of various
agencies or departments of the U.S. government, which accounted for 3.2% of the
annualized rent and 3.2% of the occupied square feet).
21
<PAGE> 22
LEASE EXPIRATION
<TABLE>
<CAPTION>
2000 AND
MONTH TO
MONTH 2001 2002 2003 2004 2005
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION TOTALS
Square Feet (1).............. 1,165,841 952,407 1,152,928 1,818,728 1,300,777 1,191,066
% Square Feet (2)............ 9.0% 7.4% 8.9% 14.1% 10.1% 9.2%
Annualized Rent (3).......... $ 29,464,813 $ 21,687,541 $ 29,874,913 $ 52,855,288 $ 32,640,620 $ 28,116,486
Number of Leases............. 260 184 196 156 147 68
Rent Per Square Foot......... $ 25.27 $ 22.77 $ 25.91 $ 29.06 $ 25.09 $ 23.61
NORTHEAST REGION TOTALS
Square Feet (1).............. 1,465,183 2,856,718 3,222,555 2,236,024 1,987,388 1,738,436
% Square Feet (2)............ 6.9% 13.5% 15.3% 10.6% 9.4% 8.2%
Annualized Rent (3).......... $ 38,237,836 $ 97,376,144 $ 93,821,096 $ 67,063,699 $ 55,920,198 $ 50,622,527
Number of Leases............. 265 214 246 220 189 103
Rent Per Square Foot......... $ 26.10 $ 34.09 $ 29.11 $ 29.99 $ 28.14 $ 29.12
SOUTHEAST REGION TOTALS
Square Feet (1).............. 1,196,358 1,400,715 698,108 645,026 957,218 607,591
% Square Feet (2)............ 13.9% 16.3% 8.1% 7.5% 11.1% 7.0%
Annualized Rent (3).......... $ 23,744,341 $ 25,914,990 $ 14,824,862 $ 14,133,610 $ 15,352,588 $ 10,716,863
Number of Leases............. 159 129 116 69 76 27
Rent Per Square Foot......... $ 19.85 $ 18.50 $ 21.24 $ 21.91 $ 16.04 $ 17.64
SOUTHWEST REGION TOTALS
Square Feet (1).............. 2,056,332 1,723,192 1,684,150 1,423,838 1,298,904 509,777
% Square Feet (2)............ 17.7% 14.9% 14.5% 12.3% 11.2% 4.4%
Annualized Rent (3).......... $ 38,383,627 $ 33,685,451 $ 33,878,640 $ 27,872,016 $ 26,169,782 $ 9,776,273
Number of Leases............. 353 203 207 169 127 37
Rent Per Square Foot......... $ 18.67 $ 19.55 $ 20.12 $ 19.58 $ 20.15 $ 19.18
WEST REGION TOTALS
Square Feet (1).............. 1,534,755 1,756,194 1,402,661 1,596,835 1,652,816 778,359
% Square Feet (2)............ 12.3% 14.1% 11.3% 12.8% 13.3% 6.3%
Annualized Rent (3).......... $ 32,967,069 $ 40,617,410 $ 31,297,869 $ 38,526,283 $ 34,063,578 $ 18,104,878
Number of Leases............. 373 220 218 167 125 51
Rent Per Square Foot......... $ 21.48 $ 23.13 $ 22.31 $ 24.13 $ 20.61 $ 23.26
PACIFIC REGION TOTALS
Square Feet (1).............. 1,276,734 1,640,469 917,224 786,355 1,042,472 1,167,062
% Square Feet (2)............ 12.4% 15.9% 8.9% 7.6% 10.1% 11.3%
Annualized Rent (3).......... $ 28,657,593 $ 39,209,105 $ 27,597,977 $ 22,695,654 $ 32,330,778 $ 31,026,081
Number of Leases............. 148 147 110 90 81 54
Rent Per Square Foot......... $ 22.45 $ 23.90 $ 30.09 $ 28.86 $ 31.01 $ 26.58
PORTFOLIO TOTALS
Square Feet (1).............. 8,695,203 10,329,695 9,077,626 8,506,806 8,239,575 5,992,291
% Square Feet (2)............ 11.3% 13.4% 11.8% 11.0% 10.7% 7.8%
Annualized Rent (3).......... $191,455,277 $258,490,640 $231,295,357 $223,146,550 $196,477,544 $148,363,108
Number of Leases............. 1,558 1,097 1,093 871 745 340
Rent Per Square Foot......... $ 22.02 $ 25.02 $ 25.48 $ 26.23 $ 23.85 $ 24.76
<CAPTION>
2010 AND
2006 2007 2008 2009 BEYOND TOTALS
------------ ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION TOTALS
Square Feet (1).............. 768,093 398,596 1,170,538 723,190 1,789,259 12,431,423
% Square Feet (2)............ 5.9% 3.1% 9.1% 5.6% 13.8% 96.1%
Annualized Rent (3).......... $ 17,065,082 $ 8,547,273 $ 24,579,556 $ 20,951,487 $ 35,351,717 $ 301,134,774
Number of Leases............. 53 27 34 20 21 1,166
Rent Per Square Foot......... $ 22.22 $ 21.44 $ 21.00 $ 28.97 $ 19.76 $ 24.22
NORTHEAST REGION TOTALS
Square Feet (1).............. 1,149,329 1,067,203 1,191,205 1,818,988 1,802,888 20,535,917
% Square Feet (2)............ 5.4% 5.1% 5.6% 8.6% 8.5% 97.3%
Annualized Rent (3).......... $ 28,812,093 $ 28,984,493 $ 38,414,130 $ 72,725,796 $ 58,004,225 $ 629,982,236
Number of Leases............. 58 40 50 34 27 1,446
Rent Per Square Foot......... $ 25.07 $ 27.16 $ 32.25 $ 39.98 $ 32.17 $ 30.68
SOUTHEAST REGION TOTALS
Square Feet (1).............. 770,948 145,658 390,847 191,541 788,184 7,792,194
% Square Feet (2)............ 8.9% 1.7% 4.5% 2.2% 9.1% 90.4%
Annualized Rent (3).......... $ 17,749,334 $ 2,783,954 $ 9,110,405 $ 4,002,700 $ 13,216,543 $ 151,550,190
Number of Leases............. 14 6 10 7 8 621
Rent Per Square Foot......... $ 23.02 $ 19.11 $ 23.31 $ 20.90 $ 16.77 $ 19.45
SOUTHWEST REGION TOTALS
Square Feet (1).............. 757,350 321,068 357,429 163,075 334,348 10,629,463
% Square Feet (2)............ 6.5% 2.8% 3.1% 1.4% 2.9% 91.6%
Annualized Rent (3).......... $ 13,878,136 $ 6,176,764 $ 8,520,016 $ 2,977,750 $ 3,627,639 $ 204,946,093
Number of Leases............. 26 6 10 8 6 1,152
Rent Per Square Foot......... $ 18.32 $ 19.24 $ 23.84 $ 18.26 $ 10.85 $ 19.28
WEST REGION TOTALS
Square Feet (1).............. 637,567 682,127 802,404 336,480 261,795 11,441,993
% Square Feet (2)............ 5.1% 5.5% 6.5% 2.7% 2.1% 92.1%
Annualized Rent (3).......... $ 14,148,550 $ 14,501,684 $ 22,491,029 $ 8,723,317 $ 923,364 $ 256,365,031
Number of Leases............. 26 25 21 16 6 1,248
Rent Per Square Foot......... $ 22.19 $ 21.26 $ 28.03 $ 25.93 $ 3.53 $ 22.41
PACIFIC REGION TOTALS
Square Feet (1).............. 607,837 830,044 297,305 166,746 590,867 9,323,115
% Square Feet (2)............ 5.9% 8.0% 2.9% 1.6% 5.7% 90.2%
Annualized Rent (3).......... $ 17,962,445 $ 26,505,489 $ 10,225,055 $ 4,111,730 $ 9,219,081 $ 249,540,989
Number of Leases............. 25 20 14 13 12 714
Rent Per Square Foot......... $ 29.55 $ 31.93 $ 34.39 $ 24.66 $ 15.60 $ 26.77
PORTFOLIO TOTALS
Square Feet (1).............. 4,691,124 3,444,696 4,209,728 3,400,020 5,567,341 72,154,105
% Square Feet (2)............ 6.1% 4.5% 5.5% 4.4% 7.2% 93.7%
Annualized Rent (3).......... $109,615,641 $ 87,499,657 $113,340,191 $113,492,779 $120,342,569 $1,793,519,312
Number of Leases............. 202 124 139 98 80 6,347
Rent Per Square Foot......... $ 23.37 $ 25.40 $ 26.92 $ 33.38 $ 21.62 $ 24.86
</TABLE>
- ---------------
(1) Total net rentable square feet represented by expiring leases.
(2) Percentage of total net rentable feet represented by expiring leases.
(3) Annualized Rent is the monthly contractual rent under existing leases as of
December 31, 1999 multiplied by 12. This amount reflects total base rent
before any rent abatements, but includes expense reimbursements. Total rent
abatements for leases in effect as of December 31, 1999 for the 12 months
ending December 31, 2000 are approximately $7.0 million.
22
<PAGE> 23
LEASE EXPIRATIONS -- TOTAL PORTFOLIO
The following table sets forth a summary schedule of the lease expirations
for the Office Properties for leases in place as of December 31, 1999, assuming
that none of the tenants exercise renewal options or termination rights, if any,
at or prior to the scheduled expirations:
<TABLE>
<CAPTION>
ANNUALIZED PERCENTAGE
PERCENTAGE RENT OF OF
SQUARE OF TOTAL EXPIRING ANNUALIZED
NUMBER OF FOOTAGE OF OCCUPIED ANNUALIZED RENT LEASES PER RENT OF
YEAR OF LEASE LEASES EXPIRING SQUARE OF EXPIRING SQUARE EXPIRING
EXPIRATION EXPIRING LEASES FEET LEASES FOOT LEASES(1)
- ------------- --------- ---------- ---------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
2000(2).................... 1,558 8,695,203 12.2% $ 191,455,277 $22.02 10.7%
2001....................... 1,097 10,329,695 14.5% 258,490,640 25.02 14.4%
2002....................... 1,093 9,077,626 12.7% 231,295,357 25.48 12.9%
2003....................... 871 8,506,806 11.9% 223,146,550 26.23 12.4%
2004....................... 745 8,239,575 11.6% 196,477,544 23.85 11.0%
2005....................... 340 5,992,291 8.4% 148,363,108 24.76 8.3%
2006....................... 202 4,691,124 6.6% 109,615,641 23.37 6.1%
2007....................... 124 3,444,696 4.8% 87,499,657 25.40 4.9%
2008....................... 139 4,209,728 5.9% 113,340,191 26.92 6.3%
2009....................... 98 3,400,020 4.8% 113,492,779 33.38 6.3%
2010 and beyond............ 80 4,642,725 6.6% 120,342,568 25.92 6.7%
----- ---------- -------- -------------- ------ -----
6,347 71,229,489 100.0%(3) $1,793,519,312 $24.86 100.0%
===== ========== ======== ============== ====== =====
</TABLE>
- ---------------
(1) Based on current payable rent.
(2) Represents lease expirations from January 1, 2000 to December 31, 2000 and
month-to-month leases.
(3) Reconciliation for total net rentable square footage is as follows:
<TABLE>
<CAPTION>
SQUARE PERCENT
FOOTAGE OF TOTAL
----------- ----------
<S> <C> <C>
Square footage occupied by tenants.......................... 71,229,489 92.5%
Square footage used for management offices, building use and
remeasurement adjustments................................. 924,616 1.2%
----------- -----
Total occupied square footage............................... 72,154,105 93.7%
Square footage vacant....................................... 4,861,505 6.3%
----------- -----
Total net rentable square footage........................... 77,015,610 100.0%
=========== =====
</TABLE>
23
<PAGE> 24
LEASE DISTRIBUTION
The following table sets forth information relating to the distribution of
the Office Property leases, based on rentable square feet under lease, as of
December 31, 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE
PERCENT PORTFOLIO ANNUALIZED
NUMBER OF OF ALL TOTAL OCCUPIED OCCUPIED RENT PER
SQUARE FEET UNDER LEASE LEASES LEASES SQUARE FEET SQUARE FEET ANNUALIZED RENT SQUARE FOOT
- ----------------------- --------- ------- -------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
2,500 or Less.................. 2,344 36.9% 2,808,421 3.9% $ 66,506,838 $23.68
2,501 -- 5,000................. 1,362 21.5% 4,881,001 6.9% 116,678,260 23.90
5,001 -- 7,500................. 703 11.1% 4,288,874 6.0% 102,424,463 23.88
7,501 -- 10,000................ 378 6.0% 3,289,304 4.6% 79,011,887 24.02
10,001 -- 20,000............... 788 12.4% 11,217,665 15.7% 274,845,107 24.50
20,001 -- 40,000............... 440 6.9% 12,013,701 16.9% 303,597,750 25.27
40,001 -- 60,000............... 132 2.1% 6,414,137 9.0% 159,275,119 24.83
60,001 -- 100,000.............. 105 1.7% 7,965,161 11.2% 202,839,031 25.47
100,001 or Greater............. 95 1.5% 18,351,225 25.8% 488,340,856 26.61
----- ------ ---------- ------ -------------- ------
TOTAL/WEIGHTED AVERAGE......... 6,347 100.0% 71,229,489 100.0% $1,793,519,312 $24.86
===== ====== ========== ====== ============== ======
<CAPTION>
PERCENTAGE OF
AGGREGATE
PORTFOLIO
SQUARE FEET UNDER LEASE ANNUALIZED RENT
- ----------------------- ---------------
<S> <C>
2,500 or Less.................. 3.7%
2,501 -- 5,000................. 6.5%
5,001 -- 7,500................. 5.7%
7,501 -- 10,000................ 4.4%
10,001 -- 20,000............... 15.3%
20,001 -- 40,000............... 16.9%
40,001 -- 60,000............... 8.9%
60,001 -- 100,000.............. 11.3%
100,001 or Greater............. 27.2%
------
TOTAL/WEIGHTED AVERAGE......... 100.0%
======
</TABLE>
OCCUPANCY
The table below sets forth weighted average occupancy rates, based on
square footage occupied, of the Office Properties owned by the Company at the
indicated date:
<TABLE>
<CAPTION>
AGGREGATE PERCENTAGE OF
RENTABLE SQUARE RENTABLE SQUARE
DATE FOOTAGE FEET OCCUPIED
- ---- --------------- ---------------
<S> <C> <C>
December 31, 1992........................................... 9,095,684 73%
December 31, 1993........................................... 13,550,553 80%
December 31, 1994........................................... 18,505,591 88%
December 31, 1995........................................... 23,097,222 86%
December 31, 1996........................................... 29,127,289 90%
December 31, 1997........................................... 65,291,790 94%
December 31, 1998........................................... 75,100,727 95%
December 31, 1999........................................... 77,015,610 94%
</TABLE>
24
<PAGE> 25
ITEM 3. LEGAL PROCEEDINGS
Neither the Company nor any of its Properties is presently subject to
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Properties, other than routine
actions for negligence and other claims and administrative proceedings arising
in the ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on the liquidity, results of operations, or business or
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Units. The Trust's
Common Shares are traded on the New York Stock Exchange ("NYSE") under the
symbol EOP. The following table sets forth, for the periods indicated, the high
and low closing prices of the Trust's Common Shares and the distributions paid
on the Company's Units:
<TABLE>
<CAPTION>
YEAR QUARTER HIGH LOW CLOSE DIVIDEND
- ---- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
1999 Fourth $ 24.625 $ 21.00 $24.625 $0.42
Third $ 25.75 $ 23.25 $ 23.25 $0.42
Second $ 29.25 $ 25.125 $25.625 $0.37
First $ 26.75 $ 24.00 $25.375 $0.37
1998 Fourth $ 25.625 $22.9375 $ 24.00 $0.37
Third $28.6875 $ 20.75 $ 24.50 $0.37
Second $ 31.00 $24.9375 $28.375 $0.32
First $ 31.875 $ 28.00 $30.625 $0.32
</TABLE>
The number of holders of record of Units on March 1, 1999 was 269. The
number of outstanding Units was 281,452,852 as of March 1, 2000.
ISSUANCE OF UNREGISTERED SECURITIES. Any Units issued by the Company are
convertible into Common Shares of the Trust on a one-for-one basis, or the cash
equivalent thereof, subject to certain restrictions.
In October 1999, the Company acquired an Office Property from an affiliated
party for approximately $78.3 million. Of this amount, the Company issued, in a
private placement of securities in reliance on an exemption from the
registration requirements of the Securities Act pursuant to Section 4(2) and
Rule 506 of Regulation D promulgated thereunder, 1,035,389 Units at a price of
$29.50 per Unit. The Units were recorded at $23.64 each for a total of $24.5
million for accounting purposes.
25
<PAGE> 26
ITEM 6. SELECTED FINANCIAL DATA.
EOP OPERATING LIMITED PARTNERSHIP SELECTED FINANCIAL DATA(1)
The following sets forth selected consolidated and combined financial and
operating information on a historical basis for EOP Operating Limited
Partnership and the Company's predecessors ("Equity Office Predecessors") (the
"Company"). The following information should be read in conjunction with the
consolidated and combined financial statements and notes thereto of the Company
and Equity Office Predecessors included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
EOP OPERATING LIMITED PARTNERSHIP EQUITY OFFICE PREDECESSORS
------------------------------------------ -----------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEARS ENDED FROM JULY 11, FROM JANUARY 1, FOR THE YEARS ENDED
DECEMBER 31, 1997 THROUGH 1997 THROUGH DECEMBER 31,
------------------------- DECEMBER 31, JULY 10, -----------------------
1999 1998 1997 1997 1996 1995
----------- ----------- -------------- --------------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Rental, parking and other............ $ 1,919,056 $ 1,658,420 $ 406,713 $ 327,017 $ 493,396 $ 356,959
----------- ----------- ----------- --------- ---------- ----------
Total revenues..................... 1,942,243 1,679,699 412,968 339,104 508,124 371,457
----------- ----------- ----------- --------- ---------- ----------
Expenses:
Interest............................. 413,995 338,611 76,675 80,481 119,595 100,566
Depreciation and amortization........ 358,989 305,982 70,346 66,034 96,237 74,156
Property operating and ground
rent(2)............................ 669,763 600,367 155,679 127,285 201,067 151,488
General and administrative........... 80,927 63,564 17,690 17,201 23,145 21,987
Provision for value impairment....... -- -- -- -- -- 20,248
----------- ----------- ----------- --------- ---------- ----------
Total expenses..................... 1,523,674 1,308,524 320,390 291,001 440,044 368,445
----------- ----------- ----------- --------- ---------- ----------
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, net
gain/(loss) on sales of real estate
and extraordinary items.............. 418,569 371,175 92,578 48,103 68,080 3,012
Minority interests..................... (1,981) (2,114) (789) (912) (2,086) (2,129)
Income from investment in
unconsolidated joint ventures........ 13,824 11,267 3,173 1,982 2,093 2,305
Net gain/(loss) on sales of real estate
and extraordinary items.............. 49,113 4,927 (16,240) 12,236 5,338 31,271
----------- ----------- ----------- --------- ---------- ----------
Net income............................. 479,525 385,255 78,722 61,409 73,425 34,459
Put option settlement.................. (5,658) -- -- -- -- --
Preferred distributions................ (43,603) (32,202) (649) -- -- --
----------- ----------- ----------- --------- ---------- ----------
Net income available for Units......... $ 430,264 $ 353,053 $ 78,073 $ 61,409 $ 73,425 $ 34,459
=========== =========== =========== ========= ========== ==========
Net income available per weighted
average Unit outstanding -- Basic.... $1.49 $1.25 $0.44
=========== =========== ===========
Net income available per weighted
average Unit outstanding --
Diluted.............................. $1.48 $1.24 $0.43
=========== =========== ===========
Weighted average Units outstanding --
Basic................................ 288,326,547 282,114,343 178,647,562
=========== =========== ===========
Weighted average Units outstanding --
Diluted.............................. 291,157,204 283,974,532 180,014,027
=========== =========== ===========
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
EOP OPERATING LIMITED PARTNERSHIP EQUITY OFFICE PREDECESSORS
------------------------------------------ -----------------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE YEARS ENDED FROM JULY 11, FROM JANUARY 1, FOR THE YEARS ENDED
DECEMBER 31, 1997 THROUGH 1997 THROUGH DECEMBER 31,
------------------------- DECEMBER 31, JULY 10, -----------------------
1999 1998 1997 1997 1996 1995
----------- ----------- -------------- --------------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at end of period):
Investment in real estate, net of
accumulated depreciation............. $12,572,153 $13,331,560 $10,976,319 -- $3,291,815 $2,393,403
Total Assets........................... $14,046,058 $14,261,291 $11,751,672 -- $3,912,565 $2,650,890
Mortgage debt, unsecured notes and
lines of credit...................... $ 5,851,918 $ 6,025,405 $ 4,284,317 -- $1,964,892 $1,434,827
Total Liabilities...................... $ 6,336,531 $ 6,472,613 $ 4,591,697 -- $2,174,483 $1,529,334
Minority Interests..................... $ 39,027 $ 28,360 $ 29,612 -- $ 11,080 $ 31,587
Preferred Units........................ $ 615,000 $ 615,000 $ 200,000 -- -- --
Partners' Capital/Owners' Equity....... $ 7,055,500 $ 7,145,318 $ 6,930,363 -- $1,727,002 $1,089,969
OTHER DATA:
General and administrative expenses as
a percentage of total revenues....... 4.2% 3.8% 4.3% 5.1% 4.6% 5.9%
Number of Office Properties............ 294 284 258 -- 84 73
Net rentable square feet of Office
Properties (in millions)............. 77.0 75.1 65.3 -- 29.2 23.1
Occupancy of Office Properties......... 94% 95% 94% -- 90% 86%
Number of Parking Facilities........... 20 19 17 -- 10 3
Number of spaces at Parking
Facilities........................... 20,506 18,059 16,749 -- 7,321 3,323
Funds from Operations(3)............... $ 748,983 $ 662,585 $ 163,253 $ 113,022 $ 160,460 $ 96,104
=========== =========== =========== ========= ========== ==========
Property Net Operating Income(4)....... $ 1,256,180 $ 1,065,714 $ 253,418 $ 202,108 $ 294,556 $ 206,341
=========== =========== =========== ========= ========== ==========
Earnings before interest, taxes,
depreciation and amortization(5)..... $ 1,228,913 $ 1,049,577 $ 242,969 $ 197,489 $ 286,128 $ 200,438
=========== =========== =========== ========= ========== ==========
Cash flow provided by operating
activities........................... $ 720,711 $ 759,151 $ 190,754 $ 95,960 $ 165,975 $ 93,878
=========== =========== =========== ========= ========== ==========
Cash flow (used for) investing
activities........................... $ (67,138) $(2,231,712) $(1,592,272) $(571,068) $ (924,227) $ (380,615)
=========== =========== =========== ========= ========== ==========
Cash flow (used for) provided by
financing activities................. $ (718,315) $ 1,310,788 $ 1,630,346 $ 245,851 $1,057,551 $ 276,513
=========== =========== =========== ========= ========== ==========
</TABLE>
- ---------------
(1) The selected financial data at December 31, 1999, 1998, 1997, 1996 and 1995
and for the five years ended December 31, 1999 has been derived from the
historical consolidated or combined financial statements of the Company and
Equity Office Predecessors, audited by Ernst & Young LLP, independent
auditors.
(2) Property operating expenses includes real estate taxes, insurance, repairs
and maintenance and other property operating expenses.
(3) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flow from operating, investing and financing activities, it
provides investors with an indication of the ability of the Company to incur
and service debt, to make capital expenditures and to fund other cash needs.
The Company computes Funds from Operations in accordance with standards
established by NAREIT, which may not be comparable to Funds from Operations
reported by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP, nor does it
represent cash available to pay distributions and should not be considered
as an alternative to net income (determined in accordance with GAAP) as
27
<PAGE> 28
an indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions. For
a reconciliation of net income to Funds from Operations, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Funds from Operations".
(4) Property Net Operating Income is defined as rental income including tenant
reimbursements, parking and other income less property operating expenses
including real estate taxes, insurance, repairs and maintenance and other
property operating expenses.
(5) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is
defined as net income excluding interest expense, taxes, depreciation and
amortization, net gain/(loss) on sales of real estate, gains/losses from
extraordinary items and income from investment in unconsolidated joint
ventures plus the Company's share of EBITDA for the unconsolidated joint
ventures. EBITDA is presented because the Company believes this data is used
by some investors to evaluate the Company's ability to meet debt service
requirements. The Company considers EBITDA to be an indicative measure of
its operating performance due to the significance of the Company's
long-lived assets and because this data can be used to measure the Company's
ability to service debt, fund capital expenditures and expand its business.
However, this data should not be considered as an alternative to net income,
operating profit, cash flows from operations or any other operating or
liquidity performance measure prescribed by GAAP. In addition, EBITDA as
calculated by the Company may not be comparable to similarly titled measures
reported by other companies. Interest expense, taxes, depreciation and
amortization, which are not reflected in the presentation of EBITDA, have
been, and will be, incurred by the Company. Investors are cautioned that
these excluded items are significant components in understanding and
assessing the Company's financial performance.
28
<PAGE> 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion and analysis of the consolidated financial
condition and consolidated and combined results of operations should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Combined Financial Statements of Equity Office Predecessors, and Notes thereto
contained herein. All references to activities prior to the Trust's initial
public offering ("IPO") on July 11, 1997, contained in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations" refer
to the activities of Equity Office Predecessors. Terms employed herein as
defined terms, but without definition, shall have the meaning set forth in the
financial statements. Statements contained in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" including without
limitation, the "Market Risk" and "Developments" disclosures, which are not
historical facts may be forward-looking statements. Such statements are subject
to certain risks and uncertainties which could cause actual results to differ
materially from those projected or anticipated. Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
December 31, 1999. Among the factors that the Company has made assumptions are
the following:
- Future economic conditions which may impact upon the demand for office
space and tenant ability to pay rent, either at current or at increased
levels.
- Prevailing interest rates.
- The extent of any inflation on operating expenses.
- The Company's ability to reduce various expenses as a percentage of
revenues.
- The Company's continuing ability to pay amounts due to its noteholders
and preferred unitholders prior to any distribution to holders of its
Units.
- The cost to complete and lease-up pending developments.
- The Company's continued access to adequate credit facilities on
acceptable terms, including any amounts required for the Cornerstone
Merger.
- The demand from the Company's customers for office-related services.
1999 HIGHLIGHTS:
- Acquired ten Office Properties containing approximately 1.9 million
square feet and one Parking Facility for approximately $393.2 million in
the aggregate.
- Invested approximately $73.9 million in mezzanine debt financing on the
SunAmerica Center office property.
- Sold four Office Properties containing .7 million square feet in
non-core markets and one redevelopment property for approximately $98.0
million.
- Sold a partial interest in twelve Office Properties for net proceeds of
approximately $480 million to Lend Lease Australia/U.S. Properties.
- Issued the $1.0 Billion Notes in three tranches due in three, five and
ten years with an effective overall interest rate of 6.8% per annum and
issued the $200 Million Notes due in 30 years with an effective interest
rate of 7.6% per annum.
- Repaid the $328 Million Credit Facility and the $200 Million Credit
Facility.
- Introduced Access, a strategic business service unit providing
additional products and services to Equity Office customers. The initial
offerings include telecom, office suites, ATMs, training tools, and
informational and advertising venues.
29
<PAGE> 30
- The Trust received a Private Letter Ruling from the Internal Revenue
Service allowing participation in the delivery of telecommunications
services to customers without violation of REIT rules.
RESULTS OF OPERATIONS
GENERAL
The following discussion is based primarily on the Consolidated Financial
Statements of the Company and the Combined Financial Statements of Equity Office
Predecessors, as applicable, as of December 31, 1999 and 1998, and for the years
ended December 31, 1999, 1998 and 1997.
The Company receives income primarily from rental revenue from Office
Properties (including reimbursements from tenants for certain operating costs)
and from parking revenue from Office Properties and Parking Facilities.
Below is a summary of the Company's acquisition and disposition activity
since January 1, 1998. The buildings and total square feet shown include
Properties the Company owns in joint ventures with other partners and reflects
the total square footage of the Properties. Excluding the joint venture
partner's share of the square feet of these Properties, the Company effectively
owned approximately 72.9 million square feet of office space as of December 31,
1999.
<TABLE>
<CAPTION>
OFFICE PROPERTIES PARKING FACILITIES
------------------------------ -------------------
BUILDINGS TOTAL SQUARE FEET GARAGES SPACES
--------- ----------------- -------- -------
<S> <C> <C> <C> <C>
PROPERTIES OWNED AS OF:
January 1, 1998..................................... 258 65,291,790 17 16,749
Acquisitions...................................... 28 10,425,595 2 1,310
Developments placed in service.................... 3 257,528 -- --
Dispositions...................................... (5) (986,391) -- --
Building remeasurements........................... -- 112,205 --
--- ---------- -- ------
December 31, 1998................................... 284 75,100,727 19 18,059
Acquisitions...................................... 10 1,947,639 1 2,575
Developments placed in service.................... 4 610,810 1 589
Dispositions...................................... (4) (668,796) -- --
Building remeasurements........................... -- 25,230 -- 42
Reclassifications(1).............................. -- -- (1) (759)
--- ---------- -- ------
December 31, 1999 ("Total Portfolio")............... 294 77,015,610 20 20,506
=== ========== == ======
</TABLE>
- ---------------
(1) The 601 Tchoupitoulas garage was previously considered a stand-alone garage
and included in the number of Parking Facilities owned by the Company.
Effective in the second quarter of 1999, this garage is no longer considered
a stand-alone Parking Facility.
As a result of the acquisition and disposition of Properties, the financial
data presented shows changes in revenues and expenses from period-to-period.
Therefore the Company does not believe its period-to-period financial data are
comparable. The following analysis shows changes resulting from Properties that
were held during the entire period for the periods being compared (the "Core
Portfolio") and the changes in the Total Portfolio.
As reflected in the tables below, property revenues include rental
revenues, reimbursements from tenants for certain expenses, parking revenue and
other property operating revenues. Property operating expenses include real
estate taxes, insurance, repairs and maintenance and other property operating
expenses.
30
<PAGE> 31
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO DECEMBER 31, 1998
The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 236 Office Properties and 16
Parking Facilities acquired or placed in service prior to January 1, 1998.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
--------------------------------------------- ---------------------------------------------
INCREASE/ % INCREASE/ %
1999 1998 (DECREASE) CHANGE 1999 1998 (DECREASE) CHANGE
---------- ---------- ---------- ------ ---------- ---------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues......... $1,919,056 $1,658,420 $260,636 15.7% $1,379,062 $1,314,411 $ 64,651 4.9%
Fee income................ 8,939 9,571 (632) (6.6) -- -- -- --
Interest/dividend
income.................. 14,248 11,708 2,540 21.7 1,554 1,844 (290) (15.7)
---------- ---------- -------- ----- ---------- ---------- -------- -----
Total revenues........ 1,942,243 1,679,699 262,544 15.6 1,380,616 1,316,255 64,361 4.9
---------- ---------- -------- ----- ---------- ---------- -------- -----
Interest expense.......... 413,995 338,611 75,384 22.3 110,731 139,927 (29,196) (20.9)
Depreciation and
amortization............ 358,989 305,982 53,007 17.3 262,894 243,006 19,888 8.2
Property operating
expenses................ 662,876 592,706 70,170 11.8 477,623 469,771 7,852 1.7
Ground rent............... 6,887 7,661 (774) (10.1) 6,179 7,203 (1,024) (14.2)
General and
administrative.......... 80,927 63,564 17,363 27.3 468 403 65 16.1
---------- ---------- -------- ----- ---------- ---------- -------- -----
Total expenses........ 1,523,674 1,308,524 215,150 16.4 857,895 860,310 (2,415) (0.3)
---------- ---------- -------- ----- ---------- ---------- -------- -----
Income before allocation
to minority interests,
income from investment
in unconsolidated joint
ventures, net gain on
sales of real estate and
extraordinary items..... 418,569 371,175 47,394 12.8 522,721 455,945 66,776 14.6
Minority Interests........ (1,981) (2,114) 133 (6.3) (1,972) (2,096) 124 (5.9)
Income from investment in
unconsolidated joint
ventures................ 13,824 11,267 2,557 22.7 10,512 8,928 1,584 17.7
Net gain on sales of real
estate.................. 59,661 12,433 47,228 379.9 -- -- -- --
Extraordinary items....... (10,548) (7,506) (3,042) 40.5 (9,527) -- (9,527) --
---------- ---------- -------- ----- ---------- ---------- -------- -----
Net income................ $ 479,525 $ 385,255 $ 94,270 24.5% $ 521,734 $ 462,777 $ 58,957 12.7%
========== ========== ======== ===== ========== ========== ======== =====
Property revenues less
property operating
expenses before
depreciation and
amortization, general
and administrative,
ground rent and interest
expense................. $1,256,180 $1,065,714 $190,466 17.9% $ 901,439 $ 844,640 $ 56,799 6.7%
========== ========== ======== ===== ========== ========== ======== =====
</TABLE>
Property Revenues
The increase in property revenues in the Core Portfolio resulted from a
combination of occupancy and rental rate increases. The weighted average
occupancy of the Core Portfolio increased from 93.8% at January 1, 1998 to 94.6%
at December 31, 1999. This increase represents approximately .5 million square
feet of additional occupancy in the Core Portfolio.
Property revenues for the Total Portfolio include lease termination fees of
approximately $15.9 million and $15.5 million for the years ended December 31,
1999 and 1998, respectively, and property revenues for the Core Portfolio
include lease termination fees of approximately $12.8 million and $14.0 million
for the years ended December 31, 1999 and 1998, respectively (lease termination
fees are included in the "other revenue" category on the consolidated statements
of operations). These fees relate to specific tenants who have paid a fee to
terminate their lease obligations before the end of the contractual term of
their lease. Although the
31
<PAGE> 32
Company has historically experienced similar levels of such termination fees,
there is no way of predicting the timing or amounts of future lease termination
fees.
Property revenues for the Total Portfolio also include straight-line rent
adjustments of approximately $65.4 million and $68.1 million for the years ended
December 31, 1999 and 1998, respectively. Property revenues for the Core
Portfolio include straight-line rent adjustments of approximately $44.7 million
and $58.0 million for the years ended December 31, 1999 and 1998, respectively.
Interest Expense
Total Portfolio interest expense increased from the prior period as a
result of having more debt outstanding primarily attributable to property
acquisitions. The following statistics for each period for the Total Portfolio
are as follows:
- Total debt to total assets decreased to 41.7% from 42.3%.
- Interest coverage ratio decreased to 2.9 times from 3.0 times.
- Weighted average interest rate increased to 7.2% from 7.1%.
Core Portfolio interest expense decreased from the prior period due to the
paydown of mortgage debt with proceeds from various unsecured notes offerings
and borrowing on the lines of credit. Interest expense on the unsecured notes
and the lines of credit is not reflected in the Core Portfolio.
Depreciation and Amortization
Total Portfolio depreciation and amortization expense increased as a result
of Properties acquired and capital and tenant improvements made during 1999 and
1998. Core Portfolio depreciation and amortization expense increased as a result
of capital and tenant improvements made to the Properties.
Property Operating Expenses
Core Portfolio property operating expenses increased due to an increase in
real estate tax expense of approximately $10.1 million due to higher property
tax assessments in certain markets and an increase in insurance expense. These
increases were partially offset by decreases in repairs and maintenance and
other property operating expenses.
General and Administrative Expenses
General and administrative expenses increased due to increases in the size
of the Company's portfolio and additional expenses associated with being a
public company. During 1999, the Company made significant investments in its
information systems, including the hiring of additional personnel and
established a real estate services group. In addition, the Company incurred
severance costs during 1999 that were not incurred in 1998. While general and
administrative expenses are expected to continue to increase along with any
increase in the size of the Company's portfolio, it is also anticipated that the
Company will realize economies of scale with future growth, should it occur.
Income from Investment in Unconsolidated Joint Ventures
Income from investment in unconsolidated joint ventures increased for the
Total Portfolio due to the partial sale of twelve Office Properties in December
1999. The Company retained an equity interest in the twelve Office Properties
and accounts for its remaining interest under the equity method of accounting.
Prior to the sale, the Company consolidated the results of operations of such
Office Properties.
32
<PAGE> 33
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 77 Office Properties and ten
Parking Facilities acquired or placed in service prior to January 1, 1997.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
------------------------------------------- -----------------------------------------
INCREASE/ % INCREASE/ %
1998 1997 (DECREASE) CHANGE 1998 1997 (DECREASE) CHANGE
---------- -------- ---------- ------ -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues........... $1,658,420 $733,730 $924,690 126.0% $624,598 $587,006 $ 37,592 6.4%
Fee income.................. 9,571 4,950 4,621 93.4 -- -- -- --
Interest/dividend income.... 11,708 13,392 (1,684) (12.6) 1,199 1,408 (209) (14.8)
---------- -------- -------- ------ -------- -------- -------- ------
Total revenues.......... 1,679,699 752,072 927,627 123.3 625,797 588,414 37,383 6.4
---------- -------- -------- ------ -------- -------- -------- ------
Interest expense............ 338,611 157,156 181,455 115.5 83,296 118,583 (35,287) (29.8)
Depreciation and
amortization.............. 305,982 136,380 169,602 124.4 113,005 106,782 6,223 5.8
Property operating
expenses.................. 592,706 278,204 314,502 113.0 221,855 217,748 4,107 1.9
Ground rent................. 7,661 4,760 2,901 60.9 4,413 4,611 (198) (4.3)
General and
administrative............ 63,564 34,891 28,673 82.2 334 440 (106) (24.1)
---------- -------- -------- ------ -------- -------- -------- ------
Total expenses.......... 1,308,524 611,391 697,133 114.0 422,903 448,164 (25,261) (5.6)
---------- -------- -------- ------ -------- -------- -------- ------
Income before allocation to
minority interests, income
from investment in
unconsolidated joint
ventures, gain on sales of
real estate and
extraordinary items....... 371,175 140,681 230,494 163.8 202,894 140,250 62,644 44.7
Minority interests.......... (2,114) (1,701) (413) 24.3 (2,026) (1,679) (347) 20.7
Income from investment in
unconsolidated joint
ventures.................. 11,267 5,155 6,112 118.6 2,605 2,432 173 7.1
Gain on sales of real
estate.................... 12,433 12,636 (203) (1.6) -- -- -- --
Extraordinary items......... (7,506) (16,640) 9,134 (54.9) -- (14,971) 14,971 (100.0)
---------- -------- -------- ------ -------- -------- -------- ------
Net income.................. $ 385,255 $140,131 $245,124 174.9% $203,473 $126,032 $ 77,441 61.4%
========== ======== ======== ====== ======== ======== ======== ======
Property revenues less
property operating
expenses before
depreciation and
amortization, general and
administrative, ground
rent and interest
expense................... $1,065,714 $455,526 $610,188 134.0% $402,743 $369,258 $ 33,485 9.1%
========== ======== ======== ====== ======== ======== ======== ======
</TABLE>
Property Revenues
The increase in property revenues in the Core Portfolio resulted from a
combination of occupancy and rental rate increases. The weighted average
occupancy of the Core Portfolio increased from 91.9% at January 1, 1997 to 96.1%
as of December 31, 1998. This increase represents approximately 1.2 million
square feet of additional occupancy in the Core Portfolio.
Property revenues for the Total Portfolio include lease termination fees of
approximately $15.5 million and $3.9 million for the years ended December 31,
1998 and 1997, respectively, and property revenues for the Core Portfolio
include lease termination fees of approximately $3.7 million and $3.8 million
for the years ended December 31, 1998 and 1997, respectively, (lease termination
fees are included in the "other revenue" category on the consolidated and
combined statements of operations). These fees relate to specific tenants who
have paid a fee to terminate their lease obligations before the end of the
contractual term of their lease. Although the Company has historically
experienced similar levels of such termination fees, there is no way of
predicting the timing or amounts of future lease termination fees.
33
<PAGE> 34
Property revenues for the Total Portfolio include straight-line rent
adjustments of approximately $68.1 million and $27.7 million, for the years
ended December 31, 1998 and 1997, respectively. Property revenues for the Core
Portfolio include straight-line rent adjustments of approximately $26.2 million
and $23.4 million, for the years ended December 31, 1998 and 1997, respectively.
Fee Income
The increase in fee income for the Total Portfolio is mainly due to lease
commissions received of approximately $2.8 million at a single property and the
addition of several properties the Company manages.
Interest/Dividend Income
Interest/dividend income for the Total Portfolio decreased mainly as a
result of less cash and cash equivalents on deposit during 1998 partially offset
by dividend income earned during the year on an investment in preferred
securities.
Interest Expense
Total Portfolio interest expense increased from the prior period as a
result of having more debt outstanding attributable primarily to Property
acquisitions. The following statistics for each period for the Total Portfolio
are as follows:
- Total debt to total assets increased to 42.3% from 36.5%.
- Interest coverage ratio increased to 3.0 times from 2.8 times.
- Weighted average interest rate decreased to 7.1% from 7.2%.
The decrease in interest expense in the Core Portfolio is primarily due to
the pay down of outstanding indebtedness with the IPO proceeds and the
replacement of secured debt with unsecured debt. Interest on unsecured debt is
not reflected in the Core Portfolio.
Depreciation and Amortization
Total Portfolio depreciation and amortization expense increased as a result
of Properties acquired and capital and tenant improvements made during 1998 and
1997. Core Portfolio depreciation and amortization expense increased as a result
of capital and tenant improvements. In addition, a portion of the increase in
the depreciation and amortization expense for the Total and Core Portfolio was
due to recording substantially all the Company's assets and liabilities at their
fair market value in connection with the Consolidation and the IPO.
Property Operating Expenses
Core Portfolio property operating expenses increased mainly as a result of
real estate taxes. Real estate taxes increased approximately $4.6 million from
the prior period of which approximately $2.3 million related to higher property
tax assessments in certain markets and $2.3 million related to lower real estate
tax refunds. Insurance expense decreased approximately $1.6 million from the
prior period as the Company's ability to achieve economies of scale on its
insurance coverage resulted in lower premiums in 1998.
General and Administrative Expenses
General and administrative expenses increased due to the size of the
Company's portfolio increasing and additional expenses associated with being a
public company. While general and administrative expenses are expected to
continue to increase along with any increase in the size of the portfolio, it is
currently anticipated that the Company's general and administrative expenses as
a percentage of total revenues will remain stable with future growth. General
and administrative expense was approximately 3.8% and 4.6% of total revenues for
the years ended December 31, 1998 and 1997, respectively.
34
<PAGE> 35
PARKING OPERATIONS
The Total Portfolio and Core Portfolio selected operating information for
1999, 1998, and 1997 presented above includes results of operations from the
Parking Facilities. Summarized information for the Parking Facilities is
presented below.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO DECEMBER 31, 1998
The table below represents selected operating information for the Total
Portfolio and the Core Portfolio consisting of 16 Parking Facilities acquired
prior to January 1, 1998.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
--------------------------------------- ----------------------------------------
INCREASE/ % INCREASE/ %
1999 1998 (DECREASE) CHANGE 1999 1998 (DECREASE) CHANGE
------- ------- ---------- ------ ------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues............... $37,236 $29,435 $ 7,801 26.5% $32,617 $29,295 $ 3,322 11.3%
Interest/dividend income........ 495 140 355 253.6 77 140 (63) (45.0)
------- ------- ------- ------ ------- ------- ------- -------
Total revenues......... 37,731 29,575 8,156 27.6 32,694 29,435 3,259 11.1
------- ------- ------- ------ ------- ------- ------- -------
Interest expense................ 3,181 5,496 (2,315) (42.1) 3,014 5,490 (2,476) (45.1)
Depreciation and amortization... 6,581 5,542 1,039 18.7 5,505 5,542 (37) (0.7)
Property operating expenses..... 7,905 8,096 (191) (2.4) 7,716 8,093 (377) (4.7)
Ground rent..................... 50 50 -- -- 50 50 -- --
General and administrative...... 105 72 33 45.8 105 72 33 45.8
------- ------- ------- ------ ------- ------- ------- -------
Total expenses......... 17,822 19,256 (1,434) (7.4) 16,390 19,247 (2,857) (14.8)
------- ------- ------- ------ ------- ------- ------- -------
Income before allocation to
minority interests and income
from investment in
unconsolidated joint
ventures...................... 19,909 10,319 9,590 92.9 16,304 10,188 6,116 60.0
Minority interests.............. (463) (360) (103) 28.6 (463) (360) (103) 28.6
Income from investment in
unconsolidated joint
ventures...................... 1,740 1,884 (144) (7.6) 1,740 1,884 (144) (7.6)
------- ------- ------- ------ ------- ------- ------- -------
Net income...................... $21,186 $11,843 $ 9,343 78.9% $17,581 $11,712 $ 5,869 50.1%
======= ======= ======= ====== ======= ======= ======= =======
Property revenues less property
operating expenses before
depreciation and amortization,
general and administrative,
ground rent and interest
expense....................... $29,331 $21,339 $ 7,992 37.5% $24,901 $21,202 $ 3,699 17.4%
======= ======= ======= ====== ======= ======= ======= =======
</TABLE>
35
<PAGE> 36
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997
The table below represents selected operating information for the Total
Portfolio and the Core Portfolio consisting of ten Parking Facilities acquired
prior to January 1, 1997.
<TABLE>
<CAPTION>
TOTAL PORTFOLIO CORE PORTFOLIO
--------------------------------------- ----------------------------------------
INCREASE/ % INCREASE/ %
1998 1997 (DECREASE) CHANGE 1998 1997 (DECREASE) CHANGE
------- ------- ---------- ------ ------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property revenues............. $29,435 $22,211 $7,224 32.5% $23,467 $20,669 $2,798 13.5%
Interest/dividend income...... 140 249 (109) (43.8) 139 249 (110) (44.2)
------- ------- ------ ------ ------- ------- ------ -------
Total revenues....... 29,575 22,460 7,115 31.7 23,606 20,918 2,688 12.9
------- ------- ------ ------ ------- ------- ------ -------
Interest expense.............. 5,496 5,427 69 1.3 5,490 5,426 64 1.2
Depreciation and
amortization................ 5,542 3,954 1,588 40.2 4,628 3,755 873 23.2
Property operating expenses... 8,096 4,950 3,146 63.6 6,401 4,613 1,788 38.8
Ground rent................... 50 46 4 8.7 50 46 4 8.7
General and administrative.... 72 55 17 30.9 53 55 (2) (3.6)
------- ------- ------ ------ ------- ------- ------ -------
Total expenses....... 19,256 14,432 4,824 33.4 16,622 13,895 2,727 19.6
------- ------- ------ ------ ------- ------- ------ -------
Income before allocation to
minority interests and
income from investment in
unconsolidated joint
ventures.................... 10,319 8,028 2,291 28.5 6,984 7,023 (39) (0.6)
Minority interests............ (360) (323) (37) 11.5 (360) (323) (37) 11.5
Income from investment in
unconsolidated joint
ventures.................... 1,884 2,461 (577) (23.4) -- -- -- --
------- ------- ------ ------ ------- ------- ------ -------
Net income.................... $11,843 $10,166 $1,677 16.5% $ 6,624 $ 6,700 $ (76) (1.1)%
======= ======= ====== ====== ======= ======= ====== =======
Property revenues less
property operating expenses
before depreciation and
amortization, general and
administrative, ground rent
and interest expense........ $21,339 $17,261 $4,078 23.6% $17,066 $16,056 $1,010 6.3%
======= ======= ====== ====== ======= ======= ====== =======
</TABLE>
36
<PAGE> 37
PROPERTY DISPOSITIONS
The Company has disposed of the following properties since January 1, 1997:
<TABLE>
<CAPTION>
YEAR PROPERTY
- ---- ---------------------------------------------------------
<S> <C> <C>
1999.................... Atrium Towers 5100 SunTrust Center(1)
Brookline 215 Fremont Promenade II(1)
Street One Columbus 10 Pasadena Towers(1)
& 30 South Wacker(1) Preston Commons(1)
Bank One Center(1) Sterling Plaza(1)
1998.................... First Union Center Westshore Center
One Clearlake Centre Walker Building
Tampa Commons
1997.................... Barton Oaks Plaza II 8383 Wilshire
</TABLE>
After the Company sold the above properties, the Company continued as the
property manager for One Columbus, First Union Center, One Clearlake Centre,
Tampa Commons and Westshore Center as well as the Properties described in Note
(1) below. Below is a summary of the results of operations of these office
properties through their respective disposition dates:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property revenue........................................... $166,113 $187,876 $132,647
Interest income............................................ 300 103 149
-------- -------- --------
Total income..................................... 166,413 187,979 132,796
-------- -------- --------
Interest expense........................................... 10,762 12,803 21,077
Depreciation and amortization.............................. 26,580 30,250 22,788
Property operating expense................................. 59,124 70,486 47,503
Ground Rent................................................ -- 265 --
General and administrative................................. 44 75 77
-------- -------- --------
Total expenses................................... 96,510 113,879 91,445
-------- -------- --------
Income before gain on sales of real estate and
extraordinary items...................................... 69,903 74,100 41,351
Minority interest -- partially owned properties............ (9) (19) (4)
Gain on sales of real estate and extraordinary items....... 58,869 12,433 9,599
-------- -------- --------
Net income................................................. $128,763 $ 86,514 $ 50,946
======== ======== ========
Property revenues less property operating expenses before
depreciation and amortization, general and administrative
and interest expense..................................... $106,989 $117,390 $ 85,144
======== ======== ========
</TABLE>
- ---------------
(1) These Office Properties were partially sold in December 1999. The above
condensed statements of operations include the results of operations for
these Properties through their disposition date. Since the Company retained
an equity interest in these Office Properties and shares equally in the
control of the operations and major decisions of these Properties, the
Company now accounts for these Properties under the equity method of
accounting. The following table shows the Company's share of the results of
operations excluding the gain on sales of real estate from these Properties
under the equity method as if
37
<PAGE> 38
they were partially sold on January 1, 1997 or the Properties original
acquisition date if the Property was acquired subsequent to January 1, 1997:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net income............................................. $35,650 $32,992 $12,733
======= ======= =======
Interest expense....................................... $ 4,399 $ 4,693 $ 6,316
======= ======= =======
Depreciation and amortization (real estate related).... $13,539 $13,622 $ 6,753
======= ======= =======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Net cash from operations represents the primary source of liquidity to fund
distributions, debt service, recurring capital costs and non-revenue enhancing
tenant improvements. The Company currently intends to continue to make, but has
not contractually bound itself to make, regular quarterly distributions to
holders of Units and preferred units. Subject to the foregoing, the Company has
established annual distribution rates as follows:
- $1.68 per annum per Unit
- 8.98% per annum ($2.245 per unit) per Series A Preferred Unit
- 5.25% per annum ($2.625 per unit) per Series B Preferred Unit
- 8.625% per annum ($2.15625 per unit) per Series C Preferred Unit
The Company intends to continue to fund distributions, debt service,
recurring capital costs and non-revenue enhancing tenant improvements from cash
from operations and borrowings under its unsecured credit facilities. The
Company also expects that its unsecured credit facilities will provide for
temporary working capital, the funding of capital improvements and revenue
enhancing tenant improvements, unanticipated cash needs and funding of
acquisitions and development costs.
Since the anticipated size of the Company's distributions will not allow
the Company, using only cash from operations, to retire all of its debt as it
comes due, the Company will be required to repay maturing debt with funds from
debt and/or capital financing.
DEBT FINANCING
The table below summarizes the mortgage debt, unsecured notes and lines of
credit indebtedness outstanding at December 31, 1999 and 1998, including a net
premium on mortgage debt and unsecured notes (net of accumulated amortization of
approximately $3.9 million and $2.7 million) of approximately $10.6 million and
$17.8 million, respectively, recorded in connection with the Consolidation, debt
assumed in connection with certain property acquisitions and the issuances of
unsecured notes.
38
<PAGE> 39
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
DEBT SUMMARY: (DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance
Fixed rate................................................ $5,272,608 $4,739,018
Variable rate............................................. 579,310 1,286,387
---------- ----------
Total.................................................. $5,851,918 $6,025,405
========== ==========
Percent of total debt:
Fixed rate................................................ 90.1% 78.7%
Variable rate............................................. 9.9% 21.3%
---------- ----------
Total.................................................. 100.0% 100.0%
========== ==========
Effective interest rate at end of period:
Fixed rate................................................ 7.1% 7.3%
Variable rate............................................. 7.4% 6.4%
---------- ----------
Effective interest rate................................ 7.2% 7.1%
========== ==========
</TABLE>
A majority of the variable rate debt shown above bears interest based on
various spreads over LIBOR.
MORTGAGE FINANCING
As of December 31, 1999, the Company's total mortgage debt (excluding the
Company's share of unconsolidated debt of approximately $264.8 million)
consisted of approximately $1.6 billion of fixed rate debt with a weighted
average interest rate of approximately 7.5% and $126.3 million of variable rate
debt based on various spreads over LIBOR or the prime rate. The Company's
mortgage debt at December 31, 1999 will mature as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
2000........................................................ $ 186,809
2001........................................................ 200,194
2002........................................................ 73,151
2003........................................................ 184,454
2004........................................................ 224,070
Thereafter.................................................. 864,619
----------
Subtotal............................................... 1,733,297
Net premium (net of accumulated amortization of $4.0
million).................................................. 10,574
----------
Total.................................................. $1,743,871
==========
</TABLE>
In February 2000, upon its maturity, the mortgage note secured by the Civic
Opera House was repaid in the amount of approximately $30.6 million.
The instruments encumbering the Properties restrict transfer of the
respective Properties subject to the terms of the mortgage, prohibit additional
liens and require payment of real estate taxes on the Properties, maintenance of
the Properties in good condition, maintenance of insurance on the Properties and
obtaining lender consent to material tenant leases.
CREDIT FACILITIES
Lines of Credit
In 1998, the Company obtained a revolving credit facility for $1.0 billion
(the "$1.0 Billion Credit Facility") maturing on May 29, 2001. The Company
incurred fees of approximately $2.5 million at the closing of the facility which
are being amortized over the term along with approximately $1.0 million of
unamortized
39
<PAGE> 40
deferred financing costs from the previous $600 million line of credit. The
interest rate is based on the Company's investment grade rating on its unsecured
debt and is currently LIBOR plus 60 basis points with a facility fee (based on
the aggregate amount of the facility) equal to 20 basis points per annum. In
addition, a competitive bid option, whereby the lenders participating in the
line of credit bid on the interest rate to be charged, is available for up to
$350 million of the $1.0 Billion Credit Facility. As of March 1, 2000 and
December 31,1999, there was approximately $397.6 million and $453.0 million
outstanding on the facility, respectively.
In January 2000, the Company obtained an additional unsecured borrowing
facility from the Chase Manhattan Bank for short-term borrowings not to exceed
$300 million in the aggregate. Upon request of the Company, and at the lender's
option, the lender may offer to lend funds at mutually agreed upon interest
rates and terms, as determined by current market conditions. As of March 1,
2000, the Company owed $200 million under this facility at a weighted-average
rate of 6.4%. On each of March 15, 2000 and March 24, 2000, the note is
repayable in two $100 million installments.
UNSECURED NOTES
The table below summarizes the Company's unsecured notes outstanding as of
December 31,1999:
<TABLE>
<CAPTION>
(DOLLARS IN STATED EFFECTIVE
TRANCHE THOUSANDS) RATE RATE(1)
- ------- ------------- ------ ---------
<S> <C> <C> <C>
3 Year Notes due 2002....................................... $ 200,000 6.4% 6.6%
4 Year MOPPRS due 2002(2)................................... 250,000 6.4% 6.3%
5 Year Notes due 2003....................................... 300,000 6.4% 6.8%
5 Year Notes due 2004....................................... 300,000 6.5% 6.7%
6 Year Notes due 2004....................................... 250,000 6.5% 6.7%
7 Year Notes due 2004....................................... 30,000 7.2% 7.3%
7 Year Notes due 2005....................................... 400,000 6.6% 7.0%
8 Year Notes due 2005....................................... 50,000 7.4% 7.7%
9 Year Notes due 2006....................................... 50,000 7.4% 7.7%
9 Year Notes due 2007....................................... 300,000 6.8% 6.8%
10 Year Notes due 2007...................................... 50,000 7.4% 7.7%
10 Year Notes due 2008...................................... 300,000 6.8% 7.0%
10 Year Notes due 2009...................................... 500,000 6.8% 6.9%
20 Year Notes due 2018...................................... 250,000 7.3% 7.6%
30 Year Notes due 2028...................................... 225,000 7.3% 7.3%
30 Year Notes due 2029...................................... 200,000 7.5% 7.6%
---------- --- ---
Subtotal.................................................. 3,655,000 6.8% 7.0%
=== ===
Net premium (net of accumulated amortization of $.1
million).................................................. 47
----------
Total..................................................... $3,655,047
==========
</TABLE>
- ---------------
(1) Includes the cost of terminated interest rate protection agreements,
offering and transaction costs, and premiums and discounts on certain
unsecured notes.
(2) The MOPPRS are subject to mandatory redemption in 2002 but do not mature
until 2012.
The Company previously filed a shelf registration statement, which was
declared effective on July 22, 1998, relating to the issuance from time to time
of up to $2.0 billion of unsecured debt securities and warrants exercisable for
debt securities in amounts, at initial prices and on terms to be determined at
the time of offering. The Company issued $1.2 billion of unsecured notes in 1999
under this registration statement.
40
<PAGE> 41
Restrictions and Covenants
Agreements or instruments relating to the unsecured notes and lines of
credit contain certain restrictions and requirements regarding total
debt-to-assets ratios, secured debt-to-total assets ratios, debt service
coverage ratios, minimum ratio of unencumbered assets to unsecured debt and
other limitations.
EQUITY SECURITIES
A summary of the activity of the Trust's Common Shares and the Company's
Units during 1999 is as follows:
<TABLE>
<CAPTION>
COMMON SHARES UNITS TOTAL
------------- ---------- -----------
<S> <C> <C> <C>
Balance at January 1, 1999....................... 259,901,657 28,645,699 288,547,356
Common Shares exchanged for Units(1)........... (8,220,969) 8,220,969 --
Repurchases(2)................................. (1,040,034) (1,189,652) (2,229,686)
Units redeemed for Common Shares............... 833,493 (833,493) --
Put Options exercised.......................... -- (1,675,000) (1,675,000)
Units issued for Palo Alto Square
acquisition................................. -- 1,035,389 1,035,389
Restricted Shares retired...................... (20,000) -- (20,000)
Share options exercised........................ 128,287 -- 128,287
----------- ---------- -----------
Balance at December 31, 1999..................... 251,582,434 34,203,912 285,786,346
=========== ========== ===========
</TABLE>
- ---------------
(1) Certain Common Shares were placed in escrow subject to release pursuant to
the provisions of the Merger Agreement, Plan of Liquidation and Escrow
Agreements entered into at the time of Consolidation. In 1999, 11,332,203
Common Shares were released from escrow and 8,220,969 of such Common Shares
were cancelled and exchanged for Units, which represented a reallocation of
Units owned by the Trust to other minority interest partners. This
reallocation did not change the total number of Units outstanding or the
amount of fully diluted Common Shares and Units outstanding.
(2) In 1999, the Trust announced a share repurchase plan. During 1999, 715,600
Common Shares were repurchased at an average share price of $23.14 for
approximately $16.6 million in the aggregate and were retired along with a
corresponding number of Units. An additional 4,742,500 Common Shares were
repurchased and retired, along with a corresponding number of Units, between
January and February 2000 at an average share price of $25.27 for
approximately $119.8 million in the aggregate. In February 2000, the Trust
suspended its share repurchase plan in anticipation of the Cornerstone
Merger. Prior to the implementation of the Trust's share repurchase plan,
the Trust repurchased 324,434 Common Shares and the Company repurchased
approximately 1.2 million Units in a private transaction, which resulted in
the Company repurchasing an equivalent number of Units from the Trust.
The Trust previously filed a shelf registration statement, which was
declared effective on July 22, 1998, relating to the registration of $1.5
billion of Common Shares, preferred shares of beneficial interest and warrants
to be issued at prices and on terms to be determined at the time of offering.
The Trust may or may not issue the securities separately or together, in
amounts, at prices and on terms described in one or more supplements to the
prospectus. The Series C Preferred Shares were issued under this registration
statement in December 1998.
CORNERSTONE MERGER
On February 11, 2000, the Trust, the Company, Cornerstone Properties Inc.
("Cornerstone") and Cornerstone Properties Limited Partnership ("Cornerstone
Partnership") entered into a merger agreement where Cornerstone will merge with
and into the Trust and Cornerstone Partnership will merge with and into the
Company (the "Cornerstone Merger"). The total purchase price will be
approximately $4.6 billion including the assumption of approximately $1.8
billion in debt, the payment of $1.1 billion in cash and the issuance of
approximately 63.6 million new Common Shares and Units. Cornerstone common
shareholders
41
<PAGE> 42
may elect to receive $18.00 per share in cash, plus any accrued but unpaid
dividends, or 0.7009 of the Trust's Common Shares based on a prevailing
transaction price of $25.68125 per common share, subject to proration.
Cornerstone's convertible preferred shareholders will receive $18.00 per share
in cash. Cornerstone Partnership unitholders will receive 0.7009 Units of the
Company. The Company intends to finance the $1.1 billion cash portion of the
purchase price by obtaining additional term loans, issuing unsecured notes or
amending the existing line of credit.
The Cornerstone Merger is expected to be completed in the third quarter of
2000 and is subject to the approval of the shareholders of the Trust and the
shareholders of Cornerstone and other customary conditions. Cornerstone is a
fully integrated REIT and currently owns 86 office properties in the U.S.
totaling over 18.5 million square feet, and has an additional $884 million of
projects under development. If the Cornerstone Merger is completed the Company
will own approximately 380 office properties consisting of approximately 95.5
million square feet.
MARKET RISK
QUALITATIVE INFORMATION ABOUT MARKET RISK
The Company's future earnings, cash flows and fair values relevant to
financial instruments are dependent upon prevalent market rates. Market risk is
the risk of loss from adverse changes in market prices and interest rates. The
Company manages its market risk by matching projected cash inflows from
operating, investing and financing activities with projected cash outflows to
fund debt service, acquisitions, capital expenditures, distributions to
shareholders and unitholders and other cash requirements. The majority of the
Company's outstanding debt (maturing at various times through 2029) has a fixed
interest rate, which minimizes the risk of fluctuating interest rates. The
Company also utilizes certain derivative financial instruments at times to limit
interest rate risk. Interest rate protection agreements are used to convert
variable rate debt to a fixed rate basis or to hedge anticipated financing
transactions. Derivatives are used for hedging purposes rather than speculation.
The Company does not enter into financial instruments for trading purposes.
QUANTITATIVE INFORMATION ABOUT MARKET RISK
Interest Rate Risk
As of December 31, 1999, the Company has total outstanding debt of
approximately $5.9 billion of which approximately $.6 billion, or 10%, is
variable rate debt. If market rates of interest on the Company's variable rate
debt increase by 10% (or approximately 74 basis points), the increase in
interest expense on the Company's variable rate debt would decrease future
earnings and cash flows by approximately $4.3 million. If market rates of
interest increased by 10%, the fair value of the Company's total outstanding
debt would decrease by approximately $157.1 million. If market rates of interest
on the Company's variable rate debt decrease by 10% (or approximately 74 basis
points), the decrease in interest expense on the Company's variable rate debt
would increase future earnings and cash flows by approximately $4.3 million. If
market rates of interest decreased by 10%, the fair value of the Company's total
outstanding debt would increase by approximately $166.2 million.
As of December 31, 1998, the Company had total outstanding debt of
approximately $6.0 billion of which approximately $1.3 billion, or 21%, was
variable rate debt. If market rates of interest on the Company's variable rate
debt increased by 10% (or approximately 64 basis points), the increase in
interest expense on the Company's variable rate debt would have decreased future
earnings and cash flows by approximately $8.2 million. If market rates of
interest increased by 10%, the fair value of the Company's total outstanding
debt would have decreased by approximately $141.0 million. If market rates of
interest on the Company's variable rate debt decreased by 10% (or approximately
64 basis points), the decrease in interest expense on the Company's variable
rate debt would have increased future earnings and cash flows by approximately
$8.2 million. If market rates of interest decreased by 10%, the fair value of
the Company's total outstanding debt would have increased by approximately
$146.0 million.
42
<PAGE> 43
Market Rate Risk
On August 12, 1999, the Trust and the WR Holders amended their put option
agreement to defer to August 13, 2000 (or to August 13, 2001 at the option of
the WR Holders) the exercise date for 1,717,844 of the 3,435,688 Common Shares
affected by the put option agreement (a maximum exposure to the Company of
approximately $54.1 million when and if this put option is exercised). The Trust
and the WR Holders also agreed to cancel the put option on the remaining
1,717,844 Common Shares in exchange for the Company's payment to the WR Holders
of approximately $11.3 million on September 13, 1999. The payment represented
the excess of $31.50 over $24.90 (the average price of a Common Share calculated
over the five trading days immediately prior to August 13, 1999), for each of
the 1,717,844 Common Shares affected by the put option agreement. The portion of
the amounts paid in excess of $29.10625 per Common Share totaling approximately
$4.1 million was reflected as a preferred distribution. The remaining $7.2
million of the payment was recorded as a reduction to partners' capital.
On August 13, 2000, (or August 13, 2001 at the option of the WR Holders),
the WR Holders can require the Trust to purchase all or a portion of the
remaining 1,717,844 Common Shares issued to them at a price equal to $31.50 per
Common Share. Prior to such date, if the WR Holders sell all or a portion of
their Common Shares to a third party for a price less than $29.10625, then the
Trust is obligated to pay to the WR Holders for each Common Share sold at such
lower price an amount equal to the difference between $29.10625 and such lower
price, not to exceed $3.00 per Common Share. Any amounts paid by the Trust as a
result of such sales will result in the Company making an equal payment to the
Trust and will be recorded as a reduction in partners' capital. For put options
exercised as aforesaid; any amounts paid up to $29.10625 per Common Share would
be reflected as a reduction in partners' capital; the portion of any amounts
paid in excess of $29.10625 per Common Share (not to exceed $2.39375 per Common
Share up to an aggregate of approximately $4.1 million) will be reflected as a
preferred distribution. The $4.1 million portion of the total potential payment
is being amortized by the Company on a straight-line basis over the period
between August 13, 1999 and August 13, 2000.
The Company's cash flows could decrease by up to $5.2 million if, prior to
August 13, 2000, the WR Holders sell all their Common Shares to third parties.
Cash flows of the Company may decrease by up to approximately $54.1 million if
the WR Holders exercise their rights under the put option agreement on August
13, 2000 (or August 13, 2001, if extended at the option of the WR Holders).
There will be no impact on cash flows or net income from this transaction if the
put option is not exercised.
Effective as of September 3, 1998, the Company amended its pre-existing put
option agreement with the seller of the Columbus America Properties (the "CA
Holder") related to 1,692,546 Units issued at acquisition. The CA Holder has the
option at any time after January 1, 1999 until the earlier of September 3, 2000
or the date the CA Holder has converted all of its Units to Common Shares, to
require the Company to purchase the Units at a price equal to $29.00 per Unit.
Under the terms of the agreement, prior to September 3, 1999, the option shall
be limited to an aggregate of 846,273 Units. In October 1999, the CA Holder
exercised its option to require the Company to purchase 1,675,000 Units at a
price equal to $29.00 per Unit for a total of approximately $48.6 million. The
Company recognized the $48.6 million payment as a reduction of partners' capital
and retired the Units.
The Company has several investments in marketable securities. If the market
price of these securities increases or decreases by 10%, the Company's
investment in the securities would increase or decrease by approximately $7.4
million. The change in market price would also be reflected as a corresponding
adjustment to accumulated other comprehensive income. There will be no impact on
earnings or cash flows of the Company from market price fluctuations unless the
Company disposes of its investments.
These amounts were determined by considering the impact of hypothetical
interest rates and equity prices on the Company's financial instruments. These
analyses do not consider the effect of the reduced level of overall economic
activity that could exist in such an environment. Further, in the event of a
change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, these analyses
assume no changes in the Company's financial structure.
43
<PAGE> 44
CAPITAL IMPROVEMENTS
The Company considers capital improvements and revenue enhancing tenant
improvements when a property is acquired in determining the amount of equity and
debt financing required to purchase the property and fund the improvements.
Therefore, capital improvements made in the year of acquisition and the
following two years are treated separately from typical recurring capital
expenditures, non-revenue enhancing tenant improvements and leasing commissions
required once these properties have reached stabilized occupancy, and deferred
maintenance and renovations planned at the time of acquisition have been
completed. Capital improvements (including tenant improvements and leasing
commissions for shell space) for the years ended December 31, 1999, 1998 and
1997 were approximately $64.9 million, $44.1 million and $46.8 million,
respectively or $.84, $.59 and $.72 per square foot, respectively. These amounts
exclude capital and tenant improvements of approximately $133.2 million, $70.0
million and $31.2 million incurred for the years ended December 31, 1999, 1998
and 1997, respectively, for developments.
The Company considers capital expenditures to be recurring expenditures
relating to the ongoing maintenance of the Office Properties. The table below
summarizes capital expenditures for the years ended December 31, 1999, 1998 and
1997. The capital expenditures set forth below are not necessarily indicative of
future capital expenditures.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Number of Office Properties................................. 294 284 258
Rentable square feet (in millions).......................... 77.0 75.1 65.3
Annual capital expenditures per square foot................. $0.22 $0.17 $0.08
</TABLE>
TENANT IMPROVEMENTS AND LEASING COMMISSION COSTS
The Company distinguishes its tenant improvements and leasing commissions
between those that are revenue enhancing (i.e., required for space which is
vacant at the time of acquisition or that has been vacant for nine months or
more) and non-revenue enhancing (i.e., required to maintain the revenue being
generated from currently leased space). The table below summarizes the revenue
enhancing and non-revenue enhancing tenant improvements and leasing commissions
for the years ended December 31, 1999, 1998 and 1997. The tenant improvement and
leasing commission costs set forth below are presented on an aggregate basis and
do not reflect significant regional variations and, in any event, are not
necessarily indicative of future tenant improvements and leasing commission
costs:
44
<PAGE> 45
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999(1) 1998(1) 1997(1)
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of Office Properties................................. 294 284 258
Rentable square feet (in millions).......................... 77.0 75.1 65.3
Revenue enhancing tenant improvements and leasing
commissions:
Amounts (in thousands).................................... $23,873 $42,817 $18,272
Per square foot improved.................................. $ 20.25 $ 16.33 $ 19.74
Per total square foot..................................... $ 0.31 $ 0.57 $ 0.27
Non-revenue enhancing tenant improvements and leasing
commissions:
Renewal space:
Amounts (in thousands).................................... $31,638 $27,176 $ 8,334
Per square foot improved.................................. $ 7.30 $ 7.74 $ 5.73
Per total square foot..................................... $ 0.41 $ 0.36 $ 0.12
Retenanted space:
Amounts (in thousands).................................... $52,056 $33,324 $14,806
Per square foot improved.................................. $ 13.88 $ 16.97 $ 15.10
Per total square foot..................................... $ 0.68 $ 0.44 $ 0.22
------- ------- -------
Total non-revenue enhancing (in thousands).................. $83,694 $60,500 $23,140
Per square foot improved.................................... $ 10.35 $ 11.05 $ 9.50
Per total square foot....................................... $ 1.09 $ 0.80 $ 0.35
</TABLE>
- ---------------
(1) The per square foot calculations as of December 31, 1999, 1998 and 1997 are
calculated taking the total dollars anticipated to be incurred on tenant
improvements for tenants taking occupancy during the year divided by the
total square footage being improved or total building square footage. The
actual amounts incurred as of December 31, 1999, 1998 and 1997 for revenue
enhancing, non-revenue enhancing renewal and retenanted space are summarized
below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Revenue enhancing........................................... $32.9 $39.0 $18.4
Non-revenue enhancing renewal............................... $31.9 $33.2 $12.4
Non-revenue enhancing retenanted............................ $57.4 $51.9 $33.5
</TABLE>
45
<PAGE> 46
DEVELOPMENTS
The Company currently owns several Properties in various stages of
development or pre-development. The Company funds these developments with
proceeds from working capital and the line of credit. Specifically identifiable
direct and indirect acquisition, development and construction costs are
capitalized including, where applicable, salaries and related costs, real estate
taxes, interest and certain pre-construction costs essential to the development
of a property. As of December 31, 1999, the Company had incurred approximately
$229.2 million of costs in connection with the Properties being developed. The
Properties under development as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
PLACE TOTAL
IN SERVICE PERCENT SQUARE COSTS ESTIMATED
PROPERTY LOCATION DATE(a) LEASED FEET INCURRED COSTS(a)
- -------- ----------------- ---------- ------- ---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED
Prominence in Buckhead(b) Atlanta, GA 3Q/1999 58% 424,635 $ 77,519 $ 91,000
150 California San Francisco, CA 1Q/2000 11% 201,554 42,939 66,000
John Marshall III McLean, VA 1Q/2000 100% 180,000 42,602 48,000
Riverside Center Newton, MA 2Q/2000 82% 494,710 72,331 112,000
--- ---------- -------- --------
65% 1,300,899 235,391 317,000
TAKE-OUT PROJECTS
World Trade Center(c) Seattle, WA 2Q/2000 100% 186,787 164 39,000
JOINT VENTURES
Three Bellevue Center(d) Bellevue, WA 2Q/2000 23% 471,635 36,121 72,000
--- ---------- -------- --------
GRAND TOTAL/WEIGHTED
AVERAGE 58% 1,959,321 $271,676 $428,000
=== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET RECONCILIATION COST INCURRED
- ---------------------------- -------------
<S> <C>
Wholly-Owned Developments.......... $235,391
Take Out Projects.................. 164
Leasing Commissions(e)............. (6,330)
--------
Developments in process............ $229,225
========
</TABLE>
- ---------------
(a) The Estimated Place in Service Date represents the date the certificate of
occupancy has been or is anticipated to be obtained. Subsequent to obtaining
the certificate of occupancy, the Property will undergo a lease up period.
The Total Estimated Costs include amounts attributable to tenanting the
Property.
(b) The Total Estimated Cost of this property excludes a vacant land parcel
valued at approximately $7.8 million. This property was acquired on July 13,
1999 and is currently undergoing lease-up.
(c) The Company expects to acquire this property upon full occupancy in May
2000. This transaction is contingent upon certain terms and conditions as
set forth in its purchase agreement. There can be no assurance that this
transaction will be consummated.
(d) The Costs Incurred and Total Estimated Costs reflect the Company's 80%
interest in this project including the Company's pro-rata share of the
development loan. The total cost of the project including the joint venture
partner's share is approximately $90 million of which up to $60 million will
be funded by a development loan.
(e) Deferred leasing costs are classified separately on the balance sheet.
In addition to the properties described above, the Company owns various
land parcels available for development. However, no significant development
activity is taking place on these sites at this time.
46
<PAGE> 47
YEAR 2000
OVERVIEW OF Y2K PROBLEM
The Year 2000 or "Y2K" problem refers to the inability of many existing
computer programs to properly recognize a year that begins with "20" instead of
the familiar "19." If the Y2K problem had been left uncorrected, many time
sensitive computer systems in use at the Company may have recognized a date
using "00" as the year 1900 rather than the year 2000.
THE YEAR 2000 PROGRAM
Over the course of 1998 and 1999, the Company developed and implemented a
Y2K readiness program (the "Program") to identify and correct potential Y2K
problems. The initial phase of the Program was devoted to assessing the
Company's Y2K readiness. During this phase, the Company inventoried all of its
information and operating systems and, through a combination of physical
inspections, vendor inquiries and research, determined which of the systems
could have potential Y2K problems. When the Company's research or inquiries
indicated that a particular system had a Y2K problem, the system was upgraded,
replaced or retired. If the assessment revealed only the possibility of a Y2K
problem, the Company performed an analysis of the impact that a system failure
would have on the Company's operations and the likelihood that such a failure
would occur. Based on such analysis, the Company determined whether validation
testing of each particular system was warranted. With only minor exceptions, all
building operating systems were tested, as well as all information systems that
were deemed critical to the Company's operation. During the final phase of the
Program, contingency plans were developed for each of the Company's Properties
and for most of the information systems that were deemed to be critical.
Throughout the implementation of the Program, the Company used its best efforts
to keep its tenants, investors and other interested parties apprised of the
progress of the Company's Year 2000 Program.
YEAR 2000 PROGRAM RESULTS
The Year 2000 Program was successful in uncovering and proactively
correcting a number of Y2K problems with respect to the Company's information
systems and building operating systems. Without limitation, material Y2K
problems were corrected in advance of January 1, 2000 with respect to the
Company's Network Operating Systems and Accounting and Property Management
Systems. Other Y2K problems were identified and corrected in connection with
building operating systems, such as the garage revenue control, building
automation and card key access systems.
As a precaution and service to those tenants that were conducting their own
Year 2000 tests, each of the Company's Properties was staffed on New Years Eve.
Without exception, the Properties continued to operate without interruption
after the beginning of the new Millennium. Tests of the Company's building
operating systems and information systems on New Years Day did not reveal any
problems. The Company is not aware of any Y2K problems that have had a material
adverse affect on any of its tenants, contractors or service providers.
YEAR 2000 RELATED COSTS
The total cost of the Company's Year 2000 Program was approximately $9.2
million. Approximately $1.2 million was spent in connection with the assessment,
testing, upgrade, remediation and/or replacement of information systems for the
Company. Approximately $7.9 million was incurred to assess, test, upgrade,
remediate and/or replace building operation systems. In many cases, the systems
that were replaced were at or near the end of their useful life. Many of these
systems were previously scheduled for replacement and the correction of
potential Y2K problems was not the exclusive reason for the upgrade or
replacement. The Company anticipates incurring no additional significant costs
related to the Program.
47
<PAGE> 48
INFLATION
Substantially all of the office leases require the tenant to pay, as
additional rent, a portion of any increases in real estate taxes (except, in the
case of certain California leases, which limit the ability of the landlord to
pass through to the tenants the effect of increased real estate taxes
attributable to a sale of real property interests) and operating expenses over a
base amount. In addition, many of the office leases provide for fixed increases
in base rent or indexed escalations (based on the Consumer Price Index or other
measures). The Company believes that inflationary increases in expenses will be
offset, in part, by the expense reimbursements and contractual rent increases
described above.
FUNDS FROM OPERATIONS
Management of the Company believes Funds from Operations, as defined by the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), to be an
appropriate measure of performance for an equity REIT. While Funds from
Operations is a relevant and widely used measure of operating performance of
equity REITs, it does not represent cash flow from operations or net income as
defined by generally accepted accounting principles ("GAAP"), and it should not
be considered as an alternative to these indicators in evaluating liquidity or
operating performance of the Company.
The following table reflects the calculation of the Company's Funds from
Operations for the years ended December 31, 1999, 1998 and 1997 on a historical
basis:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997(1)
--------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Income before allocations to minority interests,
income from investment in unconsolidated joint
ventures, net gain on sales of real estate and
extraordinary items.............................. $ 418,569 $ 371,175 $ 140,681
Add back (deduct):
(Income) allocated to minority interests for
partially owned properties.................... (1,981) (2,114) (1,701)
Income from investment in unconsolidated joint
ventures...................................... 13,824 11,267 5,155
Depreciation and amortization (real estate
related)...................................... 368,490 313,519 130,465
Net amortization of net discount/premium on
mortgage debt................................. (658) 940 2,324
Put option settlement............................ (5,658) -- --
Preferred distributions.......................... (43,603) (32,202) (649)
--------- ----------- -----------
Funds from Operations(2)........................... 748,983 662,585 276,275
Less deferred rental revenue..................... (65,397) (68,107) (27,740)
Plus deferred rental expense..................... 2,083 2,613 2,206
--------- ----------- -----------
Adjusted Funds from Operations..................... $ 685,669 $ 597,091 $ 250,741
========= =========== ===========
Cash Flow provided by (used for):
Operating Activities............................. $ 720,711 $ 759,151 $ 286,714
Investing Activities............................. $ (67,138) $(2,231,712) $(2,163,340)
Financing Activities(3).......................... $(718,315) $ 1,310,788 $ 1,876,197
Ratio of earnings to combined fixed charges and
preferred share distributions.................... 1.8 1.8 1.8
</TABLE>
- ---------------
(1) Represents the combined results of Equity Office Predecessors for the period
from January 1 through July 10, 1997 and the Company from July 11 through
December 31, 1997.
48
<PAGE> 49
(2) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures. The Company believes that Funds from Operations is helpful to
investors as a measure of the performance of an equity REIT because, along
with cash flow from operating, investing and financing activities, it
provides investors with an indication of the ability of the Company to incur
and service debt, to make capital expenditures and to fund other cash needs.
The Company computes Funds from Operations in accordance with standards
established by NAREIT which may not be comparable to Funds from Operations
reported by other REITs that do not define the term in accordance with the
current NAREIT definition or that interpret the current NAREIT definition
differently than the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP, nor does it
represent cash available to pay distributions and should not be considered
as an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make cash distributions.
(3) For the year ended December 31, 1997, cash flow provided by financing
activities includes approximately $181.1 million in cash contributed from
Equity Office Predecessors in connection with the Consolidation.
49
<PAGE> 50
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information about quantitative and qualitative disclosures about market
risk is incorporated herein by reference from Item 7 Management's Discussion and
Analysis of Financial Condition and Results of Operations in the Market Risk
section.
50
<PAGE> 51
ITEM 8. FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT AUDITORS
The Partners of EOP Operating Limited Partnership
We have audited the accompanying consolidated balance sheets of EOP
Operating Limited Partnership (the "Company") as of December 31, 1999 and 1998,
and the related consolidated statements of operations, partners' capital and
cash flows of the Company for the years ended December 31, 1999 and 1998 and the
period from July 11, 1997 to December 31, 1997, and the related combined
statements of operations, owners' equity and cash flows of the Equity Office
Predecessors, as defined in Note 1, for the period from January 1, 1997 to July
10, 1997. Our audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EOP Operating
Limited Partnership at December 31, 1999 and 1998, the consolidated results of
EOP Operating Limited Partnership's operations and cash flows for the years
ended December 31, 1999 and 1998 and the period from July 11, 1997 to December
31, 1997, and the combined results of the Equity Office Predecessors', as
defined in Note 1, operations and cash flows for the period from January 1, 1997
to July 10, 1997 in conformity with accounting principles generally accepted in
the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Chicago, Illinois
February 8, 2000, except for Note 24,
as to which the date is February 15, 2000
51
<PAGE> 52
EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Investment in real estate................................. $12,847,389 $13,349,627
Developments in process................................... 229,225 268,373
Land available for development............................ 125,926 65,819
Accumulated depreciation.................................. (630,387) (352,259)
----------- -----------
Investment in real estate, net of accumulated
depreciation............................................ 12,572,153 13,331,560
Cash and cash equivalents................................. 2,338 67,080
Tenant and other receivables (net of allowance for
doubtful accounts of $1,244 and $1,013, respectively)... 54,497 36,193
Deferred rent receivable.................................. 138,697 87,115
Escrow deposits and restricted cash....................... 19,754 159,576
Investment in unconsolidated joint ventures............... 865,863 378,534
Deferred financing costs (net of accumulated amortization
of $14,863 and $6,242, respectively).................... 55,196 53,181
Deferred leasing costs (net of accumulated amortization of
$22,461 and $9,714, respectively)....................... 97,743 65,090
Prepaid expenses and other assets (net of discount on note
receivable of $62,393 and $0, respectively)............. 239,817 82,962
----------- -----------
Total Assets............................................ $14,046,058 $14,261,291
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL:
Mortgage debt (including a net premium of $10,574 and
$13,517, respectively).................................. $ 1,743,871 $ 2,350,088
Unsecured notes (including a net premium of $47 and
$4,317, respectively)................................... 3,655,047 2,459,317
Lines of credit........................................... 453,000 1,216,000
Accounts payable and accrued expenses..................... 318,003 347,970
Due to affiliates......................................... -- 1,136
Dividend/distribution payable............................. 5,446 5,080
Other liabilities......................................... 161,164 93,022
----------- -----------
Total Liabilities....................................... 6,336,531 6,472,613
----------- -----------
Commitments and contingencies.............................
Minority Interests -- partially owned properties.......... 39,027 28,360
----------- -----------
Preferred Units, 100,000,000 authorized:
8.98% Series A Cumulative Redeemable Preferred Units,
liquidation preference $25.00 per unit, 8,000,000
issued and outstanding................................. 200,000 200,000
5.25% Series B Convertible, Cumulative Redeemable
Preferred Units, liquidation preference $50.00 per
unit, 6,000,000 issued and outstanding................. 300,000 300,000
8.625% Series C Cumulative Redeemable Preferred Units,
liquidation preference $25.00 per unit, 4,600,000
issued and outstanding................................. 115,000 115,000
General Partners Capital.................................. 58,381 118,309
Limited Partners Capital.................................. 6,986,181 7,027,009
Accumulated other comprehensive income.................... 10,938 --
----------- -----------
Total Partners' Capital................................. 7,670,500 7,760,318
----------- -----------
Total Liabilities and Partners' Capital................. $14,046,058 $14,261,291
=========== ===========
</TABLE>
See accompanying notes.
52
<PAGE> 53
EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
EOP OPERATING LIMITED PARTNERSHIP
------------------------------------------------ EQUITY OFFICE
FOR THE PERIOD PREDECESSORS
FROM JULY 11, -------------------
FOR THE YEAR ENDED DECEMBER 31, 1997 THROUGH FOR THE PERIOD FROM
------------------------------- DECEMBER 31, JANUARY 1, 1997
1999 1998 1997 JULY 10, 1997
-------------- -------------- -------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C>
Revenues:
Rental.......................................... $ 1,493,196 $ 1,299,044 $ 314,233 $256,146
Tenant reimbursements........................... 281,358 239,390 63,196 43,241
Parking......................................... 112,204 94,241 25,960 21,091
Other........................................... 32,298 25,745 3,324 6,539
Fee income...................................... 8,939 9,571 2,440 2,510
Interest / dividends............................ 14,248 11,708 3,815 9,577
------------ ------------ ------------ --------
Total revenues................................ 1,942,243 1,679,699 412,968 339,104
------------ ------------ ------------ --------
Expenses:
Interest:
Expense incurred.............................. 413,995 338,611 76,675 80,481
Amortization of deferred financing costs...... 4,693 6,404 4,178 2,771
Depreciation.................................... 339,751 291,213 64,695 57,379
Amortization.................................... 14,545 8,365 1,473 5,884
Real estate taxes............................... 243,778 203,805 47,579 34,000
Insurance....................................... 9,589 7,736 3,196 3,060
Repairs and maintenance......................... 209,630 191,588 50,285 45,540
Property operating.............................. 199,879 189,577 52,235 42,309
Ground rent..................................... 6,887 7,661 2,384 2,376
General and administrative...................... 80,927 63,564 17,690 17,201
------------ ------------ ------------ --------
Total expenses................................ 1,523,674 1,308,524 320,390 291,001
------------ ------------ ------------ --------
Income before allocation to minority interests,
income from investment in unconsolidated joint
ventures, net gain on sales of real estate and
extraordinary items............................. 418,569 371,175 92,578 48,103
Minority Interests -- partially owned
properties...................................... (1,981) (2,114) (789) (912)
Income from investment in unconsolidated joint
ventures........................................ 13,824 11,267 3,173 1,982
Net gain on sales of real estate.................. 59,661 12,433 126 12,510
------------ ------------ ------------ --------
Income before extraordinary items................. 490,073 392,761 95,088 61,683
Extraordinary items............................... (10,548) (7,506) (16,366) (274)
------------ ------------ ------------ --------
Net income........................................ 479,525 385,255 78,722 61,409
Put option settlement............................. (5,658) -- -- --
Preferred distributions........................... (43,603) (32,202) (649) --
------------ ------------ ------------ --------
Net income available for Units.................... $ 430,264 $ 353,053 $ 78,073 $ 61,409
============ ============ ============ ========
Net income available per weighted average Unit
outstanding -- Basic........................... $ 1.49 $ 1.25 $ 0.44
============ ============ ============
Weighted average Units outstanding -- Basic...... 288,326,547 282,114,343 178,647,562
============ ============ ============
Net income available per weighted average Unit
outstanding -- Diluted......................... $ 1.48 $ 1.24 $ 0.43
============ ============ ============
Weighted average Units outstanding -- Diluted.... 291,157,204 283,974,532 180,014,027
============ ============ ============
</TABLE>
See accompanying notes.
53
<PAGE> 54
EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
AND EQUITY OFFICE PREDECESSORS
COMBINED STATEMENT OF CHANGES IN OWNERS' EQUITY
<TABLE>
<CAPTION>
EQUITY OFFICE
EOP OPERATING LIMITED PARTNERSHIP PREDECESSORS
------------------------------------------------------------------ ------------------------
FOR THE PERIOD FROM FOR THE PERIOD FROM
FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 11, 1997 THROUGH JANUARY 1, 1997 THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 JULY 10, 1997
------------------ ------------------ ------------------------ ------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL:
Balance, beginning of period....... $7,760,318 $7,130,363 $ -- $ --
Net proceeds from IPO............ -- -- 564,506 --
Contribution of net assets from
Consolidation at fair value in
exchange for Units............. -- -- 2,830,919 --
Issuance of Units, put options
and warrants for
acquisitions................... 24,476 204,008 357,672 --
Amortization of restricted share
awards......................... 4,933 3,129 -- --
Issuance of Units through
exercise of share options...... 2,681 15,435 -- --
Issuance of preferred units...... -- 415,000 200,000 --
Preferred units and other
offering costs................. (827) (14,630) -- --
Sale of Units, net............... 43,983 273,950 --
Issuance of Units for Beacon
Merger......................... -- -- 2,921,838 --
Units issued for restricted units
and trustee fees............... -- 165 --
Issuance of Units in exchange for
Common Shares.................. -- -- --
Units repurchased by the
Company........................ (51,381) -- -- --
Put option settlement............ (61,459) -- -- --
Preferred distributions.......... (43,603) (32,202) (649) --
Distributions declared to
partners....................... (455,101) (390,023) (96,760) --
---------- ---------- ---------- -----------
Total............................ 7,180,037 7,375,063 7,051,641 --
---------- ---------- ---------- -----------
Comprehensive Income:
Net income..................... 479,525 385,255 78,722 --
Other comprehensive income:
Unrealized holding gains
arising during the
period..................... 10,938 -- -- --
---------- ---------- ---------- -----------
Comprehensive Income............. 490,463 385,255 78,722 --
---------- ---------- ---------- -----------
Balance, end of period............. $7,670,500 $7,760,318 $7,130,363 $ --
========== ========== ========== ===========
OWNERS' EQUITY:
Balance, beginning of period....... $ -- $ -- $ -- $ 1,727,002
Contributions.................... -- -- -- 285,542
Distributions.................... -- -- -- (189,752)
Net income....................... -- -- -- 61,409
Contribution of Owners' Equity to
the Company in connection with
the Consolidation.............. -- -- -- (1,884,201)
---------- ---------- ---------- -----------
Balance, end of period............. $ -- $ -- $ -- $ --
========== ========== ========== ===========
ALLOCATION OF PARTNERS' CAPITAL:
General Partners Capital......... $ 58,381 $ 118,309 $ 115,230 $ --
========== ========== ========== ===========
Limited Partners Capital......... $6,986,181 $7,027,009 $6,815,133 $ --
========== ========== ========== ===========
Accumulated other comprehensive
income......................... $ 10,938 $ -- $ -- $ --
========== ========== ========== ===========
8.98% Series A Cumulative
Redeemable Preferred Units..... $ 200,000 $ 200,000 $ 200,000 $ --
========== ========== ========== ===========
5.25% Series B Convertible,
Cumulative Redeemable Preferred
Units.......................... $ 300,000 $ 300,000 $ -- $ --
========== ========== ========== ===========
8.625% Series C Cumulative
Redeemable Preferred Units..... $ 115,000 $ 115,000 $ -- $ --
========== ========== ========== ===========
</TABLE>
See accompanying notes.
54
<PAGE> 55
EOP OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS
OF CASH FLOWS AND EQUITY OFFICE PREDECESSORS
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
EQUITY OFFICE
EOP OPERATING LIMITED PARTNERSHIP PREDECESSORS
--------------------------------------------------- ---------------------
FOR THE YEARS ENDED
DECEMBER 31, FOR THE PERIOD FROM FOR THE PERIOD FROM
--------------------------- JULY 11, 1997 THROUGH JANUARY 1, 1997
1999 1998 DECEMBER 31, 1997 THROUGH JULY 10, 1997
----------- ------------ --------------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income before put option settlement and
preferred distributions................... $ 479,525 $ 385,255 $ 78,722 $ 61,409
Adjustments to reconcile net income before
put option settlement and preferred
distributions to net cash provided by
operating activities:
Depreciation and amortization............. 358,989 305,982 70,202 66,034
Amortization of premiums/discounts on
unsecured notes and terminated interest
rate protection agreements.............. 3,690 2,898 144 --
Amortization of deferred revenue included
in other income......................... (693) -- -- --
Compensation related to restricted shares
issued to employees by the Trust........ 4,933 2,829 -- --
Income from unconsolidated joint ventures... (13,824) (11,267) (3,173) (1,982)
Gain on sales of real estate, net........... (59,661) (12,433) (126) (12,510)
Extraordinary items......................... 10,548 7,506 16,366 274
Provision for doubtful accounts............. 1,585 890 1,686 1,175
Allocation to minority interests............ 1,981 2,114 789 912
Changes in assets and liabilities:
(Increase) decrease in rents receivable... (19,889) (4,552) 2,064 2,664
(Increase) in deferred rent receivables... (51,582) (67,065) (21,421) (8,061)
Decrease (increase) in prepaid expenses
and other assets........................ 429 10,756 (29,551) (8,839)
(Decrease) increase in accounts payable
and accrued expenses.................... (29,186) 87,569 54,076 2,916
(Decrease) increase in due to
affiliates.............................. (1,136) 403 (898) (722)
Increase (decrease) in other
liabilities............................. 35,002 48,266 21,874 (7,310)
----------- ----------- ----------- ---------
Net cash provided by operating
activities........................... 720,711 759,151 190,754 95,960
----------- ----------- ----------- ---------
INVESTING ACTIVITIES:
Property acquisitions....................... (122,419) (1,930,172) (1,508,928) (531,968)
Cash received from Beacon Merger............ -- -- 79,786 --
Proceeds from sales of real estate.......... 452,659 10,175 -- 72,078
Payment of Beacon Merger costs.............. -- -- (62,069) --
Payments for capital and tenant
improvements.............................. (297,496) (207,093) (99,586) (59,511)
Distributions from unconsolidated joint
ventures.................................. 45,536 46,122 4,571 --
Investments in unconsolidated joint
ventures.................................. (32,110) (42,019) -- (44,260)
Payments of lease acquisition costs......... (55,065) (46,337) (15,043) (9,260)
Contributions from minority interest partner
in partially owned properties............. 11,000 -- -- --
Investment in notes receivable and other
assets.................................... (112,594) -- -- --
Investment in preferred securities of
Capital Trust............................. -- (48,532) -- --
Decrease (increase) in escrow deposits and
restricted cash........................... 43,351 (13,856) 8,997 1,853
----------- ----------- ----------- ---------
Net cash (used for) investing
activities........................... (67,138) (2,231,712) (1,592,272) (571,068)
----------- ----------- ----------- ---------
</TABLE>
55
<PAGE> 56
EOP OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS
OF CASH FLOWS AND EQUITY OFFICE PREDECESSORS
COMBINED STATEMENT OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
EOP OPERATING LIMITED PARTNERSHIP EQUITY OFFICE
------------------------------------------ PREDECESSORS
FOR THE PERIOD ---------------
FOR THE YEARS FROM JULY 11, FOR THE PERIOD
ENDED DECEMBER 31, 1997 THROUGH FROM JANUARY 1,
------------------------- DECEMBER 31, 1997 THROUGH
1999 1998 1997 JULY 10, 1997
----------- ----------- -------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from Units, net of offering costs....... -- 43,983 838,456 --
Repurchase of Units.............................. (51,381) -- -- --
Proceeds from exercise of share options.......... 2,681 15,435 68,191 --
Distributions to unitholders..................... (454,516) (388,954) (95,569) --
Capital contributions............................ -- -- -- 287,949
Capital distributions............................ -- -- -- (288,652)
Cash contributed from net assets at the IPO...... -- -- 181,138 --
Put option settlement............................ (59,913) -- -- --
Payment of preferred distributions............... (43,822) (29,581) -- --
Proceeds from sale of preferred units, net of
offering costs................................. -- 400,487 -- --
Payment of offering costs........................ (854) (117) -- --
Distributions to minority interest in partially
owned properties............................... (2,138) (3,366) (371) (3,401)
Proceeds from mortgage debt...................... 3,374 10,865 84,466 154,090
Proceeds from unsecured notes.................... 1,195,587 2,279,572 180,000 --
Proceeds from lines of credit.................... 1,814,500 4,922,500 2,530,425 218,000
Principal payments on mortgage debt.............. (519,671) (38,370) (838,354) (47,472)
Principal payments on lines of credit............ (2,577,500) (5,841,197) (1,294,750) (72,500)
Payments of loan costs........................... (11,096) (22,192) (7,039) (1,889)
Termination of interest rate protection
agreements..................................... -- (38,277) -- --
Prepayment penalties on early extinguishment of
debt........................................... (13,566) -- (16,247) (274)
----------- ----------- ----------- ---------
Net cash (used for) provided by financing
activities................................ (718,315) 1,310,788 1,630,346 245,851
----------- ----------- ----------- ---------
Net (decrease) increase in cash and cash
equivalents.................................... (64,742) (161,773) 228,828 (229,257)
Cash and cash equivalents at the beginning of the
period......................................... 67,080 228,853 25 410,420
----------- ----------- ----------- ---------
Cash and cash equivalents at the end of the
period......................................... $ 2,338 $ 67,080 $ 228,853 $ 181,163
=========== =========== =========== =========
SUPPLEMENTAL INFORMATION:
Interest paid during the period, including
capitalized interest of $18,030, $15,077,
$1,890 and $3,699, respectively................ $ 402,683 $ 302,415 $ 70,658 $ 82,969
=========== =========== =========== =========
</TABLE>
See accompanying notes.
56
<PAGE> 57
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND FORMATION OF THE COMPANY
As used herein, "Company" means EOP Operating Limited Partnership, a
Delaware limited partnership, and the predecessors thereof ("Equity Office
Predecessors"). The Company is a subsidiary of Equity Office Properties Trust
(the "Trust") which was formed on October 9, 1996 to continue and expand the
national office property business organized by Mr. Samuel Zell, Chairman of the
Board of Trustees of the Trust, and to complete the consolidation of the Equity
Office Predecessors (the "Consolidation"). The Trust completed its initial
public offering (the "IPO") on July 11, 1997. The Company is a fully integrated,
self-administered and self-managed real estate company engaged in acquiring,
owning, managing, leasing and renovating office properties and parking
facilities. The Trust's assets, which include investments in joint ventures, are
owned by, and substantially all of its operations are conducted through the
Company. The Trust is the managing general partner of the Company. The Trust
elected to be taxed as a real estate investment trust ("REIT") for federal
income tax purposes and generally will not be subject to federal income tax if
it distributes 100% of its taxable income and complies with a number of
organizational and operational requirements. As of December 31, 1999, the
Company owned or had an interest in 294 office properties (the "Office
Properties") containing approximately 77.0 million rentable square feet of
office space and owned 20 stand-alone parking facilities (the "Parking
Facilities" and, together with the Office Properties, the "Properties")
containing approximately 20,506 parking spaces. The weighted average occupancy
for the Office Properties at December 31, 1999 was approximately 93.7%. The
Office Properties are located in 81 submarkets in 35 markets in 23 states and
the District of Columbia. The Office Properties, by rentable square feet, are
located approximately 52% in central business districts ("CBDs") and 48% in
suburban markets.
On July 11, 1997, the Company consummated the Consolidation in connection
with the IPO of the Trust, in which the Trust sold 28,750,000 of its common
shares of beneficial interest, $0.01 par value per share ("Common Shares") at
$21.00 per Common Share generating gross proceeds of approximately $603.8
million. The Trust contributed the net proceeds from the IPO of approximately
$564.5 million to the Company in exchange for 28,750,000 units of partnership
interest in the Operating Partnership ("Units"). The Company used the net
proceeds of the IPO and available cash reserves to repay debt.
Concurrent with the IPO, the Equity Office Predecessors contributed their
interest in the Properties to the Company in exchange for 126,419,397 Units and
122,927,030 Common Shares of the Trust which resulted in the Company issuing
122,927,030 Units to the Trust. In addition, Equity Group Investments, Inc. an
Illinois corporation ("EGI"), and Equity Office Holdings, L.L.C., a Delaware
limited liability company ("EOH" and together with EGI, the "Equity Group")
contributed substantially all of their interests in their office property and
asset management business and parking facilities management business
(collectively the "Management Business") to the Operating Partnership in
exchange for 8,358,822 Units.
On December 19, 1997, the Trust, the Company, Beacon Properties
Corporation, a Maryland corporation ("Beacon") and Beacon Partnership L.P.
("Beacon Partnership") consummated the merger of Beacon with and into the Trust
and Beacon Partnership with and into the Company (the "Beacon Merger") at a cost
of approximately $4.3 billion in the form of 89,167,003 Units, of which
80,596,117 Units were issued to the Trust, 8,000,000 preferred units, stock
options assumed which would result in the Company issuing additional Units to
the Trust, $1.2 billion of debt assumed and merger costs of $85 million. As a
result of the Beacon Merger, the Company acquired an interest in 130 Beacon
properties containing approximately 20.9 million rentable square feet of office
space.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements represent the financial condition and
results of the Company and its subsidiaries.
57
<PAGE> 58
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The Consolidation and the Beacon Merger were accounted for as purchases in
accordance with Accounting Principles Board Opinion No. 16. Accordingly, the
fair value of the consideration given by the Company was used as the valuation
basis for these transactions. The assets acquired and liabilities assumed by the
Company were recorded at their fair values as of the closing dates of the
Consolidation and the Beacon Merger and the excess of the purchase price over
the related historical basis of the net assets acquired was allocated primarily
to investment in real estate.
The combined financial statements of Equity Office Predecessors includes
interests in the properties owned and the Management Business. The financial
statements of Equity Office Predecessors is presented on a combined basis
because the properties owned and the Management Business were under common
control. All intercompany transactions and balances have been eliminated in
combination.
Investment in Real Estate
Rental property and improvements, including interest and other costs
capitalized during construction, are included in investment in real estate and
are stated at cost. Expenditures for ordinary maintenance and repairs are
expensed to operations as they are incurred. Significant renovations and
improvements which improve or extend the useful life of the assets are
capitalized. Except for amounts attributed to land, rental property and
improvements are depreciated over their estimated useful lives using the
straight-line method. The estimated useful lives by asset category are:
<TABLE>
<CAPTION>
ASSET CATEGORY ESTIMATED USEFUL LIFE
- -------------- ---------------------
<S> <C>
Building.................................................... 40 years
Building improvements....................................... 4 -- 40 years
Tenant improvements......................................... Term of lease
Furniture and fixtures...................................... 3 -- 12 years
</TABLE>
Deferred Leasing and Financing Costs
Deferred leasing and financing costs are recorded at cost. The deferred
leasing costs are amortized over the terms of the respective leases and the
deferred financing costs are amortized over the terms of the respective
financings on a straight-line basis, which approximates the effective yield
method.
Rental Income
Certain leases provide for tenant occupancy during periods for which no
rent is due or where minimum rent payments increase during the term of the
lease. The Company records rental income for the full term of each lease on a
straight-line basis. Accordingly, the Company records a receivable from tenants
for the amount that the Company expects to collect over the remaining lease term
rather than currently ("Deferred Rent Receivable"). When the Company acquires a
property the term of existing leases is considered to commence as of the
acquisition date for purposes of this calculation. The amounts included in
rental income for the year ended December 31, 1999 and 1998, the period from
July 11, 1997 through December 31, 1997 and the period from January 1, 1997
through July 10, 1997, which were not currently collectible as of such dates,
were approximately $65.4 million, $68.1 million, $20.0 million and $7.7 million,
respectively. Deferred Rent Receivable is not recognized for income tax
purposes.
Cash Equivalents
The Company considers cash equivalents to be all highly liquid investments
purchased with a maturity of three months or less at the date of purchase.
58
<PAGE> 59
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Escrow Deposits and Restricted Cash
Escrow deposits primarily consist of amounts held by lenders to provide for
future real estate tax expenditures and tenant improvements, earnest money
deposits on acquisitions and net proceeds from dispositions. Restricted cash
represents amounts committed for various utility deposits and security deposits.
Certain of these amounts may be reduced upon the fulfillment of certain
obligations.
Fair Value of Financial Instruments
Investments in marketable equity securities and investments in note
receivables are reported at fair value and included in other assets. All
marketable equity securities held by the Company at December 31, 1999 were
designated as available for sale, with unrealized holding gains and losses
included in partners' capital as accumulated other comprehensive income.
Management believes that the carrying basis of the Company's long-term debt
consisting of secured and unsecured borrowings and an interest rate protection
agreement approximate their respective fair market values as of December 31,
1999 and 1998, respectively. The current value of debt was computed by
discounting the projected debt service payments for each loan based on the
spread between the market rate and the effective rate, including the
amortization of loan origination costs, for each year. In addition, the carrying
values of cash and cash equivalents, restricted cash, escrow deposits, tenant
and other rents receivable, accounts payable and accrued expenses are reasonable
estimates of their fair value.
Interest Rate Protection Agreements
The Company periodically enters into certain interest rate protection
agreements to effectively convert or cap floating rate debt to a fixed rate
basis, as well as to hedge anticipated future finance transactions. Net amounts
paid or received under these agreements are recognized as an adjustment to
interest expense when such amounts are incurred or earned. Settlement amounts
paid or received in connection with terminated interest rate protection
agreements are deferred and amortized as an adjustment to interest expense over
the term of the related financing transaction on a straight-line basis, which
approximates the effective yield method.
Derivatives and Hedging Activities
In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The statement requires recording all
derivative instruments as assets or liabilities, measured at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The standard's effective date was deferred
by FASB Statement No. 137 to all fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company is planning to adopt the standard once it is
effective and does not anticipate that the adoption will have a material impact
on the Company's financial condition and results of operations.
Deferred Revenue
During 1999, the Company received common stock and/or warrants to purchase
common stock for allowing companies that provide telecommunication and other
services access to the Properties. The securities received from these companies
were recorded as deferred revenue at fair value at the time such securities were
earned and are included in other liabilities on the balance sheet. The deferred
revenue will be amortized into other income over the terms of the respective
license agreements. As of December 31, 1999, approximately
59
<PAGE> 60
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
$31.6 million is recorded as deferred revenue relating to these agreements and
is being amortized over a five-year period. Approximately $.7 million was
recorded as other income during 1999.
Income Taxes
The Company is not liable for federal taxes as the partners recognize their
proportionate share of the Company's income or loss in their tax returns. The
Office Properties and Parking Facilities are primarily owned by limited
partnerships or limited liability companies, which are substantially
pass-through entities. Some of the pass-through entities have corporate general
partners or members, which are subject to federal and state income and franchise
taxes. In addition, the Management Business is owned by a corporation and is
subject to federal and state income taxes. The Company incurred federal and
state income and franchise taxes of approximately $.7 million, $1.7 million,
$0.2 million and $0.9 million for the years ended December 31, 1999 and 1998,
the period from July 11, 1997 through December 31, 1997, and the period from
January 1, 1997 through July 10, 1997, respectively, which are included in
general and administrative expenses.
The Trust elected to be taxed as a REIT, under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the Trust
generally will not be subject to federal income tax if it distributes 100% of
its taxable income for each tax year to its shareholders. REITs are subject to a
number of organization and operational requirements. If the Trust fails to
qualify as a REIT in any taxable year, the Trust will be subject to federal
income tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate tax rates. Even if the Trust qualifies for taxation
as a REIT, the Trust may be subject to state and local income taxes and to
federal income tax and excise tax on its undistributed income. The aggregate
cost of land and depreciable property for federal income tax purposes as of
December 31, 1999 and 1998 was approximately $10.3 billion and $9.7 billion,
respectively.
Minority Interests -- partially owned properties
The Company reflects minority interests in partially owned properties on
the balance sheet for the portion of properties consolidated by the Company that
are not wholly owned by the Company. The earnings or losses from these
properties attributable to the minority interests are reflected as minority
interests in partially owned properties in the statement of operations.
Use of Estimates
The preparation of the consolidated financial statements of the Company and
the combined financial statements of Equity Office Predecessors in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made to the previously reported 1998
and 1997 statements in order to provide comparability with the 1999 statements
reported herein. These reclassifications have not changed the 1998 or 1997
results, partners' capital or owners' equity.
60
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INVESTMENT IN REAL ESTATE
Investment in real estate, including Office Properties, Parking Facilities,
properties under development and vacant land was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 1,278,310 $ 1,343,308
Land available for development.............................. 125,926 65,819
Building.................................................... 11,123,181 11,729,616
Building improvements....................................... 162,628 76,631
Tenant improvements......................................... 261,121 191,936
Furniture and fixtures...................................... 22,149 8,136
Developments in process..................................... 229,225 268,373
----------- -----------
Gross investment in real estate........................... 13,202,540 13,683,819
Accumulated depreciation.................................... (630,387) (352,259)
----------- -----------
Net investment in real estate............................. $12,572,153 $13,331,560
=========== ===========
</TABLE>
During the year ended December 31, 1999, the Company acquired the
Properties listed below. Each Property was purchased from an unaffiliated party,
except for Palo Alto Square (see footnote (4) below), and was funded from
working capital, credit facilities, assumption of mortgage debt, and/or issuance
of Units. During 1998 the Company acquired 28 Office Properties, an office
property under development, several vacant land parcels and two Parking
Facilities, for a total cost of approximately $2.5 billion including the
issuance of 7,043,510 Units at a weighted average price of $25.07 per Unit for a
total of approximately $176.6 million. During 1997, the Company acquired 176
Office Properties and seven parking facilities, including those acquired in
connection with the Beacon Merger, for a total cost of approximately $6.6
billion.
<TABLE>
<CAPTION>
DATE RENTABLE TOTAL
ACQUIRED PROPERTY LOCATION SQUARE FEET ACQUISITION COST(1)
- -------- ----------------------------- --------------- ----------- ----------------------
(DOLLARS IN THOUSANDS)
<C> <S> <C> <C> <C>
1/7/99 Texas Commerce Tower Irving, TX 369,134 $ 55,254
1/7/99 Computer Associates Tower Irving, TX 360,815 51,294
1/28/99 City Center Bellevue Bellevue, WA 472,587 115,936(2)
4/30/99 517 Marquette Garage Minneapolis, MN -- 19,403
7/13/99 Prominence in Buckhead Atlanta, GA 424,635 73,005(3)
10/1/99 Palo Alto Square Palo Alto, CA 320,468 78,287(4)
--------- --------
Total 1,947,639 $393,179
========= ========
</TABLE>
- ---------------
(1) Total acquisition cost includes the purchase price specified in the purchase
contract, closing costs, acquisition costs and accounting adjustments
recorded in accordance with GAAP.
(2) The total acquisition cost includes a vacant land parcel valued at $12.4
million.
(3) The total acquisition cost includes a vacant land parcel valued at $7.8
million.
(4) Palo Alto Square was acquired from a private investment partnership
controlled by Mr. Samuel Zell. The terms of the acquisition were reviewed
and recommended for Board approval by a special subcommittee of the Board of
Trustees of the Trust formed to review related party conflicts between
trustees and their affiliates. Upon the recommendation of the special
subcommittee, the non-affiliated members of the Board of Trustees of the
Trust approved the transaction. The acquisition was funded primarily through
the issuance of 1,035,389 Units valued at $23.64 per Unit for a total of
approximately $24.5 million and the assumption of $53.2 million in debt.
61
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- DISPOSITIONS
During 1999 the Company disposed of the following office properties:
<TABLE>
<CAPTION>
PERCENT OF
DATE PROPERTY RENTABLE SALES GAIN/LOSS
SOLD PROPERTY LOCATION SOLD SQUARE FEET PRICE ON SALE
- --------- --------------------- --------------------- ---------- ----------- -------- -----------
(DOLLARS IN
THOUSANDS)
<C> <S> <C> <C> <C> <C> <C>
5/21/99 Atrium Towers Oklahoma City, OK 100% 155,865 $ 8,600 $ 549
5/21/99 5100 Brookline Oklahoma City, OK 100% 105,459 4,400 (756)
6/30/99 215 Fremont Street(a) San Francisco, CA 100% -- 33,500 6,179
6/30/99 One Columbus Columbus, OH 100% 407,472 51,500 2,046
12/14/99 Various properties(b) Various Various -- 533,901 51,643
------- -------- -------
668,796 $631,901 $59,661
======= ======== =======
</TABLE>
- ---------------
(a) 215 Fremont Street was a redevelopment property.
(b) The Company sold an interest in these Office Properties to Lend Lease
Australia/US Properties. Prior to the sale, the Company consolidated the
financial condition and results of operations of the Office Properties. Upon
the sale, the Company retained an equity interest in the Office Properties
and shares equally in the control of the operations and major decisions of
the Office Properties. Therefore, the Company accounts for its remaining
interest in the Office Properties under the equity method of accounting and
classifies its net equity investment of approximately $486.9 million as
investment in unconsolidated joint ventures on the consolidated balance
sheet and its interest in the net income from investment in unconsolidated
joint ventures is reflected in the consolidated statements of operations.
Net proceeds were approximately $480 million from this transaction after
giving effect to the buyer's assumption of debt and additional financings.
During 1998, the Company disposed of four office properties located in
Florida and one office property located in Washington, D.C. The combined square
footage of these office properties was approximately 986,391 square feet. These
office properties were sold for approximately $132.6 million generating a gain
on sale of approximately $12.4 million.
During 1997, the Company disposed of one office property located in
California and one office property located in Texas. These office properties
were sold for approximately $72.5 million generating a gain on sale of
approximately $12.6 million. The combined square footage of these office
properties was approximately 535,992 square feet.
NOTE 5 -- INVESTMENT IN NOTE RECEIVABLE
On September 2, 1999, the Company acquired a mezzanine-level debt position
as part of a debt restructuring related to the SunAmerica Center office
property. The property is owned by an unaffiliated party and is located in
Century City, California. The Company invested approximately $73.9 million for a
67% share of a $202.2 million Tranche B note. The Company's share of the Tranche
B note is approximately $136.0 million. The discount to the face amount of the
note of approximately $62.4 million will be amortized to interest income based
on the estimated yield of the investment. The Company will also provide property
management and leasing services for the property.
The Tranche B Note accrues interest at 7.25% per annum compounded quarterly
and matures on August 31, 2014. Interest is payable on the Tranche B Note from
available cash flow from the property as defined in the Noteholder Agreement. In
addition, the Company previously had entered into two forward rate interest
protection agreements effectively hedging the investment. These agreements were
terminated prior to
62
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- INVESTMENT IN NOTE RECEIVABLE -- (CONTINUED)
the Company's investment in the Tranche B Note for proceeds to the Company of
approximately $1.1 million. The proceeds will be amortized to interest income
over the term of the Tranche B Note.
In addition, the Company has the option to acquire 67% of the aggregate
face amount of the Tranche D Note and the Tranche E Note debt position from the
current holder, an affiliate of the property owner. The current aggregate face
amount of the Tranche D Note and Tranche E Note is $15.0 million.
NOTE 6 -- INVESTMENT IN SECURITIES
The following investments are included in other assets on the Consolidated
Balance Sheet.
During 1999, the Company invested approximately $2.0 million for
approximately .1 million common shares of Allied Riser Communications
Corporation ("ARC"). ARC is a facilities based provider of broadband data, video
and voice communications services, delivered over fiber optic networks designed,
constructed and owned by ARC in large- and medium-sized office buildings. The
Company and ARC entered into various license agreements allowing ARC to install
and provide its services to tenants in certain Office Properties containing
approximately 75.6 million square feet. In return for allowing ARC access to the
Office Properties, ARC granted the Company, in addition to the purchased
securities described above, approximately 1.4 million warrants to acquire an
equal number of common shares of ARC for no additional consideration, as well as
an additional .2 million common shares for nominal consideration, and other ARC
investors transferred approximately .3 million ARC common shares to the Company.
The warrants and the common shares were recorded at fair value as deferred
revenue and will be amortized over the term of the licensing agreements of five
years. The total deferred revenue at December 31, 1999, was approximately $29.1
million. As of December 31, 1999, the fair value of the ARC common shares and
warrants, which are exercisable into ARC common shares at the Company's option
commencing in April 2000, was approximately $41.5 million. A gross unrealized
holding gain of approximately $9.7 million is included in other comprehensive
income and represents the increase in the fair value of the ARC securities. A
private investment entity controlled by Mr. Zell has a substantial investment in
ARC.
Also during 1999, the Company was granted approximately 2.4 million common
shares of Broadband Office, Inc. ("Broadband"). Broadband is also a facilities
based provider of broadband data, video and voice communications services,
delivered over fiber optic networks similar to ARC. The Company and Broadband
entered into various license agreements allowing Broadband to install and
provide its services to tenants in certain Office Properties containing
approximately 55.0 million square feet. Broadband granted the common shares to
the Company in return for allowing Broadband access to the Office Properties.
The common shares were recorded at fair value of approximately $1.3 million and
will be amortized over the term of the license agreements of five years. The
shares issued to the Company are not currently registered, and Broadband is not
currently qualified as a public reporting company under the Securities and
Exchange Act of 1934.
Also during 1999, the Company was issued a warrant to acquire approximately
.9 million common shares of Captivate Network, Inc. ("Captivate"). Captivate
installs high-resolution, flat-panel screens in elevators, and programs the
network with news, features, and advertising. The Company and Captivate entered
into a master license agreement allowing Captivate to install its screens in
elevators at certain Office Properties. Captivate granted the warrant to the
Company in return for executing the master license agreement and for allowing
access to the Office Properties. As license agreements for specific Office
Properties are executed, a portion of the warrant becomes vested. The vested
portion of the warrant was recorded at a fair value of approximately $1.2
million and will be amortized over the term of the license agreements of five
years. The warrant issued to the Company is not currently registered, and
Captivate is not currently qualified as a public reporting company under the
Securities and Exchange Act of 1934.
In July 1998, the Company purchased 50,000 shares of Capital Trust 8.25%
Preferred Securities, $1,000 liquidation preference per share, for $48.5
million. The discount of $1.5 million is being amortized as
63
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENT IN SECURITIES -- (CONTINUED)
additional dividend revenue over the term of 20 years. The preferred shares are
convertible at any time into common shares of Capital Trust at a conversion
price of $11.70 and are non-callable for five years. The dividend is payable
each quarter and commencing in year seven, the dividend will increase by 75
basis points per annum. Mr. Zell is Chairman of the Board of Capital Trust.
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
The following is a summary of the Company's ownership in the unconsolidated
joint ventures:
<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP
AS OF DECEMBER 31,
ENTITY PROPERTY 1999
- ------ ----------------------------- -----------------------
<S> <C> <C>
EOP -- Orange, L.L.C. and EOP --
Ramlessview Investors, L.L.C.(1)......... 500 Orange Tower 100%
Civic Parking, L.L.C....................... St. Louis Parking Garages 50%
Wright Runstad Associates Limited
Partnership(2)........................... N/A 28.5%
One Post Office Square Associates.......... One Post Office Square 50%
BeaMetFed, Inc.(3)......................... 75-101 Federal Street 52%
Rowes Wharf Associates(4).................. Rowes Wharf 50%
Lehndorff Four Oaks Place Associates(5).... Four Oaks Place 2.55%
Metropoint II Associates(6)................ Metropoint II 70%
WRC Sunset North, L.L.C.(7)................ Sunset North Corporate Campus 80%
Three Bellevue, L.L.C.(8).................. Three Bellevue Center 80%
10 & 30 South Wacker, L.L.C.(9)(10)........ 10 & 30 South Wacker 75%
Monument Center, L.L.C.(10)................ Bank One Center 25%
Pasadena Towers, L.L.C.(10)................ Pasadena Towers 25%
Promenade II, L.L.C.(10)................... Promenade II 50%
Sun Trust Center, L.L.C.(10)............... Sun Trust Center 25%
Preston Commons Limited Partnership(10).... Preston Commons 50%
Sterling Plaza Limited Partnership(10)..... Sterling Plaza 50%
Regus Equity Business Centers,
L.L.C.(11)............................... N/A 47.5%
</TABLE>
- ---------------
(1) The Company owns a mortgage note receivable secured by the property and
land underlying and adjacent to the property.
(2) The Company owns a 28.5% non-controlling interest in this property
management and development company.
(3) The Company and the Trust are shareholders in the corporation (a private
REIT) which owns the property.
(4) The Company owns a 50% equity interest in the property and 50% of the first
mortgage notes.
(5) The Company owns a 3% general partner interest in this general partnership
which owns an 85% general partnership interest in the property.
(6) In July 1998, the Company entered into a joint venture agreement with an
unaffiliated party to develop Metropoint II, a 150,181 square foot office
building in Denver, Colorado, which was completed in 1999. A buy/sell
option may be exercised to acquire the other venturer's interest by either
the Company or its joint venture partner if certain conditions are met as
defined in the joint venture agreement.
(7) In July 1998, the Company entered into a joint venture agreement with
WRALP, an affiliated party, to develop Sunset North Corporate Campus, a
three building, 460,629 square-foot office complex in
64
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)
Bellevue, Washington, which was completed in 1999. A buy/sell option may be
exercised to acquire the other venturer's interest by either the Company or
its joint venture partner if certain conditions are met as defined in the
joint venture agreement.
(8) In December 1998, the Company entered into a joint venture agreement with
WRALP to develop Three Bellevue Center, a 471,635 square foot office
building in Bellevue, Washington. Completion of the 22-story office
building is scheduled for the second quarter of 2000. A buy/sell option may
be exercised to acquire the other venturer's interest by either the Company
or its joint venture partner if certain conditions are met as defined in
the joint venture agreement.
(9) The joint venture partner has the option to increase its ownership in the
property by an additional 25% by December 31, 2001, at the greater of 25%
of the fair market value at the time of the exercise or $122.5 million.
(10) These properties were partially sold during 1999. See Note 4, footnote (b)
for additional information.
(11) The Company owns a 47.5% membership interest in this joint venture. The
joint venture provides fully furnished offices with short term, flexible
rental agreements to prospective tenants seeking this type of office space.
These investments are accounted for utilizing the equity method of
accounting except for the Company's investment in Lehndorff Four Oaks Place
Associates, which is accounted for utilizing the cost method of accounting.
Under the equity method of accounting, the net equity investment of the Company
is reflected on the consolidated balance sheets, and the consolidated and
combined statements of operations include the Company's share of net income or
loss from the unconsolidated joint ventures. Any difference between the carrying
amount of these investments on the balance sheet of the Company and the
underlying equity in net assets is amortized as an adjustment to income from
unconsolidated joint ventures over 40 years.
Combined summarized financial information of the unconsolidated joint
ventures is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance Sheets:
Real estate, net.......................................... $1,719,417 $488,997
Other assets.............................................. 106,211 78,623
---------- --------
Total Assets........................................... $1,825,628 $567,620
========== ========
Mortgage debt............................................. $ 559,344 $243,096
Other liabilities......................................... 58,793 16,059
Partners' and shareholders' equity........................ 1,207,491 308,465
---------- --------
Total Liabilities and Partners' and Shareholders'
Equity................................................ $1,825,628 $567,620
========== ========
Company's share of equity................................. $ 696,502 $159,092
Net excess of cost of investments over/under the net book
value of underlying net assets, net of accumulated
depreciation of $11,679 and $5,854, respectively....... 169,361 219,442
---------- --------
Carrying value of investments in unconsolidated joint
ventures............................................... $ 865,863 $378,534
========== ========
Company's share of unconsolidated mortgage debt........... $ 264,751 $124,282
========== ========
</TABLE>
65
<PAGE> 66
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
--------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Statements of Operations:
Revenues................................................ $119,566 $107,617 $16,687
-------- -------- -------
Expenses:
Interest expense..................................... 18,787 17,004 793
Depreciation and amortization........................ 19,968 18,916 2,752
Operating expenses................................... 44,002 37,489 4,638
-------- -------- -------
Total expenses..................................... 82,757 73,409 8,183
-------- -------- -------
Net income.............................................. $ 36,809 $ 34,208 $ 8,504
======== ======== =======
Company's share of net income........................... $ 13,824 $ 11,267 $ 5,155
======== ======== =======
Company's share of interest expense..................... $ 9,116 $ 8,580 $ --
======== ======== =======
Company's share of depreciation and amortization (real
estate related)...................................... $ 15,741 $ 14,412 $ 1,524
======== ======== =======
</TABLE>
66
<PAGE> 67
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- MORTGAGE DEBT
The Company had outstanding mortgage indebtedness of approximately $1.7
billion and $2.4 billion as of December 31, 1999 and 1998, respectively. The
historical cost, net of accumulated depreciation of encumbered properties at
December 31, 1999 and 1998 was approximately $3.8 billion and $5.3 billion,
respectively. During the years ended December 31, 1999 and 1998, the following
transactions occurred:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of year(1)........................... $2,336,571 $2,061,860
Assumed through property acquisitions................... 52,550 302,216
Repaid/or assumed by buyer upon sale of property........ (81,400) (7,206)
Consolidated debt reclassed to investment in
unconsolidated joint ventures(2)..................... (58,127) --
Proceeds from draws..................................... 3,374 10,865
Repayments/principal amortization....................... (519,671) (31,164)
---------- ----------
Balance at end of year(1)................................. $1,733,297 $2,336,571
========== ==========
</TABLE>
- ---------------
(1) Excludes net premium on mortgage debt of approximately $10,574, $13,517 and
$1,157 as of December 31, 1999, 1998 and 1997, respectively.
(2) See Note 4 footnote (b).
A summary of the Company's fixed and variable rate mortgage debt is as
follows:
Fixed Rate Mortgage Debt
As of December 31, 1999 and 1998, the Company had outstanding fixed rate
mortgage indebtedness of approximately $1.6 billion and $2.3 billion,
respectively. Payments on fixed rate mortgage debt are generally due in monthly
installments of principal and interest or interest only. As of December 31, 1999
and 1998, fixed interest rates ranged from 6.9% to 8.6% and 6.9% to 9.1%,
respectively. The weighted average fixed interest rate was approximately 7.5%
and 7.6% as of December 31, 1999 and 1998, respectively.
The Company entered into an interest rate swap agreement in 1995 which
effectively fixed the interest rate on a $93.6 million variable rate mortgage
loan at 6.9% through the maturity of the loan on June 30, 2000.
Variable Rate Mortgage Debt
As of December 31, 1999 and 1998, the Company had outstanding variable rate
mortgage indebtedness of approximately $126.3 million and $70.4 million,
respectively. Payments on variable rate mortgage debt are generally due in
monthly installments of principal and interest or interest only. The variable
interest rates are based on a variety of options including LIBOR-based interest
rates. As of December 31, 1999 and 1998, the weighted average variable interest
rate was 7.2% and 6.4%, respectively.
67
<PAGE> 68
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- MORTGAGE DEBT -- (CONTINUED)
Repayment Schedule
Scheduled payments of principal on mortgage debt for each of the next five
years and thereafter as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
2000........................................................ $ 186,809
2001........................................................ 200,194
2002........................................................ 73,151
2003........................................................ 184,454
2004........................................................ 224,070
Thereafter.................................................. 864,619
----------
Subtotal.................................................... 1,733,297
Net premium (net of accumulated amortization of $4.0
million).................................................. 10,574
----------
Total..................................................... $1,743,871
==========
</TABLE>
NOTE 9 -- LINES OF CREDIT
Lines of Credit
In 1998, the Company obtained a revolving credit facility for $1.0 billion
(the "$1.0 Billion Credit Facility") maturing on May 29, 2001. The Company
incurred fees of approximately $2.5 million at the closing of the facility which
are being amortized over the term along with approximately $1.0 million of
unamortized deferred financing costs on the previous $600 million line of
credit. The interest rate is based on the Company's investment grade rating on
its unsecured debt and is currently LIBOR plus 60 basis points with a facility
fee (based on the aggregate amount of the facility) equal to 20 basis points per
annum. In addition, a competitive bid option, whereby the lenders participating
in the line of credit bid on the interest rate to be charged, is available for
up to $350 million of the $1.0 Billion Credit Facility. As of December 31, 1999
there was approximately $453.0 million outstanding on the facility.
Term Loan Facilities
In October 1997, the Company obtained a $1.5 billion unsecured credit
facility (the "$1.5 Billion Credit Facility"). The $1.5 Billion Credit Facility
carried an interest rate equal to LIBOR plus 100 basis points subject to an
increase or decrease upon receipt of an investment grade unsecured debt rating.
The Company paid an underwriting fee on the $1.5 Billion Credit Facility at
closing of approximately $4.9 million. In addition, an unused commitment fee of
15 to 25 basis points was payable quarterly in arrears based upon the unused
amount of the $1.5 Billion Credit Facility. The $1.5 Billion Credit Facility was
repaid and terminated in May 1998 with amounts borrowed from the $1.0 Billion
Credit Facility.
On August 14, 1998, the Company completed a term loan agreement with
various financial institutions to provide the Company a $328 million unsecured
term loan facility (the "$328 Million Credit Facility"). The term loan was
priced at 90-day LIBOR plus 80 basis points and was prepayable on any interest
payment date. The term loan had a maturity date of August 15, 2000. On August 9,
1999 the Company prepaid the facility with proceeds from the $1.0 Billion Credit
Facility and approximately $.2 million of unamortized loan costs were
written-off and accounted for as an extraordinary loss.
On September 22, 1998, the Company completed a term loan to provide the
Company a $200 million unsecured term loan facility (the "$200 Million Credit
Facility"). Interest accrued under the term loan at an initial rate of LIBOR
plus 50 basis points with a facility fee equal to 20 basis points per annum.
Pricing for the first twelve months was based on a matrix tied to the Company's
credit rating. The proceeds were used to pay
68
<PAGE> 69
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- LINES OF CREDIT -- (CONTINUED)
down the $1.0 Billion Credit Facility. On September 15, 1999, the Company repaid
the facility upon its maturity with proceeds from the $1.0 Billion Credit
Facility.
NOTE 10 -- UNSECURED NOTES
$180 Million Notes Offering
On September 3, 1997, the Company privately placed (the "$180 Million Notes
Offering") $180 million of unsecured notes (the "$180 Million Notes"). The notes
consist of four tranches with maturities from seven to ten years, which were
priced at an interest rate spread over the corresponding U.S. Treasury rate. The
Company used the proceeds to repay a portion of its credit facilities. In
connection with the offering, the Company terminated $150 million of hedge
agreements at a cost of approximately $3.9 million which is being amortized over
the terms of the respective tranches as an adjustment to interest expense.
$1.25 Billion Notes Offering
In February 1998, the Company privately placed (the "$1.25 Billion Notes
Offering") $1.25 billion of unsecured notes (the "$1.25 Billion Notes"). The
notes consist of four tranches with maturities of five to 20 years priced at an
interest rate spread over the corresponding U.S. Treasury rate. The notes were
issued as a discount of approximately $2.0 million, which is being amortized
over the terms of the respective tranches as an adjustment to interest expense.
$250 Million Mandatory Par Put Remarketed Securities Offering
Also in February 1998, the Company privately placed $250 million of 6.4%
Mandatory Par Put Remarketed Securities due February 15, 2012 ("MOPPRS"), which
are subject to mandatory tender on February 15, 2002 (the "$250 Million MOPPRS
Offering"). The MOPPRS are unsecured obligations of the Company. The MOPPRS were
issued at a premium of approximately $6.5 million which is being amortized over
the terms of the MOPPRS as an adjustment to interest expense.
The proceeds to the Company from the $1.25 Billion Notes Offering and the
$250 Million MOPPRS Offering, net of offering costs, were approximately $1.5
billion. The Company terminated $700 million of hedge agreements in connection
with the issuance of the $1.25 Billion Notes and the MOPPRS at a cost of
approximately $31.3 million which is being amortized as an adjustment to
interest expense. The net proceeds were used to pay down the line of credit and
other unsecured borrowings.
$775 Million Notes and 300,000 Warrants Offering
In June 1998, the Company issued $775 million of unsecured notes (the '$775
Million Notes") and 300,000 warrants to purchase an additional $300 million in
unsecured notes at a later date (the "$775 Million Notes Offering"). The notes
consist of three tranches with maturities of six to 30 years. The $775 Million
Notes and warrants were issued at a net premium of $119,250, which is being
amortized over the terms of the respective tranches as an adjustment to interest
expense. In exchange for issuing the warrants, the Company received a $2.4
million premium (80 basis points) at closing. Total proceeds to the Company, net
of selling commissions, were approximately $768.6 million and were used to pay
down borrowings under the $1.0 Billion Credit Facility. The warrants expired and
no additional notes were issued by the Company.
$1.0 Billion Notes Offering
On January 26, 1999, the Company issued $1.0 Billion of unsecured notes
(the "$1.0 Billion Notes") in three tranches (the "$1.0 Billion Notes
Offering"). The $1.0 Billion Notes were issued at a discount of approximately
$3.3 million, which is being amortized over terms of the respective tranches as
an adjustment to
69
<PAGE> 70
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- UNSECURED NOTES -- (CONTINUED)
interest expense. Net proceeds to the Company after offering costs were
approximately $989.2 million. The net proceeds were used to repay mortgage debt
and amounts outstanding on the $1.0 Billion Credit Facility.
$200 Million Notes Offering
On April 19, 1999, the Company issued $200 million of unsecured notes due
April 19, 2029 (the "$200 Million Notes") in an offering to institutional
investors (the "$200 Million Notes Offering"). The net proceeds after discount
and offering expenses were approximately $196.6 million and were used to repay
amounts outstanding on the $1.0 Billion Credit Facility.
A summary of the terms of the unsecured notes outstanding as of December
31, 1999 is presented below:
<TABLE>
<CAPTION>
(DOLLARS IN EFFECTIVE
TRANCHE THOUSANDS) STATED RATE RATE (1)
- ------- ----------- ----------- ---------
<S> <C> <C> <C>
3 Year Notes due 2002.................................... $ 200,000 6.4% 6.6%
4 Year MOPPRS due 2002(2)................................ 250,000 6.4% 6.3%
5 Year Notes due 2003.................................... 300,000 6.4% 6.8%
5 Year Notes due 2004.................................... 300,000 6.5% 6.7%
6 Year Notes due 2004.................................... 250,000 6.5% 6.7%
7 Year Notes due 2004.................................... 30,000 7.2% 7.3%
7 Year Notes due 2005.................................... 400,000 6.6% 7.0%
8 Year Notes due 2005.................................... 50,000 7.4% 7.7%
9 Year Notes due 2006.................................... 50,000 7.4% 7.7%
9 Year Notes due 2007.................................... 300,000 6.8% 6.8%
10 Year Notes due 2007................................... 50,000 7.4% 7.7%
10 Year Notes due 2008................................... 300,000 6.8% 7.0%
10 Year Notes due 2009................................... 500,000 6.8% 6.9%
20 Year Notes due 2018................................... 250,000 7.3% 7.6%
30 Year Notes due 2028................................... 225,000 7.3% 7.3%
30 Year Notes due 2029................................... 200,000 7.5% 7.6%
---------- ---- ----
Subtotal............................................... 3,655,000 6.8% 7.0%
==== ====
Net premium (net of accumulated amortization of $.1
million)............................................... 47
----------
Total.................................................. $3,655,047
==========
</TABLE>
- ---------------
(1) Includes the cost of the terminated interest rate protection agreements,
offering and transaction costs and premiums and discounts on certain
unsecured notes.
(2) MOPPRS are subject to mandatory redemption in 2002 but do not mature until
2012.
The Company filed a registration statement, which was declared effective on
June 18, 1998, relating to an offer to exchange the $180 Million Notes, the
$1.25 Billion Notes and the MOPPRS for registered securities of the Company with
terms identical in all material respects to the terms of the existing notes and
MOPPRS. This exchange offer expired on July 30, 1998 and a majority of the
holders exchanged their notes for registered notes of the Company.
The Company filed a shelf registration statement, which was declared
effective on July 22, 1998, relating to the issuance from time to time of up to
$2.0 billion of unsecured debt securities and warrants exercisable for debt
securities in amounts, at initial prices and on terms to be determined at the
time of offering. The Company issued $1.2 billion of unsecured notes in 1999
under this registration statement.
70
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- UNSECURED NOTES -- (CONTINUED)
The Company filed a registration statement, which was declared effective on
September 4, 1998, relating to an offer to exchange (a) the $775 Million Notes;
(b) the 300,000 warrants to purchase an additional $300 million in unsecured
notes at a later date; and (c) portions of the $1.25 Billion Notes and MOPPRS
for registered securities of the Company with terms identical in all material
respects to the terms of the existing securities. This exchange offer expired on
October 27, 1998 and a majority of the holders exchanged their notes for
registered securities of the Company.
NOTE 11 -- MINORITY INTERESTS IN PARTIALLY OWNED PROPERTIES
The following Properties are controlled and partially owned by the Company
but have partners with minority interests. The Company has included 100% of the
financial condition and results of operations of these properties in the
consolidated financial statements of the Company and the combined financial
statements of Equity Office Predecessors. The equity interests of the
unaffiliated partners are reflected as minority interests:
<TABLE>
<CAPTION>
COMPANY'S OWNERSHIP AS OF
PROPERTY DECEMBER 31, 1999 AND 1998
- -------- --------------------------
<S> <C>
5100 Brookline (CIGNA Center)............................... 95%(1)
The Plaza at La Jolla Village............................... 66.67%(1)
San Felipe Plaza............................................ 35%(2)
Capitol Commons Garage...................................... 50%(3)
Acorn Properties............................................ 89%(4)
203 North LaSalle and Theater District Garages.............. 50%(3)
Park Avenue Tower........................................... 100%(5)
</TABLE>
- ---------------
(1) The Company owns a controlling interest and is the managing general partner.
The 5100 Brookline (CIGNA Center) property was disposed of during 1999.
(2) The Company is the managing general partner and receives preferential
allocations resulting in the Company receiving 100% of the economic
benefits.
(3) The Company owns a controlling interest and receives preferential
allocations. The unaffiliated partner is entitled to receive 50% of the
remaining cash flow and residual profits after the Company receives its
preferential allocations.
(4) The Company has an 89% managing general partner interest in 11 Office
Properties and receives preferential allocations entitling the Company to
99% of the economic benefits. The Company has the option of purchasing the
remaining interest in the 11 Office Properties, exercisable for a designated
period commencing three years after the respective closing dates on the
initial purchases, for additional consideration in the amount of
approximately $2.1 million, all payable in Units valued at $28.775 per Unit.
(5) The Company acquired a first mortgage note secured by the property. In
accordance with certain agreements concerning the first mortgage note and
the Property, the Company controls the financial and operational decisions
for the Property and is entitled to substantially all cash flow and residual
profit. Accordingly, the Company consolidated the financial position and
results of operations of the Property. During 1999, the minority interest
partner contributed $11.0 million.
71
<PAGE> 72
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- PARTNERS' CAPITAL
Units
On October 1, 1999, the Company issued 1,035,389 Units valued at $23.64 per
Unit for a total of approximately $24.5 million for the acquisition of Palo Alto
Square.
In April 1998, the Trust privately placed 1,628,009 Common Shares at
$28.5625 per share for net proceeds of approximately $44.1 million (the "UIT
Offering") which was contributed to the Company in exchange for a corresponding
number of Units. The Company used the net proceeds to fund property
acquisitions. These shares were subsequently registered with the SEC.
The Trust filed a shelf registration statement which was declared effective
on July 22, 1998, relating to the registration of $1.5 billion of Common Shares,
preferred shares of beneficial interest and warrants to be issued at prices and
on terms to be determined at the time of offering. The Trust may or may not
issue the securities separately or together, in amounts, at prices and on terms
described in one or more supplements to the prospectus. The Series C Preferred
Shares were issued under this registration statement in December 1998.
The following table presents the changes in the Company's issued and
outstanding Units:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
OUTSTANDING AT JANUARY 1,............................... 288,547,356 278,687,353
Repurchases (1)......................................... (2,229,686) --
Put Options exercised................................... (1,675,000) --
Issued in exchange for property acquisitions............ 1,035,389 7,043,510
Restricted Units retired................................ (20,000) --
Issued to Trust in exchange for contribution of net
proceeds from sale of Common Shares................... -- 1,628,009
Issued to the Trust related to Common Shares issued for
share option exercises................................ 128,287 809,653
Issued to the Trust related to Restricted Shares awarded
to Officers........................................... -- 380,000
Converted to cash....................................... -- (1,169)
----------- -----------
OUTSTANDING AT DECEMBER 31,............................. 285,786,346 288,547,356
=========== ===========
</TABLE>
- ---------------
(1) In 1999, the Trust announced a share repurchase plan. During 1999, 715,600
Common Shares were repurchased at an average share price of $23.14 for
approximately $16.6 million in the aggregate and were retired along with a
corresponding number of Units. An additional 4,742,500 Common Shares were
repurchased and retired, along with a corresponding number of Units, between
January and February 2000 at an average share price of $25.27 for
approximately $119.8 million in the aggregate. In February 2000, the Trust
suspended its share repurchase plan in anticipation of the Cornerstone
Merger (see Note 24). Prior to the implementation of the Trust's share
repurchase plan, the Trust repurchased 324,434 Common Shares and the Company
repurchased approximately 1.2 million Units in a private transaction, which
resulted in the Company repurchasing an equivalent number of Units from the
Trust.
Ownership of the Company
As of December 31, 1999, the Trust and its subsidiaries had a 1% general
partnership interest and an approximate 87.0% limited partnership interest in
the Company. The remaining limited partners had an approximate 12.0% interest in
the Company and consist of various individuals and entities that contributed
72
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- PARTNERS' CAPITAL -- (CONTINUED)
their properties to the Company in exchange for partnership interests and are
represented by 34,203,912 Units which are exchangeable on a one-for-one basis
into the Trust's Common Shares.
As of December 31, 1998, the Trust and its subsidiaries had a 2% general
partnership interest and an approximate 88.1% limited partnership interest in
the Company. The remaining limited partners had an approximate 9.9% interest in
the Company and consisted of various individuals and entities that contributed
their properties to the Company in exchange for partnership interests and were
represented by 28,645,699 Units which were exchangeable on a one-for-one basis
into the Trust's Common Shares.
In regards to the Trust, net proceeds from the various offerings of the
Trust have been contributed by the Trust to the Company in return for Units,
which results in an increased ownership percentage that the Trust has in the
Company.
Preferred Units
On December 19, 1997, the Trust exchanged its 8,000,000 Series A Cumulative
Redeemable Preferred Shares, liquidation preference of $25.00 per share for the
Beacon Series A Preferred Shares in connection with the Beacon Merger. The
Series A Preferred Shareholders are entitled to receive, when and as authorized
by the Trust, cumulative preferential cash distributions at the rate of 8.98% of
the $25.00 liquidation preference per annum (equivalent to a fixed annual amount
of $2.245 per share). Such distributions are cumulative and are payable
quarterly in arrears of $.56125 per unit. Holders of the units have no other
voting rights except as provided by law and have no preemptive rights. On and
after June 15, 2002, the Trust, at its option may redeem the shares, in whole or
in part, at any time for cash at a redemption price of $25.00 per share, plus
all accrued and unpaid distributions thereon to the date fixed for redemption.
As a result of this transaction, the Company issued preferred units to the Trust
on a one-for-one basis.
In February 1998, the Trust privately placed (the "Series B Preferred Share
Offering") 6,000,000 of its 5.25% Series B Convertible, Cumulative Redeemable
Preferred Shares, $50 liquidation preference per share (the "Series B Preferred
Shares"). This offering generated net proceeds of approximately $290.3 million
after offering costs of $9.7 million. Proceeds from the Series B Preferred Share
Offering were contributed to the Company in exchange for a corresponding number
of Series B Preferred Units. The net proceeds were used to pay down the line of
credit. The Series B Preferred Shares are convertible at any time by the holder
into Common Shares at a conversion price of $35.70 per Common Share, equivalent
to a conversion ratio of 1.40056 Common Shares for each Series B Preferred
Share. Such conversion would require the Company to issue Units on a one-for-one
basis to the Trust. The Series B Preferred Shares are non-callable for five
years with a mandatory call on February 15, 2008. Each Series B Preferred
Share/Unit will receive a quarterly distribution of $0.65625 per share/unit when
and as authorized by the Trust.
The Trust filed a registration statement, which was declared effective on
September 4, 1998, relating to the resale of the Series B Preferred Shares. The
shares were required to be registered under the terms of a registration rights
agreement entered into at the time of the original private placement.
In December 1998, the Trust completed the offering (the "Series C Preferred
Share Offering") of 4,600,000 of its 8.625% Series C Cumulative Redeemable
Preferred Shares, $25 liquidation preference per share (the "Series C Preferred
Shares"). This offering generated net proceeds of approximately $111.4 million
after offering costs of $3.6 million. Proceeds from the Series C Preferred Share
Offering were contributed to the Company in exchange for a corresponding number
of Series C Preferred Units. The net proceeds were used to pay down the $1.0
Billion Credit Facility. On and after December 8, 2003, the Trust may redeem the
shares, in whole or in part, at any time or from time to time, for cash at a
redemption price of $25.00 per share, plus all accrued and unpaid distributions
thereon to the date fixed for redemption. Any such redemptions would require the
Company to redeem Series C Preferred Units from the Trust on an equivalent
basis. Each
73
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- PARTNERS' CAPITAL -- (CONTINUED)
Series C Preferred Share/Unit will receive a quarterly distribution of
$0.5390625 per share/unit when and as authorized by the Trust.
Distributions
The following tables summarizes the distributions paid to unit holders and
preferred unitholders related to the years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
DISTRIBUTION DATE RECORD
AMOUNT PAID DATE
------------ -------- --------
<S> <C> <C> <C>
Units................................................... $ 0.32 4-10-98 3-31-98
$ 0.32 7-10-98 6-30-98
$ 0.37 10-9-98 9-30-98
$ 0.37 12-29-98 12-15-98
$ 0.37 4-12-99 3-31-99
$ 0.37 7-12-99 6-30-99
$ 0.42 10-13-99 9-30-99
$ 0.42 12-29-99 12-15-99
Series A Preferred Units................................ $ 0.56125 3-15-98 3-9-98
$ 0.56125 6-15-98 6-1-98
$ 0.56125 9-15-98 9-1-98
$ 0.56125 12-15-98 12-1-98
$ 0.56125 3-15-99 3-1-99
$ 0.56125 6-15-99 6-1-99
$ 0.56125 9-15-99 9-1-99
$ 0.56125 12-15-99 12-1-99
Series B Preferred Units................................ $0.619792(1) 5-15-98 5-1-98
$ 0.65625 8-17-98 8-3-98
$ 0.65625 11-16-98 11-2-98
$ 0.65625 2-16-99 2-1-99
$ 0.65625 5-17-99 5-3-99
$ 0.65625 8-16-99 8-2-99
$ 0.65625 11-1599 11-1-99
Series C Preferred Units................................ $ 0.58099(2) 3-15-99 3-1-99
$ 0.53906 6-15-99 6-1-99
$ 0.53906 9-15-99 9-1-99
$ 0.53906 12-15-99 12-1-99
</TABLE>
- ---------------
(1) Partial distribution of $0.619792 covers the period from February 19 through
May 15, 1998.
(2) The distribution represents a pro-rated distribution from December 8, 1998
(the closing date of the Series C Preferred Shares Offering) through March
14, 1999.
74
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancelable operating leases at the
Office Properties and Parking Facilities as of December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
2000........................................................ $1,335,509
2001........................................................ 1,228,471
2002........................................................ 1,041,549
2003........................................................ 859,725
2004........................................................ 704,123
Thereafter.................................................. 2,235,994
----------
Total..................................................... $7,405,371
==========
</TABLE>
The Company is subject to the usual business risks associated with the
collection of the above scheduled rents. The future minimum rents from the
Company's investment in unconsolidated joint ventures have not been included in
the above schedule.
NOTE 14 -- FUTURE MINIMUM LEASE PAYMENTS
As of December 31, 1999, the Company's ownership of various Office
Properties and Parking Facilities are subject to ground leases. Certain of these
leases are subject to rental increases based upon the appraised value of the
Property at specified dates or certain financial calculations of the respective
Property. As disclosed in Note 20, the Company leases its office space from an
affiliate. Future minimum lease obligations under these noncancelable leases as
of December 31, 1999 were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
2000........................................................ $ 8,350
2001........................................................ 8,282
2002........................................................ 8,257
2003........................................................ 8,248
2004........................................................ 6,199
Thereafter.................................................. 490,018
--------
Total..................................................... $529,354
========
</TABLE>
Rental expense for the year ended December 31, 1999 and 1998, the period
from July 11, 1997 through December 31, 1997 and the period from January 1, 1997
through July 10, 1997, was approximately $10.6 million, $11.1 million, $3.4
million and $3.8 million, respectively.
NOTE 15 -- EXTRAORDINARY ITEMS
The Company incurred an extraordinary loss of approximately $10.5 million
during 1999 consisting of the following transactions:
- $3.2 million due to the write-off of unamortized mark-to-market
adjustments in connection with the repayment of certain mortgage debt;
- $7.1 million consisting of a $13.6 million prepayment penalty partially
offset by the write-off of approximately $6.5 million of unamortized
mark-to-market premium in connection with the repayment of a mortgage
debt; and
- $.2 million due to the write-off of unamortized loan costs in connection
with the prepayment of the $328 Million Credit Facility.
75
<PAGE> 76
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- EXTRAORDINARY ITEMS -- (CONTINUED)
The Company reported an extraordinary loss of approximately $7.5 million
during the year ended December 31, 1998. This loss consisted of approximately
$7.0 million of fees charged upon termination of $300 million of interest rate
protection agreements in connection with the Series B Preferred Share Offering
and approximately $0.5 million of unamortized deferred financing costs related
to the termination of the $1.0 Billion Credit Facility.
The Company and Equity Office Predecessors reported an extraordinary loss
of approximately $16.4 million and $0.3 million, for the period from July 11
through December 31, 1997 and January 1 through July 10, 1997, respectively,
related to pre-payment penalties on debt retired prior to maturity during the
respective periods with net proceeds from the IPO and available cash reserves.
NOTE 16 -- EARNINGS PER UNIT
The following table sets forth the computation of basic and diluted
earnings per Unit:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, FOR THE PERIOD FROM
-------------------------- JULY 11, 1997 THROUGH
1999 1998 DECEMBER 31, 1997
----------- ----------- ------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
<S> <C> <C> <C>
NUMERATOR:
Net income available to Units before net gain on
sales of real estate and extraordinary items.... $ 381,151 $ 348,126 $ 94,313
Net gain on sales of real estate.................. 59,661 12,433 126
Extraordinary items............................... (10,548) (7,506) (16,366)
----------- ----------- -----------
Numerator for basic and diluted earnings per Unit
-- income available to Units.................... $ 430,264 $ 353,053 $ 78,073
=========== =========== ===========
DENOMINATOR:
Denominator for basic earnings per Unit --
weighted average Units.......................... 288,326,547 282,114,343 178,647,562
Effect of dilutive securities:
Units issuable upon exercise of Trust share
options and put options....................... 2,830,657 1,860,189 1,366,465
----------- ----------- -----------
Denominator for diluted earnings per Unit --
adjusted weighted average Units and assumed
conversions..................................... 291,157,204 283,974,532 180,014,027
=========== =========== ===========
BASIC EARNINGS AVAILABLE FOR UNITS PER WEIGHTED
AVERAGE UNIT:
Net income before net gain on sales of real estate
and extraordinary items......................... $ 1.32 $ 1.23 $ 0.53
Net gain on sales of real estate.................. 0.21 0.05 --
Extraordinary items............................... (0.04) (0.03) (0.09)
----------- ----------- -----------
Net income........................................ $ 1.49 $ 1.25 $ 0.44
=========== =========== ===========
DILUTED EARNINGS AVAILABLE FOR UNITS PER WEIGHTED
AVERAGE UNIT:
Net income before net gain on sales of real estate
and extraordinary items......................... $ 1.31 $ 1.23 $ 0.52
Net gain on sales of real estate.................. 0.20 0.04 --
Extraordinary items............................... (0.03) (0.03) (0.09)
----------- ----------- -----------
Net income........................................ $ 1.48 $ 1.24 $ 0.43
=========== =========== ===========
</TABLE>
76
<PAGE> 77
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- EARNINGS PER UNIT -- (CONTINUED)
The following securities were not included in the computation of diluted
earnings per Unit since they would have an antidilutive effect:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE YEAR ENDED JULY 11, THROUGH
DECEMBER 31, DECEMBER 31,
WEIGHTED AVERAGE -------------------------- -------------------
EXERCISE PRICE 1999 1998 1997
---------------- ----------- ----------- -------------------
ANTIDILUTIVE SECURITIES
<S> <C> <C> <C> <C>
Share options................... $30.040 3,435,762 -- --
Share options................... $30.270 -- 2,969,608 --
Share options................... $32.930 -- -- 726,500
Series B Preferred Shares....... $35.700 6,000,000 6,000,000 --
Warrants........................ $39.375 5,000,000 5,000,000 5,000,000
----------- ----------- ----------
Total......................... 14,435,762 13,969,608 5,726,500
=========== =========== ==========
</TABLE>
Upon exercise of the above antidilutive securities, the Company would issue
a corresponding number of Units to the Trust on a one-for-one basis.
For additional disclosures regarding the Trust's employee stock options and
the Trust's restricted shares see Note 22.
NOTE 17 -- SEGMENT INFORMATION
As discussed in Note 1, the Company's primary business is the ownership and
operation of Office Properties. The Company's long-term tenants are in a variety
of businesses and no single tenant is significant to the Company's business.
Information related to this segment for the years ended December 31, 1999, 1998
and 1997 is below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------
OFFICE PROPERTIES CORPORATE AND OTHER CONSOLIDATED
----------------- ------------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property Operating Revenues................................. $ 1,881,820 $ 37,236 $ 1,919,056
Property Operating Expenses................................. (654,971) (7,905) (662,876)
----------- --------- -----------
Net operating income...................................... 1,226,849 29,331 1,256,180
----------- --------- -----------
Adjustments to arrive at net income:
Other revenues............................................ 5,282 17,905 23,187
Interest expense(1)....................................... (129,021) (284,974) (413,995)
Depreciation and amortization............................. (345,458) (13,531) (358,989)
Ground rent............................................... (6,836) (51) (6,887)
General and administrative................................ (415) (80,512) (80,927)
----------- --------- -----------
Total adjustments to arrive at net income............... (476,448) (361,163) (837,611)
----------- --------- -----------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, net gain on
sales of real estate and extraordinary items.............. 750,401 (331,832) 418,569
Minority interests.......................................... (1,518) (463) (1,981)
Income from investment in unconsolidated joint ventures..... 11,779 2,045 13,824
Net gain on sales of real estate and extraordinary items.... 49,343 (230) 49,113
----------- --------- -----------
Net income.................................................. $ 810,005 $(330,480) $ 479,525
=========== ========= ===========
Capital and tenant improvements............................. $ 267,637 $ 29,859 $ 297,496
=========== ========= ===========
Total Assets................................................ $13,490,266 $ 555,792 $14,046,058
=========== ========= ===========
</TABLE>
77
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SEGMENT INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------
OFFICE PROPERTIES CORPORATE AND OTHER CONSOLIDATED
----------------- ------------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property Operating Revenues................................. $ 1,628,985 $ 29,435 $ 1,658,420
Property Operating Expenses................................. (584,610) (8,096) (592,706)
----------- --------- -----------
Net operating income...................................... 1,044,375 21,339 1,065,714
----------- --------- -----------
Adjustments to arrive at net income:
Other revenues............................................ 1,879 19,400 21,279
Interest expense(1)....................................... (144,987) (193,624) (338,611)
Depreciation and amortization............................. (294,574) (11,408) (305,982)
Ground rent............................................... (7,611) (50) (7,661)
General and administrative................................ (417) (63,147) (63,564)
----------- --------- -----------
Total adjustments to arrive at net income............... (445,710) (248,829) (694,539)
----------- --------- -----------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sales
of real estate and extraordinary items.................... 598,665 (227,490) 371,175
Minority interests.......................................... (1,755) (359) (2,114)
Income from investment in unconsolidated joint ventures..... 7,653 3,614 11,267
Gain on sales of real estate and extraordinary items........ 12,433 (7,506) 4,927
----------- --------- -----------
Net income.................................................. $ 616,996 $(231,741) $ 385,255
=========== ========= ===========
Capital and tenant improvements............................. $ 200,033 $ 7,060 $ 207,093
=========== ========= ===========
Total Assets................................................ $13,646,160 $ 615,131 $14,261,291
=========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------
OFFICE PROPERTIES CORPORATE AND OTHER CONSOLIDATED
----------------- ------------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Property Operating Revenues................................. $ 711,519 $ 22,211 $ 733,730
Property Operating Expenses................................. (273,254) (4,950) (278,204)
----------- --------- -----------
Net operating income...................................... 438,265 17,261 455,526
----------- --------- -----------
Adjustments to arrive at net income:
Other revenues............................................ 1,236 17,106 18,342
Interest expense(1)....................................... (114,122) (43,034) (157,156)
Depreciation and amortization............................. (128,214) (8,166) (136,380)
Ground rent............................................... (4,714) (46) (4,760)
General and administrative................................ (955) (33,936) (34,891)
----------- --------- -----------
Total adjustments to arrive at net income............... (246,769) (68,076) (314,845)
----------- --------- -----------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sales
of real estate and extraordinary items.................... 191,496 (50,815) 140,681
Minority interests.......................................... (1,376) (325) (1,701)
Income from investment in unconsolidated joint ventures..... 2,432 2,723 5,155
Gain on sales of real estate and extraordinary items........ (3,278) (726) (4,004)
----------- --------- -----------
Net income.................................................. $ 189,274 $ (49,143) $ 140,131
=========== ========= ===========
Capital and tenant improvements............................. $ 156,419 $ 2,678 $ 159,097
=========== ========= ===========
Total Assets................................................ $11,364,606 $ 387,066 $11,751,672
=========== ========= ===========
</TABLE>
- ---------------
(1) Interest expense for the Office Properties does not include allocations of
interest expense on corporate unsecured debt.
78
<PAGE> 79
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18 -- PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)
The pro forma data presented below is included to illustrate the effect on
the Company's operations as a result of the following transactions which
occurred in 1998 and 1997 as if they occurred on January 1, 1997.
- the acquisition and disposition of Office Properties and Parking
Facilities;
- the purchase of the remaining partnership interests in a joint venture;
- the $1.25 Billion Notes Offering, the $250 Million MOPPRS Offering, the
$775 Million Notes Offering, the $180 Million Notes Offering;
- the Series B and Series C Preferred Share Offerings, which resulted in
the Company issuing preferred Units to the Trust;
- the increase in the line of credit to $1.0 billion;
- the $48.5 million investment in preferred shares of Capital Trust;
- the Consolidation and the IPO and the paydown of debt with the proceeds;
- the Beacon Merger; and
- the UIT Offering, which resulted in the Company issuing Units to the
Trust.
The accompanying unaudited pro forma condensed combined financial
statements have been prepared by management of the Company and do not purport to
be indicative of the results which would actually have been obtained had the
transactions described above been completed on the dates indicated or which may
be obtained in the future.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997
-------------- --------------
(DOLLARS IN THOUSANDS
EXCEPT PER UNIT DATA)
<S> <C> <C>
Total Revenues.............................................. $ 1,812,898 $ 1,705,598
=========== ===========
Income before extraordinary items........................... $ 381,998 $ 305,435
=========== ===========
Net income available for Units.............................. $ 330,586 $ 246,614
=========== ===========
Net income per Unit -- Basic................................ $ 1.14 $ 0.86
=========== ===========
Units outstanding -- Basic.................................. 288,547,000 286,363,000
=========== ===========
Net income per Unit -- Diluted.............................. $ 1.14 $ 0.85
=========== ===========
Units outstanding -- Diluted................................ 290,824,000 289,136,000
=========== ===========
</TABLE>
79
<PAGE> 80
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- QUARTERLY DATA (UNAUDITED)
The quarterly data for the last three years are presented in the tables
below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
12/31/99 9/30/99 6/30/99 3/31/99
(DOLLARS IN THOUSANDS EXCEPT PER UNIT DATA) ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues.............................. $ 494,473 $ 491,357 $ 481,279 $ 475,134
=========== =========== =========== ===========
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, net gain on
sales of real estate and extraordinary
items..................................... $ 107,596 $ 106,153 $ 104,536 $ 100,284
=========== =========== =========== ===========
Net income.................................. $ 164,332 $ 108,454 $ 108,348 $ 98,391
=========== =========== =========== ===========
Net income available for Units.............. $ 152,393 $ 92,920 $ 97,441 $ 87,510
=========== =========== =========== ===========
Net income available per weighted average
Units outstanding -- Basic................ $ 0.53 $ 0.32 $ 0.34 $ 0.30
=========== =========== =========== ===========
Net income available per weighted average
Units outstanding -- Diluted.............. $ 0.52 $ 0.32 $ 0.33 $ 0.30
=========== =========== =========== ===========
Weighted average Units
outstanding -- Basic...................... 287,540,407 288,620,341 288,598,492 288,554,860
=========== =========== =========== ===========
Weighted average Units
outstanding -- Diluted.................... 290,549,547 291,592,245 290,946,853 291,433,553
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
12/31/98 9/30/98 6/30/98 3/31/98
(DOLLARS IN THOUSANDS EXCEPT PER UNIT DATA) ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues.............................. $ 469,002 $ 436,933 $ 399,944 $ 373,820
=========== =========== =========== ===========
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, gain on
sales of real estate and extraordinary
items..................................... $ 92,789 $ 96,176 $ 97,879 $ 84,331
=========== =========== =========== ===========
Net income.................................. $ 107,828 $ 98,733 $ 98,226 $ 80,468
=========== =========== =========== ===========
Net income available for Units.............. $ 98,756 $ 90,306 $ 89,794 $ 74,197
=========== =========== =========== ===========
Net income available per weighted average
Units outstanding -- Basic................ $ 0.34 $ 0.32 $ 0.32 $ 0.27
=========== =========== =========== ===========
Net income available per weighted average
Units outstanding -- Diluted.............. $ 0.34 $ 0.32 $ 0.32 $ 0.27
=========== =========== =========== ===========
Weighted average Units
outstanding -- Basic...................... 288,159,705 281,223,315 280,183,422 278,797,811
=========== =========== =========== ===========
Weighted average Units
outstanding -- Diluted.................... 291,437,262 281,929,910 281,200,962 280,327,761
=========== =========== =========== ===========
</TABLE>
80
<PAGE> 81
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19 -- QUARTERLY DATA (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------
12/31/97 9/30/97 (1) 6/30/97 3/31/97
(DOLLARS IN THOUSANDS EXCEPT PER UNIT DATA) ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total Revenues.............................. $ 248,400 $ 183,866 $ 165,219 $ 154,567
=========== =========== =========== ===========
Income before allocation to minority
interests, income from investment in
unconsolidated joint ventures, gain on
sales of real estate and extraordinary
items..................................... $ 46,704 $ 45,736 $ 23,331 $ 24,910
=========== =========== =========== ===========
Net income.................................. $ 44,631 $ 33,877 $ 30,853 $ 30,769
=========== =========== =========== ===========
Net income available for Units.............. $ 43,982 $ 33,877 $ 30,853 $ 30,769
=========== =========== =========== ===========
Net income available per weighted average
Units outstanding -- Basic................ $ 0.23 $ 0.21
=========== ===========
Net income available per weighted average
Units outstanding -- Diluted.............. $ 0.22 $ 0.21
=========== ===========
Weighted average Units
outstanding -- Basic...................... 191,572,234 164,146,710
=========== ===========
Weighted average Units
outstanding -- Diluted.................... 193,055,145 165,384,651
=========== ===========
</TABLE>
- ---------------
(1) This column includes the operations of Equity Office Predecessors from July
1 through July 10, 1997 and the operations of the Company from July 11
through September 30, 1997. The earnings per Unit disclosures pertain only
to the operations of the Company from July 11 through September 30, 1997.
NOTE 20 -- RELATED PARTY TRANSACTIONS
Affiliates provide various services to the Company. Fees and reimbursements
paid by the Company to affiliates for the years ended December 31, 1999, 1998
and 1997 and payable as of December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
PAYABLE AS OF
PAID IN YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------- --------------
1999 1998 1997 1999 1998
(DOLLARS IN THOUSANDS) -------- -------- ------- ---- ------
<S> <C> <C> <C> <C> <C>
Legal fees and expenses(1).................... $ 2,330 $ 3,507 $3,006 $-- $ 978
Insurance reimbursements and brokerage
fees(2)..................................... 3,494 3,323 2,279 -- (139)
Development, management and leasing fees(3)... 5,102 4,405 434 -- --
Office rent(4)................................ 2,820 1,792 1,068 -- 128
Administrative, accounting and consulting
services(5)................................. 715 750 1,373 -- 169
Acquisition fees(6)........................... -- -- 777 -- --
Organization and offering expenses(7)......... -- -- 106 -- --
------- ------- ------ -- ------
Total.................................... $14,461 $13,777 $9,043 $-- $1,136
======= ======= ====== == ======
</TABLE>
- ---------------
(1) Represents amounts primarily paid to Rosenberg & Liebentritt, P.C., a law
firm, for legal fees and expenses incurred in connection with acquisition,
corporate and leasing activity. A trustee of the Trust was a principal of
this law firm until September 1, 1997. In 1999, Rosenberg & Liebentritt,
P.C. dissolved and, as a result, no longer provides legal services to the
Company.
(2) Represents amounts paid to EGI Risk Services Inc. for reimbursement of
property insurance premiums to an affiliated company and fees for risk
management services including reviewing, obtaining and/or
81
<PAGE> 82
EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
researching various insurance policies. EGI Risk Services, Inc. was a wholly
owned subsidiary of the Equity Group, of which Samuel Zell is the Chairman
of the Board. Effective October 1, 1999, the Company no longer utilizes the
services provided by EGI Risk Services Inc., and its employees have become
employees of the Company.
(3) In December 1997, the Company acquired ten Office Properties from an entity
affiliated with Wright Runstad & Company for approximately $640 million. Mr.
Runstad, a principal of the Wright Runstad & Company, is a trustee of the
Trust. In addition, the Company and an affiliate of the Equity Group
acquired a 30% non-controlling interest in WRALP, a subsidiary of Wright
Runstad & Company, which provides property management, leasing and
development services. The Company has agreed to make available to WRALP up
to $20 million in additional financing for future development. As of
December 31, 1999, no amounts have been funded. However, the Company has
guaranteed WRALP's line of credit which has an outstanding balance of
approximately $16.9 million as of December 31, 1999. The Company recorded
income of approximately $0.9 million and $1.3 million from its investment in
WRALP for the years ended December 31, 1999 and 1998, respectively.
WRALP serves as co-property manager with the Company for the Properties
acquired from its affiliates in December, 1997. In addition, WRALP serves as
co-property manager for four properties acquired by the Company from
unaffiliated parties during 1998 and 1999. WRALP served as the developer on
Sunset North Corporate Campus project placed in service during 1999 and
currently serves as developer of the Three Bellevue Center project which is
under construction. The Company has an 80% interest in each development
project, and WRALP owns the remaining 20% interest. WRALP is the developer
of the World Trade Center in Seattle, Washington. The Company has agreed to
acquire that building after its completion and occupancy by a third-party
tenant, currently scheduled for the second quarter of 2000. Mr. Runstad did
not, in his capacity as Trustee of the Trust, approve the foregoing
arrangements with the Company.
(4) The Company leases its corporate office space from an affiliate of the
Equity Group. The terms of this lease were reviewed and recommended for
Board approval by a special subcommittee of the Board of Trustees of the
Trust formed to review related party conflicts between trustees and their
affiliates. Upon the recommendation of the special subcommittee, the
non-affiliated members of the Board of Trustees of the Trust approved the
transaction.
(5) During 1999, fees were paid to the Equity Group for miscellaneous consulting
services. In 1998 and 1997 administrative services also included fees paid
to Equity Group for centralized services such as real estate tax consulting,
payroll processing, employee benefits and telecommunications all of which
are now performed by the Company.
(6) Represents amounts paid by Equity Office Predecessors to Merrill Lynch, a
limited partner of the general partner of the certain entities included in
the Equity Office Predecessors.
(7) Affiliates of the Equity Group were reimbursed for reasonable costs incurred
in connection with the organization and the offering of units in the Equity
Office Predecessors, including legal and accounting fees and expenses,
printing costs and filing fees.
An affiliate of the Equity Group has an indirect minority interest in
Standard Parking Limited Partnership ("SPLP"). An affiliate of SPLP manages the
parking operations at certain Properties owned by the Company.
The Company was a party to various other transactions with related parties
as disclosed in Note 3 and Note 6.
82
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 20 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)
Amounts Received from Affiliates
Affiliates of the Company leased space in certain of the Office Properties
owned by the Company. Total rents and other amounts paid by affiliates under the
terms of their respective leases were approximately $1.2 million, $0.3 million,
and $3.0 million for the years ended December 31, 1999, 1998, and 1997,
respectively. In addition, in 1999, the Company provided real estate tax
consulting and risk management services to affiliates for which it received
approximately $1.2 million.
The Company entered into various lease agreements with affiliates of SPLP
whereby such affiliates leased certain of the Company's stand-alone Parking
Facilities. Certain of these lease agreements provide the lessee with a series
of annual options to extend the term of the lease through various dates. The
rent paid in the years ended December 31, 1999, 1998, and 1997 under these lease
agreements was approximately $9.0 million, $13.1 million, and $11.0 million,
respectively. The Company may receive additional rent based upon actual gross
revenues generated by these Parking Facilities. In accordance with certain of
these leases, the Company may be obligated to make an early termination payment
if agreement is not reached as to rent amounts to be paid for future periods.
83
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 21 -- NON-CASH INVESTING AND FINANCING ACTIVITIES
Additional supplemental disclosures of non-cash investing and financing
activities of the Company are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE PERIOD FROM
DECEMBER 31, JULY 11, 1997
--------------------- THROUGH
1999 1998 DECEMBER 31, 1997
(DOLLARS IN THOUSANDS) -------- --------- -------------------
<S> <C> <C> <C>
Mortgage loans and lines of credit assumed through
Beacon Merger................................... $ -- $ -- $1,160,451
======== ========= ==========
Net liabilities assumed through Beacon Merger..... $ -- $ -- $ 72,034
======== ========= ==========
Units issued through Beacon Merger (assuming
exercise of 4,732,822 Options).................. $ -- $ -- $2,853,266
======== ========= ==========
8.98% Series A Cumulative Redeemable Preferred
Units exchanged in the Beacon Merger............ $ -- $ -- $ 200,000
======== ========= ==========
Units and put options issued through property
acquisitions (including warrants valued at $15.0
million in 1997)................................ $ 24,476 $ 204,008 $ 357,672
======== ========= ==========
Mortgage loans assumed/promissory notes issued
through property acquisitions................... $ 52,550 $ 406,837 $ 263,048
======== ========= ==========
Mortgage loans assumed by buyer upon disposition
of Office Properties............................ $(81,400) $ -- $ --
======== ========= ==========
Escrow deposits used for property acquisitions.... $192,427 $ -- $ --
======== ========= ==========
Escrow deposits provided by property
dispositions.................................... $(95,956) $(119,948) $ --
======== ========= ==========
Mortgage loans and line of credit assumed in the
Consolidation................................... $ -- $ -- $2,196,708
======== ========= ==========
Net liabilities assumed in the Consolidation...... $ -- $ -- $ 62,706
======== ========= ==========
Units issued in the Consolidation................. $ -- $ -- $2,830,918
======== ========= ==========
Deferred revenue recorded in connection with
receipt of securities........................... $ 32,276 $ -- $ --
======== ========= ==========
</TABLE>
NOTE 22 -- SHARE OPTION PLAN AND SHARE AWARD PLAN
The following is a description of the Trust's 1997 Share Option and Share
Award Plan, as amended, (the "Employee Plan"), which is included in the
financial statements because any Common Shares issued pursuant to the Employee
Plan will result in the Company issuing Units to the Trust, on a one-for-one
basis.
In July 1997, the Trust adopted the Employee Plan. The purpose of the
Employee Plan is to attract and retain highly qualified executive officers,
trustees, employees and consultants. Through the Employee Plan, certain
officers, trustees, certain employees and consultants of the Trust are offered
the opportunity to acquire Common Shares pursuant to grants of (i) options to
purchase Common Shares ("Options") and (ii) Share Awards. The Employee Plan is
administered by the Compensation and Option Committee (the "Compensation
Committee") which is appointed by the Board of Trustees of the Trust. The
Compensation Committee determines those officers, trustees, key employees and
consultants to whom, and the time or times of which, grants of Options and Share
Awards will be made. The Compensation Committee interprets the Employee Plan,
adopts rules relating thereto and determines the terms and provisions of
Options. In 1999, 1998 and
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
1997, the Common Shares subject to Options and Share Awards under the Employee
Plan were limited to 19,433,472, 11,121,786 and 11,121,786, respectively. The
maximum aggregate number of Common Shares that may be granted for all rights
under the Plan shall not exceed 6.8% of the outstanding shares, calculated on a
fully diluted basis and determined annually on the first day of each calendar
year. No more than one-half of the maximum aggregate number of Common Shares
shall be granted as Share Awards. To the extent that Options expire unexercised
or are terminated, surrendered or canceled, the Common Shares allocated to such
Options shall become available for future grants under the Plan, unless the Plan
has terminated. The Employee Plan will terminate at such times as it issues all
of the unissued Common Shares reserved for the Plan. The Board of Trustees may
at any time amend or terminate the Employee Plan, but termination will not
affect Options and Share Awards previously granted. Any Options or Share Awards
which vest prior to any such termination will continue to be exercisable by the
holder thereof.
The Compensation Committee determines the vesting schedule of each Option
and the term, which term shall not exceed ten years from the date of the grant.
As to the Options that have been granted through December 31, 1999, the vesting
schedules range from the entire option grant being exercisable as of the grant
date, to one-third of the Options being exercisable as of the first anniversary
of the grant date, an additional one-third being exercisable as of the second
anniversary of the grant date and the remaining one-third of the Options being
exercisable as of the third anniversary of the grant date. The exercise price
for all Options under the Employee Plan shall not be less than the fair market
value of the underlying Common Shares at the time the Option is granted.
In addition, the Employee Plan permits the Trust to issue Share Awards to
executive officers, other key employees and trustees upon such terms and
conditions as shall be determined by the Compensation Committee in its sole
discretion. A share award is an award of Common Shares which (i) may be fully
vested upon issuance ("Share Awards") or (ii) may be subject to risk of
forfeiture under Section 83 of the Internal Revenue Code ("Restricted Share
Award"). Generally, members of the Board of Trustees have been granted Share
Awards pursuant to the Employee Plan as payment of their board fees. In
addition, certain senior officers were issued Share Awards as part of their
bonus for fiscal year 1998. In each case, the number of Share Awards granted to
trustees and senior officers was equal to the dollar value of the fees or bonus
earned divided by the fair market value of the shares on the date the fee or
bonus would have been paid. In addition to these Share Awards, Restricted Share
Awards were granted to certain officers in 1997 and 1998 and based upon
performance for 1999. The Restricted Share Awards vest over a five year period
as follows: (i) fifty percent of each Restricted Share Award vests on the third
anniversary of the initial grant date; (ii) an additional twenty-five percent of
each Restricted Share Award vests on the fourth anniversary of the initial grant
date; and (iii) the remaining twenty-five percent of each Restricted Share Award
vests on the fifth anniversary of the initial grant date.
The Trust has elected to apply the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25")
in the computation of compensation expense. Under APB No. 25's intrinsic value
method, compensation expense is determined by computing the excess of the market
price of the shares over the exercise price on the measurement date. For the
Trust's Options, the intrinsic value on the measurement date (or grant date) is
zero, and no compensation expense is recognized. Financial Accounting Standards
Board No. 123 ("FASB No. 123") requires the Trust to disclose pro forma net
income and income per share as if a fair value based accounting method had been
used in the computation of compensation expense. The fair value of the Options
computed under FASB No. 123 would be recognized over the vesting period of the
Options. The fair value for the Trust's Options granted in 1999, 1998 and 1997
was estimated at the time the Options were granted using the Black-Scholes
option pricing model with the following weighted average assumptions for 1999,
1998 and 1997, respectively: risk-free interest rates of 6.4%, 5.4% and 5.6%;
dividend yields of 6.8%, 5.8% and 4.0%; volatility factors of the expected
market price of the
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
Trust's Common Shares of 0.19, 0.30 and 0.24; and a weighted average expected
life of the Options of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Trust's Options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its Options.
For purposes of pro forma disclosures, the estimated fair value of the
Options is amortized to expense over the Options' vesting period. The following
is the unaudited pro forma information for the year ended December 31, 1999 and
1998 and the period from July 11, 1997 through December 31, 1997:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, FOR THE PERIOD FROM
-------------------- JULY 11, 1997 THROUGH
1999 1998 DECEMBER 31, 1997
-------- -------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Pro forma net income available to Units before
gain on sales of real estate and extraordinary
items......................................... $378,810 $346,277 $ 92,664
Gain on sales of real estate and extraordinary
items......................................... 49,113 4,927 (16,240)
-------- -------- --------
Pro forma net income available to Units......... $427,923 $351,204 $ 76,424
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE PERIOD FROM
------------------------------------ JULY 11, THROUGH
1999 1998 DECEMBER 31, 1997
---------------- ---------------- -----------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
EARNINGS PER UNIT ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Pro forma net income available to
Units before gain on sales of
real estate and extraordinary
items............................ $1.31 $1.30 $1.22 $1.22 $ .53 $ .51
Gain on sales of real estate and
extraordinary items.............. .17 .17 .02 .02 (.10) (.09)
----- ----- ----- ----- ----- -----
Pro forma net income per weighted
average Units outstanding........ $1.48 $1.47 $1.24 $1.24 $ .43 $ .42
===== ===== ===== ===== ===== =====
</TABLE>
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 22 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)
The table below summarizes the Option activity of the Employee Plan for the
years ended December 31, 1999, 1998 and the period from July 11, 1997 through
December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
COMMON SHARES SUBJECT EXERCISE PRICE PER
TO OPTIONS OR AWARDS COMMON SHARE
------------------------ -------------------------
<S> <C> <C>
Balance at July 11, 1997........................ -- $ --
Options granted................................. 5,814,583 22.22
Options cancelled............................... (67,275) 21.16
---------- ------
Balance at December 31, 1997.................... 5,747,308 22.23
Options granted................................. 4,695,072 26.38
Options cancelled............................... (93,145) 25.54
Options exercised............................... (916,451) 19.74
---------- ------
Balance at December 31, 1998.................... 9,432,784 24.50
Options granted................................. 4,677,971 24.88
Options cancelled............................... (520,314) 24.78
Options exercised............................... (128,287) 20.90
---------- ------
Balance at December 31, 1999.................... 13,462,154 $24.66
========== ======
</TABLE>
As of December 31, 1999, there were 5,174,418 Options under the Employee
Plan that were exercisable and 8,287,736 Options that were not exercisable.
Exercise prices for the 13,462,154 Options outstanding as of December 31, 1999
ranged from $12.09 to $33.00, with a weighted average exercise price of $24.66.
Expiration dates ranged from July 11, 2007 to December 31, 2009. The remaining
weighted average contractual life of Options was 8.70 years. The weighted
average grant date fair value of Options granted during 1999, 1998 and 1997 was
$2.91, $4.88 and $4.44, respectively. In addition, there were 380,000 and
298,000 Restricted Shares issued during 1998 and 1997, respectively, which vest
over three to five years. The Restricted Shares were valued at an average of
$21.57 per share.
NOTE 23 -- COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
The Company maintains its cash and cash equivalents at financial
institutions. The combined account balances at each institution typically exceed
FDIC insurance coverage and, as a result, there is a concentration of credit
risk related to amounts on deposit in excess of FDIC insurance coverage.
Management of the Company believes that the risk is not significant.
The Company from time to time enters into interest rate protection
agreements to effectively convert floating rate debt to a fixed rate basis, as
well as to hedge anticipated financing transactions. The Company believes it has
limited exposure to the risk of non-performance by the swap counterparties since
each counterparty is a major U.S. or foreign financial institution; management
does not anticipate any such non-performance. As of December 31, 1999, the
Company has one interest rate protection agreement which effectively fixed the
interest rate on a $93.6 million loan at 6.9% through the maturity of the loan
on June 30, 2000.
Environmental
The Company, as an owner of real estate, is subject to various
environmental laws of federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on the Company's
financial condition and results of operations, and management does not believe
it will have such an
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
impact in the future. However, the Company cannot predict the impact of new or
changed laws or regulations on its current Properties or on properties that it
may acquire in the future.
Litigation
The Company has become a party to various legal actions resulting from the
operational activities transferred to the Operating Partnership in connection
with the Consolidation and the Beacon Merger. These actions are incidental to
the transferred business and management does not believe that these actions will
have a material adverse effect on the Company.
Neither the Company nor any of the Properties is presently subject to any
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Properties, other than actions
which the Company does not believe to be material, or routine actions for
negligence and other claims and administrative proceedings arising in the
ordinary course of business, some of which are expected to be covered by
liability insurance and all of which collectively are not expected to have a
material adverse effect on the liquidity, business, results of operations or
financial condition of the Company.
Insurance
The Company is self-insured for certain amounts related to losses that may
be incurred at the Properties. However, management does not believe that this
exposure will have a material adverse effect on the Company.
The Company carries earthquake insurance on all of the Properties,
including those located in California, subject to coverage limitations which the
Company believes are commercially reasonable. In light of the California
earthquake risk, California building codes since the early 1970s have
established construction standards for all new buildings. The current and
strictest construction standards were adopted in 1987. Of the 49 Properties
located in California, 12 have been built since January 1, 1988 and the Company
believes that all of the Properties were constructed in full compliance with the
applicable standards existing at the time of construction. No assurance can be
given that material losses in excess of insurance proceeds will not occur in the
future.
Commitments
In July 1998, the Company entered into an agreement to purchase the World
Trade Center project in Seattle, Washington. The property consists of
approximately 186,787 square feet of office space and is 100% preleased to a
single tenant. After the tenant takes full occupancy in 2000, the Company is
expected to purchase the building for approximately $39.0 million. This
transaction is contingent upon certain terms and conditions as set forth in the
purchase agreement. There can be no assurance that this transaction will be
consummated as described above.
In accordance with the agreement governing the Company's investment in
WRALP, the Company agreed to make available to WRALP up to $20.0 million in
additional financing or credit support for future development. As of December
31, 1999, no amounts have been funded pursuant to this agreement. However, the
Company has guaranteed WRALP's line of credit which has an outstanding balance
of approximately $16.9 million as of December 31, 1999.
Contingencies
On August 12, 1999, the Trust and the WR Holders amended their put option
agreement to defer to August 13, 2000 (or to August 13, 2001 at the option of
the WR Holders) the exercise date for 1,717,844 of the 3,435,688 Common Shares
affected by the put option agreement (a maximum exposure to the Company of
approximately $54.1 million when and if this put option is exercised). The Trust
and the WR Holders also
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
agreed to cancel the put option on the remaining 1,717,844 Common Shares in
exchange for the Company's payment to the WR Holders of approximately $11.3
million on September 13, 1999. The payment represented the excess of $31.50 over
$24.90 (the average price of a Common Share calculated over the five trading
days immediately prior to August 13, 1999), for each of 1,717,844 Common Shares
affected by the put option agreement. The portion of the amounts paid in excess
of $29.10625 per Common Share totaling approximately $4.1 million was reflected
as a preferred distribution. The remaining $7.2 million of the payment was
recorded as a reduction to partners' capital.
On August 13, 2000, (or August 13, 2001 at the option of the WR Holders)
the WR Holders can require the Trust to purchase all or a portion of the
remaining 1,717,844 Common Shares issued to them in the acquisition at a price
equal to $31.50 per Common Share. Prior to such date, if the WR Holders sell all
or a portion of their Common Shares to a third party for a price less than
$29.10625, then the Trust is obligated to pay to the WR Holders for each Common
Share sold at such lower price an amount equal to the difference between
$29.10625 and such lower price, not to exceed $3.00 per Common Share. Any
amounts paid by the Trust as a result of such sales will result in the Company
making an equal payment to the Trust and will be recorded as a reduction in
partners' capital. For put options exercised as aforesaid, any amounts paid up
to $29.10625 per Common Share would be reflected as a reduction in partners'
capital; the portion of any amounts paid in excess of $29.10625 per Common Share
(not to exceed $2.39375 per Common Share up to an aggregate of approximately
$4.1 million) will be reflected as a preferred distribution. The $4.1 million
portion of the total potential payment is being amortized by the Company on a
straight-line basis over the period between August 13, 1999 and August 13, 2000.
The Company will not incur any loss on this transaction if the put option is not
exercised.
Effective as of September 3, 1998, the Company amended its pre-existing put
option agreement with the seller of the Columbus America Properties (the "CA
Holder") related to 1,692,546 Units issued at acquisition. The CA Holder has the
option at any time after January 1, 1999 until the earlier of September 3, 2000
or the date the CA Holder has converted all of its Units to Common Shares, to
require the Company to purchase the Units at a price equal to $29.00 per Unit.
In October 1999, the CA Holder exercised its option to require the Company to
purchase 1,675,000 Units at a price equal to $29.00 per Unit for a total of
approximately $48.6 million. The Company recognized the $48.6 million payment as
a reduction of partners' capital and retired the Units.
In connection with the acquisition of Worldwide Plaza on October 1, 1998,
the Company issued a transferable put option on the 6,861,166 Units issued at
acquisition which is exercisable only on the third anniversary of closing with
an estimated fair value of approximately $27.4 million. This option entitles its
holder to additional Common Shares, the number of which shall be determined
using a formula based on the extent, if any, that the Common Shares are then
trading at less than $29.05 per share.
NOTE 24 -- SUBSEQUENT EVENTS
1) The Company entered into an agreement with OnSite Access, Inc.
("OnSite"), a facilities based provider of broadband data, video and
voice communications services, delivered over fiber optic networks
designed, constructed and owned by OnSite in large- and medium-sized
office buildings. OnSite will provide its services to tenants in
certain Office Properties. In return for allowing OnSite access to the
Office Properties, OnSite will grant the Company warrants to acquire
common shares of OnSite for $2.36 per share. Although OnSite is not
currently a public company, it has filed a registration statement with
the SEC to register the issuance of its common shares and is expected
to become a reporting company under the Securities and Exchange Act of
1934.
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EOP OPERATING LIMITED PARTNERSHIP AND EQUITY OFFICE PREDECESSORS
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 24 -- SUBSEQUENT EVENTS -- (CONTINUED)
2) On January 14, 2000, the Board of Trustees of the Trust declared a
first quarter distribution for the Series B Preferred Shares of
$0.65625 per share. The distribution was paid on February 15, 2000 to
holders of record as of February 1, 2000.
3) On January 17, 2000, the Company obtained an additional unsecured
borrowing facility from the Chase Manhattan Bank for short-term
borrowings not to exceed $300 million in the aggregate. Upon request of
the Company, and at the lender's option, the lender may offer to lend
funds at mutually agreed upon interest rates and terms, as determined
by current market conditions. As of March 1, 2000, the Company owed
$200 million under this facility at a weighted average rate of 6.4%. On
each of March 15, 2000, and March 24, 2000, the note is repayable in
two $100 million installments.
4) On February 10, 2000, the Company sold Sarasota City Center in
Sarasota, Florida, for approximately $27.7 million to an unaffiliated
party. The office property consisted of approximately 247,891 square
feet and was 88.5% occupied at December 31, 1999.
5) On February 11, 2000, the Trust, the Company, Cornerstone Properties,
Inc. ("Cornerstone") and Cornerstone Properties Limited Partnership
("Cornerstone Partnership") entered into a merger agreement where
Cornerstone will merge with and into the Trust and Cornerstone
Partnership will merge with and into the Company (the "Cornerstone
Merger"). The total purchase price will be approximately $4.6 billion,
including the assumption of approximately $1.8 billion in debt, the
payment of $1.1 billion in cash and the issuance of approximately 63.6
million new Common Shares and Units. Cornerstone common shareholders
may elect to receive $18.00 per share in cash, plus any accrued but
unpaid dividends, or 0.7009 of the Trust's Common Shares based on a
prevailing transaction price of $25.68125 per common share, subject to
proration. Cornerstone's convertible preferred shareholders will
receive $18.00 per share in cash. Cornerstone Partnership unitholders
will receive 0.7009 Units of the Company. The Company intends to
finance the $1.1 billion cash portion of the purchase price by
obtaining additional term loans, issuing unsecured notes or amending
the existing line of credit.
The Cornerstone Merger is expected to be completed in the third quarter
of 2000 and is subject to the approval of the shareholders of the
Company and the shareholders of Cornerstone and other customary
conditions. Cornerstone is a fully integrated REIT and currently owns
86 office properties in the U.S. totaling over 18.5 million square
feet, and has an additional $884 million of projects under development.
If the Cornerstone Merger is completed the Company will own
approximately 380 office properties consisting of approximately 95.5
million square feet.
6) On February 15, 2000, the Board of Trustees of the Trust declared a
first quarter distribution for the Series A and Series C Preferred
Shares. On March 15, 2000, the Trust will pay the 8.98% Series A
Cumulative Redeemable Preferred Share dividend of $0.56125 per share to
the holders of record on March 1, 2000. On the same date, the Trust
will pay the 8.625% Series C Cumulative Redeemable Preferred Share
dividend of $0.5390625 per share to the holders of record on March 1,
2000.
7) On February 15, 2000, upon its maturity, the mortgage note secured by
the Civic Opera House was repaid in the amount of approximately $30.6
million.
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<PAGE> 91
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company does not have any trustees or executive officers.
The following table sets forth certain information with respect to the
trustees of the Trust, which is the managing general partner of the Company, as
of March 7, 2000. The balance of the response to this item is contained in the
discussion entitled Executive and Senior Officers of Equity Office in Part I of
this Form 10-K
<TABLE>
<CAPTION>
NAME AGE OFFICE HELD
---- --- -----------
<S> <C> <C>
Samuel Zell................................ 58 Chairman of the Board and Trustee (term
expires in 2001)
Timothy H. Callahan........................ 49 President, Chief Executive Officer and
Trustee (term expires in 2002)
D.J. Andre de Bock......................... 61 Trustee (term expires in 2002)
Thomas E. Dobrowski........................ 56 Trustee (term expires in 2001)
William M. Goodyear........................ 51 Trustee (term expires in 2002)
James D. Harper, Jr........................ 66 Trustee (term expires in 2002)
David K. McKown............................ 62 Trustee (term expires in 2000)
Jerry M. Reinsdorf......................... 64 Trustee (term expires in 2001)
Sheli Z. Rosenberg......................... 58 Trustee (term expires in 2000)
H. Jon Runstad............................. 58 Trustee (term expires in 2001)
Edwin N. Sidman............................ 57 Trustee (term expires in 2001)
</TABLE>
The following is a biographical summary of the experience of the trustees
of the Trust.
Samuel Zell, has been a trustee and Chairman of the Board of the Trust
since October 1996. Since January 1999, Mr. Zell has served as Chairman of
Equity Group Investments, LLC. For more than five years, Mr. Zell has served as
Chairman of the Boards of Directors of Anixter International Inc. and American
Classic Voyages Co., a provider of overnight passenger cruises in the United
States. Since March 1995, Mr. Zell has served as Chairman of the Board of
Manufactured Home Communities, Inc. Since March 1993, Mr. Zell has served as
Chairman of the Board of Trustees of Equity Residential Properties Trust. Since
July 1997, Mr. Zell has been Chairman of the Board of Capital Trust, Inc. Since
April 1996, Mr. Zell has served as a director of Ramco Energy PLC, an
independent oil company based in the United Kingdom. Since March 1997, Mr. Zell
has served as a director of Chart House Enterprises, Inc., an owner and operator
of restaurants and since May 1998, Mr. Zell has been Chairman of the Board.
Since June 1998, Mr. Zell has served as a member of the Board of Directors, and
since July 1999 has been Chairman of the Board, of Davel Communications, Inc.,
an operator of public pay telephones. Mr. Zell currently is the Chairman of the
Trust's Executive Committee. (1)
D.J. Andre de Bock has been a trustee of the Trust since May 1998. He
currently is a member of the Board of Directors of Rodamco North America N.V., a
Dutch real estate investment company, OTIS B.V., Orange Global Property Fund
N.V., an international real estate investment fund listed on the Amsterdam stock
exchange, and Stichting ROZ Index, a Dutch property index, and serves as an
advisor to Jones Lang LaSalle N.V., an international real estate services
company. From 1995 through 1996, prior to his retirement, Mr. de Bock was
Chairman and Chief Executive Officer of ING Real Estate, the real estate
development and investment arm of ING Group. From 1991 until 1994, Mr. de Bock
was Managing Director of Innovest Management, an Amsterdam-listed REIT organized
under Dutch law. (5)
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<PAGE> 92
Thomas E. Dobrowski has been a trustee of the Trust since July 1997. Since
December 1994, Mr. Dobrowski has been the managing director of real estate and
alternative investments of General Motors Investment Management Corporation
located in New York, New York, an investment advisor to several pension funds,
including those of General Motors Corporation, its subsidiaries and affiliates.
For more than five years, Mr. Dobrowski has been a director of Manufactured Home
Communities, Inc. Since August 1998, Mr. Dobrowski has been a trustee of Capital
Trust, Inc. (2)
William M. Goodyear has been a trustee of the Trust since July 1997. From
July 1997 until January 1999, Mr. Goodyear was Chairman of Bank of America,
Illinois, the Midwest business unit of BankAmerica Corporation, a commercial
bank. From July 1997 until January 1999, he was also President of Bank of
America, Private Bank. Mr. Goodyear was Chairman and Chief Executive Officer of
Bank of America Illinois, a subsidiary of BankAmerica Corporation, from
September 1994 until June 1997, at which time it merged with Bank of America NT
& SA. For more than two years prior to September 1994, Mr. Goodyear was a Vice
Chairman and a member of the Board of Directors of Continental Bank Corporation,
the parent company of Continental Bank, N.A., a commercial bank which merged
into Bank of America Illinois in September 1994. Since June 1992, Mr. Goodyear
has been a member of the Board of Trustees of the Museum of Science and Industry
in Chicago, Illinois. Mr. Goodyear has been a member of the Board of Trustees of
the University of Notre Dame since May 1996 and of Rush-Presbyterian St. Lukes
Medical Center in Chicago, Illinois, since June 1996. Since June 1999, Mr.
Goodyear has served as a member of the Board of Directors of Homeplace of
America, Inc., a holding company for retail stores specializing in home
furnishings and houseware items. Since December 1999, Mr. Goodyear has served as
a member of the Board of Directors of Navagant Consulting, Inc., an energy
consultant for utility companies. Mr. Goodyear currently is Chairman of the
Trust's Audit Committee. (2) (4)
James D. Harper, Jr. has been a trustee of the Trust since July 1997. Mr.
Harper has been president of JDH Realty Co., a real estate development and
investment company since 1982. Since 1988, he has been a co-managing partner in
AH Development, S.E. and AH HA Investments, S.E., special limited partnerships
formed to develop over 400 acres of land in Puerto Rico. Since May 1993, Mr.
Harper has been a trustee of Equity Residential Properties Trust. Since 1993,
Mr. Harper has been a trustee of Urban Land Institute. Since 1997, Mr. Harper
has been a director of Burnham Pacific Properties Inc., a REIT that owns,
develops and manages commercial real estate properties in California. Mr. Harper
currently is Chairman of the Trust's Compensation and Option and Conflicts
Committees. (2) (3) (4)
David K. McKown has been a trustee of the Trust since July 1997. Mr. McKown
has been Group Executive of Diversified Finance of BankBoston, N.A., a
commercial bank since 1993. Mr. McKown was Chairman of the Domestic Senior
Credit Committee for BankBoston, N.A. from 1985 until 1990 and Managing Director
responsible for all problem loan management for BankBoston, N.A. from 1990 to
1993. (1) (3) (4)
Jerry M. Reinsdorf has been a trustee of the Trust since July 1997. Mr.
Reinsdorf has been the Chairman of the Chicago White Sox baseball team, the
Chairman of the Chicago Bulls basketball team, and a partner of Bojer Financial
Ltd., a real estate investment company located in Park City, Utah, for more than
five years. Since 1996, Mr. Reinsdorf has served as a director of LaSalle
National Bank, N.A., a commercial bank in Chicago, Illinois, the holding company
of which is LaSalle National Corporation, of which Mr. Reinsdorf is also a
director. Since 1993, Mr. Reinsdorf has been a trustee of Northwestern
University in Evanston, Illinois. Mr. Reinsdorf is a stockholder, officer and
director of Jerbo Holdings I, Inc., which is the corporate general partner of a
limited partnership which is the general partner of Bojer Realty Limited
Partnership I.
Sheli Z. Rosenberg has been a trustee of the Trust since March 1997. Since
February 2000, Ms. Rosenberg has been the Vice Chairman of Equity Group
Investments L.L.C. From January 1999 until February 2000, Ms. Rosenberg was
Chief Executive Officer and President of Equity Group Investments L.L.C., an
owner and financier of real estate and corporate investments. Ms. Rosenberg was
Chief Executive Officer and President of Equity Group Investments, Inc., from
November 1994 through December 1998. From 1980 until September 1997, Ms.
Rosenberg was a principal of the law firm of Rosenberg & Liebentritt, P.C. For
more than five years, Ms. Rosenberg has served on the Board of Directors of
Anixter International
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<PAGE> 93
Inc., a provider of integrated network and cabling solutions and previously
served for more than five years on the Board of Directors of Equity Group
Investments, Inc. Since March 1993, Ms. Rosenberg has been a trustee of Equity
Residential Properties Trust, a REIT that owns and operates multifamily
residential properties. Since August 1996, Ms. Rosenberg has been a director of
Manufactured Home Communities, Inc., a REIT engaged in the ownership and
management of manufactured home communities. Since April 1997, Ms. Rosenberg has
been a director of Illinois Power Co., a supplier of electricity and natural gas
in Illinois, the holding company of which is Dynegy Inc., of which Ms. Rosenberg
is also a director. Since May 1997, Ms. Rosenberg has been a director of CVS
Corporation, a drugstore chain. Since July 1997, Ms. Rosenberg has been a member
of the board of Capital Trust, Inc., a specialized finance company. Since
February 2000, Ms. Rosenberg has been a member of the Board of Directors of
Danka Business Systems PLC, a business services provider. Ms. Rosenberg
currently is the Chairman of the Trust's Governance Committee. (3) (5)
H. Jon Runstad has been a trustee of the Trust since January 1998. Since
1971, Mr. Runstad has been Chief Executive Officer of Wright Runstad & Company,
a Seattle, Washington based owner, manager and developer of office buildings in
the western United States, primarily in the Pacific Northwest; and since January
1995, he has served as its Chairman. From 1971 until May 1995, Mr. Runstad was
President of Wright Runstad & Company. From 1987 through September 1998, Mr.
Runstad served as a member of the Board of Regents for the University of
Washington.
Edwin N. Sidman has been a trustee of the Trust since March 1998. Until the
consummation of the merger of Beacon Properties Corporation into Equity Office
in December 1997, Mr. Sidman served as Chairman of the Board and a director of
Beacon Properties Corporation from 1994. He is currently the managing partner of
The Beacon Companies, a private company in Boston, Massachusetts, which is
involved in real estate investment, development and management. Prior to joining
Beacon Properties Corporation's predecessor in 1971, Mr. Sidman practiced law
with the predecessor to the firm of Rubin and Rudman in Boston, Massachusetts.
Mr. Sidman's past professional affiliations include service as Chairman of the
National Realty Committee, now the Real Estate Roundtable. Mr. Sidman is a
member of the Board of Trustees and Executive Committee of Duke University and
of the Board of Directors and Executive Committee of the United Way of
Massachusetts Bay. (5)
- ---------------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation and Option Committee
(4) Member of the Conflicts Committee
(5) Member of the Trust Governance Committee.
MEETINGS AND COMMITTEES OF THE TRUST'S BOARD OF TRUSTEES
MEETINGS. The Board of Trustees held six meetings during 1999. All of the
trustees, except Mr. Reinsdorf, attended over 75% of the meetings of the Board
and those committees on which he or she served during the year. Mr. Reinsdorf
attended four of the six meetings of the Board during the year. The Board of
Trustees has standing executive, compensation and option, audit, conflicts and
trust governance committees, which are described below.
EXECUTIVE COMMITTEE. The Trust's Board of Trustees' Executive Committee
consists of the trustees identified above, with Mr. Zell as its Chairman.
Subject to limitations which are specified in the Trust's Bylaws, the Executive
Committee has the general authority to acquire, dispose of and finance
investments and to approve the execution of contracts and agreements, including
those related to indebtedness. Although the Trust's Executive Committee did not
formally meet during 1999, its members were in frequent communication and
approved numerous matters by unanimous written consent.
COMPENSATION AND OPTION COMMITTEE. The Trust's Board of Trustees'
Compensation and Option Committee consists of the independent trustees
identified above, with Mr. Harper as its Chairman. The
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<PAGE> 94
Compensation and Option Committee determines compensation and benefits for all
executive officers other than the President and Chief Executive Officer and
makes recommendations to the Trust's Board's disinterested Board members in
respect to the compensation and benefits for the Trust's President and Chief
Executive Officer. The Compensation and Option Committee met five times during
1999.
AUDIT COMMITTEE. The Trust's Board of Trustees' Audit Committee consists of
the independent trustees identified above, with Mr. Goodyear as its Chairman.
The Audit Committee recommends the engagement of independent public accountants,
reviews with the independent public accountants the plans and results of the
audit engagement, approves professional services provided by the independent
public accountants, reviews the independence of the independent public
accountants, considers the range of audit and nonaudit fees and reviews the
adequacy of the Trust's and the Company's internal accounting controls. The
Audit Committee met twice during 1999.
CONFLICTS COMMITTEE. The Trust's Board of Trustees' Conflicts Committee
consists of the independent trustees identified above, with Mr. Harper as its
Chairman. The Trust's Bylaws permit any trustee to require that the Conflicts
Committee review and approve, prior to a vote of the disinterested trustees of
the full Board, any transaction in which a trustee has a direct or indirect
interest. The Conflicts Committee met twice during 1999.
TRUST GOVERNANCE COMMITTEE. The Trust's Board of Trustees' Governance
Committee consists of the independent trustees identified above, with Ms.
Rosenberg as its Chairman. The Trust's Committee on Trust Governance is
responsible for on-going review of the effectiveness of the Trust's Board, the
maintenance of criteria and procedures for the identification and recruitment of
candidates for election or reelection as Trustees and the recommendation to the
Trust's Board, with the advice of the Trust's Board's Chairman and the Trust's
President and Chief Executive Officer, of nominees for election or reelection as
Trustees. In 1999, the Board adopted Guidelines on Trust Governance Issues after
their recommendation to the Board by the Trust Governance Committee. The Trust
Governance Committee met twice during 1999.
The Trust does not have a nominating committee.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the trustees
and executive officers of the Trust to file reports of holdings and transactions
in the Trust's shares with the SEC and the New York Stock Exchange.
Management believes that, during 1999, all applicable filing requirements
of the officers and trustees of the Trust were satisfied with the exception of
the initial filing requirement for Mr. Helfand who was late in filing his Form
3.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF TRUST'S BOARD OF TRUSTEES; PAYMENT IN COMMON SHARES
Annual Fees: The trustees who are employees of the Trust receive no fees
for his services as trustees. Each of the Trust's non-employee trustees receives
an annual fee of $50,000 and an additional $1,000 per annum for each committee
on which he or she serves. Committee chairs receive an additional $500 per annum
for each committee chaired. Generally, these fees are paid in common shares. In
addition, independent trustees receive an annual grant of options to purchase
10,000 common shares at the fair market value on the date of each annual meeting
of shareholders. The annual trustee option grants vest as follows: options for
3,333 common shares vest six months after grant date; options for an additional
3,333 common shares vest on the first anniversary of the grant date; and options
for the remaining 3,334 common shares vest on the second anniversary of the
grant date.
Option: On February 16, 1999, the Board of Trustees' Compensation and
Option Committee granted Mr. Zell options to purchase 500,000 common shares at
an above-market exercise price of $29.50 per share. On December 31, 1999, the
Board of Trustees granted Mr. Zell options to purchase an additional 750,000
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<PAGE> 95
common shares at $24.225 per share, which equaled fair market value on the date
of grant. One third of such options granted to Mr. Zell will vest on each of the
first three anniversary dates of the option grants.
Indemnification: As required under the Trust's Bylaws, the Trust
indemnifies the trustees and officers to the fullest extent permitted by law.
The Trust has also signed agreements with each of those individuals
contractually obligating us to provide this indemnification to them.
EXECUTIVE COMPENSATION
The following tables show information with respect to the annual
compensation (including option grants) for services rendered to the Trust for
the year ended December 31, 1999.
SUMMARY COMPENSATION TABLE.
The following table shows the annual compensation for Timothy H. Callahan,
the Chief Executive Officer of the Trust, and the other four most highly
compensated executive officers of the Trust.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS
-----------------------------
ANNUAL COMPENSATION RESTRICTED
--------------------- COMMON SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY BONUS SHARE UNDERLYING COMPENSATION
POSITION(S) YEAR ($)(1) ($)(2) AWARDS ($)(3) OPTIONS(#)(4) ($)(5)
------------------ ---- ------ ------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Timothy H. Callahan........... 1997 $600,000 $1,050,000 $4,976,875 450,000 $9,600
President and Chief 1998 $700,000 $1,050,000 $2,640,000 300,000 $9,600
Executive Officer 1999 $700,000 $1,200,000 -- 300,000 $9,600
Richard D. Kincaid............ 1997 $235,000 $ 465,000 $1,523,375 250,000 $9,600
Executive Vice President 1998 $300,000 $ 465,000 $1,200,000 110,000 $9,600
and Chief Financial Officer 1999 $325,000 $ 450,000 -- 110,000 $9,600
Michael A. Steele............. 1997 $265,000 $ 525,000 $1,523,375 250,000 $9,600
Executive Vice President-- 1998 $350,000 $ 525,000 $1,200,000 110,000 $9,600
Real Estate Operations and 1999 $375,000 $ 375,000 -- 90,000 $9,600
Chief Operating Officer
Stanley M. Stevens............ 1997 $325,000 $ 375,000 $ 627,000 225,000 $9,600
Executive Vice President and 1998 $375,000 $ 375,000 $ 600,000 75,000 $9,600
Chief Legal Counsel 1999 $375,000 $ 350,000 -- 75,000 $9,600
David A. Helfand.............. 1997 -- -- -- -- --
Executive Vice President-- 1998 $138,187 $ 280,000 $ 360,000 82,500 --
New Business Development 1999 $302,596 $ 375,000 -- 100,000 $3,200
</TABLE>
- ---------------
(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of these
officers. Mr. Helfand's employment with Equity Office commenced in July
1998.
(2) Cash and non-cash bonuses payable in common shares, including amounts earned
but deferred, are reported in the year in which the compensation service was
performed, even if the bonuses were paid in a subsequent year.
(3) Represents the dollar value of restricted share awards calculated by
multiplying the closing market price of the Trust's common shares on the
date of grant by the number of shares awarded. This valuation does not take
into account the diminution in value attributable to the restrictions
applicable to the common shares. The restricted share awards vest over a
five-year period (50% on the third anniversary of the grant date, 25% on the
fourth anniversary of the grant date, and 25% on the fifth anniversary of
the grant date).
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The number and value of the aggregate restricted share holdings of each
executive officer listed above at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
NUMBER OF RESTRICTED
COMMON SHARE VALUE AT
NAME AWARDS DECEMBER 31, 1999
---- -------------------- -----------------
<S> <C> <C>
Timothy H. Callahan.................................. 265,000 $6,360,000
Richard D. Kincaid................................... 97,000 $2,328,000
Michael A. Steele.................................... 97,000 $2,328,000
Stanley M. Stevens................................... 44,000 $1,056,000
David A. Helfand..................................... 15,000 $ 360,000
</TABLE>
Distributions are paid on all restricted common share awards at the same
rate as on unrestricted common shares.
(4) Securities underlying options are reported in the year granted.
(5) Includes employer matching and profit-sharing contributions to Equity
Office's 401(k) Retirement Savings Plan.
1999 OPTION GRANTS.
The following table gives more information on share options granted during
the last fiscal year to Timothy H. Callahan, the Chief Executive Officer of the
Trust, and the other four most highly compensated executive officers of the
Trust.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL EXERCISE
NUMBER OF OPTIONS GRANTED TO PRICE PER GRANT DATE
SECURITIES UNDERLYING EMPLOYEES FOR SHARE EXPIRATION PRESENT
NAME OPTIONS GRANTED (1) FISCAL YEAR 1999 (2) DATE VALUE (3)
---- --------------------- ------------------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Timothy H. Callahan......... 300,000 9.1% $24.225 12/31/09 $1,388,093
Richard D. Kincaid.......... 100,000 3.3% $24.225 12/31/09 $ 508,967
Michael A. Steele........... 90,000 2.7% $24.225 12/31/09 $ 416,428
Stanley M. Stevens.......... 75,000 2.3% $24.225 12/31/09 $ 347,023
David A. Helfand............ 100,000 3.0% $24.225 12/31/09 $ 462,698
</TABLE>
- ---------------
(1) All options were granted at the fair market value of common shares as of the
date of grant. Options granted are for a term of not more than ten years from
the date of grant and vest in three annual installments over three years.
(2) The exercise price for the grant of options on December 31, 1999 was the
average closing price of the common shares as listed on the New York Stock
Exchange for the five trading days immediately preceding the date of grant.
(3) As permitted by the Securities and Exchange Commission rules, the Trust
elected to present the grant date present value of the options set forth in this
table calculated using the Black-Scholes option-pricing model. The Trust's use
of this model should not be construed as an endorsement of its accuracy at
valuing options. All share option models require a prediction about the future
movement of the share price. The following assumptions were made for purposes of
calculating grant date present value: expected time of exercise of 5 years,
volatility of 30%, risk-free interest of 5.4% and dividend yield of 5.8%. The
real value of the options in this table depends upon the actual performance of
the Equity Office's shares during the applicable period and upon when they are
exercised. The dollar amounts in this column are not intended to forecast
potential future appreciation, if any, of the Equity Office's common shares.
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OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table shows the number and value of share options
(exercisable and unexercisable) for Messrs. Callahan, Kincaid, Steele, Stevens
and Helfand during the last fiscal year
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
COMMON OPTIONS AT OPTIONS AT
SHARES 12/31/99(#) 12/31/99(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Timothy H. Callahan.......... 0 $0.00 399,999 650,001 $ 562,332 $ 500,168
Richard D. Kincaid........... 0 $0.00 203,332 266,668 $ 381,883 $ 271,242
Michael A. Steele............ 0 $0.00 203,332 246,668 $ 381,883 $ 269,742
Stanley M. Stevens........... 0 $0.00 175,000 200,000 $ 369,750 $ 239,625
David A. Helfand............. 0 $0.00 28,332 154,168 $ 17,332 $ 55,667
</TABLE>
- ---------------
(1) Represents the fair market value of a common share on December 31, 1999
($24.4375) less the option exercise price. An option is "in-the-money" if
the fair market value of the common shares subject to the option exceeds the
option exercise price.
REPORT OF THE TRUST'S COMPENSATION AND OPTION COMMITTEE ON EXECUTIVE
COMPENSATION
Trust's Compensation and Option Committee: long-term roles and 1999 actions:
The role of the Compensation and Option Committee of the Board is to:
- - Review and approve a compensation philosophy for Equity Office which is
consistent with its mission and strategies;
- - Ensure that the rewards program in total and each of its component parts are
designed consistent with the approved compensation philosophy;
- - Review and approve all compensation plans impacting the senior officers of
Equity Office;
- - Review and approve the benefit plans impacting all Equity Office employees;
- - Determine the specific levels of compensation for the four highest paid
officers other than the President and Chief Executive Officer; and
- - Recommend to the Board the specific levels of compensation for the Chairman,
the President and Chief Executive Officer, as well as the Trustees.
During 1999, the Compensation and Option Committee, with the advice and
assistance of a team of outside compensation consultants, fully reviewed Equity
Office's "total rewards" programs for senior officers (as well as other
employees). The results of this review were refinements to Equity Office's
existing compensation plans, which are designed to:
- - Align the compensation packages of senior officers with Equity Office's
mission and strategies as well as the long-term interests of shareholders;
- - Improve the incentive to achieve key financial and strategic performance
metrics by linking annual incentive award opportunities to the achievement of
performance benchmark goals in these areas; and
- - Foster greater shareholder identification by:
* Adopting and implementing share ownership requirements for senior officers;
and
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<PAGE> 98
* Providing a large portion of total compensation opportunities in the form of
restricted shares and share options; and
* Enhancing opportunities for retention of key people through vesting of equity
opportunities and by initiating change-in-control agreements
1999 compensation decisions were made with a view towards furthering the
foregoing compensation objectives and in light of Equity Office's performance in
1999.
1999 COMPENSATION PROGRAM
For 1999, Equity Office's outside compensation consultants provided
competitive compensation data to help the Committee in establishing the desired
positioning of Equity Office relative to the market, as well as the desired mix
of base salary, annual incentive opportunity and long-term compensation
opportunities.
The competitive market for senior officers included:
- Large REITS with an emphasis on office REITs;
- Other for profit companies of comparable size to Equity Office
in the general business arena; and
- The real estate industry in general.
TYPES OF COMPENSATION:
The three major components of executive compensation include base salary,
annual incentive bonus and long-term/equity compensation.
BASE SALARY. Positions are classified by salary on the basis of assigned
responsibilities and an evaluation of the latest available survey information. A
range of earnings opportunities has been established for each position. The
mid-point of the salary range is dependent on the position's responsibilities
relative to the market references. Where salary information is unavailable for a
particular position, the salary range is based on other positions having similar
responsibilities at Equity Office.
Each salary range has three defined points of reference:
- Minimum or the lowest salary to be paid to a qualified incumbent;
- Mid-point or the middle position of the salary range established with
reference to the market value and objectives of Equity Office; and
- Maximum or the highest amount to be paid to an incumbent in this
position.
Individual base salaries are reviewed at least annually. Salary increases are
granted based on each executive's performance as well as his or her position in
the applicable salary range.
INCENTIVE BONUS. Equity Office's bonus program is designed to motivate all
employees by more closely linking bonus awards to value added for Equity
Office's shareholders. Equity Office has created and intends to promote a
culture of performance and ownership among its managers. Executive officers'
short-term incentives are accomplished by tying the executive officers'
performance to Equity Office's continued performance.
The incentive bonus program recognizes three aspects of performance which
are corporate, team and individual:
- "Corporate" refers to the performance measures of Equity Office,
including its financial and strategic measures;
- "Team" refers to key functional or departmental performance measures.
This aspect of performance links individuals to the performance of their
collective work group or assigned geographic territory, and is intended
to foster cooperation within Equity Office; and
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<PAGE> 99
- "Individual" performance refers to specific performance measures
developed for each individual participant in the program. This aspect of
performance motivates individuals to achieve a high level of individual
success and personal contribution.
The senior officers have their annual incentives weighted more heavily toward
the achievement of corporate and team performance rather than individual
performance.
SHARE OPTIONS AND RESTRICTED SHARE AWARDS. The Trust's Compensation and
Option Committee recognizes that, while the bonus program provides awards for
positive short-term and mid-term performance, the interests of shareholders are
best served by giving key employees the opportunity to participate in the
appreciation of Equity Office's common shares thorough the granting of share
options and restricted share awards. The members of the Committee believe that
share performance, over the long-term, will reflect executive performance and
that such arrangements further reinforce management goals and incentives to
achieve shareholder objectives. All employee share options granted to date vest
over a period of three years at a rate of one third of such grant each year and
all restricted share awards vest over a period of five years. The Committee used
the compensation surveys, and an assessment of the senior officer's achieved
performance goals and objectives, to determine the amount of share options and
restricted shares awarded each senior officer.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. Based on the executive compensation
surveys and Equity Office's financial performance in 1999, the Trust's
Compensation and Option Committee concluded that (i) the recommended salary,
bonus, restricted share awards and option grants to Mr. Callahan, Equity
Office's Chief Executive Officer and President, is fair and competitive in light
of Mr. Callahan's contribution and (ii) Equity Office's overall executive
compensation ranks within the upper quartile among the general real estate
industry and among REITs. The Committee determined that this was appropriate
given Equity Office's performance in 1999 and its status as the largest public
office company in the United States. The Committee further noted that
third-party analysts have consistently pointed to the strength of Equity
Office's management team as a reason for their positive view of Equity Office
and its future prospects.
SECTION 162(M) POLICY. Section 162(m) of the Internal Revenue Code limits
to $1 million Equity Office's tax deduction each year for compensation to each
of its Chief Executive Officer and other four most highly paid executive
officers. Section 162(m), however, allows a deduction without regard to amount
for payments of performance-based compensation, which includes most share
option, and other incentive arrangements, the material terms of which have been
approved by shareholders. Awards issued under Equity Office's Amended and
Restated 1997 Share Option and Share Award Plan may, but need not, satisfy the
requirements of Section 162(m). Options under this plan that have an exercise
price equal to grant date fair market value and that vest based solely on
continued employment qualify as "performance-based compensation." Incentive
bonuses are determined based on the evaluation of Equity Office's performance,
taking into consideration such factors as pre-set financial and strategic goals.
Since, the Board, however, does not apply these factors on a strict formula
basis, the incentive bonuses do not satisfy the requirements of 162(m).
Restricted share grants, which are used to help retain key executives in a
highly competitive job market, also do not qualify as performance based under
162(m). Equity Office believes that because it qualifies as a REIT under the
Code and is, therefore, not subject to Federal income taxes, the payment of
compensation that does not satisfy the requirements of Section 162(m) does not
have a material adverse financial consequence to it provided it continues to
distribute 100% of its taxable income.
Respectfully submitted,
James D. Harper, Jr., Chairman
David K. McKown
Sheli Z. Rosenberg
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
This table indicates how many Units in the Company the executive officers
and trustees beneficially owned as of March 7, 2000. In general, "beneficial
ownership" includes those Units a trustee or executive
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officer has the power to vote, or the power to transfer. Except as otherwise
noted, the persons named in the table below have sole voting and investment
power with respect to all Units shown as beneficially owned by them.
<TABLE>
<CAPTION>
NUMBER OF UNITS
BENEFICIALLY PERCENTAGE OF ALL
NAME OWNED UNITS(1)
---- --------------- -----------------
<S> <C> <C>
Samuel Zell(2).............................................. 1,775,065 *
Timothy H. Callahan......................................... 89,338 *
David A. Helfand............................................ -- *
Richard D. Kincaid.......................................... -- *
Michael A. Steele........................................... -- *
Stanley M. Stevens.......................................... 6,927 *
Sheli Z. Rosenberg (3)...................................... 191,134 *
Thomas E. Dobrowski......................................... - *
James D. Harper, Jr......................................... -- *
Jerry M. Reinsdorf.......................................... -- *
William M. Goodyear......................................... -- *
David K. McKown............................................. -- *
H. Jon Runstad (4).......................................... 576,690 *
Edwin N. Sidman (5)......................................... 347,805 *
D.J. Andre de Bock.......................................... -- *
--------- ----
All trustees and executive officers as a group (15
persons).................................................. 2,986,959 1.06%
========= ====
</TABLE>
- ---------------
* Less than 1%.
(1) Assumes a total of 281,453,518 Units outstanding as of March 7, 2000.
(2) Includes 1,775,065 Units held by Samstock/SZRT, L.L.C. of which may be
deemed to be beneficially owned by Mr. Zell. Excludes an additional
11,858,068 Units in which Mr. Zell has an interest but does not have voting
or dispositive power.
(3) Does not include 13,620,819 Units attributable to EGI Holdings, Inc., EGIL
Investments, Inc., Samstock/ZFT, L.L.C., Samstock/SZRT, L.L.C.,
Samstock/ZGPI, L.L.C. and Samstock/Alpha, L.L.C., which may be deemed to be
beneficially owned by Ms. Rosenberg solely as a result of her position as
director, and/or executive officer of the ultimate general partner or
shareholder of such entities, or a director, and/or executive officer, of
such entities. Ms. Rosenberg disclaims beneficial ownership of such
13,620,819 Units.
(4) Includes 24,115 Units held by Wright Runstad & Company which may be deemed
to be beneficially owned by Mr. Runstad; however, Mr. Runstad disclaims
beneficial ownership of such 24,115 Units.
(5) Does not include 401,809 Units held by The Leventhal Family Limited
Partnership. Paula Sidman, Mr. Sidman's spouse, is a general partner of such
partnership; however, Mrs. Sidman disclaims beneficial ownership of the
Units beneficially owned by such partnership except for the Units in which
she has a pecuniary interest.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
WRIGHT RUNSTAD AFFILIATED TRANSACTIONS.
H. Jon Runstad, a trustee of the Trust, is the Chairman, Chief Executive
Officer and a director of Wright Runstad & Company, the general partner of
Wright Runstad Associates Limited Partnership, which we refer to as "WRALP."
Through direct and indirect holdings, Mr. Runstad owns 40.27% of WRALP. A
subsidiary of The Trust and an affiliate of Equity Group Investments, L.L.C.
together own a 30% limited partnership interest in WRALP. During 1999, such
subsidiary and limited partner received distributions of $.9 million from WRALP.
In addition, various subsidiaries of the Trust made payments to WRALP during
100
<PAGE> 101
1999 totaling $5.1 million as development and management fees, leasing
commissions and related expense reimbursements with respect to some of the
Properties. An additional $4.7 million was paid during 1999 to Wright Runstad &
Company for the reimbursement of salaries of personnel in connection with such
management services.
Wright Runstad & Company leases space in some of the Office Properties. The
terms of the leases are consistent with terms of unaffiliated tenants' leases.
Total rents and other amounts paid by Wright Runstad & Company under its lease
were approximately $.3 million for the year ending December 31, 1999.
In addition, Mr. Runstad had an interest in the following transactions
during 1999:
- WRALP serves as the co-property manager with the Company and leasing
agent for our portfolio of office buildings acquired in December 1997
from an entity affiliated with WRALP. Those buildings are located in
Seattle and Bellevue, Washington; Portland, Oregon and Anchorage,
Alaska.
- In December 1997, the Company agreed to guarantee a line of credit
obtained by WRALP from a third-party lender in an amount of up to $19.5
million in principal plus $.5 million in costs. The balance outstanding
on that line of credit at December 31, 1999 was approximately $16.9
million. We have not been required to make any payments under that
guarantee.
- WRALP is the property manager for two additional office buildings which
we acquired in 1998 and are located in Seattle, Washington.
- WRALP is the property manager for one additional office building which
we acquired in 1999 and is located in Bellevue, Washington.
- WRALP owns a 20% interest and the Company owns an 80% interest in WRC
Sunset North LLC, a Washington limited liability company that developed
a three-building office complex, Sunset North Corporate Campus, in
Bellevue, Washington. WRALP served as developer of that project and
currently serves as its co-property manager with the Company and leasing
agent.
- WRALP owns a 20% interest and the Company owns an 80% interest in Three
Bellevue Center LLC, a Washington limited liability company that is
developing an office building, Three Bellevue Center, in Bellevue,
Washington. WRALP is serving as developer of that project and, upon
completion, is expected to serve as co-property manager with the Company
and leasing agent.
- WRALP is currently developing an office building, The World Trade Center
in Seattle, Washington. Upon completion of the building, the Company
will serve as co-property manager and leasing agent with WRALP. We have
agreed to acquire that building after it has been completed and occupied
by a third party tenant.
EQUITY GROUP INVESTMENTS AFFILIATED TRANSACTIONS
The Company leases office space at Two North Riverside Plaza, Chicago,
Illinois owned by Two North Riverside Plaza Joint Venture, a partnership
comprised of trusts established for the benefit of the families of Samuel Zell
and Robert Lurie, a deceased former business partner of Mr. Zell. Prior to May
1, 1999, Equity Group Investments, L.L.C., and its affiliates provided the
Company and its subsidiaries with real estate tax services. We paid
approximately $3.5 million during 1999 to Equity Group Investments, L.L.C. and
its affiliates for such office space and services. Management believes these
amounts equal a market rental rate for the office space and the actual cost of
providing these services.
Prior to October 1, 1999, EGI Risk Services Inc., a wholly owned subsidiary
of Equity Group Investments, L.L.C. provided risk management services to the
Company, including reviewing, obtaining and/or researching various insurance
policies. In addition, National Liberty, an affiliate of Equity Group
Investments, L.L.C. provided certain insurance coverage for the Company for the
period prior to October 1, 1999. Fees paid to EGI Risk Services Inc. and
insurance premiums paid to National Liberty during 1999 were approximately $3.5
million.
101
<PAGE> 102
An affiliate of Equity Group Investments, L.L.C. has an indirect minority
interest in Standard Parking Limited Partnership, which we refer to as "SPLP."
An affiliate of SPLP manages the parking operations at certain properties that
are owned by the Company. We believe amounts paid to SPLP's affiliate are equal
to market rates for such services.
The Company has entered into various lease agreements with SPLP's
affiliates whereby such affiliates lease certain stand-alone parking facilities.
Certain of these lease agreements provide such affiliates with annual successive
options to extend the term of the lease through various dates. The rent paid in
1999 under these lease agreements was approximately $9.0 million. In addition,
we may receive additional rent based upon actual gross revenues generated by
these parking facilities. In accordance with certain of these leases, we may be
obligated to make an early termination payment if agreement is not reached as to
rent amounts to be paid for future periods.
On July 28, 1998, the Company purchased for $48.5 million 50,000 8.25% Step
Up Convertible Trust Preferred Securities, $1,000 liquidation preference per
share, issued by CT Convertible Trust I, a subsidiary of Capital Trust, Inc., in
a private placement. The preferred securities are convertible at any time into
Class A common shares of Capital Trust, Inc. at a conversion price of $11.70,
reflecting a 30% conversion premium over Capital Trust, Inc.'s common share
price at the close of business on July 24, 1998. The preferred securities are
non-callable for five years, and have a 20-year maturity. Mr. Zell, Chairman of
our Board of Trustees is also Chairman of the Board of Capital Trust, Inc, and
Ms. Rosenberg and Mr. Dobrowski are directors of Capital Trust, Inc. The Company
earned approximately $4.1 million in dividends in 1999. The dividend is payable
each calendar quarter; commencing in year seven, the dividend will increase by
75 basis points per annum. In connection with the investment, Capital Trust,
Inc. has granted the Company and other investors the right to participate in
certain strategic lending opportunities.
During 1999, the Company invested approximately $2.0 million for
approximately .1 million common shares of Allied Riser Communications
Corporation ("ARC"). ARC is a facilities based provider of broadband data, video
and voice communications services, delivered over fiber optic networks designed,
constructed and owned by ARC in large- and medium-sized office buildings. The
Company and ARC entered into various license agreements allowing ARC to install
and provide its services to tenants in certain of our office properties
containing approximately 75.6 million square feet. In return for allowing ARC
access to our office properties, ARC granted us, in addition to the purchased
securities described above, approximately 1.4 million warrants to acquire an
equal number of common shares of ARC for no additional consideration, as well as
an additional .2 million common shares for nominal consideration, and other ARC
investors transferred approximately .3 million ARC common shares to us. The
warrants and the common shares were recorded at fair value as deferred revenue
and will be amortized over the term of the licensing agreements of five years.
The total deferred revenue at December 31, 1999, was approximately $29.1
million. As of December 31, 1999, the fair value of the ARC common shares and
warrants which are exercisable into ARC common shares at our option commencing
in April 2000, was estimated to be approximately $41.5 million.
In 1999, ARC paid the Company rent and expense reimbursements in the amount
of approximately $0.9 million and access fees in the amount of approximately
$62,000. A private investment entity controlled by Mr. Zell has a substantial
investment in ARC.
MANAGEMENT AFFILIATED TRANSACTIONS
In order to satisfy certain REIT tax requirements, our five senior-most
officers of the Trust own the equity in Access Holding Company, L.L.C.
("Access"). Access is the owner of one hundred percent (100%) of the voting
shares (a five percent economic interest) in Real State Insurance Corporation
("Real State"), a captive insurance company which we created effective October
1, 1999, to provide insurance solely to the Company and its affiliates. The
Company indirectly owns one hundred percent (100%) of the non-voting shares (a
ninety-five percent economic interest) and has an option through its subsidiary
to acquire the interest of Access in Real State, effective on or after January
1, 2001, when REIT tax laws will permit such acquisition and ownership. In 1999,
the Company paid Real State insurance premiums in the amount of approximately
$1.6 million, substantially all of which was allocated to reserves for potential
future losses.
102
<PAGE> 103
In 1999, the Company entered into a revolving loan agreement with Equity
Health Club Holding Corp., an entity in which Messrs. Callahan, Kincaid, Steele
and Stevens each owns a 25% equity interest. This entity is the owner of 100% of
the membership interest in Equity Health Club, L.L.C. which, for REIT tax
reasons, has leased certain health club facilities from us. Under the terms of
this loan agreement, interest accrues prior to default on the balance
outstanding at the so-called "prime rate" plus 4% per annum and the note is
payable on or before July 6, 2004. As of December 31, 1999, the outstanding
principal balance in respect of this loan was approximately $.2 million.
MISCELLANEOUS
Equity Office Properties Management Corp., a Delaware corporation, has
entered into third-party management contracts, on terms equivalent to
third-party transactions, with respect to properties which are owned or
controlled by affiliates of Mr. Zell. Income recognized for such services
rendered for 1999 was approximately $2.2 million.
Certain services for the Company tenants that for tax reasons may not be
performed by a REIT are performed by a service corporation owned entirely by an
affiliate of Mr. Zell. The Company has no control over, or ownership interest
in, this service corporation, which operates as an independent contractor. The
Company may terminate such services at any time upon 30-days' notice. In 1999,
the Company paid this entity and its affiliate an amount equal to $1.2 million
substantially all of which was applied to expenses incurred.
103
<PAGE> 104
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) and (2) Financial Statements and Schedules:
FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheets of EOP Operating Limited Partnership as of
December 31, 1999 and 1998
Consolidated Statements of Operations of EOP Operating Limited Partnership
for the years ended December 31, 1999 and 1998, the period from July 11, 1997
through December 31, 1997 and the Combined Statement of Operations of Equity
Office Predecessors for the period from January 1, 1997 through July 10, 1997.
Consolidated Statements of Changes in Partners' Capital of EOP Operating
Limited Partnership for the years ended December 31, 1999 and 1998, the period
from July 11, 1997 through December 31, 1997 and the Combined Statement of
Owners' Equity for Equity Office Predecessors for the period from January 1,
1997 through July 10, 1997.
Consolidated Statements of Cash Flows of EOP Operating Limited Partnership
for the years ended December 31, 1999 and 1998, the period from July 11, 1997
through December 31, 1997, and the Combined Statements of Cash Flows of Equity
Office Predecessors for the period from January 1, 1997 through July 10, 1997.
Notes to Consolidated and Combined Financial Statements
SCHEDULES
Schedule III -- Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated February 11, 2000, among
the Trust, the Company, Cornerstone and Cornerstone
Partnership (incorporated herein by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K dated February
11, 2000).
4.1* Indenture, dated as of September 2, 1997, between the
Company and State Street Bank and Trust Company
4.2* First Supplemental Indenture, dated as of February 9, 1998,
between the Company and State Street Bank and Trust Company
4.3 Form of 6.375% Note due 2003 (incorporated herein by
reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-4 (Reg. No. 333-47347))
4.4 Form of 6.625% Note due 2005 (incorporated herein by
reference to Exhibit 4.5 to the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347)
4.5 Form of 6.750% Note due 2008 (incorporated herein by
reference to Exhibit 4.6 of the Company's Registration
Statement on Form S-4 (Reg. No. 333-47347))
4.6 Form of 7.250% Note due 2018 (incorporated herein by
reference to Exhibit 4.7 to the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347)
</TABLE>
104
<PAGE> 105
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
4.7 Form of 6.376% MandatOry Par Put Remarketed Securities due
2012 (incorporated herein by reference to Exhibit 4.8 of the
Company's Registration Statement on Form S-4 (Reg. No.
333-47347))
4.8 $30,000,000 7.24% Senior Note due 2004 (incorporated herein
by reference to Exhibit 4.9 to the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347)
4.9 $50,000,000 7.36% Senior Note due 2005 (incorporated herein
by reference to Exhibit 4.10 to the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347)
4.10 $50,000,000 7.44% Senior Note due 2006 (incorporated herein
by reference to Exhibit 4.11 to the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347)
4.11 $50,000,000 7.41% Senior Note due 2007 (incorporated herein
by reference to Exhibit 4.12 to the Operating Partnership's
Registration Statement on Form S-4 (Reg. No. 333-47347)
4.12 Form of 6.50% Notes due 2004 (incorporated herein by
reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-4 (Reg. No. 333-61469))
4.13 Form of 6.763% Notes due 2007 (incorporated herein by
reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-4 (Reg. No. 333-61469))
4.14 Form of 7.25% Notes due 2028 (incorporated herein by
reference to Exhibit 4.5 of the Company's Registration
Statement on Form S-4 (Reg. No. 333-61469))
4.15 Form of 6.375% Notes due 2002 (incorporated herein by
reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed with the SEC on January 25, 1999)
4.16 Form of 6.5% Notes due 2004 (incorporated herein by
reference to Exhibit 4.2 of the Company's Current Report on
Form 8-K filed with the SEC on January 25, 1999)
4.17 Form of 6.8% Notes due 2009 (incorporated herein by
reference to Exhibit 4.3 of the Company's Current Report on
Form 8-K filed with the SEC on January 25, 1999)
4.18 Form of 7.5% Notes due April 19, 2029 (incorporated herein
by reference to Exhibit 4.23 to the Operating Partnership's
Current Report on Form 8-K filed with the SEC on April 19,
1999)
4.19 Form of $400,000,000 8.375% Note due March 15, 2006
(incorporated by reference to Exhibit 4.25 to the Operating
Partnership's Form 8-K dated March 24, 2000)
4.20 Form of $100,000,000 8.375% Note due March 15, 2006
(incorporated by reference to Exhibit 4.26 to the Operating
Partnership's Form 8-K dated March 24, 2000)
4.21 Second Amended and Restated Revolving Credit Agreement
(incorporated by reference to Exhibit 4.22 to the Company's
Form 10-K for the year ended December 31, 1998)
4.22 First Amendment to Second Amended and Restated Revolving
Credit Agreement
4.23 Fixed Rate Promissory Note with The Chase Manhattan Bank
10.1* Agreement of Limited Partnership of the Company's, dated as
of July 3, 1997, as amended
</TABLE>
105
<PAGE> 106
<TABLE>
<S> <C>
12.1 Statement Regarding Computation of Ratios
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors
24.1 Power of Attorney (included in signature page)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Incorporated herein by reference to the same-numbered exhibit to the Trust's
Annual Report on Form 10-K for the year ended December 31, 1997, as amended
(b) Reports on Form 8-K:
None
(b) Exhibits
See Item 14(a)(3) above
(c) Financial Statement Schedules:
None
106
<PAGE> 107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Chicago, Illinois, as of the 27th day of March, 2000.
EOP OPERATING LIMITED PARTNERSHIP
By: EQUITY OFFICE PROPERTIES TRUST
its general partner
By: /s/ TIMOTHY H. CALLAHAN
----------------------------------
Timothy H. Callahan
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated as of the 27th day of March, 2000.
Each person whose signature appears below hereby constitutes and appoints
Samuel Zell and Timothy H. Callahan, and each of them, his attorney-in-fact and
agent, with full power of substitution and resubstitution for him in any and all
capacities, to sign any or all amendments to this annual report on Form 10-K for
the fiscal year ended December 31, 1999, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto such attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that such attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<C> <S>
/s/ TIMOTHY H. CALLAHAN President, Chief Executive Officer and Trustee
- ------------------------------------------------ (principal executive officer)
Timothy H. Callahan
/s/ RICHARD D. KINCAID Chief Financial Officer (principal financial
- ------------------------------------------------ officer and principal accounting officer)
Richard D. Kincaid
/s/ SAMUEL ZELL Chairman of the Board of Trustees
- ------------------------------------------------
Samuel Zell
/s/ D.J. ANDRE DE BOCK Trustee
- ------------------------------------------------
D.J. Andre de Bock
/s/ THOMAS E. DOBROWSKI Trustee
- ------------------------------------------------
Thomas E. Dobrowski
/s/ WILLIAM M. GOODYEAR Trustee
- ------------------------------------------------
William M. Goodyear
/s/ JAMES D. HARPER, JR. Trustee
- ------------------------------------------------
James D. Harper, Jr.
</TABLE>
107
<PAGE> 108
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------- -----
<C> <S>
/s/ DAVID K. MCKOWN Trustee
- ------------------------------------------------
David K. McKown
/s/ JERRY M. REINSDORF Trustee
- ------------------------------------------------
Jerry M. Reinsdorf
/s/ SHELI Z. ROSENBERG Trustee
- ------------------------------------------------
Sheli Z. Rosenberg
/s/ H. JON RUNSTAD Trustee
- ------------------------------------------------
H. Jon Runstad
/s/ EDWIN N. SIDMAN Trustee
- ------------------------------------------------
Edwin N. Sidman
</TABLE>
108
<PAGE> 109
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/99 NOTES
----------- ----- -------- --------------- ------
<S> <C> <C> <C> <C>
1 60 Spear Street Building............................ (3) San Francisco, CA $ --
2 San Felipe Plaza.................................... (3) Houston, TX (51,455,300)
3 Summit Office Park.................................. (3) Ft. Worth, TX --
4 Intercontinental Center............................. (3) Houston, TX --
5 Four Forest Plaza................................... (3) Dallas, TX --
6 Dominion Tower...................................... (3) Norfolk, VA --
7 Northborough Tower.................................. (3) Houston, TX --
8 500 Marquette Building.............................. (3) Albuquerque, NM --
9 Community Corporate Center.......................... (3) Columbus, OH (16,616,100)
10 Sarasota City Center................................ (3) Sarasota, FL --
11 Denver Corporate Center II & III.................... (3) Denver, CO --
12 University Tower.................................... (3) Durham, NC --
13 Shelton Pointe...................................... (3) Shelton, CT --
14 San Jacinto Center.................................. (3) Austin, TX --
15 1111 19th Street.................................... (3) Washington, D.C. --
16 North Central Plaza Three........................... (3) Dallas, TX --
17 The Quadrant........................................ (3) Englewood, CO --
18 Canterbury Green.................................... (3)(4) Stamford, CT (19,107,200)
19 Three Stamford Plaza................................ (3) Stamford, CT (16,626,100)
20 Union Square........................................ (3) San Antonio, TX --
21 One North Franklin.................................. (3) Chicago, IL --
22 1620 L Street....................................... (3) Washington, D.C. --
23 300 Atlantic Street................................. (3) Stamford, CT --
24 One and Two Stamford Plaza.......................... (3) Stamford, CT --
25 1700 Higgins........................................ (3) Des Plaines, IL --
26 One Congress Plaza.................................. (3) Austin, TX --
27 Northwest Center.................................... (3) San Antonio, TX --
28 One Crosswoods Center............................... (3) Columbus, OH --
29 One Lakeway Center.................................. (3) Metairie, LA --
30 Three Lakeway Center................................ (3) Metairie, LA --
31 Two Lakeway Center.................................. (3) Metairie, LA --
32 Bank of America Plaza............................... (3) Nashville, TN --
33 The Plaza at LaJolla Village........................ (3) San Diego, CA (57,157,800)
34 Interco Corporate Tower............................. (3) Clayton, MO (21,564,800)
35 9400 NCX............................................ (3) Dallas, TX --
36 Four Stamford Plaza................................. (3) Stamford, CT (15,886,000)
37 1920 Main Plaza..................................... (3) Irvine, CA --
38 Paces West.......................................... (3) Atlanta, GA --
39 One Market.......................................... (3) San Francisco, CA (147,363,300)
40 2010 Main Plaza..................................... (3) Irvine, CA --
41 1100 Executive Tower................................ (3) Orange, CA --
42 28 State Street..................................... (3) Boston, MA --
43 850 Third Avenue.................................... (3) New York, NY --
44 161 N. Clark........................................ (3) Chicago, IL (130,312,400)
45 Wachovia Center..................................... (3) Charlotte, NC (25,712,000)
46 Central Park........................................ (3) Atlanta, GA (55,535,600)
47 One American Center................................. (3) Austin, TX --
48 580 California...................................... (3) San Francisco, CA (29,112,300)
49 1601 Market Street.................................. (3) Philadelphia, PA --
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------------- -------------------------
BUILDING AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- -------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
1 60 Spear Street Building............................ $ 2,125,200 $ 19,126,500 $ -- $ 319,400
2 San Felipe Plaza.................................... 13,471,300 117,984,000 19,600 4,305,900
3 Summit Office Park.................................. 1,421,100 12,789,700 -- 1,029,100
4 Intercontinental Center............................. 1,752,200 14,420,200 69,800 515,600
5 Four Forest Plaza................................... 4,767,900 42,911,400 -- 1,524,200
6 Dominion Tower...................................... 4,643,700 41,100,100 -- 1,228,700
7 Northborough Tower.................................. 1,705,400 12,198,900 37,000 563,000
8 500 Marquette Building.............................. 2,219,800 19,978,600 -- 1,064,100
9 Community Corporate Center.......................... 3,018,900 27,169,800 -- 843,600
10 Sarasota City Center................................ 2,239,600 20,156,700 -- 826,600
11 Denver Corporate Center II & III.................... 6,059,400 36,534,300 -- 1,153,700
12 University Tower.................................... 2,085,100 18,766,100 -- 851,400
13 Shelton Pointe...................................... 1,513,900 13,625,200 -- 617,500
14 San Jacinto Center.................................. 5,074,500 45,670,600 -- 2,426,900
15 1111 19th Street.................................... 5,024,000 45,216,000 -- 819,900
16 North Central Plaza Three........................... 3,632,100 32,689,300 -- 1,223,200
17 The Quadrant........................................ 4,357,300 39,215,300 -- 1,571,800
18 Canterbury Green.................................... -- 41,987,100 91,900 1,461,300
19 Three Stamford Plaza................................ 3,956,600 35,609,800 -- 477,400
20 Union Square........................................ 2,368,500 14,236,000 8,600 1,421,200
21 One North Franklin.................................. 9,830,500 88,474,400 -- 1,205,200
22 1620 L Street....................................... 2,708,200 24,374,000 -- 900,800
23 300 Atlantic Street................................. 4,632,300 41,690,900 -- 896,800
24 One and Two Stamford Plaza.......................... 8,267,700 74,409,300 -- 2,467,300
25 1700 Higgins........................................ 1,323,100 11,907,900 34,500 193,500
26 One Congress Plaza.................................. 6,502,400 58,521,300 -- 3,466,500
27 Northwest Center.................................... 1,948,000 17,531,900 -- 880,800
28 One Crosswoods Center............................... 1,058,900 9,529,800 -- 612,400
29 One Lakeway Center.................................. 2,803,900 25,235,500 -- 1,729,000
30 Three Lakeway Center................................ 4,695,000 43,517,200 59,300 2,124,000
31 Two Lakeway Center.................................. 4,643,500 41,791,800 49,200 2,162,200
32 Bank of America Plaza............................... 3,049,200 27,443,100 -- 583,700
33 The Plaza at LaJolla Village........................ 11,838,900 98,243,100 19,300 1,881,800
34 Interco Corporate Tower............................. 4,688,400 42,195,200 83,900 2,586,200
35 9400 NCX............................................ 3,570,000 32,129,700 -- 4,097,400
36 Four Stamford Plaza................................. 4,470,900 40,237,900 24,500 763,700
37 1920 Main Plaza..................................... 5,480,600 47,525,800 -- 1,736,300
38 Paces West.......................................... 12,833,700 75,024,500 -- 2,304,800
39 One Market.......................................... 34,814,400 313,329,700 -- 30,343,800
40 2010 Main Plaza..................................... 5,197,100 46,773,700 -- 717,100
41 1100 Executive Tower................................ 10,121,800 41,598,600 -- 835,600
42 28 State Street..................................... 9,512,600 85,622,900 -- 40,780,800
43 850 Third Avenue.................................... 9,605,900 86,453,200 30,000 3,085,000
44 161 N. Clark........................................ 15,881,800 142,936,100 -- 19,426,800
45 Wachovia Center..................................... 5,061,000 45,548,900 -- 870,600
46 Central Park........................................ 9,162,600 82,463,000 -- 1,613,100
47 One American Center................................. -- 70,811,600 -- 3,769,200
48 580 California...................................... 7,491,200 67,420,900 107,100 2,855,400
49 1601 Market Street.................................. 5,780,800 52,027,500 -- 4,474,700
<CAPTION>
GROSS AMOUNT CARRIED AT
CLOSE OF PERIOD 12/31/99
--------------------------------
BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL (1)
----------- -------------- --------------- ---------------
<S> <C> <C> <C>
1 60 Spear Street Building............................ $ 2,125,200 $ 19,445,900 $ 21,571,100
2 San Felipe Plaza.................................... 13,490,900 122,289,900 135,780,800
3 Summit Office Park.................................. 1,421,100 13,818,800 15,239,900
4 Intercontinental Center............................. 1,822,000 14,935,800 16,757,800
5 Four Forest Plaza................................... 4,767,900 44,435,600 49,203,500
6 Dominion Tower...................................... 4,643,700 42,328,800 46,972,500
7 Northborough Tower.................................. 1,742,400 12,761,900 14,504,300
8 500 Marquette Building.............................. 2,219,800 21,042,700 23,262,500
9 Community Corporate Center.......................... 3,018,900 28,013,400 31,032,300
10 Sarasota City Center................................ 2,239,600 20,983,300 23,222,900
11 Denver Corporate Center II & III.................... 6,059,400 37,688,000 43,747,400
12 University Tower.................................... 2,085,100 19,617,500 21,702,600
13 Shelton Pointe...................................... 1,513,900 14,242,700 15,756,600
14 San Jacinto Center.................................. 5,074,500 48,097,500 53,172,000
15 1111 19th Street.................................... 5,024,000 46,035,900 51,059,900
16 North Central Plaza Three........................... 3,632,100 33,912,500 37,544,600
17 The Quadrant........................................ 4,357,300 40,787,100 45,144,400
18 Canterbury Green.................................... 91,900 43,448,400 43,540,300
19 Three Stamford Plaza................................ 3,956,600 36,087,200 40,043,800
20 Union Square........................................ 2,377,100 15,657,200 18,034,300
21 One North Franklin.................................. 9,830,500 89,679,600 99,510,100
22 1620 L Street....................................... 2,708,200 25,274,800 27,983,000
23 300 Atlantic Street................................. 4,632,300 42,587,700 47,220,000
24 One and Two Stamford Plaza.......................... 8,267,700 76,876,600 85,144,300
25 1700 Higgins........................................ 1,357,600 12,101,400 13,459,000
26 One Congress Plaza.................................. 6,502,400 61,987,800 68,490,200
27 Northwest Center.................................... 1,948,000 18,412,700 20,360,700
28 One Crosswoods Center............................... 1,058,900 10,142,200 11,201,100
29 One Lakeway Center.................................. 2,803,900 26,964,500 29,768,400
30 Three Lakeway Center................................ 4,754,300 45,641,200 50,395,500
31 Two Lakeway Center.................................. 4,692,700 43,954,000 48,646,700
32 Bank of America Plaza............................... 3,049,200 28,026,800 31,076,000
33 The Plaza at LaJolla Village........................ 11,858,200 100,124,900 111,983,100
34 Interco Corporate Tower............................. 4,772,300 44,781,400 49,553,700
35 9400 NCX............................................ 3,570,000 36,227,100 39,797,100
36 Four Stamford Plaza................................. 4,495,400 41,001,600 45,497,000
37 1920 Main Plaza..................................... 5,480,600 49,262,100 54,742,700
38 Paces West.......................................... 12,833,700 77,329,300 90,163,000
39 One Market.......................................... 34,814,400 343,673,500 378,487,900
40 2010 Main Plaza..................................... 5,197,100 47,490,800 52,687,900
41 1100 Executive Tower................................ 10,121,800 42,434,200 52,556,000
42 28 State Street..................................... 9,512,600 126,403,700 135,916,300
43 850 Third Avenue.................................... 9,635,900 89,538,200 99,174,100
44 161 N. Clark........................................ 15,881,800 162,362,900 178,244,700
45 Wachovia Center..................................... 5,061,000 46,419,500 51,480,500
46 Central Park........................................ 9,162,600 84,076,100 93,238,700
47 One American Center................................. -- 74,580,800 74,580,800
48 580 California...................................... 7,598,300 70,276,300 77,874,600
49 1601 Market Street.................................. 5,780,800 56,502,200 62,283,000
<CAPTION>
DATE OF
ACCUMULATED CONSTRUCTION/ DATE DEPRECIABLE
DESCRIPTION DEPRECIATION RENOVATION ACQUIRED LIVES (2)
----------- ------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
1 60 Spear Street Building............................ $ (1,231,800) 1967/1987 09/29/87 40
2 San Felipe Plaza.................................... (8,308,400) 1984 09/29/87 40
3 Summit Office Park.................................. (1,010,400) 1974/1993 03/01/89 40
4 Intercontinental Center............................. (941,900) 1983/1991 06/28/89 40
5 Four Forest Plaza................................... (2,925,200) 1985 06/29/89 40
6 Dominion Tower...................................... (2,733,300) 1987 07/25/89 40
7 Northborough Tower.................................. (882,800) 1983/1990 08/03/89 40
8 500 Marquette Building.............................. (1,489,600) 1985 08/15/89 40
9 Community Corporate Center.......................... (1,925,400) 1987 06/14/90 40
10 Sarasota City Center................................ (1,243,600) 1989 09/28/90 40
11 Denver Corporate Center II & III.................... (2,371,100) 1981/93-97 12/20/90 40
12 University Tower.................................... (1,325,100) 1987/1992 10/16/91 40
13 Shelton Pointe...................................... (819,800) 1985/1993 11/26/91 40
14 San Jacinto Center.................................. (3,245,700) 1987 12/13/91 40
15 1111 19th Street.................................... (2,900,100) 1979/1993 12/18/91 40
16 North Central Plaza Three........................... (2,326,600) 1986/1994 04/21/92 40
17 The Quadrant........................................ (2,761,600) 1985 12/01/92 40
18 Canterbury Green.................................... (2,792,900) 1987 12/15/92 40
19 Three Stamford Plaza................................ (2,323,300) 1980/1994 12/15/92 40
20 Union Square........................................ (1,086,000) 1986 12/23/92 40
21 One North Franklin.................................. (5,645,600) 1991 12/31/92 40
22 1620 L Street....................................... (1,860,200) 1989 02/05/93 40
23 300 Atlantic Street................................. (2,765,100) 1987/1996 03/30/93 40
24 One and Two Stamford Plaza.......................... (5,096,000) 1986/1994 03/30/93 40
25 1700 Higgins........................................ (767,800) 1986 11/12/93 40
26 One Congress Plaza.................................. (4,472,900) 1987 11/12/93 40
27 Northwest Center.................................... (1,233,000) 1984/1994 11/12/93 40
28 One Crosswoods Center............................... (755,000) 1984 11/12/93 40
29 One Lakeway Center.................................. (1,896,400) 1981/1996 11/12/93 40
30 Three Lakeway Center................................ (3,303,400) 1987/1996 11/12/93 40
31 Two Lakeway Center.................................. (3,031,300) 1984/1996 11/12/93 40
32 Bank of America Plaza............................... (1,790,500) 1977/1995 12/01/93 40
33 The Plaza at LaJolla Village........................ (6,293,500) 1987-1990 03/10/94 40
34 Interco Corporate Tower............................. (3,357,700) 1986 05/27/94 40
35 9400 NCX............................................ (2,650,900) 1981/1995 06/24/94 40
36 Four Stamford Plaza................................. (2,606,200) 1979/1994 08/31/94 40
37 1920 Main Plaza..................................... (3,486,300) 1988 09/29/94 40
38 Paces West.......................................... (5,374,500) 1988 10/31/94 40
39 One Market.......................................... (24,434,200) 1976/1995 11/22/94 40
40 2010 Main Plaza..................................... (3,121,700) 1988 12/13/94 40
41 1100 Executive Tower................................ (2,807,900) 1987 12/15/94 40
42 28 State Street..................................... (10,333,300) 1968/1997 01/23/95 40
43 850 Third Avenue.................................... (5,997,600) 1960/1996 03/20/95 40
44 161 N. Clark........................................ (12,264,400) 1992 07/26/95 40
45 Wachovia Center..................................... (2,871,200) 1972/1994 09/01/95 40
46 Central Park........................................ (5,499,200) 1986 10/17/95 40
47 One American Center................................. (4,867,000) 1984 11/01/95 40
48 580 California...................................... (4,927,000) 1984 12//21/95 40
49 1601 Market Street.................................. (3,604,800) 1970 01/18/96 40
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/99 NOTES
----------- ----- -------- --------------- ------
<S> <C> <C> <C> <C>
50 Two California Plaza............................... (3) Los Angeles, CA $ --
51 BP Tower........................................... (3) Cleveland, OH (85,380,500)
52 Reston Town Center................................. (3) Reston, VA (89,705,700)
53 Reston Town Center Garage.......................... (3)(5) Reston, VA --
54 Colonnade I........................................ (3) San Antonio, TX --
55 One Phoenix Plaza.................................. (3) Phoenix, AZ --
56 49 East Thomas Road................................ (3) Phoenix, AZ --
57 177 Broad Street................................... (3)(6) Stamford, CT --
58 Oakbrook Terrace Tower............................. (3) Oakbrook Terrace, IL --
59 One Maritime Plaza................................. (3) San Francisco, CA --
60 Smith Barney Tower................................. (3) San Diego, CA --
61 201 Mission Street................................. (3) San Francisco, CA --
62 30 N. LaSalle Street............................... (3) Chicago, IL --
63 LL&E Tower......................................... New Orleans, LA (37,500,000) (7)
64 Texaco Center...................................... New Orleans, LA (42,500,000) (7)
65 601 Tchoupitoulas Garage........................... New Orleans, LA -- (7)
66 Prudential Portfolio............................... (8) Various --
67 550 S. Hope........................................ Los Angeles, CA --
68 Four and Five Valley Square........................ Blue Bell, PA --
69 Four Falls Corporate Center........................ Conshohocken, PA --
70 Oak Hill Plaza..................................... King of Prussia, PA --
71 One Devon Square................................... Wayne, PA --
72 Three Devon Square................................. Wayne, PA --
73 Two Devon Square................................... Wayne, PA --
74 Two Valley Square.................................. Blue Bell, PA --
75 Walnut Hill Plaza.................................. King of Prussia, PA (14,408,400)
76 One Lafayette Centre............................... Washington, D.C. --
77 One Valley Square.................................. Blue Bell, PA --
78 Three Valley Square................................ Blue Bell, PA --
79 1600 Duke Street................................... Alexandria, VA --
80 Fair Oaks Plaza.................................... Fairfax, VA --
81 Lakeside Square.................................... Dallas, TX --
82 LaSalle Plaza...................................... Minneapolis, MN --
83 1001 Fifth Avenue.................................. Portland, OR --
84 1111 Third Avenue.................................. Seattle, WA --
85 Calais Office Center............................... Anchorage, AK --
86 Wells Fargo Center................................. Seattle, WA --
87 Nordstrom Medical Tower............................ Seattle, WA --
88 One Bellevue Center................................ Bellevue, WA --
89 Rainier Plaza...................................... Bellevue, WA --
90 Second and Seneca Buildings........................ Seattle, WA --
91 101 N. Wacker...................................... Chicago, IL --
92 175 Wyman Street................................... Walthan, MA --
93 10880 Wilshire Boulevard........................... Los Angeles, CA --
94 10960 Wilshire Boulevard........................... Los Angeles, CA --
95 1300 North 17th Street............................. Rosslyn, VA --
96 1333 H Street...................................... Washington, D.C. --
97 150 Federal Street................................. Boston, MA --
98 1616 N. Fort Myer Drive............................ Rosslyn, VA --
99 175 Federal Street................................. Boston, MA --
100 2 Oliver Street--147 Milk Street................... Boston, MA --
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------------- -------------------------
BUILDING AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- -------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
50 Two California Plaza............................... $ -- $ 156,197,000 $ -- $34,033,900
51 BP Tower........................................... 17,402,500 157,260,200 -- 3,063,600
52 Reston Town Center................................. 21,482,600 154,576,300 33,500 899,600
53 Reston Town Center Garage.......................... 1,942,500 9,640,300 -- --
54 Colonnade I........................................ 1,413,600 12,725,200 81,000 1,156,200
55 One Phoenix Plaza.................................. 6,191,900 55,726,900 -- --
56 49 East Thomas Road................................ 65,300 587,900 -- 21,900
57 177 Broad Street................................... 3,941,200 35,470,800 -- 688,200
58 Oakbrook Terrace Tower............................. 11,950,200 107,551,700 485,700 3,715,500
59 One Maritime Plaza................................. 11,530,700 103,776,000 -- 7,502,700
60 Smith Barney Tower................................. 2,657,700 23,919,400 -- 1,920,400
61 201 Mission Street................................. 8,870,700 79,836,500 -- 1,759,700
62 30 N. LaSalle Street............................... 12,489,000 112,400,700 -- 4,244,200
63 LL&E Tower......................................... 6,185,800 55,672,200 46,000 4,452,900
64 Texaco Center...................................... 6,686,300 60,177,000 9,500 2,263,900
65 601 Tchoupitoulas Garage........................... 1,180,000 10,619,800 -- 300,000
66 Prudential Portfolio............................... 28,463,400 256,216,100 -- 19,732,200
67 550 S. Hope........................................ 10,016,200 90,146,000 -- 1,013,900
68 Four and Five Valley Square........................ 865,700 7,793,200 -- 210,200
69 Four Falls Corporate Center........................ 4,938,900 44,458,300 55,000 1,125,700
70 Oak Hill Plaza..................................... 2,208,200 19,878,500 -- 233,700
71 One Devon Square................................... 1,024,900 9,226,700 -- 178,300
72 Three Devon Square................................. 412,500 3,712,600 -- --
73 Two Devon Square................................... 659,200 5,935,000 -- 228,000
74 Two Valley Square.................................. 879,000 7,913,300 -- 300,400
75 Walnut Hill Plaza.................................. 2,045,000 18,409,900 -- 263,800
76 One Lafayette Centre............................... 8,262,400 74,362,000 -- 574,700
77 One Valley Square.................................. 717,200 6,456,900 -- 674,300
78 Three Valley Square................................ 1,012,100 9,111,300 -- 530,600
79 1600 Duke Street................................... 1,105,600 9,950,000 -- 188,500
80 Fair Oaks Plaza.................................... 2,412,000 21,707,600 35,400 314,800
81 Lakeside Square.................................... 8,262,200 47,368,800 24,200 2,327,700
82 LaSalle Plaza...................................... 9,680,800 87,126,800 -- 1,727,500
83 1001 Fifth Avenue.................................. 5,383,300 48,633,700 -- 1,079,900
84 1111 Third Avenue.................................. 9,899,900 89,570,700 -- 1,795,500
85 Calais Office Center............................... -- 16,630,800 -- 1,214,600
86 Wells Fargo Center................................. 21,360,700 193,528,600 -- 1,817,700
87 Nordstrom Medical Tower............................ 1,763,600 16,026,200 -- 33,100
88 One Bellevue Center................................ -- 56,223,100 -- 976,000
89 Rainier Plaza...................................... -- 79,928,100 -- 916,200
90 Second and Seneca Buildings........................ 10,922,500 98,927,300 -- 799,900
91 101 N. Wacker...................................... 10,035,500 90,319,400 -- 2,245,300
92 175 Wyman Street................................... 20,000,400 -- -- --
93 10880 Wilshire Boulevard........................... -- 149,841,200 142,600 4,001,200
94 10960 Wilshire Boulevard........................... 16,841,300 151,573,900 -- 4,261,800
95 1300 North 17th Street............................. 9,810,700 88,295,900 -- 303,600
96 1333 H Street...................................... 6,715,400 60,438,200 -- 666,800
97 150 Federal Street................................. 14,131,400 127,182,200 -- 10,066,900
98 1616 N. Fort Myer Drive............................ 6,960,700 62,646,300 -- 1,743,900
99 175 Federal Street................................. 4,893,900 44,045,200 -- 1,378,300
100 2 Oliver Street--147 Milk Street................... 5,017,400 45,157,000 -- 1,711,300
<CAPTION>
GROSS AMOUNT CARRIED AT
CLOSE OF PERIOD 12/31/99
--------------------------------
BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL (1)
----------- -------------- --------------- ---------------
<S> <C> <C> <C>
50 Two California Plaza............................... $ -- $ 190,230,900 $ 190,230,900
51 BP Tower........................................... 17,402,500 160,323,800 177,726,300
52 Reston Town Center................................. 21,516,100 155,475,900 176,992,000
53 Reston Town Center Garage.......................... 1,942,500 9,640,300 11,582,800
54 Colonnade I........................................ 1,494,600 13,881,400 15,376,000
55 One Phoenix Plaza.................................. 6,191,900 55,726,900 61,918,800
56 49 East Thomas Road................................ 65,300 609,800 675,100
57 177 Broad Street................................... 3,941,200 36,159,000 40,100,200
58 Oakbrook Terrace Tower............................. 12,435,900 111,267,200 123,703,100
59 One Maritime Plaza................................. 11,530,700 111,278,700 122,809,400
60 Smith Barney Tower................................. 2,657,700 25,839,800 28,497,500
61 201 Mission Street................................. 8,870,700 81,596,200 90,466,900
62 30 N. LaSalle Street............................... 12,489,000 116,644,900 129,133,900
63 LL&E Tower......................................... 6,231,800 60,125,100 66,356,900
64 Texaco Center...................................... 6,695,800 62,440,900 69,136,700
65 601 Tchoupitoulas Garage........................... 1,180,000 10,919,800 12,099,800
66 Prudential Portfolio............................... 28,463,400 275,948,300 304,411,700
67 550 S. Hope........................................ 10,016,200 91,159,900 101,176,100
68 Four and Five Valley Square........................ 865,700 8,003,400 8,869,100
69 Four Falls Corporate Center........................ 4,993,900 45,584,000 50,577,900
70 Oak Hill Plaza..................................... 2,208,200 20,112,200 22,320,400
71 One Devon Square................................... 1,024,900 9,405,000 10,429,900
72 Three Devon Square................................. 412,500 3,712,600 4,125,100
73 Two Devon Square................................... 659,200 6,163,000 6,822,200
74 Two Valley Square.................................. 879,000 8,213,700 9,092,700
75 Walnut Hill Plaza.................................. 2,045,000 18,673,700 20,718,700
76 One Lafayette Centre............................... 8,262,400 74,936,700 83,199,100
77 One Valley Square.................................. 717,200 7,131,200 7,848,400
78 Three Valley Square................................ 1,012,100 9,641,900 10,654,000
79 1600 Duke Street................................... 1,105,600 10,138,500 11,244,100
80 Fair Oaks Plaza.................................... 2,447,400 22,022,400 24,469,800
81 Lakeside Square.................................... 8,286,400 49,696,500 57,982,900
82 LaSalle Plaza...................................... 9,680,800 88,854,300 98,535,100
83 1001 Fifth Avenue.................................. 5,383,300 49,713,600 55,096,900
84 1111 Third Avenue.................................. 9,899,900 91,366,200 101,266,100
85 Calais Office Center............................... -- 17,845,400 17,845,400
86 Wells Fargo Center................................. 21,360,700 195,346,300 216,707,000
87 Nordstrom Medical Tower............................ 1,763,600 16,059,300 17,822,900
88 One Bellevue Center................................ -- 57,199,100 57,199,100
89 Rainier Plaza...................................... -- 80,844,300 80,844,300
90 Second and Seneca Buildings........................ 10,922,500 99,727,200 110,649,700
91 101 N. Wacker...................................... 10,035,500 92,564,700 102,600,200
92 175 Wyman Street................................... 20,000,400 -- 20,000,400
93 10880 Wilshire Boulevard........................... 142,600 153,842,400 153,985,000
94 10960 Wilshire Boulevard........................... 16,841,300 155,835,700 172,677,000
95 1300 North 17th Street............................. 9,810,700 88,599,500 98,410,200
96 1333 H Street...................................... 6,715,400 61,105,000 67,820,400
97 150 Federal Street................................. 14,131,400 137,249,100 151,380,500
98 1616 N. Fort Myer Drive............................ 6,960,700 64,390,200 71,350,900
99 175 Federal Street................................. 4,893,900 45,423,500 50,317,400
100 2 Oliver Street--147 Milk Street................... 5,017,400 46,868,300 51,885,700
<CAPTION>
DATE OF
ACCUMULATED CONSTRUCTION/ DATE DEPRECIABLE
DESCRIPTION DEPRECIATION RENOVATION ACQUIRED LIVES (2)
----------- ------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
50 Two California Plaza............................... $ (15,338,600) 1992 08/23/96 40
51 BP Tower........................................... (9,962,100) 1985 09/04/96, 01/29/98 40
52 Reston Town Center................................. (9,702,900) 1990 10/22/96 40
53 Reston Town Center Garage.......................... (30,100) 1999 10/22/96 40
54 Colonnade I........................................ (1,032,900) 1983 12/04/96 40
55 One Phoenix Plaza.................................. (3,422,500) 1989 12/04/96 40
56 49 East Thomas Road................................ (36,600) 1974/1993 12/11/96 40
57 177 Broad Street................................... (2,303,900) 1989 01/29/97 40
58 Oakbrook Terrace Tower............................. (7,298,500) 1988 04/16/97 40
59 One Maritime Plaza................................. (7,098,300) 1967/1990 04/21/97 40
60 Smith Barney Tower................................. (2,245,000) 1987 04/28/97 40
61 201 Mission Street................................. (5,118,900) 1981 04/30/97 40
62 30 N. LaSalle Street............................... (7,409,800) 1974/1990 06/13/97 40
63 LL&E Tower......................................... (3,610,300) 1987 09/03/97 40
64 Texaco Center...................................... (3,772,600) 1984 09/03/97 40
65 601 Tchoupitoulas Garage........................... (609,900) 1982 09/03/97 40
66 Prudential Portfolio............................... (16,933,300) Various 10/01/97 40
67 550 S. Hope........................................ (5,073,000) 1991 10/06/97 40
68 Four and Five Valley Square........................ (456,400) 1988 10/07/97 40
69 Four Falls Corporate Center........................ (2,596,600) 1988 10/07/97 40
70 Oak Hill Plaza..................................... (1,134,000) 1982 10/07/97 40
71 One Devon Square................................... (542,500) 1984 10/07/97 40
72 Three Devon Square................................. (204,800) 1985 10/07/97 40
73 Two Devon Square................................... (418,800) 1985 10/07/97 40
74 Two Valley Square.................................. (491,900) 1990 10/07/97 40
75 Walnut Hill Plaza.................................. (1,057,100) 1985 10/07/97 40
76 One Lafayette Centre............................... (4,145,900) 1980/1993 10/17/97 40
77 One Valley Square.................................. (409,100) 1982 11/21/97 40
78 Three Valley Square................................ (494,200) 1984 11/21/97 40
79 1600 Duke Street................................... (553,500) 1985 11/24/97 40
80 Fair Oaks Plaza.................................... (1,188,800) 1986 11/24/97 40
81 Lakeside Square.................................... (2,850,400) 1987 11/24/97 40
82 LaSalle Plaza...................................... (4,909,400) 1991 11/25/97 40
83 1001 Fifth Avenue.................................. (2,643,300) 1980 12/17/97 40
84 1111 Third Avenue.................................. (4,967,800) 1980 12/17/97 40
85 Calais Office Center............................... (1,114,200) 1975 12/17/97 40
86 Wells Fargo Center................................. (10,062,100) 1983 12/17/97 40
87 Nordstrom Medical Tower............................ (844,100) 1986 12/17/97 40
88 One Bellevue Center................................ (3,127,200) 1983 12/17/97 40
89 Rainier Plaza...................................... (4,220,300) 1986 12/17/97 40
90 Second and Seneca Buildings........................ (5,376,500) 1991 12/17/97 40
91 101 N. Wacker...................................... (4,813,300) 1980/1990 12/19/97 40
92 175 Wyman Street................................... -- 1999 12/19/97 40
93 10880 Wilshire Boulevard........................... (8,073,900) 1970/1992 12/19/97 40
94 10960 Wilshire Boulevard........................... (8,351,700) 1971/1992 12/19/97 40
95 1300 North 17th Street............................. (4,568,400) 1980 12/19/97 40
96 1333 H Street...................................... (3,117,500) 1982 12/19/97 40
97 150 Federal Street................................. (7,795,700) 1988 12/19/97 40
98 1616 N. Fort Myer Drive............................ (3,277,700) 1974 12/19/97 40
99 175 Federal Street................................. (2,464,900) 1977 12/19/97 40
100 2 Oliver Street--147 Milk Street................... (2,532,300) 1988 12/19/97 40
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/99 NOTES
----------- ----- -------- --------------- ------
<S> <C> <C> <C> <C>
101 200 West Adams..................................... Chicago, IL $ --
102 225 Franklin Street................................ Boston, MA --
103 AT&T Plaza......................................... Oak Brook, IL --
104 Center Plaza....................................... Boston, MA (59,382,200)
105 Centerpointe I & II................................ Fairfax, VA (29,617,000)
106 Civic Opera House.................................. Chicago, IL (30,652,000)
107 Crosby Corporate Center............................ Bedford, MA --
108 Crosby Corporate Center II......................... (5) Bedford, MA --
109 E.J. Randolph...................................... McLean, VA (15,631,500) (9)
110 E.J. Randolph II vacant land....................... McLean, VA --
111 John Marshall I.................................... McLean, VA (20,020,600)
112 Lake Marriott Business Park........................ Santa Clara, CA --
113 Lakeside Office Park............................... Atlanta, GA --
114 Media Center vacant land........................... Burbank, CA --
115 New England Executive Park......................... Burlington, MA --
116 Northridge I....................................... Herndon, VA (14,174,300) (9)
117 One Canal Park..................................... Cambridge, MA --
118 Perimeter Center................................... Atlanta, GA (212,277,800)
119 Presidents Plaza................................... Chicago, IL --
120 Riverview I & II................................... Cambridge, MA --
121 Russia Wharf....................................... Boston, MA --
122 Shoreline Technology Park.......................... Mountain View, CA --
123 South Station...................................... Boston, MA --
124 Sunnyvale Business Center.......................... Sunnyvale, CA --
125 Ten Canal Park..................................... Cambridge, MA --
126 Tri-State International............................ Lincolnshire, IL --
127 Wellesley Office Park.............................. Wellesley, MA (54,563,300)
128 Westbrook Corporate Center......................... Westchester, IL (107,525,600)
129 Westwood Business Center........................... Wellesley, MA --
130 100 Summer Street.................................. Boston, MA --
131 The Tower at New England Executive Park............ (5) Burlington, MA --
132 Westbrook Corporate Center vacant land............. Westchester, IL --
133 Denver Post Tower.................................. Denver, CO --
134 301 Howard Building................................ San Francisco, CA --
135 410 17th Street.................................... Denver, CO --
136 Tabor Center....................................... Denver, CO --
137 Trinity Place...................................... Denver, CO --
138 Dominion Plaza..................................... Denver, CO --
139 Millennium Plaza................................... Englewood, CO --
140 Polk and Taylor Buildings.......................... Arlington, VA --
141 Bank of America Tower.............................. Seattle, WA --
142 Northland Plaza.................................... Bloomington, MN --
143 4949 S. Syracuse................................... Denver, CO --
144 Metropoint......................................... Denver, CO --
145 Metropoint III vacant land......................... Denver, CO --
146 One Park Square.................................... Albuquerque, NM --
147 Park Avenue Tower.................................. New York, NY --
148 Terrace Building................................... Englewood, CO --
149 The Solarium....................................... Englewood, CO --
150 Second and Spring Building......................... Seattle, WA --
151 Colonnade I & II................................... Dallas, TX --
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------------- -------------------------
BUILDING AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- -------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
101 200 West Adams..................................... $ 11,654,100 $ 104,887,100 $ -- $ 2,072,000
102 225 Franklin Street................................ 34,607,800 311,470,600 -- 2,529,200
103 AT&T Plaza......................................... 4,834,200 43,507,900 36,000 1,516,600
104 Center Plaza....................................... 18,942,300 170,480,400 -- 3,696,900
105 Centerpointe I & II................................ 8,837,800 79,540,200 366,900 719,700
106 Civic Opera House.................................. 12,771,300 114,941,900 -- 3,342,300
107 Crosby Corporate Center............................ 5,957,800 53,620,400 49,800 1,071,100
108 Crosby Corporate Center II......................... 9,384,600 27,584,300 -- 4,569,000
109 E.J. Randolph...................................... 3,936,600 35,429,100 7,000 189,900
110 E.J. Randolph II vacant land....................... 5,770,000 -- -- 146,400
111 John Marshall I.................................... 5,216,400 46,814,100 23,600 93,500
112 Lake Marriott Business Park........................ 9,090,800 84,967,100 231,600 1,716,100
113 Lakeside Office Park............................... 4,792,500 43,132,300 -- 585,500
114 Media Center vacant land........................... 19,900,200 -- -- --
115 New England Executive Park......................... 15,636,600 140,729,200 102,400 6,469,300
116 Northridge I....................................... 3,224,900 29,024,400 -- 52,600
117 One Canal Park..................................... 2,006,000 18,054,000 -- 156,800
118 Perimeter Center................................... 65,886,000 428,981,700 272,500 8,833,200
119 Presidents Plaza................................... 13,435,300 120,919,200 -- 2,136,700
120 Riverview I & II................................... 5,937,600 53,438,100 6,300 975,800
121 Russia Wharf....................................... 3,891,400 35,022,800 -- 1,226,500
122 Shoreline Technology Park.......................... 31,575,200 190,894,500 -- 495,800
123 South Station...................................... -- 31,073,800 -- 728,900
124 Sunnyvale Business Center.......................... 4,890,000 44,010,000 -- 43,800
125 Ten Canal Park..................................... 2,383,100 21,447,900 -- 38,200
126 Tri-State International............................ 10,925,300 98,327,300 141,200 2,001,300
127 Wellesley Office Park.............................. 16,492,700 148,434,200 20,300 2,432,900
128 Westbrook Corporate Center......................... 24,874,900 223,874,100 30,100 4,630,300
129 Westwood Business Center........................... 2,719,600 24,476,300 -- 591,600
130 100 Summer Street.................................. 22,271,000 200,439,300 -- 11,443,100
131 The Tower at New England Executive Park............ 2,792,900 25,136,500 -- 14,019,100
132 Westbrook Corporate Center vacant land............. 3,972,800 -- -- --
133 Denver Post Tower.................................. -- 52,937,200 -- 4,683,600
134 301 Howard Building................................ 7,050,800 58,920,400 -- 2,756,300
135 410 17th Street.................................... 4,473,700 40,263,700 -- 1,834,200
136 Tabor Center....................................... 27,948,500 116,536,200 -- 2,509,500
137 Trinity Place...................................... 1,898,400 17,085,400 -- 901,400
138 Dominion Plaza..................................... 5,990,100 53,911,200 -- 3,709,700
139 Millennium Plaza................................... 7,757,100 38,313,800 -- 45,900
140 Polk and Taylor Buildings.......................... 16,942,500 152,482,800 -- 6,371,700
141 Bank of America Tower.............................. 40,178,200 361,603,500 -- 5,868,500
142 Northland Plaza.................................... 4,705,100 42,346,000 -- 692,800
143 4949 S. Syracuse................................... 822,300 7,400,800 -- 158,800
144 Metropoint......................................... 4,374,900 39,374,500 -- 393,700
145 Metropoint III vacant land......................... 2,000,000 -- -- --
146 One Park Square.................................... 3,634,300 32,708,700 -- 896,600
147 Park Avenue Tower.................................. 48,976,000 195,903,900 -- 4,419,500
148 Terrace Building................................... 1,546,400 13,917,900 -- 499,800
149 The Solarium....................................... 1,951,100 17,560,100 -- 402,200
150 Second and Spring Building......................... 1,968,400 17,715,700 -- 491,200
151 Colonnade I & II................................... 9,043,800 81,394,100 -- 1,554,200
<CAPTION>
GROSS AMOUNT CARRIED AT
CLOSE OF PERIOD 12/31/99
--------------------------------
BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL (1)
----------- -------------- --------------- ---------------
<S> <C> <C> <C>
101 200 West Adams..................................... $ 11,654,100 $ 106,959,100 $ 118,613,200
102 225 Franklin Street................................ 34,607,800 313,999,800 348,607,600
103 AT&T Plaza......................................... 4,870,200 45,024,500 49,894,700
104 Center Plaza....................................... 18,942,300 174,177,300 193,119,600
105 Centerpointe I & II................................ 9,204,700 80,259,900 89,464,600
106 Civic Opera House.................................. 12,771,300 118,284,200 131,055,500
107 Crosby Corporate Center............................ 6,007,600 54,691,500 60,699,100
108 Crosby Corporate Center II......................... 9,384,600 32,153,300 41,537,900
109 E.J. Randolph...................................... 3,943,600 35,619,000 39,562,600
110 E.J. Randolph II vacant land....................... 5,770,000 146,400 5,916,400
111 John Marshall I.................................... 5,240,000 46,907,600 52,147,600
112 Lake Marriott Business Park........................ 9,322,400 86,683,200 96,005,600
113 Lakeside Office Park............................... 4,792,500 43,717,800 48,510,300
114 Media Center vacant land........................... 19,900,200 -- 19,900,200
115 New England Executive Park......................... 15,739,000 147,198,500 162,937,500
116 Northridge I....................................... 3,224,900 29,077,000 32,301,900
117 One Canal Park..................................... 2,006,000 18,210,800 20,216,800
118 Perimeter Center................................... 66,158,500 437,814,900 503,973,400
119 Presidents Plaza................................... 13,435,300 123,055,900 136,491,200
120 Riverview I & II................................... 5,943,900 54,413,900 60,357,800
121 Russia Wharf....................................... 3,891,400 36,249,300 40,140,700
122 Shoreline Technology Park.......................... 31,575,200 191,390,300 222,965,500
123 South Station...................................... -- 31,802,700 31,802,700
124 Sunnyvale Business Center.......................... 4,890,000 44,053,800 48,943,800
125 Ten Canal Park..................................... 2,383,100 21,486,100 23,869,200
126 Tri-State International............................ 11,066,500 100,328,600 111,395,100
127 Wellesley Office Park.............................. 16,513,000 150,867,100 167,380,100
128 Westbrook Corporate Center......................... 24,905,000 228,504,400 253,409,400
129 Westwood Business Center........................... 2,719,600 25,067,900 27,787,500
130 100 Summer Street.................................. 22,271,000 211,882,400 234,153,400
131 The Tower at New England Executive Park............ 2,792,900 39,155,600 41,948,500
132 Westbrook Corporate Center vacant land............. 3,972,800 -- 3,972,800
133 Denver Post Tower.................................. -- 57,620,800 57,620,800
134 301 Howard Building................................ 7,050,800 61,676,700 68,727,500
135 410 17th Street.................................... 4,473,700 42,097,900 46,571,600
136 Tabor Center....................................... 27,948,500 119,045,700 146,994,200
137 Trinity Place...................................... 1,898,400 17,986,800 19,885,200
138 Dominion Plaza..................................... 5,990,100 57,620,900 63,611,000
139 Millennium Plaza................................... 7,757,100 38,359,700 46,116,800
140 Polk and Taylor Buildings.......................... 16,942,500 158,854,500 175,797,000
141 Bank of America Tower.............................. 40,178,200 367,472,000 407,650,200
142 Northland Plaza.................................... 4,705,100 43,038,800 47,743,900
143 4949 S. Syracuse................................... 822,300 7,559,600 8,381,900
144 Metropoint......................................... 4,374,900 39,768,200 44,143,100
145 Metropoint III vacant land......................... 2,000,000 -- 2,000,000
146 One Park Square.................................... 3,634,300 33,605,300 37,239,600
147 Park Avenue Tower.................................. 48,976,000 200,323,400 249,299,400
148 Terrace Building................................... 1,546,400 14,417,700 15,964,100
149 The Solarium....................................... 1,951,100 17,962,300 19,913,400
150 Second and Spring Building......................... 1,968,400 18,206,900 20,175,300
151 Colonnade I & II................................... 9,043,800 82,948,300 91,992,100
<CAPTION>
DATE OF
ACCUMULATED CONSTRUCTION/ DATE DEPRECIABLE
DESCRIPTION DEPRECIATION RENOVATION ACQUIRED LIVES (2)
----------- ------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
101 200 West Adams..................................... $ (5,741,400) 1985/1996 12/19/97 40
102 225 Franklin Street................................ (16,382,200) 1966/1996 12/19/97 40
103 AT&T Plaza......................................... (2,464,300) 1984 12/19/97 40
104 Center Plaza....................................... (9,023,700) 1969 12/19/97 40
105 Centerpointe I & II................................ (4,112,200) 1988-1990 12/19/97 40
106 Civic Opera House.................................. (6,394,600) 1929/1996 12/19/97 40
107 Crosby Corporate Center............................ (2,787,700) 1996 12/19/97 40
108 Crosby Corporate Center II......................... (784,800) 1998 12/19/97 40
109 E.J. Randolph...................................... (1,827,900) 1983 12/19/97 40
110 E.J. Randolph II vacant land....................... -- N/A 12/19/97 N/A
111 John Marshall I.................................... (2,402,700) 1981 12/19/97 40
112 Lake Marriott Business Park........................ (3,989,900) 1981 12/19/97 40
113 Lakeside Office Park............................... (2,286,500) 1972-1978 12/19/97 40
114 Media Center vacant land........................... -- N/A 12/19/97 N/A
115 New England Executive Park......................... (7,597,100) 1970-1985 12/19/97 40
116 Northridge I....................................... (1,482,100) 1988 12/19/97 40
117 One Canal Park..................................... (977,100) 1987 12/19/97 40
118 Perimeter Center................................... (23,491,800) 1970-1989 12/19/97 40
119 Presidents Plaza................................... (6,528,400) 1980-1982 12/19/97 40
120 Riverview I & II................................... (2,775,200) 1985-1986 12/19/97 40
121 Russia Wharf....................................... (2,414,400) 1978-1982 12/19/97 40
122 Shoreline Technology Park.......................... (9,417,600) 1985-1991 12/19/97 40
123 South Station...................................... (1,615,100) 1988 12/19/97 40
124 Sunnyvale Business Center.......................... (2,246,700) 1990 12/19/97 40
125 Ten Canal Park..................................... (1,095,800) 1987 12/19/97 40
126 Tri-State International............................ (5,552,300) 1986 12/19/97 40
127 Wellesley Office Park.............................. (7,840,800) 1963-1984 12/19/97 40
128 Westbrook Corporate Center......................... (12,176,800) 1985-1996 12/19/97 40
129 Westwood Business Center........................... (1,322,600) 1985 12/19/97 40
130 100 Summer Street.................................. (9,403,800) 1974/1990 03/18/98 40
131 The Tower at New England Executive Park............ (599,500) 1971/1999 03/31/98 40
132 Westbrook Corporate Center vacant land............. -- N/A 04/02/98 N/A
133 Denver Post Tower.................................. (2,474,100) 1984 04/21/98 40
134 301 Howard Building................................ (2,661,700) 1988 04/29/98 40
135 410 17th Street.................................... (1,828,800) 1978 04/30/98 40
136 Tabor Center....................................... (5,243,000) 1985 04/30/98 40
137 Trinity Place...................................... (796,800) 1983 04/30/98 40
138 Dominion Plaza..................................... (2,353,600) 1983 05/14/98 40
139 Millennium Plaza................................... (1,564,400) 1982 05/19/98 40
140 Polk and Taylor Buildings.......................... (8,077,900) 1970 05/22/98 40
141 Bank of America Tower.............................. (14,560,300) 1985 06/26/98 40
142 Northland Plaza.................................... (1,610,500) 1985 07/02/98 40
143 4949 S. Syracuse................................... (288,600) 1982 07/15/98 40
144 Metropoint......................................... (1,475,300) 1987 07/15/98 40
145 Metropoint III vacant land......................... -- N/A 07/15/98 N/A
146 One Park Square.................................... (1,240,200) 1985 07/15/98 40
147 Park Avenue Tower.................................. (7,280,900) 1986 07/15/98 40
148 Terrace Building................................... (526,400) 1982 07/15/98 40
149 The Solarium....................................... (665,500) 1982 07/15/98 40
150 Second and Spring Building......................... (689,200) 1906/1989 07/29/98 40
151 Colonnade I & II................................... (2,786,800) 1983-1985 09/30/98 40
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
ENCUMBRANCES
DESCRIPTION NOTES LOCATION AT 12/31/99 NOTES
----------- ----- -------- --------------- ------
<S> <C> <C> <C> <C>
152 Colonnade III...................................... (5) Dallas, TX $ --
153 Worldwide Plaza.................................... New York, NY (254,767,200)
154 Central Park vacant land........................... Atlanta, GA --
155 Computer Associates Tower.......................... Irving, TX --
156 Texas Commerce Tower............................... Irving, TX --
157 City Center Bellevue............................... Bellevue, WA --
158 Prominence vacant land............................. Atlanta, GA --
159 Palo Alto Square................................... Palo Alto, CA (52,550,000)
---------------
Subtotal Office Properties........................... $(1,707,105,000)
---------------
Development Properties:
160 150 California..................................... (10) San Francisco, CA $ --
161 John Marshall III.................................. (10) McLean, VA --
162 Riverside.......................................... (10) Newton, MA --
163 Prominence in Buckhead............................. (10) Atlanta, GA --
164 World Trade Center................................. (11) Seattle, WA --
---------------
Subtotal Development Properties...................... $ --
---------------
Parking Facilities:
1 203 North LaSalle Garage............................ (3) Chicago, IL $ (32,432,600) (12)
2 Theatre District Garage............................. (3) Chicago, IL --
3 Capital Commons Garage.............................. (3) Indianapolis, IN (4,333,700)
4 Boston Harbor Garage................................ (3) Boston, MA --
5 Milwaukee Center Garage............................. (3) Milwaukee, WI --
6 1111 Sansom Street Garage........................... (3) Philadelphia, PA --
7 15th & Sansom Streets Garage........................ (3) Philadelphia, PA --
8 1602-34 Chancellor Garage........................... (3) Philadelphia, PA --
9 1616 Sansom Street Garage........................... (3) Philadelphia, PA --
10 Juniper/Locust Streets Garage...................... (3) Philadelphia, PA --
11 Adams-Wabash Garage................................ Chicago, IL --
12 Riverfront Center.................................. Pittsburgh, PA --
13 Forbes and Allies Garages.......................... Pittsburgh, PA --
14 517 Marquette Garage............................... (5) Minneapolis, MN --
---------------
Subtotal Parking Facilities $ (36,766,300)
---------------
Management Business -- Furniture, fixtures and equipment $ --
---------------
Investment in Real Estate $(1,743,871,300) (13)
===============
<CAPTION>
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
-------------------------------- -------------------------
BUILDING AND BUILDING AND
DESCRIPTION LAND IMPROVEMENTS LAND IMPROVEMENTS
----------- -------------- --------------- ---------- ------------
<S> <C> <C> <C> <C>
152 Colonnade III...................................... $ 6,152,000 $ 55,367,700 $ -- $ 3,019,500
153 Worldwide Plaza.................................... 124,919,000 499,676,100 -- 108,900
154 Central Park vacant land........................... 3,975,400 -- -- --
155 Computer Associates Tower.......................... 5,129,400 46,164,300 12,800 113,100
156 Texas Commerce Tower............................... 5,525,400 49,728,500 -- 357,400
157 City Center Bellevue............................... 22,794,100 93,141,500 -- 384,500
158 Prominence vacant land............................. 7,861,700 -- -- --
159 Palo Alto Square................................... -- 78,286,700 -- 401,800
-------------- --------------- ---------- ------------
Subtotal Office Properties........................... $1,375,333,200 $10,874,433,100 $2,848,100 $415,366,900
-------------- --------------- ---------- ------------
Development Properties:
160 150 California..................................... $ 12,566,800 $ -- $ -- $30,277,900
161 John Marshall III.................................. 9,950,000 -- -- 30,486,100
162 Riverside.......................................... 24,000,000 -- -- 47,344,300
163 Prominence in Buckhead............................. 7,456,300 57,686,900 -- 9,293,300
164 World Trade Center................................. -- -- -- 163,800
-------------- --------------- ---------- ------------
Subtotal Development Properties...................... $ 53,973,100 $ 57,686,900 $ -- $117,565,400
-------------- --------------- ---------- ------------
Parking Facilities:
1 203 North LaSalle Garage............................ $ 3,784,600 $ 34,061,500 $ -- $ 1,129,300
2 Theatre District Garage............................. 3,372,300 30,326,400 -- 419,300
3 Capital Commons Garage.............................. -- 14,428,500 -- 30,000
4 Boston Harbor Garage................................ 6,087,300 54,785,300 -- 1,931,700
5 Milwaukee Center Garage............................. -- 7,798,800 -- 354,100
6 1111 Sansom Street Garage........................... 1,476,500 -- 6,800 --
7 15th & Sansom Streets Garage........................ 726,400 6,537,600 -- 11,300
8 1602-34 Chancellor Garage........................... 735,900 6,622,700 -- 1,113,900
9 1616 Sansom Street Garage........................... 432,900 3,896,200 -- 22,000
10 Juniper/Locust Streets Garage...................... 574,400 5,169,900 -- 246,600
11 Adams-Wabash Garage................................ 2,525,000 22,725,300 -- 298,500
12 Riverfront Center.................................. 1,794,500 16,160,000 -- 940,900
13 Forbes and Allies Garages.......................... -- 31,370,500 -- 1,455,100
14 517 Marquette Garage............................... 4,538,000 14,865,000 -- --
-------------- --------------- ---------- ------------
Subtotal Parking Facilities $ 26,047,800 $ 248,747,700 $ 6,800 $ 7,952,700
-------------- --------------- ---------- ------------
Management Business -- Furniture, fixtures and equipm $ -- $ -- $ -- $22,578,200
-------------- --------------- ---------- ------------
Investment in Real Estate $1,455,354,100 $11,180,867,700 $2,854,900 $563,463,200
============== =============== ========== ============
<CAPTION>
GROSS AMOUNT CARRIED AT
CLOSE OF PERIOD 12/31/99
--------------------------------
BUILDING AND
DESCRIPTION LAND IMPROVEMENTS TOTAL (1)
----------- -------------- --------------- ---------------
<S> <C> <C> <C>
152 Colonnade III...................................... $ 6,152,000 $ 58,387,200 $ 64,539,200
153 Worldwide Plaza.................................... 124,919,000 499,785,000 624,704,000
154 Central Park vacant land........................... 3,975,400 -- 3,975,400
155 Computer Associates Tower.......................... 5,142,200 46,277,400 51,419,600
156 Texas Commerce Tower............................... 5,525,400 50,085,900 55,611,300
157 City Center Bellevue............................... 22,794,100 93,526,000 116,320,100
158 Prominence vacant land............................. 7,861,700 -- 7,861,700
159 Palo Alto Square................................... -- 78,688,500 78,688,500
-------------- --------------- ---------------
Subtotal Office Properties........................... $1,378,181,300 $11,289,800,000 $12,667,981,300
-------------- --------------- ---------------
Development Properties:
160 150 California..................................... $ 12,566,800 $ 30,277,900 $ 42,844,700
161 John Marshall III.................................. 9,950,000 30,486,100 40,436,100
162 Riverside.......................................... 24,000,000 47,344,300 71,344,300
163 Prominence in Buckhead............................. 7,456,300 66,980,200 74,436,500
164 World Trade Center................................. -- 163,800 163,800
-------------- --------------- ---------------
Subtotal Development Properties...................... $ 53,973,100 $ 175,252,300 $ 229,225,400
-------------- --------------- ---------------
Parking Facilities:
1 203 North LaSalle Garage............................ $ 3,784,600 $ 35,190,800 $ 38,975,400
2 Theatre District Garage............................. 3,372,300 30,745,700 34,118,000
3 Capital Commons Garage.............................. -- 14,458,500 14,458,500
4 Boston Harbor Garage................................ 6,087,300 56,717,000 62,804,300
5 Milwaukee Center Garage............................. -- 8,152,900 8,152,900
6 1111 Sansom Street Garage........................... 1,483,300 -- 1,483,300
7 15th & Sansom Streets Garage........................ 726,400 6,548,900 7,275,300
8 1602-34 Chancellor Garage........................... 735,900 7,736,600 8,472,500
9 1616 Sansom Street Garage........................... 432,900 3,918,200 4,351,100
10 Juniper/Locust Streets Garage...................... 574,400 5,416,500 5,990,900
11 Adams-Wabash Garage................................ 2,525,000 23,023,800 25,548,800
12 Riverfront Center.................................. 1,794,500 17,100,900 18,895,400
13 Forbes and Allies Garages.......................... -- 32,825,600 32,825,600
14 517 Marquette Garage............................... 4,538,000 14,865,000 19,403,000
-------------- --------------- ---------------
Subtotal Parking Facilities $ 26,054,600 $ 256,700,400 $ 282,755,000
-------------- --------------- ---------------
Management Business -- Furniture, fixtures and equipm $ -- $ 22,578,200 $ 22,578,200
-------------- --------------- ---------------
Investment in Real Estate $1,458,209,000 $11,744,330,900 $13,202,539,900
============== =============== ===============
<CAPTION>
DATE OF
ACCUMULATED CONSTRUCTION/ DATE DEPRECIABLE
DESCRIPTION DEPRECIATION RENOVATION ACQUIRED LIVES (2)
----------- ------------- ------------- ------------------ -----------
<S> <C> <C> <C> <C>
152 Colonnade III...................................... $ (1,683,100) 1998 09/30/98 40
153 Worldwide Plaza.................................... (15,097,000) 1989 10/01/98 40
154 Central Park vacant land........................... -- N/A 11/03/98 N/A
155 Computer Associates Tower.......................... (1,116,500) 1988 01/07/99 40
156 Texas Commerce Tower............................... (1,223,400) 1985 01/07/99 40
157 City Center Bellevue............................... (2,246,500) 1987 01/28/99 40
158 Prominence vacant land............................. -- N/A 07/13/99 N/A
159 Palo Alto Square................................... (410,500) 1971/1985 10/01/99 40
-------------
Subtotal Office Properties........................... $(614,198,700)
-------------
Development Properties:
160 150 California..................................... $ -- N/A 12/19/97 N/A
161 John Marshall III.................................. -- N/A 12/19/97 N/A
162 Riverside.......................................... -- N/A 12/19/97 N/A
163 Prominence in Buckhead............................. (108,100) 1999 07/13/99 40
164 World Trade Center................................. -- N/A N/A N/A
-------------
Subtotal Development Properties...................... $ (108,100)
-------------
Parking Facilities:
1 203 North LaSalle Garage............................ $ (2,280,400) 1985 06/09/95 40
2 Theatre District Garage............................. (1,888,400) 1987 06/09/95 40
3 Capital Commons Garage.............................. (887,000) 1987 06/29/95 40
4 Boston Harbor Garage................................ (3,513,200) 1972 12/10/96 40
5 Milwaukee Center Garage............................. (540,300) 1988 12/18/96 40
6 1111 Sansom Street Garage........................... (1,400) N/A 12/27/96 40
7 15th & Sansom Streets Garage........................ (401,300) 1950/1954 12/27/96 40
8 1602-34 Chancellor Garage........................... (423,600) 1945/1955 12/27/96 40
9 1616 Sansom Street Garage........................... (237,700) 1950 12/27/96 40
10 Juniper/Locust Streets Garage...................... (327,400) 1949/1952 12/27/96 40
11 Adams-Wabash Garage................................ (1,375,700) 1990 08/11/97 40
12 Riverfront Center.................................. (941,400) 1989 11/25/97 40
13 Forbes and Allies Garages.......................... (843,100) 1954 12/17/98 40
14 517 Marquette Garage............................... (232,200) 1999 04/01/99 40
-------------
Subtotal Parking Facilities $ (13,893,100)
-------------
Management Business -- Furniture, fixtures and equipm $ (2,186,700)
-------------
Investment in Real Estate $(630,386,600)
=============
</TABLE>
<PAGE> 113
- ---------------
(1) The aggregate cost for Federal Income Tax purposes as of December 31, 1999
was approximately $10.3 billion.
(2) The life to compute depreciation on building is 40 years. The life to
compute depreciation on building improvements is 4-40 years.
(3) The date acquired represents the date these Properties were acquired by
Equity Office Predecessors. The acquisition of the Properties, or interest
therein, by the Company from Equity Office Predecessors in connection with
the Consolidation on July 11, 1997, was accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion
No. 16. Accordingly, the assets were recorded by the Company at their fair
values.
(4) This Property contains 106 residential units in addition to 224,405 square
feet of office space.
(5) These Properties were previously under development and have been placed
into service during 1999.
(6) This Property contains 161 residential units in addition to 187,573 square
feet of office space.
(7) These loans are subject to cross default and collateralization provisions.
(8) The Prudential Portfolio consists of six Office Buildings located in
Philadelphia, PA, Dallas, TX, and Houston, TX. These Office Buildings were
constructed between 1969 and 1984.
(9) These loans are subject to cross default and collateralization provisions.
(10) These properties are in various development stages. During the development
period certain operating costs, including real estate taxes together with
interest incurred during the development stages will be capitalized.
(11) During 1998, the Company committed to acquire this property upon its
completion. The costs reflected above include legal and other professional
fees incurred in connection with the Company's potential acquisition of
this project. This transaction is contingent upon certain terms and
conditions as set forth in its respective purchase agreement. There can be
no assurance that this transaction will be consummated.
(12) The encumbrance on the 203 North LaSalle Garage is also secured by a first
lien on the Theatre District Garage.
(13) The encumbrances at December 31, 1999 include a net premium (net of
accumulated amortization of approximately $4.0 million) of approximately
$10.6 million.
<PAGE> 114
A SUMMARY OF ACTIVITY OF INVESTMENT IN REAL ESTATE AND ACCUMULATED DEPRECIATION
IS AS FOLLOWS:
The changes in investment in real estate for the years ended December 31,
1999 and 1998, the period from July 11, 1997 through December 31, 1997 and the
period from January 1, 1997 through July 10, 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JULY 11, 1997 THROUGH JANUARY 1, 1997 THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 JULY 10, 1997
----------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Balance, beginning of the
period....................... $13,683,819,300 $11,041,014,100 $ -- $3,549,707,600
Additions during period:
Acquisitions.............. 391,917,800 2,556,978,300 10,941,428,100 531,968,000
Improvements.............. 297,495,500 207,093,000 99,586,000 59,511,000
Deductions during period:
Properties disposed
of(1)................... (1,170,692,700) (121,266,100) (67,193,400)
--------------- --------------- --------------- --------------
Balance, end of period......... $13,202,539,900 $13,683,819,300 $11,041,014,100 $4,073,993,200
=============== =============== =============== ==============
</TABLE>
The changes in accumulated depreciation for the years ended December 31,
1999 and 1998, the period from July 11, 1997 through December 31, 1997 and the
period from January 1, 1997 through July 10, 1997 are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD FROM FOR THE PERIOD FROM
JULY 11, 1997 THROUGH JANUARY 1, 1997 THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997 JULY 10, 1997
----------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
Balance, beginning of the
period....................... $ (352,258,800) $ (64,695,100) $ -- $ (257,893,300)
Additions during period:
Depreciation.............. (339,751,400) (291,213,400) (64,695,100) (57,379,300)
Deductions during period:
Properties disposed
of(1)................... 61,623,600 3,649,700 -- 8,517,200
--------------- --------------- --------------- --------------
Balance, end of period......... $ (630,386,600) $ (352,258,800) $ (64,695,100) $ (306,755,400)
=============== =============== =============== ==============
</TABLE>
(1) The disposition amount of approximately $1.2 billion and the related
accumulated depreciation of $61.6 million for the year ended December 31,
1999 includes approximately $1.1 billion and $58.5 million, respectively,
related to the partial sale of interest in various Properties to Lend Lease
Australia/US Properties. Prior to the sale, the Company consolidated the
financial condition and results of operations of the Office Properties. Upon
the sale, the Company retained an equity interest in the Office Properties
and shares equally in the control of the operations and major decisions of
the Office Properties. Therefore, the Company accounts for its remaining
interest in the Office Properties under the equity method of accounting and
classifies its net equity investment of approximately $486.9 million as
investment in unconsolidated joint ventures on the consolidated balance
sheet and its interest in the net income from investment in unconsolidated
joint venture is reflected in the consolidated statements of operations.
<PAGE> 1
Exhibit 4.22
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING
CREDIT AGREEMENT (this "Amendment") is made as of June 18, 1999, by and among
EOP OPERATING LIMITED PARTNERSHIP (the "Borrower"), EQUITY OFFICE PROPERTIES
TRUST (the "Guarantor"), NATIONSBANK, N.A., as Administrative Agent for the
Banks (the "Administrative Agent"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
THE CHASE MANHATTAN BANK, as Documentation Agent and as Managing Agent, J.P.
MORGAN SECURITIES INC., as Syndication Agent, THE BANK OF NOVA SCOTIA,
COMMERZBANK AKTIENGESELLSCHAFT, DRESDNER BANK AG, NEW YORK AND CAYMAN BRANCHES,
PNC BANK, NATIONAL ASSOCIATION, and UNION BANK OF SWITZERLAND, NEW YORK BRANCH,
as Managing Agents, CREDIT LYONNAIS, NEW YORK BRANCH, FLEET NATIONAL BANK, and
U.S. BANK NATIONAL ASSOCIATION, as Co-Agents, and the BANKS party hereto.
W I T N E S S E T H:
WHEREAS, the Borrower has executed and delivered to the Agents
(or their predecessors), the Managing Agents, certain of the Co-Agents and the
Banks that certain Second Amended and Restated Revolving Credit Agreement dated
as of May 29, 1998, by and among the Borrower, certain of the Banks, the
Managing Agents, the Co-Agents and the Agents (the "Credit Agreement");
WHEREAS, the Borrower has requested that the Banks agree to
modify the Credit Agreement in order to amend certain provisions therein, upon
the terms and conditions set forth herein, and the Administrative Agent has
recommended that such modification be approved by the Banks.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Credit Agreement.
2. Amendments.
(a) The definition of "Applicable Margin" set forth in the
Credit Agreement is hereby amended by adding the following clause at the end of
the first sentence thereof:
"; provided, however, that, during the twelve (12) month
period following the closing of an Identified Merger or
Acquisition (as hereinafter defined), if the ratio of Total
Liabilities to Total Asset Value of the Borrower at any time
exceeds 0.50:1, then the Applicable Margin for Euro-Dollar
Loans made or outstanding during the period that such ratio
exceeds 0.50:1 shall be Applicable Margin set forth on the
table below plus 0.20%.
(b) The definition of "Documentation Agent" set forth in the
Credit Agreement is hereby deleted and the following is substituted therefor:
"Documentation Agent" means The Chase Manhattan Bank, in its
capacity as Documentation Agent hereunder, and its permitted
successors in such capacity in accordance with the terms of
this Agreement.
<PAGE> 2
(c) The definition of "Joint Venture Subsidiary" is hereby
amended by (1) inserting the word "substantially" between "is" and "controlled"
in clause (ii) of the first sentence thereof, and (2) inserting the following
clause at the end of the first sentence thereof: ", subject to customary
provisions set forth in the organizational documents of such Joint Venture
Subsidiary with respect to refinancings or rights of first refusal granted to
other members of such Joint Venture Subsidiary."
(d) The definition of "Unencumbered Asset Value" is hereby
amended by (1) inserting the words "the sum of" after the word "means" in the
first line thereof, (2) inserting the following words after "(i)" in the first
line thereof: "all Cash and Cash Equivalents of the Borrower, all Financing
Partnerships and Joint Venture Subsidiaries which are not subject to any pledge,
negative pledge, encumbrance, hypothecation or other restriction (provided that
in the case of Cash and Cash Equivalents of any Joint Venture Subsidiary, the
amount of Cash and Cash Equivalents attributable to such Joint Venture
Subsidiary shall be reduced to a percentage equal to the Borrower's percentage
ownership interest (whether direct or indirect) in such Joint Venture
Subsidiary), plus (ii)", (3) deleting "$1.50" from the fifth line thereof and
substituting therefor "$0.50", (4) renumbering clause (ii) in the tenth line
thereof as clause (iii) and revising all cross-references to such clause within
such definition, (5) deleting "twenty-five percent (25%)" from line 23 thereof
and substituting therefor "twenty percent (20%)", and (6) deleting "twenty-five
percent (25%)" from line 27 thereof and substituting therefor "fifteen percent
(15%)."
(e) Section 5.8(a) of the Credit Agreement is hereby
deleted in its entirety and substituted therefor is the following covenant:
(a) Total Liabilities to Total Asset Value. The Borrower shall
not permit the ratio of Total Liabilities to Total Asset Value
of Borrower to exceed 0.50:1 at any time except for the twelve
(12) month period described in the following sentence. During
the twelve (12) month period following the closing of the
Identified Merger or Acquisition, Borrower shall not permit
the ratio of Total Liabilities to Total Asset Value of the
Borrower to exceed 0.55:1. As used in this Agreement, the term
"Identified Merger or Acquisition" shall mean the first merger
or acquisition by Borrower or any Subsidiary which Borrower
has designated in writing to the Administrative Agent as the
Identified Merger or Acquisition at least thirty (30) days
prior to the closing of such merger or acquisition and for
which Borrower has, prior to the closing of such merger or
acquisition, provided the Administrative Agent with Borrower's
projections for the twelve (12) month period following such
merger or acquisition, after giving effect to such merger or
acquisition, outlining in reasonable detail the anticipated
performance of Borrower during such twelve (12) month period
and anticipated compliance with the requirements of Section
5.8 hereof during such twelve (12) month period.
(f) Section 5.8(j) of the Credit Agreement is hereby amended
by deleting "fifteen percent (15%)" from the sixth line thereof and substituting
therefor "twenty percent (20%)".
3. Confirmation of Guaranties. Guarantor hereby acknowledges
and agrees that the Amended and Restated Guaranty of Payment - No. 1 dated as of
May 29, 1998 and the Amended and Restated Guaranty of Payment - No. 2 dated
<PAGE> 3
as of May 29, 1998, each entered into in connection with the Credit Agreement,
and the Guarantor's obligations under each such guaranty, continue in full force
and effect notwithstanding this Amendment.
4. Representations and Warranties. The Borrower hereby
represents and warrants to the Banks that no Default or Event of Default exists
under the Credit Agreement and that the representations and warranties of the
Borrower set forth in the Credit Agreement are true and correct on and as of the
date hereof, except to the extent that such representations and warranties
expressly speak only as of a prior date, in which case such representations and
warranties were true and correct on and as of such prior date.
5. Effective Date. This Amendment shall become effective upon
receipt by the Administrative Agent of counterparts hereof signed by each of the
parties hereto (or, in the case of any party as to which an executed counterpart
shall not have been received, receipt by the Administrative Agent in form
satisfactory to it of telegraphic, telex or other written confirmation from such
party of execution of a counterpart hereof by such party).
6. Entire Agreement. This Amendment constitutes the entire and
final agreement among the parties hereto with respect to the subject matter
hereof and there are no other agreements, understandings, undertakings,
representations or warranties among the parties hereto with respect to the
subject matter hereof except as set forth herein.
7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the law of the State of Illinois.
8. Counterparts. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
9. Headings, Etc. Section or other headings contained in this
Amendment are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Amendment.
10. No Further Modifications. Except as modified herein, all
of the terms and conditions of the Credit Agreement, as modified hereby shall
remain in full force and effect and, as modified hereby, the Borrower confirms
and ratifies all of the terms, covenants and conditions of the Credit Agreement
in all respects.
Signature Pages to Follow
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized officers as of the
day and year first above written.
EOP OPERATING LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Equity Office Properties Trust,
a Maryland real estate
investment trust, its managing
general partner
By: /s/ RICHARD D. KINCAID
---------------------------------
Name: Richard D. Kincaid
-------------------------------
Title: Executive Vice President and
------------------------------
Chief Financial Officer
WITH RESPECT TO
SECTION 3 HEREOF
ONLY: EQUITY OFFICE PROPERTIES TRUST
By: /s/ RICHARD D. KINCAID
---------------------------------
Name: Richard D. Kincaid
-------------------------------
Title: Executive Vice President and
------------------------------
Chief Financial Officer
NATIONSBANK, N.A., as Administrative
Agent, as Swingline Lender and as a
Bank
By: /s/ PATRICK TRONBRIDGE
---------------------------------
Name: Patrick Tronbridge
-------------------------------
Title: Vice President
------------------------------
Commitment: $138,000,000
THE CHASE MANHATTAN BANK, as
Documentation Agent, as a Managing
Agent and as a Bank
By: /s/ MARC E. COSTANTINO
---------------------------------
Name: Marc E. Costantino
-------------------------------
Title: Vice President
------------------------------
Commitment: $65,000,000
<PAGE> 5
J.P. MORGAN SECURITIES, INC., as
Syndication Agent
By: /s/ JENNY Y. LEE
---------------------------------
Name: Jenny Y. Lee
-------------------------------
Title: Vice President
------------------------------
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as a Bank
By: /s/ ROBERT BOTTAMEDI
---------------------------------
Name: Robert Bottamedi
-------------------------------
Title: Vice President
------------------------------
Commitment: $69,000,000
COMMERZBANK AKTIENGESELLSCHAFT, as a
Managing Agent and as a Bank
By: /s/ DOUGLAS P. TRAYNOR
---------------------------------
Name: Douglas P. Traynor
-------------------------------
Title: Vice President
------------------------------
By: /s/ DAVID BUETTNER
---------------------------------
Name: David Buettner
-------------------------------
Title: Assistant Treasurer
------------------------------
Commitment: $65,000,000
<PAGE> 6
DRESDNER BANK AG, NEW YORK AND
CAYMAN BRANCHES, as a Managing Agent
and as Bank
By: /s/ BERVERLY G. CASON
---------------------------------
Name: Berverly G. Cason
-------------------------------
Title: Vice President
------------------------------
By: /s/ JOHN W. SWEENEY
---------------------------------
Name: John W. Sweeney
-------------------------------
Title: Vice President
------------------------------
Commitment: $65,000,000
PNC BANK, NATIONAL ASSOCIATION, as a
Managing Agent and as a Bank
By: /s/ MICHAEL E. SMITH
---------------------------------
Name: Michael E. Smith
-------------------------------
Title: Vice President
------------------------------
Commitment: $65,000,000
UBS AG, NEW YORK BRANCH, successor-
in-interest to Union Bank of
Switzerland, New York Branch, as a
Managing Agent and as a Bank
By: /s/ JEFFERY W. WALD
---------------------------------
Name: Jeffery W. Wald
-------------------------------
Title: Executive Director
------------------------------
By: /s/ DAVID GOLDMAN
---------------------------------
Name: David Goldman
-------------------------------
Title: Director
------------------------------
Commitment: $65,000,000
CREDIT LYONNAIS, NEW YORK BRANCH, as
a Co-Agent and as a Bank
By: /s/ JAMES FITZGERALD
---------------------------------
Name: James Fitzgerald
-------------------------------
Title: Senior Director
------------------------------
Commitment: $54,000,000
<PAGE> 7
FLEET NATIONAL BANK, as a Co-Agent
and as a Bank
By: /s/ THOMAS J. PONTES
---------------------------------
Name: Thomas J. Pontes
-------------------------------
Title: Vice President
------------------------------
Commitment: $54,000,000
BANK ONE, ILLINOIS, N.A., as a Bank
By: /s/ LYNN BRAUN
---------------------------------
Name: Lynn Braun
-------------------------------
Title: Vice President
-------------------------------
Commitment: $50,000,000
U.S. BANK NATIONAL ASSOCIATION,
as a Co-Agent and as a Bank
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
Commitment: $54,000,000
<PAGE> 8
BAYERISCHE HYPO-UND
VEREINSBANK AG, AS SUCCESSOR
BY MERGER TO
BAYERISCHE HYPOTHEKEN-UND
WECHSEL-BANK AKTIENGESELLSCHAFT, as
a Bank
By: /s/ MEGGAN W. WALSH
---------------------------------
Name: Meggan W. Walsh
-------------------------------
Title: Managing Director
------------------------------
By: /s/ DENNIS B. TRACEY
---------------------------------
Name: Dennis B. Tracey
-------------------------------
Title: Director
------------------------------
Commitment: $50,000,000
BANKBOSTON, N.A., as a Bank
By: /s/ DOUGLAS S. NOVITCH
---------------------------------
Name: Douglas S. Novitch
-------------------------------
Title: Authorized Officer
------------------------------
Commitment: $31,000,000
LASALLE NATIONAL BANK, as a Bank
By: /s/ PETER MARGOLIN
---------------------------------
Name: Peter Margolin
-------------------------------
Title: A.V.P.
------------------------------
Commitment: $30,000,000
MELLON BANK, as a Bank
By: /s/ MICHAEL FALLON
---------------------------------
Name: Michael Fallon
-------------------------------
Title: Vice President
------------------------------
Commitment: $30,000,000
<PAGE> 9
UNION BANK OF CALIFORNIA, N.A., as a
Bank
By: /s/ DIANA GIACOMINI
---------------------------------
Name: Diana Giacomini
-------------------------------
Title: Vice President
------------------------------
Commitment: $30,000,000
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as a Bank
By: /s/ TAKESHI KUBO
---------------------------------
Name: Takeshi Kubo
-------------------------------
Title: Vice President
------------------------------
Commitment: $20,000,000
<PAGE> 1
Exhibit 4.23
[CHASE LOGO]
Fixed Rate Promissory Note
(Multiple Loans)
New York, New York January 17, 2000
For value received, the undersigned (the "Borrower") unconditionally
promises to pay to the order of THE CHASE MANHATTAN BANK (the "Bank"), at its
principal office located at 270 Park Avenue, New York, New York 10017, the
principal amount of each loan made by the Bank to the Borrower and outstanding
under this Note, on the maturity date(s) as evidenced in the Bank's records as
provided in the fifth paragraph hereof.
The Borrower promises to pay interest on the unpaid balance of the
principal amount of each such loan for each day outstanding at a fixed rate per
annum equal to the rate as evidenced in the Bank's records as provided in the
fifth paragraph hereof; provided that principal and (to the extent permitted by
law) interest not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest for each day overdue at a variable rate per annum
equal to: (a) the higher of: (i) the Federal Funds Rate plus 1/2 of 1% or (ii)
the Prime Rate; plus (b) 2%. "Federal Funds Rate" means, for any day, the rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions as published by the Federal Reserve Bank of New York for such day
(or for any day that is not a banking day in New York City, for the immediately
preceding banking day). "Prime Rate" means, for any day, that rate of interest
from time to time announced by the Bank at its principal office as its prime
commercial lending rate, as in effect for such day in accordance with
announcements by the Bank of changes in such rate. Interest shall be calculated
on the basis of a year of 360 days and paid for the actual number of days
elapsed (including the first day but excluding the last day). Interest on each
loan shall be due and payable at the maturity thereof (and quarterly, if
requested by the Bank). In no case shall the interest on this Note exceed the
maximum amount which the Bank may charge or collect under applicable law.
Each loan hereunder may be prepaid in whole but not in part, provided
that accrued and unpaid interest is paid on the date of such prepayment,
together with any compensation payable in accordance with the following. If
there is any payment (whether by voluntary prepayment, acceleration or
otherwise) of principal of a loan under this Note on a date other than the
scheduled maturity date thereof set forth in the first paragraph hereof, then
the Borrower will pay the Bank such amount as will be sufficient in the
reasonable opinion of the Bank to compensate it for any loss, cost or expense
which the Bank determines is attributable thereto within ten (10) days after
written notice from the Bank to Borrower of the amount of such loss, cost or
expense and a statement in reasonable detail of the basis for and calculation of
such amount. Without limiting the foregoing, such compensation shall include an
amount equal to the excess, if any, of: (a) the aggregate amount of interest
which otherwise would have accrued on the principal amount so paid for the
period from and including the date of payment to but excluding such maturity
date at the rate of interest provided herein over (b) the amount of interest the
Bank would pay (as determined by the Bank in good faith, such determination to
be conclusive) on a deposit placed with the Bank on the date of such payment in
an amount comparable to such principal amount and with a maturity comparable to
such period.
All payments under this Note shall be made in lawful money of the
United States of America and in immediately available funds at the Bank's
principal office specified above. If any loan evidenced by this Note becomes due
and payable on a day which is not a banking day in New York City, the maturity
of such loan shall be extended to the next succeeding banking day, and interest
shall be payable for such extension on such loan at the rate of interest
specified in this Note.
The date, amount, rate of interest and maturity date of each loan under
this Note as verbally agreed to between the Bank and Borrower at the time each
Loan is requested by Borrower hereunder and each payment of principal, loan(s)
to which such principal is applied (as designated by Borrower at the time such
payment is made) and the outstanding principal balance of loans shall be
recorded by the Bank on its books and prior to any transfer and delivery of this
Note, endorsed by the Bank on the schedule attached or any continuation of the
schedule. Any such endorsement shall be conclusive in the absence of manifest
error.
If any of the following events of default shall occur: (a) the Borrower
fails to pay any liability to the Bank under this Note when due and payable in
the case of principal, within five (5) days after the same became due and
<PAGE> 2
payable in the case of interest and within ten (10) days after written notice
from the Bank to Borrower in all other cases; (b) the Borrower shall breach in
any material respect any representation, warranty or covenant in this Note or
other document executed and delivered by Borrower in connection with this Note
(this Note and any such document being a "Facility Document") or in any
certificate or financial or other statement delivered in connection with a
Facility Document; (c) the Borrower shall become insolvent (however evidenced)
or shall seek any relief under any bankruptcy or similar law of any jurisdiction
(or any person shall seek such relief against the Borrower and such involuntary
case or other proceeding shall remain undismissed and unstayed for a period of
90 days); (e) any Facility Document shall at any time cease to be in full force
and effect or its validity or enforceability shall be disputed or contested; or
(f) any lien or security interest securing this Note shall cease to create a
valid and perfected first priority lien or security interest in the property
purported to be subject thereto; THEN, if the Bank shall elect by notice to the
Borrower, the unpaid principal amount of this Note, together with interest and
any other amounts due hereunder shall become forthwith due and payable; provided
that in the case of an event of default under (d) above, such amounts shall
automatically become due and payable without any notice or other action by the
Bank.
The Borrower waives presentment, notice of dishonor, protest and any
other formality with respect to this Note.
The Borrower shall reimburse the Bank on demand for all reasonable
costs and expenses (including, without limitation, the reasonable fees and
charges of external legal counsel for the Bank) in connection with the
enforcement of this Note.
This Note shall be binding on the Borrower and its successors and
assigns and shall inure to the benefit of the Bank and its successors and
assigns; provided that the Borrower may not delegate any obligations hereunder
without the prior written consent of the Bank. Without limiting any provision of
this Note, the obligations under this Note shall continue in full force and
effect and shall be binding on: (a) the estate of the Borrower if the Borrower
is an individual; and (b) any successor partnership and on previous partners and
their respective estates if the Borrower is a partnership, regardless of any
change in the partnership as a result of death, retirement or otherwise.
THIS NOTE SHALL BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. THE
BORROWER CONSENTS TO THE NONEXCLUSIVE JURISDICTION AND VENUE OF THE STATE OR
FEDERAL COURTS LOCATED IN THE CITY OF NEW YORK. SERVICE OF PROCESS BY THE BANK
IN CONNECTION WITH ANY SUCH DISPUTE SHALL BE BINDING ON THE BORROWER IF SENT TO
THE BORROWER BY REGISTERED MAIL AT THE ADDRESS SPECIFIED BELOW. THE BORROWER
AND, BY ITS ACCEPTANCE OF THIS NOTE, LENDER WAIVE ANY RIGHT EACH MAY HAVE TO
JURY TRIAL.
Address: Two North Riverside Plaza EOP OPERATING LIMITED PARTNERSHIP,
Suite 2200 a Delaware limited partnership
Chicago, Illinois 60606
Attention: Treasurer By: Equity Office Properties Trust,
its managing general partner
By: /s/ MAUREEN FEAR
---------------------------------
Name: Maureen Fear
-------------------------------
Title: Sr. Vice President, Treasurer
------------------------------
<PAGE> 3
<TABLE>
<CAPTION>
Amount of
Date Payment and Principal
and Amount Loan Number Balance
Loan of Loan Maturity to Which Remaining Notation
Number and Rate Date Applied Unpaid Made By
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
<S> <C> <C> <C> <C> <C>
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
- --------------------- ------------------ ------------------ ------------------ --------------------- --------------------
</TABLE>
<PAGE> 1
Exhibit 12.1
EOP OPERATING LIMITED PARTNERSHIP AND
EQUITY OFFICE PREDECESSORS
STATEMENTS REGARDING COMPUTATION OF RATIOS
(DOLLARS IN 000'S)
<TABLE>
<CAPTION> EOP
OPERATING Equity
EOP EOP LIMITED Office
OPERATING OPERATING PARTNERSHIP Predecessors
LIMITED LIMITED for the for
PARTNERSHIP PARTNERSHIP period from the period from
for the for the July 11, 1997 January 1, 1997 Equity Office Predecessors
Year Ended Year Ended through through Combined Historical for the Years
December 31, December 31, December 31, July 10, Ended December 31,
1999 1998 1997 1997 1996 1995
------------ ------------ -------------- --------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income before preferred
distributions, gains from
sales of property, provision
for value impairment
and extraordinary items
Plus Fixed Charges: $430,412 $380,328 $ 94,962 $ 49,173 $ 68,087 $ 23,436
Interest expense 413,995 338,611 76,675 80,481 119,595 100,566
Interest expense from
unconsolidated subsidiaries 9,116 8,580
Loan amortization cost 4,693 6,404 4,179 2,771 4,275 2,025
Taxes 654 1,664 0 0 0 0
-------- -------- -------- -------- -------- --------
Earnings $858,870 $735,587 $175,816 $132,425 $191,957 $126,027
======== ======== ======== ======== ========= ========
Fixed Charges:
Interest expense $413,995 $338,611 $ 76,675 $ 80,481 $119,595 $100,566
Interest expense from
unconsolidated subs 9,116 8,580 0 0 0 0
Capitalized interest 18,030 15,077 1,890 3,669 4,640 1,682
Loan amortization cost 4,693 6,404 4,179 2,771 4,275 2,025
Preferred distributions 43,603 32,202 649 0 0 0
-------- -------- -------- -------- -------- --------
Total Fixed Charges $489,437 $400,874 $ 83,393 $ 86,921 $128,510 $104,273
======== ======== ======== ======== ======== ========
Ratio of earnings to combined
fixed charges and preferred
share distributions 1.8 1.8 2.1 1.5 1.5 1.2
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
Equity Office Properties Management Corp., a Delaware corporation
In addition, the Company has interests in 284 entities which are not deemed to
be significant subsidiaries.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3) and related Prospectuses of EOP Operating Limited Partnership for the
registration of $2.0 billion debt securities and warrants (registration
statement no. 333-58689), of our report dated February 8, 2000, except for Note
24, as to which the date is February 15, 2000, with respect to the consolidated
financial statements and schedule of EOP Operating Limited Partnership and
Equity Office Predecessors included in the 1999 Annual Report (Form 10-K) of EOP
Operating Limited Partnership.
Ernst & Young LLP
Chicago, Illinois
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 22,092
<SECURITIES> 0
<RECEIVABLES> 193,194
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,258,619
<PP&E> 13,202,540
<DEPRECIATION> (630,387)
<TOTAL-ASSETS> 14,046,058
<CURRENT-LIABILITIES> 484,613
<BONDS> 5,851,918
0
615,000
<COMMON> 0
<OTHER-SE> 7,094,527
<TOTAL-LIABILITY-AND-EQUITY> 14,046,058
<SALES> 0
<TOTAL-REVENUES> 1,942,243
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,087,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 413,995
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (10,548)
<CHANGES> 0
<NET-INCOME> 430,264
<EPS-BASIC> 1.49
<EPS-DILUTED> 1.48
</TABLE>
