<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For quarterly period ended September 30, 1997
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from _____to_____
Commission File Number 0-10421
CORNERSTONE PROPERTIES INC.
(Exact name of registrant as specified in its charter)
NEVADA 74-2170858
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
126 EAST 56TH STREET
NEW YORK, NEW YORK 10022
(Address of principal executive offices)
(212) 605-7100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of Common Stock outstanding as of November 13, 1997: 83,176,819
Total pages = 15
Exhibit Index located on page 14
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments, at cost:
Land $ 89,835 $ 68,395
Buildings and improvements 659,504 612,567
Deferred lease costs 126,375 118,700
--------- ---------
875,714 799,662
Less: Accumulated depreciation and amortization 219,881 198,686
--------- ---------
Total investments 655,833 600,976
Cash and cash equivalents 224,874 114,803
Restricted cash (Note 3) 39,728 4,426
Other deferred costs, net of accumulated amortization of $1,647
and $1,140 3,795 3,562
Deferred tenant receivables 36,208 34,747
Tenant and other receivables 4,384 2,405
Notes receivable 2,007 2,911
Other assets 5,156 2,350
--------- ---------
TOTAL ASSETS $ 971,985 $ 766,180
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Long-term debt (Note 4) $ 366,830 $ 400,142
Short-term debt (Note 3) 35,000 --
Accrued interest payable 1,522 1,082
Accrued real estate taxes payable 15,968 13,222
Common Stockholders' distribution payable 14,657 12,366
Accounts payable and accrued expenses 9,158 6,468
Unearned revenue and other liabilities 8,223 9,095
--------- ---------
TOTAL LIABILITIES 451,358 442,375
--------- ---------
Minority Interest (Note 1) (17,356) (17,478)
--------- ---------
Redeemable Preferred Stock, $166,500,000 redemption value (Note 6) -- 162,743
--------- ---------
STOCKHOLDERS' INVESTMENT (Note 7)
7% Cumulative Convertible Preferred Stock, $16.50 stated value 50,000 50,000
15,000,000 shares authorized; 3,030,303 shares issued and outstanding
Common stock, no par value; 100,000,000 authorized shares;
shares issued and outstanding (1997-48,856,742; 1996-20,609,754)
Paid-in capital 499,331 160,577
Accumulated deficit (9,123) (30,789)
Deferred compensation (2,225) (1,248)
--------- ---------
TOTAL STOCKHOLDERS' INVESTMENT 537,983 178,540
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 971,985 $ 766,180
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
Page 2 of 15
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------- -------- --------- --------
<S> <C> <C> <C> <C>
REVENUES
Office and parking rentals $ 34,546 $ 27,774 $ 103,237 $ 80,687
Interest and other income 3,868 1,227 8,432 4,076
-------- -------- --------- --------
TOTAL REVENUES 38,414 29,001 111,669 84,763
-------- -------- --------- --------
EXPENSES
Building operating expenses 7,660 6,092 22,693 17,540
Real estate taxes 5,933 4,870 17,553 14,186
Interest expense 7,405 7,922 22,395 24,054
Depreciation and amortization 7,057 6,068 20,865 17,869
General and administrative 1,869 1,675 5,134 4,662
-------- -------- --------- --------
TOTAL EXPENSES 29,924 26,627 88,640 78,311
-------- -------- --------- --------
8,490 2,374 23,029 6,452
-------- -------- --------- --------
OTHER INCOME (EXPENSES)
Net gain on interest rate swaps (Note 1) -- (64) 99 5,401
Minority Interest (414) (331) (1,408) (1,017)
-------- -------- --------- --------
Income before extraordinary item 8,076 1,979 21,720 10,836
Extraordinary loss -- (3,786) (54) (3,786)
-------- -------- --------- --------
NET INCOME (LOSS) $ 8,076 $ (1,807) $ 21,666 $ 7,050
======== ======== ========= ========
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 7,201 $ (2,682) $ 12,381 $ 4,425
======== ======== ========= ========
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM PER COMMON SHARE (Note 1) $ 0.18 $ 0.05 $ 0.37 $ 0.40
======== ======== ========= ========
NET INCOME (LOSS) PER COMMON SHARE (Note 1) $ 0.18 $ (0.13) $ 0.37 $ 0.22
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
Page 3 of 15
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,666 $ 7,050
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 20,865 17,869
Deferred compensation amortization 661 635
Net gain on interest rate swaps (99) (5,401)
Extraordinary loss 54 3,786
Unbilled rental revenue (978) (1,482)
Increase (decrease) in accrued interest payable 440 (2,226)
Minority interest share of income 1,408 1,017
Increase in tenant and other receivables and other assets (4,772) (5,070)
Increase in accounts payable, accrued expenses and other liabilities 4,227 4,243
--------- ---------
Total adjustments 21,806 13,371
--------- ---------
Net cash provided by operating activities 43,472 20,421
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment property (75,064) (6,128)
Repayment of notes receivable 903 813
Earnest deposits -- (4,508)
Deferred costs incurred on investments -- (406)
--------- ---------
Net cash used in investing activities (74,161) (10,229)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock offering 225,400 --
Borrowings under mortgage loan 35,000 116,000
Repayment of term loan (32,500) --
Repayments under mortgage loans (812) (98,121)
Proceeds from dividend reinvestment plan 8,586 4,016
Net payments for swap terminations and prepayment costs (216) (6,665)
(Increase) decrease in restricted cash (35,302) 4,393
Stock/debt issue costs (18,139) (929)
Distribution to minority partners (1,285) (1,422)
Distribution to preferred stockholders (10,160) --
Distribution to common stockholders (29,812) (15,685)
--------- ---------
Net cash provided by financing activities 140,760 1,587
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 110,071 11,779
CASH AND CASH EQUIVALENTS, beginning of period 114,803 7,740
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 224,874 $ 19,519
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
Page 4 of 15
<PAGE> 5
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. NATURE OF COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE COMPANY'S BUSINESS
Cornerstone Properties Inc. ("Cornerstone" or the "Company") is a
self-advised equity real estate investment trust which owns, through
subsidiaries, interests in eight Class A office properties ("Properties")
encompassing approximately 4.9 million rentable square feet. The Company was
formed in May 1981 as ARICO America Realestate Investment Company, a Nevada
corporation, to invest in major commercial real estate projects in North
America.
GENERAL
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. In the opinion of management of the
Company, all adjustments, consisting only of normal recurring accruals,
necessary to summarize fairly the unaudited results of operations for the
three month and nine month periods presented have been included. Results for
the three and nine months ended September 30, 1997 are not necessarily
indicative of results which may be expected for any other interim periods or
for the year as a whole. It is suggested that these financial statements be
read in conjunction with the audited financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Cornerstone,
its wholly-owned qualified REIT subsidiaries and controlled partnerships.
All significant intercompany balances and transactions have been eliminated
in consolidation.
INTEREST RATE SWAP AGREEMENTS
The Company accounts for its interest rate swap agreements as hedges in
accordance with SFAS No. 80 "Accounting for Futures Contracts" if the swap
is designated as a hedge and effectively reduces the exposure to the Company
of market interest rate changes. Changes in the market value of these
interest rate swap agreements are deferred and recognized in income at the
expiration or termination of the underlying debt. Forward interest rate swap
agreements that do not meet hedge criteria are accounted for using
mark-to-market accounting, recognizing any unrealized gain or loss on the
instrument in the period in which it is outstanding. When swaps are
extinguished at the same time as the underlying debt instrument, the cost to
extinguish the swap is treated as extraordinary gain or loss. When a swap
remains in place after the underlying instrument matures, it is accounted
for on a mark-to-market basis. The swap termination is accounted for as
ordinary gain or loss when it is extinguished with no underlying debt
instrument in place. Currently, the Company is not a party to interest rate
swap agreements.
INCOME PER SHARE
Income per share is computed based on the weighted average number of common
shares outstanding of 33,494,282 for 1997 and 20,344,270 for 1996. For 1997
and 1996, dividends applicable to preferred stock of $9,285,000 and
$2,625,000 respectively, have been deducted from the net income in computing
income per share.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
September 30, 1997 financial statement presentation.
Page 5 of 15
<PAGE> 6
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates and assumptions are related
to the recoverability and depreciable lives of investment property and the
recoverability of deferred tenant receivables. Actual results could differ
from those estimates.
2. PROPERTIES
The following schedule summarizes Cornerstone's interest in real estate
investments at September 30, 1997:
<TABLE>
<CAPTION>
Completed/ Net Rentable Ownership
Property Location Acquired square feet % Leased Interest Notes
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center Denver, CO 1983 1,188,000 99% 100%
Norwest Center Minneapolis, MN 1988 1,118,000 99% 50%
Washington Mutual Tower Seattle, WA 1988 1,155,000 98% 50%
125 Summer Street Boston, MA 1989/1995 464,000 94% 100%
Tower 56 New York, NY 1983/1996 162,000 97% 100%
One Lincoln Centre Oakbrook Terrace, IL 1986/1996 297,000 95% 100%
The Frick Building Pittsburgh, PA 1902/1996 341,000 88% 100%
527 Madison Avenue New York, NY 1986/1997 216,000 93% 100% A
</TABLE>
(A) Effective February 14, 1997, Cornerstone, through its wholly-owned
qualified REIT subsidiary, CStone-527 Madison, Inc., purchased 527
Madison Avenue in Midtown Manhattan, New York for approximately $67
million. 527 Madison Avenue is a twenty-six story Class A office
building with approximately 211,000 square feet of office space, 5,000
square feet of first floor retail space and an underground parking
facility for approximately 50 vehicles. The acquisition was financed
with the proceeds from the Company's offering of Preferred Stock,
completed in November 1996.
3. RESTRICTED CASH
The existing $35,000,000 mortgage on 527 Madison Avenue was kept in place
and assigned to Bankers Trust Company as part of the purchase of the
property. On October 27, 1997 the mortgage was repaid. Restricted cash is
being held by escrow agents for real estate taxes and insurance on the One
Norwest Center and Washington Mutual Tower loans.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
Principal Balance
9/30/97 12/31/96 Collateral Interest Rate Maturity Amortization Notes
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$12,926,000 $ 12,926,000 Rent Notes Lesser of 8.11% 01/01/01 None A
or LIBOR + 50bp
97,018,000 97,706,000 One Norwest Center 7.50% 08/01/01 30 years
110,000,000 110,000,000 Norwest Center 8.74% 12/31/05 None
79,100,000 79,100,000 Washington Mutual Tower 7.53% 11/01/05 None
50,000,000 50,000,000 125 Summer Street 7.20% 01/01/03 25 years
beginning 02/01/01
17,786,000 17,910,000 Tower 56 7.67% 04/24/03 30 years
- 32,500,000 Cornerstone Properties Inc. 5.0% B
------------ ------------
$366,830,000 $400,142,000
</TABLE>
(A) At maturity of the debt, Cornerstone has the right to redeem the note in
exchange for common shares of the Company at the lower of market price
or $14.30 per share.
(B) On March 19, 1997, the $32,500,000 term loan was repaid to Deutsche Bank
AG.
Page 6 of 15
<PAGE> 7
5. LINE OF CREDIT
Bankers Trust Company has provided Cornerstone with a $10,000,000 revolving
credit line which is available for general corporate and acquisition
purposes at a rate equivalent to an Adjusted Eurodollar Rate (as defined),
as well as for the issuance of standby letters of credit at a rate of 0.15
percent. At September 30, 1997, none of the credit line had been drawn. The
line of credit expired on November 7, 1997.
6. REDEEMABLE PREFERRED STOCK
<TABLE>
<CAPTION>
Shares Carrying Value Common Stock
Redemption/ Shares Outstanding Net of Issue Conversion
Title Stated Value Authorized When Redeemed Costs When Redeemed Price
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
8% Cum. Convertible $145.00/Share 1,034,483 689,655 $97,609,000 $14.50
8% Cum. Convertible, Series A $145.00/Share 458,621 458,621 $64,906,000 $14.50
------------
$162,515,000
</TABLE>
On July 25, 1997, the Redeemable Preferred shares were converted into
11,482,760 common shares. The contractual conversion was based upon meeting
a $16.00 twenty day average common share price.
7. STOCKHOLDERS' INVESTMENT
On April 22, 1997, Cornerstone Properties Inc. completed its initial U.S.
public offering of 16.1 million shares of common stock at a price of $14 per
share for gross proceeds of $225.4 million. Cornerstone's stock began
trading on the New York Stock Exchange under the symbol CPP.
The offering was underwritten by Merrill Lynch & Co. and included Lazard
Freres & Co. LLC, Lehman Brothers, Morgan Stanley & Co., Inc., Smith Barney
Inc., and BT Securities Corporation as co-managers. The Company intends to
use the net proceeds of this offering for potential acquisitions, working
capital and other general corporate purposes.
The 7% Cumulative Convertible Preferred Stock is convertible into common
stock at $16.50 per share at any time after August 4, 2000.
The following tables summarize the long-term incentive plans for certain
officers of the Company as of September 30, 1997:
STOCK OPTIONS
<TABLE>
<CAPTION>
Options Granted Exercise Price Options Options
Date of Grant No. of shares) (per share) Vesting Exercisable Exercised
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
June, 1995 787,500 $14.30 20%/yr, 10yr term 315,000 0
March, 1997 880,000 $14.50 20%/yr, 10yr term 0 0
</TABLE>
RESTRICTED STOCK GRANTS
<TABLE>
<CAPTION>
Shares Granted Value at Grant
Date of Grant (No. of shares) Date (per share) Vesting (A)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
August, 1995 167,622 $14.30 The grant will fully vest with respect to 13.333% on
June 30, 1996, 1997, 1998, 1999 and with respect to
46.668% on June 30, 2000.
March, 1997 100,000 $16.40 The grant will fully vest with respect to 13.333% on
June 30, 1998, 1999, 2000, 2001 and with respect to
46.668% on June 30, 2002.
</TABLE>
(A) Deferred compensation of approximately $4,037,000 is being amortized
according to the respective amortization schedule for each vesting period
noted above, with the unamortized balance shown as a deduction from
stockholders' investment. Regular dividends are paid on restricted stock.
Page 7 of 15
<PAGE> 8
STOCKHOLDERS' DISTRIBUTIONS
Dividends of $0.30 per share were declared for the first quarter of 1997,
paid on April 30, 1997, to Common Stockholders of record as of March 21,
1997. Dividends of $0.30 per share were declared for the second quarter of
1997, paid on July 31, 1997, to Common Stockholders of record as of June 20,
1997. Dividends of $0.30 per share were declared for the third quarter of
1997, paid on October 31, 1997, to Common Stockholders of record as of
September 19, 1997.
8. NEW PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"),
No. 129 "Disclosure of Information About Capital Structure" ("SFAS 129"),
No. 130 "Reporting Comprehensive Income" ("SFAS 130"), and No. 131
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). All of these statements are effective for fiscal years beginning
after December 15, 1997.
SFAS 128 specifies the computation, representation and disclosure
requirements for earnings per share. SFAS 129 established standards for
disclosing information about an entity's capital structure such as
information about securities, liquidation preference of preferred stock and
redeemable stock. SFAS 130 specifies the presentation and disclosure
requirement for reporting comprehensive income which includes those items
which have been formerly reported as a component of shareholders' equity.
SFAS 131 establishes the disclosure requirements for reporting segment
information.
Management believes that, when adopted, SFAS 128, 129, 130 and 131 will
not have a significant impact on the Company's financial statements.
9. SUBSEQUENT EVENTS
On October 27, 1997 Bankers Trust and Chase Manhattan Bank provided
Cornerstone with a $350 million line of credit for acquisitions and general
working capital purposes as well as the issuance of letters of credit. The
interest rate on the line of credit depends on the Company's leverage ratio
at the time of borrowing and will be at a spread of 1.10% to 1.40% over
LIBOR (as defined). The letters of credit will be priced at the applicable
Eurodollar credit spread. At November 12, 1997, $54 million of the credit
line was outstanding at a rate of LIBOR plus 1.25%. The line of credit
expires on October 27, 2000.
On October 27, 1997 the Company purchased interests in nine premier office
buildings and an undeveloped parcel of land from Dutch Institutional Holding
Company, Inc. for up to 34,187,500 shares of Cornerstone common stock,
$259.5 million in cash and $250 million of promissory notes.
On October 27, 1997 the common shareholders of the Company approved an
increase in the authorized common shares from 100,000,000 to 250,000,000.
Page 8 of 15
<PAGE> 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
CONSOLIDATION
Cornerstone's principal source of income is rental revenues received through its
investment in six fee simple properties and two real estate partnerships held by
nine wholly-owned subsidiaries: 1700 Lincoln Limited owned 90 percent by
ARICO-Denver, Inc. and 10 percent by 1700 Lincoln Inc., NWC Limited Partnership
owned by ARICO-Minneapolis, Inc., Third and University Limited Partnership owned
by ARICO-Seattle, Inc., 125 Summer Street owned by CStone-Boston Inc., Tower 56
owned by CStone-New York Inc., One Lincoln Centre owned by CStone-Oakbrook,
Inc., 527 Madison Avenue owned by CStone-527 Madison, Inc. and the Frick
Building owned by CStone-Pittsburgh Trust, respectively. NWC Limited Partnership
and Third and University Limited Partnership have been consolidated since
Cornerstone has a majority interest in the economic benefits and has the right
to become managing general partner at its sole discretion.
PROPERTY RESULTS
For the three and nine months ended September 30, 1997 and 1996 property results
can be summarized as follows (000's):
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office and Parking Rentals $34,546 $27,774 $103,237 $80,687
Less:
Building Operating Expenses 7,660 6,092 22,693 17,540
Real Estate Taxes 5,933 4,870 17,553 14,186
Depreciation and Amortization 7,057 6,068 20,865 17,869
------- ------- -------- -------
Total Operating Expenses 20,650 17,030 61,111 49,595
------- ------- -------- -------
Total Property Income $13,896 $10,744 $ 42,126 $31,092
======= ======= ======== =======
</TABLE>
The increase in property income for the three months ended September 30, 1997 as
compared to the same period in 1996 of $3.1 million was due to the acquisition
of One Lincoln Centre ($1.0 million), and the Frick Building ($0.4 million)
during 1996, and 527 Madison Avenue ($1.2 million) in early 1997. At the
existing properties, property income at Norwest Center increased $0.5 million
due to the recovery of the increased real estate taxes which were incurred in
1996. Washington Mutual Tower increased $0.3 million due to increased rental
rates and higher parking revenues. The property income at 125 Summer Street
decreased $0.4 million due to the vacancy caused by the expiration of Gadsby and
Hannah and the reduction of rent in the BTM Capital Corporation lease. One
Norwest Center and Tower 56 combined property income increased by $0.1 million.
The increase in property income for the nine months ended September 30, 1997 as
compared to the same period in 1996 of $11.0 million was due to the acquisition
of Tower 56 ($1.1 million), One Lincoln Centre ($2.9 million), and the Frick
Building ($1.3 million) during 1996 and 527 Madison Avenue ($3.6 million) in
early 1997. At the existing properties, property income at One Norwest Center
increased $0.9 million due to a lease buyout of a portion of the Norwest Bank
space in order to allow for the Gulf Canada expansion. Norwest Center increased
$1.9 million due to the recovery of the increased real estate taxes which were
incurred in 1996. Washington Mutual Tower increased $0.9 million due to
increased rental rates and higher parking revenues. The property income at 125
Summer Street decreased $1.6 million due to the vacancy caused by the expiration
of Gadsby and Hannah and the reduction of rent in the BTM Capital Corporation
lease.
Page 9 of 15
<PAGE> 10
INTEREST AND OTHER INCOME
Interest and other income was $3,868,000 and $1,227,000 for the three months
ended September 30, 1997 and 1996, respectively. These amounts primarily consist
of interest earned from short-term investments, notes receivable from partners,
and income from the advisory contracts in 1997 and 1996. The increase was due to
the additional cash available for short-term investment as a result of the
initial public offering.
Year to date interest and other income was $8,432,000 in 1997 and $4,076,000 in
1996. These amounts primarily consist of interest earned from short-term
investments, interest earned on the Tower 56 mortgage notes receivable in 1996,
notes receivable from partners, and income from the advisory contracts in 1997
and 1996. The increase was due to the additional cash available for short-term
investment as a result of the initial public offering.
INTEREST EXPENSE
Interest expense incurred by Cornerstone relating to its financing activities
was $7,405,000 and $7,922,000 for the three months ended September 30, 1997 and
1996, respectively. The decrease was primarily due to the refinancing of the One
Norwest Center debt resulting in savings of $217,000 and approximately $406,000
of savings resulting from the repayment of the $32.5 million term loan. These
amounts are partially offset by approximately $106,000 of increased amortization
of deferred financing costs.
Interest expense incurred by Cornerstone relating to its financing activities
was $22,395,000 and $24,054,000 for the nine months ended September 30, 1997 and
1996, respectively. The decrease was primarily due to the refinancing of the One
Norwest Center debt resulting in savings of $1,320,000, which is offset by the
$444,000 of interest expense on Tower 56 which was financed in the second
quarter of 1996 and increased financing cost amortization of $53,000.
Additionally, the Company had approximately $836,000 of savings resulting from
the repayment of the $32.5 million term loan.
INTEREST RATE SWAPS
During 1996 and 1997 the Company had the following interest rate swaps
outstanding:
The $107 million interest rate swap agreement with a maturity date of July 30,
1998, was accounted for as a hedge since it was comprised of two offsetting
swaps, resulting in a fixed payment from Cornerstone to its counterparties
through the term of the swaps. Upon the refinancing of the One Norwest Center
debt in August 1996, the swap was terminated and the cost to terminate the swap
was recorded as an extraordinary loss.
For the nine month period ended September 30, 1996, interest expense of the
Company included approximately $467,000 of expense related to interest rate swap
agreements. Since the $98 million swap was a forward swap and accounted for on a
mark to market basis, it had no effect on the reported interest expense of the
Company. This swap was terminated during the first quarter of 1997 at a gain of
$99,000 compared to the mark to market gain in the first three quarters of 1996
of $5.4 million. The Company currently is not a party to interest rate swap
agreements.
GENERAL AND ADMINISTRATIVE EXPENSES
The aggregate amount of Cornerstone's general and administrative expenses have
increased to $1,869,000 for the three months ended September 30, 1997 from
$1,675,000 for the same period in 1996. The increase in 1997 from 1996 of
$194,000 was due to increased staffing.
The aggregate amount of Cornerstone's general and administrative expenses have
increased to $5,134,000 for the nine months ended September 30, 1997 from
$4,662,000 for the same period in 1996. The increase in 1997 from 1996 of
$472,000 was due to the write off of certain expenses related to abandoned
projects of $144,000, and increased salaries and benefits due to the hiring of
additional staff of $218,000 and public relations consultants of $110,000.
Page 10 of 15
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW (000'S)
<TABLE>
<CAPTION>
For the nine months For the nine months
Cash flow provided by (used in): ended September 30, 1997 ended September 30, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities $43,472 $20,421
Investing activities (74,161) (10,229)
Financing activities 140,760 1,587
Earnings to fixed charges ratio 1.39 1.17
</TABLE>
Cash provided by operating activities increased from $20.4 million for the nine
months ended September 30, 1996 to $43.5 million for the nine months ended
September 30, 1997. This increase was mainly due to the increase in net rental
revenues (before depreciation and amortization) from the properties of $14.0
million, interest expense savings of $4.3 million on a cash basis, a reduction
in unbilled rental income of $0.5 million, an increase in minority interest of
$0.4 million and increased interest income from higher cash reserves of $4.4
million; these amounts are offset by an increase of approximately $0.5 million
of general and administrative expenses.
Cash used in investing activities increased to $74.2 million for the nine months
ended September 30, 1997 from $10.3 million for the nine months ended September
30, 1996 due to the acquisition of 527 Madison Avenue during 1997 for a total
cost of $67 million.
Cash providing by financing activities increased to $140.8 million for the nine
months ended September 30, 1997 as compared to $1.6 million as of September 30,
1996. The increase was mainly due to the placement proceeds from the initial
public offering which is offset by common and preferred stockholder
distributions and the repayment of the $32.5 million term loan.
The ratio of earnings to fixed charges and dividends on preferred stock
increased to 1.39 times at September 30, 1997 from 1.17 times at September 30,
1996 due to the substantial reduction of the Company's leverage ratio and the
conversion of the 8% preferred shares into common stock.
FUNDS FROM OPERATIONS
The Company calculates Funds from Operations (FFO) based upon guidance from the
National Association of Real Estate Investment Trusts (NAREIT). FFO is defined
as net income, excluding gains or losses from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated joint ventures. The Company has adjusted FFO by the net gain on
interest rate swap previously discussed due to the non-cash nature of this item.
Since the Company is no longer a party to any interest rate swap agreements, the
adjustment in the first quarter of 1997 will be the final adjustment for this
item.
Industry analysts generally consider FFO to be an appropriate measure of
performance of an equity Real Estate Investment Trust (REIT) such as
Cornerstone. FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and, therefore, should
not be considered a substitute for net income as a measure of performance or for
cash flow from operations as a measure of liquidity calculated in accordance
with generally accepted accounting principles.
The Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
an understanding of the ability of the Company to incur and service debt and to
make capital expenditures. For cash flows from operating, financing and
investing activities, see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements which are part of this report.
The Company no longer reports free and deferred rental income as an adjustment
to FFO since this is not part of the industry standard. Therefore, included in
FFO for the three months ended September 30, 1997 and 1996, is a reduction of
approximately $38,000 and an increase of approximately $85,000, respectively,
for free and deferred rental income (after adjustment for minority interest).
Included in FFO for the nine months ended September 30, 1997 and 1996, is
approximately $746,000 and $751,000, respectively, of free and deferred rental
income (after adjustment for minority interest).
Page 11 of 15
<PAGE> 12
The table below sets forth the adjustments which were made to the net income of
the Company in the calculation of FFO for the three and nine month periods ended
September 30, 1997 and 1996, respectively (in thousands):
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS (A)
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 8,076 $ (1,807) $ 21,666 $ 7,050
NAREIT Adjustments:
Depreciation and amortization (B) 7,057 6,068 20,865 17,869
Realized/Unrealized gain 0 64 (99) (5,401)
Minority adjustments (307) (372) (1,044) (1,393)
Extraordinary Losses/Swap Losses 0 3,786 54 3,786
Other Adjustments:
Amortization on rent notes 346 311 903 813
Real estate tax adjustment 0 695 0 2,107
-------- -------- -------- --------
FUNDS FROM OPERATIONS 15,172 8,745 42,345 24,831
-------- -------- -------- --------
Accrued Preferred Dividend (875) (875) (9,285) (2,625)
-------- -------- -------- --------
FUNDS FROM OPERATIONS
AVAILABLE FOR COMMON SHARES $ 14,297 $ 7,870 $ 33,060 $ 22,206
======== ======== ======== ========
</TABLE>
(A) Although the Company believes that this table is a full and fair
presentation of the Company's FFO, similarly captioned items may be defined
differently by other REITs, in which case direct comparisons may not be
possible.
(B) The depreciation and amortization adjustment does not include amortization
of deferred financing costs and depreciation of non-real estate assets in
accordance with guidance from NAREIT.
The increase in FFO for the three months ended September 30, 1997 as compared to
the same period in 1996 is due to a $4.1 million increase in property net
operating income, a $2.6 million increase in interest and other income, a $0.5
million decrease in interest expense, which was offset by the $0.7 million real
estate tax adjustment in 1996 and a $0.2 million increase in general and
administrative expenses.
The increase in FFO available for common shares for the nine months ended
September 30, 1997 is due to a $14.0 million increase in property net operating
income, a $4.3 million increase in interest and other income, a $1.7 million
decrease in interest expense, and a $0.1 million increase in rent note
amortization. These amounts are offset by a $0.5 million increase in general and
administrative expenses, $2.1 million of real estate tax adjustment in 1996 and
an increase of $6.7 million of preferred dividends.
The Company will seek to continue increasing FFO and the value of its property
portfolio by acquiring additional properties that the Company believes will
produce favorable returns. As part of its ongoing business, the Company
periodically engages in discussions with public and private real estate entities
regarding possible portfolio or asset acquisitions or business combinations.
CAPITAL STOCK TRANSACTIONS
On April 22, 1997, the Company completed its initial public offering in the U.S.
of 16.1 million shares of common stock at a price of $14.00 per share. The
proceeds from the offering will be used to acquire new assets and for general
corporate purposes. The Company is listed on the New York Stock Exchange under
the symbol CPP.
Page 12 of 15
<PAGE> 13
On July 25, 1997, the 1,148,276 shares of Redeemable Preferred stock were
converted into 11,482,760 common shares. The contractual conversion was based
upon meeting a $16.00 twenty day average common share price.
LONG TERM DEBT
The Company was required under the terms of its $32.5 million term loan with
Deutsche Bank AG to repay the loan upon the completion of its initial public
offering (IPO) in the United States. In anticipation of the IPO and listing on
the New York Stock Exchange, the Company repaid this loan on March 19, 1997. The
Company has no long-term debt maturing until 2001.
OTHER MATTERS
The Company is not aware of any environmental issues at any of its properties.
The Company believes it has sufficient insurance coverage at each of its
properties. A majority of the Company's leases require the tenants to pay most
operating expenses as well as increases in common area maintenance expenses,
which reduces the Company's exposure to increases in costs and operating
expenses resulting from inflation.
STOCKHOLDERS' DISTRIBUTIONS
Cornerstone intends to distribute at least 95 percent of its taxable income to
maintain its qualification as a Real Estate Investment Trust. Currently,
Cornerstone anticipates that FFO will exceed taxable income for the foreseeable
future. Cornerstone's distribution policy is to pay distributions based upon
FFO, less prudent reserves. The Company declared a dividend of $0.30 per common
share, payable to all stockholders of record as of September 19, 1997 on October
31, 1997.
At the present time the Company is current in the payment of all preferred
dividends.
LIQUIDITY
At September 30, 1997, the Company had $224,874,000 in cash and cash equivalents
and $39,728,000 in restricted cash. Restricted cash is being held by escrow
agents for the One Norwest Center, 527 Madison Avenue and Washington Mutual
Tower loans. Cornerstone also had available $10 million under its working
capital line of credit for general corporate purposes. In addition, Cornerstone
anticipates it will receive distributions from its real estate partnerships and
rental income from its fee owned properties on a monthly basis which will be
used to cover normal operating expenses and pay distributions to its
stockholders. Based upon its cash reserves and other sources of funds,
Cornerstone has sufficient liquidity to meet its cash requirements for the
foreseeable future.
NEW PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), No.
129 "Disclosure of Information About Capital Structure" ("SFAS 129"), No. 130
"Reporting Comprehensive Income" ("SFAS 130"), and No. 131 "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"). All of these
statements are effective for fiscal years beginning after December 15, 1997.
SFAS 128 specifies the computation, representation and disclosure requirements
for earnings per share. SFAS 129 established standards for disclosing
information about an entity's capital structure such as information about
securities, liquidation preference of preferred stock and redeemable stock. SFAS
130 specifies the presentation and disclosure requirement for reporting
comprehensive income which includes those items which have been formerly
reported as a component of shareholders' equity. SFAS 131 establishes the
disclosure requirements for reporting segment information.
Management believes that, when adopted, SFAS 128, 129, 130 and 131 will not have
a significant impact on the Company's financial statements.
Page 13 of 15
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On October 27, 1997, the Company purchased interests in nine office buildings
and an undeveloped parcel of land from Dutch Institutional Holding Company for
a combination of the Company's common stock, promissiry notes and cash.
$211,312,500 of the cash portion of the consideration was provided from the
Company's U.S. initial public offering of 16,100,000 shares of common stock.
The Company registered $700,000,000 of common stock on a registration
statement effective April 15,1997 (Commission number 333-18303). The gross
proceeds of the offering were $225,400,000 with fees of $14,087,500 for net
proceeds of $211,312,500. The offering was underwritten by Merrill Lynch & Co.
and included Lazard Freres & Co. LLC, Lehman Brothers, Morgan Stanley & Co.,
Inc., and BT Securities Corporation as co-managers. The net proceeds were
utilized as provided in the Company's prospectus.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1) Exhibit 11.1: Statement of Computation of Earnings Per Share
2) Exhibit 12.1: Statement of Computation of Earnings to Fixed
Charges
3) For EDGAR filing purposes only, this report contains Exhibit 27,
Financial Data Schedule.
4) Exhibit 99.1: Supplemental Information to Quarterly Earnings
Release
(b) Reports on Form 8-K:
1) Form 8-K/A dated January 22, 1997
Item 7 - Financial Statements
and Exhibits: Financial statements reflecting the acquisition
of Tower 56 and One Lincoln Centre
2) Form 8-K dated January 29, 1997
Item 5 - Other Events:
Board of Directors approval to acquire 527
Madison Avenue for approximately $67
million
Item 7 - Financial Statements
and Exhibits: Agreement of Sale and Purchase of 527
Madison Avenue
3) Form 8-K/A dated February 21, 1997
Item 2 - Acquisition or Disposition
of Assets: Clarification on the Frick Building acquisition.
Item 7 - Financial Statements
and Exhibits: Clarification on the pro forma financial
statements of One Lincoln Centre and Tower 56.
4) Form 8-K/A dated February 24, 1997
Item 7 - Financial Statements
and Exhibits: Financial statements reflecting the acquisition
of 527 Madison Avenue
5) Form 8-K dated July 28, 1997
Item 5 - Other Events:
Conversion of NYSTERS and RODAMCO preferred
stock.
Item 7 - Financial Statements
and Exhibits: Press release announcing conversion of NYSTERS
and RODAMCO preferred stock.
6) Form 8-K dated October 30, 1997
Item 2 - Acquisition or Disposition
of Assets: Shareholder approval of Dutch Institutional
Holding Company, Inc. Acquisition and Acquisition
of Dutch Institutional Holding Company, Inc.
Portfolio
Item 7 - Financial Statements
and Exhibits: Press releases announcing shareholder approval
of Dutch Institutional Holding Company, Inc.
Acquisition and Acquisition of Dutch
Institutional Holding Company, Inc. Portfolio
Page 14 of 15
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORNERSTONE PROPERTIES INC.
(Registrant)
By: /s/ John S. Moody
----------------------------------
John S. Moody, President and CEO
Date: November 13, 1997
By: /s/ Thomas P. Loftus
----------------------------------
Thomas P. Loftus, Vice President
and Controller
(Principal Accounting Officer)
Date: November 13, 1997
By: /s/ Kevin P. Mahoney
----------------------------------
Kevin P. Mahoney, Vice President
and Treasurer
(Principal Financial Officer)
Date: November 13, 1997
Page 15 of 15
<PAGE> 1
Exhibit 11.1
Statement of Computation of Earnings Per Share
for the nine months ended September 30, 1997
<TABLE>
<CAPTION>
Earnings Per Share
Primary Fully Diluted
------------ -------------
<S> <C> <C>
1. Proceeds upon exercise of options $ 24,021,250 $24,021,250
2. Market price of shares
Closing: 9/30/97 $ -- $ 19.13
Average: 7/01/97-9/30/97 $ 17.31 $ --
3. Treasury shares that could be repurchased (Options) 1,387,709 1,255,685
4. Option shares outstanding 1,667,500 1,667,500
5. Common stock equivalent shares (Excess 279,791 411,815
shares under option over Treasury
shares that could be repurchased)
6. Weighted average number of shares outstanding 33,494,282 46,404,387
7. Net income for the period $ 21,666,000 $21,666,000
8. Less: Dividends applicable to
the preferred stock $ (9,285,000) $ --
Plus: Interest expense on convertible note $ -- $ 592,314
9. Net income applicable to common shares $ 12,381,000 $22,258,314
10.Income per share $ 0.37 $ 0.48
11.Reported income per share $ 0.37 N/A
</TABLE>
<PAGE> 1
Exhibit 12.1
Statement of Computation of Earnings to Fixed Charges and Preferred Stock
Dividend Requirements for the nine month periods ended September 30, 1997
and September 30, 1996
<TABLE>
<CAPTION>
For the nine months ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Net income $21,666 $ 7,050
Interest expense 22,395 24,054
------- -------
Earnings before interest 44,061 31,104
Interest expense 22,395 24,054
Preferred dividends 9,285 2,625
------- -------
Fixed charges 31,680 26,679
Earnings to fixed charges and preferred
stock dividend requirements 1.39 1.17
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 224,874
<SECURITIES> 0
<RECEIVABLES> 42,599
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 268,986
<PP&E> 749,339
<DEPRECIATION> 219,881
<TOTAL-ASSETS> 971,985
<CURRENT-LIABILITIES> 76,305
<BONDS> 0
0
50,000
<COMMON> 499,331
<OTHER-SE> (11,348)
<TOTAL-LIABILITY-AND-EQUITY> 971,985
<SALES> 0
<TOTAL-REVENUES> 111,669
<CGS> 0
<TOTAL-COSTS> 88,640
<OTHER-EXPENSES> 1,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,395
<INCOME-PRETAX> 21,666
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,666
<DISCONTINUED> 0
<EXTRAORDINARY> 54
<CHANGES> 0
<NET-INCOME> 21,666
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Cornerstone Properties Inc.
Supplemental Information to Quarterly Earnings Release
1) Third Quarter 1997
o Balance Sheet
o Income Statement
o Management's Discussion and Analysis
2) Third Quarter Press Release
3) Quarterly Fact Sheet
4) Table of Properties
5) Top Ten Tenants
6) Historical Occupancy
7) Average Annual Rents
8) Lease Expiration Schedule
9) Tenant Retention
10) Capital Expenditures and Leasing Costs
11) Minority Sharing in Cash Flows and Residual Proceeds
<PAGE> 2
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o THIRD QUARTER 1997
o BALANCE SHEET
o INCOME STATEMENT
o MANAGEMENT'S DISCUSSION AND ANALYSIS
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments, at cost:
Land $ 89,835 $ 68,395
Buildings and improvements 659,504 612,567
Deferred lease costs 126,375 118,700
--------- ---------
875,714 799,662
Less: Accumulated depreciation and amortization 219,881 198,686
--------- ---------
Total investments 655,833 600,976
Cash and cash equivalents 224,874 114,803
Restricted cash (Note 3) 39,728 4,426
Other deferred costs, net of accumulated amortization of $1,647
and $1,140 3,795 3,562
Deferred tenant receivables 36,208 34,747
Tenant and other receivables 4,384 2,405
Notes receivable 2,007 2,911
Other assets 5,156 2,350
--------- ---------
TOTAL ASSETS $ 971,985 $ 766,180
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Long-term debt (Note 4) $ 366,830 $ 400,142
Short-term debt (Note 3) 35,000 --
Accrued interest payable 1,522 1,082
Accrued real estate taxes payable 15,968 13,222
Common Stockholders' distribution payable 14,657 12,366
Accounts payable and accrued expenses 9,158 6,468
Unearned revenue and other liabilities 8,223 9,095
--------- ---------
TOTAL LIABILITIES 451,358 442,375
--------- ---------
Minority Interest (Note 1) (17,356) (17,478)
--------- ---------
Redeemable Preferred Stock, $166,500,000 redemption value (Note 6) -- 162,743
--------- ---------
STOCKHOLDERS' INVESTMENT (Note 7)
7% Cumulative Convertible Preferred Stock, $16.50 stated value 50,000 50,000
15,000,000 shares authorized; 3,030,303 shares issued and outstanding
Common stock, no par value; 100,000,000 authorized shares;
shares issued and outstanding (1997-48,856,742; 1996-20,609,754)
Paid-in capital 499,331 160,577
Accumulated deficit (9,123) (30,789)
Deferred compensation (2,225) (1,248)
--------- ---------
TOTAL STOCKHOLDERS' INVESTMENT 537,983 178,540
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 971,985 $ 766,180
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
Page 2 of 14
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------- -------- --------- --------
<S> <C> <C> <C> <C>
REVENUES
Office and parking rentals $ 34,546 $ 27,774 $ 103,237 $ 80,687
Interest and other income 3,868 1,227 8,432 4,076
-------- -------- --------- --------
TOTAL REVENUES 38,414 29,001 111,669 84,763
-------- -------- --------- --------
EXPENSES
Building operating expenses 7,660 6,092 22,693 17,540
Real estate taxes 5,933 4,870 17,553 14,186
Interest expense 7,405 7,922 22,395 24,054
Depreciation and amortization 7,057 6,068 20,865 17,869
General and administrative 1,869 1,675 5,134 4,662
-------- -------- --------- --------
TOTAL EXPENSES 29,924 26,627 88,640 78,311
-------- -------- --------- --------
8,490 2,374 23,029 6,452
-------- -------- --------- --------
OTHER INCOME (EXPENSES)
Net gain on interest rate swaps (Note 1) -- (64) 99 5,401
Minority Interest (414) (331) (1,408) (1,017)
-------- -------- --------- --------
Income before extraordinary item 8,076 1,979 21,720 10,836
Extraordinary loss -- (3,786) (54) (3,786)
-------- -------- --------- --------
NET INCOME (LOSS) $ 8,076 $ (1,807) $ 21,666 $ 7,050
======== ======== ========= ========
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ 7,201 $ (2,682) $ 12,381 $ 4,425
======== ======== ========= ========
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM PER COMMON SHARE (Note 1) $ 0.18 $ 0.05 $ 0.37 $ 0.40
======== ======== ========= ========
NET INCOME (LOSS) PER COMMON SHARE (Note 1) $ 0.18 $ (0.13) $ 0.37 $ 0.22
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
Page 3 of 14
<PAGE> 5
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
RESULTS OF OPERATIONS
CONSOLIDATION
Cornerstone's principal source of income is rental revenues received through its
investment in six fee simple properties and two real estate partnerships held by
nine wholly-owned subsidiaries: 1700 Lincoln Limited owned 90 percent by
ARICO-Denver, Inc. and 10 percent by 1700 Lincoln Inc., NWC Limited Partnership
owned by ARICO-Minneapolis, Inc., Third and University Limited Partnership owned
by ARICO-Seattle, Inc., 125 Summer Street owned by CStone-Boston Inc., Tower 56
owned by CStone-New York Inc., One Lincoln Centre owned by CStone-Oakbrook,
Inc., 527 Madison Avenue owned by CStone-527 Madison, Inc. and the Frick
Building owned by CStone-Pittsburgh Trust, respectively. NWC Limited Partnership
and Third and University Limited Partnership have been consolidated since
Cornerstone has a majority interest in the economic benefits and has the right
to become managing general partner at its sole discretion.
PROPERTY RESULTS
For the three and nine months ended September 30, 1997 and 1996 property results
can be summarized as follows (000's):
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office and Parking Rentals $34,546 $27,774 $103,237 $80,687
Less:
Building Operating Expenses 7,660 6,092 22,693 17,540
Real Estate Taxes 5,933 4,870 17,553 14,186
Depreciation and Amortization 7,057 6,068 20,865 17,869
------- ------- -------- -------
Total Operating Expenses 20,650 17,030 61,111 49,595
------- ------- -------- -------
Total Property Income $13,896 $10,744 $ 42,126 $31,092
======= ======= ======== =======
</TABLE>
The increase in property income for the three months ended September 30, 1997 as
compared to the same period in 1996 of $3.1 million was due to the acquisition
of One Lincoln Centre ($1.0 million), and the Frick Building ($0.4 million)
during 1996, and 527 Madison Avenue ($1.2 million) in early 1997. At the
existing properties, property income at Norwest Center increased $0.5 million
due to the recovery of the increased real estate taxes which were incurred in
1996. Washington Mutual Tower increased $0.3 million due to increased rental
rates and higher parking revenues. The property income at 125 Summer Street
decreased $0.4 million due to the vacancy caused by the expiration of Gadsby and
Hannah and the reduction of rent in the BTM Capital Corporation lease. One
Norwest Center and Tower 56 combined property income increased by $0.1 million.
The increase in property income for the nine months ended September 30, 1997 as
compared to the same period in 1996 of $11.0 million was due to the acquisition
of Tower 56 ($1.1 million), One Lincoln Centre ($2.9 million), and the Frick
Building ($1.3 million) during 1996 and 527 Madison Avenue ($3.6 million) in
early 1997. At the existing properties, property income at One Norwest Center
increased $0.9 million due to a lease buyout of a portion of the Norwest Bank
space in order to allow for the Gulf Canada expansion. Norwest Center increased
$1.9 million due to the recovery of the increased real estate taxes which were
incurred in 1996. Washington Mutual Tower increased $0.9 million due to
increased rental rates and higher parking revenues. The property income at 125
Summer Street decreased $1.6 million due to the vacancy caused by the expiration
of Gadsby and Hannah and the reduction of rent in the BTM Capital Corporation
lease.
Page 9 of 15
<PAGE> 6
INTEREST AND OTHER INCOME
Interest and other income was $3,868,000 and $1,227,000 for the three months
ended September 30, 1997 and 1996, respectively. These amounts primarily consist
of interest earned from short-term investments, notes receivable from partners,
and income from the advisory contracts in 1997 and 1996. The increase was due to
the additional cash available for short-term investment as a result of the
initial public offering.
Year to date interest and other income was $8,432,000 in 1997 and $4,076,000 in
1996. These amounts primarily consist of interest earned from short-term
investments, interest earned on the Tower 56 mortgage notes receivable in 1996,
notes receivable from partners, and income from the advisory contracts in 1997
and 1996. The increase was due to the additional cash available for short-term
investment as a result of the initial public offering.
INTEREST EXPENSE
Interest expense incurred by Cornerstone relating to its financing activities
was $7,405,000 and $7,922,000 for the three months ended September 30, 1997 and
1996, respectively. The decrease was primarily due to the refinancing of the One
Norwest Center debt resulting in savings of $217,000 and approximately $406,000
of savings resulting from the repayment of the $32.5 million term loan. These
amounts are partially offset by approximately $106,000 of increased amortization
of deferred financing costs.
Interest expense incurred by Cornerstone relating to its financing activities
was $22,395,000 and $24,054,000 for the nine months ended September 30, 1997 and
1996, respectively. The decrease was primarily due to the refinancing of the One
Norwest Center debt resulting in savings of $1,320,000, which is offset by the
$444,000 of interest expense on Tower 56 which was financed in the second
quarter of 1996 and increased financing cost amortization of $53,000.
Additionally, the Company had approximately $836,000 of savings resulting from
the repayment of the $32.5 million term loan.
INTEREST RATE SWAPS
During 1996 and 1997 the Company had the following interest rate swaps
outstanding:
The $107 million interest rate swap agreement with a maturity date of July 30,
1998, was accounted for as a hedge since it was comprised of two offsetting
swaps, resulting in a fixed payment from Cornerstone to its counterparties
through the term of the swaps. Upon the refinancing of the One Norwest Center
debt in August 1996, the swap was terminated and the cost to terminate the swap
was recorded as an extraordinary loss.
For the nine month period ended September 30, 1996, interest expense of the
Company included approximately $467,000 of expense related to interest rate swap
agreements. Since the $98 million swap was a forward swap and accounted for on a
mark to market basis, it had no effect on the reported interest expense of the
Company. This swap was terminated during the first quarter of 1997 at a gain of
$99,000 compared to the mark to market gain in the first three quarters of 1996
of $5.4 million. The Company currently is not a party to interest rate swap
agreements.
GENERAL AND ADMINISTRATIVE EXPENSES
The aggregate amount of Cornerstone's general and administrative expenses have
increased to $1,869,000 for the three months ended September 30, 1997 from
$1,675,000 for the same period in 1996. The increase in 1997 from 1996 of
$194,000 was due to increased staffing.
The aggregate amount of Cornerstone's general and administrative expenses have
increased to $5,134,000 for the nine months ended September 30, 1997 from
$4,662,000 for the same period in 1996. The increase in 1997 from 1996 of
$472,000 was due to the write off of certain expenses related to abandoned
projects of $144,000, and increased salaries and benefits due to the hiring of
additional staff of $218,000 and public relations consultants of $110,000.
Page 10 of 15
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW (000'S)
<TABLE>
<CAPTION>
For the nine months For the nine months
Cash flow provided by (used in): ended September 30, 1997 ended September 30, 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities $43,472 $20,421
Investing activities (74,161) (10,229)
Financing activities 140,760 1,587
Earnings to fixed charges ratio 1.39 1.17
</TABLE>
Cash provided by operating activities increased from $20.4 million for the nine
months ended September 30, 1996 to $43.5 million for the nine months ended
September 30, 1997. This increase was mainly due to the increase in net rental
revenues (before depreciation and amortization) from the properties of $14.0
million, interest expense savings of $4.3 million on a cash basis, a reduction
in unbilled rental income of $0.5 million, an increase in minority interest of
$0.4 million and increased interest income from higher cash reserves of $4.4
million; these amounts are offset by an increase of approximately $0.5 million
of general and administrative expenses.
Cash used in investing activities increased to $74.2 million for the nine months
ended September 30, 1997 from $10.3 million for the nine months ended September
30, 1996 due to the acquisition of 527 Madison Avenue during 1997 for a total
cost of $67 million.
Cash providing by financing activities increased to $140.8 million for the nine
months ended September 30, 1997 as compared to $1.6 million as of September 30,
1996. The increase was mainly due to the placement proceeds from the initial
public offering which is offset by common and preferred stockholder
distributions and the repayment of the $32.5 million term loan.
The ratio of earnings to fixed charges and dividends on preferred stock
increased to 1.39 times at September 30, 1997 from 1.17 times at September 30,
1996 due to the substantial reduction of the Company's leverage ratio and the
conversion of the 8% preferred shares into common stock.
FUNDS FROM OPERATIONS
The Company calculates Funds from Operations (FFO) based upon guidance from the
National Association of Real Estate Investment Trusts (NAREIT). FFO is defined
as net income, excluding gains or losses from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated joint ventures. The Company has adjusted FFO by the net gain on
interest rate swap previously discussed due to the non-cash nature of this item.
Since the Company is no longer a party to any interest rate swap agreements, the
adjustment in the first quarter of 1997 will be the final adjustment for this
item.
Industry analysts generally consider FFO to be an appropriate measure of
performance of an equity Real Estate Investment Trust (REIT) such as
Cornerstone. FFO does not represent cash generated from operating activities in
accordance with generally accepted accounting principles and, therefore, should
not be considered a substitute for net income as a measure of performance or for
cash flow from operations as a measure of liquidity calculated in accordance
with generally accepted accounting principles.
The Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
an understanding of the ability of the Company to incur and service debt and to
make capital expenditures. For cash flows from operating, financing and
investing activities, see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements which are part of this report.
The Company no longer reports free and deferred rental income as an adjustment
to FFO since this is not part of the industry standard. Therefore, included in
FFO for the three months ended September 30, 1997 and 1996, is a reduction of
approximately $38,000 and an increase of approximately $85,000, respectively,
for free and deferred rental income (after adjustment for minority interest).
Included in FFO for the nine months ended September 30, 1997 and 1996, is
approximately $746,000 and $751,000, respectively, of free and deferred rental
income (after adjustment for minority interest).
Page 11 of 15
<PAGE> 8
The table below sets forth the adjustments which were made to the net income of
the Company in the calculation of FFO for the three and nine month periods ended
September 30, 1997 and 1996, respectively (in thousands):
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS (A)
-----------------------------------------------------------------------
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 8,076 $ (1,807) $ 21,666 $ 7,050
NAREIT Adjustments:
Depreciation and amortization (B) 7,057 6,068 20,865 17,869
Realized/Unrealized gain 0 64 (99) (5,401)
Minority adjustments (307) (372) (1,044) (1,393)
Extraordinary Losses/Swap Losses 0 3,786 54 3,786
Other Adjustments:
Amortization on rent notes 346 311 903 813
Real estate tax adjustment 0 695 0 2,107
-------- -------- -------- --------
FUNDS FROM OPERATIONS 15,172 8,745 42,345 24,831
-------- -------- -------- --------
Accrued Preferred Dividend (875) (875) (9,285) (2,625)
-------- -------- -------- --------
FUNDS FROM OPERATIONS
AVAILABLE FOR COMMON SHARES $ 14,297 $ 7,870 $ 33,060 $ 22,206
======== ======== ======== ========
</TABLE>
(A) Although the Company believes that this table is a full and fair
presentation of the Company's FFO, similarly captioned items may be defined
differently by other REITs, in which case direct comparisons may not be
possible.
(B) The depreciation and amortization adjustment does not include amortization
of deferred financing costs and depreciation of non-real estate assets in
accordance with guidance from NAREIT.
The increase in FFO for the three months ended September 30, 1997 as compared to
the same period in 1996 is due to a $4.1 million increase in property net
operating income, a $2.6 million increase in interest and other income, a $0.5
million decrease in interest expense, which was offset by the $0.7 million real
estate tax adjustment in 1996 and a $0.2 million increase in general and
administrative expenses.
The increase in FFO available for common shares for the nine months ended
September 30, 1997 is due to a $14.0 million increase in property net operating
income, a $4.3 million increase in interest and other income, a $1.7 million
decrease in interest expense, and a $0.1 million increase in rent note
amortization. These amounts are offset by a $0.5 million increase in general and
administrative expenses, $2.1 million of real estate tax adjustment in 1996 and
an increase of $6.7 million of preferred dividends.
The Company will seek to continue increasing FFO and the value of its property
portfolio by acquiring additional properties that the Company believes will
produce favorable returns. As part of its ongoing business, the Company
periodically engages in discussions with public and private real estate entities
regarding possible portfolio or asset acquisitions or business combinations.
CAPITAL STOCK TRANSACTIONS
On April 22, 1997, the Company completed its initial public offering in the U.S.
of 16.1 million shares of common stock at a price of $14.00 per share. The
proceeds from the offering will be used to acquire new assets and for general
corporate purposes. The Company is listed on the New York Stock Exchange under
the symbol CPP.
Page 12 of 15
<PAGE> 9
On July 25, 1997, the 1,148,276 shares of Redeemable Preferred stock were
converted into 11,482,760 common shares. The contractual conversion was based
upon meeting a $16.00 twenty day average common share price.
LONG TERM DEBT
The Company was required under the terms of its $32.5 million term loan with
Deutsche Bank AG to repay the loan upon the completion of its initial public
offering (IPO) in the United States. In anticipation of the IPO and listing on
the New York Stock Exchange, the Company repaid this loan on March 19, 1997. The
Company has no long-term debt maturing until 2001.
OTHER MATTERS
The Company is not aware of any environmental issues at any of its properties.
The Company believes it has sufficient insurance coverage at each of its
properties. A majority of the Company's leases require the tenants to pay most
operating expenses as well as increases in common area maintenance expenses,
which reduces the Company's exposure to increases in costs and operating
expenses resulting from inflation.
STOCKHOLDERS' DISTRIBUTIONS
Cornerstone intends to distribute at least 95 percent of its taxable income to
maintain its qualification as a Real Estate Investment Trust. Currently,
Cornerstone anticipates that FFO will exceed taxable income for the foreseeable
future. Cornerstone's distribution policy is to pay distributions based upon
FFO, less prudent reserves. The Company declared a dividend of $0.30 per common
share, payable to all stockholders of record as of September 19, 1997 on October
31, 1997.
At the present time the Company is current in the payment of all preferred
dividends.
LIQUIDITY
At September 30, 1997, the Company had $224,874,000 in cash and cash equivalents
and $39,728,000 in restricted cash. Restricted cash is being held by escrow
agents for the One Norwest Center, 527 Madison Avenue and Washington Mutual
Tower loans. Cornerstone also had available $10 million under its working
capital line of credit for general corporate purposes. In addition, Cornerstone
anticipates it will receive distributions from its real estate partnerships and
rental income from its fee owned properties on a monthly basis which will be
used to cover normal operating expenses and pay distributions to its
stockholders. Based upon its cash reserves and other sources of funds,
Cornerstone has sufficient liquidity to meet its cash requirements for the
foreseeable future.
NEW PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"), No.
129 "Disclosure of Information About Capital Structure" ("SFAS 129"), No. 130
"Reporting Comprehensive Income" ("SFAS 130"), and No. 131 "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"). All of these
statements are effective for fiscal years beginning after December 15, 1997.
SFAS 128 specifies the computation, representation and disclosure requirements
for earnings per share. SFAS 129 established standards for disclosing
information about an entity's capital structure such as information about
securities, liquidation preference of preferred stock and redeemable stock. SFAS
130 specifies the presentation and disclosure requirement for reporting
comprehensive income which includes those items which have been formerly
reported as a component of shareholders' equity. SFAS 131 establishes the
disclosure requirements for reporting segment information.
Management believes that, when adopted, SFAS 128, 129, 130 and 131 will not have
a significant impact on the Company's financial statements.
Page 13 of 15
<PAGE> 10
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o THIRD QUARTER PRESS RELEASE
<PAGE> 11
CORNERSTONE PROPERTIES INC.
126 East 56th Street
New York, NY 10022
(NYSE: CPP)
<TABLE>
<CAPTION>
AT THE COMPANY AT THE FINANCIAL RELATIONS BOARD
- -------------- --------------------------------
<S> <C> <C> <C> <C>
John S. Moody Kevin P. Mahoney Julie Gottlieb Stephanie Mishra Judith Sylk-Siegel
President & CEO VP & Treasurer (General Info) (Analyst Info) (Media Info)
(212) 605-7101 (212) 605-7142 (212) 661-8030 (415) 986-1591 (212) 661-8030
</TABLE>
FOR IMMEDIATE RELEASE
November 4, 1997
CORNERSTONE PROPERTIES INC.
ANNOUNCES THIRD QUARTER AND NINE-MONTH 1997 RESULTS
THIRD QUARTER AND NINE-MONTH HIGHLIGHTS
o Year-to-date property net operating income rose 29% over 1996
o Occupancy rate maintained at 97%
o Tenant retention rate remains 85%
o Acquired nine premier office buildings and an undeveloped parcel of land
from Dutch Institutional Holding Company; nearly doubling the asset base of
the portfolio
o With the completion of the DIHC acquisition, more than quadrupled the
common equity base over the last twelve months
o New York State Teachers' Retirement System and Rodamco convert $166.5
million of preferred shares into common stock
o Increased the commitment on the Acquisition Line of Credit from $200
million to $350 million
NEW YORK, NEW YORK (NOVEMBER 4, 1997) -- Cornerstone Properties Inc. (NYSE:
CPP), a real estate investment trust, announced today results for its third
quarter ended September 30, 1997. Funds from operations (FFO) allocated to
shareholders amounted to $15,371,000, or $0.29 per share calculated on
53,145,000 fully diluted total shares outstanding, compared to $8,937,000, or
$0.37 per share on 24,371,000 fully diluted total shares outstanding, for the
three months ended September 30, 1996. The decrease in FFO per share was caused
by the continued impact of reducing leverage from roughly 50% a year ago to 30%
on September 30, 1997, and carrying cash proceeds of over $200 million generated
from the Company's U.S. public offering in April. As defined by NAREIT, funds
from operations is defined as net income excluding expenses from debt
restructuring, gains (or loss) on sale of property, plus depreciation and
amortization.
Net income for the third quarter of 1997 grew to $8,076,000, driven by increased
property net operating income and strong internal growth, compared to a loss of
$1,807,000 for the third quarter of 1996. Year-to-date net income increased to
$21,666,000, compared to $7,050,000 for the first nine months of 1996,
reinforced by continued growth in real estate net operating income and offset by
a one-time gain on an interest rate swap transaction in 1996.
<PAGE> 12
Cornerstone Properties Announces 3Q97 Results
November 4, 1997
Page 2
Cornerstone Properties' President and Chief Executive Officer John S. Moody
commented, "We made significant progress during the quarter in positioning the
Company for future sustainable growth. We used our IPO proceeds to complete the
acquisition of the DIHC portfolio, which confirmed Cornerstone's status as the
premier quality office REIT. In fact, we believe that the majority of the
buildings in our portfolio are at the top of their respective markets and the
portfolio as a whole is unmatched in terms of quality."
Mr. Moody continued, "The acquisition not only doubled our portfolio, it gave us
access to new growth markets such as Atlanta, Charlotte and Washington DC, and
significantly increased our presence in Boston. The acquisition also greatly
strengthened the diversity of our tenant base, effectively reducing our exposure
to any one large tenant, as well as smoothing out the rollover of the
portfolio's leases over the next five years.
Year-to-date FFO allocated to shareholders totaled $42,937,000, or $0.93 per
share on 46,404,000 fully diluted total shares outstanding, compared to
$25,409,000, or $1.05 per share on 24,278,000 fully diluted total shares
outstanding for the nine months ended September 30, 1997.
Year-to-date net operating income before depreciation from Cornerstone
Properties' real estate assets increased 29% to $62,991,000 for the nine months
ended September 30, 1997, from $48,961,000 a year ago. The growth in operating
income is attributable to increases in rental income generated as the result of
the Company's acquisition of three properties in 1996 and a fourth in early
1997.
"Our objective going forward is to repeat our success of the past year by
achieving consistently high returns through internal growth and acquisitions
while managing our balance sheet," Mr. Moody explained. "First, we will continue
to focus on acquisitions with optimal discount-to-replacement profiles that
offer tremendous growth potential. Next, we will take advantage of our ability
to structure `stock for asset swaps,' as we did with the DIHC deal. Our success
with this particular sort of transaction and the strength of the Company's
fundamentals make Cornerstone a preferred "vehicle of choice" for the rapidly
growing number of pension and closed-end funds seeking buyers for their real
estate assets. We believe the relationship of the Company's share value to its
underlying value will help position Cornerstone as the leading alternative for
securitization by these institutions."
Mr. Moody concluded, "At the same time, we will continue to apply our policy of
aggressive management and leasing which has enabled us to achieve consistently
high occupancy rates and maintain one of the best tenant retention rates in our
industry, about 20 points on average higher than our peer group."
DIHC ACQUISITION COMPLETED
On August 17, 1997, the Company entered into a Letter of Intent to purchase nine
properties and an undeveloped parcel of land from Dutch Institutional Holding
Company in exchange for $259 million in cash, $250 million in mortgage debt and
34,187,500 shares of common stock. The acquisition closed on October 27, 1997.
PREFERRED STOCK CONVERTED
On July 25, 1997, New York State Teachers Retirement System and Rodamco
converted $166.5 million of convertible preferred stock into common shares. This
conversion was triggered by the Company's achievement of certain financial
targets, including a 20-day average target share price of $16.00.
ACQUISITION LINE OF CREDIT INCREASED
On October 27, 1997, after the close of the third quarter, the Company closed
its Acquisition Line of Credit with Bankers Trust Company and The Chase
Manhattan Bank in the amount of $350 million, an increase over its existing Line
of Credit of $200 million. An initial funding of $54 million was made to fund
the
<PAGE> 13
Cornerstone Properties Announces 3Q97 Results
November 4, 1997
Page 3
excess cash needed to close the DIHC transaction in addition to the cash on
hand from the Initial Public Offering.
QUARTERLY DIVIDEND DECLARED
The Company declared a quarterly dividend of $0.30 per share payable on October
31 to shareholders of record on September 19, 1997. The Company expects to
continue to maintain its quarterly dividend at $0.30 per share for the
foreseeable future in order to bring its FFO payout ratio (currently at 93%) in
line with its peers.
"SAME STORE" REVENUE GROWTH CONTINUES
The Company achieved "same store" net operating income growth of 1.24% over the
third quarter of 1996, despite the rolldown of 94,000 s.f. leased by BTM Capital
Corp. (a subsidiary of Bank of Tokyo-Mitsubishi) and the expiration of the
Gadsby & Hannah lease (40,000 s.f.), both at 125 Summer Street in Boston. Same
store revenues increased a total of 4.56% from third quarter 1996 to third
quarter 1997 for Norwest Center (0.64%), One Norwest Center (6.47%), Washington
Mutual Tower (7.63%) and Tower 56 (8.67%), which were the four properties owned
for that entire period.
LEASING UPDATE: TENANT RETENTION RATE 85% AND OVERALL OCCUPANCY RATE 97%
Tenant retention for the third quarter of 1997 continued strong at 85%. The
portfolio's overall occupancy rate remained constant at 97%. Occupancy at the
Frick Building now stands at 88% (up from 85% on December 31, 1996), and
occupancy at One Lincoln Centre increased to 95% from 91% during the same
period. In total, the Company has leased over 880,000 square feet this year and
reduced its lease rollover exposure in 1998 from 629,000 square feet to 349,999
square feet.
Cornerstone Properties Inc. is a self-administered equity real estate investment
trust (REIT) investing exclusively in Class A and trophy quality office
properties in prime locations in major metropolitan areas and central business
districts. The Company, through its subsidiaries, currently owns 17 Class A or
trophy quality office properties throughout the United States totaling 9.5
million rentable square feet. Headquartered in New York City, the Company's
stock is traded on the New York Stock Exchange under the ticker symbol CPP.
With the exception of the historical information contained in the release, the
matters described herein contain forward-looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks,
uncertainties or other factors beyond the Company's control which may cause
material differences in actual results, performance or other expectations. These
factors include, but are not limited to, those detailed in the Company's
registration statement and periodic reports filed with the Securities & Exchange
Commission.
# # #
TO RECEIVE MORE INFORMATION ON
CORNERSTONE PROPERTIES, VIA FAX AT NO CHARGE,
DIAL 1-800-PRO-INFO AND ENTER TICKER SYMBOL CPP,
OR VISIT CORNERSTONE PROPERTIES' WEB SITE AT WWW.CSTONEPROP.COM
[Financial Statements follow]
<PAGE> 14
Cornerstone Properties Announces 3Q97 Results
November 4, 1997
Page 4
CORNERSTONE PROPERTIES INC.
FUNDS FROM OPERATIONS
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Rental income $ 34,546 $ 27,774 $ 103,237 $ 80,687
Building operating expenses 13,593 10,962 40,246 31,726
-------- -------- --------- --------
Building net operating income $ 20,953 $ 16,812 $ 62,991 $ 48,961
-------- -------- --------- --------
Corporate general and administrative (1,869) (1,675) (5,134) (4,662)
Interest and other income 3,868 1,227 8,432 4,076
-------- -------- --------- --------
EBITDA $ 22,952 $ 16,364 $ 66,289 $ 48,375
-------- -------- --------- --------
Interest expense (7,405) (7,922) (22,395) (24,054)
Non-real estate depreciation* -- -- -- --
Minority adjustments (721) (703) (2,452) (2,410)
Norwest tax adjustment -- 695 -- 2,107
Rent notes 346 311 903 813
-------- -------- --------- --------
Funds from operations 15,172 8,745 42,345 24,831
Interest on convertible debt 199 192 592 578
-------- -------- --------- --------
Funds from operations (adjusted
for convertible debt) $ 15,371 $ 8,937 $ 42,937 $ 25,409
-------- -------- --------- --------
Weighted average fully
diluted shares 53,145 24,371 46,404 24,278
FFO PER SHARE (FULLY DILUTED) $ 0.29 $ 0.37 $ 0.93 $ 1.05
Less: capital expenditures per share 0.02 0.04 0.06 0.13
-------- -------- --------- --------
AFFO per share 0.27 0.32 0.86 0.91
Funds from operations $ 15,172 $ 8,745 $ 42,345 $ 24,831
Less: preferred dividends (875) (875) (9,285) (2,625)
Less: recurring lease costs and
capital expenditures** (1,038) (1,084) (2,999) (3,252)
Less: straight line rents adjusted
for minority interest 38 (85) (746) (751)
-------- -------- --------- --------
Funds available for distribution $ 13,298 $ 6,701 $ 29,315 $ 18,203
-------- -------- --------- --------
Weighted average common
shares outstanding 45,804 20,437 33,494 20,344
Funds available for distribution
per share 0.29 0.33 0.88 0.89
Distribution per share 0.30 0.30 0.90 0.90
</TABLE>
** Beginning with the third quarter of 1997, non-real estate depreciation has
been reclassified to the "General & Administrative" category, and finance
amortization has been reclassified to "Interest Expense."
* Based on a five-year 1993-1997 average of recurring (revenue generating)
tenant leasing costs of $7.28 per square foot leased times the
five-and-a-quarter-year (1997-2002) average quarterly lease expiration of
115,434 square feet ($840,357), plus a capital expenditure reserve of $0.04
per square foot or $97,640.
Year to date, the Company has incurred $6,320,021 in recurring tenant costs
in leasing 880,616 square feet, or a cost of $7.18 per square foot.
Year to date, the Company has incurred $267,151 in recurring capital costs
on an average of 4.9 million square feet owned, or a cost of $0.05 per
square foot.
<PAGE> 15
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o QUARTERLY FACT SHEET
<PAGE> 16
CORNERSTONE PROPERTIES INC.
QUARTERLY FACT SHEET
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1998 COMMON DIVIDENDS RECORD DATE PAYMENT DATE
<S> <C> <C>
1st Quarter 1/30/98 2/27/98
2nd Quarter 4/30/98 5/29/98
3rd Quarter 7/31/98 8/31/98
4th Quarter 10/30/98 11/30/98
- --------------------------------------------------------------------------------------------
EARNINGS RELEASE/ QUARTERLY CONFERENCE CALL
4th Quarter 1997 2/26/98
1st Quarter 5/5/98
2nd Quarter 8/4/98
3rd Quarter 11/3/98
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
CURRENT QUARTER YEAR TO DATE
3RD QUARTER RESULTS 1997 1996 1997 1996
<S> <C> <C> <C> <C>
FFO Per Share $ 0.29 $ 0.37 $ 0.93 $ 1.05
AFFO Per Share $ 0.27 $ 0.32 $ 0.86 $ 0.91
FAD Per Share $ 0.29 $ 0.33 $ 0.88 $ 0.89
FFO Payout Ratio 104% 82% 97% 86%
AFFO Payout Ratio 111% 93% 105% 99%
FAD Payout Ratio 103% 91% 103% 101%
Same Store NOI Growth NA NA 1.24% NA
EBITDA Interest Coverage 3.04 1.63 2.90 2.04
Fixed Charge Coverage 2.72 1.47 2.05 1.84
- -------------------------------------------------------------------------------------------------------------------------------
Recurring Leasing Costs $ 2,169,613 $1,086,232 $6,320,021 $3,258,694.50
Per Square Foot Leased $ 9.69 $ 11.55 $ 7.18 $ 11.55
Recurring Capital Expenditures $ 205,511 $ -- $ 267,151 $ --
Non- Recurring Leasing Cost $ 111,981 $ 299,234 $ 965,173 897,701
Non- Recurring Capital Expenditures $ 78,618 $ 6,375 $ 153,007 $ 19,125
- -------------------------------------------------------------------------------------------------------------------------------
Parking Revenues (included in Office and Parking) $ 1,396,725 $1,446,267 $4,579,374 $ 4,301,590
Parking Expense (included in Building Operating
Expense) $ 89,694 $ 184,773 $ 549,041 $ 651,823
Net Parking Income $ 1,307,031 $1,261,494 $4,030,333 $ 3,649,767
- -------------------------------------------------------------------------------------------------------------------------------
Straight Line Rents $ (38,340) $ 85,000 $ 746,429 $ 751,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 17
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o TABLE OF PROPERTIES
<PAGE> 18
CORNERSTONE PROPERTIES
TABLE OF PROPERTIES
Q3-1997
<TABLE>
<CAPTION>
Company's Number
Property Name Year Acquired/ Percent Total Rentable Occupancy of
and Location Year Constructed Interest Square Feet Rate Tenants
------------ ---------------- -------- -------------- ---- -------
<S> <C> <C> <C> <C> <C>
One Norwest Center 1983 100% 1,188,000 99% 48
Denver, Colorado
Norwest Center(1) 1988 50% 1,118,000 99% 35
Minneapolis, Minnesota
Washington Mutual Tower(2)(3) 1988 50% 1,155,000 98% 123
Seattle, Washington
125 Summer Street 1995/1989 100% 464,000 94% 27
Boston, Massachussetts
Tower 56(4) 1996/1983 100% 162,000 97% 46
New York, New York
One Lincoln Centre(5) 1996/1986 100% 297,000 95% 43
Oakbrook Terrace, IL
The Frick Building(5) 1996/1902 100% 341,000 88% 74
Pittsburgh, PA
No. 527 Madison(6) 1997/1986 100% 216,000 93% 18
New York, NY
--------------- --------- ------
Total Weighted
Average All Properties 4,941,000 97% 414
=============== ========= ======
</TABLE>
<TABLE>
<CAPTION>
Remaining
Average
Lease Term Largest
(in Years) Tenant
---------- ------
<S> <C>
One Norwest Center 8.6 Norwest Bank Denver N.A.
Denver, Colorado Newmont Gold Company
Teletech, Inc.
Norwest Center(1) 10.9 Norwest Corporation
Minneapolis, Minnesota Faegre & Benson
KPMG Peat Marwick
Washington Mutual Tower(2)(3) 4.9 Perkins Coie
Seattle, Washington Washington Mutual
Karr Tuttle Campbell
125 Summer Street 3.2 Deloitte & Touche
Boston, Massachussetts BTM Capital Corp.
Burns & Levinson
Tower 56(4) 3.0 ICC Associates, L.P.
New York, New York United Bank of Kuwait
One Lincoln Centre(5) 2.5 Superior Bank FSB
Oakbrook Terrace, IL Microsoft Corporation
Arthur Andersen L.L.P.
The Frick Building(5) 4.2 Meyer, Darragh, Buckler,
Pittsburgh, PA Bebenek & Eck
Sable, Makaroff & Gudsky
No. 527 Madison(6) 5.7 The Sumitomo Trust & Banking Co., Ltd.
New York, NY W.P. Stewart Co., Inc.
Hill Samuel New York, Inc.
</TABLE>
<PAGE> 19
CORNERSTONE PROPERTIES INC.
TABLE OF PROPERTIES
FOOTNOTES
- ----------
(1) While the Company's stated interest in the partnership which owns Norwest
Center is 50%, it receives a priority distribution of 7% on its invested
capital base of $92.3 million prior to the sharing of cash flow equally
with its partners. Additionally, upon the sale of the building, the Company
is entitled to receive its capital bases as a priority distribution out of
proceeds prior to any sharing of proceeds. For the nine months ended
September 30, 1997, the Company's share of earnings from the Property was
79.30%. The Company also has the right, exercisable in its sole discretion,
to become managing general partner of the partnership.
(2) Includes the Galland and Seneca Buildings.
(3) While the Company's stated interest in the partnership which owns
Washington Mutual Tower is 50%, it receives two priority distributions on
its invested capital base: 9.53% on its first $47.0 million of capital base
investment in the Property and 8% on the next $100.0 million. Additionally,
upon the sale of the building, the Company will receive the first $147.0
million of proceeds as a priority distribution before any sharing with its
partners. For the nine months ended September 30, 1997, the Company
received 100% of the cash flow from the partnership which owns Washington
Mutual Tower. The Company also has the right, exercisable in its sole
discretion, to become managing general partner of the partnership.
(4) The Company's headquarters are located at Tower 56.
(5) Property acquired by the Company in November 1996.
(6) Property acquired by the Company in February 1997.
<PAGE> 20
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o TOP TEN TENANTS
<PAGE> 21
CORNERSTONE PROPERTIES
TOP TEN TENANTS
<TABLE>
<CAPTION>
Full Service
Straight-Line Rent
---------------------
Straight-Line Percent Scheduled Lease
Tenant Rent Recoveries Amount of Total Expiration Date
------ ------------- ---------- ------ -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Norwest Corporation (1),(3) $ 20,778,000 $ 10,821,000 $ 31,599,000 24% Jan-99 14,000
Aug-01 7,000
Jul-03 154,000
Jul-13 408,000
Aug-18 451,000
----------
1,034,000
Faegre & Benson (1) (4) 3,492,000 3,097,000 $ 6,589,000 5% Dec-97 21,000
Sep-03 175,000
----------
196,000
Perkins Coie (2) 5,177,000 425,000 $ 5,602,000 4% Dec-97 6,000
Jul-98 7,000
Jul-04 199,000
----------
212,000
Deloitte & Touche (2) 4,682,000 665,000 $ 5,347,000 4% Oct-99 120,000
The Sumitomo Trust & Banking Co., Ltd.(2) 4,334,000 561,000 $ 4,895,000 4% Oct-01 78,000
Washington Mutual (2) 3,231,000 285,000 $ 3,516,000 3% Feb-03 16,000
Aug-03 21,000
Apr-07 138,000
----------
175,000
Burns & Levinson (2) 2,896,000 386,000 $ 3,282,000 2% Mar-00 85,000
BTM Capital Corporation (2),(5) 3,067,000 11,222 $ 3,078,222 2% Oct-97 3,000
Jul-02 113,000
----------
116,000
KPMG Peat Marwick (2) 1,831,000 1,203,000 $ 3,034,000 2% Aug-09 75,000
Newmont Gold Company (6) 1,294,000 700,000 $ 1,994,000 1% Jan-99 23,000
Jan-04 94,000
----------
117,000
---------------------------------------------------------
$ 50,782,000 $ 18,154,222 $ 68,936,222 51%
============= ============ ============ ==
Total Portfolio $ 102,988,000 $ 30,882,000 $133,870,000
=============== ============ ============
</TABLE>
<PAGE> 22
CORNERSTONE PROPERTIES INC.
TOP TEN TENANTS
FOOTNOTES
(1) Net Lease.
(2) Gross Lease.
(3) Norwest Corporation includes Norwest Corporation and Norwest Bank Denver
N.A.
(4) In April, 1997 the Company amended and extended its lease with Faegre and
Benson, based on their extension option, on 174,680 square feet of space at
a rate of $13.64 through September 30, 2003. The $13.64 rate will take
effect September 30, 1998.
(5) Beginning January 15, 1997, the lease with BTM Capital Corporation adjusted
to a 1997 base year.
(6) The term on 94,000 square feet of this lease has been renewed to January
2004 from January 1999. The net base rental rate on the lease for the
period January 1999 - January 2004 will be determined based on market
conditions for similar space in the Denver market. The table shows
annualized straight-line base rent of $11.11 per square foot for Newmont
Gold Company, which are indicative of the terms through January 1999.
<PAGE> 23
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o HISTORICAL OCCUPANCY
<PAGE> 24
HISTORICAL OCCUPANCY RATE
<TABLE>
<CAPTION>
Total Bldg.
Sq. Ft. 1992 1993 1994 1995 1996 Q3 1997
------- ---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center 1,187,852 95% 96% 96% 98% 99% 99%
Norwest Center 1,118,062 100% 100% 100% 100% 100% 99%
Washington Mutual Tower 1,154,560 94% 96% 97% 97% 97% 98%
125 Summer Street 463,691 94% 100% 94%
Tower 56 162,034 91% 97% 97%
One Lincoln Centre 297,330 91% 95%
Frick 341,421 85% 88%
527 Madison 215,539 96% 93%
-------------------------------------------------------------------------------
Wtd Avg Occ - Portfolio 4,940,489 96% 97% 98% 98% 97% 97%
===============================================================================
</TABLE>
<PAGE> 25
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o AVERAGE ANNUAL RENTS
<PAGE> 26
The attached schedule shows Average Annual Net Rents per square foot occupied,
which are defined as Full Service Rents per square foot occupied less
Recoverable Operating Expenses per square foot occupied.
Average Annual Net Effective Rents per square foot occupied are Base Rents as
calculated on a straight-line basis through the term of the lease, plus recovery
of operating expenses, less recoverable operating expenses and amortization of
deferred leasing costs.
<PAGE> 27
AVERAGE ANNUAL NET RENTS
PER SQUARE FOOT OCCUPIED
<TABLE>
<CAPTION>
Total Bldg.
Sq. Ft. Q3 1997 1996 1995 1994 1993 1992
------- --------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center 1,187,852 $ 12.30 $ 12.08 $ 11.78 $ 11.61 $ 12.05 $ 12.35
Norwest Center 1,118,062 $ 18.24 $ 17.94 $ 17.82 $ 17.25 $ 17.56 $ 16.02
Washington Mutual Tower 1,154,560 $ 15.74 $ 15.98 $ 16.17 $ 15.27 $ 15.34 $ 15.26
125 Summer Street 463,691 $ 21.24 $ 23.53 $ 22.48
Tower 56 162,034 $ 23.54 $ 20.45
One Lincoln Centre 297,330 $ 19.46 $ 18.56
Frick 341,421 $ 10.91 $ 11.24
527 Madison 215,539 $ 33.62 $ 35.47
--------- --------------------------------------------------------------------------
Wtd Avg Occ - Portfolio 4,940,489 $ 16.92 $ 17.02 $ 16.06 $ 14.65 $ 14.93 $ 14.51
========= ==========================================================================
</TABLE>
AVERAGE ANNUAL NET EFFECTIVE RENTS
<TABLE>
<CAPTION>
Total Bldg.
Sq. Ft. Q3 1997 1996 1995 1994 1993 1992
------- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center 1,187,852 $ 11.48 $ 10.80 $ 10.56 $ 10.25 $ 10.59 $ 10.92
Norwest Center 1,118,062 $ 17.27 $ 17.43 $ 17.31 $ 17.00 $ 17.27 $ 17.48
Washington Mutual Tower 1,154,560 $ 12.02 $ 11.80 $ 11.83 $ 11.03 $ 10.84 $ 10.43
125 Summer Street 463,691 $ 20.36 $ 22.55 $ 23.33
Tower 56 162,034 $ 23.11 $ 21.17
One Lincoln Centre 297,330 $ 20.05 $ 19.70
Frick 341,421 $ 10.90 $ 11.69
527 Madison 215,539 $ 34.83 $ 30.99
--------- --------------------------------------------------------------------------
Wtd Avg Occ - Portfolio 4,940,489 $ 15.63 $ 15.45 $ 14.37 $ 12.69 $ 12.83 $ 12.88
========= ==========================================================================
</TABLE>
<PAGE> 28
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o LEASE EXPIRATIONS
<PAGE> 29
PROPERTY LEASE EXPIRATIONS
The following table sets forth lease expirations (in square feet) for each
of the Company's Properties.
<TABLE>
<CAPTION>
PROPERTY Q4 1997 1998 1999
- -------- ------- ---- ----
<S> <C> <C> <C>
One Norwest Center (1) square feet (3) 17,000 sf 25,000 sf 92,000 sf
straight-lined rent(4) $ 197,000 $ 168,000 $ 817,000
straight-lined rent per sq. ft. $ 11.59 $ 6.72 $ 8.88
recoveries (5) $ 105,000 $ 147,000 $ 546,000
full service st-line rent(6) $ 302,000 $ 315,000 $1,363,000
full service st-line rent per sq. ft. $ 17.76 $ 12.60 $ 14.82
% full service st-lined rent 1.38% 1.44% 6.22%
asking market rent per sq. ft.(7) $ 20.00
no. of tenants(8) 2 6 8
Norwest Center(1) square feet 12,000 sf 67,000 sf 61,000 sf
straight-lined rent $ 195,000 $ 572,000 $1,055,000
straight-lined rent per sq. ft. $ 16.25 $ 8.54 $ 17.30
recoveries $ 192,000 $ 998,000 $ 947,000
full service st-line rent $ 387,000 $1,570,000 $2,002,000
full service st-line rent per sq. ft. $ 32.25 $ 23.43 $ 32.82
% full service st-lined rent 0.98% 3.99% 5.09%
asking market rent per sq. ft. $ 33.00
no. of tenants 3 15 5
Washington Mutual Tower(2) square feet 26,900 sf 137,000 sf 193,000 sf
straight-lined rent $ 475,000 $2,793,000 $3,648,000
straight-lined rent per sq. ft. $ 17.66 $ 20.39 $ 18.90
recoveries $ 6,000 $ 240,000 $ 175,000
full service st-line rent $ 481,000 $3,033,000 $3,823,000
full service st-line rent per sq. ft. $ 17.88 $ 22.14 $ 19.81
% full service st-lined rent 1.92% 12.10% 15.25%
asking market rent per sq. ft. $ 29.00
no. of tenants 26 27 28
125 Summer Street(2) square feet 14,000 sf 12,000 sf 135,000 sf
straight-lined rent $ 294,000 $ 288,000 $5,048,000
straight-lined rent per sq. ft. $ 21.00 $ 24.00 $ 37.39
recoveries $ 52,000 $ 58,000 $ 718,000
full service st-line rent $ 346,000 $ 346,000 $5,766,000
full service st-line rent per sq. ft. $ 24.71 $ 28.83 $ 42.71
% full service st-lined rent 2.25% 2.25% 37.54%
asking market rent per sq. ft. $ 38.00
no. of tenants 2 6 4
Tower 56(2) square feet 17,000 sf 15,000 sf 33,000 sf
straight-lined rent $ 750,000 $ 568,000 $1,375,000
straight-lined rent per sq. ft. $ 44.12 $ 37.87 $ 41.67
recoveries $ 4,000 $ 11,000 $ 18,000
full service st-line rent $ 754,000 $ 579,000 $1,393,000
full service st-line rent per sq. ft. $ 44.35 $ 38.60 $ 42.21
% full service st-lined rent 11.16% 8.57% 20.62%
asking market rent per sq. ft. $ 50.00
no. of tenants 5 5 8
One Lincoln Centre(1) square feet 12,000 sf 61,000 sf 41,000 sf
straight-lined rent $ 198,000 $1,177,000 $ 661,000
straight-lined rent per sq. ft. $ 16.50 $ 19.30 $ 16.12
recoveries $ 101,000 $ 443,000 $ 375,000
full service st-line rent $ 299,000 $1,620,000 $1,036,000
full service st-line rent per sq. ft. $ 24.92 $ 26.56 $ 25.27
% full service st-lined rent 3.77% 20.43% 13.07%
asking market rent per sq. ft. $ 28.00
no. of tenants 3 13 7
</TABLE>
<TABLE>
<CAPTION>
PROPERTY 2000 2001 2002 2003
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
One Norwest Center (1) square feet (3) 128,000 sf 55,000 sf 109,000 sf 146,000 sf
straight-lined rent(4) $1,014,000 $ 592,000 $1,020,000 $2,115,000
straight-lined rent per sq. ft. $ 7.92 $ 10.76 $ 9.36 $ 14.49
recoveries (5) $ 758,000 $ 330,000 $ 648,000 $ 890,000
full service st-line rent(6) $1,772,000 $ 922,000 $1,668,000 $3,005,000
full service st-line rent per sq. ft. $ 13.84 $ 16.76 $ 15.30 $ 20.58
% full service st-lined rent 8.09% 4.21% 7.62% 13.72%
asking market rent per sq. ft.(7)
no. of tenants(8) 7 6 11 2
Norwest Center(1) square feet 104,000 sf 2,000 sf 53,000 sf 175,000 sf
straight-lined rent $1,646,000 $ 34,000 $ 455,000 $2,634,000
straight-lined rent per sq. ft. $ 15.83 $ 17.00 $ 8.58 $ 15.05
recoveries $1,613,000 $ 32,000 $ 802,000 $2,747,000
full service st-line rent $3,259,000 $ 66,000 $1,257,000 $5,381,000
full service st-line rent per sq. ft. $ 31.34 $ 33.00 $ 23.72 $ 30.75
% full service st-lined rent 8.29% 0.17% 3.20% 13.69%
asking market rent per sq. ft.
no. of tenants 4 1 2 1
Washington Mutual Tower(2) square feet 40,000 sf 52,000 sf 96,000 sf 170,000 sf
straight-lined rent $ 720,000 $1,100,000 $1,960,000 $3,485,000
straight-lined rent per sq. ft. $ 18.00 $ 21.15 $ 20.42 $ 20.50
recoveries $ 27,000 $ 36,000 $ 62,000 $ 209,000
full service st-line rent $ 747,000 $1,136,000 $2,022,000 $3,694,000
full service st-line rent per sq. ft. $ 18.68 $ 21.85 $ 21.06 $ 21.73
% full service st-lined rent 2.98% 4.53% 8.07% 14.74%
asking market rent per sq. ft.
no. of tenants 11 12 7 6
125 Summer Street(2) square feet 120,000 sf 9,000 sf 121,000 sf 16,000 sf
straight-lined rent $4,038,000 $ 139,000 $3,222,000 $ 318,000
straight-lined rent per sq. ft. $ 33.65 $ 15.44 $ 26.63 $ 19.88
recoveries $ 523,000 $ 131,000 $ 81,000 $ 154,000
full service st-line rent $4,561,000 $ 270,000 $3,303,000 $ 472,000
full service st-line rent per sq. ft. $ 38.01 $ 30.00 $ 27.30 $ 29.50
% full service st-lined rent 29.70% 1.76% 21.51% 3.07%
asking market rent per sq. ft.
no. of tenants 8 2 2 2
Tower 56(2) square feet 17,000 sf 37,000 sf 25,000 sf 5,000 sf
straight-lined rent $ 682,000 $1,561,000 $1,136,000 $ 194,000
straight-lined rent per sq. ft. $ 40.12 $ 42.19 $ 45.44 $ 38.80
recoveries $ 3,000 $ 6,000 $ 12,000 $ 6,000
full service st-line rent $ 685,000 $1,567,000 $1,148,000 $ 200,000
full service st-line rent per sq. ft. $ 40.29 $ 42.35 $ 45.92 $ 40.00
% full service st-lined rent 10.14% 23.20% 17.00% 2.96%
asking market rent per sq. ft.
no. of tenants 7 10 7 2
One Lincoln Centre(1) square feet 95,000 sf 3,000 sf 70,000 sf
straight-lined rent $1,958,000 $ 54,000 $1,567,000
straight-lined rent per sq. ft. $ 20.61 $ 18.00 $ 22.39
recoveries $ 736,000 $ 25,000 $ 634,000
full service st-line rent $2,694,000 $ 79,000 $2,201,000
full service st-line rent per sq. ft. $ 28.36 $ 26.33 $ 31.44
% full service st-lined rent 33.98% 1.00% 27.76%
asking market rent per sq. ft.
no. of tenants 14 1 5
</TABLE>
<TABLE>
<CAPTION>
PROPERTY 2004 2005 2006
- ------- ---- ---- ----
<S> <C> <C> <C>
One Norwest Center (1) square feet (3) 118,000 sf
straight-lined rent(4) $1,338,000
straight-lined rent per sq. ft. $ 11.34
recoveries (5) $ 707,000
full service st-line rent(6) $2,045,000
full service st-line rent per sq. ft. $ 17.33
% full service st-lined rent 9.34%
asking market rent per sq. ft.(7)
no. of tenants(8) 2
Norwest Center(1) square feet 96,000 sf
straight-lined rent $1,628,000
straight-lined rent per sq. ft. $ 16.96
recoveries $1,501,000
full service st-line rent $3,129,000
full service st-line rent per sq. ft. $ 32.59
% full service st-lined rent 7.96%
asking market rent per sq. ft.
no. of tenants 2
Washington Mutual Tower(2) square feet 270,000 sf 13,000 sf
straight-lined rent $6,477,000 $ 242,000
straight-lined rent per sq. ft. $ 23.99 $ 18.62
recoveries $ 481,000 $ 5,000
full service st-line rent $6,958,000 $ 247,000
full service st-line rent per sq. ft. $ 25.77 $ 19.00
% full service st-lined rent 27.76% 0.99%
asking market rent per sq. ft.
no. of tenants 4 1
125 Summer Street(2) square feet 10,000 sf
straight-lined rent $ 275,000
straight-lined rent per sq. ft. $ 27.50
recoveries $ 19,000
full service st-line rent $ 294,000
full service st-line rent per sq. ft. $ 29.40
% full service st-lined rent 1.91%
asking market rent per sq. ft.
no. of tenants 1
Tower 56(2) square feet 10,000 sf
straight-lined rent $ 424,000
straight-lined rent per sq. ft. $ 42.40
recoveries $ 4,000
full service st-line rent $ 428,000
full service st-line rent per sq. ft. $ 42.80
% full service st-lined rent 6.34%
asking market rent per sq. ft.
no. of tenants 2
One Lincoln Centre(1) square feet
straight-lined rent
straight-lined rent per sq. ft.
recoveries
full service st-line rent
full service st-line rent per sq. ft.
% full service st-lined rent
asking market rent per sq. ft.
no. of tenants
</TABLE>
<TABLE>
<CAPTION>
2008
AND
PROPERTY 2007 BEYOND TOTAL TOTAL
- -------- ---- ------ ----- -----
<S> <C> <C> <C> <C>
One Norwest Center (1) square feet (3) 76,000 sf 406,000 sf 1,172,000 sf 24.48%
straight-lined rent(4) $1,127,000 $ 6,421,000 $ 14,809,000 14.38%
straight-lined rent per sq. ft. $ 14.83 $ 15.82 $ 12.64
recoveries (5) $ 463,000 $ 2,495,000 $ 7,089,000 22.96%
full service st-line rent(6) $1,590,000 $ 8,916,000 $ 21,898,000 16.36%
full service st-line rent per sq. ft. $ 20.92 $ 21.96 $ 18.68
% full service st-lined rent 7.26% 40.72% 100.00%
asking market rent per sq. ft.(7)
no. of tenants(8) 2 2 48 11.59%
Norwest Center(1) square feet 533,000 sf 1,103,000 sf 23.04%
straight-lined rent $13,813,000 $22,032,000 21.39%
straight-lined rent per sq. ft. $ 25.92 $ 19.97
recoveries $ 8,450,000 $17,282,000 55.96%
full service st-line rent $22,263,000 $39,314,000 29.37%
full service st-line rent per sq. ft. $ 41.77 $ 35.64
% full service st-lined rent 56.63% 100.00%
asking market rent per sq. ft.
no. of tenants 2 35 8.45%
Washington Mutual Tower(2) square feet 138,000 sf 1,135,900 sf 23.72%
straight-lined rent $2,653,000 $23,553,000 22.87%
straight-lined rent per sq. ft. $ 19.22 $ 20.74
recoveries $ 272,000 $ 1,513,000 4.90%
full service st-line rent $2,925,000 $25,066,000 18.72%
full service st-line rent per sq. ft. $ 21.20 $ 22.07
% full service st-lined rent 11.67% 100.00%
asking market rent per sq. ft.
no. of tenants 1 123 29.71%
125 Summer Street(2) square feet 437,000 sf 9.13%
straight-lined rent $13,622,000 $ 0
straight-lined rent per sq. ft. $ 31.17
recoveries $ 1,736,000 5.62%
full service st-line rent $15,358,000 11.47%
full service st-line rent per sq. ft. $ 35.14
% full service st-lined rent 100.00%
asking market rent per sq. ft.
no. of tenants 27 6.52%
Tower 56(2) square feet 159,000 sf 3.32%
straight-lined rent $ 6,690,000 6.50%
straight-lined rent per sq. ft. $ 42.08
recoveries $ 64,000 0.21%
full service st-line rent $ 6,754,000 5.05%
full service st-line rent per sq. ft. $ 42.48
% full service st-lined rent 100.00%
asking market rent per sq. ft.
no. of tenants 46 11.11%
One Lincoln Centre(1) square feet 282,000 sf 5.89%
straight-lined rent $ 5,615,000 5.45%
straight-lined rent per sq. ft. $ 19.91
recoveries $ 2,314,000 7.49%
full service st-line rent $ 7,929,000 5.92%
full service st-line rent per sq. ft. $ 28.12
% full service st-lined rent 100.00%
asking market rent per sq. ft.
no. of tenants 43 10.39%
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
PROPERTY Q4 1997 1998 1999 2000
- -------- ------- ---- ---- ----
<S> <C> <C> <C> <C>
Frick Building(2) square feet 9,000 sf 11,000 sf 38,000 sf 74,000 sf
straight-lined rent $ 185,000 $ 221,000 $ 786,000 $ 1,502,000
straight-lined rent per sq. ft. $ 20.56 $ 20.09 $ 20.68 $ 20.30
recoveries $ 20,000 $ 6,000 $ 17,000 $ 23,000
full service st-line rent $ 205,000 $ 227,000 $ 803,000 $ 1,525,000
full service st-line rent per sq. ft. $ 22.78 $ 20.64 $ 21.13 $ 20.61
% full service st-lined rent 3.32% 3.68% 13.02% 24.72%
asking market rent per sq. ft. $ 22.00
no. of tenants 11 7 15 19
No. 527 Madison(2) square feet 207 sf 21,000 sf 9,000 sf
straight-lined rent $ 5,000 $ 1,111,000 $ 392,000
straight-lined rent per sq. ft. $ 24.15 $ 52.90 $ 43.56
recoveries $ - $ 158,000 $ 11,000
full service st-line rent $ 5,000 $ 1,269,000 $ 403,000
full service st-line rent per sq. ft. $ 24.15 $ 60.43 $ 44.78
% full service st-lined rent 11.80% 11.15% 3.54%
asking market rent per sq. ft. $ 50.00
no. of tenants 1 4 2
-----------------------------------------------------------------------------------------------------
TOTAL square feet 108,107 sf 349,000 sf 593,000 sf 587,000 sf
straight-lined rent $ 2,299,000 $ 6,898,000 $13,390,000 $11,952,000
straight-lined rent per sq. ft. $ 21.27 $ 19.77 $ 22.58 $ 20.36
recoveries $ 480,000 $ 2,061,000 $ 2,796,000 $ 3,694,000
full service st-line rent $ 2,779,000 $ 8,959,000 $16,186,000 $15,646,000
full service st-line rent per sq. ft. $ 25.71 $ 25.67 $ 27.30 $ 26.65
% full service st-lined rent 2.08% 6.69% 12.09% 11.69%
cumulative % full svc st-lined rent 2.08% 8.77% 20.86% 32.55%
no. of tenants 53 83 75 72
</TABLE>
<TABLE>
<CAPTION>
PROPERTY 2001 2002 2003 2004
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Frick Building(2) square feet 42,000 sf 35,000 sf 55,000 sf 11,000 sf
straight-lined rent $ 800,000 $ 632,000 $ 1,070,000 $ 195,000
straight-lined rent per sq. ft. $ 19.05 $ 18.06 $ 19.45 $ 17.73
recoveries $ - $ 1,000 $ 19,000 $ -
full service st-line rent $ 800,000 $ 633,000 $ 1,089,000 $ 195,000
full service st-line rent per sq. ft. $ 19.05 $ 18.09 $ 19.80 $ 17.73
% full service st-lined rent 12.97% 10.26% 17.66% 3.16%
asking market rent per sq. ft.
no. of tenants 6 9 3 1
No. 527 Madison(2) square feet 78,000 sf 22,000 sf 8,000 *f
straight-lined rent $ 4,334,000 $ 802,000 $ 1,128,000
straight-lined rent per sq. ft. $ 55.56 $ 36.45 $ 141.00
recoveries $ 561,000 $ 14,000 $ 6,000
full service st-line rent $ 4,895,000 $ 816,000 $ 1,134,000
full service st-line rent per sq. ft. $ 62.76 $ 37.09 $ 141.75
% full service st-lined rent 43.00% 7.17% 9.96%
asking market rent per sq. ft.
no. of tenants 1 2 1
---------------------------------------------------------------------------------------------------------
TOTAL square feet 278,000 sf 509,000 sf 589,000 sf 513,000 sf
straight-lined rent $ 8,614,000 $ 9,992,000 $10,618,000 $11,190,000
straight-lined rent per sq. ft. $ 30.99 $ 19.63 $ 18.03 $ 21.81
recoveries $ 1,121,000 $ 2,240,000 $ 4,039,000 $ 2,699,000
full service st-line rent $ 9,735,000 $12,232,000 $14,657,000 $13,889,000
full service st-line rent per sq. ft. $ 35.02 $ 24.03 $ 24.88 $ 27.07
% full service st-lined rent 7.27% 9.14% 10.95% 10.37%
cumulative % full svc st-lined rent 39.82% 48.96% 59.90% 70.28%
no. of tenants 39 43 18 12
</TABLE>
<TABLE>
<CAPTION>
2008
AND
PROPERTY 2005 2006 2007 BEYOND
- -------- ---- ---- ---- ------
<S> <C> <C> <C> <C>
Frick Building(2) square feet 24,000 sf
straight-lined rent $ 664,000
straight-lined rent per sq. ft. $ 27.67
recoveries $ 27,000
full service st-line rent $ 691,000
full service st-line rent per sq. ft. $ 28.79
% full service st-lined rent 11.20%
asking market rent per sq. ft.
no. of tenants 3
No. 527 Madison(2) square feet 6,000 sf 23,000 sf 33,000 sf
straight-lined rent $277,000 $946,000 $1,617,000
straight-lined rent per sq. ft. $ 46.17 $ 41.13 $ 49.00
recoveries $ 3,000 $ 4,000 $ 14,000
full service st-line rent $280,000 $950,000 $1,631,000
full service st-line rent per sq. ft. $ 46.67 $ 41.30 $ 49.42
% full service st-lined rent 2.46% 8.35% 14.33%
asking market rent per sq. ft.
no. of tenants 1 4 2
-------------------------------------------------------------------------------------------------------
TOTAL square feet 29,000 sf 23,000 sf 271,000 sf 939,000 sf
straight-lined rent $794,000 $946,000 $6,061,000 $20,234,000
straight-lined rent per sq. ft. $ 27.38 $ 41.13 $ 22.37 $ 21.55
recoveries $ 27,000 $ 4,000 $ 776,000 $10,945,000
full service st-line rent $821,000 $950,000 $6,837,000 $31,179,000
full service st-line rent per sq. ft. $ 28.31 $ 41.30 $ 25.23 $ 33.20
% full service st-lined rent 0.61% 0.71% 5.11% 23.29%
cumulative % full svc st-lined rent 70.89% 71.60% 76.71% 100.00%
no. of tenants 3 4 8 4
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TOTAL TOTAL
- -------- ----- -----
<S> <C> <C>
Frick Building(2) square feet 299,000 sf 6.24%
straight-lined rent $ 6,055,000 5.88%
straight-lined rent per sq. ft. $ 20.25
recoveries $ 113,000 0.37%
full service st-line rent $ 6,168,000 4.61%
full service st-line rent per sq. ft. $ 20.63
% full service st-lined rent 100.00%
asking market rent per sq. ft.
no. of tenants 74 17.87%
No. 527 Madison(2) square feet 200,207 sf 4.18%
straight-lined rent $ 10,612,000 10.30%
straight-lined rent per sq. ft. $ 53.01
recoveries $ 771,000 2.50%
full service st-line rent $ 11,383,000 8.50%
full service st-line rent per sq. ft. $ 56.86
% full service st-lined rent 100.00%
asking market rent per sq. ft.
no. of tenants 18 4.35%
----------------------------------------------------------------------
TOTAL square feet 4,788,107 sf 100.00%
straight-lined rent $102,988,000 100.00%
straight-lined rent per sq. ft. $ 21.51
recoveries $ 30,882,000 100.00%
full service st-line rent $133,870,000 100.00%
full service st-line rent per sq. ft. $ 27.96
% full service st-lined rent 100.00%
cumulative % full svc st-lined rent
no. of tenants 414 100.00%
</TABLE>
* Includes 4,605 square feet of retail space leased to the Gap at a base rent of
$871,200 and recoveries of $5,964, totalling to a full service rent of $877,164.
<PAGE> 31
CORNERSTONE PROPERTIES INC.
LEASE EXPIRATION SCHEDULE
FOOTNOTES
- ----------
(1) Net Lease building.
(2) Gross Lease building.
(3) The total square footage expiring in any particular year.
(4) Straight-line rent is the average of all lease payments required to be made
through the term of the lease as required under Generally Accepted
Accounting Principles.
(5) The actual recovery of operating expenses as of September 30, 1997 in net
lease buildings and the recovery of operating expense escalations in gross
lease buildings.
(6) Full Service Straight-Line Rent is Straight-Line Rent plus recoveries.
(7) Asking market rent is the average initially quoted rent to prospective
tenants in each building. All market rents shown are on full service basis.
(8) The number of tenant leases expiring in each year.
<PAGE> 32
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o TENANT RETENTION
<PAGE> 33
The attached table sets forth the Company's tenant retention on expiring leases
since January 1, 1993. The analysis is based upon the percentage of expiring
leases in the applicable building with a tenant or subtenant being retained in
the expiring space, or an existing tenant expanding into the expiring space. A
tenants lease is added to the retention schedule at the time a lease extension
is signed with the tenant, or the tenant notifies the Company of an option being
exercised.
<PAGE> 34
RETENTION
<TABLE>
<CAPTION>
1993 1994 1995
---------------------------- --------------------------- ------------------------------
sq ft sq ft sq ft sq ft sq ft sq ft
retained expir. ret % retained expir. ret % retained expir. ret %
---------------------------- --------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Norwest 126,511 154,615 82% 93,962 94,981 99% 64,627 71,364 91%
Norwest 24,832 37,806 66% 16,293 26,317 62% 22,762 23,792 96%
WAMU 90,230 130,010 69% 127,334 153,645 83% 29,547 44,742 66%
125 Summer
Tower 56
One Lincoln Centre
Frick Building
527 Madison
------------------------ ------------------------- -----------------------------
weighted 241,573 322,431 75% 237,589 274,943 86% 116,936 139,898 84%
</TABLE>
<TABLE>
<CAPTION>
1996 YTD 1997 (Q3)
------------------------------- --------------------------------------------
sq ft sq ft sq ft sq ft
retained expir. ret % retained expir. ret %
------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One Norwest 43,601 72,903 60% 254,013 285,770 89%
Norwest 4,336 9,777 44% 183,748 198,161 93%
WAMU 86,956 106,250 82% 152,686 170,804 89%
125 Summer 95,816 96,658 99% 22,216 47,687 47%
Tower 56 46,003 53,762 86% 28,778 34,002 85%
One Lincoln Centre 24,498 31,249 78%
Frick Building 98,564 114,148 86%
527 Madison 5,980 20,587 29%
---------------------------- --------------------------------------------
weighted 276,712 339,350 82% 770,483 902,408 85%
-------
83.7%
-------
</TABLE>
<PAGE> 35
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o CAPITAL EXPENDITURES
<PAGE> 36
NON INCREMENTAL REVENUE GENERATING LEASING COSTS AND CAPITAL EXPENDITURES
The following table shows Historical Non-Incremental Revenue Generating Leasing
Costs which are the leasing costs (tenant improvements and leasing commissions),
in total and on a per square foot basis, to re-lease expiring leases or renew or
extend existing leases. The Company believes that its ability to renew and
extend existing tenants at a high percentage has substantially reduced its
overall leasing costs on a per square foot basis. Additionally, the table shows
Historical Non-Incremental Revenue Generating Capital Expenditures which are
Capital Expenditures expended to maintain a property in a Class A manner and do
not give rise to additional earnings capacity, but rather allow the property to
maintain its competitive position within its market. The Company believes that
its focus on continuing high level of maintenance of its assets has greatly
reduced the amount of Capital Expenditures required at its buildings.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 TOTAL
<S> <C> <C> <C> <C> <C> <C>
ONE NORWEST CENTER
Total Tenant Lease Costs 1,691,088 1,009,006 141,135 540,444 754,802 4,136,475
Total Square Feet Leased 288,387 81,445 75,939 117,966 177,700 741,437
Total Per Square Foot 5.86 12.39 1.86 4.58 4.25 5.58
NORWEST CENTER
Total Tenant Lease Costs 51,651 42,237 144,275 30,193 154,940 423,296
Total Square Feet Leased 187,865 6,629 24,986 26,939 38,065 284,484
Total Per Square Foot 0.27 6.37 5.77 1.12 4.07 1.49
WASHINGTON MUTUAL TOWER
Total Tenant Lease Costs 1,061,621 793,361 290,971 1,065,962 1,303,860 4,515,775
Total Square Feet Leased 186,036 124,474 53,894 151,051 150,497 665,952
Total Per Square Foot 5.71 6.37 5.40 7.06 8.66 6.78
125 SUMMER STREET
Total Tenant Lease Costs 1,251,353 2,158,339 -- -- -- 3,409,692
Total Square Feet Leased 23,466 117,794 -- -- -- 141,260
Total Per Square Foot 53.33 18.32 -- -- -- 24.14
TOWER 56
Total Tenant Lease Costs 501,028 339,124 -- -- -- 840,152
Total Square Feet Leased 47,915 42,203 -- -- -- 90,118
Total Per Square Foot 10.46 8.04 -- -- -- 9.32
ONE LINCOLN CENTRE
Total Tenant Lease Costs 137,796 2,859 -- -- -- 140,655
Total Square Feet Leased 29,299 3,652 -- -- -- 32,951
Total Per Square Foot 4.70 0.78 -- -- -- 4.27
FRICK BUILDING
Total Tenant Lease Costs 1,161,553 -- -- -- -- 1,161,553
Total Square Feet Leased 104,827 -- -- -- -- 104,827
Total Per Square Foot 11.08 -- -- -- -- 11.08
527 MADISON AVENUE
Total Tenant Lease Costs 463,931 -- -- -- -- 463,931
Total Square Feet Leased 12,821 -- -- -- -- 12,821
Total Per Square Foot 36.19 -- -- -- -- 36.19
CORNERSTONE PORTFOLIO
Total Tenant Lease Costs 6,320,021 4,344,926 576,381 1,636,599 2,213,602 15,091,529
Total Square Feet Leased 880,616 376,197 154,819 295,956 366,262 2,073,850
Total Per Square Foot 7.18 11.55 3.72 5.53 6.04 7.28
CAPITAL EXPENDITURES* 267,151 532,851 -- 50,801 -- 850,803
Weighted Average Square Footage Owned 4,905,000 4,139,404 3,499,667 3,461,000 3,461,000 19,466,070
Per Square Foot 0.05 0.13 -- 0.01 -- 0.04
TOTAL CAPITAL EXPENDITURES
AND TENANT LEASING COSTS 6,587,172 4,877,777 576,381 1,687,400 2,213,602 15,942,332
Weighted Average Square Footage Owned 4,905,000 4,139,404 3,499,667 3,461,000 3,461,000 19,466,070
Per Square Foot 1.34 1.18 0.16 0.49 0.64 0.82
</TABLE>
* 1997 and 1996 Start-Up Capital included in purchase price of One Lincoln, 125
Summer Street and the Frick Building.
<PAGE> 37
INCREMENTAL REVENUE GENERATING LEASING COSTS AND CAPITAL EXPENDITURES
The following table shows Historical Incremental Revenue Generating Leasing
Costs which are the leasing costs (tenant improvements and leasing commissions)
required (i)to lease first generation space on development properties and (ii)
space which was vacant at the time of the acquisition of a property which will
increase the overall return on the property. Additionally, the table shows
Historical Incremental Revenue Generating Capital Expenditures which are Capital
Expenditures expended to increase the profitability of the building either
through the generation of higher earnings capability, or by improving building
system efficiency, thus producing lower operating expenses prospectively.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 TOTAL
<S> <C> <C> <C> <C> <C> <C>
ONE NORWEST CENTER
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
NORWEST CENTER
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
WASHINGTON MUTUAL TOWER
Total Tenant Lease Costs 378,594 643,235 -- -- -- 1,021,829
Total Square Feet Leased 62,644 146,517 -- -- -- 209,161
Total Per Square Foot 6.04 4.39 -- -- -- 4.89
125 SUMMER STREET
Total Tenant Lease Costs -- 369,727 -- -- -- 369,727
Total Square Feet Leased -- 33,136 -- -- -- 33,136
Total Per Square Foot -- 11.16 -- -- -- 11.16
TOWER 56
Total Tenant Lease Costs -- 174,266 -- -- -- 174,266
Total Square Feet Leased -- 7,115 -- -- -- 7,115
Total Per Square Foot -- 24.49 -- -- -- 24.49
ONE LINCOLN CENTRE
Total Tenant Lease Costs 261,538 9,706 -- -- -- 271,244
Total Square Feet Leased 11,816 1,941 -- -- -- 13,757
Total Per Square Foot 22.13 5.00 -- -- -- 19.72
FRICK BUILDING
Total Tenant Lease Costs 325,041 -- -- -- -- 325,041
Total Square Feet Leased 19,384 -- -- -- -- 19,384
Total Per Square Foot 16.77 -- -- -- -- 16.77
527 MADISON AVENUE
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
CORNERSTONE PORTFOLIO
Total Tenant Lease Costs 965,173 1,196,934 -- -- -- 2,162,107
Total Square Feet Leased 93,844 188,709 -- -- -- 282,553
Total Per Square Foot 10.28 6.34 -- -- -- 7.65
CAPITAL EXPENDITURES 153,007 25,500 135,194 102,567 967,533 1,383,801
Weighted Average Square Footage Owned 4,905,000 4,139,404 3,499,667 3,461,000 3,461,000 19,466,070
Per Square Foot 0.03 0.01 0.04 0.03 0.28 0.07
TOTAL CAPITAL EXPENDITURES
AND TENANT LEASING COSTS 1,118,180 1,222,434 135,194 102,567 967,533 3,545,908
Weighted Average Square Footage Owned 4,905,000 4,139,404 3,499,667 3,461,000 3,461,000 19,466,070
Per Square Foot 0.23 0.30 0.04 0.03 0.28 0.18
</TABLE>
<PAGE> 38
CORNERSTONE PROPERTIES INC.
SUPPLEMENTAL INFORMATION TO
QUARTERLY EARNINGS RELEASE
o MINORITY SHARING IN CASH FLOWS AND
RESIDUAL PROCEEDS
<PAGE> 39
MINORITY SHARING IN CASH FLOWS
Three of the Company's properties are held in partnerships or have
management agreements which allow the Company's partners and/or managers to
participate in the cash flows of their respective properties. The following
discussion provides the details of each partner's/manager's participation in the
cash flow of each of the respective properties.
Norwest Center
Under the partnership agreement, cash flow is used first to pay
operating and capital expenditures, then debt service on the mortgage note. The
remaining cash flow is paid first to Cornerstone, as a 7% cumulative preference
return on its capital base of $92.3 million ($6,461,000), the remaining cash
flow is split 50% to Cornerstone and 50% to their partner, Sixth & Marquette
Limited Partnership ("S&M"). Should cash flow be insufficient to pay the
preference return ("Preference Deficit") it will accumulate and earn interest at
7%. Any Preference Deficit will be paid as the first priority payment after debt
service. Cash distributions of $4.73 million during the first nine months of
1997 were split $5.59 million to Cornerstone (81.29%) and $1.29 million to S&M
(18.71%). Earnings during the first quarter were split 79.30% to Cornerstone and
20.70% to S&M. Sales proceeds from Norwest Center will be split as follows as of
September 30, 1997:
<TABLE>
<S> <C>
1) To debt $110.0 million
2) To Cornerstone 92.3 million
3) To Cornerstone 9.3 million
4) To Cornerstone 1.0 million
5) To S&M 17.9 million
6) The remaining proceeds will be split 50/50 among the two partners.
</TABLE>
Washington Mutual Tower
Under the partnership agreement cash flow is used first to pay
operating and capital expenditures, then debt service on the mortgage note. The
remaining cash flow is paid first to Cornerstone as a 9.53% preference return on
a capital base of $47.0 million ($4,479,000), next cash is used to pay the
Preference Deficit on the second preference return (currently $8.4 million), the
next payment is to Cornerstone on its second preference return of 8% on its
capital base of $100.0 million ($8,000,000), finally cash flow is split 50% to
Cornerstone and 50% to 1212. The cumulative Preference Deficit earns interest at
a rate of 8% until it is repaid. Cash flow of $12,372,842 was distributed to
Cornerstone during 1996. Cornerstone's partner, 1212 Partnership, does not
currently share in the cash flow from Washington Mutual Tower. With regard to
the sale of the building, the Company will receive the first $156.5 million of
proceeds after repayment of the $79.1 million mortgage ($235.0 million in total
proceeds). Any proceeds above this amount will be split 50/50 with Cornerstone's
partners.
<PAGE> 40
MINORITY SHARING IN CASH FLOWS (continued)
Tower 56
Under its management agreement with HRO International, Inc. ("HRO"),
HRO has the right to share in one-third of the net cash flow, without regard for
debt service, above a 9% return on Cornerstone's investment of $32,986 808 or
$2,966,431. Since property cash flow for the year ended December 31, 1996 was
$2,915,835 no cash was paid to HRO. The shortfall of $52,978 plus 9% interest
must be paid to Cornerstone, prior to HRO sharing in any cash flow of the
property.
Sales proceeds above $35.5 million will be distributed 1/3 to HRO and 2/3 to
Cornerstone. Cornerstone is responsible for the repayment of the debt from its
portion of the sales proceeds.
