SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
December 1996
CORNERSTONE PROPERTIES INC.
(Exact name of registrant as specified in its charter)
Nevada 0-10421 74-2170858
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
Cornerstone Properties Inc.
126 East 56th Street
New York, NY 10022
(Address of principal executive offices)
(212) 605-7100
(Registrant's telephone number,
including area code)
The registrant hereby amends Item 7 of its Current Report on Form 8-K, dated
December 12, 1996, as set forth in the pages attached hereto.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
Included herewith are the following financial statements reflecting the
acquisition of Tower 56 and One Lincoln Centre.
(a) Financial Statements
Tower 56
1. Report of Ernst & Young LLP, Independent Auditors, dated
February 23, 1996.
2. Statement of Revenue and Certain Expenses for the year ended
December 31, 1995.
One Lincoln Centre
1. Report of Ernst & Young LLP, Independent Auditors, dated
December 13, 1996.
2. Statement of Revenue and Certain Expenses for the year ended
December 31, 1995
(b) Pro forma condensed consolidated financial statements (unaudited):
1. Pro forma condensed consolidated statement of income for the nine
months ended September 30, 1996 and the Pro forma condensed
consolidated statement of operations for the year ended December
31, 1995.
2. Pro forma condensed consolidated balance sheet as of September
30, 1996.
3. Notes to pro forma condensed consolidated financial statements.
<PAGE>
Statement of Revenues and
Certain Expenses
Tower 56
December 31, 1995
with Report of Independent Auditors
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Cornerstone Properties Inc.
We have audited the Statement of Revenues and Certain Expenses of Tower 56 (the
Property) as described in Note 2 for the year ended December 31, 1995. The
Statement of Revenues and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenues and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenues and Certain Expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement of Revenues and Certain
Expenses. An audit also includes assessing the accounting principles used and
estimates made by management, as well as evaluating the overall presentation of
the Statement of Revenues and Certain Expenses. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying Statement of Revenues and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission described in Note 2 and is not intended to be a complete
presentation of the Property's revenues and expenses.
In our opinion, the Statement of Revenues and Certain Expenses referred to above
presents fairly, in all material respects, the revenues and certain expenses as
described in Note 2 for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
February 23, 1996
New York, New York
<PAGE>
Tower 56
Statement of Revenues and Certain Expenses
For the year ended December 31, 1995
Revenues
Rental income - (Note 3 and 4) $6,581,844
Miscellaneous income 7,987
-------------
6,589,831
-------------
Certain Expenses - (Note 4)
Salaries and wages 302,255
Cleaning 499,216
Utilities 174,307
Repairs and maintenance 160,697
Building management services 288,221
Management fee 121,260
Real estate taxes 1,716,574
Miscellaneous 138,228
Bad debt 217,684
Leasing fees 105,950
-------------
3,724,392
-------------
Revenues in excess of certain expenses $2,865,439
=============
See accompanying notes.
<PAGE>
Tower 56
Notes to the Statement of Revenues and Certain Expenses
December 31, 1995
1. Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of Tower 56 (the Property). The Property was acquired through
foreclosure on two mortgage notes which were purchased on December 19, 1995 by
Cornerstone Properties Inc. ("Cornerstone"). The Property was previously owned
by Tower 56 Partners, a general partnership. Title to the Property was
transferred to Cornerstone in the second quarter of 1996.
2. Basis of Presentation
The accompanying Statement of Revenues and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. Accordingly, the financial statement excludes certain
expenses that may not be comparable to those expected to be incurred by
Cornerstone in the proposed future operations of the aforementioned property.
Items excluded consist of depreciation, amortization, interest and certain
non-operating expenses.
The preparation of the Statement of the Revenues and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the Statement
of Revenues and Certain Expenses and accompanying notes. Actual results could
differ from those estimates.
3. Rental Income
Rental income is recognized on a straight-line basis over the terms of the
related leases inclusive of free rent, if any, and lease step-ups. Various
leases provide for the reimbursement of real estate taxes and certain operating
expenses in excess of base amounts. These reimbursements and applicable costs
have been reflected in the statement of operations as revenues and expenses,
respectively. At December 31, 1995, approximately $136,000 is included in income
as a result of straight-lining of rents.
The following is a schedule by years of minimum future rentals on noncancellable
operating leases at December 31, 1995, exclusive of additional rental income
which will result from escalations:
Year Ending December 31,
1996 $ 5,609,990
1997 4,455,044
1998 3,401,660
1999 2,134,027
2000 1,845,795
Thereafter 2,808,426
=============
$20,254,942
=============
4. Related Party Transactions
A corporation owned by an affiliate functions as property manager and project
coordinator. Approximately $221,000 of fees and expenses was incurred for
services during 1995. Additionally, the corporation occupies 5,000 square feet
in Tower 56 with a rent of $200,000 during 1995.
<PAGE>
Statement of Revenue and
Certain Expenses
One Lincoln Centre
December 31, 1995
with Report of Independent
Auditors
<PAGE>
[ERNST & YOUNG LLP LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cornerstone Properties, Inc.
We have audited the Statement of Revenue and Certain Expenses of One Lincoln
Centre (the Property) as described in Note 2 for the year ended December 31,
1995. The Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures made in the Statement of Revenue and
Certain Expenses. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall presentation of the Statement of Revenue and Certain Expenses. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission described in Note 2 and is not intended to be a complete
presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses
described in Note 2 for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
December 13, 1996
Chicago, Illinois
<PAGE>
ONE LINCOLN CENTRE
STATEMENT OF REVENUE AND CERTAIN EXPENSES
Year Ended January 1, 1996
December 31, to November 8, 1996
1995 (unaudited)
-------------- ----------------
Revenue
- -------
Rental income $ 4,817,582 $ 3,925,789
Tenant operating expense reimbursements 1,971,385 1,448,316
-------------- ---------------
Total revenue 6,788,967 5,374,105
Expenses
- --------
Salaries and wages 296,568 246,007
Cleaning 243,623 209,520
Utilities 432,477 434,757
Repairs and maintenance 343,210 277,430
Building management services 224,111 204,079
Management fee 150,000 134,519
Real estate taxes 788,059 702,664
Miscellaneous non-recoverable 39,251 16,042
--------------- ---------------
Total expenses 2,517,299 2,225,018
--------------- ---------------
Revenue in excess of certain expenses $ 4,271,668 $ 3,149,087
=============== ===============
See accompanying notes.
<PAGE>
ONE LINCOLN CENTRE
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
Note 1 Business
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of One Lincoln Centre (the Property). The Property was acquired on
November 8, 1996, by CStone-Oakbrook, Inc. The Property was previously owned by
the Teachers Insurance and Annuity Association of America (TIAA).
As of December 31, 1995, the Property was 100% leased with 45 tenants.
Approximately 18% of total rental income earned relates to one tenant.
Note 2 Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission. The statement is not representative of the actual
operations of the Property for the period presented nor indicative of future
operations as certain expenses, primarily depreciation, amortization and
interest expense, which may not be comparable to the expenses expected to be
incurred by CStone-Oakbrook, Inc. in future operations of the Property, have
been excluded.
Revenue and Expense Recognition
Revenue is considered to be earned and is included in revenue on a straight-line
basis over the term of the related leases. Expenses are recognized in the period
in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these
estimates.
Note 3 Rentals
The Property has entered into tenant leases that provide for tenants to share in
the operating expenses and real estate taxes in relation to their pro rata share
as defined.
Note 4 Transactions with Affiliates
During the period January 1, 1995 through December 28, 1995, the Property was
managed by an affiliate, an entity which had an equity interest in the property
with TIAA. The management agreement provided for a flat fee of $12,500 per
month. In addition, this entity was reimbursed for certain operating expenses
and other disbursements paid in the normal course of business on behalf of the
property. Additionally, this affiliate leased approximately 1,600 square feet in
the building for which the Partnership received rents of $35,000 in 1995.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
INFORMATION PURSUANT TO RULE 3-14 REGULATION S-X
MANAGEMENT ASSESSMENT
Management's assessment of the Properties prior to acquisition includes,
but is not limited to, the quality of the tenant base, regional demographics,
the competitive environment, operating expenses and local property taxes. In
addition, the physical aspect of the Properties, location, condition and quality
of design and construction are evaluated. Management also conducts engineering
and environmental studies. All factors, when viewed in their entirety, have met
management's acquisition criteria. Management is not aware of any material
factors relating to the acquisitions other than those discussed above.
ESTIMATES OF TAXABLE OPERATING INCOME AND FUNDS GENERATED FROM OPERATIONS.
No income taxes have been provided because Cornerstone Properties Inc. is
taxed as a real estate investment trust under the provisions of the Internal
Revenue Code. Accordingly, Cornerstone does not pay Federal income tax whenever
income distributed to shareholders is equal to at least 95% of real estate
investment trust taxable income and certain other conditions are met.
The following presents an estimate of funds generated from operations from
Tower 56 and One Lincoln Centre for the year ended December 31, 1995 based on
the Statements of Revenues and Certain Expenses. These estimated results do not
purport to present expected results of operations for the Properties in the
future and were prepared on the basis described in the accompanying notes which
should be read in conjunction herewith.
Funds Generated From Operations
For the year ended December 31, 1995
---------------------------------------
Tower 56 $2,865,000
One Lincoln Centre $4,272,000
------------
Total $7,137,000
============
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated balance sheet at
September 30, 1996 reflects the acquisition of One Lincoln Centre as if the
transaction had occurred on that date.
The pro forma condensed consolidated statements of operations for the year
ended December 31, 1995 and the nine months ended September 30, 1996 assumes the
acquisition of Tower 56 and One Lincoln Centre as if they had occurred on
January 1, 1995 and 1996, respectively. This pro forma information is based on
the historical statements of Cornerstone after giving effect to the acquisition
of these Properties.
The unaudited pro forma condensed consolidated financial statements have
been prepared by Cornerstone Properties Inc. management. The unaudited pro forma
condensed consolidated statements of operations may not be indicative of the
results that would have actually occurred had the acquisitions been made on the
dates indicated. Also, they may not be indicative of the results that may be
achieved in the future. The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with Cornerstone's audited statements
as of December 31, 1995 and for the year then ended (which are contained in
Cornerstone's Form 10-K for the year ended December 31, 1995) and the unaudited
financial statements as of September 30, 1996 and for the nine months then ended
(which are contained in Cornerstone's Form 10-Q for the period ended September
30, 1996) and the accompanying notes.
<PAGE>
<TABLE>
Cornerstone Properties Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
For the Nine Months Ended September 30, 1996
(Unaudited)
(In thousands, except for per share amounts)
<CAPTION>
One Lincoln (1),(2)
As Tower 56 Centre Pro Forma
Reported Acquisition Acquisition Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Office and Parking Rentals ..... $80,687 $ -- $4,702 $ -- $85,389
Interest and Other Income ...... 9,477 -- -- -- 9,477
----------------------------------------------------
Total Revenue 90,164 -- 4,702 -- 94,866
Operating Expenses ............. 31,726 -- 1,947 -- 33,673
Interest Expense ............... 23,715 -- -- -- 23,715
Depreciation Expense ........... 18,281 -- -- 902 19,183
Other Expenses ................. 4,589 -- -- -- 4,589
----------------------------------------------------
Total Expenses 78,311 -- 1,947 902 81,160
Minority Interest .............. (1,017) -- -- -- (1,017)
Income Before Extraordinary Item 10,836 -- 2,755 (902) 12,689
Extraordinary Loss ............. (3,786) -- -- -- (3,786)
-----------------------------------------------------
Net Income (Loss) .............. $ 7,050 $ -- $ 2,755 $ (902) $8,903
=====================================================
Preferred Dividends ............ $ 2,625 $ 3,079 $ 5,704
Income Before Extraordinary
Item per Share ................. $ 0.40 $ 0.34
Net Income per Share ........... $ 0.22 $ 0.16
Weighted Shares Outstanding .... 20,344 20,344
<FN>
See Accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Cornerstone Properties Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1995
(Unaudited)
(In thousands, except for per share amounts)
<CAPTION>
One Lincoln (1),(2)
As Tower 56 Centre Pro Forma
Reported Acquisition Acquisition Adjustments Pro Forma
<S> <C> <C> <C> <C> <C>
Office and Parking Rentals ............ $88,548 $6,590 $6,789 $-- $101,927
Interest and Other Income ............. 3,839 -- -- (54) 3,785
------------------------------------------------------
Total Revenue 92,387 6,590 6,789 (54) 105,712
Operating Expenses .................... 31,530 3,725 2,517 -- 37,772
Interest Expense ...................... 29,467 -- -- 1,373 30,840
Depreciation Expense .................. 23,877 -- -- 1,897 25,774
Other Expenses ........................ 13,225 -- -- -- 13,225
-----------------------------------------------------
Total Expenses 98,099 3,725 2,517 3,270 107,611
Minority Interest ..................... (3,417) -- -- -- (3,417)
(Loss) Income Before Extraordinary Item (9,129) 2,865 4,272 (3,324) (5,316)
Extraordinary Loss .................... (4,445) -- -- -- (4,445)
-----------------------------------------------------
Net (Loss) Income ..................... $(13,574) $2,865 $4,272 $(3,324) $(9,761)
=====================================================
Preferred Dividends ................... $ 1,449 $ 4,105 $ 5,554
Loss Before Extraordinary
Item per Share ........................ $ (0.67) $ (0.64)
Net Loss per Share .................... $ (0.94) $ (0.90)
Weighted Shares Outstanding ........... 15,910 1,095 17,005
<FN>
See Accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Cornerstone Properties Inc. and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
As of September 30, 1996
(Unaudited)
(In thousands)
<CAPTION>
(1),(2)
Pro Forma
As Reported Adjustments Pro Forma
<S> <C> <C> <C>
Assets:
Investment Property ......... $ 528,277 $ 50,288 $ 578,565
Cash and Cash Equivalents ... 19,519 19,519
Tenant and Note Receivables . 41,091 41,091
Other Assets ................ 12,711 12,711
------------------------------------------
Total Assets .................... $ 601,598 $ 50,288 $ 651,886
==========================================
Liabilities:
Long-Term Debt .............. $ 400,405 $ 400,405
Other Liabilities ........... 27,819 27,819
------------------------------------------
428,224 428,224
Minority Interest ............... (16,899) (16,899)
Shareholders' Equity ............ 190,273 50,288 240,561
------------------------------------------
Total Liabilities and
Shareholders' Equity ............ $ 601,598 $ 50,288 $ 651,886
==========================================
<FN>
See Accompanying Notes to Pro Forma Condensed Consolidated Financial Statements
</FN>
</TABLE>
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) TOWER 56 PROFORMA NOTES
-----------------------
Tower 56 was acquired through foreclosure on two mortgage notes which were
purchased on December 19, 1995. Accordingly, there were no proforma adjustments
recorded in the proforma condensed consolidated income statement for the nine
months ended September 30, 1996 or the proforma condensed consolidated balance
sheet as of September 30, 1996 for Tower 56. Actual activity for these dates
have been reflected in the "As Reported" column in the respective statements.
For the proforma condensed consolidated income statement for the year ended
December 31, 1995, Tower 56 proforma adjustments are based on the following:
The $32,780,000 purchase price and related acquisition and stock
issuance costs were funded by issuing common shares at $14.30/shr and
by obtaining $18,000,000 in financing.
The interest rate on the $18,000,000 in financing is 7.67% with 30
year principal amortization. $100,000 in finance costs are being
amortized over 7 years.
Depreciation expense on the building has been calculated straight-line
over 40 years.
Interest income from the mortgage notes for 1995 has been eliminated.
(2) ONE LINCOLN CENTRE PROFORMA NOTES
---------------------------------
For the proforma condensed consolidated financial statements, One Lincoln Centre
proforma adjustments are based on the following:
The $49,950,000 purchase price and related acquisition and stock
issuance costs were funded by issuing 8% cumulative preferred stock.
Depreciation expense on the building has been calculated straight-line
over 40 years.
<PAGE>
SIGNATURE PAGE
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 Chief Executive Officer
By: /s/ Thomas P. Loftus
Thomas P. Loftus
Vice President and Controller
(Principal Financial Officer)
Date: January 22, 1997
