SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment # 1
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
September 18, 1997
CORNERSTONE PROPERTIES INC.
(Exact name of registrant as specified in its charter)
Nevada 0-10421 74-2170858
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
Cornerstone Properties Inc.
Tower 56
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
August 21, 1997, 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 One Ninety One Peachtree Tower, Market Square Office
Building, Five Hundred Boylston Street Office Building, Two Twenty Two
Berkeley Street Office Building, Charlotte Office Tower, 200 Galleria, 99
Canal Center, 11 Canal Center, Transpotomac Plaza, Building Five and the
Dearborn Land (the "Properties").
Report of Coopers & Lybrand L.L.P., Independent Accountants, dated
February 22, 1997 F-1
Combined Statements of Revenues and Certain Operating Expenses
for the year ended December 31, 1996 and for the six months ended
June 30, 1997 and 1996 F-2
Notes to Combined Statements of Revenues and Certain Operating Expenses
for the year ended December 31, 1996 and for the six months ended
June 30, 1997 and 1996 F-3
Condensed Consolidated Pro Forma Balance Sheet at June 30, 1997 F-7
Condensed Consolidated Pro Forma Statement of Operations for the six
months ended June 30, 1997 F-8
Condensed Consolidated Pro Forma Statement of Operations for the year
ended December 31, 1996 F-9
Notes to Pro Forma Condensed Consolidated Financial Statements F-10
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
INFORMATION PURSUANT TO RULE 3-14 OF 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 stockholders 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 cash generated from operations from
the Properties for the year ended December 31, 1996 based on the Combined
Statements of Revenues and Certain Operating 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.
Cash Generated From Operations
For the year ended December
31, 1996
------------------------------
Revenue in excess of
certain operating
expenses $85,006,000
Straight line rent
adjustment 3,849,000
-----------
Total $88,855,000
===========
<PAGE>
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 Chief
Executive Officer
Date: September 18, 1997
By: /s/ Thomas P. Loftus
Thomas P. Loftus, Vice President
and Controller
(Principal Financial Officer)
Date: September 18, 1997
<PAGE>
Report of Independent Accountants
To the Board of Directors of
Cornerstone Properties Inc.
We have audited the accompanying combined statement of revenues and certain
operating expenses of ten properties ("Property Acquisition"), as described in
Note 1, for the year ended December 31, 1996. This combined statement of
revenues and certain operating expenses is the responsibility of Property
Acquisition's management. Our responsibility is to express an opinion on this
statement of revenues and certain operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined statement of revenues and certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and certain operating 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 combined
statement of revenues and certain operating expenses. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain operating expenses
was prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission as described in Note 1, and is not intended
to be a complete presentation of the Property Acquisition's revenues and
expenses.
In our opinion, the combined statement of revenues and certain operating
expenses for the year ended December 31, 1996, presents fairly, in all material
respects, the combined revenues and certain operating expenses of the Property
Acquisition as described in Note 1 in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
February 22, 1997
F-1
<PAGE>
Property Acquisition
Combined Statements of Revenues and Certain Operating Expenses
(amounts in thousands)
Six-months ended Year ended
June 30, December 31,
----------------------- ------------
1997 1996 1996
(unaudited) (unaudited) (audited)
Revenues:
Rental Income $ 66,818 $ 66,402 $ 133,865
Other Income 1,055 1,024 2,301
--------- -------- ------------
Total revenue 67,873 67,426 136,166
Certain operating expenses:
Property operating and maintenance 12,245 11,657 24,866
Real estate taxes 9,005 9,133 17,026
General office and administration 2,676 2,407 5,127
Management fees 2,109 2,077 4,141
---------- -------- -----------
Total certain operating expenses 26,035 25,274 51,160
---------- -------- -----------
Revenues in excess of certain
Operating expenses $ 41,838 $ 42,152 $ 85,006
========== ======== ============
The accompanying notes are an integral part of these combined
statements of revenues and certain operating expenses.
F-2
<PAGE>
Property Acquisition
Notes to Combined Statements of Revenues
And Certain Operating Expenses
(amounts in thousands)
1. Organization and Summary of Significant Accounting Policies:
Description of Properties
The accompanying combined statements of revenues and certain operating
expenses of the nine office buildings and Dearborn Land ("Property
Acquisition") have been presented on a combined historical cost basis because
of common management and because the assets and liabilities of these
properties are expected to be acquired by Cornerstone Properties Inc.
("Cornerstone").
Five of the office buildings as well as Dearborn Land are owned 100% by Dutch
Institutional Holding Company, Inc. ("DIHC"). The other four office buildings
are owned by partnerships which DIHC has ownership interests exceeding 50%. The
ten properties included in the combined statements of revenues and certain
operating expenses are:
Location
200 Galleria Atlanta, Georgia
Charlotte Office Tower Charlotte, North Carolina
99 Canal Center Alexandria, Virginia
Transpotomac Plaza, Building Five Alexandria, Virginia
11 Canal Center Alexandria, Virginia
Dearborn Land Chicago, Illinois
One Ninety One Peachtree Tower Atlanta, Georgia
Two Twenty Two Berkeley Street Office Building Boston, Massachusetts
Five Hundred Boylston Street Office Building Boston, Massachusetts
Market Square Office Building Washington, D.C.
F-3
<PAGE>
Property Acquisition
Notes to Combined Statements of Revenues
And Certain Operating Expenses
(amounts in thousands)
1. Organization and Summary of Significant Accounting Policies, continued:
The accompanying historical statements have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission and do
not reflect all operations of the properties for the periods presented. The
statements exclude certain expenses such as interest, depreciation and
amortization and other costs not directly related to the future operations of
the properties that may not be comparable to the expenses expected to be
incurred in the proposed future operations of the properties.
Revenue Recognition
Rental income is recognized over the terms of the tenant leases as it is
earned. Unbilled rental revenue is recorded for rental income earned on a
straight-line basis in excess of rent payments received pursuant to terms of
the individual lease agreements.
Use of Estimates
The preparation of the combined statements of revenues and certain operating
expenses in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
2. Operating Leases:
Office space is leased to tenants under various lease agreements expiring at
various dates through 2015. Future minimum rental payments to be received
from tenants under operating leases that have initial or remaining non-
cancelable terms in excess of one year are as follows as of June 30, 1997:
Period (unaudited)
For the six months ending December 31, 1997 $ 45,890
For the year ending December 31,
1998 89,261
1999 83,634
2000 84,269
2001 77,624
2002 66,661
Thereafter 235,903
------------
$ 683,242
============
F-4
<PAGE>
Property Acquisition
Notes to Combined Statements of Revenues
And Certain Operating Expenses
(amounts in thousands)
2. Operating Leases, continued:
The geographic concentration of the future minimum lease payments to be
received are as follows:
Locations (unaudited)
Atlanta, Georgia $ 273,756
Boston, Massachusetts 182,058
Washington, D.C. 157,972
Alexandria, Virginia 32,568
Charlotte, North Carolina 36,888
-------------
$ 683,242
=============
3. Ground Leases
The Property Acquisition has a ground lease agreement for a portion of the
land upon which One Ninety One Peachtree Tower lies. The 99-year ground lease
required reimbursement of property taxes and annual lease payments of $5
through January 31, 1998, $45 through January 31, 2002, and $75 through
January 31, 2008. Thereafter, the annual rents increase $2 per year
throughout the lease term. The ground lease is renewable for an additional 99
years.
The Property Acquisition has a ground lease agreement for a portion of the
land under the parking facility of the 200 Galleria Building. Annual lease
payments are approximately $1 through the lease expiration on September 30,
2018. In addition to the lease payments, Property Acquisition is obligated to
reimburse related property taxes.
4. Management Agreements:
The Property Acquisition is committed under several management agreements.
The agreements, which can be terminated without penalty for cause or upon
dissolution of the ventures or sales of the property as defined in the
agreements, have the following terms and conditions:
<TABLE>
<S> <C> <C> <C>
Agreement Management and
Building Management Company Terms Leasing Fee Basis
Five Hundred Boylston Street Gerald D. Hines 75 years through 3% of Gross rental receipts
Office Building Interest, Ltd. 5/2061 (including parking)
</TABLE>
F-5
<PAGE>
Property Acquisition
Notes to Combined Statements of Revenues
And Certain Operating Expenses
(amounts in thousands)
4. Management Agreements, continued:
<TABLE>
<S> <C> <C> <C>
Agreement Management and
Building Management Company Terms Leasing Fee Basis
Two Twenty Two Berkeley Hines Interests Limited 75 years through 3% of Gross rental receipts
Street Office Building Partnership 4/2064 (including parking)
Market Square Office Trammell Crow Real Estate 15 years through 3% of Gross rental receipts
Building Services, Inc. 7/2005
Market Square Office Trammell Crow Real Estate 15 years through Varies from 1% to 4%
Building Services, Inc. 7/2005 based on terms and
conditions specified in
the agreement
One Ninety One Peachtree C.H. Management Associates 15 years through $.25 square foot of
Tower 1/2003 leaseable space plus $.62
square foot of occupied
space, increased 4.5%
annually
One Ninety One Peachtree C.H. Management Associates 15 years through Varies from 1%-4% based
Tower 1/2003 on terms and conditions
specified in the agreement
</TABLE>
During the year ended December 31, 1996 and the six months ended June 30,
1997 and 1996, fees paid under these agreements were $5,234 (audited), $2,580
(unaudited) and $2,592 (unaudited), respectively.
In addition, One Ninety One Peachtree Tower, Two Twenty Two Berkeley Street
Office Building, Five Hundred Boylston Street Office Building and Market
Square Office Building each have management agreements which require fees to
be paid to DIHC for oversight management services. These fees, included in
management fees on the combined statements of revenues and certain operating
expenses, total $450, $228, and $225 respectively for the year ended December
31, 1996 and the six months ended June 30, 1997 and 1996. These agreements
will be assumed by Cornerstone upon the acquisition of the Property
Acquisition.
F-6
<PAGE>
<TABLE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1997
(Amounts in thousands)
(UNAUDITED)
<CAPTION>
(8)
Historical Property Pro Forma Pro Forma
Cornerstone Acquisition Adjustments Cornerstone
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Real estate investments $873,211 $1,086,870 $ 8,000 (9) $1,968,081
Less: Accumulated depreciation 212,745 - - 212,745
-----------------------------------------------------------
Real estate investments 660,466 1,086,870 8,000 1,755,336
Other assets 312,475 (199,382) - 113,093
-----------------------------------------------------------
Total assets $972,941 $ 887,488 $ 8,000 $1,868,429
===========================================================
Liabilities
Long term debt $367,103 $ 250,000 $ - $ 617,103
Other liabilities 78,095 59,548 8,000 (9) 145,643
-----------------------------------------------------------
Total liabilities 445,198 309,548 8,000 762,746
-----------------------------------------------------------
Minority interest (17,510) 30,940 - 13,430
Redeemable preferred stock 162,515 - (162,515) (6) -
Stockholders' investment 382,738 547,000 162,515 (6) 1,092,253
-----------------------------------------------------------
Total Liabilities and stockholders' investment $972,941 $ 887,488 $ 8,000 $1,868,429
===========================================================
<FN>
F-7
</FN>
</TABLE>
<PAGE>
<TABLE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(Amounts in thousands, except per share data)
(UNAUDITED)
<CAPTION>
(8) (16)
Historical Property Equity in Pro Forma Pro Forma
Cornerstone Acquisition Earnings Adjustments Cornerstone
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 68,691 $ 66,818 $ (30,737) $ 3,180 (2)(13) $ 107,952
Equity in earnings of joint ventures - - 20,946 (18,130) (2)(4)(15) 2,816
Interest and other income 4,564 1,055 (168) 12,666 (10)(13)(14) 18,117
--------------------------- ----------------------------------
Total Revenues 73,255 67,873 (2,284) 128,885
=========================== ==================================
Expenses
Building operating expenses 26,653 26,035 (9,959) 395 (13)(17) 43,124
Interest expense 14,748 - 11,037 (3)(11) 25,785
Depreciation and amortization 14,097 - 5,728 (4)(13) 19,825
General and administrative 3,218 - 250 3,468
----------------------------- ----------------------------------
Total Expenses 58,716 26,035 17,410 92,202
============================= ==================================
Other income (expenses)
Net gain (loss) on interest rate swap 99 - - 99
Minority Interest (994) - (1,000) (5) (1,994)
----------------------------- -------------------------------------
Income (loss) before extraordinary loss $ 13,644 $ 41,838 $(20,694) $ 34,788
============================= =====================================
Extraordinary Loss (54) - - (54)
Net Income (Loss) $ 13,590 $ 41,838 $(20,694) $ 34,734
============================ =====================================
Preferred Dividends 8,410 (6,660) (6) 1,750
Income available for Common Stockholders $ l5,180 $ 41,838 $(14,034) $ 32,984
============================ =====================================
Income Before Extraordinary
Loss per Share $ 0.19 $ 0.40
======== =======
Net Income per Share $ 0.19 $ 0.40
======== =======
Weighted Shares Outstanding 27,237 55,455 (7)(10)(12) 82,692
======== =======
<FN>
F-8
</FN>
</TABLE>
<PAGE>
<TABLE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Amounts in thousands, except per share data)
(UNAUDITED)
<CAPTION>
(1)
Previously (16)
Historical Reflected Property Equity in Pro Forma Pro Forma
Cornerstone Adjustment Acquisition Earning Adjustments Cornerstone
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 111,494 $ 22,098 $ 133,865 $(63,012) $ 3,506 (2) $ 207,951
Equity in earnings of joint ventures - - - 43,233 (36,401) (2)(4)(15) 6,832
Interest and other income 5,414 (374) 2,301 (578) 31,178 (14) 37,941
---------------------------------------- -------------------------------
Total Revenues 116,908 21,724 136,166 (1,717) 252,724
======================================== ===============================
Expenses
Building operating expenses 44,188 9,505 51,160 (20,357) (450) (17) 84,046
Interest expense 31,345 (1,625) - 22,881 (3) 52,601
Depreciation and amortization 24,801 3,028 - 11,171 (4) 39,000
General and administrative 6,312 - - 500 6,812
--------------------------------------- -------------------------------
Total Expenses 106,646 10,908 51,160 34,102 182,459
--------------------------------------- -------------------------------
Other income (expenses)
Net gain (loss) on interest rate swap 4,278 - - - 4,278
Minority Interest (1,519) - - (1,986) (5) (3,505)
---------------------------------------- -------------------------------
Income (loss) before extraordinary loss $ 13,021 $ 10,816 $ 85,006 $(37,805) $ 71,038
======================================== ===============================
Extraordinary Loss (3,925) - - - (3,925)
Net Income (Loss) $ 9,096 $ 10,816 $ 85,006 $(37,805) $ 67,113
======================================== ===============================
Preferred Dividends 5,153 11,667 - (13,320) (6) 3,500
Income available for Common Stockholders $ 3,943 $ (851) $ 85,006 $(24,485) $ 63,613
======================================== ===============================
Income Before Extraordinary
Loss per Share $ 0.39 $ 0.82
========= =========
Net Income per Share $ 0.19 $ 0.77
========= =========
Weighted Shares Outstanding 20,411 14,000 47,771 (7) 82,182
========= =========
<FN>
F-9
</FN>
</TABLE>
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed consolidated pro forma statements of operations are
presented as if the acquisition of the Properties, Cornerstone's Offering of
Common Stock in April 1997, the sale and conversion of Cornerstone's 8%
Cumulative Convertible Preferred Stock and 8% Cumulative Convertible Preferred
Stock, Series A, Cornerstone's repayment of a $32.5 million term loan from
Deutsche Bank and the acquisition of two properties in New York City, the
property in Oakbrook Terrace, Illinois and the property in Pittsburgh had
occurred as of January 1, 1996. The unaudited condensed consolidated pro forma
balance sheet is presented as if the Property Acquisition and the sale and
conversion of Cornerstone's 8% Preferred Stock and 8% Preferred Stock, Series A,
had occurred at June 30, 1997. The pro forma condensed consolidated financial
statements are not necessarily indicative of results of operations or the
consolidated financial position that would have resulted had the acquisition of
the Properties and the other aforementioned transactions been consummated at the
dates indicated.
(1)Represents the adjustments for Cornerstone's Offering of Common Stock in
April 1997, the sale of the Company's 8% Cumulative Convertible Preferred
Stock and 8% Cumulative Convertible Preferred Stock, Series A, the Company's
repayment of a $32.5 million term loan from Deutsche Bank and the acquisition
of One Lincoln Centre, The Frick Building and 527 Madison Avenue previously
reflected in the Prospectus Supplement dated April 15, 1997.
(2)Represents an adjustment for the straight line rent effect of acquiring the
Properties on January 1, 1996. Historical straight line rent has been
eliminated.
(3)Represents additional interest expense related to the Property Acquisition
which was financed in part by purchase money debt and the acquisition line of
credit. The weighted average interest rate for this financing is 7.23%.
(4)Represents depreciation on the Properties which has been calculated over 40
years on a straight line basis. The purchase price has been allocated to each
property based on its respective fair market value and further allocated to
building and land.
(5)Represents an adjustment for the 8.5% minority interest in earnings on Five
Hundred Boylston Street Office Building and Two Twenty Two Berkeley Street
Office Building.
(6)Represents the conversion to common stock of the 8% Cumulative Convertible
Preferred Stock and the 8% Cumulative Convertible Preferred Stock, Series A.
(7)Represents the conversion noted in (6) into 11.5 million common shares, the
exercise of the over allotment option by Merrill Lynch (2.1 million shares)
and the issuance of 34.2 million shares for the Property Acquisition.
F-10
<PAGE>
(8) The $1.057 billion purchase price will be funded through $260 million in
cash ($60 million coming from a line of credit), $250 million of purchase
money mortgage debt and $547 million in equity (34.2 million common shares
at $16.00/share). The fair value of the minority interests in Five Hundred
Boylston Street Office Building and Two Twenty Two Berkeley Street Office
Building is approximately $31 million.
(9) Represents due diligence and closing costs which have been estimated at $8
million. These acquisition costs will be capitalized to real estate
investments and depreciated straight line over 40 years.
(10) Represents an adjustment to eliminate the interest income and weighted
common shares outstanding of the Offering and its proceeds used for the
Property Acquisition for the period from April 21, 1997 to June 30, 1997.
Interest income has also been adjusted for the funds used to repay the
$32.5 million term loan and to purchase 527 Madison Avenue.
(11) Represents the elimination of interest expense on the $32.5 million term
loan.
(12) Reflects the April 1997 Offering as if the shares were outstanding for the
entire period.
(13) Represents the income statement activity of 527 Madison Avenue for the
period January 1, 1997 to February 13, 1997. 527 Madison Avenue was
acquired by Cornerstone on February 14, 1997.
(14) Represents the interest income earned by Cornerstone for the mortgages on
One Ninety One Peachtree Tower and Market Square Office Building.
(15) Represents the interest expense to the joint ventures for the mortgages on
One Ninety One Peachtree Tower and Market Square Office Building.
(16) Represents the Equity in Earnings of the partnerships that own One Ninety
One Peachtree Tower and Market Square Office Building.
(17) Represents the asset management fees paid to Cornerstone on One Ninety One
Peachtree Tower, Market Square Office Building, Five Hundred Boylston
Street Office Building and Two Twenty Two Berkeley Street Office Building.
F-11
