SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
January 14, 1998
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)
<PAGE>
Item 2. Acquisition or Disposition of Assets
The press release issued by the Registrant, dated January 5, 1998, a
copy of which is included with this Form 8-K as Exhibit 99, is
incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(a)Included herewith are the following financial statements reflecting the
acquisition of Sixty State Street and Corporate 500 Centre (the
"Properties").
Sixty State Street
Report of Arthur Andersen L.L.P., Independent
Accountants, dated January 7, 1998 F-1
Statement of Revenue and Certain Expenses for the year ended
December 31, 1996 and for the nine months ended September 30, 1997 F-2
Notes to Statement of Revenue and Certain Expenses for the year
ended December 31, 1996 F-3
Corporate 500 Centre
Report of Grant Thornton L.L.P., Independent Accountants,
dated January 8, 1998 F-5
Combined Statement of Revenues and Certain Expenses for the year ended
December31, 1996 and for the nine months ended September 30, 1997 F-6
Notes to Combined Statement of Revenues and Certain Expenses for the year
ended December 31, 1996 F-7
(c) Exhibits
Exhibit 99 - Press release, dated January 5, 1998.
<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 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 $25,828,000
Straight line rent adjustment (41,000)
-----------
Total $25,787,000
<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
(Registrant)
By: /s/ John S. Moody
John S. Moody, President and Chief Executive Officer
Date: January 14, 1998
By: /s/ Thomas P. Loftus
Thomas P. Loftus, Vice President and Controller
(Principal Accounting Officer)
Date: January 14, 1998
By: /s/ Kevin P. Mahoney
Kevin P. Mahoney, Vice President and Treasurer
(Principal Financial Officer)
Date: January 14, 1998
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners of the
60 State Street Associates Limited Partnership:
We have audited the accompanying Statement of Revenue and Certain Expenses of 60
State Street Associates Limited Partnership (the Partnership) for the year ended
December 31, 1996. The Statement of Revenue and Certain Expenses is the
responsibility of the Partnership'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 for inclusion in the Form 8-K to be filed by Cornerstone
Properties Inc. as described in Note 2 and is not intended to be a complete
presentation of the Partnership'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 of
the Partnership as described in Note 2 for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen L.L.P.
Boston, Massachusetts
January 7, 1998
F-1
<PAGE>
<TABLE>
60 STATE STREET ASSOCIATES LIMITED PARTNERSHIP
STATEMENTS OF REVENUE AND CERTAIN EXPENSES
<CAPTION>
Year Ended Nine Months
December 31,1996 Ended
September 30,
1997
(Unaudited)
<S> <C> <C>
REVENUES:
Rental $ 17,518,000 $ 13,090,000
Escalation 5,636,000 4,254,000
Parking 885,000 854,000
Tenant Service 894,000 613,000
Interest 980,000 810,000
Other 25,000 1,000
------------ ------------
Total revenues 25,938,000 19,622,000
------------ ------------
EXPENSES:
Escalatable Operating Expenses 5,664,000 3,985,000
Real Estate Taxes 4,532,000 3,416,000
Non-Escalatable Expenses 366,000 103,000
Tenant Service 1,084,000 782,000
Ground Rent 399,000 299,000
------------ ------------
Total expenses 12,045,000 8,585,000
------------ ------------
REVENUE IN EXCESS OF CERTAIN EXPENSES $ 13,893,000 $ 11,037,000
============ ============
</TABLE>
F-2
<PAGE>
60 STATE STREET ASSOCIATES LIMITED PARTNERSHIP
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1996
(1) BUSINESS
The accompanying Statement of Revenue and Certain Expenses relates to
the operations of 60 State Street Associates Limited Partnership (the
Partnership). The Partnership owns a commercial building totaling
approximately 823,000 rentable square feet located in Boston,
Massachusetts.
(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 for inclusion in the Form 8-K to be
filed by Cornerstone Properties Inc. in connection with a mortgage to be
placed on the property owned by the Partnership. The statement is not
representative of the actual operations of the Partnership for the period
presented nor indicative of future operations as certain expenses,
primarily depreciation, amortization and interest expenses, which may not
be comparable to the expenses expected to be incurred in future operations
of the Partnership, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the
related leases. Expenses are recognized in the period in which they are
incurred.
Use of Estimates
The preparation of the 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 those estimates.
F-3
<PAGE>
60 STATE STREET ASSOCIATES LIMITED PARTNERSHIP
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1996
(Continued)
(3) RENTALS
The Partnership has entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis,
as defined.
(4) FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for
the Partnership as of December 31, 1996 were as follows:
1997 $ 17,016,000
1998 16,707,000
1999 15,942,000
2000 15,982,000
2001 16,053,000
Thereafter 117,053,000
-----------
$ 198,753,000
The above amounts do not include additional rental receipts that will
become due as a result of the expense pass-through and escalation
provisions in the leases. The Partnership is subject to the usual business
risks associated with the collection of the above scheduled rents.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Trustees
Cornerstone Properties Inc.
We have audited the accompanying combined statement of revenues and certain
expenses of the following properties expected to be acquired by Cornerstone
Properties Inc: Corporate 500 Centre, Phase I and II, for the year ended
December 31, 1996. This financial statement is the responsibility of management.
Our responsibility is to express an opinion on this combined 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 combined 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 combined statement of
revenues 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 combined statement of revenues and certain expenses of the
properties expected to be acquired by Cornerstone Properties Inc. was prepared
for the purposes of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Form 8-K of Cornerstone Properties
Inc. and excludes material amounts, described in Note 1 to the combined
statement of revenues and certain expenses, that would not be comparable to
those resulting from the proposed future operations of the properties.
In our opinion, the combined statement of revenues and certain expenses referred
to above presents fairly, in all material respects, the revenues and certain
expenses of the following properties to be acquired by Cornerstone Properties
Inc: Corporate 500 Centre, Phase I and II, for the year ended December 31, 1996
in conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Chicago, Illinois
January 8, 1998
F-5
<PAGE>
<TABLE>
Corporate 500 Centre Phase I and II
COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES
Year ended December 31, 1996 Nine months ended September 30, 1997 (unaudited)
- ---------------------------------------------------------------------------------------------
<CAPTION>
For the year For the nine
ended months ended
December 31, September 30,
1996 1997
(audited) (unaudited)
--------------- ----------------
<S> <C> <C>
Revenue
Rental income........................................... $12,325,979 $ 9,240,538
Other income............................................ 5,638,411 3,759,204
----------- -----------
17,964,390 12,999,742
Certain expenses
Property operating and maintenance...................... 3,741,393 2,520,293
Real estate taxes and insurance......................... 1,541,353 1,185,399
Management fees......................................... 746,547 541,800
------------- ------------
6,029,293 4,247,492
REVENUES IN EXCESS OF CERTAIN EXPENSES..................... $11,935,097 $ 8,752,250
========== ===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE>
Corporate 500 Centre Phase I and II
NOTES TO COMBINED STATEMENT OF REVENUES AND CERTAIN EXPENSES Year ended December
31, 1996 Nine months ended September 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statement is not representative of the actual
operations of the Corporate 500 Centre, Phase I and II partnership for the
period presented as certain expenses which may not be comparable to the expenses
to be incurred by Cornerstone Properties Inc. in the proposed future operations
of the property have been excluded. Expenses excluded consist of interest,
depreciation and amortization of property and deferred leasing costs, and buyout
fees not directly related to the future operations of the property. After
reasonable inquiry, the partnership is not aware of any material factors that
would cause reported financial information not to be necessarily indicative of
future operating results.
Rental income attributable to leases is recorded generally on a straight-line
basis.
The partnership pays fees to an affiliated management company for the management
of the properties' operations. The management fee is based on 4% of gross
revenues, as defined, with a minimum fee of $10,000 per month. Gross revenues,
for this purpose, include the monthly base rent stipulated in the lease
agreements, whether or not abated, plus all billings for estimated property
expenses.
The same affiliated company also employs a property manager, maintenance
personnel and an administrative assistant, which are provided to the partnership
for the day to day operations of the property. These personnel are provided at
the actual cost incurred by the affiliated company.
- --------------------------------------------------------------------------------
NOTE 2 - DESCRIPTION OF PROPERTIES
The following list of properties is included in the combined statement of
revenues and certain expenses:
Property Name
- ---------------------------------------
Corporate 500 Centre - Phase I
Corporate 500 Centre - Phase II
F-7
EXHIBIT 99
CORNERSTONE PROPERTIES INC.
126 East 56th Street
New York, NY 10022
(NYSE: CPP)
AT THE COMPANY AT THE FINANCIAL RELATIONS BOARD
Kevin Mahoney Julie Gottlieb Stephanie Mishra Judith Sylk-Siegel
Vice President & Treasurer (General Info) (Analyst Info) (Media Info)
(212) 605-7142 (212) 661-8030 (415) 986-1591 (212) 661-8030
FOR IMMEDIATE RELEASE
January 5, 1998
CORNERSTONE PROPERTIES INC. ACQUIRES INTEREST IN BOSTON'S SIXTY STATE STREET
BUILDING Announces Contract to Purchase Chicago Office Park in Its First UPREIT
Transaction
New York, NEW YORK (January 5, 1998) -- Cornerstone Properties Inc. (NYSE: CPP)
announced it completed the acquisition of a controlling interest in Sixty State
Street, a premier office building located in downtown Boston, on December 31,
1997. The Company also announced that it has entered into a contract to acquire
a Chicago office park, using UPREIT shares in a transaction for the first time.
Cornerstone anticipates a closing date on the Chicago office property in late
January.
Sixty State Street (Boston, Massachusetts)
Cornerstone purchased a participating second mortgage on Sixty State Street in
Boston, Massachusetts for $131.5 million. An investment trust established for
the benefit of the Marshall Field family in Chicago will remain as borrower
under the first and second mortgages. The transaction was privately negotiated.
Cornerstone's participating second leasehold mortgage on Sixty State Street is
subordinate to an existing first mortgage in the amount of $78.5 million.
Through the second mortgage, Cornerstone will assume primary responsibility for
all operations and receive all of the residual economic benefits of the asset.
Cornerstone will, therefore, account for the mortgage as an equity investment in
real estate. The building is on a long-term ground lease that expires December
28, 2067, and has non-escalating ground rental payment of $398,000 annually.
-more-
<PAGE>
Sixty State Street is a premier 38-story office building in Boston's Financial
District, adjoining Faneuil Hall and Quincy Market. The building, which is 99%
occupied, contains 823,000 square feet of net rentable area. Anchor tenants
include Hale & Dorr, The Pioneer Group, ITT-Sheraton and The Bay Tower Room &
Club. Built in 1978 on a 1.35-acre site, the building has an underground parking
facility capable of accommodating 215 vehicles.
John S. Moody, Chairman, Chief Executive Officer and President of Cornerstone
Properties, commented, "We are delighted to add this very fine asset to the
Cornerstone portfolio. It's a terrific property with a blue chip tenant roster
that includes several of the most highly respected financial and legal firms in
the city. The transaction presented an opportunity to gain control of one of
Boston's preeminent Class A office buildings. This transaction is consistent
with our strategy to be the owner of the highest-quality office portfolio in the
public market and gives us an even stronger presence in the very attractive
Boston real estate market."
Mr. Moody continued, "Furthermore, Sixty State Street's existing contract rents
are approximately $7.00 per square foot below market rents, so the opportunity
is there to achieve significant rental rate growth over time." Cornerstone
Properties' other Boston assets include 125 Summer Street, 500 Boylston Street
and 222 Berkeley Street.
Corporate 500 Centre (Deerfield, Illinois)
Cornerstone Properties also announced plans to purchase the 100% fee interest in
Corporate 500 Centre in Deerfield, Illinois for $150 million, which is expected
to close in late January. The Company plans to finance the acquisition with $20
million of UPREIT units, $50 million to be drawn from its acquisition credit
facility with BT Alex Brown and Chase Manhattan Bank, and a new first mortgage
in the amount of $80 million.
Corporate 500 Centre is one of Chicago's premier suburban office parks
consisting of 679,000 square feet of net rentable area in a campus-style
setting. The property was completed in two phases from 1986 to 1990, and is 99%
occupied by 34 tenants. The largest 10 tenants are credit quality and occupy 70%
of the complex. The three largest tenants are MMI Companies, Fortune Brands and
Gaylord Container.
Mr. Moody commented, "We are excited at the prospect of adding this top-quality
asset to our portfolio. Corporate 500 Centre commands premium rents and has a
very stable base of high-quality credit tenants. Most of the current tenants
have been in the building since the beginning, reflecting their commitment to
the space and their continuing confidence in the property's quality. We believe
the economic fundamentals of the Chicago real estate market are strong, and are
eager to add to our portfolio in this region." Cornerstone Properties' other
suburban Chicago asset is One Lincoln Centre, located in Oak Brook Terrace,
Illinois.
-more-
<PAGE>
Cornerstone Properties Inc. is a self-administered equity real estate investment
trust (REIT) investing exclusively in Class A quality office properties in prime
locations in major metropolitan areas and central business districts. The
Company, through its subsidiaries, currently owns 18 Class A quality office
properties throughout the United States totaling 10.3 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.
# # #
For more information on Cornerstone Properties via fax at no charge,
please dial 1-800-PRO-INFO and enter ticker symbol CPP or visit
Cornerstone Properties' Web site at http://www.cstoneprop.com
