<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM 10-Q
Securities and Exchange Commission
Washington, DC 20549
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
June 30, 1998
or
/ / 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
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CORNERSTONE PROPERTIES INC.
(Exact name of Registrant as specified in its Charter)
Nevada 74-2170858
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation and organization)
126 East 56th Street
New York, New York
(Address of principal executive offices)
10022
(Zip Code)
(212) 605-7100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of Each Exchange on which Registered:
- -------------------- ------------------------------------------
Common Stock, no par value New York Stock Exchange
Dusseldorf Stock Exchange
Frankfurt Stock Exchange
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 / /
Aggregate market value of registrant's voting Common Stock held by
non-affiliates as of August 13, 1998: $1,580,251,328.
Number of shares of Common Stock outstanding as of August 13, 1998: 101,542,254.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at cost:
Land .................................................................. $ 315,498 $ 260,542
Buildings, leasehold interests and improvements ....................... 1,853,038 1,559,085
Mortgage notes receivable, inclusive of $9,004 and $13,065 of
unamortized premium ................................................ 242,819 240,253
Equity in real estate joint venture ................................... 2,377 --
Deferred lease costs .................................................. 136,133 127,645
----------- -----------
2,549,865 2,187,525
Less: Accumulated depreciation and amortization ....................... 256,003 229,652
----------- -----------
Total investments .................................................. 2,293,862 1,957,873
Cash and cash equivalents .................................................... 28,718 24,730
Restricted cash .............................................................. 6,624 1,903
Other deferred costs, net of accumulated amortization of $2,736 and $1,998 ... 5,967 5,728
Deferred tenant receivables .................................................. 45,054 38,531
Tenant and other receivables, net ............................................ 6,488 7,584
Notes receivable ............................................................. 79,513 1,652
Other assets ................................................................. 10,643 13,480
----------- -----------
Total Assets ................................................................. $2,476,869 $2,051,481
----------- -----------
----------- -----------
LIABILITIES
Long-term debt, inclusive of $12,236 and $11,209 of unamortized premium ...... $ 849,196 $ 706,178
Credit facility .............................................................. 75,000 187,000
Accrued interest payable ..................................................... 7,038 4,134
Accrued real estate taxes payable ............................................ 17,328 13,401
Accounts payable and accrued expenses ........................................ 21,165 18,363
Unearned revenue and other liabilities ....................................... 18,243 10,986
----------- -----------
Total Liabilities ............................................................ 987,970 940,062
----------- -----------
MINORITY INTEREST
Minority Interest in operating partnership ................................... 55,934 --
Minority Interest in real estate joint ventures .............................. 15,015 15,420
----------- -----------
Total Minority Interest ...................................................... 70,949 15,420
Commitments and Contingencies
Redeemable Preferred Stock; 344,828 shares authorized;
0 shares issued and outstanding ........................................... -- --
STOCKHOLDERS' INVESTMENT
7% Cumulative Convertible Preferred Stock, $16.50 stated value;
65,000,000 shares authorized; 3,030,303 shares issued and outstanding ..... 50,000 50,000
Common stock, no par value; 250,000,000 shares authorized;
(1998-101,542,254; 1997-83,191,819) shares issued and outstanding
Paid-in capital .............................................................. 1,370,205 1,048,187
Deferred compensation......................................................... (2,255) (2,188)
----------- -----------
Total Stockholders' Investment ............................................... 1,417,950 1,095,999
----------- -----------
Total Liabilities and Stockholders' Investment ............................... $2,476,869 $2,051,481
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 2 of 28
<PAGE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 81,357 $ 35,213 $ 156,540 $ 68,691
Equity in loss of real estate joint venture (1,763) - (2,688) -
Interest and other income 6,896 3,055 14,194 4,564
---------- ----------- ----------- -----------
Total Revenues 86,490 38,268 168,046 73,255
---------- ----------- ----------- -----------
Expenses
Building operating expenses 16,962 7,658 34,051 15,033
Real estate taxes 11,689 5,957 22,866 11,620
Interest expense 15,752 7,353 31,667 14,990
Depreciation and amortization 16,214 7,146 26,859 13,808
General and administrative 2,958 1,628 5,544 3,265
---------- ----------- ----------- -----------
Total Expenses 63,575 29,742 120,987 58,716
---------- ----------- ----------- -----------
22,915 8,526 47,059 14,539
---------- ----------- ----------- -----------
Other income (expenses)
Loss on sale of real estate assets (1,985) - (2,197) -
Minority interest (1,678) (518) (2,856) (994)
Net gain on interest rate swaps - - - 99
---------- ----------- ----------- -----------
Income before extraordinary item 19,252 8,008 42,006 13,644
Extraordinary loss - (28) - (54)
---------- ----------- ----------- -----------
Net income $ 19,252 $ 7,980 $ 42,006 $ 13,590
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Income applicable to preferred stock $ (875) $(4,205) $ (1,750) $ (8,410)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Income applicable to common stock $ 18,377 $ 3,775 $ 40,256 $ 5,180
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Income before extraordinary item per common share $ 0.18 $ 0.11 $ 0.42 $ 0.19
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Extraordinary loss per common share $ - $ - $ - $ -
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Basic income per common share $ 0.18 $ 0.11 $ 0.42 $ 0.19
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Diluted income per common share $ 0.18 $ 0.11 $ 0.42 $ 0.19
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 3 of 28
<PAGE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 42,006 $ 13,590
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,921 14,097
Deferred compensation amortization 510 404
Share of net loss in real estate joint venture 2,688 -
Net gain on interest rate swap - (99)
Extraordinary loss - 54
Unbilled rental revenue (6,433) (829)
Increase in accrued interest payable 2,904 508
Minority interest share of income 2,856 994
Loss on sale of real estate assets 2,197 -
Increase in tenant and other receivables and other assets (233) (2,763)
Increase in accounts payable, accrued expenses and other liabilities 7,563 1,022
------------ ------------
Total adjustments 38,973 13,388
------------ ------------
Net cash provided by operating activities 80,979 26,978
------------ ------------
Cash flows from investing activities:
Additions to investment property (195,658) (72,781)
Repayment of mortgage notes receivables 940 -
Repayment of notes receivable 739 557
Investment in notes receivable (78,600) -
Investments in and advances to real estate joint ventures (5,065) -
Proceeds from sale of real estate assets 45,538 -
------------ ------------
Net cash used in investing activities (232,106) (72,224)
------------ ------------
Cash flows from financing activities:
Proceeds from common stock offering 262,344 225,400
Borrowings under mortgage loans 80,000 35,000
Borrowings under credit facility 126,000 -
Repayments under credit facility (238,000) -
Repayment of term loan - (32,500)
Repayments under mortgage loans (921) (539)
Proceeds from dividend reinvestment plan 3,771 5,945
Net payments for swap terminations and prepayment costs - (216)
Increase in restricted cash (4,721) (35,681)
Stock and debt issuance costs (14,751) (18,053)
Distributions to minority partners (3,124) (1,026)
Distributions to preferred stockholders - (6,660)
Distributions to common stockholders (55,483) (18,653)
------------ ------------
Net cash provided by financing activities 155,115 153,017
------------ ------------
Increase in cash and cash equivalents 3,988 107,771
Cash and cash equivalents, beginning of period 24,730 114,803
------------ ------------
Cash and cash equivalents, end of period $ 28,718 $ 222,574
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Page 4 of 28
<PAGE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. NATURE OF COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of the Company's Business
Cornerstone Properties Inc. is a self-advised equity real estate
investment trust ("REIT"). On January 20, 1998, Cornerstone Properties Inc.
formed Cornerstone Properties Limited Partnership, an umbrella partnership REIT
("UPREIT" or "Operating Partnership"), in which it has the sole general
partnership and limited partnership interests. As part of the UPREIT formation,
substantially all of Cornerstone Properties Inc.'s interests in the Properties
were transferred to the Operating Partnership, a Delaware limited partnership.
In addition to its sole general partnership interest, Cornerstone Properties
Inc. owns directly or indirectly (through its wholly-owned REIT subsidiary,
CORPRO Real Estate Management, Inc.) 96.1% of the outstanding units of
partnership interest ("UPREIT Units") in the Operating Partnership (excluding
certain preferred units owned by Cornerstone Properties Inc.). Cornerstone
Properties Inc. and the Operating Partnership are collectively referred to as
"Cornerstone" or the "Company". The Company owns interests in 21 Class A office
properties ("Properties") encompassing approximately 11.4 million rentable
square feet.
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 and six month periods presented
have been included. Results for the three and six months ended June 30, 1998 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 condensed
consolidated 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 subsidiary and controlled
partnerships. NWC Limited Partnership ("NWC"), Third and University Limited
Partnership ("Third Partnership"), Two Twenty Two Berkeley Venture ("222
Berkeley"), Five Hundred Boylston West Venture ("500 Boylston") and One Ninety
One Peachtree Associates ("191 Peachtree") have been consolidated because
Cornerstone has a majority interest in the economic benefits and is or has the
right to become managing general partner at its sole discretion. All significant
intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain prior period amounts have been reclassified to conform to the
June 30, 1998 financial statement presentation.
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<PAGE>
Minority Interest
Minority Interest in the operating partnership relates to the interest
in the Operating Partnership that is not owned by the Company, which as of June
30, 1998 amounted to 3.9%. Income is allocated to the minority interest based on
the weighted average percentage ownership through the year. Persons contributing
assets to the Operating Partnership received UPREIT Units, Common Stock, cash or
a combination therof. The Operating Partnership will, at the request of a
Unitholder, be obligated to redeem each UPREIT Unit held by such Unitholder for,
at the option of the Company, (i) one share of the Company's common stock (the
"Common Stock") or (ii) cash equal to the fair market value of one share of
Common Stock at the time of redemption. Such redemptions will cause the
Company's percentage ownership in the Operating Partnership to increase. As of
June 30, 1998, the number of issued and outstanding UPREIT Units held by
Unitholders other than the Company was 4,145,883 (3.9%) and as of such date, no
UPREIT Units have been exchanged for shares of Common Stock.
Minority Interest in real estate joint ventures represents the
Company's partner's capital account balances in NWC, Third Partnership, 222
Berkeley, 500 Boylston and 191 Peachtree. Debit balances in certain of these
capital accounts originated through special cash distributions in excess of the
partner's share of income in accordance with certain provisions of the
respective partnership agreements. Realizability of the debit balances is
continually monitored by analyzing pro forma sales proceeds calculations, whose
terms are specified in the respective partnership agreements.
Recently Issued Accounting Standards
During 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), which is effective for fiscal years
beginning after June 15, 1999. In addition, the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5") and Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), which
are effective for fiscal years beginning after December 15, 1998. Further, the
Emerging Issues Task Force of the Financial Accounting Standards Board released
Issue No. 97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" ("EITF 97-11").
SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards. SOP
98-5 requires that certain costs incurred in conjunction with start-up
activities be expensed. SOP 98-1 provides guidance on whether the costs of
computer software developed or obtained for internal use should be capitalized
or expensed. EITF 97-11 requires that the internal pre-acquisition costs of
identifying and acquiring operating property be expensed as incurred.
Management believes that, when adopted, SOP 98-5 and SOP 98-1
will not have a significant impact on the Company's financial statements. The
Company is currently assessing the financial statement impact of SFAS 133. EITF
97-11 was adopted during the first quarter of fiscal 1998 and did not have a
material impact on the Company's financial statements.
During the first quarter of 1998, the Company adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standard No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). The adoption of SFAS 130 did not
have a significant impact on the Company's financial statements.
Estimates and Risks
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.
6 of 28
<PAGE>
In the ordinary course of business, the Company is in the process of
acquiring new accounting and property management software that will eliminate
year 2000 software concerns at the corporate level. Management is in the process
of completing a survey with all of its property managers to make sure there are
no year 2000 issues at any of the property management firms that manage its
Properties. Currently, Cornerstone is not aware of any year 2000 issues that
would have a material effect on the financial position or results of operations
of the Company. The total costs to be incurred are not expected to be
material.
2. PROPERTIES
The following table summarizes Cornerstone's interest in real estate
investments at June 30, 1998:
<TABLE>
<CAPTION>
Completed/ Net Rentable Ownership
Property Location Acquired square feet % Leased Interest Notes
- -------- ---------- --------- ------------ --------- --------
<S> <C> <C> <C> <C> <C>
One Norwest Center.......... Denver, Colorado 1983 1,188,000 97% 100%
Norwest Center.............. Minneapolis, Minnesota 1988 1,118,000 98% 50% A
Washington Mutual Tower..... Seattle, Washington 1988 1,155,000 99% 50% B
125 Summer Street........... Boston, Massachusetts 1989/1995 464,000 98% 100%
Tower 56.................... New York, New York 1983/1996 162,000 100% 100% C
One Lincoln Centre.......... Oakbrook Terrace, Illinois 1986/1996 297,000 96% 100%
527 Madison Avenue.......... New York, New York 1986/1997 216,000 100% 100%
191 Peachtree Street........ Atlanta, Georgia 1991/1997 1,221,000 97% 80% D,E
Market Square............... Washington, D.C. 1990/1997 689,000 96% 59% F
500 Boylston Street......... Boston, Massachusetts 1988/1997 715,000 100% 91.5% G
222 Berkeley Street......... Boston, Massachusetts 1991/1997 531,000 100% 91.5% G
Charlotte Plaza............. Charlotte, North Carolina 1982/1997 613,000 98% 100%
200 Galleria................ Atlanta, Georgia 1985/1997 433,000 93% 100%
11 Canal Center............. Alexandria, Virginia 1986/1997 70,000 96% 100%
99 Canal Center............. Alexandria, Virginia 1986/1997 138,000 100% 100%
TransPotomac Plaza 5........ Alexandria, Virginia 1983/1997 96,000 100% 100%
Sixty State Street.......... Boston, Massachusetts 1979/1997 823,000 98% 100% H,I
Corporate 500 Centre........ Deerfield, Illinois 1986-90/1998 679,000 89% 100% J
One Memorial Drive.......... Cambridge, Massachusetts 1987/1998 353,000 100% 100% K
201 California Street....... San Francisco, California 1980/1998 240,000 100% 100% L
Wilshire Palisades.......... Santa Monica, California 1981/1998 186,000 100% 100% L
</TABLE>
- --------
(A) While the Company's stated interest in the partnership that owns
Norwest Center is 50%, its economic interest in the Property is
significantly larger due to priority distributions it receives on its
invested capital base. For the six months ended June 30, 1998, the
Company's share of earnings and cash distributions from the partnership
that owns Norwest Center was 79.3%.
(B) While the Company's stated interest in the partnership that owns
Washington Mutual Tower is 50%, its economic interest in the Property
is significantly larger due to priority distributions it receives on
its invested capital base. For the six months ended June 30, 1998, the
Company received 100% of the cash distributions from the partnership
that owns Washington Mutual Tower.
(C) On January 5, 1998, the Company purchased the remaining participation
rights in the cash flow and residual value of Tower 56 from the former
participants for 307,692 shares of Common Stock. All cash flow and the
residual value of Tower 56 will now inure to the Company.
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<PAGE>
(D) While the Company's stated interest in the partnership that owns 191
Peachtree Street is 80%, its economic interest is significantly larger
because it has acquired the first mortgage note on the Property in the
amount of $145.0 million, which earns interest at 9.375% and will
receive a priority distribution on its acquired capital base. In
addition, the partner in the transaction, CH Associates, Ltd., receives
an annual incentive distribution of $250,000, which the Company expects
it will continue to receive under the partnership agreement through
February 28, 2000, with the Company receiving the remainder of the cash
flow of the Property.
(E) The partnership that owns 191 Peachtree Street has a ground lease
agreement for a portion of the land upon which the project has been
constructed. The agreement requires annual payments of $5,000 through
January 31, 1998, $45,000 through January 31, 2002 and $75,000 through
January 31, 2008. Thereafter, the annual rent increases $2,500 per year
until the expiration date of January 31, 2087. The partnership records
ground rental expense relating to this agreement on a straight-line
basis. The ground lease is renewable for an additional 99 years.
(F) In January 1998, the Company acquired partnership interests with a
stated interest of approximately 59% in the partnerships that own
Market Square, with the option to purchase an additional 1%. The
Company's economic interest is significantly larger because it has
acquired the first mortgage note on the Property in the amount of
$181.0 million, which earns interest at 9.75% and will receive a
priority distribution on its acquired capital base. In addition, the
Company acquired a "buffer loan", with accrued principal and interest
of $46.2 million, which accrues interest at a rate of 11% per annum and
is payable from cash flow, refinancing or sales proceeds from Market
Square in excess of the first mortgage. During the six months ended
June 30, 1998, the Company received 100% of the cash flow from the
Property.
(G) Distributions of cash flow and sales and refinancing proceeds are
shared in proportion to the Company's 91.5% partnership interest and
Hines Interests Limited Partnership's and/or its affiliates' ("Hines")
8.5% partnership interest.
(H) On December 31, 1997, Cornerstone purchased the second mortgage on
Sixty State Street located in the heart of Boston's Central Business
District. The mortgage is a cash flow mortgage through which all the
economic benefits/risks (subject to the first mortgage) will inure
to the Company. The Company controls all major decisions regarding
management and leasing. The total purchase price for the second
mortgage was $131.5 million. The $78.4 million first mortgage on the
Property has been recorded by the Company as an $89.6 million
liability due to its above-market interest rate.
(I) The second mortgage, which the Company holds, is collateralized only
by the improvements on Sixty State Street in Boston. The ground
under Sixty State Street is leased to the leasehold owner, Marshall
Field, through December 28, 2067. The lease payments on the ground
lease are $398,896 per annum throughout the term.
(J) On January 28, 1998, the Company purchased Corporate 500 Centre in
Deerfield, Illinois. Constructed between 1986 and 1990, Corporate 500
Centre consists of four Class A office buildings comprising
approximately 680,000 rentable square feet. The total purchase price of
the Property was approximately $150.0 million, approximately $15.0
million of which was paid in UPREIT Units priced at $18.50 per unit.
The Company financed a portion of the costs to acquire the Property
with an $80.0 million mortgage loan from Bankers Trust Company at an
interest rate of LIBOR plus 1.0%. The mortgage loan will mature on July
20, 2002. The Company has also entered into an interest rate swap
agreement with Bankers Trust Company that has effectively fixed the
interest rate on the mortgage loan at 6.63%. This swap is considered a
hedge for federal income tax purposes.
8 of 28
<PAGE>
(K) On April 28, 1998, the Company purchased One Memorial Drive in
Cambridge, Massachusetts. The total purchase price for the Property was
approximately $112.5 million, approximately $29.0 million of which was
paid in UPREIT Units priced at $17.50 per unit. The Company also issued
3,428,571 shares of Common Stock priced at $17.50 per share as part of
the acquisition.
(L) On June 3, 1998, the Company purchased 201 California Street in San
Francisco, California, and Wilshire Palisades in Santa Monica,
California. The total purchase price for the Properties was
approximately $121.5 million, approximately $29.1 million of which was
paid in UPREIT Units priced at $17.50 per unit. Also included in the
purchase price was $64.6 million in assumed debt.
On March 31, 1998, the Dearborn Land, an undeveloped parcel of land in Chicago
that was acquired in October 1997 along with nine Class A office properties
(collectively, the "DIHC Properties") from Stichting Pensioenfonds Voor de
Gezondheid Geestelijke en Maatschappelijke Belangen ("PGGM") and Dutch
Institutional Holding Company, Inc. ("DIHC"), was sold for net proceeds of
approximately $18,790,000, resulting in a loss of $212,228.
On April 29, 1998, the Company sold the Frick Building, located in Pittsburgh,
PA, for net proceeds of approximately $26,748,000, resulting in a loss of
$1,984,347.
3. EQUITY IN REAL ESTATE JOINT VENTURE
During January 1998, the Company purchased a 99% interest in Market
Square Development Investors ("MSDI"). MSDI owns an 85.71% interest in Market
Square Associates ("MSA"), which owns a 70% interest in Avenue Associates
Limited Partnership ("AALP"). AALP owns and operates Market Square. The
Company's investment is accounted for under the equity method. The following
table provides summary level balance sheet and income and expense information as
of June 30, 1998 and for the six months ended June 30, 1998, respectively, for
the MSA entity (Amounts in thousands):
<TABLE>
<CAPTION>
1998
-------------------
<S> <C>
Total Assets, primarily investments in real estate $173,798
Total Liabilities, primarily notes payable 233,174
Revenues, primarily office and parking rentals 14,214
Net Loss (4,516)
</TABLE>
The amount recorded as equity in loss of real estate joint venture
includes the net loss of MSA from January 30, 1998 through June 30, 1998, plus
adjustments for straight-line rent and interest expense.
4. NOTES RECEIVABLE
Included within Notes Receivable is a loan for approximately $78.6
million made to WWA Investors LLC ("WWA") on June 19, 1998. The loan bears
interest at a rate of LIBOR plus 1.50% and matures on December 31, 1999. The
loan is collateralized by five Class A office buildings owned by WWA in the
western United States.
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5. LONG-TERM DEBT
The following table sets forth certain information regarding the
consolidated debt obligations of the Company as of June 30, 1998, including
mortgage obligations relating to the Properties. All of this debt, with the
exception of the Convertible Promissory Note due 2001, is nonrecourse to the
Company. However, notwithstanding the nonrecourse indebtedness, the lender may
have the right to recover deficiencies from the Company in certain
circumstances, including fraud, misappropriation of funds and environmental
liabilities.
<TABLE>
<CAPTION>
Maturity Prepayment
Property Amortization Interest Rate Date Provisions 6/30/98 12/31/97
- -------- -------------- -------------- --------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Convertible Promissory Note due 2001 Interest only 8.11% max (B) Jan-2001 Not prepayable $12,926,000 $12,926,000
(A).............................
One Norwest Center................ 30 year 7.50 Aug-2001 (C) 96,291,000 96,780,000
Norwest Center.................... Interest only 8.74 Dec-2005 Not prepayable 110,000,000 110,000,000
Washington Mutual Tower........... Interest only 7.53 Nov-2005 (D) 79,100,000 79,100,000
125 Summer Street................. Interest only (E) 7.20 Jan-2003 (F) 50,000,000 50,000,000
Tower 56.......................... 30 year 7.67 May-2003 (G) 17,652,000 17,742,000
TransPotomac Plaza 5 and Charlotte
Plaza (H)....................... Interest only 7.28 Oct-2000 Not prepayable 65,000,000 65,000,000
527 Madison Avenue and One Lincoln
Centre (H)...................... Interest only 7.47 Oct-2004 Not prepayable 65,000,000 65,000,000
Market Square (I) and 200
Galleria (H).................... Interest only 7.54 Oct-2007 Not prepayable 120,000,000 120,000,000
Sixty State Street (J)............ 30 year 6.84 Jan-2005 (K) 88,645,000 89,630,000
Corporate 500 Centre.............. Interest only 6.63 (L) Jul-2002 Prepayable 80,000,000 -
201 California Street (M)......... 30 year 6.70 Mar-2005 (N) 33,263,000 -
Wilshire Palisades (O)............ 30 year 6.70 Jul-2002 (P) 31,319,000 -
------------------------------
$849,196,000 $706,178,000
</TABLE>
- ------------
(A) The lender, Hines, has the right to convert the note into Common Stock
at a conversion price of $14.30 per share. At maturity, the Company is
entitled to repay the principal of the note with Common Stock priced at
the lesser of $14.30 per share or the then-existing share price.
(B) Lesser of 30-day LIBOR plus 0.5% or 8.11%.
(C) No prepayment until July 24, 1998. From July 24, 1998 through July 23,
2000, the prepayment fee is the greater of: (1) 1% of the outstanding
principal balance or (2) Treasury Yield Maintenance (as defined).
Beginning July 24, 2000, the prepayment fee is Treasury Yield
Maintenance. The loan may be repaid at par during the last 90 days of
the loan.
(D) No prepayment until September 30, 1998. Prepayable thereafter, with a
prepayment fee equal to the greater of: (1) 1% of the outstanding
principal balance or (2) Treasury Yield Maintenance (as defined).
Prepayment without fee during the six months prior to the maturity
date.
(E) Interest only payments through January 1, 2001, with a 25-year
amortization schedule thereafter.
(F) Beginning July 1, 1999, the prepayment fee is the greater of Treasury
Yield Maintenance (as defined) or 1% of the outstanding principal
balance. Prepayment without fee on or after three months prior to
maturity date.
(G) Open to prepayment after December 31, 1999, with a prepayment fee equal
to the greater of 1% of the principal balance or Treasury Yield
Maintenance (as defined). Prepayment without fee during the three
months prior to the maturity date.
10 of 28
<PAGE>
(H) The three notes arising from the acquisition of several properties from
DIHC are cross-collateralized, having the effect of forming a
"collateral pool" for the underlying notes.
(I) The collateral for this loan is a pledge of the $181.0 million first
mortgage loan on Market Square which the Company purchased from PGGM.
(J) While the face amount of the loan is $78,420,000, and the interest rate
is 9.5%, the Company has recorded the debt at $89,630,000, which is the
market value of the loan at the time of the closing based upon a market
interest rate for similar quality loans of 6.84%.
(K) Beginning February 1, 2000, the prepayment fee is equal to the greater
of: (1) 2% of the outstanding principal balance or (2) Treasury Yield
Maintenance (as defined). The 2% maximum is reduced by 0.25% per annum
thereafter until it reaches 1%. Prepayment without fee during the 90
days prior to the maturity date.
(L) The interest rate on the loan is LIBOR plus 100 basis points. However,
the Company has entered into an interest rate swap with Bankers Trust
Company that effectively fixes the interest rate at 6.63%.
(M) While the face amount of the loan is $32,946,000, and the interest rate
is 6.9%, the Company has recorded the debt at $33,292,000, which is the
market value of the loan at the time of the closing based upon a market
interest rate for similar quality loans of 6.70%.
(N) No prepayment until March 15, 2001. Prepayable thereafter, with a
prepayment fee, if paid in full, equal to the greater of: (1) 1% of the
amount being prepaid or (2) Modified Yield Maintenance (as defined). If
a partial prepayment is made, the prepayment fee is equal to Modified
Yield Maintenance. Prepayment without fee during the 120 days prior to
the maturity date.
(O) While the face amount of the loan is $29,967,000, and the interest rate
is 8.04%, the Company has recorded the debt at $31,319,000, which is
the market value of the loan at the time of the closing based upon a
market interest rate for similar quality loans of 6.70%.
(P) No prepayment until July 1, 1998. Prepayable thereafter with 60 days
notice to Lender, with a prepayment fee equal to the greater of: (1) 1%
of the outstanding principal balance or (2) Yield Maintenance (as
defined).
Since most of the long-term debt is collateralized by property, there are
restrictive covenants that limit the total amount of indebtedness that can be
placed on individual properties.
6. CREDIT FACILITY
The Company has a $350.0 million Revolving Credit Facility with Bankers
Trust Company and The Chase Manhattan Bank 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 or the Prime Rate
at the borrower's option. The letters of credit will be priced at the applicable
Eurodollar credit spread. The line of credit expires on October 27, 2000. As of
June 30, 1998, $75.0 million of the credit line was outstanding at a rate of
approximately 6.94%. The line of credit contains certain restrictive covenants
including; (i) a limitation on the Company's dividend to 90% of funds from
operations and 110% of cash available for distribution; (ii) total liabilities
to total property asset value cannot exceed 55%; (iii) adjusted EBITDA to
interest expense may not be less than 2.25 to 1.00; (iv) fixed charge coverage
may not be less than 1.75 to 1.00; and (v) total property asset value to secured
indebtedness may not be less than 2.50 to 1.00.
11 of 28
<PAGE>
7. COMMITMENTS AND CONTIGENCIES
The Company has entered into an agreement to purchase a 912,000 square
foot Class A office building, currently under development, in downtown
Minneapolis, Minnesota for an estimated cost of approximately $160.0 million.
The project is scheduled to be completed in the year 2000 and is approximately
50% pre-leased. The development is to be financed through a construction loan by
U.S. Bank. Upon completion, the Company will retire the construction loan and
acquire the property from the developer for an amount to be determined by
applying a negotiated formula to in-place net operating income.
On June 22, 1998, the Company entered into an agreement to merge with
William Wilson & Associates ("Wilson"), a private real estate developer,
property manager and owner based in San Mateo, California. The Company will
acquire the Wilson operating company and approximately 9.1 million square feet
of Wilson's Class A office buildings in the San Francisco Bay Area, Southern
California, Phoenix, Salt Lake City and Seattle (the "Wilson Acquisition"). The
total purchase price for Wilson and its portfolio is estimated to be
approximately $1.77 billion and is expected to close during the fourth quarter
of 1998. See Footnote 12.
8. STOCKHOLDERS' INVESTMENT
The 7% Cumulative Convertible Preferred Stock is convertible into
Common Stock at $16.50 per share at any time after August 4, 2000.
On April 21, 1997, Cornerstone completed its initial public offering
("IPO") in the United States of 16.1 million shares of Common Stock at a price
of $14 per share. The Company received net proceeds of approximately $207.8
million ($225.4 million gross proceeds less an underwriting discount of
approximately $14.1 million and expenses of approximately $3.5 million).
On February 6, 1998, Cornerstone completed a secondary public offering
of 14,375,000 shares of Common Stock at $18.25 per share. The shares were placed
in the U.S. through a syndicate of seven investment banks led by Merrill Lynch &
Co. Net proceeds to the Company were approximately $247.9 million ($262,343,750
gross proceeds less an underwriting discount of $13,728,125 and expenses of
approximately $750,000). The net proceeds were used to repay outstanding
borrowings under the Revolving Credit Facility and for working capital purposes.
The following tables summarize the stock options and restricted stock
grants for certain officers of the Company as of June 30, 1998:
<TABLE>
<CAPTION>
Stock Options
Options Granted Exercise Price Options Options
Date of Grant (No. of shares) (per share) Vesting(A) Exercisable Exercised
-------------- --------------- --------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
August, 1995.............. 637,500 $14.30 33.3%/yr, 3yr term 425,000 0
October, 1995............. 150,000 $14.30 33.3%/yr, 3yr term 100,000 10,500
March, 1997............... 880,000 $14.50 33.3%/yr, 3yr term 293,333 0
November, 1997............ 70,000 $18.44 33.3%/yr, 3yr term 0 0
February, 1998............ 70,000 $18.13 33.3%/yr, 3yr term 0 0
February, 1998............ 595,000 $18.25 33.3%/yr, 3yr term 0 0
March, 1998............... 200,000 $18.25 33.3%/yr, 3yr term 0 0
</TABLE>
12 of 28
<PAGE>
Restricted Stock Grants
<TABLE>
<CAPTION>
Shares Granted Value at Grant
Date of Grant (No. of shares) Date (per share) Vesting (B)
--------------- --------------- ---------------- ------------
<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 $16.38 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.
November, 1997 12,500 $18.44 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.
March, 1998 12,500 $18.13 The grant will fully vest with respect to 13.333% on
March 15, 1999, 2000, 2001, 2002 and with respect to
46.668% on March 15, 2003.
March, 1998 19,178 $18.25 The grant will fully vest with respect to 13.333% on
March 15, 1999, 2000, 2001, 2002 and with respect to
46.668% on March 15, 2003.
</TABLE>
- --------
(A) The vesting schedule for the options were amended from 20%/yr, 10yr
term to 33.3%/yr, 3yr term on February 4, 1998.
(B) Deferred compensation of approximately $4,842,000 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.
9. STOCKHOLDERS' AND UNITHOLDERS' DISTRIBUTIONS
A cash dividend and Unitholder distribution of $0.30 per share was
declared for the first quarter of 1998 and paid on February 27, 1998, to Common
Stockholders and Unitholders of record as of January 30, 1998. A cash dividend
and Unitholder distribution of $0.30 per share was declared for the second
quarter of 1998 and paid on May 29, 1998, to Common Stockholders and Unitholders
of record as of April 30, 1998.
13 of 28
<PAGE>
10. INCOME PER COMMON SHARE
The tables below set forth the calculation of income per common
share for the three and six months ended June 30, 1998 and 1997 (Dollar amounts
in thousands, except per share amounts):
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------------
June 30,1998 June 30, 1997
---------------------------- -----------------------
Basic Diluted Basic Diluted
-------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Proceeds upon exercise of options $ -- $ 40,940 $ -- $ 24,051
Market price of shares
Average for the respective period $ -- $ 17.58 $ -- $ 15.08
Treasury shares that could be
Repurchased (options) -- 2,329 -- 1,593
Option shares outstanding -- 2,592 -- 1,668
Weighted common stock equivalent
shares (Excess shares under option
over Treasury shares that could be
repurchased) -- 299 -- 75
Weighted average common shares
Outstanding 100,462 100,462 33,615 33,615
--------- --------- --------- --------
Adjusted weighted average common
shares outstanding 100,462 100,761 33,615 33,689
Net income for the period $ 19,252 $ 19,252 $ 7,980 $ 7,980
Income applicable to
preferred stock $ (875) $ (875) $ (4,205) $ (4,205)
--------- --------- --------- --------
Income available to
common shares $ 18,377 $ 18,377 $ 3,775 $ 3,775
Income per common share $ 0.18 $ 0.18 $ 0.11 $ 0.11
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------------
June 30,1998 June 30, 1997
---------------------------- -----------------------
Basic Diluted Basic Diluted
-------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Proceeds upon exercise of options $ -- $ 40,940 $ -- $ 24,021
Market price of shares
Average for the respective period $ -- $ 18.00 $ -- $ 15.53
Treasury shares that could be
Repurchased (options) -- 2,274 -- 1,547
Option shares outstanding -- 2,592 -- 1,668
Weighted common stock equivalent
shares (Excess shares under option
over Treasury shares that could be
repurchased) -- 331 -- 97
Weighted average common shares
Outstanding 96,653 96,653 27,237 27,237
-------- -------- -------- --------
Adjusted weighted average common
shares outstanding 96,653 96,984 27,237 27,334
Net income for the period $ 42,006 $ 42,006 $ 13,590 $ 13,590
Income applicable to
preferred stock $ (1,750) $ (1,750) $ (8,410) $ (8,410)
-------- -------- -------- --------
Income available to $ 40,256 $ 40,256 $ 5,180 $ 5,180
common shares
Income per common share $ 0.42 $ 0.42 $ 0.19 $ 0.19
</TABLE>
14 of 28
<PAGE>
11. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $28,792,000 and $14,234,000
for the six months ended June 30, 1998 and 1997, respectively.
Non-Cash Investing and Financing Activities
On January 5, 1998, the Company purchased the participation rights in
the cash flow and residual value of Tower 56 from the former participants for
307,692 shares of Common Stock.
On January 28, 1998, the Company purchased Corporate 500 Centre, a
complex of four office buildings in Deerfield, Illinois. As part of the total
purchase price of approximately $150.0 million, the Company issued 822,794
UPREIT Units priced at $18.50 per unit.
On April 28, 1998, the Company purchased One Memorial Drive, an office
tower in Cambridge, Massachusetts. As part of the total purchase price of
approximately $112.5 million, the Company issued 3,428,571 shares of Common
Stock and 1,657,426 UPREIT Units, both priced at $17.50.
On June 3, 1998, the Company purchased 201 California Street in San
Francisco, California, and Wilshire Palisades in Santa Monica, California. As
part of the total purchase price for the Properties of approximately $121.5
million, the Company assumed $64.6 million in debt and issued 1,665,663 UPREIT
Units priced at $17.50 per unit.
12. PRO FORMA FINANCIAL INFORMATION
The pro forma financial information shown below is based on the
consolidated historical statements of Cornerstone after giving effect to the
acquisitions of Corporate 500 Centre, One Memorial Drive, 201 California
Street and Wilshire Palisades as if such acquisitions took place on January
1, 1998 and 1997, respectively. The pro forma financial information is
presented for informational purposes only and may not be indicative of
results that would have actually occurred had the acquisitons taken place at
the dates indicated. Also, they may not be indicative of the resutls that may
be acheived in the future.
<TABLE>
<CAPTION>
June 30, 1998 1997
--------- ----- ------
<S> <C> <C>
Pro forma total revenues $180,731,000 $98,782,000
Pro forma income before
extraordinary items 42,675,000 17,733,000
Pro forma net income 42,675,000 17,679,000
Pro forma income per share 0.41 0.30
</TABLE>
13. OTHER MATTERS
On June 22, 1998, the Company entered into an agreement to merge
with Wilson, a private real estate developer, property manager and owner
based in San Mateo, California. The Company will acquire the Wilson operating
company and approximately 9.1 million square feet of Wilson's Class A office
buildings in the San Francisco Bay Area, Southern California, Phoenix, Salt
Lake City and Seattle. The total purchase price for Wilson and its portfolio
is expected to be approximately $1.77 billion. At this price, it is
anticipated that the Company will issue to Wilson and its investors
approximately $635 million in Common Stock and UPREIT Units, valued at $17.25
per share/unit, and pay cash for the remaining equity. In addition, the
Company will assume or repay approximately $780 million of existing
indebtedness currently held by Wilson. The cash needed for the transaction
will be financed under the Revolving Credit Facility and from an expected
sale of $200 million of Common Stock to PGGM, a 31% equity holder in the
Company at June 30, 1998, at an agreed price of $17.25 per share. The
consummation of the Wilson Acquisition is subject to the approval of the
stockholders of the Company and the investors of Wilson, as well as other
outstanding closing conditions. If such approvals are obtained, the
transaction is expected to close in the fourth quarter of 1998.
15 of 28
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
RESULTS OF OPERATIONS
- ---------------------
Consolidation
Cornerstone's principal source of income is rental revenues received through its
investment in fourteen fee simple Properties, six real estate partnerships and
one mortgage. NWC, Third Partnership, 191 Peachtree, 222 Berkeley and 500
Boylston have been consolidated because Cornerstone has a majority interest in
the economic benefits and is or has the right to become managing general partner
at its sole discretion. The Company has accounted for its investment in MSA
using the equity method because it does not have sufficient control of the day
to day operations of the partnership.
Property Results
For the three and six months ended June 30, 1998 and 1997,
Property results can be summarized as follows (Amounts in thousands):
<TABLE>
<CAPTION>
For the three For the three For the six For the six
months ended June months ended June months ended months ended
30, 1998 30, 1997 June 30, 1998 June 30, 1997
- -------------------------------------- -------------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Office and Parking Rentals $81,357 $35,213 $156,540 $68,691
Less:
Building Operating Expenses 16,962 7,658 34,051 15,033
Real Estate Taxes 11,689 5,957 22,866 11,620
Depreciation and Amortization 16,214 7,146 26,859 13,808
------- -------- -------- --------
Total Operating Expenses 44,865 20,761 83,776 40,461
------- -------- -------- --------
Total Property Income $ 36,492 $14,452 $ 72,764 $28,230
------- -------- -------- --------
------- -------- -------- --------
</TABLE>
The increase in property income for the three months ended June 30, 1998 as
compared to the same period in 1997 of $22.0 million was due to the additional
revenues derived from 13 Properties acquired since June 30, 1997 ($21.3
million). At the existing properties, property income at Washington Mutual Tower
increased $0.5 million due to increased rental rates and management fee revenue.
125 Summer Street increased $0.9 million due to the lease up of the former
Gadsby and Hannah space which expired during the same period in 1997. These
increases were offset by a reduction in property income of $0.3 million at One
Norwest Center due to a lease buyout of a portion of the Norwest Bank space to
allow for Gulf Canada expansion during 1997. The decrease of $0.2 million at the
Frick Building was due to the sale of this building in April 1998. The remaining
decrease of $0.2 million was caused by a slight reduction in property income at
the existing Properties.
16 of 28
<PAGE>
The increase in property income for the six months ended June 30,
1998 as compared to the same period in 1997 of $44.5 million was due to the
additional revenues derived from 13 Properties acquired since June 30, 1997
($43.3 million) and an increase in revenues from 527 Madison Avenue because
it was purchased in February 1997 ($0.5 million). At the existing properties,
property income at Washington Mutual Tower increased $0.5 million due to
increased rental rates and management fee revenue. 125 Summer Street
increased $0.7 million due to the lease up of the former Gadsby and Hannah
space which expired during the same period in 1997. One Lincoln Centre's
property income increased $0.1 million due to increased rental rates. These
increases were offset by a reduction in property income of $0.2 million at
One Norwest Center due to a lease buyout of a portion of the Norwest Bank
space to allow for Gulf Canada expansion during 1997. The decrease of $0.1
million at the Frick Building was due to the sale of this building in April
1998. The remaining decrease of $0.3 million was caused by a slight reduction
in property income at the other existing Properties.
Equity in Loss of Real Estate Joint Venture
The equity in loss of real estate joint venture of $2.7 million in 1998 was due
to the acquisition of the partnership interest in Market Square in January 1998.
Interest and Other Income
Interest and other income increased to $6,896,000 for the three months ended
June 30, 1998 from $3,055,000 for the three months ended June 30, 1997. These
amounts primarily consist of interest earned from a mortgage note receivable,
short-term investments, a note receivable from a partner, management fee income
and income from advisory contracts in 1997. The increase was due to the purchase
of the mortgage note on Market Square in late 1997 ($5.6 million) and an
increase in management and tenant alteration income ($0.3 million). These
amounts were offset by a reduction in interest income on short-term investments
due to the Company having excess cash in 1997 from its preferred stock placement
that occurred in late 1996 as well as its IPO in April 1997 ($1.6 million), a
reduction due to the expiration of certain advisory contracts in 1997 ($0.2
million) and a reduction in other income of $0.3 million.
Interest and other income increased to $14,194,000 for the six months ended June
30, 1998 from $4,564,000 for the six months ended June 30, 1997. These amounts
primarily consist of interest earned from a mortgage note receivable, short-term
investments, a note receivable from a partner, management fee income and income
from advisory contracts in 1997. The increase was due to the purchase of the
mortgage note on Market Square in late 1997 ($10.9 million), an increase in
management and tenant alteration income ($1.5 million) and lease cancelation
payments ($0.1). These amounts were offset by a reduction in interest income on
short-term investments due to the Company having excess cash in 1997 from its
preferred stock placement that occurred in late 1996 as well as its IPO in April
1997 ($2.1 million), a reduction due to the expiration of certain advisory
contracts in 1997 ($0.4 million) and a reduction in other income of $0.4
million.
Interest Expense
Interest expense incurred by Cornerstone relating to its financing activities
increased to $15,752,000 for the three months ended June 30, 1998 from
$7,353,000 for the three months ended June 30, 1997. The increase in interest
expense was due to the interest expense on the purchase money loans from the
DIHC transaction ($4.7 million), an increase in interest expense on the
Revolving Credit Facility ($0.3 million), an increase in amortization of
deferred financing costs ($0.3 million), interest on the Sixty State Street
loan ($1.5 million), interest on the Corporate 500 Centre loan ($1.3
million), interest on the 201 California Street loan ($0.3 million) and
interest on the Wilshire Palisades loan ($0.2 million). These increases were
offset by the Term Loan interest in 1997, as discussed below ($0.2 million).
17 of 28
<PAGE>
Interest expense incurred by Cornerstone relating to its financing activities
increased to $31,667,000 for the six months ended June 30, 1998 from
$14,990,000 for the six months ended June 30, 1997. The increase in interest
expense was due to the interest expense on the purchase money loans from the
DIHC transaction ($9.0 million), an increase in interest expense on the
Revolving Credit Facility ($1.9 million), an increase in amortization of
deferred financing costs ($0.4 million), interest on the Sixty State Street
loan ($3.0 million), interest on the Corporate 500 Centre loan ($2.3
million), interest on the 201 California Street loan ($0.3 million) and
interest on the Wilshire Palisades loan ($0.2 million). These increases were
offset by the Term Loan interest in the first quarter of 1997, as discussed
below ($0.4 million).
Interest Rate Swaps
The Company currently has an $80.0 million interest rate swap outstanding to
protect it from interest rate fluctuations which could affect its floating rate
debt on Corporate 500 Centre. The swap effectively fixes the interest rate on
the $80.0 million loan at 6.63% through its maturity in July 2002. The swap is a
hedge for federal income tax purposes.
General and Administrative Expenses
The aggregate amount of Cornerstone's general and administrative expenses have
increased to $2,958,000 for the three months ended June 30, 1998 from $1,628,000
for the three months ended June 30, 1997. The increase in 1998 from 1997 of $1.3
million is due to the additional employees, space, systems and other support
necessary to manage the substantial growth in assets of the Company during the
most recent twelve-month period.
The aggregate amount of Cornerstone's general and administrative expenses have
increased to $5,544,000 for the six months ended June 30, 1998 from $3,265,000
for the six months ended June 30, 1997. The increase in 1998 from 1997 of $2.3
million is due to the additional employees, space, systems and other support
necessary to manage the substantial growth in assets of the Company during the
most recent twelve-month period.
Loss on Sale of Real Estate Assets
On March 31, 1998, the Dearborn Land, an undeveloped parcel of land in Chicago
that was acquired in October 1997 along with nine Class A office properties from
PGGM and DIHC was sold for net proceeds of approximately $18,790,000,
resulting in a loss of $212,228.
On April 29, 1998, the Company sold the Frick Building, located in Pittsburgh,
PA, for net proceeds of approximately $26,748,000, resulting in a loss of
$1,984,347.
Minority Interest
Minority interest increased to $1.7 million for the three months ended June 30,
1998 from $0.5 million for the three months ended June 30, 1997 due to the
allocation of income to the UPREIT unitholders and the purchase of the
partnership interests in 500 Boylston Street, 222 Berkeley Street and 191
Peachtree Street.
Minority interest increased to $2.9 million for the six months ended June 30,
1998 from $1.0 million for the six months ended June 30, 1997 due to the
allocation of income to the UPREIT unitholders and the purchase of the
partnership interests in 500 Boylston, 222 Berkeley and 191 Peachtree.
18 of 28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash Flow (Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the six months ended For the six months ended
Cash flow provided by (used in): June 30, 1998 June 30, 1997
- ---------------------------------------- ------------------------------ -----------------------------
<S> <C> <C>
Operating activities $ 80,979 $ 26,978
Investing activities (232,106) (72,224)
Financing activities 155,115 153,017
Earnings to fixed charges ratio 2.20 1.22
</TABLE>
Cash provided by operating activities increased to $80,979,000 for the six
months ended June 30, 1998 from $26,978,000 for the six months ended June 30,
1997. The increase is primarily due to the cash flows from the interests in
13 Properties acquired since the end of the second quarter of 1997.
Cash used in investing activities increased to $232,106,000 for the six
months ended June 30, 1998 from $72,224,000 for the six months ended June 30,
1997 due to the acquisition of Corporate 500 Centre for approximately $135.0
million (net of UPREIT Units), One Memorial Drive for approximately $23.5
million (net of Common Stock and UPREIT Units) and 201 California Street and
Wilshire Palisades for approximately $28.1 million (net of assumed debt and
UPREIT Units). Further adding to the increase was the acquisition of the
partnership interest in Market Square for $5.1 million, other property
additions of approximately $9.0 million and a loan receivable of $78.6
million. These investments were partially offset by the $18.8 and $26.7
million in proceeds from the sale of the Dearborn Land and the Frick
Building, respectively. In addition, these investments were partially offset
by the receipt of $0.9 million from the repayment of mortgage notes
receivable and $0.7 million from the repayment of notes receivable. During
1997, the Company invested approximately $67.0 million in 527 Madison Avenue
and approximately $4.6 million in other property investments. These
investments were partially offset by the receipt of $0.6 million from the
repayment of notes receivable.
Cash provided by financing activities increased to $155,115,000 for the six
months ended June 30, 1998 from $153,017,000 for the six months ended June 30,
1997. The increase was mainly due to the secondary offering proceeds of $262.3
million compared to $225.4 million received from the Company's IPO in 1997, an
increase in mortgage borrowings of $45.0 million, a decrease in restricted cash
of $31.0 million, a decrease in stock and debt issuance costs of $3.3 million
and a decrease in preferred distributions of $6.7 million. These amounts were
offset by an increase in loan repayments of $79.5 million, a decrease in
proceeds from the dividend reinvestment plan of $2.1 million, an increase in
distributions to minority partners of $2.1 million, an increase in dividends
paid of $36.9 million, and other adjustments of $0.2 million.
The ratio of earnings to fixed charges and dividends on preferred stock
increased to 2.20 times at June 30, 1998 from 1.22 times at June 30, 1997 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, after adjustments for
unconsolidated joint ventures. The Company has adjusted 1997 FFO by the net gain
on interest rate swap due to the non-cash nature of this item.
Industry analysts generally consider FFO to be an appropriate measure of
performance of a 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.
19 of 28
<PAGE>
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 Condensed Consolidated Statements of Cash Flows
included in the Condensed Consolidated Financial Statements which are part of
this report.
The Company no longer reports free and deferred rental income as an adjustment
to FFO because this is not part of the industry standard. Therefore, included in
FFO for the three months ended June 30, 1998 and 1997 is an an increase of
approximately $3,763,000 and $378,000, respectively, for free and deferred
rental income (after adjustment for minority interest). Included in FFO for the
six months ended June 30, 1998 and 1997 is an an increase of approximately
$6,909,000 and $659,000, respectively, for free and deferred rental income
(after adjustment for minority interest).
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 six month periods ended
June 30, 1998 and 1997, respectively (Amounts in thousands):
Funds From Operations (1)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
----------------------- ----------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Net Income $ 19,252 $ 7,980 $ 42,006 $ 13,590
NAREIT Adjustments:
Depreciation and Amortization (2) 16,214 7,146 26,859 13,808
Realized/Unrealized gain on swaps 0 0 0 (99)
Minority adjustments (541) (366) (1,008) (737)
Unconsolidated Depreciation 1,311 0 2,174 0
Loss on sale of real estate assets 1,985 0 2,197 0
Extraordinary Losses/Swap Losses 0 28 0 54
Other Adjustments:
Amortization on rent notes 378 337 746 557
Minority Interest Allocated to
Unitholders 510 0 646 0
--------- --------- --------- ---------
Funds From Operations 39,109 15,125 73,620 27,173
Interest Expense on Convertible Note 199 200 404 393
--------- --------- --------- ---------
Funds From Operations Available For
Diluted Shares $ 39,308 $ 15,325 $ 74,024 $ 27,566
======== ======== ======== ========
</TABLE>
(1) 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.
(2) 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.
20 of 28
<PAGE>
The increase in FFO for the three and six month periods ended June 30, 1998
as compared to the same periods in 1997 is primarily due to the acquisition
of interests in 14 Properties since the end of the second quarter of 1997.
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 January 31, 1997, through a dividend reinvestment plan available to its
German stockholders, Cornerstone received proceeds of approximately $3,717,000
and issued an additional 243,907 shares of common stock to such stockholders.
On April 21, 1997, the Company received $225,400,000 gross proceeds from the
public placement of 16,100,000 new shares of common stock at a price of $14.00
per share and listed on the New York Stock Exchange through underwriters led by
Merrill Lynch & Co. The net proceeds were used as partial consideration for the
purchase of the DIHC Portfolio.
On April 30, 1997, through a dividend reinvestment plan available to its German
stockholders, Cornerstone received proceeds of approximately $2.2 million and
issued an additional 141,733 shares of common stock to such stockholders.
On July 25, 1997, the 1,148,276 shares of Redeemable Preferred stock outstanding
at the time were converted into 11,482,760 common shares. The contractual
conversion was based upon meeting a $16.00 twenty-day average common share
price.
On July 31, 1997, through a dividend reinvestment plan available to its German
stockholders, Cornerstone received proceeds of approximately $2.6 million and
issued an additional 175,796 shares of common stock to such stockholders.
On October 27, 1997, the Company increased the authorized shares from
115,000,000 shares of capital stock, without par value, to 265,000,000 shares of
capital stock, without par value, of which 15,000,000 shares were preferred
stock and 250,000,000 shares were common stock.
On October 28, 1997, as consideration for the acquisition of the DIHC Portfolio,
Cornerstone issued 34,185,500 shares of common stock to DIHC and PGGM as
compensation for the acquisition of interests in nine Class A office buildings
and an undeveloped parcel of land.
On October 31, 1997, through a dividend reinvestment plan available to its
German stockholders, Cornerstone received proceeds of approximately $2.5 million
and issued an additional 134,577 shares of common stock to such stockholders.
On January 5, 1998, the Company purchased the participation rights in the cash
flow and residual value of Tower 56 from the former participants for 307,692
shares of common stock.
On February 6, 1998, Cornerstone completed a secondary public offering of
14,375,000 shares of Common Stock at $18.25 per share. The shares were placed in
the U.S. through a syndicate of seven investment banks led by Merrill Lynch &
Co. Net proceeds to the Company were approximately $247,866,000 ($262,343,750
gross proceeds less an underwriting discount of $13,728,125 and expenses of
approximately $750,000). The net proceeds were used to repay the Company's
acquisition line of credit and for working capital purposes.
21 of 28
<PAGE>
On February 27, 1998, through a dividend reinvestment plan available to its
German stockholders, Cornerstone received proceeds of approximately $2.0 million
and issued an additional 109,007 shares of common stock to such stockholders.
On April 28, 1998, the Company issued 3,428,571 shares of common stock to
Prudential Securities as partial consideration for the acquisition of One
Memorial Drive.
On May 20, 1998, the Company increased the number of authorized Preferred Stock
from 15,000,000 shares to 65,000,000 shares.
On May 29, 1998, through a dividend reinvestment plan available to its German
stockholders, Cornerstone received proceeds of approximately $1.8 million and
issued an additional 98,487 shares of common stock to such stockholders.
Mortgage Indebtedness
On October 27, 1997, the Company entered into four mortgage loans with PGGM and
its wholly-owned subsidiary DIHC (together "PGGM") as purchase money financing
for the DIHC Properties. The mortgages, which are cross-collateralized, encumber
TransPotomac Plaza 5, Charlotte Plaza, 527 Madison Avenue, One Lincoln Centre,
200 Galleria and the first mortgage note on Market Square. These mortgages total
$250.0 million and are interest only with no prepayment rights. The first loan
is a $10.0 million note at 7.28% interest; the interest rate on the loan
increased to 7.28% upon the sale of the Dearborn Land, which occurred on March
31, 1998. The loan matures in October 2000. The second loan is a $55.0 million
note at 7.28% interest, which matures in October 2000. Upon repayment of this
note and the $10.0 million note described above, PGGM will release the liens on
TransPotomac Plaza 5 and Charlotte Plaza. The third loan is a $65.0 million note
at 7.47% interest, which matures in October 2004. Upon repayment of this note,
PGGM will release the liens on 527 Madison Avenue and One Lincoln Centre. The
fourth loan is a $120.0 million note at 7.54% interest, which is due in October
2007. Upon repayment of this note, PGGM will release the liens on Market Square
and 200 Galleria.
On December 31, 1997, the Company purchased the second mortgage on Sixty State
Street in Boston, MA. This mortgage is consolidated on the Company's balance
sheet. The property has a first mortgage in the amount of approximately $78.4
million, which matures in January 2005. The loan requires amortization based on
a 30-year schedule and bears interest at a rate of 9.5%. While the face amount
of the first mortgage is $78.4 million, and the interest rate is 9.5%, the
Company has recorded the debt at $89.6 million, which is the market value of the
loan at the time of the closing based upon a market interest rate for similar
quality loans of 6.84%.
On January 28, 1998, the Company entered into an $80.0 million first mortgage on
Corporate 500 Centre with Bankers Trust Company. The loan bears interest at a
rate of LIBOR plus 1.0% and matures in July 2002. The interest rate on the loan
is fixed at 6.63% through an interest rate swap with Bankers Trust Company.
On June 3, 1998, the Company assumed the mortgage on 201 California Street in
San Francisco, CA. The loan requires amortization based on a 30-year schedule
and bears interest at a rate of 6.9%. While the face amount of the mortgage is
$32.9 million, and the interest rate is 6.9%, the Company has recorded the debt
at $33.3 million, which is the market value of the loan at the time of the
closing based upon a market interest rate for similar quality loans of 6.7%.
On June 3, 1998, the Company assumed the mortgage on Wilshire Palisades in Santa
Monica, CA. The loan requires amortization based on a 30-year schedule and bears
interest at a rate of 8.04%. While the face amount of the mortgage is $30.0
million, and the interest rate is 8.04%, the Company has recorded the debt at
$31.3 million, which is the market value of the loan at the time of the closing
based upon a market interest rate for similar quality loans of 6.7%.
22 of 28
<PAGE>
Other Indebtedness
On August 8, 1995, the existing $32.5 million loan (the "Term Loan") was
extended through December 31, 2003 and assigned to Deutsche Bank AG London at an
interest rate of 5%. The Term Loan had a $32.5 million balance at December 31,
1996. The loan was prepaid on March 18, 1997, since, under its terms, it was
required to be prepaid upon Cornerstone's IPO in the United States. The Company
has no long-term debt maturing until 2000.
On October 27, 1997, the Company entered into a three-year, $350.0 million
acquisition line of credit syndicated by Bankers Trust Company and The Chase
Manhattan Bank. The line bears interest at a rate of LIBOR plus 1.10% to 1.40%
depending on the Company's then current leverage ratio. As of June 30, 1998,
$75.0 million of the credit line was outstanding at a rate of approximately
6.94%. The line is also available for the issuance of standby letters of credit.
Stockholders' and Unitholders' Distributions
Cornerstone intends to distribute at least 95% of its taxable income to maintain
its qualification as a REIT. The Company 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 paid
distributions of $0.30 per share to all stockholders and unitholders on February
27, 1998 (to stockholders and unitholders of record as of January 30, 1998). The
Company paid distributions of $0.30 per share to all stockholders and
unitholders on May 29, 1998 (to stockholders and unitholders of record as of
April 30, 1998).
At the present time, the Company is current in the payment of all preferred
dividends.
Liquidity
At June 30, 1998, the Company had $28,718,000 in cash and cash equivalents and
$6,624,000 in restricted cash. Restricted cash is being held by the mortgage
servicer for the One Norwest Center and Washington Mutual Tower mortgage loans.
Cornerstone also had available $275.0 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, rental income from
its fee owned Properties and interest income from its mortgages on a monthly
basis which will be used to cover normal operating expenses and pay
distributions to its stockholders and unitholders. Based upon its cash reserves
and other sources of funds including its $350.0 million line of credit,
Cornerstone has sufficient liquidity to meet its cash requirements for the
foreseeable future.
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 with the majority of its tenants
require the tenants to pay most operating expenses and increases in common area
maintenance expenses, which reduces the Company's exposure to increases in costs
and operating expenses resulting from inflation.
In the ordinary course of business, the Company is in the process of acquiring
new accounting and property management software that will eliminate year 2000
software concerns at the corporate level. Management is in the process of
completing a survey with all of its property managers to make sure there are no
year 2000 issues at any of the property management firms that manage its
Properties. Currently, Cornerstone is not aware of any year 2000 issues that
would have a material effect on the financial position, results of operations
and liquidity of the Company. The total costs to be incurred are not expected
to be material.
23 of 28
<PAGE>
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), which is effective for fiscal years beginning
after June 15, 1999. In addition, the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5") and
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which are effective for
fiscal years beginning after December 15, 1998. Further, the Emerging Issues
Task Force of the Financial Accounting Standards Board released Issue No. 97-11,
"Accounting for Internal Costs Relating to Real Estate Property Acquisitions"
("EITF 97-11").
SFAS 133 establishes a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. SOP 98-5
requires that certain costs incurred in conjunction with start-up activities
should be expensed. SOP 98-1 provides guidance on whether the costs of computer
software developed or obtained for internal use should be capitalized or
expensed. EITF 97-11 requires that the internal pre-acquisition costs of
identifying and acquiring operating property be expensed as incurred.
Management believes that, when adopted, SOP 98-5 and SOP 98-1 will not have a
significant impact on the Company's financial statements. The Company is
currently assessing the financial statement impact of SFAS 133. EITF 97-11
was adopted during the first quarter of fiscal 1998 and did not have a
material impact on the Company's financial statements.
During the first quarter of 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standard No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). The adoption of SFAS 130 did not have a
significant impact on the Company's financial statements.
On June 22, 1998, the Company entered into an agreement to merge with Wilson,
a private real estate developer, property manager and owner based in San
Mateo, California. The Company will acquire the Wilson operating company and
approximately 9.1 million square feet of Wilson's Class A office buildings in
the San Francisco Bay Area, Southern California, Phoenix, Salt Lake City and
Seattle. The total purchase price for Wilson and its portfolio is expected to
be approximately $1.77 billion. At this price, it is anticipated that the
Company will issue to Wilson and its investors approximately $635 million in
Common Stock and UPREIT Units, valued at $17.25 per share/unit, and pay cash
for the remaining equity. In addition, the Company will assume or repay
approximately $780 million of existing indebtedness currently held by Wilson.
The cash needed for the transaction will be financed under the Revolving
Credit Facility and from an expected sale of $200 million of Common Stock to
PGGM, a 31% equity holder in the Company at June 30, 1998, at an agreed price
of $17.25 per share. The consummation of the Wilson Acquisition is subject to
the approval of the stockholders of the Company and the investors of Wilson,
as well as other outstanding closing conditions. If such approvals are
obtained, the transaction is expected to close in the fourth quarter of 1998.
The Company has entered into an agreement to purchase a 912,000 square foot
Class A office building, currently under development, in downtown Minneapolis,
Minnesota for an estimated cost of approximately $160.0 million. The project is
scheduled to be completed in the year 2000 and is approximately 50% pre-leased.
The development is to be financed through a construction loan by U.S. Bank. Upon
completion, the Company will retire the construction loan and acquire the
property from the developer for an amount to be determined by applying a
negotiated formula to in-place net operating income.
24 of 28
<PAGE>
PART II -OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
On January 5, 1998, the Company purchased the remaining participation rights in
the cash flow and residual value of Tower 56 from the previous participants for
307,692 shares of Common Stock. At the time of the sale, such shares of Common
Stock were not registered under the Securities Act of 1933, as amended (the
"Securities Act") and were offered and sold to the foregoing shareholders in a
private offering pursuant to Section 4(2) of the Securities Act. Pursuant to
their rights under a registration rights agreement between each of these
shareholders and the Company, these shares were registered under a shelf
registration statement on Form S-3 (Registration No. 333-47149) which became
effective on March 10, 1998.
On February 27, 1998, through a dividend reinvestment plan available to all
German shareholders, the Company issued 109,007 shares of Common Stock to such
shareholders in lieu of paying cash dividends in the aggregate amount of
$2,010,000. Such shares were issued and sold to persons outside the United
States and were not registered under the Securities Act.
On April 28, 1998, the Company issued 3,428,571 shares of Common Stock to
Prudential Insurance Company of America ("Prudential") as part of the
consideration paid to Prudential for its interest in a Class A office property
located at One Memorial Drive, Cambridge, Massachusetts. At the time of the
sale, such shares of Common Stock were not registered under the Securities Act
and were there offered and sold to Prudential in a private offering pursuant to
Section 4(2) of the Securities Act. Pursuant to a registration rights agreement
between the Company and Prudential, on July 16, 1998, the Company has filed a
registration statement on Form S-3 (Registration No. 333-59259) that registered
Prudential's shares of Common Stock under the Securities Act. As of the date of
this report, such registration statement has not been declared effective.
On May 29, 1998, through a dividend reinvestment plan available to all German
shareholders, the Company issued 98,487 shares of Common Stock to such
shareholders in lieu of paying cash dividends in the aggregate amount of
$1,761,000. Such shares were issued and sold to persons outside the United
States and were not registered under the Securities Act.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company held its Annual Meeting of Stockholders on May 20, 1998. The
following individuals were nominated and elected to serve as directors: Cecil D.
Conlee, Rodney C. Dimock, Blake Eagle, Dr. Karl-Ludwig Herman, Hans Mautner, Dr.
Lutz Mellinger, John S. Moody, Craig R. Stapleton, Michael J.G. Topham, Dick van
den Bos and Jan van der Vlist.
The Stockholders voted as follows on the following matters:
1. Election of Directors. The voting result for each nominee is as
follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Cecil D. Conlee 81,819,518 181,348
Rodney C. Dimock 81,799,486 201,380
Blake Eagle 81,824,898 175,968
Dr. Karl-Ludwig Herman 81,819,134 181,732
Hans Mautner 81,824,933 175,933
Dr. Lutz Mellinger 81,795,483 205,383
John S. Moody 81,793,686 207,180
Craig R. Stapleton 81,824,718 176,148
Michael J.G. Topham 81,800,368 200,498
Dick van den Bos 80,497,268 1,503,598
Jan van der Vlist 80,499,268 1,501,598
</TABLE>
25 of 28
<PAGE>
2. The Company's 1998 Long-Term Incentive Compensation Plan was
approved by a count of 79,965,574 votes for, 951,482 votes
against, 264,600 votes abstaining and 819,210 broker non-votes.
3. The amendment to the Company's Restated Articles of Incorporation
to increase the number of authorized shares of preferred stock
from the current amount of 15,000,000 shares to 65,000,000 shares
was approved by a count of 63,549,207 votes for, 10,372,461 votes
against, 343,814 votes abstaining and 7,685,384 broker non-votes.
4. The reappointment of Coopers & Lybrand L.L.P. (now known as
PricewaterhouseCoopers LLP) as the Company's independent auditors
for fiscal year 1998 was approved by a count of 81,814,098 votes
for, 27,494 votes against and 158,774 votes abstaining.
For further information regarding the forgoing matters submitted to stockholder
approval, see the Company Proxy Statement on Schedule 14A filed with the
Securities and Exchange Commission on April 17, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1) Exhibit 3.1: Certificate of Amendment of Restated Articles of
Incorporation of the Company, dated July 10,
1998 (incorporated by reference to Exhibit
4.2(c) of the Company's Registration
Statement on Form S-3, as filed with the
Commission on July 16, 1998-Registration No.
333-59259).
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 dated January 14, 1998
Item 2 - Acquisition or Disposition of Assets. Acquisition of
Sixty State Street and Corporate 500 Centre.
Item 7 - Financial Statements and Exhibits. Financial
statements reflecting the acquisition of Sixty
State Street and Corporate 500 Centre. Press
release announcing the acquisition of Sixty
State Street and Corporate 500 Centre.
2. Form 8-K dated February 5, 1998
Item 5 - Other Events. Pricing of public offering of 12.5
million shares of Common Stock at $18.50 per share.
Item 7 - Financial Statements and Exhibits. Press release
announcing the pricing of a public offering of 12.5
million shares of Common Stock at $18.50 per share.
3. Form 8-K dated March 27, 1998
Item 7 - Financial Statements and Exhibits. Supplemental
Information to Fourth Quarter 1997 Earnings Release.
26 of 28
<PAGE>
4. Form 8-K dated March 27, 1998
Item 5 - Other Events. Cornerstone's intent to acquire
interests in two California Properties. Cornerstone's
fourth quarter and fiscal year 1997 results.
Item 7 - Financial Statements and Exhibits. Press releases
announcing Cornerstone's intent to acquire interests
in two California Properties and Cornerstone's fourth
quarter and fiscal year 1997 results.
5. Form 8-K dated April 2, 1998
Item 5 - Other Events. Cornerstone closes Chicago Land sale.
Item 7 - Financial Statements and Exhibits. Press release
announcing Cornerstone's closing of Chicago Land
sale.
27 of 28
<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, Chairman and CEO
Date: August 14, 1998
By: /s/ Kevin P. Mahoney
-------------------------------------
Kevin P. Mahoney, Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: August 14, 1998
28 of 28
<PAGE>
Exhibit 12.1
Statement of Computation of Earnings to Fixed Charges and Preferred Stock
Dividend Requirements for the six month periods ended June 30, 1998 and June 30,
1997
<TABLE>
<CAPTION>
For the six months ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Net income $42,006 $13,590
Interest expense 31,667 14,990
------- -------
Earnings before interest 73,673 28,580
Interest expense 31,667 14,990
Preferred dividends 1,750 8,410
------- -------
Fixed charges 33,417 23,400
Earnings to fixed charges and preferred
stock dividend requirements 2.20 1.22
------- -------
------- -------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 28,718
<SECURITIES> 0
<RECEIVABLES> 131,055
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,830
<PP&E> 2,168,536
<DEPRECIATION> 256,003
<TOTAL-ASSETS> 2,476,869
<CURRENT-LIABILITIES> 45,531
<BONDS> 0
0
50,000
<COMMON> 1,370,205
<OTHER-SE> (2,255)
<TOTAL-LIABILITY-AND-EQUITY> 2,476,869
<SALES> 0
<TOTAL-REVENUES> 168,046
<CGS> 0
<TOTAL-COSTS> 120,987
<OTHER-EXPENSES> 5,053
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,667
<INCOME-PRETAX> 42,006
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,006
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,006
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
<PAGE>
Exhibit 99.1
Cornerstone Properties Inc.
Supplemental Information to Quarterly Earnings Release
1) Second Quarter 1998
- Balance Sheet
- Income Statement
2) Second Quarter Press Release
3) Quarterly Fact Sheet
4) Table of Properties
5) Top Ten Tenants Schedule
6) Historical Occupancy Schedule
7) Net Rent and Net Effective Rent Schedule
8) Lease Expiration Schedule
9) Tenant Retention Schedule
10) Leasing Costs and Capital Expenditures
11) Debt Schedule
12) Equity Schedule
13) Minority Sharing in Cash Flows and Residual Proceeds
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Second Quarter 1998
- Balance Sheet
- Income Statement
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at cost:
Land $ 315,498 $ 260,542
Buildings, leasehold interests and improvements 1,853,038 1,559,085
Mortgage notes receivable, inclusive of $9,004 and $13,065 of
unamortized premium 242,819 240,253
Equity in real estate joint venture 2,377 --
Deferred lease costs 136,133 127,645
----------- -----------
2,549,865 2,187,525
Less: Accumulated depreciation and amortization 256,003 229,652
----------- -----------
Total investments 2,293,862 1,957,873
Cash and cash equivalents 28,718 24,730
Restricted cash 6,624 1,903
Other deferred costs, net of accumulated amortization of $2,736 and $1,998 5,967 5,728
Deferred tenant receivables 45,054 38,531
Tenant and other receivables, net 6,488 7,584
Notes receivable 79,513 1,652
Other assets 10,643 13,480
----------- -----------
Total Assets $ 2,476,869 $ 2,051,481
----------- -----------
----------- -----------
LIABILITIES
Long-term debt, inclusive of $12,236 and $11,209 of unamortized premium $ 849,196 $ 706,178
Credit facility 75,000 187,000
Accrued interest payable 7,038 4,134
Accrued real estate taxes payable 17,328 13,401
Accounts payable and accrued expenses 21,165 18,363
Unearned revenue and other liabilities 18,243 10,986
----------- -----------
Total Liabilities 987,970 940,062
----------- -----------
MINORITY INTEREST
Minority Interest in operating partnership 55,934 --
Minority Interest in real estate joint ventures 15,015 15,420
----------- -----------
Total Minority Interest 70,949 15,420
Commitments and Contingencies
Redeemable Preferred Stock; 344,828 shares authorized;
0 shares issued and outstanding -- --
STOCKHOLDERS' INVESTMENT
7% Cumulative Convertible Preferred Stock, $16.50 stated value;
65,000,000 shares authorized; 3,030,303 shares issued and outstanding 50,000 50,000
Common stock, no par value; 250,000,000 shares authorized;
(1998-101,542,254; 1997-83,191,819) shares issued and outstanding
Paid-in capital 1,370,205 1,048,187
Deferred compensation (2,255) (2,188)
----------- -----------
Total Stockholders' Investment 1,417,950 1,095,999
----------- -----------
Total Liabilities and Stockholders' Investment $ 2,476,869 $ 2,051,481
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 2 of 22
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 81,357 $ 35,213 $ 156,540 $ 68,691
Equity in loss of real estate joint venture (1,763) -- (2,688) --
Interest and other income 6,896 3,055 14,194 4,564
--------- --------- --------- ---------
Total Revenues 86,490 38,268 168,046 73,255
--------- --------- --------- ---------
Expenses
Building operating expenses 16,962 7,658 34,051 15,033
Real estate taxes 11,689 5,957 22,866 11,620
Interest expense 15,752 7,353 31,667 14,990
Depreciation and amortization 16,214 7,146 26,859 13,808
General and administrative 2,958 1,628 5,544 3,265
--------- --------- --------- ---------
Total Expenses 63,575 29,742 120,987 58,716
--------- --------- --------- ---------
22,915 8,526 47,059 14,539
--------- --------- --------- ---------
Other income (expenses)
Loss on sale of real estate assets (1,985) -- (2,197) --
Minority interest (1,678) (518) (2,856) (994)
Net gain on interest rate swaps -- -- -- 99
--------- --------- --------- ---------
Income before extraordinary item 19,252 8,008 42,006 13,644
Extraordinary loss -- (28) -- (54)
--------- --------- --------- ---------
Net income $ 19,252 $ 7,980 $ 42,006 $ 13,590
--------- --------- --------- ---------
--------- --------- --------- ---------
Income applicable to preferred stock $ (875) $ (4,205) $ (1,750) $ (8,410)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income applicable to common stock $ 18,377 $ 3,775 $ 40,256 $ 5,180
--------- --------- --------- ---------
--------- --------- --------- ---------
Income before extraordinary item per common share $ 0.18 $ 0.11 $ 0.42 $ 0.19
--------- --------- --------- ---------
--------- --------- --------- ---------
Extraordinary loss per common share $ -- $ -- $ -- $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic income per common share $ 0.18 $ 0.11 $ 0.42 $ 0.19
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted income per common share $ 0.18 $ 0.11 $ 0.42 $ 0.19
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
Page 3 of 22
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Second Quarter Press Release
<PAGE>
FOR IMMEDIATE RELEASE
August 4, 1998
FOR ADDITIONAL INFORMATION, CONTACT:
Kevin Mahoney Karin Maas
Chief Financial Officer VP, Investor Relations
(212) 605-7142 (212) 605-7113
CORNERSTONE PROPERTIES INC.
ANNOUNCES SECOND QUARTER 1998 RESULTS
Second Quarter 1998 Highlights
- - Announced merger with California-based developer William Wilson &
Associates for a total purchase price of $1.77 billion.
- - Funds From Operations per share increased over 17.5% as compared to the
same period in 1997.
- - Year-to-date property net operating income rose 157% over 1997.
- - Occupancy rate remained a solid 98%.
- - Completed the acquisition of One Memorial Drive in Cambridge,
Massachusetts, 201 California Street in San Francisco and 1299 Ocean
Avenue in Santa Monica.
New York, NEW YORK (August 4, 1998) -- Cornerstone Properties Inc. (NYSE:CPP), a
real estate investment trust, announced today results for its second quarter
ended June 30, 1998. Funds from operations (FFO) allocated to shareholders
amounted to $39,308,000, or $0.37 per diluted share, calculated on 107,228,000
average diluted total shares outstanding, compared to $15,325,000, or $0.31 per
diluted share, on 49,124,000 average diluted total shares outstanding for the
three months ended June 30, 1997. Year-to-date FFO per share increased from
$27,566,000 on 42,729,000 weighted average diluted shares outstanding, or $0.65
per diluted share, to $74,024,000 on 102,458,000 weighted average diluted shares
outstanding, or $0.72 per diluted share, an increase of 12.0%.
The increase in FFO per share was due to the accretive impact of the Company's
acquisitions over the past twelve months. 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.
Year-to-date net operating income before depreciation from Cornerstone
Properties' real estate assets increased 157% to $108,091,000 for the six months
ended June 30, 1998, from $42,038,000 for the comparable period in 1997. The
increase is due mainly to the Company's acquisitions.
Net income for the second quarter of 1998 grew to $19,252,000 compared to
$7,980,000 in the second quarter of 1997. Year-to-date net income increased
$42,006,000 compared to $13,590,000 for 1997. The increase was driven by
increased property net operating income from acquisitions and internal growth,
reinforced by growth in real estate net operating income.
John S. Moody, Chairman and CEO of Cornerstone Properties, said, "Cornerstone is
on track for 1998 to be a stellar year for the Company. With $765 million of new
deals so far this year, Cornerstone is ahead of
(more)
<PAGE>
Cornerstone Properties Announces Second Quarter 1998 Earnings
August 4, 1998
Page 2
plan and the announcement of the William Wilson acquisition represents a
watershed in the history of the Company. The combination with Wilson effectively
repositions Cornerstone by significantly increasing our ability to enhance
internal growth. At the same time, Cornerstone continues to benefit from
extremely tight real estate market conditions by increasing revenues in the
short term through the extension of its major leases."
Quarterly Dividend Declared
The Company declared a quarterly dividend of $0.30 per share payable on August
31, 1998 to shareholders of record as of July 31, 1998. 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 82%) in
line with its peers.
"Same Store" Revenue Growth Continues
The Company achieved year-to-date "same store" net operating income growth of
1.90% over 1997. The increase is mainly due to the substantial leasing of space
in 125 Summer Street and the renewal of leases in advance of their expiration,
giving rise to increases in effective rents.
Leasing Update: Tenant Retention Rate 78% and Overall Occupancy Rate 98%
Tenant retention for 1998 decreased to 78%, mainly due to the downsizing of an
existing tenant's lease, however, since the space which was vacated was
immediately leased to a new tenant, there was no loss of revenue from the
downsizing. The portfolio's overall occupancy rate remained at 98%. The Company
has been successful in its goal of bringing the occupancy rate of its newer
properties up to a level that is in line with the remainder of the portfolio.
Occupancy at One Lincoln Centre increased to 96% from 91% since its acquisition
in 1996. Occupancy across the DIHC portfolio has increased from 96% to 98%, in
the eight months since it was acquired.
Cornerstone also announced the expansion and extension of its lease with Perkins
Coie, a major Seattle law firm, which extended its lease from 2004 to 2011 in
Washington Mutual Tower.
Acquisition of One Memorial Drive, 201 California and 1299 Ocean Avenue
Cornerstone announced the acquisition of three properties. On April 27, 1998,
Cornerstone acquired a 100% fee interest in One Memorial Drive, the premier
office building in Boston's Cambridge sub-market, for $113.6 million. The
acquisition was financed with the issue of $60 million in common stock and $29
million of UPREIT units as well as $24.6 million in cash. On June 9, 1998,
Cornerstone announced that it had closed on a 100% fee interest in two Class A
office buildings, the Wilshire Palisades property, located at 1299 Ocean Avenue
in Santa Monica and 201 California located in downtown San Francisco.
Announcement of Merger with William Wilson & Associates
On June 22, 1998, Cornerstone announced that it had agreed to merge with William
Wilson & Associates of San Mateo, California. Cornerstone will acquire the
Wilson operating company and 9.1 million square feet of Wilson's Class A office
buildings in the San Francisco Bay Area, Southern California, Salt Lake City,
and Seattle for an anticipated price of approximately $1.77 billion. It is
expected that Cornerstone will issue to Wilson and its investors approximately
$635 million in shares and operating partnership units, valued at $17.25 per
share, and pay cash for the remaining equity. In addition, Cornerstone will
assume or repay approximately $780 million of existing indebtedness.
(more)
<PAGE>
Cornerstone Properties Announces Second Quarter 1998 Earnings
August 4, 1998
Page 3
Announcement of Forward Purchase of Piper Jaffray Development
On June 24, 1998, Cornerstone announced that it would acquire upon completion a
912,000 square foot office development in downtown Minneapolis for just under
$160 million. The development, to be known as the Piper Jaffray Center, is
approximately 50% pre-leased and is due for completion in April 2000.
Cornerstone Properties Inc. is a self-administered equity real estate investment
trust (REIT) investing exclusively in Class A office properties in prime
locations in major metropolitan areas and central business districts. The
Company, through its subsidiaries, currently owns 21 Class A office properties
throughout the United States totaling approximately 11.5 million square feet.
Headquartered in New York City, Cornerstone's stock is traded on the New York
Stock Exchange under the ticker symbol CPP.
With the exception of the historical information in the release, the matters
described herein contain forward-looking statements that are made pursuant to
the Safe Harbor provision 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 and Exchange Commission.
[Tables to Follow]
# # #
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
For Additional Information, contact:
THE FINANCIAL RELATIONS BOARD
Julie Gottlieb Stephanie Mishra Judith Sylk-Siegel
(General Info) (Analyst Info) (Media Info)
(212) 661-8030 (415) 986-1591 (212) 661-8030
<PAGE>
Cornerstone Properties Announces Second Quarter 1998 Earnings
August 4, 1998
Page 4
CORNERSTONE PROPERTIES INC.
Funds From Operations
June 30, 1998
(in 000s, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Rental Income* $ 88,744 $ 35,213 $ 169,095 $ 68,691
Building Operating Expenses* 31,178 13,615 61,004 26,653
--------- --------- --------- ---------
Building Net Operating Income 57,566 21,598 108,091 42,038
--------- --------- --------- ---------
Corporate General and Administrative (2,958) (1,628) (5,544) (3,265)
Interest and Other Income* 1,584 3,055 5,212 4,564
--------- --------- --------- ---------
EBITDA 56,192 23,025 107,759 43,337
Interest Expense (15,752) (7,353) (31,667) (14,990)
Minority Adjustments (1,709) (884) (3,218) (1,731)
Rent Notes 378 337 746 557
--------- --------- --------- ---------
Funds From Operations 39,109 15,125 73,620 27,173
Interest on Convertible Debt 199 200 404 393
--------- --------- --------- ---------
Funds From Operations (Adjusted for
convertible debt) 39,308 15,325 74,024 27,566
--------- --------- --------- ---------
Weighted Average Fully Diluted Shares 107,228 49,124 102,458 42,729
FFO Per Share (Fully Diluted) 0.37 0.31 0.72 0.65
Less: Capital Expenditures Per Share 0.02 0.02 0.04 0.05
--------- --------- --------- ---------
AFFO Per Share 0.35 0.29 0.69 0.60
--------- --------- --------- ---------
Funds From Operations 39,109 15,125 73,620 27,173
Less: Preferred Dividends (875) (4,205) (1,750) (8,410)
Less: Recurring Lease Costs and Capital
Expenditures ** (1,743) (942) (3,628) (1,961)
Less: Straight Line Rents Adjusted For
Minority Interest (3,763) (378) (6,909) (659)
--------- --------- --------- ---------
Funds Available for Distribution 32,728 9,600 61,333 16,143
--------- --------- --------- ---------
Weighted Average Common Shares
and Units Outstanding 102,963 33,615 98,192 27,237
Funds Available for Distribution Per Share 0.32 0.29 0.62 0.59
Distribution Per Share 0.30 0.30 0.60 0.60
</TABLE>
* For the six months ended June 30, 1998, rental income has been increased by
$12,555,000, building operating expenses have been increased by $4,087,000,
and interest income has been reduced by $8,982,000 in order to show the
effects of Market Square had the property been consolidated.
** Based on a five-year 1994-1998 average of recurring (revenue generating)
tenant leasing costs of $6.97 per square foot leased times the five year
(1998-2002) average quarterly lease expiration, adjusted for minority
interest, of 222,409 square feet ($1,550,000), plus a capital expenditure
reserve (adjusted for minority interest) of $0.08 per square foot
($193,000).
Year to date the Company has incurred $5,496,200 in recurring tenant costs
in leasing 999,523 square feet or a cost of $5.50 per square foot.
Year to date the Company has incurred $5,041,000 in recurring capital costs
or $0.10 per square foot on an annualized basis.
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Quarterly Fact Sheet
<PAGE>
Cornerstone Properties Inc.
Quarterly Fact Sheet
<TABLE>
<CAPTION>
1998 Common Dividends Record Date Payment Date
<S> <C> <C>
3rd Quarter 7/31/98 8/31/98
4th Quarter 10/30/98 11/30/98
1st Quarter 1999 1/29/99 2/26/99
2nd Quarter 1999 4/30/99 5/31/99
- -------------------------------------------------------- ---------- ----------
Earnings Release/ Quarterly Conference Call
3rd Quarter 11/3/98
4th Quarter 2/25/99
1st Quarter 1999 5/4/99
2nd Quarter 1999 8/3/99
- -------------------------------------------------------- ---------- ----------
<CAPTION>
Quarter to Date Year to Date
2nd Quarter Results 1998 1997 1998 1997
<S> <C> <C> <C> <C>
FFO Per Share $ 0.37 $ 0.31 $ 0.72 $ 0.65
AFFO Per Share $ 0.35 $ 0.29 $ 0.69 $ 0.60
FAD Per Share $ 0.32 $ 0.29 $ 0.62 $ 0.59
FFO Payout Ratio 82% 96% 83% 93%
AFFO Payout Ratio 86% 102% 87% 100%
FAD Payout Ratio 94% 105% 96% 101%
Same Store NOI Growth NA NA 1.90% 0.95%
EBITDA Interest Coverage 3.52 3.12 3.35 2.88
Fixed Charge Coverage 3.33 1.97 3.18 1.83
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Recurring Leasing Costs (Adjusted for minority interest) $2,068,799 $2,377,491 $5,496,200 4,150,408
Per Square Foot Leased $ 4.12 $ 6.62 $ 5.50 $ 6.32
Recurring Capital Expenditures $ 357,018 $ 35,012 $ 490,371 $ 61,640
Non- Recurring Leasing Cost $1,665,345 $ 182,750 $2,698,000 $ 853,192
Non- Recurring Capital Expenditures $ 132,103 $ 74,389 $ 274,000 $ 74,389
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Parking Revenues (included in Office and Parking) $5,116,162 $1,599,723 $9,975,684 $3,182,649
Parking Expense (included in Building Operating Expense) $ 727,070 $ 235,935 $1,366,000 $ 459,346
Net Parking Income $4,389,092 $1,363,788 $8,609,684 $2,723,303
- -------------------------------------------------------- ---------- ---------- ---------- ----------
Straight Line Rents $3,763,000 $ 378,457 $6,909,000 $ 659,039
- -------------------------------------------------------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Table of Properties
<PAGE>
Cornerstone Properties Inc.
Table of Properties
As of June 30, 1998
<TABLE>
<CAPTION>
Remaining
Average
Total Lease
Company's Rentable Number Term
Property Name Year Percent Square Occupancy of (in Largest
and Location Constructed Interest Feet Rate Leases Years) Tenant
- ----------------------------- ----------- --------- -------- --------- ------ -------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center 1983 100% 1,188,000 97% 48 8.1 Norwest Bank Denver N.A.
Denver, Colorado Newmont Gold Company
Teletech, Inc.
Norwest Center(1) 1988 50% 1,118,000 98% 28 11.2 Norwest Corporation
Minneapolis, Minnesota Faegre & Benson
KPMG Peat Marwick
Washington Mutual Tower(2)(3) 1988 50% 1,155,000 99% 87 6.1 Perkins Coie
Seattle, Washington Washington Mutual
Karr Tuttle Campbell
125 Summer Street 1989 100% 464,000 98% 24 4.3 Deloitte & Touche
Boston, Massachusetts BTM Capital Corp.
Burns & Levinson
Tower 56(4) 1983 100% 162,000 100% 45 3.2 Cornerstone Properties
New York, New York ICC Associates, L.P.
United Bank of Kuwait
One Lincoln Centre 1986 100% 297,000 96% 38 2.5 Superior Bank FSB
Oakbrook Terrace, IL Microsoft Corporation
McDonald's Corporation
527 Madison Avenue 1986 100% 216,000 100% 20 5.1 The Sumitomo Trust & Banking Co., Ltd.
New York, NY W.P. Stewart Co., Inc.
Hill Samuel New York, Inc.
191 Peachtree Street(5)(6) 1991 80% 1,221,000 97% 36 8.0 Wachovia Bank
Atlanta, Georgia King & Spalding
Powell, Goldstein, Frazer & Murphy
Market Square(5)(7) 1990 60% 689,000 96% 49 6.9 Fulbright & Jaworski
Washington, D.C Edison Electric Institute
Reid & Priest
Shearman & Sterling
500 Boylston Street(5)(8) 1988 91.5% 715,000 100% 14 6.0 Massachusetts Financial Services
Boston, Massachusetts The New England Life
Towers Perrin Forster & Crosby, Inc.
222 Berkeley Street(5)(8) 1991 91.5% 531,000 100% 27 6.6 Houghton Mifflin
Boston, Massachusetts Saga International Holidays
Oracle Corporation
Charlotte Plaza(5) 1982 100% 613,000 98% 43 6.3 First Union
Charlotte, North Carolina Parker Poe
Midrex
200 Galleria(5) 1985 100% 433,000 93% 57 3.6 Liberty Mutual Group
Atlanta, Georgia Worldspan
Compaq Computers
11 Canal Center(5) 1986 100% 70,000 96% 7 7.9 Robbins Gioa
Alexandria, Virginia National Certification Commission
on Acupuncture and Oriental Medicine
99 Canal Center(5) 1986 100% 138,000 100% 18 3.7 Lowe, Price, LeBlanc & Becker
Alexandria, Virginia Howard, Needles, Tannen & Bergendoff
National District Attorney's Association
TransPotomac Plaza 5(5) 1983 100% 96,000 100% 11 6.0 Cities In Schools
Alexandria, Virginia The Onyx Group
The Hawthorn Group
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Table of Properties
As of June 30, 1998
<TABLE>
<CAPTION>
Remaining
Average
Total Lease
Company's Rentable Number Term
Property Name Year Percent Square Occupancy of (in Largest
and Location Constructed Interest Feet Rate Leases Years) Tenant
- ----------------------------- ----------- --------- ---------- --------- ------ ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sixty State Street(9) 1979 100% 823,000 98% 41 8.5 Hale & Dorr
Boston, Massachusetts The Pioneer Group, Inc.
ITT/Sheraton
Corporate 500 Centre(10) 1986/1990 100% 679,000 89% 37 6.3 MMI Companies, Inc.
Deerfield, Illinois Fortune Brands
Gaylord Container
One Memorial Drive(11) 1987 100% 353,000 100% 13 8.4 Sapient Corporation
Cambridge, Massachusetts InterSystems Corporation
David L. Babson, Inc.
201 California Street(12) 1980 100% 240,000 100% 8 3.1 Bank of America
San Francisco, California Sutro & Company
McCann Erickson, Inc.
Wilshire Palisades(12) 1981 100% 186,000 100% 16 4.1 Wilshire Associates, Inc.
Santa Monica, California Paul Hastings Janofsky Walker
Dimensional Fund Advisors
--------- ---------- --------- ------ --------
85% 11,387,000 98% 667 6.9
--------- ---------- --------- ------ --------
--------- ---------- --------- ------ --------
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Table of Properties
Footnotes
- --------------------
(1) While the Company's stated interest in the partnership which owns Norwest
Center is 50%, its economic interest in the Property is significantly
larger because of priority distributions it receives on its invested
capital base. For the six months ended June 30, 1998, the Company's share
of earnings and cash distributions from the partnership that owns Norwest
Center was 79.3%.
(2) While the Company's stated interest in the partnership which owns
Washington Mutual Tower is 50%, its economic interest in the Property is
significantly larger because of priority distributions it receives on its
invested capital base. For the six months ended June 30, 1998, the Company
received 100% of the cash distributions from the partnership that owns
Washington Mutual Tower.
(3) Includes the Galland and Seneca Buildings.
(4) The Company's headquarters are located at Tower 56.
(5) Property acquired in the DIHC Acquisition.
(6) While the Company's stated interest in the partnership that owns 191
Peachtree Street is 80%, its economic interest is significantly larger
since it has acquired the first mortgage note on the Property in the amount
of $145 million, which earns interest at 9.375%, and will receive a
priority distribution on its acquired capital base. In addition, in 1997,
the partner in the transaction, CH Associates, Ltd., received an annual
incentive distribution of $250,000 which, the Company expects, it will
continue to receive under the partnership agreement through February 28,
2000, with the Company receiving the remainder of the cash flow of the
property.
(7) In January 1998, the Company acquired partnership interests with a stated
interest of approximately 59% in the partnerships that own Market Square,
with the option to purchase an additional 1%. The Company's economic
interest is significantly larger since it has acquired the first mortgage
note on the Property in the amount of $181 million which earns interest at
9.75%, and will receive a priority distribution on its acquired capital
base. In addition, the Company acquired a "buffer loan", with accrued
principal and interest of $46.2 million, which accrues interest at a rate
of 11% per annum and is payable from cash flow, refinancing or sales
proceeds from Market Square in excess of the first mortgage. During the six
months ended June 30, 1998, the Company received 100% of the cash flow from
the Property. The Company accounts for the transaction as an equity
investment in real estate.
(8) Distributions of cash flow and sales and refinancing proceeds are shared in
proportion to the Company's 91.5% partnership interest and Hines Interests
Limited Partnership's and/or its affiliates' ("Hines") 8.5% partnership
interest.
(9) On December 31, 1997, the Company purchased the second mortgage on Sixty
State Street located in the heart of Boston's Central Business District.
The mortgage is a cash flow mortgage through which all the economic
benefits/risks (subject to the first mortgage) will inure to the Company.
The Company controls all major decisions regarding management and leasing.
The total purchase price for the second mortgage was $131.5 million. The
$78.4 million first mortgage on the Property has been recorded by the
Company as an $89.6 million liability due to its above-market interest
rate.
(10) The Property was acquired by the Company in January 1998.
(11) The Property was acquired by the Company in April 1998.
(12) The Properties were acquired by the Company in June 1998.
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Top Ten Tenants Schedule
<PAGE>
Cornerstone Properties Inc.
Top Ten Tenants Schedule
As of June 30, 1998
The Company's tenants include local, regional, national and international
companies engaged in a wide variety of businesses. The following table sets
forth, as of June 30, 1998, information concerning the ten largest tenants
(ranked by Full Service Straight-Line Rent as of that date) occupying the
Properties. "Full Service Straight-Line Rent" is Straight-Line Rent plus annual
operating expense recoveries. "Straight-Line Rent" means the annual average of
all Actual Rent required to be paid through the term of the lease, calculated in
accordance with GAAP. Full Service Straight-Line Rent does not reflect the cost
of any leasing commissions or tenant improvements.
<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) $ 20,534,000 $11,118,000 $ 31,652,000 9% Jan-99 14,000
Mar-99 19,000
Aug-01 7,000
Jul-03 143,000
Oct-04 6,000
Jul-13 402,000
Aug-18 451,000
---------
1,042,000
Massachusetts Financial Services(1) 9,853,000 4,585,000 14,438,000 4% Feb-03 359,000
Wachovia Bank(1) 8,919,000 3,396,000 12,315,000 4% Dec-08 380,000
Hale & Dorr(1) 7,345,000 3,683,000 11,028,000 3% Jun-13 273,000
King & Spalding(1) 8,202,000 2,605,000 10,807,000 3% Mar-06 314,000
Deloitte & Touche(1) 7,259,000 1,651,000 8,910,000 3% Oct-99 145,000
Jun-08 85,000
---------
230,000
The New England Life(1) 5,170,000 2,784,000 7,954,000 2% Sep-08 218,000
Houghton Mifflin(1) 3,456,000 3,188,000 6,644,000 2% Feb-07 247,000
First Union(2)(4) 5,921,000 157,000 6,078,000 2% Mar-99 23,000
Jun-00 27,000
Aug-00 23,000
Mar-01 23,000
Aug-01 46,000
Feb-02 23,000
Sep-02 22,000
Aug-08 46,000
Mar-09 23,000
Mar-10 47,000
Mar-11 48,000
---------
351,000
Perkins Coie(2) 5,313,000 428,000 5,741,000 2% Jul-98 7,000
Dec-98 2,000
Jul-04 32,000
Dec-11 167,000
---------
208,000
------------ ------------ ------------
$ 81,972,000 $33,595,000 $115,567,000 34% 3,622,000
------------ ------------ ------------ --------
------------ ------------ ------------ --------
Total Portfolio $260,829,000 $78,596,000 $339,425,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Top Ten Tenants Schedule
Footnotes
- --------------------
(1) Net Lease.
(2) Gross Lease.
(3) Norwest Corporation includes Norwest Corporation and Norwest Bank Denver
N.A.
(4) The 351,000 square feet of space includes 115,000 square feet currently
leased to another tenant, which will be leased by First Union commencing
September 1, 1998.
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Historical Occupancy Schedule
<PAGE>
Cornerstone Properties Inc.
Historical Occupancy Schedule
As of June 30, 1998
<TABLE>
<CAPTION>
Total Bldg.
Sq. Ft. 1994 1995 1996 1997 Q2 1998
------- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center 1,188,000 96% 98% 99% 99% 97%
Norwest Center 1,118,000 100% 100% 100% 98% 98%
Washington Mutual Tower 1,155,000 97% 97% 97% 97% 99%
125 Summer Street 464,000 94% 100% 99% 98%
Tower 56 162,000 91% 97% 98% 100%
One Lincoln Centre 297,000 91% 96% 96%
527 Madison Avenue 216,000 96% 100% 100%
191 Peachtree Street 1,221,000 95% 97%
Market Square 689,000 95% 96%
500 Boylston Street 715,000 100% 100%
222 Berkeley Street 531,000 100% 100%
Charlotte Plaza 613,000 94% 98%
200 Galleria 433,000 91% 93%
11 Canal Center 70,000 84% 96%
99 Canal Center 138,000 99% 100%
TransPotomac Plaza 5 96,000 99% 100%
Sixty State Street 823,000 98% 98%
Corporate 500 Centre 679,000 89%
One Memorial Drive 353,000 100%
201 California Street 240,000 100%
Wilshire Palisades 186,000 100%
---------- --- --- --- --- ---
11,387,000 98% 98% 97% 97% 98%
---------- --- --- --- --- ---
---------- --- --- --- --- ---
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Net Rent and Net Effective Rent Schedule
<PAGE>
Cornerstone Properties Inc.
Net Rent and Net Effective Rent Schedule
As of June 30, 1998
The following tables show the average annual Base Rent and the average annual
Net Effective Rent (each as defined below) per square foot occupied for each of
the Properties for the periods presented during which such Property was owned by
the Company. "Base Rent" as used herein means Actual Rent less Recoveries. "Net
Effective Rent" as used herein means (i) Actual Rent determined for each year on
a straight-line basis through the term of the lease, less (ii) the amount of
operating expenses net of Recoveries and the amortization of deferred leasing
costs (tenant improvements, leasing commissions, takeover obligations and other
tenant inducements).
Average Annual Base Rent (per square foot occupied)
<TABLE>
<CAPTION>
Total Bldg.
Sq. Ft. Q2 1998 1997 1996 1995 1994
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center 1,188,000 $ 12.36 $ 12.46 $ 12.08 $ 11.78 $ 11.61
Norwest Center 1,118,000 $ 18.61 $ 18.29 $ 1[cad 179]7.94 $ 17.82 $ 17.25
Washington Mutual Tower 1,155,000 $ 15.82 $ 15.77 $ 15.98 $ 16.17 $ 15.27
125 Summer Street 464,000 $ 23.19 $ 21.27 $ 23.24 $ 22.48
Tower 56 162,000 $ 21.89 $ 22.76 $ 20.45
One Lincoln Centre 297,000 $ 20.78 $ 19.60 $ 18.56
527 Madison Avenue 216,000 $ 31.82 $ 36.55 $ 35.47
191 Peachtree Street 1,221,000 $ 20.47 $ 21.07
Market Square 689,000 $ 26.60
500 Boylston Street 715,000 $ 26.06 $ 25.89
222 Berkeley Street 531,000 $ 16.89 $ 16.68
Charlotte Plaza 613,000 $ 10.91 $ 9.35
200 Galleria 433,000 $ 14.25 $ 12.92
11 Canal Center 70,000 $ 14.95 $ 14.11
99 Canal Center 138,000 $ 14.46 $ 14.49
TransPotomac Plaza 5 96,000 $ 12.37 $ 12.55
Sixty State Street 823,000 $ 19.32
Corporate 500 Centre 679,000 $ 21.42
One Memorial Drive 353,000 $ 14.17
201 California Street 240,000 $ 15.45
Wilshire Palisades 186,000 $ 30.82
---------- -------- ------- ------- ------- -------
Weighted Average 11,387,000 $ 18.79 $ 17.46 $ 16.99 $ 16.06 $ 14.65
---------- -------- ------- ------- ------- -------
---------- -------- ------- ------- ------- -------
</TABLE>
Average Annual Net Effective Rents (per square foot occupied)
<TABLE>
<CAPTION>
Total Bldg.
Sq. Ft. Q2 1998 1997 1996 1995 1994
---------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center 1,188,000 $ 12.10 $ 11.66 $ 10.80 $ 10.56 $ 10.25
Norwest Center 1,118,000 $ 16.76 $ 17.23 $ 17.43 $ 17.31 $ 17.00
Washington Mutual Tower 1,155,000 $ 12.55 $ 12.02 $ 11.80 $ 11.83 $ 11.03
125 Summer Street 464,000 $ 21.50 $ 20.00 $ 22.27 $ 23.33
Tower 56 162,000 $ 22.64 $ 21.56 $ 21.17
One Lincoln Centre 297,000 $ 21.55 $ 19.76 $ 19.70
527 Madison Avenue 216,000 $ 33.57 $ 36.89 $ 30.99
191 Peachtree Street 1,221,000 $ 23.62 $ 24.26
Market Square 689,000 $ 28.56
500 Boylston Street 715,000 $ 26.23 $ 26.08
222 Berkeley Street 531,000 $ 18.34 $ 18.08
Charlotte Plaza 613,000 $ 11.19 $ 9.76
200 Galleria 433,000 $ 14.59 $ 13.52
11 Canal Center 70,000 $ 15.59 $ 14.72
99 Canal Center 138,000 $ 14.89 $ 15.00
TransPotomac Plaza 5 96,000 $ 13.56 $ 14.29
Sixty State Street 823,000 $ 23.42
Corporate 500 Centre 679,000 $ 23.29
One Memorial Drive 353,000 $ 17.02
201 California Street 240,000 $ 15.68
Wilshire Palisades 186,000 $ 33.13
---------- ------- ------- ------- ------- -------
Weighted Average 11,387,000 $ 19.37 $ 17.28 $ 15.43 $ 14.37 $ 12.69
---------- ------- ------- ------- ------- -------
---------- ------- ------- ------- ------- -------
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Lease Expiration Schedule
<PAGE>
Lease Expiration Schedule
The following table sets forth certain categories of information relating to
lease expirations for all of the Properties owned as of June 30, 1998.
<TABLE>
<CAPTION>
Q3-Q4
PROPERTY 1998 1999 2000 2001
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
One Norwest Center (1) Square feet expiring(3) 7,000 sf 61,000 sf 122,000 sf 57,000sf
Straight-Line rent(4) $ 46,000 $ 568,000 $ 1,085,000 $ 615,000
Straight-Line rent per sq. ft $ 6.57 $ 9.31 $ 8.89 $ 10.79
Recoveries (5) $ 43,000 $ 377,000 $ 750,000 $ 352,000
Full service St-Line rent(6) $ 89,000 $ 945,000 $ 1,835,000 $ 967,000
Full service St-Line rent per sq. ft $ 12.71 $ 15.49 $ 15.04 $ 16.96
% Full service St-Lined rent 0.40% 4.28% 8.30% 4.38%
Asking market rent per sq. ft.(7) $ 22.00
No. of tenant leases expiring(8) 3 5 7 6
Norwest Center(1) Square feet expiring 27,000 sf 41,000 sf 104,000 sf 5,000sf
Straight-Line rent $ 232,000 $ 601,000 $ 1,655,000 $ 82,000
Straight-Line rent per sq. ft $ 8.59 $ 14.66 $ 15.91 $ 16.40
Recoveries $ 389,000 $ 563,000 $ 1,589,000 $ 72,000
Full service St-Line rent $ 621,000 $ 1,164,000 $ 3,244,000 $ 154,000
Full service St-Line rent per sq. ft $ 23.00 $ 28.39 $ 31.19 $ 30.80
% Full service St-Lined rent 1.58% 2.95% 8.23% 0.39%
Asking market rent per sq. ft $ 35.00
No. of tenant leases expiring 8 4 4 2
Washington Mutual Tower(2) Square feet expiring 54,000 sf 145,000 sf 52,000 sf 49,000sf
Straight-Line rent $ 995,000 $ 2,653,000 $ 812,000 $1,093,000
Straight-Line rent per sq. ft $ 18.43 $ 18.30 $ 15.62 $ 22.31
Recoveries $ 52,000 $ 118,000 $ 37,000 $ 35,000
Full service St-Line rent $ 1,047,000 $ 2,771,000 $ 849,000 $1,128,000
Full service St-Line rent per sq. ft $ 19.39 $ 19.11 $ 16.33 $ 23.02
% Full service St-Lined rent 4.02% 10.65% 3.26% 4.34%
Asking market rent per sq. ft $ 33.00
No. of tenant leases expiring 15 17 11 12
125 Summer Street(2) Square feet expiring 3,000 sf 171,000 sf 33,000 sf 3,000sf
Straight-Line rent $ 54,000 $ 6,004,000 $ 1,109,000 $ 38,000
Straight-Line rent per sq. ft $ 18.00 $ 35.11 $ 33.61 $ 12.67
Recoveries $ 25,000 $ 1,191,000 $ 136,000 $ 37,000
Full service St-Line rent $ 79,000 $ 7,195,000 $ 1,245,000 $ 75,000
Full service St-Line rent per sq. ft $ 26.33 $ 42.08 $ 37.73 $ 25.00
% Full service St-Lined rent 0.48% 43.69% 7.56% 0.46%
Asking market rent per sq. ft $ 44.00
No. of tenant leases expiring 3 5 5 1
Tower 56(2) Square feet expiring 8,000 sf 27,000 sf 17,000 sf 44,000sf
Straight-Line rent $ 329,000 $ 1,191,000 $ 720,000 $1,878,000
Straight-Line rent per sq. ft $ 41.13 $ 44.11 $ 42.35 $ 42.68
Recoveries $ 8,000 $ 27,000 $ 17,000 $ 44,000
Full service St-Line rent $ 337,000 $ 1,218,000 $ 737,000 $1,922,000
Full service St-Line rent per sq. ft $ 42.13 $ 45.11 $ 43.35 $ 43.68
% Full service St-Lined rent 4.59% 16.61% 10.05% 26.20%
Asking market rent per sq. ft $ 54.00
No. of tenant leases expiring 3 7 7 11
One Lincoln Centre(1) Square feet expiring 9,000 sf 64,000 sf 78,000 sf 11,000sf
Straight-Line rent $ 173,000 $ 1,116,000 $1,441,000 $ 205,000
Straight-Line rent per sq. ft $ 19.22 $ 17.44 $ 18.47 $ 18.64
Recoveries $ 85,000 $ 586,000 $ 654,000 $ 103,000
Full service St-Line rent $ 258,000 $ 1,702,000 $2,095,000 $ 308,000
Full service St-Line rent per sq. ft $ 28.67 $ 26.59 $ 26.86 $ 28.00
% Full service St-Lined rent 3.46% 22.85% 28.12% 4.13%
Asking market rent per sq. ft $ 30.00
No. of tenant leases expiring 3 8 12 3
527 Madison Avenue(2) Square feet expiring 12,000 sf 2,000 sf 9,000 sf 78,000sf
Straight-Line rent $ 647,000 $ 108,000 $ 380,000 $4,511,000
Straight-Line rent per sq. ft $ 53.92 $ 54.00 $ 42.22 $ 57.83
Recoveries $ 81,000 $ 9,000 $ -- $ 473,000
Full service St-Line rent $ 728,000 $ 117,000 $ 380,000 $4,984,000
Full service St-Line rent per sq. ft $ 60.67 $ 58.50 $ 42.22 $ 63.90
% Full service St-Lined rent 6.01% 0.97% 3.14% 41.16%
Asking market rent per sq. ft $ 53.00
No. of tenant leases expiring 3 1 2 1
====================
PROPERTY 2002 2003 2004 2005
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
One Norwest Center (1) Square feet expiring(3) 122,000 sf 182,000 sf 118,000 sf
Straight-Line rent(4) $ 1,137,000 $ 2,418,000 $ 1,469,000
Straight-Line rent per sq. ft $ 9.32 $ 13.29 $ 12.45
Recoveries (5) $ 753,000 $ 1,145,000 $ 735,000
Full service St-Line rent(6) $ 1,890,000 $ 3,563,000 $ 2,204,000
Full service St-Line rent per sq. ft $ 15.49 $ 19.58 $ 18.68
% Full service St-Lined rent 8.55% 16.12% 9.97%
Asking market rent per sq. ft.(7)
No. of tenant leases expiring(8) 14 7 2
Norwest Center(1) Square feet expiring 53,000 sf 184,000 sf 159,000 sf
Straight-Line rent $ 455,000 $ 2,845,000 $ 2,800,000
Straight-Line rent per sq. ft $ 8.58 $ 15.46 $ 17.61
Recoveries $ 782,000 $ 2,842,000 $ 2,430,000
Full service St-Line rent $ 1,237,000 $ 5,687,000 $ 5,230,000
Full service St-Line rent per sq. ft $ 23.34 $ 30.91 $ 32.89
% Full service St-Lined rent 3.14% 14.43% 13.27%
Asking market rent per sq. ft
No. of tenant leases expiring 3 2 3
Washington Mutual Tower(2) Square feet expiring 111,000 sf 255,000 sf 127,000 sf 14,000 sf
Straight-Line rent $ 2,460,000 $ 5,200,000 $ 2,869,000 $ 275,000
Straight-Line rent per sq. ft $ 22.16 $ 20.39 $ 22.59 $ 19.64
Recoveries $ 27,000 $ 265,000 $ 104,000 $ 5,000
Full service St-Line rent $ 2,487,000 $ 5,465,000 $ 2,973,000 $ 280,000
Full service St-Line rent per sq. ft $ 22.41 $ 21.43 $ 23.41 $ 20.00
% Full service St-Lined rent 9.56% 21.01% 11.43% 1.08%
Asking market rent per sq. ft
No. of tenant leases expiring 8 15 5 2
125 Summer Street(2) Square feet expiring 128,000 sf 24,000 sf 10,000 sf
Straight-Line rent $ 1,723,000 $ 491,000 $ 274,000
Straight-Line rent per sq. ft $ 13.46 $ 20.46 $ 27.40
Recoveries $ 1,789,000 $ 253,000 $ 17,000
Full service St-Line rent $ 3,512,000 $ 744,000 $ 291,000
Full service St-Line rent per sq. ft $ 27.44 $ 31.00 $ 29.10
% Full service St-Lined rent 21.33% 4.52% 1.77%
Asking market rent per sq. ft
No. of tenant leases expiring 5 3 1
Tower 56(2) Square feet expiring 33,000 sf 15,000 sf 18,000 sf
Straight-Line rent $1,615,000 $ 705,000 $ 734,000
Straight-Line rent per sq. ft $ 48.94 $ 47.00 $ 40.78
Recoveries $ 33,000 $ 15,000 $ 19,000
Full service St-Line rent $1,648,000 $ 720,000 $ 753,000
Full service St-Line rent per sq. ft $ 49.94 $ 48.00 $ 41.83
% Full service St-Lined rent 22.47% 9.82% 10.27%
Asking market rent per sq. ft
No. of tenant leases expiring 9 4 4
One Lincoln Centre(1) Square feet expiring 81,000 sf 20,000 sf
Straight-Line rent $ 1,751,000 $ 347,000
Straight-Line rent per sq. ft $ 21.62 $ 17.35
Recoveries $ 741,000 $ 247,000
Full service St-Line rent $ 2,492,000 $ 594,000
Full service St-Line rent per sq. ft $ 30.77 $ 29.70
% Full service St-Lined rent 33.45% 7.97%
Asking market rent per sq. ft
No. of tenant leases expiring 7 5
527 Madison Avenue(2) Square feet expiring 4,000 sf 36,000 sf 8,000 sf* 6,000 sf
Straight-Line rent $ 180,000 $ 1,514,000 $ 1,140,000 $ 277,000
Straight-Line rent per sq. ft $ 45.00 $ 42.06 $ 142.50 $ 46.17
Recoveries $ -- $ 45,000 $ 7,000 $ --
Full service St-Line rent $ 180,000 $ 1,559,000 $ 1,147,000 $ 277,000
Full service St-Line rent per sq. ft $ 45.00 $ 43.31 $ 143.31 $ 46.17
% Full service St-Lined rent 1.49% 12.87% 9.47% 2.29%
Asking market rent per sq. ft
No. of tenant leases expiring 1 4 1 1
====================
2008
and
PROPERTY 2006 2007 Beyond Total
- -------- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
One Norwest Center (1) Square feet expiring(3) 77,000 sf 407,000 sf 1,153,000 sf
Straight-Line rent(4) $ 1,119,000 $ 6,432,000 $14,889,000
Straight-Line rent per sq. ft $ 14.53 $ 15.80 $ 12.91
Recoveries (5) $ 478,000 $ 2,579,000 $ 7,212,000
Full service St-Line rent(6) $ 1,597,000 $ 9,011,000 $22,101,000
Full service St-Line rent per sq. ft $ 20.74 $ 22.14 $ 19.17
% Full service St-Lined rent 7.23% 40.77% 100.00%
Asking market rent per sq. ft.(7)
No. of tenant leases expiring(8) 2 2 48
Norwest Center(1) Square feet expiring 527,000 sf 1,100,000 sf
Straight-Line rent $13,738,000 $22,408,000
Straight-Line rent per sq. ft $ 26.07 $ 20.37
Recoveries $ 8,325,000 $16,992,000
Full service St-Line rent $22,063,000 $39,400,000
Full service St-Line rent per sq. ft $ 41.87 $ 35.82
% Full service St-Lined rent 56.00% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 2 28
Washington Mutual Tower(2) Square feet expiring 138,000 sf 199,000 sf 1,144,000sf
Straight-Line rent $ 2,653,000 $ 5,605,000 $24,615,000
Straight-Line rent per sq. ft $ 19.22 $ 28.17 $ 21.52
Recoveries $ 276,000 $ 482,000 $ 1,401,000
Full service St-Line rent $ 2,929,000 $ 6,087,000 $26,016,000
Full service St-Line rent per sq. ft $ 21.22 $ 30.59 $ 22.74
% Full service St-Lined rent 11.26% 23.40% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 1 87
125 Summer Street(2) Square feet expiring 85,000 sf 457,000 sf
Straight-Line rent $ 2,115,000 $11,808,000
Straight-Line rent per sq. ft $ 24.88 $ 25.84
Recoveries $ 1,212,000 $ 4,660,000
Full service St-Line rent $ 3,327,000 $16,468,000
Full service St-Line rent per sq. ft $ 39.14 $ 36.04
% Full service St-Lined rent 20.20% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 24
Tower 56(2) Square feet expiring 162,000 sf
Straight-Line rent $7,172,000
Straight-Line rent per sq. ft $ 44.27
Recoveries $ 163,000
Full service St-Line rent $7,335,000
Full service St-Line rent per sq. ft $ 45.28
% Full service St-Lined rent 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 45
One Lincoln Centre(1) Square feet expiring 263,000 sf
Straight-Line rent $5,033,000
Straight-Line rent per sq. ft $ 19.14
Recoveries $2,416,000
Full service St-Line rent $7,449,000
Full service St-Line rent per sq. ft $ 28.32
% Full service St-Lined rent 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 38
527 Madison Avenue(2) Square feet expiring 27,000 sf 33,000 sf 215,000 sf
Straight-Line rent $ 1,119,000 $ 1,613,000 $11,489,000
Straight-Line rent per sq. ft $ 41.44 $ 48.88 $ 53.44
Recoveries $ 1,000 $ 4,000 $ 620,000
Full service St-Line rent $ 1,120,000 $ 1,617,000 $12,109,000
Full service St-Line rent per sq. ft $ 41.48 $ 49.00 $ 56.32
% Full service St-Lined rent 9.25% 13.35% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 4 2 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Q3-Q4
PROPERTY 1998 1999 2000 2001
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
191 Peachtree Street(1) Square feet expiring 10,000 sf 2,000 sf 6,000 sf 141,000 sf
Straight-Line rent $ 76,000 $ 23,000 $ 68,000 $ 2,681,000
Straight-Line rent per sq. ft $ 7.60 $ 11.50 $ 11.33 $ 19.01
Recoveries $ 50,000 $ 10,000 $ 62,000 $ 1,234,000
Full service St-Line rent $ 126,000 $ 33,000 $ 130,000 $ 3,915,000
Full service St-Line rent per sq. ft $ 12.60 $ 16.50 $ 21.67 $ 27.77
% Full service St-Lined rent 0.33% 0.09% 0.35% 10.40%
Asking market rent per sq. ft $ 26.00
No. of tenant leases expiring 3 1 4 7
Market Square(2) Square feet expiring 55,000 sf 7,000 sf 50,000 sf 88,000 sf
Straight-Line rent $ 1,812,000 158,000 $ 1,414,000 $ 3,378,000
Straight-Line rent per sq. ft $ 32.95 $ 22.57 $ 28.28 $ 38.39
Recoveries $ 4,000 $ -- $ 345,000 $ 549,000
Full service St-Line rent $ 1,816,000 $ 158,000 $ 1,759,000 $ 3,927,000
Full service St-Line rent per sq. ft $ 33.02 $ 22.57 $ 35.18 $ 44.63
% Full service St-Lined rent 6.62% 0.58% 6.42% 14.32%
Asking market rent per sq. ft $ 46.00
No. of tenant leases expiring 3 2 7 8
500 Boylston Street(1) Square feet expiring 1,000 sf 75,000 sf
Straight-Line rent $ 10,000 $ 2,218,000
Straight-Line rent per sq. ft $ 10.00 $ 29.57
Recoveries $ 6,000 $ 876,000
Full service St-Line rent $ 16,000 $ 3,094,000
Full service St-Line rent per sq. ft $ 16.00 $ 41.25
% Full service St-Lined rent 0.06% 11.21%
Asking market rent per sq. ft $ 45.00
No. of tenant leases expiring 1 4
222 Berkeley Street(1) Square feet expiring 11,000 sf 36,000 sf 76,000 sf
Straight-Line rent $ 258,000 $ 582,000 $ 2,126,000
Straight-Line rent per sq. ft $ 23.45 $ 16.17 $ 27.97
Recoveries $ 109,000 $ 458,000 $ 878,000
Full service St-Line rent $ 367,000 $ 1,040,000 $ 3,004,000
Full service St-Line rent per sq. ft $ 33.36 $ 28.89 $ 39.53
% Full service St-Lined rent 2.19% 6.20% 17.90%
Asking market rent per sq. ft $ 45.00
No. of tenant leases expiring 3 3 7
Charlotte Plaza(2) Square feet expiring 27,000 sf 33,000 sf 53,000 sf 70,000 sf
Straight-Line rent $ 449,000 $ 626,000 $ 939,000 $ 1,187,000
Straight-Line rent per sq. ft $ 16.63 $ 18.97 $ 17.72 $ 16.96
Recoveries $ 15,000 $ 18,000 $ 21,000 $ 25,000
Full service St-Line rent $ 464,000 $ 644,000 $ 960,000 $ 1,212,000
Full service St-Line rent per sq. ft $ 17.19 $ 19.52 $ 18.11 $ 17.31
% Full service St-Lined rent 4.47% 6.20% 9.24% 11.67%
Asking market rent per sq. ft $ 24.00
No. of tenant leases expiring 6 6 4 2
200 Galleria(2) Square feet expiring 11,000 sf 24,000 sf 68,000 sf 55,000 sf
Straight-Line rent $ 205,000 $ 488,000 $ 1,573,000 $ 1,150,000
Straight-Line rent per sq. ft $ 18.64 $ 20.33 $ 23.13 $ 20.91
Recoveries $ 1,000 $ 17,000 $ 54,000 $ 34,000
Full service St-Line rent $ 206,000 $ 505,000 $ 1,627,000 $ 1,184,000
Full service St-Line rent per sq. ft $ 18.73 $ 21.04 $ 23.93 $ 21.53
% Full service St-Lined rent 2.26% 5.55% 17.89% 13.02%
Asking market rent per sq. ft $ 27.00
No. of tenant leases expiring 6 4 15 12
11 Canal Center(2) Square feet expiring 3,000 sf 2,000 sf 1,000 sf
Straight-Line rent $ 67,000 $ 40,000 $ 37,000
Straight-Line rent per sq. ft $ 22.33 $ 20.00 $ 37.00
Recoveries $ -- $ 1,000 $ --
Full service St-Line rent $ 67,000 $ 41,000 $ 37,000
Full service St-Line rent per sq. ft $ 22.33 $ 20.50 $ 37.00
% Full service St-Lined rent 4.02% 2.46% 2.22%
Asking market rent per sq. ft $ 27.00
No. of tenant leases expiring 1 1 1
=================
<CAPTION>
PROPERTY 2002 2003 2004 2005
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
191 Peachtree Street(1) Square feet expiring 29,000 sf 7,000 sf 34,000 sf 22,000 sf
Straight-Line rent $ 472,000 $ 107,000 $ 748,000 $ 371,000
Straight-Line rent per sq. ft $ 16.28 $ 15.29 $ 22.00 $ 16.86
Recoveries $ 227,000 $ 39,000 $ 233,000 $ 143,000
Full service St-Line rent $ 699,000 $ 146,000 $ 981,000 $ 514,000
Full service St-Line rent per sq. ft $ 24.10 $ 20.86 $ 28.85 $ 23.36
% Full service St-Lined rent 1.86% 0.39% 2.61% 1.37%
Asking market rent per sq. ft
No. of tenant leases expiring 4 2 3 5
Market Square(2) Square feet expiring 10,000 sf 17,000 sf 34,000 sf 174,000 sf
Straight-Line rent $ 316,000 $ 626,000 $ 1,225,000 $ 5,822,000
Straight-Line rent per sq. ft $ 31.60 $ 36.82 $ 36.03 $ 33.46
Recoveries $ 14,000 $ 103,000 $ 204,000 $ 1,881,000
Full service St-Line rent $ 330,000 $ 729,000 $ 1,429,000 $ 7,703,000
Full service St-Line rent per sq. ft $ 33.00 $ 42.88 $ 42.03 $ 44.27
% Full service St-Lined rent 1.20% 2.66% 5.21% 28.09%
Asking market rent per sq. ft
No. of tenant leases expiring 4 4 4 4
500 Boylston Street(1) Square feet expiring 400,000 sf 16,000 sf
Straight-Line rent $10,688,000 $ 352,000
Straight-Line rent per sq. ft $ 26.72 $ 22.00
Recoveries $ 4,946,000 $ 204,000
Full service St-Line rent $15,634,000 $ 556,000
Full service St-Line rent per sq. ft $ 39.09 $ 34.75
% Full service St-Lined rent 56.63% 2.01%
Asking market rent per sq. ft
No. of tenant leases expiring 3 3
222 Berkeley Street(1) Square feet expiring 94,000 sf
Straight-Line rent $ 1,830,000
Straight-Line rent per sq. ft $ 19.47
Recoveries $ 1,190,000
Full service St-Line rent $ 3,020,000
Full service St-Line rent per sq. ft $ 32.13
% Full service St-Lined rent 18.00%
Asking market rent per sq. ft
No. of tenant leases expiring 5
Charlotte Plaza(2) Square feet expiring 74,000 sf 22,000 sf 111,000 sf 11,000 sf
Straight-Line rent $ 1,346,000 $ 371,000 $ 1,602,000 $ 210,000
Straight-Line rent per sq. ft $ 18.19 $ 16.86 $ 14.43 $ 19.09
Recoveries $ 25,000 $ 11,000 $ 23,000 $ --
Full service St-Line rent $ 1,371,000 $ 382,000 $ 1,625,000 $ 210,000
Full service St-Line rent per sq. ft $ 18.53 $ 17.36 $ 14.64 $ 19.09
% Full service St-Lined rent 13.20% 3.68% 15.64% 2.02%
Asking market rent per sq. ft
No. of tenant leases expiring 9 4 3 1
200 Galleria(2) Square feet expiring 157,000 sf 71,000 sf 4,000 sf
Straight-Line rent $ 3,321,000 $1,720,000 $ 75,000
Straight-Line rent per sq. ft $ 21.15 $ 24.23 $ 18.75
Recoveries $ 175,000 $ 9,000 $ --
Full service St-Line rent $ 3,496,000 $1,729,000 $ 75,000
Full service St-Line rent per sq. ft $ 22.27 $ 24.35 $ 18.75
% Full service St-Lined rent 38.43% 19.01% 0.82%
Asking market rent per sq. ft
No. of tenant leases expiring 9 9 1
11 Canal Center(2) Square feet expiring 5,000 sf 14,000 sf
Straight-Line rent $ 120,000 $ 358,000
Straight-Line rent per sq. ft $ 24.00 $ 25.57
Recoveries $ -- $ --
Full service St-Line rent $ 120,000 $ 358,000
Full service St-Line rent per sq. ft $ 24.00 $ 25.57
% Full service St-Lined rent 7.21% 21.50%
Asking market rent per sq. ft
No. of tenant leases expiring 1 2
====================
<CAPTION>
2008
and
PROPERTY 2006 2007 Beyond Total
- -------- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
191 Peachtree Street(1) Square feet expiring 441,000 sf 496,000 sf 1,188,000sf
Straight-Line rent $12,093,000 $11,179,000 $27,818,000
Straight-Line rent per sq. ft $ 27.42 $ 22.54 $ 23.42
Recoveries $ 3,752,000 $ 4,072,000 $ 9,822,000
Full service St-Line rent $15,845,000 $15,251,000 $37,640,000
Full service St-Line rent per sq. ft $ 35.93 $ 30.75 $ 31.68
% Full service St-Lined rent 42.10% 40.52% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 3 4 36
Market Square(2) Square feet expiring 47,000 sf 9,000 sf 171,000 sf 662,000sf
Straight-Line rent $ 1,628,000 $ 359,000 $ 5,226,000 $21,964,000
Straight-Line rent per sq. ft $ 34.64 $ 39.89 $ 30.56 $ 33.18
Recoveries $ 666,000 $ 9,000 $ 1,680,000 $ 5,455,000
Full service St-Line rent $ 2,294,000 $ 368,000 $ 6,906,000 $27,419,000
Full service St-Line rent per sq. ft $ 48.81 $ 40.89 $ 40.39 $ 41.42
% Full service St-Lined rent 8.37% 1.34% 25.19% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 2 3 8 49
500 Boylston Street(1) Square feet expiring 3,000 sf 219,000 sf 714,000 sf
Straight-Line rent $ 98,000 $ 5,409,000 $18,775,000
Straight-Line rent per sq. ft $ 32.67 $ 24.70 $ 26.30
Recoveries $ 28,000 $ 2,773,000 $ 8,833,000
Full service St-Line rent $ 126,000 $ 8,182,000 $27,608,000
Full service St-Line rent per sq. ft $ 42.00 $ 37.36 $ 38.67
% Full service St-Lined rent 0.46% 29.64% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 2 14
222 Berkeley Street(1) Square feet expiring 275,000 sf 39,000 sf 531,000 sf
Straight-Line rent $ 4,233,000 $ 1,065,000 $10,094,000
Straight-Line rent per sq. ft $ 15.39 $ 27.31 $ 19.01
Recoveries $ 3,537,000 $ 516,000 $ 6,688,000
Full service St-Line rent $ 7,770,000 $ 1,581,000 $16,782,000
Full service St-Line rent per sq. ft $ 28.25 $ 40.54 $ 31.60
% Full service St-Lined rent 46.30% 9.42% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 6 3 27
Charlotte Plaza(2) Square feet expiring 1,000 sf 10,000 sf 189,000 sf 601,000 sf
Straight-Line rent $ 24,000 $ 218,000 $ 3,129,000 $10,101,000
Straight-Line rent per sq. ft $ 24.00 $ 21.80 $ 16.56 $ 16.81
Recoveries $ -- $ -- $ 148,000 $ 286,000
Full service St-Line rent $ 24,000 $ 218,000 $ 3,277,000 $10,387,000
Full service St-Line rent per sq. ft $ 24.00 $ 21.80 $ 17.34 $ 17.28
% Full service St-Lined rent 0.23% 2.10% 31.55% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 1 6 43
200 Galleria(2) Square feet expiring 12,000 sf 402,000 sf
Straight-Line rent $ 262,000 $ 8,794,000
Straight-Line rent per sq. ft $ 21.83 $ 21.88
Recoveries $ 13,000 $ 303,000
Full service St-Line rent $ 275,000 $ 9,097,000
Full service St-Line rent per sq. ft $ 22.92 $ 22.63
% Full service St-Lined rent 3.02% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 57
11 Canal Center(2) Square feet expiring 42,000 sf 67,000 sf
Straight-Line rent $ 1,042,000 $ 1,664,000
Straight-Line rent per sq. ft $ 24.81 $ 24.84
Recoveries $ -- $ 1,000
Full service St-Line rent $ 1,042,000 $ 1,665,000
Full service St-Line rent per sq. ft $ 24.81 $ 24.85
% Full service St-Lined rent 62.58% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Q3-Q4
PROPERTY 1998 1999 2000 2001
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
99 Canal Center(2) Square feet expiring 2,000 sf 5,000 sf 9,000 sf 52,000 sf
Straight-Line rent $ -- $ 76,000 $ 209,000 $ 1,253,000
Straight-Line rent per sq. ft $ -- $ 15.20 $ 23.22 $ 24.10
Recoveries $ -- $ 6,000 $ 3,000 $ 72,000
Full service St-Line rent $ -- $ 82,000 $ 212,000 $ 1,325,000
Full service St-Line rent per sq. ft $ -- $ 16.40 $ 23.56 $ 25.48
% Full service St-Lined rent 0.00% 2.48% 6.40% 40.01%
Asking market rent per sq. ft $ 27.00
No. of tenant leases expiring 1 2 2 5
TransPotomac Plaza 5(2) Square feet expiring 3,000 sf 2,000 sf 1,000 sf 15,000 sf
Straight-Line rent $ 73,000 $ 43,000 $ 33,000 $ 275,000
Straight-Line rent per sq. ft $ 24.33 $ 21.50 $ 33.00 $ 18.33
Recoveries $ -- $ 1,000 $ -- $ 2,000
Full service St-Line rent $ 73,000 $ 44,000 $ 33,000 $ 277,000
Full service St-Line rent per sq. ft $ 24.33 $ 22.00 $ 33.00 $ 18.47
% Full service St-Lined rent 3.64% 2.19% 1.65% 13.82%
Asking market rent per sq. ft $ 25.00
No. of tenant leases expiring 1 1 1 1
Sixty State Street(2) Square feet expiring 4,000 sf 34,000 sf 3,000 sf 29,000 sf
Straight-Line rent $ 100,000 $ 809,000 $ 74,000 $ 872,000
Straight-Line rent per sq. ft $ 25.00 $ 23.79 $ 24.67 $ 30.07
Recoveries $ 11,000 $ 117,000 $ 7,000 $ 51,000
Full service St-Line rent $ 111,000 $ 926,000 $ 81,000 $ 923,000
Full service St-Line rent per sq. ft $ 27.75 $ 27.24 $ 27.00 $ 31.83
% Full service St-Lined rent 0.41% 3.43% 0.30% 3.42%
Asking market rent per sq. ft $ 44.00
No. of tenant leases expiring 5 9 1 3
Corporate 500 Centre(1) Square feet expiring 10,000 sf 10,000 sf 34,000 sf 41,000 sf
Straight-Line rent $ 177,000 $ 434,000 $ 752,000 $ 1,060,000
Straight-Line rent per sq. ft $ 17.70 $ 43.40 $ 22.12 $ 25.85
Recoveries $ 48,000 $ 84,000 $ 323,000 $ 377,000
Full service St-Line rent $ 225,000 $ 518,000 $ 1,075,000 $ 1,437,000
Full service St-Line rent per sq. ft $ 22.50 $ 51.80 $ 31.62 $ 35.05
% Full service St-Lined rent 1.19% 2.74% 5.69% 7.61%
Asking market rent per sq. ft $ 32.00
No. of tenant leases expiring 3 5 4 4
One Memorial Drive(2) Square feet expiring 5,000 sf 21,000 sf
Straight-Line rent $ 281,000 $ 407,000
Straight-Line rent per sq. ft $ 56.20 $ 19.38
Recoveries $ 33,000 $ 32,000
Full service St-Line rent $ 314,000 $ 439,000
Full service St-Line rent per sq. ft $ 62.80 $ 20.90
% Full service St-Lined rent 2.54% 3.56%
Asking market rent per sq. ft $ 42.00
No. of tenant leases expiring 1 1
201 California Street(2) Square feet expiring 117,000 sf 43,000 sf
Straight-Line rent $ 2,623,000 $ 929,000
Straight-Line rent per sq. ft $ 22.42 $ 21.60
Recoveries $ 398,000 $ 32,000
Full service St-Line rent $ 3,021,000 $ 961,000
Full service St-Line rent per sq. ft $ 25.82 $ 22.35
% Full service St-Lined rent 47.37% 15.07%
Asking market rent per sq. ft $ 38.00
No. of tenant leases expiring 4 1
Wilshire Palisades(2) Square feet expiring 1,000 sf 15,000 sf 5,000 sf 72,000 sf
Straight-Line rent $ 32,000 $ 421,000 $ 111,000 $ 3,763,000
Straight-Line rent per sq. ft $ 32.00 $ 28.07 $ 22.20 $ 52.26
Recoveries $ 1,000 $ -- $ 12,000 $ 327,000
Full service St-Line rent $ 33,000 $ 421,000 $ 123,000 $ 4,090,000
Full service St-Line rent per sq. ft $ 33.00 $ 28.07 $ 24.60 $ 56.81
% Full service St-Lined rent 0.41% 5.25% 1.53% 50.99%
Asking market rent per sq. ft $ 42.00
No. of tenant leases expiring 1 1 1 6
=================
<CAPTION>
PROPERTY 2002 2003 2004 2005
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
99 Canal Center(2) Square feet expiring 22,000 sf 46,000 sf
Straight-Line rent $ 544,000 $ 1,068,000
Straight-Line rent per sq. ft $ 24.73 $ 23.22
Recoveries $ 18,000 $ 19,000
Full service St-Line rent $ 562,000 $ 1,087,000
Full service St-Line rent per sq. ft $ 25.55 $ 23.63
% Full service St-Lined rent 16.97% 32.82%
Asking market rent per sq. ft
No. of tenant leases expiring 2 5
TransPotomac Plaza 5(2) Square feet expiring 26,000 sf 8,000 sf
Straight-Line rent $ 518,000 $ 178,000
Straight-Line rent per sq. ft $ 19.92 $ 22.25
Recoveries $ 8,000 $ --
Full service St-Line rent $ 526,000 $ 178,000
Full service St-Line rent per sq. ft $ 20.23 $ 22.25
% Full service St-Lined rent 26.23% 8.88%
Asking market rent per sq. ft
No. of tenant leases expiring 2 2
Sixty State Street(2) Square feet expiring 176,000 sf 90,000 sf 96,000 sf
Straight-Line rent $ 3,799,000 $ 2,061,000 $ 2,623,000
Straight-Line rent per sq. ft $ 21.59 $ 22.90 $ 27.32
Recoveries $ 1,759,000 $ 159,000 $ 217,000
Full service St-Line rent $ 5,558,000 $ 2,220,000 $ 2,840,000
Full service St-Line rent per sq. ft $ 31.58 $ 24.67 $ 29.58
% Full service St-Lined rent 20.58% 8.22% 10.52%
Asking market rent per sq. ft
No. of tenant leases expiring 6 1 8
Corporate 500 Centre(1) Square feet expiring 75,000 sf 132,000 sf 14,000 sf
Straight-Line rent $ 1,554,000 $ 2,800,000 $ 275,000
Straight-Line rent per sq. ft $ 20.72 $ 21.21 $ 19.64
Recoveries $ 505,000 $ 1,138,000 $ 135,000
Full service St-Line rent $ 2,059,000 $ 3,938,000 $ 410,000
Full service St-Line rent per sq. ft $ 27.45 $ 29.83 $ 29.29
% Full service St-Lined rent 10.90% 20.85% 2.17%
Asking market rent per sq. ft
No. of tenant leases expiring 8 7 1
One Memorial Drive(2) Square feet expiring 71,000 sf 61,000 sf 95,000 sf
Straight-Line rent $ 2,283,000 $ 2,028,000 $ 2,979,000
Straight-Line rent per sq. ft $ 32.15 $ 33.25 $ 31.36
Recoveries $ 77,000 $ 156,000 $ 134,000
Full service St-Line rent $ 2,360,000 $ 2,184,000 $ 3,113,000
Full service St-Line rent per sq. ft $ 33.24 $ 35.80 $ 32.77
% Full service St-Lined rent 19.12% 17.70% 25.23%
Asking market rent per sq. ft
No. of tenant leases expiring 5 2 2
201 California Street(2) Square feet expiring 1,000 sf 79,000 sf
Straight-Line rent $ 53,000 $ 2,201,000
Straight-Line rent per sq. ft $ 53.00 $ 27.86
Recoveries $ -- $ 142,000
Full service St-Line rent $ 53,000 $ 2,343,000
Full service St-Line rent per sq. ft $ 53.00 $ 29.66
% Full service St-Lined rent 0.83% 36.74%
Asking market rent per sq. ft
No. of tenant leases expiring 1 2
Wilshire Palisades(2) Square feet expiring 73,000 sf 20,000 sf
Straight-Line rent $ 2,399,000 $ 877,000
Straight-Line rent per sq. ft $ 32.86 $ 43.85
Recoveries $ 38,000 $ 40,000
Full service St-Line rent $ 2,437,000 $ 917,000
Full service St-Line rent per sq. ft $ 33.38 $ 45.85
% Full service St-Lined rent 30.38% 11.43%
Asking market rent per sq. ft
No. of tenant leases expiring 6 1
====================
<CAPTION>
2008
and
PROPERTY 2006 2007 Beyond Total
- -------- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
99 Canal Center(2) Square feet expiring 2,000 sf 138,000 sf
Straight-Line rent $ 44,000 $ 3,194,000
Straight-Line rent per sq. ft $ 22.00 $ 23.14
Recoveries $ -- $ 118,000
Full service St-Line rent $ 44,000 $ 3,312,000
Full service St-Line rent per sq. ft $ 22.00 $ 24.00
% Full service St-Lined rent 1.33% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 18
TransPotomac Plaza 5(2) Square feet expiring 18,000 sf 20,000 sf 93,000 sf
Straight-Line rent $ 432,000 $ 439,000 $ 1,991,000
Straight-Line rent per sq. ft $ 24.00 $ 21.95 $ 21.41
Recoveries $ 3,000 $ -- $ 14,000
Full service St-Line rent $ 435,000 $ 439,000 $ 2,005,000
Full service St-Line rent per sq. ft $ 24.17 $ 21.95 $ 21.56
% Full service St-Lined rent 21.70% 21.90% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 2 1 11
Sixty State Street(2) Square feet expiring 36,000 sf 32,000 sf 308,000 sf 808,000 sf
Straight-Line rent $ 1,085,000 $ 925,000 $ 7,931,000 $20,279,000
Straight-Line rent per sq. ft $ 30.14 $ 28.91 $ 25.75 $ 25.10
Recoveries $ 57,000 $ 331,000 $ 4,020,000 $ 6,729,000
Full service St-Line rent $ 1,142,000 $ 1,256,000 $11,951,000 $27,008,000
Full service St-Line rent per sq. ft $ 31.72 $ 39.25 $ 38.80 $ 33.43
% Full service St-Lined rent 4.23% 4.65% 44.25% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 2 3 3 41
Corporate 500 Centre(1) Square feet expiring 135,000 sf 43,000 sf 107,000 sf 601,000 sf
Straight-Line rent $ 3,132,000 $ 924,000 $ 2,518,000 $13,626,000
Straight-Line rent per sq. ft $ 23.20 $ 21.49 $ 23.53 $ 22.67
Recoveries $ 1,252,000 $ 333,000 $ 1,064,000 $ 5,259,000
Full service St-Line rent $ 4,384,000 $ 1,257,000 $ 3,582,000 $18,885,000
Full service St-Line rent per sq. ft $ 32.47 $ 29.23 $ 33.48 $ 31.42
% Full service St-Lined rent 23.21% 6.66% 18.97% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 2 2 37
One Memorial Drive(2) Square feet expiring 43,000 sf 56,000 sf 352,000 sf
Straight-Line rent $ 1,425,000 $ 2,303,000 $11,706,000
Straight-Line rent per sq. ft $ 33.14 $ 41.13 $ 33.26
Recoveries $ 26,000 $ 176,000 $ 634,000
Full service St-Line rent $ 1,451,000 $ 2,479,000 $12,340,000
Full service St-Line rent per sq. ft $ 33.74 $ 44.27 $ 35.06
% Full service St-Lined rent 11.76% 20.09% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 1 13
201 California Street(2) Square feet expiring 240,000 sf
Straight-Line rent $ 5,806,000
Straight-Line rent per sq. ft $ 24.19
Recoveries $ 572,000
Full service St-Line rent $ 6,378,000
Full service St-Line rent per sq. ft $ 26.58
% Full service St-Lined rent 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 8
Wilshire Palisades(2) Square feet expiring 186,000 sf
Straight-Line rent $ 7,603,000
Straight-Line rent per sq. ft $ 40.88
Recoveries $ 418,000
Full service St-Line rent $ 8,021,000
Full service St-Line rent per sq. ft $ 43.12
% Full service St-Lined rent 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Q3-Q4
PROPERTY 1998 1999 2000 2001
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
All Properties Total Square feet expiring(3) 260,000 sf 895,000 sf 646,000 sf 930,000 sf
Straight-Line rent(4) $ 5,949,000 $21,216,000 $12,415,000 $27,133,000
Straight-Line rent per sq. ft $ 22.88 $ 23.71 $ 19.22 $ 29.18
Recoveries (5) $ 961,000 $ 4,888,000 $ 4,011,000 $ 4,697,000
Full service St-Line rent(6) $ 6,910,000 $26,104,000 $16,426,000 $31,830,000
Full service St-Line rent per sq. ft $ 26.58 $ 29.17 $ 25.43 $ 34.23
% Full service St-Lined rent 2.04% 7.69% 4.84% 9.38%
Asking market rent per sq. ft.(7) $ 34.82
No. of tenant leases expiring(8) 72 91 88 93
<CAPTION>
PROPERTY 2002 2003 2004 2005
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
All Properties Total Square feet expiring(3) 1,345,000sf 1,661,000sf 842,000 sf 251,000 sf
Straight-Line rent(4) $27,876,000 $38,067,000 $19,069,000 $ 7,587,000
Straight-Line rent per sq. ft $ 20.73 $ 22.92 $ 22.65 $ 30.23
Recoveries (5) $ 8,161,000 $11,574,000 $ 4,445,000 $ 2,046,000
Full service St-Line rent(6) $36,037,000 $49,641,000 $23,514,000 $ 9,633,000
Full service St-Line rent per sq. ft $ 26.79 $ 29.89 $ 27.93 $ 38.38
% Full service St-Lined rent 10.62% 14.63% 6.93% 2.84%
Asking market rent per sq. ft.(7)
No. of tenant leases expiring(8) 109 80 42 16
<CAPTION>
2008
and
PROPERTY 2006 2007 Beyond Total
- -------- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
All Properties Total Square feet expiring(3) 699,000 sf 723,000 sf 2,825,000 sf 11,077,000 sf
Straight-Line rent(4) $19,343,000 $15,041,000 $67,133,000 $260,829,000
Straight-Line rent per sq. ft $ 27.67 $ 20.80 $ 23.76 $ 23.55
Recoveries (5) $ 5,741,000 $ 5,025,000 $27,047,000 $ 78,596,000
Full service St-Line rent(6) $25,084,000 $20,066,000 $94,180,000 $339,425,000
Full service St-Line rent per sq. ft $ 35.89 $ 27.75 $ 33.34 $ 30.64
% Full service St-Lined rent 7.39 5.91% 27.75% 100.00%
Asking market rent per sq. ft.(7)
No. of tenant leases expiring(8) 14 25 37 667
* Includes 4,605 square feet of retail space leased to the Gap at a base rent of $1,001,028 and recoveries
of $5,524, totalling to a full service rent of $1,006,552.
</TABLE>
<PAGE>
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 annual 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 annualized as of June 30, 1998 in
net lease buildings and the recovery of operating expense escalations
annualized 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>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Tenant Retention Schedule
<PAGE>
Cornerstone Properties Inc.
Tenant Retention Schedule
As of June 30, 1998
The attached table sets forth the Company's tenant retention on expiring leases
since January 1, 1994. 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
tenant's 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.
<TABLE>
<CAPTION>
1994 1995
------------------------------ ------------------------------
sq ft sq ft sq ft sq ft
retained expir. ret % retained expir. ret %
-------- ------- ----- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center 93,962 94,981 99% 64,627 71,364 91%
Norwest Center 16,293 26,317 62% 22,762 23,792 96%
Washington Mutual Tower 127,334 153,645 83% 29,547 44,742 66%
125 Summer Street
Tower 56
One Lincoln Centre
527 Madison Avenue
191 Peachtree Street
500 Boylston Street
222 Berkeley Street
Charlotte Plaza
200 Galleria
11 Canal Center
99 Canal Center
TransPotomac Plaza 5
Sixty State Street
Corporate 500 Centre
One Memorial Drive
201 California Street
Wilshire Palisades
------------------------------ ------------------------------
Weighted 237,589 274,943 86% 116,936 139,898 84%
<CAPTION>
1996 1997 YTD 1998 (Q2)
---------------------------- ------------------------------ ------------------------------
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 Center 43,601 72,903 60% 266,021 313,612 85% 47,840 74,463 64%
Norwest Center 4,336 9,777 44% 205,749 234,260 88% 66,075 72,986 91%
Washington Mutual Tower 86,956 106,250 82% 182,194 207,738 88% 297,954 297,954 100%
125 Summer Street 95,816 96,658 99% 41,252 62,218 66% 92,588 96,979 95%
Tower 56 46,003 53,762 86% 37,027 50,679 73% 14,100 14,100 100%
One Lincoln Centre 35,320 42,099 84% 19,176 66,593 29%
527 Madison Avenue 5,980 20,587 29% 10,277 10,419 99%
191 Peachtree Street -- -- -- 32,139 106,974 30%
500 Boylston Street -- 3,005 0% 71,955 71,955 100%
222 Berkeley Street -- -- -- 41,683 41,683 100%
Charlotte Plaza 2,974 6,390 47% 54,022 55,234 98%
200 Galleria 10,672 21,725 49% 32,878 50,375 65%
11 Canal Center -- 8,889 0% -- -- --
99 Canal Center -- -- -- 29,925 33,918 88%
TransPotomac Plaza 5 -- -- -- 6,745 17,185 39%
Sixty State Street -- -- -- 22,407 22,407 100%
Corporate 500 Centre -- -- -- 16,223 60,409 27%
One Memorial Drive -- -- -- -- -- --
201 California Street -- -- -- -- -- --
Wilshire Palisades -- -- -- 1,316 1,316 100%
---------------------------- ------------------------------ ----------------------------
Weighted 276,712 339,350 82% 787,189 971,202 81% 869,140 1,113,752 78%
Five year total 81%
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Leasing Costs and Capital Expenditures
<PAGE>
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 to lease (i) 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>
YTD 1998 1997 1996 1995 1994 Total
--------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center
Total Tenant Lease Costs 17,216 -- -- -- -- 17,216
Total Square Feet Leased 1,497 -- -- -- -- 1,497
Total Per Square Foot 11.50 -- -- -- -- 11.50
Capital Expenditures -- -- -- -- -- --
Norwest Center
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
Washington Mutual Tower
Total Tenant Lease Costs -- 404,988 643,235 -- -- 1,048,223
Total Square Feet Leased -- 69,727 146,517 -- -- 216,244
Total Per Square Foot -- 5.81 4.39 -- -- 4.85
Capital Expenditures -- 88,401 25,500 135,194 102,567 351,662
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
Capital Expenditures -- -- -- -- -- --
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
Capital Expenditures -- -- -- -- -- --
One Lincoln Centre
Total Tenant Lease Costs 141,687 261,538 9,706 -- -- 412,931
Total Square Feet Leased 6,021 11,816 1,941 -- -- 19,778
Total Per Square Foot 23.53 22.13 5.00 -- -- 20.88
Capital Expenditures 25,298 61,877 -- -- -- 87,175
527 Madison Avenue
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
191 Peachtree Street
Total Tenant Lease Costs 1,515,713 -- -- -- -- 1,515,713
Total Square Feet Leased 40,238 -- -- -- -- 40,238
Total Per Square Foot 37.67 -- -- -- -- 37.67
Capital Expenditures -- -- -- -- -- --
Market Square
Total Tenant Lease Costs 445,933 -- -- -- -- 445,933
Total Square Feet Leased 10,054 -- -- -- -- 10,054
Total Per Square Foot 44.35 -- -- -- -- 44.35
Capital Expenditures -- -- -- -- -- --
500 Boylston Street
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
</TABLE>
<PAGE>
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 to lease (i) 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>
YTD 1998 1997 1996 1995 1994 Total
--------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
222 Berkeley Street
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
Charlotte Plaza
Total Tenant Lease Costs 118,455 -- -- -- -- 118,455
Total Square Feet Leased 26,820 -- -- -- -- 26,820
Total Per Square Foot 4.42 -- -- -- -- 4.42
Capital Expenditures 185,865 -- -- -- -- 185,865
200 Galleria
Total Tenant Lease Costs 248,257 24,132 -- -- -- 272,389
Total Square Feet Leased 12,228 2,139 -- -- -- 14,367
Total Per Square Foot 20.30 11.28 -- -- -- 18.96
Capital Expenditures -- -- -- -- -- --
11 Canal Center
Total Tenant Lease Costs 185,633 -- -- -- -- 185,633
Total Square Feet Leased 8,889 -- -- -- -- 8,889
Total Per Square Foot 20.88 -- -- -- -- 20.88
Capital Expenditures 18,437 102,986 -- -- -- 121,423
99 Canal Center
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures 21,012 51,419 -- -- -- 72,431
TransPotomac Plaza 5
Total Tenant Lease Costs 24,968 -- -- -- -- 24,968
Total Square Feet Leased 4,453 -- -- -- -- 4,453
Total Per Square Foot 5.61 -- -- -- -- 5.61
Capital Expenditures -- 62,579 -- -- -- 62,579
Sixty State Street
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
Corporate 500 Centre
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
One Memorial Drive
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
201 California Street
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
</TABLE>
<PAGE>
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 to lease (i) 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>
YTD 1998 1997 1996 1995 1994 Total
-------- -------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wilshire Palisades
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures 22,841 -- -- -- -- 22,841
Minority Interest*
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
Total Cornerstone Portfolio
Total Tenant Lease Costs 2,697,862 690,658 1,196,934 -- -- 4,585,454
Total Square Feet Leased 110,200 83,682 188,709 -- -- 382,591
Total Per Square Foot Leased 24.48 8.25 6.34 -- -- 11.99
Capital Expenditures 273,584 367,262 25,500 135,194 102,567 904,107
Weighted Average Square Footage Owned** 5,041,000 5,348,000 3,895,680 3,263,769 3,239,636 20,788,085
Total Per Square Foot 0.05 0.07 0.01 0.04 0.03 0.04
</TABLE>
* Adjustments for minority interests at Norwest Center (20.7%), 500 Boylston
(8.5%) and 222 Berkeley (8.5%)
** Square footage owned is adjusted for minority interests as described above
<PAGE>
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>
YTD 1998 1997 1996 1995 1994 Total
-------- --------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center
Total Tenant Lease Costs 169,506 1,823,664 1,009,006 141,135 540,444 3,683,755
Total Square Feet Leased 49,695 308,697 81,445 75,939 117,966 633,742
Total Per Square Foot 3.41 5.91 12.39 1.86 4.58 5.81
Capital Expenditures -- 102,000 -- -- -- 102,000
Norwest Center
Total Tenant Lease Costs 69,567 569,103 42,237 144,275 30,193 855,375
Total Square Feet Leased 45,990 212,795 6,629 24,986 26,939 317,339
Total Per Square Foot 1.51 2.67 6.37 5.77 1.12 2.70
Capital Expenditures -- 10,974 -- -- -- 10,974
Washington Mutual Tower
Total Tenant Lease Costs 1,442,982 1,204,606 793,361 290,971 1,065,962 4,797,882
Total Square Feet Leased 318,849 208,875 124,474 53,894 151,051 857,143
Total Per Square Foot 4.53 5.77 6.37 5.40 7.06 5.60
Capital Expenditures 3,579 21,922 -- -- 50,801 76,302
125 Summer Street
Total Tenant Lease Costs 850,733 1,314,489 2,158,339 -- -- 4,323,561
Total Square Feet Leased 97,577 65,105 117,794 -- -- 280,476
Total Per Square Foot 8.72 20.19 18.32 -- -- 15.42
Capital Expenditures 19,965 53,185 518,632 -- -- 591,782
Tower 56
Total Tenant Lease Costs 230,775 724,025 339,124 -- -- 1,293,924
Total Square Feet Leased 22,265 65,283 42,203 -- -- 129,751
Total Per Square Foot 10.36 11.09 8.04 -- -- 9.97
Capital Expenditures -- 43,538 -- -- -- 43,538
One Lincoln Centre
Total Tenant Lease Costs 111,820 287,758 2,859 -- -- 402,437
Total Square Feet Leased 48,488 42,826 3,652 -- -- 94,966
Total Per Square Foot 2.31 6.72 0.78 -- -- 4.24
Capital Expenditures 8,318 154,646 -- -- -- 162,964
527 Madison Avenue
Total Tenant Lease Costs 194,942 746,070 -- -- -- 941,012
Total Square Feet Leased 10,277 29,821 -- -- -- 40,098
Total Per Square Foot 18.97 25.02 -- -- -- 23.47
Capital Expenditures 228,554 86,652 -- -- -- 315,206
191 Peachtree Street
Total Tenant Lease Costs 455,327 96,023 -- -- -- 551,350
Total Square Feet Leased 101,964 2,597 -- -- -- 104,561
Total Per Square Foot 4.47 36.97 -- -- -- 5.27
Capital Expenditures -- -- -- -- -- --
Market Square
Total Tenant Lease Costs 214,649 -- -- -- -- 214,649
Total Square Feet Leased 16,414 -- -- -- -- 16,414
Total Per Square Foot 13.08 -- -- -- -- 13.08
Capital Expenditures -- -- -- -- -- --
500 Boylston Street
Total Tenant Lease Costs 52,289 34,558 -- -- -- 86,847
Total Square Feet Leased 71,955 3,005 -- -- -- 74,960
Total Per Square Foot 0.73 11.50 -- -- -- 1.16
Capital Expenditures -- -- -- -- -- --
</TABLE>
<PAGE>
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>
YTD 1998 1997 1996 1995 1994 Total
--------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
222 Berkeley Street
Total Tenant Lease Costs 545,066 -- -- -- -- 545,066
Total Square Feet Leased 42,008 -- -- -- -- 42,008
Total Per Square Foot 12.98 -- -- -- -- 12.98
Capital Expenditures -- -- -- -- -- --
Charlotte Plaza
Total Tenant Lease Costs 48,881 154,044 -- -- -- 202,925
Total Square Feet Leased 31,961 9,139 -- -- -- 41,100
Total Per Square Foot 1.53 16.86 -- -- -- 4.94
Capital Expenditures 30,086 15,039 -- -- -- 45,125
200 Galleria
Total Tenant Lease Costs 474,751 173,242 -- -- -- 647,993
Total Square Feet Leased 47,472 10,672 -- -- -- 58,144
Total Per Square Foot 10.00 16.23 -- -- -- 11.14
Capital Expenditures 62,797 -- -- -- -- 62,797
11 Canal Center
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
99 Canal Center
Total Tenant Lease Costs 164,809 -- -- -- -- 164,809
Total Square Feet Leased 33,918 -- -- -- -- 33,918
Total Per Square Foot 4.86 -- -- -- -- 4.86
Capital Expenditures -- -- -- -- -- --
TransPotomac Plaza 5
Total Tenant Lease Costs 212,155 -- -- -- -- 212,155
Total Square Feet Leased 17,185 -- -- -- -- 17,185
Total Per Square Foot 12.35 -- -- -- -- 12.35
Capital Expenditures -- -- -- -- -- --
Sixty State Street
Total Tenant Lease Costs 32,400 -- -- -- -- 32,400
Total Square Feet Leased 24,999 -- -- -- -- 24,999
Total Per Square Foot 1.30 -- -- -- -- 1.30
Capital Expenditures 93,813 -- -- -- -- 93,813
Corporate 500 Centre
Total Tenant Lease Costs 290,724 -- -- -- -- 290,724
Total Square Feet Leased 37,713 -- -- -- -- 37,713
Total Per Square Foot 7.71 -- -- -- -- 7.71
Capital Expenditures 43,259 -- -- -- -- 43,259
One Memorial Drive
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
201 California Street
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
</TABLE>
<PAGE>
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>
YTD 1998 1997 1996 1995 1994 Total
--------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Wilshire Palisades
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
Minority Interest*
Total Tenant Lease Costs 65,176 123,622 9,208 30,442 5,978 234,426
Total Square Feet Leased 19,207 44,382 1,372 5,172 5,576 75,709
Total Per Square Foot 3.39 2.79 6.71 5.89 1.07 3.10
Capital Expenditures -- 2,272 -- -- -- 2,272
Total Cornerstone Portfolio
Total Tenant Lease Costs 5,496,200 7,003,960 4,335,718 545,939 1,630,621 19,012,438
Total Square Feet Leased 999,523 914,433 374,825 149,647 290,380 2,728,808
Total Per Square Foot Leased 5.50 7.66 11.57 3.65 5.62 6.97
Capital Expenditures 490,371 485,684 518,632 -- 50,801 1,545,488
Weighted Average Square Footage Owned** 5,041,000 5,348,000 3,895,680 3,263,769 3,239,636 20,788,085
Total Per Square Foot 0.10 0.09 0.13 -- 0.02 0.07
</TABLE>
* Adjustments for minority interests at Norwest Center (20.7%), 500 Boylston
(8.5%) and 222 Berkeley (8.5%)
** Square footage owned is adjusted for minority interests as described above
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
Debt Schedule
<PAGE>
Cornerstone Properties Inc.
Debt Schedule
June 30, 1998
The following table sets forth certain information regarding the consolidated
debt obligations of the Company as of June 30, 1998, including mortgage
obligations relating to the Properties. All of this debt, with the exception of
the Convertible Promissory Note due 2001, is nonrecourse to the Company.
However, notwithstanding the nonrecourse indebtedness, the lender may have the
right to recover deficiencies from the Company in certain circumstances,
including fraud, misappropriation of funds and environmental liabilities.
<TABLE>
<CAPTION>
Property Amortization Interest Rate Maturity Prepayment 6/30/98
- -------- ------------ ------------- Date Provisions -------
-------- ----------
<S> <C> <C> <C> <C> <C>
Convertible Promissory Note due 2001
(A) .............................. Interest only 8.11% max (B) Jan-2001 Not prepayable $ 12,926,000
One Norwest Center ................. 30 year 7.50 Aug-2001 (C) 96,291,000
Norwest Center ..................... Interest only 8.74 Dec-2005 Not prepayable 110,000,000
Washington Mutual Tower ............ Interest only 7.53 Nov-2005 (D) 79,100,000
125 Summer Street .................. Interest only(E) 7.20 Jan-2003 (F) 50,000,000
Tower 56 ........................... 30 year 7.67 May-2003 (G) 17,652,000
TransPotomac Plaza 5 and Charlotte
Plaza (H)......................... Interest only 7.28 Oct-2000 Not prepayable 65,000,000
527 Madison Avenue and One Lincoln
Centre (H)........................ Interest only 7.47 Oct-2004 Not prepayable 65,000,000
Market Square (I) and 200
Galleria (H)...................... Interest only 7.54 Oct-2007 Not prepayable 120,000,000
Sixty State Street (J) ............. 30 year 6.84 Jan-2005 (K) 88,645,000
Corporate 500 Centre ............... Interest only 6.63(L) Jul-2002 Prepayable 80,000,000
201 California Street(M) ........... 30 year 6.70 Mar-2005 (N) 33,263,000
Wilshire Palisades(O) .............. 30 year 6.70 Jul-2002 (P) 31,319,000
------------
$849,196,000
</TABLE>
Credit Line
The Company has a $350 million Revolving Credit Facility with Bankers Trust
Company and The Chase Manhattan Bank 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 or the Prime Rate
at the borrower's option. The letters of credit will be priced at the applicable
Eurodollar credit spread. The line of credit expires on October 27, 2000. As of
June 30, 1998, $75 million of the credit line was outstanding at a rate of
approximately 6.94%. The line of credit contains certain restrictive covenants
including; (i) a limitation on the Company's dividend to 90% of funds from
operations and 110% of cash available for distribution; (ii) total liabilities
to total property asset value cannot exceed 55%; (iii) adjusted EBITDA to
interest expense may not be less than 2.25 to 1.00; (iv) fixed charge coverage
may not be less than 1.75 to 1.00; and (v) total property asset value to secured
indebtedness may not be less than 2.50 to 1.00.
<PAGE>
Cornerstone Properties Inc.
Debt Schedule
Footnotes
(A) The lender, Hines, has the right to convert the note into Common Stock at a
conversion price of $14.30 per share. At maturity, the Company is entitled
to repay the principal of the note with Common Stock priced at the lesser
of $14.30 per share or the then-existing share price.
(B) Lesser of 30-day LIBOR plus 0.5% or 8.11%.
(C) No prepayment until July 24, 1998. From July 24, 1998 through July 23,
2000, the prepayment fee is the greater of: (1) 1% of the outstanding
principal balance or (2) Treasury Yield Maintenance (as defined). Beginning
July 24, 2000, the prepayment fee is Treasury Yield Maintenance. The loan
may be repaid at par during the last 90 days of the loan.
(D) No prepayment until September 30, 1998. Prepayable thereafter, with a
prepayment fee equal to the greater of: (1) 1% of the outstanding principal
balance or (2) Treasury Yield Maintenance (as defined). Prepayment without
fee during the six months prior to the maturity date.
(E) Interest only payments through January 1, 2001, with a 25-year amortization
schedule thereafter.
(F) Beginning July 1, 1999, the prepayment fee is the greater of Treasury Yield
Maintenance (as defined) or 1% of the outstanding principal balance.
Prepayment without fee on or after three months prior to maturity date.
(G) Open to prepayment after December 31, 1999, with a prepayment fee equal to
the greater of 1% of the principal balance or Treasury Yield Maintenance
(as defined). Prepayment without fee during the three months prior to the
maturity date.
(H) The four notes arising from the acquisition of several properties from DIHC
are cross-collateralized, having the effect of forming a "collateral pool"
for the underlying notes.
(I) The collateral for this loan is a pledge of the $181 million first mortgage
loan on Market Square which the Company purchased from PGGM.
(J) While the face amount of the loan is $78,420,000, and the interest rate is
9.5%, the Company has recorded the debt at $89,630,000, which is the market
value of the loan at the time of the closing based upon a market interest
rate for similar quality loans of 6.84%.
(K) Beginning February 1, 2000, the prepayment fee is equal to the greater of:
(1) 2% of the outstanding principal balance or (2) Treasury Yield
Maintenance (as defined). The 2% maximum is reduced by 0.25% per annum
thereafter until it reaches 1%. Prepayment without fee during the 90 days
prior to the maturity date.
(L) The interest rate on the loan is LIBOR plus 100 basis points. However, the
Company has entered into an interest rate swap with Bankers Trust Company
that effectively fixes the interest rate at 6.63%.
(M) While the face amount of the loan is $32,946,000, and the interest rate is
6.9%, the Company has recorded the debt at $33,292,000, which is the market
value of the loan at the time of the closing based upon a market interest
rate for similar quality loans of 6.70%.
(N) No prepayment until March 15, 2001. Prepayable thereafter, with a
prepayment fee equal to the greater of: (1) 1% of the amount being prepaid
or (2) Modified Yield Maintenance (as defined). If a partial prepayment is
made, the prepayment fee is equal to Modified Yield Maintenance. Prepayment
without fee during the 120 days prior to the maturity date.
(O) While the face amount of the loan is $29,967,000, and the interest rate is
8.04%, the Company has recorded the debt at $31,319,000, which is the
market value of the loan at the time of the closing based upon a market
interest rate for similar quality loans of 6.70%.
(P) No prepayment until July 1, 1998. Prepayable thereafter with 60 days notice
to Lender, with a prepayment fee equal to the greater of: (1) 1% of the
outstanding principal balance or (2) Yield Maintenance (as defined).
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
Equity Schedule
<PAGE>
Cornerstone Properties Inc.
Equity Activity Schedule
As of June 30, 1998
The following table shows the equity activity that has occurred since January 1,
1998 and the calculation of fully diluted Common shares and Units outstanding:
<TABLE>
<CAPTION>
Date Description Number of Shares
- ---- ----------- ----------------
<S> <C> <C>
COMMON STOCK
1/1/98 Beginning balance 83,191,819
1/5/98 Tower 56 residual value acquisition 307,692
2/2/98 Public secondary equity offering 14,375,000
2/17/98 Management stock grants 12,500
2/27/98 Dividend reinvestment 109,007
3/2/98 Management stock grants 19,178
4/28/98 One Memorial Drive acquisition 3,428,571
5/29/98 Dividend reinvestment 98,487
-----------
101,542,254
-----------
OUTSIDE UPREIT UNITS
1/1/98 Beginning balance --
1/29/98 Corporate 500 Centre acquisition 822,794
4/28/98 One Memorial Drive acquisition 1,657,426
6/3/98 201 California Street and Wilshire Palisades acquisition 1,665,663
-----------
4,145,883
-----------
DILUTIVE ISSUES
Convertible Preferred Stock 3,030,303
Convertible Promissory Note 903,914
Dilutive effect of "in the money" options 330,828
-----------
4,265,045
-----------
6/30/98 Total fully diluted common shares and units outstanding 109,953,182
-----------
-----------
Year to date weighted average fully diluted common
shares and units outstanding 102,457,576
-----------
-----------
Quarter to date weighted average fully diluted common
shares and units outstanding 107,228,227
-----------
-----------
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
Minority Sharing in Cash Flows and
Residual Proceeds
<PAGE>
Minority Sharing in Cash Flows and Residual Proceeds
Five of the Company's properties are held in partnerships which allow
the Company's partners to participate in the cash flows of their respective
properties. The following discussion provides the details of partner'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), and then any 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 flow and earnings for the first six months of
1998 were split 79.3% to Cornerstone and 20.7% to S&M. Sales proceeds from
Norwest Center will be split as follows as of June 30, 1998:
<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 18.9 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
its capital base of $47.0 million ($4,479,000); next to pay the Preference
Deficit on the second preference return (currently $9.4 million); then to
Cornerstone as an 8% second preference return on its capital base of $100.0
million ($8,000,000). Any remaining 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. 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 $156.4 million of proceeds
after repayment of the $79.1 million mortgage ($235.5 million in total
proceeds). Any proceeds above this amount will be split 50/50 with Cornerstone's
partners.
<PAGE>
Minority Sharing in Cash Flows and Residual Proceeds (continued)
191 Peachtree Street
Under the partnership agreement, cash flow is used first to pay
operating and capital expenditures, then debt service on the mortgage note. In
addition, the partner in the transaction, CH Associates, Ltd., will receive an
annual incentive distribution of $250,000 which Cornerstone expects it will
receive under the partnership agreement through February 28, 2000. Cornerstone
receives the remaining cash flow until such time as its cumulative undistributed
preferred return ($13.2 million as of 6/30/98) has been reimbursed. Excess cash
flow will be split 80% to Cornerstone and 20% to CH Associates, Ltd. Sales
proceeds from 191 Peachtree Street will be split as follows as of June 30, 1998:
<TABLE>
<S> <C>
1) To Debt $ 1.5 million
2) To Cornerstone (as partial holder
of the debt) $ 160.4 million
3) To Cornerstone for its undistributed
preferred return $ 13.2 million
4) To Cornerstone for its priority capital
contribution $ 145.0 million
</TABLE>
500 Boylston and 222 Berkeley Street
Distributions of cash flows and sales proceeds are shared in proportion
to Cornerstone's 91.5% partnership interest and Hines' 8.5% partnership
interest.
