<PAGE>
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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
September 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:
<TABLE>
<CAPTION>
Title of each class: Name of Each Exchange on which Registered:
-------------------- ------------------------------------------
<S> <C>
Common Stock, no par value New York Stock Exchange
Dusseldorf Stock Exchange
Frankfurt Stock Exchange
</TABLE>
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 November 12, 1998: $1,518,230,531.
Number of shares of Common Stock outstanding as of November 12, 1998:
101,638,864.
<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>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at cost:
Land $ 315,498 $ 260,542
Buildings, leasehold interests and improvements 1,854,308 1,559,085
Investment in real estate joint venture 245,784 240,253
Deferred lease costs 140,638 127,645
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2,556,228 2,187,525
Less: Accumulated depreciation and amortization 271,218 229,652
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Total investments 2,285,010 1,957,873
Cash and cash equivalents 30,566 24,730
Restricted cash 5,250 1,903
Other deferred costs, net of accumulated amortization of $3,015 and $1,998 145,726 5,728
Deferred tenant receivables 48,352 38,531
Tenant and other receivables, net 10,026 7,584
Notes receivable 528 1,652
Other assets 10,120 13,480
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Total Assets $ 2,535,578 $ 2,051,481
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LIABILITIES
Long-term debt, inclusive of $11,799 and $11,209 of unamortized premium $ 849,554 $ 706,178
Credit facility 148,000 187,000
Accrued interest payable 7,261 4,134
Accrued real estate taxes payable 19,446 13,401
Accounts payable and accrued expenses 19,841 18,363
Unearned revenue and other liabilities 16,770 10,986
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Total Liabilities 1,060,872 940,062
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MINORITY INTEREST
Minority Interest in operating partnership 55,258 --
Minority Interest in real estate joint ventures 14,811 15,420
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Total Minority Interest 70,069 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;
(1998-101,636,864; 1997-83,191,819) shares issued and outstanding
Paid-in capital 1,356,615 1,048,187
Deferred compensation (1,978) (2,188)
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Total Stockholders' Investment 1,404,637 1,095,999
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Total Liabilities and Stockholders' Investment $ 2,535,578 $ 2,051,481
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</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2 of 30
<PAGE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 83,227 $ 34,546 $ 239,767 $ 103,237
Earnings in real estate joint venture 3,856 -- 10,150 --
Interest and other income 1,955 3,868 7,167 8,432
--------- --------- --------- ---------
Total Revenues 89,038 38,414 257,084 111,669
--------- --------- --------- ---------
Expenses
Building operating expenses 18,896 7,660 52,947 22,693
Real estate taxes 12,034 5,933 34,900 17,553
Interest expense 16,057 7,405 47,724 22,395
Depreciation and amortization 15,702 7,057 42,561 20,865
General and administrative 3,169 1,869 8,713 5,134
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Total Expenses 65,858 29,924 186,845 88,640
--------- --------- --------- ---------
23,180 8,490 70,239 23,029
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Other income (expenses)
Loss on sale of real estate assets (127) -- (2,324) --
Minority interest (1,826) (414) (4,682) (1,408)
Net gain on interest rate swaps -- -- -- 99
--------- --------- --------- ---------
Income before extraordinary item 21,227 8,076 63,233 21,720
Extraordinary loss (2,269) -- (2,269) (54)
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Net income $ 18,958 $ 8,076 $ 60,964 $ 21,666
--------- --------- --------- ---------
--------- --------- --------- ---------
Income applicable to preferred stock $ (875) $ (875) $ (2,625) $ (9,285)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income applicable to common stock $ 18,083 $ 7,201 $ 58,339 $ 12,381
--------- --------- --------- ---------
--------- --------- --------- ---------
Income before extraordinary item per common share $ 0.20 $ 0.16 $ 0.62 $ 0.37
--------- --------- --------- ---------
--------- --------- --------- ---------
Extraordinary loss per common share $ (0.02) $ -- $ (0.02) $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic income per common share $ 0.18 $ 0.16 $ 0.59 $ 0.37
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted income per common share $ 0.18 $ 0.16 $ 0.59 $ 0.37
--------- --------- --------- ---------
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</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3 of 30
<PAGE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 60,964 $ 21,666
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 42,618 21,282
Deferred compensation amortization 787 661
Share of net loss in real estate joint venture 5,001 --
Net gain on interest rate swap -- (99)
Extraordinary loss 2,269 54
Unbilled rental revenue (9,332) (978)
Increase in accrued interest payable 3,127 440
Minority interest share of income 4,682 1,408
Loss on sale of real estate assets 2,324 --
Increase in tenant and other receivables and other assets (3,777) (4,772)
Increase in accounts payable, accrued expenses and other liabilities 8,123 3,810
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Total adjustments 55,822 21,806
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Net cash provided by operating activities 116,786 43,472
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Cash flows from investing activities:
Additions to investment property (343,160) (75,064)
Repayment of notes receivable 1,124 903
Investments in and advances to real estate joint ventures (7,134) --
Proceeds from sale of real estate assets 45,538 --
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Net cash used in investing activities (303,632) (74,161)
--------- ---------
Cash flows from financing activities:
Proceeds from common stock offering 262,344 225,400
Borrowings under mortgage loans 82,377 35,000
Borrowings under credit facility 221,500 --
Repayments under credit facility (260,500) --
Repayment of term loan -- (32,500)
Repayments under mortgage loans (2,502) (812)
Proceeds from dividend reinvestment plan 5,247 8,586
Net payments for swap terminations and debt prepayment costs (1,762) (216)
Increase in restricted cash (3,348) (35,302)
Stock and debt issuance costs (15,610) (18,139)
Distributions to minority partners (5,618) (1,285)
Distributions to preferred stockholders (3,500) (10,160)
Distributions to common stockholders (85,946) (29,812)
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Net cash provided by financing activities 192,682 140,760
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Increase in cash and cash equivalents 5,836 110,071
Cash and cash equivalents, beginning of period 24,730 114,803
--------- ---------
Cash and cash equivalents, end of period $ 30,566 $ 224,874
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4 of 30
<PAGE>
Item 1. Financial Statements (continued)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. NATURE OF COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of the Company's Business
Cornerstone Properties Inc., a Nevada corporation ("Cornerstone" or the
"Company"), is a self-advised real estate investment trust ("REIT") that owns
interests in 21 Class A office properties comprising approximately 11.4
million rentable square feet that are located in 11 metropolitan areas
throughout the United States. Cornerstone's strategy is to own interests in
Class A office properties in prime central business district locations and
major suburban office markets in U.S. metropolitan areas. Class A office
properties are generally considered to be those that have the most favorable
locations and physical attributes, command premium rents and experience the
highest tenant retention rates within their markets.
In January 1998, Cornerstone converted its corporate structure into an
umbrella limited partnership REIT ("UPREIT"). Under the UPREIT structure,
Cornerstone owns all of its properties and conducts all of its property
business through Cornerstone Properties Limited Partnership, a Delaware
limited partnership (the "Operating Partnership"), of which Cornerstone is
the sole general partner. As of November 12, 1998, Cornerstone owned,
directly or indirectly, approximately 96.1% of the common units of
partnership interest ("UPREIT Units") in the Operating Partnership.
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 nine month periods presented, have been included. Results for the
three and nine months ended September 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, the Operating
Partnership and controlled partnerships. The Company has consolidated the
following partnerships because it has a majority interest in the economic
benefits and is or has the right to become the managing general partner at
its sole discretion: 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"). All significant
intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
The Company has reclassified certain prior period amounts in order to
conform them to the September 30, 1998 financial statement presentation.
5 of 30
<PAGE>
Minority Interest
Minority interest in the Operating Partnership relates to the interest
in the Operating Partnership the Company does not own, which as of September
30, 1998 amounted to 3.9%. The Company allocates income to the minority
interest in the Operating Partnership based on the weighted-average
percentage ownership in the Operating Partnership through the year. Persons
who contributed assets to the Operating Partnership received UPREIT Units,
shares of Cornerstone's common stock (the "Common Stock"), cash or a
combination thereof. At the request of a Unitholder, the Company will be
obligated to redeem each UPREIT Unit held by such Unitholder for one share of
Common Stock or, at the option of the Company, 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 September 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 calculating pro forma sales proceeds under 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. SFAS 133 establishes a new model
for accounting for derivatives and hedging activities and supersedes and
amends a number of existing standards. 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. SOP 98-5 requires that certain costs incurred in conjunction with
start-up and organizational 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. Management believes that when
the Company adopts SFAS 133, SOP 98-5 and SOP 98-1 they will not have a
significant impact on the Company's financial statements.
During the first quarter of 1998, the Company adopted the Emerging
Issues Task Force of the Financial Accounting Standards Board release Issue
No. 97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" ("EITF 97-11"). EITF 97-11 requires that the internal
pre-acquisition costs of identifying and acquiring operating property be
expensed as incurred. The adoption of EITF 97-11 did not have a material
impact on the Company's financial statements.
During the first quarter of 1998, the Company also adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 specifies the
presentation and disclosure requirements for comprehensive income which
includes those items which have been formerly reported as a component of
stockholders' equity. 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 to
make 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 risks, estimates and assumptions
are related to the recoverability and depreciable lives of investment
property, the recoverability of deferred tenant receivables and the
qualification of the Company as a REIT. Actual results could differ from
those estimates.
6 of 30
<PAGE>
2. PROPERTIES
The following table summarizes Cornerstone's interest in real estate
investments at September 30, 1998:
<TABLE>
<CAPTION>
Completed/ Net Rentable Ownership
Property Location Acquired square feet % Leased Interest Notes
- -------- -------- -------- ---------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center.......... Denver, Colorado 1983 1,188,000 97% 100%
Norwest Center.............. Minneapolis, Minnesota 1988 1,118,000 99% 50% A
Washington Mutual Tower..... Seattle, Washington 1988 1,155,000 99% 50% B
125 Summer Street........... Boston, Massachusetts 1989/1995 464,000 99% 100%
Tower 56.................... New York, New York 1983/1996 162,000 99% 100% C
One Lincoln Centre.......... Oakbrook Terrace, Illinois 1986/1996 297,000 91% 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
Market Square............... Washington, D.C. 1990/1997 689,000 95% 59% E
500 Boylston Street......... Boston, Massachusetts 1988/1997 715,000 100% 91.5% F
222 Berkeley Street......... Boston, Massachusetts 1991/1997 531,000 100% 91.5% F
Charlotte Plaza............. Charlotte, North Carolina 1982/1997 613,000 98% 100%
200 Galleria................ Atlanta, Georgia 1985/1997 433,000 94% 100%
11 Canal Center............. Alexandria, Virginia 1986/1997 70,000 96% 100%
99 Canal Center............. Alexandria, Virginia 1986/1997 138,000 99% 100%
TransPotomac Plaza 5........ Alexandria, Virginia 1983/1997 96,000 100% 100%
Sixty State Street.......... Boston, Massachusetts 1979/1997 823,000 99% 100% G
Corporate 500 Centre........ Deerfield, Illinois 1986-90/1998 679,000 95% 100% H
One Memorial Drive.......... Cambridge, Massachusetts 1987/1998 353,000 100% 100% I
201 California Street....... San Francisco, California 1980/1998 240,000 100% 100% J
Wilshire Palisades.......... Santa Monica, California 1981/1998 186,000 100% 100% J
</TABLE>
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(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 nine months ended September 30, 1998, the Company's share of
earnings and cash distributions from the partnership that owns Norwest
Center was 81%.
(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 nine months ended September 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. As a result, all cash flow
and the residual value of Tower 56 inures 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 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 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 from the property.
The partnership that owns 191 Peachtree Street leases a portion of the
land upon which the project is located pursuant to a ground lease
agreement. The agreement requires the partnership to make 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.
(E) 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 $49.0 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
nine months ended September 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.
(F) 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.
(G) 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) 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 was originally recorded by the
Company as an $89.6 million liability due to its above-market interest
rate.
The second mortgage, which the Company holds, is collateralized only by
the improvements on Sixty State Street in Boston. Title to the
improvements is owned by Marshall Field, who is the ground lessee under a
ground lease that expires on December 28, 2067. The lease payments on the
ground lease are $398,896 per annum throughout the term.
(H) 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 Company had entered into an interest rate
swap agreement with Bankers Trust Company that effectively fixed the
interest rate on the mortgage loan at 6.63%; this agreement was
terminated in August 1998 at no cost to the Company. This swap was
considered a hedge for federal income tax purposes. This mortgage was
subsequently refinanced in October 1998 - see Footnote 5(M).
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(I) 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.
(J) 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
$2,111,540.
3. INVESTMENT IN REAL ESTATE JOINT VENTURE
During October 1997, the Company acquired the first mortgage note on
Market Square in the amount of $181.0 million which earns interest at a rate
of 9.75%. In addition, the Company acquired a "buffer loan", with accrued
principal and interest of $49.0 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 January 1998, the Company purchased a 99% interest in Market
Square Development Investors ("MSDI") for approximately $5.1 million. 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 balance sheet information
as of September 30, 1998 and income and expense information for the nine
months ended September 30, 1998 for the MSA entity (amounts in thousands):
<TABLE>
<CAPTION>
1998
-------------
<S> <C>
Total Assets, primarily investments in real estate $ 173,830
Total Liabilities, primarily notes payable to the Company 235,684
Revenues, primarily office and parking rentals 21,403
Net Loss (6,995)
</TABLE>
The amount recorded as earnings in real estate joint venture includes the
interest income earned on the notes discussed above, which was offset by the
net loss of MSA from January 30, 1998 through September 30, 1998, plus
adjustments for straight-line rent and interest expense.
4. OTHER DEFERRED COSTS
Included within "other deferred costs" is $138.8 million in loans made
by the Company between June and September 1998 to affiliates or special
purpose entities formed by William Wilson & Associates (individually or
collectively "Wilson"). The loans bear interest at a rate of LIBOR plus 1.50%
and mature on December 31, 1999 ($89.1 million) and March 20, 2000 ($49.7
million). The loans are collateralized by seven office projects and one
parcel of undeveloped land owned by Wilson in the western United States. Upon
consummation of the Wilson Acquisition, the outstanding loan balance will be
offset against the purchase price. In the event that the Wilson Acquisition
is not consummated (see Footnotes 7 and 13), Wilson is obligated to repay the
loans and any accrued interest. The Company financed these loans in part
through drawing on its credit facility, which bears interest at a
weighted-average rate of approximately 6.79%.
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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 September 30, 1998,
including mortgage obligations relating to the Company's 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.
<TABLE>
<CAPTION>
Maturity Prepayment
Property Amortization Interest Rate Date Provisions 9/30/98 12/31/97
- -------- ------------ ------------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Convertible Promissory Note
due 2001 (A).................... Interest only 8.11% max (B) Jan-2001 Not prepayable $12,926,000 $12,926,000
One Norwest Center (C)............ 10 year 6.90 Oct-2008 (D) 98,500,000 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 (E) 79,100,000 79,100,000
125 Summer Street................. Interest only (F) 7.20 Jan-2003 (G) 50,000,000 50,000,000
Tower 56.......................... 30 year 7.67 May-2003 (H) 17,608,000 17,742,000
TransPotomac Plaza 5 and Charlotte
Plaza (I)....................... Interest only 7.28 Oct-2000 Not prepayable 65,000,000 65,000,000
527 Madison Avenue and One Lincoln
Centre (I)...................... Interest only 7.47 Oct-2004 Not prepayable 65,000,000 65,000,000
Market Square (J) and 200
Galleria (I).................... Interest only 7.54 Oct-2007 Not prepayable 120,000,000 120,000,000
Sixty State Street (K)............ 30 year 6.84 Jan-2005 (L) 88,140,000 89,630,000
Corporate 500 Centre (M).......... Interest only 6.63 (N) Jul-2002 Prepayable 80,000,000 -
201 California Street (O)......... 30 year 6.70 Mar-2005 (P) 33,171,000 -
Wilshire Palisades (Q)............ 30 year 6.70 Jul-2002 (R) 30,109,000 -
--------------------------- ------------------------------
7.37%(S) 6.4 yrs. (S) $849,554,000 $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) On September 25, 1998, the Company completed the refinancing of the $96.1
million mortgage on One Norwest Center with CIGNA and Mass Mutual. As a
result of the refinancing, the principal balance was increased to $98.5
million, the term of the loan was extended from three years to ten years
and the interest rate was reduced from 7.50% to 6.90%.
(D) No prepayment until October 1, 2000. From October 1, 2000 through September
30, 2007, the prepayment fee is the greater of 1% of the outstanding
principal balance or Treasury Yield Maintenance (as defined). Beginning
October 1, 2007, the prepayment fee is Treasury Yield Maintenance. The loan
may be repaid at par during the last three months of the loan.
(E) No prepayment until September 30, 1998. Prepayable thereafter, with a
prepayment fee equal to the greater of 1% of the outstanding principal
balance or Treasury Yield Maintenance (as defined). Prepayment without
fee during the six months prior to the maturity date.
(F) Interest only payments through January 1, 2001, with a 25-year amortization
schedule thereafter.
10 of 30
<PAGE>
(G) No prepayment until July 1, 1999. Prepayable thereafter with a
prepayment fee equal to the greater of 1% of the outstanding
principal balance or Treasury Yield Maintenance (as defined).
Prepayment without fee on or after three months prior to maturity date.
(H) No prepayment until December 31, 1999. Prepayable thereafter 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.
(I) The three loans arising from the acquisition of several properties from
DIHC are cross-collateralized, having the effect of forming a "collateral
pool" for the underlying notes.
(J) 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.
(K) While the face amount of the loan is $77,938,000, and the interest rate is
9.5%, the Company is carrying the debt at $88,140,000, which is the market
value of the loan at the time of the closing, less the amortization of
principal and premium since closing, based upon a market interest rate for
similar quality loans of 6.84%.
(L) No prepayment until February 1, 2000. Prepayable thereafter with a
prepayment fee equal to the greater of 2% of the outstanding principal
balance or 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.
(M) On October 9, 1998, the Company completed the refinancing of the $80.0
million mortgage on Corporate 500 Centre with Teachers Insurance and
Annuity Association. As a result of the refinancing, the principal balance
was increased to $90.0 million, the term of the loan was extended from 4.5
years to 10 years and the interest rate was increased by three basis points
to 6.66%.
(N) The interest rate on the loan is LIBOR plus 100 basis points.
(O) While the face amount of the loan is $32,842,000, and the interest rate is
6.9%, the Company has recorded the debt at $33,171,000, which is the market
value of the loan at the time of the closing, less the amortization of
principal and premium since closing, based upon a market interest rate for
similar quality loans of 6.70%.
(P) No prepayment until March 15, 2001. Prepayable thereafter with a
prepayment fee, if paid in full, equal to the greater of 1% of the
amount being prepaid or 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.
(Q) While the face amount of the loan is $28,841,000, and the interest rate is
8.04%, the Company has recorded the debt at $30,109,000, which is the
market value of the loan at the time of the closing, less the amortization
of principal and premium since closing, based upon a market interest rate
for similar quality loans of 6.70%.
(R) No prepayment until July 1, 1998. Prepayable thereafter with 60 days notice
to Lender, with a prepayment fee equal to the greater of 1% of the
outstanding principal balance or Yield Maintenance (as defined).
(S) Weighted-average interest rate and term of the Company's long-term
debt.
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.
11 of 30
<PAGE>
6. CREDIT FACILITY
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 September 30, 1998, $148.0 million of the credit
line was outstanding at a weighted-average interest rate of approximately
6.79% as well as a $0.9 million letter of credit at a spread of 1.40%. The
letter of credit expired on November 2, 1998. 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) the percentage of total liabilities to total property
asset value (as defined) cannot exceed 55%; (iii) the ratio of adjusted
EBITDA to interest expense may not be less than 2.25 to 1.00; (iv) the fixed
charge coverage ratio may not be less than 1.75 to 1.00; and (v) the ratio of
total property asset value to secured indebtedness may not be less than 2.50
to 1.00.
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, of which
approximately $33.0 million has been spent to date. 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
and acquire certain assets from 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 the Wilson Acquisition is
estimated to be approximately $1.81 billion and is expected to close during
the fourth quarter of 1998. See Footnote 13.
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 (approximately $262.3 million gross proceeds less an underwriting
discount of approximately $13.7 million and expenses of approximately $0.7
million). The net proceeds were used to repay outstanding borrowings under
the Revolving Credit Facility and for working capital purposes.
12 of 30
<PAGE>
The following tables summarize the stock options and restricted stock
grants for certain officers of the Company as of September 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>
August, 1995 .... 637,500 $ 14.30 33.3%/yr, 10yr term 637,500 0
October, 1995 ... 150,000 $ 14.30 33.3%/yr, 10yr term 100,000 10,500
March, 1997 ..... 880,000 $ 14.50 33.3%/yr, 10yr term 293,333 0
November, 1997 .. 70,000 $ 18.44 33.3%/yr, 10yr term 0 0
February, 1998 .. 70,000 $ 18.13 33.3%/yr, 10yr term 0 0
February, 1998 .. 595,000 $ 18.25 33.3%/yr, 10yr term 0 0
March, 1998 ..... 200,000 $ 18.25 33.3%/yr, 10yr term 0 0
</TABLE>
Restricted Stock Grants
<TABLE>
<CAPTION>
Shares Granted Value at Grant
Date of Grant (No. of shares) Date (per share) Vesting (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, 10yr 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 of approximately $1,978,000 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/unit 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/unit 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. A cash dividend and
Unitholder distribution of $0.30 per share/unit was declared for the third
quarter of 1998 and paid on August 31, 1998, to Common Stockholders and
Unitholders of record as of July 31, 1998.
13 of 30
<PAGE>
10. INCOME PER COMMON SHARE
The tables below set forth the calculation of income per common share for
the three and nine months ended September 30, 1998 and 1997 (dollar amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------
September 30, 1998 September 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 $ -- $ 15.91 $ -- $ 17.31
Treasury shares that could be
repurchased (options) -- 2,573 -- 1,388
Option shares outstanding -- 2,592 -- 1,668
Weighted common stock equivalent
shares (Excess shares under option
over Treasury shares that could
be repurchased) -- 157 -- 280
Weighted average common shares
outstanding 101,574 101,574 45,804 45,804
--------- --------- --------- ---------
Adjusted weighted average common
shares outstanding 101,574 101,731 45,804 46,084
Net income for the period $ 18,958 $ 18,958 $ 8,076 $ 8,076
Income applicable to
preferred stock $ (875) $ (875) $ (875) $ (875)
--------- --------- --------- ---------
Income available to
common shares $ 18,083 $ 18,083 $ 7,201 $ 7,201
Income per common share $ 0.18 $ 0.18 $ 0.16 $ 0.16
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------------------------
September 30, 1998 September 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 $ -- $ 17.29 $ -- $ 16.14
Treasury shares that could be
repurchased (options) -- 2,368 -- 1,488
Option shares outstanding -- 2,592 -- 1,668
Weighted common stock equivalent
shares (Excess shares under option
over Treasury shares that could be
repurchased) -- 276 -- 179
Weighted average common shares
outstanding 98,312 98,312 33,494 33,494
-------- -------- -------- --------
Adjusted weighted average common
shares outstanding 98,312 98,588 33,494 33,673
Net income for the period $ 60,964 $ 60,964 $ 21,666 $ 21,666
Income applicable to
preferred stock $ (2,625) $ (2,625) $ (9,285) $ (9,285)
-------- -------- -------- --------
Income available to
common shares $ 58,339 $ 58,339 $ 12,381 $ 12,381
Income per common share $ 0.59 $ 0.59 $ 0.37 $ 0.37
</TABLE>
14 of 30
<PAGE>
11. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $46,981,000 and $21,955,000 for
the nine months ended September 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.
On September 25, 1998, in conjunction with the refinancing of the One
Norwest Center mortgage, the Company incurred an extraordinary loss of $507,022,
which represented the unamortized deferred financing costs on the previous One
Norwest Center mortgage at the time of the refinancing.
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 527 Madison Avenue, the DIHC Properties, 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 acquisitions taken place at the date indicated. Also, they may not be
indicative of the results that may be achieved in the future.
<TABLE>
<CAPTION>
September 30, 1998 1997
------------- ---- ----
<S> <C> <C>
Pro forma total revenues $ 269,769,000 $ 246,576,000
Pro forma income before extraordinary items 63,165,000 68,080,000
Pro forma net income 60,896,000 68,026,000
Pro forma extraordinary loss per share (0.02) 0.00
Pro forma income per share 0.58 0.83
</TABLE>
15 of 30
<PAGE>
13. OTHER MATTERS
On June 22, 1998, the Company entered into an agreement to merge with
and acquire certain assets from 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 $1.81
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, at a stated price of $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 September 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. The Wilson
investors consented to the transaction in September 1998. The Company's proxy
statement has been filed and distributed to its stockholders. Upon approval
of the transaction by the Company's stockholders, the transaction will close
in the fourth quarter of 1998.
14. SUBSEQUENT EVENTS
A cash dividend and Unitholder distribution of $0.30 per share/unit was
declared for the fourth quarter of 1998 to Common Stockholders and
Unitholders of record as of October 30, 1998, to be paid on November 30, 1998.
On November 4, 1998, a syndicate of banks led by BT Alex. Brown, Chase
Securities, and NationsBank Montgomery Securities provided the Company with a
$550 million line of credit for acquisitions and general working capital
purposes. 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. These are the same terms as the Company's previous $350
million line of credit, which was retired at the closing of the new line of
credit. The $550 million line of credit expires on November 4, 2001. On
November 4, 1998, the amount outstanding on the previous line of credit was
transferred to the banks taking part in the syndicate providing the new line
of credit.
On November 6, 1998, the Company purchased an additional 14.29% partnership
interest in MSA for $4.0 million. Upon completion of the transaction, the
Company effectively owns 99.14% of the MSA entity, which has a 70% interest in
AALP. AALP owns and operates Market Square (see Footnote 3). The Company will
consolidate Market Square in the fourth quarter.
16 of 30
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 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 nine months ended September 30, 1998 and 1997,
Property results can be summarized as follows (amounts in thousands):
<TABLE>
<CAPTION>
For the three For the three For the nine For the nine
months ended months ended months ended months ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
-------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Office and Parking Rentals $83,227 $34,546 $239,767 $103,237
Less:
Building Operating Expenses 18,896 7,660 52,947 22,693
Real Estate Taxes 12,034 5,933 34,900 17,553
Depreciation and Amortization 15,702 7,057 42,561 20,865
------- ------- -------- -------
Total Operating Expenses 46,632 20,650 130,408 61,111
------- ------- -------- -------
Total Property Income $36,595 $13,896 $109,359 $42,126
------- ------- -------- -------
------- ------- -------- -------
</TABLE>
The increase in property income of $22.7 million for the three months
ended September 30, 1998 as compared to the same period in 1997 was due to
additional revenue of $22.6 million derived from 13 properties acquired since
September 30, 1997. At the properties held during both periods (the "Existing
Propoerties"), property income at One Norwest Center increased $0.4 million
due to increased rental rates. The remaining increase of $0.1 million was
caused by slight variances in property income at the existing properties.
These increases were offset by a reduction in property income of $0.4 million
at the Frick Building which was due to the sale of this building in April
1998.
The increase in property income of $67.2 million for the nine months
ended September 30, 1998 as compared to the same period in 1997 was due to
the additional revenue of $65.9 million derived from 13 properties acquired
since September 30, 1997 and an increase of $0.7 million in revenues from 527
Madison Avenue because it was purchased in February 1997. At the Existing
Properties, property income at One Norwest Center increased $0.2 million due
to increased rental rates. Washington Mutual Tower increased $0.6 million due
to increased rental rates and parking revenue. 125 Summer Street increased
$0.6 million due to increased rental rates and the lease up of the former
Gadsby and Hannah space which was vacant during the same period in 1997.
These increases were offset by a reduction in property income of $0.6 million
at the Frick Building which was due to the sale of this building in April
1998. The remaining decrease of $0.2 million was caused by slight variances
in property income at the other properties.
17 of 30
<PAGE>
Earnings in Real Estate Joint Venture
The earnings in real estate joint venture of approximately $10.1 million
for the nine months ended September 30, 1998 was due to the acquisition of
the mortgage loan and "buffer loan" on Market Square in October 1997 and the
partnership interest in Market Square in January 1998. The amount is
comprised of approximately $15.1 million of interest earned on the loans
which is offset by an equity in loss pickup of approximately $5.0 million.
Interest and Other Income
Interest and other income decreased to approximately $2.0 million for
the three months ended September 30, 1998 from approximately $3.9 million for
the three months ended September 30, 1997. These amounts primarily consist of
interest earned from short-term investments, management fee income, lease
cancellation payments and income from advisory contracts in 1997. The
decrease was due to a reduction in interest income of $2.7 million 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, a reduction of $0.6 million due to the expiration of certain
advisory contracts in 1997 and a reduction in lease cancellation income of
$0.3 million. These amounts were offset by an increase of $0.8 million in
tenant alteration income, a $0.4 million increase in management fee income
and an increase of $0.5 million in other income.
Interest and other income decreased to approximately $7.2 million for
the nine months ended September 30, 1998 from approximately $8.4 for the nine
months ended September 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 decrease was due to a reduction in interest income of
$4.7 million 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, a reduction of $0.9 million due to the expiration
of certain advisory contracts in 1997 and a reduction of $0.1 million in
interest received from the note receivable from a partner due to the
reduction in principal. These amounts were offset by an increase of $2.0
million in tenant alteration income, an increase of $1.8 million due to the
purchase of the mortgage note on Market Square in late 1997 and an increase
of $0.7 million in management fee income.
Interest Expense
Interest expense incurred by Cornerstone relating to its financing
activities increased to approximately $16.1 million for the three months
ended September 30, 1998 from approximately $7.4 million for the three months
ended September 30, 1997. The increase in interest expense was due to $4.7
million of interest expense on the purchase money loans from the DIHC
transaction, an increase in interest expense of $0.2 million on the Revolving
Credit Facility, an increase of $0.2 million in amortization of deferred
financing costs, interest of $1.5 million on the Sixty State Street loan,
interest of $1.3 million on the Corporate 500 Centre loan, interest of $0.5
million on the 201 California Street loan and interest of $0.5 million on the
Wilshire Palisades loan. These increases were offset by the decrease of $0.2
million due to the refinancing of the One Norwest Center loan, as discussed
below.
Interest expense incurred by Cornerstone relating to its financing
activities increased to approximately $47.7 million for the nine months ended
September 30, 1998 from approximately $22.4 million for the nine months ended
September 30, 1997. The increase in interest expense was due to $13.7 million
of interest expense on the purchase money loans from the DIHC transaction, an
increase in interest expense of $2.0 million on the Revolving Credit
Facility, an increase of $0.6 million in amortization of deferred financing
costs, interest of $4.6 million on the Sixty State Street loan, interest of
$3.6 million on the Corporate 500 Centre loan, interest of $0.7 million on
the 201 California Street loan and interest of $0.7 million on the Wilshire
Palisades loan. These increases were offset by a decrease of $0.4 million due
to the Term Loan interest and a decrease of $0.2 million due to the
refinancing of the One Norwest Center loan, both as discussed below.
18 of 30
<PAGE>
General and Administrative Expenses
The aggregate amount of Cornerstone's general and administrative
expenses have increased to approximately $3.2 million for the three months
ended September 30, 1998 from approximately $1.9 million for the three months
ended September 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. Included in the increase is approximately $1.1
million of accrued bonus expense which is expected to be paid upon
consummation of the Wilson Acquisition.
The aggregate amount of Cornerstone's general and administrative
expenses have increased to approximately $8.7 million for the nine months
ended September 30, 1998 from approximately $5.1 million for the nine months
ended September 30, 1997. The increase in 1998 from 1997 of $3.6 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. Included in the increase is approximately $1.1
million of accrued bonus expense which is expected to be paid upon
consummation of the Wilson Acquisition.
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
$18.8 million, resulting in a loss of approximately $0.2 million.
On April 29, 1998, the Company sold the Frick Building, located in
Pittsburgh, PA, for net proceeds of approximately $26.7 million, resulting in
a loss of approximately $2.1 million.
Minority Interest
Minority interest increased to approximately $1.8 million for the three
months ended September 30, 1998 from approximately $0.4 million for the three
months ended September 30, 1997 due to the allocation of income to the
Unitholders and the purchase of the partnership interests in 500 Boylston,
222 Berkeley and 191 Peachtree.
Minority interest increased to approximately $4.7 million for the nine
months ended September 30, 1998 from approximately $1.4 million for the nine
months ended September 30, 1997 due to the allocation of income to the
Unitholders and the purchase of the partnership interests in 500 Boylston,
222 Berkeley and 191 Peachtree.
Interest Rate Swaps
During 1998, the Company had entered into a $80.0 million interest rate
swap to protect it from interest rate fluctuations that could have affected
its floating rate debt on Corporate 500 Centre. The swap effectively fixed
the interest rate on the $80.0 million loan at 6.63%. This agreement was
terminated in August 1998 at no cost to the Company. The swap was considered
a hedge for federal income tax purposes.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow (dollar amounts in thousands)
<TABLE>
<CAPTION>
For the nine months ended For the nine months ended
Cash flow provided by (used in): September 30, 1998 September 30, 1997
- -------------------------------- ------------------------- -------------------------
<S> <C> <C>
Operating activities $ 116,786 $ 43,472
Investing activities (303,632) (74,161)
Financing activities 192,682 140,760
Earnings to fixed charges ratio 2.16 1.39
</TABLE>
Cash provided by operating activities increased to approximately $116.8
million for the nine months ended September 30, 1998 from approximately $43.5
million for the nine months ended September 30, 1997. The increase is
primarily due to the cash flows from the interests in 13 properties acquired
since the end of the third quarter of 1997.
Cash used in investing activities increased to approximately $303.6
million for the nine months ended September 30, 1998 from approximately $74.2
million for the nine months ended September 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 net change in the investment in Market Square
of approximately $7.1 million, an increase in deferred costs of approximately
$141.0 million and other property additions of approximately $15.5 million.
These investments were partially offset by the approximately $18.8 million
and approximately $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 approximately $1.1 million from the
repayment of notes receivable. During 1997, the Company invested
approximately $67.0 million in 527 Madison Avenue and approximately $8.1
million in other property investments. These investments were slightly offset
by the receipt of approximately $0.9 million from the repayment of notes
receivable.
Cash provided by financing activities increased to approximately $192.7
million for the nine months ended September 30, 1998 from approximately
$140.8 million for the nine months ended September 30, 1997. The increase was
mainly due to the secondary offering proceeds of approximately $262.3 million
compared to approximately $225.4 million received from the Company's IPO in
1997, an increase in mortgage borrowings of approximately $47.4 million, a
decrease in restricted cash of approximately $32.0 million and a decrease in
stock and debt issuance costs of approximately $2.5 million. Further adding
to the increase was a decrease in loan repayments of approximately $30.8
million and a decrease in preferred distributions of approximately $6.7
million. These amounts were offset by an increase in credit facility
repayments versus credit facility borrowings of approximately $39.0 million,
a decrease in proceeds from the dividend reinvestment plan of approximately
$3.4 million, an increase in distributions to minority partners of
approximately $4.3 million, an increase in net swap termination and debt
prepayment costs of approximately $1.6 million and an increase in dividends
paid of approximately $56.1 million.
The ratio of earnings to fixed charges and dividends on preferred stock
increased to 2.16 times at September 30, 1998 from 1.39 times at September
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 a substitute for cash flow from
operations as a measure of liquidity calculated in accordance with generally
accepted accounting principles.
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<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 generate earnings from its
recurring operations, after the payment of all administrative costs and
interest expense. 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 September 30, 1998 is
an increase of approximately $3,483,000 and a decrease of approximately
$38,000 for the three months ended September 30, 1997, for free and deferred
rental income (after adjustment for minority interest). Included in FFO for
the nine months ended September 30, 1998 and 1997 is an increase of
approximately $10,392,000 and $746,000, 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 nine month
periods ended September 30, 1998 and 1997, respectively (amounts in
thousands):
Funds From Operations (1)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net income $ 18,958 $ 8,076 $ 60,964 $ 21,666
NAREIT adjustments:
Depreciation and amortization (2) 15,702 7,057 42,561 20,865
Realized/unrealized gain on swaps 0 0 0 (99)
Minority adjustments (407) (307) (1,415) (1,044)
Unconsolidated depreciation 1,380 0 3,554 0
Loss on sale of real estate assets 127 0 2,324 0
Extraordinary losses/swap losses 2,269 0 2,269 54
Other adjustments:
Amortization on rent notes 387 346 1,133 903
Minority interest allocated to
unitholders 780 0 1,426 0
-------- -------- -------- --------
Funds from operations 39,196 15,172 112,816 42,345
Interest expense on convertible note 200 199 604 592
-------- -------- -------- --------
Funds from operations available for
diluted shares $ 39,396 $ 15,371 $ 113,420 $ 42,937
-------- -------- -------- --------
-------- -------- -------- --------
</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.
21 of 30
<PAGE>
The increase in FFO for the three and nine month periods ended September
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 February 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 $3.7
million and issued an additional 243,907 shares of Common Stock to such
stockholders.
On April 21, 1997, the Company received approximately $225.4 million
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 Properties.
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 shares of Common
Stock. The contractual conversion was based upon meeting a $16.00 twenty-day
average price per share of Common Stock.
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
Properties, 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 $247.9 million
(approximately $262.3 million gross proceeds less an underwriting discount of
approximately $13.7 million and expenses of approximately $0.7 million).
The net proceeds were used to repay the Company's acquisition line of credit
and for working capital purposes.
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<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.
On August 31, 1998, through a dividend reinvestment plan available to
its German stockholders, Cornerstone received proceeds of approximately $1.5
million and issued an additional 94,610 shares of Common Stock to such
stockholders.
Mortgage Indebtedness
On October 27, 1997, the Company entered into three mortgage loans with
PGGM and its wholly-owned subsidiary DIHC 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 has a $65.0 million principal balance, bears interest
at a rate of 7.28% and matures in October 2000. Upon repayment of this loan,
PGGM will release the liens on TransPotomac Plaza 5 and Charlotte Plaza. The
second loan has a $65.0 million principal balance, bears interest at a rate
of 7.47% and matures in October 2004. Upon repayment of this loan, PGGM will
release the liens on 527 Madison Avenue and One Lincoln Centre. The third
loan has a $120.0 million principal balance, bears interest at 7.54% and
matures in October 2007. Upon repayment of this loan, 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. 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 $77.9 million,
and the interest rate is 9.5%, the Company is carrying the debt at $88.1
million, which is the market value of the loan at the time of the closing,
less the amortization of principal and premium since 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.
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
loan is $32.8 million, and the interest rate is 6.9%, the Company is carrying
the debt at $33.2 million, which is the market value of the loan at the time
of the closing, less the amortization of principal and premium since closing,
based upon a market interest rate for similar quality loans of 6.7%.
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<PAGE>
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
loan is $28.8 million, and the interest rate is 8.04%, the Company is
carrying the debt at $30.1 million, which is the market value of the loan at
the time of the closing, less the amortization of principal and premium since
closing, based upon a market interest rate for similar quality loans of 6.7%.
On September 25, 1998, the Company completed the refinancing of the
$96.1 million mortgage on One Norwest Center with CIGNA and Mass Mutual. As a
result of the refinancing, the principal balance was increased to $98.5
million, the term of the loan was extended from three years to ten years and
the interest rate was reduced from 7.50% to 6.90%.
On October 9, 1998, the Company completed the refinancing of the $80.0
million mortgage on Corporate 500 Centre with Teachers Insurance and Annuity
Association. As a result of the refinancing, the principal balance was
increased to $90.0 million, the term of the loan was extended from 4.5 years
to 10 years and the interest rate was increased by three basis points to
6.66%.
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
September 30, 1998, $148.0 million of the credit line was outstanding at a
weighted-average interest rate of approximately 6.79%. 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/unit 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/unit
to all stockholders and Unitholders on May 29, 1998 (to stockholders and
Unitholders of record as of April 30, 1998). The Company paid distributions of
$0.30 per share/unit to all stockholders and Unitholders on August 31, 1998 (to
stockholders and Unitholders of record as of July 31, 1998).
At the present time, the Company is current in the payment of all
preferred dividends.
Liquidity
At September 30, 1998, the Company had approximately $30.6 million in
cash and cash equivalents and approximately $5.3 million in restricted cash.
Restricted cash is being held by the mortgage servicer for the One Norwest
Center, Washington Mutual Tower and Wilshire Palisades mortgage loans.
Cornerstone also had available $202.0 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.
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<PAGE>
Other Matters
General
- -------
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.
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. SFAS 133 establishes a new model for
accounting for derivatives and hedging activities and supersedes and amends a
number of existing standards. 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. 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. Management believes that when the Company adopts SFAS 133, SOP 98-5
and SOP 98-1 they will not have a significant impact on the Company's
financial statements.
During the first quarter of 1998, the Company adopted the Emerging
Issues Task Force of the Financial Accounting Standards Board release Issue
No. 97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" ("EITF 97-11"). EITF 97-11 requires that the internal
pre-acquisition costs of identifying and acquiring operating property be
expensed as incurred. The adoption of EITF 97-11 did not have a material
impact on the Company's financial statements.
During the first quarter of 1998, the Company also adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 specifies the
presentation and disclosure requirements for comprehensive income which
includes those items which have been formerly reported as a component of
stockholders' equity. The adoption of SFAS 130 did not have a significant
impact on the Company's financial statements.
Year 2000 Issue
- ---------------
General
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define a specific year. Absent
corrective actions, a computer program that has date sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, prepare financial statements, send tenant invoices, or engage
in similar normal business activities.
Readiness
The Company's corporate business and technical information systems have
been assessed as to Year 2000 compliance and functionality. Presently these
systems are nearly complete with respect to required software or hardware
changes. The Company anticipates that internal business and technical
information Year 2000 compliance issues will be substantially remediated by
the end of the second quarter of 1999.
The Company has completed the identification and review of computer
hardware and software suppliers and is in the process of verifying the Year
2000 preparedness of third party property managers, suppliers, tenants,
vendors and/or service providers that the Company has identified as critical.
25 of 30
<PAGE>
Cost
The total historical and anticipated remaining costs for the Year 2000
remediation are estimated to be immaterial to the Company's financial
condition. The costs to date have been expensed as incurred and consist of
immaterial internal staff costs and other expenses such as telephone and
mailing costs. In addition, where the appropriate course of action includes
replacement or upgrade of certain systems or equipment, the Company's review
at this time indicates a minor cost to the Company. The "non-information
technology building systems" that have thus far been identified as
non-compliant are at or approaching the end of their useful lives and have
been or will be replaced or upgraded in 1999 as a part of the normal
operations and maintenance at the Company's properties.
The Company does not anticipate delays in finalizing Year 2000
remediation within remaining time schedules. However, third parties having a
material relationship with the Company (e.g., property managers, utilities,
financial institutions, governmental agencies, municipalities and major
tenants) may be a potential risk based on their individual Year 2000
preparedness which may not be within the Company's reasonable control. The
Company is in the process of identifying, reviewing and logging the Year 2000
preparedness of critical third parties.
Anticipated completion of this review is December 31, 1998. Pending the
results of that review, the Company will determine what course of action and
contingencies will need to be made. There can be no assurance that the
external Year 2000 issues will be resolved in 1999. If not resolved, such
issues could have a material adverse impact on the Company's business,
operating results and financial condition.
Year 2000 Compliance Detail
The Company's program addresses the Year 2000 issue with respect to the
following: (i) the Company's information technology and operating systems,
including its accounting and financial reporting systems; (ii) the Company's
"non-information technology building systems", including building access,
energy management, elevator systems, equipment and other infrastructure
systems that may contain or use computer systems or embedded micro-controller
technology; and (iii) certain systems of the Company's third party property
managers, major suppliers and material service providers (insofar as such
systems relate to the Company's business activities such as billing,
financial reporting, payroll, health services, stock transfer services and
alarm systems). As described below, the Company's Year 2000 program involves
(a) an assessment of the Year 2000 problems that may affect the Company, (b)
the development of remedies to address the problems discovered in the
assessment phase, (c) the testing of such remedies and (d) the preparation of
contingency plans to deal with worst case scenarios.
Assessment Phase. As part of the internal assessment phase, the Company
has attempted to substantially identify all the major components of the systems
described above. In determining the extent to which such systems are vulnerable
to the Year 2000 issue, the Company is evaluating either directly or through its
third party managers purchased software applications and property operational
control systems, e.g., heating ventilation and air conditioning (HVAC), lighting
timers, alarms, fire, sewage and access. In addition, in the second quarter of
1998, the Company's third party managers began sending letters to the major
suppliers and service providers of the Company's buildings, requesting them to
provide assurance of existing or anticipated Year 2000 compliance by their
systems insofar as the systems relate to their activities with the Company. The
Company is requesting that all responses to the inquiries be returned to it no
later than December 31, 1998.
Remediation and Testing Phase. Based upon the assessment and
remediation efforts to date, the Company has completed, tested and put on line
the Year 2000 compliance modification in all the software for all corporate
applications including accounting and financial reporting. All of the Company's
personal computers and associated applications and networking infrastructure are
Year 2000 compliant.
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<PAGE>
The Company purchases primarily "off-the-shelf" versions of the
software used for spreadsheet analysis, database applications, word processing
systems and accounting, all of which are Year 2000 compliant. The Company's
corporate office phone, communication and data processing networks are Year 2000
compliant.
Seven third-party property managers manage the Company's portfolio of
21 office properties. The Company is working closely with these managers to
assess the Year 2000 impact on the operations of the buildings. For the most
part, the systems reviewed by the Company have been found to be Year 2000
compliant. The reviewed systems include but are not limited to HVAC equipment,
building management systems, elevators, security and life safety systems. Those
systems that have been found not to be compliant are nearing the end of their
useful lives and are being replaced or upgraded in the normal course of
business.
Contingency Plans. The Company intends to develop contingency plans to
handle its most reasonably likely worst case Year 2000 scenarios. These have not
yet been identified fully. The Company intends to complete its determination of
worst case scenarios after it has received and analyzed responses to
substantially all of the inquiries it has made of third parties. Following its
analysis, the Company intends to develop a timetable for completing its
contingency plans.
Costs Related to the Year 2000 Issue. To date, the Company has
incurred no material costs. Labor, mailing and phone costs attributed to the
Year 2000 program are minimal. The Company currently estimates that to have
all systems compliant it will incur some additional costs which are not
quantifiable but believed to be not material to the Company's business. The
"non-information technology building systems" that have thus far been
identified as non-compliant and at or approaching the end of their useful
lives will be replaced or upgraded as a part of the normal operations and
maintenance at the Company's properties.
Risks Related to the Year 2000 Issue. Although the Company's Year 2000
efforts are intended to minimize the adverse effects of the Year 2000 issue on
the Company's business and operations, the actual effects of the issue and the
success or failure of the Company's efforts described above cannot be known
until the year 2000. Failure by the Company's third party managers, major
suppliers, and other service providers to address adequately their respective
Year 2000 issues in a timely manner (insofar as such issues relate to the
Company's business) could have a material adverse effect on the Company's
business, results of operations and financial condition.
Wilson Acquisition
- ------------------
On June 22, 1998, the Company entered into an agreement to merge
with and acquire certain assets from 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 $1.81
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, at a stated price of $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 September 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. The Wilson
investors consented to the transaction in September 1998. The Company's proxy
statement has been filed and distributed to its stockholders. Upon approval
of the transaction by the Company's stockholders, the transaction will close
in the fourth quarter of 1998.
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<PAGE>
Minneapolis Office Building Development
- ---------------------------------------
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, of which approximately $33.0 million has been spent to date. 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.
Subsequent Events
1. A cash dividend and Unitholder distribution of $0.30 per share was
declared for the fourth quarter of 1998 to Common Stockholders and
Unitholders of record as of October 30, 1998, to be paid on November 30, 1998.
2. On November 4, 1998, a syndicate of banks led by BT Alex. Brown,
Chase Securities, and NationsBank Montgomery Securities provided the Company
with a $550 million line of credit for acquisitions and general working
capital purposes. 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. These are the same terms as the Company's
previous $350 million line of credit, which was retired at the closing of the
new line of credit. The $550 million line of credit expires on November 4,
2001. On November 4, 1998, the amount outstanding on the previous line of
credit was transferred to the banks taking part in the syndicate providing
the new line of credit.
3. On November 6, 1998, the Company purchased an additional 14.29%
partnership interest in MSA for $4.0 million. Upon completion of the
transaction, the Company effectively owns 99.14% of the MSA entity, which has
a 70% interest in AALP. AALP owns and operates Market Square. The Company
will consolidate Market Square in the fourth quarter.
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<PAGE>
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 31, 1998, through a dividend reinvestment plan available to all German
shareholders, the Company issued 94,610 shares of Common Stock to such
shareholders in lieu of paying cash dividends in the aggregate amount of
$1,476,000. Such shares were issued and sold to persons outside the United
States and were not registered under the Securities Act.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1) Exhibit 2.1: Contribution Agreement and Agreement and Plan of Merger
dated as of June 22, 1998 (incorporated by reference to Annex A to
the Company's Proxy Statement filed with the Commission on
November 13, 1998)
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 August 26, 1998
Item 2 - Acquisition or Disposition of Assets. Press releases
announcing Cornerstone's acquisition of One
Memorial Drive, 201 California and Wilshire
Palisades.
Item 7 - Financial Statements and Exhibits. Income statements for One
Memorial Drive, 201 California and Wilshire
Palisades, and financial statements reflecting
the acquisition of same.
2. Form 8-K/A dated September 4, 1998
Item 7 - Financial Statements and Exhibits. Consents of Independent
Auditors to include their opinions in various
previously filed Cornerstone registration
statements and reports.
29 of 30
<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: November 16, 1998
By: /s/ Kevin P. Mahoney .
--------------------------------------------
Kevin P. Mahoney, Senior Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: November 16, 1998
30 of 30
<PAGE>
Exhibit 12.1
Statement of Computation of Earnings to Fixed Charges and Preferred Stock
Dividend Requirements for the nine month periods ended September 30, 1998 and
September 30, 1997
<TABLE>
<CAPTION>
For the nine months ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Net income ............................. $ 60,964 $ 21,666
Interest expense ....................... 47,724 22,395
-------- --------
Earnings before interest ............... 108,688 44,061
Interest expense ....................... 47,724 22,395
Preferred dividends .................... 2,625 9,285
-------- --------
Fixed charges .......................... 50,349 31,680
Earnings to fixed charges and preferred
stock dividend requirements ....... 2.16 1.39
-------- --------
-------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 30,566
<SECURITIES> 0
<RECEIVABLES> 58,906
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 45,842
<PP&E> 2,169,806
<DEPRECIATION> 271,218
<TOTAL-ASSETS> 2,535,578
<CURRENT-LIABILITIES> 46,548
<BONDS> 0
0
50,000
<COMMON> 1,356,615
<OTHER-SE> (1,978)
<TOTAL-LIABILITY-AND-EQUITY> 2,535,578
<SALES> 0
<TOTAL-REVENUES> 257,084
<CGS> 0
<TOTAL-COSTS> 186,845
<OTHER-EXPENSES> 7,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,724
<INCOME-PRETAX> 60,964
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,964
<DISCONTINUED> 0
<EXTRAORDINARY> 2,269
<CHANGES> 0
<NET-INCOME> 60,964
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
<PAGE>
Exhibit 99.1
Cornerstone Properties Inc.
Supplemental Information to Quarterly Earnings Release
1) Third Quarter 1998
- Balance Sheet
- Income Statement
2) Third 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
- Third Quarter 1998
- Balance Sheet
- Income Statement
<PAGE>
<TABLE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except per share amounts)
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Investments, at cost:
Land $ 315,498 $ 260,542
Buildings, leasehold interests and improvements 1,854,308 1,559,085
Investment in real estate joint venture 245,784 240,253
Deferred lease costs 140,638 127,645
----------- -----------
2,556,228 2,187,525
Less: Accumulated depreciation and amortization 271,218 229,652
----------- -----------
Total investments 2,285,010 1,957,873
Cash and cash equivalents 30,566 24,730
Restricted cash 5,250 1,903
Other deferred costs, net of accumulated amortization of $3,015 and $1,998 145,726 5,728
Deferred tenant receivables 48,352 38,531
Tenant and other receivables, net 10,026 7,584
Notes receivable 528 1,652
Other assets 10,120 13,480
----------- -----------
Total Assets $ 2,535,578 $ 2,051,481
----------- -----------
----------- -----------
LIABILITIES
Long-term debt, inclusive of $11,799 and $11,209 of unamortized premium $ 849,554 $ 706,178
Credit facility 148,000 187,000
Accrued interest payable 7,261 4,134
Accrued real estate taxes payable 19,446 13,401
Accounts payable and accrued expenses 19,841 18,363
Unearned revenue and other liabilities 16,770 10,986
----------- -----------
Total Liabilities 1,060,872 940,062
----------- -----------
MINORITY INTEREST
Minority Interest in operating partnership 55,258 --
Minority Interest in real estate joint ventures 14,811 15,420
----------- -----------
Total Minority Interest 70,069 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;
(1998-101,636,864; 1997-83,191,819) shares issued and outstanding
Paid-in capital 1,356,615 1,048,187
Deferred compensation (1,978) (2,188)
----------- -----------
Total Stockholders' Investment 1,404,637 1,095,999
----------- -----------
Total Liabilities and Stockholders' Investment $ 2,535,578 $ 2,051,481
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
<TABLE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 83,227 $ 34,546 $ 239,767 $ 103,237
Earnings in real estate joint venture 3,856 -- 10,150 --
Interest and other income 1,955 3,868 7,167 8,432
--------- --------- --------- ---------
Total Revenues 89,038 38,414 257,084 111,669
--------- --------- --------- ---------
Expenses
Building operating expenses 18,896 7,660 52,947 22,693
Real estate taxes 12,034 5,933 34,900 17,553
Interest expense 16,057 7,405 47,724 22,395
Depreciation and amortization 15,702 7,057 42,561 20,865
General and administrative 3,169 1,869 8,713 5,134
--------- --------- --------- ---------
Total Expenses 65,858 29,924 186,845 88,640
--------- --------- --------- ---------
23,180 8,490 70,239 23,029
--------- --------- --------- ---------
Other income (expenses)
Loss on sale of real estate assets (127) -- (2,324) --
Minority interest (1,826) (414) (4,682) (1,408)
Net gain on interest rate swaps -- -- -- 99
--------- --------- --------- ---------
Income before extraordinary item 21,227 8,076 63,233 21,720
Extraordinary loss (2,269) -- (2,269) (54)
--------- --------- --------- ---------
Net income $ 18,958 $ 8,076 $ 60,964 $ 21,666
--------- --------- --------- ---------
--------- --------- --------- ---------
Income applicable to preferred stock $ (875) $ (875) $ (2,625) $ (9,285)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income applicable to common stock $ 18,083 $ 7,201 $ 58,339 $ 12,381
--------- --------- --------- ---------
--------- --------- --------- ---------
Income before extraordinary item per
common share $ 0.20 $ 0.16 $ 0.62 $ 0.37
--------- --------- --------- ---------
--------- --------- --------- ---------
Extraordinary loss per common share $ (0.02) $ -- $ (0.02) $ --
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic income per common share $ 0.18 $ 0.16 $ 0.59 $ 0.37
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted income per common share $ 0.18 $ 0.16 $ 0.59 $ 0.37
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Third Quarter Press Release
<PAGE>
FOR IMMEDIATE RELEASE
November 3, 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 THIRD QUARTER 1998 RESULTS
Third Quarter 1998 Highlights
- - Announced approval by the investors of William Wilson and Associates of a
merger valued at over $1.81 billion.
- - Funds from Operations per share increased over 24% as compared to the same
period in 1997.
- - Occupancy rate remained a solid 98%.
- - Completed the refinancing of One Norwest Center in Denver and Corporate 500
Centre in Deerfield, Illinois.
New York, NEW YORK (November 3, 1998) -- Cornerstone Properties Inc. (NYSE:
CPP), a real estate investment trust, announced today results for its third
quarter ended September 30, 1998. Funds from operations (FFO) allocated to
shareholders amounted to $39,396,000, or $0.36 per share calculated on
109,931,000 average diluted total shares outstanding, compared to $15,371,000,
or $0.29 per share on 53,145,000 average diluted total shares outstanding for
the three months ended September 30, 1997. The increase in FFO per share was due
to the accretive impact of the Company's acquisitions over the past twelve
months and internal growth. As defined by NAREIT, funds from operations is net
income excluding expenses from debt restructuring, gains (or losses) on sale of
property, plus depreciation and amortization.
Year-to-date net operating income before depreciation from Cornerstone
Properties' real estate assets increased 163% to $165,624,000 for the nine
months ended September 30, 1998, from $62,991,000 for the comparable period in
1997.
Net income for the third quarter of 1998 grew to $18,958,000 compared to
$8,076,000 in the third quarter of 1997. Year-to-date net income increased to
$60,964,000 compared to $21,666,000 for 1997.
John S. Moody, Chairman and CEO said, "Cornerstone Properties' third quarter
results continue to reflect the advantages that flow from our very high quality
portfolio - namely high occupancy, high retention and same store revenue
growth reflecting good market fundamentals in our portfolio."
<PAGE>
Cornerstone Properties Announces Third Quarter 1998 Earnings
November 3, 1998
Page 2
Quarterly Dividend Declared
The Company declared a quarterly dividend of $0.30 per share payable on November
30, 1998 to shareholders of record as of October 30, 1998.
"Same Store" Revenue Growth Continues
The Company achieved year to date "same store" net operating income growth of
3.51% over 1997 at the seven properties owned over the same period; this is a
substantial increase in same store growth and the highest quarterly increase
since Cornerstone became a public company in early 1997. This increase is due to
a 2.48% increase in revenues while expenses increased only 0.81% and reflects
the strengthening of fundamentals in the Company's core markets.
Leasing Update: Tenant Retention Rate 77% and Overall Occupancy Rate 98%
Tenant retention for 1998 decreased to 77%, 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%. Occupancy
across the DIHC portfolio has increased from 96% to 98%, in the eleven months
since it was acquired.
Two significant leasing transactions were completed at Sixty State Street in
Boston. Cornerstone repurchased 44,000 square feet of space that was leased to
ITT Sheraton at substantially below market rents. The Company expects to
re-lease this space at market rates. In addition, the law firm, Hale and Dorr
exercised an option to take an additional 23,000 square feet in the building.
Cornerstone Properties also signed a lease for 60,000 square feet with Towers
Perrin, renewing and expanding their tenancy at 500 Boylston Street which will
significantly reduce 1999 expirations.
Refinancing of One Norwest Center in Denver and Corporate 500 Centre in
Deerfield
During the third quarter and early fourth quarter the Company refinanced the
first $96.1 million mortgage on One Norwest Center in Denver with CIGNA and Mass
Mutual. The Company increased its proceeds by approximately $2 million to $98.5
million. The term of the loan was extended from three years to ten years and the
interest rate was reduced from 7.50% to 6.90%.
In the early part of the fourth quarter the company also refinanced the first
mortgage on Corporate 500 Centre in Deerfield, Illinois with Teachers Insurance
and Annuity Association. The outstanding balance was increased from $80 million
to $90 million. The term of the loan was extended from 4.5 years to 10 years and
the interest rate increased by three basis points to 6.66%.
Approval of Merger with William Wilson and Associates
On September 14, 1998 the Company announced that the investors of William Wilson
and Associates had approved the merger with Cornerstone Properties. Since then
Cornerstone's proxy has been filed and is being reviewed by the Securities and
Exchange Commission. Cornerstone Properties expects the transaction to close in
December.
<PAGE>
Cornerstone Properties Announces Third Quarter 1998 Earnings
November 3, 1998
Page 3
Cornerstone Properties Inc. is a self-administered equity real estate investment
trust (REIT) investing 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.
This press release contains forward-looking statements within the meaning of the
Federal securities laws. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted with accuracy, that
could cause the actual results, performance or achievements of Cornerstone and
Wilson to differ materially from those reflected in such forward-looking
statements. The acquisition described herein may not be consummated for a
variety of reasons and anticipated benefits may not materialize, also for a
variety of reasons. Information contained in this press release regarding
current and future market conditions is based on Cornerstone's and Wilson's
assessment of real estate markets as of this date and is subject to the
uncertainties inherent in such an assessment. In particular, but not
exclusively, national and regional economic conditions, the rate of new
construction, and demand and supply in a given market will affect leasing
activity, projected rents and the cost of lease renewals.
[Tables to follow]
# # #
For more information on Cornerstone Properties visit Cornerstone Properties'
Web site at http://www.cstoneprop.com
<PAGE>
Cornerstone Properties Announces Third Quarter 1998 Earnings
November 3, 1998
Page 4
CORNERSTONE PROPERTIES INC.
Funds From Operations
September 30, 1998
(in 000's, except per share data)
<TABLE>
<CAPTION>
Three months Ended Nine months Ended
September 30 September 30
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Rental Income1 90,897 34,546 259,992 103,237
Building Operating Expenses1 33,364 13,593 94,368 40,246
------- ------ ------- ------
Building Net Operating Income 57,533 20,953 165,624 62,991
------- ------ ------- ------
Corporate General and Administrative (3,169) (1,869) (8,713) (5,134)
Interest and Other Income 1,955 3,868 7,167 8,432
------- ------ ------- ------
EBITDA 56,319 22,952 164,078 66,289
------- ------ ------- ------
Interest Expense (16,057) (7,405) (47,724) (22,395)
Minority Adjustments (1,453) (721) (4,671) (2,452)
Rent Notes 387 346 1,133 903
------- ------ ------- ------
Funds From Operations 39,196 15,172 112,816 42,345
Interest on Convertible Debt 200 199 604 592
------- ------ ------- ------
Funds From Operations (Adjusted for
Convertible Debt 39,396 15,371 113,420 42,937
------- ------ ------- ------
Weighted Average Diluted Shares 109,931 53,145 104,940 46,404
FFO Per Share (Diluted) 0.36 0.29 1.08 0.93
Less: Capital Expenditures Per Share 0.02 0.02 0.05 0.06
------- ------ ------- ------
AFFO Per Share 0.34 0.27 1.03 0.87
------- ------ ------- ------
Funds From Operations 39,196 15,172 112,816 42,345
Less: Preferred Dividends (875) (875) (2,625) (9,285)
Less: Recurring Lease Costs and
Capital Expenditures2 (2,062) (1,038) (5,690) (2,999)
Less: Straight Line Rents Adjusted For
Minority Interest (3,483) 38 (10,392) (746)
------- ------ ------- ------
Funds Available for Distribution 32,776 13,297 94,109 29,315
------- ------ ------- ------
Weighted Average Common Shares and
Units Outstanding 105,720 45,804 100,729 33,494
Funds Available for Distribution Per Share 0.31 0.29 0.93 0.88
Distribution Per Share 0.30 0.30 0.90 0.90
</TABLE>
1. For the nine months ended September 30, 1998 rental income has been
increased by $20,225,000 and building operating expenses have been
increased by $6,521,000 in order to show the effects of Market Square had
the property been consolidated. For the three months ended September 30,
1998, rental income has been increased by $7,670,000 and building operating
expenses have been increased by $2,434,000.
2. Based on a five year 1994-1998 average of recurring (non-revenue
generating) tenant leasing costs of $8.46 per square foot leased times the
five year (1998-2003) average quarterly lease expiration (adjusted for
minority interest) of 211,009 square feet ($1,785,136) plus a capital
expenditure reserve (adjusted for minority interest) of $0.10 per square
foot ($276,717).
Year to date the Company has incurred $12,288,520 in recurring tenant costs in
leasing 1,319,315 square feet or a cost of $9.31 per square foot.
Year to date the Company has incurred $1,179,978 in recurring capital costs or
$0.15 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>
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
3rd Quarter 1999 7/30/99 8/31/99
- ------------------------------------------ ----------- ------------
Earnings Release/Quarterly Conference Call
- ------------------------------------------
4th Quarter 2/25/99
1st Quarter 1999 5/4/99
2nd Quarter 1999 8/3/99
3rd Quarter 1999 11/2/99
<CAPTION>
Quarter to Date Year to Date
3rd Quarter Results 1998 1997 1998 1997
- ------------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FFO Per Share $ 0.36 $ 0.29 $ 1.08 $ 0.93
AFFO Per Share $ 0.34 $ 0.27 $ 1.03 $ 0.87
FAD Per Share $ 0.31 $ 0.29 $ 0.93 $ 0.88
FFO Payout Ratio 83% 103% 83% 97%
AFFO Payout Ratio 88% 111% 87% 103%
FAD Payout Ratio 97% 103% 97% 102%
Same Store NOI Growth NA NA 3.51% 1.24%
EBITDA Interest Coverage 3.46 3.04 3.39 2.90
Fixed Charge Coverage 3.28 2.72 3.21 2.05
- ------------------------------------------ ----------- ----------- ----------- -----------
Recurring Leasing Costs
(Adjusted for minority interest) $ 6,792,320 $ 2,169,613 $12,288,520 $ 6,320,021
Per Square Foot Leased $ 21.24 $ 9.69 $ 9.31 $ 7.18
Recurring Capital Expenditures $ 689,607 $ 205,511 $ 1,179,978 $ 267,151
Non-Recurring Leasing Cost $ 157,355 $ 111,981 $ 2,855,217 $ 965,173
Non-Recurring Capital Expenditures $ 214,472 $ 78,618 $ 488,056 $ 153,007
- ------------------------------------------ ----------- ----------- ----------- -----------
- ------------------------------------------ ----------- ----------- ----------- -----------
Parking Revenues (included in
Office and Parking) $ 5,218,807 $ 1,396,725 $15,194,491 $ 4,579,374
Parking Expense (included in
Building Operating Expense) $ 732,710 $ 89,694 $ 2,098,710 $ 549,041
Net Parking Income $ 4,486,097 $ 1,307,031 $13,095,781 $ 4,030,333
- ------------------------------------------ ----------- ----------- ----------- -----------
- ------------------------------------------ ----------- ----------- ----------- -----------
Straight Line Rents $ 3,483,000 $ (38,340) $10,392,000 $ 746,429
- ------------------------------------------ ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Table of Properties
<PAGE>
Cornerstone Properties Inc.
Table of Properties
As of September 30, 1998
<TABLE>
<CAPTION>
Remaining
Average
Company's Total Number Lease
Property Name Year Percent Rentable Occupancy of Term Largest
and Location Constructed Interest Square Feet Rate Leases (in Years) Tenant
- ----------------------------- ----------- --------- ----------- --------- ------ ---------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center 1983 100% 1,188,000 97% 47 7.9 Norwest Bank Denver N.A.
Denver, Colorado Newmont Gold Company
Teletech, Inc.
Norwest Center(1) 1988 50% 1,118,000 99% 31 11.2 Norwest Corporation
Minneapolis, Minnesota Faegre & Benson
KPMG Peat Marwick
Washington Mutual Tower(2)(3) 1988 50% 1,155,000 99% 89 6.0 Perkins Coie
Seattle, Washington Washington Mutual
Karr Tuttle Campbell
125 Summer Street 1989 100% 464,000 99% 26 4.0 Deloitte & Touche
Boston, Massachusetts BTM Capital Corp.
Burns & Levinson
Tower 56(4) 1983 100% 162,000 99% 44 3.0 Cornerstone Properties
New York, New York ICC Associates, L.P.
United Bank of Kuwait
One Lincoln Centre 1986 100% 297,000 91% 41 2.4 Superior Bank FSB
Oakbrook Terrace, IL Microsoft Corporation
McDonald's Corporation
527 Madison Avenue 1986 100% 216,000 100% 20 4.9 The Sumitomo Trust &
New York, NY Banking Co., Ltd.
W.P. Stewart Co., Inc.
Hill Samuel New York, Inc.
191 Peachtree Street(5)(6) 1991 80% 1,221,000 97% 34 7.8 Wachovia Bank
Atlanta, Georgia King & Spalding
Powell, Goldstein, Frazer
& Murphy
Market Square(5)(7) 1990 60% 689,000 95% 47 6.9 Fulbright & Jaworski
Washington, D.C. Edison Electric Institute
Shearman & Sterling
500 Boylston Street(5)(8) 1988 91.5% 715,000 100% 14 5.7 Massachusetts Financial
Boston, Massachusetts Services
The New England Life
Towers Perrin Forster &
Crosby, Inc.
222 Berkeley Street(5)(8) 1991 91.5% 531,000 100% 28 6.4 Houghton Mifflin
Boston, Massachusetts Saga International Holidays
Oracle Corporation
Charlotte Plaza(5) 1982 100% 613,000 98% 42 6.3 First Union
Charlotte, North Carolina Parker Poe
Midrex
200 Galleria(5) 1985 100% 433,000 94% 56 3.4 Liberty Mutual Group
Atlanta, Georgia Worldspan
Cobank ACB
11 Canal Center(5) 1986 100% 70,000 96% 7 7.6 Robbins Gioa
Alexandria, Virginia National Certification
Commission on Acupuncture
and Oriental Medicine
99 Canal Center(5) 1986 100% 138,000 99% 18 3.6 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 5.7 Cities In Schools
Alexandria, Virginia The Onyx Group
The Hawthorn Group
Sixty State Street(9) 1979 100% 823,000 99% 36 8.9 Hale & Dorr
Boston, Massachusetts The Pioneer Group, Inc.
ITT/Sheraton
Corporate 500 Centre(10) 1986/1990 100% 679,000 95% 40 6.0 MMI Companies, Inc.
Deerfield, Illinois Fortune Brands
Gaylord Container
One Memorial Drive(11) 1987 100% 353,000 100% 13 8.0 Sapient Corporation
Cambridge, Massachusetts InterSystems Corporation
David L. Babson, Inc.
201 California Street(12) 1980 100% 240,000 100% 8 2.8 Bank of America
San Francisco, California Sutro & Company
McCann Erickson, Inc.
Wilshire Palisades(12) 1981 100% 186,000 100% 16 4.2 Wilshire Associates, Inc.
Santa Monica, California Paul Hastings Janofsky Walker
Dimensional Fund Advisors
--------- ----------- --------- ------ ----------
85% 11,387,000 98% 668 6.8
--------- ----------- --------- ------ ----------
--------- ----------- --------- ------ ----------
</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 nine months ended September 30, 1998, the Company's
share of earnings and cash distributions from the partnership that owns
Norwest Center was 81.0%.
(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 nine months ended September 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 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 $49.0 million at purchase, 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 nine months ended September 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. 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.
(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 September 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 September 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) $ 20,822,000 $11,088,000 $ 31,910,000 9% Mar-99 19,000
Mar-02 13,000
Jul-03 143,000
Oct-04 6,000
Jul-13 402,000
Aug-18 451,000
---------
1,034,000
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) 7,943,000 3,993,000 11,936,000 4% Jun-13 296,000
King & Spalding(1) 8,168,000 2,605,000 10,773,000 3% Mar-06 305,000
Deloitte & Touche(1) 7,259,000 1,651,000 8,910,000 3% Feb-99 15,000
Oct-99 130,000
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
Perkins Coie(2) 6,316,000 503,000 6,819,000 2% Dec-98 2,000
Jul-03 7,000
Jul-04 32,000
Dec-11 199,000
---------
240,000
Houghton Mifflin(1) 3,456,000 3,188,000 6,644,000 2% Feb-07 247,000
First Union(2) 6,103,000 200,000 6,303,000 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
Apr-14 4,000
---------
355,000
------------ ----------- ------------
$ 84,009,000 $33,993,000 $118,002,000 35% 3,664,000
------------ ----------- ------------ ---- ---------
------------ ----------- ------------ ---- ---------
Total Portfolio $260,510,000 $78,391,000 $338,901,000
------------ ----------- ------------
------------ ----------- ------------
</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.
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Historical Occupancy Schedule
<PAGE>
<TABLE>
<CAPTION>
Cornerstone Properties Inc.
Historical Occupancy Schedule
As of September 30, 1998
Total Bldg.
Sq. Ft. 1994 1995 1996 1997 Q3 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% 99%
Washington Mutual Tower 1,155,000 97% 97% 97% 97% 99%
125 Summer Street 464,000 94% 100% 99% 99%
Tower 56 162,000 91% 97% 98% 99%
One Lincoln Centre 297,000 91% 96% 91%
527 Madison Avenue 216,000 96% 100% 100%
191 Peachtree Street 1,221,000 95% 97%
Market Square 689,000 95% 95%
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% 94%
11 Canal Center 70,000 84% 96%
99 Canal Center 138,000 99% 99%
TransPotomac Plaza 5 96,000 99% 100%
Sixty State Street 823,000 98% 99%
Corporate 500 Centre 679,000 95%
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 September 30, 1998
The following tables show the average annual Net 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. "Net Rent" as used herein means actual billed rent less Recoveries.
"Net Effective Rent" as used herein means (i) rent determined for each year on a
straight-line basis through the term of the lease, less (ii) Recoveries and the
amortization of deferred leasing costs (tenant improvements, leasing
commissions, and other tenant inducements). Recoveries includes base stops in
gross leases.
Average Annual Net Rent (per square foot occupied)
<TABLE>
<CAPTION>
Total Bldg.
Sq. Ft. Q3 1998 1997 1996 1995 1994
------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center 1,188,000 $ 12.41 $ 12.46 $ 12.08 $ 11.78 $ 11.61
Norwest Center 1,118,000 $ 18.80 $ 18.29 $ 17.94 $ 17.82 $ 17.25
Washington Mutual Tower 1,155,000 $ 15.74 $ 15.77 $ 15.98 $ 16.17 $ 15.27
125 Summer Street 464,000 $ 22.08 $ 21.27 $ 23.24 $ 22.48
Tower 56 162,000 $ 22.43 $ 22.76 $ 20.45
One Lincoln Centre 297,000 $ 20.71 $ 19.60 $ 18.56
527 Madison Avenue 216,000 $ 31.64 $ 36.55 $ 35.47
191 Peachtree Street 1,221,000 $ 20.78 $ 21.07
Market Square 689,000 $ 26.34
500 Boylston Street 715,000 $ 26.04 $ 25.89
222 Berkeley Street 531,000 $ 16.98 $ 16.68
Charlotte Plaza 613,000 $ 9.92 $ 9.35
200 Galleria 433,000 $ 14.39 $ 12.92
11 Canal Center 70,000 $ 14.96 $ 14.11
99 Canal Center 138,000 $ 15.00 $ 14.49
TransPotomac Plaza 5 96,000 $ 11.75 $ 12.55
Sixty State Street 823,000 $ 19.41
Corporate 500 Centre 679,000 $ 21.03
One Memorial Drive 353,000 $ 14.59
201 California Street 240,000 $ 11.50
Wilshire Palisades 186,000 $ 24.54
---------- --------- ------- ------- ------- -------
Weighted Average 11,387,000 $ 18.55 $ 17.46 $ 16.99 $ 16.06 $ 14.65
---------- --------- ------- ------- ------- -------
---------- --------- ------- ------- ------- -------
</TABLE>
Average Annual Net Effective Rents (per square foot occupied)
<TABLE>
<CAPTION>
Total Bldg.
Sq. Ft. Q3 1998 1997 1996 1995 1994
---------- ------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
One Norwest Center 1,188,000 $ 11.97 $ 11.66 $ 10.80 $ 10.56 $ 10.25
Norwest Center 1,118,000 $ 17.58 $ 17.23 $ 17.43 $ 17.31 $ 17.00
Washington Mutual Tower 1,155,000 $ 14.97 $ 12.02 $ 11.80 $ 11.83 $ 11.03
125 Summer Street 464,000 $ 19.24 $ 20.00 $ 22.27 $ 23.33
Tower 56 162,000 $ 22.41 $ 21.56 $ 21.17
One Lincoln Centre 297,000 $ 20.11 $ 19.76 $ 19.70
527 Madison Avenue 216,000 $ 33.11 $ 36.89 $ 30.99
191 Peachtree Street 1,221,000 $ 23.91 $ 24.26
Market Square 689,000 $ 28.44
500 Boylston Street 715,000 $ 26.34 $ 26.08
222 Berkeley Street 531,000 $ 18.57 $ 18.08
Charlotte Plaza 613,000 $ 10.17 $ 9.76
200 Galleria 433,000 $ 14.70 $ 13.52
11 Canal Center 70,000 $ 15.84 $ 14.72
99 Canal Center 138,000 $ 15.70 $ 15.00
TransPotomac Plaza 5 96,000 $ 12.93 $ 14.29
Sixty State Street 823,000 $ 23.26
Corporate 500 Centre 679,000 $ 22.82
One Memorial Drive 353,000 $ 16.71
201 California Street 240,000 $ 11.66
Wilshire Palisades 186,000 $ 26.21
---------- --------- ------- ------- ------- -------
Weighted Average 11,387,000 $ 19.29 $ 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 September 30, 1998.
<TABLE>
<CAPTION>
Q4
PROPERTY 1998 1999 2000 2001
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
One Norwest Center (1) Square feet expiring(3) 2,283 sf 40,238 sf 124,001 sf 60,785 sf
Straight-Line rent(4) $ 10,137 $ 424,003 $ 1,107,729 $ 666,600
Straight-Line rent per sq. ft $ 4.44 $ 10.54 $ 8.93 $ 10.97
Recoveries (5) $ 13,731 $ 249,372 $ 762,519 $ 377,493
Full service St-Line rent(6) $ 23,868 $ 673,375 $ 1,870,248 $ 1,044,093
Full service St-Line rent per sq. ft $ 10.45 $ 16.73 $ 15.08 $ 17.18
% Full service St-Lined rent 0.11% 3.03% 8.41% 4.70%
Asking market rent per sq. ft.(7) $ 22.00
No. of tenant leases expiring(8) 1 4 7 6
Norwest Center(1) Square feet expiring 10,127 sf 23,059 sf 107,510 sf 4,774 sf
Straight-Line rent $ 124,131 $ 351,980 $ 1,701,411 $ 82,056
Straight-Line rent per sq. ft $ 12.26 $ 15.26 $ 15.83 $ 17.19
Recoveries $ 130,879 $ 292,793 $ 1,641,282 $ 72,396
Full service St-Line rent $ 255,010 $ 644,773 $ 3,342,693 $ 154,452
Full service St-Line rent per sq. ft $ 25.18 $ 27.96 $ 31.09 $ 32.35
% Full service St-Lined rent 0.64% 1.63% 8.45% 0.39%
Asking market rent per sq. ft $ 35.00
No. of tenant leases expiring 4 1 4 2
Washington Mutual Tower(2) Square feet expiring 15,791 sf 147,737 sf 52,783 sf 49,280 sf
Straight-Line rent $ 175,088 $ 2,742,855 $ 853,988 $ 1,092,648
Straight-Line rent per sq. ft $ 11.09 $ 18.57 $ 16.18 $ 22.17
Recoveries $ 2,181 $ 116,969 $ 37,231 $ 35,020
Full service St-Line rent $ 177,269 $ 2,859,824 $ 891,219 $ 1,127,668
Full service St-Line rent per sq. ft $ 11.23 $ 19.36 $ 16.88 $ 22.88
% Full service St-Lined rent 0.68% 11.01% 3.43% 4.34%
Asking market rent per sq. ft $ 34.00
No. of tenant leases expiring 7 20 13 12
125 Summer Street(2) Square feet expiring 2,890 sf 154,124 sf 50,547 sf 3,438 sf
Straight-Line rent $ 54,220 $ 5,591,172 $ 1,522,302 $ 67,698
Straight-Line rent per sq. ft $ 18.76 $ 36.28 $ 30.12 $ 19.69
Recoveries $ 24,966 $ 1,099,926 $ 226,602 $ 47,646
Full service St-Line rent $ 79,186 $ 6,691,098 $ 1,748,904 $ 115,344
Full service St-Line rent per sq. ft $ 27.40 $ 43.41 $ 34.60 $ 33.55
% Full service St-Lined rent 0.48% 40.18% 10.50% 0.69%
Asking market rent per sq. ft $ 45.00
No. of tenant leases expiring 3 4 6 1
Tower 56(2) Square feet expiring 8,175 sf 24,549 sf 17,341 sf 44,188 sf
Straight-Line rent $ 328,704 $ 1,073,147 $ 720,286 $ 1,877,796
Straight-Line rent per sq. ft $ 40.21 $ 43.71 $ 41.54 $ 42.50
Recoveries $ 7,778 $ 14,982 $ 4,647 $ 18,296
Full service St-Line rent $ 336,482 $ 1,088,129 $ 724,933 $ 1,896,092
Full service St-Line rent per sq. ft $ 41.16 $ 44.32 $ 41.80 $ 42.91
% Full service St-Lined rent 4.72% 15.25% 10.16% 26.57%
Asking market rent per sq. ft $ 56.00
No. of tenant leases expiring 3 6 7 11
One Lincoln Centre(1) Square feet expiring 1,203 sf 68,385 sf 77,684 sf 13,310 sf
Straight-Line rent $ 21,660 $ 1,204,605 $ 1,440,852 $ 245,796
Straight-Line rent per sq. ft $ 18.00 $ 17.62 $ 18.55 $ 18.47
Recoveries $ 11,028 $ 628,896 $ 653,796 $ 123,996
Full service St-Line rent $ 32,688 $ 1,833,501 $ 2,094,648 $ 369,792
Full service St-Line rent per sq. ft $ 27.17 $ 26.81 $ 26.96 $ 27.78
% Full service St-Lined rent 0.43% 24.14% 27.58% 4.87%
Asking market rent per sq. ft $ 28.00
No. of tenant leases expiring 1 9 12 4
527 Madison Avenue(2) Square feet expiring 12,254 sf 2,114 sf 9,195 sf 78,444 sf
Straight-Line rent $ 647,182 $ 107,814 $ 380,248 $ 4,510,527
Straight-Line rent per sq. ft $ 52.81 $ 51.00 $ 41.35 $ 57.50
Recoveries $ 81,288 $ 9,455 $ -- $ 473,256
Full service St-Line rent $ 728,470 $ 117,269 $ 380,248 $ 4,983,783
Full service St-Line rent per sq. ft $ 59.45 $ 55.47 $ 41.35 $ 63.53
% Full service St-Lined rent 6.02% 0.97% 3.14% 41.16%
Asking market rent per sq. ft $ 56.00
No. of tenant leases expiring 3 1 2 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROPERTY 2002 2003 2004 2005
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
One Norwest Center (1) Square feet expiring(3) 135,086 sf 182,284 sf 125,173 sf
Straight-Line rent(4) $ 1,265,803 $ 2,417,990 $ 1,569,248
Straight-Line rent per sq. ft $ 9.37 $ 13.26 $ 12.54
Recoveries (5) $ 832,455 $ 1,144,607 $ 779,817
Full service St-Line rent(6) $ 2,098,258 $ 3,562,597 $ 2,349,065
Full service St-Line rent per sq. ft $ 15.53 $ 19.54 $ 18.77
% Full service St-Lined rent 9.44% 16.03% 10.57%
Asking market rent per sq. ft.(7)
No. of tenant leases expiring(8) 15 7 3
Norwest Center(1) Square feet expiring 53,390 sf 184,361 sf 170,787 sf 18,881 sf
Straight-Line rent $ 454,717 $ 2,845,245 $ 3,064,584 $ 359,296
Straight-Line rent per sq. ft $ 8.52 $ 15.43 $ 17.94 $ 19.03
Recoveries $ 783,781 $ 2,850,537 $ 2,438,357 $ 295,489
Full service St-Line rent $ 1,238,498 $ 5,695,782 $ 5,502,941 $ 654,785
Full service St-Line rent per sq. ft $ 23.20 $ 30.89 $ 32.22 $ 34.68
% Full service St-Lined rent 3.13% 14.39% 13.91% 1.65%
Asking market rent per sq. ft
No. of tenant leases expiring 4 4 9 1
Washington Mutual Tower(2) Square feet expiring 120,126 sf 269,418 sf 129,374 sf 14,354 sf
Straight-Line rent $ 2,699,685 $ 5,545,817 $ 2,871,435 $ 275,117
Straight-Line rent per sq. ft $ 22.47 $ 20.58 $ 22.19 $ 19.17
Recoveries $ 29,031 $ 271,173 $ 103,724 $ 5,393
Full service St-Line rent $ 2,728,716 $ 5,816,990 $ 2,975,159 $ 280,510
Full service St-Line rent per sq. ft $ 22.72 $ 21.59 $ 23.00 $ 19.54
% Full service St-Lined rent 10.51% 22.40% 11.46% 1.08%
Asking market rent per sq. ft
No. of tenant leases expiring 9 17 6 2
125 Summer Street(2) Square feet expiring 127,853 sf 27,311 sf 9,503 sf
Straight-Line rent $ 1,722,513 $ 583,747 $ 274,478
Straight-Line rent per sq. ft $ 13.47 $ 21.37 $ 28.88
Recoveries $ 1,789,536 $ 305,712 $ 16,601
Full service St-Line rent $ 3,512,049 $ 889,459 $ 291,079
Full service St-Line rent per sq. ft $ 27.47 $ 32.57 $ 30.63
% Full service St-Lined rent 21.09% 5.34% 1.75%
Asking market rent per sq. ft
No. of tenant leases expiring 5 5 1
Tower 56(2) Square feet expiring 33,231 sf 15,000 sf 18,459 sf
Straight-Line rent $ 1,615,384 $ 704,832 $ 733,632
Straight-Line rent per sq. ft $ 48.61 $ 46.99 $ 39.74
Recoveries $ 12,046 $ 10,527 $ 13,315
Full service St-Line rent $ 1,627,430 $ 715,359 $ 746,947
Full service St-Line rent per sq. ft $ 48.97 $ 47.69 $ 40.47
% Full service St-Lined rent 22.81% 10.03% 10.47%
Asking market rent per sq. ft
No. of tenant leases expiring 9 4 4
One Lincoln Centre(1) Square feet expiring 80,668 sf 27,894 sf
Straight-Line rent $ 1,750,992 $ 453,511
Straight-Line rent per sq. ft $ 21.71 $ 16.26
Recoveries $ 740,580 $ 319,668
Full service St-Line rent $ 2,491,572 $ 773,179
Full service St-Line rent per sq. ft $ 30.89 $ 27.72
% Full service St-Lined rent 32.80% 10.18%
Asking market rent per sq. ft
No. of tenant leases expiring 7 8
527 Madison Avenue(2) Square feet expiring 3,533 sf 35,590 sf 7,937 sf* 5,823 sf
Straight-Line rent $ 180,180 $ 1,514,359 $ 1,140,060 $ 276,732
Straight-Line rent per sq. ft $ 51.00 $ 42.55 $ 143.64 $ 47.52
Recoveries $ -- $ 45,187 $ 6,506 $ --
Full service St-Line rent $ 180,180 $ 1,559,546 $ 1,146,566 $ 276,732
Full service St-Line rent per sq. ft $ 51.00 $ 43.82 $ 144.46 $ 47.52
% Full service St-Lined rent 1.49% 12.88% 9.47% 2.29%
Asking market rent per sq. ft
No. of tenant leases expiring 1 4 1 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
2008 and
PROPERTY 2006 2007 Beyond Total
- -------- ---- ---- ------ -----
<S> <C> <C> <C> <C>
One Norwest Center (1) Square feet expiring(3) 76,470 sf 407,151 sf 1,153,471 sf
Straight-Line rent(4) $ 1,119,452 $ 6,431,062 $15,012,024
Straight-Line rent per sq. ft $ 14.64 $ 15.80 $ 13.01
Recoveries (5) $ 478,496 $ 2,578,701 $ 7,217,191
Full service St-Line rent(6) $ 1,597,948 $ 9,009,763 $22,229,215
Full service St-Line rent per sq. ft $ 20.90 $ 22.13 $ 19.27
% Full service St-Lined rent 7.19% 40.53% 100.00%
Asking market rent per sq. ft.(7)
No. of tenant leases expiring(8) 2 2 47
Norwest Center(1) Square feet expiring 538,573 sf 1,111,462 sf
Straight-Line rent $13,737,867 $22,721,287
Straight-Line rent per sq. ft $ 25.51 $ 20.44
Recoveries $ 8,347,070 $16,852,584
Full service St-Line rent $22,084,937 $39,573,871
Full service St-Line rent per sq. ft $ 41.01 $ 35.61
% Full service St-Lined rent 55.81% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 2 31
Washington Mutual Tower(2) Square feet expiring 4,070 sf 137,888 sf 199,110 sf 1,139,931 sf
Straight-Line rent $ 97,680 $ 2,652,965 $ 5,605,002 $24,612,280
Straight-Line rent per sq. ft $ 24.00 $ 19.24 $ 28.15 $ 21.59
Recoveries $ -- $ 275,716 $ 482,478 $ 1,358,916
Full service St-Line rent $ 97,680 $ 2,928,681 $ 6,087,480 $25,971,196
Full service St-Line rent per sq. ft $ 24.00 $ 21.24 $ 30.57 $ 22.78
% Full service St-Lined rent 0.38% 11.28% 23.44% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 1 1 89
125 Summer Street(2) Square feet expiring 85,169 sf 460,835 sf
Straight-Line rent $ 2,114,948 $11,931,078
Straight-Line rent per sq. ft $ 24.83 $ 25.89
Recoveries $ 1,211,691 $ 4,722,680
Full service St-Line rent $ 3,326,639 $16,653,758
Full service St-Line rent per sq. ft $ 39.06 $ 36.14
% Full service St-Lined rent 19.98% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 26
Tower 56(2) Square feet expiring 160,943 sf
Straight-Line rent $ 7,053,781
Straight-Line rent per sq. ft $ 43.83
Recoveries $ 81,591
Full service St-Line rent $ 7,135,372
Full service St-Line rent per sq. ft $ 44.33
% Full service St-Lined rent 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 44
One Lincoln Centre(1) Square feet expiring 269,144 sf
Straight-Line rent $ 5,117,416
Straight-Line rent per sq. ft $ 19.01
Recoveries $ 2,477,964
Full service St-Line rent $ 7,595,380
Full service St-Line rent per sq. ft $ 28.22
% Full service St-Lined rent 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 41
527 Madison Avenue(2) Square feet expiring 27,074 sf 32,929 sf 214,893 sf
Straight-Line rent $1,119,356 $ 1,612,968 $11,489,426
Straight-Line rent per sq. ft $ 41.34 $ 48.98 $ 53.47
Recoveries $ 609 $ 3,805 $ 620,106
Full service St-Line rent $1,119,965 $ 1,616,773 $12,109,532
Full service St-Line rent per sq. ft $ 41.37 $ 49.10 $ 56.35
% 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>
Q4
PROPERTY 1998 1999 2000 2001
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
191 Peachtree Street(1) Square feet expiring 4,372 sf 1,501 sf 6,347 sf 146,035 sf
Straight-Line rent $ -- $ 22,515 $ 68,399 $ 2,809,015
Straight-Line rent per sq. ft $ -- $ 15.00 $ 10.78 $ 19.24
Recoveries $ 10,248 $ 61,456 $ 1,278,452
Full service St-Line rent $ -- $ 32,763 $ 129,855 $ 4,087,467
Full service St-Line rent per sq. ft $ -- $ 21.83 $ 20.46 $ 27.99
% Full service St-Lined rent 0.00% 0.09% 0.34% 10.85%
Asking market rent per sq. ft $ 26.00
No. of tenant leases expiring 1 1 4 7
Market Square(2) Square feet expiring 32,408 sf 6,544 sf 49,774 sf 90,769 sf
Straight-Line rent $ 1,064,508 $ 158,328 $ 1,413,552 $ 3,491,160
Straight-Line rent per sq. ft $ 32.85 $ 24.19 $ 28.40 $ 38.46
Recoveries $ 17,496 $ 344,508 $ 548,160
Full service St-Line rent $ 1,064,508 $ 175,824 $ 1,758,060 $ 4,039,320
Full service St-Line rent per sq. ft $ 32.85 $ 26.87 $ 35.32 $ 44.50
% Full service St-Lined rent 3.89% 0.64% 6.42% 14.76%
Asking market rent per sq. ft $ 46.00
No. of tenant leases expiring 2 2 7 8
500 Boylston Street(1) Square feet expiring 15,641 sf 673 sf
Straight-Line rent $ 300,225 $ 10,095
Straight-Line rent per sq. ft $ 19.19 $ 15.00
Recoveries $ 92,547 $ 5,841
Full service St-Line rent $ 392,772 $ 15,936
Full service St-Line rent per sq. ft $ 25.11 $ 23.68
% Full service St-Lined rent 1.58% 0.06%
Asking market rent per sq. ft $ 47.00
No. of tenant leases expiring 3 1
222 Berkeley Street(1) Square feet expiring 35,923 sf 2,926 sf 84,319 sf
Straight-Line rent $ 582,047 $ 157,240 $ 2,305,800
Straight-Line rent per sq. ft $ 16.20 $ 53.74 $ 27.35
Recoveries $ 458,083 $ 31,203 $ 957,870
Full service St-Line rent $ 1,040,130 $ 188,443 $ 3,263,670
Full service St-Line rent per sq. ft $ 28.95 $ 64.40 $ 38.71
% Full service St-Lined rent 6.17% 1.12% 19.35%
Asking market rent per sq. ft $ 47.00
No. of tenant leases expiring 3 1 9
Charlotte Plaza(2) Square feet expiring 4,953 sf 33,101 sf 53,325 sf 70,116 sf
Straight-Line rent $ 48,996 $ 626,088 $ 939,084 $ 1,186,536
Straight-Line rent per sq. ft $ 9.89 $ 18.91 $ 17.61 $ 16.92
Recoveries $ 696 $ 18,048 $ 21,492 $ 24,864
Full service St-Line rent $ 49,692 $ 644,136 $ 960,576 $ 1,211,400
Full service St-Line rent per sq. ft $ 10.03 $ 19.46 $ 18.01 $ 17.28
% Full service St-Lined rent 0.48% 6.19% 9.24% 11.65%
Asking market rent per sq. ft $ 24.00
No. of tenant leases expiring 2 6 4 2
200 Galleria(2) Square feet expiring 4,922 sf 23,963 sf 70,119 sf 55,400 sf
Straight-Line rent $ 101,352 $ 487,620 $ 1,612,020 $ 1,149,948
Straight-Line rent per sq. ft $ 20.59 $ 20.35 $ 22.99 $ 20.76
Recoveries $ -- $ 16,896 $ 53,808 $ 33,492
Full service St-Line rent $ 101,352 $ 504,516 $ 1,665,828 $ 1,183,440
Full service St-Line rent per sq. ft $ 20.59 $ 21.05 $ 23.76 $ 21.36
% Full service St-Lined rent 1.10% 5.48% 18.08% 12.85%
Asking market rent per sq. ft $ 27.00
No. of tenant leases expiring 2 4 16 12
11 Canal Center(2) Square feet expiring 2,944 sf 2,033 sf 1,572 sf
Straight-Line rent $ 66,936 $ 39,852 $ 37,308
Straight-Line rent per sq. ft $ 22.74 $ 19.60 $ 23.73
Recoveries $ -- $ 1,272 $ --
Full service St-Line rent $ 66,936 $ 41,124 $ 37,308
Full service St-Line rent per sq. ft $ 22.74 $ 20.23 $ 23.73
% Full service St-Lined rent 4.02% 2.47% 2.24%
Asking market rent per sq. ft $ 27.00
No. of tenant leases expiring 1 1 1
</TABLE>
<TABLE>
<CAPTION>
PROPERTY 2002 2003 2004 2005
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
191 Peachtree Street(1) Square feet expiring 28,571 sf 6,535 sf 34,394 sf 21,508 sf
Straight-Line rent $ 472,152 $ 107,199 $ 748,236 $ 370,947
Straight-Line rent per sq. ft $ 16.53 $ 16.40 $ 21.75 $ 17.25
Recoveries $ 226,766 $ 39,334 $ 232,468 $ 142,810
Full service St-Line rent $ 698,928 $ 146,533 $ 980,704 $ 513,757
Full service St-Line rent per sq. ft $ 24.46 $ 22.42 $ 28.51 $ 23.89
% Full service St-Lined rent 1.85% 0.39% 2.60% 1.36%
Asking market rent per sq. ft
No. of tenant leases expiring 4 2 3 5
Market Square(2) Square feet expiring 6,658 sf 16,870 sf 32,835 sf 173,827 sf
Straight-Line rent $ 201,792 $ 626,076 $ 1,183,692 $ 5,822,184
Straight-Line rent per sq. ft $ 30.31 $ 37.11 $ 36.05 $ 33.49
Recoveries $ 13,548 $ 102,876 $ 185,996 $ 1,881,432
Full service St-Line rent $ 215,340 $ 728,952 $ 1,369,688 $ 7,703,616
Full service St-Line rent per sq. ft $ 32.34 $ 43.21 $ 41.71 $ 44.32
% Full service St-Lined rent 0.79% 2.66% 5.00% 28.14%
Asking market rent per sq. ft
No. of tenant leases expiring 3 4 4 4
500 Boylston Street(1) Square feet expiring 459,999 sf 16,079 sf
Straight-Line rent $10,687,502 $ 307,592
Straight-Line rent per sq. ft $ 23.23 $ 19.13
Recoveries $ 4,946,406 $ 202,622
Full service St-Line rent $15,633,908 $ 510,214
Full service St-Line rent per sq. ft $ 33.99 $ 31.73
% Full service St-Lined rent 62.88% 2.05%
Asking market rent per sq. ft
No. of tenant leases expiring 4 3
222 Berkeley Street(1) Square feet expiring 93,829 sf
Straight-Line rent $ 1,830,139
Straight-Line rent per sq. ft $ 19.51
Recoveries $ 1,190,070
Full service St-Line rent $ 3,020,209
Full service St-Line rent per sq. ft $ 32.19
% Full service St-Lined rent 17.91%
Asking market rent per sq. ft
No. of tenant leases expiring 6
Charlotte Plaza(2) Square feet expiring 73,778 sf 36,995 sf 111,398 sf 17,787 sf
Straight-Line rent $ 1,345,956 $ 689,220 $ 1,602,420 $ 318,456
Straight-Line rent per sq. ft $ 18.24 $ 18.63 $ 14.38 $ 17.90
Recoveries $ 24,852 $ 11,424 $ 23,304 $ --
Full service St-Line rent $ 1,370,808 $ 700,644 $ 1,625,724 $ 318,456
Full service St-Line rent per sq. ft $ 18.58 $ 18.94 $ 14.59 $ 17.90
% Full service St-Lined rent 13.18% 6.74% 15.63% 3.06%
Asking market rent per sq. ft
No. of tenant leases expiring 9 6 3 2
200 Galleria(2) Square feet expiring 157,022 sf 78,440 sf 3,470 sf
Straight-Line rent $ 3,320,484 $ 1,902,180 $ 75,408
Straight-Line rent per sq. ft $ 21.15 $ 24.25 $ 21.73
Recoveries $ 175,140 $ 9,084 $ --
Full service St-Line rent $ 3,495,624 $ 1,911,264 $ 75,408
Full service St-Line rent per sq. ft $ 22.26 $ 24.37 $ 21.73
% Full service St-Lined rent 37.95% 20.75% 0.82%
Asking market rent per sq. ft
No. of tenant leases expiring 9 11 1
11 Canal Center(2) Square feet expiring 5,033 sf 13,618 sf
Straight-Line rent $ 119,784 $ 358,260
Straight-Line rent per sq. ft $ 23.80 $ 26.31
Recoveries $ -- $ 432
Full service St-Line rent $ 119,784 $ 358,692
Full service St-Line rent per sq. ft $ 23.80 $ 26.34
% Full service St-Lined rent 7.19% 21.53%
Asking market rent per sq. ft
No. of tenant leases expiring 1 2
</TABLE>
<TABLE>
<CAPTION>
2008 and
PROPERTY 2006 2007 Beyond Total
- -------- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
191 Peachtree Street(1) Square feet expiring 440,697 sf 495,739 sf 1,185,699 sf
Straight-Line rent $12,093,286 $11,179,365 $27,871,114
Straight-Line rent per sq. ft $ 27.44 $ 22.55 $ 23.51
Recoveries $ 3,752,354 $ 4,071,877 $ 9,815,775
Full service St-Line rent $15,845,640 $15,251,242 $37,686,889
Full service St-Line rent per sq. ft $ 35.96 $ 30.76 $ 31.78
% Full service St-Lined rent 42.05% 40.47% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 3 4 34
Market Square(2) Square feet expiring 57,781 sf 10,024 sf 171,006 sf 648,496 sf
Straight-Line rent $ 2,016,504 $ 358,500 $ 5,431,284 $21,767,580
Straight-Line rent per sq. ft $ 34.90 $ 35.76 $ 31.76 $ 33.57
Recoveries $ 820,586 $ 9,247 $ 1,680,384 $ 5,604,233
Full service St-Line rent $ 2,837,090 $ 367,747 $ 7,111,668 $27,371,813
Full service St-Line rent per sq. ft $ 49.10 $ 36.69 $ 41.59 $ 42.21
% Full service St-Lined rent 10.37% 1.34% 25.98% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 2 3 8 47
500 Boylston Street(1) Square feet expiring 3,005 sf 218,826 sf 714,223 sf
Straight-Line rent $ 97,663 $ 5,409,488 $16,812,565
Straight-Line rent per sq. ft $ 32.50 $ 24.72 $ 23.54
Recoveries $ 27,660 $ 2,773,472 $ 8,048,548
Full service St-Line rent $ 125,323 $ 8,182,960 $24,861,113
Full service St-Line rent per sq. ft $ 41.70 $ 37.39 $ 34.81
% Full service St-Lined rent 0.50% 32.91% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 2 14
222 Berkeley Street(1) Square feet expiring 274,583 sf 39,068 sf 530,648 sf
Straight-Line rent $ 4,232,992 $ 1,064,911 $10,173,129
Straight-Line rent per sq. ft $ 15.42 $ 27.26 $ 19.17
Recoveries $ 3,537,317 $ 515,964 $ 6,690,507
Full service St-Line rent $ 7,770,309 $ 1,580,875 $16,863,636
Full service St-Line rent per sq. ft $ 28.30 $ 40.46 $ 31.78
% Full service St-Lined rent 46.08% 9.37% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 6 3 28
Charlotte Plaza(2) Square feet expiring 1,222 sf 9,889 sf 189,008 sf 601,572 sf
Straight-Line rent $ 23,652 $ 217,560 $ 3,128,952 $10,126,920
Straight-Line rent per sq. ft $ 19.36 $ 22.00 $ 16.55 $ 16.83
Recoveries $ -- $ -- $ 147,624 $ 272,304
Full service St-Line rent $ 23,652 $ 217,560 $ 3,276,576 $10,399,224
Full service St-Line rent per sq. ft $ 19.36 $ 22.00 $ 17.34 $ 17.29
% Full service St-Lined rent 0.23% 2.09% 31.51% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 1 6 42
200 Galleria(2) Square feet expiring 11,384 sf 404,720 sf
Straight-Line rent $ 262,068 $ 8,911,080
Straight-Line rent per sq. ft $ 23.02 $ 22.02
Recoveries $ 12,756 $ 301,176
Full service St-Line rent $ 274,824 $ 9,212,256
Full service St-Line rent per sq. ft $ 24.14 $ 22.76
% Full service St-Lined rent 2.98% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 56
11 Canal Center(2) Square feet expiring 41,967 sf 67,167 sf
Straight-Line rent $ 1,041,780 $ 1,663,920
Straight-Line rent per sq. ft $ 24.82 $ 24.77
Recoveries $ -- $ 1,704
Full service St-Line rent $ 1,041,780 $ 1,665,624
Full service St-Line rent per sq. ft $ 24.82 $ 24.80
% Full service St-Lined rent 62.55% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Q4
PROPERTY 1998 1999 2000 2001
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
99 Canal Center(2) Square feet expiring 1,647 sf 4,693 sf 9,063 sf 51,666 sf
Straight-Line rent $ -- $ 76,092 $ 209,136 $ 1,253,160
Straight-Line rent per sq. ft $ -- $ 16.21 $ 23.08 $ 24.26
Recoveries $ -- $ 6,132 $ 3,432 $ 71,880
Full service St-Line rent $ -- $ 82,224 $ 212,568 $ 1,325,040
Full service St-Line rent per sq. ft $ -- $ 17.52 $ 23.45 $ 25.65
% Full service St-Lined rent 0.00% 2.48% 6.42% 39.99%
Asking market rent per sq. ft $ 27.00
No. of tenant leases expiring 1 2 2 5
TransPotomac Plaza 5(2) Square feet expiring 3,496 sf 2,081 sf 1,686 sf 14,811 sf
Straight-Line rent $ 73,416 $ 42,732 $ 32,640 $ 275,316
Straight-Line rent per sq. ft $ 21.00 $ 20.53 $ 19.36 $ 18.59
Recoveries $ -- $ 984 $ 312 $ 2,136
Full service St-Line rent $ 73,416 $ 43,716 $ 32,952 $ 277,452
Full service St-Line rent per sq. ft $ 21.00 $ 21.01 $ 19.54 $ 18.73
% Full service St-Lined rent 3.66% 2.18% 1.64% 13.84%
Asking market rent per sq. ft $ 25.00
No. of tenant leases expiring 1 1 1 1
Sixty State Street(2) Square feet expiring 1,262 sf 33,692 sf 2,762 sf 28,735 sf
Straight-Line rent $ 38,627 $ 697,889 $ 74,436 $ 871,567
Straight-Line rent per sq. ft $ 30.61 $ 20.71 $ 26.95 $ 30.33
Recoveries $ 3,753 $ 102,419 $ 6,537 $ 51,125
Full service St-Line rent $ 42,380 $ 800,308 $ 80,973 $ 922,692
Full service St-Line rent per sq. ft $ 33.58 $ 23.75 $ 29.32 $ 32.11
% Full service St-Lined rent 0.15% 2.85% 0.29% 3.29%
Asking market rent per sq. ft $ 48.00
No. of tenant leases expiring 2 4 1 3
Corporate 500 Centre(1) Square feet expiring 9,893 sf 12,022 sf 36,362 sf 40,723 sf
Straight-Line rent $ 176,933 $ 175,044 $ 798,340 $ 1,060,416
Straight-Line rent per sq. ft $ 17.88 $ 14.56 $ 21.96 $ 26.04
Recoveries $ 38,231 $ 63,048 $ 343,872 $ 376,896
Full service St-Line rent $ 215,164 $ 238,092 $ 1,142,212 $ 1,437,312
Full service St-Line rent per sq. ft $ 21.75 $ 19.80 $ 31.41 $ 35.29
% Full service St-Lined rent 1.12% 1.24% 5.96% 7.50%
Asking market rent per sq. ft $ 29.00
No. of tenant leases expiring 4 4 5 4
One Memorial Drive(2) Square feet expiring 7,874 sf 21,422 sf
Straight-Line rent $ 281,495 $ 407,018
Straight-Line rent per sq. ft $ 35.75 $ 19.00
Recoveries $ 33,480 $ 31,829
Full service St-Line rent $ 314,975 $ 438,847
Full service St-Line rent per sq. ft $ 40.00 $ 20.49
% Full service St-Lined rent 2.55% 3.56%
Asking market rent per sq. ft $ 42.00
No. of tenant leases expiring 1 1
201 California Street(2) Square feet expiring 117,005 sf 42,778 sf
Straight-Line rent $ 2,623,176 $ 929,136
Straight-Line rent per sq. ft $ 22.42 $ 21.72
Recoveries $ 398,304 $ 31,500
Full service St-Line rent $ 3,021,480 $ 960,636
Full service St-Line rent per sq. ft $ 25.82 $ 22.46
% Full service St-Lined rent 47.37% 15.06%
Asking market rent per sq. ft $ 45.00
No. of tenant leases expiring 4 1
Wilshire Palisades(2) Square feet expiring 1,316 sf 5,118 sf 71,448 sf
Straight-Line rent $ 31,584 $ 110,556 $ 3,762,684
Straight-Line rent per sq. ft $ 24.00 $ 21.60 $ 52.66
Recoveries $ 1,380 $ 11,952 $ 326,616
Full service St-Line rent $ 32,964 $ 122,508 $ 4,089,300
Full service St-Line rent per sq. ft $ 25.05 $ 23.94 $ 57.23
% Full service St-Lined rent 0.40% 1.48% 49.25%
Asking market rent per sq. ft $ 42.00
No. of tenant leases expiring 1 1 6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROPERTY 2002 2003 2004 2005
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
99 Canal Center(2) Square feet expiring 21,710 sf 46,442 sf
Straight-Line rent $ 543,900 $ 1,068,096
Straight-Line rent per sq. ft $ 25.05 $ 23.00
Recoveries $ 17,772 $ 19,320
Full service St-Line rent $ 561,672 $ 1,087,416
Full service St-Line rent per sq. ft $ 25.87 $ 23.41
% Full service St-Lined rent 16.95% 32.82%
Asking market rent per sq. ft
No. of tenant leases expiring 2 5
TransPotomac Plaza 5(2) Square feet expiring 25,926 sf 7,702 sf
Straight-Line rent $ 517,800 $ 177,816
Straight-Line rent per sq. ft $ 19.97 $ 23.09
Recoveries $ 7,764 $ --
Full service St-Line rent $ 525,564 $ 177,816
Full service St-Line rent per sq. ft $ 20.27 $ 23.09
% Full service St-Lined rent 26.22% 8.87%
Asking market rent per sq. ft
No. of tenant leases expiring 2 2
Sixty State Street(2) Square feet expiring 189,493 sf 47,354 sf 113,670 sf
Straight-Line rent $ 3,893,189 $ 1,173,338 $ 3,539,587
Straight-Line rent per sq. ft $ 20.55 $ 24.78 $ 31.14
Recoveries $ 2,057,400 $ 79,341 $ 220,607
Full service St-Line rent $ 5,950,589 $ 1,252,679 $ 3,760,194
Full service St-Line rent per sq. ft $ 31.40 $ 26.45 $ 33.08
% Full service St-Lined rent 21.20% 4.46% 13.40%
Asking market rent per sq. ft
No. of tenant leases expiring 5 2 10
Corporate 500 Centre(1) Square feet expiring 55,101 sf 160,472 sf 13,852 sf
Straight-Line rent $ 1,137,468 $ 3,567,213 $ 275,112
Straight-Line rent per sq. ft $ 20.64 $ 22.23 $ 19.86
Recoveries $ 504,996 $ 1,202,604 $ 134,760
Full service St-Line rent $ 1,642,464 $ 4,769,817 $ 409,872
Full service St-Line rent per sq. ft $ 29.81 $ 29.72 $ 29.59
% Full service St-Lined rent 8.57% 24.89% 2.14%
Asking market rent per sq. ft
No. of tenant leases expiring 7 10 1
One Memorial Drive(2) Square feet expiring 70,753 sf 60,840 sf 95,472 sf
Straight-Line rent $ 2,283,230 $ 2,027,913 $ 2,979,229
Straight-Line rent per sq. ft $ 32.27 $ 33.33 $ 31.21
Recoveries $ 76,568 $ 155,547 $ 134,499
Full service St-Line rent $ 2,359,798 $ 2,183,460 $ 3,113,728
Full service St-Line rent per sq. ft $ 33.35 $ 35.89 $ 32.61
% Full service St-Lined rent 19.12% 17.69% 25.23%
Asking market rent per sq. ft
No. of tenant leases expiring 5 2 2
201 California Street(2) Square feet expiring 1,664 sf 78,783 sf
Straight-Line rent $ 53,244 $ 2,201,376
Straight-Line rent per sq. ft $ 32.00 $ 27.94
Recoveries $ 192 $ 141,900
Full service St-Line rent $ 53,436 $ 2,343,276
Full service St-Line rent per sq. ft $ 32.11 $ 29.74
% Full service St-Lined rent 0.84% 36.74%
Asking market rent per sq. ft
No. of tenant leases expiring 1 2
Wilshire Palisades(2) Square feet expiring 72,506 sf 14,921 sf
Straight-Line rent $ 2,399,244 $ 703,680
Straight-Line rent per sq. ft $ 33.09 $ 47.16
Recoveries $ 37,800 $ --
Full service St-Line rent $ 2,437,044 $ 703,680
Full service St-Line rent per sq. ft $ 33.61 $ 47.16
% Full service St-Lined rent 29.35% 8.47%
Asking market rent per sq. ft
No. of tenant leases expiring 6 1
</TABLE>
<TABLE>
<CAPTION>
2008 and
PROPERTY 2006 2007 Beyond Total
- -------- ---- ---- ------ -----
<S> <C> <C> <C> <C>
99 Canal Center(2) Square feet expiring 1,760 sf 136,981 sf
Straight-Line rent $ 44,316 $ 3,194,700
Straight-Line rent per sq. ft $ 25.18 $ 23.32
Recoveries $ -- $ 118,536
Full service St-Line rent $ 44,316 $ 3,313,236
Full service St-Line rent per sq. ft $ 25.18 $ 24.19
% Full service St-Lined rent 1.34% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 18
TransPotomac Plaza 5(2) Square feet expiring 17,670 sf 19,610 sf 92,982 sf
Straight-Line rent $ 431,688 $ 438,561 $ 1,989,969
Straight-Line rent per sq. ft $ 24.43 $ 22.36 $ 21.40
Recoveries $ 3,180 $ -- $ 14,376
Full service St-Line rent $ 434,868 $ 438,561 $ 2,004,345
Full service St-Line rent per sq. ft $ 24.61 $ 22.36 $ 21.56
% Full service St-Lined rent 21.70% 21.88% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 2 1 11
Sixty State Street(2) Square feet expiring 35,537 sf 31,600 sf 331,173 sf 815,278 sf
Straight-Line rent $1,085,482 $ 925,037 $ 8,529,321 $20,828,473
Straight-Line rent per sq. ft $ 30.55 $ 29.27 $ 25.75 $ 25.55
Recoveries $ 57,248 $ 331,318 $ 4,330,778 $ 7,240,526
Full service St-Line rent $1,142,730 $ 1,256,355 $12,860,099 $28,068,999
Full service St-Line rent per sq. ft $ 32.16 $ 39.76 $ 38.83 $ 34.43
% Full service St-Lined rent 4.07% 4.48% 45.82% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 2 4 3 36
Corporate 500 Centre(1) Square feet expiring 135,590 sf 43,140 sf 110,201 sf 617,356 sf
Straight-Line rent $3,131,604 $ 924,420 $ 2,588,964 $13,835,514
Straight-Line rent per sq. ft $ 23.10 $ 21.43 $ 23.49 $ 22.41
Recoveries $1,251,852 $ 332,760 $ 1,078,881 $ 5,327,900
Full service St-Line rent $4,383,456 $ 1,257,180 $ 3,667,845 $19,163,414
Full service St-Line rent per sq. ft $ 32.33 $ 29.14 $ 33.28 $ 31.04
% Full service St-Lined rent 22.87% 6.56% 19.14% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 2 2 40
One Memorial Drive(2) Square feet expiring 42,740 sf 55,763 sf 354,864 sf
Straight-Line rent $ 1,424,328 $ 2,302,691 $11,705,904
Straight-Line rent per sq. ft $ 33.33 $ 41.29 $ 32.99
Recoveries $ 25,987 $ 176,283 $ 634,193
Full service St-Line rent $ 1,450,315 $ 2,478,974 $12,340,097
Full service St-Line rent per sq. ft $ 33.93 $ 44.46 $ 34.77
% Full service St-Lined rent 11.75% 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 240,230 sf
Straight-Line rent $ 5,806,932
Straight-Line rent per sq. ft $ 24.17
Recoveries $ 571,896
Full service St-Line rent $ 6,378,828
Full service St-Line rent per sq. ft $ 26.55
% 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 20,389 sf 185,698 sf
Straight-Line rent $ 877,308 $ 7,885,056
Straight-Line rent per sq. ft $ 43.03 $ 42.46
Recoveries $ 40,212 $ 417,960
Full service St-Line rent $ 917,520 $ 8,303,016
Full service St-Line rent per sq. ft $ 45.00 $ 44.71
% Full service St-Lined rent 11.05% 100.00%
Asking market rent per sq. ft
No. of tenant leases expiring 1 16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Q4
PROPERTY 1998 1999 2000 2001
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
All Properties Total Square feet expiring(3) 124,866 sf 770,738 sf 678,576 sf 953,264 sf
Straight-Line rent(4) $ 3,178,033 $17,761,286 $13,182,071 $27,685,262
Straight-Line rent per sq. ft $ 25.45 $ 23.04 $ 19.43 $ 29.04
Recoveries (5) $ 349,391 $ 3,628,427 $ 4,205,921 $ 4,856,935
Full service St-Line rent(6) $ 3,527,424 $21,389,713 $17,387,992 $32,542,197
Full service St-Line rent per sq. ft $ 28.25 $ 27.75 $ 25.62 $ 34.14
% Full service St-Lined rent 1.04% 6.31% 5.13% 9.60%
Asking market rent per sq. ft.(7) $ 35.48
No. of tenant leases expiring(8) 39 81 94 97
</TABLE>
<TABLE>
<CAPTION>
PROPERTY 2002 2003 2004 2005
- -------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
All Properties Total Square feet expiring(3) 1,355,931 sf 1,734,588 sf 895,523 sf 275,301 sf
Straight-Line rent(4) $27,807,656 $38,115,614 $20,971,731 $ 8,055,470
Straight-Line rent per sq. ft $ 20.51 $ 21.97 $ 23.42 $ 29.26
Recoveries (5) $ 8,520,307 $11,655,247 $ 4,475,975 $ 2,342,157
Full service St-Line rent(6) $36,327,963 $49,770,861 $25,447,706 $10,397,627
Full service St-Line rent per sq. ft $ 26.79 $ 28.69 $ 28.42 $ 37.77
% Full service St-Lined rent 10.72% 14.69% 7.51% 3.07%
Asking market rent per sq. ft.(7)
No. of tenant leases expiring(8) 110 97 53 18
</TABLE>
<TABLE>
<CAPTION>
2008 and
PROPERTY 2006 2007 Beyond Total
- -------- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
All Properties Total Square feet expiring(3) 713,355 sf 742,294 sf 2,862,157 sf 11,106,593 sf
Straight-Line rent(4) $19,829,632 $15,916,661 $68,006,732 $260,510,148
Straight-Line rent per sq. ft $ 27.80 $ 21.44 $ 23.76 $ 23.46
Recoveries (5) $ 5,895,405 $ 5,065,698 $27,395,203 $ 78,390,666
Full service St-Line rent(6) $25,725,037 $20,982,359 $95,401,935 $ 338,900,814
Full service St-Line rent per sq. ft $ 36.06 $ 28.27 $ 33.33 $ 30.51
% Full service St-Lined rent 7.59% 6.19% 28.15% 100.00%
Asking market rent per sq. ft.(7)
No. of tenant leases expiring(8) 15 27 37 668
</TABLE>
- ----------
* 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.
<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 September
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 September 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 1996 1997
------------------------ ------------------------ ----------------------- --------------------------
sq ft sq ft sq ft sq ft sq ft sq ft sq ft sq ft
retained expir. ret % retained expir. ret % retained expir. ret % retained expir. ret %
-------- ------- ----- -------- ------- ----- -------- ------ ----- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Norwest Center 93,962 94,981 99% 64,627 71,364 91% 43,601 72,903 60% 266,021 313,612 85%
Norwest Center 16,293 26,317 62% 22,762 23,792 96% 4,336 9,777 44% 205,749 234,260 88%
Washington Mutual Tower 127,334 153,645 83% 29,547 44,742 66% 86,956 106,250 82% 182,194 207,738 88%
125 Summer Street 95,816 96,658 99% 41,252 62,218 66%
Tower 56 46,003 53,762 86% 37,027 50,679 73%
One Lincoln Centre 35,320 42,099 84%
527 Madison Avenue 5,980 20,587 29%
191 Peachtree Street -- -- --
Market Square -- -- --
500 Boylston Street -- 3,005 0%
222 Berkeley Street -- -- --
Charlotte Plaza 2,974 6,390 47%
200 Galleria 10,672 21,725 9%
11 Canal Center -- 8,889 0%
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% 276,712 339,350 82% 787,189 971,202 81%
</TABLE>
<TABLE>
<CAPTION>
YTD 1998 (Q3)
---------------------------------
sq ft sq ft
retained expir. ret %
-------- ------- -----
<S> <C> <C> <C>
One Norwest Center 72,170 100,275 72%
Norwest Center 101,382 111,786 91%
Washington Mutual Tower 321,619 323,056 100%
125 Summer Street 110,447 131,458 84%
Tower 56 16,790 16,790 100%
One Lincoln Centre 31,166 84,750 37%
527 Madison Avenue 10,277 10,419 99%
191 Peachtree Street 25,617 112,635 23%
Market Square 27,279 41,241 66%
500 Boylston Street 72,628 72,628 100%
222 Berkeley Street 44,527 44,527 100%
Charlotte Plaza 30,601 53,503 57%
200 Galleria 37,404 56,488 66%
11 Canal Center -- -- --
99 Canal Center 29,925 33,918 88%
TransPotomac Plaza 5 6,745 17,185 39%
Sixty State Street 115,178 120,503 96%
Corporate 500 Centre 22,559 66,745 34%
One Memorial Drive -- -- --
201 California Street -- -- --
Wilshire Palisades 16,237 16,237 100%
----------------------------------
Weighted 1,092,551 1,414,144 77%
Five year total 80%
------
------
</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 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 24,169 -- -- -- -- 24,169
Total Square Feet Leased 1,497 -- -- -- -- 1,497
Total Per Square Foot 16.14 -- -- -- -- 16.14
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 1,542,393 -- -- -- 1,542,393
Total Square Feet Leased 40,238 -- -- -- -- 40,238
Total Per Square Foot 38.33 -- -- -- -- 38.33
Capital Expenditures 86,968 -- -- -- -- 86,968
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 -- -- -- -- -- --
222 Berkeley 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 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>
Charlotte Plaza
Total Tenant Lease Costs 115,602 -- -- -- -- 115,602
Total Square Feet Leased 26,820 -- -- -- -- 26,820
Total Per Square Foot 4.31 -- -- -- -- 4.31
Capital Expenditures 341,839 -- -- -- -- 341,839
200 Galleria
Total Tenant Lease Costs 301,998 24,132 -- -- -- 326,130
Total Square Feet Leased 15,198 2,139 -- -- -- 17,337
Total Per Square Foot 19.87 11.28 -- -- -- 18.81
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 -- 102,986 -- -- -- 102,986
99 Canal Center
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- 51,419 -- -- -- 51,419
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 8,970 -- -- -- -- 8,970
Corporate 500 Centre
Total Tenant Lease Costs 72,834 -- -- -- -- 72,834
Total Square Feet Leased 4,902 -- -- -- -- 4,902
Total Per Square Foot 14.86 -- -- -- -- 14.86
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 -- -- -- -- -- --
Wilshire Palisades
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures 24,850 -- -- -- -- 24,850
</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 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>
Minority Interest*
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures -- -- -- -- -- --
Total Cornerstone Portfolio
Total Tenant Lease Costs 2,855,217 690,658 1,196,934 -- -- 4,742,809
Total Square Feet Leased 118,072 83,682 188,709 -- -- 390,463
Total Per Square Foot Leased 24.18 8.25 6.34 -- -- 12.15
Capital Expenditures 488,056 367,262 25,500 135,194 102,567 1,118,579
Weighted Average Square Footage Owned** 7,644,000 5,348,000 3,895,680 3,263,769 3,239,636 23,391,085
Total Per Square Foot 0.06 0.07 0.01 0.04 0.03 0.05
</TABLE>
* Adjustments for minority interests at Norwest Center (19.0%), 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 193,549 1,823,664 1,009,006 141,135 540,444 3,707,798
Total Square Feet Leased 75,989 308,697 81,445 75,939 117,966 660,036
Total Per Square Foot 2.55 5.91 12.39 1.86 4.58 5.62
Capital Expenditures -- 102,000 -- -- -- 102,000
Norwest Center
Total Tenant Lease Costs 558,040 569,103 42,237 144,275 30,193 1,343,848
Total Square Feet Leased 116,966 212,795 6,629 24,986 26,939 388,315
Total Per Square Foot 4.77 2.67 6.37 5.77 1.12 3.46
Capital Expenditures -- 10,974 -- -- -- 10,974
Washington Mutual Tower
Total Tenant Lease Costs 1,634,183 1,204,606 793,361 290,971 1,065,962 4,989,083
Total Square Feet Leased 346,317 208,875 124,474 53,894 151,051 884,611
Total Per Square Foot 4.72 5.77 6.37 5.40 7.06 5.64
Capital Expenditures 3,579 21,922 -- -- 50,801 76,302
125 Summer Street
Total Tenant Lease Costs 894,738 1,314,489 2,158,339 -- -- 4,367,566
Total Square Feet Leased 119,242 65,105 117,794 -- -- 302,141
Total Per Square Foot 7.50 20.19 18.32 -- -- 14.46
Capital Expenditures 22,322 53,185 518,632 -- -- 594,139
Tower 56
Total Tenant Lease Costs 260,994 724,025 339,124 -- -- 1,324,143
Total Square Feet Leased 24,955 65,283 42,203 -- -- 132,441
Total Per Square Foot 10.46 11.09 8.04 -- -- 10.00
Capital Expenditures -- 43,538 -- -- -- 43,538
One Lincoln Centre
Total Tenant Lease Costs 220,028 287,758 2,859 -- -- 510,645
Total Square Feet Leased 61,099 42,826 3,652 -- -- 107,577
Total Per Square Foot 3.60 6.72 0.78 -- -- 4.75
Capital Expenditures 37,468 154,646 -- -- -- 192,114
527 Madison Avenue
Total Tenant Lease Costs 125,356 746,070 -- -- -- 871,426
Total Square Feet Leased 10,277 29,821 -- -- -- 40,098
Total Per Square Foot 12.20 25.02 -- -- -- 21.73
Capital Expenditures 488,165 86,652 -- -- -- 574,817
191 Peachtree Street
Total Tenant Lease Costs 566,508 96,023 -- -- -- 662,531
Total Square Feet Leased 106,972 2,597 -- -- -- 109,569
Total Per Square Foot 5.30 36.97 -- -- -- 6.05
Capital Expenditures -- -- -- -- -- --
Market Square
Total Tenant Lease Costs 390,704 -- -- -- -- 390,704
Total Square Feet Leased 27,279 -- -- -- -- 27,279
Total Per Square Foot 14.32 -- -- -- -- 14.32
Capital Expenditures -- -- -- -- -- --
500 Boylston Street
Total Tenant Lease Costs 52,289 34,558 -- -- -- 86,847
Total Square Feet Leased 72,628 3,005 -- -- -- 75,633
Total Per Square Foot 0.72 11.50 -- -- -- 1.15
Capital Expenditures -- -- -- -- -- --
222 Berkeley Street
Total Tenant Lease Costs 541,372 -- -- -- -- 541,372
Total Square Feet Leased 44,852 -- -- -- -- 44,852
Total Per Square Foot 12.07 -- -- -- -- 12.07
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>
Charlotte Plaza
Total Tenant Lease Costs 457,223 154,044 -- -- -- 611,267
Total Square Feet Leased 53,663 9,139 -- -- -- 62,802
Total Per Square Foot 8.52 16.86 -- -- -- 9.73
Capital Expenditures 5,086 15,039 -- -- -- 20,125
200 Galleria
Total Tenant Lease Costs 531,720 173,242 -- -- -- 704,962
Total Square Feet Leased 53,585 10,672 -- -- -- 64,257
Total Per Square Foot 9.92 16.23 -- -- -- 10.97
Capital Expenditures 125,971 -- -- -- -- 125,971
11 Canal Center
Total Tenant Lease Costs -- -- -- -- -- --
Total Square Feet Leased -- -- -- -- -- --
Total Per Square Foot -- -- -- -- -- --
Capital Expenditures 18,437 -- -- -- -- 18,437
99 Canal Center
Total Tenant Lease Costs 165,899 -- -- -- -- 165,899
Total Square Feet Leased 33,918 -- -- -- -- 33,918
Total Per Square Foot 4.89 -- -- -- -- 4.89
Capital Expenditures 21,012 -- -- -- -- 21,012
TransPotomac Plaza 5
Total Tenant Lease Costs 214,177 -- -- -- -- 214,177
Total Square Feet Leased 17,185 -- -- -- -- 17,185
Total Per Square Foot 12.46 -- -- -- -- 12.46
Capital Expenditures -- -- -- -- --
Sixty State Street
Total Tenant Lease Costs 5,125,892 -- -- -- -- 5,125,892
Total Square Feet Leased 129,778 -- -- -- -- 129,778
Total Per Square Foot 39.50 -- -- -- -- 39.50
Capital Expenditures 173,595 -- -- -- -- 173,595
Corporate 500 Centre
Total Tenant Lease Costs 399,250 -- -- -- -- 399,250
Total Square Feet Leased 37,713 -- -- -- -- 37,713
Total Per Square Foot 10.59 -- -- -- -- 10.59
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 -- -- -- -- -- --
Wilshire Palisades
Total Tenant Lease Costs 113,087 -- -- -- -- 113,087
Total Square Feet Leased 19,106 -- -- -- -- 19,106
Total Per Square Foot 5.92 -- -- -- -- 5.92
Capital Expenditures 241,084 -- -- -- -- 241,084
</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>
Minority Interest*
Total Tenant Lease Costs 156,488.79 123,622 9,208 30,442 5,978 325,739
Total Square Feet Leased 32,209.34 44,382 1,372 5,172 5,576 88,712
Total Per Square Foot 4.86 2.79 6.71 5.89 1.07 3.67
Capital Expenditures -- 2,272 -- -- -- 2,272
Total Cornerstone Portfolio
Total Tenant Lease Costs 12,288,520 7,003,960 4,335,718 545,939 1,630,621 25,804,758
Total Square Feet Leased 1,319,315 914,433 374,825 149,647 290,380 3,048,599
Total Per Square Foot Leased 9.31 7.66 11.57 3.65 5.62 8.46
Capital Expenditures 1,179,978 485,684 518,632 -- 50,801 2,235,095
Weighted Average Square Footage Owned** 7,644,000 5,348,000 3,895,680 3,263,769 3,239,636 23,391,085
Total Per Square Foot 0.15 0.09 0.13 -- 0.02 0.10
</TABLE>
* Adjustments for minority interests at Norwest Center (19.0%), 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
September 30, 1998
The following table sets forth certain information regarding the consolidated
debt obligations of the Company as of September 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 9/30/98
- -------- ------------ ------------- ---- ---------- -------
<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 (C)............ 30 year 6.90 (D) Oct-2008 (E) 98,500,000
Norwest Center.................... Interest only 8.74 Dec-2005 Not prepayable 110,000,000
Washington Mutual Tower........... Interest only 7.53 Nov-2005 (F) 79,100,000
125 Summer Street................. Interest only (G) 7.20 Jan-2003 (H) 50,000,000
Tower 56.......................... 30 year 7.67 May-2003 (I) 17,608,000
TransPotomac Plaza 5 and Charlotte
Plaza (J)....................... Interest only 7.28 Oct-2000 Not prepayable 65,000,000
527 Madison Avenue and One Lincoln
Centre (J)...................... Interest only 7.47 Oct-2004 Not prepayable 65,000,000
Market Square (K) and 200
Galleria (J).................... Interest only 7.54 Oct-2007 Not prepayable 120,000,000
Sixty State Street (L)............ 30 year 6.84 Jan-2005 (M) 88,141,000
Corporate 500 Centre (N).......... Interest only 6.63 (O) Jul-2002 Prepayable 80,000,000
201 California Street (P)......... 30 year 6.70 Mar-2005 (Q) 33,171,000
Wilshire Palisades (R)............ 30 year 6.70 Jul-2002 (S) 30,109,000
---------------------------- ------------
7.37 (T) 6.4 yrs. (T) $849,555,000
</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
September 30, 1998, $148.0 million of the credit line was outstanding at a rate
of approximately 6.79%. 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) On September 25, 1998, the Company completed the refinancing of the
$96.1 million mortgage on One Norwest Center with CIGNA and Mass
Mutual. As a result of the refinancing, the principal balance was
increased to $98.5 million, the term of the loan was extended from
three years to ten years and the interest rate was reduced from 7.50%
to 6.90%.
(D) Weighted-average interest rate among the three notes comprising the
$98.5 million total mortgage balance.
(E) No prepayment until October 1, 2000. From October 1, 2000 through
September 30, 2007, the prepayment fee is the greater of: (1) 1% of the
outstanding principal balance or (2) Treasury Yield Maintenance (as
defined). Beginning October 1, 2007, the prepayment fee is Treasury
Yield Maintenance. The loan may be repaid at par during the last 90
days of the loan.
(F) 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.
(G) Interest only payments through January 1, 2001, with a 25-year
amortization schedule thereafter.
(H) 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.
(I) 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.
(J) 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.
(K) The collateral for this loan is a pledge of the $181 million first
mortgage loan on Market Square which the Company purchased from PGGM.
(L) While the face amount of the loan is $77,938,000, and the interest rate
is 9.5%, the Company is carrying the debt at $88,141,000, which is the
market value of the loan at the time of the closing, less the
amortization of principal and premium since closing, based upon a
market interest rate for similar quality loans of 6.84%.
(M) 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.
(N) On October 9, 1998, the Company completed the refinancing of the $80.0
million mortgage on Corporate 500 Centre with Teachers Insurance and
Annuity Association. As a result of the refinancing, the principal
balance was increased to $90.0 million, the term of the loan was
extended from 4.5 years to 10 years and the interest rate was increased
by three basis points to 6.66%.
(O) The interest rate on the loan is LIBOR plus 100 basis points.
(P) While the face amount of the loan is $32,842,000, and the interest rate
is 6.9%, the Company is carrying the debt at $33,171,000, which is the
market value of the loan at the time of the closing, less the
amortization of principal and premium since closing, based upon a
market interest rate for similar quality loans of 6.70%.
(Q) 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.
(R) While the face amount of the loan is $28,841,000, and the interest rate
is 8.04%, the Company is carrying the debt at $30,109,000, which is the
market value of the loan at the time of the closing, less the
amortization of principal and premium since closing, based upon a
market interest rate for similar quality loans of 6.70%.
(S) 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).
(T) Weighted-average interest rate and maturity of the Company's long-term
debt.
<PAGE>
Cornerstone Properties Inc.
Supplemental Information to
Quarterly Earnings Release
- Equity Schedule
<PAGE>
Cornerstone Properties Inc.
Equity Activity Schedule
As of September 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
8/31/98 Dividend reinvestment 94,610
-----------
101,636,864
-----------
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 276,369
-----------
4,210,586
-----------
9/30/98 Total fully diluted common shares and units outstanding 109,993,333
-----------
-----------
Year to date weighted average fully diluted common
shares and units outstanding 104,939,852
-----------
-----------
Quarter to date weighted average fully diluted common
shares and units outstanding 109,930,602
-----------
-----------
</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 nine months of
1998 were split 81.0% to Cornerstone and 19.0% to S&M. Sales proceeds from
Norwest Center will be split as follows as of September 30, 1998:
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.
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 $8.9 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 $155.9 million of proceeds
after repayment of the $79.1 million mortgage ($235.0 million in total
proceeds). Any proceeds above this amount will be split 50/50 with Cornerstone's
partners.
<PAGE>
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 ($161.1 million as of 9/30/98) 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 September 30,
1998:
1) To Debt $ 1.8 million
2) To Cornerstone (as partial holder
of the debt) $159.5 million
3) To Cornerstone for its undistributed
preferred return $ 16.1 million
4) To Cornerstone for its priority capital
contribution $145.0 million
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.
