SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
August 26, 1998
CORNERSTONE PROPERTIES INC.
(Exact name of registrant as specified in its charter)
Nevada 0-10421 74-2170858
(State or other jurisdiction of (Commission (IRS Employer
incorporation) File Number) Identification No.)
Cornerstone Properties Inc.
Tower 56
126 East 56th Street
New York, NY 10022
(Address of principal executive offices)
(212) 605-7100
(Registrant's telephone number,
including area code)
<PAGE>
Item 2. Acquisition or Disposition of Assets
------------------------------------
The press release issued by the Registrant regarding the acquisition
of One Memorial Drive, dated April 27, 1998, a copy of which is
included with this Form 8-K as Exhibit 99.1, is incorporated herein
by reference.
The press releases issued by the Registrant regarding the
acquisition of 201 California Street and Wilshire Palisades, dated
February 25, 1998 and June 9, 1998, copies of which are included
with this Form 8-K as Exhibit 99.2 and 99.3, are incorporated herein
by reference.
Item 7. Financial Statements and Exhibits.
----------------------------------
(a) Included herewith are the following financial statements reflecting the
acquisition of One Memorial Drive, 201 California Street and Wilshire
Palisades (the "Properties").
One Memorial Drive
------------------
Report of Ernst and Young LLP, Independent Accountants,
dated June 12, 1998 F-2
Statement of Revenues and Certain Expenses for the year ended
December 31, 1997 and for the three months ended March 31, 1998 F-3
Notes to Statement of Revenues and Certain Expenses for the year
ended December 31, 1997 F-4
201 California Street (or California Front Building)
----------------------------------------------------
Report of Arthur Andersen LLP, Independent Accountants,
dated June 30, 1998 F-8
Statement of Revenue and Certain Expenses for the year ended
December 31, 1997 and for the five months ended May 31, 1998 F-9
Notes to Statement of Revenue and Certain Expenses for the year
ended December 31, 1997 F-10
Wilshire Palisades Building
---------------------------
Report of Arthur Andersen LLP, Independent Accountants,
dated June 30, 1998 F-13
Statement of Revenue and Certain Expenses for the year ended
June 30, 1997 and for the eleven months ended May 31, 1998 F-14
Notes to Statement of Revenue and Certain Expenses for the year
ended June 30, 1997 F-15
<PAGE>
(b) Pro Forma Financial Information (Unaudited)
Condensed Consolidated Balance Sheet as of June 30, 1998 F-18
Condensed Consolidated Pro Forma Statement of Income for the twelve
months ended December 31, 1997 F-19
Condensed Consolidated Pro Forma Statement of Income for the six
months ended June 30, 1998 F-20
Notes to Condensed Consolidated Pro Forma Financial Statements F-21
(c) Exhibits
Exhibit 99.1 - Press release, dated April 27, 1998.
Exhibit 99.2 - Press release, dated February 25, 1998.
Exhibit 99.3 - Press release, dated June 9, 1998.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
INFORMATION PURSUANT TO RULE 3-14 OF REGULATION S-X
MANAGEMENT ASSESSMENT
Management's assessment of the Properties prior to acquisition
includes, but is not limited to, the quality of the tenant base, regional
demographics, the competitive environment, operating expenses and local property
taxes. In addition, the physical aspect of the Properties, location, condition
and quality of design and construction are evaluated. Management also conducts
engineering and environmental studies. All factors, when viewed in their
entirety, have met management's acquisition criteria. Management is not aware of
any material factors relating to the acquisitions other than those discussed
above.
ESTIMATES OF TAXABLE OPERATING INCOME AND
FUNDS GENERATED FROM OPERATIONS
No income taxes have been provided because Cornerstone Properties Inc.
is taxed as a real estate investment trust under the provisions of the Internal
Revenue Code. Accordingly, Cornerstone does not pay Federal income tax whenever
income distributed to stockholders is equal to at least 95% of real estate
investment trust taxable income and certain other conditions are met.
The following presents an estimate of cash generated from operations
for Cornerstone Properties Inc. for the year ended December 31, 1997 based on
the Condensed Consolidated Pro Forma Statement of Income for the twelve months
ended December 31, 1997. These estimated results do not purport to present
expected results of operations for the Company in the future and were prepared
on the basis described in the accompanying notes which should be read in
conjunction herewith.
<TABLE>
<CAPTION>
Estimated Cash Generated From Operations
For the year ended December 31, 1997
------------------------------------
(000's)
<S> <C>
Pro Forma Net Income $94,453
Plus: Pro Forma Depreciation and Amortization 56,301
Plus: Unconsolidated Pro Forma Depreciation 3,506
Plus: Minority interest adjustments 1,861
Less: Straight line rent adjustment (14,595)
---------
$141,526
========
</TABLE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORNERSTONE PROPERTIES INC.
(Registrant)
By: /s/ John S. Moody
-------------------------------------------
John S. Moody, President and
Chief Executive Officer
Date: August 26, 1998
By: /s/ Kevin P. Mahoney
-------------------------------------------
Kevin P. Mahoney, Senior Vice President and
Chief Financial Officer
Date: August 26, 1998
<PAGE>
One Memorial Drive
Cambridge, Massachusetts
Statement of Revenues and Certain Expenses
Year ended December 31, 1997
Contents
Report of Independent Auditors...............................................F-2
Statement of Revenues and Certain Expenses...................................F-3
Notes to Statement of Revenues and Certain Expenses..........................F-4
F-1
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Directors
Cornerstone Properties Inc.
We have audited the accompanying Statement of Revenues and Certain Expenses of
One Memorial Drive, Cambridge, Massachusetts (the "Property") for the year ended
December 31, 1997. This Statement of Revenues and Certain Expenses is the
responsibility of the Property's management. Our responsibility is to express an
opinion on this Statement of Revenues and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenues and Certain Expenses is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement of Revenues and Certain
Expenses. An audit also includes assessing the basis of accounting used and
significant estimates made by management, as well as evaluating the overall
presentation of the Statement of Revenues and Certain Expenses. We believe that
our audit provides a reasonable basis for our opinion.
The accompanying Statement of Revenues and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form 8-K of Cornerstone Properties Inc. as
described in Note 2, and is not intended to be a complete presentation of the
Property's revenues and expenses.
In our opinion, the Statement of Revenues and Certain Expenses referred to above
presents fairly, in all material respects, the revenues and certain expenses as
described in Note 2 of One Memorial Drive, Cambridge, Massachusetts for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
June 12, 1998
F-2
<PAGE>
One Memorial Drive
Cambridge, Massachusetts
Statement of Revenues and Certain Expenses
<TABLE>
<CAPTION>
For the Three
For the Year Months
Ended Ended March
December 31, 31, 1998
1997 (unaudited)
---------------- --------------
<S> <C> <C>
Revenues:
Rental $ 11,214,218 $ 2,971,750
Parking 888,130 201,699
Other 33,488 18,075
---------------- --------------
$ 12,135,836 $ 3,191,524
---------------- --------------
Certain expenses:
Real estate taxes 1,714,077 429,714
Other operating expenses 848,329 266,990
Repairs and maintenance 641,643 144,266
Management fees 320,027 75,288
Utilities 277,117 50,618
Insurance 52,575 12,671
---------------- --------------
$ 3,853,768 $ 979,547
---------------- --------------
Revenues in excess of certain expenses $ 8,282,068 $ 2,211,977
================ ==============
</TABLE>
See accompanying notes.
F-3
<PAGE>
One Memorial Drive
Cambridge, Massachusetts
Notes to the Statement of Revenues and Certain Expenses
Year Ended December 31, 1997
1. Business
The accompanying Statement of Revenues and Certain Expenses relates to the
operations of One Memorial Drive, a 351,680 square foot office building
located at One Memorial Drive, Cambridge, Massachusetts. Cornerstone
Properties Inc. (the "Company") acquired the Property on April 28, 1998.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying Statement of Revenues and Certain Expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Company's Form 8-K. Accordingly, the
statement excludes certain revenues and expenses that may not be comparable
to those expected to be incurred by the Company in the proposed future
operations of the Property. Items excluded consist of interest income,
depreciation, amortization, capital expenditures and certain non-operating
expenses.
Use of Estimates
The preparation of the Statement of Revenues and Certain Expenses in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts reported in the
Statement of Revenues and Certain Expenses and accompanying notes. Actual
results could differ from those estimates.
Revenue Recognition
Rental income attributable to leasing activities is recognized on a
straight-line basis over the term of the non-cancelable leases.
Capitalization Policy
Ordinary repairs and maintenance are expensed as incurred; major replacements
and betterments are capitalized.
F-4
<PAGE>
One Memorial Drive
Cambridge, Massachusetts
Notes to the Statement of Revenues and Certain Expenses
(Continued)
2. Summary of Significant Accounting Policies (continued)
Unaudited Information
The Statement of Revenues and Certain Expenses for the period from January 1,
1998 through March 31, 1998 is unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such information have been
made. The results of operations for this period are not necessarily
indicative of future results of operations of the Property.
3. Related Party Transactions
Management fees of $320,027 for the year ended December 31, 1997 and $75,288
for the period from January 1, 1998 through March 31, 1998 (unaudited) were
paid to an affiliate of the prior owner under a property management contract.
Included in other operating expenses are allocated expenses of $349,480 for
the year ended December 31, 1997 and $106,836 for the period from January 1,
1998 through March 31, 1998 (unaudited), which were paid to affiliates of the
prior owners for administrative costs and salary reimbursements under a
property management contract. Under the terms of the sale to the Company, the
prior management company will continue to manage the property for a term not
less than one year from April 28, 1998.
Rental revenue and escalation income of $117,305 for the year ended December
31, 1997 and $28,845 for the period from January 1, 1998 through March 31,
1998 (unaudited) was received from an affiliate of the former owner under an
operating lease.
4. Operating Leases
The Property leases space to tenants under operating leases which expire at
various dates through 2007. In addition to the minimum rentals, certain
leases provided for the reimbursement of operating expenses and real estate
taxes in excess of fixed bases.
F-5
<PAGE>
One Memorial Drive
Cambridge, Massachusetts
Notes to the Statements of Revenues and Certain Expenses
(Continued)
4. Operating Leases (continued)
Minimum future rents, including amounts due from an affiliate of the former
owners, under the terms of existing lease arrangements are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $10,288,630
1999 10,356,102
2000 8,272,188
2001 8,281,452
2002 7,284,046
Thereafter 11,835,446
-----------
$56,317,864
===========
</TABLE>
During 1997, the Property derives a substantial portion of its revenues from
certain major tenants who, individually, contribute more than ten percent of
total revenue. These major tenants are as follows.
<TABLE>
<CAPTION>
Percent of
Rental Revenue
Percent of for the 3 Month
Rental Revenue Period Ended
for the Year Ended March 31, 1998
Tenant December 31, 1997 (unaudited)
------ ----------------- -----------
<S> <C> <C>
Putnam, Hayes & Bartlett, Inc. 20% 19%
Sapient Corporation 17% 31%
InterSystems Corporation 15% 15%
David L. Babson & Company 10% 12%
-------------------- ----------------
62% 77%
==================== ================
</TABLE>
Future minimum rents from non-cancelable leases for these major tenants are
68% of the total of $56,317,864 at December 31, 1997.
F-6
<PAGE>
CALIFORNIA FRONT BUILDING
STATEMENT OF REVENUE AND CERTAIN EXPENSES
AS OF DECEMBER 31, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
California Front Building:
We have audited the accompanying Statement of Revenue and Certain Expenses of
California Front Building (the Property) for the year ended December 31, 1997.
The Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement of Revenue and Certain
Expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the Statement of Revenue and Certain Expenses. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Form 8-K to be filed by Cornerstone
Properties, Inc. as described in Note 2 and is not intended to be a complete
presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses of
the Property for the year ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Los Angeles, California
June 30, 1998
F-8
<PAGE>
CALIFORNIA FRONT BUILDING
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
Year Five Months
Ended Ended
December 31, May 31,
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
REVENUES:
Office rent $ 5,800,485 $ 2,423,050
Parking 250,202 104,831
Recoveries 615,313 251,427
Other 47,847 17,352
----------- -----------
Total Revenues 6,713,847 2,796,660
----------- -----------
SPECIFIC OPERATING EXPENSES:
Building Administration 399,210 164,971
General Building and Grounds 364,556 172,321
Cleaning 404,828 199,919
Security 140,575 60,185
Energy 490,861 174,147
Maintenance and Repairs 194,054 57,765
Parking 101,721 48,413
Property Taxes 248,298 102,732
Insurance and Other 411,758 173,770
----------- -----------
Total Operating Expenses 2,755,861 1,154,223
----------- -----------
REVENUE IN EXCESS OF CERTAIN EXPENSES $ 3,957,986 $ 1,642,437
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE>
CALIFORNIA FRONT BUILDING COMPANY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
-----------------
1. BUSINESS
Description of Property
-----------------------
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of California Front Building (the Property). The Property is a
commercial building totaling approximately 240,230 rentable square feet
located in San Francisco, California.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying Statement of Revenue and Certain Expenses for the year
ended December 31, 1997, was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for
inclusion in the Form 8-K to be filed by Cornerstone Properties Inc.. The
statement is not representative of the actual operations of the Property
for the period presented nor indicative of future operations as certain
expenses, primarily depreciation, amortization and interest expenses, which
may not be comparable to the expenses expected to be incurred in future
operations of the Property, have been excluded.
Revenue and Expense Recognition
-------------------------------
Revenue is recognized when due under the terms of the respective office
leases. This revenue recognition policy approximates revenue recognition on
a straight line basis over the terms of the respective office leases.
Parking revenue is recognized as collected.
Use of Estimates
----------------
The preparation of the Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. RECOVERIES
The Partnership has entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis,
as defined.
F-10
<PAGE>
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for
the Property as of December 31, 1997 were as follows:
<TABLE>
<S> <C>
1998 $ 5,738,000
1999 5,540,000
2000 3,192,000
2001 3,191,000
2002 2,248,000
Thereafter 1,268,000
------------
$ 21,177,000
============
</TABLE>
The above amounts do not include additional rental receipts that will
become due as a result of the recovery provisions in the leases. The
Property is subject to the usual business risks associated with the
collection of the above scheduled rents.
5. SIGNIFICANT TENANTS
The three largest tenants of the Property made up 32%, 24% and 16%,
respectively of rental income in 1997. The leases for these tenants expire
in 2003, 1999 and 2001, respectively.
6. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, the Property was managed by an
affiliated party to the seller. The management fee was approximately
$168,000 for 1997. In addition, this party leased space and paid
approximately $29,000 of rent in 1997.
F-11
<PAGE>
WILSHIRE PALISADES BUILDING
STATEMENT OF REVENUE AND CERTAIN EXPENSES
AS OF JUNE 30, 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
F-12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of
Wilshire Palisades Building:
We have audited the accompanying Statement of Revenue and Certain Expenses of
Wilshire Palisades Building (the Property) for the year ended June 30, 1997. The
Statement of Revenue and Certain Expenses is the responsibility of the
Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the Statement of Revenue and Certain Expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Statement of Revenue and Certain
Expenses. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the Statement of Revenue and Certain Expenses. We believe that
our audits provide a reasonable basis for our opinion.
The accompanying Statement of Revenue and Certain Expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Form 8-K to be filed by Cornerstone
Properties, Inc. as described in Note 2 and is not intended to be a complete
presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses of
the Property for the year ended June 30, 1997 in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Los Angeles, California
June 30, 1998
F-13
<PAGE>
WILSHIRE PALISADES BUILDING
---------------------------
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
Year Eleven Months
Ended Ended
June 30, May 31,
1997 1998
---------- -------------
(Unaudited)
<S> <C> <C>
REVENUES:
Rental revenue including operating
expense recoveries $7,619,851 $6,498,673
Parking 504,509 444,737
Other 130,787 34,103
---------- ----------
Total Revenues 8,255,147 6,977,513
---------- ----------
SPECIFIC OPERATING EXPENSES:
General Building 315,487 302,271
Building Administration 413,365 359,794
Utilities 470,692 416,973
Maintenance and Repairs 245,776 182,716
Parking 85,402 72,626
Cleaning 180,680 189,830
Security 186,749 190,222
Insurance 166,827 187,714
Property Taxes 423,659 384,604
---------- ----------
Total Operating Expenses 2,488,637 2,286,750
---------- ----------
REVENUE IN EXCESS OF CERTAIN EXPENSES $5,766,510 $4,690,763
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-14
<PAGE>
WILSHIRE PALISADES BUILDING
---------------------------
STATEMENT OF REVENUE AND CERTAIN EXPENSES
JUNE 30, 1997
-------------
1. BUSINESS:
Description of Property
-----------------------
The accompanying Statement of Revenue and Certain Expenses relates to the
operations of Wilshire Palisades Building (the Property). The Property is
an eleven-story commercial office building, a subterranean parking facility
and the land on which they are situated located in Santa Monica,
California.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying Statement of Revenue and Certain Expenses for the year
ended June 30, 1997 was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for
inclusion in the Form 8-K to be filed by Cornerstone Properties Inc.. The
statement is not representative of the actual operations of the Property
for the period presented nor indicative of future operations as certain
expenses, primarily depreciation, amortization and interest expenses, which
may not be comparable to the expenses expected to be incurred in future
operations of the Property, have been excluded.
Revenue and Expense Recognition
-------------------------------
Revenue is recognized when due under the terms of the respective office
leases. This revenue recognition policy approximates revenue recognition on
a straight line basis over the terms of the respective office leases.
Parking revenue is recognized as collected.
Use of Estimates
----------------
The preparation of the Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. RECOVERIES
The Property has entered into tenant leases that provide for tenants to
share in the operating expenses and real estate taxes on a pro rata basis,
as defined.
F-15
<PAGE>
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for
the Property as of June 30, 1997 were as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 6,568,000
1999 6,922,000
2000 6,862,000
2001 6,633,000
2002 2,649,000
Thereafter 447,000
------------
$ 30,081,000
============
</TABLE>
The above amounts do not include additional rental receipts that will
become due as a result of the recovery provisions in the leases. The
Property is subject to the usual business risks associated with the
collection of the above scheduled rents.
5. SIGNIFICANT TENANTS
For the fiscal year ended June 30, 1997, approximately 55.8 percent of the
Property's base rent revenues and operating expense reimbursements were
generated by three tenants. The leases for these tenants expire in 2001 and
2002. Another 10% of rental revenue was generated by the base rent and
termination fee paid by a tenant who terminated its lease during fiscal
year 1997.
6. RELATED-PARTY TRANSACTIONS
During the year ended June 30, 1997, the Property was managed by an
affiliated party to the seller. The management fee is based on 2-1/2
percent of gross income, including rentals, parking and other revenues. The
management fee for the year ended June 30, 1997 was $206,000. The
affiliated party also leased office space. During the year ended June 30,
1997, rent under the lease was approximately $94,000.
During the year ended June 30, 1997, the Property leased office space to
another affiliated party of the seller. Rental revenue under this lease was
approximately $188,000 for 1997.
F-16
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited condensed consolidated pro forma statements of income
give effect to the DIHC Acquisition, Cornerstone's offerings of Common Stock in
April 1997 and February 1998, the conversion of Cornerstone's 8% Preferred Stock
and 8% Preferred Stock, Series A into Cornerstone Common Stock, Cornerstone's
repayment of a $32,500,000 term loan from Deutsche Bank and the acquisition of
six properties and sale of one property in 1997 and 1998 as if they had occurred
January 1, 1997. A condensed consolidated pro forma balance sheet is not
included as the aforementioned transactions occurred before June 30, 1998 and
are reflected in the historical condensed consolidated balance sheet.
The pro forma condensed consolidated statements of income are not necessarily
indicative of results of operations that would have resulted had the
aforementioned transactions been consummated at the date indicated, nor are they
intended to project Cornerstone's results of operations for any future period or
date. The unaudited pro forma condensed consolidated statements of income should
be read in connection with the audited and unaudited financial statements of
Cornerstone filed with the Securities and Exchange Commission.
F-17
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(Amounts in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
(1)
Historical
Cornerstone
-----------
<S> <C>
Assets
Real estate investments $2,549,865
Less: Accumulated depreciation 256,003
-----------
Real estate investments, net 2,293,862
Other assets 183,007
-----------
Total assets $2,476,869
===========
Liabilities
Long term debt $ 849,196
Other liabilities 138,774
-----------
Total liabilities 987,970
-----------
Minority interest in operating partnership 55,934
Minority interest in real estate joint ventures 15,015
Stockholders' investment 1,417,950
-----------
Total Liabilities and Stockholders' investment $2,476,869
===========
</TABLE>
The accompanying notes are an integral part of this statement
F-18
<PAGE>
<TABLE>
<CAPTION>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
(Amounts in thousands, except per share data)
(UNAUDITED)
(2)
Historical Property Other Pro Forma
Cornerstone Transactions Adjustments Cornerstone
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 159,828 $ 160,371 $ - $ 320,199
Equity in earnings of unconsolidated entities - (2,540) - (2,540)
Interest and other income 14,083 23,948 (7,486) (3) 30,545
--------------------------------------------------------------
Total Revenues 173,911 181,779 (7,486) 348,204
--------------------------------------------------------------
Expenses
Building operating expenses 61,522 57,484 - 119,006
Interest expense 33,977 30,306 (1,234) (4) 63,049
Depreciation and amortization 30,978 25,323 - 56,301
General and administrative 7,564 - - 7,564
--------------------------------------------------------------
Total Expenses 134,041 113,113 (1,234) 245,920
--------------------------------------------------------------
Other income (expenses)
Net gain on interest rate swap 99 - - 99
Minority interest in operating partnership - - (3,745) (5) (3,745)
Minority interest in real estate joint ventures (2,368) (1,762) - (4,130)
--------------------------------------------------------------
Income (loss) before extraordinary loss 37,601 66,904 (9,998) 94,507
Extraordinary Loss (54) - - (54)
--------------------------------------------------------------
Net Income (Loss) 37,547 66,904 (9,998) 94,453
Preferred Dividends 10,160 - (6,660) (6) 3,500
--------------------------------------------------------------
Income available for Common Stockholders $ 27,387 $ 66,904 $ (3,338) $ 90,953
==============================================================
Income Before Extraordinary
Loss per Share $ 0.63 $ 0.90
=========== =========
Income per Share (Basic and Diluted) $ 0.63 $ 0.90
=========== =========
Weighted Shares Outstanding-Basic 43,572 100,681
=========== =========
Weighted Shares Outstanding-Diluted 43,808 100,917
=========== =========
The accompanying notes are an integral part of this statement
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Amounts in thousands, except per share data)
(UNAUDITED)
(7)
Historical Property Other Pro Forma
Cornerstone Transactions Adjustments Cornerstone
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 156,540 $ 10,292 $ - $ 166,832
Equity in earnings of unconsolidated entities (2,688) - - (2,688)
Interest and other income 14,194 455 (423) (8) 14,226
------------------------------------------------------------
Total Revenues 168,046 10,747 (423) 178,370
------------------------------------------------------------
Expenses
Building operating expenses 56,917 3,144 - 60,061
Interest expense 31,667 2,225 (2,334) (9) 31,558
Depreciation and amortization 26,859 1,999 - 28,858
General and administrative 5,544 - - 5,544
------------------------------------------------------------
Total Expenses 120,987 7,368 (2,334) 126,021
------------------------------------------------------------
Other income (expenses)
Loss on sale of real estate assets (2,197) 1,985 - (212)
Minority interest in operating partnership (646) - (2,028)(10) (2,674)
Minority interest in real estate joint ventures (2,210) - - (2,210)
------------------------------------------------------------
Net Income (Loss) 42,006 5,364 (117) 47,253
Preferred Dividends 1,750 - - 1,750
------------------------------------------------------------
Income available for Common Stockholders $ 40,256 $ 5,364 $ (117) $ 45,503
============================================================
Income per Share $ 0.42 $ 0.45
========= =========
Diluted Income per Share $ 0.42 $ 0.45
========= =========
Weighted Shares Outstanding-Basic 96,653 101,411
========= =========
Weighted Shares Outstanding-Diluted 96,984 101,742
========= =========
The accompanying notes are an integral part of this statement
</TABLE>
F-20
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) A condensed consolidated pro forma balance sheet is not included as the pro
forma transactions occurred before June 30, 1998 and are reflected in the
historical condensed consolidated balance sheet.
(2) To reflect the historical operations and pro forma adjustments for interest
and depreciation expense of the following properties for the periods
indicated:
<TABLE>
<CAPTION>
Property Period Date Purchased
------------------------ ------------------ --------------
<S> <C> <C>
DIHC Acquisition 1/1/97-10/26/97 10/27/97
527 Madison Avenue 1/1/97-2/13/97 2/14/97
Sixty State Street 1/1/97-12/30/97 12/31/97
Corporate 500 Centre 1/1/97-12/31/97 1/29/98
One Memorial Drive 1/1/97-12/31/97 4/28/98
201 California Street 1/1/97-12/31/97 6/3/98
Wilshire Palisades 1/1/97-12/31/97 6/3/98
</TABLE>
In addition, this reflects the elimination of income and expenses from the
Frick building from 1/1/97 to 12/31/97. The Frick building is assumed to
have been sold 1/1/97.
The pro forma adjustments for depreciation and interest expense are based
on the following assumptions:
The depreciable real estate assets of the property acquisitions are being
depreciated on a straight-line basis over a 40 year useful life. 20% of the
real estate value has been allocated to land.
Details of the debt assumed or used in financing the property acquisitions
are as follows:
<TABLE>
<CAPTION>
Fair market Weighted average
Property Value of debt Interest rate
------------------------- ----------------------- ----------------
<S> <C> <C>
DIHC Acquisition $250,000,000 7.45%
Sixty State Street $89,629,000 6.84%
Corporate 500 Centre $80,000,000 6.63%
201 California Street $33,292,000 6.70%
Wilshire Palisades $31,319,000 6.70%
</TABLE>
(3) To eliminate interest income (5.5% average interest rate) earned on cash
proceeds from Cornerstone's April, 1997 common stock offering presumed to
be utilized to fund Property acquisitions
(4) To reflect the elimination of interest expense for the repayment of a
$32,500,000 loan from Deutsche Bank in March 1997, as if it had occurred on
January 1, 1997 and the elimination of all interest expense related to
temporary credit line financing used in the property acquisitions. Credit
line financing was obtained at an average rate of 6.9%.
(5) To reflect the pro forma minority unitholders' weighted interest (3.95%)
in the operating partnership's net income for the year ended December 31,
1997.
F-21
<PAGE>
(6) To reflect the conversion of Cornerstone's 8% Preferred Stock and 8%
Preferred Stock, Series A into 11,482,760 common shares as if it had
occurred on January 1, 1997.
(7) To reflect the historical operations and pro forma adjustments for interest
and depreciation expense of the following properties for the periods
indicated:
<TABLE>
<CAPTION>
Property Period Date Purchased
------------------------- ----------------------- ----------------
<S> <C> <C>
Corporate 500 Centre 1/1/98-1/28/98 1/29/98
One Memorial Drive 1/1/98-4/27/98 4/28/98
201 California Street 1/1/98-6/2/98 6/3/98
Wilshire Palisades 1/1/98-6/2/98 6/3/98
</TABLE>
In addition, this reflects the elimination of income and expenses from the
Frick building from 1/1/98 to 4/23/98. The Frick building is assumed to
have been sold 1/1/97.
The pro forma adjustments for depreciation and interest expense are based
on the following assumptions:
The depreciable real estate assets of the property acquisitions are being
depreciated on a straight-line basis over a 40 year useful life. 20% of the
real estate value has been allocated to land.
Details of the debt assumed or used in financing the property acquisitions
are as follows:
<TABLE>
<CAPTION>
Fair market Weighted average
Property Value of debt Interest rate
------------------------- ----------------------- ----------------
<S> <C> <C>
Corporate 500 Centre $80,000,000 6.63%
201 California Street $33,292,000 6.70%
Wilshire Palisades $31,319,000 6.70%
</TABLE>
(8) To eliminate interest income (5.5% average interest rate) earned on cash
proceeds from Cornerstone's February, 1998 common stock offering presumed
to be utilized to fund Property acquisitions.
(9) To reflect the elimination of interest expense and deferred finance
amortization related to temporary credit line financing used in the
property acquisitions. Credit line financing was obtained at an average
rate of 6.9%.
(10) To reflect the pro forma minority unitholders' weighted interest (3.93%) in
the operating partnership's net income for the six months ended June 30,
1998.
F-22
<PAGE>
EXHIBIT 99.1
Cornerstone Properties Inc.
126 East 56th Street
New York, NY 10022
(NYSE: CPP)
AT CORNERSTONE PROPERTIES AT THE FINANCIAL RELATIONS BOARD
- ------------------------- --------------------------------
Kevin P. Mahoney Julie Gottlieb Stephanie Mishra
Chief Financial Officer (General Info) (Analyst Info)
(212) 605-7101 (212) 661-8030 (415) 986-1591
Karin Mass Judith Sylk-Siegel
VP, Investor Relations (Media Info)
(212) 605-7113 (212) 661-8030
FOR IMMEDIATE RELEASE
- ---------------------
April 27, 1998
CORNERSTONE PROPERTIES INC.
TO ACQUIRE ONE MEMORIAL DRIVE IN CAMBRIDGE, MA
New York, NEW YORK (April 27, 1998) -- Cornerstone Properties Inc. (NYSE:CPP)
announced it has reached a definitive agreement for the acquisition of a 100%
fee interest in One Memorial Drive, the premier office building in Boston's
prestigious Cambridge sub-market, for $111.3 million. The Company will finance
the acquisition with the issue of $60 million in common stock and $29 million of
UPREIT units. The remaining $22.3 million will be funded through the Company's
credit facility with BT Alex Brown and Chase Manhattan Bank. The partnership
between developer Congress Group Ventures, David A. Gardiner and PRISA II, a
fund managed by Prudential Real Estate Investors that currently owns One
Memorial Drive, will be dissolved after the transfer of the property to
Cornerstone; and the individual partners will become Cornerstone
unitholders/shareholders.
The property has a unique situation on the banks of the Charles River,
immediately adjacent to the Massachusetts Institute of Technology (MIT).
Completed in 1987, the building is 17 stories high with 353,000 square feet of
net rentable area and includes 450 parking spaces. With a distinctive five-sided
shape, the building is of first-class quality and design. Each floor offers
unobstructed views of both the Charles River and the Back Bay's Financial
District. It is 99% leased to high- quality tenants with a popular restaurant
located in the building's lobby. The building serves as the headquarters of
Sapient Corporation, a respected information technology consultancy and software
development company.
Commenting on the acquisition, Barry McGowan, Cornerstone Properties' Chief
Investment Officer said, "This acquisition is a tremendous complement to our
existing portfolio. It further establishes Cornerstone as the owner of some of
the highest quality office buildings in Boston's premier urban sub-markets: the
Financial District (Sixty State Street and 125 Summer Street), the Back Bay (500
Boylston Street and 222 Berkeley Street) and now Cambridge. This was a typical
Cornerstone deal: we had identified One Memorial Drive as an acquisition target
prior to the ownership's decision to sell. We entered into negotiations before
the deal became widely marketed and the attractiveness of Cornerstone currency
allowed us to negotiate an agreement that will provide accretive returns."
<PAGE>
Roger Pratt, Portfolio Manager for PRISA II, added, "While PRISA II has
completed property-for-stock transactions with hotel and apartment companies,
this is PRISA II's first such transaction with an office REIT. We are attracted
to the high quality of Cornerstone's portfolio, and are confident that the
investment in Cornerstone stock will produce attractive returns for PRISA II
investors."
Cornerstone Properties Inc. is a self-administered equity real estate investment
trust (REIT) investing exclusively in Class A quality office properties in prime
locations in major metropolitan areas and central business districts. The
Company, through its subsidiaries, currently owns 19 Class A quality office
properties throughout the United States totaling 10.9 million rentable square
feet. Headquartered in New York City, the Company's stock is traded on the New
York Stock Exchange under the ticker symbol CPP.
With the exception of the historical information contained in the release, the
matters described herein contain forward-looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks,
uncertainties or other factors beyond the Company's control which may cause
material differences in actual results, performance or other expectations. These
factors include, but are not limited to, those detailed in the Company's
registration statement and periodic reports filed with the Securities & Exchange
Commission.
For more information on Cornerstone Properties via fax at no charge,
please dial 1-800-PRO-INFO and enter ticker symbol CPP
or visit Cornerstone Properties' web site at http://www.cstoneprop.com
###
<PAGE>
EXHIBIT 99.2
Cornerstone Properties Inc.
126 East 56th Street
New York, NY 10022
(NYSE: CPP)
AT CORNERSTONE PROPERTIES AT THE FINANCIAL RELATIONS BOARD
- ------------------------- --------------------------------
Rod Dimock Julie Gottlieb Stephanie Mishra
Chief Operating Officer (General Info) (Analyst Info)
(212) 605-7114 (212) 661-8030 (415) 986-1591
Karin Mass Judith Sylk-Siegel
VP, Investor Relations (Media Info)
(212) 605-7113 (212) 661-8030
986-1591 (212) 661-8030
FOR IMMEDIATE RELEASE
- ---------------------
February 25, 1998
CORNERSTONE PROPERTIES INC. ACQUIRES INTEREST IN
TWO CALIFORNIA OFFICE PROPERTIES
Acquisitions Provide Entree into Target California Markets
New York, NEW YORK (February 25, 1998) -- Cornerstone Properties Inc. (NYSE:CPP)
announced today that it has signed a Letter of Intent to purchase a joint
venture interest in two Class A office buildings for just under $60 million. The
remaining owners, Dutch investment group Noro and California real estate manager
and developer Bill Tooley, will have the right to convert their remaining
interest into UPREIT units. Tooley & Company, which originally developed the
properties, will continue to manage and lease each building. The terms of the
pending transaction were not disclosed.
The properties, Wilshire Palisades and 201 California Street, are both first
class office buildings in two highly sought after California submarkets with
significant barriers to entry, consistent with the Company's acquisition
criteria.
Wilshire Palisades is an irreplaceable Class A, eleven-story office tower
located in Santa Monica, California with unobstructed views of both the Pacific
Ocean and the Santa Monica Mountains. It comprises 186,320 square feet of net
rentable area and is 99.7% leased to highly regarded tenants. Wilshire Palisades
consistently commands the highest rental rates in the Los Angeles area.
201 California Street is a seventeen-story office tower located in the heart of
the San Francisco Financial District, regarded by many as the strongest Central
Business District market in the country. The building comprises 229,825 square
feet of office space and 10,405 square feet of retail space and is 100% leased.
The investment offers significant upside potential as all of the existing
below-market leases expire between the end of 1999 and 2003.
These acquisitions provide Cornerstone Properties Inc. with an immediate
presence in two key target markets, consistent with the Company's long-term
strategy of becoming the premier national office REIT. Both the Noro and Tooley
entities have similar conservative long-term goals and objectives as the
Company. Chairman and CEO of Cornerstone Properties Inc., Mr. John Moody,
commented, "This acquisition fits well with our relationship-based investment
strategy as well as providing us with an initial presence in the California
marketplace."
<PAGE>
Cornerstone Properties Inc. is a self-administered equity real estate investment
trust (REIT) investing exclusively in Class A quality office properties in prime
locations in major metropolitan areas and central business districts. The
Company, through its subsidiaries, currently owns 19 Class A quality office
properties throughout the United States totaling 10.9 million rentable square
feet. Headquartered in New York City, the Company's stock is traded on the New
York Stock Exchange under the ticker symbol CPP.
With the exception of the historical information contained in the release, the
matters described herein contain forward-looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks,
uncertainties or other factors beyond the Company's control which may cause
material differences in actual results, performance or other expectations. These
factors include, but are not limited to, those detailed in the Company's
registration statement and periodic reports filed with the Securities & Exchange
Commission.
###
For more information on Cornerstone Properties via fax at no charge, please
dial 1-800-PRO-INFO and enter ticker symbol CPP
or visit Cornerstone Properties' Web site at http://www.cstoneprop.com
<PAGE>
EXHIBIT 99.3
Cornerstone Properties Inc.
126 East 56th Street
New York, NY 10022
(NYSE: CPP)
AT CORNERSTONE PROPERTIES AT THE FINANCIAL RELATIONS BOARD
- ------------------------- --------------------------------
Rod Dimock Julie Gottlieb Stephanie Mishra
President, COO (General Info) (Analyst Info)
(212) 605-7114 (212) 661-8030 (415) 986-1591
Karin Mass Judith Sylk-Siegel
VP, Investor Relations (Media Info)
(212) 605-7113 (212) 661-8030
FOR IMMEDIATE RELEASE
- ---------------------
June 9, 1998
CORNERSTONE PROPERTIES INC. CLOSES ON 100%
FEE SIMPLE INTEREST IN TWO CALIFORNIA OFFICE PROPERTIES
Previously Announced Joint Venture Stake Increased to 100% Ownership
New York, NEW YORK (June 9, 1998) -- Cornerstone Properties Inc. (NYSE: CPP)
announced today that it had closed on a 100% fee interest in two Class A office
buildings from Dutch investment group Noro and a partnership controlled by
California real estate manager and developer Bill Tooley. The closing was
accomplished via assumption of debt, use of cash and the exchange of UPREIT
units.
The Company had initially announced in late February that it had entered into
negotiations for the purchase of a joint venture interest in both buildings. The
properties, Wilshire Palisades and 201 California Street, are both first class
office buildings in two highly sought-after California submarkets with
significant barriers to entry, consistent with the Company's acquisition
criteria.
Cornerstone Properties Inc. is a self-administered equity real estate investment
trust (REIT) investing exclusively in Class A quality office properties in prime
locations in major metropolitan areas and central business districts. The
Company, through its subsidiaries, currently owns 21 Class A quality office
properties throughout the United States totaling approximately 11.5 million
rentable square feet. Headquartered in New York City, the Company's stock is
traded on the New York Stock Exchange under the ticker symbol CPP.
With the exception of the historical information contained in the release, the
matters described herein contain forward-looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks,
uncertainties or other factors beyond the Company's control which may cause
material differences in actual results, performance or other expectations. These
factors include, but are not limited to, those detailed in the Company's
registration statement and periodic reports filed with the Securities & Exchange
Commission.
###
To receive more information on Cornerstone Properties, via
fax at no charge, dial 1-800-PRO-INFO
and enter ticker symbol CPP, or visit Cornerstone Properties' web site at
www.cstoneprop.com
