<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
December 16, 1998 (Date of earliest event reported)
CORNERSTONE PROPERTIES INC.
(Exact name of Registrant as specified in its charter)
Nevada 1-12861 74-2170858
(State or other jurisdiction (Commission (IRS Employer
of 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 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
The required financial statements of the real estate properties
acquired are hereby incorporated by reference to the Combined
Statements of Revenues and Certain Operating Expenses of
Property Acquisition and of Property Acquisition Two included on
pages F-11 through F-17 of the Registrant's Proxy Statement filed
with the Commission on November 13, 1998.
(b) Pro Forma Financial Information. The following pro forma financial
information of the Registrant is included in Exhibit 99.1 hereto.
(i) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1998.
(ii) Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Twelve Months Ended December 31, 1997.
(iii) Unaudited Pro Forma Condensed Consolidated Statement of Income
for the Nine Months Ended September 30, 1998.
(iv) Notes to Unaudited Pro Forma Financial Statements.
(c) Exhibits
99.1 Pro Forma Financial Statements, as described in Item 7(b) of
this Report.
99.2 Consent of PricewaterhouseCoopers LLP
-2-
<PAGE>
SIGNATURE
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)
Date: February 26, 1999 By: /s/ Kevin P. Mahoney
------------------------------
Name: Kevin P. Mahoney
Title: Senior Vice President and
Chief Financial Officer
-3-
<PAGE>
EXHIBIT 99.1
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The following unaudited condensed consolidated pro forma
statements of income of Cornerstone Properties Inc. and subsidiaries
("Cornerstone") give effect to (i) the acquisition of William Wilson &
Associates ("WW&A") and related entities in December 1988 (the "Wilson
Transaction"), (ii) the acquisition of nine properties and undeveloped parcel
of land in October 1997 (the "DIHC Acquisition"), (iii) the public offerings
of Cornerstone Common Stock in April 1997 and February 1998, (iv) the
conversion of 8% Preferred Stock into Cornerstone Common Stock in July 1997,
(v) Cornerstone's repayment of a $32,500,000 term loan from Deutsche Bank in
March 1997 and (vi) the acquisition of six properties and sale of one
property in 1997 and 1998 (together with the DIHC Acquisition, the "Previous
Property Transactions") as if they had occurred on January 1, 1997. The
unaudited condensed consolidated pro forma balance sheet is presented as if
the Wilson Transaction had occurred on September 30, 1998. The pro forma
adjustments shown separately with respect to the Wilson Transaction include
(i) the issuance of shares of Cornerstone Common Stock and Units of limited
partner interest in Cornerstone Properties Limited Partnership in connection
with the Wilson Transaction (the "Wilson Issuance"), (ii) the issuance and
sale of shares of Cornerstone Common Stock to Stichting Pensioenfonds Voor De
Gezondheid, Geetselijke En Maatschappelijke Belangen to fund a portion of the
cash consideration for the Wilson Transaction (the "PGGM Investment"), (iii)
the incurrence of additional indebtedness under Cornerstone's bank credit
facility to fund the Wilson Acquisition (the "Acquisition Credit Line"), (iv)
the acquisition of 67 real estate properties in the Wilson Acquisition
("Property Acquisition I and II"), (v) the acquisition of the Pruneyard Hotel
in the Wilson Acquisition (the "Pruneyard Hotel Acquisition") and (vi) the
acquisition of the development, construction management, property management
and leasing and tenant improvement services business of William Wilson &
Associates in the Wilson Acquisition (the "William Wilson & Associates
Acquisition").
The unaudited condensed consolidated pro forma financial statements
are not necessarily indicative of results of operations or the consolidated
financial position that would have resulted had the aforementioned transactions
been consummated at the dates indicated, nor are they intended to project
Cornerstone's results of operations or consolidated financial position for any
future period or date. The unaudited condensed consolidated pro forma financial
statements should be read in conjunction with the audited and unaudited
financial statements of Cornerstone previously filed with the Securities and
Exchange Commission.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(Amounts in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Funding
From Property
Historical Wilson PGGM Acquisition Acquisition
Cornerstone Issuance Investment Credit Line I and II
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Real estate investments $ 2,556,228 $ -- $ -- $ -- $ 1,771,219
Less: Accumulated depreciation 271,218 -- -- -- --
--------------------------------------------------------------------
Real estate investments, net 2,285,010 -- -- -- 1,771,219
Cash and cash equivalents 30,566 537,346 200,000 534,473 (1,184,231)
Other assets 220,002 -- -- -- --
--------------------------------------------------------------------
Total assets $ 2,535,578 $ 537,346 $ 200,000 $ 534,473 $ 586,988
====================================================================
Liabilities
Long term debt $ 849,554 $ -- $ -- $ -- $ 586,988
Other liabilities 211,318 -- -- 534,473 --
--------------------------------------------------------------------
Total liabilities 1,060,872 -- -- 534,473 586,988
--------------------------------------------------------------------
Minority interest in operating partnership 55,258 304,737 -- -- --
Minority interest in real estate joint ventures 14,811 -- -- -- --
Stockholders' investment 1,404,637 232,609 200,000 -- --
--------------------------------------------------------------------
Total Liabilities and stockholders' investment $ 2,535,578 $ 537,346 $ 200,000 $ 534,473 $ 586,988
====================================================================
<CAPTION>
The Pruneyard William Wilson (1)
Hotel & Associates Pro forma Pro Forma
Acquisition Acquisition Adjustments Cornerstone
----------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Real estate investments $ 17,277 $ -- $ 44,292 $ 4,389,016
Less: Accumulated depreciation -- -- -- 271,218
----------------------------------------------------------
Real estate investments, net 17,277 -- 44,292 4,117,798
Cash and cash equivalents (12,088) (55,500) (20,000) 30,566
Other assets -- 55,500 -- 275,502
----------------------------------------------------------
Total assets $ 5,189 $ -- $ 24,292 $ 4,423,866
==========================================================
Liabilities
Long term debt $ 5,189 $ -- $ 50,012 $ 1,491,743
Other liabilities -- -- -- 745,791
----------------------------------------------------------
Total liabilities 5,189 -- 50,012 2,237,534
----------------------------------------------------------
Minority interest in operating partnership -- -- (50,634) 309,361
Minority interest in real estate joint ventures -- -- 17,025 31,836
Stockholders' investment -- -- 7,889 1,845,135
----------------------------------------------------------
Total Liabilities and stockholders' investment $ 5,189 $ -- $ 24,292 $ 4,423,866
==========================================================
</TABLE>
<PAGE>
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)
<TABLE>
<CAPTION>
(2) Historical Historical Historical
Previous Property The William (3)
Historical Property Acquisition Pruneyard Wilson & Pro Forma Pro Forma
Cornerstone Transactions I and II Hotel Associates Adjustments Cornerstone
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 159,828 $ 160,372 $180,975 $ -- $ -- $ 9,273 $ 510,448
Equity in earnings of unconsolidated
entities -- 11,903 -- -- (105) 4,179 15,977
Interest and other income 14,083 9,504 1,388 4,932 51,751 (63,330) 18,328
--------------------------------------------------------------------------------------
Total revenues 173,911 181,779 182,363 4,932 51,646 (49,878) 544,753
--------------------------------------------------------------------------------------
Expenses
Building operating expenses 61,522 57,484 67,186 2,473 -- (2,473) 186,192
Interest expense 33,977 30,922 -- 461 993 73,174 139,527
Depreciation and amortization 30,978 25,721 -- 350 477 41,033 98,559
General and administrative 7,564 -- -- -- 14,065 (1,041) 20,588
Other expenses -- -- -- -- 32,227 (32,227) --
--------------------------------------------------------------------------------------
Total expenses 134,041 114,127 67,186 3,284 47,762 78,466 444,866
--------------------------------------------------------------------------------------
Other income (expenses)
Net gain on interest rate swap 99 -- -- -- -- -- 99
Minority interest in operating
partnership -- -- -- -- -- (13,796) (13,796)
Minority interest in real estate
joint ventures (2,368) (1,762) -- -- -- 1,039 (3,091)
--------------------------------------------------------------------------------------
Income (loss) before extraordinary loss $ 37,601 $ 65,890 $115,177 $1,648 $ 3,884 $(141,101) $ 83,099
======================================================================================
Extraordinary loss (54) -- -- -- -- -- (54)
Net income (loss) $ 37,547 $ 65,890 $115,177 $1,648 $ 3,884 $(141,101) $ 83,045
======================================================================================
Preferred dividends 10,160 -- -- -- -- (6,660) 3,500
Income available for common stockholders $ 27,387 $ 65,890 $115,177 $1,648 $ 3,884 $(134,441) $ 79,545
======================================================================================
Income before extraordinary
loss per share $ 0.63 $ 0.63
========== ==========
Income per share (basic and diluted) $ 0.63 $ 0.63
========== ==========
Weighted shares outstanding-basic 43,572 127,160
========== ==========
Weighted shares outstanding-diluted 43,808 127,396
========== ==========
</TABLE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Amounts in thousands, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
(4) Historical Historical Historical
Previous Property The William (5)
Historical Property Acquisition Pruneyard Wilson & Pro Forma Pro Forma
Cornerstone Transactions I and II Hotel Associates Adjustments Cornerstone
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Office and parking rentals $ 239,767 $ 10,291 $142,681 $ -- $ -- $ 6,362 $ 399,101
Equity in earnings of unconsolidated
entities 10,150 -- -- -- -- 3,958 14,108
Interest and other income 7,167 455 1,478 4,076 57,248 (51,296) 19,128
--------------------------------------------------------------------------------------
Total revenues 257,084 10,746 144,159 4,076 57,248 (40,976) 432,337
--------------------------------------------------------------------------------------
Expenses
Building operating expenses 87,847 3,144 49,232 1,962 -- (1,962) 140,223
Interest expense 47,724 2,205 -- 212 262 54,127 104,530
Depreciation and amortization 42,561 1,972 -- 272 457 30,666 75,928
General and administrative 8,713 -- -- -- 14,223 (1,346) 21,590
Other expenses -- -- -- -- 36,112 (36,112) --
--------------------------------------------------------------------------------------
Total expenses 186,845 7,321 49,232 2,446 51,054 45,373 342,271
--------------------------------------------------------------------------------------
Other income (expenses)
Loss on sale of real estate assets (2,324) 1,985 -- -- -- -- (339)
Minority interest in operating
partnership (1,426) -- -- -- -- (13,458) (14,884)
Minority interest in real estate
joint ventures (3,256) -- -- -- -- 275 (2,981)
--------------------------------------------------------------------------------------
Income (loss) before extraordinary loss $ 63,233 $ 5,410 $ 94,927 $1,630 $ 6,194 $ (99,532) $ 71,862
======================================================================================
Extraordinary loss (2,269) -- -- -- -- -- (2,269)
Net income (loss) $ 60,964 $ 5,410 $ 94,927 $1,630 $ 6,194 $ (99,532) $ 69,593
======================================================================================
Preferred dividends 2,625 -- -- -- -- -- 2,625
Income available for common stockholders $ 58,339 $ 5,410 $ 94,927 $1,630 $ 6,194 $ (99,532) $ 66,968
======================================================================================
Net income per share $ 0.59 $ 0.53
========== ==========
Diluted net income per share $ 0.59 $ 0.53
========== ==========
Weighted shares outstanding-basic 98,312 127,945
========== ==========
Weighted shares outstanding-diluted 98,588 128,221
========== ==========
</TABLE>
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
1. Pro forma adjustments to the September 30, 1998 pro forma balance sheet are
detailed below:
<TABLE>
<CAPTION>
(a) (c)
Joint Venture Estimated Operating
Minority (b) Acquisition/ Partnership
Interest Adjustment Closing Costs Minority Interest Total
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Real estate investments $50,079,784 $(25,787,368) $20,000,000 $ -- $ 44,292,416
Less: Accumulated depreciation -- -- -- -- --
-----------------------------------------------------------------------------
Real estate investments, net 50,079,784 (25,787,368) 20,000,000 -- 44,292,416
Cash and cash equivalents -- -- (20,000,000) -- (20,000,000)
Other assets -- -- -- -- --
-----------------------------------------------------------------------------
Total assets $50,079,784 $(25,787,368) $ -- $ -- $ 24,292,416
=============================================================================
Liabilities
Long term debt $33,054,315 $ 16,957,292 $ -- $ -- $ 50,011,607
Other liabilities -- -- -- -- --
-----------------------------------------------------------------------------
Total liabilities 33,054,315 16,957,292 -- -- 50,011,607
-----------------------------------------------------------------------------
Minority interest in operating partnership -- (17,665,885) -- (32,968,000) (50,633,885)
Minority interest in real estate joint ventures 17,025,469 -- -- -- 17,025,469
Stockholders' investment -- (25,078,775) -- 32,968,000 7,889,225
-----------------------------------------------------------------------------
Total liabilities and stockholders' investment $50,079,784 $(25,787,368) $ -- $ -- $ 24,292,416
=============================================================================
</TABLE>
a. Pro forma adjustment for the minority interest in 120 Montgomery(33%) and
One Post (50%).
b. Pro forma adjustments to reflect the accounting value of the assumed debt
and equity issued. An adjustment has been recorded to recognize the
difference between the stated value of the equity issued ($17.25/share)
and the average price per share for the period surrounding the
announcement of the Wilson Transaction ($16.25/share). Additionally, to
reflect the premium on the debt assumed in The Property Acquisition I and
II using a 6.90% interest rate.
c. Pro forma adjustment to reflect the minority interest (14.70%) in the
operating partnership's (UPREIT) net assets as of September 30, 1998.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
2. Property transactions (excluding the Wilson Transaction) occurring after
January 1, 1997 and their effect on the pro forma statement of income for
the twelve months ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Acquisition Acquisition Disposition Acquisition Acquisition
Property 527 Madison DIHC The Frick Sixty State Corporate500
Avenue Properties Building Street Centre
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Transaction date 2/14/97 10/27/97 4/24/98 12/31/97 1/29/98
Transaction price
(includes minority interest, if any) $67,000,000 $ 1,083,197,000 $ 26,550,000 $221,000,000 $150,000,000
Debt assumed/incurred -- 250,000,000 -- 89,629,475 80,000,000
Weighted average interest rate on debt -- 7.45% -- 6.84% 6.63%
Office and parking rentals (a) $ 1,412,000 110,476,000 $ (6,032,000) $ 28,047,000 $ 21,227,000
Equity in earnings of
unconsolidated entities (b) -- -- -- -- --
Interest and other income (a) 12,000 6,185,000 (63,000) 1,837,000 1,577,000
Building operating expenses (a) 623,000 39,344,000 (3,140,000) 12,476,000 6,776,000
Interest expense (c) -- 15,257,192 -- 6,070,000 5,304,000
Depreciation and amortization (d) 161,534 17,746,625 (786,000) 4,420,000 3,000,000
General and administrative -- -- -- -- --
Minority interest in joint ventures (e) -- (1,762,000) -- -- --
---------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------------------------------------------
Acquisition Acquisition Acquisition Adjustment
Property One Memorial 201 Wilshire Market
Drive California Palisades Square (b) Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Transaction date 4/28/98 6/3/98 6/3/98
Transaction price
(includes minority interest, if any) $112,500,000 $57,100,000 $64,603,000
Debt assumed/incurred -- 33,292,000 31,319,000
Weighted average interest rate on debt -- 6.70% 6.70%
Office and parking rentals (a) $ 12,832,000 $ 6,684,000 $ 8,588,000 $(22,862,000) $ 160,372,000
Equity in earnings of
unconsolidated entities (b) -- -- -- 11,903,000 11,903,000
Interest and other income (a) 33,000 48,000 40,000 (165,000) 9,504,000
Building operating expenses (a) 3,854,000 2,756,000 2,413,000 (7,618,000) 57,484,000
Interest expense (c) -- 2,218,752 2,071,578 -- 30,921,522
Depreciation and amortization (d) 2,250,000 1,142,000 1,292,060 (3,506,000) 25,720,219
General and administrative -- -- -- -- --
Minority interest in joint ventures (e) -- -- -- -- (1,762,000)
---------------------------------------------------------------------------------
</TABLE>
a. Historical revenues and expenses from the properties from January 1, 1997
through the date of acquisition or December 31, 1997, whichever is
earlier. Office and parking rentals include a pro forma straight line rent
adjustment based on a lease reset date of January 1, 1997. For the pro
forma disposition of the Frick building, actual revenue and expenses have
been eliminated through December 31, 1997.
b. Market Square, a building purchased as part of the DIHC Acquisition, has
been accounted for by the equity method of accounting. Market Square's
revenue and expenses are included in the DIHC Properties column and
reclassed into equity in earnings of unconsolidated entities in the
adjustment column. Under the equity method, Cornerstone recognizes its
economic share (100%) of Market Square's earnings and losses.
c. Pro forma adjustments for interest expense have been calculated for the
period January 1, 1997 through the date of acquisition or December 31,
1997, whichever is earlier, based on the indicated assumed/incurred debt
and weighted average interest rate. Included in the calculation is an
adjustment for principal amortization, if any.
d. Pro forma adjustments for depreciation expense have been calculated for
the period January 1, 1997 through the date of acquisition or December 31,
1997, whichever is earlier, based on estimated 80% allocation of the
purchase price to depreciable assets over a 40 year life using the
straight line method.
e. Represents the minority interest's share of net income in three buildings
of the DIHC Acquisition.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
3. Pro forma adjustments for the twelve months ended December 31, 1997:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Adjustment Property William Wilson The Pruneyard Commercial
Acquisition I and II & Associates Hotel Interior Contractors
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Acquisition price (includes minority interest) $1,815,511,416 $55,500,000 $17,277,000
Debt assumed/incurred (including premium) 637,000,266 na 5,189,000
Credit line financing 534,472,946 na na
Weighted average interest rate on debt 6.90% 6.90%
Office and parking rentals $ 9,273,000 (a) $ -- $ -- $ --
Equity in earnings of unconsolidated entities -- 105,120 (e) 1,650,696 (g) 2,422,773 (h)
Interest and other income -- (641,090)(e) (4,932,424) (g) (35,818,572) (h)
Building operating expenses -- -- (2,473,000) (g) --
Interest expense 75,123,385 (b) (993,078)(e) (461,017) (e) --
Depreciation and amortization 36,310,228 (c) 5,073,218 (f) (350,021) (e) --
General and administrative -- -- -- (1,041,000) (h)
Other expenses -- -- -- (32,227,285) (h)
Minority interest in operating partnership -- -- -- --
Minority interest in real estate joint ventures 1,039,000 (d) -- -- --
Preferred dividends -- -- -- --
-------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------
UPREIT
Adjustment Elimination Other Minority
Entry (i) Adjustments (j) Interest (k) Total
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Acquisition price (includes minority interest)
Debt assumed/incurred (including premium)
Credit line financing
Weighted average interest rate on debt
Office and parking rentals $ -- $ -- $ -- $ 9,273,000
Equity in earnings of unconsolidated entities -- -- -- 4,178,589
Interest and other income (14,452,000) (7,485,982) -- (63,330,068)
Building operating expenses -- -- -- (2,473,000)
Interest expense -- (495,156) -- 73,174,134
Depreciation and amortization -- -- -- 41,033,425
General and administrative -- -- -- (1,041,000)
Other expenses -- -- -- (32,227,285)
Minority interest in operating partnership -- -- (13,796,000) (13,796,000)
Minority interest in real estate joint ventures -- -- -- 1,039,000
Preferred dividends -- (6,660,000) -- (6,660,000)
----------------------------------------------------------------
</TABLE>
a. Pro forma adjustment for the straight line rent adjustment based on a
lease reset date of January 1, 1997.
b. Pro forma adjustments for interest expense have been calculated based on
the indicated assumed/incurred debt and weighted average interest rate.
Included in the calculation is an adjustment for principal amortization,
if any. For the Property Acquisition I and II, interest expense was not
calculated on estimated construction debt of $78,803,465. It is
contemplated that the interest expense on this debt will be capitalized.
c. Pro forma adjustments for depreciation expense have been calculated based
on 80% allocation of the purchase price to depreciable assets over a 40
year life using the straight line method.
d. Pro forma adjustments for the minority partners' share of net income in
two buildings of the Property Acquisition I and II.
e. Represents the elimination of revenues and expenses not included as part
of the Wilson Transaction.
f. Represents the elimination of historical depreciation expense and the pro
forma adjustment for amortization expense based on the William Wilson &
Associates purchase price. Amortization of the William Wilson & Associates
purchase has been calculated over a 10 year life using the straight line
method.
g. The investment in the Pruneyard Hotel will be accounted for under the
equity method of accounting. Pro forma adjustments have been made to
reflect Cornerstone's economic share (95%) of the interest and other
income and building operating expenses of the Pruneyard Hotel.
Additionally, the equity in earnings of unconsolidated entities includes
pro forma adjustments for depreciation and interest expense.
h. The investment in Commercial Interior Contractors ("CIC"), the
construction division of WW&A, will be accounted for under the equity
method of accounting. Pro forma adjustments have been made to reflect
Cornerstone's economic share (95%) of the interest and other income, other
expenses and general and administrative expenses of CIC.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
i. Represents the elimination of fees earned by William Wilson & Associates
from Property Acquisition I and II.
j. To eliminate interest income on excess cash presumed to have been used to
fund the cash requirements of the property transactions. Additionally, to
eliminate the interest expense incurred on temporary acquisition line
financing presumed to have been funded by debt indicated in this footnote
and footnote 2 and to eliminate the preferred dividends paid on
Cornerstone's 8% Preferred Stock. The 8% Preferred Stock is presumed to
have been converted into common stock on January 1, 1997.
k. Represents the minority holders' interest (14.70%) in the operating
partnership in the pro forma net income (before this adjustment) available
to common stockholders.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
4. Property transactions (excluding the Wilson Transaction) occurring after
January 1, 1998 and their effect on the pro forma statement of income for
the nine months ended September 30, 1998 are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Disposition Acquisition Acquisition Acquisition Acquisition
Property The Frick Corporate500 One Memorial 201 Wilshire
Building Centre Drive California Palisades Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Transaction date 4/24/98 1/29/98 4/28/98 6/3/98 6/3/98
Transaction price
(includes minority interest, if any) $ 26,550,000 $150,000,000 $112,500,000 $57,100,000 $64,603,000
Debt assumed/incurred -- 80,000,000 -- 33,292,000 31,319,000
Weighted average interest rate on debt -- 6.63% -- 6.70% 6.70%
Office and parking rentals (a) $ (1,867,000) $ 1,466,000 $ 4,450,000 $ 2,784,000 $ 3,458,000 $10,291,000
Interest and other income (a) (2,000) 404,000 24,000 17,000 12,000 455,000
Building operating expenses (a) (1,041,000) 781,000 1,285,000 1,154,000 965,000 3,144,000
Interest expense (b) -- 406,882 -- 927,635 870,315 2,204,832
Depreciation and amortization (c) -- 230,137 721,233 478,701 541,603 1,971,674
General and administrative -- -- -- -- -- --
Loss on sale of real estate 1,985,000 -- -- -- -- 1,985,000
--------------------------------------------------------------------------------------
</TABLE>
a. Historical revenues and expenses from the properties from January 1, 1998
through the date of acquisition. Office and parking rentals include pro
forma straight line rent adjustments based on a lease reset date of
January 1, 1997. For the pro forma disposition of the Frick building,
actual revenue and expenses have been eliminated through the date of
disposition.
b. Pro forma adjustments for interest expense have been calculated for the
period January 1, 1998 through the date of acquisition, based on the
indicated assumed/incurred debt and weighted average interest rate.
Included in the calculation is an adjustment for principal amortization,
if any.
c. Pro forma adjustments for depreciation expense have been calculated for
the period January 1, 1998 through the date of acquisition, based on
estimated 80% allocation of the purchase price to depreciable assets over
a 40 year life using the straight line method.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
5. Pro forma adjustments for the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Adjustment Property William Wilson The Pruneyard Commercial
Acquisition I and II & Associates Hotel Interior Contractors
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Acquisition price (includes minority interest) $1,815,511,416 $55,500,000 $17,277,000
Debt assumed/incurred (including premium) 637,000,266 na 5,189,000
Credit line financing 534,472,946 na na
Weighted average interest rate on debt 6.90% 6.90%
Office and parking rentals $ 6,362,000 (a) $ -- $ -- $ --
Equity in earnings of unconsolidated entities -- -- 1,495,522 (g) 2,462,631 (h)
Interest and other income -- (595,819) (e) (4,076,000) (g) (40,050,243) (h)
Building operating expenses -- -- (1,962,000) (g) --
Interest expense 55,939,581 (b) (262,000) (e) (212,000) (e) --
Depreciation and amortization 27,232,671 (c) 3,705,500 (f) (272,000) (e) --
General and administrative -- -- -- (1,346,000) (h)
Other expenses -- -- -- (36,112,000) (h)
Minority interest in operating partnership -- -- -- --
Minority interest in real estate joint ventures 275,000 (d) -- -- --
Preferred dividends -- -- -- --
-------------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------
UPREIT
Adjustment Elimination Other Minority
Entry (i) Adjustments (j) Interest (k) Total
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Acquisition price (includes minority interest)
Debt assumed/incurred (including premium)
Credit line financing
Weighted average interest rate on debt
Office and parking rentals $ -- $ -- $ -- $ 6,362,000
Equity in earnings of unconsolidated entities -- -- -- 3,958,153
Interest and other income (6,151,000) (422,976) -- (51,296,038)
Building operating expenses -- -- -- (1,962,000)
Interest expense -- (1,338,718) -- 54,126,863
Depreciation and amortization -- -- -- 30,666,171
General and administrative -- -- -- (1,346,000)
Other expenses -- -- -- (36,112,000)
Minority interest in operating partnership -- -- (13,458,000) (13,458,000)
Minority interest in real estate joint ventures -- -- -- 275,000
Preferred dividends -- -- -- --
</TABLE>
a. Pro forma adjustment for the straight line rent adjustment based on a
lease reset date of January 1, 1997.
b. Pro forma adjustments for interest expense have been calculated based on
the indicated assumed/incurred debt and weighted average interest rate.
Included in the calculation is an adjustment for principal amortization,
if any. For the Property Acquisition I and II, interest expense was not
calculated on estimated construction debt of $78,803,465. It is
contemplated that the interest expense on this debt will be capitalized.
c. Pro forma adjustments for depreciation expense have been calculated based
on 80% allocation of the purchase price to depreciable assets over a 40
year life using the straight line method.
d. Pro forma adjustments for the minority partners' share of net income in
two buildings of the Property Acquisition I and II.
e. Represents the elimination of revenues and expenses not included as part
of the Wilson Transaction.
f. Represents the elimination of historical depreciation expense and the pro
forma adjustment for amortization expense based on the William Wilson &
Associates purchase price. Amortization of the William Wilson & Associates
purchase has been calculated over a 10 year life using the straight line
method.
g. The investment in the Pruneyard Hotel will be accounted for under the
equity method of accounting. Pro forma adjustments have been made to
reflect Cornerstone's economic share (95%) of the interest and other
income and building operating expenses of the Pruneyard Hotel.
Additionally, the equity in earnings of unconsolidated entities includes
pro forma adjustments for depreciation and interest expense.
h. The investment in CIC, the construction division of WW&A, will be
accounted for under the equity method of accounting. Pro forma
adjustments have been made to reflect Cornerstone's economic share (95%)
of the interest and other income, other expenses and general and
administrative expenses of CIC.
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA
FINANCIAL STATEMENTS
i. Represents the elimination of fees earned by William Wilson & Associates
from Property Acquisition I and II.
j. To eliminate interest income on excess cash presumed to have been used to
fund the cash requirements of the property transactions. Additionally, to
eliminate the interest expense incurred on temporary acquisition line
financing presumed to have been funded by debt indicated in this footnote
and footnote 4 and to eliminate the preferred dividends paid on
Cornerstone's 8% Preferred Stock. The 8% Preferred Stock is presumed to
have been converted into common stock on January 1, 1997.
k. Represents the minority holders' interest (14.70%) in the operating
partnership in the pro forma net income (before this adjustment) available
to common stockholders.
<PAGE>
Exhibit 99.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Current Report on Form
8-K/A of Cornerstone Properties Inc. (the "Company") and in the Company's
Registration Statements on Form S-3 (Reg. No. 333-72449, 333-18303,
333-47149, 333-59259) and the Company's Registration Statement on Form S-8
(Reg. No. 333-59923) of our reports dated June 19, 1998, on our audits of the
combined statements of revenues and certain operating expenses for Property
Acquisition and Property Acquisition Two for the year ended December 31,
1997 which reports are included in the Company's Proxy Statement filed on
November 13, 1998.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
March 1, 1999
