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Commission File No. 333-35590
Filed By: EOP Operating Limited Partnership pursuant to Rule 425 under the
Securities Act of 1933
Subject Company: Cornerstone Properties Inc. and Cornerstone Properties Limited
Partnership
SET FORTH BELOW ARE THE PORTIONS OF THE SCRIPT FOR THE EQUITY OFFICE PROPERTIES
TRUST 1ST QUARTER 2000 CONFERENCE CALL HELD ON MAY 3, 2000 RELATING TO THE
PROPOSED BUSINESS COMBINATION OF EQUITY OFFICE PROPERTIES TRUST AND CORNERSTONE
PROPERTIES INC.
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A Registration Statement relating to the Equity Office Properties
Trust and EOP Operating Limited Partnership securities to be issued in the
merger of Cornerstone Properties Limited Partnership with and into EOP Operating
Limited Partnership has been filed with the Securities and Exchange Commission
but has not yet become effective. The securities may not be sold nor may offers
to buy be accepted prior to the time the Registration Statement becomes
effective. The portions of the conference call script set forth below shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
Investors and security holders are urged to read the consent
solicitation/information statement/prospectus regarding the business combination
transaction referenced in the portions of the conference call script set forth
below, when it becomes available, because it will contain important information.
The consent solicitation/information statement/prospectus relating to the
partnership merger has been filed in preliminary form with the Securities and
Exchange Commission by Equity Office Properties Trust, EOP Operating Limited
Partnership and Cornerstone Properties Inc. Investors and security holders may
obtain a free copy of the consent solicitation/information statement/prospectus
(when it is available) and other documents filed by Equity Office Properties
Trust, EOP Operating Limited Partnership and Cornerstone Properties Inc. with
the SEC at the SEC's web site at www.sec.gov. The consent
solicitation/information statement/prospectus and these other documents may also
be obtained for free from EOP Operating Limited Partnership by directing a
request to EOP Operating Limited Partnership c/o Equity Office Properties Trust,
Two North Riverside Plaza, 21st Floor, Chicago, Illinois 60606, Attention:
Corporate Secretary, telephone (312) 446-3300.
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I. INTRODUCTION (DIANE MOREFIELD)
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Before we begin, we would remind you that certain statements made
in the course of this conference call as to future events will constitute
forward-looking statements within the meaning of the Federal Securities Laws.
Actual results may differ materially from those projected in the forward-looking
statements. Additional information concerning factors that could cause actual
results to materially differ from those in the forward looking statements is
contained in the Company's Form 10-K which is on file with the Securities and
Exchange Commission.
In respect to any discussion of our proposed merger with
Cornerstone, our investors and security holders are urged to read the joint
proxy statement/prospectus regarding this merger when it becomes available,
since it will contain important information. The joint proxy
statement/prospectus has been filed in preliminary form with the Securities and
Exchange Commission by Equity Office and Cornerstone. Investors and security
holders may obtain a free copy of the joint proxy statement/prospectus (when it
is available) from either the SEC or the Company.
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II. CURRENT TOPICS (TIM CALLAHAN)
- CORNERSTONE MERGER / INTEGRATION UPDATE
Certainly paramount on investor's minds is the status of our
Cornerstone merger.
The S-4's for both the common shareholders and OP unitholders have
been filed on a preliminary basis. We received a "no review" from the
SEC and have set a record date of May 12th, 2000. Closing is
tentatively scheduled for June 19th.
There is an integration team in place which is cross functional and
meets weekly (beginning the first week of our announcement).
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There is a Cornerstone counterpart for each functional area who has
worked with Equity Office functional leaders to devise a joint
integration plan, etc. Cornerstone systems and processes are expected
to be integrated into EOP's at the close, but the platform will be in
place prior to the close.
The integration of Cornerstone employees is taking place across the
country - of roughly 290 Cornerstone employees, approximately 220 are
expected to be joining EOP.
Our internal estimates continue to target approximately $20 - 24MM in
G&A savings in 2001, as projected when we announced the transaction.
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- DEVELOPMENT
- PIPELINE - Our development pipeline over the past 18 months has
proved very successful, which we think supports our strategy for
being selective on development projects and partnering with the
best local players.
At March 31st we had approximately $290MM in developments (1.4MM
SF) which are approximately 88% leased. We have had similar
success in the developments which have already opened over the
past 6 - 12 months.
- WILLIAM WILSON / DEV CO. - When we announced the Cornerstone
merger we highlighted our interest to negotiate a mutually
beneficial arrangement with William Wilson to co-develop the
assets under the Cornerstone development pipeline. We suggested
that this would likely be a separate subsidiary and would be
structuring the entity over the ensuing months.
We recently came to an agreement in principle of the major
business terms to create a development subsidiary which will be
structured as follows:
- Ownership - 50.1% - affiliates of Wilson, 49.9% - affiliates
of EOP
- The subsidiary will be capitalized with $14MM, funded in
accordance with the respective ownership interests, to be
used for existing pipeline projects (Ferry Building, 1st and
Howard, Concar).
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- Each partner may fund an additional $3MM. (EOP will also
provide a $500M working capital line at 9% or Libor + 300 bp,
whichever is greater).
- Management - Wilson will run the day to day operations and be
the managing member; have a four person board - two from
Wilson and two from EOP. Major decisions require board
approval.
- EOP has right of first refusal in any new development
projects.
- Devco will be responsible for development and construction
management (3% fee), EOP will be the property manager, and
both parties share the leasing responsibility.
- The structure contemplates that EOP will be able to buy out
Devco's interest in most projects at stabilization.
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- TOP MARKETS SUMMARY
I walked through an overview of our views about our top markets on our
4th Quarter call in February and these markets continue to be healthy,
with some actually experiencing significant rent growth in the 1st
Quarter.
I'd like to just touch on our top 5 or 6 markets, based on our
exposure post Cornerstone, very briefly.
- BOSTON - Continues to experience favorable supply / demand
characteristics, overall vacancy of 4%, with less than 3.5% CBD
vacancy. Over 3MM SF of absorption in 1999, supply seems to be
meeting demand. Biggest concern is labor shortage with a 2.9%
unemployment rate.
- CHICAGO - Experienced strong rental rate growth in the CBD during
1999, which is beginning to moderate. Total net absorption of
4.5MM SF in 1999, and three-year annual average of 4.7MM. Some new
construction activity beginning in the CBD (3.5MM SF) with
deliveries in '01 / '02 time frame. Our leasing strategy includes
working on early renewals to moderate rollover risk in these
years.
- SAN FRANCISCO - Unprecedented demand coupled with minimal
available space has resulted in significant rent spikes in this
market - up over 35% since January 1st. Bay area is seen as the
capital for high tech / Internet related companies and not seeing
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any moderation in demand. At this point, the downtown market would
be very difficult to overbuild given Prop M which limits new
office construction to 1,000,000 SF per year. William Wilson has
been allocated 850,000 SF in Prop M authority for its planned 4
building development at 1st and Howard, which we are confident
will be a very successful project. Believe San Francisco will be
one of the strongest office markets in the country for the
foreseeable future.
- WASHINGTON, D.C. - Just participated in an investor conference in
this market 2 weeks ago and many of you were able to see the
strength of this market first hand. Net absorption level last year
was 7.7MM SF and the three-year average annual is 5.7MM SF. Has
the demand and stability of the government's economy, but a major
force and growth from Internet / high tech. Considered the most
"wired" geographic area in the country with regards to fiber optic
capacity.
- ATLANTA - One of the fastest growing areas in the country in terms
of in-migration and job growth - almost double the national
average. Net absorption of 6MM SF in 1999 and a three-year annual
average of 5.1MM SF. Rent growth has moderated due to new supply,
but demand has generally kept up with the new supply. See a
significant tapering off of new construction in '01.
- SEATTLE - Continues to be a healthy and robust office market. Net
absorption of 4.1MM SF in 1999. Three year average of 3.3MM SF.
Rent growth was nearly 20% in 1999 over 1998, and high single
digit rent growth expected in 2000. Have had great leasing success
in our development projects in Seattle and Bellevue submarket -
virtually 100% leased at opening.
- NEW YORK - Experienced very strong demand on an ongoing basis from
traditional business (financial services, etc.) but also seeing
demand from "new economy" companies. Rents up 8% in the 1st
quarter to average rate over $40, and vacancy of 5% citywide. Net
absorption in 1999 of 4MM SF, average net absorption of 10MM SF
pa over the past three years. Very little new supply in Manhattan
due to difficult building requirements. New supply currently under
construction substantially preleased.
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