<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
|X| Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended March
31, 2000
or
|_| Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
to ________ to ________
COMMISSION FILE NUMBER 1-12861
-----------
CORNERSTONE PROPERTIES INC.
(Exact name of Registrant as specified in its Charter)
NEVADA 74-2170858
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation and organization)
126 EAST 56TH STREET
NEW YORK, NEW YORK
(Address of principal executive offices)
10022
(Zip Code)
(212) 605-7100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON
WHICH REGISTERED:
Common Stock, no par value New York Stock Exchange
Dusseldorf Stock Exchange
Frankfurt Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Number of shares of Common Stock (no par value) outstanding as of May 11,
2000: 129,499,073.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------ --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Developments in progress:
Land $ 46,132 $ 46,132
Development costs 26,198 17,000
Rental Property, at cost:
Land 657,890 646,852
Buildings, leasehold interests and improvements 3,111,138 3,084,466
Deferred lease costs 157,747 157,015
------------ --------------
3,999,105 3,951,465
Less: Accumulated depreciation and amortization 310,851 290,998
------------ --------------
Total Development and Rental Property 3,688,254 3,660,467
Assets held for sale 131,052 62,185
Cash and cash equivalents 27,199 19,679
Restricted cash 71,844 222,043
Investment in joint ventures 31,827 31,725
Other deferred costs, net of accumulated amortization of $8,813 and $7,092 40,944 42,655
Deferred tenant receivables 84,203 77,243
Tenant and other receivables, net 18,608 14,725
Other assets 60,167 39,506
------------ --------------
TOTAL ASSETS $ 4,154,098 $ 4,170,228
============ ==============
LIABILITIES
Long-term debt, inclusive of $15,423 and $16,149 of unamortized
premium $ 1,383,111 $ 1,448,331
Credit facility 355,100 329,000
Accrued interest 11,384 10,961
Accrued real estate taxes 25,405 16,457
Accounts payable and accrued expenses 39,006 45,006
Distributions payable 29,714 -
Unearned revenue and other liabilities 41,295 40,881
------------ --------------
TOTAL LIABILITIES 1,885,015 1,890,636
------------ --------------
MINORITY INTEREST
Minority interest in operating partnership 283,221 284,566
Minority interest in joint ventures 22,977 22,532
------------ --------------
TOTAL MINORITY INTEREST 306,198 307,098
------------ --------------
Commitments and contingencies
Redeemable preferred stock; 344,828 shares authorized;
0 shares issued and outstanding - -
STOCKHOLDERS' EQUITY
7% Cumulative convertible preferred stock, $16.50 stated value;
65,000,000 shares authorized; 3,030,303 shares issued and outstanding 50,000 50,000
Common stock, no par value; 250,000,000 shares authorized;
129,748,494 shares issued and 129,390,261 shares outstanding - -
Paid-in capital 1,807,923 1,808,943
Retained earnings 82,796 111,150
Accumulated other comprehensive income 29,362 9,424
Deferred compensation (2,185) (2,012)
------------ --------------
1,967,896 1,977,505
Treasury stock, 358,233 shares, at cost (5,011) (5,011)
------------ --------------
TOTAL STOCKHOLDERS' EQUITY 1,962,885 1,972,494
------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,154,098 $ 4,170,228
============ ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------- -------------
<S> <C> <C>
REVENUES
Office and parking rentals $ 147,826 $ 149,476
Earnings in joint ventures 110 305
Interest and other income 3,020 1,984
--------- ---------
TOTAL REVENUES 150,956 151,765
--------- ---------
EXPENSES
Building operating expenses 27,339 31,077
Real estate taxes 18,137 19,524
Interest expense 31,039 34,358
Depreciation and amortization 24,390 25,085
General and administrative 7,023 6,136
--------- ---------
TOTAL EXPENSES 107,928 116,180
--------- ---------
43,028 35,585
--------- ---------
Other income (expenses)
Carrying value in excess of market value of assets
held for sale (803) --
Gain on sale of real estate assets 2,260 --
--------- ---------
TOTAL OTHER INCOME (EXPENSES) 1,457 --
--------- ---------
MINORITY INTEREST
Minority interest in operating partnership (5,436) (4,473)
Minority interest in joint ventures (1,474) (1,450)
--------- ---------
TOTAL MINORITY INTEREST (6,910) (5,923)
--------- ---------
--------- ---------
Income before cumulative effect of a change in
accounting principle 37,575 29,662
--------- ---------
Cumulative effect of a change in accounting principle -- (630)
--------- ---------
NET INCOME $ 37,575 $ 29,032
========= =========
INCOME APPLICABLE TO PREFERRED STOCK $ (875) $ (875)
--------- ---------
INCOME APPLICABLE TO COMMON STOCK $ 36,700 $ 28,157
========= =========
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE PER COMMON SHARE $ 0.28 $ 0.22
========= =========
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE PER COMMON SHARE $ -- $ --
========= =========
BASIC INCOME PER COMMON SHARE $ 0.28 $ 0.22
========= =========
DILUTED INCOME PER COMMON SHARE $ 0.28 $ 0.22
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollar amounts in thousands)
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------- -------------
NET INCOME $ 37,575 $ 29,032
======== ========
OTHER COMPREHENSIVE INCOME:
Unrealized gain on investments 20,487 --
Unrealized gain on interest rate swaps
during the period (549) 2,085
-------- --------
OTHER COMPREHENSIVE INCOME 19,938 2,085
-------- --------
COMPREHENSIVE INCOME $ 57,513 $ 31,117
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 37,575 $ 29,032
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,035 24,533
Deferred compensation amortization 281 478
Net change in real estate joint ventures (102) (305)
Cumulative effect of a change in accounting principle -- 630
Unbilled rental revenue (7,059) (6,980)
Increase in accrued interest 424 1,162
Minority interest share of income 6,910 5,923
Gain on sale of real estate assets (2,260) --
Carrying value in excess of market value of assets
held for sale 803 --
Increase in tenant and other receivables and
other assets (4,934) (9,940)
Increase in accounts payable, accrued expenses
and other liabilities 2,154 17,748
-------- --------
Total adjustments 22,252 33,249
-------- --------
Net cash provided by operating activities 59,827 62,281
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment property (38,006) (22,022)
Repayment of notes receivable -- 134
Proceeds from sale of real estate assets 26,176 --
-------- --------
Net cash used in investing activities (11,830) (21,888)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facility 87,500 29,000
Repayments under credit facility (61,400) (15,000)
Repayments under mortgage loans (64,493) (27,137)
Decrease (increase) in restricted cash 45,425 (4,892)
Debt refinancing deposits -- (450)
Stock and debt issuance costs (11) (170)
Contribution from joint venture partner 367 --
Unitholder redemptions (513) --
Distributions to minority partners (7,316) (5,034)
Distributions to common stockholders (40,036) (34,491)
-------- --------
Net cash used in financing activities (40,477) (58,174)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,520 (17,781)
CASH AND CASH EQUIVALENTS, beginning of period 19,679 61,869
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 27,199 $ 44,088
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
1. NATURE OF COMPANY'S BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF THE COMPANY'S BUSINESS
Cornerstone Properties Inc. (together with its subsidiaries, "Cornerstone"
or the "Company") is a self-administered equity real estate investment trust
("REIT") which owns, through subsidiaries, interests in 82 Class A office
buildings comprising approximately 17 million rentable square feet, a shopping
center, a hotel and developable land (collectively, the "Properties," and each
interest, a "Property"). The Properties are primarily located in nine major
metropolitan areas throughout the United States: Atlanta, Boston, suburban
Chicago, Minneapolis, New York City, San Francisco Bay Area, Seattle, Southern
California and Washington, D.C. and surrounding suburbs. The Company's strategy
is to own and develop Class A office properties in prime Central Business
District locations and major suburban office markets in U.S. metropolitan areas.
Class A office properties are generally considered to be those that have the
most favorable locations and physical attributes, command premium rents and
experience the highest tenant retention rates within their markets. The Company
also provides property management, leasing, development and tenant improvement
services to third parties on a fee basis through WCP Services, Inc., a taxable
corporate subsidiary in which the Company owns 95% of the equity, but only 1% of
the voting common stock. In January 1998, Cornerstone converted its corporate
structure into an umbrella limited partnership REIT ("UPREIT"). Under the UPREIT
structure, Cornerstone owns all of its properties and conducts all of its
business through Cornerstone Properties Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), of which the Company is the sole
general partner. As of March 31, 2000, Cornerstone owned approximately 87.1% of
the common units of partnership interest ("UPREIT Units") in the Operating
Partnership.
On February 11, 2000, the Company announced that it had entered into an
agreement and plan of merger with Equity Office Properties Trust ("EOP") (the
"EOP Merger"). The merger agreement provides for a merger of Cornerstone with
and into EOP and a merger of the Operating Partnership with and into EOP
Operating Limited Partnership. In the mergers, holders of common stock of
Cornerstone and holders of Units in the Operating Partnership shall be entitled
to elect to receive, for each share or unit, as the case may be, either 0.7009
of a share of beneficial interest of EOP (or, in the case of the Cornerstone
Units, 0.7009 of a Class A Unit of EOP Operating Limited Partnership), or $18.00
per share (or per Unit, as the case may be) in cash, subject to pro ration as
provided in the merger agreement. Each share of 7% Cumulative Convertible
Preferred Stock, liquidation preference $16.50 per share, of Cornerstone shall
be converted into the right to receive $18.00, plus accrued and unpaid
dividends, in cash. For U.S. federal income tax purposes, the merger is expected
to be tax-free to Cornerstone stockholders who are U.S. persons and who receive
EOP shares in the merger, except that any such stockholder who receives cash in
addition to EOP shares generally will recognize gain (but not loss) in an amount
equal to the amount of cash received in the merger, or, if less, the excess of
the fair market value of the EOP shares and cash received in the merger over the
stockholder's basis in the Cornerstone common stock exchanged in the merger. The
merger is also expected in most cases to be tax-free to Cornerstone stockholders
who are non-U.S. persons, although certain non-U.S. stockholders may be subject
to U.S. tax under the provisions of the Foreign Investment in Real Property Tax
Act. The mergers are subject to customary closing conditions, including the
approval of the merger by the shareholders of EOP and the stockholders of
Cornerstone and the approval of the partnership merger, to the extent necessary,
by the partners of EOP Operating Limited Partnership and the Operating
Partnership.
GENERAL
The unaudited condensed consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles ("GAAP") have been
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. In the opinion of management of the Company, all adjustments,
consisting only of normal recurring accruals, necessary to summarize fairly the
unaudited results of operations for the three month periods presented have been
included. Results for the three months ended March 31, 2000 are not necessarily
indicative of results which may be expected for any other interim periods or for
the year as a whole. These condensed consolidated financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
<PAGE>
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of Cornerstone,
its wholly-owned qualified REIT subsidiary, the Operating Partnership and
controlled partnerships. The Company has consolidated the following partnerships
because it has a majority interest in the economic benefits and is or has the
right to become the managing general partner at its sole discretion: the
Operating Partnership; NWC Limited Partnership ("NWC"); Third and University
Limited Partnership ("Third Partnership"); Two Twenty Two Berkeley Venture ("222
Berkeley"); Five Hundred Boylston West Venture ("500 Boylston"); One Ninety One
Peachtree Associates ("191 Peachtree"); 191 Finance Associates, L.P. ("191
Finance"); Avenue Associates Limited Partnership ("Market Square"); and 120
Montgomery Associates, LLC ("120 Montgomery"). The Company's investments in the
One Post Property and WCP Services, Inc. are accounted for as equity investments
(see Note 4). All significant intercompany balances and transactions have been
eliminated in consolidation.
ASSETS HELD FOR SALE
Included in Assets Held for Sale at March 31, 2000 are ten properties, which
are expected to be sold by the Company within the next year. The Properties are
valued at approximately $131.0 million, the lower of the carrying amount or the
fair value less estimated costs to sell. The Company has recorded a $0.8 million
write down on two of these assets which represents the difference between the
carrying value of these assets and the expected selling price less costs to
sell. The Company discontinues the recognition of depreciation on the assets
when the property is considered held for sale.
OTHER ASSETS
The Company records costs incurred for potential investments as Other
Assets. Upon consummation of an investment, the Company capitalizes all such
costs as an adjustment to the purchase price and depreciates these costs over
the useful life of the asset. All such costs are expensed at the time it is
determined that a potential investment will not be consummated. In addition, the
Company adopted EITF 97-11 and in accordance therewith, the Company expenses all
internal acquisition costs.
Included in Other Assets is the Company's $1.5 million equity investment in
Allied Riser Communications Corp. ("ARCC") and its $3.5 million equity
investment in Cypress Communications, Inc. ("CYCO"). ARCC and CYCO are providers
of voice, video and data telecommunications services. As part of the terms of
the agreements with both ARCC and CYCO, the Company received warrants for shares
of common stock by providing ARCC and CYCO access to certain of the Company's
buildings. As such, the value of the warrants received from ARCC and CYCO of
$5.1 million and $2.1 million, respectively, is included in Other Assets. Per
the applicable requirements of Statement of Financial Accounting Standards No.
115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), the Company recorded an unrealized gain on its total investment in ARCC
and CYCO of $20.5 million for the three months ended March 31, 2000.
A corresponding adjustment was posted to a separate component of stockholder's
equity through Other Comprehensive Income.
MINORITY INTEREST
Minority interest in Operating Partnership relates to the interest in the
Operating Partnership that the Company does not own, which as of March 31, 2000
amounted to approximately 12.9%. The Company allocates income to the minority
interest in the Operating Partnership based on the weighted-average
percentage ownership in the Operating Partnership through the year. Persons
who contributed assets to the Operating Partnership received UPREIT Units,
shares of Cornerstone's common stock (the "Common Stock"), cash or a
combination thereof. At the request of a unitholder, the Company will be
obligated to redeem each UPREIT Unit held by such unitholder for one share of
Common Stock or, at the option of the Company, cash equal to the fair market
value of one share of Common Stock at the time of redemption. Such
redemptions will cause the Company's percentage ownership in the Operating
Partnership to increase. As of March 31, 2000, the number of issued and
outstanding UPREIT Units held by unitholders other than the Company was
19,103,202 and as of such date, 1,235,425 UPREIT Units have been redeemed for
shares of Common Stock on a one-for-one basis and 110,848 UPREIT Units have
been redeemed for cash.
Minority interest in joint ventures represents the minority partner's or
venturer's capital account balances in NWC, Third Partnership, 222 Berkeley, 500
Boylston, 191 Peachtree, 191 Finance, Market Square and 120 Montgomery. Debit
balances in certain of these capital accounts originated through special cash
distributions in excess of the partner's share of income in accordance with
certain provisions of the respective partnership and joint venture agreements.
Realizability of the debit balances is continually monitored by calculating pro
forma sales proceeds under the respective agreements.
<PAGE>
TREASURY STOCK
As of March 31, 2000, the Company reacquired 358,233 shares of Common Stock,
which was accounted for using the cost method. Of these shares, 347,400 shares
were acquired under the Repurchase Program (see Note 8).
INTEREST RATE SWAP AGREEMENTS
The Company uses interest rate swaps to effectively fix the interest rates
on certain floating-rate debt. Specific types of loans and amounts that are
hedged are determined based on prevailing market conditions and the current
shape of the yield curve. The specific terms and notional amount of the swaps
are determined based on management's assessment of future interest rates, as
well as short-term strategic initiatives.
During 1999, the Company entered into and subsequently amended swap
agreements that effectively fixed the rate on $250.0 million of the amount
outstanding on the Company's Revolving Credit Facility at 5.41% through the
maturity of the swaps in December 2000. The swaps have been designated as "cash
flow hedges" within the meaning defined in SFAS 133 (as defined hereinafter). At
March 31, 2000 and December 31, 1999, the Company recorded an unrealized loss of
$549,000 and an unrealized gain of $5,513,000, respectively in Other Assets
with a corresponding adjustment posted to a separate component of stockholder's
equity through Other Comprehensive Income as defined in Statement of Financial
Accounting Standards No. 130. Based on the expiration of these instruments, the
unrealized gain is expected to be reclassified to earnings during the next
twelve months. These swaps are considered hedges for federal income tax
purposes.
ESTIMATES AND RISKS
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant risks, estimates and assumptions are
related to the recoverability and depreciable lives of investment property, the
recoverability of deferred tenant receivables and the qualification of the
Company as a REIT. Actual results could differ from those estimates.
<PAGE>
2. PROPERTIES
The following table summarizes Cornerstone's interest in real estate
investments at March 31, 2000:
<TABLE>
<CAPTION>
TOTAL
MARKET NAME RENTABLE CORNERSTONE YEAR
Property SQUARE FEET INTEREST (A) CONSTRUCTED LEASED NOTES
------------------------------------- ----------------------------- ------------- ------------ ------
<S> <C> <C> <C> <C> <C>
BOSTON, MASSACHUSETTS
Sixty State Street 823,014 100.0% 1979 100% B
500 Boylston Street 714,513 91.5% 1988 100% C
222 Berkeley Street 530,844 91.5% 1991 100% C
125 Summer Street 463,691 100.0% 1989 79%
One Memorial Drive 352,764 100.0% 1985 100% D
------- ----
MARKET TOTAL 2,884,826 97%
SAN MATEO COUNTY, CALIFORNIA
Bayhill (4 buildings) 514,255 100.0% 1982-1987 98% E
Peninsula Office Park (7 buildings) 492,044 100.0% 1971-1998 100% E
Seaport Centre 463,418 100.0% 1988 100% E
Bay Park Plaza (2 buildings) 257,058 100.0% 1985-1998 100% E
One Bay Plaza 176,533 100.0% 1979 100% E
------- ----
MARKET TOTAL 1,903,308 99%
ATLANTA, GEORGIA
191 Peachtree Street 1,215,288 80.0% 1991 98% C,F
200 Galleria 432,698 100.0% 1985 99% C
------- ---
MARKET TOTAL 1,647,986 98%
EAST BAY, CALIFORNIA
Corporate Centre (2 buildings) 329,348 100.0% 1985-1987 95% E
ADP Plaza (2 buildings) 300,308 100.0% 1987-1989 99% E
PeopleSoft Plaza 277,562 100.0% 1984 100% E
Norris Tech Center (3 buildings) 260,513 100.0% 1984-1990 100% E
Golden Bear Center 160,587 100.0% 1986 99% E
Park Plaza 87,040 100.0% 1986 92% E
------ ---
MARKET TOTAL 1,415,358 98%
SEATTLE, WASHINGTON
Washington Mutual Tower (3 buildings) 1,154,560 50.0% 1988 99% G
110 Atrium Place 215,172 100.0% 1981 100% E
Island Corporate Center 100,009 100.0% 1987 96% E
------- ---
MARKET TOTAL 1,469,741 99%
SANTA CLARA COUNTY, CALIFORNIA
Pruneyard Office (3 buildings) 354,629 100.0% 1971-1999 100% E,H
10 Almaden 294,809 100.0% 1989 100% E
Pruneyard Shopping Center 252,210 100.0% 1970s 91% E
Embarcadero Place (4 buildings) 192,081 100.0% 1984 100% E
Pruneyard Inn 94,500 100.0% 1989 N/A E,I
------ ---
MARKET TOTAL 1,188,229 98%
SAN FRANCISCO, CALIFORNIA
120 Montgomery Street 420,310 66.7% 1955 98% E
One Post 391,450 50.0% 1969 100% E
201 California Street 240,230 100.0% 1980 91% J
188 Embarcadero 85,183 100.0% 1985 99% E
------ ---
MARKET TOTAL 1,137,173 97%
MINNEAPOLIS, MINNESOTA
Norwest Center 1,117,439 50.0% 1988 100% K
--------- ----
MARKET TOTAL 1,117,439 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TOTAL
MARKET NAME RENTABLE CORNERSTONE YEAR
Property SQUARE FEET INTEREST (A) CONSTRUCTED LEASED NOTES
------------------------------------- ----------------------------- ------------- ------------ ------
<S> <C> <C> <C> <C> <C>
WASHINGTON, D.C./ALEXANDRIA,
VIRGINIA
Market Square (2 buildings) 688,709 70.0% 1990 99% C,L
99 Canal Center 137,945 100.0% 1986 98% C
TransPotomac Plaza 5 96,392 100.0% 1983 94% C
11 Canal Center 70,365 100.0% 1986 96% C
------ ---
MARKET TOTAL 993,411 98%
SUBURBAN CHICAGO, ILLINOIS
Corporate 500 Centre (4 679,039 100.0% 1986/1990 98% M
buildings)
One Lincoln Centre 297,040 100.0% 1986 88%
------- ---
MARKET TOTAL 976,079 95%
SANTA MONICA/WEST LOS ANGELES,
CALIFORNIA
West Wilshire (2 buildings) 235,787 100.0% 1960-1976 92% E
Wilshire Palisades 186,714 100.0% 1981 100% J
Janss Court 125,709 100.0% 1989 100% E,N
Searise Office Tower 122,292 100.0% 1975 100% E
Commerce Park 94,367 100.0% 1977 100% E,O
429 Santa Monica 83,243 100.0% 1982 88% E
------ ---
MARKET TOTAL 848,112 96%
ORANGE COUNTY, CALIFORNIA
Bixby Ranch 277,289 100.0% 1987 93% E
18301 Von Karman 219,508 100.0% 1991 89% E
2677 North Main 213,318 100.0% 1987 96% E
------- ---
MARKET TOTAL 710,115 93%
SAN DIEGO, CALIFORNIA
Centerside II 286,949 100.0% 1987 93% E
Crossroads 133,553 100.0% 1983 100% E
------- ----
MARKET TOTAL 420,502 95%
NEW YORK CITY, NEW YORK
527 Madison Avenue 215,332 100.0% 1986 100%
Tower 56 163,633 100.0% 1983 98% P
------- ---
MARKET TOTAL 378,965 99%
LOS ANGELES, CALIFORNIA
700 North Brand 202,531 100.0% 1981 96% E
Warner Park Center 57,366 100.0% 1986 100% E
------ ----
MARKET TOTAL 259,897 97%
CONEJO VALLEY (VENTURA), CALIFORNIA
Westlake Spectrum (2 buildings) 118,990 100.0% 1990 100% E
Agoura Hills 115,208 100.0% 1987 100% E
------- ----
MARKET TOTAL 234,198 100%
OTHER REGIONS
U.S. West (Murray, Utah) 136,608 100.0% 1985 81% E
400 Capitol Mall (Sacramento, 502,365 100.0% 1992 100% Q
California)
Exposition Centre (Sacramento, 72,971 100.0% 1984 97% E
------ ---
California)
MARKET TOTAL 711,944 96%
------- ---
---------------
TOTAL PORTFOLIO 18,297,283 97%
---
Minority Interest Adjustment (738,364)
--------
(R)
CORNERSTONE PORTFOLIO 17,558,919 97%
===
Adjustment For Pruneyard Inn (94,500)
--------
CORNERSTONE OFFICE PORTFOLIO 17,464,419
</TABLE>
--------------------
(A) Unless noted below, cash flow and residual proceeds will be distributed to
Cornerstone according to its percentage interest.
(B) On December 31, 1997, the Company purchased the second mortgage on Sixty
State Street. The mortgage is a cash flow mortgage through which all the
economic benefits/risks (subject to the first mortgage) inure to the
Company. The Company controls all major decisions regarding management and
leasing. The total purchase price for the second
<PAGE>
mortgage was $131.5 million and is consolidated in buildings due to the
above factors. The $78.4 million first mortgage on the Property was
originally recorded by the Company as an $89.6 million liability due to its
above-market interest rate.
The second mortgage, which the Company holds, is collateralized only by the
improvements on Sixty State Street. Title to the improvements is owned by
Sixty State Street Trust, the ground lessee under a ground lease that
expires on December 28, 2067. The lease payments on the ground lease are
$398,896 per annum throughout the term.
(C) On October 27, 1997, the Company acquired interests in nine Class A office
properties comprising approximately 4.5 million rentable square feet in
Alexandria, Virginia (3 properties), Atlanta (2 properties), Boston (2
properties), Charlotte and Washington, D.C., as well as an undeveloped
parcel of land in Chicago (collectively, "the DIHC Portfolio"). The Company
acquired the DIHC Portfolio for a purchase price of approximately $1.06
billion, consisting of approximately 34.2 million shares of Common Stock
valued and recorded at $16.00 per share, approximately $260.0 million in
cash and $250.0 million in promissory notes. The cash portion of the
acquisition was financed with proceeds from the Company's initial public
offering in April 1997 and $54.0 million from its Revolving Credit Facility.
The Company has since sold the asset in Charlotte as well as the undeveloped
parcel of land in Chicago.
(D) On April 28, 1998, the Company purchased One Memorial Drive in Cambridge,
Massachusetts. The total purchase price for the Property was approximately
$112.5 million, approximately $23.5 million of which was paid in cash,
approximately $29.0 million of which was paid in UPREIT Units valued at
$17.50 per unit and approximately $60.0 million of which was paid in Common
Stock valued at $17.50 per share.
(E) Property was acquired as a result of the Wilson Acquisition in December
1998. After receiving stockholder approval on December 14, 1998, the Company
acquired substantially all of the properties and real estate operations of
William Wilson & Associates and related entities ("WW&A") (the "Wilson
Acquisition"). As part of the Wilson Acquisition, the Company acquired
interests in 69 Class A office Properties, comprising approximately 9.2
million rentable square feet primarily in the San Francisco Bay Area and in
Southern California, a shopping center consisting of approximately 252,000
rentable square feet in Santa Clara, California, a hotel consisting of
94,500 square feet in Santa Clara, California and 12.8 acres of developable
land in the San Francisco Bay Area. The Company has since sold thirteen
assets comprising approximately 1.4 million square feet.
The Company acquired WW&A for a purchase price of approximately $1.8
billion, consisting of approximately 14.9 million shares of Common Stock
valued at $17.25 per share (recorded at $16.25 per share for GAAP purposes),
approximately 16.2 million UPREIT Units valued at $17.25 per unit (recorded
at $16.25 per unit for GAAP purposes), approximately $465.0 million in cash
and the assumption of approximately $760.0 million of property and
construction related debt (recorded at $773.7 million for GAAP purposes).
The cash portion of the transaction was financed primarily from the
Company's Revolving Credit Facility and the sale of $200.0 million of Common
Stock to PGGM, an approximate 33.6% stockholder prior to the Wilson
Acquisition, priced at $17.25 per share.
(F) While the Company's stated interest in the partnership that owns 191
Peachtree Street is 80.0%, its economic interest is significantly larger
since it has acquired the first mortgage note on the Property in the amount
of $145.0 million, which earns interest at 9.375% and will receive a
priority distribution on its acquired capital base. In 1999, the partner in
the transaction, CH Associates, Ltd., received an annual Incentive
Distribution (as defined) of $250,000, with the Company receiving the
remainder of the cash flow of the Property. CH Associates, Ltd. received
this distrbution through February 28, 2000.
The partnership that owns 191 Peachtree Street leases a portion of the land
upon which the project is located pursuant to a ground lease agreement. The
agreement requires annual payments of $45,000 through January 31, 2002 and
$75,000 through January 31, 2008. Thereafter, the annual rent increases
$2,500 per year until the expiration date of January 31, 2087. The
partnership records ground rental expense relating to this agreement on a
straight-line basis. The ground lease is renewable for an additional 99
years.
(G) While the Company's stated interest in the partnership that owns Washington
Mutual Tower is 50.0%, its economic interest in the Property is
significantly larger due to priority distributions it receives on its
invested capital base. For the three months ended March 31, 2000, the
Company received 100% of the cash distributions from the partnership that
owns Washington Mutual Tower.
(H) Pruneyard Place construction was completed and occupied on April 1, 1999.
The building was entirely pre-leased.
<PAGE>
(I) The Pruneyard Inn is a three-story hotel. An expansion was completed in May
1999, increasing the number of rooms from 118 to 172.
(J) On June 3, 1998, the Company purchased 201 California Street and Wilshire
Palisades. The total purchase price for the Properties was approximately
$121.5 million, approximately $29.5 million of which was paid in cash,
approximately $29.1 million of which was paid in UPREIT Units valued at
$17.50 per unit and approximately $62.9 million of assumed debt (recorded at
$64.6 million for GAAP purposes).
(K) While the Company's stated interest in the partnership that owns Norwest
Center is 50.0%, its economic interest in the Property is significantly
larger due to priority distributions it receives on its invested capital
base. For the three months ended March 31, 2000, the Company's share of
earnings and cash distributions from the partnership that owns Norwest
Center was 73.5%.
(L) During 1998, through a series of transactions, the Company acquired
partnership interests with a stated interest of approximately 70.0% in the
partnerships that own Market Square. The Company's economic interest is
significantly larger since it has acquired the first mortgage note on the
Property in the amount of $181.0 million which earns interest at 9.75% and
will receive a priority distribution on its acquired capital base. In
addition, the Company acquired a "buffer loan", with accrued principal and
interest of $49.0 million at purchase, which accrues interest at a rate of
Prime plus 1.25% and is payable from cash flow, refinancing or sales
proceeds in excess of the first mortgage. During the three months ended
March 31, 2000, the Company received 100% of the cash flow from the
Property. On November 14, 1998, the Company purchased an additional interest
in the partnerships that own Market Square which enabled it to gain
sufficient control in order to consolidate the investment.
(M) On January 28, 1998, the Company purchased Corporate 500 Centre in
Deerfield, Illinois. This Property consists of four Class A office buildings
with approximately 679,000 rentable square feet. The consideration paid for
this Property was approximately $135.0 million in cash and approximately
$15.0 million in UPREIT Units valued at $18.50 per unit, for a total
purchase price of approximately $150.0 million. The Company financed a
portion of the purchase price with an $80.0 million mortgage loan from
Bankers Trust Company; this mortgage was subsequently refinanced in October
1998.
(N) Janss Court is a seven-story Class A mixed-use building containing
approximately 126,000 square feet. In addition to approximately 93,000
square feet of retail and office space, Janss Court offers 32 apartments for
a total of 33,000 rentable square feet of residential space.
(O) The Property is subject to a ground lease agreement. The agreement requires
annual payments of $115,000 through March 31, 2002 and $121,000 from April
1, 2002 through March 31, 2007. The lease payment increases every ten years
thereafter according to a formula based on the Consumer Price Index. The
ground lease expires on March 31, 2041.
(P) On January 5, 1998, the Company purchased for approximately $5.5 million,
the remaining participation rights in the cash flow and residual value of
Tower 56 from the former participants for 307,692 shares of Common Stock. As
a result, all of the cash flow and the residual value of Tower 56 inures to
the Company.
(Q) On January 21, 2000, the Company purchased 400 Capitol Mall in Sacramento,
California. This Property contains approximately 502,000 rentable square
feet. The total purchase price for the Property was approximately $130.0
million, consisting of approximately $128.0 million in cash and
approximately $2.0 million of which was paid in UPREIT Units valued at
$17.25 per unit. Of the cash paid, $104.8 million was Section 1031 exchange
funds from the sale of One Norwest Center in Denver, Colorado during 1999.
(R) Rentable square feet includes an adjustment for the interest of a joint
venture or minority partner. Calculations are based on the partners'
percentage interest in the cash flows of the Property.
During the first three months of 2000, the Company sold two properties for
gross proceeds of $27,225,000 resulting in a net gain of $2,026,306.
During 1999, the Company sold 13 properties for gross proceeds of
$495,705,000 resulting in a net gain of $131,033,847.
<PAGE>
3. RESTRICTED CASH
Restricted cash includes security deposits for some of the Company's office
properties and escrow and reserve funds for real estate taxes, property
insurance, capital improvements, tenant improvements and leasing costs. These
funds were established pursuant to certain mortgage and construction financing
arrangements.
The proceeds from the sales of certain properties during 1999 totaling
approximately $61.4 million, are included in restricted cash pursuant to the
terms of Section 1031 of the Internal Revenue Code of 1986, as amended,
"Exchange of property held for productive use or investment."
4. INVESTMENT IN JOINT VENTURES
Investment in joint ventures represents the Company's two
investments that are accounted for using the equity method of accounting. The
first investment is the Company's 50.0% interest in a co-tenancy with Crocker
Plaza Company for One Post, a 38-story, Class A office tower in San Francisco,
California. The Company and Crocker co-manage and lease the Property. The second
equity investment is the Company's interest in WCP Services, Inc. The Company
owns 1% of the voting common stock and 100% of the non-voting common stock of
WCP Services, Inc. The remaining shares of voting common stock of WCP Services,
Inc. are owned by certain executive officers of the Company. The Company's
ownership of voting and nonvoting common stock together represents a 95%
economic interest in the earnings of WCP Services, Inc. WCP Services, Inc.
provides property management, development and tenant construction supervision
services to third parties. WCP Services, Inc. also provides tenant construction
supervision services to tenants in Properties owned by Cornerstone.
5. LONG-TERM DEBT
The following table sets forth certain information regarding the
consolidated debt obligations of the Company as of March 31, 2000, including
mortgage obligations relating to the Properties. All of this debt, with the
exception of the Convertible Promissory Note due 2001, is nonrecourse to the
Company. However, notwithstanding the nonrecourse indebtedness, the lender may
have the right to recover deficiencies from the Company in certain
circumstances, including fraud, misappropriation of funds and environmental
liabilities (Dollar amounts in thousands).
<TABLE>
<CAPTION>
PROPERTY AMORTIZATION INTEREST RATE (A) MATURITY DATE 3/31/00 12/31/99
- -------- ------------ ----------------- ------------- ------- --------
FIXED RATE
- ----------
<S> <C> <C> <C> <C> <C>
TransPotomac Plaza (B)....... Interest Only 7.28% Oct-2000 65,000 65,000
West Wilshire Office and
Medical.................... 25 year 6.90% Jan-2002 16,829 16,926
Searise Office Tower......... 25 year 6.90% Jan-2002 11,540 11,607
Exposition Centre............ 25 year 6.90% May-2002 5,049 5,081
Wilshire Palisades........... 22 year 6.70% Jul-2002 28,826 29,047
110 Atrium Place 30 year 6.90% Mar-2004 21,429 21,517
527 Madison Avenue and
One Lincoln Centre (B)..... Interest only 7.47% Oct-2004 65,000 65,000
Sixty State Street........... 30 year 6.84% Jan-2005 84,924 85,420
Island Corporate Center...... 30 year 6.90% Apr-2005 13,134 13,170
Washington Mutual Tower...... Interest only 7.53% Nov-2005 79,100 79,100
Norwest Center............... Interest only 8.74% Dec-2005 110,000 110,000
Agoura Hills................. 25 year 6.90% Dec-2005 11,918 12,003
Janss Court.................. 30 year 6.90% Dec-2005 18,261 18,357
Bayhill 4,5,6 & 7............ 25 year 6.90% Dec-2006 57,423 57,764
Market Square (C) and 200
Galleria (B)............... Interest only 7.54% Oct-2007 120,000 120,000
Corporate 500 Centre......... 25 year 6.66% Nov-2008 88,044 88,424
188 Embarcadero (D).......... 25 year 7.26% Aug-2009 15,548 15,606
Centerside II (D)............ 25 year 7.26% Aug-2009 24,164 24,254
700 North Brand (D).......... 25 year 7.26% Aug-2009 26,838 26,938
Golden Bear Center (D)....... 25 year 7.26% Aug-2009 20,401 20,477
Bixby Ranch (D).............. 25 year 7.26% Aug-2009 28,422 28,528
One Memorial Drive (D)....... 25 year 7.26% Aug-2009 62,885 63,119
125 Summer Street (E)........ 25 year 7.23% Nov-2009 78,553 78,844
Tower 56 (E)................. 25 year 7.23% Nov-2009 24,932 25,024
Peninsula Office Park
1,3,4,5,6,8 & 9 (E)........ 25 year 7.23% Nov-2009 87,802 88,128
Embarcadero Place (E)........ 25 year 7.23% Nov-2009 38,007 38,149
201 California Street (E).... 25 year 7.23% Nov-2009 44,340 44,504
--------- ---------
TOTAL FIXED RATE DEBT 7.31% (F) 6.9 yrs (F) 1,248,369 1,251,987
========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
VARIABLE RATE
Seaport Centre (G)........... 25 year LIBOR plus 1.50% Dec-2000 57,819 58,000
Convertible Promissory
Note due 2001 (H).......... Interest only 8.11%max (I) Jan-2001 12,926 12,926
120 Montgomery Street........ 24 year LIBOR plus 1.40% Nov-2002 48,002 48,160
Norris Tech Center........... 25 year LIBOR plus 1.65% Dec-2003 15,995 16,066
Other loans.................. Various Various Various -- 245
---------- -----------
TOTAL VARIABLE RATE DEBT 7.52% (F) 1.7 yrs (F) 134,742 135,397
---------- -----------
REPAID DEBT
The Pruneyard (J) -- -- -- -- 60,947
---------- -----------
TOTAL REPAID DEBT -- 60,947
---------- -----------
TOTAL DEBT 7.33% (F) 6.4 yrs (F) $1,383,111 $1,448,331
========== ===========
- ----------
</TABLE>
(A) The interest rate is the stated interest rate (for Cornerstone originated
debt) or the mark to market rate at the time of acquisition (for debt
assumed as part of an acquisition).
(B) The three notes arising from the acquisition of several properties in the
DIHC Portfolio are cross-collateralized, having the effect of forming a
"collateral pool" for the underlying notes.
(C) The collateral for this loan is a pledge of the $181.0 million first
mortgage loan on Market Square that the Company purchased from PGGM.
(D) The six notes arising from the restructuring of certain debt with Prudential
Insurance Company of America and Northwestern Mutual Life Insurance Company
are cross-collateralized, having the effect of forming a "collateral pool"
for the underlying notes.
(E) During October 1999 the Company restructured approximately $219.9 million of
individual property-related debt with Northwestern Mutual Life Insurance
Company. The restructuring involved retiring the individual property-related
debt and creating a single $275.0 million term loan which is
cross-collateralized by six of the original seven properties. The loan has a
ten year term and bears interest at 7.23%. Upon closing the loan, the lien
on 10 Almaden was released and the property was added to Cornerstone's
unencumbered pool.
(F) Weighted-average interest rate and maturity of the Company's long-term debt.
(G) On December 15, 1999, through an extension and modification agreement, the
maturity date of the $58.0 million variable rate debt held on Seaport Centre
was extended from December 31, 1999 to December 31, 2000. At this time, the
note changed from interest only to a 25 year amortizing loan.
(H) The lender, Hines Colorado Limited, has the right to convert the note into
Common Stock at a conversion price of $14.30 per share. At maturity, the
Company is entitled to repay the principal of the note with Common Stock
priced at the lesser of $14.30 per share or the then existing share price.
(I) Lesser of 30-day LIBOR plus 0.5% or 8.11%.
(J) On February 8, 2000, this note was prepaid with proceeds from the Revolving
Credit Facility. This note had an interest rate of LIBOR plus 1.50% and a
maturity of July 2000.
The combined aggregate amount of maturities for all long-term borrowings
for 2000 through 2004 are $122,819,000, $12,926,000, $110,246,000, $15,995,000
and $86,429,000, respectively.
Since most of the long-term debt is property-related, there are
restrictive covenants that limit the total amount of indebtedness that can be
placed on individual properties.
6. CREDIT FACILITY
The Company has a $550.0 million Revolving Credit Facility with a syndicate
of 17 banks led by Deutsche Bank, The Chase Manhattan Bank and Bank of America
for acquisitions and general working capital purposes as well as the issuance of
<PAGE>
letters of credit (the "Revolving Credit Facility"). The interest rate on the
facility depends on the Company's ratio of total debt to asset value (as
defined) at the time of borrowing and will be at a spread of 1.10% to 1.40% over
the applicable LIBOR or Prime Rate at the borrower's option. The letters of
credit will be priced at the applicable Eurodollar credit spread. The Revolving
Credit Facility expires on November 3, 2001. As of March 31, 2000, $355.1
million of the facility was outstanding at a rate of approximately 7.5%. Of this
amount, approximately $250.0 million is fixed with interest rate swaps, which
effectively fix the rate at 5.41% through the expiration of the swaps in
December 2000. The Revolving Credit Facility contains certain restrictive
covenants including: (i) a limitation on the Company's dividend to 90.0% of
funds from operations and 110.0% of funds available for distribution, both as
defined in the agreement; (ii) the percentage of total liabilities to total
property asset value (as defined) cannot exceed 55.0%; (iii) the ratio of
adjusted EBITDA to interest expense may not be less than 2.25 to 1.00; (iv) the
fixed charge coverage ratio may not be less than 1.75 to 1.00; and (v) the ratio
of total property asset value (as defined) to secured indebtedness may not be
less than 2.22 to 1.00. The above terms reflect an amendment to the Revolving
Credit Facility that occurred during 1999. The amendment allowed the Company to
temporarily increase its leverage from 55.0% to 60.0% in (ii) above for a short
period, which has since expired. The Company also increased its ability to enter
into mortgage debt under (v) above by decreasing the required ratio from 2.5 to
1.00 to 2.22 to 1.00.
7. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is subject to tenant and
property related claims and other litigation. It is the opinion of management,
after consultation with outside counsel, that the resolution of these claims
will not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
In April 1998, the Company entered into a contract to acquire from the
developer the 928,857 square-foot Piper Jaffray building under construction in
Minneapolis. In November 1999, this contract was amended in connection with a
350,000 square-foot expansion lease with a major tenant of the building. The
contract was amended to provide for a purchase price equal to the costs incurred
in construction and development plus a fixed amount to the developer plus an
additional amount based on the leasing of the building. In addition, at the
Company's election, the closing of the acquisition may occur prior to the
completion of the building, but the developer will remain obligated to complete
the project. Through March 31, 2000, approximately $121.1 million has been spent
on the construction. The project is scheduled to be completed in the year 2000
and is approximately 84.0% pre-leased.
8. STOCKHOLDERS' EQUITY
The 7% Cumulative Convertible Preferred Stock is convertible into Common
Stock at $16.50 per share at any time after August 4, 2000.
On February 6, 1998, Cornerstone completed a secondary public offering of
14,375,000 shares of Common Stock at a price of $18.25 per share. The shares
were placed in the U.S. through a syndicate of seven investment banks led by
Merrill Lynch & Co. Net proceeds to the Company were approximately $247.9
million (approximately $262.3 million gross proceeds less an underwriting
discount of approximately $13.7 million and expenses of approximately $0.7
million). The net proceeds were used to repay outstanding borrowings under the
Revolving Credit Facility and for working capital purposes.
On December 9, 1999, the Company's Board of Directors approved a stock
repurchase program ("Repurchase Program") under which the Company was permitted
to purchase up to $100.0 million of the Company's outstanding Common Stock. The
Company was to make periodic purchases on or prior to December 31, 2000 using
available working capital on the open market at prevailing prices or in
privately negotiated transactions. As of December 31, 1999, the Company had
repurchased 347,400 shares of its outstanding Common Stock for an aggregate cost
of approximately $4.9 million. There were no repurchases made from January 1,
2000 through the February 11, 2000 when the Repurchase Program was discontinued
as a result of the merger with EOP.
<PAGE>
The following tables summarize the stock options and restricted stock grants
for certain officers of the Company as of March 31, 2000:
STOCK OPTIONS
<TABLE>
<CAPTION>
Options Granted Exercise Price Options Options Options
Date of Grant (No. of Shares) (Per Share) Vesting Exercised Forfeited Exercisable
------------- --------------- ----------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
August, 1995 ........ 637,500 $14.30 33.3%/yr, 10yr term 75,000 0 562,500
October, 1995 ....... 150,000 $14.30 33.3%/yr, 10yr term 10,500 0 139,500
March, 1997 ......... 880,000 $14.50 33.3%/yr, 10yr term 52,000 0 828,000
November, 1997 ...... 70,000 $18.44 33.3%/yr, 10yr term 0 0 46,667
February, 1998 ...... 70,000 $18.13 33.3%/yr, 10yr term 0 46,667 23,333
February, 1998 ...... 595,000 $18.25 33.3%/yr, 10yr term 0 26,668 382,962
March, 1998 .. ...... 200,000 $18.25 33.3%/yr, 10yr term 0 133,334 66,666
December, 1998 ...... 3,000,000 $17.25 33.3%/yr, 10yr term 0 34,733 991,874
January, 1999 ...... 20,000 $17.25 33.3%/yr, 10yr term 0 0 0
February, 1999 ...... 10,000 $17.25 33.3%/yr, 10yr term 0 10,000 0
June, 1999 .......... 10,000 $17.25 33.3%/yr, 10yr term 0 0 0
January, 2000 ....... 1,500,166 $15.19 33.3%/yr, 10yr term 0 2,000 0
</TABLE>
RESTRICTED STOCK GRANTS
<TABLE>
<CAPTION>
Shares
Value At Grant Shares Initially Shares Forfeited Outstanding Shares Vested Vesting (A)
Date of Grant Date (Per Share) Granted (No. of Shares) (No. of Shares) (No. of Shares) (No. of Shares) See Notes
------------- ---------------- ----------------------- ---------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
August, 1995 ........ $14.30 186,713 19,091 167,622 95,858 (B)
March, 1997 ......... $16.40 100,000 0 100,000 34,112 (C)
November, 1997....... $18.44 12,500 0 12,500 3,333 (D)
March, 1998 ......... $18.13 12,500 10,833 1,667 1,667
March, 1998 ......... $18.25 19,178 0 19,178 19,178 (E)
February, 1999....... $15.50 113,500 1,900 111,800 7,400 (F)
February, 2000....... $16.81 27,708 0 27,708 0 (G)
</TABLE>
- ----------
(A) Deferred compensation of approximately $6,100,000 is being amortized
according to the respective amortization schedule for each vesting period
noted below, with the unamortized balance shown as a deduction from
stockholders' equity. Regular distributions are paid on restricted stock.
(B) The grant will fully vest with respect to 13.333% on June 30, 1996, 1997,
1998, 1999 and with respect to 46.668% on June 30, 2000. Pursuant to the
terms of a separation agreement, the vesting with respect to 6,462 shares
will be accelerated to fully vest on April 14, 2000.
(C) The grant will fully vest with respect to 13.333% on June 30, 1998, 1999,
2000, 2001 and with respect to 46.668% on June 30, 2002. Pursuant to the
terms of a separation agreement, the vesting with respect to 7,446 shares
will be accelerated to fully vest on April 14, 2000.
(D) The grant will fully vest with respect to 13.333% on June 30, 1998, 1999,
2000, 2001 and with respect to 46.668% on June 30, 2002.
(E) The initial grant was to vest with respect to 13.333% on March 15, 1999,
2000, 2001, 2002 and with respect to 46.668% on March 15, 2003. Pursuant to
the terms of a separation agreement, the vesting with respect to 16,621
shares was accelerated to fully vest on December 31, 1999.
(F) The grant will fully vest on February 1, 2004. Pursuant to the terms of
certain separation agreements, the vesting with respect to 1,400 shares was
accelerated to fully vest on July 1, 1999.
(G) The grant will fully vest on February 15, 2005.
<PAGE>
9. STOCKHOLDERS' AND UNITHOLDERS' DISTRIBUTIONS
A distribution of $0.31 per share/unit was declared for the first quarter of
2000 and paid on February 29, 2000, to Common Stockholders and Unitholders of
record as of January 31, 2000.
On March 8, 2000, as provided in the merger agreement with EOP, the Board of
Directors declared a distribution of $0.20 per share/unit, payable on April 14,
2000, to Common Stockholders and Unitholders of record as of March 31, 2000.
This distribution was declared to make Cornerstone's distribution schedule
consistent with that of EOP pending the merger (see Note 1).
10. NET INCOME PER COMMON SHARE
The table below sets forth the calculation of income per common share for
the three months ended March 31, 2000 and 1999 (Dollar amounts in thousands,
except per share amounts):
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
------------------------ ------------------------
BASIC DILUTED BASIC DILUTED
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Proceeds upon exercise of options ... -- $ 44,832 -- $ 23,871
Market price of shares
average for the respective year .. -- $ 16.09 -- $ 15.24
Treasury shares that could be
repurchased (options) ............ -- 2,786 -- 1,566
Option shares outstanding ........... -- 3,030 -- 1,657
Weighted common stock equivalent
shares (excess shares under
option over Treasury shares that
could be repurchased) ............ -- 226 -- 91
Convertible preferred stock ......... -- 3,030 -- --
Convertible debt shares ............. -- 904 -- --
Weighted average common shares
outstanding ...................... 129,269 129,269 128,211 128,211
--------- --------- --------- ---------
Adjusted weighted average common
Shares outstanding ............... 129,269 133,429 128,211 128,302
Net income for the period ........... $ 37,575 $ 37,575 $ 29,032 $ 29,032
Interest on convertible debt -- 192 -- --
Income applicable to
preferred stock .................. $ (875) $ -- $ (875) $ (875)
--------- --------- --------- ---------
Net income applicable to
common stock ................... $ 36,700 $ 37,767 $ 28,157 $ 28,157
Net income per common share ......... $ 0.28 $ 0.28 $ 0.22 $ 0.22
</TABLE>
The stock options issued in November 1997, February 1998, March 1998,
December 1998, January 1999, February 1999 and June 1999 were not included in
the calculation of diluted earnings per share as such options were anti-dilutive
during the period. In addition, the Company will be obligated to redeem each
UPREIT Unit held by such unitholder for one share of Common Stock or, at the
option of the Company, cash equal to the fair market value of one share of
Common Stock at the time of redemption. As of March 31, 2000, 1,235,425 UPREIT
Units have been redeemed for shares of Common Stock on a one-for-one basis and
110,848 UPREIT Units have been redeemed for approximately $1.7 million in cash.
16. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was approximately $30,449,000 and $34,263,000 for
the three months ended March 31, 2000 and 1999, respectively.
NON-CASH INVESTING AND FINANCING ACTIVITIES
During the first quarter of 1999, pursuant to the requirements of SOP 98-5
(as defined in Note 1), the Company wrote off all unamortized organizational
costs and recorded a cumulative effect of a change in accounting principle of
$630,044.
<PAGE>
On February 1, 1999, the Company issued 113,500 shares of restricted stock
valued at $15.50 per share to certain employees of the Company. Refer to Note 8
for the vesting of this grant.
On January 21, 2000, the Company acquired 400 Capitol Mall in Sacramento,
California. The total purchase price for the Property was approximately $130.0
million, consisting of approximately $128.0 million in cash which were Section
1031 exchange funds from the sale of One Norwest Center in Denver, Colorado
during 1999, and approximately $2.0 million of which was paid in UPREIT Units
valued at $17.25 per unit.
On February 15, 2000, the Company issued 27,708 shares of restricted stock
valued at $16.81 per share to certain employees of the Company. Refer to Note 8
for the vesting of this grant.
On March 8, 2000, 9,200 UPREIT Units were redeemed for shares of Common
Stock on a one-for-one basis.
On March 30, 2000, 101,050 UPREIT Units were redeemed for shares of Common
Stock on a one-for-one basis.
18. SEGMENT REPORTING
The Company has one reportable segment - real estate. The Company does not
have any foreign operations. The accounting policies of the segment are the same
as those described in Note 1.
The Company evaluates performance based on net operating income from the
individual properties in the segment. Selected results of operations for the
three months ended March 31, 2000 and 1999 and selected asset information as of
March 31, 2000 and December 31, 1999 regarding the Company's operating segment
are as follows (Dollar amounts in thousands):
<TABLE>
<CAPTION>
CORPORATE & COMPANY
TOTAL SEGMENT OTHER(A) TOTAL
--------------- -------------- -----------------
<S> <C> <C> <C>
Total revenues (B):
Three months ended:
March 31, 2000 $ 148,813 $ 2,143 $ 150,956
March 31, 1999 150,786 979 151,765
Total operating and
Interest expenses (C):
Three months ended:
March 31, 2000 $ 48,266 $ 35,272 $ 83,538
March 31, 1999 51,858 39,237 91,095
Net operating income (D):
Three months ended:
March 31, 2000 $ 100,547 $ (33,129) $ 67,418
March 31, 1999 98,928 (38,258) 60,670
Total long-lived assets (E):
March 31, 2000 $3,805,678 $ 85,329 $3,891,007
December 31, 1999 3,770,924 66,064 3,836,988
Total assets:
March 31, 2000 $3,883,939 $ 270,159 $4,154,098
December 31, 1999 3,776,765 393,463 4,170,228
</TABLE>
- ----------
(A) Corporate and Other represents all corporate-level items (including
interest income, interest expense and general and administrative
expenses) as well as intercompany eliminations necessary to reconcile to
consolidated Company totals.
(B) Total revenues represents all revenues during the period (including the
Company's earnings in joint ventures). All interest income is excluded
from the segment amounts and is classified in Corporate and Other for
all periods.
(C) Total operating and interest expenses represents the sum of building
operating expenses, real estate taxes, interest expense and general and
administrative expenses. All interest expense (including property level
mortgages) is excluded from the segment amounts and is classified in
Corporate and Other for all periods. Amounts presented exclude
depreciation and amortization of approximately $24,390,000 and
$25,085,000 for March 31, 2000 and 1999, respectively.
<PAGE>
(D) Net operating income represents total revenues (as defined in note (B)
above) less total operating and interest expense (as defined in note (C)
above) for the period.
(E) Long-lived assets is composed of total rental property, investments in
joint ventures, other deferred costs, deferred tenant receivables and
certain other assets.
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes included herein.
When used in the following discussion, the words "believes", "anticipates",
and similar expressions are intended to identify "forward-looking statements".
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these "forward-looking statements",
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions of these "forward-looking
statements", which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Cornerstone's principal source of income is rental revenues received through
its investment in 76 fee simple investments, six real estate partnerships,
one limited liability company, one co-tenancy agreement and one mortgage. NWC
Limited Partnership ("NWC"), Third and University Limited Partnership ("Third
Partnership"), One Ninety One Peachtree Associates ("191 Peachtree"), Two
Twenty Two Berkeley Associates ("222 Berkeley"), Five Hundred Boylston West
Venture ("500 Boylston") and Avenue Associates Limited Partnership ("Market
Square") have been consolidated because Cornerstone has the majority interest
in the economic benefits and is or has the right to become managing general
partner at its sole discretion. 120 Montgomery Associates, LLC ("120
Montgomery") has been consolidated because the Company has the majority
interest in the economic benefits and control of the major decisions of the
limited liability company. The Company has accounted for its investment in
Market Square and One Post using the equity method of accounting because it
does not have sufficient control of the day-to-day operations of the
investments.
PROPERTY RESULTS. For the three months ended March 31, 2000 and 1999,
property results can be summarized as follows (in thousands):
For the three For the three
months ended months ended
March 31, 2000 March 31, 1999
- -------------------------------- ------------------- -------------------
Office and Parking Rentals $147,826 $149,476
Less:
Building Operating Expenses 27,339 31,077
Real Estate Taxes 18,137 19,524
Depreciation and Amortization 24,390 25,085
------ ------
Total Operating Expenses 69,866 75,686
------ ------
Total Property Income $77,960 $ 73,790
======= ========
The increase in property income of $4.2 million for the three months ended
March 31, 2000 as compared to the same period in 1999 was due to an increase in
same store Property Income on the 82 properties held during both periods of
$11.2 million; the same store increase was due to rising rental rates and an
increase in average occupancy on the same store portfolio from 95.3% to 97.4%;
the acquisition of 400 Capitol Mall and the completion of Pruneyard Place
development project gave rise to an increase of $2.5 million; and, the sale of
15 Properties over the past twelve months gave rise to a decrease of $9.5
million.
EARNINGS IN JOINT VENTURES.
The earnings in joint ventures of approximately $0.1 and $0.3 million or
the three months ended March 31, 2000 and 1999, respectively, is comprised of
the Company's investments in One Post and WCP Services, Inc., both of which were
acquired as part of the Wilson Acquisition.
<PAGE>
INTEREST AND OTHER INCOME.
Interest and other income increased to approximately $3.0 million for the
three months ended March 31, 2000 from approximately $2.0 million for the three
months ended March 31, 1999. The increase was due to a $1.5 million increase in
interest earned from short-term investments, and a $0.2 million increase in
other income. These increases were offset by a $0.2 million decrease in tenant
alteration income and a $0.5 million increase in management fee income.
INTEREST EXPENSE.
Interest expense incurred by Cornerstone was $31.0 million and $34.4
million for the three months ended March 31, 2000 and 1999, respectively. The
decrease in interest expense was due to the following: a decrease of
approximately $2.1 million due to the retirement of debt as a result of property
sales; a decrease of approximately $0.1 million due to the early payoff of the
debt relating to the Pruneyard Properties; a decrease of approximately $3.1
million in interest associated with the Company's line of credit due primarily
to the pay down of the outstanding balance from the two debt restructurings
during the second half of 1999 as discussed below; and a decrease of
approximately $0.3 associated with the pay down of various other debt during
2000. These decreases were offset by the following: an increase of approximately
$0.4 million from the restructuring of certain mortgage debt with the Prudential
Insurance Company of America and Northwestern Mutual Life Insurance Company
which occurred in the second half of 1999; an increase of $1.1 million from the
restructuring of certain mortgage debt with the Prudential Insurance Company of
America which occurred in the second half of 1999; an increase of approximately
$0.6 million due to the increase in the Company's floating rate interest loans;
and approximately $0.1 million due to additional financing relating to the
acquisition of 400 Capitol Mall on January 21, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES.
The aggregate amount of Cornerstone's general and administrative expenses
increased to $7.0 million for the three months ended March 31, 2000 from $6.1
million for the three months ended March 31, 1999. The increase of $0.9 million
is due mainly to the additional employees, space, systems and other support
necessary to manage the substantial growth in assets of the Company during the
past two year period.
CARRYING VALUE IN EXCESS OF MARKET VALUE OF ASSETS HELD FOR SALE.
The Company has ten Properties held for sale which as of March 31, 2000 are
valued at approximately $131.0 million, the lower of the carrying amount or the
fair value less estimated costs to sell. The Company has recorded a $0.8 million
write down on two of these assets which represents the difference between the
carrying value of these assets and the expected selling price less costs to
sell.
GAIN ON SALE OF REAL ESTATE ASSETS.
During the three months ended March 31, 2000, the Company sold its interest
in two office properties for gross proceeds of $27.2 million, comprising
approximately 0.2 million rentable square feet in the San Francisco Bay Area,
resulting in a gain of approximately $2.0 million. The remaining gain of
approximately $0.3 million relates to the sale of Properties during 1999 as
discussed below.
During 1999, the Company sold its interest in 13 office Properties for gross
proceeds of $495.7 million, comprising approximately 3.0 million rentable square
feet in Charlotte, Denver, Phoenix (four Properties), the San Francisco Bay Area
(six Properties) and Southern California, resulting in a gain of approximately
$131.0 million.
MINORITY INTEREST IN OPERATING PARTNERSHIP.
The minority interest in operating partnership increased to $5.4 million
for the three months ended March 31, 2000 from $4.5 million for the three months
ended March 31, 1999 due to increased income offset slightly by the decrease in
unitholders and the minority unitholders share of the partnership decreasing
from 13.7% to 12.9%.
MINORITY INTEREST IN JOINT VENTURES.
The minority interest in joint ventures was $1.5 million for the three months
ended March 31, 2000 and March 31, 1999, respectively.
<PAGE>
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE.
During the first quarter of 1999, the Company adopted Statement of Position
98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that certain costs incurred in conjunction with start-up and
organizational activities be expensed. Pursuant to the requirements of SOP 98-5,
the Company has written off all unamortized organizational costs and has
recorded a cumulative effect of a change in accounting principle of $0.6
million.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW (DOLLAR AMOUNTS IN THOUSANDS)
For the three For the three
months ended March months ended March
Cash flow provided by (used in): 31, 2000 31, 1999
- --------------------------------------------------------------------------------
Operating activities ................. $ 59,827 $ 62,281
Investing activities ................. (11,830) (21,888)
Financing activities ................. (40,477) (58,174)
Earnings to fixed charges ratio ...... 2.08 1.78
Cash provided by operating activities decreased to approximately $59.8
million for three months ended March 31, 2000 from approximately $62.3 million
for the three months ended March 31, 1999. The decrease is primarily due to
a $10.0 million increase in Net Income, a $5.0 million increase due to a
decrease in the net effect of the change in receivables, plus a $0.1 million
increase due to miscellaneous items. These amounts were offset by a $15.2
million decrease in the increase in accounts payable and liabilities from the
first quarter of 1999 and a $2.3 million decrease due to the sale of assets
in the first quarter.
Cash used in investing activities decreased to approximately $11.8
million for the three months ended March 31, 2000 from approximately $21.9
million for the three months ended March 31, 1999. The decrease of approximately
$10.1 million was primarily due to the following: during 2000 the Company sold
two Properties for net proceeds of approximately $26.2 million whereas the
Company had no Property sales during the same period in 1999. This amount was
offset by a decrease of approximately $0.1 in the repayment of a notes
receivable from a related party (the note was paid off in January 1999) and an
increase of approximately $16.0 million in the cash used to pay for the
additions to investment property which consisited of the acquisition of 400
Capitol Mall in 2000 and a slight reduction in the cash used to fund the capital
requirements at the existing Properties.
Cash used in financing activities decreased to approximately $40.5
million for the three months ended March 31, 2000 from approximately $58.2
million for the three months ended March 31, 1999. The decrease in cash used in
financing activities of approximately $17.7 million is due to the following: an
increase in repayments under credit facility of $46.4 million; an increase in
repayments under mortgage loans of $37.4 million; an increase of $0.5 million in
unitholder redemptions; and an increase in distributions to minority partners
and common stockholders of $2.3 million and $5.5 million, respectively. These
increases were offset by the following: an increase of $58.5 million in
borrowings under credit facility; a $50.3 million decrease in restricted cash; a
decrease of $0.4 million in debt refinancing deposits; a decrease of $0.2
million in stock and debt issuance costs; and an increase in contributions from
a joint venture partner of approximately $0.4 million in 2000.
The ratio of earnings to fixed charges and dividends on preferred stock
increased to 2.08 at March 31, 2000 from 1.78 at March 31, 1999, due mainly to
the net gain on real estate assets during the three months ended March 31, 2000.
CAPITAL STOCK TRANSACTIONS
On January 20, 2000, 34,201 UPREIT Units were redeemed for cash of
approximately $0.5 million.
On February 15, 2000, the Company issued 27,708 shares of restricted Common
Stock to certain employees of the Company.
On March 2, 2000, the Operating Partnership issued a total of 115,869 UPREIT
Units to certain persons (including certain executive officers) in connection
with the acquisition 400 Capitol Mall in Sacramento, California. Such securities
were not registered under the Securities Act of 1933, as amended (the
"Securities Act") and were issued in an exempt transaction pursuant to Section
4(2) of the Securities Act.
<PAGE>
On March 8, 2000, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 9,200 shares of Common
Stock.
On March 30, 2000, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 101,050 shares of Common
Stock.
FUNDS FROM OPERATIONS
The Company calculates Funds from Operations ("FFO") based upon guidance
from the National Association of Real Estate Investment Trusts ("NAREIT"). FFO
is defined as net income or loss (computed in accordance with GAAP), excluding
gains or losses from debt restructuring and sales of properties, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated joint ventures.
Industry analysts generally consider FFO to be an appropriate measure of
performance of a REIT such as Cornerstone. FFO does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles ("GAAP") and, therefore, should not be considered a substitute for
net income as a measure of performance or a substitute for cash flow from
operations as a measure of liquidity calculated in accordance with GAAP.
The Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
an understanding of the ability of the Company to generate earnings from its
recurring operations, after the payment of all administrative costs and interest
expense. For cash flows from operating, financing, and investing activities in
accordance with GAAP see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements which are part of this report.
Included in FFO for the three months ended March 31, 2000 and 1999, is
approximately $6.2 million and $6.9 million, respectively, for free and deferred
rental income (after adjustment for minority interest).
The table below sets forth the adjustments which were made to the net income
of the Company in the calculation of FFO for the last three years (amounts in
thousands):
<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS (1)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Net income $ 37,575 $ 29,032
NAREIT adjustments:
Depreciation and amortization (2) 24,390 25,085
Minority adjustments (686) (677)
Unconsolidated depreciation (3) 382 373
Cumulative Effect of a Change in
Accounting Principle -- 630
Impairment Costs 803 --
Gain on sale of Assets (2,260) --
Other adjustments:
Severance payments -- 247
Minority interest allocated to unitholders 5,436 4,473
FUNDS FROM OPERATIONS 65,640 59,163
-------- --------
Interest Expense on Convertible Note 192 200
-------- --------
FUNDS FROM OPERATIONS
(ADJUSTED FOR CONVERTIBLE DEBT) $ 65,832 $ 59,363
======== ========
</TABLE>
(1) Although the Company believes that this table is a full and fair
presentation of the Company's FFO, similarly captioned items may be defined
differently by other REITs, in which case direct comparisons may not be
possible.
(2) The depreciation and amortization adjustment does not include amortization
of deferred financing costs and depreciation of non-real estate assets in
accordance with guidance from NAREIT. For the three months ended March 31,
2000 and 1999, depreciation and amortization includes $990,000 and
$1,003,000, respectively, of amortization relating to the intangible
management and development company assets that were acquired as part of the
Wilson Acquisition.
(3) For the three months ended March 31, 2000 and 1999, the unconsolidated
depreciation adjustment includes $179,000 and $169,000, respectively, of
amortization relating to the intangible management and development company
assets that were acquired as part of the Wilson Acquisition.
The increase in FFO for the three months ended March 31, 2000 as
compared to the same period in 1999 was due to same store growth FFO growth on
the 82 properties held in both periods of $10.6 million as a result of increased
occupancy (95.3% vs. 97.4%) and higher rental rates on new leases. These amounts
were offset by a $1.3 million increase in General and Administrative costs due
to higher employee costs, a $2.2 million decrease due to the net sale of 13
assets, the refinancing of $450 million of mortgage debt and higher interest
rates, and a $0.6 million increase in minority interest due to improved
performance at our joint venture properties.
MORTGAGE INDEBTEDNESS
On February 8, 2000, the Company prepaid the note on The Pruneyard. The loan
had an interest rate of LIBOR plus 1.50% and a maturity of July 2000. The
balance at the time of prepayment was approximately $60.9 million.
OTHER INDEBTEDNESS
On November 3, 1998, a syndicate of 17 banks led by Deutsche Bank, The Chase
Manhattan Bank and Bank of America provided the Company with a $550.0 million
line of credit for acquisitions and general working capital purposes (the
"Revolving Credit Facility"). The facility is also available for the issuance of
letters of credit. The interest rate on the Revolving Credit Facility depends on
the Company's ratio of total debt to total asset value (as defined) at the time
of borrowing and will be at a spread of 1.10% to 1.40% over the applicable LIBOR
or Prime Rate at the borrower's option. The letters of credit will be priced at
the applicable Eurodollar credit spread. The Revolving Credit Facility expires
on November 3, 2001. As of March 31, 2000, $355.1 million of the facility was
outstanding at a rate of approximately 7.5%. Of this amount, approximately
$250.0 million is fixed with interest rate swaps, which effectively fix the rate
at 5.41% through the expiration of the swaps in December 2000. These swaps are
considered hedges for federal income tax purposes. During 1999, the Revolving
Credit Facility was amended to allow the Company to temporarily increase its
leverage from 55.0% to 60.0% for a short period, which has since expired. The
amendment also increased the Company's ability to enter into mortgage debt by
decreasing the required ratio of total property asset value (as defined) to
secured indebtedness from 2.5 to 1.00 to 2.22 to 1.00.
STOCKHOLDERS' AND UNITHOLDERS' DISTRIBUTIONS
Cornerstone intends to distribute at least 95.0% (90% beginning in 2001) of
its taxable income to maintain its qualification as a REIT. The Company
anticipates that cash flow will exceed taxable income for the foreseeable
future. Cornerstone's distribution policy is to pay distributions based upon
cash flow, less prudent reserves. The Company paid distributions of $0.31 per
share/unit to all stockholders and unitholders on February 29, 2000 (to
stockholders and unitholders of record as of January 31, 2000. On March 8, 2000,
as provided in the merger agreement with EOP, the Board of Directors declared a
distribution of $0.20 per share/unit, payable on April 14, 2000, to Common
Stockholders and Unitholders of record as of March 31, 2000. This distribution
was declared to make Cornerstone's distribution schedule consistent with that of
EOP pending the merger.
At the present time, the Company is current in the payment of all preferred
dividends.
<PAGE>
LIQUIDITY
At March 31, 2000, the Company had approximately $27.2 million in cash and
cash equivalents and approximately $71.8 million in restricted cash. Restricted
cash includes prepaid rents and security deposits for some of the Company's
office properties and escrow and reserve funds for real estate taxes, property
insurance, capital improvements, tenant improvements and leasing costs. These
funds were established pursuant to certain mortgage and construction financing
arrangements. As of March 31, 2000 restricted cash also includes the proceeds
from the sale of certain properties during 1999 totaling approximately $61.4
million which are restricted pursuant to the terms of Section 1031 of the
Internal Revenue Code of 1986, as amended, "Exchange of property held for
productive use or investment."
At March 31, 2000, Cornerstone also had $194.9 million available under its
Revolving Credit Facility for general corporate purposes. In addition,
Cornerstone anticipates it will receive distributions from its real estate
partnerships, rental income from its fee owned properties and interest income
from its mortgages on a monthly basis that will cover normal operating expenses
and pay distributions to its stockholders and unitholders. Based upon its cash
reserves and other sources of funds, including its $550.0 million Revolving
Credit Facility, management believes Cornerstone has sufficient liquidity to
meet its cash requirements for the remainder of 2000.
OTHER MATTERS
GENERAL
The Company is not aware of any environmental issues at any of its
Properties that would have a material adverse impact on the Company's operating
results or financial condition. The Company believes it has sufficient insurance
coverage at each of its Properties, including earthquake insurance where
necessary. A majority of the Company's leases with the majority of its tenants
require the tenants to pay most operating expenses and increases in common area
maintenance expenses, which reduces the Company's exposure to increases in costs
and operating expenses resulting from inflation.
DEVELOPMENT PROJECT
In April 1998, the Company entered into a contract to acquire from the
developer the 928,857 square-foot Piper Jaffray building under construction in
Minneapolis. In November 1999, this contract was amended in connection with a
350,000 square-foot expansion lease with a major tenant of the building. The
contract was amended to provide for a purchase price equal to the costs incurred
in construction and development plus a fixed amount to the developer plus an
additional amount based on the leasing of the building. In addition, at the
Company's election, the closing of the acquisition may occur prior to the
completion of the building, but the developer will remain obligated to complete
the project. Through March 31, 2000, approximately $121.1 million has been spent
on the construction. The project is scheduled to be completed in the year 2000
and is approximately 84.0% pre-leased.
<PAGE>
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Approximately $1.2 billion of the Company's long-term debt bears interest at
fixed rates, and therefore the fair value of these instruments is affected by
changes in market interest rates. The following table presents principal cash
flows (dollar amounts in thousands) based upon expected maturity dates of the
debt obligations and the related weighted-average interest rates by expected
maturity dates for the fixed rate debt. The interest rate on the variable rate
debt as of March 31, 2000 ranged from LIBOR plus 0.5% to LIBOR plus 1.65%.
Annual rates on advances from the Revolving Credit Facility depend on the
Company's ratio of total debt to asset value (as defined) at the time of
borrowing and will be at a spread of 1.10% to 1.40% over the applicable LIBOR or
Prime Rate at the Company's option. Of the total advances outstanding under the
facility at March 31, 2000, $250.0 million is fixed with interest rate swaps,
which effectively fix the rate at 5.41% through the expiration of the swaps in
December 2000.
<TABLE>
<CAPTION>
FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
---- ---- ---- ---- ---- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
LONG-TERM DEBT:
Fixed rate 65,000 -- 62,244 -- 86,429 1,034,696 1,248,369 1,196,643
Average interest rate 7.28% -- 6.81% -- 7.33% 7.34%
Variable rate 57,819 368,026 48,002 15,995 -- -- 489,842 525,344
INTEREST RATE SWAPS:
Variable to Fixed 250,000 -- -- -- -- -- -- --
Average pay rate (1) 5.07% -- -- -- -- -- -- --
Average receive rate (1) 6.00% -- -- -- -- -- -- --
</TABLE>
(1) As of March 31, 2000.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 7 to the Condensed Consolidated Financial
Statements, which is specifically incorporated by reference herein.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 20, 2000, 34,201 UPREIT Units were redeemed for cash of
approximately $0.5 million.
On February 15, 2000, the Company issued 27,708 shares of Common Stock
to certain executives of the Company.
On March 2, 2000, the Operating Partnership issued a total of 115,869
UPREIT Units to certain persons (including certain executive officers)
in connection with the acquisition 400 Capitol Mall in Sacramento,
California. Such securities were not registered under the Securities Act
of 1933, as amended (the "Securities Act") and were issued in an exempt
transaction pursuant to Section 4(2) of the Securities Act.
On March 8, 2000, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 9,200 shares of
Common Stock.
On March 30, 2000, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 101,050 shares of
Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
1) Exhibit 12.1: Statement of Computation of Earnings to Fixed
Charges and Preferred Stock Dividend Requirements
2) For EDGAR filing purposes only, this report contains Exhibit 27,
Financial Data Schedule
3) Exhibit 99.1: First Quarter 2000 Supplemental Package
(b) Reports on Form 8-K:
1. Form 8-K dated February 16, 2000
Item 5 - Announcement of agreement and plan of merger among
Equity Office Properties Trust, EOP Operating
Partnership, Cornerstone Properties Inc. and
Cornerstone Properties Limited Partnership dated
February 11, 2000.
Item 7 - Financial Statements, Pro Forma Financial Information
and Exhibits. Agreement and Plan of Merger dated as of
February 11, 2000, among Equity Office Properties
Trust, EOP Operating Partnership, Cornerstone
Properties Inc. and Cornerstone Properties Limited
Partnership; Stock Option Agrement, dated February 11,
2000, by and among Cornerstone Properties Inc., Equity
Office Properties Trust, Deutsche Bank AG and Deutsche
Herold Lebensversicherungs-AG; Voting Agreement, dated
February 11, 2000, by and among Equity Office
Properties Trust, EOP Operating Limited Partnership,
WCP Services, Inc. and Stichting Pensioenfonds voor de
Gezondheid, Geestelijke en Maatschappelijke Belangen;
and Text of news release relating to the mergers dated
February 11, 2000.
2. Form 8-K dated March 10, 2000
Item 5 - Supplemental information package distributed in
conjunction with the Fourth Quarter 1999 Earnings
Release of Cornerstone Properties Inc.
Item 7 - Financial Statements, Pro Forma Financial Information
and Exhibits. Text of supplementary materials dated
March 3, 2000.
<PAGE>
3. Form 8-K/A dated March 17, 2000
Item 7 - Financial Statements, Pro Forma Financial Information
and Exhibits. Text of revised supplementary materials
originally dated March 3, 2000.
4. Form 8-K dated April 10, 2000
Item 5 - Announcement regarding the updating of the Company's
website relating to its deveolpment information.
Item 7 - Financial Statements, Pro Forma Financial Information
and Exhibits. Text of update to the Company's website
relating to its development information.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 & CEO
Date: May 15, 2000
By: /s/ Kevin P. Mahoney
-------------------------------------
Kevin P. Mahoney, Senior Vice
President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Date: May 15, 2000
<PAGE>
EXHIBIT 12.1
Statement of Computation of Earnings to Fixed Charges and Preferred Stock
Dividend Requirements for the three month periods ended March 31, 2000 and
March 31, 1999
<TABLE>
<CAPTION>
For the three months ended
March 31, 2000 March 31, 1999
-------------------- --------------------
<S> <C> <C>
Net income $ 37,575 $ 29,032
Interest expense 31,039 34,358
Amortization of capitalized interest 45 23
-------------------- --------------------
Earnings before interest 68,659 63,413
Interest expense 31,039 34,358
Interest capitalized 1,063 311
Interest portion of rentals 88 88
Preferred dividends 875 875
-------------------- --------------------
Fixed charges and preferred stock
dividend requirements 33,065 35,632
Earnings to fixed charges and preferred
stock dividend requirements 2.08 1.78
==================== ====================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 27,199
<SECURITIES> 0
<RECEIVABLES> 102,811
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 363,033
<PP&E> 3,999,105
<DEPRECIATION> 310,851
<TOTAL-ASSETS> 4,154,098
<CURRENT-LIABILITIES> 105,509
<BONDS> 0
0
50,000
<COMMON> 1,807,923
<OTHER-SE> 104,962
<TOTAL-LIABILITY-AND-EQUITY> 4,154,098
<SALES> 0
<TOTAL-REVENUES> 150,956
<CGS> 0
<TOTAL-COSTS> 107,928
<OTHER-EXPENSES> (5,453)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,039
<INCOME-PRETAX> 37,575
<INCOME-TAX> 0
<INCOME-CONTINUING> 37,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,575
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
<PAGE>
EXHIBIT 99.1
CORNERSTONE PROPERTIES
[GRAPHIC OMITTED][GRAPHIC OMITTED]
FIRST QUARTER
2000
SUPPLEMENTAL PACKAGE
THIS SUPPLEMENTAL PACKAGE CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF THE FEDERAL SECURITIES LAWS. FORWARD-LOOKING STATEMENTS ARE INHERENTLY
SUBJECT TO RISKS AND UNCERTAINTIES, MANY OF WHICH CANNOT BE PREDICTED WITH
ACCURACY, THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF
CORNERSTONE TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS. INFORMATION CONTAINED IN THIS SUPPLEMENTAL PACKAGE REGARDING CURRENT
AND FUTURE MARKET CONDITIONS IS BASED ON CORNERSTONE'S ASSESSMENT OF REAL ESTATE
MARKETS AS OF THIS DATE AND IS SUBJECT TO THE UNCERTAINTIES INHERENT IN SUCH AN
ASSESSMENT. IN PARTICULAR, BUT NOT EXCLUSIVELY, NATIONAL AND REGIONAL ECONOMIC
CONDITIONS, THE RATE OF NEW CONSTRUCTION, AND DEMAND AND SUPPLY IN A GIVEN
MARKET WILL AFFECT LEASING ACTIVITY, PROJECTED RENTS AND THE COST OF LEASE
RENEWALS.
MAY 10, 2000
<PAGE>
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
FINANCIAL HIGHLIGHTS
<S> <C>
Key Financial Data 1
Statements of Operations 2
Funds from Operations Statements 3
Balance Sheets 4
Same Store Results and Analysis 5
Joint Venture Information / Net Effective Square Footage 6 - 7
Developments 8
Debt Summary 9
Debt Maturity Schedule 10
PORTFOLIO DATA
Regional Summary 11
Summary of MSA's 12
Occupancy Summary 13
10 Largest Tenants 14
Lease Expiration Schedule 15
Rollover of Top 10 Markets 16
Portfolio by SIC Code 17
Office Property Statistics 18 - 20
OFFICE MARKET GRAPHS
Major U.S. Office Market Summary 21
The Company's 20 Largest Markets 22
Company's 20 Largest Markets / Vacancy Rates - Class A vs. All 23
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
KEY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------------------
3/31/99 6/30/99 9/30/99 12/31/99 3/31/00
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SHARES AND UNITS:
Common Shares Outstanding 128,210,784 128,414,387 129,610,536 129,252,303 129,390,261
Units Outstanding 20,333,607 20,333,607 19,131,785 19,131,785 19,103,202
--------------------------------------------------------------------------------
Combined Shares and Units 148,544,391 148,747,994 148,742,321 148,384,088 148,493,463
--------------------------------------------------------------------------------
Weighted Average - Basic 148,544,391 148,593,864 148,648,281 148,681,127 148,408,296
Weighted Average - Diluted 152,569,263 152,698,711 152,792,806 152,617,790 152,568,629
SHARE PRICE & DIVIDENDS
At the end of the period $14.625 $15.875 $15.250 $14.625 $17.438
High during period 16.500 16.938 16.063 15.438 17.438
Low during period 14.250 14.250 15.125 13.063 14.313
Dividends declared 0.30 0.30 0.30 0.30 0.51
MARKET CAPITALIZATION:
Market Value of Common Equity $2,172,462 $2,361,374 $2,268,320 $2,170,117 $2,589,355
Preferred Equity 50,000 50,000 50,000 50,000 50,000
Total Debt 1,983,148 1,986,593 1,875,471 1,777,331 1,738,211
--------------------------------------------------------------------------------
Total Market Capitalization $4,205,610 $4,397,967 $4,193,791 $3,997,448 $4,377,566
--------------------------------------------------------------------------------
Total Debt / Total Market Capitalization 47.2% 45.2% 44.7% 44.5% 39.7%
SELECTED BALANCE SHEET DATA
Book Value of Real Estate Assets (before accum depr)(a) $4,392,109 $4,299,160 $4,126,711 $4,013,650 $4,130,157
Total Assets 4,282,226 4,263,124 4,155,152 4,170,228 4,154,098
Total Liabilities 2,102,565 2,093,280 2,028,923 1,890,636 1,885,015
Total Minority Interests 311,369 308,812 287,172 307,098 306,198
Total Shareholders' Equity 1,868,292 1,861,032 1,839,057 1,972,494 1,962,885
SELECTED OPERATING DATA
Total Revenues $151,765 $153,629 $156,539 $155,515 $150,956
Net - Straight Line revenue/expense adjustment 6,980 6,712 6,292 5,822 6,427
Capitalized Interest 311 376 265 499 1,063
Scheduled Principal Payments N/A N/A N/A N/A N/A
Property NOI 99,636 103,209 103,356 102,896 104,050
Property Operating Margin 66.1% 66.5% 65.9% 66.4% 68.7%
General & Administrative Expense 6,136 6,435 7,225 7,210 7,023
G & A as a percentage of total revenues 4.0% 4.2% 4.6% 4.6% 4.7%
EBITDA
EBITDA - (including Joint Ventures) 95,951 98,042 98,516 99,937 100,017
EBITDA per weighted average share - basic 0.65 0.66 0.66 0.67 0.67
EBITDA per weighted average share - diluted 0.63 0.64 0.64 0.65 0.66
RATIOS
Interest Coverage Ratio 2.7 2.8 2.8 2.9 3.2
Fixed Charge Coverage Ratio 2.7 2.7 2.7 2.8 3.0
FFO
Funds From Operations - basic (b) 59,363 60,382 60,587 62,840 65,832
FFO per weighted average share - basic 0.40 0.41 0.41 0.42 0.44
FFO per weighted average share -diluted 0.39 0.40 0.40 0.41 0.43
FFO payout ratio - diluted 77% 75% 75% 73% 119%
FAD
Funds Available for Distribution (c) 45,956 46,981 47,718 51,109 53,466
FAD per weighted average share - basic 0.31 0.32 0.32 0.34 0.36
FAD per weighted average share - diluted 0.30 0.31 0.31 0.33 0.35
FAD payout ratio - diluted 97% 95% 93% 87% 142%
PORTFOLIO STATISTICS:
Buildings Owned 96 96 89 85 84
Total Square Footage (d) 20,224,471 20,223,365 18,777,068 17,253,102 17,558,919
Leased at End of Quarter (d) 96.0% 97.0% 98.0% 97.0% 97.2%
Parking Facilities N/A N/A N/A N/A N/A
Number of Spaces N/A N/A N/A N/A N/A
Residential Properties N/A N/A N/A N/A N/A
Number of Units N/A N/A N/A N/A N/A
(a) Includes net book value of assets held for sale as of the balance sheet
date.
(b) The White Paper on Funds from Operations ("FFO") approved by the Board
of Governors of the National Association of Real Estate Investment
Trusts ("NAREIT") in March 1995 defines Funds from Operations as net
income (loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of properties, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures.
(c) Funds Available for Distribution ("FAD") is defined as Funds from
Operations minus the average of recurring tenant leasing costs for the
last five years times the five year average quarterly lease expirations
adjusted for minority interest, minus recurring capital expenditures
adjusted for minority interest and straight-line rents adjusted for
minority interest.
(d) Adjusted for Minority Interest.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Dollar amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
2000 1999
------------- -------------
<S> <C> <C>
REVENUES
Office and parking rentals $ 147,826 $ 149,476
Earnings in joint ventures 110 305
Interest and other income 3,020 1,984
--------- ---------
TOTAL REVENUES 150,956 151,765
--------- ---------
EXPENSES
Building operating expenses 27,339 31,077
Real estate taxes 18,137 19,524
Interest expense 31,039 34,358
Depreciation and amortization 24,390 25,085
General and administrative 7,023 6,136
--------- ---------
TOTAL EXPENSES 107,928 116,180
--------- ---------
43,028 35,585
--------- ---------
Other income (expenses)
Carrying value in excess of market value of assets
held for sale (803) --
Gain on sale of real estate assets 2,260 --
--------- ---------
TOTAL OTHER INCOME (EXPENSES) 1,457 --
--------- ---------
MINORITY INTEREST
Minority interest in operating partnership (5,436) (4,473)
Minority interest in joint ventures (1,474) (1,450)
--------- ---------
TOTAL MINORITY INTEREST (6,910) (5,923)
--------- ---------
--------- ---------
Income before cumulative effect of a change in accounting
principle 37,575 29,662
--------- ---------
Cumulative effect of a change in accounting principle -- (630)
--------- ---------
NET INCOME $ 37,575 $ 29,032
========= =========
Income applicable to preferred stock $ (875) $ (875)
--------- ---------
Income applicable to common stock $ 36,700 $ 28,157
========= =========
Income before cumulative effect of a change in
accounting principle per common share $ 0.28 $ 0.22
========= =========
Cumulative effect of a change in accounting
principle per common share $ -- $ --
========= =========
Basic income per common share $ 0.28 $ 0.22
========= =========
DILUTED INCOME PER COMMON SHARE $ 0.28 $ 0.22
========= =========
</TABLE>
2
<PAGE>
CORNERSTONE PROPERTIES INC.
FUNDS FROM OPERATIONS
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
------------------------------
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
------------------------------
(in thousands, except per share amounts)
<S> <C> <C>
Net Income $ 37,575 $ 29,032
NAREIT Adjustments:
Depreciation and Amortization (1) 24,390 25,085
Minority Adjustments (686) (677)
Unconsolidated Depreciation (2) 382 373
Cumulative Effect of a Change in
Accounting Principle -- 630
Impairment Costs 803 --
Gain on Sale of Assets (2,260) --
Other Adjustments:
Severance Payments -- 247
Minority Interest Allocated to Unitholders 5,436 4,473
------------------------
Funds From Operations $ 65,640 $ 59,163
Interest Expense On Convertible Note 192 200
------------------------
Funds From Operations $ 65,832 $ 59,363
========================
Weighted Average Shares/Units Outstanding 148,408 148,544
Weighted Average Diluted Shares/Units Outstanding 152,569 152,569
FFO Per Share/Unit-basic $ 0.44 $ 0.40
========================
FFO Per Share/Unit-diluted $ 0.43 $ 0.39
========================
</TABLE>
(1) For the three months ended March 31, 2000 and 1999, the depreciation and
amortization adjustment includes $990,000 and $1,003,000, respectively of
amortization relating to the intangible management and development company
assets that were acquired as part of the Wilson Acquisition.
(2) For the three months ended March 31, 2000 and 1999, the unconsolidated
depreciation adjustment includes $179,000 and $169,000, respectively of
amortization relating to the intangible management and development company
assets that were acquired as part of the Wilson Acquisition.
3
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Developments in progress:
Land $ 46,132 $ 46,132
Development costs 26,198 17,000
Rental Property, at cost:
Land 657,890 646,852
Buildings, leasehold interests and improvements 3,111,138 3,084,466
Deferred lease costs 157,747 157,015
----------- -----------
3,999,105 3,951,465
Less: Accumulated depreciation and amortization 310,851 290,998
----------- -----------
Total Development and Rental Property 3,688,254 3,660,467
Assets held for sale 131,052 62,185
Cash and cash equivalents 27,199 19,679
Restricted cash 71,844 222,043
Investment in joint ventures 31,827 31,725
Other deferred costs, net of accumulated amortization of $8,813 and $7,092 40,944 42,655
Deferred tenant receivables 84,203 77,243
Tenant and other receivables, net 18,608 14,725
Other assets 60,167 39,506
----------- -----------
TOTAL ASSETS $ 4,154,098 $ 4,170,228
=========== ===========
LIABILITIES
Long-term debt, inclusive of $15,423 and $16,149 of unamortized premium $ 1,383,111 $ 1,448,331
Credit facility 355,100 329,000
Accrued interest 11,384 10,961
Accrued real estate taxes 25,405 16,457
Accounts payable and accrued expenses 39,006 45,006
Distributions payable 29,714 --
Unearned revenue and other liabilities 41,295 40,881
----------- -----------
TOTAL LIABILITIES 1,885,015 1,890,636
----------- -----------
MINORITY INTEREST
Minority interest in operating partnership 283,221 284,566
Minority interest in joint ventures 22,977 22,532
----------- -----------
TOTAL MINORITY INTEREST 306,198 307,098
----------- -----------
Commitments and contingencies
Redeemable preferred stock; 344,828 shares authorized;
0 shares issued and outstanding -- --
STOCKHOLDERS' EQUITY
7% Cumulative convertible preferred stock, $16.50 stated value;
65,000,000 shares authorized; 3,030,303 shares issued and outstanding 50,000 50,000
Common stock, no par value; 250,000,000 shares authorized;
129,748,494 shares issued and 129,390,261 shares outstanding -- --
Paid-in capital 1,807,923 1,808,943
Retained earnings 82,796 111,150
Accumulated other comprehensive income 29,362 9,424
Deferred compensation (2,185) (2,012)
----------- -----------
1,967,896 1,977,505
Treasury stock, 358,233 shares, at cost (5,011) (5,011)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,962,885 1,972,494
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,154,098 $ 4,170,228
=========== ===========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SAME STORE RESULTS
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31, CHANGE
------------------------------------------------------------------------
2000 1999 $ %
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Property Revenues (excluding straight-line rent adjustment) $138,740 $128,207 $10,533 8.2%
Straight -line rent adjustment 6,550 6,379 171 2.7%
------------------------------------------------------------------------
Total Property Revenues 145,290 134,586 10,704 8.0%
------------------------------------------------------------------------
Real Estate Taxes 18,123 18,131 (8) 0.0%
Controllable Expenses (a) 27,337 27,457 (120) -0.4%
------------------------------------------------------------------------
Total Property Operating Expenses 45,460 45,588 (128) -0.3%
------------------------------------------------------------------------
Net Operating Income - GAAP Basis $ 99,830 $88,998 $10,832 12.2%
------------------------------------------------------------------------
Operating Margin - GAAP Basis 68.7% 66.1% 2.6%
------------------------------------------------------------------------
Net Operating Income - Cash Basis $ 93,280 $ 82,619 $10,661 12.9%
------------------------------------------------------------------------
Lease Settlements (included in Property Revenues) N/A N/A N/A N/A
Operating Margin (GAAP) - excluding Lease Settlements N/A N/A N/A
Percentage Leased at end(3/31/00)/ start(12/31/98) of period 97.4% 95.3% 2.1%
Properties 82
Total Square Footage 17,580,009
</TABLE>
(a) Controllable expenses are defined as Operating Expenses excluding real
estate tax expense.
5
<PAGE>
MINORITY SHARING IN CASH FLOWS AND RESIDUAL PROCEEDS
Seven of the Company's properties are held in partnerships which allow the
Company's partners to participate in the cash flows of their respective
properties. The following discussion provides the details of partner's
participation in the cash flow of each of the respective properties.
Norwest Center
Under the partnership agreement, cash flow is used first to pay operating
and capital expenditures, then debt service on the mortgage note. The remaining
cash flow is paid first to Cornerstone, as a 7% cumulative preference return on
its capital base of $92.3 million ($6,461,000), and then any remaining cash flow
is split 50% to Cornerstone and 50% to their partner, Sixth & Marquette Limited
Partnership ("S&M"). Should cash flow be insufficient to pay the preference
return ("Preference Deficit"), it will accumulate and earn interest at 7%. Any
Preference Deficit will be paid as the first priority payment after debt
service. Cash flow and earnings for the three months of 2000 were split 73.45%
to Cornerstone and 26.55% to S&M. Sales proceeds from Norwest Center will be
split as follows as of March 31, 2000:
1) To Debt $110.0 million
2) To Cornerstone 92.3 million
3) To Cornerstone 9.3 million
4) To Cornerstone 1.0 million
5) To S&M 33.4 million
6) The remaining proceeds will be split 50/50 among the two partners.
Washington Mutual Tower
Under the partnership agreement, cash flow is used first to pay operating
and capital expenditures, then debt service on the mortgage note. The remaining
cash flow is paid first to Cornerstone as a 9.53% preference return on its
capital base of $47.0 million ($4,479,000); next to pay the Preference Deficit
on the second preference return (currently $8.6 million); then to Cornerstone as
an 8% second preference return on its capital base of $100.0 million
($8,000,000). Any remaining cash flow is split 50% to Cornerstone and 50% to
1212 Partnership, Cornerstone's partner. The cumulative Preference Deficit earns
interest at a rate of 8% until it is repaid. 1212 Partnership does not currently
share in the cash flow from Washington Mutual Tower. With regard to the sale of
the building, the Company will receive the first $155.6 million of proceeds
after repayment of the $79.1 million mortgage ($234.7 million in total
proceeds). Any proceeds above this amount will be split 50/50 with Cornerstone's
partners.
6
<PAGE>
MINORITY SHARING IN CASH FLOWS AND RESIDUAL PROCEEDS (continued)
191 Peachtree Street
Under the partnership agreement, cash flow is used first to pay operating
and capital expenditures, then debt service on the mortgage note. Cornerstone
receives the remaining cash flow until such time as its cumulative undistributed
preferred return ($15.8 million as of 3/31/00) has been reimbursed. Excess cash
flow will be split 80% to Cornerstone and 20% to CH Associates, Ltd. Sales
proceeds from 191 Peachtree Street will be split as follows as of March 31,
2000:
1) To Debt $ 1.8 million
2) To Cornerstone (as partial
holder Of the debt) $156.0 million
3) To Cornerstone for its
undistributed preferred return $ 15.8 million
4) To Cornerstone for its priority
capital contribution $145.0 million
500 Boylston and 222 Berkeley Street
Distributions of cash flows and sales proceeds are shared in proportion to
Cornerstone's 91.5% partnership interest and Hines' 8.5% partnership interest.
One Post Street, San Francisco
Distributions of cash flows and sales proceeds are shared in proportion to
Cornerstone's 50.0% interest and McKesson Corporation's 50.0% interest. This
property is accounted for using the equity method of accounting.
120 Montgomery Street, San Francisco
Distributions of cash flows and sales proceeds are shared in proportion to
Cornerstone's 66.7% partnership interest and Sansome Partners III, L.P.'s 33.3%
partnership interest.
7
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
3
(As of 03/31/00)
ESTIMATED TOTAL CURRENT
PLACED IN NUMBER OF COSTS INCURRED ESTIMATED PERCENTAGE
(DOLLARS IN THOUSANDS) SERVICE DATE (A) LOCATION BUILDINGS SQUARE FEET AS OF 03/31/00 COSTS (A) LEASED
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED
Seaport Plaza (b) 4Q/00 Redwood City, CA 1 160,000 $ 21,914 $ 40,100 100%
Concar (c) 3Q/01 San Mateo, CA 2 200,000 1,871 52,300 0%
Parkside Towers (d) 4Q/01 Foster City, CA 2 398,000 40,672 124,000 100%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 758,000 $ 64,457 $ 216,400 74%
- ------------------------------------------------------------------------------------------------------------------------------------
TAKE OUT-PROJECTS
US Banc Corp Center (e) 2Q/00 Minneapolis, MN 1 929,000 $ 164 $ 168,000 75%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 929,000 $ 164 $ 168,000 75%
- ------------------------------------------------------------------------------------------------------------------------------------
JOINT VENTURES
Ferry Building (f) 3Q/02 San Francisco, CA 1 229,000 3,997 62,500 0%
Larkspur Landing (g) 2Q/03 Larkspur, CA 3 168,000 495 43,300 0%
First and Howard (h) TBD San Francisco, CA 4 1,169,000 3,217 365,000 0%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,566,000 $ 7,709 $ 470,800 0%
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL/WEIGHTED AVERAGE 3,253,000 $ 72,330 $ 855,200 39%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
COST INCURRED AS OF
BALANCE SHEET RECONCILIATION 03/31/00
- -------------------------------------------------------------------
Wholly-Owned Developments $64,457
Take Out-Projects 164
Joint Ventures 7,709
- -------------------------------------------------------------------
Developments in process $72,330
- -------------------------------------------------------------------
(a) The Estimated Placed in Service date represents the date the certificate of
occupancy has been or is anticipated to be obtained. Subsequent to
obtaining the certificate of occupancy, the property will undergo a lease
up period. The Total Estimated Costs include amounts attributable to
tenanting the property.
(b) 100% pre-leased to a public software company for a twelve year lease term.
(c) 69-year ground lease with a participation feature. The completion costs
above assumes an imputed land value of $7.5 million.
(d) Project features 381,000 rsf office, 17,000 rsf retail, three levels of
parking and a one-acre park. The project is 100% leased to Inktomi, a
developer of search engine and directory software.
(e) Pre-sale with the Ryan Companies. 75% pre-leased with an additional 5%
expected in the final stages of negotiation.
(f) Ferry Building is a 65 year master lease that provides for a 50%
participation to the Port after receipt by Cornerstone of an 11% return on
equity.
(g) Larkspur Landing is a joint venture project with Campus Properties which
will include two office buildings, a hotel and a shared parking facility.
The joint venture expects to sell off the hotel portion of the property.
Campus will receive a promoted share of the cash flow above a cumulative
preferred return to equity. After 5 years, Cornerstone has the option to
acquire Campus' position by capitalizing the then-current rent and paying
Campus its share of the value in excess of costs.
(h) The First & Howard urban campus will consist of 4 separate buildings. Each
of the phases will involve one or two JV partners. Marketing of this CBD
campus will be targeted to growth businesses such as software, media and
business services. The Cornerstone weighted average ownership of the entire
project is anticipated to be 68%.
8
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DEBT SUMMARY
(As of 3/31/00)
(Dollars in thousands)
ALL IN/ PRINCIPAL MATURITY DUE AT MATURITY
Property EFFECTIVE RATE BALANCE DATE MATURITY IN YEARS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SECURED MORTGAGE DEBT
TransPotomac Plaza 7.28% 65,000 Oct-00 65,000
West Wilshire Office and Medical 7.54% 16,652 Jan-02 16,090
Searise Office Tower 7.54% 11,419 Jan-02 11,052
Exposition Centre 8.00% 4,937 May-02 4,760
Wilshire Palisades 6.70% 28,066 Jul-02 26,658
110 Atrium Place 7.68% 20,879 Mar-04 19,821
527 Madison Avenue and One Lincoln Centre 7.47% 65,000 Oct-04 65,000
Sixty State Street 6.84% 76,866 Jan-05 72,267
Island Corporate Center 6.70% 13,215 Apr-05 12,275
Washington Mutual Tower 7.53% 79,100 Nov-05 79,100
Janss Court 8.69% 16,863 Dec-05 15,575
Agoura Hills 7.70% 11,495 Dec-05 9,504
Norwest Center 8.74% 110,000 Dec-05 110,000
Bayhill 4,5,6 & 7 8.35% 53,518 Dec-06 45,878
Market Square and 200 Galleria 7.54% 120,000 Oct-07 120,000
Corporate 500 Centre 6.66% 88,044 Nov-08 70,314
188 Embarcadero 7.26% 15,548 Aug-09 12,397
Centerside II 7.26% 24,164 Aug-09 19,266
700 North Brand 7.26% 26,838 Aug-09 21,397
Golden Bear Center 7.26% 20,401 Aug-09 16,265
Bixby Ranch 7.26% 28,422 Aug-09 22,661
One Memorial 7.26% 62,885 Aug-09 50,138
Peninsula Office Park 1,3,4,5,6,8 & 9 7.23% 87,802 Nov-09 70,026
Embarcadero Place A,B,C,D 7.23% 38,007 Nov-09 30,313
201 California Street 7.23% 44,340 Nov-09 35,363
Tower 56 7.23% 24,932 Nov-09 19,884
125 Summer Street 7.23% 78,553 Nov-09 62,649
- ----------------------------------------------------------------------------------------------------------------------------------
SECURED - FIXED 7.44% 1,232,946 1,103,653 6.9
- ----------------------------------------------------------------------------------------------------------------------------------
SECURED - VARIABLE
- ----------------------------------------------------------------------------------------------------------------------------------
Seaport Centre LIBOR plus 1.50% 7.63% 57,819 Dec-01 56,295
Convertible Promissory Note due 2001 (a) 8.11%max 6.63% 12,926 Jan-01 12,926
120 Montgomery LIBOR plus 1.40% 7.53% 48,002 Nov-02 46,342
Norris Tech Center LIBOR plus 1.65% 7.78% 15,995 Dec-03 14,818
- ----------------------------------------------------------------------------------------------------------------------------------
SECURED - VARIABLE 7.52% 134,742 130,381 1.7
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURED DEBT 7.45% 1,367,688 1,234,034 6.4
- ----------------------------------------------------------------------------------------------------------------------------------
$550.0 Million Line of Credit Libor + 140 bp
plus facility fee
of 40bp used portion
of Line of Credit 6.07% 355,100 Nov-01 355,100
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LINES OF CREDIT - VARIABLE 6.07% 355,100 355,100 1.6
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED DEBT - FIXED 7.44% $ 1,232,946 $ 1,103,653 6.9
- ----------------------------------------------------------------------------------------------------------------------------------
Total Consolidated Debt - Variable 6.47% $ 489,842 $ 485,481 1.6
- ----------------------------------------------------------------------------------------------------------------------------------
Net premium on mark to market adjustment 15,423
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED DEBT 7.17% $ 1,738,211 $ 1,589,134 5.4
- ----------------------------------------------------------------------------------------------------------------------------------
One Post 6.90% 16,910 Dec-02 16,112
- ----------------------------------------------------------------------------------------------------------------------------------
COMPANY'S PRO RATA SHARE OF JOINT
VENTURE DEBT 6.90% $ 16,910 $ 16,112 2.7
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL CONSOLIDATED AND PRO-RATA SHARE
OF JOINT VENTURE DEBT 7.16% $ 1,755,121 $ 1,605,246 5.4
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Note is unsecured.
9
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DEBT MATURITY SCHEDULE (EXCLUDES SCHEDULED
PRINCIPAL PAYMENTS)
(As of 3/31/00)
- ------------------------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
SECURED DEBT
<S> <C> <C> <C> <C> <C> <C>
TransPotomac Plaza $ 65,000
Seaport Centre $ 56,295
West Wilshire Office and Medical $ 16,090
Searise Office Tower $ 11,052
Exposition Centre $ 4,760
Wilshire Palisades $ 26,658
120 Montgomery $ 46,342
One Post $ 16,112
Norris Tech Center $ 14,818
110 Atrium Place $ 19,821
527 Madison Avenue and One Lincoln Centre $ 65,000
Sixty State Street $ 72,267
Island Corporate Center $ 12,275
Washington Mutual Tower $ 79,100
Janss Court $ 15,575
Norwest Center $110,000
Agoura Hills $ 9,504
Bayhill 4,5,6 & 7
Market Square and 200 Galleria
Corporate 500 Centre
188 Embarcadero
Centerside II
700 North Brand
Golden Bear Center
Bixby Ranch
One Memorial
Peninsula Office Park 1,3,4,5,6,8 & 9
Embarcadero Place A,B,C,D
201 California Street
Tower 56
125 Summer Street
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SECURED DEBT 65,000 56,295 121,014 14,818 84,821 298,721
- ------------------------------------------------------------------------------------------------------------------------------------
UNSECURED DEBT
Convertible Promissory Note due 2001 $ 12,926
$550.0 Million Line of Credit $ 355,100
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL UNSECURED DEBT - 368,026 - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT $65,000 $ 424,321 $121,014 $ 14,818 $ 84,821 $298,721
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DEBT MATURITY SCHEDULE (EXCLUDES SCHEDULED
PRINCIPAL PAYMENTS)
(As of 3/31/00)
- ------------------------------------------------------------------------------------------------------------------------------------
2006 2007 2008 2009 TOTAL
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
SECURED DEBT
TransPotomac Plaza
Seaport Centre
West Wilshire Office and Medical
Searise Office Tower
Exposition Centre
Wilshire Palisades
120 Montgomery
One Post
Norris Tech Center
110 Atrium Place
527 Madison Avenue and One Lincoln Centre
Sixty State Street
Island Corporate Center
Washington Mutual Tower
Janss Court
Norwest Center
Agoura Hills
Bayhill 4,5,6 & 7 $ 45,878
Market Square and 200 Galleria $ 120,000
Corporate 500 Centre $ 70,314
188 Embarcadero $ 12,397
Centerside II $ 19,266
700 North Brand $ 21,397
Golden Bear Center $ 16,265
Bixby Ranch $ 22,661
One Memorial $ 50,138
Peninsula Office Park 1,3,4,5,6,8 & 9 $ 70,026
Embarcadero Place A,B,C,D $ 30,313
201 California Street $ 35,363
Tower 56 $ 19,884
125 Summer Street $ 62,649
- -------------------------------------------------------------------------------------------------------------------
TOTAL SECURED DEBT 45,878 120,000 70,314 360,359 $1,237,220
- -------------------------------------------------------------------------------------------------------------------
UNSECURED DEBT
Convertible Promissory Note due 2001
$550.0 Million Line of Credit
- -------------------------------------------------------------------------------------------------------------------
TOTAL UNSECURED DEBT - - - - $ 368,026
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT $ 45,878 $ 120,000 $ 70,314 $ 360,359 $1,605,246
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
PORTFOLIO DATA
<PAGE>
- --------------------------------------------------------------------------------
REGIONAL SUMMARY
(as of 3/31/00)
Square Feet % Square Feet % NOI MSA's
ALL PROPERTIES 18,202,783 16
CBD 9,021,370 49.6% 53.3%
Suburban 9,181,413 50.4% 46.7%
REGIONAL DISTRIBUTION BASED ON NOI AND SQUARE FEET
(As of 3/31/00)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
CBD SUBURBAN ALL PROPERTIES
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Square Feet % Square Feet % NOI Square Feet % Square Feet % NOI Square Feet % Square Feet % NOI
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Northeast 3,599,736 19.8% 25.3% 657,466 3.6% 3.8% 4,257,202 23.4% 29.0%
Central 0 0.0% 0.0% 976,079 5.4% 4.6% 976,079 5.4% 4.6%
Pacific 1,934,347 10.6% 8.3% 6,663,381 36.6% 35.0% 8,597,728 47.2% 43.3%
West 2,271,999 12.5% 12.1% 451,789 2.5% 1.8% 2,723,788 15.0% 13.8%
Southeast 1,215,288 6.7% 7.6% 432,698 2.4% 1.7% 1,647,986 9.1% 9.3%
- ------------------------------------------------------------------------------------------------------------------------
TOTAL 9,021,370 49.6% 53.3% 9,181,413 50.4% 46.7% 18,202,783 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[CHART]
11
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
SUMMARY OF MSAS
(as of 3/31/00)
MSA STATE # BUILDINGS SQUARE FEET % SQUARE FEET % NOI
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 San Francisco CA 19 3,040,481 16.7% 17.8%
2 Boston MA 5 2,884,826 15.8% 18.9%
3 Atlanta GA 2 1,647,986 9.1% 9.3%
4 Seattle WA 5 1,469,741 8.1% 7.5%
5 Oakland CA 10 1,415,358 7.8% 5.4%
6 San Jose (a) CA 10 1,093,729 6.0% 6.5%
7 Minneapolis MN 1 1,117,439 6.1% 6.1%
8 Los Angeles CA 9 1,108,009 6.1% 6.1%
9 Washington D.C. DC,VA 5 993,411 5.5% 7.1%
10 Chicago IL 5 976,079 5.4% 4.6%
11 Orange County CA 3 710,115 3.9% 2.6%
12 Sacramento CA 2 575,336 3.2% 2.7%
13 San Diego CA 2 420,502 2.3% 1.3%
14 New York NY 2 378,965 2.1% 3.0%
15 Ventura CA 3 234,198 1.3% 0.9%
16 Salt Lake City UT 1 136,608 0.8% 0.3%
---------------------------------------------------------------------------------
Total 84 18,202,783 100% 100%
---------------------------------------------------------------------------------
</TABLE>
(a) Excludes 94,500 sf for the Pruneyard Inn.
12
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
OCCUPANCY SUMMARY
- --------------------------------------------------------------------------------------------------
(as of 3/31/00)
- --------------------------------------------------------------------------------------------------
SUMMARY BY REGION
- --------------------------------------------------------------------------------------------------
SQUARE FOOTAGE PERCENTAGE
OCCUPIED LEASED VACANT TOTAL OCCUPIED LEASED VACANT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Central 925,429 2,729 47,921 976,079 94.8% 0.3% 4.9% 100.0%
Northeast 4,135,399 - 121,803 4,257,202 97.1% 0.0% 2.9% 100.0%
Southeast 1,614,878 - 33,108 1,647,986 98.0% 0.0% 2.0% 100.0%
Southwest - - - - n/a n/a n/a n/a
West 2,678,775 - 45,013 2,723,788 98.3% 0.0% 1.7% 100.0%
Pacific 8,250,742 135,089 211,897 8,597,728 96.0% 1.6% 2.5% 100.0%
TOTAL (1) 17,605,223 137,818 459,742 18,202,783 96.7% 0.8% 2.5% 100.0%
- --------------------------------------------------------------------------------------------------
SUMMARY CBD VS SUBURBAN
- --------------------------------------------------------------------------------------------------
SQUARE FOOTAGE PERCENTAGE
OCCUPIED LEASED VACANT TOTAL OCCUPIED LEASED VACANT TOTAL
CBD 8,829,721 7,157 184,492 9,021,370 97.9% 0.1% 2.0% 100.0%
Suburban 8,775,502 130,661 275,250 9,181,413 95.6% 1.4% 3.0% 100.0%
TOTAL (1) 17,605,223 137,818 459,742 18,202,783 96.7% 0.8% 2.5% 100.0%
</TABLE>
(1) Excludes Pruneyard Inn square footage of 94,500 square feet
13
<PAGE>
- -------------------------------------------------------------------------------
10 LARGEST TENANTS - BASED ON ANNUALIZED BASE RENT
(as of 3/31/00)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PERCENTAGE OF
WEIGHTED AVERAGE PORTFOLIO AGGREGATE AGGREGATE
NUMBER OF REMAINING LEASE ANNUALIZED RENTABLE OCCUPIED
TENANT (A) BUILDINGS TERMS IN MONTHS(B) RENT(C) SQUARE FEET SQUAR FEET
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Norwest Corporation [Wells Fargo] 5 190 3.6% 557,275 3.2%
Massachusetts Financial Services 1 155 2.7% 353,663 2.0%
Hale & Dorr 1 158 2.5% 308,214 1.8%
King & Spalding 1 72 2.2% 364,826 2.1%
Wachovia Bank 1 105 2.2% 380,442 2.2%
The New England Life 2 102 1.5% 215,960 1.2%
Perkins Coie 3 129 1.3% 241,994 1.4%
Houghton Mifflin 1 83 1.2% 245,629 1.4%
PeopleSoft Corporation 1 101 1.0% 211,000 1.2%
McKesson 1 88 0.7% 264,798 1.5%
- ------------------------------------------------------------------------------------------------------
TOTAL \ WEIGHTED AVERAGE (B) 125 18.9% 3,143,801 17.9%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(a) Actual tenant may be a susidiary of, or an entity affiliated with, the
named tenant.
(b) Weighted Average calculation based on aggregate rentable square footage
occupied by each tenant.
(c) Annualized Rent is the monthly gross contractual base rent under
existing leases as of December 31, 1999 multiplied by 12.
14
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
LEASE EXPIRATION
(as of 3/31/00)
2000 AND 2001 2002 2003 2004
MONTH TO MONTH
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CENTRAL REGION TOTALS Square Feet (1) 86,641 52,162 94,641 197,412 53,193
% Square Feet (2) 0.5% 0.3% 0.5% 1.1% 0.3%
Annualized Rent (3) 2,412,099 1,779,706 2,779,557 5,900,176 1,461,882
Number of Leases - - - - -
Rent Per Square Foot $ 27.84 $ 34.12 $ 29.37 $ 29.89 $ 27.48
- ----------------------------------------------------------------------------------------------------------------
NORTHEAST REGION TOTALS Square Feet (1) 89,546 373,391 566,119 361,257 342,086
% Square Feet (2) 0.5% 2.1% 3.1% 2.0% 1.9%
Annualized Rent (3) 3,013,344 18,285,375 20,908,460 14,767,019 13,580,853
Number of Leases 19 30 28 33 28
Rent Per Square Foot $ 33.65 $ 48.97 $ 36.93 $ 40.88 $ 39.70
- ----------------------------------------------------------------------------------------------------------------
SOUTHEAST REGION TOTALS Square Feet (1) 61,888 158,931 172,869 88,700 71,393
% Square Feet (2) 0.3% 0.9% 0.9% 0.5% 0.4%
Annualized Rent (3) 1,348,310 3,945,905 3,737,927 2,176,901 1,903,960
Number of Leases 18 18 11 14 13
Rent Per Square Foot $ 21.79 $ 24.83 $ 21.62 $ 24.54 $ 26.67
- ----------------------------------------------------------------------------------------------------------------
SOUTHWEST REGION TOTALS Square Feet (1) - - - - -
% Square Feet (2) 0.0% 0.0% 0.0% 0.0% 0.0%
Annualized Rent (3) - - - - -
Number of Leases - - - - -
Rent Per Square Foot $ - $ - $ - $ - $ -
- ----------------------------------------------------------------------------------------------------------------
WEST REGION TOTALS Square Feet (1) 164,505 156,488 304,816 579,590 408,280
% Square Feet (2) 0.9% 0.9% 1.7% 3.2% 2.2%
Annualized Rent (3) 5,169,401 3,422,383 7,172,712 15,072,568 12,146,940
Number of Leases 26 25 29 37 34
Rent Per Square Foot $ 31.42 $ 21.87 $ 23.53 $ 26.01 $ 29.75
- ----------------------------------------------------------------------------------------------------------------
PACIFIC REGION TOTALS Square Feet (1) 695,012 808,992 1,567,256 1,211,003 1,065,138
% Square Feet (2) 3.8% 4.4% 8.6% 6.7% 5.9%
Annualized Rent (3) 16,680,574 22,576,970 43,069,426 35,068,301 32,635,619
Number of Leases 130 153 190 180 141
Rent Per Square Foot $ 24.00 $ 27.91 $ 27.48 $ 28.96 $ 30.64
- ----------------------------------------------------------------------------------------------------------------
PORTFOLIO TOTALS Square Feet (1) 1,097,592 1,549,964 2,705,701 2,437,962 1,940,090
% Square Feet (2) 6.0% 8.5% 14.9% 13.4% 10.7%
Annualized Rent (3) 28,623,729 50,010,339 77,668,082 72,984,965 61,729,254
Number of Leases 193 226 258 264 216
Rent Per Square Foot $ 26.08 $ 32.27 $ 28.71 $ 29.94 $ 31.82
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE CONT. 2005 2006 2007 2008 2009 AND TOTALS
BEYOND
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CENTRAL REGION TOTALS Square Feet (1) 11,814 17,848 100,899 116,731 191,523 922,864
% Square Feet (2) 0.1% 0.1% 0.6% 0.6% 1.1% 5.1%
Annualized Rent (3) 332,091 447,661 2,406,401 3,603,198 3,351,900 24,474,672
Number of Leases - - - - - -
Rent Per Square Foot $ 28.11 $ 25.08 $ 23.85 $ 30.87 $ 17.50 $ 24.22
- ----------------------------------------------------------------------------------------------------------------------------
NORTHEAST REGION TOTALS Square Feet (1) 291,712 145,838 511,807 278,976 1,180,994 4,141,726
% Square Feet (2) 1.6% 0.8% 2.8% 1.5% 6.5% 22.8%
Annualized Rent (3) 11,971,732 5,901,310 20,637,814 14,044,901 52,472,420 175,583,229
Number of Leases 15 5 24 11 27 220
Rent Per Square Foot $ 41.04 $ 40.46 $ 40.32 $ 50.34 $ 44.43 $ 42.39
- ----------------------------------------------------------------------------------------------------------------------------
SOUTHEAST REGION TOTALS Square Feet (1) 25,392 503,585 - 495,736 32,186 1,610,680
% Square Feet (2) 0.1% 2.8% 0.0% 2.7% 0.2% 8.8%
Annualized Rent (3) 606,841 16,216,904 - 15,997,311 651,831 46,585,888
Number of Leases 6 4 - 4 2 90
Rent Per Square Foot $ 23.90 $ 32.20 $ - $ 32.27 $ 20.25 $ 28.92
- ----------------------------------------------------------------------------------------------------------------------------
SOUTHWEST REGION TOTALS Square Feet (1) - - - - - -
% Square Feet (2) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Annualized Rent (3) - - - - - -
Number of Leases - - - - - -
Rent Per Square Foot $ - $ - $ - $ - $ - $ -
- ----------------------------------------------------------------------------------------------------------------------------
WEST REGION TOTALS Square Feet (1) 111,237 10,788 154,064 366 787,550 2,677,684
% Square Feet (2) 0.6% 0.1% 0.8% 0.0% 4.3% 14.7%
Annualized Rent (3) 2,826,280 241,969 3,418,803 9,842 27,445,726 76,926,624
Number of Leases 17 5 2 1 8 184
Rent Per Square Foot $ 25.41 $ 22.43 $ 22.19 $ 26.89 $ 34.85 $ 28.73
- ----------------------------------------------------------------------------------------------------------------------------
PACIFIC REGION TOTALS Square Feet (1) 622,658 518,348 687,348 346,882 729,632 8,252,269
% Square Feet (2) 3.4% 2.8% 3.8% 1.9% 4.0% 45.3%
Annualized Rent (3) 20,123,879 14,449,489 21,684,036 10,938,003 20,299,829 237,526,127
Number of Leases 57 29 15 23 57 975
Rent Per Square Foot $ 32.32 $ 27.88 $ 31.55 $ 31.53 $ 27.82 $ 28.78
- ----------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TOTALS Square Feet (1) 1,062,813 1,196,407 1,454,118 1,238,691 2,921,885 17,605,223
% Square Feet (2) 5.8% 6.6% 8.0% 6.8% 16.1% 96.7%
Annualized Rent (3) 35,860,823 37,257,333 48,147,054 44,593,255 104,221,707 561,096,540
Number of Leases 95 43 41 39 94 1,469
Rent Per Square Foot $ 33.74 $ 31.14 $ 33.11 $ 36.00 $ 35.67 $ 31.87
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Total net rentable square feet represented by expiring leases.
(2) Percentage of total net rentable feet represented by expiring leases.
(3) Annualized Rent is the monthly contractual rent under existing leases
as of December 31, 1999 multiplied by 12. This amount reflects total base
rent before any rent abatements, but includes expense reimbursements.
15
<PAGE>
ROLLOVER OF TOP 10 MARKETS - BASED ON ANNUALIZED RENT
(as of 3/31/00)
EXPIRATION YEAR
---------------------------------------------------------------
2000 2001 2002 TOTAL
---------------------------------------------------------------
PERCENTAGE OF TOTAL PORTFOLIO RENT EXPIRING
Boston, MA 0.05% 1.52% 3.12% 4.69%
San Francisco, CA 0.91% 1.02% 2.14% 4.08%
Atlanta, GA 0.32% 0.94% 0.89% 2.15%
Seattle, WA 0.29% 0.47% 1.41% 2.17%
Washington DC 0.35% 0.76% 0.22% 1.33%
Minneapolis, MN 0.71% 0.08% 0.22% 1.00%
San Jose, CA 0.41% 0.97% 0.62% 2.00%
Oakland, CA 1.03% 1.77% 1.29% 4.08%
Los Angeles, CA 0.76% 1.47% 1.51% 3.74%
Chicago, IL 0.48% 0.29% 0.52% 1.28%
16
<PAGE>
- -------------------------------------------------------------------------------
PORTFOLIO BY SIC CODE
(as of 3/31/00)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PERCENT OF TOTAL
SIC CODE STANDARD INDUSTRIAL CLASSIFICATION OCCUPIED SQUARE FEET OCCUPIED PORTFOLIO
<S> <C> <C> <C>
73 Business Services 2,438,277 13.8%
81 Legal Services 3,155,285 17.9%
60 Financial Institutions 1,636,907 9.3%
48 Communications 429,380 2.4%
87 Engineering & Management/ Consulting Services 1,547,064 8.8%
62 Securities & Commodities Brokers 1,828,674 10.4%
63 Insurance Carriers 1,467,917 8.3%
91 Government 89,776 0.5%
13 Oil & Gas 27,558 0.2%
65 Real Estate 439,219 2.5%
72 Retail/Personal Services 23,059 0.1%
64 Insurance Agents & Related Services 102,516 0.6%
50 Wholesale goods 708,206 4.0%
47 Transportation 107,793 0.6%
35 Equipment Manufacturing 376,609 2.1%
20 Food & Beverage 490,161 2.8%
27 Publishing 436,286 2.5%
82 Educational Services 110,314 0.6%
15 Construction 21,530 0.1%
80 Health Services 213,331 1.2%
08 Forestry - 0.0%
83 Social Services 38,751 0.2%
Various Other 1,916,610 10.9%
=====================================================================================================================
SQUARE FEET OCCUPIED BY TENANTS AT 3/31/00 17,605,223 100%
=====================================================================================================================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
OFFICE PROPERTY STATISTICS
(as of 3/31/00)
- --------------------------------------------------------------------------------------------------------------------------
Percent
Approximate of Total
Rentable Portfolio Annualized
PRIMARY MARKET Number of Year Built Square Rentable Percent Rent
Buildings /Renovated Feet Square Feet Occupied (000's)(n) (a)
SUB MARKET
- ------------------------------------------------------------------------------------------------------------------------
CENTRAL REGION
CHICAGO
LAKE COUNTY
<S> <C> <C> <C> <C> <C> <C> <C>
Corporate 500 Centre (k) 4 1986/1990 679,039 3.7% 98.2% 17,389
OAK BROOK
One Lincoln Centre 1 1986 297,040 1.6% 87.1% 7,086
- --------------------------------------------------------------------------------------------------------------------
CENTRAL REGION TOTAL/WEIGHTED AVERAGE 5 976,079 5.4% 94.8% 24,475
- --------------------------------------------------------------------------------------------------------------------
NORTHEAST REGION
BOSTON
- -------
EAST CAMBRIDGE
One Memorial Drive (b) 1 1985 352,764 1.9% 99.8% 13,755
FINANCIAL DISTRICT
125 Summer Street 1 1989 463,691 2.5% 79.0% 12,179
Sixty State Street (a) 1 1979 823,014 4.5% 100.0% 29,207
BACK BAY
500 Boylston Street 1 1988 714,513 3.9% 100.0% 39,975
222 Berkeley Street 1 1991 530,844 2.9% 99.8% 26,306
NEW YORK
- ---------
PARK/LEXINGTON
Tower 56 1 1983 163,633 0.9% 97.5% 7,765
MADISON AVENUE
527 Madison Avenue 1 1986 215,332 1.2% 99.6% 11,499
WASHINGTON D.C.
- ---------------
CBD
Market Square (j) 2 1990 688,709 3.8% 99.3% 27,649
ALEXANDRIA/OLD TOWN
11 Canal Center 1 1986 70,365 0.4% 95.5% 1,720
99 Canal Center 1 1986 137,945 0.8% 97.6% 3,361
TransPotomac Plaza 1 1983 96,392 0.5% 93.8% 2,167
- -------------------------------------------------------------------------------------------------------- -----------
NORTHEAST REGION TOTAL/WEIGHTED AVERAGE 12 4,257,202 23.4% 97.1% 175,583
- -------------------------------------------------------------------------------------------------------- -----------
SOUTHEAST REGION
ATLANTA
- -------
CBD
191 Peachtree Street (d) 1 1991 1,215,288 6.7% 97.7% 37,101
NORTHEAST
200 Galleria 1 1985 432,698 2.4% 98.8% 9,484
- -------------------------------------------------------------------------------------------------------- -----------
SOUTHEAST REGION TOTAL/WEIGHTED AVERAGE 2 1,647,986 9.1% 98.0% 46,586
- -------------------------------------------------------------------------------------------------------- -----------
WEST REGION
MINNEAPOLIS
- ------------
MINNEAPOLIS CBD
Norwest Center (i) 1 1988 1,117,439 6.1% 100.0% 38,895
SALT LAKE CITY
- --------------
CENTRAL VALLEY EAST
U.S. West (c) 1 1985 136,608 0.8% 80.9% 2,038
SEATTLE
- --------
BELLEVUE CBD
110 Atrium Place (c) 1 1981 215,172 1.2% 100.0% 5,323
CBD
Washington Mutual Tower (e) 3 1988 1,154,560 6.3% 98.7% 28,132
I-90 CORRIDOR
Island Corporate Center (c) 1 1987 100,009 0.5% 95.6% 2,230
WEST REGION TOTAL/WEIGHTED AVERAGE 7 2,723,788 15.0% 98.3% 76,618
- -------------------------------------------------------------------------------------------------------- -----------
</TABLE>
TABLE CONT.
<TABLE>
<CAPTION>
Percent of Annualized
Portfolio Rent Per
PRIMARY MARKET Number of Annualized Number of Occupied
Buildings Rent Leases Square Foot
SUB MARKET
- -------------------------------------------------------------------------------------
CENTRAL REGION
CHICAGO
<S> <C> <C> <C> <C>
LAKE COUNTY
Corporate 500 Centre (k) 4 3.1% 42 $26.08
OAK BROOK
One Lincoln Centre 1 1.3% 39 $27.38
- ----------------------------------------------------------------------------------
CENTRAL REGION TOTAL/WEIGHTED AVERAGE 5 4.4% 81 $26.45
- ----------------------------------------------------------------------------------
NORTHEAST REGION
BOSTON
- -------
EAST CAMBRIDGE
One Memorial Drive (b) 1 2.5% 12 $39.07
FINANCIAL DISTRICT
125 Summer Street 1 2.2% 20 $33.25
Sixty State Street (a) 1 5.2% 33 $35.50
BACK BAY
500 Boylston Street 1 7.1% 30 $55.95
222 Berkeley Street 1 4.7% 30 $49.66
NEW YORK
- ---------
PARK/LEXINGTON
Tower 56 1 1.4% 42 $48.67
MADISON AVENUE
527 Madison Avenue 1 2.1% 21 $53.62
WASHINGTON D.C.
- ---------------
CBD
Market Square (j) 2 4.9% 57 $40.43
ALEXANDRIA/OLD TOWN
11 Canal Center 1 0.3% 6 $25.61
99 Canal Center 1 0.6% 18 $24.97
TransPotomac Plaza 1 0.4% 12 $23.97
- ---------------------------------------------------------------------------------------
NORTHEAST REGION TOTAL/WEIGHTED AVERAGE 12 31.3% 281 $42.46
- --------------------------------------------------------------------------------------
SOUTHEAST REGION
ATLANTA
- -------
CBD
191 Peachtree Street (d) 1 6.6% 31 $31.25
NORTHEAST
200 Galleria 1 1.7% 57 $22.18
- ---------------------------------------------------------------------------------------
SOUTHEAST REGION TOTAL/WEIGHTED AVERAGE 2 8.3% 88 $28.85
- ---------------------------------------------------------------------------------------
WEST REGION
MINNEAPOLIS
- ------------
MINNEAPOLIS CBD
Norwest Center (i) 1 6.9% 35 $34.81
SALT LAKE CITY
- --------------
CENTRAL VALLEY EAST
U.S. West (c) 1 0.4% 18 $18.44
SEATTLE
- --------
BELLEVUE CBD
110 Atrium Place (c) 1 0.9% 28 $24.74
CBD
Washington Mutual Tower (e) 3 5.0% 82 $24.68
I-90 CORRIDOR
Island Corporate Center (c) 1 0.4% 17 $23.32
- ---------------------------------------------------------------------------------------
WEST REGION TOTAL/WEIGHTED AVERAGE 7 13.7% 180 $28.60
- ---------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Percent
Approximate of Total
Rentable Portfolio Annualized
PRIMARY MARKET Number of Year Built Square Rentable Percent Rent
Buildings /Renovated Feet Square Feet Occupied (000's)(n)
SUB MARKET
- ---------------------------------------------------------------------------------------------------------------------
PACIFIC REGION
LOS ANGELES
- ------------
<S> <C> <C> <C> <C> <C> <C>
BRENTWOOD
West Wilshire (c) 2 1960 - 1976 235,787 1.3% 91.7% 5,073
GLENDALE
700 North Brand (c) 1 1981 202,531 1.1% 95.8% 5,476
SANTA MONICA
429 Santa Monica (c) 1 1982 83,243 0.5% 77.3% 1,804
Commerce Park (c) 1 1977 94,367 0.5% 100.0% 1,607
Janss Court (c)(l) 1 1989 125,709 0.7% 99.0% 4,393
Searise Office Tower (c) 1 1975 122,292 0.7% 100.0% 3,605
Wilshire Palisades (h) 1 1981 186,714 1.0% 99.5% 8,940
WESTWOOD
Warner Park Center (c) 1 1986 57,366 0.3% 100.0% 1,635
OAKLAND
- -------
BERKELEY
Golden Bear Center (c) 1 1986 160,587 0.9% 99.3% 4,361
CONCORD
Corporate Centre (c) 2 1 1985 - 1987 329,348 1.8% 93.6% 6,948
PLEASANTON
Park Plaza (c) 1 1986 87,040 0.5% 92.2% 1,725
PeopleSoft (c) 1 1984 277,562 1.5% 100.0% 7,179
SAN RAMON
Norris Tech (c) 3 1 1984 - 1990 260,513 1.4% 96.2% 3,852
ADP Plaza (c) 2 1 1987 - 1989 300,308 1.6% 95.1% 6,920
ORANGE COUNTY
- -------------
AIRPORT
18301 Von Karman (c) 1 1991 219,508 1.2% 88.9% 4,936
TOWN & COUNTRY
2677 North Main (c) 1 1987 213,318 1.2% 86.3% 4,258
UNCLASSIFIED WEST ORANGE COUNTY
Bixby Ranch (c) 1 1987 277,289 1.5% 92.9% 6,152
SACRAMENTO
- ----------
POINT WEST/TRIBUTE
Exposition Centre (c) 1 1984 72,971 0.4% 67.3% 1,055
CBD
400 Capital Mall (m) 1 1992 502,365 2.8% 100.0% 13,973
SAN DIEGO
- --------
MISSION VALLEY
Centerside II (c) 1 1987 286,949 1.6% 92.4% 5,347
Crossroads (c) 1 1983 133,553 0.7% 100.0% 2,445
SAN FRANCISCO
- -------------
BURLINGAME
Bay Park Plaza (c) 2 1 1985 - 1998 257,058 1.4% 100.0% 8,813
One Bay Plaza (c) 1 1979 176,533 1.0% 84.1% 5,733
FINANCIAL DISTRICT
120 Montgomery (c) 1 1955 420,310 2.3% 96.5% 11,288
188 Embarcadero (c) 1 1985 85,183 0.5% 98.9% 3,337
201 California (h) 1 1980 240,230 1.3% 90.8% 8,206
One Post (c) 1 1969 391,450 2.2% 99.3% 11,688
REDWOOD CITY
Seaport Centre (c) 1 1988 463,418 2.5% 100.0% 16,494
SAN BRUNO
Bayhill (c) 4 1 1982 - 1987 514,255 2.8% 97.6% 15,395
SAN MATEO
Peninsula Office Park (c) 7 1 1971 - 1998 492,044 2.7% 100.0% 17,511
</TABLE>
TABLE CONT.
<TABLE>
<CAPTION>
Percent of Annualized
Portfolio Rent Per
PRIMARY MARKET Number of Year Built Annualized Number of Occupied
Buildings /Renovated Rent Leases Square Foot(a)
SUB MARKET
- --------------------------------------------------------------------------------------------------------
PACIFIC REGION
LOS ANGELES
- ------------
<S> <C> <C> <C> <C> <C>
BRENTWOOD
West Wilshire (c) 2 1960 - 1976 0.9% 51 $23.46
GLENDALE
700 North Brand (c) 1 1981 1.0% 20 $28.23
SANTA MONICA
429 Santa Monica (c) 1 1982 0.3% 34 $28.05
Commerce Park (c) 1 1977 0.3% 9 $17.03
Janss Court (c)(l) 1 1989 0.8% 21 $35.28
Searise Office Tower (c) 1 1975 0.6% 28 $29.48
Wilshire Palisades (h) 1 1981 1.6% 14 $48.14
WESTWOOD
Warner Park Center (c) 1 1986 0.3% 7 $28.51
OAKLAND
- -------
BERKELEY
Golden Bear Center (c) 1 1986 0.8% 19 $27.35
CONCORD
Corporate Centre (c) 2 1 1985 - 1987 1.2% 56 $22.53
PLEASANTON
Park Plaza (c) 1 1986 0.3% 8 $21.51
PeopleSoft (c) 1 1984 1.3% 5 $25.86
SAN RAMON
Norris Tech (c) 3 1 1984 - 1990 0.7% 7 $15.36
ADP Plaza (c) 2 1 1987 - 1989 1.2% 23 $24.24
ORANGE COUNTY
- -------------
AIRPORT
18301 Von Karman (c) 1 1991 0.9% 34 $25.30
TOWN & COUNTRY
2677 North Main (c) 1 1987 0.8% 22 $23.12
UNCLASSIFIED WEST ORANGE COUNTY
Bixby Ranch (c) 1 1987 1.1% 46 $23.88
SACRAMENTO
- ----------
POINT WEST/TRIBUTE
Exposition Centre (c) 1 1984 0.2% 13 $21.47
CBD
400 Capital Mall (m) 1 1992 2.5% 42 $27.81
SAN DIEGO
- --------
MISSION VALLEY
Centerside II (c) 1 1987 1.0% 41 $20.17
Crossroads (c) 1 1983 0.4% 11 $18.31
SAN FRANCISCO
- -------------
BURLINGAME
Bay Park Plaza (c) 2 1 1985 - 1998 1.6% 12 $34.29
One Bay Plaza (c) 1 1979 1.0% 46 $38.61
FINANCIAL DISTRICT
120 Montgomery (c) 1 1955 2.0% 86 $27.84
188 Embarcadero (c) 1 1985 0.6% 9 $39.60
201 California (h) 1 1980 1.5% 9 $37.62
One Post (c) 1 1969 2.1% 33 $30.06
REDWOOD CITY
Seaport Centre (c) 1 1988 2.9% 15 $35.59
SAN BRUNO
Bayhill (c) 4 1 1982 - 1987 2.7% 45 $30.66
SAN MATEO
Peninsula Office Park (c) 7 1 1971 - 1998 3.1% 38 $35.59
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Percent
Approximate of Total
Rentable Portfolio Annualized
PRIMARY MARKET Number of Year Built Square Rentable Percent Rent
Buildings /Renovated Feet Square Feet Occupied (000's)(n)
SUB MARKET
- -------------------------------------------------------------------------------------------------------------------
SAN JOSE
- --------
CBD
<S> <C> <C> <C> <C> <C> <C>
10 Almaden (c) 1 1989 294,809 1.6% 100.0% 9,033
CAMPBELL
Pruneyard Inn (c)(g) 1 1989 na na na na
Pruneyard Office (c)(f) 3 1971 - 1999 354,629 1.9% 96.0% 10,559
Pruneyard Shopping Center (c) 1 1970s 252,210 1.4% 88.0% 5,353
PALO ALTO
Embarcadero Place (c) 4 1984 192,081 1.1% 100.0% 7,148
VENTURA
- -------
CONEJO VALLEY
Agoura Hills (c) 1 1987 115,208 0.6% 100.0% 2,470
Westlake Spectrum (c) 2 1990 118,990 0.7% 100.0% 2,811
- -----------------------------------------------------------------------------------------------------------------
PACIFIC REGION TOTAL/WEIGHTED AVERAGE 58 8,597,728 47.2% 96.0% 237,526
- -----------------------------------------------------------------------------------------------------------------
Portfolio Total/Weighted Average 84 18,202,783 100.0% 96.7% 560,788
==================================================================================================================
</TABLE>
TABLE CONT.
<TABLE>
<CAPTION>
Percent of Annualized
Portfolio Rent Per
PRIMARY MARKET Number of Year Built Annualized Number of Occupied
Buildings /Renovated Rent Leases Square Foot(a)
SUB MARKET
- ---------------------------------------------------------------------------------------------------------
SAN JOSE
- --------
CBD
<C> <C> <C> <C> <C> <C>
10 Almaden (c) 1 1989 1.6% 23 $30.64
CAMPBELL
Pruneyard Inn (c)(g) 1 1989 na na na
Pruneyard Office (c)(f) 3 1971 - 1999 1.9% 82 $31.02
Pruneyard Shopping Center (c) 1 1970s 1.0% 50 $24.12
PALO ALTO
Embarcadero Place (c) 4 1984 1.3% 8 $37.21
VENTURA
- -------
CONEJO VALLEY
Agoura Hills (c) 1 1987 0.4% 11 $21.44
Westlake Spectrum (c) 2 1990 0.5% 10 $23.62
- ---------------------------------------------------------------------------------------------------------
PACIFIC REGION TOTAL/WEIGHTED AVERAGE 58 42.4% 988 $28.79
- ---------------------------------------------------------------------------------------------------------
Portfolio Total/Weighted Average 84 100.0% 1,618 $31.85
=========================================================================================================
(a) On December 31, 1997, the Company purchased the second mortgage on Sixty State Street. The mortgage is a cash flow
mortgage through which all the economic benefits/risks (subject to the first mortgage) will inure to the Company.
The Company controls all major decisions regarding management and leasing. The total purchase price for the second
mortgage was $131.5 million.
(b) The Property was acquired by the Company in April 1998.
(c) Property acquired as a result of the Wilson acquisition in December 1998.
(d) While the Company's stated interest in the partnership that owns 191 Peachtree Street is 80%, its economic interest is
significantly larger since it has acquired the first mortgage note on the Property in the amount of $145 million, which
earns interest at 9.375%, and will receive a priority distribution on its acquired capital base. The partner in the
transaction, CH Associates, Ltd., received an annual incentive distribution of $250,000 under the partnership agreement
through February 28, 2000, with the Company receiving the remainder of the cash flow from the property.
(e) While the Company's stated interest in the partnership which owns Washington Mutual Tower is 50%, its economic interest
in the Property is significantly larger because of priority distributions it receives on its invested capital base. For
the quarter ended March 31, 2000, the Company received 100% of the cash distributions from the partnership that owns
Washington Mutual Tower.
(f) Pruneyard Place construction was completed and occupied on April 1, 1999. The building was entirely pre-leased.
(g) The Pruneyard Inn is a 94,500 sf three-story hotel. A 25,000 square foot expansion was completed in May 1999, increasing
the number of rooms from 118 to 172.
(h) The Property was acquired by the Company in June 1998.
(i) While the Company's stated interest in the partnership which owns Norwest Center is 50%, its economic interest in the
Property is significantly larger because of priority distributions it receives on its invested capital base. For the
quarter ended March 31, 2000, the Company's share of earnings and cash distributions from the partnership that owns
Norwest Center was 73.4%.
(j) During 1998, through a series of transactions, the Company acquired partnership interests with a stated interest of
approximately 70% in the partnerships that own Market Square. The Company's economic interest is significantly larger
since it has acquired the first mortgage note on the Property in the amount of $181 million which earns interest at
9.75%, and will receive a priority distribution on its acquired capital base. In addition, the Company acquired a "buffer
loan", with accrued principal and interest of $49.0 million at purchase, which accrues interest at a rate of 11% per
annum and is payable from cash flow, refinancing or sales proceeds from Market Square in excess of the first mortgage.
During the quarter ended March 31, 2000, the Company received 100% of the cash flow from the Property.
(k) The Property was acquired by the Company in January 1998.
(l) Janss Court is a seven-story, 125,000 square foot Class A mixed-use building. Along with 92,000 square feet of retail and
office space, Janss Court offers 32 apartments for a total of 33,000 rentable square feet of residential space.
(m) The Property was acquired January 20, 2000.
(n) Annualized Rent is the monthly contractual rent under existing leases as of March 31, 2000 multiplied by 12.
</TABLE>
20
<PAGE>
OFFICE MARKET GRAPHS
<PAGE>
THE 54 MAJOR U.S. OFFICE MARKETS
COMPLETIONS, NET ABSORPTION* AND VACANCY RATES
[CHART]
SOURCE: CB COMMERCIAL REAL ESTATE GROUP, INC./TORTO WHEATON RESEARCH AS
OF 4TH QUARTER 1999 * CB Commercial Real Estate Group, Inc. / Torto
Wheaton Research defines net absorption as the net change in
multi-tenant occupied stock, in square feet, during that period.
21
<PAGE>
THE COMPANY'S 10 LARGEST MARKETS
NET ABSORPTION *, COMPLETIONS AND VACANCY RATES
[CHART]
SOURCE: CB COMMERCIAL REAL ESTATE GROUP, INC./TORTO WHEATON RESEARCH AS
OF 4TH QUARTER 1999 * CB Commercial Real Estate Group, Inc. / Torto
Wheaton Research defines net absorption as the net change in
multi-tenant occupied stock, in square feet, during that period.
22
<PAGE>
- -------------------------------------------------------------------------------
FOR THE COMPANY'S 10 LARGEST MARKETS
VACANCY RATES OF CLASS A OFFICE SPACE
COMPARED TO VACANCY RATES FOR ALL OFFICE SPACE
<TABLE>
<CAPTION>
Direct Vacancy Rate for Direct Vacancy Rate CPP's Vacancy Rate for
Class A Office Space* for All Office Space* Office Space
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Boston, MA 5.6% 5.9% 4.3%
San Francisco, CA 3.0% 3.0% 2.0%
Atlanta, GA 9.0% 10.4% 2.2%
Seattle, WA 3.1% 3.8% 1.8%
Washington DC 4.6% 5.3% 0.6%
Minneapolis, MN 6.5% 7.7% 0.0%
San Jose, CA 6.5% 5.4% 2.5%
Oakland, CA 7.8% 7.9% 2.1%
Los Angeles, CA 14.8% 14.4% 5.1%
Chicago, IL 7.8% 9.5% 4.1%
- -------------------------------------------------------------------------------------------------------------
All 10 Markets 7.8% 8.0% 2.6%
- -------------------------------------------------------------------------------------------------------------
Markets ordered based on CPP Net Operating Income
*Data through December 31, 1999. CB Commercial Real Estate Group, Inc. / Torto Wheaton Research.
</TABLE>
23
<PAGE>
