EOP OPERATING LTD PARTNERSHIP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001 or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE NUMBER: 1-13625
EOP OPERATING LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)

DELAWARE 36-4156801
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
TWO NORTH RIVERSIDE PLAZA, 60606
SUITE 2100, CHICAGO, ILLINOIS (Zip code)
(Address of principal executive offices)

(312) 466-3300
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest ("Units")

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. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

The aggregate market value of the Units held by non-affiliates of the
registrant as of March 15, 2002 was $199,974,130.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Equity Office Properties Trust's proxy statement for the annual
shareholders' meeting to be held in 2002 are incorporated by reference into Part
III. Equity Office Properties Trust expects to file their proxy statement by
April 30, 2002.
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EOP OPERATING LIMITED PARTNERSHIP

TABLE OF CONTENTS

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PART I

FORWARD-LOOKING STATEMENTS

Statements contained in this Form 10-K, which are not historical fact, may
be forward-looking statements. Such statements (none of which is intended as a
guarantee of performance) are subject to certain risks and uncertainties, which
could cause actual results to differ materially from those projected or
anticipated. A number of important factors could cause actual results to differ
materially from those indicated by the forward-looking statements, including,
but not limited to, the risks described in our Current Report on Form 8-K filed
with the Securities and Exchange Commission (the "SEC") on February 12, 2002.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of March 28, 2002. Among the factors about which
we have made assumptions are the following:

- Future economic conditions which may impact the demand for office space
as well as current or prospective tenants' ability or willingness to pay
rent, either at current or increased levels;

- The extent of any tenant bankruptcies or defaults that may occur;

- The availability of new competitive supply, including competitive supply
which may be available by way of sublease;

- The extent of future demand for high-rise and other office space in the
markets in which EOP Partnership has a presence;

- The costs to complete and lease-up pending developments at anticipated
rents;

- Future demand for EOP Partnership's debt and equity securities;

- EOP Partnership's continued access to adequate credit facilities or other
debt financing on acceptable terms;

- EOP Partnership's ability to achieve economies of scale over time;

- EOP Partnership's ability to attract and retain high quality personnel at
a reasonable cost;

- EOP Partnership's ability to integrate successfully the operations of
Spieker Partnership, L.P. ("Spieker Partnership") into EOP Partnership's
organization;

- Changes in interest rates;

- Changes in operating expenses, including utility, insurance and security
costs;

- EOP Partnership's continuing ability to pay amounts due its noteholders
and preferred noteholders before any distributions to holders of its
Units; and

- EOP Partnership's ability to secure adequate insurance for occurrences
such as terrorist acts and earthquakes.

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ITEM 1. BUSINESS.

EOP PARTNERSHIP

As used herein, "EOP Partnership", "we", "us" and "our" refer to EOP
Operating Limited Partnership, a Delaware limited partnership, together with its
consolidated subsidiaries, and our predecessors, except where the context
otherwise requires. EOP Partnership is a subsidiary of Equity Office Properties
Trust ("Equity Office"), a Maryland real estate investment trust. EOP
Partnership was organized in 1996 and began operations in 1997. We are engaged
principally in acquiring, owning, managing, developing and leasing office
properties. Equity Office's assets are owned and substantially all of its
operations are conducted through EOP Partnership. Equity Office is our sole
general partner and owned, at December 31, 2001, approximately an 88.0% interest
in us. Equity Office has elected to be taxed as a real estate investment trust
("REIT") for federal income tax purposes, and generally will not be subject to
federal income tax if it distributes 100% of its taxable income and complies
with a number of organizational and operational requirements.

At December 31, 2001, we had a portfolio of 774 office properties
comprising approximately 128.2 million square feet of commercial office space in
23 states and the District of Columbia (the "Office Properties"), 79 industrial
properties comprising approximately 6.0 million square feet of industrial
properties (the "Industrial Properties" and, together with the Office
Properties, the "Properties") and approximately 2.4 million square feet of
office properties under development.

Our executive offices are located at Two North Riverside Plaza, Suite 2100,
Chicago, Illinois 60606, and our telephone number is (312) 466-3300.

ACQUISITION ACTIVITY

Over the past three years, we have invested approximately $12.5 billion,
calculated on a cost basis, in acquisitions of institutional quality office
properties and industrial properties throughout the United States.

Management of Equity Office considers various factors when evaluating
potential property acquisitions. These factors include:

- the attractiveness of the property to existing and potential tenants;

- the likelihood and relative attractiveness of competitive supply;

- the anticipated demand for space in the local market;

- the creditworthiness and diversity of risk in the current rent roll;

- the ability to acquire the asset at an attractive going-in yield, as well
as the potential to increase operating income over time by renewing
leases for increasing rents;

- the physical condition of the property, including the extent of funds
required for its maintenance and for physical upgrades needed in order to
establish or sustain its market competitiveness;

- the ability to operate the property with a competitive cost structure;
and

- the property's location in one of our target markets.

In determining whether to enter into a new development, the foregoing
factors are considered as well as the additional risks of development, including
the following:

- the extent of lease-up risk in the context of the demand/supply
characteristics of the local market;

- the ability to minimize construction risks; and

- the quality of local development partners, if relevant.

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SPIEKER MERGER

On July 2, 2001, Spieker Properties, Inc. ("Spieker") merged into Equity
Office and Spieker Partnership, Spieker's operating partnership subsidiary,
merged into EOP Partnership (collectively, the "Spieker Merger"). The
transaction, which was accounted for by the purchase method, valued Spieker,
including the outside interests in Spieker Partnership, at approximately $7.2
billion, which included transaction costs, the assumption of approximately $2.1
billion in debt and the issuance of 14.25 million of our preferred units valued
at approximately $356.3 million. We paid approximately $1.1 billion in cash and
Equity Office issued approximately 101.5 million of its common shares ("Common
Shares"), and we issued approximately 16.7 million of our units ("Units") to new
limited partners, each valued at $29.29 per Common Share/Unit. The $1.1 billion
cash portion of the purchase price was financed using a combination of available
cash and a new $1.0 billion bridge loan facility that was entered into before
the closing of the Spieker Merger. The $1.0 billion bridge loan facility had a
term of 364 days and an interest rate based on LIBOR plus 80 basis points. The
$1.0 billion bridge loan facility was repaid in full with the net proceeds from
the issuance of $1.4 billion of unsecured notes in July 2001 and then
terminated. As a result of the Spieker Merger, we acquired 391 office properties
consisting of approximately 28.3 million square feet, 98 industrial properties
consisting of approximately 10.1 million square feet and several development
properties.

We subsequently sold 19 of the industrial properties that were acquired in
the Spieker Merger for approximately $213.4 million. There was no gain or loss
on the sale of these properties. The industrial properties sold are located in
California and Oregon and consist of approximately 4.1 million square feet.

FINANCING POLICIES

Equity Office conducts substantially all of its investment and financing
activities through us. To date, we have financed our investments through a
combination of equity, which may be issued by either Equity Office or us, as
well as secured and unsecured debt (which would be issued by us). The terms of
our line of credit and unsecured notes contain various financial covenants which
require satisfaction of certain total debt-to-asset ratios, secured
debt-to-total-asset ratios, debt service coverage ratios, and unsecured
debt-to-unencumbered-asset ratios, as well as other limitations. In addition, we
have obtained investment grade credit ratings on our unsecured debt from each of
Standard & Poors, Fitch and Moodys rating agencies. A primary objective of our
financing policy is to manage our financial position so as to continue to
maintain these investment grade credit ratings. The majority of our outstanding
debt has a fixed interest rate which limits the risk of fluctuating interest
rates. In addition, we utilize certain derivative financial instruments at times
to limit interest rate risk. Derivatives are used for hedging purposes rather
than speculation.

Our intent is to maintain a ratio of debt-to-market capitalization of less
than 50%. For this purpose, the ratio of debt-to-market capitalization equals
total debt as a percentage of the sum of (a) the market value of outstanding
Common Shares and Units, (b) the liquidation value of our preferred units and
(c) total debt. We may re-evaluate this policy and decrease or increase this
ratio in the future in light of then current economic conditions, the relative
costs of debt and equity capital, the market value of our properties, growth and
acquisition opportunities and other factors. There is no limit on the
debt-to-market capitalization ratio imposed by Equity Office's Declaration of
Trust or Bylaws or our partnership agreement.

To the extent that the Board of Trustees of Equity Office decides to obtain
additional capital, Equity Office may elect to issue equity securities, cause us
to issue additional Units or debt securities, retain our earnings (subject to
the provisions of the Internal Revenue Code requiring distributions of taxable
income to maintain REIT status), or dispose of some of our properties or utilize
a combination of these methods. Under the terms of our partnership agreement,
the proceeds of all equity capital raised by Equity Office are contributed to us
in exchange for additional interests in us.

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BUSINESS AND GROWTH STRATEGIES

Our primary business objective is to achieve sustainable long-term growth
in cash flow and portfolio value in order to maximize unitholder value. We
intend to achieve this objective by owning and operating high-quality office
buildings and providing a superior level of service to customers across the
United States.

INTERNAL GROWTH

We believe that our future internal growth will come from:

- tenant rollover at increased rents where market conditions permit;

- lease-up of vacant space;

- completion and lease-up of development properties;

- recycling of capital through selective disposition of certain assets and
reinvestment in properties or other assets consistent with our long-term
growth strategy;

- revenues generated from providing ancillary business products and
services to tenants;

- reduction of various expenses as a percentage of revenues; and

- increased capital market efficiencies.

At December 31, 2001, approximately 10.6 million rentable square feet, or
8.2%, of our office space, was vacant. During the period from December 31, 2001
through December 31, 2006, there is approximately 75.5 million square feet, or
64.2%, of currently occupied office space scheduled to become vacant. As of
December 31, 2001, the average rent for this space was $27.73 per square foot.
The actual rental rates at which available space will be relet will depend on
prevailing market factors at the time.

At December 31, 2001, approximately 2.4 million square feet of projects
were under development and anticipated to be placed in service throughout 2002
and 2003. Our policy is to prudently pursue projects with local development
partners where customer need is evident and market conditions warrant.

In addition to our current development pipeline, we own various undeveloped
land parcels on which approximately 11.5 million square feet of office space
could be developed, assuming our receipt of necessary permits, licenses and
approvals. Our policy is to develop land only when market conditions warrant.
Although we may develop some properties ourselves, a portion of this activity
may also be conducted with joint venture partners. If we develop a property with
a joint venture partner, we may not have the same degree of control over the
property as if we owned it ourselves. In addition, if we develop a property with
a joint venture partner, we will be required to share a portion of the economic
benefits from such property with our joint venture partner.

EXTERNAL GROWTH

As part of our long-term growth strategy, assuming that capital is
available to us on reasonable terms, we intend to continue to acquire additional
office properties. Properties may be acquired separately or as part of a
portfolio and may be acquired for cash and/or in exchange for our debt or equity
securities. These acquisitions may be individual asset transactions, joint
ventures, mergers or other business combinations.

ENVIRONMENTAL EXPOSURE

As an owner of real estate, we are subject to various environmental laws of
federal, state and local governments. Compliance with existing laws has not had
a material adverse effect on our financial condition and results of operations,
and management does not believe it will have such an impact in the future.
However, we cannot predict the impact of unforeseen environmental contingencies
or new or changed laws or regulations on our Properties, properties that we have
sold or on properties that may be acquired in the future.

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EMPLOYEES

As of December 31, 2001, we had approximately 2,700 employees providing
in-house expertise in:

- property management;
- tenant services and business development;
- leasing;
- finance;
- tax;
- property acquisition;
- property development;
- property disposition;
- marketing;
- accounting;
- information systems; and
- law.

The seven executive officers of Equity Office have an average tenure of 10
years with Equity Office or its affiliates and an average of 18 years experience
in the real estate industry.

EXECUTIVE AND SENIOR OFFICERS OF EQUITY OFFICE

As of March 15, 2002, the following executive and senior officers of Equity
Office held the offices indicated:

Set forth below is biographical information for each of the executive
officers of Equity Office:

Timothy H. Callahan has been a trustee, President and Chief Executive
Officer of Equity Office since October 1996. Mr. Callahan also has held the
following positions:

- President and Chief Executive Officer of Equity Office Holdings, L.L.C.
("EOH"), a predecessor of Equity Office, from January 1997 until October
1997 and served on the Board of Managers of EOH from July 1995 until
October 1997;

- Chief Executive Officer of Equity Office Properties, L.L.C. ("EOP LLC"),
a predecessor of Equity Office from August 1996 until October 1997 and
served on the Board of Managers of EOP LLC from July 1995 until October
1997;

- Executive Vice President and Chief Financial Officer of Equity Group
Investments, Inc. ("EGI"), an owner, manager and financier of real estate
and corporate investments, from January 1995 until August 1996;

- Executive Vice President of EGI from November 1994 until January 1995;

- Senior Vice President of EGI from July 1992 until November 1994;

- Vice President -- Finance of the Edward J. DeBartolo Corporation, a
developer, owner and operator of shopping centers, from July 1988 until
July 1992; and

- Various positions at Chemical Bank, a commercial bank located in New
York, New York, from July 1973 until March 1987.

Richard D. Kincaid has been Executive Vice President and Chief Financial
Officer of Equity Office since March 1997 and Chief Operating Officer since
September 2001. Mr. Kincaid also has held the following positions:

- Senior Vice President of Equity Office from October 1996 until March
1997;
- Senior Vice President and Chief Financial Officer of EOH from July 1995
until October 1997;
- Senior Vice President of EGI from February 1995 until July 1995;
- Senior Vice President of the Yarmouth Group, a real estate investment
company in New York, New York, from August 1994 until February 1995;
- Senior Vice President -- Finance of EGI from December 1993 until July
1994;
- Vice President -- Finance of EGI from August 1990 until December 1993;
and
- Vice President of Barclays Bank PLC, a commercial bank located in
Chicago, Illinois, from August 1987 until August 1990.

Peter H. Adams has been Executive Vice President -- Strategic Planning and
Operations of Equity Office since September 2001. Mr. Adams also has held the
following positions:

- Senior Vice President-Strategic Planning and Operations of Equity Office
from May 2000 until September 2001;
- Senior Vice President-Pacific Region of Equity Office from March 1998
until May 2000;
- Regional Vice President-Pacific of Equity Office from July 1997 until
March 1998;
- Vice President/Regional Manager of EOH from March 1997 until October
1997;
- Vice President/Regional Manager of EOP LLC from July 1995 until October
1997;

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- Vice President/Group Manager of Equity Office Properties, Inc. ("EOP,
Inc."), a provider of real estate property management services and a
former subsidiary of EGI, from July 1994 until January 1998; and
- President of Adams Equities, a private real estate consulting firm, from
1990 to 1994.

David A. Helfand has been Executive Vice President and Chief Investment
Officer of Equity Office since September 2001. Mr. Helfand also has held the
following positions:

- Executive Vice President -- Business Development of Equity Office from
February 2000 until September 2001;
- Senior Vice President -- New Business Development of Equity Office from
July 1998 to February 2000;
- Managing Director of Equity International Properties, Ltd., a real estate
investment company, from December 1997 until July 1998;
- Chief Executive Officer of Manufactured Home Communities, Inc. ("MHC"), a
real estate investment trust engaged in the ownership and management of
manufactured home communities, from August 1996 until December 1997;
- President of MHC from January 1995 until July 1996;
- Chief Financial Officer of MHC from December 1992 until February 1995;
and
- Vice President of MHC from March 1994 until January 1995.

Christopher P. Mundy has been Executive Vice President -- Strategic
Planning and Operations of Equity Office since September 2001. Mr. Mundy also
has held the following positions:

- Senior Vice President-Strategic Planning and Operations of Equity Office
from May 2000 until September 2001;
- Senior Vice President-Northeast Region of Equity Office from March 1998
until May 2000;
- Regional Vice President-Northeast of Equity Office from July 1997 until
March 1998;
- Vice President/Regional Manager of EOH from March 1997 until October
1997;
- Vice President/Regional Leasing Director of EOP LLC from July 1995 until
October 1997; and
- Vice President/Regional Leasing Director of EOP, Inc. from September 1993
until January 1998.

David H. Naus has been Executive Vice President -- Real Estate Investments
of Equity Office since November 2000. Mr. Naus also has held the following
positions:

- Senior Vice President -- Real Estate Investments of Equity Office from
December 1999 until November 2000;
- Senior Vice President -- Acquisitions of Equity Office from March 1997 to
December 1999;
- Senior Vice President -- Acquisitions of EOH from December 1995 until
October 1997;
- Vice President -- Acquisitions of EOH from July 1995 until December 1995;
- Vice President -- Acquisitions of EOP, Inc. from November 1993 until July
1995;
- Vice President -- Acquisitions of Equity Assets Management, Inc. ("EAM"),
a provider of real estate asset management services and a former
subsidiary of EGI, from November 1992 until November 1993; and
- Vice President of EAM from October 1988 until November 1992.

Stanley M. Stevens has been Executive Vice President of Equity Office since
September 1996 and Chief Legal Counsel and Secretary of Equity Office since
October 1996. Mr. Stevens also has held the following positions:

- Executive Vice President and General Counsel of EOH from September 1996
until October 1997;
- Vice President of Rosenberg & Liebentritt, P.C., a law firm in Chicago,
Illinois that has since dissolved, from December 1993 until September
1996; and
- Partner at Rudnick & Wolfe, a national law firm based in Chicago,
Illinois, from October 1987 until December 1993.

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COMPETITION

The leasing of real estate is highly competitive. We compete for tenants in
our markets primarily on the basis of property location, rent charged, services
provided and the design and condition of improvements. We also experience
competition when attempting to acquire ownership of desirable real estate,
building sites or redevelopment opportunities, including competition from
domestic and foreign financial institutions, REITs, life insurance companies,
pension trusts, trust funds, partnerships and individual investors.

INDUSTRY SEGMENTS

Our primary business is the ownership and operation of office properties.
Our long-term tenants are in a variety of businesses, and no single tenant is
significant to our business. Information related to this segment for the years
ended December 31, 2001, 2000 and 1999 is set forth in note 19 to the
consolidated financial statements that are part of this Form 10-K.

ITEM 2. PROPERTIES.

All capitalized terms used herein and not otherwise defined shall have the
meaning given in the financial statements and notes thereto set forth in Item 8.
For information regarding encumbrances on our properties, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Debt Financing -- Mortgage
Debt" and "Item 14. Exhibits, Financial Statements, Schedules and Reports on
Form 8-K -- Schedule III -- Real Estate and Accumulated Depreciation as of
December 31, 2001". All of our consolidated properties are held in fee simple
interest, except for approximately 73 properties in which we have leasehold
interests and do not own the land or a portion thereof, and approximately three
office properties in which we own the underlying land or are the mortgage
holder.

GENERAL

Our portfolio, based upon equity market capitalization and square footage,
is the largest portfolio of office properties of any full-service office company
in the United States. At December 31, 2001, we had a portfolio of 774 office
properties comprising approximately 128.2 million square feet of commercial
office space in 23 states and the District of Columbia, 79 industrial properties
comprising approximately 6.0 million square feet and approximately 2.4 million
square feet of office properties under development. Approximately 40.1% of the
total square feet of our office properties is located in central business
districts ("CBDs") and approximately 59.9% is located in suburban markets. At
December 31, 2001, our office properties were approximately 91.8% occupied on a
weighted average basis. No single tenant accounts for more than 1.4% of the
aggregate annualized rent or 2.0% of the aggregate occupied square feet, except
for the U.S. General Services Administration, which accounted for 1.8% of the
aggregate annualized rent and 2.0% of the aggregate occupied square feet.

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All property data presented below are as of December 31, 2001.

OFFICE PROPERTY STATISTICS

The following table sets forth certain data relating to our Office
Properties, including those we own in joint ventures with other partners.

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(a) Annualized rent is the monthly contractual rent under existing leases as of
December 31, 2001, multiplied by 12. Annualized rent per occupied square
foot is annualized rent divided by occupied square feet at December 31,
2001. This amount reflects total base rent before any rent abatements and
includes expense reimbursements from tenants, which may be estimates.

INDUSTRIAL PROPERTY STATISTICS

The following table sets forth certain data relating to our Industrial
Properties. See "Item I. Business -- Spieker Merger" for a discussion of our
recent dispositions of industrial properties.

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(a) Annualized rent is the monthly contractual rent under existing leases as of
December 31, 2001, multiplied by 12. Annualized rent per occupied square
foot is annualized rent divided by occupied square feet at December 31,
2001. This amount reflects total base rent before any rent abatements and
includes expense reimbursements from tenants, which may be estimates.

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LEASE DISTRIBUTION

The following table sets forth information relating to the distribution of
the Office Property leases, based on occupied square feet.

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(a) Reconciliation for total net rentable square feet for Office Properties is
as follows:

(b) Annualized rent is the monthly contractual rent under existing leases as of
December 31, 2001, multiplied by 12. Annualized rent per occupied square
foot is annualized rent divided by occupied square feet at December 31,
2001. This amount reflects total base rent before any rent abatements and
includes expense reimbursements from tenants, which may be estimates.

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LEASE EXPIRATION

The following table sets forth information relating to expiration patterns
of our Office Property leases. (Dollars in thousands, expect per square foot
amounts)

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(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, 2001 multiplied by 12. This amount reflects total base rent
before any rent abatements, but includes expense reimbursements.

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ITEM 3. LEGAL PROCEEDINGS.

EOP Partnership is not presently subject to material litigation nor, to EOP
Partnership's knowledge, is any litigation threatened against EOP Partnership,
other than routine actions for negligence and other claims and administrative
proceedings arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the liquidity, results of
operations, business or financial condition of EOP Partnership.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

There is no established public trading market for the Units. Equity
Office's Common Shares are traded on the New York Stock Exchange ("NYSE") under
the symbol "EOP." On March 15, 2002, there were approximately 554 holders of
record and 472,418,300 Units outstanding, 416,193,708 of which are held by
Equity Office. The high and low sales prices and closing prices on the NYSE and
distributions for the Common Shares during 2001 and 2000 are set forth in the
table below. We paid an equivalent distribution on our Units to the
distributions paid by Equity Office on its Common Shares during each of the
periods presented.

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ITEM 6. SELECTED FINANCIAL DATA.

The following sets forth selected consolidated and combined financial and
operating information on a historical basis for EOP Partnership and its
predecessors ("EOP Partnership Predecessors"). The selected financial data has
been derived from the historical consolidated or combined financial statements
of EOP Partnership and EOP Partnership Predecessors, audited by Ernst & Young
LLP, independent auditors. The following information should be read together
with the consolidated financial statements and notes thereto of EOP Partnership
included in "Item 8. Financial Statements and Supplementary Data".

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(1) On July 2, 2001, EOP Partnership completed its acquisition by merger of
Spieker Partnership at a cost of approximately $7.2 billion. As a result of
the Spieker Merger, EOP Partnership acquired an interest in 391 office
properties containing approximately 28.3 million square feet and 98
industrial properties containing approximately 10.1 million square feet.

(2) On June 19, 2000, EOP Partnership completed its acquisition by merger of
Cornerstone Properties Limited Partnership at a cost of approximately $4.5
billion. As a result of the Cornerstone merger, EOP Partnership acquired an
interest in 82 office properties containing approximately 18.9 million
square feet.

(3) On December 19, 1997, EOP Partnership completed its acquisition by merger of
Beacon Partnership L.P. at a cost of approximately $4.3 billion. As a result
of the Beacon merger, EOP Partnership acquired an interest in 130 properties
containing approximately 20.9 million square feet.

(4) Property operating expenses include real estate taxes, insurance, repairs
and maintenance and other property operating expenses.

(5) Federal, state and local taxes were previously included in general and
administrative expense and are now reflected separately. Accordingly, all
prior periods have been restated.

(6) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines Funds from

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Operations ("FFO") as net income, computed in accordance with generally
accepted accounting principles ("GAAP"), excluding gains (or losses) from
debt restructuring and sales of properties (which EOP Partnership believes
include impairments on properties held for sale), plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. In November 1999, NAREIT issued a National
Policy Bulletin effective January 1, 2000 clarifying the definition of FFO
to include all operating results, both recurring and non-recurring, except
those defined as extraordinary under GAAP. EOP Partnership believes that FFO
is helpful to investors as a measure of the performance of a real estate
company because, along with cash flow from operating activities, financing
activities and investing activities, it provides investors with an
indication of the ability of EOP Partnership to incur and service debt, to
make capital expenditures and to fund other cash needs. EOP Partnership
computes FFO in accordance with standards established by NAREIT, which may
not be comparable to FFO reported by other REITs that do not define the term
in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than EOP Partnership. FFO does not
represent cash generated from operating activities in accordance with GAAP,
nor does it represent cash available to pay distributions and should not be
considered as an alternative to net income, determined in accordance with
GAAP, as an indication of EOP Partnership's financial performance or to cash
flow from operating activities, determined in accordance with GAAP, as a
measure of EOP Partnership's liquidity, nor is it indicative of funds
available to fund EOP Partnership's cash needs, including its ability to
make cash distributions.

EOP Partnership calculates FFO as follows:

(7) Property net operating income is defined as rental income, including tenant
reimbursements, parking and other income less property operating expenses,
including real estate taxes, insurance, repairs and maintenance and other
property operating expenses.

(8) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is
presented because EOP Partnership believes this data is used by some
investors to evaluate EOP Partnership's ability to meet debt service
requirements. EOP Partnership considers EBITDA to be an indicative measure
of its operating performance due to the significance of EOP Partnership's
long-lived assets and because this

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data can be used to measure EOP Partnership's ability to service debt, fund
capital expenditures and expand its business. However, this data should not
be considered as an alternative to net income, operating profit, cash flow
from operations or any other operating or liquidity performance measure
prescribed by GAAP. In addition, EBITDA as calculated by EOP Partnership may
not be comparable to similarly titled measures reported by other companies.
Interest expense, taxes, depreciation and amortization, impairment on
securities and other investments, impairment on assets held for sale and
cumulative effect of a change in accounting principle which are not
reflected in the presentation of EBITDA, have been, and will or may be,
incurred by EOP Partnership. Investors are cautioned that these excluded
items are significant components in understanding and assessing EOP
Partnership's financial performance.

EOP Partnership calculates EBITDA as follows:

19

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

OVERVIEW

The following discussion and analysis of our consolidated financial
condition and results of operations should be read together with our
consolidated financial statements and notes thereto contained in this Form 10-K.
Terms employed herein as defined terms, but without definition, shall have the
meaning set forth in the notes to the financial statements.

During the year ended December 31, 2001, we completed the following key
transactions:

- Acquired Spieker Partnership by merger for approximately $7.2 billion;
- Issued $1.4 billion of unsecured notes in two tranches, consisting of
$1.1 billion of 7.00% notes due 2011 at an all-in cost of 6.86% and $300
million of 7.875% notes due 2031 at an all-in cost of 7.94%;
- Increased the quarterly Unit distribution 11% from $0.45 to $0.50 per
Unit;
- Acquired Three Lafayette Centre, an office building located in
Washington, D.C. consisting of approximately 259,441 square feet for
approximately $68.7 million;
- Sold eight office properties, four parking facilities, a land parcel and
an apartment property for approximately $327.8 million;
- Sold approximately 4.1 million square feet of the industrial portfolio
for approximately $213.4 million; and
- Redeemed all 4,250,000 outstanding Series D preferred units for
approximately $107.4 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 1 to the
consolidated financial statements included in Item 8 of this Form 10-K. We
believe our most critical accounting policies include revenue recognition,
allowance for doubtful accounts, impairment of long-lived assets, depreciation
and the fair value of financial instruments including derivative instruments,
each of which we discuss below.

REVENUE RECOGNITION

We recognize revenue in accordance with SEC Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (SAB 101), as amended. SAB 101
requires that four basic criteria must be met before revenue can be recognized:

- persuasive evidence of an arrangement exists;

- delivery has occurred or services rendered;

- the fee is fixed and determinable; and

- collectibility is reasonably assured.

If we incorrectly determine the collectibility of our revenue, the timing
and amount of our reported revenue could be adversely affected.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Rental revenue from our tenants is our principal source of revenue. We
monitor the liquidity and creditworthiness of our tenants on an on-going basis.
Based on these reviews, we establish provisions, and maintain an allowance, for
doubtful accounts for estimated losses resulting from the possible inability of
our tenants to make required rent payments to us. An allowance for doubtful
accounts is recorded during each period and is netted against rental revenue in
our consolidated statements of operations. The allowance for doubtful accounts,
which represents the cumulative allowances less write-offs of uncollectible
rent, is netted against tenant and other receivables on our consolidated balance
sheets. If we incorrectly estimate the required allowances for doubtful
accounts, our financial condition and results of operations could be adversely
affected.

20

IMPAIRMENT OF LONG-LIVED ASSETS

Under GAAP, we are required to record at fair value any of our long-lived
assets that we have determined to be permanently impaired. Our long-lived assets
consist primarily of our investments in real estate and unconsolidated joint
ventures, but we also have investments in preferred securities and notes
receivable. The fair value of our investments in real estate and unconsolidated
joint ventures depends on the future cash flows from operations of the
properties or joint ventures. The fair value of our investments in preferred
securities and notes receivable depends on the underlying fair value of the
issuer. In assessing potential impairment for our investments, we consider these
factors. If these factors result in a fair value that is less than our carrying
value, an impairment may be recognized if we determine the loss to be permanent.
During 2001, we recognized an impairment of approximately $2.5 million on an
investment in an unconsolidated joint venture that was subsequently sold. Also
during 2001, we recognized an impairment of approximately $132.7 million on
several investments in securities and other investments. Of this amount,
securities and other investments with carrying values of $125.7 million were
entirely written-off. If we do not recognize impairments at appropriate times
and in appropriate amounts, our consolidated balance sheet may overstate the
value of our long-lived assets.

DEPRECIATION

We compute depreciation on our Properties using the straight-line method
based on an estimated useful life of 40 years. A significant portion of the
acquisition cost of each property is allocated to building (usually 85% to 90%
unless the property is subject to a ground lease in which case 100% of the
acquisition cost is allocated to building). The allocation of the acquisition
cost to building and the determination of the useful life are based on
management's estimates. If we do not allocate appropriately to building or we
incorrectly estimate the useful life of our Properties, our computation of
depreciation will not appropriately reflect the allocation of our capital
expenditures over future periods.

FAIR VALUE OF FINANCIAL INSTRUMENTS

We are required to determine quarterly the fair value of our mortgage debt
and unsecured notes. We are also required quarterly to adjust the carrying
values of interest rate swaps and caps, as well as the underlying hedged
liability, to its fair value. In determining the fair value of these financial
instruments, we use third party quotations and internally developed models that
are based on current market conditions. For example, in determining the fair
value of our mortgage debt and unsecured notes, we discount the spread between
the future contractual interest payments and future interest payments based on a
current market rate. In determining the current market rate, we add a market
spread to the quoted yields on federal government debt securities with similar
maturity dates to our own debt. The market spread estimate is based on our
historical experience in obtaining either secured or unsecured financing and
also is affected by current market conditions. In determining the fair value of
interest rate swaps and caps, we rely on third party quotations to adjust these
instruments, as well as the hedged liability, to its fair value. Because our
valuations of our financial instruments are based on these types of estimates,
the fair value of our financial instruments may change if our estimates do not
turn out to be accurate.

SPIEKER MERGER

On July 2, 2001, Spieker merged into Equity Office and Spieker Partnership
merged into EOP Partnership. The transaction, which was accounted for by the
purchase method, valued Spieker, including the outside interests in Spieker
Partnership, at approximately $7.2 billion, which included transaction costs,
the assumption of approximately $2.1 billion in debt and the issuance of 14.25
million of our preferred units valued at approximately $356.3 million. We paid
approximately $1.1 billion in cash and Equity Office issued approximately 101.5
million of its Common Shares, and we issued approximately 16.7 million of our
Units to third parties, each valued at $29.29 per Common Share/Unit. The $1.1
billion cash portion of the purchase price was financed using a combination of
available cash and a new $1.0 billion bridge loan facility that was entered into
before the closing of the Spieker Merger. The $1.0 billion bridge loan facility
had a term of 364 days and an interest rate based on LIBOR plus 80 basis points.
The $1.0 billion bridge loan facility was repaid in full with the net proceeds
from the issuance of $1.4 billion of unsecured notes in July 2001 and then

21

terminated. As a result of the Spieker Merger, we acquired 391 office properties
consisting of approximately 28.3 million square feet, 98 industrial properties
consisting of approximately 10.1 million square feet and several development
properties.

We subsequently sold 19 of the industrial properties that were acquired in
the Spieker Merger for approximately $213.4 million. There was no gain or loss
on the sale of these properties. These industrial properties are located in
California and Oregon and consist of approximately 4.1 million square feet.

Shortly after completion of the Spieker Merger, Equity Office expanded its
Board of Trustees from 13 to 16 members. The new members are Warren E. Spieker,
Jr., previous chairman of Spieker, and Craig G. Vought and John A. Foster,
previous Co-Chief Executive Officers of Spieker.

CORNERSTONE MERGER

On June 19, 2000, Cornerstone Properties Inc. ("Cornerstone") merged into
Equity Office and Cornerstone Properties Limited Partnership ("Cornerstone
Partnership"), Cornerstone's operating partnership subsidiary, merged into EOP
Partnership (collectively, the "Cornerstone Merger"). The transaction, which was
accounted for by the purchase method, valued Cornerstone, including the outside
interests in Cornerstone Partnership, at approximately $4.5 billion, which
included transaction costs, the assumption of approximately $1.7 billion in
debt, the redemption of 3.0 million shares of Cornerstone preferred stock valued
at $18.00 per share, including accrued but unpaid dividends for a total of
approximately $57.6 million, the redemption of approximately 58.5 million shares
of Cornerstone common stock valued at $18.00 per share for a total of
approximately $1.1 billion, the issuance of approximately 51.2 million Common
Shares by Equity Office and the issuance by us of approximately 12.4 million
Units each valued at $24.68 per Common Share/Unit. We financed the $1.2 billion
in cash from our credit facilities.

RESULTS OF OPERATIONS

GENERAL

The following discussion is based primarily on the consolidated financial
statements of EOP Partnership as of December 31, 2001 and 2000, and for the
years ended December 31, 2001, 2000 and 1999.

We receive income primarily from rental revenue from the Office Properties,
including reimbursements from tenants for certain operating costs, from parking
revenue from Office Properties and parking facilities (including rental revenue
from our stand-alone parking facilities) and from rental revenue from Industrial
Properties. As a result of the current slowdown in economic activity, there has
been a decrease in our occupancy rates and a decline in rents for our Office
Properties in most major markets in which we own Properties. At December 31,
2001, Office Properties in our top 20 markets, in which approximately 91% of our
Office Properties based on square footage are located, were 92.0% occupied
compared to 95.1% at December 31, 2000. Office Properties in our top five
markets (San Francisco, Boston, San Jose, Seattle and Chicago), in which
approximately 42% of our Office Properties based on square footage are located,
were 92.5% occupied compared to 97.7% at December 31, 2000, with the occupancy
rates in our top five markets ranging from 86.8% for Office Properties in San
Francisco to 97.2% in Boston. Average rents for new office leases for which the
tenants have occupied the space during the relevant period for our entire
portfolio, which may lag behind market rents because leasing decisions typically
are made anywhere from one month to 12 months prior to taking occupancy, were
approximately $30.76 per square foot for the quarter ended December 31, 2001,
compared to $31.08 per square foot for the quarter ended September 30, 2001 and
$32.48 per square foot for the quarter ended December 31, 2000. These declines,
which vary by market, reflect the downward trend in market rents due to the
continued slowdown in economic activity. At December 31, 2001, leases for 15.4
million square feet, including month-to-month leases, or 12.0% of the office
portfolio, will expire in 2002. We believe that it is too soon to draw any
conclusions about where occupancy rates or market rents ultimately will
stabilize. Further decreases in occupancy rates and/or further declines in rents
could adversely affect our revenues and results of operations in subsequent
periods.

22

In addition to the downward trends in occupancy and market rents, we have
experienced an increase in the amount of uncollectible receivables relating to
tenants in bankruptcy and tenants that are having financial difficulties.
Although we have substantial collateral from many of our tenants, additional
write-offs may occur in subsequent periods. Future rental income may also be
affected by early lease terminations. In either of these circumstances, we may
not be able to collect the full amount that was due under the leases and could
incur additional cost in re-leasing the space.

As a result of the terrorist acts on September 11, 2001, we have realized
increased costs for property insurance and safety and security. We believe that
these increased costs will remain higher than similar costs incurred in previous
periods for the foreseeable future. Substantially all of the office leases
require the tenant to pay, as additional rent, a portion of any increases in
these operating expenses over a base amount. We believe a significant portion of
any increase in these operating expenses will be offset by expense
reimbursements from tenants.

Below is a summary of our acquisition and disposition activity since
January 1, 2000. The buildings and total square feet shown include Properties we
own in joint ventures with other partners and reflects the total square feet of
the Properties. Excluding the joint venture partners' share of the square feet
of these Properties, we effectively owned 122.0 million square feet of office
space as of December 31, 2001.

- ---------------

(a) Building remeasurements during 2001 relate to the Office Properties and
Industrial Properties acquired in the Spieker Merger. The initial property
count was based on a count prepared prior to the Spieker Merger by the
former management of Spieker. We count our properties based on the actual
number of buildings at the property, which is different than the method used
by the former management of Spieker.

Primarily as a result of the Spieker Merger in July 2001, the Cornerstone
Merger in June 2000 and the disposition of certain properties, the financial
data presented show significant changes in revenues and expenses from
period-to-period. Therefore, we do not believe our period-to-period financial
data are necessarily comparable. The following analysis shows changes
attributable to the Properties that were held during the entire period for the
periods being compared (the "Core Portfolio") and the changes in our aggregate
total portfolio of Properties (the "Total Portfolio").

As reflected in the tables below, property revenues include rental
revenues, reimbursements from tenants for certain expenses, parking revenue and
other property operating revenues. Property operating expenses include real
estate taxes, insurance, repairs and maintenance and other property operating
expenses.

23

COMPARISON OF YEAR ENDED DECEMBER 31, 2001 TO DECEMBER 31, 2000

The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 287 Office Properties and
five parking facilities acquired or placed in service on or prior to January 1,
2000.

Property Revenues

The increase in property revenues in the Total Portfolio is primarily due
to the properties acquired in the Spieker Merger in 2001 and the Cornerstone
Merger in 2000. The increase in property revenues in the Core Portfolio resulted
primarily from an increase in rental rates and an increase in lease termination
fees partially offset by the write-off of uncollectible receivables and a
decrease in occupancy. The weighted average occupancy of the Core Portfolio
decreased from 93.9% at January 1, 2000 to 91.8% at December 31, 2001,

24

mainly due to tenant rollover at various properties where the space was not
re-leased due to the current slowdown in economic activity. As a result of the
current slowdown in economic activity, we also have experienced an increase in
the amount of uncollectible receivables relating to tenants in bankruptcy and
tenants that are having financial difficulties. The amount of bad debts written
off for the year ended December 31, 2001 was approximately $26.1 million as
compared to $6.3 million for the prior period. Although we have substantial
collateral from many of our tenants, additional write-offs may occur in
subsequent periods. Included in property revenues are lease termination fees.
These fees relate to specific tenants, each of whom has paid a fee to terminate
its lease obligations before the end of the contractual term of the lease.
Although we have historically received such termination fees, there is no way of
predicting the timing or amounts of future lease termination fees.

Interest Expense

Total Portfolio interest expense increased from the prior period as a
result of having a higher average outstanding debt balance as compared to the
prior period, mainly as a result of the Spieker Merger and the Cornerstone
Merger, partially offset by interest rate swap agreements which converted the
fixed interest rate to a variable interest rate for a portion of our unsecured
notes. In addition, set forth below are additional statistics for the Total
Portfolio relating to our interest expense during the periods:

- Total debt to total assets decreased to 46.5% from 46.8%;
- Interest coverage ratio (calculated as EBITDA divided by interest
expense, including our share of interest expense of unconsolidated joint
ventures) increased to 2.8 times from 2.7 times; and
- Weighted average interest rate decreased to 7.0% from 7.5%.

Interest expense on unsecured notes and the line of credit are not
reflected in the Core Portfolio.

Depreciation and Amortization

Total Portfolio depreciation and amortization expense increased from the
prior period primarily as a result of the Spieker Merger in July 2001, the
Cornerstone Merger in June 2000 and capital and tenant improvements made during
the periods. Core Portfolio depreciation and amortization expense increased as a
result of capital and tenant improvements made during the periods.

Property Operating Expenses

Total Portfolio property operating expenses increased mainly as a result of
the Spieker Merger in 2001 and the Cornerstone Merger in 2000. Core Portfolio
property operating expenses increased mainly as a result of increases in
utilities of $8.3 million consisting primarily of electricity expense, increases
in repairs and maintenance of approximately $6.4 million primarily due to higher
wages and increases in contract services, increases in insurance expenses of
approximately $1.1 million due to higher premiums and an increase in real estate
taxes of approximately $4.6 million. Substantially all of the office leases
require the tenant to pay, as additional rent, a portion of any increases in
operating expenses over a base amount. We believe a substantial portion of any
future increase will be offset by expense reimbursements from tenants, which are
included in property revenues.

General and Administrative Expenses

General and administrative expenses increased due to an increase in the
number of employees at the corporate and regional offices as a result of the
Spieker Merger and the Cornerstone Merger. Although general and administrative
expenses are subject to increase along with any increase in the size of the
portfolio, it is also anticipated that economies of scale may be realized with
future growth, should it occur.

Impairment on Securities and Other Investments and Assets Held for Sale

During 2001, an impairment on securities and other investments of
approximately $132.7 million was recognized in connection with various
investments and other assets. The total impairment consisted of our

25

investment in HQ Global Workplaces, Inc. ("HQ Global") Series A Convertible
Cumulative Preferred Stock (the "HQ Preferred Stock"), including accrued but
unpaid dividends, of approximately $90.6 million, our investments in several
telecom, technology and advertising related companies, our investments in two
full-service business center joint ventures, and a portion of our investment in
an internally developed software system.

During the latter part of 2001, HQ Global was in default with respect to
certain covenant and payment obligations under its senior and mezzanine
indebtedness but received forbearance periods from both its senior and mezzanine
lenders. HQ Global was unable to restructure its indebtedness during these
forbearance periods. Based on these circumstances and other factors, we have
determined that our investment in HQ Global was not recoverable and, therefore,
we recorded a permanent impairment on 100% of our investment. Subsequently, in
March 2002 HQ Global filed a voluntary petition for relief under Chapter 11 of
the U.S. Bankruptcy Code. As of December 31, 2001, HQ Global occupied
approximately 0.8 million square feet in our Office Properties. The annualized
rent, including expense reimbursements, for this space for 2002 is approximately
$22.0 million. As of March 2002, we do not know what impact, if any, that the HQ
Global Chapter 11 bankruptcy filing will have on their leases with us.

Our telecom, technology and advertising related investments and
full-service business center joint venture investments have been experiencing
operating losses due, in part, to the current economic environment. These
investments were considered to be impaired based on their current fair value as
compared to the carrying value. The fair value of the investments was based on
internally prepared valuations considering current economic conditions. The
impairments represent our entire investment in the respective assets, except for
the internally developed software system, for which the impairment represented
approximately one-half of the investment. These investments and the related
impairment are reported under the "Corporate and Other" segment for segment
reporting purposes.

During 2001, an impairment on assets held for sale of approximately $2.5
million was recognized in connection with the sale of the St. Louis Parking
Garage located in St. Louis, Missouri. The property was sold in January 2002.
The sales price less costs to sell was less than the carrying amount of the
property as of December 31, 2001. We had a 50% interest in the property and
accounted for its investment using the equity method of accounting. Our share of
the net income from the property is included in "Income from Unconsolidated
Joint Ventures" and was approximately $1.7 million, $2.0 million and $1.7
million for the years ended December 31, 2001, 2000 and 1999, respectively.

Income from Investment in Unconsolidated Joint Ventures

Income from investment in unconsolidated joint ventures increased for the
Total Portfolio due to an increase in property revenues at several Office
Properties and the acquisition of an interest in 1301 Avenue of the Americas
office property in August 2000.

Net Gain on Sales of Real Estate

Net gain on sales of real estate increased due to the combined gross sales
price in excess of book value at the time of disposition for the real estate
assets sold in 2001 being more than the combined gross sales price in excess of
book value at the time of disposition for the real estate assets sold in 2000.

Extraordinary Items

The $10.4 million extraordinary loss in 2001 consisted of a $5.0 million
prepayment penalty and the write-off of approximately $4.4 million of
unamortized mark-to-market adjustments relating to the prepayment of $185
million of mortgage debt (See "Item 8. Financial Statements and Supplementary
Data -- Note 22 -- Related Party Transactions, subfootnote (1)") and the
repayment of approximately $32.6 million of mortgage debt on parking facilities
sold. The remaining $1.0 million related to costs on certain Office Properties
located in Seattle, Washington as a result of the earthquake in February 2001.
The extraordinary loss of approximately $1.8 million in 2000 related to the
write-off of unamortized deferred loan costs and unamortized discounts and
premiums and pre-payment penalties related to the early extinguishment of debt.
26

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO DECEMBER 31, 1999

The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio consisting of 265 Office Properties and
seven Parking Facilities acquired or placed in service on or prior to January 1,
1999.

Property Revenues

The increase in property revenues in the Total Portfolio is primarily due
to the properties acquired in the Cornerstone Merger in 2000. The increase in
property revenues in the Core Portfolio resulted from an increase in rental
rates partially offset by a decrease in occupancy. The weighted average
occupancy of the Core Portfolio decreased from 95.3% at January 1, 1999 to 94.4%
at December 31, 2000, mainly due to tenant rollover at various properties.
Included in property revenues are lease termination fees. These fees relate to
specific tenants who have paid a fee to terminate their lease obligations before
the end of the contractual term of their lease. Although we have historically
experienced similar levels of such termination fees, there is no way of
predicting the timing or amounts of future lease termination fees.

27

Interest/Dividend Income

Total Portfolio interest/dividend income increased primarily as a result of
a $75 million investment in May 2000 in the HQ Preferred Stock. The HQ Preferred
Stock had an initial dividend rate of 13.5% per annum, which increases by 50
basis points each year through maturity in 2007. Interest/dividend income also
increased as a result of a $73.9 million investment in September 1999 in a
mezzanine-level debt position related to the SunAmerica Center office property.
Our share of the face amount of the note is approximately $136.0 million, bears
interest at 7.25% and matures August 31, 2014. We also earned interest from
property disposition proceeds held in escrow accounts. The amounts in escrow
will be utilized for property acquisitions or returned to us.

Interest Expense

Total Portfolio interest expense increased from the prior period as a
result of having a higher average outstanding debt balance as compared to the
prior period, mainly as a result of the Cornerstone Merger, and an increase in
the weighted average interest rate. In addition, the following additional
statistics for each period for the Total Portfolio are as follows:

- Total debt to total assets increased to 46.8% from 41.7%;

- Interest coverage ratio (calculated as EBITDA divided by interest
expense, including our share of interest expense of unconsolidated joint
ventures) decreased to 2.7 times from 2.9 times; and

- Weighted average interest rate increased to 7.5% from 7.2%.

Core Portfolio interest expense decreased from the prior period due to the
paydown of mortgage debt on certain Properties partially offset by the financing
of Park Avenue Tower and 850 Third Avenue. Interest expense on unsecured notes
and the lines of credit are not reflected in the Core Portfolio.

Depreciation and Amortization

Total Portfolio depreciation and amortization expense increased from the
prior period as a result of Properties acquired in the Cornerstone Merger and
capital and tenant improvements made during the periods. Core Portfolio
depreciation and amortization expense increased as a result of capital and
tenant improvements made during the periods.

Property Operating Expenses

Total Portfolio property operating expenses increased mainly as a result of
the Cornerstone Merger in 2000. Core Portfolio property operating expenses
increased mainly as a result of increases in real estate taxes and other
operating expenses. Real estate taxes increased approximately $11.9 million due
to higher property tax assessments. Other operating expenses increased
approximately $21.7 million primarily due to higher repairs and maintenance
costs, increased utility costs and an increase in expenses at certain properties
that were under development.

General and Administrative Expenses

General and administrative expenses increased due to an increase in the
number of employees at the corporate office as a result of the establishment of
new revenue-producing business groups and the hiring of additional personnel in
other corporate groups, primarily the information technology group. In addition,
general and administrative expenses increased as a result of hiring additional
personnel due to the Cornerstone Merger, which was anticipated. Although general
and administrative expenses are expected to increase along with any increase in
the size of the portfolio, it is also anticipated that economies of scale will
be realized with future growth, should it occur.

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Income from Investment in Unconsolidated Joint Ventures

Income from investment in unconsolidated joint ventures increased for the
Total Portfolio due to the acquisition of an interest in 1301 Avenue of the
Americas office property in August 2000 and the partial sale of 12 Office
Properties in December 1999 and two Office Properties in June 2000. EOP
Partnership retained an equity interest in these Office Properties that were
partially sold and accounts for its remaining interests under the equity method
of accounting. Prior to the sale, the results of operations of such Office
Properties were consolidated.

Net Gain on Sales of Real Estate

Net gain on sales of real estate decreased due to the combined gross sales
price in excess of book value at the time of disposition for the seven office
properties, 11 parking facilities and the partial sale of two office properties
in 2000 being less than the combined gross sales price in excess of book value
at the time of disposition for four office properties and the partial sale of 12
Office Properties in 1999.

PROPERTY DISPOSITIONS

EOP Partnership has disposed or partially disposed of the following office
properties consisting of approximately 2.5 million square feet, industrial
properties consisting of approximately 4.1 million square feet and parking
facilities since January 1, 1999:

- ---------------

(1) The industrial properties were all acquired in the Spieker Merger.

29

(2) Biltmore Apartments is a residential property which is part of the 177 Broad
Street Office Property

(3) These Office Properties were partially sold. EOP Partnership accounts for
its remaining interest in these Office Properties under the equity method of
accounting.

(4) Media Center was a development site.

(5) Consists of two office properties.

(6) Consists of two parking facilities.

Below is a summary of the results of operations of these properties through
their respective disposition dates:

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

Net cash flow from operations represents the primary source of liquidity to
fund distributions, debt service, capital improvements and non-revenue enhancing
tenant improvements. We expect that our line of credit will provide for funding
of working capital and revenue enhancing tenant improvements, unanticipated cash
needs as well as acquisitions and development costs. Our net cash flow from
operations is dependent upon the occupancy level of our properties, the
collectibility of rent from our tenants, the level of operating and other
expenses, and other factors. Material changes in these factors may adversely
affect our net cash flow from operations. Such changes, in turn, would adversely
affect our ability to fund distributions, debt service, capital improvements and
non-revenue enhancing tenant improvements. In addition, a material adverse
change in our net cash flow from operations may affect the financial performance
covenants under our line of credit and unsecured notes. If we fail to meet any
of our financial performance covenants our line of credit may become unavailable
to us, or the interest charged on the line of credit may increase. Either of
these circumstances could adversely affect our ability to fund working capital
and revenue enhancing tenant improvements, unanticipated cash needs,
acquisitions and development costs. In order to qualify as a REIT for federal
income tax purposes, Equity Office must distribute at least 90% of its REIT
taxable income (excluding capital gains). Our partnership agreement generally
requires us to distribute substantially all of the net cash from operations each
quarter and to make reasonable efforts to distribute to Equity Office enough
cash for it to meet the 90% distribution requirement. Accordingly, we currently
intend to continue to make

30

regular quarterly distributions to holders of Units and preferred units. Subject
to the foregoing, we have established quarterly distribution rates which, if
annualized, would be as follows:

Since our anticipated distributions will not allow us to retain sufficient
cash to repay all of our debt as it comes due using only cash from operations,
we will be required to repay maturing debt with proceeds from debt and/or equity
offerings. There can be no assurance that such financing will be available on
acceptable terms or at all.

CONTRACTUAL OBLIGATIONS

As of December 31, 2001, we were subject to the following contractual
payment obligations:

COMMITMENTS

In accordance with the agreement governing the investment in Wright Runstad
Associates Limited Partnership ("WRALP"), we agreed, for a period generally
continuing until December 31, 2007, to make available to WRALP up to $20.0
million in additional financing or credit support for future development. As of
December 31, 2001, no amounts have been funded pursuant to this agreement.
However, EOP Partnership has guaranteed WRALP's current line of credit, which
has an outstanding balance of approximately $13.5 million as of December 31,
2001.

We have agreed to loan amounts in connection with certain development
projects as described in "Developments" subfootnote (c) later in this section.

DEBT FINANCING

The table below summarizes our mortgage debt, unsecured notes and line of
credit indebtedness at December 31, 2001 and 2000, including a net unamortized
discount on mortgage debt of $(11.8) million and $(17.8) million, respectively,
and a net unamortized premium/(discount) on unsecured notes of $17.5 million

31

and $(3.8) million, respectively, recorded in connection with property
acquisitions, mergers and the issuance of unsecured notes.

- ---------------

(1) The variable rate debt as of December 31, 2001 includes $817 million of
fixed rate unsecured notes that were converted to a variable rate based on
various spreads over LIBOR through several interest rate swap agreements.

(2) The variable rate debt bears interest at a rate based on various spreads
over LIBOR.

Mortgage Debt

As of December 31, 2001, total mortgage debt (excluding our share of
unconsolidated debt of approximately $848.9 million) consisted of approximately
$2.6 billion of fixed rate debt with a weighted average interest rate of
approximately 7.7% and $36.0 million of variable rate debt based on LIBOR plus
55 basis points (as of December 31, 2001, the variable rate was approximately
2.6%). Our mortgage debt at December 31, 2001 will mature as follows:

The instruments encumbering the properties restrict transfer of the
respective properties subject to the terms of the mortgage, prohibit additional
liens, require payment of real estate taxes on the properties, maintenance of
the properties in good condition, maintenance of insurance on the properties and
a requirement to obtain lender consent to enter into material tenant leases.

32

Line of Credit

We have a $1.0 billion revolving credit facility that was obtained in May
2000. The line of credit bears interest at LIBOR plus 60 basis points and
matures on June 19, 2003. There is also an annual facility fee of $2.0 million
payable quarterly. In addition, a competitive bid option, whereby the lenders
participating in the credit facility bid on the interest to be charged, is
available for up to $350 million of the borrowings under the credit facility.
Equity Office has guaranteed outstanding obligations under the line of credit.

Term Loan Facility

Prior to the closing of the Spieker Merger on July 2, 2001, we obtained a
$1.0 billion bridge term facility to finance a portion of the cash portion of
the purchase price of the Spieker Merger. This $1.0 billion bridge term facility
had a term of 364 days and an interest rate based on LIBOR plus 80 basis points.
The $1.0 billion bridge loan facility was repaid and terminated on July 18, 2001
with proceeds from a $1.4 billion unsecured notes offering.

Unsecured Notes

Unsecured notes increased to approximately $9.1 billion at December 31,
2001 compared to approximately $5.8 billion at December 31, 2000, as a result of
approximately $1.9 billion of unsecured notes of Spieker Partnership assumed in
the Spieker Merger and $1.4 billion of unsecured notes issued by EOP
Partnership. The table below summarizes the unsecured notes outstanding as of
December 31, 2001:

33

34

- ---------------

(a) Includes the cost of terminated interest rate protection and swap
agreements, offering and transaction costs and premiums and discounts on
certain unsecured notes.

(b) These notes were repaid upon maturity. In February 2002, we issued $500
million of unsecured notes due February 2012. These notes are guaranteed by
Equity Office. The coupon interest rate of the notes is 6.75% per annum with
interest payable semiannually. The effective interest rate, which includes
amortization of the discount and other offering costs, is approximately
7.0%. Total cash proceeds, net of selling commissions and other expenses,
were approximately $235.9 million. Approximately $260.0 million of the
aggregate principal amount of the notes was exchanged for $250 million of
the aggregate principal amount of our outstanding 6.376% Mandatory Par Put
Remarketed Securities(SM) due February 15, 2012, which were subject to
mandatory redemption and a remarketing agreement. The remaining net proceeds
were used to repay our line of credit and for general business purposes,
including working capital.

(c) The notes are guaranteed by Equity Office.

(d) The notes are exchangeable into Equity Office Common Shares at an exchange
rate of $34.00 per share. If the closing price at the time a holder
exercises its exchange right is less than the exchange price of $34.00, the
holder will receive, in lieu of Common Shares, cash in an amount equal to
97% of the product of the number of Common Shares into which the principal
amount of notes subject to such exercise would otherwise be exchangeable and
the current market price per Common Share. Upon exchange of a $1,000 note
for Common Shares of Equity Office, EOP Partnership would issue a
corresponding number of Units to Equity Office on a one-for-one basis.

(e) As of December 31, 2001, $817 million of unsecured notes were converted to a
variable interest rate based on a spread over the 6-month LIBOR rate through
several interest rate swap arrangements.

We filed a shelf registration statement, which was declared effective by
the SEC on August 31, 2000, relating to the issuance from time to time of up to
$2.0 billion of unsecured debt securities and warrants exercisable for debt
securities in amounts, at initial prices and on terms to be determined at the
time of the offering. In November 2000, we issued $1.0 billion of unsecured
notes under this registration statement.

Equity Office and we subsequently filed a shelf registration statement,
which was declared effective by the SEC on July 19, 2001, relating to the
issuance from time to time of up to an additional $3.0 billion of our unsecured
debt securities and warrants exercisable for debt securities in amounts, at
initial prices and on terms to be determined at the time of the offering, plus
up to $4.0 billion of guarantees by Equity Office. The $1.0 billion unused
portion of the August 2000 registration statement was also added to the June
2001 registration statement. In July 2001, we issued $1.4 billion of unsecured
notes under this registration statement, all of which were guaranteed by Equity
Office. In February 2002, we issued an additional $500 million of unsecured
notes under this registration statement, all of which were also guaranteed by
Equity Office. As a result of these issuances, $2.1 billion of unsecured debt
securities and related guarantees remain available for issuance under the June
2001 shelf registration statement.

Restrictions and Covenants under Unsecured Indebtedness

Agreements or instruments relating to our unsecured notes and line of
credit contain certain financial restrictions and requirements described below.
As of December 31, 2001, we were in compliance with each of these financial
restrictions and requirements.

Set forth below are the financial restrictions and requirements to which we
are subject under our line of credit agreement:

- total liabilities to total asset value may not exceed 0.55:1 at any time;

- EBITDA to interest expense may not be less than 2.00:1;

- cash flow to fixed charges may not be less than 1.5:1;

35

- secured debt to total asset value may not exceed 0.40:1;

- unsecured debt to unencumbered asset value may not exceed 0.55:1;

- unencumbered net operating income to unsecured debt service may not be
less than 2.0:1;

- consolidated tangible net worth may not be less than the sum of $7.8
billion and 70% of all net offering proceeds received by Equity Office or
EOP Partnership after February 29, 2000;

- we may not pay any distributions on Common Shares and Units in excess of
90% of annual FFO; and

- our investments in unimproved assets, interest in taxable REIT
subsidiaries, developments, unconsolidated joint ventures, mortgages and
securities, in the aggregate, may not exceed 25% of our total asset
value.

Set forth below are the financial restrictions and requirements to which we
are subject under our unsecured note indentures:

- debt to adjusted total assets may not exceed 0.60:1;

- secured debt to adjusted total assets may not exceed 0.40:1;

- consolidated income available for debt service to annual debt service
charge may not be less than 1.50:1; and

- total unencumbered assets to unsecured debt may not be less than 1.50:1.

EQUITY SECURITIES

A summary of the activity of Equity Office's Common Shares, redeemable
common shares, and EOP Partnership's Units (exclusive of Units owned by Equity
Office) during the year ended 2001 is as follows:

At December 31, 2001, Equity Office owned a total of 414,548,673 Units.
Each limited partner of EOP Partnership, excluding Equity Office, may, subject
to certain limitations, require that EOP Partnership redeem its Units. Under the
partnership agreement of EOP Partnership, Equity Office has the right to assume
directly and satisfy the redemption right of a limited partner by issuing its
Common Shares or cash in exchange for any Units tendered for redemption. If
Equity Office does not assume EOP Partnership's obligation to redeem the Units,
upon redemption, the limited partner will receive cash from EOP Partnership in
an amount equal to the market value of the Common Shares for which the Units
would have been redeemed if Equity Office had elected to assume and satisfy EOP
Partnership's obligation by paying Common Shares. Under an assignment

36

and assumption agreement entered into with EOP Partnership on June 29, 2001, if
Equity Office elects to assume directly and satisfy the redemption right of a
limited partner, EOP Partnership is entitled to make the election as to whether
Equity Office issues Common Shares or cash in exchange for Units tendered for
redemption.

In connection with the Spieker Merger, Equity Office issued on July 2,
2001, three new series of preferred shares. A total of 4,250,000 9.45% Series D
preferred shares, 6,000,000 7.875% Series E preferred shares and 4,000,000 8.0%
Series F preferred shares were issued.

On July 2, 2001, EOP Partnership issued a corresponding number of Series D,
E and F preferred units. All of the Series E and F preferred units were owned by
Equity Office at December 31, 2001. In November 2001, Equity Office redeemed all
of the 4,250,000 outstanding Series D preferred shares for an aggregate
redemption price of approximately $107.4 million. Equity Office has elected to
redeem all of the Series D preferred units owned by it in connection with the
redemption of its outstanding Series D preferred shares.

CASH FLOWS

The following summary discussion of our cash flows is based on the
consolidated statements of cash flows in "Item 8. -- Financial Statements and
Supplementary Data" and is not meant to be an all-inclusive discussion of the
changes in our cash flows for the periods presented below.

YEARS ENDED DECEMBER 31, 2001 AND 2000

Cash and cash equivalents increased by approximately $7.9 million to
approximately $61.1 million at December 31, 2001, compared to $53.3 million at
December 31, 2000. This increase was the net result of the receipt of
approximately $1,241.6 million from operating activities, approximately $1,348.2
million used for investing activities (consisting primarily of approximately
$1,077.0 million used for the acquisition of Spieker and approximately $437.7
million used for capital and tenant improvements and lease acquisition costs)
and approximately $114.5 million from financing activities.

YEARS ENDED DECEMBER 31, 2000 AND 1999

Cash and cash equivalents increased by approximately $50.9 million to
approximately $53.3 million at December 31, 2000, compared to $2.3 million at
December 31, 1999. This increase was the net result of the receipt of
approximately $907.3 million from operating activities, approximately $1,311.8
million used for investing activities (consisting primarily of approximately
$1,159.4 million used for the acquisition of Cornerstone and approximately
$373.2 million used for capital and tenant improvements and lease acquisition
costs) and approximately $455.4 million from financing activities.

MARKET RISK

QUALITATIVE INFORMATION ABOUT MARKET RISK

Our future earnings, cash flows and fair values relevant to financial
instruments are dependent upon prevalent market rates for those financial
instruments. Market risk is the risk of loss from adverse changes in market
prices and interest rates. We manage our market risk by matching projected cash
inflows from operating, investing and financing activities with projected cash
outflows to fund debt service, acquisitions, capital expenditures, distributions
to unit holders and other cash requirements. The majority of our outstanding
debt obligations (maturing at various times through 2031) have fixed interest
rates which limit the risk of fluctuating interest rates. We utilize certain
derivative financial instruments at times to further reduce interest rate risk.
Interest rate protection and swap agreements are used to convert some variable
rate debt to a fixed rate basis, fixed rate debt to a variable rate basis, or to
hedge anticipated financing transactions. Derivatives are used for hedging
purposes rather than speculation. We do not enter into financial instruments for
trading purposes.

37

QUANTITATIVE INFORMATION ABOUT MARKET RISK

General

Interest and market risk amounts were determined by considering the impact
of hypothetical interest rates and equity prices on our financial instruments.
These analyses do not consider the effect of the reduced level of overall
economic activity that could exist in such an environment. Further, in the event
of a change of such magnitude, management would likely take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, these analyses
assume no changes in our financial structure.

Interest Rate Risk -- Debt

As of December 31, 2001, total outstanding debt was approximately $12.0
billion, of which approximately $1,097.3 million (which includes $817 million of
unsecured notes effectively converted to a variable rate through interest rate
swaps), or 9.2%, was variable rate debt. If market rates of interest on the
variable rate debt increase by 10% (or approximately 20 basis points), the
increase in interest expense on the variable rate debt would decrease future
earnings and cash flows by approximately $2.2 million annually. If market rates
of interest increased by 10%, the fair value of the total outstanding debt would
decrease by approximately $272 million. If market rates of interest on the
variable rate debt decrease by 10% (or approximately 20 basis points), the
decrease in interest expense on the variable rate debt would increase future
earnings and cash flows by approximately $2.2 million annually. If market rates
of interest decrease by 10%, the fair value of the total outstanding debt would
increase by approximately $292 million.

As of December 31, 2000, total outstanding debt was approximately $8.8
billion, of which approximately $184.5 million, or 2.1%, was variable rate debt.
If market rates of interest on the variable rate debt increased by 10% (or
approximately 76 basis points), the increase in interest expense on the variable
rate debt would have decreased future earnings and cash flows by approximately
$1.4 million annually. If market rates of interest increased by 10%, the fair
value of the total outstanding debt would have decreased by approximately $84
million. If market rates of interest on the variable rate debt decreased by 10%
(or approximately 76 basis points), the decrease in interest expense on the
variable rate debt would have increased future earnings and cash flows by
approximately $1.4 million annually. If market rates of interest decreased by
10%, the fair value of the total outstanding debt would have increased by
approximately $86 million.

Interest Rate Risk -- Derivatives

During the year ended December 31, 2001, we entered into interest rate swap
agreements to hedge certain unsecured notes as summarized below. In each case,
we are the variable rate payer and the counterparty is the fixed rate payer. The
variable interest rate is based on various spreads over LIBOR. The settlement
dates correspond to the interest payment dates of the respective unsecured notes
being hedged. Each of the interest rate swap agreements terminate on the
maturity date of the respective unsecured notes being hedged.

- ---------------
(1) Values are as of December 31, 2001, and may fluctuate based on market
interest rates.

(2) In September 2001, we terminated the interest rate swap agreement on these
notes. The total proceeds as a result of the termination that were recorded
as additional premium on the $400 million of unsecured

38

notes were approximately $15.8 million. This amount is being amortized over
the remaining term of the unsecured notes.

(3) In September 2001, we terminated the interest rate swap agreement on these
notes. The total proceeds as a result of the termination that were recorded
as additional premium on the $1.1 billion unsecured notes were approximately
$31.6 million.

(4) In February 2002, we terminated the interest rate swap agreement on these
notes. The total proceeds as a result of the termination that were recorded
as additional premium on the $1.1 billion unsecured notes were approximately
$3.2 million.

In accordance with FAS 133 Accounting for Derivative Instruments and
Hedging Activities, the above interest rate swap agreements and the respective
unsecured notes are reflected at market value. Any market adjustment on the swap
agreements will be reflected in other assets or other liabilities, and the
corresponding market adjustment on the unsecured notes will be reflected as
either a discount or premium on unsecured notes. Because the swap agreements are
considered a perfectly effective fair value hedge, there will be no effect on
net income from the mark to market adjustments.

Market Rate Risk

In August 2001, we had put option agreements outstanding in connection with
the acquisition of certain properties in 1997. We paid approximately $1.4
million in settlement of this put option. We previously recognized approximately
$4.1 million as a total potential payment for the put option exercise between
the period from August 1999 to August 2000. The difference of approximately $2.7
million between the $4.1 million previously recognized and the $1.4 million
actually paid was recognized as a put option settlement during the third quarter
2001.

During 2001, we recorded a permanent impairment on our investment in
marketable securities and reduced the carrying value to a nominal amount, which
approximates the current market value. A 10% increase or decrease in the market
price of these securities would increase or decrease our investment in these
securities by approximately $0.01 million. Changes in the market prices of these
securities are required to be reflected as a corresponding adjustment to
accumulated other comprehensive income. At December 31, 2001 and 2000, we had an
unrealized holding loss on these investments totaling approximately $0.1 million
and $28.3 million, which is reflected as accumulated other comprehensive (loss).
There will be no impact on earnings or cash flows from market price fluctuations
unless we dispose of these investments or write-down the investments upon the
determination that these investments have suffered a permanent impairment.

39

CAPITAL IMPROVEMENTS, TENANT IMPROVEMENTS AND LEASING COMMISSIONS

CAPITAL IMPROVEMENTS

Significant renovations and improvements which improve or extend the useful
life of our Properties are capitalized. We categorize these capital expenditures
as follows:

- Capital Improvements -- improvements that enhance the value of the
property such as lobby renovations, roof replacement, significant
renovations for Americans with Disabilities Act compliance, chiller
replacement, elevator upgrades; and

- Development and Redevelopment Costs -- include costs associated with
the development or redevelopment of a property including tenant
improvements, leasing commissions, capitalized interest and operating costs
incurred during completion of the property and incurred while the property
is made ready for its intended use.

TENANT IMPROVEMENTS AND LEASING COMMISSIONS

Costs related to the renovation, alteration or build-out of existing
second-generation space, as well as related leasing commissions, are
capitalized. These tenant improvements may include, but are not limited to,
floor coverings, ceilings, walls, HVAC, mechanical, electrical, plumbing and
fire protection systems. We categorize tenant improvements and leasing
commissions as follows:

- Revenue enhancing -- costs incurred on space which is vacant at the
time of acquisition or has been vacant for nine months or more; and

- Non-revenue enhancing -- costs incurred in connection with the
renewal or retenanting of currently leased space to maintain the revenue
being generated by such space.

COST OF IMPROVEMENTS

The table below details the costs incurred for each type of improvement.
These costs exclude similar costs incurred at unconsolidated joint ventures.

40

The amounts shown below represent the total tenant improvement and leasing
commissions for leases which commenced during the period, regardless of when
such costs were actually paid, which is a more useful measure of the total
tenant improvement and leasing commission costs for the periods presented.

TENANT IMPROVEMENTS AND LEASING COMMISSIONS:

Revenue enhancing..................................... $ 24,574 $ 42,106 $25,983
======== ======== =======
Per square foot leased................................ $ 21.24 $ 27.80 $ 22.21
======== ======== =======
Non-revenue enhancing:
Non-revenue enhancing -- renewals................... $ 34,729 $ 33,739 $34,347
Per square foot leased.............................. $ 6.71 $ 6.18 $ 7.94
Non-revenue enhancing -- retenanted................. $102,381 $ 84,009 $55,168
Per square foot leased.............................. $ 15.90 $ 13.48 $ 14.81
-------- -------- -------
Total non-revenue enhancing........................... $137,110 $117,748 $89,515
======== ======== =======
Per square foot leased................................ $ 11.80 $ 10.07 $ 11.12
======== ======== =======

The above information includes actual capital improvements incurred and
tenant improvements and leasing commissions for leases which commenced during
the year for the years ended 2001, 2000 and 1999. The amounts included in the
consolidated statements of cash flows represent the cash expenditures made
during each of these years. The differences between these amounts represent
timing differences between the lease commencement dates and the actual cash
expenditures as well as expenditures for corporate furniture, fixtures and
equipment, software, leasehold improvements and other. The reconciliation
between the amounts above and the amounts disclosed in the consolidated
statements of cash flows is as follows:

41

The table below details our share of the costs incurred for each type of
improvement for unconsolidated joint ventures:

DEVELOPMENTS

We currently own directly and through joint ventures several properties in
various stages of development or pre-development. These developments are funded
with proceeds from working capital and the line of credit. Specifically
identifiable direct acquisition, development and construction costs are
capitalized, including, where applicable, salaries and related costs, real
estate taxes and interest essential to the development of a property. The
properties under development and all figures stated below are as of December 31,
2001.

CONSOLIDATED DEVELOPMENTS:

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UNCONSOLIDATED DEVELOPMENTS:

BALANCE SHEET RECONCILIATION OF DEVELOPMENTS:
Consolidated developments -- costs incurred as reflected
above:
Wholly-owned.............................................. $130,391
Joint venture............................................. 32,473
Minority interests portion of consolidated developments..... 2,133
--------
Total developments in process on the consolidated balance
sheet..................................................... $164,997
========

- ---------------

(a) The "Estimated Placed in Service Date" represents the date the certificate
of occupancy was or is currently anticipated to be obtained. Subsequent to
obtaining the certificate of occupancy, the property is expected to undergo
a lease-up period.

For consolidated developments, the "Costs Incurred" and the "Total Estimated
Costs" are based on our "Effective Ownership Percentages." The "Total
Project Estimated Costs" represent 100% of the estimated costs including any
unaffiliated party's portion.

For unconsolidated developments, the "Effective Ownership Percentage"
represents our direct interest in the development and our 49.9% interest in
Wilson/Equity Office ("W/EO"). The "Costs Incurred" and "Total Estimated
Costs" are based on our "Effective Ownership Percentage." The "Total Project
Estimated Costs" represent 100% of the estimated costs, including ours,
Wilson Investors' ("WI") and any unaffiliated party's portions.

The "Total Estimated Costs" and the "Total Project Estimated Costs" are
subject to change upon, or prior to, the completion of the development and
include amounts required to lease the property.

(b) A third party and we have entered into a joint venture agreement for the
purpose of developing, constructing, leasing and managing Water's Edge Phase
I and a potential Phase II development. The total cost for the development
of Phase I and land acquisition of Phase II is approximately $91.0 million,
which includes $14.5 million allocated to the cost of the Phase II land
parcel. We plan to fund approximately $74.3 million of the Phase I total
development costs, which consists of our 87.5% of the equity component, and
the balance in the form of preferred equity.

(c) WI and we entered into a joint venture agreement to form W/EO for the
purpose of developing, constructing, leasing and managing developments in
northern California. W/EO is owned 49.9% by us and 50.1% by WI. William
Wilson III, a trustee of Equity Office, through his ownership of WI, owns
approximately 22% of W/EO (and approximately 30% of any promote to which WI
is entitled under the joint venture agreement). We have agreed to loan up to
$25.0 million to WI for its required contribution to W/EO at a 15% return
per annum. The current outstanding balance of this loan as of December 31,
2001 is approximately $12.0 million of principal and $2.0 million of accrued
interest.

We have created or anticipate creating joint ventures with W/EO and, in
certain cases, unaffiliated third parties for the development of various
office properties. The costs for these developments are expected to
43

be funded by us and W/EO in a 60%/40% ratio and in some cases by third
parties as described within each development's respective operating
agreement. The Board of Trustees of Equity Office has also authorized us to
negotiate and enter into an agreement with W/EO providing for the extension
of first mortgage financing to the ownership entities of each of these
developments at the greater of 6.5% or LIBOR plus 3.25%, generally maturing
36 months after initial funding (or earlier at our option in the event
alternative financing sources are available on terms reasonably acceptable
to WI and any unaffiliated investors). The aggregate amount of any such
financing would generally be capped at 70% of budgeted construction costs.
In accordance with the W/EO operating agreement, we are entitled, but not
required, to purchase the W/EO interest in each development subsequent to
project stabilization.

(d) Foundry Square is a project with three sites currently under development,
each of which has a separate joint venture structure. Our effective
ownership percentages are approximately 64%, 68% and 40% for Sites I, II and
IV, respectively. Site III is currently held as land available for
development.

(e) In the second quarter 2001 a joint venture between W/EO, other unaffiliated
parties and us leased the Ferry Building from the City and County of San
Francisco, through its Port Commission ( the "Port"). Under this lease, the
Port is paid a stated base rent. In addition, once the lessee has received
from the project a cumulative preferred return of 8% (prior to
stabilization) and 11% (after stabilization), then 50% of the proceeds from
the operation and ownership of the project are paid to the Port as
percentage rent.

The joint venture is redeveloping the Ferry Building in a manner to permit
the use of federal rehabilitation tax credits ("Historic Tax Credit"). Since
the original members of the joint venture could not take full advantage of
the Historic Tax Credits, in the fourth quarter 2001, the joint venture
admitted a new member who could do so. This investor member will contribute
approximately $23.5 million in equity to fund a portion of the "Total
Project Estimated Costs" for the project, and will receive a preferred
return with an effective annual rate of approximately 3% on its capital
investment. The investor member's interest in the joint venture is subject
to put/call rights during the sixth and seventh years after the Ferry
Building is placed in service. Upon the purchase of the investor member's
interest pursuant to the put/call, it is estimated that the joint venture
will retain approximately $11 million of the capital contributed by the
investor member, based on the formula to determine the purchase price for
the investor member's interest and after taking into account the preferred
return that will have been paid to the investor member by such time. Through
the creation of a master lease, our "Effective Ownership Percentage" in the
net cash flow of the Ferry Building project is approximately 80%, after the
distribution of the preferred returns.

(f) Under the terms of the ground lease, the ground lessor is entitled to share,
in addition to ground rent, in proceeds from the operation and ownership of
this development after a 10% return to the lessee.

In addition to the developments described above, we own or have under
option various land parcels available for development. These sites represent
possible future development of up to approximately 11.5 million square feet of
office space. The development of these sites will be impacted by the timing and
likelihood of success of the entitlement process, both of which are uncertain.

Consolidated developments in process increased to approximately $165.0
million at December 31, 2001 compared to $70.4 million at December 31, 2000,
primarily due to developments acquired in the Spieker Merger and additional
expenditures made during the period. Consolidated land available for development
increased to approximately $251.7 million at December 31, 2001 from $88.4
million at December 31, 2000, primarily due to land acquired in the Spieker
Merger.

SUBSEQUENT EVENT

In 2000, we formed a joint venture with WI, through its interest in W/EO,
and an unaffiliated party to develop, construct, lease and manage Foundry Square
I, a 327,000 square foot office building located in San Francisco, California
which was scheduled to be completed in third quarter 2003. The building was 94%
pre-leased to a single tenant. In March 2002, the tenant terminated its lease
for $85 million.

44

In March 2002, we entered into contracts with our joint venture partners to
acquire the land, improvements and partnership interests in Foundry Square I.
WI's share of the lease termination income and consideration for its joint
venture interest is approximately $26 million. Our share of the lease
termination fee is approximately $40 million and will be recorded as income in
the first quarter of 2002.

In addition, WI repaid the current approximate $12 million outstanding
balance under a $25 million loan commitment we previously made to WI and the
accrued interest of approximately $2 million. The remaining amount that WI can
draw under the $25.0 million loan commitment is approximately $13 million.

We had previously accounted for our investment in Foundry Square I under
the equity method and will now consolidate our investment, which will be
reflected as land available for development. We are currently analyzing our
investment opportunities in Foundry Square I, which may include future
development or the sale of Foundry Square I.

IMPACT OF NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 141, Business Combinations. Statement 141
eliminates the pooling-of-interest method of accounting for business
combinations except for qualifying business combinations that were initiated
prior to July 1, 2001. The requirements of Statement 141 are effective for any
business combination accounted for by the purchase method that is completed
after June 20, 2001. We adopted the standard which had no material effect on EOP
Partnership.

FASB issued Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. Statement 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. The provisions of Statement 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. We adopted the standard, which had no material effect
on EOP Partnership.

INFLATION

Substantially all of our office leases require the tenant to pay, as
additional rent, a portion of any increases in real estate taxes (except in the
case of certain California leases, which limit the ability of the landlord to
pass through to the tenants the effect of increased real estate taxes
attributable to a sale of real property interests) and operating expenses over a
base amount. In addition, many of our office leases provide for fixed increases
in base rent or indexed escalations (based on the Consumer Price Index or other
measures). We believe that the majority of inflationary increases in expenses
will be offset, in part, by the expense reimbursements and contractual rent
increases described above.

FUNDS FROM OPERATIONS

We believe FFO, as defined by NAREIT, to be an appropriate measure of
performance for an equity REIT. While FFO is a relevant and widely used measure
of operating performance of equity REITs, it does not represent cash flow from
operations or net income as defined by GAAP, and it should not be considered as
an alternative to these indicators in evaluating liquidity or operating
performance.

45

The following table reflects the calculation of FFO for the years ended
December 31, 2001, 2000 and 1999:

The White Paper on FFO approved by NAREIT in March 1995 defines FFO as net
income, computed in accordance with GAAP, excluding gains (or losses) from debt
restructuring and sales of properties (which EOP Partnership believes includes
impairments on properties held for sale), plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and joint
ventures. In November 1999, NAREIT issued a National Policy Bulletin effective
January 1, 2000 clarifying the definition of FFO to include all operating
results, both recurring and non-recurring, except those defined as extraordinary
under GAAP. We believe that FFO is helpful to investors as a measure of the
performance of a real estate company because, along with cash flow from
operating activities, investing activities and financing activities, it provides
investors with an indication of the ability of a company to incur and service
debt, to make capital expenditures and to fund other cash needs. We compute FFO
in accordance with standards established by NAREIT, which may not be comparable
to FFO reported by other REITs that do not define the term in accordance with
the current NAREIT definition or that interpret the current NAREIT definition
differently than us. FFO does not represent cash generated from operating
activities in accordance with GAAP, nor does it represent cash available to pay
distributions and should not be considered as an alternative to net income,
determined in accordance with GAAP, as an indication of our financial
performance or to cash flow from operating activities, determined in accordance
with GAAP, as a measure of our liquidity, nor is it indicative of funds
available to fund our cash needs, including our ability to make cash
distributions.

46

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk are incorporated
herein by reference from "Item 7. -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Market Risk."

47

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT AUDITORS

The Partners of EOP Operating Limited Partnership

We have audited the accompanying consolidated balance sheets of EOP
Operating Limited Partnership ("EOP Partnership") as of December 31, 2001 and
2000, and the related consolidated statements of operations, partners' capital
and net comprehensive income and cash flows for each of the three years in the
period ended December 31, 2001. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and the
schedule are the responsibility of EOP Partnership's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of EOP Partnership
at December 31, 2001 and 2000, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

In 2001, as discussed in Note 2 to the consolidated financial statements,
EOP Partnership changed its method of accounting for derivative instruments and
hedging activities.

Ernst & Young LLP

Chicago, Illinois
February 6, 2002, except for Note 26
as to which the date is February 15, 2002

48

EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS

See accompanying notes.
49

EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes.
50

EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
AND NET COMPREHENSIVE INCOME

51

EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS

52

EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

53

EOP OPERATING LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)

See accompanying notes.
54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BUSINESS AND FORMATION OF EOP PARTNERSHIP

As used herein, "EOP Partnership" means EOP Operating Limited Partnership,
a Delaware limited partnership, together with its subsidiaries, and the
predecessors thereof ("EOP Partnership Predecessors"). EOP Partnership is a
subsidiary of Equity Office Properties Trust ("Equity Office"), a Maryland real
estate investment trust. EOP Partnership was organized in 1996 to continue and
expand the national office property business organized by Mr. Samuel Zell,
Chairman of the Board of Trustees of Equity Office, and to complete the
consolidation of the EOP Partnership Predecessors (the "Consolidation"). Equity
Office completed its initial public offering (the "IPO") on July 11, 1997,
having sold its common shares of beneficial interest, $0.01 par value per share
("Common Shares"). The net proceeds from the IPO were contributed to EOP
Partnership in exchange for units of partnership interest ("Units"). EOP
Partnership is a fully integrated, self-administered and self-managed real
estate company principally engaged in acquiring, owning, managing, developing
and leasing office properties. Equity Office has elected to be taxed as a real
estate investment trust ("REIT") for federal income tax purposes and generally
will not be subject to federal income tax if it distributes 100% of its taxable
income and complies with a number of organizational and operational
requirements. At December 31, 2001, EOP Partnership owned or had an interest in
774 office properties (the "Office Properties") comprising approximately 128.2
million rentable square feet of office space and 79 industrial properties (the
"Industrial Properties") comprising approximately 6.0 million rentable square
feet of industrial space (together with the Office Properties, the
"Properties"). The Office Properties were, on a weighted average basis, 91.8%
occupied at December 31, 2001, and are located in 149 submarkets in 37 markets
in 23 states and the District of Columbia. The Office Properties, by rentable
square feet, are located approximately 40.1% in central business districts
("CBDs") and approximately 59.9% in suburban markets. At December 31, 2001, EOP
Partnership also owned five stand-alone parking facilities (the "Parking
Facilities") containing approximately 10,765 parking spaces.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements represent the financial condition and
results of EOP Partnership and its subsidiaries. All intercompany transactions
and balances have been eliminated in consolidation.

The Consolidation and EOP Partnership's mergers with Spieker Properties,
L.P., Cornerstone Properties Limited Partnership and Beacon Partnership L.P.
were accounted for using the purchase method in accordance with Accounting
Principles Board Opinion No. 16. The fair value of the consideration given in
these transactions was used as the valuation basis for the transactions. The
assets acquired and liabilities assumed in these transactions were recorded at
their fair values as of the closing dates of the transactions. The results of
operations of the companies acquired in the mergers for the period from their
respective closing dates were included in the consolidated statements of
operations.

Investment in Real Estate

Rental property and improvements, including interest and other costs
capitalized during construction, are included in investment in real estate and
are stated at cost. Expenditures for ordinary maintenance and repairs are
expensed to operations as they are incurred. Significant renovations and
improvements, which improve or extend the useful life of the assets, are
capitalized. Rental property and improvements, excluding land, are

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

depreciated over their estimated useful lives using the straight-line method.
The estimated useful lives by asset category are:

Rental properties are individually evaluated for impairment when conditions
exist which may indicate that it is probable that the sum of expected future
cash flows (on an undiscounted basis) from a rental property is less than its
historical net cost basis. Upon determination that a permanent impairment has
occurred, rental properties are reduced to their fair value. For properties to
be disposed of, an impairment loss is recognized when the fair value of the
property, less the estimated cost to sell, is less than the carrying amount of
the property measured at the time EOP Partnership has a commitment to sell the
property and/or is actively marketing the property for sale. A property to be
disposed of is reported at the lower of its carrying amount or its estimated
fair value, less its cost to sell. Subsequent to the date that a property is
held for disposition, depreciation expense is not recorded.

The FASB issued Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long Lived Assets. Statement 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. The provisions of Statement 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years. We adopted the standard and do not
expect it to have a material effect on our financial condition.

Developments in process are carried at cost, which includes land
acquisition cost, architectural fees, general contractor fees, capitalized
interest, internal costs related directly to the development and other costs
related directly to the construction of the property. Depreciation is not
recorded until the property is placed in service, which occurs shortly after
receipt of a certificate of occupancy.

Land available for development is carried at cost and is not depreciated.
Land available for development includes various vacant land parcels that may
have some improvements such as utility service.

Investments in Unconsolidated Joint Ventures

Investments in unconsolidated joint ventures are accounted for using the
equity method of accounting because EOP Partnership does not have control over
the activities of the investees. The net equity investment of EOP Partnership is
reflected on the consolidated balance sheets, and the consolidated statements of
operations include EOP Partnership's share of net income or loss from the
unconsolidated joint ventures. Any difference between the carrying amount of
these investments on the consolidated balance sheet of EOP Partnership and the
value of the underlying equity is depreciated as an adjustment to income from
unconsolidated joint ventures over 40 years. In 2001, EOP Partnership adopted
SFAS 142 "Goodwill and Other Intangible Assets" upon its effective date. The
adoption did not have a material effect on the consolidated financial
statements.

Deferred Leasing and Financing Costs

Deferred leasing and financing costs, which consist of, but are not limited
to, commissions paid to third parties for new or renewal leases, and fees paid
to third parties for unsecured note offerings, are recorded at cost. The
deferred leasing costs are amortized over the terms of the respective leases and
the deferred financing costs are amortized over the terms of the respective
financings on a straight-line basis, which approximates the effective yield
method.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Revenue Recognition

Certain leases provide for tenant occupancy during periods for which no
rent is due or where minimum rent payments increase during the term of the
lease. EOP Partnership records rental income for the full term of each lease on
a straight-line basis. Accordingly, a receivable is recorded from tenants for
the current difference between the straight-line rent and the rent that is
contractually due from the tenant ("Deferred Rent Receivable"). When a property
is acquired, the term of existing leases is considered to commence as of the
acquisition date for purposes of this calculation. The amounts included in
rental income for the years ended December 31, 2001, 2000 and 1999, which had
not yet been billed as of such dates, were approximately $69.1 million, $69.8
million and $65.4 million, respectively. Deferred rental revenue is not
recognized for income tax purposes.

Cash Equivalents

Cash equivalents are considered to be all highly liquid investments
purchased with a maturity of three months or less at the date of purchase.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is maintained for estimated losses
resulting from the inability of certain tenants to meet the contractual
obligations under their lease agreements.

Escrow Deposits and Restricted Cash

Escrow deposits primarily consist of amounts held by lenders to provide for
future real estate tax expenditures and tenant improvements, earnest money
deposits on acquisitions and net proceeds from tax-deferred dispositions.
Restricted cash represents amounts committed for various utility deposits and
security deposits. Certain of these amounts may be reduced upon the fulfillment
of certain obligations.

Fair Value of Financial Instruments and Other Assets

Investments in notes receivable approximate their fair value and are
included in other assets.

Management believes that the carrying basis of the mortgage debt, unsecured
notes and interest rate swap agreements approximate their respective fair values
as of December 31, 2001 and 2000. The fair value of the mortgage debt and the
unsecured notes was determined by discounting the spread between the future
contractual interest payments and the future interest payments based on a market
rate. The fair value of the interest rate swap agreements was determined by
third party quotations. In addition, management believes that the carrying
values of cash equivalents, restricted cash, escrow deposits, tenant and other
rents receivable, accounts payable and accrued expenses are reasonable estimates
of their fair value.

Derivatives and Hedging Activities

EOP Partnership periodically enters into certain interest rate protection
and swap agreements to effectively convert or cap floating rate debt to a fixed
rate basis, fixed rate debt to a floating rate basis, as well as to hedge
anticipated future financing transactions. Net amounts paid or received under
these agreements are recognized as an adjustment to interest expense when such
amounts are incurred or earned. Settlement amounts paid or received in
connection with terminated interest rate protection agreements and interest rate
swap agreements are deferred and amortized as an adjustment to interest expense
over the remaining term of the related financing transaction on a straight-line
basis, which approximates the effective yield method.

In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities." The statement requires recording all
derivative instruments as assets or liabilities, measured at fair
57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives either will be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. FASB Statement Nos.
137 and 138 deferred the standard's effective date to all fiscal years beginning
after June 15, 2000. EOP Partnership adopted the standard on January 1, 2001 and
recorded a cumulative effect of a change in accounting principle resulting in a
loss of approximately $1.1 million.

Deferred Revenue

During 2000 and 1999, EOP Partnership received common stock and/or warrants
to purchase common stock for allowing companies that provide telecommunication
and other services access to the Properties. The securities received from these
companies were recorded as deferred revenue at fair value at the time such
securities were earned and were included in other liabilities on the balance
sheet. The deferred revenue was being amortized into other income over the terms
of the respective license agreements. During 2001, it was determined that there
was no remaining future benefit period for the unamortized deferred revenue. The
unamortized deferred revenue balance as of December 31, 2001 and 2000 was $0 and
$37.2 million, respectively. The amount of deferred revenue recognized in other
income, net of the write-off of the related securities, for the years ended
December 31, 2001, 2000 and 1999 was approximately $3.1 million, $5.7 million
and $0.7 million, respectively.

Income Taxes

EOP Partnership is generally not liable for federal taxes as the partners
recognize their proportionate share of EOP Partnership's income or loss on their
tax returns. However, various consolidated entities owned by EOP Partnership are
individually subject to certain taxes. The Properties primarily are owned by
limited partnerships or limited liability companies, which are substantially
pass-through entities. Some of the pass-through entities have corporate general
partners or members, which are subject to federal and state income and franchise
taxes. In addition, the property management business is owned by a corporation
and is subject to federal and state income taxes.

Equity Office has elected to be taxed as a REIT, under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT,
Equity Office generally will not be subject to federal income tax if it
distributes 100% of its taxable income for each tax year to its shareholders.
REITs are subject to a number of organizational and operational requirements. If
Equity Office fails to qualify as a REIT in any taxable year, it will be subject
to federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate tax rates. Even if Equity Office qualifies
for taxation as a REIT, Equity Office may be subject to state and local income
taxes and to federal income tax and excise tax on its undistributed income. In
addition, taxable income from non-REIT activities managed through taxable REIT
subsidiaries is subject to federal, state and local income taxes. The aggregate
cost of land and depreciable property for federal income tax purposes as of
December 31, 2001 and 2000 was approximately $15.0 billion and $12.2 billion,
respectively.

Minority Interests -- partially owned properties

Minority interests in consolidated Properties are reflected in the
consolidated balance sheets as "Minority interests -- partially owned
properties" and represents the minority interests' share in the assets and
liabilities of the Properties. The earnings or losses from these properties
attributable to the minority interests are reflected as "Minority
interests -- partially owned properties" in the consolidated statements of
operations.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

Use of Estimates

The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States ("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 periods. Actual results could differ from those
estimates.

Reclassifications

Certain reclassifications have been made to the previously reported 2000
and 1999 statements in order to provide comparability with the 2001 statements
reported herein. These reclassifications have not changed the 2000 or 1999
results or combined partners' capital and preferred units.

NOTE 3 -- MERGERS

Spieker Merger

On July 2, 2001, Spieker Properties, Inc. ("Spieker") merged into Equity
Office and Spieker Properties, L.P. ("Spieker Partnership"), Spieker's operating
partnership subsidiary, merged into EOP Partnership (collectively, the "Spieker
Merger"). The transaction valued Spieker (including the outside interests in
Spieker Partnership) at approximately $7.2 billion, which included transaction
costs, the assumption of approximately $2.1 billion in debt and the issuance of
14.25 million of EOP Partnership preferred units valued at approximately $356.3
million. EOP Partnership paid approximately $1.1 billion in cash and Equity
Office issued approximately 101.5 million Common Shares and EOP Partnership
issued approximately 16.7 million Units to third parties, each valued at $29.29
per Common Share/Unit. EOP Partnership financed the $1.1 billion cash portion of
the purchase price using a combination of available cash and a new $1.0 billion
bridge loan facility that was entered into before the closing of the merger. The
$1.0 billion bridge loan facility had a term of 364 days and an interest rate
based on LIBOR plus 80 basis points. The $1.0 billion bridge loan facility was
repaid in full with the net proceeds from the issuance of $1.4 billion of
unsecured notes in July 2001 and terminated upon the repayment. Through the
Spieker Merger, EOP Partnership acquired 391 Office Properties comprising
approximately 28.3 million square feet, 98 Industrial Properties comprising
approximately 10.1 million square feet and several development properties.

Shortly after completion of the Spieker Merger, Equity Office expanded its
Board of Trustees from 13 to 16 members. The new members are Warren E. Spieker,
Jr., previous chairman of Spieker, and Craig G. Vought and John A. Foster,
previous Co-Chief Executive Officers of Spieker.

Certain costs included in the $7.2 billion total cost of the Spieker Merger
and the allocation of the total cost to specific assets acquired are based on
management's current best estimate, and are subject to adjustment within one
year of the closing date of July 2, 2001.

EOP Partnership subsequently sold 19 of the industrial properties that were
acquired in the Spieker Merger for approximately $213.4 million. There was no
gain or loss on the sale of these properties. These industrial properties are
located in California and Oregon and consist of approximately 4.1 million square
feet.

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- MERGERS -- (CONTINUED)

The following tables summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition:

Cornerstone Merger

On June 19, 2000, Cornerstone Properties Inc. ("Cornerstone") merged into
Equity Office and Cornerstone Properties Limited Partnership ("Cornerstone
Partnership"), Cornerstone's operating partnership subsidiary, merged into EOP
Partnership (collectively, the "Cornerstone Merger"). The transaction, which was
accounted for by the purchase method, valued Cornerstone, including the outside
interests in Cornerstone Partnership at approximately $4.5 billion, which
included transaction costs, the assumption of approximately $1.7 billion in
debt, the redemption of 3.0 million shares of Cornerstone preferred stock valued
at $18.00 per share, including accrued but unpaid dividends for a total of
approximately $57.6 million, the redemption of approximately 58.5 million of
Cornerstone common stock valued at $18.00 per share for a total of approximately
$1.1 billion, the issuance by Equity Office of approximately 51.2 million Common
Shares and the issuance by EOP Partnership of approximately 12.4 million Units
valued at $24.68 per Common Share/Unit. We financed the $1.2 billion in cash
from our credit facilities. As a result of the Cornerstone Merger, EOP
Partnership acquired an interest in 82 Office Properties containing
approximately 18.9 million square feet of office space.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- INVESTMENT IN REAL ESTATE

Investment in real estate, including Office Properties, Industrial
Properties, properties under development and vacant land, was as follows:

In addition to the properties acquired in the Spieker Merger, the Three
Lafayette Centre office building was acquired in October 2001 for a total cost
of approximately $68.7 million from an unaffiliated party. The property is
located in Washington, D.C. and comprises approximately 259,441 square feet.

During 2000, in addition to the Properties acquired in the Cornerstone
Merger, several Properties, or the remaining interests therein, were acquired
for a total cost of approximately $130.2 million. These Properties comprised
approximately 317,616 square feet.

NOTE 5 -- DISPOSITIONS

2001

During 2001, EOP Partnership disposed of eight office properties, four
parking facilities, a land parcel and an apartment property in separate
transactions to various unaffiliated parties for approximately $327.8 million.
The total gain on the sale of these properties was approximately $81.7 million.
The sold office properties consisted of approximately 879,388 square feet, the
parking facilities contained approximately 3,721 parking spaces and the
apartment property contained approximately 161 units.

EOP Partnership sold 19 industrial properties that were acquired in the
Spieker Merger for approximately $213.4 million. There was no gain or loss on
the sale of these properties. The sold industrial properties are located in
California and Oregon and consist of approximately 4.1 million square feet.

2000

During 2000, EOP Partnership disposed of seven office properties totaling
approximately 964,136 square feet, 11 parking facilities and a partial interest
in two Office Properties for approximately $536.0 million and recognized a total
net gain on sale of real estate of approximately $36.0 million.

1999

During 1999, EOP Partnership disposed of four office properties totaling
668,796 square feet, a redevelopment property and partial interests in 12 Office
Properties in various transactions for approximately $631.9 million and
recognized a total net gain on sale of real estate of approximately $59.7
million.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- INVESTMENT IN NOTES RECEIVABLE AND PREFERRED STOCK

The following investments are included in Prepaid Expenses and Other
Assets:

On June 27, 2001, pursuant to an investment agreement between EOP
Partnership and MaguirePartners, an unaffiliated entity, EOP Partnership
exercised its option to acquire an 87.5% equity interest in Water's Edge, an
office complex to be developed in the Playa Vista master-planned community in
west Lost Angeles, California that will consist of approximately 450,000 square
feet. The remaining 12.5% interest is owned by MaguirePartners. The
consideration for the 87.5% equity interest acquired by EOP Partnership
consisted of the contribution of its note receivable from MaguirePartners plus
accrued interest of approximately $23.8 million and approximately $3.9 million
in cash. The joint venture was formed for the purpose of developing,
constructing, leasing and managing Water's Edge Phase I and acquiring an
adjacent parcel for a potential Phase II development. The total cost for the
development of Phase I and land acquisition of Phase II is approximately $91
million, which includes $14.5 million allocated to the cost of the Phase II land
parcel. EOP Partnership plans to fund approximately $74.3 million of the Phase I
total development costs, which represents 87.5% of the equity component with the
balance allocated to construction financing in the form of preferred equity.

During 1999, a 67% share of a $202.2 million mezzanine-level debt position
was acquired for approximately $73.9 million as part of a debt restructuring
related to the SunAmerica Center office property. The unamortized discount to
the face amount of the note of approximately $62.9 million may be amortized to
interest income based on the estimated yield of the investment. The note accrues
and pays interest at 7.25% per annum and matures in August 2014. In addition,
EOP Partnership has the option to acquire 67% of the aggregate face amount of
two other subordinate notes from the current holder, an affiliate of the
property owner. The aggregate face amount of these notes is $15.0 million.

In July 1998, 50,000 preferred shares of Capital Trust, Inc. were acquired
for approximately $48.5 million. The preferred shares have a liquidation
preference of $1,000 each. The discount of $1.5 million is being amortized as
additional dividend income over the term of 20 years. The terms of the preferred
shares are as follows:

(a) For 60% of the investment, or approximately $30 million of the
preferred shares:

- the coupon rate of 8.25% remains fixed through 2002. Thereafter, the
rate will increase to the greater of:
- 10%, increasing by 75 basis points per annum commencing October 1,
2004, or
- a rate equal to Capital Trust, Inc.'s then dividend per common
share divided by $7.00;
- the conversion price is $7.00 per share;
- the common share equivalent is fixed at 4,285,714 shares; and
- the preferred shares are callable through September 30, 2004.

(b) For 40% of the investment, or approximately $20 million of the
preferred shares:

- the coupon rate is 13.0% and is fixed until October 1, 2004 when it
will increase by 75 basis points per annum; and
- the preferred shares are callable at any time.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- IMPAIRMENT ON SECURITIES, OTHER INVESTMENTS AND ASSETS HELD FOR SALE

During 2001, an impairment on securities and other investments of
approximately $132.7 million was recognized in connection with various
investments and other assets. The total impairment consisted of the investment
in HQ Global Workplaces, Inc. preferred stock, including accrued but unpaid
dividends, of approximately $90.6 million, the investments in several telecom,
technology and advertising related companies, investments in two full-service
business center joint ventures, and a portion of an investment in an internally
developed software system.

During the latter part of 2001, HQ Global was in default with respect to
certain covenant and payment obligations under its senior and mezzanine
indebtedness but received forbearance periods from both its senior and mezzanine
lenders. HQ Global was unable to restructure its indebtedness during these
forbearance periods. Based on these circumstances and other factors, EOP
Partnership determined that its investment in HQ Global was not recoverable and,
therefore, recorded a permanent impairment on 100% of its investment.
Subsequently, in March 2002 HQ Global filed a voluntary petition for relief
under Chapter 11 of the U.S. Bankruptcy Code. As of December 31, 2001, HQ Global
occupied approximately 0.8 million square feet in the Office Properties. The
annualized rent, including expense reimbursements, for this space for 2002 is
approximately $22.0 million. As of March 2002, we do not know what impact, if
any, that the HQ Global Chapter 11 bankruptcy filing will have on their leases
with EOP Partnership.

EOP Partnership's telecom, technology and advertising related investments
and full-service business center joint venture investments have been
experiencing operating losses due, in part, to the current economic environment.
These investments were considered to be impaired based on their current fair
value as compared to the carrying value. The fair value of the investments was
based on internally prepared valuations considering current economic conditions.
The impairments represent EOP Partnership's entire investment in the respective
assets, except for the internally developed software system, for which the
impairment represented approximately one-half of the investment. These
investments and the related impairment are reported under the "Corporate and
Other" section for segment reporting purposes.

During 2001, an impairment on assets held for sale of approximately $2.5
million was recognized in connection with the sale of the St. Louis Parking
Garage located in St. Louis, Missouri. The property was sold in January 2002.
The sales price less costs to sell was less than the carrying amount of the
property as of December 31, 2001. EOP Partnership had a 50% interest in the
property and accounted for its investment using the equity method of accounting.
EOP Partnership's share of the net income from the property is included in
"Income from Unconsolidated Joint Ventures" and was approximately $1.7 million,
$2.0 million and $1.7 million for the years ended December 31, 2001, 2000 and
1999, respectively.

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

The following is a summary of EOP Partnership's economic ownership in
unconsolidated joint ventures. All of the properties are Office Properties
except for the St. Louis parking garages and the entities included in the other
category.

- ---------------

(1) The amounts shown above approximate EOP Partnership's economic ownership
interest for the periods presented. Cash flow from operations, capital
transactions and net income are allocated to the joint venture partners in
accordance with their respective partnership agreements. EOP Partnership's
share of these items is subject to change based on, among other things, the
operations of the Property and the timing and amount of capital
transactions. EOP Partnership's legal ownership may differ.

(2) Griffin Towers was acquired in the Spieker Merger.

(3) In the second quarter 2001 a joint venture of EOP Partnership, W/EO and
other unaffiliated parties leased the Ferry Building from the City and
County of San Francisco, through its Port Commission (the "Port"). Under
this lease, the Port is paid a stated base rent. In addition, once the
lessee has received

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)

from the project a cumulative preferred return of 8% (prior to
stabilization) and 11% (after stabilization), then 50% of the proceeds from
the operation and ownership of the project are paid to the Port as
percentage rent.

The joint venture is redeveloping the Ferry Building in a manner to permit
the use of federal rehabilitation tax credits ("Historic Tax Credits").
Since the original members of the joint venture could not take full
advantage of the Historic Tax Credits, in the fourth quarter 2001, the joint
venture admitted a new member who could do so. This investor member will
contribute approximately $23.5 million in equity to fund a portion of the
total project estimated costs for the project, and will receive a preferred
return with an effective annual rate of approximately 3% on its capital
investment. The investor member's interest in the joint venture is subject
to put/call rights during the sixth and seventh years after the Ferry
Building is placed in service. Upon the purchase of the investor member's
interest pursuant to the put/ call, it is estimated that the joint venture
will retain approximately $11 million of the capital contributed by the
investor member, based on the formula to determine the purchase price for
the investor member's interest and after taking into account the preferred
return that will have been paid to the investor member by such time. Through
the creation of a master lease, EOP Partnership's effective ownership
percentage in the net cash flow of the Ferry Building project is
approximately 80%, after the distribution of the preferred returns.

(4) Foundry Square is a project with three sites currently under development,
each of which has a separate joint venture structure. EOP Partnership's
economic interests are approximately 64%, 68%, and 40% for Sites I, II and
IV, respectively. Site III is currently held as land available for
development.

Combined summarized financial information of the unconsolidated joint
ventures is as follows:

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- INVESTMENT IN UNCONSOLIDATED JOINT VENTURES -- (CONTINUED)

- ---------------

(a) EOP Partnership's share of the scheduled payments of principal on mortgage
debt for each of the next five years and thereafter through maturity as of
December 31, 2001 are as follows:

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- MORTGAGE DEBT

EOP Partnership had outstanding mortgage debt of approximately $2.7 billion
and $2.9 billion as of December 31, 2001 and 2000, respectively. The historical
cost, net of accumulated depreciation, of encumbered properties at December 31,
2001 and 2000 was approximately $5.6 billion and $6.3 billion, respectively.
During the years ended December 31, 2001 and 2000, the following transactions
occurred:

- ---------------

(1) Excludes net (discount)/premium on mortgage debt of approximately $(11,761)
and $(17,825) as of December 31, 2001 and 2000, respectively.

Fixed Interest Rate Mortgage Debt

As of December 31, 2001 and 2000, approximately $2.6 billion and $2.8
billion, respectively, of mortgage debt was at a fixed interest rate. Payments
on fixed interest rate mortgage debt are generally due in monthly installments
of principal and interest or interest only. As of December 31, 2001 and 2000,
the effective interest rates ranged from 6.8% to 8.6% and 6.9% to 8.6%,
respectively, and the weighted average effective interest rate was approximately
7.7% and 7.8%, respectively.

Variable Interest Rate Mortgage Debt

As of December 31, 2001 and 2000, approximately $36.0 million and $133.5
million, respectively, of mortgage debt was at variable interest rates based on
spreads over LIBOR. Payments on variable interest rate mortgage debt are
generally due in monthly installments of principal and interest or interest
only. As of December 31, 2001 and 2000, the weighted average variable effective
interest rate was approximately 2.6% and 7.7%, respectively.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- MORTGAGE DEBT -- (CONTINUED)

Repayment Schedule

Scheduled payments of principal for the next five years and thereafter
through maturity as of December 31, 2001 are as follows:

NOTE 10 -- LINE OF CREDIT AND TERM LOAN

EOP Partnership has a $1.0 billion revolving credit facility that was
obtained in May 2000. The line of credit bears interest at LIBOR plus 60 basis
points and matures on June 19, 2003. There is also an annual facility fee of
$2.0 million payable quarterly. In addition, a competitive bid option, whereby
the lenders participating in the credit facility bid on the interest to be
charged, is available for up to $350 million of the borrowings under the credit
facility. Agreements or instruments relating to the line of credit contain
certain financial restrictions and requirements described below. As of December
31, 2001, EOP Partnership was in compliance with each of these financial
restrictions and requirements.

Set forth below are the financial restrictions and requirements that EOP
Partnership is subject to under the line of credit agreement.

- total liabilities to total asset value may not exceed 0.55:1 at any time;

- earnings before interest, taxes, depreciation and amortization to
interest expense may not be less than 2.00:1;

- cash flow to fixed charges may not be less than 1.5:1;

- secured debt to total asset value may not exceed 0.40:1;

- unsecured debt to unencumbered asset value may not exceed 0.55:1;

- unencumbered net operating income to unsecured debt service may not be
less than 2.0:1;

- consolidated tangible net worth may not be less than the sum of $7.8
billion and 70% of all net offering proceeds received by Equity Office or
EOP Partnership after February 29, 2000;

- we may not pay any distributions on Common Shares and Units in excess of
90% of annual FFO; and

- our investments in unimproved assets, interests in taxable REIT
subsidiaries, developments, unconsolidated joint ventures, mortgages and
securities in the aggregates, may not exceed 25% of our total asset
value.

Prior to the closing of the Spieker Merger on July 2, 2001, EOP Partnership
obtained a $1.0 billion bridge term facility to finance a portion of the cash
portion of the Spieker Merger. This $1.0 billion bridge term facility had a term
of 364 days and an interest rate based on LIBOR plus 80 basis points. The $1.0
billion bridge loan facility was repaid and terminated on July 18, 2001 with
proceeds from $1.4 billion unsecured note offering.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- UNSECURED NOTES

The following notes were outstanding as of December 31, 2001:

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- UNSECURED NOTES -- (CONTINUED)

- ---------------

(a) Includes the cost of terminated interest rate protection and swap
agreements, offering and transaction costs and premiums and discounts on
certain unsecured notes.

(b) These notes were repaid upon maturity.

(c) The notes are guaranteed by Equity Office.

(d) The notes are exchangeable into Common Shares of Equity Office at an
exchange rate of $34.00 per share. If the closing price at the time a holder
exercises its exchange right is less than the exchange price of $34.00, the
holder will receive, in lieu of Common Shares, cash in an amount equal to
97% of the product of the number of Common Shares into which the principal
amount of notes subject to such exercise would otherwise be exchangeable and
the current market price per Common Share. Upon exchange of a $1,000 note
for Common Shares of Equity Office, EOP Partnership would issue a
corresponding number of Units to Equity Office on a one-for-one basis. The
notes were issued by EOP Partnership and are guaranteed by Equity Office.

(e) As of December 31, 2001, $817 million of unsecured notes were converted to a
variable interest rate based on a spread over the 6-month LIBOR rate through
several interest rate swap arrangements. In accordance with FAS 133 the
interest rate swap agreements and the respective unsecured notes are
reflected at market value. Any market adjustment on the swap agreements will
be reflected in other assets or other liabilities, and the corresponding
market adjustment on the unsecured notes will be reflected as either a
discount or premium on unsecured notes. Because the swap agreements are
considered a perfectly effective fair value hedge, there will be no effect
on net income from the mark-to-market adjustment.

EOP Partnership previously filed a shelf registration statement, which was
declared effective by the Securities and Exchange Commission ("SEC") on August
31, 2000, relating to the issuance from time to time of up to $2.0 billion of
unsecured debt securities and warrants exercisable for debt securities in
amounts, at initial prices and on terms to be determined at the time of the
offering. In November 2000, EOP Partnership issued $1.0 billion of unsecured
notes under this registration statement.

EOP Partnership and Equity Office filed a shelf registration statement,
which was declared effective by the SEC on July 19, 2001, relating to the
issuance from time to time of up to an additional $3.0 billion of unsecured debt
securities of EOP Partnership and warrants exercisable for debt securities in
amounts, at initial prices and on terms to be determined at the time of the
offering plus up to $4.0 billion of guarantees by Equity Office. The $1.0
billion unused portion of the August 2000 registration statement was also added
to the June 2001 registration statement. In July 2001, EOP Partnership issued
$1.4 billion of unsecured notes under this
70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- UNSECURED NOTES -- (CONTINUED)

registration statement, all of which were guaranteed by Equity Office. In
February 2002, EOP Partnership issued an additional $500 million of unsecured
notes under the June 2001 registration statement, all of which were also
guaranteed by Equity Office. As a result of these issuances, $2.1 billion of
unsecured debt securities and related guarantees remain available for issuance
under the June 2001 shelf registration statement.

Restrictions and Covenants

The indentures relating to the unsecured notes contain certain financial
restrictions and requirements described below. As of December 31, 2001, EOP
Partnership was in compliance with each of these financial restrictions and
requirements.

- debt to adjusted total assets may not exceed 0.60:1;

- secured debt to adjusted total assets may not exceed 0.40:1;

- consolidated income available for debt service to annual debt service
charge may not be less than 1.50:1; and

- total unencumbered assets to unsecured debt may not be less than 1.50:1.

NOTE 12 -- MINORITY INTERESTS IN PARTIALLY OWNED PROPERTIES

Although the financial condition and results of operations of the following
Properties are consolidated, there are unaffiliated parties that own an interest
in these Properties. These Properties are consolidated since EOP Partnership
owns at least 50% of the respective ownership entities and controls the major
decisions regarding the respective Properties. All of the Properties are Office
Properties except for Fremont Bayside, an Industrial Property. EOP Partnership's
legal ownership of each Property and its economic interest in each Property is
substantially the same.

The amounts shown below approximate EOP Partnership's economic ownership
interest for the period presented. Cash flow from operations, capital
transactions and net income are allocated to the minority interests in
accordance with their respective partnership agreements. EOP Partnership's share
of these items is

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12 -- MINORITY INTERESTS IN PARTIALLY OWNED PROPERTIES -- (CONTINUED)

subject to change based on, among other things, the operations of the Property
and the timing and amount of capital transactions.

- ---------------
(1) EOP Partnership acquired the remaining 33% interest in April 2001.

(2) This property is currently under development.

(3) Acquired in the Spieker Merger.

EOP Partnership has additional Properties that are partially owned by
unaffiliated parties where EOP Partnership's approximate economic ownership is
100%.

NOTE 13 -- REDEEMABLE COMMON UNITS

As of December 31, 2000, 1,717,844 redeemable common units were outstanding
which related to Common Shares subject to a put option agreement entered into
with an affiliate of the Wright Runstad & Company in connection with the
acquisition of certain Properties in December 1997. In September 2001, EOP
Partnership paid approximately $1.4 million in settlement of this put option.
EOP Partnership previously recognized approximately $4.1 million as a total
potential payment for the put option exercise between the period from August
1999 to August 2000. The difference of approximately $2.7 million between the
$4.1 million previously recognized and the $1.4 million actually paid was
recognized as a put option settlement.

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- PARTNERS' CAPITAL

Units

The following table presents the changes in the issued and outstanding
Units since January 1, 2000

- ---------------

(1) Pursuant to a previously enacted share repurchase plan, 4,742,500 Common
Shares were repurchased and retired between January and February 2000 at an
average share price of $25.27, for approximately $119.8 million in the
aggregate. In connection with these purchases, EOP Partnership reimbursed
Equity Office for the purchase price of the repurchased shares and cancelled
a corresponding number of Units. In February 2000, Equity Office suspended
its share repurchase plan in anticipation of the Cornerstone Merger.

Ownership of EOP Partnership

As of December 31, 2001 and 2000, Equity Office had a 1% general
partnership interest and an approximate 87.0% and 86.9% limited partnership
interest in EOP Partnership, respectively. The remaining limited partners had an
approximate 12.0% and 12.1% interest in EOP Partnership, respectively and
consists of various individuals and entities that contributed their properties
to EOP Partnership in exchange for partnership interests. Each limited partner
of EOP Partnership, excluding Equity Office, may, subject to certain
limitations, require that EOP Partnership redeem its Units. Under the
partnership agreement of EOP Partnership, Equity Office has the right to assume
directly and satisfy the redemption right of a limited partner by issuing its
Common Shares or cash in exchange for any Units tendered for redemption. If
Equity Office does not assume EOP Partnership's obligation to redeem the Units,
upon redemption, the limited partner will receive cash from EOP Partnership in
an amount equal to the market value of the Common Shares for which the Units
would have been redeemed if Equity Office had elected to assume and satisfy EOP
Partnership's obligation by paying Common Shares. Under an assignment and
assumption agreement entered into with EOP Partnership on June 29, 2001, if
Equity Office elects to assume directly and satisfy the redemption right

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- PARTNERS' CAPITAL -- (CONTINUED)

of a limited partner, EOP Partnership is entitled to make the election as to
whether Equity Office issues Common Shares or cash in exchange for Units
tendered for redemption.

Distributions

Distributions are declared and paid quarterly to Unit holders as of the
record dates of each declaration. The current quarterly distribution is $0.50
per Unit. For the years ended December 31, 2001, 2000 and 1999, the per unit
distributions were $1.90, $1.74 and $1.58, respectively.

Preferred Units

Listed below is a summary of EOP Partnership's preferred units. The
preferred unitholder, Equity Office, is entitled to receive, when and as
authorized by the Board of Trustees of Equity Office, cumulative preferential
cash distributions. EOP Partnership is obligated to redeem the preferred units
at their liquidation preference plus accrued but unpaid distributions in
connection with any redemption by Equity Office of the corresponding series of
Equity Office preferred shares.

- ---------------

The annual per unit distributions are as follows:

- ---------------

(1) Equity Office may redeem the corresponding series of its preferred shares
during these periods solely out of the sale proceeds of other equity shares
of Equity Office, except for the portion of the redemption price equal to
any accrued but unpaid dividends. Under the partnership agreement of EOP
Partnership, sale proceeds from the sale of shares by Equity Office must be
contributed to EOP Partnership in exchange for additional units. The number
of shares redeemed is limited to the aggregate sales proceeds received from
such other equity shares of Equity Office. Equity Office may acquire any
outstanding preferred shares that have been transferred to a charitable
beneficiary under Article VII of the declaration of trust of Equity Office
because they were owned or acquired by a shareholder of Equity Office in
violation of the ownership limits. The corresponding Equity Office Series B
preferred shares are mandatorily redeemable on February 15, 2008. If Equity
Office redeems or acquires any or all of its outstanding preferred shares,

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- PARTNERS' CAPITAL -- (CONTINUED)

EOP Partnership will redeem and cancel an equal number of EOP Partnership
preferred units and provide cash to Equity Office with respect thereto in an
amount equal to the amount paid with respect to the Equity Office preferred
shares redeemed or acquired by Equity Office. EOP Partnership is not subject
to sinking fund requirements pertaining to the preferred units.

(2) The corresponding Equity Office Series B preferred shares are convertible at
any time by the holder into Common Shares at a conversion price of $35.70
per Common Share. Such conversion would require EOP Partnership to issue
Units on a one-for-one basis to Equity Office. These shares are non-callable
for five years with a mandatory call on February 15, 2008.

(3) The corresponding Series D, E and F preferred shares were issued in
connection with the Spieker Merger. In November 2001, Equity Office redeemed
all of its 4,250,000 outstanding corresponding Series D preferred shares at
a redemption price of $25.00 per share, plus accrued and unpaid
distributions for the period from October 1, 2001 to the redemption date of
$0.2821875 per share, or an aggregate redemption price of approximately
$107.4 million. In connection with such redemption, Equity Office redeemed
all of the Series B preferred units owned by it.

In March 2001, a holder of 10,000 Series B preferred shares exercised its
right to convert its Series B preferred shares into 14,005 Common Shares. A
corresponding number of Series B preferred units were converted into Units
concurrently with such transaction.

In January 2000, Equity Office repurchased 6,000 Series A preferred shares
and 37,100 Series C preferred shares at an average share price of $20.66 for
approximately $0.9 million in the aggregate and the shares were retired. In
connection with that purchase, EOP Partnership reimbursed Equity Office for the
purchase price of the repurchased shares and cancelled a corresponding number of
Series A preferred units and Series C preferred units. The difference between
the unit repurchase amount and the carrying amount of the preferred units was
classified as a preferred distribution in the consolidated statement of
operations for the year ended December 31, 2000.

NOTE 15 -- FUTURE MINIMUM RENTS

Future minimum rental receipts due on noncancelable operating leases at the
Office Properties and Industrial Properties as of December 31, 2001 were as
follows:

EOP Partnership is subject to the usual business risks associated with the
collection of the above scheduled rents. The future minimum rental receipts due
on noncancelable operating leases from EOP Partnership's investment in
unconsolidated joint ventures are not included in the above schedule.

NOTE 16 -- FUTURE MINIMUM LEASE PAYMENTS

Certain Office Properties and Industrial Properties are subject to ground
leases. Certain of these leases are subject to rental increases based upon the
appraised value of the Property at specified dates or certain

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- FUTURE MINIMUM LEASE PAYMENTS -- (CONTINUED)

financial calculations based on the operations of the respective Property.
Future minimum lease obligations under these noncancelable leases as of December
31, 2001 were as follows:

Rental expense for the years ended December 31, 2001, 2000 and 1999 was
approximately $19.9 million, $12.8 million and $10.6 million, respectively.

NOTE 17 -- EXTRAORDINARY ITEMS

The $10.4 million extraordinary loss in 2001 consisted of a $5.0 million
prepayment penalty and the write-off of approximately $4.4 million of
unamortized mark-to-market adjustments relating to the prepayment of $185
million of mortgage debt (see "Note 22-Related Party Transactions, subfootnote
(1)", for a discussion of the involvement of certain related parties in this
transaction) and the repayment of approximately $32.6 million of mortgage debt
on parking facilities sold. The remaining $1.0 million related to costs on
certain Office Properties located in Seattle, Washington as a result of the
earthquake in February 2001. The extraordinary loss of approximately $1.8
million and $10.5 million in 2000 and 1999, respectively, related to the
write-off of unamortized deferred loan costs and unamortized discounts and
premiums and pre-payment penalties related to the early extinguishment of debt
in those years.

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18 -- EARNINGS PER UNIT

The following table sets forth the computation of basic and diluted
earnings per Unit and unit equivalent:

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 18 -- EARNINGS PER UNIT -- (CONTINUED)

The following securities were not included in the computation of diluted
earnings per Unit and unit equivalent since they would have an antidilutive
effect:

For additional disclosures regarding employee share options and restricted
shares, see Note 23 -- Share Option Plan and Share Award Plan.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19 -- SEGMENT INFORMATION

As discussed in Note 1, EOP Partnership's primary business is the ownership
and operation of Office Properties. Management operates each Office Property as
an individual operating segment and has aggregated these operating segments into
a single operating segment for financial reporting purposes due to the fact that
the individual operating segments have similar economic characteristics. EOP
Partnership's long-term tenants are in a variety of businesses, and no single
tenant is significant to EOP Partnership's business. The property operating
revenues generated at the "Corporate and Other" segment consists of revenues
earned by the Industrial Properties and the stand-alone parking facilities. The
"Other revenues" generated at the "Corporate and Other" segment consist
primarily of fee income from the management of office properties owned by third
parties and interest and dividend income on various investments.

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19 -- SEGMENT INFORMATION -- (CONTINUED)

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19 -- SEGMENT INFORMATION -- (CONTINUED)

- ---------------
(1) Interest expense for the Office Properties does not include allocation of
interest expense on the unsecured notes or the line of credit.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 20 -- PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)

The pro forma data presented below are included to illustrate the effect on
EOP Partnership's operations as a result of the Spieker Merger and the $1.4
billion unsecured notes offering that occurred in July 2001 as if they had
happened on January 1, 2000. The pro forma condensed combined statements of
operations have been prepared by management of EOP Partnership and do not
purport to be indicative of the results which actually would have been obtained
had the Spieker Merger and such notes offering been completed on January 1, 2000
or which may be obtained in the future.

- ---------------
(a) Included in these amounts is approximately $133.6 million and $176.1 million
of net gains on sales of real estate for the years ended December 31, 2001
and 2000, respectively.

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 21 -- QUARTERLY DATA (UNAUDITED)

Quarterly data for the last two years are presented in the tables below:

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 21 -- QUARTERLY DATA (UNAUDITED) -- (CONTINUED)

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 22 -- RELATED PARTY TRANSACTIONS

Related parties provide various services to EOP Partnership. Fees and
reimbursements paid to related parties for the years ended December 31, 2001,
2000 and 1999 were as follows (there was approximately $0.1 million and $0
payable to related parties as of December 31, 2001 and 2000, respectively):

- ---------------
(1) In connection with the Cornerstone Merger, $250 million of mortgage debt was
assumed on certain properties payable to Stichting Pensioenfonds Voor de
Gezondheid, Geestelijke en Maatcschappellijke Belangen ("PGGM"), of which
Jan H.W.R. van der Vlist, a trustee of Equity Office, is a director of real
estate. In October 2000, EOP Partnership repaid $65 million of mortgage debt
encumbering one of the Properties, TransPotomac Plaza(5), upon its maturity.
In 2001, the remaining $185 million of mortgage debt encumbering several
properties was prepaid. As a result of the prepayment, EOP Partnership paid
a $5.0 million prepayment penalty to PGGM.

(2) EOP Partnership and Wilson Investors ("WI") entered into a joint venture
agreement to form Wilson/ Equity Office, LLC ("W/EO") for the purpose of
developing, constructing, leasing and managing developments in northern
California. W/EO is owned 49.9% by EOP Partnership and 50.1% by WI. William
Wilson III, a trustee of Equity Office, through his ownership of WI, owns
approximately 22% of W/EO (and approximately 30% of any promote to which WI
is entitled under the joint venture agreement). EOP Partnership has agreed
to loan up to $25 million to WI for its required contribution to W/EO at a
15% return per annum. The current outstanding balance of this loan as of
December 31, 2001 is approximately $12.0 million of principal and $2.0
million of accrued interest. EOP Partnership's investment in W/EO as of
December 31, 2001 is approximately $32.3 million, which includes an
allocation of 2001 income of approximately $0.2 million. In 2000, EOP
Partnership was allocated a net loss of approximately $0.7 million on its
investment in W/EO.

EOP Partnership has created or anticipates creating joint ventures with
W/EO, certain of which include unaffiliated parties, for the purpose of
developing office properties. The total square footage that may be developed
is approximately 1.7 million and the total projected estimated cost,
including EOP Partnership's, WI's and any unaffiliated party's share, to
complete the developments is approximately $600.7 million. EOP Partnership's
share of the cost incurred to date for the properties under development with
W/EO is approximately $165.9 million. William Wilson III did not, in his
capacity as trustee, approve the foregoing arrangements with EOP
Partnership.

(3) EOP Partnership leases office space at Two North Riverside Plaza, Chicago,
Illinois from Two North Riverside Joint Venture, a partnership composed of
trusts established for the benefit of the families of Samuel Zell and Robert
Lurie, a deceased former business partner of Mr. Zell. Mr. Zell is the
Chairman of the Board of Equity Office. EOP Partnership paid approximately
$3.0 million, $2.6 million and $2.8 million during 2001, 2000 and 1999,
respectively, to Two North Riverside Plaza Joint Venture and its affiliates
for such office space.

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 22 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)

(4) H. Jon Runstad, a former trustee who resigned in July 2000, is a principal
of Wright Runstad & Company, the general partner of Wright Runstad
Associates Limited Partnership ("WRALP"), which provides property
management, leasing and development services. EOP Partnership owns a 30%
limited partnership interest in WRALP. During 2000 and 1999, EOP Partnership
received distributions of approximately $9.7 million and $2.7 million,
respectively, from WRALP. Since December 1997, affiliates of WRALP served as
the co-property manager with EOP Partnership and leasing agent for certain
Office Properties acquired in December 1997 from WRALP and for several other
Office Properties. In addition to the amounts paid above to WRALP for
development and management fees, leasing commissions and related expense
reimbursements with respect to some of our Properties, an additional $5.0
million and $4.7 million was paid during 2000 and 1999, respectively, to
WRALP for the reimbursement of salaries of personnel in connection with such
management services.

WRALP owned a 20% interest and EOP Partnership owned an 80% interest in
Sunset North Corporate Campus, a three-building office complex located in
Bellevue, Washington. WRALP served as developer of the project. In June
2000, EOP Partnership acquired the interest held by WRALP at a price based
on a formula set forth in the joint venture agreement.

WRALP owns a 20% interest and EOP Partnership owns an 80% interest in Key
Center, an Office Property located in Bellevue, Washington. WRALP served as
developer of the project and currently serves as co-property manager with
EOP Partnership and the leasing agent.

In September 2000, EOP Partnership purchased the World Trade Center East
located in Seattle, Washington, from WRALP. WRALP served as the developer of
the project.

In accordance with the agreement governing the investment in WRALP, EOP
Partnership agreed to make available to WRALP up to $20.0 million in
additional financing or credit support for future development. As of
December 31, 2001, no amounts have been funded pursuant to this agreement.
However, EOP Partnership has guaranteed WRALP's line of credit, which has an
outstanding balance of approximately $13.5 million as of December 31, 2001.

Wright Runstad & Company leases space in certain Office Properties. The
terms of the leases are consistent with terms of unaffiliated tenants'
leases. Total rents and other amounts paid by Wright Runstad & Company under
its lease were approximately $0.5 million and $0.3 million for the years
ended December 31, 2000 and 1999, respectively.

As mentioned above, Mr. Runstad resigned as a trustee of Equity Office in
July 2000. Transactions with WRALP after that date are no longer considered
related party transactions.

(5) Represents amounts paid to EGI Risk Services, Inc. for reimbursement of
property insurance premiums to an affiliated company and fees for risk
management services, including reviewing, obtaining and/or researching
various insurance policies. EGI Risk Services, Inc. was a wholly owned
subsidiary of Equity Group Investments, L.L.C. ("EGI"), of which Mr. Samuel
Zell, Equity Office's chairman, is the Chairman of the Board. Effective
October 1, 1999, EOP Partnership no longer utilized the services provided by
EGI Risk Services, Inc., and its employees have become employees of EOP
Partnership.

(6) Represents amounts primarily paid to Rosenberg & Liebentritt, P.C., a law
firm, for legal fees and expenses incurred in connection with acquisition,
corporate and leasing activity. A trustee of Equity Office was a principal
of this law firm until September 1, 1997. In 1999, Rosenberg & Liebentritt,
P.C. dissolved and, as a result, no longer provides legal services to EOP
Partnership.

(7) During 1999, fees were paid to the EGI for miscellaneous consulting
services.

In connection with the Cornerstone Merger, EOP Partnership paid $5.0
million to John S. Moody to enter into a non-compete agreement. Mr. Moody became
a trustee of Equity Office at the time of the Cornerstone Merger and is the
former president and chief executive officer of Cornerstone.

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 22 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)

EOP Partnership acquired Palo Alto Square, an Office Property located in
Palo Alto, California, on October 1, 1999 from a private investment partnership
controlled by Mr. Samuel Zell. The acquisition was funded primarily through the
issuance of 1,035,389 Units valued at $23.64 per Unit, for a total of
approximately $24.5 million, and the assumption of $53.2 million in debt.

As described in Note 6, EOP Partnership owns preferred shares of Capital
Trust, Inc. Mr. Zell is Chairman of the Board of Capital Trust, Inc.

Access Holdings

Under applicable REIT tax rules in effect before January 1, 2001, certain
non-customary services had to be provided by an "independent contractor," and
Equity Office was prohibited under the REIT tax rules from deriving any income
from the provision of those services. Pursuant to legislation adopted in 1999,
effective January 1, 2001, these rules were changed to permit most REITs,
including Equity Office, to provide services to tenants through a taxable REIT
subsidiary. In addition, under the REIT tax rules in effect, Equity Office was
prohibited from owning more that 10% of the voting stock of a corporation.
Effective January 1, 2001, a REIT can own without limit voting stock of a
corporation that is a taxable REIT subsidiary.

In October 2000, five executive officers of Equity Office organized Access
Holdings Company, L.L.C. and on August 2000 organized its sister company, AHC
II, L.L.C., which EOP Partnership refer to collectively as "Access Holdings," to
provide or arrange for services for tenants that Equity Office could not provide
under the REIT tax rules then in effect and to make certain investments that
Equity Office was precluded from making under the REIT rules then in effect. EOP
Partnership made loans totaling approximately $2.3 million in the aggregate at
an annual interest rate of 7.0% to certain executive officers of Equity Office
to finance their investment in Access Holdings. Of this amount, approximately
$0.3 million was used by Access Holdings to purchase the voting interests in
various tenant service and management companies owned by affiliates of Mr. Zell
and the balance was used to operate Access Holdings. In consideration of the
assumption of an outstanding capitalization note in the principal amount of $1.0
million payable by certain affiliates of Mr. Zell to EOP Office Company, Access
Holdings also acquired the voting interest in EOP Office Company. EOP Office
Company holds various assets, including 109,987 Units, a 10.2% interest in the
Sunset North Property and a 30% interest in WRALP.

In connection with the formation of Access Holdings, Equity Office entered
into an option agreement with Access Holdings under which Access Holdings
granted Equity Office the right on or after January 1, 2001 to acquire its
assets, subject to its liabilities. Equity Office also granted to Access
Holdings the right to sell its assets to Equity Office for a period of five
years from the date of the tax law change. Neither Equity Office nor Access
Holdings was obligated to exercise its respective contractual rights, and there
was no assurance prior to January 1, 2001 that either would do so. The parties
also entered into marketing and cost -- sharing agreements pursuant to which
Access Holdings paid an affiliate a total of $1.8 million during 2000. In 2001,
Equity Office determined that it was in Equity Office's best interests to
exercise its option to acquire the assets of Access Holdings and, accordingly,
submitted the matter to the Conflicts Committee of Equity Office's Board of
Trustees. The Conflicts Committee engaged the services of a third party to
perform a valuation analysis of the assets and liabilities of Access Holdings
for purposes of calculating the applicable purchase price under the option
agreements. That firm delivered its valuation report and, in reliance on such
report and on other factors it considered to be relevant, the Conflicts
Committee approved the exercise of the option effective as of January 1, 2001 at
a purchase price equal to the fair market value of the assets plus the
assumption of liabilities and determined the applicable purchase prices under
the option agreements to be as follows: (a) $2.3 million for the assets of
Access Holdings Company, L.L.C., plus assumption of liabilities of $1.4 million;
and (b) $0.2 million for the assets of AHC II Company, L.L.C., plus the
assumption of liabilities of $0.1 million. The executive officers of Equity
Office repaid their loans from EOP Partnership, collectively totaling
approximately $2.3 million, using a portion of the purchase price paid by EOP
Partnership for the
87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 22 -- RELATED PARTY TRANSACTIONS -- (CONTINUED)

assets of Access Holdings. These certain executive officers each earned a profit
of approximately $52,000 on their investment in Access Holdings.

As a result of these transactions, EOP Partnership now owns interests
through its subsidiaries in several newly organized tenant service entities,
interests in certain real properties and minority voting securities of certain
former non-controlled subsidiaries engaged in real estate, insurance and
management businesses.

Amounts Received from Related Parties

Allied Riser Communications Corporation (a communications services provider
of which a private investment entity controlled by Mr. Zell had an investment),
Equity Residential Properties Trust and Warren E. Spieker, Jr., a trustee of
Equity Office, separately leased office space in certain Office Properties.
Total rents and other amounts paid by these related parties under the terms of
their respective leases were approximately $1.6 million, $1.2 million and $1.2
million for the years ended December 31, 2001, 2000 and 1999, respectively.

EOP Partnership has entered into third-party management contracts and a
licensing agreement to manage and license space at certain Properties owned or
controlled by affiliates of Mr. Zell. Income recognized by EOP Partnership for
providing these management services during 2001 was approximately $1.5 million.

In addition, EOP Partnership provided real estate tax consulting and risk
management services to related parties for which it received approximately $1.7
million, $1.4 million and $1.2 million during 2001, 2000 and 1999, respectively.

NOTE 23 -- SHARE OPTION PLAN AND SHARE AWARD PLAN

The following is a description of Equity Office's 1997 Share Option and
Share Award Plan, as amended, (the "Employee Plan"), which is included in the
financial statements because any Common Shares issued pursuant to the Employee
Plan will result in EOP Partnership issuing Units to Equity Office, on a
one-for-one basis. Equity Office has established the 1997 Share Option and Share
Award Plan, as amended (the "Employee Plan"). The purpose of the Employee Plan
is to attract and retain highly qualified executive officers, trustees,
employees and consultants. Through the Employee Plan, certain officers,
trustees, employees and consultants of Equity Office are offered the opportunity
to acquire Common Shares pursuant to grants of (i) options to purchase Common
Shares ("Options") and (ii) Share Awards (defined below). The Employee Plan is
administered by the Compensation and Option Committee (the "Compensation
Committee"), which is appointed by the Board of Trustees. The Compensation
Committee determines those officers, trustees, key employees and consultants to
whom, and the time or times at which, grants of Options and Share Awards will be
made. The Compensation Committee interprets the Employee Plan, adopts rules
relating thereto and determines the terms and provisions of Options. In 2001,
2000, and 1999 the Common Shares subject to Options and Share Awards under the
Employee Plan were limited to 23,733,869, 19,433,472 and 19,621,220,
respectively. The maximum aggregate number of Common Shares that may be granted
for all rights under the Plan may not exceed 6.8% of the outstanding Common
Shares, calculated on a fully diluted basis and determined annually on the first
day of each calendar year. No more than one-half of the maximum aggregate number
of Common Shares shall be granted as Share Awards. To the extent that Options
expire unexercised or are terminated, surrendered or canceled, the Common Shares
allocated to such Options become available for future grants under the Plan,
unless the Plan has terminated. The Employee Plan will terminate at such time
all of the unissued Common Shares reserved for the Plan have been issued. The
Board of Trustees may at any time amend or terminate the Employee Plan, but
termination will not affect Options and Share Awards previously granted. Any
Options or Share Awards, which vest prior to any such termination, will continue
to be exercisable by the holder thereof.

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 23 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)

The Compensation Committee determines the vesting schedule of each Option
and the term, which shall not exceed ten years from the date of the grant. As to
the Options that have been granted through December 31, 2001, the vesting
schedules range from the entire option grant being exercisable as of the grant
date to one-third of the Options being exercisable as of the first anniversary
of the grant date, an additional one-third being exercisable as of the second
anniversary of the grant date and the remaining one-third being exercisable as
of the third anniversary of the grant date. The exercise price for all Options
under the Employee Plan shall not be less than the fair market value of the
underlying Common Shares at the time the Option is granted.

Each member of the Board of Trustees receives an annual grant of an Option
to purchase 10,000 Common Shares (other than Mr. van der Vlist, who receives a
grant of an equivalent share appreciation right exercisable for cash). If an
individual becomes a member of the board other than at an annual meeting, he or
she is entitled to a prorated Option grant based upon the number of days until
the next annual meeting of shareholders. In addition, the Employee Plan permits
the issuance of Share Awards to executive officers, trustees and key employees
upon such terms and conditions as are determined by the Compensation Committee
in its sole discretion. A share award is an award of Common Shares which (i) may
be fully vested upon issuance ("Share Awards") or (ii) may be subject to risk of
forfeiture under Section 83 of the Internal Revenue Code ("Restricted Share
Award"). Generally, members of the Board of Trustees have been granted Share
Awards pursuant to the Employee Plan as payment of their board fees. In each
case, the number of Share Awards granted to trustees was equal to the dollar
value of the fee divided by the fair market value of the shares on the date the
fee would have been paid. Restricted Share Awards were granted to certain
officers and employees in 2001, 2000 and 1999. The Restricted Share Awards vest
over a five-year period as follows: 50% on the third anniversary of the initial
grant date; 25% on the fourth anniversary of the initial grant date; and the
remaining 25% on the fifth anniversary of the initial grant date.

Equity Office has elected to apply the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25")
in the computation of compensation expense. Under APB No. 25's intrinsic value
method, compensation expense is determined by computing the excess of the market
price of the shares over the exercise price on the measurement date. For
Options, there is no intrinsic value on the measurement date (or grant date),
and no compensation expense is recognized. Financial Accounting Standards Board
No. 123 ("FASB No. 123") requires the disclosure of pro forma net income and net
income per share as if a fair value based accounting method had been used in the
computation of compensation expense. The fair value of the Options computed
under FASB No. 123 would be recognized over the vesting period of the Options.
The fair value for Options granted in 2001, 2000, and 1999 was estimated at the
time the Options were granted using the Black-Scholes option-pricing model with
the following weighted average assumptions for 2001, 2000, and 1999,
respectively:

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of trade options, which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Options have characteristics significantly different from traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
Options and may not be

89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 23 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)

representative of the effects on reported net income for future years. For
purposes of pro forma disclosures, the estimated fair value of the Options is
amortized to expense during the Options' vesting period.

The following is the unaudited pro forma information for the years ended
December 31, 2001, 2000 and 1999:

The table below summarizes the Option activity of the Employee Plan for the
years ended December 31, 2001, 2000 and 1999:

90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 23 -- SHARE OPTION PLAN AND SHARE AWARD PLAN -- (CONTINUED)

The following table summarizes information regarding stock options
outstanding at December 31, 2001:

As of December 31, 2001, there were 10,042,588 Options at a weighted
average exercise price of $24.92 under the Employee Plan that were exercisable
and 6,243,765 Options at a weighted average exercise price of $28.81 that were
not exercisable. Expiration dates ranged from April 2002 to September 2011. The
remaining weighted average contractual life of Options was 7.5 years. The
weighted average grant date fair value of Options granted during 2001, 2000 and
1999 was $2.76, $5.63 and $2.91, respectively.

During 2001 and 2000, there were 602,666 and 555,100 restricted shares
issued, respectively. The restricted shares vest over three to five years. The
restricted shares issued in 2001 and 2000 were, on average, valued at an average
of $20.61 and $23.91 per share, respectively, The restricted shares vest 50% on
the third anniversary of the grant date, 25% on the fourth anniversary of the
grant date and 25% on the fifth anniversary of the grant date. The value of the
restricted shares is amortized to compensation expense on a straight-line basis
and included in General and Administrative Expense.

NOTE 24 -- 401(K) PLAN

Equity Office established the Equity Office Properties Trust Section 401(k)
Savings/Retirement Plan (the "401(k) Plan") to cover eligible employees of EOP
Partnership and employees of any designated affiliate. The 401(k) Plan permits
eligible persons to defer up to 16% of their annual compensation into the 401(k)
Plan, subject to certain limitations imposed by the Internal Revenue Code.
Employees' elective deferrals are immediately vested and nonforfeitable upon
contribution to the 401(k) Plan. EOP Partnership matches dollar for dollar
employee contributions to the 401(k) Plan up to 4% of the employee's annual
salary. In addition, EOP Partnership may elect to make a discretionary profit -
sharing contribution. EOP Partnership incurred expenses of approximately $3.8
million, $3.6 million and $2.9 million in each of the years ended December 31,
2001, 2000 and 1999, respectively, related to the 401(k) Plan.

NOTE 25 -- COMMITMENTS AND CONTINGENCIES

Concentration of Credit Risk

EOP Partnership maintains its cash and cash equivalents at financial
institutions. The combined account balances at each institution typically exceed
FDIC insurance coverage and, as a result, there is a concentration of credit
risk related to amounts on deposit in excess of FDIC insurance coverage.
Management of EOP Partnership believes that the risk is not significant.

Environmental

EOP Partnership, as an owner of real estate, is subject to various
environmental laws of federal and local governments. Compliance by EOP
Partnership with existing laws has not had a material adverse effect on EOP
Partnership's financial condition and results of operations, and management does
not believe it will have such an impact in the future. However, EOP Partnership
cannot predict the impact of unforeseen

91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 25 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

environmental contingencies or new or changed laws or regulations on its current
Properties or on properties that it may acquire in the future.

Litigation

EOP Partnership is not presently subject to material litigation nor, to EOP
Partnership's knowledge, is any litigation threatened against EOP Partnership,
other than routine actions for negligence and other claims and administrative
proceedings arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the liquidity, results of
operations, or business or financial condition of EOP Partnership.

Contingencies

Certain Properties owned in joint ventures with unaffiliated parties have
buy/sell options that may be exercised to acquire the other partner's interest
by either EOP Partnership or its joint venture partner if certain conditions are
met as set forth in the respective joint venture agreement.

In connection with the acquisition of certain Properties, EOP Partnership
has agreed not to sell such Properties in a taxable transaction for a period of
time as defined in their respective agreements or EOP Partnership may be
obligated to make additional payments to the respective sellers.

Insurance

EOP Partnership has deductible amounts on insurance policies related to
property damage, business interruption, workers compensation, auto liability and
general liability losses that may be incurred at the Properties. The following
summarizes EOP Partnership deductibles by type of insurance coverage:

EOP Partnership places commercial insurance coverage in excess of the per
occurrence deductible amounts above, including acts of terrorism. EOP
Partnership's current coverage for terrorist insurance is up to $200 million in
the aggregate or per occurrence and excludes nuclear, chemical or biological
acts of terrorism. There can be no assurance, however, that insurance coverage
for acts of terrorism will be available in the future.

EOP Partnership carries earthquake insurance on all the Properties,
including those in California and Washington, subject to coverage limitations,
which EOP Partnership believes are commercially reasonable. No assurance can be
given that material losses in excess of insurance proceeds will not occur in the
future.

Commitments

In accordance with the agreement governing the investment in WRALP, EOP
Partnership agreed, for a period generally continuing until December 31, 2007,
to make available to WRALP up to $20.0 million in additional financing or credit
support for future development. As of December 31, 2001, no amounts have been
funded pursuant to this agreement. However, EOP Partnership has guaranteed
WRALP's line of credit,

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 25 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)

which has an outstanding balance of approximately $13.5 million as of December
31, 2001. WRALP's current line of credit matures in July 2003.

NOTE 26 -- SUBSEQUENT EVENTS

1. In January and February, 2002, EOP Partnership sold six office
properties consisting of approximately 729,348 square feet and a 50% interest in
four parking facilities in separate transactions to various unaffiliated parties
for approximately $143.1 million.

2. In February 2002, EOP Partnership issued $500 million of unsecured notes
due February 2012. These notes are guaranteed by Equity Office. The coupon
interest rate of the notes is 6.75% per annum with interest payable
semiannually. The effective interest rate, which includes amortization of the
discount and other offering costs, is approximately 7.0%. Total cash proceeds,
net of selling commissions and other expenses, were approximately $235.9
million. Approximately $260.0 million of the aggregate principal amount of the
notes was exchanged for $250 million of the aggregate principal amount of EOP
Partnership's outstanding 6.376% MandatOry Par Put Remarketed Securities(SM) due
February 15, 2012, which were subject to mandatory redemption and a remarketing
agreement. The remaining net proceeds were used to repay the line of credit and
for general business purposes, including working capital.

93

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

94

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Information about Trustees of Equity Office is incorporated by reference
from the discussion under Proposal 1 in Equity Office's Proxy Statement for the
2002 Annual Meeting of Shareholders. The balance of the response to this item is
contained in the discussion entitled "Executive and Senior Officers of Equity
Office" under Item 1 of Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION.

Information about executive compensation is incorporated by reference from
the discussion under the heading "Executive Compensation" in Equity Office's
Proxy Statement for the 2002 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Information about security ownership of certain beneficial owners and
management is incorporated by reference from the discussion under the heading
"Common Share and Unit Ownership by Trustees and Executive Officers" in Equity
Office's Proxy Statement for the 2002 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Information about certain relationships and transactions with related
parties is incorporated herein by reference from the discussion under the
heading "Certain Relationships and Related Transactions" in Equity Office's
Proxy Statement for the 2002 Annual Meeting of Shareholders.

95

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a)(1) Financial Statements

Report of Independent Auditors

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Operations for the years ended December 31,
2001, 2000 and 1999

Consolidated Statements of Changes in Partner's Capital and Net
Comprehensive Income for the years ended December 31, 2001, 2000 and
1999

Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999

Notes to Consolidated Financial Statements

(a)(2) Financial Statement Schedules

Schedule III -- Real Estate and Accumulated Depreciation as of December
31, 2001

All other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the related
instructions or are inapplicable and therefore have been omitted.

(a)(3) Exhibits:

The exhibits required by this item are set forth on the Exhibit Index
attached hereto.

(b) Reports on Form 8-K:

None.

(c) Exhibits:

See Item 14(a)(3) above.

(d) Financial Statement Schedules:

None.

96

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Chicago, Illinois, as of the 28th day of March, 2002.

EOP OPERATING LIMITED PARTNERSHIP

By: EQUITY OFFICE PROPERTIES TRUST
its general partner

By: /s/ TIMOTHY H. CALLAHAN
------------------------------------
Timothy H. Callahan
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated as of the 28th day of March, 2002.

98

EXHIBIT INDEX

- -------------------------
* Incorporated herein by reference to the same-numbered exhibit to Equity
Office's Annual Report on Form 10-K for the year ended December 31, 1997, as
amended.

SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)

- ---------------

(1) The aggregate cost for federal income tax purposes as of December 31, 2001
was approximately $15.0 billion.

(2) The life to compute depreciation on building is 40 years, except for Palo
Alto which is subject to a ground lease that terminates in 2023. Therefore,
the building is depreciated over the remaining term of the ground lease.
The life to compute depreciation on building improvements is 4-40 years.

(3) The date acquired represents the date these properties were acquired by EOP
Partnership Predecessors. The acquisition of the properties, or interest
therein, by EOP Partnership from EOP Partnership Predecessors in connection
with the Consolidation on July 11, 1997, was accounted for using the
purchase method of accounting in accordance with Accounting Principles
Board Opinion No. 16. Accordingly, the assets were recorded by EOP
Partnership at their fair values.

(4) This property contains 106 residential units in addition to 224,405 square
feet of office space.

(5) These loans are subject to cross default and collateralization provisions.

(6) These properties were previously under development and have been placed
into service during 2001.

(7) These loans are subject to cross default and collateralization provisions.

(8) These loans are subject to cross default and collateralization provisions.

(9) These loans are subject to cross default and collateralization provisions.

(10) These properties are in various development stages. During the development
period certain operating costs, including real estate taxes together with
interest incurred during the development stages will be capitalized.

(11) The encumbrances at December 31, 2001 include a net premium (net of
accumulated amortization of approximately $5.3 million) of approximately
$11.8 million.

A SUMMARY OF ACTIVITY OF INVESTMENT IN REAL ESTATE AND ACCUMULATED
DEPRECIATION IS AS FOLLOWS:

The changes in investment in real estate for the years ended December 31,
2001, 2000 and 1999, are as follows:

The changes in accumulated depreciation for the years ended December 31,
2001, 2000 and 1999, are as follows:

- ---------------
(1) Approximately $3.7 million relates to the value of building equipment
received in exchange for EOP Partnership's equity position in a telecom
company and the remainder relates to the write-off of internally developed
software.

(2) The 2000 and 1999 properties disposed of amounts include approximately $0.4
billion and $1.1 billion, respectively, of disposed assets related to the
partial sale of interests in various properties. The related accumulated
depreciation on the partially sold properties was approximately $18.7
million and $58.5 million, respectively.