EOP OPERATING LTD PARTNERSHIP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997

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 (I.R.S. Employer Identification No.)
incorporation or organization)
TWO NORTH RIVERSIDE PLAZA, 60606
SUITE 2200, 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:
Title of each class Name of each exchange on which registered
None.

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 (of for such shorter period that the
registrant was required to file such report), 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 25, 1998 was $683,287,153.

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EOP OPERATING LIMITED PARTNERSHIP

TABLE OF CONTENTS

PART I. PAGE
----

Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 34
Item 4. Submission of Matters to a Vote of Security Holders 34
PART II.
Item 5. Market for the Registrant's Common Equity and Related
Shareholder Matters 34
Item 6. Selected Financial Data 35
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 38
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 52
Item 8. Financial Statements and Supplementary Data 52
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 52
PART III.
Item 10. Trustees and Executive Officers of the Registrant
Item 11. Executive Compensation 53
Item 12. Security Ownership of Certain Beneficial Owners and Management 55
Item 13. Certain Relationships and Related Transactions 61
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 58

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PART I

ITEM 1. BUSINESS

THE COMPANY

EOP Operating Limited Partnership, a Delaware limited partnership (the
"Company"), together with Equity Office Properties Trust, a Maryland real estate
investment trust (the "Trust"), was formed in 1996 to continue and expand the
national office property business organized by Mr. Samuel Zell, Chairman of the
Board of Trustees of the Company. As of December 31, 1997, the Company owned or
had an interest in 258 office properties containing approximately 65.3 million
rentable square feet of office space (the "Office Properties") and owned or had
an interest in 17 stand-alone parking facilities containing approximately 16,749
parking spaces (the "Parking Facilities" and, together with the Office
Properties, the "Properties"). To facilitate maintenance of the Trust's
qualification as a real estate investment trust ("REIT") for federal income tax
purposes, management of properties that are not wholly owned by the Company and
its subsidiaries is generally conducted through Equity Office Properties
Management Corp., a Delaware corporation ("EOP Management Company"), and Beacon
Property Management Corporation, a Delaware corporation ("Beacon Management
Company"). The term "Company" includes, unless the context requires otherwise,
EOP Operating Limited Partnership, its subsidiaries, and the predecessors
thereof.

The Trust, a self-administered and self-managed REIT, is the managing
general partner of, and controls a majority of the partnership interests in,
the Company. On July 11, 1997, the Trust completed its initial public offering
(the "IPO") of 28,750,000 common shares of beneficial interest, $.01 par value
per share (the "Common Shares"). As of December 31, 1997, the Trust owned,
directly or indirectly, 89.5% of the outstanding partnership interests in the
Company. The Trust owns all of its assets and conducts substantially all of
its business through the Company and its subsidiaries.

The Company's executive offices are located at Two North Riverside Plaza,
Suite 2200, Chicago, Illinois 60606, and its telephone number is (312)
466-3300.

ACQUISITION ACTIVITY

During the period from 1987 through 1997, the Company invested
approximately $10 billion, averaging $2.7 billion annually (calculated on a
cost basis) for the three years ended December 31, 1997, in acquisitions of
institutional quality office properties throughout the United States. During
the period from the Trust's IPO in July 1997 through December 1997, the Company
completed a number of new acquisitions:

BEACON MERGER. On December 19, 1997, the Company, the Trust, Beacon
Properties Corporation, a Maryland corporation ("Beacon"), and Beacon
Properties, L.P., a Delaware limited partnership of which Beacon was the sole
general partner ("Beacon Partnership"), consummated the transactions
contemplated by the Agreement and Plan of Merger dated September 15, 1997, as
amended, among the Company, the Trust, Beacon and Beacon Partnership (the
"Merger Agreement"). Pursuant to the Merger Agreement, Beacon merged with and
into the Trust and Beacon Partnership merged with and into the Company (the
"Beacon Merger"). The acquisition cost of the Beacon Merger was approximately
$4.3 billion.

In the Beacon Merger, (i) the Trust issued 80,596,117 Common Shares in
exchange for all of the outstanding shares of common stock, $0.01 par value per
share, of Beacon ("Beacon Common Shares"), (ii) the Trust issued 8,000,000
8.98% Series A Cumulative Redeemable Preferred Shares, liquidation preference
$25.00 per share, of the Company ("Series A Preferred Shares") in exchange for
all of the outstanding shares of 8.98% Series A Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 per share, of Beacon ("Beacon Preferred
Shares"), (iii) the Company issued 8,570,886 common units of limited
partnership interest ("Units") of the

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Company in exchange for the outstanding common partnership units of Beacon
Partnership exclusive of those held by Beacon, and (iv) the Company issued to
the Trust 80,596,117 Units in exchange for outstanding common units of Beacon
Partnership held by Beacon when it merged into the Trust and 8,000,000
Series A Cumulative Redeemable Preferred Units ("Series A Preferred Units") in
exchange for the corresponding preferred units of Beacon Partnership held by
Beacon when it merged into the Trust. In addition, the Trust assumed the
obligation to issue 4,732,822 Common Shares, of which 3,829,739 had been issued
as of December 31, 1997, upon the exercise of certain outstanding Beacon
employee stock options. The $4.3 billion acquisition cost is comprised of the
following: (i) based on a share price of $31.30, the Common Shares, including
the Common Shares issued for stock options, and Units were valued at
approximately $2.853 billion (which is net of a reduction for cash of $86
million received or to be received upon exercise of options); (ii) the issuance
of 8,000,000 Series A Preferred Shares valued at their liquidation value of
$200 million; (iii) the assumption of approximately $627 million of secured
debt and $533 million of unsecured debt; (iv) transaction costs of
approximately $85 million; and (v) net of the receipt of approximately $8
million of net assets.

As a result of the Beacon Merger, the Company acquired interests in 130
Office Properties (the "Beacon Properties") containing approximately 20.9
million rentable square feet of office space. The Beacon Properties are
located in 22 submarkets in six markets: Boston, Atlanta, Chicago, Los Angeles,
San Jose and Washington, D.C.

WRIGHT RUNSTAD ACQUISITION. On December 17, 1997, the Company acquired
ten Office Properties, containing an aggregate of approximately 3.34 million
square feet, located in Seattle, Washington, Portland, Oregon and Anchorage,
Alaska, from Wright Runstad Holdings L.P., Wright Runstad Asset Management L.P.
and Mellon Bank, N.A., as Trustee for First Plaza Group Trust ("First Plaza")
(the "Wright Runstad Acquisition"). The purchase price was approximately $640
million. The total consideration included the assumption of approximately $240
million of existing debt, $208.9 million in cash and $176.1 million in Units
valued at $29.11 per Unit, $100 million of which were exchanged by the sellers
for restricted Common Shares. The sellers also received five-year warrants
(valued at approximately $15 million) to purchase an additional five million
restricted Common Shares at an exercise price of $39.375 per share. In
addition EOP Office Company, a Delaware corporation, acquired a 30%
noncontrolling interest in Wright Runstad Asset Limited Partnership ("WRALP")
for $16 million in cash and $4 million in Units valued at $29.11 per unit and
agreed to provide up to $20 million in additional financing or credit support
for future development activities at WRALP.

OTHER ACQUISITIONS. In addition to the Beacon Merger and the Wright
Runstad Acquisition, during the period from the Trust's IPO through December
31, 1997, the Company completed nine other acquisition transactions in which it
acquired 27 Office Properties, containing an aggregate of approximately 8.8
million square feet, located in New Orleans, Houston, Dallas, Philadelphia, Los
Angeles, Chicago, Washington, D.C. and Fairfax and Alexandria, Virginia (the
"Other Acquisitions"). The Company also acquired three Parking Facilities,
containing approximately 2,141 parking spaces in Chicago, New Orleans and
Pittsburgh. The aggregate consideration paid by the Company in these
acquisitions was approximately $1.47 billion, comprised of $1.26 billion in
cash, $163 million in Units and $48 million in assumed liabilities.

BUSINESS AND GROWTH STRATEGIES

The Company's primary business objective is to achieve sustainable
long-term growth in cash flow and portfolio value. The Company intends to
achieve this objective by owning and operating institutional quality office
buildings and providing a superior level of service to tenants in central
business districts ("CBDs") and suburban markets across the United States. The
Company intends to supplement this strategy by owning parking facilities.

INTERNAL GROWTH. Management believes that the Company's future internal
growth will come from (i) lease up of vacant space, (ii) tenant roll-over at
increased rents where market conditions permit,

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(iii) repositioning of certain Properties which have not yet achieved
stabilization, and (iv) increasing economies of scale.

As of December 31, 1997, 3.9 million rentable square feet of Office
Property space was vacant. Of this amount, 735,700 square feet was leased at
an average rent of $26.62 per square foot, with occupancy to commence in whole
or in part during 1998. The Company's average operating expenses for the total
vacant space were $9.37 per square foot as of December 31, 1997.

During the period from December 31, 1997 through December 31, 2002, 4,673
leases for 36.5 million rentable square feet of space are scheduled to expire.
As of December 31, 1997, the average rent for this space was $21.77 per square
foot and the weighted average operating expenses were $8.80 per square foot.
The actual rental rates at which available space will be relet will depend on
prevailing market factors at the time.

The Company owns undeveloped land on 23 sites on which approximately 8.1
million square feet of office space could be developed. The Company's policy
is to develop land only if significant pre-leasing can be arranged or if such
development is necessary to protect the Company's investment in existing
Properties. The Company currently does not anticipate significant development
activities on this land.

EXTERNAL GROWTH. The Company is pursuing, and expects to continue to
actively pursue, acquisitions of additional office properties and parking
facilities. Properties may be acquired separately or as part of a portfolio,
and may be acquired for cash and/or in exchange for equity or debt securities
of the Company or the Trust, and such acquisitions may be customary real estate
transactions and/or mergers or other business combinations.

PARKING FACILITIES. The Company intends to focus its acquisition efforts
for parking facilities solely on municipal or private parking facilities that
have limited competition, no (or minimal) rental rate restrictions and/or a
superior location proximate to or affiliated with airports, CBDs, entertainment
projects or healthcare facilities.

EMPLOYEES

As of December 31, 1997, the Company had approximately 1,456 employees
providing in-house expertise in property management, leasing, finance, tax,
acquisition, development, disposition, marketing, accounting, information
systems and real estate law. The five most senior executives of the Trust have
an average tenure of 11 years with the Company or its affiliates and an average
of 23 years experience in the real estate industry.

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RISK FACTORS

Set forth below are the risks that we believe are material to investors
who purchase or own the Trust's common or preferred shares of beneficial
interest (which we refer to as "Shares") or Units of limited partnership
interest of the Operating Partnership, which are redeemable on a one-for-one
basis for Common Shares or their cash equivalent. We refer to the Shares and the
Units together as our "securities," and the investors who own Shares and/or
Units as our "securityholders."

THERE CAN BE NO ASSURANCE THAT WE WILL EFFECTIVELY MANAGE OUR RAPID GROWTH
AND EXPANSION INTO NEW MARKETS

We are currently growing rapidly. As of December 31, 1997, we owned
interests in 258 Office Properties containing 65.3 million square feet. We also
owned interests in 17 Parking Facilities containing approximately 16,749 parking
spaces. Our office portfolio grew by 102% (on a square footage basis) and our
parking portfolio grew by 13% (based on the number of parking spaces) from the
time of our IPO in July 1997 through the end of the year. Additionally, the
Beacon Merger, which closed in December 1997, substantially expanded our
operations in Boston and extended our operations to San Jose. The Wright Runstad
acquisition, which also closed in December 1997, extended our operations to
Seattle, Washington, Portland, Oregon and Anchorage, Alaska. Other recent
acquisitions extended our operations to downtown New Orleans, suburban
Philadelphia, Minneapolis and Pittsburgh. We plan to continue this rapid growth
for the foreseeable future. We plan on managing this growth by applying our
experience to new markets and properties and expect to be successful in that
effort. If we do not effectively manage our rapid growth, however, we may not be
able to make expected distributions to our securityholders.

OUR PERFORMANCE AND SHARE VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE REAL
ESTATE INDUSTRY

GENERAL. If our assets do not generate income sufficient to pay our
expenses, service our debt and maintain our properties, we may not be able to
make expected distributions to our securityholders. Several factors may
adversely affect the economic performance and value of our properties. These
factors include changes in the national, regional and local economic climate,
local conditions such as an oversupply of office properties or a reduction in
demand for office properties, the attractiveness of our properties to tenants,
competition from other available office properties, changes in market rental
rates and the need to periodically repair, renovate and relet space. Our
performance also depends on our ability to collect rent from tenants and to pay
for adequate maintenance, insurance and other operating costs (including real
estate taxes), which could increase over time. Also, the expenses of owning and
operating a property are not necessarily reduced when circumstances such as
market factors and competition cause a reduction in income from the property. If
a property is mortgaged and we are unable to meet the mortgage payments, the
lender could foreclose on the mortgage and take the property. In addition,
interest rate levels, the availability of financing, changes in laws and
governmental regulations (including those governing usage, zoning and taxes) and
the possibility of bankruptcies of tenants may adversely affect our financial
condition.

WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE. When
our tenants decide not to renew their leases upon their expiration, we may not
be able to relet the space. Even if the tenants do renew or we can relet the
space, the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. Over the next five
years (through the end of 2002), leases will expire on a total of 56% of the
rentable square feet at our current properties. If we are unable to promptly
renew the leases or relet this space, or if the rental rates upon such renewal
or reletting are significantly lower than expected rates, then our results of
operations and financial condition will be adversely affected. Consequently, our
cash flow and ability to service debt and make distributions to securityholders
would be adversely affected.

NEW ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED AND COMPETITION FOR
ACQUISITIONS MAY RESULT IN INCREASED PRICES FOR PROPERTIES. We intend to
continue to actively acquire office and parking properties. Newly acquired
properties may fail to perform as expected. We may underestimate the costs
necessary to bring an acquired property up to standards established for its
intended market position. Additionally, we expect other major real estate
investors with significant capital will compete with us for attractive
investment opportunities. These competitors include publicly traded REITs,
private REITs, investment banking firms and private institutional investment
funds. This competition has increased prices for office properties. We expect to
acquire properties with cash from secured or unsecured financings and proceeds
from offerings of equity or debt. We may not be in a position or have the
opportunity in the future to make suitable property acquisitions on favorable
terms. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

BECAUSE REAL ESTATE INVESTMENTS ARE ILLIQUID, WE MAY NOT BE ABLE TO
SELL PROPERTIES WHEN APPROPRIATE. Real estate investments generally cannot be
sold quickly. We may not be able to vary our portfolio promptly in response to
economic or other conditions. This inability to respond promptly to changes in
the performance of our investments could adversely affect our financial
condition and ability to service debt and make distributions to our
securityholders.

SOME POTENTIAL LOSSES ARE NOT COVERED BY INSURANCE. We carry
comprehensive liability, fire, extended coverage and rental loss insurance on
all of our properties. We believe the policy specifications and insured limits
of these policies are adequate and appropriate. There are, however, certain
types of losses, such as lease and other contract claims, that generally are not
insured. Should an uninsured loss or a loss in excess of insured limits occur,
we could lose all or a portion of the capital we

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have invested in a property, as well as the anticipated future revenue from
the property. In such an event, we might nevertheless remain obligated for any
mortgage debt or other financial obligations related to the property.

We carry earthquake insurance on all of our properties, including those
located in California. Our earthquake policies are subject to coverage
limitations which we believe are commercially reasonable. In light of the
California earthquake risk, California building codes since the early 1970s have
established construction standards for all new buildings. The current and
strictest construction standards were adopted in 1987. Of the 43 properties (as
of December 31, 1997) located in California, 12 have been built since January 1,
1988 and we believe they were constructed in full compliance with the applicable
standards existing at the time of construction. It is nevertheless a possibility
that material losses in excess of insurance proceeds will occur in the future.

DEBT FINANCING, FINANCIAL COVENANTS, DEGREE OF LEVERAGE, AND INCREASES IN
INTEREST RATES COULD ADVERSELY AFFECT OUR ECONOMIC PERFORMANCE

SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
Our business is subject to risks normally associated with debt financing. Cash
flow could be insufficient to pay distributions at expected levels and meet
required payments of principal and interest. We may not be able to refinance
existing indebtedness (which in virtually all cases requires substantial
principal payments at maturity) and, if we can, the terms of such refinancing
might not be as favorable as the terms of existing indebtedness. The total
principal amount of our outstanding indebtedness was $4.28 billion as of
December 31, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Debt
Financing." If principal payments due at maturity cannot be refinanced, extended
or paid with proceeds of other capital transactions, such as new equity capital,
our cash flow will not be sufficient in all years to repay all maturing debt. If
prevailing interest rates or other factors at the time of refinancing (such as
the possible reluctance of lenders to make commercial real estate loans) result
in higher interest rates, increased interest expense would adversely affect cash
flow and our ability to service debt and make distributions to securityholders.

FINANCIAL COVENANTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. If
a property is mortgaged to secure payment of indebtedness and we are unable to
meet mortgage payments, the mortgagee could foreclose on the property, resulting
in loss of income and asset value. The mortgages on our properties contain
customary negative covenants which, among other things, limit our ability,
without the prior consent of the lender, to further mortgage the property, to
enter into new leases or materially modify existing leases, and to discontinue
insurance coverage. In addition, our credit facilities contain certain customary
restrictions, requirements and other limitations on our ability to incur
indebtedness, including total debt to assets ratios, secured debt to total
assets ratios, debt service coverage ratios and minimum ratios of unencumbered
assets to unsecured debt. The Indenture under which our senior unsecured
indebtedness is issued contains certain financial and operating covenants
including, among other things, certain coverage ratios, as well as limitations
on our ability to incur secured and unsecured indebtedness, sell all or
substantially all of our assets and engage in mergers and consolidations and
certain acquisitions. Foreclosure on mortgaged properties or an inability to
refinance existing indebtedness would likely have a negative impact on our
financial condition and results of operations.

OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING. Our Debt to Market Capitalization Ratio (total debt as a percentage
of total debt plus the market value of the outstanding Common Shares and Units)
is approximately 32.2% as of December 31, 1997. We have a policy of incurring
indebtedness for borrowed money only through the Operating Partnership and its
subsidiaries and only if upon such incurrence our Debt to Market Capitalization
Ratio would be approximately 50% or less. The degree of leverage could have
important consequences to securityholders, including affecting our ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, development or other general corporate purposes and
making us more vulnerable to a downturn in business or the economy generally.

RISING INTEREST RATES COULD ADVERSELY AFFECT CASH FLOW. We obtained the
$600 Million Credit Facility in July 1997 and the $1.5 Billion Credit Facility
in October 1997 and sold the $1.5 Billion Notes and MOPPRS in the February 1998
Notes Offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources -- Debt Financing."
The $1.5 Billion Notes and MOPPRS have fixed interest rates, but advances under
the Credit Facilities bear interest at a variable rate based upon one-month
LIBOR. We had, as of December 31, 1997, interest rate hedging agreements for
approximately $1.0 billion of our floating rate debt to limit our exposure to
rising interest rates, but terminated these agreements when we paid down the
credit facilities with the proceeds of the February 1998 Notes Offering.
Although hedging agreements enable us to convert floating rate liabilities to
fixed rate liabilities, they expose us to the risk that the counterparties to
such hedge agreements may not perform, which could increase our exposure to
rising interest rates. Generally, however, the counterparties to hedging
agreements which would enter into are major financial institutions. We may
borrow additional money with variable interest rates in the future, and enter
other transactions to limit our exposure to rising interest rates as appropriate
and cost effective. Increases in interest rates, or the loss of the benefits of
hedging agreements, would increase our interest expenses, which would adversely
affect cash flow and our ability to service our debt and make distributions to
securityholders.

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SHAREHOLDERS' ABILITY TO EFFECT CHANGES IN CONTROL OF THE COMPANY IS LIMITED

PROVISIONS OF OUR DECLARATION OF TRUST AND BYLAWS COULD INHIBIT CHANGES
IN CONTROL. Certain provisions of our Declaration of Trust and Bylaws may delay
or prevent a change in control of the Company or other transaction that could
provide the shareholders with a premium over the then-prevailing market price of
their Shares or which might otherwise be in the best interest of our
securityholders. These include a staggered Board of Trustees and the Ownership
Limit described below. Also, any future series of Preferred Shares may have
certain voting provisions that could delay or prevent a change of control or
other transaction that might involve a premium price or otherwise be good for
our securityholders.

WE COULD ADOPT MARYLAND LAW LIMITATIONS ON CHANGES IN CONTROL. Certain
provisions of Maryland law applicable to real estate investment trusts prohibit
"business combinations" (including certain issuances of equity securities) with
any person who beneficially owns ten percent or more of the voting power of
outstanding shares, or with an affiliate of the trust who, at any time within
the two-year period prior to the date in question, was the beneficial owner of
ten percent or more of the voting power of the outstanding voting shares (an
"Interested Shareholder"), or with an affiliate of an Interested Shareholder.
These prohibitions last for five years after the most recent date on which the
Interested Shareholder became an Interested Shareholder. After the five-year
period, a business combination with an Interested Shareholder must be approved
by two super-majority shareholder votes unless, among other conditions, the
trust's common shareholders receive a minimum price for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Shareholder for its common shares. The Board of Trustees opted out of
these business combination provisions. Consequently, the five-year prohibition
and the super-majority vote requirements will not apply to a business
combination involving the Trust. The Board of Trustees may however, repeal this
election (except with respect to a shareholder who became an Interested
Shareholder in connection with our formation in July 1997) and cause the Company
to become subject to these provisions in the future.

WE HAVE A SHARE OWNERSHIP LIMIT FOR REIT TAX PURPOSES. To remain
qualified as a REIT for federal income tax purposes, not more than 50% in value
of our outstanding Shares may be owned, directly or indirectly, by five or fewer
individuals (as defined in the federal income tax laws applicable to REITs) at
any time during the last half of any year. See "Federal Income Tax
Considerations --Taxation of the Company as a REIT --General" and "--
Requirements for Qualification as a REIT." To facilitate maintenance of our REIT
qualification, our Declaration of Trust, subject to certain exceptions,
prohibits ownership by any single shareholder of more than 9.9% (in value or
number of shares, whichever is more restrictive) of any class or series of
Shares. We refer to this as the "Ownership Limit." Our Declaration of Trust
permits the Board of Trustees to increase the Ownership Limit with respect to
any class or series of Shares. Further, the Board of Trustees is required to
waive or modify the Ownership Limit with respect to a shareholder who would not
be treated as an "individual" for purposes of the Code if such shareholder's
ownership in excess of the limit will not cause a shareholder who is an
individual to be treated as owning Shares in excess of the Ownership Limit or
otherwise jeopardize our REIT status. Absent any such exemption or waiver,
Shares acquired or held in violation of the Ownership Limit will be transferred
to a trust for the exclusive benefit of a designated charitable beneficiary, and
the shareholder's rights to distributions and to vote would terminate. Such
shareholder would be entitled to receive, from the proceeds of any subsequent
sale of the shares transferred to the charitable trust, the lesser of (i) the
price paid for the Shares or, if the owner did not pay for the Shares (for
example, in the case of a gift, devise of other such transaction), the market
price of the Shares on the date of the event causing the Shares to be
transferred to the charitable trust or (ii) the amount realized from such sale.
A transfer of Shares may be void if it causes a person to violate the Ownership
Limit. The Ownership Limit could delay or prevent a change in control and,
therefore, could adversely affect our shareholders' ability to realize a premium
over the then-prevailing market price for their Shares.

WE DO NOT CONTROL OUR MANAGED PROPERTIES OR MANAGEMENT AND NON-REIT SERVICES
BUSINESSES

THIRD-PARTY OWNERS OF MANAGED PROPERTIES CAN TERMINATE OUR MANAGEMENT
CONTRACTS. As of December 31, 1997, our Noncontrolled Subsidiaries were managing
31 properties owned by affiliates of Mr. Zell and three properties owned by
unrelated third parties. We sometimes refer to these properties as the "Managed
Properties." The management contracts with respect to the Managed Properties are
terminable by the property owners on 30 or 60 days' notice. Any such contract
would likely be terminated in connection with a sale of the property, over which
we have no control. When they expire, these contracts might not be renewed or
might be renewed on less favorable terms. Also, the rental revenues on which
management fees are based could decline as a result of general real estate
market conditions or specific market factors. This would result in decreased
management fee income. Affiliates of Mr. Zell are currently in the process of
selling certain of the Managed Properties. There can be no assurance that
management contracts will not be terminated in the future.

WE DO NOT CONTROL OUR MANAGEMENT AND SERVICES BUSINESS. To facilitate
maintenance of our REIT qualification, we have Noncontrolled Subsidiaries that
provide management and other services for properties that we do not wholly own.
As of December 31, 1997, we had five Noncontrolled Subsidiaries: Equity Office
Properties Management Corp. and Beacon Property Management Corporation (which we
refer to together as the "Management Companies"), which manage the Managed
Properties and certain properties held in joint ventures; Beacon Design Company,
which provides third-party tenant design services; Beacon Construction Company,
which provides third-party construction services; and EOP Office Company, which
owns a noncontrolling interest in Wright Runstad Asset Limited Partnership,
which provides third-party development services. While we generally own
substantially all (95% or 99%) of the economic interest in the Noncontrolled
Subsidiaries, their voting stock is

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owned directly or indirectly by private companies controlled by Mr. Zell.
(See "Mr. Zell's Affiliates Control Our Management Companies and Most of the
Managed Properties" below.) We therefore do not control the timing or amount of
distributions or the management and operation of the Noncontrolled Subsidiaries.
As a result, decisions relating to the declaration and payment of distributions
and the business policies and operations of the Noncontrolled Subsidiaries could
be adverse to our interests or could lead to adverse financial results, which
could adversely affect our financial condition and results of operations. Also,
there are certain services for our tenants that we would like to provide but are
prohibited from doing so by the REIT tax laws and regulations. Certain such
services are being provided by Tenant Services Corp., which is owned entirely by
affiliates of Mr. Zell. We have no control over, or ownership interest in,
Tenant Services Corp., which operates as an independent contractor.
Consequently, we are not able to assure that this service corporation will
conduct its day-to-day operations in a manner consistent with our best
interests. We may, however, terminate the services of this service corporation
at any time upon 30 days' notice.

CONFLICTS OF INTEREST COULD RESULT IN DECISIONS NOT IN THE COMPANY'S BEST
INTEREST

THERE WERE NO ARM'S LENGTH NEGOTIATIONS IN THE FORMATION TRANSACTIONS.
The transactions pursuant to which we formed the Company in July 1997, which we
sometimes refer to as the "Formation Transactions," were not negotiated at arm's
length. The representations and warranties made by the contributors of
properties to the Company in the Formation Transactions and the indemnification
provided for breach of such representations and warranties may not be as good as
they might have been had they been negotiated at arm's length. Such
indemnification is limited generally to an amount equal to 1% of the value of
consideration paid for the properties and to $15 million with respect to pre-IPO
liabilities of the management business contributed by affiliates of Mr. Zell. If
we incur losses attributable to breaches of the representations and warranties
made by the contributors of properties in the Formation Transactions and such
losses are in excess of the indemnification limit, they would have to be
satisfied out of our assets, with the potential consequence of decreasing cash
available for distribution to securityholders. To date, we have no knowledge of
any material breaches of the agreements (which we refer to collectively as the
"Contribution Agreement") pursuant to which the Formation Transactions occurred.

WE COULD SUFFER MONETARY LOSSES IF WE FAIL TO ENFORCE THE CONTRIBUTION
AGREEMENT. Mr. Zell has a substantial economic interest in the companies that
contributed properties and the management business to the Company in the
Formation Transactions. Consequently, Mr. Zell has a conflict of interest with
respect to his obligation as one of our officers and trustees to enforce the
terms of the Contribution Agreement. If circumstances arise where we should seek
to enforce such agreement, particularly the indemnification provisions and the
remedy provisions for breaches of representations and warranties, Mr. Zell might
assert a position contrary to the Company's. If this happens and Mr. Zell were
to prevail, we would not collect money we might otherwise be entitled to. Also,
the Common Shares and Units that are available to satisfy claims for such
indemnification will be, to the extent not used for this purpose, available for
distribution to entities in which Mr. Zell and several other of our executive
officers and trustees have an economic interest. This is in accordance with the
Contribution Agreement. Consequently, these executive officers and trustees also
have a conflict of interest in pursuing any claim the Company might have arising
out of the Formation Transactions.

MR. ZELL'S AFFILIATES CONTROL OUR MANAGEMENT COMPANIES AND MOST OF THE
MANAGED PROPERTIES. The Management Companies and Beacon Property Management,
L.P. provide property management services and, in most cases, asset management
services to 37 properties which are held in partnerships or subject to
participation agreements with unaffiliated third parties and to the 34 Managed
Properties, 31 of which are owned or controlled by affiliates of Mr. Zell. Most
of these management contracts were not negotiated on an arm's length basis.
While we believe that the management fees we receive from these properties are
at current market rates, there is no assurance that these management fees will
equal at all times those fees that would be charged by an unaffiliated third
party. In this regard, Mr. Zell controls and has a substantial interest in the
private company which has voting control of the Management Companies. See "We Do
Not Control Our Managed Properties or Management and Non-REIT Services
Businesses" above.

CERTAIN TRUSTEES AND OFFICERS HAVE CONFLICTS OF INTEREST AND COULD
EXERCISE INFLUENCE IN A MANNER INCONSISTENT WITH SHAREHOLDERS' BEST INTEREST.
Mr. Zell and Ms. Sheli Z. Rosenberg (one of the Company's trustees) own (as
determined in accordance with the SEC's rules) approximately 2.8%, and all other
trustees and executive officers of the Company as a group own approximately
1.7%, of the outstanding Common Shares (in each case including Common Shares
issuable upon exchange of Units). In addition, Mr. Zell and his affiliates may
receive distributions of up to approximately 11.3 million additional Units
(representing approximately 4.05% of the outstanding Common Shares) during the
two-year period ending July 11, 1999. These Units were set aside at the time of
the IPO and are issuable if we achieve certain performance objectives, based on
the market price of the Common Shares. In addition, options to purchase an
aggregate of 1,000,000 Common Shares exercisable at the IPO price of $21 per
share were granted to Mr. Zell, Ms. Rosenberg and our five highest paid
executive officers. Mr. Zell and Ms. Rosenberg have significant influence on the
management and operation of the Company. Such influence might be exercised in a
manner that is inconsistent with the interests of other securityholders.

MR. ZELL AND HIS AFFILIATES CONTINUE TO BE INVOLVED IN OTHER INVESTMENT
ACTIVITIES. Although Mr. Zell entered into a noncompetition agreement at the
time of the IPO, he and his affiliates have a broad and varied range of
investment interests, including interests in other real estate investment
companies. Mr. Zell and his affiliates may acquire interests in other

7
10

companies. He may not be able to control whether any such company competes
with the Company. Consequently, Mr. Zell's continued involvement in other
investment activities could result in competition to the Company as well as
management decisions which might not reflect the interests of our
securityholders.

We did not obtain noncompetition agreements with any of the former
Beacon officers or directors in connection with the Beacon Merger. Consequently,
any former officer or director of Beacon could engage in activities in
competition with activities of the Company except, in the case of Mr. Sidman,
who became one of our trustees, to the extent that his actions would violate his
fiduciary duties.

WE LEASE OUR CORPORATE OFFICES FROM AN AFFILIATE OF MR. ZELL. Our
corporate offices are at Two North Riverside Plaza in Chicago. We lease our
office space there from one of Mr. Zell's affiliates. We believe, however, that
the lease terms, including the rental rates, reflect current market terms.

ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY

Federal, state and local laws and regulations relating to the
protection of the environment may require a current or previous owner or
operator of real estate to investigate and clean up hazardous or toxic
substances or petroleum product releases at such property. The owner or operator
may have to pay a governmental entity or third parties for property damage and
for investigation and clean-up costs incurred by such parties in connection with
the contamination. Such laws typically impose clean-up responsibility and
liability without regard to whether the owner or operator knew of or caused the
presence of the contaminants. Even if more than one person may have been
responsible for the contamination each person covered by the environmental laws
may be held responsible for all of the clean-up costs incurred. In addition,
third parties may sue the owner or operator of a site for damages and costs
resulting from environmental contamination emanating from that site.

Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require that owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, that they notify and train
those who may come into contact with asbestos and that they undertake special
precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. Such laws may impose
fines and penalties on building owners or operators who fail to comply with
these requirements and may allow third parties to seek recovery from owners or
operators for personal injury associated with exposure to asbestos fibers.

Independent environmental consultants have conducted Phase I
environmental site assessments at all of our properties. These assessments
included, at a minimum, a visual inspection of the properties and the
surrounding areas, an examination of current and historical uses of the
properties and the surrounding areas and a review of relevant state, federal and
historical documents. Where appropriate, on a property by property basis, these
consultants have conducted additional testing, including sampling for asbestos,
for lead in drinking water, for soil contamination where underground storage
tanks are or were located or where other past site usages create a potential
environmental problem, and for contamination in groundwater.

These environmental assessments have not revealed any environmental
liabilities at the properties that we believe would have a material adverse
effect on our business, assets, financial condition or results of operations nor
are we aware of any such material environmental liability. Asbestos is in a
number of the office properties, but most of these buildings contain only minor
amounts. We believe this asbestos is in good condition and almost none of it is
easily crumbled. We are currently properly managing and maintaining all of the
asbestos and we are following other requirements relating to asbestos. The
presence of asbestos should not present a significant risk as long as compliance
with these requirements continues.

For a few of the properties, the environmental assessments note
potential offsite sources of contamination, such as underground storage tanks.
For some of the properties, the environmental assessments note previous uses,
such as the former presence of underground storage tanks. In most of these
cases, follow-up soil and/or groundwater sampling has not identified evidence of
significant contamination. In the few cases where contamination has been found,
existing plans to mitigate and monitor the sites and/or financial commitments
from certain prior owners and tenants to cover costs related to mitigation
should prevent the contamination from becoming a significant liability.

We believe that our properties are in compliance in all material
respects with applicable environmental laws. We believe that the issues
identified in the environmental reports will not have a material adverse effect
if we continue to comply with environmental laws and with the recommendations
set forth in these reports. Unidentified environmental liabilities could arise,
however, and could have an adverse effect on our financial condition and
performance.

WE ARE DEPENDENT ON OUR KEY PERSONNEL

We depend on the efforts of our executive officers, particularly
Messrs. Zell and Callahan. If they resigned, our operations could be adversely
effected. We do not have employment agreements with either of these officers.

8
11

CONTINGENT OR UNDISCLOSED LIABILITIES ACQUIRED IN MERGERS OR SIMILAR
TRANSACTIONS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION

When we formed the Company, we acquired all the assets of the ZML
Opportunity Partnerships (four real estate investment funds sponsored by Mr.
Zell) and certain assets of affiliates of Mr. Zell. These assets were acquired
subject to existing liabilities. Each of the ZML Opportunity Partnerships will
liquidate over the two-year period ending July 11, 1999, and the Units and other
assets (including cash from distributions), net of liabilities, will be
distributed to affiliates of Mr. Zell and the limited partners of the ZML
Opportunity Partnerships during such time period. Our recourse against
affiliates of Mr. Zell with respect to liabilities relating to the management
business they contributed when we formed the Company is limited to $15 million.
Our recourse for any unknown liabilities in connection with the contribution of
properties when we formed the Company is limited to 1% of the value of the
consideration paid for those assets and must be asserted prior to July 11, 1999.
Similarly, the assets we acquired in the Beacon Merger were acquired subject to
liabilities and without any recourse with respect to unknown liabilities.
Unknown liabilities with respect to properties acquired when we formed the
Company or in the Beacon Merger might include liabilities for clean-up or
remediation of undisclosed environmental conditions, claims of tenants, vendors
or other persons dealing with the entities prior to the IPO or the Beacon Merger
(if such claims had not been asserted prior to the respective closings of such
transactions), accrued but unpaid liabilities incurred in the ordinary course of
business, and claims for indemnification by general partners, directors,
officers and others indemnified by the ZML Opportunity Partnerships or Beacon.
Similarly, we succeeded to any liabilities that the ZML REITs may have had for
periods prior to the IPO and that Beacon may have had prior to the Beacon
Merger. We also succeeded to any liabilities, including claims for property
transfer taxes, arising out of the contribution to us of properties when we
formed the Company and in connection with the Beacon Merger. In the future, we
may face additional risks of contingent or undisclosed liabilities as a result
of mergers, other business combinations or similar transactions.

THE MARKET VALUE OF OUR PUBLICLY TRADED SECURITIES CAN BE ADVERSELY AFFECTED
BY A NUMBER OF FACTORS

THE LARGE NUMBER OF SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY
AFFECT THE MARKET PRICE OF OUR PUBLICLY TRADED SECURITIES. As of December 31,
1997, a majority of our outstanding Common Shares were "Restricted Common
Shares" issued in private placement transactions, primarily the Formations
Transactions. These Shares are not traded in the public stock markets so long as
they remain restricted. Restricted Common Shares and Common Shares issued on
redemption of Units may be sold in the public market pursuant to registration
rights or pursuant to Rule 144 under the Securities Act or other available
exemptions from registration. In addition, we have reserved a number of Common
Shares for issuance pursuant to our employee benefit plans, and such Common
Shares will be available for sale from time to time. We have granted options to
purchase additional Common Shares to certain executive officers, employees,
trustees and consultants. The Common Shares issued in the Beacon Merger to
affiliates of Beacon are tradeable within the volume and manner of sale
limitations of Rule 144 under the Securities Act. We can not predict the effect
that future sales of Common Shares, or the perception that such sales could
occur, will have on the market prices of our equity securities.

CHANGES IN MARKET CONDITIONS COULD ADVERSELY AFFECT THE MARKET PRICE OF
OUR PUBLICLY TRADED SECURITIES. As with other publicly traded equity securities,
the value of our publicly traded securities depends on various market
conditions, which may change from time to time. Among the market conditions that
may affect the value of our publicly traded securities are the following: the
extent of institutional investor interest in the Company; the reputation of
REITs and office REITs generally and the attractiveness of their equity
securities in comparison to other equity securities (including securities issued
by other real estate companies); our financial condition and performance; and
general financial market conditions.

OUR EARNINGS AND CASH DISTRIBUTIONS WILL AFFECT THE MARKET PRICE OF OUR
PUBLICLY TRADED SECURITIES. We believe that the market value of a REIT's equity
securities is based primarily upon the market's perception of the REIT's growth
potential and its current and potential future cash distributions, and is
secondarily based upon the real estate market value of the underlying assets.
For that reason, Shares may trade at prices that are higher or lower than the
net asset value per Share. To the extent we retain operating cash flow for
investment purposes, working capital reserves or other purposes, these retained
funds, while increasing the value of our underlying assets, may not
correspondingly increase the market price of our Shares. Our failure to meet the
market's expectations with regard to future earnings and cash distributions
would likely adversely affect the market price of our publicly traded
securities.

MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR PUBLICLY
TRADED SECURITIES. One of the factors that investors consider important in
deciding whether to buy or sell shares of a REIT is the distribution rate on
such shares (as a percentage of the price of such shares) relative to market
interest rates. If market interest rates go up, prospective purchasers of REIT
shares may expect a higher distribution rate. Higher interest rates would not,
however, result in more funds for us to distribute and, in fact, would likely
increase our borrowing costs and potentially decrease funds available for
distribution. Thus, higher market interest rates could cause the market price of
our publicly traded securities to go down.

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12

WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL

To qualify as a REIT, the Trust must distribute to its shareholders
each year at least 95% of its net taxable income (excluding any net capital
gain). See "Federal Income Tax Considerations -- Requirements for Qualification
as a REIT -- Annual Distribution Requirements Applicable to REITs." Because of
these distribution requirements, it is not likely that we will be able to fund
all future capital needs, including for acquisitions, from income from
operations. We therefore will have to rely on third-party sources of capital,
which may or may not be available on favorable terms or at all. Our access to
third-party sources of capital depends on a number of things, including the
market's perception of our growth potential and our current and potential future
earnings. Moreover, additional equity offerings may result in substantial
dilution of securityholders' interests, and additional debt financing may
substantially increase our leverage.

OUR SUCCESS AS A REIT IS DEPENDENT ON COMPLIANCE WITH FEDERAL INCOME TAX
REQUIREMENTS

FAILURE OF THE TRUST TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE
CONSEQUENCES TO OUR SECURITYHOLDERS. We believe that, since the IPO in July
1997, the Trust has qualified for taxation as a REIT for federal income tax
purposes. We plan to continue to meet the requirements for taxation as a REIT.
Many of these requirements, however, are highly technical and complex. The
determination that the Trust is a REIT requires an analysis of various factual
matters and circumstances that may not be totally within our control. For
example, to qualify as a REIT, at least 95% of our gross income must come from
certain sources that are itemized in the REIT tax laws. The Trust is also
required to distribute to shareholders at least 95% of its REIT taxable income
(excluding capital gains). The fact that we hold our assets through the
Operating Partnership and its subsidiaries further complicates the application
of the REIT requirements. Even a technical or inadvertent mistake could
jeopardize our REIT status. Furthermore, Congress and the IRS might make changes
to the tax laws and regulations, and the courts might issue new interpretations
of the tax laws and regulations, such that it could become more difficult or
impossible for the Trust to remain qualified as a REIT. We do not believe,
however, that any pending or proposed tax law changes would jeopardize our REIT
status.

If the Trust fails to qualify as a REIT, the Trust would be subject to
federal income tax at regular corporate rates. Also, unless the IRS granted the
Trust relief under certain statutory provisions, the Trust would remain
disqualified as a REIT for four years following the year the Trust first failed
to qualify. If the Trust failed to qualify as a REIT, the Trust would have to
pay significant income taxes and would therefore have siginficantly less money
available for investments or for distributions to shareholders. This would
likely have a significant adverse affect of the value of our securities. In
addition, the Trust would no longer be required to make any distributions to
shareholders. See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Failure of the Company to Qualify as a REIT."

WE PAY SOME TAXES. Even if the Trust qualifies as a REIT, it is
required to pay certain federal, state and local taxes on its income and
property. In addition, any net taxable income earned directly by the
Noncontrolled Subsidiaries is subject to federal and state income tax. See
"Federal Income Tax Considerations -- Other Tax Consequences for the Company,
Its Shareholders and the Noncontrolled Subsidiaries."

WE COULD BE DISQUALIFIED AS A REIT OR HAVE TO PAY TAXES IF OUR
PREDECESSORS OR BEACON DID NOT QUALIFY AS REITS. If one or more of the ZML REITs
that merged into the Trust at the time of the IPO or Beacon had failed to
qualify as a REIT throughout the duration of its existence, then it might have
had undistributed "C corporation earnings and profits." If that were the case
and the Trust did not distribute such earnings and profits prior to December 31,
1997, the Trust might not qualify as a REIT. We believe that each of the ZML
REITs and Beacon qualified as a REIT and that, in any event, neither any ZML
REIT nor Beacon had any undistributed "C corporation earnings and profits" at
the time of its merger into the Trust. If any ZML REIT or Beacon failed to
qualify as a REIT, an additional concern would be that it would have recognized
taxable gain at the time it was merged into the Trust (and the Trust would be
liable for the tax on such gain). This would be the case even though the
applicable merger qualified as a "tax-free reorganization," unless the Trust
makes a special election that is available under current law. The Trust will
make such an election with respect to each of the ZML REITs and Beacon. This
election will have the effect of requiring the Trust, if a ZML REIT or Beacon
was not qualified as a REIT, to pay corporate income tax on any gain existing at
the time of the applicable merger on assets acquired in the merger if such
assets are sold within 10 years after the merger of the ZML REITs or Beacon (as
applicable) into the Trust. Finally, if a ZML REIT did not qualify as a REIT,
the Trust could be precluded from electing REIT status for up to four years
after the year in which such ZML REIT failed to qualify if the Trust were
determined to be a "successor" to that ZML REIT. See "Federal Income Tax
Considerations -- Taxation of the Company as a REIT -- General" and "--
Requirements for Qualification as a REIT."

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ITEM 2. PROPERTIES

GENERAL

The Company's portfolio (based on revenue and square footage) is the
largest portfolio of office properties of any publicly traded, full-service
office company in the United States. As of December 31, 1997, the Company owned
or had an interest in 258 Office Properties containing approximately 65.3
million rentable square feet of office space and owned 17 Parking Facilities
containing approximately 16,749 parking spaces. The Office Properties are
located in 78 submarkets in 39 markets in 24 states and the District of
Columbia. The Office Properties, by rentable square feet, are located
approximately 50% in central business districts and approximately 50% in
suburban markets. As of December 31, 1997, the Office Properties were, on a
weighted average basis, 94% occupied by a total of 5,676 tenants, with no single
tenant accounting for more than 1.6% of annualized rent (except for the U.S.
General Services Administration, which accounted for 3.6% of annualized rent).
An additional 735,700 square feet (approximately 1.1% of the rentable square
footage of the Office Properties) was leased, with occupancy to commence in
whole or in part during 1998.

All Property data is as of December 31, 1997.

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14

OFFICE PROPERTIES BY REGION

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
REGION PROPERTIES FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- --------- ---------- ---------- ---------- ---------- ---------- ---------- ------ ---------- ----------

Northeast 83 17,707,551 27.1% 95.8% $436,121 32.5% 1,395 $14.65 $25.72
Central 31 13,302,501 20.3 91.4 277,477 20.5 1,152 10.80 22.83
Pacific 43 9,703,180 14.9 92.1 210,402 15.7 673 13.50 23.54
West 32 8,794,095 13.5 95.3 154,376 11.5 1,069 10.41 18.41
Southeast 51 8,664,171 13.3 96.5 156,776 11.7 712 11.11 18.75
Southwest 18 7,120,292 10.9 92.2 108,416 8.1 675 8.60 16.51
--- ---------- ------ ----- ---------- ------ ----- ------ ------
Total/Weighted
Average 258 65,291,790 100.0% 94.0% $1,343,568 100.0% 5,676 $11.99 $21.90
=== ========== ====== ========== ====== =====

(1) Annualized Rent is the monthly contractual rent under existing leases as
of December 31, 1997 multiplied by 12. This amount reflects total rent
before any rent abatements and includes expense reimbursements, which may
be estimates. Total rent abatements for leases in effect as of December
31, 1997 for the 12 months ending December 31, 1998 are approximately $9.5
million.

(2) Annualized Net Effective Rent is calculated for leases in effect as of
December 31, 1997 as follows: Annualized Rent, calculated as described
above, was reduced by the estimated operating expenses per square foot,
based on 1997 actual operating expense for Properties owned as of January
1, 1997 and based on the Company's estimate of annual operating expense
for Properties acquired subsequent to January 1, 1997.

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15

OFFICE PROPERTY MARKETS AND SUBMARKETS

OFFICE PROPERTY STATISTICS

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OFFICE PROPERTIES OF SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
(MARKET, SUBMARKET) PROPERTIES FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- ------------------- ---------- --------- ---------- ---------- ---------- ---------- ------ ---------- ----------

NORTHEAST REGION
Stamford, CT
Shelton 1 159,848 0.2% 96.2% $ 2,297 0.2% 12 $ 8.57 $14.93
Stamford 7 1,651,856 2.5 98.1 40,859 3.0 118 14.60 25.23
Washington, D.C.
Central Business District 3 722,920 1.1 98.8 21,395 1.6 66 18.35 29.97
East End 1 247,014 0.4 90.8 6,491 0.5 19 15.18 28.92
Alexandria/Old Town 1 68,770 0.1 100.0 1,619 0.1 10 15.14 23.54
Crystal City 2 896,003 1.4 100.0 24,728 1.8 6 20.25 27.60
Fairfax Center 3 585,640 0.9 97.7 9,747 0.7 48 9.30 17.04
Herndon/Dulles 1 124,319 0.2 100.0 3,312 0.2 1 19.94 26.64
Reston 3 726,045 1.1 100.0 19,882 1.5 82 17.57 27.38
Rosslyn/Ballston 2 672,257 1.0 99.9 16,699 1.2 39 15.94 24.88
Tyson's Corner 2 420,674 0.6 99.6 8,724 0.6 17 13.49 20.83
Boston
Downtown-Financial District 13 4,896,223 7.5 92.8 142,685 10.6 383 16.79 31.41
Downtown-Government Center 1 637,002 1.0 93.7 15,089 1.1 82 11.36 25.29
East Cambridge 4 472,647 0.7 99.7 11,753 0.9 9 13.66 24.94
Northwest 15 1,144,813 1.8 93.9 20,673 1.5 96 10.25 19.23
South 1 165,851 0.3 95.7 3,269 0.2 17 9.53 20.60
West 8 638,229 1.0 98.4 16,022 1.2 86 16.19 25.51
New York City
Midtown 1 562,567 0.9 100.0 16,687 1.2 28 16.50 29.66
Philadelphia
Conshohocken 1 254,355 0.4 99.8 6,229 0.5 43 16.41 24.55
Center City 2 1,506,836 2.3 89.8 27,809 2.1 114 10.05 20.54
King of Prussia/Valley Forge 2 314,076 0.5 98.8 5,822 0.4 25 11.60 18.76
Main Line 3 142,493 0.2 96.4 2,617 0.2 16 13.09 19.05
Plymouth Meeting/Blue Bell 5 293,837 0.5 99.5 5,346 0.4 24 11.78 18.28

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PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OFFICE PROPERTIES OF SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
(MARKET, SUBMARKET) PROPERTIES FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- ------------------- ---------- --------- ---------- ---------- ---------- ---------- ------ ---------- ----------

Norfolk
Norfolk 1 403,276 0.6 96.2 6,367 0.5 54 8.55 16.42
--- ---------- ---- -------- ---- -----
NORTHEAST REGION
TOTAL/WEIGHTED AVERAGE 83 17,707,551 27.1% 95.8% $436,121 32.5% 1,395 $14.65 $25.72
CENTRAL REGION
Chicago
Downtown -- Central Loop 4 3,231,284 4.9% 90.1% $ 65,004 4.8% 283 $8.39 $22.33
Downtown -- West Loop 4 3,405,054 5.2 91.5 82,678 6.2 366 11.63 26.54
O'Hare 5 928,272 1.4 94.2 18,364 1.4 74 9.04 21.01
East-West Corridor 7 2,104,383 3.2 89.7 48,612 3.6 176 15.49 25.76
Lake County 5 546,263 0.8 84.6 9,656 0.7 40 11.21 20.90
Indianapolis
Downtown 2 1,057,877 1.6 93.3 18,650 1.4 83 9.77 18.89
Cleveland
Downtown 1 1,242,144 1.9 94.0 18,767 1.4 37 7.32 16.07
Columbus
Downtown 1 407,472 0.6 92.6 8,911 0.7 30 15.12 23.60
Suburban 2 379,752 0.6 98.1 6,835 0.5 63 11.02 18.34
--- ---------- ---- -------- ---- -----
CENTRAL REGION
TOTAL/WEIGHTED AVERAGE 31 13,302,501 20.3% 91.4% $277,477 20.5% 1,152 $10.80 $22.83
PACIFIC REGION
Los Angeles
Downtown 2 1,896,243 2.9% 87.2% $ 38,048 2.8% 69 $11.72 $23.00
Pasadena 2 439,367 0.7 90.9 10,849 0.8 32 15.93 27.18
Westwood 2 1,084,437 1.7 84.1 28,458 2.1 78 16.51 31.19
Orange County
Central Orange 2 657,512 1.0 97.6 11,467 0.9 76 10.40 17.88
Irvine/Airport 2 586,544 0.9 95.7 11,851 0.9 72 11.99 21.11
San Diego
University Town Center 6 823,418 1.3 95.8 18,637 1.4 107 15.33 23.62
San Francisco
Downtown 5 2,914,093 4.5 94.0 70,164 5.2 209 13.86 25.63

14

17

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OFFICE PROPERTIES OF SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
(MARKET, SUBMARKET) PROPERTIES FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- ------------------- ---------- -------- ---------- ---------- ---------- ---------- ------ ----------- ----------

San Jose
Mountain View 12 726,508 1.1 100.0 13,509 1.0 12 15.52 18.59
Santa Clara 7 400,058 0.6 84.6 4,200 0.3 15 7.15 12.40
Sunnyvale 3 175,000 0.3 100.0 3,219 0.2 3 16.24 18.40
--- --------- ---- -------- ---- ---
PACIFIC REGION
TOTAL/WEIGHTED AVERAGE 43 9,703,180 14.9% 92.1% $210,402 15.7% 673 $13.50 $23.54
WEST REGION
Anchorage
Midtown 2 190,599 0.3% 100.0% $ 3,505 0.3% 39 $9.73 $18.39
Phoenix
Central Corridor 2 605,295 0.9 98.8 7,431 0.6 13 11.60 12.43
Minneapolis
Downtown 1 589,432 0.9 97.1 15,065 1.1 29 9.92 26.32
Denver
Southeast 3 671,659 1.0 92.5 11,231 0.8 53 9.46 18.09
St. Louis
Mid County 1 339,163 0.5 100.0 7,559 0.6 33 12.63 22.29
Albuquerque
Downtown 1 230,022 0.4 93.6 3,324 0.2 32 7.20 15.44
Oklahoma City
Northwest 3 261,324 0.4 87.0 2,059 0.2 104 3.94 9.06
Portland
Downtown 1 368,018 0.6 95.7 6,028 0.4 48 9.79 17.12
Dallas
LBJ/Quorum Plaza 3 1,133,436 1.7 95.5 18,746 1.4 120 9.12 17.32
Central 1 283,707 0.4 87.1 4,159 0.3 41 7.95 16.82
North Central Expressway 1 379,556 0.6 91.0 4,895 0.4 70 6.21 14.17
Preston Center 4 721,351 1.1 91.5 13,062 1.0 142 11.89 19.79
Ft. Worth
W/SW Fort Worth 2 239,095 0.4 94.3 2,705 0.2 63 5.72 11.99
Seattle
Bellevue 2 755,570 1.2 95.9 15,041 1.1 99 12.54 20.76
Central Business District 5 2,025,868 3.1 97.9 39,565 2.9 183 12.61 19.95
-- --------- ----- -------- ----- -----
WEST REGION
TOTAL/WEIGHTED AVERAGE 32 8,794,095 13.5% 95.3% $154,376 11.5% 1,069 $10.41 $18.41

15

18

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OFFICE PROPERTIES OF SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
(MARKET, SUBMARKET) PROPERTIES FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- ------------------- ---------- ---------- ---------- ---------- ---------- ---------- ------ ---------- ----------

SOUTHEAST REGION
Ft. Lauderdale
Downtown 1 225,500 0.3 99.0% $ 6,078 0.5 21 $17.50 $27.22
Orlando
Central Business District 1 640,385 1.0 94.4 15,120 1.1 46 14.06 25.00
Palm Beach County, FL
West Palm Beach 1 215,104 0.3 90.2 3,811 0.3 36 9.36 19.64
Sarasota
Downtown 1 247,891 0.4 90.5 4,145 0.3 35 9.93 18.48
Tampa
Westshore/Airport 2 470,331 0.7 98.1 8,311 0.6 57 10.19 18.01
Atlanta
Central Perimeter 39 4,268,457 6.5 96.8 74,280 5.5 385 10.74 17.97
Midtown 1 770,840 1.2 97.1 16,803 1.3 24 14.66 22.46
Northwest 2 641,263 1.0 95.1 12,551 0.9 42 13.12 20.57
Charlotte
Uptown 1 581,666 0.9 100.0 6,897 0.5 9 6.50 11.86
Raleigh/Durham
South Durham 1 181,221 0.3 93.4 3,142 0.2 36 10.66 18.56
Nashville
Downtown 1 421,513 0.6 97.9 5,637 0.4 21 6.43 13.66
--- --------- ---- -------- ---- ---
SOUTHEAST REGION
TOTAL/WEIGHTED AVERAGE 51 8,664,171 13.3% 96.5% $156,776 11.7% 712 $11.11 $18.75

16

19

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OFFICE PROPERTIES OF SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
(MARKET, SUBMARKET) PROPERTIES FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- --------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ------ ---------- ----------

SOUTHWEST REGION
New Orleans
Central Business District 2 1,164,871 1.8% 85.8% $ 16,081 1.2% 59 $ 8.38 $16.08
Metairie/E. Jefferson 3 1,192,828 1.8 94.8 17,359 1.3 188 9.07 15.36
Austin
Central Business District 3 1,423,948 2.2 93.8 26,064 1.9 122 9.39 19.52
Houston
Galleria/West Loop 1 959,466 1.5 93.6 14,803 1.1 125 8.63 16.49
North/North Belt 2 402,709 0.6 97.2 5,444 0.4 26 6.85 13.91
North Loop/Northwest 3 797,971 1.2 88.8 10,702 0.8 53 7.41 15.10
West 1 574,216 0.9 97.6 10,287 0.8 24 11.13 18.36
San Antonio
Airport 1 194,398 0.3 88.7 2,511 0.2 18 6.59 14.57
Northwest 2 409,885 0.6 89.9 5,166 0.4 60 6.48 14.01
--- ---------- ------ ---------- ----- -----
SOUTHWEST REGION
TOTAL/WEIGHTED AVERAGE 18 7,120,292 10.9% 92.2% $ 108,416 8.1% 675 $ 8.60 $16.51
--- ---------- ------ ---------- ----- -----
PORTFOLIO TOTAL/WEIGHTED
AVERAGE 258 65,291,790 100.0% 94.0% $1,343,568 100.0% 5,676 $11.99 $21.90
=== ========== ====== ========== ===== =====

(1) Annualized Rent is the monthly contractual rent under existing leases as
of December 31, 1997 multiplied by 12. This amount reflects total rent
before any rent abatements and includes expense reimbursements, which may
be estimates. Total rent abatements for leases in effect as of December
31, 1997, for the 12 months ending December 31, 1998, are approximately
$9.5 million.

(2) Annualized Net Effective Rent is calculated for leases in effect as of
December 31, 1997, as follows: Annualized Rent, calculated as described
above, was reduced by the estimated operating expenses per square foot,
based on 1997 actual operating expenses for Properties owned as of January
1, 1997, and based on the Company's estimate of annual operating expenses
for Properties acquired subsequent to January 1, 1997.

17

20

The following table sets forth certain information relating to each Office
Property as of December 31, 1997.

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- -------- -------- ---------- ---------- ---------- ------ ---------- ----------

NORTHEAST REGION
Stamford, CT
Shelton
Shelton Point 1 1985/93 159,848 0.2% 96.2% $ 2,297 0.2% 12 $ 8.90 $14.93
Stamford
One Stamford Plaza 1 1986/94 212,244 0.3 100.0 5,450 0.4 12 14.99 25.68
Two Stamford Plaza 1 1986/94 253,020 0.4 97.4 6,787 0.5 20 16.44 27.53
Three Stamford Plaza 1 1980/94 241,575 0.4 97.3 5,063 0.4 16 11.64 21.53
Four Stamford Plaza 1 1979/94 260,581 0.4 95.9 5,031 0.4 9 11.01 20.14
177 Broad Street 1 1989 187,573 0.3 95.5 4,343 0.3 16 14.00 24.24
300 Atlantic Street 1 1987/96 272,458 0.4 100.0 7,287 0.5 26 15.49 26.75
Canterbury Green (3) 1 1987 224,405 0.3 100.0 6,899 0.5 19 20.82 30.74
Washington, D.C.
Central Business District
1111 19th Street 1 1979/93 252,014 0.4 98.8 7,248 0.5 30 17.99 29.11
1620 L Street 1 1989 156,272 0.2 98.0 4,360 0.3 16 18.26 28.46
One Lafayette Centre 1 1980/93 314,634 0.5 99.1 9,788 0.7 20 19.21 31.39
East End
1333 H Street 1 1982 247,014 0.4 90.8 6,491 0.5 19 16.71 28.92
Alexandria/Old Town
1600 Duke Street 1 1985 68,770 0.1 100.0 1,619 0.1 10 15.14 23.54
Crystal City
Polk and Taylor
Buildings (4)(5) 2 1970 896,003 1.4 100.0 24,728 1.8 6 20.25 27.60
Fairfax Center
Centerpointe I & II 2 1988-90 407,723 0.6 99.8 7,124 0.5 15 9.74 17.50
Fair Oaks Plaza 1 1986 177,917 0.3 92.7 2,623 0.2 33 8.97 15.91
Herndon/Dulles
Northridge I 1 1988 124,319 0.2 100.0 3,312 0.2 1 19.94 26.64

18

21

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- --------- --------- ---------- ---------- ---------- ------ ---------- ----------

Reston
Reston Town Center 3 1990 726,045 1.1 100.0 19,882 1.5 82 17.57 27.38
Rosslyn/Ballston
1300 North 17th Street 1 1980 379,199 0.6 99.7 9,600 0.7 25 16.83 25.38
1616 N. Fort Myer Drive 1 1974 293,058 0.4 100.0 7,099 0.5 14 14.84 24.22
Tyson's Corner
E. J. Randolph 1 1983 165,116 0.3 98.9 3,570 0.3 15 13.92 21.86
John Marshall I 1 1981 255,558 0.4 100.0 5,153 0.4 2 13.30 20.16
Boston
Downtown - Financial District
150 Federal Street 1 1988 529,730 0.8 100.0 18,158 1.4 22 21.48 34.28
175 Federal Street 1 1977 207,366 0.3 92.2 4,693 0.3 31 12.96 24.54
2 Oliver Street-147 Milk
Street 1 1988 270,302 0.4 92.8 4,637 0.3 48 11.94 18.48
225 Franklin Street 1 1966/96 938,632 1.4 99.4 34,222 2.5 20 21.12 36.68
28 State Street (6) 1 1968/97 570,040 0.9 57.8 11,067 0.8 12 23.68 33.60
75-101 Federal Street (4)(7) 2 1988 810,963 1.2 93.9 25,405 1.9 67 19.45 33.35
One Post Office Square (4)(8) 1 1981 765,780 1.2 98.7 22,599 1.7 67 17.51 29.90
Rowes Wharf (4)(8) 3 1987 344,698 0.5 96.5 11,445 0.9 42 15.36 34.40
Russia Wharf 1 1978-82 312,563 0.5 99.9 5,033 0.4 46 7.67 16.12
South Station (3) 1 1988 146,149 0.2 100.0 5,427 0.4 28 15.73 37.14
Downtown - Government Center
Center Plaza 1 1969 637,002 1.0 93.7 15,089 1.1 82 12.13 25.29
East Cambridge
One Canal Park 1 1987 97,912 0.1 98.6 2,317 0.2 4 11.47 24.01
Riverview I & II 2 1985-86 263,892 0.4 100.0 7,257 0.5 4 15.60 27.50
Ten Canal Park 1 1987 110,843 0.2 100.0 2,179 0.2 1 11.13 19.66
Northwest
Crosby Corporate Center 6 1996 337,292 0.5 97.8 4,683 0.3 6 10.38 14.19
New England Executive Park 9 1970/85 807,521 1.2 92.2 15,990 1.2 90 11.16 21.47
South
Westwood Business Center 1 1985 165,851 0.3 95.7 3,269 0.2 17 9.96 20.60

19

22

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------ ---------- ---------

West
Wellesley Office Park 8 1963-84 638,229 1.0 98.4 16,022 1.2 86 16.45 25.51
New York City
Midtown
850 Third Avenue 1 1960/96 562,567 0.9 100.0 16,687 1.2 28 16.50 29.66
Philadelphia
Conshohocken
Four Falls Corporate
Center (4) 1 1988 254,355 0.4 99.8 6,229 0.5 43 16.45 24.55
Center City
1601 Market Street 1 1970 681,289 1.0 95.0 13,454 1.0 68 11.98 20.79
1700 Market Street 1 1969 825,547 1.3 85.6 14,355 1.1 46 10.45 20.31
King of Prussia/Valley Forge
Oak Hill Plaza (4) 1 1982 164,360 0.3 100.0 2,959 0.2 4 10.51 18.00
Walnut Hill Plaza (4) 1 1985 149,716 0.2 97.5 2,863 0.2 21 13.13 19.61
Main Line
One Devon Square (4) 1 1984 73,267 0.1 100.0 1,494 0.1 10 14.93 20.40
Two Devon Square (4) 1 1985 63,226 0.1 91.8 904 0.1 5 10.10 15.57
Three Devon Square (4) 1 6,000 0.0 100.0 218 0.0 1 30.90 36.37
Plymouth Meeting/Blue Bell
One Valley Square (4) 1 1982 70,289 0.1 100.0 1,125 0.1 7 10.08 16.00
Two Valley Square (4) 1 1990 70,622 0.1 100.0 1,314 0.1 6 11.60 18.60
Three Valley Square (4) 1 1984 84,605 0.1 98.3 1,577 0.1 6 12.62 18.96
Four and Five Valley
Square (4) 2 1988 68,321 0.1 100.0 1,331 0.1 5 12.93 19.48
Norfolk
Norfolk
Dominion Tower (4) 1 1987 403,276 0.6 96.2 6,367 0.5 54 8.89 16.42
--- ---------- ---- -------- ---- -----
NORTHEAST REGION
TOTAL/WEIGHTED AVERAGE 83 17,707,551 27.1% 95.8% $436,121 32.5% 1,395 $14.65 $25.72

20

23

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ------ ---------- ----------

CENTRAL REGION
Chicago
Downtown-Central Loop
161 N. Clark 1 1992 1,010,520 1.5% 80.1% $ 19,240 1.4% 56 $10.68 $23.78
200 West Adams 1 1985/96 677,222 1.0 89.6 12,560 0.9 59 9.19 20.70
30 N. LaSalle Street (3) 1 1974/90 925,950 1.4 95.2 19,197 1.4 113 8.04 21.78
One North Franklin 1 1991 617,592 0.9 99.3 14,007 1.0 55 9.49 22.83
Downtown-West Loop
10 & 30 S Wacker 2 1983-87 2,003,288 3.1 95.8 60,880 4.5 125 16.41 31.74
101 N. Wacker 1 1980/1990 575,294 0.9 89.4 9,896 0.7 37 6.54 19.24
Civic Opera House 1 1929/1996 826,472 1.3 82.6 11,903 0.9 204 6.96 17.43
O'Hare
Presidents Plaza 4 1980-82 794,396 1.2 93.2 16,140 1.2 58 9.77 21.81
1700 Higgins 1 1986 133,876 0.2 100.0 2,224 0.2 16 8.65 16.61
East-West Corridor
AT&T Plaza 1 1984 224,847 0.3 98.0 4,922 0.4 25 14.79 22.34
Oakbrook Terrace Tower 1 1988 772,928 1.2 87.9 17,561 1.3 56 17.10 25.85
Westbrook Corporate Center 5 1985/96 1,106,608 1.7 89.3 26,130 1.9 95 17.94 26.45
Lake County
Tri-State International 5 1986 546,263 0.8 84.6 9,656 0.7 40 13.25 20.90
Indianapolis
Downtown
Bank One Center/Tower 2 1990 1,057,877 1.6 93.3 18,650 1.4 83 10.47 18.89
Cleveland
Downtown
BP Tower 1 1985 1,242,144 1.9 94.0 18,767 1.4 37 7.79 16.07
Columbus
Downtown
One Columbus Building 1 1987 407,472 0.6 92.6 8,911 0.7 30 16.32 23.60
Suburban
Community Corporate Center 1 1987 250,169 0.4 99.1 4,900 0.4 43 12.55 19.77
One Crosswoods Center 1 1984 129,583 0.2 96.4 1,935 0.1 20 8.61 15.50
--- ---------- ----- -------- ----- -----
CENTRAL REGION
TOTAL/WEIGHTED AVERAGE 31 13,302,501 20.3% 91.4% $277,477 20.5% 1,152 $10.80 $22.83

21

24

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ------ ---------- ----------

PACIFIC REGION
Los Angeles
Downtown
550 S. Hope 1 1991 566,434 0.9% 86.8% $12,064 0.9% 39 $13.97 $24.55
Two California Plaza (3) 1 1992 1,329,809 2.0 87.4 25,984 1.9 30 13.21 22.34
Pasadena
Pasadena Towers 2 1990-91 439,367 0.7 90.9 10,849 0.8 32 17.54 27.18
Westwood
10880 Wilshire Boulevard (3) 1 1970/92 534,007 0.8 85.1% 12,772 1.0 44 16.86 28.12
10960 Wilshire Boulevard 1 1971/92 550,430 0.8 83.3% 15,686 1.2 34 22.36 34.23
Orange County
Central Orange
500 Orange Tower (9) 1 1988 290,765 0.4 94.5 5,138 0.4 50 11.79 18.70
1100 Executive Tower 1 1987 366,747 0.6 100.0 6,330 0.5 26 9.81 17.26
Irvine/Airport
1920 Main Plaza 1 1988 305,662 0.5 97.1 6,060 0.5 40 11.52 20.43
2010 Main Plaza 1 1988 280,882 0.4 94.3 5,791 0.4 32 13.66 21.87
San Diego
University Town Center
The Plaza at La Jolla
Village (4) 5 1987-90 635,419 1.0 99.9 15,233 1.1 90 16.59 24.00
Smith Barney Tower 1 1987 187,999 0.3 82.2 3,404 0.3 17 13.54 22.02
San Francisco
Downtown
201 Mission Street 1 1981 483,289 0.7 99.6 9,654 0.7 18 9.44 20.05
580 California 1 1984 313,012 0.5 100.0 8,242 0.6 29 16.03 26.33
60 Spear Street Building 1 1967/87 133,782 0.2 100.0 3,265 0.2 9 13.07 24.41
One Maritime Plaza 1 1967/90 523,929 0.8 84.0 12,718 0.9 39 18.29 28.91
One Market 1 1976/95 1,460,081 2.2 93.8 36,285 2.7 114 15.35 26.49
San Jose
Mountain View
Shoreline Technology Park 12 1985/91 726,508 1.1 100.0 13,509 1.0 12 15.52 18.59

22

25

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ------ ---------- --------

Santa Clara
Lake Marriott Business Park. 7 1981 400,058 0.6 84.6 4,200 0.3 15 8.44 12.40
Sunnyvale
Sunnyvale Business Center 3 1990 175,000 0.3 100.0 3,219 0.2 3 16.24 18.40
--- --------- ---- -------- ----- ---
PACIFIC REGION
TOTAL/WEIGHTED AVERAGE 43 9,703,180 14.9% 92.1% $210,402 15.7% 673 $13.50 $23.54
WEST REGION
Anchorage
Midtown
Calais Office Center (3) 2 1975 190,599 0.3% 100.0% $ 3,505 0.3% 39 $ 9.73 $18.39
Phoenix
Central Corridor
49 East Thomas Road (10) 1 1974/93 18,892 0.0 60.8 93 0.0 12 0.91 8.08
One Phoenix Plaza (11) 1 1989 586,403 0.9 100.0 7,338 0.5 1 11.95 12.51
Minneapolis

Downtown
LaSalle Plaza 1 1991 589,432 0.9 97.1 15,065 1.1 29 10.21 26.32
Denver
Southeast
Denver Corporate
Center II & III 2 1981/93-97 358,357 0.5 100.0 6,331 0.5 15 10.12 17.67
The Quadrant 1 1985 313,302 0.5 83.8 4,900 0.4 38 10.40 18.66
St. Louis
Mid County
Interco Corporate Tower 1 1986 339,163 0.5 100.0 7,559 0.6 33 12.63 22.29
Albuquerque
Downtown
500 Marquette Building 1 1985 230,022 0.4 93.6 3,324 0.2 32 7.70 15.44
Oklahoma City
Northwest
Atrium Towers 2 1980/95 155,865 0.2 94.2 1,321 0.1 43 4.91 9.00
5100 Brookline (4) 1 1974 105,459 0.2 76.4 738 0.1 61 3.82 9.15

23

26

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- --------- ---------- ---------- -------- ---------- ---------- ---------- ---------- ------ ---------- ----------

Portland
Downtown
1001 Fifth Avenue 1 1980 368,018 0.6 95.7 6,028 0.4 48 10.24 17.12
Dallas
LBJ/Quorum Plaza
Four Forest (4) 1 1985 394,324 0.6 96.1 5,906 0.4 57 8.67 15.59
Lakeside Square 1 1987 392,537 0.6 99.1 7,879 0.6 24 11.66 20.26
North Central Plaza Three 1 1986/94 346,575 0.5 90.7 4,962 0.4 39 8.03 15.79
Central
8080 NCX 1 1984/95 283,707 0.4 87.1 4,159 0.3 41 9.12 16.82
North Central Expressway
9400 NCX 1 1981/95 379,556 0.6 91.0 4,895 0.4 70 6.82 14.17
Preston Center
Preston Commons 3 1986 418,604 0.6 91.8 8,046 0.6 68 15.28 20.95
Sterling Plaza 1 1984/94 302,747 0.5 91.1 5,016 0.4 74 9.82 18.18
Ft. Worth
W/SW Fort Worth
Summitt Office Park 2 1974/93 239,095 0.4 94.3 2,705 0.2 63 6.06 11.99
Seattle
Bellevue
One Bellevue Center (3) 1 1983 344,715 0.5 91.7 6,407 0.5 38 12.59 20.26
Rainer Plaza (3) 1 1986 410,855 0.6 99.4 8,634 0.6 61 13.46 21.15
Central Business District
1111 Third Avenue 1 1980 528,282 0.8 96.7 8,991 0.7 57 11.05 17.60
First Interstate 1 1983 915,883 1.4 97.9 18,995 1.4 74 14.09 21.19
Second and Seneca 2 1991/1996 480,272 0.7 99.5 9,522 0.7 31 12.51 19.92
Nordstrom Medical Tower 1 1986 101,431 0.2 96.1 2,057 0.2 21 13.19 21.09
--- --------- ----- ------- ---- ----
WEST REGION
TOTAL/WEIGHTED AVERAGE 32 8,794,095 13.5% 95.3% $154,376 11.5% 1,069 $10.41 $18.41

24

27

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ------ ---------- ---------

SOUTHEAST REGION
Ft. Lauderdale
Downtown
First Union Center 1 1991 225,500 0.3% 99.0% $ 6,078 0.5% 21 $17.67 $27.22
Orlando
Central Business District
SunTrust Center 1 1988 640,385 1.0 94.4 15,120 1.1 46 14.89 25.00
Palm Beach County, FL
West Palm Beach
One Clearlake Centre 1 1987 215,104 0.3 90.2 3,811 0.3 36 10.37 19.64
Sarasota
Downtown
Sarasota City Center 1 1989 247,891 0.4 90.5 4,145 0.3 35 10.97 18.48
Tampa
Westshore/Airport
Tampa Commons 1 1985 254,808 0.4 99.2 4,779 0.4 21 11.42 18.90
Westshore Center 1 1984 215,523 0.3 96.8 3,532 0.3 36 9.13 16.93
Atlanta
Central Perimeter
125 Perimeter Center West 1 1972 223,059 0.3 100.0 997 0.1 1 (2.26) 4.47
20-26 Perimeter Center East 4 1973 69,664 0.1 98.4 1,052 0.1 23 8.62 15.35
219-223 Perimeter Center
Parkway 2 1978/97 255,657 0.4 100.0 4,790 0.4 7 12.00 18.73
245 Perimeter Center Parkway 1 1981 229,131 0.4 100.0 4,116 0.3 1 11.23 17.96
28-32 Perimeter Center East 3 1974 105,287 0.2 99.0 1,585 0.1 16 8.47 15.20
301-303 Perimeter Center
North 2 1982/98 317,116 0.5 100.0 6,388 0.5 5 13.42 20.15
41-47 Perimeter Center East 2 1974 172,374 0.3 98.3 2,854 0.2 34 10.12 16.85
50-66 Perimeter Center East 5 1971/98 738,803 1.1 99.1 12,968 1.0 20 10.97 17.70
70-76 Perimeter Center East 4 1972 60,351 0.1 97.5 969 0.1 15 9.73 16.46
8-16 Perimeter Center East 5 1970 65,435 0.1 93.9 932 0.1 18 8.43 15.16

25

28

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ------ ---------- ---------

Central Park 2 1986 612,733 0.9 97.5 12,042 0.9 75 12.97 20.16
Lakeside Office Park 5 1972/97 390,238 0.6 94.0 5,437 0.4 38 7.20 14.82
Park Place Shopping Center 1 1979 61,830 0.1 98.9 1,264 0.1 18 13.95 20.68
Perimeter--North/South
Terraces 2 1984/98 966,779 1.5 91.9 18,887 1.4 114 14.53 21.26
Midtown
Promenade II 1 1990 770,840 1.2 97.1 16,803 1.3 24 15.11 22.46
Northwest
Paces West 2 1988 641,263 1.0 95.1 12,551 0.9 42 13.79 20.57
Charlotte
Uptown
Wachovia Center 1 1972/94 581,666 0.9 100.0 6,897 0.5 9 6.50 11.86
Raleigh/Durham
South Durham
University Tower 1 1987/92 181,221 0.3 93.4 3,142 0.2 36 11.41 18.56
Nashville
Downtown
Nations Bank Plaza 1 1977/95 421,513 0.6 97.9 5,637 0.4 21 6.57 13.66
---- --------- ---- -------- ---- ---
SOUTHEAST REGION
TOTAL/WEIGHTED AVERAGE 51 8,664,171 13.3% 96.5% $156,776 11.7% 712 $11.11 18.75
SOUTHWEST REGION
New Orleans
Central Business District
LL&E Tower 1 1987 545,157 0.8% 84.4% $ 7,199 0.5% 33 $ 9.14 $15.64
Texaco Center 1 1984 619,714 0.9 87.1 8,882 0.7 26 10.30 16.46
Metairie/E. Jefferson
One Lakeway Center 1 1981/96 289,112 0.4 90.8 3,972 0.3 49 8.75 15.13
Two Lakeway Center 1 1984/96 440,826 0.7 94.4 6,309 0.5 85 9.67 15.16
Three Lakeway Center 1 1987/96 462,890 0.7 97.6 7,079 0.5 54 9.96 15.68

26

29

PERCENTAGE ANNUALIZED
OF TOTAL NET
OFFICE PERCENTAGE EFFECTIVE ANNUALIZED
PORTFOLIO OF RENT PER RENT PER
NUMBER RENTABLE RENTABLE ANNUALIZED PORTFOLIO NUMBER OCCUPIED OCCUPIED
OF YEAR/BUILT SQUARE SQUARE PERCENTAGE RENT ANNUALIZED OF SQUARE SQUARE
PROPERTY PROPERTIES RENOVATED FEET FEET OCCUPIED ($000S)(1) RENT LEASES FOOT(2) FOOT(1)
- -------- ---------- ---------- --------- ---------- ---------- ---------- ---------- ------ ---------- ----------

Austin
Central Business District
Franklin Plaza 1 1987 517,849 0.8 91.5 9,698 0.7 39 11.45 20.47
One American Center (3) 1 1984 505,770 0.8 92.8 8,969 0.7 36 9.51 19.11
San Jacinto Center 1 1987 400,329 0.6 98.0 7,398 0.6 47 8.89 18.85
Houston
Galleria/West Loop
San Felipe Plaza (4) 1 1984 959,466 1.5 93.6 14,803 1.1 125 9.22 16.49
North/North Belt
Intercontinental Center 1 1983/91 194,801 0.3 99.4 2,710 0.2 12 6.81 13.99
Northborough Tower (4) 1 1983/90 207,908 0.3 95.1 2,734 0.2 14 7.28 13.83
North Loop/Northwest
Brookhollow Central 3 1972-1981 797,971 1.2 88.8 10,702 0.8 53 8.34 15.10
West
Destec Tower 1 1982 574,216 0.9 97.6 10,287 0.8 24 11.41 18.36
San Antonio
Airport
Union Square 1 1986 194,398 0.3 88.7 2,511 0.2 18 7.44 14.57
Northwest
Colonade I 1 1983 168,637 0.3 92.4 2,361 0.2 26 7.80 15.15
Northwest Center 1 1984/94 241,248 0.4 88.2 2,805 0.2 34 6.76 13.18
--- ----------- ---- ---------- ---- -----
SOUTHWEST REGION
TOTAL/WEIGHTED AVERAGE 18 7,120,292 10.9 92.2% $ 108,416 8.1% 675 $ 8.60 $16.51
--- ---------- ---- ---------- ----- -----
PORTFOLIO TOTAL/WEIGHTED AVERAGE 258 65,291,790 100.0% 94.0% $1,343,568 100.0% 5,676 $11.99 $21.90
=== ========== ===== ========== ===== =====

27

30

(1) Annualized Rent is the monthly contractual rent under existing leases as
of December 31, 1997, multiplied by 12. This amount reflects total base
rent before any rent abatements, but includes expense reimbursements,
which may be estimates. Total rent abatements for leases in effect as of
December 31, 1997, for the 12 months ending December 31, 1998, are
approximately $9.5 million.

(2) Annualized Net Effective Rent is calculated for leases in effect as of
December 31, 1997, as follows: Annualized Rent, calculated as described
above, was reduced by the estimated operating expenses per square foot,
based on 1997 actual operating expenses for Properties owned as of January
1, 1997, and based on the Company's estimate of annual operating expenses
for Properties acquired subsequent to January 1, 1997.

(3) This Office Property is held subject to a ground lease.

(4) This Office Property is held in a partnership with an unaffiliated third
party and, in the case of San Felipe Plaza, an affiliated party.

(5) The Company owns a 10% interest in this Office Property. The Company's
joint venture partner has advised the Company of its exercise of its
buy-sell right under the joint venture documents. Accordingly, the
Company may either sell its interest in the Office Property or acquire the
joint venture partner's interest in the Office Property, in either case
based on an assumed value for the Property of $175.5 million.

(6) This Office Property recently underwent major redevelopment and tenants
commenced occupancy in May 1997.

(7) This Office Property is held in a private real estate investment trust in
which the Company and the Trust own 51.6% of the outstanding shares.

(8) As of the date of this Form 10-K, the Company is involved in continuing
discussions with its joint venture partner in One Post Office Square and
Rowes Wharf with respect to the Company's control over property management
of such Office Properties. Such joint venture partner did not consent to
the transfer to the Company of Beacon's joint venture interest in these
Properties which occurred as a result of the Beacon Merger. Although the
Company believes that such consent was not required, unless the Company is
able to reach an agreement with respect to day-to-day management of such
Properties, it is possible that the joint venture partner could challenge
the transfer of the Properties in the Beacon Merger, or seek to trigger
the buy-sell remedy found in the joint venture documents.

(9) This Office Property is held subject to an interest in the improvements
at the Property held by an unaffiliated third party. In addition, the
Company has a mortgage interest in such improvements.

(10) This Office Property was purchased in conjunction with the purchase of
One Phoenix Plaza for the sole purpose of providing additional parking for
the tenants of One Phoenix Plaza.

(11) This Office Property is 100% leased to a single tenant on a triple net
basis, whereby the tenant pays for certain operating expenses directly
rather than reimbursing the Company. The amounts shown above for
annualized rent include the amounts for reimbursement of expenses paid by
the Company but do not make any adjustments for expenses paid directly by
the tenant.

28

31

PARKING FACILITIES

Information concerning the Parking Facilities as of December 31, 1997 is
set forth below.

NUMBER
APPROXIMATE MANAGEMENT OF
NUMBER OF COMPANY PARKING
PROPERTY NAME SPACES CITY OR LESSEE(1) FACILITIES
- ------------- ----------- ---- -------------- ----------

Boston Harbor Garage 1,380 Boston Standard Parking 1
1602-34 Chancellor Garage 416 Philadelphia Central Parking 1
15th & Sansom St. Garage 313 Philadelphia Central Parking 1
Juniper/Locust St. Garage 541 Philadelphia Central Parking 1
1111 Sansom St. Garage 250 Philadelphia Central Parking 1
1616 Sansom St. Garage 240 Philadelphia Central Parking 1
Adams Wabash Garage 670 Chicago Standard Parking 1
Stanwix Parking Garage 712 Pittsburgh Standard Parking 1
Milwaukee Center(2) 876 Milwaukee Standard Parking 1
Capitol Commons Garage(2)(3) 950 Indianapolis Central Parking 1
601 Tchoupitoulas Garage 759 New Orleans Central Parking 1
North Loop Transportation
Center(3) 1,172 Chicago Standard Parking 1
Theater District Garage(3) 1,006 Chicago Standard Parking 1
Civic Parking(4) 7,464 St. Louis Central Parking 4
-------- -----
Total 16,749 17
======== =====

(1) With the exception of Capitol Commons Garage, all of the named Parking
Facilities are operated by the designated third-party Service Company
under a lease agreement whereby the Company and the Service Company share
the gross receipts from the parking operation or the Company receives a
fixed payment from the Service Company, and the Company bears none of the
operational expenses. In the case of the Capitol Commons Garage, the
operating agreement provides for the Company's receipt of a percentage of
net receipts and, therefore, results in an insignificant amount of
nonqualifying gross income for REIT qualification purposes relative to the
total gross income of the Company.

(2) This Parking Facility is held subject to a ground lease.

(3) Each of these Parking Facilities is held in a partnership with an
unaffiliated third party. The Company or a Subsidiary is the managing
general partner of each such partnership.

(4) The Company has a 50% membership interest in a portfolio of four Parking
Facilities serving the St. Louis, Missouri area.

TENANTS

As of December 31, 1997, the Office Properties were leased to 5,676
tenants; no single tenant accounted for more than 1.6% of the Company's
aggregate annualized rent or 1.3% of aggregate occupied square feet (except for
the U.S. General Services Administration, acting on behalf of various agencies
or departments of the U.S. government, which accounted for 3.6% of annualized
rent and 3.1% of occupied square feet).

29

32

LEASE EXPIRATION BY REGION AS OF DECEMBER 31, 1997

1998 1999 2000 2001 2002 2003
----------- ----------- ----------- ----------- ----------- -----------

NORTHEAST REGION TOTALS Square Feet(1) 1,468,199 1,403,658 1,797,439 2,535,563 2,849,213 1,104,907
% Square Feet(2) 8.3% 7.9% 10.2% 14.3% 16.1% 6.2%
Annualized Rent(3) 35,968,046 $35,511,991 $46,612,300 $67,724,851 $75,666,379 $26,782,214
Number of Leases 250 196 235 212 195 89
Rent Per Square Foot $ 24.50 $ 25.30 $ 25.93 $ 26.71 $ 26.56 $ 24.24

CENTRAL REGION TOTALS Square Feet(1) 956,638 938,971 1,366,749 893,497 1,092,626 1,246,839
% Square Feet(2) 7.2% 7.1% 10.3% 6.7% 8.2% 9.4%
Annualized Rent(3) $22,607,154 $24,445,635 $33,459,470 $19,840,138 $26,200,266 $35,621,560
Number of Leases 196 172 174 150 141 75
Rent Per Square Foot $ 23.63 $ 26.03 $ 24.48 $ 22.21 $ 23.98 $ 28.57

PACIFIC REGION TOTALS Square Feet(1) 523,215 1,123,666 1,311,607 1,657,927 852,121 480,685
% Square Feet(2) 5.4% 11.6% 13.5% 17.1% 8.8% 5.0%
Annualized Rent(3) $13,343,037 $25,799,415 $27,844,671 $35,819,707 $22,067,131 $12,104,920
Number of Leases 121 114 110 111 76 41
Rent Per Square Foot $ 25.50 $ 22.96 $ 21.23 $ 21.61 $ 25.90 $ 25.18

WEST REGION TOTALS Square Feet(1) 950,557 981,408 1,235,372 1,264,733 963,339 1,017,366
% Square Feet(2) 10.8% 11.2% 14.0% 14.4% 11.0% 11.6%
Annualized Rent(3) $17,324,712 $16,900,464 $21,845,638 $24,462,927 $17,936,972 $21,095,964
Number of Leases 312 202 187 151 108 51
Rent Per Square Foot $ 18.23 $ 17.22 $ 17.68 $ 19.34 $ 18.62 $ 20.74

SOUTHEAST REGION TOTALS Square Feet(1) 731,862 1,406,101 1,229,731 1,417,873 823,210 298,491
% Square Feet(2) 8.4% 16.2% 14.2% 16.4% 9.5% 3.4%
Annualized Rent(3) $12,803,930 $23,079,524 $25,386,337 $27,164,526 $15,317,589 $6,615,672
Number of Leases 147 149 138 113 103 16
Rent Per Square Foot $ 17.50 $ 16.41 $ 20.64 $ 19.16 $ 18.61 $ 22.16

SOUTHWEST REGION TOTALS Square Feet(1) 824,455 615,933 1,394,002 1,007,272 914,422 425,305
% Square Feet(2) 11.6% 8.7% 19.6% 14.1% 12.8% 6.0%
Annualized Rent(3) $12,983,956 $9,630,778 $24,574,823 $16,989,284 $15,971,348 $6,733,658
Number of Leases 182 114 129 88 97 32
Rent Per Square Foot $ 15.75 $ 15.64 $ 17.63 $ 16.87 $ 17.47 $ 15.83

2008 AND
2004 2005 2006 2007 BEYOND TOTALS
----------- ----------- ----------- ----------- ----------- ------------

NORTHEAST REGION TOTALS Square Feet(1) 1,158,431 955,209 1,001,195 940,102 1,745,470 16,959,386
% Square Feet(2) 6.5% 5.4% 5.7% 5.3% 9.9% 95.8%
Annualized Rent(3) $27,925,360 $24,869,807 $21,563,734 $22,523,196 $50,972,720 $436,120,599
Number of Leases 63 46 48 28 33 1,395
Rent Per Square Foot $ 24.11 $ 26.04 $ 21.54 $ 23.96 $ 29.20 $ 25.72

CENTRAL REGION TOTALS Square Feet(1) 948,068 1,056,897 667,908 485,950 2,500,874 12,155,017
% Square Feet(2) 7.1% 7.9% 5.0% 3.7% 18.8% 91.4%
Annualized Rent(3) $20,967,084 $22,027,009 $13,967,501 $9,654,575 $48,686,853 $277,477,246
Number of Leases 81 51 44 32 36 1,152
Rent Per Square Foot $ 22.12 $ 20.84 $ 20.91 $ 19.87 $ 19.47 $ 22.83

PACIFIC REGION TOTALS Square Feet(1) 344,178 719,364 411,700 794,246 717,531 8,936,240
% Square Feet(2) 3.5% 7.4% 4.2% 8.2% 7.4% 92.1%
Annualized Rent(3) $8,787,839 $15,423,632 $13,581,995 $24,500,345 $11,129,561 $210,402,252
Number of Leases 21 27 18 15 19 673
Rent Per Square Foot $ 25.53 $ 21.44 $ 32.99 $ 30.85 $ 15.51 $ 23.54

WEST REGION TOTALS Square Feet(1) 981,178 281,007 309,239 216,330 182,766 8,383,295
% Square Feet(2) 11.2% 3.2% 3.5% 2.5% 2.1% 95.3%
Annualized Rent(3) $14,345,575 $5,523,336 $6,441,399 $6,163,374 $2,335,969 $154,376,329
Number of Leases 21 12 9 7 9 1,069
Rent Per Square Foot $ 14.62 $ 19.66 $ 20.83 $ 28.49 $ 12.78 $ 18.41

SOUTHEAST REGION TOTALS Square Feet(1) 347,833 418,831 595,444 23,488 1,070,353 8,363,217
% Square Feet(2) 4.0% 4.8% 6.9% 0.3% 12.4% 96.5%
Annualized Rent(3) $5,170,466 $5,837,916 $14,169,239 $543,826 $20,686,841 $156,775,866
Number of Leases 17 9 8 3 9 712
Rent Per Square Foot $ 14.86 $ 13.94 $ 23.80 $ 23.15 $ 19.33 $ 18.75

SOUTHWEST REGION TOTALS Square Feet(1) 520,933 72,924 446,126 171,843 171,729 6,564,944
% Square Feet(2) 7.3% 1.0% 6.3% 2.4% 2.4% 92.2%
Annualized Rent(3) $9,226,058 $1,324,953 $7,264,419 $3,017,761 $699,402 $108,416,439
Number of Leases 18 4 7 2 2 675
Rent Per Square Foot $ 17.71 $ 18.17 $ 16.28 $ 17.56 $ 4.07 $ 16.51

30

33

LEASE EXPIRATION BY REGION AS OF DECEMBER 31, 1997

1998 1999 2000 2001 2002 2003
------------ ------------ ------------ ------------ ------------ ------------

PORTFOLIO TOTALS Square Feet(1) 5,454,926 6,469,737 8,334,900 8,776,865 7,494,931 4,573,593
% Square Feet(2) 8.4% 9.9% 12.8% 13.4% 11.5% 7.0%
Annualized Rent(3) $115,030,835 $135,367,809 $179,723,239 $192,001,433 $173,159,684 $108,953,988
Number of Leases 1,208 947 973 825 720 304
Rent Per Square Foot $21.09 $20.92 $21.56 $21.88 $23.10 $23.82

2008 AND
2004 2005 2006 2007 BEYOND TOTALS
----------- ----------- ----------- ----------- ------------ --------------

PORTFOLIO TOTALS Square Feet(1) 4,300,621 3,504,232 3,431,612 2,631,959 6,388,723 61,362,099
% Square Feet(2) 6.6% 5.4% 5.3% 4.0% 9.8% 94.0%
Annualized Rent(3) $86,422,383 $75,006,652 $76,988,287 $66,403,077 $134,511,346 $1,343,568,733
Number of Leases 221 149 134 87 108 5,676
Rent Per Square Foot $ 20.10 $ 21.40 $ 22.44 $ 25.23 $ 21.05 $ 21.90

(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, 1997 multiplied by 12. This amount reflects total base
rent before any rent abatements, but includes expense reimbursements.
Total rent abatements for leases in effect as of December 31, 1997 for the
12 months ending December 31, 1998 are approximately $9.5 million.

31

34

LEASE EXPIRATIONS -- TOTAL PORTFOLIO

The following table sets forth a summary schedule of the lease expirations
for the Office Properties for leases in place as of December 31, 1997, assuming
that none of the tenants exercise renewal options or termination rights, if
any, at or prior to the scheduled expirations:

PERCENTAGE
ANNUALIZED OF
PERCENTAGE RENT OF ANNUALIZED
SQUARE OF TOTAL ANNUALIZED EXPIRING RENT OF
NUMBER OF FOOTAGE OF OCCUPIED RENT OF LEASES EXPIRING
YEAR OF LEASE LEASES EXPIRING SQUARE EXPIRING PER SQUARE LEASES
EXPIRATION EXPIRING LEASES FEET LEASES FOOT (1)
- --------------- --------- ---------- ---------- -------------- ---------- ----------

1998(2) 1,208 5,454,926 9.0% $115,030,835 $21.09 8.6%
1999 947 6,469,737 10.6 135,367,809 20.92 10.1
2000 973 8,334,900 13.7 179,723,239 21.56 13.4
2001 825 8,776,865 14.5 192,001,433 21.88 14.3
2002 720 7,494,931 12.4 173,159,684 23.10 12.9
2003 304 4,573,593 7.5 108,953,988 23.82 8.1
2004 221 4,300,621 7.1 86,422,383 20.10 6.4
2005 149 3,504,232 5.8 75,006,652 21.40 5.6
2006 134 3,431,612 5.7 76,988,287 22.44 5.7
2007 87 2,631,959 4.3 66,403,077 25.23 4.9
2008 43 1,859,287 3.1 45,585,979 24.52 3.4
2009 21 774,932 1.3 19,203,150 24.78 1.4
2010 and beyond 44 3,057,645 5.0 69,722,217 22.80 5.2
--------- ---------- ---------- -------------- ----------
Total/Weighted
Average 5,676 60,665,240 100.0%(3) $1,343,568,733 $21.90 100.0%
========= ========== ========== ============== ==========

(1) Based on currently payable rent.
(2) Represents lease expirations from January 1, 1998 to December 31, 1998
and month-to-month leases.
(3) Reconciliation of total net rentable square footage is as follows:

PERCENTAGE
SQUARE OF
FOOTAGE TOTAL
---------- ----------

Square footage occupied by tenants 60,665,240 92.9%
Square footage used for management offices
and building use, and remeasurement adjustments 696,859 1.1
---------- ----------
Total occupied square footage 61,362,099 94.0%
---------- ----------
Square footage vacant 3,929,691 6.0
---------- ----------

Total net rentable square footage 65,291,790 100.0%
========== ==========

32

35

LEASE DISTRIBUTIONS

The following table sets forth information relating to the distribution of
the Office Property leases, based on rentable square feet under lease, as of
December 31, 1997:

PERCENTAGE
PERCENTAGE OF
TOTAL OF AGGREGATE ANNUALIZED AGGREGATE
PERCENT OCCUPIED PORTFOLIO RENT PER PORTFOLIO
SQUARE FEET NUMBER OF ALL SQUARE OCCUPIED ANNUALIZED SQUARE ANNUALIZED
UNDER LEASE OF LEASES LEASES FEET SQUARE FEET RENT FOOT RENT
- ----------- --------- ------- ---------- ------------ -------------- ---------- ----------

2,500 or Less 2,111 37.1% 2,651,327 4.5% $53,306,953 $20.11 4.0%
2,501-5,000 1,241 21.9 4,425,891 7.3 91,348,801 20.64 6.7
5,001-7,500 645 11.4 3,941,275 6.5 81,850,253 20.77 6.1
7,501-10,000 335 5.9 2,901,540 4.8 62,623,563 21.58 4.7
10,001-20,000 687 12.1 9,709,038 16.0 207,045,803 21.33 15.4
20,001-40,000 363 6.4 9,854,438 16.1 220,294,918 22.35 16.4
40,001-60,000 125 2.2 6,024,324 9.9 136,425,729 22.65 10.2
60,001-100,000 90 1.6 6,675,284 11.0 162,617,086 24.36 12.1
100,001 or Greater 79 1.4 14,482,123 23.9 328,055,628 22.65 24.4
----- ----- ---------- ----- -------------- -----

Total/Weighted Average 5,676 100.0% 60,665,240 100.0% $1,343,568,733 $21.90 100.0%
===== ===== ========== ===== ============== =====

OCCUPANCY

The table below sets forth weighted average occupancy rates, based on
square feet occupied, of the Office Properties owned by the Company at the
indicated dates:

PERCENTAGE OF
AGGREGATE RENTABLE
RENTABLE SQUARE
DATE SQUARE FEET FEET OCCUPIED
- ---- ----------- -------------

December 31, 1992 ......................... 9,095,684 73%
December 31, 1993 ......................... 13,550,553 80
December 31, 1994 ......................... 18,505,591 88
December 31, 1995 ......................... 23,097,222 86
December 31, 1996 ......................... 29,127,289 90
December 31, 1997 ......................... 65,291,790 94

33

36

ITEM 3. LEGAL PROCEEDINGS

Neither the Company nor any of the Properties is presently subject to any
material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company or any of the Properties, 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 the Company.

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

None.

PART II

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

There is no established public trading market for the Units.

The following table sets forth, for the periods indicated, the
distributions paid on the Company's Units:
Distributions
Per Unit
-------------
Fourth Quarter ended December 31, 1997 .............. $0.30
Third Quarter ended September 30, 1997 (1) .......... $0.26

_______________
(1) The Company paid a distribution of $.26 per Unit for the
period from the closing date of the IPO on July 11, 997 through
September 30, 1997, which would be equivalent to a quarterly
distribution of $.30 and an annual distribution of $1.20 per
Unit.

In addition, the Company declared a $0.32 distribution per Unit payable on
April 10, 1998 to unitholders of record on March 31, 1998.

The number of holders of record of Units on March 25, 1998 was 120. The
number of outstanding Units was 279,350,872 as of March 25, 1998.

ISSUANCES OF UNREGISTERED SECURITIES. Unless stated otherwise, the
Company received cash consideration in connection with each of the following
issuances of unregistered securities:

In September 1997, the Company purchased two Office Properties and a
Parking Facility from an unaffiliated third party for a purchase price of
approximately $140 million. Of this amount, the Company issued, in a private
placement of securities in reliance on an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder,
1,692,546 Units at a price of $29 per Unit for a total of approximately $49.1
million.

On September 3, 1997, the Company issued $180 million of unsecured notes
(the "$180 Million Notes") in a private placement to an institutional investor,
in reliance on an exemption from the registration requirements of the
Securities Act, pursuant to Section 4(2) and Rule 506 of Regulation D
promulgated thereunder, and used the proceeds therefrom to repay amounts
outstanding under the Company's $600 million unsecured revolving line of credit
entered into in July 1997.

34

37

In October 1997, the Trust sold an aggregate of $274 million of restricted
Common Shares in two separate private transactions to institutional investors
in reliance on an exemption from the registration requirements of the
Securities Act, pursuant to Section 4(2) and Rule 506 of Regulation D
promulgated thereunder, and contributed the proceeds to the Company in exchange
for 9.7 million Units.

Also in October 1997, the Company purchased four Office Properties from an
unaffiliated third party for a purchase price of $289 million. Of this amount,
the Company issued, in a private placement of securities in reliance on an
exemption from the registration requirements of the Securities Act, pursuant to
Section 4(2) and Rule 506 of Regulation D promulgated thereunder, 2,900,000
Units at a price of $24.50 per Unit for a total of approximately $71.1 million.

Also in October 1997, the Company purchased interests in nine Office
Properties from an unaffiliated third party for a purchase price of
approximately $127.5 million. Of this amount, the Company issued, in a private
placement of securities in reliance on an exemption from the registration
requirements of the Securities Act, pursuant to Section 4(2) and Rule 506 of
Regulation D promulgated thereunder, 499,977 Units at a price of $28.775 per
Unit for a total of approximately $14.4 million.

Also in October 1997, the Company purchased an Office Property from an
unaffiliated third party for a purchase price of approximately $81.7 million.
Of this amount, the Company issued, in a private placement of securities in
reliance on an exemption from the registration requirements of the Securities
Act, pursuant to Section 4(2) and Rule 506 of Regulation D promulgated
thereunder, 741,159 Units at a price of $32.975 per Unit for a total of
approximately $24.4 million.

In November 1997, the Company purchased two Office Properties from an
unaffiliated third party for a purchase price of $17.2 million. Of this
amount, the Company issued, in a private placement of securities in reliance on
an exemption from the registration requirements of the Securities Act, pursuant
to Section 4(2) and Rule 506 of Regulation D promulgated thereunder, 124,348
Units at a price of $28.775 per Unit for a total of approximately $3.6 million.

In December 1997, the Company purchased ten Office Properties in the Wright
Runstad Acquisition for a purchase price of $640 million. Of this amount, the
Company issued, in a private placement of securities in reliance on an exemption
from the registration requirements of the Securities Act, pursuant to Section
4(2) and Rule 506 of Regulation D promulgated thereunder, 2,615,700 Units at a
price of $29.11 per Unit for a total of approximately $76.1 million and the
Trust issued, also in a private placement of securities in reliance on an
exemption from the registration requirements of the Securities Act, pursuant to
Section 4(2) and Rule 506 of Regulation D promulgated thereunder, 3,435,688
Common Shares at a price of $29.11 per Common Share for a total of approximately
$100 million. The Company issued 3,435,688 Units to the Trust in connection
with the issuance of these Common Shares. The sellers also received five-year
warrants (valued at approximately $15 million) to purchase an additional
5,000,000 Common Shares of the Trust at an exercise price of $39.375 per share.
In addition, the Company, through Noncontrolled Subsidiary, acquired a
non-controlling interest in the management company of the seller for
approximately $20 million. Of this amount, the Company issued, in a private
placement of securities in reliance on an exemption from the registration
requirements of the Securities Act, pursuant to Section 4(2) and Rule 506 of
Regulation D promulgated thereunder, 137,427 Units at a price of $29.11 per Unit
for a total of approximately $4.0 million.

On February 12, 1998, the Company, in two private placements to
institutional investors in reliance on an exemption from the registration
requirements of the Securities Act, pursuant to Section 4(2) and Rule 506 of
Regulation D promulgated thereunder, sold $1.25 billion of unsecured notes in
four series, ranging in maturities from 5 to 20 years, and $250 million of
unsecured 6.376% Mandatory Par Put Remarketed SecuritiesSM due 2012 (which are
subject to mandatory tender on February 15, 2002).

On February 13, 1998, the Trust, in a private placement to institutional
investors in reliance on an exemption from the registration requirements of the
Securities Act, pursuant to Rule 144A promulgated thereunder, sold 6,000,000
5.25% Preferred Income Equity Redeemable Shares, designated by the Trust as its
5.25% Series B Convertible, Cumulative Preferred Shares of Beneficial Interest,
$.01 par value per share, $50.00 liquidation preference per share, for gross
aggregate consideration of $300,000,000. The proceeds of this offering were
contributed to the Company in exchange for 6,000,000 5.25% Series B
Convertible, Cumulative Preferred Units of Limited Partnership Interest.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial and operating
information on a historical basis for the Company and its predecessors. The
following information should be read in conjunction with all of the financial
statements and notes thereto included elsewhere in this Form 10-K.

35

38
EOP OPERATING LIMITED PARTNERSHIP SELECTED FINANCIAL DATA (1)

The following sets forth selected consolidated and combined financial and
operating information on an historical basis for EOP Operating Limited
Partnership and the Company's predecessors ("Equity Office Predecessors") (the
"Company"). The following information should be read in conjunction with the
consolidated and combined financial statements and notes thereto of the Company
and Equity Office Predecessors included elsewhere in this Form 10-K.

Equity Office Predecessors (Combined Historical)
------------------------------------------------------
Company
for the for the
period from period from
July 11, 1997 Jan. 1, 1997
to Dec. 31, to July 10, for the years ended December 31,
(Dollars in thousands, except unit data) 1997 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------

OPERATING DATA:
REVENUES:
Rental, parking and other $406,713 $327,017 $493,396 $356,959 $230,428 $150,315
- ----------------------------------------------------------------------------------------------------------------------------
Total revenues $412,968 339,104 $508,124 $371,457 $240,878 $159,246
- ----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Interest $ 76,675 $ 80,481 $119,595 $100,566 $ 59,316 $ 36,755
Depreciation and amortization 70,346 66,034 96,237 74,156 46,905 29,752
Property operating(2) 155,679 127,285 201,067 151,488 107,412 74,028
General and administrative 17,690 17,201 23,145 21,987 15,603 12,012
Provision for value impairment -- -- -- 20,248 -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total expenses $320,390 $291,001 $440,044 $368,445 $229,236 $152,547
- ----------------------------------------------------------------------------------------------------------------------------
Income before (income) loss allocated to minority
interests, income from investments in unconsolidated
joint ventures, gain on sales of real estate, and
extraordinary items $ 92,578 $48,103 $68,080 $ 3,012 $ 11,642 $ 6,699
Minority interests allocation (789) (912) (2,086) (2,129) 1,437 1,772
Income from investments in unconsolidated
joint ventures 3,173 1,982 2,093 2,305 1,778 --
Gain/(Loss) on sales of real estate and
extraordinary items (16,240) 12,236 5,338 31,271 1,705 --
- ----------------------------------------------------------------------------------------------------------------------------
Net income before preferred distributions 78,722 61,409 73,425 34,459 16,562 8,471
Preferred distributions (649) -- -- -- -- --
------------------------------------------------------------------
Net income available to Units $ 78,073 $ 61,409 $ 73,425 $ 34,459 $ 16,562 $ 8,471
==================================================================
Net income available per weighted average
Unit outstanding--Basic $.44
===========
Net income available per weighted average
Unit outstanding--Diluted $.43
===========
Weighted average Units outstanding--Basic 178,647,562
===========
Weighted average Units outstanding--Diluted 180,014,027
===========
- ----------------------------------------------------------------------------------------------------------------------------

36

39

Equity Office Predecessors (Combined Historical)
---------------------------------------------------------------
Company
for the for the
period from period from
July 11, 1997 Jan. 1, 1997
(Dollars in thousands, to Dec. 31, to July 10, for the years ended December 31,
except unit data) 1997 1997 1996 1995 1994 1993
- ---------------------- ------------- ------------ --------- ---------- --------- ----------

- --------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
- --------------------------------------------------------------------------------------------------------------------
(at end of period)
Investment in real estate after
accumulated depreciation $10,976,319 -- $3,291,815 $2,393,403 $1,815,160 $1,220,268
Total assets $11,751,672 -- $3,912,565 $2,650,890 $2,090,933 $1,318,644
Mortgage debt, unsecured notes
and lines of credit $ 4,284,317 -- $1,964,892 $1,434,827 $1,261,156 $ 798,897
Total liabilities $ 4,591,697 -- $2,174,483 $1,529,334 $1,350,552 $ 845,315
Minority interests $ 29,612 -- $ 11,080 $ 31,587 $ 9,283 $ (15,298)
Partners' Capital/Owners' equity $ 7,130,363 -- $1,727,002 $1,089,969 $ 731,098 $ 488,627
OTHER DATA:
- --------------------------------------------------------------------------------------------------------------------
General and administrative
expenses as a percentage of
total revenues 4.3% 5.1% 4.6% 5.9% 6.5% 7.5%
Number of Office Properties
owned at period end(3) 258 -- 83 73 63 48
Net rentable square feet of
Office Properties owned at
period end (in millions)(3) 65.3 -- 29.2 23.1 18.5 13.6
Occupancy of Office Properties
owned at period end (3) 94% -- 90% 86% 88% 80%
Number of Parking Facilities
owned at period end 17 -- 10 3 -- --
Number of spaces at Parking
Facilities owned at period end 16,749 -- 7,321 3,323 -- --
Funds from Operations(4) $ 163,253 $ 113,022 $ 160,460 $ 96,104 $ 60,372 --
Cash flow from operating
activities $ 190,754 $ 95,960 $ 165,975 $ 93,878 $ 73,821 --
Cash flow used for investing
activities $(1,592,272) $(571,068) $ (924,227) $ (380,615) $ (513,965) --
Cash flow from financing
activities $ 1,630,346 $ 245,851 $1,057,551 $ 276,513 $ 514,923 --

(1) The selected financial data at December 31, 1997, 1996 and 1995 and for the
four years ended December 31, 1997 has been derived from the historical
consolidated or combined financial statements of the Company and Equity Office
Predecessors, audited by Ernst & Young, LLP, independent auditors. The selected
financial data at December 31, 1994 and 1993 and for the year ended December 31,
1993 has been derived from the historical unaudited combined financial
statements of Equity Office Predecessors.

(2) Includes property operating expenses, real estate taxes, insurance, as well
as repair and maintenance expenses.

(3) The data at the years ended December 31, 1997, 1996 and 1995, includes 28
State Street, a 570,040 square foot Office Property which, due to a
redevelopment, was vacant prior to May 1997. The weighted average occupancy,
excluding 28 State Street, as of December 31, 1997, 1996 and 1995, was
approximately 94%, 92% and 88%, respectively.

(4) 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 Operations as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that Funds from Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company computes
Funds from Operations in accordance with standards established by NAREIT, which
may not be comparable to Funds from Operations 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 the Company. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including its
ability to make cash distributions. For a reconciliation of net income and Funds
from Operations, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Funds from Operations."

37

40
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The following discussion and analysis of the consolidated and combined financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements of the Company and the Combined Financial
Statements of Equity Office Predecessors and Notes thereto contained herein. All
references to the historical activities of the Company prior to July 11, 1997,
the date of the Trust's initial public offering (the "IPO") contained in this
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" refer to the activities of the Equity Office Predecessors. Terms
employed herein as defined terms, but without definition, shall have the meaning
set forth in the financial statements. Statements contained in this
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" which are not historical facts may be forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements which speak only
as of the date hereof.

The Company was formed to continue and expand the national office
property business of the Equity Office Predecessors, organized by Mr. Samuel
Zell, Chairman of the Board of Trustees of the Trust, which is the managing
general partner of the Company. On July 11, 1997, following the completion of
the Trust's IPO and the related formation transactions, the Company owned 90
office properties containing approximately 32.2 million rentable square feet
and 14 parking facilities containing 14,785 spaces.

During the period from July 11, 1997 to December 31, 1997, the Company
acquired an additional 168 office properties containing approximately 33.1
million square feet and three parking facilities containing 1,964 spaces. The
aggregate purchase price for these acquisitions was in excess of $6 billion.
These acquisitions, which included the successful completion of the Trust's
merger with Beacon and the Company's merger with Beacon Partnership in December,
effectively doubled the size of the Company's portfolio in the first six months
after the Trust became a public company, giving it a total of 258 office
buildings with approximately 65.3 million rentable square feet, and 17 parking
facilities with approximately 16,749 spaces. At December 31, 1997, the Trust
owned approximately 89.5% of the Company.

In addition to the acquisition activity detailed above, the Company was
also active in the capital markets. Below is a schedule of significant capital
events which have taken place since the Trust's IPO on July 11, 1997 (see
"Liquidity and Capital Resources" below for the details of these transactions):

- - On July 15, 1997, the Company closed on a $600 million revolving line of
credit (the "$600 Million Credit Facility").

- - On September 3, 1997, the Company closed on a $180 million private offering
of unsecured notes (the "$180 Million Notes Offering").

- - On October 2, 1997, the Company closed on a $1.5 billion unsecured term
loan (the "$1.5 Billion Credit Facility").

- - In October 1997, the Trust completed two private placements for a total
of 9,685,034 restricted Common Shares and the Trust contributed the net
proceeds to the Company in exchange for a corresponding number of Units.

- - In connection with the Beacon Merger and other acquisitions which took
place after the Trust's IPO, the Trust issued a total of 87,861,544 Common
Shares, 8,000,000 8.98% Series A Cumulative Redeemable Preferred Shares,
liquidation value of $25 per share, and 5,000,000 warrants and the Company
issued 17,282,043 Units.

- - In February 1998, the Company completed a $1.25 billion private offering
of senior unsecured notes (the "$1.25 Billion Notes Offering") and a $250
million Mandatory Par Put Remarketed Securities(SM) ("MOPPRS") private
offering (the "$250 Million MOPPRS Offering").

- - In February 1998, the Trust completed a $300 million 5.25% Preferred Income
Equity Redeemable Shares (the "PIERS") private offering, liquidation value
of $50 per share, (the "$300 Million PIERS Offering"), and the Trust
contributed the net proceeds to the Company in exchange for 5.25% Series B
Convertible, Cumulative Preference Units (the "Series B Preferred Units").

38
41

RESULTS OF OPERATIONS

GENERAL

The following discussion is based primarily on the Consolidated Financial
Statements of the Company and the Combined Financial Statements of Equity Office
Predecessors, as applicable, as of December 31, 1997 and 1996 and for each of
the years ended December 31, 1997, 1996 and 1995.

The Company receives income primarily from rental revenue from Office
Properties (including reimbursements from tenants for certain operating costs),
parking revenue from Office Properties and stand-alone Parking Facilities, and,
to a lesser extent, from fees from noncombined affiliates for the management of
the Managed Properties.

As of December 31, 1997, the Company owned or had an interest in 258 Office
Properties totaling approximately 65.3 million square feet, and 17 stand-alone
Parking Facilities with approximately 16,749 spaces, including properties
acquired through the Beacon Merger (the "Total Portfolio"). Of the Total
Portfolio, 71 of these Office Properties, totaling approximately 22.6 million
square feet and three Parking Facilities were acquired prior to January 1, 1996;
11 Office Properties, totaling approximately 6.1 million square feet, and seven
Parking Facilities were acquired in 1996; and 176 Office Properties, totaling
approximately 36.6 million square feet, and seven Parking Facilities were
acquired during the year ended December 31, 1997. As a result of this rapid
growth in the size of the Total Portfolio, the financial data presented shows
large increases in revenues and expenses from year to year. For the foregoing
reasons, the Company does not believe its year to year financial data is
comparable. Therefore, the analysis below shows changes resulting from
Properties that were held during the entire period for the years being compared
(the "Core Portfolio") and the changes in Total Portfolio. The Core Portfolio
for the comparison between the year ended December 31, 1997 and 1996 consists of
70 Office Properties and three Parking Facilities acquired prior to January 1,
1996. The Core Portfolio for these comparisons excludes Barton Oaks Plaza II, a
118,529 square foot Office Property which was sold in January 1997, 8383
Wilshire, a 417,463 square foot Office Property, which was sold in May 1997, and
28 State Street, a 570,040 square foot Office Property, which was undergoing
major redevelopment for the periods discussed. The Core Portfolio for the
comparison between the years ended December 31, 1996 and 1995 consists of the 63
Office Properties acquired prior to January 1, 1995. The Core Portfolio for
these comparisons includes Barton Oaks Plaza II and 8383 Wilshire.

YEARS ENDED DECEMBER 31, 1997 AND 1996

The table below represents selected operating information for the Total
Portfolio and for the Core Portfolio which consists of the 70 Office Properties
and three Parking Facilities acquired prior to January 1, 1996. The Core
Portfolio excludes Barton Oaks Plaza II, which was sold in January 1997, 8383
Wilshire, which was sold in May 1997, and 28 State Street, which has recently
undergone major redevelopment and was vacant prior to May 1997.

- -------------------------------------------------------------------------------------------------------------------------------
Total Portfolio Core Portfolio
----------------------------------------- -----------------------------------------------
Increase/ % Increase/ %
(Dollars in thousands) 1997 1996 (Decrease) Change 1997 1996 (Decrease) Change
- -------------------------------------------------------------------------------------------------------------------------------

Property revenues................. $733,730 $493,396 $240,334 48.7% $458,968 $427,936 $ 31,032 7.3%
Interest income................... 13,392 9,608 3,784 39.4% 1,056 1,882 (826) (43.9)%
Fees from noncombined affiliates.. 4,950 5,120 (170) (3.3)% -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues.................... 752,072 508,124 243,948 48.0% 460,024 429,818 30,206 7.0%
- -------------------------------------------------------------------------------------------------------------------------------
Interest expense.................. 157,156 119,595 37,561 31.4% 93,606 110,566 (16,960) (15.3)%
Depreciation and amortization..... 136,380 96,237 40,143 41.7% 85,999 84,411 1,588 1.9%
Property operating expenses....... 282,964 201,067 81,897 40.7% 177,972 176,432 1,540 0.9%
General and administrative........ 34,891 23,145 11,746 50.7% N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses.................... 611,391 440,044 171,347 38.9% 357,577 371,409 (13,832) (3.7)%
- -------------------------------------------------------------------------------------------------------------------------------

39

42

Income before allocation to minority
interests, income from investment
in unconsolidated joint ventures,
gain on sales of real estate and
extraordinary items............... 140,681 68,080 72,601 106.6% 102,447 58,409 44,038 75.4%
Minority interests ............... (1,701) (2,086) 385 18.5% (1,679) (1,986) 307 15.5%
Income from unconsolidated joint
ventures ......................... 5,155 2,093 3,062 146.3% 2,432 2,093 339 16.2%
Gain on sales of real estate and
extraordinary items .............. (4,004) 5,338 (9,342) (175.0)% (16,311) -- (16,311) --
- -------------------------------------------------------------------------------------------------------------

Net income ....................... $140,131 $73,425 $66,706 90.8% $ 86,889 $ 58,516 $ 28,373 48.5%
=============================================================================================================
Property revenues less property
operating expenses ............... $450,766 $292,329 $158,437 54.2% $280,996 $251,504 $ 29,492 11.7%
=============================================================================================================

Property Revenues

The increase in rental revenues, tenant reimbursements, parking income and other
income ("Property Revenues") in the Core Portfolio resulted from a combination
of occupancy and rental rate increases. The weighted average occupancy of the
Core Portfolio increased from approximately 88.5% at January 1, 1996 to 94.8% as
of December 31, 1997. This increase represents approximately 1.4 million square
feet of additional occupancy in the Core Portfolio between January 1, 1996 and
December 31, 1997. Included in Property Revenues for the Core Portfolio are
lease termination fees of approximately $3.7 million and $5.6 million for the
years ended December 31, 1997 and 1996, respectively (which are included in the
other revenue category on the consolidated and combined statement of
operations). These fees are related to specific tenants who have paid a fee to
terminate their lease obligations before the end of the contractual term of the
lease. Although the Company has historically experienced similar levels of such
termination fees, there is no way of predicting the timing or amounts of future
lease termination fees. The straight-line rent adjustment which is included in
rental revenues for the Core Portfolio for the years ended December 31, 1997 and
1996, was approximately $14.6 million and $13.9 million, respectively. The
straight-line rent adjustment which is included in rental revenues for the Total
Portfolio for the years ended December 31, 1997 and 1996 was approximately $27.7
million and $18.4 million, respectively. Other income for 1996 also includes
approximately $8.8 million relating to the Company's share of a litigation
settlement.

Interest Income

Interest income for the Total Portfolio increased by approximately $3.8 million
to $13.4 million for the year ended December 31, 1997, compared to $9.6 million
for the year ended December 31, 1996. This increase in interest income is
primarily due to having a greater amount of cash reserves invested in short term
investments pending investment in property acquisitions prior to the IPO. Prior
to the Consolidation, each of the entities involved in the Consolidation needed
to maintain separate cash reserves which in the aggregate were higher than the
cash reserves the Company anticipates maintaining going forward. Due to the
availability of borrowings under the Company's Credit Facilities, the Company
currently maintains lower cash reserves which are targeted to be between $25 and
$50 million (although the cash balance may at times be more or less in
anticipation of pending acquisitions or other transactions). The lower cash
balance will result in lower interest income in future periods, however, this
loss in income should be offset by savings on interest expense on the Company's
Credit Facilities.

Fees from Noncombined Affiliates

Fees from noncombined affiliates decreased in 1997 from approximately $5.1
million in 1996 to $4.9 million in 1997. These fees are expected to continue to
decrease in future periods as the Managed Properties are sold. Fee income for
the years ended December 31, 1997 and 1996, of approximately $0.4 million and
$1.3 million, respectively, was related to properties which have been sold.

Interest Expense

Interest expense increased by approximately $37.6 million for
the Total Portfolio to $157.2 million for the year ended December 31, 1997
compared to $119.6 million for the year ended December 31, 1996. This increase
resulted from having more debt outstanding in 1997. The increase in total debt
and the related increase in interest expense was directly related to Property
acquisitions. While the Company's total debt and total interest expense have
increased due to acquisition activity, the total debt as a percentage of total
assets decreased from 50% of total assets at December 31, 1996 to 36.5% of total
assets at December 31, 1997, and the Company's interest coverage ratio increased
from 2.4 times in 1996 to 2.8 times in 1997. In addition, the weighted average
interest rate on the Company's debt decreased from approximately 7.7% at
December 31, 1996 to approximately 7.2% at December 31, 1997. The decrease in
interest expense in the Core Portfolio of $17.0 million is primarily due to the
replacement of secured debt with unsecured debt.

40

43
Depreciation and Amortization

Depreciation and amortization increased for the Total Portfolio as a result of
properties acquired during 1997 and the recording of substantially all the
Company's assets and liabilities at their fair market value in connection with
the Consolidation and the Trust's IPO.

The increase in depreciation in the Core Portfolio resulted from the
recording of substantially all the Company's assets and liabilities at their
fair market value in connection with the Consolidation and the Trust's IPO.
The decrease in amortization in the Core Portfolio resulted from the write-off
of deferred financing and leasing costs at the time of the Consolidation and the
Trust's IPO.

Property Operating Expenses

The increase in real estate taxes and insurance, repairs and maintenance, and
property operating expenses ("Property Operating Expenses") in the Core
Portfolio relates primarily to increases in real estate taxes due to higher
property valuations partially offset by real estate tax refunds recorded in the
year ended December 31, 1997.

General and Administrative Expenses

General and administrative expenses for the Total Portfolio increased by
approximately $11.8 million to $34.9 million for the year ended December 31,
1997, compared to $23.1 million for the year ended December 31, 1996. General
and administrative expenses as a percentage of total revenues was approximately
4.6% for the years ended December 31, 1997 and 1996. The primary reasons for the
increase in general and administrative expenses are the significant increase in
the size of the Company's portfolio and increased expenses associated with
becoming a public company. While general and administrative expenses will
continue to increase as the size of the Company's portfolio increases, it is
anticipated that general and administrative expenses as a percentage of total
revenue will initially remain stable (or increase slightly), as the full costs
of running a public company are reflected in operations, and then decrease over
time as the Company realizes increased economies of scale.

PARKING OPERATIONS

Included in the Total and Core Portfolio selected operating information, for the
years ended December 31, 1997 and 1996, are results of operations from the
stand-alone Parking Facilities, the summarized information for which is
presented below. As of December 31, 1997, the Company owned or had an interest
in 17 stand-alone Parking Facilities with approximately 16,749 spaces. Of the
Total Portfolio, three Parking Facilities were acquired prior to January 1,
1996; seven Parking Facilities were acquired in 1996; and seven Parking
Facilities were acquired during the year ended December 31, 1997. The Core
Portfolio for the comparison between the years ended December 31, 1997 and 1996
consist of three Parking Facilities acquired prior to January 1, 1996.

Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996

- ------------------------------------------------------------------------------------------------------------------------
Total Parking Portfolio Core Parking Portfolio
Increase/ % Increase/ %
(Dollars in thousands) 1997 1996 (Decrease) Change 1997 1996 (Decrease) Change
- ------------------------------------------------------------------------------------------------------------------------

Property Revenues $22,577 $10,203 $12,374 121.3% $10,238 $ 9,873 $365 3.7%
Interest income 249 141 108 76.6% 239 141 98 69.5%
- ------------------------------------------------------------------------------------------------------------------------
Total revenues 22,826 10,344 12,482 120.7% 10,477 10,014 463 4.6%
- ------------------------------------------------------------------------------------------------------------------------
Interest expense 5,427 1,814 3,613 199.2% 2,724 1,645 1,079 65.6%
Depreciation and amortization 4,031 1,432 2,599 181.5% 1,708 1,359 349 25.7%
Property Operating Expenses 5,124 3,152 1,972 62.6% 2,619 3,081 (462) (15.0)%
- ------------------------------------------------------------------------------------------------------------------------
Total expenses 14,582 6,398 8,184 127.9% 7,051 6,085 966 15.9%
- ------------------------------------------------------------------------------------------------------------------------
Income before allocation to minority
interests and income from investment
in unconsolidated joint ventures 8,244 3,946 4,298 108.9% 3,426 3,929 (503) (12.8)%
Minority interests (323) (252) (71) (28.2)% (323) (252) (71) (28.2)%
Income from unconsolidated joint ventures 2,461 -- 2,461 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net income $10,382 $ 3,694 $ 6,688 181.1% $ 3,103 $ 3,677 $ (574) (15.6)%
========================================================================================================================
Property Revenues less Property
Operating Expenses $17,453 $ 7,051 $10,402 147.5% $ 7,619 $ 6,792 $ 827 12.2%
========================================================================================================================

41

44

YEARS ENDED DECEMBER 31, 1996 AND 1995

The table below presents selected operating information for the Total Portfolio
and for the Core Portfolio which consists of the 63 Office Properties acquired
prior to January 1, 1995. The Core Portfolio for this comparison includes
Barton Oaks Plaza II and 8383 Wilshire, which were sold in 1997.

Total Portfolio Core Portfolio

Increase/ % Increase/ %
(Dollars in thousands) 1996 1995 (Decrease) Change 1996 1995 (Decrease) Change
- -----------------------------------------------------------------------------------------------------------------------------

Property Revenues $493,396 $356,959 $136,437 38.2% $349,810 $327,017 $22,793 7.0%
Interest income 9,608 8,599 1,009 11.7% -- -- -- --
Fees from noncombined affiliates 5,120 5,899 (779) (13.2)% -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues 508,124 371,457 136,667 36.8% 349,810 327,017 22,793 7.0%
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense 119,595 100,566 19,029 18.9% 85,225 85,371 (146) (0.2)%
Depreciation and amortization 96,237 74,156 22,081 29.8% 71,969 68,226 3,743 5.5%
Property Operating Expenses 201,067 151,488 49,579 32.7% 143,511 137,103 6,408 4.7%
General and administrative 23,145 21,987 1,158 5.3% -- -- -- --
Provision for value impairment -- 20,248 (20,248)(100.0)% -- 20,248 (20,248) (100.0)%
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 440,044 368,445 71,599 19.4% 300,705 310,948 (10,243) (3.3)%
- -----------------------------------------------------------------------------------------------------------------------------
Income before allocation to minority
interests, income from investment
in unconsolidated joint ventures,
gain on sales of real estate and
extraordinary items 68,080 3,012 65,068 2,160.3% 49,105 16,069 33,036 205.6%
Minority interests, net of extraordinary
gain of $20,035 in 1995 for the
total and core portfolios (2,086) (2,129) 43 2.0% (1,733) (2,023) 290 14.3%
Income from unconsolidated joint ventures 2,093 2,305 (212) (9.2)% 2,093 2,305 (212) (9.2)%
Gain on sales of real estate and
extraordinary items 5,338 31,271 (25,933) (82.9)% -- 31,271 (31,271) (100.0)%
- -----------------------------------------------------------------------------------------------------------------------------
Net income $73,425 $34,459 $38,966 113.1% $49,465 $47,622 $1,843 3.9%
=============================================================================================================================
Property Revenues less Property
Operating Expenses $292,329 $205,471 $86,858 42.3% $206,299 $189,914 $16,385 8.6%
=============================================================================================================================

Property Revenues

The increase in Property Revenues in the Core Portfolio resulted from a
combination of occupancy and rental rate increases. The weighted average
occupancy of the Core Portfolio increased from approximately 87.5 % at January
1, 1995 to 94.3% as of December 31, 1996. This increase represents approximately
1.3 million square feet of additional occupancy in the Core Portfolio between
January 1, 1995 and December 31, 1996. Included in Property Revenues for the
Core Portfolio are lease termination fees of $5.6 million and $5.0 million for
the years ended December 31, 1996 and 1995, respectively (these amounts are
included in the other revenue category on the combined statements of
operations). These fees are related to specific tenants who have paid a fee to
terminate their lease obligations before the end of the contractual term of the
lease. Although the Company has historically experienced similar levels of such
termination fees, there is no way of predicting the timing or amounts of future
lease termination fees. The straight-line rent adjustment which is included in
rental revenues for the Core Portfolio for the years ended December 31, 1996 and
1995, was approximately $6.8 million and $10.5 million, respectively. The
straight-line rent adjustment which is included in rental revenues for the Total
Portfolio for the years ended December 31, 1996 and 1995, was approximately
$18.4 million and $12.7 million, respectively. Other income for 1996 also
includes approximately $8.8 million relating to the Company's share of a
litigation settlement.

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45

Interest Income

Interest income for the Total Portfolio increased by approximately $1.0 million
to $9.6 million for the year ended December 31, 1996 compared to $8.6 million
for the year ended December 31, 1995. This increase in interest income is due
primarily to having a larger amount of cash invested in short-term investments
pending the purchase of new acquisitions.

Fees from Noncombined Affiliates

Fee income from the Managed Properties for the Total Portfolio decreased as a
result of disposition activities in 1995 and 1996 which reduced the number of
properties being managed.

Interest Expense

Interest expense increased by approximately $19.0 million for the Total
Portfolio to $119.6 million for the year ended December 31, 1996 compared to
$100.6 million for the year ended December 31, 1995. This increase was primarily
the result of increased debt obtained to finance acquisitions.

Depreciation and Amortization

The increase in depreciation and amortization in the Core Portfolio was related
to depreciation of capital and tenant improvements made at properties in the
Core Portfolio in 1995 and 1996 and the amortization of leasing commissions and
loan fees paid during that time period.

Property Operating Expenses

The increase in Property Operating Expenses in the Core Portfolio resulted from
an increase in maintenance expenses in 1996 and real estate tax refunds received
in 1995, with approximately $1.9 million relating to a single property, which
reduced the tax expense in 1995.

General and Administrative

General and administrative expenses increased by approximately $1.1 million to
$23.1 million for the year ended December 31, 1996 compared to $22.0 million for
the year ended December 31, 1995. General and administrative expenses as a
percentage of total revenues was approximately 4.6% and 5.9% for the years ended
December 31, 1996 and 1995, respectively. While general and administrative
expenses will continue to increase as the size of the Company's portfolio
increases, it is anticipated that general and administrative expenses as a
percentage of total revenues will initially remain stable (or increase
slightly), as the full costs of running a public company are reflected in
operations, and then decrease over time as the Company realizes increased
economies of scale.

Provision for Value Impairment

During 1995, the Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets to Be Disposed Of" which
established accounting standards for the evaluation of the potential impairment
of such assets. This statement was adopted by Equity Office Predecessors as of
January 1, 1995. 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 are
less than its historical net cost basis. Upon determination that a permanent
impairment has occurred, rental properties are reduced to their fair value. As a
result of cash deficits, San Felipe Plaza was evaluated for impairment and
accordingly, during the year ended December 31, 1995, Equity Office Predecessors
recorded a provision for value impairment of approximately $20.2 million, of
which $17.5 million related to the adjustment of investment in real estate and
approximately $2.7 million related to unamortized lease acquisition costs.

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46

Parking Operations

Included in the Total Portfolio numbers above are results of operations from the
stand-alone Parking Facilities, the summarized information for which is
presented below. As of December 31, 1996, the Company owned or had an interest
in 10 stand-alone Parking Facilities with approximately 7,144 spaces. During the
year ended December 31, 1995, the Company acquired three Parking Facilities with
approximately 3,128 spaces. Of the Total Parking Portfolio, there were no
Parking Facilities acquired prior to January 1, 1995, therefore there is not a
Core Portfolio for comparison purposes.

Total Parking Portfolio
years ended December 31,
- -----------------------------------------------------------------------------
(Dollars in thousands) 1996 1995

Property Revenues $10,203 $5,391
Interest income 141 17
- -----------------------------------------------------------------------------
Total Revenues 10,344 5,408
- -----------------------------------------------------------------------------
Interest expense 1,814 937
Depreciation and amortization 1,432 722
Property Operating Expenses 3,152 1,797
- -----------------------------------------------------------------------------
Total expenses 6,398 3,456
- -----------------------------------------------------------------------------
Income before allocation to minority interests 3,946 1,952
Minority interests (252) --
- -----------------------------------------------------------------------------
Net income $3,694 $1,952
=============================================================================
Property Revenues less Property Operating Expenses $7,051 $3,594
=============================================================================

DISPOSITIONS OF PROPERTY

Equity Office Predecessors sold two Office Properties in 1997: Barton Oaks
Plaza II (118,529 net rentable square feet) was sold in January 1997 and 8383
Wilshire (417,463 net rentable square feet) was sold in May 1997. In January
1996, Equity Office Predecessors sold the condominium portion, comprised of a
210-room hotel, at Three Lakeway, a mixed-use property. Below is a summary of
the operations of these Office Properties for the years ended December 31,
1997, 1996 and 1995.

- -----------------------------------------------------------------------------
Years ended December 31,
(Dollars in thousands) 1997 1996 1995

Property Revenues $3,246 $9,959 $9,445
- -----------------------------------------------------------------------------
Interest expense 36 956 4,910
Depreciation and amortization 451 2,286 2,262
Property Operating Expenses 1,468 4,869 3,068
- -----------------------------------------------------------------------------
Total expenses 1,955 8,111 10,240
- -----------------------------------------------------------------------------
Income before gain on sales of real estate
and extraordinary items 1,291 1,848 (795)
Gain on sales of real estate and
extraordinary items 13,088 5,338 --
- -----------------------------------------------------------------------------
Net income (loss) $14,379 $7,186 $(795)
=============================================================================
Property Revenues less
Property Operating Expenses $1,778 $5,090 $6,377
=============================================================================

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Net cash provided from operations represents the primary source of liquidity to
fund distributions, debt service, recurring capital costs and non-revenue
enhancing tenant improvements. Prior to the IPO, the Company made annual
distributions equal to approximately 100% of taxable income. Cash generated in
excess of taxable income (resulting primarily from non-cash items such as
depreciation and amortization) was retained for working capital and to fund
capital improvements and non-revenue enhancing tenant improvements. The Company
intends to make regular quarterly distributions to holders of Series A
Preferred Units, Series B Preferred Units, and Units. The Company established
initial distribution rates as follows: for each Series A Preferred Unit 8.98%
per annum ($2.245 per Unit), for each Series B Preferred Units 5.25% per annum
($2.625 per Unit), and for each Unit $1.20 per annum per Unit.

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47

The Company intends to fund recurring capital costs and non-revenue
enhancing tenant improvements from cash from operations and draws under its
credit facilities. The Company has no contractual obligations for material
capital costs, other than in connection with customary tenant improvements in
the ordinary course of business. The Company also expects that its credit
facilities will provide for temporary working capital, unanticipated cash needs,
and funding of acquisitions.

The anticipated size of the Company's distributions will not allow the
Company, using only cash from operations, to retire all of its debt as it comes
due and, therefore, the Company will be required to repay maturing debt with
funds from debt and/or equity financing.

Debt Financing

The table below summarizes the mortgage debt, unsecured notes and credit
facility indebtedness outstanding at December 31, 1997 and 1996, including a net
premium on mortgage debt (net of accumulated amortization of approximately $2.1
million) of approximately $1.2 million recorded in connection with the Company's
Consolidation and debt assumed in connection with certain of the Company's
acquisitions.

December 31, December 31,
(Dollars in thousands) 1997 1996
--------------------------------------------------------

DEBT SUMMARY:
Balance
Fixed rate $2,219,496 $1,304,075
Variable rate 2,064,821 660,817
--------------------------------------------------------
Total $4,284,317 $1,964,892
========================================================
Percent of total debt:
Fixed rate 51.8% 66.4%
Variable rate 48.2% 33.6%
--------------------------------------------------------
Total 100.0% 100.0%
========================================================
Weighted average interest
Rate at end of period:
Fixed rate 7.5% 7.9%
Variable rate 6.9% 7.3%
--------------------------------------------------------
Weighted average 7.2% 7.7%
========================================================

The variable rate debt shown above bore interest at a 30-day LIBOR-based
floating interest rate. The 30-day LIBOR at December 31, 1997 was 5.7188%
resulting in a weighted average spread over LIBOR at December 31, 1997 of
approximately 1.2%.

Mortgage Financing

Immediately prior to the IPO, the Company had approximately $1.94 billion of
mortgage financing outstanding of which $1.38 billion was fixed rate financing
and $560 million was variable rate financing. The Company utilized the net IPO
proceeds of $564.5 million and approximately $33.9 million of cash on hand to
repay $253.1 million of fixed rate mortgage financing and $345.3 million of
variable rate mortgage debt. In October 1997, the Company closed on the $1.5
Billion Credit Facility and used approximately $236 million of the proceeds to
repay the majority of the Company's remaining variable rate mortgage debt
outstanding at that time. The Company also assumed approximately $627.5 million
of secured debt (excluding the Company's share of unconsolidated secured debt
of approximately $92.4 million) in connection with the Beacon Merger, $248.3
million of secured debt in connection with the acquisition of the Wright
Runstad Portfolio and $14.7 million of secured debt in connection with other
acquisitions. In addition, in December 1997, the Company obtained an $80
million mortgage loan on the three properties located in New Orleans. The
proceeds from this loan were used to repay a portion of the $600 Million Credit
Facility. As of December 31, 1997, the Company's total mortgage debt (excluding
the Company's share of unconsolidated secured debt of approximately $92.4
million) consisted of approximately $2.0 billion of fixed rate debt with a
weighted average interest rate of approximately 7.53% and $23.5 million of

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48

variable rate debt bearing interest at the 30-day LIBOR plus 1%. The Company's
mortgage debt as of December 31, 1997 will mature as follows:

(Dollars in thousands)
--------------------------------------------

1998 $83,792
1999 52,908
2000 151,236
2001 432,962
2002 69,584
Thereafter 1,271,378
--------------------------------------------
Subtotal 2,061,860
Net premium (net of accumulated
amortization of $2.1 million) 1,157
--------------------------------------------
Total $2,063,017
============================================

The instruments encumbering the properties contain customary restrictions and
requirements such as transferability restrictions, payment of taxes on the
property, maintenance of the property in good condition, maintenance of
insurance on the property, prohibition on liens and obtaining lender consent to
leases with material tenants.

Credit Facilities

Lines of Credit

On July 15, 1997, the Company obtained the $600 Million Credit Facility to be
used for acquisitions and other general corporate purposes. Amounts were drawn
on the $600 Million Credit Facility to repay the balance outstanding on the
Equity Office Predecessors credit facility which was terminated when the $600
Million Credit Facility was obtained. The $600 Million Credit Facility matures
on July 15, 2000. The Company paid a commitment fee of approximately $1.0
million at the closing of the facility. Prior to the Company obtaining an
investment grade credit rating on its unsecured debt of BBB- or Baa3 or better
from two or more credit rating agencies, the facility initially bore interest
at LIBOR plus 110 basis points, and required payment of a quarterly unused
commitment fee between .15% and .25% of the unused portion of the facility,
depending on the average unfunded balance of the facility during the quarter.
In November 1997, the facility was amended and the interest rate was reduced to
LIBOR plus 100 basis points. In December 1997, the Company received an
investment grade credit rating on its senior unsecured debt from Moody's
(Baa1), Duff & Phelps (BBB+) and Standard & Poor's (BBB). Pursuant to the terms
of the facility, these credit ratings resulted in the interest rate on the
facility being reduced from LIBOR plus 100 basis points to LIBOR plus 60 basis
points, and the unused commitment fee was replaced with a facility fee equal to
.20% per annum. In addition, a competitive bid option, whereby the lenders
participating in the facility bid on the interest rate to be charged, became
available for up to $250 million of the facility. As of December 31, 1997, the
balance of the $600 Million Credit Facility was approximately $559 million.
Subsequent to year end, the Company repaid $509 million of the line with
available cash and the proceeds of the $1.25 Billion Notes Offering, the $250
Million MOPPRS Offering and the $300 Million PIERS Offering described below,
leaving a balance of $50 million outstanding as of March 3, 1998.

Term Loan Facility

In October 1997, the Company obtained the $1.5 Billion Credit Facility. The $1.5
Billion Credit Facility is available for the acquisition of properties and
general corporate purposes. The $1.5 Billion Credit Facility carried an interest
rate equal to LIBOR plus 100 basis points subject to an increase or decrease
upon the receipt of an investment grade unsecured debt rating. As mentioned
above, the Company received investment grade credit ratings in December 1997
resulting in a reduction in the interest rate to LIBOR plus 80 basis points. The
$1.5 Billion Credit Facility matures on July 1, 1998, and may be extended to
October 1, 1998. The Company paid an underwriting fee on the $1.5 Billion Credit
Facility at closing of approximately $4.9 million. In addition, an unused
commitment fee is payable quarterly in arrears based upon the unused amount of
the $1.5 Billion Credit Facility as follows: .15% per annum if the unused amount
is between 0% to 33%; .20% per annum if the unused amount is more than 33% but
less than 66%; .25% per annum if the unused amount is greater than 66%. In
October 1997, the Company used approximately $236 million of proceeds from the
$1.5 Billion Credit Facility to repay the majority of the variable rate property
mortgage indebtedness outstanding. The Company repaid $150 million on the

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49

$1.5 Billion Credit Facility with proceeds from the $200 million private
placement of Units in October 1997. Under the terms of the facility agreement,
any amounts repaid cannot be drawn. In addition, amounts were drawn from the
$1.5 Billion Credit Facility for property acquisitions and general corporate
purposes. As of December 31, 1997, the outstanding balance on the $1.5 Billion
Credit Facility was approximately $1.044 billion. Subsequent to December 31,
1997, the entire $1.044 billion outstanding was repaid with proceeds received
from the $300 Million PIERS Offering, $1.25 Billion Notes Offering
and $250 Million MOPPRS Offering. The amount available to draw under the $1.5
Billion Credit Facility as of March 3, 1998 was approximately $306 million.

Beacon Lines

The Company assumed $533 million in unsecured debt in connection with the Beacon
Merger relating to the outstanding balance of the Beacon lines of credit at the
time of the closing of the Beacon Merger. The Company repaid $95 million of the
Beacon lines prior to December 31, 1997 and repaid the remaining balance of the
lines in February 1998 with the proceeds of the unsecured $1.25 Billion Notes
Offering, $250 Million MOPPRS Offering and $300 Million PIERS Offering described
below. The lines were terminated upon repayment in February 1998.

Unsecured Notes

$180 Million Notes Offering

In September 1997, the Company completed the $180 Million Notes Offering. The
$180 Million Notes consist of four tranches with maturities from seven to 10
years which were priced at an interest rate spread over the corresponding
Treasury rate. The Company used the proceeds of these notes to repay a portion
of the $600 Million Credit Facility. In addition, the Company terminated $150
million of the $700 million of hedge agreements described below at a cost of
approximately $3.9 million for the $180 Million Notes Offering. This amount will
be amortized to interest expense over the respective term of each tranche.

$1.25 Billion Notes Offering

In February 1998, the Company completed the $1.25 Billion Notes Offering. The
$1.25 Billion Notes consist of four tranches with maturities of five to
20 years which were priced at an interest rate spread over the corresponding
Treasury rate.

$250 Mandatory Par Put Remarketed Securities Offering

In February 1998, the Company issued $250 million of 6.376% MOPPRS, due
February 15, 2012, which are subject to mandatory tender on February 15, 2002.
The MOPPRS are senior, unsecured obligations of the Company.

The table below summarizes the Company's unsecured notes as of March 3,
1998:

Stated Effective
Tranche Amount Rate Rate(A)
- ------------------------------------------------------------------------------

4-Year MOPPRS due 2002 $250,000,000 6.38% 6.42%
5-Year Notes due 2003 300,000,000 6.38% 6.77%
7-Year Notes due 2004 30,000,000 7.24% 7.24%
7-Year Notes due 2005 400,000,000 6.63% 7.06%
8-Year Notes due 2005 50,000,000 7.36% 7.67%
9-Year Notes due 2006 50,000,000 7.44% 7.73%
10-Year Notes due 2007 50,000,000 7.42% 7.69%
10-Year Notes due 2008 300,000,000 6.75% 7.03%
20-Year Notes due 2018 250,000,000 7.25% 7.56%
- ------------------------------------------------------------------------------
$1,680,000,000 6.74% 7.04%
==============================================================================

(A) Includes the cost of the terminated interest rate protection agreements
and offering and transaction costs.

On March 5, 1998, the Company filed a registration statement (the "Exchange
Offer Registration Statement") relating to an offer to exchange the
$180 Million Notes, the $1.25 Billion Notes and the $250 Million MOPPRS for
registered securities of the Company with terms identical in all material
respects to the terms of the existing Notes.

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50

Interest Rate Protection Agreements

In order to limit the market risk associated with variable rate debt, the
Company entered into several interest rate protection agreements. These
agreements effectively converted floating rate debt to a fixed rate basis, as
well as hedged anticipated financing transactions. Net amounts paid or received
under these agreements are recognized as an adjustment to interest expense when
such amounts were incurred or earned. Settlement amounts paid or received under
these agreements are deferred and amortized as an adjustment to interest expense
over the term of the related financing transaction on the straight-line method
which approximates the effective yield method. A summary of the various interest
rate hedge agreements is as follows: (1) On June 4, 1997, the Company entered
into interest rate protection agreements with major U.S. financial institutions
for $700 million of indebtedness. As a result of this arrangement, the Company
essentially "locked into" U.S. Treasury rates in effect as of June 4, 1997, for
$700 million of indebtedness. In August 1997, the Company terminated $150
million of the $700 million of hedge agreements at a cost of $3.9 million. The
terminated agreements pertained to the $180 Million Notes Offering. The portion
of the $180 Million Notes Offering protected by these agreements consisted of
three tranches with maturities of eight, nine and ten years, respectively; (2)
On October 6, 1997, the Company entered into an additional $450 million of
interest rate protection agreements with major U.S. financial institutions based
on the U.S. Treasury rates in effect as of that date. In connection with the
$1.25 Billion Notes Offering and the $250 Million MOPPRS Offering, the Company
terminated $700 million of hedge agreements at a cost of approximately $32.6
million. The cost of the terminated hedge agreements will be amortized to
interest expense over the respective terms of each tranche. The Company
terminated the remaining $300 million of hedge agreements in 1998 at a cost of
approximately $7.4 million which will be reflected as an extraordinary loss; (3)
Equity Office Predecessors entered into an interest rate swap agreement in
October 1995 which effectively fixed the interest rate on a $93.6 million loan
at 6.94% through the maturity of the loan on June 30, 2000.

Equity Office Predecessors sold several interest rate protection agreements
(aggregating $173 million of LIBOR-based agreements) in June 1997 at a cost of
approximately $1.1 million.

Restrictions and Covenants

The $600 Million Credit Facility, the $180 Million Notes Offering, the $1.5
Billion Credit Facility, the $1.25 Billion Notes Offering and the $250 Million
MOPPRS Offering contain certain customary restrictions and requirements such as
total debt to assets ratios, secured debt to total assets ratios, debt service
coverage ratios, minimum ratio of unencumbered assets to unsecured debt and
other limitations.

Equity Securities

Below is a summary of the equity securities issued in connection with various
transactions occurring from and after the IPO:

- - At the time of the IPO, the Company issued 163,555,677 Units.

- - In October 1997, the Trust completed two private placements for a total of
9,685,034 restricted Common Shares and the Trust contributed the net
proceeds to the Company in exchange for a corresponding number of Units.

- - In addition, the Company issued 5,958,030 Units in connection with various
acquisitions during the year (excluding the Wright Runstad acquisition and
Beacon Merger described below).

- - On December 17, 1997, the Company purchased a portfolio of 10 properties from
an affiliate of Wright Runstad and Company, and also made a 30%
noncontrolling investment, through a Noncontinued Subsidiary, in Wright
Runstad Asset Limited Partnership, a development and property management
company. The Trust issued 3,435,688 Common Shares and the Company issued
2,753,127 Units in connection with this transaction. In addition, the Trust
issued five year warrants to purchase an additional 5,000,000 Common Shares
at a price of $39.375 per Common Share.

- - On December 19, 1997, the Company completed the Beacon Merger. In connection
with the merger, the Trust issued 80,596,117 Common Shares, and 8,000,000
8.98% Series A Cumulative Redeemable Preferred Shares with a liquidation
preference of $25 per share and the Company issued an additional 8,570,886
Units. In addition, the Trust assumed the obligation to issue 4,732,822
additional Common Shares upon exercise of Beacon stock options, of which
3,829,739 Common Shares had been issued as of December 31, 1997.

- - During the year, the Trust also issued 298,000 restricted Common Shares to
senior executives, and 5,055 Common Shares to trustees as compensation, and,
as a result, the Company issued a corresponding number of Units to the Trust.

- - In February 1998, the Trust completed the $300 Million PIERS Offering. The
PIERS are convertible at any time at the option of the holder to Common Shares
at a conversion price of $35.70 per Common Share (equivalent to a conversion
ratio of 1.40056 Common Shares for each PIERS). The PIERS are non-callable for
five years with a mandatory call in year 10. The annual dividend of $2.625 per
Common Share will be paid in quarterly dividends of $.65625. Proceeds from the
PIERS Offering were contributed to the Company in exchange for a
corresponding number of Series B Preferred Units and were used to pay down
amounts outstanding under the Company's credit facilities.

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51
CASH FLOWS

Years Ended December 31, 1997 and 1996

For discussion purposes, the cash flows for the year ended December 31, 1997
combine the cash flows of Equity Office Predecessors for the period January 1,
1997 to July 10, 1997 and the cash flows of the Company for the period July 11,
1997 to December 31, 1997. The cash flows for the year ended December 31, 1996
represent solely the cash flows of Equity Office Predecessors. Consequently, the
comparison of the periods provides only limited information regarding the cash
flows of the Company.

Cash and cash equivalents decreased by approximately $181.5 million, to
approximately $228.9 million at December 31, 1997, compared to $410.4 million at
December 31, 1996. This decrease was the result of approximately $2.2 billion
invested in new acquisitions, capital and tenant improvements, and payment of
leasing commissions reduced by approximately $286.7 million of cash generated by
operations and $1.9 billion generated from financing activities (including the
$181.1 million contributed by Equity Office Predecessors). Net cash provided by
operating activities increased by approximately $120.7 million to approximately
$286.7 million from $166.0 million primarily due to the additional cash flow
generated by the increase in the number of properties owned. Net cash used for
investing activities increased by approximately $1.3 billion from $0.9 billion
to $2.2 billion mainly due to an increase in the amount of real estate assets
purchased during the year ended December 31, 1997 compared to the year ended
December 31, 1996. Net cash provided by financing activities increased by
approximately $0.8 billion from $1.1 billion to $1.9 billion due to net proceeds
from the sale of common stock, an increase in proceeds from lines of credit and
unsecured notes, partially offset by a decrease in proceeds from mortgage notes
and an increase in principal payments on mortgage notes and lines of credit.

Years Ended December 31, 1996 and 1995

Cash and cash equivalents increased by approximately $299.3 million, to
approximately $410.4 million at December 31, 1996, compared to $111.1 million at
December 31, 1995. This increase was the result of $166 million of cash
generated by operations, $1.1 billion generated from financing activities,
reduced by $924.2 million invested in new acquisitions, capital and tenant
improvements, and payment of leasing commissions. Net cash provided by operating
activities increased by $72.1 million from $93.9 million to $166.0 million
primarily due to the additional cash flow generated by the increase in the
number of properties owned. Net cash used for investing activities increased by
$543.6 million from $380.6 million to $924.2 million mainly due to an increase
in the amount of real estate assets purchased during 1996 compared to 1995. Net
cash provided by financing activities increased by $781.1 million from $276.5
million to $1.1 billion due to an increase in capital contributions and to an
increase in proceeds received on mortgage notes, and a net decrease in principal
payments on mortgage notes and revolving lines of credit offset in part by
distributions to minority interest partners.

CAPITAL IMPROVEMENTS

The Company has a history of acquiring and repositioning undercapitalized and
poorly managed properties, many of which have required significant capital
improvements due to deferred maintenance and/or required substantial renovation
to enable them to compete effectively. A number of the properties also have had
significant amounts of shell space requiring build out at the time of
acquisition. The Company takes these capital improvements and revenue enhancing
tenant improvements into consideration at the time of acquisition in determining
the amount of equity and debt financing required to purchase the property and
fund the improvements. Therefore, capital improvements made during the first
five years after acquisition of these properties are treated separately from
typical recurring capital expenditures, non-revenue enhancing tenant
improvements and leasing commissions required once these properties have reached
stabilized occupancy, and deferred maintenance and renovations planned at the
time of acquisition have been completed. Capital improvements (including tenant
improvements and leasing commissions for shell space) for the years ended
December 31, 1997, 1996 and 1995 were approximately $78.0 million, $100.3
million and $48.8 million, respectively or $1.19, $3.49 and $2.16 per square
foot, respectively. These amounts include approximately $31.2 million, $47.3
million and $16.8 million for the years ended December 31, 1997, 1996 and 1995,
respectively, for the redevelopment of the 28 State Street Building.

The Company considers capital expenditures to be recurring expenditures
relating to the ongoing maintenance of the Office Properties. The table below
summarizes capital expenditures for the years ended December 31, 1997, 1996 and
1995. The capital expenditures set forth below are not necessarily indicative of
future capital expenditures.

- ------------------------------------------------------------------------------------------
December 31, December 31, December 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------

Number of Office Properties 258 81 71
Rentable Square Feet (in millions) 65.3 28.7 22.6
Annual Capital Expenditures per square foot $.08 $.16 $.14
- ------------------------------------------------------------------------------------------

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TENANT IMPROVEMENTS AND LEASING COMMISSION COSTS

The Company distinguishes its tenant improvements and leasing commissions
between those that are revenue enhancing (which are required for space which is
vacant at the time of acquisition or that has been vacant for nine months or
more) and non-revenue enhancing (which are required to maintain the revenue
being generated from currently leased space). The table below summarizes the
revenue enhancing and non-revenue enhancing tenant improvements and leasing
commissions for the years ended December 31, 1997, 1996 and 1995. The number of
Office Properties shown below for all periods presented excludes Barton Oaks
Plaza II and 8383 Wilshire which were sold in January 1997 and May 1997,
respectively. The tenant improvement and leasing commission costs set forth
below are presented on an aggregate basis and do not reflect significant
regional variations and, in any event, are not necessarily indicative of future
tenant improvement and leasing commission costs:

- ------------------------------------------------------------------------------------------
December 31, December 31, December 31,
1997 1996 1995
- ------------------------------------------------------------------------------------------

Number of Office Properties 258 81 71
Rentable square feet (in millions) 65.3 28.7 22.6
Revenue enhancing tenant improvements and
leasing commissions:
Amounts (in thousands) $18,272 $31,534 $20,981
Per square foot improved $19.74(1) $30.26(2) $22.89
Per total square foot $.27(1) $1.10(2) $.93
Non-revenue enhancing tenant improvements and
leasing commissions:
Renewal space
Amounts (in thousands) $8,334 $15,486 $10,008
Per square foot improved $5.73(1) $6.79(2) $7.82
Per total square foot $.12(1) $.54(2) $.44
Retenanted space
Amounts (in thousands) $14,806 $31,987 $8,446
Per square foot improved $15.10(1) $20.64(2) $19.80
Per square foot total $.22(1) $1.11(2) $.37
- ------------------------------------------------------------------------------------------
Total non-revenue enhancing (in thousands) $23,140 $47,473 $18,454
Per square foot improved $9.50(1) $12.39 $10.81
Per total square foot $.35(1) $1.65 $.81

(1) The per square foot calculations as of December 31, 1997 are calculated
taking the total dollars anticipated to be expended on tenant improvements for
tenants taking occupancy during the year ended December 31, 1997, divided by the
total square footage being improved or total building square footage. The actual
amounts expended as of December 31, 1997 for revenue enhancing and non-revenue
enhancing renewal and released space were $18.4 million, $12.4 million and $33.5
million, respectively.

(2) The per square foot calculations as of December 31, 1996 are calculated
taking the total dollars anticipated to be expended on tenant improvements in
process at December 31, 1996, divided by the total square footage being improved
or total building square footage. The actual amounts expended as of December 31,
1996 for revenue enhancing and non-revenue enhancing renewal and retenanted
space were approximately $30.6 million, $14 million and $20.8 million,
respectively.

YEAR 2000

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.

The Company does not believe that the impact of the recognition of the year
2000 by its information and operating technology systems will have a material
adverse effect on the Company's financial condition and results of operations.
The majority of any necessary system changes will be upgraded in the normal
course of business. The Company has initiated formal communications with all of
its significant suppliers to determine the extent to which the Company's
interface systems are vulnerable to those third parties' failure to remediate
their own year 2000 issues. There can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted and would
not have an adverse effect on the Company's systems.

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INFLATION

Substantially all of the 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 the office leases provide for fixed increases in base rent or
indexed calculations (based on the Consumer Price Index or other measures). The
Company believes that inflationary increases in expenses will be offset, in
part, by the expense reimbursements and contractual rent increases described
above.

FUNDS FROM OPERATIONS

Management of the Company believes Funds from Operations, as defined by the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"), to be an
appropriate measure of performance for an equity REIT. While Funds from
Operations 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 generally accepted accounting principles ("GAAP"), and it should not
be considered as an alternative to these indicators in evaluating liquidity or
operating performance of the Company.

The following table reflects the calculation of the Company's and Equity
Office Predecessor's combined Funds from Operations for the years ended December
31, 1997, 1996 and 1995 on an historical basis.

Years ended December 31,
(Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------

Income before income from investment in unconsolidated
joint ventures, gain on sales of real estate,
extraordinary items and minority interests $140,681 $68,080 $3,012

Add back (deduct):
(Income) allocated to minority interests (1,701) (2,086) (2,129)
Income from investment in unconsolidated joint ventures 5,155 2,093 2,305
Provision for value impairment -- -- 20,248
Depreciation and amortization (real estate related) 130,465 92,373 72,668
Net amortization of loan premiums and discounts 2,324 -- --
Preferred dividends (649) -- --
- ------------------------------------------------------------------------------------------------
Funds from Operations before effect of adjusting
straight-line rental revenue and expenses included in
Funds from Operations to a cash basis(1) 276,275 160,460 96,104
- ------------------------------------------------------------------------------------------------
Deferred rental revenue (27,740) (18,427) (12,663)
Deferred rental expense 2,206 788 --
- ------------------------------------------------------------------------------------------------
Funds from Operations excluding straight-line rental
revenue and expense adjustments $250,741 $142,821 $83,441
================================================================================================
CASH FLOW PROVIDED BY (USED FOR):
Operating Activities $286,714 $165,975 $93,878
Investing Activities $(2,163,340) $(924,227) $(380,615)
Financing Activities(2) $1,876,197 $1,057,551 $276,513

(1) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. The Company believes that Funds from
Operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides investors with
an indication of the ability of the Company to incur and service debt, to
make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations 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 the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP and should not
be considered as an alternative to net income (determined in accordance
with GAAP) as an indication of the Company's financial performance or to
cash flow from operating activities (determined in accordance with GAAP) as
a measure of the Company's liquidity, nor is it indicative of funds
available to fund the Company's cash needs, including its ability to make
cash distributions.

(2) For the year ended December 31, 1997, cash flow provided by financing
activities includes approximately $181.1 million in cash contributed from
Equity Office Predecessors in connection with the Consolidation.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedule on page F-1 of this Form
10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.

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COMPENSATION COMMITTEE. The members of the Compensation Committee, none
of whom is either an officer or employee of the Trust, are Ms. Rosenberg and
Messrs. Harper and McKown. Mr. Harper is the Chairman of the Compensation
Committee. The Compensation Committee determines compensation for the Trust's
executive officers. The Compensation Committee reviews and makes
recommendations concerning proposals by management with respect to
compensation, bonuses, employment agreements and other benefits and policies
respecting such matters for the executive officers of the Trust. The
Compensation Committee held four meetings in 1997.

AUDIT COMMITTEE. The members of the Audit Committee, none of whom is
either an officer or employee of the Trust, are Messrs. Dobrowski, Goodyear and
Reinsdorf. Mr. Goodyear is the Chairman of the Audit Committee. The Audit
Committee makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and nonaudit fees and reviews
the adequacy of the Trust's (and the Company's) internal accounting controls.
The Audit Committee held two meetings in 1997.

The Trust does not have a nominating committee.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires the Company to report, based on
its review of reports to the SEC about transactions in its Units furnished to
the Company and written representations of the trustees and executive officers
of the Company, that, for 1997, each of Messrs. Zell, Callahan, Steele,
Kincaid, Stevens, Johnson, Dobrowski, Harper, Linneman, Reinsdorf, Goodyear
and McKown and Ms. Rosenberg did not file a Form 3 reporting his or her
initial ownership of Units. These Forms 3 will be filed by each of the
foregoing.

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF THE TRUST'S BOARD OF TRUSTEES; PAYMENT IN COMMON SHARES

The Trust paid each of its non-employee trustees a pro rated fee in 1997
of $20,000. For the full year of 1998, the Trust expects to pay each of its
non-employee trustees an annual fee of $40,000. In addition, non-employee
trustees who serve on the Executive Committee, Compensation Committee or Audit
Committee receive an additional $1,000 per annum for each committee on which
they serve. Committee chairs receive an additional $500 per annum. These fees
have been and generally are expected to be paid in Common Shares. Trustees who
are employees of the Trust are not paid any trustees' or committee fees. The
Trust reimburses its trustees for travel expenses incurred in connection with
their activities on behalf of the Trust.

Upon the effective date of the Trust's initial public offering in July 1997
(the "IPO"), Mr. Zell and Ms. Rosenberg received grants of options to purchase
200,000 and 50,000 Common Shares, respectively, at $21.00 per share, which
options will vest in three equal annual installments (rounded to the nearest
whole Common Share) over three years. After the IPO, each trustee (other than
Messrs. Zell and Callahan and Ms. Rosenberg) received a grant of options to
purchase 10,000 Common Shares at the IPO price. Under the Trust's Amended and
Restated 1997 Employee Share Option and Share Award Plan (the "Employee Plan"),
each trustee then in office (including Messrs. Zell and Callahan and Ms.
Rosenberg for the years after 1997) will receive an annual grant of options to
purchase 10,000 Common Shares at the then current market price on the date of
the meeting of the Board of Trustees held immediately after the annual meeting
of the Trust Shareholders. These grants of options to purchase 10,000 Common
Shares will vest as follows: options for 3,333 Common Shares will vest six
months after the grant date, options for an additional 3,333 Common Shares will
vest on the first anniversary of the grant date, and options for the remaining
3,334 Common Shares will vest on the second anniversary of the grant date.
Trustees who perform other functions for the Trust may receive additional
options under the Employee Plan.

On February 17, 1998, the Compensation Committee granted fully vested
options to purchase 500,000 Common Shares to Mr. Zell, 94,500 Common Shares to
each of Ms. Rosenberg and Mr. Harper and 47,250 Common Shares to each of
Messrs. Dobrowski, Linneman, Reinsdorf, Goodyear and McKown, at an exercise
price of $29.50 per share.

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EXECUTIVE COMPENSATION

The following tables show information with respect to the annual
compensation (including option grants) for services rendered to the Trust for
the fiscal year ended December 31, 1997, by the chief executive officer and
those persons who were, at December 31, 1997, the other four most highly
compensated executive officers of the Trust.

SUMMARY COMPENSATION TABLE

Annual Compensation Long-Term Compensation
---------------------------- ----------------------------------------------
Awards Payouts
-------------------------- ------------
Restricted Securities Long-Term
Share Underlying Incentive All Other
Name and Salary Bonus Award(s) Options Payouts Compensation
Principal Position Year ($)(1) ($)(2) ($)(3) Granted (#)(4) ($) ($)(5)
- --------------------- ---- ------ -------- --------- -------------- --------- --------------

Timothy H. Callahan,
President and Chief
Executive Officer 1997 $600,000 $1,050,000 4,976,875 450,000 0 $9,600

Michael A. Steele,
Chief Operating
Officer and Executive
Vice President-Real
Estate Operations 1997 265,000 525,000 1,523,375 250,000 0 9,600

Richard D. Kincaid,
Executive Vice
President and Chief
Financial Officer 1997 235,000 465,000 1,523,375 250,000 0 9,600

Stanley M. Stevens,
Executive Vice
President and Chief
Legal Counsel 1997 325,000 375,000 627,000 225,000 0 9,600

Jeffrey L. Johnson,
Senior Vice President
and Chief Investment
Officer 1997 225,000 275,000 330,000 183,500 0 9,600

(1) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of these
officers.

(2) Cash bonuses are reported in the year earned, even if paid in a
subsequent year.

(3) On September 22, 1997 and December 16, 1997, the Compensation Committee
of the Board of Trustees granted restricted shares to certain of the
Trust's executive officers pursuant to the Employee Plan. Mr. Callahan was
granted awards of 85,000 and 70,000 Common Shares, respectively, and Mr.
Steele and Mr. Kincaid were each granted awards of 17,000 and 30,000
Common Shares, respectively. In addition, on December 16, 1997, the
Compensation Committee of the Board of Trustees granted Mr. Stevens an
award of 19,000 Common Shares and Mr. Johnson an award of 10,000 Common
Shares. These awards will vest over a five-year period after being
granted (50% after year three, 25% after year four, and 25% after year
five). The dollar value shown in the table for the restricted Common
Shares is based on the closing prices of the Common Shares on September
22, 1997 and December 16, 1997, the dates of grant. This valuation does
not take into account the diminution in value attributable to the
restrictions applicable to the Common Shares. The total number of
restricted Common Shares held by each named executive officer and the
value of such restricted shares at December 31, 1997, the last trading day
of the year, was as follows:

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Number of
Restricted Value at
Name Common Shares December 31, 1997 ($)
- ---- ---------------- ---------------------
Timothy H. Callahan 155,000 $4,892,188
Michael A. Steele 47,000 1,483,438
Richard D. Kincaid 47,000 1,483,438
Stanley M. Stevens 19,000 599,688
Jeffrey L. Johnson 10,000 315,625

Distributions are paid on all restricted Common Shares at the same rate as
on unrestricted Common Shares.

(4) Securities underlying options are reported in the year granted.

(5) Includes employer matching and profit-sharing contributions to the
Trust's 401(k) Retirement Savings Plan.

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OPTION GRANTS IN LAST FISCAL YEAR

PERCENT OF
TOTAL
OPTIONS
GRANTED TO POTENTIAL REALIZABLE VALUE AT
NUMBER OF EMPLOYEES ASSUMED ANNUAL RATES OF COMMON SHARE
SECURITIES AND EXERCISE PRICE APPRECIATION FOR OPTION
UNDERLYING TRUSTEES PRICE PER TERM(1)
OPTIONS IN FISCAL COMMON ------------------------------------
NAME GRANTED(2) YEAR SHARE(3) EXPIRATION DATE 5%(4) 10%(5)
---- ----------- ----------- ---------- --------------- ---------- ----------

Timothy H. Callahan 200,000 9.6% $21.00 July 7, 2007 $2,642,000 $6,694,000
250,000 33.00 December 16, 2007 5,187,500 13,147,500

Michael A. Steele 150,000 5.3 21.00 July 7, 2007 1,981,500 5,020,500
100,000 33.00 December 16, 2007 2,075,000 5,259,000

Richard D. Kincaid 150,000 5.3 21.00 July 7, 2007 1,981,500 5,020,500
100,000 33.00 December 16, 2007 2,075,000 5,259,000

Stanley M. Stevens 150,000 4.8 21.00 July 7, 2007 1,981,500 5,020,500
75,000 33.00 December 16, 2007 1,556,250 3,944,250

Jeffrey L. Johnson 125,000 3.9 21.00 July 7, 2007 1,651,250 4,183,750
58,500 33.00 December 16, 2007 1,213,875 3,076,515

(1) In accordance with the rules of the SEC, these amounts are the
hypothetical gains or "option spreads" that would exist for the respective
options based on assumed rates of annual compound share price appreciation
of 5% and 10% from the date the options were granted over the full option
term. No gain to the optionee is possible without an increase in the price
of Common Shares, which would benefit all Shareholders.

(2) All options were granted at the fair market value of the Common Shares at
the date of grant. Options granted are for a term of not more than ten
years from the date of grant and vest in three equal annual installments
(rounded to the nearest whole Common Share) over three years.

(3) The exercise price for the initial grant of options on July 7, 1997 was
based on the IPO price. The exercise price for the grant of options on
December 16, 1997 was the closing price of the Common Shares on the date
of grant.

(4) An annual compound share price appreciation of 5% from the IPO price of
$21.00 and the December 16, 1997 closing price of $33.00 per Common Share
yields a price of $34.21 and $53.75 per Common Share, respectively.

(5) An annual compound share price appreciation of 10% from the IPO price of
$21.00 and the December 16, 1997 closing price of $33.00 per Common Share
yields a price of $54.47 and $85.59 per Common Share, respectively.

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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Fiscal Year-End(#) Fiscal Year-End($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
- ------------------- --------------------- ------------------

Timothy H. Callahan 0/450,000 0/2,112,500

Michael A. Steele 0/250,000 0/1,584,375

Richard D. Kincaid 0/250,000 0/1,584,375

Stanley M. Stevens 0/225,000 0/1,584,375

Jeffrey L. Johnson 0/183,500 0/1,320,313

- -----------------------
(1) Represents the market value of a Common Share at December 31, 1997
($31.5625) less the exercise price of in-the-money options.

Notwithstanding anything to the contrary set forth in any of the Trust's
filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that might incorporate
future filings, including this Proxy Statement, in whole or in part, the
Compensation Committee Report on Executive Compensation presented below and the
Performance Graph following such report shall not be incorporated by reference
into any such future filings.

COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION

The Compensation Committee of the Board consists of the independent
trustees of the Trust listed below. The Committee's functions include the
review and approval of the Trust's executive compensation structure and overall
benefits program. The purpose of the Trust's executive compensation program is
to establish and maintain a performance and achievement oriented environment
throughout the Trust so that the interests of its executives are aligned with
the interests of the Trust's Shareholders. The program emphasizes the
development of the Trust so as to achieve and sustain above average growth in
earnings with excellence in management. With this emphasis in mind, the
program is designed so that executives may earn higher than average total
compensation (base salary plus bonus) for an above-average job performance. At
the end of 1997, the Trust engaged the services of an independent consulting
firm, FPL Associates Consulting, to advise the Trust as to the
appropriate methods and amounts of compensation for its executive officers. The
Trust's overall compensation structure is reviewed annually, using outside
executive compensation surveys of the (i) real estate industry in general; (ii)
REITs in particular; and (iii) other large profitable corporations outside the
real estate area, to ensure that it remains competitive. There are four major
components of executive compensation: (i) base salary; (ii) bonuses; (iii)
performance based shares; and (iv) share option awards. Each of these
components is further discussed below.

Base Salary. Positions are classified within the salary structure on the
basis of assigned responsibilities and on an evaluation of the latest survey
information available, as to appropriate compensation levels. The Trust has
established a range of earnings opportunities for each position within the
Trust. The mid-point of the salary range will be dependent upon the market
value of the position responsibilities and the value that the Trust determines
is appropriate to reinforce the achievement of its goals and objectives. Each
salary range has three defined points of

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reference: (i) minimum or the lowest salary to be paid to a qualified
incumbent; (ii) mid-point or the middle position of the salary range
established with reference to the market value and objectives of the Trust; and
(iii) maximum or the highest amount to be paid to an incumbent in this
position. Where salary information is unavailable for a particular position,
salary grade assigned is based on other positions having similar
responsibilities within the Trust and in companies with comparable revenues.
Individual base salaries are reviewed at least annually. Salary increases are
granted based on each executive's performance as well as such executive's
position in the applicable salary range.

Bonus. The objectives underlying the Trust's bonus program are to
motivate all employees by more closely linking bonus awards to value added for
the Trust's Shareholders, and promote a culture of performance and ownership
among the Trust's managers. Executive officers' mid-term incentives are
accomplished by tying the executive officers' performance to the continued
performance of the Trust. The Trust accomplishes this by awarding the Chief
Executive Officer and each other executive officer some of his or her bonus, as
determined by the Compensation Committee, in Common Shares. The Compensation
Committee believes that having its executive officers "invest" a portion of
their bonuses in Common Shares facilitates better alignment of the executive
officer's compensation with the performance of the Trust's Common Shares.

Performance Management Plan. The Performance Management Plan is designed
to focus the Trust's key employees eligible under this plan on achieving a high
level of total return (i.e., share appreciation and distributions) to the
Trust's Shareholders, and to encourage such key employees to continue their
employment with the Trust. The Performance Management Plan recognizes three
aspects of performance which are corporate, team and individual. Corporate
refers to the overall Trust's performance measures and is the primary dimension
utilized to determine executive and senior management incentive awards. Team
refers to key functional or departmental performance measures. This dimension
is utilized to link individuals to the performance of their collective work
group or assigned geographic territory, and is intended to foster cooperation
within the Trust. Individual performance refers to specific performance
measures developed for each individual participant in the plan. This dimension
is intended to motivate individuals to achieve a high level of individual
success and personal contribution. As a general rule, the more senior
positions have their annual incentives weighted more heavily toward the
achievement of corporate and team performance. Performance levels for each
performance measure are identified that correspond to a threshold, target and
maximum performance level. Threshold performance signifies a solid achievement
but falls short of objectives. This performance level must be achieved before
any bonus is earned. Target performance signifies achievement which meets the
business objectives set by the Trust. High performance signifies a significant
achievement and would be considered exceptional performance by industry
standards.

Share Options. The Compensation Committee recognizes that while the bonus
program provides rewards for positive short-term and mid-term performance, the
interests of Shareholders are best served by giving key employees the
opportunity to participate in the appreciation of the Trust's Common Shares
through the granting of share options. The Compensation Committee believes
that, over an extended period of time, share performance will, to a meaningful
extent, reflect executive performance and that such arrangements further
reinforce management goals and incentives to achieve Shareholder objectives.
All employee share options granted to date vest over a period of three years at
a rate of one third of such grant each year, thereby encouraging the retention
of key employees who receive awards. The amount of share options awarded each
employee was determined utilizing the aforementioned employee compensation
surveys, an assessment of the employee's achieved performance goals and
objectives and the size of previous grants made to the employee.

Chief Executive Officer's Compensation. Based on the executive
compensation surveys and the Trust's financial performance in 1997, the
Compensation Committee believes that the salary, bonus, performance shares and
option grants of Mr. Callahan, the Chief Executive Officer and President of the
Trust, are fair and competitive and that the Trust's overall executive
compensation ranks in the upper quartile among the general real estate industry
and among REITs. This ranking correlates with the excellent financial
performance of the Trust in 1997 when compared against that of other REITs.
The Trust accomplished its main goals in 1997 by increasing its net income and
funds from operations per Common Share, strengthening its balance sheet and
diversifying its portfolio across the United States, which provides stability
in cash flows and insulation against regional economic downturns. During Mr.
Callahan's tenure as Chief Executive Officer and President, the Trust has
become the largest REIT

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owner and operator of office buildings. The key performance measure the
Compensation Committee used to determine Mr. Callahan's 1997 compensation was
that the Trust's financial performance in 1997 was in the top quartile in
almost every financial category as compared to other REITs, due in large part
to Mr. Callahan's leadership, foresight and experience. The Compensation
Committee noted the following factors in support of its conclusion:

- Distributions per Common Share of $1.20 on an
annualized basis;
- Continued superior return to the Trust's common
Shareholders as the price of the Trust's Common Shares
appreciated 52.89% during 1997;
- Strong financial performance, with a $115.8 million
increase in funds from operations over 1996 and a total
market capitalization of $13.3 billion at December 31, 1997;
and
- Continued growth in the square footage of owned office
buildings from 29.2 million in 1996 to 65.3 million in 1997,
a 124% increase.

Based on the Trust's excellent performance in 1997, the Compensation
Committee believes that the compensation program properly rewards its employees
for achieving improvements in the Trust's performance and serving the interest
of its Shareholders.

Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a Federal income tax deduction for compensation in
excess of $1 million paid in any year to the Trust's Chief Executive Officer and
four other highest paid executive officers who are employed by the Trust on the
last day of a taxable year. Section 162(m), however, does allow a deduction for
payments of "performance based" compensation which includes most share option
and other incentive arrangements, the material terms of which have been approved
by Shareholders. Awards under the Trust's Employee Plan may, but need not,
satisfy the requirements of Section 162(m). Options under the Employee Plan that
have an exercise price equal to grant date fair market value and that vest based
solely on continued employment qualify as "performance-based compensation."
However, options and other awards under the Employee Plan that are conditioned
on achievement of performance targets do not qualify as performance-based
compensation, because Shareholders have not been asked to vote on those targets.
The Trust believes that because it qualifies as a REIT under the Code and
therefore is not subject to Federal income taxes, the payment of compensation
that does not satisfy the requirements of Section 162(m) would not have an
adverse financial consequence to the Trust, provided the Trust distributes 100%
of its taxable income.

Respectfully submitted,

James D. Harper, Jr., Chairman
Sheli Z. Rosenberg
David K. McKown

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee members are Messrs. Harper and McKown and Ms.
Rosenberg.

Mr. Zell and Ms. Rosenberg serve as members of the board of directors of
EGI, as well as numerous other non-public companies owned in whole or in part
by Mr. Zell or his affiliates (the "Equity Group Companies"), which companies
do not have compensation committees. Ms. Rosenberg is the President and Chief
Executive Officer of EGI and, with respect to the Equity Group Companies, the
directors and executive officers of those companies include Mr. Zell and Ms.
Rosenberg.

For a description of certain transactions with Board members or their
affiliates, see "Certain Relationships and Related Transactions."

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 1, 1998, information regarding
the beneficial ownership of the Company's Units by each person, in addition to
the Trust which owned 89.62% of the oustanding Units, known by the Company to
be the beneficial owner of more than five percent of the Company's outstanding
Units, each trustee of the Trust, the Trust's five most highly compensated
executive officers at year end, and by the trustees and named executive
officers as a group.

NUMBER OF UNITS PERCENTAGE OF ALL
NAME (1) BENEFICIALLY OWNED UNITS (2)
- ------------------------------ --------------------- -------------------
Samuel Zell (3) 6,048,130 2.17%
Sheli Z. Rosenberg(4) 6,048,130 2.17
H. Jon Runstad(5) 2,698,445 *
Edwin N. Sidman(6) 825,808 *
Timothy H. Callahan -- --
Michael A. Steele -- --
Richard D. Kincaid -- --
Stanley M. Stevens -- --
Jeffrey L. Johnson -- --
Thomas E. Dobrowski -- --
James D. Harper, Jr. -- --
Peter Linneman -- --
Jerry M. Reinsdorf -- --
William M. Goodyear -- --
David K. McKown -- --
All trustees and named executive
officers as a group (15 persons) 9,572,883 3.43%

- -----------------------
* Less than 1%.

(1) The business address of each of these individuals is Two North Riverside
Plaza, Chicago, Illinois 60606.

(2) Assumes a total of 279,321,945 Units outstanding as of March 1, 1998.

(3) Includes 6,048,130 Units held by EGI Holdings, Inc., EGIL Investments,
Inc., Samstock/ZFT, L.L.C. and Samstock/Alpha, L.L.C., which may be deemed
to be beneficially owned by Mr. Zell; however, Mr. Zell disclaims
beneficial ownership of 1,868,719 Units.

(4) Includes 6,048,130 Units held by EGI Holdings, Inc., EGIL Investments,
Inc., Samstock/ZFT, L.L.C. and Samstock/Alpha, L.L.C., which may be deemed
to be beneficially owned by Ms. Rosenberg as she is a director, and/or
executive officer of the ultimate general partners of such entities, or a
director, and/or executive officer of such entities; however, Ms.
Rosenberg disclaims beneficial ownership of 6,048,130 of such Units.

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(5) Includes 2,615,700 Units held by Wright Runstad Asset Management L.P. and
Wright Runstad Holdings L.P., which may be deemed to be beneficially
owned by Mr. Runstad.

(6) Includes 652,718 Units held by The Leventhal Family Limited Partnership
(the "Partnership"). Paula Sidman, Mr. Sidman's spouse, is a general
partner of the Partnership. Mrs. Sidman disclaims beneficial ownership of
the Units beneficially owned by the Partnership except for the Units in
which she has a pecuniary interest.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FORMATION TRANSACTIONS

BACKGROUND. The Trust was formed pursuant to the consolidation (the
"Consolidation") in July 1997 of the ownership of the Properties (as defined
below) owned by the four Zell/Merrill Lynch institutional real estate
investment funds (each a "ZML Fund" and collectively, the "ZML Funds") and the
office property management business of EOH and the office property asset
management business and the parking asset management business of EGI and EOH
relating to the Properties that were contributed to the Trust in the
Consolidation (the "Management Business") owned by the Equity Group (as defined
below). The ZML Funds were formed during the period from 1988 to 1996 to
acquire, improve, own, manage, operate and dispose of primarily office
properties.

Each ZML Fund consisted of (i) a limited partnership organized under the
laws of the State of Illinois (each a "ZML Opportunity Partnership"), (ii) a
general partner of such ZML Opportunity Partnership (each a "ZML Partner")
which was controlled by Mr. Zell and in which Merrill Lynch & Co. ("Merrill
Lynch") was a limited partner and (iii) a Delaware corporation or Maryland real
estate investment trust (each a "ZML REIT"), as the case may be, that served as
the majority limited partner in ZML Opportunity Partnerships I and II and the
sole limited partner in ZML Opportunity Partnerships III and IV. There were
several institutional investor limited partners in ZML Opportunity Partnerships
I and II (collectively, "Investor Limited Partners") in addition to ZML REITs I
and II. All of the Investor Limited Partners were given an opportunity to
convert their interest into an interest in the corresponding ZML REIT in
connection with the Consolidation (which interests were subsequently converted
into Common Shares as described below), and all but one Investor Limited
Partner (in ZML Opportunity Partnership II) elected to do so.

CONSOLIDATION. In advance of or simultaneous with the IPO, the Trust and
the Company engaged in the transactions described below, which were designed to
consolidate the ownership of the office properties (the "Office Properties")
owned by the ZML Funds or in which the ZML Funds had an interest, the
stand-alone parking facilities owned by the Trust (the "Parking Facilities" and
together with the Office Properties, the "Properties") and the Management
Business, to facilitate the IPO and to enable the Trust to qualify as a REIT for
federal income tax purposes commencing with the taxable year ending December 31,
1997.

- The ZML Opportunity Partnerships, the predecessor owners of
the Office Properties and Parking Facilities that comprised the
Company's initial portfolio, contributed to the Company all of their
interests in such Office Properties and Parking Facilities.

- The ZML REITs (each a majority or sole limited partner of a
ZML Opportunity Partnership) merged into the Trust, with the Trust
succeeding to their interest in, and also becoming the managing
general partner of, the ZML Opportunity Partnerships.

- Certain entities (collectively, the "Equity Group") owned
directly or indirectly by certain trusts (together with certain
partnerships comprised of such trusts, the "Equity Group Owners")
established for the benefit of the families of Mr. Zell and of Mr.
Robert Lurie, the deceased former

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partner of Mr. Zell, contributed to the Company substantially
all of the interests in the Management Business.

- Shareholders in the ZML REITs received Common Shares in
exchange for their interests in the ZML REITs.

- Partners in the ZML Opportunity Partnerships (including the
Trust as the successor to the ZML REITs) received Units (to be
distributed over the two-year period ending July 11, 1999). Such
Units are intended to correspond in value to, and be exchangeable
commencing two years following the closing of the IPO for, Common
Shares or, at the Trust's option, cash equal to the fair market
value of such Common Shares.

- Units in the Company were issued to the Equity Group in
exchange for the Management Business, which Units will be
exchangeable for Common Shares, or, at the Trust's option, the cash
equivalent thereof, commencing one year following the closing of the
IPO.

- The Management Business made a distribution to the Equity
Group Owners of cash on hand from pre-closing operations, which
funds were not acquired by the Trust pursuant to the Consolidation.
Affiliates of Mr. Zell received approximately $11.4 million of such
distribution.

- The Company and EOH transferred that portion of the
Management Business that relates to property management of the
properties in which the Company does not own an interest and the
Properties which are held in partnerships or subject to
participation agreements with unaffiliated third parties to Equity
Office Properties Management Corp. ("EOP Management Corp."), in
which the Company now owns nonvoting stock representing 95% of the
equity interest and EOH owns all of the voting stock, representing
5% of the equity interest.

LEASES AND PARKING OPERATIONS

The Trust leases office space owned by Two North Riverside Plaza Joint
Venture, a partnership comprised of trusts established for the benefit of the
families of Mr. Zell and Mr. Lurie, at Two North Riverside Plaza, Chicago,
Illinois 60606. In addition, EGI, an entity owned by the Equity Group Owners,
and its affiliates has in the past provided the Trust and its predecessors with
certain administrative, office facility services and other services with
respect to certain aspects of the Trust's business, including, but not limited
to, financial and accounting services, tax services, investor relations, and
other services. The Trust paid approximately $12,786,000 and $12,684,700 during
the years ended December 31, 1996 and 1997, respectively, to EGI and its
affiliates for such office space and services, which amounts were calculated to
approximate a market rental rate for the office space and the actual cost of
providing these services. The independent members of the Board of Trustees
annually review and approve the rates charged by EGI for services rendered to
the Trust.

EQR and certain other affiliates of the Trust lease space in certain of
the Office Properties. The terms of the leases are consistent with terms of
unaffiliated tenants' leases. Total rents and other amounts paid by affiliates
under their respective leases were approximately $2,959,600, $3,471,500 and
$2,657,500 for the years ended December 31, 1997, 1996 and 1995, respectively.

SZ Parking Limited Partnership, an affiliate of the Equity Group Owners,
has an indirect 10% limited partnership interest in Standard Parking Limited
Partnership ("SPLP") which manages the parking operations of certain Office
Properties. Management believes amounts paid to SPLP are equivalent to market
rates for such services.

The Trust entered into various lease agreements with SPLP or affiliates of
SPLP whereby SPLP or its affiliates lease certain Parking Facilities from the
Trust. Certain of these lease agreements provide SPLP or its

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affiliates with annual successive options to extend the term of the lease
through various dates. The rent paid in the years ended December 31, 1997, 1996
and 1995 under these lease agreements was approximately $11,044,500, $3,161,500
and $1,691,600, respectively. In accordance with certain of these leases, the
y be obligated to make an early termination payment if agreement is not reached
as to rent amounts to be paid.

EQUITY GROUP DISTRIBUTIONS AND FEES

The partners of the ZML Partners, affiliates of the Equity Group Owners,
have received distributions and fees from the Trust through their ownership
interests in the ZML Partners of approximately $30,322,500 and $8,603,600 for
the years ended December 31, 1997 and 1996, respectively.

WRIGHT RUNSTAD ACQUISITION

In connection with the acquisition of ten Office Properties from Wright
Runstad Holdings L.P.; Wright Runstad Asset Management, L.P. and Mellon Bank,
N.A., as Trustee for First Plaza Group Trust ("First Plaza") (the "Wright
Runstad Acquisition"), H. Jon Runstad was elected as a trustee of the Trust
effective January 1, 1998. Mr. Runstad received, directly and indirectly,
552,968 Units in exchange for his interest in the ten office properties and
Wright Runstad Asset Limited Partnership. Also, Thomas E. Dobrowski, a
trustee of the Trust, is the managing director of real estate and alternative
investments of GMIMCO, an investment advisor to several pension funds of GM and
its subsidiaries and to several clients also controlled by GM, including First
Plaza, which received $192.4 million in cash, 3,435,688 Common Shares and
warrants to purchase 3,350,000 Common Shares in exchange for First Plaza's
interest in the Office Properties acquired in the Wright Runstad Acquisition.

MISCELLANEOUS

In March 1997, the general partners of ZML Opportunity Partnerships I and
II made certain payments to the Internal Revenue Service ("IRS") in connection
with closing agreements pursuant to which the IRS agreed that neither ZML REIT
I nor ZML REIT II would be disqualified as a REIT as a result of certain
technical violations of the REIT provisions of the Code. The amounts of such
payments were $15,000 and $5,270,000, respectively, for ZML REITs I and II.

EOP Management Company has entered into third-party management contracts,
on terms equivalent to third-party transactions, with respect to properties not
owned by the Trust, but that are owned or controlled by the Equity Group.
Income recognized for similar services rendered for the years ended December
31, 1997, 1996, and 1995, was approximately $4,949,600, $5,120,000, and
$5,899,000, respectively.

Rosenberg & Liebentritt, P.C., a law firm in which Ms. Rosenberg, a
trustee, was a principal until September 11, 1997, received legal fees from the
Trust of $3,005,700, $3,480,500 and $3,230,100 for the years ended December 31,
1997, 1996 and 1995, respectively.

Certain services for the Trust's tenants that may not be permissibly
undertaken by a REIT are conducted through a service corporation owned entirely
by affiliates of the Equity Group Owners. The Trust pays such service
corporation a fee for such services. The Trust has no control over, or
ownership interest in, such service corporation, which operates as an
independent contractor. The Trust may terminate such services at any time upon
30-days' notice.

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

(a)(1) and (2) Financial Statements and Schedules: See Index to
Financial Statements and Schedule on page F-1 of this Form 10-K.

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(a)(3) Exhibits:

Exhibit No. Description
----------- -----------
4.1 * Indenture, dated as of September 2, 1997, between the Company and State
Street Bank and Trust Company
4.2 * First Supplemental Indenture, dated as of February 2, 1998, between the
Company and State Street Bank and Trust Company
4.3 * $200,000,000 6.375% Note due 2003. A $100,000,000 6.375% Note due
2003, identical in all material respects other than principal amount
to the Note filed as Exhibit 4.3, has not been filed.
4.4 * $200,000,000 6.625% Note due 2005. Another $200,000,000 6.625% Note
due 2005, identical in all material respects to the Note filed as
Exhibit 4.4, has not been filed.
4.5 * $200,000,000 6.750% Note due 2008. A $100,000,000 6.750% Note due
2008, identical in all material respects other than principal amount
to the Note filed as Exhibit 4.5, has not been filed.
4.6 * $200,000,000 7.250% Note due 2018. A $50,000,000 7.250% Note due 2018,
identical in all material respects other than principal amount to the
Note filed as Exhibit 4.6, has not been filed.
4.7 * $200,000,000 6.376% MandatOry Par Put Remarketed Securities(SM) due
2012. A $50,000,000 6.376% MandatOry Par Put Remarketed
Securities(SM) due 2012, identical in all material respects to
the note filed as Exhibit 4.7, has not been filed.

4.8 * $30,000,000 7.24% Senior Note due 2004
4.9 * $50,000,000 7.36% Senior Note due 2005
4.10 * $50,000,000 7.44% Senior Note due 2006
4.11 * $50,000,000 7.41% Senior Note due 2007
4.12 * Registration Rights Agreement, dated as of February 12, 1998, among the
Company, and (i) in the case of the 6.375% Notes due 2003, the 6.625%
Notes due 2005 and the 7.250% Notes due 2018, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc.
("Lehman"), J.P. Morgan Securities Inc. ("J.P. Morgan"), Salomon
Brothers Inc ("Salomon") and UBS Securities LLC, (ii) in the case of
the 6.750% Notes due 2008, Merrill Lynch, Lehman, J.P. Morgan and
BancAmerica Robertson Stephens and (iii) in the case of the 6.376%
MandatOry Par Put Remarketed Securities(SM) due February 15, 2012,
Merrill Lynch
10.1 * Agreement of Limited Partnership of the Company, as amended
10.2 * Contribution Agreement, dated as of April 30, 1997, among the Company
and the persons named therein
10.3 Agreement and Plan of Merger, dated September 15, 1997, as amended,
among the Company, the Trust, Beacon and Beacon Partnership
(Incorporated herein by reference to Exhibit 2.1 to the Trust's
Current Report on Form 8-K dated September 15, 1997)
24.1 Power of Attorney (included in signature page)
27.1 Financial Data Schedule

__________________
* Incorporated herein by reference to the same-numbered exhibit to the
Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.

(b) Reports on Form 8-K:
- Dated October 1, 1997 including Item 2 (Acquisition or
Disposition of Assets), Item 5 (Other Events) and Item 7
(Financial Statements and Exhibits). Item 7 included the
following financial statements and reports:

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67
- Pro forma condensed combined financial statements of the
Company as of and for the six months ended June 30, 1997
and for the year ended December 31, 1996.
- Combined Statements of Revenue and Certain Expenses of
the Columbus America Properties for the year ended
December 31, 1996 (audited) and the period from January
1, 1997 through July 31, 1997 (unaudited) and a Report of
Independent Auditors dated September 3, 1997.
- Combined Statements of Revenue and Certain Expenses of
the Prudential Properties for the year ended December 31,
1996 (audited) and the period from January 1, 1997
through August 31, 1997 (unaudited) and a Report of
Independent Auditors dated September 3, 1997.
- Statements of Revenue and Certain Expenses of 550 South
Hope Street for the year ended March 31, 1997 (audited)
and the period from April 1, 1997 through July 31, 1997
(unaudited) and a Report of Independent Auditors dated
September 24, 1997.
- Combined Statements of Revenue and Certain Expenses of
the Acorn Properties for the year ended December 31, 1996
(audited) and the period from January 1, 1997 through
July 31, 1997 (unaudited) and a Report of Independent
Auditors dated September 9, 1997.
- Combined Statements of Revenue and Certain Expenses for
10 & 30 South Wacker Drive for the year ended December
31, 1996 (audited) and the period from January 1, 1997
through July 31, 1997 (unaudited) and a Report of
Independent Auditors dated September 5, 1997.
- Dated December 17, 1997 including Item 2
(Acquisition or Disposition of Assets), Item 5 (Other Events)
and Item 7 (Financial Statements and Exhibits). Item 7
included the following financial statements and reports:
- Pro forma condensed combined financial statements of the
Company as of and for the nine months ended September 30,
1997 and for the year ended December 31, 1996.
- Statements of Revenue and Certain Expenses of One
Lafayette Centre for the year ended December 31, 1996
(audited) and the period from January 1, 1997 through
July 31, 1997 (unaudited) and a Report of Independent
Auditors dated September 5, 1997.
- Combined Statements of Revenue and Certain Expenses of
the Acorn Properties for the year ended December 31, 1996
(audited) and the period from January 1, 1997 through
July 31, 1997 (unaudited) and a Report of Independent
Auditors dated September 9, 1997.
- Combined Statements of Revenue and Certain Expenses of
the PPM Properties for the year ended December 31, 1996
(audited) and the period from January 1, 1997 through
August 31, 1997 (unaudited) and a Report of Independent
Auditors dated January 22, 1997.
- Combined Statements of Revenue and Certain Expenses of
the Wright Runstad Properties for the year ended
September 30, 1996 (audited) and the period from October
1, 1996 through August 31, 1997 (unaudited) and a Report
of Independent Auditors dated September 26, 1997.

(c) Exhibits:
See Item 14(a)(3) above.

(d) Financial Statement Schedules:
None.

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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 31st day of March, 1998.

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 31st day of March, 1998.

Each person whose signature appears below hereby constitutes and appoints
Samuel Zell and Timothy H. Callahan, and each of them, his attorney-in-fact and
agent, with full power of substitution and resubstitution for him in any and
all capacities, to sign any or all amendments to this annual report on Form
10-K for the fiscal year ended December 31, 1997, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto such attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying
and confirming all that such attorney-in-fact and agent or his substitutes may
do or cause to be done by virtue hereof.

SIGNATURE TITLE
--------- -----

/s/ Timothy H. Callahan President, Chief Executive Officer and
- -------------------------- Trustee (principal executive officer)
Timothy H. Callahan

/s/ Richard D. Kincaid Chief Financial Officer
- -------------------------- (principal financial officer and
Richard D. Kincaid principal accounting officer)

/s/ Samuel Zell Chairman of the Board of Trustees
- --------------------------
Samuel Zell

/s/ Sheli Z. Rosenberg Trustee
- --------------------------
Sheli Z. Rosenberg

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SIGNATURE TITLE
--------- -----

/s/ Thomas E. Dobrowski Trustee
- --------------------------
Thomas E. Dobrowski

/s/ James D. Harper, Jr. Trustee
- --------------------------
James D. Harper, Jr.

/s/ Peter Linneman Trustee
- --------------------------
Peter Linneman

/s/ Jerry M. Reinsdorf Trustee
- --------------------------
Jerry M. Reinsdorf

/s/ William M. Goodyear Trustee
- --------------------------
William M. Goodyear

/s/ David K. McKown Trustee
- --------------------------
David K. McKown

Trustee
- --------------------------
H. Jon Runstad

/s/ Edwin N. Sidman Trustee
- --------------------
Edwin N. Sidman

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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------

4.1 * Indenture, dated as of September 2, 1997, between the Company and State
Street Bank and Trust Company
4.2 * First Supplemental Indenture, dated as of February 2, 1998, between the
Company and State Street Bank and Trust Company
4.3 * $200,000,000 6.375% Note due 2003. A $100,000,000 6.375% Note due
2003, identical in all material respects other than principal amount
to the Note filed as Exhibit 4.3, has not been filed.
4.4 * $200,000,000 6.625% Note due 2005. Another $200,000,000 6.625% Note
due 2005, identical in all material respects to the Note filed as
Exhibit 4.4, has not been filed.
4.5 * $200,000,000 6.750% Note due 2008. A $100,000,000 6.750% Note due
2008, identical in all material respects other than principal amount
to the Note filed as Exhibit 4.5, has not been filed.
4.6 * $200,000,000 7.250% Note due 2018. A $50,000,000 7.250% Note due 2018,
identical in all material respects other than principal amount to the
Note filed as Exhibit 4.6, has not been filed.
4.7 * $200,000,000 6.376% MandatOry Par Put Remarketed Securities(SM) due 2012.
A $50,000,000 6.376% MandatOry Par Put Remarketed Securities(SM) due
2012, identical in all material respects to the note filed as Exhibit
4.7, has not been filed.
4.8 * $30,000,000 7.24% Senior Note due 2004
4.9 * $50,000,000 7.36% Senior Note due 2005
4.10 * $50,000,000 7.44% Senior Note due 2006
4.11 * $50,000,000 7.41% Senior Note due 2007
4.12 * Registration Rights Agreement, dated as of February 12, 1998, among the
Company, and (i) in the case of the 6.375% Notes due 2003, the 6.625%
Notes due 2005 and the 7.250% Notes due 2018, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc.
("Lehman"), J.P. Morgan Securities Inc. ("J.P. Morgan"), Salomon
Brothers Inc ("Salomon") and UBS Securities LLC, (ii) in the case of the
6.750% Notes due 2008, Merrill Lynch, Lehman, J.P. Morgan and
BancAmerica Robertson Stephens and (iii) in the case of the 6.376%
Mandatory Par Put Remarketed Securities(SM) due February 15, 2012, Merrill
Lynch
10.1 * Agreement of Limited Partnership of the Company, as amended
10.2 * Contribution Agreement, dated as of April 30, 1997, among the Company
and the persons named therein
10.3 Agreement and Plan of Merger, dated September 15, 1997, as amended,
among the Company, the Trust, Beacon and Beacon Partnership
(incorporated herein by reference to Exhibit 2.1 to the Trust's
Current Report on Form 8-K dated September 15, 1997)
24.1 Power of Attorney (included in signature page)
27.1 Financial Data Schedule

__________________
* Incorporated herein by reference to the same-numbered exhibit to the
Trust's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.

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PART III

ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company does not have any trustees or executive officers.

The following table sets forth certain information with respect to the
trustees, executive officers and senior officers of the Trust, which is the
managing general partner of the Company, as of March 31, 1998.

NAME AGE OFFICE HELD
- ------------------- ----- -----------------------------------------------------

Samuel Zell 56 Chairman of the Board, Trustee (term expires in 1998)
Timothy H. Callahan 47 President, Chief Executive Officer, Trustee (term
expires in 1999)
Michael A. Steele 51 Chief Operating Officer and Executive Vice President
-- Real Estate Operations
Richard D. Kincaid 36 Executive Vice President, Chief Financial Officer
Stanley M. Stevens 49 Executive Vice President, Chief Legal Counsel and
Secretary
Gary A. Beller 51 Executive Vice President - Parking Facilities
Jeffrey L. Johnson 38 Chief Investment Officer and Senior Vice President
-- Investments
David H. Crawford 41 Senior Vice President -- Administration and General
Counsel for Property Operations
Sybil J. Ellis 44 Senior Vice President -- Acquisitions
Frank Frankini 43 Senior Vice President -- Design & Construction
Frances P. Lewis 44 Senior Vice President -- Corporate Communications
Diane M. Morefield 39 Senior Vice President -- Finance/Capital Markets
David H. Naus 43 Senior Vice President -- Acquisitions
Michael E. Sheinkop 35 Senior Vice President -- Portfolio Management
Peter D. Johnston 40 Senior Vice President -- Southwest Region
Peter H. Adams 51 Senior Vice President -- Pacific Region
Kim J. Koehn 42 Senior Vice President -- West Region
Christopher P. Mundy 36 Senior Vice President -- Northwest Region
Arvid J. Povilaitis 37 Senior Vice President -- Central Region
Mark E. Scully 39 Senior Vice President -- Southeast Region
Sheli Z. Rosenberg 56 Trustee (term expires in 2000)
Thomas E. Dobrowski 54 Trustee (term expires in 1998)
James D. Harper, Jr. 64 Trustee (term expires in 1999)
Peter Linneman 47 Trustee (term expires in 2000)
Jerry M. Reinsdorf 62 Trustee (term expires in 1998)
William M. Goodyear 49 Trustee (term expires in 1999)
David K. McKown 60 Trustee (term expires in 2000)
H. Jon Runstad 56 Trustee (term expires in 1998)
Edwin N. Sidman 55 Trustee (term expires in 1998)

The following is a biographical summary of the experience of the trustees,
executive officers and senior officers of the Trust. Officers serve at the
pleasure of the Board.

Samuel Zell has been a trustee and Chairman of the Board of the Trust
since October 1996. For more than five years, Mr. Zell has served as Chairman
of the Board of Directors of Equity Group Investments, Inc., an owner, manager
and financier of real estate and corporations ("EGI"). For more than five
years, Mr. Zell has served as Chairman of the Boards of Directors of Anixter
International Inc., a provider of integrated network and cabling solutions
("Anixter"), American Classic Voyages Co., an owner and operator of cruise
lines ("ACV"), and Manufactured Home Communities, Inc., a REIT specializing in
the ownership and management of manufactured home communities ("MHC"). Since
March 1993, Mr. Zell has served as Chairman of the Board of Trustees of Equity
Residential Properties Trust, a REIT that owns and operates multifamily
residential properties ("EQR"). Since January 1995, Mr. Zell has served as a
director of TeleTech Holdings, Inc., a provider of telephone and computer based
customer care solutions. Since April 1996, Mr. Zell has served as a director
of Ramco Energy
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plc, an independent oil company based in the United Kingdom. Since March 1997,
Mr. Zell has served as a director of Chart House Enterprises, Inc., an owner
and operator of restaurants. Since April 1997, Mr. Zell has served as the
Chairman of the Board of Directors of Jacor Communications, Inc., an owner of
radio stations ("Jacor"). Since March 1998, Mr. Zell has served as a director
of Fred Meyer, Inc., a large domestic food retailer and operator of
multi-department stores.

Timothy H. Callahan has been a trustee and Chief Executive Officer and
President of the Trust since October 1996. Mr. Callahan served on the Board of
Managers and was the Chief Executive Officer of Equity Office Holdings, L.L.C
("EOH"), and Equity Office Properties, L.L.C., a property manager of office
buildings ("EOP LLC"), from August 1996 until October 1997. Mr. Callahan was
Executive Vice President and Chief Financial Officer of EGI from January 1995
until August 1996, was Executive Vice President of EGI from November 1994
through January 1995 and was Senior Vice President of EGI from July 1992 until
November 1994. Mr. Callahan was a Director of MHC from May 1996 until October
1997. Mr. Callahan was Vice President -- Finance of the Edward J. DeBartolo
Corporation, a developer, owner and operator of shopping centers, in
Youngstown, Ohio, from July 1988 until July 1992. Mr. Callahan was employed by
Chemical Bank, a commercial bank located in New York, New York, from July 1973
until March 1987.

Michael A. Steele has been Chief Operating Officer and Executive Vice
President -- Real Estate Operations for the Trust since February 1998 and was
Executive Vice President -- Real Estate Operations of the Trust from October
1996 until February 1998. Mr. Steele was President and Chief Operating Officer
of EOP LLC from July 1995 until October 1997. Mr. Steele was Executive Vice
President of EOH from July 1995 until October 1997. Mr. Steele was President
and Chief Operating Officer of Equity Office Properties, Inc., a subsidiary of
EGI which provided real estate property management services ("EOP, Inc."), from
November 1993 through October 1995. Mr. Steele was President and Chief
Executive Officer of First Office Management, a former division of Equity
Property Management, Inc., that provided real estate property management
services ("FOM"), from June 1992 until October 1993. Mr. Steele was Senior
Vice President and regional director for Rubloff, Inc., a full service real
estate company in Chicago, Illinois, from April 1987 until June 1992.

Richard D. Kincaid has been Executive Vice President and Chief Financial
Officer of the Trust since March 1997 and was Senior Vice President and Chief
Financial Officer of the Trust from October 1996 until March 1997. Mr. Kincaid
was Senior Vice President and Chief Financial Officer of EOH from July 1995
until October 1997. Mr. Kincaid was Senior Vice President of EGI from February
1995 until July 1995. Mr. Kincaid was Senior Vice President of the Yarmouth
Group, a real estate investment company in New York, New York, from August 1994
until February 1995. Mr. Kincaid was Senior Vice President -- Finance for EGI
from December 1993 until July 1994. Mr. Kincaid was Vice President -- Finance
for EGI from August 1990 until December 1993. Mr. Kincaid was Vice President
for Barclays Bank PLC, a commercial bank located in Chicago, Illinois, from
August 1987 until August 1990.

Stanley M. Stevens has been Executive Vice President, Chief Legal Counsel
and Secretary of the Trust since October 1996. Mr. Stevens was Executive Vice
President and General Counsel of EOH from September 1996 until October 1997.
Mr. Stevens was a vice president of Rosenberg & Liebentritt, P.C., a law firm
in Chicago, Illinois, from December 1993 until September 1996. Mr. Stevens was
a partner at Rudnick & Wolfe, a national law firm based in Chicago, Illinois,
from October 1987 until December 1993.

Gary A. Beller has been Executive Vice President of the Trust since March
1997. Mr. Beller has been President of Equity Capital Holdings L.L.C., the
general partner of Equity Capital Holdings, L.P., an asset manager of parking
facilities, since August 1997. Mr. Beller has been President of Equity Hotel
Properties, Inc., a subsidiary of EGI which manages hotels, since November
1993. Mr. Beller was Senior Vice President -- Redevelopment of Equity Assets
Management, Inc., a former subsidiary of EGI which provided real estate asset
management services ("EAM") from October 1987 until March 1997.

Jeffrey L. Johnson has been Chief Investment Officer and Senior Vice
President -- Investments for the Trust since February 1998 and was Senior Vice
President -- Investments for the Trust from October 1996 until February 1998.
Mr. Johnson was Senior Vice President -- Asset Management for EOH from July
1996 until October 1997. Mr. Johnson was Senior Vice President -- Acquisitions
for EOH from July 1995 until July 1996. Mr. Johnson was Senior Vice President
- -- Acquisitions of EOP, Inc. from December 1994 until July 1995 and was Vice
President -- Acquisitions of EOP, Inc. from November 1993 until December 1994.
Mr. Johnson was Vice President -- Acquisitions of EAM from September 1990 until
October 1993. Mr. Johnson was an Investor and Asset Manager for Aldrich
Eastman Waltch, Inc., a real estate advisor in Boston, Massachusetts, from
August 1987 until August 1990. Mr. Johnson was Senior Project Manager in the
real estate investment group for First Wachovia, Inc., a commercial bank in
Winston-Salem, North Carolina, from July 1983 until August 1987.

31

73

David H. Crawford has been Senior Vice President -- Administration and
General Counsel for Property Operations of the Trust since March 1997. Mr.
Crawford was Senior Vice President and Associate General Counsel of EOH from
September 1996 until October 1997. Mr. Crawford was Senior Vice President and
General Counsel of EOH from July 1995 until September 1996 and of EOP LLC from
September 1996 until July 1997. Mr. Crawford was Of Counsel to Rosenberg &
Liebentritt, P.C. from February 1991 until December 1996. Mr. Crawford was
Senior Vice President and General Counsel of EOP, Inc. from November 1993 until
July 1995. Mr. Crawford was Vice President and General Counsel of FOM from
February 1991 until November 1993. Mr. Crawford was an associate at
Kirkland & Ellis, a national law firm based in Chicago, Illinois, from June 1988
until February 1991.

Sybil J. Ellis has been Senior Vice President -- Acquisitions of the Trust
since March 1997. Ms. Ellis was Senior Vice President -- Acquisitions of EOH
from July 1995 until October 1997. Ms. Ellis was Senior Vice President --
Acquisitions of EOP, Inc. from July 1994 through July 1995 and was Vice
President -- Acquisitions of EOP, Inc. from November 1993 until July 1994. Ms.
Ellis was Vice President -- Acquisitions of EAM from March 1990 until October
1993.

Frank Frankini has been Senior Vice President -- Design and Construction
of the Trust since March 1997. Mr. Frankini was Senior Vice President --
Design and Construction of EOP LLC from July 1995 until October 1997. Mr.
Frankini was Senior Vice President -- Engineering and Operations of EOP, Inc.
from November 1993 until July 1995. Mr. Frankini was Senior Vice President --
Engineering and Operations of FOM from October 1990 until October 1993. Mr.
Frankini was National Director of Engineering and Operations for Rubloff, Inc.,
a full service real estate company in Chicago, Illinois, from October 1984
until October 1990.

Frances P. Lewis has been Senior Vice President -- Corporate
Communications of the Trust since April 1997. Ms. Lewis was Vice President --
Corporate Communications of EGI from November 1994 until April 1997. Ms. Lewis
was Vice President -- Publications of EGI from September 1988 until October
1994.

Diane M. Morefield has been Senior Vice President -- Finance/Capital
Markets of the Trust since July 1997. Ms. Morefield was Senior Manager in the
Corporate Finance practice of Deloitte & Touche, a public accounting and
consulting firm, from November 1994 until July 1997. Ms. Morefield was
Executive Vice President of the Fordham Company, a real estate development
company located in Chicago, Illinois, from November 1993 until November 1994.
Ms. Morefield was Team Leader for the Real Estate Group division, in the
Midwest, of Barclays Bank PLC from August 1983 until November 1993.

David H. Naus has been Senior Vice President -- Acquisitions of the Trust
since March 1997. Mr. Naus was Senior Vice President -- Acquisitions for EOH
from December 1995 until October 1997. Mr. Naus was Vice President --
Acquisitions of EOH from July 1995 until December 1995. Mr. Naus was Vice
President -- Acquisitions of EOP, Inc. from November 1993 until July 1995. Mr.
Naus was Vice President -- Acquisitions of EAM from November 1992 until
November 1993. Mr. Naus was Vice President of EAM from October 1988 until
November 1992.

Michael E. Sheinkop has been Senior Vice President -- Portfolio Management
of the Trust since November 1997. Mr. Sheinkop was Senior Vice President --
Divisional Manager of EOH from March 1997 until October 1997 and for the Trust
from March 1997 through December 1997. Mr. Sheinkop was Senior Vice President
- -- Asset Management of EOH from December 1995 until February 1997. Mr.
Sheinkop was Vice President -- Asset Management of EOH from July 1995 until
December 1995. Mr. Sheinkop was Vice President -- Asset Management of EOP,
Inc. from November 1993 until July 1995. Mr. Sheinkop was Vice President of
EAM from March 1990 until November 1993.

Peter H. Adams has been Senior Vice President - Pacific Region of the
Trust since March 1998 and was Regional Vice President -- Pacific Region of the
Trust from March 1997 until February 1998. Mr. Adams was Vice President --
Group Manager of EOH from July 1994 until March 1997. Mr. Adams was President
of Adams Equities, a private real estate consulting firm, from 1990 to 1994.

Peter D. Johnston has been Senior Vice President -- Southwest Region of
the Trust since March 1998 and was Regional Vice President -- Southwest Region
from January 1998 until February 1998. Mr. Johnston was Senior Vice President
- -- National Accounts from April 1993 until February 1998.

Kim J. Koehn has been Senior Vice President -- West Region of the Trust
since March 1998 and was Regional Vice President -- West Region from March 1997
until February 1998 and was also Regional Vice President -- Southwest Region
from March 1997 until December 1997. Mr. Koehn was Senior Vice President
- --Asset Management of EOH from December 1995 to February 1997. Mr. Koehn was a
Vice President of EOH from June 1993 until December 1995.

32

74

Christopher P. Mundy has been Senior Vice President -- Northeast Region of
the Trust since March 1998, and was Regional Vice President -- Northeast Region
from July 1997 until February 1998. Mr. Mundy was Regional Director -- Leasing
of EOH from November 1991 until July 1997.

Arvid A. Povilaitis has been Senior Vice President -- Central Region of
the Trust since March 1998 and was Regional Vice President -- Central Region
from March 1997 until February 1998. Mr. Povilaitis was Vice President --
Asset Management of EOH from August 1994 until February 1997. Mr. Povilaitis
was Vice President -- Investment Properties of Strategic Realty Advisors, Inc.,
a real estate and advisory company, from January 1994 until August 1994. Mr.
Povilaitis was employed at VMS Realty Partners, a sponsor of public and private
real estate limited partnerships, from January 1983 until January 1994, most
recently serving as Second Vice President.

Mark E. Scully has been Senior Vice President -- Southeast Region of the
Trust since March 1998 and was Regional Vice President for the Southeast Region
from March 1997 until February 1998. Mr. Scully was Vice President -- Regional
Leasing Director of EOH from January 1995 until February 1997. Mr. Scully was
Regional Leasing Director or EOH from September 1991 until December 1994.

Sheli Z. Rosenberg has been a trustee of the Trust since March 1997.
Since November 1994, Ms. Rosenberg has been Chief Executive Officer and
President of EGI. From 1980 until September 1997, Ms. Rosenberg was a
principal of the law firm of Rosenberg & Liebentritt, P.C. For more than five
years, Ms. Rosenberg has served on the Board of Directors of each of the
following companies: EGI, AVC, and Anixter. Since March 1993, Ms. Rosenberg
has been a trustee of EQR. Since 1994, Ms. Rosenberg has been a director of
Jacor and since April 1997, has served as the Vice Chairman of the Board of
Directors of Jacor. Ms. Rosenberg was a vice president of First Capital
Benefit Administrators, Inc., a wholly owned indirect subsidiary of Great
American Management and Investment, Inc., ("FCBA") which filed a Chapter 7
Bankruptcy petition on January 3, 1995, resulting in FCBA's liquidation. On
November 15, 1995, an order closing the FCBA bankruptcy case was entered by the
Bankruptcy Court for the Central District of California. Since August 1986,
Ms. Rosenberg has been a director of MHC. Since April 1997, Ms. Rosenberg has
been a director of Illinois Power Co., a supplier of electricity and natural
gas in Illinois, the holding company of which is Illinova Corp., of which Ms.
Rosenberg is also a director. Since May 1997, Ms. Rosenberg has been a
director of CVS Corporation, a drugstore chain.

Thomas E. Dobrowski has been a trustee of the Trust since July 1997.
Since December 1994, Mr. Dobrowski has been the managing director of real
estate and alternative investments of General Motors Investment Management
Corporation ("GMIMCO"), an investment advisor to several pension funds of
General Motors Corporation ("GM") and its subsidiaries and to several other
clients also controlled by GM. Since March 1993, Mr. Dobrowski has been a
director of MHC. Since April 1994, Mr. Dobrowski has been a director of Red
Roof Inns, Inc., an owner and operator of hotels. Since May 1997, Mr.
Dobrowski has been a director of Taubman Centers Inc., an equity REIT focused
on regional shopping centers.

James D. Harper, Jr. has been a trustee of the Trust since July 1997.
Since 1982, Mr. Harper has been president of JDH Realty Co., a real estate
development and investment company. Since 1988, he has been a co-managing
partner in AH Development, S.E. and AH HA Investments, S.E., special limited
partnerships formed to develop over 400 acres of land in Puerto Rico. Since
May 1993, Mr. Harper has been a trustee of EQR. Since 1993, Mr. Harper has
been a trustee of Urban Land Institute. Since 1997, Mr. Harper has been a
director of Burnham Pacific Properties Inc., a REIT that owns, develops and
manages commercial real estate properties in California. Since June 1997, Mr.
Harper has been a director of American Health Properties, Inc., a REIT
specializing in health care facilities.

Peter Linneman has been a trustee of the Trust since July 1997. Dr.
Linneman has been a Professor of Finance and Public Policy at the Wharton
School of the University of Pennsylvania since 1979, the Albert Sussman
Professor of Real Estate at the Wharton School since 1989 and a director of the
Wharton Real Estate Center since 1986. In addition, he is an Urban Land
Institute Research Fellow and a member of the National Association of Real
Estate Investment Trusts. Since 1986, Dr. Linneman has been a trustee of
Universal Health Realty Trust, a REIT that invests in health care and human
service related facilities. Since 1992, Dr. Linneman has been a trustee of
Kranzco Realty Trust, a REIT that owns, develops, operates, leases, manages,
and invests in neighborhood and community shopping centers and free-standing
properties. From 1993 until 1997, Dr. Linneman was a trustee of Gables
Residential Properties Trust, a self-administered, self-managed residential
property REIT. Since 1996, Dr. Linneman has served as a director of Nevada
Investment Holdings, a full service real estate company which focuses on
community shopping centers. From 1993 until 1996, Dr. Linneman was Chairman of
the Board of Directors of Rockefeller Center Properties, Inc., a REIT which
previously held the first mortgage loan relating to Rockefeller Center in New
York City.

33

75

Jerry M. Reinsdorf has been a trustee of the Trust since July 1997. For
more than five years, Mr. Reinsdorf has been the Chairman of the Chicago White
Sox baseball team, the Chairman of the Chicago Bulls basketball team, and a
partner of Bojer Financial Ltd., a real estate investment company located in
Northbrook, Illinois. Since 1996, Mr. Reinsdorf has served as a director of
LaSalle National Bank, N.A., a commercial bank in Chicago, Illinois, the
holding company of which is LaSalle National Corporation, of which Mr.
Reinsdorf is also a director. Since 1993, Mr. Reinsdorf has been a trustee of
Northwestern University in Evanston, Illinois. Mr. Reinsdorf is a stockholder,
officer and director of Jerbo Holdings I, Inc. ("Jerbo") which is the corporate
general partner of a limited partnership which is the general partner of
Bojer Realty Limited Partnership-I ("Bojer Realty"). Bojer Realty was a
limited partner of Smith Dairy Partnership, Ltd. ("Smith Dairy") and a
stockholder of the corporate general partner of Smith Dairy which filed a
voluntary petition for relief under Chapter 11 Bankruptcy on January 24, 1994.
On February 14, 1995, an order dismissing the Smith Dairy bankruptcy case was
entered by the Bankruptcy Court for the Southern District of Florida.

William M. Goodyear has been a trustee of the Trust since July 1997. Since
July 1997, Mr. Goodyear has been Chairman of Bank of America, Illinois, the
Midwest business development unit of BankAmerica Corporation, a commercial
bank. Mr. Goodyear was Chairman and Chief Executive Officer of Bank of America
Illinois, a subsidiary of BankAmerica Corporation, from September 1994 until
June 1997, at which time it merged with Bank of America NT & SA, a subsidiary
of BankAmerica Corporation. For more than two years prior to September 1994,
Mr. Goodyear was a Vice Chairman and a member of the Board of Directors of
Continental Bank Corporation, the parent company of Continental Bank, N.A., a
commercial bank which merged into Bank of America Illinois in September 1994.
Since June 1992, Mr. Goodyear has been a member of the Board of Trustees of the
Museum of Science and Industry in Chicago, Illinois. Mr. Goodyear has been a
member of the Board of Trustees of the University of Notre Dame since May 1996
and of Rush-Presbyterian St. Lukes Medical Center in Chicago, Illinois, since
June 1996. Mr. Goodyear has been a member of the Advisory Council for the
University of Chicago Graduate School of Business since September 1995.

David K. McKown has been a trustee of the Trust since July 1997. Since
1993, Mr. McKown has been Group Executive of the Diversified Finance and Real
Estate Lending Unit of BankBoston, N.A., a commercial bank. Mr. McKown was
director of Loan Review for BankBoston, N.A. from 1990 until 1993. Mr. McKown
serves as a Director of Electrolux Corporation.

H. Jon Runstad was appointed a trustee of the Trust effective January 1,
1998, pursuant to a Right to Purchase Agreement dated as of December 16, 1997,
executed in connection with the Wright Runstad Acquisition. Since 1971, Mr.
Runstad has been President and Chief Executive Officer of Wright Runstad &
Company, a Seattle, Washington based owner, manager and developer of office
buildings in the western United States, primarily in the Pacific Northwest.
Since 1987, Mr. Runstad has served as a member of the Board of Regents for the
University of Washington. Since July 1975, Mr. Runstad has served as a trustee
for the Downtown Seattle Association.

Edwin N. Sidman was appointed a trustee of the Trust effective March 1,
1998, pursuant to the Merger Agreement. Mr. Sidman served as Chairman of the
Board and a director of Beacon from 1994 until the consummation of the Beacon
Merger in December 1997. He is currently the managing partner of The Beacon
Companies, a private company involved in real estate investment, development
and management. Prior to joining Beacon in 1971, Mr. Sidman practiced law with
the predecessor to the firm of Rubin and Rudman in Boston. Mr. Sidman's
professional affiliations include service as Senior Vice Chairman of the
National Realty Committee. Mr. Sidman is a member of the Board of Trustees of
Duke University and a member of the Board of Directors and Executive Committee
for the United Way of Massachusetts Bay.

MEETINGS AND COMMITTEES OF THE EOP BOARD OF TRUSTEES

MEETINGS. During the year ended December 31, 1997, the Board of Trustees
held nine meetings. Each of the trustees who were trustees during 1997
attended over 75% of the total number of meetings of the Board and of its
committees which they were eligible to attend, except for Mr. Reinsdorf who
attended approximately 66% of the meetings of the Board. There are three
standing committees of the Board: the Executive Committee, the Compensation
Committee and the Audit Committee, which are described below.

EXECUTIVE COMMITTEE. The members of the Executive Committee are Messrs.
Zell, Callahan and Linneman. The Executive Committee has the authority within
certain parameters to acquire, dispose of and finance investments for the Trust
(including the issuance by the Company of additional Units or other equity
interests up to $50 million in any one transaction, or up to $75 million in a
series of transactions) and approve the execution of contracts and agreements,
including those related to the borrowing of money by the Trust, and generally
to exercise all other powers of the Board of Trustees except as prohibited by
law. The Executive Committee did not hold any meetings in 1997.

34

76

INDEX TO FINANCIAL STATEMENTS

Report of Independent Auditors F-2

Consolidated and Combined Balance Sheets of EOP Operating F-3
Limited Partnership and Equity Office Predecessors as of
December 31, 1997 and 1996

Consolidated Statements of Operations of EOP Operating F-4
Limited Partnership for the period from July 11, 1997 to
December 31, 1997, and the Combined Statements of
Operations of Equity Office Predecessors for the period
from January 1, 1997 to July 10, 1997 and the years ended
December 31, 1996 and 1995

Consolidated Statement of Changes in Partners' Capital of F-5
EOP Operating Limited Partnership for the period from
July 11, 1997 to December 31, 1997 and the Combined
Statements of Changes in Owners' Equity of Equity Office
Predecessors for the period from January 1, 1997 to July
10, 1997 and the years ended December 31, 1996 and 1995

Consolidated Statement of Cash Flows of EOP Operating F-6
Limited Partnership for the period from July 11, 1997 to
December 31, 1997, and the Combined Statements of Cash
Flows of Equity Office Predecessors for the period from
January 1, 1997 to July 10, 1997, and the years ended
December 31, 1996 and 1995

Notes to Consolidated and Combined Financial Statements F-7

F-1

77

The Partners of EOP Operating Limited Partnership

We have audited the accompanying consolidated balance sheet of EOP Operating
Limited Partnership (the "Company") and the combined balance sheet of the
Equity Office Predecessors, as defined in Note 1, as of December 31, 1997 and
1996, respectively, and the related consolidated statements of operations,
partners' capital and cash flows of the Company for the period from July 11,
1997 to December 31, 1997, and the related combined statements of operations,
owners' equity and cash flows of the Equity Office Predecessors, as defined in
Note 1, for the period from January 1, 1997 to July 10, 1997, and for the years
ended December 31, 1996 and 1995. Our audits also included the financial
statement schedule III, Real Estate and Accunmulated Depreciation. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 Operating
Limited Partnership and the combined financial position of the Equity Office
Predecessors, as defined in Note 1, at December 31, 1997 and 1996, respectively,
and the consolidated results of EOP Operating Limited Partnership's operations
and cash flows for the period from July 11, 1997 to December 31, 1997, and the
combined results of the Equity Office Predecessors', as defined in Note 1,
operations and cash flows for the period from January 1, 1997 to July 10, 1997
and for the years ended December 31, 1996 and 1995 in conformity with generally
accepted accounting principles. 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.

/s/ Ernst & Young LLP
ERNST & YOUNG LLP

Chicago, Illinois
February 23, 1998, except for Note 25,
as to which the date is March 18, 1998

F-2

78

EOP OPERATING LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEET
AND EQUITY OFFICE PREDECESSORS COMBINED BALANCE SHEET

EOP Operating Equity Office
Limited Partnership Predecessors
December 31, December 31,
(Dollars in thousands, except Unit data) 1997 1996

- -------------------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------------------
Investment in real estate................................................................. $11,041,014 $3,549,708
Accumulated depreciation.................................................................. (64,695) (257,893)
- -------------------------------------------------------------------------------------------------------------------------------
10,976,319 3,291,815
Cash and cash equivalents................................................................. 228,853 410,420
Tenant and other receivables (net of allowance for doubtful accounts of
$675 and $55, respectively)............................................................. 32,531 8,675
Deferred rent receivable.................................................................. 20,050 49,986
Escrow deposits and restricted cash....................................................... 25,772 32,593
Investment in unconsolidated joint ventures............................................... 387,332 26,910
Deferred financing costs (net of accumulated amortization of $1,855 and
$3,351, respectively)................................................................... 5,090 8,372
Deferred leasing costs (net of accumulated amortization of $1,473 and
$18,455, respectively)................................................................... 26,994 62,593
Prepaid expenses and other assets........................................................ 48,731 21,201
- -------------------------------------------------------------------------------------------------------------------------------
Total Assets.............................................................................. $11,751,672 $3,912,565
===============================================================================================================================
LIABILITIES AND PARTNERS' CAPITAL/OWNERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
Mortgage debt (including a net premium of $1,157 and $0, respectively).................... $ 2,063,017 $1,837,767
Unsecured notes........................................................................... 180,000 --
Lines of credit........................................................................... 2,041,300 127,125
Accounts payable and accrued expenses..................................................... 260,401 81,995
Due to affiliates......................................................................... 733 2,074
Distribution payable...................................................................... 1,191 96,500
Other liabilities......................................................................... 45,055 29,022
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities......................................................................... 4,591,697 2,174,483
- -------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 24)
- -------------------------------------------------------------------------------------------------------------------------------
Minority interests-Partially Owned Properties............................................. 29,612 11,080
- -------------------------------------------------------------------------------------------------------------------------------
Owners' equity............................................................................ -- 1,727,002
8.98% Series A Cumulative Redeemable Preferred Units, liquidation
preference $25.00 per Unit; 100,000,000 Units authorized, and
8,000,000 issued and outstanding........................................................ 200,000 --
Partners' Capital:
General Partners........................................................................ 6,205,157 --
Limited Partners........................................................................ 725,206 --
- -------------------------------------------------------------------------------------------------------------------------------
Total Partners' Capital/Owners' Equity...................................................... 7,130,363 1,727,002
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Partners' Capital/Owners' Equity...................................... $11,751,672 $3,912,565
===============================================================================================================================

See accompanying notes.

F-3
79

EOP OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF OPERATIONS
AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENTS OF OPERATIONS

EOP Operating
Limited
Partnership Equity Office Predecessors
- -------------------------------------------------------------------------------------------------------------------------------
for the period from for the period from for the year ended for the year ended
July 11, 1997 to January 1, 1997 December 31, December 31,
(Dollars in thousands, except Unit data) December 31, 1997 to July 10, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------

REVENUES:
Rental $314,233 $256,146 $386,481 $289,320
Tenant reimbursements 63,196 43,241 62,036 41,935
Parking 25,960 21,091 27,253 15,390
Other 3,324 6,539 17,626 10,314
Fees from noncombined affiliates 2,440 2,510 5,120 5,899
Interest 3,815 9,577 9,608 8,599
- -------------------------------------------------------------------------------------------------------------------------------
Total revenues 412,968 339,104 508,124 371,457
- -------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Interest:
Expense incurred 76,675 80,481 119,595 100,566
Amortization of deferred financing costs 4,178 2,771 4,275 2,025
Depreciation 64,695 57,379 82,905 64,716
Amortization 1,473 5,884 9,057 7,415
Real estate taxes 47,579 34,000 52,182 37,978
Insurance 3,196 3,060 4,863 3,352
Repairs and maintenance 50,285 45,540 71,156 53,618
Property operating 54,619 44,685 72,866 56,540
General and administrative 17,690 17,201 23,145 21,987
Provision for value impairment -- -- -- 20,248
- -------------------------------------------------------------------------------------------------------------------------------
Total expenses 320,390 291,001 440,044 368,445
- -------------------------------------------------------------------------------------------------------------------------------
Income before allocation to minority interests,
income from investment in unconsolidated
joint ventures, gain on sales of real estate and
extraordinary items 92,578 48,103 68,080 3,012
Minority interests - Partially Owned Properties,
net of extraordinary gain of $20,035 in 1995 (789) (912) (2,086) (2,129)
Income from unconsolidated joint ventures 3,173 1,982 2,093 2,305
Gain on sales of real estate 126 12,510 5,338 --
- -------------------------------------------------------------------------------------------------------------------------------
Income before extraordinary items 95,088 61,683 73,425 3,188
Extraordinary items (16,366) (274) -- 31,271
- -------------------------------------------------------------------------------------------------------------------------------
Net income 78,722 61,409 73,425 34,459
Preferred distributions (649) -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net income available for Units $78,073 $61,409 $73,425 $34,459
===============================================================================================================================
Net income available per weighted average
Unit outstanding-Basic $0.44
===============================================================================================================================
Weighted average Units outstanding-Basic 178,647,562
===============================================================================================================================
Net income available per weighted average
Units outstanding-Diluted $0.43
===============================================================================================================================
Weighted average Units outstanding-Diluted 180,014,027
===============================================================================================================================

See accompanying notes.

F-4
80

EOP OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CHANGES IN
PARTNERS' CAPITAL AND EQUITY OFFICE PREDECESSORS COMBINED STATEMENTS OF CHANGES
IN OWNERS' EQUITY

EOP Operating
Limited
Partnership Equity Office Predecessors
- ---------------------------------------------------------------------------------------------------------------
for the period for the period years ended
July 11, 1997 to January 1, 1997 December 31,
(Dollars in thousands) December 31, 1997 to July 10, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------

PARTNERS' CAPITAL:
Balance, beginning of period $ -- $ -- $ -- $ --
Net proceeds from IPO 564,506 -- -- --
Contribution of net assets from Consolidation
at fair value in exchange for Units 2,830,919 -- -- --
Issuance of Units and Warrants
for acquisitions 357,672 -- -- --
Sale of Units, net 273,950 -- -- --
Issuance of Units for Beacon Merger 2,921,838 -- -- --
Issuance of 8.98% Series A Cumulative
Redeemable Preferred Units 200,000 -- -- --
Units issued for restricted units and
trustee fees 165 -- -- --
Net income 78,722 -- -- --
Distributions declared to Redeemable
Preference Interests (649) -- -- --
Distribution declared to partners (96,760) -- -- --
- ---------------------------------------------------------------------------------------------------------------
Balance, end of period $7,130,363 $ -- $ -- $ --
===============================================================================================================
OWNERS' EQUITY:
Balance, beginning of period/year $ -- $ 1,727,002 $1,089,969 $ 731,098
Contributions -- 285,542 661,265 337,048
Offering expenses -- -- (1,157) (128)
Distributions -- (189,752) (96,500) (12,508)
Net income -- 61,409 73,425 34,459
Contribution of Owners' Equity to the Company
in connection with the Consolidation -- $(1,884,201) -- --
- ---------------------------------------------------------------------------------------------------------------
Balance, end of period/year $ -- $ -- $1,727,002 $1,089,969
===============================================================================================================
ALLOCATION OF PARTNERS' CAPITAL:
General Partners $ 725,206 $ -- $ -- $ --
Limited Partners $6,205,157 $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------------------
8.98% Series A Cumulative Redeemable
Preferred Units $ 200,000 $ -- $ -- $ --

See accompanying notes.

F-5
81

EOP OPERATING LIMITED PARTNERSHIP CONSOLIDATED STATEMENT OF CASH FLOWS AND
EQUITY OFFICE PREDECESSORS COMBINED STATEMENTS OF CASH FLOWS

EOP Operating
Limited
Partnership Equity Office Predecessors
----------------- --------------------------------------------------
for the for the for the year for the year
period from period from ended ended
July 11, 1997 to January 1, 1997 December 31, December 31,
(Dollars in thousands) December 31, 1997 to July 10, 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES:
Net income before preferred distributions $ 78,722 $ 61,409 $ 73,425 $ 34,459
Adjustment to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 70,346 66,034 96,237 74,156
(Income) from unconsolidated joint
ventures (3,173) (1,982) (2,093) (2,305)
(Gain) on sales of real estate (126) (12,510) (5,338) --
Provision for value impairment -- -- -- 20,248
Extraordinary loss from early
extinguishments of debt 16,366 274 -- --
Extraordinary (gain) on repurchase of debt -- -- -- (31,271)
Provision for doubtful accounts 1,686 1,175 2,284 2,096
Allocation to minority interests 789 912 2,086 2,129
Changes in assets and liabilities:
Decrease (increase) in rents receivable 2,064 2,664 (1,550) (2,998)
(Increase) in deferred rent receivables (21,421) (8,061) (20,421) (14,413)
(Increase) decrease in other assets (29,551) (8,839) (9,747) 1,374
Increase in accounts payable and
accrued expenses 54,076 2,916 19,241 6,931
(Decrease) increase in due to affiliates (898) (722) 1,235 (89)
Increase (decrease) in other liabilities 21,874 (7,310) 10,616 3,561
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 190,754 95,960 165,975 93,878
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Cash received from Beacon Merger 79,786 -- -- --
Property acquisitions (1,508,928) (531,968) (768,906) (317,669)
Payments for capital and tenant improvements (99,586) (59,511) (129,485) (76,985)
Payment of Beacon Merger costs (62,069) -- -- --
Proceeds from sales of real estate -- 72,078 14,502 --
Distributions from (investments in)
unconsolidated joint ventures 4,571 (44,260) 1,688 2,300
Payments of lease acquisition costs (15,043) (9,260) (29,793) (16,106)
Decrease (increase) in escrow deposits and
restricted cash 8,997 1,853 (12,233) 27,845
- --------------------------------------------------------------------------------------------------------------------
Net cash (used for) investing activities (1,592,272) (571,068) (924,227) (380,615)
- --------------------------------------------------------------------------------------------------------------------

Financing activities:
Net proceeds from sale of Units 838,456 -- -- --
Proceeds from exercise of Beacon options 68,191 -- -- --
Distributions to Units (95,569) -- -- --
Capital contributions -- 287,949 661,265 337,048
Capital distributions -- (288,652) (12,508) (17,800)
Payments for offering expenses -- -- (1,157) (128)
(Distributions to) contributions from minority
interests-partially owned properties (371) (3,401) (22,593) 141
Cash contributed by Equity Office Predecessors
in connection with Consolidation 181,138 -- -- --
Proceeds from mortgage debt 84,466 154,090 640,953 271,482
Proceeds from unsecured notes 180,000 -- -- --
Proceeds from lines of credit 2,530,425 218,000 216,943 288,000
Repurchase of debt -- -- -- (40,078)
Principal payments on mortgage debt (838,354) (47,472) (254,104) (182,244)
Principal payments on lines of credit (1,294,750) (72,500) (165,818) (378,000)
Payments of loan costs (7,039) (1,889) (5,430) (1,908)
Prepayment penalties on early extinguishments
of debt (16,247) (274) -- --
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,630,346 245,851 1,057,551 276,513
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 228,828 (229,257) 299,299 (10,224)
Cash and cash equivalents at the beginning
of the period 25 410,420 111,121 121,345
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $228,853 $181,163 $410,420 $111,121
====================================================================================================================
SUPPLEMENTAL INFORMATION:
Interest paid during the period, including
capitalized interest of $1,890, $3,669, $4,640
and $1,682, respectively $70,658 $82,969 $121,813 $100,700
====================================================================================================================

See accompanying notes.

F-6
82

NOTE 1--BUSINESS AND FORMATION OF THE COMPANY

As used herein, "Company" means EOP Operating Limited Partnership, an
Illinois limited partnership, and the predecessors thereof ("Equity Office
Predecessors"). The Company is a subsidiary of Equity Office Properties Trust
(the "Trust"), which was formed on October 9, 1996 to continue and expand the
national office property business organized by Mr. Samuel Zell, Chairman of the
Board of Trustees of the Trust and to complete the consolidation of the Equity
Office Predecessors (the "Consolidation") and its initial public offering (the
"IPO") on July 11, 1997. The Company is a fully integrated, self-administered
and self-managed real estate company engaged in acquiring, owning, managing,
leasing and renovating office properties and parking facilities. The Trust's
assets, which include investments in joint ventures, are owned by, and
substantially all of its operations are conducted through the Company. The
Trust is the managing general partner of the Company. The Trust expects to
qualify 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 95% of its taxable income and complies with a number of
organizational and operational requirements (see Note 2). As of December 31,
1997, the Company owned or had an interest in 258 office properties (the
"Office Properties") containing approximately 65.3 million rentable square feet
of office space and owned 17 stand-alone parking facilities containing
approximately 16,749 parking spaces (the "Parking Facilities" and, together
with the Office Properties, the "Properties"). The Office Properties are
located in 78 submarkets in 39 markets in 24 states and the District of
Columbia. The Office Properties, by rentable square feet, are located
approximately 50% in central business districts ("CBDs") and 50% in suburban
markets.

On July 11, 1997, the Company completed the Consolidation in
connection with the IPO of the Trust, in which the Trust sold 28,750,000 of its
common shares of beneficial interest, $0.01 par value per share ("Common
Shares") (including 3,750,000 Common Shares relating to the underwriters
overallotment option), at $21 per Common Share, generating proceeds of
approximately $603.8 million. The Trust contributed the net proceeds from the
IPO (after deducting the underwriting discount of approximately $39.2 million)
of approximately $564.5 million to the Company in exchange for 28,750,000 units
of partnership interest in the Company ("Units"). The Company used the net
proceeds of the IPO, and available cash reserves to repay debt of approximately
$678.4 million, of which $598.4 million was mortgage debt and $80 million was a
revolving line of credit.

Concurrent with the IPO, the Company also completed the following formation
transactions which resulted in the Consolidation of the Equity Office
Predecessors into the Company:
- -- Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership,
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership II,
Zell/Merrill Lynch Real Estate Opportunity Partners Partnership Limited III
and Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partners IV
(collectively, the "ZML Opportunity Partnerships"), the predecessor owners
of the Properties, contributed their interests in the Properties to the
Company in exchange for 126,419,397 Units.

- -- ZML Investors Inc., ZML Investors II, Inc., Zell/Merrill Lynch Real Estate
Opportunity Partners III Trust and Zell/Merrill Lynch Real Estate
Opportunity Partners IV Trust (collectively, "ZML REITs") merged into the
Trust, with the Trust succeeding to their interests in, and becoming
the managing general partner of each of the ZML Opportunity Partnerships.

F-7
83

Shareholders of the ZML REITs received 122,900,572 Common Shares of the
Trust in exchange for their interests in the ZML REITs.

- -- Equity Group Investments, Inc., an Illinois corporation ("EGI"), and Equity
Office Holdings, L.L.C., a Delaware limited liability company ("EOH" and
together with EGI, the "Equity Group") contributed substantially all of
their interests in their office property and asset management business and
parking facilities management business (collectively the "Management
Business") to the Company in exchange for 8,358,822 Units.

- -- The Company transferred a portion of the office property management
business of EOH, the office property asset management business and the
parking asset management business of the Equity Group that relates to the
property management of the properties owned by the Equity Group, together
with the 18 Properties held in partnerships or subject to participation
agreements with unaffiliated parties (the "Joint Venture Properties")
(collectively, the "Managed Property Business") to Equity Office Properties
Management Corp., a Delaware corporation (the "EOP Management Company"), in
exchange for non-voting stock representing 95% of the economic value in the
EOP Management Company and EOH contributed $150,000 to the EOP Management
Company in exchange for voting stock representing 5% of the economic value
of the EOP Management Company.

- -- ZML Partners Limited Partnership, ZML Partners Limited Partnership II, ZML
Partners Limited Partnership III and ZML Partners Limited Partnership IV
(the "ZML Partners"), each of which is the general partner of one of the
ZML Opportunity Partnerships, each transferred their 5% interest in certain
corporations which owned a 1% general partnership interest in certain of
the property title holding entities to a newly formed qualified REIT
subsidiary of the Trust in exchange for 26,458 Common Shares.

- -- The ZML Opportunity Partnerships transferred their 95% interest in certain
corporations which owned a 1% general partner interest in certain of the
property title holding entities to a subsidiary of the Trust in exchange
for 502,740 Common Shares which in turn were contributed to the Company.
Such Common Shares have been treated as treasury stock in the accompanying
financial statements. The table below summarizes the ownership of the
Company upon the completion of the transactions described above:

The table below summarizes the ownership of the Company upon the completion of
the transactions described above:

Ownership of EOP Operating Limited Partnership (as of IPO date):

- --------------------------------------------------------------------------------
Number of Units Percentage
- --------------------------------------------------------------------------------

Equity Office Properties Trust
(held directly) 28,777,458 17.6%
Equity Office Properties Trust (held
through its interests in the
ZML Opportunity Partnerships) 122,900,572 75.1%
------------------------------------------------------------------------------
Equity Office Properties Trust subtotal 151,678,030 92.7%
ZML Partners (held through its interest
in ZML Opportunity Partnerships) 3,229,001 2.0%
Other limited partner (held through its
interest in ZML Opportunity Partnership II) 289,824 0.2%
Equity Group Investments, Inc. 3,737,438 2.3%
Equity Office Holdings, L.L.C. 4,621,384 2.8%
------------------------------------------------------------------------------
Total 163,555,677 100.0%
==============================================================================

F-8

84
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The Consolidation was accounted for as a purchase in accordance with
Accounting Principals Board Opinion No. 16. Accordingly, the fair value of the
consideration given by the Company was used as the valuation basis for the
transactions. The assets acquired and liabilities assumed by the Company were
recorded at their fair value as of July 11, 1997 and the excess of the purchase
price over the related historical basis of the net assets acquired was allocated
primarily to investment in real estate.

In regard to EOP Management Company, the Company owns a non-voting 95%
interest but does not have legal control; however, EOP Management Company is
consolidated for financial reporting purposes, the effect of which is
immaterial. The remaining 5% equity and the controlling voting interest is owned
by an affiliate of the Company.

The Beacon Merger (as defined in Note 4) was accounted for using the
purchase method in accordance with Accounting Principles Board Opinion No. 16.
The fair value of the consideration given by the Company in the Beacon Merger
was used as the valuation basis of the combination. The assets acquired and the
Beacon liabilities assumed were recorded at their relative fair values as of
December 19, 1997 (the "Beacon Closing Date"). The results of operations of the
Beacon properties for the period from the Beacon Closing Date through December
31, 1997 are included in the Company's consolidated statements of operations and
cash flows. In connection with the Beacon Merger, the Company also acquired a
99% equity interest in (but not voting-control of) Beacon Property Management
Corporation ("Beacon Management Company"), which manages third-party and joint
venture office and commercial space, Beacon Design Company, which provided
third-party tenant design services prior to ceasing such operations upon the
sale of its design service assets in 1998, and Beacon Construction Company,
which provides third-party construction services and is expected to cease such
operations upon completion of its existing contracts. Although the Company does
not have voting control of Beacon Management Company, Beacon Design Company and
Beacon Construction Company, they are consolidated for financial reporting
purposes, the effect of which is immaterial. The remaining 1% equity and the
controlling voting interest is owned by an affiliate of the Company.

The combined financial statements of Equity Office Predecessors prior to
the Consolidation and the IPO included interests in the Properties of the ZML
Opportunity Partnerships together with their limited and general partners
(collectively, the "ZML Funds" which includes ZML Fund I, ZML Fund II, ZML Fund
III and ZML Fund IV) and the Management Business. The financial statements of
Equity Office Predecessors are presented on a combined basis, at historical
cost, because the ZML Funds and the Management Business were under common
control. Minority interests have been recorded for those entities that were not
wholly owned by the ZML Funds. Where controlling interests were not held by the
ZML Funds, the entities were accounted for as investments in unconsolidated
joint ventures utilizing equity accounting. All intercompany transactions and
balances have been eliminated in combination.

Investment in Real Estate

Subsequent to the Consolidation, rental property and improvements,
including costs capitalized during construction and other costs incurred, 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. Except for amounts attributed to
land, rental property and improvements are depreciated over their estimated
useful lives using the straight-line method. The estimated useful lives by
asset category are:

Asset Category Estimated Useful Life
-----------------------------------------------

Building 40 years
Building improvements 4-40 years
Tenant improvements Term of lease
Furniture and fixtures 3-12 years

During 1995, the Financial Accounting Standards Board issued Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of "
("Statement No. 121") which established accounting standards for the evaluation
of the potential impairment of such assets. Statement No. 121 was adopted by
Equity Office Predecessors as of January 1, 1995. 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 are less than its historical net
cost basis. Upon determination that a permanent impairment has occurred, rental
properties are reduced to their fair value. During the year ended December 31,
1995, Equity Office Predecessors recorded a provision for value impairment of
approximately $20.2 million, of which $17.5 million related to the adjustment
of investment in real estate and approximately $2.7 million related to
unamortized lease acquisition cost.

F-9
85

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 the Company has a
commitment to sell the property and/or is actively marketing the property for
sale. 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
provided for in the statement of operations.

Deferred Leasing and Financing Costs

Deferred leasing and financing costs 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.

Rental Income

Certain leases of Office Properties provide for tenant occupancy during
periods for which no rent is due or where minimum rent payments increase during
the term of the lease. The Company records rental income for the full term of
each lease on a straight-line basis. Accordingly, the Company records a
receivable from tenants, net of reserves, which the Company expects to collect
over the remaining term of these leases rather than currently ("Deferred Rent
Receivable"). For existing leases at acquired properties, the term of the lease
is considered to commence as of the acquisition date for purposes of this
calculation. The amounts included in rental income for the periods July 11,
1997 to December 31, 1997 and January 1, 1997 to July 10, 1997 and the years
ended December 31, 1996 and 1995, which were not currently collectible as of
such dates, were approximately $20.0 million, $7.7 million, $18.4 million and
$12.7 million, respectively. Deferred Rent Receivable is not recognized for
income tax purposes.

Cash Equivalents

The Company considers cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less at the date of
purchase. As of December 31, 1996 cash equivalents included deposits made to a
commingled bank account which was held in an affiliate's name. Such affiliate
provided centralized cash management services to Equity Office Predecessors.

Escrow Deposits and Restricted Cash

Escrow deposits primarily consist of amounts held by lenders to provide
for future real estate tax expenditures, tenant improvements and earnest money
deposits on acquisitions. 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

Management believes that the carrying basis of the Company's long-term
debt, consisting of mortgage loans, revolving bank loans and various interest
rate protection agreements, approximate their respective fair market values as
of December 31, 1997 and 1996, respectively. The current value of debt was
computed by discounting the projected debt service payments for each loan based
on the spread between the market rate and the effective rate, including the
amortization of loan origination costs, for each year. In addition, the
carrying values of cash and cash equivalents, restricted cash, escrow deposits,
tenant and other rents receivable, accounts payable and accrued expenses are
reasonable estimates of their fair value.

Interest Rate Protection Agreements

The Company periodically enters into certain interest rate protection
agreements to effectively convert or cap floating rate debt to a fixed rate
basis, as well as to hedge anticipated finance 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 are
deferred and amortized as an adjustment to interest expense over the term of
the related financing transaction on the straight-line method, which
approximates the effective yield amount.

Income Taxes

The Company is not liable for federal income taxes as the partners
recognize their proportionate share of the Company's income or loss in their
tax returns, therefore, no provision for federal income taxes is made in the
financial statements of the Company. However, the Company is subject to
certain federal and state income and franchise taxes. The Company incurred
federal and state income and franchise taxes of approximately $0.2
million, $0.9 million, $1.4 million and $1.6 million for the periods July 11,
1997 to December 31, 1997 and January 1, 1997 to July 10, 1997 and the years
ended December 31, 1996 and 1995, respectively, which are included in general
and administrative expenses.

F-10
86

Commencing with the year ended December 31, 1997, the Trust intends to make
an election 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, the Trust
generally will not be subject to federal income tax if it distributes at least
95% of its taxable income for each tax year to its shareholders. REITs are
subject to a number of organizational and operational requirements. If the Trust
fails to qualify as a REIT in any taxable year, the Trust will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate tax rates. Even if the Trust qualifies for
taxation as a REIT, the Trust may be subject to state and local income taxes and
to federal income tax and excise tax on its undistributed income. The aggregate
cost of land and depreciable property for federal income tax purposes as of
December 31, 1997 was approximately $7.5 billion.

Income Per Unit

In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share ("Statement No. 128"). Statement No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All net income per weighted average
Unit and net income per weighted average Unit--assuming dilution amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement No. 128 requirements.

Minority Interests - Partially Owned Properties

The Company reflects minority interests on the balance sheet for the
portion of properties, which are consolidated by the Company, that are not
wholly owned by the Company. The earnings or losses therefrom have been
reflected as minority interest in the Company's statements of operations.

Reclassification

Certain reclassifications have been made to the previously reported
1996 and 1995 statements in order to provide comparability with the 1997
statements report herein. These reclassifications have not changed the 1996 and
1995 results or owners' equity.

Use of Estimates

The preparation of the consolidated financial statements of the Company
and the combined financial statements of Equity Office Predecessors in
conformity with generally accepted accounting principles 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.

NOTE 3--INVESTMENT IN REAL ESTATE

Investment in real estate, including Office Properties and Parking Facilities,
was as follows:

- ---------------------------------------------------------------------------
EOP Operating Equity Office
Limited Partnership Predecessors
December 31, December 31,
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------

Land $ 1,185,411 $ 314,370
Building 9,706,956 2,871,690
Building improvements 55,278 161,497
Tenant improvements 89,455 196,093
Furniture and fixtures 3,914 6,058
- ---------------------------------------------------------------------------
Gross investment in real estate 11,041,014 3,549,708
Accumulated depreciation (64,695) (257,893)
- ---------------------------------------------------------------------------
Net investment in real estate $10,976,319 $3,291,815
===========================================================================

F-11
87

In connection with the initial rental operations of the 28 State Street
property in Boston, the Company incurred and capitalized approximately $5.6
million and $4.7 million of interest costs in the years ended December 31, 1997
and 1996, respectively.

During the year ended December 31, 1997, the Company acquired the
Properties listed below. Each Property was purchased from an unaffiliated
party. The cash portions of the acquisitions were funded from the Company's
lines of credit or working capital. In connection with certain of the
acquisitions listed below, the Company assumed indebtedness of approximately
$1.4 billion and issued Units, and the Trust issued Common Shares, preferred
shares and warrants with a value of $3.4 billion.

Rentable Total Acquisition
Date Acquired Office Property/Portfolio Location Square Feet Cost (in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------

1/29/97 177 Broad Street(1) Stamford, CT 187,573 $ 36,254(2)
3/21/97 Preston Commons(1) Dallas, TX 418,604 55,174
4/16/97 Oakbrook Terrace Tower(1) Oakbrook Terrace, IL 772,928 130,108
4/21/97 One Maritime Plaza(1) San Francisco, CA 523,929 99,389
4/28/97 Smith Barney Tower(1) San Diego, CA1 187,999 35,148
4/30/97 201 Mission Street(1) San Francisco, CA 483,289 74,634
6/13/97 30 North LaSalle(1) Chicago, IL 925,950 100,707
9/3/97 LL&E Tower New Orleans, LA 545,157 61,819
9/3/97 Texaco Center New Orleans, LA 619,714 66,819
10/1/97 Prudential Properties Houston, TX; Dallas, TX; Philadelphia, PA 2,481,441 284,199
10/6/97 550 South Hope Los Angeles, CA 566,434 100,135
10/7/97 10 & 30 South Wacker Drive Chicago, IL 2,003,288 484,772(3)
10/7/97 Acorn Properties Philadelphia, PA 849,867 130,088
10/17/97 One Lafayette Centre Washington, DC 314,634 82,546
11/21/97 Acorn Properties Philadelphia, PA 154,894 17,285
11/24/97 Lakeside Square Dallas, TX 392,537 55,524
11/24/97 Fair Oaks Plaza Fairfax, VA 177,917 24,077
11/24/97 1600 Duke Street Alexandria, VA 68,770 11,038
11/25/97 LaSalle Plaza Minneapolis, MN 589,432 96,704
12/17/97 Wright Runstad Properties Anchorage, AK; Portland, OR; Seattle, WA 3,340,055 640,000(4)
12/19/97 Beacon Properties Boston, Atlanta, Chicago, Los Angeles,
San Jose and Washington, DC 20,900,000 4,016,546
- ---------------------------------------------------------------------------------------------------------------------------------
36,504,412 $6,602,966
- ---------------------------------------------------------------------------------------------------------------------------------

Total Acquisition
Date Acquired Parking Facility Location Parking Spaces Cost (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------

8/11/97 Adams Wabash Facility Chicago, IL 670 $ 25,212
9/3/97 601 Tchoupitoulas Garage New Orleans, LA 759 11,757
11/25/97 Stanwix Parking Pittsburgh, PA 712 17,909
- ------------------------------------------------------------------------------------------------------------------------------------
2,141 $ 54,878
- ------------------------------------------------------------------------------------------------------------------------------------

(1)These Properties were acquired by Equity Office Predecessors. The total
acquisition cost reflected above represents the cost paid by Equity Office
Predecessors to acquire each respective Property. The acquisition of the
Properties, or the interest therein, by the Company from Equity Office
Predecessors in connection with the Consolidation, was recorded as a purchase.
Accordingly, the assets were recorded by the Company at their fair value.
(2)The total acquisition cost also included 161 residential units.
(3)The total acquisition cost includes $19.3 million related to real estate tax
liabilities assumed at closing.
(4)The Wright Runstad Properties acquisition cost includes $15.0 million
relating to 5,000,000 warrants which expire in December 2002, to purchase
Common Shares at $39.375 per Common Share (see Note 12).

NOTE 4 -- BEACON MERGER

On December 19, 1997, the Trust, the Company, Beacon Properties
Corporation, a Maryland corporation ("Beacon") and Beacon Partnership L.P.
("Beacon Partnership") consummated the merger of Beacon with and into the Trust
and Beacon Partnership with and into the Company (the

F-12

88
"Beacon Merger") at a cost of approximately $4.3 billion. In the Beacon Merger,
(i) the Trust issued 80,596,117 Common Shares in exchange for all of the
outstanding Beacon common shares, (ii) the Trust issued 8,000,000 Series A
Preferred Shares in exchange for all of the outstanding Beacon preferred shares,
(iii) the Company issued 8,570,886 Units in exchange for the outstanding common
partnership units of Beacon Partnership exclusive of those held by Beacon, and
(iv) the Company issued to the Trust 80,596,117 Units in exchange for the
outstanding common units of Beacon Partnership held by Beacon when it merged
into the Trust and 8,000,000 Series A preferred units in exchange for the
corresponding preferred Units of Beacon Partnership held by Beacon when it
merged into the Trust. In addition, the Trust assumed the obligation to issue
4,732,822 Common Shares, of which 3,829,739 had been issued as of December 31,
1997 upon the exercise of certain outstanding Beacon employee stock options,
which resulted in the Company issuing a corresponding number of Units to the
Trust. The $4.3 billion purchase price is comprised of the following: (1) based
on a Unit price of $31.30, the Units, including Units issued for stock options,
were valued at approximately $2.853 billion (which is net of a reduction for
cash received or to be received upon exercise of the stock options of $86
million); (2) the issuance of 8,000,000 Series A Cumulative Redeemable Preferred
Units valued at their liquidation value of $200 million; (3) the assumption of
approximately $627 million of secured debt and $533 million of unsecured debt;
(4) merger cost of approximately $85 million and; (5) net of the receipt of
approximately $8 million of net assets.

As a result of the Beacon Merger, the Company acquired interests in 130
Beacon properties containing approximately 20.9 million rentable square feet of
office space. The Beacon properties are located in 22 submarkets in six markets:
Boston, Atlanta, Chicago, Los Angeles, San Jose and Washington, D.C. The Beacon
properties, by rentable square feet, are located 65% in suburban markets and 35%
in CBDs, primarily Boston. As of December 31, 1997, the Beacon properties were
on a weighted average basis approximately 95% leased by a total of approximately
1,694 tenants.

In connection with the Beacon Merger, the Company also acquired a 99%
equity interest in, Beacon Management Company, which manages third-party office
and commercial space, Beacon Design Company, which provided third-party and
joint venture tenant design services prior to ceasing such operations upon the
sale of its design service assets in 1998, and Beacon Construction Company,
which provides third-party construction services and is expected to cease such
operations upon completion of its existing contracts.

NOTE 5--DISPOSITIONS

In May 1997, Equity Office Predecessors sold 8383 Wilshire, an Office
Property located in Beverly Hills, California for approximately $59 million.
The gain for financial reporting purposes was approximately $6.7 million.

In January 1997, Equity Office Predecessors sold Barton Oaks Plaza II for
approximately $13.5 million. The gain for financial reporting purposes was
approximately $5.9 million.

Three Lakeway is a mixed-use property, that included a 210-room hotel and
an 18-story office complex. In January 1996, Equity Office Predecessors sold the
condominium portion of the property which comprised the hotel. The gross sale
price attributable to the land and building was approximately $14.8 million and
the gain realized was approximately $5.3 million.

NOTE 6--INVESTMENT IN UNCONSOLIDATED JOINT VENTURES

Equity Office Predecessors acquired a mortgage receivable secured by the
500 Orange Tower Office Property ("500 Orange") and purchased land underlying
and adjacent to 500 Orange in July 1994, and acquired a 50% limited partnership
interest in Civic Parking, L.L.C. in April 1997. On December 17, 1997, the
Company, through a Noncontrolled Subsidiary, acquired a 30% noncontrolling
interest in Wright Runstad Asset Limited Partnership ("WRALP") for $20.0 million
and agreed to provide up to $20.0 million in additional financing or credit
support for future development activities of WRALP. In connection with the
Beacon Merger on December 19, 1997, the Company acquired interests in four
unconsolidated joint ventures (the "Beacon Joint Ventures"). The Company's
ownership in the Beacon Joint Ventures is as follows:

Company's Ownership
Property as of December 31, 1997
----------------------------------------------------

Polk & Taylor(A) 10%
One Post Office(B) 50%
75-101 Federal Street(C) 52%
Rowes Wharf(D) 50%

(A) The Company owns a 1% general partner interest and a 9% limited partner
interest.

(B) The Company is a general partner in the joint venture.

(C) The Company and the Trust are shareholders in the corporation (a private
REIT) which owns the property.

F-13
89

(D) The Company owns a 50% interest in the first mortgage.

These investments are accounted for utilizing the equity method of
accounting. Under this method of accounting the net equity investment of the
Company is reflected on the consolidated and combined balance sheets, and the
consolidated and combined statements of operations include the Company's share
of net income or loss from the unconsolidated joint ventures. As a result of
purchase method accounting for the Beacon Merger and the Consolidation, any
difference between the carrying amount of these investments on the balance
sheet of the Company and the underlying equity in net assets is amortized as an
adjustment to income from unconsolidated joint ventures over 40 years.

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

December 31, December 31,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------------------

BALANCE SHEETS:

Real Estate, Net................................................ $523,670 $26,555
Other assets...................................................... 73,450 1,017
- --------------------------------------------------------------------------------------------
Total Assets.................................................... $597,120 $27,572
============================================================================================
Mortgage notes and loans payable.................................. $344,427 $ --
Other liabilities................................................. 15,271 662
Partners' and shareholders' equity................................ 237,422 26,910
- --------------------------------------------------------------------------------------------
Total Liabilities and Partners' and Shareholders' Equity........ $597,120 $27,572
============================================================================================
Company's share of equity......................................... $155,522 $26,910
Excess of cost of investments over the net book value
of underlying net assets, net of accumulated
depreciation of $99............................................. 231,810 --
- --------------------------------------------------------------------------------------------
Carrying value of investments in unconsolidated joint
ventures and corporation........................................ $387,332 $26,910
============================================================================================

F-14
90

For the years ended December 31,
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------

STATEMENTS OF OPERATIONS:
Revenues $16,687 $4,775 $5,002
Operating expenses 4,638 1,852 1,995
Interest expense 793 -- --
Depreciation and amortization 2,752 830 702
- -------------------------------------------------------------------------------
Net income $ 8,504 $2,093 $2,305
===============================================================================
Company's share of net income $ 5,155 $2,093 $2,305
===============================================================================
Company's share of depreciation and
amortization (real estate related) $ 1,524 $ 830 $ 702
===============================================================================

NOTE 7--MORTGAGE DEBT

The Company had outstanding mortgage indebtedness of approximately $2.1
billion and $1.8 billion as of December 31, 1997 and 1996, respectively. The
historical cost, net of accumulated depreciation, of encumbered properties at
December 31, 1997 and 1996 were approximately $4.3 billion and $2.0 billion,
respectively. During the years ended December 31, 1997 and 1996, the Company
(a) repaid approximately $885.8 million and $254.1 million, respectively, of
mortgage debt with proceeds from the IPO, the credit facilities and available
cash reserves; (b) assumed approximately $890.5 million and $92.1 million,
respectively, of mortgage debt in connection with the acquisition of certain
properties; and (c) obtained proceeds from the financing of certain properties
and draws on existing mortgages totaling approximately $238.6 million and
$641.0 million, respectively.

A summary of the Company's fixed and variable rate mortgage debt is as follows:

Fixed Rate Mortgage Debt

As of December 31, 1997 and 1996, the Company had outstanding fixed
rate mortgage indebtedness of approximately $2.0 billion and $1.3 billion,
respectively. Payments on fixed rate mortgage debt are generally due in monthly
installments of principal and interest or interest only. As of December 31,
1997 and 1996, fixed interest rates ranged from 6.67% to 8.63% and 6.88% to
10%, respectively. The weighted average fixed interest rate was approximately
7.53% and 7.89% as of December 31, 1997 and 1996, respectively.

Variable Rate Mortgage Debt

As of December 31, 1997 and 1996, the Company had outstanding variable
rate mortgage indebtedness of approximately $23.5 million and $533.7 million,
respectively. Payments on variable rate mortgage debt are generally due in
monthly installments of principal and interest or interest only. As of December
31, 1997 the variable interest rate was 6.94% (LIBOR + 1%). As of December 31,
1996, variable interest rates ranged from 6.56% (LIBOR + 1%) to 7.83% (LIBOR +
2.25%). The weighted average variable interest rate was approximately 6.94% and
7.35% as of December 31, 1997 and 1996, respectively.

Draw Facilities

As stated in the respective loan agreements, the Company has the
ability to draw additional proceeds on certain of its mortgages for operating
deficits, capital and tenant improvements, and lease acquisition costs. As of
December 31, 1997 and 1996, amounts available to draw under these mortgage
notes were approximately $19.0 million and $92.6 million, respectively.

F-15
91

Repayment Schedule

Scheduled payments of principal on mortgage debt for each of the next
five years and thereafter, as of December 31, 1997, are as follows:

(Dollars in thousands)
---------------------------------------------

1998 $83,792
1999 52,908
2000 151,236
2001 432,962
2002 69,584
Thereafter 1,271,378
---------------------------------------------
Subtotal 2,061,860
Net premium (net of accumulated
amortization of $2.1 million) 1,157
---------------------------------------------
Total $2,063,017
=============================================

NOTE 8--LINES OF CREDIT
A $200 million line of credit (the "$200 Million Line") was obtained in
October 1994 and canceled in September 1996. Interest was payable monthly based
on the LIBOR + .625%. The $200 Million Line was secured by the capital
commitments of certain investors and was used to finance acquisitions.

A $275 million acquisition and term loan facility (the "$275 Million Line")
was obtained in September 1996 with a maturity in September 1999 for the purpose
of providing financing for acquisitions. Interest only was payable monthly with
the interest based on various LIBOR options plus various spreads ranging from
1.375% to 1.625% or the prime rate. As of December 31, 1996, the Company had an
outstanding balance under the $275 Million Line of approximately $127.1 million.

In April 1997, the Company amended and restated the $275 Million Line to a
$475 million unsecured revolving credit facility (the "$475 Million Line").
Under the $475 Million Line, the Company could draw amounts equal to the lesser
of a) 65% or 50% of the purchase price of certain office buildings or parking
facilities, respectively, or b) an amount based on net operating income for such
property. The $475 Million Line had a maturity of October 21, 1997 but was
terminated on July 15, 1997. Interest only was payable monthly with the interest
based on various LIBOR options plus 1.625% or the prime rate. The Company chose
the LIBOR option.

On July 15, 1997, the Company obtained a $600 million credit facility (the
"$600 Million Credit Facility") to be used for acquisitions and other general
corporate purposes. Amounts were drawn on the $600 Million Credit Facility to
repay the balance outstanding on the $475 Million Line which was terminated when
the $600 Million Credit Facility was obtained. The $600 Million Credit Facility
matures on July 15, 2000. The Company paid a commitment fee of approximately
$1.0 million at the closing of the $600 Million Credit Facility. Prior to the
Company obtaining an investment grade credit rating on its unsecured debt of
BBB- or Baa3 or better from two or more credit rating agencies, the $600 Million
Credit Facility initially bore interest at LIBOR plus 110 basis points, and
required payment of a quarterly unused commitment fee between .15% and .25% of
the unused portion of the $600 Million Credit Facility, depending on the average
unfunded balance during the quarter. In November 1997, the $600 Million Credit
Facility was amended and the interest rate was reduced to LIBOR plus 100 basis
points. In December 1997, the Company received an investment grade credit rating
on its senior unsecured debt from Moody's (Baa1), Duff & Phelps (BBB+) and
Standard & Poor's (BBB). Pursuant to the terms of the $600 Million Credit
Facility, these credit ratings resulted in the interest rate being reduced from
LIBOR plus 100 basis points to LIBOR plus 60 basis points, and the unused
commitment fee was replaced with a facility fee equal to .20% per annum. In
addition, a competitive bid option, whereby the lenders participating in the
$600 Million Credit Facility bid on the interest rate to be charged, became
available for up to $250 million. As of December 31, 1997, the balance of the
$600 Million Credit Facility was approximately $559 million.

The Company assumed $533 million in unsecured debt in connection with the
Beacon Merger. The Company repaid $95 million prior to December 31, 1997 and
repaid the remaining balance in February 1998 with the proceeds from the $1.25
Billion Notes Offering, the $250 Million MOPPRS Offering and the $300 Million
PIERS Offering as described in Note 25, at which time the lines were terminated.

F-16
92

Term Loan Facility

In October 1997, the Company obtained a $1.5 billion unsecured credit
facility (the "$1.5 Billion Credit Facility"). The $1.5 Billion Credit Facility
is available for the acquisition of properties and general corporate purposes.
The $1.5 Billion Credit Facility carries an interest rate equal to LIBOR plus
100 basis points and may be increased or decreased upon receipt of an
investment grade unsecured debt rating. As mentioned above, the Company
received an investment grade rating in December 1997 resulting in a reduction
in the interest rate to LIBOR plus 80 basis points. The $1.5 Billion Credit
Facility matures July 1, 1998, and may be extended to October 1, 1998. The
Company paid an underwriting fee on the $1.5 Billion Credit Facility at closing
of approximately $4.9 million. In addition, an unused commitment fee is payable
quarterly in arrears based upon the unused amount of the $1.5 Billion Credit
Facility as follows: .15% per annum if the unused amount is between 0% to 33%;
.20% per annum if the unused amount is more than 33% but less than 66%; .25%
per annum if the unused amount is greater than 66%. In October 1997, the
Company used approximately $236 million of proceeds from the $1.5 Billion
Credit Facility to repay the majority of the variable rate property mortgage
indebtedness outstanding as of September 30, 1997. The Company repaid $150
million on the $1.5 Billion Credit Facility with the proceeds from the $200
million private placement of Common Shares in October 1997. Under the terms of
the $1.5 Billion Credit Facility agreement, any amounts repaid cannot be
re-drawn. In addition, amounts were drawn from the $1.5 Billion Credit Facility
for property acquisitions and general corporate purposes. As of December 31,
1997, the outstanding balance on the $1.5 Billion Credit Facility was
approximately $1.044 billion. The amount available to draw under the $1.5
Billion Credit Facility was approximately $306 million as of December 31, 1997.

NOTE 9--UNSECURED NOTES

On September 3, 1997, the Company completed a private debt offering of $180
million (the "$180 Million Notes Offering") with an unaffiliated party. The $180
Million Notes consist of four tranches with maturities from seven to 10 years
which were priced at an interest rate spread over the corresponding U.S.
Treasury rate. The Company used the proceeds of the $180 Million Notes Offering
to repay a portion of the $600 Million Credit Facility. In addition, in
connection with the $180 Million Notes Offering, the Company terminated $150
million of hedge agreements at a cost of approximately $3.9 million (see Note
10). A summary of the terms of the $180 Million Notes follows:

Stated Effective
Tranche Amount Rate Rate(A)
- -------------------------------------------------------------------------------

7-Year Senior Notes due 2004 $30,000,000 7.24% 7.24%
8-Year Senior Notes due 2005 50,000,000 7.36% 7.67%
9-Year Senior Notes due 2006 50,000,000 7.44% 7.73%
10-Year Senior Notes due 2007 50,000,000 7.42% 7.69%
- -------------------------------------------------------------------------------
$180,000,000 7.38% 7.62%
===============================================================================

(A) Includes the cost of the terminated interest rate protection agreements.

NOTE 10--INTEREST RATE PROTECTION AGREEMENTS

In order to limit the market risk associated with variable rate debt,
the Company entered into several interest rate protection agreements. These
agreements effectively convert floating rate debt to a fixed rate basis, as
well as hedge anticipated financing transactions. A summary of the various
interest rate hedge agreements as of December 31, 1997 is as follows: (1) On
June 4, 1997, the Company entered into interest rate protection agreements with
major U.S. financial institutions for $700 million of indebtedness. As a result
of this agreement, the Company essentially "locked into" U.S. Treasury rates in
effect as of June 4, 1997, for $700 million in indebtedness. In August 1997,
the Company terminated $150 million of the $700 million of hedge agreements at
a cost of approximately $3.9 million related to the $180 Million Notes Offering
(see Note 9). The portion of the $180 Million Notes Offering protected by these
agreements consisted of three tranches with maturities of eight, nine and ten
years, respectively. The cost of the terminated hedge agreements is amortized
to interest expense over the respective terms of each tranche; (2) On October
6, 1997, the Company entered into an additional $450 million of interest rate
protection agreements based on the U.S. Treasury rates in effect at that date.
The Company has terminated $700 million of hedge agreements in connection with
the February 1998 notes offering (see Note 25) at a cost of approximately $32.6
million. The cost of these terminated hedge agreements will be amortized to
interest expense over the terms of the respective notes offering. The Company
terminated the remaining $300 million of hedge agreements in 1998 at a cost of
approximately $7.4 million which will be reflected as an extraordinary loss;
(3) Equity Office Predecessors entered into an interest rate swap agreement on
October 1995, which effectively fixed the interest rate on a $93.6 million
mortgage loan at 6.94% through the maturity of the loan on June 30, 2000.

F-17
93

Equity Office Predecessors sold several interest rate protection agreements
(aggregating $173 million of LIBOR-based agreements) in June 1997 at a cost of
approximately $1.1 million.

NOTE 11--MINORITY INTERESTS IN PARTIALLY OWNED PROPERTIES

The following properties are controlled and partially owned by the
Company but have partners with minority interests. The Company has included
100% of the financial condition and results of operations of these properties
in the consolidated financial statements of the Company and the combined
financial statements of Equity Office Predecessors. The equity interests of the
unaffiliated partners are reflected as minority interests.

Company's Ownership as of
Property December 31, 1997
---------------------------------------------------

CIGNA Center 95%(1)
Plaza at La Jolla Village 66.67%(1)
San Felipe Plaza 35%(2)
Capital Commons Garage 50%(3)
Acorn Properties 89%(4)
---------------------------------------------------

(1) The Company owns a controlling interest and is the managing general
partner.
(2) The Company is the managing general partner and receives preferential
allocations which result in the Company receiving 100% of the economic
benefits. Prior to the IPO, an affiliate of the Company was the managing
general partner.
(3) The Company owns a controlling interest and receives preferential
allocations. The unaffiliated partner is entitled to receive 50% of the
remaining cash flow after the Company receives its preferential
allocations.
(4) The Company has an 89% managing general partner interest in 11 properties
and receives preferential allocations which entitles it to 99% of the
economic benefits. The Company has the option of purchasing the remaining
interest in all 11 properties, exercisable for a designated period
commencing three (3) years after the respective closing dates on the
initial purchases, for additional consideration in the amount of
approximately $2.1 million, all payable in Units valued at $28.775 per
Unit.

The Company purchased the unaffiliated joint venture partner's 3%
interest in First Union Center for approximately $775,000 in 1997. The Company
now owns 100% of First Union Center.

NOTE 12--PARTNERS' CAPITAL/OWNERS' EQUITY

Units

In addition to the Units issued in connection with the formation
transactions described in Note 1--Business and Formation of Company, the
Company also issued Units in connection with the following transactions:

Transaction Units
---------------------------------------------------------------------

Outstanding upon completion of the Consolidation
and the IPO(see Note 1) 163,555,677
Units issued in exchange for Properties(1) 12,146,845
Restricted Units issued to Trust related to
Restricted Shares awarded to Officers (see Note 21) 298,000
Units issued to Trust related to Common Shares issued
as Trustee compensation 5,055
Issuance of Units to Trust in exchange for contribution
of net proceeds from the sale of Common Shares 9,685,034
Issuance of Units for Beacon Merger (including
84,425,856 Units issued to the Trust of which
3,829,739 were for Beacon options exercised)
(see Note 4) 92,996,742
---------------------------------------------------------------------
Total as of December 31, 1997 278,687,353
=====================================================================

(1) In September 1997, the Company purchased two Office Properties and a
Parking Facility from an unaffiliated third party located in New Orleans,
Louisiana for a purchase price of approximately $140 million. Of this
amount, the Company issued 1,692,546 Units at a price of $29 per Unit for a
total of approximately $49.1 million.

F-18
94

In October 1997, the Company purchased four Office Properties from an
unaffiliated party located in Houston, Texas, Dallas, Texas and
Philadelphia, Pennsylvania for a purchase price of $289 million. Of this
amount, the Company issued 2,900,000 Units at a price of $24.50 per Unit
for a total of approximately $71.1 million.

In October 1997, the Company purchased from an unaffiliated party an
interest in nine Office Properties located in suburban Philadelphia for a
purchase price of approximately $127.5 million. Of this amount, the Company
issued 499,977 Units at a price of $28.775 per Unit for a total of
approximately $14.4 million. In November 1997, two additional properties
were purchased from the same party for a purchase price of approximately
$17.2 million. Of this amount, the Company issued 124,348 Units at a price
of $28.775 per Unit for a total of approximately $3.6 million.

Also, in October 1997, the Company purchased an Office Property from an
unaffiliated party located in Washington, D.C. for a purchase price of
approximately $81.7 million. Of this amount, the Company issued 741,159
Units at a price of $32.975 per Unit for a total of approximately $24.4
million.

In December 1997, the Company purchased 10 Office Properties from an
unaffiliated party located in Seattle and Bellevue, Washington, Portland,
Oregon and Anchorage, Alaska for a purchase price of $640 million. Of this
amount, the Company issued 6,051,388 Units at a price of $29.11 per Unit
for a total of approximately $176.1 million. In addition, the Company,
though a Noncontrolled Subsidiary, acquired a non-controlling interest in
the management company of the seller for approximately $20 million. Of this
amount, the Company issued 137,427 Units at a price of $29.11 per Unit for
a total of approximately $4.0 million. (2) In October 1997, the Trust
completed two private placements for a total of 9,685,034 restricted Common
Shares for a total value of approximately $273.9 million, which was
contributed to the Company in exchange for a corresponding number of Units.

Warrants

In connection with the December 1997 purchase of 10 office properties,
the Trust issued warrants that expire in December 2002 to purchase an aggregate
of 5,000,000 Common Shares at an exercise price of $39.375 per Common Share.
The warrants were valued at $3 per warrant utilizing the Black-Scholes
valuation model at the time of issuance and are reflected as an increase to
partners' capital due to the fact that upon exercise, the Company will issue
Units to the Trust on a one-for-one basis.

Ownership of Company

The limited partners of the Company as of December 31, 1997 include
various individuals and entities that contributed their properties to the
Company in exchange for a partnership interest (the "Limited Partners") and are
represented by 29,159,690 Units which are exchangeable on a one-for-one basis
into the Trust's Common Shares. As of December 31, 1997, the Trust had an
approximate 89.5% interest and the Limited Partners had an approximate 10.5%
interest.

In regards to the Trust, net proceeds from the various offerings of the
Trust, have been contributed by the Trust to the Company in return for an
increased ownership percentage. Due to the Limited Partners' ability to convert
their interest into an ownership interest in the Trust, the net offering
proceeds contributed to the Company are allocated between the Trust and the
Limited Partners (to the extent represented by Units) to account for the change
in their respective percentage ownership of the equity of the Company.

F-19
95

Preferred Units

On December 19, 1997, the Trust issued 8,000,000 8.98% Series A
Cumulative Redeemable Preferred Shares, liquidation preference of $25.00 per
share in connection with the Beacon Merger (see Note 4). Holders of the shares
are entitled to receive, when and as authorized by the Trust, cumulative
preferential cash distributions at the rate of 8.98% of the $25.00 liquidation
preference per annum (equivalent to a fixed annual amount of $2.245 per share).
Such distributions are cumulative from December 19, 1997 and are payable
quarterly in arrears on or before March 15, June 15, September 15 and December
15 of each year. Holders of the shares have no other voting rights except as
provided by law and have no preemptive rights. The shares are not convertible,
redeemable or entitled to the benefit of any sinking fund. On and after June
15, 2002, the Trust, at its option and upon not less than 30 nor more the 60
days' written notice, may redeem the shares, in whole or in part, at any time or
from time to time, for cash at a redemption price of $25.00 per share, plus all
accrued and unpaid distributions thereon to the date fixed for redemption. As a
result of this transaction, the Company issued Units to the Trust on a
one-for-one basis.

Distributions

On September 26, 1997, the Company declared a distribution of $0.26 per
Unit outstanding representing a pro rata distribution since the closing of the
IPO on July 11, 1997, based upon a full quarterly distribution of $0.30 per
Unit and an annual distribution of $1.20 per Unit, totaling approximately $43.0
million. The distribution was paid on October 9, 1997 to unitholders of record
on September 29, 1997.

On November 14, 1997, the Company declared a distribution of $0.30 per Unit
outstanding, totaling approximately $53.8 million. The distribution was paid on
December 19, 1997 to the unitholders of record at the close of business on
December 10, 1997.

Equity Office Predecessors Capital Contributions/Distributions

As of July 10, 1997, the capital partners of Equity Office Predecessors
previously committed to contribute approximately $2.114 billion, of which
approximately $2.031 billion had been cumulatively contributed by capital
partners and approximately $83 million of the commitment had been canceled.

As of July 10, 1997, the Equity Office Predecessors had cumulatively
distributed approximately $305.9 million to their capital partners.

As of December 31, 1996, the net book value of the 14 apartment buildings
and two shopping centers owned by the ZML Funds (the "Non-Office Properties"),
which were not included in the Equity Office Predecessors combined financial
statements, was approximately $285.9 million. All cash deficits incurred by the
Non-Office Properties were reflected as distributions and all excess cash flow
generated by the Non-Office Properties, including net proceeds from the sale of
these properties, are reflected as contributions to Equity Office Predecessors.
The net contributions for the period January 1, 1997 through July 10, 1997 and
the years ended December 31, 1996 and 1995 related to the Non-Office Properties
were approximately $98.7 million, $98.8 million and $0.9 million, respectively.

During 1997, 13 Non-Office Properties were sold to an affiliated party and
two Non-Office Properties were sold to unaffiliated parties which generated net
proceeds of approximately $100.7 million which is included in the $98.7 million
net contributions from the Non-Office Properties for the period from January 1,
1997 to July 10, 1997. The ZML Fund I distributed its interest in the remaining
Non-Office Property to its capital partners prior to the Consolidation.

During 1996, two Non-Office Properties were sold to unaffiliated parties
which generated net proceeds of approximately $96.7 million which was included
in the $98.8 million net contributions from Non-Office Properties for the year
ended December 31, 1996.

F-20
96

NOTE 13--FUTURE MINIMUM RENTS

Future minimum rental receipts due on noncancelable operating leases at
the Office Properties and Parking Facilities as of December 31, 1997 were as
follows:

(Dollars in thousands)
------------------------------------

1998 $1,049,857
1999 990,423
2000 865,410
2001 731,171
2002 587,791
Thereafter 1,982,691
------------------------------------
$6,207,343
====================================

The Company is subject to the usual business risks associated with the
collection of the above scheduled rents. The future minimum rents from the
Company's investment in unconsolidated joint ventures which are accounted for
utilizing the equity method, have not been included in the above schedule.

NOTE 14--FUTURE MINIMUM LEASE PAYMENTS

As of December 31, 1997, the Company's ownership of 13 Office
Properties and one of its Parking Facilities 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 financial
calculations of the respective property. As disclosed in Note 19, the Company
leases its office space from an affiliate. In addition, the Company has assumed
lease obligations of certain tenants at their former locations. Future minimum
lease obligations under these noncancelable leases, net of sublease rental
income, as of December 31, 1997 were as follows:

(Dollars in thousands)
------------------------------------

1998 $6,099
1999 5,481
2000 5,531
2001 5,567
2002 4,604
Thereafter 456,289
------------------------------------
$483,571
====================================

Rental expense for the years ended December 31, 1997, 1996 and 1995, was
approximately $7.2 million, $4.5 million and $2.4 million, respectively.

NOTE 15--EXTRAORDINARY ITEMS AND PROVISIONS FOR VALUE IMPAIRMENT

As reflected in the consolidated statement of operations for the period
from July 11, 1997 through December 31, 1997, and the combined statement of
operations for the period from January 1, 1997 through July 10, 1997, the
Company and Equity Office Predecessors reported an extraordinary loss of
approximately $16.4 million and $0.3 million, respectively, related to
pre-payment penalties on debt retired prior to maturity during the respective
periods with net proceeds from the IPO and available cash reserves.

As reflected in the combined statement of operations for the year ended
December 31, 1995, Equity Office Predecessors reported an extraordinary gain of
approximately $31.3 million on the repurchase of debt, which is net of the $20.0
million minority partners' share, and a provision for value impairment of
approximately $20.2 million related to Equity Office Predecessors' investment in
San Felipe Plaza Ltd.

F-21
97

NOTE 16--EARNINGS PER UNIT
The following table sets forth the computation of basic and diluted
earnings per Unit:

[CAPTION]
For the period from
July 11, 1997 through
December 31, 1997
- -------------------------------------------------------------------------------

NUMERATOR:
Net income available to Units before extraordinary items
and gain on sales of real estate $94,313,000
Gain on sales of real estate 126,000
Extraordinary items (16,366,000)
-----------------------------------------------------------------------------

Numerator for basic and diluted earnings per unit--income
available to Units $78,073,000
=============================================================================
Denominator:
Denominator for basic earnings per unit--weighted
average Units 178,647,562
-----------------------------------------------------------------------------
Effect of dilutive securities:
Units issuable upon execise of Trust Stock Options 1,366,465
-----------------------------------------------------------------------------
Denominator for diluted earnings per unit--adjusted
weighted average units and assumed conversions 180,014,027
=============================================================================
BASIC EARNINGS AVAILABLE TO UNITS PER
WEIGHTED AVERAGE UNIT:
Net income before extraordinary items and gain
on sales of real estate $.53
Gain on sales of real estate --
Extraordinary Items (.09)
-----------------------------------------------------------------------------
Net income per Unit $.44
=============================================================================
DILUTED EARNINGS AVAILABLE TO UNITS PER
WEIGHTED AVERAGE UNIT:
Net income before extraordinary items and gain
on sales of real estate $.52
Gain on sales of real estate --
Extraordinary items (.09)
---------------------------------------------------------------------------
Net income per Unit $.43
=============================================================================

For additional disclosures regarding the employee stock options and the
restricted shares see Note 21.

Options to purchase 726,500 Units at a weighted average exercise price
of $32.93 per Common Share and warrants to purchase 5,000,000 Common Shares at
an exercise price of $39.375 per Common Share were outstanding during 1997 but
were not included in the computation of diluted earnings per Unit because the
respective exercise prices were greater than the average market price of the
Common Shares and, therefore, the effect would be antidilutive.

On February 13, 1998, the Trust issued 6,000,000 Preferred Income Equity
Redeemable Shares ("PIERS") and the net proceeds of $290.3 million that were
contributed to the Company were used to repay debt (see Note 25). The PIERS are
convertible at any time, at the option of the holder, unless previously
redeemed, into Common Shares at a conversion price of $35.70 per Common Share.
Upon conversion, the Company would issue a corresponding number of Units to the
Trust, on a one-for-one basis. In addition, on February 17, 1998, the Trust
issued 2 million Options at an exercise price of $29.50 per Common Share under
the Employee Plan.

NOTE 17--PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)

The pro forma data presented below is included to illustrate the effect
on the Company's operations as a result of the transactions described below.

F-22
98
The pro forma condensed combined statement of operations for the year
ended December 31, 1997 reflects the following transactions as if they had
occurred on January 1, 1997: (a) the acquisition of 46 Office Properties and
seven Parking Facilities, including an interest in four Parking Facilities,
acquired between January 1, 1997 and December 17, 1997, and the disposition of
two Office Properties; (b) the $180 Million Notes Offering; (c) the
Consolidation and the IPO, and the decrease in interest expense resulting from
the use of the net proceeds for the repayment of mortgage debt; (d) the net
change in interest expense from draws on the various credit facilities (see
Note 8) used to refinance existing mortgage debt; (e) interest income from an
interest in a mortgage note; (f) the Beacon Merger (see Note 4); (g) the $1.25
Billion Notes Offering and the $250 Million MOPPRS Offering (see Note 25); (h)
the $300 Million PIERS Offering (see Note 25); and (i) the financing of certain
properties.

The pro forma condensed combined statement of operations for the year
ended December 31, 1996 reflects the following transactions as if they had
occurred on January 1, 1996: (a) the acquisition of 57 Office Properties and 14
Parking Facilities, including an interest in four Parking Facilities, acquired
between January 1, 1996 and December 17, 1997, and the disposition of two
Office Properties; (b) the $180 Million Notes Offering; (c) the Consolidation
and the IPO, and the decrease in interest expense resulting from the use of the
net proceeds for the repayment of mortgage debt; (d) the net change in interest
expense from draws on the various credit facilities (see Note 8) used to
refinance existing mortgage debt; (e) interest income from an interest in a
mortgage note; (f) the Beacon Merger (see Note 4); (g) the $1.25 Billion Notes
Offering and the $250 Million MOPPRS Offering (see Note 25); (g) the $300
Million PIERS Offering (see Note 25); and (h) the financing of certain
properties.

The accompanying pro forma combined statements of operations have been
prepared by management of the Company and do not purport to be indicative of
the results which would actually have been obtained had the transactions
described above been completed on the dates indicated or which may be obtained
in the future.

For the years ended December 31,
(Dollars in thousands, except unit data) 1997 1996
- ------------------------------------------------------------------------------

REVENUES:
Rental $1,126,729 $1,023,596
Tenant reimbursements 201,678 170,096
Parking 63,707 60,209
Other 27,648 43,526
Fees from noncombined affiliates 8,210 8,125
Interest 23,140 21,143
- ------------------------------------------------------------------------------
Total revenues 1,451,112 1,326,695
- ------------------------------------------------------------------------------
EXPENSES:
Property operating 516,555 484,882
Interest 274,940 269,998
Depreciation 252,631 251,723
Amortization 12,214 8,782
General and administrative 56,966 32,644
- ------------------------------------------------------------------------------
Total expenses 1,113,306 1,048,029
- ------------------------------------------------------------------------------
Income before allocation to minority interests,
income from investment in unconsolidated
joint ventures, gain on sales of real estate
and extraordinary items 337,806 278,666

DISCONTINUED OPERATIONS:
Loss from operations--Construction Company (2,263) (2,609)
Loss on sale--Construction Company -- (249)

MINORITY INTERESTS:
Partially owned properties (1,757) (2,142)
Income from investment in unconsolidated
joint ventures 12,920 9,850
Gain on sales of real estate -- 21,843

F-23
99

Preferred dividends (33,710) (33,710)
- ---------------------------------------------------------------------------------------------------------------------

INCOME BEFORE EXTRAORDINARY ITEMS 312,996 271,649
Extraordinary items (16,365) --
- ---------------------------------------------------------------------------------------------------------------------
Net income $296,631 $271,649
=====================================================================================================================
Basic earnings per weighted average Unit $1.06 $.98
=====================================================================================================================
Weighted average Units outstanding--Basic 278,687,353 278,687,353
=====================================================================================================================
Diluted earnings per weighted average Unit $1.05 $.96
=====================================================================================================================
Weighted average Units outstanding--Diluted 282,872,353 282,872,353
=====================================================================================================================

NOTE 18 -- QUARTERLY DATA (UNAUDITED)

The quarterly data is as follows:

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

4Q 3Q 2Q 1Q
(Dollars in thousands, except unit data) 12/31/97 9/30/97(A) 6/30/97 3/31/97
Total revenues $248,400 $183,886 $165,219 $154,567
Income before allocation to minority interests 46,704 45,736 23,331 24,910
Net income $ 44,631 $ 33,877 $ 30,853 $ 30,769
Net income available to Units $ 43,982 $ 33,877 $ 30,853 $ 30,769
- -----------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE UNITS
OUTSTANDING 191,572,234 164,146,710 -- --
- -----------------------------------------------------------------------------------------------------------------------
Basic earnings per weighted average
Units $0.23 $0.21 $ -- $ --
Diluted earnings per weighted average
Units $0.22 $0.21 $ -- $ --

4Q 3Q 2Q 1Q
(Dollars in thousands) 12/31/96 9/30/96 6/30/96 3/31/96

Total revenues $154,887 $126,117 $116,970 $110,150
Income before allocation to minority interests 29,688 11,015 14,543 12,834
Net income $ 30,383 $ 11,024 $ 14,040 $ 17,978
- -----------------------------------------------------------------------------------------------------------------------

(A)This column includes the operations of Equity Office Predecessors from July
1, 1997 through July 10, 1997 and the operations of the Company from July 11,
1997 through September 30, 1997. The earnings per unit disclosures pertain only
to the operations of the Company from July 11, 1997 through September 30, 1997.

NOTE 19--RELATED PARTY TRANSACTIONS

Affiliates provide various services to the Company. Fees and
reimbursements paid by the Company to affiliates for the years ended December
31, 1997, 1996 and 1995 were as follows:

Paid Payable as of
years ended December 31, December 31,
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1997 1996
- -----------------------------------------------------------------------------------------------------------------------

Acquisition fees(A) $777 $3,068 $1,097 $ -- $587
Accounting and tax related services 68 797 554 -- 61
Legal fees and expenses(B) 3,006 3,481 3,230 550 1,295
Office rent(C) 1,068 777 668 79 --
Disposition fees -- 124 -- -- --
Development fees(D) 434 702 438 -- --
Reimbursement of property insurance premiums 6,790 5,032 3,735 32 --
Organizational and offering expenses(E) 106 778 180 -- 106
Administrative services(F) 473 822 609 71 20
Consulting 832 274 410 1 5
- -----------------------------------------------------------------------------------------------------------------------
$13,554 $15,855 $10,921 $733 $2,074
=======================================================================================================================

F-24
100
(A)Represents amounts paid by Equity Office Predecessors to Merrill Lynch, a
limited partner of the general partner of the ZML Funds.

(B)Represents amounts primarily paid to Rosenberg & Liebentritt, P.C., a law
firm, for legal fees and expenses in connection with acquisition, corporate and
leasing activity. A trustee of the Company was a principal of this law firm
until September 1, 1997 and is now of counsel.

(C)The Company leases its corporate office space from an affiliate of the
Equity Group.

(D)The renovation project at the 28 State Street Office Building was being
managed by an affiliate of the Equity Group. In consideration for their
services, the development managers were paid fees which management believes are
equal to or less than market for such services.

(E)Affiliates of the Equity Group were reimbursed for reasonable costs incurred
in connection with the organization and the offering of units in the ZML Funds,
including legal and accounting fees and expenses, printing costs and filing
fees.

(F)Administrative services include fees paid to EGI for centralized services
such as payroll processing, employee benefits, telecommunications, publications
and consulting services such as economic and demographics research for possible
acquisitions.

An affiliate of the Equity Group has an indirect minority interest in
Standard Parking Limited Partnership ("SPLP") which manages the parking
operations at certain Properties that are owned by the Company. Management
believes amounts paid to SPLP are equal to market for such services.

F-25
101
Amounts Received and Due from Affiliates

Affiliates of the Company lease space in certain of the Office
Properties owned by the Company. The provisions of the leases are consistent
with terms of unaffiliated tenants' leases. Total rents and other amounts paid
by affiliates under the terms of their respective leases were approximately
$3.0 million and $3.5 million for the years ended December 31, 1997 and 1996,
respectively.

The Company provides asset and property management services to certain
noncombined office and garage properties owned by affiliates of the Equity
Group. Amounts due for these services as of December 31, 1997 and 1996 were
approximately $0.2 million and $0.8 million, respectively.

The Company entered into various lease agreements with SPLP whereby
SPLP leased certain of the Company's stand-alone Parking Facilities. Certain of
these lease agreements provide SPLP with annual successive options to extend
the term of the lease through various dates. The rent paid in the years ended
December 31, 1997 and 1996 under these lease agreements was approximately $11.0
million and $3.2 million, respectively. In addition, the Company may receive
additional rent based upon actual gross revenues generated by these Parking
Facilities. In accordance with certain of these leases, the Company may be
obligated to make an early termination payment if agreement is not reached as
to rent amounts to be paid.

NOTE 20--NON-CASH INVESTING AND FINANCING ACTIVITIES

Additional supplemental disclosures of non-cash investing and financing
activities are as follows:

- -------------------------------------------------------------------------
EOP Operating
Limited Partnership
for the period from
July 11, 1997 through
(Dollars in thousands) December 31, 1997
- -------------------------------------------------------------------------

Mortgage loans and lines
of credit assumed
through Beacon Merger $1,160,451
Net liabilities assumed
through Beacon Merger $72,034
Units issued through
Beacon Merger
(assuming exercise
of 4,732,822 Options) $2,853,266
8.98% Series A Cumulative
Redeemable Preferred
Units issued through
Beacon Merger $200,000
Units issued through
property acquisitions
(including warrants
valued at $15.0 million) $357,672
Mortgage loans assumed
through property
acquisitions $263,048
Mortgage loans and line
of credit assumed in the
Consolidation $2,196,708
Net liabilities assumed
in the Consolidation $62,706
Units issued in the Consolidation $2,830,918
- -------------------------------------------------------------------------

In addition, Equity Office Predecessors assumed mortgage loans through
property acquisitions of approximately $92.1 million and $265.8 million for the
years ended December 31, 1996 and 1995, respectively.

NOTE 21--SHARE OPTION PLAN AND RESTRICTED SHARE PLAN

The following is a description of the Trust's 1997 Share Option and Share
Award Plan (the "Employee Plan") which is included in the financial statements
becasue any Common Shares issued pursuant to the Employee Plan will result in
the Company issuing Units to the Trust, on a one-for-one basis.

In July 1997, the Trust adopted 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, key employees and consultants of the Company were offered
the opportunity to acquire Common Shares pursuant to grants of options to
purchase Common Shares ("Options"), and to receive dividend equivalent rights
with respect to Common Shares ("Dividend Equivalents") and to receive Restricted
Shares. The Compensation Committee of the Trust determines the vesting schedule,
if any, of each Option and the term, which term shall not exceed 10 years from
the date of grant. As to the Options that have been granted through December 31,
1997, generally, one-third are exercisable one year after the initial grant,
one-third are exercisable two years following the date such Options were granted
and the remaining one-third are exercisable three years following the date such
Options were granted. With respect to the Restricted Shares granted through
December 31, 1997, generally, one-half vest three years after the initial grant,
one-fourth vest four years following the date such Restricted Shares were
granted and the remaining one-fourth vest five years following the date such
Restricted Shares were granted. The Common Shares subject to Options under the
Employee Plan were limited to 11,121,786. In connection with the establishment
of the Employee Plan, the Trust granted Options to purchase Common Shares to
certain officers, trustees, employees and consultants of the Company at the IPO
price. In addition, the Employee Plan permits the Company to issue Restricted
Shares to executive or other key employees upon such terms and conditions as
shall be determined by the Compensation Committee in its sole discretion.

F-26
102

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. The Share Option Plan will terminate at such time as no
further Common Shares are available for issuance upon the exercise of Options
and all outstanding Options have expired or been exercised. The Board of
Trustees of the Trust may at any time amend or terminate the Employee Plan, but
termination will not affect Options previously granted. Any Options which had
vested prior to such termination would remain exercisable by the holder
thereof.

The Employee Plan is administered by the Compensation Committee which
is appointed by the Board of Trustees of the Trust. The Compensation Committee
determines those officers, employees, trustees and consultants to whom, and the
time or times at which, grants of Options will be made. The Compensation
Committee interprets the Employee Plan, adopts rules relating thereto and
determines the terms and provisions of Options.

The Company 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 Common Shares over the exercise price on the
measurement date. For the Trust's Options, the intrinsic value on the
measurement date (or grant date) is zero, and no compensation expense is
recognized. Financial Accounting Standards Board No. 123 ("FASB No. 123")
requires the Company to disclose pro forma net income and 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
the Company's Options granted in 1997 was estimated at the time the Options
were granted using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of 5.59%; dividend yields
of 4%; volatility factors of the expected market price of the Trust's Common
Shares of .24; and a weighted average expected life of the Options and the
Restricted Shares of five years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Trust's Options have characteristics significantly
different from those of 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.

For purposes of pro forma disclosures, the estimated fair value of the
Options is amortized to expense over the Options' vesting period. The following
is the unaudited pro forma information for the period from July 11, 1997 through
December 31, 1997:

For the period from July 11, 1997
(Dollars in thousands) through December 31, 1997
- --------------------------------------------------------------------------

Pro forma net income before extraordinary items $85,654
Extraordinary items $(16,240)
- --------------------------------------------------------------------------
Pro forma net income available to Units $69,414
==========================================================================

Basic Diluted
earnings per earnings per
Unit Unit
- ----------------------------------------------------------------------------------------

Pro forma income before extraordinary items $.53 $.51
Extraordinary Items (.10) (.09)
- ----------------------------------------------------------------------------------------
Pro forma net income $.43 $.42
========================================================================================

As of December 31, 1997, there were no Options issued under the Employee
Plan that were exercisable or Restricted Shares that were vested. Exercise
prices for the 4,911,500 Options outstanding as of December 31, 1997 ranged from
$21.00 to $33.00, with a weighted average exercise price of $22.80. Expiration
dates ranged from July 11, 2007 to December 19, 2007. The remaining weighted
average contractual life of Options was 9.65 years. The weighted average grant
date fair value of Options granted during 1997 was $4.44. In addition, there
were 298,000 Restricted Shares issued during 1997.

F-27
103

NOTE 22--EMPLOYEE SHARE PURCHASE PLAN

The following description of the Trust's 1997 Non-Qualified Employee Share
Purchase Plan (the "Purchase Plan") is included in these financial statements
because any Common Shares issued pursuant to the Purchase Plan will result in
the Company issuing Units to the Trust, on a one-for-one basis.

In July 1997, the Trust adopted the Purchase Plan for the purpose of
attracting highly qualified executive officers, trustees and employees. The
Trust has reserved 2 million Common Shares (subject to adjustment for share
splits, share distributions, recapitalizations, or other corporate
restructurings) for issuance pursuant to the Purchase Plan.

The Purchase Plan is administered by the Compensation Committee of the
Trust and allows eligible employees and trustees to acquire an interest in the
Trust through the purchase of Common Shares from the Trust at a price equal to
85% of the lesser of (i) the closing price of the Common Shares on the New York
Stock Exchange ("NYSE") on the day prior to the purchase or (ii) the average
closing price of Common Shares on the NYSE for the six-month period prior to
the purchase.

Common Shares will be offered under the Purchase Plan in semi-annual
offering periods. No such Common Shares were offered as of December 31, 1997.
Eligible employees and trustees who elect to participate in the Purchase Plan
will be able to use funds accumulated through cash contributions or payroll
deductions to purchase Common Shares at a price less than the fair market value
of the Common Shares on the date of purchase.

NOTE 23--401(K) PLAN

The Trust has established the Equity Office Properties Trust Section
401(k) Savings/Retirement Plan (the "401(k) Plan") to cover eligible employees
of the Company and any designated affiliate.

The 401(k) Plan permits eligible employees of the Company to defer up to
16% of their annual compensation, subject to certain limitations imposed by the
Internal Revenue Code. The employees' elective deferrals are immediately vested
and nonforfeitable upon contribution to the 401(k) Plan. The Company matches
dollar for dollar employee contributions to the 401(k) Plan up to 4% of the
employee's annual salary. In addition, the Company may elect to make a
discretionary profit sharing contribution.

NOTE 24--COMMITMENTS AND CONTINGENCIES

Concentration of Credit Risk

The Company maintains its cash and cash equivalents at financial
institutions. The combined account balances at each institution periodically
exceeds 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 the Company believes that the risk is not significant. In
addition, the Company has entered into certain interest rate protection
agreements (see Note 10) and believes it has limited exposure to the extent of
non-performance by the swap counterparties since each counterparty is a major
U.S. financial institution, and management does not anticipate their
non-performance.

Environmental

The Company, as an owner of real estate, is subject to various
environmental laws of federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on the Company's
financial condition and results of operations, and management does not believe
it will have such an impact in the future. However, the Company cannot predict
the impact of new or changed laws or regulations on its current properties or
on properties that it may acquire in the future.

Litigation

The Company has become a party to various legal actions resulting from
the operational activities transferred to the Operating Partnership in
connection with the Consolidation and the Beacon Merger. These actions are
incidental to the transferred business and management does not believe that
these actions will have a material adverse effect on the Company.

The Company is involved in continuing discussions with its joint venture
partner in One Post Office Square and Rowes Wharf, which was acquired in
connection with the Beacon Merger, with respect to the Company's control over
property management of such Properties. Such joint venture partner did
not consent to the transfer to the Company of Beacon's joint venture interest in
these Properties. Although the Company believes that such consent was not
required, unless the Company is able to reach an agreement with respect to
day-to-day management of such Properties, it is possible that the joint venture
partner could challenge the transfer of such Properties in the Beacon Merger,
or seek to trigger the buy-sell remedy found in the joint venture documents.

Except as described above, management of the Company does not believe there
is any litigation threatened against the Company other than routine litigation
arising out of the ordinary course of business, some of which is expected to be
covered by liability insurance, and none of which is expected to have a material
adverse effect on the consolidated and combined financial statements of the
Company.

F-28
104

Geographical Risk

The Company carries earthquake insurance on all of the Properties,
including those located in California, subject to coverage limitations which
the Company believes are commercially reasonable. In light of the California
earthquake risk, California building codes since the early 1970s have
established construction standards for all new buildings. The current and
strictest construction standards were adopted in 1987. Of the 43 Properties
located in California, 12 have been built since January 1, 1988 and the Company
believes that all of the Properties were constructed in full compliance with
the applicable standards existing at the time of construction. No assurance can
be given that material losses in excess of insurance proceeds will not occur in
the future.

NOTE 25--SUBSEQUENT EVENTS
The following significant transactions relating to the Company occurred
during the period from January 1, 1998 to March 18, 1998:

1) In January 1998, the Company acquired BP Garage, located in Cleveland,
Ohio, from an unaffiliated third party for a purchase price of
approximately $10.2 million in cash.

2) In February 1998, the Trust completed the private placement of 6,000,000 of
its 5.25% Preferred Income Equity Redeemable Shares(SM) (PIERS), $50
liquidation per share. This offering generated net proceeds of
approximately $290.3 million after offering costs of $9.7 million and was
priced with a 20% conversion premium. The PIERS are convertible at any time
by the holder into Common Shares at a conversion price of $35.70 per Common
Share, equivalent to a conversion ratio of 1.40056 Common Shares for each
PIERS. Proceeds from this sale were contributed to the Company in exchange
for a corresponding number of Series B Preferred Units and have been used
to pay down borrowings under the Company's credit facilities. The PIERS are
non-callable for five years with a mandatory call in year 10. The annual
dividend of $2.625 per PIERS will be paid quarterly.

3) In February 1998, the Company completed the private placement of $1.25
billion of senior unsecured notes (the "$1.25 Billion Notes Offering"). The
notes consist of four tranches with maturities of five to 20 years which
were priced at an interest rate spread over the corresponding Treasury
rate.

Additionally, the Company privately placed $250 million of 6.376%
Mandatory Par Put Remarketed Securities ("$250 Million MOPPRS Offering")
due February 15, 2012, which are subject to mandatory tender on February
15, 2002. The MOPPRS are senior unsecured obligations of the Company.

The proceeds to the Company from the issuance of the $1.25 Billion Notes
and $250 Million MOPPRS, net of offering costs, were approximately $1.49
billion. The Company has terminated $700 million of hedge agreements in
connection with the $1.25 Billion Notes Offering and the $250 Million Notes
Offering at a cost of approximately $32.6 million which will be amortized
as an adjustment to interest expense. The Company terminated the remaining
$300 million of hedge agreements at a cost of approximately $7.4 million in
connection with the PIERS which will be reflected as an extraordinary loss
in 1998 (see Note 10). The weighted average interest cost of the notes and
MOPPRS, including the amortization of the offering and transaction costs
and the costs incurred in connection with the termination of hedge
agreements is approximately 6.97%.

A summary of the terms of the $1.25 Billion Notes Offering and $250 Million
MOPPRS Offering are as follows:

Stated Effective
Tranche Amount Rate Rate(A)
-------------------------------------------------------------------------------

4 Year MOPPRS due 2002 $250,000,000 6.38% 6.42%
5 Year Notes due 2003 300,000,000 6.38% 6.77%
7 Year Notes due 2005 400,000,000 6.63% 7.06%
10 Year Notes due 2008 300,000,000 6.75% 7.03%
20 Year Notes due 2018 250,000,000 7.25% 7.56%
-------------------------------------------------------------------------------
$1,500,000,000 6.66% 6.97%
===============================================================================

(A) Includes the cost of the terminated interest rate protection
agreements and offering and transaction costs.

On March 5, 1998, the Company filed a registration statement relating to an
offer to exchange the $180 Million Notes, the $1.25 Billion Notes and the
$250 Million MOPPRS for registered securities of the Company with terms
identical in all material respects to the terms of the existing notes.

F-29
105
4) In February 1998, the Company entered into a contract to purchase the Rand
Tower Garage in Minneapolis, Minnesota, upon completion of the parking
structure. The purchase price for Rand Tower Garage, which is comprised of
589 parking spaces in Minneapolis' Central Business District, will be
approximately $19 million. Although the project is slated for completion in
January 1999, this transaction is contingent upon certain terms and
conditions as set forth in the purchase agreement. There can be no
assurance that this transaction will be consummated as described above.

5) In February 1998, the Trust issued 2.0 million Options at an exercise price
of $29.50 per Common Share under the Employee Plan.

6) In February 1998, the Company obtained financing of $60 million
collateralized by the St. Louis Parking Garages. The Company has a 50%
ownership interest in this Parking Facility and, accordingly, received $30
million of the financing proceeds. This loan has a 6.85% fixed interest
rate and a six year term.

7) In March 1998, the Trust's Board of Trustees declared a first quarter
dividend for the 8.98% Series A Cumulative Redeemable Preferred Shares. A
dividend of $0.56125 per share will be paid on March 15, 1998
to shareholders of record as of March 9, 1998. In addition, the Trust's
Board of Trustees declared a first quarter dividend/distribution in the
amount of $0.32 per Common Share/Unit payable on April 10, 1998, to common
shareholders/unitholders of record at the close of business on March 31,
1998.

8) In March 1998, the Trust's Board of Trustees approved the purchase of
Prominence in Buckhead, an office building development in Atlanta, Georgia.
The property, which will consist of a 430,000 square foot building and
1,350 parking spaces will be acquired upon its completion in mid 1999. The
purchase will also include an 11.88-acre site that may be used to develop
Phase II to Prominence. The purchase price for the described assets will be
approximately $70 million. This transaction is contingent upon certain
terms and conditions as set forth in the purchase agreement. There can be
no assurance that this transaction will be consummated as described above.

9) In March 1998, the Company purchased from an unaffiliated party 100 Summer
Street, which consists of approximately 1.0 million total square feet and
is located in Boston, Massachusetts. The purchase price was approximately
$222.5 million in cash.

F-30
106
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 1997

Costs
Initial Cost to Capitalized Subsequent
Company To Acquisition
---------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 Buildings and Buildings and
Description Location Encumbrances Land Improvements Land Improvements
---------------------------------------------------------------------------------------------------------------------------------

Office Properties:

1 60 Spear Street Building (3) San Francisco, CA $ 0 $ 2,125,200 $ 19,126,500 $0 $ 0
2 San Felipe Plaza (3) Houston, TX 53,087,500 13,471,300 117,984,100 0 2,131,400
3 Summit Office Park (3) Ft. Worth, TX 0 1,421,000 12,789,700 0 311,400
4 5100 Brookline (3) Oklahoma City, OK 0 570,700 4,236,500 0 120,100
5 Tampa Commons (3) Tampa, FL 0 2,783,900 25,054,600 0 19,200
6 Intercontinental Center (3) Houston, TX 0 1,750,700 14,406,300 0 43,500
7 First Union Center (3) Ft. Lauderdale, FL 0 3,954,000 35,585,900 0 74,400
8 Four Forest (3) Dallas, TX 0 4,767,900 42,911,400 0 590,100
9 Dominion Tower (3) Norfolk, VA 0 4,643,700 41,091,200 0 238,800
10 Northborough Tower (3) Houston, TX 0 1,704,000 12,185,800 0 292,300
11 500 Marquette Building (3) Albuquerque, NM 0 2,219,900 19,978,500 0 370,200
12 Atrium Towers (3) Oklahoma City, OK 0 749,000 6,741,600 0 374,300
13 One Clearlake Centre (3) W. Palm Beach, FL 0 4,585,700 18,771,300 0 562,000
14 Community Corporate Center (3) Columbus, OH 16,719,900 3,018,900 27,169,800 0 200,900
15 Sarasota City Center (3) Sarasota, FL 0 2,239,600 20,156,700 0 72,500
16 Denver Corporate Center
II and III (3) Denver, CO 0 6,059,400 36,534,300 0 603,300
17 University Tower (3) Durham, NC 0 2,085,100 18,766,200 0 146,800
18 Shelton Pointe (3) Shelton, CT 0 1,513,900 13,625,200 0 245,700
19 San Jacinto Center (3) Austin, TX 0 5,074,500 45,670,600 0 877,900
20 1111 19th Street (3) Washington D.C. 0 5,024,000 45,216,000 0 154,700
21 Bank One Center/Tower (3) Indianapolis, IN 0 14,608,200 131,473,600 0 1,206,700
22 North Central Plaza Three (3) Dallas, TX 0 3,632,100 32,689,300 0 273,700
23 The Quadrant (3) Englewood, CO 0 4,357,200 39,215,300 0 634,100
24 Canterbury Green (3)(4)Stamford, CT 19,034,200 0 41,987,100 0 370,500
25 Three Stamford Plaza (3) Stamford, CT 16,562,800 3,956,600 35,609,700 0 163,100
26 Union Square (3) San Antonio, TX 0 2,368,500 14,236,000 0 289,100
27 One North Franklin (3) Chicago, IL 0 9,830,500 88,474,400 0 378,800
28 1620 L Street (3) Washington, DC 0 2,708,200 24,374,100 0 662,500
29 One & Two Stamford Plaza (3) Stamford, CT 0 8,267,700 74,409,300 0 796,400
30 300 Atlantic Street (3) Stamford, CT 0 4,632,300 41,690,900 0 522,000
31 Sterling Plaza (3) Dallas, TX 0 3,810,600 34,295,500 0 367,800
32 1700 Higgins (3) Des Plaines, IL 3,379,700 (5) 1,323,100 11,907,900 0 29,400
33 Franklin Plaza (3) Austin, TX 34,087,800 (5) 6,502,400 58,521,300 0 1,269,800
34 Northwest Center (3) San Antonio, TX 6,465,100 (5) 1,947,900 17,531,900 0 132,600
35 One Columbus Building (3) Columbus, OH 29,386,100 (5) 4,956,300 44,606,300 0 316,200
36 One Crosswoods Center (3) Columbus, OH 3,449,200 (5) 1,058,900 9,529,700 0 188,100
37 One Lakeway (3) Metairie, LA 9,697,600 (5) 2,803,900 25,235,400 0 327,000
38 Three Lakeway (3) Metairie, LA 17,018,700 (5) 4,695,000 43,517,200 0 1,097,300
39 Two Lakeway (3) Metairie, LA 14,692,600 (5) 4,643,500 41,791,800 0 523,700
40 Westshore Center (3) Tampa, FL 7,052,600 (5) 1,978,800 17,808,700 0 150,300
41 NationsBank Plaza (3) Nashville, TN 0 3,049,200 27,443,100 0 229,900
42 The Plaza at La Jolla Village (3) San Diego, CA 57,943,100 11,839,400 98,247,900 0 351,200
43 Interco Corporate Tower (3) Clayton, MO 22,038,100 4,688,400 42,195,200 0 338,100
44 9400 NCX (3) Dallas, TX 0 3,570,000 32,129,700 0 1,895,200
45 Four Stamford Plaza (3) Stamford, CT 15,825,200 4,470,900 40,237,900 0 94,300
46 1920 Main Street Plaza (3) Irvine, CA 0 5,480,700 47,525,800 0 690,100
47 Paces West (3) Atlanta, GA 0 12,833,700 75,024,500 0 1,425,000
48 One Market (3) San Francisco, CA 151,265,200 34,814,400 313,329,700 0 18,864,800
49 2010 Main Street Plaza (3) Irvine, CA 0 5,197,100 46,773,700 0 259,700

Gross Amount Carried
at Close of
Period 12/31/97
---------------------------------------------------------------------------------------------------------------------------
Buildings and Accumulated Date Date Depreciable
Description Land Improvements Total (1) Depreciation Constructed Acquired Lives (2)
---------------------------------------------------------------------------------------------------------------------------

Office Properties:

1 60 Spear Street Building $ 2,125,200 $ 19,126,500 $ 21,251,700 $ (218,700) 1967 9/29/87 40
2 San Felipe Plaza 13,471,300 120,115,500 133,586,800 (1,487,800) 1984 9/29/87 40
3 Summit Office Park 1,421,000 13,101,100 14,522,100 (163,300) 1974 3/01/89 40
4 5100 Brookline 570,700 4,356,600 4,927,300 (53,100) 1974 3/01/89 40
5 Tampa Commons 2,783,900 25,073,800 27,857,700 (286,400) 1985 4/25/89 40
6 Intercontinental Center 1,750,700 14,449,800 16,200,500 (165,500) 1983 6/28/89 40
7 First Union Center 3,954,000 35,660,300 39,614,300 (407,900) 1991 6/28/89 40
8 Four Forest 4,767,900 43,501,500 48,269,400 (523,900) 1985 6/29/89 40
9 Dominion Tower 4,643,700 41,330,000 45,973,700 (482,100) 1987 7/25/89 40
10 Northborough Tower 1,704,000 12,478,100 14,182,100 (149,600) 1983 8/03/89 40
11 500 Marquette Building 2,219,900 20,348,700 22,568,600 (255,000) 1985 8/15/89 40
12 Atrium Towers 749,000 7,115,900 7,864,900 (94,600) 1980 12/15/89 40
13 One Clearlake Centre 4,585,700 19,333,300 23,919,000 (239,900) 1987 12/29/89 40
14 Community Corporate Center 3,018,900 27,370,700 30,389,600 (327,100) 1987 6/14/90 40
15 Sarasota City Center 2,239,600 20,229,200 22,468,800 (236,800) 1989 9/28/90 40
16 Denver Corporate Center
II and III 6,059,400 37,137,600 43,197,000 (427,200) 1981-82 12/20/90 40
17 University Tower 2,085,100 18,913,000 20,998,100 (226,100) 1987 10/16/91 40
18 Shelton Pointe 1,513,900 13,870,900 15,384,800 (160,300) 1985 11/26/91 40
19 San Jacinto Center 5,074,500 46,548,500 51,623,000 (555,400) 1987 12/13/91 40
20 1111 19th Street, N.W. 5,024,000 45,370,700 50,394,700 (527,900) 1979 12/18/91 40
21 Bank One Center Tower 14,608,200 132,680,300 147,288,500 (1,543,200) 1990 3/24/92 40
22 North Central Plaza Three 3,632,100 32,963,000 36,595,100 (472,100) 1986 4/21/92 40
23 The Quadrant 4,357,200 39,849,400 44,206,600 (464,200) 1985 12/01/92 40
24 Canterbury Green 0 42,357,600 42,357,600 (482,800) 1987 12/15/92 40
25 Three Stamford Plaza 3,956,600 35,772,800 39,729,400 (419,800) 1980 12/15/92 40
26 Union Square 2,368,500 14,525,100 16,893,600 (179,100) 1986 12/23/92 40
27 One North Franklin 9,830,500 88,853,200 98,683,700 (1,026,800) 1991 12/31/92 40
28 1620 L Street 2,708,200 25,036,600 27,744,800 (329,400) 1989 2/05/93 40
29 One & Two Stamford Plaza 8,267,700 75,205,700 83,473,400 (899,100) 1986 3/30/93 40
30 300 Atlantic Street 4,632,300 42,212,900 46,845,200 (501,200) 1987 3/30/93 40
31 Sterling Plaza 3,810,600 34,663,300 38,473,900 (409,100) 1984 6/25/93 40
32 1700 Higgins 1,323,100 11,937,300 13,260,400 (138,900) 1986 11/12/93 40
33 Franklin Plaza 6,502,400 59,791,100 66,293,500 (741,000) 1987 11/12/93 40
34 Northwest Center 1,947,900 17,664,500 19,612,400 (206,300) 1984 11/12/93 40
35 One Columbus Building 4,956,300 44,922,500 49,878,800 (515,000) 1987 11/12/93 40
36 One Crosswoods Center 1,058,900 9,717,800 10,776,700 (119,100) 1984 11/12/93 40
37 One Lakeway 2,803,900 25,562,400 28,366,300 (305,400) 1981 11/12/93 40
38 Three Lakeway 4,695,000 44,614,500 49,309,500 (557,500) 1987 11/12/93 40
39 Two Lakeway 4,643,500 42,315,500 46,959,000 (505,200) 1984 11/12/93 40
40 Westshore Center 1,978,800 17,959,000 19,937,800 (217,200) 1984 11/12/93 40
41 NationsBank Plaza 3,049,200 27,673,000 30,722,200 (317,800) 1977 12/01/93 40
42 The Plaza at La Jolla Village 11,839,400 98,599,100 110,438,500 (1,134,200) 1987-1990 3/10/94 40
43 Interco Corporate Tower 4,688,400 42,533,300 47,221,700 (486,200) 1986 5/27/94 40
44 9400 NCX 3,570,000 34,024,900 37,594,900 (454,700) 1981 6/24/94 40
45 Four Stamford Plaza 4,470,900 40,332,200 44,803,100 (460,400) 1979 8/31/94 40
46 1920 Main Plaza 5,480,700 48,215,900 53,696,600 (654,600) 1988 9/29/94 40
47 One and Two Paces West 12,833,700 76,449,500 89,283,200 (948,800) 1987 10/31/94 40
48 One Market 34,814,400 332,194,500 367,008,900 (4,391,600) 1976 11/22/94 40
49 2010 Main Plaza 5,197,100 47,033,400 52,230,500 (559,400) 1988 12/13/94 40

107

Costs
Initial Cost to Capitalized Subsequent
Company To Acquisition
---------------------------------------------------------------------------------------------------------------------------
December 31, 1997 Buildings and Buildings and
Description Location Encumbrances Land Improvements Land Improvements
---------------------------------------------------------------------------------------------------------------------------

50 1100 Executive Tower (3) Orange, CA 0 10,112,000 41,600,900 0 377,500
51 28 State Street (3)(6)Boston, MA 0 9,512,600 85,613,100 0 27,919,400
52 850 Third Avenue (3) New York, NY 0 9,605,900 86,453,200 0 2,243,100
53 161 North Clark (3) Chicago, IL 111,883,100 15,881,700 142,936,100 0 11,149,300
54 Wachovia Center (3) Charlotte, NC 26,307,200 5,061,000 45,548,900 0 481,600
55 Central Park (3) Atlanta, GA 55,033,500 9,162,600 82,463,100 0 556,000
56 One American Center (3) Austin, TX 0 0 70,811,500 0 552,200
57 Pasadena Towers (3) Pasadena, CA 47,474,100 7,087,500 63,787,500 0 1,383,200
58 580 California (3) San Francisco, CA 29,884,400 7,489,000 67,401,300 0 1,741,600
59 1601 Market Street (3) Philadelphia, PA 0 5,780,800 52,027,500 0 760,500
60 Promenade II (3) Atlanta, GA 95,906,900 14,850,000 133,650,200 0 3,482,500
61 Two California Plaza (3) Los Angeles, CA 0 0 156,197,000 0 14,041,300
62 BP Tower (3) Cleveland, OH 84,587,300 16,450,700 148,056,200 0 312,300
63 Sun Trust Center (3) Orlando, FL 0 11,023,600 99,212,300 0 1,065,600
64 Reston Town Center (3) Reston, VA 91,361,300 23,425,200 154,576,300 0 428,000
65 49 East Thomas Road (3) Phoenix, AZ 0 65,300 587,800 0 0
66 Colonnade I (3) San Antonio, TX 0 1,413,700 12,722,800 0 360,900
67 One Phoenix Plaza (3) Phoenix, AZ 0 6,191,900 55,726,900 0 0
68 177 Broad Street (3)(7)Stamford, CT 0 3,941,200 35,470,900 0 375,200
69 Preston Commons (3) Dallas, TX 0 5,737,200 51,589,100 0 956,100
70 Oakbrook Terrace Tower (3) Oakbrook Terrace, IL 0 11,950,100 107,550,900 0 392,200
71 One Maritime Plaza (3) San Francisco, CA 0 11,532,700 103,793,800 0 1,682,200
72 Smith Barney Tower (3) San Diego, CA 0 2,657,700 23,919,400 0 1,179,100
73 201 Mission Street (3) San Francisco, CA 0 8,870,800 79,836,600 0 258,000
74 30 N. LaSalle Street (3) Chicago, IL 0 12,489,000 112,400,700 0 569,600
75 LL&E Tower New Orleans, LA 37,500,000 (8) 6,185,800 55,672,200 0 127,300
76 Texaco Center New Orleans, LA 42,500,000 (8) 6,686,300 60,177,000 0 393,000
77 Prudential Portfolio (g) Various 0 28,456,300 256,106,600 0 5,343,900
78 550 South Hope Street Los Angeles, CA 0 10,017,500 90,157,600 0 0
79 10 & 30 South Wacker Chicago, IL 0 48,502,500 436,522,400 0 54,100
80 Four Falls Corporate Center Conshohocken, PA 0 4,929,500 44,365,700 0 132,000
81 Four and Five Valley Square Plymouth Meeting, PA 0 864,500 7,781,200 0 15,000
82 Oak Hill Plaza King of Prussia, PA 0 2,205,200 19,847,100 0 2,800
83 One Devon Square Wayne, PA 0 1,023,500 9,211,000 0 1,200
84 Three Devon Square Wayne, PA 0 411,400 3,702,800 0 0
85 Two Devon Square Wayne, PA 0 658,500 5,926,800 0 104,700
86 Two Valley Square Plymouth Meeting, PA 0 878,000 7,901,400 0 1,200
87 Walnut Hill Plaza King of Prussia, PA 14,713,700 2,046,300 18,416,800 0 2,600
88 re Washington, D.C. 0 8,257,000 74,312,800 0 1,400
89 Plymouth Meeting, PA 0 717,600 6,457,600 0 1,200
90 Plymouth Meeting, PA 0 1,012,400 9,111,600 0 1,400
91 1600 Duke Street Alexandria, VA 0 1,105,300 9,948,500 0 0
92 Fair Oaks Plaza Fairfax, VA 0 2,411,600 21,704,200 0 0
93 Lakeside Square Dallas, TX 0 8,261,000 47,349,300 0 587,900
94 LaSalle Plaza Minneapolis, MN 0 9,679,000 87,111,400 0 32,300
95 1001 Fifth Avenue Portland, OR 20,691,500 (10) 5,381,200 48,615,200 0 700
96 1111 Third Avenue Seattle, WA 30,830,400 (10) 9,895,500 89,530,100 0 305,700
97 Calais Office Center Anchorage, AL 8,587,000 (10) 0 16,625,800 0 444,300
98 First Interstate Seattle, WA 83,800,700 (10) 21,352,000 193,449,600 0 20,400
99 Nordstrom Medical Tower Seattle, WA 10,035,400 (10) 1,762,500 16,016,400 0 300
100 One Bellevue Center Bellevue, WA 23,691,800 (10) 0 56,199,700 0 392,900
101 Rainer Plaza Bellevue, WA 29,795,800 (10) 0 79,896,000 0 3,200
102 Second and Seneca Seattle, WA 40,865,800 (10) 10,917,900 98,885,800 0 111,800
103 101 N. Wacker Chicago, IL 0 10,067,600 90,608,800 0 0
104 10880 Wilshire Boulevard Los Angeles, CA 0 0 149,841,200 0 0
105 10960 Wilshire Boulevard Los Angeles, CA 0 16,841,300 151,573,900 0 0
106 1300 N. 17th Street Rosslyn, VA 0 9,810,600 88,295,900 0 0

Gross Amount Carried
at Close of
Period 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings and Accumulated Date Date Depreciable
Land Improvements Total (1) Depreciation Constructed Acquired Lives (2)
- ------------------------------------------------------------------------------------------------------------------------------------

50 1100 Executive Tower 10,112,000 41,978,400 52,090,400 (503,200) 1987 12/15/94 40
51 28 State Street 9,512,600 113,532,500 123,045,100 (387,300) 1968 1/23/95 40
52 850 Third Avenue 9,605,900 88,696,300 98,302,200 (1,075,900) 1960 3/20/95 40
53 161 North Clark 15,881,700 154,085,400 169,967,100 (1,864,800) 1992 7/26/95 40
54 Wachovia Center 5,061,000 46,030,500 51,091,500 (524,900) 1972 9/01/95 40
55 Central Park Office Park 9,162,600 83,019,100 92,181,700 (975,500) 1986 10/17/95 40
56 One American Center 0 71,363,700 71,363,700 (815,200) 1984 11/01/95 40
57 Pasadena Towers 7,087,500 65,170,700 72,258,200 (768,000) 1990-1991 12/14/95 40
58 580 California 7,489,000 69,142,900 76,631,900 (888,700) 1984 12/21/95 40
59 1601 Market Street 5,780,800 52,788,000 58,568,800 (661,700) 1970 1/18/96 40
60 Promenade II 14,850,000 137,132,700 151,982,700 (1,632,200) 1990 6/14/96 40
61 Two California Plaza 0 170,238,300 170,238,300 (2,954,000) 1992 8/23/96 40
62 BP Tower 16,450,700 148,368,500 164,819,200 (1,702,200) 1985 9/04/96 40
63 Sun Trust Center 11,023,600 100,277,900 111,301,500 (1,172,300) 1988 9/18/96 40
64 Reston Town Center 23,425,200 155,004,300 178,429,500 (1,779,500) 1990 10/22/96 40
65 49 East Thomas Road 65,300 587,800 653,100 (6,600) 1974 12/04/96 40
66 Colonnade I 1,413,700 13,083,700 14,497,400 (170,200) 1983 12/04/96 40
67 One Phoenix Plaza 6,191,900 55,726,900 61,918,800 (636,400) 1989 12/04/96 40
68 177 Broad Street 3,941,200 35,846,100 39,787,300 (413,900) 1989 1/29/97 40
69 Preston Commons 5,737,200 52,545,200 58,282,400 (631,400) 1986 3/21/97 40
70 Oakbrook Terrace Tower 11,950,100 107,943,100 119,893,200 (1,237,600) 1988 4/16/97 40
71 One Maritime Plaza 11,532,700 105,476,000 117,008,700 (1,209,000) 1967 4/21/97 40
72 Smith Barney Tower 2,657,700 25,098,500 27,756,200 (379,000) 1987 4/28/97 40
73 201 Mission Street 8,870,800 80,094,600 88,965,400 (915,000) 1981 4/30/97 40
74 30 N. LaSalle Street 12,489,000 112,970,300 125,459,300 (1,293,600) 1974 6/13/97 40
75 LL&E Tower 6,185,800 55,799,500 61,985,300 (411,300) 1987 9/3/97 40
76 Texaco Center 6,686,300 60,570,000 67,256,300 (454,100) 1984 9/3/97 40
77 Prudential Portfolio (9) 28,456,300 261,450,500 289,906,800 (1,443,400) Various 10/1/97 40
78 550 South Hope Street 10,017,500 90,157,600 100,175,100 (469,400) 1991 10/6/97 40
79 10 & 30 South Wacker Drive 48,502,500 436,576,500 485,079,000 (2,277,300) 1983 10/7/97 40
80 Four Falls Corporate Center 4,929,500 44,497,700 49,427,200 (238,900) 1988 10/7/97 40
81 Four and Five Valley Square 864,500 7,796,200 8,660,700 (40,500) 1988 10/7/97 40
82 Oak Hill Plaza 2,205,200 19,849,900 22,055,100 (103,300) 1982 10/7/97 40
83 One Devon Square 1,023,500 9,212,200 10,235,700 (47,900) 1984 10/7/97 40
84 Three Devon Square 411,400 3,702,800 4,114,200 (19,300) 1985 10/7/97 40
85 Two Devon Square 658,500 6,031,500 6,690,000 (34,500) 1985 10/7/97 40
86 Two Valley Square 878,000 7,902,600 8,780,600 (41,100) 1990 10/7/97 40
87 Walnut Hill Plaza 2,046,300 18,419,400 20,465,700 (95,900) 1985 10/7/97 40
88 8,257,000 74,314,200 82,571,200 (386,900) 1980 10/17/97 40
89 One Valley Square 717,600 6,458,800 7,176,400 (20,200) 1982 11/21/97 40
90 Three Valley Square 1,012,400 9,113,000 10,125,400 (28,500) 1984 11/21/97 40
91 1600 Duke Street 1,105,300 9,948,500 11,053,800 (31,000) 1985 11/24/97 40
92 Fair Oaks Plaza 2,411,600 21,704,200 24,115,800 (67,700) 1986 11/24/97 40
93 Lakeside Square 8,261,000 47,937,200 56,198,200 (149,800) 1987 11/24/97 40
94 LaSalle Office Plaza 9,679,000 87,143,700 96,822,700 (275,200) 1991 11/25/97 40
95 1001 Fifth Avenue 5,381,200 48,615,900 53,997,100 (49,900) 1980 12/17/97 40
96 1111 Third Avenue 9,895,500 89,835,800 99,731,300 (103,700) 1980 12/17/97 40
97 Calais Office Center 0 17,070,100 17,070,100 (18,900) 1975 12/17/97 40
98 First Interstate Center 21,352,000 193,470,000 214,822,000 (198,600) 1983 12/17/97 40
99 Nordstrom Medical Tower 1,762,500 16,016,700 17,779,200 (16,300) 1986 12/17/97 40
100 One Bellevue Center 0 56,592,600 56,592,600 (60,900) 1983 12/17/97 40
101 Rainer Plaza 0 79,899,200 79,899,200 (82,100) 1986 12/17/97 40
102 Second and Seneca 10,917,900 98,997,600 109,915,500 (101,600) 1991 12/17/97 40
103 101 N. Wacker 10,067,600 90,608,800 100,676,400 (94,400) 1980 12/19/97 40
104 10880 Wilshire Boulevard 0 149,841,200 149,841,200 (156,100) 1970 12/19/97 40
105 10960 Wilshire Boulevard 16,841,300 151,573,900 168,415,200 (157,900) 1971 12/19/97 40
106 1300 N. 17th Street 9,810,600 88,295,900 98,106,500 (92,000) 1980 12/19/97 40

108
Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 1997

Costs
Initial Cost to Capitalized Subsequent
Company To Acquisition
--------------------------------------------------------------------------------------------------------------------------
December 31, 1997 Buildings and Buildings and
Description Location Encumbrances Land Improvements Land Improvements
---------------------------------------------------------------------------------------------------------------------------

107 1333 H Street Washington D.C. 0 6,715,400 60,438,200 0 0
108 150 California (11) San Francisco, CA 0 12,566,800 0 0 0
109 150 Federal Street Boston, MA 56,270,200 14,131,300 127,182,200 0 0
110 1616 N. Fort Myer Drive Rosslyn, VA 0 6,960,700 62,646,400 0 0
111 175 Federal Street Boston, MA 12,729,300 4,893,900 44,045,200 0 0
112 175 Wyman Street (11) Walthan, MA 0 24,000,000 0 0 0
113 2 Oliver Street-147 Milk
Street Boston, MA 0 5,017,400 45,157,000 0 0
114 200 West Adams Chicago, IL 0 11,723,300 105,509,500 0 0
115 225 Franklin Street Boston, MA 0 34,607,900 311,470,600 0 0
116 AT&T Plaza Oak Brook, IL 0 4,834,200 43,507,900 0 0
117 Center Plaza Boston, MA 59,898,000 18,942,300 170,480,400 0 0
118 Center Pointe III (11) Fairfax, VA 0 9,600,000 0 0 0
119 Centerpointe I and II Fairfax, VA 30,146,000 8,837,800 79,540,200 0 0
120 Civic Opera House Chicago, IL 31,785,400 12,771,400 114,941,900 0 0
121 Crosby Corporate Center Bedford, MA 0 5,957,800 53,620,400 0 0
122 Crosby Corporate Center II (11) Bedford, MA 0 9,384,600 0 0 22,447,300
123 EJ Randolph McLean, VA 16,057,000 3,936,500 35,429,100 0 0
124 EJ Randolph II (11) McLean, Va 0 3,324,000 0 0 0
125 John Marshall I and II McLean, VA 21,182,900 5,216,400 46,947,600 0 0
126 John Marshall III (11) McLean, VA 0 8,700,000 0 0 0
127 Lake Marriot Business Park Santa Clara, CA 0 6,952,100 62,568,900 0 0
128 Lakeside Office Park Atlanta, GA 0 4,792,500 43,132,300 0 0
129 Media Center (11) Burbank, CA 0 20,000,000 0 0 0
130 New England Executive Park Burlington, MA 0 13,106,000 117,953,900 0 0
131 Northridge I Herndon, VA 14,558,000 3,224,900 29,024,400 0 0
132 One Canal Park Cambridge, MA 0 2,006,000 18,054,000 0 0
133 Perimeter Atlanta, GA 217,871,000 68,306,100 429,131,900 0 0
134 Presidents Plaza Chicago, IL 0 13,435,500 120,919,200 0 0
135 Riverside Center (11) Newton, MA 0 30,000,000 0 0 0
136 Riverview I and II Cambridge, MA 0 5,937,600 53,438,100 0 0
137 Russia Wharf Boston, MA 0 5,918,200 53,263,400 0 0
138 Shoreline Technology Park Mountain View, CA 0 30,194,800 178,471,200 0 0
139 South Station Boston, MA 0 0 31,073,800 0 0
140 Sunnyvale Business Center Sunnyvale, CA 0 4,890,000 44,010,000 0 0
141 Ten Canal Park Cambridge, MA 0 2,383,100 21,447,900 0 0
142 Tri-State International Lincolnshire, IL 0 10,925,300 98,327,300 0 0
143 Wellesley Office Park Wellesley, MA 55,256,000 16,492,700 148,434,200 0 0
144 Westbrook Corporate Center Westchester, IL 111,497,800 24,896,800 224,071,100 0 0
145 Westwood Business Center Wellesley, MA 0 2,719,600 24,476,300 0 0
-------------- -------------- -------------- ---- ------------
Subtotal Office Properties $1,990,406,900 $1,162,720,800 $9,493,786,000 $0 $144,072,900
-------------- -------------- -------------- ---- ------------

Parking Facilities:

1 North Loop Transportation
Center (3) Chicago, IL $32,864,000(12) $3,784,600 $34,061,500 $0 $450,000
2 Theatre District Garage (3) Chicago, IL 0 3,372,300 30,350,700 0 56,800
3 Capitol Commons Garage (5) Indianapolis, IN 4,400,700 0 14,449,700 0 9,100
4 Boston Harbor Garage (3) Boston, MA 35,345,500 6,087,000 54,783,300 0 277,700
5 Milwaukee Center (3) Milwaukee, WI 0 0 7,798,500 0 219,900
6 1111 Sansom Street Garage (3) Philadelphia, PA 0 1,476,500 0 0 6,800
7 15th & Sansom Streets Garage (3) Philadelphia, PA 0 726,400 6,537,600 0 11,300
8 1602-34 Chancellor Garage (3) Philadelphia, PA 0 735,900 6,622,700 0 9,200
9 1616 Sansom Street Garage (3) Philadelphia, PA 0 432,900 3,896,200 0 0
10 Juniper/Locust Streets Garage (3) Philadelphia, PA 0 574,400 5,169,900 0 11,000
11 Adams-Wabash Garage Chicago, IL 0 2,525,000 22,725,300 0 76,200
12 601 Tchoupitoulas Garage New Orleans, LO 0(8) 1,180,000 10,619,800 0 0
13 Stanwix Garage Pittsburgh, PA 0 1,794,900 16,154,700 0 0

Gross Amount Carried
at Close of
Period 12/31/97
-------------------------------------------------------------------------------------------
Buildings and Accumulated Date Date Depreciable
Land Improvements Total (1) Depreciation Constructed Acquired Lives (2)
-------------------------------------------------------------------------------------------

107 1333 H Street 6,715,400 60,438,200 67,153,600 (63,000) 1982 12/19/97 40
108 150 California 12,566,800 0 12,566,800 0 12/19/97
109 150 Federal Street 14,131,300 127,182,200 141,313,500 (132,500) 1988 12/19/97 40
110 1616 N. Fort Myer Drive 6,960,700 62,646,400 69,607,100 (65,300) 1974 12/19/97 40
111 175 Federal Street 4,893,900 44,045,200 48,939,100 (45,900) 1977 12/19/97 40
112 175 Wyman Street 24,000,000 0 24,000,000 0 12/19/97
113 2 Oliver Street-147 Milk Street 5,017,400 45,157,000 50,174,400 (47,000) 1988 12/19/97 40
114 200 West Adams 11,723,300 105,509,500 117,232,800 (109,900) 1985 12/19/97 40
115 225 Franklin Street 34,607,900 311,470,600 346,078,500 (324,500) 1966 12/19/97 40
116 AT&T Plaza 4,834,200 43,507,900 48,342,100 (45,300) 1984 12/19/97 40
117 Center Plaza 18,942,300 170,480,400 189,422,700 (177,600) 1969 12/19/97 40
118 Center Pointe III 9,600,000 0 9,600,000 0 12/19/97
119 Centerpointe I and II 8,837,800 79,540,200 88,378,000 (82,900) 1998/1990 12/19/97 40
120 Civic Opera House 12,771,400 114,941,900 127,713,300 (119,700) 1929 12/19/97 40
121 Crosby Corporate Center 5,957,800 53,620,400 59,578,200 (55,900) 1996 12/19/97 40
122 Crosby Corporate Center II 9,384,600 22,447,300 31,831,900 0 12/19/97
123 EJ Randolph Building 3,936,500 35,429,100 39,365,600 (36,900) 1983 12/19/97 40
124 EJ Randolph II 3,324,000 0 3,324,000 0 12/19/97
125 John Marshall I and II 5,216,400 46,947,600 52,164,000 (48,900) 1981 12/19/97 40
126 John Marshall III 8,700,000 0 8,700,000 0 12/19/97
127 Lake Marriot Business Park 6,952,100 62,568,900 69,521,000 (65,200) 1981 12/19/97 40
128 Lakeside Office Park 4,792,500 43,132,300 47,924,800 (44,900) 1972 12/19/97 40
129 Media Center Development 20,000,000 0 20,000,000 0 12/19/97
130 New England Executive Park 13,106,000 117,953,900 131,059,900 (122,900) 1970 12/19/97 40
131 Northridge I 3,224,900 29,024,400 32,249,300 (30,200) 1988 12/19/97 40
132 One Canal Park 2,006,000 18,054,000 20,060,000 (18,800) 1987 12/19/97 40
133 Perimeter 68,306,100 429,131,900 497,438,000 (822,800) 1972/1998 12/19/97 40
134 Presidents Plaza 13,435,500 120,919,200 134,354,700 (126,000) 1980 12/19/97 40
135 Riverside Center 30,000,000 0 30,000,000 0 12/19/97
136 Riverview I and II 5,937,600 53,438,100 59,375,700 (55,700) 1985 12/19/97 40
137 Russia Wharf 5,918,200 53,263,400 59,181,600 (55,500) 1978 12/19/97 40
138 Shoreline Technology Park 30,194,800 178,471,200 208,666,000 (185,900) 1985 12/19/97 40
139 South Station 0 31,073,800 31,073,800 (32,400) 1988 12/19/97 40
140 Sunnyvale Business Center 4,890,000 44,010,000 48,900,000 (45,800) 1990 12/19/97 40
141 Ten Canal Park 2,383,100 21,447,900 23,831,000 (22,300) 1987 12/19/97 40
142 Tri-State International 10,925,300 98,327,300 109,252,600 (102,400) 1986 12/19/97 40
143 Wellesley Office Park 16,492,700 148,434,200 164,926,900 (154,600) 1963 12/19/97 40
144 Westbrook Corporate Center 24,896,800 224,071,100 248,967,900 (233,400) 1985 12/19/97 40
145 Westwood Business Center 2,719,600 24,476,300 27,195,900 (25,500) 1985 12/19/97 40
-------------- --------------- --------------- ------------
Subtotal Office Properties $1,162,720,800 $ 9,637,858,900 $10,800,579,700 $(62,295,000)
-------------- --------------- --------------- ------------

Parking Facilities:

1 North Loop Transportation
Center $3,784,600 $34,511,500 $38,296,100 $(396,500) 1985 6/9/95 40
2 Theatre District Self Park 3,372,300 30,407,500 33,779,800 (348,200) 1987 6/9/95 40
3 Capitol Commons Garage 0 14,458,800 14,458,800 (165,200) 1987 6/29/95 40
4 Boston Harbor Garage 6,087,000 55,061,000 61,148,000 (635,000) 1972 12/10/96 40
5 Milwaukee Center Parking Garage 0 8,018,400 8,018,400 (98,700) 1988 12/18/96 40
6 1111 Sansom Street 1,476,500 6,800 1,483,300 0 N/A 12/27/96 N/A
7 15th & Sansom Streets 726,400 6,548,900 7,275,300 (73,400) 1950/1954 12/27/96 40
8 1616 Chancellor Street 735,900 6,631,900 7,367,800 (73,800) 1945/1955 12/27/96 40
9 1616 Sansom Street 432,900 3,896,200 4,329,100 (43,200) 1950 12/27/96 40
10 Juniper/Locust Streets 574,400 5,180,900 5,755,300 (58,300) 1949/1952 12/27/96 40
11 Adams-Wabash Parking Facility 2,525,000 22,801,500 25,326,500 (212,900) 1990 8/11/97 40
12 601 Tchoupitoulas 1,180,000 10,619,800 11,799,800 (77,200) 1982 9/3/97 40
13 Stanwix Parking Facility 1,794,900 16,154,700 17,949,600 (50,400) 1969 11/25/97 40

109

Initial Cost to Costs Capitalized Subsequent
Company To Acquisition
---------------------------------------------------------------------------------------------------------------------------
December 31, 1997 Buildings and Buildings and
Description Location Encumbrances Land Improvements Land Improvements
---------------------------------------------------------------------------------------------------------------------------

-------------- -------------- -------------- ------------- ------------
Subtotal Parking Facilities 72,610,200 22,689,900 213,169,900 0 1,128,000
-------------- -------------- -------------- ------------- ------------

Management Company (12) 0 0 0 0 3,446,600
-------------- -------------- -------------- ------------- ------------

Investment in Real Estate $2,063,017,100 $1,185,410,700 $9,706,955,900 $ - $148,647,500
============== ============== ============== ============= ============

at Close of
Period 12/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
Buildings and Accumulated Date Date Depreciable
Description Land Improvements Total (1) Depreciation Constructed Acquired Lives(2)
- ------------------------------------------------------------------------------------------------------------------------------------

-------------- -------------- --------------- ------------
Subtotal Parking Facilities 22,689,900 214,297,900 236,987,800 (2,232,800)
-------------- -------------- --------------- ------------

Management Company 0 3,446,600 3,446,600 (167,300)
-------------- -------------- --------------- ------------

Investment in Real Estate $1,185,410,700 $9,855,603,100 $11,041,014,100 $(64,695,100)
============== ============== =============== ============

(1) The aggregate cost for Federal Income Tax purposes as of December 31, 1997
was approximately $7.5 billion.

(2) The life to compute depreciation on building is 40 years. The life to
compute depreciation on building improvements is 4-40 years.

(3) The acquisition of the Properties, or the interest therein, by the Company
from Equity Office Predecessors in connection with the Consolidation, was
accounted for using the purchase method in accordance with Accounting Principles
Board Opinion No. 11. Accordingly, the assets were recorded by the Company at
their fair values.

(4) This Property contains 106 residential units.

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

(6) This building underwent a major renovation to re-tenant the entire Property.
The building is currently in a lease-up period and is expected to be fully
occupied in 1998. During the renovation period, operating costs, real estate
taxes, and interest incurred will be capitalized. As of December 31, 1997,
approximately $23.5 million of operating costs and interest have been
capitalized.

(7) This Propery contains 161 residential units.

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

(9) The Prudential Portfolio consists of six Office Buildings located
in Philadelphia, PA; Dallas, TX; and Houston, TX. These Office Buildings were
constructed between 1969 and 1984.

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

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

(12)The encumbrance on the North Loop Transportation Center is also secured by a
first lien on the Theatre District Garage.

(13)This asset consists of furniture, fixtures, and equipment owned by the
Management Business.
110
(14) Summary of activity of investment in real estate and accumulated
depreciation is as follows:

The changes in investment in real estate for the period from July 11, 1997
to December 31, 1997, the period from period from January 1, 1997 to July 10,
1997, and for the years ended December 31, 1996 and 1995 are as follows:

For the period For the period
July 11, 1997 to January 1, 1997 December 31, December 31,
December 31, 1997 to July 10, 1997 1996 1995
----------------- ---------------- --------------- ----------------

Balance, beginning of period 0 3,549,707,600 $2,571,851,300 $ 1,931,002,400
Acquisitions 10,941,428,100 531,968,000 860,995,000 583,485,200
Improvements 99,586,000 59,511,100 129,485,300 76,985,400
Properties disposed of 0 (67,193,400) (9,633,600) 0
Write down for value impairment 0 0 0 (17,512,000)
Write-off of fully depreciated
assets which are no longer
in service 0 0 (2,990,400) (2,109,700)
--------------- -------------- -------------- ---------------
Balance, end of period $11,041,014,100 $4,073,933,200 $3,549,707,600 $ 2,571,851,300
=============== ============== ============== ===============

The changes in accumulated depreciation for the period from July 11, 1997
to December 31, 1997, the period from period from January 1, 1997 to July 10,
1997, and for the years ended December 31, 1996 and 1995 are as follows:

For the period For the period
July 11, 1997 to January 1, 1997 December 31, December 31,
December 31, 1997 to July 10, 1997 1996 1995
----------------- ---------------- --------------- ----------------

Balance, beginning of period $ 0 $(257,893,300) $(178,448,600) $(115,842,500)
Depreciation (64,695,100) (57,379,300) (82,905,300) (64,715,800)
Properties disposed of 0 8,517,200 470,200 0
Write-off of fully depreciated
assets which are no longer
in service 0 0 2,990,400 2,109,700
-------------- ------------- ------------- -------------
Balance, end of period $ (64,695,100) $(306,755,400) $(257,893,300) $(178,448,600)
============== ============= ============= =============