Equity Office Properties

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December 10, 2003

Stock rating: In-Line

Coverage view: Cautious

Price: US$28.03

Equity Office Properties Trust (EOP) Real Estate: REITs

Asset re-positioning � how to play it. EOP completes amajor asset sale in the very near future. We see no FFO dilutionor valuation implications, but EOP can “buy time” for the dividend.We are keeping the 7% yield in our Income Portfolio, but do notexpect growth returns. The stock has lagged, “rent” it for now.

Stock data Price performance 1M 3M 12M Price performance chart52-week range $29.10-$23.47 Absolute 0% 0% 7%

Yield 7.2% Rel to S&P 500 -1% -4% -10%

S&P 500 1,062

Capitalization Forecasts/valuation 12/2003E 12/2004E

Market cap $11,805 mn FFO $2.76 $2.82

Latest net debt/(cash) $11,985 mn P/FFO 10.1 9.8

Free float — ROE — —

Derivatives C EV/EBITDA — —

Shares outstanding 425.1 mn Long-term EPS growth 2%

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Absolute Price Performance (Left Axis)Relative to Index (Right Axis)

Carey Callaghan [email protected] York: 1-212-902-4351

Nora Creedon [email protected] York: 1-212-902-6751

Goldman Sachs Global Equity Research

We write this to get in front of a major asset sale and offer a 2004 outlookEquity Office Properties has made clear its intent to complete a large sale, potentially into aJV structure before year-end. We sensitized our model and see no earnings dilution.Management comments on 2004 in December; market outlook and sensitivity test are inside.

You can buy EOP for the 7% dividend yield, but we do not see growthOur conclusion is the dividend yield of 7% remains attractive and is unlikely to be cut even asthe company shrinks through asset sales; JV management fees and accretive capitalredeployment buy EOP time. EOP is in the Goldman Sachs Income Portfolio.

Three observations from our market review: consider with 2004 guidance(1) Top market Boston will be a focus with a flurry of corporate mergers hitting real estatedemand, but EOP is relatively well positioned with high occupancy and light lease rollover;(2) San Jose is showing some early positive signs; (3) EOP, like virtually all office REITs hasa major 2005 roll issue given how many leases expire; a recovery before then is essential.

Still see risk to the dividend, as coverage is tight, but not a liquidity issueEOP’s dividend coverage will be stretched above 100%, but the company can effectively buyitself almost a year of dividend coverage with a large asset sale transaction.

Stock likely to rise on announcement, but no real change to valueWe expect EOP shares to react positively initially to any announcement, but to give backthose gains as investors realize: there isn’t an earnings impact; the multiple shouldn’t changemeaningfully (we expect a modest downward movement) and NAV is largely unchanged.

Equity Office Properties Trust Real Estate: REITs

Goldman Sachs Global Equity Research - December 10, 2003

Table of contents

1 Overview: Asset re-positioning — how to play it

3 Overview of a potential transaction and implications

7 Source of upcoming funds: what’s in the works?

10 How to think about uses

11 A strategic review of EOP’s major markets

18 Devil’s advocate view: could the dividend still be cut?

21 Financials: more leverage to a recovery, but not much growth

25 Valuation: shares seem reasonably priced

32 Company strategy/profile: the giant

35 Disclosures

The prices in this report are based on the market close of December 9, 2003.

Real Estate: REITs Equity Office Properties Trust

Goldman Sachs Global Equity Research - December 10, 2003 1

Overview: Asset re-positioning -- how to play it

Exhibit 1: Forecasts and valuation

Year to Revenues EBITDA Pretax profit FFO EPS P/FFODecember ($ mn) ($ mn) ($ mn) ($) ($) (X)

2001 2,829 2,014 746 3.20 1.64 8.72002 3,221 2,315 838 3.21 1.61 8.62003E 3,059 2,094 575 2.76 1.12 10.02004E 3,073 2,113 546 2.82 1.09 9.8

Source: Company data, Goldman Sachs Research estimates.

Purpose of this report and principal conclusionsThis report previews a major asset sale transaction that we believe Equity OfficeProperties Trust (EOP) hopes to complete before year-end. EOP has traditionally notbeen a major user of joint venture (JV) structures, and has only one other, relativelysmall, multi-asset JV in place. The company’s $25 billion asset base accordingly holdsthe possibility of substantial leveraging of returns through such structures. While returnsgo up, such transactions are usually dilutive to overall income.

For EOP however, with $400 million of 7.4% debt having come due in November and anadditional $400 million of 6.7% debt coming due in January, the spread implications arerelatively modest, assuming asset sales (into the JV) with a yield of about 8%. Webelieve incremental fees from managing the JV assets will come close to bridging thedifference. We therefore expect no material change to FFO from the transaction.EOP management has yet to issue 2004 guidance but will likely do so at the same time asthe announcement of any JV in coming days.

But a $1 billion deal would raise valuation questions. EOP is most likely to sellinterests in about a dozen “trophy–style” properties; without these, the picture of EOP’sasset quality, occupancy opportunity and tenant quality is different. While shedding highoccupancy properties potentially creates more leverage to an economic recovery exactlywhen one might want it most, a look at the multiples awarded to companies with similarassets to the “new EOP” suggests there could be some modest downside.

A joint venture yielding $750 million in proceeds to the company would reduce debt-to-capitalization by 200bp and given a roughly FFO-neutral impact, the payout ratios wouldbe about the same. But EOP would net about 10 months of dividend payments –effectively buying it more time to sustain the dividend at the current level whileawaiting some clarity in end-market demand. We conclude that EOP will not cut itsdividend despite the likelihood that the payout ratio will top 100% for several years.

We rate EOP shares In-Line within our Cautious coverage view on REITs. Clearly, EOPhas some of the greatest leverage to an economic recovery with 125 million square feet ofnational office space, and with only 86% occupancy there could be significant upside ifthe recovery persists. However 30% of the company’s income is earned in northernCalifornia markets, which may take longer to recover.

Even with a relativelyattractive deal, thedividend issue persists.We think EOP caneffectively “buy time” witha transaction.


2 Goldman Sachs Global Equity Research - December 10, 2003

Behind the scenes: findings from our market analysisWe think EOP management will include a 2004 outlook with any JV announcement;therefore, we took this opportunity to delve into EOP’s major markets as we look out to2004. As just mentioned, EOP owns 125 million square feet of US office space fromcoast to coast. We can understand the tendency to analyze the company in aggregate. Butat turning points in the economy (positive or negative), markets really make a difference.An analysis of trends and rollover exposure in EOP’s top 10 markets is included below.

Valuation: EOP shares have underperformed; we think valuation is reasonableEOP is the largest and most liquid REIT and was the first REIT to enter the S&P 500. Wevalue the shares using three “intrinsic value approaches” (DCF, DDM and NAV) and anumber of comparative approaches including FFO multiple compared to growth,dividend yield and payout ratio. On the intrinsic-value side, our calculation of net assetvalue (NAV) is $21, based on 2004 net operating income and using a 9.7% capitalizationrate on the total portfolio (remember, 60% of the company’s assets are suburban). Each50 bp swing in cap rate assumptions is equal to about $2.50 per share. Both ourdiscounted cash flow (DCF) and dividend discount model (DDM) models suggest a valueof $28 per share, exactly in line with current share price. EOP trades at the average officemultiple, 10X 2004 FFO. The dividend yield is amongst the highest in our universe at7.2%, but entails an uncomfortably high payout ratio of 125% this year and 108%estimated for 2004.

Financials: Even with accretive transaction, we do not see a lot of growth for EOPThe three key drivers to rental revenue for any REIT are square footage, occupancy andrental rate per square foot. We forecast only a very slight improvement in occupancy in2004, when 10% of leases are rolling at flat-to-down 10% rental rates. Beyond 2004 weexpect a more meaningful occupancy recovery, in 2005 and beyond. Even with anearnings neutral or accretive JV transaction, we do not see much growth for EOP. Ourfive-year FFO/share growth rate is 1.7%.

Company strategy/profile: the national providerEOP owns and manages approximately 125 million square feet of office space, 60% inthe suburbs and the balance located in central business districts. Properties located in theten largest markets generate about 80% of net operating income, including San Franciscoand San Jose (23% combined), Boston (14%), San Jose alone (11%), Seattle (7%), andNew York (7%). EOP’s portfolio was 86.3% occupied at the end of 3Q2003. The federalgovernment, under the auspices of the General Services Administration (GSA), is EOP’slargest tenant, accounting for 1.8% of total annualized rental income, followed byPriceWaterhouseCoopers (1.5%), Washington Mutual Bank (1.4%), and Ogilvy andMather (1.0%). Approximately 10% of EOP’s existing leases expire during 2004,followed by 11% in 2005 and 2006.



Overview of a potential transaction and implications

The largest office REIT and most liquid REIT stock, Equity Office Properties Trust(EOP) is set to announce a major asset re-positioning before year-end. The mostlikely scenario is the sale of about $1 billion in trophy assets into a joint venturestructure. Accretion depends on: (1) how much interest EOP retains; (2) the level ofasset management fees EOP might earn through a JV; and (3) what happens to theoccupancy in the remaining portfolio. But we see little dilution from any actual deal.

The bigger questions will be: what implication would a deal have for dividend coverage,what kind of portfolio EOP would be left with, and whether value has been created orlost.

To begin with sizing the transaction, we think EOP is likely to sell 50% to 75% interestsin up to $1 billion worth of property, netting the company at least $500 million and likelyup to $750 million of proceeds (see Exhibit 2).

Exhibit 2: At least $500 million in cash likely headed EOP’s way this monthour assumption is highlighted in blue

SOURCES

Sell $80 mm of NOI:Sell 50%interest:

Sell 65%interest:

Sell 75%interest:

Value ofasset sale

sold @ an 8.0% cap rate: $500 mm $650 mm $750 mm $1,000 mmsold @ a 7.5% cap rate: $534 $694 $800 $1,067sold @ a 7.0% cap rate: $572 $743 $857 $1,143sold @ an 8.5% cap rate: $471 $612 $706 $941

Source: Goldman Sachs Research estimates.

The obvious questions become what EOP will do with the cash and whether the deal willbe dilutive to FFO; with incremental management fees in a JV and relatively high-costdebt coming due soon, we think the company can avoid FFO dilution.

With $400 million of 7.4% debt having come due in November and an additional $400million of 6.7% debt coming due in January, the spread implications are relativelymodest assuming asset sales (into the JV) with about an 8% yield. We believeincremental fees from managing the JV assets will come close to bridging the difference(see Exhibit 3).



Exhibit 3: We think the company can most likely avoid dilution by paying down debtthis assumes a JV deal brings incremental management fees, though timing could impact

Debt Dilution PLUS: Asset Net Effect/Amount Capitalization rate Paydown (1) Equals: ($m) Mgmt fees (2) share$500 m 8.5% 7.0% -7 10 0.01$$600 m 8.0% 7.0% -6 10 0.01$$700 m 7.5% 7.0% -3 12 0.02$$800 m 7.0% 7.0% 0 14 0.03$

7.8% 7.0% -4 12 0.02$

(1) Equals average of $400 m of debt rolling in November at 7.38% and $400 m rolling in January at 6.7%

(2) Asset managemt fees assumed at 2% of the value of assets acquired by a JV


But putting aside for a moment the FFO impact of a large transaction like this, it is clearthat dividend coverage, which is really one of the focal issues for EOP’s share price rightnow, remains stretched even with a neutral or accretive deal (see Exhibit 4).

Exhibit 4: But dividend coverage remains an issue: will EOP just manage through?

2003 2004 2005 2006 2007 2008Dividend/share 2.00$ 2.00$ 2.00$ 2.00$ 2.00$ 2.00$FAD Payout ratio, without JV deal 125% 107% 110% 110% 100% 96%FAD Payout ratio, with JV deal 122% 104% 108% 110% 100% 96%


So what does EOP do with the dividend? The sustained period of stretched payout ratioshighlighted in Exhibit 4 suggests EOP would need to borrow in order to pay itsdistributions (debt-to-total cap would increase from 51% currently to 57% by 2008,interest coverage would remain stuck at 2.5X versus 2.8X in the late 1990s), effectivelydamaging the balance sheet.

While EOP Chairman Sam Zell had been vocal about maintaining the dividend earlier in2003, we have not heard any such confident reiteration in recent months. In fact, theEOP management team has been notably silent on the subject of dividend sustainabilityin conversations we have had with them on the subject. Conservatism usually dictatesthat a REIT cut its dividend if its payout ratio is above 100% for a prolonged period oftime – and despite Zell’s flamboyant personality we view his management philosophy inoverseeing EOP as essentially a conservative one, given the company and its investorprofile. We estimate the 2003-2008 payout of FAD to be 125% (2003), 108%, 110%,110%, 100% and 96% (2008), while debt to total capitalization currently stands at arelatively high (but manageable) 50%. A joint venture yielding $750 million in proceedsto the company would reduce debt to cap by 100bp and given a roughly FFO-neutralimpact, the payout ratios would be about the same. But EOP would net about 10months of dividend payments – effectively buying it more time to sustain thedividend at the current level while awaiting some clarity in end-market demand.



Importantly, if the high payout ratio in 2005 and beyond stems from upfront investmentsto fill the buildings (in the form of tenant improvement allowances and leasingcommissions) we believe EOP will be far more likely to maintain the dividend at itscurrent $2.00 level given that it will have visibility on higher cash flows from higheroccupancy. The key will be to watch employment trends, especially in office-intensiveservice industries, as well as EOP’s occupancy trends. Were EOP to characterize any JVproceeds as a “dividend bridge” to a better economy, as we believe the company may, wewould again become concerned about dividend security by next fall in the absence of amarked pick-up in occupancy.

Therefore, we are keeping EOP shares in the Goldman Sachs REIT Income Portfoliowith a 7.2% dividend yield.

And what about valuation implications?Finally, how will the stock react to a deal of this size? At first blush, the answer is that anexchange of assets for cash, after which (assuming management fees to be reaped fromthe JV and a paydown of high cost debt) there is no real impact on FFO, there should belittle to no impact on valuation. Fundamentally we think investors will be pleased withEOP taking more advantage of the JV structure, which can offer better returns at lowerrisk and bring incremental asset management and other fees. However, we think thesuggestion that EOP is marketing some of its trophy assets in a deal like this could mutethe upside somewhat.

While $750 million on a total asset base of $25 billion should not be overestimated, EOPwould have more leverage to an economic recovery post any such transaction. Coreoccupancy would be lower, given the presumably well-leased nature of the JV assets, andtherefore leverage would increase.

However, we think there could be modest downside risk to the multiple investors arewilling to pay for EOP, which should also limit upside. Consider EOP’s current multiple,10X 2004E FFO, which is the sector average. We think this multiple reflects EOP’sparticular mix of assets, which one might think of as one-third Boston Property-styleassets (protected markets, class-A properties in the CBD), one-third Trizec-style assets(national, mix of CBD and suburban) and one-third CarrAmerica-style assets (California-concentrated). Boston Properties trades at 12X FFO, EOP at 10X, CarrAmerica at 10Xand Trizec at 8X. If EOP sells its trophy assets that are worthy of a 12X multiple ofincome, could there be a multiple adjustment to reflect a more Trizec/CarrAmericatype of portfolio?

EOP will maintain a 25% to 50% stake in these properties, and is likely to haveadditional income from the asset management fees, but we think there is some possibilitythat investor enthusiasm for a deal could be muted as a result of the change in portfolioquality. Occupancy would likely dip somewhat in the core portfolio. We would also add,however, that the leverage to a better economy is even greater in the remaining portfolio.In total, we do not see a real change in the value of EOP’s portfolio and think any initialrally will give way and the stock will remain valued at about $27-28 per share (seeExhibit 5), all else being equal.



Exhibit 5: Following share price appreciation to reflect approval of a deal —we think investors will make some modest multiple adjustment and bring shares back to the current $28 level

% Sq Ft % NOI Type Multiple % Sq Ft % NOI Type Multiple TOTAL EOPMULTIPLE

Boston 7.3% 9.8% BXP 12 1 3.0% 3.7% TRZ 8 0 1San Francisco 4.3% 4.7% BXP 12 1 4.5% 7.2% CRE 10 1 1San Jose 0.2% 0.4% CRE 10 0 6.6% 10.6% CRE 10 1 1Seattle 4.1% 4.3% BXP 12 1 3.8% 3.1% CRE 10 0 1New York 4.0% 7.3% BXP 12 1 0.0% 0.0% 0 1Chicago 5.3% 4.3% BXP 12 1 3.6% 2.5% TRZ 8 0 1Washington DC 1.8% 2.8% BXP 12 0 3.0% 3.3% CRE 10 0 1Los Angeles 1.5% 1.5% BXP 12 0 4.3% 3.9% TRZ 8 0 0Atlanta 1.6% 1.8% TRZ 8 0 4.6% 2.7% TRZ 8 0 0Orange County 0.0% 0.0% 0 4.9% 4.1% TRZ 8 0 0Other 11.4% 7.5% TRZ 8 1 20.0% 14.4% TRZ 8 1 2Total/Avg 41.5% 44.4% 10.8 58.3% 55.5% 8.9

CBD Multiple: 4.9 Suburban Multiple: 4.9 9.8

Assumptions:Current estimated CBD NOI, '04: 832.5

% of total 44%Average multiple: 10.8

Current estimated sub NOI, '04: 1042.5% of total 56%

Average multiple: 8.9Total NOI 1875Current multiple 9.8Stock price 27.64$

NEW CBD/SUBURBAN MIX AND VALUATION IMPLICATIONS:

Sell $80 m of NOI ($1 billion deal, 8% cap rate)$ mm % of total Multiple

CBD NOI 752.5 42% 10.8 4.5Suburban NOI 1042.5 58% 8.9 5.1Total 1795.0 9.7Stock Price 27.11$upside/downside -2%

CBD SUBURBAN

Actual '04 Multipletoday

Current multiple reflectscurrent mix of assets




Source of upcoming funds: what's in the works?

A look back at the timelineRichard Kincaid assumed CEO duties at Equity Office Properties Trust in April 2003. ByJuly the company had begun outlining a new strategy. Three goals were identified:

• Achieve growth with value oriented acquisitions (i.e., properties with managementopportunities and/or low occupancy levels acquired below replacement cost);

• Capitalize on EOP’s operating leverage as the largest office landlord (i.e.,concentrate in fewer markets); and

• Do more sizable joint venture transactions to take advantage of a financial structurethan can boost returns while lowering risk.

The company re-hired Jeff Johnson as Chief Investment Officer and put the wheels inmotion for a major asset re-positioning. In October, management commented that a largedisposition of joint venture transaction was likely to close by year-end. Since that timethere has been much market comment on the potential size of a transaction, with manysources pointing to up to $1 billion of asset sales, with proceeds to EOP depending onwhat interest the company might retain.

What's on the market now?While a major re-positioning is indeed in the works, this is by no means the company’sinitial foray into the asset sale market. In fact, in the year to date EOP has sold over$800 million of assets, as the company exited some non-core markets and tookadvantage of opportunistic pricing. Exhibit 6 shows the company’s geographic exposureat December 2002 compared with October 2003. EOP has substantially slimmed itspresence in Minneapolis, San Antonio, Fort Worth and other slower-growing marketswhere the company did not have the scale to justify its presence.

Delving into this exposure chart, we can probably identify five to ten markets in whichEOP could continue to prune assets; are Orlando, Florida and Columbus, Ohio, at lessthan 0.5% of total square footage, worth holding, for instance? Moreover we sense thecompany would like to pare down its exposure to northern California (20+% of income, arelic of the Spieker acquisition in 2001), but at severely depressed income levels in thatregion would not find pricing attractive enough.

In fact, we think EOP is likely to sell trophy-quality assets in some of the company’sstrongest markets. Broker rumors put assets such as 225 Franklin Street in Boston(headquarters of State Street Global) and 161 North Clark Street in the Loop in Chicagoon the market. We believe about a dozen properties are for sale and the rumored value ofthese properties is $1 billion—assuming an 8% cap rate, this puts the income of thoseproperties at about $80 million annually.

Actual proceeds to EOP would of course depend on what interest the company would sellin these properties; if the company sells a 75% interest the proceeds would be $750million, at a 65% interest the proceeds would be $650 million and so forth.



Exhibit 6: EOP’s market presence at December 2002EOP has exited at least three markets and substantially pared down exposure in others

4Q2002 % ofRank Market Square ft Total

1 Boston 13,018.0 10.4%2 Chicago 11,190.2 8.9%3 San Francisco 10,642.7 8.5%4 Seattle 10,071.1 8.0%5 San Jose 8,577.4 6.8%6 Atlanta 7,783.2 6.2%7 LA 7,130.1 5.7%8 Orange County 6,227.8 5.0%9 Washington DC 6,041.2 4.8%

10 New York 4,986.4 4.0%11 Dallas 4,237.0 3.4%12 Denver 4,206.7 3.3%13 Portland 3,774.1 3.0%14 Oakland 3,050.6 2.4%15 Minneapolis 2,933.0 2.3%16 Houston 2,734.4 2.2%17 San Diego 2,607.9 2.1%18 Sacramento 2,595.6 2.1%19 Philadelphia 2,528.1 2.0%20 New Orleans 2,357.7 1.9%21 Stamford 1,814.1 1.4%22 Austin 1,426.9 1.1%23 Cleveland 1,270.2 1.0%24 Indianapolis 1,057.9 0.8%25 Orlando 640.7 0.5%26 Phoenix 605.3 0.5%27 San Antonio 604.3 0.5%28 Charlotte 583.4 0.5%29 Columbus 379.8 0.3%30 Riverside, CA 274.3 0.2%31 Fort Worth 239.1 0.2%32 Salt Lake City 136.2 0.1%

TOTAL 125,725 100%

Grey highlighting represents market exit, blue highlighting represents decreased presence.

Source: Company filings.

Exhibit 7: 2003 asset sales top $800 million already

Announced Market Square ft. Price ($mm)11/24/03 San Jose 194.0 106.811/24/03 San Diego 362.8 67.010/15/03 Charlotte 583.4 Market exit10/2/03 Fort Worth 239.1 Market exit9/12/03 San Francisco 496.15/2/03 Minneapolis 929.7 174.03/31/03 Oakland 60.3 4.43/3/03 Los Angeles 92.4 35.52/21/03 Los Angeles 94.4 16.12/12/03 Salt Lake City 136.2 11.6 Market exit1/3/03 Seattle 114.5 13.5

12/20/02 Durham, NC 181.7 20.0 Market exit12/19/02 Riverside, CA 308.4 39.312/18/02 St Louis 339.2 51.2 Market exit12/11/02 Seattle 408.4 56.2




An historical example that might help us understand EOP's mindsetEOP has clearly been slower than some of its peers to use the joint venture and fundstructure. Consider industrial REIT ProLogis on one end with extensive use of privatecapital, but a glance at Exhibit 8 shows EOP’s percentage of assets in JVs at a lower levelthan even other office peers, and note the decline in this number since 2000 versusgrowth in use of JVs by most other office REITs.

Exhibit 8: EOP’s JV exposure has declinedversus a positive trend for most other office REITs; JV assets as a % of total assets

1998 1999 2000 2001 2002 2003

EOP 2.7% 6.2% 6.2% 5.1% 4.3% 3.9%BXP 0.9% 0.7% 1.4% 1.4% 1.2% 1.0%CRE n/a 1.9% 8.8% 4.3% 4.4% 4.6%TRZ n/a n/a n/a 4.7% 4.0% 4.6%CLI 1.9% 2.5% 2.8% 3.9% 4.7% 4.7%


However the company has used the structure in the past, in fact in a similar way.Moreover, some EOP executives have hinted that the planned deal for December mightbe modeled after a transaction with Lend Lease back in 1999.

In 1999, EOP sold interests in seven assets for $535 million to an Australian-listedproperty trust managed by Lend Lease (now managed by The Principal Group of DesMoines, Iowa). The assets were also spread across the country, in Chicago, Indianapolis,Atlanta, Orlando, Dallas and Los Angeles. The properties had a mix of occupancy levels.Generally, 50-75% interests in the various buildings were sold. EOP used the proceedsimmediately to pay down debt on its credit line, and subsequently for share repurchasesand acquisitions.



How to think about uses

EOP has three obvious uses for the significant amount of cash that could begenerated in this kind of transaction: to pay down debt, to acquire new properties,or to buy back equity (see Exhibit 9). Management has made clear that retiring the7% debt due in November 2003 and January 2004 is on top of the list. This wouldavoid major earnings dilution, assuming the company sells at 7-8% cap rates.

Exhibit 9: Share buyback might be the most accretive option, but we think debt retirement is more likely

Proceeds from the sale ofasset interests to a jointventure:$500 million to $750million, most likely,assuming 7-8% cap rates

Debt paydown option:

$400m at 7.38% due in November$400m at 6.7% due in January= only MODEST DILUTION

Acquisition option:

Mgmt has indicated an expectationthat interest rates, and cap rates,will go up in 2004; assuming thecompany wants to leverage scale inmarkets it is already in, cap rateswill probably run in the 7% range;but timing factors would result inabout 5c of dilution; what might beinteresting is if EOP consideredbuying assets in a different propertytype, such as industrial- this couldcreate POTENTIAL ACCRETION

Equity buyback option:Year to date EOP has repurchased about$700m of preferred and common equity; thecompany has called another $115 million ofpreferred series in December; not manypreferred redemption opportunities remain; thereturn on buying back common stock at theselevels is 10%- ACCRETIVE

More DILUTIVE More ACCRETIVE




A strategic review of EOP's major markets

We expect management also to comment on 2004 along with any asset saleannouncement. Therefore, we have delved into EOP’s top markets and thoughtabout office fundamentals over the next 12-18 months. EOP owns 125 millionsquare feet of office space from coast to coast. We can understand the tendency toanalyze the company in aggregate. At turning points, we think markets matter.

Three observations to take away from our market analysis below1. Boston, EOP’s largest market at 14% of income, is clearly in flux with corporate

mergers likely to pressure real estate demand—but EOP has positioned itselfrelatively well here with a healthy occupancy pickup this quarter and a relativelyeasier rent roll on re-leases in 2004.

2. Sister cities San Francisco and San Jose have begun behaving differently and thissurprises us. Fundamentals in San Francisco appear to be weakening (consistent withlayoff news we have heard), while San Jose has begun to show signs of relativestrength. While these are early days in this trend we think it bears watching: thesemarkets are almost 25% of income for EOP (mostly acquired through the Spiekermerger in 1999).

3. EOP could be in for some real trouble if markets do not pick up by 2005, becausethat is the year rent rolls really get tough. Note this is also true for several otheroffice REITs. This is because leases expiring in 2005 were likely signed between1995 and 2000 and those rents are now above-market. Specifically, Boston and SanJose are large markets with rent roll-down risk in 2005 for EOP. We think this “’05Roll Risk” across office companies has not yet been fully understood by the marketand is a key driver behind our cautious stance on these companies.

Digging into the marketsEquity Office Properties is the truly national REIT and we sympathize with the tendencyto associate the company with the economy in general, ignoring market nuancesconsidered more relevant for market-concentrated companies (think Post Properties,BRE, Reckson, SL Green). But as the economy begins to shift towards meaningfulgrowth, we think 2004 will be a “market story.” We model all 10 of EOP’s markets indetail and thus can glean some insights into lease rollover risk, rental rate trends, etc.We’ve split these markets into buckets of what’s most important to EOP’s numbers.

Tier 1 Markets: at 45% of income, these are the ones to watch

San Francisco and San Jose: the needle than can move the dialWhile Boston is EOP’s single largest market at 14% of income, we think of the Bay Areaand San Jose markets together and these two combined represent 23% of income—whathappens here will move the numbers for EOP. The large presence here is a function of the1999 acquisition of Spieker Properties. We thought the 3Q2003 trends in thesemarkets were interesting: for the first time in a while, the direction of businessactivity diverged. Occupancy in San Francisco fell 500bp from 2Q2003 whileoccupancy increased 200bp in San Jose. Could the 50% move in the NASDAQ since



March and positive newsflow from technology companies suggest a recovery isunderway in tech-heavy San Jose? While it is clearly too early to call, we think therelationship between the two markets should be monitored. We are modeling a 10%rolldown on lease expirations in San Francisco in 2004, but San Jose is fortunate with arelatively easier roll over the next two years. Leases are expiring $30-$32 per sq footversus $37 this year, so we think the company could get flat re-leases. See Exhibits 10-14.

Exhibit 10: San Jose office rents bottoming outprojections provided by REIS

Exhibit 11: San Francisco office rent projections mirrorSan Jose

$17

$27

$37

$47

Net

Eff

ecti

veR

ent

-30%

-5%

20%

45%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Rent % Change

$18

$38

$58

Net

Eff

ecti

veR

ent

-45%

-20%

5%

30%

55%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Rent % Change

Source: REIS. Source: REIS.

Exhibit 12: San Jose vacancy has likely peakedprojections provided by REIS.

Exhibit 13: Similar story for San Fran, though thechange is less dramatic

-4

-1

2

5

1990 1992 1994 1996 1998 2000 2002 2004 2006

squ

are

feet

(mill

ion

s)

0%

5%

10%

15%

20%

25%

Vac

ancy

Rat

e(%

)

Completions Absorptions Vacancy Rate

-8

-3

2

1990 1992 1994 1996 1998 2000 2002 2004 2006

squ

are

feet

(mill

ion

s)

0%

5%

10%

15%

20%

25%

Vac

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Rat

e





Exhibit 14: San Francisco and San Jose lease rollover schedule and Goldman Sachs assumptions2001-2008

2001A 2002A 2003E 2004E 2005E 2006E 2007E 2008E

SAN FRANCISCORentable Sq ft (000) (period end) 10,618 10,643 10,932 10,643 10,643 10,643 10,643 10,643Expiring Sq ft (000) 774 961 1,206 783 1,422 920 1,100 1,085

Annualized rent ($ mm) 43.5 34.2 42.6 29.3 58.8 41.7 42.8 46.7

Base Portfolio Rent/SF 43.29$ 44.57$ 42.47$ 43.24$ 42.23$ 41.24$ 40.84$ 39.97$Rent Step % 19% 3% 0% 0% 0% 0% 0% 0%

Rollover Rent/SF 56.18$ 35.58$ 35.30$ 37.41$ 41.36$ 45.35$ 38.94$ 43.03$Rate on new and renewal leases 37.00$ 33.67$ 34.34$ 34.39$ 34.44$ 34.49$

% Change in new lease rates -9% 2% 5% 5% 5%

Rollover Renewal % 85% 85% 85% 85% 85% 85%Renewal space leased in period 1,025 666 1,209 782 935 923

Vacant Space Leased in period (213) 862 320 244 271 269Total Period Leasing (000 SF) 3,402 813 1,528 1,528 1,027 1,206 1,192

Period End Occupancy 86.8% 76.6% 73.0% 80.0% 81.0% 82.0% 83.0% 84.0%Average Occupancy 92.6% 81.7% 75.5% 76.1% 80.5% 81.5% 82.5% 83.5%

Unallocated Market Revenue 0.0 0.0 0.0 0.0 0.0 0.0Total Market Revenue ($mm) (EOP) 398.8 357.7 338.9 368.2 364.1 359.9 360.8 357.3Average Total Market Revenue ($mm) 398.8 363.5 360.9 362.9 366.1 362.0 360.3 359.0

SAN JOSERentable Sq ft (000) (period end) 8,577 8,577 8,577 8,577 8,577 8,577 8,577Expiring Sq ft (000) 1,098 885 834 1,686 941 656 370

Annualized rent ($ mm) 34.5 33.3 27.1 51.8 34.8 26.8 12.6

Base Portfolio Rent/SF 39.56$ 41.18$ 36.81$ 37.54$ 38.37$ 38.39$ 38.30$ 38.78$Rent Step % 2% 0% 0% 0% 0% 0%

Rollover Rent/SF 31.46$ 37.58$ 32.54$ 30.71$ 37.00$ 40.85$ 34.11$Rate on new and renewal leases 37.00$ 33.30$ 33.97$ 35.66$ 37.45$ 39.32$


Rollover Renewal % 85% 85% 85% 85% 85% 85%Renewal space leased in period 752 709 1,433 800 558 314

Vacant Space Leased in period (4) 254 296 227 184 141Total Period Leasing (000 SF) 2,268 748 962 1,729 1,027 742 456



Source: Company filings, Goldman Sachs Research estimates.

Seattle: Aerospace jobs have flown but market now stabilizedSeattle, at 7% of income is EOP’s fourth-largest market and with the shift from anaerospace city to a technology one, in some ways Seattle should be considered inconjunction with San Francisco and San Jose. Occupancy is stable in this market and thecompany appears to be signing leases as they have expired. The lease rollover in 2004 isa mirror image of 2003 and we are assuming nothing changes. Seattle is an interestingmarket in the sense that the employment base truly has radically changed in thelast ten years. In a report issued in November 2003, the State of Washington noted thattechnology companies now employ more workers than Boeing and the aerospace



industry, following a rapid decline in aerospace jobs in the last three years. Thisreinforces the notion that we can really think about the trends driving this market assimilar to what is driving the tech-prevalent Bay Area and San Jose. See Exhibits 15-17.

Exhibit 15: Seattle still under rent pressure… Exhibit 16: …because vacancy has probably not quitepeaked

$14

$20

$26

Net

Eff

ecti

veR

ent

-14%

-9%

-4%

1%

6%

11%

16%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Rent % Change

-2

2

6

1990 1992 1994 1996 1998 2000 2002 2004 2006sq

uar

efe

et(m

illio

ns)

0%

5%

10%

15%

20%

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Vac

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Rat

e(%

)



Exhibit 17: Seattle lease rollover schedule and Goldman Sachs assumptions2001-2008

2001A 2002A 2003E 2004E 2005E 2006E 2007E 2008E

SEATTLERentable Sq ft (000) (period end) 10,380 10,071 9,954 9,954 9,954 9,954 9,954 9,954Expiring Sq ft (000) 689 1,399 2,091 1,006 1,130 923 616 974

Annualized rent ($ mm) 17.0 33.3 58.1 27.4 33.4 27.3 17.1 25.8

Base Portfolio Rent/SF 28.06$ 28.40$ 27.29$ 27.34$ 27.39$ 27.49$ 27.84$ 28.59$Rent Step % 2% 1% 0% 0% 0% 0% 0% 0%

Rollover Rent/SF 24.63$ 23.81$ 27.80$ 27.28$ 29.58$ 29.59$ 27.80$ 26.55$Rate on new and renewal leases 27.00$ 27.00$ 27.54$ 28.92$ 30.36$ 31.88$

% Change in new lease rates 0% 2% 5% 5% 5%

Rollover Renewal % 85% 85% 85% 85% 85% 85%Renewal space leased in period 1,777 855 960 785 524 828

Vacant Space Leased in period (25) 250 369 238 192 246Total Period Leasing (000 SF) 1,505 1,752 1,105 1,329 1,023 716 1,073






Boston: Will corporate mergers cut real estate demand?Boston represents 14% of NOI and is the largest single market for EOP. There was animpressive 150 bp occupancy gain in 3Q2003, but we calculate an ugly rent spread onnew leases in Boston versus positive mark to markets in the first half. The lease rolloveris modestly easier in 2004, but note we are still modeling a 10% rent rolldown and a50bp drop in occupancy. Why be so cautious on 2004? Because with a number of recentcorporate M&A transactions we think there will be some available space coming tomarket. Take the Manulife acquisition of John Hancock: Manulife has 400 thousand sqfeet in Boston and John Hancock has 1.5 million sq feet. Or the Banc of Americapurchase of Fleet – Fleet has 1.4 million sq feet. While Banc of America does not have areal presence in Boston there will clearly be a need to squeeze efficiencies whereverpossible. In addition, the rent roll becomes considerably more difficult in 2005. If 2004 isanything like 2003, during which tenants look to lock in current low rates on leases aheadof a pickup in the economy, we could see the impact of those deals soon. See Exhibits18-20.

Exhibit 18: Boston market rents set for modestincrease, but note the roll gets tough for EOP in 2005

Exhibit 19: Falling vacancy should support rent growth

$18

$25

$32

$39

Net

Eff

ecti

veR

ent

-20%

-5%

10%

1990 1992 1994 1996 1998 2000 2002 2004 2006

Rent % Change

-10

-5

0

5

1990 1992 1994 1996 1998 2000 2002 2004 2006

squ

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(mill

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0%

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)





Exhibit 20: Boston lease rollover schedule and Goldman Sachs assumptions2001-2008

2001A 2002A 2003E 2004E 2005E 2006E 2007E 2008EBOSTONRentable Sq ft (000) (period end) 13,019 13,018 12,931 12,931 12,931 12,931 12,931 12,931Expiring Sq ft (000) 1,314 1,199 1,213 965 1,171 846 1,390 1,374

Period rent ($ mm) 46.7 46.0 44.5 33.4 43.5 28.6 55.0 51.2

Base Portfolio Rent/SF 36.85$ 38.67$ 38.49$ 37.99$ 37.57$ 37.72$ 37.42$ 37.61$Rent Step % 0% 0% 0% 0% 0% 0%

Rollover Rent/SF 36.68$ 34.60$ 37.13$ 33.84$ 39.61$ 37.26$Rate on new and renewal leases 35.00$ 31.50$ 32.13$ 33.74$ 35.42$ 37.19$


Rollover Renewal % 85% 85% 85% 85% 85% 85%Renewal space leased in period 1,031 820 995 719 1,181 1,168

Vacant Space Leased in period 259 80 240 256 338 335Total Period Leasing (000 SF) 2,227 1,290 901 1,235 976 1,519 1,503



Source: Company filings and Goldman Sachs Research estimates.

Tier 2 Market: Healthy markets, if only EOP had more of them

New York: great market but flipside is there’s nowhere to go but downNew York is about equal to Seattle in importance to EOP at 7% of income. Occupancy inthe New York City market is an eye-catching 98-99% every quarter but the result of thisis that there is not much growth upside. EOP has had below-market rents expiring in NewYork City in 2003, so rent growth has materialized – this will be a little tougher in 2004when leases expire at $56 per square foot. We are assuming a 10% negative rent roll inthis market.

Chicago: Is strategy change brewing in the Windy City?Also 7% of income, Chicago is a relatively healthy market for EOP as the company haswell-located assets and a leasing team that has impressed us. We would also point outChicago is a pilot city for the EOPlus program. The bad news in Chicago has been the110bp drop in occupancy this quarter, but importantly the rent pressure visible in 1Q2003and 2Q2003 results seems to be subsiding here. Could the company be giving upoccupancy because lease economics just don’t make sense? This could be a strategyworth noting because Chicago tends to be a market to which management is highlyattuned, because EOP’s headquarters are there. The roll in 2004 is similar to 2003 but asin Boston and San Jose, watch out on 2005, when leases generating $39 per sq foot expirecompared to $29/sq ft expirations this year.



Washington, DC: Election year should keep this market strong in 2004Washington DC at 6% of income should see growth next year as real estate demandcould benefit from players in the presidential election process. The market lost 200 bp ofoccupancy in 3Q2003 (Washington, DC is one of only a few markets with new officesupply pressure) but our sense is that the company is signing leases with reasonably goodrent growth on expirations. Again this is a market with a 2005 rent roll issue, as expiringleases step up from $33/ft to $38/ft in that year.

Southern California: Apartments, industrial and retail steal all the sunshineLos Angeles at 5% of income and Orange County at 4% give EOP exposure to southernCalifornia, which has been a hot market for apartment, industrial and retail REITs butrelatively quiet for office. Los Angeles lost 250bp of occupancy in the quarter and rentscame under pressure because of a much tougher roll than earlier in the year ($25/ft leasesexpired in the first half and $29/ft leases expired in 3Q2003). If EOP continues to signleases comparable to rates in 3Q2003, this would imply a 9% rolldown in 2004, which iswhat we are modeling. Orange County picked up 120 bp of occupancy but also at a bignegative spread, which we expect to persist.

Atlanta: Early signs of job growth but rent roll is really tough hereAtlanta (5% of income) rounds out Tier-2 markets. Occupancy and rents are stable nowand early signs of job growth in this market give us hope—but EOP will need it with theroll faced in 2004. If the company continues to sign leases at $20/foot there will be astunning 20% rolldown in 2004, which we are modeling.

Tier 3 Markets: Everything else – and curiously, where the company is buyingThe rest of EOP’s markets represent 22% of income and include most of the suburbanassets which have been hit much harder in this downturn (recall that central businessdistrict occupancy stands at 90% currently versus 84% for suburban assets). Interestingly,the company added to this bucket in 3Q2003 with the purchase of a 485k sq foot buildingin Denver (the US Bank Tower downtown, acquired for $165 per sq foot).



Devil's advocate view: could the dividend still be cut?

Although an asset sale transaction can be done on an earnings-neutral basis,dividend coverage remains an issue (see Exhibit 21). We think, however, that with arecovery on the horizon, a newly disciplined approach to leasing commissions andtenant improvements, and ample liquidity EOP will maintain the $2.00/sharedistribution.

Exhibit 21: Even with an earnings-neutral transaction, dividend issue persists

2003 2004 2005 2006 2007 2008Current Model (no JV sale)

Dividend/share 2.00$ 2.00$ 2.00$ 2.00$ 2.00$ 2.00$FAD Payout ratio 125% 107% 110% 110% 100% 96%

Sensitivity with JV sale(sell $1bn into JV, retain25% stake & redeem debt)

Dividend/share 2.00$ 2.00$ 2.00$ 2.00$ 2.00$ 2.00$FAD Payout ratio 122% 104% 108% 110% 100% 96%

elevated levelof TI/leasingcommissions

estimatedincrease ininterestrates nickscash flow

EOP isn't in theclear for 4-5years, assumingTI/LC are about$20-25/footleased

still have thedividendcoverage issue


While EOP Chairman Sam Zell had been vocal about maintaining the dividend earlier inthe year, we have not heard any such confident reiterations in recent months. In fact theEOP management team has been notably silent on the subject of dividend sustainabilityin conversations we have had with them on the subject. Conservatism usually dictatesthat a REIT cut its dividend if its payout ratio is above 100% for a prolonged period, anddespite Zell’s flamboyant personality we view his management philosophy in overseeingEOP as essentially a conservative one, given the company and its investor profile.

The sustained period of stretched payout ratios suggests EOP would need to borrow inorder to pay its distributions (debt to total cap would increase from 50% currently to 57%by 2008, interest coverage would remain stuck at 2.5X versus 2.8X in the late 1990s),effectively damaging the balance sheet. A joint venture yielding $750 million in proceedsto the company would reduce debt to cap by 200bp and given a roughly FFO neutral



impact the payout ratios would be about the same. But EOP would net about 10months of dividend payments – effectively buying it more time to sustain thedividend at the current level while awaiting some clarity in end-market demand.

Importantly, if the high payout ratio in 2005 and beyond stems from upfront investmentsto fill the buildings (in the form of tenant improvement allowances and leasingcommissions), we believe EOP will be far more likely to maintain the dividend at itscurrent $2.00 level given that it will have visibility on higher cash flows from higheroccupancy. The key will be to watch employment trends, especially in office-intensive service industries, as well as EOP’s occupancy trends. Were EOP tocharacterize the JV proceeds as a “dividend bridge” to a better economy, as we believe itmay, we would again become concerned about dividend security by next fall in theabsence of a marked pick-up in occupancy.

Stress testing to plumb the downsideEOP’s actions have been notably more pessimistic than its words. For instance, whilepublicly professing optimism on end markets EOP became markedly more aggressivethan its competitors in rates, use of tenant improvement allowances and generous leasingcommissions very early in the current downturn. In retrospect, some of this earlyaggressiveness now appears to have been prescient given that conditions sincedeteriorated further.

We believe EOP management is brutally realistic about the difficult office market andthat it is managing the company accordingly. EOP faces a difficult “rent roll” in 2005 (asdo many office REITs) as five-year leases set at market peaks roll off into a much lowerrent environment. We have included these lower resets in our financial model, but theyrepresent a further hurdle before the office REITs fundamentals truly bottom out. It isconceivable that EOP could view this last hurdle as being sufficiently high that it maychoose to cut its dividend now rather than prolong the uncertainty for two more years.

We estimate that a dividend cut to $1.75 would reduce the payout ratio to a morecomfortable 90-95% for all of our forecast years. At such a level, EOP shares would stillyield 6.2% relative to the average REIT at 5.9% and the average office REIT at 6.1%.We do not, however, believe that a dividend cut is fully “baked into” the stock, andforesee $3-4 downside for the shares were the company to announce such a cut (mostlikely a $4-5 drop initially followed by a slight recovery in subsequent days). Asensitivity to different dividend levels is provided in Exhibit 22.



Exhibit 22: Dividend sensitivity: even with a 10-15% cut, yield would be attractiveeach scenario assumes our current forecast for capex/tenant improvements/commissions

2004 2005 2006 2007 2008

Dividend: 2.00$ 108% 110% 111% 100% 96%Yield: 7.2%

Dividend: 1.90$ 102% 105% 104% 94% 90%Yield: 6.8%

Dividend: 1.75$ 94% 96% 95% 86% 81%Yield: 6.3%

Dividend: 1.50$ 81% 82% 91% 72% 68%Yield: 5.4%

Payout Ratios (FAD)




Financials: more leverage to a recovery, but not much growth

With occupancy at 86% at September 30 (one of the lowest of major office REITs),and almost 125 million square feet of space, EOP clearly has some of the mostleverage to a turn in office fundamentals. And with an economic recovery underwaywith new office supply at historically low levels, EOP should be well positioned.However we still see less than 2% annual FFO growth over the next five years.

The three key drivers to rental revenue for any REIT are square footage, occupancy andrental rate per square foot. We forecast only a very slight improvement in occupancy in2004, when 10% of leases are rolling at flat to down 10% rental rates. Beyond 2004 weexpect a more meaningful occupancy recovery in 2005 and beyond. Even with anearnings neutral or accretive JV transaction, we see little growth for EOP. Our fvive-yearFFO/share growth rate is 1.7%.

One interesting moving piece that could potentially arise from an asset sale of this sizewould be the occupancy level of the remaining portfolio. Most of EOP’s downtownoffice buildings tend to be very well leased; thus removing these properties from theconsolidated total could lower the average occupancy modestly, and offer more leverageto an economic recovery (see Exhibit 23).

Exhibit 23: EOP has experienced a steep drop in occupancy and should see more gains that peers in 2004represents weighted average occupancy for each

2001A 2002A 2003E 03 Drop 2004E 04 Pickup 2005E 2006E 2007E 2008E

EOP 93.6% 90.2% 87.1% -3.1% 87.3% 0.2% 89.0% 89.9% 90.7% 91.4%

BXP 97.1% 95.0% 93.2% -1.8% 92.6% -0.6% 92.9% 93.5% 94.0% 94.5%

TRZ 90.7% 90.0% 86.2% -3.8% 86.3% 0.1% 87.4% 88.5% 89.6% 90.8%

CRE 95.4% 92.3% 91.4% -0.9% 90.4% -1.0% 91.2% 92.1% 93.2% 94.0%

EOP probably hasbest upside potentialfor occupancy in 2004

Source: Company filings, Goldman Sachs Research estimates.

From a cost standpoint, EOP has launched a program called EOPlus, which managementbelieves can save the company $75-100 million per year, half in expenses and half incapital costs. With G&A costs at less than 2% of revenue, EOP has proven scaleadvantages, though this number may not be directly comparable to prior years or peerssince some costs were recently reclassified as “operating.” Please see Exhibits 24-26 forour full financial model.



Exhibit 24: EOP income statement analysis$ millions, except per-share data

2003 Quarterly Statements1998A (1) 1999A (1) 2000A 2001A 2002A 1Q03A 2Q03A 3Q03A 4Q03E 2003E 2004E

Operating Revenue (incl. tenant recoveries) 1,538.4 1,774.6 2,027.5 2,828.7 3,220.5 765.6 759.6 753.6 780.4 3,059.3 3,072.7Operating Expense (600.4) (669.8) (752.0) (986.4) (1,138.4) (284.9) (288.4) (291.0) (330.1) (1,194.4) (1,197.6)

Net Operating Income (NOI) 938.1 1,104.8 1,275.5 1,842.3 2,082.1 480.7 471.2 462.6 450.3 1,864.9 1,875.1

Non-Rental Income (incl. parking & fees) 129.6 153.4 168.5 212.1 263.2 60.4 47.6 52.5 51.3 211.9 216.1Joint Venture Income 11.3 13.8 56.3 69.2 106.9 20.8 20.9 21.2 20.2 83.1 73.4General & Administrative Expenses (63.6) (80.9) (88.7) (109.7) (137.5) (13.5) (17.7) (13.5) (13.8) (58.5) (59.7)

EBITDA (2) 1,015.3 1,191.1 1,411.5 2,013.9 2,314.7 548.4 522.1 522.9 508.0 2,101.4 2,104.91.9%

Depreciation & Amortization (299.6) (354.3) (421.2) (566.6) (684.2) (174.3) (176.1) (178.9) (180.4) (709.6) (737.8)EBIT 715.7 836.8 990.3 1,447.3 1,630.5 374.1 346.0 343.9 327.6 1,391.7 1,367.2

Interest Expense (345.0) (418.7) (535.4) (741.9) (815.0) (207.0) (208.7) (208.1) (207.7) (831.5) (835.9)Interest Income & Other 11.7 14.2 36.1 40.2 22.3 3.3 3.7 3.7 3.6 14.3 14.6

Pretax Income 382.4 432.4 491.0 745.6 837.8 170.4 141.0 139.6 123.6 574.6 545.9

Taxes 0.0 0.0 (2.7) (8.8) (9.4) (1.0) (1.6) 0.3 (1.2) (3.4) (3.3)Rate % 0.0% 0.0% 0.6% 1.2% 1.1% 0.6% 1.1% (0.2%) 0.9% 0.6% 0.6%

Preferred Dividends (including OP) (32.2) (43.6) (43.3) (57.0) (62.6) (15.5) (15.4) (10.5) (10.5) (51.9) (42.0)Operating Partnership Minority Interest (36.2) (48.2) (59.4) (76.2) (89.2) (17.3) (18.5) (13.6) (12.1) (61.6) (54.2)Minority Interest (2.1) (2.0) (6.8) (8.7) (7.2) (2.5) (1.9) (1.8) (1.8) (8.0) (8.0)

Net Income from cont. operations 311.9 338.6 378.8 594.8 669.4 134.1 103.7 113.9 98.0 449.7 438.4

Disc. oper. (incl. prop. sales gains/(losses)) 12.4 59.7 48.8 103.7 38.2 7.6 46.2 (3.8) 0.0 50.1 0.0Extraordinary Items / non-recurring (7.5) (16.2) (2.6) (134.7) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net Income for common shareholders 316.8 382.1 424.9 563.8 707.6 141.7 149.9 110.2 98.0 499.7 438.4

Common Shares Outstanding (basic) 253.2 256.0 277.2 360.0 414.7 408.3 400.5 397.4 398.9 401.3 398.9Common Shares Outstanding (diluted) 255.0 258.9 280.1 363.1 416.7 409.2 402.3 399.5 401.6 403.1 400.9

EPS cont. ops. (basic) $1.23 $1.32 $1.37 $1.65 $1.61 $0.33 $0.26 $0.29 $0.25 $1.12 $1.10EPS cont. ops. (diluted) $1.22 $1.31 $1.35 $1.64 $1.61 $0.33 $0.26 $0.29 $0.24 $1.12 $1.09

EPS (basic) $1.25 $1.49 $1.53 $1.57 $1.71 $0.35 $0.37 $0.28 $0.25 $1.25 $1.10EPS (diluted) $1.24 $1.48 $1.52 $1.55 $1.70 $0.35 $0.37 $0.31 $0.24 $1.24 $1.09

Addback 13.6Derivation of Funds From Operations (FFO) 1998A (1) 1999A (1) 2000A 2001A 2002A 1Q03A 2Q03A 3Q03A 4Q03E 2003E 2004ENet Income to common shareholders 316.8 382.1 424.9 563.8 707.6 141.7 149.9 110.2 98.0 499.7 438.4

Property Sales (Gains)/ Losses (12.4) (59.7) (34.5) (81.7) (0.4) 0.0 (44.1) 0.0 0.0 (44.1) 0.0D & A (including JV D&A) 313.5 368.5 459.4 613.9 708.1 175.9 185.9 188.3 190.4 740.4 779.8Minority Interest/OP adjustment 36.2 48.2 59.4 76.2 89.2 17.3 18.5 13.6 12.1 61.6 54.2Non-recurring and/or Convert Addback 0.0 0.0 0.0 4.7 0.0 0.0 0.0 3.9 3.9 7.9 15.7

Funds from Operations (FFO) 654.1 739.1 909.1 1,177.0 1,504.5 334.9 310.2 316.0 304.4 1,265.5 1,288.1

Straight-line rent adjustment (65.4) (69.8) (69.1) (72.9) (13.0) (19.0) (19.9) (20.2) (72.0) (70.0)Capitalized Interest (15.1) (18.0) (14.8) (25.9) (21.4) (3.6) (1.2) (2.2) (2.2) (9.2) (8.9)CAPEX, TIs, and Lease Commissions (253.4) (352.6) (373.2) (437.7) (433.6) (94.6) (124.0) (134.8) (101.5) (455.0) (359.3)Other (incl. FAS 141/142 adjustment) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Funds Available for Distribution (FAD) 385.6 303.1 451.4 644.3 976.6 223.7 166.0 159.1 180.5 729.3 849.9

Common Shares & Units Outstanding (diluted) 284.0 291.2 319.0 412.0 469.1 459.3 452.0 457.2 457.2 456.4 456.5

FFO/share (diluted) $2.30 $2.54 $2.85 $2.86 $3.21 $0.73 $0.69 $0.69 $0.67 $2.77 $2.82

FAD/share $1.36 $1.04 $1.42 $1.56 $2.08 $0.49 $0.37 $0.35 $0.39 $1.60 $1.86Dividends/share $1.38 $1.58 $1.74 $1.90 $2.00 $0.50 $0.50 $0.50 $0.50 $2.00 $1.75Dividend growth (YOY) NA 14.5% 10.1% 9.2% 5.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Payout Ratio (Dividend/FFO) 59.9% 62.2% 61.1% 66.5% 62.4% 68.6% 72.9% 72.3% 75.1% 72.1% 62.0%Payout Ratio (Dividend/FAD) 101.6% 151.8% 123.0% 121.5% 96.1% 102.7% 136.2% 143.7% 126.6% 125.2% 94.0%Payout Ratio (Dividend/Net Income) 111.1% 107.0% 114.7% 122.4% 117.8% 144.4% 134.2% 161.3% 204.9% 161.3% 160.0%

Profit and Return Metrics 1998A (1) 1999A (1) 2000A 2001A 2002A 1Q03A 2Q03A 3Q03A 4Q03E 2003E 2004EMargin Analysis:

Property Operating (NOI) Margin 61.0% 62.3% 62.9% 65.1% 64.7% 62.8% 62.0% 61.4% 57.7% 61.0% 61.0%EBITDA Margin (3) 65.3% 66.3% 66.8% 68.7% 68.6% 68.9% 66.0% 66.6% 62.5% 66.0% 66.1%Pretax Income Margin 24.9% 24.4% 24.2% 26.4% 26.0% 22.3% 18.6% 18.5% 15.8% 18.8% 17.8%Net-Continuing Operations Margin 20.3% 19.1% 18.7% 21.0% 20.8% 17.5% 13.7% 15.1% 12.6% 14.7% 14.3%Net Margin 20.6% 21.5% 21.0% 19.9% 22.0% 18.5% 19.7% 14.6% 12.6% 16.3% 14.3%

Return on Equity Analysis:Pretax Margin 24.9% 24.4% 24.2% 26.4% 26.0% 22.3% 18.6% 18.5% 15.8% 18.8% 17.8%Retention Rate to Common (4) 81.6% 78.3% 77.1% 79.8% 79.9% 78.7% 73.5% 81.6% 79.3% 78.3% 80.3%Asset Turnover n/a 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1x 0.1xLeverage n/a 2.2 2.4 2.5 2.5 2.3 2.3 2.3 2.3 2.4 2.3

ROE (common) n/a 5.4% 5.5% 6.6% 6.5% 5.0% 3.7% 4.2% 3.6% 4.3% 4.1%

Current Yield on Cost (NOI/gross PP&E) n/a 8.4% 8.4% 8.8% 8.5% 7.8% 7.7% 7.5% 7.2% 7.5% 7.5%Return on Invested Capital n/a 5.5% 5.7% 6.1% 5.9% 5.5% 5.1% 5.3% 5.0% 5.2% 5.3%FFO Return on Equity (FFO/(Eq+MI+Acc. D&A) n/a 9.5% 10.2% 10.0% 10.8% 9.6% 9.1% 9.2% 8.8% 9.1% 9.2%




Exhibit 25: Summary of operating drivers$ in millions

Drivers 1998A 1999A 2000A 2001A 2002A 2003E 2004EExisting Office Property Summary

Total Sq footage (000s) at 12/31 45,189 82,215 119,562 125,725 124,887 124,598Weighted avg occupancy 94.5% 94.5% 94.5% 93.6% 90.2% 87.1% 87.3%Average rental rate/SF 23.33$ 22.28$ 22.53$

Total Revenue (inc Unconsolidated) 0.0 0.0 2,478.3 3,236.9 3,177.9 3,283.5

Total expiring sq footage 9,517 15,381 16,271 11,945% of total portolio 8% 12% 13% 10%

Total Leasing Activity (period end) 14,711 20,620 13,787 14,373

Operating Expenses (1,335.3) (1,378.0) (1,384.1)Operating Expense/Sq ft 10.89$ 11.00$ 11.10$% Change 1.0% 0.9%

Net Operating Income (excl. Dev. & Acq.) 1,901.6 1,800.0 1,899.4

Less Unconsolidated Revenue 383.5 509.2 561.5 470.0 485.6Less Unconsolidated Expenses (143.6) (212.2) (196.9) (180.0) (180.8)

Consolidated Office Revenue 1,538.4 1,774.6 2,027.5 2,828.7 2,675.5 2,785.8 2,797.9Straight line rent adjustment 72.9 72.0 70.0Other Revenue 305.4 210.0 218.0GAAP consolidated revenue 3,053.7 3,067.8 3,085.9

3,220.5Consolidated Expenses (600.4) (669.8) (752.0) (986.4) (1,138.4) (1,198.0) (1,203.3)

Consolidated NOI 938.1 1,104.8 1,275.5 1,842.3 1,915.3 1,587.9 1,594.6

Capex/TI costs/Leasing Commissions 253.4 352.6 373.2 437.7 433.6 455.0 359.3per square foot leased in period 29.75$ 21.03$ 33.00$ 25.00$

Acquisition & Disposition SummaryCost of Acquisitions/(Disposition Proceeds) Net 0.0 (194.2) 0.0

Period Revenues 0.0 (9.9) (26.4)Period Expenses 0.0 4.1 10.9

Period NOI (local calculation) 0.0 (5.8) (15.5)Period NOI (from Acq/Disp schedule) 0.0 (5.8) (15.5)Property Operating Margin 70.0% 70.0% 70.0%

Development SummaryCost of Developments 315.8 50.7 50.2

Period Revenues 16.1 1.4 13.2Period Expenses (6.3) (0.5) (5.2)

Period NOI (local calculation) 9.8 0.8 8.0Period NOI (from Dev schedule) 9.8 0.8 8.0Property Operating Margin 65.0% 65.0% 65.0%

Joint Venture IncomeTotal Unconsolidated JV income 83.1 73.4

Source: Goldman Sachs Research.



Exhibit 26: EOP statement of cash flows and balance sheets$ millions, except per-share data

1998A (1) 1999A (1) 2000A 2001A 2002A 2003E 2004E

Cash from OperationsNet Income 316.8 382.1 424.9 563.8 707.6 499.7 438.2

Preferred Dividends & Minority Interest 70.5 93.8 109.6 142.0 159.0 121.5 104.2Extr Items, Disc Ops & Gains on prop sales (4.9) (43.5) (27.1) (82.2) (17.9) (50.1) 0.0Depreciation & Amt. 311.7 362.0 435.5 587.4 687.9 713.3 741.4Deferred Taxes & Other (10.4) (6.2) (54.5) 91.5 (63.9) (83.1) (73.4)Change in Working Capital 75.4 (67.5) 18.9 (60.9) (81.7) (102.4) (106.6)

Total Cash from Operations 759.2 720.7 907.3 1,241.6 1,390.9 1,099.0 1,103.8

UsesMaintenance Capex (207.1) (297.5) (293.7) (360.1) (328.9) (344.6) (359.3)Other Capex (46.3) (55.1) (79.4) (77.6) (104.7) (138.0) 0.0Development Expenditures 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Acquisitions (1,930.2) (122.4) (1,229.4) (1,181.7) (53.1) (87.4) 0.0Divestitures 10.2 452.7 352.4 361.4 377.2 399.0 0.0Net Dist/(Inv) in JVs 4.1 13.4 (54.1) (117.9) 1.6 108.0 10.0Incr. In Deferred Leasing Costs & Other (62.4) (58.2) (7.5) 27.8 193.1 0.0 0.0

Total Uses of Cash (2,231.7) (67.1) (1,311.8) (1,348.2) 85.2 (63.1) (349.3)

Preferred Dividends (including OP) (29.6) (43.8) (43.5) (58.6) (62.8) (53.8) (42.0)Common Dividends (389.0) (454.5) (578.9) (837.7) (935.1) (680.3) (909.1)

Free Cash Flow (1,891.1) 155.2 (1,026.9) (1,002.8) 478.3 301.7 (196.6)

Equity Issuance/(Repurchase) 59.4 (48.7) (41.5) 70.6 (263.6) (348.6) 0.0Preferred Issuance/(Redemption) 400.5 0.0 (0.9) (106.3) 5.8 (250.0) 0.0Debt Issuance/(Repayment) 1,333.4 (83.7) 1,173.1 1,021.9 (251.1) 259.5 60.0Other Financing (ex-LOC) (64.0) (87.6) (53.0) 24.5 27.9 (8.0) 0.0Financing Activities 1,729.3 (220.0) 1,077.8 1,010.7 (480.9) (347.1) 60.0

Cash Available/(Line of Credit Draw) (161.8) (64.7) 50.9 7.9 (2.7) (45.4) (136.6)Line of Credit Use/(Repayment) 45.4 136.6Change in Cash & Mktable Sec. (161.8) (64.7) 50.9 7.9 (2.7) 47.3 0.0

Balance Sheet 1998A (1) 1999A (1) 2000A 2001A 2002A 2003E 2004E

Cash and cash equivalents 67.1 2.3 53.3 61.1 58.5 105.8 105.8Accounts Receivable 36.2 54.5 101.8 120.4 77.6 85.5 71.6Prepaid Expenses 83.0 239.8 353.3 252.4 273.7 291.2 286.6Other current assets 159.6 19.8 39.8 196.3 29.2 49.7 45.1

Total Current Assets 345.8 316.4 548.2 630.2 439.0 532.2 509.0

Deferred charges, gross 134.2 190.3 294.7 380.0 466.7 583.7 631.8Accumulated amortization (16.0) (37.3) (61.7) (114.8) (164.5) (215.0) (218.6)

Joint venture - rental properties 378.5 865.9 1,164.6 1,321.1 1,087.8 979.8 969.8Joint venture - construction in process 0.0 0.0 0.0 0.0 0.0 0.0 0.0Deferred rent & other assets 87.1 138.7 207.1 269.8 331.9 403.2 473.2

Operating Assets:Land 1,343.3 1,278.3 1,931.5 2,820.1 2,878.1 2,884.1 2,884.1Buildings & Improvements 12,006.3 11,569.1 15,529.0 21,579.6 21,747.8 22,085.6 22,444.9Accumulated depreciation (352.3) (630.4) (978.1) (1,494.3) (2,077.6) (2,726.5) (3,467.9)

Total Operating Real Estate 12,997.4 12,217.0 16,482.5 22,905.4 22,548.3 22,243.2 21,861.1

Construction in process 268.4 229.2 70.4 165.0 284.7 61.3 61.3Land Held for Development 65.8 125.9 88.4 251.7 252.9 253.9 253.9

Total Property Assets 13,331.6 12,572.2 16,641.3 23,322.1 23,085.9 22,558.5 22,176.3

Total Assets 14,261.3 14,046.1 18,794.3 25,808.4 25,246.8 24,842.4 24,541.6

Accrued interest and dividend payable 5.1 5.4 3.7 6.1 5.7 227.5 227.5Accounts payable 348.0 318.0 497.8 570.7 560.1 578.9 584.1Prepaid rents and other 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other liabilities 1.1 0.0 0.0 0.0 0.0 0.0 0.0Short Term Debt 1,216.0 453.0 51.0 244.3 205.7 513.7 650.3

Total Current Liabilities: 1,570.2 776.4 552.5 821.1 771.5 1,320.0 1,461.8

Total Long Term debt 4,809.4 5,398.9 8,752.0 11,744.3 11,565.5 11,483.0 11,543.0

Other Long Term Liability 93.0 161.2 200.2 330.3 392.0 457.1 363.1Total Liabilities 6,472.6 6,336.5 9,504.7 12,895.7 12,729.0 13,260.1 13,367.9

Minority Interest (including OP interest) 737.7 883.5 1,218.4 1,604.4 1,432.4 170.3 121.7

Preferred stock 615.0 615.0 613.9 863.4 876.1 626.1 626.1Common stock 6,436.0 6,211.1 7,457.3 10,444.9 10,209.4 10,786.0 10,425.9

Total Shareholders' Equity 7,051.0 6,826.1 8,071.2 11,308.4 11,085.5 11,412.0 11,052.0

Total Liabilities, MI, and Sh. Equity 14,261.3 14,046.1 18,794.3 25,808.4 25,246.8 24,842.4 24,541.6ROIC AnalysisReturn on Capital (Graham & Dodd) 5.5% 5.7% 6.1% 5.9% 5.2% 5.3%

Interest coverage Ratio (1) 2.8x 2.7x 2.5x 2.6x 2.7x 2.5x 2.5xFixed charge coverage Ratio (2) 2.6x 2.5x 2.3x 2.4x 2.6x 2.3x 2.4xEffective leverage (3) 48.5% 49.0% 52.3% 50.8% 49.7% 49.6% 49.7%Net Debt / EBITDA 5.9x 4.9x 6.5x 6.0x 5.2x 5.9x 5.9x

(calcs include JV adjustment beginning in 2000)

Interest Rate AnalysisInterest Expense (345.0) (418.7) (535.4) (741.9) (815.0) (831.5) (836.1)Capitalized Interest (15.1) (18.0) (14.8) (25.9) (21.4) (9.2) (8.9)Weighted Average Interest Rate 7.4% 7.5% 7.4% 7.0% 7.1% 7.0%

Balance Sheet StatisticsDays Receivable (period end) 8.6 11.2 18.3 15.5 8.8 10.2 8.5Days Payables (period end) 211.6 173.3 241.6 211.2 179.6 176.9 178.0Net Debt (period end) 5,958.3 5,849.6 8,749.7 11,927.5 11,712.8 11,890.9 12,087.5Debt to Cap (period end) 46% 46% 52% 51% 51% 51% 52%




Valuation: shares seem reasonably priced

EOP shares trade at the office multiple average, in line with our DCF and DDMmodels, but at a significant premium to our calculation of net asset value. We likeEOP for the 7% yield, assuming the dividend is maintained.

Share price performance

Exhibit 27: Aggressive acquisition history drove stock price performancerecent improvement reflects hope for an office recovery, but EOP is still lagging peers

15

17

19

21

23

25

27

29

31

33

35

1997 1998 1999 2000 2001 2002 2003 2004

shar

ep

rice

($)

IPO,$21

Beaconmerger

Announcedinterest inLend LeaseJV

Launched sharerepurchaseprogram

Cornerstonemerger

Spiekeracquisition Cut 2002 FFO

guidance;added to S&P500

Callahanresigns asCEO

EOP namesKincaid forCEO, increasessharerepurchaseprogram

Source: Factset, company press releases.



Exhibit 28: EOP’s shares have underperformed those of its peers in the last three, six and 12 months

Performance & Trading

CurrentGS Share Absolute and Relative Price Change (k) Avg.

Rating/ Price 3 months 6 months 12 months YTD 52 Week daily volCompany Ticker View 12/09/2003 Abs. Rel. Abs. Rel. Abs. Rel. Abs. Rel. L - H (6 m) (000)

Office PropertiesAlexandria Real Estate ARE NC $56.65 20.1% 13.4 % 27.0 % 13.8 % 39.2 % 12.8 % 34.0 % 7.7 % $40 $57 90Arden Realty, Inc. ARI NC 29.45 5.8 (0.9) 11.0 (2.2) 31.9 5.5 32.5 6.2 21 30 222Brandywine Realty Trust BDN NC 27.35 8.2 1.5 12.7 (0.5) 26.0 (0.4) 24.5 (1.8) 19 27 161Brookfield Properties Corp. BPO IL/C 28.02 17.8 11.1 26.4 13.2 60.6 34.3 52.8 26.4 17 28 114Boston Properties BXP IL/C 46.95 6.4 (0.3) 8.6 (4.6) 27.0 0.6 27.5 1.2 35 47 296Mack-Cali Corporation CLI IL/C 40.20 7.6 0.9 14.2 1.0 33.0 6.7 33.1 6.8 27 41 219CarrAmerica Realty CRE U/C 30.15 5.1 (1.6) 5.4 (7.8) 19.3 (7.0) 20.2 (6.2) 23 32 217Equity Office Properties EOP IL/C 28.03 0.1 (6.6) 2.9 (10.2) 7.5 (18.9) 11.8 (14.5) 23 29 1,158Great Lakes REIT GL NC 15.72 0.2 (6.5) (0.3) (13.5) (5.0) (31.4) (4.9) (31.3) 13 17 54Glenborough Realty Trust GLB NC 19.51 1.5 (5.2) 0.4 (12.8) 11.3 (15.0) 9.7 (16.7) 15 21 103Highwoods Properties HIW NC 25.01 5.6 (1.1) 15.6 2.4 16.5 (9.9) 13.4 (12.9) 20 26 281HRPT Properties Trust HRP NC 9.98 9.1 2.4 4.0 (9.2) 20.6 (5.8) 20.3 (6.1) 8 10 482Kilroy Properties KRC NC 31.55 10.3 3.6 16.6 3.4 36.7 10.4 38.4 12.0 21 32 110Maguire Properties MPG NC 23.35 NM NM NM NM NM NM NM NM 19 24 315Mission West Properties MSW NC 12.70 5.8 (0.9) 12.0 (1.2) 26.9 0.6 29.5 3.2 9 14 43Corporate Office Properties OFC NC 21.38 11.1 4.4 29.7 16.5 55.0 28.6 52.1 25.8 13 21 99Prime Group Realty PGE NC 6.04 -11.9 (18.6) 0.5 (12.7) 16.9 (9.4) 31.9 5.6 5 7 68Parkway Properties PKY NC 42.85 -5.0 (11.8) 4.4 (8.8) 18.6 (7.7) 21.7 (4.6) 33 46 36Prentiss Properties PP NC 32.10 4.4 (2.3) 10.4 (2.8) 16.0 (10.4) 13.5 (12.8) 25 33 177Reckson Associates RA U/C 23.90 2.2 (4.6) 13.5 0.3 13.4 (13.0) 12.8 (13.5) 18 24 369SL Green Realty SLG U/C 38.18 4.0 (2.7) 9.4 (3.8) 21.9 (4.4) 21.0 (5.3) 29 39 159Trizec Properties, Inc. TRZ IL/C 14.86 16.8 10.1 26.9 13.7 50.1 23.7 54.2 27.9 8 15 285

Weighted Average/Total 6.3% (0.4)% 11.3 % (1.9)% 25.3 % (1.1)% 25.8 % (0.6)%Average 6.0 (0.7) 12.0 (1.2) 25.9 (0.5) 26.2 (0.1)

Source: Factset, Goldman Sachs Research.

Exhibit 29: Historically, EOP has outperformed its office peersoffice REIT index is our calculation of a market cap weighted index of office REITs

50

60

70

80

90

100

110

120

1997

1998

1999

2000

2001

2002

2003

Office REIT Index EOP Indexed share price performance

EOP's recent shareprice performance haslagged, even versus amarket cap weightedoffice index in whichEOP is very influential




Exhibit 30: Historical multiple analysis shows EOP trading in line with historical average

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

1998

1999

2000

2001

2002

2003

NTM P/ E LTM P/ E Ave LTM Ave NTM

Average LTMP/E: 10.3x

Average NTMP/E: 10.2x

Source: Factset.

Exhibit 31: Office REIT comparison: FFO and FAD multiples

Funds From Operations (FFO) / Funds Available for Distribution (FAD)

CurrentGS Share Consensus Price/ 04E Mult. FFO

Rating/ Price FFO/Share (b) FFO/Share (b) FFO vs. Sector FFO Growth CAGR (p) FAD/Share (c) Price/FADCompany Ticker View 12/09/2003 02A 03E 04E 03E 04E 03E 04E (bps) 02-03E 03-04E 03-08E 02A 03E 04E 03E 04E

Office PropertiesAlexandria Real Estate ARE NC $56.65 $3.93 $4.23 $4.55 13.4x 12.4x 180 7.7 % 7.6 %Arden Realty, Inc. ARI NC 29.45 2.75 2.65 2.58 11.1 11.4 80 (3.7) (2.7)Brandywine Realty Trust BDN NC 27.35 2.69 2.69 2.66 10.2 10.3 (30) (0.2) (1.1)Brookfield Properties Corp. BPO IL/C 28.02 1.87 2.16 2.38 2.15 2.41 13.0 11.8 120 15.5 10.2 5.1 % $1.30 $1.78 $2.19 15.7x 12.8xBoston Properties BXP IL/C 46.95 4.09 4.04 4.00 4.04 4.05 11.6 11.7 110 (1.2) (1.0) 2.3 2.85 3.22 3.20 14.6 14.7Mack-Cali Corporation CLI IL/C 40.20 3.93 3.79 3.73 3.79 3.70 10.6 10.8 20 (3.6) (1.6) 1.1 2.95 2.72 3.09 14.8 13.0CarrAmerica Realty CRE U/C 30.15 3.31 3.29 3.10 3.27 3.12 9.2 9.7 (90) (0.6) (5.8) 2.8 2.79 2.18 2.06 13.8 14.6Equity Office Properties EOP IL/C 28.03 3.21 2.76 2.82 2.80 2.75 10.2 9.9 (70) (14.0) 2.2 1.7 2.08 1.60 1.86 17.5 15.1Great Lakes REIT GL NC 15.72 2.14 1.76 1.42 8.9 11.1 NA (17.8) (17.8)Glenborough Realty Trust GLB NC 19.51 2.45 2.25 2.10 8.7 9.3 (250) (8.2) (6.8)Highwoods Properties HIW NC 25.01 3.44 2.60 2.61 9.6 9.6 (100) (24.3) 0.3HRPT Properties Trust HRP NC 9.98 1.29 1.26 1.30 7.9 7.7 (290) (2.3) 3.2Kilroy Properties KRC NC 31.55 3.09 3.39 2.74 9.3 11.5 90 9.8 (19.2)Maguire Properties MPG NC 23.35 NA 1.46 2.15 16.0 10.9 30 NM 47.1Mission West Properties MSW NC 12.70 1.13 1.11 1.04 11.4 12.3 170 (1.8) (6.8)Corporate Office Properties OFC NC 21.38 1.39 1.56 1.69 13.7 12.7 210 11.9 8.6Prime Group Realty PGE NC 6.04 1.06 1.73 0.96 3.5 6.3 (430) 63.2 (44.5)Parkway Properties PKY NC 42.85 4.64 4.43 4.42 9.7 9.7 (90) (4.6) (0.2)Prentiss Properties PP NC 32.10 3.36 3.08 3.10 10.4 10.3 (150) (8.2) 0.7Reckson Associates RA U/C 23.90 2.36 2.09 2.15 2.06 2.29 11.4 11.1 50 (11.4) 2.9 1.9 1.47 1.09 1.30 22.0 18.4SL Green Realty SLG U/C 38.18 3.32 3.44 3.55 3.47 3.60 11.1 10.8 20 3.6 3.2 1.6 2.38 2.32 2.70 16.4 14.2Trizec Properties, Inc. TRZ IL/C 14.86 2.05 1.85 1.72 1.85 1.73 8.0 8.6 (200) (9.8) (7.0) 1.7 0.93 1.15 0.97 12.9 15.3

Weighted Average/Total 10.8x 10.6x (4.2)% 1.6 % 2.3 % 16.2x 14.6xAverage 10.4 10.5 0.0 (1.3) 2.3 16.0 14.8

Source: Factset,, Goldman Sachs Research estimates.



Exhibit 32: Office REIT comparison: dividends and payout ratios

Dividends Payout Ratios

CurrentGS Share Div/ Dividend 04E FFO 04E FAD

Rating/ Price Share Dividend CAGR Payout PayoutCompany Ticker View 12/09/2003 (Ann.) Yield 03-08E Ratio (d) Ratio (e)

Office PropertiesAlexandria Real Estate ARE NC $56.65 $2.24 4.0 % 49 %Arden Realty, Inc. ARI NC 29.45 2.02 6.9 78Brandywine Realty Trust BDN NC 27.35 1.76 6.4 66Brookfield Properties Corp. BPO IL/C 28.02 0.60 2.1 7.8 25 % 27 %Boston Properties BXP IL/C 46.95 2.52 5.4 1.8 63 79Mack-Cali Corporation CLI IL/C 40.20 2.52 6.3 1.4 68 82CarrAmerica Realty CRE U/C 30.15 2.00 6.6 0.0 65 97Equity Office Properties EOP IL/C 28.03 2.00 7.1 0.0 71 107Great Lakes REIT GL NC 15.72 1.62 10.3 114Glenborough Realty Trust GLB NC 19.51 1.40 7.2 67Highwoods Properties HIW NC 25.01 1.70 6.8 65HRPT Properties Trust HRP NC 9.98 0.80 8.0 62Kilroy Properties KRC NC 31.55 1.98 6.3 72Maguire Properties MPG NC 23.35 1.67 7.2 78Mission West Properties MSW NC 12.70 0.96 7.6 93Corporate Office Properties OFC NC 21.38 0.94 4.4 56Prime Group Realty PGE NC 6.04 0.00 0.0 0Parkway Properties PKY NC 42.85 2.60 6.1 59Prentiss Properties PP NC 32.10 2.24 7.0 72Reckson Associates RA U/C 23.90 1.70 7.1 0.0 79 131SL Green Realty SLG U/C 38.18 2.00 5.2 3.0 56 74.2Trizec Properties, Inc. TRZ IL/C 14.86 0.80 5.4 0.0 47 82

Weighted Average/Total 6.1 % 1.6 % 63 % 87 %Average 6.1 1.7 64 85

Source: Factset, Goldman Sachs Research.

Exhibit 33: Office REIT comparison: returns and value

Returns Margins-2003E

CurrentGS Share FCF Premium Pretax Net

Rating/ Price Yield ROE ROIC CYC (Disc.) to Est. NOI EBITDA Income Cont. Ops NetCompany Ticker View 12/09/2003 04E (j) 04E 04E 04E NAV NAV Cap Rate Margin Margin Margin Margin Margin

Office PropertiesAlexandria Real Estate ARE NC $56.65Arden Realty, Inc. ARI NC 29.45Brandywine Realty Trust BDN NC 27.35Brookfield Properties Corp. BPO IL/C 28.02 5.7 % 11.0 % 6.0 % 10.8 % $21 31 9.0% 61.2 % 59.8 % 30.8 % 19.2 % 19.2 %Boston Properties BXP IL/C 46.95 1.4 9.2 6.3 9.5 38 23 9.3 62.8 65.1 24.3 18.6 28.6Mack-Cali Corporation CLI IL/C 40.20 1.4 7.6 6.3 9.6 32 25 9.8 68.0 65.8 26.6 21.0 24.7CarrAmerica Realty CRE U/C 30.15 0.2 4.6 5.0 8.9 28 6 9.8 62.8 63.4 15.2 8.9 11.2Equity Office Properties EOP IL/C 28.03 (0.5) 4.1 5.3 7.5 21 35 9.7 61.0 66.0 18.8 14.7 16.3Great Lakes REIT GL NC 15.72Glenborough Realty Trust GLB NC 19.51Highwoods Properties HIW NC 25.01HRPT Properties Trust HRP NC 9.98Kilroy Properties KRC NC 31.55Maguire Properties MPG NC 23.35Mission West Properties MSW NC 12.70Corporate Office Properties OFC NC 21.38Prime Group Realty PGE NC 6.04Parkway Properties PKY NC 42.85Prentiss Properties PP NC 32.10Reckson Associates RA U/C 23.90 (1.7) 3.6 4.1 10.4 22 9 9.8 60.1 52.9 15.6 6.3 4.9SL Green Realty SLG U/C 38.18 2.0 9.0 6.6 10.8 32 21 9.8 49.5 51.2 26.1 22.0 30.4Trizec Properties, Inc. TRZ IL/C 14.86 1.1 4.0 4.5 6.6 12 24 9.8 46.1 54.6 10.6 9.8 12.3

Weighted Average/Total 1.1 % 6.5 % 5.6 % 8.8 % 27 9.5% 60.4 % 62.7 % 21.5 % 15.8 % 19.1 %Average 1.2 6.6 5.5 9.3 22 9.6 58.9 59.8 21.0 15.1 18.4

Source: Factset, Goldman Sachs Research estimates.



Intrinsic value approaches

Exhibit 34: Discounted free cash flow modelusing unlevered free cash flow; builds on static model not adjusted for any JV sale; $ millions, except per-share data

2003E 2004E 2005E 2006E 2007E 2008E

Operating Revenue (includes Acq & Dev) 3,059 3,073 3,082 3,117 3,160 3,240Operating Expenses (1,194) (1,198) (1,209) (1,221) (1,233) (1,245)

NOI Margin 61.0% 61.0% 60.8% 60.8% 61.0% 61.6%Property NOI 1,865 1,875 1,874 1,897 1,927 1,994

plus: Non-Rental and JV Income 295 290 296 304 313 326less: G&A (59) (60) (61) (62) (63) (65)

= Portfolio EBITDA 2,101 2,105 2,108 2,138 2,177 2,256Tax Rate (unlevered) 0% 0% 0% 0% 0% 0%less: Unlevered Taxes - - - - - -

EBIDA 2,101 2,105 2,108 2,138 2,177 2,256Less:

Straight line rents (70) (70) (70) (70) (70)Change in Working Capital (107) (74) (21) (21) (24)Preferred Stock (42) (42) (42) (42) (42)Capex & Acquisition/Development Spend (359) (369) (386) (326) (354)

Unlevered Free Cash Flow 1,527 1,553 1,619 1,718 1,766Present Value of UFCF 1,466 1,374 1,320 1,291 1,223

Sum of PV of UFCF 6,673 27%PV of Residual Value 18,069 73% FCF Terminal Growth RateValue of Unconsolidated Investments - 0% WACCTotal Value 24,743 28.67$ 0.8% 1.3% 1.8% 2.3%Less: Net Debt (11,891) 8.0% 27 30 33 37Net Value - US$ 12,852 8.5% 23 26 29 32Less Minority stake 0% 9.0% 21 23 25 28Net Value to majority 12,852 9.5% 18 20 22 24

# shares 448 E51 Matrix Avg $26Net Value per Share 28.67$

2003E WACC Analysis cost $ % of cap Current Price

Total Debt 7.1% 11,997 48.1%Total Preferred 6.9% 626 2.5%Total Equity 10.0% 12,339 49.4% 27.53WACC 8.5% 24,962

Valuation Assumptions:WACC (or r)= 8.5%Perp. UFCF growth rate (or g)= 1.8%1/(r-g)= 14.8 x UFCF

Implied Price Matrix

g = our estimate




Exhibit 35: Dividend discount modelassuming $2.00 dividend level

2003 2004 2005 2006 2007 2008

Dividend per share (Estimated) 2.00$ 2.00$ 2.00$ 2.00$ 2.00$ 2.00$Dividend growth 0.0% 0.0% 0.0% 0.0% 0.0%Perpetual dividend growth assumption ("g") 0.2%

Present Value of dividends 1.92$ 1.77$ 1.63$ 1.50$ 1.38$Sum of present value of dividends 8.21$Present Value of residual value 20.46$

Dividend Terminal Growth RateValue of unconsolidated Investments 0 WACCTotal Value 28.67$ 28.67$ 0.8% 1.3% 1.8% 2.3%

8.0% 31 31 31 31Less Minority Stake 0 8.5% 29 29 29 29Net Value to Majority 28.67$ 9.0% 27 27 27 27

9.5% 25 25 25 25C26 Matrix Avg $28

Valuation Assumptionsg = Retention Rate X Return on Equity -1.1% -0.3% -0.4% -0.4% 0.0% 0.2%Retention Rate (=1-FAD Payout Ratio) -25.2% -7.5% -10.3% -10.5% -0.2% 3.8%ROE 4.3% 4.1% 3.9% 4.0% 4.2% 4.8%

WACC= ("k")= r(e) * equity % + (1-t) * r(d) * debt % 8.5%

Implied Price Matrix




Exhibit 36: Net asset value analysis$ millions, except per-share data

Net Operating Income Inc Acq & Dev 1,865 1,865 1,865 1,875 1,875 1,875 1,874 1,874 1,874

Straight Line Rent Adjustment (72) (72) (72) (70) (70) (70) (70) (70) (70)Adjusted Net Operating Income 1,793 1,793 1,793 1,805 1,805 1,805 1,804 1,804 1,804

Capitalization Rate 9.20% 9.70% 10.20% 9.20% 9.70% 10.20% 9.20% 9.70% 10.20%

Share of NOI, Subsidiaries 145 145 145 152 152 152 152 152 152Cap. Rate 7.50% 8.00% 8.50% 7.50% 8.00% 8.50% 7.50% 8.00% 8.50%Non-rental Income 212 212 212 216 216 216 223 223 223Cap. Rate 12.50% 12.50% 12.50% 12.50% 12.50% 12.50% 12.50% 12.50% 12.50%

Real Estate Asset Value 23,122 21,997 20,984 23,381 22,243 21,219 23,412 22,275 21,252

Construction in Process/Land Held for Development 315 315 315 315 315 315 315 315 315Cash 106 106 106 106 106 106 106 106 106Net of Balance Sheet (receivables, payables) (380) (380) (380) (408) (408) (408) (406) (406) (406)Other Assets 772 772 772 886 886 886 984 984 984

Asset Value 23,935 22,810 21,797 24,281 23,142 22,118 24,411 23,274 22,251

Less: Debt Outstanding (incl. share of unconsolidated (12,816) (12,816) (12,816) (13,012) (13,012) (13,012) (13,200) (13,200) (13,200)

Less: Preferred Outstanding (751) (751) (751) (626) (626) (626) (626) (626) (626)

Net Asset Value 10,369 9,243 8,230 10,642 9,504 8,480 10,586 9,448 8,425

Shares Outstanding 456 456 456 457 457 457 457 457 457

NAV Per Share 22.72$ 20.25$ 18.03$ 23.31$ 20.82$ 18.57$ 23.19$ 20.70$ 18.45$

Implied Cap Rate 8.2% 8.3% 8.3%

2003 Annual 2004 Annual 2005 Annual




Company strategy/profile: the giant

EOP is the largest and most liquid REIT, with a $11.2 billion equity market cap. Theoffice landlord owns about 125 million square feet of space nationally.Interestingly, 60% of this space is in suburban markets and 40% in centralbusiness districts.

EOP owns and manages approximately 125 million square feet of office space, 60% inthe suburbs and the balance located in central business districts (see Exhibit 36).Properties located in the ten largest markets generate about 80% of net operating income,including San Francisco and San Jose (23% combined ), Boston (14%), Seattle (7%), andNew York (7%). EOP’s portfolio was 86.3% occupied at the end of 3Q2003.

The federal government, under the auspices of the General Services Administration(GSA), is EOP’s largest tenant, accounting for 1.8% of total annualized rental income,followed by PriceWaterhouseCoopers (1.5%), Washington Mutual Bank (1.4%), andOgilvy and Mather (1.0%). 10% of EOP’s existing leases expire during 2004, followedby 11% in 2004 and 2005.

Exhibit 37: Map of operations

Source: www.eop.com; Equity Office Properties.

Reg AC certificationI, Carey Callaghan, hereby certify that all of the views expressed in this report accuratelyreflect my personal views about the subject company or companies and its or theirsecurities. I also certify that no part of my compensation was, is, or will be, directly orindirectly, related to the specific recommendations or views expressed in this report.



Disclo

sures





0%

10%

20%

30%

40%

50%

60%

70%

26%

77%

OP/Buy

53%

67%

IL/Hold

21%

58%

U/Sell

Distribution of ratings/investment banking relationshipsGoldman Sachs Research global coverage universe

Percentage of companies covered by the GoldmanSachs Group, Inc, within the specified category

Percentage of companies within each category for whichThe Goldman Sachs Group, Inc. has provided investmentbanking services within the previous 12 months

As of 10/1/03 Goldman Sachs Global Investment Research hadinvestment ratings on 1,654 equity securities.

Source: Goldman Sachs As of October 1, 2003

Goldman Sachs uses three ratings - Outperform, In-Line, and Underperform - reflecting expected stock price performance relative to eachanalyst's coverage group, on an unweighted basis with regard to market capitalization and with a 12-month time horizon. Each analyst alsoassigns a coverage view - Attractive, Neutral, or Cautious - representing the analyst's investment outlook on the coverage group.NASD/NYSE rules require a member to disclose the percentage of its rated securities to which the member would assign a buy, hold, or sellrating if such a system were used. Although relative ratings do not correlate to buy, hold, and sell ratings across all rated securities, forpurposes of the NASD/NYSE rules, Goldman Sachs has determined the indicated percentages by assigning buy ratings to securities ratedOutperform, hold ratings to securities rated In-Line, and sell ratings to securities rated Underperform, without regard to the coverage viewsof analysts.

N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S2000 2001 2002 2003

22

24

26

28

30

32

34

750

1,000

1,250

1,500

RL

May 21, 2001 to NR from RL

RLJul 3

MPOct 31

ILNov 4

Equity Office Properties Trust (EOP)

Goldman Sachs rating and stock price target history

Currency: U.S. Dollar

Source: Goldman Sachs Research for ratings and price targets; Reuters for daily closing prices, as of 10/01/03.

Rating

Price target

Price target removal

S&P 500; pricing byFactSet

Covered by David J. Kostin

Not covered by current analyst

New rating system as of 11/4/02

Sto

ckP

rice

Inde

xP

rice

The price targets shown should be considered in the context of all prior published Goldman Sachs research, which may ormay not have included price targets, as well as developments relating to the company, its industry and financial markets.



Company-specific disclosures

The Goldman Sachs Group Inc. beneficially owned 1% or more of a class of equity securities of the following companies as of the end of the month immediately preceding the publication date of this report. If the publication date is less than ten calendar days after month end, The Goldman Sachs Group, Inc. beneficially owned 1% or more of a class of equity securities of the companies as of the end of the second most recent month: Reckson Associates. The Goldman Sachs Group, Inc. and/or its affiliates have received during the past 12 months compensation for investment banking services from the following companies, their parents, or their wholly owned or majority-owned subsidiaries: CarrAmerica Realty Corporation, Boston Properties, Inc., Equity Office Properties Trust, SL Green Realty Corp, and Brookfield Properties Corp. The Goldman Sachs Group, Inc. and/or its affiliates expect to receive or intend to seek compensation for investment banking services in the next 3 months from these companies, their parents, or wholly owned or majority-owned subsidiaries: CarrAmerica Realty Corporation, Trizec Properties Inc., Boston Properties, Inc., Reckson Associates, Equity Office Properties Trust, Mack Cali Realty Corporation, SL Green Realty Corp, and Brookfield Properties Corp. The Goldman Sachs Group, Inc. and/or its affiliates have managed or co-managed a public offering of the following companies' securities in the past 12 months: Boston Properties, Inc. The Goldman Sachs Group, Inc. is a specialist in the securities (including derivative securities) of the following: Boston Properties, Inc. and Reckson Associates.









Ratings and other definitions/identifiersCurrent rating system (effective November 4, 2002)

Definitions of ratingsOP = Outperform. We expect this stock to outperform the median total return for the analyst's coverage universe over thenext 12 months.

IL = In-Line. We expect this stock to perform in line with the median total return for the analyst's coverage universe overthe next 12 months.

U = Underperform. We expect this stock to underperform the median total return for the analyst's coverage universe overthe next 12 months.

Other definitionsCoverage view. The coverage view represents each analyst or analyst team's investment outlook on his/her/theircoverage group(s). The coverage view will consist of one of the following designations:

Attractive (A). The investment outlook over the following 12 months is favorable relative to the coverage group'shistorical fundamentals and/or valuation.

Neutral (N). The investment outlook over the following 12 months is neutral relative to the coverage group's historicalfundamentals and/or valuation.

Cautious (C). The investment outlook over the following 12 months is unfavorable relative to the coverage group'shistorical fundamentals and/or valuation.

CIL = Current Investment List. We expect stocks on this list to provide an absolute total return of approximately 15%-20% over the next 12 months. We only assign this designation to stocks rated Outperform. We require a 12-month pricetarget for stocks with this designation. Each stock on the CIL will automatically come off the list after 90 days unlessrenewed by the covering analyst and the relevant Regional Investment Review Committee.

Other ratings/identifiersNR = Not Rated. The investment rating and target price, if any, have been suspended temporarily. Such suspension is incompliance with applicable regulation(s) and/or Goldman Sachs policies in circumstances when Goldman Sachs is actingin an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances.

CS = Coverage Suspended. Goldman Sachs has suspended coverage of this company.

NC = Not Covered. Goldman Sachs does not cover this company.

RS = Rating Suspended. Goldman Sachs Research has suspended the investment rating and price target, if any, for thisstock, because there is not a sufficient fundamental basis for determining an investment rating or target. The previousinvestment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.

NA = Not Available or Not Applicable. The information is not available for display or is not applicable.

NM = Not Meaningful. The information is not meaningful and is therefore excluded.

Global Investment Policy and Regional Investment Review CommitteesThe Global Investment Policy Committee oversees ratings policy, monitors the distribution of ratings and thecomposition of the CIL, provides guidance to the Regional Investment Review Committees, and oversees theimplementation of methodology for portfolio allocation by sectors.

A Regional Investment Review Committee in each of the Americas, Europe, Japan, and Asia-Pacific regions approvesall rating changes and approves stocks for inclusion on the Current Investment List in its region.

Previous rating system definitions

RL = Recommended List. Expected to provide price gains of at least 10 percentage points greater than the market overthe next 6-18 months.

LL = Latin America Recommended List. Expected to provide price gains at least 10 percentage points greater than theLatin America MSCI Index over the next 6-18 months.

TB = Trading Buy. Expected to provide price gains of at least 20 percentage points sometime in the next 6-9 months.

MO = Market Outperformer. Expected to provide price gains of at least 5-10 percentage points greater than the marketover the next 6-18 months.

MP = Market Performer. Expected to provide price gains similar to the market over the next 6-18 months.

MU = Market Underperformer. Expected to provide price gains of at least 5 percentage points less than the market overthe next 6-18 months.



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Equity Office Properties