SECURITIES AND EXCHANGE COMMISSION





WASHINGTON, D.C. 20549





FORM 10-Q





Quarterly Report pursuant to Section 13 or 15(d) of


the
Securities Exchange Act of 1934





For the Quarterly Period Ended June 30, 2002





Commission File Number 1-14516





PRENTISS PROPERTIES TRUST


(Exact Name of Registrant as Specified in its Charter)





Maryland

75-2661588(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)





3890 West Northwest Highway, Suite 400, Dallas, Texas 75220


(Address of Registrants Principal Executive Office)





(214) 654-0886


(Registrants Telephone Number, Including Area Code)





Indicate by check mark whether the Registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days.





Yes X No





The number of Common Shares of Beneficial
Interest, $0.01 par value, outstanding as of August 12, 2002, was 38,952,532 and the number of outstanding Participating Cumulative Redeemable Preferred Shares of Beneficial Interest, Series D, was 3,773,585.







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PRENTISS PROPERTIES TRUST





INDEX





Part I:

FINANCIAL INFORMATION

Page NumberItem 1.

Financial StatementsConsolidated Balance Sheets of Prentiss Properties Trust at June 30, 2002 (unaudited) and December 31, 2001

5Consolidated Statements of Income of Prentiss Properties Trust for the three and six months ended June 30, 2002 and 2001 (unaudited)

6Consolidated Statements of Comprehensive Income of Prentiss Properties Trust for the three and six months ended June 30, 2002 and 2001 (unaudited)

7Consolidated Statements of Cash Flows of Prentiss Properties Trust for the six months ended June 30, 2002 and 2001 (unaudited)

8Notes to Consolidated Financial Statements

9-15Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

16-29Item 3.

Quantitative and Qualitative Disclosures about Market Risk

29-30Part II:

OTHER INFORMATIONItem 1.

Legal Proceedings

31Item 2.

Changes in Securities and Use of Proceeds

31Item 3.

Default Upon Senior Securities

31Item 4.

Submission of Matters to a Vote of Security Holders

31-32Item 5.

Other Information

32Item 6.

Exhibits and Reports on Form 8-K

32-36SIGNATURE



37







2




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FORWARD LOOKING STATEMENT








This Form 10-Q and the documents incorporated by reference into this Form 10-Q may contain
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this Form 10-Q, words such as anticipate, believe,
estimate, expect, intend, predict, project, and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based
on the beliefs of our management as well as assumptions made by us and information currently available to us. These forward-looking statements are subject to certain risks, uncertainties and assumptions, including risks, uncertainties and
assumptions related to the following:





  The geographic concentration of our properties;

  Limited ability of shareholders to effect a change of control;  Our real estate acquisition, redevelopment, development and construction activities;

  Our failure to qualify as a REIT;  Factors that could result in the poor operating performance of our properties including tenant
defaults and increased costs such as insurance;

  Conflicts of interest;  Competition in markets where we have properties;

  Changes in our investment, financing and borrowing policies without shareholder approval;  Environmental and Americans with Disabilities Act compliance issues related to our
properties;

  Our dependence on key personnel;  Some of our properties may be subject to uninsured losses;

  Our third-party property management, leasing, development and construction business and related
services;  Our properties are illiquid assets;

  The effect of shares available for future sale on the price of common shares; and  Our incurrence of debt and use of variable rate debt and derivative financial
instruments;

  Changes in market conditions including market interest rates.








If one or more of these
risks or uncertainties materialize, or if any underlying assumption proves incorrect, actual results may vary materially from those anticipated, expected or projected. Such forward-looking statements reflect our current views with respect to future
events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or
individuals acting on our behalf are expressly qualified in their entirety by this paragraph. A detailed discussion of risks is included, under the caption Risk Factors, in our Form 10-K, filed on March 27, 2002. You are cautioned not to
place undue reliance on our forward-looking statements, which speak only as of the date of this Form 10-Q or the date of any document incorporated by reference into this Form 10-Q. We do not undertake any obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise.







3




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PART I


FINANCIAL INFORMATION





Item 1.    
Financial Statements





(this page intentionally left blank)







4




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PRENTISS PROPERTIES TRUST


CONSOLIDATED BALANCE SHEETS


(in thousands, except share and per share amounts)





June 30, 2002


December 31, 2001(unaudited)ASSETSOperating real estate:Land

$
299,705


$
296,105Building and improvements


1,619,576



1,510,934Less: accumulated depreciation


(167,653
)


(146,349
)1,751,628



1,660,690Construction in progress


70,034



64,410Land held for development


65,010



53,504Deferred charges and other assets, net


146,352



144,329Notes receivable


13,354



13,354Accounts receivable, net


36,264



39,936Cash and cash equivalents


6,654



5,845Escrowed cash


9,383



13,674Investments in securities


4,327



3,398Investments in joint ventures and unconsolidated subsidiaries


21,357



31,453Total assets

$
2,124,363


$
2,030,593LIABILITIES AND SHAREHOLDERS EQUITYMortgages and notes payable

$
1,014,720


$
907,734Interest rate hedges


12,069



10,490Accounts payable and other liabilities


69,535



76,022Other payables (affiliates)


4,636



4,384Distributions payable


26,990



25,977Total liabilities


1,127,950



1,024,607Minority interest in operating partnership


134,304



184,597Minority interest in real estate partnerships


3,068



1,589Commitments and contingenciesPreferred shares $ .01 par value, 20,000,000 shares authorized, 3,773,585 shares issued and outstanding


100,000



100,000Common shares $ .01 par value, 100,000,000 shares authorized, 43,933,990 and 42,106,896 (includes 4,884,401 and
5,091,009 in treasury) shares issued and outstanding at June 30, 2002 and December 31, 2001, respectively


439



421Additional paid-in capital


882,170



833,314Common shares in treasury at cost, 4,884,401 and 5,091,009 shares at June 30, 2002 and December 31, 2001,
respectively


(116,004
)


(118,228
)Unearned compensation


(2,482
)


(2,556
)Accumulated other comprehensive income


(10,851
)


(9,655
)Retained earnings


5,769



16,504Total shareholders equity


859,041



819,800Total liabilities and shareholders equity

$
2,124,363


$
2,030,593








The accompanying notes are an
integral part of these consolidated financial statements.




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PRENTISS PROPERTIES TRUST


CONSOLIDATED STATEMENTS OF INCOME


(Unaudited)


(in thousands, except per share amounts)





Three Months Ended June
30,


Six Months Ended June
30,2002


2001


2002


2001Revenues:Rental income

$
91,106


$
84,160


$
176,308


$
171,470Management and other fees, net


1,050



1,427



2,543



2,515Total revenues


92,156



85,587



178,851



173,985Expenses:Property operating and maintenance


22,630



18,636



42,936



38,952Real estate taxes


11,457



10,085



21,933



20,482General and administrative and personnel costs


2,489



2,577



5,242



5,365Interest expense


16,780



16,205



32,916



33,980Amortization of deferred financing costs


412



390



814



803Depreciation and amortization


19,006



15,597



35,651



31,943Total expenses


72,774



63,490



139,492



131,525Equity in income of joint venture and unconsolidated subsidiaries


752



648



1,884



1,992Merger termination fee






10,000







17,000Income before gain or loss, minority interests and extraordinary items


20,134



32,745



41,243



61,452Gain on sale of properties






8,710







14,163Minority interests


(2,793
)


(4,983
)


(5,682
)


(9,453
)Income before extraordinary items


17,341



36,472



35,561



66,162Extraordinary items














(367
)Net income

$
17,341


$
36,472


$
35,561


$
65,795Preferred dividends


(2,113
)


(2,019
)


(4,132
)


(3,849
)Net income applicable to common shareholders

$
15,228


$
34,453


$
31,429


$
61,946Net income per common share before extraordinary items-basic

$
0.40


$
0.94


$
0.83


$
1.71Extraordinary items














(0.01
)Net income per common share-basic

$
0.40


$
0.94


$
0.83


$
1.70Weighted average number of common shares outstanding-basic


38,551



36,465



37,942



36,535Net income per common share before extraordinary items diluted

$
0.39


$
0.90


$
0.82


$
1.63Extraordinary items














(0.01
)Net income per common share-diluted

$
0.39


$
0.90


$
0.82


$
1.62Weighted average number of common shares and common share equivalents outstanding-diluted


38,867



40,582



38,280



40,641





The accompanying notes are an integral part of these consolidated financial
statements.




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PRENTISS PROPERTIES TRUST


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


(Unaudited)


(in thousands)


Three Months Ended June 30,

Six Months Ended June 30,2002


2001

2002


2001Net income

$
17,341


$
36,472

$
35,561


$
65,795Unrealized gains on securities:Unrealized gains arising during the period


20



297


259



187Unrealized gains (losses) on interest rate hedges:Cumulative transition adjustment













(2,513
)Unrealized gains (losses) arising during the period


(4,183
)


1,110


(1,747
)


(2,763
)Reclassification adjustment for (gains) losses included in earnings


146



143


292



143Other comprehensive income


(4,017
)


1,550


(1,196
)


(4,946
)Comprehensive income

$
13,324


$
38,022

$
34,365


$
60,849





The accompanying notes are an integral part of these consolidated financial
statements.




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PRENTISS PROPERTIES TRUST


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


(dollars in thousands)


Six Months Ended June 30,2002


2001Cash Flows from Operating Activities:Net income

$
35,561


$
65,795Adjustments to reconcile net income to net cash provided by operating activities:Minority interests


5,682



9,453Extraordinary items






367Gain on sales






(14,163
)Provision for doubtful accounts


2,700



(267
)Depreciation and amortization


35,651



31,943Amortization of deferred financing costs


814



803Earnings in excess of distributions from joint ventures andunconsolidated subsidiaries


(309
)


Non-cash compensation


692



832Reclassification of accumulated other comprehensive income


292



143Gain on derivative financial instruments


(168
)


(66
)Changes in assets and liabilities:Deferred charges and other assets


(3,781
)


1,977Accounts receivable


2,194



(6,382
)Escrowed cash


4,291



(14,157
)Other payables/receivables (affiliates)


252



(779
)Accounts payable and other liabilities


(10,649
)


(25,952
)Net cash provided by operating activities


73,222



49,547Cash Flows from Investing Activities:Purchase and development of real estate


(70,224
)


(151,643
)Investment in real estate


(13,275
)


(22,162
)Purchase of mortgage loan


(47,000
)


Distributions in excess of earnings of joint ventures and unconsolidated subsidiaries






1,757Investment in joint ventures and unconsolidated subsidiaries






(1,438
)Investment in securities


(670
)


(2,029
)Proceeds from the sale of real estate






197,122Net cash (used in) provided by investing activities


(131,169
)


21,607Cash Flows from Financing Activities:Net proceeds from sale of common shares


52,193



2,879Purchase of treasury shares






(5,833
)Redemption of preferred units


(50,535
)


Capital contribution from limited partners


1,398



Distributions paid to limited partners


(1,628
)


(1,626
)Distributions paid to common shareholders


(40,001
)


(35,515
)Distributions paid to preferred shareholders


(4,132
)


(3,661
)Distributions paid to preferred unitholders


(5,525
)


(6,305
)Payment for early extinguishment of debt






(50
)Proceeds from mortgages and notes payable


367,100



266,625Repayments of mortgages and notes payable


(260,114
)


(286,958
)Net cash provided by (used in) financing activities


58,756



(70,444
)Net change in cash and cash equivalents


809



710Cash and cash equivalents, beginning of period


5,845



5,452Cash and cash equivalents, end of period

$
6,654


$
6,162Supplemental Cash Flow Information:Cash paid for interest

$
34,532


$
36,426





The accompanying notes are an integral part of these consolidated financial
statements.




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1.    The Organization





We are a self-administered and self-managed
Maryland REIT that acquires, owns, manages, leases, develops and builds primarily office properties throughout the United States. We are self-administered in that we provide our own administrative services, such as accounting, tax and legal, through
our own employees. We are self-managed in that we provide all the management and maintenance services that our properties require through our own employees, such as, property managers, leasing professionals and engineers. We operate principally
through our operating partnership, Prentiss Properties Acquisition Partners, L.P., and its subsidiaries, and a management company, Prentiss Properties Resources, Inc. and its subsidiaries. Our regional management offices are located in San Diego,
Oakland, Dallas, Chicago and Washington, D.C. As of June 30, 2002, we owned interests in a diversified portfolio of 146 primarily suburban Class A office and suburban industrial properties as follows:





Number of Buildings

Net Rentable Square
Feet(in thousands)Office properties

108

15,263Industrial properties

38

3,169Total

146

18,432





Our properties include 3 office properties containing 445,000 net
rentable square feet that were in various stages of development at June 30, 2002. As of June 30, 2002, our properties, exclusive of the development properties, were 93% leased to approximately 1,100 tenants. In addition to managing properties that
we own, we manage approximately 15.5 million net rentable square feet in office, industrial and other properties for third parties.





We have determined that our reportable segments are those that are based on our method of internal reporting, which disaggregates our business by geographic region. In April 2001, we completed an asset exchange with
Brandywine Realty Trust, which included the sale of all of the properties comprising our Northeast Region, and as a result, at June 30, 2002, we no longer had operations in the Northeast Region. In addition, during December 2001, we divided our West
Region into separate Northern and Southern California Regions. As of June 30, 2002, our reportable segments include our five regions (1) Mid-Atlantic; (2) Midwest; (3) Southwest; (4) Northern California; and (5) Southern California.





Our properties are located in 12 markets, which are included in our reportable segments as follows:





Reportable Segment

MarketMid-Atlantic

Metropolitan Washington DC, AtlantaMidwest

Chicago, Suburban DetroitSouthwest

Dallas/Fort Worth, Austin, Denver, HoustonNorthern California

Oakland, SacramentoSouthern California

San Diego, Los Angeles





Transactions





During the three months ended June 30, 2002, we renewed our $300 million revolving credit facility, including an extension of the maturity
date from May 23, 2003 to May 23, 2005. The structure of the new facility is substantially the same as the previous facility, including an initial interest rate of LIBOR plus 137.5 basis points. The interest rate on the facility will fluctuate based
on our overall leverage with a range between LIBOR plus 125 basis points and LIBOR plus 175 basis points. The facility was substantially oversubscribed with initial commitments of $363 million. Banking participants in the revolving credit facility
include Bank One as Administrative Agent; Bank of America as Syndication Agent; Commerzbank, Dresdner Bank and Societe Generale as Documentation Agents; PNC Bank and SunTrust as Managing Agents; and Comerica Bank, KeyBank, Mellon Bank, SouthTrust
Bank and Union Bank of California as Lenders.





During the quarter, we completed a $72.1 million, non-recourse
mortgage financing collateralized by our Burnett Plaza property in Fort Worth, Texas. The loan has a 3-year term with two, 1-year extension options and a floating rate over LIBOR of 215 basis points. The proceeds from the loan were used to repay
borrowings outstanding under our revolving credit facility. In conjunction with the Burnett Plaza loan, we entered into two interest rate swaps totaling $40 million, which convert floating rate 30-day LIBOR to fixed rates. Both swap transactions
commenced in June 2002 and mature July 2005 and fix LIBOR at a rate of 4.345 percent.





Through our dividend
reinvestment plan, during the three months ended June 30, 2002, we issued 761,387 common shares of beneficial interest resulting in net proceeds of $22.9 million, or $30.11 per share. The proceeds were used to repay a portion of the borrowings
outstanding under our revolving credit facility.




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2.    Basis of Presentation





The accompanying financial statements are unaudited; however, our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by accounting
principles generally accepted in the United States of America for complete financial statements. In our opinion, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these
interim periods have been included. The results for the three and six month periods ended June 30, 2002 are not necessarily indicative of the results to be obtained for the full fiscal year. These financial statements should be read in conjunction
with our audited financial statements, and notes thereto, included in our annual report on Form 10-K for the fiscal year ended December 31, 2001.





3.    Accounts receivable, Net





Accounts receivable consisted of the
following at June 30, 2002 and December 31, 2001:





June 30, 2002


December 31, 2001(in thousands)Rents and services

$
7,650


$
10,218Accruable rental income


32,809



26,940Other


1,592



5,86442,051



43,022Less: allowance for doubtful accounts


(5,787
)


(3,086
)$
36,264


$
39,936





4.    Mortgages and Notes Payable





At June 30, 2002, we had mortgages and notes payable of $1.01 billion, excluding our proportionate share of debt from our investments in
joint ventures. See note (7)Investment in Joint Ventures and Unconsolidated Subsidiaries for further information on our equity investments.





The following table sets forth our mortgages and notes payable as of June 30, 2002 and December 31, 2001:





Description

June 30, 2002

December 31, 2001

Amortization


Interest Rate


Maturity(in thousands)Collateralized term loan

$
71,938

$
72,313

25 yr


LIBOR + 1.625
%

September 30, 2004Revolving credit facility


156,500


118,500

None


LIBOR + 1.375
%

May 23, 2005Unsecured term loan


75,000


75,000

None


LIBOR + 1.375
%

March 16, 2006PPREFI portfolio loan


180,100


180,100

None


7.58
%

February 26, 2007Mortgage notes payable


531,182


461,821

(1
)

(2
)

(2
)$
1,014,720

$
907,734





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|(1) |  | Excluding the recently completed $72.1 million financing of our Burnett Plaza
property, which requires interest only payments until maturity, our mortgage notes have debt service requirements based on amortization terms ranging from 25 to 30 years.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Excluding the Burnett Plaza financing which, has an interest rate equal to
LIBOR plus 215 basis points, the interest rates range from 6.63% to 8.63% with a weighted average interest rate of 7.39% at June 30, 2002. Maturity dates range from December 2003 through June 2013 with a weighted average maturity of 6.9 years from
June 30, 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Our mortgages and notes payable at June 30, 2002 consisted of $639.2 million of
fixed rate, non-recourse, long-term mortgages and $375.5 million of floating rate debt, $250.0 million of which was hedged at June 30, 2002 with variable to fixed rate hedges. See note (5)  Interest Rate Hedges for further information on our
variable to fixed rate hedges.




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Future scheduled principal repayments of our outstanding mortgages and notes
payable are as follows:





(in thousands)2002

$
3,0592003


9,1792004


99,3792005


267,1202006


89,978Thereafter


546,005$
1,014,720





5.    Interest Rate Hedges





In the normal course of business, we are exposed to the effect of interest rate changes. We limit our exposure by following established
risk management policies and procedures including the use of derivatives. For interest rate exposures, derivatives are used primarily to hedge against rate movements on our related debt.





To manage interest rate risk, we may employ options, forwards, interest rate swaps, caps and floors or a combination thereof depending on the underlying exposure. We
undertake a variety of borrowings from credit facilities, to medium- and long-term financings. To hedge against increases in interest cost, we use interest rate instruments, typically interest rate swaps, to convert a portion of our variable rate
debt to fixed rate debt.





On the date we enter into a derivative contract, we designate the derivative as a hedge
of (1) a forecasted transaction or (2) the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (cash flow hedge). Currently, we have only entered into derivative contracts designated as cash
flow hedges. These agreements involve the exchange of amounts based on a variable interest rate for amounts based on fixed interest rates over the life of the agreement based upon a notional amount. The difference to be paid or received as the
interest rates change is recognized as an adjustment to interest expense. The related amount payable to or receivable from counterparties is included in accounts payable and other liabilities. Changes in the fair value of a derivative, to the extent
it is effective and is designated and qualifies as a cash flow hedge, are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the hedged transaction (e.g. until periodic settlements of a
variable-rate asset or liability are recorded in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is
recorded in current-period earnings. Changes in the fair value of non-hedging instruments are reported in current-period earnings.





We formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all
derivatives that are designated as cash flow hedges to (1) specific assets and liabilities on the balance sheet or (2) specific firm commitments or forecasted transactions. We also formally assess (both at the hedges inception and on an
ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the cash flows of hedged items and whether those derivatives may be expected to remain highly effective in future
periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, we discontinue hedge accounting prospectively, as discussed below.





We discontinue hedge accounting prospectively when (1) we determine that the derivative is no longer effective in offsetting changes in the cash flows of a hedged item
(including hedged items such as firm commitments or forecasted transactions); (2) the derivative expires or is sold, terminated, or exercised; (3) it is no longer probable that the forecasted transaction will occur; (4) a hedged firm commitment no
longer meets the definition of a firm commitment; or (5) management determines that designating the derivative as a hedging instrument is no longer appropriate.





When we discontinue hedge accounting because it is no longer probable that the forecasted transaction will occur in the originally expected period, the gain or loss on the derivative remains in
accumulated other comprehensive income and is reclassified into earnings when the forecasted transaction affects earnings. However, if it is probable that a forecasted transaction will not occur by the end of the originally specified time period or
within an additional two-month period of time thereafter, the gains and losses that were accumulated in other comprehensive income will be recognized immediately in earnings. In all situations in which hedge accounting is discontinued and the
derivative remains outstanding, we will carry the derivative at its fair value on the balance sheet, recognizing changes in the fair value in current-period earnings.





To determine the fair value of derivative instruments, we use a variety of methods and assumptions that are based on market conditions and risks existing at each balance
sheet date. For our derivatives, standard market conventions and techniques such as




11




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discounted cash flow analysis, option pricing models, replacement cost, and termination cost are used to
determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.





Over time, the unrealized gains and losses held in accumulated other comprehensive income will be reclassified to earnings. This reclassification is consistent with when the hedged items are recognized
in earnings. Within the next twelve months, we expect to reclassify to earnings approximately $4.7 million of the current balance held in accumulated other comprehensive income.





The following table summarizes the notional amounts and fair values of our derivative financial instruments as of June 30, 2002. The notional amount provides an indication
of the extent of our involvement in these instruments as of the balance sheet date, but does not represent exposure to credit, interest rate or market risks.





Notional Amount

Swap Rate (Fixed)

Effective Fixed Rate

Swap Rate Received (Variable) at June 30, 2002

Swap Maturity

Fair Value(in thousands)$ 50 million

2.275%

3.653%

1.83875%

January 2003

$(124)$ 50 million

6.253%

7.628%

1.83875%

September 2004

(3,435)$ 60 million

6.248%

7.623%

1.83875%

September 2004

(4,115)$ 15 million

4.345%

6.495%

1.83875%

July 2005

(292)$ 25 million

4.345%

6.495%

1.83875%

July 2005

(486)$ 20 million

5.985%

7.610%

1.83875%

March 2006

(1,445)$ 30 million

5.990%

7.615%

1.83875%

March 2006

(2,172)Total









$(12,069)





Cash payments made under the interest rate swap agreements exceeded
cash receipts from the interest rate swap agreements by $2.0 million and $486,000 for the three months ended June 30, 2002 and 2001, respectively.





6.    Distribution





On June 12, 2002, we declared a cash distribution
for the second quarter of 2002 in the amount of $0.56 per share, payable on July 12, 2002, to common shareholders of record on June 28, 2002. Additionally, we determined that a distribution of $0.56 per common unit would be made to the partners of
the operating partnership and the holders of our Series D Convertible Preferred Shares. The distributions totaled $24.8 million and were paid July 12, 2002. In addition, quarterly distributions totaling $2.2 million in the aggregate were declared in
June 2002, payable to the holders of our Series B Perpetual Preferred Units and our Series E Preferred Units. The distributions, which equate to an annualized 8.3% of the face amount of the Series B Perpetual Preferred Units and an annualized 7.5%
of the face amount of the Series E Preferred Units, were paid on July 3, 2002 and July 15, 2002, respectively.





7.    Investment in Joint Ventures and Unconsolidated Subsidiaries





The
following information summarizes the financial position at June 30, 2002 and December 31, 2001 and the results of operations for the three and six month periods ended June 30, 2002 and 2001 for the investments in which we held a non-controlling
interest during the periods presented:





Summary of Financial Position:

Total Assets

Total Debt (8)

Total Equity


Companys Investment(in thousands)

June 30, 2002

Dec. 31, 2001

June 30, 2002

Dec. 31, 2001

June 30, 2002


Dec. 31, 2001


June 30, 2002

Dec. 31, 2001Broadmoor Austin Associates(1)

$
111,569

$
114,101

$
147,597

$
150,423

$
(36,674
)

$
(37,009
)

$
3,922

$
3,882Burnett Plaza Associates(2)





102,484





47,000






51,526






10,347PPS Partners LLC(3)





126












92






79Prentiss Properties Resources, Inc.(4)


10,685


11,710








6,402



5,799



6,240


5,649Tysons International Partners(5)


95,474


99,059


60,966


61,290


32,862



36,158



10,088


10,389Other Investments(6)






















1,107


1,107Total





















$
21,357

$
31,453




12




---

For the Three Months Ended June 30, 2002 and 2001





Summary of Operations:

Total Revenue

Net Income


Companys Share of
Net Income/(Loss)(in thousands)

2002

2001

2002


2001


2002


2001Broadmoor Austin Associates(1)

$
4,972

$
4,954

$
956


$
954


$
479


$
477Burnett Plaza Associates(2)





5,687






1,558







312Lot 21 Associates L.P.(7)












(7
)






(4
)PPS Partners LLC(3)


9


192


(8
)


120



(6
)


90Prentiss Properties Resources, Inc.(4)


3,591


3,856


227



(288
)


222



(282
)Project 127 Partners, L.P.(7)












(5
)






(3
)Tysons International Partners(5)


3,300


3,476


229



235



57



58Total















$
752


$
648For the Six Months Ended June 30, 2002 and 2001Summary of Operations:

Total Revenue

Net Income


Companys Share of Net
Income/(Loss)(in thousands)

2002

2001

2002


2001


2002


2001Broadmoor Austin Associates(1)

$
9,944

$
9,914

$
2,024


$
1,978


$
1,013


$
989Burnett Plaza Associates(2)


4,302


10,514


960



2,541



192



508Lot 21 Associates L.P.(7)





130














1PPS Partners LLC(3)


44


357


(13
)


222



(10
)


167Prentiss Properties Limited, Inc.(4)





4,939






558







558Prentiss Properties Resources, Inc.(4)


7,436


3,856


603



(288
)


591



(282
)Project 127 Partners, L.P.(7)





76






(11
)






(7
)Tysons International Partners(5)


6,552


3,476


393



235



98



58Total















$
1,884


$
1,992





---

|(1) |  | We own a 50% non-controlling interest in Broadmoor Austin Associates, an
entity, which owns a seven-building, 1.1 million net rentable square foot office complex in Austin.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | At December 31, 2001, we owned a 20% non-controlling interest in Burnett
Plaza Associates, an entity, which owns a 1.0 million net rentable square foot office building in downtown Fort Worth. On March 7, 2002, we acquired the remaining 80% interest in Burnett Plaza Associates. The summary of operations above, includes
the results of operations for the periods prior to our acquisition of a controlling interest on March 7, 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | PPS Partners LLC is a joint venture between Prentiss Properties Acquisition
Partners, L.P. and a third-party property owner. The third-party property owner contributed property management contracts to PPS Partners LLC. Prentiss Properties Acquisition Partners, L.P. through a sub-management contract managed the properties
and participated in the net income of the joint venture. Effective October 2001, Prentiss Properties Acquisition Partners, L.P. resigned the management duties of the properties.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | On March 28, 2001, Prentiss Properties Resources, Inc. was incorporated under
the General Corporation Law of the State of Delaware to serve as a Taxable REIT Subsidiary and provide services to Prentiss Properties Acquisition Partners, L.P. On March 29, 2001, Prentiss Properties Resources, Inc. acquired our interest in
Prentiss Properties Limited, Inc., valued at $3.9 million, along with certain other assets with a carrying amount of approximately $2.5 million. As a result, Prentiss Properties Acquisition Partners, L.P. holds a 98% economic interest and 0% voting
interest in Prentiss Properties Resources, Inc.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | In April 2001, we acquired from Brandywine Realty Trust a 25% non-controlling
interest in Tysons International Partners, an entity, which owns two office properties containing 452,000 net rentable square feet in the Northern Virginia area.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Represents a 1% investment in certain real estate entities that we account
for using the cost method of accounting.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(7) |  | Prior to April 10, 2001, we owned a 60% non-controlling interest in two
entities, each owning a separate office development project in the suburban Philadelphia area. The office projects were sold to Brandywine Realty Trust on April 10, 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) |  | The mortgage debt, all of which is non-recourse, is collateralized by the
individual real estate property or properties within each venture.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------




8.    Supplemental
Disclosure of Non-Cash Activities





During the three months ended June 30, 2002, we declared cash distributions
totaling $24.8 million payable to holders of common shares, operating partnership units and Series D Convertible Preferred Shares. The distributions were paid July 12, 2002. In addition, distributions totaling $2.0 million and $187,500 were declared
in June 2002, payable to holders of our Series B Perpetual Preferred Units and Series E Preferred Units, respectively. The distributions were paid on July 3, 2002 and July 15, 2002 to our holders of our Series B Perpetual Preferred Units and our
Series E Preferred Units, respectively.





Pursuant to our long-term incentive plan, during the six months ended
June 30, 2002, we issued 30,600 restricted shares of stock to various key employees. The shares, which had a market value of approximately $860,000 based upon the per share price on the date of grant, were classified as unearned compensation and
recorded in the shareholders equity section of the consolidated balance sheet. The unearned compensation is amortized quarterly as compensation expense over the three-year vesting period.




13




---




Prior to March 7, 2002, we owned a 20% non-controlling interest in Burnett Plaza
Associates and accounted for our interest using the equity method of accounting. On March 7, 2002, we acquired the remaining 80% interest in Burnett Plaza Associates and consolidated the accounts with and into the operations of the operating
partnership. As a result of the consolidation, we reclassified our $10.3 million investment from investment in joint ventures and unconsolidated subsidiaries to the respective asset and liability accounts on our consolidated balance sheet. In
addition, as a result of the acquisition of the remaining 80% interest in the joint venture, we assumed liabilities totaling approximately $2.5 million and receivables totaling approximately $978,000.





During the six months ended June 30, 2002, we marked-to-market our investments in securities and our interest rate hedges. During the
period, we recognized unrealized gains of $259,000 and unrealized losses of $1.5 million on our investments in securities and interest rate hedges, respectively.





During the six months ended June 30, 2002, common shares in treasury decreased by $2.2 million, representing a decrease of $14.2 million related to the consummation of the private placement of 613,750
common shares with Salomon Smith Barney Inc., partially offset by in increase of $12.0 million related to non-cash activities including (1) $11.7 million attributable to 394,365 common shares surrendered as payment of the exercise price and
statutory tax withholdings for certain share options exercised during the period and (2) $304,000, representing 12,777 restricted share grants forfeited as a result of an employee termination during the period.





9.    Segment Information





The tables below present information about segment assets and income/(loss) before extraordinary items used by our chief operating decision maker as of and for the three and six month periods ended
June 30, 2002 and 2001:





For the Three Months Ended June 30, 2002 (in
thousands)Mid- Atlantic

Midwest

Northeast

Southwest

Northern California

Southern California

Total Segments

Corporate Not Allocable To Segments


Consolidated TotalRevenues

$
24,085

$
15,806

$


$
32,040

$
11,064

$
8,517

$
91,512

$
644


$
92,156Net income

$
12,282

$
6,678

$


$
12,196

$
4,528

$
4,000

$
39,684

$
(22,343
)

$
17,341Assets

$
588,683

$
384,065

$


$
645,360

$
267,264

$
205,632

$
2,091,004

$
33,359


$
2,124,363For the Three Months Ended June 30, 2001 (in
thousands)Mid- Atlantic

Midwest

Northeast

Southwest

Northern California

Southern California

Total Segments

Corporate Not Allocable
To Segments


Consolidated TotalRevenues

$
24,106

$
18,055

$
1,035

$
22,811

$
11,089

$
8,016

$
85,112

$
475


$
85,587Net income

$
13,165

$
8,539

$
2,461

$
10,257

$
5,921

$
10,902

$
51,245

$
(14,773
)

$
36,472Assets

$
578,266

$
387,029

$


$
537,100

$
268,725

$
213,198

$
1,984,318

$
29,958


$
2,014,276For the Six Months Ended June 30, 2002 (in thousands)Mid-Atlantic

Midwest

Northeast

Southwest

Northern California

Southern California

Total Segments

Corporate Not Allocable
To Segments


Consolidated TotalRevenues

$
47,980

$
31,103

$


$
59,100

$
22,396

$
16,720

$
177,299

$
1,552


$
178,851Net income

$
24,157

$
13,390

$


$
23,497

$
9,651

$
7,423

$
78,118

$
(42,557
)

$
35,561For the Six Months Ended June 30, 2001 (in
thousands)Mid- Atlantic

Midwest

Northeast

Southwest

Northern California

Southern California

Total Segments

Corporate Not
Allocable To Segments


Consolidated TotalRevenues

$
44,804

$
35,969

$
8,422

$
46,189

$
21,730

$
16,191

$
173,305

$
680


$
173,985Income/(loss) before Extraordinary items(1)

$
18,319

$
27,754

$
5,766

$
20,613

$
11,052

$
14,468

$
97,972

$
(31,810
)

$
66,162





---

|(1) |  | During the six months ended June 30, 2001, we recorded an extraordinary expense of $376,000, resulting from our early repayment of outstanding borrowings under
the $100.0 million unsecured term loan with Dresdner Bank.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14




---




10.    Earnings per Share





We calculate earnings per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share
which requires a dual presentation of basic and diluted earnings per share on the face of the income statement. Additionally, the statement requires a reconciliation of the numerator and denominator used in computing basic and diluted earnings per
share. The table below presents a reconciliation of the numerator and denominator used to calculate basic and diluted earnings per share for the three and six months ended June 30, 2002 and 2001:





Three Months Ended June 30,


Six Months EndedJune 30,2002


2001


2002


2001(in thousands, except per share data)Reconciliation of the numerator used for basic earnings per shareNet income

$
17,341


$
36,472


$
35,561


$
65,795Preferred dividends


(2,113
)


(2,019
)


(4,132
)


(3,849
)Net income available to common shareholders

$
15,228


$
34,453


$
31,429


$
61,946Reconciliation of the denominator used for basic earnings per shareWeighted average common shares outstanding


38,551



36,465



37,942



36,535Basic earnings per share

$
0.40


$
0.94


$
0.83


$
1.70Reconciliation of the numerator used for dilutive earnings per shareNet income

$
17,341


$
36,472


$
35,561


$
65,795Preferred dividends


(2,113
)






(4,132
)$
15,228


$
36,472


$
31,429


$
65,795Reconciliation of the denominator used for dilutive earnings per shareWeighted average common shares outstanding


38,551



36,465



37,942



36,535Preferred shares(1)






3,774







3,774Options


316



343



338



332Weighted average common shares and common share equivalents


38,867



40,582



38,280



40,641Diluted earnings per share

$
0.39


$
0.90


$
0.82


$
1.62


---

|(1) |  | Preferred shares for the three and six months ended June 30, 2002 are
excluded from the denominator in calculating dilutive earnings per share as such shares were anti-dilutive for the period; therefore, the numerator used in the calculation of dilutive earnings per share is income available to common shareholders for
the three and six months ended June 30, 2002 as compared to the three and six months ended June 30, 2001, for which the numerator is net income.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




11.    Recently Issued Accounting Standards





On June 28, the Financial Accounting Standards Board voted in favor of issuing Statement of Financial Accounting Standards No. 146, Accounting for Exit or Disposal Activities. The statement addresses significant issues
regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the EITF has set forth in EITF
Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The scope of the statement also includes (1) costs related to
terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual
deferred-compensation contract. The statement will be effective for exit or disposal activities initiated after December 31, 2002. We have not yet determined the impact of the statement on our results of operations and financial position.





12.    Subsequent Events





Subsequent to quarter end, we repurchased 100,000 common shares in the open market for an aggregate purchase price of $2.5 million, or $24.72 per share, including
commissions.




15




---




Item 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION


AND RESULTS OF OPERATIONS





Overview





We are a real estate company organized as a Maryland REIT. We acquire, own, manage, lease, develop and build primarily office properties throughout the United States. We operate principally through our operating partnership,
Prentiss Properties Acquisition Partners, L.P. and its subsidiaries, and a management company, Prentiss Properties Resources, Inc. and its subsidiaries. As of June 30, 2002, we owned interests in a diversified portfolio of 108 office and 38
industrial properties containing in the aggregate 18.4 million net rentable square feet.





The majority of our
income is derived from rental income from our portfolio of properties. In comparing the results of operations for the current period to the prior period, we feel that it is important to analyze our total property portfolio as well as our same-store
property portfolio, i.e., those properties owned during the entirety of the periods being compared. Because changes in the composition of our total property portfolio resulting from acquisition, disposition and development activity, may have a
significant impact on our results of operations, we believe the analysis of our same-store property portfolio provides information necessary to understand the impact that the underlying performance or performance trends of our properties has on our
results of operations. Our discussion and analysis of our same-store property portfolio focuses on our reportable segments, our regions, as we believe that the segment analysis provides information pertinent to individual regions that may or may not
be material to our company as a whole. During 2001, we had two significant changes to our reportable segments including (1) the disposition of all of the properties comprising our Northeast Region and (2) the division of our West Region into
separate Northern and Southern California Regions. For comparative purposes, the results of operations, for the prior period, attributable to our West Region have been reclassified to separate Northern and Southern California Regions.





Transactions





During the three months ended June 30, 2002, we renewed our $300 million revolving credit facility, including an extension of the maturity date from May 23, 2003 to May 23, 2005. The structure of the new facility is substantially the
same as the previous facility, including an initial interest rate of LIBOR plus 137.5 basis points. The interest rate on the facility will fluctuate based on our overall leverage with a range between LIBOR plus 125 basis points and LIBOR plus 175
basis points. The facility was substantially oversubscribed with initial commitments of $363 million. Banking participants in the revolving credit facility include Bank One as Administrative Agent; Bank of America as Syndication Agent; Commerzbank,
Dresdner Bank and Societe Generale as Documentation Agents; PNC Bank and SunTrust as Managing Agents; and Comerica Bank, KeyBank, Mellon Bank, SouthTrust Bank and Union Bank of California as Lenders.





During the quarter, we completed a $72.1 million, non-recourse mortgage financing collateralized by our Burnett Plaza property in Fort
Worth, Texas. The loan has a 3-year term with two, 1-year extension options and a floating rate over LIBOR of 215 basis points. The proceeds from the loan were used to repay borrowings outstanding under our revolving credit facility. In conjunction
with the Burnett Plaza loan, we entered into two interest rate swaps totaling $40 million, which convert floating rate 30-day LIBOR to fixed rates. Both swap transactions commenced in June 2002 and mature July 2005 and fix LIBOR at a rate of 4.345
percent.





Through our dividend reinvestment plan, during the three months ended June 30, 2002, we issued 761,387
common shares of beneficial interest resulting in net proceeds of $22.9 million, or $30.11 per share. The proceeds were used to repay a portion of the borrowings outstanding under our revolving credit facility.








Critical Accounting Policies and Application Thereof





Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements. Our Consolidated Financial Statements
include the accounts of Prentiss Properties Trust, Prentiss Properties Acquisition Partners, L.P. and other subsidiaries. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses for the reporting period. Actual results could differ from our estimates.





The estimates used in the
preparation of our Consolidated Financial Statements are more fully described in Note (2) to our audited Consolidated Financial Statements for the year ended December 31, 2001, included in our Form 10-K filed on March 27, 2002. However, certain of
our significant accounting policies are considered critical accounting policies due to the increased level of assumptions used or estimates made in determining their impact on our Consolidated Financial Statements.




16




---




We consider our critical accounting policies to be those used in the
determination of the reported amounts and disclosure related to the following:





| | (1) |  | Impairment of long-lived assets and the long-lived assets to be disposed of;
| | --- |  | ----------------------------------------------------------------------------

| | (2) |  | Allowance for doubtful accounts;
| | --- |  | --------------------------------

| | (3) |  | Depreciable lives applied to real estate assets and improvements to real estate assets; and
| | --- |  | -------------------------------------------------------------------------------------------

| | (4) |  | Fair value of derivative instruments.
| | --- |  | -------------------------------------




Impairment of long-lived assets and long-lived assets to be disposed of





Real estate and leasehold improvements are classified as long-lived assets held for sale or long-lived assets to be held and used. In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, we record assets held for sale at the lower of the carrying amount or fair value less cost to sell. With respect to assets classified as held and used, we periodically review these assets to
determine whether our carrying amount will be recovered. All of our long-lived assets are currently classified as held and used. Our operating real estate, which comprises the majority of our long-lived assets, had a carrying amount of $1.8 billion
at June 30, 2002. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. We recognize an impairment loss to the extent the carrying amount is
not recoverable. The impairment loss is the amount by which the carrying amount exceeds the fair value. Our determination of expected cash flows generated from our properties requires us to make assumptions related to the future average occupancy of
our properties, future rental rates, tenant concessions, operating expenditures, property taxes, capital improvements, the ability of our tenants to perform pursuant to their lease obligations and the eventual disposition proceeds generated from the
sale of our properties. If one or more of our assumptions proves incorrect or if our assumptions change, we may need to recognize an impairment loss on our properties in the future. In addition, if by necessity, we are forced to sell one or more of
our properties in a weak economic environment, the proceeds generated from the sale may not be adequate to recover our carrying amount and thus, result in the recognition of a loss on sale. The recognition of a loss on sale would negatively impact
our current earnings. Impairment recognition would negatively impact the recorded value of our assets and reduce current period earnings.





Allowance for doubtful accounts





Accounts receivable are reduced by an allowance
for amounts that may become uncollectible in the future. Our receivable balance is comprised primarily of accrued rental rate increases to be received over the life of in-place leases as well as rents and operating cost recoveries due from tenants.
We regularly evaluate the adequacy of our allowance for doubtful accounts considering such factors as credit quality of our tenants, delinquency of payment, historical trends and current economic conditions. At June 30, 2002, we had total
receivables of $42.1 million and an allowance for doubtful accounts of $5.8 million, resulting in a net receivable balance of $36.3 million. Of the $42.1 million in total receivables, $32.8 million represents accrued rental rate increases to be
received over the life of in-place leases. It is our policy to reserve all outstanding receivables that are 90-days past due along with 4% of the remaining receivable balance. In addition, we increase our allowance for doubtful accounts for accrued
rental rate increases, if we determine such future rent may become uncollectible. Actual results may differ from these estimates under different assumptions or conditions. If our assumptions, regarding the collectibility of accounts receivable,
prove incorrect, we could experience write-offs in excess of our allowance for doubtful accounts.





Depreciable
lives applied to real estate assets and improvements to real estate assets





Depreciation on buildings and
improvements is provided under the straight-line method over an estimated useful life of 30 to 40 years for office buildings and 25 to 30 years for industrial buildings. Significant betterments made to our real estate assets are capitalized and
depreciated over the estimated useful life of the betterment. If our estimate of useful lives proves to be materially incorrect, the depreciation and amortization expense that we currently recognize would also prove to be materially incorrect. A
change in our estimate of useful lives would therefore, result in either an increase or decrease in depreciation and amortization expense and thus, an increase or decrease in earnings.





Fair value of derivative instruments





In the normal course of business, we are exposed to the effect of interest rate changes. We limit our exposure by following established risk management policies and procedures including the use of derivatives. For interest rate
exposures, derivatives are used primarily to hedge against rate movements on our related debt. We are required to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at
fair value. Changes in fair value will affect either shareholders equity or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes.




17




---




To determine the fair value of derivative instruments, we use a variety of
methods and assumptions that are based on market conditions and risks existing at each balance sheet date. For the majority of financial instruments including most derivatives, standard market conventions and techniques such as discounted cash flow
analysis, option pricing models, replacement cost, and termination cost are used to determine fair value. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized. Future cash
inflows or outflows from our derivative instruments depend upon future borrowing rates. If our assumptions about future borrowing rates prove to be materially incorrect, the recorded value of these agreements could also prove to be materially
incorrect. Because we use the derivative instruments to hedge our exposure to variable interest rates, thus effectively fixing a portion of our variable interest rates, the impact of changes in future borrowing rates could result in our interest
expense being either higher or lower than might otherwise have been incurred on our variable rate borrowings had the rates not been fixed. A reduction in interest rates could result in a competitive advantage for companies in a position to take
advantage of this lower cost of capital.







18




---




Results of Operations





Comparison of the Three Months Ended June 30, 2002 to the Three Months Ended June 30, 2001





In our comparison of operating results for the three months ended June 30, 2002 to the three months ended June 30, 2001, we compare the results of operations of our total
portfolio and our same-store property portfolio.





The table below presents the actual statement of operations for
our total portfolio and selected operating information for the 129 properties acquired or placed in service on or prior to April 1, 2001 that remained in our portfolio through June 30, 2002, which comprise our same-store property portfolio. The
selected operating information provided for the same-store property portfolio, includes the revenues generated and direct expenses incurred by the properties but excludes indirect expenses such as general and administrative and personnel, interest
expense and amortization of deferred financing costs.





Three Months Ended June 30,2002


2001(in thousands)Total PortfolioRevenues:Rental income

$
91,106


$
84,160Management and other fees, net


1,050



1,427Total revenues


92,156



85,587Expenses:Property operating and maintenance


22,630



18,636Real estate taxes


11,457



10,085General and administrative and personnel cost


2,489



2,577Interest expense


16,780



16,205Amortization of deferred financing costs


412



390Depreciation and amortization


19,006



15,597Total expenses


72,774



63,490Equity in income of joint ventures and unconsolidated subsidiaries


752



648Merger termination fee






10,000Income before gain or loss, minority interests and extraordinary items


20,134



32,745Gain on sale of properties






8,710Minority interests


(2,793
)


(4,983
)Net income

$
17,341


$
36,472Three Months Ended June 30,2002


2001(in thousands)Same-Store Property Portfolio(1)Property revenues:Rental income

$
79,248


$
76,957Management and other fees, net


85



23Property revenues


79,333



76,980Property expenses:Property operating and maintenance


17,977



17,388Real estate taxes


9,046



8,770Depreciation and amortization


16,017



14,671Property expenses


43,040



40,829Property revenues less property expenses

$
36,293


$
36,151


---

|(1) |  | The 129 properties included in our same-store property portfolio excludes 123
North Wacker Drive, a 537,000 net rentable square foot office property in downtown Chicago. Subsequent to the planned termination and move-out of the tenant in September 2001, the majority of the building was temporarily taken out of service in an
effort to convert the building from a single tenant building to a multi-tenant building. At June 30, 2002, the building was approximately 61% leased.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



19




---




Rental Revenue.    Rental revenues increased by $6.9
million, or 8.3%, from $84.2 million to $91.1 million primarily as a result of properties acquired or development properties becoming operational subsequent to April 1, 2001, offset by properties sold subsequent to April 1, 2001 and a decline in our
total portfolio occupancy from 96% at June 30, 2001 to 93% at June 30, 2002. The March 2002 acquisition of Burnett Plaza accounts for a $5.6 million increase in rental revenues for the period. Rental revenues for our same-store property portfolio
increased by $2.3 million, or 3.0%, from $77.0 million to $79.2 million. The increase in our same-store property portfolio relates to an increase in fee income recorded from lease terminations, increased operating cost recoveries in our Northern
California Region, an increase in occupancy in our Southern California Region, offset by declines in occupancy in our Mid-Atlantic, Midwest and Southwest Regions. This increase in our same-store property portfolio was attributable to our five
regions as follows:





Segment

Number of
Bldgs.

Three Months EndedJune 30,

Increase/ (Decrease)


% Change2002

2001Mid-Atlantic

37

$
23,240

$
23,507

$
(267
)

-1.1
%Midwest

16


12,670


13,002


(332
)

-2.6
%Southwest(1)

28


23,343


21,907


1,436


6.6
%Northern California

9


11,644


10,997


647


5.9
%Southern California

39


8,351


7,544


807


10.7
%$
79,248

$
76,957

$
2,291


3.0
%


---

|(1) |  | The rental revenue increase in the Southwest Region primarily results from a
$972,000 fee recognized on a 62,000 square foot lease termination during the period.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------




Property Operating and Maintenance.    Property operating and maintenance costs increased by $4.0 million, or 21.4%, from $18.6 million to $22.6 million primarily as a result of property operating and
maintenance costs incurred for properties acquired or development properties becoming operational subsequent to April 1, 2001, offset by a decrease in property operating and maintenance costs resulting from properties sold subsequent to April 1,
2001 and a reduction in expenses resulting from our occupancy decline. The March 2002 acquisition of Burnett Plaza accounts for a $1.3 million increase in property operating and maintenance costs for the period. In addition, property operating and
maintenance costs increased by $1.6 million as a result of an increase in allowance for doubtful accounts for the period due to our concerns regarding the general weakness of the economy and the possible impact a weak economy could have on our
ability to collect our outstanding receivables. Property operating and maintenance costs for our same-store property portfolio increased by $589,000, or 3.4%, from $17.4 million to $18.0 million. This increase in our same-store property portfolio
was attributable to our five regions as follows:





Segment

Number of
Bldgs.

Three Months EndedJune 30,

Increase/ (Decrease)


% Change2002

2001Mid-Atlantic

37

$
4,885

$
4,387

$
498


11.4
%Midwest

16


2,260


2,623


(363
)

-13.8
%Southwest

28


5,718


5,720


(2
)

0.0
%Northern California

9


3,532


3,110


422


13.6
%Southern California

39


1,582


1,548


34


2.2
%$
17,977

$
17,388

$
589


3.4
%





Real Estate Taxes.    Real estate taxes
increased by $1.4 million, or 13.6%, from $10.1 million to $11.5 million partially as a result of properties acquired or development properties becoming operational subsequent to April 1, 2001, offset by properties that were sold subsequent to April
1, 2001. The March 2002 acquisition of Burnett Plaza accounts for a $901,000 increase in real estate taxes for the period. Real estate taxes for our same-store property portfolio increased by $276,000, or 3.1%, from $8.8 million to $9.0 million
primarily as a result of the reassessment of certain property values by taxing authorities in each of our regions. This increase in our same-store property portfolio was attributable to our five regions as follows:





Segment

Number of
Bldgs.

Three Months EndedJune 30,

Increase/ (Decrease)


% Change2002

2001Mid-Atlantic

37

$
1,785

$
1,778

$
7


0.4
%Midwest

16


2,367


2,333


34


1.5
%Southwest

28


3,468


3,283


185


5.6
%Northern California

9


876


787


89


11.3
%Southern California

39


550


589


(39
)

-6.6
%$
9,046

$
8,770

$
276


3.1
%




20




---




General and Administrative and Personnel
Costs.    General and administrative and personnel costs decreased by $88,000, or 3.4%, from $2.58 million to $2.49 million. General and administrative costs remained relatively constant as a percentage of total revenues.





Interest Expense.    Interest expense increased by $575,000, or 3.5%, from $16.2
million to $16.8 million primarily as a result of an increase in weighted average borrowings outstanding from the three months ended June 30, 2001 to the three months ended June 30, 2002, a decrease in capitalized interest from $819,000 to $592,000
for the respective periods, partially offset by a decrease in the weighted average interest rate paid on outstanding borrowings from 7.33% to 6.59% for the respective periods.





Depreciation and Amortization.    Depreciation and amortization increased by $3.4 million, or 21.9%, to $19.0 million from $15.6 million
primarily as a result of properties acquired or development properties becoming operational subsequent to April 1, 2001, offset by properties that were sold subsequent to April 1, 2001. The March 2002 acquisition of Burnett Plaza accounts for a $1.1
million increase in depreciation and amortization for the period. Depreciation and amortization for our same-store property portfolio increased by $1.3 million, or 9.2%, from $14.7 million to $16.0 million. This increase in our same-store property
portfolio was attributable to our five regions as follows:





Segment

Number of Bldgs.

Three Months Ended June 30,

Increase/(Decrease)

% Change2002

2001Mid-Atlantic

37

$
4,479

$
4,463

$
16

0.4
%Midwest

16


2,160


1,963


197

10.0
%Southwest(1)

28


5,500


4,607


893

19.4
%Northern California

9


1,816


1,748


68

3.9
%Southern California

39


2,062


1,890


172

9.1
%$
16,017

$
14,671

$
1,346

9.2
%


---

|(1) |  | The depreciation and amortization increase in the Southwest Region primarily results from amortization of deferred leasing charges related to the 62,000 square
foot lease termination during the period.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Equity in Income of Joint Ventures and
Unconsolidated Subsidiaries.    Equity in income of joint ventures and unconsolidated subsidiaries increased by $104,000 from $648,000 to $752,000 primarily due to an increase of $504,000 representing our share of the
increase in net income of the management company, offset by a decrease of $312,000 resulting from the consolidation of the Burnett Plaza operations into the accounts of the operating partnership. Prior to March 2002, we owned a 20% non-controlling
interest in the joint venture owning the Burnett Plaza property. The consolidation of the Burnett Plaza operations into the operating partnership results from the March 2002 acquisition of the remaining 80% interest of the joint venture. The
increase in net income from the management company results primarily from a reduction in the amount of personnel and tax related expenses recognized from the three months ended June 30, 2001 to the three months ended June 30, 2002, partially offset
by a decrease in fee revenue recognized from 2001 to 2002.





Merger Termination
Fee.    On September 21, 2000, we entered into a termination and release agreement which provided for the termination of the agreement and plan of merger dated June 27, 2000, between us, our operating partnership, Mack-Cali
Realty Corporation, a Maryland corporation and Mack-Cali Realty, L.P., a Delaware limited partnership of which Mack-Cali is the sole general partner. In connection with the termination and release agreement, and pursuant to an escrow agreement dated
September 21, 2000, Mack-Cali deposited a $25.0 million termination fee in escrow for our benefit. In April 2001, we received the final distribution, totaling $10.0 million, from the Mack-Cali escrow account.





Gain on Sales.    Gain on sales decreased by $8.7 million. During the three months ended June 30, 2001, we
sold 37 properties totaling 2.2 million net rentable square feet resulting in a gain on sale of $8.7 million. We did not dispose of any properties during the three months ended June 30, 2002.





Minority Interests.    Minority interests decreased by $2.2 million, or 43.9 %, from $5.0 million to $2.8 million primarily due to the
income allocation related to the Series C Cumulative Redeemable Perpetual Preferred Units that were repurchased in January 2002, as well as the minority interest holders proportionate share of the decrease in net income before minority interests of
$21.3 million from $41.5 million for the three months ended June 30, 2001 to $20.1 million for the three months ended June 30, 2002.




21




---




Comparison of the Six Months Ended June 30, 2002 to the Six Months Ended June
30, 2001





In our comparison of operating results for the six months ended June 30, 2002 to the six months
ended June 30, 2001 we compare the results of operations of our total portfolio and our same-store property portfolio.





The table below presents the actual statement of operations for our total portfolio and selected operating information for the 123 properties acquired or placed in service on or prior to January 1, 2001 that remained in our portfolio
through June 30, 2002, which comprise our same-store property portfolio. The selected operating information provided for the same-store property portfolio, includes the revenues generated and direct expenses incurred by the properties but excludes
indirect expenses such as general and administrative and personnel, interest expense and amortization of deferred financing costs.





Six Months EndedJune 30,2002


2001(in thousands)Total PortfolioRevenues:Rental income

$
176,308


$
171,470Management and other fees, net


2,543



2,515Total revenues


178,851



173,985Expenses:Property operating and maintenance


42,936



38,952Real estate taxes


21,933



20,482General and administrative and personnel cost


5,242



5,365Interest expense


32,916



33,980Amortization of deferred financing costs


814



803Depreciation and amortization


35,651



31,943Total expenses


139,492



131,525Equity in income of joint ventures and unconsolidated subsidiaries


1,884



1,992Merger termination fee






17,000Income before gain or loss, minority interests and extraordinary items


41,243



61,452Gain on sale of properties






14,163Minority interests


(5,682
)


(9,453
)Income before extraordinary items


35,561



66,162Extraordinary items






(367
)Net income

$
35,561


$
65,795Six Months Ended June 30,2002


2001(in thousands)Same-Store Property Portfolio(1)Property revenues:Rental income

$
143,621


$
142,077Management and other fees, net


95



89Property revenues


143,716



142,166Property expenses:Property operating and maintenance


33,250



32,626Real estate taxes


16,976



16,510Depreciation and amortization


28,379



26,542Property expenses


78,605



75,678Property revenues less property expenses

$
65,111


$
66,488


---

|(1) |  | The 123 properties included in our same-store property portfolio
excludes 123 North Wacker Drive, a 537,000 net rentable square foot office property in downtown Chicago. Subsequent to the planned termination and move-out of the tenant in September 2001, the majority of the building was temporarily taken out of
service in an effort to convert the building from a single tenant building to a multi-tenant building. At June 30, 2002, the building was approximately 61% leased.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22




---




Rental Revenue.    Rental revenues increased by $4.8
million, or 2.8%, from $171.5 million to $176.3 million primarily as a result of properties acquired or development properties becoming operational subsequent to January 1, 2001, offset by properties sold subsequent to January 1, 2001 and a decline
in our total portfolio occupancy from 96% at June 30, 2001 to 93% at June 30, 2002. The March 2002 acquisition of Burnett Plaza accounts for a $7.0 million increase in rental revenues for the period. Rental revenues for our same-store property
portfolio increased by $1.5 million, or 1.1%, from $142.1 million to $143.6 million. The increase in our same-store property portfolio relates to an increase in fee income recorded from lease terminations, increased operating cost recoveries in our
Northern California Region, an increase in occupancy in our Southern California Region, offset by declines in occupancy in our Mid-Atlantic, Midwest and Southwest Regions. This increase in our same-store property portfolio was attributable to our
five regions as follows:





Segment

Number of
Bldgs.

Six Months EndedJune 30,

Increase/ (Decrease)


% Change2002

2001Mid-Atlantic

33

$
38,855

$
39,534

$
(679
)

-1.7
%Midwest

16


25,214


26,234


(1,020
)

-3.9
%Southwest(1)

27


42,800


42,166


634


1.5
%Northern California

9


23,160


21,721


1,439


6.6
%Southern California

38


13,592


12,422


1,170


9.4
%$
143,621

$
142,077

$
1,544


1.1
%


---

|(1) |  | The rental revenue increase in the Southwest Region primarily results from a
$972,000 fee recognized on a 62,000 square foot lease termination during the period.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------




Property Operating and Maintenance.    Property operating and maintenance costs increased by $4.0 million, or 10.2%, from $38.9 million to $42.9 million primarily as a result of property operating and
maintenance costs incurred for properties acquired or development properties becoming operational subsequent to January 1, 2001, offset by a decrease in property operating and maintenance costs resulting from properties sold subsequent to January 1,
2001 and a reduction in expenses resulting from our occupancy decline. The March 2002 acquisition of Burnett Plaza accounts for a $1.7 million increase in property operating and maintenance costs for the period. In addition, during the six months
ended June 30, 2002, we recognized $2.7 million in operating and maintenance cost as a result of increasing our allowance for doubtful accounts due to our concerns regarding the general weakness of the economy and the possible impact a weak economy
could have on our ability to collect our outstanding receivables. During the six months ended June 30, 2001, we recorded a reduction of $267,000 in allowance for doubtful accounts. Property operating and maintenance costs for our same-store property
portfolio increased by $624,000, or 1.9%, from $32.6 million to $33.3 million. This increase in our same-store property portfolio was attributable to our five regions as follows:





Segment

Number of
Bldgs.

Six Months EndedJune 30,

Increase/ (Decrease)


% Change2002

2001Mid-Atlantic

33

$
8,312

$
8,000

$
312


3.9
%Midwest

16


4,879


5,188


(309
)

-6.0
%Southwest

27


10,630


10,888


(258
)

-2.4
%Northern California

9


6,773


5,963


810


13.6
%Southern California

38


2,656


2,587


69


2.7
%$
33,250

$
32,626

$
624


1.9
%





Real Estate Taxes.    Real estate taxes
increased by $1.4 million, or 7.1%, from $20.5 million to $21.9 million primarily as a result of properties acquired or development properties becoming operational subsequent to January 1, 2001, partially offset by properties that were sold
subsequent to January 1, 2001. The March 2002 acquisition of Burnett Plaza accounts for a $1.2 million increase in real estate taxes for the period. Real estate taxes for our same-store property portfolio increased by $466,000, or 2.8%, from $16.5
million to $17.0 million primarily as a result of the reassessment of certain property values by taxing authorities in each of our regions. This increase in our same-store property portfolio was attributable to our five regions as follows:




23




---




Segment

Number of
Bldgs.

Six Months EndedJune 30,

Increase/ (Decrease)


% Change2002

2001Mid-Atlantic

33

$
3,024

$
2,974

$
50


1.7
%Midwest

16


4,746


4,610


136


3.0
%Southwest

27


6,460


6,353


107


1.7
%Northern California

9


1,749


1,566


183


11.7
%Southern California

38


997


1,007


(10
)

-1.0
%$
16,976

$
16,510

$
466


2.8
%





General and Administrative and Personnel
Costs.    General and administrative and personnel costs decreased by $123,000, or 2.3%, from $5.4 million to $5.2 million. General and administrative costs remained relatively constant as a percentage of total revenues.





Interest Expense.    Interest expense decreased by $1.1 million, or 3.1%, from $34.0
million to $32.9 million primarily as a result of a decrease in the weighted average interest rate paid on outstanding borrowings from 7.42% for the six months ended June 30, 2001 to 6.71% for the six months ended June 30, 2002 accompanied by an
increase in capitalized interest from $1.7 million for the six months ended June 30, 2001 to $2.4 million for the six months ended June 30, 2002, partially offset by an increase in weighted average borrowings outstanding from the six months ended
June 30, 2001 to the six months ended June 30, 2002.





Depreciation and
Amortization.    Depreciation and amortization increased by $3.7 million, or 11.6%, to $35.7 million from $31.9 million partially as a result of properties acquired or development properties becoming operational subsequent to
January 1, 2001, offset by properties that were sold subsequent to January 1, 2001. The March 2002 acquisition of Burnett Plaza accounts for a $1.3 million increase in depreciation and amortization for the period. Depreciation and amortization for
our same-store property portfolio increased by $1.8 million, or 6.9%, from $26.5 million to $28.4 million. This increase in our same-store property portfolio was attributable to our five regions as follows:





Segment

Number of
Bldgs.

Six Months EndedJune 30,

Increase/ (Decrease)


% Change2002

2001Mid-Atlantic

33

$
7,797

$
7,803

$
(6
)

-0.1
%Midwest

16


4,247


4,005


242


6.0
%Southwest(1)

27


9,404


8,339


1,065


12.8
%Northern California

9


3,619


3,359


260


7.7
%Southern California

38


3,312


3,036


276


9.1
%$
28,379

$
26,542

$
1,837


6.9
%


---

|(1) |  | The depreciation and amortization increase in the Southwest Region primarily
results from amortization of deferred leasing charges related to the 62,000 square foot lease termination during the period.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Equity in Income of Joint Ventures and Unconsolidated Subsidiaries.    Equity in income of joint ventures and unconsolidated subsidiaries decreased by $108,000 from $2.0
million to $1.9 million primarily due to a decrease of $316,000 resulting from the consolidation of the Burnett Plaza operations into the accounts of the operating partnership, a decrease of $177,000 representing our share of the decrease in net
income of PPS Partners LLC, partially offset by an increase of $315,000 representing our share of the increase in net income of the management company. Prior to March 2002, we owned a 20% non-controlling interest in the joint venture owning the
Burnett Plaza property. The consolidation of the Burnett Plaza operations into the operating partnership results from the March 2002 acquisition of the remaining 80% interest of the joint venture. The decrease in net income of PPS Partners LLC
results from Prentiss Properties Acquisition Partners, L.P. resigning the management duties of the properties in October 2001. The increase in net income from the management company results primarily from a reduction in personnel and tax related
expenses recognized for the six months ended June 30, 2001 to the six months ended June 30, 2002, partially offset by a decrease in fee revenue recognized from 2001 to 2002.





Merger Termination Fee.On September 21, 2000, we entered into a termination and release agreement which provided for the
termination of the agreement and plan of merger dated June 27, 2000, between us, our operating partnership, Mack-Cali Realty Corporation, a Maryland corporation and Mack-Cali Realty, L.P., a Delaware limited partnership of which Mack-Cali is the
sole general partner. In connection with the termination and release agreement, and pursuant to an escrow agreement dated September 21, 2000, Mack-Cali deposited a $25.0 million termination fee in escrow for our benefit. During the six months ended
June 30, 2001, we received $17.0 million from the Mack-Cali escrow account.




24




---




Gain on Sales.    Gain on sales decreased by $14.2
million. During the six months ended June 30, 2001, we sold 42 properties totaling 2.8 million net rentable square feet resulting in a gain on sale of $18.9 million. The gain was offset by a $4.7 million write-down on the Crescent Centre property,
prior to its disposition in May 2001. We did not dispose of any properties during the six months ended June 30, 2002.





Minority Interests.    Minority interests decreased by $3.8 million, or 39.9 %, from $9.5 million to $5.7 million primarily due to the income allocation related to the Series C Cumulative Redeemable
Perpetual Preferred Units that were repurchased in January 2002, as well as the minority interest holders proportionate share of the decrease in net income before minority interests of $34.0 million from $75.2 million for the six months ended June
30, 2001 to $41.2 million for the six months ended June 30, 2002.





Impact of Tenant Defaults and WorldCom, Inc. Bankruptcy on our
Results of Operations





A majority of our income is derived from rental income on our properties. As a result,
our distributable cash flow and ability to make expected distributions to our shareholders could be adversely affected if a significant number of our tenants fail to pay their rent due to bankruptcy, weakened financial condition or otherwise. At any
time, a tenant may seek the protection of the bankruptcy laws, which could result in delays in rental payments or in the rejection and termination of such tenant leases. These events would cause a reduction in our cash flow and the amounts available
for distributions to our shareholders. We cannot assure you that tenants will not file for bankruptcy protection in the future or, if any tenants file, that they will affirm their leases and continue to make rental payments in a timely manner. In
addition, a tenant from time to time may experience a downturn in its business. Such a downturn may weaken its financial condition, and it may stop paying rent when due.





On July 21, 2002, WorldCom, Inc. announced that WorldCom and substantially all of its active U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11
of the U.S. Code in the United States Bankruptcy Court.





We have eight office lease agreements with WorldCom
subsidiaries. These eight leases total 271,402 square feet in five of our office developments. Annualized base rental revenue from these leases equates to approximately $6.1 million, or less than 2% of our annualized base rental revenue. All rent
due, as of August 1, 2002 under our office lease agreements, has been collected. Expiration dates for WorldCom related office leases breakdown as follows: 17,118 square feet expires in March 2003; 35,946 square feet expires in July of 2003; 106,576
square feet expires in April of 2005; and 111,762 square feet expires at various times in 2006. Base rental rates under these leases range from $17.50 per square foot to $23.52 per square foot. As of the date of this filing, we are uncertain whether
the leases will be accepted or rejected in the bankruptcy proceedings or whether WorldCom or its subsidiaries will continue to pay in accordance with the lease terms.





In addition to the office lease agreements, we have eight rooftop antenna lease agreements with WorldCom subsidiaries. These eight leases are spread over seven of our
office developments and expire at various dates through June 30, 2008. Annualized rent from these leases equates to $205,000.





Liquidity and Capital Resources





Cash and cash equivalents were $6.7 million and $5.8
million at June 30, 2002 and December 31, 2001, respectively. The increase in cash and cash equivalents is a result of cash flows provided by operating and financing activities exceeding those used in investing activities. Net cash provided by
operating activities was $73.2 million for the six months ended June 30, 2002, compared to $49.5 million for the three months ended June 30, 2001.





Net cash used in investing activities totaled $131.2 million for the six months ended June 30, 2002 compared to cash provided by investing activities of $21.6 million for the six months ended June 30,
2001. This increase in net cash used in investing activities of $152.8 million is due primarily to a decrease in cash generated from the sale of real estate of $197.1 million, partially offset by a decrease of $43.3 million in cash used in the
purchase, development and investment in real estate and mortgage loans from the six months ended June 30, 2001 to the six months ended June 30, 2002.





Net cash provided by financing activities totaled $58.8 million for the six months ended June 30, 2002 compared to cash used of $70.4 million for the six months ended June 30, 2001. The increase in net
cash provided by financing activities of $129.2 million is due primarily to (1) net borrowings of $107.0 million for the six months ended June 30, 2002 compared to net repayments of mortgages and notes payable of $20.3 million for the six months
ended June 30, 2001 (2) an increase in cash generated from the sale of common shares of $49.3 million, partially offset by (3) a decrease in cash of $50.5 million resulting from the repurchase of outstanding preferred units during the six months
ended June 30, 2002.





As of June 30, 2002, we had outstanding total indebtedness, including our pro rata share of
joint venture debt of approximately $1.10 billion, or approximately 42.2% of total market capitalization based on a common share price of $31.75 per common share. Our policy is to limit combined indebtedness plus our pro rata share of joint venture
debt and construction loans so that at the time such debt is incurred, it does not exceed 50% of the our total market capitalization. As of June 30, 2002, we had the approximate capacity to borrow up to an additional $408.8 million under the debt
limitation and the various restrictions in our credit agreements. The amount of indebtedness that we may incur, and the policies with respect thereto, are not limited by our declaration of




25




---

trust and bylaws, and are solely within the discretion of our board of trustees limited only by various financial covenants in our credit
agreements.





We have in place a $300 million unsecured revolving credit facility with a group of 12 banks. The
facility, which was renewed in May 2002, matures in May 2005. The facility has an initial interest rate of LIBOR plus 137.5 basis points. Additionally, we are required to pay an average unused commitment fee of 25 basis points per annum if the
unused portion of the credit facility is greater than $200 million. The fee is reduced to 20 basis points per annum if the unused portion is less than or equal to $200 million, but greater than $100 million. The fee is further reduced to 15 basis
points per annum if the unused portion is less than or equal to $100 million. During the three months ended June 30, 2002, we had net repayments under our credit facility of $112.0 million and an outstanding balance of $156.5 million at June 30,
2002, resulting in an available balance of $143.5 million.





As of June 30, 2002, we have non-controlling
partnership interests in two separate real estate joint ventures which have in the aggregate $208.6 million of non-recourse mortgage debt. The mortgage debt of each venture is collateralized by the real estate property or properties within each
venture, the net book value of which totaled $183.0 million at June 30, 2002. Our proportionate share of the non-recourse mortgage debt totaled $89.0 million at June 30, 2002.





The following table sets forth our mortgages and notes payable, including our pro rata share of joint venture debt, as of June 30, 2002:





Borrower/Description

Current Balance

Amortization

Interest Rate

Maturity(in thousands)Broadmoor Austin AssociatesBroadmoor Austin(1)

$
73,799

16 yr

7.04%

April 10, 2011Burnett Plaza AssociatesBurnett Plaza


72,100

None

LIBOR + 2.150%

July 9, 2005PL Property Associates, L.P.Park West C2


34,225

30 yr

6.63%

November 10, 2010Prentiss Properties Acquisition Partners, L.P.Bachman West


2,848

25 yr

8.63%

December 1, 2003One Westchase Center


23,779

25 yr

7.84%

February 1, 2004Collateralized Term Loan(2)


71,938

25 yr

LIBOR + 1.625%

September 30, 2004Walnut Glen Tower


34,185

30 yr

6.92%

April 1, 2005Revolving Credit Facility


156,500

None

LIBOR + 1.375%

May 23, 2005Unsecured Term Loan


75,000

None

LIBOR + 1.375%

March 16, 2006Highland Court


4,673

25 yr

7.27%

April 1, 2006Westheimer Central Plaza


5,694

25 yr

8.38%

August 1, 20067101 Wisconsin Avenue


20,786

30 yr

7.25%

April 1, 20092500 Cumberland Parkway


14,300

30 yr

7.46%

July 15, 2009Ordway


48,708

30 yr

7.95%

April 1, 2010World Savings Center


28,902

30 yr

7.91%

November 1, 2010One OHare Centre


40,593

30 yr

6.80%

January 10, 20113130 Fairview Park Drive


22,707

30 yr

7.00%

April 1, 2011Research Office Center


44,698

28 yr

7.64%

October 1, 2011Bannockburn Centre


26,535

30 yr

8.05%

June 1, 2012Del Mar Loan


44,578

30 yr

7.41%

June 1, 2013Prentiss Properties Corporetum, L.P.Corporetum Office Campus


25,135

30 yr

7.02%

February 1, 2009Prentiss Properties Natomas, L.P.Natomas Corporate Center


36,736

30 yr

7.02%

February 1, 2009Prentiss Properties Real Estate Fund I, L.P.PPREFI Portfolio Loan(3)


180,100

None

7.58%

February 26, 2007Tysons International Partners1676 International(4)


11,226

28 yr

7.68%

August 30, 20108260 Greensboro(4)


4,016

28 yr

7.83%

August 30, 2010Total

$
1,103,761


---

|(1) |  | We own a 50% non-controlling interest in the entity that owns the Broadmoor Austin properties, which interest is accounted for using the equity method of
accounting. The amount shown reflects our proportionate share of the non-recourse mortgage indebtedness collateralized by the properties.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The Term Loan is collateralized by the following four properties: Willow Oaks I & II (two properties), 8521 Leesburg Pike and the IBM Call Center.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------




|
|



26




---




|(3) |  | The PPREFI Portfolio Loan is collateralized by the following 36 properties: the Los Angeles industrial properties (18 properties), the Chicago industrial
properties (four properties), the Cottonwood Office Center (three properties), Park West E1 and E2 (two properties), One Northwestern Plaza, 3141 Fairview Park Drive, 2455 Horsepen Road, OHare Plaza II, 1717 Deerfield Road, 2411 Dulles Corner
Road, 4401 Fair Lakes Court, the WestPoint Office Building and the PacifiCare Building.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | We own a 25% non-controlling interest in the entity that owns the 1676 International and 8260 Greensboro properties, which interest is accounted for using the
equity method of accounting. The amount shown reflects our proportionate share of the non-recourse mortgage indebtedness collateralized by the properties.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




The majority of our fixed rate secured debt contains prepayment provisions based on the greater of a yield maintenance penalty or 1.0% of the outstanding loan amount. The
yield maintenance penalty essentially compensates the lender for the difference between the fixed rate under the loan and the yield that the lender would receive if the lender reinvested the prepaid loan balance in U.S. Treasury Securities with a
similar maturity as the loan.





Under our loan agreements, we are required to satisfy various affirmative and
negative covenants, including limitations on total indebtedness, total collateralized indebtedness and cash distributions, as well as obligations to maintain certain minimum tangible net worth and certain minimum interest coverage ratios. Our credit
agreements limit total indebtedness to 55% of total assets and require a debt service coverage ratio of at least 2 to 1. Our credit agreements provide for a 30-day period to cure a default caused by our failure to punctually and properly perform,
observe and comply with the covenants contained therein. The agreements also provide for an additional 75-day period if such failure is not capable of being cured within 30-days and we are diligently pursuing the cure thereof. We were in compliance
with these covenants at June 30, 2002.





To manage interest rate risk, we may employ options, forwards, interest
rate swaps, caps and floors or a combination thereof depending on the underlying interest rate exposure. We undertake a variety of borrowings: from revolving credit facilities, to medium- and long-term financings. To manage overall interest rate
exposure, we use interest rate instruments, typically interest rate swaps, to convert a portion of our variable rate debt to fixed rate debt. Interest rate differentials that arise under these swap contracts are recognized as interest expense over
the life of the contracts.





We may employ forwards or purchased options to hedge qualifying anticipated
transactions. Gains and losses are deferred and recognized in net income in the same period that the anticipated transaction occurs, expires or is otherwise terminated. The following table summarizes the notional amounts and fair values of our
derivative financial instruments. The notional amount provides an indication of the extent of our involvement in these instruments as of the balance sheet date, but does not represent exposure to credit, interest rate or market risks.





Notional Amount

Swap Rate Paid (Fixed)

Effective Fixed Rate

Swap Rate Received (Variable) at June 30, 2002

Swap Maturity

FairValue(in thousands)$ 50 million

2.275%

3.653%

1.83875%

January 2003

$
(124
)$ 50 million

6.253%

7.628%

1.83875%

September 2004


(3,435
)$ 60 million

6.248%

7.623%

1.83875%

September 2004


(4,115
)$ 15 million

4.345%

6.495%

1.83875%

July 2005


(292
)$ 25 million

4.345%

6.495%

1.83875%

July 2005


(486
)$ 20 million

5.985%

7.610%

1.83875%

March 2006


(1,445
)$ 30 million

5.990%

7.615%

1.83875%

March 2006


(2,172
)Total









$
(12,069
)





Our properties require periodic investments of capital for
tenant-related capital expenditures and for general capital improvements. The majority of capital required relates to tenant-related capital expenditures and is dependent upon our leasing activity. Our leasing activity is a function of the
percentage of our in-place leases expiring in current and future periods accompanied by our exposure to tenant defaults and our desire to increase the average occupancy of our portfolio. Our average in-place leases range in term from approximately 5
to 7 years with 3% of our total portfolio square footage scheduled to expire between July 1, 2002 and December 31, 2002 and 10.6% schedule to expire in 2003. For the three months ended June 30, 2002, our recurring non-incremental revenue-generating
capital expenditures totaled approximately $5.6 million. Our recurring non-incremental revenue-generating capital expenditures were attributable to our five regions as follows: (1) Mid-Atlantic-$849,000; (2) Midwest-$484,000; (3) Southwest-$3.2
million; (4) Northern California-$276,000; and (5) Southern California-$779,000.





On June 10, 2002, we entered
into a securities sales agreement with Brinson Patrick Securities Corporation. Under the sales agreement we may sell, with Brinson Patrick acting as our sales agent, up to 3,000,000 of our common shares of beneficial interest, par value $0.01 per
share at the then market price directly to the public. Such sales, which may occur in future periods from time to time




27




---




pursuant to the agreement, will increase our net cash provided by financing activities during the period
in which they occur, subject to offsetting amounts related to other activities during such period.





Subsequent to
quarter end, we repurchased 100,000 common shares in the open market for an aggregate purchase price of $2.5 million, or $24.72 per share, including commissions. The repurchase of our common shares decreases net cash provided by financing
activities.





We have considered our short-term liquidity needs and the adequacy of adjusted estimated cash flows
and other expected liquidity sources to meet these needs. We believe that our principal short-term liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distributions required to maintain our REIT
qualification under the Internal Revenue Code. We expect to make distributions to our shareholders primarily based on distributions from the operating partnership. The operating partnerships income will be derived from operating activities
which include rental revenues and operating expense reimbursements from tenants and, to a limited extent, from fees generated by our office and industrial real estate management service business.





We anticipate that these needs will be fully funded from cash flows provided by operating activities and, when necessary to fund shortfalls resulting from the timing
of collections of accounts receivable in the ordinary course of business, from our revolving credit facility. In the event that our cash flow needs exceed our cash flows provided by operating activities, we may be forced to sell real estate
properties to fund such cash flow needs.





We expect to meet our long-term liquidity requirements for the funding
of activities, such as development, property acquisitions, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness and through the issuance of
additional debt and equity securities. We also intend to use proceeds from our revolving credit facility to fund property acquisitions, development, redevelopment, expansions and capital improvements on an interim basis.





We have contractual obligations and commercial commitments including mortgages and notes payable, ground lease obligations and letters of
credit. The table below presents, as of June 30, 2002, our future scheduled principal repayments of mortgages and notes payable and ground lease obligations, including our pro rata share of debt and ground lease obligations of our of joint venture
properties:





Mortgages and Notes Payable

Ground Lease Obligations

Total Contractual Cash Obligations(in thousands)2002

$
4,606

$
226

$
4,8322003


12,435


452


12,8872004


102,885


457


103,3422005


270,876


517


271,3932006


94,013


536


94,549Thereafter


618,946


28,722


647,668$
1,103,761

$
30,910

$
1,134,671





Our other commercial commitments include letters of credit totaling
$1.4 million which expire as follows:





Letters of Credit(in thousands)2002

$
632003


1,0632004


632005


632006


126Thereafter


$
1,378





Funds from Operations





Funds from operations, as defined by the National Association of Real Estate Investment Trusts, means net income, computed in accordance with accounting principles
generally accepted in the United States of America excluding extraordinary items (as defined by accounting principles generally accepted in the United States of America) and gains (or losses) from sales of property, plus depreciation and
amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. With the exception of our exclusion, from funds from operations, of the merger termination fee, we calculate funds from
operations in accordance with the NAREIT definition. We believe 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 and investing
activities, it




28




---

provides investors with an indication of our ability to incur and service debt, to make capital expenditures and to fund other cash needs. Our
funds from operations is not comparable to funds from operations reported by other REITs that do not define funds from operations exactly as we do. We believe that in order to facilitate a clear understanding of our operating results, funds from
operations should be examined in conjunction with net income as presented in our Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q. Funds from operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions. Our
funds from operations for the respective periods are calculated as follows:





Three Months Ended June 30,


Six Months Ended June 30,2002


2001


2002


2001(in thousands)Funds from operationsNet income

$
17,341


$
36,472


$
35,561


$
65,795Add:Real estate depreciation and amortization


18,989



15,578



35,616



31,902Real estate depreciation and amortization of unconsolidated joint ventures


739



904



1,618



1,653Minority interests(1)


2,755



4,945



5,601



9,371Extraordinary items














367Less:Merger termination fee(2)






(10,000
)






(17,000
)Gain on sales






(8,710
)






(14,163
)Dividend on perpetual preferred units


(2,159
)


(3,340
)


(4,344
)


(6,492
)Funds from operations

$
37,665


$
35,849


$
74,052


$
71,433


---

|(1) |  | Represents the minority interests applicable to the common and preferred unit holders of the operating partnership.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(2) |  | Although the fee is not considered an extraordinary item in accordance with accounting principles generally accepted in the United States of America, it is our
opinion that it is appropriate to exclude the fee from funds from operations.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Funds from
operations increased by $1.8 million from $35.9 million for the three months ended June 30, 2001 to $37.7 million for the three months ended June 30, 2002 and by $2.6 million from $71.4 million for the six months ended June 30, 2001 to $74.0 million
for the six months ended June 30, 2002 as a result of the factors discussed in the analysis of operating results.





Recently Issued
Accounting Standards





On June 28, the Financial Accounting Standards Board voted in favor of issuing Statement
of Financial Accounting Standards No. 146, Accounting for Exit or Disposal Activities. The statement addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal
activities, including restructuring activities that are currently accounted for pursuant to the guidance that the EITF has set forth in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring). The scope of the statement also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are
involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. The statement will be effective for exit or disposal activities initiated
after December 31, 2002. We have not yet determined the impact of the statement on our results of operations and financial position.








Item 3.    Quantitative and Qualitative Disclosures about Market Risk





Our primary market risk is exposure to changes in interest rates as a result of our revolving credit facility and long-term debt. At June 30, 2002, we had outstanding total
indebtedness, including our pro rata share of joint venture debt and construction loans, of approximately $1.10 billion, or approximately 42.2% of total market capitalization. Our interest rate risk objective is to limit the impact of interest rate
fluctuations on earnings and cash flows and to lower our overall borrowing costs. To achieve this objective, we manage our exposure to fluctuations in market interest rates for our borrowings through the use of fixed rate debt instruments to the
extent that reasonably favorable rates are obtainable with such arrangement. In addition, we may enter into derivative financial instruments such as options, forwards, interest rate swaps, caps and floors to mitigate our interest rate risk on a
related financial instrument or to effectively lock the interest rate on a portion of our variable rate debt. We do not enter into derivative or interest rate transactions for speculative purposes. Approximately 66.0% of our outstanding debt was
subject to fixed rates with a weighted average interest rate of 7.45% at June 30, 2002. Of the remaining $375.5 million, or 34.0%, representing our variable rate debt, $250.0 million was effectively locked at an interest rate (before the spread over
LIBOR) of 5.10% through our interest rate swap agreements. We regularly review interest rate exposure on our outstanding borrowings in an effort to minimize the risk of interest rate fluctuations.




29




---




The following table provides information about our financial instruments that are
sensitive to changes in interest rates, including interest rate swaps and debt obligations. For debt obligations outstanding at June 30, 2002, including our pro rata share of joint venture debt totaling $89.0 million, the table presents principal
cash flows and related weighted average interest rates for the debt outstanding during the periods. For interest rate swaps, the table presents notional amounts and weighted average interest rates for in-place swaps during the period. Notional
amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on 30-day LIBOR as of June 30, 2002. The fair value of our fixed rate debt indicates the estimated principal amount
of debt having similar debt service requirements, which could have been borrowed by us at June 30, 2002. The rate assumed in the fair value calculation of fixed rate debt is equal to 6.72%, which consists of the 7-year treasury of 4.52% at June 30,
2002 plus 220 basis points. The fair value of our variable to fixed interest rate swaps indicates the estimated amount that would have been paid by us had they been terminated at June 30, 2002.





2002


2003


2004


2005


2006


Thereafter


Total

Fair ValueLiabilitiesLong-Term Debt:Fixed Rate

$
4,231


$
11,685


$
32,072


$
42,276


$
19,013


$
618,946


$
728,223

$
755,116Average Interest Rate


7.45
%


7.45
%


7.43
%


7.46
%


7.46
%


7.40
%





Variable Rate

$
375


$
750


$
70,813


$
228,600


$
75,000






$
375,538

$
375,538Average Interest Rate


3.46
%


3.46
%


3.46
%


3.43
%


3.26
%









Interest Rate DerivativesInterest Rate Swaps:Variable to Fixed





$
50,000


$
110,000


$
40,000


$
50,000









$
(12,069
)Average Pay Rate


5.10
%


5.80
%


5.73
%


5.52
%


5.99
%









Average Receive Rate


1.84
%


1.84
%


1.84
%


1.84
%


1.84
%















The table incorporates only those exposures that exist as of June
30, 2002 and does not consider exposures or positions that could arise after that date. In addition, because firm commitments are not represented in the table above, the information presented therein has limited predictive value. As a result, our
ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during future periods, prevailing interest rates, and our hedging strategies at that time. There is inherent rollover risk for
borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our financing requirements.







30




---




PART II


OTHER INFORMATION





Item 1.    Legal Proceedings





We are not presently subject
to any material litigation, other than ordinary routine litigation incidental to the business.





Item 2.    Changes in Securities and Use of Proceeds





None





Item 3.    Defaults Upon Senior Securities





None.





Item 4.    Submission of Matters to a Vote of Security Holders





On
May 15, 2002, we held our Annual Meeting of shareholders. At the meeting, three Class III trustees, Michael V. Prentiss, Thomas J. Hynes, Jr. and Barry J.C. Parker were elected to serve as trustees until the 2005 Annual Meeting of the shareholders,
and until the respective successor of each is duly elected and qualified.





The votes cast for the trustees were:





Michael V. PrentissVotes for:

21,866,114Votes withheld:

276,200Broker non-votes:

Abstentions:

11,744,528Thomas J. Hynes, Jr.Votes for:

22,142,114Votes withheld:

200Broker non-votes:

Abstentions:

11,468,528Barry J.C. ParkerVotes for:

22,142,314Votes withheld:

Broker non-votes:

Abstentions:

11,468,328





The shareholders approved and adopted our amended and restated
Trustees Share Incentive Plan which (1) increases the aggregate number of our common shares of beneficial interest, par value $0.01 per share that may be issued under the current Trustees Share Incentive Plan by 300,000 common shares,
(2) extends the term of the current plan by an additional 10 years, and (3) gives us broader authority in terms of the types, amounts and dates of the share grants that we may authorize than were given under the prior Trustees Share Incentive
Plan.





The votes cast were as follows:





Share Incentive PlanVotes for:

17,476,799Votes against:

16,057,304Broker non-votes:

Abstentions:

76,540




31




---




The shareholders also ratified the appointment of PricewaterhouseCoopers LLP as
our independent accountants for 2002.





The votes cast were as follows:





PricewaterhouseCoopers LLPVotes for:

32,681,624Votes against:

905,915Broker non-votes:

Abstentions:

23,105





Item 5.    Other Information





None.





Item 6.    Exhibits and Reports on Form 8-K





(a)Exhibits:





ExhibitNo.

Description3.1

Amended and Restated Declaration of Trust of the Registrant (filed as Exhibit 3.1 to our Registration Statement on
Amendment No. 1 of Form S-11, File No. 333-09863, and incorporated by reference herein).3.2

Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.2 to our Form 10-Q, filed on May 15, 2002, File
No. 001-14516).3.3

Amendment No. 1 to the Amended and Restated Bylaws of the Registrant (filed as Exhibit 3.3 to our Form 10-Q, filed
on May 15, 2002, File No. 001-14516).3.4

Articles Supplementary, dated February 17, 1998, Classifying and Designating a Series of Preferred Shares of
Beneficial Interest as Junior Participating Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest, Series B, and Fixing Distribution and Other Preferences and Rights of Such Shares (filed as an Exhibit to our Registration
Statement on Form 8-A, filed on February 17, 1998, File No. 000-23813 and incorporated by reference herein).3.5

Articles Supplementary, dated June 25, 1998, Classifying and Designating a Series of Preferred Shares of Beneficial
Interest as Series B Cumulative Redeemable Perpetual Preferred Shares of Beneficial Interest and Fixing Distribution and Other Preferences and Rights of Such Shares (included as Exhibit 3.5 to our Form 10-Q, filed on August 12, 1998, File No.
001-14516).3.6

Articles Supplementary, dated March 20, 2001 (filed as Exhibit 3.6 to our Report on Form 10-K, filed March 27, 2001,
File No. 001-14516, and incorporated by reference herein).3.7

Articles Supplementary Classifying and Designating a Series of Preferred Shares of Beneficial Interest as Series D
Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest and Fixing Distribution and Other Preferences and Rights of such Shares, dated March 20, 2001 (filed as Exhibit 3.7 to our Report on Form 10-K, filed March 27, 2001, File No.
001-14516, and incorporated by reference herein).3.8

Articles Supplementary, dated January 4, 2002 (filed as Exhibit 3.7 to our Report on Form 10-K, filed March 27,
2002, File No. 001-14516, and incorporated by reference herein).4.1

Form of Common Share Certificate (filed as Exhibit 4.1 to our Registration Statement on Amendment No. 1 of Form
S-11, File No. 333-09863, and incorporated by reference herein).4.2

Amended and Restated Rights Agreement, dated January 22, 2002, between Prentiss Properties Trust and EquiServe Trust
Company, N.A., as Rights Agent (filed as Exhibit 1 to Amendment No. 2 to our Registration Statement on Form 8-A, filed on February 6, 2002, File No. 000-014516).4.3

First Amendment dated June 26, 2002 to the Amended and Restated Rights Agreement between Prentiss Properties Trust
and Equiserve Trust Company, N.A. as Rights Agent (filed as Exhibit 2 to Amendment No. 3 to our Registration Statement on Form 8-A, filed on June 27, 2002. File No. 000-014516).




32




---




4.4

Form of Rights Certificate (included as Exhibit A to the Rights Agreement (Exhibit 4.2)).4.5

Form of Series D Preferred Share Certificate (filed as Exhibit 4.4 to our Report on Form 10-K, filed March 27, 2001,
File No. 001-14516, and incorporated by reference herein).10.1

1996 Share Incentive Plan (filed as Exhibit 10.25 to Amendment No. 1 to our Registration Statement on Form S-11,
File No. 333-09863, and incorporated by reference herein).10.2

First Amendment, effective as of May 6, 1997, to the 1996 Share Incentive Plan (filed as Exhibit 4.6 to our
Registration Statement on Form S-8, File No. 333-79623, filed on May 28, 1999, and incorporated by reference herein).10.3

Second Amendment, effective as of May 5, 1998, to the 1996 Share Incentive Plan (filed as Exhibit 4.7 to our
Registration Statement on Form S-8, File No. 333-79623, filed on May 28, 1999, and incorporated by reference herein).10.4

Third Amendment, effective as of May 9, 2001, to the 1996 Share Incentive Plan (filed as Exhibit 4.5 to our
Registration Statement on Form S-8, File No. 333-68520, filed on August 28, 2001, and incorporated by reference herein).10.5

Amended and Restated Trustees Share Incentive Plan, effective as of May 15, 2002 (filed as Exhibit 4.12 to our
Registration Statement on Form S-8, File No. 333-97045, filed on July 24, 2002, and incorporated by reference herein).10.6

Trustees Share Incentive Plan (filed as Exhibit 4.8 to our Registration Statement on Form S-8, File No. 333-79623,
filed on May 28, 1999, and incorporated by reference herein).10.7

First Amendment, effective as of May 5, 1998, to the Trustees Share Incentive Plan (filed as Exhibit 4.9 to
our Registration Statement on Form S-8, File No. 333-79623, filed on May 28, 1999, and incorporated by reference herein).10.8

Second Amendment, effective as of March 1, 1999, to the Trustees Share Incentive Plan (filed as Exhibit 4.10
to our Registration Statement on Form S-8, File No. 333-79623, filed on May 28, 1999, and incorporated by reference herein).10.9

Third Amendment, effective as of May 10, 2000, to the Trustees Share Incentive Plan (filed as Exhibit 10.8 to
our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.10

Form of Stock Option Agreement (filed as Exhibit 10.9 to our Report on Form 10-K, filed March 27, 2002, File No.
001-14516, and incorporated by reference herein).10.11

Amended and Restated Share Purchase Plan, dated as of July 1, 2000 (filed as Exhibit 10.10 to our Report on Form
10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.12

Key Employee Share Option Plan (filed as Exhibit 10.11 to our Report on Form 10-K, filed March 27, 2002, File No.
001-14516, and incorporated by reference herein).10.13

Prentiss Properties Employee Savings Plan (filed as Exhibit 10.12 to our Report on Form 10-K, filed March 27, 2002,
File No. 001-14516, and incorporated by reference herein).10.14

Second Amended and Restated Employment Agreement, dated February 14, 2001 by and between Michael V. Prentiss and
Prentiss Properties Trust (filed as Exhibit 10.20 to our Report on Form 10-K, filed on March 27, 2001, and incorporated herein by reference).10.15

Amended and Restated Employment Agreement, dated May 10, 2000, by and between Thomas F. August and Prentiss
Properties Trust (filed as Exhibit 10.21 to our Report on Form 10-K, filed on March 27, 2001, and incorporated herein by reference).


|
|

|
|



33




---




10.16


Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties Acquisition Partners, L.P., dated
as of October 1, 2001 (filed as Exhibit 10.15 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.17


First Amendment, dated as of December 18, 2001, to the Third Amended and Restated Agreement of Limited Partnership
of Prentiss Properties Acquisition Partners, L.P., dated as of December 18, 2001 (filed as Exhibit 10.16 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.18


Second Amendment, dated as of January 3, 2002, to the Third Amended and Restated Agreement of Limited Partnership of
Prentiss Properties Acquisition Partners, L.P., dated as of October 1, 2001 (filed as Exhibit 10.17 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.19


Third Amendment to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties
Acquisition Partners, L.P. (filed as Exhibit 10.40 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.20
*

Fourth Amendment to the Third Amended and Restated Agreement of Limited Partnership of Prentiss Properties
Acquisition Partners, L.P.10.21


Exchange Agreement, dated as of March 20, 2001, by and among Prentiss Properties Trust, Prentiss Properties
Acquisition Partners, L.P. and Security Capital Preferred Growth Incorporated (filed as Exhibit 10.14 to our Report on Form 10-K, filed on March 27, 2001, and incorporated herein by reference).10.22


Registration Rights Agreement, dated as of March 20, 2001, by and among Prentiss Properties Trust and Security
Capital Preferred Growth Incorporated (filed as Exhibit 10.15 to our Report on Form 10-K, filed on March 27, 2001, and incorporated by reference herein).10.23


Credit Agreement, dated May 23, 2000, among Prentiss Properties Acquisition Partners, L.P., as Borrower, Bank One,
N.A., as Administrator, Bank of America, N.A., as Syndication Agent, Dresdner Bank, AG as Documentation Agent and each of the Lenders that are signatory therein (filed as Exhibit 10.22 to our Report on Form 10-K, filed on March 27, 2001, and
incorporated by reference herein).10.24


Credit Agreement, dated March 16, 2001, among Prentiss Properties Acquisition Partners, L.P., as Borrower,
Commerzbank AG, New York Branch, as Administrative Agent, Sole Arranger and Sole Book Runner, Fleet National Bank, as Syndication Agent, LaSalle Bank National Association, as Documentation Agent and each of the Lenders named therein (filed as
Exhibit 10.21 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein). .10.25


Credit Agreement, dated September 30, 1999, among Prentiss Properties Acquisition Partners, L.P., as Borrower, Bank
One, NA, as Administrative Agent, Mellon Bank and Union Bank of California as co-documentation agents.10.26


First Amendment, dated as of November 28, 2000, to the Credit Agreement, dated September 30, 1999, among Prentiss
Properties Acquisition Partners, L.P., as Borrower, Bank One, N.A., as Administrative Agent, Mellon bank and Union Bank of California as co-documentation agents (filed as Exhibit 10.23 to our Report on Form 10-K, filed March 27, 2002, File No.
001-14516, and incorporated by reference herein)10.27


Second Amendment and Restatement of Credit Agreement, dated as of March 22, 2002, by and among Prentiss Properties
Acquisition Partners, L.P., Bank One, NA, Bank of America, N.A., Dresdner Bank AG, Commerzbank AG, Societe Generale Southwest Agency and the lenders named therein (filed as exhibit 10.1 to our Post-Effective Amendment No. 2 to Form S-3, File No.
333-49433, filed on July 26, 2002).10.28


Exchange Agreement, dated March 14, 2001, by and among Prentiss Properties Trust, Prentiss Properties Acquisition
Partners, L.P. and FFI Tysons Partners, L.P. (filed as Exhibit 10.1 to our Current Report on Form 8-K, filed March 22, 2001, File No. 001-14516, and incorporated by reference herein).


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10.29

Exchange Agreement, dated March 14, 2001, by and between Prentiss Properties Acquisition Partners, L.P. and
Brandywine Grande B, L.P. (filed as Exhibit 10.2 to our Current Report on Form 8-K, filed March 22, 2001, File No. 001-14516, and incorporated by reference herein).10.30

Agreement of Purchase and Sale, dated March 14, 2001, by and among Prentiss Properties Acquisition Partners, L.P.,
Brandywine Operating Partnership, L.P. and Brandywine Grande B, L.P. (filed as Exhibit 10.3 to our Current Report on Form 8-K, filed March 22, 2001, File No. 001-14516, and incorporated by reference herein).10.31

Agreement of Purchase and Sale, dated March 14, 2001, by and among Prentiss Properties Acquisition Partners, L.P.,
Prentiss Properties Limited, Inc. and Brandywine Operating Partnership, L.P. (filed as Exhibit 10.4 to our Current Report on Form 8-K, filed March 22, 2001, File No. 001-14516, and incorporated by reference herein).10.32

Contribution Agreement, dated March 14, 2001, by and between Prentiss Properties Acquisition Partners, L.P. and
Brandywine Operating Partnership, L.P. (filed as Exhibit 10.5 to our Current Report on Form 8-K, filed March 22, 2001, File No. 001-14516, and incorporated by reference herein).10.33

Agreement of Purchase and Sale, dated March 14, 2001, by and among 935 First Avenue Associates and Brandywine
Operating Partnership, L.P. (filed as Exhibit 10.6 to our Current Report on Form 8-K, filed March 22, 2001, File No. 001-14516, and incorporated by reference herein).10.34

Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and Robert
K. Wiberg (filed as Exhibit 10.30 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.35

Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and
Lawrence Krueger (filed as Exhibit 10.31 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.36

Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and Michael
A. Ernst (filed as Exhibit 10.32 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.37

Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and
Christopher M. Hipps (filed as Exhibit 10.33 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.38

Loan Agreement, dated as of June 30, 1999, by and between Prentiss Properties Acquisition Partners, L.P. and Daniel
Cushing (filed as Exhibit 10.34 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.39

Promissory Note, dated as of June 1, 1999, by and between Prentiss Properties Limited, Inc. and Christopher M. Hipps
(filed as Exhibit 10.35 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.40

Promissory Note, dated as of January 1, 2002, by and between Prentiss Properties Limited, Inc. and Daniel Cushing
(filed as Exhibit 10.36 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.41

Promissory Note, dated as of June 28, 1999, by and between Christopher M. Hipps and Prentiss Properties Limited,
Inc. (filed as Exhibit 10.37 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.42

Purchase Agreement, dated February 25, 2002, by and among Prentiss Properties Trust, Prentiss Properties Acquisition
Partners, L.P., Prentiss Properties I, Inc. and Salomon Smith Barney Inc. (filed as Exhibit 10.38 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).10.43

Registration Rights Agreement, dated February 25, 2002, by and among Prentiss Properties Trust and Salomon Smith
Barney Inc. (filed as Exhibit 10.39 to our Report on Form 10-K, filed March 27, 2002, File No. 001-14516, and incorporated by reference herein).


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10.44

Sales Agreement between us and Brinson Patrick Securities Corporation, dated June 10, 2002 (filed as Exhibit 1.1 to
our Post Effective Amendment No. 2 to Form S-3, File No. 333-49433, filed on July 26, 2002).


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|* |  | Filed herewith.
|- |  | ---------------




(b)  Reports on Form 8-K





We did not file any Reports on
Form 8-K for or during the period April 1, 2002 through June 30, 2002.







36




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SIGNATURE





Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





PRENTISS PROPERTIES TRUSTDate: August 12, 2002



By:

/s/    THOMAS P.
SIMONThomas P. Simon Senior Vice
President and Chief Accounting Officer (Principal Accounting Officer and Duly Authorized Officer of the Company)




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