<PAGE>

                      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 September 30, 2001

                        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                               (I.R.S. Employer
 Incorporation or Organization)                              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 November 8, 2001, was 36,956,084 and the number of outstanding
Participating Cumulative Redeemable Preferred Shares of Beneficial Interest,
Series D, was 3,773,585.
<PAGE>

                           PRENTISS PROPERTIES TRUST


                                     INDEX
                                     -----
<TABLE>
<S>            <C>                                                                                            <C>

Part I:        FINANCIAL INFORMATION                                                                          Page Number
                                                                                                              -----------

               Item 1.   Financial Statements

                         Consolidated Balance Sheets of Prentiss Properties Trust at
                         September 30, 2001 (unaudited) and December 31, 2000                                         5

                         Consolidated Statements of Income of Prentiss Properties Trust for the three
                         and nine months ended September 30, 2001 and 2000 (unaudited)                                6

                         Consolidated Statements of Cash Flows of Prentiss Properties Trust for the
                         nine months ended September 30, 2001 and 2000 (unaudited)                                     7

                         Notes to Consolidated Financial Statements                                                 8-14

               Item 2.   Management's Discussion and Analysis of Financial
                         Condition and Results of  Operations                                                      15-22

               Item 3.   Quantitative and Qualitative Disclosures about Market Risk                                   23

Part II:       OTHER INFORMATION

               Item 1.   Legal Proceedings                                                                            24
               Item 2.   Changes in Securities and Use of Proceeds                                                    24
               Item 3.   Default Upon Senior Securities                                                               24
               Item 4.   Submission of Matters to a Vote of Security Holders                                          24
               Item 5.   Other Information                                                                            24
               Item 6.   Exhibits and Reports on Form 8-K                                                             25

SIGNATURE                                                                                                             26
</TABLE>

                                       2
<PAGE>

                          FORWARD-LOOKING STATEMENTS

     This Form 10-Q and the documents incorporated by reference herein contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended.  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 and information currently available to us.  These
forward-looking statements are subject to certain risks, uncertainties and
assumptions, including, but not limited to, risks, uncertainties and assumptions
related to the following:

 .  the geographic concentration of our properties;

 .  our real estate acquisition, redevelopment, development and construction
   activities;

 .  the operating performance of our properties;

 .  our incurrence of debt;

 .  the limited ability of shareholders to effect a change of control;

 .  conflicts of interest;

 .  change in our investment, financing and borrowing policies without
   shareholder approval;

 .  our dependence on key personnel;

 .  our third party property management, leasing, development and construction
   business and related services; and

 .  the effect of shares available for future sale on the price of common shares.


     Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove 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, 2001.

                                       3
<PAGE>

                                    PART I
                             FINANCIAL INFORMATION

Item 1.   Financial Statements





                     (this page intentionally left blank)

                                       4
<PAGE>

                           PRENTISS PROPERTIES TRUST
                          CONSOLIDATED BALANCE SHEETS
              (in thousands, except share and per share amounts)

<TABLE>
<CAPTION>



                                                                                      September 30,              December 31,
                                 ASSETS                                                   2001                      2000
                                                                                      -------------              ------------
Real estate:                                                                           (unaudited)
<S>                                                                                   <C>                        <C>
   Land.......................................................................            $  293,540                $  304,417
   Buildings and improvements.................................................             1,484,384                 1,565,277

   Less: accumulated depreciation.............................................
   Total operating real estate................................................              (137,011)                 (126,630)
                                                                                          ----------                ----------
                                                                                           1,640,913                 1,743,064

Construction in progress......................................................                84,568                   112,090
Land held for development.....................................................                52,570                    49,784

Deferred charges and other assets, net........................................               133,168                   127,635
Notes receivable..............................................................                13,354
Receivables, net..............................................................                41,175                    34,093
Cash and cash equivalents.....................................................                 5,429                     5,452
Escrowed cash.................................................................                11,933                    24,672
Investments in securities.....................................................                 3,283                     1,495
Investments in joint ventures and unconsolidated subsidiaries.................                32,184                    19,590
                                                                                          ----------                ----------
   Total assets...............................................................            $2,018,577                $2,117,875
                                                                                          ==========                ==========
                        LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
   Debt on real estate........................................................            $  889,718                $1,007,800
   Interest rate hedges.......................................................                12,653
   Accounts payable and other liabilities.....................................                78,736                    80,945
   Deferred merger termination fee............................................                                          17,000
   Other payables (affiliates)................................................                 3,136                     3,575
   Distributions payable......................................................                26,020                    23,538
                                                                                          ----------                ----------
     Total liabilities..........................................................           1,010,263                 1,132,858
                                                                                          ----------                ----------

Minority interest in operating partnership....................................               186,106                   177,325
                                                                                          ----------                ----------
Minority interest in real estate partnerships.................................                 1,552                     1,428
Commitments and contingencies                                                             ----------                ----------

Shareholders' equity:
Preferred shares $.01 par value, 20,000,000 shares authorized, 3,773,585
 shares issued and outstanding................................................               100,000                   100,000
Common shares $.01 par value, 100,000,000 shares authorized, 41,923,321 and
 40,687,813 (includes 4,900,266 and 4,104,371 in treasury) shares issued and
 outstanding at September 30, 2001 and December 31, 2000, respectively........                   419                       407
Additional paid-in capital....................................................               829,407                   802,818
Common shares in treasury, at cost, 4,900,266 and 4,104,371 shares at
 September 30, 2001 and December 31, 2000, respectively.......................              (113,414)                  (92,636)
Unearned compensation.........................................................                (3,076)                   (3,186)
Accumulated other comprehensive income........................................               (12,185)
Retained earnings/(distributions in excess of earnings).......................                19,505                    (1,139)
                                                                                          ----------                ----------
   Total shareholders' equity.................................................               820,656                   806,264
                                                                                          ----------                ----------
   Total liabilities and shareholders' equity.................................            $2,018,577                $2,117,875
                                                                                          ==========                ==========
</TABLE>

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

                                       5
<PAGE>

                           PRENTISS PROPERTIES TRUST
                       CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)
                   (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                        Three Months        Three Months         Nine Months         Nine Months
                                                            Ended               Ended               Ended               Ended
                                                     September 30, 2001  September 30, 2000  September 30, 2001  September 30, 2000
                                                     ------------------  ------------------  ------------------  ------------------
<S>                                                  <C>                 <C>                 <C>                 <C>
Revenues:
   Rental income.....................................    $   85,700          $   83,104          $  257,170          $  247,769
   Management and other fees, net....................         1,443               1,308               3,958               3,040
                                                         ----------          ----------          ----------          ----------
   Total revenues....................................        87,143              84,412             261,128             250,809
                                                         ----------          ----------          ----------          ----------
Expenses:
   Property operating and maintenance
   Real estate taxes.................................        19,767              19,022              58,719              56,723
   Real estate taxes.................................         9,895               9,432              30,377              29,004
   G&A and personnel costs...........................         2,737               2,339               8,102               7,465
   Interest expense..................................        15,898              17,521              49,878              51,988
   Amortization of deferred financing costs..........           402                 415               1,205               1,104
   Depreciation and amortization.....................        16,607              16,458              48,550              46,727
                                                         ----------          ----------          ----------          ----------
     Total expenses....................................      65,306              65,187             196,831             193,011
                                                         ----------          ----------          ----------          ----------

Equity in income of joint ventures and
 unconsolidated subsidiaries.........................           212                 929               2,204               2,733
Merger termination fee...............................                             4,091              17,000               4,091
                                                         ----------          ----------          ----------          ----------
Income before gain on sale, minority interests and
 extraordinary items.................................        22,049              24,245              83,501              64,622

(Loss)/gain on sale of properties....................          (125)             (2,038)             14,038                 208
Minority interests...................................        (4,076)             (3,949)            (13,529)            (11,790)
                                                         ----------          ----------          ----------          ----------

Net income before extraordinary items................        17,848              18,258              84,010              53,040

Extraordinary items..................................                                                  (367)
                                                         ----------          ----------          ----------          ----------
Net income...........................................    $   17,848          $   18,258          $   83,643          $   53,040

Preferred dividends..................................        (2,019)             (1,830)             (5,868)             (5,321)
                                                         ----------          ----------          ----------          ----------

Net income applicable to common shareholders.........    $   15,829          $   16,428          $   77,775          $   47,719
                                                         ==========          ==========          ==========          ==========

Net income per common share before extraordinary
  items - basic......................................    $     0.43          $     0.45          $     2.13          $     1.32

Extraordinary items..................................                                                 (0.01)
                                                         ----------          ----------          ----------          ----------

Net income per common share - basic..................    $     0.43          $     0.45          $     2.12          $     1.32
                                                         ==========          ==========          ==========          ==========

Weighted average number of common shares
   outstanding - basic...............................        36,864              36,375              36,646              36,203
                                                         ==========          ==========          ==========          ==========

Net income per common share before extraordinary
  items  - diluted...................................    $     0.43          $     0.45          $     2.06          $     1.31

Extraordinary items..................................                                                 (0.01)
                                                         ----------          ----------          ----------          ----------

Net income per common share - diluted................    $     0.43          $     0.45          $     2.05           $    1.31
                                                         ==========          ==========          ==========          ==========

Weighted average number of common shares and
   common share equivalents outstanding - diluted....        37,237              36,720              40,782              36,405
                                                         ==========          ==========          ==========          ==========
</TABLE>

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

                                       6
<PAGE>

                           PRENTISS PROPERTIES TRUST
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)
                                (in thousands)

<TABLE>
<CAPTION>
                                                                                   Nine Months             Nine Months
                                                                                      Ended                   Ended
                                                                                September 30, 2001      September 30, 2000
                                                                                ------------------      ------------------
<S>                                                                             <C>                     <C>
Cash Flows from Operating Activities:
   Net income.........................................................               $  83,643               $  53,040

   Adjustments to reconcile net income to net cash provided by
   operating activities:
       Minority interests.............................................                  13,529                  11,790
       Extraordinary items............................................                     367
       Gain on sales..................................................                 (14,038)                   (208)
       Provision for doubtful accounts................................                    (669)                  1,062
       Depreciation and amortization..................................                  48,550                  46,727
       Amortization of deferred financing costs.......................                   1,205                   1,104
       Reclassification of accumulated other comprehensive income.....                     286
       Equity in income of joint ventures and unconsolidated
           subsidiaries...............................................                  (2,204)                 (2,733)
       Non-cash compensation..........................................                   1,383                     819
   Changes in assets and liabilities:
       Deferred charges and other assets..............................                   1,762                  (7,771)
       Receivables....................................................                  (7,645)                 (7,638)
       Escrowed cash..................................................                  12,253                 (16,740)
       Other payables/receivables (affiliates)........................                  (2,014)                  6,923
       Accounts payable and other liabilities.........................                 (16,842)                 27,353
                                                                                     ---------               ---------
   Net cash provided by operating activities..........................                 119,566                 113,728
                                                                                     ---------               ---------
Cash Flows from Investing Activities:
   Purchase and development of real estate............................                (189,173)               (196,255)
   Investment in real estate..........................................                 (31,192)                (33,018)
   Investment in joint ventures.......................................                  (1,438)                   (541)
   Proceeds from sale of real estate..................................                 196,997                  98,010
   Investments in securities..........................................                  (2,029)
   Distributions received from joint ventures and unconsolidated
       subsidiaries...................................................                   4,147                   3,218
                                                                                     ---------               ---------

   Net cash used in investing activities..............................                 (22,688)               (128,586)
                                                                                     ---------               ---------
Cash Flows from Financing Activities:
   Net proceeds from sale of common shares............................                   8,244                   5,704
   Purchase of treasury shares........................................                  (5,833)                (28,845)
   Distributions paid to limited partners.............................                  (2,535)                 (2,298)
   Distributions paid to common shareholders..........................                 (55,075)                (49,982)
   Distributions paid to preferred shareholders.......................                  (5,679)                 (5,151)
   Distributions paid to preferred unitholders........................                  (9,644)                 (6,305)
   Payment for early extinguishment of debt...........................                     (50)
   Distributions paid for minority interest in real estate
    partnerships......................................................                                            (229)
   Proceeds from debt on real estate..................................                 396,125                 274,845
   Repayments of debt on real estate..................................                (422,454)               (181,259)
                                                                                     ---------               ---------
   Net cash (used in)/provided by financing activities................                 (96,901)                  6,480
                                                                                     ---------               ---------
   Net change in cash and cash equivalents............................                     (23)                 (8,378)
   Cash and cash equivalents, beginning of period.....................                   5,452                  13,313
                                                                                     ---------               ---------
   Cash and cash equivalents, end of period...........................               $   5,429               $   4,935
                                                                                     =========               =========
Supplemental Cash Flow Information:
   Cash paid for interest.............................................               $  52,661               $  51,205
                                                                                     =========               =========
</TABLE>

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

                                       7
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


1.   The Organization

     Prentiss Properties Trust is 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 are self-administered in that we
provide our own administrative services, such as accounting, tax and legal,
internally through our own employees.  We are self-managed in that we internally
provide all the management and maintenance services that our properties require
through employees, such as, property managers, leasing professionals and
engineers.  We operate principally through an operating partnership, Prentiss
Properties Acquisition Partners, L.P. and its subsidiaries, and a management
company, Prentiss Properties Resources, Inc. and its subsidiaries.  As of
September 30, 2001, we owned interests in a diversified portfolio of 147
primarily suburban Class A office and suburban industrial properties containing
approximately 17.6 million net rentable square feet. Our properties consist of
109 office properties containing approximately 14.5 million net rentable square
feet and 38 industrial properties containing approximately 3.1 million net
rentable square feet.  The properties include 4 development properties
containing 617,000 square feet of office space that are in various stages of
development or that have recently been developed and are in various stages of
lease-up.  As of September 30, 2001, our properties, exclusive of the
development properties, were 94% leased to approximately 1,100 tenants.  In
addition to managing the properties that we own, we manage approximately 19.4
million net rentable square feet in office, industrial and other properties for
third parties.

Real Estate Transactions

     During the three months ended September 30, 2001, we (1) acquired a 151,748
square foot office building in Herndon, Virginia for approximately $18.0
million, including additional land which can accommodate approximately 200,000
square feet of future development and (2) transitioned a 59,000 square foot
office building from development into operations.

2.   Basis of Presentation

     The accompanying financial statements are unaudited; however, our financial
statements have been prepared in accordance with generally accepted accounting
principles 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 generally accepted accounting principles 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 nine month periods ended September 30, 2001 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, 2000.

3.   Debt on Real Estate

     At September 30, 2001, we had debt on real estate of $889.7 million,
excluding our proportionate share of debt from our investments in the joint
ventures.  See note (7) - Investment in Joint Ventures and Unconsolidated
Subsidiaries for further information on our equity investments.

Our debt transactions for the three months ended September 30, 2001 are
summarized in the table below:

<TABLE>
<S>                                                                                 <C>
                                                                                    (in thousands)
     Debt on real estate at June 30, 2001................................               $895,793

     Activity for the 3 months ending September 30, 2001:
       Borrowings repaid..................................................               (22,946)
       Permanent financing................................................                45,000
       Net repayments under the line of credit............................               (27,000)
       Net payments on mortgage loans.....................................                (1,129)
                                                                                         --------
     Debt on real estate at September 30, 2001...........................                $889,718
                                                                                         ========
</TABLE>

                                       8
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


     On September 28, 2001, we completed a $45.0 million, 10-year non-recourse,
mortgage with Teachers Insurance and Annuity Association.  The loan bears
interest at a fixed rate of 7.64% and is collateralized by three office
properties comprising 439,000 net rentable square feet in the Metropolitan
Washington D.C. area. The proceeds from the loan were used to re-pay a portion
of outstanding borrowings under our line of credit.

     Our debt balance at September 30, 2001 consisted of $643.2 million of fixed
rate, non-recourse, long-term mortgages and $246.5 million of floating rate
debt, all of which is hedged with variable to fixed rate hedges.  See note (4) -
Interest Rate Hedges for further information on our variable to fixed rate
hedges.  Future scheduled principal repayments of our outstanding debt on real
estate are as follows:

<TABLE>
<S>                                                                   <C>
                                                                      (in thousands)
     2001.........................................................       $  1,404
     2002.........................................................          6,007
     2003.........................................................        108,179
     2004.........................................................         99,378
     2005.........................................................         38,520
     Thereafter...................................................        636,230
                                                                         --------
                                                                         $889,718
                                                                         ========
</TABLE>

4.   Interest Rate Hedges

     In the normal course of business, we are exposed to the effect of interest
rate changes.  We limit these risks 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 lines of credit, 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.  Interest rate differentials that
arise under these swap contracts are recognized in interest expense over the
life of the contracts.

     To determine the fair values 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, long-term investments and long-term debt, 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.

     As of September 30, 2001, we had $12.4 million in unrealized losses on our
interest rate hedges, which is presented in "Accumulated Other Comprehensive
Income," a shareholders' equity account.

     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 $4.2
million of the current balance held in Accumulated Other Comprehensive Income.

     On September 30, 2001, our derivative financial instruments were reported
at their fair value as a liability of $12.7 million in the line item "Interest
Rate Hedges" on our balance sheet.

     The following table summarizes the notional values and fair values of our
derivative financial instruments.  The notional value 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.

                                       9
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                Swap Rate Received
Notional              Swap Rate Paid       Effective Fixed         (Variable) at
Amount                   (Fixed)                Rate             September 30, 2001          Swap Maturity       Fair Value
--------              --------------       ---------------       ------------------          -------------       ----------
                                                                                                                (in thousands)
<S>                   <C>                  <C>                   <C>                       <C>                  <C>
$  40 million              3.685%               5.060%                  2.630%             January 1, 2002        $   (123)
$  50 million              4.836%               6.211%                  2.630%               April 1, 2002            (638)
$  50 million              6.253%               7.628%                  2.630%          September 30, 2004          (3,669)
$  60 million              6.248%               7.623%                  2.630%          September 30, 2004          (4,394)
$  20 million              5.985%               7.610%                  2.630%               March 1, 2006          (1,528)
$  30 million              5.990%               7.615%                  2.630%               March 1, 2006          (2,301)
                                                                                                                  --------
                                                                                                                  $(12,653)
                                                                                                                  ========
</TABLE>

5.   Comprehensive Income

     Statement of Financial Standards No. 130, "Reporting Comprehensive Income"
establishes standards for reporting and displaying comprehensive income and its
components.  Total comprehensive income for the three and nine months ended
September 30, 2001 is calculated as follows:

<TABLE>
<CAPTION>
                                            Three Months             Nine Months
                                               Ended                    Ended
(in thousands)                           September 30, 2001       September 30, 2001
                                         ------------------       ------------------
<S>                                      <C>                      <C>
Net income.............................        $ 17,848                 $ 83,643

Unrealized (loss)/gain on investment                 (6)                     182
 in securities available for sale......

Unrealized (loss) on interest                    (7,233)                 (12,367)
rate hedges............................        --------                 --------


                                               $ 10,609                 $ 71,458
                                               ========                 ========
</TABLE>

6.   Distribution

     On September 12, 2001, we declared a cash distribution for the third
quarter of 2001 in the amount of $0.535 per share payable on October 12, 2001 to
common shareholders of record on September 28, 2001.  Additionally, we
determined that a distribution of $0.535 per unit would be made to the partners
of the operating partnership and to the holders of our series D cumulative
redeemable preferred shares.  The distributions which were paid on October 12,
2001 totaled approximately $22.7 million.  In addition, a quarterly distribution
totaling $3.3 million in the aggregate was declared on September 28, 2001, for
the holders of the series B perpetual preferred units, the series C perpetual
preferred units and the series E preferred units.  The quarterly distribution,
which equates to an annualized 8.3% of the face amount of the series B perpetual
preferred units and an annualized 9.45% of the face amount of the series C
perpetual preferred units, was paid on October 3, 2001.

7.   Investment in Joint Ventures and Unconsolidated Subsidiaries

     The following information summarizes the financial position at September
30, 2001 and December 31, 2000 and the results of operations for the three and
nine month periods ended September 30, 2001 and 2000 for the investments in
which we held a non-controlling interest during the periods presented:

                                       10
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                                    Company's
Summary of Financial Position:        Total Assets         Total Debt            Total Equity           Investment
(in thousands)                     -------------------  -------------------   ---------------------   -------------------
                                   Sept. 30,  Dec. 31,   Sept. 30,  Dec. 31,   Sept. 30,    Dec. 31,   Sept. 30,  Dec. 31,
                                      2001       2000       2001       2000       2001        2000        2001      2000
                                   ---------  --------   ---------  --------   ---------    --------   ---------  --------
<S>                                <C>        <C>        <C>        <C>        <C>         <C>         <C>        <C>
Broadmoor Austin
 Associates(1)                      $115,460   $118,522   $151,799   $154,000   $(37,002)   $(36,276)    $ 3,959   $ 4,517
Burnett Plaza Associates(2)          102,491     98,735     47,000     47,000     52,475      48,746      10,528     9,783
Lot 21 Associates, L.P. (3)                       4,116                 2,591                  1,453                   872
PPS Partners LLC(4)                      126        172                               90         128          67        97
Prentiss Properties
 Limited, Inc. (5)                                9,600                                        4,192                 3,951
Prentiss Properties
 Resources, Inc(5)                    10,716                                       6,137                   5,987
Project 127 Partners, L.P.
 (3)                                              2,088                 1,434                    617                   370
Tysons International
 Partners(6)                         101,334                61,448                38,529                  10,536
Other Investments(7)                                                                                       1,107
                                   -----------------------------------------------------------------------------------------
                                   $330,127   $233,233   $260,247   $205,025   $ 60,229    $ 18,860     $32,184   $19,590
                                   =========================================================================================
</TABLE>

<TABLE>
<CAPTION>
                                                         For the Three Months Ended September 30, 2001 and 2000
                                                                                                     Company's
                                                                                                   Share of Net
Summary of Operations:                              Total Revenue          Net Income              Income/(Loss)
(in thousands)                                    --------------------   ------------------      -----------------------

                                                      2001      2000       2001      2000           2001          2000
                                                      ----      ----       ----      ----           ----          ----
<S>                                               <C>        <C>         <C>       <C>            <C>           <C>
Broadmoor Austin Associates                        $ 4,958   $ 4,951     $  958    $  948         $  479        $  474
Burnett Plaza Associates                             5,392     4,428      1,213       847            242           170
Lot 21 Associates, L.P.                                          130                    5                            3
PPS Partners LLC                                       193       167        124       101             93            76
Prentiss Properties Limited, Inc.                              4,124                  201                          201
Prentiss Properties Resources, Inc.                  3,380                 (633)                    (620)
Project 127 Partners, L.P.                                        57                    9                            5
Tysons International Partners                        3,193                   70                       18
                                                   -----------------     ----------------         --------------------
                                                   $17,116   $13,857     $1,732    $2,111         $  212        $  929
                                                   =================     ================         ====================

</TABLE>

<TABLE>
<CAPTION>
                                                         For the Nine Months Ended September 30, 2001 and 2000
                                                                                                     Company's
                                                                                                   Share of Net
Summary of Operations:                              Total Revenue          Net Income              Income/(Loss)
(in thousands)                                     ------------------    -----------------        ---------------------
                                                      2001      2000       2001      2000           2001          2000
                                                      ----      ----       ----      ----           ----          ----
<S>                                               <C>        <C>         <C>       <C>            <C>           <C>
Broadmoor Austin Associates                        $14,872   $14,849     $2,936    $2,886         $1,468        $1,443
Burnett Plaza Associates                            15,906    12,738      3,754     2,251            751           451
Lot 21 Associates, L.P.                                130       212                    8                            5
PPS Partners LLC                                       550       453        346       287            260           215
Prentiss Properties Limited, Inc.                    4,939    14,076        558       604            558           604
Prentiss Properties Resources, Inc.                  7,236                 (921)                    (903)
Project 127 Partners, L.P.                              76       171        (11)       26             (6)           15
Tysons International Partners                        6,669                  305                       76
                                                   -------------------------------------------------------------------
                                                   $50,378   $42,499     $6,967    $6,062         $2,204        $2,733
                                                   ===================================================================
</TABLE>

(1)  We own a 50% non-controlling interest in Broadmoor Austin Associates, an
     entity, which owns a seven-building, 1.1 million square foot office complex
     in Austin.  The difference between the carrying amount of our non-
     controlling interest and the book value of the underlying equity is being
     amortized over 40 years.
(2)  We own a 20% non-controlling interest in Burnett Plaza Associates, an
     entity, which owns a 1.0 million square foot office building in downtown
     Fort Worth.
(3)  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.
(4)  PPS Partners LLC is a joint venture, entered into by 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 manages the properties and participates in the net
     income of the

                                       11
<PAGE>

     joint venture. Effective October 2001, Prentiss Properties Acquisition
     Partners, L.P. resigned the management duties of the properties which will
     result in a near-term dissolution of the joint venture from which we expect
     to recover our $67,000 investment.
(5)  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 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.
(6)  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 square feet in Northern
     Virginia.
(7)  Represents a 1% investment in certain real estate entities that we account
     for using the cost method of accounting.

8.   Supplemental Disclosure of Non-Cash Activities

     During the three months ended September 30, 2001, we declared cash
distributions totaling $22.7 million payable to holders of common shares,
operating partnership units and series D cumulative redeemable preferred shares.
The distributions were paid October 12, 2001. In addition, distributions
totaling $3.2 million and $187,500 were declared on September 28, 2001, payable
to holders of our series B and C perpetual preferred units and series E
preferred units, respectively.  The distributions for our series B and C
perpetual preferred units were paid on October 3, 2001.

     Pursuant to our long-term incentive plan, during the nine months ended
September 30, 2001, we issued 89,700 restricted shares of stock to various key
employees.  The shares which had a market value of $2.2 million based upon the
per share price at the date of grant were classified as either (1) compensation
for past performance or (2) unearned future compensation.  An amount totaling
$784,000 represents compensation for past performance and was recognized in
earnings during the year ended December 31, 2000.  An amount equal to $1.4
million represents unearned future compensation and was recorded as unearned
compensation in the shareholders' equity section the consolidated balance sheet.
The unearned compensation is amortized quarterly as compensation expense over
the three-year vesting period.

     During the nine months ended September 30, 2001, 106,212 operating
partnership units were converted to common shares.  The fair value of the common
shares, which were converted at various points in time throughout the period,
totaled $2.9 million based upon the closing price on the date of the respective
conversions.  In connection with the Brandywine transaction, we issued common
and preferred operating partnership units with a value of $10.7 million in
exchange for a non-controlling 25% interest in Tysons International Partners.

     In relation to properties disposed of during the nine months ended
September 30, 2001, we removed from real estate and deferred charges $19.4
million and $5.6 million of fully depreciated assets, respectively, as well as
receivables of $1.2 million, escrowed cash of $486,000, other assets of
$735,000, liabilities of $2.3 million and debt on real estate of $91.7 million.
In addition, we moved from real estate to investments in joint ventures and
unconsolidated subsidiaries, $1.1 million representing our non-controlling
retained interest in certain properties disposed of during the period. In
relation to the properties acquired during the period, we assumed liabilities
totaling approximately $708,000. We removed an additional $2.3 million and
$492,000 of deferred charges related to fully depreciated leasing costs and
financing costs, respectively.

     During the nine months ended September 30, 2001, we marked-to-market our
investments in securities and our interest rate hedges.  The mark-to-market
resulted in an upward adjustment of $182,000 to our investment in securities and
a negative $12.7 million value to our interest rate hedges.  The adjustments,
net of the realized loss of approximately $286,000, results in a total
unrealized loss of $12.2 million which is recorded in "Accumulated Other
Comprehensive Income."

     In addition to a contribution of $1.0 million of cash, on March 29, 2001 we
contributed (1) our interest in Prentiss Properties Limited, Inc.; (2) 4.2 acres
of developable land with a carrying value of $1.1 million; and (3) our
investment in Narrowcast Communications Corporation with a carrying value of
$423,000 in exchange for class B non-voting common stock of Prentiss Properties
Resources, Inc.

     During the nine months ended September 30, 2001, common shares in treasury
increased by $20.8 million of which $14.9 million represented non-cash
activities including (1) $14.7 million attributable to common shares surrendered
as payment of the exercise price and statutory tax withholdings for certain
share options exercised during the period and (2) $252,000 representing 12,244
restricted share grants forfeited as a result of certain employee terminations
during the period.

                                       12
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


9.   Segment Information


     Our primary business is the ownership and operation of office properties
throughout the United States.  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.  Our transactions with
Brandywine Realty Trust, which were completed in April 2001, included the sale
of all of our properties in our Northeast region and as a result, at September
30, 2001, we no longer have operations in our Northeast region.  As of September
30, 2001, our reportable segments are our four regions, which include (1) Mid-
Atlantic; (2) Midwest; (3) Southwest; and (4) West.

     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 nine month periods ended September 30, 2001 and 2000.

<TABLE>
<CAPTION>
For the Three Months Ended September 30, 2001
(in thousands)                                                                                        Corporate
                                 Mid-                                                     Total     not Allocable   Consolidated
                               Atlantic    Midwest   Northeast   Southwest     West      Segments    to Segments       Total
                               --------   --------   ---------   ---------     ----      --------    -----------       -----
<S>                           <C>         <C>        <C>          <C>        <C>        <C>            <C>          <C>
Revenues                       $ 24,902   $ 18,087   $      0     $ 24,378   $ 19,004   $   86,371     $    772     $   87,143
                               ========   ========   ========     ========   ========   ==========     ========     ==========
Income/(loss) before
 extraordinary items           $ 13,578   $  8,190   $      0     $ 10,122   $  8,878   $   40,768     $(22,920)    $   17,848
                               ========   ========   ========     ========   ========   ==========     ========     ==========

Assets                         $604,938   $375,663   $      0     $546,969   $462,633   $1,990,203     $ 28,374     $2,018,577
                               ========   ========   ========     ========   ========   ==========     ========     ==========

<CAPTION>
For the Three Months Ended September 30, 2000
(in thousands)                                                                                          Corporate
                                 Mid-                                                    Total        not Allocable   Consolidated
                               Atlantic    Midwest   Northeast   Southwest     West     Segments       to Segments       Total
                               --------   --------   ---------   ---------     ----     --------       -----------       -----
<S>                            <C>           <C>        <C>          <C>        <C>        <C>         <C>             <C>
Revenues                       $ 20,217   $ 20,052   $  7,648     $ 19,760   $ 16,703   $   84,380       $     32      $   84,412
                               ========   ========   ========     ========   ========   ==========       ========      ==========
Income/(loss) before
 extraordinary items           $ 10,224   $ 10,239   $  3,835     $  5,478   $  8,940   $   38,716       $(20,458)     $   18,258
                               ========   ========   ========     ========   ========   ==========       ========      ==========

Assets                         $449,192   $412,134   $214,375     $506,572   $472,980   $2,055,253       $ 41,643      $2,096,896
                               ========   ========   ========     ========   ========   ==========       ========      ==========

<CAPTION>
For the Nine Months Ended September 30, 2001
(in thousands)                                                                                          Corporate
                                 Mid-                                                    Total       not Allocable   Consolidated
                               Atlantic    Midwest   Northeast   Southwest     West     Segments      to Segments       Total
                               --------   --------   ---------   ---------     ----     --------      -----------       -----
<S>                           <C>         <C>        <C>         <C>         <C>        <C>          <C>             <C>
Revenues                       $ 69,706   $ 54,056   $  8,422     $ 70,567   $ 56,925   $  259,676       $  1,452      $  261,128
                               ========   ========   ========     ========   ========   ==========       ========      ==========
Income/(loss) before
 extraordinary items           $ 31,897   $ 35,944   $  5,766     $ 30,735   $ 34,398   $  138,740       $(54,730)     $   84,010
                               ========   ========   ========     ========   ========   ==========       ========      ==========

<CAPTION>
For the Nine Months Ended September 30, 2000
(in thousands)                                                                                         Corporate
                                 Mid-                                                    Total       not Allocable   Consolidated
                               Atlantic    Midwest   Northeast   Southwest     West     Segments      to Segments       Total
                               --------   --------   ---------   ---------     ----     --------      -----------       -----
<S>                            <C>        <C>        <C>          <C>        <C>        <C>          <C>             <C>
Revenues                       $ 59,224   $ 60,303   $ 22,263     $ 59,136   $ 49,387   $  250,313       $    496      $  250,809
                               ========   ========   ========     ========   ========   ==========       ========      ==========
Income/(loss) before
 extraordinary items           $ 29,090   $ 31,287   $ 11,360     $ 22,406   $ 25,964   $  120,107       $(67,067)     $   53,040
                               ========   ========   ========     ========   ========   ==========       ========      ==========
</TABLE>

                                       13
<PAGE>

                           PRENTISS PROPERTIES TRUST
                             NOTES TO CONSOLIDATED
                             FINANCIAL STATEMENTS


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
statements.  Additionally, we are required to present a reconciliation of the
numerator and denominator used in computing basic and diluted earnings per
share.

<TABLE>
<CAPTION>
                                                        Three Months        Three Months         Nine Months         Nine Months
                                                            Ended               Ended               Ended               Ended
                                                      September 30, 2001  September 30, 2000  September 30, 2001  September 30, 2000
                                                      ------------------  ------------------  ------------------  ------------------
Reconciliation of earnings per share numerator                          (in thousands, except per share amounts)
<S>                                                   <C>                 <C>                 <C>                 <C>
Net income............................................        $17,848            $18,258             $83,643             $53,040
Convertible preferred dividends.......................         (2,019)            (1,830)             (5,868)             (5,321)
                                                              -------            -------             -------             -------
Net income available to common shareholders...........        $15,829            $16,428             $77,775             $47,719
                                                              =======            =======             =======             =======
Reconciliation of earnings per share denominator

Weighted average common shares outstanding............         36,864             36,375              36,646              36,203
                                                              =======            =======             =======             =======

Basic earnings per share..............................        $  0.43            $  0.45             $  2.12             $  1.32
                                                              =======            =======             =======             =======

Dilutive effect of common share equivalents

Dilutive options......................................            373                345                 362                 202
Dilutive convertible preferred shares/(1)/............                                                 3,774
Weighted average common shares outstanding............         36,864             36,375              36,646              36,203
                                                              -------            -------             -------             -------
Weighted average common shares and common share
   equivalents........................................         36,720             40,782              36,405              37,237
                                                              =======            =======             =======             =======

Diluted earnings per share............................        $  0.43            $  0.45             $  2.05             $  1.31
                                                              =======            =======             =======             =======
</TABLE>

(1)  Convertible preferred shares for the three months ended September 30, 2001
     and for the three and nine month periods ended September 30, 2000 are
     excluded from the calculation of dilutive earnings per share as such shares
     are anti-dilutive for such periods.

11.  Recently Issued Accounting Standards

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The statement which is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years, addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. The impact from the
implementation of this statement, which we believe will not have a material
impact on our financial statements, will be dependent upon (1) which if any of
our assets qualify as held for sale at January 1, 2002 or at any point in time
thereafter; (2) whether the carrying amount of such assets determined to be held
for sale is greater than the fair value less cost of sale of the assets; and (3)
whether the carrying amount of assets determined not to be held for sale is
recoverable from future cash flow from operations and from the eventual sale of
the assets.

12.  Subsequent Events

     Subsequent to quarter end, through November 8, 2001, we repurchased 165,300
common shares in the open market for an aggregate purchase price of $4,095,548,
or $24.78 per share.

                                       14
<PAGE>

Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                           AND RESULTS OF OPERATIONS

Overview

     Prentiss Properties Trust is 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 an
operating partnership, Prentiss Properties Acquisition Partners, L.P. and its
subsidiaries and a management company, Prentiss Properties Resources, Inc. and
its subsidiaries.

     At June 30, 2001, we owned 146 properties consisting of 108 office and 38
industrial properties containing in the aggregate 17.5 million net rentable
square feet.  During the three months ended September 30, 2001, we

     .  acquired a 151,748 square foot office building in Herndon, Virginia for
        approximately $18.0 million, including additional land which can
        accommodate approximately 200,000 square feet of future development; and

     .  transitioned a 59,000 square foot office building from development into
        operations.

Inclusive of four development projects, at September 30, 2001, we own 147
properties containing approximately 17.6 million net rentable square feet.

Results of Operations

Three Months Ended September 30, 2001 Compared to Three Months Ended September
30, 2000.

     The results of operations for the three month periods ended September 30,
2001 and 2000 include our respective regional operations.

     General.  When comparing the results of operations for the three months
ended September 30, 2001 to the three months ended September 30, 2000, the
following should be considered:

     .  121 properties that consolidated into our results of operations were
        owned and fully operational at July 1, 2000 and remained in our
        portfolio at September 30, 2001;

     .  10 properties, which include the properties owned by Broadmoor Austin
        Associates, Burnett Plaza Associates and Tysons International Partners,
        are accounted for using the equity method of accounting;

     .  9 wholly-owned properties were acquired subsequent to July 1, 2000 and
        remained in our portfolio at September 30, 2001;

     .  54 properties were sold subsequent to July 1, 2000, including 31
        properties in the Northeast region related to an asset exchange with
        Brandywine Realty Trust;

     .  3 properties that we developed became operational subsequent to July 1,
        2000 and remained in our portfolio at September 30, 2001; and

     .  4 properties were in various stages of development or in various stages
        of lease-up at September 30, 2001.

     Rental Revenue.  Rental revenues increased by $2.6 million, or 3.1%, from
$83.1 million to $85.7 million partially as a result of properties acquired or
development properties becoming operational subsequent to July 1, 2000, offset
by properties that were sold subsequent to July 1, 2000.  Rental income for the
121 properties that were owned and fully operational at July 1, 2000 and
remained in our portfolio at September 30, 2001, increased by $2.6 million, or
3.6%, from $70.4 million to $73.0 million.  The increase for these 121
properties was attributable to our four regions as follows:

<TABLE>
<CAPTION>
     (in thousands)                                    Three months ended Sept. 30,
                               Number of               ----------------------------        Increase/
     Segment                   buildings                 2001               2000          (decrease)        % change
     -------                   ---------                 ----               ----          ----------        --------
<S>                            <C>                     <C>                  <C>            <C>               <C>
     Mid-Atlantic                 33                   $20,473            $19,020           $1,453             7.6
     Midwest                      17                    17,366             17,610             (244)           (1.4)
     Southwest                    25                    19,553             18,688              865             4.6
     West                         46                    15,600             15,115              485             3.2
                                                       -------            -------           ------
                                                       $72,992            $70,433           $2,559             3.6
                                                       =======            =======           ======
</TABLE>

                                       15
<PAGE>

     Property Operating and Maintenance.  Property operating and maintenance
increased by $745,000, or 3.9%, from $19.0 million to $19.8 million partially as
a result of properties acquired or development properties becoming operational
subsequent to July 1, 2000, offset by properties that were sold subsequent to
July 1, 2000.  Property operating and maintenance for the 121 properties that
were owned and fully operational at July 1, 2000 and remained in our portfolio
at September 30, 2001, increased by $212,000, or 1.3%, from $16.7 million to
$17.0 million.  The increase for these 121 properties was attributable to our
four regions as follows:

<TABLE>
<CAPTION>
     (in thousands)                                      Three months ended Sept. 30,
                                     Number of            ----------------------------    Increase/
     Segment                         buildings              2001               2000       (decrease)        % change
     -------                         ---------              ----               ----       ----------        --------
<S>                                  <C>                 <C>                <C>           <C>               <C>
     Mid-Atlantic                        33               $ 4,167            $ 4,524         $(357)            (7.9)
     Midwest                             17                 3,365              2,948           417             14.1
     Southwest                           25                 5,133              5,325          (192)            (3.6)
     West                                46                 4,295              3,951           344              8.7
                                                          -------            -------         -----
                                                          $16,960            $16,748         $ 212              1.3
                                                          =======            =======         =====
</TABLE>

     Real Estate Taxes.  Real estate taxes increased by $463,000, or 4.9%, from
$9.4 million to $9.9 million partially as a result of properties acquired or
development properties becoming operational subsequent to July 1, 2000, offset
by properties that were sold subsequent to July 1, 2000.  Real estate taxes for
the 121 properties that were owned and fully operational at July 1, 2000 and
remained in our portfolio at September 30, 2001, increased by $456,000, or 5.5%,
from $8.4 million to $8.8 million.  The increase for these 121 properties was
attributable to our four regions as follows:

<TABLE>
<CAPTION>
     (in thousands)                                   Three months ended Sept. 30,
                                Number of         ----------------------------        Increase/
     Segment                    buildings           2001               2000          (decrease)        % change
     -------                    ---------           ----               ----           --------         --------
<S>                             <C>               <C>                  <C>            <C>               <C>
     Mid-Atlantic                  33              $1,441             $1,433            $  8               0.6
     Midwest                       17               3,444              3,177             267               8.4
     Southwest                     25               2,779              2,520             259              10.3
     West                          46               1,152              1,230             (78)             (6.3)
                                                   ------             ------            ----
                                                   $8,816             $8,360            $456               5.5
                                                   ======             ======            ====
</TABLE>

     General and Administrative and Personnel Costs. General and administrative
and personnel costs increased by $398,000, or 17.0%, to $2.7 million from $2.3
million primarily due to an increase in non-recurring general and administrative
cost resulting from costs related to unsuccessful real estate acquisition
efforts and one-time severance cost related to certain employee terminations.

     Interest Expense.  Interest expense decreased by $1.6 million, or 9.3%,
from $17.5 million to $15.9 million primarily as a result of the decrease in
debt on real estate from $942.1 million at July 1, 2000 to $889.7 million at
September 30, 2001 accompanied by interest expense savings derived from a
general decrease in the interest rates on variable rate borrowings over the
period.

     Depreciation and Amortization.  Depreciation and amortization increased by
$149,000, or 1.0%, to $16.6 million from $16.5 million partially as a result of
properties acquired or development properties becoming operational subsequent to
July 1, 2000, offset by properties that were sold subsequent to July 1, 2000.
Depreciation and amortization for the 121 properties that were owned and fully
operational at July 1, 2000 and remained in our portfolio at September 30, 2001,
increased by $492,000, or 3.6%, from $13.8 million to $14.3 million.  The
increase for these 121 properties was attributable to our four regions as
follows:

<TABLE>
<CAPTION>
     (in thousands)                                      Three months ended Sept. 30,
                               Number of                 ----------------------------        Increase/
     Segment                   buildings                    2001               2000         (decrease)        % change
     -------                   ---------                    ----               ----         ----------        --------
<S>                            <C>                      <C>                 <C>             <C>               <C>
     Mid-Atlantic                33                       $ 3,983            $ 3,626           $ 357              9.8
     Midwest                     17                         2,637              2,683             (46)            (1.7)
     Southwest                   25                         4,625              4,834            (209)            (4.3)
     West                        46                         3,072              2,682             390             14.5
                                                          -------            -------           -----
                                                          $14,317            $13,825           $ 492              3.6
                                                          =======            =======           =====
</TABLE>

     Equity in Income of Joint Ventures and Unconsolidated Subsidiaries.  Equity
in income of joint ventures and unconsolidated subsidiaries decreased from
$929,000 to $212,000 primarily due to (1) a decrease of $821,000 representing

                                       16
<PAGE>

our share of the decrease in net income of the management company, partially
offset by (2) an increase of $73,000 attributable to our share of the increase
in the net income of Burnett Plaza Associates and (3) $18,000 attributable to
our recently acquired interest in Tysons International Partners.  The decrease
in the net income of the management company is primarily attributable to a
decrease in management and other fee income of approximately $744,000 from 2000
to 2001.

     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. On September 26, 2000,
the Company received $8.0 million from the Mack-Cali escrow account. The
proceeds were recorded net of merger related cost of $3.9 million.

     Loss on Sales.  Loss on sales decreased from a loss on sale of $2.0 million
to $125,000.  The loss of $125,000, recorded for the three months ended
September 30, 2001, represents the recognition of additional cost related to
asset sales from which we recognized an $8.7 million gain during the prior
quarter.

     Minority Interests. Minority interests increased by $127,000, or 3.2%, from
$3.9 million to $4.1 million primarily due to the income allocation related to
200,000, $50 par value, preferred units issued in April 2001, partially offset
by the minority interest holders proportionate share of a decrease in net income
before minority interest from $22.2 million to $21.9 million.

Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30,
2000.

     The results of operations for the nine month periods ended September 30,
2001 and 2000 include our respective regional operations.

     General. When comparing the results of operations for the nine months ended
September 30, 2001 to the nine months ended September 30, 2000, the following
should be considered:

     .  119 properties that consolidated into our results of operations were
        owned and fully operational at January 1, 2000 and remained in our
        portfolio at September 30, 2001;

     .  10 properties, which include the properties owned by Broadmoor Austin
        Associates, Burnett Plaza Associates and Tysons International Partners,
        are accounted for using the equity method of accounting;

     .  9 wholly-owned properties were acquired subsequent to January 1, 2000
        and remained in our portfolio at September 30, 2001;

     .  68 properties were sold subsequent to January 1, 2000, including 31
        properties in the Northeast region related to an asset exchange with
        Brandywine Realty Trust;

     .  5 properties that we developed became operational subsequent to January
        1, 2000 and remained in our portfolio at September 30, 2001; and

     .  4 properties were in various stages of development or in various stages
        of lease-up at September 30, 2001.

     Rental Revenue.  Rental revenues increased by $9.4 million, or 3.8%, from
$247.8 million to $257.2 million partially as a result of properties acquired or
development properties becoming operational subsequent to January 1, 2000,
offset by properties that were sold subsequent to January 1, 2000.  Rental
income for the 119 properties that were owned and fully operational at January
1, 2000 and remained in our portfolio at September 30, 2001, increased by $8.3
million, or 4.1%, from $204.9 million to $213.3 million.  The increase for these
119 properties was attributable to our four regions as follows:

<TABLE>
<CAPTION>
(in thousands)                                         Nine months ended Sept. 30,
                                    Number of          ---------------------------            Increase/
     Segment                        buildings           2001                 2000             (decrease)        % change
     -------                        ---------           ----                 ----             ----------        --------
<S>                                <C>                <C>                   <C>              <C>                <C>
     Mid-Atlantic                       33            $ 56,759             $ 53,785             $2,974              5.5
     Midwest                            17              52,835               52,999               (164)            (0.3)
     Southwest                          23              57,109               53,588              3,521              6.6
     West                               46              46,580               44,573              2,007              4.5
                                                      --------             --------             ------
                                                      $213,283             $204,945             $8,338              4.1
                                                      ========             ========             ======
</TABLE>

                                       17
<PAGE>

     Property Operating and Maintenance.  Property operating and maintenance
increased by $2.0 million, or 3.5%, from $56.7 million to $58.7 million
partially as a result of properties acquired or development properties becoming
operational subsequent to January 1, 2000, offset by properties that were sold
subsequent to January 1, 2000. Property operating and maintenance for the 119
properties that were owned and fully operational at January 1, 2000 and remained
in our portfolio at September 30, 2001, increased by $1.6 million, or 3.4%, from
$47.4 million to $49.0 million.  The increase for these 119 properties was
attributable to our four regions as follows:

<TABLE>
<CAPTION>
     (in thousands)                                  Nine months ended Sept. 30,
                                    Number of        ---------------------------             Increase/
     Segment                        buildings           2001              2000             (decrease)        % change
     -------                        ----------          ----              ----             ----------        --------
<S>                                 <C>              <C>                    <C>              <C>               <C>
     Mid-Atlantic                        33            $11,723           $12,399             $ (676)           (5.5)
     Midwest                             17             10,318             9,475                843             8.9
     Southwest                           23             15,027            14,673                354             2.4
     West                                46             11,889            10,807              1,082            10.0
                                                       -------           -------             ------
                                                       $48,957           $47,354             $1,603             3.4
                                                       =======           =======             ======
</TABLE>

     Real Estate Taxes.  Real estate taxes increased by $1.4 million, or 4.7%,
from $29.0 million to $30.4 million partially as a result of properties acquired
or development properties becoming operational subsequent to January 1, 2000,
offset by properties that were sold subsequent to January 1, 2000.  Real estate
taxes for the 119 properties that were owned and fully operational at January 1,
2000 and remained in our portfolio at September 30, 2001, increased by $984,000,
or 3.9%, from $25.3 million to $26.3 million.  The increase for these 119
properties was attributable to our four regions as follows:

<TABLE>
<CAPTION>
     (in thousands)                                    Nine months ended Sept. 30,
                                    Number of          ---------------------------         Increase/
     Segment                        buildings            2001               2000          (decrease)        % change
     -------                        ---------            ----               ----          ----------        --------
<S>                                <C>                 <C>                <C>             <C>               <C>
     Mid-Atlantic                       33             $ 4,197            $ 4,028            $ 169              4.2
     Midwest                            17              10,226              9,806              420              4.3
     Southwest                          23               8,482              7,959              523              6.6
     West                               46               3,406              3,534             (128)            (3.6)
                                                       -------            -------            -----
                                                       $26,311            $25,327            $ 984              3.9
                                                       =======            =======            =====
</TABLE>

     General and Administrative and Personnel Costs.  General and administrative
and personnel costs increased by $637,000, or 8.5%, from $7.5 million to $8.1
million primarily due to (1) the amortization of restricted share grants issued
in March 2000 and 2001; (2) an increase in compensation expense resulting from
the 2000 calendar year bonus compensation, paid in March 2001, exceeding the
estimate of such cost accrued at December 31, 2000; partially offset by (3) a
decrease in general and administrative and personnel cost as a result of the
sale of our Northeast region.

     Interest Expense.  Interest expense decreased by $2.1 million, or 4.1%, to
$49.9 million from $52.0 million partially as a result of the decrease in debt
on real estate from $896.8 million at January 1, 2000 to $889.7 million at
September 30, 2001 accompanied by interest expense savings derived from a
general decrease in interest rates on variable rate borrowings over the period.

     Depreciation and Amortization. Depreciation and amortization increased by
$1.8 million, or 3.9%, from $46.7 million to $48.5 million partially as a result
of properties acquired or development properties becoming operational subsequent
to January 1, 2000, offset by properties that were sold subsequent to January 1,
2000. Depreciation and amortization for the 119 properties that were owned and
fully operational at January 1, 2000 and remained in our portfolio at September
30, 2001, increased by $1.8 million, or 4.8%, from $37.6 million to $39.5
million. The increase for these 119 properties was attributable to our four
regions as follows:

<TABLE>
<CAPTION>
     (in thousands)                                     Nine months ended Sept. 30,
                                     Number of          ---------------------------           Increase/
     Segment                         buildings            2001               2000            (decrease)        % change
     -------                         ---------            ----               ----            ----------        --------
<S>                                  <C>                <C>                 <C>              <C>               <C>
     Mid-Atlantic                        33              $10,930           $10,320             $  610              5.9
     Midwest                             17                7,502             7,694               (192)            (2.5)
     Southwest                           23               12,082            11,924                158              1.3
     West                                46                8,949             7,708              1,241             16.1
                                                         -------           -------             ------
                                                         $39,463           $37,646             $1,817              4.8
                                                         =======           =======             ======
</TABLE>

                                       18
<PAGE>

     Equity in Income of Joint Ventures and Unconsolidated Subsidiaries.  Equity
in income of joint ventures and unconsolidated subsidiaries decreased from $2.7
million to $2.2 million primarily due to (1) a decrease of $949,000 attributable
to our share of the decrease in the net income of the management company;
partially offset by (2) an increase of $300,000 representing our share of the
increase in net income of Burnett Plaza Associates; and (3) $76,000 attributable
to our recently acquired interest in Tysons International Partners.  The
decrease in the net income of the management company is primarily attributable
to a decrease in management and other fee income of approximately $1.9 million,
partially offset by a decrease in general and administrative and personnel cost
of approximately $863,000.

     Merger Termination Fee.  On September 26, 2000, we received $8.0 million of
the escrowed funds which were recorded net of merger related cost totaling $3.9
million.  In April 2001, we received a ruling from the Internal Revenue Service
which confirmed that receipt of the remaining funds held in escrow would not
cause us to fail to maintain our status as a REIT.  As a result, we requested
and received the remaining $10.0 million of escrowed funds in April 2001, which
when combined with the $7.0 million received in January 2001, results in our
recognition of $17.0 million of merger termination fee during the nine months
ended September 30, 2001.

     Gain on Sales.  Gain on sales increased from $208,000 to $14.0 million.
During the nine months ended September 30, 2001, we sold 42 properties totaling
2.8 million square feet, including those sold in the asset exchange with
Brandywine Realty Trust, resulting in a gain on sale of $14.0 million.  It is
our strategy to obtain the maximum value from each of our properties, which is
occasionally achieved through the sale of properties.

     Minority Interests. Minority interests increased by $1.7 million, or 14.8%,
from $11.8 million to $13.5 million. The increase was primarily due to the
minority interest holders proportionate share of the increase in net income
before minority interests from $64.8 million to $97.2 million and the income
allocation related to 200,000, $50 par value, preferred units issued in April
2001.

Liquidity and Capital Resources

     Cash and cash equivalents were $5.4 million and $5.5 million at September
30, 2001 and December 31, 2000, respectively.  The decrease in cash and cash
equivalents is a result of cash flows used in investing and financing activities
exceeding those provided by operating activities.  Net cash provided by
operating activities was $119.6 million for the nine months ended September 30,
2001, compared to $113.7 million for the nine months ended September 30, 2000.

     Net cash used in investing activities totaled $22.7 million for the nine
months ended September 30, 2001 compared to cash used in investing activities of
$128.6 million for the nine months ended September 30, 2000.  This decrease in
cash used is due primarily to an increase in proceeds from the sale of real
estate assets during the period.

     Net cash used in financing activities totaled $96.9 million for the nine
months ended September 30, 2001 compared to $6.5 million provided by financing
activities for the nine months ended September 30, 2000.  The additional use of
cash results from (1) a net repayment of debt on real estate of $26.3 million
during the nine months ended September 30, 2001 compared to net borrowings of
$93.6 million for the nine months ended September 30, 2000; (2) additional cash
used for the payment of distributions to common shareholders which increased
from $50.0 million to $55.1 million; offset by (3) a decrease of $23.0 million
in cash used for the purchase of treasury shares from the nine months ended
September 30, 2000 to the nine months ended September 30, 2001.

     As of September 30, 2001, we had outstanding total indebtedness, including
our pro rata share of joint venture debt and construction loans of approximately
$990.4 million, or approximately 42.9% of total market capitalization based on
our closing price of $27.50 per common share on September 28, 2001.  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 our total market capitalization.  As of September 30, 2001, we had
the approximate capacity to borrow up to an additional $330.5 million under the
debt limitation.  The amounts of indebtedness that we may incur, and the
policies with respect thereto, are not limited by our declaration of trust and
bylaws, and are solely within the discretion of our board of trustees.

                                       19
<PAGE>

     The following table sets forth our debt balance as of September 30, 2001:

<TABLE>
<CAPTION>
                                         Current                                        Interest
Description                              Balance           Amortization                   Rate                      Maturity
-----------                              --------          -------------                  ----                      --------
                                        (in thousands)
<S>                                     <C>                <C>                        <C>                       <C>
Burnett Plaza (1)                        $  9,400              None                         7.50%               February 1, 2002
Line of Credit                             99,000              None                   LIBOR + 1.375%            May 2, 2003
Bachman West                                2,890              25 yr                        8.63%               December 1, 2003
One Westchase Center                       24,150              25 yr                        7.84%               February 1, 2004
Bank Term Loan (2)                         72,500              None (6)               LIBOR + 1.625%            September 30, 2004
Walnut Glen Tower                          34,481              30 yr                        6.92%               April 1, 2005
Bank Term Facility                         75,000              None                   LIBOR + 1.375%            March 15, 2006
Highland Court                              4,757              25 yr                        7.27%               April 1, 2006
Westheimer Central Plaza                    5,782              25 yr                        8.38%               August 1, 2006
PPREFI Portfolio Loan (3)                 180,100              None                         7.58%               February 26, 2007
Corporetum Office Campus                   25,351              30 yr                        7.02%               February 1, 2009
Natomas Corporate Center                   37,052              30 yr                        7.02%               February 1, 2009
7101 Wisconsin Avenue                      20,970              30 yr                        7.25%               April 1, 2009
2500 Cumberland Parkway                    14,450              30 yr                        7.46%               July 15, 2009
Ordway                                     49,046              30 yr                        7.95%               April 1, 2010
1676 International (4)                     11,315              28 yr                        7.68%               August 30, 2010
8260 Greensboro (4)                         4,047              28 yr                        7.83%               August 30, 2010
World Savings Center                       29,093              30 yr                        7.91%               November 1, 2010
Park West C2                               34,575              30 yr                        6.63%               November 10, 2010
One O'Hare Centre                          40,990              30 yr                        6.80%               January 10, 2011
3130 Fairview Park Drive Loan              22,916              30 yr                        7.00%               April 1, 2011
Broadmoor Austin (5)                       75,900              16 yr                        7.04%               April 10, 2011
Research Office Center                     45,000              28 yr                        7.64%               October 1, 2011
Bannockburn Center                         26,718              30 yr                        8.05%               June 1, 2012
Del Mar Loan                               44,897              30 yr                        7.41%               June 1, 2013
                                         --------

      Total                              $990,380
                                         ========
</TABLE>
----------
(1)  We own a 20% non-controlling partnership interest in Burnett Plaza
     Associates, an entity that owns the Burnett Plaza property.  We account for
     our interest using the equity method of accounting.  The amount shown
     reflects our proportionate share of the mortgage indebtedness
     collateralized by the property.
(2)  The Bank Term Loan is collateralized by the following four properties:
     Willow Oaks I & II (two properties), 8521 Leesburg Pike and the IBM Call
     Center.
(3)  The PPREFI Portfolio Loan is collateralized by the following 36 properties:
     certain of 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 partnership interest in Tysons International
     Partners, an entity that owns the 1676 International and 8260 Greensboro
     properties.  We account for our interest using the equity method of
     accounting.  The amount shown reflects our proportionate share of the
     mortgage indebtedness collateralized by each property.
(5)  We own a 50% non-controlling partnership interest in Broadmoor Austin
     Associates, an entity that owns the Broadmoor Austin properties.  We
     account for our interest using the equity method of accounting.  The amount
     shown reflects our proportionate share of the mortgage indebtedness
     collateralized by the properties.
(6)  The loan, which we entered into in October 1999, has no principal
     amortization during the first 24 months of the loan term.  Principal and
     interest are payable for the remaining loan term based on a 25-year
     amortization.

                                       20
<PAGE>

     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 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.

     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.  We were in compliance with these covenants as of September 30,
2001.

     We have considered our short-term liquidity needs and the adequacy of
adjusted estimated cash flows and other expected liquidity sources to meet our
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 anticipate that our needs will be fully funded from our 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 the line of credit.

     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 the line of credit to fund property acquisitions, development,
redevelopment, expansions and capital improvements on an interim basis.

     We expect to make distributions to our shareholders primarily based on our
distributions from the operating partnership.  The operating partnership's
income will be derived primarily from lease revenues from the properties and, to
a limited extent, from fees generated by our real estate management service
business.

     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 lines of
credit, 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 values and fair values of our
derivative financial instruments.  The notional value 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.

<TABLE>
<CAPTION>

                                                                      Swap Rate Received
   Notional                  Swap Rate Paid      Effective Fixed        (Variable) at
     Amount                     (Fixed)              Rate             September 30, 2001        Swap Maturity       Fair Value
    ------                      -------              ----             ------------------        -------------       ----------
                                                                                                                  (in thousands)
<S>                          <C>                 <C>                  <C>                   <C>                   <C>
$  40 million                    3.685%             5.060%                   2.630%            January 1, 2002        $   (123)
$  50 million                    4.836%             6.211%                   2.630%              April 1, 2002            (638)
$  50 million                    6.253%             7.628%                   2.630%         September 30, 2004          (3,669)
$  60 million                    6.248%             7.623%                   2.630%         September 30, 2004          (4,394)
$  20 million                    5.985%             7.610%                   2.630%              March 1, 2006          (1,528)
$  30 million                    5.990%             7.615%                   2.630%              March 1, 2006          (2,301)
                                                                                                                      --------
                                                                                                                      $(12,653)
                                                                                                                      ========
</TABLE>

     Our properties require periodic investments of capital for tenant-related
capital expenditures and for general capital improvements.  For the three months
ended September 30, 2001, our recurring non-incremental revenue-generating
capital expenditures totaled $4.1 million.  Our recurring non-incremental
revenue-generating capital expenditures were attributable to our regions as
follows:

                                       21
<PAGE>

Segment             Amount
-------             ------
Mid-Atlantic        $734,000
Midwest             $261,000
Southwest           $1.4 million
West                $1.6 million

Funds from Operations

     "Funds from operations," as defined by the National Association of REITs,
means net income computed in accordance with generally accepted accounting
principles excluding extraordinary items (as defined by generally accepted
accounting principles) and gains or losses from sales of property, plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.  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 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 that term using the same definition.  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.  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.

<TABLE>
<CAPTION>
                                                             Three Months     Three Months      Nine Months      Nine Months
     (in thousands)                                              Ended            Ended            Ended            Ended
                                                            Sept. 30, 2001   Sept. 30, 2000   Sept. 30, 2001   Sept. 30, 2000
                                                            ---------------  ---------------  ---------------  ---------------
<S>                                                         <C>              <C>              <C>              <C>
     Funds from operations
     Net income.............................................    $ 17,848         $ 18,258         $ 83,643          $ 53,040
     Add:
           Real estate depreciation and amortization........      16,589           16,441           48,491            46,673
           Real estate depreciation and amortization of
               unconsolidated joint ventures................         966              721            2,619             2,091
          Minority interests(1).............................       4,034            3,912           13,405            11,674
     Less:
          Merger termination fee (2)........................                       (4,091)         (17,000)           (4,091)
     Gain on sales of property..............................         125            2,038          (14,038)             (208)
     Extraordinary items....................................          --               --              367                --
     Dividend on perpetual preferred units..................      (3,340)          (3,153)          (9,832)           (9,458)
                                                                --------         --------         --------           -------
     Funds from operations..................................    $ 36,222         $ 34,126         $107,655          $ 99,721
                                                                ========         ========         ========          ========
</TABLE>

     (1)  Represents the minority interests applicable to the common and
          preferred unit holders of Prentiss Properties Acquisition Partners,
          L.P.
     (2)  Although the fee income is not considered an extraordinary item in
          accordance with generally accepted accounting principles, it is our
          opinion that it is appropriate to exclude the fee income from funds
          from operations.

     Our funds from operations increased by $2.1 million for the three months
ended September 30, 2001 from the three months ended September 30, 2000 and $7.9
million for the nine months ended September 30, 2001 from the nine months ended
September 30, 2000 as a result of the factors discussed in the analysis of
operating results.

Recently Issued Accounting Standards

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets."  The statement which is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and interim
periods within those fiscal years, addresses financial accounting and reporting
for the impairment or disposal of long-lived assets.  The impact from the
implementation of this statement, which we believe will not have a material
impact on our financial statements, will be dependent upon (1) which if any of
our assets qualify as held for sale at January 1, 2002 or at any point in time
thereafter; (2) whether the carrying amount of such assets determined to be held
for sale is greater than the fair value less cost of sale of the assets; and (3)
whether the carrying amount of assets determined not to be held for sale is
recoverable from future cash flow from operations and from the eventual sale of
the assets.

                                       22
<PAGE>

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

     Our primary market risk exposure is to changes in interest rates as a
result of our line of credit and long-term debt.  At September 30, 2001, we had
outstanding total indebtedness, including our pro rata share of joint venture
debt and construction loans, of approximately $990.4 million, or approximately
42.9% 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 75.1% of our outstanding debt was subject to fixed
rates with a weighted average interest rate of 7.45% at September 30, 2001.  The
remaining $246.5 million, or 24.9%, representing our variable rate debt, was
effectively locked at an interest rate (before the spread over LIBOR) of 5.50%
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.

     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 September 30, 2001,
including our pro rata share of joint venture debt totaling $100.7 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 September 30, 2001.  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 September 30,
2001.  The rate assumed in the fair value calculation of fixed rate debt is
equal to 6.62%, which consists of the 7-year treasury of 4.37% at September 28,
2001 plus 225 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 September 30, 2001.

<TABLE>
                                                         Expected Maturity Date
                                                            (in thousands)
                                                                                                                   Fair
                                    2001       2002       2003        2004       2005     Thereafter    Total      Value
                                   ------     ------     ------      ------     ------    ----------    -----      -----
<S>                                <C>       <C>        <C>        <C>         <C>        <C>           <C>        <C>
Liabilities
  Long-Term Debt:
    Fixed Rate                     $1,938    $17,688    $11,684    $ 32,072    $42,276     $638,222     $743,880    $777,302
      Average Interest Rate          7.45%      7.45%      7.45%       7.44%      7.46%        7.42%          --          --

    Variable Rate                  $  188    $   750    $99,750    $ 70,812         --     $ 75,000     $246,500    $246,500
      Average Interest Rate          4.14%      4.14%      4.16%       4.16%      4.06%        4.06%          --          --


Interest Rate Derivatives
  Interest Rate Swaps:
    Variable to Fixed                  --    $90,000         --    $110,000        --      $ 50,000           --    $(12,653)
      Average Pay Rate               5.50%      6.07%      6.17%        6.15%     5.99%        5.99%          --          --
      Average Receive Rate           2.63%      2.63%      2.63%        2.63%     2.63%        2.63%          --          --
</TABLE>

     The table incorporates only those exposures that exist as of September 30,
2001 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.

                                       23
<PAGE>

                                    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

     None.

Item 5.   Other Information

     None.

                                       24
<PAGE>

Item 6.   Exhibits and Reports on Form 8-K

(a)  Exhibits:

     EXHIBIT NO.    DESCRIPTION
     -----------    -----------

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

       3.3          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).

       3.4          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).

       3.5          Articles Supplementary, dated September 17, 1999,
                    Classifying and Designating a Series of Preferred Shares of
                    Beneficial Interest as Series C Cumulative Redeemable
                    Perpetual Preferred Shares of Beneficial Interest and Fixing
                    Distribution and Other Preferences and Rights of Such Shares
                    (filed as Exhibit 3.6 to our Report on Form 10-Q, filed
                    November 11, 1999, 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).

       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).

       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          Rights Agreement, dated February 6, 1998, between us and
                    First Chicago Trust Company of New York, as Rights Agent
                    (filed as an Exhibit 4.1 to our Registration Statement on
                    Form 8-A filed on February 17, 1998, File No.000-23813).

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

       4.4          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).

(b)  Reports on Form 8-K:

     We did not file any reports on Form 8-K for or during the period July 1,
     2001 through September 30, 2001.

                                       25
<PAGE>

                                   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 TRUST



Date: November 9, 2001        By:        /s/ Thomas P. Simon
                                 -----------------------------------------------
                                                 Thomas P. Simon
                              Senior Vice President and Chief Accounting Officer
                              (Principal Accounting Officer and Duly Authorized
                                         Officer of the Company)

                                       26