Security Analysis Equity Office Properties

1. September 2004 Security Analysis Equity Office Properties James W. Sullivan Managing Director Senior Real Estate Analyst

2. Security Analysis REIT METRICS • Funds Flow Operations (FFO) = net income plus real estate depreciation. • Funds Available For Distribution (FAD) = FFO less non-revenue generating capex. • Retained Free Cash Flow (FCF) = FAD less dividends on common and dilutive convertible preferred. 2

3. Security Analysis • The largest publicly held REIT • Owns 689 buildings with 124 mil. sq. ft. in 18 states and Washington, D.C., 27 MSAs, and 123 sub markets • Is primarily an acquirer (value added and otherwise) and selective developer • Has BBB+ credit rating and excellent access to capital • Since becoming a public company in 1997, the company has delivered CAGR as follows: • 19972005E • FFO per-share 4.8% $1.80 $2.61 • Dividends 6.6% $1.20 $2.00 • Annualized Total Return • * EOP: 9.8% vs. RMS: 10.7% * EOP: July 11, 1997 IPO share price compared to August 31, 2004 share price plus aggregate dividend payments over period; RMS: July 1, 1997 value compared to August 31, 2004 value. Equity Office Properties (EOP, $28.56, Underweight--as of August 31, 2004) Source: Company data and Prudential Equity Group, LLC. 3

4. Security Analysis Equity Office Properties Growth Model • Internal Growth • FCF • External growth • Ancillary and other income sources • Net Operating Margins • Financing activities 4

5. Security Analysis Equity Office Properties • Internal Growth • Occupancy rate and rental trend—weak job growth, negative pricing, mediocre operating skills • Poor market exposure • Margins—negative trends • Failed “other income” initiatives • Impact per-share FFO at 1.5x rate 5

6. Security Analysis Equity Office Properties Unusually Weak Cyclical Trend Source: Property & Portfolio Research (PPR) estimates. 6

7. Security Analysis Equity Office Properties Cash Flow Stress Source: Company reports, Prudential Equity Group, LLC estimates. 7

8. Security Analysis Equity Office Properties Market Exposure % of Property NOI % of Office From Continuing Top 5 MarketsPortfolio Sq. Ft. Operations Boston 10.2%13.4% San Francisco 8.9% 11.6% San Jose 7.1% 10.3% New York 4.1% 8.6% Los Angeles 6.2% 7.0% Note: Data is as of June 30, 2004 and includes consolidated and unconsolidated office properties. Source: Company report. 8

9. Security Analysis Equity Office Properties • Secular Issues • Off-shoring • Labor force growth • Demographics • Female participation Source: Company data and Prudential Equity Group, LLC. 9

10. Security Analysis Equity Office Properties • Free Cash Flow • 2004E: ($143.9 mils.) • 2005E: ($142.7 mils.) • Borrowed to pay dividend • Weaken credit ratios • Cut dividend or increase borrowing cost Source: Company report and Prudential Equity Group, LLC estimates. 10

11. Security Analysis Equity Office Properties • External Growth • Excessive Liquidity • Unusually low cap rates • Limited value creation opportunity • Not a scale business Source:Prudential Equity Group, LLC. 11

12. Security Analysis Equity Office Properties Let’s Compare The Metrics Peer REIT 10-Year EOP Group Industry Average Yield 7.2% 6.1% 5.2% 6.8% Div/FFO 76.9% 72.9% 69.9% 74.8% ’04E/’05E Growth (3.5%) 0.5% 5.6% 6.6% LTM Div Growth 0.0% 1.5% 2.7% 3.0% P/FFO 2005E 10.7x 11.1x 12.7x 11.3x Note: All calculations are as of August 25, 2004. Source: Company data, First Call, and Prudential Equity Group, LLC. 12

13. Security Analysis Equity Office Properties • Our Conclusion—Multiple Should Compress • The REIT industry is overpriced. • EOP’s dividend should be cut 25%. • Resulting yield should be above industry average. Source: Prudential Equity Group, LLC. 13

14. Security Analysis Equity Office Properties Our Call EOP Rel Industry Current Multiple 10.7x 0.85 12.7x 2-Yr. Growth (3.5%) NA 5.6% Yield 7.2% 1.40 5.2% Div. Growth 0.0% 2.7% Target Multiple 7.5x 10.3x Yield at target 10.0% 6.4% Div’d Return 7.2% 5.2% Total Ret. Potential (21.0%) (14.0%) Note: All calculations are as of August 25, 2004. Source: Prudential Equity Group, LLC. estimates. 14

15. Security Analysis Equity Office Properties • Valuation: • The valuation method we use to determine our $20 price target is 7.5x our estimated 2005 FFO per-share of $2.61. The 7.5x • multiple represents a 5.0% discount to our warranted office sector average share price to FFO multiple of 8.0x. Over the last • five years, Equity Office’s shares have traded in a range from a 8.0% discount to the average sector multiple to a 20% • premium with an average 6.0% premium. We apply the 5.0% discount based on the portfolio’s overweight in the weakest • office markets in the country and the company’s lease expiration exposure to those markets. Furthermore, during the • downturn the company has reported, and provided guidance for, leasing costs higher than any of the Office REIT peers. This • combination should drive FAD payout ratios above peer averages and continue to pressure the dividend. Including the current • yield, our target price implies a total return potential of negative 18.4%. • Risks: Large vacancy rates at this point in the real estate cycle across most of the nation’s office markets provide tenants with • a multitude of office space options including both direct vacant space and space available for sublease. As a result, landlords • have little power to attract tenants other than through lowering rents or spending large amounts of capital to rebuild space. • Historically, office space demand growth has lagged office job growth by six to twelve months. Although recent job growth • statistics are encouraging, the level of demand necessary to raise rents and slow leasing costs to landlords may not arrive until • Although the recent office job growth statistics suggest occupancy growth toward the end of 2004 and in 2005, lower • rental rates on new leases and high leasing capital expenditures should continue to pressure office REIT results through 2005. Source: Prudential Equity Group, LLC. 15

16. Security Analysis Equity Office Properties Source: FactSet and Prudential Equity Group, LLC. 16

17. 17

18. 18