As filed with the Securities and Exchange Commission on April 7, 1997
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10/A-3
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES ACT OF 1934
--------------------------
BEACON PROPERTIES, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 04-3224259
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 Rowes Wharf 02110
Boston, Massachusetts (Zip Code)
(Address of Principal Executive Offices)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange in Which
to be so Registered Each Class is to be Registered
--------------------- ----------------------------------
Not Applicable Not Applicable
Securities to be registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
<PAGE>
TABLE OF CONTENTS
Page No.
Item 1. Business 1
Item 2. Financial Information 6
Item 3. Properties 14
Item 4. Security Ownership of Certain Beneficial Owners and Management 16
Item 5. Directors and Executive Officers 16
Item 6. Executive Compensation 16
Item 7. Certain Relationships and Related Transactions 19
Item 8. Legal Proceedings 20
Item 9. Market Price of and Distributions on the Registrant's Common
Equity and
Related Security Holder Matters 21
Item 10. Recent Sales of Unregistered Securities 21
Item 11. Description of Registrant's Securities to be Registered 23
Item 12. Indemnification of Directors and Officers 24
Item 13. Financial Statements and Supplementary Data 25
Item 14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 25
Item 15. Financial Statements and Exhibits F-1
(i)
<PAGE>
Item 1. Business
General
Beacon Properties, L.P. (the "Operating Partnership") was organized as a
Delaware limited partnership in April 1994 and commenced operations effective
May 26, 1994. Beacon Properties Corporation (collectively with its
subsidiaries, "Beacon" or the "Company"), the sole general partner and a
limited partner of the Operating Partnership, and the Operating Partnership
were formed to succeed to the office and commercial real estate business of
The Beacon Group (the "Predecessor"). The Predecessor was founded in 1946 by
Norman Leventhal and Robert Leventhal. Starting in the 1940's, the
Predecessor developed commercial building construction expertise by providing
general contracting services to projects in 20 states. The Predecessor began
developing for its own account in the 1960's. Also in the 1960's, the
Predecessor began to develop its property management business.
Beacon's business is conducted principally through the Operating
Partnership, two subsidiary corporations and two subsidiary limited
partnerships. Beacon conducts third-party management operations through
Beacon Property Management Corporation, a Delaware corporation (the
"Management Company") and conducts third-party tenant space design services
through Beacon Design Corporation, a Massachusetts corporation (the "Design
Company"). Beacon conducts management operations for wholly-owned properties
through Beacon Property Management, L.P. a Delaware limited partnership (the
"Management Partnership"), and conducts tenant space design services for
wholly-owned properties through Beacon Design, L.P., a Delaware limited
partnership (the "Design Partnership").
At December 31, 1996, the Operating Partnership owned or had an interest
in a portfolio of 104 Class A office properties and other commercial
properties (each, a "Property" and collectively, the "Properties") located in
Atlanta, Boston, Chicago, Los Angeles, San Francisco and Washington D.C., as
well as commercial real estate development, acquisition, leasing and
management businesses. Class A office properties generally are considered to
be those which have excellent locations and access, attract high quality
tenants, are well maintained and professionally managed, and achieve among
the highest rent, occupancy and tenant retention rates within their markets.
The Properties are comprised of approximately 15.8 million rentable square
feet in the aggregate and, as of December 31, 1996, were 96% leased with over
1,100 tenants. Through Beacon Property Management Corporation (the
"Management Company"), the Operating Partnership manages approximately 2.9
million square feet of commercial and office space owned by third parties in
various locations including Boston and Springfield, Massachusetts and
Chicago, Illinois. The Management Company employs approximately 375 persons.
Recent Property Acquisitions
At December 31, 1996, the Operating Partnership's portfolio consisted of
104 properties totaling 15.8 million square feet compared to 26 properties
totaling 6.7 million square feet at December 31, 1995 and 21 properties
totaling 5.3 million square feet at December 31, 1994. Property acquisitions
in 1996 included the following transactions:
On February 15, 1996, the Operating Partnership acquired a 3.3 million
square foot, 32 building portfolio located in suburban Atlanta, Georgia (the
"Perimeter Center Portfolio") for approximately $322.2 million in cash and
approximately $13.8 million of units of limited partnership interest in the
Operating Partnership ("Units").
During the second quarter of 1996, the Operating Partnership and Equitable
Life Assurance Society of the United States, on behalf of its Prime Property
Fund ("Equitable"), the Operating Partnership's partner in the Rowes Wharf
Property, acquired the remaining outstanding first mortgage indebtedness on the
Rowes Wharf Property for $16.7 million. The mortgage debt was acquired at market
value which was approximately 50% of face value.
On August 16, 1996, the Operating Partnership acquired a portfolio of
office properties, comprised of seven properties, from New York Life
Insurance Company (the "New York Life Portfolio") for approximately $150
million. The New York Life Portfolio consists of the AT&T Plaza located in
Oak Brook, Illinois, the five-building Tri-State International office park
located in Lincolnshire, Illinois and a property located at 1333 H Street in
Washington, D.C.
On September 5, 1996, the Operating Partnership acquired a portfolio of
three office buildings and a parcel of land suitable for development located
in Fairfax County, Virginia (the "Fairfax County Portfolio") for aggregate
consideration of $77 million consisting of assumption of approximately $55.5
million of mortgage debt and the
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issuance of approximately $21.5 million of Units. The Fairfax County
Portfolio consists of the John Marshall I building, the E.J. Randolph
building, the Northridge I building and the John Marshall III parcel of land.
On October 18, 1996, the Operating Partnership acquired a portfolio of two
office buildings located in Rosslyn, Virginia (the "Rosslyn, Virginia
Portfolio") for aggregate consideration of approximately $99 million. The
Rosslyn, Virginia Portfolio consists of office buildings located at 1616
North Fort Myer Drive and 1300 North 17th Street.
On November 15, 1996, the Operating Partnership acquired a portfolio of
nine office properties located in Burlington (suburban Boston), Massachusetts
(the "New England Executive Park Portfolio") for aggregate consideration of
approximately $75 million. An additional $17 million is payable on November
30, 1998, contingent upon meeting conditions regarding occupancy or rental
income levels at the Property in 1998.
On November 21, 1996, the Operating Partnership acquired the 10960
Wilshire Boulevard Property located in Westwood, California for aggregate
consideration of approximately $133 million.
On November 21, 1996, the Operating Partnership acquired the Riverview
Building Property located in Cambridge, Massachusetts for aggregate
consideration of approximately $45 million.
On December 20, 1996, the Operating Partnership acquired the Shoreline
Technology Park and Lake Marriott Business Park located in suburban
San Francisco for aggregate consideration of approximately $183 million.
On December 27, 1996, the Operating Partnership acquired the Presidents
Plaza Property located in Chicago, Illinois for aggregate consideration of
approximately $38 million in cash and the issuance of approximately $39
million of Units.
Sale of Beacon Construction Company
In 1996, Beacon Construction Company, Inc. (the "Construction Company")
sold substantially all of its assets. The Construction Company's new business
plan involves the completion of certain contracts not transferred to the
purchaser and the liquidation of its remaining assets. The Operating
Partnership's decision to effect the sale of the Construction Company was
based upon the determination that the general construction business was no
longer an integral part of its business.
Recent Financing Activities
Conversion of Credit Facility to Permanent Mortgage Debt: In January 1996,
the Operating Partnership converted $55 million of its floating-rate credit
facility (the "Credit Facility") to permanent mortgage debt secured by the
Wellesley Office Park Properties. Additionally, in February 1996, the
Operating Partnership converted an additional $60 million of the Credit
Facility to permanent mortgage debt secured by the Center Plaza Property.
Both mortgages were provided by Connecticut General Life Insurance Company
("CIGNA"). These mortgages are for terms of seven years, bear interest at
annual rates of 7.23%, and require monthly installments of interest only
during years one through three and principal and interest during years four
through seven based on a 27-year amortization schedule.
Financing of Perimeter Center Portfolio Acquisition: The Operating
Partnership financed the acquisition of the Perimeter Center Portfolio, in
part, through a $260 million mortgage loan (the "PaineWebber Acquisition
Loan") provided by PaineWebber Real Estate Securities, Inc. and an
approximately $13.8 million private placement of Units. In March 1996,
Metropolitan Life Insurance Company ("Met Life") provided $218 million of
mortgage financing on the Perimeter Center Portfolio (the "Met Life Loan") to
the Operating Partnership. The Met Life Loan bears interest at a rate of
7.08% fixed over the ten year term of the loan. The Operating Partnership
used the proceeds of the Met Life Loan to repay, in part, the PaineWebber
Acquisition Loan and balances outstanding on the Credit Facility.
Additional Capital Contributions by Beacon: Under the terms of the limited
partnership agreement of the Operating Partnership, Beacon must contribute
the proceeds of any public offering of securities to the Operating
Partnership for additional Units. In March 1996, Beacon sold 7,036,000 shares
of common stock, $.01 par value per share (the "Common Stock") at an offering
price of $26.25 per share and contributed the net proceeds of approximately
$173.8 million to the Operating Partnership in exchange for a like number of
Units. In August 1996, Beacon sold 5,750,000 shares of Common Stock at an
offering price of $25.75 per share and contributed the net proceeds of
approximately $139.4 million to the Operating Partnership in exchange for a
like number of Units. In November 1996, Beacon sold 13,723,000 shares of
Common Stock at an offering price of $30.75 per share. In addition, in
December 1996, Beacon sold an additional 1,132,400 shares of Common Stock at
an offering price
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of $33.465 per share to the underwriters of the November 1996 offering to
cover a portion of their short position resulting from over-allotments.
Beacon contributed the net proceeds of approximately $436.7 million from the
November 1996 and December 1996 offerings to the Operating Partnership in
exchange for an aggregate of 14,855,400 Units. The Operating Partnership used
the net proceeds of these contributions to fund the acquisition of
Properties.
Financing of Fairfax County Portfolio: On December 23, 1996, the Operating
Partnership refinanced the $16.5 million mortgage loan on the Northridge I
Property to a $13.6 million mortgage loan with a 10-year term bearing
interest at an annual rate of 8.19%. This mortgage loan requires monthly
installments of interest only during years one and two and principal and
interest during years three through ten based on a 25-year amortization
schedule.
On December 23, 1996, the Operating Partnership also closed on a $15
million mortgage loan on the E.J. Randolph Property, and used the net
proceeds to pay down the Credit Facility. On September 5, 1996, in connection
with the acquisition of the Property, the Operating Partnership paid off a
$18 million mortgage loan it assumed using a draw on the Credit Facility.
Business Objectives
The Operating Partnership pursues business objectives that emphasize (i) a
property management program focused on maintaining the quality of and demand
for its properties at a level that will support high occupancy rates and
increasing rental rates; (ii) the acquisition of high-quality commercial
properties; (iii) the development of new properties, as warranted by market
conditions; and (iv) the provision of real estate management services to
third parties.
Acquisitions: The Operating Partnership will seek to acquire additional
properties that it believes will produce favorable returns, either as
acquired or after value-added activities (such as improved management and
leasing services and renovations) by the Operating Partnership. The Operating
Partnership intends to obtain capital for new acquisitions through the use of
the Credit Facility, as well as the issuance of additional equity or
corporate debt securities. The Operating Partnership believes that its
commercial property development experience, its extensive business
relationships and its market research capabilities enable it to identify,
analyze and implement acquisition opportunities more effectively than
competitors without such capabilities. In addition, as part of its ongoing
business the Operating Partnership periodically engages in discussions with
public and private real estate entities regarding possible portfolio or asset
acquisitions or business combinations.
Development: While current conditions in the Operating Partnership's
primary markets favor the acquisition rather than the development of new
properties, as opportunities arise in the future, the Operating Partnership
intends to grow through the development of new properties. In 1996, the
Operating Partnership commenced the expansion of a building in the Wellesley
Office Park Property and completed the redevelopment of Crosby Corporate
Center. The Operating Partnership currently owns developable land adjacent to
the Crosby Corporate Center and the Fairfax County Portfolio and has an
option to purchase developable land adjacent to the Perimeter Center
Portfolio.
Management of the Properties: The Operating Partnership seeks to maintain
quality standards for its properties that promote high occupancy rates and
permit increases in rental rates while reducing tenant turnover and
controlling operating expenses. The Operating Partnership emphasizes high
quality property management, comprehensive energy-savings and cost control
programs and comprehensive preventive maintenance programs.
Third-Party Management: The Operating Partnership currently manages
approximately 2.9 million square feet of commercial and office space owned by
third parties in various locations. The Operating Partnership intends to
selectively enter into management contracts for office and commercial
properties that are compatible with the Operating Partnership's objectives,
portfolio, and reputation. The Operating Partnership will conduct its
third-party management activities through the Management Company.
Environmental Matters
Some of the Properties are located in urban areas where fill or current or
historic industrial uses of the areas may have caused site contamination at
the Properties. Nonetheless, at this time, the Operating Partnership does not
anticipate that regulatory authorities will require remediation of the
Properties, except as specified below.
Crosby Corporate Center: Site assessments have identified the presence of
petroleum in the groundwater near the former location of an underground
storage tank installed and used by a previous tenant. The state environmental
agency responsible for overseeing remediation of such contamination notified
the former tenant of the property that it is responsible for such
contamination. The former tenant has agreed to perform the necessary
investigation and
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cleanup actions regarding such contamination, bear all costs associated with
such cleanup activities, and indemnify the Operating Partnership for any
costs or damages it incurs in connection with such contamination. As the
owner of the Property, however, the Operating Partnership could be held
liable for the costs of such activities if the former tenant fails to
undertake such actions, although the Operating Partnership believes that such
costs would have no material adverse effect on its financial condition,
results of operations and liquidity. The tenant has received from the state
regulatory agency and agreed to the conditions of a Waiver Application
Disposition which allows the tenant to assess and remediate the contamination
without having to obtain interim approvals from the state agency during such
activities.
South Station: Site assessments of South Station have identified the
presence of contaminants in the soil and groundwater in the train yard
adjacent to the South Station Property and the South Station Property is
assumed to be similarly contaminated. Under agreements between the Operating
Partnership and the Massachusetts Bay Transportation Authority ("MBTA"), the
MBTA, which is the owner of the South Station Property, is obligated to bear
the liabilities associated with such environmental conditions on the Property
and to defend and indemnify the Operating Partnership for its costs arising
from such conditions. This indemnity does not alter the Operating
Partnership's liability as an operator of the Property to parties other than
the MBTA, although the Operating Partnership believes that such liability
would have no material adverse effect on its financial condition, results of
operations and liquidity.
Fairfax County Portfolio: Chlorinated solvents, primarily trichloroethane
("TCE"), have been detected in groundwater samples collected from monitoring
wells located at the John Marshall III land (the "JM III Parcel"). Subsequent
investigations of the JM III Parcel by an environmental consultant retained
by the sellers of the Fairfax County Portfolio (the "Consultant") confirmed
the presence of chlorinated solvents in groundwater at the JM III Parcel and
on property adjacent to the JM III Parcel where an auto body repair shop is
located.
The sellers of the Fairfax County Portfolio reported the findings of
chlorinated solvent contamination on the JM III Parcel to the Virginia
Department of Environmental Quality. The Consultant has concluded that the
auto body repair shop is the probable source for the chlorinated solvent
contamination, has collected additional soil and groundwater samples and is
preparing a remediation plan for the site. Units valued at approximately $1
million were escrowed from the purchase price paid for the Fairfax County
Portfolio upon the closing of the acquisition. Under the terms of the escrow,
these Units will be released to the seller of the JM III Parcel periodically
upon performance of remediation pursuant to a remediation plan approved by
Beacon. The escrow further provides that Beacon may receive some or all of
the remaining escrowed Units upon certain conditions, including (i) if
remediation is required by law, in the event of an emergency threatened by
the contamination, (ii) if the seller defaults under the remediation
agreement or fails to obtain access to the likely source site or governmental
approvals, (iii) if Beacon enters into a lease for space in a building to be
constructed on the JM III Parcel or (iv) if the seller fails to obtain a
closure certification from the Virginia Department of Environmental Quality
upon completion of remediation.
New England Executive Park Portfolio: Site assessments at the New England
Executive Park Portfolio have identified the presence of trichloroethylene in
the groundwater at one monitoring well on the northern perimeter of the
Property. The groundwater beneath the Property flows into an aquifer, which
supplies drinking water to the Town of Burlington. The concentrations that
have been discovered at the Property to date are slightly above the standards
established for trichloroethylene in areas contributing to drinking water
supplies and, as a result, must be reported to the Massachusetts Department
of Environmental Protection (the "DEP"). The owner of the property to the
north of the New England Executive Park Portfolio, which is upgradient of the
New England Executive Park Portfolio, has filed with the DEP indicating the
presence of trichloroethylene in the groundwater of such property. The former
owner of the New England Executive Park Portfolio filed with the DEP to
establish the Property's "Downgradient Property Status" under applicable
regulations, indicating that the Property is not a source of the
trichloroethylene contamination that has been identified. The DEP has stated
that this policy is not to require downgradient property owners to perform
remediation under these circumstances. In addition, the Town of Burlington
has allocated funds for, and is in the process of constructing, a groundwater
treatment facility at its drinking water supply that draws from the subject
aquifer. Beacon has been advised that such treatment facility has the
capacity to treat any contaminants which may be derived from the groundwater
passing beneath the New England Executive Park Portfolio. The Town's water
treatment facility and the present policy of the DEP with respect to
downgradient property owners do not relieve the Operating Partnership of
potential liability for the
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presence of the identified trichloroethylene, although the Operating
Partnership does not believe that any such liability would have a material
adverse effect.
The Riverview Building: Site assessments performed at 245 First Street have
identified the presence of oil in one soil sample taken at the Property in an
amount that slightly exceeds the concentration that requires reporting to the
DEP. Based on these site assessments, however, an environmental consultant
has advised the Operating Partnership that applicable regulatory requirements
can be satisfied without the need to perform any remediation at the Property.
As the owner of the Property, the Operating Partnership could be held liable
for costs associated with the contamination that has been identified,
although the Operating Partnership does not believe that such costs would
have a material adverse effect.
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Item 2. Financial Information
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Operating Partnership Predecessor
---------------------------------------- -----------------------------------------
For the For the
For the For the Period Period Years Ended
Year Ended Year Ended May 26, 1994 January 1, 1994 December 31,
December 31, December 31, to December 31, to May 25, ---------------------
1996 1995 1994 1994 1993 1992
------------- -------------- --------------- -------------- ---------- ----------
(dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
OPERATING INCOME:
Revenues:
Rental Income $ 147,825 $ 69,781 $ 23,702 $5,776 $14,315 $11,406
Management fees 3,005 2,203 -- 1,521 3,533 3,331
Recoveries from tenants 16,719 9,524 4,395 1,040 2,349 1,989
Mortgage interest income 4,970 2,546 -- -- -- --
Other income 11,249 5,985 2,671 675 2,176 2,003
--------- --------- --------- --------- --------- ---------
Total Revenue 183,768 90,039 30,768 9,012 22,373 18,729
--------- --------- --------- --------- --------- ---------
Expenses:
Property expenses 37,210 17,698 6,497 2,086 4,580 4,522
Real estate taxes 18,124 9,950 3,015 595 1,354 1,204
General and administrative 19,218 9,444 2,943 1,399 4,357 4,658
Mortgage interest expense 30,300 15,220 4,970 2,798 7,650 7,203
Interest--amortization of
financing costs 2,084 1,370 617 373 192 138
Depreciation and amortization 33,170 17,233 6,727 2,385 5,577 5,505
--------- --------- --------- --------- --------- ---------
Total Expenses 140,106 70,915 24,769 9,636 23,710 23,230
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 43,662 19,124 5,999 (624) (1,337) (4,501)
Equity (loss) in joint ventures
and corporations (1) 4,899 3,103 858 198 (5,953) (1,544)
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations before minority
interest 48,561 22,227 6,857 (426) (7,290) (6,045)
Minority interest in
partnerships and corporations (15) (36) (8) 931 1,539 2,656
--------- --------- --------- --------- --------- ---------
Income from continuing
operations 48,546 22,191 6,849 505 (5,751) (3,389)
Discontinued
Operations--Construction
Company
Income (Loss) from operations (2,609) (12) 477 102 440 136
Loss on sale (249) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Income before extraordinary
items 45,688 22,179 7,326 607 (5,311) (3,253)
Extraordinary items (3,876) -- -- 8,898 1,554 --
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 41,812 $ 22,179 $ 7,326 $9,505 $ (3,757) $ (3,253)
========= ========= ========= ========= ========= =========
Per unit data:
Income from continuing
operations $ 1.41 $ 1.09 $ 0.45 -- -- --
Discontinued
Operations--Construction
Company
Income (loss) from operations (0.08) (0.00) 0.03 -- -- --
Loss on sale (0.01) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Income before extraordinary
items 1.32 1.09 0.48 -- -- --
Extraordinary items (0.11) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 1.21 $ 1.09 $ 0.48 -- -- --
========= ========= ========= ========= ========= =========
Distributions declared $ 1.765 $ 1.24 $ 0.96 -- -- --
Distributions paid $ 1.765 $ 1.64 $ 0.56 -- -- --
Weighted average units
outstanding 34,446,907 20,323,327 15,270,899 -- -- --
</TABLE>
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SELECTED FINANCIAL DATA--Continued
<TABLE>
<CAPTION>
Operating Partnership Predecessor
---------------------------------------- -------------------------------------------
For the For the
For the For the Period Period Years Ended
Year Ended Year Ended May 26, 1994 January 1, 1994 December 31,
December 31, December 31, to December 31, to May 25, --------------------
1996 1995 1994 1994 1993 1992
------------- -------------- ------------- -- ------------ ----------- --------
(dollars in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET INFORMATION:
Real estate before
accumulated depreciation $1,691,530 $471,142 $ 385,852 $ 82,198 $ 81,220 $ 78,580
Total assets 1,778,913 534,723 385,565 77,470 85,497 93,327
Mortgage debt 452,212 70,536 90,936 69,240 87,091 86,610
Note Payable, Credit Facility 153,000 130,500 130,300 -- -- --
Total liabilities 671,283 239,009 260,468 129,836 143,451 142,015
Total partners capital 1,107,630 295,714 139,691 (52,366) ( 57,954) (48,688)
- -------------
(1) Including deductions for:
Depreciation and
amortization $ 4,033 $ 2,306 $ 3,013
Interest-amortization of
financing costs $ 898 $ 853 $ 796
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion should be read in conjunction with the Operating
Partnership's Consolidated Financial Statements and Notes thereto included
elsewhere herein. This Registration Statement on Form 10 contains
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. The Operating Partnership's actual results
could differ materially from those set forth in the forward-looking
statements. Factors that could cause actual results to differ materially from
those set forth in the forward-looking statements include general economic
conditions, local real estate conditions, timely releasing of occupied square
footage upon expiration, interest rates, availability of equity and debt
financing and other risks detailed from time to time in the Operating
Partnership's filings with the Securities and Exchange Commission, including
quarterly reports on Form 10-Q, reports on Form 8-K and annual reports on
Form 10-K.
The Operating Partnership continued its growth and expansion in 1996 by
investing approximately $1.2 billion in real estate. The Operating
Partnership increased its portfolio to 104 office buildings totaling 15.8
million square feet while moving for the first time into Atlanta, Georgia;
Chicago, Illinois; Los Angeles and San Francisco, California and reinforcing
its presence in Boston, Massachusetts and Washington, D.C.
The 1996 acquisitions were facilitated by three successful public
offerings of Beacon's Common Stock. In all, Beacon issued 27.6 million shares
of Common Stock in 1996 and raised nearly $800 million in gross proceeds.
Beacon contributed the net proceeds of these offerings to the Operating
Partnership in exchange for Units. In connection with the acquisition of the
Perimeter Center Portfolio, the Fairfax County Portfolio and the Presidents
Plaza Property, the Operating Partnership also issued approximately 2.6
million Units.
In 1996, the Construction Company sold substantially all of its assets.
The Construction Company's new business plan involves the completion of
certain contracts not transferred to the purchaser and the liquidation of its
remaining assets. The Operating Partnership's decision to affect the sale of
the Construction Company was based upon the determination that the general
construction business was no longer an integral part of its business.
Construction contracts on Properties owned by the Operating Partnership
represented only 6%, 8% and 7% of the Construction Company's total revenues
in 1996, 1995 and 1994, respectively.
As a result of the significant acquisitions by the Operating Partnership
and its use of the equity method of accounting for the management, design and
construction corporations, while the Predecessor consolidated these entities,
the operating results of the Operating Partnership and Predecessor are not
directly comparable.
Results of Operations
For discussion purposes, the results of operations for the year ended
December 31, 1994 combine the operating results of the Predecessor for the
period January 1, 1994 to May 25, 1994 and the operating results of the
Operating Partnership for the period May 26, 1994 to December 31, 1994.
The Operating Partnership's gross revenues increased by 104% from 1995 to
1996 and 126% from 1994 to 1995. The growth in gross revenues was primarily
the result of the acquisition of 78 Properties comprising 9.1 million square
feet in 1996, 5 Properties comprising 1.4 million square feet in 1995, and 6
Properties comprising 0.9 million square feet in 1994.
The acquisition properties increased revenues from rental operations,
which includes rental income, recoveries from tenants and other income, by
$81.7 million from 1995 to 1996 and $47.2 million from 1994 to 1995. The
remaining balance of the increase was primarily due to increase in occupancy
and rental rates, completion of the redevelopment and achievement of 88%
occupancy of the Crosby Corporate Center in 1996 and interest income earned
on cash reserves.
The impact of the straight-line rent adjustment increased consolidated
revenues for the Operating Partnership by $6.6 million in 1996, $3.7 million
in 1995 and $1.9 million for the period May 26, 1994 to December 31, 1994.
The impact of the straight-line rent adjustment increased the Operating
Partnership's equity in net income of property joint ventures and
corporations by $0.1 million in 1996, $0.2 million in 1995 and $0.3 million
for the period May 26, 1994 to December 31, 1994.
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Management fees were $3.0 million in 1996, $2.2 million in 1995 and $1.5
million in 1994. The increase from 1995 to 1996 of $0.8 million is the result
of the management contract for 75-101 Federal Street, a Property in the which
the Operating Partnership purchased an approximate 51% interest in September
1995. The increase from 1994 to 1995 of $0.7 million is the result of Beacon
Property Management, L.P., a fully consolidated entity, managing the joint
venture properties effective January 1, 1995. In 1994, the Management
Company, an entity accounted for under the equity method, managed the joint
venture and unrelated third-party properties. The Predecessor reported the
results of operations of the management of joint venture and unrelated
third-party properties in revenues and expenses in its combined financial
statements.
Mortgage interest income for 1996 was $5.0 million and $2.5 million for
1995. The increase of $2.5 million is the result of the Operating
Partnership's acquisition of the remaining portions of the outstanding first
mortgage indebtedness on the Rowes Wharf Property in 1996 and a full year of
interest income in 1996 from those portions of the Rowes Wharf debt purchased
in 1995. If the Operating Partnership had owned all of its share of the Rowes
Wharf debt for a full year in 1996, mortgage interest income would have been
$5.6 million.
The acquisition properties increased property expenses, real estate taxes
and depreciation and amortization by $37.2 million from 1995 to 1996 and
$24.0 million from 1994 to 1995. The remaining balance was primarily due to
increased operating expenses as a result of an increase in occupancy and the
completion of the redevelopment and achievement of 88% occupancy at the
Crosby Corporate Center in 1996.
General and administrative expenses were $19.2 million in 1996, $9.4
million in 1995 and $4.3 million in 1994. The acquisition properties
increased general and administrative expenses by $3.7 million from 1995 to
1996 and $3.8 million from 1994 to 1995. The remaining balance of the
increase was primarily due to an increase in corporate management and
administrative costs with the largest increase in payroll expense of $2.2
million and rent expense of $1.0 million. The increase in corporate
management and administrative costs was the result of the growth of the
Operating Partnership's portfolio of properties and the opening of the first
regional office in Atlanta in 1996. General and administrative expenses as a
percentage of total revenue was 10.5% in 1995 and 1996 and 10.9% in 1994.
Mortgage interest expense was $30.3 million in 1996, $15.2 million in 1995
and $7.8 million in 1994. The increase of $15.1 million from 1995 to 1996 is
primarily the result of debt incurred or assumed in connection the
acquisition of the Perimeter Center Portfolio and the Fairfax County
Portfolio. Interest expense associated with the mortgage debt placed on the
Wellesley Office Park and Center Plaza Properties in 1996 was offset by a
reduction of interest expense on the Credit Facility as a result of the
proceeds being used to pay down the balance of the Credit Facility. The
increase of $7.4 million from 1994 to 1995 is primarily due to the interest
on the Credit Facility and debt assumed in connection with the acquisition of
150 Federal Street and the remaining joint venture interest in 175 Federal
Street offset by the decrease in interest expense as a result of the
discharge of mortgage debt in connection with the formation of the Operating
Partnership. The weighted average balance outstanding of the Credit Facility
was $42.3 million for 1996, $99.7 million for 1995 and $50.4 million for the
period May 26, 1994 to December 31, 1994.
Interest-amortization of financing costs was $2.1 million in 1996, $1.4
million in 1995 and $1.0 million in 1994. The increase of $0.7 million from
1995 to 1996 was primarily the result of amortization of financing costs
associated with the Credit Facility, the mortgage debt on Wellesley Office
Park, Center Plaza and the Perimeter Center Portfolio. The increase of $0.4
million from 1994 to 1995 is primarily the result of the amortization of
financing costs associated with the Credit Facility offset by the write-off
of financing costs by the Predecessor as a result of the discharge of
mortgage debt in connection with the formation of the Operating Partnership.
Equity in net income of joint ventures and corporations was $4.9 million
in 1996, $3.1 million in 1995 and $1.1 million in 1994. The increase of $1.8
million from 1995 to 1996 was primarily the result of the acquisition of the
equity investment in 75-101 Federal Street in September 1995. The increase of
$2.0 million from 1994 to 1995 is primarily the result of a reduction in the
equity in net loss from the Center Plaza Property as a result of the
Operating Partnership acquiring its debt, a controlling interest and fully
consolidating the Property effective December 1, 1994. Increases in equity in
net income of One Post Office Square and Polk and Taylor, as well as
9
<PAGE>
a new equity investment in 75-101 Federal Street, were offset by the decrease
in equity in net income from Wellesley Office Park Building Six, 175 Federal
Street and the Management Company.
Loss (income) from discontinued operations from the Construction Company
was a $2.6 million loss in 1996, a $0.1 million loss in 1995 and $0.5 million
income in 1994. The increase in loss of $2.5 million from 1995 to 1996 was
primarily the result of several significant subcontractors working on
construction contracts in Atlanta seeking bankruptcy and not completing their
work. As a result, the Construction Company was forced to complete the
projects using additional contractors which increased the total costs of the
projects.
In December 1996, substantially all of the assets of the Construction
Company were sold to Skanska AB, a Swedish construction firm. In connection
with the sale, the Operating Partnership recorded its share of the loss of
$0.2 million.
As a result of transactions resulting in the formation of the Operating
Partnership (the "Formation Transactions"), no minority interest in the
combined partnerships was recorded after May 25, 1994, resulting in a
decrease compared to 1994 in minority interest in loss of combined
partnerships.
Extraordinary items were a $3.9 million loss in 1996 and a $8.9 million
gain in 1994. An extraordinary item of $2.2 million was recorded in
connection with the write-off of fees and costs to acquire the PaineWebber
Acquisition Loan which was repaid in March 1996 approximately three years
prior to its maturity. An extraordinary item of $1.7 million was recorded in
connection with write-off of fees and costs of the Credit Facility which was
substantially modified in June 1996. The extraordinary gain in 1994 relates
to the settlement of mortgage debt by the Predecessor on the Wellesley Office
Park Buildings One to Five and Seven as a condition of transfer prior to the
Formation Transactions.
Liquidity and Capital Resources
Net cash provided by operating activities totaled $92.2 million in 1996,
$33.0 million in 1995 and $11.4 million in 1994. The increase in the periods
was primarily attributable to the incremental increase in cash flow from
operations provided by the acquisition properties as well as an increase in
security deposits, accrued interest, and prepaid rents.
Net cash used by investing activities totaled $1,097.9 million in 1996,
$145.9 million in 1995 and $234.9 million in 1994. The increase from 1995 to
1996 was the result of the acquisition of Properties and the redevelopment of
the Crosby Corporate Center and Wellesley Building Eight in 1996. The
decrease from 1994 to 1995 was primarily a result of Beacon's May 1994
initial public offering (the "Initial Offering") whereby the Operating
Partnership acquired its initial portfolio of 15 Properties totaling 4.4
million square feet.
Net cash provided by financing activities totaled $1,037.1 million in
1996, $102.6 million in 1995 and $236.8 million in 1994. The increase from
1995 to 1996 was primarily due to an increase in public stock offerings of
Beacon, the proceeds of which were contributed to the Operating Partnership,
and the closing of mortgage debt on certain Properties. The decrease from
1994 to 1995 was primarily attributable to the repayments on the Credit
Facility in 1995.
Cash and cash equivalents were $35.9 million at December 31, 1996 compared
to $4.5 million at December 31, 1995. The increase was primarily the result
of proceeds from 1996 public stock offerings of Beacon, the proceeds of which
were contributed to the Operating Partnership, in excess of the funds
utilized for the 1996 acquisitions and the redevelopment of the Crosby
Corporate Center and Wellesley Eight Building.
Investing Activities
On February 15, 1996, the Operating Partnership acquired the Perimeter
Center Portfolio, a 3.3 million square foot, 32 building portfolio located in
suburban Atlanta, Georgia for approximately $322.2 million in cash and
approximately $13.8 million in Units.
During the second quarter of 1996, the Operating Partnership and
Equitable, the Operating Partnership's partner in the Rowes Wharf Property,
acquired the remaining portion of the outstanding first mortgage indebtedness
10
<PAGE>
on the Rowes Wharf Property that had been held by a bank lending group for
$16.7 million. The mortgage debt was acquired at market value which was
approximately 50% of the face value.
On August 16, 1996, the Operating Partnership acquired the New York Life
Portfolio for approximately $150 million. The New York Life Portfolio
consists of the AT&T Plaza located in Oak Brook, Illinois, the five-building
Tri-State International office park located in Lincolnshire, Illinois and a
property located at 1333 H Street in Washington, D.C.
On September 5, 1996, the Operating Partnership acquired the Fairfax
County Portfolio for aggregate consideration of $77 million consisting of
assumption of mortgage debt of approximately $55.5 million and the issuance
of approximately $21.5 million of Units. The Fairfax County Portfolio
consists of the John Marshall I building, the E.J. Randolph building, the
Northridge I building and the JM III Parcel.
On October 18, 1996, the Operating Partnership acquired the Rosslyn,
Virginia Portfolio for aggregate consideration of approximately $99 million.
The Rosslyn, Virginia Portfolio consists of office buildings located at 1616
North Fort Myer Drive and 1300 North 17th Street.
On November 15, 1996, the Operating Partnership acquired the New England
Executive Park Portfolio for aggregate consideration of approximately $75
million. An additional $17 million payment is payable on November 30, 1998,
contingent upon meeting conditions regarding occupancy or rental income
levels at the Property in 1998.
On November 21, 1996, the Operating Partnership acquired the 10960
Wilshire Boulevard Property located in Westwood, California for aggregate
consideration of approximately $133 million.
On November 21, 1996, the Operating Partnership acquired 245 First Street
located in Cambridge, Massachusetts for aggregate consideration of
approximately $45 million.
On December 20, 1996, the Operating Partnership acquired the Shoreline
Technology Park and Lake Marriott Business Park located in suburban
San Francisco for aggregate consideration of approximately $183.0 million.
On December 27, 1996, the Operating Partnership acquired the Presidents
Plaza Property for aggregate consideration of approximately $38.0 million in
cash and the issuance of approximately $39.0 million of Units.
Financing Activities
On January 9, 1996, the Operating Partnership converted $55 million of the
Credit Facility to permanent mortgage debt secured by the Wellesley Office
Park Properties.
On February 9, 1996, the Operating Partnership converted $60 million of
the Credit Facility to permanent mortgage debt secured by the Center Plaza
Property.
On February 15, 1996, the Operating Partnership acquired the Perimeter
Center Portfolio using the proceeds of the $260 million PaineWebber
Acquisition Loan and the issuance of approximately $13.8 million of Units,
with the balance funded from the Credit Facility.
In March 1996, the Company sold 7,036,000 shares of Common Stock to the
public at $26.25 per share and contributed the approximately $173.8 million
net proceeds of the offering to the Operating Partnership in exchange for
7,036,000 Units. The net proceeds of the contribution were used to repay a
portion of the PaineWebber Acquisition Loan.
On March 15, 1996, the Operating Partnership closed on the $218 million
MetLife Loan. The proceeds of the MetLife Loan were used to repay the
remaining portion of the PaineWebber Acquisition Loan and the outstanding
balance of the Credit Facility.
In August 1996, the Company sold 5,750,000 shares of Common Stock to the
public at $25.75 per share and contributed the approximately $139.4 million
net proceeds of the offering to the Operating Partnership in exchange for
5,750,000 Units. The net proceeds of the contribution were used to purchase
the New York Life Portfolio.
11
<PAGE>
In November 1996, the Company sold 13,723,000 shares of Common Stock to
the public at $30.75 per share. In addition, in December 1996, the Company
sold an additional 1,132,400 shares of Common Stock at an offering price of
$33.465 per share to the underwriters of the November 1996 offering to cover
a portion of their short position resulting from over-allotments. The Company
contributed the approximately $436.7 million net proceeds of these offerings
to the Operating Partnership in exchange for 14,855,400 Units. The net
proceeds of these offerings were used to purchase the various fourth quarter
acquisitions with the balance added to cash reserves.
On December 23, 1996, the Operating Partnership refinanced the $16.5
million mortgage loan on the Northridge I Property to a $13.6 million
mortgage loan with a 10-year term bearing interest at an annual rate of
8.19%. This mortgage loan requires monthly installments of interest only in
years one and two and principal and interest during years three through ten
based on a 25-year amortization schedule.
On December 23, 1996, the Operating Partnership also closed on a $15.0
million mortgage loan on the E.J. Randolph Property, and used the net
proceeds to pay down the Credit Facility. On September 5, 1996, in connection
with the acquisition of the Property, the Operating Partnership paid off a
$18.0 mortgage loan it assumed using a draw on the Credit Facility.
On January 28, 1997, the Operating Partnership declared a distribution of
$.4625 per Unit payable on February 28, 1997 to partners of record on
February 10, 1997.
Capitalization
At December 31, 1996, the Operating Partnership's total consolidated debt
was approximately $605.2 million, and its total consolidated debt plus its
proportionate share of total unconsolidated debt (other than the Rowes Wharf
Property debt) was approximately $698.8 million. At December 31, 1996, the
Operating Partnership's outstanding consolidated debt consisted of
approximately $153.0 million under the Credit Facility and approximately
$452.2 million of fixed rate mortgage indebtedness with a weighted average
rate of 7.22%, collateralized by Properties owned 100% by the Operating
Partnership. The Operating Partnership's proportionate share of its current
total unconsolidated debt (excluding the Rowes Wharf Property debt) consists
of approximately $46.6 million on the One Post Office Square Property (in
which the Operating Partnership has a 50% general partner interest) and
approximately $46.4 million on the 75-101 Federal Street Property (in which
the Operating Partnership owns approximately 52% of the common stock of a
private REIT that owns the Property). The weighted average rate of the
Operating Partnership's unconsolidated fixed rate mortgage indebtedness is
7.47%. The weighted average rate of the Operating Partnership's consolidated
and unconsolidated fixed rate mortgage indebtedness is 7.27%.
Based on the Operating Partnership's total market capitalization of
$2,690.3 million at December 31, 1996 (at the December 31, 1996 closing stock
price of $36.625), the Operating Partnership's consolidated debt plus its
proportionate share of total unconsolidated debt (other than the Rowes Wharf
Property debt) represented approximately 26% of its total market
capitalization.
In June 1996, the Operating Partnership substantially modified the terms
of the Credit Facility. Additionally, in July 1996, the maximum loan amount
available under the Credit Facility was increased to $300 million. The new
Credit Facility matures in June 1999. The Operating Partnership has an
interest rate protection agreement through May 1997 with The First National
Bank of Boston ("Bank of Boston") with respect to $135 million of the Credit
Facility, which provides for offsetting payments to the Operating Partnership
in the event that 90-day LIBOR exceeds 9.47% per annum. Effective May 1997
through May 1999, the Operating Partnership has an interest rate protection
agreement with respect to $137.5 million of the Credit Facility, which
provides for offsetting payments to the Operating Partnership in the event
that 90-day LIBOR exceeds 8.75% per annum. This interest rate protection
arrangement may be applied during four quarters of the period from May 1997
to May 1999.
The Operating Partnership utilizes the Credit Facility primarily to
finance acquisitions of additional properties, although up to $30 million may
be used for working capital purposes and $2.5 million is reserved under
certain circumstances for capital expenditures. The Credit Facility is a
recourse obligation of the Operating Partnership, is guaranteed by Beacon and
is secured by cross-collateralized mortgages and assignments of rents on 29
of the Properties. The Operating Partnership's ability to borrow under the
Credit Facility is subject to the Operating
12
<PAGE>
Partnership's compliance with a number of customary financial and other
covenants on an ongoing basis, including loan-to-value ratio against the secured
borrowing base not to exceed 60%, debt service coverage ratio of 1.5x for the
secured borrowing base and 2.0x for the Operating Partnership as a whole, a
leverage ratio not to exceed 55%, with the ability to increase leverage to
66.67% for up to six months at a time, limitations on additional indebtedness
and stockholders distributions, and a minimum net worth requirement. At December
31, 1996, the Operating Partnership had the ability to borrow an additional
$127.5 million under the Credit Facility without having to grant additional
mortgages on other owned Properties.
The Operating Partnership has considered its short-term (up to 12 months)
liquidity needs and the adequacy of expected liquidity sources to meet these
needs. The Operating Partnership believes that its principal short-term
liquidity needs are to fund normal recurring expenses, debt service
requirements and the minimum distribution required to maintain Beacon's REIT
qualifications under the Internal Revenue Code of 1986, as amended (the
"Code"). The Operating Partnership believes that these needs will be fully
funded from cash flows provided by operating activities.
The Operating Partnership expects to meet long-term (greater than 12
months) liquidity requirements for the costs of development, property
acquisitions, scheduled debt maturities, major renovations, expansions and
other non-recurring capital improvements through long-term secured and
unsecured indebtedness and the issuance of additional Units and equity
securities. The Operating Partnership may finance the redevelopment or
acquisition of additional properties by using its Credit Facility.
Rental revenues and operating expense reimbursement income from tenants,
and income from the management and design companies are the Operating
Partnership's principal sources to pay its operating expenses, debt service
and recurring capital expenditures. The Operating Partnership seeks to
increase income from existing Properties by maintaining quality standards for
its Properties that promote high occupancy rates and permit increases in
rental rates while reducing tenant turnover and controlling operating
expenses. Consequently, the Operating Partnership believes its revenues will
continue to provide the necessary funds for its operating expenses, debt
service and recurring capital expenditures.
During the year ended December 31, 1996, the Operating Partnership paid
quarterly distributions totaling $1.765 per unit, and intends to continue
paying distributions quarterly. The Operating Partnership expects to use cash
flows from operating activities to fund distributions to the partners.
Principal sources of funds for acquisitions are expected to include income
from operations, proceeds of offerings, amounts available under the Credit
Facility, and assumption of mortgage debt on new properties, long term
secured and unsecured indebtedness or sale of real estate. In addition to
funds from the above sources, acquisitions of properties or interests therein
may also be acquired by the issuance of Units.
Environmental Matters
The Operating Partnership believes, based on its internal reviews,
environmental site assessments performed by consultants, existing plans to
mitigate and monitor the sites and financial commitments of certain prior
owners and tenants, that the future costs relating to environmental remediation
and compliance will not have a material adverse effect on the Operating
Partnership's financial condition, results of operations, or liquidity.
Inflation
Most of the Operating Partnership's leases require tenants to pay
increases in operating expenses, including common area charges and real
estate taxes, thereby reducing the risk to the Operating Partnership of the
adverse effects of inflation. Leases also vary in term from three years to 15
years, further reducing the risk to the Operating Partnership of the adverse
effects of inflation.
13
<PAGE>
Item 3. Properties
<TABLE>
<CAPTION>
THE PROPERTIES
(dollars in thousands)
Rentable Percent Mortgage Notes
Year Ownership Area in Leased Cost at Payable at
Built/ Interest Property Square December 31, December 31, December 31,
Property Renovated (1) Location Feet 1996 1996 1996
---------------------- ---------- --------- -------------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Downtown Boston Office Market
75-101 Federal Street 1985-1988 50.8% Boston, MA 812,000 92% $ (2) $ (2)
One Post Office Square 1981 50% Boston, MA 764,129 99% (2) (2)
Center Plaza 1966-1969 (3) Boston, MA 649,359 93% 81,823 60,000
150 Federal Street 1988 100% Boston, MA 530,279 99% 113,871 56,920 (4)
Rowes Wharf 1987 45% Boston, MA 344,326 100% (2) (2)
Russia Wharf 1978-1982 100% Boston, MA 314,596 98% 18,089 (5)
2 Oliver Street-147
Milk Street 1982-1988 100% Boston, MA 271,000 97% 19,338 (5)
175 Federal Street 1977 100% Boston, MA 203,349 94% 29,105 12,970
South Station (6) 1988 100% Boston, MA 148,591 100% 22,348 --
--------- -----
4,037,629 96%
--------- -----
Greater Boston Suburban Office Market
Wellesley Office Park
(7) 1963-1984 100% Wellesley, MA 622,862 100% 97,805 55,000
Crosby Corporate
Center (8) 1996 100% Bedford, MA 336,000 88% 27,841 (5)
Westwood Business
Centre 1985 100% Westwood, MA 160,400 100% 12,331 (5)
New England Executive
Park Portfolio (9) 1970-1985 100% Burlington, MA 817,013 98% 75,390 (5)
--------- -----
1,936,275 97%
--------- -----
Cambridge Office Market
One Canal Park 1987 100% Cambridge, MA 100,300 100% 9,514 (5)
Ten Canal Park 1987 100% Cambridge, MA 110,000 92% 11,923 (5)
The Riverview
Building (10) 1985-1986 100% Cambridge, MA 263,227 100% 45,183 --
--------- -----
473,527 98%
--------- -----
North Central Atlanta Office Market
Perimeter Center
Portfolio (11). 1970-1989 100% Atlanta, GA 3,302,136 98% 343,014 218,000
--------- -----
Arlington County, Virginia Office Market
The Polk and Taylor
Buildings 1970 10% Arlington, VA 890,000 100% (2) (2)
1300 North 17th Street 1980 100% Rosslyn, VA 372,865 98% 54,776 (5)
1616 North Fort Myer
Drive 1974 100% Rosslyn, VA 292,826 99% 44,894 (5)
--------- -----
1,555,691 99%
--------- -----
Fairfax County, Virginia Office Market
John Marshall I 1981 100% McLean, VA 261,364 100% 34,134 20,722
E.J. Randolph 1983 100% McLean, VA 164,677 97% 23,146 15,000
Northridge I 1988 100% Reston/ 124,319 100% 21,216 13,600
Herndon, VA --------- -----
550,360 99%
--------- -----
Washington, D.C. Office Market
1333 H Street, N.W. Washington,
1984(12) 100% D.C. 238,694 90% 53,438 (5)
--------- -----
Suburban Chicago Office Market
AT&T Plaza 1984 100% Oak Brook, IL 225,318 100% 35,115 (5)
Tri-State Lincolnshire,
International (13) 1986 100% IL 548,000 74% 63,171 (5)
Presidents Plaza (14) 1980-1982 100% Chicago, IL 791,000 90% 77,533
--------- -----
1,564,318 86%
--------- -----
14
<PAGE>
THE PROPERTIES
(dollars in thousands)
Rentable Percent Mortgage Notes
Year Ownership Area in Leased Cost at Payable at
Built/ Interest Property Square December 31, December 31, December 31,
Property Renovated (1) Location Feet 1996 1996 1996
---------------------- ---------- --------- -------------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
West Los Angeles Office Market
10960 Wilshire Boulevard 1971-1992 100% Westwood, CA 543,804 89% $ 133,307 $ --
--------- -----
Suburban Philadelphia Office Market
Westlakes Office Park 1988-1990 100% Berwyn, PA 443,592 98% 59,018 (5)
(15) --------- -----
San Francisco Office Market
Shoreline Technology Mountain
Park (16) 1985-1991 100% View, CA 727,000 100% 141,040 --
Lake Marriott Business
Park (17) 1981 100% Santa Clara, CA 400,000 100% 43,167 --
--------- -----
1,127,000 100%
--------- ----- ---------- ----------
Total Weighted Average 15,773,026 96% $1,691,530 $452,212
========= ===== ========== ==========
</TABLE>
- -------------
(1) The Operating Partnership holds, directly or indirectly, a general
partner interest in One Post Office Square, a general partner and
limited partner interest in Center Plaza and the Polk and Taylor
Buildings and a limited partner interest in Rowes Wharf Associates. The
Operating Partnership holds approximately 50.8% of the common stock of
BeaMetFed, Inc. ("BeaMetFed"), the entity that holds the fee title to
the 75-101 Federal Street Property. The Operating Partnership owns a
100% fee interest in the remaining Properties, with the exception of
South Station, in which it holds a ground leasehold interest.
(2) The Operating Partnership uses the equity method of accounting for its
investments in the joint ventures or corporations which own these
Properties.
(3) The Operating Partnership holds a 1% general partner interest, a 75%
limited partner interest and an option to purchase the remaining 24%
limited partner interest in the partnership that owns the Center Plaza
Property.
(4) This Property is comprised of two units. Unit A is collateral for a note
payable under the Credit Facility. Unit B is collateral for a mortgage
note payable in the amount of $56,920.
(5) These Properties are collateral for a note payable under the Credit
Facility.
(6) The Operating Partnership owns a ground leasehold interest in the South
Station Property which expires in 2024 but may be extended, at the
Company's option, for two additional 15-year terms. Fee title to this
Property is owned by an unaffiliated third party. This Property was
originally built in the early 1900s and was fully rehabilitated in 1988.
This Property includes a significant retail component.
(7) The Wellesley Office Park consists of eight office buildings.
(8) The Crosby Corporate Center is a Property which consists of six office
buildings.
(9) The New England Executive Park Portfolio consists of nine of the
thirteen office buildings located in the New England Executive Park, the
remaining four of which are owner-occupied.
(10) The Riverview Building consists of two attached structures connected by a
four-story atrium. Riverview I, a six-story office building, was
constructed in 1909 and renovated in 1986. Riverview II, an eighteen-story
structure with parking on the first nine floors, was constructed in 1985.
(11) The Perimeter Center Portfolio consists of 32 buildings and six ground
leases.
(12) Approximately 205,000 square feet of the 1333 H Street Property was
built in 1982. The remaining approximately 34,000 square feet was
renovated in 1982.
(13) The Tri-State International complex consists of five office buildings.
(14) Presidents Plaza consists of four office buildings.
(15) The Westlakes Office Park consists of four office buildings.
(16) Shoreline Technology Park consists of twelve office buildings.
(17) Lake Marriott Business Park consists of seven office buildings.
15
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial ownership of Units for (i)
each limited partner of the Operating Partnership that the Operating
Partnership believes holds more than a 5% beneficial interest in the
Operating Partnership, (ii) each Director of Beacon (the corporate general
partner of the Operating Partnership) and each of the chief executive officer
and the four other most highly compensated executive officers of Beacon (the
"Named Executive Officers") and (iii) the directors and Named Executive
Officers of Beacon as a group.
<TABLE>
<CAPTION>
Name and Business Number of Percent of
Address of Beneficial Owner Units Units
--------------------------------------- --------- ----------
<S> <C> <C>
Beacon Properties Corporation 48,116,480 88.5 %
Alan M. Leventhal (1) 1,911,620 *
Lionel P. Fortin (2) 130,627 *
Edwin M. Sidman (3) 832,445 *
Douglas S. Mitchell 119,115 *
Robert J. Perriello 109,620 *
Charles H. Cremens 0 *
Graham O. Harrison 0 *
William F. McCall 0 *
Steven Shulman 0 *
Scott M. Sperling 0 *
All directors and executive officers
of Beacon as a group (10 persons) 3,103,427 5.7 %
</TABLE>
- -------------
* less than one percent
(1) Mr. Alan M. Leventhal was deemed to be the beneficial owner of (a)
1,300,185 Units held by trusts or partnerships of which he is a trustee
or a general partner by reason of his shared power to vote such Units and
(b) 305,380 Units allocated to him as beneficiary under a certain trust.
Mr. A. Leventhal holds 306,055 Units directly.
(2) Mr. Fortin was deemed to be the beneficial owner of (a) 7,193 Units held
by a trust of which he is a trustee by reason of his shared power to vote
such Units, and (b) 123,434 Units.
(3) Mr. Sidman was deemed to be beneficial owner of (a) 305,380 Units held by
trusts of which he is a trustee by reason of his shared power to vote
such Units, (b) 206,155 Units allocated to him as beneficiary under
certain trusts and (c) 320,910 Units held in a voting trust of which he
is a trustee by reason of his shared power to vote such shares.
Item 5. Directors and Officers
The Operating Partnership is managed through Beacon, the general partner
of the Operating Partnership. The information required by this item is hereby
incorporated by reference to the material appearing on pages S-55 through
S-58 of Beacon's prospectus supplement, dated November 14, 1996, File No.
333-02544.
In January 1997, William A. Bonn, Esq. joined Beacon as General Counsel. A
biography of Mr. Bonn follows:
Prior to joining Beacon as General Counsel, from 1987 to 1997 Mr. Bonn
worked with Property Capital Trust, another Boston-based real estate
investment trust, and served as Senior Vice President and General Counsel.
From 1978 to 1987 Mr. Bonn held various positions as an attorney with The
Prudential Insurance Company of America and was assigned to work with
Prudential's Realty Group in Newport Beach and Los Angeles, California; New
York City and at Prudential's headquarters in Newark, New Jersey. From 1976
to 1978 Mr. Bonn was engaged in the private practice of law in Los Angeles.
Mr. Bonn holds a Bachelor of Science Degree from the University of California
at San Diego and a Juris Doctor degree from the University of San Diego. He
is admitted to practice law in Massachusetts, New York and California, and is
a member of the American, California and Boston Bar Associations.
Item 6. Executive Compensation
The Operating Partnership is managed through Beacon, the general partner
of the Operating Partnership. Consequently, the Operating Partnership has no
executive officers and pays no compensation. The information provided in this
Item 6 reflects compensation paid to the executive officers of Beacon.
16
<PAGE>
Summary Compensation
The following table sets forth the base compensation awarded for the past
three fiscal years to each of the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------------- ---------------
Salary (1) Awards
Name and Principal Position Year ($) Bonuses ($) Options (#)
- --------------------------------------- ------ ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Alan M. Leventhal 1996 225,000 281,250 480,000
President and Chief 1995 165,000 206,250 50,000
Executive Officer 1994 150,000 61,250 100,000
Lionel P. Fortin 1996 195,000 195,000 300,000
Executive Vice President and 1995 154,000 154,000 35,000
Chief Operating Officer 1994 140,000 57,167 75,000
Robert J. Perriello 1996 175,000 131,250 125,000
Senior Vice President and 1995 147,500 110,634 25,000
Chief Financial Officer 1994 140,000 34,300 75,000
Douglas S. Mitchell 1996 175,000 131,250 125,000
Senior Vice President-- 1995 147,500 110,634 25,000
Leasing, Management and Development 1994 140,000 42,875 75,000
Charles H. Cremens 1996 141,346 250,000 300,000
Senior Vice President and 1995 N/A N/A N/A
Chief Investment Officer 1994 N/A N/A N/A
</TABLE>
- -------------
(1) The base salary of Messrs. Leventhal, Fortin, Mitchell, Perriello and
Cremens is paid by the Management Company. Beacon and the Operating
Partnership reimburse for time spent by the Named Executive Officer on
the business of Beacon or the Operating Partnership, respectively.
Option Grants in Fiscal Year 1996. The following table sets forth the
options granted with respect to the fiscal year ended December 31, 1996 to
Beacon's Named Executive Officers.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------
Potential Realizable
Value at Assumed
Number Annual Rate of
of Shares Percent of Share Price
Underlying Total Options Appreciation
Options Granted to Exercise or For Option Term
Granted(#) Employees Base Price Expiration --------------------------
Name (1) in Fiscal Year $/SH Date 5% ($) 10% ($)
- -------------------- ------------- --------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Alan M. Leventhal 480,000 21.6% $29.625 11/05/06 8,942,881 22,663,018
Lionel P. Fortin 300,000 13.5% $29.625 11/05/06 5,589,308 14,164,386
Douglas S. Mitchell 125,000 5.6% $29.625 11/05/06 2,328,875 5,901,826
Robert J. Perriello 125,000 5.6% $29.625 11/05/06 2,328,875 5,901,826
Charles H. Cremens 300,000 13.5% (2) (3) 4,913,239 15,239,386
</TABLE>
- -------------
(1) These options will vest in five equal installments commencing on November
6, 1997 through November 6, 2001, except for 200,000 options granted to
Mr. Cremens which will vest in four equal installments commencing on
February 20, 1997 through February 20, 2000.
(2) The exercise price with respect to 200,000 of these options is $24.25 and
the exercise price with respect to 100,000 of these Options is $29.625.
(3) The expiration date with respect to 200,000 of these options is February
19, 2006 and the expiration date with respect to 100,000 of these Options
is November 5, 2006.
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<PAGE>
Option Exercises and Year-End Holdings. The following table sets forth
information regarding the exercise of stock options by the Named Executive
Officers in 1996, as well as the value of options held at the end of 1996 by
the Named Executive Officers.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End 1996 Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options at Fiscal Options at Fiscal
Year-End(#) Year-End ($) (1)
Shares --------------------------------------
Acquired On Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
- ---------------------- ------------- ------------- --------------------------------------
<S> <C> <C> <C> <C>
Alan M. Leventhal N/A N/A 83,334/546,666 1,583,256/4,613,905
Lionel P. Fortin 25,000 $221,875 36,667/348,333 683,131/2,975,270
Robert J. Perriello 25,000 $221,875 33,334/166,667 628,083/1,640,542
Douglas S. Mitchell 25,000 $221,875 33,334/166,667 628,083/1,640,542
Charles H. Cremens N/A N/A 0/300,000 0/3,175,000
</TABLE>
- -------------
(1) The value of unexercised in-the-money options at fiscal year-end based on
the fair market value for Common Stock, $36.625 share, as of December 31,
1996.
Pension Plan
Beacon maintains a qualified non-contributory defined benefit pension plan
(the "Pension Plan") for eligible salaried employees of Beacon, including the
Named Executive Officers. The eligibility requirements of the Pension Plan
are 1,000 hours of service per year and one year of service with Beacon. The
assets of the Pension Plan are invested in funds managed by Fidelity
Investments and Pell Rudman & Co., Inc. The Pension Plan is administered by
the Board of Directors. Annual contributions to the Pension Plan are computed
by an actuarial firm based on normal pension costs and a portion of past
service costs. The Pension Plan provides for monthly benefits to, or on
behalf of, each covered employee at age 65 and has provisions for surviving
spouse benefits after five years of service. Covered employees who terminate
employment prior to retirement with at least five years of service are vested
in the accrued retirement benefit. The Pension Plan is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The following table illustrates estimated annual pension benefits payable
upon retirement under the Pension Plan.
Final Average Annual Pension Benefits Based on Years of Service
---------------- ---------------------------------------------------
Compensation 15 20 25 30 35
$160,000 24,000 32,000 40,000 48,000 56,000
The estimated accrued benefits shown in the table above are shown as
straight-life annuity amounts. These amounts are subject to reduction if an
optional form of annuity payment is elected. Pension benefits are calculated
based upon a plan compensation limit of $160,000. Normal retirement age is 65
years.
The estimated credited years of service for Messrs. Alan M. Leventhal,
Fortin, Mitchell, Perriello and Cremens are 20 years, 23 years, 32 years, 27
years, and 1 year, respectively.
Employment Agreement
Beacon has entered into an employment agreement with Alan M. Leventhal
(the "Employment Agreement") that will continue in effect until May 27, 1997,
and may be renewed for such periods, if any, as agreed to by Beacon and Mr.
Leventhal. Pursuant to the Employment Agreement, Mr. Leventhal will serve as
President and Chief Executive Officer of Beacon and Executive Vice President
of the Management Company. Mr. Leventhal was initially paid an annual base
salary of $150,000, which salary may be increased, but not decreased, during
the term of the Employment Agreement. Pursuant to the Employment Agreement,
Mr. Leventhal may participate in any incentive compensation plans established
by Beacon. Additionally, Beacon provides Mr. Leventhal and members of his
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<PAGE>
immediate family with medical and dental insurance and maintains life
insurance and disability insurance for the benefit of Mr. Leventhal. Pursuant
to the Employment Agreement, Mr. Leventhal devotes substantially all of his
business time to Beacon.
If Mr. Leventhal's employment with Beacon is terminated by Beacon without
"good reason" (as defined) or by Mr. Leventhal after a "change in control"
(as defined) or certain other events, Mr. Leventhal will be entitled to
continue to receive his base salary for the remaining term of the Employment
Agreement. The Employment Agreement defines "good reason" as a finding by
Beacon's Board of Directors that Mr. Leventhal has (i) acted with gross
negligence or willful misconduct in connection with the performance of his
material duties, (ii) defaulted in the performance of his material duties and
has not corrected such action within 15 days of notice thereof, (iii)
willfully acted against the best interests of Beacon, or (iv) been convicted
of a felony or committed fraud against Beacon. The Employment Agreement
defines a "change in control" as (i) any person becoming a beneficial owner
of the securities of Beacon representing 40% or more of either (A) the
combined voting power of Beacon's then outstanding securities having the
right to vote for Beacon's Board of Directors or (B) the then outstanding
shares of all classes of stock of Beacon, or (ii) individuals who, in May
1994, constituted the Board of Directors of Beacon (the "Incumbent
Directors") cease to constitute at least a majority of Beacon's Board of
Directors, provided that any person becoming a director whose election or
nomination was approved by at least a majority of the Incumbent Directors
shall be considered an Incumbent Director, or (iii) the stockholders of
Beacon approve (A) any consolidation or merger where Beacon's stock does not
represent at least 50% of the voting shares of the surviving company, (B) any
sale, lease, exchange or transfer of all or substantially all of the assets
of Beacon, or (C) any plan or proposal for the liquidation or dissolution of
Beacon.
The Employment Agreement, subject to certain exceptions, prohibits Mr.
Leventhal from engaging, directly or indirectly, during the term of his
employment, in any business which engages or attempts to engage in, directly
or indirectly, the acquisition, development, construction, operation,
management or leasing of any commercial office real estate property anywhere
in the United States that Beacon conducts its affairs (the "Competitive
Activities"). The Employment Agreement also, subject to certain limited
exceptions, prohibits Mr. Leventhal from engaging, directly or indirectly,
during the Noncompetition Period in any Competitive Activities. This
provision of the Employment Agreement survives the termination of the
remainder of the agreement until the expiration of the Noncompetition Period.
The Noncompetition Period is the period beginning on the date of the
termination of employment and ending on the latest of (i) May 26, 1997, (ii)
one year from the termination of Mr. Leventhal's employment with Beacon and
(iii) the date on which the severance payments provided to him under his
employment agreement cease.
Item 7. Certain Relationships and Related Transactions
The Operating Partnership is managed by Beacon, in its capacity as the
general partner of the Operating Partnership. In addition to the information
set forth below, the information under this heading is hereby incorporated by
reference to the material appearing on pages 16-17 in Beacon's definitive
proxy statement for the annual meeting of stockholders held in 1995 under the
caption "Certain Relationships and Related Transactions" and the material
appearing on page 16 in Beacon's definitive proxy statement for the annual
meeting of stockholders held in 1996 under the caption "Certain Relationships
and Related Transactions."
On December 1, 1994, as part of the Operating Partnership's purchase of
indebtedness secured by the partnership which owns the Center Plaza Property,
the Operating Partnership also purchased an option to acquire the remaining
24% limited partner interest in the partnership which owns the Center Plaza
Property from a trust, the beneficial owners of which include Alan M.
Leventhal and Edwin N. Sidman. The purchase price of the option was $10,000.
The option may be exercised at any time prior to June 1999 provided that the
Company also has exercised its option to acquire the junior notes, which are
secured by the first mortgage lien on Center Plaza. The exercise price is
determined by a formula, but may not exceed $74,000.
The Hotel Meridien, which is adjacent to One Post Office Square, is owned
by Oliver Street Associates. The general partners of Pearl Street Company, a
40% joint venturer in Oliver Street Associates, are Norman B. Leventhal and
Edwin N. Sidman, and the limited partners of Pearl Street Company include
Lionel Fortin, Douglas Mitchell, Robert J. Perriello and Alan M. Leventhal.
The ballroom and a portion of the cafe of the Hotel Meridien are located in,
and leased from, the partnership which owns One Post Office Square pursuant
to leases which provided for annual base rent in 1996 of approximately
$115,000. Additionally, the cooling tower for the Hotel Meridien is located
on
19
<PAGE>
the roof of the One Post Office Square garage pursuant to an easement
agreement. The Hotel Meridien and partnership which owns One Post Office
Square are also parties to an easement, restrictions and cooperation
agreement which provides, among other things, for mutual easements for a
private street, foundations, support, and an underground service area; for
mutual height and floor-area-ratio restrictions; and which gives the Hotel
Meridien the right to reserve up to 75 parking spaces at monthly rates in the
parking facilities located at the One Post Office Square garage.
William F. McCall, Jr., a Director of the Company, is Chairman of McCall &
Almy, Inc., an entity which leases space from the Company at One Post Office
Square for annual base rent in 1996 of approximately $135,000.
Item 8. Legal Proceedings
The following is a description of any material pending legal proceedings
to which Beacon, the Operating Partnership or any of their subsidiaries is a
party or of which any of their properties is the subject. The Operating
Partnership does not believe that the proceedings, individually, or in the
aggregate, will have a material adverse effect of the Operating Partnership's
financial condition, results of operations and liquidity.
Blaesing Granite: On January 11, 1989, Blaesing Granite Company, a
subcontractor, commenced a proceeding in the U.S. District Court for the
District of Massachusetts against the partnership which is the owner of the 75
State Street building in Boston, Massachusetts, and Turner Construction Company,
the general contractor for the construction of that project, for $14 million in
compensation for additional work performed on the project. The Construction
Company has been named as an additional defendant in its capacity as the
construction representative for the owner. The owner, Turner Construction
Company, and the Construction Company have vigorously defended this suit. The
Company believes that this case is without merit, and that, in the event of an
adverse outcome, liability would rest with parties other than the Construction
Company.
Property Partnership Matters: A limited partner in the partnerships which
owned or had interests in One Post Office Square, Wellesley Office Park
Building Five and Wellesley Office Park Building Six rejected an offer of
Beacon to enter into an option agreement under which he would sell his
interests in connection with the formation of the Operating Partnership for
Units and cash. On April 20, 1994, the partner commenced a lawsuit in Norfolk
Superior Court in Massachusetts against Beacon and certain of its affiliates,
individually and in their capacity as general partners of those partnerships,
alleging that the general partners of the partnerships mismanaged the
Wellesley Office Park Building Five and Wellesley Office Park Building Six
properties and that the general partners and Beacon acted wrongfully in
transferring the partnerships' interests to Beacon at a price less than their
fair value. The lawsuit is brought by the partner individually and as a
derivative claim on behalf of the partnerships. The allegations in the
lawsuit includes claims of breach of fiduciary duty, misrepresentation,
conspiracy, and violation of a Massachusetts statute prohibiting unfair and
deceptive practices in trade or business. In addition to compensatory
damages, the partner seeks an accounting of profits and/or rescission of the
partnerships' agreement to transfer their interests in these properties to
Beacon. By its nature, the rescission claim cannot be quantified.
On September 20, 1994, the Superior Court granted the defendants' motion
to dismiss the claim brought for violation of the Massachusetts statute
prohibiting unfair and deceptive practices in trade or business. Thereafter,
the defendants moved to strike the claim for rescission asserted by the
partner. On January 27, 1995, the Court denied the defendants' Motion to
Strike. As a result, the rescission claims remain for adjudication by summary
judgment and/or at trial. Fact discovery has been completed in this matter
and a trial is anticipated in April 1997.
Rowes Wharf: On or about June 2, 1995 certain present or former employees
of a former tenant at 40 Rowes Wharf, Boston, Massachusetts commenced a suit
in the Massachusetts Superior Court for Suffolk County alleging that they
sustained injuries as a result of alleged exposure to indoor air pollutants
during the course of their employment by a tenant at 40 Rowes Wharf.
Plaintiffs claim that Beacon negligently constructed the building and that
Rowes Wharf Associates negligently permitted the allegedly harmful condition
to exist. Beacon and Rowes Wharf Associates filed an Answer to plaintiffs'
Complaint denying liability. In October, 1996, the claims of two of the
plaintiffs were dismissed pursuant to an agreement for judgment for no
monetary award. The Company is unable to quantify the claims of the plaintiffs.
Ruggles Center Joint Venture: Ruggles Center Joint Venture ("RCJV"), the
owner of the Registry of Motor Vehicles building (the "RMV Building") located
at Ruggles Center, Boston, Massachusetts (the "Ruggles Center Property"),
filed a Complaint in the Massachusetts Superior Court for Suffolk County on
February 5, 1996, against the Construction Company and its surety, Aetna
Casualty and Surety Company, alleging that the Construction Company is
responsible for certain alleged deficiencies in the fireproofing material in
the RMV Building and
20
<PAGE>
claiming damages for the costs of investigating and correcting the
deficiencies, lost rental income and other consequential damages. That
Complaint was not served. On April 22, 1996, an Amended Complaint was served
on the Construction Company. That Complaint names Ruggles Center, LLC, the
purported assignee of RCJV, as plaintiff and asserts breach of contract,
breach of warranty and negligence claims against the Construction Company.
Although neither the Complaint nor the Amended Complaint quantify the claimed
damages, RCJV had previously alleged in correspondence that the alleged
corrective work on the fireproofing would cost approximately $1.7 Million,
certain corrective work on the HVAC system would cost an additional $1.3
Million, and RCJV had already spent approximately $2.25 Million in
investigation and planning the corrective work.
The Construction Company filed its Answer denying the claims of Ruggles
Center, LLC on May 31, 1996. On the same date, the Construction Company filed
a Counterclaim and Third-Party Claim against RCJV and Ruggles Center, LLC to
recover in excess of $1.5 Million. On the same date, the Construction Company
filed Third-Party Complaints against the manufacturer the fireproofing
material at the RMV Building, United States Mineral Products Company, d/b/a
Isolatek International ("Isolatek"), and the installer of the fireproofing
material at the RMV Building, H. Carr & Sons, Inc. ("Carr"). On August 26,
1996, Isolatek filed a Cross-Claim against the Construction Company asserting
claims of indemnity and contribution. The Construction Company filed an
Answer to Isolatek's Cross-Claim denying liability on September 9, 1996. On
September 19, 1996, Carr filed Counterclaims against the Construction Company
asserting claims of indemnity and contribution. The Construction Company
filed an Answer to Carr's Counterclaims denying liability on October 15,
1996.
In November 1996, the Bank of Boston foreclosed upon the Ruggles Center
property and purchased the property at the foreclosure auction for
approximately $15 Million.
Item 9. Market Price and Distribution
There is no established public trading market for the Units. As of
March 19, 1997, there were 43 holders of record of Units.
The following table sets forth the quarterly distributions paid by the
Operating Partnership to holders of its Units with respect to each such
period.
Quarter Ended Distributions
--------------------------------------------- ----------------
March 31, 1995 $ .40
June 30, 1995 $ .42
September 30, 1995 $ .42
December 31, 1995 $ .42
March 31, 1996 $ .42
June 30, 1996 $.4625
September 30, 1996 $.4625
December 31, 1996 $.4625
March 31, 1997 (through March 19, 1997) N/A
Distributions for Federal Income Tax purposes totaled $1.24 and $1.765 in
1995 and 1996, respectively. The return of capital portion of these
distributions was $0.17 and $0.155 in 1995 and 1996, respectively.
Item 10. Recent Sales of Unregistered Securities
Since its formation in May 1994, the Operating Partnership has issued
Units in private placements in reliance on an exemption from registration
under Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act") in the amounts and for the consideration set forth below:
o In connection with the initial public offering of Beacon in May 1994
(the "IPO") and a concurrent offering conducted simultaneously with
the IPO, the Operating Partnership issued 10,417,850 Units to Beacon
in exchange for the contribution of the net proceeds of approximately
$162.6 million from Beacon's IPO and 700,000 Units to Beacon in
exchange for the contribution of the net proceeds of approximately
$10.9 million from the concurrent offering.
o In connection with the IPO, Beacon issued 698,530 shares of restricted
Common Stock (valued at approximately $11.9 million) to certain
persons in consideration of their direct and indirect interests in
21
<PAGE>
Crosby Corporate Center and the Polk and Taylor Buildings Properties.
Beacon contributed these interests to the Operating Partnership in
consideration for 698,530 Units.
o In connection with the IPO, the Operating Partnership issued 3,318,470
Units (valued at approximately $56.4 million) to those individuals who
contributed their direct and indirect interests in the Properties
acquired by the Operating Partnership in connection with the IPO.
o In October 1994, the Operating Partnership issued 490,667 Units
(valued at approximately $9.2 million at the time of the acquisition)
to certain affiliates of the General Electric Pension Trust in
consideration for their indirect interests in 175 Federal Street and
the Wellesley Office Park.
o In connection with a public offering of Beacon in March 1995 (the
"March 1995 Offering"), the Operating Partnership issued 4,025,000
Units to Beacon in exchange for the contribution of the net proceeds
(approximately $71.8 million) from Beacon's March 1995 Offering.
o In connection with a public offering of Beacon in August 1995 (the
"August 1995 Offering"), the Operating Partnership issued 3,598,050
Units to Beacon in exchange for the contribution of the net proceeds
(approximately $72.5 million) from Beacon's August 1995 Offering.
o In September 1995, Beacon sold 718,000 shares of common stock to the
Dutch Metal Workers Pension Fund for cash. Beacon contributed the
gross proceeds of this sale (approximately $15.0 million) to the
Operating Partnership in consideration of 718,000 Units.
o In February 1996, the Operating Partnership issued 540,059 Units
(valued at approximately $13.8 million at the time of the acquisition)
to the sellers of the Perimeter Center Portfolio in consideration of
their interests in the Property.
o In connection with a public offering of Beacon in March 1996 (the
"March 1996 Offering"), the Operating Partnership issued 7,036,000
Units to Beacon in exchange for the contribution of the net proceeds
(approximately $173.8 million) from Beacon's March 1996 Offering.
o In connection with a public offering of Beacon in August 1996 (the
"August 1996 Offering"), the Operating Partnership issued 5,750,000
Units to Beacon in exchange for the contribution of the net proceeds
(approximately $139.4 million) from Beacon's August 1996 Offering.
o In September 1996, the Operating Partnership issued an aggregate of
833,820 Units (valued at approximately $21.5 million at the time of
the acquisition) to the sellers of the Fairfax County Portfolio in
consideration for their interests in such Properties.
o In connection with a public offering of Beacon in November 1996 (the
"November 1996 Offering"), the Operating Partnership issued 13,723,000
Units to Beacon in exchange for the contribution of the net proceeds
(approximately $398.9 million) from Beacon's November 1996 Offering.
o In connection with a public offering of Beacon in December 1996 (the
"December 1996 Offering"), the Operating Partnership issued 1,132,400
Units to Beacon in exchange for the contribution of the net proceeds
(approximately $37.8 million) from Beacon's December 1996 Offering.
o In December 1996, the Operating Partnership issued 1,171,500 Units
(valued at approximately $39.0 million at the time of the acquisition)
to Metropolitan Life Insurance Company in consideration for its
interest in the Presidents Plaza Property.
o From time to time, Beacon has issued an aggregate of 222,487 shares of
Common Stock pursuant to its Dividend Reinvestment Plan. Beacon has
contributed the proceeds (approximately $6.4 million) of these sales
to the Operating Partnership in consideration of an aggregate of
222,487 Units.
o From time to time, Beacon has issued an aggregate of 131,331 shares of
Common Stock upon the exercise of stock options. Beacon has
contributed the proceeds (approximately $2.3 million) of these sales
to the Operating Partnership in consideration of an aggregate of
131,331 Units.
22
<PAGE>
Item 11. Description of Registrant's Securities to be Registered
The following description is only a summary of the material provisions of
the partnership agreement of the Operating Partnership (the "Operating
Partnership Agreement") and is subject to, and qualified in its entirety by,
the Operating Partnership Agreement.
Voting Rights
Under the Operating Partnership Agreement, the Operating Partnership's
limited partners (the "Limited Partners") do not have voting rights relating
to the operation and management of the Operating Partnership except in
connection with certain amendments to the Operating Partnership Agreement.
Transferability of Interests
Beacon may not transfer any of its general partner interest or withdraw as
the general partner of the Operating Partnership (the "General Partner"), or
transfer any of its limited partner interest, unless Limited Partners holding
a majority of Limited Partner interests (other than Beacon) consent to such
transfer or withdrawal or such transfer is to an entity which is wholly-owned
by Beacon and is a "qualified REIT subsidiary" under the Code.
The Limited Partners generally may transfer their interests in the
Operating Partnership, in whole or in part, without the consent of the
General Partner. No Limited Partner has the right to substitute a transferee
as a Limited Partner in his place without the consent of the General Partner,
which consent may be withheld in the sole discretion of the General Partner.
Issuance of Additional Units; Preemptive Rights
The Operating Partnership is authorized to issue Units and other
partnership interest to its partners or to other persons for such
consideration and on such terms and conditions as the General Partner, in its
sole discretion, may deem appropriate. In connection with any capital
contribution made to the Operating Partnership, the Limited Partners (other
than Beacon) have the right to contribute to the Operating Partnership an
amount equal to or less than their then-existing percentage interest in such
capital contribution.
Redemption Rights
Pursuant to the Operating Partnership Agreement, the Limited Partners have
redemption rights which, subject to certain limitations, enable them to cause
the Operating Partnership to redeem each Unit for cash equal to the value of
a share of Common Stock or, at Beacon's election, Beacon may purchase each
Unit offered for redemption for one share of Common Stock (the "Redemption
Rights").
Management Liability and Indemnification
The Operating Partnership Agreement generally provides that the General
Partner will incur no liability to the Operating Partnership or any Limited
Partner for losses sustained or liabilities incurred as a result of errors in
judgment or of any act or omission if the General Partner acted in good
faith. In addition, the General Partner is not responsible for any misconduct
or negligence on the part of its agents provided the General Partner
appointed such agents in good faith. The Operating Partnership Agreement also
provides for indemnification of the General Partner, the directors and
officers of the General Partner, and such other persons as the General
Partner may from time to time designate, against any and all losses, claims,
damages, liabilities, joint or several expenses (including reasonable legal
fees and expenses), judgments, fines, settlements and other amounts arising
from any and all claims, demands, actions, suits or proceedings, civil,
criminal, administrative or investigative, that relate to the operations of
the Operating Partnership in which such person may be involved.
Amendment
Amendments to the Operating Partnership Agreement may be proposed by the
General Partner or by Limited Partners (other than Beacon) holding twenty
percent (20%) or more of the partnership interests. Certain amendments that
would, among other things, convert a Limited Partner's interest to a General
Partner interest, modify the limited liability of a Limited Partner in a
manner adverse to such Limited Partner, alter rights of a Limited Partner to
receive distributions or allocations, alter or modify the Redemption Rights
in a manner adverse to a Limited Partner, or cause the termination of the
Operating Partnership prior to the expiration of the term of the Operating
Partnership Agreement, require the consent of each Limited Partner adversely
affected by such amendment.
23
<PAGE>
Management Fees and Expenses
Beacon is not compensated for its services as general partner of the
Operating Partnership. However, Beacon is reimbursed for all expenses that it
incurs relating to the ownership and operation of, or for the benefit of, the
Operating Partnership.
Distributions and Allocations
The Partnership Agreement provides that the Operating Partnership will
distribute all available cash (as defined in the Operating Partnership
Agreement) on at least a quarterly basis, in amounts determined by the
General Partner in its sole discretion, to the partners in accordance with
their respective percentage interests in the Operating Partnership. Upon
liquidation of the Operating Partnership, after payment of, or adequate
provision for, debts and obligations of the Operating Partnership, including
any partner loans, any remaining assets of the Operating Partnership will be
distributed to all partners with positive capital accounts in accordance with
their respective positive capital account balances. If the General Partner
has a negative balance in its capital account following a liquidation of the
Operating Partnership, it will be obligated to contribute cash to the
Operating Partnership equal to the negative balance in its capital account.
Profit and loss of the Operating Partnership for each fiscal year of the
Operating Partnership generally will be allocated among the partners in
accordance with their respective interests in the Operating Partnership.
Taxable income and loss will he allocated in the same manner, subject to
compliance with the provisions of Code sections 704(b) and 704(c) and
Treasury Regulations promulgated thereunder.
Term
The Operating Partnership will continue until December 31, 2093, or until
sooner dissolved upon (i) withdrawal of the General Partner (unless the
Limited Partners elect to continue the Operating Partnership), (ii) through
December 31, 2053, an election to dissolve the Operating Partnership made by
the General Partner with the consent of the Limited Partners (including
Beacon) holding 85% of the limited partner interests in the Operating
Partnership, (iii) on or after January 1, 2054, an election to dissolve the
Operating Partnership made by the General Partner in its sole and absolute
discretion, (iv) entry of a decree of judicial dissolution, (v) the sale of
all or substantially all of the assets of the Operating Partnership, and (vi)
a final and non-appealable judgment ruling the General Partner bankrupt or
insolvent (unless the Limited Partners elect to continue the Operating
Partnership prior to the entry or such order or judgment).
Tax Matters
Pursuant to the Operating Partnership Agreement, the General Partner will
be the tax matters partner of the Operating Partnership and, as such, will
have authority to handle tax audits and to make tax elections under the Code
on behalf of the Operating Partnership.
Item 12. Indemnification of Directors and Officers.
The Operating Partnership is managed by Beacon, which owns an approximate
88.5% interest in, and serves as general partner of, the Operating
Partnership. Beacon's Articles of Incorporation, as amended, and Bylaws, as
amended, provide certain limitations on the liability of Beacon's Directors
and officers for monetary damages to Beacon. The Articles of Incorporation,
as amended, and the Bylaws, as amended, obligate Beacon to indemnify its
Directors and officers, and permit Beacon to indemnify its employees and
other agents, against certain liabilities incurred in connection with their
service in such capacities. These provisions could reduce the legal remedies
available to Beacon and the stockholders against these individuals.
Beacon's Bylaws, as amended, require it to indemnify its officers,
Directors and certain other parties to the fullest extent permitted from time
to time by Maryland law. Maryland General Corporation Law ("MGCL") permits a
corporation to indemnify (a) any present or former Director or officer who
has been successful, on the merits or otherwise, in the defense of a
proceeding to which he was made a party by reason of his service in that
capacity, against reasonable expenses incurred by him in connection with the
proceeding and (b) any present or former director or officer against any
claim or liability unless it is established that (i) his act or omission was
committed in bad faith or was the result of active or deliberate dishonesty,
(ii) he actually received an improper personal benefit in money, property or
services or (iii) in the case of a criminal proceeding, he had reasonable
cause to believe that his act or omission was unlawful. The MGCL also permits
Beacon to provide indemnification and advance expenses
24
<PAGE>
to a present or former director or officer who served a predecessor of Beacon
in such capacity, and to any employer or agent of Beacon or a predecessor of
Beacon.
Beacon has entered into indemnification agreements with each of its
executive officers and Directors. The indemnification agreements require,
among other matters, that Beacon indemnify its officers and directors to the
fullest extent permitted by law and advance to the officers and Directors all
related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted. Under these agreements, Beacon must
also indemnify and advance all expenses incurred by officers and Directors
seeking to enforce their rights under the indemnification agreements and may
cover officers and Directors under Beacon's Directors' and officers'
liability insurance. Although the form of indemnification agreement offers
substantially the same scope of coverage afforded by law, it provides
additional assurance to Directors and officers that indemnification will be
available because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or the Stockholders to eliminate the rights
it provides. It is the position of the SEC that indemnification of directors
and officers for liabilities under the Securities Act of 1933, as amended
(the "Securities Act") is against public policy and unenforceable pursuant to
Section 14 of the Securities Act.
Beacon provides coverage for its directors and officers under a directors'
and officers' liability insurance policy.
Item 13. Financial Statements and Supplementary Information
See "Index to Financial Statements" on page F-1 of this Form 10.
Item 14. Change in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
Item 15. Financial Statements and Exhibits
(a) Financial Statements and Financial Statement Schedules
See "Index to Financial Statements" on page F-1 of this Form 10.
(b) Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1 Amended and Restated Limited Partnership Agreement of the Operating Partnership, as amended (3)
9.1 Voting Trust Agreement between Edwin Sidman and Paula Sidman (1)
10.1 Restated Revolving Credit Agreement among Beacon Properties, L.P., Beacon Properties Corporation and the
First National Bank of Boston, dated June 27, 1996 (2)
10.2 Amendment No. 1 to the Restated Revolving Credit Agreement among Beacon Properties, L.P., Beacon Properties
Corporation and the First National Bank of Boston, dated July 18, 1996 (2)
12.1 Calculation of Ratios of Earnings to Fixed Charges (3)
21.1 List of Subsidiaries (3)
27.1 Financial Data Schedule (3)
</TABLE>
- -------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-3, File No. 33-76316.
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1996.
(3) Previously filed as an exhibit to this Registration Statement.
25
<PAGE>
BEACON PROPERTIES, L.P.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Independent Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 and the period May 26, 1994 to
December 31, 1994 and for the Predecessor for the period
January 1, 1994 to May 25, 1994 F-4
Consolidated Statements of Partners' Capital for the years ended
December 31, 1996 and 1995 and the period May 26, 1994 to
December 31, 1994 and for the Predecessor for the period
January 1, 1994 to May 25, 1994 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995 and the period May 26, 1994 to
December 31, 1994 and for the Predecessor for the period
January 1, 1994 to May 25, 1994 F-6 to F-7
Notes to Consolidated Financial Statements F-8 to F-18
Report of Independent Accountants on Financial Statement Schedules F-19 to F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Beacon Properties, L.P.:
We have audited the consolidated balance sheets of Beacon Properties, L.P. as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, partners' capital and cash flows for the years ended December 31,
1996 and 1995 and the period May 26, 1994 to December 31, 1994. We have also
audited the combined statement of operations, owners' equity and cash flows of
the Predecessor, more fully described in Note 1, for the period January 1, 1994
to May 25, 1994. These consolidated financial statements are the responsibility
of the Operating Partnership's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Beacon
Properties, L.P. as of December 31, 1996 and 1995 and the consolidated results
of its operations and its cash flows for the years ended December 31, 1996 and
1995 and the period May 26, 1994 to December 31, 1994, and the combined results
of operations and cash flows of the Predecessor for the period January 1, 1994
to May 25, 1994 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 21, 1997
F-2
<PAGE>
BEACON PROPERTIES, L.P.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
December 31,
------------
ASSETS 1996 1995
- ------ ---- ----
Real estate:
Land $ 213,858 $ 43,077
Buildings, improvements and equipment 1,477,672 428,065
--------- -------
1,691,530 471,142
Less accumulated depreciation 97,535 66,571
--------- -------
1,593,995 404,571
Deferred financing and leasing costs, net of
accumulated amortization of $16,334 and $14,487 17,287 9,438
Cash and cash equivalents 35,896 4,481
Restricted cash 2,599 2,764
Accounts receivable 11,596 6,111
Accrued rent 13,065 6,493
Prepaid expenses and other assets 808 8,060
Mortgage notes receivable 51,491 34,778
Investments in and advance to joint ventures
and corporations 52,176 58,027
--------- -------
Total assets $1,778,913 $534,723
========== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgage notes payable 452,212 70,536
Note payable, Credit Facility 153,000 130,500
Accounts payable, accrued expenses and
other liabilities 41,336 14,018
Investment in joint venture 24,735 23,955
------ ------
Total liabilities 671,283 239,009
Commitments and contingencies -- --
Limited partners' capital interest,
6,273,928 and 3,788,549 units
outstanding, at redemption value 229,783 87,137
----------- --------
Partners' capital:
Operating units issued and outstanding,
48,116,480 and 20,215,822
General partner - outstanding
543,904 and 240,044 10,530 2,926
Limited partner - outstanding
47,572,576 and 19,975,788 867,317 205,651
----------- --------
Total partners' capital 877,847 208,577
----------- --------
Total liabilities and partners' capital $1,778,913 $534,723
=========== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
BEACON PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Predecessor
For the Period -------------
For the For the May 26, 1994 For the Period
Year Ended Year Ended to January 1, 1994
December 31, December 31, December 31, to
1996 1995 1994 May 25, 1994
---------- -------- -------- ------
<S> <C> <C> <C> <C>
Revenues:
Rental income $147,825 $69,781 $23,702 $ 5,776
Management fees 3,005 2,203 -- 1,521
Recoveries from tenants 16,719 9,524 4,395 1,040
Mortgage interest income 4,970 2,546 -- --
Other income 11,249 5,985 2,671 675
------- ------ ------ -----
183,768 90,039 30,768 9,012
------- ------ ------ -----
Expenses:
Property expenses 37,210 17,698 6,497 2,086
Real estate taxes 18,124 9,950 3,015 595
General and administrative 19,218 9,444 2,943 1,399
Mortgage interest expense 30,300 15,220 4,970 2,798
Interest - amortization of financing costs 2,084 1,370 617 373
Depreciation and amortization 33,170 17,233 6,727 2,385
------- ------ ------ -----
140,106 70,915 24,769 9,636
------- ------ ------ -----
Income (loss) from operations 43,662 19,124 5,999 (624)
Equity in net income of joint ventures
and corporations 4,899 3,103 858 198
------- ------ ------ -----
Income (loss) from continuing operations
before minority interest 48,561 22,227 6,857 (426)
Minority interest in partnerships and
corporations (15) (36) (8) 931
------- ------ ------ -----
Income from continuing operations 48,546 22,191 6,849 505
Discontinued operations - construction company:
Income (loss) from operations (2,609) (12) 477 102
Loss on sale (249) -- -- --
------- ------ ------ -----
Income before extraordinary items 45,688 22,179 7,326 607
Extraordinary items (3,876) -- -- 8,898
------- ------ ------ -----
Net income $ 41,812 $22,179 $7,326 $ 9,505
======= ====== ====== =====
Income before extraordinary items per unit $ 1.32 $ 1.09 $ 0.48
======= ====== ======
Extraordinary items per unit $ (0.11) -- --
======= ====== ======
Net income per unit $ 1.21 $ 1.09 $ 0.48
======= ====== ======
Weighted average units outstanding 34,446,907 20,323,327 15,270,899
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
BEACON PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
for the Period January 1, 1994 to December 31, 1996
(dollars in thousands, except per unit amounts)
<TABLE>
<CAPTION>
Limited
General Limited Total Partners'
Partner's Partner's Partner's Capital
Capital Capital Capital Interest
--------------------------------------------------------
<S> <C> <C> <C> <C>
Owner's equity (Predecessor), at January 1, 1994 ($57,954)
Contributions and other, net of distributions from
January 1, 1994 to May 25, 1994 1,083
Net Income from January 1, 1994 through May 25, 1994 9,505
--------------------------------------------------------
Balance, at May 25, 1994 (47,366)
Capital contributions, net, May 26-December 31, 1994 $2,373 $182,884 $185,257 9,200
Net income, May 26-December 31, 1994 73 5,582 5,655 1,671
Distributions, May 26-December 31, 1994 ($0.96 per unit) (147) (11,197) (11,344) (3,382)
Adjustment to reflect limited partners' equity interest
at redemption value (1,123) (111,128) (112,251) 112,251
--------------------------------------------------------
Partners' capital, at December 31, 1994 1,176 66,141 67,317 72,374
Capital contributions, net -1995 1,940 157,781 159,721 307
Net income-1995 222 17,838 18,060 4,119
Distributions-1995 ($1.24 per unit ) (262) (21,216) (21,478) (4,706)
Adjustment to reflect limited partners' equity interest
at redemption value (150) (14,893) (15,043) 15,043
--------------------------------------------------------
Partners' capital, at December 31, 1995 2,926 205,651 208,577 87,137
Capital contributions, net -1996 8,466 744,792 753,258 75,143
Net income-1996 418 35,914 36,332 5,480
Distributions-1996 ($1.765 per unit ) (583) (50,083) (50,666) (7,631)
Adjustment to reflect limited partners' equity interest
at redemption value (697) (68,957) (69,654) 69,654
--------------------------------------------------------
Partners' capital, at December 31, 1996 $10,530 $867,317 $877,847 $229,783
========================================================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
BEACON PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Predecessor
For the Period -------------
For the For the May 26, 1994 For the Period
Year Ended Year Ended to January 1, 1994
December 31, December 31, December 31, to
1996 1995 1994 May 25, 1994
---------- -------- -------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 41,812 $ 22,179 $ 7,326 $ 9,505
---------- -------- -------- ------
Adjustments to reconcile net income to net cash provided by operating
activities:
Increase in accrued rent (6,572) (3,741) (915) (1,181)
Depreciation, amortization and interest-amortization
of financing costs 35,254 18,603 7,344 2,848
Equity in net income of joint ventures and corporations (2,026) (3,055) (1,327) (201)
Loss from minority interest in combined partnerships -- -- -- (1,519)
Extraordinary items 3,876 -- -- (8,898)
Deferred interest -- -- -- 367
Increase in accounts receivable (5,485) (1,746) (3,075) (376)
Decrease (increase) in prepaid expenses and other assets (48) (58) 2,541 (1,940)
Increase (decrease) in accounts payable, accrued expenses
and other liabilities 25,421 781 (739) 1,636
---------- -------- -------- ------
Total adjustments 50,420 10,784 3,829 (9,264)
---------- -------- -------- ------
Net cash provided by operating activities 92,232 32,963 11,155 241
---------- -------- -------- ------
Cash flows from investing activities:
Property additions (1,088,775) (67,610) (190,015) (978)
Loans receivable - affiliate -- -- (14,594) --
Payment of deferred leasing costs (6,157) (2,646) (1,010) (124)
Decrease (increase) in prepaid expenses and other assets 5,000 (5,000) -- --
Purchase of minority interests -- -- (11,688) --
Investments in joint ventures -- -- (15,802) --
Capital distributions from joint ventures 8,610 3,518 2,508 --
Investments in and advance to corporations -- (41,471) (5,800) --
Cash from contributed assets -- -- 6,978 --
Restricted cash from contributed assets -- -- 420 --
Purchase of mortgage notes receivable (16,713) (34,778) -- --
Decrease (increase) in restricted cash 165 2,063 (4,827) --
---------- -------- -------- ------
Net cash used by investing activities (1,097,870) (145,924) (233,830) (1,102)
---------- -------- -------- ------
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
BEACON PROPERTIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(dollars in thousands)
Predecessor
For the Period -------------
For the For the May 26, 1994 For the Period
Year Ended Year Ended to January 1, 1994
December 31, December 31, December 31, to
1996 1995 1994 May 25, 1994
---------- -------- -------- -------------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Capital contributions $ 754,175 $ 160,028 $173,452 $ 412
Borrowings on Credit Facility 468,000 124,700 130,300 --
Borrowings on mortgage notes 608,000 -- -- 874
Payments on Credit Facility (445,500) (124,500) -- --
Repayments on mortgage notes (281,814) (20,400) (49,677) (460)
Advances (repayments) of amounts due to affiliates -- -- (5,355) 2,800
Payment of deferred financing costs (9,811) (2,457) (2,764) (13)
Decrease (increase) in prepaid expenses and other assets 2,300 (2,300) -- --
Distributions (58,297) (32,435) (8,475) (4,329)
---------- -------- -------- ------
Net cash provided by (used by) financing activities 1,037,053 102,636 237,481 (716)
---------- -------- -------- ------
Net increase (decrease) in cash and cash equivalents 31,415 (10,325) 14,806 (1,577)
Cash and cash equivalents, beginning of period 4,481 14,806 -- 6,150
---------- -------- -------- ------
Cash and cash equivalents, end of period $ 35,896 $ 4,481 $ 14,806 $ 4,573
========== ======== ======== ======
Supplemental disclosures:
Cash paid during the period for interest
(net of capitalized interest) $ 28,777 $ 14,738 $ 5,278 $ 2,811
========== ======== ======== ======
Noncash activities:
Acquisition of interests in properties -- -- $ 22,721
========== ======== ========
Increase in partners' capital as a result of acquisition
of interests in properties $ 74,226 -- $ 9,200
========== ======== ========
Liabilities assumed in connection with contributions
and acquisition of properties $ 55,529 $ 861 $ 93,518
========== ======== ========
Distributions payable to unit holders -- -- $ 6,251
========== ======== ========
Receivable from equity investment $ 769 $ 1,040
========== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-7
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. Organization, Offerings and Acquisitions:
-----------------------------------------
Beacon Properties, L.P. (the "Operating Partnership") was organized as a
Delaware limited partnership in April 1994 and commenced operations
effective on May 26, 1994. The Operating Partnership was formed to continue
and expand the commercial real estate development, construction,
acquisition, leasing, design and management business of The Beacon Group
(the "Predecessor").
Simultaneously with the closing of the initial public offering (the "IPO")
of Beacon Properties Corporation (the "Company"), which is the sole general
partner and a limited partner of the Operating Partnership, the Company
contributed its interests in two properties and approximately $173.4
million, the net proceeds of the IPO, to the Operating Partnership in
exchange for partnership interests ("Units").
The following schedule summarizes the Operating Partnership's interest in
the properties as a result of the initial and subsequent capital
contributions of the Company, and the related acquisition of properties and
partnership interests. All properties have been consolidated unless
otherwise indicated in the notes:
<TABLE>
<CAPTION>
Rentable Ownership Accounting
Date Area In Interest at Method
Acquired Square Feet 12/31/96 Notes
-------- ----------- -------- -----
<S> <C> <C> <C> <C>
Properties:
Wellesley Office Park - Buildings 1-8, Wellesley, MA (A) 622,862 100% (E)
Crosby Corporate Center, Bedford, MA (B) 336,000 100%
South Station, Boston, MA (B) 148,591 100%
175 Federal Street, Boston, MA (B) 203,349 100% (E)
One Post Office Square, Boston, MA (B) 764,129 50% (D)
Center Plaza, Boston, MA (B) 649,359 100%
Rowes Wharf, Boston, MA (B) 344,326 45% (F)
150 Federal Street, Boston, MA (B) 530,279 100%
Polk and Taylor Buildings, Arlington, VA (B) 890,000 9% (G)
One Canal Park, Cambridge, MA 6/10/94 100,300 100%
Westwood Business Centre, Westwood, MA 6/10/94 160,400 100%
Russia Wharf, Boston, MA 8/10/94 314,596 100%
Westlakes Office Park -
Buildings 1-3 and 5, Berwyn, PA (C) 443,592 100%
75-101 Federal Street, Boston, MA 9/29/95 812,000 51% (H)
2 Oliver Street - 147 Milk Street, Boston, MA 10/6/95 271,000 100%
Ten Canal Park, Cambridge, MA 12/21/95 110,000 100%
New England Executive Park,
Burlington, MA 11/15/96 817,013 100%
245 First Street, Cambridge, MA 11/21/96 263,227 100%
Perimeter Center, Atlanta, GA 2/15/96 3,302,136 100%
1300 North 17th Street, Rosslyn, VA 10/18/96 372,865 100%
1616 North Fort Myer Drive, Rosslyn, VA 10/18/96 292,826 100%
John Marshall I, McLean, VA 9/5/96 261,364 100%
E.J. Randolph, McLean, VA 9/5/96 164,677 100%
Northridge I, Reston/Herndon, VA 9/5/96 124,319 100%
1333 H Street, N.W., Washington, D.C. 8/16/96 238,694 100%
AT&T Plaza, Oak Brook, IL 8/16/96 225,318 100%
Tri-State International, Lincolnshire, IL 8/16/96 548,000 100%
10960 Wilshire Boulevard, Westwood, CA 11/21/96 543,804 100%
Shoreline Technology Park, Mountain View, CA 12/20/96 727,000 100%
Lake Marriott Business Park, Santa Clara, CA 12/20/96 400,000 100%
Presidents Plaza, Chicago, IL 12/27/96 791,000 100%
----------
15,773,026
==========
</TABLE>
Continued
F-8
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
<TABLE>
<CAPTION>
Rentable Ownership Accounting
Date Area In Interest at Method
Acquired Square Feet 12/31/96 Notes
-------- ----------- -------- -----
<S> <C> <C> <C> <C>
Service Entities:
Beacon Construction Company, Inc. (B) 99% (I)
Beacon Property Management, L.P. (B) 100%
Beacon Property Management Corporation (B) 99% (I)
Beacon Design Corporation (B) 99% (I)
Beacon Design L.P. (B) 100%
</TABLE>
(A) Wellesley Building 8 was acquired May 4, 1995. Interests in the remaining
Wellesley Buildings were contributed as part of the initial public
offering.
(B) Interests in this property or company were contributed or acquired as part
of the initial public offering.
(C) Westlakes Buildings 1, 3 and 5 were acquired October 21, 1994, Westlakes
Building 2 was acquired July 26, 1995.
(D) The Operating Partnership is a general partner in the joint venture which
owns the property and utilizes the equity method of accounting for its
investment.
(E) On October 28, 1994, the Operating Partnership acquired the remaining
interest in the 175 Federal Street and Wellesley 6 Joint Venture which
owned these properties. Prior to the acquisition of the remaining interest,
the Operating Partnership used the equity method of accounting for its
investments.
(F) The Operating Partnership owns an indirect limited partner interest and
utilizes the equity method of accounting for its investment. (See Note 2.)
(G) The Operating Partnership owns a 9% limited partner interest and utilizes
the equity method of accounting for its investment.
(H) The Operating Partnership is a shareholder in the corporation (private real
estate investment trust) which owns the property, and utilizes the equity
method of accounting for its investment.
(I) The Operating Partnership used the cost method of accounting for its
investments in these subsidiaries prior to 1995. The Operating Partnership
currently uses the equity method of accounting for its investments. (See
Note 2.)
2. Summary of Significant Accounting Policies:
-------------------------------------------
Business
The Operating Partnership currently has interests in a portfolio of 104
Class A office properties and other commercial properties containing
approximately 15.8 million rentable square feet located in Boston, Atlanta,
Chicago, Los Angeles, San Francisco and Washington, D.C.
The Operating Partnership also owns and operates commercial real estate
development, acquisition, leasing, design and management businesses. The
Operating Partnership currently manages approximately 2.9 million square
feet of commercial and office space owned by third parties in various
locations, including Boston, Waltham, and Springfield, Massachusetts and
Chicago, Illinois.
Principles of Consolidation
The accompanying financial statements of the Operating Partnership have
been prepared on a consolidated basis which include all the accounts of the
Operating Partnership and its subsidiaries. All significant intercompany
balances and transactions have been eliminated. The Operating Partnership's
consolidated financial statements reflect the properties acquired at their
historical basis of accounting to the extent of the acquisition of
interests from the Predecessors' owners who continued on as investors. The
remaining interests acquired from the Predecessors' owners have been
accounted for as a purchase and the excess of the purchase price over the
related historical cost basis was allocated to real estate.
The accompanying financial statements of the Predecessor have been
presented on a combined basis which include all the contributed properties
and the management, leasing and design entities.
F-9
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Real Estate
Buildings and improvements are recorded at cost and are depreciated on the
straight-line and declining balance methods over their estimated useful
lives of nineteen to forty years and fifteen to twenty years, respectively.
The cost of buildings and improvements includes the purchase price of the
property or interests in property, legal fees, acquisition costs and
interest, property taxes, capitalized interest, and other costs incurred
during the period of construction. The Operating Partnership capitalized
interest costs of $1.0 million in 1996, $0.1 million in 1995, and $0 in
1994. In accordance with Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, the Operating Partnership periodically reviews
its properties to determine if its carrying costs will be recovered from
future operating cash flows. In cases where the Operating Partnership does
not expect to recover its carrying costs, the Operating Partnership
recognizes an impairment loss. No such losses have been recognized to date.
Tenant improvements are depreciated over the terms of the related leases.
Furniture, fixtures and equipment are depreciated using the straight-line
and declining balance methods over their expected useful lives of five to
seven years.
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments which extend the economic
useful life of the assets are capitalized.
Deferred Financing and Leasing Costs
Deferred financing costs include fees and costs incurred to obtain
long-term financings, and are amortized over the terms of the respective
loans on a basis which approximates the interest method. Deferred leasing
costs incurred in the successful negotiation of leases, including
brokerage, legal and other costs, have been deferred and are being
amortized on a straight-line basis over the terms of the respective leases.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid assets with original
maturities of three months or less from the date of purchase. The majority
of the Operating Partnership's cash and cash equivalents are held at major
commercial banks. The Operating Partnership has not experienced any losses
to date on its invested cash. The carrying value of the cash and cash
equivalents approximates market.
Restricted Cash
Restricted cash consists of cash held in escrow as required by lenders to
satisfy real estate taxes and tenant improvement costs.
Investments in and Advance to Joint Ventures and Corporations
The Operating Partnership uses the equity method of accounting for its
earnings in property joint ventures and corporations which it does not
control. Losses in excess of investments are not recorded where the
Operating Partnership is a limited partner and has not guaranteed nor
intends to provide any future financial support to the respective
properties.
Mortgage Notes Receivable
Discounts from the principal balance on mortgage loans receivable, net of
acquisition costs, are amortized as interest income over the due date of
the related loans using the effective yield method, based on management's
evaluation of the current facts and circumstances and the ultimate ability
to collect the principal balances of such loans.
F-10
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Revenue Recognition
Base rental income is reported on a straight-line basis over the terms of
the respective leases. The impact of the straight-line rent adjustment
increased revenues for the Operating Partnership by $6.6 million, $3.7
million and $1.9 million and increased its proportionate share of equity in
net income of property joint ventures and corporations by $0.1 million,
$0.2 million and $0.3 million for the years ended December 31, 1996 and
1995 and the period May 26, 1994 to December 31, 1994, respectively.
Management fees are recognized as revenue as they are earned.
Income Taxes
Income taxes are not considered in the accompanying financial statements
since such taxes, if any, are the responsibility of the partners.
Interest Rate Protection Agreements
The Operating Partnership has entered into interest rate protection
agreements to reduce the impact of certain changes in interest rates. These
agreements are held for purposes other than trading. Amounts paid for the
agreements are amortized over the lives of the agreements on a basis which
approximates the interest method. Payments under interest rate swap
agreements are recognized as adjustments to interest expense when incurred.
The Operating Partnership's policy is to write off unamortized amounts paid
under interest rate protection agreements, when the related debt is paid
off or there is a termination prior to the maturity of the agreements. The
Operating Partnership is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate protection
agreements. However, the Operating Partnership does not anticipate
nonperformance by the counterparties.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
Reclassifications
Certain prior year balances have been reclassed to conform with current
year presentation.
3. Accounts Receivable:
--------------------
December 31,
------------
1996 1995
---- ----
Tenants $ 5,072 $2,137
Other 4,228 1,006
Affiliates 3,670 3,305
Allowance for uncollectible amounts (1,374) (337)
------ ----
$11,596 $6,111
======= ======
4. Mortgage Notes Receivable:
--------------------------
The Operating Partnership acquired a fifty percent interest in certain
mortgages collateralized by property owned by a joint venture in which the
Operating Partnership has an indirect interest. The terms of the notes
require interest-only payments at 8.71% quarterly on a principal balance of
approximately $63.0 million and are due on April 1, 1999. The term may be
extended for up to three years under certain conditions. The Operating
Partnership also has an option to purchase from an affiliate other mortgage
interests collateralized by the same property.
F-11
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
5. Investments in and Advance to Joint Ventures and Corporations:
--------------------------------------------------------------
The following is summarized financial information for the property joint
ventures and corporation:
December 31,
------------
1996 1995
---- ----
Balance sheet:
Real estate, net $ 410,207 $ 419,096
Other assets 51,669 55,714
--------- ---------
$ 461,876 $ 474,810
========= =========
Mortgage notes payable $ 377,754 $ 380,827
Loans and notes payable 72,136 68,606
Other liabilities 13,040 14,072
Partners' and shareholders' equity (deficiency) (1,054) 11,305
--------- ---------
$ 461,876 $ 474,810
========= =========
<TABLE>
<CAPTION>
For the Period Predecessor
For the For the May 26, 1994 For the Period
Year Ended Year Ended to January 1, 1994
December 31, December 31, December 31, to
1996 1995 1994 May 25, 1994
---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
Summary of operations:
Rentals $117,283 $91,048 $59,983 $38,386
Other income 3,453 3,861 5,717 2,941
Operating expenses 61,086 49,472 34,688 22,632
Mortgage interest expense 28,712 23,232 16,261 13,432
Depreciation and amortization 18,592 14,537 11,427 8,228
------ ------ ------ ------
Net income (loss) $ 12,346 $ 7,668 $ 3,324 $(2,965)
======= ====== ====== ======
</TABLE>
A reconciliation of interests in property joint ventures and corporation to
the underlying net assets is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1996 1995 1994
---------- -------- ----------
<S> <C> <C> <C>
Partners' and shareholders' (deficiency) capital, as above $(1,054) $11,305 $(51,742)
Deficits of other partners and shareholders 23,555 13,270 38,459
------ ------ ------
Operating Partnership's share of equity (deficiency) 22,501 24,575 (13,283)
Excess of cost of investments over the net book value of
underlying net assets, net of amortization and accumulated
amortization of $122, $75 and $28, respectively 1,310 1,357 1,384
------ ------ ------
Carrying value of property investments in joint ventures and
corporation $23,811 $25,932 $(11,899)
======= ======= ========
</TABLE>
F-12
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
The following is summarized financial information for the service
corporations:
December 31,
-------------------
1996 1995
------- -------
Balance sheet:
Equipment, net $ 1,806 $ 715
Other assets 34,155 29,560
------- -------
$35,961 $30,275
======= =======
Other liabilities 37,360 27,124
Shareholders' equity (deficiency) (1,399) 3,151
------- -------
$35,961 $30,275
======= =======
<TABLE>
<CAPTION>
For the Year For the Year For the Period
Ended Ended May 26, 1994 to
December 31, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Summary of operations:
Construction income $140,903 $108,913 $52,429
Consulting and management fees 2,537 7,576 4,848
Interest and other income 266 383 184
Construction, consulting and management 141,167 110,835 52,388
fee costs
General and administrative expense 5,121 4,880 3,564
Depreciation and amortization 584 336 186
Minority interest in net income of joint venture 52 130 90
Interest expense to stockholder -- 650 --
------- ------- ------
Net income (loss) $ (3,218) $ 41 $ 1,233
======== ======== =======
</TABLE>
A reconciliation of the underlying net assets to the Operating Partnership's
carrying value of investments in and advance to service corporations is as
follows:
December 31,
-----------------------
1996 1995
-------- --------
Shareholders' equity, as above $ (1,399) $ 3,151
(Deficit) equity of other shareholders (29) 11
------ ------
Operating Partnership's share of equity (1,370) 3,140
Advance 5,000 5,000
------ ------
Carrying value of investments in and advance to
service corporations 3,630 8,140
Carrying value of property investments in joint
ventures and corporation per above 23,811 25,932
------ ------
$ 27,441 $ 34,072
======== ========
Per consolidated balance sheet:
Investments in and advance to joint
ventures and corporations $ 52,176 $ 58,027
Investment in joint venture (24,735) (23,955)
------- -------
$ 27,441 $ 34,072
======== ========
F-13
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
6. Mortgage Notes Payable:
The mortgage notes payable collateralized by the certain properties and
assignment of leases, are as follows:
December 31,
---------------------
1996 1995
-------- --------
Mortgage notes with fixed interest at:
8.00% maturing July 1, 1998 $12,970 $ 13,236
6.67% maturing November 1, 1998 56,920 57,300
7.23% maturing February 1, 2003 55,000 -
7.23% maturing March 1, 2003 60,000 -
7.08% maturing March 31, 2006 218,000 -
8.19% maturing January 1, 2007 15,000 -
8.19% maturing January 1, 2007 13,600 -
8.38% maturing December 1, 2008 20,722 -
-------- -------
Total mortgage notes payable $452,212 $70,536
======== =======
The Operating Partnership's restricted cash consists of cash required by
these mortgages to be held in escrow for capital expenditures and/or real
estate taxes.
Scheduled maturities of mortgage notes payable are as follows:
1997 $ 2,127
1998 72,611
1999 6,602
2000 7,608
2001 8,171
Thereafter 355,093
--------
Total $452,212
========
The Operating Partnership determines the fair value of its mortgage notes
payable based upon the discounted cash flows at a discount rate that
approximates the Operating Partnership's effective borrowing rate. Based on
its evaluation, the Operating Partnership has determined that the fair
value of its mortgage notes approximates their carrying value.
In March 1996, the Operating Partnership repaid a debt and recorded an
extraordinary item of $2.2 million in connection with the write-off of fees
and costs to acquire the debt. The extraordinary item during the period
January 1, 1994 through May 25, 1994 represents the gains resulting from
the settlement of certain mortgage notes payable. As the prepayments were a
condition to transfer the assets to the Operating Partnership, these items
were recorded by the Predecessor entity.
7. Note Payable -- Credit Facility:
--------------------------------
The Operating Partnership presently has a three-year, $300 million
revolving credit facility (the "Credit Facility"). The Credit Facility
matures in June 1999 and is collateralized by cross-collateralized
mortgages and assignment of rents on certain properties.
Outstanding balances under the Credit Facility bear interest, at the
Company's option, at either (i) the higher of (x) Bank of Boston's base
interest rate and (y) one-half of one percent (1/2%) above the overnight
federal funds effective rate or (ii) the Eurodollar rate plus 175 basis
points (1.75%). The Company has an interest rate protection agreement
through May 1997 with respect to $135 million of the Credit Facility, which
provides for offsetting payments to the
F-14
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Company in the event that 90-day LIBOR exceeds 9.47% per annum. Effective
May 1997 through May 1999, the Company has an interest rate protection
agreement with respect to $137.5 million of the Credit Facility, which
provides for offsetting payments to the Company in the event that 90-day
LIBOR exceeds 8.75% per annum. This interest rate protection arrangement
may be applied during four quarters of the period May 1997 to May 1999.
The outstanding balance of the Credit Facility at December 31, 1996 was
$153.0 million. The weighted average amount outstanding during the years
ended December 31, 1996 and 1995 and the period May 26, 1994 to December
31, 1994 was $42.3 million, $99.7 million and $50.4 million, respectively.
The weighted average interest rate on amounts outstanding during the years
ended December 31, 1996 and 1995 and the period May 26, 1994 to December
31, 1994 was approximately 7.78%, 8.25% and 7.57%, respectively. The
applicable interest rate under the Credit Facility at December 31, 1996 was
8.25%.
Based upon the Credit Facility's variable interest rate, the Operating
Partnership has determined that the fair value of the Credit Facility
approximates its carrying value. The Operating Partnership determines the
fair value of its interest rate agreement based upon the quoted market
prices of similar instruments. Based on this analysis, the Operating
Partnership has determined that the fair value of this instrument
approximates its carrying value.
As a result of the substantial modification of the terms of the Credit
Facility, the Company recorded an extraordinary item of $1.7 million in
connection with the write-off of fees and costs relating to the prior
Credit Facility.
8. Accounts Payable, Accrued Expenses and Other Liabilities:
---------------------------------------------------------
December 31,
------------------
1996 1995
------ -----
Accounts payable and accrued expenses $29,139 $8,088
Deferred revenue and other 4,912 1,164
Affiliates 1,595 2,952
Other liabilities 504 647
Security deposits 5,186 1,167
------ -----
$41,336 $14,018
====== ======
9. Transactions with Affiliates
-----------------------------
<TABLE>
<CAPTION>
Predecessor
----------------
For the Year For the Year For the Period For the Period
Ended Ended May 26, 1994 January 1, 1994
December 31, December 31, to to
1996 1995 December 31, 1994 May 25, 1994
------------ ------------ ----------------- ----------------
<S> <C> <C> <C> <C>
Management, rental, design, construction
fees and interest income $9,176 $ 5,640 $1,809
Construction costs 8,352 11,108 $ 241 --
Administrative salaries and expenses -- -- -- 469
</TABLE>
In 1995, the Operating Partnership entered into an agreement to lease its
home office from a joint venture in which the Operating Partnership has an
indirect interest. It previously subleased home office space from another
affiliate. Rental expense related to these arrangements was $1.3 million,
$0.3 million and $0.1 million for the years ended December 31, 1996 and
1995 and the period May 26, 1994 to December 31, 1994, respectively.
F-15
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
Future minimum rental payments at December 31, 1996 for the Operating
Partnership's home office are $1.3 million for 1997, $1.4 million for 1998
through 2001, and $1.0 million for 2002.
10. Limited Partners' Capital Interest
----------------------------------
Pursuant to the Operating Partnership Agreement, certain limited partners
in the Operating Partnership have the right to redeem all or any portion
of their Units for cash from the Operating Partnership or, at the election
of the Company, for shares of common stock or cash as selected by the
Company. The amount of cash to be paid to the limited partner if the
redemption right is exercised and the cash option is selected will be
based on the trading price of the Company's common stock at that time.
Such limited partners' redemption rights are not included in partners'
capital. Accordingly, the accompanying consolidated balance sheets have
been retroactively reclassified to reflect the limited partners' capital
interest in the Operating Partnership, measured at redemption value. This
reclassification results in a reduction of partners' equity of $69.7
million and $15.0 million as of December 31, 1996 and 1995, respectively
as a result of the increase in the redemption value.
11. Commitments and Contingencies:
------------------------------
Pension Plan
The Operating Partnership participates in a multiemployer defined-benefit
pension plan with some of its affiliates. This plan covered substantially
all full-time nonunion employees. The Operating Partnership's portion of
pension expense for the years ended December 31, 1996 and 1995 and the
period May 26, 1994 to December 31, 1994, was $0.2 million, $0.1 million,
and $0.1 million, respectively. The Predecessor's comparable allocated
portion of pension expense amounted to $0.1 million for the period
January 1, 1994 to May 25, 1994.
401(k) Plan
The eligible employees of the Operating Partnership participate in a
contributory savings plan with some of its affiliates. Under the plan, the
Operating Partnership may match contributions made by eligible employees
based on a percentage of the employee's salary. Currently, the Operating
Partnership matches 25% of contributions up to 3% of such employee's salary
(up to $30). The matching amount may be changed from time to time by the
Board of Directors of the Company. Expenses under this plan for 1996, 1995
and 1994 were not material.
Contingencies
The Operating Partnership is subject to various legal proceedings and
claims that arise in the ordinary course of business. These matters are
generally covered by insurance. Management believes that the final outcome
of such matters will not have a material adverse effect on the financial
position, results of operations or liquidity of the Operating Partnership.
Lease
The South Station property is subject to a ground lease expiring in 2024.
The lease provides two 15-year extension options. Under certain conditions,
the lessor reserves the right to terminate the lease at the end of the
initial term or at the end of the first extension period and pay the lessee
an amount based on a formula payment of fair value. The minimum rents in
connection with the lease are substantially based on percentage rent until
1997. The Operating Partnership is obligated to provide loans to the lessor
under certain conditions subject to a maximum of $0.9 million. As of
December 31, 1996, no loans were outstanding.
Environmental
A former tenant of Crosby Corporate Center has agreed to perform the
necessary investigation and cleanup actions regarding remediation of
possible contamination, bear all costs associated with such cleanup
activities and indemnify the Operating Partnership for any costs or damages
it incurs in connection with such contamination. As the owner of the
property, however, the Operating Partnership could be held liable for the
costs of such activities if the former tenant fails to undertake such
actions.
As a lessee of certain property, the Operating Partnership has received an
indemnity from the owner to the extent the Operating Partnership is
assessed costs relating to environmental cleanup.
Site assessments at the New England Executive Park have identified
contamination in the groundwater at a monitoring well which flows into an
aquifer, which supplies drinking water to the Town of Burlington. The Town
of Burlington has allocated funds for, and is in the process of
constructing, a groundwater treatment facility at its drinking water supply
that draws from the subject aquifer. The Operating Partnership has been
advised that such treatment facility has the capacity to treat any
contaminants which may be derived from the groundwater passing
F-16
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands)
beneath the New England Executive Park. Although the Town's water treatment
facility does not relieve the Operating Partnership of potential liability
for the presence of the contaminants, the Operating Partnership does not
believe that any such liability would have a material adverse effect on the
Operating Partnership.
Based on site assessments performed at 245 First Street which have
identified the presence of oil that slightly exceeds the concentration that
requires reporting to the Massachusetts Department of Environmental
Protection, an environmental consultant has advised the Operating
Partnership that applicable regulatory requirements can be satisfied
without the need to perform any remediation at the property. The Operating
Partnership could be held liable for costs associated with the
contamination that has been identified, although the Operating Partnership
does not believe that such costs would have a material adverse effect on
the Operating Partnership.
In connection with the acquisition of the John Marshall land, the sellers
have reported the findings of contamination to the Virginia Department of
Environmental Quality and have retained an environmental consultant to
prepare a remediation plan. Units valued at approximately $1.0 million were
escrowed from the purchase price to be released to the seller upon
performance of remediation pursuant to a remediation plan approved by the
Operating Partnership. The escrow further provides that the Operating
Partnership may receive some or all of the remaining escrowed Units upon
certain conditions.
Management does not believe that any costs, if incurred, would have a
material adverse effect on the financial condition, annual results of
operations, or liquidity of the Operating Partnership.
Other
The Operating Partnership has an obligation to pay $17.0 million in
connection with the acquisition of real estate upon the achievement of
conditions regarding occupancy or rental income levels.
In connection with the acquisition of the John Marshall I, E.J. Randolph
and Northridge I properties, the Operating Partnership has agreed to
maintain the non-recourse financing assumed from the sellers for a five
year period and not to dispose of the property for a seven year period. If
the Operating Partnership should choose not to maintain the non-recourse
provisions of the existing or new debt, or sell the properties, within
these respective time periods it shall be required to make payments to the
sellers of approximately $6.0 million in 1997, reducing ratably to zero
through 2003.
12. Future Minimum Rents:
---------------------
Future minimum rentals to be received under noncancelable tenant leases for
all fully consolidated properties at December 31, 1996 are due for years
ended December 31 as follows:
1997 $ 188,032
1998 175,732
1999 170,086
2000 143,288
2001 113,718
Thereafter 370,698
----------
Total future minimum rents $1,161,554
==========
F-17
<PAGE>
BEACON PROPERTIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in thousands, except per unit amounts)
13. Geographic Concentration:
-------------------------
The Operating Partnership owns properties with a total cost at December 31,
1996 as follows:
Downtown Boston $ 284,574
Suburban Boston 279,987
Suburban Atlanta 343,014
Suburban Philadelphia 59,018
Suburban Virginia 178,166
Downtown Los Angeles 133,307
Suburban San Francisco 184,207
Suburban Chicago 175,819
Downtown Washington 53,438
----------
$1,691,530
==========
14. Pro Forma Results (Unaudited):
------------------------------
The following unaudited pro forma operating results for the Operating
Partnership have been prepared as if capital contributions and property
acquisitions during 1995 and 1996 had occurred on January 1, 1995.
Unaudited pro forma financial information is presented for informational
purposes only and may not be indicative of what the actual results of
operations of the Operating Partnership would have been had the events
occurred as of January 1, 1995, nor does it purport to represent the
results of operations for future periods. Pro forma results have not been
presented for 1994 as the Operating Partnership's operations did not
commence until May 26, 1994.
For the year ended
December 31,
1996 1995
---- ----
Revenues $299,124 $265,878
Income before extraordinary items 84,619 79,007
Net income 80,728 79,007
Net income per unit 1.48 1.45
15. Discontinued Operations:
------------------------
On December 31, 1996, certain assets of the construction company were sold.
These assets included fixed assets, general construction contracts in
progress, and the receivables and payables related to these contracts. All
employees were transferred to the buyer who is expected to complete all
outstanding construction work for projects not purchased as part of the
sale.
16. Subsequent Events:
-----------------
Declaration of Distribution
On January 28, 1997, the Operating Partnership declared a quarterly
distribution of $25.2 million, payable on February 28, 1997 to partners of
record on February 10, 1997.
F-18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Partners of Beacon Properties L.P.:
Our report on the consolidated financial statements of Beacon Properties L.P. is
included on page F-1 of this Form 10. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedules listed in the Item 15(a) of this Form 10.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 21, 1997
F-19
<PAGE>
Schedule III
BEACON PROPERTIES, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Initial Cost
------------------------------------
Buildings
and
Description Encumbrances Land Improvements
----------- ------------ ---- ------------
<S> <C> <C> <C>
Commercial Property:
Wellesley Office Park - Buildings 1-8 - Wellesley, MA............ $ 55,000 $ 9,110 $ 75,829
Crosby Corporate Center - Bedford, MA............................ - (1) 978 10,478
South Station - Boston, MA....................................... - 21,487
175 Federal St. - Boston, MA..................................... 12,970 1,404 24,505
Center Plaza - Boston, MA........................................ 60,000 7,301 65,712
150 Federal St.- Boston, MA...................................... 56,920(2) 11,265 101,280
One Canal Park - Cambridge, MA................................... - (1) 931 8,444
Ten Canal Park - Cambridge, MA................................... - (1) 1,179 10,609
2 Oliver Street - Boston, MA..................................... - (1) 1,796 16,166
Westwood Business Centre - Westwood, MA.......................... - (1) 1,159 10,498
Russia Wharf - Boston, MA........................................ - (1) 1,442 12,974
Westlakes Office Park - Buildings 1,2, 3 and 5 - Berwyn, PA...... - (1) 6,335 46,267
Perimeter Center - Atlanta, GA................................... 218,000 46,438 292,305
AT&T Plaza - Oak Brook, IL....................................... - (1) 3,510 31,587
Tri-State International - Lincolnshire, IL....................... - (1) 6,222 55,999
1333H Street, N.W. - Washington, D.C............................. - (1) 5,337 48,033
E.J. Randolph - McLean, VA....................................... 15,000 3,590 19,520
John Marshall I - McLean, VA..................................... 20,722 5,996 27,991
Northridge I - Herndon, VA....................................... 13,600 1,911 19,264
1300 North 17th Street - Rosslyn, VA............................. - (1) 8,007 46,758
1616 North Fort Myer Drive - Rosslyn, VA......................... - (1) 6,156 38,651
New England Executive Park - Burlington, MA..................... - (1) 7,067 68,259
10960 Wilshire Boulevard - Westwood, CA.......................... - 11,200 122,039
245 First Street - Cambridge, MA................................. - 4,513 40,616
Shoreline Technology Park - Mountain View, CA.................... - 39,547 101,444
Lake Marriott Business Park - Santa Clara, CA.................... - 12,032 31,128
Presidents Plaza - Chicago, IL................................... - 7,750 69,752
--------- -------- ----------
$452,212 $212,176 $1,417,595
========= ======== ==========
F-20
<PAGE>
Schedule III
BEACON PROPERTIES, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1996
(dollars in thousands)
Subsequent Gross Amount at Which
to Acquisition Carried at Close of Period
------------------------- ----------------------------------
Cost Capitalized Buildings Buildings
and and
Description Land Improvements Land Improvements Total
----------- ---- ------------ ---- ------------ -----
<S> <C> <C> <C> <C> <C>
Commercial Property:
Wellesley Office Park - Buildings 1-8 - Wellesley, MA............ - $12,866 $ 9,110 $ 88,695 $ 97,805
Crosby Corporate Center - Bedford, MA............................ $1,505 14,880 2,483 25,358 27,841
South Station - Boston, MA....................................... - 861 - 22,348 22,348
175 Federal St. - Boston, MA..................................... - 3,196 1,404 27,701 29,105
Center Plaza - Boston, MA........................................ - 8,810 7,301 74,522 81,823
150 Federal St.- Boston, MA...................................... - 1,326 11,265 102,606 113,871
One Canal Park - Cambridge, MA................................... - 139 931 8,583 9,514
Ten Canal Park - Cambridge, MA................................... - 135 1,179 10,744 11,923
2 Oliver Street - Boston, MA..................................... - 1,376 1,796 17,542 19,338
Westwood Business Centre - Westwood, MA.......................... - 674 1,159 11,172 12,331
Russia Wharf - Boston, MA........................................ 177 3,496 1,619 16,470 18,089
Westlakes Office Park - Buildings 1,2, 3 and 5 - Berwyn, PA...... - 6,416 6,335 52,683 59,018
Perimeter Center - Atlanta, GA................................... - 4,271 46,438 296,576 343,014
AT&T Plaza - Oak Brook, IL....................................... - 18 3,510 31,605 35,115
Tri-State International - Lincolnshire, IL....................... - 950 6,222 56,949 63,171
1333H Street, N.W. - Washington, D.C............................. - 68 5,337 48,101 53,438
E.J. Randolph - McLean, VA....................................... - 36 3,590 19,556 23,146
John Marshall I - McLean, VA..................................... - 147 5,996 28,138 34,134
Northridge I - Herndon, VA....................................... - 41 1,911 19,305 21,216
1300 North 17th Street - Rosslyn, VA............................. - 11 8,007 46,769 54,776
1616 North Fort Myer Drive - Rosslyn, VA......................... - 87 6,156 38,738 44,894
New England Executive Park - Burlington, MA..................... - 64 7,067 68,323 75,390
10960 Wilshire Boulevard - Westwood, CA.......................... - 68 11,200 122,107 133,307
245 First Street - Cambridge, MA................................. - 54 4,513 40,670 45,183
Shoreline Technology Park - Mountain View, CA.................... - 49 39,547 101,493 141,040
Lake Marriott Business Park - Santa Clara, CA..................... - 7 12,032 31,135 43,167
Presidents Plaza - Chicago, IL................................... - 31 7,750 69,783 77,533
------ ------- -------- ----------- ----------
$1,682 $60,077 $213,858 $1,477,672 $1,691,530
====== ======= ======== =========== ==========
F-21
<PAGE>
Schedule III
BEACON PROPERTIES, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1996
(dollars in thousands)
Life on Which
Depreciation
in Latest
Date of Income
Accumulated Construction/ Date Statements
Description Depreciation Renovation Acquired is Computed
----------- ------------ ---------- -------- -----------
<S> <C> <C> <C> <C>
Commercial Property:
Wellesley Office Park - Buildings 1-8 - Wellesley, MA............ $33,913 1963-1984 1994/1995 (3)
Crosby Corporate Center - Bedford, MA............................ 6,702 1981 5/26/94 (3)
South Station - Boston, MA....................................... 13,434 1988 5/26/94 (3)
175 Federal St. - Boston, MA..................................... 7,258 1977 10/28/94 (3)
Center Plaza - Boston, MA........................................ 5,884 1966-1969 12/01/94 (3)
150 Federal St.- Boston, MA...................................... 8,961 1988 5/26/94 (3)
One Canal Park - Cambridge, MA................................... 770 1987 6/10/94 (3)
Ten Canal Park - Cambridge, MA................................... 386 1987 12/20/95 (3)
2 Oliver Street - Boston, MA..................................... 783 1982-1988 10/06/95 (3)
Westwood Business Centre - Westwood, MA.......................... 1,083 1985 6/10/94 (3)
Russia Wharf - Boston, MA........................................ 1,453 1978-1982 8/10/94 (3)
Westlakes Office Park - Buildings 1,2, 3 and 5 - Berwyn, PA...... 3,931 1988-1990 7/95 & 10/94 (3)
Perimeter Center - Atlanta, GA................................... 8,822 1970-1989 2/15/96 (3)
AT&T Plaza - Oak Brook, IL....................................... 395 1984 8/16/96 (3)
Tri-State International - Lincolnshire, IL....................... 710 1986 8/16/96 (3)
1333H Street, N.W. - Washington, D.C............................. 601 1984 8/16/96 (3)
E.J. Randolph - McLean, VA....................................... 217 1983 9/05/96 (3)
John Marshall I - McLean, VA..................................... 306 1981 9/05/96 (3)
Northridge I - Herndon, VA....................................... 214 1988 9/05/96 (3)
1300 North 17th Street - Rosslyn, VA............................. 325 1980 10/18/96 (3)
1616 North Fort Myer Drive - Rosslyn, VA......................... 271 1974 10/18/96 (3)
New England Executive Park - Burlington, MA..................... 291 1970-1985 11/15/96 (3)
10960 Wilshire Boulevard - Westwood, CA.......................... 439 1971-1992 11/21/96 (3)
245 First Street - Cambridge, MA................................. 170 1985-1986 11/21/96 (3)
Shoreline Technology Park - Mountain View, CA.................... 141 1985-1991 12/20/96 (3)
Lake Marriott Business Park - Santa Clara, CA.................... 43 1981 12/20/96 (3)
Presidents Plaza - Chicago, IL................................... 32 1980-1982 12/27/96 (3)
-------
$97,535
=======
</TABLE>
(1) These properties are collateral for a Note Payable under the Credit
Facility. The outstanding balance under the Note at December 31, 1996 is
$153,000.
(2) This property is comprised of two Units. Unit A is collateral for a Note
Payable under the Credit Facility. Unit B is collateral for a Mortgage Note
Payable in the amount of $56,920.
(3) Buildings and improvements - 19 to 40 years; Personal property - 5 to 10
years; tenant improvements - over the terms of the related leases.
F-22
<PAGE>
Schedule III
BEACON PROPERTIES, L.P.
REAL ESTATE AND ACCUMULATED DEPRECIATION--(Continued)
December 31, 1996
(dollars in thousands)
Depreciation of building and improvements and personal property is
calculated over the following estimated useful lives, using straight line and
declining balance methods:
Buildings and improvements - 19 to 40 years
Tenant Improvements -over the terms of the related leases
Personal property - 5 to 10 years
The aggregate cost for federal income tax purposes was approximately
$1,390.3 million at December 31, 1996.
The changes in total real estate assets for the years ended December 31,
1996 and 1995, the period May 26, 1994 to to December 31, 1994 and the period
January 1, 1994 to May 25, 1994 are as follows:
<TABLE>
<CAPTION>
Company Predecessor
--------------------------------------- -------------
May 26, 1994 Jan. 1, 1994
to to
1996 1995 Dec. 31, 1994 May 25, 1994
---- ---- ------------- ------------
<S> <C> <C> <C> <C>
Balance, beginning of period............................. $ 471,142 $400,419 $207,013 * $81,220
Acquisitions, Construction Costs and Improvements........ 1,220,388 70,723 193,406 978
---------- -------- -------- -------
Balance, end of period................................... $1,691,530 $471,142 $400,419 $82,198
========== ======== ======== =======
</TABLE>
- ------------------------
* Represents initial acquisition cost of properties in the formation of the
Company.
The changes in accumulated depreciation for the years ended December 31,
1996 and 1995, the period May 26, 1994 to to December 31, 1994 and the period
January 1, 1994 to May 25, 1994 are as follows:
<TABLE>
<CAPTION>
Company Predecessor
--------------------------------------- -------------
May 26, 1994 Jan. 1, 1994
to to
1996 1995 Dec. 31, 1994 May 25, 1994
---- ---- ------------- ------------
<S> <C> <C> <C> <C>
Balance, beginning of period............................ $66,571 $51,115 $45,044 ** $37,167
Depreciation for period................................. 30,964 15,456 6,071 2,055
------ ------ ----- -----
Balance, end of period.................................. $97,535 $66,571 $51,115 $39,222
======= ======== ======== =======
</TABLE>
- ---------------------------
** Balance reflects prior accumulated depreciation carried over due to
accounting for formation acquisitions as poolings of interests.
F-23
<PAGE>
Schedule IV
BEACON PROPERTIES, L.P.
MORTGAGE LOANS ON REAL ESTATE
December 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Principal Amount of
Final Periodic Face Carrying Loans Subject to
Interest Maturity Payment Prior Amount of Amount of Delinquent Principal
Commercial Property Rate Date Term Liens Mortgages Mortgages (1) or Interest
- ------------------- ----- ---- ---- ----- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Rowes Wharf.............8.71% 4/1/99 Interest-only - $63,000 $51,491 -
Boston, MA
</TABLE>
(1) The aggregate cost of the Company's mortgage loans for federal income tax
purposes $51,491 at December 31, 1996.
Reconciliation of Mortgage Loans on real estate for the year ended December 31:
1996
----
Balance at beginning of year.................. $34,778
Additions during period:
Acquisition of mortgage loans....... 16,713
Deductions during period:
Principal collections............... -
------
Balance at end of year........................ $51,491
======
F-24
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this amended registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, Commonwealth of Massachusetts on this 7th day of April, 1997.
BEACON PROPERTIES, L.P.
By: Beacon Properties Corporation
Its: General Partner
By: /s/ Robert J. Perriello
---------------------------------
Robert J. Perriello
Senior Vice President and
Chief Financial
Officer (Principal Financial
and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1 Amended and Restated Limited Partnership Agreement of the
Operating Partnership, as amended (3)
9.1 Voting Trust Agreement between Edwin Sidman and Paula Sidman (1)
10.1 Restated Revolving Credit Agreement among Beacon Properties,
L.P., Beacon Properties Corporation and the First National Bank of
Boston, dated June 27, 1996 (2)
10.2 Amendment No. 1 to the Restated Revolving Credit Agreement
among Beacon Properties, L.P., Beacon Properties Corporation and
the First National Bank of Boston, dated July 18, 1996 (2)
12.1 Calculation of Ratios of Earnings to Fixed Charges (3)
21.1 List of Subsidiaries (3)
27.1 Financial Data Schedule (3)
- ----------------------------------
(1) Previously filed as an exhibit to the Company's Registration Statement
on Form S-3, File No. 33-76316.
(2) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1996.
(3) Previously filed as an exhibit to this Registration Statement
