<PAGE> 1
As filed with the Securities and Exchange Commission on February 18, 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OF REPORT
FILED PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) DECEMBER 17, 1997
EQUITY OFFICE PROPERTIES TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 1-13115 36-4151656
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.)
TWO NORTH RIVERSIDE PLAZA, SUITE 2200
CHICAGO, ILLINOIS 60606
(ADDRESS OR PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (312) 466-3300
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report of Form 8-K dated
December 17, 1997 as set forth in the pages attached hereto:
Filing of amended information under Item 7 (a) and (b):
Item 7 (a): Financial statements of Beacon Properties Corporation as of
and for the nine month period ended September 30, 1997 and
as of and for the years ended December 31, 1996 and 1995,
respectively.
Item 7 (b): Pro forma financial information as of and for the nine month
period ended September 30, 1997 and for the year ended
December 31, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EQUITY OFFICE PROPERTIES TRUST
Date: February 18, 1998 By: /s/ Richard D. Kincaid
----------------- --------------------------------
Richard D. Kincaid
Executive Vice President,
Chief Financial Officer
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 7 (a):
Financial statements of Beacon Properties Corporation as of
and for the nine month period ended September 30, 1997 4
Financial statements of Beacon Properties Corporation as of
and for the years ended December 31, 1996 and 1995 14
Item 7 (b):
Pro forma financial information as of and for the nine month
period ended September 30, 1997 and for the year ended
December 31, 1996 for Equity Office Properties Trust 45
Pro forma financial information as of and for the nine month
period ended September 30, 1997 and for the year ended
December 31, 1996 for Beacon Properties Corporation 61
</TABLE>
3
<PAGE> 4
ITEM 7 (a): FINANCIAL STATEMENTS OF BEACON PROPERTIES CORPORATION AS OF AND
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997.
4
<PAGE> 5
BEACON PROPERTIES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Real Estate:
Land $ 331,529 $ 213,858
Buildings, improvements and equipment 2,039,230 1,477,672
---------- ----------
2,370,759 1,691,530
Less accumulated depreciation 140,044 97,535
---------- ----------
2,230,715 1,593,995
Deferred financing and leasing costs, net of
accumulated amortization of $20,028
and $16,370 19,203 17,321
Cash and cash equivalents 33,405 36,086
Restricted cash 3,208 2,599
Accounts receivable 13,691 11,609
Accrued rent 26,959 13,065
Prepaid expenses and other assets 8,653 1,093
Mortgage and notes receivable 85,196 51,491
Investments in and advance to joint ventures
and corporations 50,416 52,153
---------- ----------
Total assets $2,471,446 $1,779,412
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 586,925 $ 452,212
Note payable, Credit Facility 249,000 153,000
Accounts payable, accrued expenses and
other liabilities 51,166 41,764
Investment in joint venture 24,052 24,735
---------- ----------
Total liabilities 911,143 671,711
---------- ----------
Commitments and contingencies -- --
Minority interest in Operating Partnership 142,752 108,551
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, authorized
25,000,000 shares, 80 --
8,000,000 shares of 8.98% Series A
Cumulative Redeemable Preferred Stock issued
and outstanding (Aggregate liquidation
preference of $200,000)
Common stock, $.01 par value, authorized 100,000,000
shares, issued and outstanding 55,656,517 and
48,116,480 shares 557 481
Additional paid-in capital 1,442,322 1,022,110
Cumulative net income 138,168 60,047
Cumulative dividends (163,576) (83,488)
---------- ----------
Total stockholders' equity 1,417,551 999,150
---------- ----------
Total liabilities and stockholders' equity $2,471,446 $1,779,412
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited and in thousands, except per share amounts and shares outstanding)
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 83,857 $ 37,257 $ 218,544 $ 97,308
Management fees 866 731 2,445 2,248
Recoveries from tenants 11,779 4,219 29,376 11,001
Mortgage interest income 2,561 1,402 5,320 3,567
Other income 4,233 2,993 10,364 7,585
----------- ----------- ----------- -----------
103,296 46,602 266,049 121,709
----------- ----------- ----------- -----------
Expenses:
Property expenses 19,853 9,837 51,169 24,607
Real estate taxes 10,480 4,660 27,960 12,491
General and administrative 10,248 4,600 27,959 11,963
Mortgage interest expense 13,650 7,077 36,313 20,739
Interest - amortization of financing costs 395 434 1,131 1,618
Depreciation and amortization 18,944 8,391 50,767 21,737
----------- ----------- ----------- -----------
73,570 34,999 195,299 93,155
----------- ----------- ----------- -----------
Income from operations 29,726 11,603 70,750 28,554
Equity in net income of joint ventures and
corporations 1,676 1,312 4,976 3,964
----------- ----------- ----------- -----------
Income from continuing operations 31,402 12,915 75,726 32,518
Discontinued operations - Construction Company
Loss from operations (790) (841) (2,263) (1,911)
Gain on sale of property ---- ---- 16,736 ----
----------- ----------- ----------- -----------
Income before minority interest 30,612 12,074 90,199 30,607
Minority interest in Operating Partnership (3,064) (1,550) (9,743) (4,231)
----------- ----------- ----------- -----------
Income before extraordinary items 27,548 10,524 80,456 26,376
Extraordinary items, net of minority interest ---- ---- (2,335) (3,309)
----------- ----------- ----------- -----------
Net income 27,548 10,524 78,121 23,067
Income allocated to preferred shareholders (4,490) ---- (5,388) ----
----------- ----------- ----------- -----------
Net income available to common shareholders $ 23,058 $ 10,524 $ 72,733 $ 23,067
=========== =========== =========== ===========
Net income per common share before
extraordinary items and after allocation of
income to preferred shareholders $ 0.42 $ 0.34 $ 1.42 $ 0.99
Extraordinary items ---- ---- (0.04) (0.13)
----------- ----------- ----------- -----------
Net income per common share $ 0.42 $ 0.34 $ 1.38 $ 0.86
=========== =========== =========== ===========
Weighted average common shares outstanding $55,468,531 30,571,657 52,612,891 26,659,577
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
-------------- ------------
(Unaudited and in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 78,121 $ 23,067
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Increase in accrued rent (13,894) (4,144)
Depreciation, amortization and amortization
of financing costs 51,898 23,355
Equity in net income of joint ventures
and corporations (2,713) (2,053)
Minority interest in Operating Partnership 9,743 4,231
Gain on sale of property (16,736) ---
Extraordinary items 2,335 3,309
Increase in accounts receivable (2,082) (1,780)
Increase in prepaid expenses and other assets (1,754) (415)
Increase in accounts payable and accrued expenses 14,114 15,484
---------- ----------
Total adjustments 40,911 37,987
---------- ----------
Net cash provided by operating activities 119,032 61,054
---------- ----------
Cash flows from investing activities:
Property additions (574,487) (501,765)
Proceeds from sale of property 72,500 ---
Payment of deferred leasing costs (7,464) (4,184)
Increase in prepaid expenses and other assets (5,806) (4,000)
Notes receivable from affiliates (33,689) (16,712)
Purchase of mortgage notes receivable (16) ---
Capital distributions from joint ventures 3,732 4,655
(Decrease) increase in restricted cash (609) 360
---------- ----------
Net cash used by investing activities (545,839) (521,646)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net
of costs 226,586 316,543
Proceeds from issuance of preferred stock,
net of costs 193,180 ---
Payment of deferred financing costs (1,606) (9,267)
Borrowings on Credit Facility 468,000 140,000
Payments on Credit Facility (372,000) (252,500)
Borrowings on mortgage notes --- 593,000
Payments on mortgage notes (1,287) (278,500)
Decrease in prepaid expenses and other assets --- 1,728
Distributions paid to minority interest in
Operating Partnership (8,659) (5,271)
Dividends paid to stockholders (80,088) (35,295)
---------- ----------
Net cash provided by financing activities 424,126 470,438
---------- ----------
Net (decrease) increase in cash and cash equivalents (2,681) 9,846
Cash and cash equivalents, beginning of period 36,086 4,501
---------- ----------
Cash and cash equivalents, end of period $ 33,405 $ 14,347
========== ==========
Supplemental disclosures:
Cash paid during the period of interest $ 35,212 $ 18,998
========== ==========
Non cash activities:
Redemption of Operating Partnership units for
common stock $ --- $ 486
========== ==========
Increase in minority interest as a result of
acquisition of properties $ 33,417 $ 35,229
========== ==========
Liabilities assumed in connection with
contributions and acquisitions of properties $ 136,000 $ 55,229
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
7
<PAGE> 8
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________
1. Organization and Basis of Presentation:
Organization
Beacon Properties Corporation was incorporated on March 4, 1994, as a
Maryland Corporation, and commenced operations effective with the
completion of its Initial Public Offering (the "IPO") on May 26, 1994.
Beacon Properties Corporation, together with Beacon Properties, L.P. (the
"Operating Partnership") and their subsidiaries (collectively, the
"Company") was formed to continue and expand the commercial real estate
business of The Beacon Group (the "Predecessor"). The Company qualifies as
a real estate investment trust under the Internal Revenue Code of 1986, as
amended.
The Company specializes in property ownership, management, leasing, design
and development and currently owns or has an interest in 123 properties
totaling approximately 20.7 million square feet (the "Properties").
Basis of Presentation
The financial statements of the Company are consolidated and include all
the accounts of the Company, its majority owned Operating Partnership and
subsidiaries. All significant intercompany balances and transactions have
been eliminated.
The accompanying financial statements are unaudited; however, they have
been prepared in accordance with generally accepted accounting principles
for interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they
do not include all of the disclosures required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting solely of normal recurring
matters) necessary for a fair presentation of the financial statements for
these interim periods have been included. The results for the nine months
ended September 30, 1997 are not necessarily indicative of the results to
be obtained for the full fiscal year. These financial statements should
be read in conjunction with the December 31, 1996 audited financial
statements and notes thereto of the Company, included in its annual report
on Form 10-K (as amended by Form 10-K/A) for the fiscal year ended
December 31, 1996. Certain reclassifications have been made to previously
reported amounts to conform with current reporting.
8
<PAGE> 9
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________
2. Equity Investments in Real Estate:
The Company reports its share of income and losses based on its ownership
interest in the respective equity investments. Losses in excess of
investments are not recorded where the Company has not guaranteed or does
not intend to provide any future financial support. The following
summarized information has been presented for the property joint ventures
and property corporation for which the Company has recorded its share of
the earnings for the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
ONE POST POLK & 75-101
OFFICE SQUARE TAYLOR FEDERAL STREET
------------- -------- --------------
(in thousands)
<S> <C> <C> <C>
Balance sheets at September 30, 1997
Real estate, net $ 40,433 $ 89,166 $ 156,033
Cash 2,026 552 7,565
Other assets 10,495 2,497 2,978
-------- -------- ---------
$ 52,954 $ 92,215 $ 166,576
======== ======== =========
Mortgage notes payable $ 91,821 $ --- $ 90,000
Other liabilities 1,484 354 2,362
Equity (deficiency) (40,351) 91,861 74,214
-------- -------- ---------
$ 52,954 $ 92,215 $ 166,576
======== ======== =========
Summary of operations for the nine months
ended September 30, 1997
Revenues $ 17,857 $ 17,348 $ 21,383
Other income 364 591 1,062
--------- -------- ---------
Total revenues 18,221 17,939 22,445
--------- -------- ---------
Operating expenses 7,302 4,700 9,333
Mortgage interest expense 5,086 --- 5,189
Depreciation and amortization 2,691 2,573 3,630
--------- -------- ---------
Total expenses 15,079 7,273 18,152
--------- -------- ---------
Net income $ 3,142 $ 10,666 $ 4,293
======== ======== =========
Share of properties:
Depreciation and amortization $ 999 $ 257 $ 1,829
Interest - amortization of financing costs 629 --- 44
</TABLE>
9
<PAGE> 10
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
3. Mortgage Notes Payable:
On April 30, 1997, in connection with the acquisition of Centerpointe I
and II located in Fairfax County, Virginia, the Company assumed $30
million of mortgage debt secured by the properties. The mortgage has a
remaining term of 3.9 years, bears interest at 7.32% and requires monthly
installments of interest only until December 1, 1999, and principal and
interest during the remaining term based on a 25-year amortization
schedule.
On May 23, 1997, in connection with the acquisition of Westbrook Corporate
Center located in suburban Chicago, the Company assumed approximately $82
million of million of mortgage debt and borrowed $24 million of additional
mortgage debt secured by the properties. The mortgage has a term of ten
years, bears interest at 8.00% and requires monthly installments of
principal and interest based on a 26-year amortization schedule.
4. Note Payable, Credit Facility:
On April 8, 1997, the Company replaced its $300 million secured
floating-rate credit facility (the "Credit Facility") with an unsecured
facility and decreased the interest rate on the Credit Facility from the
Eurodollar rate plus 175 basis points (1.75%) to the Eurodollar rate plus
120 basis points (1.20%). Additionally, on April 30, 1997, the maximum
loan amount available under the Credit Facility was increased to $350
million.
On August 8, 1997, the Company amended the Credit Facility to provide for
a competitive bid option and a decrease in the interest rate on the Credit
Facility from the Eurodollar rate plus 120 basis points (1.20%) to the
Eurodollar rate plus 90 basis points (.90%).
As a result of the new unsecured Credit Facility, the Company recorded an
extraordinary item of $2.3 million, net of minority interest, in
connection with the write-off of fees and costs to acquire the prior
secured Credit Facility.
5. Commitments and Contingencies:
In connection with the acquisition of the Westbrook Corporate Center, the
Company has agreed to maintain non-recourse financing assumed from the
sellers for a 10 year period and not to sell or otherwise transfer any
portion of the property prior to the tenth anniversary of the closing
date. If the Company should choose not to maintain the non-recourse
provisions of the existing or new debt, or should choose to sell the
property, within the 10 year period it shall be required to make payments
to the sellers.
10
<PAGE> 11
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
6. Environmental issue:
Site assessments at 175 Wyman Street have identified the presence of
trichloroethylene and tetrachloroethylene in the groundwater (the
"Existing Groundwater Condition"). The chemicals in the groundwater are
believed to be associated with former manufacturing use of the Property.
Prior to the acquisition of the Property by the Company, the former owner
of the Property, Hewlett-Packard Company, reported the Existing
Groundwater Condition to the Massachusetts Department of Environmental
Protection (the "DEP"). Hewlett-Packard Company sought and obtained
approval from DEP of an Immediate Response Action which involves
installation of a system to extract and treat contaminated groundwater
(the "System"). According to its submissions to DEP, Hewlett-Packard
Company is in the process of installing the System. In its purchase and
sale agreement with the Company, Hewlett-Packard Company agreed to
indemnify the Company against costs of remediating the Existing
Groundwater Condition and claims by off-site parties for property damage,
personal injury, and natural resource damages related to the Existing
Groundwater Condition (the "Indemnity"). Any claim under the Indemnity is
subject to the risk that the indemnifying party will lack sufficient
assets to satisfy the claim. Moreover, any claim under the Indemnity may
be subject to substantial defenses, including but not limited to the
defense that the claim was exacerbated by the Company's development or
redevelopment of the Property, as to which matters the Company has
indemnified Hewlett-Packard Company. However, the Company does not
believe that any such liability would have a material adverse effect on
its financial condition, results of operations and liquidity.
7. Pro Forma Results (unaudited):
The following unaudited pro forma operating results for the Company have
been prepared as if the 1996 and 1997 stock offerings and the 1996 and
1997 property acquisitions and dispositions had occurred on January 1,
1996. 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 Company would have been had the events
occurred as of January 1, 1996, nor does it purport to represent the
results of operations for future periods.
<TABLE>
Nine Months ended September 30, 1997 and 1996 1997 1996
--------------------------------------------- ---- ----
<S> <C> <C>
Revenue $298,085 $274,809
Income before extraordinary item 62,639 56,239
Net income per common share
before extraordinary item and gain on sale $1.13 $1.01
</TABLE>
11
<PAGE> 12
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______
8. Agreement and Plan of Merger:
On September 15, 1997, Equity Office Properties Trust ("EOP"), EOP
Operating Limited Partnership, a Delaware limited partnership of which EOP
is the managing general partner ("EOP Partnership") and the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement").
The Merger Agreement provides for a merger of the Company with and into
EOP (the "Merger") and a merger of the Operating Partnership with and
into EOP Partnership or a limited liability EOP or limited partnership
wholly owned directly or indirectly by EOP Partnership (the "Partnership
Merger" and, together with the Merger, the "Mergers").
At the effective time of the Mergers, (1) each outstanding share of common
stock, $0.01 par value per share, of the Company ("Company Common Shares")
will be converted into 1.4063 common shares of beneficial interest,
$0.01 par value per share, of EOP ("EOP Common Shares"), with cash in
lieu of the issuance of any fractional interests, (ii) each share of 8.98%
Series A Cumulative Redeemable Preferred Stock, liquidation preference
$25.00 per share, of the Company ("Company Preferred Shares") will be
converted into a 8.98% Series A Cumulative Redeemable Preferred Share,
liquidation preference $25.00 per share, of EOP ("EOP Preferred Shares"),
and (iii) each common partnership unit of the Operating Partnership (a
"Operating Partnership Unit") will be converted into 1.4063 Class A
Units of EOP Partnership ("EOP OP Units").
The Mergers are subject to customary closing conditions, including the
approval of the Merger by the shareholders of EOP and the Company and the
approval of the Partnership Merger, to the extent necessary, by the
partners of EOP Partnership and the Operating Partnership. The Company may
terminate the Merger Agreement if the average of the closing prices of EOP
Common Shares on the New York Stock Exchange for all trading days during
the period of twenty (20) consecutive trading days ending on the seventh
(7th) trading day prior to the date of the special meeting of the
shareholders of the Company called to vote upon the Merger is less than
$27.39. Subject to certain conditions and limitations, either party may
terminate the Merger Agreement if the Merger has not occurred by April 15,
1998.
9. Subsequent Events:
On October 1, 1997, the Company signed an additional $200 million term
loan agreement with BankBoston which matures in April 1998.
On October 1, 1997, the Company acquired the Civic Opera Building located
in Chicago, Illinois for aggregate consideration of approximately $59.6
million, consisting of assumption of $31.8 million of mortgage debt,
approximately $21.1 million in cash and the issuance of $6.7 million of
units of limited partnership interest in the Operating Partnership
("Units").
On October 8, 1997, the Company acquired 200 West Adams located in
Chicago, Illinois for aggregate consideration of approximately $72.2
million.
On October 20, 1997, the Company acquired Lakeside located in Atlanta,
Georgia for aggregate consideration of approximately $38.0 million.
12
<PAGE> 13
On October 30, 1997, the Company declared a dividend of $.50 per common
share payable on November 21, 1997 to stockholders of record on November
7, 1997.
13
<PAGE> 14
ITEM 7 (a): FINANCIAL STATEMENTS OF BEACON PROPERTIES CORPORATION AS OF AND
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995.
14
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Beacon Properties Corporation:
We have audited the consolidated balance sheets of Beacon Properties
Corporation as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity 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 Company'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 Corporation 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.
Boston, Massachusetts /s/ Coopers & Lybrand L.L.P.
January 28, 1997
15
<PAGE> 16
BEACON PROPERTIES CORPORATION
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
ASSETS:
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 $16,370 and $14,509 17,321 9,486
Cash and cash equivalents 36,086 4,501
Restricted cash 2,599 2,764
Accounts receivable 11,609 6,128
Accrued rent 13,065 6,493
Prepaid expenses and other assets 1,093 8,060
Mortgage notes receivable 51,491 34,778
Investments in and advance to joint ventures
and corporations 52,153 58,016
----------- ----------
Total assets $ 1,779,412 $ 534,797
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable 452,212 70,536
Note payable, Credit Facility 153,000 130,500
Accounts payable, accrued expenses and
other liabilities 41,764 14,022
Investment in joint venture 24,735 23,955
----------- ----------
Total liabilities 671,711 239,013
----------- ----------
Commitments and contingencies -- --
Minority interest in Operating Partnership 108,551 36,962
----------- ----------
Stockholders' equity:
Common stock, $.01 par value, authorized
100,000,000 shares, issued and
outstanding 48,116,480 and
20,215,822 shares 481 202
Additional paid-in capital 1,022,110 267,727
Cumulative net income 60,047 23,715
Cumulative dividends (83,488) (32,822)
----------- ----------
Total stockholders' equity 999,150 258,822
----------- ----------
Total liabilities and stockholders' equity $ 1,779,412 $ 534,797
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
16
<PAGE> 17
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Predecessor
-----------
For the Period For the Period
Year Ended Year Ended May 26, 1994 to January 1, 1994
Dec. 31, 1996 Dec. 31, 1995 December 31, 1994 to May 25, 1994
------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 147,825 $ 71,050 $ 25,144 $ 5,776
Management fees 3,005 2,203 -- 1,521
Recoveries from tenants 16,719 9,742 4,488 1,040
Mortgage interest income 4,970 2,546 -- --
Other income 11,272 5,502 2,301 675
----------- ----------- ----------- ---------
Total revenues 183,791 91,043 31,933 9,012
----------- ----------- ----------- ---------
Expenses:
Property expenses 37,211 18,090 7,034 2,086
Real estate taxes 18,124 10,217 3,325 595
General and administrative 19,331 9,755 3,122 1,399
Mortgage interest expense 30,300 15,226 4,992 2,798
Interest--amortization of
financing costs 2,084 1,370 617 373
Depreciation and amortization 33,184 17,428 6,924 2,385
----------- ----------- ----------- ---------
Total expenses 140,234 72,086 26,014 9,636
----------- ----------- ----------- ---------
Income (loss) from operations 43,557 18,957 5,919 (624)
Equity in net income of joint
ventures and corporations 4,989 3,234 929 198
----------- ----------- ----------- ---------
Income (loss) from continuing
operations 48,546 22,191 6,848 (426)
Discontinued
operations--Construction Company:
Income (loss) from operations (2,609) (12) 477 102
Loss on sale (249) -- -- --
----------- ----------- ----------- ---------
Income (loss) before minority
interest 45,688 22,179 7,325 (324)
Minority interest in loss of
combined partnerships -- -- -- 931
Minority interest in Operating
Partnership (5,988) (4,119) (1,670) --
----------- ----------- ----------- ---------
Income before extraordinary items 39,700 18,060 5,655 607
Extraordinary items, net of minority
interest (3,368) -- -- 8,898
----------- ----------- ----------- ---------
Net income $ 36,332 $ 18,060 $ 5,655 $ 9,505
=========== =========== =========== =========
Income before extraordinary items
per common share $ 1.32 $ 1.09 $ .48 --
Extraordinary items per common share (0.11) -- -- --
----------- ----------- ----------- ---------
Net income per common share $ 1.21 $ 1.09 $ .48 --
=========== =========== =========== =========
Weighted average common shares
outstanding 29,932,327 16,525,245 11,816,380 --
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
17
<PAGE> 18
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Stockholders' Equity Predecessor
--------------------------------------------- -----------
Common Stock
Additional Owners'
Shares Paid-in Cumulative Cumulative Equity
Issued Amount Capital Net Income Dividends (Deficit)
---------- ------------------ ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $(57,954)
Net income from January 1, 1994
to May 25, 1994 9,505
Contributions and other, net of
distributions from
January 1, 1994 to May 25, 1994 1,083
Issuance of stock for cash--
May 26, 1994--
Initial Offering 11,117,850 $111 $173,341 --
Issuance of stock in
connection with
purchase of minority
interests 698,530 7 11,868 --
Charge to reflect carryover of
historical basis of accounting
and recognition of minority
interest in Operating
Partnership for continuing
investors -- -- (77,600) 47,366
Net income from May 26, 1994 to
December 31, 1994 -- -- -- $ 5,655 --
Dividends declared ($0.96 per
share) -- -- -- -- $(11,344) --
---------- ----------------- ---------- -------- --------
Balance at December 31, 1994 11,816,380 118 107,609 5,655 (11,344) --
Issuance of stock 8,341,050 84 159,236 -- -- --
Issuance of stock under dividend
reinvestment and share purchase
plan 25,437 -- 492 -- -- --
Issuance of stock by exercise of
options 12,367 -- 216 -- -- --
Issuance of stock in exchange
for Operating Partnership unit
redemptions 20,588 -- 174 -- -- --
Net income -- -- -- 18,060 -- --
Dividends declared ($1.24 per
share) -- -- -- -- (21,478) --
---------- ----------------- ---------- -------- --------
Balance at December 31, 1995 20,215,822 202 267,727 23,715 (32,822) --
Issuance of stock 27,641,400 276 749,589 -- -- --
Issuance of stock under dividend
reinvestment and share purchase
plan 101,431 1 2,647 -- -- --
Issuance of stock by exercise of
options 97,827 1 1,662 -- -- --
Issuance of stock in exchange
for Operating Partnership unit
redemptions 60,000 1 485 -- -- --
Net income -- -- -- 36,332 -- --
Dividends declared ($1.765 per
share) -- -- -- -- (50,666) --
---------- ------------------ ---------- -------- --------
Balance at December 31, 1996 48,116,480 $481 $1,022,110 $60,047 $(83,488) $ --
========== ================== ========== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
18
<PAGE> 19
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Predecessor
For the Period For the Period
Year Ended Year Ended May 26, 1994 to January 1, 1994
Dec. 31, 1996 Dec. 31, 1995 December 31, 1994 to May 25, 1994
------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 36,332 $ 18,060 $ 5,655 $ 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 35,268 18,798 7,541 2,848
Equity in net income of joint
ventures and corporations (2,131) (3,222) (469) (201)
Minority interest in loss of
combined partnerships -- -- -- (1,519)
Minority interest in Operating
Partnership 5,988 4,119 1,670 --
Extraordinary items 3,368 -- -- (8,898)
Deferred interest -- -- -- 367
Increase in accounts receivable (5,481) (1,746) (3,385) (376)
(Increase) decrease in prepaid
expenses and other assets (333) (82) 2,388 (1,940)
Increase (decrease) in accounts
payable, accrued expenses and
other liabilities 25,243 332 (107) 1,636
------------- ------------- ----------------- ----------------
Total adjustments 55,350 14,458 6,723 (9,264)
------------- ------------- ----------------- ----------------
Net cash provided by operating activities 91,682 32,518 12,378 241
------------- ------------- ----------------- ----------------
Cash flows from investing
activities:
Property additions (1,088,775) (67,610) (204,582) (978)
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) --
Distributions from joint ventures 8,727 3,692 1,637 --
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 (1,097,753) (145,750) (234,674) (1,102)
------------- ------------- ----------------- ----------------
Cash flows from financing
activities:
Proceeds from offerings $ 754,778 $ 160,028 $ 173,452 $ --
Owners' contributions -- -- -- 412
Owners' distributions -- -- -- (4,329)
Borrowings on Credit Facility 468,000 124,700 130,300 --
Borrowings on mortgage notes 608,000 -- -- 874
Repayments 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) (2,852) (13)
Decrease (increase) in prepaid
expenses and other assets 2,300 (2,300) -- --
Distributions paid to minority interests (7,631) (6,230) (1,858) --
Dividends paid to stockholders (50,666) (26,205) (6,617) --
------------- ------------- ----------------- ----------------
Net cash provided (used) by
financing activities 1,037,656 102,636 237,393 (716)
------------- ------------- ----------------- ----------------
Net increase (decrease) in cash and
cash equivalents 31,585 (10,596) 15,097 (1,577)
Cash and cash equivalents, beginning
of period 4,501 15,097 -- 6,150
------------- ------------- ----------------- ----------------
Cash and cash equivalents, end of
period $ 36,086 $ 4,501 $ 15,097 $ 4,573
============= ============= ================= ================
Supplemental disclosures:
Cash paid during the period for
interest $ 28,777 $ 14,738 $ 5,278 $ 2,811
Noncash activities:
Acquisition of interests in properties -- -- 22,721 --
Increase in minority interest as a
result of acquisition of
interests in properties 74,226 -- 9,200 --
Liabilities assumed in connection
with contributions and
acquisitions of properties 55,529 861 93,518 --
Dividends declared to stockholders -- -- 4,727 --
Distributions declared to minority interest -- -- 1,524 --
Receivable from equity investment 781 1,057 -- --
Redemption of Operating Partnership
units for common stock 486 174 -- --
Common stock issued in connection
with purchase of minority interests -- -- 11,875 --
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
19
<PAGE> 20
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. Organization, Offerings and Acquisitions:
Beacon Properties Corporation (the "Company") was incorporated on March 4, 1994
as a Maryland corporation, and commenced operations effective with the
completion of its initial offering on May 26, 1994. The Company qualifies as a
real estate investment trust under the Internal Revenue Code of 1986, as
amended. Concurrent with the initial offering, the Company contributed its
interests in two properties and the net proceeds of the offering which
approximated $173.5 million in exchange for an approximate 78% interest in
Beacon Properties, L.P., (the "Operating Partnership"), which became the
successor entity to The Beacon Group (the "Predecessor").
The Company was formed to continue and expand the commercial real estate
development, construction, acquisition, leasing, design and management business
of the Predecessor. Prior to the initial offering, the Predecessor was
comprised of interests in 13 office properties and entities which provided
design, leasing, development and construction services to each of the
properties and unrelated third parties.
During 1995, the Company completed three offerings totaling 8,341,050 shares of
common stock. The net proceeds from these offerings totaling $159.3 million
were used primarily to retire indebtedness incurred to acquire new properties
and to acquire additional properties.
During 1996, the Company completed three offerings totaling 27,641,400 shares
of common stock. The net proceeds from these offerings totaling $749.9 million
were used primarily to acquire additional properties.
The following schedule summarizes the Company's interest in the properties as a
result of its initial and subsequent offerings, and the related acquisition of
properties and partnership interests. All properties have been consolidated by
the Company and its Predecessor unless otherwise indicated in the notes:
<TABLE>
<CAPTION>
Date Rentable Ownership
Acquired by Area in Interest at Accounting
the Company Square Feet 12/31/96 Method Notes
----------- ----------- --------------------------
<S> <C> <C> <C> <C>
Properties:
Wellesley Office Park--Buildings 1-8, Wellesley, MA (A) 623,000 100% (E)
Crosby Corporate Center, Bedford, MA (B) 336,000 100%
South Station, Boston, MA (B) 149,000 100%
175 Federal Street, Boston, MA (B) 203,000 100% (E)
One Post Office Square, Boston, MA (B) 764,000 50% (D)
Center Plaza, Boston, MA (B) 649,000 100%
Rowes Wharf, Boston, MA (B) 344,000 45% (F)
150 Federal Street, Boston, MA (B) 530,000 100%
Polk and Taylor Buildings, Arlington, VA (B) 890,000 10% (G)
One Canal Park, Cambridge, MA 6/10/94 100,000 100%
Westwood Business Centre, Westwood, MA 6/10/94 160,000 100%
Russia Wharf, Boston, MA 8/10/94 315,000 100%
Westlakes Office Park--Buildings 1-3 and 5, Berwyn, PA (C) 444,000 100%
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Date Rentable Ownership
Acquired by Area in Interest at Accounting
the Company Square Feet 12/31/96 Method Notes
----------- ----------- --------------------------
<S> <C> <C> <C> <C>
75-101 Federal Street, Boston, MA 9/29/95 812,000 52% (H)
Two Oliver Street and 147 Milk Street, Boston, MA 10/6/95 271,000 100%
Ten Canal Park, Cambridge, MA 12/21/95 110,000 100%
Perimeter Center, Atlanta, GA 2/15/96 3,302,000 100%
1333 H Street, N.W., Washington, D.C. 8/16/96 239,000 100%
AT&T Plaza, Oak Brook, IL 8/16/96 225,000 100%
Tri-State International, Lincolnshire, IL 8/16/96 548,000 100%
John Marshall I, McLean, VA 9/5/96 261,000 100%
E.J. Randolph, McLean, VA 9/5/96 165,000 100%
Northridge I, Herndon, VA 9/5/96 124,000 100%
1300 North 17th Street, Rosslyn, VA 10/18/96 373,000 100%
1616 North Fort Myer Drive, Rosslyn, VA 10/18/96 293,000 100%
New England Executive Park, Burlington, MA 11/15/96 817,000 100%
The Riverview Building, Cambridge, MA 11/21/96 263,000 100%
10960 Wilshire Boulevard, Westwood, CA 11/21/96 544,000 100%
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%
----------
15,772,000
==========
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 Company 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 Company acquired the remaining interest in the
175 Federal Street and Wellesley 6 Joint Ventures which owned these properties.
Prior to the acquisition of the remaining interest, the Company and its
Predecessor used the equity method of accounting for its investments.
(F) The Company owns an indirect limited partner interest and utilizes the
equity method of accounting for its investment.
(G) The Company owns a 1% general partner interest and a 9% limited partner
interest and utilizes the equity method of accounting for its investment.
(H) The Company is a shareholder in the corporation (private REIT) which owns
the property and utilizes the equity method of accounting for its investment.
21
<PAGE> 22
(I) The Company used the cost method of accounting for its investments in these
subsidiaries prior to 1995. The Company currently uses the equity method of
accounting for its investments. (See Note 2).
2. Summary of Significant Accounting Policies:
Business
The Company is a self-managed and self-administered real estate investment
trust (a "REIT") which 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,
Philadelphia, San Francisco, and Washington, D.C.
The Company also owns and operates commercial real estate development,
acquisition, leasing, design and management businesses. The Company 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 Company have been prepared on
a consolidated basis which include all the accounts of the Company, its
majority owned Operating Partnership and its subsidiaries. All significant
intercompany balances and transactions have been eliminated. The Company'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 consolidated financial statements of
the Company include, along with the contributed properties of the Predecessor,
significant acquisitions of properties and ownership interests subsequent to
the initial public offering; consequently, the operating results of the Company
are not directly comparable to the Predecessor.
The accompanying financial statements of the Predecessor have been
presented on a combined basis which include all of the contributed properties
and the management, leasing, and design entities.
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, interest, property taxes
and other costs incurred during the period of construction. The Company
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 Company periodically reviews its properties to
determine if its carrying costs will be recovered from future operating cash
flows. In cases where the Company does not expect to recover its carrying
costs, the Company would recognize 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 straight-line and
declining balance methods over their expected useful lives of five to seven
years.
22
<PAGE> 23
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 Company's cash and cash equivalents are held at major commercial banks. The
Company has not experienced any losses to date on its invested cash. The
carrying value of the cash and cash equivalents approximate 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 Company and Predecessor use the equity method of accounting for their
earnings in property joint ventures and corporations which it does not control.
Losses in excess of investments are not recorded where the Company or the
Predecessor is a limited partner and has not guaranteed nor intends to provide
any future financial support to the respective properties.
The Company utilized the cost method in 1994 for its earnings from service
corporations. In 1995, the Company adopted the accounting prescribed in
Emerging Issues Task Force Issue 95-6 "Accounting by a Real Estate Investment
Trust for an Investment in a Service Corporation" and utilized the equity
method for its investment in and earnings of service corporations. The effect
of this change on 1994 results was not material and such amounts have been
reclassified to conform to the 1995 presentation.
Mortgage Notes Receivable
Discounts from the principal balance on mortgage notes receivable, net of
acquisition costs, are amortized as interest income over the term of the
related notes using the effective yield method, based on management's
evaluation of the current facts and circumstances and the ultimate ability to
collect the principal balance of such notes.
Offering Costs
Underwriting commissions and offering costs incurred in connection with
the initial and subsequent offerings have been reflected as a reduction of
additional paid-in capital.
23
<PAGE> 24
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 Company by $6.6 million, $3.7 million and $0.9
million and increased the Company's 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. Construction income of the Predecessor was
recognized on the percentage-of-completion method on the basis of costs
incurred and expected to be incurred. Management fees are recognized when they
are earned.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue
Code commencing with its taxable period ended December 31, 1994. As a result,
the Company will generally not be subject to federal income tax on its taxable
income at corporate rates to the extent it distributes annually at least 95% of
its taxable income to its shareholders and complies with certain other
requirements. Accordingly, no provision has been made for federal income taxes
in the accompanying consolidated financial statements. Certain subsidiaries are
subject to federal and state income tax on their taxable income at regular
corporate rates.
The Predecessor was not a legal entity subject to income taxes. No federal
or state income taxes were applicable to the entities that managed and owned
the properties; accordingly, none have been provided in the accompanying
combined financial statements.
Interest Rate Protection Agreements
The Company has entered into interest rate protection agreements to reduce
the impact of certain changes in interest rates on its variable rate debt.
These agreements are accounted for as a hedge. 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 Company'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 of the agreements prior to
their maturity. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate protection agreements.
However, the Company does not anticipate nonperformance by the counterparties.
Per Share Data
The assumed exercise of outstanding share options, using the treasury
stock method, is not dilutive and, therefore, such amounts are not presented
(see Note 9). The income tax status of dividends declared during the years
ended December 31, 1996 and 1995 and the period May 26, 1994 to December 31,
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Ordinary income 91% 87% 66%
Return of capital 9% 13% 34%
</TABLE>
24
<PAGE> 25
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:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
--------- --------
<S> <C> <C>
Tenants $ 5,072 $2,137
Other 4,228 1,006
Affiliates 3,683 3,322
Allowance for uncollectible amounts (1,374) (337)
--------- --------
Total $11,609 $6,128
========= ========
</TABLE>
4. Mortgage Notes Receivable:
The Company acquired a fifty percent interest in certain mortgage notes
collateralized by property owned by a joint venture in which the Company 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 Company also has an option to purchase from an
affiliate other mortgages collateralized by the same property.
25
<PAGE> 26
5. Investments in and Advance to Joint Ventures and Corporations:
The following is summarized financial information for the property joint
ventures and corporation:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
Balance sheets:
Real estate, net $410,207 $419,096
Other assets 51,669 55,714
------------ ------------
Total assets $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
------------ ------------
Total liabilities and equity
(deficiency) $461,876 $474,810
============ ============
</TABLE>
<TABLE>
<CAPTION>
Predecessor
-----------
May 26, 1994 to Jan. 1, 1994 to
1996 1995 Dec. 31, 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 the underlying net assets to the
Company's carrying value of property investments in joint ventures and
corporation is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
----------- ---------
<S> <C> <C>
Partners' and shareholders' equity (deficiency), as above $(1,054) $11,305
Deficits of other partners and shareholders 23,532 13,259
----------- ---------
Company's share of equity 22,478 24,564
Excess of cost of investments over the net book value of underlying net
assets, net of amortization and accumulated amortization of $122 and
$75, respectively 1,310 1,357
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
----------- ---------
<S> <C> <C>
----------- ---------
Carrying value of property investments in joint ventures and
corporation $23,788 $25,921
=========== =========
</TABLE>
The following is summarized financial information for the service
corporations:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
----------- ---------
<S> <C> <C>
Balance sheets:
Equipment, net $ 1,806 $ 715
Other assets 34,155 29,560
-------------------
Total assets $35,961 $30,275
===================
Other liabilities 37,360 27,124
Shareholders' equity (deficiency) (1,399) 3,151
-------------------
Total liabilities and equity (deficiency) $35,961 $30,275
===================
</TABLE>
<TABLE>
<CAPTION>
May 26, 1994 to
1996 1995 Dec. 31, 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 fee costs (141,167) (110,835) (52,388)
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>
27
<PAGE> 28
A reconciliation of the underlying net assets to the Company's carrying
value of investments in and advance to service corporations is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1996 1995
--------- --------
<S> <C> <C>
Shareholders' equity (deficiency), as above $ (1,399) $ 3,151
Less equity (deficiency) of other shareholders (29) 11
--------- --------
Company's share of equity (deficiency) (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, as above 23,788 25,921
--------- --------
Total $ 27,418 $ 34,061
========= ========
Per consolidated balance sheet:
Investments in and advance to joint ventures
and corporations $ 52,153 $ 58,016
Investment in joint venture (24,735) (23,955)
--------- --------
Total $ 27,418 $ 34,061
========= ========
</TABLE>
6. Mortgage Notes Payable:
The mortgage notes payable, collateralized by the certain properties and
assignment of leases, are as follows:
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
--------- --------
<S> <C> <C>
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
========= ========
</TABLE>
28
<PAGE> 29
The Company'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:
<TABLE>
<S> <C>
1997 $ 2,127
1998 72,611
1999 6,602
2000 7,608
2001 8,171
Thereafter 355,093
--------
Total $452,212
========
</TABLE>
The Company computes the fair value of its mortgage notes payable based
upon the discounted cash flows at a discount rate that approximates the
Company's effective borrowing rate and the Company has determined that the fair
value of its mortgage notes approximates their carrying value.
In March 1996, the Company repaid a debt and recorded an extraordinary
item of $1.9 million, net of minority interest, 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 transfering the assets to the Company, these
items were recorded by the Predecessor entity.
7. Note Payable, Credit Facility:
The Company has a three-year, $300 million revolving credit facility (the
"Credit Facility"). The Credit Facility matures in June 1999 and is secured 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 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 any four quarters in the period from 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%.
29
<PAGE> 30
Based upon the Credit Facility's variable interest rate and the Company's
determination of the fair value of its interest rate agreement based upon the
quoted market prices of similar instruments, the Company has determined that
the fair value of these instruments approximate their carrying value.
As a result of the substantial modification of the terms of the Credit
Facility in June 1996, the Company recorded an extraordinary item of $1.5
million, net of minority interest, in connection with the write-off of fees and
costs relating to the prior Credit Facility.
8. Accounts Payable, Accrued Expenses and Other Liabilities:
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
--------- ---------
<S> <C> <C>
Accounts payable and accrued expenses $29,904 $ 8,092
Deferred liability 4,912 1,164
Affiliates 1,258 2,952
Other liabilities 504 647
Security deposits 5,186 1,167
--------- ---------
Total $41,764 $14,022
========= =========
</TABLE>
9. Stockholders' Equity:
Stock Option Plans
During 1994, the Company adopted the 1994 Stock Option Plan, which
initially reserved 1,102,080 shares of common stock. In May, 1996 the 1994
Stock Option Plan was amended to reserve an additional 1,621,485 shares of
common stock. The 1994 Stock Option Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee") and officers and certain
other employees of the Company are eligible to participate. Non-employee
Directors of the Company are eligible to receive stock options under the 1994
Stock Option Plan on a limited basis.
The 1994 Stock Option Plan authorizes (i) the grant of stock options that
qualify as incentive stock options under Section 422 of the Code ("ISOs"), (ii)
the grant of stock options that do not so qualify ("NQSOs"), (iii) the grant of
stock options in lieu of cash for Directors' fees and employee
bonuses, (iv) grants of shares of common stock contingent on the attainment of
performance goals or subject to other restrictions, and (v) grants of shares of
common stock in lieu of cash compensation. The exercise price of stock options
will be determined by the Committee, but may not be less than 100% of the fair
market value of the shares of Common Stock on the date of
grant in the case of ISOs. However, in the case of grants of NQSOs granted in
lieu of cash for Directors' fees and employee bonuses, the exercise price may
not be less than 50% of the fair market value of the shares of common stock on
the date of grant. NQSOs granted under the 1994 Stock Option Plan may, if
approved by the Committee, accrue annually a dividend equivalent right which
will entitle the option-holder to receive additional shares of common stock
upon the exercise of the option. The Company has reserved 29,425 shares of
common stock for issuance under the 1994 Stock Option Plan. Options issued vest
at such time or times as determined by the committee except for options issued
to independent directors which vest on the date of grant. All options have a
term of ten years from the grant date.
30
<PAGE> 31
In October 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"), which provides for the granting of options to purchase up to an
aggregate of 750,000 shares of common stock to all employees other than the
senior executive officers of the Company. The Company has reserved 168,500
shares of common stock for issuance under the 1996 Option Plan. The term of
each option is fixed by the Committee. The Committee also determines at what
time or times each option becomes vested and exercisable and, subject to the
terms of the Plan, the period of time, if any, after death, disability, or
termination of employment during which options may be exercised. The Committee
may accelerate the exercisability of any option at any time.
Changes in options outstanding under the 1994 and 1996 plans during the
period were as follows:
<TABLE>
<CAPTION>
Option Price
------------
Number
Of Shares Per Share
Under Option Average
------------ ---------
<S> <C> <C>
Granted at Initial Offering 630,250 $17.00
Granted May-December 1994 27,500 18.16
Canceled May-December 1994 (15,750) 17.00
------------ ---------
Shares under Option at
December 31, 1994 642,000 17.05
Exercised--1995 (12,367) 17.46
Granted--1995 414,000 20.14
Canceled--1995 (9,662) 17.00
------------ ---------
Shares under Option at
December 31, 1995 1,033,971 18.28
Exercised--1996 (97,827) 17.00
Granted--1996 2,236,550 28.72
Canceled--1996 (7,248) 19.16
------------ ---------
Shares under option at
December 31, 1996 3,165,446 25.69
============ =========
Options available for grant at
beginning of year 55,826 --
Options available for grant at
end of year 197,925 --
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its plans. Financial Accounting Standards
Board Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123")
was issued in 1995 and, if fully adopted, changes the methods for recognition
of cost on plans similar to those of the Company. Adoption of SFAS 123 is
optional; however, had compensation cost for the Company's 1996 grants for
stock-based compensation plans been determined consistent with SFAS 123, the
Company's net income, net income applicable to common shareholders, and net
income per common share would approximate the pro forma amounts below:
<TABLE>
<CAPTION>
1996 1995
------------------
<S> <C> <C>
Net income:
As reported $36,332 $18,060
Pro forma (unaudited) 35,530 18,007
</TABLE>
31
<PAGE> 32
Net income per common share:
As reported 1.21 1.09
Pro forma (unaudited) 1.19 1.09
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in future years are anticipated.
The fair value of each option granted under SFAS 123, estimated on the date of
grant using the Black-Scholes option-pricing model, is $3.38 for 1996 and $2.04
for 1995. The following table presents the annualized weighted- average values
of the significant assumptions used to estimate the fair values of the options:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Risk-free interest rate 6.22% 5.45%
Expected life in years 6.0 6.0
Expected volatility 16.6% 16.1%
Expected dividend yield 6.0% 6.0%
</TABLE>
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------ ------------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Price
- ------------------- -------------- --------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
$12.0625 - $15.0000 2,614 9.48 $13.4150 2,576 $ 13.4230
17.0000 - 17.0000 497,396 7.38 17.0000 300,998 17.0000
17.1875 - 18.3125 22,936 7.54 18.1680 20,437 18.1580
20.1250 - 20.1250 395,000 8.92 20.1250 136,685 20.1250
20.3750 - 25.8750 426,000 9.28 24.9049 26,000 22.4807
26.0000 - 26.7500 35,000 9.49 26.2142 15,000 26.0000
29.6250 - 29.6250 1,779,500 9.85 29.6250 0 0.0000
31.0000 - 31.0000 1,000 9.89 31.0000 0 0.0000
31.5000 - 31.5000 1,000 9.90 31.5000 0 0.0000
32.2500 - 32.2500 5,000 9.94 32.2500 0 0.0000
- ------------------- -------------- --------------------------------------------- ------------
12.0625 - 32.2500 3,165,446 9.25 $25.6915 501,696 $18.4333
=================== ============== ============================================= ============
</TABLE>
Stock Purchase Plan
32
<PAGE> 33
In 1995, the Company instituted a dividend reinvestment and stock purchase
plan for holders of the Company's stock. The plan permits shareholders to
automatically reinvest their cash dividends or invest limited amounts of cash
payments in newly issued shares or open market purchases of the Company's
common stock. At December 31, 1996 and 1995, there were 373,132 and 474,563
shares reserved for issuance under the dividend reinvestment and stock
purchase plan.
10. Transactions with Affiliates:
<TABLE>
<CAPTION>
Predecessor
-----------
May 26, 1994 to Jan. 1, 1994 to
1996 1995 Dec. 31, 1994 May 25, 1994
-------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Management, design and construction
fees and interest income $9,176 $ 5,640 $1,809
Administrative salaries and expenses -- -- 469
Construction costs 8,352 11,108 $241 --
</TABLE>
In 1995, the Company entered into an agreement to lease its corporate
offices from a joint venture in which the Company has an indirect interest. It
previously subleased corporate 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 from
May 26, 1994 to December 31, 1994, respectively.
Future minimum rental payments at December 31, 1996 for the Company's
corporate offices are $1.3 million for 1997, $1.4 million for 1998 through
2001, and $1.0 million for 2002.
11. Minority Interests:
Minority Interest in Operating Partnership
Minority interest in the Operating Partnership relates to the portion
which is not owned by the Company and, at December 31, 1996, amounted to 11.5%.
In conjunction with the formation of the Company persons contributing
interests in properties to the Operating Partnership elected to receive either
common stock of the Company or interests in the Operating Partnership ("Units").
Each Unit may be redeemed for cash equal to the fair market value of a share of
common stock at the time of redemption or, at the option of the Company, one
share of common stock. When a unitholder redeems a Unit for a share of common
stock or cash, minority interest is reduced and the Company's investment in the
Operating Partnership is increased. At December 31, 1996 and 1995, 6,273,928 and
3,788,549 units were outstanding, respectively.
Minority Interest in Combined Partnerships
This amount presented in the financial statements of the Predecessor
represents the losses of the properties in excess of capital of owners, who
will continue to hold their respective economic interest in the combined
partnerships, and are capable of funding their share of future capital calls.
33
<PAGE> 34
12. Commitments and Contingencies:
Pension Plan
The Company participates in a defined-benefit pension plan with some of
its affiliates. This plan covers substantially all full-time non-union
employees. The Company'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.
401K Plan
The eligible employees of the Company participate in a contributory
savings plan with some of its affiliates. Under the plan, the Company may match
contributions made by eligible employees based on a percentage of the
employee's salary. The Company matches 25% of contributions up to 3% of such
employee's salary (up to $30,000). The matching amount may be changed from
time to time by the Board of Directors. Expenses under this Plan for 1995, 1994
and 1993 were not material.
Contingencies
The Company is subject to various legal proceedings and claims that arose
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 Company.
Lease
The South Station property is subject to a ground lease expiring in 2024.
The lease provides for 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 Company 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 such 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 Company for any costs or damages it incurs in connection with
such contamination. As the owner of the property, however, the Company 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 Company has received an indemnity
from the owner to the extent the Company 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 Company has been advised that such treatment facility has
the capacity to
34
<PAGE> 35
treat any contaminants which may be derived from the groundwater passing
beneath the New England Executive Park.
Based on site assessments performed at The Riverview Building 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 Company that applicable regulatory
requirements can be satisfied without the need to perform any remediation at
the property.
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 Company. The escrow
further provides that the Company may receive some or all of the remaining
escrowed Units upon certain conditions.
The Company does not believe that any costs, if incurred, in connection
with these environmental matters would have a material adverse effect on the
financial position, results of operations, or liquidity of the Company.
Other
The Company guarantees the surety bonds of an affiliate in an amount up to
$5.0 million.
The Company 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 Company 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 Company 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.
13. Segment Information:
The Predecessor operated principally in three segments: rental operations,
property management, and construction. Revenues for the management segment
include management revenues earned from the rental operations segment which are
subsequently eliminated in consolidation.
Income (loss) from operations consists of total revenues less total
expenses excluding the effects of the following items: equity in net income
(loss) of joint ventures, minority interest in loss of combined partnerships
and extraordinary gain.
<TABLE>
<CAPTION>
Rental Management Construction Elimination Total
--------------------- -------------- -------------- ----------
January 1, 1994--May 25, 1994
<S> <C> <C> <C> <C> <C>
Revenues $ 7,610 $1,766 $24,238 $(364) $33,250
Income (Loss) from Operations (1,848) 1,260 102 (36) (522)
Identifiable Assets 63,335 283 14,141 (289) 77,470
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
Rental Management Construction Elimination Total
--------------------- -------------- -------------- ----------
January 1, 1994--May 25, 1994
<S> <C> <C> <C> <C> <C>
Depreciation and Amortization 2,383 2 91 -- 2,476
Capital Expenditures 837 -- 141 -- 978
</TABLE>
14. Future Minimum Rents:
Future minimum rentals to be received under noncancelable tenant leases in
effect at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $ 188,032
1998 175,732
1999 170,086
2000 143,288
2001 113,718
Thereafter 370,698
----------
Total $1,161,554
==========
</TABLE>
15. Geographic Concentration:
The Company owns properties with a total cost at December 31, 1996 as
follows:
<TABLE>
<CAPTION>
<S> <C>
Downtown Boston $ 284,574
Suburban Boston 279,987
Suburban Atlanta 343,014
Suburban Philadelphia 59,018
Suburban Virginia 178,166
Suburban Los Angeles 133,307
Suburban San Francisco 184,207
Suburban Chicago 175,819
Downtown Washington 53,438
----------
Total $1,691,530
==========
</TABLE>
16. Selected Quarterly Financial Information: (unaudited)
The following schedule is a summary of the quarterly results of operations
for the years ended December 31, 1996 and 1995 and the period May 26, 1994 to
December 31, 1994:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
--------- --------- --------- --------- -----------
Year Ended December 31, 1996
<S> <C> <C> <C> <C> <C>
Revenue $ 33,668 $ 41,438 $ 46,602 $ 62,082 $ 183,791
Income from continuing operations 6,899 10,053 11,603 15,002 43,557
Discontinued operations--Construction Company:
Loss from operations (407) (663) (841) (698) (2,609)
Loss on sale -- -- -- (249) (249)
Extraordinary items, net of minority interest (1,726) (1,642) -- -- (3,368)
Net income 4,994 7,550 10,524 13,265 36,332
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
--------- --------- --------- --------- -----------
Year Ended December 31, 1996
<S> <C> <C> <C> <C> <C>
Net income per common share 0.23 0.28 0.34 0.34 1.21
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
--------- --------- --------- --------- -----------
Year Ended December 31, 1995
<S> <C> <C> <C> <C> <C>
Revenue $20,801 $22,124 $23,595 $24,523 $ 91,043
Income from continuing operations 3,498 4,620 5,510 5,329 18,957
Discontinued operations--Construction
Company:
Loss from operations -- -- (12) -- (12)
Net income 3,081 4,151 5,088 5,740 18,060
Net income per common share 0.25 0.26 0.29 0.28 1.09
</TABLE>
<TABLE>
<CAPTION>
Second Third Fourth
Quarter Quarter Quarter Total
--------- --------- --------- -----------
May 26, 1994--December 31, 1994
<S> <C> <C> <C> <C>
Revenue $ 3,997 $ 11,387 $ 16,549 $ 31,933
Income from continuing operations 784 1,578 3,557 5,919
Discontinued operations--Construction Company:
Income from operations 42 165 270 477
Net income 826 1,826 3,003 5,655
Net income per common share 0.07 0.15 0.26 0.48
</TABLE>
17. Pro Forma Results: (unaudited)
The following unaudited pro forma operating results for the Company 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 Company 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 Company operations did not commence until
May 26, 1994.
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
--------- -----------
<S> <C> <C>
Revenues $299,147 $266,882
Income before extraordinary items 74,845 69,894
Net income 71,416 69,894
Net income per common share 1.48 1.45
</TABLE>
37
<PAGE> 38
18. 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.
19. Subsequent Events:
Declaration of Dividend
On January 28, 1997, the Company declared a quarterly dividend of $0.4625
per common share, payable on February 28, 1997 to shareholders of record on
February 10, 1997.
38
<PAGE> 39
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Stockholders of
Beacon Properties Corporation:
Our report on the consolidated financial statements of Beacon Properties
Corporation is included on page F-1 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in the Item 14(a) of this Form 10-K.
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.
Boston, Massachusetts /s/ Coopers & Lybrand L.L.P.
January 28, 1997
39
<PAGE> 40
Schedule III
BEACON PROPERTIES CORPORATION
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
Two 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
The Riverview Building--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
======== ======== ==========
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
Cost Capitalized
Subsequent Gross Amount at Which
to Acquisition Carried at Close of Period
-------------- --------------------------
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
Two 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
The Riverview Building--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
======== ============== ======== ============ ==========
</TABLE>
41
<PAGE> 42
<TABLE>
<CAPTION>
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)
Two 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)
The Riverview Building--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.
42
<PAGE> 43
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>
43
<PAGE> 44
** Balance reflects prior accumulated depreciation carried over due to
accounting for formation acquisitions as poolings of interests.
<TABLE>
<CAPTION>
Principal
Amount of
Principal Final Periodic Face Carrying Loans Subject to
Commercial Property Interest Maturity Payment Prior Amount of Amount of Delinquent
Interest Rate Date Term Liens Mortgages Mortgages (1) or
- --------------------- -------- -------------------------- --------- --------- ----------- ------------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Rowes Wharf
Boston, MA 8.71% 4/1/99 Interest-only -- $63,000 $51,491 --
</TABLE>
(1) The aggregate cost of the Company's mortgage loans for federal income tax
purposes was $51,491 at December 31, 1996.
Reconciliation of Mortgage Loans on real estate for the year ended
December 31:
<TABLE>
<CAPTION>
1996
----------
<S> <C>
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
==========
</TABLE>
44
<PAGE> 45
ITEM 7 (B): PRO FORMA FINANCIAL INFORMATION AS OF AND FOR THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER 31,
1996, FOR EQUITY OFFICE PROPERTIES TRUST
45
<PAGE> 46
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The accompanying unaudited Pro Forma Condensed Combined Balance Sheet as
of September 30, 1997 reflects the following transactions which all occurred
subsequent to September 30, 1997: (a) the acquisition of 35 office properties
and one parking facility; (b) the sale of 9.7 million common shares of
beneficial interest, $0.01 par value per share ("Common Shares") of Equity
Office Properties Trust (the "Company"); (c) draws on the term loan (the "$1.5
billion Credit Facility") to fund acquisitions and repay mortgage indebtedness;
(d) the acquisition of a 50% interest in the mortgage note securing the 1325
Avenue of the Americas property acquired in November, 1997; and (e) the merger
of Beacon Properties Corporation ("Beacon") with and into the Company on
December 19, 1997 (the "Merger").
The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the nine months ended September 30, 1997 reflects the following
transactions as if they had occurred on January 1, 1997: (a) the acquisition of
46 office properties and seven parking facilities, including an interest in
four parking facilities, acquired between January 1, 1997 and December 17,
1997, and the disposition of two office properties; (b) the $180 million
private debt offering (the "Private Debt Offering") which occurred on September
3, 1997; (c) the transactions that occurred in connection with the
consolidation of the entities which comprise the predecessors ("Equity Office
Predecessors") of the Company (the "Consolidation") and the initial public
offering (the "Offering"), which closed on July 11, 1997, and the decrease in
interest expense resulting from the use of the net proceeds for the repayment
of mortgage debt; (d) the net change in interest expense from draws on the $1.5
billion Credit Facility used to refinance existing mortgage debt; (e) interest
income from the 50% interest in the mortgage note securing the 1325 Avenue of
the Americas property; and (f) the Merger.
The accompanying unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1996 reflects the following
transactions as if they had occurred on January 1, 1996: (a) the acquisition of
57 office properties and 14 parking facilities, including an interest in four
parking facilities, acquired between January 1, 1996 and December 17, 1997 and
the disposition of two office properties; (b) the Private Debt Offering which
occurred on September 3, 1997; (c) the Consolidation and the Offering, and the
decrease in interest expense resulting from the use of the net proceeds for the
repayment of mortgage debt; (d) the net change in interest expense from draws
on the $1.5 billion Credit Facility used to refinance existing mortgage debt;
(e) interest income from the 50% interest in the mortgage note securing the
1325 Avenue of the Americas property; and (f) the Merger.
The accompanying unaudited pro forma condensed combined financial
statements have been prepared by management of the Company and do not purport
to be indicative of the results which would actually have been obtained had the
transactions described above been completed on the dates indicated or which may
be obtained in the future. The pro forma condensed combined financial
statements should be read in conjunction with the accompanying notes to the pro
forma condensed combined financial statements as of and for the nine month
period ended September 30, 1997 and the year ended December 31, 1996, included
elsewhere herein.
46
<PAGE> 47
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY OFFICE
PROPERTIES TRUST
HISTORICAL ACQUIRED PROPERTIES OTHER ACTIVITY
--------------------------------------------------------------------
ASSETS (A)
<S> <C> <C> <C>
Investment in real estate, net $5,000,159 $ 1,942,807 $ -
Cash and cash equivalents 132,649 (1,365,916) 1,237,659 (B)
Rents and other receivables 16,190 - -
Escrow deposits and restricted cash 42,966 - -
Investment in mortgage notes - - 25,150 (C)
Investment in unconsolidated joint ventures 93,826 20,000 -
Other assets 70,132 - 4,875 (D)
--------------------------------------------------------------------
TOTAL ASSETS $5,355,922 $ 596,891 $ 1,267,684
====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage debt $1,325,333 $ 257,674 $ (233,921) (E)
Unsecured notes 180,000 - -
Line of credit 211,125 - 1,229,065 (F)
Distribution payable 42,964 - -
Other liabilities 132,748 30,629 -
--------------------------------------------------------------------
TOTAL LIABILITIES 1,892,170 288,303 995,144
Minority interests:
Operating Partnership 281,927 - 166,745 (G)
Partially owned properties 28,118 - -
Preferred stock
Common stock 1,523 - 97 (H)
Additional paid in capital 3,152,184 308,588 105,698 (I)
--------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,355,922 $ 596,891 $ 1,267,684
====================================================================
<CAPTION>
BEACON PROPERTIES
CORPORATION PRE-MERGER MERGER EQUITY OFFICE
PRO FORMA ADJUSTMENTS PROPERTIES TRUST
----------------------------------------------------------------
ASSETS (J) (K)
<S> <C> <C> <C>
Investment in real estate, net $2,459,465 $ 1,597,447 (L) $ 10,999,878
Cash and cash equivalents 9,802 (9,234) (M) 4,960
Rents and other receivables - - 16,190
Escrow deposits and restricted cash - - 42,966
Investment in mortgage notes - - 25,150
Investment in unconsolidated joint ventures 50,416 - 164,242
Other assets 148,254 (46,203) (N) 177,058
----------------------------------------------------------------
TOTAL ASSETS $2,667,937 $ 1,542,010 $ 11,430,444
================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage debt $ 618,698 $ (6,000) (O) $ 1,961,784
Unsecured notes - - 180,000
Line of credit 407,017 - 1,847,207
Distribution payable - - 42,964
Other liabilities 75,218 (24,051) (O) 214,544
----------------------------------------------------------------
TOTAL LIABILITIES 1,100,933 (30,051) 4,246,499
Minority interests:
Operating Partnership 149,453 128,063 (P) 726,188
Partially owned properties - - 28,118
Preferred stock 200,000 - 200,000
Common stock - 853 (Q) 2,473
Additional paid in capital 1,217,551 1,443,145 (R) 6,227,166
----------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,667,937 $ 1,542,010 $ 11,430,444
================================================================
</TABLE>
47
<PAGE> 48
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY OFFICE
PROPERTIES TRUST 1997
HISTORICAL ACQUIRED PROPERTIES DISPOSITIONS
-------------------------------------------------------
(S) (T) (U)
<S> <C> <C> <C>
Revenues:
Rental $ 381,108 $ 169,133 $ (2,558)
Tenant reimbursements 66,855 41,748 (62)
Parking 33,744 15,114 (573)
Other 7,600 3,013 (26)
Fees from noncombined affiliates 3,841 - -
Interest 10,524 65 -
------------ --------- ----------
Total revenues 503,672 229,073 (3,219)
------------ --------- ----------
Expenses:
Property operating 190,170 87,299 (1,595)
Interest 110,419 67,176 (36)
Depreciation 80,166 38,837 -
Amortization 5,884 - (54)
General and administrative 23,056 - -
------------ --------- ----------
409,695 193,312 (1,685)
------------ --------- ----------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sales of real
estate and extraordinary items 93,977 35,761 (1,534)
Discontinued operations:
Loss from operations - Construction Company - - -
Minority interests:
Operating Partnership (2,587) - -
Partially owned properties (1,191) - -
Income from investment in unconsolidated joint ventures 3,408 1,463 -
Gain on sales of real estate 12,510 - (12,510)
Preferred dividends - - -
------------ --------- ----------
Income before extraordinary items 106,117 37,224 (14,044)
Extraordinary items (13,204) - 275
------------ --------- ----------
Net income $ 92,913 $ 37,224 $ (13,769)
============ ========= ==========
<CAPTION>
CONSOLIDATION AND BEACON PROPERTIES,
OFFERING CORPORATION PRE-
FINANCING ACTIVITY ADJUSTMENTS MERGER PRO FORMA
------------------ ----------------- ------------------
(AD)
<S> <C> <C> <C>
Revenues:
Rental $ - $ 8,983 (Y) $ 271,273
Tenant reimbursements - - 38,164
Parking - - -
Other - - 11,053
Fees from noncombined affiliates - - 2,445
Interest 2,188 (V) - 7,153
------------ --------- ----------
Total revenues 2,188 8,983 330,088
------------ --------- ----------
Expenses:
Property operating - - 104,285
Interest 12,761 (W) (25,343) (Z) 53,831
Depreciation - 1,205 (AA) 61,701
Amortization 4,141 (X) (1,699) (AB) -
General and administrative - 1,800 (AC) 29,756
------------ --------- ----------
16,902 (24,037) 249,573
------------ --------- ----------
Income before allocation to minority interests, income from
investment in unconsolidated joint ventures, gain on sales of real
estate and extraordinary items (14,714) 33,020 80,515
Discontinued operations:
Loss from operations - Construction Company - - (2,263)
Minority interests:
Operating Partnership - - (8,244)
Partially owned properties - (42) -
Income from investment in unconsolidated joint ventures - - 4,638
Gain on sales of real estate - - -
Preferred dividends - - (13,470)
------------ --------- ----------
Income before extraordinary items (14,714) 32,978 61,176
Extraordinary items - - -
------------ --------- ----------
Net income $ (14,714) $ 32,978 $ 61,176
============ ========= ==========
<CAPTION>
EQUITY OFFICE
PROPERTIES TRUST
MERGER ADJUSTMENTS PRO FORMA
------------------ --------------------
<S> <C> <C>
Revenues:
Rental $ 1,412 (AE) $ 829,351
Tenant reimbursements - 146,705
Parking - 48,285
Other - 21,640
Fees from noncombined affiliates - 6,286
Interest - 19,930
---------- -----------
Total revenues 1,412 1,072,197
---------- -----------
Expenses:
Property operating - 380,159
Interest - 218,808
Depreciation 6,759 (AF) 188,668
Amortization 514 (AG) 8,786
General and administrative (15,000) (AH) 39,612
---------- -----------
(7,727) 836,033
---------- -----------
Income before allocation to minority interests, income from
investments in unconsolidated joint ventures, gain on sales of real
estate and extraordinary items 9,139 236,164
Discontinued operations:
Loss from operations - Construction Company - (2,263)
Minority interests:
Operating Partnership (11,696) (22,527) (AI)
Partially owned properties - (1,233) (AI)
Income from investments in unconsolidated joint ventures - 9,509
Gain on sales of real estate - -
Preferred dividends - (13,470)
---------- -----------
Income before extraordinary items (2,557) 206,180
Extraordinary items - (12,929)
---------- -----------
Net income $ (2,557) $ 193,251
========== ===========
Net income per Common Share $ 0.77 (AJ)
===========
Weighted Average Common Shares Outstanding 250,252
===========
</TABLE>
48
<PAGE> 49
EQUITY OFFICE PROPERTIES TRUST
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY OFFICE
PREDECESSORS 1996 ACQUIRED 1997 ACQUIRED
HISTORICAL PROPERTIES PROPERTIES DISPOSITIONS
--------------------- ------------- ------------- ------------
(S) (T) (T) (U)
<S> <C> <C> <C> <C>
Revenues:
Rental $ 386,481 $ 53,340 $ 239,256 $ (8,303)
Tenant reimbursements 62,036 9,967 51,795 (88)
Parking 27,253 13,518 20,900 (1,462)
Other 17,626 1,797 6,176 (99)
Fees from noncombined affiliates 5,120 - - -
Interest 9,608 - 249 (7)
------------- --------- --------- ---------
508,124 78,622 318,376 (9,959)
Expenses ------------- --------- --------- ---------
Property operating 201,067 30,971 125,661 (5,046)
Interest 119,595 24,178 103,290 (956)
Depreciation 82,905 13,090 59,205 (1,941)
Amortization 13,332 - - (346)
General and administrative 23,145 - - -
------------- --------- --------- ---------
440,044 68,239 288,156 (8,289)
------------- --------- --------- ---------
Income before allocation to minority interests, income from
investments in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items 68,080 10,383 30,220 (1,670)
Discontinued operations:
Loss from operations - Construction Company - - - -
Loss on sale - Construction Company - - - -
Minority interests: - -
Operating Partnership (2,086) - - -
Partially owned properties 2,093 - - -
Income from investment in unconsolidated joint ventures 5,338 - 3,218 -
Gain on sale of real estate - - - -
Preferred dividends - - - -
------------- --------- --------- ---------
Income before extraordinary items 73,425 10,383 33,438 (1,670)
Extraordinary items - - - -
------------- --------- --------- ---------
Net income $ 73,425 $ 10,383 $ 33,438 $ (1,670)
============= ========= ========= =========
<CAPTION>
CONSOLIDATION BEACON PROPERTIES
FINANCING ACTIVITY AND OFFERING CORPORATION PRE-
ADJUSTMENTS MERGER PRO FORMA
------------------ ------------- ------------------
(AD)
<S> <C> <C> <C>
Revenues:
Rental $ - $ 16,264 (Y) $ 332,808
Tenant reimbursements - - 46,386
Parking - - -
Other - - 18,026
Fees form noncombined affiliates - - 3,005
Interest 2,917 (V) - 8,376
------------- ---------- ---------
2,917 16,264 408,601
Expenses ------------- ---------- ---------
Property operating - 132,229
Interest 11,606 (W) (43,041) (Z) 71,789
Depreciation - 7,183 (AA) 80,844
Amortization 4,387 (X) (8,591) (AB) -
General and administrative - 2,400 (AC) 27,099
------------- ---------- ---------
15,993 (42,049) 311,961
------------- ---------- ---------
Income before allocation to minority interests, income from
investments in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items (13,076) 58,313 96,640
Discontinued operations:
Loss from operations - Construction Company - - (2,609)
Loss on sale - Construction Company - - (249)
Minority interests:
Operating Partnership - - (11,503)
Partially owned properties - (56) -
Income from investments in unconsolidated joint ventures - - 4,539
Gain on sale of real estate - - 16,505
Preferred dividends - - (17,980)
------------- ---------- ---------
Income before extraordinary items (13,076) 58,257 85,343
Extraordinary items - - -
------------- ---------- ---------
Net income $ (13,076) $ 58,257 $ 85,343
============= ========== =========
<CAPTION>
EQUITY OFFICE
PROPERTIES TRUST PRO
MERGER ADJUSTMENTS FORMS
------------------ ---------------------
<S> <C> <C>
Revenues:
Rental $ 3,750 (AE) $ 1,023,596
Tenant reimbursements - 170,096
Parking - 60,209
Other - 43,526
Fees from noncombined affiliates - 8,125
Interest - 21,143
---------- -------------
3,750 1,326,695
Expenses ---------- -------------
Property operating - 484,882
Interest - 286,461
Depreciation 10,437 (AF) 251,723
Amortization 632 (AG) 9,414
General and administrative (20,000) (AH) 32,644
---------- -------------
(8,931) 1,065,124
---------- -------------
Income before allocation to minority interests, income from
investments in unconsolidated joint ventures, gain on sale of real
estate and extraordinary items 12,681 261,571
Discontinued operations:
Loss from operations - Construction Company - (2,609)
Loss on sale - Construction Company - (249)
Minority interests:
Operating Partnership (16,715) (28,218) (AI)
Partially owned properties - (2,142) (AI)
Income from investments in unconsolidated joint ventures - 9,850
Gain on sale of real estate - 21,843
Preferred dividends - (17,980)
---------- -------------
Income before extraordinary items (4,034) 242,066
Extraordinary items -
---------- -------------
Net income $ (4,034) $ 242,066
========== =============
Net income per Common Share $ 0.97 (AJ)
=============
Weighted average Common Shares outstanding 250,252
=============
</TABLE>
49
<PAGE> 50
EQUITY OFFICE PROPERTIES TRUST
NOTES TO THE PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
A. To reflect the following acquisitions acquired during the period from
October 1, 1997 to December 17, 1997, as previously reported in the
Company's Current Report on Form 8-K dated October 1, 1997 and December
17, 1997, respectively:
<TABLE>
<CAPTION>
VALUE OF
COMMON
SHARES
LIABILITIES AND/OR UNITS
PROPERTY NOTE PURCHASE COST CASH PAID ASSUMED ISSUED
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Prudential Properties (1) $289,000 $211,950 $6,000 $71,050
550 South Hope Street (2) 99,500 99,500 -- --
Acorn Properties (3) 127,500 98,364 14,749 14,387
10 & 30 South Wacker Drive (4) 481,301 462,000 19,301 --
One Lafayette Centre (5) 81,680 51,910 5,330 24,440
Acorn Properties (6) 17,161 10,659 2,923 3,579
PPM Properties (7) 91,940 91,940 -- --
LaSalle Office Plaza (8) 97,425 97,425 -- --
Stanwix Parking Facility (9) 17,300 17,300 -- --
Wright Runstad Properties (10) 640,000 208,867 240,000 191,133
-------------------------------------------------------------------
1,942,807 1,349,915 288,303 304,589
Investment in Wright Runstad
Associates Limited
Partnership (11) 20,000 16,001 -- 3,999
-------------------------------------------------------------------
Total $1,962,807 $1,365,916 $288,303 $308,588
===================================================================
</TABLE>
(1) Acquired on October 1, 1997, and consists of six properties.
(2) Acquired on October 6, 1997.
(3) Acquired on October 7, 1997, and consists of nine properties.
(4) Acquired on October 7, 1997, and consists of two properties. The
purchase price includes approximately $19.3 million related to a real
estate tax liability from closing prorations.
(5) Acquired on October 17, 1997.
(6) Acquired on November 21, 1997, and consists of two properties.
(7) Acquired on November 24, 1997, and consists of three properties.
(8) Acquired on November 25, 1997.
(9) Acquired on November 25, 1997.
(10) Acquired on December 17, 1997, and consists of ten properties.
(11) Acquired on December 17, 1997.
50
<PAGE> 51
B. To reflect the following transactions:
<TABLE>
<S> <C>
Issuance of 3.0 million Common Shares at $24.50 each which occurred on
October 1, 1997 $ 73,950
Issuance of 6.7 million Common Shares at $30.00 each which occurred on
October 20, 1997 200,000
Net proceeds from the $1.5 billion Credit Facility to fund acquisitions and other
activity (see Note F) 968,584
Payment of fees related to the $1.5 billion Credit Facility (see Note D) (4,875)
----------
Net cash proceeds $1,237,659
==========
</TABLE>
C. To reflect the investment in the mortgage note securing the 1325 Avenue
of the Americas property made in November, 1997. The Company owns a 50%
interest in the mortgage note which bears interest at LIBOR plus 6%.
D. To reflect fees paid by the Company pertaining to the $1.5 billion Credit
Facility which was obtained in October, 1997. The fees will be amortized
to interest expense over the term of the $1.5 billion Credit Facility,
which is nine months.
E. To reflect the mortgage debt repaid from draws on the $1.5 billion Credit
Facility and to write-off the unamortized mark-to-market adjustments for
the following properties recorded at the time of the Consolidation and the
Offering based on the outstanding principal balances as of September 30,
1997:
<TABLE>
<CAPTION>
MATURITY BALANCE AT
PROPERTY INTEREST RATE DATE 9/30/97
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
1601 Market LIBOR + 1.25% June 30, 2001 $ 24,152
1620 L Street 8.00% Feb. 4, 2000 21,086
9400 NCX LIBOR + 1.65% May 10, 2001 14,218
Bank One Center LIBOR + 1.1% Mar. 19, 1999 83,500
NationsBank 8.00% Dec. 1, 2003 18,855
North Central Plaza LIBOR + 1.75% Aug. 3, 1999 14,930
San Jacinto LIBOR + 1.125% Dec. 13, 1998 18,212
Sterling Plaza LIBOR + 1.75% Dec. 8, 1998 15,628
The Quadrant EURODOLLAR + 2.00% May 31, 1999 18,000
Union Square EURODOLLAR + 2.00% May 31, 1999 6,750
--------
Subtotal 235,331
Less: Write-off of unamortized mark-to-market adjustments for
debt repaid on San Jacinto, NationsBank and Bank One
Center (1,410)
--------
$233,921
========
</TABLE>
51
<PAGE> 52
F. To record draws on the $1.5 billion Credit Facility for the following
transactions:
<TABLE>
<S> <C> <C>
Draws to fund acquisitions and other activity (see Note B) $968,584
Draws to repay mortgage debt (see Note E) 235,331
Draw to fund investment in mortgage note (see Note C) 25,150
----------
$1,229,065
==========
</TABLE>
G. To adjust minority interest in the Operating Partnership to reflect the
properties acquired subsequent to September 30, 1997 (see Note A) and the
issuance of Common Shares (see Note B):
<TABLE>
<S> <C> <C>
Historical shareholders' equity $3,153,707
Historical minority interests 281,927
----------
Subtotal 3,435,634
Common Shares and Units issued for acquired properties (see Note A) 308,588
Write-off of unamortized mark-to-market adjustments for debt repaid on
San Jacinto, NationsBank and Bank One Center (see Note E) (1,410)
Common Shares issued after September 30, 1997 (see Note B) 273,950
----------
Subtotal 4,016,762
Minority interests in the Operating Partnership after property
acquisitions and Common Share issuances 11.17%
----------
Minority interests in the Operating Partnership 448,672
Historical minority interests 281,927
----------
Adjustment to minority interests $ 166,745
==========
</TABLE>
H. To reflect the $0.01 par value of Common Shares issued after September 30,
1997 (see Note B):
<TABLE>
<S> <C> <C>
Issuance of 6.7 million Common Shares at $30 per Common Share $67
Issuance of 3.0 million Common Shares at $24.50 per Common Share 30
----------
Total $97
==========
</TABLE>
I. To reflect the net increase in paid-in capital due to the following
transactions:
<TABLE>
<S> <C> <C>
Common Shares issued after September 30, 1997 (see Note B) $273,950
Less: par value of $0.01 per share (see Note H) (97)
Write-off unamortized mark-to-market adjustments on mortgage debt repaid
with the $1.5 billion Credit Facility (see Note E) (1,410)
Adjustment to minority interests in the Operating Partnership
(see Note G) (166,745)
----------
$105,698
==========
</TABLE>
J. Represents Beacon's pre-Merger pro forma balance sheet as of September 30,
1997 which includes certain acquisitions and other adjustments that
occurred subsequent to September 30, 1997.
52
<PAGE> 53
K. Represents adjustments to record the Merger which was accounted for using
the purchase method of accounting, based upon the purchase price of
approximately $4.3 billion and a market value of $31.30 per Common Shares
of the Company, as follows:
<TABLE>
<S> <C>
Issuance of 85.33 million Common Shares and 8.57 million units of
partnership interest ("Units") in EOP Operating Limited
Partnership (the "Operating Partnership") based on the 1.4063
exchange rate, in exchange for 60.69 million Beacon common
shares (including 3.37 million Beacon common shares related to
the exercise of Beacon options which occurred immediately prior
to the Merger) and 6.09 million units of partnership interest in
Beacon Properties, L.P. ("Beacon Partnership Units") $2,939,065
Issuance of $200 million of preferred shares to preferred
shareholders of Beacon 200,000
Assumption of mortgage debt and other liabilities of Beacon 1,100,933
Adjustment to mortgage debt and other liabilities of Beacon's to
market value (see Note O) (30,051)
Merger costs (see calculation below) 93,897
-----------
$4,303,844
===========
</TABLE>
The following is a calculation of the estimated fees and other expenses
related to the Merger:
<TABLE>
<S> <C>
Employee termination costs $70,120
Debt assumption fees 2,600
Transfer taxes 2,200
Advisory fees 4,500
Legal and accounting fees 4,750
Other, including printing and filing costs 9,727
-----------
$93,897
===========
</TABLE>
L. Represents the increase in Beacon's investment in real estate, net, based
upon the Company's purchase price as adjusted to reflect the allocation to
other tangible assets of Beacon being acquired:
<TABLE>
<S> <C>
Purchase price (see Note K) $4,303,844
-----------
Less: Pre-merger pro forma basis of Beacon's net assets acquired:
Rental property, net 2,459,465
Cash and cash equivalents, including $84.7 million received in
connection with the exercise of options related to 3.37 million
Beacon common shares 94,465
Investment in unconsolidated joint ventures 50,416
Other assets, less write-off of deferred rents receivable of $27.0
million and deferred financing and leasing costs of $19.2 million
(see Note N) 102,051
-----------
Subtotal 2,706,397
-----------
Step-up to record fair value of Beacon's investment in real estate, net $1,597,447
===========
</TABLE>
M. To record the net decrease in cash from the following transactions:
<TABLE>
<S> <C>
Cash received from the exercise of Beacon options (see Note L) $84,663
Transaction costs associated with the Merger (see Note K) (93,897)
-----------
</TABLE>
53
<PAGE> 54
<TABLE>
<S> <C>
Net decrease in cash $(9,234)
=============
</TABLE>
N. To eliminate Beacon's deferred rents receivable of $27.0 million which
arose from the historical straight-lining of rents, and Beacon's deferred
financing and leasing costs of $19.2 million which were not assigned any
value in the allocation of the purchase price.
O. To adjust Beacon's mortgage debt and other liabilities to market value.
P. To adjust minority interests in the Company to reflect the Merger
calculated as follows:
<TABLE>
<S> <C>
Total shareholders' equity and Operating Partnership minority $7,155,827
interests
Less: Preferred shares (200,000)
-------------
Total 6,955,827
Percentage of Units which are not owned by the Company (see
below) 10.44%
-------------
Minority interests in the equity of the Company after the Merger 726,188
Less: Minority interests in the equity of the Company prior to the
Merger (448,672)
Less: Pre-Merger pro forma minority interest in Beacon Partnership (149,453)
-------------
Adjustment to minority interests in the Company to reflect the
Merger $128,063
=============
</TABLE>
The 10.44% minority interests ownership in the Company is calculated as
follows:
<TABLE>
<CAPTION>
SHARES SHARES AND UNITS
-----------------------------
<S> <C> <C>
Beacon's historical common shares and units outstanding 60,676,200 66,770,850
=============================
Company's Common Shares / Units issued based on the
1.4063 Merger exchange ratio 85,328,939 93,899,845
Company's historical Common Shares / Units
outstanding 164,922,807 185,511,611
-----------------------------
Company's pro forma Common Shares / Units
outstanding 250,251,746 279,411,456
=============================
Company's ownership percentage of the Operating
Partnership 89.56%
===========
Minority interests ownership percentage of the Company 10.44%
===========
</TABLE>
Q. To record the par value of 85.33 million Common Shares issued to common
shareholders of Beacon in connection with the Merger.
54
<PAGE> 55
R. To reflect the net increase in paid in capital associated with the
Merger, as follows:
<TABLE>
<S> <C>
Issuance of 85.33 million Common Shares and 8.57 million Units
based on the 1.4063 exchange rate, in exchange for 60.68 million
Beacon common shares (including 3.37 million Beacon common
shares related to the exercise of Beacon options which occurred
immediately prior to the Merger) and 6.09 million Beacon
Partnership units $2,939,065
Less: par value of Common Shares issued to common shareholders
of Beacon (see Note Q) (853)
Adjustment to minority interests (see Note P) (128,063)
Less: Total pre-Merger pro forma shareholders' equity, including
minority interests, of Beacon (1,367,004)
-----------
Net increase to paid in capital $1,443,145
===========
</TABLE>
S. Represents the combined historical statements of operations of the
Company for the period from July 11, 1997 to September 30, 1997 and Equity
Office Predecessors for the period from January 1, 1997 to July 10, 1997,
for the Pro Forma Condensed Combined Statement of Operations for the nine
months ended September 30, 1997 and the historical statement of operations
of Equity Office Predecessors for the Pro Forma Condensed Combined
Statement of Operations for the year ended December 31, 1996.
T. To reflect the operations and the depreciation expense for (a) the pro
forma condensed combined statement of operations for the nine months ended
September 30, 1997; for the period from January 1, 1997 through the
earlier of the date of acquisition or September 30, 1997, as applicable,
for properties acquired in 1997, and (b) the pro forma condensed combined
statement of operations for the year ended December 31, 1996; for the
period from January 1, 1996 through the date of acquisition for properties
acquired in 1996, or December 31, 1996 for the properties acquired in
1997. Interest expense was also adjusted, where applicable, to reflect
nine months and a full year, for the nine months ended September 30, 1997
and the year ended December 31, 1996, respectively.
<TABLE>
<CAPTION>
PROPERTY DATE ACQUIRED NOTE REFERENCE
- --------------------------------------------------------------------------------
<S> <C> <C>
1601 Market Street January 18, 1996 1
Promenade II June 14, 1996 1
Two California Plaza August 23, 1996 1
BP Tower September 4, 1996 1
SunTrust Center September 18, 1996 1
Reston Town Center October 22, 1996 1
One Phoenix Plaza December 4, 1996 1
Colonnade I December 4, 1996 1
Boston Harbor Garage December 10, 1996 1
Milwaukee Center Parking Garage December 18, 1996 1
15th & Sansom Streets Garage December 27, 1996 1
1616 Chancellor Street Garage December 27, 1996 1
Juniper / Locusts Streets Garage December 27, 1996 1
1616 Sansom Street Garage December 27, 1996 1
1111 Sansom Street Garage December 27, 1996 1
177 Broad Street January 29, 1997 2
Biltmore Apartments January 29, 1997 2
Preston Commons March 21, 1997 2
Oakbrook Terrace Tower April 16, 1997 2
</TABLE>
55
<PAGE> 56
<TABLE>
<S> <C> <C>
50 % Interest in Civic Parking, L.L.C. April 16, 1997 2
One Maritime Plaza April 21, 1997 2
Smith Barney Tower April 29, 1997 2
201 Mission Street April 30, 1997 2
30 N. LaSalle June 13, 1997 2
Adams - Wabash Parking Facility August 11, 1997 2
Columbus America Properties September 3, 1997 2
Prudential Properties October 1, 1997 2
550 South Hope Street October 6, 1997 2
10 & 30 South Wacker Drive October 7, 1997 2
Acorn Properties October 7, 1997 2
One Lafayette Centre October 17, 1997 2
Acorn Properties November 21, 1997 2
PPM Properties November 24, 1997 2
LaSalle Office Plaza November 25, 1997 2
Stanwix Parking Facility November 25, 1997 2
Wright Runstad Properties December 17, 1997 2
Wright Runstad Associates Limited Partnership December 17, 1997 2
</TABLE>
Note 1: Included in the Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1996, in the column entitled "1996
Acquired Properties".
Note 2: Included in the Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1996 and for the nine months ended
September 30, 1997, in the column entitled "1997 Acquired Properties".
The depreciation adjustment of $38.8 million in the "1997 Acquired
Properties" column in the statement of operations for the nine months ended
September 30, 1997, and the depreciation adjustment of $13.1 million in the
"1996 Acquired Properties" column and $59.2 million in the "1997 Acquired
Properties" column in the statement of operations for the year ended
December 31, 1996, are based on the cost to acquire the above listed
properties, assuming that 10% of the purchase price is allocated to land
and the depreciable lives are 40 years. Depreciation is computed using the
straight-line method.
U. To eliminate the operations of Barton Oaks Plaza II and 8383 Wilshire for
the nine months ended September 30, 1997 and the year ended December 31,
1996, which were sold in January and May 1997, respectively.
V. To reflect interest income from the 50% investment in the mortgage note
(see Note C).
W. To reflect the additional interest expense on debt obtained in the nine
months ended September 30, 1997 on properties acquired before 1997 and to
reflect the Private Debt Offering which occurred on September 3, 1997, and
paydown of the revolving credit facility for the nine months ended
September 30, 1997 and the year ended December 31, 1996, and to reflect
the $235.3 million of mortgage indebtedness repaid from draws on the $1.5
billion Credit Facility (see Note E) and the repayment of the revolving
credit facility balance.
X. To eliminate the $.7 and $.5 million of amortization expense recorded on
the mark-to-market adjustment on debt repaid from draws on the $1.5
billion Credit Facility and to reflect amortization of $4.9 million
related to the fees associated with the $1.5 billion Credit Facility (see
Note D) for the nine months ended September 30, 1997 and the year ended
December 31, 1996.
56
<PAGE> 57
Y. To reflect the adjustment for the straight-line effect of scheduled rent
increases, assuming the Consolidation and the Offering closed on January
1, 1997 and 1996, respectively, for the pro forma condensed combined
statement of operations for the nine months ended September 30, 1997 and
the year ended December 31, 1996.
Z. To reflect the net change in interest expense associated with the $15.0
million of mortgage debt on Denver Corporate Center Towers II and III
repaid in May 1997 and the $598.4 million repaid with the net proceeds of
the Offering and cash held by Equity Office Predecessors.
AA. To reflect depreciation expense related to the adjustment to record the
net equity value of the investment in real estate for the nine months
ended September 30, 1997 and for the year ended December 31, 1996, on a
straight-line basis, as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------------------------------
<S> <C> <C>
Historical investment in real estate
before accumulated depreciation $5,022,946 $5,022,946
Less: Portion allocated to land estimated
to be 10% (502,295) (502,295)
----------------------------------------------
Depreciable basis $4,520,651 $4,520,651
==============================================
Depreciation expense based on an
estimated useful life of 40 years $84,762 $113,016
----------------------------------------------
Less: Historical depreciation expense (80,166) (82,905)
Pro forma depreciation expense on 1996
Acquired Properties - (13,090)
Pro forma depreciation expense on
properties acquired in 1997 prior to
the Consolidation and the Offering (3,391) (11,779)
Depreciation expense on disposed
properties - 1,941
----------------------------------------------
Depreciation expense adjustment $1,205 $7,183
==============================================
</TABLE>
AB. To eliminate the $5.9 million and $13.3 million of amortization
historically recognized as a result of the write-off of deferred loan
costs, lease acquisition costs and organization costs, net of the $4.1
million and $4.4 million amortization of the discount required to record
the mortgage debt at fair value recorded in connection with the
Consolidation and the Offering, and the $0.1 million and $0.3 million of
amortization relating to disposed properties for the nine months ended
September 30, 1997 and the year ended December 31, 1996.
57
<PAGE> 58
AC. To reflect additional general and administrative expenses expected to be
incurred as a result of reporting as a public entity as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED SEPTEMBER 30, 1997 DECEMBER 31, 1996
---------------------------------------------
<S> <C> <C>
Trustees and officers insurance $375 $500
Printing and mailing 375 500
Trustees and directors fees 225 300
Investor relations 225 300
Other 600 800
---------------------------------------------
Total $1,800 $2,400
=============================================
</TABLE>
AD. Represents Beacon's pre-Merger pro forma statement of operations for the
nine months ended September 30, 1997 and the year ended December 31, 1996,
respectively, which includes certain acquisitions and other adjustments
that occurred subsequent to September 30, 1997.
AE. To reflect the adjustment for the straight-line effect of scheduled rent
increases, assuming the Merger closed on January 1, 1997 and January 1,
1996, respectively, for the pro forma condensed combined statements of
operations for the nine months ended September 30, 1997 and the year ended
December 31, 1996, respectively.
AF. To reflect the depreciation expense related to the adjustment to record
the net equity value of the investment in real estate on a straight-line
basis and amortization of the mark-to-market adjustment of Beacon's
mortgage debt for the nine months ended September 30, 1997 and the year
ended December 31, 1996 associated with the Merger, as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED SEPTEMBER 30, 1997 DECEMBER 31, 1996
-----------------------------------------------
<S> <C> <C>
Beacon pro forma investment in real estate, net (see
Note J) $2,459,465 $2,459,465
Adjustment to the basis of the investment in real
estate (see Note L) 1,597,447 1,597,447
-----------------------------------------------
Total investment in real estate, post-Merger 4,056,912 4,056,912
Less: portion allocated to land, estimated to be 10% (405,691) (405,691)
Pro Forma depreciable basis of Beacon's investment -----------------------------------------------
in real estate, net $3,651,221 $3,651,221
===============================================
Depreciation expense based on an estimated useful
life of 40 years $68,460 $91,281
Beacon pro forma depreciation expense (see Note H) 61,701 80,844
-----------------------------------------------
Adjustment to depreciation expense $ 6,759 $10,437
===============================================
</TABLE>
AG. To reflect amortization of mark-to-market adjustment of Beacon's mortgage
debt.
58
<PAGE> 59
AH. To reflect the anticipated reduction of general and administrative expenses
as a result of the Merger.
AI. To reflect the estimated 10.44% minority interests ownership in the
Operating Partnership and to reflect the 5% economic interest that the
Company does not own in Equity Office Properties Management Corp. (the
"Management Corp.").
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR ENDED
ENDED SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------------------------------------------
<S> <C> <C>
Historical allocation of income to
minority interests $2,696 $--
Beacon pro forma minority interests
allocation 8,244 11,503
Minority interests allocation of income
after pro forma adjustments 11,696 16,715
----------------------------------------------
Net income allocated to minority
interests ownership in the Operating
Partnership $22,527 $28,218
==============================================
Historical ownership interest in partially
owned properties $1,191 $2,086
----------------------------------------------
Fees from noncombined affiliates 3,840 5,120
Management Corp. expenses 3,000 4,000
----------------------------------------------
Estimated Management Corp. net
income 840 1,120
----------------------------------------------
Minority interest 5% economic interest
in the Management Corp. 42 56
----------------------------------------------
Net income allocated to minority
interests ownership in partially
owned properties $1,233 $2,142
==============================================
</TABLE>
AI. Net income per Common Share is based upon 250.3 million Common Shares
outstanding upon acquisition of certain properties, issuance of additional
Common Shares and the Merger.
59
<PAGE> 60
<PAGE> 61
BEACON PROPERTIES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma Condensed Consolidated Balance Sheet
of Beacon Properties Corporation (the "Company") as of September 30, 1997, is
presented as if the Civic Opera Building, 200 West Adams, 101 North Wacker and
Lakeside properties were acquired on September 30, 1997.
The pro forma Condensed Consolidated Statements of Operations for the
year ended December 31, 1996 and nine months ended September 30, 1997 are
presented as if the acquisition of the Properties acquired from January 1, 1996
to October 20, 1997 and 101 North Wacker (as more fully described below), the
closing of the MetLife Mortgage loan, the Company's common stock offerings from
January 1996 to April 1997 (as more fully described below) and the Company's
8.96% Series A Cumulative Redeemable Preferred Stock Offering at $25.00 per
share had occurred as of January 1, 1996. Furthermore, the Company qualified as
a REIT, distributed all of its taxable income and, therefore, incurred no
income tax expense during the period.
In management's opinion, all adjustments necessary to reflect the above
discussed transactions have been made. The unaudited pro forma Condensed
Consolidated Balance Sheet and Statement of Operations are not necessarily
indicative of what actual results of operations of the Company would have been
for the period, nor does it purport to represent the Company's results of
operations for future periods.
<PAGE> 62
Acquisitions included in pro forma:
Rentable Year Built/ Date of
Property Name Sq Ft Renovated Acquisition
- ------------- ------------- --------- -----------
1996 Acquisitions
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Perimeter Center, Atlanta, GA
3,302,000 1970-1989 02/15/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
New York Life Portfolio, Chicago, IL and Washington, D.C.
1,012,000 1984-1986 08/16/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Fairfax County Portfolio, McLean, VA and Herndon, VA
550,000 1981-1988 09/05/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Rosslyn Virginia Portfolio, Rosslyn, VA
666,000 1974-1980 10/18/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
New England Executive Park, Burlington, MA
817,000 1970-1985 11/15/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
245 First Street, Cambridge, MA
263,000 1985-1986 11/21/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
10960 Wilshire Boulevard, Westwood, CA
544,000 1971-1992 11/21/96
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 63
- -----
Shoreline Technology Park, Mountain View, CA
727,000 1985-1991 12/20/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Lake Marriott Business Park, Santa Clara, CA
400,000 1981 12/20/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Presidents Plaza, Chicago, IL
791,000 1980-1982 12/27/96
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
<TABLE>
<CAPTION>
Property Name
Seller
- -------------
- ------
<S> <C>
1996 Acquisitions
- ------------------------------------------------------------
- ---------------------------------------------------------
Perimeter Center, Atlanta, GA
Metropolitan Life Insurance Company
- ------------------------------------------------------------
- ---------------------------------------------------------
New York Life Portfolio, Chicago, IL and Washington, D.C.
New York Life Insurance Company
- ------------------------------------------------------------
- ---------------------------------------------------------
Fairfax County Portfolio, McLean, VA and Herndon, VA
Greensboro Associates, John Marshall
Associates Limited Partnership Woodldland-
Northridge I Limit Partnership
- ------------------------------------------------------------
- ---------------------------------------------------------
Rosslyn Virginia Portfolio, Rosslyn, VA
LaSalle Fund II
- ------------------------------------------------------------
- ---------------------------------------------------------
New England Executive Park, Burlington, MA
New England Executive Park Limited
Partnership, et al
- ------------------------------------------------------------
- ---------------------------------------------------------
245 First Street, Cambridge, MA
Riverview Building Combined Limited Partnership
- ------------------------------------------------------------
- ---------------------------------------------------------
10960 Wilshire Boulevard, Westwood, CA
10960 Property Corporation
- ------------------------------------------------------------
- ---------------------------------------------------------
Shoreline Technology Park, Mountain View, CA
Teachers Insurance and Annuity Association (TIAA)
</TABLE>
<PAGE> 64
- ------------------------------------------------------------
- ---------------------------------------------------------
Lake Marriott Business Park, Santa Clara, CA
Teachers Insurance and Annuity Association (TIAA)
- ------------------------------------------------------------
- ---------------------------------------------------------
Presidents Plaza, Chicago, IL
Metropolitan Life Insurance Company
- ------------------------------------------------------------
- ---------------------------------------------------------
Purchase Price (in thousands)
- ----------------------------------------------------------
Property Name
Cash Debt O.P.Units Total
-------------
---- ---- --------- -----
1996 Acquisitions
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
Perimeter Center, Atlanta, GA
$322,200 $13,800 $336,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
New York Life Portfolio, Chicago, IL and Washington, D.C.
$150,000 $150,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
Fairfax County Portfolio, McLean, VA and Herndon, VA
$ 55,400 $21, 600 $77,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
Rosslyn Virginia Portfolio, Rosslyn, VA
$99,050 $99,050
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
New England Executive Park, Burlington, MA
$75,000 $75,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
245 First Street, Cambridge, MA
$45,000 $45,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
10960 Wilshire Boulevard, Westwood, CA
$133,000 $133,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
Shoreline Technology Park, Mountain View, CA
$139,080 $139,080
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 65
- ----
Lake Marriott Business Park, Santa Clara, CA
$43,920 $43,920
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
Presidents Plaza, Chicago, IL
$38,000 $39,000 $77,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- ----
Rentable Year Built/ Date of
Property Name Sq Ft Renovated Acquisition
- ------------- ----- --------- -----------
- -----
1997 Acquisitions
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
10880 Wilshire Boulevard, Westwood, CA
531,000 1970 4/23/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Centerpointe I and II, Fairfax, VA
409,000 1988-1990 4/30/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Westbrook Corporate Center, Westchester, IL
1,106,000 1985-1996 5/23/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
175 Wyman Street, Waltham, MA
(1) (1) 5/13/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
225 Franklin Street, Boston, MA
929,545 1966 6/4/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Sunnyvale Business Center, Sunnyvale, CA
175,000 1990 7/1/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Riverside, Newton, MA
(2) (2) 8/21/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
150 California, San Francisco, CA
(3) (3) 9/25/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Media Center , Los Angeles, CA
(4) (4) 9/29/97
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 66
- -----
Civic Opera Building, Chicago, IL
824,000 1994 10/1/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
200 West Adams, Chicago, IL
677,000 1985 10/8/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Lakeside, Atlanta, GA
391,000 1972-1978 10/20/97
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
101 North Wacker, Chicago, IL
575,000 1980 Pending
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----
Property Name Seller
- ------------- ------
- ------
1997 Acquisitions
- ------------------------------------------------------------
- ----------------------------------------------------
10880 Wilshire Boulevard, Westwood, CA
10880 Property Corporation
- --------------------------------------------------------------------------------
Centerpointe I and II, Fairfax, VA
Joshua Realty Corporation
- --------------------------------------------------------------------------------
Westbrook Corporate Center, Westchester, IL
Westbrook Corporate Center Associates,
Westbrook Corporate Center IV Associates
Limited Partnership Westbrook Corporate
Center V Associates Limited Partnership
- --------------------------------------------------------------------------------
175 Wyman Street, Waltham, MA
Hewlett-Packard Company
- --------------------------------------------------------------------------------
225 Franklin Street, Boston, MA
Hexalon Real Estate, Inc.
- --------------------------------------------------------------------------------
Sunnyvale Business Center, Sunnyvale, CA
O.M. Sunnyvale Associates, L.P.
- --------------------------------------------------------------------------------
Riverside, Newton, MA
Cabot, Cabot & Forbes of New England, Inc.
<PAGE> 67
- ------------------------------------------------------------
- ----------------------------------------------------
150 California, San Francisco, CA
CalProp, Inc.
- --------------------------------------------------------------------------------
Media Center , Los Angeles, CA
City of Burbank, Ishverbhai Patel, Patel
Charitable Remainder Unitrust and Burbank
Holdings, Inc.
- --------------------------------------------------------------------------------
Civic Opera Building, Chicago, IL
Windy Point LLC and Range Line LLC
- --------------------------------------------------------------------------------
200 West Adams, Chicago, IL
Adams Family LLC
- --------------------------------------------------------------------------------
Lakeside, Atlanta, GA
Mutual Life Insurance Company of New York
- --------------------------------------------------------------------------------
101 North Wacker, Chicago, IL
Dai-Ichi and Metropolitan Life Insurance
Company
- --------------------------------------------------------------------------------
Purchase Price (in thousands)
- ------------------------------------------------------------
- ---
Property Name
Cash Debt O.P.Units Total
- ------------- ---- ---- --------- -----
1997 Acquisitions
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
10880 Wilshire Boulevard, Westwood, CA
$99,800 $99,800
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Centerpointe I and II, Fairfax, VA
$25,000 $30,000 $55,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Westbrook Corporate Center, Westchester, IL
$42,700 $106,000 $33,400 $182,100
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 68
- -----------
175 Wyman Street, Waltham, MA
$24,000 $24,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
225 Franklin Street, Boston, MA
$280,000 $280,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Sunnyvale Business Center, Sunnyvale, CA
$33,800 $33,800
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Riverside, Newton, MA
$32,500 $32,500
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
150 California, San Francisco, CA
$10,600 $10,600
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Media Center , Los Angeles, CA
$18,850 $18,850
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Civic Opera Building, Chicago, IL
$21,136 $31,773 $6,701 $59,610
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
200 West Adams, Chicago, IL
$72,175 $72,175
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
Lakeside, Atlanta, GA
$38,000 $38,000
- ------------------------------------------------------------
- ------------------------------------------------------------
- -----------
101 North Wacker, Chicago, IL
$58,965 $58,965
(1) 175 Wyman Street consists of a vacant 335,000 square foot
office/research and development complex and 26.7 acres of land suitable for
development. The Company plans to redevelop the property into 400,000 square
feet of class A office space.
(2) The Riverside investment consists of a mortgage loan receivable from
Riverside Project LLC in the amount of $26,000 which bears interest at 9% and
is due upon sale along with 50% of any excess sale proceeds. In addition, loans
bearing interest at 7% in the amount of $3,250 each are due from Beacon
Property Management Corporation and Beacon Design Corporation, the proceeds of
which were used by these entities to capitalize Riverside Project LLC.
(3) 150 California land consists of a parcel of land on which the Company plans
to develop a 207,000 square foot class A office property.
(4) Media Center consists of a parcel of land on which the Company plans to
develop a 585,000 square feet of class A office space.
<PAGE> 69
Common and Preferred Stock Offerings included in pro forma:
<TABLE>
<CAPTION>
Price
Per Gross Net
Year Month Shares Type Share Proceeds Proceeds
---- ----- --------- ---- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(in thousands)
1996 March 7,036,000 Common $26.25 $184,695 $173,800
1996 August 5,750,000 Common 25.75 148,063 139,400
1996 November 13,723,000 Common 30.75 421,982 398,900
1996 December 1,132,400 Common 33.465 37,896 37,800
1997 April 7,000,000 Common 32.125 224,875 212,722
1997 June 8,000,000 Preferred 25.00 200,000 193,350
</TABLE>
Beacon Properties Corporation
Pro Forma Condensed Consolidated Balance Sheet
September 30, 1997
(Unaudited)
Pro Forma
Beacon Adjustments
Properties -----------
Corporation Civic Opera
Historical Building
---------- -----------
(dollars in thousands)
ASSETS
Real estate, net $2,230,715 $59,610
Deferred financing and leasing costs, net 19,203
Cash and cash equivalents 36,613 (20,136)
Mortgages and notes receivable 85,196
<PAGE> 70
Other assets 49,303 (1,000)
Investments in and advance
to joint ventures and corporations 50,416
----------- -----------
Total assets $2,471,446 $38,474
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage notes payable $586,925 $31,773(A)
Note payable, Credit Facility 249,000
Other liabilities 51,166
Investment in joint venture 24,052
----------- -----------
Total liabilities 911,143 31,773
Minority interest in Operating Partnership 142,752 6,701(B)
Stockholders' equity 1,417,551
----------- -----------
Total liabilities and stockholders'
equity $2,471,446 $38,474
=========== ===========
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
101
200 West Lakeside North Pro Forma
Adams Wacker Consolidated
ASSETS -------- -------- ------- ------------
<S> <C> <C> <C> <C>
Real estate, net $72,175 $38,000 $58,965 $2,459,465
Deferred financing and leasing costs, net 19,203
Cash and cash equivalents (6,675) 9,802
Mortgages and notes receivable 85,196
Other assets (500) (1,000) (2,948) 43,855
Investments in and advance
to joint ventures and corporations 50,416
-------- -------- ------- ------------
Total Assets $65,000 $37,000 $56,017 $2,667,937
======== ======== ======= ============
Liabilities and Stockholders' Equity
Mortgage notes payable $ 618,698
Note payable, Credit Facility $65,000 $37,000 $56,017 407,017
Other liabilities 51,166
Investment in joint venture 24,052
-------- -------- ------- ------------
Total liabilities $65,000 $37,000 $56,017 $1,100,933
Minority interest in
Operating Partnership 149,453
Stockholders' equity 1,417,551
-------- -------- ------- ------------
Total liabilities and
Stockholders' equity $65,000 $37,000 $56,017 $2,667,937
======== ======== ======= ============
</TABLE>
<PAGE> 71
BEACON PROPERTIES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1997
(Unaudited)
(A) The mortgage debt has an interest rate of 7.37% and requires monthly
principal and interest payments based on a 25 year amortization schedule.
The mortgage matures March 15, 2000 but maybe extended until March 15, 2003
based on compliance with certain covenant requirements.
(B) The seller of Civic Opera Building was issued $6,701 of Operating
Partnership Units consisting of 156,756 units valued at $42.745 each.
<PAGE> 72
BEACON PROPERTIES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Beacon October &
Properties New York Life November
Corporation Perimeter and Fairfax Va. 1996
Historical Center (A) Portfolios (B) Acquisitions (G)
--------- ----------- ---------------- ----------------
(dollars in thousands except per share amounts and shares outstanding)
<S> <C> <C> <C> <C>
Revenue:
Rental income $147,825 $6,420 19,098 38,886
Management fees 3,005
Recoveries from tenants 16,719 304 3,788 3,674
Mortgage interest income 4,970
Other income 11,272 208 845 3,012
---------- ------------ ------------- -------------
Total revenue 183,791 6,932 23,731 45,572
---------- ------------ ------------- -------------
Expenses:
Property expenses 37,211 1,562 4,875 11,716
Real estate taxes 18,124 591 1,708 3,991
General and administrative 19,331 378 812 1,700
Mortgage interest expense 30,300 1,895 (C) 2,954 (F)
Interest - amortization of financing costs 2,084 15 (D)
Depreciation and amortization 33,184 1,196 (E) 4,374 (E) 9,105 (E)
---------- ------------ ------------- -------------
Total expenses 140,234 5,637 14,723 26,512
---------- ------------ ------------- -------------
Income from operations 43,557 1,295 9,008 19,060
Equity in net income of joint ventures and corporation 4,989
---------- ------------ ------------- -------------
</TABLE>
<PAGE> 73
<TABLE>
<S> <C> <C> <C> <C>
Income from continuing operations 48,546 1,295 9,008 19,060
Discontinued operations:
Loss from operations - Construction Company (2,609)
Loss on sale - Construction Company (249)
Gain on sale - Westlakes Office Park
---------- ------------ ------------- -------------
Income before minority interest 45,688 1,295 9,008 19,060
Minority interest in Operating Partnership (5,988)
---------- ------------ ------------- -------------
Income before extraordinary items $39,700 $1,295 $9,008 $19,060
Series A Preferred dividends
---------- ------------ ------------- -------------
Net income available for common shares
before extraordinary items $39,700 $1,295 $9,008 $19,060
============= ============ ============= =============
Common shares outstanding
Net income per common share
</TABLE>
(1) Includes depreciation and amortization of $4,033
(2) Company share of Operating Partnership is 88.12%
<TABLE>
<CAPTION>
Properties
December Acquired Westlakes
1996 as of Office Park
Acquisitions (H) September 30, 1997 (I) Sale (K)
---------------- ---------------------- -----------
(dollars in thousands except per share amounts and shares outstanding)
<S> <C> <C> <C>
Revenue:
Rental income 26,858 69,302 ($8,422)
Management fees
Recoveries from tenants 6,099 8,203 (1,020)
</TABLE>
<PAGE> 74
<TABLE>
<S> <C> <C> <C>
Mortgage interest income
Other income
470 2,783 (1,293)
----------- ------------- -----------
Total revenue 33,427 80,288 (10,735)
----------- ------------- -----------
Expenses:
Property expenses 4,509 14,299 (2,588)
Real estate taxes 5,036 8,700 (626)
General and
administrative 1,250 2,011 (471)
Mortgage interest
expense 10,380 (J)
Interest -
amortization of
financing costs
Depreciation and
amortization 6,555 (E) 19,927 (E) (2,458)
----------- ------------- -----------
Total expenses 17,350 55,317 (6,143)
----------- ------------- -----------
Income from operations 16,077 24,971 (4,592)
Equity in net income of
joint ventures and corporation
----------- ------------- -----------
Income from continuing
operations 16,077 24,971 (4,592)
Discontinued operations:
Loss from operations - Construction Company
Loss on sale - Construction Company
Gain on sale - Westlakes Office Park 16,505
----------- ------------- -----------
Income before minority
interest 16,077 24,971 11,913
Minority interest in Operating Partnership
----------- ------------- -----------
Income before
extraordinary items $16,077 $24,971 $11,913
</TABLE>
<PAGE> 75
<TABLE>
<S> <C> <C> <C>
Series A Preferred dividends
----------- ------------- -----------
Net income available
for common shares
before extraordinary items $16,077 $24,971 $11,913
=========== ============= ===========
Common shares outstanding
Net income per common share
</TABLE>
(1) Includes depreciation and amortization of $4,033
(2) Company share of Operating Partnership is 88.07%
<TABLE>
<CAPTION>
Properties
Acquired
And to be
Acquired
After Pro Forma Pro Forma
September 30,1997 Adjustments Consolidated
----------------- ---------------- ------------
<S> <C> <C> <C>
Revenue:
Rental income $32,342 $332,309
Management fees 3,005
Recoveries from tenants 9,118 46,885
Mortgage interest income 3,406 (M) 8,376
Other income 729 18,026
----------------- ---------------- ------------
Total revenue 42,189 3,406 408,601
----------------- ---------------- ------------
Expenses:
Property expenses 12,792 84,376
Real estate taxes 10,330 47,854
General and
administrative 2,087 27,098
</TABLE>
<PAGE> 76
<TABLE>
<S> <C> <C> <C>
Mortgage interest expense 26,261 (N) 71,790
Interest - amortization of
financing costs 2,099
Depreciation and amortization 6,863 (E) 78,746
----------- ------- -------
Total expenses 32,072 26,261 311,963
----------- ------- -------
Income from operations 10,117 (22,855) 96,638
Equity in net income of joint
ventures and corporation (450) (O) 4,539 (1)
----------- ------- -------
Income from continuing operations 10,117 (23,305) 101,177
Discontinued operations:
Loss from operations -
Construction Company (2,609)
Loss on sale - Construction Company (249)
Gain on sale - Westlakes Office Park 16,505
----------- ------- -------
Income before minority interest 10,117 (23,305) 114,824
Minority interest in
Operating Partnership (5,515) (P) (11,503)
----------- ------- -------
Income before extraordinary items $10,117 ($28,820) $103,321
Series A Preferred dividends (17,960) (Q) (17,960)
----------- ------- -------
Net income available for common shares
before extraordinary items $10,117 ($46,780) $85,361
============ ======== =======
</TABLE>
<PAGE> 77
<TABLE>
<S> <C>
Common shares outstanding 55,656,517
Net income per common share $1.53
</TABLE>
(1) Includes depreciation and amortization of $4,033
(2) Company share of Operating Partnership is 88.12%
See accompanying notes to pro forma condensed consolidated
statement of operations.
BEACON PROPERTIES CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(Unaudited)
(A) Results of operations of Perimeter Center for the period ended
February 14, 1996.
<TABLE>
<S> <C>
Rental income- historical $6,128
Pro forma straight-line rent adjustment 292
--------
Pro forma rental income $6,420
========
</TABLE>
(B) Results of operations of the Fairfax County Portfolio and the New York
Life Portfolio for the periods ended September 4, 1996 and August 15,
1996, respectively.
<TABLE>
<CAPTION>
Fairfax New York
County Life
Portfolio Portfolio Total
---------- ----------- -------
<S> <C> <C> <C>
Revenue:
Rental income-historical $7,284 $11,048 $18,332
Pro forma straight-line
rent adjustment 377 389 766
</TABLE>
<PAGE> 78
<TABLE>
<S> <C> <C> <C>
Pro forma rental income 7,661 11,437 19,098
Management fees
Recoveries from tenants 541 3,247 3,788
Mortgage interest income
Other income 72 773 845
------------------------------------------
Total revenue 8,274 15,457 23,731
------------------------------------------
Expenses:
Property expenses 1,581 3,294 4,875
Real estate taxes 363 1,345 1,708
General and administrative 80 732 812
Mortgage interest expense (F) 2,954 2,954
Interest - amortization of
financing costs
Depreciation and
amortization (E) 1,568 2,806 4,374
------------------------------------------
Total expenses 6,546 8,177 14,723
------------------------------------------
Income from operations $1,728 $7,280 $9,008
==========================================
</TABLE>
(C) Net interest expense associated with the MetLife Mortgage Loan
in the amount of $218 million based on a 7.08% interest rate for the
period ended prior to March 15, 1996.
(D) Amortization of the costs of obtaining the permanent financing at
$1.2 million over 10 years.
<PAGE> 79
BEACON PROPERTIES CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(Unaudited)
(E) Detail of depreciation expense by property is presented as follows:
<TABLE>
<CAPTION>
Basis Life Depreciation
----- ---- ------------
<S> <C> <C> <C>
Perimeter Center $287,130 30 yrs $1,196
======
Fairfax County Portfolio 69,300 30 yrs $1,568
The New York Life Portfolio 135,000 30 yrs 2,806
------
$4,374
======
October & November 1996 Acquisitions:
------------------------------------
Rosslyn, Virginia Portfolio 89,145 30 yrs $2,352
New England Executive Park 67,500 30 yrs 1,969
245 First Street 40,500 30 yrs 1,209
10960 Wilshire Boulevard 119,700 30 yrs 3,575
------
$9,105
======
December 1996 Acquisitions:
--------------------------
Lake Marriott Business Park 31,110 30 yrs $1,008
Shoreline Technology Park 100,650 30 yrs 3,263
Presidents Plaza 69,250 30 yrs 2,284
------
$6,555
======
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
1997 acquisitions as of September 30, 1997
------------------------------------------
<S> <C> <C> <C>
10880 Wilshire Boulevard 102,000 30 yrs $3,400
Centerpointe 49,500 30 yrs 1,650
Westbrook Corporate Center 163,890 30 yrs 5,463
225 Franklin Street 252,000 30 yrs 8,400
Sunnyvale Business Center 30,420 30 yrs $1,014
-------
$19,927
=======
Properties acquired or to be acquired
after September 30, 1997:
------------------------
Civic Opera Building 53,649 30 yrs 1,789
200 West Adams 64,958 30 yrs 2,165
Lakeside 34,200 30 yrs 1,140
101 North Wacker 53,069 30 yrs 1,769
-------
$6,863
=======
</TABLE>
(F) Fairfax County Portfolio interest expense on debt assumed for period prior
to acquisition:
<PAGE> 81
<TABLE>
<CAPTION>
Principal Rate Expense
--------- ---- -------
<S> <C> <C> <C>
John Marshall $21,068 8.38% $1,197
EJ Randolph (1) 18,016 7.78% 951
Northridge 16,306 7.28% 806
------ ------
$55,390 $2,954
======= ======
</TABLE>
(1) Paid off by Credit Facility proceeds at closing.
BEACON PROPERTIES CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(Unaudited)
(G) Results of operations of the Rosslyn, Virginia Portfolio, New England
Executive Park, 245 First Street and 10960 Wilshire Boulevard for the period
prior acquisition.
<TABLE>
<CAPTION>
New
Rosslyn England 245 10960
Virginia Executive First Wilshire
Portfolio Park Street Blvd. Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Rental income- historical $11,640 $11,766 $4,552 $9,650 $37,608
Pro forma straight-line rent adjustment 361 283 510 124 1,278
----------------------------------------------------------------------
Pro forma rental income 12,001 12,049 5,062 9,774 38,886
Management fees
Recoveries from tenants 528 1,113 1,776 257 3,674
Mortgage interest income
Other income $1,066 533 1,413 3,012
----------------------------------------------------------------------
Total revenue 13,595 13,162 7,371 11,444 45,572
----------------------------------------------------------------------
</TABLE>
<PAGE> 82
<TABLE>
<S> <C> <C> <C> <C> <C>
Expenses:
Property expenses 2,611 4,958 1,020 3,127 11,716
Real estate taxes 747 1,421 913 910 3,991
General and administrative 575 471 81 573 1,700
Mortgage interest expense
Interest - amortization of
financing costs
Depreciation and amortization (E) 2,352 1,969 1,209 3,575 9,105
-------------------------------------------------------------------------
Total expenses 6,285 8,819 3,223 8,185 26,512
-------------------------------------------------------------------------
Income from operations 7,310 4,343 4,148 3,259 19,060
=========================================================================
</TABLE>
(H) Results of operations of Lake Marriott Business Park, Shoreline
Technology Park and Presidents Plaza for the period prior to acquisition.
<TABLE>
<CAPTION>
Shoreline Lake Marriott
Technology Business Presidents
Park Park Plaza Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Rental income-historical $12,942 $3,824 $9,244 26,010
Pro forma straight-line rent adjustment 237 611 848
--------------------------------------------------------
Pro forma rental income
12,942 4,061 9,855 26,858
Management fees
Recoveries from tenants 1,068 996 4,035 6,099
</TABLE>
<PAGE> 83
<TABLE>
<S> <C> <C> <C> <C>
Mortgage interest income
Other income 470 470
-------------------------------------------------------
Total revenue 14,010 5,057 14,360 33,427
-------------------------------------------------------
Expenses:
Property expenses 105 718 3,686 4,509
Real estate taxes 1,068 395 3,573 5,036
General and administrative 71 8 1,171 1,250
Mortgage interest expense
Interest - amortization of financing costs
Depreciation and amortization (E) 3,263 1,008 2,284 6,555
-------------------------------------------------------
Total expenses 4,507 2,129 10,714 17,350
-------------------------------------------------------
Income from operations 9,503 2,928 3,646 16,077
=======================================================
</TABLE>
BEACON PROPERTIES CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(Unaudited)
(I) Results of operations of 10880 Wilshire Boulevard, Centerpointe,
Westbrook Corporate Center, 225 Franklin Street and Sunnyvale Business
Center for the year 1996.
10880 Westbrook 225 Sunnyvale
Wilshire Corporate Franklin Business
Boulevard Centerpointe Center Street Center Total
<PAGE> 84
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rental income-historical $8,687 $7,293 $21,029 $24,172 $3,209 $64,390
Pro forma straight-line rent adjustment 399 300 2,778 1,435 4,912
-----------------------------------------------------------------------
Pro forma rental income 9,086 7,593 23,807 25,607 3,209 69,302
Management fees
Recoveries from tenants 80 578 1,806 5,527 212 8,203
Mortgage interest income
Other income 1,306 99 136 1,230 12 2,783
-----------------------------------------------------------------------
Total revenue 10,472 8,270 25,749 32,364 3,433 80,288
-----------------------------------------------------------------------
Expenses:
Property expenses 3,066 1,740 4,400 5,093 14,299
Real estate taxes 1,043 497 3,113 3,846 201 8,700
General and administrative 720 180 208 844 59 2,011
Mortgage interest expense (J) 1,914 8,466 10,380
Interest - amortization of financing costs
Depreciation and amortization (E) 3,400 1,650 5,463 8,400 1,014 19,927
-----------------------------------------------------------------------
Total expenses 8,229 5,981 21,650 18,183 1,274 55,317
-----------------------------------------------------------------------
Income from operations $2,243 $2,289 $4,099 $14,181 $2,159 $24,971
=======================================================================
</TABLE>
(J) Interest expense in mortgage debt assumed:
Centerpointe - historical 1996 expense.
Westbrook Corporate Center - based on a principal balance of $106,000 with
interest at 8%.
<PAGE> 85
(K) Historical results of operations of Westlakes Office
Park
(L) Results of operations of Civic Opera Building,
200 West Adams, Lakeside and 101 North Wacker for the
year 1996.
<TABLE>
<CAPTION>
Civic 200 101
Opera West North
Building Adams Lakeside Wacker Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Rental income-historical $10,358 $10,467 $4,408 $6,426 $31,659
Pro forma straight-line rent adjustment 69 (68) 105 577 683
-------------------------------------------------------------------
Pro forma rental income 10,427 10,399 4,513 7,003 32,342
Management fees
Recoveries from tenants 1,545 2,647 241 4,685 9,118
Mortgage interest income
Other income 551 67 36 75 729
-------------------------------------------------------------------
Total revenue 12,523 13,113 4,790 11,763 42,189
-------------------------------------------------------------------
Expenses:
Property expenses 6,070 2,393 1,795 2,534 12,792
Real estate taxes 1,990 3,539 358 4,443 10,330
General and administrative 937 339 462 349 2,087
Mortgage interest expense (J)
Interest - amortization of financing costs
Depreciation and amortization (E) 1,788 2,165 1,140 1,769 6,862
-------------------------------------------------------------------
Total expenses 10,785 8,436 3,755 9,095 32,071
-------------------------------------------------------------------
</TABLE>
<PAGE> 86
<TABLE>
<S> <C> <C> <C> <C> <C>
Income from operations $1,738 $4,677 $1,035 $2,668 $10,118
</TABLE>
BEACON PROPERTIES CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1996
(Unaudited)
<TABLE>
<S> <C>
(M) Interest income related to the acquisition of the
Rowes Wharf mortgage $ 611
----------------
Interest income on Riverside notes receivable:
Interest income - note receivable from Riverside
Project LLC ($26,000 x 9%) 2,339
Interest income - note receivable from Beacon Design
Corp. ($3,250 x 7%) 228
Interest income - note receivable from Beacon Property
Management Corp. ($3,250 x 7%) 228
----------------
Total 2,795
----------------
Grand total $3,406
================
(N) Credit facility interest expense:
Credit Facility balance per pro forma balance sheet $407,017
Less Credit Facility balances relating to development
projects in which the associated interest expense
would be capitalized:
Development projects owned or underdevelopment
as of September 30, 1997:
Crosby Phase II (6,350)
</TABLE>
<PAGE> 87
<TABLE>
<S> <C>
175 Wyman Street (24,840)
150 California (10,640)
Media Center (19,030)
----------------
Adjusted pro forma Credit Facility balance 346,157
Average Credit Facility rate through
December 31, 1996 7.78%
----------------
Pro Forma Credit Facility interest
expense full year 26,931
Less historical 1996 Credit Facility
interest expense 3,294
----------------
Pro Forma Credit Facility adjustment 23,637
----------------
Mortgage Interest:
Pro forma mortgage interest on Centerpointe
full year based on principal
balance of $30,000 with interest at 7.32% 2,196
Less: Historical 1996 interest expense 1,914
----------------
282
----------------
Mortgage Interest:
Pro forma mortgage interest on Civic Opera
Building full year based on principal balance
of $31,773 with interest at 7.37% 2,342
----------------
Grand total $26,261
================
(0) Adjustment to equity in net income of corporations as a result of
Riverside notes:
</TABLE>
<PAGE> 88
<TABLE>
<S> <C>
Beacon Design Corp. note payable ($3,250 * 7%) ($228)
Beacon Property Management Corp. note
payable ($3,250 *(7%) (228)
----------------
Total interest expense adjustment (456)
Company ownership % of entities 98.99%
----------------
Adjustment to equity in net income of corporations ($450)
================
</TABLE>
(P) Reflects decrease for minority interest (11.88%) in Operating Partnership.
(Q) Series A preferred dividends based on 8,000,000 shares with a $25.00
per share redemption price at 8.98%.
BEACON PROPERTIES CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the nine months ended September 30, 1997
(Unaudited)
Properties
Properties Acquired
Beacon Acquired Westlakes and to be
Properties as of Office Acquired After
Corporation September Park Sale September 30, Pro Forma Pro Forma
Historical 30, 1997 (A) (B) 1997 Adjustments Consolidated
- ----------- ------------ --------- -------------- ------------ ------------
(dollars in thousands except per share amounts and shares outstanding)
Revenue:
<PAGE> 89
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Rental income $218,544 $30,761 (3,087) 25,055 $271,273
Management fees 2,445 2,445
Recoveries from tenants 29,376 3,066 (408) 6,131 38,165
Mortgage interest income 5,320 1,833(E) 7,153
Other income 10,364 276 (405) 818 11,053
--------------------------------------------------------------------------------------
Total revenue 266,049 34,103 (3,900) 32,004 1,833 330,089
--------------------------------------------------------------------------------------
Expenses:
Property expenses 51,169 5,943 (878) 8,369 64,603
Real estate taxes 27,960 3,821 (237) 8,139 39,683
General and administrative 27,959 548 (283) 1,532 29,756
Mortgage interest expense 36,313 4,065 12,322 (F) 52,700
Interest - amortization of financing
costs 1,131 1,131
Depreciation and amortization 50,767 7,858(D) (2,071) 5,147 (D) 61,701
--------------------------------------------------------------------------------------
Total expenses 195,299 22,235 (3,469) 23,187 12,322 249,574
--------------------------------------------------------------------------------------
Income from operations 70,750 11,868 (431) 8,817 (10,489) 80,515
Equity in net income of joint ventures and
corporations 4,976 (338)(G) 4,638 (1)
--------------------------------------------------------------------------------------
Income from continuing operations 75,726 11,868 (431) 8,817 (10,827) 85,153
Discontinued operations :
Loss from operations - Construction Company (2,263) (2,263)
--------------------------------------------------------------------------------------
</TABLE>
<PAGE> 90
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Income before minority interest
73,463 11,868 (431) 8,817 (10,827) 82,890
Minority interest in Operating Partnership
(9,743) 1,499(H) (8,244)
------- -------- -------- -------- -------- --------
Income before extraordinary items
63,720 11,868 (431) 8,817 (9,328) 74,646 (2)
Series A Preferred dividends
(5,388) (8,082)(I) (13,470)
------- -------- -------- -------- -------- --------
Net income available for common shares
before extraordinary items
$58,332 $11,868 $ (431) $8,817 ($17,410) $61,176
======= ======== ======== ======== ======== ========
Common shares outstanding
55,656,517
Net income per common share
$1.10
</TABLE>
(1) Includes Depreciation and amortization of $3,086
(2) Company share of Operating Partnership is 88.12%
See accompanying notes to pro forma condensed consolidated
statement of
operations.
BEACON PROPERTIES CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997
(Unaudited)
(A) Results of operations of 10880 Wilshire Boulevard, Centerpointe,
Westbrook Corporate Center and 225 Franklin Street and Sunnyvale Business
Center for the period prior to the date of acquisition.
10880 Westbrook 225 Sunnyvale
Wilshire Corporate Franklin Business
Boulevard Centerpointe Center Street Center Total
<PAGE> 91
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rental income - historical
$4,078 $ 2,411 $9,961 $11,512 $1,610 $29,572
Pro forma straight - line rent adjustment
660 99 464 (34) 1,189
-----------------------------------------------------------------------------
Pro forma rental income
4,738 2,510 10,425 11,478 1,610 30,761
Management fees
Recoveries from tenants
37 191 475 2,260 102 3,065
Mortgage interest income
Other income
81 33 2 154 7 277
-----------------------------------------------------------------------------
Total revenue
4,856 2,734 10,902 13,892 1,719 34,103
-----------------------------------------------------------------------------
Expenses:
Property expenses
1,274 575 1,941 2,153 5,943
Real estate taxes
360 164 1,617 1,578 102 3,821
General and administrative
31 60 27 344 87 549
Mortgage interest expense
726 3,339 4,065
Interest - amortization of financing costs
Depreciation and amortization (D)
1,058 545 2,155 3,593 507 7,858
-----------------------------------------------------------------------------
Total expenses
2,723 2,070 9,079 7,668 696 22,236
-----------------------------------------------------------------------------
Income from operations
$2,133 $664 $1,823 $6,224 $1,023 $11,867
=============================================================================
</TABLE>
(B) The results of operations for Westlakes Office Park for the period
January 1, 1997 to May 7, 1997.
<PAGE> 92
(C) Results of operations of Sunnyvale Business Center, Civic Opera
Building, 200 West Adams, Lakeside and 101 North Wacker for the nine months
ended September 30, 1997.
<TABLE>
<CAPTION>
Civic 200 101
Opera West North
Building Adams Lakeside Wacker Total
---------------------------------------------------------------------
Revenue:
<S> <C> <C> <C> <C> <C>
Rental income-historical $7,405 $8,315 $3,522 $5,333 $24,576
Pro forma straight-line rent adjustment 89 (51) 29 415 482
---------------------------------------------------------------------
Pro forma rental income 7,495 8,264 3,551 5,748 25,058
Management fees
Recoveries from tenants 857 1,746 218 3,311 6,132
Mortgage interest income
Other income 219 57 32 510 818
---------------------------------------------------------------------
Total revenue 8,571 10,067 3,801 9,569 32,008
---------------------------------------------------------------------
Expenses:
Property expenses 3,309 1,733 1,440 1,887 8,369
Real estate taxes 1,575 2,957 278 3,330 8,140
General and administrative 671 222 378 261 1,532
Mortgage interest expense
Interest - amortization of financing costs
Depreciation and amortization (D) 1,341 1,624 855 1,327 5,147
---------------------------------------------------------------------
Total expenses
6,896 6,536 2,951 6,805 23,188
---------------------------------------------------------------------
</TABLE>
<PAGE> 93
Income from operations
$1,675 $3,531 $850 2,764 $8,820
=========================================================
BEACON PROPERTIES CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997
(Unaudited)
(D) Detail of depreciation expense by property is presented
as follows:
Basis Life Depreciation
----- ---- ------------
1997 acquisitions as of September 30, 1997
------------------------------------------
10880 Wilshire Boulevard $102,000 30 yrs $1,058
Centerpointe 49,500 30 yrs 545
Westbrook Corporate Center 163,890 30 yrs 2,155
225 Franklin Street 252,000 30 yrs 3,593
Sunnyvale Business Center 30,420 30 yrs 507
------
$7,858
======
Properties acquired or to be acquired
-------------------------------------
after September 30, 1997:
------------------------
Civic Opera Building $53,649 30 yrs $1,341
200 West Adams 64,958 30 yrs 1,624
<PAGE> 94
Lakeside 34,200 30 yrs 855
101 North Wacker 53,069 30 yrs 1,327
------
$5,147
======
<TABLE>
<S> <C>
(E) Interest income on Riverside notes receivable:
Interest income - note receivable from Riverside Project LLC ($26,000*9%) $1,754
Interest income - note receivable from Beacon DesignCorp. ($3,250*7%) 171
Interest income - note receivable from Beacon Property Management Corp. ($3,250*7%) 171
------
Total $2,096
Less historical interest (263)
------
$1,833
======
</TABLE>
(F) Credit facility interest expense:
Credit Facility balance per pro forma balance sheet $407,017
Less Credit Facility balances relating to development projects
in which the associated interest expense would be capitalized:
Development projects owned or underdevelopment as of September 30, 1997:
Crosby Phase II (6,350)
175 Wyman Street (24,840)
150 California (10,640)
Media Center (19,030)
-----------
<PAGE> 95
Adjusted pro forma Credit Facility balance 346,157
Average Credit Facility rate through September 30, 1997 7.21%
----------------
Pro Forma Credit Facility interest expense full year 24,958
75%
----------------
Pro Forma Credit Facility interest expense 3/4 year 18,718
Less historical 1997 Credit Facility interest expense (8,153)
----------------
Pro Forma Credit Facility adjustment 10,565
----------------
Mortgage Interest:
Pro forma mortgage interest on Civic Opera Building 3/4
year based on principal balance of $31,773 with interest
at 7.37% 1,756
----------------
Grand total
$12,322
================
(G) Adjustment to equity in net income of corporations as a result of
Riverside notes: Beacon Design Corp. note payable ($3,250*7%) ($171)
Beacon Property Management Corp. note payable ($3,250*7%) (171)
----------------
Total interest expense adjustment (342)
Company ownership % of entities 98.99%
----------------
Adjustment to equity in net income of corporations ($338)
================
<PAGE> 96
(H) Reflects decrease for minority interest in Operating
Partnership before preferred shares.
(I) Series A preferred dividends based on 8,000,000 shares
with a $25.00 redemption price at 8.98%.
