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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 29, 1998
REGISTRATION STATEMENT NO. 333-56937
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BEACON CAPITAL PARTNERS, INC.
(Exact name of registrant as specified in its charter)
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MARYLAND 04-3403281
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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ONE FEDERAL STREET, 26TH FLOOR
BOSTON, MASSACHUSETTS 02110
(617) 457-0400
(Address and Telephone Number of Principal Executive Offices)
ALAN M. LEVENTHAL
CHIEF EXECUTIVE OFFICER
AND
WILLIAM A. BONN, ESQ.
GENERAL COUNSEL
BEACON CAPITAL PARTNERS, INC.
ONE FEDERAL STREET, 26TH FLOOR
BOSTON, MASSACHUSETTS 02110
(617) 457-0400
(Name, Address and Telephone Number, Including Area Code, of Agent for Service)
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COPY TO:
GILBERT G. MENNA, P.C.
KATHRYN I. MURTAGH, ESQ.
GOODWIN, PROCTER & HOAR LLP
BOSTON, MA 02109
(617) 570-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after this registration statement becomes effective, as determined by the
Registering Stockholder.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SELLING STOCKHOLDERS MAY NOT SELL THESE
SECURITIES NOR ACCEPT AN OFFER TO SELL UNTIL THE REGISTRATION STATEMENT IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS PROHIBITED.
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PROSPECTUS
20,394,843 SHARES
BEACON CAPITAL PARTNERS, INC.
COMMON STOCK
Beacon Capital Partners, Inc. is a real estate investment trust that
conducts real estate investment and development activities.
This Prospectus relates to 20,394,843 shares of our Common Stock which may
be sold by certain Selling Stockholders.
We are registering these securities on behalf of the Selling Stockholders.
We are not selling any of these securities and we will not receive any proceeds
from the sale of these securities. The Selling Stockholders may sell these
securities directly to purchasers or they may sell these securities to
purchasers through agents, underwriters or dealers pursuant to this Prospectus.
The Selling Stockholders will receive all of the proceeds from the sale of their
securities and will pay all underwriting discounts, selling commissions and
transfer taxes applicable to any sale. Registration of these securities does not
necessarily mean that any Selling Stockholder with actually sell their
securities.
There is currently no market for our Common Stock and we do not currently
plan to list our Common Stock on any exchange or Nasdaq.
Our principal executive offices are located at One Federal Street, 26th
Floor, Boston, Massachusetts 02110. Our telephone number is (617) 457-0400.
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INVESTING IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS DECEMBER __, 1998.
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FORWARD-LOOKING STATEMENTS
Statements in this Prospectus under the captions "Offering Summary," "Risk
Factors," "Investment Strategies and Experience," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Prospectus are forward-looking statements. When we use the words "anticipate,"
"believe," "estimate," "expect" and other similar expressions in this
Prospectus, they are generally intended to identify forward-looking statements.
In connection with such forward-looking statements, you should consider that
they involve known and unknown risks, uncertainties and other factors which are,
in some cases, beyond our control and which could materially affect our actual
results, performance or achievements. Factors that could cause our actual
results, performances or achievements to differ materially from those expressed
or implied by our forward-looking statements include, but are not limited to,
the following:
- international, national, regional and local economic and political
conditions;
- demographic changes;
- industry trends;
- competition;
- changes in business strategy or development plans;
- availability, terms and deployment of capital;
- availability of qualified personnel; and
- changes in, or the failure or inability to comply with, government
regulation.
We disclaim any obligation to update these factors or to publicly announce
the result of any revisions to any of these forward-looking statements to
reflect subsequent events or developments.
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TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS............................................................ i
PROSPECTUS SUMMARY.................................................................... 1
The Company......................................................................... 1
Business Strategy................................................................... 1
Advantages of the Company Structure................................................. 2
The BCP Sister Corp. ............................................................... 2
Summary Risk Factors................................................................ 3
Relationships....................................................................... 4
The Offering........................................................................ 5
RISK FACTORS.......................................................................... 6
Economic and Business Risks......................................................... 6
Dependence on Key Personnel Whose Continued Service is Not Guaranteed............. 6
We May Not Successfully Implement Our Growth Strategy............................. 6
Availability of Capital......................................................... 6
Failure to Effectively Manage Rapid Growth...................................... 6
Portfolio Acquisition Risks..................................................... 6
Development or Redevelopment of Assets.......................................... 7
Conflicts of Interest Exist Between the Company and Others........................ 7
Conflicts Relating to the Operating Partnership................................. 7
Conflicts Relating to the BCP Sister Corporation................................ 8
Conflicts Relating to the Incentive Return...................................... 8
Policies With Respect to Conflicts of Interest.................................. 9
Leverage Can Reduce Income Available for Distribution to Stockholders............. 9
Risks Associated With Hedging Investments and Investments in Derivatives.......... 10
The Company's Insurance Will Not Cover All Losses................................. 10
Property Taxes Decrease Returns on Real Estate.................................... 11
Compliance with Americans with Disabilities Act and Other Changes in Governmental
Rules and Regulations May Be Costly............................................. 11
Adverse Effect on Results of Operations Due to Possible Environmental
Liabilities...................................................................... 11
BCP Sister Corp. Will Have Separate Financing, Which May Not Be Available......... 12
Newly-Organized Corporation....................................................... 12
Investment Activity Risks........................................................... 12
Appropriate Investments May Not Be Available...................................... 12
Real Estate Is Illiquid and Value Is Dependent on Conditions Beyond the Company's
Control.......................................................................... 12
We Must Compete With Other Companies for Acquisitions............................. 13
We Must Be Able to Pay Off Our Financing.......................................... 13
Real Estate Investment Risks...................................................... 13
Risks Related to Investments in Mortgage Loans.................................... 14
Commercial Mortgage Loans May Involve a Risk of Loss............................ 14
Volatility of Values of Mortgaged Properties May Adversely Affect the Company's
Mortgage Loans................................................................. 14
General Default Risks........................................................... 14
Our Multi-Sector Investment Strategy is More Complicated Than a Single Sector
Investment Strategy............................................................. 15
Geographic Concentration of Assets................................................ 15
New Markets....................................................................... 16
Risks Involved in Acquisitions through Partnerships and Joint Ventures............ 16
Risks Involved in Acquisitions through Subsidiaries............................... 16
Foreign Real Properties Are Subject to Currency Conversion Risks and Uncertainty
of Foreign Laws.................................................................. 17
Legal and Tax Risks................................................................. 17
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Tax Risks......................................................................... 17
Adverse Impact of Future Legislation Regarding REITs.............................. 18
Aggregate Stock Ownership Limit May Restrict Business Combination Opportunities... 19
Foreign Investors Should Consider Tax Risks Under FIRPTA.......................... 19
Plans Should Consider ERISA Risks of Investing in Common Stock.................... 19
Changes in Management May Be Deterred............................................. 20
Board of Directors May Change Certain Policies Without Stockholder Consent........ 20
Loss of Investment Company Act Exemption Would Adversely Affect the Company....... 20
Limitation on Liability of Officers and Directors of the Company.................. 21
Other Risks......................................................................... 21
Risk that Market for Common Stock Will Not Develop................................ 21
THE COMPANY........................................................................... 22
Recent Acquisitions................................................................. 23
Investment in Cypress Communications, Inc........................................... 26
The Properties...................................................................... 27
Occupancy Rates, Base Rents and Net Effective Rents................................. 28
Lease Expirations--All Properties................................................... 29
Historical Operating Information.................................................... 33
Mortgage Indebtedness............................................................... 35
Management Compensation............................................................. 36
Directors and Executive Officers.................................................... 37
Other Professionals................................................................. 39
Board of Directors and Indemnification of Officers and Directors.................... 41
Long-Term Incentive Plan............................................................ 43
Stock Incentive Plan................................................................ 45
Employment Agreements; Covenants Not to Compete..................................... 46
Credit Facility..................................................................... 47
Available Information............................................................... 47
Certain Relationships; Conflicts of Interest........................................ 47
USE OF PROCEEDS....................................................................... 48
DISTRIBUTION POLICY................................................................... 48
INVESTMENT STRATEGIES AND EXPERIENCE.................................................. 49
Investment Strategies and Experience................................................ 49
Investment Management............................................................... 51
The BCP Sister Corp. ............................................................... 52
Policies with Respect to Certain Other Activities................................... 53
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 54
PRICE RANGE OF COMMON STOCK........................................................... 56
CAPITALIZATION........................................................................ 56
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA............................ 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 58
DESCRIPTION OF SECURITIES............................................................. 62
General............................................................................. 62
Common Stock........................................................................ 62
Preferred Stock..................................................................... 62
Power to Issue Additional Shares of Common Stock and Preferred Stock................ 63
Dividend Reinvestment Plan.......................................................... 63
Transfer Agent and Registrar........................................................ 63
Transfer Restrictions............................................................... 63
Registration Rights................................................................. 65
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
BCP'S CHARTER AND BYLAWS............................................................ 67
Amendment of Charter and Bylaws..................................................... 67
Dissolution of the Company.......................................................... 67
Meetings of Stockholders............................................................ 67
The Board of Directors.............................................................. 67
Limitation of Liability and Indemnification......................................... 68
Indemnification Agreements.......................................................... 69
Business Combinations............................................................... 69
Control Share Acquisitions.......................................................... 70
COMMON STOCK AVAILABLE FOR FUTURE SALE................................................ 71
OPERATING PARTNERSHIP AGREEMENT....................................................... 72
Classes of Units.................................................................... 72
Management.......................................................................... 72
Removal of the General Partner; Transfer of the General Partner's Interest.......... 72
Amendments of the Operating Partnership Agreement................................... 73
Transfer of Units; Substitute Limited Partners...................................... 73
Redemption of OP Units.............................................................. 73
Operations.......................................................................... 74
Issuance of Additional Limited Partnership Interests................................ 74
Extraordinary Transactions.......................................................... 74
Exculpation and Indemnification of the General Partner.............................. 75
Tax Matters......................................................................... 75
FEDERAL INCOME TAX CONSIDERATIONS..................................................... 76
Taxation of the Company............................................................. 76
Requirements for Qualification...................................................... 77
Impact of Future Legislation........................................................ 84
Failure to Qualify.................................................................. 84
Taxation of Taxable U.S. Stockholders............................................... 84
Taxation of Stockholders on the Disposition of the Common Stock..................... 86
Information Reporting Requirements and Backup Withholding........................... 86
Taxation of Tax-Exempt Stockholders................................................. 86
Taxation of Non-U.S. Stockholders................................................... 87
Other Tax Consequences.............................................................. 89
BCP Sister Corp..................................................................... 89
ERISA CONSIDERATIONS.................................................................. 90
The Treatment of the Company's Underlying Assets Under ERISA........................ 90
SELLING STOCKHOLDERS.................................................................. 91
PLAN OF DISTRIBUTION.................................................................. 104
LEGAL MATTERS......................................................................... 105
EXPERTS............................................................................... 105
AVAILABLE INFORMATION................................................................. 105
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES........................................... F-1
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PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
BECAUSE THIS IS A SUMMARY, IT MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY BEFORE
DECIDING WHETHER TO INVEST IN OUR COMMON STOCK.
THE COMPANY
Beacon Capital Partners, Inc. ("we" or the "Company") is a real estate
investment trust established to conduct real estate investment and development
activities. We formed on January 21, 1998 as a Massachusetts corporation and
reincorporated (through a merger) in Maryland on March 17, 1998. We intend to
qualify as a real estate investment trust (a "REIT"). We are the sole General
Partner of Beacon Capital Partners, L.P. (the "Operating Partnership"). Our
senior management manages our day-to-day operations and those of the Operating
Partnership.
We currently own 25 operating properties, consisting of 42 buildings and
approximately 3.3 million rentable square feet. We are also part of a joint
venture that is developing a high-rise building in Seattle, Washington. In
addition, we are part of another joint venture which holds a 12-acre site for
development.
All of the Common Stock offered by this Prospectus was initially sold as
part of an offering (the "Original Offering") to NationsBanc Montgomery
Securities LLC ("NationsBanc"). NationsBanc subsequently sold the shares they
acquired to persons and institutions defined by the Securities Act of 1933 (the
"Securities Act") as Qualified Institutional Buyers and Accredited Investors.
The Common Stock being offered by this Prospectus is being offered by these
purchasers, and their transferees, donees, or successors (collectively, the
"Selling Stockholders").
We believe that we have developed an organization of investment and
investment management professionals that is well-positioned to take advantage of
today's real estate and capital markets environment. Our management team
combines real estate, capital markets and corporate expertise, which we believe
will uniquely position us to capitalize on market and industry trends in complex
real estate-related transactions across product, geographic and industry lines.
BUSINESS STRATEGY
Our management's experience in the real estate industry drives our business
strategy. As the capitalization of the real estate industry continues to evolve
toward a publicly-held format, we believe that numerous investment opportunities
will emerge that reflect several primary shifts in the real estate industry.
These shifts include:
- rapid recovery of real estate markets
- extraordinary growth of the public capital markets for real estate
companies
- continued consolidation of the ownership of real estate
- alignment of interests between investors and management
- recognition of real estate companies as operating businesses
These shifts have resulted in significant investment opportunities in real
estate, including arbitrage between public and private market pricing. It is our
belief that as the real estate industry continues to transform, there will be
significant opportunities for our skilled and experienced management team.
Initially, we expect to focus on opportunities in the office sector. As the
real estate market cycle advances, we expect additional opportunities to emerge
in non-office market sectors, including opportunities in the hotel, residential
and industrial sectors. Increasingly, management expertise and creative real
estate solutions will be required for successful real estate companies. Our
management team has a proven track record in the office sector and other
property types.
Our strategy is to profitably purchase, develop and manage real estate. We
will implement this strategy through our senior management, which has experience
managing both public and private real estate companies. Eight of our nine senior
managers have an average of over 20
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years experience in the real estate industry. During this time, they have
developed an ability to identify and capitalize on industry trends. They will
apply these skills to capitalize on opportunities that emerge as the real estate
industry continues to transform and mature. They have also developed an informal
network of domestic and foreign institutional relationships in the real estate
industry. They will attempt to use these relationships to help identify
opportunities to implement our strategy.
Our investments will target the following principal real estate areas (the
"Real Estate-Related Assets"), although we cannot anticipate with any certainty
the percentage of our investments that will be made in each category:
- VALUE-ADDED REPOSITIONINGS AND DISCOUNTED PURCHASES--repositioning and
recapitalization of under-utilized or poorly capitalized real property by
purchasing the debt on such property. This includes investment in mortgage
loans at a discount to the face value of the debt, or purchase of equity
in the property at a discount to the property's replacement cost;
- DEVELOPMENT AND RE-DEVELOPMENT--strategic ground-up development or
re-development of existing properties that can benefit from repositioning;
- MULTIPLE PROPERTY PORTFOLIOS--acquisition of portfolios of real property
owned by financial institutions, corporations and other non-strategic
owners of real estate, as well as liquidating closed-end commingled funds
and other large holders of real estate portfolios;
- JOINT VENTURES AND STRATEGIC PARTNERSHIPS-- formation of, or acquisition
of interests in, joint ventures or strategic partnerships as a way to
leverage both capital and management expertise; and
- REAL ESTATE COMPANIES AND REAL ESTATE-RELATED BUSINESSES--investment in
companies primarily engaged in the business of real estate ownership, real
estate services or other real estate intensive operating businesses, as
well as related companies that serve the changing needs of the real estate
industry.
Although we may also invest in other areas (the "Other Assets" and together
with the Real Estate-Related Assets, the "Assets") that we believe may add value
to the Company, we have no current plans to do so. If we make such investments,
they will not be the principal focus of our investment strategy. We intend to
conduct all of our investment activities in a manner consistent with maintaining
our status as a REIT for United States federal income tax purposes. Other than
these restrictions, we have no policy limiting our investment opportunities or
amounts.
We believe that we will have distinct advantages over other real estate
investment companies because our management team has extensive experience in the
acquisition, development, financing, management and disposition of Real
Estate-Related Assets. As the capitalization of the real estate industry
continues to evolve toward a publicly-held format, our management team believes
that its prior success in managing a publicly-held REIT will provide us with an
additional competitive advantage over other privately-held REITs and real estate
investment funds.
ADVANTAGES OF THE COMPANY STRUCTURE
We believe that by managing our day-to-day operations internally, we will
offer competitive advantages to our stockholders in comparison to externally
managed REITs because of the alignment of interests between management and
stockholders. We also believe that we have a competitive advantage over certain
other real estate investment entities because we can use the Operating
Partnership in potential acquisitions in ways that may provide certain tax
benefits to sellers.
THE BCP SISTER CORP.
We anticipate that we may identify Real Estate-Related Assets that may be
advantageous investments but which may be inappropriate for investment by a
REIT. To permit stockholders to participate in the economic benefits that may be
associated with these investments, we intend to use a structure often referred
to as a "paper clip." This "paper clip" structure would involve distributing to
our stockholders the equity interests of a
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newly-organized BCP Sister Corp. that would not elect to qualify as a REIT and
would make investments in certain non-qualifying REIT Assets. At the present
time, we have not formed a BCP Sister Corp., nor do we have any current plans to
do so. The BCP Sister Corp. is intended to function primarily as an operating
company, in contrast to our principal focus on investment as a REIT in Real
Estate-Related Assets. Our ability to fully use this structure may be adversely
affected by future legislation.
SUMMARY RISK FACTORS
An investment in our Common Stock involves various risks. You should
carefully consider the matters discussed under "Risk Factors." Such risks
include, among others, the following:
- We will rely on, and our success depends on, key personnel, including Alan
M. Leventhal and Lionel P. Fortin. Losing their services could materially
adversely affect us,
- It may be difficult for us to effectively implement our acquisition
strategy and manage our resulting growth.
- We have a limited operating history and no established sources of
financing.
- Some of our investments will require significant management resources,
will be illiquid, and may decrease in value because of changes in economic
conditions.
- There is currently no market for our Common Stock and we do not currently
plan to list our Common Stock on an exchange or Nasdaq.
- Our management may earn substantial compensation from certain incentive
plans, which may substantially reduce cash available for distribution to
stockholders.
- We have a management incentive plan which bases rewards upon our
performance over a specified period of time. Management's interest in
their return under this incentive plan could conflict with stockholders'
interests in shorter or longer investment periods.
- We are subject to competition from numerous competitors which could affect
our ability to effectively implement our acquisition strategy.
- We intend to leverage our Assets, and could, under our current guidelines,
borrow up to 60% of our total market capitalization, which can compound
losses. Our organizational documents contain no limits on leveraging our
Assets.
- Our capital stock is subject to certain ownership limitations designed to
ensure compliance with the REIT qualification requirements, including a
prohibition on any one person from beneficially owning more than 9.8% of
the outstanding stock, which could inhibit a change of control.
- We may be subject to income tax at regular corporate rates if we fail to
qualify as a REIT, which could substantially reduce the amount of cash
available for distribution to stockholders.
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RELATIONSHIPS
The relationship among Beacon Capital Partners, Inc., Beacon Capital
Partners, L.P., Beacon Capital Participation Plan and BCP Sister Corp. (if
formed), and the equity ownership thereof is depicted in the picture shown
below.
[Chart describing the relationship of BCP, the Operating Partnership,
Other Limited Partners, Beacon Capital Participation Plan, BCP Sister Corp.
and the BCP Sister Corp. Operating Partnership (if formed)]
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(1) We anticipate that at the time of formation of the BCP Sister Corp., the
stockholders of the Company and the BCP Sister Corp. would be the same.
However, the equity interests of the Company and the BCP Sister Corp. may be
owned and transferred separately and independently of each other and,
consequently, the stockholder constituency of each entity may change over
time.
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THE OFFERING
The principal terms of our Common Stock are summarized below. For a more
complete description, see "Description of Securities." The Selling Stockholders
will receive all of the proceeds from any sales of the Common Stock offered by
this Prospectus. We will not receive any proceeds from this Offering.
Common Stock:
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Issuer............................ Beacon Capital Partners, Inc.
Securities Offered (1)............ 20,394,843 shares of Common Stock
Common Stock Outstanding.......... 20,973,932 shares
Voting Rights..................... Each share of Common Stock has one vote.
Listing........................... The Common Stock is not currently listed on any
exchange or on any Nasdaq market. We do not
currently plan to list the Common Stock.
Trading........................... The Common Stock has been accepted for trading
in the PORTAL Market.
Stock Ownership Limits............ No single Stockholder may beneficially own more
than 9.8% of the Common Stock.
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(1) This Offering of our Common Stock excludes 579,089 shares of Common Stock
and shares underlying 225,201 Operating Partnership Units which the Company
sold to Alan M. Leventhal and Lionel P. Fortin in connection with the
formation of the Company.
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RISK FACTORS
An investment in our Common Stock involves various risks. You should
carefully consider the following risk factors:
ECONOMIC AND BUSINESS RISKS
WE DEPEND ON KEY PERSONNEL WHOSE CONTINUED SERVICE IS NOT GUARANTEED
We believe that our success depends in large part upon the experience of
Alan M. Leventhal, Lionel P. Fortin and other members of our senior management
whose continued service is not guaranteed. We have executed employment and
non-competition agreements with Messrs. Leventhal and Fortin, but we cannot
guarantee that these agreements are judicially enforceable. If we lost the
services of either Mr. Leventhal or Mr. Fortin, our operations may suffer. Until
we found a qualified replacement, we would be less capable of:
- obtaining real estate investment opportunities;
- capitalizing upon relationships in the real estate industry; and
- structuring and executing potential investments.
We cannot assure you that we would replace Mr. Leventhal or Mr. Fortin with
someone who has equivalent knowledge and experience. We may not be able to
successfully recruit additional personnel. Any additional personnel we do
recruit may not have the requisite skills, knowledge or experience necessary or
desirable to enhance our incumbent management. In addition, we do not currently
intend to maintain key-man life insurance on any of our executive officers. See
"The Company--Directors and Executive Officers" and "The Company--Management
Compensation."
WE MAY NOT SUCCESSFULLY IMPLEMENT OUR GROWTH STRATEGY
AVAILABILITY OF CAPITAL
Our ability to implement our growth strategy depends on access to the
capital necessary to invest in Assets. Since the Company formed recently, we
have a limited operating history. Other than the proceeds we received in the
original sale of our Common Stock to NationsBanc, we have no established sources
of financing. If we fail to obtain the necessary capital, our ability to acquire
Assets could suffer. We anticipate that we will need a bank or other
institutional lender to supply a credit facility. At this time, we have not
obtained a credit facility.
FAILURE TO EFFECTIVELY MANAGE RAPID GROWTH
To successfully implement our acquisition strategy, we must integrate the
acquired Assets into our existing operations. As such, we must consolidate
functions and integrate the departments, systems and procedures of the acquired
Assets with our operations. Integration presents a significant challenge to us.
If we fail to effectively integrate new Assets, our results of operations and
financial condition could suffer.
PORTFOLIO ACQUISITION RISKS
We intend to acquire multiple Assets in a single transaction. This technique
reduces acquisition expenses and provides us with operating leverage. However,
portfolio acquisitions are more complex than single-property acquisitions. The
risk that a multiple-property acquisition will not close is greater than in a
single-property acquisition. In addition, the cost of a failed portfolio
acquisition closing is greater than the cost of a failed single-property
acquisition closing. If one of our portfolio acquisition closings failed, we
would incur a charge against our earnings for the costs related to that failed
acquisition.
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Our portfolio acquisitions may result in the acquisition of Assets located
in geographically dispersed markets that are geographically removed from our
principal markets. This geographic diversity could strain our ability to manage
such dispersed Assets. In addition, a seller may demand that we purchase a group
of properties together despite one or more failing to meet our investment
criteria. If this were to occur, we would attempt to either:
- make a joint bid with another buyer; or
- purchase the portfolio with the intent to subsequently dispose of those
Assets which do not meet our investment criteria.
This strategy presents two problems:
- If we participate in a joint bid, the other buyer may default on its
obligations and increase the risk that the acquisition may not close.
- If we intend to dispose of Assets that we do not wish to own, there can be
no assurance as to how quickly we could sell or exchange such Assets or
the terms on which they could be sold or exchanged.
DEVELOPMENT OR REDEVELOPMENT OF ASSETS
We intend to develop and construct Real Estate-Related Assets in accordance
with our development and underwriting policies. Risks associated with such
development and construction activities include the risks that:
(i) we may abandon development opportunities after expending resources to
determine feasibility;
(ii) construction costs may exceed original estimates;
(iii) occupancy rates and rents at a newly completed property may not be
sufficient to make the project profitable;
(iv) financing may not be available on favorable terms;
(v) construction and lease-up may not be completed on schedule and thus
result in increased debt service expenses and construction costs;
(vi) we may be unable to obtain (or be delayed in obtaining) all necessary
zoning, land-use, building, occupancy, and other required governmental
permits and authorizations;
(vii) since new projects require a substantial portion of management's time
and attention, management may be significantly preoccupied with these
new projects (regardless of whether or not they are ultimately
successful);
(viii) permanent financing may not be available or may only be available on
unfavorable terms; and
(ix) our losses may exceed our investment return if the project is
unsuccessful.
CONFLICTS OF INTEREST EXIST BETWEEN THE COMPANY AND OTHERS
CONFLICTS RELATING TO THE OPERATING PARTNERSHIP
The Company (as the General Partner of the Operating Partnership) will have
fiduciary obligations to the limited partners of the Operating Partnership that
may conflict with the interests of our stockholders. In addition, the limited
partners will have the right to vote:
- as a class on certain amendments to the Operating Partnership Agreement;
and
- individually to approve certain amendments that would adversely affect
their rights.
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The limited partners' voting rights may be exercised in a manner that
conflicts with your interests if you should acquire shares of our Common Stock.
Under the terms of the Operating Partnership Agreement, the General Partner
(currently the Company) must obtain approval from the partners of the Operating
Partnership to engage in certain transactions if, pursuant to the Massachusetts
General Corporate Laws or our organizational documents, a transaction would
require a vote of our stockholders. As such, approval of the stockholders and
the partners would be necessary before certain transactions could be
consummated. Partners' interest in approving any such transaction may or may not
align with the stockholders' interest in approving the transaction. Thus, the
partners may prevent consummation of a transaction which the stockholders
believe is in their best interest. See "The Company--Certain Relationships;
Conflict of Interest."
CONFLICTS RELATING TO THE BCP SISTER CORP
Certain of our officers and directors may also serve as officers or
directors of the BCP Sister Corp. (if and when formed). This may create
conflicting demands on the time of those officers and directors serving both the
Company and the BCP Sister Corp. If (as expected) ownership of the BCP Sister
Corp. and the Company ultimately differ, conflicts of interest may develop. We
cannot assure you that conflicts between the Company and the BCP Sister Corp.
will not arise concerning short-term or long-term business plans, investment
strategy, geographic concentration or services provided. See "The
Company--Certain Relationships; Conflicts of Interest."
In addition, provisions in the BCP Sister Corp.'s formation documents are
expected to:
(i) enable the BCP Sister Corp. to enter into transactions with the Company
to the extent deemed beneficial by their respective boards of directors;
and
(ii) generally prohibit the BCP Sister Corp. from engaging in activities or
making investments appropriate for a REIT unless:
- the Company is first given the opportunity to engage in the activity or
make the investment; and
- the Company elects to not engage in the activity or make the
investment.
We cannot assure you that any agreement will prevent conflicts between the
Company and the BCP Sister Corp. regarding which person or entity may pursue
potential business opportunities (if any).
CONFLICTS RELATING TO THE INCENTIVE RETURN
Our Long-Term Incentive Plan consists of a Convertible Unit issued to Beacon
Capital Participation Plan on March 16, 1998. The Participation Plan is an
entity owned and controlled by our management. Beacon Capital Participation Plan
was established to receive the Convertible Unit of the Operating Partnership.
Messrs. Leventhal and Fortin control and own equity interests in Beacon Capital
Participation Plan and certain members of our senior management also hold
minority interests in Beacon Capital Participation Plan.
If we meet certain earnings goals, the Convertible Unit will convert into a
number of Incentive Units of limited partnership interest in the Operating
Partnership ("Incentive Units"). The earnings goals are measured at the end of
the three-year period following the completion of the first calendar year
following the closing of the Original Offering to NationsBanc. The value of the
Incentive Units will be equal to the Incentive Return. The Incentive Return is
calculated based on the growth of the Company's Funds from Operations above a
specified benchmark (measured at the end of a specified period). Thus,
management has an incentive to maximize growth during this period. However,
management's interest in the return over this period may conflict with the
interests of stockholders with shorter or longer investment goals.
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The Long-Term Incentive Plan was designed to align the interests of our
management with the interests of our stockholders by having members of senior
management purchase an equity interest in the Beacon Capital Participation Plan.
However, we cannot assure you that conflicts will not arise between management's
interests and stockholders' interests. See "The Company--Long-Term Incentive
Plan."
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST
We intend to adopt policies designed to eliminate or minimize conflicts of
interest. One such policy would require that all transactions in which officers
or directors have a conflicting interest must be approved by a majority of our
Independent Directors. However, we cannot assure you that any policy will
successfully minimize or eliminate conflicts of interest. If our policies fail,
decisions could be made that do not fully reflect the stockholders' interests.
LEVERAGE CAN REDUCE INCOME AVAILABLE FOR DISTRIBUTION TO STOCKHOLDERS
We intend to leverage our Assets by borrowings through bank credit
facilities, mortgage loans on real estate and other borrowings. At this time,
our outstanding indebtedness only consists of mortgage indebtedness. See "The
Properties and Pending Acquisitions--Mortgage Indebtedness." Our return on
investments and cash available for distribution to stockholders might suffer by
changes in market conditions which cause the cost of the financing to exceed the
income from the asset. At this time, we have no variable rate financing.
However, if we obtained such financing in the future and did not engage in a
successful hedging strategy, an increase in the interest rate payable on such
financing could cause higher debt payments and could materially adversely affect
liquidity and results from operations.
Leverage creates an opportunity for increased returns on equity, but also
creates risks. For example, debt service payments can reduce the net income
available for distributions to stockholders. We cannot assure you that we will
be able to meet our debt service obligations and, to the extent that we cannot,
we may lose some or all of our Assets to foreclosure or sale to satisfy our debt
obligations. Interest rate changes can affect our income by affecting:
- the spread between the income on our Assets and interest-bearing
liabilities;
- the value of our interest-earning Assets; and
- our ability to realize gains from the sale of Assets.
We have adopted guidelines to maintain a debt to total market capitalization
ratio not in excess of 60%. This policy enables us to incur additional
indebtedness as our stock price increases even though there has not necessarily
been a corresponding increase in our ability to service our indebtedness. For
purposes of this policy, our debt to market capitalization ratio is calculated
as:
- our proportionate share of total consolidated and unconsolidated debt as a
percentage of the sum of the market value of outstanding shares of our
capital stock and our units in the Operating Partnership; plus
- our proportionate share of total consolidated and unconsolidated debt.
Our Charter and Bylaws do not limit the amount of indebtedness we can incur.
Accordingly, our Board of Directors could alter or eliminate this policy. They
would do so, for example, if it were necessary for us to continue to qualify as
a REIT. See "Certain Provisions of Maryland Law and of BCP's Charter and Bylaws"
and "Risk Factors--Legal and Tax Risks--Board of Directors May Change Certain
Policies Without Stockholder Consent."
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RISKS ASSOCIATED WITH HEDGING INVESTMENTS AND INVESTMENTS IN DERIVATIVES
Interest rate changes may adversely affect our investments. Interest rates
are highly sensitive to many factors, including:
- governmental, monetary and tax policies;
- domestic and international economic and political considerations; and
- other factors beyond our control.
We may employ a hedging strategy to limit the effects of interest rate
changes on our operations, including engaging in interest rate swaps, caps,
floors and other interest rate exchange contracts. Our use of these types of
derivatives to hedge our Assets and liabilities carries certain risks, such as:
- losses on a hedge position may reduce the funds available for distribution
to stockholders; and
- losses on a hedge position may exceed the amount invested in such
instruments.
We have no formal policy with respect to hedging investments or investments
in derivatives. There is no perfect hedge for any investment, and a hedge may
not perform its intended use of offsetting losses on an investment. Moreover, we
are exposed to the risk that the counter parties with whom we trade may stop
making markets and quoting prices in such instruments. If this happened, we
would be unable to enter into an offsetting transaction with respect to an open
position.
Any losses incurred may be amplified if the hedging vehicle moves more or
less than the price movement of the asset being hedged. We cannot assure you of
a correlation between price movements in a hedging vehicle and an asset being
hedged. This presents the risk that both the hedging vehicle and the hedged
asset may decline in value at the same time. In addition, if a party to a
hedging transaction defaults, we may only have contractual remedies (which may
be limited by bankruptcy, insolvency or similar laws) pursuant to the agreement
related to the transaction. Our profitability may be adversely affected during
any period as a result of changing interest rates or due to losses incurred in
hedging transactions. This could possibly result in a material adverse impact on
our liquidity and results from operations. For a discussion of the treatment of
income from hedging investments under the REIT qualification requirements of the
Internal Revenue Code of 1986, as amended (the "Code"), see "Federal Income Tax
Considerations--Requirements for Qualification--Income Tests."
THE COMPANY'S INSURANCE WILL NOT COVER ALL LOSSES
We intend to maintain comprehensive insurance on each of our Assets. This
coverage includes liability and fire and extended coverage, in amounts
sufficient to permit the replacement of the Assets in the event of a total loss,
subject to applicable deductibles. We will endeavor to obtain coverage of the
type and in the amount customarily obtained by owners of similar properties.
However, certain losses are generally uninsurable or not economically insurable:
- catastrophic losses such as fire, flood and hurricane;
- economic conditions such as inflation;
- legal conditions such as changes in building codes and ordinances;
- environmental considerations; or
- other conditions or considerations which may make it infeasible to use
insurance proceeds to replace an asset if it is damaged or destroyed.
Under such circumstances, the insurance proceeds we received might not be
adequate to restore our economic position with respect to the affected asset.
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PROPERTY TAXES DECREASE RETURNS ON REAL ESTATE
Each of our Assets will be subject to real and (in some instances) personal
property taxes. The real and personal property taxes on our Assets may increase
or decrease as property tax rates change or as the Assets are assessed or
reassessed by taxing authorities. If property taxes on our investments increase,
our cash available for distribution to our stockholders would be adversely
affected.
COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND OTHER CHANGES IN
GOVERNMENTAL RULES AND REGULATIONS MAY BE COSTLY
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public
properties are required to meet certain federal requirements related to access
and use by disabled persons. Properties we acquire may not be in compliance with
the ADA. If a property is not in compliance with the ADA, we will be required to
make modifications to such property to bring it into compliance. If we fail to
comply, we face the possibility of an imposition of fines or an award of damages
to private litigants. In addition, we could face changes in governmental rules
and regulations or enforcement policies affecting the use and operation of the
properties, including changes to building codes and fire and life-safety codes.
If we were required to make substantial modifications to our properties to
comply with the ADA or other changes in governmental rules and regulations, our
ability to make expected distributions to stockholders could be adversely
affected.
ADVERSE EFFECT ON RESULTS OF OPERATIONS DUE TO POSSIBLE ENVIRONMENTAL
LIABILITIES
Our operating costs may be affected by the obligation to pay for the cost of
complying with existing and future environmental laws, ordinances and
regulations. Assets with environmental problems could materially impair the
value such Assets. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable (often regardless of knowledge or responsibility) for the
costs of removal or remediation of hazardous or toxic substances releases at its
property. These costs could be substantial. The presence of such substances (or
the failure to properly remediate the contamination) may materially and
adversely affect the owner's ability to borrow against, sell or rent the
affected property.
Persons who arrange for the transportation, disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility, whether or
not such facility is or ever was owned or operated by such person. In addition,
certain environmental laws and common law principles impose liability for
releases of hazardous materials into the environment, including
asbestos-containing materials ("ACMs"). These laws may impose liability for
release of ACMs and may provide for third parties to seek recovery from owners
or operators of real properties for personal injury associated with exposure to
released ACMs or other hazardous materials. In connection with our ownership and
operation of certain Assets, we may potentially be liable for such costs.
Environmental laws may also impose restrictions on the use or transfer of
property and on the manner in which a business is operated. These restrictions
may require expenditures. We may be liable for any such costs in connection with
certain of our Assets. In addition, the cost of defending against claims of
liability or remediating contaminated property and the cost of complying with
such environmental laws could materially adversely affect our results of
operations and financial condition.
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In connection with the acquisition of Real Estate-Related Assets, we intend
to obtain Phase I environmental site assessments ("ESAs") prepared by qualified
independent environmental engineers. The purpose of ESAs is to identify
potential sources of contamination for which the Assets may be responsible and
to assess the status of environmental regulatory compliance. It is possible,
however, that these ESAs will not reveal all environmental liabilities or that
such Assets may be subject to material environmental liabilities of which we are
unaware.
BCP SISTER CORP. WILL HAVE SEPARATE FINANCING, WHICH MAY NOT BE AVAILABLE
We anticipate that the BCP Sister Corp. (if and when formed) will obtain its
own financing, separate from that of the Company. We cannot assure you that such
financing will be readily available or (if available) that it will be on terms
acceptable to the BCP Sister Corp. In addition, to the extent that the BCP
Sister Corp. should default under such financing, we cannot assure you that it
would be able to obtain sufficient financing to cure such default. We also
cannot ascertain the full impact of such default on the Company.
NEWLY-ORGANIZED CORPORATION
We formed on January 21, 1998 and re-incorporated (through a merger) in
Maryland on March 17, 1998. Consequently, we have a limited operating history
and do not yet have any established sources of financing. We depend upon the
experience and expertise of our senior management in administering our
day-to-day operations. We cannot assure you that our management will be able to
implement successfully the strategies which we intend to pursue. In addition, as
a newly-organized company, our policies and procedures are subject to change
over time. See "The Company--Directors and Executive Officers" and "--Risks
Related to Growth Strategy."
INVESTMENT ACTIVITY RISKS
APPROPRIATE INVESTMENTS MAY NOT BE AVAILABLE
Although we may invest in Other Assets as opportunities arise, we intend to
focus primarily on acquiring Real Estate-Related Assets consistent with our
investment strategy. We cannot assure you that:
- we will identify Assets that meet our investment criteria;
- we will be successful in acquiring any Assets that may be identified; or
- acquired Assets will produce a return on our investment.
We will have broad authority to invest in Assets consistent with our
investment strategy. We may invest in highly-leveraged Assets, which may
increase the likelihood of a loss of our Assets through foreclosure. No
assurance can be made that our decisions in this regard will result in a profit
for the Company. Investment in real estate is a highly-competitive business and
the acquisition of Assets is often based on competitive bidding. Consequently,
our inability to identify appropriate Assets may have an adverse effect on our
results of operations and hinder our growth rate.
REAL ESTATE IS ILLIQUID AND VALUE IS DEPENDENT ON CONDITIONS BEYOND THE
COMPANY'S CONTROL
We expect to invest in Assets which may be subject to varying degrees of
risk generally incident to the ownership of real property. Real estate
investments are relatively illiquid. Our ability to vary investments in response
to changes in economic and other conditions will be limited. We cannot assure
you that the fair market value of any Assets we acquire will not decrease in the
future. The underlying value of our Assets, our income and our ability to make
distributions to stockholders are dependent upon our ability to operate
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our Assets in a manner sufficient to maintain or increase revenue in excess of
operating expenses and debt service. Our revenue may be adversely affected by
the following:
- adverse changes in national or local economic conditions;
- competition from other properties offering the same or similar services;
- changes in interest rates and in the availability, cost and terms of
mortgage funds;
- impact of present or future environmental legislation and compliance with
environmental laws;
- ongoing need for capital improvements (particularly in older structures);
- changes in real estate tax rates and other operating expenses;
- adverse changes in governmental rules and fiscal policies;
- civil unrest;
- acts of God, including earthquakes, hurricanes and other natural disasters
(which may result in uninsured losses);
- acts of war;
- adverse changes in zoning laws; and
- other factors which are beyond our control either in whole or in part.
WE MUST COMPETE WITH OTHER COMPANIES FOR ACQUISITIONS
We intend to invest in real estate industry sectors which are highly
competitive. We may compete for Assets with entities which have substantially
greater economic and personnel resources than the Company and better
relationships with sellers of assets, lenders and others. These entities may
also generally be able to accept more risk than we can prudently manage.
Competition may generally reduce the number of suitable prospective assets
offered to us and increase the bargaining power of property owners seeking to
sell, thereby increasing prices.
WE MUST BE ABLE TO PAY OFF OUR FINANCING
We are subject to the risks normally associated with debt financing. This
includes the risk that our cash flow will be insufficient to meet required debt
service. In addition, we may be unable to refinance our existing indebtedness.
If we do refinance, the terms of the financing may not be as favorable as the
existing indebtedness terms.
REAL ESTATE INVESTMENT RISKS
Real property investments have varying degrees of risks. Our cash flow and
ability to make distributions to stockholders will be adversely affected if our
Assets do not generate revenues sufficient to meet operating expenses, including
debt service and capital expenditures. An asset's revenues and value may be
adversely affected by the following:
- the general economic climate;
- the local economic climate;
- local real estate conditions;
- the ability of the owner to provide adequate management, maintenance and
insurance; and
- increased operating costs.
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Certain significant expenditures associated with an equity investment are
generally not reduced when circumstances cause a reduction in income from the
investment. These include mortgage payments, real estate taxes, or insurance and
maintenance costs. In addition, we face numerous competitors for development and
acquisitions of properties which may have greater resources than the Company.
RISKS RELATED TO INVESTMENTS IN MORTGAGE LOANS
Mortgage loan investments have certain risks that other types of investment
do not, including without limitation the following:
COMMERCIAL MORTGAGE LOANS MAY INVOLVE A RISK OF LOSS
Commercial mortgage loans have a high degree of risk because of a variety of
factors, including:
- the loans are dependent for repayment on successful operation of the
mortgaged property and any tenant businesses operating on the property;
- the loans are usually non-recourse to the borrower;
- the loans have terms that include amortization schedules longer than
stated maturity.
- the loan terms provide for balloon payments at stated maturity rather than
periodic principal payments; and
- the value of the property underlying the loan can be affected
significantly by the supply and demand in the market for that type of
property.
VOLATILITY OF VALUES OF MORTGAGED PROPERTIES MAY AFFECT ADVERSELY THE
COMPANY'S MORTGAGE LOANS
Commercial real estate values and the net operating income derived from the
property are subject to volatility and may be affected adversely by a number of
factors, including, but not limited to:
- national, regional and local economic conditions;
- local real estate conditions;
- changed or continued weakness in specific industry segments;
- general public perceptions of the safety, convenience, services and
attractiveness of the property;
- willingness and ability of the property's owner to:
(i) provide capable management,
(ii) provide adequate maintenance,
(iii) make capital expenditures and improvements, and
(iv) provide leasing concessions;
- construction quality, age and design; and
- increases in operating expenses (such as energy costs).
GENERAL DEFAULT RISKS
With respect to our investments in mortgage loans, we face the risks of
borrower defaults, bankruptcies, fraud and special hazard losses (which are not
covered by standard hazard insurance). If a borrower defaults, we bear a risk of
loss of principal to the extent that the value of the collateral is less than
the amount due on the mortgage loan. In addition, failure to receive interest
payments because of borrower
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default could have a materially adverse effect on our cash flow from operations.
If a borrower declares bankruptcy, we face the following risks:
- the bankruptcy court determines the value of the underlying collateral at
the time of bankruptcy;
- the bankruptcy trustee may avoid the lien securing the mortgage loan; and
- the debtor-in-possession may avoid the lien securing the mortgage loan to
the extent the lien is unenforceable under state law.
If we have to foreclose a mortgage, the process can be expensive and
lengthy. These costs could adversely affect our anticipated return on the
foreclosed mortgage loan.
OUR MULTI-SECTOR INVESTMENT STRATEGY IS MORE COMPLICATED THAN A SINGLE-SECTOR
INVESTMENT STRATEGY
Our current strategy is to acquire Assets in a variety of real estate
product-types within a variety of geographic locations. Initially we will
emphasis office Assets. Accordingly, we will be required to maintain expertise,
relationships and market knowledge across a broad range of product-types and
geographic regions.
In addition, we face market conditions that affect each such product-type in
the various markets, including such factors as:
- local economic climate;
- business layoffs;
- industry slowdowns;
- changing demographics; and
- local supply and demand issues affecting each such market.
Our multi-sector approach could require more management time, staff support
and expense than a company focused upon a single product-type in fewer
jurisdictions than contemplated by the Company.
GEOGRAPHIC CONCENTRATION OF ASSETS
The economic performance and value of our Assets are subject to all of the
risks incident to the ownership and operation of real estate. These include the
risks normally associated with changes in national, regional and local economic
and market conditions. Such conditions can affect tenants' ability to make
rental payments. Our Assets are located in four markets--East Cambridge,
Massachusetts; Sunnydale, California; Dallas, Texas; and Seattle, Washington. We
have no limits on becoming more geographically concentrated.
Local real estate market conditions may include a large supply of competing
space and competition for tenants, including competition based on:
- rental rates;
- attractiveness;
- location of property; and
- quality of maintenance, insurance and management services.
Other factors may adversely affect the performance and value of an asset,
including:
- changes in laws and governmental regulations (including those governing
usage, zoning and taxes);
- changes in interest rates; and
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- availability of financing.
If the Assets do not generate sufficient income to meet operating expenses,
our income and ability to make distributions to stockholders may be adversely
affected.
NEW MARKETS
Although our management has historical experience with Real Estate-Related
Assets and other Assets and investments in a variety of geographic areas of the
country, our expertise in those markets may not assist us in new markets. In
such event, we may be exposed to risks associated with:
- lack of market knowledge and understanding of the local economy;
- inability to access land and property acquisition opportunities;
- inability to obtain construction tradespeople;
- sudden adverse shifts in supply and demand factors; and
- unfamiliarity with local governmental procedures.
RISKS INVOLVED IN ACQUISITIONS THROUGH PARTNERSHIPS AND JOINT VENTURES
Instead of purchasing properties directly, we may invest as a partner or a
co-venturer. Partnership or joint venture investments may involve risks not
otherwise present, including:
- our partner or co-venturer might become bankrupt;
- our partner or co-venturer might at any time have economic or other
business interests or goals which are inconsistent with our business
interests or goals; and
- our partner or co-venturer may be in a position to take action:
(i) contrary to our instructions or requests; or
(ii) contrary to our policies or objectives, including our policy with
respect to maintaining our qualification as a REIT.
These investments may also have the potential risk of impasse on decisions
because neither we nor our partner co-venturer would have full control over the
partnership or joint venture. We will seek to maintain sufficient control of
such partnerships or joint ventures to achieve our objectives. Our
organizational documents do not limit the amount of available funds which we may
invest in partnerships or joint ventures.
RISKS INVOLVED IN ACQUISITIONS THROUGH SUBSIDIARIES
The common stock of Tenant Communications Inc. consists of two classes:
voting and nonvoting. Of the voting common stock, Messrs. Leventhal and Fortin
hold 91% and the Operating Partnership holds 9%. The Operating Partnership holds
all of the nonvoting stock. The Operating Partnership owns 99% of the economic
interest in Tenant Communications, Inc. and Messrs. Leventhal and Fortin jointly
own 1% of such economic interest. As holders of 91% of the voting common stock,
Messrs. Leventhal and Fortin have the ability to elect the board of directors of
Tenant Communications, Inc. We are not able to elect the directors, which means
that we may not be able to influence the day-to-day decisions affecting Tenant
Communications, Inc. As such, the board of directors of Tenant Communications,
Inc. may implement business policies or decisions that would not have been
implemented by persons controlled by the Company and may be adverse to our
interests and could adversely impact our results of operations.
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FOREIGN REAL PROPERTIES ARE SUBJECT TO CURRENCY CONVERSION RISKS AND UNCERTAINTY
OF FOREIGN LAWS
In addition to making investments in domestic Assets, we may invest in
Assets located outside the United States. Risks inherent in investing in real
estate located in foreign countries generally include:
- unexpected changes in regulatory environments;
- longer accounts receivable payment cycles;
- potentially adverse tax consequences; and
- the burden of complying with a wide variety of foreign laws.
Moreover, investments in foreign Assets may be exposed to the risk of
fluctuations in the foreign exchange rates between the US dollar and the
currency in which a transaction is conducted.
LEGAL AND TAX RISKS
TAX RISKS
We intend to operate in a manner that will enable us to qualify as a REIT
for federal income tax purposes. Although we do not intend to request a ruling
from the Internal Revenue Service (the "IRS") as to our REIT status, we received
(in connection with the filing of this Registration Statement) an opinion from
our counsel, Goodwin, Procter & Hoar LLP. Their opinion states the following:
- that the Company has been and will be organized in conformity with the
requirements for qualification as a REIT; and
- that the Company's proposed manner of operation will enable it to qualify
as a REIT.
This opinion is based on certain factual and other assumptions and
representations with respect to the Company's past and expected ongoing
businesses and investment activities and other customary matters. No assurances
can be given to you as to the accuracy of such assumptions and representations
or that the Company will be able to comply with them in the future. Furthermore,
this opinion is not binding on the IRS or any court, and no assurance can be
given that we will operate in a manner so as to qualify or remain qualified as a
REIT. This opinion of Goodwin, Procter & Hoar LLP represents only their view
based on their review and analysis of existing law, which includes no
controlling precedent and which is subject to change (possibly on a retroactive
basis). See "Federal Income Tax Considerations--Requirements for Qualification."
Furthermore, both the validity of this opinion and the Company's continued
qualification as a REIT will depend on the Company's satisfaction of certain
asset, income, organizational, distribution and stockholder ownership
requirements on a continuing basis. Our operations will not be monitored by
Goodwin, Procter & Hoar LLP to ensure continued compliance with the REIT
requirements.
If we were to fail to qualify as a REIT in any taxable year, we would be
subject to federal income tax (including any applicable alternative minimum tax)
on our taxable income at regular corporate rates, and distributions to
stockholders would not be deductible by the Company in computing its taxable
income. Any such corporate tax liability could be substantial and would reduce
the amount of cash available for distribution to stockholders, which in turn
could have an adverse impact on the value of (and trading prices for) our Common
Stock. Unless entitled to relief under certain REIT provisions of the Code, we
also would be disqualified from taxation as a REIT for the four taxable years
subsequent to the year during which we ceased to qualify as a REIT. See "Federal
Income Tax Considerations--Requirements for Qualification."
We must distribute annually at least 95% of our net taxable income
(excluding any net capital gain) in order to avoid corporate income taxation of
the earnings that we distribute. In addition, we will be subject
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to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid or deemed paid by the Company with respect to any calendar
year are less than the sum of:
- 85% of the Company's ordinary income for that year;
- 95% of the Company's capital gain net income for that year; and
- 100% of the Company's undistributed taxable income from prior years.
The amount of any net long-term capital gains that we elect to retain and
pay income tax on will be treated as distributed for purposes of the 4% excise
tax.
We intend to make distributions to our stockholders to comply with the 95%
distribution requirement and to avoid the nondeductible excise tax. However,
differences in timing between the recognition of taxable income and the actual
receipt of cash could require the Company to borrow funds or sell assets on a
short-term basis to meet the 95% distribution requirement and to avoid the
nondeductible excise tax. The requirement to distribute a substantial portion of
the Company's net taxable income could cause the Company:
- to sell assets in adverse market conditions;
- to distribute amounts that represent a return of capital; or
- to distribute amounts that would otherwise be spent on future
acquisitions, capital expenditures, or repayment of debt.
Gains from the disposition of any asset held primarily for sale to customers
in the ordinary course of business generally will be subject to a 100% tax. See
"Federal Income Tax Considerations--Requirements for Qualification."
It is anticipated that we may purchase mortgage loans. If we purchases such
Assets and are deemed to have issued debt obligations having two or more
maturities (the payments on which correspond to payments on such mortgage loans)
such arrangement will be treated as a "taxable mortgage pool" for federal income
tax purposes. If all or a portion of the Company is considered a "taxable
mortgage pool," the Company's status as a REIT generally should not be impaired,
but a portion of the Company's taxable income may be characterized as "excess
inclusion income" and allocated to stockholders. Any excess inclusion income:
- could not be offset by net operating losses of a stockholder;
- would be subject to tax as "unrelated business taxable income" to a
tax-exempt stockholder;
- would be subject to the application of federal income tax withholding
(without reduction pursuant to any otherwise applicable income tax
treaty), with respect to amounts allocable to foreign stockholders; and
- would be taxable (at the highest corporate tax rate) to the Company
(rather than its stockholders) to the extent allocable to shares of stock
of the Company held by disqualified organizations (generally, tax-exempt
entities not subject to tax on unrelated business taxable income,
including governmental organizations).
ADVERSE IMPACT OF FUTURE LEGISLATION REGARDING REITS.
Our qualification as a REIT or our ability to fully utilize the BCP Sister
Corp. structure could be affected by future legislation. Recently enacted laws
freeze the grandfathered status of REITs that are "paired" or "stapled" with a
related operating company. Unlike such "paired" or "stapled" structures, our
proposed BCP Sister Corp. structure would be a "paper clip" structure in which
interests in the BCP Sister Corp. distributed to our stockholders could be
transferred independently from our Common Stock.
18
<PAGE>
Although this new legislation does not affect "paper clip" structures, we cannot
assure you that it will not place legislative or judicial scrutiny on the "paper
clip" structure or that legislation adversely affecting such a structure will
not be proposed and enacted. See "Federal Income Tax Considerations--Impact of
Future Legislation."
AGGREGATE STOCK OWNERSHIP LIMIT MAY RESTRICT BUSINESS COMBINATION OPPORTUNITIES
To maintain our qualification as a REIT, five or fewer individuals may not
own (directly or indirectly) more than 50% of our Common Stock at any time
during the last half of our taxable year. As such, our Charter contains an
aggregate stock ownership provision which generally prohibits any single
stockholder from owning more than 9.8% of our Common Stock. In addition, our
Charter contains a look-ownership limit that permits certain mutual funds and
certain other widely-held entities (other than pension plans as described in
Section 401(a) of the Code) to own up to 15% of our Common Stock. The Board of
Directors may waive or modify either of these two provisions if it is satisfied
(based upon the receipt of a ruling from the IRS or the advice of tax counsel)
that ownership in excess of this limit will not jeopardize our status as a REIT.
In addition, these ownership limits may inhibit or impede a change in control.
Such inhibitions and impediments could adversely affect stockholders' ability to
realize a premium over the then-prevailing market price for our Common Stock in
connection with such a transaction. See "Description of Securities--Transfer
Restrictions" and "Federal Income Tax Considerations--Requirements for
Qualification."
FOREIGN INVESTORS SHOULD CONSIDER TAX RISKS UNDER FIRPTA
If the Company is not a domestically controlled REIT, non-U.S. Stockholders
who own and then sell our Common Stock will be taxed according to the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA"). We will be a
domestically controlled REIT if non-U.S. persons own (directly or indirectly)
less than 50% of our Common Stock during specified testing periods. We cannot
assure you that we will continue to be a domestically-controlled REIT. Even if
not subject to FIRPTA, non-U.S. stockholders are subject to taxation under
certain other circumstances. See "Federal Income Tax Considerations--Taxation of
Non-U.S. Stockholders."
PLANS SHOULD CONSIDER ERISA RISKS OF INVESTING IN COMMON STOCK
ERISA is a broad statutory framework that governs non-governmental employee
benefit plans in the United States. Fiduciaries of pension, profit-sharing or
other employee benefit plans subject to Title I of ERISA ("ERISA Plans") should
carefully consider the impact of ERISA and the regulations of the Department of
Labor (the "DOL") thereunder on the ERISA Plan's decision to invest in our
Common Stock. In particular, a fiduciary of an ERISA Plan should consider
whether its decisions with respect to these matters would satisfy the
requirements set forth in Part 4 of subtitle B of Title I of ERISA, including:
- the diversification and prudence requirements of ERISA;
- the requirement that the decisions be in the best interests of the
participants and beneficiaries of the ERISA Plan; and
- the requirement that the decisions be authorized under the appropriate
governing instruments and investment policies of the ERISA Plan.
ERISA also prohibits certain transactions involving an ERISA Plan and
persons who are "parties in interest" with respect to the ERISA Plan. In
addition, the IRS Code provides for similar prohibited transaction rules
applicable to "plans" (as defined in Section 4975 of the IRS Code) and
"disqualified persons" with respect to such plans. The fiduciary of an ERISA
Plan or a plan described in Section 4975 of the Code (referred to together
herein as "Plans") contemplating an investment in our Common Stock should
consider whether the acquisition of such Common Stock would result in a
prohibited transaction under ERISA and/or the IRS Code, and (if so) whether an
exemption from these prohibited transaction
19
<PAGE>
rules is available. In addition, the Plan Assets Regulation provides that
(subject to certain exceptions) the assets of an entity in which a Plan holds an
equity interest may be treated as assets of the investing Plan, in which event
the underlying assets of such entity (and transactions involving such assets)
would be subject to ERISA and applicable provisions of the IRS Code (including
prohibited transaction provisions of ERISA and the Code).
We intend to take such steps as may be necessary to qualify the Company and
the Operating Partnership (and any BCP Sister Corp.) for one or more of the
exceptions available under such regulation and, thereby, prevent the assets of
the Company from being treated as assets of any investing Plan. Specifically, we
will use our reasonable best efforts to qualify as a "real estate operating
company" (within the meaning of the Plan Assets Regulation) at least until such
time as our Common Stock qualifies as a class of "publicly offered securities"
(as such term is defined in such regulation). In addition, with respect to any
BCP Sister Corp., we will take such steps as may be necessary to qualify such
BCP Sister Corp. as an operating company or a venture capital operating company
or for one of the other available exceptions under the Plan Assets Regulation
prior to distributions of its equity interests (although no assurances can be
made in this regard). See "ERISA Considerations--The Treatment of the Company's
Underlying Assets Under ERISA."
CHANGES IN MANAGEMENT MAY BE DETERRED
We are subject to the Maryland General Corporation Law (the "MGCL") because
we are incorporated in Maryland. Certain provisions of the MGCL:
- impose restrictions and require procedures with respect to business
combinations, including (but not limited) to transactions with holders of
more than 10% of the voting power of our equity securities; and
- limit voting rights for holders of 20% or more of the voting power of our
stock.
These provisions could discourage a takeover or other transaction involving
a change in control. Our Charter exempts from the MGCL any business combination
with Alan M. Leventhal, Lionel P. Fortin or current or future affiliates,
associates or other persons acting in concert as a group with either of Messrs.
Leventhal or Fortin. In addition, the right of the Participation Plan to receive
an Incentive Return in the event of a change of control of the Company (as
defined in the Operating Partnership Agreement) may deter third parties from
entering into transactions with the Company. See "Certain Provisions of Maryland
Law and of BCP's Charter and Bylaws--Business Combinations," "--Control Share
Acquisitions" and "The Company--Long-Term Incentive Plan."
BOARD OF DIRECTORS MAY CHANGE CERTAIN POLICIES WITHOUT STOCKHOLDER CONSENT
Our policies will be determined by our Board of Directors. The Board of
Directors may amend or revise these policies, or approve transactions that
deviate from these policies without a vote of the stockholders. These changes in
policy may be positive or negative. See "Certain Provisions of Maryland Law and
of BCP's Charter and Bylaws."
LOSS OF INVESTMENT COMPANY ACT EXEMPTION WOULD ADVERSELY AFFECT THE COMPANY
We intend to avoid regulation as an investment company under the Investment
Company Act of 1940. The Investment Company Act exempts entities that (directly
or through majority-owned subsidiaries) are "primarily engaged in the business
of purchasing or otherwise acquiring mortgages and other liens on and interests
in real estate" (the "Qualifying Interests"). The commission currently
interprets the Investment Company Act to exempt companies that:
- maintain at least 55% of their Assets in Qualifying Interests, and
20
<PAGE>
- maintain an additional 25% in Qualifying Interests or other Real
Estate-Related Assets.
As such, the Assets we may acquire are limited by this exemption. In addition,
we could be required to either:
- change the manner in which we conduct our operations to avoid being
required to register as an investment company; or
- register as an investment company.
Either of these possibilities could have an adverse effect on the Company
and the market price for our Common Stock.
LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS OF THE COMPANY
Our Charter limits the liability of a director or officer to the Company and
our stockholders for money damages, except for liability resulting from:
- actual receipt of an improper benefit or profit in money, property or
services; or
- active and deliberate dishonesty established by a final judgment as being
material to the cause of action.
See "Certain Provisions of Maryland Law and of BCP's Charter and Bylaws."
OTHER RISKS
RISK THAT MARKET FOR COMMON STOCK WILL NOT DEVELOP
Our Common Stock presently has no established trading market and there is no
assurance one will develop. Our Common Stock has been accepted for trading in
the PORTAL Market, a real-time electronic National Association of Securities
Dealers marketplace that facilitates trading in securities offered pursuant to
Rule 144A transactions. We cannot assure you that an active trading market for
our Common Stock will develop in the PORTAL Market or elsewhere. In addition,
access to the PORTAL Market (unlike other prominent stock exchanges or NASDAQ
markets) is restricted to certain parties and can only be used for the trading
of certain restricted securities. Accordingly, we cannot assure you as to:
- the likelihood that an active market for our Common Stock will develop;
- the liquidity of any such market;
- your ability to sell your Common Stock; or
- the prices that you may obtain for your Common Stock.
21
<PAGE>
THE COMPANY
Beacon Capital Partners, Inc. is a real estate investment trust. We formed
on January 21, 1998 as a Massachusetts corporation and reincorporated (through a
merger) in Maryland on March 17, 1998. The Operating Partnership is a Delaware
limited partnership. Our principal executive offices are located at One Federal
Street, 26th Floor, Boston, Massachusetts 02110. Our telephone number is (617)
457-0400.
We believe that our senior management has long-standing relationships with
institutional owners, lenders, bankers and other real estate operators and
developers. We anticipate that these relationships may provide us with regular
access to transaction activity and investment opportunities. In addition, our
senior management has gained operating experience through the management of
public and private companies. This experience provides a unique perspective that
is expected to be particularly valuable to us as the real estate cycle changes
and as the real estate industry continues to transform from private to public
capitalization. In addition, our senior management has been active in the
development, acquisition and management of a broad spectrum of property types,
including:
- office;
- lodging;
- apartment;
- industrial;
- retail; and
- mixed-use projects.
Beacon Capital Partners Management, LLC ("Management Affiliate") is a
Delaware limited liability company and our wholly-owned subsidiary. The
Management Affiliate manages our properties. We have executed management
agreements with the Management Affiliate to assure that the quality of services
rendered to our tenants is appropriate for the type of property under
management. The Management Affiliate engages sub-agents to handle the day-to-day
and on-site management responsibilities for each property. The sub-agent's
compensation for its services depends upon the particular property and the
property's occupancy situation. This compensation can be either:
- a flat fee;
- a flat fee with an incentive component; or
- based upon a percentage of gross rental income realized.
We manage the Management Affiliate. As such, the Management Affiliate and
the Company share the same management team. We do not award additional
compensation to our officers and employees who handle the business affairs of
the Management Affiliate.
The Management Affiliate manages The Athenaeum Portfolio, Technology Square,
The Draper Building and the Dallas Office and Industrial Portfolio. The
Management Affiliate has engaged Spaulding & Slye as sub-agent under an
agreement that expires on December 31, 1999 to manage The Athenaeum Portfolio,
Technology Square and The Draper Building. The Management Affiliate can
terminate the agreement without cause or penalty on 30 days' notice to the
sub-agent.
Breunig Commercial Management, Inc. currently manages the Dallas Office and
Industrial Portfolio. This management agreement expires on December 31, 1998.
Beginning on January 1, 1999, Trans Western Property Company LLC will take over
as sub-agent.
An affiliate of Martin Smith Real Estate Services will manage Millenium
Tower (once constructed). We negotiated the management arrangement as part of a
joint venture structure.
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<PAGE>
An affiliate of Menlo Equities will manage the Mathilda Research Centre
(once constructed). We negotiated the management arrangement as part of a joint
venture structure.
RECENT ACQUISITIONS
THE ATHENAEUM PORTFOLIO
On May 1, 1998 we purchased a portfolio of eleven buildings in Cambridge, MA
known as The Athenaeum Portfolio for $195 million, including the assumption of
approximately $69 million of first mortgage debt. We estimate that the aggregate
purchase price is approximately 80% of replacement cost. The mixed-use portfolio
consists of approximately 970,000 square feet and contains office, laboratory
and retail uses as well as a 1,530 space parking garage. Two limited liability
companies hold title to these properties. On May 20, 1998, we formed a joint
venture with PW Acquisitions IX, LLC (an affiliate of PaineWebber). Under the
joint venture agreement, each party has a 50% interest in a master limited
liability company that controls the two limited liability companies holding
title to the properties.
The portfolio has two components: One Kendall Square and The Athenaeum House
(215 First Street), which are located within close proximity of M.I.T. Several
of the buildings were originally built as manufacturing buildings at the turn of
the century and were fully renovated in the mid-1980's for office and laboratory
uses. A nine-screen cinema was added to the complex in 1994. The buildings are
currently 100% occupied. Major tenants which occupy more than 10% of the
portfolio include: Genzyme, CLAM Associates, Cambridge Neuroscience, and
Mitotix.
The Athenaeum Portfolio is located in the East Cambridge office market. The
overall Cambridge office market includes approximately 10 million square feet.
According to Spaulding & Slye, the Cambridge office market had an overall
vacancy rate of 2.4% as of June 30, 1998.
Since the time that we purchased The Athenaeum Portfolio demand, primarily
from biotechnology, biological science and pharmaceutical companies, has driven
market rents from $21.00 per square foot to nearly $30.00 per square foot. The
current unleveraged net operating income ("NOI") yield of approximately 10% is
expected to rise to 12% by 2002. The projected internal rate of return ("IRR"),
assuming 54% leverage and a seven year holding period, is 20.3%.
TECHNOLOGY SQUARE & THE DRAPER BUILDING
On June 24, 1998 we purchased a four-building complex known as Technology
Square and an adjacent building known as The Draper Building from a partnership
managed by Prudential. The properties are located in Cambridge, MA, adjacent to
One Kendall Square (described above) and M.I.T. and consist of 1,026,000 square
feet. We paid $123 million for the properties. As part of the purchase,
Prudential accepted approximately $51.4 million in the form of units of the
Operating Partnership at a blended rate of $20.31 per unit. There are no
mortgages outstanding against these properties.
Technology Square is currently 100% leased to two tenants: M.I.T. and
Polaroid Corporation. Their leases expire in mid-1999. Average net lease rates
in place are $6.53 per square foot, which we believe to be substantially below
current market. Accordingly, we believe we will be able to re-let Technology
Square at current market rents. We intend to re-develop and re-lease the
property over the next 18-24 months and project substantial increases in net
operating income as the property stabilizes at current market net rents. We
believe the current market net rent is approximately $24 per square foot. We are
currently reviewing the scope of the re-development. As such, we have not
established an estimated cost. We anticipate that we will finance any
re-development from cash on hand or project financing.
The Draper Building is 100% leased to Draper Labs under a long-term lease
that expires on October 20, 2001. The lease contains extension options through
October 2051, pursuant to which the tenant has an option (under certain
circumstances) to acquire The Draper Building.
23
<PAGE>
Technology Square and The Draper Building are located in the East Cambridge
office market. The overall Cambridge office market includes approximately 10
million square feet. We now own approximately 2 million square feet of office
and commercial space in the Cambridge market, including The Athenaeum Portfolio,
Technology Square and The Draper Building. According to Spaulding & Slye, the
Cambridge office market had an overall vacancy rate of 2.4% as of June 30, 1998.
Since the time that we purchased Technology Square and The Draper Building,
office market rents have increased from $26.00 per square foot (gross) to $35.00
per square foot (gross). Massachusetts Institute of Technology, which occupies
106,000 square feet (approximately 20% of the space), has agreed to terms for a
new five-year lease, at an average rate of approximately $35.00 per square foot.
Demand from prospective tenants for the remaining space is strong. As a result
(without the additional development), we expect to achieve a stabilized,
unleveraged NOI yield of approximately 14% by 2000. In addition, we expect to
gain approval for additional development of approximately 500,000 square feet
during 1999. This additional development, which will likely commence in 1999, is
expected to generate an unleveraged NOI yield of 12-14%. The projected IRR,
assuming 60% leverage and a seven year holding period, is 20.5%.
THE DALLAS OFFICE AND INDUSTRIAL PORTFOLIO
On July 1, 1998 we acquired a 1,335,000 square foot portfolio of seven
office properties and seven research & development (R&D) properties located in
suburban Dallas, TX. We purchased the properties from Breunig Commercial
Management, Inc.(a Dallas-based real estate owner and manager) for a total
consideration of $91.2 million, including the assumption of approximately $21.7
million of first mortgage debt. The purchase price is approximately $68 per
square foot, which we estimate to be approximately 65% of the replacement cost
of the assets.
The properties are predominately located along the North Central Expressway
corridor in North Dallas. As measured on a square foot basis, the portfolio is
approximately two-thirds office (842,000 s.f.) and one-third R&D (493,000 s.f.).
The current average occupancy rate for the portfolio is 95%. However, leases for
nearly 54% of the space in the buildings expire over the next 3 years. Average
net rents at the properties are more than $3.00/s.f. (or nearly 56%) below what
we estimate to be current market rents. Since the space is currently leased at
below market rates, we believe that we can substantially increase the net
operating income by re-leasing the properties at current market rents. Major
tenants include: Blue Cross, Texas Instruments, Dallas Teachers Credit, Puretan,
Inc., and Specialized Resources.
The overall Dallas office market contains 133 million square feet of space.
According to Cushman & Wakefield, as of the end of the second quarter 1998, the
overall vacancy rate was 13.1%. The office properties in the Dallas Office and
Industrial Portfolio are located primarily in the North Central Expressway and
LBJ Freeway submarkets where the second quarter 1998 vacancy rates were 11.9%
and 5.5%, respectively.
The Office/Showroom category of the Dallas industrial market (which includes
R&D space), contains 49.5 million square feet of space. The overall vacancy rate
as of the end of the second quarter 1998 was 5.4%. The R&D properties in the
Dallas Office and Industrial Portfolio are located primarily in the
Richardson/Plano and North Dallas submarkets, where the second quarter 1998
vacancy rates were 3.4% and 3.5%, respectively.
The Dallas Office and Industrial Portfolio, which will experience rollover
in excess of 50% over the next two and one-half years, will benefit from the
disparity between rents-in-place and market rents. We have leased in excess of
85,000 square feet since we acquired this portfolio, increasing rents by 80%
from approximately $6.00 per square foot (net) to $11.00 per square foot (net).
We expect to achieve a stabilized unleveraged NOI yield of 12% by 2001. The
projected IRR, assuming 60% leverage and a seven year holding period, is 19.8%.
24
<PAGE>
MILLENNIUM TOWER
On September 1, 1998 we executed a joint venture agreement with HA L.L.C.,
an affiliate of Martin Smith Real Estate Services (a Seattle based real estate
developer) by which we agreed to fund 66 2/3% of the equity required to develop
a high-rise building in downtown Seattle, Washington and HA L.L.C. agreed to
fund 33 1/3%. After each party receives a 15% per annum return on their equity,
the profits from the venture will be split 60% to the Company and 40% to HA
L.L.C. The building will be located at Second Avenue and Columbia Street. It
will consist of 13 floors of Class A office space above which there will be
located 6 floors of luxury residential condominiums. The ground floor will be
devoted to retail uses. Of the 273,000 square feet in the building:
- the office area will comprise 188,000 square feet;
- the retail area will comprise 10,000 square feet; and
- the residential portion will comprise 75,000 square feet.
The site is fully entitled. At this point, we have not pre-leased the office
space, nor have we commenced a sales program for the condominiums.
HA L.L.C. contributed the land to the joint venture for an agreed value of
$10.5 million. As such, we agreed to fund the first $19 million of cash
requirements for the venture. The venture intends to finance the balance of
development costs from a construction loan with an institutional lender. No loan
has been obtained yet, and our $19 million initial contribution may be used
before any monies are drawn down under the construction loan. The estimated cost
of the project is $71 million, including the value of the land.
The property is located in the downtown Seattle office market, which
includes approximately 28.0 million square feet of office space, of which 14.6
million square feet is Class A space. According to Colliers Parrish
International, at the end of the third quarter 1998 the market had an overall
office vacancy rate of 2.5%, and the Class A sub-market had a vacancy rate of
2.3%.
The projected leveraged IRR is expected to be 18.2%, assuming the property
is sold at stabilization.
MATHILDA RESEARCH CENTRE
On August 9, 1998, we executed a joint venture agreement with Mathilda
Partners LLC, an affiliate of Menlo Equities (a California based developer).
Under the agreement, we have agreed to fund 87.5% of the equity required to
develop two Class A office buildings and Mathilda Partners LLC has agreed to
fund 12.5%. After each party receives a 12% per annum return on their equity,
the profits from the venture will be split equally. In November 1998, the
venture acquired a twelve-acre site on Mathilda Avenue in Sunnyvale, California.
The venture plans to construct two four-story office buildings with surface
parking containing an aggregate of approximately 267,000 square feet. However,
the venture must obtain certain changes in the entitlements for the property
because currently the density is limited to 187,000 square feet. The venture has
not pre-leased either building. The venture intends to finance the development
as following:
- cash contributions for approximately 35% of the development expenditures
(including the acquisition of the land); and
- construction loan from an institutional lender for the balance of the
expenditures.
Although the venture has not finalized the development budget, it
anticipates the budget to be approximately $57.0 million if it constructs the
full 267,000 square feet. The site for the development is in the Sunnyvale
office market, which includes approximately 21.5 million square feet. According
to Colliers Parrish International, the Sunnyvale office research and development
market had an overall vacancy rate at the end of the third quarter 1998 of
4.94%.
25
<PAGE>
The projected leveraged IRR is expected to be 21.8%, assuming the property
is sold at stabilization.
INVESTMENT IN CYPRESS COMMUNICATIONS, INC.
On September 30, 1998, we invested $5 million to acquire preferred stock in
Cypress Communications, Inc. ("Cypress"). Our investment represents a 13.5%
fully diluted ownership position in the company. Dividends will be earned on our
investment as and when dividends are declared on the preferred stock or any
other class of stock in Cypress. Our preferred stock will be treated
preferentially upon a liquidation of Cypress (should a liquidation occur) and is
held by the Operating Partnership and Tenant Communications, Inc., a
Massachusetts corporation ("Tenant Communications"). Messrs. Leventhal and
Fortin hold 91% of the voting common stock of Tenant Communications. The
Operating Partnership holds 9% of the voting common stock and all of the
non-voting stock of Tenant Communications. The Operating Partnership owns 99% of
the economic interests in Tenant Communications and Messrs. Leventhal and Fortin
jointly own a 1% economic interest in Tenant Communications.
Cypress provides bundled communications services to tenants in multi-tenant
commercial buildings. These bundled services include Internet access, video,
voice mail and telephone service. By bundling services to multiple tenants in an
office building, Cypress can aggregate the traffic of customers and give them
the advantage of a cost-effective service with a high level of customer care.
In the opinion of management, each of our properties is adequately insured.
26
<PAGE>
THE PROPERTIES
Set forth below are summary descriptions of the Properties. (1)(2)
<TABLE>
<CAPTION>
PERCENT
RENTABLE LEASED
YEAR BUILT/ OWNERSHIP NO. OF PROPERTY AREA IN AT
PROPERTY RENOVATED INTEREST (3) BLDGS. LOCATION SQUARE FEET 9/30/98
- ----------------------------------- ----------- ------------ ------ ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
CAMBRIDGE OFFICE MARKET:
215 First Street................... 1885/1981 50% 1 Cambridge, MA 306,084 100%
One Kendall Square Cinema.......... 1994 50% 1 Cambridge, MA 31,641 100%
Buildings 100-500.................. 1887/1984 50% 4 Cambridge, MA 222,372 99%
Buildings 600/650/700.............. 1916/1985 50% 2 Cambridge, MA 236,661 100%
Buildings 1500 & 1700.............. 1914/1986 50% 2 Cambridge, MA 39,707 100%
Building 1400...................... 1989 50% 1 Cambridge, MA 133,211 100%
--
----------- ---------
Subtotal The Athenaeum
Portfolio...................... 11 969,676 100%
--
----------- ---------
545 Technology Square (4).......... 1965 100% 1 Cambridge, MA 144,123 100%
549 Technology Square.............. 1962 100% 1 Cambridge, MA 40,377 100%
565 Technology Square.............. 1965 100% 1 Cambridge, MA 201,816 100%
575 Technology Square.............. 1965 100% 1 Cambridge, MA 165,208 100%
The Draper Building (5)............ 1976 100% 1 Cambridge, MA 474,817 100%
--
----------- ---------
Subtotal Technology Square &
Draper Building 5 1,026,341 100%
--
----------- ---------
Total Cambridge 16 1,996,017 100%
--
----------- ---------
SUBURBAN DALLAS OFFICE AND
INDUSTRIAL MARKET:
Bank One LBJ....................... 1982 100% 1 Dallas, TX 42,000 80%
Brandywine Place................... 1984 100% 4 Plano, TX 66,237 99%
Crosspoint Atrium.................. 1981 100% 1 Dallas, TX 220,212 97%
Forest Abrams Place................ 1983 100% 2 Dallas, TX 68,827 89%
6500 Greenville Avenue (6)......... 1981/1996 100% 1 Dallas, TX 114,600 93%
Northcreek Place II (7)............ 1984 100% 2 Dallas, TX 163,303 95%
One Glen Lakes (8)................. 1982 100% 1 Dallas, TX 166,272 91%
Richardson,
Park North Business Center......... 1979 100% 2 TX 36,885 84%
Plaza at Walnut Hill............... 1982 100% 2 Dallas, TX 88,280 96%
Richardson,
Richardson Business Center......... 1983 100% 2 TX 66,300 100%
Richardson Commerce Centre......... 1981 100% 3 Dallas, TX 60,517 100%
Richardson,
Sherman Tech....................... 1981 100% 1 TX 16,176 100%
Richardson,
T I Business Park.................. 1980 100% 1 TX 96,902 100%
Farmers
Venture Drive Tech Center.......... 1975 100% 3 Branch, TX 128,322 100%
--
----------- ---------
Subtotal Dallas 26 1,334,833 95%
--
----------- ---------
Total/Weighted Average Properties 42 3,330,850 98%
--
--
----------- ---------
----------- ---------
</TABLE>
- --------------------------
(1) Millennium Tower has not been included in these figures because it is a
development project. Millennium Tower is a joint venture between the Company
and HA L.L.C., which plans to build a high-rise building in downtown
Seattle, Washington.
(2) The Sunnyvale acquisition has not been included in these figures because it
is a development project. Sunnyvale is a joint venture between the Company
and Mathilda Partners L.L.C., which plans to build two Class A office
buildings in Sunnyvale, California.
(3) The Company holds a 50% interest in The Athenaeum Portfolio which includes
11 buildings, a nine screen-- 1,200 seat cinema and 1,530 structured parking
spaces.
(4) Technology Square includes 955 structured parking spaces.
(5) The Draper Building includes 965 structured parking spaces.
(6) 6500 Greenville Avenue includes 281 structured parking spaces.
(7) Northcreek Place II includes 232 structured parking spaces.
(8) One Glen Lakes includes 546 structured parking spaces.
27
<PAGE>
OCCUPANCY RATES, BASE RENTS AND NET EFFECTIVE RENTS
The following chart sets forth the occupancy rate, expressed as a
percentage, the average annual Base Rent (as defined below) and the average Net
Effective Rent (as defined below) per square foot for each of the Company's
Properties as of September 30, 1998. Base Rent is gross rent excluding payments
by tenants on account of real estate tax and operating expense escalation. Net
Effective Rent is Base Rent adjusted on a straight-line basis for contractual
rent step-ups and free rent periods, plus tenant payments on account of real
estate tax and operating expense escalation, less total operating expenses and
real estate taxes.
<TABLE>
<CAPTION>
AVERAGE AVERAGE
TOTAL % BASE NET EFF
PROPERTY AREA LEASED RENT RENT
- ------------------------------------------------------------------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
215 First Street......................................................... 306,084 100% $ 19.31 $ 15.02
One Kendall Square Cinema................................................ 31,641 100% 18.29 13.48
Buildings 100-500........................................................ 222,372 99% 23.60 16.34
Buildings 600/650/700.................................................... 236,661 100% 33.95 24.92
Buildings 1500 & 1700.................................................... 39,707 100% 14.92 10.45
Building 1400............................................................ 133,211 100% 27.23 19.68
---------- --------- --------- ---------
The Athenaeum Portfolio.................................................. 969,676 100% 24.74 18.15
---------- --------- --------- ---------
545 Technology Square (NNN).............................................. 144,123 100% 13.35 13.35
549 Technology Square.................................................... 40,377 100% 6.51 4.06
565 Technology Square.................................................... 201,816 100% 6.63 4.08
575 Technology Square.................................................... 165,208 100% 7.32 4.16
The Draper Building (NNN)................................................ 474,817 100% 6.16 6.16
---------- --------- --------- ---------
Technology Square & The Draper Building.................................. 1,026,341 100% 7.46 6.36
---------- --------- --------- ---------
Total Cambridge, MA...................................................... 1,996,017 100% 15.84 12.07
---------- --------- --------- ---------
Bank One LBJ............................................................. 42,000 80% 12.28 6.29
Brandywine Place......................................................... 66,237 99% 10.45 7.52
Crosspoint Atrium........................................................ 220,212 97% 12.30 6.82
Forest Abrams Place...................................................... 68,827 89% 12.13 6.74
6500 Greenville Avenue................................................... 114,600 93% 12.31 6.75
Northcreek Place II...................................................... 163,303 95% 11.65 6.75
One Glen Lakes........................................................... 166,272 91% 15.21 9.86
Park North Business Center............................................... 36,885 84% 5.35 4.22
Plaza at Walnut Hill..................................................... 88,280 96% 7.21 4.59
Richardson Business Center............................................... 66,300 100% 4.39 4.27
Richardson Commerce Centre............................................... 60,517 100% 6.76 5.45
Sherman Tech............................................................. 16,176 100% 6.79 4.96
T I Business Park........................................................ 96,902 100% 5.01 4.33
Venture Drive Tech Center................................................ 128,322 100% 4.70 3.56
---------- --------- --------- ---------
Total Dallas, TX......................................................... 1,334,833 95% 9.89 6.23
---------- --------- --------- ---------
Total/Weighted Average................................................... 3,330,850 98% $ 13.52 $ 9.80
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
28
<PAGE>
LEASE EXPIRATIONS--ALL PROPERTIES
The following table sets forth lease expirations (in square feet) for each
of our Properties.
<TABLE>
<CAPTION>
10/1/98
TO
PROPERTY 12/31/98 1999 2000 2001 2002 2003 2004 2005 2006
- ----------------------- ------------ --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAMBRIDGE, MA
- -----------------------
215 FIRST STREET
- -----------------------
square feet (a)........ 31,014 49,771 11,345 44,277 41,910 127,417 0 0 0
% sq. ft. (b).......... 10.1% 16.3% 3.7% 14.5% 13.7% 41.6% 0.0% 0.0% 0.0%
annual rent (c)........ 543,095 1,108,930 163,420 841,040 753,218 2,642,037 0 0 0
% annual rent (d)...... 9.0% 18.3% 2.7% 13.9% 12.4% 43.7% 0.0% 0.0% 0.0%
tenants (e)............ 5 9 4 4 4 6 0 0 0
ONE KENDALL SQUARE
CINEMA
- -----------------------
square feet (a)........ 0 0 0 0 0 0 0 0 0
% sq. ft. (b).......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........ 0 0 0 0 0 0 0 0 0
% annual rent (d)...... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............ 0 0 0 0 0 0 0 0 0
BUILDINGS 100-500
- -----------------------
square feet (a)........ 42,820 28,523 34,172 16,648 30,025 45,981 0 21,200 0
% sq. ft. (b).......... 19.3% 12.8% 15.4% 7.5% 13.5% 20.7% 0.0% 9.5% 0.0%
annual rent (c)........ 791,362 653,066 926,647 350,976 717,629 1,128,061 0 522,324 0
% annual rent (d)...... 15.5% 12.8% 18.2% 6.9% 14.1% 22.2% 0.0% 10.3% 0.0%
tenants (e)............ 9 8 8 7 11 4 0 5 0
BUILDINGS 600/650/700
- -----------------------
square feet (a)........ 5,095 19,650 71,738 4,629 31,333 161 0 103,760 0
% sq. ft. (b).......... 2.2% 8.3% 30.3% 2.0% 13.2% 0.1% 0.0% 43.8% 0.0%
annual rent (c)........ 235,689 393,811 2,442,338 117,395 1,252,066 1,932 0 3,285,386 0
% annual rent (d)...... 3.0% 5.1% 31.6% 1.5% 16.2% 0.0% 0.0% 42.5% 0.0%
tenants (e)............ 3 13 3 1 1 1 0 2 0
BUILDINGS 1500 & 1700
- -----------------------
square feet (a)........ 3,830 275 0 15,707 4,709 0 0 0 0
% sq. ft. (b).......... 9.6% 0.7% 0.0% 39.6% 11.9% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........ 20,529 2,196 0 393,462 103,598 0 0 0 0
% annual rent (d)...... 3.3% 0.3% 0.0% 62.5% 16.5% 0.0% 0.0% 0.0% 0.0%
tenants (e)............ 1 1 0 1 1 0 0 0 0
BUILDING 1400
- -----------------------
square feet (a)........ 0 0 0 32,409 0 0 0 100,802 0
% sq. ft. (b).......... 0.0% 0.0% 0.0% 24.3% 0.0% 0.0% 0.0% 75.7% 0.0%
annual rent (c)........ 0 0 0 982,295 0 0 0 2,763,609 0
% annual rent (d)...... 0.0% 0.0% 0.0% 26.2% 0.0% 0.0% 0.0% 73.8% 0.0%
tenants (e)............ 0 0 0 2 0 0 0 8 0
------------ --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL THE ATHENAEUM
PORTFOLIO
- -----------------------
square feet (a)........ 82,759 98,219 117,255 113,670 107,977 173,559 0 225,762 0
% sq. ft. (b).......... 8.5% 10.1% 12.1% 11.7% 11.1% 17.9% 0.0% 23.3% 0.0%
annual rent (c)........ 1,590,675 2,158,002 3,532,405 2,685,167 2,826,511 3,772,030 0 6,571,320 0
% annual rent (d)...... 6.7% 9.1% 14.8% 11.3% 11.9% 15.8% 0.0% 27.6% 0.0%
tenants (e)............ 18 31 15 15 17 11 0 15 0
<CAPTION>
2008 &
PROPERTY 2007 BEYOND
- ----------------------- --------- ---------
<S> <C> <C>
CAMBRIDGE, MA
- -----------------------
215 FIRST STREET
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
ONE KENDALL SQUARE
CINEMA
- -----------------------
square feet (a)........ 0 31,641
% sq. ft. (b).......... 0.0% 100.0%
annual rent (c)........ 0 578,802
% annual rent (d)...... 0.0% 100.0%
tenants (e)............ 0 1
BUILDINGS 100-500
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
BUILDINGS 600/650/700
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
BUILDINGS 1500 & 1700
- -----------------------
square feet (a)........ 0 15,186
% sq. ft. (b).......... 0.0% 38.2%
annual rent (c)........ 0 109,494
% annual rent (d)...... 0.0% 17.4%
tenants (e)............ 0 3
BUILDING 1400
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
--------- ---------
TOTAL THE ATHENAEUM
PORTFOLIO
- -----------------------
square feet (a)........ 0 46,827
% sq. ft. (b).......... 0.0% 4.8%
annual rent (c)........ 0 688,296
% annual rent (d)...... 0.0% 2.9%
tenants (e)............ 0 4
</TABLE>
- ------------------------------
(a) Total area in square feet covered by such leases.
(b) Percentage of total square feet of the Property.
(c) Annualized expiring base rental income represented by such leases in the
year of expiration plus the current tenant payments on account of real
estate tax and operating escalations (amounts in dollars).
(d) Calculated as annual rent divided by the total annual rent.
(e) The number of tenants whose leases will expire.
29
<PAGE>
<TABLE>
<CAPTION>
10/1/98
TO
PROPERTY 12/31/98 1999 2000 2001 2002 2003 2004 2005 2006
- -------------------------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
545 TECHNOLOGY SQUARE
- --------------------------
square feet (a)........... 0 144,123 0 0 0 0 0 0 0
% sq. ft. (b)............. 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........... 0 3,149,241 0 0 0 0 0 0 0
% annual rent (d)......... 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............... 0 2 0 0 0 0 0 0 0
549 TECHNOLOGY SQUARE
- --------------------------
square feet (a)........... 0 40,377 0 0 0 0 0 0 0
% sq. ft. (b)............. 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........... 0 205,823 0 0 0 0 0 0 0
% annual rent (d)......... 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............... 0 1 0 0 0 0 0 0 0
565 TECHNOLOGY SQUARE
- --------------------------
square feet (a)........... 0 201,816 0 0 0 0 0 0 0
% sq. ft. (b)............. 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........... 0 1,403,561 0 0 0 0 0 0 0
% annual rent (d)......... 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............... 0 1 0 0 0 0 0 0 0
575 TECHNOLOGY SQUARE
- --------------------------
square feet (a)........... 0 165,208 0 0 0 0 0 0 0
% sq. ft. (b)............. 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........... 0 1,208,911 0 0 0 0 0 0 0
% annual rent (d)......... 0.0% 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............... 0 1 0 0 0 0 0 0 0
THE DRAPER BUILDING(F)
- --------------------------
square feet (a)........... 0 0 0 0 0 0 0 0 0
% sq. ft. (b)............. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........... 0 0 0 0 0 0 0 0 0
% annual rent (d)......... 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............... 0 0 0 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL TECHNOLOGY SQUARE &
THE DRAPER BUILDING
- --------------------------
square feet (a)........... 0 551,524 0 0 0 0 0 0 0
% sq. ft. (b)............. 0.0% 53.7% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........... 0 5,967,535 0 0 0 0 0 0 0
% annual rent (d)......... 0.0% 53.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............... 0 5 0 0 0 0 0 0 0
<CAPTION>
2008 &
PROPERTY 2007 BEYOND
- -------------------------- --------- ---------
<S> <C> <C>
545 TECHNOLOGY SQUARE
- --------------------------
square feet (a)........... 0 0
% sq. ft. (b)............. 0.0% 0.0%
annual rent (c)........... 0 0
% annual rent (d)......... 0.0% 0.0%
tenants (e)............... 0 0
549 TECHNOLOGY SQUARE
- --------------------------
square feet (a)........... 0 0
% sq. ft. (b)............. 0.0% 0.0%
annual rent (c)........... 0 0
% annual rent (d)......... 0.0% 0.0%
tenants (e)............... 0 0
565 TECHNOLOGY SQUARE
- --------------------------
square feet (a)........... 0 0
% sq. ft. (b)............. 0.0% 0.0%
annual rent (c)........... 0 0
% annual rent (d)......... 0.0% 0.0%
tenants (e)............... 0 0
575 TECHNOLOGY SQUARE
- --------------------------
square feet (a)........... 0 0
% sq. ft. (b)............. 0.0% 0.0%
annual rent (c)........... 0 0
% annual rent (d)......... 0.0% 0.0%
tenants (e)............... 0 0
THE DRAPER BUILDING(F)
- --------------------------
square feet (a)........... 0 474,817
% sq. ft. (b)............. 0.0% 100.0%
annual rent (c)........... 0 5,232,483
% annual rent (d)......... 0.0% 100.0%
tenants (e)............... 0 1
--------- ---------
TOTAL TECHNOLOGY SQUARE &
THE DRAPER BUILDING
- --------------------------
square feet (a)........... 0 474,817
% sq. ft. (b)............. 0.0% 46.3%
annual rent (c)........... 0 5,232,483
% annual rent (d)......... 0.0% 46.7%
tenants (e)............... 0 1
</TABLE>
- ----------------------------------
(a) Total area in square feet covered by such leases.
(b) Percentage of total square feet of the Property.
(c) Annualized expiring base rental income represented by such leases in the
year of expiration plus the current tenant payments on account of real
estate tax and operating escalations (amounts in dollars).
(d) Calculated as annual rent divided by the total annual rent.
(e) The number of tenants whose leases will expire.
(f) The Draper Building is reflected as a 2008 & beyond expiration; although the
current lease term expires in 2001, the tenant has options to extend through
October 2051 at rental rates that are significantly below market.
30
<PAGE>
<TABLE>
<CAPTION>
10/1/98
TO
PROPERTY 12/31/98 1999 2000 2001 2002 2003 2004 2005 2006
- ----------------------- ------------ --------- --------- --------- --------- --------- --------- --------- ---------
DALLAS, TX
- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BANK ONE LBJ
- -----------------------
square feet (a)........ 4,801 896 3,597 11,647 0 12,357 350 0 0
% sq. ft. (b).......... 11.4% 2.1% 8.6% 27.7% 0.0% 29.4% 0.8% 0.0% 0.0%
annual rent (c)........ 44,729 11,200 43,265 145,809 0 157,963 13,801 0 0
% annual rent (d)...... 10.7% 2.7% 10.4% 35.0% 0.0% 37.9% 3.3% 0.0% 0.0%
tenants (e)............ 3 1 2 3 0 3 1 0 0
BRANDYWINE PLACE
- -----------------------
square feet (a)........ 5,187 23,169 17,665 7,279 9,610 2,530 0 0 0
% sq. ft. (b).......... 7.8% 35.0% 26.7% 11.0% 14.5% 3.8% 0.0% 0.0% 0.0%
annual rent (c)........ 42,289 208,267 202,501 97,134 125,407 35,420 0 0 0
% annual rent (d)...... 5.9% 29.3% 28.5% 13.7% 17.6% 5.0% 0.0% 0.0% 0.0%
tenants (e)............ 2 6 10 5 6 1 0 0 0
CROSSPOINT ATRIUM
- -----------------------
square feet (a)........ 6,709 54,419 27,046 13,135 21,811 44,539 2,856 0 0
% sq. ft. (b).......... 3.0% 24.7% 12.3% 6.0% 9.9% 20.2% 1.3% 0.0% 0.0%
annual rent (c)........ 60,404 721,843 385,394 220,923 357,930 730,975 46,924 0 0
% annual rent (d)...... 1.9% 22.4% 12.0% 6.9% 11.1% 22.7% 1.5% 0.0% 0.0%
tenants (e)............ 7 11 9 4 4 9 1 0 0
FOREST ABRAMS PLACE
- -----------------------
square feet (a)........ 1,941 30,554 12,554 4,381 3,967 6,611 1,520 0 0
% sq. ft. (b).......... 2.8% 44.4% 18.2% 6.4% 5.8% 9.6% 2.2% 0.0% 0.0%
annual rent (c)........ 24,461 381,995 185,891 58,177 61,082 90,628 20,900 0 0
% annual rent (d)...... 3.0% 46.4% 22.6% 7.1% 7.4% 11.0% 2.5% 0.0% 0.0%
tenants (e)............ 2 14 12 4 3 2 1 0 0
6500 GREENVILLE AVENUE
- -----------------------
square feet (a)........ 7,068 13,429 30,096 21,039 24,214 10,749 0 0 0
% sq. ft. (b).......... 6.2% 11.7% 26.3% 18.4% 21.1% 9.4% 0.0% 0.0% 0.0%
annual rent (c)........ 76,816 179,559 386,789 303,722 395,665 171,984 0 0 0
% annual rent (d)...... 5.1% 11.9% 25.5% 20.1% 26.1% 11.4% 0.0% 0.0% 0.0%
tenants (e)............ 6 9 9 7 6 2 0 0 0
NORTHCREEK PLACE II
- -----------------------
square feet (a)........ 13,494 50,061 19,820 9,590 52,466 4,916 5,606 0 0
% sq. ft. (b).......... 8.3% 30.7% 12.1% 5.9% 32.1% 3.0% 3.4% 0.0% 0.0%
annual rent (c)........ 46,951 674,648 291,218 161,196 738,023 81,521 100,908 0 0
% annual rent (d)...... 2.2% 32.2% 13.9% 7.7% 35.2% 3.9% 4.8% 0.0% 0.0%
tenants (e)............ 4 14 6 6 4 2 1 0 0
ONE GLEN LAKES
- -----------------------
square feet (a)........ 3,284 15,255 32,062 25,303 49,626 5,286 19,693 0 0
% sq. ft. (b).......... 2.0% 9.2% 19.3% 15.2% 29.8% 3.2% 11.8% 0.0% 0.0%
annual rent (c)........ 45,783 208,060 526,417 463,423 883,130 102,801 367,688 0 0
% annual rent (d)...... 1.8% 8.0% 20.3% 17.8% 34.0% 4.0% 14.2% 0.0% 0.0%
tenants (e)............ 2 5 8 5 8 2 3 0 0
PARK NORTH BUSINESS
CENTER
- -----------------------
square feet (a)........ 4,083 10,981 15,813 0 0 0 0 0 0
% sq. ft. (b).......... 11.1% 29.8% 42.9% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........ 26,213 73,905 94,257 0 0 0 0 0 0
% annual rent (d)...... 13.5% 38.0% 48.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............ 1 2 2 0 0 0 0 0 0
<CAPTION>
2008 &
PROPERTY 2007 BEYOND
- ----------------------- --------- ---------
DALLAS, TX
- -----------------------
<S> <C> <C>
BANK ONE LBJ
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
BRANDYWINE PLACE
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
CROSSPOINT ATRIUM
- -----------------------
square feet (a)........ 0 42,694
% sq. ft. (b).......... 0.0% 19.4%
annual rent (c)........ 0 696,286
% annual rent (d)...... 0.0% 21.6%
tenants (e)............ 0 2
FOREST ABRAMS PLACE
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
6500 GREENVILLE AVENUE
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
NORTHCREEK PLACE II
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
ONE GLEN LAKES
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
PARK NORTH BUSINESS
CENTER
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
10/1/98
TO
PROPERTY 12/31/98 1999 2000 2001 2002 2003 2004 2005 2006
- ----------------------- ------------ --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PLAZA AT WALNUT HILL
- -----------------------
square feet (a)........ 1,204 11,734 25,645 27,746 14,221 4,134 0 0 0
% sq. ft. (b).......... 1.4% 13.3% 29.0% 31.4% 16.1% 4.7% 0.0% 0.0% 0.0%
annual rent (c)........ 10,104 94,138 184,801 201,384 93,574 26,871 0 0 0
% annual rent (d)...... 1.7% 15.4% 30.3% 33.0% 15.3% 4.4% 0.0% 0.0% 0.0%
tenants (e)............ 2 4 8 5 1 1 0 0 0
RICHARDSON BUSINESS
CENTER
- -----------------------
square feet (a)........ 0 0 58,425 7,875 0 0 0 0 0
% sq. ft. (b).......... 0.0% 0.0% 88.1% 11.9% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........ 0 0 336,002 56,858 0 0 0 0 0
% annual rent (d)...... 0.0% 0.0% 85.5% 14.5% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............ 0 0 2 1 0 0 0 0 0
RICHARDSON COMMERCE
CENTRE
- -----------------------
square feet (a)........ 4,944 0 840 0 8,000 35,961 10,772 0 0
% sq. ft. (b).......... 8.2% 0.0% 1.4% 0.0% 13.2% 59.4% 17.8% 0.0% 0.0%
annual rent (c)........ 34,163 0 5,536 0 54,320 278,058 82,255 0 0
% annual rent (d)...... 7.5% 0.0% 1.2% 0.0% 12.0% 61.2% 18.1% 0.0% 0.0%
tenants (e)............ 1 0 1 0 1 5 2 0 0
SHERMAN TECH
- -----------------------
square feet (a)........ 0 0 11,777 4,399 0 0 0 0 0
% sq. ft. (b).......... 0.0% 0.0% 72.8% 27.2% 0.0% 0.0% 0.0% 0.0% 0.0%
annual rent (c)........ 0 0 85,146 31,893 0 0 0 0 0
% annual rent (d)...... 0.0% 0.0% 72.8% 27.2% 0.0% 0.0% 0.0% 0.0% 0.0%
tenants (e)............ 0 0 3 1 0 0 0 0 0
TI BUSINESS PARK
- -----------------------
square feet (a)........ 31,977 12,447 26,689 20,573 0 5,216 0 0 0
% sq. ft. (b).......... 33.0% 12.8% 27.5% 21.2% 0.0% 5.4% 0.0% 0.0% 0.0%
annual rent (c)........ 137,459 71,335 138,597 153,420 0 41,728 0 0 0
% annual rent (d)...... 25.3% 13.1% 25.5% 28.3% 0.0% 7.7% 0.0% 0.0% 0.0%
tenants (e)............ 2 3 5 2 0 1 0 0 0
VENTURE DRIVE TECH
CENTER
- -----------------------
square feet (a)........ 6,525 0 55,177 20,379 0 46,241 0 0 0
% sq. ft. (b).......... 5.1% 0.0% 43.0% 15.9% 0.0% 36.0% 0.0% 0.0% 0.0%
annual rent (c)........ 27,861 0 299,935 103,118 0 213,803 0 0 0
% annual rent (d)...... 4.3% 0.0% 46.5% 16.0% 0.0% 33.2% 0.0% 0.0% 0.0%
tenants (e)............ 1 0 5 1 0 2 0 0 0
------------ --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL DALLAS OFFICE AND
INDUSTRIAL PORTFOLIO
- -----------------------
square feet (a)........ 91,217 222,945 337,206 173,346 183,915 178,540 40,797 0 0
% sq. ft. (b).......... 6.8% 16.7% 25.3% 13.0% 13.8% 13.4% 3.1% 0.0% 0.0%
annual rent (c)........ 577,234 2,624,951 3,165,747 1,997,056 2,709,131 1,931,752 632,475 0 0
% annual rent (d)...... 4.0% 18.3% 22.1% 13.9% 18.9% 13.5% 4.4% 0.0% 0.0%
tenants (e)............ 33 69 82 44 33 30 9 0 0
------------ --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL PROPERTIES
- -----------------------
square feet (a)........ 173,976 872,688 454,461 287,016 291,892 352,099 40,797 225,762 0
% sq. ft. (b).......... 5.2% 26.2% 13.6% 8.6% 8.8% 10.6% 1.2% 6.8% 0.0%
annual rent (c)........ 2,167,909 10,750,489 6,698,152 4,682,223 5,535,642 5,703,782 632,475 6,571,320 0
% annual rent (d)...... 4.4% 21.8% 13.6% 9.5% 11.2% 11.6% 1.3% 13.3% 0.0%
tenants (e)............ 51 105 97 59 50 41 9 15 0
<CAPTION>
2008 &
PROPERTY 2007 BEYOND
- ----------------------- --------- ---------
<S> <C> <C>
PLAZA AT WALNUT HILL
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
RICHARDSON BUSINESS
CENTER
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
RICHARDSON COMMERCE
CENTRE
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
SHERMAN TECH
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
TI BUSINESS PARK
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
VENTURE DRIVE TECH
CENTER
- -----------------------
square feet (a)........ 0 0
% sq. ft. (b).......... 0.0% 0.0%
annual rent (c)........ 0 0
% annual rent (d)...... 0.0% 0.0%
tenants (e)............ 0 0
--------- ---------
TOTAL DALLAS OFFICE AND
INDUSTRIAL PORTFOLIO
- -----------------------
square feet (a)........ 0 42,694
% sq. ft. (b).......... 0.0% 3.2%
annual rent (c)........ 0 696,286
% annual rent (d)...... 0.0% 4.9%
tenants (e)............ 0 2
--------- ---------
TOTAL PROPERTIES
- -----------------------
square feet (a)........ 0 564,338
% sq. ft. (b).......... 0.0% 16.9%
annual rent (c)........ 0 6,617,066
% annual rent (d)...... 0.0% 13.4%
tenants (e)............ 0 7
</TABLE>
- ----------------------------------
(a) Total area in square feet covered by such leases.
(b) Percentage of total square feet of the Property.
(c) Annualized expiring base rental income represented by such leases in the
year of expiration plus the current tenant payments on account of real
estate tax and operating escalations (amounts in dollars).
(d) Calculated as annual rent divided by the total annual rent.
(e) The number of tenants whose leases will expire.
32
<PAGE>
HISTORICAL OPERATING INFORMATION
The following charts set forth the Historic Occupancy, Historic Base Rent
and Historic Net Rent (as defined below) per square foot for each of the
Properties. Historic Net Rent is Base Rent plus tenant payments on account of
real estate tax and operating expense escalation, less total operating expenses
and real estate taxes.
<TABLE>
<CAPTION>
HISTORIC OCCUPANCY
TOTAL -----------------------------------------------------
PROPERTY AREA 1993 1994 1995 1996 1997
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
215 First Street..................................... 306,084 63% 86% 97% 96% 100%
One Kendall Square Cinema (a)........................ 31,641 -- -- 100% 100% 100%
Buildings 100-500.................................... 222,372 69% 91% 75% 84% 84%
Buildings 600/650/700................................ 236,661 95% 95% 95% 97% 99%
Buildings 1500 & 1700 (b)............................ 39,707 -- 87% 82% 87% 87%
Building 1400........................................ 133,211 98% 96% 90% 100% 100%
--------- --------- --------- --------- --------- ---------
The Athenaeum Portfolio.............................. 969,676 78% 91% 90% 94% 95%
--------- --------- --------- --------- --------- ---------
545 Technology Square................................ 144,123 100% 100% 100% 100% 100%
549 Technology Square................................ 40,377 100% 100% 100% 100% 100%
565 Technology Square................................ 201,816 100% 100% 100% 100% 100%
575 Technology Square................................ 165,208 100% 100% 100% 100% 100%
The Draper Building.................................. 474,817 100% 100% 100% 100% 100%
--------- --------- --------- --------- --------- ---------
Technology Square & The Draper Building.............. 1,026,341 100% 100% 100% 100% 100%
--------- --------- --------- --------- --------- ---------
Bank One LBJ (b)..................................... 42,000 -- -- -- -- --
Brandywine Place (b)................................. 66,237 -- 96% 94% 92% 99%
Crosspoint Atrium (b)................................ 220,212 -- 79% 87% 94% 95%
Forest Abrams Place (b).............................. 68,827 -- -- -- -- 76%
6500 Greenville Avenue (b)........................... 114,600 -- -- -- 78% 83%
Northcreek Place II (b).............................. 163,303 -- 95% 91% 98% 95%
One Glen Lakes (b)................................... 166,272 -- -- 94% 96% 95%
Park North Business Center (b)....................... 36,885 -- -- -- 100% 100%
Plaza at Walnut Hill (b)............................. 88,280 -- 71% 78% 81% 84%
Richardson Business Center (b)....................... 66,300 -- -- -- 100% 92%
Richardson Commerce Centre (b)....................... 60,517 -- 90% 94% 99% 90%
Sherman Tech (b)..................................... 16,176 -- 100% 96% 98% 100%
T I Business Park (b)................................ 96,902 -- -- 85% 97% 99%
Venture Drive Tech Center (b)........................ 128,322 -- 87% 94% 94% 92%
--------- --------- --------- --------- --------- ---------
Dallas Office and Industrial Portfolio............... 1,334,833 -- 86% 90% 93% 92%
--------- --------- --------- --------- --------- ---------
Total/Weighted Average............................... 3,330,850 90% 93% 93% 96% 96%
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
HISTORIC BASE RENT
TOTAL -----------------------------------------------------
PROPERTY AREA 1993 1994 1995 1996 1997
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
215 First Street..................................... 306,084 $ 17.32 $ 14.36 $ 13.52 $ 15.19 $ 16.62
One Kendall Square Cinema (a)........................ 31,641 -- -- 16.07 17.71 17.93
Buildings 100-500.................................... 222,372 17.93 19.43 20.92 17.82 21.74
Buildings 600/650/700................................ 236,661 26.96 28.49 28.47 28.99 31.91
Buildings 1500 & 1700 (b)............................ 39,707 -- 9.43 10.51 11.58 11.46
Building 1400........................................ 133,211 23.16 25.67 27.96 26.95 27.30
--------- --------- --------- --------- --------- ---------
The Athenaeum Portfolio.............................. 969,676 20.88 20.52 20.81 20.71 22.82
--------- --------- --------- --------- --------- ---------
545 Technology Square................................ 144,123 27.14 22.89 22.28 21.86 20.84
549 Technology Square................................ 40,377 11.88 11.61 11.12 10.42 9.88
565 Technology Square................................ 201,816 9.09 9.32 9.28 8.63 8.01
575 Technology Square................................ 165,208 10.61 10.50 9.90 9.38 8.59
The Draper Building.................................. 474,817 6.16 6.16 6.16 6.16 6.16
--------- --------- --------- --------- --------- ---------
Technology Square & The Draper Building.............. 1,026,341 10.63 10.05 9.84 9.54 9.12
--------- --------- --------- --------- --------- ---------
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
HISTORIC BASE RENT
TOTAL -----------------------------------------------------
PROPERTY AREA 1993 1994 1995 1996 1997
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bank One LBJ (b)..................................... 42,000 -- -- -- -- --
Brandywine Place (b)................................. 66,237 -- -- 7.64 8.81 8.81
Crosspoint Atrium (b)................................ 220,212 -- 7.76 8.59 10.12 10.74
Forest Abrams Place (b).............................. 68,827 -- -- -- -- --
6500 Greenville Avenue (b)........................... 114,600 -- -- -- -- 10.84
Northcreek Place II (b).............................. 163,303 -- 9.41 12.06 11.26 11.17
One Glen Lakes (b)................................... 166,272 -- -- -- 11.37 12.08
Park North Business Center (b)....................... 36,885 -- -- -- 5.31 5.40
Plaza at Walnut Hill (b)............................. 88,280 -- 7.06 6.73 7.76 6.12
Richardson Business Center (b)....................... 66,300 -- -- -- 2.78 3.75
Richardson Commerce Centre (b)....................... 60,517 -- -- 4.94 5.22 5.84
Sherman Tech (b)..................................... 16,176 -- -- 11.21 5.36 5.58
T I Business Park (b)................................ 96,902 -- -- -- 4.34 4.27
Venture Drive Tech Center (b)........................ 128,322 -- -- 3.92 3.97 4.34
--------- --------- --------- --------- --------- ---------
Dallas Office and Industrial Portfolio............... 1,334,833 -- 8.20 8.00 8.06 8.52
--------- --------- --------- --------- --------- ---------
Total/Weighted Average............................... 3,330,850 $ 15.41 $ 13.72 $ 13.22 $ 12.50 $ 13.02
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
HISTORIC NET RENT
TOTAL -----------------------------------------------------
PROPERTY AREA 1993 1994 1995 1996 1997
- ----------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
215 First Street..................................... 306,084 $ 7.23 $ 8.06 $ 8.63 $ 9.64 $ 11.18
One Kendall Square Cinema (a)........................ 31,641 -- -- 13.33 14.56 13.38
Buildings 100-500.................................... 222,372 8.19 14.34 16.42 13.90 13.98
Buildings 600/650/700................................ 236,661 16.95 18.79 18.56 18.27 20.75
Buildings 1500 & 1700 (b)............................ 39,707 -- 6.75 6.47 8.70 7.93
Building 1400........................................ 133,211 14.01 14.46 17.48 16.93 16.52
--------- --------- --------- --------- --------- ---------
The Athenaeum Portfolio.............................. 969,676 11.03 13.11 14.12 13.85 14.83
--------- --------- --------- --------- --------- ---------
545 Technology Square................................ 144,123 16.38 12.14 12.01 12.38 11.85
549 Technology Square................................ 40,377 3.36 3.27 3.84 3.82 3.31
565 Technology Square................................ 201,816 2.96 3.16 3.14 3.19 2.71
575 Technology Square................................ 165,208 3.39 3.65 3.30 3.81 3.54
The Draper Building.................................. 474,817 5.87 5.86 5.85 5.84 5.83
--------- --------- --------- --------- --------- ---------
Technology Square & The Draper Building.............. 1,026,341 6.27 5.75 5.69 5.83 5.60
--------- --------- --------- --------- --------- ---------
Bank One LBJ (b)..................................... 42,000 -- -- -- -- --
Brandywine Place (b)................................. 66,237 -- -- 4.60 4.82 5.36
Crosspoint Atrium (b)................................ 220,212 -- 2.20 2.29 4.14 4.20
Forest Abrams Place (b).............................. 68,827 -- -- -- -- --
6500 Greenville Avenue (b)........................... 114,600 -- -- -- -- 3.66
Northcreek Place II (b).............................. 163,303 -- 4.79 5.75 6.43 5.23
One Glen Lakes (b)................................... 166,272 -- -- -- 5.54 5.70
Park North Business Center (b)....................... 36,885 -- -- -- 3.96 4.01
Plaza at Walnut Hill (b)............................. 88,280 -- 3.45 3.66 3.54 2.12
Richardson Business Center (b)....................... 66,300 -- -- -- 1.90 3.46
Richardson Commerce Centre (b)....................... 60,517 -- -- 3.43 3.82 4.11
Sherman Tech (b)..................................... 16,176 -- -- 8.82 2.45 2.46
T I Business Park (b)................................ 96,902 -- -- -- 3.87 3.89
Venture Drive Tech Center (b)........................ 128,322 -- -- 3.52 2.85 3.26
--------- --------- --------- --------- --------- ---------
Dallas Office and Industrial Portfolio............... 1,334,833 -- 3.33 3.87 4.33 4.21
--------- --------- --------- --------- --------- ---------
Total/Weighted Average............................... 3,330,850 $ 8.50 $ 8.12 $ 8.18 $ 7.80 $ 7.85
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
- ----------------------------------
(a) Construction of The Cinema at Kendall Square was completed in late 1994.
(b) The previous owners did not have historical information prior to their
ownership of these properties. Therefore, no information prior to their
ownership is available.
34
<PAGE>
MORTGAGE INDEBTEDNESS
Our total outstanding consolidated mortgage debt and our proportionate share
of the total outstanding unconsolidated mortgage debt on the properties is
approximately $56.1 million at September 30, 1998. The following table sets
forth certain information regarding our consolidated and unconsolidated mortgage
debt obligations, including mortgage obligations relating to specific
Properties. All of the mortgage debt is nonrecourse to the Company, with certain
exceptions such as liability for fraud, misapplication of insurance proceeds and
environmental matters.
<TABLE>
<CAPTION>
PRINCIPAL COMPANY'S ESTIMATED
AMOUNT PORTION OF INTEREST MATURITY BALANCE DUE ON
PROPERTY (AS OF 9/30/98) PRINCIPAL RATE DATE MATURITY
- -------------------------- ----------------- --------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
(DOLLAR AMOUNTS IN MILLIONS)
MORTGAGE INDEBTEDNESS:
CONSOLIDATED PROPERTIES
Northcreek Place II....... $ 4.3 $ 4.3 7.80% 12/1/05 $ 3.6
One Glen Lakes............ 5.7 5.7 7.75% 9/1/05 4.8
6500 Greenville Avenue.... 3.5 3.5 7.80% 12/1/04 3.1
Brandywine Place.......... 1.5 1.5 9.00% 12/1/99 1.5
Plaza at Walnut Hill...... 1.5 1.5 9.00% (e) 0.0
Richardson Business
Center.................. 1.5 1.5 9.00% (g) 0.0
Park North Business
Center.................. 1.0 1.0 8.25% (i) 0.0
T I Business Park......... 1.6 1.6 9.25% 5/1/02 1.4
Richardson Commerce
Centre.................. 1.0 1.0 9.00% (l) 0.0
----- ----- -----
Total Consolidated
Properties............ 21.6 21.6 14.4
----- ----- -----
UNCONSOLIDATED PROPERTIES
The Athenaeum
Portfolio (n)........... 68.9 34.5 8.485% 1/11/27 0.0
----- ----- -----
Total Unconsolidated
Properties............ 68.9 34.5 0.0
----- ----- -----
Total Mortgage Debt..... $ 90.5 $ 56.1 $ 14.4
----- ----- -----
----- ----- -----
<CAPTION>
PROPERTY PREPAYMENT PROVISIONS
- -------------------------- --------------------------
<S> <C>
MORTGAGE INDEBTEDNESS:
CONSOLIDATED PROPERTIES
Northcreek Place II....... Prepayable subject to
conditions (a)
One Glen Lakes............ Prepayable subject to
conditions (b)
6500 Greenville Avenue.... Prepayable subject to
conditions (c)
Brandywine Place.......... Prepayable subject to
conditions (d)
Plaza at Walnut Hill...... Prepayable subject to
conditions (f)
Richardson Business
Center.................. Prepayable subject to
conditions (h)
Park North Business
Center.................. Prepayable subject to
conditions (j)
T I Business Park......... Prepayable subject to
conditions (k)
Richardson Commerce
Centre.................. Prepayable subject to
conditions(m)
Total Consolidated
Properties............
UNCONSOLIDATED PROPERTIES
The Athenaeum
Portfolio (n)........... Prepayable subject to
conditions (o)
Total Unconsolidated
Properties............
Total Mortgage Debt.....
</TABLE>
- ------------------------
(a) Prepayable after January 1, 2001 subject to a yield maintenance payment
based on the rate of United States Treasury Notes having a term closest to
the date of maturity but in no event less than 1% of the then balance.
(b) Prepayable after October 1, 2000 subject to a yield maintenance payment
based on the rate of United States Treasury Notes having a term closest to
the date of maturity but in no event less than 1% of the then balance.
(c) Prepayable after January 1, 2002 subject to a yield maintenance payment
based on the rate of United States Treasury Notes having a term closest to
the date of maturity but in no event less than 1% of the then balance.
(d) Prepayable subject to payments of 3% of the amount prepaid before December
1, 1998, 2% if prepaid before June 1, 1999 and 1% thereafter.
(e) Plaza at Walnut Hill loan matures on July 1, 2017. The lender has the right
to accelerate the maturity in the sixth, eleventh or sixteenth loan years,
on six months' notice. No prepayment fees apply in that event.
35
<PAGE>
(f) Prepayable after June 12, 2002 subject to payment of 5% of the amount
prepaid, reducing by 1% per annum to a minimum prepayment of 1% of the
amount prepaid.
(g) The Richardson Business Center loan matures on November 1, 2021. The lender
has the right to accelerate the maturity in the sixth, eleventh, sixteenth
or twenty-first loan years, on six months' notice. No prepayment fees apply
in that event.
(h) Prepayable after October 24, 2001 subject to payment of 5% of the amount
prepaid, reducing by 1% per annum to a minimum prepayment of 1% of the
amount prepaid.
(i) The Park North Business Center loan matures on October 1, 2022. The lender
has the right to accelerate the maturity in the sixth, eleventh, sixteenth
or twenty-first loan years, on six months' notice. No prepayment fees apply
in that event.
(j) Prepayable after September 8, 2002 subject to payment of 5% of the amount
prepaid, reducing by 1% per annum to a minimum prepayment of 1% of the
amount prepaid.
(k) Prepayable after March 1, 2000 subject to a yield maintenance payment based
on the rate of United States Treasury Notes having a term closest to the
date of maturity but in no event less than 2% of the then balance.
(l) The Richardson Commerce Centre loan matures on March 1, 2019. The lender has
the right to accelerate the maturity in the sixth, eleventh, sixteenth or
twenty-first loan years, on six months' notice. No prepayment fees apply in
that event.
(m) Prepayable after February 24, 1999 subject to payment of 5% of the amount
prepaid, reducing by 1% per annum to a minimum prepayment of 1% of the
amount prepaid.
(n) The Company holds a 50% interest in the master limited liability company
that controls the two limited liability companies that hold title to The
Athenaeum Portfolio.
(o) Prepayable after January 11, 2007 without a fee. Prior to January 11, 2007
but after April 11, 1999, all or a portion of the loan may be defeased;
i.e., the amount prepaid is used to purchase U.S. Obligations with
maturities sufficient to enable the scheduled payments on the loan to be
met.
MANAGEMENT COMPENSATION
We intend to initially provide each executive officer at the Senior Vice
President level with the same annual salary. In addition, we have awarded
certain stock options and anticipate that we may:
- award bonus compensation for certain members of senior management; and
- allow members of senior management to participate in the Incentive Return
(as described below) at the discretion of Messrs. Leventhal and Fortin and
the Compensation Committee.
See "--Long-Term Incentive Plan." The following table sets forth certain
information about the expected compensation of our executive officers.
<TABLE>
<CAPTION>
NAME ANNUAL SALARY STOCK OPTIONS GRANTED
- ---------------------------------------------------- ------------- ---------------------
<S> <C> <C>
Alan M. Leventhal................................... $ 200,000 500,000(1)
Lionel P. Fortin.................................... $ 200,000 500,000(2)
Erin R. O'Boyle..................................... $ 125,000 175,000
William A. Bonn..................................... $ 125,000 150,000
Randy J. Parker..................................... $ 125,000 150,000
Jeremy B. Fletcher.................................. $ 125,000 125,000
John Halsted........................................ $ 125,000 125,000
Douglas S. Mitchell................................. $ 125,000 125,000
E. Valjean Wheeler.................................. $ 125,000 125,000
</TABLE>
- ------------------------
(1) Includes stock options granted to Mr. Leventhal and subsequently transferred
to a trust, of which Mr. Leventhal is a beneficiary.
(2) Includes stock options granted to Mr. Fortin and subsequently transferred to
a trust, of which Mr. Fortin's wife is a beneficiary.
36
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
We believe that we have developed an organization of real estate investment
and management professionals that is well-positioned to take advantage of
today's real estate and capital environment. The following table sets forth
certain information about our Directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Alan M. Leventhal............ 46 Chairman of the Board of Directors and Chief Executive
Officer
Lionel P. Fortin............. 55 President, Chief Operating Officer and Director
William A. Bonn.............. 47 Senior Vice President and General Counsel
Jeremy B. Fletcher........... 49 Senior Vice President of BCP and Chief Executive Beacon
Capital Partners West, a division of BCP
John Halsted................. 34 Senior Vice President of BCP and Chief Investment Officer
of Beacon Venture Partners, Inc.
Douglas S. Mitchell.......... 56 Senior Vice President--Development
Erin R. O'Boyle.............. 38 Senior Vice President and Chief Investment Officer
Randy J. Parker.............. 40 Senior Vice President and Chief Financial Officer
E. Valjean Wheeler........... 54 Senior Vice President of BCP and Chief Executive Beacon
Capital Partners Central, a division of BCP
Stephen T. Clark............. 43 Director
Steven Shulman............... 57 Director
Scott M. Sperling............ 41 Director
</TABLE>
The principal occupation for the last five years of each of our Directors
and senior managers, as well as other related information, is set forth below.
ALAN M. LEVENTHAL. Mr. Leventhal is co-founder of BCP and serves as
Chairman, a Class I Director with a term expiring in 1999, and Chief Executive
Officer. Prior to founding BCP, Mr. Leventhal served as President and Chief
Executive Officer of Beacon Properties Corporation ("Beacon Properties"), one of
the largest REITs in the United States. Beacon Properties' portfolio included
124 office properties nationwide, comprising approximately 18.8 million square
feet. Beacon Properties was merged with Equity Office Properties Trust in
December 1997. Mr. Leventhal received his Bachelor's degree in Economics from
Northwestern University in 1974 and a Master of Business Administration from the
Amos Tuck School of Business Administration at Dartmouth College in 1976. Mr.
Leventhal is a Trustee of Boston University and the New England Aquarium
Corporation and recently served as First Vice Chair of the National Association
of Real Estate Investment Trusts ("NAREIT"). He is also a member of the Visiting
Committee of Northwestern University and the Board of Overseers of WGBH, Beth
Israel Deaconess Medical Center, and the Museum of Science in Boston. Mr.
Leventhal has lectured at the Amos Tuck School of Business Administration at
Dartmouth College and the Massachusetts Institute of Technology Center for Real
Estate. Mr. Leventhal has been awarded the Realty Stock Review's "Outstanding
CEO Award" for 1996 and 1997, and the Commercial Property News' "Office Property
Executive of the Year" for 1996.
LIONEL P. FORTIN. Mr. Fortin is co-founder of BCP and serves as President,
Chief Operating Officer and a, a Class II Director with a term expiring in 2000.
He served as Executive Vice President, Chief Operating Officer and a Director of
Beacon Properties. From May 1994 through February 1995, Mr. Fortin served as
Chief Financial Officer of Beacon Properties. Mr. Fortin serves as a Director of
Energy Capital Partners, an energy finance company, and has lectured at the
Massachusetts Institute of Technology Center for Real Estate. Mr. Fortin
graduated from Bentley College in 1968 and is a member of the American Institute
of Certified Public Accountants and the Massachusetts Society of Certified
Public Accountants.
37
<PAGE>
WILLIAM A. BONN. Mr. Bonn serves as Senior Vice President of, and General
Counsel to, the Company. Mr. Bonn served as General Counsel to Beacon Properties
prior to joining the Company. From 1987 to 1997, Mr. Bonn served as General
Counsel and Senior Vice President for Property Capital Trust, a Boston-based
REIT. From 1978 to 1987, Mr. Bonn held various positions as an attorney with The
Prudential Insurance Company of America. From 1976 to 1978, Mr. Bonn was
involved in the private practice of law in Los Angeles. Mr. Bonn currently
serves as Co-Chairman of the Government Relations Committee of NAREIT. Mr. Bonn
holds a Bachelor of Science degree from the University of California at San
Diego and a Juris Doctor degree from the University of San Diego. He is admitted
to practice law in Massachusetts, New York and California, and is a member of
the American, California and Boston Bar Associations.
JEREMY B. FLETCHER. Mr. Fletcher serves as Senior Vice President and Chief
Executive of Beacon Capital Partners West, a division of BCP. Mr. Fletcher
served as Senior Vice President and Chief Executive of Beacon Properties West
prior to joining the Company. Before joining the Company, Mr. Fletcher was the
Director of Insignia Commercial Group, Inc., Los Angeles. From 1993 to July
1996, Mr. Fletcher was with the Paragon Group, where he served as Senior Vice
President/General Partner of the Southern California/Arizona Region. Mr.
Fletcher received his Bachelor's degree in Geology from Albion College. He is a
member of the Urban Land Institute (ULI), Real Estate Investment Advisory
Council ("REIAC"), and National Association of Industrial and Office Properties
(NAIOP) and is a licensed real estate broker in the State of California.
JOHN HALSTED. Mr. Halsted serves as Senior Vice President and, upon
formation of the BCP Sister Corp., will serve as Chief Investment Officer of
Beacon Venture Partners, Inc. Prior to joining the Company, Mr. Halsted was Vice
President at Harvard Private Capital Group ("Harvard"). He joined Harvard in
1993 and was responsible for the origination and management of investments in
specialty, finance, retail and energy companies. From 1991 to 1993, Mr. Halsted
was an Associate with Simmons & Company, an investment banking firm based in
Houston, Texas. Mr. Halsted earned his Masters in Business Administration from
The Harvard Business School and a degree in economics from The University of
California at Berkeley.
DOUGLAS S. MITCHELL. Mr. Mitchell serves as Senior Vice
President--Development. Mr. Mitchell served as the Senior Vice
President--Leasing/Management and Development of Beacon Properties and as
President of the Beacon Properties Management Company from 1994 until 1997. He
joined the Beacon Properties organization in 1964 and has extensive experience
in leasing, management and development. He graduated from the Wentworth
Institute in 1962 and is a member of the Greater Boston Real Estate Board. Mr.
Mitchell is also a licensed real estate broker in Massachusetts and New York.
ERIN R. O'BOYLE. Ms. O'Boyle serves as Senior Vice President and Chief
Investment Officer. Prior to joining the Company, Ms. O'Boyle served as Vice
President, Acquisitions for Beacon Properties, where she was responsible for
negotiating over $1.8 billion of investment opportunities. Ms. O'Boyle joined
Beacon Properties in 1986 and has held positions in asset management and
development. Ms. O'Boyle received her Bachelor of Science in structural
engineering from the University of Delaware and her Master of Science in real
estate development from the Massachusetts Institute of Technology. Ms. O'Boyle
is the past chair of the Alumni Association for the Massachusetts Institute of
Technology Center for Real Estate, is past president of the New England Women in
Real Estate ("NEWIRE"), and currently is on the board of the Northeast chapter
of REIAC.
RANDY J. PARKER. Mr. Parker serves as Senior Vice President and Chief
Financial Officer. Before joining the Company, Mr. Parker was Vice President,
Investor Relations for Beacon Properties, where he was responsible for managing
the relationships with institutional stockholders and analysts. Prior to joining
Beacon Properties, Mr. Parker was Senior Vice President and Portfolio Manager at
Aldrich Eastman & Waltch ("AEW"), where he was responsible for the management of
over $400 million of investment portfolios on behalf of institutional clients.
During his eight year tenure at AEW, Mr. Parker also held positions in asset
management and investment origination. Mr. Parker was also previously associated
with
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JMB/Federated Realty, where he served as Project Manager for various retail
development projects. Mr. Parker holds a Master of Business Administration
degree from the Wharton School, University of Pennsylvania and a Bachelor of
Architecture degree from the University of Kentucky.
E. VALJEAN WHEELER. Mr. Wheeler serves as Senior Vice President and Chief
Executive of Beacon Capital Partners Central, a division of BCP. Mr. Wheeler
served as Senior Vice President and Chief Executive of Beacon Properties Midwest
prior to joining the Company. Before joining Beacon Properties, Mr. Wheeler held
various senior management positions with Equity Office Holdings, L.L.C.
beginning in 1989, and served as President and Chief Operating Officer from 1995
to 1997. He also held various senior management positions with the Broe
Companies and Williams Realty Corporation. Mr. Wheeler graduated from Oklahoma
State University with a Bachelor of Science in Education. He is a member of the
Urban Land Institute (ULI) and has served on the National Advisory Council of
the Building Owners and Managers Association (BOMA).
STEPHEN T. CLARK. Mr. Clark serves as a Class II Director with a term
expiring in 2000. Since 1995, Mr. Clark has been President of Cypress Realty,
Inc., a real estate investor and developer based in Houston, Texas. Previously,
Mr. Clark served as Managing Director of Harvard Private Capital Group where he
directed the group responsible for real estate investment and management
activities. Prior to joining Harvard, Mr. Clark was a partner in Clark-Pilgrim
Limited Partnership and in Trammell Crow Company where he was in charge of
office and industrial activities in Philadelphia and Delaware. Mr. Clark has
extensive investment experience in developmental and distressed real estate
assets. He received a Masters in Business Administration degree from Harvard
Business School and received his undergraduate degree from Duke University. Mr.
Clark serves as Chairman of the Board of Abacoa Development Company.
STEVEN SHULMAN. Mr. Shulman serves as a Class III Director with a term
expiring in 2001. He served as a Director of Beacon Properties from 1995 to
1997. Since 1984, Mr. Shulman has been active in investment banking through his
wholly owned company, The Hampton Group, and Latona Associates, Inc. where he
serves as a Managing Director. Currently, Mr. Shulman is a shareholder and
director in a diversified group of companies, including Ermanco Incorporated,
Corinthian Directory, Terrace Holdings, Inc. and WPI Group, Inc. In addition, he
serves as Non-executive Chairman of Terrace Holdings, Inc. Mr. Shulman is a
graduate of Stevens Institute of Technology where he received a Bachelor's
degree in Mechanical Engineering and a Master's degree in Industrial Management.
Mr. Shulman serves as Vice Chairman of the Board of Stevens Institute of
Technology.
SCOTT M. SPERLING. Mr. Sperling serves as a Class III Director with a term
expiring in 2001. He served as a Director of Beacon Properties from 1994 to
1997. Mr. Sperling joined Thomas H. Lee Co., a Boston-based investment firm, as
a general partner in September 1994. Previously, Mr. Sperling served as Managing
Partner and Vice Chairman of the Aeneas Group, Inc./Harvard Management Company
from 1984 through 1994. Mr. Sperling has been the founder and/or lead investor
of numerous companies and has led the acquisition or turnaround of companies in
a wide variety of industries. He is currently a director of Livent, PriCellular
Corporation, Softkey, The Learning Company, General Chemical Group, Object
Design, Inc. and several private firms. He received a Master's of Business
Administration degree from the Harvard Business School and received his
undergraduate degree from Purdue University. Mr. Sperling is a member of the
Corporation of the Brigham and Women's Hospital and a director of the American
Technion Society.
OTHER PROFESSIONALS
DAVID P. BENNETT. Mr. Bennett serves as Regional Vice President of Beacon
Capital Partners Central, located in Chicago. Prior to joining the Company, Mr.
Bennett served as Regional Vice President at Beacon Properties, where he had
asset management responsibilities for the Midwest region consisting of
approximately 5.0 million square feet. Before joining Beacon Properties, Mr.
Bennett was a Vice President
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at The Balcor Company and held various positions from 1987-1997. He holds a
Bachelor of Science degree in Finance from the University of Illinois.
MICHAEL J. BOWLER. Mr. Bowler serves as Director of Financial Analysis for
Beacon Capital Partners. Before joining the company, Mr. Bowler served as the
Director of Financial Analysis for Beacon Properties Corporation where he was
responsible for all acquisition, asset management and development financial
analysis. Prior to joining Beacon, Mr. Bowler was an Assistant Vice President at
Northland Investment Corporation where he held a variety of financial and
accounting positions from 1982 to 1994. Mr. Bowler is a graduate of Bentley
College where he received a Bachelor of Science degree in Accounting.
NANCY J. BRODERICK. Ms. Broderick serves as Vice President and Treasurer.
Before joining the Company, Ms. Broderick served as Vice President and Treasurer
for Beacon Properties where she was responsible for a variety of corporate
finance and treasury functions, including key banking and institutional lender
relationships as well as administration of Beacon Properties' credit facility.
Ms. Broderick holds a Bachelor of Science degree in Accounting from Stonehill
College and a Master of Science degree in Taxation from Bentley College. She is
a certified public accountant and a member of the American Institute of
Certified Public Accountants and the Massachusetts Society of Public
Accountants.
JEFFREY D. BROWN. Mr. Brown serves as Acquisition Manager. Before joining
the Company, Mr. Brown was a Financial Analyst at Beacon Properties, where he
was responsible for the analysis and underwriting of investment opportunities.
Mr. Brown was a Consultant with E&Y Kenneth Leventhal Real Estate Group from
1994 to 1996, where he was responsible for valuation analysis and due diligence
assignments for various clients. Mr. Brown holds a Bachelor of Science degree
from Cornell University.
DAVID L. COHAN. Mr. Cohan serves as Vice President. Prior to joining the
Company, Mr. Cohan served as a Senior Acquisition Manager at Beacon Properties.
Before joining Beacon Properties, Mr. Cohan held operations, planning and asset
management positions at Copley Real Estate Advisors in Boston. He has also had
project management roles for firms developing retail, resort, waterfront,
residential, and industrial projects throughout the continental United States
and Hawaii. Mr. Cohan holds a Master of Science degree in Real Estate
Development from the Massachusetts Institute of Technology Center for Real
Estate where he also served as a teaching and research assistant in recent
years. He has a Bachelor's degree in English writing from the University of
Pennsylvania.
LISA A. MEOMARTINO. Ms. Meomartino serves as Corporate Controller for
Beacon Capital Partners. Prior to joining the Company, Ms. Meomartino served as
Director of Property Accounting for Beacon Properties Corporation where she
managed the financial reporting, accounting systems administration and lease
administration functions for 21.3 million square feet of commercial office
buildings. She joined Beacon in 1985 and has held various corporate and property
accounting positions. Ms. Meomartino holds a BS in Business Administration from
Bryant College and a MS in Finance from Boston College.
ROBERT J. PALUMBO. Mr. Palumbo serves as Development Executive. Prior to
joining the Company, Mr. Palumbo most recently served as Senior Development
Manager for Beacon Properties Corporation and Equity Office Properties Trust.
Mr. Palumbo has twenty-five years' experience in real estate and construction,
having also previously been Vice President-Team Executive within BankBoston's
real estate group and Vice President of Development for Weston Financial Group.
He has acted in a project management capacity for office, research, industrial,
retail and residential properties located throughout New England and the
Southeastern United States. Mr. Palumbo holds a Master of Business
Administration degree from Boston University and a Bachelor of Science degree in
Mechanical Engineering from Northeastern University.
JENNIFER L. PLUMPTON. Ms. Plumpton serves as a Financial Analyst. Before
joining the Company, Ms. Plumpton was a Financial Analyst at Morgan Stanley
Realty Incorporated, where she was responsible for the analysis and execution of
securities offerings, mergers, acquisitions and asset sales for real estate
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investment trusts and real estate operating companies. Ms. Plumpton holds a
Bachelor's degree in Mathematics from Providence College.
THOMAS RAGNO. Mr. Ragno serves as Vice President, Management and Leasing.
Prior to joining the Company, Mr. Ragno served as Vice President, Property
Management of Beacon Properties where he directly supervised property management
operations in the metro-Boston region consisting of approximately 8.0 million
square feet and 170 employees. Mr. Ragno joined Beacon Properties in 1986 and
has held various positions in leasing and project management. Mr. Ragno holds an
S.M. in Civil Engineering from the Massachusetts Institute of Technology and a
Bachelor of Science degree in Civil Engineering and Engineering & Public Policy
from Carnegie-Mellon University.
STEPHEN A. STANLEY. Mr. Stanley serves as Director of Information
Technology for Beacon Capital Partners. Prior to joining the Company, Mr.
Stanley was the Director of Technical Services for Beacon Properties Corporation
from 1994 to 1997. Prior to joining Beacon, Mr. Stanley was Manager of
Information Systems at First Winthrop Corporation. Mr. Stanley is a graduate of
the University of Maine where he received a Bachelor of Science degree with a
concentration in Finance.
M. WISTAR WOOD. Mr. Wood serves as Vice President, Acquisitions. Prior to
joining the Company he served as Vice President, Acquisitions for Beacon
Properties Corporation, where he managed the search and negotiations for
ownership opportunities. Prior to joining Beacon in February 1997, Mr. Wood
served as Vice President of Acquisitions for Metric Realty from 1995 to 1997 and
oversaw all acquisition activity in a 26-state territory. Prior to joining
Metric in 1995, he was with Copley Real Estate Advisors, responsible for
acquisitions and sales. Mr. Wood is a graduate of Princeton University and holds
a MBA from the Wharton School, University of Pennsylvania. He is the founder of
REIAC's Northeast Chapter, and a member of ICSC.
BOARD OF DIRECTORS AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Board of Directors has three classes of directors. The initial terms of
the first, second and third classes will expire in 1999, 2000 and 2001,
respectively. Beginning in 1999, directors of each class will be chosen for
three-year terms upon the expiration of their current terms. Each year one class
of directors will be elected by the stockholders. All officers serve at the
discretion of the Board of Directors.
Each Director who is not an employee of the Company (the "Independent
Directors") receives an annual director's fee of $20,000. Each Independent
Director also receives:
- $1,000 for each regular quarterly or special meeting of the Board of
Directors attended;
- $1,000 for each committee meeting attended; and
- $250 for each special telephonic committee meeting or meeting of the Board
of Directors in which the Independent Director participates.
Independent Directors are also reimbursed for reasonable expenses incurred
to attend director and committee meetings. Independent Directors may elect in
lieu of cash fees to receive either:
- options to purchase Common Stock at a discount to fair market value; or
- deferred stock units.
These compensation elections must be approved by the Board's compensation
committee (the "Compensation Committee"). Any officer of the Company who is also
a Director will not be paid the directors' fees. Independent Directors also
receive (upon initial election to the Board of Directors) an option to purchase
5,000 shares of Common Stock. Each subsequent year they will receive an option
to purchase an additional 5,000 shares of Common Stock. All options granted to
Independent Directors vest on the date of grant.
Our Charter provides that (except in the case of a vacancy) a majority of
the members of the Board of Directors will be Independent Directors. The vote of
a majority of the Directors and the vote of a majority of the Independent
Directors is required to fill any vacancies among the Independent Directors. The
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Compensation Committee will consist solely of Independent Directors, except that
Mr. Leventhal (or his designee) may serve as a non-voting member of the
Compensation Committee.
The Maryland General Corporation Law (the "MGCL") permits a corporation to
include in its charter a provision limiting the liability of directors and
officers to the corporation or its stockholders for money damages, except (i) to
the extent that it is proved that the director or officer actually received an
improper benefit or profit in money, property or services or (ii) if a judgment
or other final adjudication is entered in a proceeding based on a finding that
the director's or officer's action or failure to act was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. Our Charter limits the liability of the Board of Directors and
officers to the Company to the fullest extent permitted from time to time by
Maryland law. See "Certain Provisions of Maryland Law and BCP's Charter and of
Bylaws--Limitation of Liability and Indemnification."
Our Charter authorizes us, (to the maximum extent permitted by Maryland law)
to obligate ourselves to indemnify and to pay or reimburse reasonable expenses
in advance of final disposition of a proceeding to (a) any present or former
director or officer or (b) any individual who, while a director of the Company
and at the request of the Company, serves or has served another corporation,
REIT, partnership, joint venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee of such corporation, REIT,
partnership, joint venture, trust, employee benefit plan or other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his or her status as a present or
former director or officer of the Company. Our Bylaws obligate us to the maximum
extent permitted by Maryland law, to indemnify and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
present or former director or officer who is made a party to the proceeding by
reason of his service in that capacity or (b) any individual who, while a
director of the Company and at the request of the Company, serves or has served
another corporation, REIT, partnership, joint venture, trust, employee benefit
plan or any other enterprise as a director, officer, partner or trustee of such
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his
service in that capacity. Our Charter and Bylaws also permit us to indemnify and
advance expenses to any person who served a predecessor of the Company in any of
the capacities described above and to any employee or agent of the Company or a
predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which our Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its directors, officers and certain other
parties against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service to, or at the request of, the
corporation, unless it is established that (a) the act or omission of the
indemnified party was material to the matter giving rise to the proceeding and
(i) the act or omission was committed in bad faith or (ii) the act or omission
was the result of active and deliberate dishonesty, (b) the indemnified party
actually received an improper personal benefit in money, property or services or
(c) in the case of any criminal proceeding, the indemnified party had reasonable
cause to believe that the act or omission was unlawful. However, under the MGCL,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer of
his good faith belief that he has met the standard of conduct necessary for
indemnification by the corporation and (b) a written undertaking by him or on
his behalf to repay the amount paid or reimbursed by the corporation if it shall
ultimately be determined that the standard of conduct was not met. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling BCP pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
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LONG-TERM INCENTIVE PLAN
Our compensation and incentive plans are designed to align the interests of
our executive management with the interests of our stockholders. Our Long-Term
Incentive Plan is designed to reward certain members of management for growth of
our Funds from Operations in excess of a specified benchmark as described below.
If our Funds from Operations exceed this benchmark, management will be entitled
to receive an Incentive Return determined in the manner described below (the
"Incentive Return"). This Incentive Return shall be calculated at the end of the
three year period following the completion of the first calendar year following
the date of the Original Offering of Common Stock to NationsBanc (the
"Determination Date").
The Incentive Return shall equal the product of:
(A) 12% of the dollar amount by which:
(i) the Actual Return exceeds
(ii) the Base Return; multiplied by
(B) the weighted average of shares of Common Stock and Units outstanding for
the 12 months immediately preceding the Determination Date; multiplied by
(C) the Company's Multiple as defined below.
The Incentive Return is a function of the amount by which the Actual Return
exceeds the Base Return. If the Actual Return does not exceed the Base Return,
no Incentive Return will have been earned. Likewise, the maximum Incentive
Return is limited by the amount the Actual Return exceeds the Base Return.
For the purposes of calculating the Incentive Return:
"Actual Return" means our Funds from Operations (before the Incentive
Return) per share of Common Stock and per Unit for the 12 months immediately
preceding the Determination Date;
"Base Return" means an amount equal to what our Funds from Operations
would have been for the twelve month period immediately preceding the
Determination Date assuming a benchmark cumulative rate of return on the
Offering Price equal to 10% per annum, compounding quarterly, calculated
since the beginning of the calendar quarter following the date of Closing.
"Funds from Operations," as defined by NAREIT, means net income
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization (in
each case, only Real Estate-Related Assets), and after adjustments for
unconsolidated partnerships and joint ventures; and
"Multiple" means the price of our Common Stock (as defined below)
divided by our Funds from Operations per share for the fiscal quarter ending
on the Determination Date on an annualized basis.
For the purposes of calculating the Multiple, the price of our Common Stock
will be calculated as follows:
(1) where there exists a public market for our Common Stock, the price
of our Common Stock will be the average of the closing bid and asked prices
of our Common Stock quoted in the Over-The-Counter Market Summary or the
last reported sale price of our Common Stock or the closing price quoted on
the NASDAQ System or on any exchange on which our Common Stock is listed,
whichever is applicable, as published in THE WALL STREET JOURNAL for the 90
calendar days prior to the calculation of the Multiple.
(2) if no public market for our Common Stock exists at the time of such
exercise, the price of our Common Stock will be determined by a single,
independent appraiser to be selected by a committee composed of Independent
Directors, which appraiser shall appraise the fair market value
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of one share of our Common Stock within 30 days of its selection within such
guidelines as shall be determined by the committee of Independent Directors.
In the event of a change in control of the Company (as such term is defined
in the Operating Partnership Agreement), the right to receive the Incentive
Return shall automatically accelerate and the determination of the Incentive
Return shall be appropriately adjusted to reflect such acceleration as
determined by our Compensation Committee. We anticipate that the mechanism by
which the Incentive Return will be adjusted as a result of a change of control
shall be established by the Compensation Committee in advance of any such event.
In order for participants to receive advantageous tax treatment on the gains
(if any) realized through our Long-Term Incentive Plan, the Long-Term Incentive
Plan consists of a Convertible Unit which was issued to the Participation Plan
on March 16, 1998. The Convertible Unit is convertible at the Determination Date
(assuming the Incentive Return has in fact been earned) into a certain number of
Incentive Units of limited partnership interest in the Operating Partnership
(the "Incentive Units") with a fair market value equal to the amount of the
Incentive Return. The Incentive Units share equally on a unit-by-unit basis with
the outstanding Units in all distributions by the Operating Partnership and are
redeemable for cash or, at the election of our Independent Directors,
exchangeable for shares of Common Stock. See "Operating Partnership Agreement."
Certain members of our senior management have been, and from time to time
may be, offered the opportunity to acquire equity interests in the Participation
Plan. Messrs. Leventhal and Fortin (with the assistance and advice of the
Compensation Committee) shall decide who shall be offered equity interests in
the Participation Plan. Members of our senior executive management who become
equity holders of the Participation Plan shall be allocated an interest in:
- the Incentive Return, subject to certain vesting restrictions; and
- the Units held by the Participation Plan.
As of December 1, 1998, Messrs. Bonn, Fletcher, Halsted, Mitchell, Parker
and Wheeler, as well as Ms. O'Boyle, each held a 3% interest in the Incentive
Return. The balance of the Incentive Return is split equally between the family
trusts of Messrs. Leventhal and Fortin.
On the Determination Date, 50% of each equity holder's interest in the Incentive
Return shall vest. On the first anniversary of the Determination Date, each
equity holder's interest in the Incentive Return shall be fully vested. If the
employment of an equity holder of Participation Plan terminates prior to full
vesting of his or her interest in the Incentive Return:
- that equity holder forfeits the unvested interest; and
- the general partner of the Participation Plan has the authority to
reallocate the forfeited interest as he deems appropriate.
See "Risk Factors--Economic and Business Risks--Conflicts of Interest."
We cannot assure you that the awards under the Long-Term Incentive Plan (or
the stock options or other rewards pursuant to the Stock Incentive Plan
described below) will provide an incentive to our management to enhance the
value of our Common Stock. We also cannot assure you that management's efforts
will actually enhance the value of our Common Stock. In addition, the Incentive
Return (if paid) could substantially reduce cash available for distribution to
stockholders. See "Risk Factors--Economic and Business Risks--Conflicts of
Interest."
Funds from Operations does not represent cash generated from operating
activities in accordance with GAAP and should not be considered as an
alternative to either:
- net income as an indication of our performance; or
- cash flows as a measure of liquidity or ability to make distributions.
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Our ability to execute successfully the investment strategies described in this
Prospectus and other factors (many of which are not within our control) will
affect:
- our ability to generate Funds from Operations in excess of the Base Return
described above; and
- the ability of the Participation Plan to earn the Incentive Return
described in the preceding paragraph.
STOCK INCENTIVE PLAN
We have adopted a Stock Incentive Plan that provides options to purchase
shares of Common Stock. The Stock Incentive Plan authorizes the grant of options
(and other stock-based awards) to our executive officers, Directors and
employees and other key persons. The Stock Incentive Plan provides performance-
based compensation to offer an incentive for the members of our management to
enhance the value of our Common Stock.
PLAN ADMINISTRATION; ELIGIBILITY
The Compensation Committee of the Board of Directors (the "Administrator")
administers the Stock Incentive Plan.
The Administrator will have full power to:
- select (from among the persons eligible for awards) the individuals to
whom awards will be granted;
- make any combination of awards to participants; and
- determine the specific terms of each award (subject to the provisions of
the Stock Incentive Plan).
Individuals eligible to participate in the Stock Incentive Plan are
generally:
- executive officers;
- Independent Directors;
- employees of the Company; and
- other key persons who are responsible for or contribute to the management,
growth or profitability of the Company.
RESERVED SHARES
The maximum number of shares of Common Stock reserved and available for
issuance under the Stock Incentive Plan will be such aggregate number of shares
as does not exceed the sum of:
(i) 12% of the outstanding equity interests in the Company (including Common
Stock and Units subject to redemption rights); plus
(ii) an additional positive number equal to 10% of any net increase of
outstanding equity interests in the Company.
The share calculation percentages were determined as of the date of the
Original Offering to NationsBanc.
STOCK OPTIONS
The Stock Incentive Plan permits the granting of:
(i) options to purchase Common Stock intended to qualify as incentive stock
options ("Incentive Options") under Section 422 of the Code; and
(ii) options that do not qualify ("Non-Qualified Options").
Each option's exercise price will be determined by the Administrator but may
not be less than:
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- 100% of the fair market value of our Common Stock on the date of grant in
the case of Incentive Options; and
- 25% of the fair market value of our Common Stock on the date of grant in
the case of Non-Qualified Options.
Plan participants may elect (with the consent of the Administrator) to
receive discounted Non-Qualified Options in lieu of cash compensation. To
qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
stockholders.
The Administrator will fix the term of each option, which may not exceed ten
years from date of grant in the case of an Incentive Option. The Administrator
will determine at what time or times each option may be exercised and (subject
to the provisions of the Stock Incentive Plan) the period of time (if any) after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments. The
Administrator may accelerate the exerciseability of options.
OTHER STOCK BASED GRANTS
The Administrator may award:
- shares of Common Stock or Units (or other interests in the Operating
Partnership) which may or may not be subject to a risk of forfeiture;
- deferred stock units which are ultimately payable in the form of shares of
Common Stock;
- performance share awards to participants entitling the participant to
receive shares of Common Stock upon the achievement of individual or
company performance goals;
- dividend equivalent rights (which entitle the recipient to receive credits
for dividends that would be paid if the recipient had held specified
shares of Common Stock); or
- capital stock other than Common Stock and other awards that are valued in
whole or in part by reference to or are otherwise based on, Common Stock.
CHANGE OF CONTROL PROVISIONS
The Stock Incentive Plan provides that (unless otherwise provided in the
award agreement) all awards become fully vested and non-forfeitable upon a
change of control of the Company (as defined in the Stock Incentive Plan).
AMENDMENTS AND TERMINATION
The Board of Directors may amend or terminate the Stock Incentive Plan at
any time, except that approval by our stockholders is required for amendments or
termination to the extent the Board of Directors determines that stockholder
approval is necessary or desirable to meet certain exceptions under securities,
tax and other applicable laws.
EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
We have executed employment agreements (the "Employment Agreements") with
Messrs. Leventhal and Fortin. They have a term of three years from the date of
the Original Offering of Common Stock to NationsBanc. They contain provisions
that are customary for senior executives of publicly-traded REITs. See
"--Management Compensation."
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CREDIT FACILITY
We may obtain a commitment from a lender to enter into a credit facility
(the "Credit Facility") to provide us with an available source of debt
financing. See "Risk Factors--Investment Activity Risks--Real Estate Financing
Risks" and "Plan of Distribution."
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act of
1934, as amended (the "Exchange Act"). In accordance with the Exchange Act, we
file reports, proxy and information statements and other information with the
SEC. You can inspect and copy the reports, proxy and information statements and
other information at the SEC addresses listed on page 103 of this Prospectus. We
report our financial statements on a year ended December 31. We intend to
furnish our stockholders with annual reports containing consolidated financial
statements audited by our independent certified public accountants and make
available quarterly reports containing unaudited condensed consolidated
financial statements for each of the first three quarters of each fiscal year.
CERTAIN RELATIONSHIPS; CONFLICTS OF INTEREST
Messrs. Leventhal and Fortin have formed Beacon Capital Participation Plan
and have offered equity interests in Beacon Capital Participation Plan to
certain members of the Company's senior management. In addition, Messrs.
Leventhal and Fortin (individually and through their family trusts and Beacon
Capital Participation Plan) have purchased (directly from the Company and the
Operating Partnership) a combination of shares of Common Stock and Units for an
aggregate purchase price of approximately $15 million, representing
approximately 3.2% of the equity interests in the Company on a fully diluted
basis. In addition, we have established the Long-Term Incentive Plan to align
the interests of management with the interests of our stockholders, pursuant to
which Beacon Capital Participation Plan has been issued (for no additional
consideration) a Convertible Unit of the Operating Partnership. Provided that
the Incentive Return has (in fact) been earned, at the end of the three year
period following the date of the first calendar year following the Closing Date
of the Original Offering, the Convertible Unit will convert into a certain
number of Incentive Units with a fair market value equal to the Incentive
Return. See "The Company-- Long-Term Incentive Plan" and "Risk Factors--Economic
and Business Risks--Conflicts of Interest."
Beacon Capital Participation Plan has been granted certain registration
rights with respect to any Common Stock issuable upon an exchange of Units and
Incentive Units held by Beacon Capital Participation Plan. See "Description of
Securities--Registration Rights." Our senior management, by holding equity
interests in Beacon Capital Participation Plan, is able to participate in the
Incentive Return subject to certain vesting restrictions. See "The
Company--Long-Term Incentive Plan" and "Risk Factors-- Economic and Business
Risks--Conflicts of Interest."
Although we believe that the Long-Term Incentive Plan will serve to align
the interests of management with the interests of our stockholders, the
possibility exists that conflicts of interest could arise between the interests
of management and the interests of our stockholders relating to the Long-Term
Incentive Plan and the conversion of the Convertible Unit into Incentive Units
(including for example, with respect to the timing of transactions which could
affect our Funds from Operations in the fiscal year or fiscal quarter in which
the Convertible Unit converts into the Incentive Units, if any).
After the formation of the BCP Sister Corp. and the distribution of the BCP
Sister Corp.'s equity interests to the partners and stockholders of the Company,
the BCP Sister Corp. will rely on the Company to provide it investments. We
expect that the provisions in the BCP Sister Corp.'s formation documents will
- provide that the BCP Sister Corp. will enter into transactions with the
Company to the extent deemed beneficial by their respective boards of
directors (and the Company may enter into an intercompany agreement with
the BCP Sister Corp. with respect thereto) and
47
<PAGE>
- generally prohibit the BCP Sister Corp. from engaging in activities or
making investments appropriate for a REIT (for a specified time period)
unless the Company was first given the opportunity to do so but elected
not to do so.
While it is our intention that the Company and the BCP Sister Corp. have
separate boards of directors, to the extent that there is overlap, the Board of
Directors may be subject to various potential conflicts of interest as a result
of the relationships with the BCP Sister Corp. and the Company. See "Risk
Factors--Investment Activity Risks--Conflicts of Interest." In addition, to the
extent that the BCP Sister Corp. requires separate financing arrangements,
conflicts may arise between the BCP Sister Corp. and the Company to the extent
that the BCP Sister Corp. has difficulty obtaining or maintaining such
financing. See "Risk Factors--Economic and Business Risks--BCP Sister Corp. Will
Have Separate Financing."
The market in which we expect to purchase assets is characterized by rapid
evolution of products and services and, thus, there may in the future be
relationships between the Company and the BCP Sister Corp. and its affiliates,
in addition to those we have already described.
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the sale of
the securities offered hereby. We will not receive any of the proceeds from the
sale by the Selling Stockholders of their Common Stock.
DISTRIBUTION POLICY
In order to avoid corporate income taxation on the earnings that we
distribute, we must distribute to our stockholders an amount at least equal to
(i) 95% of our REIT taxable income (determined before the deduction for
dividends paid and excluding any net capital gain) plus (ii) 95% of the excess
of our net income from foreclosure property over the tax imposed on such income
by the Code less (iii) any excess noncash income (as determined under the Code).
See "Federal Income Tax Considerations." The actual amount and timing of
distributions, however, will be at the discretion of the Board of Directors and
will depend upon our financial condition in addition to the requirements of the
Code.
Subject to the distribution requirements referred to in the immediately
preceding paragraph, we intend (to the extent practicable) to invest
substantially all of the principal from repayments, sales and refinancings of
our Assets in Assets. We may, however, under certain circumstances, make a
distribution of principal or of Assets. Such distributions, if any, will be made
at the discretion of our Board of Directors.
It is anticipated that distributions generally will be taxable as ordinary
income to our non-tax exempt stockholders, although we may designate a portion
of such distributions as long-term capital gain or as a return of capital. We
will furnish annually to each of our stockholders a statement setting forth
distributions paid during the preceding year and their federal income tax
status. For a discussion of the federal income tax treatment of our
distributions, see "Federal Income Tax Considerations--Taxation of the Company"
and "--Taxation of Taxable U.S. Stockholders."
The declaration and payment of dividends by any BCP Sister Corp. (if and
when formed) will be made by the BCP Sister Corp.'s board of directors from time
to time based on such considerations as the BCP Sister Corp.'s board of
directors deems relevant, will be payable only out of funds legally available
therefor under the laws of the state of formation of the BCP Sister Corp. and
will be subject to any limitations which may be contained in the debt
instruments of the BCP Sister Corp. See "Risk Factors--Economic and Business
Risks--Conflicts of Interest."
48
<PAGE>
INVESTMENT STRATEGIES AND EXPERIENCE
INVESTMENT STRATEGIES AND EXPERIENCE
Our investment strategy will be driven by the background and experience of
our senior management, including management's experience with public and private
real estate companies. As the capitalization of the real estate industry
continues to evolve toward a publicly-held format, we believe, based upon our
management's experience through several economic cycles in the real estate
industry, that numerous investment opportunities will continue to emerge that
reflect several primary shifts in the real estate industry. These shifts
include:
- rapid recovery of the real estate markets;
- extraordinary growth of the public capital markets for real estate
companies;
- continued consolidation of the ownership of real estate;
- alignment of interests between investors and management; and
- recognition of real estate companies as operating businesses.
These factors have resulted in significant investment opportunities in real
estate, including arbitrage between public and private market pricing. It is our
belief that as the real estate industry continues its transformation (and
recognizing that real estate is still fundamentally a cyclical business),
disparities in pricing and capital availability, as well as ineffective
management of real estate Assets by others, will provide opportunities for
skilled and experienced management teams, such as our management team.
Initially, we expect to focus primarily on opportunities in the office sector.
As the real estate market cycle advances, we expect additional opportunities to
emerge in non-office market sectors, including opportunities in the lodging,
residential and industrial sectors. See "Risk Factors--Investment Activity
Risks--Multi-Sector Investment Strategy." We believe that, increasingly,
management expertise and creative real estate solutions will be required for
successful real estate companies. Our management team has a proven track record
in this regard in office as well as with other property types. Based on these
observations, we intend to identify, create and realize value for us in our
investment in Real Estate-Related Assets (as outlined below). Several themes
underlie this strategy:
- RELATIONSHIPS--our management will draw upon its extensive network of
domestic and foreign institutional relationships established over the past
twenty years in the public and private company sectors. These
relationships have provided, and are expected to continue to provide,
early and sometimes exclusive access to negotiated transactions and
avoidance of competitive auctions.
- OPERATING COMPANY EXPERTISE--we will identify opportunities where our
expertise in actively managing both public and private real estate
companies can be applied to under-performing real estate Assets or real
estate companies.
- INDUSTRY TRENDS--we will identify and capitalize on industry trends that
emerge as the market continues its transformation and maturation process.
We initially intend to focus our investment activity in the following types
of Real Estate-Related Assets: (i) value-added repositionings and discounted
purchases; (ii) development and re-development; (iii) multiple-property
portfolios; (iv) joint ventures and strategic partnerships; and (v) real estate
companies and real estate-related businesses.
(i) VALUE-ADDED REPOSITIONINGS AND DISCOUNTED PURCHASES. We expect to target
investments in under-utilized or poorly capitalized single Assets and portfolios
that may be recapitalized on advantageous terms and repositioned with the
expectation of returns greater than those that could be achieved by acquiring a
stabilized property. These investments may include the purchase of the property
at a discount to replacement cost or the purchase of the underlying debt thereon
often at a discount to face value. In today's dynamic real estate industry with
an ever-changing and cyclical economy and changing demographic characteristics,
there generally will be opportunities to take better advantage of well-located
and
49
<PAGE>
structurally sound properties. Opportunities in this area include acquisitions
of properties and portfolios from controlling parties who are not focused on
maximizing value in these Assets, whether because they have lost economic
incentive or because they are non-strategic or inefficient owners of real
estate. In addition, opportunities may involve substantial rehabilitation or
redevelopment and ground-up development where market conditions warrant new
construction. Investments in this area may benefit from our value-added
problem-solving and structuring capabilities, as well as from the skills of
operating partners in joint venture investments. We believe that there may be an
availability of these opportunities due to short-term issues with the properties
(such as vacancies) that may not appeal to larger publicly-traded REITs.
(ii) DEVELOPMENT AND RE-DEVELOPMENT. We expect that we will target, on a
selected basis, investments requiring strategic ground-up development or
re-development of existing properties that can benefit from repositioning. Based
on the current stage of the real estate business cycle, we believe that
attractive development opportunities are presenting themselves in a number of
markets. We expect to seek out opportunities where market vacancy rates and
market rents justify new construction and where job growth will support new
demand for office space. Our management has significant experience in numerous
urban and suburban development projects in Boston and throughout the United
States, including prominent office and mixed-use developments, particularly in
Boston. In addition, our principals also have development expertise in other
property types, including lodging, industrial, retail, apartments and mixed-use
projects.
(iii) MULTIPLE PROPERTY PORTFOLIOS. We expect to target real estate
acquisitions resulting from corporate divestitures from users, financial
institutions, and other non-strategic and inefficient owners of real estate.
Many domestic and foreign corporations and institutions (i.e., insurance
companies, pension funds and endowments) have made direct investments in real
estate Assets or, on occasion, have established full-service real estate
subsidiaries. In the current era of corporate restructuring and downsizing, many
companies have chosen to liquidate non-core businesses and real estate Assets.
In addition, we believe that the trend from private to public ownership is
motivating many institutions to liquidate their privately-held real estate
portfolios. As a result, we believe that many opportunities will exist to
acquire real estate Assets, real estate operating businesses or interests in
real estate joint ventures directly from corporations and institutions. In some
instances, the selling companies may have particular objectives, such as the
need to sell Assets prior to the end of a fiscal quarter or a desire to allow an
operating partner to continue to participate in an investment, which we expect
to be able to accommodate. We also believe that foreign institutions may become
particularly active sellers of domestic and foreign Assets in the near future.
We believe that we will be able to capitalize on management's historically
successful relationships with a wide range of institutions and, therefore, have
a competitive advantage in accessing many of these portfolios. We believe that
our experienced management team and our expertise in managing large, complex
portfolios may allow us to (i) pursue property portfolios that other real estate
investment entities may view as too complex, and (ii) take advantage of the
opportunities presented by these portfolios that may have been inefficiently
managed.
(iv) JOINT VENTURES AND STRATEGIC PARTNERSHIPS. We expect to enter into, or
acquire interests in, joint ventures or strategic partnerships as a way to
leverage both capital and expertise.
(v) REAL ESTATE COMPANIES AND REAL ESTATE-RELATED BUSINESSES. As public
market ownership and consolidation continues in the real estate industry, we
expect to target investments in real estate companies and businesses with a real
estate component. Opportunities in this target area include public and private
companies, and generally fall into three types of companies: (a) real estate
ownership companies, including REITs and non-REIT ownership companies,
homebuilders and other development companies; (b) real estate service companies,
such as management or brokerage companies; and (c) businesses with a strategic
dependence on real estate. In particular, there may be opportunities to acquire
controlling interests in certain small to mid-sized REITs that do not trade at
multiples as high as many other larger and better capitalized REITs. We intend
to invest in private placements of common stock or other securities convertible
into common stock. When we identify strong management teams and growth
prospects, we
50
<PAGE>
may provide growth capital to such companies and may recapitalize over-leveraged
or other poorly-capitalized companies. We believe that our experienced
management will enhance such companies' abilities to evaluate investment
opportunities. We expect to take advantage of the arbitrage between private and
public market pricing of real estate with our investments in this area.
Conversely, when an entity can be acquired for less than the value of its
Assets, we may acquire control of such entity, whether directly (through the
acquisition of a controlling equity interest) or indirectly (through the
acquisition of debt). To supplement our efforts in this strategic area, our
management team includes an individual with extensive experience in corporate
private equity investments.
Although we expect that our primary emphasis will be on the acquisition of
the above-described categories of Real Estate-Related Assets, future
acquisitions also may include Other Assets. We have no current plans to invest
in such Other Assets. When and if such investments are made, they will not be
the principal focus of our investment strategy. We intend to conduct all of our
investment activities, including those investments in the Other Assets, in a
manner consistent with maintaining our status as a REIT for United States
federal income tax purposes. For a description of the restrictions imposed on a
company desiring to be taxed as a REIT as to types of investments and
limitations on the amounts of such investments, see "Federal Income Tax
Considerations--Requirements for Qualification." Other than these restrictions,
we have no policy limiting the types of Other Assets in which we may invest or
limiting the amount of its investments, if any, in such Other Assets. To the
extent that we believe that any of the above-described investments may add
value, but are inconsistent with maintaining our status as a REIT, such
investments could be made by the BCP Sister Corp. However, our ability to fully
utilize the BCP Sister Corp. structure could be affected as a result of future
legislation. See "Risk Factors--Legal and Tax Risks--Adverse Impact of Future
Legislation Regarding REITs." In addition to making such investments through the
BCP Sister Corp., we might make such investments through a taxable corporate
subsidiary in which we would hold a majority of the economic interest but less
than 10% of the voting power. See "Federal Income Tax
Considerations--Requirements for Qualifications." Any such investments will be
structured to avoid jeopardizing our qualification as a REIT under the Code.
We cannot anticipate with any certainty the percentage of the net proceeds
of the Original Offering, or our other Assets or funds, that will be invested in
each category of Real Estate-Related Assets or Other Assets. We have broad
discretion in the manner in which we make investments, subject to our Investment
Strategy. There can be no assurance that we will be successful in our Investment
Strategy. See "Risk Factors--Investment Activity Risks--Appropriate Investments
May Not Be Available and Investments of Net Proceeds May Be Delayed."
INVESTMENT MANAGEMENT
We intend to create value in, and realize value from, our investments by
identifying advantageous investment management strategies. Our senior management
has extensive experience in a broad range of aspects of real estate investment
management, including financing, asset and property management, development and
dispositions.
Our corporate office, located in Boston, is staffed by twenty-five
employees. We have regional offices located in Chicago and Los Angeles, staffed
by three and two employees, respectively. We intend to pursue investments
throughout the country. In addition, we intend to enhance and extend our
internal management resources through the relationships and contacts with
third-party property management and brokerage firms with specialized geographic
and property-type expertise and information that our management has developed as
a result of its experience in the real estate industry. Through our existing
offices and these relationships, we can gain a local presence in strategic
markets and hands-on operational knowledge of the Assets underlying our
investments, as well as better access to proprietary transactions. Our senior
management has developed a network of such parties and will expand such
relationships as they pursue our Investment Strategy. Generally, we intend to
structure relationships with parties who will make meaningful equity investments
and provide incentives to its partners to ensure that the parties' interests
51
<PAGE>
are aligned, while we retain control over each investment. See "Risk
Factors--Economic and Business Risks--Risks Related to Growth Strategy."
We intend to finance investments with the use of leverage in an effort to
maximize equity returns while allowing maximum flexibility and maintaining an
acceptable level of risk. Our senior management has established relationships in
the lending community, being regular users of debt financing and we expect to
benefit from such individual lending relationships. See "Management's Discussion
and Analysis of Liquidity and Capital Resources" and "Risk Factors--Investment
Activity Risks--Real Estate Financing Risks."
Generally, we intend to pursue a strategy of portfolio diversification in
terms of geographic location, property type, and investment type. We believe
that diversification is important to reducing potential down-side risks.
However, we will have no predetermined limitations or targets for concentration
of geographic location, property type, or investment type. Instead, we plan to
make investment decisions on a case-by-case basis. See "Risk Factors--Investment
Activity Risks--Appropriate Investments May Not Be Available" and "Risk
Factors--Investment Activity Risks--Multi-Sector Investment Strategy."
THE BCP SISTER CORP.
We anticipate that we may, from time to time, identify Assets that we
believe may be advantageous investments, but that may be inappropriate (whether
for REIT qualification, or other tax reasons) for investment, in whole or in
part, by a REIT, or which may otherwise be determined by us, based on general
prudent considerations, to be inappropriate, in whole or in part, for investment
by us. In order to permit stockholders to participate in the economic benefits
that may be associated with such non-qualifying REIT Assets, we may, from time
to time, cause the Operating Partnership to form one or more subsidiary
corporations, partnerships or other entities (each, a "BCP Sister Corp."), which
would not elect to be taxed as a REIT. This structure has been employed by
certain other REITs. The Operating Partnership would initially contribute to the
BCP Sister Corp. a portion of its capital together with, on behalf of the
Limited Partners, a pro rata portion of the capital of the Operating Partnership
allocable to the Limited Partners' contributed capital, which will be sufficient
to permit the BCP Sister Corp. to make such initially identified investments, in
exchange for all of the issued and outstanding equity interests in the BCP
Sister Corp. The Operating Partnership would then distribute the equity
interests pro rata to the Company and the Limited Partners. We in turn would
distribute the BCP Sister Corp.'s equity interests to its stockholders in a
taxable transaction. Concurrently with the formation of the BCP Sister Corp., if
any, or immediately subsequent thereto, the BCP Sister Corp. will form an
operating partnership (the "Sister OP") upon substantially the same terms and
conditions as the Operating Partnership Agreement (including, without
limitation, the terms respecting the distribution of the Incentive Return to
Beacon Capital Participation Plan). Alternatively, the units of partnership of
the Sister OP may be distributed directly to the Limited Partners and our
stockholders. Furthermore, to the extent that certain synergies and efficiencies
are possible between us, the BCP Sister Corp. and the Sister OP, we intend to
maximize the opportunities presented by such synergies and efficiencies. For
example, we, the BCP Sister Corp. and the Sister OP may jointly acquire
investments in Assets and businesses, such as hotels or health care facilities,
where we will acquire title to the underlying real property and lease such
property to the Sister OP, at market rents (including rents based upon a
percentage of gross revenues), while the Sister OP acquires and operates the
operating business. We anticipate that such synergies and efficiencies will
provide us with advantages in making investments over other companies; however,
no assurance can be made that we will be successful in creating and implementing
such synergies and efficiencies. See "Risk Factors--Economic and Business
Risks--Conflicts of Interest" and "Risk Factors--Legal and Tax Risks--Adverse
Impact of Future Legislation Regarding REITs."
The formation of the BCP Sister Corp. will permit our stockholders who
retain common stock of the BCP Sister Corp. to participate in our real estate
operations (including ownership of real property) and the BCP Sister Corp.'s
operation of operating businesses and other Assets which may not otherwise be
52
<PAGE>
appropriate for a REIT. Our principal focus will be to make real estate
investments while any BCP Sister Corp.'s principal function will be to serve as
an operating company. The operating activities and operating Assets made
available to the BCP Sister Corp. by us are designed to provide our stockholders
with the long-term benefits of ownership in an entity devoted to the conduct of
operating business activities in addition to their ownership interest. A small
number of REITs, operating under tax provisions that no longer are available to
newly-formed REITs, have their shares "paired" or "stapled" with shares of a
related operating company, and, therefore, cannot be owned or transferred
independently. It is our intention that our Common Stock and the equity
interests of the BCP Sister Corp. will not be paired or stapled, but rather will
be structured as a "paper clip," a structure designed to permit us to continue
to qualify as a REIT. With respect to our Common Stock and the equity interests
of the BCP Sister Corp. that may be owned and transferred, subject to applicable
securities laws restrictions, separately and independently of each other, we and
the BCP Sister Corp. will not necessarily provide a paired investment on an
ongoing basis. After the initial formation of the BCP Sister Corp. and the
distribution of its equity interests, the BCP Sister Corp. and we will pursue
independent sources of financing and, because the stock may trade separately,
may ultimately have differing ownership. See "The Company--Certain
Relationships; Conflicts of Interest," "Federal Income Tax Considerations--BCP
Sister Corp." and "Risk Factors-- Legal and Tax Risks--Adverse Impact of Future
Legislation Regarding REITs."
To the extent that payments of rent may be made by the BCP Sister Corp. to
us, we will be required to monitor and comply with the "related party tenant"
provisions of the Code, which provide that payments made under a lease will not
constitute qualifying income for purposes of the REIT requirements if we own,
directly or indirectly or pursuant to attribution rules, 10% or more of the
ownership interests in the relevant lessee. The Aggregate Stock Ownership Limit
is designed to prevent stockholders from owning an amount of shares that would
cause us to be treated as owning a BCP Sister Corp. However, any stockholder
owning 10% or more of the Company by reason of a waiver of the Aggregate Stock
Ownership Limit or the application of the Look-Through Ownership Limit may be
required to reduce its ownership percentage to below 10% in order to receive its
pro rata share of the distribution of the stock of the BCP Sister Corp., to
ensure that rents received by the REIT are not disqualified under the related
party tenant provisions.
Our ability to fully utilize the BCP Sister Corp. structure could be
affected as a result of future legislation. In that regard, Congress recently
enacted, and the Clinton Administration signed into law, certain revenue
proposals as part of the Internal Revenue Service Restructuring and Reform Act
of 1998 that included, among other things, a freeze on the grandfathered status
of REITs that are "paired" or "stapled" with a related operating company. Unlike
such "paired" or "stapled" structures, the proposed BCP Sister Corp. structure
would be a "paper clip" structure in which interests in the BCP Sister Corp.
distributed to the our stockholders could be transferred independently from our
Common Stock. Although such legislation does not affect the "paper clip"
structure, there can be no assurance that the recently enacted legislation
affecting the paired share structure will not place legislative or judicial
scrutiny on the "paper clip" structure or that legislation adversely affecting
such a structure will not be proposed and enacted. See "Risk Factors--Legal and
Tax Risks--Adverse Impact of Future Legislation Regarding REITs" and "Federal
Income Tax Considerations--Impact of Proposed Legislation."
POLICIES WITH RESPECT TO CERTAIN OTHER ACTIVITIES
Although we have no specific policy with respect to such activities, we do
not presently anticipate that we will (i) underwrite the securities of other
unaffiliated issuers, or (ii) repurchase or reacquire our shares or, other than
through the redemption of Units in the Operating Partnership, other securities.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 1, 1998, the total number of
shares of Common Stock beneficially owned, and the percent so owned, by (i) each
person known by the Company to own more than 5% of the Common Stock, (ii) each
of BCP's directors and executive officers and (iii) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL
OWNERSHIP(2)
------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT
- ---------------------------------------- --------- -------
<S> <C> <C> <C>
Wellington Management Company........... 2,300,000 10.9% (3)
75 State Street
Boston, MA 02109
Southeastern Asset Management........... 2,075,000 9.8%
6410 Poplar Drive
Memphis, TN 38119
RREEF Venture Capital Fund LP........... 1,650,000 7.8%
875 N. Michigan Avenue
Chicago, IL 60611
ABKB/La Salle........................... 1,337,500 6.4%
100 East Pratt St.
Baltimore, MD 21202
Alan M. Leventhal....................... 591,312 2.8% (4)
Lionel P. Fortin........................ 271,040 1.2% (5)
Stephen T. Clark........................ 6,425 * (6)
Steven Shulman.......................... 11,986 * (7)
Scott M. Sperling....................... 6,425 * (8)
Jeremy Fletcher......................... 10,723 * (9)(10)
Douglas Mitchell........................ 5,361 * (9)
Erin O'Boyle............................ 2,000 * (11)
Nancy J. Broderick...................... 1,350 *
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Randy Parker............................ 1,340 * (12)
E. Valjean Wheeler...................... 1,340 * (9)
William A. Bonn......................... 1,000 * (12)
All Directors and Executive Officers as
a Group
(12 persons).......................... 910,302 4.3% (4)(5)(6)(7)(8)(9)(10)(11)(12)
</TABLE>
- ------------------------
* Less than one percent
(1) All information has been determined as of June 1, 1998. For the purposes of
this table, a person is deemed to have "beneficial ownership" of the number
of shares of Common Stock that person has the right to acquire pursuant to
the exercise of stock options or redemption of Operating Partnership Units
(assuming the Company elects to issue Common Stock rather than pay cash upon
such redemption) held by such person or an affiliate of such person. Unless
otherwise noted the address of each Beneficial Owner is: c/o Beacon Capital
Partners, Inc., One Federal Street, 26th Floor, Boston, MA 02110.
(2) For the purpose of computing the percentage of outstanding shares of Common
Stock held by each person, any shares of Common Stock which such person has
the right to acquire pursuant to the exercise of a stock option or upon the
redemption of Operating Partnership Units is deemed to be outstanding, but
is not deemed to be outstanding for the purpose of computing the percent
ownership of any other person.
(3) Includes shares held by 2 separate stockholders which the Company believes
to be controlled by Wellington Management Company.
(4) Includes Operating Partnership Units held indirectly by a trust, of which
Mr. Leventhal is a beneficiary. Excludes options to purchase 500,000 shares
of Common Stock granted to Mr. Leventhal and subsequently transferred to a
trust, of which Mr. Leventhal is a beneficiary, which options are not
presently exercisable.
(5) Includes Operating Partnership Units held indirectly by a trust, of which
Mr. Fortin's wife is a trustee. Excludes options to purchase 500,000 shares
of Common Stock granted to Mr. Fortin and subsequently transferred to a
trust, of which Mr. Fortin's wife is a beneficiary, which options are not
presently exercisable.
(6) Includes currently exercisable options to purchase 6,425 shares of Common
Stock.
(7) Includes currently exercisable options to purchase 6,625 shares of Common
Stock.
(8) Includes currently exercisable options to purchase 6,425 shares of Common
Stock.
(9) Excludes options to purchase 125,000 shares of Common Stock, which options
are not presently exercisable.
(10) Includes 10,723 shares of Common Stock held by a trust, of which Mr.
Fletcher is a trustee.
(11) Excludes options to purchase 175,000 shares of Common Stock, which options
are not presently exercisable.
(12) Excludes options to purchase 150,000 shares of Common Stock, which options
are not presently exercisable.
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<PAGE>
PRICE RANGE OF COMMON STOCK
There is no established market for the Common Stock, which is not listed on
any securities exchange, and trading in the Common Stock has not been quoted on
any interdealer or over-the-counter bulletin board since the Original Offering.
As of December 1, 1998, the Company believes there to be approximately 354
holders of record of BCP's Common Stock.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998, and on a pro forma basis to reflect the Pro Forma
Transactions (as defined under "Selected Historical and Unaudited Pro Forma
Financial Data"):
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Mortgage notes payable................................................ $ 21,631 $ 21,631
Minority interest..................................................... 55,976 55,976
Common stock; $.01 par value, 500,000,000 shares
authorized, 20,973,932 shares issued and outstanding
and adjusted pro forma.............................................. 210 210
Additional paid-in capital............................................ 389,520 389,520
Retained earnings..................................................... 6,549 6,549
---------- -----------
Total........................................................... $ 473,886 $ 473,886
---------- -----------
---------- -----------
</TABLE>
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SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The selected historical financial data set forth below presents the
historical financial data of the Company as of September 30, 1998 and for the
period from January 21, 1998 (our inception) through September 30, 1998. The
selected pro forma financial data of the Company set forth below assumes that we
will qualify as a REIT and gives effect to (i) the pending additional funding of
an investment in a joint venture known as Mathilda Research Centre and (ii) the
pending additional funding of an investment in a joint venture known as
Millennium Tower as if these transactions had occurred as of September 30, 1998.
The income statement data gives effect to these transactions as well as to (i)
the acquisition of The Athenaeum Portfolio, and the subsequent formation of a
50% joint venture, (ii) the acquisition of Technology Square and The Draper
Building and (iii) the acquisition of Dallas Office and Industrial Portfolio as
if all transactions had occurred January 1, 1998. The selected pro forma
financial data are not necessarily indicative of what our actual financial
position or results of operations would have been as of or for the period ended
September 30, 1998, nor do they purport to be indicative of the financial
position or results of operations for future periods. The selected financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," our historical financial
statements and notes thereto and our unaudited pro forma financial statements
and notes thereto, each included elsewhere herein.
<TABLE>
<CAPTION>
AS OF AND FOR THE
PERIOD
ENDED SEPTEMBER 30,
1998
-----------------------
HISTORICAL PRO FORMA
---------- -----------
(IN THOUSANDS, EXCEPT
FOR
PER SHARE DATA)
<S> <C> <C>
Income Statement Data:
Revenues............................................................ $ 16,795 $ 24,538
Net income.......................................................... 6,549 5,704
Net income per common share--basic and diluted...................... 0.32 0.27
Balance Sheet Data:
Real estate......................................................... $ 214,601 $ 214,601
Investments in and advance to joint ventures and corporations....... 70,975 107,626
Total assets........................................................ 480,113 480,113
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following should be read in conjunction with our Consolidated Financial
Statements and notes thereto and our unaudited Pro Forma Condensed Consolidated
Financial Statements, each contained elsewhere herein. Our Consolidated
Financial Statements include BCP and the Operating partnership, our
majority-owned partnership.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $323.9 million at March 31, 1998, which was
primarily the result of the Original Offering on March 20, 1998. Cash and cash
equivalents were $192.3 million at September 30, 1998. The decrease primarily
resulted from (i) the acquisitions of Technology Square, The Draper Building and
the Dallas Office and Industrial Portfolio, (ii) investments in and advances to
The Athenaeum Portfolio, Mathilda Research Centre, Millennium Tower and Cypress
Communications, Inc. and (iii) loan repayments to the Company founders offset by
(a) proceeds received from the exercise of the underwriter's over-allotment
option, (b) the issuance of Operating Partnership units and (c) cash flow from
operations.
SHORT AND LONG TERM LIQUIDITY
We have considered our short-term liquidity needs and the adequacy of
expected liquidity sources to meet these needs. We believe that our principal
short-term liquidity needs are to fund normal recurring expenses, debt service
requirements and the minimum distribution required to maintain our REIT
qualification under the Code. We believe that these needs will be funded from
cash flows provided by operating activities.
We expect to meet our long-term liquidity requirements for the costs of
additional development, real estate and real estate related investments,
scheduled debt maturities, major renovations, expansions and other non-recurring
capital improvements through long-term secured and unsecured indebtedness, joint
ventures and the issuance of additional Operating Partnership Units and equity
securities.
FINANCING ACTIVITIES
BCP was incorporated on January 21, 1998 as a Massachusetts corporation and
was initially capitalized through loans from the Company founders, Messrs.
Leventhal and Fortin, in the amount of $3.6 million. On May 1, 1998, those loans
were repaid.
On March 20, 1998, we completed an initial private offering issuing
17,360,769 shares of Common Stock with proceeds, net of offering costs, of
$323.1 million. On April 3, 1998 and April 13, 1998, through the exercise of the
underwriter's over-allotment option, 3,613,163 additional shares were issued
with proceeds, net of offering costs, of $66.6 million.
In connection with our re-incorporation of BCP (through a merger) as a
Maryland corporation, we established the Operating Partnership. As contemplated
in the Original Offering, an entity controlled by Messrs. Leventhal and Fortin
was to contribute $4.2 million to the Operating Partnership for a 1% limited
partnership interest. In order to comply with the requirements of ERISA, such
contribution could only be made subsequent to the closing of our first real
estate transaction. The $4.2 million contribution was made on May 4, 1998.
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INVESTING ACTIVITIES
On May 1, 1998, we acquired The Athenaeum Portfolio, an eleven building,
970,000 square foot mixed-use portfolio located in Cambridge, MA. The aggregate
consideration for the properties was $195 million, consisting of approximately
$125.9 million in cash and the assumption of approximately $69.1 million of
first mortgage debt. We used proceeds from the Original Offering for the cash
portion of the acquisition. Subsequent to the closing of the transaction, we
completed the formation of a joint venture with PW Acquisitions IX, LLC, an
affiliate of PaineWebber, in which both parties hold a 50% interest in the
master limited liability company that controls the two limited liability
companies that hold title to The Athenaeum Portfolio.
On June 24, 1998, we acquired a four building complex known as Technology
Square and an adjacent building known as The Draper Building. The properties are
located in Cambridge, MA and consist of approximately 1,026,000 square feet. The
aggregate consideration for the properties was $123 million, consisting of $71.6
million in cash and the issuance of $51.4 million of units of limited
partnership interest in the Operating Partnership. We used proceeds from the
Original Offering for the cash portion of the acquisition.
On July 1, 1998, we acquired the Dallas Office and Industrial Portfolio, a
1,335,000 square foot portfolio of seven office properties and seven research &
development (R&D) properties located in suburban Dallas, TX. The aggregate
consideration for the properties was $91.2 million, consisting of approximately
$69.5 million in cash and the assumption of approximately $21.7 million of first
mortgage debt. We used proceeds from the Original Offering for the cash portion
of the acquisition.
On August 9, 1998, we entered into a joint venture agreement with Mathilda
Partners LLC, an affiliate of Menlo Equities, a California based developer. On
November 4, 1998, the venture acquired a twelve-acre site on Mathilda Avenue in
Sunnyvale, California, on which the venture plans to construct Mathilda Research
Centre, two four-story Class A office buildings with surface parking. Although
not finalized, the budget for the 267,000 square foot development is anticipated
to be approximately $57 million, of which approximately 35% will be funded from
cash contributions and the balance is intended to be financed with a
construction loan from an institutional lender. Currently, we have invested
approximately $17 million in the project using proceeds from the Original
Offering.
On September 1, 1998 we entered into a joint venture agreement with HA
L.L.C., an affiliate of Martin Smith Real Estate Services, a Seattle based real
estate developer. The joint venture was formed to develop Millennium Tower, a
19-story office and residential tower, located at Second Avenue and Columbia
Street in downtown Seattle, Washington. The estimated cost of the 273,000 square
foot building is $71 million, approximately 60% of which the venture intends to
finance with a construction loan from an institutional lender. Currently, we
have invested approximately $4 million in the project using proceeds from the
Original Offering.
On September 30, 1998, we invested $5 million to acquire preferred stock in
Cypress Communications, Inc., ("Cypress") representing a 13.5% fully diluted
ownership position in such company. Dividends will be earned on our investment
as and when dividends are declared on the preferred stock or any other class of
stock in Cypress Communications, Inc. The preferred stock will be treated
preferentially upon a liquidation of Cypress, should a liquidation occur, and is
held by both the Operating Partnership and Tenant Communications, Inc., a
Massachusetts corporation ("Tenant Communications"). The voting common stock of
Tenant Communications is controlled by Messrs. Leventhal and Fortin. The
Operating Partnership owns 99% of the economic interests in Tenant
Communications. We used proceeds from the Original Offering for the investment.
Cypress Communications, Inc. is a provider of bundled communications
services to tenants in multi-tenant commercial buildings. These bundled services
include Internet access, video, voice mail and telephone service. By bundling
services to multiple tenants in an office building, Cypress can aggregate the
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traffic of customers and give them the advantage of a cost-effective service
with a high level of customer care.
CAPITALIZATION
As of September 30, 1998, our total consolidated mortgage debt is
approximately $21.6 million, and our total consolidated mortgage debt plus our
proportionate share of total unconsolidated mortgage debt is approximately $56.1
million. Our current consolidated mortgage indebtedness has a weighted average
rate of 8.22%, with maturities ranging from 1999 through 2022, and is secured by
some of our properties. Our proportionate share of our current total
unconsolidated mortgage debt consists of approximately $34.5 million with a rate
of 8.485% and a maturity of 2027 on The Athenaeum Portfolio (in which we hold a
50% interest in the limited liability company that controls the two limited
liability companies that hold title to this portfolio). Our consolidated and
unconsolidated fixed rate mortgage debt has a weighted average rate of 8.38%.
RESULTS OF OPERATIONS
For the period January 21, 1998 through March 31, 1998, we had a net loss of
$0.4 million consisting primarily of $0.6 million of interest income earned on
the investment of the net proceeds of the Original Offering offset by general
and administrative expenses of approximately $1 million.
For the period April 1, 1998 through September 30, 1998, we had net income
of $6.9 million, generated from total revenues of $16.2 million offset by
expenses of $8.9 million and minority interest in consolidated partnership of
$0.4 million. The revenues consist of Technology Square, The Draper Building and
the Dallas Office and Industrial Portfolio rental income of $6.2 million, The
Athenaeum Portfolio equity earnings of $2.1 million, interest income of $7.8
million and other income of $0.1 million. Expenses consist of Technology Square,
The Draper Building and the Dallas Office and Industrial Portfolio property
operating and real estate taxes of $1.7 million and $1 million, respectively,
general and administrative expenses of $4.6 million, interest expense of $.5
million and depreciation and amortization of $1.1 million.
For the period January 21, 1998 through September 30, 1998, we had net
income of $6.5 million, generated from total revenues of $16.8 million offset by
expenses of $9.9 million and minority interest in consolidated partnership of
$.4 million. The revenues consist of Technology Square, The Draper Building and
the Dallas Office and Industrial Portfolio rental income of $6.2 million, The
Athenaeum Portfolio equity earnings of $2.1 million, interest income of $8.4
million and other income of $.1 million. Expenses consist of Technology Square,
The Draper Building and the Dallas Office and Industrial Portfolio property
operating and real estate taxes of $1.7 million and $1 million, respectively,
general and administrative expenses of $5.6 million, interest expense of $.5
million and depreciation and amortization of $1.1 million.
On a pro forma basis, for the nine months ended September 30, 1998, we had
net income of $5.7 million, generated from total revenues of $24.5 million
offset by expenses of $18.1 million and minority interest in consolidated
partnership of $0.7 million. The revenues consist of Technology Square, The
Draper Building and the Dallas Office and Industrial Portfolio rental income of
$17.2 million, The Athenaeum Portfolio equity earnings of $3.5 million, interest
income of $3.5 million and other income of $0.3 million. Expenses consist of
Technology Square, The Draper Building and the Dallas Office and Industrial
Portfolio property operating and real estate taxes of $5.2 million and $2.8
million, respectively, general and administrative expenses of $5.6 million,
interest expense of $1.4 million and depreciation and amortization of $3.1
million.
The minority interest in consolidated partnership represents the portion of
the Operating Partnership that is not owned by us.
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YEAR 2000 READINESS DISCLOSURE
The Year 2000 compliance issue concerns the inability of computer systems to
accurately calculate, store or use a date after 1999. The inability of a
computer to properly process dates after 1999 could result in system failures or
miscalculations. Such failures in our computers could lead to disruptions in our
activities and operations. If we fail, or our significant tenants or vendors
fail, to make necessary modifications and conversions on a timely basis to
remedy these problems, the Year 2000 issue could have a material adverse effect
on us and our results of operations or financial position. We believe that our
competitors face similar risks in regard to Year 2000.
We are managing our Year 2000 initiative to minimize any adverse effect on
our business operations. We have established a Year 2000 committee to address
Year 2000 concerns. The Year 2000 committee will implement a Year 2000
initiative which has the following phases: (i) introducing Year 2000 awareness;
(ii) identifying our systems with potential Year 2000 issues; (iii) assessing
and budgeting Year 2000 compliance costs; (iv) remediation; (v) testing; (vi)
contacting material third parties to assess their Year 2000 compliance; and
(vii) developing a contingency plan in case our Year 2000 initiative is not
successful.
We have undertaken phases (i) and (ii) of our Year 2000 initiative. We have
reviewed our corporate computer operations that consist of recent releases of
network systems, accounting, property management and desktop applications. All
of such systems and applications were installed in 1998 and are substantially
Year 2000 compliant. By January, 1999, all corporate and property financial
records will be maintained on our corporate accounting system. We have contacted
the vendors for these systems and have received assurance that these systems are
Year 2000 compliant.
We have not incurred any material costs to address our Year 2000 compliance
issues. We have not yet completed the budgeting phase of our Year 2000
initiative. We do not currently expect that the costs incurred in connection
with the initiative will have a material adverse impact on our results of
operations or financial position.
We have also begun working on phase (vi) of our Year 2000 initiative. We
have retained third party property managers to operate our properties. Included
in the contractual obligations of these parties is an undertaking by the third
party managers to work with us on our Year 2000 initiative. Currently, we are
requesting and reviewing information from these third parties to determine their
Year 2000 readiness. Though this review is not complete, we believe that our
managers are in the process of reviewing building systems and the systems of the
properties' tenants and vendors to ensure Year 2000 preparedness.
We have rights to approve all lease agreements and have reviewed our
standard lease form to address Year 2000 compliance issues.
Our inability, or the inability of our tenants or vendors, to be Year 2000
compliant could lead to declining occupancy rates, higher operating expenses and
other adverse effects which are not quantifiable at this time. The failure of
any of these parties to be Year 2000 compliant could have a material adverse
effect on our results of operations or financial position.
We do not currently have a contingency plan in place in the event that we,
or our managers, tenants or vendors, do not successfully address Year 2000
compliance issues. We will evaluate the status of our Year 2000 initiative by
the end of the first quarter of 1999 and determine whether such a contingency
plan is necessary. We expect to complete our Year 2000 initiative by the end of
the third quarter of 1999, including the development of any contingency plan, if
needed.
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DESCRIPTION OF SECURITIES
The following description of the terms of our securities is not complete.
This description is subject to and qualified in its entirety by reference to our
Charter and Bylaws, (copies of which are available upon request to the Company).
See "Certain Provisions of Maryland Law and of BCP's Charter and Bylaws."
GENERAL
Our Charter provides that the Company has the authority to issue up to
950,000,000 shares of stock, consisting of 500,000,000 shares of Common Stock
($.01 par value per share); 250,000,000 shares of excess stock ($.01 par value
per share) ("Excess Stock"); and 200,000,000 shares of preferred stock ($.01 par
value per share) ("Preferred Stock"). As of December 1, 1998, 20,973,932 shares
of our Common Stock are issued and outstanding and no shares of Excess Stock or
Preferred Stock are issued and outstanding. Under Maryland law, stockholders
generally are not liable for the corporation's debts or obligations.
COMMON STOCK
Subject to the preferential rights of any other class or series of stock and
to the provisions of our Charter regarding Excess Stock, holders of shares of
our Common Stock are entitled to receive dividends on such Common Stock if, as
and when authorized and declared by our Board of Directors (out of assets
legally available therefor) and to share ratably in the Company's assets legally
available for distribution to its stockholders in the event of its liquidation,
dissolution or winding-up (after payment of or adequate provision for all of the
Company's known debts and liabilities).
Subject to the provisions of our Charter regarding Excess Stock, each
outstanding share of our Common Stock entitles the holder to one vote on all
matters submitted to a vote of stockholders (including the election of
directors). Except as otherwise required by law and except as provided with
respect to any other class or series of stock, the holders of such shares of
Common Stock will possess exclusive voting power. There is no cumulative voting
in the election of directors, which means that the holders of a majority of the
outstanding shares of Common Stock can elect all of the directors then standing
for election and the holders of the remaining shares of Common Stock will not be
able to elect any Directors.
Holders of shares of our Common Stock have no preference, conversion,
exchange, sinking fund, redemption or appraisal rights (except as provided by
Maryland law) and have no preemptive rights to subscribe for any securities of
the Company. Subject to the provisions of our Charter regarding Excess Stock,
shares of our Common Stock will have equal dividend, liquidation and other
rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two thirds of the shares entitled to vote on the matter unless a different
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. Our Charter does not
provide for a different percentage in such situations, except for certain
amendments to our Charter. See "Certain Provisions of Maryland Law and BCP's
Charter and Bylaws--Amendment of Charter and Bylaws."
PREFERRED STOCK
Our Charter authorizes the Board of Directors to classify any unissued
shares of Preferred Stock and to reclassify any previously classified but
unissued shares of Preferred Stock of any series, as authorized by the Board of
Directors. Prior to issuance of shares of each class or series, the Board is
required by the MGCL and our Charter to fix, subject to the provisions of our
Charter regarding Excess Stock, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such class or
series. Such
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rights, powers, restrictions and limitations could include the right to receive
specified dividend payments and payments on liquidation prior to any such
payments being made to the holders of some, or a majority, of our Common Stock.
The Board of Directors could authorize the issuance of Preferred Stock with
terms and conditions that could have the effect of discouraging a takeover or
any other transaction that holders of our Common Stock might believe to be in
their best interests or in which holders of some, or a majority, of our Common
Stock might receive a premium for their shares over the then current market
price of such shares. As of the date hereof, no shares of Preferred Stock are
outstanding and we have no present plans to issue any Preferred Stock.
POWER TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND PREFERRED STOCK
We believe that the power of the Board of Directors to issue additional
authorized but unissued shares of Common Stock or Preferred Stock and to
classify or reclassify unissued shares of Common or Preferred Stock and
thereafter to cause the Company to issue such classified or reclassified shares
of stock will provide us with increased flexibility in structuring possible
future financings and acquisitions and in meeting other needs which might arise.
The additional classes or series, as well as the Common Stock, will be available
for issuance without further action by our stockholders, unless such action is
required by applicable law or the rules of any stock exchange or automated
quotation system on which our securities may be listed or traded. Although the
Board of Directors has no intention at the present time of doing so, it could
authorize the Company to issue a class or series that could (depending upon the
terms of such class or series) delay, defer or prevent a transaction or a change
in control of the Company that might involve a premium price for holders of our
Common Stock or otherwise be in their best interest.
DIVIDEND REINVESTMENT PLAN
We may implement a dividend reinvestment plan whereby our stockholders may
automatically reinvest their dividends in the Common Stock. Details about any
such plan would be sent to our stockholders following adoption thereof by the
Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is EquiServe (the
"Transfer Agent") in Boston, Massachusetts.
TRANSFER RESTRICTIONS
Restrictions Under Charter
In order for the Company to qualify as a REIT under the Code, among other
things, not more than 50% in value of its outstanding stock may be owned,
directly or indirectly, by five or fewer individuals (defined in the Code to
include certain entities) during the last half of a taxable year (other than the
first year for which an election to be a REIT has been made) (the "Five or Fewer
Requirement"), and such shares of capital stock must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months
(other than the first year for which an election to be a REIT has been made) or
during a proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations."
In order to protect the Company against the risk of losing its status as a
REIT and to otherwise protect the Company from the consequences of a
concentration of ownership among its stockholders, our Charter (subject to
certain exceptions) provides that no single person (which may include certain
"groups" of persons) may "beneficially own" more than 9.8% (the "Aggregate Stock
Ownership Limit") of the aggregate number of outstanding shares of any class or
series of stock; provided, however, that certain mutual funds registered under
the Investment Company Act of 1940 and certain other widely-held entities (other
than pension plans as described in Section 401(a) of the Code) ("Look-Through
Entities") may "beneficially own" no more than 15% (the "Look-Through Ownership
Limit"). Under our Charter, a
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person generally "beneficially owns" shares if (i) such person has direct
ownership of such shares, (ii) such person has indirect ownership of such shares
taking into account the constructive ownership rules of Section 544 of the IRS
Code (as modified by Section 856(h)(1)(B) of the IRS Code) or (iii) such person
would be deemed to "beneficially own" such shares pursuant to Rule 13d-3 under
the Exchange Act. Any transfer of shares of stock or of any security convertible
into shares of stock that would create a direct or indirect ownership of shares
of stock in excess of the Aggregate Stock Ownership Limit or the Look-Through
Ownership Limit (as applicable) or that would result in the disqualification of
the Company as a REIT, including any transfer that results in the shares of
stock being owned by fewer than 100 persons or results in the Company being
"closely held" within the meaning of Section 856(h) of the Code or results in
the Company constructively owning 10% or more of the ownership interests in a
tenant of the Company within the meaning of Section 318 of the Code as modified
by Section 856(d)(5) of the Code, shall be null and void, and the intended
transferee will acquire no rights to the shares of stock.
The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines that it is no longer in the best interests
of the Company to attempt to qualify (or to continue to qualify) as a REIT. The
Board of Directors, upon receipt of a ruling from the IRS, or an opinion of
counsel or other evidence or undertakings acceptable to it, may, in its sole
discretion, waive the Aggregate Stock Ownership Limit and the Look-Through
Ownership Limit if evidence satisfactory to the Board of Directors is presented
that the changes in ownership will not jeopardize the Company's REIT status or
cause the Company to be a "pension-held REIT" for federal income tax purposes
and the Board of Directors otherwise decides that such action is in the best
interest of the Company.
If any purported transfer of stock of the Company or any other event would
otherwise result in any person violating the Aggregate Stock Ownership Limit or
the Look-Through Ownership Limit (as applicable) or our Charter, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
in excess of the applicable limit and the Prohibited Transferee shall acquire no
right or interest (or, in the case of any event other than a purported transfer,
the person or entity holding record title to any such shares in excess of the
applicable limit (the "Prohibited Owner") shall cease to own any right or
interest) in such excess shares. Any such excess shares described above will be
converted automatically into an equal number of shares of Excess Stock (the
"Excess Shares") and transferred automatically (by operation of law) to a trust,
the beneficiary of which will be a qualified charitable organization selected by
the Company (the "Beneficiary"). Such automatic transfer shall be deemed to be
effective as of the close of business on the Trading Day (as defined in our
Charter) prior to the date of such violative transfer.
As soon as practical after the transfer of shares to the trust but in an
orderly fashion so as not to materially adversely affect the trading price of
our Common Stock, the trustee of the trust (who we shall designate and who will
be unaffiliated with the Company and any Prohibited Transferee or Prohibited
Owner) will be required to sell such Excess Shares to a person or entity who
could own such shares without violating the applicable Limit, and distribute to
the Prohibited Transferee an amount equal to the lesser of the price paid by the
Prohibited Transferee for such Excess Shares or the sales proceeds received by
the trust for such Excess Shares. In the case of any Excess Shares resulting
from any event other than a transfer, or from a transfer for no consideration
(such as a gift or devise), the trustee will be required to sell such Excess
Shares to a qualified person or entity and distribute to the Prohibited Owner an
amount equal to the lesser of the fair market value of such Excess Shares as of
the date of such event or the sales proceeds received by the trust for such
Excess Shares. In either case, any proceeds in excess of the amount
distributable to the Prohibited Transferee or Prohibited Owner (as applicable)
will be distributed to the Beneficiary. Prior to a sale of any such Excess
Shares by the trust, the trustee will be entitled to receive in trust for the
Beneficiary, all dividends and other distributions we pay with respect to such
Excess Shares.
The Prohibited Owner with respect to such Excess Shares shall repay to the
trust the amount of any dividends or distributions received by it that (i) are
attributable to any shares of stock that have been converted into Excess Shares
and (ii) were distributed by the Company to stockholders of record on a
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record date which was on or after the date that such shares were converted into
Excess Shares. Each Excess Share shall entitle the holder to no voting rights
other than those voting rights which accompany a class of stock under Maryland
law. The trustee, as record holder of the Excess Shares, shall be entitled to
vote all Excess Shares. Any vote by a Prohibited Owner as a purported holder of
shares of stock prior to our discovery that such shares of stock have been
converted into Excess Shares shall, subject to applicable law, (i) be rescinded
and shall be void AB INITIO with respect to such Excess Shares and (ii) be
recast in accordance with the desires of the trustee acting for the benefit of
the Beneficiary; provided, however, that if we have already taken irreversible
corporate action, then the trustee shall not have the authority to rescind and
recast such vote.
In addition, our shares of stock held in the trust shall be deemed to have
been offered for sale to the Company, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that resulted
in such transfer to the trust (or, in the case of a devise or gift, the market
price at the time of such devise or gift) and (ii) the market price on the date
we (or our designee), accept such offer. We shall have the right to accept such
offer for a period of 90 days following the later of (a) the date of the event
which resulted in such shares of Excess Stock or (b) the date the Board of
Directors first determined that the event resulting in the shares of Excess
Stock occurred, if we do not receive notice of such event. Upon such a sale to
the Company, the interest of the Beneficiary in the shares sold shall terminate
and the trustee shall distribute the net proceeds of the sale to the Prohibited
Owner.
Each stockholder shall upon demand be required to disclose to the Company in
writing any information with respect to the direct, indirect and constructive
ownership of capital stock as the Board of Directors deems necessary to comply
with the provisions of the Code applicable to REITs, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
The above-described ownership limits may have the effect of precluding
acquisition of control of the Company.
REGISTRATION RIGHTS
The Selling Stockholders of our Common Stock are entitled to the benefits of
a Registration Rights Agreement between the Company and the Initial Purchaser in
the Original offering (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, we have agreed for the benefit of the holders of
our Common Stock that it will from time to time (at its expense) (i) promptly,
but in any event within 90 days after the date of issuance of the Common Stock,
file a shelf registration statement (the "Shelf Registration Statement") with
the Commission with respect to resales of the Common Stock, (ii) use its best
efforts to cause such Shelf Registration Statement to be declared effective by
the Commission as promptly as practicable and (iii) use its best efforts to
maintain such Shelf Registration Statement continuously effective under the
Securities Act, until the date (the "Expiration Date") which is the earliest of
the dates described in the following clauses (a), (b) and (c): (a) the second
annual anniversary of the latest date of original issuance of the Common Stock,
(b) such time as all Common Stock covered by the Shelf Registration Statement
has been sold pursuant to the Shelf Registration Statement, transferred pursuant
to Rule 144 under the Securities Act or otherwise transferred in a manner that
results in a new security not subject to transfer restrictions under the
Securities Act being delivered, and (c) such time as, in the opinion of counsel,
all of the Common Stock held by nonaffiliates of the Company and covered by the
Shelf Registration Statement are eligible for resale pursuant to Rule 144(k) (or
any successor or analogous rule) under the Securities Act and the legend
described under "Notice to Investors" has been removed from such Common Stock.
The Registration Statement of which this Prospectus forms a part has been filed
pursuant to the foregoing provisions of the Registration Rights Agreement.
Notwithstanding the foregoing, we will be permitted to suspend the use, from
time to time, of this prospectus that is part of the Shelf Registration
Statement for periods (any such period hereinafter
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referred to as a "blackout period"), if the Company's Board of Directors shall
have determined in good faith that it is in the best interests of the Company to
suspend such use and we provide the Selling Stockholders with written notice of
such suspension.
A Selling Stockholder that sells Common Stock pursuant to the Shelf
Registration Statement, including through the use of this Prospectus, generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such a holder (including certain
indemnification rights and obligations). In addition, each holder of Common
Stock may be required to deliver information to be used in connection with the
Shelf Registration Statement in order to have such holder's Common Stock
included in the Shelf Registration Statement and to benefit from the provisions
of the succeeding paragraph.
Each Common Stock certificate contains a legend to the effect that the
holder thereof, by its acceptance thereof, will be deemed to have agreed to be
bound by the provisions of the Registration Rights Agreement. In that regard,
each holder is deemed to have agreed that, upon receipt of notice from the
Company of the occurrence of any event which makes a statement in this
prospectus untrue in any material respect or which requires the making of any
changes in such prospectus in order to make the statements therein not
misleading, or of certain other events specified in the Registration Rights
Agreement, such holder will suspend the sale of Common Stock pursuant to this
prospectus until the Company has amended or supplemented such prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such holder or we have given notice that the sale of
our Common Stock may be resumed.
We have agreed (pursuant to a registration rights agreement with Luddite
Associates, a partnership owned by The Prudential Insurance Company of America
and its affiliates) to register, on any four occasions after September 1, 1999,
at the request of Luddite Associates (or in certain other circumstances), the
shares of Common Stock which we may issue upon the redemption of 2,528,296 Units
held by Luddite Associates. We will bear all expenses incident to the
registration of securities under this agreement, except that such expenses shall
not include any underwriting discounts or commissions, or transfer taxes, if
any, relating to such shares.
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CERTAIN PROVISIONS OF MARYLAND LAW AND
OF BCP'S CHARTER AND BYLAWS
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR
CHARTER AND BYLAWS DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO AND
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO MARYLAND LAW AND TO OUR CHARTER AND
BYLAWS.
Our Charter and the Bylaws contain certain provisions that could make more
difficult the acquisition of the Company by means of a tender offer, a proxy
contest or otherwise. These provisions may have the effect of delaying,
deterring or preventing certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
the Company to negotiate first with the Board of Directors. We believe that the
benefits of these provisions outweigh the potential disadvantages of
discouraging such proposals because, among other things, negotiation of such
proposals might result in an improvement of their terms.
AMENDMENT OF CHARTER AND BYLAWS
Our Charter may be amended only by the affirmative vote of the holders of a
majority of all of the votes entitled to be cast on the matter, (or, if less
than 75% of the Directors then in office approve the amendment, by the
affirmative vote of holders of two-thirds of all votes entitled to be cast on
the matter) except that amendments dealing with certain articles of our Charter
(for example, articles relating to stockholder action; the powers, election of,
removal of and classification of directors; limitation of liability; and
amendment of our Charter) shall require the affirmative vote of not less than
seventy-five percent of the outstanding votes entitled to be cast on the matter.
Unless otherwise required by law, the Board of Directors may amend our Bylaws by
the affirmative vote of a majority of the Directors then in office.
DISSOLUTION OF THE COMPANY
The MGCL permits the dissolution of the Company by (i) the affirmative vote
of a majority of the entire Board of Directors declaring such dissolution to be
advisable and directing that the proposed dissolution be submitted for
consideration at an annual or special meeting of stockholders, and (ii) upon
proper notice, stockholder approval by the affirmative vote of two-thirds of the
votes entitled to be cast on the matter.
MEETINGS OF STOCKHOLDERS
Under our Bylaws, annual meetings of stockholders shall be held at such date
and time as determined by the Board of Directors, the Chairman of the Board or
the President. The Bylaws establish an advance notice procedure for stockholders
to make nominations of candidates for directors or bring other business before
an annual meeting of stockholders. Special meetings of stockholders may be
called by a majority of our Directors then in office or by stockholders holding
not less than a majority of the outstanding stock entitled to vote at the
meeting and only matters set forth in the notice of the meeting may be
considered and acted upon at such a meeting.
THE BOARD OF DIRECTORS
Our Charter provides that the Board of Directors shall initially consist of
five Directors and thereafter the number of Directors of the Company may be
established by the Board of Directors but may not be fewer than the minimum
number required by the MGCL nor more than nine. Subject to the rights of the
holders of any series of Preferred Stock to elect Directors and to fill
vacancies in the Board of Directors relating thereto, any vacancy will be
filled, including any vacancy created by an increase in the number of Directors,
at any regular meeting or at any special meeting called for the purpose, by a
majority of the remaining Directors. Pursuant to the terms of our Charter, the
Directors are divided into three classes. One class will hold office initially
for a term expiring at the annual meeting of stockholders to be held in
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1999, another class will hold office initially for a term expiring at the annual
meeting of stockholders to be held in 2000 and the third class will hold office
initially for a term expiring in 2001. As the term of each class expires,
Directors in that class will be elected for a term of three years and until
their successors are duly elected and qualified. The use of a classified board
may render more difficult a change in control of the Company or removal of
incumbent management. Our Charter provides that a Director may be removed from
office (a) only with cause and (b) only by the affirmative vote of the holders
of at least 75% of the shares entitled to vote at a meeting of stockholders
called for that purpose. We believe, however, that classification of the Board
of Directors will help to assure the continuity and stability of its business
strategies and policies.
Our Charter provides that the affirmative vote of more than 75% of the
Directors then in office is required to approve certain transactions or actions
of the Board, including a change of control (as defined in the Charter) of the
Company or of the Operating Partnership, any amendment to the Operating
Partnership Agreement, any waiver of the limitations on ownership contained in
our Charter, any merger, consolidation or sale of all or substantially all of
the assets of the Company or the Operating Partnership, certain issuances of
equity securities by the Company or the termination of our status as a REIT. See
"Operating Partnership Agreement."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our Charter limits the liability of the Board of Directors and officers to
the Company to the fullest extent permitted from time to time by Maryland law.
The MGCL permits a corporation to include in its charter a provision limiting
the liability of directors and officers to the corporation or its stockholders
for money damages, except (i) to the extent that it is proved that the director
or officer actually received an improper benefit or profit in money, property or
services or (ii) if a judgment or other final adjudication is entered in a
proceeding based on a finding that the director's or officer's action or failure
to act was the result of active and deliberate dishonesty and was material to
the cause of action adjudicated in the proceeding. This provision does not limit
our ability or our stockholders to obtain other relief, such as an injunction or
a rescission.
Our Charter authorizes the Company, to the maximum extent permitted by
Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to (a) any present or
former director or officer or (b) any individual who, while a director of the
Company and at the request of the Company, serves or has served another
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, REIT, partnership, joint venture, trust, employee benefit plan or
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her status
as a present or former director or officer of the Company. Our Bylaws obligate
the Company, to the maximum extent permitted by Maryland law, to indemnify and
to pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any present or former director or officer who is made a party
to the proceeding by reason of his service in that capacity or (b) any
individual who, while a director of the Company and at the request of the
Company, serves or has served another corporation, REIT, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a director,
officer, partner or trustee of such corporation, REIT, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his service in that capacity. Our Charter
and Bylaws also permit us to indemnify and advance expenses to any person who
served a predecessor of the Company in any of the capacities described above and
to any employee or agent of the Company or a predecessor of the Company.
The MGCL requires a corporation (unless its charter provides otherwise,
which our Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its directors, officers and certain other
parties against judgments, penalties, fines,
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settlements and reasonable expenses actually incurred by them in connection with
any proceeding to which they may be made a party by reason of their service to
or at the request of the corporation, unless it is established that (a) the act
or omission of the indemnified party was material to the matter giving rise to
the proceeding and (i) the act or omission was committed in bad faith or (ii)
the act or omission was the result of active and deliberate dishonesty, (b) the
indemnified party actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the
indemnified party had reasonable cause to believe that the act or omission was
unlawful. However, under the MGCL, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for
expenses. In addition, the MGCL permits a corporation to advance reasonable
expenses to a director or officer upon the corporation's receipt of (a) a
written affirmation by the director or officer of his good faith belief that he
has met the standard of conduct necessary for indemnification by the corporation
and (b) a written undertaking by him or on his behalf to repay the amount paid
or reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, we have been informed that in the opinion
of the SEC such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
INDEMNIFICATION AGREEMENTS
We have entered into indemnification agreements with each of our Directors
and executive officers which require, among other things, that we indemnify our
Directors and executive officers to the fullest extent permitted by law and
advance to the Directors and executive officers all related expenses (subject to
reimbursement if it is subsequently determined that indemnification is not
permitted). Under these agreements, we must also indemnify and advance all
expenses incurred by Directors and executive officers seeking to enforce their
rights under the indemnification agreements and may cover Directors and
executive officers under the Company's Directors' and officers' liability
insurance. Although the form of indemnification agreement offers substantially
the same scope of coverage afforded by law, it provides greater assurance to
Directors and executive officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors or the stockholders to eliminate the rights it provides.
BUSINESS COMBINATIONS
Under the MGCL, certain "business combinations" (including a merger,
consolidation, share exchange or, in certain circumstances, an asset transfer or
issuance or reclassification of equity securities) between a Maryland
corporation and any person who beneficially owns 10% or more of the voting power
of the corporation's shares or an affiliate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of 10% or more of the voting power of the then-outstanding voting stock of
the corporation (an "Interested Stockholder") or an affiliate of such an
Interested Stockholder are prohibited for five years after the most recent date
on which the Interested Stockholder becomes an Interested Stockholder.
Thereafter, any such business combination must be recommended by the board of
directors of such corporation and approved by the affirmative vote of at least
(a) 80% of the votes entitled to be cast by holders of outstanding shares of
voting stock of the corporation and (b) two-thirds of the votes entitled to be
cast by holders of outstanding voting stock of the corporation other than shares
held by the Interested Stockholder with whom (or with whose affiliate) the
business combination is to be effected, unless, among other conditions, the
corporation's common stockholders receive a minimum price (as defined in the
MGCL) for their shares and the consideration is received in cash or in the same
form as previously paid by the Interested Stockholder for its shares. These
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provisions of the MGCL do not apply, however, to business combinations that are
approved or exempted by the board of directors of the corporation prior to the
time that the Interested Stockholder becomes an Interested Stockholder. Our
Charter exempts from the Maryland statute any business combination with Alan M.
Leventhal or Lionel P. Fortin, or current or future affiliates, associates or
other persons acting in concert as a group with either of Messrs. Leventhal or
Fortin.
CONTROL SHARE ACQUISITIONS
The MGCL provides that "control shares" of a Maryland corporation acquired
in a "control share acquisition" have no voting rights except to the extent
approved by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares of stock owned by the acquiror, by officers or by directors who
are employees of the corporation. "Control shares" are voting shares of stock
which, if aggregated with all other shares of stock previously acquired by the
acquiror or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would
entitle the acquiror to exercise voting power in electing directors within one
of the following ranges of voting power: (i) one-fifth or more but less than
one-third, (ii) one-third or more but less than a majority, or (iii) a majority
or more of all voting power. Control shares do not include shares the acquiring
person is then entitled to vote as a result of having previously obtained
stockholder approval. A "control share acquisition" means the acquisition of
control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or (b) to acquisitions approved or exempted by the charter or
bylaws of the corporation. Our Charter exempts from the control share
acquisition statute the purchases of Common Stock on the Closing Date of the
Original Offering and any future transactions which would otherwise be subject
to the statute by Alan M. Leventhal or Lionel P. Fortin or current or future
affiliates, associates or other persons acting in concert or as a group with
either of Messrs. Leventhal or Fortin. Consequently, the prohibition on voting
control shares will not apply to such persons.
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COMMON STOCK AVAILABLE FOR FUTURE SALE
As of September 30, 1998, we have outstanding 20,973,932 shares of Common
Stock and have reserved for issuance upon exercise of Stock Options or
redemption of Units 5,550,223 additional shares of Common Stock.
Shares of Common Stock issued to holders of Units upon exercise of the
Redemption Rights, will be "restricted" securities under the meaning of Rule 144
promulgated under the Securities Act ("Rule 144") and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including exemptions contained in Rule 144. See
"Description of Securities-- Transfer Restrictions" and "Operating Partnership
Agreement--Redemption of OP Units."
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "affiliate" of the Company, as defined in Rule 144 (an "Affiliate"), the
acquiror or subsequent holder thereof is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding Common Stock or the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 also are subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company which will require us to file
periodic reports under the Exchange Act. If two years have elapsed since the
date of acquisition of restricted shares from the Company or from any Affiliate
of the Company, and the acquiror or subsequent holder thereof is deemed not to
have been an Affiliate of the Company at any time during the three months
preceding a sale, such person would be entitled to sell such shares in the
public market under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.
No assurance can be given as to (i) the likelihood that an active market for
the shares will develop, (ii) the liquidity of any such market, (iii) the
ability of the stockholders to sell their Common Stock, or (iv) the prices that
stockholders may obtain for their Common Stock.
In addition to the shares to be registered hereby, the holders of 2,528,296
Units have the right to demand, on any four occasions after September 1, 1999,
to have the common stock that they might receive upon the redemption of such
Units registered. We will bear all expenses incident to the registration under
the registration rights agreement, except that such expenses shall not include
any underwriting discounts or commissions, or transfer taxes, if any, relating
to such shares.
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OPERATING PARTNERSHIP AGREEMENT
THE FOLLOWING SUMMARY OF THE OPERATING PARTNERSHIP AGREEMENT DESCRIBES THE
MATERIAL PROVISIONS OF SUCH AGREEMENT. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE OPERATING PARTNERSHIP AGREEMENT.
CLASSES OF UNITS
The Operating Partnership has authority to issue three classes of units of
limited partnership interests: Units; Convertible Units; and Incentive Units.
The Units, and the Incentive Units once issued (collectively, the "OP Units"),
will share equally on a unit-by-unit basis in all distributions of the Operating
Partnership. The Convertible Units will not participate in any distributions of
the Operating Partnership and represent solely the right to convert into a
certain number of Incentive Units (if any) with a fair market value equal to the
Incentive Return. See "The Company--Long-Term Incentive Plan."
MANAGEMENT
The Operating Partnership is a Delaware limited partnership. We are the sole
general partner of, and hold approximately 88% of the economic interests in the
Operating Partnership. We hold an approximate 1% general partner interest in the
Operating Partnership and the balance is held as a limited partner interest. We
intend to conduct substantially all of its business through the Operating
Partnership and its subsidiaries.
Pursuant to the Operating Partnership Agreement, we (as the sole general
partner of the Operating Partnership), generally have full, exclusive and
complete responsibility and discretion in the management, operation and control
of the Operating Partnership, including the ability to cause the Operating
Partnership to enter into certain major transactions, including acquisitions,
developments and dispositions of properties and refinancings of existing
indebtedness. No limited partner may take part in the operation, management or
control of the business of the Operating Partnership by virtue of being a holder
of any class of units of the Operating Partnership. Certain restrictions apply
to our ability to engage in a Business Combination, as described more fully
under "Extraordinary Transactions" below.
The limited partner of the Operating Partnership has agreed that in the
event of any conflict in the fiduciary duties owed by the Company to its
stockholders and by the Company, (as general partner of the Operating
Partnership), to such limited partners, we may act in the best interests of our
stockholders without violating our fiduciary duties to such limited partners or
being liable for any resulting breach of our duties to the limited partners.
The Operating Partnership Agreement provides that all business activities of
the Company, including all activities pertaining to the acquisition and
operation of properties, must be conducted through the Operating Partnership,
and that the Operating Partnership must be operated in a manner that will enable
the Company to satisfy the requirements for being classified as a REIT.
REMOVAL OF THE GENERAL PARTNER; TRANSFER OF THE GENERAL PARTNER'S INTEREST
The Operating Partnership Agreement provides that the limited partners may
not remove us as general partner of the Operating Partnership. We may not
transfer any of our interests as general or limited partner in the Operating
Partnership except (i) in connection with a merger or sale of all or
substantially all of its assets pursuant to a transaction for which it has
obtained the requisite approval in accordance with the terms of the Operating
Partnership Agreement, (ii) if the limited partners holding at least 66 2/3% of
the OP Units (excluding OP Units owned by BCP) consent to such transfer or (iii)
to certain affiliates of the Company.
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AMENDMENTS OF THE OPERATING PARTNERSHIP AGREEMENT
Generally, the Operating Partnership Agreement may be amended with our
approval, (as general partner), and limited partners (including us) holding a
majority of the OP Units. Certain amendments that would, among other things,
convert a limited partner's interest into a general partner's interest, modify
the limited liability of a limited partner, alter the interest of a partner in
profits or losses or the right to receive any distributions, alter or modify the
redemption right described below, or cause the termination of the Operating
Partnership at a time or on terms inconsistent with those set forth in the
Operating Partnership Agreement must be approved by us and each limited partner
that would be adversely affected by such amendment. Notwithstanding the
foregoing, we, (as general partner), have the power, (without the consent of the
limited partners), to amend the Operating Partnership Agreement as may be
required to (1) add to our obligations as general partner or surrender any right
or power granted to us as general partner, (2) reflect the admission,
substitution, termination or withdrawal of partners in accordance with the terms
of the Operating Partnership Agreement, (3) establish the rights, powers, duties
and preferences of any additional partnership interests issued in accordance
with the terms of the Operating Partnership Agreement, (4) reflect a change of
an inconsequential nature that does not materially adversely affect the limited
partners, or cure any ambiguity, correct or supplement any provisions of the
Operating Partnership Agreement not inconsistent with law or with other
provisions of the Operating Partnership Agreement, or make other changes
concerning matters under the Operating Partnership Agreement that are not
otherwise inconsistent with the Operating Partnership Agreement or law, or (5)
satisfy any requirements of federal or state law. Certain provisions affecting
our rights and duties as general partner (e.g., restrictions on our power to
conduct businesses other than owning OP Units; restrictions relating to the
issuance of our securities and related capital contributions to the Operating
Partnership; restrictions relating to certain extraordinary transactions
involving us or the Operating Partnership) may not be amended without the
approval of a majority of the OP Units not held by us.
TRANSFER OF UNITS; SUBSTITUTE LIMITED PARTNERS
The Operating Partnership Agreement provides that limited partners generally
may transfer their OP Units and Convertible Units without the consent of any
other person, but may substitute a transferee as a limited partner only with the
prior written consent of the Company as the sole general partner of the
Operating Partnership. In addition, limited partners may not transfer OP Units
until the one-year anniversary of the closing of the Original Offering or in
violation of certain regulatory and other restrictions set forth in the
Operating Partnership Agreement. Notwithstanding the foregoing, the 2,528,296
Units issued to Luddite Associates, a partnership owned by The Prudential
Insurance Company of America and its affiliates, in connection with the
acquisition of Technology Square and The Draper Building can generally be
transferred to any direct or indirect wholly-owned subsidiary of Prudential at
any time after September 21, 1998, and such transferee shall then be admitted as
a substitute limited partner.
REDEMPTION OF OP UNITS
The Operating Partnership will be obligated after the one-year anniversary
of the closing date of the Original Offering to redeem each OP Unit at the
request of the holder thereof for cash equal to the fair market value of such
unit at the time of such redemption (as determined in accordance with the
provisions of the Operating Partnership Agreement), provided that we may elect
to acquire any such OP Unit presented for redemption for one share of Common
Stock or an amount of cash of the same value. If Incentive Units are presented
for redemption, the election by the Company to acquire such Incentive Units for
shares of Common Stock must be approved by the Independent Directors. With each
redemption or acquisition by the Company, our percentage ownership interest in
the Operating Partnership will increase. Beacon Capital Participation Plan shall
have certain rights, pursuant to separate registration rights agreements, to
have the issuance of shares of Common Stock that may be issued to it in exchange
for
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its OP Units, or the resale of such shares, registered under the Securities Act.
See "Common Stock Available for Future Sale."
OPERATIONS
The Operating Partnership Agreement requires that the Operating Partnership
be operated in a manner that will enable us to satisfy the requirements for
being classified as a REIT for federal tax purposes, to avoid any federal income
or excise tax liability imposed by the Code, and to ensure that the Operating
Partnership will not be classified as a "publicly traded partnership" for
purposes of Section 7704 of the Code. In addition, the Operating Partnership
will be operated in a manner so as to qualify it as a "real estate operating
company" under the Plan Assets Regulation, at least until such time as the
Common Stock qualifies as shares of "publicly offered securities" within the
meaning of the Plan Assets Regulation.
In addition to the administrative and operating costs and expenses incurred
by the Operating Partnership, it is anticipated that the Operating Partnership
will pay all administrative costs and expenses of the Company (collectively, the
"Company Expenses") and such Company Expenses will be treated as expenses of the
Operating Partnership. The Company Expenses generally will include (i) all
expenses relating to the formation and continuity of existence of the Company,
(ii) all expenses relating to the offering and registration of securities by the
Company, (iii) all expenses associated with the preparation and filing of any
periodic reports by the Company under federal, state or local laws or
regulations, (iv) all expenses associated with compliance by the Company with
laws, rules and regulations promulgated by any regulatory body, and (v) all
other operating or administrative costs of the Company incurred in the ordinary
course of its business on behalf of the Operating Partnership.
ISSUANCE OF ADDITIONAL LIMITED PARTNERSHIP INTERESTS
We (as general partner) are authorized (without the consent of the limited
partners), to cause the Operating Partnership to issue additional Units,
Incentive Units and Convertible Units to the Company, to the limited partners or
to other persons for such consideration and on such terms and conditions as we
(as general partner) deem appropriate. If additional OP Units are issued to the
Company, then we must (i) issue additional shares of Common Stock and must
contribute to the Operating Partnership the entire proceeds received by us from
such issuance or (ii) issue additional OP Units to all partners in proportion to
their respective interests in the Operating Partnership. In addition, we may
cause the Operating Partnership to issue to us additional partnership interests
in different series or classes, which may be senior to the OP Units, in
conjunction with an offering of our securities of having substantially similar
rights, in which the proceeds thereof are contributed to the Operating
Partnership. Consideration for additional partnership interests may be cash or
other property or assets. No limited partner has preemptive, preferential or
similar rights with respect to additional capital contributions to the Operating
Partnership or the issuance or sale of any partnership interests therein.
EXTRAORDINARY TRANSACTIONS
The Operating Partnership Agreement provides that we may not generally
engage in any merger, consolidation or other combination with or into another
person or sale of all or substantially all of its assets, or any
reclassification, or any recapitalization or change of outstanding shares of
Common Stock (a "Business Combination"), unless the holders of OP Units will
receive, or have the opportunity to receive, the same consideration per OP Unit
as holders of Common Stock receive per share of Common Stock in the transaction;
if holders of OP Units will not be treated in such manner in connection with a
proposed Business Combination, we may not engage in such transaction unless
limited partners (other than the Company) holding at least 66 2/3% of the OP
Units held by limited partners vote to approve the Business Combination.
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EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Operating Partnership Agreement generally provides that we, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any limited partner for losses sustained or liabilities incurred
as a result of errors in judgment or of any act or omission if we carried out
our duties in good faith. In addition, we are not responsible for any misconduct
or negligence on the part of our agents, provided we appointed such agents in
good faith. We may consult with legal counsel, accountants, appraisers,
management consultants, investment bankers and other consultants and advisors,
and any action we take or omit to take in reliance upon the opinion of such
persons, as to matters that we reasonably believes to be within their
professional or expert competence, shall be conclusively presumed to have been
done or omitted in good faith and in accordance with such opinion.
The Operating Partnership Agreement also provides for the indemnification of
us, our Directors and officers, and such other persons as we may from time to
time designate against any judgments, penalties, fines, settlements and
reasonable expenses actually incurred by such person in connection with the
preceding unless it is established that: (1) the act or omission of the
indemnified person was material to the matter giving rise to the preceding and
either was committed in bad faith or was the result of active and deliberate
dishonesty; (2) the indemnified person actually received an improper personal
benefit in money, property or services; or (3) in the case of any criminal
proceeding, the indemnified person had reasonable cause to believe that the act
or omission was unlawful.
TAX MATTERS
We are the tax matters partner of the Operating Partnership and, as such,
has the authority to make tax elections under the Code on behalf of the
Operating Partnership.
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FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material federal income tax considerations is based
upon current law and is for general information purposes only. The discussion
contained herein does not address all aspects of taxation that may be relevant
to particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including, without
limitation, insurance companies, tax-exempt organizations (except as described
below), financial institutions or broker-dealers, and, except as discussed
below, foreign corporations and persons who are not citizens or residents of the
United States) subject to special treatment under the federal income tax laws.
The statements in this discussion are based on current provisions of the
Code, existing, temporary, and currently proposed Treasury Regulations
promulgated under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS, and judicial decisions. No
assurance can be given that future legislative, judicial, or administrative
actions or decisions, which may be retroactive in effect, will not affect the
accuracy of any statements in this Prospectus with respect to the transactions
entered into or contemplated prior to the effective date of such changes.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM, HER OR IT OF THE PURCHASE,
OWNERSHIP, AND SALE OF THE COMMON STOCK, INCLUDING THE FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, AND SALE, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
We will elect to be taxed as a REIT under Sections 856 through 860 of the
Code, commencing with the year ending on December 31, 1998.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth only the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its stockholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all of
which are subject to change prospectively or retroactively.
OPINION OF TAX COUNSEL
Goodwin, Procter & Hoar LLP has acted as counsel to the Company in
connection with the Offering and BCP's election to be taxed as a REIT. In the
opinion of Goodwin, Procter & Hoar LLP (the "Opinion"), provided that the
elections and other procedural steps described in this discussion of "Federal
Income Tax Considerations" are completed by us in a timely fashion, we will be
organized in conformity with the requirements for qualification as a REIT
pursuant to Sections 856 through 860 of the Code, and our proposed method of
operation will enable us to continue to meet the requirements for qualification
and taxation as a REIT under the Code. Investors should be aware, however, that
opinions of counsel are not binding upon the Service or any court. It must be
emphasized that the Opinion is based on various assumptions and is conditioned
upon certain representations made by us as to factual matters, including
representations regarding the nature of our properties and the past and future
conduct of our business. Such factual assumptions and representations are
described below in this discussion of "Federal Income Tax Considerations" and
are set out in the Opinion. Moreover, such qualification and taxation as a REIT
depends upon our ability to meet on a continuing basis, through actual annual
operating results, distribution levels, and stock ownership, the various
qualification tests imposed under the Code discussed below. Goodwin, Procter &
Hoar LLP will not review our compliance with those tests on a continuing basis.
Accordingly, no assurance can be given that the actual results of our operations
for any particular taxable year will satisfy any such requirements. For a
discussion of the tax consequences of failure to qualify as a REIT. See
"--Failure to Qualify."
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If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income tax on our net income that is distributed currently to
our stockholders. That treatment substantially eliminates the "double taxation"
(i.e., taxation at both the corporate and stockholder levels) that generally
results from an investment in a corporation. However, we will be subject to
federal income tax as follows:
- we will be taxed at regular corporate rates on any undistributed REIT
taxable income, including undistributed net capital gains;
- under certain circumstances, we may be subject to the "alternative
minimum tax" on our undistributed items of tax preference, if any;
- if we have (i) net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest corporate
rate on such income;
- if we have net income from prohibited transactions (which are, in
general, certain sales or other dispositions of property (other than
foreclosure property) held primarily for sale to customers in the
ordinary course of business), such income will be subject to a 100% tax;
- if we should fail to satisfy the 75% gross income test or the 95% gross
income test (as discussed below), but have maintained our qualification
as a REIT because certain other requirements have been met, we will be
subject to a 100% tax on the gross income attributable to the greater of
the amount by which BCP fails the 75% or 95% gross income test,
multiplied by a fraction intended to reflect BCP's profitability;
- if we should fail to distribute during each calendar year at least the
sum of (i) 85% of our REIT ordinary income for such year, (ii) 95% of its
REIT capital gain net income for such year (other than such capital gain
net income which the Company elects to retain and pay tax on) , and (iii)
any undistributed taxable income from prior periods, we would be subject
to a 4% excise tax on the excess of such required distribution over the
amounts actually distributed;
- if we acquire any asset from a "C" corporation (i.e., a corporation
generally subject to full corporate-level tax) in a merger or other
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset (or any other asset) in the hands of
a "C" corporation and we recognize gain on the disposition of such asset
during the 10-year period beginning on the date on which it acquired such
asset, then to the extent of such asset's "built-in-gain" (i.e., the
excess of the fair market value of such asset at the time of acquisition
by us over the adjusted basis in such asset at such time), we will be
subject to tax at the highest regular corporate rate applicable (as
provided in Treasury Regulations that have not yet been promulgated).
The results described above with respect to the tax on "built-in-gain"
assume that we will elect pursuant to IRS Notice 88-19 to be subject to the
rules described in the preceding sentence if we were to make any such
acquisition.
REQUIREMENTS FOR QUALIFICATION
DEFINITION OF A REIT UNDER THE CODE
The Code defines a REIT as a corporation, trust, or association
(i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares,
or by transferable certificates of beneficial interest;
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(iii) that would be taxable as a domestic corporation, but for Sections 856
through 860 of the Code;
(iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons;
(vi) not more than 50% in value of the outstanding shares of which is owned,
directly or indirectly, by five or fewer individuals (as defined in the
Code to include certain entities) during the last half of each taxable
year (the "5/50 Rule");
(vii) that makes an election to be a REIT (or has made such election for a
previous taxable year) and satisfies all relevant filing and other
administrative requirements established by the Service that must be met
in order to elect and maintain REIT status;
(viii) that uses a calendar year for federal income tax purposes; and
(ix) that meets certain other tests, described below, regarding the nature
of its income and assets.
The IRS Code provides that conditions (i) to (iv) above, inclusive, must be
met during the entire taxable year and that condition (v) above must be met
during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Conditions (v) and
(vi) above will not apply until after the first taxable year for which an
election is made by the Company to be taxed as a REIT. For purposes of
determining stock ownership under the 5/50 Rule, a supplemental unemployment
compensation benefits plan, a private foundation, or a portion of a trust
permanently set aside or used exclusively for charitable purposes generally is
considered an individual. A trust that is a qualified trust under Code Section
401(a), however, generally is not considered an individual and beneficiaries of
such trust are treated as holding shares of a REIT in proportion to their
actuarial interests in such trust for purposes of the 5/50 Rule. If we comply
with all the requirements for ascertaining the ownership of its outstanding
stock in a taxable year and does not know or have reason to know that it
violated the 5/50 Rule, we will be deemed to have complied with the 5/50 Rule
for such taxable year.
We believe we have issued sufficient Common Stock with sufficient diversity
of ownership pursuant to the Original Offering to allow it to satisfy
requirements (v) and (vi) in the preceeding paragraph. In addition, our Charter
provides for restrictions regarding the transfer of the Common Stock that are
intended to assist us in continuing to satisfy the share ownership requirements
described in clauses (v) and (vi) above. However there can be no assurance that
we will continue to meet the REIT Stock Ownership Requirements. Such transfer
restrictions are described in "Description of Securities--Transfer
Restrictions."
Code Section 856(i) provides that a corporation that is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities, and items of income,
deduction, and credit of the REIT. A "qualified REIT subsidiary" is a
corporation, all of the capital stock of which is held by the REIT. If we
acquire a corporation already in existence at the time of acquisition, such
corporation would be treated as liquidating on the date of acquisition and we
would be required to distribute any C corporation earnings and profits of the
corporation before the end of the taxable year. Thus, in applying these
requirements, any of our "qualified REIT subsidiaries" will be ignored, and all
assets, liabilities, and items of income, deduction, and credit of such
subsidiaries will be treated as our assets, liabilities, and items of income,
deduction, and credit.
CERTAIN TREASURY REGULATIONS RELATING TO OUR STATUS AS A REIT
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the gross
income of the partnership attributable to such share. In addition, the assets
and gross income of the partnership will retain the same character in the hands
of the REIT for purposes of Section
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856 of the Code, including for purposes of satisfying the gross income and asset
tests described below. Our proportionate share of the assets and gross income of
the Operating Partnership will be treated as assets and gross income for
purposes of applying these requirements.
INCOME TESTS
GROSS INCOME REQUIREMENTS
In order for the Company to qualify and to maintain its qualification as a
REIT, two requirements relating to the Company's gross income must be satisfied
annually.
- At least 75% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must consist of defined types of
income derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real
property" and interest on obligations secured by mortgages on real
property or on interests in real property, and dividends or other
distributions on and gain from the sale of stock in other REITs) or from
certain types of temporary investment income.
- At least 95% of our gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real
property, mortgages on real property, or temporary investments, and from
dividends, other types of interest, and gain from the sale or disposition
of stock or securities, or from any combination of the foregoing.
RENTS FROM REAL PROPERTY
The rents we receive from the tenants of the Real Property ("Rent") will
qualify as "rents from real property" in satisfying the gross income tests for a
REIT described above only if several conditions are met.
- The amount of Rent must not be based, in whole or in part, on the income
or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales or solely by reason of being based on the income or
profits of a tenant if such tenant derives substantially all of its gross
income from the related property through the sub-leasing of substantially
all of its interest in the property to the extent the amounts received by
such tenant would be characterized as rents from real property if
received by the REIT.
- The Code provides that the Rent received from a tenant will not qualify
as "rents from real property" in satisfying the gross income tests if we
own, or a direct or indirect owner of 10% or more of the Company owns,
10% or more of such tenant, either actually or constructively (a "Related
Party Tenant").
- If Rent attributable to personal property, leased in connection with a
lease of Real Property, is greater than 15% of the total Rent received
under the lease, then the portion of Rent attributable (taking into
account both actual and constructive ownership) to such personal property
will not qualify as "rents from real property."
For the Rent to qualify as "rents from real property," we generally must not
operate or manage the Real Property or furnish or render services to the tenants
of such Real Property, other than through an "independent contractor" who is
adequately compensated by the tenants and from whom we derive no revenue. The
"independent contractor" requirement, however, does not apply to the extent that
the services we provide are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant."
We have represented that we will not charge Rent for any portion of any Real
Property that is based, in whole or in part, on the income or profits of any
person (except by reason of being based on a fixed percentage or percentages of
receipts or sales, as described above) to the extent that the receipt of such
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Rent would jeopardize our status as a REIT. In addition, we have represented
that, to the extent that we receive Rent from a Related Party Tenant, such Rent
will not cause us to fail to satisfy either the 75% or 95% gross income test. We
have also represented that we will not allow the Rent attributable to personal
property leased in connection with any lease of Real Property to exceed 15% of
the total Rent received under the lease, if the receipt of such Rent would cause
the Company to fail to satisfy either the 75% or 95% gross income test. Finally,
we have represented that we will not operate or manage our Real Property or
furnish or render noncustomary services to the tenants of our Real Property
other than through an "independent contractor," to the extent that such
operation or the provision of such services would jeopardize our status as a
REIT.
The Ownership Limit and the Excess Share Provisions in our Charter are
designed in part to prevent a stockholder of the Company from owning Company
stock that would cause us to own, actually or constructively, 10% or more of the
ownership interests in a tenant, including any BCP Sister Corp. However, because
the relevant constructive ownership rules are broad and it is not possible to
monitor continually direct and indirect transfers of our shares, and because our
Charter provisions referred to above may not be effective, there can be no
absolute assurance that transfers or other events will not cause us to
constructively own 10% or more of one or more tenants at some future date.
The term "interest," as defined for purposes of the 75% and 95% gross income
tests, generally does not include any amount received or accrued (directly or
indirectly) if the determination of such amount depends in whole or in part on
the income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "interest" solely by reason of
being based on a fixed percentage or percentages of receipts or sales. In
addition, an amount received or accrued generally will not be excluded from the
term "interest" solely by reason of being based on the income or profits of a
debtor if the debtor derives substantially all of its gross income from the
related property through the leasing of substantially all of its interests in
the property, to the extent the amounts received by the debtor would be
characterized as rents from real property if received by a REIT. Furthermore, to
the extent that interest from a loan that is based on the cash proceeds from the
sale of the property securing the loan constitutes a "shared appreciation
provision" (as defined in the Code), income attributable to such participation
feature will be treated as gain from the sale of the secured property, which
generally is qualifying income for purposes of the 75% and 95% gross income
tests.
Interest will qualify as "interest on obligations secured by mortgages on
real property or on interests in real property" if the obligation is secured by
a mortgage on real property having a fair market value, as of the date on which
the commitment to make or purchase the obligation becomes binding on us, at
least equal to the highest principal amount of the loan outstanding during the
taxable year. However, if we receive interest income with respect to a mortgage
loan that is secured by both real property and other property and the highest
principal amount of the loan outstanding during a taxable year exceeds the fair
market value of the real property on the date on which the commitment to acquire
or originate the mortgage loan becomes binding on us, the interest income will
be apportioned between the real property and the other property, which
apportionment may cause us to recognize income that is not qualifying income for
purposes of the 75% gross income test.
We may receive income not described above that is not qualifying income for
purposes of one or both of the 75% and 95% gross income tests. For example, it
is possible that certain fees for services rendered by the Operating Partnership
will not be qualifying income for purposes of either gross income test. It is
not anticipated that the Operating Partnership will receive a significant amount
of such fees. In addition, dividends received from Real Estate Companies that
are C corporations generally will be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. We will monitor the amount
of nonqualifying income produced by our assets and have represented that we will
manage our portfolio in order to comply at all times with the two gross income
tests.
REITs generally are subject to tax at the maximum corporate rate on any
income from foreclosure property (other than income that would be qualifying
income for purposes of the 75% gross income test),
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less expenses directly connected with the production of such income.
"Foreclosure property" is defined as any real property (including interests in
real property) and any personal property incident to such real property
- that is acquired by a REIT as the result of such REIT having bid in such
property at foreclosure, or having otherwise reduced such property to
ownership or possession by agreement or process of law, after there was a
default (or default was imminent) on a lease of such property or on an
indebtedness owed to the REIT that such property secured,
- for which the related loan was acquired by the REIT at a time when
default was not imminent or anticipated, and
- for which such REIT makes a proper election to treat such property as
foreclosure property. We do not anticipate that we will receive any
income from foreclosure property that is not qualifying income for
purposes of the 75% gross income test, but, if we do receive any such
income, we will make an election to treat the related property as
foreclosure property.
Property we acquire will not be eligible for the election to be treated as
foreclosure property ("Ineligible Property") if the related loan was acquired by
us at a time when default was imminent or anticipated. In addition, income
received with respect to such Ineligible Property may not be qualifying income
for purposes of the 75% or 95% gross income tests.
Net income derived from a prohibited transaction is subject to a 100% tax.
The term "prohibited transaction" generally includes a sale or other disposition
of property (other than foreclosure property) that is held primarily for sale to
customers in the ordinary course of a trade or business. We intend to conduct
our operations so that no asset we own or owned by the Operating Partnership
will be held for sale to customers and that a sale of any such asset will not be
in the ordinary course of our business or the Operating Partnership's business.
Whether property is held "primarily for sale to customers in the ordinary course
of a trade or business" depends, however, on the facts and circumstances in
effect from time to time, including those related to a particular property.
Nevertheless, we will attempt to comply with the terms of safe-harbor provisions
in the Code prescribing when asset sales will not be characterized as prohibited
transactions. Complete assurance cannot be given, however, that we can comply
with the safe-harbor provisions of the Code or avoid owning property that may be
characterized as property held "primarily for sale to customers in the ordinary
course of a trade or business."
From time to time, we may enter into hedging transactions with respect to
one or more of our assets or liabilities. Any such hedging transactions could
take a variety of forms, including, without limitation, interest rate swap
contracts, interest rate cap or floor contracts, futures or forward contracts,
and options. To the extent that we enter into such a contract to hedge against
the interest rate risks of any indebtedness incurred to acquire or carry real
estate assets, any periodic income or gain from the disposition of such contract
should be qualifying income for purposes of the 95% gross income test, but not
the 75% gross income test. To the extent that we hedge with other types of
financial instruments or in other situations, we may not be entirely clear how
the income from those transactions will be treated for purposes of the various
income tests that apply to REITs under the Code. We intend to structure any
hedging transactions in a manner that does not jeopardize our status as a REIT.
If we fail to satisfy one or both of the 75% and 95% gross income tests for
any taxable year, we nevertheless may qualify as a REIT for such year if we are
entitled to relief under certain provisions of the Code. Those relief provisions
generally will be available if our failure to meet such tests is due to
reasonable cause and not due to willful neglect, we attache a schedule of the
sources of our income to our return, and any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is not possible,
however, to state whether in all circumstances that we would be entitled to the
benefit of those relief provisions. As discussed above in "--Taxation of the
Company," even if those relief provisions apply, a 100% tax would be imposed on
the gross income attributable to the greater of the amount by which we fail the
75% or 95% gross income test, multiplied by a fraction intended to reflect our
profitability.
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ASSET TESTS
At the close of each quarter of each taxable year, we must satisfy three
tests relating to the nature of our assets.
- At least 75% of the value of our total assets must be represented by cash
or cash items (including certain receivables), government securities,
"real estate assets," or, in cases where we raise new capital through
stock or long-term (at least five-year) debt offerings, temporary
investments in stock or debt instruments during the one-year period
following our receipt of such capital. The term "real estate assets"
includes interests in real property, interests in mortgages on real
property to the extent the principal balance of a mortgage does not exceed
the fair market value of the associated real property, and shares of other
REITs. For purposes of the 75% asset test, the term "interest in real
property" includes an interest in mortgage loans or land or improvements
thereon, such as buildings or other inherently permanent structures
(including items that are structural components of such buildings or
structures), a leasehold of real property, and an option to acquire real
property (or a leasehold of real property).
- Not more than 25% of our total assets may be represented by securities
other than those in the 75% asset class.
- Of the investments not included in the 75% asset class, the value of any
one issuer's securities we own may not exceed 5% of the value of our total
assets, and we may not own more than 10% of any one issuer's outstanding
voting securities (except for its interests in the Operating Partnership,
the General Partner, the Limited Partner, any qualified REIT subsidiaries,
and other qualified REITs).
We expect that any interests in Real Estate Companies and interests in Real
Property that we acquire generally will be qualifying assets for purposes of the
75% asset test. If we acquire any interest in a Real Estate Company that is a C
corporation, such interest may not (i) represent more than 5% of the value of
our total assets or (ii) constitute more than 10% of the Real Estate Company's
outstanding voting securities. We will monitor the status of the assets that we
acquire for purposes of the various asset tests and have represented that we
will manage our portfolio in order to comply at all times with such tests.
If we should fail to satisfy the asset tests at the end of a calendar
quarter, such a failure would not cause us to lose our REIT status if (i) we
satisfied the asset tests at the close of the preceding calendar quarter and
(ii) the discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets and was not
wholly or partly caused by the acquisition of one or more non-qualifying assets.
If the condition described in clause (ii) of the preceding sentence were not
satisfied, we still could avoid disqualification by eliminating any discrepancy
within 30 days after the close of the calendar quarter in which it arose.
DISTRIBUTION REQUIREMENTS
In order to avoid corporate income taxation of the earnings that we
distribute, we are required to distribute with respect to each taxable year
dividends (other than capital gain dividends) to our stockholders in an
aggregate amount at least equal to (i) the sum of (A) 95% of its "REIT taxable
income" (computed without regard to the dividends paid deduction and its net
capital gain) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our federal income
tax return for such year and if paid on or before the first regular dividend
payment date after such declaration. To the extent that we do not distribute all
of our net capital gain or distribute at least 95%, but less than 100%, of our
"REIT taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gains corporate tax rates. Furthermore, if we should fail
to distribute during each calendar year (or, in the case of distributions with
declaration and record dates falling in the last three months of the calendar
year, by the end of the January
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immediately following such year) at least the sum of (i) 85% of our REIT
ordinary income for such year, (ii) 95% of our REIT capital gain income for such
year (other than capital gain income which we elect to retain and pay tax on),
and (iii) any undistributed taxable income from prior periods, we would be
subject to a 4% nondeductible excise tax on the excess of such required
distribution over the amounts actually distributed. Pursuant to recently enacted
legislation, we may elect to retain, rather than distribute, all or a portion of
our net long-term capital gains. The effect of such an election is that
(i) we are required to pay the tax on such gains;
(ii) U.S. stockholders (as defined below), while required to include their
proportionate share of the undistributed long-term capital gains in income, will
receive a credit or refund for their share of the tax paid by us; and
(iii) the basis of a U.S. stockholder's Common Stock would be increased by
the amount of the undistributed long-term capital gains (minus the amount of
capital gains tax paid by us) included in such U.S. stockholder's long-term
capital gains.
In certain circumstances, our investments may generate income for federal
income tax purposes without a corresponding receipt of cash ("Phantom Income").
In order for us to meet REIT qualifications and/or avoid tax at the REIT level
on such Phantom Income, we may be forced to use cash generated from other
sources, including, without limitation, asset sales and borrowings, to make
required distributions. See "Risk Factors--Legal and Tax Risks--Tax Risks."
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirements for a year by paying "deficiency dividends" to our
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Although we may be able to avoid being
taxed on amounts distributed as deficiency dividends, we will be required to pay
to the IRS interest based upon the amount of any deduction taken for deficiency
dividends.
RECORDKEEPING REQUIREMENTS
Pursuant to applicable Treasury Regulations, we must maintain certain
records and request on an annual basis certain information from our stockholders
designed to disclose the actual ownership of our outstanding stock. Failure to
comply with such record keeping requirements could result in substantial
monetary penalties. We intend to comply with such requirements.
EXCESS INCLUSION INCOME
It is anticipated that we may purchase mortgage loans. If we purchase such
assets and are deemed to have issued debt obligations having two or more
maturities, the payments on which correspond to payments on such mortgage loans,
such arrangement will be treated as a "taxable mortgage pool" for federal income
tax purposes. If all or a portion of the Company is considered a "taxable
mortgage pool," our status as a REIT generally should not be impaired; however,
a portion of our taxable income may be characterized as "excess inclusion
income" and allocated to our stockholders. Any excess inclusion income (i) could
not be offset by net operating losses of a stockholder, (ii) would be subject to
tax as "unrelated business taxable income" to a tax-exempt stockholder, (iii)
would be subject to the application of federal income tax withholding (without
reduction pursuant to any otherwise applicable income tax treaty) with respect
to amounts allocable to foreign stockholders, and (iv) would be taxable (at the
highest corporate tax rate) to us, rather than our stockholders, to the extent
allocable to shares of our stock held by disqualified organizations (generally,
tax-exempt entities not subject to unrelated business income tax, including
governmental organizations).
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IMPACT OF FUTURE LEGISLATION
Our qualification as a REIT or our ability to utilize the BCP Sister Corp.
structure could be affected as a result of future legislation. In that regard,
Congress recently enacted, and the Clinton Administration signed into law,
certain revenue proposals as part of the Internal Revenue Service Restructuring
and Reform Act of 1998 that included, among other things, a freeze on the
grandfathered status of REITs that are "paired" or "stapled" with a related
operating company. Unlike such "paired" or "stapled" structures, the proposed
BCP Sister Corp. structure would be a "paper clip" structure in which interests
in the BCP Sister Corp. distributed to our stockholders could be transferred
independently from our Common Stock. Although such legislation does not affect
"paper clip" structures, there can be no assurance that the recently enacted
legislation will not place legislative or judicial scrutiny on the "paper clip"
structure, or that legislation adversely affecting such structure will not be
proposed and enacted. See "Risk Factors-- Legal and Tax Risks--Tax Risks."
FAILURE TO QUALIFY
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax (including any
applicable alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to our stockholders in any year in which we fail to qualify
will not be deductible by us nor will they be required to be made. In such
event, to the extent of our current and accumulated earnings and profits, all
distributions to stockholders will be taxable as ordinary income and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, we also will be disqualified from taxation as a REIT for the four
taxable years following the year during which we ceased to qualify as a REIT. It
is not possible to state whether in all circumstances we would be entitled to
statutory relief from our failure to qualify as a REIT.
TAXATION OF TAXABLE U.S. STOCKHOLDERS
Definition
As used in this section, the term "U.S. stockholder" means a holder of
Common Stock that for U.S. federal income tax purposes is
- a citizen or resident of the United States;
- a corporation, partnership, or other entity created or organized in or
under the laws of the United States or of any state or political
subdivision thereof;
- an estate whose income from sources without the United States is
includible in gross income for U.S. federal income tax purposes regardless
of its connection with the conduct of a trade or business within the
United States; or
- any trust with respect to which (A) a U.S. court is able to exercise
primary supervision over the administration of such trust and (B) one or
more U.S. persons have the authority to control all substantial decisions
of the trust.
As long as we qualify as a REIT, distributions (including distributions of
the BCP Sister Corp. equity interests by us upon the formation of the BCP Sister
Corp.) made to our taxable U.S. stockholders out of current or accumulated
earnings and profits (and not designated as capital gain dividends or retained
capital gains) will be taken into account by such U.S. stockholders as ordinary
income and will not be eligible for the dividends received deduction generally
available to corporations. Distributions that we designate as capital gain
dividends will be taxed as long-term capital gains (to the extent that they do
not exceed our actual net capital gain for the taxable year) without regard to
the period for which the stockholder has held his Common Stock. Pursuant to
recently enacted legislation, in the case of a
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stockholder who is an individual, an estate or a trust, long-term capital gains
and losses are separated into three tax rate groups, a 20% group, a 25% group
and a 28% group, and are subject to tax at the rate effective for each group.
Pursuant to Notice 97-64, 1997-47 IRB 1, we will designate capital gain
dividends, if any, as 20% rate gain distributions, 25% rate gain distributions
or 28% rate gain distributions and detail such designations in a manner intended
to comply with applicable requirements. Final regulations, if and when issued by
the Treasury Department, could affect the rules set forth in the Notice. In
addition, the IRS has not issued regulations or other guidance regarding the
application of the new rates to sales of interests in REITs such as the Company,
and it remains unclear how the new rules will affect such sales, if at all. The
IRS has not yet issued guidance modifying the rules set forth in the Notice to
take into account the recent elimination of the 18-month holding period required
for individuals, estates and trusts to be eligible for the preferential 20%
capital gains rate. If we elect to retain capital gains rather than distribute
them, a U.S. stockholder will be deemed to receive a capital gain dividend equal
to the amount of such retained capital gains. A U.S. stockholder will be allowed
a credit against its federal income tax liability for its proportionate share of
tax we paid on retained capital gains. See "--Requirements for Qualification."
Such gains are subject to apportionment among the three tax rate groups as set
forth above. Corporate stockholders may be required to treat up to 20% of
certain capital gain dividends as ordinary income. Distributions in excess of
current and accumulated earnings and profits will not be taxable to a
stockholder to the extent that they do not exceed the adjusted basis of the
stockholder's Common Stock, but rather will reduce the adjusted basis of such
stock. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a stockholder's
Common Stock, such distributions will be included in income as long-term capital
gain (or, in the case of all taxpayers, short-term capital gain if the Common
Stock had been held for one year or less), provided that the Common Stock is a
capital asset in the hands of the stockholder. In addition, any distribution
that we declare in October, November, or December of any year and payable to a
stockholder of record on a specified date in any such month shall be treated as
both paid by us and received by the stockholder on December 31 of such year,
provided that we actually pay the distribution during January of the following
calendar year.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses we incur. Instead, we would carry over such
losses for potential offset against our future income (subject to certain
limitations). Taxable distributions that we make and gain from the disposition
of our Common Stock will not be treated as passive activity income and,
therefore, stockholders generally will not be able to apply any "passive
activity losses" (such as losses from certain types of limited partnerships in
which a stockholder is a limited partner) against such income. In addition,
taxable distributions that we make generally will be treated as investment
income for purposes of the investment interest limitations. Capital gains from
the disposition of Common Stock (or distributions treated as such), however,
will be treated as investment income only if the stockholder so elects, in which
case such capital gains will be taxed at ordinary income rates. We will notify
stockholders after the close of our taxable year as to the portions of the
distributions attributable to that year that constitute ordinary income or
capital gain dividends and in the case of capital gain dividends to
non-corporate stockholders, those designated as 20% rate gain distributions, 25%
rate gain distributions and 28% rate gain distributions.
It is possible that we may invest in certain types of mortgage loans that
may cause us under certain circumstances to recognize taxable income in excess
of our economic income (also known as "Phantom Income") and to experience an
offsetting excess of economic income over our taxable income in later years. As
a result, stockholders may from time to time be required to pay federal income
tax on distributions that economically represent a return of capital, rather
than a dividend. Such distributions would be offset in later years by
distributions representing economic income that would be treated as returns of
capital for federal income tax purposes. Accordingly, if we receive Phantom
Income, our stockholders may be required to pay federal income tax with respect
to such income on an accelerated basis, i.e., before such income is realized by
the stockholders in an economic sense. If there is taken into account the time
value of money, such an acceleration of federal income tax liabilities would
cause stockholders to receive an after-tax rate of return on an investment in
the Company that would be less than
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the after-tax rate of return on an investment with an identical before-tax rate
of return that did not generate Phantom Income. In general, as the ratio of our
Phantom Income to our total income increases, the after-tax rate of return
received by a taxable stockholder will decrease. We will consider the potential
effects of Phantom Income on our taxable stockholders in managing our
investments.
TAXATION OF STOCKHOLDERS ON THE DISPOSITION OF THE COMMON STOCK
In general, any gain or loss realized upon a taxable disposition of the
Common Stock by a U.S. stockholder who is not a dealer in securities will be
treated as capital gain or loss. Any such capital gain or loss generally will
(x) in the case of U.S. stockholders which are corporations, be long-term
capital gain or loss if the Common Stock has been held for more than 12 months,
and (y) in the case of U.S. stockholders who are non-corporate taxpayers, be
long-term capital gain or loss taxed at a maximum federal income tax rate of (i)
20% if the U.S. stockholder's holding period in such Common Stock was more than
18 months at the time of such disposition or (ii) 28% if the U.S. stockholder's
holding period was more than one year but not more than 18 months at the time of
such disposition. However, the Internal Revenue Service Restructuring and Reform
Act of 1998 eliminated the 18-month holding period requirements, effective for
taxable years ending after December 31, 1997, and therefore the 20% long-term
capital gains rate will generally apply to capital assets held more than one
year. In general, any loss upon a sale or exchange of Common Stock by a U.S.
stockholder who has held such Common Stock for six months or less (after
applying certain holding period rules) will be treated as long-term capital loss
to the extent our distributions are required to be treated by that stockholder
as long-term capital gain.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING
We will report to our U.S. stockholders and to the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact or (ii) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding, and
otherwise complies with the applicable requirements of the backup withholding
rules. A stockholder who does not provide us with his correct taxpayer
identification number also may be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability.
TAXATION OF TAX-EXEMPT STOCKHOLDERS
Tax exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their unrelated business taxable income ("UBTI"), as defined in Section
512(a)(1) of the IRS Code. While many investments in real estate generate UBTI,
the IRS has issued a published ruling that dividend distributions from a REIT to
an exempt employee pension trust do not constitute UBTI, provided that the
shares of the REIT are not otherwise used in an unrelated trade or business of
the exempt employee pension trust. Based on that ruling, amounts distributed by
the Company to Exempt Organizations generally should not constitute UBTI.
However, if an Exempt Organization finances its acquisition of the Common Stock
with debt, a portion of its income from the Company will constitute UBTI
pursuant to the "debt-financed property" rules. In addition, in certain
circumstances, a pension trust that owns more than 10% of our stock is required
to treat a percentage of the dividends we pay as UBTI. This rule applies to a
pension trust holding more than 10% (by value) of our stock only if (i) the
percentage of our income that is UBTI (determined as if we were a pension trust)
is at least 5% and (ii) we are treated as a "pension-held" REIT. We will be
treated as a "pension-held" REIT if
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(i) we qualify as a REIT by reason of the modification of the 5/50 Rule that
allows the beneficiaries of the pension trust to be treated as holding our
shares in proportion to their actuarial interests in the pension trust, and
(ii) either (A) one pension trust owns more than 25% of the value of our
stock or (B) a group of pension trusts individually holding more than 10% of the
value of our stock collectively owns more than 50% of the value of our stock. We
are unlikely to become a "pension-held" REIT because, pursuant to the Aggregate
Stock Ownership Limit and the Look-Through Ownership Limit in our Charter, no
person may beneficially own shares of Common Stock in excess of 9.8% of the
outstanding shares of our Common Stock; provided, however, that certain
Look-Through Entities may beneficially own up to 15% of such shares of Common
Stock. Although our Board of Directors has the discretion to waive the
application of the Aggregate Stock Ownership Limit or the Look-Through Ownership
Limit with respect to any person, the Board of Directors intends to grant such
waivers only in a manner that would not cause us to be or become a
"pension-held" REIT. However, there can be no assurance that we will not become
a "pension-held" REIT or that pension trusts will not be required to treat a
percentage of dividends received from us as UBTI.
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX LAWS WITH REGARD TO AN
INVESTMENT IN THE COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Stockholders that are not attributable to gain
from sales or exchanges by us of U.S. real property interests and are not
designated by us as capital gains dividends or retained capital gains will be
treated as dividends of ordinary income to the extent that they are made out of
our current or accumulated earnings and profits. Such distributions ordinarily
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
However, if income from the investment in the Common Stock is treated as
effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade or
business, the Non-U.S. Stockholder generally will be subject to federal income
tax at graduated rates, in the same manner as U.S. stockholders are taxed with
respect to such distributions (and also may be subject to the 30% branch profits
tax in the case of a Non-U.S. Stockholder that is a non-U.S. corporation). We
expect to withhold U.S. income tax at the rate of 30% on the gross amount of any
such distributions made to a Non-U.S. Stockholder unless (i) a lower treaty rate
applies and any required form evidencing eligibility for that reduced rate is
filed with us or (ii) the Non-U.S. Stockholder files an IRS Form 4224 with BCP
claiming that the distribution is effectively connected income. Furthermore, on
October 6, 1997, the U.S. Treasury Department issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S.
Stockholders after December 31, 1998 (the "New Withholding Regulations"). The
New Withholding Regulations may alter the procedure for claiming the benefits of
an income tax treaty.
Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a Non-U.S. Stockholder to the extent that such
distributions do not exceed the adjusted basis of the stockholder's Common
Stock, but rather will reduce the adjusted basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted basis of a Non-U.S. Stockholder's Common Stock, such
distributions will give rise to tax liability if the Non-U.S. Stockholder would
otherwise be subject to tax on any gain from the sale or disposition of his
Common Stock, as described below. Because it generally cannot be determined at
the time a distribution is made
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whether or not such distribution will be in excess of current and accumulated
earnings and profits, the entire amount of any distribution normally will be
subject to withholding at the same rate as a dividend. However, amounts so
withheld are refundable to the extent it is determined subsequently that such
distribution was, in fact, in excess of our current and accumulated earnings and
profits. We are required to withhold 10% of any distribution in excess of our
current and accumulated earnings and profits. Consequently, although we intend
to withhold at a rate of 30% on the entire amount of any distribution, to the
extent that we do not do so, any portion of a distribution not subject to
withholding at a rate of 30% will be subject to withholding at a rate of 10%.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from our sales or exchanges of U.S. real property interests
(i.e., interests in real property located in the United States and interests in
U.S. corporations at least 50% or whose assets consist of U.S. real property
interests) will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
distributions attributable to gain from sales of U.S. real property interests
are taxed to a Non-U.S. Stockholder as if such gain were effectively connected
with a U.S. trade or business. Non-U.S. Stockholders thus would be taxed at the
normal capital gain rates applicable to U.S. stockholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Distributions subject to FIRPTA also may be
subject to the 30% branch profits tax in the hands of a non-U.S. corporate
stockholder not entitled to treaty relief or exemption. We are required to
withhold 35% of any distribution that we designate as a capital gains dividend.
The amount withheld is creditable against the Non-U.S. Stockholder's FIRPTA tax
liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of his or her Common
Stock generally will not be taxed under FIRPTA if we are a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. Although it is currently anticipated that we
will be a "domestically controlled REIT" and, therefore, that the sale of the
Common Stock will not be subject to taxation under FIRPTA, there can be no
assurance that we will be a "domestically-controlled REIT." Even if such gain is
not subject to FIRPTA, such gain will be taxable to a Non-U.S. Stockholder if
(i) investment in the Common Stock is effectively connected with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S. Stockholder
will be subject to the same treatment as U.S. stockholders with respect to such
gain, or (ii) the Non-U.S. Stockholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien individual
will be subject to a 30% tax on the individual's capital gains. If the gain on
the sale of the Common Stock were to be subject to taxation under FIRPTA, the
Non-U.S. Stockholder would be subject to the same treatment as U.S. stockholders
with respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals).
In addition, a purchaser of Common Stock subject to taxation under FIRPTA would
generally be required to deduct and withhold a tax equal to 10% of the amount
realized on the disposition by a Non-U.S. Stockholder. Any amount withheld would
be creditable against the Non-U.S. Stockholder's FIRPTA tax liability.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Stockholders. The New Withholding
Regulations alter the application of the information reporting and backup
withholding rules to Non-U.S. Stockholders. Non-U.S. Stockholders should consult
with a tax advisor with respect to any such information reporting and backup
withholding requirements. Backup withholding with respect to a Non-U.S.
Stockholder is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a Non-U.S. Stockholder will be allowed
as a credit against any United States federal income tax liability of such
Non-U.S. Stockholder. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the Service.
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OTHER TAX CONSEQUENCES
The Company, our stockholders, the Operating Partnership or its General
Partner or Limited Partners may be subject to state and local tax in various
states and localities, including those states and localities in which it or they
transact business, own property, or reside. The state and local tax treatment of
the Company and its stockholders in such jurisdictions may differ from the
federal income tax treatment described above. Consequently, prospective
stockholders should consult their own tax advisors regarding the effect of state
and local tax laws upon an investment in the Common Stock. In addition, the
Taxpayer Relief Act of 1997 includes several provisions, some of which have been
described in the discussion above, that will liberalize certain of the
requirements for qualification as a REIT. However, these provisions will have
neither a material beneficial effect nor a material adverse effect on our
ability to operate as a REIT.
BCP SISTER CORP.
Each BCP Sister Corp. organized as a corporation will pay federal, state and
local income taxes on its taxable income at regular corporate rates. Any such
taxes will reduce amounts available for distribution by the BCP Sister Corp. to
its stockholders.
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ERISA CONSIDERATIONS
ERISA and the Code impose certain restrictions on (a) Plans, including
individual retirement accounts or Keogh plans, (b) any entities whose underlying
assets include Plan assets by reason of a Plan's investment in such entities
("Plan Assets Entities") and (c) persons who have certain specified
relationships to such Plans and Plan Assets Entities ("Parties-in-Interest"
under ERISA and "Disqualified Persons" under the Code). Moreover, based on the
reasoning of the United States Supreme Court in JOHN HANCOCK LIFE INS. CO. V.
HARRIS TRUST AND SAV. BANK, 114 S. Ct. 517 (1993), an insurance company's
general account may be deemed to include assets of the Plans investing in the
general account (e.g., through the purchase of an annuity contract), and the
insurance company might be treated as a Party-in-Interest or Disqualified Person
with respect to a Plan by virtue of such investment. ERISA also imposes certain
duties on persons who are fiduciaries of Plans subject to ERISA and prohibits
certain transactions between a Plan and Parties-in-Interest or Disqualified
Persons with respect to such Plans.
THE TREATMENT OF THE COMPANY'S UNDERLYING ASSETS UNDER ERISA
The DOL has issued the Plan Assets Regulation which defines what constitutes
the assets of a Plan. This regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan purchases an "equity interest" will be
deemed for purposes of ERISA and the Code to be assets of the investing Plan
unless certain exceptions apply. The Plan Assets Regulation defines an "equity
interest" as any interest in an entity other than an instrument that is treated
as indebtedness under applicable local law and which has no substantial equity
features. The Common Stock offered hereby should be treated as "equity
interests" for purposes of the Plan Assets Regulation.
One exception under the Plan Assets Regulation provides that an investing
Plan's assets will not include any of the underlying assets of an entity if at
all times less than 25% of each class of "equity" interests in the entity is
held by "benefit plan investors," which is defined to include Plans that are not
subject to ERISA such as foreign benefit plans, governmental pension plans and
individual retirement accounts as well as Plans that are subject to ERISA.
Another exception is provided for an investment in an "operating company," which
is defined in the Plan Assets Regulation to include a "real estate operating
company." To be a "real estate operating company" an entity must have, on the
date of its first long-term investment and on certain annual testing dates
thereafter, at least 50% of its assets (other than short-term investments
pending long-term commitment or distribution to investors), valued at cost,
invested in real estate that is managed or developed and with respect to which
such entity has the right to substantially participate in such management or
development activities. Another exception under the Plan Assets Regulation
provides that an investing Plan's assets will not include any of the underlying
assets of an entity if the class of "equity" interests in question is a class of
"publicly offered securities." Publicly offered securities are securities that
are (i) widely held (i.e., held by 100 or more investors who are independent of
the issuer and each other), (ii) freely transferable, and (iii) part of a class
of securities registered under Section 12(b) or 12(g) of the Exchange Act.
The Board of Directors of the Company and any Sister Corp. will take such
steps as may be necessary to qualify for one or more of the exceptions available
under the Plan Assets Regulation and thereby prevent the assets of the Company
or any BCP Sister Corp. from being treated as assets of any investing Plan.
Specifically, we intend to qualify as a real estate operating company until at
least such time as the Common Stock qualifies as a class of publicly offered
securities. In this connection, we have obtained an opinion of counsel that, on
the date of the Operating Partnership's first long-term investment we qualified
as a real estate operating company. It is intended that, thereafter, on at least
one date during each of the Company's "annual valuation periods" (as defined in
the Plan Assets Regulation) until at least such time as the Common Stock
qualifies as publicly offered securities, at least 50% of our assets (valued at
cost and excluding certain short-term investments) will be invested, by reason
of its investment in the Operating Partnership, in real estate which is managed
or developed and as to which we will have the right to
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substantially participate in the management or development of the real estate.
Consequently, BCP should qualify as a real estate operating company. In
addition, with respect to any BCP Sister Corp., we will take such steps as may
be necessary to qualify such BCP Sister Corp. as an operating company or a
venture capital operating company or for another available exception under the
Plan Assets Regulation prior to distribution of its equity interests.
Any Plan fiduciary that proposes to cause a Plan to purchase Common Stock
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to such investment and determine on its own whether any
exceptions or exemptions are applicable and whether all conditions of any such
exceptions or exemptions have been satisfied. Moreover, each Plan fiduciary
should determine whether, under the general fiduciary standards of investment
prudence and diversification, an investment in the Common Stock is appropriate
for the Plan, taking into account the overall investment policy of the Plan and
the composition of the Plan's investment portfolio.
SELLING STOCKHOLDERS
The Common Stock was originally issued and sold to NationsBanc Montgomery
Securities LLC (the "Initial Purchaser"), in a transaction exempt from
registration requirements of the Securities Act. The securities were resold by
NationsBanc to persons reasonably believed by NationsBanc to be "qualified
institutional buyers" (as defined in Rule 144A under the Securities Act), to a
limited number of institutional "accredited investors" (as defined in Rule 501
(a) (1), (2), (3) or (7) under the Securities Act) and to individual "accredited
investors" (as defined in Rule 501 (a) (4), (5) or (6) under the Securities
Act). The Selling Stockholders may from time to time offer and sell pursuant to
this Prospectus any or all of the Common Stock. The term Selling Stockholders
includes the holders listed below and the beneficial owners of the Common Stock
and their transferees, pledgees, donees or other successors.
The following table sets forth information with respect to the Selling
Stockholders of the Common Stock and the respective number of shares of Common
Stock beneficially owned by each Selling Stockholders that may be offered
pursuant to this Prospectus. We are obligated by the terms of a Registration
Rights Agreement to file this Registration Statement on behalf of each of the
listed stockholders. Each Selling Stockholder may offer and sell all of the
securities registered hereby. If such Stockholder sells all shares registered
hereby such stockholder will not beneficially own any securities of the Company
after this Offering. Inclusion on this list does not imply that any person or
entity will actually offer or sell any of the shares registered on his, her or
its behalf.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
1st Trust & Co....................................................... 5,000 *
FBO Glenn Bennett
FTC IRA Standard
1st Trust Co. TR..................................................... 5,000 *
FBO Lawrence W. Gold IRA
ABKB/La Salle Securities............................................. 1,337,500 6.4%
David Abromowitz (1)................................................. 2,680 *
Louis R. Adimare..................................................... 10,000 *
Richard Adler........................................................ 7,500 *
Advantus Capital (MIMLIC Asset)...................................... 500,000 2.4%
AETNA................................................................ 400,000 1.9%
AEW Capital Management............................................... 125,000 *
</TABLE>
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Gregory L. Allcroft & (1)............................................ 2,680 *
Leah Allcroft Comm. Prop.
Bruce W. Altrock & Carolyn D. Altrock................................ 12,500 *
TR Altrock Living Trust UA 08/13/92
Adarsh K. Arora...................................................... 5,000 *
Michael Ashendorf (1)................................................ 5,361 *
Aslam International Inc. EBP......................................... 500 *
Steven R. Astrove & (2).............................................. 1,340 *
David M. Astrove JT TEN
Atlantic Trust Co. Tr................................................ 50,000 *
FBO Susan R.G. Revocable Trust
UA 06/06/96
The American Century Real Estate Fund................................ 150,000 *
Tony Avila & Jacquelyn Avila JT TEN (1).............................. 1,072 *
Robert A. Baffi & Rosemary G. Baffi.................................. 2,680 *
TR Baffi Fam Rev Trust
UA 01/17/94
Louis P. Bansbach III................................................ 10,000 *
Kevin Barnes (1)..................................................... 3,753 *
Ray Barshick......................................................... 25,000 *
David A. Baylor & Theresa L. Helmer (1).............................. 1,072 *
Bayside Development Corp. Ltd........................................ 25,000 *
Douglas L. Becker.................................................... 5,000 *
Jill Becker & Eric D. Becker......................................... 5,000 *
TEN ENT
Glenn Bennett & Christina Bennett JT TEN............................. 5,000 *
John A. Berg (1)..................................................... 26,809 *
Zack B. Bergreen..................................................... 10,000 *
Jon R. Berquist (1).................................................. 1,340 *
Berrard Hldgs LTD Partnership A Partnership.......................... 8,750 *
John R. Bertucci..................................................... 5,000 *
Gordon M. & Adele H. Binder.......................................... 25,000 *
William D. Birch..................................................... 6,250 *
William M. Birch..................................................... 10,000 *
Guarantee & Trust Co Tr.............................................. 2,500 *
FBO Myron Blackman IRA Rollover
Thomas P. Bloch (2).................................................. 1,340 *
BNP Bahrain.......................................................... 590,000 2.8%
Timothy P. Brady..................................................... 15,000 *
Kathleen Higgins Braun & (1)......................................... 5,361 *
Kurt George Braun JT TEN
</TABLE>
92
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Steven Braverman TR.................................................. 10,000 *
Braverman Fam Trust
UA 12/26/96
MS Muni Bond
Rita Brightman....................................................... 20,000 *
Douglas Broyles...................................................... 5,000 *
Bruce Brugler (1).................................................... 2,144 *
Lucretia A. Bryant................................................... 5,000 *
Michael Burbank & Cindy Ann Roberts Community 1,072 *
Property (1).......................................................
Thomas C. Byrne...................................................... 3,750 *
Vincent J. Campobasso &.............................................. 5,000 *
Colleen M. Campobasso JT TEN
J. Robert Casey (2).................................................. 5,361 *
Douglas A. Catalano.................................................. 10,000 *
Chafetz Group LLC.................................................... 5,000 *
Robert B. Champagne.................................................. 5,000 *
Dominic K. Chan & Marsha Chan JT TEN................................. 10,000 *
Chase Asset Management............................................... 750,000 3.6%
Cole A. Chevalier & Katherine Chevalier.............................. 15,000 *
TR Chevalier Trust UA 06/02/94
Matthew-Luc Clark (1)................................................ 1,072 *
Closefire Limited.................................................... 5,000 *
Howard E. Cohen &.................................................... 5,361 *
Myra Muskant JT TEN
Robert & Eileen Coltun JT TEN........................................ 5,000 *
Geary Cotton......................................................... 10,000 *
Robert Currie & Linda Currie JT Ten.................................. 5,000 *
Carl Curtis.......................................................... 5,000 *
DBA Pacific Auto
Cutler Group LLC..................................................... 5,000 *
John H. Dailey III & Beth B. Dailey TR............................... 25,000 *
John H Dailey Trust
UA 05/17/89
Raju P. Dantuluri & Devi P. Dantuluri JT TEN......................... 10,000 *
Nancy M. Davids (2).................................................. 1,340 *
DC Investment Partners............................................... 40,000 *
Allen Deary.......................................................... 5,000 *
Christel Dehaan Tr................................................... 50,000 *
Christel Dehaan Trust
UA 12/31/92
</TABLE>
93
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
C.A. Delaney Capital Management...................................... 150,000 *
FBO Spectrum United Canadien Growth Fund
Tom Denomme.......................................................... 5,000 *
Desert Mutual Benefit Realty Fund.................................... 100,000 *
Barbara Devorzon Tr.................................................. 5,000 *
Devorzon Fam Trust
UA 11/07/90
Timothy Dibble &..................................................... 5,000 *
Maureen Dibble JT Ten
A/C 2
Daniel J. Doherty III................................................ 15,000 *
Atlantic Retail Properties
Neal M. Douglas...................................................... 5,000 *
Gary L. Downey....................................................... 5,000 *
Stichting Bedrijfspensioenfonds voor de Metaalnijverheid............. 750,000 3.6%
EAG Enterprises Limited.............................................. 5,000 *
Daniel H. Eakins..................................................... 5,000 *
Elizabeth H. Edmunds................................................. 2,680 *
Jeffrey Elder........................................................ 12,500 *
Merrick M. Elfman.................................................... 7,500 *
Matthew E. Epstein & (1)............................................. 1,340 *
Deborah L. Hiatt JT TEN
Dwight Evans......................................................... 7,500 *
Lester J. Fagen (2).................................................. 1,875 *
Edward J. Faneuil & Eric Slifka &.................................... 5,361 *
Alfred Slifka Ten Com
FLM Partnership/A Partnership........................................ 8,042 *
First American Asset Management...................................... 33,750 *
Fisher Group LTD Partnership--Fisher, Jerome......................... 25,000 *
John P. Fowler....................................................... 5,361 *
Mary Lou Fox......................................................... 5,000 *
Joseph Friscia &..................................................... 5,000 *
Laura J. Friscia JT TEN
Lee Geiger (1)....................................................... 1,072 *
General Electric Pension Trust....................................... 750,000 3.6%
Robert H. Gersky & (1)............................................... 14,745 *
Sue A. Gersky Community Property
John W. Gildea 5,500 *
Barry Ginsburg &..................................................... 2,500 *
Paul Lukoff Tr Merle Z. Gross
William Shedd Glassmeyer (1)......................................... 1,072 *
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Martin A. Glazer & (2)............................................... 1,340 *
Carol A. Glazer JT TEN
Glenmeade Trust...................................................... 500,000 2.4%
Global Property Advisors............................................. 125,000 *
FBO North American Property Securities Trust
Ernest C. Goggio..................................................... 5,000 *
Bruce Goldman........................................................ 5,000 *
William J. Goldsborough.............................................. 10,000 *
Carol B. Good........................................................ 1,787 *
Julian H. Good....................................................... 1,787 *
Louis K. Good III &.................................................. 1,787 *
Susan Good TEN COM
Goodman & Co. Ltd.................................................... 750,000 3.6%
Barry R. Gorsun...................................................... 5,000 *
1998 GPH Fund LLC (2)................................................ 1,876 *
E.C. Grayson......................................................... 5,000 *
Green Beacon LP...................................................... 5,000 *
James B. Greenfield (1).............................................. 1,072 *
Lee B. Griffith...................................................... 5,000 *
Grisanti, Inc........................................................ 10,000 *
Merle Z. Gross-Ginsburg &............................................ 2,500 *
Paul Lukoff TR Barry M. Ginsburg
1993 Fam Trust UA 09/30/93
Guarantee & Trust Co. TR............................................. 5,000 *
FBO Michael P. Last GTC IRA
Guarantee & Trust Co. TR............................................. 10,000 *
FBO Barry R. Devorzon GTC IRA
Guarantee & Trust Co. TR............................................. 5,361 *
FBO Dana C. Djerf
Guarantee & Trust Co. TR............................................. 7,238 *
FBO M. Allen Chozen
GTC IRA Rollover
Guarantee & Trust Co. TR............................................. 15,000 *
FBO Linda Lee Harper
Guarantee & Trust Co. TR............................................. 5,000 *
FBO Fred Backer GTC IRA Rollover
Guarantee & Trust Co. TR............................................. 5,000 *
FBO Jack G. Bryant GTC IRA Rollover
Guarantee & Trust Co Tr.............................................. 5,000 *
FBO Thomas A. Okulski GTC IRA
Guarantee & Trust Co Tr.............................................. 1,608 *
FBO Peter R. Pendergast GTC
IRA Sep
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Guarantee & Trust Co Tr.............................................. 5,000 *
FBO Stephen A. Vogel GTC IRA
Rollover
Sammy Hagar.......................................................... 5,000 *
Michael A. Hammer (2)................................................ 1,340 *
Hartford Capital Appreciation Fund................................... 300,000 1.4%
Hartford Capital Appreciation Fund, Inc.............................. 2,000,000 9.5%
K. Stephen Haskins................................................... 10,000 *
Peter P. Healy & Virginia Healy JT TEN............................... 6,166 *
H. David Henken (2).................................................. 1,340 *
Bernard and Jerome Herskowitz........................................ 10,000 *
Wilson T. Hileman, Jr. (1)........................................... 1,072 *
Rudolf C. Hoehn-Saric................................................ 5,000 *
Revell Horsey & (1).................................................. 1,072 *
Carrie S. Horsey JT TEN
M. Benjamin Howe & (1)............................................... 5,361 *
Janet L. Howe JT TEN
Jimmy C.M. Hsu....................................................... 5,000 *
Tommy C. Hsu......................................................... 5,000 *
Douglas M. Husid (2)................................................. 1,340 *
Thomas J. Hynes, Jr.................................................. 5,361 *
Invesco Realty Advisors, Inc......................................... 115,000 *
Naveen Jain &........................................................ 10,000 *
Anuradha Jain JT TEN
JJ Newport........................................................... 5,000 *
Craig R. Johnson & (1)............................................... 13,404 *
Nichola Jo Johnson TR
Johnson Revocable Trust
UA 07/02/97
Gary Johnson......................................................... 5,000 *
Donald G. Jones...................................................... 15,000 *
Spirit Enterprise LLP
Jerry V. Jorge & Susan N. Jorge JT TEN............................... 5,000 *
John A. Jurenko...................................................... 25,000 *
George S. Karas...................................................... 5,000 *
Bruce Katzen &....................................................... 5,000 *
Diane Katzen JT TEN
Kempen/lbus.......................................................... 40,000 *
John Bradford King & Pamela J. King JT TEN........................... 5,000 *
Gary C. Klein........................................................ 12,500 *
Matt Klein (1)....................................................... 8,041 *
William C. Klein & Virginia A. Klein JT ENT.......................... 12,500 *
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Gustav Koven......................................................... 5,000 *
Jordon P. Krasnow &.................................................. 5,361 *
Jean H. Krasnow JT TEN (2)
Kresevich Capital Mgmt LLC........................................... 25,000 *
E. Floyd Kvamme &.................................................... 25,000 *
Jean Kvamme Comm Prop
Raymond Kwasnick & (2)............................................... 2,680 *
Paul Kwasnick TEN COM
Guy & Rita Lammle JT TEN............................................. 5,000 *
Richard Langerman.................................................... 2,680 *
Leede Investments LLC................................................ 100,000 *
David Lehmann & (1).................................................. 1,340 *
Dawn Lehmann JT TEN
Mark Lehman (1)...................................................... 2,680 *
James W. Lewis....................................................... 5,000 *
Doug Liman........................................................... 5,000 *
Ron & Susanne Lissak JT WROS (1)..................................... 2,000 *
Elaine C. Lloyd...................................................... 5,000 *
Donald A. Lobo....................................................... 15,000 *
Longleaf Partners Realty Fund........................................ 2,075,000 9.8%
Richard E. Lucas..................................................... 10,000 *
William Maidman Family LP............................................ 5,000 *
Paul Malnati--Trans National......................................... 5,000 *
Kathleen M. Malo TR (1).............................................. 1,072 *
Kathleen M. Malo Trust
UA 12/14/95
Sophia A. Mann....................................................... 5,361 *
Burt Manning......................................................... 5,000 *
Steve Marcie......................................................... 5,000 *
Irwin M. Marcus...................................................... 5,361 *
Randall E. Marcus.................................................... 5,361 *
Univeristy Orthopedic Assoc
Richard A. Marks & (2)............................................... 5,361 *
Jennifer E. Morrison JT TEN
Bharat K. Marya &.................................................... 10,000 *
Radhesh Marya TR
Marya Revocable Trust
UA 09/03/86
Bharat K. Marya &.................................................... 15,000 *
Radhesh Marya TR B & R Marya Charitable
RMDR Trust UA 08/28/95
Mass Financial Services Company...................................... 292,925 1.4%
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Karl L. Matthies (1)................................................. 10,723 *
Karl Matthies & Deborah Matthies (1)................................. 8,042 *
Community Property
Dan Maydan &......................................................... 7,500 *
Dalia Maydan TR
Dan Maydan & Dalia Maydan Trust
UA 03/26/81
James F. McCaffrey................................................... 5,361 *
McGlinn Capital Management, Inc. .................................... 175,000 *
Mary E. McGoldrick................................................... 10,000 *
Mees Pierson/Fortis Investments...................................... 100,000 *
James L. Melsa &..................................................... 5,000 *
Katherine Melsa JT TEN
Robert M. Melzer..................................................... 5,361 *
Gilbert G. Menna & Janet L. Remien JT TEN (2)........................ 4,021 *
Warren T. Mills &.................................................... 5,000 *
Gayle S. Mills TR
Warren T. Mills & Gayle S. Mills
Revocable Fam Trust UA 02/12/93
James Minchello & (1)................................................ 5,361 *
Linda Minchello JT TEN
Robert V. Minchello, Jr. (1)......................................... 1,340 *
Monte Toole TR....................................................... 10,000 *
Monte M. Toole Gasonics Revocable Trust
UA 04/06/94
Peter Moore & Christina Moore JT TEN................................. 35,000 *
Morgan Stanley Asset Management...................................... 1,000,000 4.8%
Dennis R. Morin...................................................... 5,000 *
Robert S. Morris..................................................... 5,000 *
Alvin Murstein & Amie Murstein TR.................................... 5,000 *
Alvin Murstein 2nd Fam Trust
UA 10/01/95
John P. Murtagh &.................................................... 17,500 *
Geraldine M. Murtagh JT TEN
Joseph Nadel &....................................................... 5,000 *
Ann Nadel Tr
Joseph & Ann Nadel Revocable Living Trust
UA 08/23/95
NationsBank Collateral Account....................................... 25,000 *
FBO Central Florida Investments
Stephen Newberry &................................................... 12,500 *
Shelley Newberry Tr
The Newberry Living Trust
UA 06/18/90
</TABLE>
98
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Bernard A. Newcomb TR................................................ 12,500 *
Bernard A. Newcomb 1997 Living Trust
UA 01/29/97
Anna F. Ng TR........................................................ 12,500 *
Anna F. Ng 1996 Trust
UA 07/02/96
Steven Nielsen &..................................................... 5,000 *
Elizabeth Nielsen JT TEN
Northwestern Mutual Life............................................. 500,000 2.4%
Alfred J. Novak &.................................................... 5,000 *
Carol Novak JT TEN
Joseph W. O'Connor................................................... 25,000 *
Orchid Management Corporation........................................ 10,723 *
Kenneth Olson &...................................................... 5,000 *
Ellen Berger JT TEN
Jason Pedersen (1)................................................... 2,680 *
Kent Ryan Penwell (1)................................................ 1,340 *
Robert S. Pepper & Star Pepper TR.................................... 10,000 *
Robert S. & Star Pepper Trust
UA 04/25/86
David L. Pergola..................................................... 5,361 *
Sandra J. Perkins.................................................... 5,000 *
Robert J. Perriello.................................................. 5,361 *
Robert Y. Pick Tr.................................................... 5,361 *
Robert Y. Pick Self-Employed Profit
Sharing Plan
UA 01/01/85
Rudolph F. Pierce (2)................................................ 1,340 *
Guy C. Pinkerton &................................................... 12,500 *
Nancy J. Pinkerton JT TEN
Points West INTL INVSTMTS LTD........................................ 31,063 *
Bruce Pollock & Carol Pollock JT TEN................................. 5,000 *
Ponte Vedra Partners LTD............................................. 50,000 *
Bruce Potter (1)..................................................... 13,000 *
Bruce G. Potter TR (1)............................................... 1,341 *
Alexandra Kelly Matthies
1997 Trust B UA 10/03/97
Bruce G. Potter TR (1)............................................... 1,341 *
Casey Elizabeth Matthies
1997 Trust UA
10/03/97
Franck Prissert (1).................................................. 1,340 *
Putnam Investment Management......................................... 500,000 2.4%
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Safi U. Qureshey & Anita Sue Qureshey TR............................. 5,000 *
Qureshey Fam Trust UA 05/21/84
Rainbow Partners, L.P................................................ 150,000 *
Rand Rosenberg (1)................................................... 5,361 *
Sol Rosenberg &...................................................... 5,000 *
Susan Rosenberg JT TEN
Sol Rosenberg & Susan Rosenberg Tr................................... 10,000 *
Rosenberg Fam Charitable Trust
UA 10/11/96
Franklin Reider & Michelle Reider JT TEN............................. 5,000 *
James P. Reilly...................................................... 5,000 *
Dana F. Rodin (2).................................................... 1,340 *
Edwin R. Rodriguez Jr. Tr............................................ 5,361 *
Edwin R. Rodriguez Jr Revocable Trust
UA 08/29/85
John R. Rollins & Cynthia A. Rollins TR.............................. 20,000 *
Thomas B. & Rita Brightman Charitable
Remainder Trust
UA 05/12/93
Alan W. Rottenberg (2)............................................... 1,340 *
RREEF Venture Capital Fund, L.P...................................... 1,500,000 7.2%
Eli Rubenstein (2)................................................... 1,340 *
Michael B. Rukin TR TTEE FBO......................................... 10,000 *
The Concord Hill Group Trust
DTD 02/23/93
William Rutter....................................................... 50,000 *
Burton M. Sack....................................................... 5,000 *
William J. Sales..................................................... 5,040 *
Sandler O'Neill Asset Management..................................... 62,500 *
Thomas J. Sartory (2)................................................ 1,340 *
John R. Sasso........................................................ 5,361 *
Sharam I. & Fariba S. Sasson, TR..................................... 25,000 *
Ori Sasson & Susan Sasson Tr......................................... 25,000 *
Sasson Trust UA 03/31/94
Donald L. Saunders................................................... 5,000 *
John Schnugg (1)..................................................... 5,361 *
Jack Schwartz........................................................ 15,000 *
Edward H. Schweitzer & (1)........................................... 1,072 *
Chris A. Schweitzer TR
Schweitzer Fam Rev Trust
UA 02/13/95
Shawn Sedaghat....................................................... 25,000 *
Fred A. Seigel....................................................... 5,361 *
</TABLE>
100
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
Uday Sengupta........................................................ 5,000 *
Asia Quest
Richard Sherman...................................................... 5,000 *
Donald L. Shulman (2)................................................ 1,340 *
Robert J. Siedlecki.................................................. 5,000 *
John R. Silber....................................................... 5,361 *
Victoria Simms....................................................... 15,000 *
Michael Singer (1)................................................... 1,072 *
Vassilios Sirpolaidis & Lynne Sirpolaidis JT TEN..................... 25,000 *
Jeffrey S. Slowgrove &............................................... 7,500 *
Toni A. Slowgrove TEN ENT
Slyman International LLC............................................. 5,000 *
Richard A. Smith & Mary Ellen Zweifel Smith TR....................... 13,404 *
Smith Family Trust UA 04/03/96
Mark C. Smith........................................................ 25,000 *
Alan B. Snyder & Susan R. Katz-Snyder................................ 50,000 *
Jure Sola & Michelle Sola TR......................................... 12,500 *
Jure & Michelle Sola Trust
UA 12/18/92
Alan D. Solomont..................................................... 5,000 *
Sasson R. & Eta Somekh TR............................................ 5,000 *
Marvin Sparrow....................................................... 2,680 *
Harold Stahler &..................................................... 2,680 *
Dale I. Stahler JT TEN
Standard Pacific Capital............................................. 750,000 3.6%
State Board of Administration of Florida............................. 500,000 2.4%
State Street Research Aurora Fund.................................... 120,000 *
Stephens Inc. ....................................................... 20,000 *
John G. Stewart...................................................... 25,000 *
Marilyn L. Sticklor.................................................. 2,680 *
Michael E. Tacelosky TR.............................................. 5,000 *
Michael E. Tacelosky 1994 Trust Fund
UA 12/20/94
Richard W. Talkov & Susan P. Davis JT TEN............................ 1,340 *
Andrew R. Tang (1)................................................... 1,072 *
Lester J. Tanner..................................................... 5,000 *
Steven Taslitz....................................................... 5,000 *
Third Point Partners LP.............................................. 67,315 *
Third Point Offshore Fund LTD........................................ 45,877 *
Robert Tishman (1)................................................... 8,042 *
Daniel D. Tompkins................................................... 5,000 *
Chester Tomsick...................................................... 10,000 *
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
David Toole.......................................................... 5,000 *
Trans National Grp Svcs LLC.......................................... 5,000 *
Norvald L. Ulvestad TR............................................... 5,000 *
Norvald L. Ulvestad Trust
UA 09/28/82
William V. Urone &................................................... 15,000 *
Joyce A. Urone TR Urone Trust
UA 10/26/93
US Die Casting & Development Company Inc............................. 10,000 *
E. Vittoria, J. Vittoria & A Vittoria................................ 25,000 *
J Vittoria TR
Joseph Vittoria Irrevocable Trust
UA 12/19/97
Ian Wallace.......................................................... 5,000 *
James F. Wallack & Rebecca Matthews JT TEN........................... 1,340 *
David N. K. Wang..................................................... 10,000 *
Robert S. Washburn TR................................................ 10,000 *
Robert S. Washburn Money *
Purchase Pension & Profit Keogh Plan
UA 01/01/88
Craig Stephen & Jocelyn Weingart JT TEN.............................. 1,072 *
Harris Weinstein Tr.................................................. 12,500 *
Harris Weinstein Revocable Trust
UA 01/26/94
Frenchmans Creek
Mark Weinstein....................................................... 5,000 *
Thomas W. Weisel (1)................................................. 23,215 *
Welch & Forbes Inc................................................... 66,000 *
Wendelin White & Paul Feinberg JT TEN................................ 5,000 *
Lisa Mashihara Westley............................................... 1,072 *
Wigold Partners...................................................... 5,000 *
Robert L. Williamson &............................................... 5,000 *
Rebecca A. Williamson TEN COM
Fred Winograd (1).................................................... 1,340 *
Frederic E. Wittmann................................................. 5,361 *
Geoffrey Y. Yang..................................................... 5,000 *
Lewis Yarborough &................................................... 5,000 *
Paula M. Yarborough TR
Yarborough Family Annual Gift Trust
UA 01/17/94
Robin C. Yoshimura &................................................. 5,000 *
Randy Yoshimura JT TEN
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
PRIOR TO THIS OFFERING
-----------------------
SELLING STOCKHOLDER NUMBER PERCENTAGE
- --------------------------------------------------------------------- ---------- -----------
<S> <C> <C>
ZPG Securities LLC................................................... 5,745 *
</TABLE>
- ------------------------
* Less than 1%
(1) Such Selling Stockholder is affiliated with NationsBanc Montgomery
Securities, LLC, the Initial Purchaser in the Original Offering.
(2) Such Selling Stockholder is affiliated with Goodwin, Procter & Hoar LLP or
Goulston & Storrs, PC, law firms that provide professional services to the
Registrant.
Except as shown above, none of the Selling Stockholders has, or within the
past three years has had, any position, office or other material relationship
with the Company or any of its predecessors or affiliates. Because the Selling
Stockholders may, pursuant to this Prospectus, offer all or some portion of the
Common Stock, no estimate can be given as to the amount of the Common Stock that
will be held by the Selling Stockholders upon termination of any such sales. In
addition, the Selling Stockholders identified above may have sold, transferred
or otherwise disposed of all or a portion of their Common Stock since the date
on which they provided the information regarding their Common Stock, in
transactions exempt from the registration requirements of the Securities Act,
including transactions pursuant to Rule 144 under the Securities Act.
103
<PAGE>
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Stockholders. As used herein, Selling Stockholders includes
donees and pledgees selling shares received from a named Selling Stockholder
after the date of this prospectus. Alternatively, the Selling Stockholders may
from time to time offer the Offered Securities to or through underwriters,
broker/dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling Stockholders
or the purchasers of such securities for whom they may act as agents. The
Selling Stockholders and any underwriters, broker/dealers or agents that
participate in the distribution of Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions)
- on any national securities exchange or quotation service on which the
Offered Securities may be listed or quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on such exchanges or in the
over-the-counter market; or
- through the writing of options.
At the time a particular offering of the Offered Securities is made, a
Prospectus Supplement, if required, will be distributed which will set forth the
aggregate amount and type of Offered Securities being offered and the terms of
the offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Stockholders and any discounts, commissions or concessions
allowed or reallowed or paid to broker/ dealers.
Each Common Stock certificate contains a legend to the effect that the
holder thereof, by its acceptance thereof, will be deemed to have agreed to be
bound by the provisions of the Registration Rights Agreement. In that regard,
each holder is deemed to have agreed that, upon receipt of notice from the
Company of the occurrence of any event which makes a statement in this
prospectus untrue in any material respect or which requires the making of any
changes in such prospectus in order to make the statements therein not
misleading, or of certain other events specified in the Registration Rights
Agreement, such holder will suspend the sale of Common Stock pursuant to this
prospectus until the Company has amended or supplemented such prospectus to
correct such misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such holder or the Company has given notice that the
sale of the Common Stock may be resumed.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Stockholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of the purchases and sales of any of the Offered Securities by
the Selling Stockholders. The foregoing may affect the marketability of such
securities.
104
<PAGE>
All expenses of the registration of the Offered Securities will be paid by
the Company, including, without limitation, Commission filing fees and expenses
of compliance with state securities or "blue sky" laws; provided, however, that
the Selling Stockholders will pay all the underwriting discounts and selling
commissions, if any. The Selling Stockholders will be indemnified by the Company
against certain civil liabilities, including certain liabilities under the
Securities Act, or will be entitled to contribution in connection therewith. We
will be indemnified by the Selling Stockholders severally against certain civil
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts. Certain partners of Goodwin, Procter
& Hoar LLP directly or indirectly own an aggregate of 7,237 shares of Common
Stock of the Company.
EXPERTS
The (i) consolidated financial statements of Beacon Capital Partners, Inc.
at March 31, l998 and for the period from January 21, l998 (inception) through
March 31, l998, (ii) the combined historical summary of gross income and direct
operating expenses for The Athenaeum Portfolio for the year ended December 31,
l997, (iii) the historical summary of gross income and direct operating expenses
for Technology Square and The Draper Building for the year ended December 31,
1997, and (iv) the combined historical summary of gross income and direct
operating expenses for The Bruenig Portfolio (referred to elsewhere herein as
the Dallas Office and Industrial Portfolio) for the year ended December 31,
1997, all appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form S-11 under the Securities Act of 1933, as amended
(the "Securities Act"), for the Common Stock offered in this Prospectus. This
Prospectus is one part of the Registration Statement and does not contain all of
the information in the Registration Statement. Any statements made in this
Prospectus referring to any contract, agreement or other document are a summary
of the material terms of such contract, agreement or other document. Our
Registration Statement may be inspected and copied at the SEC's public reference
facilities at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. Our Registration Statement will also be available for inspection and
copying at the SEC's regional offices located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street,
(Suite 1400), Chicago, Illinois 60661. You may also obtain copies of the
Registration Statement from the SEC's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. The SEC also maintains
a website that contains reports, proxy and information statements and other
information at http://www.sec.gov.
105
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Pro Forma Financial Information (Unaudited):
Beacon Capital Partners, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998.......... F-3
Notes to Pro Forma Condensed Consolidated Balance Sheet.......................... F-4
Pro Forma Condensed Consolidated Statements of Operations for the Nine Months
Ended September 30, 1998 and the Year Ended December 31, 1997................... F-5
Notes to Pro Forma Condensed Consolidated Statements of Operations............... F-7
Historical Financial Information:
Beacon Capital Partners, Inc.
Report of Independent Auditors................................................... F-8
Consolidated Balance Sheet as of March 31, 1998.................................. F-9
Consolidated Statement of Operations from January 21, 1998 (Inception) to March
31, 1998........................................................................ F-10
Consolidated Statement of Stockholders' Equity from January 21, 1998 (Inception)
to March 31, 1998............................................................... F-11
Consolidated Statement of Cash Flows from January 21, 1998 (Inception) to March
31, 1998........................................................................ F-12
Notes to Consolidated Financial Statements....................................... F-13
Consolidated Balance Sheet as of September 30, 1998 (Unaudited).................. F-18
Consolidated Statements of Operations from April 1, 1998 to September 30, 1998
(Unaudited) and January 21, 1998 (Inception) to September 30, 1998
(Unaudited)..................................................................... F-19
Consolidated Statement of Stockholders' Equity from January 21, 1998 (Inception)
to September 30, 1998 (Unaudited)............................................... F-20
Consolidated Statement of Cash Flows from January 21, 1998 (Inception) to
September 30, 1998 (Unaudited).................................................. F-21
Notes to Consolidated Financial Statements (Unaudited)........................... F-22
Beacon/PW Kendall LLC
Consolidated Balance Sheet as of September 30, 1998 (Unaudited).................. F-31
Consolidated Statement of Operations from April 16, 1998 (Inception) to September
30, 1998 (Unaudited)............................................................ F-32
Consolidated Statement of Members' Capital from April 16, 1998 (Inception) to
September 30, 1998 (Unaudited).................................................. F-33
Consolidated Statement of Cash Flows from April 16, 1998 (Inception) to September
30, 1998 (Unaudited)............................................................ F-34
Notes to Consolidated Financial Statements (Unaudited)........................... F-35
The Athenaeum Portfolio
Report of Independent Auditors................................................... F-38
Combined Historical Summary of Gross Income and Direct Operating Expenses for the
period January 1, 1998 to April 30, 1998 (Unaudited) and the Year Ended December
31, 1997........................................................................ F-39
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses........................................................................ F-40
Technology Square and The Draper Building
Report of Independent Auditors................................................... F-41
Historical Summary of Gross Income and Direct Operating Expenses for the period
January 1, 1998 to June 23, 1998 (Unaudited) and the Year Ended December 31,
1997............................................................................ F-42
Notes to Historical Summary of Gross Income and Direct Operating Expenses........ F-43
The Bruenig Portfolio (referred to elsewhere herein as the Dallas Office and
Industrial Portfolio)
Report of Independent Auditors................................................... F-44
Combined Historical Summary of Gross Income and Direct Operating Expenses for the
Six Months ended June 30, 1998 (Unaudited) and the Year Ended December 31,
1997............................................................................ F-45
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses........................................................................ F-46
</TABLE>
F-1
<PAGE>
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
The accompanying unaudited pro forma condensed consolidated balance sheet as
of September 30, 1998 has been prepared to reflect the pending additional
fundings of joint venture investments subsequent to September 30, 1998, as if
such transactions had occurred on September 30, 1998. The accompanying unaudited
pro forma condensed consolidated statements of operations have been prepared to
reflect the acquisition of properties, the funding and pending funding of joint
venture investments, and the issuance of shares as if such transactions had
occurred at the beginning of the periods presented.
The pro forma information is unaudited and is not necessarily indicative of
the consolidated results that would have occurred if the transactions and
adjustments reflected therein had been consummated in the period or on the date
presented, or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods. The pro forma information should be read in conjunction with
all of the financial statements and notes thereto and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
F-2
<PAGE>
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------
PURCHASE
HISTORICAL TRANSACTIONS
(A) (B) PRO FORMA
------------- --------------- -----------
<S> <C> <C> <C>
ASSETS:
Real Estate
Operating properties............................................... $ 214,601 $ -- $ 214,601
------------- --------------- -----------
Total real estate.............................................. 214,601 -- 214,601
Deferred financing and leasing costs, net of
accumulated amortization........................................... 358 358
Cash and cash equivalents............................................ 192,331 (36,651) 155,680
Accounts receivable.................................................. 1,185 -- 1,185
Other assets......................................................... 663 -- 663
Investments in and advance to joint ventures and
corporations....................................................... 70,975 36,651 107,626
------------- --------------- -----------
Total assets................................................... $ 480,113 $ -- $ 480,113
------------- --------------- -----------
------------- --------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable............................................. $ 21,631 $ -- $ 21,631
Accounts payable and accrued expenses.............................. 6,227 -- 6,227
------------- --------------- -----------
Total liabilities.............................................. 27,858 -- 27,858
Minority interest in consolidated partnership (C).................... 55,976 -- 55,976
Stockholders' equity................................................. 396,279 -- 396,279
------------- --------------- -----------
Total liabilities and stockholders' equity..................... $ 480,113 $ -- $ 480,113
------------- --------------- -----------
------------- --------------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(A) Reflects the historical consolidated balance sheet of Beacon Capital
Partners, Inc. as of September 30, 1998. Beacon Capital Partners, Inc. and
its majority-owned subsidiary, Beacon Capital Partners, L.P., are
collectively referred to as the "Company".
(B) Reflects (1) the pending additional funding of an investment in a joint
venture known as Mathilda Research Centre, and (2) the pending additional
funding of an investment in a joint venture known as Millennium Tower, all
subsequent to September 30, 1998. The Company funded or will fund these
acquisitions with existing cash. The following is a summary of the pro forma
adjustments related to purchase transactions as if they occurred on
September 30, 1998:
<TABLE>
<CAPTION>
MATHILDA
RESEARCH MILLENNIUM
CENTRE TOWER TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Real Estate:
Operating properties................................... $ -- $ -- $ --
---------- ----------- ----------
Total real estate.................................. -- -- --
Cash and cash equivalents................................ (18,074) (18,577) (36,651)
Investments in and advance to joint ventures and
corporations........................................... 18,074 18,577 36,651
---------- ----------- ----------
Total assets....................................... $ -- $ -- $ --
---------- ----------- ----------
---------- ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities.............................................. $ -- $ -- $ --
Minority interest........................................ -- -- --
Stockholders' equity..................................... -- -- --
---------- ----------- ----------
Total liabilities and stockholders'
equity........................................... $ -- $ -- $ --
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
(C) Minority interest in consolidated partnership represents an 11.6% minority
interest in the Operating Partnership.
F-4
<PAGE>
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------
<S> <C> <C> <C> <C>
ACQUISITION
HISTORICAL PROPERTIES OTHER CONSOLIDATED
(A) (B) ADJUSTMENTS (C) PRO FORMA
------------- ------------- --------------- ------------
Revenues:
Rental income..................................... $ 6,213 $ 11,006 $ -- $ 17,219
Equity in earnings of joint venture............... 2,087 1,414 -- 3,501
Interest income................................... 8,370 -- (4,823) 3,547
Other income...................................... 125 146 -- 271
------------- ------------- ------- ------------
Total revenues................................ 16,795 12,566 (4,823) 24,538
------------- ------------- ------- ------------
Expenses:
Property operating................................ 1,702 3,464 -- 5,166
Real estate taxes................................. 983 1,764 -- 2,747
General and administrative........................ 5,591 -- -- 5,591
Interest.......................................... 462 979 -- 1,441
Depreciation and amortization..................... 1,119 2,021 -- 3,140
------------- ------------- ------- ------------
Total expenses................................ 9,857 8,228 -- 18,085
------------- ------------- ------- ------------
Income (loss) before minority interest.............. 6,938 4,338 (4,823) 6,453
Minority interest in consolidated partnership (D)... (389) (503) 143 (749)
------------- ------------- ------- ------------
Net income (loss)................................... $ 6,549 $ 3,835 $ (4,680) $ 5,704
------------- ------------- ------- ------------
------------- ------------- ------- ------------
Pro forma net income per share--basic and diluted... $ 0.27
------------
------------
Weighted average number of common shares outstanding
(in thousands).................................... 20,974
------------
------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
BEACON CAPITAL PARTNERS, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------------------
<S> <C> <C> <C> <C>
ACQUISITION
PROPERTIES OTHER CONSOLIDATED
HISTORICAL (A) (B) ADJUSTMENTS (C) PRO FORMA
--------------- ------------- ----------------- ------------
Revenues:
Rental income..................................... $ -- $ 20,742 $ -- $ 20,742
Equity in earnings of joint venture............... -- 2,789 -- 2,789
Other income...................................... -- 337 -- 337
----- ------------- ----- ------------
Total revenues................................ -- 23,868 -- 23,868
----- ------------- ----- ------------
Expenses:
Property operating................................ -- 6,546 -- 6,546
Real estate taxes................................. -- 3,399 -- 3,399
General and administrative........................ -- -- -- --
Interest.......................................... -- 1,958 -- 1,958
Depreciation and amortization..................... -- 4,126 -- 4,126
----- ------------- ----- ------------
Total expenses................................ -- 16,029 -- 16,029
----- ------------- ----- ------------
Income before minority interest..................... -- 7,839 -- 7,839
Minority interest in consolidated
partnership (D)................................... -- (909) -- (909)
----- ------------- ----- ------------
Net income.......................................... $ -- $ 6,930 $ -- $ 6,930
----- ------------- ----- ------------
----- ------------- ----- ------------
Pro forma net income per share--basic and diluted... $ 0.33
------------
------------
Weighted average number of common shares outstanding
(in thousands).................................... 20,974
------------
------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(A) Reflects the historical condensed consolidated statement of operations
of the Company for the period January 21, 1998 (inception) through September 30,
1998. The Company was not in existence prior to January 21, 1998. See the
historical consolidated financial statements and notes thereto of the Company
included elsewhere in this prospectus.
(B) Reflects the acquisitions of The Athenaeum Portfolio, Technology Square
and The Draper Building and Dallas Office and Industrial Portfolio based on the
historical operations of such properties for periods prior to acquisition by the
Company. The Athenaeum Portfolio acquisition reflects the formation by the
Company of a 50% joint venture with PW Acquisitions IX, LLC, an affiliate of
PaineWebber, subsequent to the closing of the acquisition of The Athenaeum
Portfolio as if the formation of the joint venture had occurred on January 1,
1997. The joint venture is being accounted for using the equity method of
accounting and, accordingly, 50% of the historical operations of The Athenaeum
Portfolio, adjusted for depreciation using an asset life of 40 years, and an
allocation between land and buildings of $35,773 and $159,756, respectively, has
been reflected in equity in earnings of joint venture. The other acquired
properties are owned directly by the Company. The Technology Square and The
Draper Building acquisition also reflects estimated depreciation based upon an
asset life of 40 years, and an allocation between land and buildings of $36,162
and $87,150, respectively. Dallas Office and Industrial Portfolio acquisition
also reflects estimated depreciation based upon an asset life of 40 years, and
an allocation between land and buildings of $14,932 and $77,250, respectively.
See the Combined Historical Summary of Gross Income and Direct Operating
Expenses and notes thereto for each of the properties included elsewhere in this
prospectus.
(C) Reflects interest income reduction attributed to cash used to fund the
acquisitions of The Athenaeum Portfolio, Technology Square and The Draper
Building, Dallas Office and Industrial Portfolio, Mathilda Research Centre, and
Millennium Tower and the interest earned from the loan receivable from the joint
venture which holds The Athenaeum Portfolio properties.
(D) Minority interest in consolidated partnership represents an 11.6%
minority interest in the Operating Partnership.
F-7
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Beacon Capital Partners, Inc.
We have audited the accompanying consolidated balance sheet of Beacon
Capital Partners, Inc. as of March 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the period
from January 21, 1998 (inception) through March 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Beacon Capital
Partners, Inc. at March 31, 1998, and the consolidated results of its operations
and its cash flows for the period from January 21, 1998 (inception) through
March 31, 1998, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Boston, Massachusetts
June 3, 1998
F-8
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents......................................................... $ 323,893
Contributions receivable--affiliate............................................... 4,200
Other assets...................................................................... 3,777
---------
Total assets.............................................................. $ 331,870
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans payable--affiliate...................................................... $ 3,560
Accounts payable and accrued expenses......................................... 1,387
---------
Total liabilities......................................................... 4,947
---------
Commitments and contingencies.....................................................
Minority interest in consolidated partnership..................................... 4,200
Stockholders' Equity:
Preferred stock; $.01 par value, 200,000,000 shares authorized, none issued or
outstanding.................................................................. --
Excess stock; $.01 par value, 250,000,000 shares authorized, none issued or
outstanding.................................................................. --
Common stock; $.01 par value, 500,000,000 shares authorized, 17,360,769 shares
issued and outstanding....................................................... 174
Additional paid-in capital.................................................... 322,936
Accumulated deficit........................................................... (387)
---------
Total stockholders' equity................................................ 322,723
---------
Total liabilities and stockholders' equity................................ $ 331,870
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-9
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 21, 1998 (INCEPTION) TO MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Revenues:
Interest income.................................................................. $ 576
Other income..................................................................... 8
---------
Total revenues............................................................. 584
Expenses:
General and administrative....................................................... 968
Depreciation..................................................................... 3
---------
Total expenses............................................................. 971
---------
Loss before minority interest...................................................... (387)
Minority interest in operating partnership......................................... --
---------
Net loss................................................................... $ (387)
---------
---------
Loss per common share--basic and diluted........................................... $ (0.02)
---------
---------
Weighted average number of common shares outstanding (in thousands)................ 17,361
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-10
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 21, 1998 (INCEPTION) TO MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
------------ ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock, net..................... 17,360,769 $ 174 $ 322,936 $ -- $ 323,110
Net loss.......................................... -- -- -- (387) (387)
------------ ----- ---------- ----- ----------
Balance at March 31, 1998......................... 17,360,769 $ 174 $ 322,936 $ (387) $ 322,723
------------ ----- ---------- ----- ----------
------------ ----- ---------- ----- ----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-11
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 21, 1998 (INCEPTION) TO MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................................ $ (387)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation expense.......................................................... 3
Increase (decrease) in cash arising from changes in operating assets and
liabilities:
Other assets.................................................................. (617)
Accounts payable and accrued expenses......................................... 1,387
---------
Net cash provided by operating activities................................. 386
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits........................................................................ (3,000)
Acquisition costs............................................................... (119)
Purchases of furniture, fixtures and equipment.................................. (44)
---------
Net cash used in investing activities..................................... (3,163)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable--affiliate.......................................... 3,560
Issuance of common stock........................................................ 345,800
Offering costs.................................................................. (22,690)
---------
Net cash provided by financing activities................................. 326,670
---------
Net increase in cash and cash equivalents and balance at end of period............ $ 323,893
---------
---------
</TABLE>
SEE ACCOMPANYING NOTES.
F-12
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. ORGANIZATION
Beacon Capital Partners, Inc. ("BCP") was incorporated on January 21, 1998
as a Massachusetts corporation (the "Formation"), and was initially capitalized
through loans payable from the two founders (Messrs. Leventhal and Fortin) of
BCP, which were repaid in May 1998. BCP intends to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, as amended. BCP was
formed to develop, acquire, lease and manage real estate and real estate related
assets.
On March 17, 1998, BCP was reincorporated as a Maryland corporation and on
March 20, 1998 it completed an initial private offering (the "Original
Offering") in accordance with Rule 144A of the Securities Act. BCP initially
issued 17,360,769 common shares with proceeds, net of expenses, of $323,110.
Subsequent to March 31, 1998, 3,613,163 additional shares were issued through
the exercise of the underwriter's over-allotment, with proceeds, net of
expenses, of $67,185.
In connection with the reincorporation of BCP in Maryland, BCP established
Beacon Capital Partners, L.P. (the "Operating Partnership"). BCP and the
Operating Partnership are collectively referred to as the "Company". The
Operating Partnership is a Delaware limited partnership. BCP is the sole general
partner of, and holds approximately 99% of the economic interest in, the
Operating Partnership. BCP holds an approximate 1% general partnership interest
in the Operating Partnership and the balance is held as a limited partnership
interest. The limited partnership interests not held by BCP are presented as
minority interest in the accompanying consolidated financial statements. The
term of the Operating Partnership commenced on March 16, 1998 and shall continue
until January 1, 2056 or until such time as a Liquidating Event, as defined, has
occurred. As contemplated in the Original Offering, a contribution of $4,200 was
due from an entity controlled by Messrs. Leventhal and Fortin to the Operating
Partnership for a 1% limited partner interest. For technical reasons, such
contribution could only be made subsequent to the closing of the first real
estate transaction of the Company. The $4,200 contribution was made on May 4,
1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles and include the
accounts of BCP and its majority-owned subsidiary, Beacon Capital Partners, L.P.
BCP consolidates all wholly-owned subsidiaries and those majority-owned
subsidiaries in which it exercises control. Investor entities over which BCP can
exercise influence, but does not control, are accounted for on the equity
method. All significant intercompany transactions and balances have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
F-13
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
For the period ending March 31, 1998, BCP had limited operations. Although
BCP is not yet able to elect to be taxed as a real estate investment trust
("REIT") under the Internal Revenue Code, BCP intends to make such election on
its initial Federal return for the taxable year ended December 31, 1998. As a
result of such election, BCP will generally not be subject to Federal income
taxes to the extent that it makes timely distributions to its shareholders at
least equal to its taxable income and meets certain other requirements for
qualification as a real estate investment trust.
BCP has indicated that it may acquire and operate businesses that do not
satisfy the REIT qualification tests prescribed by the Internal Revenue Code.
Transactions that give rise to such assets and income are expected to be owned
through a C corporation known as a "paper clip", the shares of such entity would
be distributed to BCP's stockholders. Such C corporation, if formed, will be
subject to Federal, state and local taxation.
REVENUE RECOGNITION
Revenues are recognized when earned and the amounts can be reasonably
estimated on the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term, highly liquid assets with
original maturities of three months or less from the date of purchase.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost and depreciated over
their useful lives, ranging from three to ten years.
STOCK OPTIONS AND OTHER AWARDS
BCP has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for Stock-
Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of BCP's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
FAIR VALUE OF FINANCIAL INSTRUMENTS
BCP is required to disclose the fair value of financial instruments, for
which it is practicable to estimate such fair value. The fair value of financial
instruments are estimates based upon market conditions and perceived risks at
March 31, 1998 and require varying degrees of management judgment.
F-14
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The fair value of financial instruments presented may not be indicative of
amounts BCP could realize on the disposition of the financial instruments.
Cash and cash equivalents are carried at an amount, which due to their
nature, approximates fair value.
BASIC EARNINGS PER COMMON SHARE
Computation of basic earnings per common share is based upon the weighted
average number of shares of common stock outstanding during the period
subsequent to the Original Offering.
As BCP has no dilutive securities, there is no difference between basic and
diluted earnings per share of common stock.
3. STOCK INCENTIVE PLAN
The Company has adopted a Stock Incentive Plan, which authorizes the grant
of options to purchase shares of common stock and other stock-based awards to
the Company's executive officers, independent directors and employees and other
key persons. The Stock Incentive Plan will be administered by the Compensation
Committee of the Board of Directors (the "Administrator").
The maximum number of shares of common stock reserved and available for
issuance under the Stock Incentive Plan will be such aggregate number of shares
as does not exceed the sum of (i) 12% of the outstanding equity interests in the
Company (including common stock and units subject to redemption rights) as
determined as of the final original offering closing date plus (ii) as of the
last business day of each calendar quarter ending after the final original
offering closing date, an additional positive number equal to 10% of any net
increase of outstanding equity interests in the Company.
The Stock Incentive Plan permits the granting of (i) options to purchase
common stock intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code and (ii) options that
do not so qualify ("Non-Qualified Options"). The option exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant in the case of Incentive Options, and may not be less than 25%
of the fair market value of the common stock on the date of grant in the case of
Non-Qualified Options.
The term of each option will be fixed and may not exceed ten years from date
of grant in the case of an Incentive Option. The Administrator will determine at
what time or times each option may be exercised and, subject to the provisions
of the Stock Incentive Plan, the period of time, if any, after retirement,
death, disability or termination of employment during which options may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Administrator.
F-15
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. STOCK INCENTIVE PLAN (CONTINUED)
Changes in options outstanding under the Stock Incentive Plan during the
period were as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE OPTION
UNDER OPTION PRICEAVERAGE
----------------- -----------------
<S> <C> <C>
Granted at Initial Private Offering.......................................... 649,500 $ 20.00
Granted March 20--March 31, 1998............................................. -- --
Canceled March 20--March 31, 1998............................................ -- --
----------------- ------
Shares under option at March 31, 1998........................................ 649,500 $ 20.00
----------------- ------
----------------- ------
Options available for grant at beginning of period........................... --
-----------------
-----------------
Options available for grant at end of period................................. 1,460,816
-----------------
-----------------
</TABLE>
The weighted-average fair value of the options granted during the period is
$20.00.
4. LONG-TERM INCENTIVE PLAN
The Company has adopted a Long-Term Incentive Plan which is designed to
reward certain members of management for growth of the Company's Funds from
Operations, as defined by the National Association of Real Estate Investment
Trusts, in excess of a specified benchmark. If the Company's Funds from
Operations exceeds the specified benchmark, management will be entitled to
receive an incentive return which shall be calculated at the end of the three
year period following the completion of the first calendar year following the
closing of the original offering (the "Determination Date").
The incentive return shall equal the product of (A) 12% of the dollar amount
by which (i) the Actual Return, as defined, exceeds (ii) the Base Return, as
defined, multiplied by (B) the weighted average of shares of common stock and
units outstanding for the 12 months immediately preceding the Determination Date
multiplied by (C) the Company's Multiple, as defined.
The Long-Term Incentive Plan will take the form of a convertible unit which
will be issued to an affiliated organization in connection with the closing of
the original offering. The convertible unit is convertible at the Determination
Date into a certain number of incentive units in the Operating Partnership with
a fair market value equal to the amount of the incentive return. No amount has
been earned with respect to the Long-Term Incentive Plan.
5. SUBSEQUENT EVENTS
On May 1, 1998 the Company purchased a portfolio of eleven buildings in
Cambridge, MA known as The Athenaeum Portfolio. The mixed-use portfolio consists
of approximately 970,000 square feet and contains office, laboratory and retail
uses as well as a 1,530 space parking garage. The purchase price for the
portfolio was $195,000, including the assumption of approximately $69,000 of
first mortgage debt. Subsequent to the closing of the transaction, the Company
completed the formation of a joint venture with an affiliate of PaineWebber, in
which both parties hold a 50% equity interest in the properties.
On April 22, 1998, the Company entered into a purchase and sale agreement
with The Prudential Insurance Company of America ("Prudential") to acquire a
four-building complex known as Technology
F-16
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
5. SUBSEQUENT EVENTS (CONTINUED)
Square and an adjacent building known as The Draper Building. The properties are
located in Cambridge, MA, and consist of approximately 1,026,000 square feet.
The purchase price for the properties under the purchase and sale agreement is
$123,000. The Company and Prudential are currently negotiating the form of the
consideration for the properties.
F-17
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<S> <C>
ASSETS
Real Estate:
Land............................................................................ $ 51,094
Buildings, improvements and equipment........................................... 164,615
---------
215,709
Less accumulated depreciation................................................... 1,108
---------
214,601
Deferred financing and leasing costs, net of accumulated amortization of $11...... 358
Cash and cash equivalents......................................................... 192,331
Accounts receivable............................................................... 1,185
Other assets...................................................................... 663
Investments in and advance to joint ventures and corporations..................... 70,975
---------
Total assets.............................................................. $ 480,113
---------
---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable........................................................ $ 21,631
Accounts payable and accrued expenses......................................... 6,227
---------
Total liabilities......................................................... 27,858
---------
Minority interest in consolidated partnership..................................... 55,976
---------
Stockholders' Equity:
Preferred stock; $.01 par value, 200,000,000 shares authorized, none issued or
outstanding.................................................................. --
Excess stock; $.01 par value, 250,000,000 shares authorized, none issued or
outstanding.................................................................. --
Common stock; $.01 par value, 500,000,000 shares authorized, 20,973,932 shares
issued and outstanding....................................................... 210
Additional paid-in capital.................................................... 389,520
Retained earnings............................................................. 6,549
---------
Total stockholders' equity................................................ 396,279
---------
Total liabilities and stockholders' equity................................ $ 480,113
---------
---------
</TABLE>
See accompanying notes.
F-18
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE
FOR THE PERIOD FROM
PERIOD FROM JANUARY 21, 1998
APRIL 1, 1998 TO (INCEPTION) TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues:
Rental income........................................................... $ 6,213 $ 6,213
Equity in earnings of joint venture..................................... 2,087 2,087
Interest income......................................................... 7,794 8,370
Other income............................................................ 117 125
------- -------
Total revenues...................................................... 16,211 16,795
------- -------
Expenses:
Property operating...................................................... 1,702 1,702
Real estate taxes....................................................... 983 983
General and administrative.............................................. 4,623 5,591
Interest expense........................................................ 462 462
Depreciation and amortization........................................... 1,116 1,119
------- -------
Total expenses...................................................... 8,886 9,857
------- -------
Income before minority interest........................................... 7,325 6,938
Minority interest in consolidated partnership............................. (389) (389)
------- -------
Net income............................................................ $ 6,936 $ 6,549
------- -------
------- -------
Income per common share--basic and diluted................................ $ 0.33 $ 0.32
------- -------
------- -------
Weighted average number of common shares outstanding (in thousands)....... 20,885 20,668
------- -------
------- -------
</TABLE>
See accompanying notes.
F-19
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 21, 1998 (INCEPTION) TO SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
NUMBER OF COMMON PAID-IN RETAINED
SHARES STOCK CAPITAL EARNINGS TOTAL
------------ ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock, net.............................. 20,973,932 $ 210 $ 389,520 $ -- $ 389,730
Net income................................................. -- -- -- 6,549 6,549
------------ ----- ---------- ----------- ----------
Balance at September 30, 1998.............................. 20,973,932 $ 210 $ 389,520 $ 6,549 $ 396,279
------------ ----- ---------- ----------- ----------
------------ ----- ---------- ----------- ----------
</TABLE>
See accompanying notes.
F-20
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 21, 1998 (INCEPTION) TO SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 6,549
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation expense......................................................... 1,108
Amortization expense......................................................... 11
Equity in earnings of joint venture.......................................... (2,087)
Minority interest in consolidated partnership................................ 389
Increase (decrease) in cash arising from changes in operating assets and
liabilities:
Accounts receivable.......................................................... (1,185)
Other assets................................................................. (625)
Accounts payable and accrued expenses........................................ 6,227
---------
Net cash provided by operating activities.................................. 10,387
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate asset acquisitions and improvements................................ (142,628)
Payment of deferred leasing costs.............................................. (266)
Payment of deferred acquisition costs.......................................... (38)
Investments in and advance to joint ventures and corporations.................. (68,888)
---------
Net cash used in investing activities...................................... (211,820)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on mortgage notes................................................... (91)
Payment of deferred financing costs............................................ (103)
Proceeds from loans payable--affiliate......................................... 3,560
Payment of loans payable--affiliate............................................ (3,560)
Issuance of Operating Partnership units........................................ 4,228
Issuance of common stock....................................................... 417,871
Offering costs................................................................. (28,141)
---------
Net cash provided by financing activities.................................. 393,764
---------
Net increase in cash and cash equivalents and balance at end of period......... $ 192,331
---------
---------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Operating Partnership units to acquire property...................... $ 51,359
Assumption of mortgage debt to acquire property.................................. 21,722
---------
$ 73,081
---------
---------
</TABLE>
See accompanying notes.
F-21
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
1. ORGANIZATION
Beacon Capital Partners, Inc. ("BCP") was incorporated on January 21, 1998
as a Massachusetts corporation (the "Formation"), and was initially capitalized
through loans from the two founders of BCP, Messrs. Leventhal and Fortin. The
loans were repaid in May, 1998. BCP intends to qualify as a real estate
investment trust under the Internal Revenue Code of 1986, as amended. BCP was
established to conduct real estate investment and development activities.
On March 17, 1998, BCP was re-incorporated (through a merger) as a Maryland
corporation and on March 20, 1998 it completed an initial private offering (the
"Original Offering") in accordance with Section 4(2) of the Securities Act. BCP
initially issued 17,360,769 common shares with proceeds, net of expenses, of
$323,110. In April, 1998, 3,613,163 additional shares were issued through the
exercise of the underwriter's over-allotment, with proceeds, net of expenses, of
$66,620.
In connection with the re-incorporation of BCP in Maryland, BCP established
Beacon Capital Partners, L.P. (the "Operating Partnership"). BCP and the
Operating Partnership are collectively referred to as the "Company". The
Operating Partnership is a Delaware limited partnership. BCP is the sole general
partner of, and, as of September 30, 1998, holds approximately 88% of the
economic interest in the Operating Partnership. BCP holds an approximate 1%
general partnership interest in the Operating Partnership and the balance is
held as a limited partnership interest. The limited partnership interests not
held by BCP are presented as minority interest in the accompanying consolidated
financial statements. The term of the Operating Partnership commenced on March
16, 1998 and shall continue until January 1, 2056 or until such time as a
Liquidating Event, as defined, has occurred.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles and include the
accounts of BCP and its majority-owned subsidiary, Beacon Capital Partners, L.P.
BCP consolidates all wholly-owned subsidiaries and those majority-owned
subsidiaries in which it exercises control. Investor entities over which BCP can
exercise influence, but does not control, are accounted for on the equity
method. Investor entities which BCP neither controls nor over which BCP can
exercise influence are accounted for on the cost method. All significant
intercompany transactions and balances have been eliminated in consolidation.
Minority interest in consolidated partnership represents Operating
Partnership units not held by BCP. As of September 30, 1998, $51,359 in units
had been issued in connection with the purchase of the property known as
Technology Square and The Draper Building, and $4,228 in units had been issued
to Messrs. Leventhal's and Fortin's family trusts.
The financial statements of BCP have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form S-11 and Rule 10-01 of Regulation S-X. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for interim periods are not necessarily indicative of the results that
may be expected for the full year.
F-22
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
INCOME TAXES
Although BCP is not yet able to elect to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code, BCP intends to make
such election on its initial Federal return for the taxable year ended December
31, 1998. As a result of such election, BCP will generally not be subject to
Federal income taxes to the extent that it makes timely distributions to its
shareholders at least equal to its taxable income and meets certain other
requirements for qualification as a real estate investment trust.
BCP has indicated that it may acquire and operate businesses that do not
satisfy the REIT qualification tests prescribed by the Internal Revenue Code.
Transactions that give rise to such assets and income may be owned through a C
corporation known as a "paper clip," the shares of which entity would be
distributed to BCP's stockholders, or through a taxable corporate subsidiary in
which BCP would hold the majority of economic interest but less than 10% of the
voting power. Such C corporations, if formed, will be subject to Federal, state
and local taxation.
REVENUE RECOGNITION
Revenues are recognized when earned and the amounts can be reasonably
estimated on the accrual basis of accounting. Rental income from operating
leases is recognized on a straight-line basis over the life of the lease
agreements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term, highly liquid assets with
original maturities of three months or less from the date of purchase.
REAL ESTATE
Buildings are recorded at cost and are depreciated on the straight-line
method over their estimated useful life of forty years. The cost of buildings
includes the purchase price of the property, legal fees, and other acquisition
costs. Acquisition costs associated with the purchase of new property consist of
third party costs and internal direct costs only, and have been capitalized to
the appropriate assets.
BCP measures impairment in accordance with FASB Statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF, which requires impairment losses to be recorded on specific
long-lived assets used in operations where indicators of impairment are present
and the undiscounted cash flows (net realizable value) estimated to be generated
by those assets are less than the assets' carrying amount.
F-23
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Furniture, fixtures and equipment are depreciated using the straight-line
method over their expected useful lives of three to ten years.
INVESTMENTS IN AND ADVANCE TO JOINT VENTURES AND CORPORATIONS
BCP uses the equity method of accounting for its earnings in joint ventures
and corporations in which BCP shares influence over operating and financial
policy. BCP uses the cost method of accounting to account for its investments in
entities in which BCP does not influence operating and financial policy. Losses
in excess of investments are not recorded where BCP has neither guaranteed nor
intends to provide any future financial support to the respective investment.
STOCK OPTIONS AND OTHER AWARDS
BCP has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123, "Accounting for Stock-
Based Compensation," requires use of option valuation models that were not
developed for use in valuing employee stock options. Under APB 25, because the
exercise price of BCP's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
Compensation attributable to the Company's Long-Term Incentive Plan will be
charged to expense over the period covered by the Long-Term Incentive Plan.
FAIR VALUE OF FINANCIAL INSTRUMENTS
BCP is required to disclose the fair value of financial instruments, for
which it is practicable to estimate such fair value. The fair value of financial
instruments are estimates based upon market conditions and perceived risks at
September 30, 1998 and require varying degrees of management judgment. The fair
value of financial instruments presented may not be indicative of amounts BCP
could realize on the disposition of the financial instruments.
Cash and cash equivalents are carried at an amount, which due to their
nature, approximates fair value.
BASIC EARNINGS PER COMMON SHARE
Computation of basic earnings per common share is based upon the weighted
average number of shares of common stock outstanding during the periods
subsequent to the Original Offering.
As BCP has no dilutive securities, there is no difference between basic and
diluted earnings per share of common stock.
F-24
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. INVESTMENTS IN AND ADVANCE TO JOINT VENTURES AND CORPORATIONS
The investments in and advance to joint ventures and corporations represents
the Company's interest in (i) a joint venture known as "Beacon/PW Kendall LLC,"
(ii) a joint venture with Mathilda Partners LLC ("Mathilda Research Centre"),
(iii) a joint venture with HA L.L.C. ("Millennium Tower"), and (iv) an
investment in preferred stock of Cypress Communications, Inc. ("Cypress").
Beacon/PW Kendall LLC was formed on April 16, 1998 and is jointly owned by
the Company and PW Acquisitions IX, LLC, an affiliate of PaineWebber. Initially
each member made a $5,000 contribution and the Company provided a loan to the
joint venture of approximately $117,000. The joint venture acquired The
Athenaeum Portfolio, an eleven building, 970,000 square foot mixed-use portfolio
located in Cambridge, MA. In August, 1998 the Company and PW Acquisitions IX,
LLC each made equity contributions of approximately $58,500, which were used to
repay the Company's loan receivable. As of September 30, 1998, each member had
an approximate $63,600 equity interest in Beacon/PW Kendall LLC. Summarized
financial information for this joint venture follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED
SEPTEMBER 30, 1998
(UNAUDITED)
------------------
<S> <C>
Gross revenue............................................................. $ 12,145
Expenses.................................................................. 10,239
--------
Income before depreciation and amortization............................... 1,906
Depreciation and amortization............................................. 1,665
--------
Net income................................................................ $ 241
--------
--------
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1998 (UNAUDITED)
------------------
<S> <C>
Real estate and equipment, net............................................ $ 193,864
Cash and cash equivalents................................................. 5,797
Other assets.............................................................. 2,182
--------
Total assets.............................................................. $ 201,843
--------
--------
Mortgage note payable..................................................... $ 68,931
Accounts payable and accrued expenses..................................... 5,651
Minority interest......................................................... 6
Members' equity (including accumulated earnings of $241).................. 127,255
--------
Total liabilities and members' equity..................................... $ 201,843
--------
--------
</TABLE>
On August 9, 1998, the Company entered into a joint venture agreement with
Mathilda Partners LLC, an affiliate of Menlo Equities, a California based
developer, to develop two Class A office buildings with surface parking, known
as Mathilda Research Centre. The Company and Mathilda Partners LLC have agreed
to fund 87.5% and 12.5% of the equity required, respectively. On November 4,
1998, the venture
F-25
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. INVESTMENTS IN AND ADVANCE TO JOINT VENTURES AND CORPORATIONS (CONTINUED)
acquired a twelve-acre site on Mathilda Avenue in Sunnyvale, CA, on which the
venture plans to construct Mathilda Research Centre. Although it is anticipated
that the buildings will contain approximately 267,000 square feet, certain
changes in the entitlements for the property will be required to increase the
permitted density from the currently permitted 187,000 square feet. In addition
to funding approximately 35% of the development expenditures (including the
acquisition of the land) from cash contributions, the venture intends to finance
the balance of those expenditures with a construction loan from an institutional
lender. The scope of the development budget has not been finalized, but it is
anticipated to be approximately $57,000 if the full 267,000 square feet are
constructed.
On September 1, 1998 the Company entered into a joint venture agreement with
HA L.L.C., an affiliate of Martin Smith Real Estate Services, to develop a
high-rise building in downtown Seattle, Washington, known as Millennium Tower.
The Company and HA L.L.C. have agreed to fund 66 2/3% and 33 1/3% of the equity
required, respectively. Land has been contributed to the joint venture by HA
L.L.C. at an agreed value of $10,500. The Company has agreed to fund the first
$19,000 of cash requirements for the venture. The venture intends to finance the
balance of development costs from a construction loan with an institutional
lender. The estimated cost of the project is $71,000, including the value of the
land.
On September 30, 1998, the Company invested $5,000 to acquire preferred
stock in Cypress Communications, Inc., representing a 13.5% fully diluted
ownership position in such company. Dividends will be earned on the Company's
investment as and when dividends are declared on the preferred stock or any
other class of stock in Cypress Communications, Inc. The preferred stock will be
treated preferentially upon a liquidation of Cypress, should a liquidation
occur, and is held by both the Operating Partnership and Tenant Communications,
Inc., a Massachusetts corporation ("Tenant Communications"), the voting common
stock of which is controlled by Messrs. Leventhal and Fortin. The Operating
Partnership owns 99% of the economic interests in Tenant Communications.
Cypress Communications, Inc. is a provider of bundled communications
services to tenants in multi-tenant commercial buildings. These bundled services
include Internet access, video, voice mail and telephone service. By bundling
services to multiple tenants in an office building, Cypress can aggregate the
traffic of customers and give them the advantage of a cost-effective service
with a high level of customer care.
F-26
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
3. INVESTMENTS IN AND ADVANCE TO JOINT VENTURES AND CORPORATIONS (CONTINUED)
A reconciliation of the underlying net assets to the Company's carrying
value of property investments in and advance to joint ventures and corporations
is as follows:
<TABLE>
<CAPTION>
MATHILDA
BEACON/PW RESEARCH MILLENNIUM CYPRESS
KENDALL LLC CENTRE TOWER COMMUNICATIONS, INC. TOTAL
------------ ----------- ------------- --------------------- ---------
<S> <C> <C> <C> <C> <C>
BCP, L.P. equity interest (including
accumulated earnings).................... $ 63,576 $ 1,750 $ 65,326
Investments in preferred stock............. $ 5,000 5,000
Advance from BCP, L.P...................... $ 426 426
Acquisition costs.......................... 41 54 77 51 223
------------ ----------- ----- ------ ---------
Carrying value of investments in and
advance to joint ventures and
corporations............................. $ 63,617 $ 1,804 $ 503 $ 5,051 $ 70,975
------------ ----------- ----- ------ ---------
------------ ----------- ----- ------ ---------
</TABLE>
4. MORTGAGE NOTES PAYABLE
The mortgage notes payable, collateralized by certain properties and
assignment of leases are as follows:
Mortgage notes with fixed interest at:
<TABLE>
<S> <C>
9.00% maturing December 1, 1999.................................... $ 1,546
9.25% maturing May 1, 2002......................................... 1,581
7.80% maturing December 1, 2004.................................... 3,461
7.75% maturing September 1, 2005................................... 5,726
7.80% maturing December 1, 2005.................................... 4,315
9.00% maturing July 1, 2017........................................ 1,464
9.00% maturing March 1, 2019....................................... 986
9.00% maturing November 1, 2021.................................... 1,515
8.25% maturing October 1, 2022..................................... 1,037
---------
Total.............................................................. $ 21,631
---------
---------
</TABLE>
F-27
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
4. MORTGAGE NOTES PAYABLE (CONTINUED)
Scheduled amortization and maturities of mortgage notes payable are as
follows:
<TABLE>
<S> <C>
1998............................................................... $ 72
1999............................................................... 1,903
2000............................................................... 382
2001............................................................... 426
2002............................................................... 1,839
Thereafter......................................................... 17,009
---------
Total.............................................................. $ 21,631
---------
---------
</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. The Company has determined that the fair value of its
mortgage rates approximates their carrying value.
5. STOCK INCENTIVE PLAN
The Company has adopted a Stock Incentive Plan, which authorizes the grant
of options to purchase shares of common stock and other stock-based awards to
the Company's executive officers, independent directors, employees and other key
persons. The Stock Incentive Plan will be administered by the Compensation
Committee of the Board of Directors (the "Administrator").
The maximum number of shares of common stock reserved and available for
issuance under the Stock Incentive Plan will be such aggregate number of shares
as does not exceed the sum of (i) 12% of the outstanding equity interests in the
Company (including common stock and units subject to redemption rights) as
determined as of the final original offering closing date plus (ii) as of the
last business day of each calendar quarter ending after the final original
offering closing date, an additional positive number equal to 10% of any net
increase of outstanding equity interests in the Company.
The Stock Incentive Plan permits the granting of (i) options to purchase
common stock intended to qualify as incentive stock options ("Incentive
Options") under Section 422 of the Internal Revenue Code and (ii) options that
do not so qualify ("Non-Qualified Options"). The option exercise price of each
option may not be less than 100% of the fair market value of the common stock on
the date of grant in the case of Incentive Options, and may not be less than 25%
of the fair market value of the common stock on the date of grant in the case of
Non-Qualified Options.
The term of each option will be fixed and may not exceed ten years from date
of grant in the case of an Incentive Option. The Administrator will determine at
what time or times each option may be exercised and, subject to the provisions
of the Stock Incentive Plan, the period of time, if any, after retirement,
death, disability or termination of employment during which options may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Administrator.
F-28
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
5. STOCK INCENTIVE PLAN (CONTINUED)
Changes in options outstanding under the Stock Incentive Plan during the
period were as follows:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE
SHARES UNDER OPTION
OPTION PRICE--AVERAGE
------------- ---------------
<S> <C> <C>
Granted at Initial Private Offering............................ 649,500 $ 20.00
Granted March 20--September 30, 1998........................... 1,728,375 20.00
Canceled March 20--September 30, 1998.......................... -- --
-------------
Shares under option at September 30, 1998...................... 2,377,875 20.00
-------------
-------------
Options available for grant at beginning of period............. --
Options available for grant at end of period................... 418,851
-------------
-------------
</TABLE>
The weighted-average fair value of the options granted during the period is
$20.00.
6. LONG-TERM INCENTIVE PLAN
The Company has adopted a Long-Term Incentive Plan which is designed to
reward certain members of management for growth of the Company's Funds from
Operations, as defined by the National Association of Real Estate Investment
Trusts, Inc. ("NAREIT"), in excess of a specified benchmark. If the Company's
Funds from Operations exceeds the specified benchmark, management will be
entitled to receive an incentive return which shall be calculated on December
31, 2001 (the "Determination Date").
The incentive return shall equal the product of (A) 12% of the dollar amount
by which (i) the Actual Return, as defined, exceeds (ii) the Base Return, as
defined, multiplied by (B) the weighted average of shares of common stock and
units outstanding for the 12 months immediately preceding the Determination Date
multiplied by (C) the Company's Multiple, as defined.
The Long-Term Incentive Plan takes the form of a convertible unit which was
issued on March 16, 1998 to an affiliated organization in connection with the
closing of the original offering. The convertible unit is convertible at the
Determination Date into a certain number of incentive units in the Operating
Partnership with a fair market value equal to the amount of the incentive
return. No amount has been earned with respect to the Long-Term Incentive Plan.
F-29
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
7. LEASES
Minimum future rentals under operating leases in effect at December 31, 1997
are summarized as follows:
<TABLE>
<S> <C>
1998............................................................... $ 19,157
1999............................................................... 14,583
2000............................................................... 9,557
2001............................................................... 7,097
2002............................................................... 3,255
Thereafter......................................................... 5,502
---------
$ 59,151
---------
---------
</TABLE>
Terms of leases range from one to fifteen years and in certain cases provide
for operating expense reimbursement, real estate tax escalation charges and
increases in minimum rents.
F-30
<PAGE>
BEACON/PW KENDALL LLC
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Real Estate
Land............................................................................ $ 35,773
Buildings, improvements and equipment........................................... 159,756
---------
195,529
Less accumulated depreciation................................................... 1,665
---------
193,864
Cash and cash equivalents......................................................... 5,797
Other assets...................................................................... 2,182
---------
Total assets.................................................................. $ 201,843
---------
---------
LIABILITIES AND MEMBERS' CAPITAL
Liabilities:
Mortgage note payable........................................................... $ 68,931
Accounts payable and accrued expenses........................................... 5,651
---------
Total liabilities............................................................. 74,582
---------
Minority interest................................................................. 6
---------
Members' Capital:
Members' capital................................................................ 127,014
Retained earnings............................................................... 241
---------
127,255
---------
Total liabilities and members' capital........................................ $ 201,843
---------
---------
</TABLE>
See accompanying notes.
F-31
<PAGE>
BEACON/PW KENDALL LLC
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM
APRIL 16, 1998
(INCEPTION) TO
SEPTEMBER 30, 1998
(UNAUDITED)
------------------
<S> <C>
Revenues:
Rental income............................................................................... $ 8,430
Reimbursement of operating expenses and taxes............................................... 3,658
Interest and other income................................................................... 57
-------
Total revenues.......................................................................... 12,145
-------
Expenses:
Property operating.......................................................................... 2,648
Real estate taxes........................................................................... 1,621
Interest expense............................................................................ 5,970
Depreciation and amortization............................................................... 1,665
-------
Total expenses.......................................................................... 11,904
-------
Net income.................................................................................. $ 241
-------
-------
</TABLE>
See accompanying notes.
F-32
<PAGE>
BEACON/PW KENDALL LLC
CONSOLIDATED STATEMENT OF MEMBERS' CAPITAL
FOR THE PERIOD FROM APRIL 16, 1998 (INCEPTION) TO SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BEACON CAPITAL PW ACQUISITION
PARTNERS, LP IX, LLC TOTAL
-------------- -------------- ----------
<S> <C> <C> <C>
Issuance of Members' Capital......................................... $ 63,507 $ 63,507 $ 127,014
Net income........................................................... 68 173 241
------- ------- ----------
Balance at September 30, 1998........................................ $ 63,575 $ 63,680 $ 127,255
------- ------- ----------
------- ------- ----------
</TABLE>
See accompanying notes.
F-33
<PAGE>
BEACON/PW KENDALL LLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 16, 1998 (INCEPTION) TO SEPTEMBER 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 241
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization expense........................................ 1,665
Minority interest............................................................ 6
Increase (decrease) in cash arising from changes in operating assets and
liabilities:
Other assets................................................................. (2,182)
Accounts payable and accrued expenses........................................ 5,651
---------
Net cash provided by operating activities.................................. 5,381
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate asset acquisitions and improvements................................ (126,411)
---------
Net cash used in investing activities...................................... (126,411)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance from BCP, L.P.......................................................... 116,981
Repayment of advance from BCP, L.P............................................. (116,981)
Repayment on mortgage note..................................................... (187)
Contributions from members..................................................... 127,014
---------
Net cash provided by financing activities.................................. 126,827
---------
Net increase in cash and cash equivalents and balance at end of period......... $ 5,797
---------
---------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest........................................................... $ 5,644
---------
---------
NON CASH ITEMS:
Mortgage note assumed in connection with real estate acquisition................. $ 69,118
---------
---------
</TABLE>
See accompanying notes.
F-34
<PAGE>
BEACON/PW KENDALL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
Beacon/PW Kendall LLC ("the Company") was formed on April 16, 1998 as a
Delaware limited liability company. The members of the Company are Beacon
Capital Partners, L.P. and PW Acquisitions IX, LLC (the "Members"). Each of the
members holds a fifty percent economic interest in the Company and each has made
a $63,507 equity contribution. Beacon Capital Partners, L.P. is the managing
member of the Company.
The Company is the sole member of One Kendall LLC. One Kendall LLC has
invested in certain land, buildings, and improvements in Cambridge,
Massachusetts.
The Company is the managing member of Kendall Athenaeum LLC, holding a 99%
economic interest. Kendall Athenaeum LLC and the Company are the members of
Cambridge Athenaeum LLC, holding 1% and 99% economic interests, respectively.
Kendall Athenaeum LLC is the managing member of Cambridge Athenaeum LLC.
Cambridge Athenaeum LLC has invested in certain other land, buildings and
improvements in Cambridge, Massachusetts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles and include the
accounts of the Company, its wholly-owned subsidiary One Kendall LLC and its
majority-owned subsidiaries, Kendall Athenaeum LLC, and Cambridge Athenaeum LLC.
The Company consolidates all wholly-owned subsidiaries and those majority-owned
subsidiaries in which it exercises control. Investor entities over which the
Company can exercise influence, but does not control, are accounted for on the
equity method. All significant intercompany transactions and balances have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
INCOME TAXES
As a limited liability company, the Company is deemed to be a partnership
for federal and state income tax purposes. As such, no provision or credit has
been made in the accompanying financial statements for federal or state income
taxes since the members of the Company are required to include their respective
share of profits or losses in their own tax returns.
F-35
<PAGE>
BEACON/PW KENDALL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized when earned and the amounts can be reasonably
estimated on the accrual basis of accounting. Rental income from operating
leases is recognized on a straight-line basis over the life of the lease
agreements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short-term, highly liquid assets with
original maturities of three months or less from the date of purchase.
REAL ESTATE
Buildings are recorded at cost and are depreciated on the straight-line
method over their estimated useful life of forty years. The cost of buildings
includes the purchase price of the property, legal fees, and other acquisition
costs. Acquisition costs associated with the purchase of new property consist of
third party costs and internal direct costs only, and have been capitalized to
the appropriate assets.
The Company measures impairment in accordance with FASB Statement No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE
DISPOSED OF, which requires impairment losses to be recorded on specific
long-lived assets used in operations where indicators of impairment are present
and the undiscounted cash flows (net realizable value) estimated to be generated
by those assets are less than the assets' carrying amount.
Furniture, fixtures and equipment are depreciated using the straight-line
method over their expected useful lives of three to ten years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose the fair value of financial instruments,
for which it is practicable to estimate such fair value. The fair value of
financial instruments are estimates based upon market conditions and perceived
risks at September 30, 1998 and require varying degrees of management judgment.
The fair value of financial instruments presented may not be indicative of
amounts the Company could realize on the disposition of the financial
instruments.
Cash and cash equivalents are carried at an amount, which due to their
nature, approximates fair value.
F-36
<PAGE>
BEACON/PW KENDALL LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
3. LONG TERM DEBT
Long term debt represents a first mortgage note assumed with the purchase of
certain land and buildings by Cambridge Athenaeum LLC. The first mortgage note
is due January 11, 2027, with principal and interest payments due monthly. The
interest rate on the mortgage note is 8.485%. Future minimum principal payments
due during the next five years and thereafter are as follows:
<TABLE>
<S> <C>
1998............................................................... $ 127
1999............................................................... 524
2000............................................................... 554
2001............................................................... 620
2002............................................................... 676
Thereafter......................................................... $ 66,430
</TABLE>
4. TRANSACTIONS WITH RELATED PARTIES
Beacon Capital Partners, L.P. advanced $116,981 to the Company to fund the
acquisition of the certain land and buildings in Cambridge, Massachusetts owned
by One Kendall LLC and Cambridge Athenaeum LLC. On August 28, 1998, this advance
was repaid with funds generated by equity contributions by the Members. Interest
of $3,481 on the advance was repaid as of September 30, 1998.
5. LEASES
Minimum future rentals under operating leases in effect at December 31, 1997
are summarized as follows:
<TABLE>
<S> <C>
1998............................................................... $ 16,711
1999............................................................... 16,195
2000............................................................... 13,833
2001............................................................... 12,090
2002............................................................... 9,876
Thereafter......................................................... 20,633
---------
$ 89,338
---------
---------
</TABLE>
Terms of the leases range from one to twenty years and provide for operating
expense reimbursement, real estate tax escalations, and in certain cases,
percentage rent and increases in minimum rent.
F-37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Beacon Capital Partners, Inc.
We have audited the accompanying Combined Historical Summary of Gross Income
and Direct Operating Expenses (the "Historical Summary") for One Kendall Square
Buildings 100-500, One Kendall Square Buildings 600/650/700, One Kendall Square
Building 1400, One Kendall Square Building 1500, One Kendall Square Building
1700, 215 First Street, the One Kendall Square Cinema, the One Kendall Square
Parking Garage, and 195 First Street Parking Lot (collectively, known as "The
Athenaeum Portfolio") for the year ended December 31, 1997. This Historical
Summary is the responsibility of The Athenaeum Portfolio's management. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the basis of accounting used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Registration Statement on Form S-11 of Beacon
Capital Partners, Inc. as described in Note 1, and is not intended to be a
complete presentation of The Athenaeum Portfolio's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in Note 1 of The Athenaeum Portfolio for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
May 22, 1998
F-38
<PAGE>
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR THE ATHENAEUM PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1998
TO YEAR ENDED
APRIL 30, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
Gross income
Rental income............................................................. $ 6,513 $ 19,593
Reimbursement of operating expenses and taxes............................. 1,277 5,238
Other income.............................................................. 106 213
------ -------
Total gross income.................................................... 7,896 25,044
------ -------
Direct operating expenses
Property operating........................................................ 1,784 5,514
Real estate taxes......................................................... 1,288 3,740
------ -------
Total direct operating expenses....................................... 3,072 9,254
------ -------
Gross income in excess of direct operating expenses....................... $ 4,824 $ 15,790
------ -------
------ -------
</TABLE>
See accompanying notes.
F-39
<PAGE>
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
FOR THE ATHENAEUM PORTFOLIO
(DOLLARS IN THOUSANDS)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presented herein is the combined historical summary ("Historical Summary")
of gross income and direct operating expenses of the following properties, held
under common control (collectively, "The Athenaeum Portfolio"):
<TABLE>
<S> <C>
One Kendall Square Buildings 100-500 One Kendall Square Cinema
One Kendall Square Buildings 600/650/700 195 First Street Parking Lot
One Kendall Square Building 1400 215 First Street
One Kendall Square Building 1500 One Kendall Square Parking Garage
One Kendall Square Building 1700
</TABLE>
The mixed-use properties were acquired by Beacon Capital Partners, Inc. on
May 1, 1998.
The accompanying Historical Summary has been prepared in accordance with
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for
inclusion in the Registration Statement on Form S-11 of Beacon Capital Partners,
Inc. Accordingly, certain historical expenses which may not be comparable to the
expenses expected to be incurred in the proposed future operations of The
Athenaeum Portfolio have been excluded. Excluded expenses consist of
depreciation and amortization, and interest not directly related to the future
operations of The Athenaeum Portfolio.
Rental income is recognized on a straight line basis over the term of the
related leases.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Minimum future rentals under operating leases with The Athenaeum Portfolio
in effect at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 16,711
1999............................................................................... 16,195
2000............................................................................... 13,833
2001............................................................................... 12,090
2002............................................................................... 9,876
Thereafter......................................................................... 20,633
---------
$ 89,338
---------
---------
</TABLE>
Terms of the leases range from one to twenty years and provide for operating
expense reimbursement, real estate tax escalations and, in certain cases,
percentage rent and increases in minimum rent. Approximately 26% of The
Athenaeum Portfolio's revenue for the year ended December 31, 1997 was derived
from one tenant.
F-40
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Beacon Capital Partners, Inc.
We have audited the accompanying Historical Summary of Gross Income and
Direct Operating Expenses (the "Historical Summary") for Technology Square and
The Draper Building owned by Asahi Seimei-Prudential Associates, Number Three
for the year ended December 31, 1997. This Historical Summary is the
responsibility of Technology Square and The Draper Building's management. Our
responsibility is to express an opinion on the Historical Summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the basis of accounting used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Registration Statement on Form S-11 of Beacon
Capital Partners, Inc. as described in Note 1, and is not intended to be a
complete presentation of Technology Square and The Draper Building's revenues
and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in Note 1 of Technology Square and The Draper Building for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
May 22, 1998
F-41
<PAGE>
HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR TECHNOLOGY SQUARE AND THE DRAPER BUILDING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 1, 1998
TO
JUNE 23, 1998 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Gross income
Rental income............................................................. $ 3,992 $ 8,164
Reimbursement of operating expenses and taxes............................. 954 2,077
Other income.............................................................. -- 58
------ ------
Total gross income.......................................................... 4,946 10,299
------ ------
Direct operating expenses
Property operating........................................................ 943 1,962
Real estate taxes......................................................... 955 1,929
------ ------
Total direct operating expenses............................................. 1,898 3,891
------ ------
Gross income in excess of direct operating expenses....................... $ 3,048 $ 6,408
------ ------
------ ------
</TABLE>
See accompanying notes.
F-42
<PAGE>
NOTES TO HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
FOR TECHNOLOGY SQUARE AND THE DRAPER BUILDING
(DOLLARS IN THOUSANDS)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Asahi Seimei-Prudential Associates, Number Three (the "Joint Venture") owns
five office buildings, two garages leased to two tenants and land with a surface
parking lot located in Cambridge, Massachusetts (collectively, "Technology
Square and The Draper Building"). Asahi International Ltd. and The Prudential
Insurance Company of America ("Prudential") are the Joint Venture Partners and
each have a 50% interest in the Joint Venture.
The accompanying Historical Summary has been prepared in accordance with
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for
inclusion in the Registration Statement on Form S-11 of Beacon Capital Partners,
Inc. Accordingly, certain historical expenses which may not be comparable to the
expenses expected to be incurred in the proposed future operations of Technology
Square and The Draper Building have been excluded. Excluded expenses consist of
depreciation and amortization, interest and asset management costs not directly
related to the future operations of Technology Square and The Draper Building.
Rental income is recognized on a straight line basis over the term of the
related leases.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LEASES
The Joint Venture, as lessor, has entered into non-cancelable operating
leases at Technology Square and The Draper Building. Minimum future rentals
under the leases in effect at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 8,309
1999............................................................................... 5,616
2000............................................................................... 2,923
2001............................................................................... 2,436
---------
$ 19,284
---------
---------
</TABLE>
The leases at Technology Square are generally for a term greater than one
year and no more than five years and provide for operating expense
reimbursement, real estate tax escalations and, in certain cases, increases in
minimum rent. The Draper Building is leased on a triple net basis to a single
tenant on a long-term lease through 2001, with extension options through October
2051. Approximately 99% of Technology Square and The Draper Building's revenue
at December 31, 1997 was derived from three tenants.
F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
Beacon Capital Partners, Inc.
We have audited the accompanying Combined Historical Summary of Gross Income
and Direct Operating Expenses (the "Historical Summary") for Brandywine Place,
Crosspoint Atrium, Forest Abrams Place, 6500 Greenville Avenue, Northcreek Place
II, One Glen Lakes, Park North Business Center, Plaza at Walnut Hill, Richardson
Business Center, Richardson Commerce Centre, Sherman Tech, T. I. Business Park,
and Venture Drive Tech Center (collectively, known as "The Breunig Portfolio")
for the year ended December 31, 1997. This Historical Summary is the
responsibility of The Breunig Portfolio's management. Our responsibility is to
express an opinion on the Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the basis of accounting used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audit provides a reasonable basis for our opinion.
The accompanying Historical Summary was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Registration Statement on Form S-11 of Beacon
Capital Partners, Inc. as described in Note 1, and is not intended to be a
complete presentation of The Breunig Portfolio's revenues and expenses.
In our opinion, the Historical Summary referred to above presents fairly, in
all material respects, the gross income and direct operating expenses described
in Note 1 of The Breunig Portfolio for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
July 1, 1998
F-44
<PAGE>
COMBINED HISTORICAL SUMMARY OF GROSS INCOME AND DIRECT OPERATING EXPENSES
FOR THE BREUNIG PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
(UNAUDITED)
Gross income
Rental income............................................................. $ 5,695 $ 9,843
Reimbursement of operating expenses and taxes............................. 366 658
Other income.............................................................. 146 279
------ ------
Total gross income.......................................................... 6,207 10,780
------ ------
Direct operating expenses
Property operating........................................................ 2,521 4,584
Real estate taxes......................................................... 809 1,470
------ ------
Total direct operating expenses............................................. 3,330 6,054
------ ------
Gross income in excess of direct operating expenses......................... $ 2,877 $ 4,726
------ ------
------ ------
</TABLE>
See accompanying notes.
F-45
<PAGE>
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
FOR THE BREUNIG PORTFOLIO
(DOLLARS IN THOUSANDS)
1. GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Presented herein is the combined historical summary ("Historical Summary")
of gross income and direct operating expenses of the following properties,
(collectively, "The Breunig Portfolio") all of which are located in or near
Dallas, Texas:
<TABLE>
<S> <C>
Brandywine Place Plaza at Walnut Hill
Crosspoint Atrium Richardson Business Center
Forest Abrams Place Richardson Commerce Centre
6500 Greenville Avenue Sherman Tech
Northcreek Place II T I Business Park
One Glen Lakes Venture Drive Tech Center
Park North Business Center
</TABLE>
The mixed-use properties were acquired by Beacon Capital Partners, Inc. on
July 1, 1998.
The accompanying Historical Summary has been prepared in accordance with
Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for
inclusion in the Registration Statement on Form S-11 of Beacon Capital Partners,
Inc. Accordingly, certain historical expenses which may not be comparable to the
expenses expected to be incurred in the proposed future operations of The
Breunig Portfolio have been excluded. Excluded expenses consist of depreciation
and amortization, and interest not directly related to the future operations of
The Breunig Portfolio.
During 1997, Breunig Commercial purchased Park North Business Center and
Forest Abrams Place. These properties were owned for three months and six months
of 1997, respectively. Partial year financial information is presented within
the Historical Summary for the two properties. In addition, on July 1, 1998,
Breunig acquired one additional property referred to as Bank One LBJ. No
financial information with respect to this property is presented within the
accompanying Historical Summary. Inclusion of these three properties for the
months prior to their acquisition in the accompanying Historical Summary would
not have resulted in a material change to the amounts presented.
Rental income is recognized on a straight line basis over the term of the
related leases.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-46
<PAGE>
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
FOR THE BREUNIG PORTFOLIO
(DOLLARS IN THOUSANDS)
2. LEASES
Minimum future rentals under operating leases with The Breunig Portfolio in
effect at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
YEAR
- -----------------------------------------------------------------------------------
<S> <C>
1998............................................................................... $ 10,848
1999............................................................................... 8,967
2000............................................................................... 6,634
2001............................................................................... 4,661
2002............................................................................... 3,255
Thereafter......................................................................... 5,502
---------
$ 39,867
---------
---------
</TABLE>
Terms of the leases range from one to fifteen years and provide for
operating expense reimbursement, real estate tax escalations and, in certain
cases, increases in minimum rent.
F-47
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. BEACON CAPITAL PARTNERS, INC. HAS NOT AUTHORIZED ANYONE TO PROVIDE
PROSPECTIVE INVESTORS WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO
PERMIT A PUBLIC OFFERING OF THE SECURITIES OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE
DISTRIBUTION OF THIS PROSPECTUS APPLICABLE IN THAT JURISDICTION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FORWARD-LOOKING STATEMENTS....................... i
PROSPECTUS SUMMARY............................... 1
RISK FACTORS..................................... 6
THE COMPANY...................................... 22
USE OF PROCEEDS.................................. 48
DISTRIBUTION POLICY.............................. 48
INVESTMENT STRATEGIES AND EXPERIENCE............. 49
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................. 54
PRICE RANGE OF COMMON STOCK...................... 55
CAPITALIZATION................................... 55
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
FINANCIAL DATA................................. 57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............ 58
DESCRIPTION OF SECURITIES........................ 62
CERTAIN PROVISIONS OF MARYLAND LAW AND OF BCP'S
CHARTER AND BYLAWS............................. 67
COMMON STOCK AVAILABLE FOR FUTURE SALE........... 71
OPERATING PARTNERSHIP AGREEMENT.................. 72
FEDERAL INCOME TAX CONSIDERATIONS................ 76
ERISA CONSIDERATIONS............................. 90
SELLING STOCKHOLDERS............................. 91
PLAN OF DISTRIBUTION............................. 104
LEGAL MATTERS.................................... 105
EXPERTS.......................................... 105
AVAILABLE INFORMATION............................ 105
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES...... F-1
</TABLE>
20,394,843 SHARES
BEACON CAPITAL
PARTNERS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DECEMBER , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
The following table sets forth the estimated expenses payable by the Company
in connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
SEC Registration Fee.............................................................. $ 120,330
Accounting Fees and Expenses...................................................... 200,000
Legal Fees and Expenses........................................................... 250,000
Printing Expenses................................................................. 75,000
Miscellaneous..................................................................... 75,000
----------
Total....................................................................... $ 720,330
----------
----------
</TABLE>
- ------------------------
(1) The amounts set forth above, except for the SEC Registration fee, are in
each case estimated.
ITEM 32. SALES TO SPECIAL PARTIES.
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order below is information regarding the number
of unregistered shares of capital stock issued by the Registrant since its
incorporation in 1998. Further included is the consideration, if any, received
by the Registrant for such shares, and information relating to the section of
the Securities Act of 1933, as amended (the "Securities Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
(1) In March 1998, BCP issued 1,000 shares of its Common Stock for an
aggregate purchase price of $10.00 to Beacon Capital Partners, Inc., a
Massachusetts corporation, in reliance upon the exemption from registration
under Section 4(2) of the Securities Act.
(2) In March 1998, BCP issued 200 shares of its Common Stock to the
stockholders of Beacon Capital Partners, Inc., a Massachusetts corporation,
in exchange for all of the outstanding capital stock of Beacon Capital
Partners, Inc., a Massachusetts corporation, pursuant to a merger agreement
and in reliance upon the exemption from registration under Section 4(2) of
the Securities Act.
(3) On March 20, 1998, BCP issued an aggregate of 16,781,680 shares of
Common Stock to NationsBanc Montgomery Securities LLC, in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act.
NationsBanc subsequently resold the securities they had purchased to
Qualified Institutional Buyers (as defined in Rule 144A under the Securities
Act) in reliance upon the exemption from registration requirements provided
by Rule 144A under the Securities Act and to a limited number of "accredited
investors" (as defined in Rule 501 under the Securities Act) in reliance
upon the exemptions from registration provided by Sections 4(1) and 4(2)
under the Securities Act. The aggregate proceeds to BCP from such offering
and the aggregate initial purchaser's discount were $312,969,332 and
$22,021,651, respectively.
(4) On March 20, 1998, the Company issued an aggregate of 579,089 shares
of Common Stock and 225,201 Units to two trusts established by Alan M.
Leventhal and Lionel P. Fortin for an
II-1
<PAGE>
aggregate cash purchase price of approximately $15,000,000 in reliance upon
the exemption from registration under Section 4(2) of the Securities Act.
(5) On April 3, 1998, BCP issued an aggregate of 2,707,213 shares of
Common Stock pursuant to an over-allotment option granted to NationsBanc
Montgomery Securities LLC in connection with the offering on March 20, 1998,
to NationsBanc Montgomery Securities LLC in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act. NationsBanc
subsequently resold the shares they purchased to Qualified Institutional
Buyers (as defined in Rule 144A under the Securities Act) in reliance upon
the exemption from registration requirements provided by Rule 144A under the
Securities Act and to a limited number of "accredited investors" (as defined
in Rule 501 under the Securities Act) in reliance upon the exemptions from
registration provided by Sections 4(1) and 4(2) under the Securities Act.
The aggregate proceeds to BCP from such offering and the aggregate initial
purchaser's discount were $50,489,522 and $3,510,503, respectively.
(6) On April 13, 1998, BCP issued an aggregate of 905,950 shares of
Common Stock pursuant to an over-allotment option granted to NationsBanc
Montgomery Securities LLC in connection with the offering on March 20, 1998,
to NationsBanc Montgomery Securities LLC in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act. NationsBanc
subsequently resold the shares they purchased to Qualified Institutional
Buyers (as defined in Rule 144A under the Securities Act) in reliance upon
the exemption from registration requirements provided by Rule 144A under the
Securities Act and to a limited number of "accredited investors" (as defined
in Rule 501 under the Securities Act) in reliance upon the exemptions from
registration provided by Sections 4(1) and 4(2) under the Securities Act.
The aggregate proceeds to BCP from such offering and the aggregate initial
purchaser's discount were $16,895,968 and $1,174,904, respectively.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The MGCL permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages except for liability result
from (a) actual receipt of an improper benefit or profit in money, property or
services or (b) active and deliberate dishonesty established by a final judgment
as being material to the cause of action. The Charter contains such a provision
which eliminates such liability to the maximum extent permitted by the MGCL.
The Charter authorizes BCP, to the maximum extent permitted by Maryland law,
to obligate itself to indemnify and to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer or (b) any individual who, while a director of BCP and at
the request of BCP serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his or her status as a present or former director or officer of
BCP. The Bylaws obligate BCP, to the maximum extent permitted by Maryland law,
to indemnify and, without requiring a preliminary determination of the ultimate
entitlement to indemnification, to pay or reimburse reasonable expenses in
advance of final disposition of a proceeding to (a) any present or former
director or officer who is made a party to the proceeding by reason of his
service in that capacity or (b) any individual who, while a director of BCP and
at the request of BCP, serves or has served another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
any other enterprise as a director, officer, partner or trustee of such
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or other enterprise and who is made a party to the
proceeding by reason of his service in that capacity. The Charter and Bylaws
also permit BCP to indemnify and advance expenses to any person who served a
predecessor of BCP in any of the capacities described above. Under the Bylaws,
if a claim for indemnification or advancement of expenses by a director or
officer is not paid in
II-2
<PAGE>
full by BCP within (a) 60 days after the receipt by BCP of a written claim for
indemnification or (b) in the case of a director, 10 days after the receipt by
BCP of documentation of expenses and the required undertaking, such director or
officer may at any time thereafter bring suit against BCP to recover the unpaid
amount of the claim, and if successful in whole or in part, such director or
officer is also entitled to be paid the expenses of prosecuting such claim. The
Bylaws permit BCP to maintain (and it does maintain) insurance, at its expense,
to protect itself and any director, officer, or non-officer employee against any
liability of any character asserted against or incurred by BCP or any such
director, officer, or non-officer employee, or arising out of any such person's
corporate status, whether or not BCP would have the power to indemnify such
person against such liability under the MGCL or the Bylaws.
The MGCL requires a corporation (unless its charter provides otherwise,
which the Charter does not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which his is made a party by reason of his service in that capacity. The MGCL
permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL, a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, whether or not received in the director's or officer's
official capacity, unless in either case a court orders indemnification and then
only for expenses. In addition, the MGCL permits a corporation to advance
reasonable expenses to a director or officer upon the corporation's receipt of
(a) a written affirmation by the director or officer of his good belief that he
has met the standard of conduct necessary for indemnification by the corporation
and (b) a written undertaking by or on his behalf to repay the amount paid or
reimbursed by the corporation if it shall ultimately be determined that the
standard of conduct was not met. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers or
persons controlling BCP pursuant to the foregoing provisions, BCP has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
BCP has entered into indemnification agreements with each of its directors
and senior officers. The indemnification agreements require, among other
matters, that BCP indemnify its directors and officers, as well as their spouses
and children, to the fullest extent permitted by Maryland law and advance to the
directors and officers all related expenses, subject to reimbursement if it is
subsequently determined that indemnification is not permitted. Under these
agreements, BCP must also indemnify and advance all expenses incurred by
directors and officers seeking to enforce their rights under the indemnification
agreements or recovery under any directors' and officers' liability insurance
policies maintained by BCP.. BCP is not required to indemnify the director or
officer for amounts paid or to be paid in settlement unless such settlement is
approved in advance by BCP. The agreements also require BCP to provide to the
directors or officers the maximum amount of directors' and officers' liability
insurance available under any insurance policy or policies maintained by BCP,
and to continue such coverage for seven years after the directors or officers no
longer serve as directors or officers of BCP for events occurring during their
service with BCP.
Under Section 8 of the Purchase Agreement filed as Exhibit 1.1 hereto, the
Initial Purchaser has agreed to indemnify, under certain conditions, BCP, its
directors, officers, employees and persons who control BCP within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against
certain losses, claims, damages, liabilities or expenses.
II-3
<PAGE>
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following financial statements are being filed as part of this
Registration Statement:
<TABLE>
<S> <C>
Pro Forma Financial Information
Beacon Capital Partners, Inc.
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998
Notes to Pro Forma Condensed Consolidated Balance Sheet
Pro Forma Condensed Consolidated Statements of Operations for the Nine Months
Ended September 30, 1998 and the Year Ended December 31, 1997
Notes to Pro Forma Condensed Consolidated Statements of Operations
Historical Financial Information:
Beacon Capital Partners, Inc.
Report of Independent Auditors
Consolidated Balance Sheet as of March 31, 1998
Consolidated Statement of Operations from January 21, 1998 (Inception) to March
31, 1998
Consolidated Statement of Stockholders' Equity from January 21, 1998
(Inception) to March 31, 1998
Consolidated Statement of Cash Flows from January 21, 1998 (Inception) to March
31, 1998
Notes to Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 1998 (Unaudited)
Consolidated Statements of Operations from April 1, 1998 to September 30, 1998
(Unaudited) and January 21, 1998 (Inception) to September 30, 1998 (Unaudited)
Consolidated Statement of Stockholders' Equity from January 21, 1998
(Inception) to September 30, 1998 (Unaudited)
Consolidated Statement of Cash Flows from January 21, 1998 (Inception) to
September 30, 1998 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
Beacon/PW Kendall LLC
Consolidated Balance Sheet as of September 30, 1998 (Unaudited)
Consolidated Statement of Operations from April 16, 1998 (Inception) to
September 30, 1998 (Unaudited)
Consolidated Statement of Members' Capital from April 16, 1998 (Inception) to
September 30, 1998 (Unaudited)
Consolidated Statement of Cash Flows from April 16, 1998 (Inception) to
September 30, 1998 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited)
The Athenaeum Portfolio
Report of Independent Auditors
Combined Historical Summary of Gross Income and Direct Operating Expenses for
the period January 1, 1998 to April 30, 1998 (Unaudited) and the Year Ended
December 31, 1997
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses
Technology Square and The Draper Building
Report of Independent Auditors
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
Historical Summary of Gross Income and Direct Operating Expenses for the period
January 1, 1998 to June 23, 1998 (Unaudited) and the Year Ended December 31,
1997
Notes to Historical Summary of Gross Income and Direct Operating Expenses
The Bruenig Portfolio (referred to elsewhere herein as the Dallas Office and
Industrial Portfolio)
Report of Independent Auditors
Combined Historical Summary of Gross Income and Direct Operating Expenses for
the Six Months ended June 30, 1998 (Unaudited) and the Year Ended December 31,
1997
Notes to Combined Historical Summary of Gross Income and Direct Operating
Expenses
</TABLE>
(b) Exhibits. The following is a complete list of Exhibits filed or
incorporated by reference as part of this Registration Statement.
<TABLE>
<C> <S>
1.1 Placement Agent Agreement between NationsBanc Montgomery Securities LLC and the
Company, as amended.(1)
2.1 Agreement and Plan of Merger by and between the Predecessor and the Company.(1)
3.1 Articles of Incorporation.(1)
3.2 Certificate of Correction to Articles of Incorporation.(1)
3.3 Amended and Restated By-laws.(1)
3.4 Agreement of Limited Partnership of Beacon Capital Partners, L.P.(2)
3.5 First Amendment to Agreement of Limited Partnership.(2)
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the Company.(1)
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the validity of the securities being
offered.(3)
8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.(4)
10.1 Employment and Non-Competition Agreement for Alan M. Leventhal.(1)
10.2 Employment and Non-Competition Agreement for Lionel P. Fortin.(1)
10.3 Beacon Capital Partners 1998 Stock Option and Incentive Plan.(1)
10.4 Form of Indemnification Agreement between the Registrant and its directors and
executive officers.(1)
10.5 Purchase and Sale Contract between Eastern Properties Master LLC and the
Registrant.(1)
10.6 Contract of Sale for Bank One Building(2)
10.7 Contract of Sale for 6500 Greenville Building(2)
10.8 Contract of Sale for North Creek II Building(2)
10.9 Contract of Sale for One Glen Lakes Building(2)
10.10 Contract of Sale for Crosspoint Atrium Building(2)
10.11 Contract of Sale for Brandywine Place Building(2)
10.12 Contract of Sale for Forest Abrams Building(2)
10.13 Contract of Sale for Sherman Tech Building(2)
10.14 Contract of Sale for Venture Tech Building(2)
10.15 Contract of Sale for Plaza at Walnut Building(2)
10.16 Contract of Sale for Richardson BC Building(2)
10.17 Contract of Sale for Park North SC Building(2)
10.18 Contract of Sale for TI Business Center(2)
10.19 Contract of Sale for Richardson CC Building(2)
21.1 Subsidiaries of the Registrant.(4)
23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1).(3)
23.2 Consent of Ernst & Young LLP.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
24. Power of Attorney.(1)
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-11 (SEC File No. 333-56937) filed with the Commission on June 16,
1998.
(2) Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the
Commission on August 21, 1998.
(3) Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the
Commission on September 22, 1998.
(4) Previously filed as an exhibit to Amendment No. 3 to the Company's
Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the
Commission on October 16, 1998.
ITEM 37. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it
was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(4) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-Effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Boston, Massachusetts, on December 28, 1998.
<TABLE>
<S> <C> <C>
BEACON CAPITAL PARTNERS, INC.
By: /s/ LIONEL P. FORTIN
---------------------------------------------
Lionel P. Fortin
PRESIDENT AND CHIEF OPERATING OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------- ------------------------------------------ ----------------------
<C> <S> <C>
* Chairman of the Board and Chief December 28, 1998
--------------------------------- Executive Officer and
Alan M. Leventhal Director (Principal Executive Officer)
/s/ LIONEL P. FORTIN President, Chief Operating Officer December 28, 1998
--------------------------------- and Director
Lionel P. Fortin
* Senior Vice President and Chief December 28, 1998
--------------------------------- Financial Officer (Principal Financial
Randy J. Parker and Accounting Officer)
* Director December 28, 1998
---------------------------------
Stephen T. Clark
* Director December 28, 1998
---------------------------------
Steven Shulman
* Director December 28, 1998
---------------------------------
Scott M. Sperling
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ LIONEL P. FORTIN
---------------------------------
Lionel P. Fortin, ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Placement Agent Agreement between NationsBanc Montgomery Securities LLC and the
Company, as amended(1)
2.1 Agreement and Plan of Merger by and between the Predecessor and the Company.(1)
3.1 Articles of Incorporation.(1)
3.2 Certificate of Correction to Articles of Incorporation.(1)
3.3 Amended and Restated By-laws.(1)
3.4 Agreement of Limited Partnership of Beacon Capital Partners, L.P.(2)
3.5 First Amendment to Agreement of Limited Partnership.(2)
4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the Company.(1)
5.1 Opinion of Goodwin, Procter & Hoar LLP as to the validity of the securities being
offered.(3)
8.1 Opinion of Goodwin, Procter & Hoar LLP as to certain tax matters.(4)
10.1 Employment and Non-Competition Agreement for Alan M. Leventhal.(1)
10.2 Employment and Non-Competition Agreement for Lionel P. Fortin.(1)
10.3 Beacon Capital Partners 1998 Stock Option and Incentive Plan.(1)
10.4 Form of Indemnification Agreement between the Registrant and its directors and
executive officers.(1)
10.5 Purchase and Sale Contract between Eastern Properties Master LLC and the
Registrant.(1)
10.6 Contract of Sale for Bank One Building(2)
10.7 Contract of Sale for 6500 Greenville Building(2)
10.8 Contract of Sale for North Creek II Building(2)
10.9 Contract of Sale for One Glen Lakes Building(2)
10.10 Contract of Sale for Crosspoint Atrium Building(2)
10.11 Contract of Sale for Brandywine Place Building(2)
10.12 Contract of Sale for Forest Abrams Building(2)
10.13 Contract of Sale for Sherman Tech Building(2)
10.14 Contract of Sale for Venture Tech Building(2)
10.15 Contract of Sale for Plaza at Walnut Building(2)
10.16 Contract of Sale for Richardson BC Building(2)
10.17 Contract of Sale for Park North SC Building(2)
10.18 Contract of Sale for TI Business Center(2)
10.19 Contract of Sale for Richardson CC Building(2)
21.1 Subsidiaries of the Registrant.(4)
23.1 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 5.1).(3)
23.2 Consent of Ernst & Young LLP.
24. Power of Attorney.(1)
</TABLE>
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(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-11 (SEC File No. 333-56937) filed with the Commission on June 16,
1998.
(2) Previously filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the
Commission on August 21, 1998.
(3) Previously filed as an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the
Commission on September 22, 1998.
(4) Previously filed as an exhibit to Amendment No. 3 to the Company's
Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the
Commission on October 16, 1998.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of (i) our report dated June 3, 1998, with respect to the
consolidated financial statements of Beacon Capital Partners, Inc., (ii) our
report dated May 22, 1998, with respect to the combined historical summary of
gross income and direct operating expenses of The Athenaeum Portfolio,
(iii) our report dated May 22, 1998, with respect to the historical summary
of gross income and direct operating expenses of Technology Square and The
Draper Building, and (iv) our report dated July 1, 1998, with respect to the
historical summary of gross income and direct operating expenses of The
Breunig Portfolio, all included in post-effective amendment No. 1 to the
Registration Statement (Form S-11) and related Prospectus of Beacon Capital
Partners, Inc. for the registration of 20,394,843 shares of its common stock.
/s/ ERNST & YOUNG LLP
Boston, Massachusetts
December 23, 1998
