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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
SEPTEMBER 9, 1999
BEACON CAPITAL PARTNERS, INC.
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(Exact name of registrant as specified in charter)
MARYLAND 000-24905 04-3403281
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(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
ONE FEDERAL STREET, 26TH FLOOR, BOSTON, MASSACHUSETTS 02110
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 457-0400
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FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Current Report on Form 8-K,
including Exhibit 19.1 attached hereto, may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The words "believe," "expect," "anticipate," "intend," "estimate"
and other expressions, which are predictions of or indicate future events and
trends and which do not relate to historical matters, identify
forward-looking statements. Our actual results could differ materially from
those set forth in the forward-looking statements, particularly with respect
to the consummation of transactions on acceptable terms, receipt of revenues
generated by properties, successful completion of development projects,
results of operations and cash flows and the performance of securities held
for investment. Certain factors that might cause such differences include the
following: real estate investment considerations, such as the effect of
economic and other conditions in the market on cash flows and values; the
ability to negotiate transactions on acceptable terms and the timing of the
actual closing of any transactions; the need and ability to renew leases or
relet space upon the expiration of current leases; supply and demand for
office properties in our current and proposed market areas; fluctuations in
occupancy rates in office properties; changes in market rents in current and
proposed market areas; changes in proposed business strategies or development
plans including the sale, construction, improvement or acquisition of
properties; inability to achieve projected profitability levels; variations
in quarterly operating results; fluctuations in the value of securities held
for investment based upon the performance of the underlying business and
those risks and uncertainties contained elsewhere in this report and under
the heading "Risk Factors" in our Registration Statement on Form S-11 as
filed with the Securities and Exchange Commission on June 16, 1998, as
subsequently amended.
ITEM 5 - OTHER EVENTS
Beacon Capital Partners, Inc. (the "Company") issued a Mid-Year Report
to its stockholders on or about September 9, 1999 enclosing its financial
results as of and for the period ended June 30, 1999 and providing an update as
to current developments at the Company. A copy of the Company's report is
attached hereto and incorporated herein in its entirety.
ITEM 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit 19.1 - Report Furnished to Security Holders
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEACON CAPITAL PARTNERS, INC.
Date: September 9, 1999 By:/s/ Randy J. Parker
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Randy J. Parker
Senior Vice President and
Chief Financial Officer
3
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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Exhibit 19.1 - Report Furnished to Security Holders
<PAGE>
Exhibit 19.1
BEACON CAPITAL
PARTNERS
UPDATE
MID-YEAR FINANCIAL REPORT
[GRAPHIC OMITTED]
MATHILDA RESEARCH CENTRE, SUNNYVALE, CA
AS OF AND FOR THE PERIOD
ENDING JUNE 20, 1999
<PAGE>
MID-YEAR REPORT
BEACON CAPITAL PARTNERS, INC.
TO OUR INVESTORS
We are pleased to enclose our financial results for the first six months of
calendar 1999. We also want to take this opportunity to bring you up to date
with developments at Beacon Capital Partners over this period and to give you
our assessment of how we are responding to the challenges and opportunities in
the current environment.
OUR VISION
The fundamentals for real estate investing have materially improved over the
past year. Tighter credit markets are limiting new supply, while job growth and
overall economic conditions continue to exceed expectations. In contrast, the
public equity market for real estate continues to be weak.
Last year we made a judgment that has shaped our current strategy. We felt that
the public equity market for REITs would remain weak for an extended period of
time, and that to continue to grow and create value for our investors we would
have to access the private equity market. It was also our view that the private
equity market would be shifting attention to operators like Beacon, with an
ability to implement a focused strategy. The result has been the formation of
a private investment fund named Beacon Capital Strategic Partners, L.P. (the
Fund). Beacon Capital Partners is the General Partner and will invest 20% of
the capital. We expect our first closing early in the fourth quarter, with a
final closing by year-end. Our strategy has been well received, and we expect
to meet our goal of raising $250 million.
We indicated in our 1998 Annual Report (distributed earlier this year) that we
are focused on creating liquidity for our shareholders. We also indicated that,
consistent with this objective, we would sell assets when we believe we can
maximize value. Since that time, The Athenaeum Portfolio in Cambridge, MA, has
been put on the market, and we expect the sale of this asset over the next few
months. We are considering redeploying the proceeds in a tax deferred like-kind
exchange, distributing the proceeds to our shareholders, or engaging in a stock
buy back program. We will communicate with you further on this.
OUR STRATEGY
We have focused on opportunities where we can add value through our expertise in
managing, developing, leasing, and operating real estate assets. There aren't
many organizations in today's real estate environment that combine these skills
with access to capital. As a result, the marketplace offers great investment
opportunities to us and our management team is delivering strong results.
Aside from the favorable competitive environment, we are also benefiting from
the sharp focus we have placed on knowledge-based economies. The high
concentration of technology companies in centers such as Cambridge, Silicon
Valley and Seattle has led to strong demand for our office and laboratory space.
We were very pleased, for example, to have Forrester Research, Inc. join the
Massachusetts Institute of Technology (M.I.T.) in signing long-term leases for
newly renovated offices at Technology Square, Cambridge. And on the West Coast,
Juniper Networks, Inc., a producer of Internet routing systems (which recently
completed a highly successful IPO), has leased one-half of the Mathilda Research
Centre under construction in Silicon Valley.
The knowledge-rich regions where we are concentrating our efforts typically have
a higher-than-average number of universities, teaching hospitals and technology
companies. Job growth has been strong in these technology regions, and the
demand for office space has been correspondingly high -- an ideal environment
for fast-track office projects. We expect to announce additional investments
during the second half of the year, and will likely expand our geographic
presence to the Washington D.C. market, particularly the Northern Virginia
technology corridor.
<PAGE>
MID-YEAR REPORT
BEACON CAPITAL PARTNERS, INC.
FINANCIAL RESULTS
The detailed financial statements for the period are included in this report. In
summary, Funds from Operations (FFO) totaled $8,432,000 or 40 cents per share,
an increase of 89 percent compared with FFO of $4,451,000 or 22 cents per share
in the first half of 1998. Revenues amounted to $19,056,000 versus $6,795,000,
an increase of 180 percent for the same period. The weighted average number of
common shares outstanding in the six-month period totaled 20,974,000 compared
with 20,395,000 a year earlier.
ATHENAEUM PORTFOLIO, CAMBRIDGE, MA
Our strategy for the Athenaeum Portfolio, which we acquired last May, has played
out quickly. Market rents in Cambridge have spiked by more than 20% since we've
owned the properties, and we continue to roll up rents on expiring leases. The
Cambridge market is considered one of the strongest in the U.S., as evidenced by
a vacancy rate below 5%, due to strong demand from high-tech and biotechnology
companies and strict limitations on new development.
Recognizing the value that has already been created and mindful of the
importance of exit strategy to accomplishing our return objectives, we
determined that the time was right to sell the portfolio. We have also included
the adjacent Draper Building from the Technology Square portfolio in this sale
package. We are currently underway with a marketing program and anticipate
closing a transaction by year-end at a price that will exceed our return
hurdles.
TECHNOLOGY SQUARE, CAMBRIDGE, MA
[GRAPHIC OMITTED]
The strength of the Cambridge market has also bolstered results at Technology
Square. Anticipating the expiration of 550,000 square feet of leases in June,
re-leasing efforts were initiated early in the year. So far, 70% of the
available space has been committed at average rents of $37 per square foot, or
approximately 133% above the prior rents in place. Renovation of the existing
buildings is proceeding according to plan, and initial occupancy is expected in
September. We are also pleased to report that, after working through a complex
approval process, we have received final entitlements to develop an additional
550,000 square feet of office and laboratory space. We expect to commence
construction of the first office building by year-end.
DALLAS OFFICE & INDUSTRIAL PORTFOLIO, DALLAS, TX
Since purchasing the portfolio in July last year, we have leased 232,000 square
feet (or 28%) of the office portfolio. For spaces previously occupied, net rents
have increased from $6.70 to $10.60 per square foot, a 58% increase. Of the
industrial component, a total of 93,000 square feet (or 19%) has been leased at
net rents that have increased to $5.96 per square foot from $3.96, a 50%
increase. While the Dallas market is absorbing a substantial new supply of class
A office space, our properties continue to perform as expected. We acquired
properties at a substantial discount to replacement cost that possess strong
fundamentals, including a location along the "Telecom Corridor" where much of
the growth in that market is occurring. 1998 employment growth in Dallas kept
pace with the prior four years, delivering a 4% annual growth rate versus the
national average of 2.5%. We have been able to offer a competitive price point
in the market, while still substantially increasing our rental income.
<PAGE>
MID-YEAR REPORT
BEACON CAPITAL PARTNERS, INC.
MATHILDA RESEARCH CENTRE, SUNNYVALE, CA
Construction has commenced on the first phase of this 267,000 square foot
office/R&D development, after we successfully obtained a zoning variance
allowing us to increase the buildable space on the site. In June, Juniper
Networks, Inc., signed a lease to occupy all of Phase I (144,000 square feet)
and also took an option on Phase II. This lease will considerably improve the
returns on this investment, raising the initial unleveraged yield from an
expected 11.5% to nearly 14%. This unleveraged yield will average 17% over the
12-year lease term, growing from 14% to 21%. Juniper is expected to occupy the
first building in June 2000.
MILLENNIUM TOWER, SEATTLE, WA
Construction began in May on this 261,000 square foot, high-rise office and
residential building in downtown Seattle. Completion is expected by fourth
quarter 2000. Condominium prices have risen significantly since our underwriting
and we expect our units to be offered well above the $350 per square foot we had
initially projected. The class A office vacancy rate is 1.5% in downtown Seattle
and market rents are approaching $40 per square foot. Leasing efforts are well
underway.
[GRAPHIC OMITTED]
WYNDHAM INTERNATIONAL
We completed our investment in Wyndham International on June 30 and distributed
the preferred stock security to our shareholders as a dividend, valued at $4.34
per share. The security is held in a voting trust which preserves Beacon
Capital's voting rights while allowing the company to retain its REIT status.
Our contribution of $150 million formed part of a $1 billion capital program in
which the following investment firms also participated: Apollo Real Estate
Advisors, L.P., Apollo Management, L.P., and Thomas H. Lee Company. Included in
the program is a proposed rights offering to existing Wyndham common
shareholders which, if executed, could reduce our investment by approximately
30%. In addition to a much-improved balance sheet, Wyndham has made significant
management changes, including a new CEO, a new President and a new CFO. Under
new leadership, the company has undertaken several strategic initiatives
including the sale of certain assets and the streamlining of operations. We
continue to have high expectations for Wyndham's prospects.
[GRAPHIC OMITTED]
FORT POINT PLACE, BOSTON, MA
The purchase of this 335,000 square foot, 4-building complex in the South Boston
Waterfront district was completed in July. Two of the buildings were previously
converted to office space and are 97% leased. We plan to convert the two other
buildings into 120 loft condominiums. Final approvals and entitlements are
expected to be in place shortly, and construction is scheduled to commence this
fall with completion targeted for early 2000.
<PAGE>
MID-YEAR REPORT
BEACON CAPITAL PARTNERS, INC.
CYPRESS COMMUNICATIONS
In September of 1998, we made a $5 million investment in a start-up company that
provides bundled telecommunication services to multi-tenanted office buildings.
We believed that this was a unique opportunity to invest early in a real estate
related business that was linked to tenants' growing technology needs. Since the
time of our investment, Cypress has grown its portfolio from 5.5 million square
feet to over 21.5 million square feet under contract. This translates to
revenues growing at an average rate of 20% per month. To further facilitate this
growth, Cypress will be closing shortly another round of financing, raising
approximately $50 million at $19 per share (versus our initial investment basis
of $8 per share).
215 FREMONT, SAN FRANCISCO, CA
This 300,000 square foot vacant building, located in the South Financial
District, was acquired in June for $33.5 million. Vacant since the 1989
earthquake, the building will be completely rebuilt and redeveloped into Class A
office space. The strategic location of 215 Fremont and its unusually large
floor plates (55,000 square feet) are expected to appeal to tenants from both
the financial district and the adjacent South of Market Area. Our all-in cost
for this project is estimated at $220 per square foot, which is approximately
40% below current replacement cost for a new building. This property will be the
first investment in the Fund.
FINANCING ACTIVITIES
We closed a $100 million secured interim financing in June with Bankers Trust
Company. Secured by properties in Cambridge and Dallas, the facility has a
12-month term with an option to extend for an additional 12 months. This
additional debt brings Beacon Capital's leverage ratio to approximately 30%. We
have also secured construction financing for Millennium Tower, and are currently
finalizing financing on both Mathilda Research Centre and Fort Point Place.
LOOKING AHEAD
Eighteen months after launching Beacon Capital Partners, we feel that our
investment approach for the U.S. commercial real estate market -- putting a
premium on speed and adaptability, applying our operating expertise, and
focusing on knowledge-based economies -- has definitely been the right one. To
generate 20% annual returns, it is no longer possible (as it was just three
years ago) to grow large portfolios and sit tight. The cycle has moved along to
the point where flexibility, selectivity and a clear exit strategy are
paramount.
We continue to have two primary objectives for our shareholders:
1. Generate 20% plus returns, and
2. Provide liquidity
We believe we have made significant progress on the investment side. Our
management team is delivering strong results and we believe we are on track
toward achieving our first objective. On the liquidity side, our objective has
been impacted by the weak public equity market for real estate. Our current view
remains the same as last fall, that the market will continue to be weak,
particularly for IPOs, for an extended period of time. With that judgment we are
left with the choice of a stock buy back, distribution of asset sale proceeds,
or a combination of both. We will continue to explore alternatives for achieving
this liquidity objective and will be making recommendations to our Board of
Directors over the next few months. We will be communicating with you further on
our progress.
Thank you for your continued trust and confidence.
/s/ Alan M. Leventhal /s/ Lionel P. Fortin
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Alan M. Leventhal Lionel P. Fortin
Chairman and Chief Executive Officer President and Chief Operating Officer
<PAGE>
MID-YEAR REPORT
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<TABLE>
<CAPTION>
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JUNE 30, 1999 DECEMBER 31, 1998
(UNAUDITED)
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<S> <C> <C>
ASSETS
Real Estate
Land $ 51,094 $ 51,094
Buildings, improvements and equipment 170,821 165,842
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221,915 216,936
Less accumulated depreciation 4,359 2,168
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217,556 214,768
Deferred financing and leasing costs, net of accumulated
amortization of $155 and $42, respectively 3,029 414
Cash and cash equivalents 39,876 174,647
Restricted cash 493 697
Accounts receivable, net 1,852 2,464
Accrued rent receivable 397 233
Other assets 5,978 641
Investments in joint ventures and corporations 94,753 90,136
Other investments 78,667 --
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Total assets $ 442,601 $ 484,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 18,877 $ 21,570
Note payable - interim financing 70,000 --
Accounts payable, accrued expenses and dividend payable 6,786 18,731
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Total liabilities 95,663 40,301
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Commitments and contingencies -- --
Minority interest in consolidated partnership 43,754 54,983
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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 210 210
Additional paid-in capital 389,520 389,520
Cumulative net income 14,626 9,054
Cumulative dividends (101,172) (10,068)
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Total stockholders' equity 303,184 388,716
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Total liabilities and stockholders' equity $ 442,601 $ 484,000
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MID-YEAR REPORT
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS (UNAUDITED)
<TABLE>
<CAPTION>
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FOR THE PERIOD
THREE MONTHS ENDED SIX MONTHS FROM JANUARY 21,
JUNE 30, ENDED 1998 (INCEPTION) TO
1999 1998 JUNE 30, 1999 JUNE 30, 1998
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<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 4,715 $ 161 $ 9,877 $ 161
Reimbursement of operating expenses
and real estate taxes 789 43 1,591 43
Equity in earnings of joint venture 1,147 953 2,401 953
Interest income 2,798 5,038 4,784 5,614
Other income 162 16 403 24
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Total revenues 9,611 6,211 19,056 6,795
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EXPENSES:
Property operating 1,388 13 2,747 13
Real estate taxes 1,236 37 2,299 37
General and administrative 2,341 1,669 4,923 2,637
Interest expense 25 16 467 16
Depreciation and amortization 1,192 54 2,316 57
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Total expenses 6,182 1,789 12,752 2,760
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Income before minority interest 3,429 4,422 6,304 4,035
Minority interest in consolidated
partnership (398) (67) (732) (67)
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Net income $ 3,031 $ 4,355 $ 5,572 $ 3,968
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Income per common share --
basic and diluted $ 0.14 $ 0.21 $ 0.27 $ 0.19
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Weighted average number of common
shares outstanding (in thousands) 20,974 20,795 20,974 20,395
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FFO CALCULATION
Income before extraordinary items
and minority interest $ 3,429 $ 4,422 $ 6,304 $ 4,035
Add depreciation and amorization:
Consolidated entities 1,116 42 2,203 42
Joint venture entites 518 436 1,031 436
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Funds front operations before
minority interest 5,063 4,900 9,538 4,513
Company share of consolidated
partnership 88.40% 98.48% 88.40% 98.63%
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Company funds from operations $ 4,476 $ 4,826 $ 8,432 $ 4,451
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Funds from operations per common share $ 0.21 $ 0.23 $ 0.40 $ 0.22
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SENIOR MANAGEMENT
Alan M. Leventhal
Chairman of the Board and
Chief Executive Officer
Lionel P. Fortin
President and Chief Operating Officer
William A. Bonn
Senior Vice President and
General Counsel
Jeremy B. Fletcher
Senior Vice President and
Chief Executive
Beacon Capital Partners West
John Halsted
Senior Vice President of BCP and
Chief Investment Officer of
Beacon Venture Partners, Inc.
Douglas S. Mitchell
Senior Vice President --
Development
Erin R. O'Boyle
Senior Vice President and
Chief Investment Officer
Randy J. Parker
Senior Vice President and
Chief Financial Officer
Thomas Ragno
Senior Vice President --
Management and Leasing
E. Valjean Wheeler
Senior Vice President and
Chief Executive
Beacon Capital Partners Central
<PAGE>
DIRECTORS
Alan M. Leventhal
Chairman of the Board and
Chief Executive Officer
Beacon Capital Partners, Inc.
Boston, MA
Lionel P. Fortin
President and Chief Operating Officer
Beacon Capital Partners, Inc.
Boston, MA
Stephen T. Clark
President
Cypress Realty, Inc.
Houston, TX
Robert M. Melzer
Formerly: President and Chief Executive Officer
Property Capital Trust
Boston, MA
Steven Shulman
Managing Director
Latona Associates, Inc.
Hampton, NH
Scott M. Sperling
Managing Director
Thomas H. Lee Company
Boston, MA
beacon capital partners, inc.
one federal street
boston, massachusetts 02110
(617) 457-0400
(617) 457-0499 Fax
www.beaconcapital.com