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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)
APRIL 10, 2000
BEACON CAPITAL PARTNERS, INC.
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(Exact name of registrant as specified in charter)
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<S> <C> <C>
MARYLAND 000-24905 04-3403281
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(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
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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 99.1 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 or
loan agreements on acceptable terms, potential rent increases relating to
expiring leases, receipt of revenues generated by properties, successful
completion of development, the outcome of an appeal relating to a zoning
variance, results of operations and cash flows, the timing and magnitude of
returns of capital to investors, future investment strategies 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 or loan agreements on
acceptable terms and the timing of the actual closing of any transactions or
loan agreements; the need and ability to renew leases or relet space upon the
expiration of current leases; supply and demand for office, laboratory,
industrial, retail and residential properties in our current and proposed market
areas; fluctuations in occupancy rates in office, laboratory, industrial, retail
and residential 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 1999 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on March 30, 2000 as subsequently amended.
ITEM 5 - OTHER EVENTS
Beacon Capital Partners, Inc. (the "Company") issued a Letter from the
Chairman of the Board and the President (the "Letter") to its stockholders on
April 10, 2000 enclosing its 1999 Annual Report on Form 10-K and providing an
update on the highlights of the Company's progress over the last twelve months.
A copy of the Company's Letter is attached hereto and incorporated herein in its
entirety.
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ITEM 7 - FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit 99.1 - Letter Furnished to Security Holders
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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: April 12, 2000 By: /s/ Randy J. Parker
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Randy J. Parker
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
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Exhibit 99.1 - Letter Furnished to Security Holders
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Exhibit 99.1
BEACON CAPITAL PARTNERS 1999 ANNUAL REPORT
To Our Investors:
We are pleased to report our results for 1999, and to update you on the
highlights of our progress over the last twelve months. In spite of the fact
that conditions remained difficult for the commercial real estate industry as a
whole, we have continued to implement a strategy that plays to our strengths and
that responds to the fundamental shifts in the economy. Since establishing
Beacon Capital Partners over two years ago, we have capitalized on some
extraordinary opportunities. We have remained focused on our strategy of adding
value through our operating skills and expertise, and we remain committed to
delivering strong results to our shareholders.
OUR VISION
As technology continues to dominate and re-shape our economy, we have sought
ways to embrace this influence and to identify investment opportunities that
capitalize on these changes. Our focus on knowledge-based economies has
continued to pay off as we have seen market rents escalate dramatically in
places like Cambridge, San Francisco, Seattle and Silicon Valley. We have also
sought to capitalize on opportunities where our skills and expertise allow us to
quickly transform properties to meet the needs of today's tenants and to provide
space in an expedited fashion. In addition, we have played an active role in
select investments in real estate-related technology companies. For example, our
investment in Cypress Communications, which recently completed an initial public
offering, has produced a substantial positive outcome for our investors.
Consistent with our observations in prior communications, the public markets for
real estate have continued to remain weak for an extended period of time. As a
result, we do not expect to pursue an initial public offering. As we indicated
in our mid-year report, we made the decision to access additional equity capital
through the private markets. We are pleased to report that we have completed the
final closing for Beacon Capital Strategic Partners, L.P., with capital
commitments totaling $287.5 million. Beacon Capital Partners has committed 20%
of the capital and the benefits of the management fee and performance incentive
will flow through directly to our shareholders. This limited partnership will be
our exclusive real estate investment vehicle for a period of up to 24 months
(through September 2001). We expect to continue to implement the same investment
strategy that we have adopted over the last two years. Our initial investments
are in San Francisco and the Northern Virginia Technology corridor.
Although the changes in the capital markets have altered our plans, we have not
wavered from our original investment strategy. We remain committed to our
original objectives of generating strong returns and providing liquidity to our
shareholders. We believe we are on track toward delivering strong returns as
evidenced by the description of individual investments described below. We
intend to return capital to our investors as we sell assets at opportune times
or through proceeds from refinancings. Currently, we anticipate that we can
return at least 50% of the equity capital to our shareholders over the next
24 months. In addition, liquidity may also be enhanced through a stock
repurchase program which we announced in January. Our Board has approved a
program that authorizes management to buy back up to $30 million of the
Company's stock.
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PERFORMANCE
Although we have not completed an initial public offering, our stock is traded
through the PORTAL system and we comply with SEC filing requirements because we
are a 1934 Act reporting company. There has been trading in our stock. Total
volume in 1999 exceeded 1.6 million shares, and there have been over
1.4 million shares traded through the end of the first quarter of 2000. The most
recent trade (3/22/00) was at $20.625, and included interests in the various
voting trusts. Using this price, and including the cash dividends that have been
distributed to date, the total return to investors since inception of the
Company was 8.03%. The Morgan Stanley REIT Index during the same time period
delivered a negative return of -18.36%. The graph below compares the performance
of Beacon Capital Partners versus the Morgan Stanley REIT Index. In addition, we
have delineated the 10% performance benchmark return that is established in the
new management incentive plan that is described later in this letter.
[Graphic is a line graph plotting per share price of Common Stock and
per share price of Morgan Stanley REIT Index on a monthly basis from March
1998 through March 2000.]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
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Morgan Stanley REIT Index Performance Benchmark BCP Performance
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Mar-98 $20.000 $20.000 20.000
Jun-98 $19.121 $20.482 20.125
Sep-98 $17.098 $20.976 20.125
Dec-98 $16.740 $21.482 15.875
Mar-99 $15.935 $22.000 15.425
Jun-99 $17.514 $22.530 15.375
Sep-99 $16.097 $23.074 17.840
Dec-99 $15.978 $23.630 16.362
Mar-00 $16.402 $24.200 20.625
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INDIVIDUAL ASSETS
ATHENAEUM PORTFOLIO, CAMBRIDGE, MA
As discussed in our mid-year report, we had marketed this property for sale
beginning in April 1999. Late in the year we withdrew the property from the
market, believing that we could create more value by refinancing the portfolio
and by continuing to roll up expiring leases to current market. Approximately
80,000 square feet of leases expired during 1999. New net rents average $26 per
square foot, or 30% over the average expiring net lease rates. We hope to close
\a refinancing of the property by early in the second quarter, generating gross
proceeds of $175 million. The net proceeds, after
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payoff of existing debt and defeasance, as well as taking into account the 50%
share of our institutional partner, is estimated to be approximately
$45 million.
THE DRAPER BUILDING, CAMBRIDGE, MA
Purchased with Technology Square in June 1998, The Draper Building was included
with the Athenaeum Portfolio in the Cambridge sales package marketed earlier in
the year. As disclosed in an 8-K filed on December 7, 1999, the tenant (Draper
Laboratories) failed to give notice to exercise its extension option on its
lease for this 475,000 square foot building. The initial option, plus future
options, would have extended the term of the lease to 2052 at rates
significantly below today's current market rent. As a result of the failure to
give notice, the current lease term will expire in October 2001. The tenant has
indicated a desire to remain in the building and as of the end of the first
quarter, we were in discussions with Draper regarding a possible resolution.
TECHNOLOGY SQUARE, CAMBRIDGE, MA
We completed the redevelopment of the existing buildings and achieved 92%
occupancy by year-end 1999. Tenants include M.I.T., Akamai, Forrester Research,
Scient, and Curl. Average rental rates are $37 per square foot versus $9 per
square foot that were in place at the time that we purchased the property. We
also gained final entitlements to develop an additional 600,000 square feet and
commenced construction of the initial 175,000 square foot office building.
Vacancy rates in Cambridge are below 1% and market rents are now approaching $50
per square foot, a 25% increase over the last twelve months.
MATHILDA RESEARCH CENTRE, SUNNYVALE, CA
This office/R&D project at the north end of Silicon Valley, developed jointly
with Menlo Equities of Palo Alto, CA, has now been 100% pre-leased to Juniper
Networks, Inc., a leading provider of Internet infrastructure solutions. Juniper
exercised their option on the second phase in the first quarter of 2000. Phase
one of construction is expected to be completed by June 2000, with the second
phase targeted for June 2001. The initial rental rate is at $30 per square foot
(net) and increases annually by 4%. The average unleveraged yield over the term
of the lease is 17%.
MILLENNIUM TOWER, SEATTLE, WA
Construction is proceeding on this mixed-use, high-rise project, with completion
expected by year-end 2000. The project is a joint venture with Martin Smith Real
Estate Services of Seattle. It will consist of 13 floors (188,000 square feet)
of Class A office space, six floors (75,000 square feet) of high-end residential
condominiums and ground floor retail space. No leases have been signed to date,
but several proposals are outstanding, and market rents have moved up
substantially. Market pricing for residential condominiums also continues to
escalate well beyond our original projections.
DALLAS OFFICE AND INDUSTRIAL PORTFOLIO, DALLAS, TX
Although the market continues to suffer from excessive new supply, the job
growth in Dallas continues to outpace the national average, driving additional
demand for space. The attractive location of this 1.3 million square foot
portfolio in the rapidly-growing telecom corridor of north Dallas underscores
the portfolio's strong fundamentals of access and visibility. Our buildings
provide a price-competitive alternative for technology related companies and 31%
of the portfolio has rolled over since the portfolio was purchased in
July 1998. Rental rates for the new leases are 41% higher than the expiring
rents. An additional 250,000 square feet is scheduled to roll over in 2000.
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FORT POINT PLACE, BOSTON, MA
The two office buildings in this 4-building South Boston Waterfront project are
97% leased. We expect the lease for an existing major tenant to be renewed at
prevailing market levels, which are considerably higher than the existing rent.
We are proceeding with our plans to convert the remaining two buildings to
residential condominiums, in spite of a pending appeal to our zoning variance by
Gillette. We currently are in negotiations and are hopeful that the appeal will
be resolved shortly. The condominiums are currently expected to be ready for
occupancy by mid-summer.
BEACON CAPITAL STRATEGIC PARTNERS, L.P.
As discussed previously, we have raised $287.5 million of equity capital in a
private fund format. This fund will be our exclusive real estate investment
vehicle for a period of up to 24 months (through September 2001). We have made
two investments to date, investing approximately $38 million of equity capital.
The initial investment is the redevelopment of 233 Fremont Street in San
Francisco's financial district. The $80 million project will result in a 365,000
square foot office property targeting technology-related users. The second
investment, called Beaumeade Technology Campus, is the development of two
single-story flex office buildings totaling 131,000 square feet. The property is
located in an improved office park in Loudoun County, VA, in the rapidly
expanding technology corridor.
OPERATING COMPANY INVESTMENTS
WYNDHAM INTERNATIONAL, INC.
Through our seat on the Board of Directors of Wyndham International, Inc., we
are playing an active role in re-building and strengthening this company. Since
completing our investment on June 30, 1999, substantial changes have been made
to the Wyndham management team and various non-strategic assets have been sold.
Although hospitality companies have not been stock market favorites of late,
Wyndham is positioning itself to be a strong force in the industry. We continue
to hold high expectations for the prospects of this investment.
CYPRESS COMMUNICATIONS, INC.
Cypress Communications is a provider of a range of communications services to
small and medium-sized businesses located in multi-tenant office buildings,
including local and long distance voice, Internet access, web site hosting and
other services. In 1998 and 1999, we invested an aggregate amount of
$11 million in Cypress and distributed the shares to a voting trust, of which
our shareholders are the beneficial owners.
After filing for an IPO in December 1999, Cypress successfully went public on
February 10, 2000, issuing 10 million shares of common stock at a price of $17
per share. Based on the closing price on March 31st of $24.50, our $11 million
investment is now worth in excess of $100 million. The initial term of the
voting trust is one year and the securities are under lock-up restrictions for a
period of six months following the IPO.
CO SPACE, INC.
In November 1999, we made an $8 million investment in CO Space, Inc., which
equates to an ownership position of approximately 20%. CO Space provides space
and services for data storage and web hosting for mid-size companies. In
March 2000, we transferred our preferred shares to a voting trust of which our
shareholders are the beneficial owners.
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FINANCING ACTIVITIES
We have utilized the debt capital markets in cases where assets have stabilized
and supported higher amounts of leverage. We increased our interim financing
with Bankers Trust from $100 to $130 million in the fourth quarter. This
financing is secured by properties in the Dallas portfolio, Technology Square
and the Draper Building. We also secured a $16 million mortgage from Key Bank
for the office portion of the Fort Point Place project. As discussed earlier, we
are currently negotiating a $175 million financing on the Athenaeum portfolio,
and expect to close the loan early in the second quarter of 2000. We also have
in place construction loans for each of our ground up development projects in
Seattle and Sunnyvale.
MANAGEMENT--ALIGNMENT OF INTERESTS
We believe we have assembled one of the finest management teams in the industry.
We are producing exceptional results that will reward our shareholders with
strong returns. Although the capital markets have not permitted the public
market outcome that was originally anticipated, we have nevertheless implemented
an investment strategy that is consistent with our original objectives. We
believe it is essential to continue to provide the proper incentives to reward
the management team for strong performance. The original long-term incentive
program and management stock options were based on public market concepts.
Consistent with the changes to our strategy, the Board has designed and approved
a revised long-term incentive program that they believe is more closely aligned
with the re-defined direction of the Company and with the interests of its
investors.
Concurrently with the distribution of this 1999 Annual Report, the Board of
Directors has issued a Proxy Statement that outlines the new management
incentive plan. The new plan will replace both the old long-term incentive plan
and the stock option plan for management. The new plan will reward management
based on the actual realized cash returns by our shareholders. Similar to
private real estate funds, investors will receive the return of all of their
initial capital plus a 10% compounded annual return (from the original date the
capital was invested) before management receives any incentive. Provided the
hurdle is achieved, management will effectively receive 20% of the profits. We
believe that this revised plan will provide the proper incentives for management
and more closely aligns the objectives of management with those of the
shareholders.
We have high expectations for what we can accomplish and we look forward to
another year of strong results. Thank you for your continued trust and
confidence.
Sincerely,
/s/ Alan M. Leventhal
Alan M. Leventhal
Chairman of the Board and Chief Executive Officer
/s/ Lionel P. Fortin
Lionel P. Fortin
President and Chief Operating Officer
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