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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
</TABLE>
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ------------ to ------------
</TABLE>
Commission file number 000-24905
BEACON CAPITAL PARTNERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
Maryland 04-3403281
-------- ----------
<S> <C>
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
One Federal Street, 26th Floor,
Boston, Massachusetts 02110
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
617-457-0400
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
</TABLE>
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
Number of Common Shares outstanding at the latest practicable date, May 12,
2000: 20,972,592 shares, $.01 par value.
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<PAGE>
BEACON CAPITAL PARTNERS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
Part I -- Financial Information
Item 1. Consolidated Financial Statements........................... 1
Consolidated Balance Sheets--March 31, 2000 (Unaudited)
and December 31, 1999................................... 1
Consolidated Statements of Operations--Three Months Ended
March 31, 2000 and 1999 (Unaudited)..................... 2
Consolidated Statements of Cash Flows--Three Months Ended
March 31, 2000 and 1999 (Unaudited)..................... 3
Notes to Consolidated Financial Statements................ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 18
Part II -- Other Information
Item 1. Legal Proceedings........................................... 20
Item 2. Changes in Securities and Use of Proceeds................... 20
Item 3. Defaults Upon Senior Securities............................. 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
Item 5. Other Information........................................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 20
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (NOTE 1)
<S> <C> <C>
ASSETS
Real Estate:
Land...................................................... $ 52,182 $ 52,182
Buildings, improvements and equipment..................... 235,101 216,967
--------- ---------
287,283 269,149
Less accumulated depreciation............................. 8,463 7,025
--------- ---------
278,820 262,124
Deferred financing and leasing costs, net of accumulated
amortization of $860 and $434, respectively............... 2,999 3,085
Cash and cash equivalents................................... 46,916 76,927
Restricted cash............................................. 253 1,203
Accounts receivable, net.................................... 3,743 3,393
Deferred rent receivable.................................... 1,115 783
Other assets................................................ 5,841 1,905
Investments in partnership, joint ventures and
corporations.............................................. 151,301 163,677
--------- ---------
Total assets.......................................... $ 490,988 $ 513,097
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................... $ 31,111 $ 31,172
Note payable--interim financing........................... 130,000 122,500
Accounts payable and accrued expenses..................... 16,064 15,209
--------- ---------
Total liabilities..................................... 177,175 168,881
--------- ---------
Commitments and contingencies............................... -- --
Minority interest in consolidated partnership............... 39,910 43,639
--------- ---------
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..................................... 18,690 12,019
Cumulative dividends...................................... (134,517) (101,172)
--------- ---------
Total stockholders' equity............................ 273,903 300,577
--------- ---------
Total liabilities and stockholders' equity............ $ 490,988 $ 513,097
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
1
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Rental income............................................. $ 8,416 $ 5,162
Reimbursement of operating expenses and real estate
taxes................................................... 316 802
Equity in earnings of partnership and joint ventures...... 2,852 1,254
Interest and dividend income.............................. 1,295 1,986
Other income.............................................. 6,670 241
------- -------
Total revenues........................................ 19,549 9,445
------- -------
Expenses:
Property operating........................................ 2,254 1,359
Real estate taxes......................................... 1,249 1,063
General and administrative................................ 2,927 2,582
Affiliate formation expenses.............................. 2,054 --
Interest expense.......................................... 1,640 442
Depreciation and amortization............................. 1,865 1,124
------- -------
Total expenses........................................ 11,989 6,570
------- -------
Income before minority interest and extraordinary item...... 7,560 2,875
Minority interest in consolidated partnership............... (877) (334)
------- -------
Income before extraordinary item............................ 6,683 2,541
Extraordinary item, net of minority interest................ (12) --
------- -------
Net income............................................ $ 6,671 $ 2,541
======= =======
Income before extraordinary item per common share-basic and
diluted................................................... $ 0.32 $ 0.12
Extraordinary item per common share-basic and diluted....... -- --
------- -------
Net income per common share-basic and diluted............... $ 0.32 $ 0.12
======= =======
Weighted average number of common shares outstanding (in
thousands)................................................ 20,974 20,974
======= =======
</TABLE>
SEE ACCOMPANYING NOTES.
2
<PAGE>
BEACON CAPITAL PARTNERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 6,671 $ 2,541
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation............................................ 1,438 1,088
Amortization............................................ 427 36
Extraordinary item, net of minority interest............ 12 --
Equity in earnings of partnership and joint ventures.... (2,852) (1,254)
Gain on Cypress investment.............................. (6,414) --
Minority interest in consolidated partnership........... 877 334
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Restricted cash......................................... 950 369
Accounts receivable..................................... (350) 835
Deferred rent receivable................................ (332) (82)
Other assets............................................ (4,162) (1,128)
Accounts payable and accrued expenses................... 855 (1,544)
-------- --------
Net cash (used) provided by operating activities...... (2,880) 1,195
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Real estate asset acquisitions and improvements........... (18,134) (1,030)
Payment of deferred leasing costs......................... (340) (202)
Acquisition deposits and deferred costs................... -- (1,098)
Investments in partnership, joint ventures and
corporations............................................ (4,231) (1,019)
-------- --------
Net cash used by investing activities................. (22,705) (3,349)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on mortgage notes.............................. (61) (94)
Proceeds from note payable--interim financing............. 7,500 --
Payment of deferred financing costs....................... (1) --
Distribution payment to minority interests................ (1,377) (1,321)
Dividend payment to stockholders.......................... (10,487) (10,068)
-------- --------
Net cash used by financing activities................. (4,426) (11,483)
-------- --------
Net decrease in cash and cash equivalents................... (30,011) (13,637)
Cash and cash equivalents, beginning of period.............. 76,927 174,647
-------- --------
Cash and cash equivalents, end of period.................... $46,916 $161,010
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Distribution of Cypress stock to minority interests......... $ 2,073 $ --
Dividend of Cypress stock to stockholders................... 15,793 --
Distribution of CO Space stock to minority interests........ 928 --
Dividend of CO Space stock to stockholders.................. 7,065 --
SUPPLEMENTAL DISCLOSURE:
Cash paid for interest, net of capitalized interest of
$1,901 in 2000............................................ $ 1,550 $ 443
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The financial statements of Beacon Capital Partners, Inc. ("BCP") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. 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.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in BCP's annual report on Form 10-K for the period
ended December 31, 1999.
2. ORGANIZATION
Beacon Capital Partners, Inc. was incorporated on January 21, 1998 as a
Massachusetts corporation, and was initially capitalized through loans from the
two founders of BCP, Messrs. Leventhal and Fortin. The loans were repaid in
May 1998. BCP qualifies 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 and currently operates in one segment.
On March 17, 1998, BCP was reincorporated as a Maryland corporation and on
March 20, 1998, it completed an initial private offering in accordance with
Section 4(2) of the Securities Act of 1933. 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 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, as of March 31, 2000, 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.
3. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS
The investments in partnership, joint ventures and corporations represent
the Company's interest in (i) a joint venture known as Beacon/PW Kendall LLC
("The Athenaeum Portfolio"), (ii) a joint venture with Mathilda Partners LLC
("Mathilda Research Centre"), (iii) a joint venture with HA L.L.C. ("Millennium
Tower"), (iv) an investment in Series B Convertible Preferred Stock ("Series B
Preferred") of Wyndham International, Inc. ("Wyndham") and (v) an investment in
Beacon Capital Strategic Partners, L.P. ("Beacon Capital Strategic Partners").
4
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BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
3. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED)
A reconciliation of the underlying net assets to the Company's carrying
value of investments in partnership, joint ventures and corporations is as
follows:
<TABLE>
<CAPTION>
BEACON
THE MATHILDA CAPITAL
ATHENAEUM RESEARCH MILLENNIUM STRATEGIC
PORTFOLIO CENTRE TOWER WYNDHAM PARTNERS TOTAL
--------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating Partnership equity
interest (including accumulated
earnings, net of
distributions).................. $63,993 $17,019 $18,304 $ -- $ (503) $ 98,813
Investments in preferred stock.... -- -- -- 48,530 -- 48,530
Other costs....................... 40 1,597 1,463 807 51 3,958
------- ------- ------- ------- ------ --------
Carrying value of investments in
partnership, joint ventures and
corporations.................... $64,033 $18,616 $19,767 $49,337 $ (452) $151,301
======= ======= ======= ======= ====== ========
Equity in earnings of partnership
and joint ventures
Three months ended
March 31, 2000.................. $ 1,366 $ (103) $ -- $ -- $1,589 $ 2,852
March 31, 1999.................. 1,254 -- -- -- -- 1,254
</TABLE>
THE ATHENAEUM PORTFOLIO
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, Massachusetts. 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.
MATHILDA RESEARCH CENTRE
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 four-story Class A office/R&D buildings with surface
parking in Sunnyvale, California, 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 acquired a twelve-acre
site on Mathilda Avenue in Sunnyvale, CA, on which it is developing Mathilda
Research Centre. The estimated cost of the 267,000 square foot development is
approximately $64,000. The joint venture has obtained a $44,000 construction
loan from an institutional lender to finance the development, and the balance of
the development costs will be funded by equity contributions from the venturers.
As of March 31, 2000, the venturers have funded equity contributions of $20,000,
of which the Company's portion was $17,500.
5
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
3. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED)
MILLENNIUM TOWER
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, a Seattle based
real estate company, to develop a 19-story office/retail and residential tower
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 was contributed to the joint venture by HA L.L.C. at an
agreed value of $10,500, and the Company has agreed to fund the first $19,000 of
cash requirements for the venture. As of March 31, 2000, the Company has funded
$18,304 of this commitment. The joint venture has obtained a $45,000
construction loan from two institutional lenders to finance the balance of the
development costs. The estimated cost of the project is $72,000, including the
value of the land.
The Company's residential portion of this investment is held by BCP
Millennium Residential, Inc., a Massachusetts corporation ("BCP Millennium
Residential"). The voting common stock of BCP Millennium Residential is
controlled by Messrs. Leventhal and Fortin. The Operating Partnership owns
approximately 99% of the economic interests in BCP Millennium Residential.
WYNDHAM
On June 30, 1999, the Company purchased 1,050,000 shares of Series B
Preferred of Wyndham at a net price of approximately $102,874. Simultaneously
with this transaction, the Company transferred all of these shares of Series B
Preferred to a voting trust (the "Wyndham Voting Trust") (the trustee of which
is a subsidiary of the Operating Partnership) and declared and paid a dividend
of approximately $4.34 per share of common stock of BCP and a distribution of
approximately $4.34 per operating partnership unit of the Operating Partnership.
The aggregate value of the dividend and distribution was approximately $103,064
and primarily consisted of the Company's interest in shares of the Series B
Preferred, subject to the Wyndham Voting Trust. Stockholders not able to receive
such interests received cash of equivalent value. Subsequent to June 30, 1999,
the Company purchased approximately 57,578 Wyndham Voting Trust interests at an
aggregate price of approximately $5,297.
On July 1, 1999, the Company purchased 450,000 shares of Series B Preferred
at a net price of approximately $44,055. On October 29, 1999, the Company
transferred 244,340 of these shares of Series B Preferred to Beacon Lodging,
Inc., a Massachusetts corporation ("Beacon Lodging"). The voting common stock of
Beacon Lodging is controlled by Messrs. Leventhal and Fortin. The Operating
Partnership owns 99% of the economic interests in Beacon Lodging. On
December 9, 1999, Wyndham completed a rights offering to its current common
shareholders and redeemed approximately 8,399 shares of Series B Preferred held
by the Company at a price of approximately $857.
Wyndham's annual dividend on the Series B Preferred is 9.75%, paid
quarterly, partially in cash and partially in paid-in-kind shares.
BEACON CAPITAL STRATEGIC PARTNERS
On October 1, 1999, the Company completed the initial closing for Beacon
Capital Strategic Partners, L.P. ("BCSP"), a real estate limited partnership, of
which BCP Strategic Partners LLC, the Company's wholly-owned subsidiary, is the
General Partner. Subsequent to October 1, 1999, the Company completed
6
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
3. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED)
additional closings and as of March 28, 2000, (the BCSP final closing date),
equity commitments totaled $287,500, of which the Company's equity commitment
was $57,500. The commitments include investments from various endowments,
foundations, pension funds and other institutional investors. On March 17, 2000,
BCSP obtained a $137,500 secured revolving credit facility. For a period of up
to two years from October 1, 1999, BCSP will be the Company's exclusive real
estate investment vehicle. As of March 31, 2000, none of the Company's committed
investment was funded. In connection with the formation of BCSP, for the three
months ended March 31, 2000 and the year ended December 31, 1999, the Company
incurred affiliate formation expenses of approximately $2,054 and $3,977,
respectively. The expenses consist of underwriter commissions and fees for legal
and professional services not reimbursed by the partners of BCSP.
4. OTHER INVESTMENTS
CYPRESS COMMUNICATIONS, INC.
On September 8, 1998 and October 8, 1999, the Company invested an aggregate
of $11,000 to acquire preferred stock in Cypress Communications, Inc.
("Cypress"), representing a 9.5% fully diluted ownership position. Cypress
provides bundled communications services to tenants in multi-tenant commercial
buildings. Prior to January 5, 2000, the investment was held by both the
Operating Partnership and Tenant Communications, Inc., a Massachusetts
corporation ("Tenant Communications"). On January 5, 2000, the Company
distributed all of its preferred stock of Cypress (held by the Operating
Partnership and Tenant Communications), valued at approximately $0.75 per share
of common stock of BCP and operating partnership unit of the Operating
Partnership to a voting trust (the "Cypress Voting Trust") (the trustee of which
is a subsidiary of BCP), and then distributed its interest in the Cypress Voting
Trust to its stockholders and unitholders. The distribution was recorded by the
Company at the estimated fair value of the Cypress preferred stock as of the
date of distribution, which resulted in a gain in the amount of $6,414. This
gain is included in other income in the accompanying Consolidated Statements of
Operations. On February 10, 2000, Cypress successfully completed its initial
public offering. At the IPO, each share of preferred stock split into 4.5 shares
of common stock.
CO SPACE, INC.
On November 12, 1999, the Company invested $8,000 to acquire preferred stock
in CO Space, Inc. ("CO Space") representing a 19% fully diluted ownership
position. CO Space provides co-location space for data storage,
telecommunication carriers, and web-hosting applications. Prior to January 28,
2000, the investment was held by the Operating Partnership. On January 28, 2000,
the Operating Partnership transferred 10% of its shares of CO Space
(representing 100% of its voting interest) to Shared Communications
Spaces, Inc., a Massachusetts corporation ("Shared Communications"). On
March 24, 2000, the Company distributed all of its preferred stock of CO Space
(held by the Operating Partnership and Shared Communications), valued at
approximately $0.34 per share of common stock of BCP and operating partnership
unit of the Operating Partnership to a voting trust (the "CO Space Voting
Trust") (the trustee of which is a subsidiary of BCP), and then distributed its
interest in the CO Space Voting Trust to its stockholders and unitholders.
7
<PAGE>
BEACON CAPITAL PARTNERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
5. MORTGAGE NOTES PAYABLE
The mortgage notes payable, collateralized by certain properties and
assignments of leases, total $31,111 at March 31, 2000. Mortgage notes payable
with fixed interest rates ranging from 7.75% to 9.25% and maturities ranging
from May 2002 to October 2022 total $18,611. A variable rate mortgage note
payable with a current interest rate of 8.02% at March 31, 2000 matures in April
2002 and totals $12,500. The net book value of the mortgaged assets is $62,740
at March 31, 2000.
Future minimum principal payments due during the next five years and
thereafter are as follows:
<TABLE>
<S> <C>
2000............................................... $ 282
2001............................................... 404
2002............................................... 14,315
2003............................................... 414
2004............................................... 3,525
Thereafter......................................... 12,171
-------
Total $31,111
=======
</TABLE>
6. NOTE PAYABLE--INTERIM FINANCING
On June 28, 1999, the Company obtained $100,000 of secured interim financing
(the "Interim Financing") from Bankers Trust Company. On December 3, 1999, the
Company executed an amendment to the Interim Financing that increased the loan
amount to $130,000. The Interim Financing matures in June 2000, but in certain
circumstances can be extended for one year. On April 25, 2000, the Company
delivered the required notice to request a one year extension to June 28, 2001.
Outstanding balances under the Interim Financing bear interest at a rate spread
over the base rate or Eurodollar rate, as applicable. The spread is based upon
certain loan to value ratios. At March 31, 2000, the outstanding balance of the
Interim Financing was $130,000 and the interest rate was 8.90%. The Interim
Financing requires monthly payments of interest only and is secured by mortgages
and assignments of rents on certain properties. The net book value of the
collateralized assets is $162,251 at March 31, 2000. The Company's ability to
borrow under the Interim Financing is subject to the Company's ongoing
compliance with a number of financial and other covenants.
7. SUBSEQUENT EVENTS
On April 14, 2000, the mortgage on The Athenaeum Portfolio was refinanced.
The previous mortgage will be treated as extinguished and an extraordinary loss
will be recorded to reflect the write-off of related transaction costs and the
unamortized deferred financing costs.
On April 19, 2000, the Company sold The Draper Building for $72,500. The
Draper Building was part of the collateral for the Interim Financing and as a
condition of the property's release, on April 19, 2000, the Interim Financing
was paid down by approximately $32,170. Upon determination of the final
transaction costs, the Company will report a material gain associated with this
sale.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. 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. Certain factors that might
cause such a difference include the following: real estate investment
considerations, such as the effect of economic and other conditions in the
market area on cash flows and values; the need to renew leases or relet space
upon the expiration of current leases, and the ability of a property to generate
revenue sufficient to meet debt service payments and other operating expenses;
risks associated with borrowing, such as the possibility that we will not have
sufficient funds available to make principal payments on outstanding debt and
outstanding debt may be refinanced at higher interest rates or otherwise on
terms less favorable to us; the impact of pending or future litigation;
variations in quarterly operating results; securities held for investment are
subject to fluctuations in valuation based upon the performance of the
underlying business; risks that some of our investments could cause us to fail
to qualify as a REIT; and those risks and uncertainties contained elsewhere in
this report and under the heading "Risk Factors" on page 8 of our Form 10-K as
filed with the Securities and Exchange Commission on March 30, 2000.
The following discussion and analysis of the financial condition and results
of operations should be read in conjunction with the accompanying consolidated
financial statements and notes thereto. Our consolidated financial statements
include Beacon Capital Partners, Inc. ("BCP") and Beacon Capital Partners, L.P.
(the "Operating Partnership"), our majority-owned partnership.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999.
Changes in revenues and expenses from the three months ended March 31, 1999
to March 31, 2000 are primarily due to the timing of investment and financing
transactions and redevelopment and releasing programs during 1999 and 2000. The
secured interim financing (the "Interim Financing") from Bankers Trust Company
closed in June 1999 and was increased in December 1999; the investments in
preferred stock of Wyndham International, Inc. ("Wyndham") were made primarily
in June and July 1999; Technology Square Building 200 was released in
July 1999; Technology Square Buildings 400 and 500 were taken out of service in
1999 and underwent substantial redevelopment and releasing in 1999 and early
2000; Fort Point Place was acquired in July 1999; Beacon Capital Strategic
Partners, L.P. ("BCSP") was established in October 1999; the Fort Point Place
mortgage debt was obtained in October 1999; and investments in Mathilda Research
Centre, Millennium Tower, Cypress Communications, Inc. ("Cypress") and
CO Space, Inc. ("CO Space") occurred over time from 1998 through 2000.
Our total revenues increased $10.1 million to $19.6 million for the three
months ended March 31, 2000 as compared to $9.5 million for the three months
ended March 31, 1999. Rental income increased $3.3 million primarily due to
Technology Square releasing and the acquisition of Fort Point Place.
Reimbursement of operating expenses and real estate taxes decreased $.5 million
primarily due to Technology Square releasing which established tenant expense
bases at current levels. Equity earnings in partnership and joint ventures
increased $1.6 million primarily due to our allocation of income from BCSP.
Interest and dividend income decreased $.7 million due to timing of loan
advances and investments offset by Wyndham dividend income received in 2000.
Other income increased $6.4 million primarily due to the gain recognized on the
distribution of the Cypress investment. See --"Investing Activities".
Our total expenses increased $5.4 million to $12.0 million for the three
months ended March 31, 2000 as compared to $6.6 million for the three months
ended March 31, 1999. Property operating increased $.9 million primarily due to
increased occupancy at Technology Square and the acquisition of Fort Point
Place. Real estate taxes increased $.2 million primarily due to Dallas Office
and Industrial Portfolio
9
<PAGE>
increases and the acquisition of Fort Point Place. General and administrative
increased $.3 million. The $2.1 million of affiliate formation expenses are
costs incurred in the formation of BCSP and consist of underwriter commissions
and fees for legal and professional services not reimbursed by the partners of
BCSP. See --"Investing Activities". Interest expense increased $1.2 million due
to the June 1999 and October 1999 closings of the Interim Financing and Fort
Point Place mortgage, respectively, offset by capitalized interest expense in
2000. Depreciation and amortization increased $.7 million primarily due to
Technology Square and Fort Point Place depreciation and the Interim Financing
and Fort Point Place mortgage amortization of financing fees.
The minority interest in consolidated partnership represents the portion of
the Operating Partnership that is not owned by us.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $46.9 million at March 31, 2000 as compared
to $76.9 million at December 31, 1999. The decrease of $30.0 million was
primarily the result of (i) the payment of the March 2000 dividend to
stockholders and distribution to unitholders, (ii) the payment of Technology
Square redevelopment costs, (iii) the payment of Fort Point Place redevelopment
costs, and (iv) investments in Millennium Tower, all offset by proceeds received
from the Interim Financing.
SHORT AND LONG-TERM LIQUIDITY
We have considered our short-term (up to 12 months) liquidity needs and the
adequacy of expected liquidity sources to meet these needs. We believe that our
principal short-term operating liquidity needs are to fund normal recurring
expenses, debt service requirements and the minimum distribution required to
maintain the Company's REIT qualification under the Internal Revenue Code of
1986, as amended. We believe that these needs will be provided by cash flow from
operating activities and current cash balances. We believe that our 2000
distribution requirement to maintain our REIT qualification will be met from our
January 5, 2000 dividend of preferred shares of Cypress subject to a voting
trust (approximately $0.75 per share of common stock of BCP), our March 9, 2000
cash dividend ($0.50 per share of common stock of BCP), and our March 24, 2000
dividend of preferred shares of CO Space subject to a voting trust
(approximately $0.34 per share of common stock of BCP). See --"Investing
Activities". We believe our other short-term liquidity needs are the funding of
current real estate investments, developments, redevelopments, BCSP capital
commitments, securities held for investment, the share repurchase program and
the repayment of the Interim Financing (in the event that the loan is not
extended). We expect to fund these needs from current cash balances, mortgages
and other debt instruments, and through sales of certain assets.
We expect to meet long-term (greater than 12 months) 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 secured and unsecured indebtedness,
joint ventures, sales of certain assets, and from current cash balances.
INVESTING ACTIVITIES
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, Massachusetts and consisted of approximately 1,026,000
square feet. In 1999, we began renovation and releasing of two of the buildings
and razed one building. We commenced a new development plan to construct
approximately 600,000 square feet of additional office and laboratory space.
Construction of the first building (176,000 square feet) has begun and we
currently expect it to be completed in the second quarter of 2001. On April 19,
2000, we sold The Draper Building for $72.5 million. Upon determination of the
final transaction costs, we will report a material gain associated with this
sale.
10
<PAGE>
On August 9, 1998, we entered into a joint venture agreement with Mathilda
Partners LLC, an affiliate of Menlo Equities (a California based developer). The
joint venture is developing Mathilda Research Centre, two four-story Class A
office/R&D buildings with surface parking in Sunnyvale, California. On June 18,
1999, the joint venture executed a lease with Juniper Networks, Inc. ("Juniper
Networks") for one of the two buildings comprising approximately 144,000 of the
development's approximately 267,000 square feet and on February 28, 2000,
Juniper Networks executed its option to lease the second building. We expect to
complete the first building in June 2000 and the second building in June 2001.
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 company). The joint venture is developing Millennium Tower, a 19-story,
approximately 261,000 square foot, office/retail and residential tower, in
downtown Seattle, Washington. HA L.L.C. contributed the land at an agreed value
of $10.5 million and we agreed to fund $19 million of the development, of which,
as of March 31, 2000, we had funded approximately $18.3 million. The joint
venture has obtained a $45 million construction loan from two institutional
lenders to finance the balance of the development costs. The estimated cost of
the development is approximately $72 million, including the value of the land.
We expect to complete the project in the fourth quarter of 2000. Our residential
portion of this investment is held by BCP Millennium Residential, Inc., a
Massachusetts corporation ("BCP Millennium Residential"). The voting common
stock of BCP Millennium Residential is controlled by Messrs. Leventhal and
Fortin. The Operating Partnership owns approximately 99% of the economic
interest in BCP Millennium Residential.
On September 30, 1998 and October 8, 1999, we invested an aggregate of
$11 million to acquire preferred stock in Cypress, representing a 9.5% fully
diluted ownership position. Cypress provides bundled communications services to
tenants in multi-tenant commercial buildings. Prior to January 5, 2000, the
preferred stock investment was held by both the Operating Partnership and Tenant
Communications, Inc., a Massachusetts corporation ("Tenant Communications"). On
January 5, 2000, we distributed all of the preferred stock of Cypress (held by
the Operating Partnership and Tenant Communications), valued at approximately
$0.75 per share of common stock of BCP and operating partnership unit of the
Operating Partnership to a voting trust (the "Cypress Voting Trust") (the
trustee of which is a subsidiary of BCP), and then distributed our interest in
the Cypress Voting Trust to our stockholders and unitholders. The distribution
resulted in a gain of approximately $6.4 million. On February 10, 2000, Cypress
successfully completed its initial public offering. Cypress trades on the NASDAQ
National Market under the symbol CYCO. At the IPO, each share of preferred stock
split into 4.5 shares of common stock.
On July 13, 1999, we purchased Fort Point Place, a four-building, 335,000
square foot office and warehouse property located in the Boston, Massachusetts
South Boston Waterfront District. Two buildings consist of approximately 145,000
square feet of office space. The other two buildings consist of approximately
190,000 square feet of warehouse space which were delivered to us vacant. We
intend to renovate the warehouse space for use as residential condominiums. See
- --"Part II Item 1. Legal Proceedings".
On October 1, 1999, we completed the initial closing for BCSP, a real estate
limited partnership, of which BCP Strategic Partners LLC, our wholly-owned
subsidiary, is the General Partner. Subsequent to October 1, 1999, we completed
additional closings and as of March 28, 2000 (the BCSP final closing date),
equity commitments totaled $287.5 million, of which our equity commitment was
$57.5 million. The commitments include investments from various endowments,
foundations, pension funds and other institutional investors. The fund will
invest in U.S. domestic real estate with a primary focus on office properties.
The strategy will include redevelopment, development and other real estate
opportunities where we can maximize value through our operating skills and
expertise. For a period of up to two years from October 1, 1999, BCSP will be
our exclusive real estate investment vehicle. As of March 31, 2000, none of our
committed investment was funded. In connection with the formation of BCSP, for
the three months ended March 31, 2000 and for the year ended December 31, 1999,
we incurred affiliate formation expenses of approximately $2.1 million and
$4.0 million, respectively. The expenses consist of underwriter commissions and
fees for legal and professional services not reimbursed by the partners of BCSP.
11
<PAGE>
On November 12, 1999, we invested $8 million to acquire preferred stock in
CO Space, representing a 19% ownership position on a fully diluted basis.
CO Space provides co-location space for data storage, telecommunication
carriers, and web-hosting applications. Prior to January 28, 2000, the
investment was held by the Operating Partnership. On January 28, 2000, the
Operating Partnership transferred 10% of its shares of CO Space (representing
100% of its voting interest) to Shared Communications Spaces, Inc., a
Massachusetts corporation ("Shared Communications"). On March 24, 2000, we
distributed all of the preferred stock of CO Space (held by the Operating
Partnership and Shared Communications), valued at approximately $0.34 per share
of common stock of BCP and operating partnership unit of the Operating
Partnership to a voting trust (the "CO Space Voting Trust") (the trustee of
which is a subsidiary of BCP), and then distributed our interest in the
CO Space Voting Trust to our stockholders and unitholders.
FINANCING ACTIVITIES
On March 17, 2000, BCSP obtained a $137.5 million secured revolving credit
facility (the "Credit Facility"). The Credit Facility matures on June 30, 2001
and bears interest at an annual rate of LIBOR plus 87.5 basis points. BCSP's
ability to borrow under the Credit Facility is subject to its ongoing compliance
with a number of financial and other covenants. The Credit Facility is fully
recourse to BCSP and is secured by, among other things, a pledge and assignment
of all uncalled capital commitments of the partners. As of March 31, 2000, the
outstanding balance of the Credit Facility was $42 million.
On April 19, 2000, in conjunction with the sale of The Draper Building, the
Interim Financing was paid down by approximately $32.2 million. See --"Investing
Activities". Pursuant to the terms of the Interim Financing, on April 25, 2000,
we delivered the required notice to request a one year extension to June 28,
2001.
On April 14, 2000, the mortgage on The Athenaeum Portfolio was refinanced
with an institutional lender. We own The Athenaeum Portfolio with our joint
venture partner, PW Acquisitions IX, LLC (an affiliate of PaineWebber). The
$175 million financing is comprised of a first mortgage loan and a mezzanine
loan, bears interest at an annual rate of 30-day LIBOR plus 243 basis points and
requires monthly payments of principal and interest based on a 30-year
amortization schedule. Each of the loans has a two-year term and may be extended
for two twelve month periods if certain conditions are met. The joint venture
has entered into an interest rate protection agreement for a notional amount of
$175 million. This agreement, which terminates on May 1, 2002, provides for
offsetting payments to the joint venture in the event that 30-day LIBOR exceeds
8.35% per annum. The loans are closed to prepayment in the initial twelve
months, however certain properties in the portfolio may be released during that
period.
CAPITALIZATION
As of March 31, 2000, our total consolidated debt was approximately
$161.1 million and our total consolidated debt plus our proportionate share of
total unconsolidated debt was approximately $212.1 million. The following table
sets forth certain information regarding our consolidated and unconsolidated
debt obligations, including obligations relating to specific properties. All of
the debt is nonrecourse to us, with certain exceptions such as liability for
fraud, misapplication of insurance proceeds, environmental matters, certain
guarantees for completion of construction and certain limited guarantees for
repayment of principal and interest.
12
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
AS OF COMPANY'S
MARCH 31, PORTION OF INTEREST MATURITY PREPAYMENT
DEBT 2000 PRINCIPAL RATE DATE PROVISIONS
- ---- ------------ ------------ -------- -------- ----------------------
(DOLLAR AMOUNTS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED DEBT
FIXED RATE:
DALLAS OFFICE AND
INDUSTRIAL PORTFOLIO:
Northcreek Place............... $ 4.2 $ 4.2 7.80% 12/1/05 Prepayable subject to
conditions (a)
One Glen Lakes................. 5.6 5.6 7.75% 9/1/05 Prepayable subject to
conditions (b)
Greenville Place............... 3.4 3.4 7.80% 12/1/04 Prepayable subject to
conditions (c)
Plaza at Walnut Hill........... 1.4 1.4 9.00% (d) Prepayable subject to
conditions (e)
Richardson Business Center..... 1.5 1.5 9.00% (f) Prepayable subject to
conditions (g)
Park North Business Center..... 1.0 1.0 8.25% (h) Prepayable subject to
conditions (i)
T. I. Business Park............ 1.5 1.5 9.25% 5/1/02 Prepayable subject to
conditions (j)
------ ------ -----
Subtotal / Weighted Average 18.6 18.6 8.12%
Fixed Rate Debt..............
------ ------ -----
VARIABLE RATE:
Fort Point Place............... 12.5 12.5 8.02% (k) Prepayable subject to
conditions (l)
Interim Financing (m).......... 130.0 130.0 8.90% (n) Prepayable subject to
conditions (l)
------ ------ -----
Subtotal / Weighted Average 142.5 142.5 8.82%
Variable Rate Debt...........
------ ------ -----
Subtotal / Weighted Average 161.1 161.1 8.74%
Consolidated Debt............
------ ------ -----
UNCONSOLIDATED DEBT
The Athenaeum Portfolio (o).... 68.1 34.1 8.49% (p) Prepayable subject to
conditions (q)
Beacon Capital Strategic 42.0 8.4 6.92% 6/30/01 Prepayable subject to
Partners, L.P. (r)........... conditions (l)
Mathilda Research Centre....... 9.8 8.5 8.75% 10/25/02 Prepayable subject to
conditions (l)
Millennium Tower............... 0.0 0.0 n/a (s) Prepayable subject to
conditions (l)
------ ------ -----
Subtotal / Weighted Average 119.9 51.0 8.27%
Unconsolidated Debt..........
------ ------ -----
Total / Weighted Average....... $281.0 $212.1 8.63%
====== ====== =====
</TABLE>
13
<PAGE>
- ------------------------
(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) 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 penalties apply in that event.
(e) Prepayable after June 12, 2002 subject to payment of 5% of the amount
prepaid, reducing by 1% per annum to a minimum payment of 1% of the amount
prepaid.
(f) 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 penalties
apply in that event.
(g) 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.
(h) 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 penalties
apply in that event.
(i) 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.
(j) 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.
(k) The Fort Point Place loan matures on April 1, 2002. The loan may be extended
for one year if certain conditions are met.
(l) Prepayable any time in whole or in part subject to payment of applicable
breakage costs and in some cases fees.
(m) The following properties are collateral for the Interim Financing at
March 31, 2000: 200, 400 and 500 Technology Square, The Draper Building,
Bank One LBJ, Brandywine Place, Crosspoint Atrium, Forest Abrams Place,
Richardson Commerce Centre, Sherman Tech and Venture Drive Tech Center. On
April 19, 2000, in conjunction with the sale of The Draper Building, the
Interim Financing was paid down by approximately $32.2 million.
(n) The loan matures June 28, 2000 and contains an option to extend for an
additional one year assuming certain conditions are met and the borrower is
in compliance with the required covenants. On April 25, 2000, we delivered
the required notice to request a one year extension to June 28, 2001.
(o) We hold a 50% interest in the master limited liability company that controls
the two limited liability companies that hold title to The Athenaeum
Portfolio.
(p) The Athenaeum loan's stated maturity date is January 11, 2027 and may be
prepaid any time after January 11, 2007. In the event the loan is not paid
in full on January 11, 2007, the interest rate changes to the greater of
13.485% or 5% over the applicable 20-year Treasury Rate.
14
<PAGE>
(q) 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; ie;
the amount prepaid is used to purchase U.S. Obligations with maturities
sufficient to enable the scheduled payments on the loan to be met. On
April 14, 2000, the entire loan was defeased and the portfolio was
refinanced. See --"Financing Activities".
(r) On March 17, 2000, the BCSP interim credit facility was replaced with a
secured revolving credit facility that matures on June 30, 2001. See
--"Financing Activities".
(s) The Millennium Tower loan matures on June 1, 2002. The loan may be extended
for one year if certain conditions are met.
15
<PAGE>
The following table, which includes both consolidated and unconsolidated
debt, summarizes the scheduled amortization of principal and maturities of the
loans outstanding.
<TABLE>
<CAPTION>
SCHEDULED
AMORTIZATION MATURITIES TOTAL
------------ ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
April 1, 2000 -- December 31, 2000..................... $ 488 $138,400 $138,888
2001................................................... 714 -- 714
2002................................................... 727 22,470 23,197
2003................................................... 782 -- 782
2004................................................... 815 3,103 3,918
Thereafter............................................. 4,573 40,052 44,625
------ -------- --------
Total.............................................. $8,099 $204,025 $212,124
====== ======== ========
</TABLE>
FUNDS FROM OPERATIONS
We believe that to facilitate a clear understanding of the operating results
of the Company, Funds from Operations ("FFO") should be examined in conjunction
with net income. The definition of FFO was clarified in the National Association
of Real Estate Investment Trusts, Inc. ("NAREIT") White Paper, adopted by the
NAREIT Board of Governors in March 1995 and subsequently clarified in
October 1999, as net income (loss) (computed in accordance with generally
accepted accounting principles), excluding gains (losses) from sales of
properties, plus real estate related depreciation and amortization, and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to reflect FFO
on the same basis. FFO should not be considered as a substitute for net income,
as an indication of our performance, as a substitute for cash flow or as a
measure of our liquidity. The following table presents the calculations of FFO:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
2000 1999
---------- ----------
(UNAUDITED, DOLLARS IN
THOUSANDS)
<S> <C> <C>
Income before minority interest and extraordinary item...... $ 7,560 $ 2,875
Add real estate related depreciation and amortization:
Consolidated entities..................................... 1,519 1,087
Joint venture entities.................................... 552 512
------- -------
Funds from operations before minority interest.............. 9,631 4,474
Company share of consolidated partnership................... 88.40% 88.40%
------- -------
Company funds from operations............................... $ 8,514 $ 3,955
======= =======
Weighted average number of common shares outstanding (in
thousands)................................................ 20,974 20,974
======= =======
</TABLE>
For the periods presented above, our FFO results would be the same using both
the March 1995 and October 1999 definitions.
16
<PAGE>
PROPERTY INFORMATION
The following table sets forth the Total Area, the Percentage Leased, the
Average Base Rent (as defined below) and the Average Net Effective Rent (as
defined below) per square foot for each of our properties as of March 31, 2000.
Base Rent is gross rent excluding payments by tenants on account of real estate
tax and operating expense escalation charges. 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 charges, 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>
SOUTH BOSTON, MA:
Fort Point Place (1)........................................ 145,222 97% $15.43 $ 9.10
--------- --- ------ ------
Subtotal / Weighted Average South Boston, MA.............. 145,222 97% 15.43 9.10
--------- --- ------ ------
CAMBRIDGE, MA:
215 First Street............................................ 311,602 99% 22.87 16.28
One Kendall Square Cinema................................... 31,641 100% 18.29 13.48
Buildings 100 - 500......................................... 222,372 100% 29.66 21.08
Buildings 600/650/700....................................... 236,661 98% 36.95 25.15
Buildings 1500 & 1700....................................... 39,707 90% 17.41 10.52
Building 1400............................................... 133,211 100% 33.66 21.51
--------- --- ------ ------
Subtotal / Weighted Average............................... 975,194 99% 28.97 19.95
--------- --- ------ ------
200 Technology Square (2)................................... 156,270 96% 32.33 23.98
400 Technology Square (2)................................... 203,600 84% 35.32 27.66
500 Technology Square (2)................................... 182,250 83% 38.16 29.97
The Draper Building (NNN) (3)............................... 474,817 100% 6.16 6.16
--------- --- ------ ------
Subtotal / Weighted Average............................... 1,016,937 93% 20.69 16.67
--------- --- ------ ------
Subtotal / Weighted Average Cambridge, MA................. 1,992,131 96% 24.87 18.32
--------- --- ------ ------
SUBURBAN DALLAS, TX:
OFFICE
Bank One LBJ................................................ 42,000 80% 14.33 6.83
Brandywine Place............................................ 66,237 94% 13.20 9.89
Crosspoint Atrium........................................... 220,212 82% 13.78 9.29
Forest Abrams Place......................................... 68,827 89% 14.10 7.70
6500 Greenville Avenue...................................... 114,600 83% 14.28 7.61
Northcreek Place II......................................... 163,303 91% 15.27 8.80
One Glen Lakes.............................................. 166,272 94% 16.95 13.45
--------- --- ------ ------
Subtotal / Weighted Average............................... 841,451 88% 14.82 9.67
--------- --- ------ ------
R&D / INDUSTRIAL
Park North Business Center.................................. 36,885 80% 7.12 5.65
Plaza at Walnut Hill........................................ 88,280 89% 7.80 7.57
Richardson Business Center.................................. 66,300 100% 4.42 6.40
Richardson Commerce Centre.................................. 60,517 88% 7.30 5.45
Sherman Tech................................................ 16,176 100% 7.24 5.41
T I Business Park........................................... 96,902 67% 7.84 5.90
Venture Drive Tech Center................................... 128,322 85% 4.62 3.41
--------- --- ------ ------
Subtotal / Weighted Average............................... 493,382 85% 6.30 5.55
--------- --- ------ ------
Subtotal / Weighted Average Suburban Dallas, TX........... 1,334,833 87% 11.74 8.18
--------- --- ------ ------
Total / Weighted Average Properties....................... 3,472,186 92% $19.73 $14.27
========= === ====== ======
</TABLE>
- ------------------------------
(1) Fort Point Place includes two additional buildings that are not included in
these figures. The two buildings consist of approximately 190,000 square
feet of vacant warehouse space. We plan to renovate the warehouse space for
use as residential condominiums. See --"Part II Item 1. Legal Proceedings".
(2) Buildings 545, 565 and 575 have been renamed Buildings 200, 400 and 500
respectively. The rentable area of Buildings 200, 400 and 500 have been
modified to reflect re-measurements according to BOMA standards. Buildings
400 and 500 are currently undergoing substantial renovation and releasing
programs. Building 549 has been removed from the table because it has been
razed and a new building of approximately 176,000 square feet is currently
being developed on its site.
(3) On April 19, 2000, The Draper Building was sold for $72.5 million.
17
<PAGE>
The following table sets forth Lease Expirations (in square feet) for the
portfolio of properties we owned or had an interest in as of March 31, 2000.
<TABLE>
<CAPTION>
SQUARE % OF SQUARE ANNUAL % ANNUAL # OF
FEET (1) FEET (2) RENT (3) RENT (4) TENANTS (5)
--------- ----------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
4/1/00 - 12/31/00......................... 318,541 9.2% $ 6,164 9.2% 93
2001 (6).................................. 775,795 22.3% 7,786 11.7% 73
2002...................................... 489,392 14.1% 10,505 15.7% 91
2003...................................... 505,706 14.5% 10,253 15.3% 79
2004...................................... 356,208 10.3% 9,726 14.5% 45
Thereafter................................ 762,584 22.0% 22,484 33.6% 53
--------- ---- ------- ----- ---
Total................................... 3,208,226 92.4% $66,918 100.0% 434
========= ==== ======= ===== ===
</TABLE>
- ------------------------
(1) Total area in square feet covered by such leases.
(2) Percentage of total square feet of our portfolio.
(3) Annualized expiring base rental income represented by such leases in the
year of expiration plus the current tenant payments on account of operating
expense and real estate tax escalation charges.
(4) Calculated as annual rent divided by the total annual rent.
(5) The number of tenants whose leases will expire.
(6) Included in 2001 is 474,817 square feet and $2,925 annual rent attributable
to The Draper Building, which was sold on April 19, 2000.
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 the Company and its results of operations or financial position. We believe
that our competitors face similar risks in regard to Year 2000.
We designed and implemented a plan to address Year 2000 issues. We have not
experienced any Year 2000 related issues and we did not incur any material costs
to address Year 2000 compliance.
The inability of the Company, or our tenants or vendors, to continue 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 continue to be Year 2000 compliant could have
a material adverse effect on our results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to certain financial market risks, the most predominant being
fluctuations in interest rates. Interest rate fluctuations are monitored by
management as an integral part of our overall risk management program, which
recognizes the unpredictability of financial markets and seeks to reduce the
potentially adverse effect on our results of operations. The effect of interest
rate fluctuations historically has been small relative to other factors
affecting operating results, such as rental rates and occupancy.
18
<PAGE>
The following table summarizes our debt obligations outstanding as of
March 31, 2000. This information should be read in conjunction with Notes 5 and
6 to the consolidated financial statements.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
4/1/00-
12/31/00 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
DEBT:
- ----------------------
FIXED RATE............ $ 282 $404 $ 1,815 $ 414 $3,525 $12,171 $ 18,611 $ 18,611
Weighted Average Fixed
Interest Rate....... 8.1% 8.1% 8.0% 8.0% 8.1% 8.8% 8.3%
VARIABLE RATE......... $130,000 -- $12,500 -- -- -- $142,500 $142,500
Current Variable
Interest Rate....... 8.9% -- 8.0% -- -- -- 8.9%
</TABLE>
19
<PAGE>
BEACON CAPITAL PARTNERS, INC.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Our Fort Point Place property, located in the South Boston Waterfront
District, is composed of four buildings. Two of the buildings consist of office
space and are leased to third parties. The other two buildings are vacant and
were formerly utilized as warehouse space. In July 1999, we successfully
obtained all necessary zoning approvals and other entitlements in order to be
able to convert the two warehouse buildings into residential condominiums with
some ground floor retail space. Just prior to the expiration of the appeal
period for the zoning approvals, The Gillette Company ("Gillette"), which
operates a manufacturing facility in South Boston, filed an action against the
City of Boston and the Company in the Superior Court of the Commonwealth of
Massachusetts (Civil Action No. 99-4061-G) in which Gillette sought to overturn
the zoning approvals we had obtained. On May 10, 2000, the Company and Gillette
reached a settlement regarding this action. Pursuant to this settlement, the
action was dismissed with prejudice with no liability to us.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C> <C>
(a) 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)
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)
10.20 Contribution Agreement by and between Luddite Associates and
Beacon Capital Partners, L.P.(3)
10.21 Credit Agreement with Bankers Trust Company.(4)
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C>
10.22 Securities Purchase Agreement by and among Patriot American
Hospitality, Inc., Wyndham International, Inc., Beacon
Capital Partners, L.P. and the remaining parties named
therein.(5)
10.23 Amendment to Securities Purchase Agreement by and among
Patriot American Hospitality, Inc., Wyndham International,
Inc., Beacon Capital Partners, L.P. and the remaining
parties named therein.(6)
10.24 Loan Agreement between One Kendall LLC and Cambridge
Athenaeum LLC as Borrowers and Secore Financial
Corporation as Lender.(7)
10.25 Loan Agreement between CAMEZZ LLC as Borrower and Secore
Financial Corporation as Mezzanine Lender.(7)
27. Financial Data Schedule.
</TABLE>
<TABLE>
<S> <C> <C>
(b) Current report on Form 8-K filed January 4, 2000 reporting Item 5
disclosure.
Current report on Form 8-K filed February 14, 2000 reporting Item 5
disclosure.
Current Report on Form 8-K filed on March 22, 2000 reporting Item 5
disclosure.
</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 Pre-Effective 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 Post-Effective Amendment No. 3 to the
Company's Registration Statement on Form S-11 (SEC File No. 333-56937) filed
with the Commission on March 29, 1999.
(4) Previously filed as an exhibit to the Company's quarterly report on
Form 10-Q filed with the Commission on August 16, 1999.
(5) Incorporated by reference to the joint Current Report on Form 8-K filed by
Wyndham International, Inc. and Patriot American Hospitality, Inc. on
March 2, 1999.
(6) Incorporated by reference to the Current Report on Form 8-K filed by Wyndham
International, Inc. on July 13, 1999.
(7) Incorporated by reference to the Company's Current Report on Form 8-K filed
on April 24, 2000.
21
<PAGE>
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.
<TABLE>
<S> <C>
BEACON CAPITAL PARTNERS, INC.
/s/ RANDY J. PARKER
------------------------------------------------
Randy J. Parker
Chief Financial Officer (Authorized Officer and
May 12, 2000 Principal Accounting Officer)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 47,169<F1>
<SECURITIES> 0
<RECEIVABLES> 4,858<F2>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 490,988
<CURRENT-LIABILITIES> 0
<BONDS> 161,111<F3>
0
0
<COMMON> 210
<OTHER-SE> 313,603
<TOTAL-LIABILITY-AND-EQUITY> 490,988
<SALES> 0
<TOTAL-REVENUES> 19,549
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,349
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,640
<INCOME-PRETAX> 6,683
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,683
<DISCONTINUED> 0
<EXTRAORDINARY> (12)
<CHANGES> 0
<NET-INCOME> 6,671
<EPS-BASIC> .32
<EPS-DILUTED> .32
<FN>
<F1>INCLUDES RESTRICTED CASH OF $253
<F2>INCLUDES DEFERRED RENT RECEIVABLE OF $1,115
<F3>INCLUDES NOTE PAYABLE-INTERIM FINANCING OF $130,000
</FN>
</TABLE>
