Filed Pursuant to Rule 424(b)(5)
File No. 333-56051
PROSPECTUS SUPPLEMENT
(To Prospectus dated June 15, 1998)
$160,000,000
HRPT Properties Trust
6-7/8% Senior Notes due 2002
----------------
HRPT Properties Trust ("HRP" or the "Company") is a real estate investment
trust (a "REIT") which invests in office buildings and healthcare facilities.
Proceeds of the 6-7/8% Senior Notes due 2002 (the "Notes") offered hereby will
be used to refinance existing indebtedness and for new investments.
The Notes will mature on August 26, 2002. Interest on the Notes will be
payable semi-annually on each February 26 and August 26, commencing February
26, 1999. The Notes will be redeemable at any time, at the option of the
Company, in whole or in part, at a redemption price equal to the sum of (i) the
principal amount being redeemed, (ii) accrued and unpaid interest to but
excluding the redemption date and (iii) a Make-Whole Amount, as defined herein.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Price Underwriting Proceeds to
to Public(1) Discount(2) Company(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note ......... 99.701% .55% 99.151%
- --------------------------------------------------------------------------------
Total ............ $159,521,600 $880,000 $158,641,600
================================================================================
</TABLE>
(1) Plus accrued interest, if any, from date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at approximately
$480,000.
----------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by the Underwriters, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Notes will be made in book-entry form through the facilities of
The Depository Trust Company ("DTC") in New York, New York on or about August
26, 1998.
----------------
Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
Morgan Stanley Dean Witter
Salomon Smith Barney
----------------
The date of this Prospectus Supplement is August 21, 1998.
<PAGE>
HRPT PROPERTIES TRUST
[Photo]
Bridgepoint Square (5 Buildings)
Austin, TX
452,294 Square Feet, Built 1995-97
Major Tenants:
Motorola, Inc.
IBM Corporation
Southwestern Bell
[Photo]
Putnam Place (2 Buildings)
Quincy/Braintree, MA
222,726 Square Feet, Built 1986-88
Major Tenants:
Putnam Investments, Inc.
GMAC
[Photo]
Mellon Bank Center
Philadelphia, PA
1,258,560 Square Feet, Built 1990
Major Tenant:
Mellon Bank
[Photo]
BlueCross BlueShield Building
Eagan, MN
144,654 Square Feet, Built 1986
[Photo]
National Institute of Standards
and Technology
Gaithersburg, MD
137,087 Square Feet, Built 1995
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
AT A LEVEL WHICH MIGHT NOT OTHERWISE PREVAIL. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME. THE UNDERWRITERS MAY ALSO PURCHASE NOTES TO
COVER SHORT POSITIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary pertaining to the offering of the Notes by the
Company (the "Offering") should be read together with the detailed information
and financial statements appearing elsewhere or incorporated by reference in
this Prospectus Supplement and the attached Prospectus dated June 15, 1998 (the
"Prospectus"). All references to HRP or the Company include consolidated
subsidiaries. Unless otherwise noted, the information presented is as of July
31, 1998 and does not include the transactions described in "Recent
Developments--Investments--1998 Commitments."
THE COMPANY
HRP owns 246 properties located in 35 states and the District of Columbia.
Sixty-five percent (65%) of the Company's investments, at cost, are in
commercial office properties. HRP has a total market capitalization of $3.2
billion, of which over $2.2 billion is equity. Throughout its operating history
the Company has maintained a conservative balance sheet:
[PIE CHART]
Investment Portfolio
(at cost, dollars in millions)
<TABLE>
<CAPTION>
Office Healthcare Other
------ ---------- -----
<S> <C> <C>
$1,912 $910 $100
65% 32% 3%
</TABLE>
[/PIE CHART]
HRP's ability to service its debt depends upon its receipt of rents from
tenants. The Company's largest tenant is the U.S. Government, which leases 28
office buildings acquired by HRP for $446.1 million. The Company's largest
commercial tenant is Marriott International, Inc. (an investment grade rated
company), which leases 14 retirement communities acquired by HRP for $325.5
million. Almost 76% of HRP's rents come from companies which are themselves
investment grade rated or are publicly owned. Over 71% of HRP's revenues come
from leases that do not expire before 2003.
Conservative Capitalization
<TABLE>
<CAPTION>
Debt as a Percentage of
Total Capital
--------------------------
Book Basis Market Basis
------------ -------------
<S> <C> <C>
Since inception .......... 32.1% 24.6%
Past 10 years ............ 32.1 24.4
Past 5 years ............. 31.1 23.3
Past year ................ 35.1 26.7
At June 30, 1998 ......... 31.8 25.8
</TABLE>
<TABLE>
<CAPTION>
Lease Maturities Tenant Strength
Percentage of Percentage of
Year Annual Revenues Tenant Annual Revenues
- ---- --------------- ------ ---------------
<S> <C> <C> <C>
1998 ............... 3.9% U.S. Government ......................... 16.9%
1999 ............... 4.3 Marriott International .................. 7.8
2000 ............... 4.0 Other Investment Grade Tenants .......... 24.4
2001 ............... 10.8 Other Public Tenants .................... 26.8
2002 ............... 5.4 Private Tenants ......................... 24.1
2003-2008 .......... 34.2
After 2008 ......... 37.4
</TABLE>
Since 1994 HRP's senior debt has been rated investment grade from Moody's
Investors Service, Standard & Poor's Ratings Services and Fitch IBCA, Inc. In
June 1998 Moody's upgraded the Company's outstanding subordinated convertible
debt to investment grade, Baa3. At the same time, Moody's affirmed the
Company's senior debt rating at Baa2. Also in June of 1998 Standard & Poor's
and Fitch affirmed the Company's senior debt ratings as BBB and BBB+,
respectively, and Standard & Poor's senior debt rating was raised to "positive
outlook."
S-3
<PAGE>
THE OFFERING
All capitalized terms used herein and not defined herein have the meanings
provided in "Description of the Notes." For a more complete description of the
terms of the Notes, see "Description of the Notes" below and "Description of
Debt Securities" contained in the accompanying Prospectus.
<TABLE>
<S> <C>
Securities Offered ............. $160,000,000 aggregate principal amount of 6-7/8% Senior Notes due 2002.
Maturity ....................... The Notes will mature on August 26, 2002 unless previously redeemed.
Interest Payment Dates ......... Interest on the Notes will be payable semi-annually in arrears on February 26 and August
26 of each year, commencing February 26, 1999.
Ranking ........................ The Notes will be senior unsecured obligations of the Company, and will rank equally with
the Company's other unsecured and unsubordinated indebtedness. The Notes will be
effectively subordinated to mortgages and other secured indebtedness of the Company and
to indebtedness and other liabilities of any subsidiary of the Company.
Optional Redemption ............ The Notes will be redeemable, at the option of the Company, in whole or in part, at a
redemption price equal to the sum of (i) the principal amount of the Notes being redeemed,
(ii) accrued and unpaid interest to but excluding the redemption date and (iii) the Make-
Whole Amount.
Use of Proceeds ................ The net proceeds to the Company of approximately $158.2 million from the sale of the Notes
will be used to reduce indebtedness outstanding under the Company's $500 million
revolving bank credit facility (the "Bank Credit Facility") and for new investments.
Limitations on Incurrence The Notes will contain various covenants including the following:
of Debt .......................
(1) Neither the Company nor any Subsidiary (as defined) may incur any Debt (as
defined) if, after giving effect thereto, the aggregate principal amount of all
outstanding Debt of the Company and its Subsidiaries on a consolidated basis is
greater than 60% of the sum ("Adjusted Total Assets") of (i) the Total Assets (as
defined) of the Company and its Subsidiaries as of the end of the most recent
calendar quarter and (ii) the purchase price of any real estate assets or
mortgages receivable acquired, and the amount of any securities offering proceeds
received (to the extent that such proceeds were not used to acquire real estate
assets or mortgages receivable or used to reduce Debt), by the Company or any
Subsidiary since the end of such calendar quarter, including those proceeds
obtained in connection with the incurrence of such additional Debt. On an as
adjusted basis, Debt would have been 30% of Adjusted Total Assets as of June 30,
1998.
(2) Neither the Company nor any Subsidiary may incur any Secured Debt if, after giving
effect thereto, the aggregate principal amount of all outstanding Secured Debt of
the Company and its Subsidiaries on a consolidated basis is greater than 40% of
the Company's Adjusted Total Assets. On an as adjusted basis, Secured Debt would
have been less than 1% of Adjusted Total Assets as of June 30, 1998.
(3) Neither the Company nor any Subsidiary may incur any Debt, if, after giving effect
thereto, the ratio of Consolidated Income Available for Debt Service (as defined)
to the Annual Debt Service (as defined) for the four consecutive fiscal quarters
most recently ended prior to the date on which such additional Debt is to be
incurred shall have been less than 1.5x on a pro forma basis after giving effect
to certain assumptions. On an as adjusted basis, the Consolidated Income Available
for Debt Service would have been 4.4x the Annual Debt Service for the 12 months
ended June 30, 1998.
(4) The Company and its Subsidiaries will maintain Total Unencumbered Assets of not
less than 200% of the aggregate outstanding principal amount of the Unsecured Debt
(as defined) of the Company and its Subsidiaries on a consolidated basis. On an as
adjusted basis, Total Unencumbered Assets would have been 335% of the aggregate
outstanding principal amount of Unsecured Debt as of June 30, 1998.
</TABLE>
S-4
<PAGE>
SUMMARY HISTORICAL AND AS ADJUSTED FINANCIAL INFORMATION
The following table sets forth certain financial information of the
Company, which is derived from the audited and unaudited financial statements
of the Company incorporated herein by reference, and it should be read in
conjunction with those financial statements and the accompanying footnotes. All
amounts in the table below are in thousands, except per share amounts.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------------------- --------------------------
1993 1994 1995 1996 1997 1997 1998
Operating Data: ------------ ------------ ------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 56,485 $ 86,683 $ 113,322 $ 120,183 $ 208,863 $ 88,391 $ 155,243
Net income (1) 33,417 49,919 64,236 73,254 114,000 47,257 65,192
Dividends (2) 44,869 76,317 83,954 94,299 144,271 71,114 90,365
Per Share:
Net income (basic and
diluted) (1) $ .97 $ .95 $ 1.08 $ 1.11 $ 1.24 $ 0.55 $ 0.60
Dividends (2) 1.30 1.33 1.38 1.42 1.46 0.72 0.76
Average shares outstanding 34,407 52,738 59,227 66,255 92,168 85,388 107,994
Other Data:
Funds From Operations (3) $ 46,566 $ 71,851 $ 84,638 $ 99,106 $ 146,312 $ 65,141 $ 95,068
FFO per basic share 1.35 1.36 1.43 1.50 1.59 0.76 0.88
FFO per diluted share 1.35 1.36 1.43 1.49 1.57 0.75 0.86
Ratio of earnings to Fixed
Charges (4) 6.8x 6.7x 3.4x 4.3x 3.9x 3.8x 3.2x
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30, 1998
----------------------------------------------------------------- -----------------------------
1993 1994 1995 1996 1997 Actual As Adjusted(5)
Balance Sheet Data: ----------- ----------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate investments, cost $542,092 $806,560 $1,019,477 $1,259,006 $2,184,445 $2,862,374 $2,862,374
Real estate investments, net 507,123 766,990 963,622 1,182,085 2,072,776 2,725,126 2,725,126
Total assets 527,662 840,206 999,677 1,229,522 2,135,963 2,804,342 2,833,864
Total borrowings 73,000 216,513 269,759 492,175 787,879 860,282 889,804
Total shareholders' equity 441,135 602,039 685,592 708,048 1,266,260 1,848,193 1,848,193
</TABLE>
- ---------
(1) Includes, as an extraordinary charge, the write-off of deferred finance
charges resulting from prepayment of debt of $4.3 million ($.13 per
share), $2.0 million ($.04 per share), $3.9 million ($.06 per share), $1.1
million ($.01 per share) and $2.1 million ($.02 per share) for the years
1993, 1994, 1996, 1997 and the six months ended June 30, 1998,
respectively. Includes gain on sale of properties of $4.0 million ($.08
per share), $2.5 million ($.04 per share) and $2.9 million ($.03 per
share), in 1994, 1995 and 1997, respectively, and a provision for loss on
sale of properties of $10.0 million ($.19 per share) in 1994.
(2) Amounts represent dividends declared with respect to the periods shown.
(3) The Company's "Funds From Operations" ("FFO") represents net income
(computed in accordance with generally accepted accounting principles
("GAAP")), before gain or loss on sale of properties and extraordinary
items, depreciation and other non-cash items and includes HRP's pro rata
share of the FFO of Hospitality Properties Trust ("HPT"), a former
subsidiary of the Company, which is now a separate publicly traded REIT in
which the Company maintains a minority equity interest. Management
considers FFO to be a measure of the financial performance of an equity
REIT that provides a relevant basis for comparison among REITs. FFO does
not represent cash flow from operating activities (as determined in
accordance with GAAP) and should not be considered as an alternative to
net income as an indicator of the Company's financial performance or to
cash flows as a measure of liquidity.
(4) These ratios were computed by dividing the Company's earnings by fixed
charges. For this purpose, earnings have been calculated by adding fixed
charges to income before taxes, extraordinary items and gain or loss on
the disposition of real property. Fixed charges consist of interest costs
and amortization of deferred financing costs.
(5) Adjusted to give effect to this Offering and the expected application of
the proceeds thereof to reduce borrowings under the Bank Credit Facility.
S-5
<PAGE>
RECENT DEVELOPMENTS
From January 1, 1998 through July 31, 1998 HRP engaged in the following
significant activities:
Investments
1998 Investments. Between January 1, 1998 and July 31, 1998 HRP purchased
35 office properties with 5.4 million square feet for total consideration of
$758.9 million:
<TABLE>
<S> <C> <C> <C>
Location Major Tenants Investment Square Feet
- ----------------------------- ------------- ---------- ------------
Individual Investments Over $20 Million (000's)
Philadelphia, PA Mellon Bank, FMC Corporation $ 247,527 1,258,560
Philadelphia, PA PNC Bank 115,408 825,374
Washington, D.C. Inter-American Development Bank 59,729 187,832
Wilmington, DE Chase Manhattan Bank 42,250 256,924
Rockville, MD US Food and Drug Administration 32,509 187,616
Quincy, MA (2 buildings) Putnam Investments, Inc. 31,869 222,726
Other Investments
Austin, TX metro area Three buildings 27,283 235,239
Boston, MA metro area Two buildings 15,642 138,111
Minneapolis, MN metro area Three buildings 38,580 511,994
Orlando, FL metro area Three buildings 10,229 46,323
Philadelphia, PA metro area Four buildings 24,892 198,019
Pittsburgh, PA metro area Two buildings 18,151 307,414
Other locations Eleven buildings 94,842 1,053,238
</TABLE>
1998 Commitments. As of July 31, 1998 HRP had entered into purchase
agreements with respect to 12 properties for total consideration of $199.9
million. In addition, in the normal course of its business the Company
regularly issues letters of intent or engages in negotiations to purchase new
properties and to lease existing or new properties. All of the pending
transactions are subject to various contingencies typical of commercial real
estate transactions, and no assurances can be provided as to when or if these
properties will be acquired.
Financing
Common Stock. During February and March 1998 HRP sold 6,977,575 shares to
four unit investment trusts sponsored by various investment banks. In June 1998
HRP sold 25 million shares in an underwritten public offering. The net proceeds
of these offerings of $580.3 million were used to repay outstanding amounts
under the Bank Credit Facility and for new investments.
Unsecured Term Debt. During February 1998 HRP issued $100 million of
unsecured 6.70% Notes due 2005 and $50 million of unsecured Remarketed Reset
Notes due 2007. The Remarketed Reset Notes currently require interest at 6.3%
per annum, but this interest rate and other terms are subject to change in July
1999. The $148.9 million net proceeds of these offerings were used to repay
outstanding amounts under the Bank Credit Facility and for new investments.
Bank Credit Facility. The Bank Credit Facility is used for interim
acquisition funding and for working capital until equity or long term debt is
raised. At January 1, 1998 the Bank Credit Facility permitted borrowings up to
$450 million and was scheduled to mature in 2001. In April 1998 the Bank Credit
Facility was amended to permit borrowings up to $500 million and to extend the
maturity to 2002.
Other Matters
Ratings Agencies. In June 1998 Moody's Investors Service, Inc. upgraded
the Company's outstanding subordinated convertible debt to investment grade,
Baa3. At the same time, Moody's affirmed the Company's senior debt rating at
Baa2. Also in June of 1998 Standard & Poor's Ratings Services and Fitch IBCA,
Inc. affirmed the Company's senior debt ratings as BBB and BBB+, respectively,
and Standard & Poor's senior debt rating was raised to "positive outlook."
S-6
<PAGE>
Change of Name. On July 1, 1998 the Company's name changed from "Health
and Retirement Properties Trust" to "HRPT Properties Trust." This name change
is intended to call attention to the fact that the Company invests in
commercial office properties as well as health care related real estate.
New Trustee. On June 16, 1998 Mr. Patrick F. Donelan was elected a Trustee
of the Company. Mr. Donelan filled a vacancy created by the death of Mr. Ralph
J. Watts. Mr. Donelan is currently Executive Vice President of Dresdner
Kleinworth Benson North America LLC of New York, a subsidiary of Dresdner Bank
AG of Germany.
CAPITALIZATION
The following table shows the capitalization of the Company as of June 30,
1998 and on an as adjusted basis to give effect to the completion of this
Offering and the application of the proceeds thereof.
<TABLE>
<CAPTION>
June 30, 1998
-------------
(dollars in thousands)
As
Actual Adjusted
------ --------
<S> <C> <C>
Bank Credit Facility .............................................. $ 130,000 $ --
Mortgage debt payable ............................................. 25,561 25,561
Senior notes payable, net ......................................... 499,858 659,380
7.25% Convertible Subordinated Debentures due 2001 ................ 40,000 40,000
7.5% Convertible Subordinated Debentures due 2003 ................. 164,863 164,863
---------- ----------
Total indebtedness ............................................. 860,282 889,804
Shareholders' equity:
Preferred Shares of Beneficial Interest, par value $.01 per share;
50,000,000 authorized, none issued ............................. -- --
Common Shares of Beneficial Interest, par value $.01 per share;
150,000,000 shares authorized; 131,533,678 shares issued and
outstanding .................................................... 1,315 1,315
Additional paid-in capital ....................................... 1,964,627 1,964,627
Cumulative net income ............................................ 485,490 485,490
Dividends ........................................................ (603,239) (603,239)
---------- ----------
Total shareholders' equity ...................................... 1,848,193 1,848,193
---------- ----------
Total capitalization .............................................. $2,708,475 $2,737,997
========== ==========
</TABLE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
approximately $158.2 million. The net proceeds from this Offering will be used
to repay amounts outstanding under the Company's Bank Credit Facility. New
borrowings under the Bank Credit Facility will be used to fund the acquisitions
listed in "Recent Developments--Investments--1998 Commitments" and for general
business purposes. Outstanding amounts under the Company's Bank Credit Facility
bear interest, at the Company's option, at LIBOR plus 75 basis points or prime,
and the Bank Credit Facility expires in 2002. At July 31, 1998 the interest
rate applicable to the Bank Credit Facility was 6.4% per annum.
THE COMPANY
The Company is one of the largest publicly traded REITs in the United
States with a total market capitalization of $3.2 billion, of which over $2.2
billion is equity. The Company has investments in 246 properties located in 35
states and the District of Columbia. The Company principally invests in office
buildings and healthcare facilities. In addition, 3% of the Company's assets,
at cost, is an equity investment in HPT, a NYSE listed REIT formed by the
Company. The principal executive offices of the Company are located at 400
Centre Street, Newton, Massachusetts 02458; and its telephone number is (617)
332-3990.
S-7
<PAGE>
Commercial Office Properties
The Company began to invest in multi-tenant medical office buildings in
the early 1990s. After the acquisition of a portfolio of 28 properties leased
to the U.S. Government, the Company developed the infrastructure to acquire and
manage office buildings on a nationwide basis. The Company believes that
certain current business trends have created favorable investment opportunities
for commercial office properties: institutional investors have begun disposing
of their direct ownership of properties and investing in more liquid real
estate securities; purchasers of distressed properties in the early 1990s are
now divesting their improved assets; and many businesses are selling their
owned real estate to invest proceeds in core activities. Although there are
other REITs and companies that specialize in acquiring and owning commercial
office properties, the Company believes that these trends will afford it
numerous investment opportunities at attractive prices for several years.
Moreover, unlike most REITs that focus exclusively upon commercial office
properties, the Company's focus to date has been upon stabilized office
properties, with long term leases to strong credit tenants rather than
properties that afford immediate turnaround potential because of vacancies or
short term leases.
Government Office Properties
Most U.S. Government office space requirements are managed by the General
Services Administration ("GSA"). Most large GSA leases are written for initial
terms of 10 to 20 years plus tenant renewal options totaling an additional 5 to
20 years. Many GSA leases, including leases for some of the Company's
properties, permit the Government to terminate the lease by notice given any
time after a so-called "firm term." The weighted average remaining firm term
for the Government office properties owned by the Company is approximately
seven years. From 1980 to September 1996 the amount of space leased by the GSA
increased from 139 million square feet to 146 million square feet. This
increase in U.S. Government leased space occurred despite a declining civilian
government work force, as federal civilian employment decreased approximately
9% from 2.2 million employees in 1980 to 2.0 million employees in 1995. The
Company believes that the GSA's long term demand for leased space will continue
to be strong as a result of federal budget pressure to limit capital
expenditures and the need to use funds available for capital expenditures to
modernize the GSA inventory of owned buildings, over half of which exceed 50
years of age. Based upon the Government's investments in tenant improvements to
the Company's properties, the high cost of relocation and the stability of the
missions and space requirements of the Government agencies that occupy these
properties, the Company believes that there is a high probability of GSA lease
renewals for its properties through their renewal options, and in many cases
beyond those periods. Moreover, because of the locations of many of these
properties and the high standards to which they have been developed, the
Company believes it may be able to lease or sell most of these properties to
commercial users in the event the Government terminates or fails to renew a
lease.
Healthcare Properties
The population of the United States is aging. According to information
from the U.S. Census Bureau, the segment of the U.S. population age 65 and over
is increasing and is expected to increase sharply through the year 2020. The
Company believes that the demand for services provided at retirement
communities, assisted living centers and nursing homes should increase as the
population ages. Certain recent federal and state legislation seeks to limit
the amount of growth in government expenditures for Medicare and Medicaid.
These limitations may adversely affect the profitability of healthcare
operating companies and might, in certain circumstances, affect their ability
to pay rent or service debt. These government funding limitations will likely
also make it less profitable to construct new healthcare facilities and this
may increase the value of existing facilities. The Company believes that the
net effect of these demographic and legislative changes will be to make it less
profitable to provide services and facilities for government funded patients
and more profitable to provide services and facilities for non-government
funded patients. The Company intends to respond to these changes in three ways:
(i) by focusing new investments in healthcare properties that are not directly
dependent upon a high percentage of Medicaid or Medicare revenues, including
retirement housing, assisted living facilities, medical office buildings and
nursing homes with a high percentage of private pay revenues; (ii) by
encouraging and making funding available to the operators of the Company's
properties to improve these properties in order to attract a greater amount of
non-government revenues and (iii) whenever possible, by making new investments
in properties leased to well capitalized operators.
S-8
<PAGE>
Equity Investment in HPT
The Company has invested $100 million and owns 4,000,000 common shares of
beneficial interest of HPT, which constitute 9.3% of the total HPT shares
outstanding. HPT is a REIT in the business of owning hotels and leasing them to
independent hotel operating companies. HPT was organized by the Company in
February 1995 as an outgrowth of the Company's relationship with Host Marriott
Corporation and Marriott International, Inc. ("Marriott"), which arose from the
Company's previous investment in retirement communities leased to Marriott. In
August 1995 HPT completed an initial public offering of shares and on August
10, 1998 had a total equity market capitalization of $1.2 billion. HPT
currently owns or has commitments to purchase 167 hotels, which are located in
35 states and contain 22,367 rooms. The Company receives dividends on its HPT
shares at the current annual rate of $2.60 per share. The Company's financial
reports include its share of HPT's operating results under the equity method of
accounting. HPT shares are listed on the NYSE, and on August 10, 1998 the last
reported sale price for HPT shares was $28-7/8 per share.
INVESTMENT POLICY
In order to benefit from potential property appreciation, the Company
prefers to own and lease properties rather than make mortgage investments.
Approximately 97.1% of the Company's investments are in owned properties.
[PIE CHART]
Type of Investment
(dollars in millions)
<TABLE>
<CAPTION>
Owned* Mortgages
------ ---------
<S> <C>
$2,838 $84
97% 3%
</TABLE>
[/PIE CHART]
- ----------
* Owned properties include the Company's equity investment in HPT. HPT owns all
of its hotels.
FINANCING POLICY
The Company considers equity offerings when, in the Company's judgment,
doing so will improve the Company's capital structure, while not materially
adversely affecting the market value of its shares or impeding the Company's
ability to increase regularly its per share dividend rate. In addition to the
use of equity, the Company utilizes short term and long term borrowings to
finance investments and to pay operating expenses. The Company's current
unsecured senior indebtedness has been rated investment grade by Standard &
Poor's Ratings Services (BBB), Moody's Investors Service, Inc. (Baa2) and Fitch
IBCA, Inc. (BBB+). When variable rate debt is used, the Company may purchase
interest rate futures contracts to hedge against changes in interest rates. The
Company's borrowing guidelines established in the Bank Credit Facility and by
its Board of Trustees prohibit the Company from maintaining a debt to book
capitalization ratio of greater than .50 to 1, except in certain limited
circumstances. On June 30, 1998 the Company's debt to book capitalization ratio
was .32 to 1. After completion of the Offering and the application of the
proceeds thereof, the Company's as adjusted debt to book capitalization ratio
will be approximately .32 to 1. As of June 30, 1998 approximately $204.9
million of the Company's total debt outstanding was represented by subordinated
convertible debentures, convertible into shares at $18.00 per share. Upon
conversion of these debentures and completion of this Offering, the Company's
as adjusted debt to book capitalization ratio would be approximately .25 to 1.
The Company may in the future choose to modify its debt to book capitalization
guidelines. There can be no assurance that any debentures will be converted or
that equity or debt capital will be available in the future on reasonable terms
to fund the Company's operations or growth.
S-9
<PAGE>
LEASE EXPIRATIONS
The following table sets forth the percentage of the Company's annual
revenues from investments represented by leases and mortgages that expire or
mature in the years 1998 through 2007 and thereafter.
<TABLE>
<CAPTION>
As Adjusted Percentage of
Year Annual Revenues(1) Annual Revenues
- --- ------------------ ----------------
(dollars in thousands)
<S> <C> <C>
1998 ............................ $ 15,165 3.9%
1999 ............................ 16,738 4.3
2000 ............................ 15,869 4.0
2001 ............................ 42,230 10.8
2002 ............................ 21,181 5.4
2003 ............................ 32,753 8.3
2004 ............................ 18,425 4.7
2005 ............................ 27,665 7.0
2006 ............................ 38,783 9.9
2007 and thereafter (2) ......... 164,016 41.7
-------- -----
Totals: ......................... $392,825 100.0%
======== =====
</TABLE>
- ----------
(1) As adjusted annual revenues are for the period ended July 31, 1998 and
assume all acquisitions described in "Recent Developments--
Investments--1998 Investments" occurred on January 1, 1997. Most of the
Company's commercial office properties and properties leased to the U.S.
Government are leased on a gross or modified gross lease basis. Most of the
Company's healthcare properties are leased on a net lease basis.
Accordingly, the revenues received by the Company from the commercial office
and government office properties are not necessarily indicative of the net
operating income from those properties, and the revenues and percentage of
total revenues are not necessarily indicative of the net operating income or
FFO likely to be realized by the Company.
(2) Includes the Company's pro rata share of revenues of HPT. All of HPT's
leases expire after 2007. The Company reports income and FFO derived from
its investment in HPT using the equity method of accounting. The Company
believes its pro rata share of HPT's revenues included above is an
appropriate means to reflect the lease expirations in the Company's
current investment portfolio.
THE TENANTS
The Company's financial condition depends, in large part, upon the
financial condition of its tenants. The Company's two largest tenants are the
U.S. Government and Marriott. Approximately 49.1% of the Company's annual
revenues are derived from tenants whose unsecured obligations are rated
investment grade. Another 26.8% of the Company's annual revenues come from
other public companies that are not investment grade rated but for whom credit
evaluation information is readily available.
<TABLE>
<CAPTION>
Percentage of
As Adjusted
Tenant Annual Revenues(1)
- ------ -------------------
<S> <C>
U.S. Government ............................................ 16.9%
Marriott ................................................... 7.8
Other Investment Grade Tenants ............................. 24.4
Other Public Owned Tenants (2) ............................. 26.8
-----
Subtotal Investment Grade and Other Public Tenants ......... 75.9
Other Tenants .............................................. 24.1
-----
Totals: .................................................... 100.0%
=====
</TABLE>
- ----------
(1) As adjusted annual revenues are for the period ended July 31, 1998 and
assume all acquisitions described in "Recent Developments--
Investments--1998 Investments" occurred on January 1, 1997. Most of the
Company's commercial office properties and properties leased to the U.S.
Government are leased on a gross or modified gross lease basis. Most of the
Company's healthcare properties are leased on a net lease basis.
Accordingly, the revenues received by the Company from the commercial office
and government office properties are not necessarily indicative of the net
operating income from those properties, and the revenues and percentage of
total revenues are not necessarily indicative of the net operating income or
FFO likely to be realized by the Company.
(2) Includes the Company's $100 million investment in HPT and the Company's pro
rata share of HPT's revenues. HPT is itself investment grade rated by
Standard & Poor's Ratings Services (BBB-) and by Moody's Investors
Service, Inc. (Baa3). However, the Company's investment in HPT is an
equity investment and not a debt obligation of HPT. The Company reports
income and FFO derived from its investment in HPT using the equity method
of accounting. The Company believes its pro rata share of HPT's revenues
should be included in its percentage of revenues derived from publicly
owned companies as 100% of HPT's hotels are currently operated by
affiliates of publicly owned companies.
S-10
<PAGE>
U.S. Government. Most of the Company's U.S. Government leases were
undertaken by the GSA and assigned to other Government agencies including the
U.S. Department of Veterans Affairs, the Internal Revenue Service, the U.S.
Department of Agriculture, the National Institute of Standards and Technology,
U.S. Defense Information Systems, and the U.S. Department of Energy. All of
these leases are general obligations of the U.S. Government.
Marriott International. Marriott is a NYSE-listed company with an equity
market capitalization on August 10, 1998 of $8.3 billion. In addition to its
retirement housing and assisted living properties, some of which are leased
from the Company, Marriott owns and operates hotels and other businesses on a
worldwide basis and has announced annual revenues of approximately $10.2
billion. Marriott has unconditionally guaranteed its lease obligations to the
Company. Marriott's senior credit obligations are rated investment grade by
Standard & Poor's Ratings Services (BBB) and Moody's Investors Service, Inc.
(Baa2).
Investment Grade Tenants. The Company leases office space to the following
investment grade companies or their subsidiaries: Goldman Sachs & Co., New York
Life Insurance Company, Ford Motor Credit Corp., Northern Telecom Ltd.,
SmithKline Beecham Corporation, Merck & Co., Inc., Aetna Inc., PNC Bank Corp.,
FMC Corporation, Druck Corporation, AT&T Corp., IBM Corp., Motorola, Inc.,
FedEx Incorporated, Legg Mason Wood Walker Incorporated, Merrill Lynch & Co.,
USF&G Corporation, SBC Communications, Inc., Hoechst AG, Schering-Plough
Corporation, Marsh McLennan, Inc., Bell Atlantic Corporation, Mellon Bank
Corporation, The Chase Manhattan Corporation, Mobil Corporation, General
Electric Capital Corporation, The Reynolds & Reynolds Company, Sprint
Corporation, Oracle Corporation, CIGNA Corporation, Eastman Kodak Corporation,
Pitney Bowes, Inc., Staples, Inc. and HEALTHSOUTH Corporation. Certain of the
Company's properties are leased to not-for-profit entities that are investment
grade rated: two medical clinic buildings and a headquarters office building in
Mid-Town Manhattan are leased to Health Insurance Plan of Greater New York, a
not-for-profit health maintenance organization; medical office buildings in
Boston, Massachusetts and Aurora, Colorado are principally leased to affiliates
of Boston's Beth Israel Hospital, Boston's Children's Medical Center, Harvard
Pilgrim Healthcare (a Boston area not-for-profit health maintenance
organization), and Columbia HealthOne LLC (a joint venture between Columbia/HCA
Healthcare Corporation and HealthOne, Inc., a not-for-profit healthcare
system); and Cedars Sinai Medical Center, a not-for-profit hospital based in
Los Angeles, is the largest tenant in two medical office buildings and garages
attached to that hospital that are owned by the Company.
Other Public Company Tenants. The Company also leases to the following
publicly owned tenants or their subsidiaries: Paragon Health Network, Inc.,
Brookdale Living Communities, Inc., Sun Healthcare Group, Inc., Genesis Health
Ventures, Inc., ARV Assisted Living Inc., Integrated Health Services, Inc.,
Alliance Pharmaceutical Corp., Corvas International, Inc., Neurocrine
Biosciences, Inc., Laboratory Corp. of America Holdings, IBAH Inc.,
CytoTherapeutics, Inc., Apollo Group, Advanced Micro Devices, Inc., Concentra
Managed Care, Inc., Danka Business Systems plc, Focal, Inc., MedPartners, Inc.,
National Instrument Corporation, NCQ Corp., Inc., Ohio Casualty Corporation,
Paychex, Inc., PSW Technologies, Inc., Quest Diagnostics Incorporated, Silicon
Graphics, Inc., Sun Microsystems, Inc., United Healthcare Corporation,
Westinghouse Electric Corporation, Ethnic Broadcasting Inc., Commerce Clearing
House, Inc., Owens & Minor, Inc., Paging Network, Inc. and Unilab Corp.
Other Tenants. The Company's other tenants include over 400 private
company tenants in commercial office buildings and 30 private healthcare
tenants.
S-11
<PAGE>
DESCRIPTION OF THE NOTES
The Notes are to be issued under an Indenture dated as of July 9, 1997 and
a Supplemental Indenture dated as of August 26, 1998 (collectively, the
"Indenture"), between the Company and State Street Bank and Trust Company (the
"Trustee"). The Indenture has been filed with the Securities and Exchange
Commission (the "Commission") and is incorporated by reference herein and is
available for inspection at the corporate trust office of the Trustee at Two
International Place, Boston, Massachusetts 02110. The statements made hereunder
relating to the Indenture and the Notes to be issued thereunder are summaries
of certain provisions thereof, do not purport to be complete and are subject
to, and are qualified in their entirety by reference to, all provisions of the
Indenture and such Notes. Capitalized terms used but not defined herein shall
have the respective meanings set forth in the Indenture.
General
The Notes will be limited to an aggregate principal amount of $160,000,000
and will mature, unless previously redeemed, on August 26, 2002. The Notes will
be senior unsecured obligations of the Company and will rank equally with each
other and with all other unsecured and unsubordinated indebtedness of the
Company from time to time outstanding. The Notes will be effectively
subordinated to mortgages and other secured indebtedness of the Company and to
indebtedness and other liabilities of any Subsidiaries (as defined below).
Accordingly, such prior indebtedness will have to be satisfied in full before
holders of the Notes will be able to realize any value from the secured or
indirectly held properties.
As of June 30, 1998 on an adjusted basis after giving effect to the
issuance of the Notes offered hereby, the application of the proceeds
therefrom, the total outstanding indebtedness of the Company and its
Subsidiaries (including net borrowings made for acquisitions during the period
of January 1, 1998 through June 30, 1998 under the Bank Credit Facility) was
approximately $889.8 million, of which approximately 97% was unsecured, and the
indebtedness of the Company's Subsidiaries was $25.6 million. In addition, the
Company's Subsidiaries (with certain exceptions) are guarantors of the
Company's Bank Credit Facility. The Bank Credit Facility is currently an
unsecured revolving credit facility in the amount of $500 million. The Company
and its Subsidiaries may incur additional indebtedness, including secured
indebtedness, subject to the provisions described below under "--Certain
Covenants--Limitations on Incurrence of Debt."
Except as described under "--Merger, Consolidation or Sale" and "--Certain
Covenants" below, the Indenture does not contain any other provisions that
would limit the ability of the Company to incur indebtedness or that would
afford holders of the Notes protection in the event of (i) a highly leveraged
or similar transaction involving the Company or any Affiliate of the Company,
(ii) a change of control, or (iii) a reorganization, restructuring, merger or
similar transaction involving the Company that may adversely affect the holders
of the Notes. In addition, subject to the limitations set forth under
"--Merger, Consolidation or Sale" and "--Certain Covenants" below, the Company
may, in the future, enter into certain transactions such as the sale of all or
substantially all of its assets or the merger or consolidation of the Company
that would increase the amount of the Company's indebtedness or substantially
reduce or eliminate the Company's assets, which may have an adverse effect on
the Company's ability to service its indebtedness, including the Notes. The
Company and its management have no present intention of engaging in a highly
leveraged or similar transaction involving the Company.
Interest
Interest on the Notes will accrue at the rate of 67/8% per annum. Interest
on the Notes will be payable semi-annually in arrears on February 26 and August
26, commencing on February 26, 1999 (each, an "Interest Payment Date"). The
interest so payable will be paid to the person (the "Holder") in whose name the
applicable Note is registered at the close of business on the date (whether or
not a Business Day) 15 calendar days preceding the applicable Interest Payment
Date (each, a "Regular Record Date"). Interest on the Notes will accrue from
the most recent date to which the interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. The Notes will be
payable both as to principal and interest at the corporate trust office of the
Trustee, initially at Two International Place, Boston, Massachusetts 02110, or,
at the option of the Company, payment of interest may be made by check mailed
to the Holders of Notes at their addresses set forth in the register of Holders
of Notes.
S-12
<PAGE>
Optional Redemption of Notes
The Notes will be subject to redemption at any time at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at 100% of the outstanding principal amount thereof, plus accrued and
unpaid interest to but excluding the applicable redemption date, plus the
Make-Whole Amount.
The Company is not required to make sinking fund or redemption payments
with respect to the Notes.
"Make-Whole Amount" means, in connection with any optional redemption or
accelerated payment of any Notes, the excess, if any, of (i) the aggregate
present value as of the date of such redemption or accelerated payment of each
dollar of principal being redeemed or paid and the amount of interest
(exclusive of interest accrued to the date of redemption or accelerated
payment) that would have been payable in respect of such dollar if such
redemption or accelerated payment had not been made, determined by discounting,
on a semiannual basis, such principal and interest at the Reinvestment Rate
(determined on the third Business Day preceding the date such notice of
redemption is given or declaration of acceleration is made) from the respective
dates on which such principal and interest would have been payable if such
redemption or accelerated payment had not been made, over (ii) the aggregate
principal amount of the Notes being redeemed or paid.
"Reinvestment Rate" means a rate per annum equal to the sum of .25%
(twenty-five one hundredths of one percent) plus the yield on treasury
securities at constant maturity under the heading "Week Ending" published in
the Statistical Release under the caption "Treasury Constant Maturities" for
the maturity (rounded to the nearest month) corresponding to the remaining life
to maturity, as of the payment date of the principal being redeemed or paid. If
no maturity exactly corresponds to such maturity, yields for the two published
maturities most closely corresponding to such maturity shall be calculated
pursuant to the immediately preceding sentence and the Reinvestment Rate shall
be interpolated or extrapolated from such yields on a straight-line basis,
rounding in each of such relevant periods to the nearest month. For purposes of
calculating the Reinvestment Rate, the most recent Statistical Release
published prior to the date of determination of the Make-Whole Amount shall be
used.
"Statistical Release" means the statistical release designated "H.
15(519)" or any successor publication which is published weekly by the Federal
Reserve System and which establishes yields on actively traded United States
government securities adjusted to constant maturities or, if such statistical
release is not published at the time of any determination under the Indenture,
then any publicly available source of similar market data which shall be
designated by the Company.
Certain Covenants
Limitations on Incurrence of Debt. The Company will not, and will not
permit any Subsidiary to, incur any Debt (as defined below) if, immediately
after giving effect to the incurrence of such additional Debt and the
application of the proceeds thereof, the aggregate principal amount of all
outstanding Debt of the Company and its Subsidiaries on a consolidated basis
determined in accordance with GAAP is greater than 60% of the sum ("Adjusted
Total Assets") of (without duplication) (i) the Total Assets (as defined below)
of the Company and its Subsidiaries as of the end of the calendar quarter
covered in the Company's Annual Report on Form 10-K, or the Quarterly Report on
Form 10-Q, as the case may be, most recently filed with the Commission (or, if
such filing is not permitted under the Exchange Act, with the Trustee) prior to
the incurrence of such additional Debt and (ii) the purchase price of any real
estate assets or mortgages receivable acquired, and the amount of any
securities offering proceeds received (to the extent that such proceeds were
not used to acquire real estate assets or mortgages receivable or used to
reduce Debt), by the Company or any Subsidiary since the end of such calendar
quarter, including those proceeds obtained in connection with the incurrence of
such additional Debt.
In addition to the foregoing limitations on the incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Secured Debt
(as defined below) if, immediately after giving effect to the incurrence of
such additional Secured Debt and the application of the proceeds thereof, the
aggregate principal amount of all outstanding Secured Debt of the Company and
its Subsidiaries on a consolidated basis is greater than 40% of Adjusted Total
Assets.
S-13
<PAGE>
In addition to the foregoing limitations on the Incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Debt if the
ratio of Consolidated Income Available for Debt Service (as defined below) to
the Annual Debt Service (as defined below) for the four consecutive fiscal
quarters most recently ended prior to the date on which such additional Debt is
to be incurred shall have been less than 1.5x, on a pro forma basis after
giving effect thereto and to the application of the proceeds therefrom, and
calculated on the assumption that (i) such Debt and any other Debt incurred by
the Company and its Subsidiaries since the first day of such four-quarter
period and the application of the proceeds therefrom, including to refinance
other Debt, had occurred at the beginning of such period; (ii) the repayment or
retirement of any other Debt by the Company and its Subsidiaries since the
first date of such four-quarter period had been repaid or retired at the
beginning of such period (except that, in making such computation, the amount
of Debt repaid under any revolving credit facility shall be computed based upon
the average daily balance of such Debt during such period); (iii) in the case
of Acquired Debt (as defined below) or Debt incurred in connection with any
acquisition since the first day of such four-quarter period, the related
acquisition had occurred as of the first day of such period with appropriate
adjustments with respect to such acquisition being included in such pro forma
calculation; and (iv) in the case of any acquisition or disposition by the
Company or its Subsidiaries of any asset or group of assets since the first day
of such four-quarter period, whether by merger, stock purchase or sale, or
asset purchase or sale, such acquisition or disposition or any related
repayment of Debt had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition or disposition being
included in such as adjusted calculation.
Maintenance of Total Unencumbered Assets. The Company and its Subsidiaries
will maintain Total Unencumbered Assets (as defined below) of not less than
200% of the aggregate outstanding principal amount of the Unsecured Debt (as
defined below) of the Company and its Subsidiaries on a consolidated basis.
As used herein:
"Acquired Debt" means Debt of a Person (i) existing at the time such
Person becomes a Subsidiary or (ii) assumed in connection with the acquisition
of assets from such Person, in each case, other than Debt incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary or
such acquisition. Acquired Debt shall be deemed to be incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Subsidiary.
"Annual Debt Service" as of any date means the maximum amount which is
expended in any 12-month period for interest on Debt of the Company and its
Subsidiaries.
"Capital Stock" means, with respect to any Person, any capital stock
(including preferred stock), shares, interests, participation or other
ownership interests (however designated) of such Person and any rights (other
than debt securities convertible into or exchangeable for capital stock),
warrants or options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means
Earnings from Operations (as defined below) of the Company and its Subsidiaries
plus amounts which have been deducted, and minus amounts which have been added,
for the following (without duplication): (i) interest on Debt of the Company
and its Subsidiaries, (ii) provision for taxes of the Company and its
Subsidiaries based on income, (iii) amortization of debt discount and deferred
financing costs, (iv) provisions for gains and losses on properties and
property depreciation and amortization, (v) the effect of any noncash charge
resulting from a change in accounting principles in determining Earnings from
Operations for such period and (vi) amortization of deferred charges.
"Debt" of the Company or any Subsidiary means, without duplication, any
indebtedness of the Company or any Subsidiary, whether or not contingent, in
respect of (i) borrowed money or evidenced by bonds, notes, debentures or
similar instruments, (ii) indebtedness for borrowed money secured by any
encumbrance existing on property owned by the Company or any Subsidiary, (iii)
the reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued (other than letters of credit issued to
provide credit enhancement or support with respect to other indebtedness of the
Company or any Subsidiary otherwise reflected as Debt hereunder) or amounts
representing the balance deferred and unpaid of the purchase price of any
property or services, except any such balance that constitutes an accrued
expense or trade payable, or all conditional sale obligations or obligations
under any title retention agreement, (iv) the principal amount of all
obligations of the Company or any Subsidiary with respect to redemption,
repayment or other repurchase of any Disqualified Stock, or (v) any lease of
property by the Company or any Subsidiary as lessee which is reflected on the
Company's consolidated balance sheet as a capitalized lease in accordance with
GAAP, to the extent, in the case of items of
S-14
<PAGE>
indebtedness under (i) through (iii) above, that any such items (other than
letters of credit) would appear as a liability on the Company's consolidated
balance sheet in accordance with GAAP, and also includes, to the extent not
otherwise included, any obligation by the Company or any Subsidiary to be
liable for, or to pay, as obligor, guarantor or otherwise (other than for
purposes of collection in the ordinary course of business), Debt of another
Person (other than the Company or any Subsidiary) (it being understood that
Debt shall be deemed to be incurred by the Company or any Subsidiary whenever
the Company or such Subsidiary shall create, assume, guarantee or otherwise
become liable in respect thereof).
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by the terms of such Capital Stock (or by the terms of any
security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (i) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise
(other than Capital Stock which is redeemable solely in exchange for common
stock or shares), (ii) is convertible into or exchangeable or exercisable for
Debt or Disqualified Stock, or (iii) is redeemable at the option of the holder
thereof, in whole or in part (other than Capital Stock which is redeemable
solely in exchange for common stock or shares), in each case on or prior to the
stated maturity of the Notes.
"Earnings from Operations" for any period means net earnings excluding
gains and losses on sales of investments, extraordinary items and property
valuation losses, as reflected in the financial statements of the Company and
its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP.
"Secured Debt" means Debt secured by any mortgage, lien, charge, pledge or
security interest of any kind.
"Subsidiary" means any corporation or other entity of which a majority of
(i) the voting power of the voting equity securities or (ii) the outstanding
equity interests of which are owned, directly or indirectly, by the Company or
one or more other Subsidiaries of the Company. For the purposes of this
definition, "voting equity securities" means equity securities having voting
power for the election of directors, whether at all times or only so long as no
senior class of security has such voting power by reason of any contingency.
"Total Assets" as of any date means the sum of (i) the Undepreciated Real
Estate Assets and (ii) all other assets of the Company and its Subsidiaries
determined in accordance with GAAP (but excluding accounts receivable and
intangibles).
"Total Unencumbered Assets" means the sum of (i) those Undepreciated Real
Estate Assets not subject to an encumbrance for borrowed money and (ii) all
other assets of the Company and its Subsidiaries not subject to an encumbrance
for borrowed money determined in accordance with GAAP (but excluding accounts
receivable and intangibles).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization determined on a
consolidated basis in accordance with GAAP.
"Unsecured Debt" means Debt which is not secured by any of the properties
of the Company or any Subsidiary.
See "Description of Debt Securities--Certain Covenants" in the
accompanying Prospectus for a description of additional covenants applicable to
the Company.
Merger, Consolidation or Sale
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other entity,
provided that (i) either the Company shall be the continuing entity, or the
successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets is a Person organized and existing under the laws of the United States
or any state thereof and shall expressly assume the due and punctual payment of
the principal of (and premium or Make-Whole Amount, if any) and any interest on
all of the Notes and the due and punctual performance and observance of all of
the covenants and conditions contained in the Indenture to be performed by the
Company; (ii) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or any Subsidiary
as a result thereof as having been incurred by the Company or such Subsidiary
S-15
<PAGE>
at the time of such transaction, no Event of Default under the Indenture, and
no event which after notice or the lapse of time, or both, would become such an
Event of Default, shall have occurred and be continuing; and (iii) an Officers'
Certificate and legal opinion covering such conditions shall be delivered to
the Trustee.
Events of Default, Notice and Waiver
The Indenture provides that the following events are "Events of Default"
with respect to the Notes: (i) default for 30 days in the payment of any
installment of interest payable on any Note when due and payable; (ii) default
in the payment of the principal of (or premium or Make-Whole Amount, if any,
on) any Note when due and payable; (iii) default in the performance, or breach,
of any covenant of the Company contained in the Indenture (other than a
covenant added to the Indenture solely for the benefit of a series of Debt
Securities (as defined) other than the Notes), which continues for 60 days
after written notice as provided in the Indenture; (iv) default under any bond,
debenture, note, mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any indebtedness for money
borrowed by the Company (or by any Subsidiary, the repayment of which the
Company has guaranteed or for which the Company is directly responsible or
liable as obligor or guarantor) having an aggregate principal amount
outstanding of at least $20,000,000, whether such indebtedness now exists or
shall hereafter be incurred or created, which default shall have resulted in
such indebtedness becoming or being declared due and payable prior to the date
on which it would otherwise have become due and payable, without such
indebtedness having been discharged or such acceleration having been rescinded
or annulled within a period of 10 days after written notice to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the outstanding Notes, as provided in the Indenture; or (v)
certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary or for all or substantially all of either of its
property. "Significant Subsidiary" means any Subsidiary which is a "significant
subsidiary" (within the meaning of Regulation S-X, promulgated under the
Securities Act) of the Company.
See "Description of Debt Securities--Events of Default, Notice and Waiver"
in the accompanying Prospectus for a description of rights, remedies and other
matters relating to Events of Default.
Discharge, Defeasance and Covenant Defeasance
The provisions of the Indenture relating to defeasance and covenant
defeasance described under "Description of Debt Securities--Discharge,
Defeasance and Covenant Defeasance" in the accompanying Prospectus will apply
to the Notes.
Book-Entry System and Form of Note
The Notes will be issued in the form of a single fully registered global
security without coupons ("Global Note") which will be deposited with, or on
behalf of, DTC, and registered in the name of DTC's nominee, Cede & Co. Except
under the circumstance described below, the Notes will not be issuable in
definitive form. Unless and until it is exchanged in whole or in part for the
individual notes represented thereby, a Global Note may not be transferred
except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any nominee of DTC to a successor
depository or any nominee of such successor.
DTC has advised the Company of the following information regarding DTC:
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that persons having accounts with DTC deposit with DTC (its
"Participants"). DTC also facilitates the clearance and settlement among its
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry charges in its
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of DTC include securities brokers
and dealers (including the Underwriter), banks, trust companies, clearing
corporations, and certain other organizations. DTC is owned by a number of its
direct Participants and by the New York Stock Exchange, the American Stock
Exchange and the National Association of Securities Dealers, Inc. Access to the
DTC system is also available to others such as securities brokers and dealers,
banks and trust
S-16
<PAGE>
companies that clear through or maintain a custodial relationship with a direct
Participant of DTC, either directly or indirectly. The rules applicable to DTC
and its participants are on file with the Commission.
The Company expects that, pursuant to procedures established by DTC,
ownership of the beneficial interests in the Notes evidenced by the Global Note
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to beneficial
interests of Participants) and records of Participants (with respect to
beneficial interests of persons who hold through Participants). Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of DTC or for maintaining, supervising or reviewing any
records of DTC or any of its Participants relating to beneficial ownership
interests in the Notes. The laws of some states require that certain purchasers
of securities take physical delivery of such securities in definitive form.
Such limits and laws may impair the ability to own, pledge or transfer
beneficial interest in a Global Note.
So long as DTC or its nominee is the registered owner of such Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by such Global Note for all purposes under the
Indenture. Except as described below, owners of beneficial interest in Notes
evidenced by a Global Note will not be entitled to have any of the individual
Notes represented by such Global Note registered in their names, will not
receive or be entitled to receive physical delivery of any such Notes in
definitive form and will not be considered the owners or holders thereof under
the Indenture. Beneficial owners of Notes evidenced by a Global Note will not
be considered the owners or holders thereof under the Indenture for any
purpose, including with respect to the giving of any direction, instructions or
approvals to the Trustee thereunder. Accordingly, each person owning a
beneficial interest in a Global Note must rely on the procedures of DTC and, if
such person is not a Participant, on the procedures of the Participant through
which such person owns its interests, to exercise any rights of a Holder under
the Indenture. The Company understands that, under existing industry practice,
if it requests any action of Holders or if an owner of a beneficial interest in
a Global Note desires to give or take any action which a Holder is entitled to
give or take under the Indenture, DTC would authorize the Participants holding
the relevant beneficial interest to give or take such action, and such
Participants would authorize beneficial owners through such Participants to
give or take such actions or would otherwise act upon the instructions of
beneficial owners holding through them.
Payments of principal of, any premium or Make-Whole Amount and any
interest on individual Notes represented by a Global Note registered in the
name of the holder of the Global Note or its nominee will be made by the
Trustee to or at the direction of the holder of the Global Note or its nominee,
as the case may be, as the registered owner of the Global Note under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose name Notes, including a Global Note, are registered
as the owners thereof for the purpose of receiving such payments. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Notes
(including principal, premium or Make-Whole Amount and interest). The Company
believes, however, that it is currently the policy of DTC to immediately credit
the accounts of relevant Participants with such payments in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of DTC. Payments by Participants to
the beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of DTC's Participants.
Redemption notices with respect to any Notes will be sent to the holder of the
Global Note. If less than all of the Notes are to be redeemed, the Company
expects the holder of the Global Note to determine the amount of interest of
each Participant in such Notes to be redeemed to be determined by lot. None of
the Company, the Trustee, any Paying Agent or the Security Registrar for such
Notes will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Global Note for such Notes.
Neither the Company nor the Trustee will be liable for any delay by the
holder of a Global Note or DTC in identifying the beneficial owners of Notes
and the Company and the Trustee may conclusively rely on, and will be protected
in relying on, instructions from the holder of a Global Note or DTC for all
purposes.
If DTC is at any time unwilling, unable or ineligible to continue as
depository and a successor depository is not appointed by the Company within 90
days, the Company will issue individual Notes in exchange for the Global Note
representing such Notes. In addition, the Company may at any time and in its
sole discretion, subject to certain limitations set forth in the Indenture,
determine not to have any of such Notes represented by one or more Global Notes
and in such event will issue individual Notes in exchange for the Global Note
or Notes representing such
S-17
<PAGE>
Notes. Individual Notes so issued will be issued in denominations of $1,000 and
integral multiples thereof. Same-Day Settlement and Payment Settlement for the
Notes will be made by the Underwriter in immediately available funds. All
payments of principal and interest in respect of the Notes will be made by the
Company in immediately available funds.
The Notes will trade in DTC's Same-Day Funds Settlement system until
maturity or until the Notes are issued in certificated form, and secondary
market trading activity in the Notes will therefore be required by DTC to
settle in immediately available funds.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. The following discussion deals only with Notes held as capital
assets and does not purport to deal with persons in special tax situations,
such as financial institutions, banks, insurance companies, regulated
investment companies, dealers in securities or currencies, persons holding
Notes as a hedge against currency risks or as a position in a "straddle" for
tax purposes, or persons whose functional currency is not the United States
dollar. It also does not deal with holders other than original purchasers
(except where otherwise specifically noted). Persons considering the purchase
of the Notes should consult their own tax advisors concerning the application
of United States Federal income tax laws to their particular situations as well
as any consequences of the purchase, ownership and disposition of the Notes
arising under the laws of any other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation or partnership (or other entity
treated as a corporation or partnership for United States Federal income tax
purposes) created or organized in or under the laws of the United States, any
state thereof or the District of Columbia (unless otherwise provided by
Treasury Regulations), (iii) an estate the income of which is subject to United
States Federal income taxation regardless of its source, (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust (or certain
electing trusts in existence on August 20, 1996 to the extent provided in
Treasury Regulations), or (v) any other person whose income or gain in respect
of a Note is effectively connected with the conduct of a United States trade or
business. As used herein, the term "non-U.S. Holder" means a beneficial owner
of a Note that is not a U.S. Holder.
The Notes
For United States Federal income tax purposes, each Note will be treated
as indebtedness issued by the Company.
U.S. Holders
Interest. Interest on a Note will generally be includible in the gross
income of a U.S. Holder as ordinary interest income at the time the interest is
received or when it accrues in accordance with the U.S. Holder's regular method
of tax accounting. Such interest will be treated as U.S. source income for U.S.
Federal income tax purposes.
Disposition. A U.S. Holder will recognize taxable gain or loss on the
sale, exchange, redemption, retirement or other disposition of a Note in an
amount equal to the difference between the amount realized from such
disposition (other than amounts attributable to accrued interest which would
otherwise be taxable as ordinary interest income) and the U.S. Holder's
adjusted tax basis in the Note. Such gain or loss generally will be capital
gain or loss, and will be long-term capital gain or loss if the U.S. Holder has
held the Note for more than one year at the time of disposition; preferential
rates of tax may apply to gains recognized upon the disposition of Notes held
for more than one year.
Gain or Income Received by a Foreign Corporation. A foreign corporation
whose income or gain in respect of a Note is effectively connected with the
conduct of a United States trade or business, in addition to being subject to
regular U.S. income tax, may be subject to a branch profits tax equal to 30% of
its "effectively connected earnings and profits" within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code"), for the taxable
S-18
<PAGE>
year, as adjusted for certain items, unless it qualifies for a lower rate under
an applicable tax treaty (as modified by the branch profits tax rules).
Non-U.S. Holders
Generally, a non-U.S. Holder will not be subject to United States Federal
income taxes on payments of principal, premium, if any, or interest on a Note,
or on any gain upon disposition or retirement of a Note, if (i) such non-U.S.
Holder does not own 10% or more of the shares of beneficial interest of the
Company and (ii) the last United States payor in the chain of payment (the
"Withholding Agent") has received in the year in which a payment of interest or
principal occurs, or in either of the two preceding calendar years, a statement
signed by the beneficial owner of the Note under penalties of perjury
certifying that such owner is not a U.S. Holder and providing the name and
address of the beneficial owner. The statement may be made on an Internal
Revenue Service ("IRS") Form W-8 or a substantially similar form, and the
beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by
the beneficial owner to the organization or institution. Interest received or
gain recognized by a non-U.S. Holder which does not qualify for exemption from
taxation will be subject to United States Federal income tax and withholding
tax at a rate of 30% unless reduced or eliminated by applicable tax treaty.
Treasury Regulations issued on October 6, 1997 (the "New Regulations")
alter the withholding rules on interest paid to a non-U.S. Holder of a Note.
Under recent administrative guidance, the New Regulations are generally
effective with respect to interest paid after December 31, 1999. Withholding
will generally be excused under the New Regulations if the non-U.S. Holder owns
less than 10% of the shares of beneficial interest of the Company and if such
non-U.S. Holder executes a necessary IRS Form W-8. Moreover, under the New
Regulations, to obtain a reduced rate of withholding under an income tax
treaty, a non-U.S. Holder generally will be required to provide an IRS Form W-8
certifying such non-U.S. Holder's entitlement to benefits under the treaty. The
New Regulations also provide special rules to determine whether, for purposes
of determining the applicability of a tax treaty, interest paid to a non-U.S.
Holder that is an entity should be treated as paid to the entity or to those
holding the ownership interests in that entity, and whether such entity or such
holders in the entity are entitled to benefits under the tax treaty. The New
Regulations also alter the information reporting and backup withholding rules
applicable to non-U.S. Holders and, among other things, provide certain
presumptions under which a non-U.S. Holder is subject to backup withholding and
information reporting until certification of non-U.S. status is received from
such non-U.S. Holder. The foregoing is not intended to be a complete discussion
of the New Regulations, and prospective investors are urged to consult their
tax advisors with respect to the effect of the New Regulations on an investment
in the Notes.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual owns directly or indirectly 10% or more of the shares of
beneficial interest of the Company or, at the time of such individual's death,
payments in respect of the Notes would have been effectively connected with the
conduct by such individual of a trade or business in the United States.
Backup Withholding
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the Notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would
establish an exemption from backup withholding for those non-U.S. Holders who
are not exempt recipients.
In addition, upon the sale of a Note by (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder,
S-19
<PAGE>
certifies that such seller is a non-U.S. Holder (and certain other conditions
are met). Such a sale must also be reported by the broker to the IRS, unless
either (i) the broker determines that the seller is an exempt recipient or (ii)
the seller certifies its non-U.S. status (and certain other conditions are
met). Certification of the registered owner's non-U.S. status would be made
normally on an IRS Form W-8 under penalties of perjury, although in certain
cases it may be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
S-20
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement (the "Underwriting Agreement"), the Company has agreed to sell to
each of the Underwriters named below, and each of the Underwriters has
severally agreed to purchase from the Company, the principal amount of the
Notes set forth below opposite their respective names.
<TABLE>
<CAPTION>
Principal
Amount
Underwriter of Notes
- ----------- --------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ........................................... $112,000,000
Donaldson, Lufkin & Jenrette Securities Corporation ......... 16,000,000
Morgan Stanley & Co. Incorporated ........................... 16,000,000
Salomon Brothers Inc ........................................ 16,000,000
------------
Total .................................................. $160,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of .325% of the principal amount of the Notes.
The Underwriters may allow, and such dealers may reallow, a discount not in
excess of .25% of the principal amount of the Notes to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the Notes are subject to the
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are committed to take and pay for all the Notes if
any are taken.
The Notes are a new issue of securities with no established trading
market. The Company has been advised by the Underwriters that they intend to
make a market in the Notes, but they are not obligated to do so and such market
making may be interrupted or discontinued without notice. No assurance can be
given about the liquidity of the trading market for the Notes.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters to bid for and purchase the Notes.
Pursuant to an exception to these rules, the Underwriters are permitted to
engage in certain transactions that stabilize the price of the Notes. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Notes.
If the Underwriters create a short position in the Notes in connection
with the Offering, i.e., if they sell more Notes than set forth on the cover
page of this Prospectus Supplement, the Underwriters may reduce that short
position by purchasing Notes in the open market. In general, purchases of a
security for the purpose of stabilization or to reduce a short position could
cause the price of the security to be higher than it might be in the absence of
such purchases.
Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Company nor the Underwriters make any representations that the Underwriters
will engage in such transactions or that such transactions, once commenced,
will not be discontinued without notice.
In the ordinary course of business, the Underwriters have performed, and
in the future may perform, investment banking services for the Company and its
affiliates.
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for
the Company by Sullivan & Worcester LLP, Boston, Massachusetts and for the
Underwriters by Brown & Wood LLP, New York, New York. Sullivan & Worcester LLP
and Brown & Wood LLP will rely, as to all matters of Maryland law, upon the
opinion of Piper & Marbury L.L.P., Baltimore, Maryland. Barry M. Portnoy was a
partner in the firm of Sullivan & Worcester LLP
S-21
<PAGE>
until March 31, 1997 and is a Managing Trustee of the Company and of HPT, a
director and 50% shareholder of HRPT Advisors, Inc. and REIT Management &
Research, Inc. and a director and/or significant shareholder of certain lessees
of the Company. Sullivan & Worcester LLP represents HPT, the other entities
referred to above, such lessees and certain of their affiliates on various
matters.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
In addition to the documents incorporated by reference or deemed
incorporated by reference into the accompanying Prospectus, which Prospectus is
supplemented by this Prospectus Supplement, the following documents, which have
been filed with the Commission pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), are hereby incorporated in this Prospectus
Supplement and specifically made a part hereof by reference: (i) the Company's
Current Reports on Form 8-K dated July 1, 1998 and August 12, 1998 and (ii) the
Company's quarterly report on Form 10-Q for the quarterly period ended June 30,
1998. All documents filed by the Company pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus
Supplement and prior to the termination of this Offering shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus Supplement to the extent that a
statement contained herein, or in any other subsequently filed document that
also is or is deemed to be incorporated herein by reference, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus Supplement.
The Company will provide without charge to each person to whom this
Prospectus Supplement is delivered, upon the written or oral request of such
person, a copy of any and all of the information that has been incorporated by
reference in this Prospectus Supplement (excluding exhibits unless such
exhibits are specifically requested or such exhibits are specifically
incorporated by reference into the information that this Prospectus Supplement
incorporates). Requests for such copies should be made to the Company at its
principal executive offices, 400 Centre Street, Newton, MA 02458, Attention:
Investor Relations, telephone (617) 332-3990.
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS SUPPLEMENT CONTAINS FORWARD LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED OR PROJECTED.
PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD LOOKING STATEMENTS WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE COMPANY
UNDERTAKES NO OBLIGATION TO PUBLISH REVISED FORWARD LOOKING STATEMENTS TO
REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE
OCCURRENCE OF PRESENTLY UNANTICIPATED EVENTS.
---------------------
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING THE COMPANY,
DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE
"DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS
AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HRPT PROPERTIES
TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES,
BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER,
EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY,
JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL
PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF
THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
S-22
<PAGE>
HRPT PROPERTIES TRUST
[Photo]
Marriott International, Inc.
Stratford Court of Boca Raton
Boca Raton, FL
349 Senior Living Units, Built 1994
[Photo]
Brookdale Living Communities, Inc.
The Hallmark
Chicago, IL
341 Senior Living Units, Built 1990
[Photo]
Torrey Pines Science Center (3 Buildings)
San Diego, CA
163,057 Square Feet, Built 1985/86
Major Tenants:
Alliance Pharmaceutical Corporation
Neurocrine Biosciences Incorporated
Corvas International Incorporated
Canji, Inc.
[Photo]
1600 Market Street
Philadelphia, PA
825,374 Square Feet, Built 1983
Major Tenant:
PNC Bank
[Photo]
Cedars-Sinai Medical Office
Towers and Garages (4 Buildings)
Los Angeles, CA
330,715 Square Feet, Built 1978-79
Major Tenant:
Cedars-Sinai Medical Center
<PAGE>
================================================================================
No dealer, salesman or other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus Supplement and Prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell, or solicitation of an offer to
buy, Notes in any jurisdiction to any person to whom it is unlawful to make
such offer or solicitation in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder or
thereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof.
---------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Supplement
Prospectus Supplement Summary .......................... S-3
Recent Developments .................................... S-6
Capitalization ......................................... S-7
Use of Proceeds ........................................ S-7
The Company ............................................ S-7
Investment Policy ...................................... S-9
Financing Policy ....................................... S-9
Lease Expirations ...................................... S-10
The Tenants ............................................ S-10
Description of the Notes ............................... S-12
Certain Federal Income Tax Considerations .............. S-18
Underwriting ........................................... S-21
Legal Matters .......................................... S-21
Incorporation of Certain Information
by Reference ........................................ S-22
Forward Looking Statements ............................. S-22
Prospectus
Available Information .................................. (ii)
Incorporation of Certain Documents
by Reference ........................................ (ii)
The Company ............................................ 1
Use of Proceeds ........................................ 1
Ratio of Earnings to Fixed Changes ..................... 1
Description of Debt Securities ......................... 1
Description of Shares .................................. 10
Description of Preferred Shares ........................ 11
Description of Depositary Shares ....................... 17
Description of Warrants ................................ 19
Description of Convertible Subordinated
Debentures .......................................... 20
Limitation of Liability; Shareholder Liability ......... 20
Redemption; Business Combinations and
Control Share Acquisitions .......................... 21
Plan of Distribution ................................... 24
Legal Matters .......................................... 25
Experts ................................................ 25
</TABLE>
$160,000,000
HRPT
Properties Trust
6-7/8% Senior Notes
due 2002
------------------------
PROSPECTUS SUPPLEMENT
-------------------------
Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
Morgan Stanley Dean Witter
Salomon Smith Barney
August 21, 1998
================================================================================
