UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-9317
HRPT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 04-6558834
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
400 Centre Street, Newton, Massachusetts 02458
(Address of principal executive offices) (Zip Code)
617-332-3990
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Name of exchange on
Title of each class which registered
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Common Shares of Beneficial Interest New York Stock Exchange
7.25% Convertible Subordinated Debentures due 2001 New York Stock Exchange
7.5% Convertible Subordinated Debentures due 2003, Series A New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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The aggregate market value of the voting stock of the registrant held
by non-affiliates was $1.0 billion based on the $8 closing price per share for
such stock on the New York Stock Exchange on March 27, 2000. For purposes of
this calculation, 1,134,373 shares held by HRPT Advisors, Inc., 1,000,000 held
by REIT Management & Research, Inc. solely in its capacity as voting trustee
under a voting trust agreement or a proxy, and an aggregate of 131,399 shares
held by the Trustees and executive officers of the registrant, have been
included in the number of shares held by affiliates.
Number of the registrant's Common Shares of Beneficial Interest, $0.01
par value ("Shares"), outstanding as of March 27, 2000: 131,934,347.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K is incorporated by
reference from our definitive Proxy Statement for the annual meeting of
shareholders currently scheduled to be held on May 9, 2000.
CERTAIN IMPORTANT FACTORS
This Annual Report on Form 10-K contains statements which constitute
forward looking statements within the meaning of the Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this Form
10-K regarding our intent, belief or expectations with respect to possible sales
of properties, possible joint ventures, possible share buy backs, expansion of
our portfolio, our ability to pay distributions, policies and plans regarding
investments, financings, our tax status as a real estate investment trust and
our access to debt or equity capital markets or to other sources of funds.
Readers are cautioned that any such forward looking statements are not
guarantees of future events and involve risks and uncertainties and that actual
events and results may differ materially from those contained in the forward
looking statements as a result of various factors. Such factors include the
status of the economy, property market conditions, competition, and changes in
federal, state and local legislation. The accompanying information contained in
this Annual Report on Form 10-K, including under the headings "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", identifies other important factors that could cause such
differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING HRPT
PROPERTIES TRUST, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL
AMENDMENTS THERETO, 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 OF TRUST, COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF HRPT PROPERTIES TRUST SHALL BE HELD TO ANY
PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM
AGAINST, HRPT PROPERTIES TRUST. ALL PERSONS DEALING WITH HRPT PROPERTIES TRUST,
IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF HRPT PROPERTIES TRUST FOR THE
PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
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HRPT PROPERTIES TRUST
1999 FORM 10-K ANNUAL REPORT
Table of Contents
Part I
Page
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Item 1. Business........................................................................ 1
Item 2. Properties...................................................................... 18
Item 3. Legal Proceedings............................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders............................. 19
Part II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters............ 19
Item 6. Selected Financial Data......................................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................... 27
Item 8. Financial Statements and Supplementary Data..................................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 28
Part III
Item 10. Directors and Executive Officers of the Registrant.............................. *
Item 11. Executive Compensation.......................................................... *
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. *
Item 13. Certain Relationships and Related Transactions.................................. *
* Incorporated by reference from our Proxy Statement for the
Annual Meeting of Shareholders currently scheduled to be
held on May 9, 2000, to be filed pursuant to Regulation
14A.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 29
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References in this Annual Report on Form 10-K to the "Company" or "HRP"
include consolidated subsidiaries, unless the context indicates otherwise.
PART I
Item 1. Business
The Company. HRPT Properties Trust ("HRP" or the "Company") was
organized on October 9, 1986 as a Maryland real estate investment trust
("REIT"). We invest in office buildings.
As of December 31, 1999, we owned 195 office properties for a total
investment of $2.7 billion at cost and a depreciated book value of $2.5 billion.
In addition, we had equity investments representing 49.3% and 7.1% of the
outstanding common shares of Senior Housing Properties Trust ("SNH") and
Hospitality Properties Trust ("HPT"), respectively, with approximate carrying
values of $201.8 million and $109.3 million, respectively, for total real estate
investments of approximately $3.0 billion. The properties are described in
greater detail below in "Properties".
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Our principal executive offices are located at 400 Centre Street,
Newton, Massachusetts 02458, and our telephone number is (617) 332-3990.
Investment Policy and Method of Operation. Our investment goals are
current income for distribution to shareholders, capital growth resulting from
appreciation in the residual value of owned properties, and preservation and
protection of shareholders' capital. Our income is derived primarily from rent.
Our day to day operations are conducted by REIT Management & Research,
Inc. ("RMR"), our investment manager. RMR provides investment, management,
property management and administrative services to us. RMR originates and
presents investment opportunities to our Board of Trustees. In evaluating
potential investments, we consider factors such as: the historical and projected
rents received and likely to be received from the property, the historic and
expected operating expenses, including real estate taxes, incurred and expected
to be incurred at the properties; the growth, tax and regulatory environments of
the market in which the property is located; the quality, experience, and credit
worthiness of the property's tenants; an appraisal of the property, if
available; occupancy and demand for similar properties in the same or nearby
markets; the construction quality, physical condition and design of the
property; the geographic area and type of property; and the pricing of
comparable properties as evidenced by recent arms length market sales.
Our investments are generally structured using leases with minimum
and/or additional rent and escalation provisions, joint ventures and
partnerships with affiliated or unaffiliated parties, commitments or options to
purchase interests in real estate, mergers or any combination of the foregoing
that will best suit the particular investment.
In connection with our current bank credit facility, we have agreed to
obtain lender approval before exceeding investment concentrations based on
certain criteria. No limits, other than those imposed by our bank credit
facility, have been set on the number of properties in which we will seek to
invest, or on the concentration of investments involving any one facility or
geographical area; however, our Board of Trustees consider concentration of
investments in determining whether to make new or increase existing investments.
We have in the past considered and may in the future consider, from
time to time, the acquisition of or merger with other companies engaged in the
same business as us; however, we have no present agreements or understandings
concerning any such acquisition or merger.
Borrowing Policy. In addition to the use of equity, we utilize
short-term and long-term borrowings to finance investments. We have a bank
credit facility of $500 million. In February 1999, the bank credit facility was
amended to allow for the spin-off of our senior housing properties. The bank
credit facility (which is guaranteed by most of our subsidiaries) is used for
acquisition funding on an interim basis until equity or long-term debt is raised
and for working capital and general business purposes. Outstanding borrowings
under the bank credit facility at December 31, 1999 were $132 million.
Our borrowing guidelines established by our Board of Trustees and
covenants in various debt agreements prohibit us from maintaining a debt to
equity ratio of greater than 1 to 1. At December 31, 1999, our debt to equity
ratio was .89 to 1. Our senior unsecured debt also imposes covenants on us which
may limit our ability to borrow. The Declaration of Trust prohibits us from
incurring secured and unsecured indebtedness which in the aggregate exceeds 300%
of our net assets, unless approved by a majority of the Board of Trustees not
affiliated with RMR. There can be no assurance that debt capital will in the
future be available at reasonable rates to fund our operations or growth.
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Business Developments Since January 1, 1999
Investments
During 1999, we acquired 61 office properties for an aggregate purchase
price of $516.5 million.
Financing
During 1999, we issued the following senior unsecured fixed rate term
notes: $90 million of 7.875% Senior Notes due 2009 issued in March 1999 and $65
million of 8.375% Senior Notes due 2011 issued in June 1999. The notes are
callable at par on April 15, 2002 and June 15, 2003, respectively. The $150.2
million aggregate net proceeds from these notes were used to repay amounts then
outstanding under our revolving bank credit facility. In addition, we assumed
$32.4 million of secured mortgage notes payable in connection with the
acquisition of eight office properties. These mortgage notes payable bear
interest at rates ranging from 7.02% to 9.12% and mature between 2004 and 2008.
In February 1999, we amended our unsecured revolving bank credit
facility with a group of banks for which Dresdner Bank AG acts as agent to allow
for the spin off of our senior housing properties.
Other Developments
In 1999, we disposed of 14 senior housing properties, including 12
senior housing properties leased to an affiliate, for net proceeds of $82.2
million and recognized a gain of $8.3 million. As part of the sale of 12 of the
senior housing properties during March of 1999, we provided a $60 million
mortgage loan which was paid in full in June 1999.
During 1999, we received regularly scheduled principal payments and
repayments on mortgages secured by eight senior housing properties totaling
$15.6 million. We also received a $1 million loan repayment from an affiliate.
During 1999, we wrote down the carrying value of two real estate mortgages
secured by four nursing home properties by $5 million to reflect our estimated
future discounted realizable value.
On October 12, 1999, we spun-off 50.7% of our 100% owned subsidiary,
SNH, by distributing 13,190,763 common shares of SNH to our shareholders of
record on October 8, 1999 (the "Spin-Off"). SNH is a real estate investment
trust that invests principally in income producing senior housing real estate
and prior to the Spin-Off had 26,000,000 common shares outstanding. In
connection with the Spin-Off, we received $200 million from SNH that was used to
repay amounts outstanding on our revolving bank credit facility.
In connection with the Spin-Off, we agreed to pay all costs relating to
the Spin-Off of SNH. At December 31, 1999, total costs incurred for the Spin-Off
were $16.7 million, which included costs of distributing SNH shares to
shareholders, legal and accounting fees, Securities and Exchange Commission
filing fees, New York Stock Exchange listing fees and the up-front costs of
establishing SNH's bank credit facility, the first $200 million proceeds of
which was paid to us.
Since the Spin-Off, our investment in SNH is accounted for using the
equity method of accounting. Prior to the Spin-Off, the operating results of SNH
were included in our results of operations. At December 31, 1999, we owned
12,809,237 common shares of beneficial interest of SNH with a carrying value of
$201.8 million and a market value, based on quoted market prices, of $158.5
million.
During January and February 2000, two of SNH's tenants, accounting for
approximately 48% of SNH's revenues, filed for bankruptcy. SNH is currently
negotiating with these tenants and evaluating its options, including the
possibility of reducing rent, selling properties or operating certain properties
for its own behalf. Based on estimates of future cash flows from properties
leased to these two tenants, SNH has recognized an impairment in the carrying
value of certain properties and loans totaling $30 million. This value
impairment has increased SNH's expenses and reduced SNH's net income for the
year ended December 31, 1999. The Company has recognized $14.8 million of SNH's
asset impairment loss on its consolidated statement of income for the year ended
December 31, 1999, through its 49.3% ownership interest in SNH. In the
short-term, the level of dividends paid by SNH to the Company in future periods
will depend on the outcome of SNH's negotiations with these two tenants. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations."
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The Investment Manager
RMR is a Delaware corporation owned by Gerard M. Martin and Barry M.
Portnoy. RMR's principal executive offices are located at 400 Centre Street,
Newton, Massachusetts 02458, and its telephone number is (617) 332-3990. As of
January 1, 1998, we entered into separate investment advisor and property
management agreements with RMR. RMR provides investment, management, property
management services and administrative services to us. In addition, an affiliate
of RMR also provides garage management services to some of our properties. RMR
also acts as the investment manager to SNH and HPT and has other business
interests. The Directors of RMR are Gerard M. Martin, Barry M. Portnoy and David
J. Hegarty. The officers of RMR are David J. Hegarty, President and Secretary,
John G. Murray, Executive Vice President, John C. Popeo, Treasurer, and Ajay
Saini, John A. Mannix, David M. Lepore, Thomas M. O'Brien and Jennifer B. Clark,
Vice Presidents. Gerard M. Martin and Barry M. Portnoy are our managing trustees
and John A. Mannix, John C. Popeo, David M. Lepore and Jennifer B. Clark are our
officers.
Employees
As of March 27, 2000, we had no employees. RMR, which administers our
day-to-day operations, had 200 full-time employees and three active directors as
of that date.
Competition.
Investing in and operating office buildings is a very competitive
business. We compete against other REIT's, numerous financial institutions and
numerous individuals and public and private companies who are actively engaged
in this business. We do not believe we have a dominant position in any of the
geographic markets in which we operate but some of our competitors are dominant
in selected markets. Many of our competitors have greater financial and
management resources than we have. We believe the geographic diversity of our
investments, the experience and abilities of our management, the high quality of
our assets and the financial strength of many of our tenants affords us some
competitive advantages which have and will allow us to operate our business
successfully despite the competitive nature of this business.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of federal income tax and ERISA consequences is
based on existing law, and is limited to investors who own our shares as
investment assets rather than as inventory or as property used in a trade or
business. The summary does not discuss the particular tax consequences that
might be relevant to you if you are subject to special rules under the federal
income tax law, for example if you are:
o a bank, life insurance company, regulated investment company, or other
financial institution,
o a broker or dealer in securities or foreign currency,
o a person who has a functional currency other than the U.S. dollar,
o a person who acquires our shares in connection with employment or
other performance of services,
o a person subject to alternative minimum tax,
o a person who owns our shares as part of a straddle, hedging
transaction, constructive sale transaction, or conversion transaction,
or
o except as specifically described in the following summary, a
tax-exempt entity or a foreign person.
The sections of the Internal Revenue Code that govern the federal income tax
qualification and treatment of a REIT and its shareholders are complex. This
presentation is a summary of applicable Internal Revenue Code provisions,
related rules and regulations and administrative and judicial interpretations,
all of which are subject to change, possibly with retroactive effect. Future
legislative, judicial, or administrative actions or decisions could affect the
accuracy of statements made in this summary. We have not sought a ruling from
the IRS with respect to any matter described in this summary, and we cannot
assure you that the IRS or a court will agree with the statements made in this
summary. In addition, the following summary is not exhaustive of all possible
tax consequences, and does not discuss any estate, gift, state, local, or
foreign tax consequences. For all these reasons, we urge you and any prospective
acquiror of our shares to consult with a tax advisor about the federal income
tax and other tax consequences of the acquisition, ownership and disposition of
our shares.
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Federal income tax consequences may differ depending on whether or not
you are a "U.S. shareholder." For purposes of this summary, a U.S. shareholder
for federal income tax purposes is:
o a citizen or resident of the United States, including an alien
individual who is a lawful permanent resident of the United States or
meets the substantial presence residency test under the federal income
tax laws,
o a corporation, partnership or other entity treated as a corporation or
partnership for federal income tax purposes, that is 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,
o an estate the income of which is subject to federal income taxation
regardless of its source, or
o 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 electing trusts in existence on
August 20, 1996 to the extent provided in Treasury regulations,
whose status as a U.S. shareholder is not overridden by an applicable tax
treaty. Conversely, a "non-U.S. shareholder" is a beneficial owner of our shares
who is not a U.S. shareholder.
Taxation as a REIT
We have elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ending December 31,
1987. Our REIT election, assuming continuing compliance with the federal income
tax qualification tests summarized below, continues in effect for subsequent
taxable years. Although no assurance can be given, we believe that we are
organized, have operated, and will continue to operate in a manner that
qualifies us to be taxed under the Internal Revenue Code as a REIT.
As a REIT, we generally will not be subject to federal income tax on
our net income distributed as dividends to our shareholders. Distributions to
our shareholders generally will be includable in their income as dividends to
the extent of our current or accumulated earnings and profits. A portion of
these dividends may be treated as capital gain dividends, as explained below. No
portion of any dividends will be eligible for the dividends received deduction
for corporate shareholders. Distributions in excess of current or accumulated
earnings and profits generally will be treated for federal income tax purposes
as a return of capital to the extent of a recipient shareholder's basis in our
shares, and will reduce this basis. Our current or accumulated earnings and
profits will generally be allocated first to distributions on our outstanding
preferred shares, if any, and thereafter to distributions on our common shares.
Our counsel, Sullivan & Worcester LLP, has opined that we have been
organized and have qualified as a REIT under the Internal Revenue Code for our
1987 through 1999 taxable years, and that our current investments and plan of
operation will enable us to meet the requirements for qualification and taxation
as a REIT under the Internal Revenue Code. Our actual qualification and taxation
as a REIT will depend upon our ability to meet the various REIT qualification
tests imposed under the Internal Revenue Code and summarized below. While we
believe that we will operate in a manner to satisfy the various REIT
qualification tests, our counsel has not reviewed and will not review compliance
with these tests on a continuing basis. If we fail to qualify as a REIT in any
year, we will be subject to federal income taxation as if we were a domestic
corporation, and our shareholders will be taxed like shareholders of ordinary
corporations. In this event, we could be subject to significant tax liabilities,
and the amount of cash available for distribution to our shareholders may be
reduced or eliminated.
If we qualify for taxation as a REIT and meet the annual distribution
tests described below, we generally will not be subject to federal corporate
income taxes on the amount distributed. However, even if we qualify for federal
income taxation as a REIT, we may be subject to federal tax in the following
circumstances:
o We will be taxed at regular corporate rates on any undistributed "real
estate investment trust taxable income," including our undistributed
net capital gains.
o If our alternative minimum taxable income exceeds our taxable income,
we may be subject to the corporate alternative minimum tax on our
items of tax preference.
o If we have net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or other nonqualifying income from
foreclosure property, we will be subject to tax on this net income
from foreclosure property at the highest regular corporate rate, which
is currently 35%.
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o If we have net income from prohibited transactions, including sales or
other dispositions of inventory or property held primarily for sale to
customers in the ordinary course of business other than foreclosure
property, we will be subject to tax on this income at a 100% rate.
o If we fail to satisfy the 75% gross income test or the 95% gross
income test discussed below, but nonetheless maintain our
qualification as a REIT, we will be subject to tax at a 100% rate on
the greater of the amount by which we fail the 75% or the 95% test,
multiplied by a fraction intended to reflect our profitability.
o If we fail to distribute for any calendar year at least the sum of 85%
of our REIT ordinary income for that year, 95% of our REIT capital
gain net income for that year, and any undistributed taxable income
from prior periods, we will be subject to a 4% excise tax on the
excess of the required distribution over the amounts actually
distributed.
o If we acquire an asset from a corporation in a transaction in which
our basis in the asset is determined by reference to the basis of the
asset in the hands of a present or former C corporation, and if we
subsequently recognize gain on the disposition of this asset during
the ten-year period beginning on the date on which the asset ceased to
be owned by the C corporation, then we will pay tax at the highest
regular corporate tax rate, which is currently 35%, on the lesser of
the excess of the fair market value of the asset over the C
corporation's basis in the asset on the date the asset ceased to be
owned by the C corporation, or the gain recognized in the disposition.
If we invest in properties in foreign countries, our profits from those
investments will generally be subject to tax in the countries where those
properties are located. The nature and amount of this taxation will depend on
the laws of the countries where the properties are located. If we operate as we
currently intend, then we will distribute our taxable income to our shareholders
and we will not pay federal income tax, and thus we generally cannot recover the
cost of foreign taxes imposed on our foreign investments by claiming foreign tax
credits against our federal income tax liability. Also, we cannot pass through
to our shareholders any foreign tax credits.
If we fail to qualify for federal income taxation as a REIT in any
taxable year, then we will be subject to federal tax in the same manner as an
ordinary corporation. Distributions to our shareholders in any year in which we
fail to qualify as a REIT will not be deductible, nor will these distributions
be required to be made. In that event, to the extent of our current and
accumulated earnings and profits, all distributions to our shareholders will be
taxable as ordinary dividend income and, subject to limitations in the Internal
Revenue Code, will be eligible for the dividends received deduction for
corporate recipients. Also in that event, we will generally be disqualified from
federal income taxation as a REIT for the four taxable years following
disqualification. Failure to qualify for federal income taxation as a REIT for
even one year could result in our incurring substantial indebtedness or
liquidating substantial investments in order to pay the resulting
corporate-level taxes.
REIT Qualification Requirements
General Requirements. Section 856(a) of the Internal Revenue Code
defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(3) that would be taxable, but for Sections 856 through 859 of the
Internal Revenue Code, as an ordinary domestic corporation;
(4) that is not a financial institution or an insurance company subject
to special provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) that is not "closely held" as defined under the personal holding
company stock ownership test, as described below; and
(7) that meets other tests regarding income, assets and distributions,
all as described below.
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Section 856(b) of the Internal Revenue Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
pro rata part of a taxable year of less than 12 months. Section 856(h)(2) of the
Internal Revenue Code provides that conditions (5) and (6) need not be met for
our first taxable year as a REIT. We believe that we have satisfied conditions
(1) to (6), inclusive, during each of the requisite periods ending on or before
December 31, 1999, and that we will continue to satisfy those conditions in
future taxable years. There can, however, be no assurance in this regard.
By reason of condition (6) above, we will fail to qualify as a REIT for
a taxable year if at any time during the last half of the year more than 50% in
value of our outstanding shares is owned directly or indirectly by five or fewer
individuals. To help comply with condition (6), our declaration of trust
contains provisions restricting transfers of our shares. In addition, if we
comply with applicable Treasury regulations for ascertaining the ownership of
our outstanding shares and do not know, or by exercising reasonable diligence
would not have known, that we failed condition (6), then we will be treated as
satisfying condition (6). Also, our failure to comply with these applicable
Treasury regulations for ascertaining ownership of our outstanding shares may
result in a penalty of $25,000, or $50,000 for intentional violations.
Accordingly, we intend to comply with these Treasury regulations, and to request
annually from record holders of significant percentages of our shares
information regarding the ownership of our shares. Under our declaration of
trust, our shareholders are required to respond to these requests for
information.
For purposes of condition (6) above, shares in a REIT held by a pension
trust are treated as held directly by the pension trust's beneficiaries in
proportion to their actuarial interests in the pension trust. Consequently, five
or fewer pension trusts could own more than 50% of the interests in an entity
without jeopardizing that entity's federal income tax qualification as a REIT.
However, as discussed below, if a REIT is a "pension-held REIT," each pension
trust owning more than 10% of the REIT's shares by value generally will be taxed
on a portion of the dividends received from the REIT, based on the ratio of:
(1) the REIT's gross income for the year that would be unrelated trade
or business income if the REIT were a qualified pension trust, to
(2) the REIT's total gross income for the year.
Our Wholly-Owned Subsidiaries and Our Investments through Partnerships.
Section 856(i) of the Internal Revenue Code provides that any corporation 100%
of whose stock is held by a REIT is a qualified REIT subsidiary and shall not be
treated as a separate corporation. The assets, liabilities and items of income,
deduction and credit of a qualified REIT subsidiary are treated as the REIT's.
We believe that each of our direct and indirect wholly-owned subsidiaries will
either be a qualified REIT subsidiary within the meaning of Section 856(i) of
the Internal Revenue Code, or a noncorporate entity that for federal income tax
purposes is not treated as separate from its owner under regulations issued
under Section 7701 of the Internal Revenue Code. Thus, in applying all the
federal income tax REIT qualification requirements described in this summary,
all assets, liabilities and items of income, deduction and credit of our direct
and indirect wholly-owned subsidiaries are treated as ours.
We have invested and may invest in real estate through one or more
limited or general partnerships or limited liability companies that are treated
as partnerships for federal income tax purposes. In the case of a REIT that is a
partner in a partnership, regulations under the Internal Revenue Code provide
that, for purposes of the REIT qualification requirements regarding income and
assets discussed below, the REIT is deemed to own its proportionate share of the
assets of the partnership corresponding to the REIT's proportionate capital
interest in the partnership and is deemed to be entitled to the income of the
partnership attributable to this proportionate share. In addition, for these
purposes, the character of the assets and gross income of the partnership
generally retain the same character in the hands of the REIT. Accordingly, our
proportionate share of the assets, liabilities, and items of income of each
partnership in which we are a partner is treated as ours for purposes of the
income tests and asset tests discussed below. In contrast, for purposes of the
distribution requirement discussed below, we must take into account as a partner
our distributive share of the partnership's income as determined under the
general federal income tax rules governing partners and partnerships under
Sections 701 through 777 of the Internal Revenue Code.
Income Tests. There are two gross income requirements for qualification
as a REIT under the Internal Revenue Code:
o At least 75% of our gross income, excluding gross income from sales or
other dispositions of property held primarily for sale, must be
derived from investments relating to real property, including "rents
from real property" as defined under Section 856 of the Internal
Revenue Code, mortgages on real property, or shares in other REITs.
When we receive new capital in exchange for our shares or in a public
offering of five-year or longer debt instruments, income attributable
to the temporary investment of this new capital in stock or a debt
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instrument, if received or accrued within one year of our receipt of
the new capital, is generally also qualifying income under the 75%
test.
o At least 95% of our gross income, excluding gross income from sales or
other dispositions of property held primarily for sale, must be
derived from a combination of items of real property income that
satisfy the 75% test described above, dividends, interest, payments
under interest rate swap or cap agreements, options, futures
contracts, forward rate agreements, or similar financial instruments,
and gains from the sale or disposition of stock, securities, or real
property.
For purposes of these two requirements, income derived from a "shared
appreciation provision" in a mortgage loan is generally treated as gain
recognized on the sale of the property to which it relates. Although we will use
our best efforts to ensure that the income generated by our investments will be
of a type which satisfies both the 75% and 95% gross income tests, there can be
no assurance in this regard.
In order to qualify as "rents from real property" under Section 856 of
the Internal Revenue Code, several requirements must be met:
o The amount of rent received generally must not be based on the income
or profits of any person, but may be based on receipts or sales.
o Rents do not qualify if the REIT owns 10% or more by vote or value of
the tenant, whether directly or after application of attribution
rules. While we intend not to lease property to any party if rents
from that property would not qualify as rents from real property,
application of the 10% ownership rule is dependent upon complex
attribution rules and circumstances that may be beyond our control.
For example, an unaffiliated third party's ownership directly or by
attribution of 10% or more by value of our shares, as well as 10% or
more by vote or value of the stock of one of our lessees, would result
in that lessee's rents not qualifying as rents from real property. Our
declaration of trust disallows transfers or purported acquisitions,
directly or by attribution, of our shares that could result in
disqualification as a REIT under the Internal Revenue Code and permits
our trustees to repurchase the shares to the extent necessary to
maintain our status as a REIT under the Internal Revenue Code.
Nevertheless, there can be no assurance that these provisions in our
declaration of trust will be effective to prevent REIT status under
the Internal Revenue Code from being jeopardized under the 10% lessee
affiliate rule. Furthermore, there can be no assurance that we will be
able to monitor and enforce these restrictions, nor will our
shareholders necessarily be aware of ownership of shares attributed to
them under the Internal Revenue Code's attribution rules.
o In order for rents to qualify, we generally must not manage the
property or furnish or render services to the tenants of the property,
except through an independent contractor from whom we derive no
income. There is an exception to this rule permitting a REIT to
perform customary tenant services of the sort which a tax-exempt
organization could perform without being considered in receipt of
"unrelated business taxable income" as defined in Section 512(b)(3) of
the Internal Revenue Code. In addition, a de minimis amount of
noncustomary services will not disqualify income as "rents from real
property" so long as the value of the impermissible services does not
exceed 1% of the gross income from the property.
o If rent attributable to personal property leased in connection with a
lease of real property is 15% or less of the total rent received under
the lease, then the rent attributable to personal property will
qualify as rents from real property; if this 15% threshold is
exceeded, the rent attributable to personal property will not so
qualify. The portion of rental income treated as attributable to
personal property is determined according to the ratio of the tax
basis of the personal property to the total tax basis of the real and
personal property which is rented. For taxable years after 2000, the
ratio will be determined by reference to fair market values rather
than tax bases.
We believe that all or substantially all our rents have qualified and will
qualify as rents from real property for purposes of Section 856 of the Internal
Revenue Code.
In order to qualify as mortgage interest on real property for purposes
of the 75% test, interest must derive from a mortgage loan secured by real
property with a fair market value, at the time the loan is made, at least equal
to the amount of the loan. If the amount of the loan exceeds the fair market
value of the real property, the interest will be treated as interest on a
mortgage loan in a ratio equal to the ratio of the fair market value of the real
property to the total amount of the mortgage loan.
Any gain we realize on the sale of property held as inventory or other
property held primarily for sale to customers in the ordinary course of business
will be treated as income from a prohibited transaction that is subject to a
penalty tax at a 100% rate. This prohibited transaction income also may have an
adverse effect upon our ability to
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satisfy the 75% and 95% gross income tests for federal income tax qualification
as a REIT. We cannot provide assurances as to whether or not the IRS might
successfully assert that one or more of our dispositions is subject to the 100%
penalty tax. However, we believe that dispositions of assets that we might make
will not be subject to the 100% penalty tax, because we intend to:
o own our assets for investment with a view to long-term income
production and capital appreciation;
o engage in the business of developing, owning and operating our
existing properties and acquiring, developing, owning and operating
new properties; and
o make occasional dispositions of our assets consistent with our
long-term investment objectives.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for that year if:
o our failure to meet the test was due to reasonable cause and not due
to willful neglect;
o we report the nature and amount of each item of our income included in
the 75% or 95% gross income tests for that taxable year on a schedule
attached to our tax return; and
o any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is impossible to state whether in all circumstances we would be entitled to
the benefit of this relief provision for the 75% and 95% gross income tests.
Even if this relief provision did apply, a special tax equal to 100% is imposed
upon the greater of the amount by which we failed the 75% test or the 95% test,
multiplied by a fraction intended to reflect our profitability.
Asset Tests. At the close of each quarter of each taxable year, we must
also satisfy three percentage tests relating to the nature of our assets:
o At least 75% of our total assets must consist of real estate assets,
cash and cash items, shares in other REITs, government securities, and
stock or debt instruments purchased with proceeds of a stock offering
or an offering of our debt with a term of at least five years, but
only for the one-year period commencing with our receipt of the
offering proceeds.
o Not more than 25% of our total assets may be represented by securities
other than those securities that count favorably toward the preceding
75% asset test.
o Of the investments included in the preceding 25% asset class, the
value of any one issuer's securities that we own may not exceed 5% of
the value of our total assets, and we may not own more than 10% of any
one non-REIT issuer's outstanding voting securities. For taxable years
after 2000, we may not own more than 10% of the vote or value of any
one non-REIT issuer's outstanding securities, unless that issuer is
our taxable REIT subsidiary or the securities are straight debt
securities.
When a failure to satisfy the above asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. We intend to maintain records of the value of our assets to
document our compliance with the above three asset tests, and to take actions as
may be required to cure any failure to satisfy the tests within 30 days after
the close of any quarter.
Our Investment in Senior Housing Properties Trust. We continue to own a
substantial minority of Senior Housing Properties Trust shares, and we expect
Senior Housing Properties Trust to qualify as a REIT under the Internal Revenue
Code. For so long as it so qualifies, our investment in Senior Housing
Properties Trust will count favorably toward the REIT asset tests and the
dividends we receive from Senior Housing Properties Trust will count as
qualifying income under the REIT gross income tests.
Annual Distribution Requirements. In order to qualify for taxation as a
REIT under the Internal Revenue Code, we are required to make annual
distributions other than capital gain dividends to our shareholders in an amount
at least equal to the excess of:
(A) the sum of 95% of our "real estate investment trust taxable
income," as defined in Section 857 of the Internal Revenue Code, computed by
excluding any net capital gain and before taking into account any dividends paid
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deduction for which we are eligible, and 95% of our net income after tax, if
any, from property received in foreclosure, over
(B) the sum of our qualifying noncash income, e.g., imputed rental
income or income from transactions inadvertently failing to qualify as like-kind
exchanges.
For our taxable years after 2000, the preceding 95% percentages are reduced to
90%. The distributions must be paid in the taxable year to which they relate, or
in the following taxable year if declared before we timely file our tax return
for the earlier taxable year and if paid on or before the first regular
distribution payment after that declaration. Dividends declared in October,
November, or December and paid during the following January will be treated as
having been both paid and received on December 31 of the prior taxable year. A
distribution which is not pro rata within a class of our beneficial interests
entitled to a distribution, or which is not consistent with the rights to
distributions among our classes of beneficial interests, is a preferential
distribution that is not taken into consideration for purposes of the
distribution requirements, and accordingly the payment of a preferential
distribution could affect our ability to meet the distribution requirements.
Taking into account our distribution policies, including the dividend
reinvestment plan we have adopted, we expect that we will not make any
preferential distributions. The distribution requirements may be waived by the
IRS if a REIT establishes that it failed to meet them by reason of distributions
previously made to meet the requirements of the 4% excise tax discussed below.
To the extent that we do not distribute all of our net capital gain and all of
our real estate investment trust taxable income, as adjusted, we will be subject
to tax on undistributed amounts.
In addition, we will be subject to a 4% excise tax to the extent we
fail within a calendar year to make required distributions to our shareholders
of 85% of our ordinary income and 95% of our capital gain net income plus the
excess, if any, of the "grossed up required distribution" for the preceding
calendar year over the amount treated as distributed for that preceding calendar
year. For this purpose, the term "grossed up required distribution" for any
calendar year is the sum of our taxable income for the calendar year without
regard to the deduction for dividends paid and all amounts from earlier years
that are not treated as having been distributed under the provision.
If we do not have enough cash or other liquid assets to meet the 95%
distribution requirements, we may find it necessary to arrange for new debt or
equity financing to provide funds for required distributions, or else our REIT
status for federal income tax purposes could be jeopardized. We can provide no
assurance that financing would be available for these purposes on favorable
terms.
If we fail to distribute sufficient dividends for any year, we may be
able to rectify this failure by paying "deficiency dividends" to shareholders in
a later year. These deficiency dividends may be included in our deduction for
dividends paid for the earlier year, but an interest charge would be imposed
upon us for the delay in distribution. Although we may be able to avoid being
taxed on amounts distributed as deficiency dividends, we will remain liable for
the 4% excise tax discussed above.
Recent Federal Taxation Changes. The Tax Relief Extension Act of 1999
was enacted late in 1999 and is effective for taxable years after 2000. This
legislation contained several tax provisions regarding REITs, including a
reduction of the annual distribution requirement for real estate investment
trust taxable income from 95% to 90%, as mentioned above. The Act also changed
the 10% voting securities test under current law to a 10% vote or value test.
Thus, subject to exceptions, a REIT will no longer be allowed to own more that
10% by vote or value of the outstanding securities of any issuer, other than a
qualified REIT subsidiary or another REIT. Another exception to this new test,
which is also an exception to the 5% asset test under current law, allows a REIT
to own any or all of the securities of an electing "taxable REIT subsidiary,"
provided that no more than 20% of the REIT's assets is represented by the stock
or securities of taxable REIT subsidiaries. A taxable REIT subsidiary can
perform noncustomary services for tenants of a REIT without disqualifying rents
received from the tenants for purposes of the REIT's gross income tests and can
also undertake third-party management and development activities and activities
that are not related to real estate. A taxable REIT subsidiary will be taxed as
a subchapter C corporation but will be subject to earnings stripping limitations
on the deductibility of interest paid to the REIT. In addition, a REIT will be
subject to a 100% excise tax on certain excess amounts to ensure that:
o tenants who pay a taxable REIT subsidiary for services are charged an
arm's length amount by the taxable REIT subsidiary for these services;
o shared expenses of a REIT and its taxable REIT subsidiary are
allocated fairly between the two; and
o interest paid by a taxable REIT subsidiary to the REIT that owns it is
commercially reasonable.
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Depreciation and Federal Income Tax Treatment of Leases
Our initial tax bases in our assets will generally be our acquisition
cost. We will generally depreciate our real property on a straight-line basis
over 40 years and our personal property over 12 years. These depreciation
schedules may vary for properties that we acquire through tax-free or carryover
basis acquisitions.
We will be entitled to depreciation deductions from our facilities only
if we are treated for federal income tax purposes as the owner of the
facilities. This means that the leases of the facilities must be classified for
federal income tax purposes as true leases, rather than as sales or financing
arrangements, and we believe this to be the case. In the case of sale-leaseback
arrangements, the IRS could assert that we realized prepaid rental income in the
year of purchase to the extent that the value of a leased property, at the time
of purchase, exceeded the purchase price for that property. While we believe
that the value of leased property at the time of purchase did not exceed
purchase prices, because of the lack of clear precedent we cannot provide
assurances as to whether the IRS might successfully assert the existence of
prepaid rental income in any of our sale-leaseback transactions.
Additionally, Section 467 of the Internal Revenue Code, which concerns
leases with increasing rents, may apply to those of our leases which provide for
rents that increase from one period to the next. Section 467 of the Internal
Revenue Code provides that in the case of a so-called "disqualified leaseback
agreement" rental income must be accrued at a constant rate. Where constant rent
accrual is required, we could recognize rental income from a lease in excess of
cash rents and, as a result, encounter difficulty in meeting the annual
distribution requirement. Disqualified leaseback agreements include leaseback
transactions where a principal purpose for providing increasing rent under the
agreement is the avoidance of federal income tax. Recently issued Treasury
regulations provide that rents will not be treated as increasing for tax
avoidance purposes where the increases are based upon a fixed percentage of
lessee receipts. Therefore, the additional rent provisions in our leases that
are based on a fixed percentage of lessee receipts generally should not cause
the leases to be disqualified leaseback agreements under Section 467.
Taxation of U.S. Shareholders
As long as we qualify as a REIT for federal income tax purposes, a
distribution to our U.S. shareholders that we do not designate as a capital gain
dividend will be treated as an ordinary income dividend to the extent that it is
made out of current or accumulated earnings and profits. Distributions made out
of our current or accumulated earnings and profits that we properly designate as
capital gain dividends will be taxed as long-term capital gains, as discussed
below, to the extent they do not exceed our actual net capital gain for the
taxable year. However, corporate shareholders may be required to treat up to 20%
of any capital gain dividend as ordinary income under Section 291 of the
Internal Revenue Code.
In addition, we may elect to retain net capital gain income and treat
it as constructively distributed. In that case:
(1) we will be taxed at regular corporate capital gains tax rates on
retained amounts,
(2) each U.S. shareholder will be taxed on its designated proportionate
share of our retained net capital gains as though that amount were distributed
and designated a capital gain dividend,
(3) each U.S. shareholder will receive a credit for its designated
proportionate share of the tax that we pay,
(4) each U.S. shareholder will increase its adjusted basis in our
shares by the excess of the amount of its proportionate share of these retained
net capital gains over its proportionate share of this tax that we pay, and
(5) both we and our corporate shareholders will make commensurate
adjustments in our respective earnings and profits for federal income tax
purposes.
If we elect to retain our net capital gains in this fashion, we will notify our
U.S. shareholders of the relevant tax information within 60 days after the close
of the affected taxable year.
For noncorporate U.S. shareholders, long-term capital gains are
generally taxed at maximum rates of 20% or 25%, depending upon the type of
property disposed of and the previously claimed depreciation with respect to
this property. If for any taxable year we designate as capital gain dividends
any portion of the dividends paid or made available for the year to our U.S.
shareholders, including our retained capital gains treated as capital gain
dividends, then the portion of the capital gain dividends so designated that
will be allocated to the holders of a particular class of shares will on a
percentage basis equal the ratio of the amount of the total dividends paid or
made available for the year
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to the holders of that class of shares to the total dividends paid or made
available for the year to holders of all classes of our shares. We will
similarly designate the portion of any capital gain dividend that is to be taxed
to noncorporate U.S. shareholders at the maximum rates of 20% or 25% so that the
designations will be proportional among all classes of our shares.
Distributions in excess of current or accumulated earnings and profits
will not be taxable to a U.S. shareholder to the extent that they do not exceed
the shareholder's adjusted basis in the shareholder's shares, but will reduce
the shareholder's basis in those shares. To the extent that these excess
distributions exceed the adjusted basis of a U.S. shareholder's shares, they
will be included in income as capital gain, with long-term gain generally taxed
to noncorporate U.S. shareholders at a maximum rate of 20%. No U.S. shareholder
may include on his federal income tax return any of our net operating losses or
any of our capital losses.
Dividends that we declare in October, November or December of a taxable
year to U.S. shareholders of record on a date in those months will be deemed to
have been received by shareholders on December 31 of that taxable year, provided
we actually pay these dividends during the following January. Also, items that
are treated differently for regular and alternative minimum tax purposes are to
be allocated between a REIT and its shareholders under Treasury regulations
which are to be prescribed. It is possible that these Treasury regulations will
require tax preference items to be allocated to our shareholders with respect to
any accelerated depreciation or other tax preference items that we claim.
A U.S. shareholder's sale or exchange of our shares will result in
recognition of gain or loss in an amount equal to the difference between the
amount realized and the shareholder's adjusted basis in the shares sold or
exchanged. This gain or loss will be capital gain or loss, and will be long-term
capital gain or loss if the shareholder's holding period in the shares exceeds
one year. In addition, any loss upon a sale or exchange of our shares held for
six months or less will generally be treated as a long-term capital loss to the
extent of our long-term capital gain dividends during the holding period.
Noncorporate U.S. shareholders who borrow funds to finance their
acquisition of our shares could be limited in the amount of deductions allowed
for the interest paid on the indebtedness incurred. Under Section 163(d) of the
Internal Revenue Code, interest paid or accrued on indebtedness incurred or
continued to purchase or carry property held for investment is generally
deductible only to the extent of the investor's net investment income. A U.S.
shareholder's net investment income will include ordinary income dividend
distributions received from us and, if an appropriate election is made by the
shareholder, capital gain dividend distributions received from us; however,
distributions treated as a nontaxable return of the shareholder's basis will not
enter into the computation of net investment income.
Taxation of Tax-Exempt Shareholders
In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a
REIT to a tax-exempt employees' pension trust did not constitute "unrelated
business taxable income," even though the REIT may have financed some its
activities with acquisition indebtedness. Although revenue rulings are
interpretive in nature and subject to revocation or modification by the IRS,
based upon the analysis and conclusion of Revenue Ruling 66-106, our
distributions made to shareholders that are tax-exempt pension plans, individual
retirement accounts, or other qualifying tax-exempt entities should not
constitute unrelated business taxable income, unless the shareholder has
financed its acquisition of our shares with "acquisition indebtedness" within
the meaning of the Internal Revenue Code.
Special rules apply to tax-exempt pension trusts, including so-called
401(k) plans but excluding individual retirement accounts or government pension
plans, that own more than 10% by value of a "pension-held REIT" at any time
during a taxable year. The pension trust may be required to treat a percentage
of all dividends received from the pension-held REIT during the year as
unrelated business taxable income. This percentage is equal to the ratio of:
(1) the pension-held REIT's gross income derived from the conduct of
unrelated trades or businesses, determined as if the pension-held REIT were a
tax-exempt pension fund, less direct expenses related to that income, to
(2) the pension-held REIT's gross income from all sources, less direct
expenses related to that income,
except that this percentage shall be deemed to be zero unless it would otherwise
equal or exceed 5%. A REIT is a pension-held REIT if:
o the REIT is "predominantly held" by tax-exempt pension trusts, and
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o the REIT would otherwise fail to satisfy the "closely held" ownership
requirement discussed above if the stock or beneficial interests in
the REIT held by tax-exempt pension trusts were viewed as held by
tax-exempt pension trusts rather than by their respective
beneficiaries.
A REIT is predominantly held by tax-exempt pension trusts if at least one
tax-exempt pension trust owns more than 25% by value of the REIT's stock or
beneficial interests, or if one or more tax-exempt pension trusts, each owning
more than 10% by value of the REIT's stock or beneficial interests, own in the
aggregate more than 50% by value of the REIT's stock or beneficial interests.
Because of the restrictions in our declaration of trust regarding the ownership
concentration of our shares, we believe that we are not and will not be a
pension-held REIT. However, because our shares are publicly traded, we cannot
completely control whether or not we are or will become a pension-held REIT.
Taxation of Non-U.S. Shareholders
The rules governing the United States federal income taxation of
non-U.S. shareholders are complex, and the following discussion is intended only
as a summary of these rules. If you are a non-U.S. shareholder, we urge you to
consult with your own tax advisor to determine the impact of United States
federal, state, local, and foreign tax laws, including any tax return filing and
other reporting requirements, with respect to your investment in our shares.
In general, a non-U.S. shareholder will be subject to regular United
States federal income tax in the same manner as a U.S. shareholder with respect
to its investment in our shares if that investment is effectively connected with
the non-U.S. shareholder's conduct of a trade or business in the United States.
In addition, a corporate non-U.S. shareholder that receives income that is or is
deemed effectively connected with a trade or business in the United States may
also be subject to the 30% branch profits tax under Section 884 of the Internal
Revenue Code, which is payable in addition to regular United States federal
corporate income tax. The balance of this discussion on the United States
federal income taxation of non-U.S. shareholders addresses only those non-U.S.
shareholders whose investment in our shares is not effectively connected with
the conduct of a trade or business in the United States.
A distribution by us to a non-U.S. shareholder that is not attributable
to gain from the sale or exchange of a United States real property interest and
that is not designated as a capital gain dividend will be treated as an ordinary
income dividend to the extent that it is made out of current or accumulated
earnings and profits. A distribution of this type will generally be subject to
United States federal income tax and withholding at the rate of 30%, or the
lower rate that may be specified by a tax treaty if the non-U.S. shareholder has
in the manner prescribed by the IRS demonstrated its entitlement to benefits
under a tax treaty. Because we cannot determine our current and accumulated
earnings and profits until the end of the taxable year, withholding at the rate
of 30% or applicable lower treaty rate will be imposed on the gross amount of
any distribution to a non-U.S. shareholder that we make and do not designate a
capital gain dividend. Notwithstanding this withholding on distributions in
excess of our current and accumulated earnings and profits, these distributions
are a nontaxable return of capital to the extent that they do not exceed the
non-U.S. shareholder's adjusted basis in our shares, and the nontaxable return
of capital will reduce the adjusted basis in these shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the non-U.S. shareholder's adjusted basis in our shares, the distributions will
give rise to tax liability if the non-U.S. shareholder would otherwise be
subject to tax on any gain from the sale or exchange of these shares, as
discussed below. A non-U.S. shareholder may seek a refund from the IRS of
amounts withheld on distributions to him in excess of our current and
accumulated earnings and profits.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from the sale or exchange of a United States real property
interest are taxed to a non-U.S. shareholder as if these distributions were
gains effectively connected with a trade or business in the United States
conducted by the non-U.S. shareholder. Accordingly, a non-U.S. shareholder will
be taxed on these amounts at the normal capital gain rates applicable to a U.S.
shareholder, subject to any applicable alternative minimum tax and to a special
alternative minimum tax in the case of nonresident alien individuals; the
non-U.S. shareholder will be required to file a United States federal income tax
return reporting these amounts, even if applicable withholding is imposed as
described below; and corporate non-U.S. shareholders may owe the 30% branch
profits tax under Section 884 of the Internal Revenue Code in respect of these
amounts. We will be required to withhold from distributions to non-U.S.
shareholders, and remit to the IRS, 35% of the maximum amount of any
distribution that could be designated as a capital gain dividend. In addition,
for purposes of this withholding rule, if we designate prior distributions as
capital gain dividends, then subsequent distributions up to the amount of the
designated prior distributions will be treated as capital gain dividends. The
amount of any tax withheld is creditable against the non-U.S. shareholder's
United States federal income tax liability, and any amount of tax withheld in
excess of that tax liability may be refunded provided that an appropriate claim
for refund is filed with the IRS. If for any taxable year we designate as
capital gain dividends any portion of the dividends paid or made available for
the year to our shareholders, including our retained capital gains treated as
capital gain dividends, then the portion of the capital gain dividends so
designated that will be allocated to the holders of a particular class of shares
will on a percentage basis equal the ratio of the amount of the total dividends
paid or made available for the year to the
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holders of that class of shares to the total dividends paid or made available
for the year to holders of all classes of our shares.
Tax treaties may reduce the withholding obligations on our
distributions. Under some treaties, however, rates below 30% generally
applicable to ordinary income dividends from United States corporations may not
apply to ordinary income dividends from a REIT. If the amount of tax withheld by
us with respect to a distribution to a non-U.S. shareholder exceeds the
shareholder's United States federal income tax liability with respect to the
distribution, the non-U.S. shareholder may file for a refund of the excess from
the IRS. In this regard, note that the 35% withholding tax rate on capital gain
dividends corresponds to the maximum income tax rate applicable to corporate
non-U.S. shareholders but is higher than the 20% and 25% maximum rates on
capital gains generally applicable to noncorporate non-U.S. shareholders.
Generally effective with respect to distributions paid after December 31, 2000,
new Treasury regulations alter the information reporting and backup withholding
rules applicable to non-U.S. shareholders and provide presumptions under which a
non-U.S. shareholder is subject to backup withholding and information reporting
until we or the applicable withholding agent receives certification from the
shareholder of its non-U.S. shareholder status. In some instances, these
certification requirements are more burdensome than those applicable under
current Treasury regulations. These new Treasury regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty, our distributions to a non-U.S. shareholder that
is an entity should be treated as paid to the entity or to those owning an
interest in that entity, and whether the entity or its owners are entitled to
benefits under the tax treaty. These new Treasury regulations encourage non-U.S.
shareholders and withholding agents to use the new IRS Forms W-8 series, rather
than the predecessor IRS Forms W-8, 1001, and 4224, and require use of the IRS
Forms W-8 series for payments made after December 31, 2000.
If our shares are not "United States real property interests" within
the meaning of Section 897 of the Internal Revenue Code, a non-U.S.
shareholder's gain on sale of these shares generally will not be subject to
United States federal income taxation, except that a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year will be subject to a 30% tax on this gain. Our shares will not
constitute a United States real property interest if we are a "domestically
controlled REIT." A domestically controlled REIT is a REIT in which at all times
during the preceding five-year period less than 50% in value of its shares is
held directly or indirectly by foreign persons. We believe that we are and will
be a domestically controlled REIT and thus a non-U.S. shareholder's gain on sale
of our shares will not be subject to United States federal income taxation.
However, because our shares are publicly traded, we can provide no assurance
that we will be a domestically controlled REIT. If we are not a domestically
controlled REIT, a non-U.S. shareholder's gain on sale of our shares will not be
subject to United States federal income taxation as a sale of a United States
real property interest, if that class of shares is "regularly traded," as
defined by applicable Treasury regulations, on an established securities market
like the New York Stock Exchange, and the non-U.S. shareholder has at all times
during the preceding five years owned 5% or less by value of that class of
shares. If the gain on the sale of our shares were subject to United States
federal income taxation, the non-U.S. shareholder will generally be subject to
the same treatment as a U.S. shareholder with respect to its gain, will be
required to file a United States federal income tax return reporting that gain,
and in the case of corporate non-U.S. shareholders might owe branch profits tax
under Section 884 of the Internal Revenue Code. A purchaser of our shares from a
non-U.S. shareholder will not be required to withhold on the purchase price if
the purchased shares are regularly traded on an established securities market or
if we are a domestically controlled REIT. Otherwise, a purchaser of our shares
from a non-U.S. shareholder may be required to withhold 10% of the purchase
price paid to the non-U.S. shareholder and to remit the withheld amount to the
IRS.
Backup Withholding and Information Reporting
Information reporting and backup withholding may apply to distributions
or proceeds paid to our shareholders under the circumstances discussed below.
Amounts withheld under backup withholding are generally not an additional tax
and may be refunded or credited against the REIT shareholder's federal income
tax liability.
A U.S. shareholder will be subject to backup withholding at a 31% rate
when it receives distributions on our shares or proceeds upon the sale,
exchange, redemption, retirement or other disposition of our shares, unless the
U.S. shareholder properly executes under penalties of perjury an IRS Form W-9 or
substantially similar form that:
o provides the U.S. shareholder's correct taxpayer identification
number; and
o certifies that the U.S. shareholder is exempt from backup withholding
because it is a corporation or comes within another exempt category,
it has not been notified by the IRS that it is subject to backup
withholding, or it has been notified by the IRS that it is no longer
subject to backup withholding.
14
<PAGE>
If the U.S. shareholder does not provide its correct taxpayer identification
number on the IRS Form W-9 or substantially similar form, it may be subject to
penalties imposed by the IRS and the REIT or other applicable withholding agent
may also have to withhold a portion of any capital gain distributions paid to
it. Unless the U.S. shareholder has established on a properly executed IRS Form
W-9 or substantially similar form that it is a corporation or comes within
another exempt category, distributions on our shares paid to it during the
calendar year, and the amount of tax withheld if any, will be reported to it and
to the IRS.
Distributions on our shares to a non-U.S. shareholder during each
calendar year and the amount of tax withheld, if any, will generally be reported
to the non-U.S. shareholder and to the IRS. This information reporting
requirement applies regardless of whether the non-U.S. shareholder is subject to
withholding on distributions on our shares or whether the withholding was
reduced or eliminated by an applicable tax treaty. Also, distributions paid to a
non-U.S. shareholder on our shares may be subject to backup withholding at a 31%
rate, unless the non-U.S. shareholder properly certifies its non-U.S.
shareholder status on an IRS Form W-8 or substantially similar form in the
manner described above. Similarly, information reporting and 31% backup
withholding will not apply to proceeds a non-U.S. shareholder receives upon the
sale, exchange, redemption, retirement or other disposition of our shares, if
the non-U.S. shareholder properly certifies its non-U.S. shareholder status on
an IRS Form W-8 or substantially similar form. Even without having executed an
IRS Form W-8 or substantially similar form, however, in some cases information
reporting and 31% backup withholding will not apply to proceeds that a non-U.S.
shareholder receives upon the sale, exchange, redemption, retirement or other
disposition of our shares if the non-U.S. shareholder receives those proceeds
through a broker's foreign office. As described above, new Treasury regulations
alter the information reporting and backup withholding rules applicable to
non-U.S. shareholders for payments made after December 31, 2000, and in general
these new Treasury Regulations replace IRS Forms W-8, 1001, and 4224 with the
new IRS Forms W-8 series. For a non-U.S. shareholder whose income and gain on
our shares is effectively connected to the conduct of a United States trade or
business, a slightly different rule may apply to proceeds received upon the
sale, exchange, redemption, retirement or other disposition of our shares. Until
the non-U.S. shareholder complies with the new Treasury regulations, information
reporting and 31% backup withholding may apply in the same manner as to a U.S.
shareholder, and thus the non-U.S. shareholder may have to execute an IRS Form
W-9 or substantially similar form to prevent the backup withholding.
Other Tax Consequences
You should recognize that our and our shareholders' federal income tax
treatment may be modified by legislative, judicial, or administrative actions at
any time, which actions may be retroactive in effect. The rules dealing with
federal income taxation are constantly under review by the Congress, the IRS and
the Treasury Department, and statutory changes as well as promulgation of new
regulations, revisions to existing regulations, and revised interpretations of
established concepts occur frequently. No prediction can be made as to the
likelihood of passage of new tax legislation or other provisions either directly
or indirectly affecting us and our shareholders. Revisions in federal income tax
laws and interpretations of these laws could adversely affect the tax
consequences of an investment in our shares. We and our shareholders may also be
subject to state or local taxation in various state or local jurisdictions,
including those in which we or our shareholders transact business or reside.
State and local tax consequences may not be comparable to the federal income tax
consequences discussed above.
15
<PAGE>
ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
General Fiduciary Obligations
Fiduciaries of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974,
ERISA, must consider whether:
o their investment in our shares satisfies the diversification
requirements of ERISA;
o the investment is prudent in light of possible limitations on the
marketability of our shares;
o they have authority to acquire our shares under the applicable
governing instrument and Title I of ERISA; and
o the investment is otherwise consistent with their fiduciary
responsibilities.
Trustees and other fiduciaries of an ERISA plan may incur personal
liability for any loss suffered by the plan on account of a violation of their
fiduciary responsibilities. In addition, these fiduciaries may be subject to a
civil penalty of up to 20% of any amount recovered by the plan on account of a
violation. Fiduciaries of any IRA, Roth IRA, Keogh Plan or other qualified
retirement plan not subject to Title I of ERISA, referred to as "non-ERISA
plans," should consider that a plan may only make investments that are
authorized by the appropriate governing instrument. Fiduciary shareholders
should consult their own legal advisors if they have any concern as to whether
the investment is consistent with the foregoing criteria.
Prohibited Transactions
Fiduciaries of ERISA plans and persons making the investment decision
for an IRA or other non-ERISA plan should consider the application of the
prohibited transaction provisions of ERISA and the Internal Revenue Code in
making their investment decision. Sales and other transactions between an ERISA
plan or a non-ERISA plan, and persons related to it are prohibited transactions.
The particular facts concerning the sponsorship, operations and other
investments of an ERISA plan or non-ERISA plan may cause a wide range of other
persons to be treated as disqualified persons or parties in interest with
respect to it. A prohibited transaction, in addition to imposing potential
personal liability upon fiduciaries of ERISA plans, may also result in the
imposition of an excise tax under the Internal Revenue Code or a penalty under
ERISA upon the disqualified person or party in interest with respect to the
plan. If the disqualified person who engages in the transaction is the
individual on behalf of whom an IRA or Roth IRA is maintained or his
beneficiary, the IRA or Roth IRA may lose its tax-exempt status and its assets
may be deemed to have been distributed to the individual in a taxable
distribution on account of the prohibited transaction, but no excise tax will be
imposed. Fiduciary shareholders should consult their own legal advisors as to
whether the ownership of our shares involves a prohibited transaction.
Special Fiduciary and Prohibited Transactions Consequences
The Department of Labor, which has administrative responsibility over
ERISA plans as well as non-ERISA plans, has issued a regulation defining "plan
assets." The regulation generally provides that when an ERISA or non-ERISA plan
acquires a security that is an equity interest in an entity and that security is
neither a "publicly offered security" nor a security issued by an investment
company registered under the Investment Company Act of 1940, the ERISA plan's or
non-ERISA plan's assets include both the equity interest and an undivided
interest in each of the underlying assets of the entity, unless it is
established either that the entity is an operating company or that equity
participation in the entity by benefit plan investors is not significant.
Each class of our shares, that is our common shares and any class of
preferred shares that we may issue, must be analyzed separately to ascertain
whether it is a publicly offered security. The regulation defines a publicly
offered security as a security that is "widely held," "freely transferable" and
either part of a class of securities registered under the Securities Exchange
Act of 1934, or sold under an effective registration statement under the
Securities Act of 1933, provided the securities are registered under the
Securities Exchange Act of 1934 within 120 days after the end of the fiscal year
of the issuer during which the offering occurred. All our outstanding shares
have been registered under the Securities Exchange Act of 1934.
The regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. However, a security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control. Our common shares have been widely held and we expect our
common shares to
16
<PAGE>
continue to be widely held. We expect the same to be true of any class of
preferred stock that we may issue, but we can give no assurance in that regard.
The regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The regulation further provides that, where a
security is part of an offering in which the minimum investment is $10,000 or
less, some restrictions on transfer ordinarily will not, alone or in
combination, affect a finding that these securities are freely transferable. The
restrictions on transfer enumerated in the regulation as not affecting that
finding include:
o any restriction on or prohibition against any transfer or assignment
which would result in a termination or reclassification for federal or
state tax purposes, or would otherwise violate any state or federal
law or court order;
o any requirement that advance notice of a transfer or assignment be
given to the issuer and any requirement that either the transferor or
transferee, or both, execute documentation setting forth
representations as to compliance with any restrictions on transfer
which are among those enumerated in the regulation as not affecting
free transferability, including those described in the preceding
clause of this sentence;
o any administrative procedure which establishes an effective date, or
an event prior to which a transfer or assignment will not be
effective; and
o any limitation or restriction on transfer or assignment which is not
imposed by the issuer or a person acting on behalf of the issuer.
We believe that the restrictions imposed under our declaration of trust
on the transfer of shares do not result in the failure of our shares to be
"freely transferable." Furthermore, we believe that at present there exist no
other facts or circumstances limiting the transferability of our shares which
are not included among those enumerated as not affecting their free
transferability under the regulation, and we do not expect or intend to impose
in the future, or to permit any person to impose on our behalf, any limitations
or restrictions on transfer which would not be among the enumerated permissible
limitations or restrictions.
Assuming that each class of our shares will be "widely held" and that
no other facts and circumstances exist which restrict transferability of these
shares, we have received an opinion of our counsel Sullivan & Worcester LLP that
our shares will not fail to be "freely transferable" for purposes of the
regulation due to the restrictions on transfer of the shares under our
declaration of trust and that under the regulation the shares are publicly
offered securities and our assets will not be deemed to be "plan assets" of any
ERISA plan or non-ERISA plan that invests in our shares.
17
<PAGE>
Item 2. Properties
General. At December 31, 1999, approximately 89% of our total
investments were in office buildings, 7% were in senior housing properties
through our equity investment in SNH and 4% were in hotels through our equity
investment in HPT. We believe that the physical plant of each of the properties
in which we have invested is suitable and adequate for our present and any
currently proposed uses. At December 31, 1999, we had real estate investments
totaling $2.7 billion at cost in 201 properties that were leased to or operated
by over 800 tenants, plus equity investments of approximately $201.8 million
(carrying value) and $109.3 million (carrying value) in approximately 49.3% and
7.1% of the common shares of SNH and HPT, respectively. At December 31, 1999,
SNH and HPT had investments in 93 senior housing properties and 210 hotel
properties, respectively. At December 31, 1999, 11 properties we owned with an
aggregate cost of $99 million were secured by five mortgage notes payable
aggregating $55.4 million.
The following table summarizes some information about our properties as
of December 31, 1999. All dollar figures are in thousands.
<TABLE>
<CAPTION>
REAL ESTATE OWNED AT DECEMBER 31, 1999:
Number of Investment Investment
Location Properties Amount Net Book Value Rent (1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office Properties:
Alaska 1 $1,003 $946 $453
Arizona 6 51,729 50,213 6,607
California 18 254,734 239,086 36,616
Colorado 4 47,350 46,178 7,050
Connecticut 2 14,365 13,890 2,380
Delaware 2 58,916 57,316 7,661
District of Columbia 5 208,490 197,402 29,241
Florida 4 11,618 11,135 1,654
Georgia 1 2,987 2,821 471
Kansas 1 5,977 5,588 1,691
Maryland 8 164,312 155,881 23,180
Massachusetts 31 185,065 172,941 27,955
Minnesota 14 115,048 112,945 18,771
Missouri 1 7,776 7,339 886
New Hampshire 1 22,158 21,846 2,485
New Jersey 4 29,966 28,949 4,106
New Mexico 6 30,210 29,427 5,276
New York 11 275,562 267,006 43,480
Ohio 1 15,279 14,749 2,222
Oklahoma 6 46,298 44,723 4,395
Pennsylvania 26 602,698 580,229 90,750
Rhode Island 1 8,010 7,529 931
Tennessee 1 22,376 21,668 3,141
Texas 30 369,603 359,256 59,802
Virginia 6 68,133 65,801 10,121
Washington 2 21,431 20,227 2,519
West Virginia 1 4,933 4,657 700
Wyoming 1 10,317 9,737 1,305
------------------- ------------------ ------------------- -------------------
Total Real Estate 195 $2,656,344 $2,549,485 $395,849
=================== ================== =================== ===================
<FN>
(1) Amounts represent income from properties owned for the 12 months ended December 31, 1999, and annualized income
from properties acquired during 1999.
</FN>
</TABLE>
18
<PAGE>
Item 3. Legal Proceedings
As previously disclosed, in early 1995 we commenced an action in
Florida state court to collect on a secured indemnity agreement from a former
tenant and mortgagor, together with certain related parties (collectively, the
"Former Tenant"). In May 1995 the Former Tenant filed a counterclaim and
third-party complaint against us and others, including Messrs. Martin and
Portnoy, HRPT Advisors, Inc. and Sullivan & Worcester LLP, seeking, among other
things, to set aside the indemnity agreement and to recover substantial damages.
After a Massachusetts state court ordered the dispute to arbitration and a
Florida court stayed further proceedings pending arbitration, the Former Tenant
brought a separate action against us in the United States District Court for the
District of Massachusetts and realleged many of the same allegations made in the
counterclaims and third-party complaints previously brought by them in response
to our original action, and added allegations of violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended, Rule 10b-5
promulgated thereunder and violations of 18 U.S.C. ss. 1962 (RICO). In September
1996, the United States District Court for the District of Massachusetts ordered
the case brought by the Former Tenant dismissed and all disputes between the
Former Tenant and us referred to arbitration. The arbitration is proceeding, and
although the amount of damages claimed by the Former Tenant is material, all
claims of the Former Tenant against us were dismissed in January 1999, except
one claim for common law fraud. The arbitrators' ruling, dismissing all but one
claim against us, both narrows substantially the scope of claims pending against
us and diminishes greatly the risk of the Former Tenant being able to hold us
liable for (i) attorneys fees and costs, or (ii) multiple damages, should the
Former Tenant prevail on its sole remaining claim. We continue to pursue our
indemnity claims in the arbitration. As we have previously disclosed, certain
related cases have also been filed by creditors or assignees of the Former
Tenant. The amounts of damages claimed by the creditors or assignees of the
Former Tenant are material. We are defending the claims of the creditors or
assignees of the Former Tenant in these related proceedings, currently pending
in Massachusetts Superior Court. The outcome of the arbitration and the related
pending claims and proceedings cannot be predicted.
The Declaration of Trust provides that our Trustees shall be
indemnified in certain circumstances by us in connection with claims asserted
against them by reason of their status, subject to various limitations contained
in the Declaration of Trust. Were Messrs. Martin and Portnoy to be held liable
in the proceedings described above, they may have a claim for indemnification
from us.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders during the fourth
quarter of the year covered by this Annual Report on Form 10-K.
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
Our shares are traded on the New York Stock Exchange (symbol: HRP). The
following table sets forth for the periods indicated the high and low sale
prices for our shares as reported in the New York Stock Exchange Composite
Transactions reports. Share prices on or before October 13, 1999 have not been
restated to reflect the spin-off of SNH.
High Low
---- ---
1998
First Quarter $20 15/16 $19 5/8
Second Quarter 20 1/4 17 7/8
Third Quarter 18 13/16 15 5/8
Fourth Quarter 17 1/8 14
1999
First Quarter 15 13
Second Quarter 15 9/16 13 5/16
Third Quarter 15 1/8 11 1/4
Fourth Quarter 12 1/8 7 7/16
The closing price of our shares on the New York Stock Exchange on March
27, 2000 was $8.
19
<PAGE>
As of March 10, 2000, there were 5,575 holders of record of our shares,
and we estimate that as of that date there were in excess of 120,000 beneficial
owners of our shares.
Distributions declared with respect to each period for the two most
recent fiscal years are set forth in the following table. Distributions are
generally paid in the quarter following the quarter to which they relate.
Distribution
Per Share
1998
First Quarter $0.38
Second Quarter 0.38
Third Quarter 0.38
Fourth Quarter 0.38
1999
First Quarter 0.38
Second Quarter 0.38
Third Quarter 0.32
Fourth Quarter 0.32
All distributions declared have been paid. We intend to continue to
declare and pay future distributions on a quarterly basis. In addition to the
distributions shown above, a non-cash distribution of $1.65 per share was made
on October 12, 1999 for the spin-off of SNH.
In order to qualify for the beneficial tax treatment accorded to REITs
by Sections 856 through 860 of the Internal Revenue Code, we are required to
make distributions to shareholders which annually are equal to at least 95% of
our taxable income. All distributions made by us are at the discretion of the
Trustees and depend on our earnings, our cash flow available for distribution,
our financial condition and other factors that the Trustees deem relevant.
In December 1999, we issued 500 shares pursuant to our Incentive Share
Award Plan to an independent trustee elected to the Board of Trustees to fill a
vacancy. The shares were valued at $7.625 per share, the closing price of our
shares on the New York Stock Exchange on December 16, 1999. The grant was made
pursuant to the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.
20
<PAGE>
Item 6. Selected Financial Data
Set forth below is selected financial data for the periods and dates
indicated. This data should be read in conjunction with, and is qualified in its
entirety by reference to, the consolidated financial statements and accompanying
notes included herein in Item 14 of this Annual Report on Form 10-K. Amounts are
in thousands, except per share information.
<TABLE>
<CAPTION>
Income Statement Data: Year Ended December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $427,541 $356,554 $208,863 $120,183 $113,322
Income before gain on sale of
properties and extraordinary item 105,555 146,656 112,204 77,164 61,760
Income before extraordinary item 113,862 146,656 115,102 77,164 64,236
Net income 113,862 144,516 114,000 73,254 64,236
Funds from operations - basic (1) 224,816 211,715 146,312 99,106 84,638
Funds from operations - diluted (1) 240,975 227,904 162,738 103,253 84,638
Dividends declared (2) 410,152 190,341 144,271 94,299 83,954
Weighted average shares outstanding 131,843 119,867 92,168 66,255 59,227
Per basic common share amounts:
Income before gain on sale of
properties and extraordinary item $0.80 $1.22 $1.22 $1.16 $1.04
Income before extraordinary item 0.86 1.22 1.25 1.16 1.08
Net income 0.86 1.21 1.24 1.11 1.08
Funds from operations - basic (1) 1.71 1.77 1.59 1.50 1.43
Funds from operations - diluted (1) 1.68 1.74 1.57 1.49 1.43
Dividends declared (2) 3.05 1.52 1.46 1.42 1.38
<CAPTION>
Balance Sheet Data: At December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate properties, at cost $2,656,344 $2,956,482 $1,969,023 $1,005,739 $778,211
Real estate mortgages and notes, net 10,373 69,228 104,288 150,205 141,307
Equity investments 311,113 113,234 113,654 105,422 102,159
Total assets 2,953,308 3,064,057 2,135,963 1,229,522 999,677
Total indebtedness 1,349,890 1,132,081 787,879 492,175 269,759
Total shareholders' equity 1,522,467 1,827,793 1,266,260 708,048 685,592
<FN>
(1) Funds From Operations ("FFO"), as defined in the White Paper on Funds From Operations, which was approved by
the Board of Governors of NAREIT in March 1995, means net income (computed in accordance with Generally
Accepted Accounting Principles ("GAAP")), excluding gains or losses from debt restructuring and sales of
properties, plus depreciation and amortization and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures is calculated to reflect funds from
operations on the same basis. As provided in the NAREIT guidance, items classified by GAAP as extraordinary or
unusual, along with significant non-recurring events that materially distort the comparative measurement of
company performance over time, are disregarded in the calculation. We consider FFO to be an appropriate
measure of performance for an equity REIT, along with cash flow from operating activities, financing
activities and investing activities, because it provides investors with an indication of an equity REIT's
ability to incur and service debt, make capital expenditures, pay distributions and fund other cash needs. We
compute FFO in accordance with the standards established by NAREIT which may not be comparable to FFO reported
by other REITs that do not define the term in accordance with the current NAREIT definition or that interpret
the current NAREIT definition differently. FFO does not represent cash generated by operating activities in
accordance with GAAP and should not be considered as an alternative to net income, determined in accordance
with GAAP, as an indication of financial performance or the cash flow from operating activities, determined in
accordance with GAAP, as a measure of liquidity.
(2) Includes non-recurring dividend distribution of shares in SNH, a formerly 100% owned subsidiary of the Company
which is now a separately listed REIT on the New York Stock Exchange under the symbol "SNH." The regular cash
dividends declared with respect to 1999 were $184,665 or $1.40 per share. The current regular cash dividend
rate is $0.32 per share per quarter.
</FN>
</TABLE>
21
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information is provided in connection with, and should be
read in conjunction with, the consolidated financial statements included herein
in Item 14 of this Annual Report on Form 10-K.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total revenues for the year ended December 31, 1999 increased to $427.5
million from $356.6 million for the year ended December 31, 1998. Revenues from
our office segment increased $102.5 million and revenues from our senior housing
segment decreased $32.5 million. The increase in revenues from our office
segment is due to our increased real estate investments in office buildings. The
decrease in revenues from our senior housing segment is due primarily to the
spin-off of our subsidiary, Senior Housing Properties Trust ("SNH") discussed
below, and the sale of some senior housing properties.
Rental income increased by $75.3 million and interest and other income
decreased by $4.4 million. Rental income increased because of real estate
investments made in 1999 and 1998, offset by the spin-off of SNH and the sale of
some senior housing properties. Interest and other income decreased as a result
of the spin-off and the repayment of many of our mortgage loan investments.
Total expenses for the year ended December 31, 1999, increased to
$319.7 million from $219.8 million for the year ended December 31, 1998.
Included in total expenses for 1999 are unusual and non-recurring items
aggregating $23.7 million: approximately $16.7 million represents the SNH
spin-off transaction costs, and $7 million represents the write-down to net
realizable value of the carrying value of two real estate mortgages receivable.
Operating expenses increased by $38.8 million primarily as a result of our
increased investment in "gross leased" real estate assets during 1999 and 1998.
Interest expense increased to $87.5 million for the year ended December 31,
1999, from $64.3 million for the year ended December 31, 1998, mainly due to
higher borrowings outstanding during 1999 compared to 1998. Similarly,
depreciation and amortization and general and administrative expenses increased
from 1998 to 1999 as a result of new real estate investments during 1999 and
1998.
Net income decreased to $113.9 million, or $0.86 per basic and diluted
share for the 1999 period, from $144.5 million, or $1.21 per basic and diluted
share, for the 1998 period. The decrease in net income is due primarily to the
spin-off of SNH and the unusual and non-recurring items discussed above, offset
by new real estate investments in 1999 and 1998. Also, our equity in earnings of
equity investments reflects a non-recurring loss recognized by SNH in December
1999, discussed below.
On October 12, 1999, we spun-off 50.7% of our 100% owned subsidiary,
SNH, by distributing 13.2 million common shares of SNH to our shareholders of
record on October 8, 1999. SNH is a real estate investment trust with 26 million
common shares outstanding that invests principally in income producing senior
housing real estate. In connection with the spin-off, we received $200 million
from SNH that was used to repay amounts outstanding under our revolving bank
credit facility.
At December 31, 1999, SNH had investments in 93 assisted living,
congregate care and nursing home properties. Since the spin-off, our investment
in SNH has been accounted for using the equity method. Prior to the spin-off,
the operating results and investments of SNH were included in the Company's
results of operations and total assets. At December 31, 1999, we owned 12.8
million, or 49.3%, of the common shares of beneficial interest of SNH with a
carrying value of $201.8 million and a market value of $158.5 million.
We agreed to pay all costs relating to the spin-off of SNH. Through
December 31, 1999, these costs totaled $16.7 million, which included costs of
distributing SNH shares to shareholders, legal and accounting fees, Securities
and Exchange Commission filing fees, New York Stock Exchange listing fees and
the up-front costs of establishing SNH's bank credit facility.
22
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - continued
Our principal business goal is to maximize funds from operations
("FFO") rather than net income. Our Board of Trustees considers FFO, among other
factors, when determining distributions to be paid to shareholders. FFO, as
defined in the White Paper on Funds From Operations, which was approved by the
Board of Governors of NAREIT in March 1995, means net income (computed in
accordance with Generally Accepted Accounting Principles ("GAAP")), excluding
gains or losses from debt restructuring and sales of properties, plus
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures is calculated to reflect funds from operations on the same basis.
As provided in the NAREIT guidance, items classified by GAAP as extraordinary or
unusual, along with significant non-recurring events that materially distort the
comparative measurement of company performance over time, are disregarded in the
calculation. We consider FFO to be an appropriate measure of performance for an
equity REIT, along with cash flow from operating activities, financing
activities and investing activities, because it provides investors with an
indication of an equity REIT's ability to incur and service debt, make capital
expenditures, pay distributions and fund other cash needs. We compute FFO in
accordance with the standards established by NAREIT which may not be comparable
to FFO reported by other REITs that do not define the term in accordance with
the current NAREIT definition or that interpret the current NAREIT definition
differently. FFO does not represent cash generated by operating activities in
accordance with GAAP and should not be considered as an alternative to net
income, determined in accordance with GAAP, as an indication of financial
performance or the cash flow from operating activities, determined in accordance
with GAAP, as a measure of liquidity.
Funds from operations for the year ended December 31, 1999, were $241.0
million, or $1.68 per diluted share, compared to $227.9 million, or $1.74 per
diluted share, in 1998. The increase is primarily the result of new investments
in 1999 and 1998, offset by a loss of FFO resulting from the spin-off of SNH.
Extraordinary, unusual and non-recurring losses excluded from the 1999
calculation aggregated $23.7 million. The decrease in FFO per diluted share is
due primarily to the issuance of additional shares in 1998 and the spin-off of
SNH in 1999. Effective January 1, 2000, based on revised NAREIT guidance, FFO
will include both recurring and non-recurring results of operations.
Consequently, under the new definition, 1999's unusual and non-recurring losses
would not have been excluded.
Cash distributions declared for the years ended December 31, 1999 and
1998 were $184.7 million, or $1.40 per share, and $190.3 million, or $1.52 per
share, respectively. In addition, shares of SNH were distributed on October 12,
1999, to complete the spin-off discussed above. Dividends paid in the first
quarter of the year generally pertain to the prior year. Distributions in excess
of net income constitute return of capital. For 1999, the return of capital was
39.8% of distributions.
Cash flows provided by (used for) operating, investing and financing
activities were $223.6 million, ($213.8) million and ($12.3) million,
respectively, for the year ended December 31, 1999 and $194.3 million, ($947.4)
million and $746.3 million, respectively, for the year ended December 31, 1998.
Changes in all three categories between 1999 and 1998 are primarily related to
new office property investments, the sale of senior housing investments and the
spin-off of SNH.
Cash flow provided by operating activities and cash available for
distribution may not necessarily equal funds from operations as cash flow is
affected by other factors not included in the funds from operations calculation,
such as changes in assets and liabilities.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenues for the year ended December 31, 1998 increased to $356.6
million from $208.9 million for the year ended December 31, 1997. Revenues from
our office segment increased $152.3 million and revenues from our senior housing
segment decreased $3.1 million. The increase in revenues from our office segment
is due to our increased real estate investments in office buildings in 1998 and
1997. The decrease in rental income from our senior housing segment is a result
of the repayment of some of our senior housing mortgage loan investments.
Total expenses for the year ended December 31, 1998, increased to
$219.8 million from $114.5 million for the year ended December 31, 1997.
Operating expenses increased by $50.8 million as a result of our increased
investment in "gross leased" real estate assets during the 1998 and 1997
periods. Interest expense increased to $64.3 million for the year ended December
31, 1998, from $36.8 million for the year ended December 31, 1997, as a result
of higher borrowings outstanding in the 1998 period compared to the 1997 period.
Similarly, depreciation and amortization and general and administrative expenses
increased between 1998 and 1997 as a result of new real estate investments in
1998 and 1997.
23
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - continued
Net income was $144.5 million, or $1.21 per basic and diluted share for
1998, compared to $114.0 million, or $1.24 per basic and diluted
share for 1997. Net income increased primarily as a result of new
real estate investments in 1998 and 1997. On a per share basis, net income
decreased due to the issuance of additional shares in 1998 and 1997.
Funds from operations for the year ended December 31, 1998, were $227.9
million, or $1.74 per diluted share, versus $162.7 million, or $1.57 per diluted
share, in 1997. The increase is primarily the result of new investments in 1998
and 1997. Distributions declared for the years ended December 31, 1998 and 1997
were $190.3 million, or $1.52 per share, and $144.3 million, or $1.46 per share,
respectively. Distributions in excess of net income constitute a return of
capital. For 1998, return of capital was 6.4% of distributions.
Cash flows provided by (used for) operating, investing and financing
activities were $194.3 million, ($947.4) million and $746.3 million,
respectively, for the year ended December 31, 1998, and $185.7 million, ($815.2)
million and $630 million, respectively, for the year ended December 31, 1997.
The increases in all three categories are primarily the result of new real
estate investments in 1998 and 1997 and the related financings to fund these
investments.
Cash flow provided by operating activities and cash available for
distribution may not necessarily equal funds from operations as cash flow is
affected by other factors not included in the funds from operations calculation,
such as changes in assets and liabilities.
Liquidity and Capital Resources
Total assets were $3.0 billion at December 31, 1999 compared to $3.1
billion as of December 31, 1998.
During 1999, we purchased 61 office buildings for $516.5 million and
funded $9.7 million of improvements to our existing properties, using cash on
hand, borrowings under our bank credit facility and the assumption of $32.4
million of mortgage debt. In addition, we sold 14 senior housing properties for
net proceeds of $82.2 million and recognized a gain of $8.3 million. As part of
the sale of 12 of the senior housing properties during March of 1999, we
provided a $60 million mortgage loan which was paid in full in June 1999.
During 1999, we received regularly scheduled principal payments and
repayments on mortgages secured by eight senior housing properties totaling
$15.6 million. We also received a $1 million loan repayment from an affiliate.
During 1999, we wrote down the carrying value of two real estate mortgages
secured by four nursing home properties by $5 million to reflect our estimated
future discounted realizable value.
At December 31, 1999, we owned 12.8 million, or 49.3%, of the common
shares of beneficial interest of SNH with a carrying value of $201.8 million and
a market value of $158.5 million. On March 16, 2000, the market value of our
12.8 million SNH shares was $109.6 million.
During January and February of 2000, two of SNH's tenants, accounting
for approximately 48% of SNH's revenues, filed for bankruptcy. Based on
estimates of future cash flows from properties leased to these two bankrupt
tenants, SNH has recognized an impairment in the carrying value of properties
totaling $30 million. This value impairment has reduced SNH's net income for the
year ended December 31, 1999. We recognized $14.8 million of SNH's asset
impairment loss on our consolidated statement of income for the year ended
December 31, 1999, through our 49.3% ownership interest in SNH. This non-cash
amount is not reflected in our calculation of FFO. In the short-term, the level
of dividends paid by SNH to its shareholders, including HRPT, will depend on the
final outcome of SNH's negotiations with these two tenants.
In March 2000, SNH and one of its bankrupt tenants reached an agreement
which would result in the cancellation and modification of the leases and the
exchange of certain properties leased to the tenant for cash and other
consideration. This agreement is subject to final documentation, approval by the
bankruptcy court and approval by SNH's board of trustees. Therefore, no
assurance can be given as to if, and when, this transaction will close, or if
all of the terms currently agreed to will be accepted. SNH is currently in
negotiations to reach a settlement agreement with the other bankrupt tenant. The
current negotiations include, but are not limited to, the possibilities that SNH
will sell the properties, that lease terms may be changed, that new tenants may
begin operations of properties or that properties may be operated by SNH for its
own account. SNH may recognize additional gains or losses when these
negotiations are completed, which will be reflected in our consolidated
statement of income through our 49.3% ownership interest of SNH. Pending
completion of the negotiations, SNH is relying on an agreement with a third
party principal obligor for payment of rents in evaluating its asset impairment
loss.
24
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - continued
At December 31, 1999, we owned 4 million, or 7.1%, of the common shares
of beneficial interest of HPT with a carrying value of $109.3 million and a
market value of $76.3 million. On March 16, 2000, the market value of our 4
million HPT shares was $80.8 million. During 1999, HPT completed a public
offering of 10.8 million common shares of beneficial interest at a per share
price of $26.8125 for total consideration of approximately $289.9 million. As a
result of this transaction, our ownership percentage in HPT was reduced from
8.8% to 7.1% and we recognized a loss of $711,000. Although we did not sell any
shares, pursuant to our accounting policy, gains and losses on the issuance of
common shares of beneficial interest by HPT are recognized in our income
statement. This amount is not reflected in our calculation of FFO.
During 1999, we issued $90 million unsecured 7.875% senior notes due
2009 and $65 million unsecured 8.375% senior notes due 2011. Net proceeds of
$150.2 million were used to repay amounts outstanding under our revolving credit
facility. These notes are callable at par on April 15, 2002 and June 15, 2003,
respectively. In addition, we assumed $32.4 million of secured mortgage notes
payable in connection with the acquisition of eight office properties. These
mortgage notes bear interest at rates ranging from 7.02% to 9.12% and mature
between 2004 and 2008.
At December 31, 1999, we had $13.2 million of cash and cash
equivalents, and $132 million outstanding and $368 million available on our $500
million revolving bank credit facility. At December 31, 1999, $2.5 billion was
available on our $3 billion shelf registration statement.
In December 1999 we announced a three-part initiative. First, 10
properties containing approximately 900,000 square feet have been targeted for
possible sales. Negotiations for these sales are underway. If all the targeted
properties are sold, the proceeds are expected to be approximately $150-$160
million. Second, we commenced discussions regarding two separate joint ventures
by which part interests in different pools of properties may be sold to
investors. If these joint ventures are successfully concluded, we expect to
realize between $200 million and $400 million, and at the same time, the risk
profile of our asset concentrations will be diversified. Third, the proceeds
from these sales and joint ventures will be used to prepay debt, to selectively
purchase new investments and to fund a share buy back program. There can be no
assurance that our sales or joint venture efforts will be successfully
concluded.
There can be no assurances that debt or equity financing will be
available to fund future growth, but we do expect that financing will be
available. As of December 31, 1999, our debt as a percentage of total book
capitalization was approximately 47%.
Impact of Inflation
Management does not believe that the modest inflation which we expect
to occur in the United States economy during the next few years will have a
material effect on our business. In the real estate market, inflation tends to
increase the value of our underlying real estate that may be realized when
properties are sold. Similarly, rent yields we can charge would most likely
increase with inflation. Conversely, inflation might cause our cost of new
acquisitions and of debt capital to increase. To mitigate the potential impact
of inflation on our cost of debt capital, we may purchase interest rate cap
contracts when we believe material interest rate increases are likely to occur.
Year 2000
In prior years, we discussed the nature and progress of our plans to
become Year 2000 compliant and, in late 1999, we completed our remediation and
testing of systems. As a result of our efforts, we experienced no significant
disruptions in our information and non-information technology systems, and we
believe these systems successfully responded to the Year 2000 date change. We
are not aware of any material problems resulting from Year 2000 issues by our
systems or the systems of our tenants and vendors, but we will continue to
monitor these systems throughout the year to ensure that any late Year 2000
issues that may arise are addressed promptly. Costs incurred to date and
anticipated future costs are not material.
25
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - continued
Certain Considerations
The discussion and analysis of our financial condition and results of operations
requires us to make estimates and assumptions and contains statements of our
beliefs, intent or expectations concerning projections, plans, future events and
performance. The estimates, assumptions and statements, such as those relating
to our ability to sell assets at estimated prices or at any price, our ability
to successfully conclude joint ventures, our ability to repurchase shares at
favorable prices or at any price, our ability to expand our portfolio,
performance of our assets, the ability to pay distributions from FFO, our tax
status as a "real estate investment trust" and the ability to access capital
markets depends upon various factors over which we and our tenants have or may
have limited or no control. Those factors include, without limitation, the
status of the economy, capital markets (including prevailing interest rates),
competition, changes in federal, state and local legislation and other factors.
We cannot predict the impact of these factors, if any. These factors could cause
our actual results for subsequent periods to be different from those stated,
estimated or assumed in this discussion and analysis of our financial condition
and results of operations. We believe that our estimates and assumptions are
reasonable at this time. However, investors are cautioned not to place undue
reliance upon our estimates, assumptions or other forward looking statements.
26
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market changes in interest rates. We manage our
exposure to this market risk through our monitoring of available financing
alternatives. Our strategy to manage exposure to changes in interest rates is
unchanged from December 31, 1998. Furthermore, we do not foresee any significant
changes in our exposure to fluctuations in interest rates or in how this
exposure is managed in the near future. At December 31, 1999, our total
outstanding debt for fixed rate notes consisted of the following:
Amount Coupon Maturity
Unsecured senior notes:
$40.0 million 7.25% 2001
160.0 million 6.875% 2002
150.0 million 6.75% 2002
164.9 million 7.50% 2003
100.0 million 6.7% 2005
90.0 million 7.875% 2009
65.0 million 8.375% 2011
143.0 million 8.5% 2013
Secured notes:
$3.5 million 9.12% 2004
11.1 million 8.40% 2007
17.7 million 7.02% 2008
12.2 million 8.00% 2008
10.9 million 7.66% 2009
No principal repayments are due under the unsecured senior notes until
maturity. If, at maturity, the unsecured senior notes were to be refinanced at
interest rates which are 1/2 percentage point higher than shown above, our per
annum interest cost would increase by approximately $4.6 million. The secured
notes are secured by 11 of our office properties and require principal and
interest payments through maturity.
The market prices, if any, of each of our fixed rate obligations as of
December 31, 1999, are sensitive to changes in interest rates. Typically, if
market rates of interest increase, the current market price of a fixed rate
obligation will decrease. Conversely, if market rates of interest decrease, the
current market price of a fixed rate obligation will typically increase. Based
on the balances outstanding at December 31, 1999 and discounted cash flow
analyses, a hypothetical immediate one percentage point change in interest rates
would change the fair value of our fixed rate debt obligations by approximately
$41.1 million.
Each of our obligations for borrowed money has provisions that allow us
to make repayments earlier than the stated maturity date. In some cases, we are
not allowed to make early repayment prior to a cutoff date and in other cases we
are allowed to make prepayments only at a premium to face value. In any event,
these prepayment rights may afford us the opportunity to mitigate the risk of
refinancing at maturity at higher rates by refinancing at lower rates prior to
maturity.
At December 31, 1999, we had a $500 million unsecured bank credit
facility and unsecured Remarketed Reset Notes (the "Reset Notes") that were
subject to floating interest rates. Because these debt instruments are at a
floating rate, changes in interest rates will not affect their value. However,
changes in interest rates will affect our operating results. For example, the
interest rate payable on our outstanding Reset Notes of $250 million at December
31, 1999, was 7.43% per annum. An immediate 10% change in that interest rate, or
74 basis points, would increase or decrease our costs by $1.9 million, or $0.01
per share per year (dollars in thousands):
Impact of Changes in Interest Rates
------------------------------------------------------
Total Interest
Interest Rate Outstanding Expense Per
Per Year Debt Year
--------------- ------------- --------------
At December 31, 1999 7.43% $250,000 $18,575
10% reduction 6.69% 250,000 16,725
10% increase 8.17% 250,000 20,425
27
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk - continued
The foregoing table presents a so called "shock" analysis which assumes
that the interest rate change by 10% is in effect for a whole year. If interest
rates were to change gradually over one year the impact would be less.
We borrow in U.S. dollars and our current borrowings under our bank
credit facility and our Reset Notes are subject to interest at LIBOR plus a
premium. Accordingly, we are vulnerable to changes in U.S. dollar based short
term rates, specifically LIBOR.
During the past few months, short-term U.S. dollar based interest rates
have tended to rise. We are unable to predict the direction or amount of
interest rate changes during the next year. We have decided not to purchase an
interest rate cap or other hedge to protect against future rate increases, but
we may enter such agreements in the future. Also, we may incur additional debt
at floating or fixed rates, which would increase our exposure to market changes
in interest rates.
At December 31, 1999, we owned real estate mortgages and notes
receivable with a carrying value of $10.4 million. When comparable term market
interest rates decline, the value of these receivables increases; when
comparable term market interest rates rise, the value of these receivables
declines. Using discounted cash flow analyses at a weighted average estimated
per year market rate of 10.75%, the estimated fair value of our real estate
mortgages and notes receivable at December 31, 1999 is $11.6 million. An
immediate 10% change in the market rate of interest, or 108 basis points,
applicable to our real estate mortgages and notes receivable would affect the
fair value of those receivables as follows (dollars in thousands):
Carrying Value
Interest Rate of Mortgage Estimated Fair
Per Year Receivables Value
-------------------------------------------------------
Estimated market 10.75% $10,373 $11,556
10% reduction 9.67% 10,373 11,692
10% increase 11.83% 10,373 11,422
If the market rate changes occur gradually over time, the effect of
these changes would be realized gradually. Because our mortgage receivables are
fixed rate instruments, changes in market interest rates will have no effect on
our operating results unless these receivables are sold. At this time, we expect
to hold our existing mortgages to their maturity and not to realize any profit
or loss from trading these mortgage receivables. Also, we do not presently
expect to expand our mortgage investments.
The interest rate changes which affect the valuations of our mortgages
are U.S. dollar long term rates for corporate obligations of companies with
ratings similar to our mortgagors.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included herein in Item 14 of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
The information in Part III (Items 10, 11, 12 and 13) is incorporated by
reference to our definitive Proxy Statement, which will be filed not later than
120 days after the end of our fiscal year.
28
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements and Financial Statement Schedules
HRPT PROPERTIES TRUST
<TABLE>
<CAPTION>
The following consolidated financial statements and financial statement
schedules of HRPT Properties Trust are included herein on the pages indicated:
Page
<S> <C>
Report of Ernst & Young LLP, Independent Auditors F-1
Report of Arthur Andersen LLP, Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Income for each of the three years in the period
ended December 31, 1999 F-4
Consolidated Statements of Shareholders' Equity for each of the three years in the period ended
December 31, 1999 F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December
31, 1999 F-6
Notes to Consolidated Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts S-1
Schedule III - Real Estate and Accumulated Depreciation S-2
Schedule IV - Mortgage Loans on Real Estate S-9
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, or are inapplicable, and therefore have
been omitted.
(b) Reports on Form 8-K
During the fourth quarter of 1999, we filed the following Current
Reports on Form 8-K:
(i) Current Report on Form 8-K dated October 12, 1999, relating to
a) the spin-off of Senior Housing Properties Trust, b)
unaudited pro forma consolidated financial statements, and c)
filing as exhibits: 1) Transaction Agreement, dated as of
September 21, 1999, between Senior Housing Properties Trust
and HRPT Properties Trust, and 2) Promissory Note, dated
September 1, 1999, from SPTMRT Properties Trust and Senior
Housing Properties Trust, as makers, to HRPT Properties Trust,
as holder (Items 2 and 7).
(ii) Current Report on Form 8-K dated December 16, 1999, relating
to a) the election of new trustee and senior vice president,
b) the possible sale of properties and share buy back program,
c) amendment to HRPT Properties Trust advisory agreement, and
d) filing as an exhibit: Amendment No. 1 to Advisory
Agreement, dated as of October 12, 1999, between HRPT
Properties Trust and REIT Management & Research, Inc. (Items 5
and 7).
(c) Exhibits
3.1 Composite Copy of Third Amendment and Restatement of
Declaration of Trust of the Company dated July 1, 1994, as
amended to date. (incorporated by reference to the Company's
Current Report on Form 8-K, dated July 1, 1998)
3.2 Articles Supplementary dated November 4, 1994 to Third
Amendment and Restatement of Declaration of Trust dated July
1, 1994 creating the Junior Participating Preferred Shares.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated May 27, 1998)
3.3 Articles Supplementary dated May 13, 1997 to Third Amendment
and Restatement of Declaration of Trust dated July 1, 1994
increasing the Junior Participating Preferred Shares.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated May 27, 1998)
29
<PAGE>
3.4 Articles Supplementary dated May 22, 1998 to Third Amendment
and Restatement of Declaration of Trust dated July 1, 1997
increasing the Junior Participating Preferred Shares.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated May 27, 1998)
3.5 By-laws of the Company, as amended (incorporated by reference
to the Company's Current Report on Form 8-K, dated March 11,
1999)
4.1 Form of Common Share Certificate. (incorporated by reference
to the Company's Current Report on Form 8-K, dated March 11,
1999)
4.2 Rights Agreement dated October 17, 1994 between the Company
and State Street Bank and Trust Company, as Rights Agent
(including the form of Articles Supplementary relating to the
Junior Participating Preferred Shares annexed as an exhibit
thereto). (incorporated by reference to the Company's Current
Report on Form 8-A, dated October 24, 1994)
4.3 Indenture, dated as of September 20, 1996, between the Company
and Fleet National Bank ("Fleet") as trustee. (incorporated by
reference to the Company's Registration Statement on Form S-3,
File No. 333-02863)
4.4 First Supplemental Indenture, dated as of October 7, 1996,
between the Company and Fleet, as Trustee, relating to the
Company's 7.5% Convertible Subordinated Debentures due 2003,
Series A, including form thereof. (incorporated by reference
to the Company's Current Report on Form 8-K, dated October 7,
1996)
4.5 Second Supplemental Indenture, dated October 7, 1996, between
the Company and Fleet, as trustee, relating to the Company's
7.5% Convertible Subordinated Debentures due 2003, Series B,
including form thereof. (incorporated by reference to the
Company's Current Report on Form 8-K, dated October 7, 1996)
4.6 Third Supplemental Indenture, dated as of October 7, 1996,
between the Company and Fleet, as trustee, relating to the
Company's 7.25% Convertible Subordinated Debentures due 2001,
including form thereof. (incorporated by reference to the
Company's Current Report on Form 10-K, dated October 7, 1996)
4.7 Indenture, dated as of July 9, 1997, by and between the
Company and State Street Bank and Trust Company, as Trustee.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
4.8 Supplemental Indenture, dated July 9, 1997, by and between the
Company and State Street Bank and Trust Company, as Trustee,
relating to the Remarketed Reset Notes due July 9, 2007.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
4.9 Supplemental Indenture No. 2, dated as of February 23, 1998
between the Company and State Street bank and Trust Company,
relating to $50,000,000 in principal amount of Remarketed
Reset Notes due July 9, 2007. (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997)
4.10 Form of Global Note relating to the Remarketed Reset Notes due
July 9, 2007. (incorporated by reference to the Company's
Current Report on Form 8-K, dated July 2, 1997)
4.11 Supplemental Indenture No. 3 dated as of February 23, 1998 by
and between the Company and State Street Bank and Trust
Company, relating to the Company's 6.7% Senior Notes due 2005,
including form thereof. (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997)
4.12 Supplemental Indenture No. 4 dated as of August 26, 1998 by
and between the Company and State Street Bank and Trust
Company, relating to $160,000,000 in aggregate principal
amount of 6 ?% Senior Notes due 2002, including form thereof.
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998)
30
<PAGE>
4.13 Supplemental Indenture No. 5 dated as of November 30, 1998 by
and between the Company and State Street Bank and Trust
Company, relating to $130,000,000 in aggregate principal
amount of 81/2% Monthly Income Senior Notes due 2013,
including form thereof. (incorporated by reference to the
Company's Current Report on Form 8-K, dated March 11, 1999)
4.14 Supplemental Indenture No. 6 dated as of March 24, 1999 by and
between the Company and State Street Bank and Trust Company,
relating to $90,000,000 in aggregate principal amount of 7 ?%
Monthly Income Senior Notes due 2009, including form thereof.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998)
4.15 Supplemental Indenture No. 7, dated as of June 17, 1999, by
and between the Company and State Street Bank and Trust
Company, relating to $65,000,000 in aggregate principal amount
of 8?% Monthly Income Senior Notes due 2011, including form
thereof). (incorporated by reference to the Company's Current
Report on Form 8-K, dated June 14, 1999)
4.16 Indenture dated as of December 18, 1997 by and between the
Company and State Street Bank and Trust Company, as Trustee.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated December 5, 1997)
4.17 Supplemental Indenture dated as of December 18, 1997 by and
between the Company and State Street Bank and Trust Company,
as Trustee, relating to the Company's 6 3/4% Senior Notes due
2002, including form thereof. (incorporated by reference to
the Company's Current Report on Form 8-K, dated December 5,
1997)
8.1 Opinion of Sullivan & Worcester LLP as to certain tax matters.
(filed herewith)
9.1 Amended and Restated AMS Voting Trust Agreement. (incorporated
by reference to the Company's Registration Statement on Form
S-11, File No. 33-55684, dated December 23, 1992)
10.1 Advisory Agreement by and between REIT Management & Research,
Inc. and the Company dated as of January 1, 1998.(+)
(incorporated by reference to the Company's Current Report on
Form 8-K, dated February 11, 1998)
10.2 Amendment No. 1 to Advisory Agreement between the Company and
REIT Management & Research, Inc. dated as of October 12, 1999.
(+) (incorporated by reference to the Company's Current Report
on Form 8-K, dated December 16, 1999)
10.3 Agreement (for Property Management and Leasing Agent) between
M&P Partners Limited Partnership and various subsidiaries of
the Company, effective as of March 25, 1997, relating to
properties leased to Agencies of the United States Government
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1999)
10.4 Master Management Agreement by and among M&P Partners Limited
Partnership and the parties named therein dated as of December
31, 1997. (incorporated by reference to the Company's Current
Report on Form 8-K, dated February 27, 1998)
10.5 Master Management Agreement by and between the Company and
REIT Management & Research, Inc. dated as of December 31,
1997. (incorporated by reference to the Company's Current
Report on Form 8-K, dated February 27, 1998)
10.6 Representative Property Management Agreement, for properties
managed by REIT Management & Research, Inc. (filed herewith)
10.7 Parking Operation Management Agreement by and between HUB
Properties Trust, a subsidiary of the Company, and REIT
Management & Research, Inc. dated as of January 1, 1998.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated February 27, 1998)
10.8 Incentive Share Award Plan.(+) (incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
33-55684, dated December 23, 1992)
10.9 Fourth Amended and Restated Revolving Credit Agreement, dated
as of April 2, 1998, among the Company, as borrower, the
lenders named therein, Dresdner Kleinwort Benson North America
LLC, as agent, and Fleet National Bank, as administrative
agent. (incorporated by reference to the Company's Current
Report on Form 8-K, dated April 14, 1998)
31
<PAGE>
10.10 First Amendment and Limited Waiver to Loan Agreement, dated as
of February 12, 1999, among the Company, as borrower, the
lenders named therein, and Dresdner Kleinwart Benson North
America LLC, as agent. (filed herewith)
10.11 Transaction Agreement between Senior Housing Properties Trust
and the Company, dated as of September 21, 1999. (incorporated
by reference to the Company's Current Report on Form 8-K,
dated October 12, 1999)
10.12 Promissory Note from SPTMRT Properties Trust and Senior
Housing Properties Trust, as makers, to the Company, dated
September 1, 1999. (incorporated by reference to the Company's
Current Report on Form 8-K, dated October 12, 1999)
12.1 Statement regarding computation of ratio of earnings to fixed
charges. (filed herewith)
21.1 Subsidiaries of the Registrant. (filed herewith)
23.1 Consent of Ernst & Young LLP. (filed herewith)
23.2 Consent of Arthur Andersen LLP. (filed herewith)
23.3 Consent of Sullivan & Worcester LLP (included as part of
Exhibit 8.1 hereto)
27.1 Financial Data Schedule. (filed herewith)
(+) Management contract or compensatory plan or arrangement.
32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Trustees and Shareholders of HRPT Properties Trust
We have audited the accompanying consolidated balance sheets of HRPT Properties
Trust as of December 31, 1999 and 1998, and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. Our audits also included the financial
statements and schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits. The financial statements of Hospitality
Properties Trust (a real estate investment trust in which the Company has a 7.1%
and 8.8% interest as of December 31, 1999 and 1998, respectively) have been
audited by other auditors whose report has been furnished to us; insofar as our
opinion on the consolidated financial statements relates to data included for
Hospitality Properties Trust, it is based solely on their report.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of HRPT Properties Trust at December 31,
1999 and 1998, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
March 17, 2000
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Hospitality Properties Trust:
We have audited the consolidated balance sheet of Hospitality Properties Trust
and subsidiaries (the "Company") as of December 31, 1999 and 1998, and the
related consolidated statements of income, shareholders' equity and cash flows
(not presented herein) for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hospitality
Properties Trust and subsidiaries as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Vienna, Virginia
January 14, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
HRPT PROPERTIES TRUST
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
December 31,
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
ASSETS
Real estate properties, at cost (including properties leased to
affiliates with a cost of $113,594 in 1998):
Land $ 354,173 $ 369,770
Buildings and improvements 2,302,171 2,586,712
--------------------------------
2,656,344 2,956,482
Less accumulated depreciation 106,859 169,811
--------------------------------
2,549,485 2,786,671
Real estate mortgages and notes receivable, net (including note
from an affiliate of $1,000 in 1998) 10,373 69,228
Equity investments 311,113 113,234
Cash and cash equivalents 13,206 15,643
Interest and rents receivable 36,683 33,549
Other assets, net 32,448 45,732
--------------------------------
$ 2,953,308 $ 3,064,057
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank notes payable $ 132,000 $ 100,000
Senior notes payable, net 957,586 802,439
Mortgage notes payable 55,441 24,779
Convertible subordinated debentures 204,863 204,863
Accounts payable and accrued expenses 53,851 44,446
Deferred rents 9,005 34,162
Security deposits 7,041 18,383
Due to affiliates 11,054 7,192
Commitments and contingencies
Shareholders' equity:
Preferred shares of beneficial interest, $0.01 par value:
50,000,000 shares authorized, none issued -- --
Common shares of beneficial interest, $0.01 par value:
150,000,000 shares authorized, 131,908,126 shares and
131,547,178 shares issued and outstanding, respectively 1,319 1,315
Additional paid-in capital 1,971,366 1,964,878
Cumulative net income 678,676 564,814
Distributions (1,121,533) (703,214)
Unrealized holding losses on investments (7,361) --
--------------------------------
Total shareholders' equity 1,522,467 1,827,793
--------------------------------
$ 2,953,308 $ 3,064,057
================================
</TABLE>
See accompanying notes
F-3
<PAGE>
<TABLE>
<CAPTION>
HRPT PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year Ended December 31,
-----------------------------------
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Revenues:
Rental income $ 416,198 $ 340,851 $ 188,000
Interest and other income 11,343 15,703 20,863
-----------------------------------
Total revenues 427,541 356,554 208,863
-----------------------------------
Expenses:
Operating expenses 116,365 77,536 26,765
Interest 87,470 64,326 36,766
Depreciation and amortization 73,382 60,764 39,330
General and administrative 18,704 17,172 11,670
Impairment of assets 7,000 -- --
Senior Housing Properties Trust transaction costs 16,739 -- --
-----------------------------------
Total expenses 319,660 219,798 114,531
-----------------------------------
Income before equity in (loss) earnings of equity investments,
gain on sale of properties and extraordinary item 107,881 136,756 94,332
Equity in (loss) earnings of equity investments (1,615) 7,687 8,590
(Loss) gain on equity transaction of equity investments (711) 2,213 9,282
-----------------------------------
Income before gain on sale of properties and
extraordinary item 105,555 146,656 112,204
Gain on sale of properties, net 8,307 -- 2,898
-----------------------------------
Income before extraordinary item 113,862 146,656 115,102
Extraordinary item - early extinguishment of debt -- (2,140) (1,102)
-----------------------------------
Net income $ 113,862 $ 144,516 $ 114,000
===================================
Weighted average shares outstanding 131,843 119,867 92,168
===================================
Basic and diluted earnings per common share:
Income before gain on sale of properties and
extraordinary item $ 0.80 $ 1.22 $ 1.22
===================================
Income before extraordinary item $ 0.86 $ 1.22 $ 1.25
===================================
Net income $ 0.86 $ 1.21 $ 1.24
===================================
</TABLE>
See accompanying notes
F-4
<PAGE>
<TABLE>
<CAPTION>
HRPT PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
Accumulated
Additional Cumulative Other
Number of Common Paid-in Net Comprehensive
Shares Shares Capital Income Distributions Loss Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 66,888,917 $ 669 $ 795,263 $306,298 $ (394,182) $-- $ 708,048
Issuance of shares to
acquire real estate 3,985,028 40 76,521 -- -- -- 76,561
Issuance of shares 27,025,000 270 482,883 -- -- -- 483,153
Conversion of convertible
subordinated debentures, net 910,379 9 15,756 -- -- -- 15,765
Stock grants 43,846 -- 813 -- -- -- 813
Net income -- -- -- 114,000 -- -- 114,000
Distributions -- -- -- -- (132,080) -- (132,080)
-------------------------------------------------------------------------------------------
Balance at December 31, 1997, 98,853,170 988 1,371,236 420,298 (526,262) -- 1,266,260
Issuance of shares to
acquire real estate 286,400 3 5,702 -- -- -- 5,705
Issuance of shares 31,977,575 320 579,986 -- -- -- 580,306
Conversion of convertible
subordinated debentures, net 362,217 3 6,626 -- -- -- 6,629
Stock grants 67,816 1 1,328 -- -- -- 1,329
Net income -- -- -- 144,516 -- -- 144,516
Distributions -- -- -- -- (176,952) -- (176,952)
-------------------------------------------------------------------------------------------
Balance at December 31, 1998 131,547,178 1,315 1,964,878 564,814 (703,214) -- 1,827,793
Issuance of shares to
acquire real estate 256,246 3 4,956 -- -- -- 4,959
Stock grants 104,702 1 1,532 -- -- -- 1,533
Comprehensive income (loss):
Net income -- -- -- 113,862 -- -- 113,862
Other comprehensive loss:
Unrealized holding
losses on investments -- -- -- -- -- (7,361) (7,361)
-------------------------------------------------------------------------------------------
Total comprehensive income (loss) -- -- -- 113,862 -- (7,361) 106,501
-------------------------------------------------------------------------------------------
Distribution of Senior Housing
Properties Trust shares -- -- -- -- (225,487) -- (225,487)
Distributions -- -- -- -- (192,832) -- (192,832)
-------------------------------------------------------------------------------------------
Balance at December 31, 1999 131,908,126 $1,319 $1,971,366 $678,676 $(1,121,533) $ (7,361) $ 1,522,467
===========================================================================================
</TABLE>
See accompanying notes
F-5
<PAGE>
<TABLE>
<CAPTION>
HRPT PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Year Ended December 31,
------------------------------------------
1999 1998 1997
------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $113,862 $144,516 $114,000
Adjustments to reconcile net income to cash
provided by operating activities:
Gain on sale of properties, net (8,307) -- (2,898)
Equity in loss (earnings) of equity investments 1,615 (7,687) (8,590)
Loss (gain) on equity transaction of equity investments 711 (2,213) (9,282)
Distributions from equity investments 18,606 10,320 9,640
Extraordinary item -- 2,140 1,102
Impairment of assets 7,000 -- --
Depreciation 70,080 58,837 37,619
Amortization 3,302 1,927 1,711
Amortization of deferred interest costs and bond discounts 147 72 699
Change in assets and liabilities:
Increase in interest and rents receivable and other assets (8,677) (36,967) (5,113)
Increase in accounts payable and accrued expenses 13,321 16,581 10,832
Increase in deferred rents 2,892 4,073 22,481
Increase (decrease) in security deposits 3,893 (384) 10,380
Increase in due to affiliates 5,175 3,129 3,119
--------------------------------------
Cash provided by operating activities 223,620 194,344 185,700
--------------------------------------
Cash flows from investing activities:
Real estate acquisitions and improvements (493,809) (761,414) (548,465)
Acquisition of business, less cash acquired -- -- (337,400)
Investments in real estate mortgages receivable -- (226,000) (520)
Proceeds from repayment of real estate mortgages and notes receivable 75,598 33,095 48,245
Proceeds from sale of real estate 22,177 5,565 22,898
Proceeds from repayment of loans to affiliate 1,000 1,365 --
Proceeds from loan to Senior Housing Properties Trust 200,000 -- --
Contribution to Senior Housing Properties Trust (18,727) -- --
--------------------------------------
Cash used for investing activities (213,761) (947,389) (815,242)
--------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common shares -- 580,306 483,153
Proceeds from borrowings 618,500 1,520,967 784,900
Payments on borrowings (433,206) (1,170,050) (501,261)
Deferred finance costs incurred (4,758) (7,938) (4,668)
Distributions (192,832) (176,952) (132,080)
--------------------------------------
Cash (used for) provided by financing activities (12,296) 746,333 630,044
--------------------------------------
(Decrease) increase in cash and cash equivalents (2,437) (6,712) 502
Cash and cash equivalents at beginning of period 15,643 22,355 21,853
--------------------------------------
Cash and cash equivalents at end of period $ 13,206 $ 15,643 $ 22,355
======================================
</TABLE>
See accompanying notes
F-6
<PAGE>
<TABLE>
<CAPTION>
HRPT PROPERTIES TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
Year Ended December 31,
-----------------------------------
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Supplemental cash flow information:
Interest paid $ 86,827 $ 57,179 $ 34,425
===================================
Non-cash investing activities:
Real estate acquisitions $ (32,368) $(237,404) $ (11,616)
Disposition of real estate -- 11,404 11,616
Investment in real estate mortgages receivable 60,000 226,000 --
Investment in Senior Housing Properties Trust 219,261 -- --
Acquisition of business, less cash acquired:
Real estate acquisitions $ 4,959 $ 5,705 $ 439,498
Working capital, other than cash -- -- 2,051
Liabilities assumed -- -- (27,588)
Net cash used to acquire business -- -- (337,400)
-----------------------------------
Issuance of shares $ 4,959 $ 5,705 $ 76,561
===================================
Non-cash financing activities:
Assumption of mortgage notes payable $ 32,368 $-- $--
Issuance of common shares 1,533 7,958 16,578
Conversion of convertible subordinated debentures, net -- (6,629) (15,765)
</TABLE>
See accompanying notes
F-7
<PAGE>
HRPT PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
HRPT Properties Trust, a Maryland real estate investment trust (the
"Company"), was organized on October 9, 1986. As of December 31, 1999, the
Company had investments in 195 office properties located in 27 states and the
District of Columbia. In addition, at December 31, 1999, the Company had equity
investments in Senior Housing Properties Trust ("SNH") and Hospitality
Properties Trust ("HPT") of 49.3% and 7.1%, respectively. At December 31, 1999,
SNH had investments in 93 senior housing properties in 26 states and HPT owned
210 hotels in 35 states.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The consolidated financial statements include the
Company's investment in 100% owned subsidiaries. The Company's investments in
50% or less owned companies over which it can exercise influence, but does not
control, are accounted for using the equity method of accounting. All
inter-company transactions have been eliminated. The Company uses the income
statement method to account for issuance of common shares of beneficial interest
by SNH and HPT. Under this method, gains and losses reflecting changes in the
value of the Company's ownership stake on issuance of stock by SNH or HPT are
recognized in the Company's income statement.
Real Estate Property and Mortgage Investments. Real estate properties and
mortgages are recorded at cost. Depreciation on real estate investments is
provided for on a straight-line basis over estimated useful lives ranging up to
40 years. Impairment losses on investments are recognized where indicators of
impairment are present and the undiscounted cash flow estimated to be generated
by the Company's investments is less than the carrying amount of such
investments. The determination of undiscounted cash flow includes consideration
of many factors including income to be earned from the investment, holding costs
(exclusive of interest), estimated selling prices, and prevailing economic and
market conditions.
Cash and Cash Equivalents. Cash, over-night repurchase agreements and short-term
investments with original maturities of three months or less at the date of
purchase are carried at cost plus accrued interest.
Investments in Marketable Equity Securities. Marketable equity securities are
classified as available for sale and carried at fair value, with unrealized
gains and losses reported as a separate component of shareholders' equity. At
December 31, 1999, the Company's investments in marketable equity securities
were included in other assets and had a fair value of $4.3 million and
unrealized holding losses of $7.4 million. At March 16, 2000, these investments
had a fair value of $3.0 million and unrealized holding losses of $8.7 million.
Deferred Finance Costs. Issuance costs related to borrowings are capitalized and
amortized over the terms of the respective loans. Accumulated amortization at
December 31, 1999 and 1998 was $5.3 million and $2.8 million, respectively.
Revenue Recognition. Rental income from operating leases is recognized on a
straight-line basis over the life of the lease agreements. Interest income is
recognized as earned over the terms of the real estate mortgages. Percentage
rent and additional mortgage interest revenue is recognized as earned. For the
years ended December 31, 1999, 1998 and 1997, percentage rent and additional
mortgage interest revenue was $3.4 million, $3.1 million and $3.1 million,
respectively.
Earnings Per Common Share. Basic earnings per common share is computed using the
weighted average number of shares outstanding during the period. At December 31,
1999 and 1998, $204.9 million of convertible securities were convertible into
11.4 million shares of the Company. Basic earnings per share equals diluted
earnings per share, as the effect of these convertible securities is
anti-dilutive to diluted earnings per share.
Reclassifications. Reclassifications have been made to the prior years'
financial statements to conform to the current year's presentation.
Income Taxes. The Company is a real estate investment trust under the Internal
Revenue Code of 1986, as amended. Accordingly, the Company expects not to be
subject to federal income taxes provided it distributes its taxable income and
meets other requirements for qualifying as a real estate investment trust.
However, it is subject to some state and local taxes on its income and property.
F-8
<PAGE>
Use of Estimates. Preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that may affect the amounts reported in these financial
statements and related notes. The actual results could differ from these
estimates.
New Accounting Pronouncements. The Financial Accounting Standards Board issued
Financial Accounting Standards Board Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") in 1998. FAS 133 must
be adopted for the Company's 2001 financial statements. The Company anticipates
that FAS 133 will not have a significant impact on the Company's reported
financial condition or results of operations.
Note 3. Real Estate Properties
During the year ended December 31, 1999, the Company acquired 61 office
properties for an aggregate amount of approximately $516.5 million in 25
separate transactions. In addition, the Company funded improvements to its
existing properties of approximately $9.7 million.
Also during the year ended December 31, 1999, the Company disposed of 14
senior housing properties, including 12 senior housing properties leased to an
affiliate, for net proceeds of $82.2 million and recognized a gain of $8.3
million. As part of the sale of 12 senior housing properties, the Company
provided a $60 million real estate mortgage receivable secured by the 12 senior
housing properties that was subsequently paid to the Company in June 1999.
The Company's real estate properties are leased on a gross lease, modified
gross lease or triple net lease basis pursuant to noncancelable, fixed term
operating leases expiring from 2000 to 2020. The triple net leases generally
require the lessee to provide all property management services. The Company's
gross leases and modified gross leases require the Company to provide property
management services. The office properties owned by the Company are managed by
REIT Management & Research, Inc. ("RMR"), an affiliate of the Company.
The future minimum lease payments to be received by the Company during the
current terms of the leases as of December 31, 1999, are approximately $311.0
million in 2000, $286.1 million in 2001, $254.1 million in 2002, $222.9 million
in 2003, $179.4 million in 2004 and $895.2 million thereafter.
Note 4. Equity Investments
<TABLE>
<CAPTION>
At December 31, 1999 and 1998, the Company had the following equity
investments (dollars in thousands):
1999 1998
-------------------------------------------------- ------------------------------------------------
Ownership Equity in Equity Ownership Equity in Equity
Percentage Earnings Investments Percentage Earnings Investments
-------------- -------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
SNH 49.3% $(9,744) $201,831 --% $-- $--
HPT 7.1 8,129 109,282 8.8 7,687 113,234
-------------- -------------- ------------ --------------
$(1,615) $311,113 $7,687 $113,234
============== ============== ============ ==============
</TABLE>
On October 12, 1999, the Company spun-off 50.7% of its 100% owned
subsidiary, SNH, by distributing 13,190,763 common shares of SNH to the
Company's shareholders of record on October 8, 1999 (the "Spin-Off"). SNH is a
real estate investment trust that invests principally in income producing senior
housing real estate. In connection with the Spin-Off, the Company received $200
million from SNH that was used to repay amounts outstanding on the revolving
bank credit facility.
The Company incurred $16.7 million of expenses relating to the Spin-Off,
which included costs of distributing SNH shares to shareholders, legal and
accounting fees, Securities and Exchange Commission filing fees, New York Stock
Exchange listing fees and the up-front costs of establishing SNH's bank credit
facility.
Since the Spin-Off, the Company's investment in SNH is accounted for using
the equity method of accounting. Prior to the Spin-Off, the operating results of
SNH were included in the Company's results of operations. At December 31, 1999,
the Company owned 12,809,237 common shares of beneficial interest of SNH with a
carrying value of $201.8 million and a market value, based on quoted market
prices, of $158.5 million.
F-9
<PAGE>
The following summarized financial data of SNH includes results of
operations prior to the Spin-Off that are included in the Company's results of
operations (amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
December 31, Year Ended December 31,
------------------------- --------------------------------------
1999 1998 1999 1998 1997
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate properties, net $600,030 $637,777 Revenues $90,790 $88,306 $84,171
Real estate mortgages
receivable, net 22,939 37,826 Expenses 75,956 42,070 39,448
------------ ------------- -----------
Other assets 31,031 10,693 Net income $14,834 $46,236 $44,723
------------ ------------ ============ ============= ===========
$654,000 $686,296
============ ============
Average shares 26,000 26,000 26,000
============ ============= ===========
Bank notes payable $200,000 $--
Deferred rents and other Net income per
deferred revenues 26,715 28,266 share $0.57 $1.78 $1.72
============ ============= ===========
Security deposits 15,235 15,235
Other liabilities 2,644 726
Shareholders' equity 409,406 642,069
------------ ------------
$654,000 $686,296
============ ============
</TABLE>
In July 1999, one of SNH's tenants, accounting for 2% of SNH's revenues,
filed for bankruptcy. During January and February 2000, two of SNH's tenants,
accounting for approximately 48% of SNH's revenues, filed for bankruptcy. SNH is
currently negotiating with these tenants and evaluating its options, including
the possibility of reducing rent, selling properties, and operating certain
properties for its own behalf. Based on estimates of future cash flows from
properties leased to these two tenants, SNH has recognized an impairment in the
carrying value of certain loans and properties totaling $30 million. This value
impairment has increased SNH's expenses and reduced SNH's net income for the
year ended December 31, 1999. The Company has recognized $14.8 million of SNH's
asset impairment loss on its consolidated statement of income for the year ended
December 31, 1999, through its 49.3% ownership interest in SNH. In the
short-term, the level of dividends paid by SNH to the Company in future periods
will depend on the outcome of SNH's negotiations with these two tenants.
At December 31, 1999, the Company owned 4,000,000 common shares of
beneficial interest of HPT with a carrying value of $109.3 million and a market
value, based on quoted market prices, of $76.3 million. HPT is a real estate
investment trust that invests principally in income producing hotel real estate.
During 1999, HPT completed a public stock offering of common shares. As a result
of this transaction, the Company's ownership percentage in HPT was reduced from
8.8% in 1998 to 7.1% in 1999 and the Company realized a loss of $711,000.
Although the Company did not sell any shares, pursuant to the Company's
accounting policy, gains and losses on the issuance of common shares of
beneficial interest by HPT are recognized in the Company's income statement.
F-10
<PAGE>
Summarized financial data of HPT is as follows (amounts in thousands,
except per share amounts):
<TABLE>
<CAPTION>
December 31, Year Ended December 31,
---------------------------- ----------------------------------------
1999 1998 1999 1998 1997
-------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Real estate Revenues $237,218 $174,961 $114,132
properties, net $2,082,999 $1,774,811 Expenses 125,289 86,979 54,979
------------- ------------- ------------
Other assets, net 111,853 62,827 Income before
-------------- ------------- extraordinary item 111,929 87,982 59,153
$2,194,852 $1,837,638
============== =============
Extraordinary item -- (6,641) --
------------- ------------- ------------
Security deposits $246,242 $206,018 Net income 111,929 81,341 59,153
Other liabilities 428,895 457,763 Preferred dividends (5,106) -- --
Shareholders' equity Net income available
1,519,715 1,173,857 for common
-------------- ------------- ------------- ------------- ------------
$2,194,852 $1,837,638 shareholders $106,823 $81,341 $59,153
============== ============= ============= ============= ============
Average shares 52,566 42,317 27,530
============= ============= ============
Income before
extraordinary item
per share $2.13 $2.08 $2.15
============= ============= ============
Net income per share $2.13 $1.92 $2.15
============= ============= ============
Net income available
for common
shareholders per
share $2.03 $1.92 $2.15
============= ============= ============
</TABLE>
Note 5. Real Estate Mortgages and Notes Receivable, Net
December 31,
-----------------------
1999 1998
-----------------------
(dollars in thousands)
Mortgage notes receivable, due September 2001 through
December 2006 $ 3,874 $30,961
Mortgage notes receivable due December 2010 -- 18,992
Mortgage notes receivable due December 2000 12,600 12,233
Mortgage notes receivable due December 2016 -- 7,040
Other collateralized notes receivable -- 12
Loan to an affiliate -- 1,000
------- -------
16,474 70,238
Less allowance 6,101 1,010
------- -------
$10,373 $69,228
======= =======
During 1999, the Company received regularly scheduled principal payments
of $495,000, repayments of mortgages secured by eight senior housing properties
of $15.1 million, principal repayment of $1 million from a loan to an affiliate
and $60 million as payment of a mortgage loan provided in connection with the
sale of the 12 senior housing properties discussed in Note 3. In addition, the
Company established additional reserves and an allowance for the impairment of
two mortgage loans with a carrying value of $15 million, totaling $5.1 million.
At December 31, 1999, the interest rates on the real estate mortgages and
notes receivable ranged from 9.96% to 12.5% per annum.
Note 6. Shareholders' Equity
During 1999, the Company issued 256,246 common shares as additional
consideration in connection with the final installment payment for the 1997
acquisition of office buildings leased to agencies of the United States
Government, and issued 89,702 common shares to RMR as the incentive fee earned
for the year ended December 31, 1998.
F-11
<PAGE>
The Company originally reserved 1,000,000 shares of the Company's common
shares under the terms of the 1992 Incentive Share Award Plan (the "Award
Plan"). During 1999, 1998 and 1997, 13,000, 13,000 and 9,500 common shares,
respectively, were awarded to officers of the Company and certain employees of
RMR and HRPT Advisors, Inc. ("Advisors"). In addition, the Independent Trustees,
as part of their annual fee, are each awarded 500 common shares annually. The
shares awarded to the Trustees vest immediately. The shares awarded to the
officers and certain employees of RMR and Advisors vest over a three-year
period. At December 31, 1999, 684,426 shares of the Company's common shares
remain reserved for issuance under the Award Plan.
A dividend of $0.32 per share was paid on February 15, 2000, to
shareholders of record on January 10, 2000. Cash dividends per share paid by the
Company in 1999, 1998 and 1997 were $1.46, $1.51 and $1.45, respectively.
The Company has adopted a Shareholders Rights Plan ("Right"). Each Right
entitles the holder to purchase or to receive securities or other assets of the
Company upon the occurrence of certain events. The Rights expire on October 17,
2004 and are redeemable at the Company's option at any time.
Note 7. Commitments and Contingencies
The Company is involved in litigation with a former tenant. Since 1995,
the Company has asserted its claims and rights against the former tenant. The
outcome of the Company's claims and the former tenant's counter claims against
the Company cannot be predicted.
Note 8. Transactions with Affiliates
As of January 1, 1998, the Company entered into an agreement with RMR to
provide investment, management, property management and administrative services
to the Company. During the year ended December 31, 1997, such services were
provided by HRPT Advisors, Inc. and M&P Partners Limited Partnership ("M&P"),
affiliates of the Company, on similar terms. RMR, Advisors and M&P are owned by
Gerard M. Martin and Barry M. Portnoy, who also serve as Managing Trustees of
the Company. RMR is compensated at an annual rate equal to 0.7% of the Company's
real estate investments up to $250 million and 0.5% of investments thereafter,
plus property management fees equal to three percent of gross rents. RMR is, and
Advisors was, also entitled to an incentive fee which is paid in restricted
shares of the Company's common stock based on a formula. Incentive fees for the
years ended December 31, 1999, 1998 and 1997 were $215,000, $1.4 million and
$1.0 million, which represent approximately 26,221, 89,702 and 52,316 common
shares, respectively. During 1999, RMR sold 89,702 common shares to Gerard M.
Martin and Barry M. Portnoy, the Managing Trustees of the Company and owners of
RMR. At December 31, 1999, the Managing Trustees and Advisors owned 89,702 and
1,134,373 common shares, respectively.
Prior to the Spin-Off of SNH, the Company leased 15 senior housing
properties to four affiliated entities (collectively, the "Affiliated
Entities"). In March 1999, the Company sold 12 of these senior housing
properties to an unaffiliated party. The remaining three senior housing
properties were transferred to SNH as part of the Spin-Off. Messrs. Martin and
Portnoy are principal shareholders of the Affiliated Entities and, subject to
the review and approval of this transaction by the Independent Trustees, may be
entitled to a portion of the sale proceeds. The Company also extended a $4
million line of credit to one of the Affiliated Entities which was paid off and
terminated with the sale of the 12 properties discussed above. One million
dollars was outstanding at December 31, 1998 under this line of credit
arrangement.
Amounts resulting from transactions with affiliates are as follows
(dollars in thousands):
Year Ended December 31,
----------------------------------------
1999 1998 1997
----------------------------------------
Investment advisory fees paid $15,404 $13,592 $ 8,620
Dividends 3,807 1,694 1,557
Rent and interest income received 5,870 13,741 13,616
Management fees paid 9,779 6,703 2,382
F-12
<PAGE>
<TABLE>
<CAPTION>
Note 9. Indebtedness
December 31,
-----------------------------
1999 1998
-----------------------------
(dollars in thousands)
<S> <C> <C>
$500,000 unsecured revolving bank credit facility, due April 2002, at
LIBOR plus a premium (7.2% at December 31, 1999) $132,000 $100,000
Senior Notes, due 2002 at 6.75% 150,000 150,000
Senior Notes, due 2002 at 6.875% 160,000 160,000
Senior Notes, due 2005 at 6.7% 100,000 100,000
Monthly Income Senior Notes, due 2009 at 7.875% 90,000 --
Monthly Income Senior Notes, due 2011 at 8.375% 65,000 --
Monthly Income Senior Notes, due 2013 at 8.5% 143,000 143,000
Remarketed Reset Notes, due 2007 at LIBOR plus 1.25% (7.4% at December
31, 1999) 250,000 250,000
Mortgage Notes Payable, due 2004 at 9.12% 3,533 --
Mortgage Notes Payable, due 2007 at 8.40% 11,095 --
Mortgage Notes Payable, due 2008 at 7.02% 17,672 --
Mortgage Notes Payable, due 2008 at 8.00% 12,237 13,114
Mortgage Notes Payable, due 2009 at 7.66% 10,904 11,665
Convertible Subordinated Debentures, due 2003 at 7.50% 164,863 164,863
Convertible Subordinated Debentures, due 2001 at 7.25% 40,000 40,000
----------------------------
1,350,304 1,132,642
Less unamortized discounts 414 561
----------------------------
$1,349,890 $1,132,081
============================
</TABLE>
During 1999, the Company issued unsecured senior notes totaling $155
million, in two separate transactions, raising net proceeds of $150.2 million.
Net proceeds from the notes were used to repay amounts then outstanding under
the Company's revolving bank credit facility. In addition, the Company assumed
$32.4 million of secured mortgage notes payable in connection with the
acquisition of eight office properties.
The Company's convertible subordinated debentures were callable in October
1999 and are convertible at any time into common shares of the Company at $18
per share.
At December 31, 1999, 11 properties with an aggregate net book value of
$96.3 million were secured by mortgages totaling $55.4 million due in 2004,
2007, 2008 and 2009.
The required principal payments due during the next five years under all
debt outstanding at December 31, 1999, are $2.2 million in 2000, $42.4 million
in 2001, $444.5 million in 2002, $167.6 million in 2003, $6.3 million in 2004
and $687.3 million thereafter.
Note 10. Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
real estate mortgages and notes receivable, rents receivable, equity
investments, senior notes, mortgage notes payable, convertible debentures,
accounts payable and other accrued expenses, a letter of credit and security
deposits. Except as follows, the fair values of the financial instruments were
not materially different from their carrying values (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------- ----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Real estate mortgages and notes receivable $10,373 $11,556 $69,228 $73,997
Equity investments 311,113 234,764 113,234 96,500
Senior notes, mortgage notes payable and
convertible debentures 1,217,890 1,186,863 1,032,081 1,020,550
Commitments -- -- -- 21,746
Letter of credit -- -- -- 1,653
</TABLE>
F-13
<PAGE>
The fair values of the real estate mortgages and notes receivable, senior
notes, mortgage notes payable and convertible debentures are based on estimates
using discounted cash flow analysis and currently prevailing rates. The fair
value of the equity investments are based on quoted per share prices for HPT of
$19.0625 and $24.125 at December 31, 1999 and 1998, respectively, and a quoted
per share price for SNH of $12.375 at December 31, 1999. The fair value of the
commitments and letter of credit represents the actual amounts committed.
Note 11. Concentration of Credit Risk
The Company's assets are primarily invested in income producing office
properties located throughout the United States. At December 31, 1999 and 1998,
properties leased to the United States Government represented $421.5 million and
$431.1 million of net real estate investments, respectively, and for the years
ended December 31, 1999 and 1998, provided rental revenue of $59.6 million and
$60.3 million, respectively. At December 31, 1997, properties leased to the
United States Government, Marriott International, Inc. and Integrated Health
Services, Inc. represented $433.2 million, $299.9 million and $172.8 million of
net real estate investments, respectively, and provided revenue of $43.4
million, $30.4 million and $27 million, respectively.
Note 12. Segment Information
The Company has two reportable segments; senior housing and office
properties. Substantially all of the Company's senior housing assets were
spun-off on October 12, 1999, and consisted of senior housing, congregate care
communities, assisted living and nursing homes. The Company's office properties
consist of government office, medical office and commercial office properties.
The Company evaluates its segments based on net operating income. The
accounting policies of the reportable segments are the same as those described
in the summary of significant accounting policies.
F-14
<PAGE>
The following is a summary of the Company's reportable segments as of
December 31, 1999 and 1998 and for the years ended December 31, 1999, 1998 and
1997 (dollars in thousands):
Year Ended December 31, 1999
---------------------------------------
Senior
Housing Office Total
---------------------------------------
Revenues $ 77,579 $ 348,497 $ 426,076
Operating expenses -- 116,365 116,365
Depreciation 18,578 51,502 70,080
Impairment of assets 5,000 2,000 7,000
---------- ---------- ----------
Net operating income $ 54,001 $ 178,630 $ 232,631
========== ========== ==========
Real estate at year end $ 10,373 $2,656,344 $2,666,717
Real estate acquired during the year -- 526,177 526,177
Year Ended December 31, 1998
---------------------------------------
Senior
Housing Office Total
---------------------------------------
Revenues $ 110,096 $ 245,955 $ 356,051
Operating expenses -- 77,536 77,536
Depreciation 21,798 37,039 58,837
---------- ---------- ----------
Net operating income $ 88,298 $ 131,380 $ 219,678
========== ========== ==========
Real estate at year end $ 895,748 $2,129,962 $3,025,710
Real estate acquired during the year 12,924 985,894 998,818
Year Ended December 31, 1997
---------------------------------------
Senior
Housing Office Total
---------------------------------------
Revenues $113,243 $ 93,670 $206,913
Operating expenses -- 26,765 26,765
Depreciation 21,728 15,891 37,619
-------- -------- --------
Net operating income $ 91,515 $ 51,014 $142,529
======== ======== ========
The following tables reconcile the reported segment information to the
consolidated financial statements for the years ended December 31, 1999, 1998
and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Revenues:
Total per reportable segment $ 426,076 $ 356,051 $ 206,913
Unallocated other income 1,465 503 1,950
--------- --------- ---------
Total consolidated revenues $ 427,541 $ 356,554 $ 208,863
========= ========= =========
Net operating income:
Total per reportable segment $ 232,631 $ 219,678 $ 142,529
Unallocated amounts:
Other income 1,465 503 1,950
Interest expense (87,470) (64,326) (36,766)
Amortization expense (3,302) (1,927) (1,711)
General and administrative expenses (18,704) (17,172) (11,670)
Senior Housing Properties Trust
transaction costs (16,739) -- --
--------- --------- ---------
Total consolidated income before equity
in (loss) earnings of equity
investments, gain on sale of properties
and extraordinary item $ 107,881 $ 136,756 $ 94,332
========= ========= =========
</TABLE>
F-15
<PAGE>
HRPT PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1999, 1998 and 1997, office segment
revenues from the United States Government represented $59.6 million, $60.3
million, and $43.4 million, respectively, of the Company's consolidated
revenues. For the years ended December 31, 1999, 1998 and 1997, senior housing
segment revenues from Marriott International, Inc. represented $24.2 million,
$31.9 million and $30.4 million, respectively, of the Company's consolidated
revenues. For the same periods, senior housing segment revenues from Integrated
Health Services, Inc. represented $21.2 million, $28.4 million and $27 million,
respectively, of the Company's consolidated revenues.
Note 13. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the unaudited quarterly results of operations
of the Company for 1999 and 1998. The amounts are in thousands except for per
share amounts.
<TABLE>
<CAPTION>
1999
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter(1) Quarter(2)
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 104,403 $ 106,551 $ 114,805 $ 101,782
Income before equity in earnings (loss) of equity investments,
gain on sale of properties and extraordinary item 37,288 36,430 13,501 20,662
Equity in earnings (loss) of equity investments 2,008 2,021 2,023 (7,667)
Gain (loss) on equity transaction of equity investments -- (711) -- --
Income before gain on sale of properties and extraordinary item 39,296 37,740 15,524 12,995
Gain on sale of properties 8,307 -- -- --
Income before extraordinary item 47,603 37,740 15,524 12,995
Extraordinary item - early extinguishment of debt -- -- -- --
Net income 47,603 37,740 15,524 12,995
Per share data:
Income before equity in earnings (loss) of equity investments,
gain on sale of properties and extraordinary item 0.28 0.28 0.10 0.16
Income before gain on sale of properties and extraordinary item
0.30 0.29 0.12 0.10
Income before extraordinary item 0.36 0.29 0.12 0.10
Net income 0.36 0.29 0.12 0.10
<CAPTION>
1998
-------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter(1) Quarter(2)
-------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 71,952 $ 83,291 $ 96,960 $ 104,351
Income before equity in earnings of equity investments, gain on
sale of properties and extraordinary item 28,522 32,875 38,036 37,323
Equity in earnings of equity investments 1,327 2,138 2,076 2,146
Gain (loss) on equity transaction of equity investments 1,532 938 -- (257)
Income before gain on sale of properties and extraordinary item 31,381 35,951 40,112 39,212
Gain on sale of properties -- -- -- --
Income before extraordinary item 31,381 35,951 40,112 39,212
Extraordinary item - early extinguishment of debt -- (2,140) -- --
Net income 31,381 33,811 40,112 39,212
Per share data:
Income before equity in earnings of equity investments, gain on
sale of properties and extraordinary item 0.28 0.29 0.29 0.28
Income before gain on sale of properties and extraordinary item
0.31 0.31 0.30 0.30
Income before extraordinary item 0.31 0.31 0.30 0.30
Net income 0.31 0.30 0.30 0.30
<FN>
(1) Included in total expenses for the third quarter of 1999 are unusual and non-recurring items aggregating
$23.7 million: approximately $16.7 million represents SNH transaction costs, and $7 million represents
the write-down to net realizable value of the carrying value of two real estate mortgages receivable and
other assets.
F-16
<PAGE>
HRPT PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) On October 12, 1999, the Company spun-off 50.7% of its 100% owned subsidiary, SNH, by distributing 13.2
million common shares of SNH to shareholders of record on October 8, 1999. Also, in the fourth quarter,
the Company recognized $14.8 million as its portion of SNH's asset impairment loss as described in Note
4.
</FN>
</TABLE>
Note 14. Pro Forma Information (Unaudited)
In 1999, as described in Note 4, the Company spun-off 50.7% of its 100%
owned subsidiary, SNH, by distributing 13,190,763 common shares of SNH to the
Company's shareholders of record on October 8, 1999.
In 1997 and 1998, the Company acquired 29 office buildings (the "Government
Properties") leased to various agencies of the United States Government through
the acquisition of Government Property Investors, Inc. ("GPI"). The acquisition
was accounted for as a purchase and the net assets and results of operations are
included in the consolidated financial statements since the dates of
acquisition. The acquisitions of the Government Properties were funded, in part,
with the proceeds from the issuance of the Company's common shares pursuant to a
public offering, the issuance of common shares of the Company in a private
placement and the assumption of debt.
The following unaudited condensed Pro Forma Statements of Income assume the
Spin-Off of SNH and the acquisition of GPI had both occurred on January 1, 1997.
These pro forma statements of income are not necessarily indicative of the
expected results of operations for any future period. Differences could result
from, but are not limited to, additional property investments, changes in
interest rates and changes in the debt and equity structure of the Company.
<TABLE>
<CAPTION>
Condensed Pro Forma Statements of Income (unaudited)
(dollars in thousands, except per share amounts)
Year Ended December 31,
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Total revenues $356,711 $268,248 $136,880
Income before extraordinary item 92,058 117,850 93,133
Net income 92,058 115,710 92,031
Income before extraordinary item per basic share 0.70 0.98 1.00
Net income per basic share 0.70 0.97 0.99
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
December 31, 1999
(Dollars in thousands)
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions(1) Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Allowance for real estate mortgages receivable $1,743 $200 $(1,016) $927
=======================================================================
Year Ended December 31, 1998:
Allowance for real estate mortgages receivable $927 $600 $(517) $1,010
=======================================================================
Year Ended December 31, 1999:
Allowance for real estate mortgages receivable $1,010 $5,600 $(509) $6,101
=======================================================================
<FN>
(1) Represents uncollectable receivables charged against the allowance.
</FN>
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Gross Amount Carried at
Initial Cost to Company Close of Period 12/31/98
----------------------- ------------------------
Costs Original
Buildings Capitalized Buildings Accumulated Constr-
Encum- and Subsequent to and Depreciation Date uction
Location State brances Land Equipment Acquisition Land Equipment Total (1) (2) Aquired Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Office Buildings:
Petersburg AK $-- $189 $811 $3 $189 $814 $1,003 $57 3/31/97 1983
Phoenix AZ -- 1,828 16,453 -- 1,828 16,453 18,281 189 7/30/99 1982
Phoenix AZ -- 2,687 11,532 437 2,729 11,927 14,656 765 5/15/97 1997
Safford AZ -- 635 2,729 61 647 2,778 3,425 193 3/31/97 1992
Tempe AZ -- 1,125 10,122 -- 1,125 10,122 11,247 137 6/30/99 1987
Tucson AZ -- 765 3,280 75 779 3,341 4,120 232 3/31/97 1993
Anaheim CA -- 133 1,201 -- 133 1,201 1,334 75 12/5/97 1970
Anaheim CA -- 82 735 1 82 736 818 46 12/5/97 1970
Anaheim CA -- 691 6,223 2 692 6,224 6,916 390 12/5/97 1992
Kearney Mesa CA -- 2,916 12,456 337 2,969 12,740 15,709 883 3/31/97 1994
Los Angeles CA -- 5,055 49,685 1,131 5,060 50,811 55,871 3,441 5/15/97 1979
Los Angeles CA -- 5,076 49,884 1,262 5,071 51,151 56,222 3,426 5/15/97 1979
Los Angeles CA -- 1,921 8,242 190 1,955 8,398 10,353 513 7/11/97 1996
Newport Beach CA -- 1,220 3,307 17 1,220 3,324 4,544 134 5/26/98 1984
Sacramento CA -- 644 3,206 77 644 3,283 3,927 441 8/30/94 1984
San Diego CA -- 2,984 12,859 1,971 3,038 14,776 17,814 1,004 3/31/97 1981
San Diego CA -- 313 2,820 166 313 2,986 3,299 226 12/31/96 1984
San Diego CA -- 316 2,846 167 316 3,013 3,329 229 12/31/96 1984
San Diego CA -- 502 4,526 266 502 4,792 5,294 363 12/31/96 1984
San Diego CA -- 294 2,650 156 294 2,806 3,100 213 12/31/96 1984
San Diego CA -- 1,985 18,096 312 1,985 18,408 20,393 1,402 12/5/96 1985
San Diego CA -- 992 9,040 156 992 9,196 10,188 701 12/5/96 1985
San Diego CA -- 1,228 11,199 192 1,228 11,391 12,619 868 12/5/96 1985
San Diego CA -- 4,269 18,316 419 4,347 18,657 23,004 1,293 3/31/97 1996
Aurora CO -- 1,152 13,272 -- 1,152 13,272 14,424 826 11/14/97 1993
Golden CO -- 494 152 5,862 495 6,013 6,508 272 3/31/97 1997
Lakewood CO -- 787 7,085 -- 787 7,085 7,872 22 11/22/99 1980
Lakewood CO -- 1,855 16,691 -- 1,855 16,691 18,546 52 11/22/99 1980
Wallingford CT -- 640 10,017 -- 640 10,017 10,657 386 6/1/98 1986
Wallingford CT -- 367 3,301 40 366 3,342 3,708 89 12/22/98 1988
Washington DC -- 2,485 22,696 1,666 2,485 24,362 26,847 2,082 9/13/96 1976
S-2
<PAGE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Gross Amount Carried at
Initial Cost to Company Close of Period 12/31/98
----------------------- ------------------------
Costs Original
Buildings Capitalized Buildings Accumulated Constr-
Encum- and Subsequent to and Depreciation Date uction
Location State brances Land Equipment Acquisition Land Equipment Total (1) (2) Aquired Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Washington DC -- 5,975 53,778 307 5,975 54,085 60,060 2,118 6/23/98 1991
Washington DC -- 1,851 16,511 595 1,869 17,088 18,957 1,065 12/19/97 1966
Washington DC -- 6,979 29,949 877 7,107 30,698 37,805 2,168 3/31/97 1989
Washington DC -- 12,008 51,528 1,285 12,227 52,594 64,821 3,655 3/31/97 1996
Wilmington DE -- 1,478 13,306 5 1,478 13,311 14,789 152 7/13/99 1984
Wilmington DE -- 4,409 39,681 37 4,413 39,714 44,127 1,448 7/23/98 1986
Miami FL -- 144 1,297 24 144 1,321 1,465 60 3/19/98 1987
Orlando FL -- 256 2,308 64 263 2,365 2,628 111 2/19/98 1997
Orlando FL -- 722 6,499 (59) 716 6,446 7,162 304 2/19/98 1997
Orlando FL -- - 362 1 36 327 363 8 2/19/98 1997
Savannah GA -- 544 2,330 113 553 2,434 2,987 166 3/31/97 1990
Kansas City KS -- 1,042 4,469 466 1,061 4,916 5,977 389 3/31/97 1990
Auburn MA -- 647 5,827 -- 647 5,827 6,474 6 12/27/99 1977
Boston MA -- 1,447 13,028 59 1,448 13,086 14,534 1,402 9/28/95 1993
Boston MA -- 3,378 30,397 1,711 3,378 32,108 35,486 3,982 9/28/95 1988
Boston MA -- 1,500 13,500 263 1,500 13,763 15,263 1,424 12/18/95 1875
Charlton MA -- 141 1,269 8 141 1,277 1,418 84 5/15/97 1988
Fitchburg MA -- 223 2,004 10 223 2,014 2,237 132 5/15/97 1994
Grafton MA -- 37 336 4 37 340 377 22 5/15/97 1930
Leominster MA -- 778 7,003 -- 778 7,003 7,781 7 12/27/99 1966
Lexington MA -- 1,054 9,487 -- 1,054 9,487 10,541 465 1/30/98 1968
Milbury MA -- 34 309 4 34 313 347 21 5/15/97 1950
Milford MA -- 144 1,297 266 401 1,306 1,707 86 5/15/97 1989
Northbridge MA -- 32 290 5 32 295 327 19 5/15/97 1962
Paxton MA -- 24 212 4 24 216 240 14 5/15/97 1984
Quincy MA -- 2,477 16,645 17 2,477 16,662 19,139 711 4/3/98 1988
Quincy MA -- 1,668 11,097 334 1,668 11,431 13,099 497 4/3/98 1988
Spencer MA -- 211 1,902 11 211 1,913 2,124 125 5/15/97 1992
Sturbridge MA -- 83 751 6 83 757 840 50 5/15/97 1986
Webster MA -- 315 2,834 14 315 2,848 3,163 187 5/15/97 1995
Westborough MA -- 396 3,562 15 396 3,577 3,973 235 5/15/97 1986
S-3
<PAGE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Gross Amount Carried at
Initial Cost to Company Close of Period 12/31/98
----------------------- ------------------------
Costs Original
Buildings Capitalized Buildings Accumulated Constr-
Encum- and Subsequent to and Depreciation Date uction
Location State brances Land Equipment Acquisition Land Equipment Total (1) (2) Aquired Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Westborough MA -- 42 381 5 42 386 428 25 5/15/97 1900
Westborough MA -- 24 216 4 24 220 244 14 5/15/97 1953
Westborough MA -- 166 1,498 8 166 1,506 1,672 99 5/15/97 1977
Westwood MA -- 537 4,960 1 538 4,960 5,498 368 1/8/97 1977
Westwood MA -- 500 4,562 1 500 4,563 5,063 176 6/8/98 1990
Westwood MA -- 303 2,740 499 304 3,238 3,542 245 11/26/96 1980
Worcester MA -- 1,132 10,186 38 1,132 10,224 11,356 671 5/15/97 1989
Worcester MA -- 354 3,189 14 354 3,203 3,557 210 5/15/97 1985
Worcester MA -- 265 2,385 12 265 2,397 2,662 157 5/15/97 1972
Worcester MA -- 111 1,000 292 397 1,006 1,403 66 5/15/97 1986
Worcester MA -- 158 1,417 7 157 1,425 1,582 93 5/15/97 1992
Worcester MA -- 895 8,052 41 895 8,093 8,988 531 5/15/97 1990
Baltimore MD -- 900 8,097 145 901 8,241 9,142 254 10/15/98 1989
Baltimore MD -- -- 12,430 177 -- 12,607 12,607 847 11/18/97 1988
College Park MD -- 9,423 40,433 951 9,595 41,212 50,807 2,867 3/31/97 1994
Gaithersburg MD -- 4,381 18,798 473 4,461 19,191 23,652 1,349 3/31/97 1995
Germantown MD -- 2,305 9,890 263 2,347 10,111 12,458 717 3/31/97 1995
Oxon Hill MD -- 3,181 13,653 357 3,240 13,951 17,191 973 3/31/97 1992
Pikesville MD -- 589 5,305 15 589 5,320 5,909 50 8/11/99 1987
Rockville MD -- 3,251 29,258 37 3,248 29,298 32,546 1,374 2/2/98 1986
Bloomington MN -- 1,898 17,081 2,150 1,898 19,231 21,129 924 3/19/98 1957
Eagan MN -- 1,424 12,822 1 1,425 12,822 14,247 574 3/19/98 1986
Mendota Heights MN -- 533 4,795 -- 533 4,795 5,328 215 3/19/98 1995
Minneapolis MN -- 870 7,831 1 870 7,832 8,702 74 8/3/99 1987
Minneapolis MN 1,920 295 2,658 -- 295 2,658 2,953 3 12/1/99 1987
Minneapolis MN 4,368 672 6,045 -- 672 6,045 6,717 6 12/1/99 1987
Minneapolis MN 1,201 185 1,661 -- 185 1,661 1,846 2 12/1/99 1987
Minneapolis MN 3,814 586 5,278 -- 586 5,278 5,864 6 12/1/99 1987
Minneapolis MN 6,369 979 8,814 -- 979 8,814 9,793 9 12/1/99 1987
Minneapolis MN -- 695 6,254 1 695 6,255 6,950 59 8/3/99 1986
Minneapolis MN -- 1,891 17,021 11 1,891 17,032 18,923 124 9/30/99 1980
S-4
<PAGE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Gross Amount Carried at
Initial Cost to Company Close of Period 12/31/98
----------------------- ------------------------
Costs Original
Buildings Capitalized Buildings Accumulated Constr-
Encum- and Subsequent to and Depreciation Date uction
Location State brances Land Equipment Acquisition Land Equipment Total (1) (2) Aquired Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Plymouth MN -- 563 5,064 4 563 5,068 5,631 48 8/3/99 1987
St Paul MN -- 696 6,263 6 696 6,269 6,965 59 8/3/99 1987
Kansas City MO -- 1,443 6,193 140 1,470 6,306 7,776 437 3/31/97 1995
Manchester NH -- 2,201 19,957 -- 2,201 19,957 22,158 312 5/10/99 1979
Florham Park NJ -- 1,412 12,709 -- 1,412 12,709 14,121 463 7/31/98 1979
Voorhees NJ -- 1,053 6,625 1 998 6,681 7,679 271 5/26/98 1990
Voorhees NJ -- 445 2,798 17 584 2,676 3,260 108 5/26/98 1990
Voorhees NJ -- 673 4,232 1 589 4,317 4,906 175 5/26/98 1990
Albuquerque NM -- 493 2,119 119 503 2,228 2,731 151 3/31/97 1984
Albuquerque NM -- 441 3,970 -- 441 3,970 4,411 37 8/31/99 1984
Albuquerque NM -- 173 1,553 -- 173 1,553 1,726 15 8/31/99 1984
Albuquerque NM -- 422 3,797 -- 422 3,797 4,219 36 8/31/99 1984
Albuquerque NM -- 877 7,895 -- 877 7,895 8,772 74 8/31/99 1984
Sante Fe NM -- 1,551 6,650 150 1,578 6,773 8,351 470 3/31/97 1987
Brooklyn NY -- 775 7,054 2 775 7,056 7,831 625 6/6/96 1971
Buffalo NY 10,904 4,405 18,899 439 4,485 19,258 23,743 1,334 3/31/97 1994
DeWitt NY -- 454 4,086 -- 454 4,086 4,540 4 12/28/99 1987
Irondoquoit NY -- 1,910 17,189 28 1,910 17,217 19,127 665 6/30/98 1986
Islandia NY -- 813 7,319 -- 813 7,319 8,132 99 6/11/99 1987
Melville NY -- 3,155 28,395 4 3,155 28,399 31,554 325 7/22/99 1985
Mineola NY -- 3,419 30,774 -- 3,419 30,774 34,193 417 6/11/99 1971
New York NY -- 44,000 66,976 35 44,000 67,011 111,011 3,756 10/1/97 1906
Syracuse NY -- 466 4,196 -- 466 4,196 4,662 31 9/24/99 1990
Syracuse NY -- 1,788 16,096 -- 1,788 16,096 17,884 218 6/29/99 1972
White Plains NY -- 1,200 10,870 815 1,200 11,685 12,885 1,082 2/6/96 1952
Mason OH -- 1,528 13,748 3 1,528 13,751 15,279 530 6/10/98 1994
Edmund OK -- 251 2,254 -- 251 2,254 2,505 21 8/13/99 1993
Elk City OK -- 53 479 -- 53 479 532 5 8/13/99 1993
Midwest City OK -- 250 2,253 -- 250 2,253 2,503 21 8/13/99 1993
Oklahoma City OK -- 4,596 19,721 445 4,680 20,082 24,762 1,393 3/31/97 1992
Oklahoma City OK -- 1,449 13,035 -- 1,449 13,035 14,484 122 8/13/99 1993
S-5
<PAGE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Gross Amount Carried at
Initial Cost to Company Close of Period 12/31/98
----------------------- ------------------------
Costs Original
Buildings Capitalized Buildings Accumulated Constr-
Encum- and Subsequent to and Depreciation Date uction
Location State brances Land Equipment Acquisition Land Equipment Total (1) (2) Aquired Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Oklahoma City OK -- 151 1,361 -- 151 1,361 1,512 13 8/13/99 1993
Blue Bell PA -- 723 6,507 -- 723 6,507 7,230 47 9/14/99 1988
Blue Bell PA -- 709 6,382 -- 709 6,382 7,091 46 9/14/99 1988
Blue Bell PA -- 268 2,414 -- 268 2,414 2,682 18 9/14/99 1988
Fort Washington PA -- 683 3,198 (21) 680 3,180 3,860 184 9/22/97 1970
Fort Washington PA -- 1,154 7,722 3 1,154 7,725 8,879 362 1/15/98 1996
Fort Washington PA -- 1,872 8,816 3 1,872 8,819 10,691 506 9/22/97 1960
Fort Washington PA -- 1,184 5,559 -- 1,184 5,559 6,743 319 9/22/97 1967
Greensburg PA -- 780 7,026 -- 780 7,026 7,806 271 6/3/98 1997
Horsham PA -- 741 3,611 8 741 3,619 4,360 207 9/22/97 1983
King of Prussia PA -- 552 2,893 -- 552 2,893 3,445 137 2/2/98 1996
King of Prussia PA -- 354 3,183 35 354 3,218 3,572 151 2/2/98 1997
King of Prussia PA -- 634 3,251 -- 634 3,251 3,885 190 9/22/97 1964
Moon Township PA -- 502 4,519 220 502 4,739 5,241 56 8/23/99 1987
Moon Township PA -- 410 3,688 -- 410 3,688 4,098 39 8/23/99 1987
Moon Township PA -- 612 5,507 306 612 5,813 6,425 61 8/23/99 1987
Moon Township PA -- 489 4,403 45 489 4,448 4,937 47 8/23/99 1987
Moon Township PA -- 555 4,995 -- 555 4,995 5,550 52 8/23/99 1987
Moon Township PA -- 202 1,814 -- 202 1,814 2,016 19 8/23/99 1987
Moon Township PA -- 6,936 -- 175 7,111 -- 7,111 -- 8/23/99 1987
Philadelphia PA -- 931 8,377 126 931 8,503 9,434 115 6/11/99 1989
Philadelphia PA -- 3,462 111,946 715 3,462 112,661 116,123 5,054 3/30/98 1983
Philadelphia PA -- 24,753 222,775 953 24,747 223,734 248,481 8,628 6/30/98 1990
Philadelphia PA -- 7,884 71,002 304 7,883 71,307 79,190 4,469 11/13/97 1987
Pittsburgh PA -- 1,663 14,966 5 1,663 14,971 16,634 483 9/14/98 1994
Pittsburgh PA -- 720 9,589 44 720 9,633 10,353 451 2/27/98 1991
Plymouth PA -- 1,412 7,415 1,641 1,413 9,055 10,468 405 1/15/98 1996
Washington PA -- 631 5,698 64 634 5,759 6,393 152 12/1/98 1998
Lincoln RI -- 320 7,690 -- 320 7,690 8,010 481 11/13/97 1997
Memphis TN -- 2,206 19,856 314 2,208 20,168 22,376 708 8/31/98 1985
Austin TX -- 1,218 11,040 294 1,218 11,334 12,552 711 12/5/97 1986
S-6
<PAGE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Gross Amount Carried at
Initial Cost to Company Close of Period 12/31/98
----------------------- ------------------------
Costs Original
Buildings Capitalized Buildings Accumulated Constr-
Encum- and Subsequent to and Depreciation Date uction
Location State brances Land Equipment Acquisition Land Equipment Total (1) (2) Aquired Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Austin TX -- 1,529 13,760 1 1,529 13,761 15,290 501 7/16/98 1993
Austin TX -- 466 4,191 100 558 4,199 4,757 214 1/27/98 1980
Austin TX 3,533 626 5,636 21 626 5,657 6,283 54 8/18/99 1987
Austin TX -- 1,574 14,168 -- 1,574 14,168 15,742 133 8/3/99 1982
Austin TX -- 1,439 6,137 325 1,439 6,462 7,901 275 3/24/98 1975
Austin TX -- 1,621 14,594 640 1,621 15,234 16,855 1,057 12/5/97 1997
Austin TX -- 1,402 12,729 2 1,402 12,731 14,133 795 12/5/97 1997
Austin TX -- 2,317 21,037 -- 2,317 21,037 23,354 1,313 12/5/97 1996
Austin TX -- 1,226 11,126 -- 1,226 11,126 12,352 695 12/5/97 1997
Austin TX -- 1,731 14,921 -- 1,731 14,921 16,652 202 6/30/99 1975
Austin TX -- 2,028 18,251 -- 2,028 18,251 20,279 95 10/8/99 1985
Austin TX -- 562 5,054 1 562 5,055 5,617 153 10/20/98 1997
Austin TX -- 2,072 18,650 9 2,073 18,658 20,731 563 10/20/98 1997
Austin TX -- 1,476 13,286 2 1,476 13,288 14,764 401 10/20/98 1997
Austin TX -- 688 6,192 -- 688 6,192 6,880 84 6/3/99 1985
Austin TX 11,095 2,038 18,338 -- 2,038 18,338 20,376 96 10/8/99 1997
Austin TX -- 4,878 43,903 910 4,882 44,809 49,691 1,330 10/7/98 1968
Austin TX -- 906 8,158 -- 906 8,158 9,064 110 6/16/99 1999
Austin TX -- 1,436 12,927 -- 1,436 12,927 14,363 391 10/7/98 1998
Austin TX -- 539 4,849 -- 539 4,849 5,388 66 6/16/99 1999
Austin TX -- 18,440 -- 1,672 19,759 353 20,112 -- 10/7/98 1968
Irving TX -- 542 4,879 -- 542 4,879 5,421 219 3/19/98 1995
Irving TX -- 846 7,616 -- 846 7,616 8,462 341 3/19/98 1995
San Antonio TX -- 905 8,149 42 905 8,191 9,096 76 8/3/99 1989
San Antonio TX -- 259 2,331 -- 259 2,331 2,590 22 8/3/99 1986
Waco TX -- 2,030 8,708 160 2,060 8,838 10,898 450 12/23/97 1997
Alexandria VA -- 2,109 18,982 78 2,108 19,061 21,169 498 12/30/98 1987
Arlington VA -- 810 7,289 136 811 7,424 8,235 257 8/26/98 1987
Fairfax VA -- 569 5,122 156 569 5,278 5,847 417 12/4/96 1990
Fairfax VA -- 780 7,022 -- 780 7,022 7,802 51 9/29/99 1988
Fairfax VA -- 594 5,347 -- 594 5,347 5,941 39 9/29/99 1988
S-7
<PAGE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(Dollars in thousands)
Gross Amount Carried at
Initial Cost to Company Close of Period 12/31/98
----------------------- ------------------------
Costs Original
Buildings Capitalized Buildings Accumulated Constr-
Encum- and Subsequent to and Depreciation Date uction
Location State brances Land Equipment Acquisition Land Equipment Total (1) (2) Aquired Date
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Falls Church VA -- 3,456 14,828 855 3,519 15,620 19,139 1,070 3/31/97 1993
Richland WA 12,237 3,970 17,035 426 4,042 17,389 21,431 1,204 3/31/97 1995
Falling Waters WV -- 906 3,886 141 922 4,011 4,933 276 3/31/97 1993
Cheyenne WY -- 1,915 8,217 185 1,950 8,367 10,317 580 3/31/97 1995
-------------------------------------------------------------------------------------
Totals $55,441 $350,523 $2,265,600 $40,221 $354,173 $2,302,171 $2,656,344 $106,859
=====================================================================================
</TABLE>
Reconciliation of the carrying amount of real estate and equipment and
accumulated depreciation at the beginning of the period:
Real Estate and Accumulated
Equipment Depreciation
--------------- --------------
Balance at January 1, 1997 $ 1,005,739 $ 76,921
Additions 998,579 37,619
Disposals (35,295) (2,871)
----------- -----------
Balance at December 31, 1997 1,969,023 111,669
Additions 1,004,523 58,837
Disposals (17,064) (695)
----------- -----------
Balance at December 31, 1998 2,956,482 169,811
Additions 526,502 70,080
Disposals (94,247) (20,977)
Spin-off of SNH (732,393) (112,055)
----------- -----------
Balance at December 31, 1999 $ 2,656,344 $ 106,859
=========== ===========
(1) Aggregate cost for federal income tax purposes is approximately
$2,557,428.
(2) Depreciation is provided for on buildings and improvements for periods
ranging up to 40 years and on equipment up to 12 years.
S-8
<PAGE>
<TABLE>
<CAPTION>
HRPT PROPERTIES TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1999
(Dollars in thousands)
Principal Amount of
(1) Loans Subject to
Final Face Value of Carrying Value Delinquent Principal
Location Interest Rate Maturity Date Periodic Payment Terms Mortgage of Mortgage or Interest
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Torrance, CA 12.50% 12/31/00 Interest only, payable $12,600 $8,660 $--
Torrance, CA monthly in arrears.
Anaheim, CA $12.6 million due at maturity.
Arleta, CA 9.96% 9/30/01 Interest only, payable
monthly in arrears. 2,410 1,350 170
$2.4 million due at maturity.
Wichita, KS 10.00% 11/09/02 Principal and interest, in 964 239 --
payable monthly in arrears.
$900 due at maturity.
Florence, KS 11.58% 12/31/06 Interest only, payable 500 124 --
monthly in arrears.
$500 due at maturity.
-----------------------------------------------
$16,474 $10,373 $170
===============================================
</TABLE>
Reconciliation of the carrying amount of mortgage loans at the beginning of the
period:
Balance at January 1, 1997 $ 137,245
New mortgage loans 1,520
Collections of principal, net of discounts (37,263)
---------
Balance at December 31, 1997 101,502
Collections of principal, net of discounts (33,408)
---------
Balance at December 31, 1998 68,094
New mortgage loans 60,000
Collections of principal, net of discounts (75,188)
Impairment of mortgage loans (5,000)
Spin-off of SNH (37,533)
---------
Balance at December 31, 1999 $ 10,373
=========
(1) Also represents cost for federal income tax purposes.
S-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HRPT PROPERTIES TRUST
By: /s/ John A. Mannix
John A. Mannix
President and Chief Operating Officer
Dated: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, or by their
attorney-in-fact, in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John A. Mannix President and March 30, 2000
John A. Mannix Chief Operating Officer
/s/ John C. Popeo Treasurer, Chief Financial March 30, 2000
John C. Popeo Officer and Secretary
/s/ Frederick N. Zeytoonjian Trustee March 30, 2000
Frederick N. Zeytoonjian
/s/ Patrick F. Donelan Trustee March 30, 2000
Patrick F. Donelan
/s/ Justinian Manning, C.P. Trustee March 30, 2000
Rev. Justinian Manning, C.P.
/s/ Gerard M. Martin Trustee March 30, 2000
Gerard M. Martin
/s/ Barry M. Portnoy Trustee March 30, 2000
Barry M. Portnoy
Exhibit 8.1
March 30, 2000
HRPT Properties Trust
400 Centre Street
Newton, Massachusetts 02458
Ladies and Gentlemen:
In connection with the filing by HRPT Properties Trust, a Maryland real
estate investment trust (the "Company"), of its Annual Report on Form 10-K for
the year ended December 31, 1999 (the "Form 10-K"), under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the following opinion is
furnished to you to be filed with the Securities and Exchange Commission (the
"SEC") as Exhibit 8.1 to the Form 10-K.
We have acted as counsel for the Company in connection with the
preparation of its Form 10-K, and we have examined originals or copies,
certified or otherwise identified to our satisfaction, of corporate records,
certificates and statements of officers and accountants of the Company and of
public officials, and such other documents as we have considered relevant and
necessary in order to furnish the opinion hereinafter set forth. Specifically,
and without limiting the generality of the foregoing, we have reviewed: (i) the
declaration of trust, as amended and restated, and the by-laws of the Company,
as amended and restated; and (ii) the sections in the Company's Form 10-K
captioned "Federal Income Tax Considerations" and "ERISA Plans, Keogh Plans and
Individual Retirement Accounts." With respect to all questions of fact on which
such opinions are based, we have assumed the accuracy and completeness of and
have relied on the information set forth in the Form 10-K and in the documents
incorporated therein by reference, and on representations made to us by officers
of the Company. We have not independently verified such information.
The opinion set forth below is based upon the Internal Revenue Code of
1986, as amended, the Treasury Regulations issued thereunder, published
administrative interpretations thereof, and judicial decisions with respect
thereto, all as of the date hereof (collectively, the "Tax Laws"), and upon the
Employee Retirement Income Security Act of 1974, as amended, the Department of
Labor regulations issued thereunder, published administrative interpretations
thereof, and judicial decisions with respect thereto, all as of the date hereof
(collectively, the
<PAGE>
HRPT Properties Trust
March 30, 2000
Page 2
"ERISA Laws"). No assurance can be given that the Tax Laws or the ERISA Laws
will not change. In preparing the discussions with respect to Tax Laws and ERISA
Laws matters in the sections of the Annual Report captioned "Federal Income Tax
Considerations" and "ERISA Plans, Keogh Plans and Individual Retirement
Accounts," we have made certain assumptions and expressed certain conditions and
qualifications therein, all of which assumptions, conditions and qualifications
are incorporated herein by reference.
Based upon and subject to the foregoing, we are of the opinion that the
discussions with respect to Tax Laws and ERISA Laws matters in the sections of
the Annual Report captioned "Federal Income Tax Considerations" and "ERISA
Plans, Keogh Plans and Individual Retirement Accounts," in all material respects
are accurate and fairly summarize the Tax Laws issues and ERISA Laws issues
addressed therein, and hereby confirm that the opinions of counsel referred to
in said sections represent our opinions on the subject matter thereof.
We hereby consent to the incorporation of this opinion by reference as
an exhibit to the Form 10-K and to the reference of our firm therein, and to the
incorporation of this opinion by reference in the Company's Registration
Statements on Form S-3 (File Nos. 33-62135, 333-47815, 333-56051, 333-86593)
under the Securities Act of 1933, as amended (the "Act"). In giving such
consent, we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Act or under the rules and
regulations of the SEC promulgated thereunder.
Very truly yours,
/s/ SULLIVAN & WORCESTER LLP
SULLIVAN & WORCESTER LLP
EXHIBIT 10.6
MANAGEMENT AGREEMENT
(Quarry Lake Business Center, Austin, Texas)
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered into
as of the 8 day of October, 1999 by and between REIT MANAGEMENT & RESEARCH,
INC., a Delaware corporation ("Managing Agent"), and QUARRY LAKE PROPERTIES
TRUST, a Maryland real estate investment trust ("Owner").
WHEREAS, Owner is the owner of certain premises located at 4515 Seton
Center Parkway in Austin, Texas, upon which are located a certain office
building and parking areas and facilities commonly known as Quarry Lake Business
Center (the "Managed Premises"); and
WHEREAS, Owner desires to retain Managing Agent, and Managing Agent is
willing to serve, as managing agent with respect to the Managed Premises, all
upon the terms and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the agreements
herein contained, Owner and Managing Agent hereby agree as follows
1. Employment. Subject to the terms and conditions hereinafter set
forth, Owner hereby employs Managing Agent with respect to the Managed Premises.
2. Duties.
(a) Managing Agent hereby accepts such employment as managing
agent and agrees to devote such time, attention and effort as may be
appropriate to operate and manage the Managed Premises in a diligent,
orderly and efficient manner. Any or all services may be performed or
goods purchased by Managing Agent under arrangements jointly with or
for other properties owned or managed by Managing Agent and the costs
shall be reasonably apportioned. Managing Agent may employ personnel
who are assigned to work exclusively at the Building or partly at the
Building and other buildings owned and/or managed by Managing Agent.
The properly apportioned costs of such personnel shall be reimbursed by
Owner, in addition to the Fee.
(b) Without limitation, Managing Agent agrees to perform the
following specific duties:
(i) To seek tenants for the Managed Premises in
accordance with the rental schedule established by Owner and
to negotiate leases including renewals thereof and to lease in
Owner's name space on a lease form approved by the Owner, only
to tenants, at rentals, and for periods of occupancy all as
are approved in each case by Owner. To employ appropriate
means in order that the availability of rental space
<PAGE>
is made known to potential tenants, provided, however, that
such means shall not include the employment of brokers unless
otherwise agreed by Owner. The legal expenses of negotiating
such leases and leasing such space shall be approved and paid
by Owner.
(ii) To collect all rents and other income from the
Managed Premises and to give receipts therefor, both on behalf
of Owner, and deposit such funds in such banks as are named,
from time to time, by Owner, in agency accounts for and under
the name of Owner. Managing Agent shall be empowered to sign
disbursement checks on these accounts.
(iii) To make contracts for and to supervise any
repairs and/or alterations to the Managed Premises, including
tenant improvements and decoration of rental space, as may be
approved by Owner.
(iv) For the Owner's account and at its expense, to
hire, supervise and discharge employees as required for the
efficient operation and maintenance of the Managed Premises.
(v) To obtain, at Owner's expense, appropriate
insurance for the Managed Premises protecting Owner and
Managing Agent while acting on behalf of Owner against all
normally insurable risks relating to the Managed Premises and
complying with the requirements of Owner's mortgagee, if any,
and, upon approval thereof, to cause the same to be provided
and maintained by all tenants with respect to the Managed
Premises to the extent required by the terms of such tenants'
leases.
(vi) To promptly notify Owner and Owner's insurance
carriers, as required by the applicable policies, of any
casualty or injury to person or property at the Managed
Premises, and complete customary reports in connection
therewith.
(vii) To procure seasonably all supplies and other
materials necessary for the proper operation of the Managed
Premises, at Owner's expense.
(viii) To pay promptly from rental receipts, other
income derived from the Managed Premises, or other monies made
available by Owner for such purpose, all costs incurred in the
operation of the Managed Premises which are expenses of Owner
hereunder, including wages or other payments for services
rendered, invoices for supplies or other items furnished in
relation to the Managed Premises, and pay over forthwith the
balance of such rental receipts, income and monies to Owner or
as Owner shall from time to time direct. (In the event that
the sum of the expenses to operate and the compensation due
the Managing Agent exceed gross receipts in any month and no
excess funds from prior months are available for payment of
such
2
<PAGE>
excess, Owner shall pay promptly the amount of the deficiency
thereof to Managing Agent upon receipt of statements
therefor.)
(ix) To advise Owner promptly of any material
developments in the operation of the Managed Premises that
might affect the profitable operation of the Managed Premises.
(x) To establish, in Owner's name and with Owner's
approval, reasonable rules and regulations for tenants of the
Managed Premises;
(xi) At the direction of Owner and with counsel
selected by Owner, to institute or defend, as the case may be,
any and all legal actions or proceedings (in the name of Owner
if necessary) relating to operation of the Managed Premises;
(xii) To maintain the books and records of Owner
reflecting the management and operation of the Managed
Premises, making available for reasonable inspection and
examination by Owner or its representatives, all books,
records and other financial data relating to the Managed
Premises.
(xiii) To prepare and deliver seasonably to tenants
of the Managed Premises such statements of expenses or other
information as shall be required on the landlord's part to be
delivered to such tenants for computation of rent, additional
rent, or any other reason.
(xiv) To aid, assist and cooperate with Owner in
matters relating to taxes and assessments and insurance loss
adjustments and notify the Owner of any tax increase or
special assessments relating to the Managed Premises.
(xv) To provide such emergency services as may be
required for the efficient management and operation of the
Managed Premises on a 24-hour basis.
(xvi) To enter into contracts for utilities
(including, without limitation, water, fuel, electricity and
telephone) and for building services (including, without
limitation, cleaning of windows, common areas and tenant
space, ash, rubbish and garbage hauling, snow plowing,
landscaping, carpet cleaning and vermin extermination), and
for other services as are appropriate to first class office,
retail and medical office space (as applicable).
(xvii) To seek the lowest competitive price
commensurate with desired quality for all items purchased or
services contracted by it under this Agreement.
3
<PAGE>
(xviii) To take such action generally consistent with
the provisions of this Agreement, as Owner might with respect
to the Managed Premises if personally present.
3. Authority. Owner gives to Managing Agent the authority and powers to
perform the foregoing duties on behalf of Owner subject, however, to Owner's
approval as specified. Owner further authorizes Managing Agent to incur such
reasonable expenses, specifically contemplated in Section 2, on behalf of Owner
as are necessary in the performance of those duties.
4. Special Authority of Agent. In addition to, and not in limitation
of, the duties and authority of Managing Agent contained herein, Managing Agent
shall perform the following duties, but only with Owner's prior approval in each
case:
(a) Terminate tenancies and sign and serve in the name of
Owner such notices therefor as may be required for the proper
management of the Managed Premises.
(b) With counsel selected by Owner, and at Owner's expense,
institute and prosecute actions to evict tenants and recover possession
of rental space, and recover rents and other sums due; and when
expedient, settle, compromise and release such actions or suits or
reinstate such tenancies.
5. Compensation.
(a) In consideration of the services to be rendered by the
Managing Agent hereunder, the Owner agrees to pay and the Managing
Agent agrees to accept as its sole compensation (i) a management fee
(the "Fee") equal to three percent (3%) of the gross collected rents
actually received by Owner from the Managed Premises, such gross rents
to include all fixed rents, percentage rents, additional rents,
operating expense and tax escalations, and any other charges paid to
Owner in connection with occupancy of the Managed Premises, but
excluding any amounts collected from tenants to reimburse Owner for the
cost of capital improvements or for expenses incurred in curing any
tenant default or in enforcing any remedy against any tenant; and (ii)
a construction supervision fee (the "Construction Fee") in connection
with all interior and exterior construction renovation or repair
activities at the Managed Premises, including, without limitation, all
tenant and capital improvements in, on or about the Managed Premises,
undertaken during the term of this Agreement, other than ordinary
maintenance and repair, equal to five percent (5%) of the cost of such
construction which shall include the costs of all related professional
services and the cost of general conditions.
(b) The Fee shall be due and payable monthly, in arrears based
on a reasonable annual estimate or budget with an annual reconciliation
within thirty (30) days after the end
4
<PAGE>
of such calendar year. The Construction Fee shall be due and payable
periodically, as agreed by Managing Agent and Owner, based on actual
costs incurred to date.
(c) Notwithstanding anything herein to the contrary, Owner
shall reimburse Managing Agent for reasonable travel explenses incurred
when traveling to and from the Managed Premises while performing its
duties in accordance with this Agreement; provided, however, that,
reasonable travel expenses shall not include expenses incurred for
travel to and from the Managed Premises by personnel assigned to work
exclusively at the Managed Premises.
(d) Managing Agent shall also receive the amount of any lump
sum reimburseables paid by tenants of the Managed Premises to the
extent amounts paid exceed costs incurred by Owner for work performed
with respect thereto.
(e) Managing Agent shall be entitled to no other additional
compensation, whether in the form of commission, bonus or the like for
its services under this Agreement. Except as otherwise specifically
provided herein with respect to payment by Owner of legal fees,
accounting fees, salaries, wages, fees and charges of parties hired by
the Managing Agent on behalf of Owner to perform operating and
maintenance functions in the Managed Premises, and the like, if
Managing Agent hires third parties to perform services required to be
performed hereunder by Managing Agent without additional charge to
Owner, Managing Agent shall (except to the extent the same are
reasonably attributable to an emergency at the Managed Premises) be
responsible for the charges of such third parties.
6. Contracts. Managing Agent shall not, without the prior consent of
Owner, enter into any contracts on behalf of Owner which extend beyond the then
current term of this Agreement.
7. Term of Agreement. The term of this Agreement shall begin on the
date hereof and, unless sooner terminated as herein provided, shall end on that
date which is thirty (30) days following written notice of termination given by
either Owner or Managing Agent to the other.
8. Termination or Expiration. Upon termination or expiration of this
Agreement for any reason whatsoever, Managing Agent shall promptly turn over to
Owner all books, papers, funds, records, keys and other items relating to the
management and operation of the Managed Premises, including, without limitation,
all leases in the possession of the Managing Agent and shall render to Owner a
final accounting through the date of termination.
9. Assignment of Rights and Obligations.
(a) Without Owner's prior written consent, Managing Agent
shall not sell, transfer, assign or otherwise dispose of or mortgage,
hypothecate or otherwise encumber or permit or suffer any encumbrance
of all or any part of its rights and obligations hereunder, and any
5
<PAGE>
transfer, encumbrance or other disposition of an interest herein made
or attempted in violation of this paragraph shall be void and
ineffective, and shall not be binding upon Owner.
(b) Owner, without Managing Agent's consent, may assign its
rights and obligations hereunder to any mortgagee with respect to, or
successor owner of, the Managed Premises, but not otherwise.
(c) Consistent with the foregoing paragraphs (a) and (b), the
terms "Owner" and "Managing Agent" as used in this Agreement shall mean
the original parties hereto and their respective mortgagees,
successors, assigns, heirs and legal representatives.
10. Termination for Cause. Either party (the "Non- Defaulting Party")
may terminate this Agreement at any time in the event that the other party
("Defaulting Party") shall fail to keep, observe or perform any covenant,
agreement, term or provision of this Agreement to be kept, observed or performed
by such Defaulting Party, and such default shall continue for a period of seven
(7) days after written notice thereof from the Non-Defaulting Party, or if such
default is not of a monetary nature and cannot be cured within seven (7) days
then such additional period as shall be reasonable provided that Defaulting
Party is proceeding diligently to cure such default.
11. Termination for Insolvency. Either party may terminate this
Agreement by giving written notice to the other party if the other party:
(a) files a voluntary petition in bankruptcy or is adjudicated
a bankrupt or insolvent or files any petition or answer seeking
arrangement, composition, readjustment, or similar relief under the
present or any future bankruptcy act or any other present or future
applicable federal or state law relative to bankruptcy, insolvency or
other relief for debtors; or
(b) consents to an involuntary petition seeking arrangement,
composition, readjustment, liquidation or similar relief under the
present of any future federal bankruptcy act or any other federal or
state law relative to bankruptcy, insolvency or other relief for
debtors or fails to vacate within sixty (60) days from the date of
entry thereof any order approving such involuntary petition; or
(c) makes an assignment for the benefit of creditors or takes
any other similar action for the protection or benefit of creditors.
12. Fidelity Bond. Owner, at Owner's expense, may require that
employees of Managing Agent who handle or are responsible for Owner's money to
be bonded by a fidelity bond in an amount sufficient in Owner's determination to
cover any loss which may occur in the management and operation of the Managed
Premises.
6
<PAGE>
13. Indemnification.
(a) Owner agrees to defend, indemnify and hold harmless
Managing Agent from and against all costs, claims, expenses and
liabilities (including reasonable attorneys' fees) arising out of
Managing Agent's performance of its duties in accordance with this
Agreement including, without limitation, injury or damage to persons or
property occurring in, on or about the Managed Premises and violations
or alleged violations of any law, ordinance, regulation or order of any
governmental authority regarding the Managed Premises except any
injury, damage or violation resulting from Managing Agent's default
hereunder, or from Managing Agent's fraud, gross negligence or willful
misconduct in the performance of its duties hereunder.
(b) Owner agrees that required insurance shall include, at
Owner's expense, public liability and workmen's compensation insurance
upon the following terms and conditions:
(i) policies shall be so written as to protect the
Agent in the manner and to the same extent as the Owner.
(ii) Workmen's compensation policies shall be written
to conform to Massachusetts statutory coverage requirements,
and shall include employee liability insurance with limits of
not less than One Hundred Thousand Dollars ($100,000).
(iii) The public liability insurance shall be written
in limits of not less than One Million Dollars ($1,000,000)
per occurrence for bodily injury and Five Hundred Thousand
($500,000) Dollars per occurrence for property damage.
(iv) Such public liability insurance shall include
the standard extensions of liability coverage as may be
mutually agreed upon from time to time, and shall name both
parties and their respective employees as additional insureds.
14. Notices. Whenever notice is to be sent pursuant to this Agreement
to either party to this Agreement, it is expressly understood that same shall be
sent postage prepaid, certified mail, return receipt requested to either party
at 400 Centre Street, Newton, Massachusetts 02458, or to any such address that
either party may hereinafter designate.
15. Limitation of Liability. No partner of Owner or Managing Agent
shall be personally liable hereunder, all such liability being limited in the
case of Owner to the interest of Owner in the Managed Premises and in the case
of Managing Agent, to its interest hereunder.
16. Modification of Agreement. This Agreement may not be modified,
altered or amended in manner except by an amendment in writing, duly executed by
the parties hereto.
7
<PAGE>
17. Independent Contractor. This Agreement is not one of general agency
by Managing Agent for Owner, but one with Managing Agent engaged as an
independent contractor. Nothing in this Agreement is intended to create a joint
venture, partnership, tenancy-in-common or other similar relationship between
Owner and Managing Agent for any purposes whatsoever.
18. Law Governing. This Agreement shall be governed by and in
accordance with the laws of The Commonwealth of Massachusetts.
19. Nature of Owner's Obligations. THE DECLARATION OF TRUST
ESTABLISHING OWNER, 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 "QUARRY LAKE
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 OWNER SHALL BE HELD TO ANY PERSONAL LIABILITY,
JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, OWNER. MANAGING
AGENT AND ALL OTHER PERSONS DEALING WITH OWNER, IN ANY WAY, SHALL LOOK ONLY TO
THE ASSETS OF OWNER FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY
OBLIGATION, AND NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF OWNER
SHALL HAVE ANY LIABILITY HEREUNDER OR OTHERWISE FOR ANY ACT OR OBLIGATION OF
OWNER.
Executed as a sealed instrument.
MANAGING AGENT:
REIT MANAGEMENT & RESEARCH, INC.
By: /s/ David M. Lepore
Name: David M. Lepore
Title: Vice President
OWNER:
QUARRY LAKE PROPERTIES TRUST
By: /s/ John A. Mannix
Name: John A. Mannix
Title: President
8
S-10
<PAGE>
SCHEDULE TO EXHIBIT 10.6
Pursuant to Instruction 2 to Item 601 of Regulation S-K, the following
Management Agreements, which are substantially identical in all material
respects to the Management Agreement for property located at 4515 Seton Center
Parkway, Austin, Texas, are omitted. The following list sets forth the material
differences in the property name, street address, date of the Management
Agreement, and owner from the Management Agreement filed herewith:
<TABLE>
<CAPTION>
Street Address of
Property Name Property Date Owner
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Rosedale Corporate Plaza 812 San Antonio Street December 1, 1999 Rosedale Properties Limited
Austin Texas Liability Company
Park at San Antonio Unit 1 at 2685 Long Lake August 18, 1999 Park San Antonio Properties
Road, Unit 2 at 2675 Long Trust
Lake Road, Unit 3 at 2665
Long Lake Road, Unit 4 at
2655 Long Lake Road, and
Unit 5 at 2645 Long Lake
Road in Rosedale, Minnesoata
</TABLE>
In addition, the Management Agreement for the Rosedale Corporate Plaza does not
have a Section 19.
In addition, the Management Agreement for the Park at San Antonio Company does
not have a Section 2(c).
EXECUTION
HRPT PROPERTIES TRUST
FIRST AMENDMENT AND LIMITED WAIVER TO LOAN AGREEMENT
This FIRST AMENDMENT AND LIMITED WAIVER TO LOAN AGREEMENT (this
"Amendment") is dated as of February 12, 1999 and entered into by and among HRPT
PROPERTIES TRUST, a Maryland real estate investment trust, formerly known as
Health and Retirement Properties Trust ("Borrower"), the financial institutions
listed on the signature pages hereof ("Lenders"), DRESDNER KLEINWORT BENSON
NORTH AMERICA LLC, a limited liability company organized under the laws of
Delaware, as agent for Lenders ("Agent") and Fleet National Bank, as
Administrative Agent ("Administrative Agent"), and, for purposes of Section 6
hereof, the Guarantors listed on the signature pages hereof, and is made with
reference to that certain Fourth Amended and Restated Loan Agreement dated as of
April 2, 1998 (the "Loan Agreement") by and among Borrowers, Lenders, Agent,
Administrative Agent and certain of Guarantors. Capitalized terms used herein
without definition shall have the same meanings herein as set forth in the Loan
Agreement.
WHEREAS, Borrower intends to focus its investments on office properties
and has recently formed Senior Housing Properties Trust, a Maryland real
investment trust and a wholly-owned direct subsidiary of Borrower ("Senior
Housing") with the intention of transferring its senior housing properties to
Senior Housing and its Subsidiaries and, subsequent to such transfer, spinning
off Senior Housing to the existing common shareholders of Borrower (the
"Spin-Off"); and
WHEREAS, Borrower, Lenders, Agent and Administrative Agent desire (i)
whether or not the Spin-Off is consummated, to amend the Loan Agreement to
remove the restriction from Section 6.8 of the Loan Agreement which provides
that the aggregate amount of Indebtedness of Borrower and its Subsidiaries
cannot exceed the Aggregate Allowed Value of Eligible Properties and Eligible
Mortgages that consist of interests in facilities that are used for healthcare
or related services, and (ii) to waive the provisions of the Loan Agreement to
the extent required to permit the Spin-Off and certain related transactions.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
Section 1. AMENDMENTS TO THE LOAN AGREEMENT.
1.1 Amendment to Section 1: Definitions. The definition of "Tangible Net Worth"
set forth in Section 1.1 of the Loan Agreement is hereby amended by inserting
the words "or of Senior Housing Properties Trust, a Maryland real estate
investment trust," immediately after the reference to "Hospitality Properties
Trust" in clause (v) of the exclusions thereto.
1.2 Amendment to Section 6: Negative Covenant. Clause (a) of Section 6.8 of the
Loan Agreement is hereby amended by deleting the words "the lesser of (x)" from
the sixth line thereof and the words "or (y) 100% of the aggregated Allowed
Value of Eligible Properties and
EXECUTION
<PAGE>
Eligible Mortgages that consist of interest in facilities that are used for
healthcare or related services" from the seventh, eighth and ninth lines
thereof.
Section 2. LIMITED WAIVER.
2.1 Waiver. Subject to the terms and conditions set forth herein and in reliance
on the representations and warranties of Borrower herein contained, Lenders
hereby waive compliance with the provisions of Sections 6.3(a), 6.3(b)(iii) and
6.5 of the Loan Agreement to the extent, and only to the extent, necessary to
permit Borrower to (i) contribute, or permit its Subsidiaries to contribute,
some or all of its senior housing properties (including senior housing,
congregate communities, assisted living properties and nursing homes) to certain
newly-created Subsidiaries, (ii) contribute the stock of the Subsidiaries
described in the foregoing clauses to Senior Housing immediately prior to the
Spin-Off, and (iii) distribute some or all of the common shares of Senior
Housing to its common shareholders as an extraordinary dividend; provided, that
(x) the proceeds of any promissory note or any cash received by Borrower in
consideration of any of the transactions described in the foregoing clauses or
the Spin-Off shall immediately be applied to the prepayment of the Loans and (y)
the distribution described in clause (iii) shall otherwise be made in compliance
with the provisions of Section 6.2.
2.2 Limitation of Waiver. Without limiting the generality of the provisions of
subsection 10.4 and 10.6 of the Loan Agreement, the waiver set forth above shall
be limited precisely as written and nothing in this Amendment shall be deemed
to:
(a) constitute a waiver of compliance by Borrower with respect
to (i) sections 6.3(a), 6.3(b)(iii) and 6.5 of the Loan Agreement in
any other instance or (ii) any other term, provision or condition of
the Loan Agreement or any other instrument or agreement referred to
therein (whether in connection with the Spin-Off and the related
transactions or otherwise); or
(b) prejudice any right or remedy that Agent, Administrative
Agent or Lender may now have (except to the extent such right or remedy
was based upon existing defaults that will not exist after giving
effect to this Amendment) or may have in the future under or in
connection with the Loan Agreement or any other instrument or agreement
referred to therein.
Section 3. RELEASE.
Upon the consummation of the Spin-Off, Senior Housing and its
Subsidiaries shall be released from the guarantee set forth in Section 9 of the
Loan Agreement to which they are, or shall upon their creation become, party.
Section 4. CONDITION TO EFFECTIVENESS.
Sections 1, 2 and 3 of this Amendment shall become effective only upon
the date on or before June 30, 1999 (the "Effective Date") of the payment by
Borrower to Agent, for distribution to each Lender party to this Amendment (or,
if applicable, its successors and
2 EXECUTION
<PAGE>
assigns), a non-refundable fee in immediately available funds in an amount equal
to 0.30% of such Lender's Commitment, payment of which may be made at Borrower's
sole election.
Section 5. BORROWER'S REPRESENTATIONS AND WARRANTIES.
In order to induce Lenders to enter into this Amendment and to amend
the Loan Agreement in the manner provided herein, Borrower represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. Trust or Corporate Power and Authority. Borrower and each Guarantor
has all requisite trust or corporate power and authority to enter into this
Amendment and to carry out the transactions contemplated by, and perform its
respective obligations under, the Loan Agreement as amended by this Amendment
(the "Amended Agreement").
B. Authorization of Agreements. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly authorized
by all necessary trust or corporate action on the part of Borrower and
Guarantors.
C. No Conflict. The execution and delivery by Borrower and Guarantors
of this Amendment and the performance by Borrower and Guarantors of the Amended
Agreement do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Borrower or any of its
Subsidiaries, the Declaration or Trust, or Certificates or Articles of
Incorporation or Bylaws of Borrower or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of government binding on
Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
contractual obligation of Borrower or any of its Subsidiaries, (iii) result in
or require the creation or imposition of any Lien upon any of the properties or
assets of Borrower or any of its Subsidiaries, or (iv) require any approval of
stockholders or any approval or consent of any Person under any contractual
obligation of Borrower or any of its Subsidiaries, except for such approvals or
consents which will be obtained on or before the date hereof.
D. Governmental Consents. The execution and delivery by Borrower and
Guarantors of this Amendment and the performance by Borrower and Guarantors of
the Amended Agreement do not and will not require any registration with, consent
or approval of, or notice to, or other action to, with or by, any federal, state
or other governmental authority or regulatory body.
E. Binding Obligation. This Amendment and the Amended Agreement have
been duly executed and delivered by Borrower and each Guarantor and are the
legally valid and binding obligations of Borrower and Guarantors against
Borrower and each Guarantor in accordance with their respective terms, except as
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or limited creditors' rights generally or by equitable
principles relating to enforceability.
3 EXECUTION
<PAGE>
F. Incorporation of Representations and Warranties From Loan Agreement.
The representations and warranties contained in Section 3 of the Loan Agreement
are and will be true, correct and complete in all material respects on and as of
the date hereof and to the same extent as though made on and as of that date,
except to the extent such representations and warranties specifically relate to
an earlier date, in which case they were true, correct and complete in all
material respects on and as of such earlier date.
G. Absence of Default. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that would constitute a Default or an Event of Default.
Section 6. ACKNOWLEDGEMENT AND CONSENT
Each Guarantor hereby acknowledges that it has reviewed the terms and
provisions of the Loan Agreement and this Amendment and consents to the
amendment of the Loan Agreement effected pursuant to this Amendment. Each
Guarantor hereby confirms that it will continue to guaranty to the fullest
extent possible the full and punctual payment of the principal and interest
(including, without limitation, interest which, but for the filing of a petition
in bankruptcy with respect to Borrower would accrue hereunder) on all Loans made
to Borrower and the full and punctual payment of all other amounts payable by
Borrower under the Loan Agreement (including amounts that would become due but
for the operation of the automatic stay under Section 362(e) of the United
States Bankruptcy Code) subject to the limitations set forth in Section 9(a) of
the Loan Agreement.
Each Guarantor acknowledges and agrees that (i) notwithstanding the
conditions to effectiveness set forth in this Amendment, such Guarantor is not
required by the terms of the Loan Agreement or any other Loan Document to
consent to the amendments to the Loan Agreement effected pursuant to this
Amendment and (ii) nothing in the Loan Agreement, this Amendment or any other
Loan Document shall be deemed to require the consent of such Guarantor to any
future amendments to the Loan Agreement.
Section 7. MISCELLANEOUS
7.1 Reference to and Effect on the Loan Agreement and the Other Loan
Documents.
A. On and after the Effective Date, each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of the
like import referring to the Loan Agreement, and each reference in the other
Loan Documents to the "Loan Agreement," "thereunder," "thereof" or words of like
import referring to the Loan Agreement shall mean and be a reference to the
Amended Agreement.
B. Except as specifically amended or waived by this Amendment, the Loan
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
4 EXECUTION
<PAGE>
C. The execution, delivery and performance of this Amendment shall not,
except as expressly provided herein, constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of Agent or any Lender under,
the Loan Agreement or any of the other Loan Documents.
7.2 Fees and Expenses. Borrower acknowledges that all costs, fees and expenses
as described in subsection 10.7 of the Loan Agreement incurred by Agent and its
counsel with respect to this Amendment and the documents and transactions
contemplated hereby shall be for the account of Borrower.
7.3 Headings. Sections and subsection heading in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
amendment for any other purpose or be given any substantive effect.
7.4 Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE SATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS OF LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
7.5 Counterparts; Effectiveness. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment (other than the provisions of Sections 1, 2
and 3 hereof, the effectiveness of which is governed by Section 4 hereof) shall
become effective upon (i) the execution of a counterpart hereof by Borrower,
Agent and Majority Lenders, and receipt by Borrower and Agent of written or
telephonic notification of such execution and authorization of delivery thereof
and (ii) the payment by Borrower to Administrative Agent, for distribution to
the Lenders that have executed this Amendment, of a non-refundable amendment fee
in immediately available funds in an amount equal to 0.20% of each such Lender's
Commitment.
7.6 Non-Liability of Trustees. THE DECLARATION OF TRUST ESTABLISHING BORROWER,
DATED OCTOBER 9, 1986, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO
(THE "DECLARATION"), IS DULY FILED WITH 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 BORROWER SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY
OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, BORROWER. ALL PERSONS
DEALING WITH BORROWER, IN ANY
5 EXECUTION
<PAGE>
WAY, SHALL LOOK ONLY TO THE ASSETS OF BORROWER FOR THE PAYMENT OF ANY SUM OR THE
PERFORMANCE OF ANY OBLIGATION.
6 EXECUTION
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
HRPT PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
DRESDNER KLEINWORT BENSON
NORTH AMERICA, LLC, as Agent
By: /s/ Ronald K. Rapp
Name: Ronald K. Rapp
Title: Vice Prsident
By: /s/ Craig D. Meisner
Name: Craig D. Meisner
Title: Vice President
DRESDNER BANK AG, New York Branch
and Grand Cayman Branch, as a Lender
By: /s/ Andrew P. Nesi
Name: Andrew P. Nesi
Title: Vice President
By: /s/ Charles M. O'Shea
Name: Charles M. O'Shea
Title: Vice President
FLEET NATIONAL BANK,
as Administrative Agent and as a Lender
By: /s/ Ginger Stolzenthaler
Name: G. Stolzenthaler
Title: SVP
S-1 EXECUTION
<PAGE>
ABBEY NATIONAL TREASURY SERVICES PLC,
as a Lender
By: /s/
Name:
Title:
ARAB AMERICAN BANK,
as a Lender
By: /s/ Carmelo L. Foti
Name: Carmelo L. Foti
Title: Vice President
By: /s/ William G. Reynolds
Name: William G. Reynolds
Title: Vice President
BANKBOSTON, N.A.
as a Lender
By: /s/ William M. Cotter
Name: William M. Cotter
Title: Director
BANK HAPOALIM B.M.,
as a Lender
By: /s/ Amram Lador
Name: Amram (Rami) Lador
Title: First V.P. & Branch Manager
Bank Hapoalim
Philadelphia Branch
By: /s/ Ellen S. Frank
Name: Ellen S. Frank
Title: Vice President
S-2 EXECUTION
<PAGE>
BANK OF IRELAND,
as a Lender
By: /s/ Catherine Strecker
Name: Catherine Strecker
Title: Manager
BANK OF MONTREAL, as a Lender
By: /s/ L.A. Durning
Name: L.A. Durning
Title: Portfolio Manager
BANQUE NATIONALE DE PARIS, as a Lender
By: /s/ Alan W. Barkley
Name: Alan W. Barkley
Title: Vice President
By: /s/ Mark McElwain
Name: Mark McElwain
Title: Assistant Vice President
CIBC INC., as a Lender
By: /s/ Gerald Girardi
Name: Gerald Girardi
Title: Executive Director
CIBC Oppenheimer Corp.,
AS AGENT
COMERICA BANK, as a Lender
By: /s/ Leslie Vogel
Name: Leslie Vogel
Title: Account Officer
S-3 EXECUTION
<PAGE>
CREDIT LYONNAIS New York Branch,
as a Lender
By: /s/ John Oberle
Name: John Oberle
Title: Vice President
DG BANK, DEUTSCHE GENOSSENSCHAFTSBANK AG
Cayman Island Branch, as a Lender
By: /s/ Linda J. O'Connell
Name: Linda J. O'Connell
Title: Vice President
By: /s/ Karen A. Brinkman
Name: Karen A. Brinkman
Title: Vice President
FIRST UNION NATIONAL BANK,
as a Lender
By: /s/ Valerie A. Cline
Name: Valerie A. Cline
Title: Director
KEY CORPORATE CAPITAL INC.,
as a Lender
By: /s/ Jeffrey Kalinowski
Name: Jeffrey Kalinowski
Title: Officer
S-4 EXECUTION
<PAGE>
RIGGS BANK N.A.,
as a Lender
By: /s/ Craig A. Havard
Name: Craig A. Havard
Title: Vice President
RZB FINANCE LLC,
as a Lender
By: /s/ John A. Valiska
Name: John A. Valiska
Title: Vice President
By: /s/ Dieter Beintrexler
Name: Dieter Beintrexler
Title: President
SOCIETE GENERALE,
as a Lender
By: /s/ Sedare Coradin
Name: Sedare Coradin
Title: Vice President
By: /s/ Jerry Parisi
Name: Jerry Parisi
Title: Director
THE BANK OF NEW YORK,
as a Lender
By: /s/ Thomas C. McCrohan
Name: Thomas C. McCrohan
Title: Vice President
S-5 EXECUTION
<PAGE>
THE BANK OF NOVA SCOTIA,
New York Agency, as a Lender
By: /s/ Christopher I. Grant
Name: Christopher I. Grant
Title: Senior Relationship Manager
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., New York Branch,
as a Lender
By: /s/ Junichi Ebihara
Name: Junichi Ebihara
Title: Deputy General Manager
VIA BANQUE, as a Lender
By: /s/
Name:
Title:
By:
Name:
Title:
S-6 EXECUTION
<PAGE>
For the purposes of Section 7: HEALTH AND RETIREMENT
PROPERTIES INTERNATIONAL, INC.
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
CAUSEWAY HOLDINGS INC.
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
CHURCH CREEK CORPORATION
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB ACQUISITION TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB LA PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
S-7 EXECUTION
<PAGE>
HUB RI PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB WOODMONT INVESTMENT TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB REALTY FUNDING, INC.
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB MANAGEMENT, INC.
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB REALTY COLLEGE PARK, INC.
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
INDEMNITY COLLECTION CORPORATION
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
S-8 EXECUTION
<PAGE>
HUB REALTY KANSAS CITY, INC.
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB REALTY GOLDEN, INC.
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB REALTY COLLEGE PARK I, LLC, By HUB
Management, Inc., its Manager
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB LA LIMITED PARTNERSHIP
BY HUB LA Prop Trust, its general
partner
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
HUB WOODMONT LLC, By HUB Woodmont
Investment Trust, its Manager
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
S-9 EXECUTION
<PAGE>
1735 MARKET STREET PROPERTIES TRUST
By: /s/ David J. Hegarty
Name: David J. Hegarty
Title: Vice President
NINE PENN CENTER ASSOCIATES, L.P.
BY NINE PENN CENTER PROPERTIES TRUST,
its general partner
By: /s/ David J. Hegarty
Name: David J. Hegarty
Title: Vice President
NINE PENN CENTER PROPERTIES TRUST
By: /s/ David J. Hegarty
Name: David J. Hegarty
Title: Vice President
RESEARCH PARK PROPERTIES TRUST
By: /s/ David J. Hegarty
Name: David J. Hegarty
Title: Vice President
S-10 EXECUTION
<PAGE>
SENIOR HOUSING PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
SPTMRT PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
SPTIHS PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
SPTSUN PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
SPTMISC PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
SPTMNR PROPERTIES TRUST
By: /s/ Ajay Saini
Name: Ajay Saini
Title: Treasurer
S-11 EXECUTION
<PAGE>
SPTBROOK PROPERTIES TRUST
By: /s/
Name:
Title:
SPTGEN PROPERTIES TRUST
By: /s/
Name:
Title:
<TABLE>
<CAPTION>
Exhibit 12.1
HRPT PROPERTIES TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands, except ratio amounts)
Year Ended December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income before gain on sale of properties
and extraordinary item $105,555 $146,656 $112,204 $ 77,164 $ 61,760
Fixed charges 90,772 66,253 38,564 23,279 26,218
-------- -------- -------- -------- --------
Adjusted Earnings $196,327 $212,909 $150,768 $100,443 $ 87,978
======== ======== ======== ======== ========
Fixed Charges:
Interest expense $ 87,470 $ 64,326 $ 36,766 $ 22,545 $ 24,274
Amortization of deferred financing costs 3,302 1,927 1,798 734 1,944
-------- -------- -------- -------- --------
Total Fixed Charges $ 90,772 $ 66,253 $ 38,564 $ 23,279 $ 26,218
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 2.2x 3.2x 3.9x 4.3x 3.4x
======== ======== ======== ======== ========
</TABLE>
Exhibit 21.1
HRPT PROPERTIES TRUST
SUBSIDIARIES OF THE REGISTRANT
1735 Market Street Properties Trust - (Maryland)
Causeway Holdings, Inc. - (Massachusetts)
Health and Retirement Properties International, Inc. - (Delaware)
Hub Acquisition Trust - (Maryland)
Hub LA Limited Partnership (98%) - (Delaware)
Hub LA Properties Trust -(Maryland)
Hub Management, Inc. - (Delaware)
Hub Properties Trust - (Maryland)
Hub Realty Buffalo, Inc. - (Delaware)
Realty College Park I, LLC -(Maryland)
Hub Realty College Park, Inc. - (Delaware)
Hub Realty Funding, Inc.-(Delaware)
Hub Realty Golden, Inc. - (Delaware)
Hub Realty Kansas City, Inc. -(Delaware)
Hub Realty Richland, Inc. - (Delaware)
Hub RI Properties Trust -(Maryland)
Hub Woodmont Investment Trust - (Maryland)
Hub Woodmont Limited Liability Company - (Delaware)
Indemnity Collection Corporation - (Delaware)
Nine Penn Center Associates, L.P. - (Pennsylvania)
Nine Penn Center Properties Trust - (Maryland)
Research Park Properties Trust - (Maryland)
Park San Antonio Properties Trust - (Maryland)
Rosedale Properties Trust - (Maryland)
Rosedale Properties, Inc. - (Delaware)
Rosedale Properties Limited Liability Company -(Delaware)
Quarry Lake Properties Trust - (Maryland)
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to the Registration Statement (Form S-3 No. 33-62135) of HRPT Properties Trust
and in the related Prospectus; in the Registration Statement (Form S-3 No.
333-47815) of HRPT Properties Trust and in the related Prospectus; in the
Registration Statement (Form S-3 No. 333-56051) and in the related Prospectus;
and in the Registration Statement (Form S-3 No. 333-86593) of HRPT Properties
Trust and in the related Prospectus of our report dated March 17, 2000, with
respect to the consolidated financial statements and schedules of HRPT
Properties Trust included in this Annual Report (Form 10-K) for the year ended
December 31, 1999.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
March 28, 2000
Exhibit 23.2
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated January 14, 2000 on Hospitality
Properties Trust into HRPT Properties Trust's Form 10-K and into the previously
filed Registration Statement File No.'s 333-56051, 333-47815, 33-62135 and
333-86593.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Vienna, Virginia
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,206
<SECURITIES> 0
<RECEIVABLES> 10,373
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,656,344
<DEPRECIATION> 106,859
<TOTAL-ASSETS> 2,953,308
<CURRENT-LIABILITIES> 0
<BONDS> 1,349,890
0
0
<COMMON> 1,319
<OTHER-SE> 1,521,148
<TOTAL-LIABILITY-AND-EQUITY> 2,953,308
<SALES> 0
<TOTAL-REVENUES> 427,541
<CGS> 0
<TOTAL-COSTS> 319,660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,470
<INCOME-PRETAX> 113,862
<INCOME-TAX> 0
<INCOME-CONTINUING> 113,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,862
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.86
</TABLE>
