UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT
------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
OR
[ ]
TRANSITION REPORT
------------
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _____________________ to _____________________
Commission file number ______________________ 1-12926 ______________________
BEACON PROPERTIES CORPORATION
(Exact name of Registrant as specified in its charter)
Maryland 04-3224258
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
50 Rowes Wharf, Boston, Massachusetts 02110
(Address of principal executive offices)
(Zip Code)
(617) 330-1400
(Registrant's telephone number, including area code)
_____________________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS;
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
33,233,755 Shares of common stock, $.01 par value as of October 31, 1996
<PAGE>
BEACON PROPERTIES CORPORATION
FORM 10-Q
INDEX
Page
--------
Part I--Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1996 and Decem-
ber 31, 1995 ............................................... 3
Consolidated Statements of Operations for the three and nine
months ended September 30, 1996 and 1995 ................... 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995 .......................... 5
Notes to Consolidated Financial Statements ................... 6-9
Item 2. Management's Discussion and Analysis of Financial Condi-
tion and Results of Operations ......................... 10-14
Part II--Other Information
Item 1. Legal Proceedings ...................................... 15
Item 2. Changes in Securities .................................. 15
Item 3. Defaults Upon Senior Securities ........................ 15
Item 4. Submission of Matters to a Vote of Security Holders .... 15
Item 5. Other Information ...................................... 15
Item 6. Exhibits and Reports on Form 8-K ....................... 15
Signature ...................................................... 16
2
<PAGE>
BEACON PROPERTIES CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
--------------- --------------
(Unaudited)
(In thousands)
Assets
Real estate:
Land $ 115,710 $ 43,077
Buildings, improvements and equipment 945,703 428,065
--------------- --------------
1,061,413 471,142
Less accumulated depreciation 86,737 66,571
--------------- --------------
974,676 404,571
Deferred financing and leasing costs, net
of accumulated amortization of $15,266
and $14,509 15,908 9,486
Cash and cash equivalents 14,347 4,501
Restricted cash 2,404 2,764
Accounts receivable 7,908 6,128
Accrued rent 10,637 6,493
Prepaid expenses and other assets 10,747 8,060
Mortgage notes receivable 51,490 34,778
Investments in and note receivable from
joint ventures and corporations 55,890 58,016
--------------- --------------
Total assets $1,144,007 $534,797
=============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Mortgage notes payable $ 440,526 $ 70,536
Note payable, Credit Facility 18,000 130,500
Accounts payable, accrued expenses and
other liabilities 27,293 14,022
Investment in joint venture 24,467 23,955
--------------- --------------
Total liabilities 510,286 239,013
--------------- --------------
Commitments and contingencies -- --
Minority interest in Operating Partnership 70,098 36,962
--------------- --------------
Stockholders' equity:
Common stock, $.01 par value, authorized
100,000,000 shares, issued and
outstanding 33,233,255 and 20,215,822
shares 332 202
Additional paid-in capital 584,626 267,727
Cumulative net income 46,782 23,715
Cumulative dividends (68,117) (32,822)
--------------- --------------
Total stockholders' equity 563,623 258,822
--------------- --------------
Total liabilities and stockholders'
equity $1,144,007 $534,797
=============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited and in thousands,
except per share amounts
and shares outstanding)
Revenues:
Rental income $ 37,257 $ 18,188 $ 97,308 $ 52,281
Management fees 731 477 2,248 1,413
Recoveries from tenants 4,219 2,484 11,001 7,297
Mortgage interest income 1,402 953 3,567 1,564
Other income 2,993 1,493 7,585 3,965
---------- ---------- ---------- ----------
46,602 23,595 121,709 66,520
---------- ---------- ---------- ----------
Expenses:
Property expenses 9,837 4,938 24,607 13,469
Real estate taxes 4,660 2,513 12,491 7,414
General and
administrative 4,600 2,316 11,963 6,886
Mortgage interest expense 7,077 3,592 20,739 11,569
Interest--amortization of
financing costs 434 371 1,618 947
Depreciation and
amortization 8,391 4,355 21,737 12,607
---------- ---------- ---------- ----------
34,999 18,085 93,155 52,892
---------- ---------- ---------- ----------
Income from operations 11,603 5,510 28,554 13,628
Equity in net income of
joint ventures and
corporations 471 670 2,053 1,735
---------- ---------- ---------- ----------
Income before minority
interest and
extraordinary items 12,074 6,180 30,607 15,363
Minority interest in
Operating Partnership (1,550) (1,092) (4,231) (3,043)
---------- ---------- ---------- ----------
Income before extraordinary
items 10,524 5,088 26,376 12,320
Extraordinary items, net of
minority interest -- -- (3,309) --
---------- ---------- ---------- ----------
Net Income $ 10,524 $ 5,088 $ 23,067 $ 12,320
========== ========== ========== ==========
Income per common share
before extraordinary
items $ 0.34 $ 0.29 $ 0.99 $ 0.81
Extraordinary items -- -- (0.13) --
---------- ---------- ---------- ----------
Net income per common share $ 0.34 $ 0.29 $ 0.86 $ 0.81
========== ========== ========== ==========
Weighted average common
shares outstanding 30,571,657 17,655,631 26,659,577 15,288,937
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months
Ended September 30,
-------------------------
1996 1995
------------ ------------
(Unaudited and in
thousands)
Cash flows from operating activities:
Net income $ 23,067 $ 12,320
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued rent (4,144) (2,544)
Depreciation, amortization and amortization of
financing costs 23,355 13,554
Equity in net income of joint ventures and
corporations (2,053) (1,735)
Minority interest in Operating Partnership 4,231 3,043
Extraordinary items 3,309 --
Increase in accounts receivable (1,780) (1,868)
Increase in prepaid expenses and other assets (415) (480)
Increase (decrease) in accounts payable and
accrued expenses 15,484 (2,880)
------------ ------------
Total adjustments 37,987 7,090
------------ ------------
Net cash provided by operating activities 61,054 19,410
------------ ------------
Cash flows from investing activities:
Property additions (501,765) (30,537)
Payment of deferred leasing costs (4,184) (2,119)
Investments in corporations -- (40,058)
Increase in prepaid expenses and other assets (4,000) --
Purchase of mortgage notes receivable (16,712) (34,678)
Capital distributions from joint ventures 4,655 2,805
Decrease in restricted cash 360 2,224
------------ ------------
Net cash used by investing activities (521,646) (102,363)
------------ ------------
Cash flows from financing activities:
Proceeds from additional offerings, net of
offering costs 316,543 159,740
Payment of deferred financing costs (9,267) (946)
Borrowings on Credit Facility 140,000 81,200
Payments on Credit Facility (252,500) (124,500)
Borrowings on mortgage notes 593,000 --
Payments on mortgage notes (278,500) (1,447)
Decrease in prepaid expenses and other assets 1,728 --
Distributions paid to minority interest in
Operating Partnership (5,271) (4,639)
Dividends paid to stockholders (35,295) (17,725)
------------ ------------
Net cash provided by financing activities 470,438 91,683
------------ ------------
Net increase in cash and cash equivalents 9,846 8,730
Cash and cash equivalents, beginning of period 4,501 15,097
------------ ------------
Cash and cash equivalents, end of period $ 14,347 $ 23,827
============ ============
Supplemental disclosures:
Cash paid during the period for interest $ 18,998 $ 11,283
============ ============
Non cash activities:
Redemption of Operating Partnership units for
common stock $ 486 $ 174
============ ============
Liabilities assumed in connection with the
acquistion of properties $ 55,529 $ --
============ ============
Increase in minority interest as a result of
acquisition of properties $ 35,229 $ --
============ ============
Net liabilities assumed in connection with the
Russia Wharf settlement agreement $ -- $ 861
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
1. Organization and Basis of Presentation:
Organization
Beacon Properties Corporation (the "Company") was incorporated on March 4,
1994 as a Maryland corporation, and commenced operations effective with the
completion of its Initial Offering (the "IPO") on May 26, 1994. The Company
qualifies as a real estate investment trust under the Internal Revenue Code
of 1986, as amended. The Company was formed to continue and expand the
commercial real estate development, construction, acquisition, leasing,
design and management businesses of The Beacon Group (the "Predecessor").
In March 1996, the Company sold 7,036,000 shares of common stock, $.01 par
value, to the public at $26.25 per share (the "March 1996 Offering"). The
proceeds of the offering, net of offering costs, were approximately $173.8
million. The Company contributed the net proceeds of the additional offering
to Beacon Properties, L.P. (the "Operating Partnership") in exchange for
7,036,000 units of limited partnership interest ("Units").
In August 1996, the Company sold 5,750,000 shares of common stock, $.01
par value, to the public at $25.75 per share (the "August 1996 Offering").
The proceeds of the offering, net of offering costs, were approximately
$139.2 million. The Company contributed the net proceeds of the additional
offering to the Operating Partnership in exchange for 5,750,000 Units.
Basis of Presentation
The financial statements of the Company are consolidated and include all
the accounts of the Company, its majority owned Operating Partnership and
subsidiaries. All significant intercompany balances and transactions have
been eliminated.
The accompanying financial statements are unaudited; however, they have
been prepared in accordance with generally accepted accounting principles for
interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting solely of normal recurring matters) necessary for
a fair presentation of the financial statements for these interim periods
have been included. The results for the nine months ended September 30, 1996
are not necessarily indicative of the results to be obtained for the full
fiscal year. These financial statements should be read in conjunction with
the December 31, 1995 audited financial statements and notes thereto of the
Company, included in its annual report on Form 10-K for the fiscal year ended
December 31, 1995. Certain reclassifications have been made to previously
reported amounts to conform with current reporting.
2. Equity Investments in Real Estate:
The Company reports its share of income and losses based on its ownership
interest in the respective equity investments. Losses in excess of
investments are not recorded where the Company has not guaranteed nor intends
to provide any future financial support. The following summarized information
has been presented for the property joint ventures and property corporations
for which the Company has recorded its share of the earnings for the nine
months ended September 30, 1996.
6
<PAGE>
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
2. EQUITY INVESTMENTS IN REAL ESTATE:
One Post 75-101
Office Polk & Federal
Square Taylor Street
----------- --------- -----------
(in thousands)
Balance sheets at September 30, 1996
Real estate, net $ 39,746 $91,819 $156,369
Cash 1,532 252 8,981
Other assets 11,576 2,636 2,303
----------- --------- -----------
$ 52,854 $94,707 $167,653
=========== ========= ===========
Mortgage notes payable $ 93,579 $ -- $ 90,000
Other liabilities 1,211 518 2,479
Equity (deficiency) (41,936) 94,189 75,174
----------- --------- -----------
$ 52,854 $94,707 $167,653
=========== ========= ===========
Summary of operations for the nine
months ended September 30, 1996
Revenues $ 16,788 $16,159 $ 19,432
Other income 316 664 1,268
----------- --------- -----------
Total revenues 17,104 16,823 20,700
----------- --------- -----------
Operating expenses 6,953 5,042 8,281
Mortgage interest expense 5,183 -- 5,225
Depreciation and amortization 2,743 2,590 3,406
----------- --------- -----------
Total expenses 14,879 7,632 16,912
----------- --------- -----------
Net income $ 2,225 $ 9,191 $ 3,788
=========== ========= ===========
Share of properties:
Depreciation and amortization $ 1,025 $ 259 $ 1,714
Interest--amortization of financing
costs 629 -- 44
3. Mortgage Notes Payable:
On January 9, 1996, the Company closed on a $55 million, 7.23% mortgage
loan with a 7 year term, and used the net proceeds to pay down the floating
rate credit facility (the "Credit Facility"). The collateral for the mortgage
loan is the Wellesley Office Park, Buildings 1-8.
On February 12, 1996, the Company closed on a $60 million, 7.23% mortgage
loan with a 7 year term, and used the net proceeds to pay down the Credit
Facility. The collateral for the mortgage loan is the Center Plaza property.
On February 15, 1996, the Company financed the acquisition of a 3.3
million square foot, 32 building portfolio in suburban Atlanta, Georgia (the
"Perimeter Center"), in part, through a $260 million loan from PaineWebber
Real Estate Securities Inc. (the "PaineWebber Acquisition Loan"). In March
1996, the Company repaid the PaineWebber Acquisition Loan using proceeds from
the March 1996 Offering and a $218 million loan provided by Metropolitan Life
Insurance Company (the "MetLife Mortgage Loan"). The MetLife Mortgage Loan
bears interest at 7.08% with a term of 10 years.
An extraordinary item of $1.8 million, net of minority interest, was
recorded in connection with the write-off of fees and costs to acquire the
PaineWebber Acquisition Loan which was repaid in March 1996 approximately
three years prior to its maturity.
7
<PAGE>
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
3. MORTGAGE NOTES PAYABLE:
On September 5, 1996, in connection with the acquisition of three office
buildings and a parcel of developeable land located in Fairfax County,
Virginia (the "Fairfax County Portfolio"), the Company assumed approximately
$55.5 million of mortgage debt secured by the properties ($18 million of
which was repaid at the closing of the acquisition with a draw on the Credit
Facility). The remaining mortgages consist of a $16.5 million, 7.28% mortgage
loan which matures in December 1996 and a $21.0 million, 8.38% mortgage which
matures December 2008.
4. Note Payable, Credit Facility:
In June 1996, the Company substantially modified the terms of the Credit
Facility. Additionally, in July 1996, the maximum loan amount available under
the Credit Facility was increased to $300 million. The new Credit Facility
matures in June 1999. Outstanding balances under the Credit Facility bear
interest, at the Company's option, at either (i) the higher of (x) Bank of
Boston's base interest rate and (y) one-half of one percent (1/2%) above the
overnight federal funds effective rate or (ii) the Eurodollar rate plus 175
basis points. The Company has an interest rate protection agreement through
May 1997 with Bank of Boston with respect to $135 million of the Credit
Facility, which provides for offsetting payments to the Company in the event
that 90-day LIBOR exceeds 9.47% per annum. Effective May 1997 through May
1999, the Company has an interest rate protection agreement with Bank of
Boston with respect to $137.5 million of the Credit Facility, which provides
for offsetting payments to the Company in the event that 90-day LIBOR exceeds
8.75% per annum.
As a result of the substantial modification of the terms of the Credit
Facility, the Company recorded an extraordinary item of $1.5 million, net of
minority interest, in connection with write-off of fees and costs to acquire
the old Credit Facility.
5. Commitments and Contingencies:
In October 1996, the Company entered into a contract to acquire a portfolio
of office properties, located in Burlington, Massachusetts (the "New England
Executive Park Portfolio"). The purchase price of the New England Executive Park
Portfolio is payable in two installments, approximately $75 million will be paid
at the closing of the acquisition with an additional $17 million payable on
November 30, 1998, contingent upon meeting conditions regarding occupancy or
rental income levels at the property in 1998. The purchase of the portfolio is
subject to due diligence and certain other conditions.
In October 1996, the Company entered into a contract to acquire 10960
Wilshire Boulevard located in Westwood, California for aggregate
consideration of $133 million. The purchase of the property is subject to due
diligence and certain other conditions.
In October 1996, the Company entered into a contract to acquire 245 First
Street located in Cambridge, Massachusetts for aggregate consideration of $45
million. The purchase of the property is subject to due diligence and certain
other conditions.
6. Environmental Issue:
Fairfax County Portfolio. Chlorinated solvents, primarily trichloroethane
("TCE"), have been detected in groundwater samples collected from monitoring
wells located at the John Marshall III developable land (the "JM III
Parcel"). Subsequent investigations of the JM III Parcel by an environmental
consultant retained by the sellers of the Fairfax County Portfolio (the
"Consultant") confirmed the presence of chlorinated solvents in groundwater
at the JM III Parcel and on property adjacent to the JM III Parcel where an
autobody repair shop is located.
The sellers of the Fairfax County Portfolio have reported the findings of
chlorinated solvent contamination on the JM III Parcel to the Virginia
Department of Environmental Quality. The Consultant has concluded that the
autobody repair shop is the probable source for the chlorinated solvent
contamination, has collected additional soil and groundwater samples and is
preparing a remediation plan for the site. Units valued at approximately $1.0
million
8
<PAGE>
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
____________
6. ENVIRONMENTAL ISSUE:
were escrowed from the purchase price to be paid for the Fairfax County
Portfolio upon the closing of the acquisition. Under the terms of the escrow,
these Units will be released to the seller of the JM III Parcel periodically
upon performance of remediation pursuant to a remediation plan approved by
the Company. The escrow further provides that the Company may receive some or
all of the remaining escrowed Units upon certain conditions, including (i) if
remediation is required by law, in the event of an emergency threatened by
the contamination, (ii) if the seller defaults under the remediation
agreement or fails to obtain access to the likely source site or governmental
approvals, (iii) if the Company enters into a lease for space in a building
to be constructed on the JM III Parcel or (iv) if the seller fails to obtain
a closure certification from the Virginia Department of Environmental Quality
upon completion of remediation.
7. Pro Forma Results (unaudited):
The following unaudited pro forma operating results for the Company have
been prepared as if the 1995 and 1996 stock offerings and the 1995 and 1996
property acquisitions had occurred on January 1, 1995. Unaudited pro forma
financial information is presented for informational purposes only and may
not be indicative of what the actual results of operations of the Company
would have been had the events occurred as of January 1, 1995, nor does it
purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
Nine Months ended September 30, 1996 and 1995: 1996 1995
- --------------------------------------------------- ----------- -----------
(In thousands except per share amounts)
<S> <C> <C>
Revenue $152,983 $145,962
Income before extraordinary items 36,591 37,753
Net income per share before extraordinary items $ 1.10 $ 1.14
</TABLE>
8. Subsequent Events:
In October 1996, the Company acquired a portfolio of two office buildings
located in Rosslyn, Virginia (the "Rosslyn, Virginia Portfolio") for
aggregate consideration of approximately $99 million. The Company used
proceeds from a draw on the Credit Facility to purchase the portfolio.
On October 31, 1996, the Company declared a dividend of $.4625 per common
share payable on November 22, 1996 to stockholders of record on November 8,
1996.
On November 1, 1996, the Company filed a prospectus supplement to its Form
S-3 Registration Statement (No. 333-02544) with the Securities and Exchange
Commission pursuant to which it proposes to offer 6,000,000 shares of common
stock (excluding the underwriters' over-allotment option).
9
<PAGE>
BEACON PROPERTIES CORPORATION
PART I--ITEM 2
_____________
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Form 10-Q contains forward looking statements within the meaning of
Section 27A of the Securities Act of 1993 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially
from those set forth in the forward-looking statements. Certain factors that
might cause such a difference include the following: Real estate investment
considerations, such as the effect of economic and other conditions in the
market area on cash flows and values, the need to renew leases or relet space
upon the expiration of current leases, and the ability of a property to
generate revenues sufficient to meet debt service payments and other
operating expenses; and risks associated with borrowing, such as the
possibility that the Company will not have sufficient funds available to make
principal payments on outstanding debt, outstanding debt may be refinanced at
higher interest rates or otherwise on terms less favorable to the Company and
interest rates under the Credit Facility may increase.
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the accompanying
financial statements and notes thereto.
Results of Operations
Comparison of Three and Nine Months Ended September 30, 1996 and September
30, 1995
Net income for the three and nine months ended September 30, 1996 was
$10.5 and $23.1 million, respectively, compared with net income of $5.1 and
$12.3 million for the corresponding periods in 1995. The increase in net
income was primarily the result of the operating results contributed by the
properties and interests in properties acquired throughout 1995 and 1996
partially offset by extraordinary items recorded in 1996.
The Company's proportionate share of weighted average square feet of
office properties increased by 98% from 4.0 million square feet for the nine
months ended September 30, 1995 compared to 7.9 million square feet for the
corresponding period in 1996. The Company recorded extraordinary items
totaling $3.3 million, net of minority interest, in 1996. An extraordinary
item of $1.8 million, net of minority interest, was recorded in connection
with the write-off of fees and costs to acquire the PaineWebber Acquisition
Loan which was repaid in March 1996 approximately three years prior to its
maturity. An extraordinary item of $1.5 million, net of minority interest,
was recorded in connection with write-off of fees and costs to acquire the old
Credit Facility which was substantially modified in June 1996.
Rental income for the three and nine months ended September 30, 1996 was
$37.3 and $97.3 million, respectively, compared to $18.2 and $52.3 million
for the corresponding periods in 1995. The properties acquired in 1995 (100
William Street, Westlakes Two, 2 Oliver-147 Milk Street and Ten Canal Park)
(the "1995 Acquisitions") and properties acquired in 1996 (Perimeter Center,
AT&T Plaza, Tri-State International, 1333 H Street, E.J. Randolph, John
Marshall I and Northridge I) (the "1996 Acquisitions"), contributed $18.3 and
$42.4 million of this increase for the three and nine month periods,
respectively. The remaining balance was attributable to an increase in
occupancy and rental rates as well as the re-leasing of the Crosby Corporate
Center as part of the redevelopment of the property.
The impact of the straight-line adjustment increased consolidated rental
income for the Company $4.1 million and $2.5 million and increased its share
of equity in net income of property joint ventures and corporations by $0.1
million and $0.1 million for the nine months ended September 30, 1996 and
1995, respectively.
Management fees from joint venture properties for the three and nine
months ended September 30, 1996 were $0.7 and $2.2 million, respectively,
compared to $0.5 and $1.4 million for the corresponding periods in 1995. The
increase in both periods was primarily the result of the management contract
for 75-101 Federal Street, a property in which the Company purchased an
approximate 52% interest in September 1995.
Recoveries from tenants for the three and nine months ended September 30,
1996 were $4.2 and $11.0 million, respectively, compared to $2.5 and $7.3
million for the corresponding periods in 1995. The 1995 Acquisitions and
10
<PAGE>
BEACON PROPERTIES CORPORATION
PART I--ITEM 2
_____________
1996 Acquisitions contributed $1.5 and $2.9 million of this increase for the
three and nine month periods, respectively. The remaining balance of the
increase for both periods was primarily due to an increase in reimbursable
operating expenses.
Mortgage interest income for the three and nine months ended September 30,
1996 was $1.4 and $3.6 million, respectively, compared to $1.0 and $1.6
million for the corresponding periods in 1995. The increase is the result of
the acquisition of the remaining portions of the Rowes Wharf debt in 1996.
Other income for the three and nine months ended September 30, 1996 was
$3.0 and $7.6 million, respectively, compared to $1.5 and $4.0 million for
the corresponding periods in 1995. The 1995 Acquisitions and 1996
Acquisitions accounted for $0.9 and $2.4 million of the increase for the
three and nine months periods, respectively. The remaining balance of the
increase for both periods was primarily due to an increase in interest income
earned on the excess proceeds from the March 1996 Offering.
Property expenses for the three and nine months ended September 30, 1996
was $9.8 and $24.6 million, respectively, compared to $4.9 and $13.5 million
for the corresponding periods in 1995. The 1995 Acquisitions and 1996
Acquisitions accounted for $4.1 million and $9.6 million of the increase for
the three and nine month periods, respectively. The remaining balance of the
increase is primarily due to an increase in seasonal costs associated with
the winter of 1996 as well as an increase in building operating costs as a
result of increased occupancy at the properties.
Real estate taxes for the three and nine months ended September 30, 1996
was $4.7 and $12.5 million, respectively, compared to $2.5 and $7.4 million
for the corresponding periods in 1995. The 1995 Acquisitions and 1996
Acquisitions accounted for $2.0 million and $4.8 million of the increase for
the three and nine month periods, respectively.
General and administrative expenses, which include costs incurred at the
properties, for the three and nine months ended September 30, 1996 were $4.6
and $12.0 million, respectively, compared to $2.3 and $6.9 million for the
corresponding periods in 1995. General and administrative expenses as a
percentage of total revenue decreased from 10.4% to 9.8% from 1995 to 1996.
The 1995 Acquisitions and 1996 Acquisitions accounted for $1.4 million and
$3.1 million of the increase for the three and nine month periods,
respectively. The remaining balance of the increase was primarily due to an
increase in management and administration costs associated with the growth in
the Company's portfolio of properties.
Mortgage interest expense for the three and nine months ended September
30, 1996 was $7.1 and $20.7 million, respectively, compared to $3.6 and $11.6
million for the corresponding periods in 1995. The increase in both periods
was primarily the result of debt incurred in connection with the acquisition
of Perimeter Center.
Interest--amortization of financing costs for the three and nine months
ended September 30, 1996 was $0.4 and $1.6 million, respectively, compared to
$0.4 and $0.9 million for the corresponding periods in 1995. The increase in
the nine month period is primarily the result of the amortization of
financing costs associated with the Credit Facility, the mortgage debt on
Wellesley Buildings 1-8, Center Plaza and Perimeter Center.
Depreciation and amortization for the three and nine months ended
September 30, 1996 was $8.4 and $21.7 million, respectively, compared to $4.4
and $12.6 million for the corresponding periods in 1995. The 1995
Acquisitions and 1996 Acquisitions accounted for $3.8 million and $8.3
million of the increase for the three and nine month periods, respectively.
Equity in net income of joint ventures and corporations for the three and
nine months ended September 30, 1996 was $0.5 and $2.1 million, respectively,
compared to $0.7 and $1.7 million for the corresponding periods in 1995. The
decrease in three month period was primarily the result of the equity in net
loss from Beacon Construction Company, Inc. offset partially by the
acquisition of the equity investment in 75-101 Federal Street in September
1995. The increase in the nine month period was primarily the result of the
acquisition of the equity
11
<PAGE>
BEACON PROPERTIES CORPORATION
PART I--ITEM 2
_____________
investment in 75-101 Federal Street in September 1995 offset by equity in net
loss from Beacon Construction Company, Inc.
The minority interest in the Operating Partnership represents the portion
of the Operating Partnership which is not owned by the Company.
As of September 30, 1996, the Company owned or had an interest in 68
income producing commercial properties. The percent leased calculation
includes all leases executed as of September 30, 1996.
Rentable Percent
Square Feet Leased
-------------- ---------
Consolidated Properties:
Center Plaza 649,359 92%
150 Federal Street 530,279 99%
Russia Wharf 314,596 100%
2 Oliver-147 Milk Street 271,000 92%
175 Federal Street 203,349 94%
South Station 148,591 100%
Wellesley Office Park Buildings 1-8 622,862 98%
Crosby Corporate Center 336,000 88%
Westwood Business Centre 160,400 100%
One Canal Park 100,300 94%
Westlakes Office Park Buildings 1, 2, 3 and 5 443,592 95%
Ten Canal Park 110,000 92%
Perimeter Center 3,302,136 98%
AT&T Plaza 225,318 100%
Tri-State International 548,000 70%
1333 H Street 238,694 90%
E.J. Randolph 164,677 80%
John Marshall I 261,364 100%
Northridge I 124,319 100%
-------------- ---------
Total Consolidated Properties 8,754,836 95%
-------------- ---------
Joint Venture Properties:
One Post Office Square 764,129 99%
Rowes Wharf 344,326 98%
Polk and Taylor Buildings 890,000 100%
75-101 Federal Street 812,000 94%
-------------- ---------
Total Joint Venture Properties 2,810,455 98%
-------------- ---------
Total Consolidated and Joint Venture Properties 11,565,291 95%
============== =========
Liquidity and Capital Resources
Cash and cash equivalents were $14.3 million at September 30, 1996
compared to $4.5 million at December 31, 1995. The increase was primarily the
result of proceeds from the March and August 1996 Offerings in excess of the
acquisition of Perimeter Center, New York Life Portfolio, Rowes Wharf debt
and the redevelopment of the Crosby Corporate Center.
Investing Activities
On February 15, 1996, the Company acquired Perimeter Center, a 3.3 million
square foot, 32 building portfolio in suburban Atlanta, Georgia for
approximately $336 million.
12
<PAGE>
BEACON PROPERTIES CORPORATION
PART I--ITEM 2
_____________
During the second quarter of 1996, the Company and Equitable Life
Assurance Society of the United States, on behalf of its Prime Property Fund,
the Company's partner in Rowes Wharf, acquired the remaining portion of the
property's mortgage debt that had been held by a bank lending group.
On August 16, 1996, the Company acquired a portfolio of office properties,
comprised of seven properties, from New York Life Insurance Company (the "New
York Life Portfolio") for approximately $150 million. The New York Life
Portfolio consists of the AT&T Plaza located in Oak Brook, Illinois, the
five-building Tri-State International office park located in Lincolnshire,
Illinois and a property located at 1333 H Street in Washington, D.C.
On September 5, 1996, the Company acquired the Fairfax County Portfolio
for aggregate consideration of $77 million consisting of assumption of
approximately $55.5 million of mortgage debt and the issuance of
approximately $21.5 of Units in the Operating Partnership. The Fairfax County
Portfolio consists of the John Marshall I building, the E.J. Randolph
building, the Northridge I building and the John Marshall III parcel of
developable land.
Financing Activities
On January 9, 1996, the Company closed on a $55 million mortgage loan, and
used the net proceeds to pay down the Credit Facility. The collateral for the
mortgage loan is the Wellesley Office Park, Buildings 1-8.
On February 9, 1996, the Company closed on a $60 million mortgage loan,
and used the net proceeds to pay down the Credit Facility. The collateral for
the mortgage loan is the Center Plaza property.
On February 15, 1996, the Company acquired Perimeter Center using the $260
million PaineWebber Acquisition Loan, the issuance of approximately $13.8
million of units of limited Partnership interest ("Units") in the Operating
Partnership with the balance funded from the Credit Facility.
In March 1996, the Company sold 7,036,000 shares of common stock, $.01 par
value, to the public at $26.25 per share. The proceeds of the offering, net
of offering costs, were approximately $173.8 million. The net proceeds of the
offering were used to repay a portion of the PaineWebber Acquisition Loan.
On March 15, 1996, the Company closed on the $218 million MetLife Mortgage
Loan. The proceeds of the MetLife Mortgage Loan were used to repay the
remaining portion of the PaineWebber Acquisition Loan and the outstanding
balance of the Credit Facility.
In August 1996, the Company sold 5,750,000 shares of common stock, $.01
par value, to the public at $25.75 per share. The proceeds of the offering,
net of offering costs, were approximately $139.2 million. The net proceeds of
the offering were used to purchase the New York Life Portfolio.
On December 16, 1996, the mortgage note payable of $16.5 million on the
Northridge I property will mature. The Company is currently negotiating with
a lender to refinance the mortgage. In connection with obtaining the
refinancing, prepaid and other assets at September 30, 1996 consists of a
$0.3 million deposit.
On October 31, 1996, the Company declared a dividend of $.4625 per common
share payable on November 22, 1996 to stockholders of record on November 8,
1996.
Capitalization
At September 30, 1996, the Company's total consolidated debt was
approximately $458.5 million, and its total consolidated debt plus its
proportionate share of total unconsolidated debt (other than the Rowes Wharf
property debt) was approximately $551.8 million at September 30, 1996. At
September 30, 1996, the Company's outstanding consolidated debt consisted of
approximately $18.0 million under its floating-rate Credit Facility and
approximately $440.5 million of fixed rate mortgage indebtedness with an
weighted average rate of 7.16%, collateralized by properties owned 100% by
the Company. The Company's proportionate share of its current total
unconsolidated debt (excluding the Rowes Wharf property debt) consists of
approximately $46.8 million on the One Post Office Square Property (in which
the Company has a 50% general partner interest) and approximately $46.4
million on
13
<PAGE>
BEACON PROPERTIES CORPORATION
PART I--ITEM 2
_____________
the 75-101 Federal Street property (in which the Company owns approximately
52% of the common stock of a private REIT that owns the property).The
weighted average rate of the Company's unconsolidated debt is 7.47%. The
weighted average rate of the Company's consolidated and unconsolidated debt
is 7.21%.
Based on the Company's total market capitalization of $1,663.5 million at
September 30, 1996 (at the September 30, 1996 closing stock price of $29.00
and including the 5,102,428 Units of minority interest in the Operating
Partnership), the Company's consolidated debt plus its proportionate share of
total unconsolidated debt (other than the Rowes Wharf property debt)
represented approximately 33% of its total market capitalization.
Short and Long Term Liquidity
The Company has considered its short-term liquidity needs and the adequacy
of Funds from Operations and other expected liquidity sources to meet these
needs. The Company believes that its principal short-term liquidity needs are
to fund normal recurring expenses, debt service requirements and the minimum
distribution required to maintain the Company's REIT qualifications under the
Internal Revenue Code. The Company believes that these needs will be fully
funded from cash flows provided by operating activities.
The Company expects to meet long-term liquidity requirements for the costs
of development, property acquisitions, scheduled debt maturities, major
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness and the issuance of additional
Operating Partnership Units and equity securities. The Company may finance
the redevelopment or acquisition of additional properties by using its Credit
Facility.
14
<PAGE>
BEACON PROPERTIES CORPORATION
PART II
_____________
OTHER INFORMATION
Item 1. Legal Proceedings
Property Partnership Matters. As reported in the Company's Form 10-K for
the year ended December 31, 1995, a partner in certain property
partnerships commenced a lawsuit against the Company and certain of its
affiliates. Fact discovery has been completed in this matter and a trial
date has been set for February 1997. The Company believes the remaining
claims in the litigation are without merit and is vigorously defending the
suit.
Ruggles Center Joint Venture. As reported in the Company's Form 10-Q for
the three months ended March 31, 1996, Ruggles Center Joint Venture
("RCJV") commenced a lawsuit against Beacon Construction Company, Inc.
(the "Construction Company") and its surety, Aetna Casualty and Surety
Company. The Construction Company has filed an answer denying RCJV's
claims and has filed a counterclaim and third-party claim against RCJV and
Ruggles Center LLC, the entity to which RCJV has assigned its claims to
receive amounts due under the construction contract. The Construction
Company has also filed a third-party complaint against the manufacturer
and installer of the fireproofing material in the Ruggles Center building.
Based upon the investigation to date, the Construction Company, believes
that the case is without merit and plans to vigorously defend the suit.
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities.
In September 1996, the Operating Partnership issued an aggregate of
833,820 Units to the sellers of the Fairfax County Portfolio in
consideration for a fee interest in the Property valued at approximately
$21.5 million ($25.75 per Unit). Units are redeemable by the holders for
cash, or, at the election of the Company, for shares of common stock, $.01
par value, of the Company on a one-for-one basis. The Units were issued by
the Operating Partnership in reliance on the exemption provided by Section
4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K dated July 23, 1996 (as amended by Form 8-K/A dated
August 6, 1996) was filed which included information regarding Items 5 and
7. Included in Item 7 were financial statements, pro forma information and
exhibits. The Form 8-K was filed in connection with the Company's
acquisition of the Fairfax County and New York Life Portfolios.
15
<PAGE>
BEACON PROPERTIES CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEACON PROPERTIES CORPORATION
/s/ Robert J. Perriello
---------------------------------
Robert J. Perriello,
Senior Vice President,
and Chief Financial Officer
Date: November 1, 1996
16
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