PROSPECTUS SUPPLEMENT
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(To Prospectus dated September 3, 1997)
70,690 Shares
BEACON PROPERTIES CORPORATION
Common Stock
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Beacon Properties Corporation (collectively with its subsidiaries, the
"Company") hereby offers 70,690 shares of its common stock, $.01 par value per
share (the "Common Stock") to certain holders of an aggregate of 70,690 units of
limited partnership interest ("Units") in Beacon Properties, L.P. (the "Limited
Partnership").
Pursuant to the agreement of limited partnership of the Operating
Partnership (the "Operating Partnership Agreement"), a holder of Units may
tender its Units to the Operating Partnership for cash; provided, however, that
the Company may acquire each Unit so tendered for one share of Common Stock
(subject to certain adjustments in the event of stock dividends and stock
splits). The Company has elected to issue Common Stock in exchange for the
70,690 Units tendered for redemption.
The Company will not receive any proceeds from the issuance of the 70,690
shares of Common Stock offered hereby. The Company will acquire 70,690
additional Units in the Operating Partnership in exchange for the shares of
Common Stock offered hereby.
See "Risk Factors" on page 3 for certain factors relevant to an investment
in the Common Stock.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus Supplement is October 7, 1997
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RECENT DEVELOPMENTS
Merger Agreement--Equity Office Properties Trust
On September 15, 1997, Equity Office Properties Trust ("EOP"), EOP
Operating Limited Partnership, a Delaware limited partnership of which EOP is
the managing general partner ("EOP Partnership"), the Company and the Operating
Partnership entered into an Agreement and Plan of Merger (the "Merger
Agreement"). The Merger Agreement provides for a merger of the Company with and
into EOP and a merger of the Operating Partnership with and into the EOP
Operating Partnership (collectively, the "Mergers").
The Company has described the Mergers in its Current Report dated
September 15, 1997, which is incorporated herein by reference.
S-2
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PROSPECTUS
833,820 Shares
Beacon Properties Corporation
Common Stock
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Beacon Properties Corporation (collectively with its subsidiaries, the
"Company") is a self-administered and self-managed real estate investment trust
("REIT") which owns a portfolio of Class A office properties (the "Properties")
and other commercial properties located in major metropolitan areas, including
Boston, Atlanta, Chicago, Los Angeles, San Francisco and Washington, D.C., as
well as commercial real estate development, acquisition, leasing, design and
management businesses. The Company is a Maryland corporation and its Common
Stock is listed on the New York Stock Exchange under the symbol "BCN."
This Prospectus relates to the possible issuance by the Company of up to
833,820 shares (the "Redemption Shares") of common stock, par value $.01 per
share ("Common Stock"), of the Company, if and to the extent that John Marshall
Associates Limited Partnership, Greensboro Associates Limited Partnership,
Woodland-Northridge I Limited Partnership or Pimpernell Estates Limited
Partnership (collectively, the "Fairfax Partnerships"), the holders of 833,820
units of limited partnership interest ("Units") in Beacon Properties, L.P. (the
"Operating Partnership"), or any transferee of the Fairfax Partnerships (each,
a "Unitholder" and together with the Fairfax Partnerships, the "Unitholders")
exchanges such Units for Redemption Shares. The Units were issued to the
Fairfax Partnerships on September 5, 1996 in connection with the acquisition of
three office buildings and a parcel of developable land located in Fairfax
County, Virginia. The Fairfax Partnerships may not, without the prior written
consent of the Operating Partnership, directly or indirectly sell, offer or
contract to sell, grant any option to purchase, pledge, convert, distribute or
otherwise dispose of ("Transfer") the Units until September 6, 1997.
The Unitholders and any agents, dealers or underwriters that participate
with the Unitholders in the distribution of the shares of Common Stock may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), in which case any commissions received by
such agents, dealers or underwriters and any profit on the resale of the shares
of Common Stock purchased by them may be deemed underwriting commissions or
discounts under the Securities Act. See "Plan of Distribution" for
indemnification arrangements between the Company and the Unitholders.
Pursuant to the agreement of limited partnership of the Operating
Partnership (the "Partnership Agreement"), a Unitholder may tender all or a
portion of its Units to the Operating Partnership for redemption for the cash
equivalent of a like number of shares of Common Stock (subject to certain
adjustments in the case of stock splits, stock dividends or similar
distributions); provided, however, that the Company may, in its sole and
absolute discretion, acquire any Units so tendered for an equivalent number of
shares of Common Stock (subject to certain adjustments in the case of stock
splits, stock dividends or similar distributions) or for cash.
The Company anticipates that it generally will elect to acquire directly
Units tendered for redemption and to issue Common Stock pursuant to this
Prospectus in exchange therefor rather than paying cash. As a result, the
Company may from time to time issue up to 833,820 Redemption Shares upon the
acquisition of Units tendered to the Operating Partnership for redemption.
Accordingly, the Company is registering the Redemption Shares to provide
Unitholders with freely tradeable securities upon redemption.
The Company will not receive any proceeds from the issuance of any
Redemption Shares, but will acquire Units tendered to the Operating Partnership
for redemption for which it elects to issue Redemption Shares. With each such
acquisition, the Company's interest in the Operating Partnership will increase.
To ensure that the Company maintains its qualification as a REIT,
ownership by any single person is limited to 6.0%, or 9.9% for certain
stockholders, of the value of the outstanding capital stock of the Company.
See "Risk Factors" beginning on page 3 for certain factors relevant to an
investment in the Common Stock.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is September 3, 1997.
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC" or "Commission") a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Redemption Shares. This Prospectus, which
constitutes part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits thereto on
file with the Commission pursuant to the Securities Act and the rules and
regulations of the Commission thereunder. The Registration Statement, including
exhibits thereto, may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies may
be obtained at the prescribed rates from the Public Reference Section of the
Commission at its principal office in Washington, D.C. Statements contained in
this Prospectus as to the contents of any contract or other document referred
to are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company files information electronically with the Commission, and the
Commission maintains a Web Site that contains reports, proxy and information
statements and other information regarding registrants (including the Company)
that file electronically with the Commission. The address of the Commission's
Web Site is (http://www.sec.gov).
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at prescribed rates.
In addition, the Common Stock is listed on the New York Stock Exchange (the
"NYSE"), and such materials can be inspected and copied at the NYSE, 20 Broad
Street, New York, New York 10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996, filed with the Commission pursuant to the Exchange Act, including
all amendments thereto.
2. The Company's Quarterly Reports on Form 10-Q for the periods ended March
31, 1997 and June 30, 1997, filed with the Commission pursuant to the
Exchange Act, including all amendments thereto.
3. The Company's Current Reports on Form 8-K, dated January 5, l996,
February 15, 1996, July 23, l996, October 18, l996, December 18, 1996,
December 20, 1996, March 27, 1997, June 4, 1997 and September 15, 1997
filed with the Commission pursuant to the Exchange Act, including all
amendments thereto.
4. The Company's Current Reports on Form 8K/A dated August 6, 1996 (which
relates to the Form 8-K dated July 23, 1996) and April 7, 1997 (which
relates to the Form 8-K dated March 27, 1997) filed with the Commission
pursuant to the Exchange Act, including all amendments thereto.
5. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission pursuant to
the Exchange Act, including all amendments and reports updating such
description.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of all shares of Common Stock registered
hereunder shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
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Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents. Written requests
should be mailed to Kathleen M. McCarthy, Beacon Properties Corporation, 50
Rowes Wharf, Boston, Massachusetts 02110. Telephone requests may be directed to
(617) 330-1400.
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The words "believe", "expect",
"anticipate", "intend", "estimate" and other expressions which are predictions
of or indicate future events and trends and which do not relate to historical
matters identify forward-looking statements. The Company's actual results may
differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed below. An investment in the Common Stock involves
various risks. Unitholders and other prospective investors should carefully
consider the following information in conjunction with the other information
contained in this Prospectus before making an investment decision regarding the
Redemption Shares.
Tax Consequences to Unitholders of Exchange of Units
In the event that the Company exercises its right to acquire Units
tendered for redemption in exchange for cash or Redemption Shares, the
Company's acquisition of such Units will be treated for tax purposes as a sale
of the Units. Such a sale will be fully taxable to the Unitholder and the
Unitholder will be treated as realizing for tax purposes an amount equal to the
sum of the cash received or the value of the Redemption Shares received in the
exchange plus the amount of any Operating Partnership liabilities allocable to
the exchanged Units at the time of the redemption or exchange. It is possible
that the amount of gain recognized or even the tax liability resulting from
such gain could exceed the amount of cash and the value of other property
(i.e., Redemption Shares) received upon such disposition. See "Description of
Units and Redemption of Units--Tax Consequences of Redemption." In addition,
the ability of the Unitholder to sell a substantial number of Redemption Shares
in order to raise cash to pay tax liabilities associated with the redemption of
Units may be limited as a result of fluctuations in the market price of the
Common Stock, and the price the Unitholder receives for such shares may not
equal the value of its Units at the time of redemption or exchange.
In the event that the Company does not exercise its right to acquire Units
tendered for redemption in exchange for cash or Redemption Shares, and such
Units are redeemed by the Operating Partnership for cash, the tax consequences
may differ. See "Description of Units and Redemption of Units."
Potential Change in Investment Upon Redemption of Units
If a Unitholder exercises its right to require the redemption of all or a
portion of its Units, the Unitholder may receive cash or, at the option of the
Company, Redemption Shares in exchange for its Units. If the Unitholder
receives cash from either the Operating Partnership or the Company, the
Unitholder will not have any interest in the Company or the Operating
Partnership (except to the extent that it retains Units) and will not benefit
from any subsequent increases in the value of Common Stock and will not receive
any future distributions from the Company or the Operating Partnership (unless
the Unitholder retains or acquires in the future additional Common Stock or
Units). If the Unitholder receives Common Stock, the Unitholder will become a
stockholder of the Company rather than a holder of Units in the Operating
Partnership. See "Description of Units and Redemption of Units--Comparison of
Ownership of Units and Common Stock."
Risks Associated with the Addition of a Substantial Number of New Properties
The Company is currently experiencing a period of rapid growth. From
January 1997 through September 1, 1997, the Company has invested approximately
$707 million in office properties, increasing its interests in real estate by
over 40%. The Company's ability to manage its growth effectively will require
it to apply successfully its experience managing its existing portfolio to new
markets and to an increased number of properties. The Company's results of
operations and ability to make expected distributions to stockholders could be
adversely affected if the Company is unable to manage these operations
effectively. There can be no assurance that the Company will be able to manage
these operations effectively.
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Risk of Adverse Effect on Company from Debt Servicing and Refinancing,
Increases in Interest Rates, Financial Covenants and Absence of Limitations on
Debt
Debt Financing and Existing Debt Maturities
The Company intends to finance the acquisition of additional properties
through the use of debt and equity financing. Additionally, in connection with
the acquisition of certain Properties for Units, the Company has agreed to
maintain certain levels of nonrecourse debt on the Properties in order to
minimize the tax consequences of these acquisitions to the Unit recipients. The
Company is therefore subject to risks normally associated with debt financing,
including the possibility that the Company will have insufficient cash flow to
meet required principal and interest payments, will be unable to refinance
existing indebtedness (which in most cases will not be fully amortized at
maturity), or will be unable to secure favorable refinancing terms.
As of September 1, 1997, the Company's total consolidated debt was
approximately $791.1 million, and its total consolidated debt plus its
proportionate share of total unconsolidated debt (other than Rowes Wharf) was
approximately $883.5 million. The Company (together with an affiliate) and the
Equitable Life Assurance Society of the United States, on behalf of its Prime
Property Fund ("Equitable"), the Company's joint venture partner in Rowes Wharf
Associates, each holds one-half of the mortgage debt on the Rowes Wharf
property. As of September 1, 1997 the Company's current consolidated mortgage
indebtedness of approximately $587.1 million was secured by the Company's
properties. In addition, as of September 1, 1997, the Company had $204.0
million outstanding under its $350 million unsecured revolving credit facility
(the "Credit Facility"). As of September 1, 1997 the Company's proportionate
share of its current total unconsolidated debt (excluding Rowes Wharf)
consisted of approximately $46.0 million on the One Post Office Square Property
(in which the Company has a 50% general partner interest) and approximately
$46.4 million on the 75-101 Federal Street Property (in which the Company owns
approximately 51.6% of the common stock of a private REIT that owns the
Property).
The Company currently has a policy of incurring debt only if upon such
incurrence the Company's Debt to Market Capitalization Ratio (as defined below)
would be 50% or less. For purposes of this policy, the Company's Debt to Market
Capitalization Ratio is calculated as the Company's proportionate share of
total consolidated and unconsolidated debt (excluding Rowes Wharf) as a
percentage of the sum of the market value of outstanding shares of stock of the
Company and Units plus the Company's proportionate share of total consolidated
and unconsolidated debt (excluding Rowes Wharf). As noted, the Company
(together with an affiliate) currently holds one-half of the Rowes Wharf
mortgage indebtedness. Although the Company has adopted a Debt to Market
Capitalization Ratio policy, the organizational documents of the Company do not
contain any limitation on the amount of indebtedness the Company may incur.
Accordingly, the Board of Directors could alter or eliminate this policy and
would do so, for example, if it were necessary in order for the Company to
continue to qualify as a REIT.
The Company anticipates that only a small portion of the principal of the
Company's mortgage indebtedness will be repaid prior to maturity. However, if
the Company does not have funds sufficient to repay such indebtedness at
maturity, the Company may need to refinance indebtedness through additional
debt financing or equity offerings. If the Company is unable to refinance this
indebtedness on acceptable terms, the Company may be forced to dispose of
properties upon disadvantageous terms, which could result in losses to the
Company and could adversely affect the amount of cash available for
distribution to stockholders. If prevailing interest rates or general economic
conditions result in higher interest rates at a time when the Company must
refinance its indebtedness, the Company's interest expense would increase,
which could adversely affect the Company's results of operations and its
ability to pay expected distributions to stockholders. Further, if any of the
Company's properties are mortgaged to secure payment of indebtedness and the
Company is unable to meet mortgage payments, the mortgagee could foreclose or
otherwise transfer the property, with a consequent loss of income and asset
value to the Company. Even with respect to nonrecourse indebtedness, the lender
may have the right to recover deficiencies from the Company in certain
circumstances, including fraud and environmental liabilities.
Risk of Adverse Effect of Increase in Market Interest Rates on Variable
Interest Rates
Outstanding advances under the Credit Facility bear interest at a variable
rate. The Company may incur additional variable rate indebtedness in the
future. Accordingly, increases in interest rates could increase the Company's
interest expense, which could adversely affect the Company's results of
operations and its ability to pay expected distributions to stockholders. An
increase in interest expense could also cause the Company to be in default
under certain Credit Facility covenants.
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Limits on Control and Other Risks Involved in Joint Ownership of Properties
The Company does not own a 100% fee interest in the Center Plaza Property,
the One Post Office Square Property, the Rowes Wharf Property, the Polk and
Taylor Buildings Property or the 75-101 Federal Street Property. Consequently,
while the Company is responsible for the day-to-day affairs of each of these
Properties, it is not in a position to exercise sole decision making authority
regarding the Properties. Additionally, the 175 Wyman Street Property is held
by a limited partnership, the general partner of which is a limited liability
company managed by certain officers of the Company. Consequently, the Company
is not responsible for the day-to-day affairs of this Property and is not in a
position to exercise sole decision making authority regarding this Property.
Joint ownership of Properties may, under certain circumstances, involve
risks not otherwise present in wholly-owned properties. Such risks include the
possibility that the Company's partners or co-investors might become bankrupt,
develop business interests or goals inconsistent with the business interest or
goals of the Company, or take action contrary to the instructions or the
requests of the Company or contrary to the Company's policies or objectives,
including the Company's policy with respect to maintaining its qualification as
a REIT. Joint ownership also involves the potential risk of impasse on
decisions, such as a sale, because neither the Company nor the partners or
co-investors have full control over the entity owning the Property.
Consequently, actions by such partners or co-investors might result in
subjecting jointly-owned Properties to additional risk.
The Company will, however, seek to maintain sufficient control of the
entities holding jointly-owned Properties to permit the Company's business
objectives to be achieved. The Company's organizational documents do not limit
the amount of available funds that may be invested in partnerships, joint
ventures or co-investments.
Limits on Ownership of Common Stock May Deter Changes in Management
In order to maintain its REIT qualification, not more than 50% in value of
the outstanding capital stock of the Company may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code of 1986, as amended (the "Code"), to include certain entities) during the
last half of a taxable year (other than the first year) (the "Five or Fewer
Requirement"). In order to protect the Company against the risk of losing its
REIT status due to a concentration of ownership among its stockholders, the
Articles of Incorporation of the Company limit ownership of the issued and
outstanding Common Stock by any single stockholder to 6.0% of the aggregate
value of the Company's shares of capital stock from time to time; provided,
however, that entities whose ownership of Common Stock is attributed to the
beneficial owners of such entities for purposes of the Five or Fewer
Requirement (such as pension trusts qualifying under Section 401(a) of the
Code, United States investment companies registered under the Investment
Company Act of 1940, as amended, partnerships, trusts, and corporations) are
limited by the Company's Articles of Incorporation to holding no more than 9.9%
of the aggregate value of the Company's shares of Common Stock. The Articles of
Incorporation provide that the Board of Directors can waive these ownership
limitations if the Board is satisfied, based upon the advice of tax counsel,
that ownership in excess of these limits will not jeopardize the Company's
status as a REIT, and further, that such waiver would be in the best interest
of the Company. In July 1997, the Board of Directors granted a waiver of the
Look Through Ownership Limit permitting a certain investor to own up to 14.9%
of the Common Stock. A transfer of shares to a person who, as a result of the
transfer would violate the ownership limitations will be void. Shares acquired
or transferred in breach of the ownership limitations will be automatically
converted into shares not entitled to vote or to participate in dividends or
other distributions. In addition, shares acquired or transferred in breach of
the ownership limitations may be purchased by the Company for the lesser of the
price paid and the average closing price for the ten trading days immediately
preceding redemption.
Real Estate Investment Risks
General Risks
Investments of the Company are subject to the risks incident to the
ownership and operation of commercial real estate generally. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the Company's properties do not generate
revenues sufficient to meet operating expenses, including debt service and
capital expenditures, the Company's results of operations and ability to make
distributions to its stockholders could be adversely affected.
A commercial property's revenues and value may be adversely affected by a
number of factors, including the national, state and local economic climate;
real estate conditions (such as oversupply of or reduced demand for
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space and changes in market rental rates); the perceptions of prospective
tenants of the safety, convenience and attractiveness of the properties; the
ability of the owner to provide adequate management, maintenance and insurance;
the ability to collect all rent from tenants on a timely basis; the expense of
periodically renovating, repairing and reletting spaces; and the increase of
operating costs (including real estate taxes and utilities) that may not be
passed through to tenants. Certain significant expenditures associated with
investments in real estate (such as mortgage payments, real estate taxes,
insurance and maintenance costs) are generally not reduced when circumstances
cause a reduction in rental revenues from the property. If a property is
mortgaged to secure the payment of indebtedness and if the Company is unable to
meet its mortgage payments, a loss could be sustained as a result of
foreclosure on the property or the exercise of other remedies by the mortgagee.
In addition, real estate values and income from properties are also affected by
such factors as compliance with laws, including tax laws, interest rate levels
and the availability of financing.
Risks of Acquisition Activities
The Company intends to acquire existing office and commercial properties
to the extent that they can be acquired on advantageous terms and meet the
Company's investment criteria. Acquisitions of commercial properties entail
general investment risks associated with any real estate investment, including
the risk that investments will fail to perform as expected or that estimates of
the cost of improvements to bring an acquired property up to standards
established for the intended market position may prove inaccurate.
Risk of Development Activities
The Company also intends to continue to develop office and other
commercial properties, in accordance with its development and underwriting
policies. Risks associated with such development and construction activities
include the risk that: the Company may abandon development opportunities after
expending resources to determine feasibility; construction costs of a project
may exceed original estimates; occupancy rates and rents at a newly completed
property may not be sufficient to make the properties profitable; financing may
not be available on favorable terms for development of a property; and
construction and lease-up may not be completed on schedule, resulting in
increased debt service expense and construction costs. Development activities
are also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy, and other
required governmental permits and authorizations. If any of the foregoing
occurs, the Company's ability to make expected distributions to stockholders
could be adversely affected. In addition, new development activities,
regardless of whether or not they are ultimately successful, typically require
a substantial portion of management's time and attention.
The Company anticipates that future development will be financed, in whole
or in part, through equity or debt offerings or under lines of credit or other
forms of secured or unsecured construction financing that will result in the
risk that, upon completion of construction, permanent financing for newly
developed properties may not be available or may be available only on
disadvantageous terms. If a project is unsuccessful, the Company's losses may
exceed its investment in the project.
Potential Adverse Effect on Results of Operations Due to Risks Associated
with Tenant Defaults
Substantially all of the Company's income is derived from rental income
from real property. Consequently, the Company's results of operations and
ability to make expected distributions to stockholders could be adversely
affected if a significant number of tenants at its properties failed to meet
their lease obligations. In the event of a default by a lessee, the Company may
experience delays in enforcing its rights as lessor and may incur substantial
costs in protecting its investment. Additionally, as a significant number of
the Company's tenants are in the financial services, legal and accounting
businesses, the Company's results of operations and ability to make expected
distributions to stockholders would be adversely affected if these industries
experienced a significant reduction in workforce. At any time, a tenant of the
Company's properties may also seek protection under the bankruptcy laws, which
could result in rejection and termination of such tenant's lease and thereby
cause a reduction in the cash available for distribution by the Company. If a
tenant rejects its lease, the Company's claim for breach of the lease would
(absent collateral securing the claim) be treated as a general unsecured claim.
No assurance can be given that the Company will not experience significant
tenant defaults in the future.
Potential Adverse Effect on Results of Operations Due to Risks Associated
with Ground Leases
The Rowes Wharf Property, the South Station Property and the 10880
Wilshire Boulevard Property are the subject to long-term leases. The Company's
results of operations and ability to make expected distributions to
stockholders could be adversely affected to the extent the Properties subject
to ground leases revert back to the
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landlord at the termination of the ground lease or the Company incurs
additional expense by purchasing the ground under the Properties at the
termination of these ground leases.
Potential Adverse Effect on Results of Operations Due to Risks Associated
with Market Illiquidity
Equity real estate investments are relatively illiquid. Such illiquidity
will tend to limit the ability of the Company to vary its portfolio promptly in
response to changes in economic or real estate market conditions. In addition,
provisions of the Code limit the Company's ability to sell properties held for
fewer than four years, which may affect the Company's ability to sell
properties without adversely affecting returns to stockholders.
Potential Adverse Effect on Results of Operations Due to Operating Risks
The Company's properties are subject to operating risks common to
commercial real estate in general, any and all of which may adversely affect
occupancy or rental rates. The Company's properties are subject to increases in
operating expenses such as cleaning, electricity, heating, ventilation and air
conditioning; elevator repair and maintenance; insurance and administrative
costs; and other general costs associated with security, landscaping, repairs
and maintenance. The Company's tenants are currently obligated to pay these
escalating costs, although there can be no assurance that tenants will agree to
pay such costs upon renewal or that new tenants will agree to pay such costs.
If operating expenses increase, the local rental market may limit the extent to
which rents may be increased to meet such increased expenses without decreasing
occupancy rates. While the Company implements cost-saving incentive measures at
each of its properties, if any of the foregoing occurs, the Company's results
of operations and its ability to make distributions to stockholders could be
adversely affected.
Risk of Investment in Mortgage Debt
The Company may invest in mortgages that are secured by existing office
and commercial properties. In addition to the risks associated with investments
in commercial office properties, investments in mortgage indebtedness present
the additional risks that the fee owners of such properties may default in
payments of interest on a current basis or file for bankruptcy, which may stay
the Company's foreclosure of such mortgages and receipt of payments thereunder.
Under such circumstances, the Company may not realize its anticipated
investment return, and may sustain losses relating to such investments.
Risk of Adverse Effect on Results of Operations Due to Possible Environmental
Liabilities
The Company's operating costs may be affected by the obligation to pay for
the cost of complying with existing environmental laws, ordinances and
regulations, as well as the cost of complying with future legislation. Under
various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under, or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of hazardous or toxic
substances, or the failure to remediate such property properly, may adversely
affect the owner's ability to borrow by using such real property as collateral.
Persons who arrange for the transportation, disposal or treatment of hazardous
or toxic substances may also be liable for the costs of removal or remediation
of such substances at the disposal or treatment facility, whether or not such
facility is or ever was owned or operated by such person. Certain environmental
laws and common law principles could be used to impose liability for releases
of hazardous materials, including asbestos-containing materials ("ACMs"), into
the environment, and third parties may seek recovery from owners or operators
of real properties for personal injury associated with exposure to released
ACMs or other hazardous materials. Environmental laws may also impose
restrictions on the manner in which a property may be used or transferred or in
which businesses may be operated, and these restrictions may require
expenditures. In connection with the ownership and operation of its properties,
the Company may be potentially liable for any such costs. The cost of defending
against claims of liability or remediating contaminated property and the cost
of complying with such environmental laws could materially adversely affect the
Company's results of operations and financial condition.
Phase I environmental site assessments ("ESAs") have been conducted at all
of the Company's properties by qualified independent environmental engineers.
The purpose of Phase I ESAs is to identify potential sources of contamination
for which the properties may be responsible and to assess the status of
environmental regulatory compliance. The ESAs have not revealed any
environmental liability or compliance concerns that the Company believes would
have a material adverse affect on the Company's business, assets, results of
operations or liquidity, nor is the Company aware of any such liability or
concerns. Nevertheless, it is possible that these ESAs did not
7
<PAGE>
reveal all environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which the Company is
currently unaware.
The Company has not been notified by any governmental authority, and has
no other knowledge of, any material noncompliance, liability or claim relating
to hazardous or toxic substances or other environmental substances in
connection with any of its properties except as previously disclosed in
documents incorporated herein by reference.
Risks of Investments in Subsidiaries
The capital stock of each of Beacon Property Management Corporation,
Beacon Construction Company, Inc. and Beacon Design Corporation (collectively,
the "Subsidiary Corporations") is divided into two classes: voting and
nonvoting common stock. Of the voting common stock, 99% is held by officers
and/or directors of such Subsidiary Corporations (each of whom, as of the date
of this Prospectus, is also an officer and/or director of the Company) and 1%
is held by the Operating Partnership. Of the nonvoting common stock, 100% is
held by the Operating Partnership. Management's 99% voting common stock
represents 1% of the economic interests in each of the Subsidiary Corporations.
Members of each Subsidiary Corporation's management, as the holders of 99% of
the voting common stock, retain the ability to elect the board of directors of
each of the Subsidiary Corporations. Although the nonvoting common stock and
the voting common stock of each of the Subsidiary Corporations held by the
Company represents 99% of the economic interests in such corporations, the
Company is not able to elect directors. Its ability to influence the day-to-day
decisions affecting these corporations may therefore be limited. As a result,
the board of directors and management of each of the Subsidiary Corporations
may implement business policies or decisions that would not have been
implemented by persons controlled by the Company, and that are adverse to the
interests of the Company, could adversely impact the Company's results of
operations. The bylaws of each of the Subsidiary Corporations require that the
voting common stock in such Subsidiary Corporation be held by officers of such
Subsidiary Corporation at all times and require holders of voting common stock
to enter into an agreement to that effect.
Potential Adverse Effect of Increase in Market Interest Rates on Price of
Common Stock
One of the factors that will influence the market price of the Common
Stock in public markets is the annual yield on the price paid for shares of
Common Stock from distributions by the Company. An increase in market interest
rates may lead prospective purchasers of the Common Stock to demand a higher
annual yield from future distributions. Such an increase in the required
distributions yield may adversely affect the market price of the Common Stock.
8
<PAGE>
THE COMPANY
General
The Company is a self-administered and self-managed real estate investment
trust ("REIT") which owns a portfolio of Class A office properties and other
commercial properties located in major metropolitan areas, including Boston,
Atlanta, Chicago, Los Angeles, San Francisco and Washington, D.C., as well as
commercial real estate development, acquisition, leasing, design and management
businesses. The Company is a Maryland corporation and its Common Stock is
listed on the New York Stock Exchange under the symbol "BCN."
The Company's business is conducted principally through subsidiaries which
consist of an operating partnership, two subsidiary corporations and two
subsidiary limited partnerships. Beacon Properties, L.P. is a Delaware limited
partnership (the "Operating Partnership"), of which the Company is the sole
general partner. The Company conducts third-party management operations through
Beacon Property Management Corporation, a Delaware corporation (the "Management
Company"), and conducts third-party tenant space design services through Beacon
Design Corporation, a Massachusetts corporation (the "Design Company"). The
Company conducts management operations for wholly-owned properties through
Beacon Property Management, L.P., a Delaware limited partnership (the
"Management Partnership") and conducts tenant space design services for
wholly-owned properties through Beacon Design, L.P., a Delaware limited
partnership (the "Design Partnership").
The Company's executive offices are located at 50 Rowes Wharf in Boston,
Massachusetts 02110 and its telephone number at that location is 617-330-1400.
9
<PAGE>
THE PROPERTIES
Set forth below are summary descriptions of the Properties as of June 30,
1997.
<TABLE>
<CAPTION>
Rentable Percent Leased
Year Built/ Ownership Property Area in at June 30,
Property Renovated Interest(1) Location Square Feet 1997
- ---------------------------------- ----------------- ------------- ------------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Downtown Boston Office Market:
225 Franklin Street ............ 1966(2) 100% Boston, MA 929,545 100%
75-101 Federal Street ......... 1985-1988 51.6% Boston, MA 812,000 92%
One Post Office Square ......... 1981 50% Boston, MA 764,129 99%
Center Plaza ..................... 1966-1969 (3) Boston, MA 649,359 97%
150 Federal Street ............... 1988 100% Boston, MA 530,279 100%
Rowes Wharf ..................... 1987 45% Boston, MA 344,326 100%
Russia Wharf ..................... 1978-1882 100% Boston, MA 314,596 100%
2 Oliver Street-147 Milk Street 1982-1988 100% Boston, MA 271,000 99%
175 Federal Street ............... 1977 100% Boston, MA 203,349 99%
South Station(4) ............... 1988 100% Boston, MA 148,591 100%
---------- -----
4,967,174 98%
---------- -----
Greater Boston Suburban Office Market:
Wellesley Office Park(5) ......... 1963-1984 100% Wellesley, MA 622,862 99%
Crosby Corporate Center(6) ...... 1995-1996 100% Bedford, MA 336,000 98%
175 Wyman Street ............... (7) 100% Waltham, MA 335,000 (7)
Westwood Business Centre ......... 1985 100% Westwood, MA 160,400 96%
New England Executive
Office Park (8) ............... 1970-1985 100% Burlington, MA 817,013 96%
---------- -----
2,271,275 96%
---------- -----
Cambridge Office Market:
One Canal Park .................. 1987 100% Cambridge, MA 100,300 100%
Ten Canal Park .................. 1987 100% Cambridge, MA 110,000 100%
245 First Street(9) ............ 1985-1986 100% Cambridge, MA 263,227 100%
---------- -----
473,527 100%
---------- -----
Central Perimeter Atlanta Office Market:
Perimeter Center Portfolio(10) ... 1970-1989 100% Atlanta, GA 3,302,136 98%
---------- -----
Arlington County, Virginia Office Market:
The Polk and Taylor Buildings ... 1970 100% Arlington, VA 890,000 100%
1300 North 17th Street ......... 1980 100% Rosslyn, VA 372,865 99%
1616 North Fort Myer Drive ...... 1974 100% Rosslyn, VA 292,826 100%
---------- -----
1,555,691 100%
---------- -----
Fairfax County, Virginia Office Market:
John Marshall I .................. 1981 100% McLean, VA 261,364 100%
E.J. Randolph .................. 1983 100% McLean, VA 164,677 99%
Northridge I ..................... 1988 100% Reston/Herndon,VA 124,319 100%
Centerpointe I .................. 1988 100% Fairfax, VA 204,481 99%
Centerpointe II .................. 1990 100% Fairfax, VA 204,481 99%
---------- -----
959,322 99%
---------- -----
Washington, D.C. Office Market:
1333 H Street, N.W. ............ 1984(11) 100% Washington, D.C. 238,694 91%
---------- -----
Suburban Chicago Office Market:
AT&T Plaza ..................... 1984 100% Oak Brook, IL 225,318 98%
Tri-State International(12) ...... 1986 100% Lincolnshire, IL 548,000 81%
Presidents Plaza (13) ............ 1980-1982 100% Chicago, IL 791,000 95%
Westbrook Corporate Center(14) 1985-1996 100% Westchester, IL 1,106,000 92%
---------- -----
2,670,318 91%
---------- -----
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Rentable Percent Leased
Year Built/ Ownership Property Area in at June 30,
Property Renovated Interest(1) Location Square Feet 1997
- ---------------------------------- ------------- ------------- --------------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
West Los Angeles Office Market:
10960 Wilshire Boulevard ...... 1971-1992 100% Westwood, CA 543,804 89%
10880 Wilshire Boulevard(15) ... 1970 100% Westwood, CA 531,176 85%
----------- ----
1,074,980 87%
Silicon Valley Office/R&D Market:
Shoreline Technology Park(16) ... 1985-1991 100% Mountain Valley, CA 726,500 100%
Lake Marriott Business Park(17) 1981 100% Santa Clara, CA 400,000 100%
Sunnyvale Business Center(18) ... 1990 100% Sunnyvale, CA 175,000 100%
----------- ----
1,301,500 100%
----------- ----
Total/Weighted Average(19) ... 18,814,617 97%
=========== ====
</TABLE>
- ----------------
(1) The Company holds a general partner interest in One Post Office Square, a
general partner and limited partner interest in Center Plaza and the Polk
and Taylor Buildings and an indirect limited partner interest in Rowes
Wharf Associates, the entity which owns the hotel space and holds a ground
leasehold interest in the office and retail space at the Rowes Wharf
Property. The Company holds approximately 51.6% of the common stock of
BeaMetFed, Inc., the entity that holds the fee title to the 75-101 Federal
Street Property. The Company owns a 100% fee interest in the remaining
Properties, with the exception of South Station and 10880 Wilshire
Boulevard, in which the Company holds a ground leasehold interest.
(2) The 225 Franklin Street Property has undergone an approximately $95
million renovation during the past eight years, including installation of
new electrical systems, and a complete upgrade of mechanical systems,
elevators, lobbies, roofs and the exterior plaza of the building.
(3) The Company holds a 1% general partner interest, a 75% limited partner
interest and an option to purchase the remaining 24% limited partner
interest in the partnership that owns the Center Plaza Property.
(4) The Company owns a ground leasehold interest in the South Station Property
which expires in 2024 but may be extended, at the Company's option, for
two additional 15-year terms. Fee title to this Property is owned by an
unaffiliated third party. This Property was originally built in the early
1900s and was fully rehabilitated in 1988. This Property includes a
significant retail component.
(5) The Wellesley Office Park consists of eight office buildings.
(6) The Crosby Corporate Center is a Property which consists of six office
buildings.
(7) The 175 Wyman Street Property consists of a vacant 335,000 square foot
office/research and development complex and 26.7 acres of land suitable
for development. The Company plans to redevelop the Property into 400,000
square feet of Class A office space. Weighted Average excludes 175 Wyman
Street.
(8) The New England Executive Park Portfolio consists of nine of the thirteen
office buildings located in the New England Executive Park, the remaining
four of which are owner-occupied.
(9) The 245 First Street property consists of two attached structures
connected by a four-story atrium. Riverview I, a six-story office
building, was constructed in 1909 and renovated in 1986. Riverview II, an
eighteen-story structure with parking on the first nine floors, was
constructed in 1985.
(10) The Perimeter Center Property consists of 32 buildings and six parcels
that the Company has ground leased to tenants.
(11) Approximately 205,000 square feet of the 1333 H Street Property was built
in 1982. The remaining approximately 34,000 square feet was renovated in
1982.
(12) The Tri-State International complex consists of five office buildings.
(13) Presidents Plaza consists of four office buildings.
(14) Westbrook Corporate Center consists of five office buildings.
(15) The Company owns a ground leasehold interest in 10880 Wilshire Boulevard
which expires in 2068. The Company has an option to purchase the ground
under 10880 Wilshire Boulevard at fair market value in 2001.
(16) Shoreline Technology Park consists of twelve office buildings.
(17) Lake Marriott Business Park consists of seven office buildings.
(18) Sunnyvale Business Center consists of three office buildings.
(19) Weighted average excludes 175 Wyman Street.
11
<PAGE>
DESCRIPTION OF COMMON STOCK
The description of the Company's Common Stock set forth below does not
purport to be complete and is qualified in its entirety by reference to the
Company's Articles of Incorporation (the "Articles of Incorporation") and
Bylaws (the "Bylaws"), each as amended, as in effect.
General
Under the Articles of Incorporation, the Company has authority to issue
100 million shares of Common Stock, par value $.01 per share. Under Maryland
law, stockholders generally are not responsible for the corporation's debts or
obligations. At August 25, 1997, there were 55,445,060 shares of Common Stock
issued and outstanding.
Terms
All shares of Common Stock offered hereby have been duly authorized, and
are fully paid and non-assessable. Subject to the preferential rights of any
other shares or series of stock and to the provisions of the Company's Articles
of Incorporation regarding excess stock, $.01 par value per share ("Excess
Stock"), holders of shares of Common Stock will be entitled to receive
dividends on shares of Common Stock if, as and when authorized and declared by
the Board of Directors of the Company out of assets legally available therefor
and to share ratably in the assets of the Company legally available for
distribution to its stockholders in the event of its liquidation, dissolution
or winding-up after payment of, or adequate provision for, all known debts and
liabilities of the Company.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, each outstanding share of Common Stock entitles the
holder to one vote on all matters submitted to a vote of stockholders,
including the election of Directors and, except as otherwise required by law or
except as provided with respect to any other class or series of stock, the
holders of Common Stock will possess the exclusive voting power. There is no
cumulative voting in the election of Directors, which means that the holders of
a majority of the outstanding shares of Common Stock can elect all of the
Directors then standing for election, and the holders of the remaining shares
of Common Stock will not be able to elect any Directors.
Holders of Common Stock have no conversion, sinking fund or redemption
rights, or preemptive rights to subscribe for any securities of the Company.
The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion thereon
expressed by an independent public accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
information.
Subject to the provisions of the Company's Articles of Incorporation
regarding Excess Stock, all shares of Common Stock will have equal dividend,
distribution, liquidation and other rights, and will have no preference,
appraisal or exchange rights.
Pursuant to the Maryland General Corporation Law (the "MGCL"), a
corporation generally cannot dissolve, amend its Articles of Incorporation,
merge, sell all or substantially all of its assets, engage in a share exchange
or engage in similar transactions outside the ordinary course of business
unless approved by the affirmative vote of stockholders holding at least
two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes to be cast on the
matter) is set forth in the corporation's Articles of Incorporation. The
Company's Articles of Incorporation do not provide for a lesser percentage in
such situations.
Transfer Agent
The transfer agent and registrar for the Common Stock is Boston EquiServe.
12
<PAGE>
RESTRICTIONS ON TRANSFERS OF COMMON STOCK
Restrictions on Transfers
In order for the Company to qualify as a REIT under the Code, among other
things, not more than 50% in value of its outstanding capital stock may be
owned, directly or indirectly, by five or fewer individuals (defined in the
Code to include certain entities) during the last half of a taxable year (other
than the first year) (the "Five or Fewer Requirement"), and such shares of
capital stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months (other than the first year) or during a
proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations." In order to protect the Company against the risk of losing its
status as a REIT on account of a concentration of ownership among its
stockholders, the Articles of Incorporation, subject to certain exceptions,
provide that no single holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 6.0% (the "Ownership Limit") of
the aggregate value of the Company's shares of Common Stock. Pursuant to the
Code, Common Stock held by certain types of entities, such as pension trusts
qualifying under Section 401(a) of the Code, United States investment companies
registered under the Investment Company Act, partnerships, trusts and
corporations, will be attributed to the beneficial owners of such entities for
purposes of the Five or Fewer Requirement (i.e., the beneficial owners of such
entities will be counted as holders). The Company's Articles of Incorporation
limit such entities to holding no more than 9.9% of the aggregate value of the
Company's shares of capital stock (the "Look-Through Ownership Limit"). Any
transfer of shares of capital stock or of any security convertible into shares
of capital stock that would create a direct or indirect ownership of shares of
capital stock in excess of the Ownership Limit or the Look-Through Ownership
Limit or that would result in the disqualification of the Company as a REIT,
including any transfer that results in the shares of capital stock being owned
by fewer than 100 persons or results in the Company being "closely held" within
the meaning of Section 856(h) of the Code, shall be null and void, and the
intended transferee will acquire no rights to the shares of capital stock. The
foregoing restrictions on transferability and ownership will not apply if the
Board of Directors determines that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT. The Board
of Directors may, in its sole discretion, waive the Ownership Limit and the
Look-Through Ownership Limit if evidence satisfactory to the Board of Directors
and the Company's tax counsel is presented that the changes in ownership will
not then or in the future jeopardize the Company's REIT status and the Board of
Directors otherwise decides that such action is in the best interest of the
Company. In July 1997, the Board of Directors granted a waiver of the Look
Through Ownership Limit permitting a certain investor to own up to 14.9% of the
Common Stock.
Shares of capital stock owned, or deemed to be owned, or transferred to a
stockholder in excess of the Ownership Limit or the Look-Through Ownership
Limit will automatically be converted into shares of Excess Stock that will be
transferred, by operation of law, to the Company as trustee of a trust for the
exclusive benefit of the transferees to whom such shares of capital stock may
be ultimately transferred without violating the Ownership Limit or the
Look-Through Ownership Limit. While the Excess Stock is held in trust, it will
not be entitled to vote, it will not be considered for purposes of any
stockholder vote or the determination of a quorum for such vote, and, except
upon liquidation, it will not be entitled to participate in dividends or other
distributions. Any distribution paid to a proposed transferee of Excess Stock
prior to the discovery by the Company that capital stock has been transferred
in violation of the provisions of the Company's Articles of Incorporation shall
be repaid to the Company upon demand. The Excess Stock is not treasury stock,
but rather constitutes a separate class of issued and outstanding stock of the
Company. The original transferee stockholder may, at any time the Excess Stock
is held by the Company in trust, transfer the interest in the trust
representing the Excess Stock to any person whose ownership of the shares of
capital stock exchanged for such Excess Stock would be permitted under the
Ownership Limit or the Look-Through Ownership Limit, at a price not in excess
of (i) the price paid by the original transferee-stockholder for the shares of
capital stock that were exchanged into Excess Stock, or (ii) if the original
transferee-stockholder did not give value for such shares (e.g., the stock was
received through a gift, devise or other transaction), the average closing
price for the class of shares from which such shares of Excess Stock were
converted for the ten days immediately preceding such sale or gift. Immediately
upon the transfer to the permitted transferee, the Excess Stock will
automatically be converted back into shares of capital stock of the class from
which it was converted. If the foregoing transfer restrictions are determined
to be void or invalid by virtue of any legal decision, statute, rule or
regulation, then the intended transferee of any shares of Excess Stock may be
deemed, at the option of the Company, to have acted as an agent on behalf of
the Company in acquiring the Excess Stock and to hold the Excess Stock on
behalf of the Company.
13
<PAGE>
In addition, the Company will have the right, for a period of 90 days
during the time any shares of Excess Stock are held by the Company in trust, to
purchase all or any portion of the Excess Stock from the original
transferee-stockholder at the lesser of (i) the price initially paid for such
shares by the original transferee stockholder, or if the original
transferee-stockholder did not give value for such shares (e.g., the shares
were received through a gift, devise or other transaction), the average closing
price for the class of stock from which such shares of Excess Stock were
converted for the ten days immediately preceding such sale or gift, and (ii)
the average closing price for the class of shares from which such shares of
Excess Stock were converted for the ten trading days immediately preceding the
date the Company elects to purchase such shares. The 90-day period begins on
the date notice is received of the violative transfer if the original
transferee-stockholder gives notice to the Company of the transfer or, if no
such notice is given, the date the Board of Directors determines that a
violative transfer has been made.
These restrictions will not preclude settlement of transactions through
the NYSE.
Each stockholder shall upon demand be required to disclose to the Company
in writing any information with respect to the direct, indirect and
constructive ownership of capital stock as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to REITs, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
The Ownership Limit may have the effect of precluding acquisition of
control of the Company unless the Board of Directors determines that
maintenance of REIT status is no longer in the best interests of the Company.
DESCRIPTION OF UNITS AND REDEMPTION OF UNITS
General
Unitholders may, subject to certain limitations, require the Operating
Partnership to redeem all or a portion of their Units (the "Redemption Right").
This Redemption Right shall be exercised pursuant to a notice of redemption
delivered to the Operating Partnership, with a copy delivered to the Company.
Upon redemption, a Unitholder will receive for each Unit redeemed cash in an
amount equal to the market value (as defined below) of one share of Common
Stock (subject to certain adjustments in the event of stock dividends and stock
splits); provided, however, that the Company may, in its sole discretion, by
notice to the Unitholder within five business days after receipt of the notice
of redemption, elect to acquire any Unit presented to the Operating Partnership
for redemption for cash or for one share of Common Stock (subject to the same
adjustments). The market value of the Common Stock for purposes of redeeming
Units will be equal to the average of the closing trading price of the Common
Stock for the ten trading days prior to the day on which the redemption notice
was received by the Operating Partnership.
The Company anticipates that it generally will elect to acquire any Units
presented to the Operating Partnership for redemption by the issuance of the
Redemption Shares. Such an acquisition by the Company will be treated as a sale
of the Units to the Company for Federal income tax purposes. See "--Tax
Consequences of Redemption." Upon a redemption for cash, a Unitholder's right
to receive distributions with respect to the Units redeemed will cease. Upon
the receipt of Redemption Shares, a Unitholder will have rights as a
stockholder of the Company, including the right to receive dividends from the
time of its acquisition of the Redemption Shares.
A Unitholder must notify the Company of its desire to require the
Operating Partnership to redeem Units. A Unitholder must request the redemption
of at least 1,000 Units. No redemption can occur if the delivery of Redemption
Shares would be prohibited under the provisions of the Company's Articles of
Incorporation to protect the Company's qualification as a REIT.
Tax Consequences of Redemption
The following discussion summarizes certain Federal income tax
considerations that may be relevant to a Unitholder should it exercise its
right to redeem its Units.
Tax Treatment of Exchange or Redemption of Units. If the Company elects to
purchase Units tendered for redemption, the Partnership Agreement provides that
each of the Unitholder, the Operating Partnership and the Company shall treat
the transaction between the Unitholder and the Company as a sale of Units by
the Unitholder at the time of such redemption. Such sale will be fully taxable
to the Unitholder and the Unitholder will be treated as realizing for tax
purposes an amount equal to the sum of the cash value or the value of the
Common Stock received in the exchange plus the amount of any Operating
Partnership liabilities allocable to the redeemed Units at the time
14
<PAGE>
of the redemption. The determination of the amount of gain or loss is discussed
more fully below. If the Company does not elect to purchase a Unitholder's
Units tendered for redemption and the Operating Partnership redeems such Units
for cash that the Company contributes to the Operating Partnership to effect
such redemption, the redemption likely also would be treated for tax purposes
as a sale of such Units to the Company in a fully taxable transaction, although
the matter is not free from doubt. In that event, the Unitholder would be
treated as realizing an amount equal to the sum of the cash received in the
exchange plus the amount of any Operating Partnership liabilities allocable to
the redeemed Units at the time of the redemption. The determination of the
amount and character of gain or loss in the event of such a sale is discussed
more fully below. See "--Tax Treatment of Disposition of Units by a Limited
Partner Generally."
If the Company does not elect to purchase Units tendered for redemption
and the Operating Partnership redeems a Unitholder's Units for cash that is not
contributed by the Company to effect the redemption, the tax consequences would
be the same as described in the previous paragraph, except that, if the
Operating Partnership redeems less than all of a Unitholder's Units, the
Unitholder would not be permitted to recognize any loss occurring on the
transaction and would recognize taxable gain only to the extent that the cash,
plus the amount of any Operating Partnership liabilities allocable to the
redeemed Units, exceeded the Unitholder's adjusted basis in all of its Units
immediately before the redemption. In addition, the potential application of
certain "disguised sale" rules, discussed below, could alter the tax treatment
of Units redeemed for cash.
If the Company contributes cash to the Operating Partnership to effect a
redemption, and in the event that the redemption transaction is treated as the
redemption of a Unitholder's Units by the Operating Partnership rather than a
sale of Units to the Company, the income tax consequences to the Unitholder
would be as described in the preceding paragraph.
Tax Treatment of Disposition of Units by a Limited Partner Generally. If a
Unit is disposed of in a manner that is treated as a sale of the Unit, or a
limited partner otherwise disposes of a Unit, the determination of gain or loss
from the sale or other disposition will be based on the difference between the
amount considered realized for tax purposes and the adjusted tax basis in such
Unit. See "--Basis of Units." Upon the sale of a Unit, the "amount realized"
will be measured by the sum of the cash and fair market value of other property
(i.e., Redemption Shares) received plus the amount of any Operating Partnership
liabilities allocable to the Units sold. To the extent that the amount of cash
or property received plus the allocable share of any Operating Partnership
liabilities exceeds the limited partner's adjusted tax basis in the Units
disposed of, such limited partner will recognize gain. It is possible that the
amount of gain recognized or even the tax liability resulting from such gain
could exceed the amount of cash and/or the value of any other property (i.e.,
Redemption Shares) received upon such disposition.
Except as described below, any gain recognized upon a sale or other
disposition of Units will be treated as gain attributable to the sale or
disposition of a capital asset. To the extent, however, that the amount
realized upon the sale of a Unit attributable to a limited partner's share of
"unrealized receivables" of the Operating Partnership (as defined in Section
751 of the Code) exceeds the basis attributed to those assets, such excess will
be treated as ordinary income. Unrealized receivables include, to the extent
not previously included in Operating Partnership income, any rights to payment
for services rendered or to be rendered. Unrealized receivables also include
amounts that would be subject to recapture as ordinary income if the Operating
Partnership had sold its assets at their fair market value at the time of the
transfer of a Unit.
Basis of Units. In general, a Unitholder who acquired his Units by
contribution of property and/or money to the Operating Partnership had an
initial tax basis in his Units ("Initial Basis") equal to the sum of (i) the
amount of money contributed (or deemed contributed as described below) and (ii)
his adjusted tax basis in any other property contributed in exchange for such
Units, and less the amount of any money distributed (or deemed distributed, as
described below) in connection with the acquisition of the Units. The Initial
Basis of Units acquired by other means would have been determined under the
general rules of the Code, including the partnership provisions, governing the
determination of tax basis. Other rules, including the "disguised sale" rules
discussed below, also may affect Initial Basis, and Unitholders are urged to
consult their own tax advisors regarding their Initial Basis. Generally, a
limited partner's Initial Basis in his Units is increased by (i) such limited
partner's share of Operating Partnership taxable and tax-exempt income and (ii)
increases in such limited partner's allocable share of liabilities of the
Operating Partnership. Conversely, a limited partner's basis in his Units is
decreased (but not below zero) by (A) such limited partner's share of Operating
Partnership distributions, (B) decreases in such limited partner's allocable
share of liabilities of the Operating Partnership, (C) such limited partner's
share of losses of the Operating
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Partnership and (D) such limited partner's share of nondeductible expenditures
of the Operating Partnership that are not chargeable to capital account.
Potential Application of the Disguised Sale Regulations to a Redemption of
Units. There is a risk that a redemption by the Operating Partnership of Units
issued in exchange for a contribution of property to the Operating Partnership
may cause the original transfer of property to the Operating Partnership in
exchange for Units to be treated as a "disguised sale" of property. Section 707
of the Code and the Treasury Regulations thereunder (the "Disguised Sale
Regulations") generally provide that, unless one of the prescribed exceptions
is applicable, a partner's contribution of property to a partnership and a
simultaneous or subsequent transfer of money or other consideration (which may
include the assumption of or taking subject to a liability) from the
partnership to the partner will be presumed to be a sale, in whole or in part,
of such property by the partner to the partnership. Further, the Disguised Sale
Regulations provide generally that, in the absence of an applicable exception,
if money or other consideration is transferred by a partnership to a partner
within two years of the partner's contribution of property, the transactions
are presumed to be a sale of the contributed property unless the facts and
circumstances clearly establish that the transfers do not constitute a sale.
The Disguised Sale Regulations also provide that if two years have passed
between the transfer of money or other consideration and the contribution of
property, the transactions will be presumed not to be a sale unless the facts
and circumstances clearly establish that the transfers constitute a sale.
Accordingly, if a Unit is redeemed by the Operating Partnership from a
Unitholder who holds Units that were issued in exchange for a contribution of
property to the Operating Partnership, the Internal Revenue Service (the "IRS")
could contend that the Disguised Sale Regulations apply because the Unitholder
will thus receive cash subsequent to a previous contribution of property to the
Operating Partnership. In that event, the IRS could contend that the
contribution was taxable as a disguised sale under the Disguised Sale
Regulations. Any gain recognized thereby may be eligible for installment
reporting under Section 453 of the Code, subject to certain limitations. In
addition, in such event, the Disguised Sale Regulations might apply to cause a
portion of the proceeds received by a redeeming Unitholder to be characterized
as original issue discount on a deferred obligation which would be taxable as
interest income in accordance with the provisions of Section 1272 of the Code.
Each Unitholder is advised to consult its own tax advisors to determine whether
redemption of its Units could be subject to the Disguised Sale Regulations.
Comparison of Ownership of Units and Common Stock
The nature of an investment in Common Stock of the Company is generally
economically equivalent to an investment in Units in the Operating Partnership.
There are, however, some differences between ownership of Units and ownership
of Common Stock, some of which may be material to investors. The information
below highlights a number of significant differences between the Operating
Partnership and the Company relating to, among other things, form of
organization, permitted investments, policies and restrictions, management
structure, compensation and fees, investor rights and Federal income taxation
and compares certain legal rights associated with the ownership of Units and
Common Stock, respectively. These comparisons are intended to assist
Unitholders in understanding how their investment will be changed if their
Units are acquired for Common Stock. This discussion is summary in nature and
does not constitute a complete discussion of these matters, and investors
should carefully review the balance of this Prospectus and the registration
statement of which this Prospectus is a part for additional important
information about the Company.
Form of Organization and Assets Owned. The Operating Partnership is
organized as a Delaware limited partnership. A substantial amount of the
Company's operations are conducted through the Operating Partnership.
The Company is organized under the laws of the State of Maryland. The
Company maintains both a limited partner interest and a general partner
interest in the Operating Partnership, which gives the Company an indirect
investment in the Properties and other assets owned by the Operating
Partnership. The Company currently has an approximate 88.3% economic interest
in the Operating Partnership, and such interest will increase as Units are
redeemed for cash or acquired by the Company.
Length of Investment. The Operating Partnership has a stated termination
date of December 31, 2093, although it may be terminated earlier under certain
circumstances. The Company has a perpetual term and intends to continue its
operations for an indefinite time period.
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Purchase and Permitted Investments. The purpose of the Operating
Partnership includes the conduct of any business that may be lawfully conducted
by a limited partnership formed under Delaware law, except that the Partnership
Agreement requires the business of the Operating Partnership to be conducted in
such a manner that will permit the Company to be classified as a REIT for
Federal income tax purposes. The Operating Partnership may, subject to the
foregoing limitation, invest or enter into partnerships, joint ventures or
similar arrangements and may own interests in any other entity.
Under its Articles of Incorporation, the Company may engage in any lawful
activity permitted under the Maryland General Corporation Law. However, under
the Partnership Agreement, the Company, as the general partner of the Operating
Partnership, may not, directly or indirectly, enter into or conduct any
business other than in connection with the ownership, acquisition and
disposition of interests in the Operating Partnership or the management of the
business thereof.
Additional Equity. The Operating Partnership is authorized to issue Units
and other partnership interests to its partners or to other persons for such
consideration and on such terms and conditions as the Company, as general
partner, in its sole discretion, may deem appropriate.
The Board of Directors of the Company may authorize the issuance of shares
of capital stock of any class, whether now or hereafter authorized, or
securities or rights, convertible into shares of capital stock, for such
consideration as the Board of Directors may deem advisable, subject to such
restrictions or limitations as may be set forth in the Company's Bylaws. As
long as the Operating Partnership is in existence, the proceeds of all equity
capital raised by the Company will be contributed to the Operating Partnership
in exchange for Units or other interests in the Operating Partnership.
Borrowing Policies. The Operating Partnership has no restrictions on
borrowings, and the Company as general partner, has full power and authority to
borrow money on behalf of the Operating Partnership.
The Company is not restricted under its governing instruments from
incurring borrowings. The Company has, however, adopted a policy that currently
limits total borrowings to 50% of the total market capitalization of the
Company. See "Risk Factors--Real Estate Financing Risks." The foregoing
reflects the Company's general policy over time and is not intended to operate
in a manner that inappropriately restricts the Company's ability to raise
additional capital, including additional debt, to implement its planned growth,
to pursue attractive acquisition opportunities that may arise or to otherwise
act in a manner that the Board of Directors believes to be in the best
interests of the Company and its stockholders. The Board of Directors, with the
assistance of management of the Company, may reevaluate from time to time its
debt and other capitalization policies in light of then current economic
conditions, including the relative costs of debt and equity capital, the market
value of its Properties, growth and acquisition opportunities, and the market
value of its equity securities in relation to the Company's view of the market
value of its Properties, and may modify its debt policy. Such modification may
include increasing or decreasing its general ratio of debt to total market
capitalization or substituting another measuring standard.
Other Investment Restrictions. Other than restrictions precluding
investments by the Operating Partnership that would adversely affect the
qualification of the Company as a REIT, there are no restrictions upon the
Operating Partnership's authority to enter into certain transactions,
including, among others, making investments, lending Operating Partnership
funds, or reinvesting the Operating Partnership's cash flow and net sale or
refinancing proceeds.
Neither the Company's Articles of Incorporation nor its Bylaws impose any
restrictions upon the types of investments that may be made by the Company.
Management Control. All management powers over the business and affairs of
the Operating Partnership are vested in the Company, as general partner, and no
limited partner of the Operating Partnership has any right to participate in or
exercise control or management power over the business and affairs of the
Operating Partnership. The Company may not be removed as general partner by the
limited partners with or without cause.
The Board of Directors has exclusive control over the Company's business
and affairs subject only to the restrictions in the Articles of Incorporation
and the Bylaws. The Board of Directors is classified into three classes. At
each annual meeting of the stockholders, the successors of the class of
directors whose terms expire at that meeting will be elected. The policies
adopted by the Board of Directors may be altered or eliminated without advice
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of the stockholders. Accordingly, except for their vote in the elections of
directors, stockholders have no control over the ordinary business policies of
the Company.
Management Liability and Indemnification. The Partnership Agreement
generally provides that the Company, as general partner, will incur no
liability to the Operating Partnership or any limited partner for losses
sustained or liabilities incurred as a result of errors in judgment or of any
act or omission if the Company acted in good faith. In addition, the Company is
not responsible for any misconduct or negligence on the part of its agents
provided the Company appointed such agents in good faith. The Company may
consult with legal counsel, accountants, appraisers, management consultants,
investment bankers and other consultants and advisors, and any action it takes
or omits to take in reliance upon the opinion of such persons, as to matters
which the Company reasonably believes to be within their professional or expert
competence, shall be conclusively presumed to have been done or omitted in good
faith and in accordance with such opinion. The Partnership Agreement also
provides for indemnification of the Company the Directors and officers of the
Company, and such other persons as the Company may from time to time designate,
against any and all losses, claims, damages, liabilities, expenses, judgments,
fines, settlements and other amounts arising from any and all claims, demands,
actions, suits or proceedings that relate to the operations of the Operating
Partnership in which such person may be involved.
The Company's Articles of Incorporation and Bylaws provide certain
limitations on the liability of the Company's Directors and officers for
monetary damages to the Company. The Articles of Incorporation and the Bylaws
obligate the Company to indemnify its Directors and officers, and permit the
Company to indemnify its employees and other agents, against certain
liabilities incurred in connection with their service in such capacities. These
provisions could reduce the legal remedies available to the Company and the
stockholders against these individuals.
The Company's Bylaws require it to indemnify its officers, Directors and
certain other parties to the fullest extent permitted from time to time by
Maryland law. The MGCL permits a corporation to indemnify (a) any present or
former Director or officer who has been successful, on the merits or otherwise,
in the defense of a proceeding to which he was made a party by reason of his
service in that capacity, against reasonable expenses incurred by him in
connection with the proceeding and (b) any present or former Director or
officer against any claim or liability unless it is established that (i) his
act or omission was committed in bad faith or was the result of active or
deliberate dishonesty, (ii) he actually received an improper personal benefit
in money, property or services or (iii) in the case of a criminal proceeding,
he had reasonable cause to believe that his act or omission was unlawful. The
Maryland General Corporation Law also permits the Company to provide
indemnification and advance expenses to a present or former Director or officer
who served a predecessor of the Company in such capacity, and to any employer
or agent of the Company or a predecessor of the Company.
The Company has entered into indemnification agreements with each of its
executive officers and Directors. The indemnification agreements require, among
other things, that the Company indemnify its officers and Directors to the
fullest extent permitted by law and advance to the officers and Directors all
related expenses, subject to reimbursement if it is subsequently determined
that indemnification is not permitted. Under these agreements, the Company must
also indemnify and advance all expenses incurred by officers and Directors
seeking to enforce their rights under the indemnification agreements and may
cover officers and Directors under the Company's Directors' and officers'
liability insurance. Although the form of indemnification agreement offers
substantially the same scope of coverage afforded by law, it provides
additional assurance to Directors and officers that indemnification will be
available because, as a contract, it cannot be modified unilaterally in the
future by the Board of Directors or the stockholders to eliminate the rights it
provides. It is the position of the SEC that indemnification of directors and
officers for liabilities under the Securities Act is against public policy and
unenforceable pursuant to Section 14 of the Securities Act.
Anti-takeover Provisions. Except in limited circumstances, the Company, as
general partner, has exclusive management power over the business and affairs
of the Operating Partnership. The Company may not be removed as general partner
by the limited partners with or without cause.
The Articles of Incorporation and Bylaws of the Company and Maryland law
contain a number of provisions that may have the effect of delaying or
discouraging an unsolicited proposal for the acquisition of the Company or the
removal of incumbent management.
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Voting Rights. Under the Partnership Agreement, the limited partners do
not have voting rights relating to the operation and management of the
Operating Partnership except in connection with matters, as described more
fully below, involving certain amendments to the Partnership Agreement,
dissolution of the Operating Partnership and the sale or exchange of all or
substantially all of the Operating Partnership's assets, including mergers or
other combinations.
Stockholders of the Company have the right to vote, among other things, on
a merger or sale of substantially all of the assets of the Company, certain
amendments to the Articles of Incorporation and dissolution of the Company. The
Company is managed and controlled by a Board of Directors consisting of three
classes having staggered terms of office. Each class is to be elected by the
stockholders at annual meetings of the Company. Each share of Common Stock has
one vote, and the Articles of Incorporation permit the Board of Directors to
classify and issue preferred stock in one or more series having voting power
which may differ from that of the Common Stock.
Amendment of the Partnership Agreement or the Company's Articles of
Incorporation. Amendments to the Partnership Agreement may be proposed by the
Company, as general partner, or by limited partners holding 20% or more of the
partnership interests and generally require approval of limited partners
(including the Company) holding a majority of the outstanding limited partner
interests. Certain amendments that would, among other things, convert a limited
partner's interest into a general partner's interest, modify the limited
liability of any limited partner, alter the interest of any limited partner in
profits, losses or distributions, alter or modify the redemption right
described herein, or cause the termination of the Operating Partnership at a
time inconsistent with the terms of the Partnership Agreement must be approved
by the Company, as general partner, and each limited partner that would be
adversely affected by any such amendment.
Amendments to the Company's Articles of Incorporation must be approved by
affirmative vote of the holders of not less than two-thirds of all votes
entitled to be cast on the matter.
Vote Required to Dissolve the Operating Partnership or the Company. Under
Delaware law, the Operating Partnership may be dissolved, other than in
accordance with the terms of the Partnership Agreement, only upon the unanimous
vote of the limited partners. Under Maryland law, the Board of Directors must
obtain the approval of holders of not less than two-thirds of all outstanding
shares of capital stock of the Company in order to dissolve the Company.
Vote Required to Sell Assets or Merge. Under the Partnership Agreement,
except in certain circumstances, the Operating Partnership may not sell,
exchange, transfer or otherwise dispose of all or substantially all of its
assets, including by way of merger or consolidation or other combination of the
Operating Partnership, without the consent of the limited partners (including
the Company) holding 85% or more of the limited partner interests of the
Operating Partnership.
Under Maryland law and the Company's Articles of Incorporation, the sale
of all or substantially all of the assets of the Company or any merger or
consolidation of the Company requires the approval of the Board of Directors
and the affirmative vote of two-thirds of all the votes entitled to be cast on
the matter. No approval of the stockholders is required for the sale of less
than all or substantially all of the Company's assets.
Compensation, Fees and Distributions. The Company does not receive any
compensation for its services as general partner of the Operating Partnership.
As a partner in the Operating Partnership, however, the Company has the same
right to allocations and distributions as other partners of the Operating
Partnership. In addition, the Operating Partnership will reimburse the Company,
as general partner, for all expenses incurred relating to the ownership and
operation of, or for the benefit of, the Operating Partnership.
The Directors and officers of the Company receive compensation for their
services.
Liability of Investors. Under the Partnership Agreement and applicable
Delaware law, the liability of the limited partners for the Operating
Partnership's debts and obligations is generally limited to the amount of their
investment in the Operating Partnership.
Under Maryland law, stockholders generally are not personally liable for
the debts or obligations of the Company. See "Description of Capital
Stock--General."
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Nature of Investment. The Units constitute equity interests entitling
holders thereof to their pro rata share of cash distributions made to the
limited partners of the Operating Partnership. The Company is entitled to
receive its pro rata share of distributions made by the Operating Partnership
with respect to its interest in the Operating Partnership.
Shares of Common Stock constitute equity interests in the Company. Each
stockholder will be entitled to his pro rata share of any dividends or
distributions paid with respect to Common Stock. The dividends payable to the
stockholders are not fixed in amount and are paid only if, when and as declared
by the Board of Directors. In order to qualify as a REIT, the Company must
distribute at least 95% of its taxable income (excluding capital gains), and
any taxable income (including capital gains) not distributed will be subject to
corporate income tax.
Potential Dilution of Rights. The Company, as general partner, is
authorized, in its sole discretion and without limited partner approval, to
cause the Operating Partnership to issue additional limited partnership
interests and other equity securities for any partnership purpose at any time
to the limited partners or to other persons on terms established by the
Company.
The Board of Directors of the Company may issue, in its discretion,
additional shares of Common Stock and has the authority to issue from the
authorized capital stock a variety of other equity securities of the Company
with such powers, preferences and rights as the Board of Directors may
designate at the time. The issuance of additional shares of Common Stock or
other similar equity securities may result in the dilution of interests of the
stockholders.
Liquidity. Subject to certain exceptions, as of September 6, 1997, the
Fairfax Partnerships may transfer up to 833,820 Units with or without the
consent of the Company. However, the Company, as general partner, in its sole
and absolute discretion, may or may not consent to the admission as a
substituted limited partner of any transferee of such Units. If the Company
does not consent to the admission of a transferee as a substituted limited
partner, the transferee shall be considered an assignee of an economic interest
in the Operating Partnership but will not be a holder of Units for any other
purpose; accordingly, the assignee will not be permitted to vote on any affairs
or issues on which a limited partner may vote.
The Common Stock is listed on the NYSE. The breadth and strength of this
market will depend, among other things, upon the number of shares outstanding,
the Company's financial results and prospects, the general interest in the
Company's real estate investments and the Company's dividend yield compared to
that of other debt and equity securities.
REGISTRATION RIGHTS
The registration of the Redemption Shares pursuant to this Registration
Statement of which this Prospectus is a part will discharge the Company's
obligations with respect to such Redemption Shares to the Fairfax Partnerships
under the terms of a Registration Rights Agreement dated as of September 5,
1996 (the "Registration Rights Agreement") which the Company entered into in
connection with the issuance of the Units. The following summary does not
purport to be complete and is qualified in its entirety by reference to the
Registration Rights Agreement.
Under the Registration Rights Agreement, at any time until the earlier of
(i) March 18, 2007 or (ii) the date on which all the Redemption Shares issued
to the Fairfax Partnerships have become eligible for sale pursuant to Rule 144
promulgated under the Securities Act, the Fairfax Partnerships may request that
the Company cause to be filed a "shelf registration statement" (a "Shelf
Registration") covering the Redemption Shares; provided, however, that the
Fairfax Partnerships shall not make such a request with respect to Redemption
Shares (A) disposed of under an effective Shelf Registration relating thereto,
(B) sold pursuant to Rule 144 under the Securities Act or (C) eligible for sale
pursuant to Rule 144 under the Securities Act. The Registration Rights
Agreement requires the Company to use its best efforts to keep such Shelf
Registration effective until the earliest of (a) the date on which the Fairfax
Partnerships no longer hold any Redemption Shares registered under such Shelf
Registration, (b) the date on which the Redemption Shares may be sold by the
Fairfax Partnerships pursuant to Rule 144 promulgated under the Securities Act
or (c) the date that is six months from the effective date of such Shelf
Registration. As long as the Registration Statement of which this Prospectus is
a part remains effective, the Redemption Shares held by the Fairfax
Partnerships when issued by the Company pursuant to this Prospectus will no
longer be entitled to the benefits of the Fairfax Partnerships Registration
Rights Agreement.
Pursuant to the Registration Rights Agreement, the Company has agreed to
pay all expenses incurred in the registration of the Redemption Shares (other
than brokerage and underwriting commissions and taxes of any kind
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and other than for any legal, accounting and other expenses incurred by the
Fairfax Partnerships thereunder). The Company also has agreed to indemnify the
Fairfax Partnerships under the Registration Rights Agreements and its officers,
directors and other affiliated persons and any person who controls the Fairfax
Partnerships against any and all losses, claims, damages and expenses arising
under the securities laws in connection with the Registration Statement or this
Prospectus, subject to certain limitations. In addition, the Fairfax
Partnerships have agreed to indemnify the Company and its Directors, officers
and any person who controls the Company against all losses, claims, damages and
expenses arising under the securities laws insofar as such loss, claim, damage
or expense relates to written information furnished to the Company by the
Fairfax Partnerships for use in this Registration Statement or Prospectus or an
amendment or supplement hereto or the failure by the Fairfax Partnerships to
deliver or cause to be delivered this Prospectus or any amendment or supplement
hereto to any purchaser from the Fairfax Partnerships of shares covered by the
Registration Statement.
FEDERAL INCOME TAX CONSIDERATIONS
The Company believes it has operated, and the Company intends to continue
to operate, in such a manner as to qualify as a REIT under the Code, but no
assurance can be given that it will at all times so qualify.
The provisions of the Code pertaining to REITs are highly technical and
complex. The following is a brief and general summary of the material federal
income tax considerations of an investment in the Company's Common Stock.
Goodwin, Procter & Hoar LLP has acted as counsel to the Company and has
reviewed this summary and is of the opinion that to the extent that it
constitutes matters of law, summaries of legal matters, or legal conclusions,
this summary is accurate in all material respects. For the particular
provisions that govern the federal income tax treatment of the Company and its
stockholders, reference is made to Sections 856 through 860 of the Code and the
regulations thereunder. The following summary is qualified in its entirety by
such reference.
The statements in this discussion and the opinion of Goodwin, Procter &
Hoar LLP are based on current provisions of the Code, Treasury Regulations, the
legislative history of the Code, existing administrative rulings and practices
of the Internal Revenue Service (the "Service"), and judicial decisions. No
assurance can be given that future legislative, judicial, or administrative
actions or decisions, which may be retroactive in effect, will not affect the
accuracy of any statements in this Prospectus with respect to the transactions
entered into or contemplated prior to the effective date of such changes.
EACH INVESTOR IS ADVISED TO CONSULT HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF AN INVESTMENT IN THE COMPANY'S
COMMON STOCK.
Taxation of the Company
Under the Code, if certain requirements are met in a taxable year, a REIT
generally will not be subject to federal income tax with respect to income that
it distributes to its stockholders. However, the Company may be subject to
federal income tax under certain circumstances including taxes at regular
corporate rates on any undistributed REIT taxable income (including
undistributed capital gains), the "alternative minimum tax" on its items of tax
preference, and taxes imposed on income and gain generated by certain
extraordinary transactions. If the Company fails to qualify during any taxable
year as a REIT, unless certain relief provisions are available, it will be
subject to tax (including any applicable alternative minimum tax) on its
taxable income at regular corporate rates, which could have a material adverse
effect upon its stockholders.
In addition to meeting a number of technical requirements, including
requirements regarding distributions to shareholders, diversification of
ownership and record keeping, to qualify as a REIT the Company must meet
certain tests regarding the nature of its assets and its gross income. The
Company is largely restricted under these tests to holding "real estate assets"
(as defined in the Code) for investment (and not for resale) and relatively
small amounts of investment securities. Accordingly, the Company's ability to
diversify its holdings outside of investments in real estate is limited. The
requirements of the statutory tests also impose certain requirements on the
Company's leases with its tenants, including restrictions on the Company's
ability to provide noncustomary services to its tenants. Because the Company's
proportionate share of the assets and items of income of the Operating
Partnership and its subsidiary partnerships are treated as assets and gross
income of the Company, the same restrictions apply to the operations and
investments of the Operating Partnership and the subsidiary partnerships.
Further, changes in law, or in the interpretation of the law, may change the
nature and effect of these restrictions or add additional restrictions to the
manner in which the Company conducts its business.
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In the opinion of Goodwin, Procter & Hoar LLP, commencing with the taxable
year ending December 31, 1994, the Company has been organized and operated in
conformity with the requirements for qualification and taxation as a REIT under
the Code, and the Company's proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT
under the Code. Investors should be aware, however, that opinions of counsel
are not binding upon the Service or any court. Moreover, Goodwin, Procter &
Hoar LLP's opinion is based on various assumptions and is conditioned upon
certain representations made by the Company as to factual matters, including
representations regarding the nature of the Company's properties, and the
future conduct of the Company's business. The Company's qualification and
taxation as a REIT depends upon the Company's ability to meet on a continuing
basis, through actual annual operating results, the income requirements, the
distribution levels, stock ownership, and other various qualification tests
imposed under the Code. Goodwin, Procter & Hoar LLP has not reviewed and will
not review the Company's compliance with those tests on a continuing basis.
Accordingly, no assurance can be given that the actual results of the Company's
operation for any particular taxable year have satisfied or will satisfy such
requirements.
Taxation of Taxable U.S. Shareholders
As long as the Company qualifies as a REIT, distributions made to the
Company's taxable U.S. shareholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. shareholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. As
used herein, the term "U.S. shareholder" means a holder of Common Stock that
for U.S. federal income tax purposes is (i) a citizen or resident of the United
States, (ii) a corporation, partnership, or other entity created or organized
in or under the laws of the United States or of any political subdivision
thereof, (iii) an estate, the income of which is subject to United States
federal income taxation regardless of its source, or (iv) a trust, if a court
within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, and that (v) is
not an entity that has special status under the Code (such as a tax-exempt
organization or a dealer in securities). Subject to the discussion below
regarding changes to the capital gains tax rates, distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
his Common Stock. However, corporate shareholders may be required to treat up
to 20% of certain capital gain dividends as ordinary income. Distributions in
excess of current and accumulated earnings and profits will not be taxable to a
shareholder to the extent that they do not exceed the adjusted basis of the
shareholder's Common Stock, but rather will reduce the adjusted basis of such
stock. To the extent that such distributions in excess of current and
accumulated earnings and profits exceed the adjusted basis of a shareholder's
Common Stock, such distributions will be included in income as long-term
capital gain (or, in the case of individuals, mid-term capital gain if the
shares of Common Stock have been held for more than 12 months but not more than
18 months or short-term capital gain if the shares of Common Stock have been
held for one year or less) assuming the shares of Common Stock are a capital
asset in the hands of the shareholder. In addition, any distribution declared
by the Company in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the shareholder on December 31 of such
year, provided that the distribution is actually paid by the Company during
January of the following calendar year.
Shareholders may not include in their individual income tax returns any
net operating losses or capital losses of the Company. Instead, such losses
would be carried over by the Company for potential offset against its future
income (subject to certain limitations). Taxable distributions from the Company
and gain from the disposition of Common Stock will not be treated as passive
activity income and, therefore, shareholders generally will not be able to
apply any "passive activity losses" (such as losses from certain types of
limited partnerships in which the shareholder is a limited partner) against
such income. In addition, taxable distributions from the Company generally will
be treated as investment income for purposes of the investment interest
limitations. Capital gains from the disposition of shares of Common Stock (or
distributions treated as such) will be treated as investment income only if the
shareholder so elects, in which case such capital gains will be taxed at
ordinary income rates. The Company will notify shareholders after the close of
the Company's taxable year as to the portions of the distributions attributable
to that year that constitute ordinary income, return of capital, and capital
gain.
The Company may elect to retain and pay income tax on its net long-term
capital gains received during the taxable year. For taxable years beginning
after December 31, 1997, if the Company so elects for a taxable year,
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the Company's shareholders would include in income as long-term capital gains
their proportionate share of such portion of the Company's undistributed
long-term capital gains for the taxable year as the Company may designate. A
stockholder would be deemed to have paid his share of the tax paid by the
Company on such undistributed capital gains, which would be credited or
refunded to the shareholder. The shareholder's basis in his shares of Common
Stock would be increased by the amount of undistributed long-term capital gains
(less the capital gains tax paid by the Company) included in the stockholder's
long-term capital gains.
The Taxpayer Relief Act of 1997 (the "Act") alters the taxation of capital
gain income. Under the Act, individuals who hold certain investments for more
than 18 months may be taxed at a maximum long-term capital gain rate of 20% on
the sale or exchange of those investments. Individuals who hold certain assets
for more than 12 months but less than 18 months may be taxed at a maximum
mid-term capital gain rate of 28% on the sale or exchange of those investments.
The Act also provides a maximum rate of 25% for "unrecaptured section 1250
gain" for individuals, special rules for "qualified 5-year gain," as well as
other changes to prior law. The Act allows the IRS to prescribe regulations on
how the Act's new capital gain rates will apply to sales of capital assets by
"pass-thru entities," which include REITs such as the Company. To date
regulations have not yet been prescribed, and it remains unclear how the Act's
new rates will apply to capital gain dividends or undistributed capital gains,
including for example the extent, if any, to which capital gain dividends or
undistributed capital gains from the Company will be taxed to individuals at
the new rates for mid-term capital gains and unrealized section 1250 recapture,
rather than the long-term capital gain rates. Investors are urged to consult
their own tax advisors with respect to the new rules contained in the Act.
Taxation of Shareholders on the Disposition of the Common Stock
In general, any gain or loss realized upon a taxable disposition of the
shares of Common Stock by a shareholder who is not a dealer in securities will
be treated as long-term capital gain or loss if the shares of Common Stock have
been held for more than 12 months, (or, in the case of individuals, mid-term
capital gain or loss if the shares have been held for more than 12 months but
not more than 18 months and long-term capital gain or loss if the shares have
been held for more than 12 months) and otherwise as short-term capital gain or
loss. However, any loss upon a sale or exchange of shares of Common Stock by a
shareholder who has held such stock for six months or less (after applying
certain holding period rules), will be treated as a long-term capital loss to
the extent of distributions from the Company or undistributed capital gains
required to be treated by such shareholder as long-term capital gain. All or a
portion of any loss realized upon a taxable disposition of shares of Common
Stock may be disallowed if other shares of Common Stock are purchased within 30
days before or after the disposition.
Information Reporting Requirements and Backup Withholding
The Company will report to its U.S. shareholders and the Service the
amount of distributions paid during each calendar year, and the amount of tax
withheld, if any. Under the backup withholding rules, a shareholder may be
subject to backup withholding at the rate of 31% with respect to distributions
paid unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (ii) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with the applicable requirements of
the backup withholding rules. A shareholder who does not provide the Company
with his correct taxpayer identification number also may be subject to
penalties imposed by the Service. Any amount paid as backup withholding will be
creditable against the shareholder's income tax liability. In addition, the
Company may be required to withhold a portion of capital gain distributions to
any shareholders who fail to certify their nonforeign status to the Company.
The Service issued proposed regulations in April 1996 regarding the backup
withholding rules. These proposed regulations would alter the current system of
backup withholding compliance.
Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, amounts distributed by the Company to
an Exempt Organization generally should not constitute UBTI. However, if any
Exempt Organization finances its acquisition of Common Stock with debt, a
portion of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section
23
<PAGE>
501(c) are subject to different UBTI rules, which generally will require them
to characterize distributions from the Company as UBTI. In addition, in certain
circumstances, a pension trust that owns more than 10% of the Company's stock
is required to treat a percentage of the dividends from the Company as UBTI.
Investors are urged to consult their own tax advisors with respect to the
appropriateness of an investment in the Common Stock offered hereby and with
respect to the tax consequences arising under federal law and the laws of any
state, municipality or other taxing jurisdiction, including tax consequences
resulting from such investor's own tax characteristics. In particular, foreign
investors should consult their own tax advisors concerning the tax consequences
of an investment in the Company, including the possibility of United States
income tax withholding on Company distributions.
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from the issuance of any
Redemption Shares, but will acquire Units tendered to the Operating Partnership
for redemption for which it elects to issue Redemption Shares. The shares of
Common Stock offered hereby may be sold from time to time on the NYSE on terms
to be determined at the time of such sales.
The shares of Common Stock offered hereby may be sold from time to time in
one or more transactions at a fixed offering price, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices.
The Company will pay substantially all the expenses incurred by the
Unitholders and the Company incident to the Offering, but excluding any
underwriting discounts, commissions, and transfer taxes.
The Company has agreed to indemnify the Unitholders against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Goodwin,
Procter & Hoar LLP, Boston, Massachusetts, a limited liability partnership
including professional corporations, as corporate, securities and tax counsel
to the Company. Gilbert G. Menna, whose professional corporation is a partner
of Goodwin, Procter & Hoar LLP, is an assistant secretary of the Company and
owns in excess of 1,000 shares of the Company's Common Stock.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1996 and 1995 and for
the period May 26, 1994 to December 31, 1994, the combined statements of
operations, owners' equity (deficit) and cash flows for the period January 1,
1994 to May 25, 1994 of The Beacon Group, predecessor to the Company, and the
related financial statement schedules of the Company as of December 31, 1996,
incorporated by reference herein from the Company's Annual Report on Form 10-K,
as amended, for the year ended December 31, 1996, have been so incorporated in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of said firm as experts in accounting and auditing.
The statement of excess of revenues over specific operating expenses for
225 Franklin Street in Boston, Massachusetts for the year ended December 31,
1996, incorporated by reference herein from the Company's current report on
Form 8-K dated June 4, 1997, as amended, has been so incorporated in reliance
on the report of Coopers & Lybrand L.L.P., independent accountants, given on
the authority of said firm as experts in accounting and auditing.
The statements of excess of revenues over specific operating expenses for
each of 10880 Wilshire Boulevard in Westwood, California, Centerpointe in
Fairfax, Virginia, and Westbrook Corporate Center in Westchester, Illinois for
the year ended December 31, 1996, incorporated by reference herein from the
Company's current report on Form 8-K dated March 27, 1997, as amended on the
Form 8-K/A of the Company dated April 7, 1997, as amended, have been so
incorporated in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of said firm as experts in
accounting and auditing.
24
<PAGE>
The statements of excess of revenues over specific operating expenses for
each of Shoreline Technology Park in Mountain View, California, Lake Marriott
Business Park in Santa Clara, California and President's Plaza in Chicago,
Illinois for the year ended December 31, 1995, incorporated by reference herein
from the Company's current report on Form 8-K dated December 20, 1996, as
amended, have been so incorporated in reliance on the reports of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of said firm as
experts in accounting and auditing.
The statements of excess of revenues over specific operating expenses for
each of the Rosslyn Acquisitions in Rosslyn, Virginia, New England Executive
Park in Burlington, Massachusetts, and 10960 Wilshire Boulevard in Westwood,
California for the year ended December 31, 1995, incorporated by reference
herein from the Company's current report on Form 8-K dated October 18, 1996, as
amended, have been so incorporated in reliance on the reports of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of said firm as
experts in accounting and auditing.
The statements of excess of revenues over specific operating expenses for
each of the Fairfax County Portfolio in Tysons Corner and Herndon, Virginia,
1333 H Street in Washington, DC, AT&T Plaza in Oak Brook, Illinois, and
Tri-State International in Lincolnshire, Illinois for the year ended December
31, 1995, incorporated by reference herein from the Company's current report on
Form 8-K dated July 23, 1996, as amended on the Form 8-K/A of the Company dated
August 6, 1996, have been so incorporated in reliance on the reports of Coopers
& Lybrand L.L.P., independent accountants, given on the authority of said firm
as experts in accounting and auditing.
The statement of excess of revenues over specific operating expenses for
Perimeter Center in Atlanta, Georgia for the year ended December 31, 1995,
incorporated by reference herein from the Company's current report on Form 8-K
dated February 15, 1996, as amended, has been so incorporated in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of said firm as experts in accounting and auditing.
25
<PAGE>
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No person has been authorized in connection with the offering made hereby to
give any information or to make any representation not contained in this
Prospectus Supplement and the accompanying Prospectus and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company or any other person. This Prospectus Supplement and
the accompanying Prospectus do not constitute an offer to sell or a
solicitation of an offer to buy any of the Securities offered hereby to any
person or by anyone in any jurisdiction in which it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus Supplement and
the accompanying Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
PROSPECTUS SUPPLEMENT
Recent Developments ........................... S-2
PROSPECTUS
Available Information ........................ 2
Incorporation of Certain Documents by
Reference ................................. 2
Risk Factors ................................. 3
The Company .................................... 9
The Properties ................................. 10
Description of Common Stock .................. 12
Restrictions on Transfers of Common Stock ...... 13
Description of Units and Redemption of
Units ....................................... 14
Registration Rights ........................... 20
Federal Income Tax Considerations ............ 21
Plan of Distribution ........................... 24
Legal Matters ................................. 24
Experts ....................................... 24
</TABLE>
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70,690 Shares
BEACON PROPERTIES
CORPORATION
Common Stock
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P R O S P E C T U S S U P P L E M E N T
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October 7, 1997
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