HEALTH AND RETIREMENT PROPERTIES TRUST
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-9317
HRPT PROPERTIES TRUST
(Exact name of registrant as specified in its charter)
Maryland 04-6558834
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
400 Centre Street, Newton, Massachusetts 02458
(Address of principal executive offices) (Zip Code)
617-332-3990
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
- -------------------------------------------------------------------- -------------------------------------------
Common Shares of Beneficial Interest New York Stock Exchange
7.25% Convertible Subordinated Debentures due 2001 New York Stock Exchange
7.5% Convertible Subordinated Debentures due 2003, Series A New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the registrant held
by non-affiliates was $1.8 billion based on the $13 3/4 closing price per share
for such stock on the New York Stock Exchange on March 29, 1999. For purposes of
this calculation, 1,134,372 shares held by HRPT Advisors, Inc., 2,463,366 held
by REIT Management & Research, Inc. solely in its capacity as voting trustee
under a voting trust agreement or a proxy, an aggregate of 44,250 shares held by
the Trustees and executive officers of the registrant, 44,851 held by Gerard M.
Martin and 44,851 held by Barry M. Portnoy, have been included in the number of
shares held by affiliates.
Number of the registrant's Common Shares of Beneficial Interest, $.01
par value ("Shares"), outstanding as of March 29, 1999: 131,893,126.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K is incorporated by
reference from our definitive Proxy Statement for the annual meeting of
shareholders currently scheduled to be held on May 11, 1999.
CERTAIN IMPORTANT FACTORS
This Annual Report on Form 10-K contains statements which constitute
forward looking statements within the meaning of the Securities Litigation
Reform Act of 1995. These statements appear in a number of places in this Form
10-K regarding our intent, belief or expectations with respect to expansion of
our portfolio, our ability to pay dividends, the effect of year 2000 issues,
policies and plans regarding investments, financings and other matters, our tax
status as a real estate investment trust and our access to debt or equity
capital markets or to other sources of funds and statements of assumptions
underlying such statements as to intent, belief or expectations. Readers are
cautioned that any such forward looking statements are not guarantees of future
performance and involve risks and uncertainties and that actual results may
differ materially from those contained in the forward looking statements as a
result of various factors. Such factors include the status of the economy,
compliance with and changes to regulations and payment and reimbursement
policies within the health care industry, competition within the health care
industry, and changes in federal, state and local legislation. The accompanying
information contained or incorporated by reference in this Annual Report on Form
10-K, including under the heading "Business" and in our Current Report on Form
8-K dated March 5, 1999, under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations", identifies other important
factors that could cause such differences.
THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING HRPT
PROPERTIES TRUST, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL
AMENDMENTS THERETO, IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS
AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HRPT PROPERTIES
TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION OF TRUST, COLLECTIVELY AS
TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER,
SHAREHOLDER, EMPLOYEE OR AGENT OF HRPT PROPERTIES TRUST SHALL BE HELD TO ANY
PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM
AGAINST, HRPT PROPERTIES TRUST. ALL PERSONS DEALING WITH HRPT PROPERTIES TRUST,
IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF HRPT PROPERTIES TRUST FOR THE
PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.
HRPT PROPERTIES TRUST
1998 FORM 10-K ANNUAL REPORT
Table of Contents
Part I
Page
Item 1. Business........................................................................ 1
Item 2. Properties...................................................................... 19
Item 3. Legal Proceedings............................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders............................. 22
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters............ 22
Item 6. Selected Financial Data......................................................... 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................. 24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 24
Item 8. Financial Statements and Supplementary Data..................................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................. 25
Part III
Item 10. Directors and Executive Officers of the Registrant.............................. *
Item 11. Executive Compensation.......................................................... *
Item 12. Security Ownership of Certain Beneficial Owners and Management.................. *
Item 13. Certain Relationships and Related Transactions.................................. *
* Incorporated by reference from our Proxy Statement for the
Annual Meeting of Shareholders currently scheduled to be
held on May 11, 1999, to be filed pursuant to Regulation
14A.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 25
References in this Annual Report on Form 10-K to the "Company" or "HRP"
include consolidated subsidiaries, unless the context indicates otherwise.
PART I
Item 1. Business
The Company. HRPT Properties Trust ("HRP" or the "Company") was
organized on October 9, 1986 as a Maryland real estate investment trust
("REIT"). We invest in income producing real estate, including office buildings
and senior housing properties.
As of December 31, 1998, we owned 230 properties for a total investment
of $3.0 billion (at cost), had mortgage investments in 26 properties aggregating
$69.2 million and had an equity investment representing 8.8% of the outstanding
common shares of Hospitality Properties Trust ("HPT") with an approximate
carrying value of $110.6 million, for total real estate investments of
approximately $3.1 billion. The properties are described in "Business
Developments Since January 1, 1998" and "Properties".
Number of Total Investment
State Properties at December 31, 1998
(in thousands)
Alaska 1 $1,000
Arizona 9 64,856
California 30 322,415
Colorado 10 56,154
Connecticut 11 110,891
Delaware 1 44,090
District of Columbia 5 207,521
Florida 10 148,578
Georgia 5 15,286
Illinois 2 98,742
Iowa 7 8,207
Kansas 4 8,477
Louisiana 1 18,992
Maryland 8 191,164
Massachusetts 34 251,535
Michigan 2 9,181
Minnesota 3 40,704
Missouri 3 11,564
Nebraska 10 10,704
New Hampshire 1 3,754
New Jersey 5 42,954
New Mexico 2 11,021
New York 6 185,225
North Carolina 5 9,192
Ohio 4 26,930
Oklahoma 1 24,762
Pennsylvania 17 553,997
Rhode Island 1 8,010
South Dakota 3 7,589
Tennessee 1 22,173
Texas 22 271,441
Vermont 8 29,766
Virginia 7 111,540
Washington 4 40,930
West Virginia 1 4,898
Wisconsin 8 33,904
Wyoming 4 17,563
--- ----------
Total 256 3,025,710
===
Investment in HPT 110,554
----------
Total Investments $3,136,264
==========
1
Our principal executive offices are located at 400 Centre Street,
Newton, Massachusetts 02458, and our telephone number is (617) 332-3990.
Investment Policy and Method of Operation. Our investment goals are
current income for distribution to shareholders, capital growth resulting from
appreciation in the residual value of owned properties, and preservation and
protection of shareholders' capital. Our income is derived primarily from rent
and interest payments under our leases and mortgages.
Our day to day operations are conducted by REIT Management & Research,
Inc. ("RMR"), our investment manager. RMR provides investment, management,
property management and administrative services to us. RMR originates and
presents investment opportunities to our Board of Trustees. In evaluating
potential investments, we consider factors such as: the historical and projected
rents received and likely to be received from the property to meet operational
needs and financing obligations and to provide a competitive market return on
our investments; the historic and expected operating expenses, including real
estate taxes, incurred and expected to be incurred at the properties; the
growth, tax and regulatory environments of the market in which the property is
located; the quality, experience, and credit worthiness of the property's
operator and tenants; an appraisal of the property, if available; occupancy and
demand for similar properties in the same or nearby markets; the construction
quality, physical condition and design of the property; the geographic area and
type of property; and the pricing of comparable properties as evidenced by
recent arms length market sales.
Prior to investing in properties, we obtain title commitments or
policies of title insurance insuring that we hold title to or have mortgage
interests in such properties, free of material liens and encumbrances.
Our investments are structured using leases with minimum and/or
additional rent and escalation provisions, loans with fixed or floating rates,
joint ventures and partnerships with affiliated or unaffiliated parties,
commitments or options to purchase interests in real estate, mergers or any
combination of the foregoing that will best suit the particular investment.
In connection with our current bank credit facility, we have agreed to
obtain lender approval before exceeding investment concentrations based on
certain criteria (see "Borrowing Policy"). Among these are that no more than 40%
of our investments be operated by any single tenant or mortgagor and that no new
hotel investments be made. No limits, other than those in connection with our
bank credit facility, have been set on the number of properties in which we will
seek to invest, or on the concentration of investments involving any one
facility or geographical area; however, our Board of Trustees consider
concentration of investments in determining whether to make new or increase
existing investments.
Our Declaration of Trust and operating policies provide that any
investment in facilities owned by us or operated by RMR, persons expressly
permitted under the Declaration of Trust to own more than 8.5% of our shares, or
any company affiliated with any of the foregoing must be approved by a majority
of the Board of Trustees not affiliated with any of the foregoing.
We have in the past considered and may in the future consider, from
time to time, the acquisition of or merger with other companies engaged in the
same business as us; however, we have no present agreements or understandings
concerning any such acquisition or merger.
Borrowing Policy. In addition to the use of equity, we utilize
short-term and long-term borrowings to finance investments. We have a bank
credit facility of $500 million. In February 1999, the bank credit facility was
amended to permit the possible spin-off of our senior housing properties. The
bank credit facility (which is guaranteed by most of our subsidiaries) is used
for acquisition funding on an interim basis until equity or long-term debt is
raised and for working capital and general business purposes. Outstanding
borrowings under the bank credit facility at December 31, 1998 were $100
million.
Our borrowing guidelines established by our Board of Trustees and
covenants in various debt agreements prohibit us from maintaining a debt to
equity ratio of greater than 1 to 1. At December 31, 1998, our debt to equity
ratio was .62 to 1. Our senior unsecured debt also imposes covenants on us which
may limit our ability to borrow. The Declaration of Trust prohibits us from
incurring secured and unsecured indebtedness which in the aggregate exceeds 300%
of our net assets, unless approved by a majority of the Board of Trustees not
affiliated with us. There can be no assurance that debt capital will in the
future be available at reasonable rates to fund our operations or growth.
2
Business Developments Since January 1, 1998
Investments
During 1998, we acquired 48 office properties and five senior housing
properties for an aggregate amount of $981.6 million and provided improvement
funding totaling $17.2 million to our existing properties.
Financing
During 1998, we sold 25,000,000 common shares in a public offering and
sold 6,977,575 common shares in four offerings to unit investment trusts
sponsored by various investment banks, raising gross proceeds of $612.4 million
(net $580.3 million). Proceeds from these offerings were used to repay amounts
outstanding under our revolving bank credit facility, to purchase real estate
and for general business purposes. In addition, we issued 362,217 common shares
due to the conversion of $6.8 million of our convertible subordinated debentures
and issued 286,400 common shares for the purchase of real estate.
Since January 1, 1998, we have issued the following senior unsecured
fixed rate term notes: $100 million of 6.7% Senior Notes due 2005 issued in
February 1998; $160 million of 6-7/8% Senior Notes due 2002 issued in August
1998; $143 million of 8-1/2% Senior Notes due 2013 issued in November 1998; and
$90 million of 7-7/8% Senior Notes due 2009 in March, 1999. In addition, we
issued $50.0 million of senior unsecured remarketed reset notes which are due in
2007 and bear interest at LIBOR plus a premium. The $532.8 million aggregate net
proceeds from these notes were used to repay amounts then outstanding under our
revolving bank credit facility, to purchase real estate and for general business
purposes.
In April 1998, we increased and extended our unsecured revolving bank
credit facility with a group of banks for which Dresdner Bank AG acts as agent.
The new credit facility permits borrowings of up to $500.0 million, matures in
2002 and bears interest at LIBOR plus a premium. We recognized an extraordinary
loss on the early extinguishment of debt for $2.1 million as a result of the
write-off of deferred financing fees associated with our previous bank credit
facility.
Other Developments
Since January 1, 1998, we disposed of one office property and six
senior housing properties for $39.6 million, including two senior housing
properties for $22.5 million in 1999. During this period, we also received full
repayments for $36.0 million of mortgages secured by ten senior housing
properties, including two senior housing properties for $3.0 million in 1999.
In December 1998, we entered an agreement for the disposition of 12
senior housing properties. The net proceeds of this disposition are expected to
be about $65.0 million, and are subject to seller financing. These transactions
are expected to close within the next 30 to 60 days.
In December 1998, we announced a plan for a possible separate financing
which would include a public offering of common shares of one of our
subsidiaries, Senior Housing Properties Trust ("SNH"), and a distribution to our
shareholders of common shares of that subsidiary. The public offering and
distribution constitute one alternative transaction that we are considering with
respect to financing our senior housing real estate investments. The SNH
transaction as described in the SEC filing is not likely to occur under present
market conditions. At this time, we are considering various alternative
transactions which would reposition our senior housing properties into a
separate publicly owned REIT.
On July 1, 1998, we changed our name from "Health and Retirement
Properties Trust" to "HRPT Properties Trust", reflecting our investment in
commercial office properties as well as senior housing real estate.
The Investment Manager
RMR is a Delaware corporation owned by Gerard M. Martin and Barry M.
Portnoy. RMR's principal executive offices are located at 400 Centre Street,
Newton, Massachusetts 02458, and its telephone number is (617) 332-3990. As of
January 1, 1998, we entered into separate investment advisor and property
management agreements with RMR. RMR provides investment, management, property
management services and administrative services to us. In addition, an affiliate
of RMR also provides garage management services to some of our properties. RMR
also acts as the investment manager to HPT and has other business interests. The
Directors of RMR are Gerard M. Martin, Barry M. Portnoy and David J. Hegarty.
The officers of RMR are David J. Hegarty, President and
3
Secretary, John G. Murray, Executive Vice President, John Popeo, Treasurer, and
Ajay Saini, John A. Mannix, David Lepore and Thomas M. O'Brien, Vice Presidents.
Gerard M. Martin and Barry M. Portnoy are our managing trustees and David J.
Hegarty, Ajay Saini, John A. Mannix and David M. Lepore are our officers.
Employees
As of March 16, 1999, we had no employees. RMR, which administers our
day-to-day operations, had 177 full-time employees and three active directors as
of that date.
Regulation and Reimbursement
Our tenants and borrowers who operate senior housing properties,
including long-term care facilities, retirement communities and assisted living
centers, must comply with federal, state and local statutes and regulations in
order to operate the properties. The health care industry depends significantly
upon federal and federal/state programs for revenues and, as a result, is
vulnerable to the budgetary policies of both the federal and state governments.
Certificates of Need. Certain of our investments are in senior housing
properties which require certificates of need ("CONs") prior to expansion of
beds or services, certain capital expenditures, and in some states, a change in
ownership. CON requirements are not uniform throughout the United States.
Changes in CON requirements may affect competition, profitability of the
properties and our opportunities for investment in senior housing properties.
Federal and State Regulation and Reimbursement. Our senior housing properties
are affected by a number of federal and state statutes and regulations,
including state licensing laws, laws related to reimbursement of long-term care
facilities under Medicare and Medicaid programs and federal and state anti-fraud
and anti-kickback laws. In order to receive Medicare and Medicaid reimbursement,
our tenants and borrowers who operate long-term care facilities must demonstrate
that the facilities are in substantial compliance with state licensing and
federal certification standards, which include extensive resident care and
physical plant requirements. Federal and state agencies regularly monitor the
quality of care provided and regularly inspect the physical conditions of
long-term care facilities. Medicare and Medicaid laws limit reimbursement for
capital costs and in some circumstances for rental or lease expenses. Under the
Balanced Budget Act of 1997 (Public Law 105-33), (the "BBA"), the federal
Department of Health and Human Services, ("HHS"), has adopted a Medicare
prospective payment system for skilled nursing facilities which includes
capital-related costs and is being phased in over three years beginning July 1,
1998. Many states have adopted Medicaid prospective payment systems. The BBA
also increases states' flexibility in establishing Medicaid rates for nursing
facility services, repeals the Boren Amendment under which Medicaid providers
had the right to challenge the adequacy of Medicaid rates and strengthens the
ability of HHS and the states to exclude providers from the Medicare and
Medicaid programs for health care-related offenses. Reduction in Medicare rates
and Medicaid rates may have a negative effect on some of our tenants or
borrowers and may effect their ability to pay rent or mortgage interest income
to us.
Two federal government studies are currently underway to provide
background information and make recommendations regarding the future regulation
of and the possibility of increased governmental funding for the assisted living
industry. One study is being conducted by the General Accounting Office ("GAO")
for the Senate Special Committee on Aging and is focused upon consumer
protection and quality of care issues. The second study is being conducted by
the HHS's Assistant Secretary for Planning and Evaluation and is expected to
touch upon all aspects of the assisted living industry including quality of care
and financing. A 1998 National Academy for State Health Policy study, which is
part of this second study, found that 22 states had implemented licensing
standards specifically for assisted living and draft rules had been issued in an
additional six states, and predicted that every state will soon have reviewed
their regulations governing residential care settings. These studies are
expected to be completed during 1999. We cannot predict whether these studies
will result in governmental policy changes or new legislation, or what impact
any changes may have. Based upon our analysis of current economic and regulatory
trends, we do not believe that the federal government is likely to have a
material impact upon the current regulatory environment in which the assisted
living industry operates unless it also undertakes expanded funding obligations;
and we do not believe a materially increased financial commitment from the
federal government is presently likely. However, we do anticipate that assisted
living facilities will increasingly be licensed and regulated by the various
states, and that with the absence of federal standards, the states' policies
will continue to vary widely.
HHS's Health Care Financing Administration, ("HCFA"), has begun to
implement an initiative to increase the effectiveness of Medicare/Medicaid
nursing facility survey and enforcement activities by HCFA and the states.
HCFA's initiative follows its July 1998 report to Congress on the effectiveness
of the survey and enforcement system, several March 1999 reports by HCFA's
Office of Inspector General concerning quality of care in nursing homes, a July
1998 GAO report which found inadequate care in a significant proportion of
California nursing
4
homes and March 1999 GAO reports which recommended that HCFA and the states
strengthen their enforcement activities to ensure that nursing homes maintain
compliance with federal health care standards. In July 1998 and March 1999 the
Senate Special Committee on Aging held hearings on these issues. HCFA plans to
focus survey and enforcement efforts at nursing facilities with repeat
violations of Medicare/Medicaid standards, including chain-operated facilities
with patterns of noncompliance. HCFA also is requiring state agencies to use
enforcement sanctions and remedies more promptly and effectively when
substandard care is identified, and HCFA is increasing its oversight of state
survey agencies. In addition, HCFA has adopted new regulations expanding the
ability of HCFA and the states to impose civil money penalties in instances of
noncompliance. Medicare/Medicaid survey results for each facility are being
posted on the Internet. A newly-enacted federal law prohibits nursing homes
which reduce their Medicaid participation from evicting Medicaid residents.
Federal efforts to target fraud and abuse and kickback violations by Medicare
and Medicaid providers have also increased. An adverse determination concerning
any operator's licensure or eligibility for government reimbursement or its
compliance with applicable federal or state statutes on regulations may affect
such operator and its affiliates and may affect their ability to pay their rent
or mortgage interest income.
A number of legislative proposals that would affect major reforms of
the health care system have been introduced in Congress, such as additional
Medicare and Medicaid reforms and cost containment measures. We cannot predict
whether any such legislative proposals will be adopted or, if adopted, what
effect, if any, such proposals would have on our business, lessees or
mortgagors.
Competition.
We compete with other real estate investment trusts in that each is
continually seeking attractive investment opportunities in office and senior
housing facilities and other types of real estate. We also compete with banks,
non-bank finance companies, leasing companies and insurance companies.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of federal income tax considerations is based on
existing law, and is limited to investors who own our shares as an investment
asset rather than as inventory or as property used in a trade or business. The
summary does not discuss the particular tax consequences that might be relevant
to you if you are subject to special rules under the federal income tax law, for
example if you are:
- a bank, life insurance company, regulated investment company,
or other financial institution,
- a broker or dealer in securities or foreign currency,
- a person that has a functional currency other than the U.S.
dollar,
- a person who acquires our shares in connection with his
employment or other performance of services,
- a person subject to alternative minimum tax,
- a person who owns our shares as part of a straddle, hedging
transaction, or conversion transaction, or
- except as specifically described in the following summary, a
tax-exempt entity or a foreign person.
The sections of the Internal Revenue Code that govern the federal income tax
qualification and treatment of a REIT and its shareholders are complex. The
following summary is thus qualified by applicable Internal Revenue Code
provisions, related rules and regulations and administrative and judicial
interpretations, all of which are subject to change, possibly with retroactive
effect. Thus, future legislative, judicial, or administrative actions or
decisions could affect the accuracy of statements made in this summary. No
ruling has been sought from the Internal Revenue Service with respect to any
matter described in this summary, and there can be no assurance that the IRS or
a court will agree with the statements made in this summary. In addition, the
following summary is not exhaustive of all possible tax considerations, and does
not discuss any state, local, or foreign tax considerations. For all these
reasons, we urge you to consult with your tax advisor about the federal income
tax and other tax consequences of the acquisition, ownership and disposition of
our shares.
5
For purposes of this summary, you are a "U.S. shareholder" if you are a
beneficial owner of our shares and for federal income tax purposes are:
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity treated as a
corporation or partnership for federal income tax purposes,
that is created or organized in or under the laws of the
United States, any state thereof or the District of Columbia,
unless otherwise provided by Treasury regulations,
(3) an estate the income of which is subject to federal income
taxation regardless of its source, or
(4) a trust if a court within the United States is able to
exercise primary supervision over the administration of the
trust and one or more United States persons have the authority
to control all substantial decisions of the trust, or electing
trusts in existence on August 20, 1996 to the extent provided
in Treasury regulations.
Conversely, you are a "non-U.S. shareholder" if you are a beneficial owner of
our shares and are not a U.S. shareholder.
Taxation as a REIT
We have elected to be taxed as a REIT under Sections 856 through 860 of
the Internal Revenue Code, commencing with our taxable year ending December 31,
1987. Our REIT election, assuming continuing compliance with the federal income
tax qualification tests summarized below, continues in effect for subsequent
taxable years. Although no assurance can be given, we believe that we are
organized, have operated, and will continue to operate in a manner that
qualifies us to be taxed under the Internal Revenue Code as a REIT.
As a REIT, we generally will not be subject to federal income tax on
our net income distributed as dividends to our shareholders. Distributions to
our shareholders generally will be includable in their income as dividends to
the extent the distributions do not exceed our current or accumulated earnings
and profits. A portion of these dividends may be treated as capital gain
dividends, as explained below. No portion of these dividends will be eligible
for the dividends received deduction for corporate shareholders. Distributions
in excess of our current or accumulated earnings and profits generally will be
treated for federal income tax purposes as a return of capital to the extent of
a shareholder's basis in its shares, and will reduce this basis. Our current or
accumulated earnings and profits will generally be allocated first to
distributions on our outstanding preferred shares, if any, and thereafter to
distributions on our common shares. For tax purposes, our distributions per
common share paid in 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996,
1997 and 1998 aggregated $1.085, $.840, $1.13, $1.16, $1.22, $1.25, $1.29,
$1.32, $1.37, $1.41, $1.45 and $1.51 respectively, of which $.289, $.065, $.332,
$.267, $.104, $.218, $.335, $.081, $.161, $.350, $.252 and $.096 respectively,
represented a return of capital. The federal income taxation of our
distributions to you is discussed in more detail in the following sections of
this summary.
Our counsel, Sullivan & Worcester LLP, has opined that we have been
organized and have qualified as a REIT under the Internal Revenue Code for our
1987 through 1998 taxable years, and that our current investments and plan of
operation will enable us to continue to meet the requirements for qualification
and taxation as a REIT under the Internal Revenue Code. These opinions are
conditioned upon the assumption that our leases, our declaration of trust and
by-laws, and all other legal documents to which we are or have been a party have
been and will be complied with by all parties to these documents, upon the
accuracy and completeness of the factual matters described in this Annual
Report, and upon representations made by us. The opinion of Sullivan & Worcester
LLP is based on the law as it exists today, but the law may change in the
future, possibly with retroactive effect. Also, an opinion of counsel is not
binding on the Internal Revenue Service or the courts, and the IRS or a court
could take a position different from that expressed by counsel.
Our qualification and taxation as a REIT will depend upon our ability
to meet the various REIT qualification tests imposed under the Internal Revenue
Code and summarized below. While we believe that we have operated and will
continue to operate in a manner to satisfy the various REIT qualification tests,
Sullivan & Worcester LLP has not reviewed and will not review our compliance
with these tests on a continuing basis. If we fail to qualify as a REIT in any
year, we will be subject to federal income taxation as if we were a domestic
corporation, and our shareholders will be taxed like shareholders of ordinary
corporations. In this event, we could be subject to significant tax liabilities,
and the amount of cash available for distribution to our shareholders may be
reduced or eliminated.
6
If we qualify for taxation as a REIT and distribute to our shareholders
at least 95% of our "real estate investment trust taxable income," computed by
excluding any net capital gain and before taking into account any dividends paid
deduction for which we are eligible, we generally will not be subject to federal
corporate income taxes on the amount distributed. However, even if we qualify
for federal income taxation as a REIT, we may be subject to federal tax in the
following circumstances:
- We will be taxed at regular corporate rates on any
undistributed "real estate investment trust taxable income,"
including our undistributed net capital gains.
- If our alternative minimum taxable income exceeds our taxable
income, we may be subject to the corporate alternative minimum
tax on items of tax preference.
- If we have (1) net income from the sale or other disposition
of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or (2) other
nonqualifying income from foreclosure property, we will be
subject to tax on this income at the highest regular corporate
rate, which is currently 35%.
- If we have net income from prohibited transactions, including
sales or other dispositions of inventory or property held
primarily for sale to customers in the ordinary course of
business other than foreclosure property, this income will be
subject to tax at a 100% rate.
- If we fail to satisfy the 75% gross income test or the 95%
gross income test discussed below, but nonetheless maintain
our qualification as a REIT, we will be subject to tax at a
100% rate on the greater of the amount by which we fail the
75% or the 95% test, multiplied by a fraction intended to
reflect our profitability.
- If we fail to distribute for any calendar year at least the
sum of (1) 85% of our REIT ordinary income for that year, (2)
95% of our REIT capital gain net income for that year, and (3)
any undistributed taxable income from prior periods, we will
be subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed.
- If we acquire an asset from a corporation in a transaction in
which our basis in the asset is determined by reference to the
basis of the asset in the hands of a present or former C
corporation, and if we subsequently recognize gain on the
disposition of this asset during the ten-year period beginning
on the date on which the asset ceased to be owned by the C
corporation, then we will pay tax at the highest regular
corporate tax rate, which is currently 35%, on the lesser of
(1) the excess of the fair market value of the asset over the
C corporation's basis in the asset on the date the asset
ceased to be owned by the C corporation or (2) the gain we
recognize in the disposition.
If we invest in properties in foreign countries, our profits from these
investments will generally be subject to tax in the countries where those
properties are located. The nature and amount of this taxation will depend on
the laws of the countries where the properties are located. If we operate as we
currently intend, then our taxable income will be distributed to our
shareholders and we will not pay federal corporate income tax, and thus we
generally cannot recover the cost of foreign taxes imposed on our foreign
investments by claiming foreign tax credits against our federal income tax
liability. We will also not be able to pass through to our shareholders any
foreign tax credits.
If we fail to qualify for federal income taxation as a REIT in any
taxable year, then we will be subject to federal taxes in the same manner as an
ordinary corporation. Distributions to our shareholders in any year in which we
fail to qualify as a REIT will not be deductible by us, nor will these
distributions be required to be made. In that event, to the extent of our
current and accumulated earnings and profits, all distributions to our
shareholders will be taxable as ordinary dividend income, and subject to
limitations in the Internal Revenue Code will be eligible for the dividends
received deduction for corporations. We would also generally be disqualified
from federal income taxation as a REIT for the four taxable years following
disqualification. Failure to qualify for federal income taxation as a REIT for
even one year could result in our incurring substantial indebtedness or
liquidating substantial investments in order to pay the resulting
corporate-level taxes.
7
REIT Qualification Requirements
General Requirements. Section 856(a) of the Internal Revenue Code
defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;
(3) that would be taxable, but for Sections 856 through 859 of the
Internal Revenue Code, as an ordinary domestic corporation;
(4) that is neither a financial institution nor an insurance
company subject to special provisions of the Internal Revenue
Code;
(5) the beneficial ownership of which is held by 100 or more
persons;
(6) that is not "closely held" as defined under the personal
holding company stock ownership test, as described below; and
(7) that meets other tests regarding income, assets and
distributions, all as described below.
Section 856(b) of the Internal Revenue Code provides that conditions (1) to (4),
inclusive, must be met during the entire taxable year and that condition (5)
must be met during at least 335 days of a taxable year of 12 months, or during a
proportionate part of a taxable year of less than 12 months. Section 856(h)(2)
of the Internal Revenue Code provides that conditions (5) and (6) need not be
met for our first taxable year as a REIT. We believe that we have satisfied
conditions (1) to (6), inclusive, during the requisite periods for each of our
taxable years ending on or before December 31, 1998, and that we will continue
to satisfy those conditions.
There can, however, be no assurance in this regard.
By reason of condition (6) above, we will fail to qualify as a REIT for
a taxable year if at any time during the last half of the year more than 50% in
value of our outstanding shares is owned directly or indirectly by five or fewer
individuals. To help comply with condition (6), our declaration of trust
contains provisions restricting transfers of our shares and giving the trustees
the power to redeem our shares. In addition, commencing with our 1998 taxable
year, if we comply with applicable Treasury regulations for ascertaining the
ownership of our outstanding shares and do not know, or exercising reasonable
diligence would not have known, whether we failed condition (6), then we will be
treated as satisfying condition (6). Also, our failure to comply with these
applicable Treasury regulations for ascertaining ownership of our outstanding
shares may result in a penalty to us of $25,000, or $50,000 for intentional
violations. Accordingly, we intend to comply with these applicable Treasury
regulations, and request annually from record holders of significant percentages
of our shares information regarding the ownership of our shares. Under our
declaration of trust, our shareholders are required to respond to these requests
for information.
The rule that an entity will fail to qualify as a REIT for a taxable
year if at any time during the last half of the year more than 50% in value of
its outstanding shares is owned directly or indirectly by five or fewer
individuals is relaxed in the case of pension trusts owning shares in a REIT.
Shares in a REIT held by a pension trust are treated as held directly by the
pension trust's beneficiaries in proportion to their actuarial interests in the
pension trust. Consequently, five or fewer pension trusts could own more than
50% of the interests in an entity without jeopardizing that entity's federal
income tax qualification as a REIT. However, as discussed below, if the REIT is
a "pension-held REIT," each pension trust owning more than 10% of the REIT's
shares by value generally will be taxed on a portion of the dividends received
from the REIT, based on the ratio of (1) the REIT's gross income for the year
that would be unrelated trade or business income if the REIT were a qualified
pension trust to (2) the REIT's total gross income for the year.
Our Wholly-Owned Subsidiaries. Section 856(i) of the Internal Revenue
Code provides that any corporation 100% of whose stock is held by the REIT is a
qualified REIT subsidiary and shall not be treated as a separate corporation.
The assets, liabilities and items of income, deduction, and credit of a
qualified REIT subsidiary are treated as the REIT's. We believe that each of our
direct and indirect wholly-owned subsidiaries is either a qualified REIT
subsidiary within the meaning of Section 856(i) of the Internal Revenue Code, or
a noncorporate entity that for federal income tax purposes is not treated as
separate from its owner pursuant to
8
regulations under Section 7701 of the Internal Revenue Code. Thus, in applying
all the federal income tax REIT qualification requirements described in this
summary, our direct and indirect wholly-owned subsidiaries are ignored, and all
assets, liabilities and items of income, deduction and credit of our direct and
indirect wholly-owned subsidiaries are treated as ours.
Our Investments through Partnerships. We have invested, and in the
future may invest, in real estate through one or more limited partnerships or
limited liability companies that are treated as partnerships for federal income
tax purposes. In the case of a REIT that is a partner in a partnership,
regulations under the Internal Revenue Code provide that, for purposes of the
REIT qualification requirements regarding income and assets discussed below, the
REIT is deemed to own its proportionate share of the assets of the partnership
corresponding to the REIT's proportionate capital interest in the partnership
and is deemed to be entitled to the income of the partnership attributable to
this proportionate share. In addition, for these purposes, the character of the
assets and gross income of the partnership generally retain the same character
in the hands of the REIT. Accordingly, our proportionate share of the assets,
liabilities, and items of income of each partnership in which we are a partner
are treated as ours for purposes of the income tests and asset tests discussed
below. In contrast, for purposes of the distribution requirement discussed
below, we must take into account as a partner our distributive share of the
partnership's income as determined under the general federal income tax rules
governing partners and partnerships under Sections 701 through 777 of the
Internal Revenue Code.
Income Tests. There have been three gross income requirements for
qualification as a REIT under the Internal Revenue Code, but only the first two
still apply in our current taxable years:
- First, at least 75% of our gross income, excluding gross
income from sales or other dispositions of property held
primarily for sale, must be derived from investments relating
to real property, including "rents from real property" as
defined under Section 856 of the Internal Revenue Code,
mortgages on real property, or shares in other REITs. When we
receive new capital in exchange for our shares or in a public
offering of five-year or longer debt instruments, income
attributable to the temporary investment of this new capital
in stock or a debt instrument, if received or accrued within
one year of our receipt of the new capital, is generally also
qualifying income under the 75% test.
- Second, at least 95% of our gross income, excluding gross
income from sales or other dispositions of property held
primarily for sale, must be derived from a combination of (1)
items of real property income that satisfy the 75% test
described above, (2) dividends, (3) interest, (4) payments
under interest rate swap or cap agreements, options, futures
contracts, forward rate agreements, or similar financial
instruments, and (5) gain from the sale or disposition of
stock, securities, or real property.
- Third, for our 1997 and prior taxable years, less than 30% of
our gross income must have been derived from (1) short-term
gain from the sale or other disposition of stock or
securities, including stock in other REITs or dispositions of
interest rate swap or cap agreements, and (2) gain from
prohibited transactions or other dispositions of real property
held for less than four years, other than involuntary
conversions and sales of foreclosure property.
For purposes of these three requirements, income derived from a "shared
appreciation provision" in a mortgage loan is generally treated as gain
recognized on the sale of the property to which it relates. Although we will use
our best efforts to ensure that the income generated by our investments will be
of a type which satisfies both the 75% and 95% gross income tests, there can be
no assurance in this regard.
In order to qualify as "rents from real property" under Section 856 of
the Internal Revenue Code, several requirements must be met:
- First, the amount of rent received generally must not be
determined from the income or profits of any person, but may
be based on receipts or sales.
- Second, rents do not qualify if the REIT owns 10% or more of
the tenant, whether directly or after application of
attribution rules. While we intend not to lease property to
any party if rents from that property would not qualify as
rents from real property, application of the 10% ownership
rule is dependent upon complex attribution rules and
circumstances that may be beyond our control. For example,
ownership directly or by attribution by an unaffiliated third
party of more than 10% of our shares and more than 10% of the
stock of one of our lessees would result in this lessee's
9
rents not qualifying as rents from real property. Our
declaration of trust provides that transfers or purported
acquisitions, directly or by attribution, of shares that could
result in our disqualification as a REIT under the Internal
Revenue Code are null and void and permits the trustees to
repurchase shares to the extent necessary to maintain our
status as a REIT under the Internal Revenue Code.
Nevertheless, there can be no assurance that these provisions
in our declaration of trust will be effective to prevent our
REIT status under the Internal Revenue Code from being
jeopardized under the 10% lessee affiliate rule. Furthermore,
there can be no assurance that we will be able to monitor and
enforce these restrictions, nor will our shareholders
necessarily be aware of ownership of shares attributed to them
under the Internal Revenue Code's attribution rules.
- Third, in order for rents to qualify, we generally must not
manage the property or furnish or render services to the
tenants of the property, except through an independent
contractor from whom we derive no income. There is an
exception to this rule permitting a REIT to perform customary
tenant services of the sort which a tax-exempt organization
could perform without being considered in receipt of
"unrelated business taxable income" as defined in Section
512(b)(3) of the Internal Revenue Code. In addition, for our
1998 and later taxable years, a de minimis amount of
noncustomary services will not disqualify income as "rents
from real property" so long as the value of the impermissible
services does not exceed 1% of the gross income of the
property.
- Fourth, if rent attributable to personal property leased in
connection with a lease of real property is 15% or less of the
total rent received under the lease, then the rent
attributable to personal property will qualify as rents from
real property; but if this 15% threshold is exceeded, the rent
attributable to personal property will not so qualify. The
portion of rental income treated as attributable to personal
property is determined according to the ratio of the tax basis
of the personal property to the total tax basis of the real
and personal property which is rented.
Substantially all of our gross income has been and is expected to continue to be
attributable to rental income. We believe that all or substantially all our
rents have qualified and will continue to qualify as rents from real property
for purposes of Section 856 of the Internal Revenue Code, but if for some reason
a significant amount of our rents do not so qualify, we may fail the 95% or 75%
gross income tests.
In order to qualify as mortgage interest on real property for purposes
of the 75% test, interest must derive from a mortgage loan secured by real
property with a fair market value at least equal to the amount of the loan. If
the amount of the loan exceeds the fair market value of the real property, the
interest will be treated as interest on a mortgage loan in a ratio equal to the
ratio of the fair market value of the real property to the total amount of the
mortgage loan.
Any gain we realize on the sale of property held as inventory or other
property held primarily for sale to customers in the ordinary course of business
will be treated as income from a prohibited transaction that is subject to a
penalty tax at a 100% rate. This prohibited transaction income also may have an
adverse effect upon our ability to satisfy the 75% and 95% gross income tests
for federal income tax qualification as a REIT. We cannot provide assurances as
to whether or not the IRS might successfully assert that one or more of our
dispositions is subject to the 100% penalty tax. However, we believe that any
occasional disposition of real estate that we might make will not be subject to
the 100% penalty tax, because we intend to: (1) own our real estate assets for
investment with a view to long-term income production and capital appreciation,
(2) engage in the business of developing, owning and operating our existing real
estate assets and acquiring, developing, owning and operating other real estate
assets, and (3) make occasional dispositions of real estate assets consistent
with our long-term investment objectives.
If we fail to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for that year if:
(1) our failure to meet the test was due to reasonable cause and not due to
willful neglect, (2) we report the nature and amount of each item of our income
included in the 75% or 95% gross income tests for that taxable year on a
schedule attached to our tax return, and (3) any incorrect information on the
schedule was not due to fraud with intent to evade tax. It is impossible to
state whether in all circumstances we would be entitled to the benefit of this
relief provision for the 75% and 95% gross income tests. Even if this relief
provision did apply to us, a special tax equal to 100% is imposed upon the
greater of the amount by which we failed the 75% test or the 95% test,
multiplied by a fraction intended to reflect our profitability. No similar
relief provision is available if we failed the 30% gross income test for any
taxable year in which that test was applicable.
Asset Tests. At the close of each quarter of each taxable year, we must
also satisfy three percentage tests relating to the nature of our assets:
10
- First, at least 75% of the value of our total assets must
consist of (1) real estate assets, (2) cash and cash items,
(3) shares in other REITs, (4) government securities, and (5)
stock or debt instruments purchased with proceeds of a stock
offering or an offering of our debt with a term of at least
five years, but only for the one-year period commencing with
our receipt of the offering proceeds.
- Second, not more than 25% of our total assets may be
represented by securities other than those securities that
count favorably toward the preceding 75% asset test.
- Third, of the investments included in the preceding 25% asset
class, the value of any one issuer's securities that we own
may not exceed 5% of the value of our total assets, and we may
not own more than 10% of any one issuer's outstanding voting
securities.
When a failure to satisfy the above asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient nonqualifying assets within 30 days after the close of
that quarter. We have maintained and intend to continue to maintain records of
the value of our assets to document our compliance with the above three asset
tests, and to take actions as may be required to cure any failure to satisfy the
tests within 30 days after the close of any quarter.
Annual Distribution Requirements. In order to qualify for taxation as a
REIT under the Internal Revenue Code, we are required to make annual
distributions other than capital gain dividends to our shareholders in an amount
at least equal to the excess of:
(A) the sum of (1) 95% of our "real estate investment trust
taxable income," as defined in Section 857 of the Internal
Revenue Code, but computed without regard to the dividends
paid deduction and net capital gain, and (2) 95% of our net
income after tax, if any, from property received in
foreclosure, over
(B) the sum of our qualifying noncash income, e.g., imputed rental
income or income from transactions inadvertently failing to
qualify as like-kind exchanges.
These distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our tax return for
the earlier taxable year and if paid on or before the first regular distribution
payment after that declaration. Dividends declared in October, November, or
December and paid during the following January will be treated as having been
both paid and received on December 31 of the prior taxable year. A distribution
which is not pro rata within a class of our beneficial interests entitled to a
distribution, or which is not consistent with the rights to distributions
between our classes of beneficial interests, is a preferential distribution that
is not taken into consideration for purposes of the distribution requirement,
and accordingly the payment of a preferential distribution could affect our
ability to meet the distribution requirement. Taking into account our
distribution policies, including our dividend reinvestment plan, we believe that
we have not made and expect that we will not make any preferential
distributions. The distribution requirements may be waived by the IRS if a REIT
establishes that it failed to meet them by reason of distributions previously
made to meet the requirements of the 4% excise tax discussed below. To the
extent that we do not distribute all of our net capital gain and all of our real
estate investment trust taxable income, as adjusted, we will be subject to tax
on undistributed amounts.
In addition, we will be subject to a 4% excise tax to the extent we
fail within a calendar year to make required distributions to our shareholders
of 85% of our ordinary income and 95% of our capital gain net income plus the
excess, if any, of the "grossed up required distribution" for the preceding
calendar year over the amount treated as distributed for that preceding calendar
year. For this purpose, the term "grossed up required distribution" for any
calendar year is the sum of our taxable income for the calendar year without
regard to the deduction for dividends paid and all amounts from earlier years
that are not treated as having been distributed under the provision.
If we do not have enough cash or other liquid assets to meet the 95%
distribution requirements, we may find it necessary to arrange for new debt or
equity financing to provide funds for required distributions, or else our REIT
status for federal income tax purposes could be jeopardized. We can provide no
assurance that financing would be available for these purposes on favorable
terms.
If we fail to distribute sufficient dividends for any year, we may be
able to rectify this failure by paying "deficiency dividends" to shareholders in
a later year. These deficiency dividends may be included in our deduction for
dividends paid for the earlier year, but an interest charge would be imposed
upon us for the delay in distribution.
11
Although we may be able to avoid being taxed on amounts distributed as
deficiency dividends, we will remain liable for the 4% excise tax discussed
above.
Depreciation and Federal Income Tax Treatment of Leases
For federal income tax purposes, including for purposes of computing
our earnings and profits, we have generally elected to depreciate our real
property on a straight-line basis over 40 years and our personal property over
12 years. We will be entitled to depreciation deductions from our facilities
only if we are treated for federal income tax purposes as the owner of the
facilities. This means that the leases of the facilities must be classified for
federal income tax purposes as true leases, rather than as sales or financing
arrangements. As to approximately 0.7% of our leased facilities which constitute
personal property, it is not entirely clear that we will be treated as the owner
of this personal property.
In the case of sale-leaseback arrangements, the IRS could assert that
we realized prepaid rental income in the year of purchase to the extent that the
value of a leased property exceeds our purchase price for that property. Because
of the lack of clear precedent, we cannot provide assurances as to whether or
not the IRS might successfully assert the existence of prepaid rental income in
our sale-leaseback transactions.
Additionally, Section 467 of the Internal Revenue Code, which concerns
leases with increasing rents, may apply to those of our leases which provide for
rents that increase from one period to the next. Section 467 of the Internal
Revenue Code provides that in the case of a so-called "disqualified leaseback
agreement," rental income must be accrued at a constant rate. Where constant
rent accrual is required, we could recognize rental income from a lease in
excess of cash rents and, as a result, encounter difficulty in meeting the 95%
distribution requirement. "Disqualified leaseback agreements" include leaseback
transactions where a principal purpose for providing increasing rent under the
agreement is the avoidance of federal income tax. Because Section 467 of the
Internal Revenue Code directs the Treasury to issue regulations providing that
rents will not be treated as increasing for tax avoidance purposes where the
increases are based upon a fixed percentage of lessee receipts, and because
regulations proposed to be effective for "disqualified leaseback agreements"
entered into after June 3, 1996 adopt this rule, the additional rent provisions
in our leases that are based on a fixed percentage of lessee receipts generally
should not cause the leases to be "disqualified leaseback agreements." In
addition, the legislative history of Section 467 of the Internal Revenue Code
indicates that the Treasury should issue regulations under which leases
providing for fluctuations in rents by no more than a reasonable percentage from
the average rent payable over the term of the lease will be deemed not motivated
by tax avoidance, and the proposed regulations permit a 10% fluctuation.
Taxation of U.S. Shareholders
As long as we qualify as a REIT for federal income tax purposes, a
distribution by us to our U.S. shareholders that we do not designate as a
capital gain dividend will be treated as an ordinary income dividend to the
extent that it is made out of our current or accumulated earnings and profits.
Distributions made out of our current or accumulated earnings and profits that
we properly designate as capital gain dividends will be taxed as long-term
capital gains, as discussed below, to the extent they do not exceed our actual
net capital gain for the taxable year. However, corporate U.S. shareholders may
be required to treat up to 20% of any capital gain dividend as ordinary income
under Section 291 of the Tax Code. In addition, we may elect to retain net
capital gain income and treat it as constructively distributed. In that case,
(1) we will be taxed at regular corporate capital gains tax rates
on retained amounts,
(2) each U.S. shareholder will be taxed on its designated
proportionate share of our retained net capital gains as
though that amount were distributed and designated a capital
gain dividend,
(3) each U.S. shareholder will receive a credit for its designated
proportionate share of the tax that we pay,
(4) each U.S. shareholder will increase its adjusted basis in our
shares by the excess of the amount of its proportionate share
of these retained net capital gains over its proportionate
share of this tax that we pay, and
(5) both we and our corporate U.S. shareholders will make
commensurate adjustments in our respective earnings and
profits for federal income tax purposes.
If we elect to retain our net capital gain in this fashion, we will notify U.S.
shareholders of the relevant tax information within 60 days after the close of
the affected taxable year. Because we are a REIT, neither our ordinary
12
income dividends nor our capital gain dividends will qualify for any dividends
received deduction for our corporate U.S. shareholders.
For noncorporate U.S. shareholders, long-term capital gains are
generally taxed at maximum rates of 20% or 25%, depending upon the type of
property disposed of and the previously claimed depreciation with respect to
this property at the time of disposition. If for any taxable year we designate
as capital gain dividends any portion of the dividends paid or made available
for the year to our shareholders, including our retained capital gains treated
as capital gain dividends, then the portion of the capital gain dividends so
designated that will be allocated to the holders of a particular class of our
shares will on a percentage basis equal the ratio of (1) the amount of the total
dividends paid or made available for the year to the holders of that class of
shares, to (2) the total dividends paid or made available for the year to
holders of all classes of our shares. We will similarly designate the portion of
any capital gain dividend that is to be taxed to noncorporate U.S. shareholders
at the maximum rates of 20% or 25% so that the designations will be proportional
among all classes of our shares.
Distributions in excess of current or accumulated earnings and profits
will not be taxable to a U.S. shareholder to the extent that they do not exceed
the U.S. shareholder's adjusted basis in our shares, but will reduce the U.S.
shareholder's basis in our shares. To the extent that these excess distributions
exceed the adjusted basis of a U.S. shareholder's shares, they will be included
in income as capital gain, with long-term gain generally taxed to noncorporate
U.S. shareholders at a maximum rate of 20%. No U.S. shareholder may include on
his federal income tax return any of our net operating losses or any of our
capital losses.
Dividends that we declare in October, November or December of a taxable
year to shareholders of record on a date in those months will be deemed to have
been received by shareholders on December 31 of that taxable year, provided we
actually pay these dividends during the following January. Also, items that are
treated differently for regular and alternative minimum tax purposes are to be
allocated between a REIT and its shareholders under Treasury regulations which
are to be prescribed. It is possible that these Treasury regulations would
require tax preference items to be allocated to our shareholders with respect to
any accelerated depreciation or other tax preference items that we claim.
The sale or exchange of our shares will result in recognition of gain
or loss to a U.S. shareholder in an amount equal to the difference between the
amount realized and the U.S. shareholder's adjusted basis in the shares sold or
exchanged. This gain or loss will be capital gain or loss, and will be long-term
capital gain or loss if the U.S. shareholder's holding period in the shares
exceeds one year. Long-term capital gains will generally be taxed to
noncorporate U.S. shareholders at a maximum rate of 20%. In addition, any loss
upon a sale or exchange of our shares by a U.S. shareholder who has held our
shares for six months or less will generally be treated as a long-term capital
loss to the extent of our distributions required to be treated by the U.S.
shareholder as long-term capital gain. The relevant six-month holding period is
determined after applying the holding period rules under Section 857 of the
Internal Revenue Code.
U.S. shareholders other than corporations who borrow funds to finance
their acquisition of our shares could be limited in the amount of deductions
allowed for the interest paid on the indebtedness incurred. Under Section 163(d)
of the Internal Revenue Code, interest paid or accrued on indebtedness incurred
or continued to purchase or carry property held for investment is generally
deductible only to the extent of the investor's net investment income. A U.S.
shareholder's net investment income will include ordinary income dividend
distributions and, if an appropriate election is made by the U.S. shareholder,
capital gain dividend distributions received from us; however, distributions
treated as a nontaxable return of the U.S. shareholder's basis will not enter
into the computation of net investment income. Under Section 469 of the Internal
Revenue Code, U.S. shareholders, except for corporations that are other than
closely held C corporations or personal service corporations, generally will not
be entitled to deduct losses from so-called passive activities except to the
extent of their income from passive activities. For purposes of these rules,
distributions received by a U.S. shareholder from us will not be treated as
income from a passive activity and thus will not be available to offset a U.S.
shareholder's passive activity losses.
Taxation of Tax-Exempt U.S. Shareholders
In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a
REIT to a tax-exempt employees' pension trust did not constitute "unrelated
business taxable income," even though the REIT may have financed some its
activities with acquisition indebtedness. Although revenue rulings are
interpretive in nature and subject to revocation or modification by the IRS,
based upon the analysis and conclusion of Revenue Ruling 66-106, our
distributions made to U.S. shareholders that are tax-exempt pension plans,
individual retirement accounts, or other qualifying tax-exempt entities should
not constitute unrelated business taxable income, unless the U.S. shareholder
13
has financed its acquisition of our shares with "acquisition indebtedness"
within the meaning of the Internal Revenue Code, or our shares are otherwise
used in an unrelated trade or business conducted by the U.S.
shareholder.
Special rules apply to tax-exempt pension trusts, including so-called
401(k) plans but excluding individual retirement accounts or government pension
plans, that own more than 10% by value of a "pension-held REIT" at any time
during a taxable year. The pension trust may be required to treat a percentage
of all dividends received from the pension-held REIT during the year as
unrelated business taxable income. This percentage is equal to the ratio of
(1) the pension-held REIT's gross income derived from the conduct
of unrelated trades or businesses, determined as if the
pension-held REIT were a tax-exempt pension fund, less direct
expenses related to that income, to
(2) the pension-held REIT's gross income from all sources, less
direct expenses related to that income,
except that this percentage shall be deemed to be zero unless it would otherwise
equal or exceed 5%. A REIT is a pension-held REIT if (a) the REIT is
"predominantly held" by tax-exempt pension trusts, and (b) the REIT would
otherwise fail to satisfy the "closely held" ownership requirement discussed
above if the stock or beneficial interests in the REIT held by tax-exempt
pension trusts were viewed as held by tax-exempt pension trusts rather than by
their respective beneficiaries. A REIT is predominantly held by tax-exempt
pension trusts if at least one tax-exempt pension trust owns more than 25% by
value of the REIT's stock or beneficial interests, or if one or more tax-exempt
pension trusts, each owning more than 10% by value of the REIT's stock or
beneficial interests, own in the aggregate more than 50% by value of the REIT's
stock or beneficial interests. Because of the restrictions in our declaration of
trust regarding the ownership concentration of our shares, we believe that we
are not and will not be a pension-held REIT. However, because our shares are
publicly traded, we cannot completely control whether or not we are or will
become a pension-held REIT.
Taxation of Non-U.S. Shareholders
The rules governing the federal income taxation of non-U.S.
shareholders are complex, and the following discussion is intended only as a
summary of these rules. If you are a non-U.S. shareholder, you should consult
with your own tax advisor to determine the impact of federal, state, local, and
foreign tax laws, including any tax return filing and other reporting
requirements, with respect to your investment in our shares.
In general, a non-U.S. shareholder will be subject to regular federal
income tax in the same manner as our U.S. shareholders with respect to its
investment in our shares if that investment is effectively connected with the
non-U.S. shareholder's conduct of a trade or business in the United States. In
addition, a corporate non-U.S. shareholder that receives income that is or is
deemed effectively connected with a trade or business in the United States may
also be subject to the 30% branch profits tax under Section 884 of the Tax Code,
which is payable in addition to regular federal corporate income tax. The
balance of this discussion on the federal income taxation of non-U.S.
shareholders addresses only those non-U.S. shareholders whose investment in our
shares is not effectively connected with the conduct of a trade or business in
the United States.
A distribution by us to a non-U.S. shareholder that is not attributable
to gain from the sale or exchange by us of a United States real property
interest and that is not designated by us as a capital gain dividend will be
treated as an ordinary income dividend to the extent that it is made out of
current or accumulated earnings and profits. A distribution of this type will
generally be subject to federal income tax and withholding at the rate of 30%,
or the lower rate that may be specified by a tax treaty if the non-U.S.
shareholder has in the manner prescribed by the IRS demonstrated its entitlement
to benefits under a tax treaty. Because we cannot determine our current and
accumulated earnings and profits until the end of our taxable year, withholding
at the rate of 30% or applicable lower treaty rate will be imposed on the gross
amount of any distribution to a non-U.S. shareholder that we make and do not
designate a capital gain dividend. Notwithstanding this withholding on
distributions in excess of our current and accumulated earnings and profits,
these distributions are a nontaxable return of capital to the extent that they
do not exceed the non-U.S. shareholder's adjusted basis in our shares, and the
nontaxable return of capital will reduce the adjusted basis in these shares. To
the extent that distributions in excess of current and accumulated earnings and
profits exceed the non-U.S. shareholder's adjusted basis in our shares, the
distributions will give rise to tax liability if the non-U.S. shareholder would
otherwise be subject to tax on any gain from the sale or exchange of our shares,
as discussed below. A non-U.S. shareholder may seek a refund of amounts withheld
on distributions to him in excess of our current and accumulated earnings and
profits, provided that the required information is furnished to the IRS.
14
For any year in which we qualify as a REIT, our distributions that are
attributable to gain from the sale or exchange of a United States real property
interest are taxed to a non-U.S. shareholder as if these distributions were
gains effectively connected with a trade or business in the United States
conducted by the non-U.S. shareholder. Accordingly, a non-U.S. shareholder will
be taxed on these amounts at the normal capital gain rates applicable to a U.S.
shareholder, subject to any applicable alternative minimum tax and a special
alternative minimum tax in the case of nonresident alien individuals; the
non-U.S. shareholder would be required to file a United States federal income
tax return reporting these amounts, even if applicable withholding were imposed
as described below; and corporate non-U.S. shareholders may owe the 30% branch
profits tax under Section 884 of the Tax Code in respect of these amounts. We
will be required to withhold from distributions to non-U.S. shareholders, and
remit to the IRS, 35% of the maximum amount of any distribution that could be
designated by us as a capital gain dividend. In addition, for purposes of this
withholding rule, if we designate prior distributions as capital gain dividends,
then subsequent distributions up to the amount of the designated prior
distributions will be treated as capital gain dividends. The amount of any tax
withheld is creditable against the non-U.S. shareholder's federal income tax
liability, and any amount of tax withheld in excess of that tax liability may be
refunded provided that an appropriate claim for refund is filed with the IRS. If
for any taxable year we designate as capital gain dividends any portion of the
dividends paid or made available for the year to our shareholders, including our
retained capital gains treated as capital gain dividends, then the portion of
the capital gain dividends so designated that will be allocated to the holders
of a particular class of our shares will on a percentage basis equal the ratio
of (1) the amount of the total dividends paid or made available for the year to
the holders of that class of shares, to (2) the total dividends paid or made
available for the year to holders of all classes of our shares.
Tax treaties may reduce the withholding obligations on our
distributions. Under some treaties, however, rates below 30% generally
applicable to ordinary income dividends from United States corporations may not
apply to ordinary income dividends from a REIT. If the amount of tax withheld by
us with respect to a distribution to a non-U.S. shareholder exceeds the
shareholder's federal income tax liability with respect to the distribution, the
non-U.S. shareholder may file for a refund of the excess from the IRS. In this
regard, note that the 35% withholding tax rate on capital gain dividends
corresponds to the maximum income tax rate applicable to corporate non-U.S.
shareholders but is higher than the 20% and 25% maximum rates on capital gains
generally applicable to noncorporate non-U.S. shareholders. Generally effective
with respect to distributions paid after December 31, 1999, new Treasury
regulations alter the information reporting and backup withholding rules
applicable to non-U.S. shareholders and provide presumptions under which a
non-U.S. shareholder is subject to backup withholding and information reporting
until we receive certification from the shareholder of its non-U.S. shareholder
status. The new Treasury regulations also provide special rules to determine
whether, for purposes of determining the applicability of a tax treaty, our
distributions to a non-U.S. shareholder that is an entity should be treated as
paid to the entity or to those owning an interest in that entity, and whether
the entity or its owners are entitled to benefits under the tax treaty.
If our shares are not "United States real property interests" within
the meaning of Section 897 of the Tax Code, a non-U.S. shareholder's gain on
sale of our shares generally will not be subject to federal income taxation,
except that a nonresident alien individual who was present in the United States
for 183 days or more during the taxable year will be subject to a 30% tax on
this gain. Our shares will not constitute a United States real property interest
if we are a "domestically controlled REIT." A domestically controlled REIT is a
REIT in which at all times during the preceding five-year period less than 50%
in value of its shares is held directly or indirectly by foreign persons. We
believe that we are and will be a domestically controlled REIT and thus that a
non-U.S. shareholder's gain on sale of our shares will not be subject to federal
income taxation. However, because our shares are publicly traded, we can provide
no assurance that we will be a domestically controlled REIT. If we are not a
domestically controlled REIT, a non-U.S. shareholder's gain on sale of our
shares will not be subject to federal income taxation as a sale of a United
States real property interest, if (1) our shares are "regularly traded," as
defined by applicable Treasury regulations, on an established securities market
such as the New York Stock Exchange, and (2) the non-U.S. shareholder has at all
times during the preceding five years owned 5% or less by value of that class of
our shares. If the gain on the sale of our shares were subject to federal income
taxation, the non-U.S. shareholder would generally be subject to the same
treatment as a U.S. shareholder with respect to its gain, would be required to
file a United States federal income tax return reporting that gain, and in the
case of corporate non-U.S. shareholders might owe branch profits tax under
Section 884 of the Tax Code. In any event, a purchaser of our shares from a
non-U.S. shareholder will not be required to withhold on the purchase price if
the purchased shares are regularly traded on an established securities market or
if we are a domestically controlled REIT. Otherwise, the purchaser of our shares
may be required to withhold 10% of the purchase price paid to the non-U.S.
shareholder and to remit the withheld amount to the IRS.
15
Backup Withholding and Information Reporting Requirements
We will report to our U.S. shareholders and to the IRS the amount of
dividends paid during each calendar year and the amount of tax withheld, if any.
Under the backup withholding rules, a U.S. shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless the U.S.
shareholder (1) is a corporation or comes within other exempt categories and
when required demonstrates that fact or (2) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding rules and
otherwise complies with applicable requirements of the backup withholding rules.
A U.S. shareholder who does not provide us with his correct taxpayer
identification number may be subject to penalties imposed by the IRS. In
addition, we may be required to withhold a portion of capital gain distributions
to any U.S. shareholder who fails to certify his non-foreign status to us.
We will report to our non-U.S. shareholders and to the IRS the amount
of dividends paid during each calendar year and the amount of tax withheld, if
any. These information reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. As discussed
above, withholding rates of 30% and 35% may apply to distributions to non-U.S.
shareholders, and new Treasury regulations will when effective alter the
information reporting and withholding rules applicable to non-U.S. shareholders.
The payment of the proceeds from the disposition of our shares to or
through the United States office of a broker will generally be subject to
information reporting and backup withholding at a rate of 31% unless under
penalties of perjury you certify your status as a non-U.S. shareholder or
otherwise establish an exemption. The payment of the proceeds from the
disposition of our shares to or through a non-United States office of a broker
generally will not be subject to backup withholding and information reporting.
Any amounts required to be withheld from payments to you will be
collected by us or other applicable withholding agents for remittance to the
IRS. Amounts withheld are generally not an additional tax and may be refunded or
credited against your federal income tax liability, provided that you furnish
the required information to the IRS. In addition, the absence or existence of
applicable withholding does not necessarily excuse you from filing applicable
United States federal income tax returns.
Other Tax Considerations
You should recognize that our and our shareholders' present federal
income tax treatment may be modified by legislative, judicial, or administrative
actions at any time, which actions may be retroactive in effect. The rules
dealing with federal income taxation are constantly under review by the
Congress, the IRS and the Treasury Department, and statutory changes as well as
promulgation of new regulations, revisions to existing regulations, and revised
interpretations of established concepts occur frequently. No prediction can be
made as to the likelihood of passage of any new tax legislation or other
provisions either directly or indirectly affecting us or our shareholders.
Revisions in federal income tax laws and interpretations of these laws could
adversely affect the tax consequences of an investment in our shares. We and our
shareholders may also be subject to state or local taxation in various state or
local jurisdictions, including those in which we or our shareholders transact
business or reside. State and local tax treatment may not conform to the federal
income tax consequences discussed above.
We thus urge you to consult your own tax advisor regarding the specific
federal, state, local, foreign and other tax consequences to you of the
acquisition, ownership, and disposition of our shares.
ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
General Fiduciary Obligations
Fiduciaries of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974
("ERISA") must consider the following:
- whether their investment in our shares satisfies the
diversification requirements of ERISA;
- whether the investment is prudent in light of possible
limitations on the marketability of our shares;
- whether they have authority to acquire our shares under the
applicable governing instrument and Title I of ERISA; and
16
- whether the investment is otherwise consistent with their
fiduciary responsibilities.
Trustees and other fiduciaries of an ERISA plan may incur personal
liability for any loss suffered by the plan on account of a violation of their
fiduciary responsibilities. In addition, these fiduciaries may be subject to a
civil penalty of up to 20% of any amount recovered by the plan on account of a
violation. Fiduciaries of any Individual Retirement Account, "Keogh Plan" or
other qualified retirement plan not subject to Title I of ERISA should consider
that an IRA or such a plan may only make investments that are authorized by the
appropriate governing instrument. Fiduciary shareholders should consult their
own legal advisors if they have any concern as to whether the investment is
consistent with the foregoing criteria.
Prohibited Transactions
Fiduciaries of ERISA plans and persons making the investment decision
for an IRA or other non-ERISA plan should also consider the application of the
prohibited transaction provisions of ERISA and the Internal Revenue Code in
making their investment decision. Sales and other transactions between an ERISA
plan, an IRA, or certain types of non-ERISA plans such as Keogh plans
("Non-ERISA Plans") and persons related to it are prohibited transactions. The
particular facts concerning the sponsorship, operations and other investments of
an ERISA plan, IRA, or other Non-ERISA Plan may cause a wide range of other
persons to be treated as disqualified persons or parties in interest with
respect to it. A prohibited transaction, in addition to imposing potential
personal liability upon fiduciaries of ERISA Plans, may also result in the
imposition of an excise tax under the Internal Revenue Code or a penalty under
ERISA upon the disqualified person or party in interest with respect to the plan
or IRA. If the disqualified person who engages in the transaction is the
individual on behalf of whom an IRA is maintained or his beneficiary, the IRA
may lose its tax-exempt status and its assets may be deemed to have been
distributed to the individual in a taxable distribution on account of the
prohibited transaction but no excise tax will be imposed. Fiduciary shareholders
should consult their own legal advisors if they have any concern as to whether
the investment is a prohibited transaction.
Special Fiduciary and Prohibited Transactions Considerations
The Department of Labor, which has administrative responsibility over
ERISA plans as well as over IRAs and other Non-ERISA Plans, has issued a
regulation defining "plan assets." The regulation generally provides that when
an ERISA or Non-ERISA Plan or IRA acquires a security that is an equity interest
in an entity and that security is neither a "publicly offered security" nor a
security issued by an investment company registered under the Investment Company
Act of 1940, the ERISA plan's or Non-ERISA Plan's or IRA's assets include both
the equity interest and an undivided interest in each of the underlying assets
of the entity, unless it is established either that the entity is an operating
company or that equity participation in the entity by benefit plan investors is
not significant.
Each class of our shares--that is, our common shares and any class of
preferred shares that may be outstanding--must be analyzed separately to
ascertain whether it is a publicly offered security. The regulation defines a
publicly offered security as a security that is "widely held," "freely
transferable" and either part of a class of securities registered under the
Securities Exchange Act of 1934, or sold under an effective registration
statement under the Securities Act of 1933, provided the securities are
registered under the Securities Exchange Act of 1934 within 120 days after the
end of the fiscal year of the issuer during which the offering occurred. Each
class of our shares has been registered under the Securities Exchange Act of
1934.
The regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. However, a security will not fail to be
"widely held" because the number of independent investors falls below 100
subsequent to the initial public offering as a result of events beyond the
issuer's control. Our common shares have been widely held and we expect our
common shares to continue to be widely held. We expect the same to be true of
any class of preferred stock that we issue, but we can give no assurance in that
regard.
The regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The regulation further provides that, where a
security is part of an offering in which the minimum investment is $10,000 or
less, some restrictions on transfer ordinarily will not, alone or in
combination, affect a finding that these securities are freely transferable. The
restrictions on transfer enumerated in the regulation as not affecting that
finding include:
- any restriction on or prohibition against any transfer or
assignment which would result in a termination or
reclassification for federal or state tax purposes, or would
otherwise violate any state or federal law or court order;
17
- any requirement that advance notice of a transfer or
assignment be given to us and any requirement that either the
transferor or transferee, or both, execute documentation
setting forth representations as to compliance with any
restrictions on transfer which are among those enumerated in
the regulation as not affecting free transferability,
including those described in the preceding clause of this
sentence;
- any administrative procedure which establishes an effective
date, or an event prior to which a transfer or assignment will
not be effective; and
- any limitation or restriction on transfer or assignment which
is not imposed by the issuer or a person acting on behalf of
the issuer.
We believe that the restrictions imposed under the declaration of trust
on the transfer of shares do not result in the failure of our shares to be
"freely transferable." Furthermore, we believe that at present there exist no
other facts or circumstances limiting the transferability of our common or
preferred shares which are not included among those enumerated as not affecting
their free transferability under the regulation, and we do not expect or intend
to impose in the future, or to permit any person to impose on our behalf, any
limitations or restrictions on transfer which would not be among the enumerated
permissible limitations or restrictions.
Assuming that each class of our shares will be "widely held" and that
no other facts and circumstances exist which restrict transferability of our
shares, we have received an opinion of counsel that such shares will not fail to
be "freely transferable" for purposes of the regulation due to the restrictions
on transfer of the shares under our declaration of trust and that under the
regulation the shares are publicly offered securities and our assets will not be
deemed to be "plan assets" of any ERISA plan, IRA or Non-ERISA Plan that invests
in our shares.
If our assets are deemed to be plan assets under ERISA, then
- the prudence standards and other provisions of Part 4 of Title
I of ERISA would be applicable to investments made by us;
- the person or persons having investment discretion over the
assets of ERISA plans which invest in us would be liable under
Part 4 of Title I of ERISA for investments made by us which do
not conform to the ERISA standards, unless the investment
decision was made by an advisor that has registered as an
investment adviser under the Investment Advisers Act of 1940
and other applicable conditions are satisfied, in which case
the registered advisor would potentially have such liability;
- transactions that we might enter into in the ordinary course
of its business and operation might constitute "prohibited
transactions" under ERISA and the Internal Revenue Code.
18
Item 2. Properties
General. At December 31, 1998, approximately 29% of our total
investments were in senior housing properties, 67% were in office buildings and
4% were in hotels through our equity investment in HPT. We believe that the
physical plant of each of the facilities in which we have invested is suitable
and adequate for our present and any currently proposed uses. At December 31,
1998, we had real estate investments totaling $3.0 billion (at cost) in 256
properties that were leased to or operated by over approximately 700 tenants or
mortgagors, plus an investment of approximately $110.6 million (carrying value)
in approximately 8.8% of the common shares of HPT, which has investments in 170
hotel properties. At December 31, 1998, three properties with an aggregate cost
of $45.1 million were secured by two mortgages aggregating $24.8 million.
19
The following table summarizes some information about our properties as of
December 31, 1998. All dollar figures are in thousands.
REAL ESTATE OWNED:
Number of Number of Investment Minimum
Location Facilities Beds/Units Amount Rent/Interest (1)
- -----------------------------------------------------------------------------------------------------------------------
Senior Housing Properties:
Arizona 6 801 $42,861 $4,152
California 8 1,344 53,879 7,575
Colorado 8 1,011 34,348 4,747
Connecticut 9 1,527 95,566 11,961
Florida 5 1,527 131,990 10,787
Georgia 4 401 12,308 1,354
Illinois 2 704 98,742 7,933
Iowa 7 375 8,207 986
Kansas 1 59 1,320 164
Maryland 1 351 33,080 4,387
Massachusetts 5 762 82,059 10,044
Missouri 2 215 3,788 591
Nebraska 1 80 1,934 230
New Hampshire 1 108 3,754 437
New Jersey 1 150 13,007 1,444
New York 1 103 10,700 1,070
North Carolina 3 309 6,389 1,087
Ohio 2 400 9,872 1,356
Pennsylvania 1 120 15,598 1,951
South Dakota 3 361 7,589 982
Texas 1 145 12,410 1,302
Vermont 8 808 29,766 3,316
Virginia 3 848 57,666 6,284
Washington 2 303 19,542 2,093
Wisconsin 8 1,145 33,021 5,490
Wyoming 3 243 7,246 849
------------------- ------------------ ------------------- ----------------------
Subtotal 96 14,200 826,642 92,572
------------------- ------------------ ------------------- ----------------------
Office Properties:
Alaska 1 -- 1,000 441
Arizona 3 -- 21,995 2,873
California 18 -- 253,771 33,014
Colorado 2 -- 21,806 2,717
Connecticut 2 -- 14,325 2,394
Delaware 1 -- 44,090 4,160
District of Columbia 5 -- 207,521 28,448
Florida 4 -- 11,588 1,066
Georgia 1 -- 2,978 553
Kansas 1 -- 5,949 1,772
Maryland 7 -- 158,084 21,429
Massachusetts 29 -- 169,476 27,765
Minnesota 3 -- 40,704 4,117
Missouri 1 -- 7,776 940
New Jersey 4 -- 29,947 3,637
New Mexico 2 -- 11,021 1,298
New York 5 -- 174,525 32,994
Ohio 1 -- 15,276 2,151
Oklahoma 1 -- 24,762 3,084
Pennsylvania 16 -- 538,399 80,897
Rhode Island 1 -- 8,010 836
Tennessee 1 -- 22,173 2,965
Texas 17 -- 254,187 40,639
Virginia 4 -- 53,874 7,160
Washington 2 -- 21,388 2,426
West Virginia 1 -- 4,898 874
Wyoming 1 -- 10,317 1,288
------------------- ------------------ ------------------- ----------------------
Subtotal 134 -- 2,129,840 311,938
=================== ================== =================== ======================
Total Real Estate 230 14,200 $2,956,482 $404,510
=================== ================== =================== ======================
20
MORTGAGE AND NOTE INVESTMENTS:
Number of Number of Investment Minimum
Location Facilities Beds/Units Amount Rent/Interest (1)
- -----------------------------------------------------------------------------------------------------------------------
Senior Housing Properties:
California 4 688 $14,643 $1,851
Connecticut -- -- 1,000 109
Florida 1 248 5,000 525
Kansas 2 122 1,208 174
Louisiana 1 118 18,992 2,293
Michigan 2 342 9,181 1,146
Nebraska 9 610 8,770 1,007
North Carolina 2 174 2,803 300
Ohio* 1 100 1,782 223
Texas 4 390 4,844 460
Wisconsin -- -- 883 121
------------------- ------------------ ------------------ ----------------------
Subtotal 26 2,792 69,106 8,209
------------------- ------------------ ------------------ ----------------------
Office Properties:
California* -- -- 122 10
------------------- ------------------ ------------------ ----------------------
Subtotal -- -- 122 10
=================== ================== ================== ======================
Total Mortgages and Notes 26 2,792 $69,228 $8,219
=================== ================== ================== ======================
<FN>
* Amounts represent or include notes receivable related to improvements to real estate owned.
(1) Amounts represent obligations due to us for properties owned during the 12 months ended December 31, 1998 and annualized
obligations due to us for properties acquired during 1998, at December 31, 1998.
</FN>
Item 3. Legal Proceedings
As previously disclosed, in early 1995 we commenced an action in
Florida state court to collect on a secured indemnity agreement from a former
tenant and mortgagor, together with certain related parties (collectively, the
"Former Tenant"). In May 1995 the Former Tenant filed a counterclaim and
third-party complaint against HRP and others including Messrs. Martin and
Portnoy, HRPT Advisors, Inc. and Sullivan & Worcester LLP, seeking, among other
things, to set aside the indemnity agreement and to recover substantial damages.
After a Massachusetts state court ordered the dispute to arbitration and a
Florida court stayed further proceedings pending arbitration, the Former Tenant
brought a separate action against HRP in the United States District Court for
the District of Massachusetts and realleged many of the same allegations made in
the counterclaims and third-party complaints previously brought by them in
response to HRP's original action, and adding allegations of violations of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder and violations of 18 U.S.C ss. 1962 (RICO). In September
1996, the United States District Court for the District of Massachusetts ordered
the case brought by the Former Tenant dismissed and all disputes between the
Former Tenant and HRP referred to arbitration.
The arbitration is proceeding, and although the amount of damages
claimed by the Former Tenant is material, all claims of the Former Tenant
against HRP were dismissed in January of this year, except a basic claim for
common law fraud, which is scheduled for trial before the arbitrators in October
1999. The arbitrators' ruling, dismissing all but one claim against HRP, both
narrows substantially the scope of claims pending against HRP and diminishes
greatly the risk of the Former Tenant being able to hold HRP liable for (i)
attorneys fees and costs, or (ii) multiple damages, should the Former Tenant
prevail on its sole remaining claim against HRP. We continue to pursue our
indemnity claims in the arbitration.
As we have previously disclosed, certain related cases have also been
filed by creditors or assignees of the Former Tenant. The amounts of damages
claimed by the creditors or assignees of the Former Tenant are material. We will
defend the claims of the creditors or assignees of the Former Tenant in these
related proceedings, currently pending in Massachusetts Superior Court. The
outcome of the arbitration and the related pending claims and proceedings cannot
be predicted.
The Declaration of Trust provides that our Trustees shall be
indemnified in certain circumstances by HRP in connection with claims asserted
against them by reason of their status, subject to various limitations contained
in the Declaration of Trust. Were Messrs. Martin and Portnoy to be held liable
in the proceedings described above, they may have a claim for indemnification
from HRP.
21
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders during the fourth
quarter of the year covered by this Annual Report on Form 10-K.
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Our Shares are traded on the New York Stock Exchange (symbol: HRP). The
following table sets forth for the periods indicated the high and low sale
prices for the Shares as reported in the New York Stock Exchange Composite
Transactions reports.
High Low
1997
First Quarter $20 5/8 $18
Second Quarter 19 17 3/4
Third Quarter 19 1/8 17 5/8
Fourth Quarter 20 5/16 18 9/16
1998
First Quarter 20 15/16 19 5/8
Second Quarter 20 1/4 17 7/8
Third Quarter 18 13/16 15 5/8
Fourth Quarter 17 1/8 14
The closing price of the Shares on the New York Stock Exchange on March
29, 1999 was $13 3/4.
As of March 5, 1999, there were approximately 5,951 holders of record of the
Shares, and we estimate that as of such date there were in excess of 145,000
beneficial owners of the Shares.
Dividends declared with respect to each period for the two most recent
fiscal years and the amount of such dividends and the respective annualized
rates are set forth in the following table.
Dividend Annualized
Per Share Dividend Rate
1997
First Quarter $.36 $1.44
Second Quarter .36 1.44
Third Quarter .37 1.48
Fourth Quarter .37 1.48
1998
First Quarter .38 1.52
Second Quarter .38 1.52
Third Quarter .38 1.52
Fourth Quarter .38 1.52
All dividends declared have been paid. We intend to continue to declare
and pay future dividends on a quarterly basis.
In order to qualify for the beneficial tax treatment accorded to REITs
by Sections 856 through 860 of the Internal Revenue Code, we are required to
make distributions to shareholders which annually will be at least 95% of our
taxable income. All distributions will be made by us at the discretion of the
Trustees and will depend on our earnings, our cash flow available for
distribution, our financial condition and other factors that the Trustees deem
relevant. We have in the past distributed, and intend to continue to distribute,
substantially all of our "real estate investment trust taxable income" to our
shareholders.
As previously reported, in 1997 we entered into an Agreement of Merger
(the "Merger Agreement") with Government Property Investors, Inc. ("GPI")
pursuant to which we agreed to acquire up to 30 office buildings
22
containing approximately 3.4 million square feet, substantially all of which is
leased to various agencies of the United States government. The Merger Agreement
provided for us to acquire these properties in a series of closings in exchange
for our Shares. As of May 1998, the final closing under the Merger Agreement had
occurred, and we had issued 4,271,428 Shares to GPI and its successors and
assigns; however, the final number of Shares issuable in connection with the
Merger Agreement had not been determined. In February, 1999, we issued an
additional 256,246 Shares to GPI pursuant to the exemption from registration
contained in Section 4(2) of the Securities Act of 1933, as amended.
Item 6. Selected Financial Data
Set forth below is selected financial data for the periods and dates
indicated. This data should be read in conjunction with, and is qualified in its
entirety by reference to, the consolidated financial statements and accompanying
notes included in Item 7 of our Current Report on Form 8-K dated March 5, 1999.
Amounts are in thousands, except per Share information.
Income Statement Data: Year Ended December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- --------------- ---------------
Total revenues $356,554 $208,863 $120,183 $113,322 $86,683
Income before gain (loss) on sale of
properties and extraordinary item 146,656 112,204 77,164 61,760 57,878
Income before extraordinary item 146,656 115,102 77,164 64,236 51,872
Net income 144,516 114,000 73,254 64,236 49,919
Funds from operations - basic (1) 211,715 146,312 99,106 84,638 71,851
Funds from operations - diluted (1) 227,904 162,738 103,253 84,638 71,851
Dividends declared (2) 190,341 144,271 94,299 83,954 76,317
Per basic common share amounts:
Income before gain (loss) on sale of
properties and extraordinary item 1.22 1.22 1.16 1.04 1.10
Income before extraordinary item 1.22 1.25 1.16 1.08 .98
Net income 1.21 1.24 1.11 1.08 .95
Funds from operations - basic (1) 1.77 1.59 1.50 1.43 1.36
Funds from operations - diluted (1) 1.74 1.57 1.49 1.43 1.36
Dividends declared (2) 1.52 1.46 1.42 1.38 1.33
Weighted average shares outstanding 119,867 92,168 66,255 59,227 52,738
Balance Sheet Data: At December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-------------- -------------- -------------- --------------- ---------------
Real estate properties, at cost $2,956,482 $1,969,023 $1,005,739 $778,211 $673,083
Real estate mortgages and notes 69,228 104,288 150,205 141,307 133,477
Investment in HPT 110,554 111,134 103,062 99,959 --
Total assets 3,064,057 2,135,963 1,229,522 999,677 840,206
Total indebtedness 1,132,081 787,879 492,175 269,759 216,513
Total shareholders' equity 1,827,793 1,266,260 708,048 685,592 602,039
<FN>
(1) Our Funds From Operations ("FFO") represents net income (computed in accordance with generally accepted accounting principles
("GAAP")), before gain or loss on sale of properties and extraordinary items, depreciation and other non-cash items and
includes HRP's pro rata share of HPT's FFO. Management considers FFO to be a measure of the financial performance of an equity
REIT that provides a relevant basis for comparison among REITs. FFO does not represent cash flow from operating activities (as
determined in accordance with GAAP) and should not be considered as an alternative to net income, as an indicator of our
financial performance or to cash flows as a measure of liquidity.
(2) Amounts represent dividends declared with respect to the periods shown. Distributions in excess of net income generally
constitute a return of capital.
</FN>
23
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated herein by
reference to the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 5 of our Current Report
on Form 8-K dated March 5, 1999.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to risks associated with interest rate changes. We
manage our exposure to this market risk through our monitoring of available
financing alternatives. Our strategy to manage exposure to changes in interest
rates is unchanged from December 31, 1997. Furthermore, we do not foresee any
significant changes in our exposure to fluctuations in interest rates or in how
such exposure is managed in the near future. At December 31, 1998, our total
outstanding debt for fixed rate notes consisted of the following:
Amount Coupon Maturity
Unsecured senior notes:
$40.0 million 7.25% 2001
$160.0 million 6.875% 2002
$150.0 million 6.75% 2002
$164.9 million 7.50% 2003
$100.0 million 6.7% 2005
$143.0 million 8.5% 2013
Secured notes:
$13.1 million 8.00% 2008
$11.7 million 7.66% 2009
No principal repayments are due under the unsecured senior notes until
maturity. If, at maturity, the unsecured senior notes were to be refinanced at
interest rates which are 1/2 percentage point higher than shown above, our per
annum interest cost would increase by approximately $3.8 million. The secured
notes are secured by three of our office properties and require principal and
interest payments through maturity.
As of December 31, 1998, we had two series of senior unsecured notes
that were subject to floating interest rates; a $500.0 million bank credit
facility and another series of unsecured senior notes totaling $250.0 million.
Our bank credit facility bears interest at floating rates and matures in 2002.
At December 31, 1998, $400.0 million was available for drawing under our line of
credit and $100.0 million was outstanding. Our line of credit is available to
finance our acquisition commitments. As of December 31, 1998, our acquisition
commitments required approximately $21.7 million (plus closing costs) of cash.
Assuming these commitments were all funded with borrowings under our bank credit
facility, and assuming interest rates increased 1/2 percentage point, our
annualized interest cost would increase by approximately $108,500. Our unsecured
senior notes totaling $250.0 million bear interest at floating rates and mature
in 2007. Assuming interest rates increase 1/2 percentage point, our annualized
interest costs would increase by approximately $1.3 million.
Each of our obligations for borrowed money has provisions that allow us
to make repayments earlier than the stated maturity date. In some cases, we are
not allowed to make early repayment prior to a cutoff date and in other cases we
are allowed to make prepayments only at a premium to face value. In any event,
these prepayment rights may afford us the opportunity to mitigate the risk of
refinancing at maturity at higher rates, by refinancing at lower rates prior to
maturity.
From time to time, we may enter into contracts to hedge our interest
rate risk. As of December 31, 1998, we have not entered into any of these
contracts.
The market prices, if any, of each of our fixed rate obligations as of
December 31, 1998 are sensitive to changes in interest rates. Typically, if
market rates of interest increase, the current market price of a fixed rate
obligation will decrease. Conversely, if market rates of interest decrease, the
current market price of a fixed rate obligation typically will increase. Based
on the balances outstanding at December 31, 1998, a hypothetical immediate one
percentage point change in interest rates would change the fair value of our
fixed rate debt obligations by approximately $36.5 million (based on discounted
cash flow analysis).
24
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by
reference to the consolidated financial statements of HRPT Properties Trust
included in Item 7 of our Current Report on Form 8-K dated March 5, 1999.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
PART III
The information in Part III (Items, 10, 11, 12 and 13) is incorporated by
reference to our definitive Proxy Statement, which will be filed not later than
120 days after the end of our fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements and Financial Statement Schedules
HRPT PROPERTIES TRUST
Page
1) The following consolidated financial statements of HRPT Properties Trust are
incorporated by reference to our Current Report on Form 8-K dated March 5,
1999. Page references are to such Current Report:
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Income for each of the three years in the
periods ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity for each of the three
years in the periods ended December 31, 1998, 1997, and 1996 F-5
Consolidated Statements of Cash Flows for each of the three years in the
periods ended December 31, 1998, 1997, and 1996 F-6
Notes to Consolidated Financial Statements F-8
2) The following schedules are filed herewith:
III - Real Estate and Accumulated Depreciation S-1
IV - Mortgage Loans on Real Estate S-9
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions, or are inapplicable, and therefore have
been omitted.
(b) Reports on Form 8-K
During the fourth quarter of 1998, we filed the following Current
Reports on Form 8-K:
(i) Current Report on Form 8-K dated November 12, 1998, relating
to unaudited pro forma consolidated financial statements (Item
7).
(ii) Current Report on Form 8-K dated November 24, 1998, filing as
exhibits: (1) Purchase Agreement dated as of November 24, 1998
by and among the Company and the several underwriters named
therein pertaining to $130,000,000 in aggregate principal
amount of 8 1/2% Monthly Income Senior Notes due 2013, (2)
Form of Supplemental Indenture dated as of November 30, 1998
by and between the Company and State Street Bank and Trust
Company pertaining to $130,000,000 in aggregate principal
amount of 8 1/2% Monthly Income Senior Notes due 2013, (3)
Consent of Sullivan & Worcester LLP, and (4) Opinion of
Sullivan & Worcester LLP relating to tax matters (Item 7).
25
(iii) Current Report on Form 8-K dated December 23, 1998, relating
to a financing plan for senior housing and healthcare real
estate investments which would include a public offering of
common shares of a subsidiary, and a distribution to
shareholders of common shares of that subsidiary (Item 5).
(c) Exhibits
3.1 Composite copy of Third Amendment and Restatement of
Declaration of Trust of the Company dated July 1, 1994, as
amended to date. (incorporated by reference to the Company's
Current Report on Form 8-K, dated July 1, 1998)
3.2 Articles Supplementary dated November 4, 1994 to Third
Amendment and Restatement of Declaration of Trust dated July
1, 1994 creating the Junior Participating Preferred Shares.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated May 27, 1998)
3.3 Articles Supplementary dated May 13, 1997 to Third Amendment
and Restatement of Declaration of Trust dated July 1, 1994
increasing the Junior Participating Preferred Shares.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated May 27, 1998)
3.4 Articles Supplementary dated May 22, 1998 to Third Amendment
and Restatement of Declaration of Trust dated July 1, 1994
increasing the Junior Participating Preferred Shares.
(incorporated by reference to the Company's Current Report on
Form 8-K dated May 27, 1998)
3.5 By-laws of the Company, as amended to date. (incorporated by
reference to the Company's Current Report on Form 8-K, dated
May 27, 1998)
4.1 Form of Common Share Certificate. (incorporated by reference
to the Company's Current Report on Form 8-K dated March 11,
1999)
4.2 Rights Agreement dated October 17, 1994 between the Company
and State Street Bank and Trust Company, as Rights Agent
(including the form of Articles Supplementary relating to the
Junior Participating Preferred Shares annexed as an exhibit
thereto). (incorporated by reference to the Company's
Registration Statement on Form 8-A dated October 24, 1994)
4.3 Indenture, dated as of September 20, 1996, between the Company
and Fleet National Bank ("Fleet"), as trustee. (incorporated
by reference to the Company's Registration Statement on Form
S-3, File No. 333- 02863)
4.4 First Supplemental Indenture, dated as of October 7, 1996,
between the Company and Fleet, as trustee, relating to the
Company's 7.5% Convertible Subordinated Debentures due 2003,
Series A, including form thereof. (incorporated by reference
to the Company's Current Report on Form 8-K dated October 7,
1996)
4.5 Second Supplemental Indenture, dated as of October 7, 1996,
between the Company and Fleet, as trustee, relating to the
Company's 7.5% Convertible Subordinated Debentures due 2003,
Series B, including form thereof. (incorporated by reference
to the Company's Current Report on Form 8-K dated October 7,
1996)
4.6 Third Supplemental Indenture, dated as of October 7, 1996,
between the Company and Fleet, as trustee, relating to the
Company's 7.25% Convertible Subordinated Debentures due 2001,
including form thereof. (incorporated by reference to the
Company's Current Report on Form 8-K dated October 7, 1996)
4.7 Indenture, dated as of July 9, 1997, by and between the
Company and State Street Bank and Trust Company, as Trustee.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
4.8 Supplemental Indenture, dated July 9, 1997, by and between the
Company and State Street Bank and Trust Company, as Trustee,
relating to the Remarketed Reset Notes due July 9, 2007.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997)
26
4.9 Supplemental Indenture No. 2 dated as of February 23, 1998
between the Company and State Street Bank and Trust Company,
relating to $50,000,000 in principal amount of Remarketed
Reset Notes due July 9, 2007. (incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1997)
4.10 Form of Global Note relating to the Remarketed Reset Notes due
July 9, 2007. (incorporated by reference to the Company's
Current Report on Form 8-K dated July 2, 1997)
4.11 Supplemental Indenture No. 3 dated as of February 23, 1998
between the Company and State Street Bank and Trust Company,
relating to the Company's 6.7% Senior Notes due 2005,
including form thereof. (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997)
4.12 Supplemental Indenture No. 4 dated as of August 26, 1998 by
and between the Company and State Street Bank and Trust
Company, relating to $160,000,000 in aggregate principal
amount of 6 7/8% Senior Notes due 2002, including form
thereof. (incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1998)
4.13 Supplemental Indenture No. 5 dated as of November 30, 1998 by
and between the Company and State Street Bank and Trust
Company, relating to $130,000,000 in aggregate principal
amount of 8 1/2% Monthly Income Senior Notes due 2013,
including form thereof. (incorporated by reference to the
Company's Current Report on Form 8-K dated March 11, 1999)
4.14 Supplemental Indenture No. 6 dated as of March 24, 1999 by and
between the Company and State Street Bank and Trust Company,
relating to $90,000,000 in aggregate principal amount of 7
7/8% Monthly Income Senior Notes due 2009, including form
thereof. (filed herewith)
4.15 Indenture dated as of December 18, 1997 by and between the
Company and State Street Bank and Trust Company, as Trustee.
(incorporated by reference to the Company's Current Report on
Form 8-K dated December 5, 1997)
4.16 Supplemental Indenture dated as of December 18, 1997 by and
between the Company and State Street Bank and Trust Company,
as Trustee, relating to the Company's 6 3/4% Senior Notes due
2002, including form thereof. (incorporated by reference to
the Company's Current Report on Form 8-K dated December 5,
1997)
4.17 Registration Rights Agreement dated as of December 18, 1997 by
and between the Company and Merrill Lynch & Co. (incorporated
by reference to the Company's Current Report on Form 8-K dated
December 5, 1997)
8.1 Opinion of Sullivan & Worcester, LLP as to certain tax
matters. (filed herewith)
9.1 Amended and Restated AMS Voting Trust Agreement. (incorporated
by reference to the Company's Registration Statement on Form
S-11, File No. 33-55684, dated December 23, 1992, and
amendments thereto)
10.1 Advisory Agreement by and between the Company and HRPT
Advisors, Inc., as amended.(+) (incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
3-16799, dated August 27, 1987, and amendments thereto)
10.2 Second Amendment to the Advisory Agreement by and between the
Company and HRPT Advisors, Inc.(+) (incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993)
10.3 Third Amendment to Advisory Agreement by and between the
Company and HRPT Advisors, Inc., dated June 26, 1997.(+)
(incorporated by reference to the Company's Current Report on
Form 8-K, dated July 2, 1997)
27
10.4 Advisory Agreement by and between REIT Management & Research,
Inc. and the Company dated as of January 1, 1998.(+)
(incorporated by reference to the Company's Current Report on
Form 8-K, dated February 11, 1998)
10.5 Agreement (for Property Management and Leasing Agent) between
M&P Partners Limited Partnership and various subsidiaries of
the Company, effective as of March 25, 1997, relating to
properties leased to Agencies of the United States Government.
(incorporated by reference to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997)
10.6 Master Management Agreement by and among M&P Partners Limited
Partnership and the parties named therein dated as of December
31, 1997. (incorporated by reference to the Company's Current
Report on Form 8-K, dated February 11, 1998)
10.7 Master Management Agreement by and between the Company and
REIT Management & Research, Inc., dated as of January 1, 1998.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated February 27, 1998)
10.8 Parking Operation Management Agreement by and between HUB
Properties Trust, a subsidiary of the Company, and REIT
Management & Research, Inc., dated as of January 1, 1998.
(incorporated by reference to the Company's Current Report on
Form 8-K, dated February 27, 1998)
10.9 Incentive Share Award Plan.(+) (incorporated by reference to
the Company's Registration Statement on Form S-11, File No.
33-55684, dated December 23, 1992, and amendments thereto)
10.10 AMS Properties Security Agreement. (incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991)
10.11 AMS Subordination Agreement. (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991)
10.12 AMS Guaranty. (incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991)
10.13 AMS Pledge Agreement. (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1991)
10.14 AMS Holding Co. Pledge Agreement. (incorporated by reference
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991)
10.15 Amended and Restated Renovation Funding Agreement dated as of
January 13, 1992 between AMS Properties, Inc. and the Company.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991)
10.16 Amendment to AMS Transaction Documents. (incorporated by
reference to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991)
10.17 GCI Master Lease Document. (incorporated by reference to the
Company's Registration Statement on Form S-11, File No.
33-55684, dated December 23, 1992, and amendments thereto)
10.18 Amended and Restated HRP Shares Pledge Agreement.
(incorporated by reference to the Company's Registration
Statement on Form S-11, File no. 33-55684, dated December 23,
1992, and amendments thereto)
10.19 Guaranty Cross-Default and Cross-Collateralization Agreement.
(incorporated by reference to the Company's Registration
Statement on Form S-11, File No. 33-55684, dated December 23,
1992, and amendments thereto)
10.20 Connecticut Subacute Corporation II Lease Document Waterbury.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
28
10.21 Connecticut Subacute Corporation II Lease Document Cheshire.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
10.22 Connecticut Subacute Corporation II Lease Document New Haven.
(incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995)
10.23 Vermont Subacute/New Hampshire Subacute Corporation Master
Lease Agreement (Chapple). (incorporated by reference to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995)
10.24 Amended and Restated Agreement and Plan of Reorganization
(Chapple). (incorporated by reference to the Company's Annual
report on Form 10-K for the year ended December 31, 1995)
10.25 Amended and Restated Promissory Note, dated July 29, 1996,
from Connecticut Subacute Corporation to the Company.
(incorporated by reference to the Company's Current Report on
Form 8-K dated October 1, 1996)
10.26 Note Modification Agreement, dated as of June 30, 1998, by and
between Connecticut Subacute Corporation and the Company.
(incorporated by reference to the Company's Current Report on
Form 8-K dated March 11, 1999)
10.27 Second Amendment to Master Lease Agreement General Terms and
Conditions and Leases Entered Into Pursuant Thereto, dated as
of October 5, 1998, by and between the Company and Connecticut
Subacute Corporation. (incorporated by reference to the
Company's Current Report on Form 8-K dated March 11, 1999)
10.28 Merger Agreement dated February 17, 1997 between the Company
and Government Property Investors, Inc. (including forms of
Escrow Agreement, Investment and Registration Rights
Agreement, Voting Agreement, Information Access Agreement,
Indemnification Agreement, Service Contract, Non-Solicitation
Agreement and Second Closing Escrow Agreement). (incorporated
by reference to the Company's Current Report on Form 8-K,
dated February 17, 1997)
10.29 Amendment No. 1 to Agreement of Merger dated March 25, 1997
between the Company and Government Property Investors, Inc.
(incorporated by reference to the Company's Registration
Statement on Form S-3 (File No. 333-29675) filed with the
Commission on June 20, 1997)
10.30 Remarketing Agreement (including form of Remarketing
Underwriting Agreement) relating to the Remarketed Reset Notes
due July 9, 2007 by and between the Company and Merrill Lynch
& Co., dated as of July 2, 1997. (incorporated by reference to
the Company's Current Report on Form 8-K, dated July 2, 1997)
10.31 Fourth Amended and Restated Revolving Credit Agreement, dated
as of April 2, 1998, among the Company, as borrower, the
lenders named therein, Dresdner Kleinwort Benson North America
LLC, as agent, and Fleet National Bank, as administrative
agent. (incorporated by reference to the Company's Current
Report on Form 8-K, dated April 14, 1998)
12.1 Statement regarding computation of ratio of earning to fixed
charges. (filed herewith)
21.1 Subsidiaries of the Registrant. (filed herewith)
23.1 Consent of Ernst & Young LLP. (filed herewith)
23.2 Consent of Arthur Andersen LLP. (filed herewith)
23.3 Consent of Sullivan & Worcester LLP (included as part of
Exhibit 8.1 hereto)
99.1 Current Report on Form 8-K dated March 5, 1999 (filed
herewith)
(+) Management contract or compensatory plan or arrangement.
29
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
Gross Amount Carried at Close
Initial Cost to Company of Period 12/31/98
----------------------- --------------------------------
Costs Original
Capitalized Accumulated Constr-
Buildings and Subsequent Buildings and Depreciation Date uction
Location State Land Equipment to Acquisition Land Equipment Total (1) (2) Aquired Date
- ------------------------------------------------------------------------------------------------------------------------------------
Senior Housing Propertiess:
La Mesa AZ $1,480 $13,320 $-- $1,480 $13,320 $14,800 $680 12/27/96 1985
Phoenix AZ 655 2,525 5 655 2,530 3,185 471 6/30/92 1963
Scottsdale AZ 979 8,807 140 990 8,936 9,926 1,033 5/16/94 1990
Sun City AZ 1,174 10,569 173 1,189 10,727 11,916 1,218 6/17/94 1990
Yuma AZ 103 604 1 103 605 708 112 6/30/92 1984
Yuma AZ 223 2,100 3 223 2,103 2,326 386 6/30/92 1984
Fresno CA 738 2,577 188 738 2,765 3,503 646 12/28/90 1963
Laguna Hills CA 3,132 28,184 475 3,172 28,619 31,791 3,072 9/9/94 1975
Lancaster CA 601 1,859 1,028 601 2,887 3,488 610 12/28/90 1969
Newport Beach CA 1,176 1,729 1,223 1,176 2,952 4,128 592 12/28/90 1962
Stockton CA 382 2,750 4 382 2,754 3,136 507 6/30/92 1968
Tarzana CA 1,277 977 806 1,278 1,782 3,060 403 12/28/90 1969
Thousand Oaks CA 622 2,522 310 622 2,832 3,454 639 12/28/90 1965
Van Nuys CA 716 378 225 718 601 1,319 154 12/28/90 1969
Canon City CO 292 6,228 -- 292 6,228 6,520 201 9/26/97 1970
Colorado Springs CO 245 5,236 -- 245 5,236 5,481 169 9/26/97 1972
Delta CO 167 3,570 -- 167 3,570 3,737 115 9/26/97 1963
Grand Junction CO 204 3,875 329 204 4,204 4,408 650 12/30/93 1968
Grand Junction CO 6 2,583 1,316 136 3,769 3,905 513 12/30/93 1978
Lakewood CO 232 3,766 723 232 4,489 4,721 970 12/28/90 1972
Littleton CO 185 5,043 348 185 5,391 5,576 1,224 12/28/90 1965
Cheshire CT 520 7,380 1,559 520 8,939 9,459 2,626 11/1/87 1963
Forestville CT 465 9,235 3,477 478 12,699 13,177 3,782 12/23/86 1972
Killingly CT 240 5,360 460 240 5,820 6,060 1,970 5/15/87 1972
New Haven CT 1,681 14,953 1,236 1,681 16,189 17,870 3,423 5/11/92 1971
Wallingford CT 557 11,043 2,925 557 13,968 14,525 4,338 12/23/86 1974
Waterbury CT 1,003 9,023 915 1,003 9,938 10,941 2,097 5/11/92 1974
Waterbury CT 514 10,186 3,402 630 13,472 14,102 3,980 12/23/86 1971
Waterford CT 86 4,714 453 86 5,167 5,253 1,814 5/15/87 1965
Willimantic CT 134 3,566 479 166 4,013 4,179 1,307 5/15/87 1965
Boca Raton FL 4,404 39,633 799 4,474 40,362 44,836 4,664 5/20/94 1994
Deerfield Beach FL 1,664 14,972 299 1,690 15,245 16,935 1,762 5/16/94 1986
Fort Myers FL 2,349 21,137 419 2,385 21,520 23,905 2,354 8/16/94 1984
Palm Harbor FL 3,327 29,945 591 3,379 30,484 33,863 3,523 5/16/94 1992
Port St. Lucie FL 1,223 11,009 219 1,242 11,209 12,451 1,295 5/20/94 1993
College Park GA 300 2,702 23 300 2,725 3,025 220 5/15/96 1985
S-1
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
Gross Amount Carried at Close
Initial Cost to Company of Period 12/31/98
----------------------- --------------------------------
Costs Original
Capitalized Accumulated Constr-
Buildings and Subsequent Buildings and Depreciation Date uction
Location State Land Equipment to Acquisition Land Equipment Total (1) (2) Aquired Date
- ------------------------------------------------------------------------------------------------------------------------------------
Dublin GA 442 3,982 80 442 4,062 4,504 312 5/15/96 1968
Glenwood GA 174 1,564 4 174 1,568 1,742 116 5/15/96 1972
Marietta GA 300 2,702 35 300 2,737 3,037 211 5/15/96 1967
Clarinda IA 77 1,453 293 77 1,746 1,823 254 12/30/93 1968
Council Bluffs IA 225 893 99 225 992 1,217 164 4/1/95 1963
Mediapolis IA 94 1,776 251 94 2,027 2,121 303 12/30/93 1973
Pacific Junction IA 32 306 5 32 311 343 32 4/1/95 1978
Winterset IA 111 2,099 493 111 2,592 2,703 375 12/30/93 1973
Arlington Heights IL 3,621 32,587 534 3,665 33,077 36,742 3,550 9/9/94 1986
Chicago IL 6,200 55,800 -- 6,200 55,800 62,000 2,848 12/27/96 1990
Ellinwood KS 130 1,137 53 130 1,190 1,320 126 4/1/95 1972
Boston MA 2,164 20,836 1,978 2,164 22,814 24,978 6,788 5/1/89 1968
Hyannis MA 829 7,463 -- 829 7,463 8,292 1,677 5/11/92 1972
Middleboro MA 1,771 15,752 -- 1,771 15,752 17,523 3,501 5/1/88 1970
North Andover MA 1,448 11,049 -- 1,448 11,049 12,497 2,483 5/11/92 1985
Worcester MA 1,829 15,071 1,869 1,829 16,940 18,769 5,522 5/1/88 1970
Silver Spring MD 3,229 29,065 786 3,301 29,779 33,080 3,319 7/25/94 1992
St. Joseph MO 111 1,027 195 111 1,222 1,333 154 6/4/93 1976
Tarkio MO 102 1,938 415 102 2,353 2,455 336 12/30/93 1970
Concord NC 90 2,126 -- 90 2,126 2,216 483 9/10/98 1990
Wilson NC 27 2,375 -- 27 2,375 2,402 538 9/10/98 1990
Winston-Salem NC 75 1,696 -- 75 1,696 1,771 381 9/10/98 1990
Grand Island NE 119 1,446 369 119 1,815 1,934 150 4/1/95 1963
Rochester NH 466 3,219 69 466 3,288 3,754 320 1/30/95 1972
Burlington NJ 1,300 11,700 7 1,300 11,707 13,007 952 9/29/95 1994
Rochester NY 1,070 9,630 -- 1,070 9,630 10,700 492 12/27/96 1988
Akron OH 330 5,370 727 330 6,097 6,427 2,200 5/15/87 1971
Grove City OH 332 3,081 32 332 3,113 3,445 430 6/4/93 1965
Canonsburg PA 1,499 13,493 606 1,518 14,080 15,598 3,622 3/1/91 1985
Huron SD 45 968 1 45 969 1,014 177 6/30/92 1968
Huron SD 144 3,108 4 144 3,112 3,256 567 6/30/92 1968
Sioux Falls SD 253 3,062 4 253 3,066 3,319 561 6/30/92 1960
Bellaire TX 1,223 11,010 177 1,238 11,172 12,410 1,291 5/16/94 1991
Arlington VA 1,859 16,734 296 1,885 17,004 18,889 1,895 7/25/94 1992
Charlottesville VA 2,936 26,422 471 2,976 26,853 29,829 3,048 6/17/94 1991
Virginia Beach VA 881 7,926 141 893 8,055 8,948 931 5/16/94 1990
S-2
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
Gross Amount Carried at Close
Initial Cost to Company of Period 12/31/98
----------------------- --------------------------------
Costs Original
Capitalized Accumulated Constr-
Buildings and Subsequent Buildings and Depreciation Date uction
Location State Land Equipment to Acquisition Land Equipment Total (1) (2) Aquired Date
- ------------------------------------------------------------------------------------------------------------------------------------
Barre VT 129 3,825 4 129 3,829 3,958 379 1/30/95 1972
Barre VT 261 4,530 133 389 4,535 4,924 449 1/30/95 1979
Bennington VT 160 4,385 5 160 4,390 4,550 434 1/30/95 1971
Burlington VT 791 5,985 410 872 6,314 7,186 621 1/30/95 1968
Springfield VT 50 747 1 50 748 798 74 1/30/95 1976
Springfield VT 89 3,724 157 242 3,728 3,970 369 1/30/95 1971
St. Johnsbury VT 95 3,416 4 95 3,420 3,515 338 1/30/95 1978
St. Albans VT 154 710 1 154 711 865 70 1/30/95 1900
Seattle WA 256 4,869 67 256 4,936 5,192 785 11/1/93 1964
Spokane WA 1,035 13,315 -- 1,035 13,315 14,350 581 5/7/97 1993
Brookfield WI 834 3,849 8,014 834 11,863 12,697 1,928 12/28/90 1964
Clintonville WI 14 1,695 38 14 1,733 1,747 389 12/28/90 1960
Clintonville WI 49 1,625 87 30 1,731 1,761 387 12/28/90 1965
Madison WI 144 1,633 110 144 1,743 1,887 390 12/28/90 1920
Milwaukee WI 232 1,368 1 232 1,369 1,601 281 9/10/98 1970
Milwaukee WI 277 3,883 -- 277 3,883 4,160 769 3/27/92 1969
Pewaukee WI 984 2,432 -- 984 2,432 3,416 518 9/10/98 1963
Waukesha WI 68 3,452 2,232 68 5,684 5,752 1,036 12/28/90 1958
Laramie WY 191 3,632 199 191 3,831 4,022 595 12/30/93 1964
Worland WY 132 2,503 589 132 3,092 3,224 432 12/30/93 1970
--------------------------------------------------------------------------------
Subtotal 74,539 705,504 46,599 75,673 750,969 826,642 114,454
--------------------------------------------------------------------------------
Office Buildings:
Petersburg AK 189 811 -- 189 811 1,000 36 3/31/97 1983
Phoenix AZ 2,687 11,532 231 2,729 11,721 14,450 472 5/15/97 1997
Safford AZ 635 2,729 61 647 2,778 3,425 123 3/31/97 1992
Tuscon AZ 765 3,280 75 779 3,341 4,120 148 3/31/97 1993
Anaheim CA 691 6,223 -- 691 6,223 6,914 234 12/5/97 1992
Anaheim CA 82 735 -- 82 735 817 28 12/5/97 1970
Anaheim CA 133 1,201 -- 133 1,201 1,334 45 12/5/97 1970
Kearney Mesa CA 2,916 12,456 337 2,969 12,740 15,709 565 3/31/97 1994
Los Angeles CA 5,076 49,884 768 5,076 50,652 55,728 2,090 5/15/97 1979
Los Angeles CA 5,055 49,685 765 5,055 50,450 55,505 2,081 5/15/97 1979
Los Angeles CA 1,921 8,242 190 1,955 8,398 10,353 304 7/11/97 1996
Newport Beach CA 1,220 3,307 -- 1,220 3,307 4,527 52 5/26/98 1984
Sacramento CA 644 3,206 77 644 3,283 3,927 359 8/30/94 1984
San Diego CA 294 2,650 201 294 2,851 3,145 161 12/31/96 1984
S-3
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
Gross Amount Carried at Close
Initial Cost to Company of Period 12/31/98
----------------------- --------------------------------
Costs Original
Capitalized Accumulated Constr-
Buildings and Subsequent Buildings and Depreciation Date uction
Location State Land Equipment to Acquisition Land Equipment Total (1) (2) Aquired Date
- ------------------------------------------------------------------------------------------------------------------------------------
San Diego CA 2,984 12,859 2,197 3,038 15,002 18,040 616 3/31/97 1996
San Diego CA 502 4,526 342 502 4,868 5,370 276 12/31/96 1984
San Diego CA 4,269 18,316 413 4,347 18,651 22,998 827 3/31/97 1996
San Diego CA 316 2,846 215 316 3,061 3,377 173 12/31/96 1984
San Diego CA 1,228 11,199 41 1,228 11,240 12,468 574 12/5/96 1985
San Diego CA 992 9,040 33 992 9,073 10,065 463 12/5/96 1985
San Diego CA 1,985 18,096 67 1,985 18,163 20,148 927 12/5/96 1985
San Diego CA 313 2,820 213 313 3,033 3,346 172 12/31/96 1984
Aurora CO 1,152 13,272 -- 1,152 13,272 14,424 494 11/14/97 1993
Golden CO 494 152 6,736 495 6,887 7,382 122 3/31/97 1997
Wallingford CT 367 3,301 -- 367 3,301 3,668 3 12/22/98 1988
Wallingford CT 640 10,017 -- 640 10,017 10,657 136 6/1/98 1986
Washington DC 5,975 53,778 223 5,975 54,001 59,976 733 6/23/98 1991
Washington DC 1,851 16,511 197 1,851 16,708 18,559 636 12/19/97 1966
Washington DC 6,979 29,949 871 7,107 30,692 37,799 1,373 3/31/97 1989
Washington DC 12,008 51,528 1,282 12,227 52,591 64,818 2,330 3/31/97 1996
Washington DC 2,485 22,696 1,188 2,485 23,884 26,369 1,405 9/13/96 1976
Wilmington DE 4,409 39,681 -- 4,409 39,681 44,090 455 7/23/98 1986
Miami FL 144 1,297 -- 144 1,297 1,441 27 3/19/98 1987
Orlando FL 256 2,308 -- 256 2,308 2,564 52 2/19/98 1997
Orlando FL 722 6,499 -- 722 6,499 7,221 142 2/19/98 1997
Orlando FL -- 362 -- -- 362 362 -- 2/19/98 1997
Savannah GA 544 2,330 104 553 2,425 2,978 105 3/31/97 1990
Kansas City KS 1,042 4,469 438 1,061 4,888 5,949 239 3/31/97 1990
Boston MA 1,500 13,500 262 1,500 13,762 15,262 1,061 12/18/95 1988
Boston MA 1,447 13,028 45 1,448 13,072 14,520 1,075 9/28/95 1993
Boston MA 3,378 30,397 1,694 3,378 32,091 35,469 2,851 9/28/95 1988
Charlton MA 141 1,269 8 141 1,277 1,418 52 5/15/97 1988
Fitchburg MA 223 2,004 10 223 2,014 2,237 82 5/15/97 1994
Grafton MA 37 336 4 37 340 377 14 5/15/97 1930
Lexington MA 1,054 9,487 -- 1,054 9,487 10,541 228 1/30/98 1994
Milford MA 144 1,297 9 144 1,306 1,450 53 5/15/97 1989
Millbury MA 34 309 4 34 313 347 13 5/15/97 1950
Northbridge MA 32 290 5 32 295 327 12 5/15/97 1962
Paxton MA 24 212 4 24 216 240 9 5/15/97 1984
Quincy MA 2,487 16,645 19 2,487 16,664 19,151 296 4/3/98 1988
S-4
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
Gross Amount Carried at Close
Initial Cost to Company of Period 12/31/98
----------------------- --------------------------------
Costs Original
Capitalized Accumulated Constr-
Buildings and Subsequent Buildings and Depreciation Date uction
Location State Land Equipment to Acquisition Land Equipment Total (1) (2) Aquired Date
- ------------------------------------------------------------------------------------------------------------------------------------
Quincy MA 1,658 11,097 13 1,658 11,110 12,768 198 4/3/98 1988
Spencer MA 211 1,902 11 211 1,913 2,124 78 5/15/97 1992
Sturbridge MA 83 751 6 83 757 840 31 5/15/97 1986
Webster MA 315 2,834 14 315 2,848 3,163 116 5/15/97 1995
Westborough MA 42 381 5 42 386 428 16 5/15/97 1900
Westborough MA 24 216 4 24 220 244 9 5/15/97 1953
Westborough MA 166 1,498 8 166 1,506 1,672 61 5/15/97 1977
Westborough MA 396 3,562 15 396 3,577 3,973 145 5/15/97 1986
Westwood MA 537 4,960 1 538 4,960 5,498 244 1/8/97 1977
Westwood MA 500 4,562 1 500 4,563 5,063 61 6/8/98 1990
Westwood MA 303 2,740 59 304 2,798 3,102 148 11/26/96 1980
Worcester MA 354 3,189 14 354 3,203 3,557 130 5/15/97 1985
Worcester MA 111 1,000 6 111 1,006 1,117 41 5/15/97 1986
Worcester MA 265 2,385 12 265 2,397 2,662 97 5/15/97 1972
Worcester MA 1,132 10,186 38 1,132 10,224 11,356 415 5/15/97 1989
Worcester MA 158 1,417 7 157 1,425 1,582 58 5/15/97 1992
Worcester MA 895 8,052 41 895 8,093 8,988 328 5/15/97 1990
Baltimore MD 900 8,097 -- 900 8,097 8,997 42 10/15/98 1989
Baltimore MD -- 12,430 73 -- 12,503 12,503 520 11/18/97 1988
College Park MD 9,423 40,433 934 9,595 41,195 50,790 1,830 3/31/97 1994
Gaithersburg MD 4,381 18,798 464 4,461 19,182 23,643 858 3/31/97 1995
Germantown MD 2,305 9,890 263 2,347 10,111 12,458 452 3/31/97 1995
Oxon Hill MD 3,181 13,653 323 3,240 13,917 17,157 619 3/31/97 1992
Rockville MD 3,251 29,258 27 3,251 29,285 32,536 640 2/2/98 1986
Bloomington MN 1,898 17,081 2,150 1,898 19,231 21,129 338 3/19/98 1995
Eagan MN 1,424 12,822 1 1,425 12,822 14,247 254 3/19/98 1986
Mendota Heights MN 533 4,795 -- 533 4,795 5,328 95 3/19/98 1995
Kansas City MO 1,443 6,193 140 1,470 6,306 7,776 280 3/31/97 1995
Florham Park NJ 1,412 12,709 -- 1,412 12,709 14,121 145 7/31/98 1979
Vorhees NJ 1,053 6,625 -- 1,053 6,625 7,678 104 5/26/98 1990
Vorhees NJ 445 2,798 -- 445 2,798 3,243 44 5/26/98 1990
Vorhees NJ 673 4,232 -- 673 4,232 4,905 66 5/26/98 1990
Albequerque NM 493 2,119 58 503 2,167 2,670 96 3/31/97 1984
Sante Fe NM 1,551 6,650 150 1,578 6,773 8,351 300 3/31/97 1987
Brooklyn NY 775 7,054 2 775 7,056 7,831 448 6/6/96 1971
Buffalo NY 4,405 18,899 426 4,485 19,245 23,730 853 3/31/97 1994
S-5
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
Gross Amount Carried at Close
Initial Cost to Company of Period 12/31/98
----------------------- --------------------------------
Costs Original
Capitalized Accumulated Constr-
Buildings and Subsequent Buildings and Depreciation Date uction
Location State Land Equipment to Acquisition Land Equipment Total (1) (2) Aquired Date
- ------------------------------------------------------------------------------------------------------------------------------------
Irondoquoit NY 1,910 17,189 21 1,910 17,210 19,120 234 6/30/98 1986
New York NY 44,000 66,976 -- 44,000 66,976 110,976 2,080 10/1/97 1989
White Plains NY 1,200 10,870 798 1,200 11,668 12,868 790 2/6/96 1952
Mason OH 1,528 13,748 -- 1,528 13,748 15,276 186 6/10/98 1994
Oklahoma City OK 4,596 19,721 445 4,680 20,082 24,762 890 3/31/97 1992
Fort Washington PA 1,154 7,722 -- 1,154 7,722 8,876 169 1/15/98 1996
FT. Washington PA 1,184 5,559 -- 1,184 5,559 6,743 180 9/22/97 1967
FT. Washington PA 683 3,198 -- 683 3,198 3,881 104 9/22/97 1970
FT. Washington PA 1,872 8,816 -- 1,872 8,816 10,688 286 9/22/97 1960
Greensburg PA 780 7,026 -- 780 7,026 7,806 95 6/3/98 1997
Horsham PA 741 3,611 7 741 3,618 4,359 117 9/22/97 1983
King of Prussia PA 634 3,251 -- 634 3,251 3,885 108 9/22/97 1964
King of Prussia PA 552 2,893 -- 552 2,893 3,445 64 2/2/98 1996
King of Prussia PA 354 3,183 -- 354 3,183 3,537 70 2/2/98 1997
Philadelphia PA 24,753 222,775 103 14,364 233,267 247,631 3,028 6/30/98 1990
Philadelphia PA 7,884 71,002 101 7,884 71,103 78,987 2,675 11/13/97 1987
Philadelphia PA 13,849 101,559 152 13,849 101,711 115,560 2,010 3/30/98 1983
Pittsburg PA 1,663 14,966 8 1,663 14,974 16,637 109 9/14/98 1994
Pittsburg PA 720 9,589 -- 720 9,589 10,309 211 2/27/98 1991
Plymouth PA 1,412 7,415 899 1,412 8,314 9,726 181 1/15/98 1996
Washington PA 631 5,698 -- 631 5,698 6,329 6 12/1/98 1998
Lincoln RI 320 7,690 -- 320 7,690 8,010 287 11/13/97 1997
Memphis TN 2,206 19,856 111 2,206 19,967 22,173 188 8/31/98 1989
Austin TX 2,317 21,037 -- 2,317 21,037 23,354 787 12/5/97 1996
Austin TX 1,529 13,760 -- 1,529 13,760 15,289 157 7/16/98 1993
Austin TX 2,072 18,650 5 2,072 18,655 20,727 97 10/20/98 1997
Austin TX 562 5,054 -- 562 5,054 5,616 26 10/20/98 1997
Austin TX 18,440 -- 21 18,440 21 18,461 0 10/7/98 1968
Austin TX 1,476 13,286 -- 1,476 13,286 14,762 69 10/20/98 1997
Austin TX 1,436 12,927 -- 1,436 12,927 14,363 67 10/7/98 1998
Austin TX 4,878 43,903 34 4,878 43,937 48,815 229 10/7/98 1968
Austin TX 1,226 11,126 -- 1,226 11,126 12,352 416 12/5/97 1997
Austin TX 1,402 12,729 2 1,402 12,731 14,133 476 12/5/97 1997
Austin TX 1,621 14,594 653 1,621 15,247 16,868 609 12/5/97 1997
Austin TX 1,218 11,040 103 1,218 11,143 12,361 420 12/5/97 1986
Austin TX 1,439 6,137 30 1,439 6,167 7,606 121 3/24/98 1975
S-6
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
Gross Amount Carried at Close
Initial Cost to Company of Period 12/31/98
----------------------- --------------------------------
Costs Original
Capitalized Accumulated Constr-
Buildings and Subsequent Buildings and Depreciation Date uction
Location State Land Equipment to Acquisition Land Equipment Total (1) (2) Aquired Date
- ------------------------------------------------------------------------------------------------------------------------------------
Austin TX 466 4,191 42 466 4,233 4,699 101 1/27/98 1980
Irving TX 542 4,879 -- 542 4,879 5,421 97 3/19/98 1995
Irving TX 846 7,616 -- 846 7,616 8,462 151 3/19/98 1995
Waco TX 2,030 8,708 160 2,060 8,838 10,898 229 12/23/97 1997
Alexandria VA 2,109 18,982 -- 2,109 18,982 21,091 20 12/30/98 1987
Arlington VA 810 7,289 -- 810 7,289 8,099 68 8/26/98 1987
Fairfax VA 569 5,122 84 569 5,206 5,775 275 12/4/96 1990
Falls Church VA 3,456 14,828 625 3,519 15,390 18,909 674 3/31/97 1993
Richland WA 3,970 17,035 383 4,042 17,346 21,388 769 3/31/97 1995
Falling Waters WV 906 3,886 106 922 3,976 4,898 176 3/31/97 1993
Cheyenne WY 1,915 8,217 185 1,950 8,367 10,317 371 3/31/97 1995
----------------------------------------------------------------------------------
Subtotal 303,023 1,797,144 29,673 294,097 1,835,743 2,129,840 55,357
----------------------------------------------------------------------------------
Grand Total $377,562 $2,502,648 $76,272 $369,770 $2,586,712 $2,956,482 $169,811
==================================================================================
<FN>
(1) Aggregate cost for federal income tax purposes is approximately $2,882,104.
(2) Depreciation is provided for on buildings and improvements for periods ranging up to 40 years and on equipment up to 12 years.
</FN>
S-7
HRPT PROPERTIES TRUST
Schedule III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(Dollars in thousands)
Reconciliation of the carrying amount of real estate and equipment and
accumulated depreciation at the beginning of the period:
Real Estate and Accumulated
Equipment Depreciation
-------------------- ----------------
Balance at January 1, 1996 $778,211 $55,855
Additions 227,528 21,066
-------------------- ----------------
Balance at December 31, 1996 1,005,739 76,921
Additions 998,579 37,619
Disposals (35,295) (2,871)
-------------------- ----------------
Balance at December 31, 1997 1,969,023 111,669
Additions 1,004,523 58,837
Disposals (17,064) (695)
-------------------- ----------------
Balance at December 31, 1998 $2,956,482 $169,811
==================== ================
S-8
HRPT PROPERTIES TRUST
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
(Dollars in thousands)
(1) Principal Amount of
Final Face Carrying Loans Subject to
Interest Maturity Value of Value of Delinquent Principal
Location Rate Date Periodic Payment Terms Mortgage Mortgage or Interest
- ----------------- --------- ----------- --------------------------------------------- --------------- --------- --------------------
Farmington, MI 11.50% 1/1/06 Principal and interest, payable monthly in $4,200 $4,200 $--
arrears. $3.8 million due at maturity.
Jacksonville, FL 10.50% 3/31/06 Interest only, payable monthly in arrears. 5,000 5,000 --
$5.0 million due at maturity.
Howell, MI 11.50% 1/1/06 Principal and interest, payable monthly in 4,981 4,981 --
arrears. $4.5 million due at maturity.
Ainsworth, NE 10.64% 12/31/16 Principal and interest, payable monthly in 5,154 5,154 --
Ashland, NE arrears. $2.8 million due at maturity.
Blue Hill, NE
Gretna, NE
Sutherland, NE
Waverly, NE
Ainsworth, NE 11.00% 12/31/16 Principal and interest, payable monthly in 2,052 2,052 --
Ashland, NE arrears. $1.1 million due at maturity.
Blue Hill, NE
Edgar, NE
Gretna, NE
Sutherland, NE
Waverly, NE
Lyons, NE
Milford, NE
Torrance, CA 12.50% 12/31/02 Principal and interest, payable monthly in 12,233 12,233 232
Torrance, CA arrears. $11.8 million due at maturity.
Anaheim, CA
Arleta, CA 9.96% 9/30/01 Interest only, payable monthly in arrears. 2,410 2,410 79
$2.4 million due at maturity.
S-9
HRPT PROPERTIES TRUST
SCHEDULE IV- continued
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
(Dollars in thousands)
(1) Principal Amount of
Final Face Carrying Loans Subject to
Interest Maturity Value of Value of Delinquent Principal
Location Rate Date Periodic Payment Terms Mortgage Mortgage or Interest
- ----------------- --------- ----------- --------------------------------------------- --------------- --------- --------------------
Spencer, NC 8.125% 2/1/99 Principal and interest, payable monthly in 2,973 2,803 --
arrears. $3.0 million due at maturity.
Slidell, LA 11.00% 12/31/10 Principal and interest, payable monthly in 18,992 18,992 --
arrears. $13.9 million due at maturity.
8 Mortgages 7.87% - 8/99-12/16 Interest only or principal and interest, 11,109 10,269 --
13.75% payable monthly in arrears.
- ----------------- --------- ----------- --------------------------------------------- --------------- --------- --------------------
$69,104 $68,094 $311
=============== ========= ====================
<FN>
(1) Also represents cost for federal income tax purposes.
</FN>
S-10
HRPT PROPERTIES TRUST
SCHEDULE IV-continued
MORTGAGE LOANS ON REAL ESTATE
December 31, 1998
(Dollars in thousands)
Reconciliation of the carrying amount of mortgage loans at the beginning of the period:
Balance at January 1, 1996 $139,248
New mortgage loans 5,918
Collections of principal, net of discounts (7,921)
----------------
Balance at December 31, 1996 137,245
New mortgage loans 1,520
Collections of principal, net of discounts (37,263)
----------------
Balance at December 31, 1997 101,502
Collections of principal, net of discounts (33,408)
----------------
Balance at December 31, 1998 $68,094
================
S-11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HRPT PROPERTIES TRUST
By: /s/ David J. Hegarty
David J. Hegarty
President and Chief Operating Officer
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons, or by their
attorney-in-fact, in the capacities and on the dates indicated.
Signature Title Date
/s/ David J. Hegarty President and Chief Operating Officer March 31, 1999
- ------------------------------------
David J. Hegarty
/s/ Ajay Saini Treasurer and Chief Financial Officer March 31, 1999
- ------------------------------------
Ajay Saini
/s/ Bruce M. Gans, M.D. Trustee March 31, 1999
- ------------------------------------
Bruce M. Gans, M.D.
/s/ Patrick F. Donelan Trustee March 31, 1999
- ------------------------------------
Patrick F. Donelan
/s/ Justinian Manning, C.P. Trustee March 31, 1999
- ------------------------------------
Rev. Justinian Manning, C.P.
/s/ Gerard M. Martin Trustee March 31, 1999
- ------------------------------------
Gerard M. Martin
/s/ Barry M. Portnoy Trustee March 31, 1999
- ------------------------------------
Barry M. Portnoy