UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _______________________
Commission file number _____________________ 1-12926 _________________________
____________________ BEACON PROPERTIES CORPORATION _______________________
(Exact name of Registrant as specified in its charter)
__________ Maryland _____________ _____________ 04-3224258 ___________
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
_________________50 Rowes Wharf, Boston, Massachusetts 02110___________________
___________________(Address of principal executive offices)____________________
(Zip Code)
_____________________________(617) 330-1400_________________________________
(Registrant's telephone number, including area code)
_______________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ----
APPLICABLE ONLY TO CORPORATE ISSUERS;
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date.
55,248,990 Shares of common stock, $.01 par value as of May 13, 1997
- --------------
1
BEACON PROPERTIES CORPORATION
FORM 10-Q
INDEX
-----
Page
----
Part I - Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the three
months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-14
Part II - Other Information
-----------------
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
2
BEACON PROPERTIES CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
----------------- -----------------
(unaudited)
(In thousands)
ASSETS
Real estate:
Land $ 213,813 $ 213,858
Buildings, improvements and equipment 1,482,626 1,477,672
----------------- -----------------
1,696,439 1,691,530
Less accumulated depreciation 110,994 97,535
----------------- -----------------
1,585,445 1,593,995
Deferred financing and leasing costs, net
of accumulated amortization of $17,590 and $16,370 18,155 17,321
Cash and cash equivalents 14,156 36,086
Restricted cash 3,159 2,599
Accounts receivable 10,641 11,609
Accrued rent 16,636 13,065
Prepaid expenses and other assets 19,028 1,093
Mortgage notes receivable 51,507 51,491
Investments in and advance to joint ventures and corporations 52,121 52,153
----------------- -----------------
Total assets $ 1,770,848 $ 1,779,412
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 451,862 $ 452,212
Note payable, Credit Facility 153,000 153,000
Accounts payable, accrued expenses and other liabilities 34,414 41,764
Investment in joint venture 24,458 24,735
----------------- -----------------
Total liabilities 663,734 671,711
----------------- -----------------
Commitments and contingencies --- ---
Minority interest in Operating Partnership 108,509 108,551
----------------- -----------------
Stockholders' equity:
Common stock, $.01 par value, authorized 100,000,000
shares, issued and outstanding 48,237,322 and 48,116,480 shares 482 481
Additional paid-in capital 1,025,803 1,022,110
Cumulative net income 78,067 60,047
Cumulative dividends (105,747) (83,488)
----------------- -----------------
Total stockholders' equity 998,605 999,150
----------------- -----------------
Total liabilities and stockholders' equity $ 1,770,848 $ 1,779,412
================= =================
The accompanying notes are an integral part of these
consolidated financial statements.
3
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Quarter Ended
March 31,
---------------------------------------------------------
1997 1996
---------------------------------------------------------
(Unaudited and in thousands, except per share amounts and
shares outstanding)
Revenues:
Rental income $ 63,601 $ 26,920
Management fees 821 750
Recoveries from tenants 8,351 3,245
Mortgage interest income 1,372 958
Other income 2,575 1,795
-------------------- -------------------
76,720 33,668
-------------------- -------------------
Expenses:
Property expenses 14,531 6,896
Real estate taxes 8,334 3,517
General and administrative 8,627 3,589
Mortgage interest expense 11,022 6,344
Interest - amortization of financing costs 477 561
Depreciation and amortization 14,214 5,862
-------------------- -------------------
57,205 26,769
-------------------- -------------------
Income from operations 19,515 6,899
Equity in net income of joint ventures and corporations 1,439 1,407
-------------------- -------------------
Income from continuing operations 20,954 8,306
Discontinued operations - Construction Company
Loss from operations (586) (407)
-------------------- -------------------
Income before minority interest and extraordinary item 20,368 7,899
Minority interest in Operating Partnership (2,348) (1,227)
-------------------- -------------------
Income before extraordinary item 18,020 6,672
Extraordinary item, net of minority interest --- (1,678)
-------------------- -------------------
Net income $ 18,020 $ 4,994
==================== ===================
Income from continuing operations per common share $ 0.38 $ 0.32
Discontinued operations - Construction Company
Loss from operations (0.01) (0.02)
-------------------- -------------------
Income per common share before extraordinary item 0.37 0.30
Extraordinary item --- (0.07)
-------------------- -------------------
Net income per common share $ 0.37 $ 0.23
==================== ===================
Weighted average common shares outstanding 48,156,877 22,074,715
==================== ===================
The accompanying notes are an integral part of these
consolidated financial statements.
4
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months
Ended March 31,
--------------------------------------------
1997 1996
--------------------------------------------
(unaudited and in thousands)
Cash flows from operating activities:
Net income $ 18,020 $ 4,994
---------------- ----------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Increase in accrued rent (3,571) (1,068)
Depreciation, amortization and amortization of financing costs 14,691 6,423
Equity in net income of joint ventures and corporations (853) (1,000)
Minority interest in Operating Partnership 2,348 1,227
Extraordinary item --- 1,678
Decrease (increase) in accounts receivable 968 (2,755)
Increase in prepaid expenses and other assets (557) (875)
(Decrease) increase in accounts payable and accrued expenses (2,638) 9,838
---------------- ----------------
Total adjustments 10,388 13,468
---------------- ----------------
Net cash provided by operating activities 28,408 18,462
---------------- ----------------
Cash flows from investing activities:
Property additions (9,019) (335,547)
Payment of deferred leasing costs (1,926) (1,745)
(Increase) decrease in prepaid expenses and other assets (17,378) 5,000
Purchase of mortgage notes receivable (16) (9)
Capital distributions from joint ventures 596 1,836
Increase in restricted cash (560) (1,662)
---------------- ----------------
Net cash used by investing activities (28,303) (332,127)
---------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of costs 3,092 175,329
Payment of deferred financing costs (128) (4,647)
Borrowings on Credit Facility --- 75,000
Payments on Credit Facility --- (205,500)
Borrowings on mortgage notes --- 593,000
Payments on mortgage notes (350) (260,158)
Decrease in prepaid expenses and other assets --- 2,300
Distributions paid to minority interest in Operating Partnership (2,390) (1,591)
Dividends paid to stockholders (22,259) (8,491)
---------------- ----------------
Net cash (used) provided by financing activities (22,035) 365,242
---------------- ----------------
Net (decrease) increase in cash and cash equivalents (21,930) 51,577
Cash and cash equivalents, beginning of period 36,086 4,501
---------------- ----------------
Cash and cash equivalents, end of period $ 14,156 $ 56,078
================ ================
Supplemental disclosures:
Cash paid during the period for interest $ 11,331 $ 5,343
================ ================
Non cash activities:
Increase in minority interest as a result of acquisition of properties $ --- $ 13,758
================ ================
The accompanying notes are an integral part of these
consolidated financial statements.
5
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
1. Organization and Basis of Presentation:
---------------------------------------
Organization
------------
Beacon Properties Corporation was incorporated on March 4, 1994 as a
Maryland Corporation, and commenced operations effective with the
completion of its Initial Public Offering (the "IPO") on May 26, 1994.
Beacon Properties Corporation, together with Beacon Properties, L.P.
(the "Operating Partnership") and their subsidiaries (collectively, the
"Company") was formed to continue and expand the commercial real estate
business of The Beacon Group (the "Predecessor"). The Company qualifies
as a real estate investment trust under the Internal Revenue Code of
1986, as amended.
The Company specializes in property ownership, management, leasing,
design and development and, as of May 13, 1997, owned or had an interest
in 103 properties totaling approximately 16.3 million square feet (the
"Properties").
Basis of Presentation
---------------------
The financial statements of the Company are consolidated and include all
the accounts of the Company, its majority owned Operating Partnership
and subsidiaries. All significant intercompany balances and transactions
have been eliminated.
The accompanying financial statements are unaudited; however, they have
been prepared in accordance with generally accepted accounting
principles for interim financial information and in conjunction with the
rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the disclosures required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation of
the financial statements for these interim periods have been included.
The results for the three months ended March 31, 1997 are not
necessarily indicative of the results to be obtained for the full fiscal
year. These financial statements should be read in conjunction with the
December 31, 1996 audited financial statements and notes thereto of the
Company, included in its annual report on Form 10-K (as amended by Form
10-K/A) for the fiscal year ended December 31, 1996. Certain
reclassifications have been made to previously reported amounts to
conform with current reporting.
6
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------
2. Equity Investments in Real Estate:
----------------------------------
The Company reports its share of income and losses based on its
ownership interest in the respective equity investments. Losses in
excess of investments are not recorded where the Company has not
guaranteed or does not intend to provide any future financial support.
The following summarized information has been presented for the property
joint ventures and property corporation for which the Company has
recorded its share of the earnings for the three months ended March 31,
1997.
One Post Polk & 75-101 Federal
Office Square Taylor Street
-------------------- ------------------- -----------------
(in thousands)
Balance sheets at March 31, 1997
Real estate, net $ 40,095 $ 90,607 $ 155,658
Cash 1,740 810 9,824
Other assets 10,777 2,167 2,801
-------------------- ------------------- -----------------
$ 52,612 $ 93,584 $ 168,283
==================== =================== =================
Mortgage notes payable $ 92,717 $ --- $ 90,000
Other liabilities 1,435 811 3,961
Equity (deficiency) (41,540) 92,773 74,322
-------------------- ------------------- -----------------
$ 52,612 $ 93,584 $ 168,283
==================== =================== =================
Summary of operations for the three months
ended March 31, 1997
Revenues $ 5,640 $ 5,827 $ 6,960
Other income 113 251 324
-------------------- ------------------- -----------------
Total revenues 5,753 6,078 7,284
-------------------- ------------------- -----------------
Operating expenses 2,344 1,543 3,006
Mortgage interest expense 1,704 --- 1,731
Depreciation and amortization 890 858 1,173
-------------------- ------------------- -----------------
Total expenses 4,938 2,401 5,910
-------------------- ------------------- -----------------
Net income $ 815 $ 3,677 $ 1,374
==================== =================== =================
Share of properties:
Depreciation and amortization $ 330 $ 86 $ 590
7
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
3. Commitments and Contingencies:
------------------------------
In March 1997, the Company entered into a contract to acquire an office
complex located in Westchester (suburban Chicago), Illinois (the
"Westbrook Corporate Center"). The purchase price of the property is
approximately $182.1 million, consisting of the assumption of $106
million of mortgage debt, the issuance of approximately $50 million of
units of limited partnership interest in the Operating Partnership
("Units") and approximately $26.1 million in cash.
4. Pro Forma Results (unaudited):
------------------------------
The following unaudited pro forma operating results for the Company have
been prepared as if the 1996 stock offerings and the 1996 property
acquisitions had occurred on January 1, 1996. Unaudited pro forma
financial information is presented for informational purposes only and
may not be indicative of what the actual results of operations of the
Company would have been had the events occurred as of January 1, 1996,
nor does it purport to represent the results of operations for future
periods.
Three Months ended March 31, 1997 and 1996 1997 1996
------------------------------------------ ---- ----
Revenue $ 76,720 $ 72,210
Income before extraordinary item 18,020 15,981
Net income per common share
before extraordinary item $ .37 $ .33
5. Subsequent Events:
------------------
On April 9, 1997, the Company converted its $300 million secured
floating-rate credit facility (the "Credit Facility") to an unsecured
facility and decreased the interest rate on the Credit Facility from the
Eurodollar rate plus 175 basis points (1.75%) to the Eurodollar rate
plus 120 basis points (1.20%). Additionally, on April 30, 1997, the
maximum loan amount available under the Credit Facility was increased to
$350 million.
On April 10, 1997, the Company sold 7,000,000 shares of common stock,
$.01 par value, to the public at $32.125 per share (the "April 1997
Offering"). The proceeds of the April 1997 Offering, net of offering
costs, were approximately $211.4 million. The net proceeds of the April
1997 Offering were used to purchase 10880 Wilshire Boulevard located in
Westwood, California and two office properties located in Fairfax
County, Virginia ("Centerpointe I and II") with the remaining balance
used to pay down the Credit Facility.
On April 23, 1997, the Company acquired 10880 Wilshire Boulevard located
in Westwood, California for aggregate consideration of approximately $99
million.
On April 24, 1997, the Company declared a dividend of $.4625 per common
share payable on May 23, 1997 to stockholders of record on May 9, 1997.
On April 30, 1997, the Company acquired Centerpointe I and II, located
in Fairfax County, Virginia for aggregate consideration of approximately
$55 million consisting of approximately $25 million in cash and
assumption of $30 million of mortgage debt.
On May 8, 1997, the Company sold the Westlakes Office Park property, its
sole property located in Berwyn (suburban Philadelphia), Pennsylvania
for approximately $72.5 million. The transaction will be treated as a
like-kind exchange in which the sale proceeds, which are currently held
in escrow, will be used to purchase a future acquisition property.
8
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This Form 10-Q contains forward looking statements within the meaning of Section
27A of the Securities Act of 1993 and Section 21E of the Securities Exchange Act
of 1934. The words "believe", "expect", "anticipate", "intend", "estimate" and
other expressions which are predictions of or indicate future events and trends
and which do not relate to historical matters identify forward-looking
statements. The Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: Real estate investment considerations, such as
the effect of economic and other conditions in the market area on cash flows and
values; the need to renew leases or relet space upon the expiration of current
leases, and the ability of a property to generate revenues sufficient to meet
debt service payments and other operating expenses; and risks associated with
borrowing, such as the possibility that the Company will not have sufficient
funds available to make principal payments on outstanding debt, outstanding debt
may be refinanced at higher interest rates or otherwise on terms less favorable
to the Company and interest rates under the Credit Facility may increase.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying financial
statements and notes thereto.
Results of Operations
Comparison of Three Months Ended March 31, 1997 and March 31, 1996
The Company's gross revenues increased by 128% for the three months ended March
31, 1997 compared to the corresponding period in 1996. The growth in gross
revenues was primarily the result of the acquisition of 78 Properties (the
"Acquisition Properties") comprising 9.1 million square feet during 1996. The
Company's proportionate share of weighted average square feet of office
properties increased by 112% to 14.0 million square feet for the three months
ended March 31, 1997 compared to 6.6 million square feet for the corresponding
period in 1996.
The Acquisition Properties increased revenues from rental operations, which
includes rental income, recoveries from tenants and other income, by $41.1
million for the three months ended March 31, 1997 compared to the corresponding
period in 1996. The remaining balance of the increase was primarily due to
increases in occupancy and rental rates and completion of the redevelopment and
achievement of 88% occupancy at the Crosby Corporate Center in 1996.
The impact of the straight-line rent adjustment increased consolidated revenues
for the Company by $3.6 million for the three months ended March 31, 1997 and
$1.1 million for the corresponding period in 1996. The impact of the
straight-line rent adjustment decreased the Company's equity in net income of
property joint ventures and corporations by $0.1 million for the three months
ended March 31, 1997 and increased the Company's equity in net income of
property joint ventures and corporations by $0.1 million for the corresponding
period in 1996.
Mortgage interest income for the three months ended March 31, 1997 was $1.4
million and $1.0 million for corresponding period in 1996. The increase of $0.4
million was the result of the Company's acquisition of the remaining portions of
the outstanding first mortgage indebtedness on the Rowes Wharf Property in April
and June 1996.
The Acquisition Properties increased property expenses, real estate taxes and
depreciation and amortization by $19.6 million for the three months ended March
31, 1997 compared to the corresponding period in 1996. The remaining balance of
the increase was primarily due to additional operating expenses as a result of
an increase in occupancy and the completion of the redevelopment and achievement
of 88% occupancy at the Crosby Corporate Center in 1996.
9
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
General and administrative expenses were $8.6 million for the three months ended
March 31, 1997 and $3.6 million for the corresponding period in 1996. The
Acquisition Properties increased general and administrative expenses by $1.5
million. The remaining balance of the increase was primarily due to an increase
in corporate management and administrative costs. In 1996, the Company
established its first regional offices in the Southeast and Mid-Atlantic and in
the first quarter of 1997 regional offices in the Midwest and West had begun to
be established. As a result, payroll expense increased by $1.8 million along
with an increase in other employee related expenses. General and administrative
expenses as a percentage of total revenue were 11.2% in 1997 and 10.65% in 1996.
Net operating income (excluding the effect of straight-line rents) for
properties owned for at least a full year (all properties except the Acquisition
Properties) increased 4.9% for the three months ended March 31, 1997 compared to
the corresponding period in 1996.
Mortgage interest expense was $11.0 million for the three months ended March 31,
1997 and $6.3 million for the corresponding period in 1996. The increase of $4.7
million was primarily the result of debt incurred or assumed in connection with
the acquisition in 1996 of the Perimeter Center Portfolio and the Fairfax County
Portfolio and an increase in the weighted average outstanding balance of the
Credit Facility of $153.0 million for the three months ended March 31, 1997
compared to $71.3 million for corresponding period in 1996.
Interest-amortization of financing costs was $0.5 million for the three months
ended March 31, 1997 and $0.6 million for the corresponding period in 1996. The
decrease of $0.1 million was primarily the result of the reduction in
amortization of financing costs of the Credit Facility as a result of the
write-off of fees and costs of the Credit Facility which was substantially
modified in June 1996.
Loss from discontinued operations from the Construction Company was $0.6 million
for the three months ended March 31, 1997 and $0.4 million for the corresponding
period in 1996. In December 1996, substantially all of the assets of the
Construction Company were sold to Skanska AB, a Swedish construction firm. The
Construction Company's new business plan involves the completion of certain
contracts not transferred to the purchaser and the liquidation of its remaining
assets.
An extraordinary item, net of minority interest, of $1.7 million loss for the
three months ended March 31, 1996 was recorded in connection with the write-off
of fees and costs to acquire a $260 million mortgage loan provided by Paine
Webber Real Estate Securities, Inc. used to acquire the Perimeter Center
Portfolio (the "Paine Webber Acquisition Loan"). The Paine Webber Acquisition
Loan was repaid in March 1996 approximately three years prior to its maturity.
The minority interest in the Operating Partnership represents the portion of the
Operating Partnership which is not owned by the Company.
10
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
As of March 31, 1997, the Company owned or had an interest in 104 income
producing commercial properties. The percent leased calculation includes all
leases executed as of March 31, 1997.
Rentable Percent Average Net Effective
Square Feet Leased Base Rent Rent
----------------- -------------- ------------- ----------------
Downtown Boston Office Market:
Center Plaza 649,000 98% $22.58 $12.63
75-101 Federal Street 812,000 92% 30.67 20.24
One Post Office Square 764,000 99% 24.29 15.46
150 Federal Street 530,000 100% 25.15 21.25
Russia Wharf 315,000 97% 14.22 8.09
Rowes Wharf 344,000 100% 29.89 18.56
Two Oliver-147 Milk Street 271,000 99% 17.08 11.72
175 Federal Street 203,000 99% 25.21 15.58
South Station 149,000 100% 30.67 20.77
--------------------------------------------------------------------------------------------------------------------
Subtotal 4,037,000 98% 24.92 16.38
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
North Central Atlanta Office Market:
Perimeter Center Portfolio 3,302,000 96% 16.69 11.58
--------------------------------------------------------------------------------------------------------------------
Greater Boston Suburban Office Market:
Wellesley Office Park Buildings 1-8 623,000 100% 24.15 16.99
Crosby Corporate Center 336,000 88% 13.37 9.57
Westwood Business Centre 160,000 100% 19.55 11.34
New England Executive Park 817,000 97% 18.47 11.63
--------------------------------------------------------------------------------------------------------------------
Subtotal 1,936,000 97% 19.53 13.00
--------------------------------------------------------------------------------------------------------------------
Cambridge Office Market:
One Canal Park 100,000 100% 22.05 13.99
Ten Canal Park 110,000 92% 19.23 12.42
The Riverview Building 263,000 100% 22.34 17.46
--------------------------------------------------------------------------------------------------------------------
Subtotal 473,000 98% 21.55 15.55
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Suburban Philadelphia Office Market:
Westlakes 1, 2, 3 & 5 444,000 100% 20.34 15.84
--------------------------------------------------------------------------------------------------------------------
Suburban Virginia Office Market:
Polk and Taylor Buildings 890,000 100% 23.77 19.23
E.J. Randolph 165,000 99% 20.99 15.23
John Marshall I 261,000 100% 18.26 15.85
Northridge I 124,000 100% 25.96 19.34
1300 North 17th Street 373,000 98% 24.24 17.13
1616 North Fort Myer Drive 293,000 100% 23.07 15.45
--------------------------------------------------------------------------------------------------------------------
Subtotal 2,106,000 100% 22.98 17.61
--------------------------------------------------------------------------------------------------------------------
11
Washington, D.C. Office Market:
--------------------------------------------------------------------------------------------------------------------
1333 H Street 239000 90% 27.38 20.20
--------------------------------------------------------------------------------------------------------------------
Suburban Chicago Office Market:
AT&T Plaza 225,000 98% 20.80 14.16
Tri-State International 548,000 83% 22.49 15.80
Presidents Plaza 791,000 91% 19.44 12.16
--------------------------------------------------------------------------------------------------------------------
Subtotal 1,564,000 89% 20.70 13.72
--------------------------------------------------------------------------------------------------------------------
West Los Angeles Office Market:
10960 Wilshire Boulevard 544,000 89% 24.70 18.52
--------------------------------------------------------------------------------------------------------------------
Subtotal 544,000 89% 24.70 18.52
--------------------------------------------------------------------------------------------------------------------
Silicon Valley Office Market: (NNN)
Shoreline Technology Park 727,000 100% 17.84 18.77
Lake Marriott Business Park 400,000 100% 9.80 10.78
--------------------------------------------------------------------------------------------------------------------
Subtotal 1,127,000 100% 14.98 15.94
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Total Weighted Average Properties 15,772,000 96% $20.94 $14.92
--------------------------------------------------------------------------------------------------------------------
Base rent is gross rent excluding payments by tenants on account of real
estate tax and operating expense escalation.
Net Effective Rent is Base Rent adjusted on a straight-line basis for
contractual rent step-ups and free rent periods, plus tenant payments on
account of real estate tax and operating expense escalation, less total
operating expenses and real estate taxes.
The following table reflects the lease expiration schedule of the 104 income
producing commercial properties the Company owned or had an interest in as of
March 31, 1997.
Year or period of Square % of Annual Annual Rent
Expiration Feet Square feet Rent (1) per Square Foot # of tenants
-----------------------------------------------------------------------------------------------------------------------------
4/1-12/31/97 2,053,205 13.0% $42,439,146 $20.67 189
1998 1,074,143 6.8% 24,897,070 23.18 189
1999 1,561,188 9.9% 34,174,277 21.89 190
2000 2,217,647 14.1% 48,707,065 21.96 193
2001 2,701,909 17.1% 65,086,877 24.09 167
2002 1,236,509 7.8% 34,787,934 28.13 91
2003 588,104 3.7% 15,620,637 26.56 36
2004 633,616 4.0% 11,877,595 18.75 26
2005 & beyond 3,166,362 20.1% 86,853,794 27.43 63
--------------------------------------------------------------------------------------------------------
Total leased 15,232,683 96.5% $364,444,395 $23.93 1,144
--------------------------------------------------------------------------------------------------------
(1) Annualized expiring base rental income represented by such leases plus 1996
tenant payments on account of real estate tax and operating expense
escalations.
12
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
Liquidity and Capital Resources
Cash and cash equivalents were $14.2 million at March 31, 1997 compared to $36.1
million at December 31, 1996. The decrease in cash and cash equivalents was
primarily the result of an increase in deposits on pending property acquisitions
of $17.4 million.
Investing Activities
At March 31, 1997, the Company had approximately $17.4 million of deposits
outstanding in connection with the acquisition of Westbrook Corporate Center,
Centerpointe I and II, two office complexes located in Rosemont, Illinois and
175 Wyman Street, located in Waltham (suburban Boston), Massachusetts.
On April 23, 1997, the Company acquired 10880 Wilshire Boulevard located in
Westwood, California for aggregate consideration of approximately $99 million.
The Company used proceeds from the April 1997 Offering to purchase the
portfolio.
On April 30, 1997, the Company acquired Centerpointe I and II, located in
Fairfax County, Virginia, for aggregate consideration of approximately $55
million consisting of approximately $25 million in cash and assumption of $30
million of mortgage debt. The Company used proceeds from the April 1997 Offering
for the cash portion of the acquisition.
On May 8, 1997, the Company sold the Westlakes Office Park property, its sole
property located in Berwyn (suburban Philadelphia), Pennsylvania for
approximately $72.5 million. The transaction will be treated as a like-kind
exchange in which the sale proceeds, which are currently held in escrow, will be
used to purchase a future acquisition property.
Financing Activities
On April 10, 1997, the Company sold 7,000,000 shares of common stock, $.01 par
value, to the public at $32.125 per share. The proceeds of the April 1997
Offering, net of offering costs, were approximately $211.4 million. The net
proceeds of the April 1997 Offering were used to purchase 10880 Wilshire
Boulevard and Centerpointe I and II properties with the remaining balance used
to pay down the Credit Facility.
On April 24, 1997, the Company declared a dividend of $.4625 per common share
payable on May 23, 1997 to stockholders of record on May 9, 1997.
Capitalization
At March 31, 1997, the Company's total consolidated debt was approximately
$604.9 million, and its total consolidated debt plus its proportionate share of
total unconsolidated debt (other than the Rowes Wharf property debt) was
approximately $697.7 million at March 31, 1997. At March 31, 1997, the Company's
outstanding consolidated debt consisted of approximately $153.0 million under
its floating-rate Credit Facility and approximately $451.9 million of fixed rate
mortgage indebtedness with an weighted average rate of 7.22%, collateralized by
properties owned 100% by the Company. The Company's proportionate share of its
current total unconsolidated debt (excluding the Rowes Wharf property debt)
consists of approximately $46.4 million on the One Post Office Square Property
(in which the Company has a 50% general partner interest) and approximately
$46.4 million on the 75-101 Federal Street property (in which the Company owns
approximately 52% of the common stock of a private REIT that owns the property).
The weighted average rate of the Company's unconsolidated fixed rate mortgage
indebtedness is 7.47%. The weighted average rate of the Company's consolidated
and unconsolidated fixed rate mortgage indebtedness is 7.27% and the weighted
average maturity is approximately 6.7 years.
13
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
Based on the Company's total market capitalization of $2,503.3 million at March
31, 1997 (at the March 31, 1997 closing stock price of $33.125 per share and
including the 6,273,928 Units of minority interest in the Operating
Partnership), the Company's consolidated debt plus its proportionate share of
total unconsolidated debt (other than the Rowes Wharf property debt) represented
approximately 28% of its total market capitalization.
Funds from Operations
The Company believes that to facilitate a clear understanding of the operating
results of the Company, Funds from Operations ("FFO") should be examined in
conjunction with net income. The definition of FFO was clarified in the National
Association of Real Estate Investment Trusts, Inc. ("NAREIT") White Paper,
adopted by the NAREIT Board of Governors on March 3, 1995, as net income
(computed in accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of property, plus
depreciation and amortization (in each case only real estate related assets),
and after adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis. FFO should not be considered as a
substitute for net income as an indication of the Company's performance or as a
substitute for cash flow as a measure of its liquidity. The following table
presents the calculations for FFO for the periods ended March 31, 1997 and March
31, 1996.
For the Quarter ended
March 31,
-----------------------------------
1997 1996
---- ----
(in thousands)
Income before minority interest and extraordinary item $ 20,368 $ 7,899
Add consolidated properties:
Depreciation and amortization 14,214 5,862
Add joint ventures properties:
Depreciation and amortization 1,006 954
--------------- --------------
Funds from operations before minority interest 35,588 14,715
Company share of Operating Partnership 88.47% 84.46%
--------------- --------------
Company funds from operations $ 31,485 $ 12,428
=============== ==============
Weighted average common shares outstanding 48,157 22,075
=============== ==============
Short and Long Term Liquidity
The Company has considered its short-term (up to 12 months) liquidity needs and
the adequacy of expected liquidity sources to meet these needs. The Company
believes that its principal short-term liquidity needs are to fund normal
recurring expenses, debt service requirements and the minimum distribution
required to maintain the Company's REIT qualifications under the Internal
Revenue Code of 1986, as amended. The Company believes that these needs will be
fully funded from cash flows provided by operating activities.
The Company expects to meet long-term (greater than 12 months) liquidity
requirements for the costs of development, property acquisitions, scheduled debt
maturities, major renovations, expansions and other non-recurring capital
improvements through long-term secured and unsecured indebtedness and the
issuance of additional Operating Partnership Units and equity securities. The
Company may finance the redevelopment or acquisition of additional properties by
using its Credit Facility.
14
BEACON PROPERTIES CORPORATION
PART II
-------
OTHER INFORMATION
- -----------------
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Articles of Incorporation of the Company, as amended (Incorporated
by reference from the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1994)
3.2 Amended and Restated Bylaws of the Company (Incorporated by
reference from the Company's Registration Statement on Form S-3 (File
No. 333-17237))
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K dated December 20, 1996 (as amended by Form
8-K/A and Form 8-K/A-2) was filed which included information regarding Items 2
and 7. Included in Item 7 were financial statements, pro forma information and
exhibits. The Form 8-K was filed in connection with the Company's acquisition of
the Shoreline Technology Park, Lake Marriott Business Park and Presidents Plaza
properties.
A report on Form 8-K dated March 27, 1997 (as amended by Form
8-K/A) and a report on Form 8-K/A dated April 7, 1997 (as amended by Form 8-K/A)
were filed which included information regarding Items 5 and 7. Included in Item
7 were financial statements, pro forma information and exhibits. The reports
were filed in connection with the Company's pending acquisition of the Westbrook
Corporate Center, 10880 Wilshire Boulevard and Centerpointe I and II properties
and the April 1997 offering.
15
BEACON PROPERTIES CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BEACON PROPERTIES CORPORATION
/s/ Robert J. Perriello
-----------------------------
Robert J. Perriello,
Senior Vice President,
and Chief Financial Officer
Date: May 15, 1997
16