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 June 30, 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.
55,375,143 Shares of common stock, $.01 par value as of August 12, 1997
- --------------
1
BEACON PROPERTIES CORPORATION
FORM 10-Q
INDEX
Part I - Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the three and six
months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-18
Part II - Other Information
-----------------
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature 21
2
BEACON PROPERTIES CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
--------------- -----------------
(Unaudited)
(in thousands)
ASSETS
Real Estate:
Land $ 297,735 $ 213,858
Buildings, improvements and equipment 1,998,180 1,477,672
--------------- ----------------
2,295,915 1,691,530
Less accumulated depreciation 121,987 97,535
--------------- ----------------
2,173,928 1,593,995
Deferred financing and leasing costs, net of accumulated
amortization of $18,759 and $16,370 16,751 17,321
Cash and cash equivalents 49,171 36,086
Restricted cash 5,064 2,599
Accounts receivable 15,222 11,609
Accrued rent 20,717 13,065
Prepaid expenses and other assets 2,716 1,093
Mortgage notes receivable 51,507 51,491
Investments in and advance to joint ventures and corporations 51,345 52,153
--------------- ----------------
Total assets $ 2,386,421 $ 1,779,412
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 587,503 $ 452,212
Note payable, Credit Facility 149,000 153,000
Accounts payable, accrued expenses and other liabilities 66,973 41,764
Investment in joint venture 24,458 24,735
--------------- ----------------
Total liabilities 827,934 671,711
--------------- ----------------
Commitments and contingencies -- --
Minority interest in Operating Partnership 143,055 108,551
--------------- ----------------
Stockholders' equity:
Preferred stock, $.01 par value, authorized 25,000,000 shares, 80 --
8,000,000 shares of 8.98% Series A Cumulative Redeemable Preferred
Stock issued and outstanding (Aggregate liquidation preference of
$200,000)
Common stock, $.01 par value, authorized 100,000,000
shares, issued and outstanding 55,375,143 and 48,116,480 shares 554 481
Additional paid-in capital 1,435,479 1,022,110
Cumulative net income 110,619 60,047
Cumulative dividends (131,300) (83,488)
--------------- ----------------
Total stockholders' equity 1,415,432 999,150
--------------- ----------------
Total liabilities and stockholders' equity $ 2,386,421 $ 1,779,412
=============== ================
The accompanying notes are an integral part of these consolidated
financial statements.
3
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- --------------------------------
1997 1996 1997 1996
-------------- --------------- -------------- --------------
(Unaudited and in thousands, except per share amounts and
shares outstanding)
Revenues:
Rental income $ 71,086 $ 33,130 $ 134,688 $ 60,051
Management fees 758 768 1,579 1,517
Recoveries from tenants 9,246 3,538 17,598 6,782
Mortgage interest income 1,387 1,207 2,759 2,165
Other income 3,562 2,795 6,129 4,591
-------------- --------------- -------------- --------------
86,039 41,438 162,753 75,106
-------------- --------------- -------------- --------------
Expenses:
Property expenses 16,785 7,874 31,316 14,770
Real estate taxes 9,146 4,313 17,480 7,831
General and administrative 9,090 3,774 17,711 7,362
Mortgage interest expense 11,641 7,317 22,663 13,661
Interest - amortization of financing costs 260 623 737 1,184
Depreciation and amortization 17,609 7,484 31,823 13,346
-------------- --------------- -------------- --------------
64,531 31,385 121,730 58,154
-------------- --------------- -------------- --------------
Income from operations 21,508 10,053 41,023 16,952
Equity in net income of joint ventures and corporations 1,861 1,245 3,300 2,652
-------------- --------------- -------------- --------------
Income from continuing operations 23,369 11,298 44,323 19,604
Discontinued operations - Construction Company
Loss from operations (887) (663) (1,473) (1,070)
Gain on sale of property 16,736 ---- 16,736 ----
-------------- --------------- -------------- --------------
Income before minority interest 39,218 10,635 59,586 18,534
Minority interest in Operating Partnership (4,331) (1,453) (6,679) (2,681)
-------------- --------------- -------------- --------------
Income before extraordinary items 34,887 9,182 52,907 15,853
Extraordinary items, net of minority interest (2,335) (1,632) (2,335) (3,309)
-------------- --------------- -------------- --------------
Net income 32,552 7,550 50,572 12,544
Income allocated to preferred shareholders (898) ---- (898) ----
-------------- --------------- -------------- --------------
Net income available to common shareholders $ 31,654 $ 7,550 $ 49,674 $ 12,544
============== =============== ============== ==============
Net income per common share before extraordinary items $ 0.62 $ 0.34 $ 1.02 $ 0.64
Extraordinary items (0.04) (0.06) (0.05) (0.13)
-------------- --------------- -------------- --------------
Net income per common share $ 0.58 $ 0.28 $ 0.97 $ 0.51
============== =============== ============== ==============
Weighted average common shares outstanding 54,132,915 27,289,369 51,161,405 24,682,042
============== =============== ============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
4
BEACON PROPERTIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
---------------------------------------------
1997 1996
--------------------- ------------------
(Unaudited in thousands)
Cash flows from operating activities:
Net income $ 50,572 $ 12,544
--------------------- -----------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Increase in accrued rent (7,652) (2,581)
Depreciation, amortization and amortization of financing costs 32,560 14,530
Equity in net income of joint ventures and corporations (1,827) (1,582)
Minority interest in Operating Partnership 6,679 2,681
Gain on sale of property (16,736) ---
Extraordinary items 2,335 3,309
Increase in accounts receivable (3,613) (2,151)
Increase in prepaid expenses and other assets (265) (441)
Increase in accounts payable and accrued expenses 29,921 9,087
--------------------- ------------------
Total adjustments 41,402 22,852
--------------------- ------------------
Net cash provided by operating activities 91,974 35,396
--------------------- ------------------
Cash flows from investing activities:
Property additions (499,643) (342,276)
Proceeds from sale of property 72,500 ---
Payment of deferred leasing costs (4,330) (2,751)
(Increase) decrease in prepaid expenses and other assets (1,358) 3,000
Purchase of mortgage notes receivable (16) (16,708)
Capital distributions from joint ventures 2,335 2,840
Increase in restricted cash (2,465) (2,274)
--------------------- ------------------
Net cash used by investing activities (432,977) (358,169)
--------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of common stock, net of costs 219,570 175,024
Proceeds from issuance of preferred stock, net of costs 193,350 ---
Payment of deferred financing costs (1,019) (5,051)
Borrowings on Credit Facility 348,000 75,000
Payments on Credit Facility (352,000) (205,500)
Borrowings on mortgage notes --- 593,000
Payments on mortgage notes (709) (260,318)
Decrease in prepaid expenses and other assets --- 2,300
Distributions paid to minority interest in Operating
Partnership (5,292) (3,297)
Dividends paid to stockholders (47,812) (19,946)
--------------------- ------------------
Net cash provided by financing activities 354,088 351,212
--------------------- ------------------
Net increase in cash and cash equivalents 13,085 28,439
Cash and cash equivalents, beginning of period 36,086 4,501
--------------------- ------------------
Cash and cash equivalents, end of period $ 49,171 $ 32,940
===================== ==================
Supplemental disclosures:
Cash paid during the period of interest $ 21,004 $ 12,364
===================== ==================
Non cash activities:
Redemption of Operating Partnership units for common stock $ --- $ 486
===================== ==================
Increase in minority interest as a result of acquisition of
properties $ 33,417 $ 13,758
===================== ==================
Liabilities assumed in connection with contributions and
acquisitions of properties $ 136,000 $ ---
===================== ==================
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 currently owns or has an interest in 118
properties totaling approximately 18.8 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 six months ended June 30, 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 six months ended June
30, 1997.
75-101
One Post Polk & Federal
Office Square Taylor Street
------------------ ------------------ ---------------
(in thousands)
Balance sheets at June 30, 1997
Real estate, net $ 40,433 $ 89,800 $ 155,251
Cash 1,631 986 9,640
Other assets 10,438 2,052 2,444
------------------ ------------------ ---------------
$ 52,502 $ 92,838 $ 167,335
================== ================== ===============
Mortgage notes payable $ 92,273 $ --- $ 90,000
Other liabilities 1,581 477 2,420
Equity (deficiency) (41,352) 92,361 74,915
------------------ ------------------ ---------------
$ 52,502 $ 92,838 $ 167,335
================== ================== ===============
Summary of operations for the six months
ended June 30, 1997
Revenues $ 11,369 $ 11,580 $ 14,569
Other income 240 401 676
------------------ ------------------ ---------------
Total revenues 11,609 11,981 15,245
------------------ ------------------ ---------------
Operating expenses 4,503 3,100 5,938
Mortgage interest expense 3,399 --- 3,460
Depreciation and amortization 1,785 1,715 2,367
------------------ ------------------ ---------------
Total expenses 9,687 4,815 11,765
------------------ ------------------ ---------------
Net income $ 1,922 $ 7,166 $ 3,480
================== ================== ===============
Share of properties:
Depreciation and amortization $ 712 $ 172 $ 1,192
Interest - amortization of financing costs 419 --- 29
7
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
3. Mortgage Notes Payable:
-----------------------
On April 30, 1997, in connection with the acquisition of Centerpointe I
and II located in Fairfax County, Virginia, the Company assumed $30
million of mortgage debt secured by the properties. The mortgage has a
remaining term of 3.9 years, bears interest at 7.32% and requires
monthly installments of interest only until December 1, 1999 and
principal and interest during the remaining term based on a 25-year
amortization schedule.
On May 23, 1997, in connection with the acquisition of Westbrook
Corporate Center located in suburban Chicago, the Company assumed
approximately $82 million of million of mortgage debt and borrowed $24
million of additional mortgage debt secured by the properties. The
mortgage has a term of ten years, bears interest at 8.00% and requires
monthly installments of principal and interest based on a 26-year
amortization schedule.
4. Note Payable, Credit Facility:
------------------------------
On April 8, 1997, the Company replaced 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.
As a result of the new unsecured Credit Facility, the Company recorded
an extraordinary item of $2.3 million, net of minority interest, in
connection with the write-off of fees and costs to acquire the prior
secured Credit Facility.
5. Commitments and Contingencies:
------------------------------
In connection with the acquisition of the Westbrook Corporate Center,
the Company has agreed to maintain non-recourse financing assumed from
the sellers for a 10 year period and not to sell or otherwise transfer
any portion of the property prior to the tenth anniversary of the
closing date. If the Company should choose not to maintain the
non-recourse provisions of the existing or new debt, or should choose
to sell the property, within the 10 year period it shall be required to
make payments to the sellers.
6. Environmental issue:
--------------------
Site assessments at 175 Wyman Street have identified the presence of
trichloroethylene and tetrachloroethylene in the groundwater (the
"Existing Groundwater Condition"). The chemicals in the groundwater are
believed to be associated with former manufacturing use of the
Property. Prior to the acquisition of the Property by the Company, the
former owner of the Property, Hewlett-Packard Company, reported the
Existing Groundwater Condition to the Massachusetts Department of
Environmental Protection (the "DEP). Hewlett-Packard Company sought and
obtained approval from DEP of an Immediate Response Action which
involves installation of a system to extract and treat contaminated
groundwater (the "System). According to its submissions to DEP,
Hewlett-Packard Company is in the process of installing the System. In
its purchase and sale agreement with the Company, Hewlett-Packard
Company agreed to indemnify the Company against costs of remediating
the Existing Groundwater Condition and claims by off-site parties for
property damage, personal injury, and natural resource damages related
to the Existing Groundwater Condition (the "Indemnity"). Any claim
under the Indemnity is subject to the risk that the indemnifying party
will lack sufficient assets to satisfy the claim. Moreover, any claim
under the Indemnity may be subject to substantial defenses, including
but not limited to the defense that the claim was exacerbated by the
Company's development or redevelopment of the Property, as to which
matters the Company has indemnified Hewlett-Packard Company. However,
the Company does not believe that any such liability would have a
material adverse effect on its financial condition, results of
operations and liquidity.
8
BEACON PROPERTIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
7. Pro Forma Results (unaudited):
------------------------------
The following unaudited pro forma operating results for the Company
have been prepared as if the 1996 and 1997 stock offerings and the 1996
and 1997 property acquisitions and dispositions 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.
Six Months ended June 30, 1997 and 1996 1997 1996
--------------------------------------- ----------------------
Revenue $191,057 $179,939
Income before extraordinary item 38,760 33,911
Net income per common share
before extraordinary item and gain on sale $ .70 $ .61
8. Subsequent Events:
------------------
On July 1, 1997, the Company acquired Sunnyvale Business Center located
in Sunnyvale, California for aggregate consideration of approximately
$33.8 million.
On July 31, 1997, the Company declared a dividend of $.50 per common
share payable on August 22, 1997 to stockholders of record on August 8,
1997.
On August 8, 1997, the Company amended the Credit Facility to provide
for a competitive bid option and a decrease in the interest rate on the
Credit Facility from the Eurodollar rate plus 120 basis points (1.20%)
to the Eurodollar rate plus 90 basis points (.90%).
9
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 1933 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 and Six Months Ended June 30, 1997 and June 30, 1996
The Company's gross revenues increased by 117% for the six months ended June 30,
1997 compared to the corresponding period in 1996. The growth in gross revenues
was primarily the result of the acquisition of 87 Properties (the "Acquisition
Properties" ) comprising 12.0 million square feet during 1996 and 1997 offset by
the sale of the Westlakes Office Park Property in May 1997. The Company's
proportionate share of weighted average square feet of office properties
increased by 97% to 14.6 million square feet for the six months ended June 30,
1997 compared to 7.4 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 $44.1 and
$85.2 million for the three and six months ended June 30, 1997, respectively,
compared to the corresponding periods 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 offset by the decrease in revenues as a result of the
sale of Westlakes Office Park.
The impact of the straight-line rent adjustment increased consolidated revenues
for the Company by $7.7 million for the six months ended June 30, 1997 and $2.6
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 six months ended June 30, 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.
The impact of the straight-line rent adjustment increased consolidated revenues
for the Company by $4.1 million for the three months ended June 30, 1997 and
$1.5 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 June 30, 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.
10
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
Mortgage interest income for the three and six months ended June 30, 1997 was
$1.4 and $2.8 million, respectively, compared to $1.2 and $2.2 million for
corresponding periods in 1996. The increase is 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 $21.8 and $41.7 million for the three and six
months ended June 30, 1997, respectively, compared to the corresponding periods
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 offset by the decrease in expenses as a result of the sale of the
Westlakes Office Park.
General and administrative expenses were $9.1 and $17.7 million for the three
and six months ended June 30, 1997, respectively, compared to $3.8 and $7.4
million for the corresponding periods in 1996. The Acquisition Properties
increased general and administrative expenses by $1.4 and $2.5 million for the
three and six month periods, respectively. 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 were established. As a result, payroll expense increased by
$4.1 million for the six months ended June 30, 1997 along with an increase in
other corporate and regional general and administrative expenses. General and
administrative expenses as a percentage of total revenue were 10.9% for the six
months ended June 30, 1997 compared to 9.8% for the corresponding period 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 7.2% and 6.2% for the three and six months ended June 30,
1997, respectively, compared to the corresponding periods in 1996.
Mortgage interest expense was $11.6 and $22.7 million for the three and six
months ended June 30, 1997, respectively, compared to $7.3 and $13.7 million for
the corresponding periods in 1996. The increase in both periods was primarily
the result of debt incurred or assumed in connection with several of the
Acquisition Properties and an increase in the weighted average outstanding
balance of the Credit Facility.
Interest-amortization of financing costs was $0.3 and $0.7 million for the three
and six months ended June 30, 1997, respectively, compared to $0.6 and $1.2
million for the corresponding periods in 1996. The decrease 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 both June 1996 and April 1997.
Equity in net income of joint ventures and corporations was $1.9 and $3.3
million for the three and six months ended June 30, 1997, respectively, compared
to $1.2 and $2.7 million for the corresponding periods in 1996. The increase in
both periods was primarily the result of an increase in equity in net income
from 75-101 Federal Street as a result of a termination fee recognized in 1997.
Loss from discontinued operations from the Construction Company was $0.9 and
$1.5 million for the three and six months ended June 30, 1997, respectively,
compared to $0.7 and $1.1 million for the corresponding periods 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.
In May 1997, the Company sold the Westlakes Office Park property, its sole
property located in Berwyn (suburban Philadelphia), Pennsylvania for
approximately $72.5 million and recorded a gain on the sale of the property of
$16.7 million.
11
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
Extraordinary items, net of minority interest, was $2.3 million for the three
and six months ended June 30, 1997, compared to $1.6 and $3.3 million for the
corresponding periods in 1996. In 1997, the Company recorded an extraordinary
item in connection with the write-off of fees and costs of the secured Credit
Facility which was replaced with an unsecured facility in April 1997. In March
1996, the Company recorded an extraordinary item of $1.8 million, net of
minority interest, 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. Also in 1996, an extraordinary
item of $1.5 million, net of minority interest, was recorded in connection the
write-off of fees and costs of the Credit Facility which was substantially
modified in June 1996.
The minority interest in the Operating Partnership represents the portion of the
Operating Partnership which is not owned by the Company.
12
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
As of June 30, 1997, the Company owned or had an interest in 116 income
producing commercial properties. The percent leased calculation includes all
leases executed as of June 30, 1997.
Average
Rentable Percent Base Net Effective
Square Feet Leased Rent(1) Rent(2)
----------------- -------------- ------------ ----------------
Downtown Boston Office Market:
Center Plaza 649,000 97% $22.66 $12.83
75-101 Federal Street 813,000 92% 30.52 20.04
225 Franklin Street 930,000 100% 36.61 32.67
One Post Office Square 764,000 99% 24.54 15.70
150 Federal Street 530,000 100% 25.15 21.25
Russia Wharf 311,000 100% 14.58 8.28
Rowes Wharf 344,000 100% 30.22 18.74
Two Oliver-147 Milk Street 270,000 99% 18.33 11.67
175 Federal Street 203,000 99% 25.61 15.62
South Station 149,000 100% 30.85 20.89
-------------------------------------------------------------------------------------------------------------------
Subtotal 4,963,000 98% 27.26 19.49
-------------------------------------------------------------------------------------------------------------------
North Central Atlanta Office Market:
Perimeter Center Portfolio 3,302,000 98% 16.85 11.61
-------------------------------------------------------------------------------------------------------------------
Greater Boston Suburban Office Market:
Wellesley Office Park Buildings 1-8 633,000 99% 24.70 17.29
Crosby Corporate Center 336,000 98% 13.91 10.02
Westwood Business Centre 160,000 96% 19.57 11.33
New England Executive Park 817,000 96% 19.40 12.44
-------------------------------------------------------------------------------------------------------------------
Subtotal 1,946,000 98% 20.19 13.51
-------------------------------------------------------------------------------------------------------------------
Cambridge Office Market:
One Canal Park 100,000 100% 22.05 13.99
Ten Canal Park 111,000 100% 19.00 12.16
The Riverview Building 263,000 100% 22.34 17.46
-------------------------------------------------------------------------------------------------------------------
Subtotal 474,000 98% 21.49 15.49
-------------------------------------------------------------------------------------------------------------------
Arlington County, Virginia Office Market:
Polk and Taylor Buildings 890,000 100% 23.77 19.23
1300 North 17th Street 373,000 99% 24.14 17.09
1616 North Fort Myer Drive 293,000 100% 23.38 15.47
-------------------------------------------------------------------------------------------------------------------
Subtotal 1,556,000 100% 23.78 18.01
-------------------------------------------------------------------------------------------------------------------
Fairfax County, Virginia Office Market:
E.J. Randolph 165,000 99% 21.08 15.24
John Marshall I 261,000 100% 18.26 15.85
Northridge I 124,000 100% 25.96 19.34
Centerpointe I & II 408,000 99% 16.42 12.72
-------------------------------------------------------------------------------------------------------------------
Subtotal 958,000 99% 18.96 14.87
-------------------------------------------------------------------------------------------------------------------
Washington, D.C. Office Market:
-------------------------------------------------------------------------------------------------------------------
1333 H Street 239,000 91% 27.34 20.11
-------------------------------------------------------------------------------------------------------------------
13
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
Average
Rentable Percent Base Net Effective
Square Feet Leased Rent(1) Rent(2)
--------------- ------------ ------------ ---------------
Suburban Chicago Office Market:
AT&T Plaza 225,000 98% 21.02 14.19
Tri-State International 548,000 81% 22.41 15.55
Presidents Plaza 791,000 95% 19.64 11.73
Westbrook Corporate Center 1,106,000 92% 24.23 18.83
-------------------------------------------------------------------------------------------------------------------
Subtotal 2,670,000 91% 22.23 15.66
-------------------------------------------------------------------------------------------------------------------
West Los Angeles Office Market:
10960 Wilshire Boulevard 544,000 89% 24.70 18.52
10880 Wilshire Boulevard 531,000 85% 20.32 16.40
-------------------------------------------------------------------------------------------------------------------
Subtotal 1,075,000 87% 22.53 17.48
-------------------------------------------------------------------------------------------------------------------
Silicon Valley Office Market: (NNN)
Shoreline Technology Park 727,000 100% 17.88 18.77
Lake Marriott Business Park 400,000 100% 10.29 10.78
-------------------------------------------------------------------------------------------------------------------
Subtotal 1,127,000 100% 15.18 15.94
-------------------------------------------------------------------------------------------------------------------
Total Weighted Average Properties 18,312,000 97% $22.00 $16.07
-------------------------------------------------------------------------------------------------------------------
(1) Base rent is gross rent excluding payments by tenants on account of real
estate tax and operating expense escalation.
(2) 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 116 income
producing commercial properties the Company owned or had an interest in as of
June 30, 1997.
Year or period of Square % of Annual Annual Rent
Expiration Feet Square feet Rent (1) per Square Foot # of tenants
- ------------------------------------------------------------------------------------------------------------------------
7/1-12/31/97 1,894,980 10% $38,710,783 $20.43 152
1998 1,198,783 7% 28,682,704 23.93 209
1999 1,649,559 9% 36,607,256 22.19 206
2000 2,472,518 14% 59,129,659 23.91 230
2001 3,084,082 17% 77,053,697 24.98 200
2002 1,679,963 9% 47,309,329 28.16 127
2003 659,376 4% 17,635,744 26.75 42
2004 814,326 4% 17,911,161 22.00 36
2005 & beyond 4,248,303 23% 131,437,074 30.94 76
--------------------------------------------------------------------------------------------------
Total leased 17,701,889 97% $454,477,407 $25.67 1,278
--------------------------------------------------------------------------------------------------
(1) Annualized expiring base rental income represented by such leases plus 1996
tenant payments on account of real estate tax and operating expense escalations.
14
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
The following schedule summarizes the scheduled amortization of principal and
maturities of mortgage loans outstanding and the related weighted average
interest rate. The schedule includes the company's share of unconsolidated debt
of joint ventures.
Scheduled Weighted Average
Year Amortization Maturities Total Interest Rate
- ------------------------------------------------------------------------------------------------------------
7/1-12/31/97 $1,625,000 $1,625,000 7.77%
1998 5,514,000 $68,683,000 74,197,000 6.96%
1999 9,036,000 9,036,000 7.46%
2000 9,663,000 42,746,000 52,409,000 7.35%
2001 8,986,000 29,012,000 37,998,000 7.35%
2002 9,414,000 44,002,000 53,416,000 7.58%
2003 7,920,000 108,517,000 116,436,000 7.25%
2004 7,869,000 16,744,000 24,614,000 8.25%
2005 8,170,000 8,170,000 7.42%
2006 4,514,000 184,282,000 188,796,000 7.10%
2007 876,000 112,507,000 113,384,000 8.04%
----------------------------------------------------------------------------
Total $73,587,000 $606,493,000 $680,080,000 7.39%
----------------------------------------------------------------------------
15
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
Liquidity and Capital Resources
Cash and cash equivalents were $49.2 million at June 30, 1997 compared to $36.1
million at December 31, 1996. On July 1, 1997, $33.8 million of cash was used to
acquire Sunnyvale Business Center located in Sunnyvale, California.
Investing Activities
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 property.
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 was structured as a like-kind
exchange, with the proceeds from the sale used in connection with the
acquisition of 255 Franklin Street located in Boston, Massachusetts.
On May 13 1997, the Company acquired 26.7 acres of land and a 335,000 square
foot building located at 175 Wyman Street, Waltham, Massachusetts for
approximately $24.0 million. The Company plans to begin development on a 400,000
square foot office property in late 1997 or early 1998. The Company used
proceeds from the April 1997 Offering to purchase the property.
On May 23, 1997, the Company acquired Westbrook Corporate Center located in
suburban Chicago, for aggregate consideration of approximately $182.1 million
consisting of assumption of $82 million of mortgage debt, the borrowing of
approximately $24 million of additional mortgage debt, approximately $42.7
million in cash and the issuance of $33.4 million of units of limited
partnership interest in the Operating Partnership ("Units"). The Company used
proceeds from the April 1997 Offering for the cash portion of the acquisition.
On June 4, 1997, the Company acquired 225 Franklin Street located in Boston,
Massachusetts, for approximately $280 million. The Company used proceeds from
the Preferred Offering and proceeds from the sale of the Westlakes Office park
property to purchase the property.
Financing Activities
On April 16, 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, the cash portions of the acquisition of Centerpointe I and II and
Westbrook Corporate Center properties and 175 Wyman Street with the remaining
balance used to pay down the Credit Facility.
On June 13, 1997, the Company sold 8,000,000 shares of cumulative redeemable
preferred stock, $.01 par value, to the public at $25.00 per share at a yield of
8.98% (the "Preferred Offering"). The proceeds of the Preferred Offering, $193.4
million net of offering costs, were used to acquire the 225 Franklin Street
property.
On July 31, 1997, the Company declared a dividend of $.50 per common share
payable on August 22, 1997 to stockholders of record on August 8, 1997.
16
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
Capitalization
At June 30, 1997, the Company's total consolidated debt was approximately $736.5
million, and its total consolidated debt plus its proportionate share of total
unconsolidated debt (other than the Rowes Wharf Property debt) was approximately
$829.1 million. At June 30, 1997, the Company's outstanding consolidated debt
consisted of approximately $149.0 million under its floating-rate Credit
Facility and approximately $587.5 million of fixed rate mortgage indebtedness
with an weighted average rate of 7.38%, 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 $46.1 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 7.39% and the weighted
average maturity is approximately 6.8 years.
Based on the Company's total market capitalization of $3,118.4 million at June
30, 1997 (at the June 30, 1997 closing stock price of $33.313 per share and
including the 7,343,451 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 27% 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 June 30, 1997 and June
30, 1996.
For the three months For six months ended
ended June 30, June 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---- ---- ---- ----
(in thousands)
Income before minority interest $ 39,218 $ 10,635 $ 59,586 $ 18,534
Add consolidated properties:
Depreciation and amortization 17,609 7,484 31,823 13,346
Add joint venture properties:
Depreciation and amortization 1,070 1,040 2,076 1,994
Less gain on sale of property (16,736) ----- (16,736) -----
------------ ------------ ----------- -----------
Funds from operations 41,161 19,159 76,749 33,874
Less Series A Preferred Dividends (898) ----- (898) -----
------------ ------------ ----------- -----------
Available for allocation 40,263 19,159 75,851 33,874
Company share of Operating Partnership 88.75% 86.33% 88.62% 85.49%
------------ ------------ ----------- -----------
Company funds from operations $ 35,733 $ 16,540 $ 67,219 $ 28,959
============ ============ =========== ===========
Weighted average common shares outstanding 54,133 27,289 51,161 24,682
============ ============ =========== ===========
17
BEACON PROPERTIES CORPORATION
PART I - ITEM 2
-------
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.
18
BEACON PROPERTIES CORPORATION
PART II
OTHER INFORMATION
- -----------------
Item 1. Legal Proceedings
On April 3, 1997, the Commonwealth of Massachusetts (the
"Commonwealth") filed a claim against the Beacon Construction Company,
Inc. and certain other parties relating to the construction of the
Registry of Motor Vehicles Building (the "RMV Building"), located at
Ruggles Center, Boston, Massachusetts, which seeks to recover damages
from Beacon Construction Company, Inc. as a result of its alleged
negligence in connection with the construction of the RMV Building. The
Company is unable to quantify the claims of the Commonwealth but does
not believe that the proceedings will have a material adverse effect on
the Company's financial condition, results of operations and liquidity.
Item 2. Changes in Securities
(a) None
(b) On June 13, 1997, the Company issued 8,000,000 shares of 8.98% Series A
Preferred Stock, $.01 par value per share. The 8.98% Series A Preferred
Stock ranks senior to the Company's Common Stock.
(c) Recent Sales of Unregistered Securities:
During the three months ended June 30, 1997, the Operating Partnership
issued Units in private placements in reliance on an exemption from
registration under Section 4(2) of the Securities Act of 1933, as
amended, in the amount and for the consideration set forth below. Each
Unit, other than Series A Preferred Units, is redeemable for cash, or,
at the option of the Company, for shares of the Company's common stock,
on a one-for-one basis.
On April 16, 1997, the Operating Company issued 7,000,000 Units to the
Company in exchange for the contribution of the net proceeds of
approximately $211.4 million from the Company's public offering of a
like number of shares of common stock.
On May 23, 1997, the Operating Partnership issued 1,374,006 Units to
the contributors of the Westbrook Corporate Center in exchange for
their interests in the property.
Item 3. Defaults Upon Senior Securities
None
19
BEACON PROPERTIES CORPORATION
PART II
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on May 22, 1997.
The stockholders voted to elect Norman B. Leventhal, Scott M. Sperling
and Lionel P. Fortin to serve as Class III Directors of the Company
until 2000 and Dale F. Frey to serve as Class II Director of the
Company until 1999. 41,414,084 votes were cast for and 650,033 votes
were withheld from the election of Norman B. Leventhal. 41,481,043
votes were cast for and 583,074 votes were withheld from the election
of Scott M. Sperling. 41,436,463 votes were cast for and 627,654 votes
were withheld from the election of Lionel P. Fortin. 41,476,155 votes
were cast for and 587,962 votes were withheld from the election of Dale
F. Frey. Graham O. Harrison and Edwin N. Sidman will continue to serve
as Class II Directors until their present terms expire in 1999 and
their successors are duly elected, and Alan M. Leventhal, William F.
McCall, Jr. and Steven Shulman will continue to serve as Class I
Directors until their present terms expire in 1998 and their successors
are duly elected.
The stockholders also voted to approve the amendment to the Company's
1994 Stock Option and Incentive Plan to, among other things, increase
the number of shares of the Company's common stock subject to issuance
under the Plan such that the total number of shares of common stock
subject to the Plan equals 8% of the number of outstanding shares of
common stock and units of partnership interests in Beacon Properties,
L.P. that are subject to redemption rights. 21,774,871 votes were cast
in favor of this proposal, 14,833,712 were cast against it, 275,339
abstained, and 5,179,995 broker non-votes were recorded.
The stockholders also voted to approve the Beacon Properties
Corporation Extraordinary Performance Stock Incentive Plan for Senior
Executives. 27,157,856 votes were cast in favor of this proposal,
9,435,206 were cast against it, 291,060 abstained, and 5,179,995 broker
non-votes were recorded.
The stockholders also voted to approve the selection of Coopers &
Lybrand L.L.P. as the independent auditors of the Company for the
fiscal year ending December 31, 1997. 41,855,318 votes were cast in
favor of this proposal, 58,649 were cast against it and 150,150
abstained.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Revolving Credit Agreement between Beacon Properties,
L.P. and BankBoston, as agent, dated March 31, 1997.
10.2 Amendment No. 1 to Revolving Credit Agreement between
Beacon Properties, L.P. and BankBoston, as agent,
dated April 30, 1997.
10.3 Amendment to 1994 Stock Option Plan
10.4 Extraordinary Preference Stock Incentive Plan for
Senior Executives
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-K dated June 4, 1997 (as amended by Form 8-K/A) was
filed which included information regarding Items 5 and 7 on the Form 8-K.
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 225 Franklin Street and the Preferred Offering.
20
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: August 14, 1997
21