-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FsitFBm4IHhNtiPhnp/FnrbybPpZ9gzc2RudqLvaCDkxgtaSmQlu0ToJaC8Zs9ja 2qWOKQP7BAW1avmdqXCngw== /in/edgar/work/20000810/0000912057-00-036083/0000912057-00-036083.txt : 20000921 0000912057-00-036083.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-036083 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEACON CAPITAL PARTNERS INC CENTRAL INDEX KEY: 0001063893 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 043403281 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24905 FILM NUMBER: 691571 BUSINESS ADDRESS: STREET 1: ONE FEDERAL ST 26TH FLR CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6174570400 MAIL ADDRESS: STREET 1: ONE FEDERAL STREET STREET 2: 26TH FLOOR CITY: BOSTON STATE: MA ZIP: 02110 10-Q 1 a10-q.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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, 2000
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 000-24905 BEACON CAPITAL PARTNERS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Maryland 04-3403281 -------- ---------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) One Federal Street, 26th Floor, Boston, Massachusetts 02110 - ------------------------------------------ ------------------------------------------ (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) 617-457-0400 - --------------------------------------------------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 __ Number of Common Shares outstanding at the latest practicable date, August 10, 2000: 19,202,592 shares, $.01 par value. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BEACON CAPITAL PARTNERS, INC. FORM 10-Q INDEX
PAGE -------- Part I -- Financial Information Item 1. Consolidated Financial Statements........................... 1 Consolidated Balance Sheets--June 30, 2000 (Unaudited) and December 31, 1999....................................... 1 Consolidated Statements of Operations--Three and Six Months Ended June 30, 2000 and 1999 (Unaudited)......... 2 Consolidated Statements of Cash Flows--Six Months Ended June 30, 2000 and 1999 (Unaudited)...................... 3 Notes to Consolidated Financial Statements................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 10 Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................................ 20 Part II -- Other Information Item 1. Legal Proceedings........................................... 22 Item 2. Changes in Securities and Use of Proceeds................... 22 Item 3. Defaults Upon Senior Securities............................. 22 Item 4. Submission of Matters to a Vote of Security Holders......... 22 Item 5. Other Information........................................... 22 Item 6. Exhibits and Reports on Form 8-K............................ 22
PART I--FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS BEACON CAPITAL PARTNERS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) (NOTE 1) ASSETS Real Estate: Land...................................................... $ 35,257 $ 52,182 Buildings, improvements and equipment..................... 224,440 216,967 --------- --------- 259,697 269,149 Less accumulated depreciation............................. 8,666 7,025 --------- --------- 251,031 262,124 Deferred financing and leasing costs, net of accumulated amortization of $759 and $434, respectively............... 2,885 3,085 Cash and cash equivalents................................... 83,482 76,927 Restricted cash............................................. 611 1,203 Accounts receivable, net.................................... 4,423 3,393 Deferred rent receivable.................................... 1,550 783 Other assets................................................ 503 1,905 Investments in partnership, joint ventures and corporations.............................................. 98,110 163,677 --------- --------- Total assets.......................................... $ 442,595 $ 513,097 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable.................................... $ 31,019 $ 31,172 Note payable--interim financing........................... 97,830 122,500 Accounts payable and accrued expenses..................... 14,689 15,209 --------- --------- Total liabilities..................................... 143,538 168,881 --------- --------- Commitments and contingencies............................... -- -- Minority interest in consolidated partnership............... 38,199 43,639 --------- --------- Stockholders' equity: Preferred stock; $.01 par value, 200,000,000 shares authorized, none issued or outstanding.................. -- -- Excess stock; $.01 par value, 250,000,000 shares authorized, none issued or outstanding.................. -- -- Common stock; $.01 par value, 500,000,000 shares authorized, 20,972,592 and 20,973,932 shares issued and outstanding, respectively............................... 210 210 Additional paid-in capital................................ 389,502 389,520 Cumulative net income..................................... 68,581 12,019 Cumulative dividends...................................... (197,435) (101,172) --------- --------- Total stockholders' equity............................ 260,858 300,577 --------- --------- Total liabilities and stockholders' equity............ $ 442,595 $ 513,097 ========= =========
SEE ACCOMPANYING NOTES. 1 BEACON CAPITAL PARTNERS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Rental income...................................... $ 8,524 $ 4,715 $ 16,940 $ 9,877 Reimbursement of operating expenses and real estate taxes............................................ 374 788 690 1,591 Equity in earnings of partnership and joint ventures......................................... 1,120 1,147 3,972 2,401 Interest and dividend income....................... 2,039 2,799 3,334 4,784 Other income....................................... 325 162 6,995 403 -------- -------- -------- -------- Total revenues................................. 12,382 9,611 31,931 19,056 -------- -------- -------- -------- Expenses: Property operating................................. 2,510 1,388 4,764 2,747 Real estate taxes.................................. 1,190 1,236 2,439 2,299 General and administrative......................... 2,837 2,341 5,764 4,923 Affiliate formation expenses....................... -- -- 2,054 -- Interest expense................................... 844 25 2,484 467 Depreciation and amortization...................... 1,936 1,192 3,801 2,316 -------- -------- -------- -------- Total expenses................................. 9,317 6,182 21,306 12,752 -------- -------- -------- -------- Income before gains on sales of real estate, minority interest and extraordinary items................... 3,065 3,429 10,625 6,304 Gains on sales of real estate........................ 58,537 -- 58,537 -- -------- -------- -------- -------- Income before minority interest and extraordinary items.............................................. 61,602 3,429 69,162 6,304 Minority interest in consolidated partnership........ (7,149) (398) (8,026) (732) -------- -------- -------- -------- Income before extraordinary items.................... 54,453 3,031 61,136 5,572 Extraordinary items, net of minority interest........ (4,562) -- (4,574) -- -------- -------- -------- -------- Net income..................................... $ 49,891 $ 3,031 $ 56,562 $ 5,572 ======== ======== ======== ======== Income before extraordinary items per common share-basic and diluted............................ $ 2.60 $ 0.14 $ 2.92 $ 0.27 Extraordinary items per common share-basic and diluted............................................ (0.22) -- (0.22) -- -------- -------- -------- -------- Net income per common share-basic and diluted........ $ 2.38 $ 0.14 $ 2.70 $ 0.27 ======== ======== ======== ======== Weighted average number of common shares outstanding (in thousands)..................................... 20,973 20,974 20,973 20,974 ======== ======== ======== ========
SEE ACCOMPANYING NOTES. 2 BEACON CAPITAL PARTNERS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------- 2000 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 56,562 $ 5,572 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................ 2,789 2,191 Amortization............................................ 1,012 125 Extraordinary items, net of minority interest........... 4,574 -- Gains on sales of real estate........................... (58,537) -- Distributions from partnership and joint venture........ 5,591 2,500 Equity in earnings of partnership and joint ventures.... (3,972) (2,401) Gain on Cypress investment.............................. (6,414) -- Minority interest in consolidated partnership........... 8,026 732 Increase (decrease) in cash arising from changes in operating assets and liabilities: Restricted cash......................................... 592 204 Accounts receivable..................................... (1,030) 612 Deferred rent receivable................................ (767) (164) Other assets............................................ 1,159 (1,384) Accounts payable and accrued expenses................... (2,520) (556) --------- --------- Net cash provided by operating activities............. 7,065 7,431 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Real estate asset acquisitions and improvements........... (34,443) (4,979) Proceeds from real estate asset sale...................... 72,085 -- Payment of deferred leasing costs......................... (584) (756) Investments in partnership, joint ventures and corporations............................................ (8,023) (4,716) Distributions from partnership and joint venture.......... 78,519 -- Purchase of Wyndham preferred stock, net.................. -- (102,874) Funding of mortgage note receivable....................... -- (45,000) Other investment.......................................... -- (33,667) Acquisition deposits and deferred costs................... -- (3,953) --------- --------- Net cash provided (used) by investing activities...... 107,554 (195,945) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments on mortgage notes.............................. (153) (2,693) Proceeds from note payable--interim financing............. 7,500 70,000 Repayment on note payable--interim financing.............. (32,170) -- Payment of deferred financing costs....................... (181) (1,984) Repurchase of common stock................................ (18) -- Distribution payment to minority interests................ (9,637) (1,321) Dividend payment to stockholders.......................... (73,405) (10,259) --------- --------- Net cash (used) provided by financing activities...... (108,064) 53,743 --------- --------- Net increase (decrease) in cash and cash equivalents........ 6,555 (134,771) Cash and cash equivalents, beginning of period.............. 76,927 174,647 --------- --------- Cash and cash equivalents, end of period.................... $ 83,482 $ 39,876 ========= ========= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Distribution of Cypress stock to minority interests......... $ 2,073 $ -- Dividend of Cypress stock to stockholders................... 15,793 -- Distribution of CO Space stock to minority interests........ 928 -- Dividend of CO Space stock to stockholders.................. 7,065 -- Distribution of Wyndham stock to minority interests......... -- 11,961 Dividend of Wyndham stock to stockholders................... -- 90,913 SUPPLEMENTAL DISCLOSURE: Cash paid for interest, net of capitalized interest of $4,047 and $500, respectively............................. $ 3,249 $ 261
SEE ACCOMPANYING NOTES. 3 BEACON CAPITAL PARTNERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 1. BASIS OF PRESENTATION The financial statements of Beacon Capital Partners, Inc. ("BCP") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in BCP's annual report on Form 10-K for the period ended December 31, 1999. 2. ORGANIZATION Beacon Capital Partners, Inc. was incorporated on January 21, 1998 as a Massachusetts corporation, and was initially capitalized through loans from the two founders of BCP, Messrs. Leventhal and Fortin. The loans were repaid in May 1998. BCP qualifies as a real estate investment trust under the Internal Revenue Code of 1986, as amended. BCP was established to conduct real estate investment and development activities and currently operates in one segment. On March 17, 1998, BCP was reincorporated as a Maryland corporation and on March 20, 1998, it completed an initial private offering in accordance with Section 4(2) of the Securities Act of 1933. BCP initially issued 17,360,769 common shares with proceeds, net of expenses, of $323,110. In April 1998, 3,613,163 additional shares were issued through the exercise of the underwriter's over-allotment, with proceeds, net of expenses, of $66,620. In connection with the reincorporation of BCP in Maryland, BCP established Beacon Capital Partners, L.P. (the "Operating Partnership"). BCP and the Operating Partnership are collectively referred to as the "Company". The Operating Partnership is a Delaware limited partnership. BCP is the sole General Partner of, and, as of June 30, 2000, holds approximately 88% of the economic interest in the Operating Partnership. BCP holds an approximate 1% general partnership interest in the Operating Partnership and the balance is held as a limited partnership interest. The limited partnership interests not held by BCP are presented as minority interest in the accompanying consolidated financial statements. The term of the Operating Partnership commenced on March 16, 1998 and shall continue until January 1, 2056 or until such time as a Liquidating Event, as defined, has occurred. 3. REAL ESTATE On April 19, 2000, the Company sold The Draper Building for $72,500. The Company recognized a gain on the sale of approximately $27,322. 4 BEACON CAPITAL PARTNERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 4. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS The investments in partnership, joint ventures and corporations represent the Company's interest in (i) a joint venture with PW Acquisitions IX, LLC, known as Beacon/PW Kendall LLC ("The Athenaeum Portfolio"), (ii) a joint venture with Mathilda Partners LLC ("Mathilda Research Centre"), (iii) a joint venture with HA L.L.C. ("Millennium Tower"), (iv) an investment in Series B Convertible Preferred Stock ("Series B Preferred") of Wyndham International, Inc. ("Wyndham") and (v) an investment in Beacon Capital Strategic Partners, L.P. ("BCSP"). A reconciliation of the underlying net assets to the Company's carrying value of investments in partnership, joint ventures and corporations is as follows:
THE MATHILDA ATHENAEUM RESEARCH MILLENNIUM PORTFOLIO CENTRE TOWER WYNDHAM BCSP TOTAL --------- -------- ---------- -------- -------- --------- Operating Partnership equity interest (including accumulated earnings, net of distributions)................ $ 15,999 $17,031 $19,000 $ -- $ (7,441) $ 44,589 Investments in preferred stock......................... -- -- -- 48,536 -- 48,536 Other costs..................... 39 2,064 1,966 845 71 4,985 -------- ------- ------- ------- -------- --------- Carrying value of investments in partnership, joint ventures and corporations at June 30, 2000.......................... $ 16,038 $19,095 $20,966 $49,381 $ (7,370) $ 98,110 ======== ======= ======= ======= ======== ========= Equity in earnings of partnership and joint ventures Six months ended June 30, 2000................. $ 1,753 $ (91) $ -- $ -- $ 2,310 $ 3,972 June 30, 1999................. 2,401 -- -- -- -- 2,401 Operating Partnership share of gains on sales of real estate Six months ended June 30, 2000................. $ 12,618 $ -- $ -- $ -- $ 18,597 $ 31,215 June 30, 1999................. -- -- -- -- -- -- Operating Partnership share of extraordinary items Six months ended June 30, 2000................. $ (5,149) $ -- $ -- $ -- $ (25) $ (5,174) June 30, 1999................. -- -- -- -- -- --
THE ATHENAEUM PORTFOLIO Beacon/PW Kendall LLC was formed on April 16, 1998 and is jointly owned by the Company and PW Acquisitions IX, LLC, an affiliate of PaineWebber. Initially each member made a $5,000 contribution and the Company provided a loan to the joint venture of approximately $117,000. The joint venture acquired 5 BEACON CAPITAL PARTNERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 4. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED) The Athenaeum Portfolio, an eleven building 970,000 square foot mixed-use portfolio located in Cambridge, Massachusetts. In August 1998, the Company and PW Acquisitions IX, LLC each made equity contributions of approximately $58,500, which were used to repay the Company's loan receivable. On April 14, 2000, The Athenaeum Portfolio was refinanced and the joint venture distributed refinancing proceeds in the amount of $90,700. The previous mortgage was treated as extinguished and an extraordinary loss of approximately $10,298 was incurred for the write-off of related transaction costs and the unamortized deferred financing costs. The Company's share of the distribution and extraordinary loss were approximately $45,350 and $5,149, respectively. On June 7, 2000, the joint venture sold some of the assets in The Athenaeum Portfolio (215 First Street, 195 First Street and Doc Linskey Way) for $68,000 and recorded a gain on the sale of approximately $25,236. Simultaneously with the sale, the debt was paid down by $50,940 and the joint venture distributed $16,000 to the members. The Company's share of the gain on the sale and distribution were approximately $12,618 and $8,000, respectively. MATHILDA RESEARCH CENTRE On August 9, 1998, the Company entered into a joint venture agreement with Mathilda Partners LLC, an affiliate of Menlo Equities, a California based developer, to develop two four-story Class A office/R&D buildings with surface parking in Sunnyvale, California, known as Mathilda Research Centre. The Company and Mathilda Partners LLC have agreed to fund 87.5% and 12.5% of the equity required, respectively. On November 4, 1998, the venture acquired a twelve-acre site on Mathilda Avenue in Sunnyvale, CA, on which it is developing Mathilda Research Centre. The estimated cost of the 267,000 square foot development is approximately $64,000. The joint venture has obtained a $44,000 construction loan from an institutional lender to finance the development, and the balance of the development costs will be funded by equity contributions from the venturers. As of June 30, 2000, the venturers have funded equity contributions of $20,000, of which the Company's portion was $17,500. MILLENNIUM TOWER On September 1, 1998 the Company entered into a joint venture agreement with HA L.L.C., an affiliate of Martin Smith Real Estate Services, a Seattle based real estate company, to develop a 19-story office/retail and residential tower in downtown Seattle, Washington, known as Millennium Tower. The Company and HA L.L.C. have agreed to fund 66 2/3% and 33 1/3% of the equity required, respectively. Land was contributed to the joint venture by HA L.L.C. at an agreed value of $10,500, and the Company has agreed to fund the first $19,000 of cash requirements for the venture. As of June 30, 2000, the Company has funded its total commitment of $19,000. The joint venture has obtained a $45,000 construction loan from two institutional lenders to finance the balance of the development costs. The estimated cost of the project is $72,000, including the value of the land. The Company's residential portion of this investment is held by BCP Millennium Residential, Inc., a Massachusetts corporation ("BCP Millennium Residential"). The voting common stock of BCP Millennium Residential is controlled by Messrs. Leventhal and Fortin. The Operating Partnership owns approximately 99% of the economic interests in BCP Millennium Residential. For financial statement presentation purposes, the Company consolidates BCP Millennium Residential. 6 BEACON CAPITAL PARTNERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 4. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED) WYNDHAM On June 30, 1999, the Company purchased 1,050,000 shares of Series B Preferred of Wyndham at a net price of approximately $102,874. Simultaneously with this transaction, the Company transferred all of these shares of Series B Preferred to a voting trust (the "Wyndham Voting Trust") (the trustee of which is a subsidiary of the Operating Partnership) and declared and paid a dividend of approximately $4.34 per share of common stock of BCP and a distribution of approximately $4.34 per operating partnership unit of the Operating Partnership. The aggregate value of the dividend and distribution was approximately $103,064 and primarily consisted of the Company's interest in shares of the Series B Preferred, subject to the Wyndham Voting Trust. Stockholders not able to receive such interests received cash of equivalent value. Subsequent to June 30, 1999, the Company purchased approximately 57,640 Wyndham Voting Trust interests at an aggregate price of approximately $5,303. On July 1, 1999, the Company purchased 450,000 shares of Series B Preferred at a net price of approximately $44,055. On October 29, 1999, the Company transferred 244,340 of these shares of Series B Preferred to Beacon Lodging, Inc., a Massachusetts corporation ("Beacon Lodging"). The voting common stock of Beacon Lodging is controlled by Messrs. Leventhal and Fortin. The Operating Partnership owns 99% of the economic interests in Beacon Lodging. For financial statement presentation purposes, the Company consolidates Beacon Lodging. On December 9, 1999, Wyndham completed a rights offering to its current common shareholders and redeemed approximately 8,399 shares of Series B Preferred held by the Company at a price of approximately $857. Wyndham's annual dividend on the Series B Preferred is 9.75%, paid quarterly, partially in cash and partially in paid-in-kind shares. BCSP On October 1, 1999, the Company completed the initial closing for BCSP, a real estate limited partnership, of which BCP Strategic Partners LLC, the Company's wholly-owned subsidiary, is the General Partner. Subsequent to October 1, 1999, the Company completed additional closings and as of March 28, 2000 (the BCSP final closing date), equity commitments totaled $287,500, of which the Company's equity commitment was $57,500. The commitments include investments from various endowments, foundations, pension funds and other institutional investors. For a period of up to two years from October 1, 1999, BCSP will be the Company's exclusive real estate investment vehicle. As of June 30, 2000, none of the Company's committed investment was funded. In connection with the formation of BCSP, for the six months ended June 30, 2000 and the year ended December 31, 1999, the Company incurred affiliate formation expenses of approximately $2,054 and $3,977, respectively. The expenses consist of underwriter commissions and fees for legal and professional services not reimbursed by the partners of BCSP. On March 17, 2000, BCSP obtained a $137,500 secured revolving credit facility. On June 14, 2000, BCSP sold 233 Fremont Street, a property located in San Francisco, California that is currently undergoing redevelopment. The property was sold for approximately $145,894, including approximately $15,894 held in escrow pending completion of the property's redevelopment. BCSP will continue to oversee the redevelopment and the buyer will fund the remaining redevelopment costs. The redevelopment is 7 BEACON CAPITAL PARTNERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 4. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED) scheduled to be completed in the first quarter of 2001. As of June 30, 2000, BCSP recognized a gain on the sale of approximately $51,742. Pursuant to the applicable accounting rules, an additional gain estimated at approximately $27,861 has been deferred and will be recognized in future periods. On June 28, 2000, BCSP distributed $70,000 of the sale proceeds. The Company's share of the recognized gain on the sale and distribution were approximately $18,597 and $25,169, respectively. 5. OTHER INVESTMENTS CYPRESS COMMUNICATIONS, INC. On September 8, 1998 and October 8, 1999, the Company invested an aggregate of $11,000 to acquire preferred stock in Cypress Communications, Inc. ("Cypress"), representing a 9.5% fully diluted ownership position. Cypress provides bundled communications services to tenants in multi-tenant commercial buildings. Prior to January 5, 2000, the investment was held by both the Operating Partnership and Tenant Communications, Inc., a Massachusetts corporation ("Tenant Communications"). On January 5, 2000, the Company distributed all of its preferred stock of Cypress (held by the Operating Partnership and Tenant Communications), valued at approximately $0.75 per share of common stock of BCP and operating partnership unit of the Operating Partnership to a voting trust (the "Cypress Voting Trust") (the trustee of which is a subsidiary of BCP), and then distributed its interest in the Cypress Voting Trust to its stockholders and unitholders. The distribution was recorded by the Company at the estimated fair value of the Cypress preferred stock as of the date of distribution, which resulted in a gain in the amount of approximately $6,414. This gain is included in other income in the accompanying Consolidated Statements of Operations. On February 10, 2000, Cypress successfully completed its initial public offering. At the IPO, each share of preferred stock split into 4.5 shares of common stock. The Cypress common stock held in the Cypress Voting Trust is subject to certain terms and conditions, including limitations on transferability. CO SPACE, INC. On November 12, 1999, the Company invested $8,000 to acquire preferred stock in CO Space, Inc. ("CO Space") representing an approximate 18% fully diluted ownership position. CO Space provides co-location space for data storage, telecommunication carriers, and web-hosting applications. Prior to January 28, 2000, the investment was held by the Operating Partnership. On January 28, 2000, the Operating Partnership transferred 10% of its shares of CO Space (representing 100% of its voting interest) to Shared Communications Spaces, Inc., a Massachusetts corporation ("Shared Communications"). On March 24, 2000, the Company distributed all of its preferred stock of CO Space (held by the Operating Partnership and Shared Communications), valued at approximately $0.34 per share of common stock of BCP and operating partnership unit of the Operating Partnership to a voting trust (the "CO Space Voting Trust") (the trustee of which is a subsidiary of BCP), and then distributed its interest in the CO Space Voting Trust to its stockholders and unitholders. On June 20, 2000, CO Space was acquired by InterNAP Network Services Corporation ("InterNAP"). InterNAP was founded in 1996 and provides internet connectivity that is faster and more reliable than conventional internet services. In conjunction with the acquisition of CO Space by InterNAP, each share of preferred stock held in the CO Space Voting Trust was converted to one share of CO Space common stock. The shares of CO Space common stock were 8 BEACON CAPITAL PARTNERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 5. OTHER INVESTMENTS (CONTINUED) exchanged for shares of InterNAP common stock based upon a formula set forth in the definitive agreement. Each share of CO Space common stock which was equivalent to a unit in the CO Space Voting Trust was exchanged for .24488 shares of InterNAP common stock. The InterNAP common stock held in the CO Space Voting Trust is subject to certain terms and conditions, including limitations on transferability. 6. MORTGAGE NOTES PAYABLE The mortgage notes payable, collateralized by certain properties and assignments of leases, total $31,019 at June 30, 2000. Mortgage notes payable with fixed interest rates ranging from 7.75% to 9.25% and maturities ranging from May 2002 to October 2022 total $18,519. A variable rate mortgage note payable with a current interest rate of 8.54% at June 30, 2000 matures in April 2002 and totals $12,500. The net book value of the mortgaged assets is approximately $62,531 at June 30, 2000. Future minimum principal payments due during the next five years and thereafter are as follows: 2000............................................... $ 190 2001............................................... 404 2002............................................... 14,315 2003............................................... 414 2004............................................... 3,525 Thereafter......................................... 12,171 ------- Total $31,019 =======
7. NOTE PAYABLE--INTERIM FINANCING On June 28, 1999, the Company obtained $100,000 of secured interim financing (the "Interim Financing") from Bankers Trust Company. On December 3, 1999, the Company executed an amendment to the Interim Financing that increased the loan amount to $130,000. On April 19, 2000, The Draper Building was sold. The Draper Building was part of the collateral for the Interim Financing and as a condition of the property's release, on April 19, 2000, the Interim Financing was paid down by approximately $32,170. The Interim Financing matured in June 2000 and pursuant to the terms of the note, the Company exercised its option to extend the maturity date to June 2001. Outstanding balances under the Interim Financing bear interest at a rate spread over the base rate or Eurodollar rate, as applicable. The spread is based upon certain loan to value ratios. At June 30, 2000, the outstanding balance of the Interim Financing was approximately $97,830 and the interest rate was 9.04%. The Interim Financing requires monthly payments of interest only and is secured by mortgages and assignments of rents on certain properties. The net book value of the collateralized assets is approximately $130,956 at June 30, 2000. The Interim Financing agreement requires the Company's ongoing compliance with a number of financial and other covenants. 9 BEACON CAPITAL PARTNERS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW 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. Our 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 revenue sufficient to meet debt service payments and other operating expenses; risks associated with borrowing, such as the possibility that we will not have sufficient funds available to make principal payments on outstanding debt and outstanding debt may be refinanced at higher interest rates or otherwise on terms less favorable to us; the impact of pending or future litigation; variations in quarterly operating results; securities held for investment are subject to fluctuations in valuation based upon the performance of the underlying business; risks that some of our investments could cause us to fail to qualify as a REIT; and those risks and uncertainties contained elsewhere in this report and under the heading "Risk Factors" beginning on page 8 of our Form 10-K as filed with the Securities and Exchange Commission on March 30, 2000. The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and notes thereto. Our consolidated financial statements include Beacon Capital Partners, Inc. ("BCP") and Beacon Capital Partners, L.P. (the "Operating Partnership"), our majority-owned partnership. RESULTS OF OPERATIONS SUMMARY Changes in revenues and expenses from the three and six months ended June 30, 1999 to June 30, 2000 are primarily due to the timing of investment, financing and sale transactions and redevelopment and releasing programs during 1999 and 2000. The funding of the Batterymarch mortgage note receivable was made in May 1999; the secured interim financing (the "Interim Financing") from Bankers Trust Company closed in June 1999, was increased in December 1999 and was partially paid down in April 2000; the investments in preferred stock of Wyndham International, Inc. ("Wyndham") were made primarily in June and July 1999; Technology Square Building 200 was released in July 1999; Technology Square Buildings 400 and 500 were taken out of service in 1999 and underwent substantial redevelopment and releasing in 1999 and early 2000; Fort Point Place was acquired in July 1999; the Fort Point Place warehouse ongoing renovations commenced in the fall 1999; Beacon Capital Strategic Partners, L.P. ("BCSP") was established in October 1999; the Fort Point Place mortgage debt was obtained in October 1999; the Technology Square Building 300 development commenced in January 2000; The Athenaeum Portfolio was refinanced in April 2000; The Draper Building was sold in April 2000; the sale of assets in The Athenaeum Portfolio (215 First Street, 195 First Street and Doc Linskey Way) was in June 2000; BCSP sold 233 Fremont Street in June 10 2000; and investments in Mathilda Research Centre, Millennium Tower, Cypress Communications, Inc. ("Cypress") and CO Space, Inc. ("CO Space") occurred over time from 1998 through 2000. COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999. Our total revenues increased $2.8 million to $12.4 million for the three months ended June 30, 2000 as compared to $9.6 million for the three months ended June 30, 1999. Rental income increased $3.8 million primarily due to Technology Square releasing and the acquisition of Fort Point Place. Reimbursement of operating expenses and real estate taxes decreased $.4 million primarily due to Technology Square releasing which established tenant expense bases at current levels. Interest and dividend income decreased $.7 million due to the Batterymarch mortgage note receivable interest in 1999 and the timing of loan advances and investments offset by Wyndham dividend income received in 2000. Other income increased $.1 million primarily due to additional management fees earned from The Athenaeum Portfolio. Our total expenses increased $3.1 million to $9.3 million for the three months ended June 30, 2000 as compared to $6.2 million for the three months ended June 30, 1999. Property operating expenses increased $1.1 million primarily due to increased occupancy at Technology Square and the acquisition of Fort Point Place. General and administrative expenses increased $.4 million. Interest expense increased $.9 million due to the June 1999 and October 1999 closings of the Interim Financing and Fort Point Place mortgage, respectively, offset by capitalized interest expense in 2000. Depreciation and amortization expense increased $.7 million primarily due to Technology Square and Dallas Office and Industrial Portfolio depreciation and the Interim Financing and Fort Point Place mortgage amortization of financing fees. Our gains on sales of real estate for the three months ended June 30, 2000 of $58.5 million resulted from the gain on the sale of The Draper Building of $27.3 million, our share of the gain from the sale of assets of The Athenaeum Portfolio (215 First Street, 195 First Street and Doc Linskey Way) of $12.6 million and our share of the gain from the sale of 233 Fremont Street of $18.6 million. The minority interest in consolidated partnership of $7.1 million represents the portion of the Operating Partnership that is not owned by us. The extraordinary loss for the three months ended June 30, 2000 of $4.6 million was primarily due to The Atheneaum Portfolio refinancing which extinguished the previous mortgage debt and required the write-off of related transaction costs and unamortized deferred financing costs. COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Our total revenues increased $12.8 million to $31.9 million for the six months ended June 30, 2000 as compared to $19.1 million for the six months ended June 30, 1999. Rental income increased $7.0 million primarily due to Technology Square releasing and Fort Point Place, which was acquired in July 1999. Reimbursement of operating expenses and real estate taxes decreased $.9 million primarily due to Technology Square releasing which established tenant expense bases at current levels. Equity earnings in partnership and joint ventures increased $1.6 million primarily due to income from BCSP offset by earnings reduction from The Athenaeum Portfolio due to the property refinancing and the sale of some assets in 2000. Interest and dividend income decreased $1.5 million due to the Batterymarch mortgage note receivable interest in 1999 and the timing of loan advances and investments offset by the Wyndham dividends received in 2000. Other income increased $6.6 million primarily due to the gain recognized on the distribution of the Cypress investment. See "--Investing Activities". Our total expenses increased $8.6 million to $21.3 million for the six months ended June 30, 2000 as compared to $12.7 million for the six months ended June 30, 1999. Property operating expenses increased $2.0 million primarily due to increased occupancy at Technology Square and the acquisition of Fort Point Place. Real estate taxes increased $.1 million primarily due to the acquisition of Fort Point Place. General and administrative expenses increased $.9 million. The $2.1 million of affiliate formation expenses are costs incurred in the formation of BCSP and consist of underwriter commissions and fees for legal and professional services not reimbursed by the partners of BCSP. See "--Investing Activities". Interest 11 expense increased $2.0 million due to the June 1999 and December 1999 closings of the Interim Financing and the October 1999 Fort Point Place mortgage closing, offset by capitalized interest in 2000. Depreciation and amortization expense increased $1.5 million primarily due to Technology Square and Dallas Office and Industrial Portfolio depreciation and the Interim Financing and Fort Point Place mortgage amortization of financing fees. For review of our gains on sales of real estate, minority interest in consolidated partnership and extraordinary loss for the six months ended June 30, 2000 of $58.5 million, $8.0 million and $4.6 million, respectively, please see the discussion under the "COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999." LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $83.5 million at June 30, 2000 as compared to $76.9 million at December 31, 1999. The increase of $6.6 million was primarily the result of (i) proceeds from the sale of The Draper Building, (ii) distributions received from The Athenaeum Portfolio, (iii) distributions received from BCSP, (iv) proceeds received from the Interim Financing, and (v) cash flow from operations, all offset by (i) the payments of the March and June dividends to stockholders and distributions to unitholders, (ii) the repayment on the Interim Financing, (iii) the payment of Technology Square development and redevelopment costs, (iv) the payment of Fort Point development costs, and (v) investments in Millennium Tower. Subsequent to June 30, 2000, in accordance with our share repurchase program, we repurchased approximately 1.8 million shares of common stock of BCP and certain voting trust interests for approximately $25.4 million. See "--Financing Activities". SHORT AND LONG-TERM LIQUIDITY We have considered our short-term (up to 12 months) liquidity needs and the adequacy of expected liquidity sources to meet these needs. We believe that our principal short-term operating liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distribution required to maintain the Company's REIT qualification under the Internal Revenue Code of 1986, as amended. We believe that these needs will be provided by cash flow from operating activities and current cash balances. We believe that our 2000 distribution requirement to maintain our REIT qualification has been met from our January 5, 2000 dividend of preferred shares of Cypress subject to a voting trust (approximately $0.75 per share of common stock of BCP), our March 9, 2000 cash dividend ($0.50 per share of common stock of BCP), our March 24, 2000 dividend of preferred shares of CO Space subject to a voting trust (approximately $0.34 per share of common stock of BCP), and our June 28, 2000 cash dividend ($3.00 per share of common stock of BCP). See "--Investing Activities". We believe our other short-term liquidity needs are the funding of current real estate investments, developments, redevelopments, BCSP capital commitments, securities held for investment, the share repurchase program and the repayment of the Interim Financing. We expect to fund these needs from current cash balances, mortgages and other debt instruments, and through sales of certain assets. We expect to meet long-term (greater than 12 months) liquidity requirements for the costs of additional development, real estate and real estate related investments, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements through secured and unsecured indebtedness, joint ventures, sales of certain assets, and from current cash balances. INVESTING ACTIVITIES On June 24, 1998, we acquired a four-building complex known as Technology Square and an adjacent building known as The Draper Building. The properties are located in Cambridge, Massachusetts and 12 consisted of approximately 1,026,000 square feet. In 1999, we began renovation and releasing of two of the buildings and razed one building. We commenced a new development plan to construct approximately 600,000 square feet of additional office and laboratory space. Construction of Building 300 (176,000 square feet) has begun and we currently expect it to be completed in the second quarter of 2001. On April 19, 2000, we sold The Draper Building for $72.5 million. We recognized a gain on the sale of approximately $27.3 million. On August 9, 1998, we entered into a joint venture agreement with Mathilda Partners LLC, an affiliate of Menlo Equities (a California based developer). The joint venture is developing Mathilda Research Centre, two four-story Class A office/R&D buildings with surface parking in Sunnyvale, California. On June 18, 1999, the joint venture executed a lease with Juniper Networks, Inc. ("Juniper Networks") for one of the two buildings comprising approximately 144,000 of the development's approximately 267,000 square feet and on February 28, 2000, Juniper Networks executed its option to lease the second building. The first building was completed in June 2000 and Juniper Networks is occupying the space. We expect to complete the second building in the first quarter of 2001. On September 1, 1998 we entered into a joint venture agreement with HA L.L.C., an affiliate of Martin Smith Real Estate Services (a Seattle based real estate company). The joint venture is developing Millennium Tower, a 19-story, approximately 261,000 square foot, office/retail and residential tower, in downtown Seattle, Washington. HA L.L.C. contributed the land at an agreed value of $10.5 million and we agreed to fund $19 million of the development. As of June 30, 2000, we had funded our entire commitment of $19 million. The joint venture has obtained a $45 million construction loan from two institutional lenders to finance the balance of the development costs. The estimated cost of the development is approximately $72 million, including the value of the land. We expect to complete the project in the fourth quarter of 2000. Our residential portion of this investment is held by BCP Millennium Residential, Inc., a Massachusetts corporation ("BCP Millennium Residential"). The voting common stock of BCP Millennium Residential is controlled by Messrs. Leventhal and Fortin. The Operating Partnership owns approximately 99% of the economic interest in BCP Millennium Residential. On September 30, 1998 and October 8, 1999, we invested an aggregate of $11 million to acquire preferred stock in Cypress, representing a 9.5% fully diluted ownership position. Cypress provides bundled communications services to tenants in multi-tenant commercial buildings. Prior to January 5, 2000, the preferred stock investment was held by both the Operating Partnership and Tenant Communications, Inc., a Massachusetts corporation ("Tenant Communications"). On January 5, 2000, we distributed all of the preferred stock of Cypress (held by the Operating Partnership and Tenant Communications), valued at approximately $0.75 per share of common stock of BCP and operating partnership unit of the Operating Partnership to a voting trust (the "Cypress Voting Trust") (the trustee of which is a subsidiary of BCP), and then distributed our interest in the Cypress Voting Trust to our stockholders and unitholders. The distribution resulted in a gain of approximately $6.4 million. On February 10, 2000, Cypress successfully completed its initial public offering. Cypress trades on the NASDAQ National Market under the symbol CYCO. At the IPO, each share of preferred stock split into 4.5 shares of common stock. The Cypress common stock held in the Cypress Voting Trust is subject to certain terms and conditions, including limitations on transferability. On July 13, 1999, we purchased Fort Point Place, a four-building, 335,000 square foot office and warehouse property located in the Boston, Massachusetts South Boston Waterfront District. Two buildings consist of approximately 145,000 square feet of office space. The other two buildings consist of approximately 190,000 square feet of warehouse space which were delivered to us vacant. The warehouse buildings were originally held by the Operating Partnership. On June 2, 2000, the Operating Partnership transferred the warehouse buildings to Fort Point Place, Inc., a Massachusetts corporation. The voting common stock of Fort Point Place, Inc. is controlled by Messrs. Leventhal and Fortin. The Operating Partnership owns approximately 99% of the economic interests in Fort Point Place, Inc. We are currently renovating the 13 warehouse space for use as residential condominiums. We expect to complete the renovations in the late summer 2000 and are currently marketing the units for sale. On October 1, 1999, we completed the initial closing for BCSP, a real estate limited partnership, of which BCP Strategic Partners LLC, our wholly-owned subsidiary, is the General Partner. Subsequent to October 1, 1999, we completed additional closings and as of March 28, 2000 (the BCSP final closing date), equity commitments totaled $287.5 million, of which our equity commitment was $57.5 million. The commitments include investments from various endowments, foundations, pension funds and other institutional investors. The fund will invest in U.S. domestic real estate with a primary focus on office properties. The strategy will include redevelopment, development and other real estate opportunities where we can maximize value through our operating skills and expertise. For a period of up to two years from October 1, 1999, BCSP will be our exclusive real estate investment vehicle. As of June 30, 2000, none of our committed investment was funded. In connection with the formation of BCSP, for the six months ended June 30, 2000 and for the year ended December 31, 1999, we incurred affiliate formation expenses of approximately $2.1 million and $4.0 million, respectively. The expenses consist of underwriter commissions and fees for legal and professional services not reimbursed by the partners of BCSP. On June 14, 2000, BCSP sold 233 Fremont Street, a property located in San Francisco, California, that is currently undergoing redevelopment. The property was sold for approximately $145.9 million, including approximately $15.9 million held in escrow pending completion of the property's redevelopment. BCSP will continue to oversee the redevelopment and the buyer will fund the remaining redevelopment costs. The redevelopment is scheduled to be completed in the first quarter of 2001. As of June 30, 2000, BCSP recognized a gain on the sale of approximately $51.7 million. Pursuant to the applicable accounting rules, an additional gain estimated at approximately $27.9 million has been deferred and will be recognized in future periods. On June 28, 2000, BCSP distributed $70.0 million of the sale proceeds. Our share of the recognized gain on the sale and distribution were approximately $18.6 million and $25.2 million, respectively. On November 12, 1999, we invested $8 million to acquire preferred stock in CO Space, representing an approximate 18% ownership position on a fully diluted basis. CO Space provides co-location space for data storage, telecommunication carriers, and web-hosting applications. Prior to January 28, 2000, the investment was held by the Operating Partnership. On January 28, 2000, the Operating Partnership transferred 10% of its shares of CO Space (representing 100% of its voting interest) to Shared Communications Spaces, Inc., a Massachusetts corporation ("Shared Communications"). On March 24, 2000, we distributed all of the preferred stock of CO Space (held by the Operating Partnership and Shared Communications), valued at approximately $0.34 per share of common stock of BCP and operating partnership unit of the Operating Partnership to a voting trust (the "CO Space Voting Trust") (the trustee of which is a subsidiary of BCP), and then distributed our interest in the CO Space Voting Trust to our stockholders and unitholders. Each share of common stock of BCP and operating partnership unit of the Operating Partnership held on March 22, 2000 (the record date for the distribution) received approximately .224568409 interests in the CO Space Voting Trust. On June 20, 2000, CO Space was acquired by InterNAP Network Services Corporation ("InterNAP"). InterNAP trades on the NASDAQ National Market under the symbol INAP. InterNAP was founded in 1996 and provides internet connectivity that is faster and more reliable than conventional internet services. In conjunction with the acquisition of CO Space by InterNAP, each share of preferred stock held in the CO Space Voting Trust was converted to one share of CO Space common stock. The shares of CO Space common stock were exchanged for shares of InterNAP common stock based upon a formula set forth in the definitive agreement. Each share of CO Space common stock which was equivalent to a unit in the CO Space Voting Trust was exchanged for .24488 shares of InterNAP common stock. The InterNAP common stock held in the CO Space Voting Trust is subject to certain terms and conditions, including limitations on transferability. 14 On June 7, 2000, we sold some of the assets in The Athenaeum Portfolio (215 First Street, 195 First Street and Doc Linskey Way) for $68 million and recorded a gain on the sale of approximately $25.2 million. We own The Athenaeum Portfolio with our joint venture partner, PW Acquisitions IX, LLC (an affiliate of PaineWebber). Simultaneously with the sale, after paydown of debt, the joint venture distributed $16 million to the members. Our share of the gain on the sale and distribution were approximately $12.6 million and $8 million, respectively. FINANCING ACTIVITIES On April 19, 2000, in conjunction with the sale of The Draper Building, the Interim Financing was paid down by approximately $32.2 million. See "--Investing Activities". The Interim Financing matured on June 28, 2000 and pursuant to the terms of the note, we exercised our option to extend the maturity date to June 28, 2001. On April 14, 2000, the mortgage on The Athenaeum Portfolio was refinanced with an institutional lender. We own The Athenaeum Portfolio with our joint venture partner, PW Acquisitions IX, LLC (an affiliate of PaineWebber). The $175 million refinancing was subsequently paid down by $50.9 million on June 7, 2000 in conjunction with the sale of some of the assets in The Athenaeum Portfolio. The resulting $124.1 million financing is comprised of a first mortgage loan and a mezzanine loan, bears interest at an annual rate of 30-day LIBOR plus 243 basis points and requires monthly payments of principal and interest based on a 30-year amortization schedule. Each of the loans has a two-year term and may be extended for two twelve month periods if certain conditions are met. The joint venture originally entered into an interest rate protection agreement for a notional amount of $175 million which was subsequently reduced to approximately $124 million in conjunction with the above mentioned sale. This agreement, which terminates on May 1, 2002, provides for offsetting payments to the joint venture in the event that 30-day LIBOR exceeds 8.35% per annum. The loans are closed to prepayment in the initial twelve months, however certain properties in the portfolio may be released during that period. Subsequent to June 30, 2000 and prior to July 28, 2000, in accordance with our original share repurchase program, we repurchased 1,770,000 shares of common stock of BCP and certain voting trust interests for approximately $25.4 million. The repurchase equates to approximately 8.4% of the common stock outstanding. On July 28, 2000, the Board extended the share repurchase program for six months to January 28, 2001, authorizing management to utilize up to $30 million for the repurchase of the common stock of BCP during the extension period. CAPITALIZATION As of June 30, 2000, our total consolidated debt was approximately $128.8 million and our total consolidated debt plus our proportionate share of total unconsolidated debt was approximately $226.7 million. The following table sets forth certain information regarding our consolidated and unconsolidated debt obligations, including obligations relating to specific properties. All of the debt is nonrecourse to us, with certain exceptions such as liability for fraud, misapplication of insurance proceeds, environmental matters, certain guarantees for completion of construction and certain limited guarantees for repayment of principal and interest. 15
PRINCIPAL AMOUNT AS OF COMPANY'S JUNE 30, PORTION OF INTEREST MATURITY PREPAYMENT DEBT 2000 PRINCIPAL RATE DATE PROVISIONS - ---- ------------ ------------ -------- -------- ---------------------- (DOLLAR AMOUNTS IN MILLIONS) CONSOLIDATED DEBT FIXED RATE: DALLAS OFFICE AND INDUSTRIAL PORTFOLIO: Northcreek Place........... $ 4.2 $ 4.2 7.80% 12/1/05 Prepayable subject to conditions (a) One Glen Lakes............. 5.5 5.5 7.75% 9/1/05 Prepayable subject to conditions (b) Greenville Place........... 3.4 3.4 7.80% 12/1/04 Prepayable subject to conditions (c) Plaza at Walnut Hill....... 1.4 1.4 9.00% (d) Prepayable subject to conditions (e) Richardson Business 1.5 1.5 9.00% (f) Prepayable subject to Center................... conditions (g) Park North Business 1.0 1.0 8.25% (h) Prepayable subject to Center................... conditions (i) T. I. Business Park........ 1.5 1.5 9.25% 5/1/02 Prepayable subject to conditions (j) ------ ------ ----- Subtotal / Weighted Average 18.5 18.5 8.12% Fixed Rate Debt.......... ------ ------ ----- VARIABLE RATE: Fort Point Place........... 12.5 12.5 8.54% (k) Prepayable subject to conditions (l) Interim Financing (m)...... 97.8 97.8 9.04% (n) Prepayable subject to conditions (l) ------ ------ ----- Subtotal / Weighted Average 110.3 110.3 8.98% Variable Rate Debt....... ------ ------ ----- Subtotal / Weighted Average 128.8 128.8 8.85% Consolidated Debt........ ------ ------ ----- UNCONSOLIDATED DEBT VARIABLE RATE: The Athenaeum Portfolio (o)...................... 124.0 62.0 9.07% (p) Prepayable subject to conditions (q) Beacon Capital Strategic Partners, L.P. (r)....... 57.5 11.5 7.53% 6/30/01 Prepayable subject to conditions (l) Mathilda Research Centre... 23.3 20.4 9.44% 10/25/02 Prepayable subject to conditions (l) Millennium Tower........... 5.9 4.0 9.14% (s) Prepayable subject to conditions (l) ------ ------ ----- Subtotal / Weighted Average 210.7 97.9 8.97% Unconsolidated Debt...... ------ ------ ----- Total / Weighted Average... $339.5 $226.7 8.90% ====== ====== =====
16 - ------------------------ (a) Prepayable after January 1, 2001 subject to a yield maintenance payment based on the rate of United States Treasury Notes having a term closest to the date of maturity but in no event less than 1% of the then balance. (b) Prepayable after October 1, 2000 subject to a yield maintenance payment based on the rate of United States Treasury Notes having a term closest to the date of maturity but in no event less than 1% of the then balance. (c) Prepayable after January 1, 2002 subject to a yield maintenance payment based on the rate of United States Treasury Notes having a term closest to the date of maturity but in no event less than 1% of the then balance. (d) Plaza at Walnut Hill loan matures on July 1, 2017. The lender has the right to accelerate the maturity in the sixth, eleventh or sixteenth loan years, on six months' notice. No prepayment penalties apply in that event. (e) Prepayable after June 12, 2002 subject to payment of 5% of the amount prepaid, reducing by 1% per annum to a minimum payment of 1% of the amount prepaid. (f) The Richardson Business Center loan matures on November 1, 2021. The lender has the right to accelerate the maturity in the sixth, eleventh, sixteenth or twenty-first loan years, on six months' notice. No prepayment penalties apply in that event. (g) Prepayable after October 24, 2001 subject to payment of 5% of the amount prepaid, reducing by 1% per annum to a minimum prepayment of 1% of the amount prepaid. (h) The Park North Business Center loan matures on October 1, 2022. The lender has the right to accelerate the maturity in the sixth, eleventh, sixteenth or twenty-first loan years, on six months' notice. No prepayment penalties apply in that event. (i) Prepayable after September 8, 2002 subject to payment of 5% of the amount prepaid, reducing by 1% per annum to a minimum prepayment of 1% of the amount prepaid. (j) Prepayable after March 1, 2000 subject to a yield maintenance payment based on the rate of United States Treasury Notes having a term closest to the date of maturity but in no event less than 2% of the then balance. (k) The Fort Point Place loan matures on April 1, 2002. The loan may be extended for one year if certain conditions are met. (l) Prepayable any time in whole or in part subject to payment of applicable breakage costs and in some cases fees. (m) The following properties are collateral for the Interim Financing at June 30, 2000: 200, 400 and 500 Technology Square, Bank One LBJ, Brandywine Place, Crosspoint Atrium, Forest Abrams Place, Richardson Commerce Centre, Sherman Tech and Venture Drive Tech Center. (n) The loan matured June 28, 2000 and pursuant to the terms of the note, we exercised our option to extend the maturity date to June 28, 2001. (o) We hold a 50% interest in the master limited liability company that controls the limited liability companies that hold title to The Athenaeum Portfolio. (p) The Athenaeum Portfolio is encumbered by a first mortgage loan and a mezzanine loan. Both loans mature on May 1, 2002 and contain options to extend for two additional twelve month periods if certain conditions are met. (q) The loans are closed to prepayment in the initial twelve months, however certain properties in the portfolio may be released during that period. The loans are prepayable thereafter in whole or in part upon payment of a 0.5% prepayment fee in months thirteen to eighteen and prepayable without a fee thereafter. 17 (r) On March 17, 2000, the BCSP interim credit facility was replaced with a secured revolving credit facility that matures on June 30, 2001. (s) The Millennium Tower loan matures on June 1, 2002. The loan may be extended for one year if certain conditions are met. The following table, which includes both consolidated and unconsolidated debt, summarizes the scheduled amortization of principal and maturities of the loans outstanding.
SCHEDULED AMORTIZATION MATURITIES TOTAL ------------ ---------- ---------- (DOLLARS IN THOUSANDS) July 1, 2000 -- December 31, 2000...................... $ 435 $ -- $ 435 2001................................................... 925 109,330 110,255 2002................................................... 573 99,331 99,904 2003................................................... 414 -- 414 2004................................................... 422 3,103 3,525 Thereafter............................................. 3,661 8,510 12,171 ------ -------- -------- Total.............................................. $6,430 $220,274 $226,704 ====== ======== ========
FUNDS FROM OPERATIONS We believe 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 in March 1995 and subsequently clarified in October 1999, as net income (loss) (computed in accordance with generally accepted accounting principles), excluding gains (losses) from sales of properties, plus real estate related depreciation and amortization, 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 our performance, as a substitute for cash flow or as a measure of our liquidity. The following table presents the calculations of FFO:
SIX MONTHS ENDED JUNE 30, 2000 1999 ---------- ---------- (UNAUDITED, DOLLARS IN THOUSANDS) Income before gains on sales of real estate, minority interest and extraordinary items.......................... $10,625 $ 6,304 Add real estate related depreciation and amortization: Consolidated entities..................................... 3,051 2,203 Joint venture entities.................................... 1,076 1,031 ------- ------- Funds from operations before minority interest.............. 14,752 9,538 Company share of consolidated partnership................... 88.40% 88.40% ------- ------- Company funds from operations............................... $13,041 $ 8,432 ======= ======= Weighted average number of common shares outstanding (in thousands)................................................ 20,973 20,974 ======= =======
For the periods presented above, our FFO results would be the same using both the March 1995 and October 1999 definitions. 18 PROPERTY INFORMATION The following table sets forth the Total Area, the Percentage Leased, the Average Base Rent (as defined below) and the Average Net Effective Rent (as defined below) per square foot for each of our properties as of June 30, 2000. Base Rent is gross rent excluding payments by tenants on account of real estate tax and operating expense escalation charges. 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 charges, less total operating expenses and real estate taxes.
AVERAGE AVERAGE TOTAL % BASE NET EFF PROPERTY AREA LEASED RENT RENT - -------- --------- -------- -------- -------- SOUTH BOSTON, MA: Fort Point Place (1)........................................ 145,222 97% $15.43 $ 9.10 --------- --- ------ ------ Subtotal / Weighted Average South Boston, MA.............. 145,222 97% 15.43 9.10 --------- --- ------ ------ CAMBRIDGE, MA: One Kendall Square Cinema................................... 31,641 100% 18.29 13.48 Buildings 100--500.......................................... 222,372 100% 31.21 22.72 Buildings 600/650/700....................................... 236,661 98% 37.77 26.06 Buildings 1500 & 1700....................................... 39,707 90% 17.41 10.52 Building 1400............................................... 133,211 100% 33.66 21.70 --------- --- ------ ------ Subtotal / Weighted Average............................... 663,592 99% 32.66 22.58 --------- --- ------ ------ 200 Technology Square (2)................................... 156,270 100% 31.53 23.12 400 Technology Square (2)................................... 203,600 90% 35.79 27.99 500 Technology Square (2)................................... 182,250 86% 38.33 30.12 --------- --- ------ ------ Subtotal / Weighted Average............................... 542,120 92% 35.26 27.13 --------- --- ------ ------ Subtotal / Weighted Average Cambridge, MA................. 1,205,712 96% 33.78 24.54 --------- --- ------ ------ SUBURBAN DALLAS, TX: OFFICE Bank One LBJ................................................ 42,000 80% 14.33 6.83 Brandywine Place............................................ 66,237 96% 13.93 10.17 Crosspoint Atrium........................................... 220,212 82% 13.79 9.29 Forest Abrams Place......................................... 68,827 89% 14.38 7.71 6500 Greenville Avenue...................................... 114,600 82% 14.59 7.74 Northcreek Place II......................................... 163,303 84% 15.49 8.99 One Glen Lakes.............................................. 166,272 94% 16.97 13.45 --------- --- ------ ------ Subtotal / Weighted Average............................... 841,451 86% 14.99 9.76 --------- --- ------ ------ R&D / INDUSTRIAL Park North Business Center.................................. 36,885 100% 8.77 7.07 Plaza at Walnut Hill........................................ 88,280 89% 7.87 5.20 Richardson Business Center.................................. 66,300 100% 4.51 6.40 Richardson Commerce Centre.................................. 60,517 88% 7.37 5.45 Sherman Tech................................................ 16,176 100% 7.55 4.98 T I Business Park........................................... 96,902 67% 7.97 6.69 Venture Drive Tech Center................................... 128,322 77% 4.83 3.54 --------- --- ------ ------ Subtotal / Weighted Average............................... 493,382 84% 6.63 5.42 --------- --- ------ ------ Subtotal / Weighted Average Suburban Dallas, TX........... 1,334,833 85% 11.96 8.19 --------- --- ------ ------ Total / Weighted Average Properties....................... 2,685,767 91% $22.49 $15.98 ========= === ====== ======
- ------------------------------ (1) Fort Point Place includes two additional buildings that are not included in these figures. The two buildings consist of approximately 190,000 square feet of vacant warehouse space. We are currently renovating the warehouse space for use as residential condominiums. (2) Buildings 545, 565 and 575 have been renamed Buildings 200, 400 and 500, respectively. The rentable area of Buildings 200, 400 and 500 have been modified to reflect re-measurements according to BOMA standards. Buildings 400 and 500 have undergone substantial renovation and releasing programs. Building 549 has been removed from the table because it has been razed and a new building of approximately 176,000 square feet is currently being developed on its site. 19 The following table sets forth Lease Expirations (in square feet) for the portfolio of properties we owned or had an interest in as of June 30, 2000.
SQUARE % OF SQUARE ANNUAL % ANNUAL # OF FEET(1) FEET(2) RENT(3) RENT(4) TENANTS(5) --------- ----------- -------- -------- ---------- (IN THOUSANDS) 7/1/00 - 12/31/00......................... 290,406 10.8% $ 5,002 8.6% 70 2001...................................... 204,497 7.6% 2,953 5.1% 64 2002...................................... 385,351 14.4% 7,776 13.4% 82 2003...................................... 372,584 13.9% 7,073 12.2% 79 2004...................................... 325,198 12.1% 9,269 16.0% 41 Thereafter................................ 855,191 31.8% 25,887 44.7% 65 --------- ---- ------- ----- --- Total................................... 2,433,227 90.6% $57,960 100.0% 401 --------- ---- ------- ----- ---
- ------------------------ (1) Total area in square feet covered by such leases. (2) Percentage of total square feet of our portfolio. (3) Annualized expiring base rental income represented by such leases in the year of expiration plus the current tenant payments on account of operating expense and real estate tax escalation charges. (4) Calculated as annual rent divided by the total annual rent. (5) The number of tenants whose leases will expire. YEAR 2000 READINESS DISCLOSURE The Year 2000 compliance issue concerns the inability of computer systems to accurately calculate, store or use a date after 1999. The inability of a computer to properly process dates after 1999 could result in system failures or miscalculations. Such failures in our computers could lead to disruptions in our activities and operations. If we fail, or our significant tenants or vendors fail, to make necessary modifications and conversions on a timely basis to remedy these problems, the Year 2000 issue could have a material adverse effect on the Company and its results of operations or financial position. We believe that our competitors face similar risks in regard to Year 2000. We designed and implemented a plan to address Year 2000 issues. We have not experienced any Year 2000 related issues and we did not incur any material costs to address Year 2000 compliance. The inability of the Company, or our tenants or vendors, to continue to be Year 2000 compliant could lead to declining occupancy rates, higher operating expenses and other adverse effects which are not quantifiable at this time. The failure of any of these parties to continue to be Year 2000 compliant could have a material adverse effect on our results of operations or financial position. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to certain financial market risks, the most predominant being fluctuations in interest rates. Interest rate fluctuations are monitored by management as an integral part of our overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results of operations. The effect of interest rate fluctuations historically has been small relative to other factors affecting operating results, such as rental rates and occupancy. 20 The following table summarizes our debt obligations outstanding as of June 30, 2000. This information should be read in conjunction with Notes 6 and 7 to the consolidated financial statements.
EXPECTED MATURITY DATE 7/1/00- 12/31/00 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE -------- -------- -------- -------- -------- ---------- -------- ---------- (DOLLARS IN THOUSANDS) Liabilities DEBT: - --------------------- FIXED RATE........... $ 190 $ 404 $ 1,815 $ 414 $3,525 $12,171 $ 18,519 $ 18,519 Weighted Average Fixed Interest Rate............... 8.1% 8.1% 8.0% 8.0% 8.1% 8.8% 8.3% VARIABLE RATE........ -- $97,830 $12,500 -- -- -- $110,330 $110,330 Current Variable Interest Rate...... -- 9.0% 8.5% -- -- -- 9.0%
21 BEACON CAPITAL PARTNERS, INC. PART II -- OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders (a) BCP's 2000 Annual Meeting of Shareholders (the "Annual Meeting") was held on May 10, 2000. (b) At the Annual Meeting, the following individuals were elected to BCP's Board of Directors as Class II Directors:
VOTES FOR VOTES WITHHELD ---------- -------------- Lionel P. Fortin............................................ 15,864,871 0 Stephen T. Clark............................................ 17,554,171 0
The following individuals are directors whose term of office as a director continued after the Annual Meeting: Alan M. Leventhal (Class I) Robert M. Melzer (Class I) Steven Shulman (Class III) Scott M. Sperling (Class III)
(c) The following additional proposal was considered at the Annual Meeting:
BROKER VOTES FOR VOTES AGAINST VOTES ABSTAIN NON-VOTES ---------- ------------- ------------- ---------- Ratification of the adoption of a management incentive plan......... 9,470,080 6,208,548 0 50,659 Ratification of the appointment of Ernst & Young LLP as BCP's independent accountants for the fiscal year ending December 31, 2000.............................. 17,554,171 0 750,000 0
(d) None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) 3.1 Articles of Incorporation.(1) 3.2 Certificate of Correction to Articles of Incorporation.(1) 3.3 Amended and Restated By-laws.(1) 3.4 Agreement of Limited Partnership of Beacon Capital Partners, L.P.(2) 3.5 First Amendment to Agreement of Limited Partnership.(2) 10.1 Employment and Non-Competition Agreement for Alan M. Leventhal.(1) 10.2 Employment and Non-Competition Agreement for Lionel P. Fortin.(1) 10.3 Beacon Capital Partners 1998 Stock Option and Incentive Plan.(1) 10.4 Form of Indemnification Agreement between the Registrant and its directors and executive officers.(1) 10.5 Purchase and Sale Contract between Eastern Properties Master LLC and the Registrant.(1) 10.6 Contract of Sale for Bank One Building.(2)
22 10.7 Contract of Sale for 6500 Greenville Building.(2) 10.8 Contract of Sale for North Creek II Building.(2) 10.9 Contract of Sale for One Glen Lakes Building.(2) 10.10 Contract of Sale for Crosspoint Atrium Building.(2) 10.11 Contract of Sale for Brandywine Place Building.(2) 10.12 Contract of Sale for Forest Abrams Building.(2) 10.13 Contract of Sale for Sherman Tech Building.(2) 10.14 Contract of Sale for Venture Tech Building.(2) 10.15 Contract of Sale for Plaza at Walnut Building.(2) 10.16 Contract of Sale for Richardson BC Building.(2) 10.17 Contract of Sale for Park North SC Building.(2) 10.18 Contract of Sale for TI Business Center.(2) 10.19 Contract of Sale for Richardson CC Building.(2) 10.20 Contribution Agreement by and between Luddite Associates and Beacon Capital Partners, L.P.(3) 10.21 Credit Agreement with Bankers Trust Company.(4) 10.22 Securities Purchase Agreement by and among Patriot American Hospitality, Inc., Wyndham International, Inc., Beacon Capital Partners, L.P. and the remaining parties named therein.(5) 10.23 Amendment to Securities Purchase Agreement by and among Patriot American Hospitality, Inc., Wyndham International, Inc., Beacon Capital Partners, L.P. and the remaining parties named therein.(6) 10.24 Loan Agreement between One Kendall LLC and Cambridge Athenaeum LLC as Borrowers and Secore Financial Corporation as Lender.(7) 10.25 Loan Agreement between CAMEZZ LLC as Borrower and Secore Financial Corporation as Mezzanine Lender.(7) 27. Financial Data Schedule.
(b) Current Report on Form 8-K filed April 13, 2000 reporting Item 5 disclosure. Current Report on Form 8-K filed April 24, 2000 reporting disclosure under Items 2 and 5. Current Report on Form 8-K filed on June 8, 2000 reporting Item 5 disclosure.
- -------------------------- (1) Previously filed as an exhibit to the Company's Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the Commission on June 16, 1998. (2) Previously filed as an exhibit to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the Commission on August 21, 1998. (3) Previously filed as an exhibit to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the Commission on March 29, 1999. (4) Previously filed as an exhibit to the Company's quarterly report on Form 10-Q filed with the Commission on August 16, 1999. (5) Incorporated by reference to the joint Current Report on Form 8-K filed by Wyndham International, Inc. and Patriot American Hospitality, Inc. on March 2, 1999. (6) Incorporated by reference to the Current Report on Form 8-K filed by Wyndham International, Inc. on July 13, 1999. (7) Incorporated by reference to the Company's Current Report on Form 8-K filed on April 24, 2000. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BEACON CAPITAL PARTNERS, INC. /s/ RANDY J. PARKER ------------------------------------------------ Randy J. Parker Chief Financial Officer (Authorized Officer and August 10, 2000 Principal Accounting Officer)
EX-27 2 ex-27.txt EX-27
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 84,093 0 5,973 0 0 0 0 0 442,595 0 128,849 0 0 210 298,847 442,595 0 12,382 0 0 8,473 0 844 54,453 0 54,453 0 (4,562) 0 49,891 2.38 2.38 INCLUDES RESTRICTED CASH OF $611 INCLUDES DEFERRED RENT RECEIVABLE OF $1,550 INCLUDES NOTE PAYABLE-INTERIM FINANCING OF $97,830
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