-----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, FkyADnskvAgVQkSTZL9nBnY+vpg1RpplJM7LK3GChu84ahsc7WRtuAcVu6BGHZXe A8iZhojpS9HHx8sAEm3o4g== /in/edgar/work/20000814/0000908737-00-000320/0000908737-00-000320.txt : 20000921 0000908737-00-000320.hdr.sgml : 20000921 ACCESSION NUMBER: 0000908737-00-000320 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HRPT PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: [6798 ] IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09317 FILM NUMBER: 698679 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02458 BUSINESS PHONE: 6177968350 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02458 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST DATE OF NAME CHANGE: 19940811 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 ECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File Number 1-9317 HRPT PROPERTIES TRUST (Exact name of registrant as specified in its charter) Maryland 04-6558834 (State or other jurisdiction of incorporation) (IRS Employer Identification No.) 400 Centre Street, Newton, Massachusetts 02458 (Address of principal executive offices) (Zip Code) 617-332-3990 (Registrant's telephone number, including area code) 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 August 10, 2000: 131,948,847 shares of beneficial interest, $0.01 par value.
HRPT PROPERTIES TRUST FORM 10-Q JUNE 30, 2000 INDEX Page ---- PART I Financial Information --------------------- Item 1. Financial Statements (unaudited) Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 1 Consolidated Statements of Income - Three and Six Months Ended June 30, 2000 and 1999 2 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999 3 Notes to Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 PART II Other Information Item 1. Legal Proceedings 15 Item 2. Changes in Securities 15 Item 4. Submission of Matters to a Vote of Securities Holders 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 17
HRPT PROPERTIES TRUST CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share amounts) June 30, December 31, 2000 1999 ----------- ------------ (unaudited) (note 1) ASSETS Real estate properties, at cost: Land $ 353,213 $ 354,173 Buildings and improvements 2,307,412 2,302,171 ----------- ----------- 2,660,625 2,656,344 Less accumulated depreciation 136,486 106,859 ----------- ----------- 2,524,139 2,549,485 Real estate mortgages and notes receivable, net 8,161 10,373 Equity investments 305,059 311,113 Cash and cash equivalents 9,674 13,206 Interest and rents receivable 40,145 36,683 Other assets, net 35,957 32,448 ----------- ----------- $ 2,923,135 $ 2,953,308 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Bank notes payable $ 169,000 $ 132,000 Senior notes payable, net 930,160 957,586 Mortgage notes payable 54,369 55,441 Convertible subordinated debentures 204,863 204,863 Accounts payable and accrued expenses 46,075 53,851 Deferred rents 8,368 9,005 Security deposits 7,196 7,041 Due to affiliates 10,634 11,054 Shareholders' equity: Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized, none issued -- -- Common shares of beneficial interest, $0.01 par value: 150,000,000 shares authorized, 131,935,847 shares and 131,908,126 shares issued and outstanding at June 30, 2000, and December 31, 1999, respectively 1,319 1,319 Additional paid-in capital 1,971,593 1,971,366 Cumulative net income 733,831 678,676 Distributions (1,205,962) (1,121,533) Unrealized holding losses on investments (8,311) (7,361) ----------- ----------- Total shareholders' equity 1,492,470 1,522,467 ----------- ----------- $ 2,923,135 $ 2,953,308 =========== ===========
See accompanying notes 1
HRPT PROPERTIES TRUST CONSOLIDATED STATEMENTS OF INCOME (amounts in thousands, except per share amounts) (unaudited) Three Months Ended June 30, Six Months Ended June 30, --------------------------- ---------------------------- 2000 1999 2000 1999 --------- ---------- --------- --------- Revenues: Rental income $ 100,349 $ 102,022 $ 199,744 $ 203,335 Interest and other income 696 4,529 1,555 7,619 --------- --------- --------- --------- Total revenues 101,045 106,551 201,299 210,954 --------- --------- --------- --------- Expenses: Operating expenses 34,238 26,542 68,065 50,548 Interest 25,310 20,088 50,408 39,525 Depreciation and amortization 16,040 18,483 31,914 37,314 General and administrative 4,332 5,008 9,029 9,849 --------- --------- --------- --------- Total expenses 79,920 70,121 159,416 137,236 --------- --------- --------- --------- Income before equity in earnings of equity investments and gain on sale of properties 21,125 36,430 41,883 73,718 Equity in earnings of equity investments 5,602 2,021 11,294 4,029 Loss on equity transaction of equity investments -- (711) -- (711) --------- --------- --------- --------- Income before gain on sale of properties 26,727 37,740 53,177 77,036 Gain on sale of properties, net 1,978 -- 1,978 8,307 --------- --------- --------- --------- Net income $ 28,705 $ 37,740 $ 55,155 $ 85,343 ========= ========= ========= ========= Weighted average shares outstanding 131,935 131,894 131,928 131,778 ========= ========= ========= ========= Basic and diluted earnings per common share: Income before gain on sale of properties $ 0.20 $ 0.29 $ 0.40 $ 0.58 ========= ========= ========= ========= Net income $ 0.22 $ 0.29 $ 0.42 $ 0.65 ========= ========= ========= =========
See accompanying notes 2
HRPT PROPERTIES TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (unaudited) Six Months Ended June 30, ------------------------------ 2000 1999 --------- ---------- Cash flows from operating activities: Net income $ 55,155 $ 85,343 Adjustments to reconcile net income to cash provided by operating activities: Gain on sale of properties, net (1,978) (8,307) Equity in earnings of equity investments (11,294) (4,029) Loss on equity transaction of equity investments -- 711 Distributions from equity investments 17,048 5,400 Depreciation 29,769 35,858 Amortization 2,145 1,456 Amortization of bond discounts 74 74 Change in assets and liabilities: Increase in interest and rents receivable and other assets (9,749) (6,596) (Decrease) increase in accounts payable and accrued expenses (6,776) 4,073 Decrease in deferred rents (637) (1,653) Increase in security deposits 155 949 (Decrease) increase in due to affiliates (205) 1,488 --------- --------- Cash provided by operating activities 73,707 114,767 --------- --------- Cash flows from investing activities: Real estate acquisitions and improvements (7,602) (143,961) Proceeds from repayment of real estate mortgages and notes receivable 3,512 68,274 Proceeds from sale of real estate 2,857 22,177 Proceeds from repayment of loans to affiliate -- 1,000 --------- --------- Cash used for investing activities (1,233) (52,510) --------- --------- Cash flows from financing activities: Proceeds from borrowings 85,000 271,500 Payments on borrowings (76,572) (217,294) Deferred finance costs incurred (5) (4,625) Distributions (84,429) (100,497) --------- --------- Cash used for financing activities (76,006) (50,916) --------- --------- (Decrease) increase in cash and cash equivalents (3,532) 11,341 Cash and cash equivalents at beginning of period 13,206 15,643 --------- --------- Cash and cash equivalents at end of period $ 9,674 $ 26,984 ========= ========= Supplemental cash flow information: Interest paid $ 50,634 $ 39,953 ========= ========= Non-cash investing activities: Investment in real estate mortgages receivable $ 1,300 $ 60,000 Issuance of common shares -- 4,959 Non-cash financing activities: Issuance of common shares $ 227 $ 1,335
See accompanying notes 3 HRPT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) Note 1. Basis of Presentation The quarterly financial statements of HRPT Properties Trust and its subsidiaries (the "Company") 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 December 31, 1999, audited financial statements but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Reclassifications have been made to the prior years' financial statements to conform to the current year's presentation. Note 2. Comprehensive Income The following is a reconciliation of net income to comprehensive income for the three and six months ended June 30, 2000, and 1999:
Three Months Ended June 30, Six Months Ended June 30, --------------------------- -------------------------- 2000 1999 2000 1999 --------- -------- --------- -------- Net income $ 28,705 $ 37,740 $ 55,155 $ 85,343 Other comprehensive loss: Unrealized holding losses on investments (119) (594) (950) (6,233) -------- -------- -------- -------- Comprehensive income $ 28,586 $ 37,146 $ 54,205 $ 79,110 ======== ======== ======== ========
At June 30, 2000, the Company's investments in marketable equity securities were included in other assets and had a fair value of $3,435 and unrealized holding losses of $8,311. At August 10, 2000, their investments had a fair value of $5,276 and unrealized holding losses of $6,470. Note 3. Equity Investments At June 30, 2000, the Company's financial statements include the following equity investments:
Equity in Earnings ------------------------------------------- Three Months Six Months Ownership Ended June 30, Ended June 30, Equity Percentage 2000 2000 Investments ------------- -------------- -------------- ------------- Senior Housing Properties Trust 49.3% $3,583 $7,310 $197,613 Hospitality Properties Trust 7.1% 2,019 3,984 107,446 ---------- ---------- ----------- $5,602 $11,294 $305,059 ========== ========== ===========
At June 30, 2000, the Company owned 12,809,237 common shares of Senior Housing Properties Trust ("SNH") with a carrying value of $197,613 and a fair value based on quoted market prices of $93,868. At June 30, 2000, the Company owned 4,000,000 common shares of Hospitality Properties Trust ("HPT") with a carrying value of $107,446 and a fair value based on quoted market prices of $90,313. 4 HRPT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) Note 4. Real Estate Properties, Mortgages and Notes Receivable, net During the six months ended June 30, 2000, the Company sold one office property and a parcel of land for net cash proceeds of $2,857 and recognized a gain of $1,978. As part of the sale of land, the Company provided a $1,300 mortgage loan secured by the land which is payable in full on May 5, 2001. The loan bears interest at 10% payable quarterly in arrears. In addition, the Company funded $7,602 of improvements to its existing properties, received scheduled principal payments of $10 and repayment of a mortgage secured by one property totaling $3,502. In July 2000 the Company announced that it either sold or entered contracts or letters of intent to sell properties for a total of $72,000. The announced dispositions are subject to negotiation of final documentation and to customary closing conditions. The Company's ability to conclude those or other property dispositions are subject to market conditions and other factors beyond its control, and the Company cannot give assurances that they will occur or that the terms of any dispositions which may be available to it in the future will be favorable to the Company. Note 5. Indebtedness In April 2000 the Company retired $27,500 of Remarketed Reset Notes due 2007 (the "Reset Notes") and in July 2000 completed its optional redemption of the remaining $222,500 of outstanding Reset Notes which bore interest at a rate, which was subject to periodic resets, at a spread over LIBOR (effective rate of 7.52% per annum immediately prior to the redemption dates). The redemption prices were 100% of the principal amount of the Reset Notes redeemed, plus accrued and unpaid interest to the redemption dates. The redemptions were funded with drawings at an effective interest rate of 7.38% under the Company's $500,000 revolving bank credit facility, which matures in April 2002. In July 2000 the Company issued unsecured senior notes totaling $30,000, raising net proceeds of $29,756. The notes bear interest at 8.875% and mature in August 2010. Net proceeds from the notes were used to repay amounts outstanding under the revolving bank credit facility. Note 6. Shareholders' Equity On July 11, 2000, the Company declared a distribution on its shares with respect to the quarter ended June 30, 2000, of $0.20 per share, which will be distributed on or about August 25, 2000, to shareholders of record as of July 26, 2000. In August 2000 13,000 shares were awarded to officers of the Company and other employees of REIT Management & Research, Inc. ("RMR"), the Company's investment manager and affiliate, pursuant to the 1992 Incentive Share Award Plan. During 2000 the Company's three independent trustees were each awarded 500 shares under this plan as part of their annual fee. The shares awarded to the officers and other employees of RMR vest over a three-year period. The shares granted to the trustees vest immediately. During the six months ended June 30, 2000, 26,221 shares were issued to RMR as the incentive advisory fee for the year ended December 31, 1999. 5 HRPT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) Note 7. Segment Information The following is a summary of the Company's reportable segments as of and for the three and six months ended June 30, 2000 and 1999:
Three Months Ended June 30, 2000 Six Months Ended June 30, 2000 ----------------------------------------- ----------------------------------------- Senior Senior Housing Office Total Housing Office Total ----------------------------------------- ----------------------------------------- Revenues $ 382 $ 100,588 $ 100,970 $ 830 $ 200,336 $ 201,166 Operating expenses -- (34,238) (34,238) -- (68,065) (68,065) Depreciation -- (14,914) (14,914) -- (29,769) (29,769) ----------------------------------------- ----------------------------------------- Net operating income $ 382 $ 51,436 $ 51,818 $ 830 $ 102,502 $ 103,332 ========================================= ========================================= Real estate investments $ 6,861 $ 2,661,925 $ 2,668,786 $ 6,861 $ 2,661,925 $ 2,668,786 Real estate acquired during the year $-- $ 3,964 $ 3,964 $-- $ 7,602 $ 7,602 Three Months Ended June 30, 1999 Six Months Ended June 30, 1999 ----------------------------------------- ----------------------------------------- Senior Senior Housing Office Total Housing Office Total ----------------------------------------- ----------------------------------------- Revenues $ 24,821 $ 81,228 $ 106,049 $ 50,952 $ 158,889 $ 209,841 Operating expenses -- (26,542) (26,542) -- (50,548) (50,548) Depreciation (5,750) (11,891) (17,641) (12,046) (23,812) (35,858) ----------------------------------------- ----------------------------------------- Net operating income $ 19,071 $ 42,795 $ 61,866 $ 38,906 $ 84,529 $ 123,435 ========================================= ========================================= Real estate investments $ 792,859 $ 2,274,192 $ 3,067,051 $ 792,859 $ 2,274,192 $ 3,067,051 Real estate acquired during the year $-- $ 141,147 $ 141,147 $-- $ 143,961 $ 143,961
The following tables reconcile the reported segment information to the consolidated financial statements for the three and six months ended June 30, 2000 and 1999:
Three Months Ended June 30, Six Months Ended June 30, --------------------------- -------------------------- 2000 1999 2000 1999 --------------------------- -------------------------- Revenues: Total per reportable segment $ 100,970 $ 106,049 $ 201,166 $ 209,841 Unallocated other income 75 502 133 1,113 -------------------------- -------------------------- Total consolidated revenues $ 101,045 $ 106,551 $ 201,299 $ 210,954 ========================== ========================== Net operating income: Total per reportable segment $ 51,818 $ 61,866 $ 103,332 $ 123,435 Unallocated amounts: Other income 75 502 133 1,113 Interest expense (25,310) (20,088) (50,408) (39,525) Amortization expense (1,126) (842) (2,145) (1,456) General and administrative expenses (4,332) (5,008) (9,029) (9,849) -------------------------- -------------------------- Total consolidated income before equity in earnings of equity investments and gain on sale of properties $ 21,125 $ 36,430 $ 41,883 $ 73,718 ========================== ==========================
6 HRPT PROPERTIES TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share amounts) On October 12, 1999, the Company spun-off 50.7% of a 100% owned subsidiary, SNH, to its shareholders (the "Spin-Off"). Prior to the Spin-Off, SNH owned substantially all of the Company's senior housing properties and the operating results and investment in SNH were included in the Company's results of operations and total assets. Since the Spin-Off, the Company's 49.3% retained interest in SNH has been accounted for using the equity method. Under the equity method, the Company includes its investment in SNH in equity investments on the consolidated balance sheets and its share of SNH's results of operations in equity in earnings of equity investments on the consolidated statements of income. Note 8. Pro Forma Information During 1999 the Company sold 21 nursing homes for gross proceeds of approximately $96,200. On October 12, 1999, the Company spun-off 50.7% of a 100% owned subsidiary, SNH, to its shareholders. The following unaudited pro forma consolidated statements of income for the three and six months ended June 30, 1999, is presented to reflect the effects of the Spin-Off and the disposition of nursing home assets during 1999, as if these transactions had occurred on January 1, 1999. This pro forma information does not purport to present actual results of operations if these transactions had occurred on such date or project operating results for any future period. Pro Forma Unaudited Consolidated Statements of Income (amounts in thousands, except per share amounts) Three Months Six Months Ended Ended June 30, 1999 June 30, 1999 ------------- ------------- Revenues: Rental income $ 80,839 $158,205 Interest and other income 1,429 2,803 -------- -------- Total revenues 82,268 161,008 -------- -------- Expenses: Operating expenses 26,542 50,548 Interest 16,959 32,118 Depreciation and amortization 12,883 25,568 General and administrative 3,762 7,364 -------- -------- Total expenses 60,146 115,598 -------- -------- Income before equity in earnings of equity investments and gain on sale of properties 22,122 45,410 Equity in earnings of equity investments 7,953 15,927 -------- -------- Income before gain on sale of properties $ 30,075 $ 61,337 ======== ======== Weighted average shares outstanding 131,894 131,778 ======== ======== Income before gain on sale of properties per basic share $ 0.23 $ 0.47 ======== ======== Pro forma funds from operations, on a diluted basis, were $51,152, or $0.36 per share, and $103,481, or $0.72 per share, for the three and six months ended June 30, 1999, respectively. 7 HRPT PROPERTIES TRUST Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion presents an analysis of the results of operations of the properties we owned for the three and six months ended June 30, 2000 and 1999. This discussion includes references to funds from operations. Funds from operations, or "FFO", as defined in the white paper on funds from operations which was approved by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT") in March 1995 and as clarified from time to time, is net income computed in accordance with Generally Accepted Accounting Principles ("GAAP"), before extraordinary items, plus depreciation and amortization and after adjustment for unconsolidated partnerships and joint ventures. We consider FFO to be an appropriate measure of performance for an equity REIT, along with cash flow from operating activities, financing activities and investing activities, because it provides investors with an indication of an equity REIT's ability to incur and service debt, make capital expenditures, pay distributions and fund other cash needs. We compute FFO in accordance with the standards established by NAREIT including adjustments for our pro rata share of FFO of HPT and SNH, gains on sale of properties, and for non cash items, which may not be comparable to FFO reported by other REITs that define the term differently. FFO does not represent cash generated by operating activities in accordance with GAAP and should not be considered as an alternative to net income, determined in accordance with GAAP, as an indication of financial performance or the cash flow from operating activities, determined in accordance with GAAP, or as a measure of liquidity. RESULTS OF OPERATIONS Three Months Ended June 30, 2000, Compared to Three Months Ended June 30, 1999 Total revenues for the three months ended June 30, 2000, decreased $5.5 million to $101.0 million from $106.6 million for the three months ended June 30, 1999. Revenues from our office segment increased $19.4 million and revenues from our senior housing segment decreased $24.4 million. The increase in revenues from our office segment is due to office building acquisitions made during and after June 1999. The decrease in revenues from our senior housing segment is due primarily to the Spin-Off of our former subsidiary, SNH, in October 1999. For the three months ended June 30, 2000, rental income decreased $1.7 million and interest and other income decreased $3.8 million compared to the prior period. Rental income decreased primarily because of the Spin-Off of SNH, offset by acquisitions made during and after June 1999. Interest and other income decreased primarily as a result of the Spin-Off of SNH. Total expenses for the three months ended June 30, 2000, increased to $79.9 million from $70.1 million for the three months ended June 30, 1999. Operating expenses increased by $7.7 million as a result of our increased investment in office buildings made during and after June 1999. Interest expense increased by $5.2 million during 2000 compared to the prior year period, primarily as a result of increased borrowings outstanding and to a lesser extent an increase in interest rates on our floating rate debt. Depreciation and amortization, and general and administrative expenses decreased by $2.4 million and $676,000, respectively, primarily as a result of the Spin-Off of SNH. Equity in earnings of equity investments increased in 2000 by $3.6 million from the 1999 period due to the Spin-Off of SNH in October 1999. Net income decreased to $28.7 million, or $0.22 per basic and diluted share, for the 2000 period, from $37.7 million, or $0.29 per basic and diluted share, for the 1999 period. The change in net income is due primarily to the Spin-Off of SNH, offset by office building acquisitions made during and after June 1999. Funds from operations for the three months ended June 30, 2000, were $46.6 million, or $0.35 per basic share, and $57.6 million, or $0.44 per basic share, for the 1999 period. Diluted funds from operations for the three months ended June 30, 2000, were $50.7 million, or $0.35 per diluted share, and $61.7 million, or $0.43 per diluted share, for the same period in 1999. Distributions declared which relate to the three months ended June 30, 2000 and 1999, were $26.4 million, or $0.20 per share, and $50.1 million, or $0.38 per share, respectively. The decrease in distributions reflects the reduction in distributions from $0.38 per share per quarter to $0.32 per share per quarter paid after the Spin-Off of SNH. Also, in July 2000 we announced a further reduction in our distribution rate to $0.20 per share per quarter as further discussed below. 8 HRPT PROPERTIES TRUST Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued Six Months Ended June 30, 2000, Compared to Six Months Ended June 30, 1999 Total revenues for the six months ended June 30, 2000, decreased $9.7 million to $201.3 million from $211.0 million for the six months ended June 30, 1999. Revenues from our office segment increased $41.4 million and revenues from our senior housing segment decreased $50.1 million. The increase in revenues from our office segment is due to office building acquisitions made during and after June 1999. The decrease in revenues from our senior housing segment is due primarily to the Spin-Off of SNH and the sale of some senior housing properties in 1999. For the six months ended June 30, 2000, rental income decreased $3.6 million and interest and other income decreased $6.1 million compared to the same period in 1999. Rental income decreased primarily because of the Spin-Off of SNH, offset by acquisitions made during and after June 1999. Interest and other income decreased primarily as a result of the Spin-Off of SNH and the sale of some senior housing properties in 1999. Total expenses for the six months ended June 30, 2000, increased to $159.4 million from $137.2 million for the six months ended June 30, 1999. Operating expenses increased by $17.5 million as a result of our increased investment in office buildings made during and after June 1999. Interest expense increased by $10.9 million in 2000 compared to the prior year period primarily as a result of increased borrowings outstanding and to a lesser extent an increase in interest rates on our floating rate debt. Depreciation and amortization, and general and administrative expenses decreased by $5.4 million and $820,000, respectively, primarily as a result of the Spin-Off of SNH. Equity in earnings of equity investments increased by $7.3 million in 2000 from the 1999 period due to the Spin-Off of SNH in October 1999. Net income decreased to $55.2 million, or $0.42 per basic and diluted share, for the 2000 period, from $85.3 million, or $0.65 per basic and diluted share, for the 1999 period. The change in net income is due primarily to the Spin-Off of SNH and the sale of some senior housing properties in 1999, offset by office building acquisitions made during and after June 1999. Funds from operations for the six months ended June 30, 2000, were $92.7 million, or $0.70 per basic share, and $117.3 million, or $0.89 per basic share, for the 1999 period. Diluted funds from operations for the six months ended June 30, 2000, were $100.8 million, or $0.70 per diluted share, and $125.4 million, or $0.88 per diluted share, for the 1999 period. Distributions declared which relate to the six months ended June 30, 2000 and 1999, were $68.6 million, or $0.52 per share, and $100.2 million, or $0.76 per share, respectively. The decrease in distributions reflects the reduction in distributions from $0.38 per share per quarter to $0.32 per share per quarter paid after the Spin-Off of SNH. Also, in July 2000 we announced a further reduction in our distribution rate to $0.20 per share per quarter as further discussed below. PRO FORMA RESULTS OF OPERATIONS Three Months Ended June 30, 2000, Compared to Pro Forma Three Months Ended June 30, 1999 Total revenues for the three months ended June 30, 2000, increased $18.8 million to $101.0 million from $82.3 million for the pro forma three months ended June 30, 1999. Rental income increased $19.5 million and interest and other income decreased $733,000 for the three months ended June 30, 2000, compared to the pro forma prior year period. Rental income increased due to acquisitions made during and after June 1999, and interest and other income decreased primarily due to mortgage repayments received and the reduction in bank deposit interest. Total expenses for the three months ended June 30, 2000, increased to $79.9 million from $60.1 million for the pro forma three months ended June 30, 1999. Operating expenses increased by $7.7 million as a result of our increased investment in office buildings made during and after June 1999. Interest expense increased by $8.4 million during 2000 compared to the pro forma prior year period, primarily as a result of increased borrowings outstanding and to a lesser extent an increase in interest rates on our floating rate debt. Depreciation and amortization, and general and administrative expenses increased by $3.2 million and $570,000, respectively, primarily as a result of office acquisitions made during and after June 1999. 9 HRPT PROPERTIES TRUST Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued Equity in earnings of equity investments decreased in 2000 by $2.4 million from the 1999 period due to the decrease in equity in earnings of SNH. Net income decreased to $28.7 million, or $0.22 per basic and diluted share, for the 2000 period from $30.1 million, or $0.23 per basic and diluted share, for the 1999 pro forma period. The change in net income is due primarily to the increase in interest expense from increased borrowings, the decrease in equity in earnings of SNH and the decrease in mortgage interest received, offset by office building acquisitions made during and after June 1999 and gains on the sale of properties during 2000. Funds from operations for the three months ended June 30, 2000, were $46.6 million, or $0.35 per basic share, and $47.1 million, or $0.36 per basic share, for the 1999 pro forma period. Diluted funds from operations for the three months ended June 30, 2000, were $50.7 million, or $0.35 per diluted share, and $51.2 million, or $0.36 per diluted share, for the 1999 pro forma period. Six Months Ended June 30, 2000, Compared to Pro Forma Six Months Ended June 30, 1999 Total revenues for the six months ended June 30, 2000, increased $40.3 million to $201.3 million from $161.0 million for the pro forma six months ended June 30, 1999. Rental income increased $41.5 million and interest and other income decreased $1.2 million compared to the pro forma prior year period. Rental income increased primarily because of acquisitions made during and after June 1999. Interest and other income decreased primarily as a result of mortgage repayments received and the reduction in bank deposit interest. Total expenses for the six months ended June 30, 2000, increased to $159.4 million from $115.6 million for the pro forma six months ended June 30, 1999. Operating expenses increased by $17.5 million as a result of our increased investment in office buildings made during and after June 1999. Interest expense increased by $18.3 million in 2000 compared to the pro forma prior year period primarily as a result of increased borrowings outstanding and to a lesser extent an increase in interest rates on our floating rate debt. Depreciation and amortization, and general and administrative expenses increased by $6.3 million and $1.7 million, respectively, primarily from acquisitions made during and after June 1999. Equity in earnings of equity investments decreased by $4.6 million in 2000 from the 1999 pro forma period due to the decrease in equity in earnings of SNH. Net income decreased to $55.2 million, or $0.42 per basic and diluted share, for the 2000 period from $61.3 million, or $0.47 per basic and diluted share, for the 1999 pro forma period. The change in net income is due primarily to the increase in interest expense from increased borrowings, the decrease in equity in earnings of SNH and the decrease in mortgage interest received, offset by office building acquisitions made during and after June 1999 and gains on the sale of properties during 2000. Funds from operations for the six months ended June 30, 2000, were $92.7 million, or $0.70 per basic share, and $95.4 million, or $0.72 per basic share, for the 1999 pro forma period. Diluted funds from operations for the six months ended June 30, 2000, were $100.8 million, or $0.70 per diluted share, and $103.5 million, or $0.72 per diluted share, for the 1999 pro forma period. LIQUIDITY AND CAPITAL RESOURCES Total assets were $2.9 billion at June 30, 2000, compared to $3.0 billion at December 31, 1999. During the six months ended June 30, 2000, we sold one office property and a parcel of land for net cash proceeds of $2.9 million and recognized a gain of $2.0 million. As part of the sale of land, we provided a $1.3 million mortgage loan secured by the land which is payable in full on May 5, 2001. The loan bears interest at 10% payable quarterly in arrears. We also funded $7.6 million of improvements to our existing properties, received $10,000 of regularly scheduled principal payments and received a $3.5 million principal repayment of a mortgage secured by one property. 10 HRPT PROPERTIES TRUST Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued At June 30, 2000, we owned 12.8 million, or 49.3%, of the common shares of beneficial interest of SNH with a carrying value of $197.6 million and a market value of $93.9 million, and 4.0 million, or 7.1%, of the common shares of beneficial interest of HPT with a carrying value of $107.4 million and a market value of $90.3 million. On July 11, 2000, we announced our new distribution rate of $0.20 per share per quarter ($0.80 per share per year). This new rate represented a reduction from the distribution rate we previously paid of $0.32 per share per quarter ($1.28 per share per year). The previous distribution rate was set in 1999 when we distributed to shareholders a majority interest in our subsidiary SNH, which owns nursing homes and other senior living properties. Two nursing home company tenants of SNH that were responsible for about half of SNH rents filed for bankruptcy in early 2000, and in April 2000, SNH reduced its distribution rate. As a result, the distributions which we receive as a result of our retained minority interest in SNH were reduced by over $15 million per year. SNH has announced that it expects to assume operating responsibility for over 50 nursing homes formerly leased by it, and it is unclear how successful those future operations may be. We believe that it may be appropriate for us to consider disposing of our investment in SNH in the future. Our Board of Trustees adopted what it believes is a conservative distribution pay out percentage of cash flow at least until the future direction of SNH is clarified and the results of our current property sales efforts discussed below are known. SNH also recently announced that it has agreed to sell four independent living properties to the parent of its tenant for approximately $123 million. The sale is subject to various closing conditions, and no assurance can be provided that it will be consummated. SNH has stated that the net proceeds of the sale would be used to repay debt outstanding under its revolving credit facility. We believe that the effect of the transaction would be to reduce SNH's outstanding debt and that SNH's funds from operations will not be materially affected. In April 2000 we retired $27.5 million of our Reset Notes due 2007 at their par value and in July 2000 we completed our optional redemption of the remaining $222.5 million of outstanding Reset Notes which bore interest at a rate, which was subject to periodic resets, at a spread over LIBOR (effective rate of 7.52% per annum immediately prior to the redemption date). The redemption prices were 100% of the principal amount of the Reset Notes redeemed, plus accrued and unpaid interest to the redemption dates. The redemptions were funded with drawings at an effective interest rate of 7.38% under our $500 million revolving bank credit facility, which matures in April 2002. In July 2000 we issued unsecured senior notes totaling $30 million, raising net proceeds of $29.8 million. The notes bear interest at 8.875% and mature in 2010. Net proceeds from the notes were used to repay amounts outstanding under our revolving bank credit facility. At June 30, 2000, we had $9.7 million of cash and cash equivalents. At August 10, 2000, we had $334 million outstanding and $166 million available for borrowing under our bank credit facility. At August 10, 2000, $2.5 billion was available on our $3 billion effective shelf registration statement. In December 1999 we announced a three part business plan, as follows: first, efforts to sell properties for up to $150-$160 million; second, possible joint ventures from which we might realize proceeds of $200 million to $400 million; and third, using the proceeds of property sales and joint ventures to prepay debt, to selectively make new investments and fund a share repurchase program for up to approximately 14 million common shares. 11 HRPT PROPERTIES TRUST Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - continued In July 2000 we announced that we either sold or entered contracts or letters of intent to sell properties for a total of $72 million, and we currently believe that property sales totaling at least $150-$160 million projected in December 1999 will be concluded before the end of 2000. The announced dispositions are subject to negotiation of final documentation and to customary closing conditions. Our ability to conclude those or other property dispositions are subject to market conditions and other factors beyond our control, and we cannot give assurances that they will occur or that the terms of any dispositions which may be available to us in the future will be favorable to us. We continue to have preliminary discussions with possible joint venture investors, but we cannot predict when, if or on what terms any joint ventures will be consummated. We have not purchased any new properties during the first six months of 2000 nor have we repurchased any of our shares. While our Board of Trustees' authorization for a share repurchase program remains in effect, we have decided that at this time repaying debt should be a priority application for our available cash. Therefore, we do not expect to complete our share repurchase program up to the authorized level of 14 million shares or at any other preset amount during 2000. A determination to repurchase shares will be dependent on market conditions and on the timing and amounts of property dispositions or joint venture proceeds. There can be no assurances that debt or equity financing will be available to fund future growth, but we do expect that financing will be available. As of June 30, 2000, our debt as a percentage of total book capitalization was approximately 48%. Year 2000 In prior years, we discussed the nature and progress of our plans to become year 2000 compliant and, in late 1999, we completed our remediation and testing of systems. We experienced no significant disruptions in our information and non-information technology systems, and we believe these systems successfully responded to the year 2000 date change. We are not aware of any material problems resulting from year 2000 issues by our systems or the systems of our tenants and vendors, but we will continue to monitor these systems throughout the year to ensure that any late year 2000 issues that may arise are addressed promptly. Costs incurred to date and anticipated future costs regarding year 2000 issues are not material. 12 HRPT PROPERTIES TRUST Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market changes in interest rates. We manage our exposure to this market risk through our monitoring of available financing alternatives. Our strategy to manage exposure to changes in interest rates is unchanged from December 31, 1999. Furthermore, we do not foresee any significant changes in our exposure to fluctuations in interest rates or in how this exposure is managed in the near future. At June 30, 2000, our total outstanding fixed rate debt consisted of the following: Amount Coupon Maturity Unsecured senior notes: $40.0 million 7.25% 2001 160.0 million 6.875% 2002 150.0 million 6.75% 2002 164.9 million 7.50% 2003 100.0 million 6.7% 2005 90.0 million 7.875% 2009 65.0 million 8.375% 2011 143.0 million 8.5% 2013 Secured notes: $3.5 million 9.12% 2004 11.0 million 8.40% 2007 17.6 million 7.02% 2008 11.8 million 8.00% 2008 10.5 million 7.66% 2009 No principal repayments are due under the unsecured senior notes until maturity. If, at maturity, the unsecured senior notes were to be refinanced at interest rates which are 1/2 percentage point higher than shown above, our per annum interest cost would increase by approximately $4.6 million. The secured notes are secured by 11 of our office properties and require principal and interest payments through maturity. The market prices, if any, of each of our fixed rate obligations as of June 30, 2000, are sensitive to changes in interest rates. Typically, if market rates of interest increase, the current market price of a fixed rate obligation will decrease. Conversely, if market rates of interest decrease, the current market price of a fixed rate obligation will typically increase. Based on the balances outstanding at June 30, 2000, and discounted cash flow analyses, a hypothetical immediate one percentage point change in interest rates would change the fair value of our fixed rate debt obligations by approximately $37.4 million. Each of our obligations for borrowed money has provisions that allow us to make repayments earlier than the stated maturity date. In some cases, we are not allowed to make early repayment prior to a cutoff date and in other cases we are allowed to make prepayments only at a premium to face value. In any event, these prepayment rights may afford us the opportunity to mitigate the risk of refinancing at maturity at higher rates by refinancing at lower rates prior to maturity. 13 HRPT PROPERTIES TRUST Item 3. Quantitative and Qualitative Disclosures About Market Risk - continued At June 30, 2000, we had a $500 million unsecured bank credit facility that was subject to floating interest rates. We also had unsecured Reset Notes subject to floating interest rates that were redeemed in full in July 2000 by drawing on our bank credit facility. Because our bank credit facility is at a floating rate, changes in interest rates will not affect its value. However, changes in interest rates will affect our operating results. For example, the interest rate payable on outstanding borrowings under our bank credit facility of $169 million at June 30, 2000, was 7.4% per annum. An immediate 10% change in that interest rate, or 74 basis points, would increase or decrease our costs by $1.3 million, or $0.01 per share per year: Impact of Changes in Interest Rates ----------------------------------------------------- (dollars in thousands) Total Interest Interest Rate Outstanding Expense Per Per Year Debt Year ------------- ----------- ------------- At June 30, 2000 7.40% $169,000 $12,506 10% reduction 6.66% 169,000 11,255 10% increase 8.14% 169,000 13,757 The foregoing table presents a so called "shock" analysis which assumes that the interest rate change by 10% is in effect for a whole year. If interest rates were to change gradually over one year the impact would be less. The foregoing analysis is based upon outstanding amounts under our bank credit facility on June 30, 2000. As noted above, our Reset Notes outstanding on June 30, 2000, were repaid in July 2000 with proceeds of increased borrowings under our bank credit facility. We currently intend to repay a portion of amounts outstanding under our bank credit facility with the proceeds of asset sales or new debt issuance. To the extent that floating rate debt outstanding is greater or less than $169 million, the financial impact of changes in interest rates would be increased or decreased, respectively. We borrow in U.S. dollars and our current borrowings under our bank credit facility are subject to interest at LIBOR plus a premium. Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically LIBOR. During the past year, short-term U.S. dollar based interest rates have tended to rise. We are unable to predict the direction or amount of interest rate changes during the next year. We have decided not to purchase an interest rate cap or other hedge to protect against future rate increases, but we may enter such agreements in the future. Also, we may incur additional debt at floating or fixed rates, which would increase our exposure to market changes in interest rates. 14 HRPT PROPERTIES TRUST Part II Other Information Item 1. Legal Proceedings In April 2000 the arbitration panel issued an award in the arbitration proceeding described in Item 3 of the Company's 1999 Annual Report on Form 10-K, which arose following the Company's commencement in 1995 of an action in Florida state court to collect on a secured indemnity agreement from a former tenant and mortgagor. In its award the arbitration panel dismissed all claims against the Company and awarded the Company $3.2 million in connection with the Company's indemnity claims. The Company negotiated and collected $2.5 million of the $3.2 million award plus accrued interest as full settlement of the indemnity claims in July 2000. Item 3 of the Annual Report also disclosed two related cases filed against the Company and others by creditors or assignees of the former tenant. One of these two cases has been dismissed without any award being made against the Company. The second case remains pending and the outcome of that proceeding cannot be predicted. Item 2. Changes in Securities In May 2000 pursuant to the Company's Incentive Share Award Plan, each of the Company's three independent trustees received a grant of 500 common shares valued at $8 7/16 per common share, the closing price of the common shares on the New York Stock Exchange on May 9, 2000. The grants were made pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended. Item 4. Submission of Matters to a Vote of Securities Holders At the Company's Annual Shareholders Meeting on May 9, 2000, Gerard M. Martin and Reverend Justinian Manning were re-elected to serve as trustees, each for a term of three years. There were 121,111,439 and 120,880,654 shares, respectively, voted in favor of, and 2,597,950 and 2,828,735 shares, respectively, withheld from voting for the re-election of Mr. Martin and Reverend Manning. Barry M. Portnoy, Patrick F. Donelan and Frederick N. Zeytoonjian continue to serve as trustees for terms ending in 2002, 2001 and 2002, respectively. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27. Financial Data Schedule (filed herewith) (b) Reports on Form 8-K: No reports on Form 8-K were filed by the Company during the three months ended June 30, 2000. 15 HRPT PROPERTIES TRUST CERTAIN IMPORTANT FACTORS THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THOSE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS FORM 10-Q AND INCLUDE STATEMENTS REGARDING OUR INTENT, BELIEF OR EXPECTATIONS TO SELL OFFICE BUILDINGS AND OTHER INVESTMENTS, POSSIBLE JOINT VENTURES AND THE EXPECTED AMOUNT OF PROCEEDS FROM THEM, THE SECURITY AND AMOUNT OF FUTURE DISTRIBUTIONS, THE FUTURE BUSINESS ACTIVITIES AND PROSPECTS OF SENIOR HOUSING PROPERTIES TRUST, OUR MINORITY OWNED FORMER SUBSIDIARY, AND OUR POSSIBLE DISPOSITION OF OUR REMAINING OWNERSHIP INTEREST IN SENIOR HOUSING PROPERTIES TRUST, OUR ACCESS TO CAPITAL, OUR ABILITY TO MAINTAIN THE RENTS AND CASH FLOW FROM OUR PROPERTIES AND OTHER MATTERS. READERS ARE CAUTIONED THAT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. SUCH FACTORS INCLUDE WITHOUT LIMITATION CHANGES IN FINANCING TERMS, OUR ABILITY OR INABILITY TO COMPLETE PROPERTY SALES AND FINANCING TRANSACTIONS, RESULTS OF OPERATIONS OF OUR PROPERTIES AND GENERAL CHANGES IN ECONOMIC CONDITIONS NOT PRESENTLY CONTEMPLATED. THE INFORMATION CONTAINED IN THIS FORM 10-Q AND OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, INCLUDING THE INFORMATION UNDER THE HEADING "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", IDENTIFIES OTHER IMPORTANT FACTORS THAT COULD CAUSE DIFFERENCES. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS. THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING THE COMPANY, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS THERETO (THE "DECLARATION"), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME "HRPT PROPERTIES TRUST" REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HRPT PROPERTIES TRUST By: /s/ John A. Mannix John A. Mannix President and Chief Operating Officer Dated: August 14, 2000 By: /s/ John C. Popeo John C. Popeo Treasurer and Chief Financial Officer Dated: August 14, 2000 17 EX-27 2 0002.txt
5 1,000 6-MOS DEC-31-2000 JAN-01-2000 JUN-30-2000 9,674 0 8,161 0 0 0 2,660,625 136,486 2,923,135 0 1,358,392 0 0 1,319 1,491,151 2,923,135 0 201,299 0 159,416 0 0 50,408 55,155 0 55,155 0 0 0 55,155 0.42 0.42
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