10-Q 1 a05-12741_110q.htm 10-Q

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2005

 

OR

 

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 1-9317

 

HRPT PROPERTIES TRUST

 

Maryland

 

04-6558834

(State of Organization)

 

(IRS Employer Identification No.)

 

400 Centre Street, Newton, Massachusetts 02458

 

 

617-332-3990

 

 

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, and (2) has been subject to such filing requirements for the past 90 days.  Yes ý   No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes ý   No o

 

Number of registrant’s common shares of beneficial interest, $0.01 par value per share, outstanding as of August 3, 2005:  199,821,025

 

 



 

HRPT PROPERTIES TRUST

 

FORM 10-Q

 

JUNE 30, 2005

 

INDEX

 

PART I

Financial Information

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

Consolidated Balance Sheet – June 30, 2005 and December 31, 2004

 

 

 

 

 

Consolidated Statement of Income – Three and Six Months Ended June 30, 2005 and 2004

 

 

 

 

 

Consolidated Statement of Cash Flows – Six Months Ended June 30, 2005 and 2004

 

 

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

 

Warning Concerning Forward Looking Statements

 

 

 

 

 

Statement Concerning Limited Liability

 

 

 

 

PART II

Other Information

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

Item 6.

Exhibits

 

 

 

 

 

Signatures

 

 

References in this Form 10-Q to the “Company”, “we”, “us”, “our”, and “HRPT Properties” refers to HRPT Properties Trust and its consolidated subsidiaries, unless otherwise noted.

 



 

PART I  Financial Information

 

Item 1.  Financial Statements

 

HRPT PROPERTIES TRUST

 

CONSOLIDATED BALANCE SHEET

(in thousands, except share data)

 

 

 

June 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Real estate properties, at cost:

 

 

 

 

 

Land

 

$

1,050,303

 

$

928,106

 

Buildings and improvements

 

3,861,945

 

3,756,963

 

 

 

4,912,248

 

4,685,069

 

Accumulated depreciation

 

(506,409

)

(454,411

)

 

 

4,405,839

 

4,230,658

 

Acquired real estate leases

 

149,087

 

149,063

 

Equity investments in former subsidiaries

 

207,655

 

207,804

 

Cash and cash equivalents

 

18,921

 

21,961

 

Restricted cash

 

22,282

 

22,257

 

Rents receivable, net of allowance for doubtful accounts of $3,388 and $4,594, respectively

 

126,621

 

113,504

 

Other assets, net

 

82,018

 

68,083

 

Total assets

 

$

5,012,423

 

$

4,813,330

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Revolving credit facility

 

$

236,000

 

$

175,000

 

Senior unsecured debt, net

 

1,640,178

 

1,739,624

 

Mortgage notes payable, net

 

434,346

 

440,407

 

Accounts payable and accrued expenses

 

73,137

 

67,716

 

Acquired real estate lease obligations

 

39,495

 

39,843

 

Rent collected in advance

 

18,048

 

15,208

 

Security deposits

 

12,718

 

11,920

 

Due to affiliates

 

11,454

 

16,418

 

Total liabilities

 

2,465,376

 

2,506,136

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized;

 

 

 

 

 

Series A preferred shares; 9 7/8% cumulative, redeemable at par on February 22, 2006; 8,000,000 shares outstanding, aggregate liquidation preference $200,000

 

193,086

 

193,086

 

Series B preferred shares; 8 ¾% cumulative, redeemable at par on September 12, 2007; 12,000,000 shares outstanding, aggregate liquidation preference $300,000

 

289,849

 

289,849

 

Common shares of beneficial interest, $0.01 par value:

 

 

 

 

 

225,000,000 shares authorized; 199,821,025 and 177,316,525 shares outstanding, respectively

 

1,998

 

1,773

 

Additional paid in capital

 

2,653,791

 

2,394,946

 

Cumulative net income

 

1,370,771

 

1,287,790

 

Cumulative common distributions

 

(1,808,785

)

(1,729,587

)

Cumulative preferred distributions

 

(153,663

)

(130,663

)

Total shareholders’ equity

 

2,547,047

 

2,307,194

 

Total liabilities and shareholders’ equity

 

$

5,012,423

 

$

4,813,330

 

 

See accompanying notes

 

1



 

HRPT PROPERTIES TRUST

 

CONSOLIDATED STATEMENT OF INCOME

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

174,289

 

$

138,693

 

$

341,320

 

$

275,022

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating expenses

 

63,920

 

51,414

 

127,203

 

102,279

 

Depreciation and amortization

 

33,519

 

24,942

 

66,134

 

49,879

 

General and administrative

 

7,453

 

5,830

 

14,328

 

11,528

 

Total expenses

 

104,892

 

82,186

 

207,665

 

163,686

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

69,397

 

56,507

 

133,655

 

111,336

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

701

 

144

 

881

 

264

 

Interest expense (including amortization of note discounts and premiums and deferred financing fees of $668, $1,511, $1,333 and $2,946, respectively)

 

(34,732

)

(25,201

)

(70,339

)

(51,426

)

Loss on early extinguishment of debt

 

 

 

 

(2,866

)

Equity in earnings of equity investments

 

3,052

 

3,731

 

6,446

 

7,531

 

Gain on sale of shares of equity investments

 

 

 

 

14,805

 

Gain on issuance of shares by equity investees

 

4,708

 

 

4,708

 

5,040

 

Income from continuing operations

 

43,126

 

35,181

 

75,351

 

84,684

 

Income (loss) from discontinued operations

 

28

 

(121

)

38

 

(249

)

Gain on sale of properties

 

7,592

 

 

7,592

 

 

Net income

 

50,746

 

35,060

 

82,981

 

84,435

 

Preferred distributions

 

(11,500

)

(11,500

)

(23,000

)

(23,000

)

Net income available for common shareholders

 

$

39,246

 

$

23,560

 

$

59,981

 

$

61,435

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

199,819

 

177,276

 

189,873

 

175,000

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share:

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.16

 

$

0.13

 

$

0.28

 

$

0.35

 

Net income available for common shareholders

 

$

0.20

 

$

0.13

 

$

0.32

 

$

0.35

 

 

See accompanying notes

 

2



 

HRPT PROPERTIES TRUST

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

82,981

 

$

84,435

 

Adjustments to reconcile net income to cash provided by operating activities:

 

 

 

 

 

Depreciation

 

54,878

 

43,628

 

Amortization of note discounts and premiums and deferred financing fees

 

1,333

 

2,946

 

Amortization of acquired real estate leases

 

10,655

 

3,674

 

Other amortization

 

4,244

 

2,769

 

Loss on early extinguishment of debt

 

 

2,866

 

Equity in earnings of equity investments

 

(6,446

)

(7,531

)

Gain on sale of shares of equity investments

 

 

(14,805

)

Gain on issuance of shares by equity investees

 

(4,708

)

(5,040

)

Distributions of earnings from equity investments

 

6,446

 

7,531

 

Gain on sale of properties

 

(7,592

)

 

Change in assets and liabilities:

 

 

 

 

 

(Increase) decrease in restricted cash

 

(25

)

555

 

Increase in rents receivable and other assets

 

(29,121

)

(41,846

)

Increase in accounts payable and accrued expenses

 

5,429

 

2,004

 

Increase in rent collected in advance

 

2,840

 

118

 

Increase in security deposits

 

941

 

204

 

Decrease in due to affiliates

 

(4,964

)

(2,075

)

Cash provided by operating activities

 

116,891

 

79,433

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Real estate acquisitions and improvements

 

(253,025

)

(77,386

)

Distributions in excess of earnings from equity investments

 

4,857

 

5,195

 

Proceeds from sale of properties

 

20,078

 

 

Proceeds from sale of common shares of equity investment

 

 

54,413

 

Cash used for investing activities

 

(228,090

)

(17,778

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from issuance of common shares, net

 

259,017

 

323,639

 

Proceeds from borrowings

 

380,000

 

472,000

 

Payments on borrowings

 

(423,847

)

(753,245

)

Deferred financing fees

 

(4,813

)

(2,113

)

Distributions to common shareholders

 

(79,198

)

(70,909

)

Distributions to preferred shareholders

 

(23,000

)

(23,000

)

Cash provided by (used for) financing activities

 

108,159

 

(53,628

)

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(3,040

)

8,027

 

Cash and cash equivalents at beginning of period

 

21,961

 

11,526

 

Cash and cash equivalents at end of period

 

$

18,921

 

$

19,553

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Interest paid

 

$

72,071

 

$

46,745

 

 

 

 

 

 

 

Non-cash financing activities:

 

 

 

 

 

Issuance of common shares

 

$

53

 

$

40

 

 

See accompanying notes

 

3



 

HRPT PROPERTIES TRUST

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)

 

Note 1.  Basis of Presentation

 

The accompanying consolidated financial statements of HRPT Properties Trust and its subsidiaries have been prepared without audit.  Certain information and footnote disclosures required by accounting principles generally accepted in the United States for complete financial statements have been condensed or omitted.  We believe the disclosures made are adequate to make the information presented not misleading.  However, the accompanying financial statements should be read in conjunction with the financial statements and notes contained in our Annual Report on Form 10-K for the year ended December 31, 2004.  In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair presentation, have been included.  All intercompany transactions and balances between HRPT Properties Trust and its subsidiaries have been eliminated.  Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. 

 

Note 2.  Equity Investments

 

At June 30, 2005, and December 31, 2004, we had the following equity investments in Senior Housing Properties Trust, or Senior Housing, and Hospitality Properties Trust, or Hospitality Properties:

 

 

 

 

 

Equity in Earnings

 

 

 

Equity Investments

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

December 31,

 

June 30,

 

June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

2005

 

2004

 

Senior Housing

 

$

106,780

 

$

108,668

 

$

1,834

 

$

2,159

 

$

3,655

 

$

4,369

 

Hospitality Properties

 

100,875

 

99,136

 

1,218

 

1,572

 

2,791

 

3,162

 

 

 

$

207,655

 

$

207,804

 

$

3,052

 

$

3,731

 

$

6,446

 

$

7,531

 

 

At June 30, 2005, we owned 8,660,738 common shares, or 12.6%, of Senior Housing with a carrying value of $106,780 and a market value, based on quoted market prices, of $163,775, and 4,000,000 common shares, or 5.6%, of Hospitality Properties with a carrying value of $100,875 and a market value, based on quoted market prices, of $176,280.  Our two managing trustees are also managing trustees of Senior Housing and Hospitality Properties and owners of Reit Management & Research LLC, or RMR, which is the investment manager to us, Senior Housing and Hospitality Properties.  We account for our investments in Senior Housing and Hospitality Properties using the equity method of accounting.

 

In June 2005 Hospitality Properties completed a public offering of an aggregate of 4,700,000 common shares for $44.39 per share, raising net proceeds of $199,233.  As a result of this transaction, our ownership percentage in Hospitality Properties was reduced from 6.0% prior to this transaction to 5.6% after this transaction, and we recognized a gain of $4,708 during the six months ended June 30, 2005.

 

Note 3.  Real Estate Properties

 

During the six months ended June 30, 2005, we acquired two office properties for $81,350, plus closing costs, 8,180 square feet of industrial lands for $115,500, plus closing costs, and funded $45,709 of improvements to our owned properties using cash on hand and borrowings under our revolving credit facility.  We also sold three industrial properties for net proceeds of $20,078 and recognized gains of $7,592 during the six months ended June 30, 2005.

 

4



 

Note 4.  Indebtedness

 

In January 2005 we amended our unsecured revolving credit facility to increase the available borrowing amount from $560,000 to $750,000 and to extend the maturity date from April 2006 to April 2009, with an option to extend the maturity by one additional year.  The annual interest payable for amounts drawn under the facility was reduced from LIBOR plus 0.80% to LIBOR plus 0.65%.  In certain circumstances, the amount of unsecured borrowings available under this facility may be increased to $1.5 billion.  Certain financial and other covenants in the facility were also amended to reflect current market conditions.  The interest rate on this facility averaged 3.4% and 1.9% per annum for the six months ended June 30, 2005 and 2004, respectively.  As of June 30, 2005, we had $236,000 outstanding on our revolving credit facility and $514,000 available for acquisitions and for general business purposes.  Our public debt indentures, credit facility and term loan agreements contain a number of financial and other covenants, including a credit facility and term loan covenant which limits the amount of aggregate distributions on common shares to 90% of operating cash flow available for shareholder distributions as defined in the credit facility and term loan agreements.

 

In February 2005 we repaid our $100,000 6.7% senior notes that were due in February 2005 by drawing on our revolving credit facility.

 

Note 5.  Shareholders’ Equity

 

In March 2005 we issued 22,500,000 common shares in a public offering, raising net proceeds of $259,017.  Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility.

 

Note 6.  Segment Information

 

As of June 30, 2005, we owned 280 office properties and 135 industrial properties.  Property level information by geographic area and property type is as follows:

 

For the three and six months ended June 30, 2005:

 

 

 

Three Months Ended June 30, 2005

 

Six Months Ended June 30, 2005

 

 

 

Office
Properties

 

Industrial
Properties

 

Totals

 

Office
Properties

 

Industrial
Properties

 

Totals

 

Property level revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

35,772

 

$

 

$

35,772

 

$

66,729

 

$

 

$

66,729

 

Metro Washington, DC

 

19,131

 

 

19,131

 

37,720

 

 

37,720

 

Metro Boston, MA

 

14,015

 

 

14,015

 

28,064

 

 

28,064

 

Oahu, HI

 

 

11,340

 

11,340

 

 

22,262

 

22,262

 

Southern California

 

11,546

 

 

11,546

 

23,068

 

 

23,068

 

Metro Atlanta, GA

 

8,420

 

 

8,420

 

16,729

 

 

16,729

 

Metro Austin, TX

 

5,488

 

4,261

 

9,749

 

11,081

 

8,391

 

19,472

 

Other Markets

 

54,820

 

9,496

 

64,316

 

108,280

 

18,996

 

127,276

 

Totals

 

$

149,192

 

$

25,097

 

$

174,289

 

$

291,671

 

$

49,649

 

$

341,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property level net operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

20,625

 

$

 

$

20,625

 

$

36,867

 

$

 

$

36,867

 

Metro Washington, DC

 

12,308

 

 

12,308

 

24,648

 

 

24,648

 

Metro Boston, MA

 

9,720

 

 

9,720

 

19,194

 

 

19,194

 

Oahu, HI

 

 

9,164

 

9,164

 

 

17,863

 

17,863

 

Southern California

 

7,602

 

 

7,602

 

15,463

 

 

15,463

 

Metro Atlanta, GA

 

5,367

 

 

5,367

 

10,787

 

 

10,787

 

Metro Austin, TX

 

2,561

 

1,983

 

4,544

 

5,411

 

3,892

 

9,303

 

Other Markets

 

34,143

 

6,896

 

41,039

 

67,036

 

12,956

 

79,992

 

Totals

 

$

92,326

 

$

18,043

 

$

110,369

 

$

179,406

 

$

34,711

 

$

214,117

 

 

5



 

As of June 30, 2005, our investments in office and industrial properties, net of accumulated depreciation, was $3,504,324 and $901,515, respectively.

 

For the three and six months ended June 30, 2004:

 

 

 

Three Months Ended June 30, 2004

 

Six Months Ended June 30, 2004

 

 

 

Office
Properties

 

Industrial
Properties

 

Totals

 

Office
Properties

 

Industrial
Properties

 

Totals

 

Property level revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

33,283

 

$

 

$

33,283

 

$

66,233

 

$

 

$

66,233

 

Metro Washington, DC

 

15,237

 

 

15,237

 

29,971

 

 

29,971

 

Metro Boston, MA

 

12,338

 

 

12,338

 

24,670

 

 

24,670

 

Oahu, HI

 

 

10,349

 

10,349

 

 

20,627

 

20,627

 

Southern California

 

9,875

 

 

9,875

 

20,050

 

 

20,050

 

Metro Austin, TX

 

5,398

 

4,271

 

9,669

 

10,857

 

8,500

 

19,357

 

Other Markets

 

44,678

 

3,264

 

47,942

 

87,733

 

6,381

 

94,114

 

Totals

 

$

120,809

 

$

17,884

 

$

138,693

 

$

239,514

 

$

35,508

 

$

275,022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property level net operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

18,323

 

$

 

$

18,323

 

$

36,624

 

$

 

$

36,624

 

Metro Washington, DC

 

9,888

 

 

9,888

 

19,366

 

 

19,366

 

Metro Boston, MA

 

9,263

 

 

9,263

 

18,303

 

 

18,303

 

Oahu, HI

 

 

8,590

 

8,590

 

 

17,109

 

17,109

 

Southern California

 

6,093

 

 

6,093

 

12,966

 

 

12,966

 

Metro Austin, TX

 

2,337

 

2,038

 

4,375

 

4,910

 

4,157

 

9,067

 

Other Markets

 

28,172

 

2,575

 

30,747

 

54,324

 

4,984

 

59,308

 

Totals

 

$

74,076

 

$

13,203

 

$

87,279

 

$

146,493

 

$

26,250

 

$

172,743

 

 

The following table reconciles our reported segment information to our consolidated financial statements for the three and six months ended June 30, 2005 and 2004:

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Property level net operating income

 

$

110,369

 

$

87,279

 

$

214,117

 

$

172,743

 

Depreciation and amortization

 

(33,519

)

(24,942

)

(66,134

)

(49,879

)

General and administrative

 

(7,453

)

(5,830

)

(14,328

)

(11,528

)

Operating income

 

69,397

 

56,507

 

133,655

 

111,336

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

701

 

144

 

881

 

264

 

Interest expense

 

(34,732

)

(25,201

)

(70,339

)

(51,426

)

Loss on early extinguishment of debt

 

 

 

 

(2,866

)

Equity in earnings of equity investments

 

3,052

 

3,731

 

6,446

 

7,531

 

Gain on sale of shares of equity investments

 

 

 

 

14,805

 

Gain on issuance of shares by equity investees

 

4,708

 

 

4,708

 

5,040

 

Income from continuing operations

 

43,126

 

35,181

 

75,351

 

84,684

 

Income (loss) from discontinued operations

 

28

 

(121

)

38

 

(249

)

Gain on sale of properties

 

7,592

 

 

7,592

 

 

Net income

 

50,746

 

35,060

 

82,981

 

84,435

 

Preferred distributions

 

(11,500

)

(11,500

)

(23,000

)

(23,000

)

Net income available for common shareholders

 

$

39,246

 

$

23,560

 

$

59,981

 

$

61,435

 

 

6



 

Note 7.  Pro Forma Information (unaudited)

 

The following table presents our pro forma results of operations as if our 2004 and 2005 acquisitions and financings were completed on January 1, 2004.  This pro forma data is not necessarily indicative of what actual results of operations would have been for the periods presented, nor do they purport to represent the results of operations for any future period.  Differences could result from, but are not limited to, additional property sales or investments, changes in interest rates and changes in our debt or equity capital.

 

 

 

Six Months Ended
June 30,

 

 

 

2005

 

2004

 

Total revenues

 

$

351,080

 

$

346,964

 

Net income available for common shareholders

 

$

53,206

 

$

78,086

 

Net income available for common shareholders per share

 

$

0.27

 

$

0.39

 

 

Note 8.  Subsequent Events

 

In July 2005 we declared a distribution of $0.21 per common share, or approximately $42,000, to be paid on or about August 25, 2005, to shareholders of record on July 25, 2005.  We also announced a distribution on our Series A preferred shares of $0.6172 per share, or $4,938, and a distribution on our Series B preferred shares of $0.5469 per share, or $6,563, which will be paid on or about August 15, 2005, to our Series A and B preferred shareholders of record as of August 1, 2005.

 

Since June 30, 2005, we purchased one building for $17,000, excluding closing costs, and we repaid, at par, $75,000 of 8.7% mortgage debt due in 2020.  We also repaid at par plus a premium of $168, $9,913 of 8.4% mortgage debt due in 2007.  In connection with this repayment we expect to recognize a loss in the amount of the repayment premium in the third quarter of 2005.  We funded these transactions with cash on hand and by borrowing under our revolving credit facility.

 

7



 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion and tables should be read in conjunction with our consolidated financial statements and notes thereto included in this quarterly report and our 2004 Annual Report on Form 10-K for the year ended December 31, 2004.

 

OVERVIEW

 

We primarily own office buildings located throughout the United States.  We also own approximately 18 million square feet of leased industrial and commercial lands in Oahu, Hawaii and have minority holdings in shares of our former subsidiaries, Senior Housing and Hospitality Properties.

 

Property Operations

 

As of June 30, 2005, 94.1% of our total square feet was leased, compared to 93.5% leased as of June 30, 2004, and 93.7% leased as of March 31, 2005.  These results include a 0.6 percentage point increase at properties we owned continuously since April 1, 2004.  Occupancy data is as follows (square feet in thousands):

 

 

 

All Properties

 

Comparable Properties (1)

 

 

 

As of June 30,

 

As of June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Total properties

 

415

 

243

 

237

 

237

 

Total square feet

 

52,792

 

36,652

 

35,639

 

35,639

 

Percent leased (2)

 

94.1

%

93.5

%

94.6

%

94.0

%

 


(1)    Based on properties owned continuously since April 1, 2004.

(2)    Percent leased includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

 

During the past twelve months, the decline in occupancies at some of our continuously owned buildings which we previously experienced has stopped.  Also, quoted office rent rates in most of the areas where our properties are located seem to have stabilized.  However, we continue to experience strong competition to retain and attract office tenants in the form of landlord funded tenant build outs and increased leasing commissions payable to tenant brokers.  These build out costs and leasing commissions are generally amortized as a reduction of our income during the terms of the affected leases.  We do not know how long it may take the present market conditions affecting our properties to change.  At this time, however, we believe that modest declines in effective rents will continue to depress the financial results at some of our currently owned office buildings for at least one year.  There are too many variables for us to reasonably project what the financial impact of these market conditions will be on our results for future periods. 

 

8



 

Properties acquired during the six months ended June 30, 2005, were as follows (square feet and dollars in thousands):

 

Acquired

 

Location

 

Office/
Industrial

 

Number of
Properties

 

Square
Feet

 

Purchase
Price (1)

 

Purchase
Price (1)/
Sq. Ft.

 

Cap
Rate (2)

 

Average
Remaining
Lease Term (3)

 

Percent
Leased (4)

 

Major Tenant

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May-05

 

Indianapolis, IN

 

Office

 

1

 

628

 

$

74,750

 

$

119.03

 

10.9

%

3.8

 

95.9

%

National City Bank, Indiana

 

Jun-05

 

Oahu, HI

 

Industrial

 

41

 

8,180

 

115,500

 

14.12

 

7.6

%

15.0

 

95.4

%

Tesoro Hawaii Corporation

 

Jun-05

 

Indianapolis, IN

 

Office

 

1

 

72

 

6,600

 

91.67

 

9.4

%

5.9

 

100.0

%

Indiana Lumbermens Mutual Insurance Company

 

Total / weighted average

 

43

 

8,880

 

$

196,850

 

$

22.17

 

8.9

%

14.1

 

95.4

%

 

 

 

We also sold three industrial properties during May 2005 for net proceeds of $20,078 and recognized gains of $7,592.

 


(1)     Represents the gross contract purchase price and excludes closing costs and purchase price allocations relating to FAS 141.

(2)     Represents estimated current GAAP based annual net operating income, or NOI, which is defined as property rental income less property operating expenses, divided by the purchase price.

(3)     Average remaining lease term based on rental income as of the date acquired.

(4)     Percent leased as of the date acquired.

 

Results of operations and other operating data by property type for all properties is as follows (dollars and square feet in thousands):

 

 

 

As of the
Three Months Ended
June 30,

 

As of the
Six Months Ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Number of properties:

 

 

 

 

 

 

 

 

 

Office

 

280

 

216

 

280

 

216

 

Industrial

 

135

 

27

 

135

 

27

 

Total

 

415

 

243

 

415

 

243

 

 

 

 

 

 

 

 

 

 

 

Central Business District, or CBD

 

51

 

49

 

51

 

49

 

Suburban

 

364

 

194

 

364

 

194

 

Total

 

415

 

243

 

415

 

243

 

Square feet (1):

 

 

 

 

 

 

 

 

 

Office

 

29,024

 

23,505

 

29,024

 

23,505

 

Industrial

 

23,768

 

13,147

 

23,768

 

13,147

 

Total

 

52,792

 

36,652

 

52,792

 

36,652

 

 

 

 

 

 

 

 

 

 

 

CBD

 

11,520

 

10,561

 

11,520

 

10,561

 

Suburban

 

41,272

 

26,091

 

41,272

 

26,091

 

Total

 

52,792

 

36,652

 

52,792

 

36,652

 

 

9



 

 

 

As of and For the
Three Months Ended
June 30,

 

As of and For the
Six Months Ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Percent leased (2):

 

 

 

 

 

 

 

 

 

Office

 

92.2

%

90.9

%

92.2

%

90.9

%

Industrial

 

96.3

%

98.3

%

96.3

%

98.3

%

Total

 

94.1

%

93.5

%

94.1

%

93.5

%

 

 

 

 

 

 

 

 

 

 

CBD

 

94.0

%

94.0

%

94.0

%

94.0

%

Suburban

 

94.1

%

93.4

%

94.1

%

93.4

%

Total

 

94.1

%

93.5

%

94.1

%

93.5

%

 

 

 

 

 

 

 

 

 

 

Rental income (3):

 

 

 

 

 

 

 

 

 

Office

 

$

149,192

 

$

120,809

 

$

291,671

 

$

239,514

 

Industrial

 

25,097

 

17,884

 

49,649

 

35,508

 

Total

 

$

174,289

 

$

138,693

 

$

341,320

 

$

275,022

 

 

 

 

 

 

 

 

 

 

 

CBD

 

$

69,971

 

$

66,502

 

$

136,293

 

$

131,322

 

Suburban

 

104,318

 

72,191

 

205,027

 

143,700

 

Total

 

$

174,289

 

$

138,693

 

$

341,320

 

$

275,022

 

 

 

 

 

 

 

 

 

 

 

Net operating income (NOI) (4):

 

 

 

 

 

 

 

 

 

Office

 

$

92,326

 

$

74,076

 

$

179,406

 

$

146,493

 

Industrial

 

18,043

 

13,203

 

34,711

 

26,250

 

Total

 

$

110,369

 

$

87,279

 

$

214,117

 

$

172,743

 

 

 

 

 

 

 

 

 

 

 

CBD

 

$

40,633

 

$

39,278

 

$

78,648

 

$

77,157

 

Suburban

 

69,736

 

48,001

 

135,469

 

95,586

 

Total

 

$

110,369

 

$

87,279

 

$

214,117

 

$

172,743

 

 

 

 

 

 

 

 

 

 

 

NOI margin (5):

 

 

 

 

 

 

 

 

 

Office

 

61.9

%

61.3

%

61.5

%

61.2

%

Industrial

 

71.9

%

73.8

%

69.9

%

73.9

%

Total

 

63.3

%

62.9

%

62.7

%

62.8

%

 

 

 

 

 

 

 

 

 

 

CBD

 

58.1

%

59.1

%

57.7

%

58.8

%

Suburban

 

66.8

%

66.5

%

66.1

%

66.5

%

Total

 

63.3

%

62.9

%

62.7

%

62.8

%

 


(1)          Prior periods exclude space remeasurements made during the current period.

(2)          Percent leased includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(3)          Includes triple net lease rental income. Excludes rental income from discontinued operations.

(4)          Net operating income, or NOI, is defined as property rental income less property operating expenses. Excludes NOI from discontinued operations.

(5)          NOI margin is defined as NOI as a percentage of rental income.

 

10



 

Results of operations and other operating data by major market for all properties is as follows (dollars and square feet in thousands):

 

 

 

As of and For the
Three Months Ended
June 30,

 

As of and For the
Six Months Ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Number of properties:

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

21

 

21

 

21

 

21

 

Metro Washington, DC

 

20

 

16

 

20

 

16

 

Metro Boston, MA

 

36

 

37

 

36

 

37

 

Oahu, HI

 

53

 

11

 

53

 

11

 

Southern California

 

24

 

18

 

24

 

18

 

Metro Atlanta, GA

 

36

 

 

36

 

 

Metro Austin, TX

 

26

 

26

 

26

 

26

 

Other markets

 

199

 

114

 

199

 

114

 

Total

 

415

 

243

 

415

 

243

 

 

 

 

 

 

 

 

 

 

 

Square feet (1):

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

5,453

 

5,468

 

5,453

 

5,468

 

Metro Washington, DC

 

2,645

 

2,218

 

2,645

 

2,218

 

Metro Boston, MA

 

2,738

 

2,620

 

2,738

 

2,620

 

Oahu, HI

 

17,879

 

9,755

 

17,879

 

9,755

 

Southern California

 

1,444

 

1,265

 

1,444

 

1,265

 

Metro Atlanta, GA

 

1,845

 

 

1,845

 

 

Metro Austin, TX

 

2,805

 

2,810

 

2,805

 

2,810

 

Other markets

 

17,983

 

12,516

 

17,983

 

12,516

 

Total

 

52,792

 

36,652

 

52,792

 

36,652

 

 

 

 

 

 

 

 

 

 

 

Percent leased (2):

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

93.3

%

95.5

%

93.3

%

95.5

%

Metro Washington, DC

 

95.1

%

91.6

%

95.1

%

91.6

%

Metro Boston, MA

 

96.8

%

90.2

%

96.8

%

90.2

%

Oahu, HI

 

97.4

%

98.8

%

97.4

%

98.8

%

Southern California

 

97.5

%

94.2

%

97.5

%

94.2

%

Metro Atlanta, GA

 

91.9

%

 

91.9

%

 

Metro Austin, TX

 

85.3

%

79.4

%

85.3

%

79.4

%

Other markets

 

91.8

%

92.7

%

91.8

%

92.7

%

Total

 

94.1

%

93.5

%

94.1

%

93.5

%

 

 

 

 

 

 

 

 

 

 

Rental income: (3)

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

35,772

 

$

33,283

 

$

66,729

 

$

66,233

 

Metro Washington, DC

 

19,131

 

15,237

 

37,720

 

29,971

 

Metro Boston, MA

 

14,015

 

12,338

 

28,064

 

24,670

 

Oahu, HI

 

11,340

 

10,349

 

22,262

 

20,627

 

Southern California

 

11,546

 

9,875

 

23,068

 

20,050

 

Metro Atlanta, GA

 

8,420

 

 

16,729

 

 

Metro Austin, TX

 

9,749

 

9,669

 

19,472

 

19,357

 

Other markets

 

64,316

 

47,942

 

127,276

 

94,114

 

Total

 

$

174,289

 

$

138,693

 

$

341,320

 

$

275,022

 

 

11



 

 

 

As of and For the
Three Months Ended
June 30,

 

As of and For the
Six Months Ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Net operating income (NOI) (4):

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

20,625

 

$

18,323

 

$

36,867

 

$

36,624

 

Metro Washington, DC

 

12,308

 

9,888

 

24,648

 

19,366

 

Metro Boston, MA

 

9,720

 

9,263

 

19,194

 

18,303

 

Oahu, HI

 

9,164

 

8,590

 

17,863

 

17,109

 

Southern California

 

7,602

 

6,093

 

15,463

 

12,966

 

Metro Atlanta, GA

 

5,367

 

 

10,787

 

 

Metro Austin, TX

 

4,544

 

4,375

 

9,303

 

9,067

 

Other markets

 

41,039

 

30,747

 

79,992

 

59,308

 

Total

 

$

110,369

 

$

87,279

 

$

214,117

 

$

172,743

 

 

 

 

 

 

 

 

 

 

 

NOI margin (5):

 

 

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

57.7

%

55.1

%

55.2

%

55.3

%

Metro Washington, DC

 

64.3

%

64.9

%

65.3

%

64.6

%

Metro Boston, MA

 

69.4

%

75.1

%

68.4

%

74.2

%

Oahu, HI

 

80.8

%

83.0

%

80.2

%

82.9

%

Southern California

 

65.8

%

61.7

%

67.0

%

64.7

%

Metro Atlanta, GA

 

63.7

%

 

64.5

%

 

Metro Austin, TX

 

46.6

%

45.2

%

47.8

%

46.8

%

Other markets

 

63.8

%

64.1

%

62.8

%

63.0

%

Total

 

63.3

%

62.9

%

62.7

%

62.8

%

 


(1)          Prior periods exclude space remeasurements made during the current period.

(2)          Includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(3)          Includes triple net lease rental income. Excludes rental income from discontinued operations.

(4)          NOI is defined as property rental income less property operating expenses. Excludes NOI from discontinued operations.

(5)          NOI margin is defined as NOI as a percentage of rental income.

 

12



 

Results of operations and other operating data by property type for comparable properties is as follows (dollars and square feet in thousands):

 

 

 

As of and For the
Three Months Ended
June 30, (1)

 

As of and For the
Six Months Ended
June 30, (2)

 

 

 

2005

 

2004

 

2005

 

2004

 

Office:

 

 

 

 

 

 

 

 

 

Properties

 

214

 

214

 

212

 

212

 

Total square feet

 

23,282

 

23,282

 

23,171

 

23,171

 

Percent leased (3)

 

92.3

%

91.0

%

92.3

%

90.9

%

Rental income (4)

 

$

123,808

 

$

120,268

 

$

241,413

 

$

238,119

 

Net operating income (NOI) (5)

 

$

75,798

 

$

73,704

 

$

146,661

 

$

145,512

 

NOI% growth

 

2.8

%

 

 

0.8

%

 

 

 

 

 

 

 

 

 

 

 

 

Industrial:

 

 

 

 

 

 

 

 

 

Properties

 

23

 

23

 

23

 

23

 

Total square feet

 

12,357

 

12,357

 

12,357

 

12,357

 

Percent leased (3)

 

98.8

%

99.8

%

98.8

%

99.8

%

Rental income (4)

 

$

18,407

 

$

17,719

 

$

36,532

 

$

35,343

 

Net operating income (NOI) (5)

 

$

13,200

 

$

13,094

 

$

26,078

 

$

26,141

 

NOI% growth

 

0.8

%

 

 

(0.2

)%

 

 

 

 

 

 

 

 

 

 

 

 

CBD:

 

 

 

 

 

 

 

 

 

Properties

 

48

 

48

 

48

 

48

 

Total square feet

 

10,423

 

10,423

 

10,423

 

10,423

 

Percent leased (3)

 

94.2

%

94.1

%

94.2

%

94.1

%

Rental income (4)

 

$

65,811

 

$

66,049

 

$

129,614

 

$

130,869

 

Net operating income (NOI) (5)

 

$

38,167

 

$

38,961

 

$

74,642

 

$

76,839

 

NOI% growth

 

(2.0

)%

 

 

(2.9

)%

 

 

 

 

 

 

 

 

 

 

 

 

Suburban:

 

 

 

 

 

 

 

 

 

Properties

 

189

 

189

 

187

 

187

 

Total square feet

 

25,216

 

25,216

 

25,105

 

25,105

 

Percent leased (3)

 

94.7

%

94.0

%

94.7

%

94.0

%

Rental income (4)

 

$

76,404

 

$

71,938

 

$

148,331

 

$

142,593

 

Net operating income (NOI) (5)

 

$

50,831

 

$

47,837

 

$

98,097

 

$

94,814

 

NOI% growth

 

6.3

%

 

 

3.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

Properties

 

237

 

237

 

235

 

235

 

Total square feet

 

35,639

 

35,639

 

35,528

 

35,528

 

Percent leased (3)

 

94.6

%

94.0

%

94.6

%

94.0

%

Rental income (4)

 

$

142,215

 

$

137,987

 

$

277,945

 

$

273,462

 

Net operating income (NOI) (5)

 

$

88,998

 

$

86,798

 

$

172,739

 

$

171,653

 

NOI% growth

 

2.5

%

 

 

0.6

%

 

 

 


(1)          Based on properties owned continuously since April 1, 2004.

(2)          Based on properties owned continuously since January 1, 2004.

(3)          Includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(4)          Includes triple net lease rental income.

(5)          NOI is defined as property rental income less property operating expenses.

 

13



 

Results of operations and other operating data by major market for comparable properties is as follows (dollars and square feet in thousands):

 

 

 

As of and For the
Three Months Ended
June 30, (1)

 

As of and For the
Six Months Ended
June 30, (2)

 

 

 

2005

 

2004

 

2005

 

2004

 

Metro Philadelphia, PA:

 

 

 

 

 

 

 

 

 

Properties

 

21

 

21

 

21

 

21

 

Total square feet

 

5,453

 

5,453

 

5,453

 

5,453

 

Percent leased (3)

 

93.3

%

95.5

%

93.3

%

95.5

%

Rental income (4)

 

$

35,772

 

$

33,283

 

$

66,729

 

$

66,232

 

Net operating income (NOI) (5)

 

$

20,625

 

$

18,323

 

$

36,867

 

$

36,623

 

NOI% growth

 

12.6

%

 

 

0.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Metro Washington, DC:

 

 

 

 

 

 

 

 

 

Properties

 

16

 

16

 

16

 

16

 

Total square feet

 

2,215

 

2,215

 

2,215

 

2,215

 

Percent leased (3)

 

94.4

%

91.6

%

94.4

%

91.6

%

Rental income (4)

 

$

16,118

 

$

15,237

 

$

31,743

 

$

29,971

 

Net operating income (NOI) (5)

 

$

10,077

 

$

9,888

 

$

20,220

 

$

19,366

 

NOI% growth

 

1.9

%

 

 

4.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Metro Boston, MA:

 

 

 

 

 

 

 

 

 

Properties

 

34

 

34

 

33

 

33

 

Total square feet

 

2,382

 

2,382

 

2,336

 

2,336

 

Percent leased (3)

 

96.3

%

92.4

%

96.4

%

92.2

%

Rental income (4)

 

$

11,981

 

$

12,338

 

$

23,463

 

$

24,263

 

Net operating income (NOI) (5)

 

$

8,480

 

$

9,263

 

$

16,444

 

$

18,048

 

NOI% growth

 

(8.5

)%

 

 

(8.9

)%

 

 

 

 

 

 

 

 

 

 

 

 

Oahu, HI:

 

 

 

 

 

 

 

 

 

Properties

 

11

 

11

 

11

 

11

 

Total square feet

 

9,625

 

9,625

 

9,625

 

9,625

 

Percent leased (3)

 

99.5

%

98.8

%

99.5

%

98.8

%

Rental income (4)

 

$

10,819

 

$

10,349

 

$

21,580

 

$

20,627

 

Net operating income (NOI) (5)

 

$

8,724

 

$

8,590

 

$

17,300

 

$

17,109

 

NOI% growth

 

1.6

%

 

 

1.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Southern California:

 

 

 

 

 

 

 

 

 

Properties

 

18

 

18

 

18

 

18

 

Total square feet

 

1,265

 

1,265

 

1,265

 

1,265

 

Percent leased (3)

 

99.0

%

94.2

%

99.0

%

94.2

%

Rental income (4)

 

$

10,724

 

$

9,875

 

$

21,474

 

$

20,050

 

Net operating income (NOI) (5)

 

$

7,060

 

$

6,093

 

$

14,449

 

$

12,966

 

NOI% growth

 

15.9

%

 

 

11.4

%

 

 

 

 

 

 

 

 

 

 

 

 

Metro Austin, TX:

 

 

 

 

 

 

 

 

 

Properties

 

26

 

26

 

26

 

26

 

Total square feet

 

2,805

 

2,805

 

2,805

 

2,805

 

Percent leased (3)

 

85.3

%

79.4

%

85.3

%

79.4

%

Rental income (4)

 

$

9,749

 

$

9,669

 

$

19,472

 

$

19,357

 

Net operating income (NOI) (5)

 

$

4,544

 

$

4,375

 

$

9,302

 

$

9,067

 

NOI% growth

 

3.9

%

 

 

2.6

%

 

 

 

14



 

 

 

As of and For the
Three Months Ended
June 30, (1)

 

As of and For the
Six Months Ended
June 30, (2)

 

 

 

2005

 

2004

 

2005

 

2004

 

Other Markets:

 

 

 

 

 

 

 

 

 

Properties

 

111

 

111

 

110

 

110

 

Total square feet

 

11,894

 

11,894

 

11,829

 

11,829

 

Percent leased (3)

 

92.6

%

92.4

%

92.5

%

92.4

%

Rental income (4)

 

$

47,052

 

$

47,236

 

$

93,484

 

$

92,962

 

Net operating income (NOI) (5)

 

$

29,488

 

$

30,266

 

$

58,157

 

$

58,474

 

NOI% growth

 

(2.6

)%

 

 

(0.5

)%

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

Properties

 

237

 

237

 

235

 

235

 

Total square feet

 

35,639

 

35,639

 

35,528

 

35,528

 

Percent leased (3)

 

94.6

%

94.0

%

94.6

%

94.0

%

Rental income (4)

 

$

142,215

 

$

137,987

 

$

277,945

 

$

273,462

 

Net operating income (NOI) (5)

 

$

88,998

 

$

86,798

 

$

172,739

 

$

171,653

 

NOI% growth

 

2.5

%

 

 

0.6

%

 

 

 


(1)          Based on properties owned continuously since April 1, 2004.

(2)          Based on properties owned continuously since January 1, 2004.

(3)          Includes (i) space being fitted out for occupancy pursuant to signed leases and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(4)          Includes triple net lease rental income.

(5)          NOI is defined as property rental income less property operating expenses.

 

15



 

During the second quarter of 2005 we signed new leases for 573,000 square feet and lease renewals for 726,000 square feet, at weighted average rental rates that were 5% above rents previously charged for the same space.  Average lease terms for leases signed during the quarter ended June 30, 2005, were 4.9 years.  Commitments for tenant improvement and leasing commission costs for leases signed during the quarter ended June 30, 2005, totaled $11.74 per square foot on a weighted average basis.  Rental rates at which available space may be relet in the future will depend on prevailing market conditions at that time.  Approximately 18% of our leased square feet are under leases scheduled to expire through December 31, 2007.  Lease expirations by property type as of June 30, 2005, are as follows (in thousands):

 

 

 

Total

 

2005

 

2006

 

2007

 

2008 and
After

 

Office:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

29,024

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

26,771

 

1,230

 

2,730

 

2,773

 

20,038

 

Percent

 

100.0

%

4.6

%

10.2

%

10.4

%

74.8

%

Annualized rent (2)

 

$

595,261

 

$

27,957

 

$

59,043

 

$

63,542

 

$

444,719

 

Percent

 

100.0

%

4.7

%

9.9

%

10.7

%

74.7

%

Industrial:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

23,768

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

22,886

 

589

 

769

 

1,061

 

20,467

 

Percent

 

100.0

%

2.6

%

3.4

%

4.6

%

89.4

%

Annualized rent (2)

 

$

108,313

 

$

2,770

 

$

4,440

 

$

8,516

 

$

92,587

 

Percent

 

100.0

%

2.6

%

4.1

%

7.9

%

85.4

%

 

 

 

 

 

 

 

 

 

 

 

 

CBD:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

11,520

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

10,826

 

549

 

880

 

968

 

8,429

 

Percent

 

100.0

%

5.1

%

8.1

%

8.9

%

77.9

%

Annualized rent (2)

 

$

282,532

 

$

14,365

 

$

24,263

 

$

27,053

 

$

216,851

 

Percent

 

100.0

%

5.1

%

8.6

%

9.6

%

76.7

%

Suburban:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

41,272

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

38,831

 

1,270

 

2,619

 

2,866

 

32,076

 

Percent

 

100.0

%

3.3

%

6.7

%

7.4

%

82.6

%

Annualized rent (2)

 

$

421,042

 

$

16,362

 

$

39,220

 

$

45,005

 

$

320,455

 

Percent

 

100.0

%

3.9

%

9.3

%

10.7

%

76.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Total:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

52,792

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

49,657

 

1,819

 

3,499

 

3,834

 

40,505

 

Percent

 

100.0

%

3.7

%

7.0

%

7.7

%

81.6

%

Annualized rent (2)

 

$

703,574

 

$

30,727

 

$

63,483

 

$

72,058

 

$

537,306

 

Percent

 

100.0

%

4.4

%

9.0

%

10.2

%

76.4

%

 


(1)          Square feet is pursuant to signed leases as of June 30, 2005, and includes (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease.

(2)          Annualized rent is rents pursuant to signed leases as of June 30, 2005, plus expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

 

16



 

Lease expirations by major market area as of June 30, 2005, are as follows (in thousands):

 

 

 

Total

 

2005

 

2006

 

2007

 

2008 and
After

 

Metro Philadelphia, PA:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

5,453

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

5,087

 

269

 

249

 

235

 

4,334

 

Percent

 

100.0

%

5.3

%

4.9

%

4.6

%

85.2

%

Annualized rent (2)

 

$

126,942

 

$

7,265

 

$

7,004

 

$

4,446

 

$

108,227

 

Percent

 

100.0

%

5.7

%

5.5

%

3.5

%

85.3

%

Metro Washington, DC:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

2,645

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

2,514

 

117

 

293

 

242

 

1,862

 

Percent

 

100.0

%

4.7

%

11.7

%

9.6

%

74.0

%

Annualized rent (2)

 

$

75,586

 

$

2,337

 

$

8,100

 

$

6,952

 

$

58,197

 

Percent

 

100.0

%

3.1

%

10.7

%

9.2

%

77.0

%

Metro Boston, MA:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

2,738

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

2,650

 

84

 

164

 

565

 

1,837

 

Percent

 

100.0

%

3.2

%

6.2

%

21.3

%

69.3

%

Annualized rent (2)

 

$

57,934

 

$

2,995

 

$

3,391

 

$

13,743

 

$

37,805

 

Percent

 

100.0

%

5.2

%

5.9

%

23.7

%

65.2

%

Oahu, HI:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

17,879

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

17,407

 

408

 

221

 

423

 

16,355

 

Percent

 

100.0

%

2.3

%

1.3

%

2.4

%

94.0

%

Annualized rent (2)

 

$

54,488

 

$

1,050

 

$

681

 

$

541

 

$

52,216

 

Percent

 

100.0

%

1.9

%

1.3

%

1.0

%

95.8

%

Southern California:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

1,444

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

1,408

 

29

 

189

 

272

 

918

 

Percent

 

100.0

%

2.1

%

13.4

%

19.3

%

65.2

%

Annualized rent (2)

 

$

46,538

 

$

1,243

 

$

6,019

 

$

8,381

 

$

30,895

 

Percent

 

100.0

%

2.7

%

12.9

%

18.0

%

66.4

%

Metro Atlanta, GA:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

1,845

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

1,697

 

169

 

89

 

136

 

1,303

 

Percent

 

100.0

%

10.0

%

5.2

%

8.0

%

76.8

%

Annualized rent (2)

 

$

34,217

 

$

3,212

 

$

1,542

 

$

2,720

 

$

26,743

 

Percent

 

100.0

%

9.4

%

4.5

%

7.9

%

78.2

%

Metro Austin, TX:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

2,805

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

2,392

 

45

 

71

 

574

 

1,702

 

Percent

 

100.0

%

1.9

%

3.0

%

24.0

%

71.1

%

Annualized rent (2)

 

$

38,961

 

$

950

 

$

1,488

 

$

9,862

 

$

26,661

 

Percent

 

100.0

%

2.4

%

3.8

%

25.3

%

68.5

%

Other markets:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

17,983

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

16,502

 

698

 

2,223

 

1,387

 

12,194

 

Percent

 

100.0

%

4.2

%

13.5

%

8.4

%

73.9

%

Annualized rent (2)

 

$

268,908

 

$

11,675

 

$

35,258

 

$

25,413

 

$

196,562

 

Percent

 

100.0

%

4.3

%

13.1

%

9.5

%

73.1

%

 

17



 

 

 

Total

 

2005

 

2006

 

2007

 

2008 and
After

 

Total:

 

 

 

 

 

 

 

 

 

 

 

Total square feet

 

52,792

 

 

 

 

 

 

 

 

 

Leased square feet (1)

 

49,657

 

1,819

 

3,499

 

3,834

 

40,505

 

Percent

 

100.0

%

3.7

%

7.0

%

7.7

%

81.6

%

Annualized rent (2)

 

$

703,574

 

$

30,727

 

$

63,483

 

$

72,058

 

$

537,306

 

Percent

 

100.0

%

4.4

%

9.0

%

10.2

%

76.4

%

 


(1)  Square feet is pursuant to signed leases as of June 30, 2005, and includes (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease.

(2)  Annualized rent is rents pursuant to signed leases as of June 30, 2005, plus expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

 

Our principal source of funds is primarily rents from tenants at our properties.  Rents are generally received from our non-government tenants monthly in advance, and from our government tenants monthly in arrears.  As of June 30, 2005, tenants responsible for 1% or more of our total rent were as follows (square feet in thousands):

 

Tenant

 

Square
Feet (1)

 

% of Total
Square Feet

 

% of
Rent (2)

 

Expiration

 

1.

U. S. Government

 

5,117

 

9.7

%

15.4

%

2005 to 2020

 

2.

GlaxoSmithKline plc

 

605

 

1.1

%

2.0

%

2013

 

3.

PNC Financial Services Group

 

488

 

0.9

%

1.6

%

2011

 

4.

Towers, Perrin, Forster & Crosby, Inc.

 

447

 

0.8

%

1.5

%

2005, 2006, 2011

 

5.

Tyco International Ltd.

 

660

 

1.3

%

1.4

%

2007, 2011

 

6.

Comcast Corporation

 

406

 

0.8

%

1.3

%

2005, 2006, 2008

 

7.

Motorola, Inc.

 

770

 

1.5

%

1.3

%

2006, 2008, 2010

 

8.

Manugistics, Inc.

 

283

 

0.5

%

1.2

%

2012

 

9.

Solectron Corporation

 

765

 

1.4

%

1.2

%

2014

 

10.

Ballard Spahr Andrews & Ingersoll, LLP

 

231

 

0.4

%

1.2

%

2015

 

11.

Westinghouse Electric Corporation

 

534

 

1.0

%

1.1

%

2006, 2010

 

12.

Mellon Bank, N.A.

 

234

 

0.4

%

1.1

%

2012, 2015

 

13.

Fallon Health Clinics

 

444

 

0.8

%

1.0

%

2019

 

 

Total

 

10,984

 

20.6

%

31.3

%

 

 

 


(1)  Square feet is pursuant to signed leases as of June 30, 2005, and includes (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(2)  Rent is rents pursuant to signed leases as of June 30, 2005, plus expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

 

18



 

As of June 30, 2005, a summary of our portfolio by property type, tenant and major market is as follows (dollars and square feet in thousands):

 

 

 

Metro
Philadelphia,
PA

 

Metro
Washington,
DC

 

Metro
Boston, MA

 

Oahu, HI

 

Southern
California

 

Metro
Atlanta, GA

 

Metro
Austin, TX

 

Other
Markets

 

Total

 

Square feet:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office

 

5,453

 

2,645

 

2,738

 

 

1,444

 

1,845

 

1,489

 

13,410

 

29,024

 

Industrial

 

 

 

 

17,879

 

 

 

1,316

 

4,573

 

23,768

 

Total

 

5,453

 

2,645

 

2,738

 

17,879

 

1,444

 

1,845

 

2,805

 

17,983

 

52,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CBD

 

4,600

 

892

 

523

 

158

 

331

 

 

185

 

4,831

 

11,520

 

Suburban

 

853

 

1,753

 

2,215

 

17,721

 

1,113

 

1,845

 

2,620

 

13,152

 

41,272

 

Total

 

5,453

 

2,645

 

2,738

 

17,879

 

1,444

 

1,845

 

2,805

 

17,983

 

52,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and other government tenants (1)

 

11

 

1,362

 

210

 

 

509

 

781

 

15

 

2,673

 

5,561

 

Medical related tenants (1)

 

997

 

342

 

936

 

 

629

 

148

 

318

 

2,029

 

5,399

 

Land leases  (1)

 

 

 

 

17,403

 

 

 

 

 

17,403

 

Other investment grade
tenants (1) (2)

 

1,858

 

150

 

955

 

 

41

 

50

 

389

 

4,372

 

7,815

 

Other tenants (1)

 

2,221

 

660

 

549

 

4

 

229

 

718

 

1,670

 

7428

 

13,479

 

Vacant

 

366

 

131

 

88

 

472

 

36

 

148

 

413

 

1,481

 

3,135

 

Total

 

5,453

 

2,645

 

2,738

 

17,879

 

1,444

 

1,845

 

2,805

 

17,983

 

52,792

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized rental income (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Office

 

$

126,942

 

$

75,586

 

$

57,934

 

$

 

$

46,538

 

$

34,217

 

$

23,107

 

$

230,937

 

$

595,261

 

Industrial

 

 

 

 

54,488

 

 

 

15,854

 

37,971

 

108,313

 

Total

 

$

126,942

 

$

75,586

 

$

57,934

 

$

54,488

 

$

46,538

 

$

34,217

 

$

38,961

 

$

268,908

 

$

703,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CBD

 

$

116,729

 

$

34,202

 

$

18,005

 

$

1,063

 

$

20,313

 

$

 

$

4,817

 

$

87,403

 

$

282,532

 

Suburban

 

10,213

 

41,384

 

39,929

 

53,425

 

26,225

 

34,217

 

34,144

 

181,505

 

421,042

 

Total

 

$

126,942

 

$

75,586

 

$

57,934

 

$

54,488

 

$

46,538

 

$

34,217

 

$

38,961

 

$

268,908

 

$

703,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government and other government tenants

 

$

218

 

$

38,122

 

$

4,884

 

$

 

$

10,237

 

$

16,186

 

$

265

 

$

46,693

 

$

116,605

 

Medical related tenants

 

20,822

 

12,226

 

17,570

 

 

29,941

 

3,088

 

8,192

 

35,315

 

127,154

 

Land leases

 

 

 

 

54,481

 

 

 

 

35

 

54,516

 

Other investment grade
tenants (2)

 

47,777

 

4,892

 

20,151

 

 

1,112

 

890

 

6,619

 

72,957

 

154,398

 

Other tenants

 

58,125

 

20,346

 

15,329

 

7

 

5,248

 

14,053

 

23,885

 

113,908

 

250,901

 

Total

 

$

126,942

 

$

75,586

 

$

57,934

 

$

54,488

 

$

46,538

 

$

34,217

 

$

38,961

 

$

268,908

 

$

703,574

 

 


(1)          Includes leased square feet pursuant to signed leases as of June 30, 2005, including (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(2)          Excludes investment grade tenants included in other tenant categories above.

(3)          Annualized rental income is rents pursuant to signed leases as of June 30, 2005, plus expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

 

19



 

Financing Activities

 

In March 2005 we issued 22.5 million common shares in a public offering, raising net proceeds of $259.0 million.  Proceeds from this offering were used to repay amounts outstanding under our revolving credit facility.  In February 2005 we repaid our $100 million 6.7% unsecured senior notes when they became due in February 2005, and in July 2005 we repaid, at par, $75.0 million of 8.7% mortgage debt due in 2020.  In August 2005 we repaid at par plus a premium of $168,000, $9.9 million of 8.4% mortgage debt due in 2007.  In connection with this repayment we expect to recognize a loss in the amount of the repayment premium in the third quarter of 2005.  We funded these payments using cash on hand and borrowings under our revolving credit facility.

 

RESULTS OF OPERATIONS

 

Three Months Ended June 30, 2005, Compared to Three Months Ended June 30, 2004

 

 

 

Three Months Ended June 30,

 

 

 

2005

 

2004

 

$
Change

 

%
Change

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

174,289

 

$

138,693

 

$

35,596

 

25.7

%

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating expenses

 

63,920

 

51,414

 

12,506

 

24.3

%

Depreciation and amortization

 

33,519

 

24,942

 

8,577

 

34.4

%

General and administrative

 

7,453

 

5,830

 

1,623

 

27.8

%

Total expenses

 

104,892

 

82,186

 

22,706

 

27.6

%

 

 

 

 

 

 

 

 

 

 

Operating income

 

69,397

 

56,507

 

12,890

 

22.8

%

 

 

 

 

 

 

 

 

 

 

Interest income

 

701

 

144

 

557

 

386.8

%

Interest expense

 

(34,732

)

(25,201

)

(9,531

)

(37.8

)%

Equity in earnings of equity investments

 

3,052

 

3,731

 

(679

)

(18.2

)%

Gain on issuance of shares by equity investees

 

4,708

 

 

4,708

 

100.0

%

Income from continuing operations

 

43,126

 

35,181

 

7,945

 

22.6

%

Income (loss) from discontinued operations

 

28

 

(121

)

149

 

123.1

%

Gain on sale of properties

 

7,592

 

 

7,592

 

100.0

%

Net income

 

50,746

 

35,060

 

15,686

 

44.7

%

Preferred distributions

 

(11,500

)

(11,500

)

 

 

Net income available for common shareholders

 

$

39,246

 

$

23,560

 

$

15,686

 

66.6

%

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

199,819

 

177,276

 

22,543

 

12.7

%

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per share

 

$

0.16

 

$

0.13

 

$

0.03

 

23.1

%

Net income available for common shareholders per share

 

$

0.20

 

$

0.13

 

$

0.07

 

53.8

%

 

20



 

Rental income.  Rental income increased for the three months ended June 30, 2005, compared to the same period in 2004, primarily due to our acquisition of 43 properties in 2005, including 8.2 million square feet of leased industrial lands in Oahu, HI, and 136 properties in 2004.  Rental income includes non cash straight line rent adjustments totaling $5.7 million in 2005 and $4.7 million in 2004 and amortization of acquired real estate leases and obligations totaling ($1.8) million in 2005 and ($10,000) in 2004.  Rental income also includes lease termination fees totaling $285,000 in 2005 and $1.1 million in 2004.

 

Total expenses.  Total expenses increased for the three months ended June 30, 2005, compared to the same period in 2004, due to increases in operating expenses, depreciation and amortization and general and administrative expenses primarily related to the acquisition of properties in 2005 and 2004.

 

Interest expense.  Interest expense increased for the three months ended June 30, 2005, compared to the three months ended June 30, 2004, reflecting an increase in total debt outstanding which was used primarily to finance acquisitions in 2005 and 2004.  In 2004 we issued $400 million unsecured 6.25% senior notes due 2016; entered into an unsecured $350 million term loan bearing interest at LIBOR plus a premium; and assumed $112.3 million of debt in connection with two acquisitions.  The weighted average interest rate on all of our outstanding debt at June 30, 2005 and 2004, was 5.9% and 5.8%, respectively.

 

Equity in earnings of equity investments.  Equity in earnings of equity investments decreased during the three months ended June 30, 2005, from the three months ended June 30, 2004, due to lower earnings recognized from our investments in Senior Housing and Hospitality Properties.  The decrease in earnings from Senior Housing is due primarily to our sale in 2004 of 4.1 million Senior Housing common shares we owned.  The decrease in earnings from Hospitality Properties reflects our share, totaling $426,000, of impairment losses recognized by Hospitality Properties in 2005.

 

Gain on issuance of shares by equity investees.  The 2005 gain on issuance of shares by equity investees reflects the issuance of common shares by Hospitality Properties at a price above our per share carrying value.

 

Income (loss) from discontinued operations and gain on sale of properties.  The 2005 and 2004 income (loss) from discontinued operations represents income from three industrial properties that we sold in May 2005 for net proceeds of $20.1 million.  We recognized gains on the sale of these properties of $7.6 million.

 

Net income and net income available for common shareholders.  The increase in net income and net income available for common shareholders for the three months ended June 30, 2005, from the three months ended June 30, 2004, is due primarily to property acquisitions in 2005 and 2004, the gain on sale of properties in 2005 and the gain on issuance of shares by Hospitality Properties in 2005, offset by the decrease in earnings from our equity investments, and an increase in interest expense from the issuance of additional debt.  Net income available for common shareholders is net income reduced by preferred distributions.

 

21



 

Six Months Ended June 30, 2005, Compared to Six Months Ended June 30, 2004

 

 

 

Six Months Ended June 30,

 

 

 

2005

 

2004

 

$
Change

 

%
Change

 

 

 

(in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

341,320

 

$

275,022

 

$

66,298

 

24.1

%

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating expenses

 

127,203

 

102,279

 

24,924

 

24.4

%

Depreciation and amortization

 

66,134

 

49,879

 

16,255

 

32.6

%

General and administrative

 

14,328

 

11,528

 

2,800

 

24.3

%

Total expenses

 

207,665

 

163,686

 

43,979

 

26.9

%

 

 

 

 

 

 

 

 

 

 

Operating income

 

133,655

 

111,336

 

22,319

 

20.0

%

 

 

 

 

 

 

 

 

 

 

Interest income

 

881

 

264

 

617

 

233.7

%

Interest expense

 

(70,339

)

(51,426

)

(18,913

)

(36.8

)%

Loss on early extinguishment of debt

 

 

(2,866

)

2,866

 

100.0

%

Equity in earnings of equity investments

 

6,446

 

7,531

 

(1,085

)

(14.4

)%

Gain on sale of shares of equity investments

 

 

14,805

 

(14,805

)

(100.0

)%

Gain on issuance of shares by equity investees

 

4,708

 

5,040

 

(332

)

(6.6

)%

Income from continuing operations

 

75,351

 

84,684

 

(9,333

)

(11.0

)%

Income (loss) from discontinued operations

 

38

 

(249

)

287

 

115.3

%

Gain on sale of properties

 

7,592

 

 

7,592

 

100.0

%

Net income

 

82,981

 

84,435

 

(1,454

)

(1.7

)%

Preferred distributions

 

(23,000

)

(23,000

)

 

 

Net income available for common shareholders

 

$

59,981

 

$

61,435

 

($1,454

)

(2.4

)%

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

189,873

 

175,000

 

14,873

 

8.5

%

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per share

 

$

0.28

 

$

0.35

 

$

(0.07

)

(20.0

)%

Net income available for common shareholders per share

 

$

0.32

 

$

0.35

 

$

(0.03

)

(8.6

)%

 

Rental income.  Rental income increased for the six months ended June 30, 2005, compared to the same period in 2004, primarily due to our acquisition of 43 properties in 2005, including 8.2 million square feet of leased industrial lands in Oahu, HI, and 136 properties in 2004.  Rental income includes non cash straight line rent adjustments totaling $12.3 million in 2005 and $9.2 million in 2004 and amortization of acquired real estate leases and obligations totaling ($3.5) million in 2005 and $20,000 in 2004.  Rental income also includes lease termination fees totaling $435,000 in 2005 and $1.2 million in 2004.

 

Total expenses.  Total expenses for the six months ended June 30, 2005, increased from the six months ended June 30, 2004, due to increases in operating expenses, depreciation and amortization and general and administrative expenses primarily related to the acquisition of properties in 2005 and 2004.

 

22



 

Interest expense.  Interest expense increased for the six months ended June 30, 2005, compared to the six months ended June 30, 2004, reflecting an increase in total debt outstanding which was used primarily to finance acquisitions in 2005 and 2004.  In 2004 we issued $400 million unsecured 6.25% senior notes due 2016; entered into an unsecured $350 million term loan bearing interest at LIBOR plus a premium; and assumed $112.3 million of debt in connection with two acquisitions.  The weighted average interest rate on all of our outstanding debt at June 30, 2005 and 2004, was 5.9% and 5.8%, respectively.

 

Loss on early extinguishment of debt.  The loss on early extinguishment of debt in 2004 represents the write off of deferred financing fees associated with the repayment of $143 million of our senior notes due 2013.

 

Equity in earnings of equity investments.  Equity in earnings of equity investments decreased during the six months ended June 30, 2005, from the six months ended June 30, 2004, due to lower earnings recognized from our investments in Senior Housing and Hospitality Properties.  The decrease in earnings from Senior Housing is due primarily to our sale in 2004 of 4.1 million Senior Housing common shares we owned.  The decrease in earnings from Hospitality Properties reflects our share, totaling $426,000, of impairment losses recognized by Hospitality Properties in 2005.

 

Gain on sale of shares of equity investments.  The 2004 gain on sale of shares of equity investments reflects the sale during January and February 2004 of 3.1 million Senior Housing common shares we owned.

 

Gain on issuance of shares by equity investees.  The 2005 and 2004 gains on issuance of shares by equity investees reflects the issuance of common shares by both Senior Housing and Hospitality Properties at prices above our per share carrying value.

 

Income (loss) from discontinued operations and gain on sale of properties.  The 2005 and 2004 income (loss) from discontinued operations represents income from three industrial properties that we sold in May 2005 for net proceeds of $20.1 million.  We recognized gains on the sale of these properties of $7.6 million.

 

Net income and net income available for common shareholders.  The slight decrease in net income and net income available for common shareholders for the six months ended June 30, 2005, from the six months ended June 30, 2004, reflects the gain on sale of Senior Housing shares recognized in 2004, an increase in interest expense in 2005 from the issuance of additional debt in 2005 and the decrease in earnings from our equity investments, offset by property acquisitions in 2005 and 2004 and the gain on sale of properties in 2005.  Net income available for common shareholders is net income reduced by preferred distributions.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Our Operating Liquidity and Resources

 

Our principal sources of funds for current expenses and distributions to shareholders are rents from our properties and distributions received from our equity investments.  This flow of funds has historically been sufficient for us to pay our operating expenses, debt service and distributions.  We believe that our operating cash flow will be sufficient to meet our operating expenses, debt service and distribution payments for the foreseeable future.  Our future cash flows from operating activities will depend primarily upon four factors:

 

                  our ability to maintain or improve occupancies and effective rent rates at our continuously owned properties;

                  our ability to restrain operating cost increases at our properties;

                  our continuing receipt of cash distributions from our equity investments; and

                  our ability to purchase new properties which produce positive cash flows from operations.

 

23



 

As discussed above, we believe that present leasing market conditions in some areas where our properties are located may result in modest declines in effective rents at some of our properties for at least the next year.  Recent rises in fuel prices may cause our future operating costs to increase; however, the impact of these increases is expected to be partially offset by pass through operating cost increases to our tenants pursuant to lease terms.  We expect Hospitality Properties and Senior Housing to continue to pay dividends at current rates or with modest increases for the foreseeable future.  We generally do not engage in development activities (except on a build to suit basis for a tenant), and we generally do not purchase turn around properties or properties which do not generate positive cash flows.  Our future purchases of properties which generate positive cash flows can not be accurately projected because such purchases depend entirely upon available opportunities which come to our attention.

 

Cash flows provided by (used for) operating, investing and financing activities were $116.9 million, ($228.1) million and $108.2 million, respectively, for the six months ended June 30, 2005, and $79.4 million, ($17.8) million and ($53.6) million, respectively, for the six months ended June 30, 2004.  Changes in all three categories between 2005 and 2004 are primarily related to property acquisitions and sales in 2005 and 2004, our sale of 3.1 million Senior Housing common shares in 2004, our repayments and issuances of debt obligations and our issuance of common shares in 2005 and 2004.

 

Our Investment and Financing Liquidity and Resources

 

In order to fund acquisitions and to accommodate cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating expenses, we maintain an unsecured revolving credit facility with a group of commercial banks.  At June 30, 2005, there was $236 million outstanding and $514 million available under our revolving credit facility, and we had cash and cash equivalents of $18.9 million.  We expect to use cash balances, borrowings under our credit facility and net proceeds of offerings of equity or debt securities to fund future property acquisitions.

 

24



 

A summary of our outstanding debt as of June 30, 2005, is as follows (dollars in thousands):

 

 

 

Coupon
Rate

 

Interest
Rate (1)

 

Principal
Balance

 

Maturity
Date

 

Due at
Maturity

 

Years to
Maturity

 

Secured debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes (2)(3)

 

8.700

%

4.750

%

$

75,022

 

10/11/20

 

$

9,036

 

15.3

 

23 properties in Atlanta, GA (4)

 

8.500

%

5.070

%

29,574

 

4/11/28

 

4,937

 

22.8

 

Six properties in Minneapolis, MN

 

7.020

%

7.020

%

16,453

 

2/1/08

 

15,724

 

2.6

 

One property in Austin, TX (5)

 

8.400

%

8.400

%

9,913

 

4/1/07

 

9,433

 

1.8

 

Two properties in Richland, WA

 

8.000

%

8.000

%

5,844

 

11/15/08

 

1,004

 

3.4

 

One property in Buffalo, NY

 

5.170

%

5.170

%

5,281

 

1/1/09

 

134

 

3.5

 

One property in Philadelphia, PA (6)

 

6.794

%

7.383

%

43,062

 

1/1/29

 

2,478

 

23.5

 

See note (7)

 

6.814

%

7.842

%

247,597

 

1/31/11

 

225,547

 

5.6

 

Two properties in Rochester, NY

 

6.000

%

6.000

%

5,525

 

10/11/12

 

4,507

 

7.3

 

Total / weighted average secured debt

 

7.278

%

7.009

%

$

438,271

 

 

 

$

272,800

 

9.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured floating rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolving credit facility (LIBOR + 65 basis points)

 

3.400

%

3.400

%

$

236,000

 

4/28/09

 

$

236,000

 

3.8

 

Term loan (LIBOR + 80 basis points) (8)

 

3.600

%

3.600

%

350,000

 

8/24/09

 

350,000

 

4.2

 

Total / weighted average unsecured floating rate debt

 

3.519

%

3.519

%

$

586,000

 

 

 

$

586,000

 

4.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unsecured fixed rate debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior notes due 2010

 

8.875

%

9.000

%

$

30,000

 

8/1/10

 

$

30,000

 

5.1

 

Senior notes due 2010

 

8.625

%

8.770

%

20,000

 

10/1/10

 

20,000

 

5.3

 

Senior notes due 2012

 

6.950

%

7.179

%

200,000

 

4/1/12

 

200,000

 

6.8

 

Senior notes due 2013

 

6.500

%

6.693

%

200,000

 

1/15/13

 

200,000

 

7.6

 

Senior notes due 2014

 

5.750

%

5.828

%

250,000

 

2/15/14

 

250,000

 

8.6

 

Senior notes due 2015

 

6.400

%

6.601

%

200,000

 

2/15/15

 

200,000

 

9.6

 

Senior notes due 2016

 

6.250

%

6.470

%

400,000

 

8/15/16

 

400,000

 

11.1

 

Total / weighted average unsecured fixed rate debt

 

6.420

%

6.604

%

$

1,300,000

 

 

 

$

1,300,000

 

9.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total / weighted average unsecured debt

 

5.519

%

5.645

%

$

1,886,000

 

 

 

$

1,886,000

 

7.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total / weighted average secured debt

 

7.278

%

7.009

%

$

438,271

 

 

 

$

272,800

 

9.9

 

Total / weighted average unsecured floating rate debt

 

3.519

%

3.519

%

586,000

 

 

 

586,000

 

4.0

 

Total / weighted average unsecured fixed rate debt

 

6.420

%

6.604

%

1,300,000

 

 

 

1,300,000

 

9.0

 

Total / weighted average debt

 

5.851

%

5.903

%

$

2,324,271

 

 

 

$

2,158,800

 

7.9

 

 


(1)          Includes the effect of interest rate protection, mark-to-market accounting for certain assumed mortgages, and discounts on certain mortgages and unsecured notes. Excludes effects of offering and transaction costs and fees.

(2)          One property in San Diego, CA, one property in Bellevue (Seattle), WA, one property in Rockville, MD, six properties in Atlanta, GA, 11 properties in Dearborn, MI and 14 properties in Solon (Cleveland), OH.

(3)          This loan was prepaid on 7/11/05.

(4)          The loan becomes prepayable on 1/11/08. On 4/11/08, the interest rate increases to at least 13.5% and the loan becomes subject to accelerated amortization. We currently intend to prepay this loan in 2008.

(5)          This loan was prepaid on 8/1/05.

(6)          The loan becomes prepayable on 1/31/11. On 1/31/11, the interest rate increases to 8.794% and the loan becomes subject to accelerated amortization. We currently intend to prepay this loan in 2011.

(7)          Eight properties in Austin, TX, one property in Philadelphia, PA, two properties in Los Angeles, CA and two properties in Washington, DC.

(8)          The loan becomes prepayable on 2/26/06.

 

25



 

Our outstanding debt maturities and weighted average interest rates as of June 30, 2005, are as follows (dollars in thousands):

 

 

 

Scheduled Principal Payments During Period

 

 

 

 

 

 

 

Unsecured

 

Unsecured

 

 

 

Weighted

 

 

 

Secured

 

Floating

 

Fixed

 

 

 

Average

 

Year

 

Debt

 

Rate Debt

 

Rate Debt

 

Total

 

Coupon Rate

 

2005

 

$

4,914

 

$

 

$

 

$

4,914

 

7.3

%

2006

 

10,520

 

 

 

10,520

 

7.3

%

2007

 

20,483

 

 

 

20,483

 

7.8

%

2008

 

27,251

 

 

 

27,251

 

7.1

%

2009

 

8,894

 

586,000

 

 

594,894

 

3.6

%

2010

 

9,453

 

 

50,000

 

59,453

 

8.6

%

2011

 

231,203

 

 

 

231,203

 

6.8

%

2012

 

10,177

 

 

200,000

 

210,177

 

7.0

%

2013

 

6,056

 

 

200,000

 

206,056

 

6.6

%

2014 and thereafter

 

109,320

 

 

850,000

 

959,320

 

6.4

%

 

 

$

438,271

 

$

586,000

 

$

1,300,000

 

$

2,324,271

 

5.9

%

 

When amounts are outstanding on our revolving credit facility and as the maturity dates of our revolving credit facility and term debts approach, we explore alternatives for the repayment of amounts due.  Such alternatives usually include incurring additional term debt and issuing new equity securities.  As of June 30, 2005, we had $2.0 billion available on an effective shelf registration statement.  An effective shelf registration statement allows us to issue public securities on an expedited basis, but it does not assure that there will be buyers for such securities.  Although there can be no assurance that we will consummate any debt or equity offerings or other financings, we believe we will have access to various types of financing, including debt or equity offerings, with which to finance future acquisitions and to pay our debt and other obligations.

 

The completion and the costs of our future debt transactions will depend primarily upon market conditions and our own credit ratings.  We have no control over market conditions, but we expect both short and long term debt costs to increase gradually for at least the next few months.  Our credit ratings depend upon evaluations by credit rating agencies of our business practices and plans and, in particular, whether we appear to have the ability to maintain our earnings, to space our debt maturities and to balance our use of debt and equity capital so that our financial performance and leverage ratios afford us flexibility to withstand any reasonably anticipatable adverse changes.  We intend to conduct our business activities in a manner which will continue to afford us reasonable access to capital for investment and financing activities.

 

During 2005 we acquired 8.2 million square feet of industrial lands in Oahu, HI for $115.5 million, plus closing costs, two office properties for $81.4 million, plus closing costs, and funded improvements to our owned properties totaling $45.7 million using cash on hand.

 

26



 

During the three and six months ended June 30, 2005 and 2004, cash expenditures made and capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (in thousands):

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

Tenant improvements

 

$

21,315

 

$

6,072

 

$

32,972

 

$

9,132

 

Leasing costs

 

7,588

 

7,416

 

10,678

 

10,562

 

Building improvements (1)

 

1,821

 

3,952

 

6,805

 

6,955

 

Development, redevelopment and other activities (2)

 

5,396

 

2,666

 

5,932

 

4,241

 

 


(1)          Building improvements include improvements that enhance the value of our properties and that are generally recurring in nature.

(2)          Development, redevelopment and other capitalized costs include significant costs incurred to reposition properties to compete more effectively and costs that are unusual or infrequent in nature.

 

Commitments made for expenditures in connection with leasing space during the three months ended June 30, 2005, are as follows (in thousands, except as noted):

 

 

 

Total

 

Renewals

 

New
Leases

 

Square feet leased during the quarter

 

1,299

 

726

 

573

 

Total commitments for tenant improvements and leasing costs

 

$

15,247

 

$

2,589

 

$

12,658

 

Leasing costs per square foot (whole dollars)

 

$

11.74

 

$

3.57

 

$

22.09

 

Average lease term (years)

 

4.9

 

3.1

 

7.4

 

Leasing costs per square foot per year (whole dollars)

 

$

2.40

 

$

1.15

 

$

2.99

 

 

At June 30, 2005, we owned 8.7 million, or 12.6%, of the common shares of Senior Housing with a carrying value of $106.8 million and a market value, based on quoted market prices, of $163.8 million, and 4.0 million, or 5.6%, of the common shares of Hospitality Properties with a carrying value of $100.9 million and a market value, based on quoted market prices, of $176.3 million.  During the six months ended June 30, 2005, we received cash distributions totaling $5.5 million from Senior Housing and $5.8 million from Hospitality Properties.  We use the income statement method to account for the issuance of common shares by Senior Housing and Hospitality Properties.  Under this method, gains and losses reflecting changes in the value of our investments at the date of issuance of additional common shares by Senior Housing and Hospitality Properties are recognized in our income statement.  In 2005 Hospitality Properties completed a public offering of common shares that reduced our ownership percentage from 6.0% to 5.6%.  As a result of this transaction, we recognized a gain of $4.7 million.  On August 3, 2005, the market values of our Senior Housing and Hospitality Properties shares were $172.3 million and $178.5 million, respectively.  In the future we may decide to sell some or all of our remaining Hospitality Properties or Senior Housing shares, based upon several factors including available uses for the sale proceeds and the prices at which sales may be accomplished.

 

In March 2005 we issued 22.5 million common shares in a public offering at $12.10 per share, raising gross proceeds of $272.3 million.  Net proceeds of this offering, totaling $259.0 million, were used to reduce amounts outstanding under our revolving credit facility.

 

27



 

In January 2005 we amended our unsecured revolving credit facility to increase the available borrowing amount from $560 million to $750 million and to extend the maturity date from April 2006 to April 2009, with an option to extend the maturity by one additional year.  The annual interest payable for amounts drawn under the facility was reduced from LIBOR plus 0.80% to LIBOR plus 0.65%.  In certain circumstances, the amount of unsecured borrowings available under this facility may be increased to $1.5 billion.  Certain financial and other covenants in the facility were also amended to reflect current market conditions.  The interest rate averaged 3.4% per annum for the six months ended June 30, 2005.  As of June 30, 2005, we had $236 million outstanding under our revolving credit facility and $514 million available for acquisitions and for general business purposes.  In February 2005 we repaid our $100 million 6.7% senior notes when they became due in February 2005, and in July 2005, we repaid, at par, $75.0 million of 8.7% mortgage debt due in 2020.  In August 2005, we repaid at par plus a premium of $168,000, $9.9 million of 8.4% mortgage debt due in 2007.  In connection with this repayment we expect to recognize a loss in the amount of the repayment premium in the third quarter of 2005.  We funded these payments with cash on hand and by drawing on our revolving credit facility.

 

As of June 30, 2005, our contractual obligations were as follows (dollars in thousands):

 

 

 

Payment due by period

 

 

 

Total

 

Less than 1
year

 

1-3 years

 

3-5 years

 

More than 5
years

 

Long-Term Debt Obligations

 

$

2,324,271

 

$

4,914

 

$

31,003

 

$

622,145

 

$

1,666,209

 

Tenant Related Obligations (1)

 

95,316

 

73,712

 

21,604

 

 

 

Projected Interest Expense (2)

 

1,075,406

 

68,217

 

269,888

 

253,740

 

483,561

 

Total

 

$

3,494,993

 

$

146,843

 

$

322,495

 

$

875,885

 

$

2,149,770

 

 


(1)          Committed tenant related obligations include leasing commissions and tenant improvements and are based on leases executed as of June 30, 2005.

(2)          Projected interest expense is attributable to only the long term debt obligations listed above at existing rates and is not intended to project future interest costs which may result from debt prepayments, new debt issuances or changes in interest rates.

 

As of June 30, 2005, we have no commercial paper, derivatives, swaps, hedges, guarantees, material joint ventures or off balance sheet arrangements.  None of our debt documentation requires us to provide collateral security in the event of a ratings downgrade.

 

Debt Covenants

 

Our principal debt obligations at June 30, 2005, were our unsecured revolving credit facility, our unsecured $350 million term loan and our $1.3 billion of publicly issued term debt.  Our publicly issued debt is governed by an indenture.  This indenture and related supplements, our revolving credit facility agreement and our term loan agreement contain a number of financial ratio covenants which generally restrict our ability to incur debts, including debts secured by mortgages on our properties in excess of calculated amounts, require us to maintain a minimum net worth, restrict our ability to make distributions under certain circumstances and require us to maintain other ratios.  At June 30, 2005, we were in compliance with all of our covenants under our indenture and related supplements, our term loan agreement and our revolving credit facility agreement.

 

In addition to our unsecured debt obligations, we have $438.3 million of mortgage notes outstanding at June 30, 2005.

 

None of our indenture and related supplements, our revolving credit facility, our term loan agreement or our mortgage notes contain provisions for acceleration which could be triggered by our debt ratings.  However, our senior debt rating is used to determine the interest rate payable under our revolving credit facility and our term loan agreement, and the fees payable under our revolving credit facility.

 

28



 

Our public debt indenture and related supplements contain cross default provisions to any other debts of $20 million or more.  Similarly, a default on our public debt indenture would be a default under our revolving credit and term loan facilities.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to risks associated with market changes in interest rates.  Our strategy to manage exposure to changes in interest rates is unchanged since December 31, 2004.  Other than as described below, we do not foresee any significant changes in our exposure to fluctuations in interest rates or in how we manage this exposure in the near future.

 

Our unsecured revolving credit facility and our unsecured bank term loan bear interest at floating rates and mature in April 2009.  As of June 30, 2005, we had $236 million outstanding and $514 million available for drawing under our revolving credit facility and $350 million outstanding under our bank term loan.  Repayments under our revolving credit facility may be made at any time without penalty.  Repayments under our bank term loan may be made without penalty beginning in February 2006.  We borrow in U.S. dollars and borrowings under our revolving credit facility and our bank term loan require interest at LIBOR plus a premium.  Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically LIBOR.  A change in interest rates would not affect the value of these floating rate debts but would affect our operating results.  For example, the average interest rate payable on our $350 million term loan and $236 million outstanding on our revolving credit facility at June 30, 2005, was 3.5% per annum.  The following table presents the impact a 10% change in interest rates would have on our floating rate interest expense as of June 30, 2005 (dollars in thousands):

 

 

 

Impact of Changes in Interest Rates

 

 

 

Interest Rate
Per Year

 

Outstanding
Debt

 

Total Interest
Expense
Per Year

 

At June 30, 2005

 

3.5

%

$

586,000

 

$

20,510

 

10% reduction

 

3.2

%

$

586,000

 

$

18,752

 

10% increase

 

3.9

%

$

586,000

 

$

22,854

 

 

The foregoing table shows the impact of an immediate change in floating interest rates.  If interest rates were to change gradually over time, the impact would be spread over time.  Our exposure to fluctuations in floating interest rates will increase or decrease in the future with increases or decreases in the outstanding amount of our floating rate debt.

 

Our $1.3 billion of publicly issued term debt and our $438.3 million of mortgage notes outstanding on June 30, 2005, bear interest at fixed rates.  Changes in market interest rates during the terms of this debt will not affect our operating results.  If all of our fixed rate unsecured and secured notes outstanding at June 30, 2005, were to be refinanced at interest rates which are 10% higher or lower than current interest rates, our per annum interest cost would increase or decrease, respectively, by approximately $11.5 million.

 

29



 

Item 4.  Controls and Procedures

 

As of the end of the period covered by this report, our management carried out an evaluation, under the supervision and with the participation of our managing trustees, President and Chief Operating Officer and Treasurer and Chief Financial Officer of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, our managing trustees, President and Chief Operating Officer and Treasurer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

 

There have been no changes in our internal control over financial reporting during the quarter ended June 30, 2005, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

30



 

WARNING CONCERNING FORWARD LOOKING STATEMENTS

 

CERTAIN STATEMENTS AND IMPLICATIONS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND FEDERAL SECURITIES LAWS.  THESE STATEMENTS APPEAR IN A NUMBER OF PLACES IN THIS QUARTERLY REPORT ON FORM 10-Q AND INCLUDE STATEMENTS REGARDING:

 

                  THE SECURITY OF OUR RENTAL INCOME AND OUR LEASES,

                  THE CREDIT QUALITY OF OUR TENANTS,

                  THE LIKELIHOOD THAT OUR TENANTS WILL PAY RENT, RENEW LEASES, OR BE AFFECTED BY CYCLICAL ECONOMIC CONDITIONS,

                  OUR ACQUISITION OF PROPERTIES,

                  OUR ABILITY TO COMPETE EFFECTIVELY,

                  OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT, INCLUDING CURRENTLY INTENDED PREPAYMENTS, AND MAKE DISTRIBUTIONS,

                  OUR POLICIES AND PLANS REGARDING INVESTMENTS AND FINANCINGS,

                  REPAYMENT OF, AND FUTURE AVAILABILITY OF, BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,

                  OUR RECEIPT OF DIVIDENDS FROM OUR FORMER SUBSIDIARIES,

                  OUR ABILITY TO SELL OUR SHARES OF OUR FORMER SUBSIDIARIES,

                  OUR TAX STATUS AS A REAL ESTATE INVESTMENT TRUST,

                  OUR ABILITY TO RAISE CAPITAL,

 

AND OTHER MATTERS.  ALSO, WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS.

 

ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED BY THE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS.  SUCH FACTORS INCLUDE, WITHOUT LIMITATION,

 

                  CHANGES IN THE ECONOMY AND THE CAPITAL MARKETS,

                  COMPETITION WITHIN THE REAL ESTATE INDUSTRY OR THOSE INDUSTRIES IN WHICH OUR TENANTS AND FORMER SUBSIDIARIES OPERATE, AND

                  CHANGES IN FEDERAL, STATE AND LOCAL LEGISLATION.

 

FOR EXAMPLE:

 

                  SOME OF OUR TENANTS MAY NOT RENEW EXPIRING LEASES, AND WE MAY BE UNABLE TO LOCATE NEW TENANTS TO MAINTAIN THE HISTORICAL OCCUPANCY RATES OF OUR PROPERTIES,

                  RENTS THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE,

                  OUR TENANTS MAY EXPERIENCE LOSSES AND BECOME UNABLE TO PAY OUR RENTS,

                  THE DIVIDENDS WE RECEIVE FROM OUR FORMER SUBSIDIARIES MAY DECLINE OR WE MAY BE UNABLE TO SELL OUR SHARES IN OUR FORMER SUBSIDIARIES FOR AMOUNTS EQUAL TO OUR CARRYING VALUES OF THOSE SHARES, AND

                  WE MAY BE UNABLE TO IDENTIFY PROPERTIES WHICH WE WANT TO BUY OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES.

 

31



 

THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH, SUCH AS CHANGES IN OUR TENANTS’ FINANCIAL CONDITIONS OR NEEDS FOR LEASED SPACE, OR CHANGES IN THE CAPITAL MARKETS OR THE ECONOMY GENERALLY, ARE BEYOND OUR CONTROL.  SIMILARLY, OUR IMPLEMENTATION OF FAS 141 HAS REQUIRED US TO MAKE JUDGMENTS ABOUT THE ALLOCATION OF THE PURCHASE PRICES OF OUR PROPERTIES WHICH AFFECT OUR FINANCIAL STATEMENTS, INCLUDING FUTURE INCOME; THESE JUDGMENTS ARE BASED UPON OUR ESTIMATES, BELIEFS AND EXPECTATIONS ABOUT VACANT BUILDING VALUES AND RENTAL RATES, BUT SUCH ESTIMATES, BELIEFS AND EXPECTATIONS MAY PROVE TO BE INACCURATE.  THE INFORMATION CONTAINED ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-Q IDENTIFY OTHER IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.

 

FORWARD LOOKING STATEMENTS ARE ONLY EXPRESSIONS OF OUR PRESENT EXPECTATIONS AND INTENTIONS.  FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR.  YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.   EXCEPT AS MAY BE REQUIRED BY LAW, WE DO NOT INTEND TO IMPLY THAT WE WILL UPDATE OR REVISE ANY FORWARD LOOKING STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

 

STATEMENT CONCERNING LIMITED LIABILITY

 

THE AMENDED AND RESTATED DECLARATION OF TRUST ESTABLISHING HRPT PROPERTIES TRUST, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO, IS DULY FILED IN THE OFFICE OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF MARYLAND, PROVIDES THAT THE NAME “HRPT PROPERTIES TRUST” REFERS TO THE TRUSTEES UNDER THE DECLARATION OF TRUST, AS SO AMENDED AND SUPPLEMENTED, COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF HRPT PROPERTIES TRUST SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, HRPT PROPERTIES TRUST.  ALL PERSONS DEALING WITH HRPT PROPERTIES TRUST IN ANY WAY SHALL LOOK ONLY TO THE ASSETS OF HRPT PROPERTIES TRUST FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

 

32



 

Part II.  Other Information

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

On May 10, 2005, as part of their annual compensation, each of our three independent trustees received a grant of 1,500 common shares valued at $11.75 per common share, the closing price of our common shares on the New York Stock Exchange on May 10, 2005.  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 Security Holders

 

At our regular annual meeting on May 10, 2005, our shareholders re-elected Barry M. Portnoy and Frederick N. Zeytoonjian to serve as trustees for a term of three years.  There were 166,052,798 and 165,705,113 shares voted in favor of, and 3,019,016 and 3,366,702 shares withheld from voting for, the re-election of Mr. Portnoy and Mr. Zeytoonjian, respectively.  Tjarda Clagett, Patrick F. Donelan and Gerard M. Martin continue to serve as trustees for terms ending in 2006, 2007 and 2006, respectively.

 

Item 6.  Exhibits

 

12.1

 

Computation of Ratio of Earnings to Fixed Charges. (filed herewith)

 

 

 

12.2

 

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Distributions. (filed herewith)

 

 

 

31.1

 

Certification Required by Rule 13a-14(a) / 15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)

 

 

 

31.2

 

Certification Required by Rule 13a-14(a) / 15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)

 

 

 

31.3

 

Certification Required by Rule 13a-14(a) / 15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)

 

 

 

31.4

 

Certification Required by Rule 13a-14(a) / 15d – 14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (filed herewith)

 

 

 

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (furnished herewith)

 

33



 

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 8, 2005

 

 

 

 

 

 

 

 

By:

/s/ John C. Popeo

 

 

 

 

John C. Popeo

 

 

 

Treasurer and Chief Financial Officer

 

 

 

(principal financial and accounting officer)

 

 

 

Dated: August 8, 2005

 

34