-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SXEAn+gaxlMOQygxfEkLnzoJulwHBeEuCwJJljIrhb28g1PK8sqEtuHuE/CfHxDM oWsRU41cP6RO26ExwAqvxQ== 0000950146-96-001936.txt : 19961106 0000950146-96-001936.hdr.sgml : 19961106 ACCESSION NUMBER: 0000950146-96-001936 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961101 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEACON PROPERTIES CORP CENTRAL INDEX KEY: 0000920114 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 043224258 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12926 FILM NUMBER: 96653206 BUSINESS ADDRESS: STREET 1: 50 ROWES WHARF CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6173301400 MAIL ADDRESS: STREET 1: 50 ROWES WHARF CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: BEACON OFFICE PROPERTIES INC DATE OF NAME CHANGE: 19940311 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT ------------ Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT ------------ Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________________ to _____________________ Commission file number ______________________ 1-12926 ______________________ BEACON PROPERTIES CORPORATION (Exact name of Registrant as specified in its charter) Maryland 04-3224258 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 50 Rowes Wharf, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) (617) 330-1400 (Registrant's telephone number, including area code) _____________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] APPLICABLE ONLY TO CORPORATE ISSUERS; Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 33,233,755 Shares of common stock, $.01 par value as of October 31, 1996 BEACON PROPERTIES CORPORATION FORM 10-Q INDEX Page -------- Part I--Financial Information Item 1. Financial Statements Consolidated Balance Sheets at September 30, 1996 and Decem- ber 31, 1995 ............................................... 3 Consolidated Statements of Operations for the three and nine months ended September 30, 1996 and 1995 ................... 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 .......................... 5 Notes to Consolidated Financial Statements ................... 6-9 Item 2. Management's Discussion and Analysis of Financial Condi- tion and Results of Operations ......................... 10-14 Part II--Other Information Item 1. Legal Proceedings ...................................... 15 Item 2. Changes in Securities .................................. 15 Item 3. Defaults Upon Senior Securities ........................ 15 Item 4. Submission of Matters to a Vote of Security Holders .... 15 Item 5. Other Information ...................................... 15 Item 6. Exhibits and Reports on Form 8-K ....................... 15 Signature ...................................................... 16 2 BEACON PROPERTIES CORPORATION CONSOLIDATED BALANCE SHEETS September 30, December 31, 1996 1995 --------------- -------------- (Unaudited) (In thousands) Assets Real estate: Land $ 115,710 $ 43,077 Buildings, improvements and equipment 945,703 428,065 --------------- -------------- 1,061,413 471,142 Less accumulated depreciation 86,737 66,571 --------------- -------------- 974,676 404,571 Deferred financing and leasing costs, net of accumulated amortization of $15,266 and $14,509 15,908 9,486 Cash and cash equivalents 14,347 4,501 Restricted cash 2,404 2,764 Accounts receivable 7,908 6,128 Accrued rent 10,637 6,493 Prepaid expenses and other assets 10,747 8,060 Mortgage notes receivable 51,490 34,778 Investments in and note receivable from joint ventures and corporations 55,890 58,016 --------------- -------------- Total assets $1,144,007 $534,797 =============== ============== Liabilities and Stockholders' Equity Liabilities: Mortgage notes payable $ 440,526 $ 70,536 Note payable, Credit Facility 18,000 130,500 Accounts payable, accrued expenses and other liabilities 27,293 14,022 Investment in joint venture 24,467 23,955 --------------- -------------- Total liabilities 510,286 239,013 --------------- -------------- Commitments and contingencies -- -- Minority interest in Operating Partnership 70,098 36,962 --------------- -------------- Stockholders' equity: Common stock, $.01 par value, authorized 100,000,000 shares, issued and outstanding 33,233,255 and 20,215,822 shares 332 202 Additional paid-in capital 584,626 267,727 Cumulative net income 46,782 23,715 Cumulative dividends (68,117) (32,822) --------------- -------------- Total stockholders' equity 563,623 258,822 --------------- -------------- Total liabilities and stockholders' equity $1,144,007 $534,797 =============== ============== The accompanying notes are an integral part of these consolidated financial statements. 3 BEACON PROPERTIES CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Nine Months Ended September 30, Ended September 30, --------------------- --------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- (Unaudited and in thousands, except per share amounts and shares outstanding) Revenues: Rental income $ 37,257 $ 18,188 $ 97,308 $ 52,281 Management fees 731 477 2,248 1,413 Recoveries from tenants 4,219 2,484 11,001 7,297 Mortgage interest income 1,402 953 3,567 1,564 Other income 2,993 1,493 7,585 3,965 ---------- ---------- ---------- ---------- 46,602 23,595 121,709 66,520 ---------- ---------- ---------- ---------- Expenses: Property expenses 9,837 4,938 24,607 13,469 Real estate taxes 4,660 2,513 12,491 7,414 General and administrative 4,600 2,316 11,963 6,886 Mortgage interest expense 7,077 3,592 20,739 11,569 Interest--amortization of financing costs 434 371 1,618 947 Depreciation and amortization 8,391 4,355 21,737 12,607 ---------- ---------- ---------- ---------- 34,999 18,085 93,155 52,892 ---------- ---------- ---------- ---------- Income from operations 11,603 5,510 28,554 13,628 Equity in net income of joint ventures and corporations 471 670 2,053 1,735 ---------- ---------- ---------- ---------- Income before minority interest and extraordinary items 12,074 6,180 30,607 15,363 Minority interest in Operating Partnership (1,550) (1,092) (4,231) (3,043) ---------- ---------- ---------- ---------- Income before extraordinary items 10,524 5,088 26,376 12,320 Extraordinary items, net of minority interest -- -- (3,309) -- ---------- ---------- ---------- ---------- Net Income $ 10,524 $ 5,088 $ 23,067 $ 12,320 ========== ========== ========== ========== Income per common share before extraordinary items $ 0.34 $ 0.29 $ 0.99 $ 0.81 Extraordinary items -- -- (0.13) -- ---------- ---------- ---------- ---------- Net income per common share $ 0.34 $ 0.29 $ 0.86 $ 0.81 ========== ========== ========== ========== Weighted average common shares outstanding 30,571,657 17,655,631 26,659,577 15,288,937 ========== ========== ========== ========== The accompanying notes are an integral part of these consolidated financial statements. 4 BEACON PROPERTIES CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, ------------------------- 1996 1995 ------------ ------------ (Unaudited and in thousands) Cash flows from operating activities: Net income $ 23,067 $ 12,320 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Increase in accrued rent (4,144) (2,544) Depreciation, amortization and amortization of financing costs 23,355 13,554 Equity in net income of joint ventures and corporations (2,053) (1,735) Minority interest in Operating Partnership 4,231 3,043 Extraordinary items 3,309 -- Increase in accounts receivable (1,780) (1,868) Increase in prepaid expenses and other assets (415) (480) Increase (decrease) in accounts payable and accrued expenses 15,484 (2,880) ------------ ------------ Total adjustments 37,987 7,090 ------------ ------------ Net cash provided by operating activities 61,054 19,410 ------------ ------------ Cash flows from investing activities: Property additions (501,765) (30,537) Payment of deferred leasing costs (4,184) (2,119) Investments in corporations -- (40,058) Increase in prepaid expenses and other assets (4,000) -- Purchase of mortgage notes receivable (16,712) (34,678) Capital distributions from joint ventures 4,655 2,805 Decrease in restricted cash 360 2,224 ------------ ------------ Net cash used by investing activities (521,646) (102,363) ------------ ------------ Cash flows from financing activities: Proceeds from additional offerings, net of offering costs 316,543 159,740 Payment of deferred financing costs (9,267) (946) Borrowings on Credit Facility 140,000 81,200 Payments on Credit Facility (252,500) (124,500) Borrowings on mortgage notes 593,000 -- Payments on mortgage notes (278,500) (1,447) Decrease in prepaid expenses and other assets 1,728 -- Distributions paid to minority interest in Operating Partnership (5,271) (4,639) Dividends paid to stockholders (35,295) (17,725) ------------ ------------ Net cash provided by financing activities 470,438 91,683 ------------ ------------ Net increase in cash and cash equivalents 9,846 8,730 Cash and cash equivalents, beginning of period 4,501 15,097 ------------ ------------ Cash and cash equivalents, end of period $ 14,347 $ 23,827 ============ ============ Supplemental disclosures: Cash paid during the period for interest $ 18,998 $ 11,283 ============ ============ Non cash activities: Redemption of Operating Partnership units for common stock $ 486 $ 174 ============ ============ Liabilities assumed in connection with the acquistion of properties $ 55,529 $ -- ============ ============ Increase in minority interest as a result of acquisition of properties $ 35,229 $ -- ============ ============ Net liabilities assumed in connection with the Russia Wharf settlement agreement $ -- $ 861 ============ ============ The accompanying notes are an integral part of these consolidated financial statements. 5 BEACON PROPERTIES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ____________ 1. Organization and Basis of Presentation: Organization Beacon Properties Corporation (the "Company") was incorporated on March 4, 1994 as a Maryland corporation, and commenced operations effective with the completion of its Initial Offering (the "IPO") on May 26, 1994. The Company qualifies as a real estate investment trust under the Internal Revenue Code of 1986, as amended. The Company was formed to continue and expand the commercial real estate development, construction, acquisition, leasing, design and management businesses of The Beacon Group (the "Predecessor"). In March 1996, the Company sold 7,036,000 shares of common stock, $.01 par value, to the public at $26.25 per share (the "March 1996 Offering"). The proceeds of the offering, net of offering costs, were approximately $173.8 million. The Company contributed the net proceeds of the additional offering to Beacon Properties, L.P. (the "Operating Partnership") in exchange for 7,036,000 units of limited partnership interest ("Units"). In August 1996, the Company sold 5,750,000 shares of common stock, $.01 par value, to the public at $25.75 per share (the "August 1996 Offering"). The proceeds of the offering, net of offering costs, were approximately $139.2 million. The Company contributed the net proceeds of the additional offering to the Operating Partnership in exchange for 5,750,000 Units. Basis of Presentation The financial statements of the Company are consolidated and include all the accounts of the Company, its majority owned Operating Partnership and subsidiaries. All significant intercompany balances and transactions have been eliminated. The accompanying financial statements are unaudited; however, they have been prepared in accordance with generally accepted accounting principles for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. The results for the nine months ended September 30, 1996 are not necessarily indicative of the results to be obtained for the full fiscal year. These financial statements should be read in conjunction with the December 31, 1995 audited financial statements and notes thereto of the Company, included in its annual report on Form 10-K for the fiscal year ended December 31, 1995. Certain reclassifications have been made to previously reported amounts to conform with current reporting. 2. Equity Investments in Real Estate: The Company reports its share of income and losses based on its ownership interest in the respective equity investments. Losses in excess of investments are not recorded where the Company has not guaranteed nor intends to provide any future financial support. The following summarized information has been presented for the property joint ventures and property corporations for which the Company has recorded its share of the earnings for the nine months ended September 30, 1996. 6 BEACON PROPERTIES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ____________ 2. EQUITY INVESTMENTS IN REAL ESTATE: One Post 75-101 Office Polk & Federal Square Taylor Street ----------- --------- ----------- (in thousands) Balance sheets at September 30, 1996 Real estate, net $ 39,746 $91,819 $156,369 Cash 1,532 252 8,981 Other assets 11,576 2,636 2,303 ----------- --------- ----------- $ 52,854 $94,707 $167,653 =========== ========= =========== Mortgage notes payable $ 93,579 $ -- $ 90,000 Other liabilities 1,211 518 2,479 Equity (deficiency) (41,936) 94,189 75,174 ----------- --------- ----------- $ 52,854 $94,707 $167,653 =========== ========= =========== Summary of operations for the nine months ended September 30, 1996 Revenues $ 16,788 $16,159 $ 19,432 Other income 316 664 1,268 ----------- --------- ----------- Total revenues 17,104 16,823 20,700 ----------- --------- ----------- Operating expenses 6,953 5,042 8,281 Mortgage interest expense 5,183 -- 5,225 Depreciation and amortization 2,743 2,590 3,406 ----------- --------- ----------- Total expenses 14,879 7,632 16,912 ----------- --------- ----------- Net income $ 2,225 $ 9,191 $ 3,788 =========== ========= =========== Share of properties: Depreciation and amortization $ 1,025 $ 259 $ 1,714 Interest--amortization of financing costs 629 -- 44 3. Mortgage Notes Payable: On January 9, 1996, the Company closed on a $55 million, 7.23% mortgage loan with a 7 year term, and used the net proceeds to pay down the floating rate credit facility (the "Credit Facility"). The collateral for the mortgage loan is the Wellesley Office Park, Buildings 1-8. On February 12, 1996, the Company closed on a $60 million, 7.23% mortgage loan with a 7 year term, and used the net proceeds to pay down the Credit Facility. The collateral for the mortgage loan is the Center Plaza property. On February 15, 1996, the Company financed the acquisition of a 3.3 million square foot, 32 building portfolio in suburban Atlanta, Georgia (the "Perimeter Center"), in part, through a $260 million loan from PaineWebber Real Estate Securities Inc. (the "PaineWebber Acquisition Loan"). In March 1996, the Company repaid the PaineWebber Acquisition Loan using proceeds from the March 1996 Offering and a $218 million loan provided by Metropolitan Life Insurance Company (the "MetLife Mortgage Loan"). The MetLife Mortgage Loan bears interest at 7.08% with a term of 10 years. An extraordinary item of $1.8 million, net of minority interest, was recorded in connection with the write-off of fees and costs to acquire the PaineWebber Acquisition Loan which was repaid in March 1996 approximately three years prior to its maturity. 7 BEACON PROPERTIES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ____________ 3. MORTGAGE NOTES PAYABLE: On September 5, 1996, in connection with the acquisition of three office buildings and a parcel of developeable land located in Fairfax County, Virginia (the "Fairfax County Portfolio"), the Company assumed approximately $55.5 million of mortgage debt secured by the properties ($18 million of which was repaid at the closing of the acquisition with a draw on the Credit Facility). The remaining mortgages consist of a $16.5 million, 7.28% mortgage loan which matures in December 1996 and a $21.0 million, 8.38% mortgage which matures December 2008. 4. Note Payable, Credit Facility: In June 1996, the Company substantially modified the terms of the Credit Facility. Additionally, in July 1996, the maximum loan amount available under the Credit Facility was increased to $300 million. The new Credit Facility matures in June 1999. Outstanding balances under the Credit Facility bear interest, at the Company's option, at either (i) the higher of (x) Bank of Boston's base interest rate and (y) one-half of one percent (1/2%) above the overnight federal funds effective rate or (ii) the Eurodollar rate plus 175 basis points. The Company has an interest rate protection agreement through May 1997 with Bank of Boston with respect to $135 million of the Credit Facility, which provides for offsetting payments to the Company in the event that 90-day LIBOR exceeds 9.47% per annum. Effective May 1997 through May 1999, the Company has an interest rate protection agreement with Bank of Boston with respect to $137.5 million of the Credit Facility, which provides for offsetting payments to the Company in the event that 90-day LIBOR exceeds 8.75% per annum. As a result of the substantial modification of the terms of the Credit Facility, the Company recorded an extraordinary item of $1.5 million, net of minority interest, in connection with write-off of fees and costs to acquire the old Credit Facility. 5. Commitments and Contingencies: In October 1996, the Company entered into a contract to acquire a portfolio of office properties, located in Burlington, Massachusetts (the "New England Executive Park Portfolio"). The purchase price of the New England Executive Park Portfolio is payable in two installments, approximately $75 million will be paid at the closing of the acquisition with an additional $17 million payable on November 30, 1998, contingent upon meeting conditions regarding occupancy or rental income levels at the property in 1998. The purchase of the portfolio is subject to due diligence and certain other conditions. In October 1996, the Company entered into a contract to acquire 10960 Wilshire Boulevard located in Westwood, California for aggregate consideration of $133 million. The purchase of the property is subject to due diligence and certain other conditions. In October 1996, the Company entered into a contract to acquire 245 First Street located in Cambridge, Massachusetts for aggregate consideration of $45 million. The purchase of the property is subject to due diligence and certain other conditions. 6. Environmental Issue: Fairfax County Portfolio. Chlorinated solvents, primarily trichloroethane ("TCE"), have been detected in groundwater samples collected from monitoring wells located at the John Marshall III developable land (the "JM III Parcel"). Subsequent investigations of the JM III Parcel by an environmental consultant retained by the sellers of the Fairfax County Portfolio (the "Consultant") confirmed the presence of chlorinated solvents in groundwater at the JM III Parcel and on property adjacent to the JM III Parcel where an autobody repair shop is located. The sellers of the Fairfax County Portfolio have reported the findings of chlorinated solvent contamination on the JM III Parcel to the Virginia Department of Environmental Quality. The Consultant has concluded that the autobody repair shop is the probable source for the chlorinated solvent contamination, has collected additional soil and groundwater samples and is preparing a remediation plan for the site. Units valued at approximately $1.0 million 8 BEACON PROPERTIES CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ____________ 6. ENVIRONMENTAL ISSUE: were escrowed from the purchase price to be paid for the Fairfax County Portfolio upon the closing of the acquisition. Under the terms of the escrow, these Units will be released to the seller of the JM III Parcel periodically upon performance of remediation pursuant to a remediation plan approved by the Company. The escrow further provides that the Company may receive some or all of the remaining escrowed Units upon certain conditions, including (i) if remediation is required by law, in the event of an emergency threatened by the contamination, (ii) if the seller defaults under the remediation agreement or fails to obtain access to the likely source site or governmental approvals, (iii) if the Company enters into a lease for space in a building to be constructed on the JM III Parcel or (iv) if the seller fails to obtain a closure certification from the Virginia Department of Environmental Quality upon completion of remediation. 7. Pro Forma Results (unaudited): The following unaudited pro forma operating results for the Company have been prepared as if the 1995 and 1996 stock offerings and the 1995 and 1996 property acquisitions had occurred on January 1, 1995. Unaudited pro forma financial information is presented for informational purposes only and may not be indicative of what the actual results of operations of the Company would have been had the events occurred as of January 1, 1995, nor does it purport to represent the results of operations for future periods.
Nine Months ended September 30, 1996 and 1995: 1996 1995 - --------------------------------------------------- ----------- ----------- (In thousands except per share amounts) Revenue $152,983 $145,962 Income before extraordinary items 36,591 37,753 Net income per share before extraordinary items $ 1.10 $ 1.14
8. Subsequent Events: In October 1996, the Company acquired a portfolio of two office buildings located in Rosslyn, Virginia (the "Rosslyn, Virginia Portfolio") for aggregate consideration of approximately $99 million. The Company used proceeds from a draw on the Credit Facility to purchase the portfolio. On October 31, 1996, the Company declared a dividend of $.4625 per common share payable on November 22, 1996 to stockholders of record on November 8, 1996. On November 1, 1996, the Company filed a prospectus supplement to its Form S-3 Registration Statement (No. 333-02544) with the Securities and Exchange Commission pursuant to which it proposes to offer 6,000,000 shares of common stock (excluding the underwriters' over-allotment option). 9 BEACON PROPERTIES CORPORATION PART I--ITEM 2 _____________ Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This Form 10-Q contains forward looking statements within the meaning of Section 27A of the Securities Act of 1993 and Section 21E of the Securities Exchange Act of 1934. The Company's actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include the following: Real estate investment considerations, such as the effect of economic and other conditions in the market area on cash flows and values, the need to renew leases or relet space upon the expiration of current leases, and the ability of a property to generate revenues sufficient to meet debt service payments and other operating expenses; and risks associated with borrowing, such as the possibility that the Company will not have sufficient funds available to make principal payments on outstanding debt, outstanding debt may be refinanced at higher interest rates or otherwise on terms less favorable to the Company and interest rates under the Credit Facility may increase. The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the accompanying financial statements and notes thereto. Results of Operations Comparison of Three and Nine Months Ended September 30, 1996 and September 30, 1995 Net income for the three and nine months ended September 30, 1996 was $10.5 and $23.1 million, respectively, compared with net income of $5.1 and $12.3 million for the corresponding periods in 1995. The increase in net income was primarily the result of the operating results contributed by the properties and interests in properties acquired throughout 1995 and 1996 partially offset by extraordinary items recorded in 1996. The Company's proportionate share of weighted average square feet of office properties increased by 98% from 4.0 million square feet for the nine months ended September 30, 1995 compared to 7.9 million square feet for the corresponding period in 1996. The Company recorded extraordinary items totaling $3.3 million, net of minority interest, in 1996. An extraordinary item of $1.8 million, net of minority interest, was recorded in connection with the write-off of fees and costs to acquire the PaineWebber Acquisition Loan which was repaid in March 1996 approximately three years prior to its maturity. An extraordinary item of $1.5 million, net of minority interest, was recorded in connection with write-off of fees and costs to acquire the old Credit Facility which was substantially modified in June 1996. Rental income for the three and nine months ended September 30, 1996 was $37.3 and $97.3 million, respectively, compared to $18.2 and $52.3 million for the corresponding periods in 1995. The properties acquired in 1995 (100 William Street, Westlakes Two, 2 Oliver-147 Milk Street and Ten Canal Park) (the "1995 Acquisitions") and properties acquired in 1996 (Perimeter Center, AT&T Plaza, Tri-State International, 1333 H Street, E.J. Randolph, John Marshall I and Northridge I) (the "1996 Acquisitions"), contributed $18.3 and $42.4 million of this increase for the three and nine month periods, respectively. The remaining balance was attributable to an increase in occupancy and rental rates as well as the re-leasing of the Crosby Corporate Center as part of the redevelopment of the property. The impact of the straight-line adjustment increased consolidated rental income for the Company $4.1 million and $2.5 million and increased its share of equity in net income of property joint ventures and corporations by $0.1 million and $0.1 million for the nine months ended September 30, 1996 and 1995, respectively. Management fees from joint venture properties for the three and nine months ended September 30, 1996 were $0.7 and $2.2 million, respectively, compared to $0.5 and $1.4 million for the corresponding periods in 1995. The increase in both periods was primarily the result of the management contract for 75-101 Federal Street, a property in which the Company purchased an approximate 52% interest in September 1995. Recoveries from tenants for the three and nine months ended September 30, 1996 were $4.2 and $11.0 million, respectively, compared to $2.5 and $7.3 million for the corresponding periods in 1995. The 1995 Acquisitions and 10 BEACON PROPERTIES CORPORATION PART I--ITEM 2 _____________ 1996 Acquisitions contributed $1.5 and $2.9 million of this increase for the three and nine month periods, respectively. The remaining balance of the increase for both periods was primarily due to an increase in reimbursable operating expenses. Mortgage interest income for the three and nine months ended September 30, 1996 was $1.4 and $3.6 million, respectively, compared to $1.0 and $1.6 million for the corresponding periods in 1995. The increase is the result of the acquisition of the remaining portions of the Rowes Wharf debt in 1996. Other income for the three and nine months ended September 30, 1996 was $3.0 and $7.6 million, respectively, compared to $1.5 and $4.0 million for the corresponding periods in 1995. The 1995 Acquisitions and 1996 Acquisitions accounted for $0.9 and $2.4 million of the increase for the three and nine months periods, respectively. The remaining balance of the increase for both periods was primarily due to an increase in interest income earned on the excess proceeds from the March 1996 Offering. Property expenses for the three and nine months ended September 30, 1996 was $9.8 and $24.6 million, respectively, compared to $4.9 and $13.5 million for the corresponding periods in 1995. The 1995 Acquisitions and 1996 Acquisitions accounted for $4.1 million and $9.6 million of the increase for the three and nine month periods, respectively. The remaining balance of the increase is primarily due to an increase in seasonal costs associated with the winter of 1996 as well as an increase in building operating costs as a result of increased occupancy at the properties. Real estate taxes for the three and nine months ended September 30, 1996 was $4.7 and $12.5 million, respectively, compared to $2.5 and $7.4 million for the corresponding periods in 1995. The 1995 Acquisitions and 1996 Acquisitions accounted for $2.0 million and $4.8 million of the increase for the three and nine month periods, respectively. General and administrative expenses, which include costs incurred at the properties, for the three and nine months ended September 30, 1996 were $4.6 and $12.0 million, respectively, compared to $2.3 and $6.9 million for the corresponding periods in 1995. General and administrative expenses as a percentage of total revenue decreased from 10.4% to 9.8% from 1995 to 1996. The 1995 Acquisitions and 1996 Acquisitions accounted for $1.4 million and $3.1 million of the increase for the three and nine month periods, respectively. The remaining balance of the increase was primarily due to an increase in management and administration costs associated with the growth in the Company's portfolio of properties. Mortgage interest expense for the three and nine months ended September 30, 1996 was $7.1 and $20.7 million, respectively, compared to $3.6 and $11.6 million for the corresponding periods in 1995. The increase in both periods was primarily the result of debt incurred in connection with the acquisition of Perimeter Center. Interest--amortization of financing costs for the three and nine months ended September 30, 1996 was $0.4 and $1.6 million, respectively, compared to $0.4 and $0.9 million for the corresponding periods in 1995. The increase in the nine month period is primarily the result of the amortization of financing costs associated with the Credit Facility, the mortgage debt on Wellesley Buildings 1-8, Center Plaza and Perimeter Center. Depreciation and amortization for the three and nine months ended September 30, 1996 was $8.4 and $21.7 million, respectively, compared to $4.4 and $12.6 million for the corresponding periods in 1995. The 1995 Acquisitions and 1996 Acquisitions accounted for $3.8 million and $8.3 million of the increase for the three and nine month periods, respectively. Equity in net income of joint ventures and corporations for the three and nine months ended September 30, 1996 was $0.5 and $2.1 million, respectively, compared to $0.7 and $1.7 million for the corresponding periods in 1995. The decrease in three month period was primarily the result of the equity in net loss from Beacon Construction Company, Inc. offset partially by the acquisition of the equity investment in 75-101 Federal Street in September 1995. The increase in the nine month period was primarily the result of the acquisition of the equity 11 BEACON PROPERTIES CORPORATION PART I--ITEM 2 _____________ investment in 75-101 Federal Street in September 1995 offset by equity in net loss from Beacon Construction Company, Inc. The minority interest in the Operating Partnership represents the portion of the Operating Partnership which is not owned by the Company. As of September 30, 1996, the Company owned or had an interest in 68 income producing commercial properties. The percent leased calculation includes all leases executed as of September 30, 1996. Rentable Percent Square Feet Leased -------------- --------- Consolidated Properties: Center Plaza 649,359 92% 150 Federal Street 530,279 99% Russia Wharf 314,596 100% 2 Oliver-147 Milk Street 271,000 92% 175 Federal Street 203,349 94% South Station 148,591 100% Wellesley Office Park Buildings 1-8 622,862 98% Crosby Corporate Center 336,000 88% Westwood Business Centre 160,400 100% One Canal Park 100,300 94% Westlakes Office Park Buildings 1, 2, 3 and 5 443,592 95% Ten Canal Park 110,000 92% Perimeter Center 3,302,136 98% AT&T Plaza 225,318 100% Tri-State International 548,000 70% 1333 H Street 238,694 90% E.J. Randolph 164,677 80% John Marshall I 261,364 100% Northridge I 124,319 100% -------------- --------- Total Consolidated Properties 8,754,836 95% -------------- --------- Joint Venture Properties: One Post Office Square 764,129 99% Rowes Wharf 344,326 98% Polk and Taylor Buildings 890,000 100% 75-101 Federal Street 812,000 94% -------------- --------- Total Joint Venture Properties 2,810,455 98% -------------- --------- Total Consolidated and Joint Venture Properties 11,565,291 95% ============== ========= Liquidity and Capital Resources Cash and cash equivalents were $14.3 million at September 30, 1996 compared to $4.5 million at December 31, 1995. The increase was primarily the result of proceeds from the March and August 1996 Offerings in excess of the acquisition of Perimeter Center, New York Life Portfolio, Rowes Wharf debt and the redevelopment of the Crosby Corporate Center. Investing Activities On February 15, 1996, the Company acquired Perimeter Center, a 3.3 million square foot, 32 building portfolio in suburban Atlanta, Georgia for approximately $336 million. 12 BEACON PROPERTIES CORPORATION PART I--ITEM 2 _____________ During the second quarter of 1996, the Company and Equitable Life Assurance Society of the United States, on behalf of its Prime Property Fund, the Company's partner in Rowes Wharf, acquired the remaining portion of the property's mortgage debt that had been held by a bank lending group. On August 16, 1996, the Company acquired a portfolio of office properties, comprised of seven properties, from New York Life Insurance Company (the "New York Life Portfolio") for approximately $150 million. The New York Life Portfolio consists of the AT&T Plaza located in Oak Brook, Illinois, the five-building Tri-State International office park located in Lincolnshire, Illinois and a property located at 1333 H Street in Washington, D.C. On September 5, 1996, the Company acquired the Fairfax County Portfolio for aggregate consideration of $77 million consisting of assumption of approximately $55.5 million of mortgage debt and the issuance of approximately $21.5 of Units in the Operating Partnership. The Fairfax County Portfolio consists of the John Marshall I building, the E.J. Randolph building, the Northridge I building and the John Marshall III parcel of developable land. Financing Activities On January 9, 1996, the Company closed on a $55 million mortgage loan, and used the net proceeds to pay down the Credit Facility. The collateral for the mortgage loan is the Wellesley Office Park, Buildings 1-8. On February 9, 1996, the Company closed on a $60 million mortgage loan, and used the net proceeds to pay down the Credit Facility. The collateral for the mortgage loan is the Center Plaza property. On February 15, 1996, the Company acquired Perimeter Center using the $260 million PaineWebber Acquisition Loan, the issuance of approximately $13.8 million of units of limited Partnership interest ("Units") in the Operating Partnership with the balance funded from the Credit Facility. In March 1996, the Company sold 7,036,000 shares of common stock, $.01 par value, to the public at $26.25 per share. The proceeds of the offering, net of offering costs, were approximately $173.8 million. The net proceeds of the offering were used to repay a portion of the PaineWebber Acquisition Loan. On March 15, 1996, the Company closed on the $218 million MetLife Mortgage Loan. The proceeds of the MetLife Mortgage Loan were used to repay the remaining portion of the PaineWebber Acquisition Loan and the outstanding balance of the Credit Facility. In August 1996, the Company sold 5,750,000 shares of common stock, $.01 par value, to the public at $25.75 per share. The proceeds of the offering, net of offering costs, were approximately $139.2 million. The net proceeds of the offering were used to purchase the New York Life Portfolio. On December 16, 1996, the mortgage note payable of $16.5 million on the Northridge I property will mature. The Company is currently negotiating with a lender to refinance the mortgage. In connection with obtaining the refinancing, prepaid and other assets at September 30, 1996 consists of a $0.3 million deposit. On October 31, 1996, the Company declared a dividend of $.4625 per common share payable on November 22, 1996 to stockholders of record on November 8, 1996. Capitalization At September 30, 1996, the Company's total consolidated debt was approximately $458.5 million, and its total consolidated debt plus its proportionate share of total unconsolidated debt (other than the Rowes Wharf property debt) was approximately $551.8 million at September 30, 1996. At September 30, 1996, the Company's outstanding consolidated debt consisted of approximately $18.0 million under its floating-rate Credit Facility and approximately $440.5 million of fixed rate mortgage indebtedness with an weighted average rate of 7.16%, collateralized by properties owned 100% by the Company. The Company's proportionate share of its current total unconsolidated debt (excluding the Rowes Wharf property debt) consists of approximately $46.8 million on the One Post Office Square Property (in which the Company has a 50% general partner interest) and approximately $46.4 million on 13 BEACON PROPERTIES CORPORATION PART I--ITEM 2 _____________ the 75-101 Federal Street property (in which the Company owns approximately 52% of the common stock of a private REIT that owns the property).The weighted average rate of the Company's unconsolidated debt is 7.47%. The weighted average rate of the Company's consolidated and unconsolidated debt is 7.21%. Based on the Company's total market capitalization of $1,663.5 million at September 30, 1996 (at the September 30, 1996 closing stock price of $29.00 and including the 5,102,428 Units of minority interest in the Operating Partnership), the Company's consolidated debt plus its proportionate share of total unconsolidated debt (other than the Rowes Wharf property debt) represented approximately 33% of its total market capitalization. Short and Long Term Liquidity The Company has considered its short-term liquidity needs and the adequacy of Funds from Operations and other expected liquidity sources to meet these needs. The Company believes that its principal short-term liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distribution required to maintain the Company's REIT qualifications under the Internal Revenue Code. The Company believes that these needs will be fully funded from cash flows provided by operating activities. The Company expects to meet long-term liquidity requirements for the costs of development, property acquisitions, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements through long-term secured and unsecured indebtedness and the issuance of additional Operating Partnership Units and equity securities. The Company may finance the redevelopment or acquisition of additional properties by using its Credit Facility. 14 BEACON PROPERTIES CORPORATION PART II _____________ OTHER INFORMATION Item 1. Legal Proceedings Property Partnership Matters. As reported in the Company's Form 10-K for the year ended December 31, 1995, a partner in certain property partnerships commenced a lawsuit against the Company and certain of its affiliates. Fact discovery has been completed in this matter and a trial date has been set for February 1997. The Company believes the remaining claims in the litigation are without merit and is vigorously defending the suit. Ruggles Center Joint Venture. As reported in the Company's Form 10-Q for the three months ended March 31, 1996, Ruggles Center Joint Venture ("RCJV") commenced a lawsuit against Beacon Construction Company, Inc. (the "Construction Company") and its surety, Aetna Casualty and Surety Company. The Construction Company has filed an answer denying RCJV's claims and has filed a counterclaim and third-party claim against RCJV and Ruggles Center LLC, the entity to which RCJV has assigned its claims to receive amounts due under the construction contract. The Construction Company has also filed a third-party complaint against the manufacturer and installer of the fireproofing material in the Ruggles Center building. Based upon the investigation to date, the Construction Company, believes that the case is without merit and plans to vigorously defend the suit. Item 2. Changes in Securities (c) Recent Sales of Unregistered Securities. In September 1996, the Operating Partnership issued an aggregate of 833,820 Units to the sellers of the Fairfax County Portfolio in consideration for a fee interest in the Property valued at approximately $21.5 million ($25.75 per Unit). Units are redeemable by the holders for cash, or, at the election of the Company, for shares of common stock, $.01 par value, of the Company on a one-for-one basis. The Units were issued by the Operating Partnership in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended. Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: 27.1 Financial Data Schedule (b) Reports on Form 8-K. A report on Form 8-K dated July 23, 1996 (as amended by Form 8-K/A dated August 6, 1996) was filed which included information regarding Items 5 and 7. Included in Item 7 were financial statements, pro forma information and exhibits. The Form 8-K was filed in connection with the Company's acquisition of the Fairfax County and New York Life Portfolios. 15 BEACON PROPERTIES CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BEACON PROPERTIES CORPORATION /s/ Robert J. Perriello --------------------------------- Robert J. Perriello, Senior Vice President, and Chief Financial Officer Date: November 1, 1996 16 EX-27.1 2
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 14,347 0 18,545 0 0 43,639 1,061,413 86,737 1,144,007 27,293 458,529 0 0 332 563,291 1,144,007 0 123,762 0 72,416 4,231 0 20,739 26,376 0 26,376 0 (3,309) 0 23,067 0.86 0.86
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