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As Of Filer Filing For·On·As Docs:Size Issuer Agent 3/15/04 Equity Commonwealth 10-K 12/31/03 13:5.7M Merrill Corp-MD/FA |
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003
OR
o 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 1-9317
HRPT PROPERTIES TRUST
Maryland |
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04-6558834 |
(State of Organization) |
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(IRS Employer Identification No.) |
400 Centre Street, Newton, Massachusetts 02458
617-332-3990
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of
each exchange on |
Common Shares of Beneficial Interest |
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New York Stock Exchange |
9 7/8% Series A Cumulative Redeemable
Preferred Shares of |
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New York Stock Exchange |
8 3/4% Series B Cumulative Redeemable
Preferred Shares of |
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New York Stock Exchange |
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Securities to be registered pursuant to Section 12(g) of the Act: |
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None |
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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes ý No o
The aggregate market value of the voting common shares of the registrant held by non-affiliates was $1.3 billion based on the $9.20 closing price per common share for such stock on the New York Stock Exchange on June 30, 2003. For purposes of this calculation, 1,000,000 common shares held by Senior Housing Properties Trust and an aggregate of 1,390,725 common shares held directly or by affiliates of the trustees and officers of the registrant have been included in the number of common shares held by affiliates.
Number of the registrant’s common shares outstanding as of March 8, 2004: 177,273,925.
References in this Annual Report on Form 10-K to the “Company”, “HRP”, “we”, “us” or “our” include consolidated subsidiaries, unless the context indicates otherwise.
DOCUMENTS INCORPORATED BY REFERENCE
Certain Information required by Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K is to be incorporated herein by reference from our definitive Proxy Statement for the annual meeting of shareholders scheduled for May 11, 2004.
WARNING CONCERNING FORWARD LOOKING STATEMENTS
OUR ANNUAL REPORT ON FORM 10-K CONTAINS STATEMENTS WHICH CONSTITUTE 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 FORM 10-K AND INCLUDE STATEMENTS REGARDING OUR INTENT, BELIEF OR EXPECTATIONS OR THE INTENT, BELIEF OR EXPECTATIONS OF OUR TRUSTEES AND OFFICERS CONCERNING OUR ABILITY TO LEASE OUR PROPERTIES TO TENANTS, OUR TENANTS’ ABILITY TO PAY RENTS, OUR ABILITY TO PURCHASE ADDITIONAL PROPERTIES, OUR ABILITY TO PAY INTEREST AND DEBT PRINCIPAL AND MAKE DISTRIBUTIONS, OUR POLICIES AND PLANS REGARDING INVESTMENTS AND FINANCINGS, OUR TAX STATUS AS A REAL ESTATE INVESTMENT TRUST, OUR ABILITY TO RAISE CAPITAL AND OTHER MATTERS. ALSO, WHENEVER WE USE THE 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 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 WHICH WE CAN ACHIEVE AT OUR PROPERTIES MAY DECLINE; OUR TENANTS MAY EXPERIENCE LOSSES AND BECOME UNABLE TO PAY OUR RENTS; AND WE MAY BE UNABLE TO IDENTIFY PROPERTIES WHICH WE WANT TO BUY OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES. THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH, SUCH AS CHANGES IN OUR TENANTS’ FINANCIAL CONDITIONS OR NEEDS FOR OFFICE 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 IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING UNDER THE HEADINGS “BUSINESS” AND “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” IDENTIFIES 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.
WE UNDERTAKE NO OBLIGATION TO RELEASE PUBLICLY THE RESULT OF ANY REVISION TO THESE FORWARD LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
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 DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “HRPT PROPERTIES TRUST” REFERS TO THE TRUSTEES UNDER THE DECLARATION OF TRUST 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.
HRPT PROPERTIES TRUST
2003 FORM 10-K ANNUAL REPORT
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* Incorporated by reference from our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 11, 2004, to be filed pursuant to Regulation 14A. |
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The Company. We are a real estate investment trust, or REIT, formed in 1986 under the laws of the State of Maryland. Our primary business is the ownership and operation of real estate, including office buildings and leased industrial land.
As of December 31, 2003, we owned 238 properties for a total investment of $3.9 billion at cost, and a depreciated book value of $3.5 billion. Our portfolio includes 11 parcels with 9.8 million square feet of developed industrial lands in Oahu, Hawaii which we acquired in December 2003, and 227 buildings with approximately 26 million square feet of space. In addition, we owned minority equity positions in two former subsidiary REITs which are now separately listed on the New York Stock Exchange: Senior Housing Properties Trust and Hospitality Properties Trust.
Our principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02458, and our telephone number is (617) 332-3990.
Investment Policies. Our investment, financing and disposition policies are established by our board of trustees and may be changed by our board of trustees at any time without shareholder approval. We may not achieve some or all of our objectives. Our investment goals are current income for distribution to shareholders, capital growth from appreciation in the value of properties, and preservation and protection of shareholders’ capital. Our income is derived primarily from rent.
In evaluating potential investments and asset sales, we consider factors such as: the historical and projected rents received and likely to be received from the property; the historic and expected operating expenses, including real estate taxes, incurred and expected to be incurred at the properties; the growth, tax and regulatory environments of the market in which the property is located; the quality, experience, and credit worthiness of the property’s tenants; occupancy and demand for similar properties in the same or nearby markets; the construction quality, physical condition and design of the property; the geographic area and type of property; and the pricing of comparable properties as evidenced by recent arm’s length market sales.
We attempt to acquire properties which will enhance the diversity of our portfolio with respect to tenants, types of services provided and locations. However, we have no policies which specifically limit the percentage of our assets which may be invested in any individual property, in any one type of property, in properties leased to any one tenant or in properties leased to an affiliated group of tenants.
We prefer wholly-owned investments in fee interests. However, circumstances may arise in which we may invest in leaseholds, joint ventures, mortgages and other real estate interests. We may invest in real estate joint ventures if we conclude that by doing so we may benefit from the participation of co-venturers or that our opportunity to participate in the investment is contingent on the use of a joint venture structure. We may invest in participating, convertible or other types of mortgages if we conclude that by doing so, we may benefit from the cash flow or appreciation in the value of a property which is not available for purchase.
In the past, we have considered the possibility of entering mergers or strategic combinations with other companies. No such mergers or strategic combinations are under active consideration at this time. However, we may undertake such considerations in the future. A principal goal of any such transaction will be to expand our investments and diversify our revenue sources.
Disposition Policies. From time to time we consider the sale of one or more properties or investments. Disposition decisions are made based on a number of factors including, but not limited to, the following:
• the proposed sale price;
• the strategic fit of the property or investment with the rest of our portfolio; and
• the existence of alternative sources, uses or needs for capital.
Financing Policies. We currently have a revolving credit facility for $560 million, which includes an accordian feature that allows it to be expanded, in certain circumstances, up to $625 million. The revolving credit facility (which is guaranteed by most of our subsidiaries) is used for acquisition funding on an interim basis until
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equity or long term debt is raised and for working capital and general business purposes. At December 31, 2003, $412 million was outstanding under our revolving credit facility.
Our credit facility, our term loan agreement and our senior note indenture and its supplements contain financial covenants which, among other things, restrict our ability to incur indebtedness and require us to maintain financial ratios and minimum net worth. Our board of trustees may determine to obtain a replacement for our current credit facility or to seek additional capital through equity offerings, debt financings, or retention of cash flows in excess of distributions to shareholders, or a combination of these methods. Only 24 of our properties are encumbered by mortgages. To the extent that the board of trustees decides to obtain additional debt financing, we may do so on an unsecured basis or a secured basis, subject to limitations present in existing financing or other arrangements, and may seek to obtain other lines of credit or to issue securities senior to our common and/or preferred shares, including preferred shares of beneficial interest and debt securities, either of which may be convertible into common shares or be accompanied by warrants to purchase common shares, or to engage in transactions which may involve a sale or other conveyance of properties to subsidiaries or to unaffiliated entities. We may finance acquisitions through an exchange of properties or through the issuance of additional common shares or other securities. The proceeds from any of our financings may be used to pay distributions, to provide working capital, to refinance existing indebtedness or to finance acquisitions and expansions of existing or new properties.
The borrowing guidelines established by our board of trustees and covenants in various debt agreements prohibit us from maintaining a debt to total asset value, as defined, of greater than 55%. Our declaration of trust also limits our borrowings. We may from time to time re-evaluate and modify our financing policies in light of then current economic conditions, relative availability and costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors and may increase or decrease our ratio of debt to total capitalization accordingly.
Investment Manager. Our day-to-day operations are conducted by Reit Management & Research LLC, or RMR, our investment manager. RMR originates and presents investment opportunities to our board of trustees. RMR also provides property management services to us and an RMR affiliate provided garage management services at one of our properties during 2003. RMR is a Delaware limited liability company beneficially owned by Barry M. Portnoy and Gerard M. Martin, who are our managing trustees. RMR has a principal place of business at 400 Centre Street, Newton, Massachusetts 02458; and its telephone number is (617) 928-1300. RMR also acts as the investment manager to Hospitality Properties and Senior Housing and has other business interests. The directors of RMR are Gerard M. Martin, Barry M. Portnoy and David J. Hegarty. The executive officers of RMR are David J. Hegarty, President and Secretary; John G. Murray, Executive Vice President; Evrett W. Benton, Vice President; Ethan S. Bornstein, Vice President; Jennifer B. Clark, Vice President and Assistant Secretary; John R. Hoadley, Vice President; Mark L. Kleifges, Vice President; David M. Lepore, Vice President; Bruce J. Mackey Jr., Vice President; John A. Mannix, Vice President; Thomas M. O’Brien, Vice President; John C. Popeo, Vice President and Treasurer, Adam D. Portnoy, Vice President and William J. Sheehan, Director of Internal Audit. Messrs. Mannix, Popeo, Adam Portnoy and Lepore and Ms. Clark are also our officers.
Employees. We have no employees. Services which would otherwise be provided by employees are provided by RMR and by our managing trustees and officers. As of March 8, 2004, RMR had approximately 300 full-time employees.
Competition. Investing in and operating office buildings and other real estate is a very competitive business. We compete against other REITs, numerous financial institutions, numerous individuals and public and private companies who are actively engaged in this business. We do not believe we have a dominant position in any of the geographic markets in which we operate but some of our competitors are dominant in selected markets. Many of our competitors have greater financial and management resources than we have. We believe the geographic diversity of our investments, the experience and abilities of our management, the quality of our assets and the financial strength of many of our tenants affords us some competitive advantages which have and will allow us to operate our business successfully despite the competitive nature of our business.
Environmental Matters. Under various laws, owners of real estate may be required to investigate and clean up or remove hazardous substances present at a property, and may be held liable for property damage or personal injuries that result from such hazardous substances. These laws also expose us to the possibility that we may become liable to reimburse the government for damages and costs it incurs in connection with such hazardous substances. We reviewed environmental surveys of the properties we own prior to their purchase. Based upon those surveys we do not believe that there are environmental conditions at any of our properties that have a material adverse effect on us. However, no assurances can be given that such conditions are not present in our properties or
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that costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition.
Internet Website. Our internet address is www.hrpreit.com. Copies of our governance guidelines, code of ethics and the charters of our audit, compensation and nominating and governance committees may be obtained free of charge by writing to our Secretary, HRPT Properties Trust, 400 Centre Street, Newton, MA 02458 or at our website, www.hrpreit.com under the heading “Governance.” We make available, free of charge, through the “SEC Filings” tab under the “Financials” section of our internet website, our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such forms are electronically filed with the SEC. Any shareholder or other interested party who desires to communicate with our non-management trustees, individually or as a group, may do so by filling out a report at the “Contact Us” section of our website. Our board also provides a process for security holders to send communications to the entire board. Information about the process for sending communications to our board can be found at the “Contact Us” section of our website. Our website address is included several times in this Annual Report on Form 10-K as a textual reference only and the information in the website is not incorporated by reference into this Annual Report on Form 10-K.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of federal income tax considerations is based on existing law, and is limited to investors who own our shares as investment assets rather than as inventory or as property used in a trade or business. The summary does not discuss the particular tax consequences that might be relevant to you if you are subject to special rules under federal income tax law, for example if you are:
• a bank, life insurance company, regulated investment company, or other financial institution;
• a broker or dealer in securities or foreign currency;
• a person who has a functional currency other than the U.S. dollar;
• a person who acquires our shares in connection with employment or other performance of services;
• a person subject to alternative minimum tax;
• a person who owns our shares as part of a straddle, hedging transaction, constructive sale transaction, constructive ownership transaction, or conversion transaction; or
• except as specifically described in the following summary, a tax-exempt entity or a foreign person.
The Internal Revenue Code sections that govern federal income tax qualification and treatment of a REIT and its shareholders are complex. This presentation is a summary of applicable Internal Revenue Code provisions, related rules and regulations and administrative and judicial interpretations, all of which are subject to change, possibly with retroactive effect. Future legislative, judicial, or administrative actions or decisions could affect the accuracy of statements made in this summary. We have not received a ruling from the IRS with respect to any matter described in this summary, and we cannot assure you that the IRS or a court will agree with the statements made in this summary. In addition, this summary is not exhaustive of all possible tax consequences, and does not discuss any estate, gift, state, local, or foreign tax consequences. For all these reasons, we urge you and any prospective acquiror of our shares to consult with a tax advisor about the federal income tax and other tax consequences of the acquisition, ownership and disposition of our shares. Our intentions and beliefs described in this summary are based upon our understanding of applicable laws and regulations which are in effect as of the date of this Form 10-K. If new laws or regulations are enacted which impact us directly or indirectly, we may change our intentions or beliefs.
Your federal income tax consequences may differ depending on whether or not you are a “U.S. shareholder.” For purposes of this summary, a “U.S. shareholder” for federal income tax purposes is:
• a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under the federal income tax laws;
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• an entity treated as a corporation or partnership for federal income tax purposes, that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia, unless otherwise provided by Treasury regulations;
• an estate the income of which is subject to federal income taxation regardless of its source; or
• a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or electing trusts in existence on August 20, 1996, to the extent provided in Treasury regulations;
whose status as a U.S. shareholder is not overridden by an applicable tax treaty. Conversely, a “non-U.S. shareholder” is a beneficial owner of our shares who is not a U.S. shareholder.
Taxation as a REIT
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable year ending December 31, 1987. Our REIT election, assuming continuing compliance with the qualification tests summarized below, continues in effect for subsequent taxable years. Although no assurance can be given, we believe that we are organized, have operated, and will continue to operate in a manner that qualifies us to be taxed under the Internal Revenue Code as a REIT.
As a REIT, we generally are not subject to federal income tax on our net income distributed as dividends to our shareholders. Distributions to our shareholders generally are included in their income as dividends to the extent of our current or accumulated earnings and profits. Our dividends are not generally entitled to the favorable 15% rate on qualified dividend income, but a portion of our dividends may be treated as capital gain dividends, all as explained below. No portion of any dividends are eligible for the dividends received deduction for corporate shareholders. Distributions in excess of current or accumulated earnings and profits generally are treated for federal income tax purposes as return of capital to the extent of a recipient shareholder’s basis in our shares, and will reduce this basis. Our current or accumulated earnings and profits are generally allocated first to distributions made on our preferred shares, and thereafter to distributions made on our common shares.
Our counsel, Sullivan & Worcester LLP, has opined that we have been organized and have qualified as a REIT under the Internal Revenue Code for our 1987 through 2003 taxable years, and that our current investments and plan of operation enable us to continue to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code. Our qualification and taxation as a REIT will depend upon our compliance with various qualification tests imposed under the Internal Revenue Code and summarized below. While we believe that we will satisfy these tests, our counsel has not reviewed and will not review compliance with these tests on a continuing basis. If we fail to qualify as a REIT, we will be subject to federal income taxation as if we were a C corporation and our shareholders will be taxed like shareholders of C corporations. In this event, we could be subject to significant tax liabilities, and the amount of cash available for distribution to our shareholders may be reduced or eliminated.
If we qualify as a REIT and meet the tests described below, we generally will not pay federal income tax on amounts we distribute to our shareholders. However, even if we qualify as a REIT, we may be subject to federal tax in the following circumstances:
• We will be taxed at regular corporate rates on any undistributed “real estate investment trust taxable income,” including our undistributed net capital gains.
• If our alternative minimum taxable income exceeds our taxable income, we may be subject to the corporate alternative minimum tax on our items of tax preference.
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• If we have net income from the disposition of “foreclosure property” that is held primarily for sale to customers in the ordinary course of business or other nonqualifying income from foreclosure property, we will be subject to tax on this income at the highest regular corporate rate, currently 35%.
• If we have net income from prohibited transactions, including dispositions of inventory or property held primarily for sale to customers in the ordinary course of business other than foreclosure property, we will be subject to tax on this income at a 100% rate.
• If we fail to satisfy the 75% gross income test or the 95% gross income test discussed below, but nonetheless maintain our qualification as a REIT, we will be subject to tax at a 100% rate on the greater of the amount by which we fail the 75% or the 95% test, with adjustments, multiplied by a fraction intended to reflect our profitability.
• If we fail to distribute for any calendar year at least the sum of 85% of our REIT ordinary income for that year, 95% of our REIT capital gain net income for that year, and any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of the required distribution over the amounts actually distributed.
• If we acquire an asset from a corporation in a transaction in which our basis in the asset is determined by reference to the basis of the asset in the hands of a present or former C corporation, and if we subsequently recognize gain on the disposition of this asset during the ten year period beginning on the date on which the asset ceased to be owned by the C corporation, then we will pay tax at the highest regular corporate tax rate, which is currently 35%, on the lesser of the excess of the fair market value of the asset over the C corporation’s basis in the asset on the date the asset ceased to be owned by the C corporation, or the gain we recognize in the disposition.
• If we acquire a corporation, to preserve our status as a REIT we must generally distribute all of the C corporation earnings and profits inherited in that acquisition, if any, not later than the end of the taxable year of the acquisition. However, if we fail to do so, relief provisions would allow us to maintain our status as a REIT provided we distribute any subsequently discovered C corporation earnings and profits and pay an interest charge in respect of the period of delayed distribution.
• As summarized below, REITs are permitted within limits to own stock and securities of a “taxable REIT subsidiary.” A taxable REIT subsidiary is separately taxed on its net income as a C corporation, and is subject to limitations on the deductibility of interest expense paid to its REIT parent. In addition, its REIT parent is subject to a 100% tax on the difference between amounts charged and redetermined rents and deductions, including excess interest.
If we invest in properties in foreign countries, our profits from those investments will generally be subject to tax in those countries. If we continue to operate as we currently do, then we will distribute our taxable income to our shareholders and we will generally not pay federal income tax. As a result, the cost of foreign taxes imposed on our foreign investments cannot be recovered by claiming foreign tax credits against our federal income tax liability. Also, we cannot pass through to our shareholders any foreign tax credits.
If we fail to qualify or elect not to qualify as a REIT, we will be subject to federal income tax in the same manner as a C corporation. Distributions to our shareholders if we do not qualify as a REIT will not be deductible by us nor will distributions be required under the Internal Revenue Code. In that event, distributions to our shareholders will generally be taxable as ordinary dividends and, subject to limitations in the Internal Revenue Code, will be eligible for the dividends received deduction for corporate shareholders. Also, we will generally be disqualified from qualification as a REIT for the four taxable years following disqualification. If we do not qualify as a REIT for even one year, this could result in reduction or elimination of distributions to our shareholders, or in our incurring substantial indebtedness or liquidating substantial investments in order to pay the resulting corporate-level taxes.
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REIT Qualification Requirements
General Requirements. Section 856(a) of the Internal Revenue Code defines a REIT as a corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;
(3) that would be taxable, but for Sections 856 through 859 of the Internal Revenue Code, as a C corporation;
(4) that is not a financial institution or an insurance company subject to special provisions of the Internal Revenue Code;
(5) the beneficial ownership of which is held by 100 or more persons;
(6) that is not “closely held” as defined under the personal holding company stock ownership test, as described below; and
(7) that meets other tests regarding income, assets and distributions, all as described below.
Section 856(b) of the Internal Revenue Code provides that conditions (1) through (4) must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a pro rata part of a taxable year of less than 12 months. Section 856(h)(2) of the Internal Revenue Code provides that neither condition (5) nor (6) need be met for our first taxable year as a REIT. We believe that we have met conditions (1) through (7) during each of the requisite periods ending on or before December 31, 2003, and that we can continue to meet these conditions in future taxable years. There can, however, be no assurance in this regard.
By reason of condition (6), we will fail to qualify as a REIT for a taxable year if at any time during the last half of a year more than 50% in value of our outstanding shares is owned directly or indirectly by five or fewer individuals. To help comply with condition (6), our declaration of trust restricts transfers of our shares. In addition, if we comply with applicable Treasury regulations to ascertain the ownership of our shares and do not know, or by exercising reasonable diligence would not have known, that we failed condition (6), then we will be treated as having met condition (6). However, our failure to comply with these regulations for ascertaining ownership may result in a penalty of $25,000, or $50,000 for intentional violations. Accordingly, we intend to comply with these regulations, and to request annually from record holders of significant percentages of our shares information regarding the ownership of our shares. Under our declaration of trust, our shareholders are required to respond to these requests for information.
For purposes of condition (6), REIT shares held by a pension trust are treated as held directly by the pension trust’s beneficiaries in proportion to their actuarial interests in the pension trust. Consequently, five or fewer pension trusts could own more than 50% of the interests in an entity without jeopardizing that entity’s federal income tax qualification as a REIT. However, as discussed below, if a REIT is a “pension-held REIT,” each pension trust owning more than 10% of the REIT’s shares by value generally may be taxed on a portion of the dividends it receives from the REIT.
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Our Wholly-Owned Subsidiaries and Our Investments through Partnerships. Except in respect of taxable REIT subsidiaries as discussed below, Section 856(i) of the Internal Revenue Code provides that any corporation, 100% of whose stock is held by a REIT, is a qualified REIT subsidiary and shall not be treated as a separate corporation. The assets, liabilities and items of income, deduction and credit of a qualified REIT subsidiary are treated as the REIT’s. We believe that each of our direct and indirect wholly-owned subsidiaries, other than the taxable REIT subsidiaries discussed below, will either be a qualified REIT subsidiary within the meaning of Section 856(i) of the Internal Revenue Code, or a noncorporate entity that for federal income tax purposes is not treated as separate from its owner under regulations issued under Section 7701 of the Internal Revenue Code. Thus, except for the taxable REIT subsidiaries discussed below, in applying all the federal income tax REIT qualification requirements described in this summary, all assets, liabilities and items of income, deduction and credit of our direct and indirect wholly-owned subsidiaries are treated as ours.
We have invested and may invest in real estate through one or more limited or general partnerships or limited liability companies that are treated as partnerships for federal income tax purposes. In the case of a REIT that is a partner in a partnership, regulations under the Internal Revenue Code provide that, for purposes of the REIT qualification requirements regarding income and assets discussed below, the REIT is deemed to own its proportionate share of the assets of the partnership corresponding to the REIT’s proportionate capital interest in the partnership and is deemed to be entitled to the income of the partnership attributable to this proportionate share. In addition, for these purposes, the character of the assets and gross income of the partnership generally retain the same character in the hands of the REIT. Accordingly, our proportionate share of the assets, liabilities, and items of income of each partnership in which we are a partner is treated as ours for purposes of the income tests and asset tests discussed below. In contrast, for purposes of the distribution requirement discussed below, we must take into account as a partner our share of the partnership’s income as determined under the general federal income tax rules governing partners and partnerships under Sections 701 through 777 of the Internal Revenue Code.
Taxable REIT Subsidiaries. We are permitted to own any or all of the securities of a “taxable REIT subsidiary” as defined in Section 856(l) of the Internal Revenue Code, provided that no more than 20% of our assets, at the close of each quarter, is comprised of our investments in the stock or securities of our taxable REIT subsidiaries. Among other requirements, a taxable REIT subsidiary must:
(1) be a non-REIT corporation for federal income tax purposes in which we directly or indirectly own shares;
(2) join with us in making a taxable REIT subsidiary election;
(3) not directly or indirectly operate or manage a lodging facility or a health care facility; and
(4) not directly or indirectly provide to any person, under a franchise, license, or otherwise, rights to any brand name under which any lodging facility or health care facility is operated, except that in limited circumstances a subfranchise, sublicense or similar right can be granted to an independent contractor to operate or manage a lodging facility.
In addition, a corporation other than a REIT in which a taxable REIT subsidiary directly or indirectly owns more than 35% of the voting power or value will automatically be treated as a taxable REIT subsidiary. Subject to the discussion below, we believe that we and each of our taxable REIT subsidiaries have complied with, and will continue to comply with, the requirements for taxable REIT subsidiary status during all times each subsidiary’s taxable REIT subsidiary election remains in effect, and we believe that the same will be true for any taxable REIT subsidiary that we later form or acquire.
Our ownership of stock and securities in taxable REIT subsidiaries is exempt from the 10% and 5% REIT asset tests discussed below. Also, as discussed below, taxable REIT subsidiaries can perform services for our tenants without disqualifying the rents we receive from those tenants under the 75% or 95% gross income tests discussed below. Moreover, because taxable REIT subsidiaries are taxed as C corporations that are separate from us, their assets, liabilities and items of income, deduction and credit are not imputed to us for purposes of the REIT qualification
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requirements described in this summary. Therefore, taxable REIT subsidiaries can generally undertake third-party management and development activities and activities not related to real estate.
Restrictions are imposed on taxable REIT subsidiaries to ensure that they will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary may not deduct interest paid in any year to an affiliated REIT to the extent that the interest payments exceed, generally, 50% of the taxable REIT subsidiary’s adjusted taxable income for that year. However, the taxable REIT subsidiary may carry forward the disallowed interest expense to a succeeding year, and deduct the interest in that later year subject to that year’s 50% adjusted taxable income limitation. In addition, if a taxable REIT subsidiary pays interest, rent, or other amounts to its affiliated REIT in an amount that exceeds what an unrelated third party would have paid in an arm’s length transaction, then the REIT generally will be subject to an excise tax equal to 100% of the excessive portion of the payment. Finally, if in comparison to an arm’s length transaction, a tenant has overpaid rent to the REIT in exchange for underpaying the taxable REIT subsidiary for services rendered, then the REIT may be subject to an excise tax equal to 100% of the overpayment. There can be no assurance that arrangements involving our taxable REIT subsidiaries will not result in the imposition of one or more of these deduction limitations or excise taxes, but we do not believe that we are or will be subject to these impositions.
Income Tests. There are two gross income requirements for qualification as a REIT under the Internal Revenue Code:
• At least 75% of our gross income, excluding gross income from sales or other dispositions of property held primarily for sale, must be derived from investments relating to real property, including “rents from real property” as defined under Section 856 of the Internal Revenue Code, mortgages on real property, or shares in other REITs. When we receive new capital in exchange for our shares or in a public offering of five-year or longer debt instruments, income attributable to the temporary investment of this new capital in stock or a debt instrument, if received or accrued within one year of our receipt of the new capital, is generally also qualifying income under the 75% test.
• At least 95% of our gross income, excluding gross income from sales or other dispositions of property held primarily for sale, must be derived from a combination of items of real property income that satisfy the 75% test described above, dividends, interest, payments under interest rate swap or cap agreements, options, futures contracts, forward rate agreements, or similar financial instruments, and gains from the sale or disposition of stock, securities, or real property.
For purposes of these two requirements, income derived from a “shared appreciation provision” in a mortgage loan is generally treated as gain recognized on the sale of the property to which it relates. Although we will use our best efforts to ensure that the income generated by our investments will be of a type which satisfies both the 75% and 95% gross income tests, there can be no assurance in this regard.
In order to qualify as “rents from real property” under Section 856 of the Internal Revenue Code, several requirements must be met:
• The amount of rent received generally must not be based on the income or profits of any person, but may be based on receipts or sales.
• Rents do not qualify if the REIT owns 10% or more by vote or value of the tenant, whether directly or after application of attribution rules. While we intend not to lease property to any party if rents from that property would not qualify as rents from real property, application of the 10% ownership rule is dependent upon complex attribution rules and circumstances that may be beyond our control. For example, an unaffiliated third party’s ownership directly or by
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attribution of 10% or more by value of our shares, as well as 10% or more by vote or value of the stock of one of our tenants, would result in that tenant’s rents not qualifying as rents from real property. Our declaration of trust disallows transfers or purported acquisitions, directly or by attribution, of our shares to the extent necessary to maintain our REIT status under the Internal Revenue Code. Nevertheless, there can be no assurance that these provisions in our declaration of trust will be effective to prevent our REIT status from being jeopardized under the 10% affiliated tenant rule. Furthermore, there can be no assurance that we will be able to monitor and enforce these restrictions, nor will our shareholders necessarily be aware of ownership of shares attributed to them under the Internal Revenue Code’s attribution rules.
• There is a limited exception to the above prohibition on earning “rents from real property” from a 10% affiliated tenant, if the tenant is a taxable REIT subsidiary. If at least 90% of the leased space of a property is leased to tenants other than taxable REIT subsidiaries and 10% affiliated tenants, and if the taxable REIT subsidiary’s rent for space at that property is substantially comparable to the rents paid by nonaffiliated tenants for comparable space at the property, then otherwise qualifying rents paid by the taxable REIT subsidiary to the REIT will not be disqualified on account of the rule prohibiting 10% affiliated tenants.
• In order for rents to qualify, we generally must not manage the property or furnish or render services to the tenants of the property, except through an independent contractor from whom we derive no income or, for our 2001 taxable year and thereafter, through one of our taxable REIT subsidiaries. There is an exception to this rule permitting a REIT to perform customary tenant services of the sort which a tax-exempt organization could perform without being considered in receipt of “unrelated business taxable income” as defined in Section 512(b)(3) of the Internal Revenue Code. In addition, a de minimis amount of noncustomary services will not disqualify income as “rents from real property” so long as the value of the impermissible services does not exceed 1% of the gross income from the property.
• If rent attributable to personal property leased in connection with a lease of real property is 15% or less of the total rent received under the lease, then the rent attributable to personal property will qualify as “rents from real property”; if this 15% threshold is exceeded, the rent attributable to personal property will not so qualify. For our taxable years through December 31, 2000, the portion of rental income treated as attributable to personal property was determined according to the ratio of the tax basis of the personal property to the total tax basis of the real and personal property which is rented. For our 2001 taxable year and thereafter, the ratio is determined by reference to fair market values rather than tax bases.
We believe that all or substantially all our rents have qualified and will qualify as rents from real property for purposes of Section 856 of the Internal Revenue Code.
In order to qualify as mortgage interest on real property for purposes of the 75% test, interest must derive from a mortgage loan secured by real property with a fair market value, at the time the loan is made, at least equal to the amount of the loan. If the amount of the loan exceeds the fair market value of the real property, the interest will be treated as interest on a mortgage loan in a ratio equal to the ratio of the fair market value of the real property to the total amount of the mortgage loan.
Any gain we realize on the sale of property held as inventory or other property held primarily for sale to customers in the ordinary course of business will be treated as income from a prohibited transaction that is subject to a penalty tax at a 100% rate. This prohibited transaction income also may adversely affect our ability to satisfy the 75% and 95% gross income tests for federal income tax qualification as a REIT. We cannot provide assurances as to whether or not the IRS might successfully assert that one or more of our dispositions is subject to the 100% penalty tax. However, we believe that dispositions of assets that we have made or that we might make in the future will not be subject to the 100% penalty tax, because we intend to:
• own our assets for investment with a view to long-term income production and capital appreciation;
• engage in the business of developing, owning and operating our existing properties and acquiring, developing, owning and operating new properties; and
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• make occasional dispositions of our assets consistent with our long-term investment objectives.
If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may nevertheless qualify as a REIT for that year if:
• our failure to meet the test was due to reasonable cause and not due to willful neglect;
• we report the nature and amount of each item of our income included in the 75% or 95% gross income tests for that taxable year on a schedule attached to our tax return; and
• any incorrect information on the schedule was not due to fraud with intent to evade tax.
We have in the past attached and will continue to attach a schedule of gross income to our federal income tax returns, but it is impossible to state whether in all circumstances we would be entitled to the benefit of this relief provision for the 75% and 95% gross income tests. Even if this relief provision did apply, a special tax equal to 100% is imposed upon the greater of the amount by which we failed the 75% test or the 95% test, with adjustments, multiplied by a fraction intended to reflect our profitability.
Asset Tests. At the close of each quarter of each taxable year, we must also satisfy these asset percentage tests in order to qualify as a REIT for federal income tax purposes:
• At least 75% of our total assets must consist of real estate assets, cash and cash items, shares in other REITs, government securities, and stock or debt instruments purchased with proceeds of a stock offering or an offering of our debt with a term of at least five years, but only for the one-year period commencing with our receipt of the offering proceeds.
• Not more than 25% of our total assets may be represented by securities other than those securities that count favorably toward the preceding 75% asset test.
• Of the investments included in the preceding 25% asset class, the value of any one non-REIT issuer’s securities that we own may not exceed 5% of the value of our total assets, and we may not own more than 10% of any one non-REIT issuer’s outstanding voting securities. For our 2001 taxable year and thereafter, we may not own more than 10% of the vote or value of any one non-REIT issuer’s outstanding securities, unless that issuer is our taxable REIT subsidiary or the securities are straight debt securities.
• For our 2001 taxable year and thereafter, our stock and securities in a taxable REIT subsidiary are exempted from the preceding 10% and 5% asset tests. However, no more than 20% of our total assets may be represented by stock or securities of taxable REIT subsidiaries.
When a failure to satisfy the above asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. We intend to maintain records of the value of our assets to document our compliance with the above asset tests, and to take actions as may be required to cure any failure to satisfy the tests within 30 days after the close of any quarter.
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Our Investment in Senior Housing. We continue to own a minority of Senior Housing shares, and we believe that Senior Housing has qualified and will continue to qualify as a REIT under the Internal Revenue Code. For any of our taxable years in which Senior Housing qualifies as a REIT, our investment in Senior Housing will count favorably toward the REIT asset tests and our gains and dividends from Senior Housing shares will count as qualifying income under both REIT gross income tests. However, because we do not and cannot control Senior Housing’s compliance with the federal income tax requirements for REIT qualification, we joined with Senior Housing in filing a protective taxable REIT subsidiary election under Section 856(l) of the Internal Revenue Code, effective January 1, 2001, and we have reaffirmed this protective election every January 1 since then. Pursuant to this protective taxable REIT subsidiary election, we believe that if Senior Housing were not a REIT, it would instead be considered one of our taxable REIT subsidiaries. As one of our taxable REIT subsidiaries, we believe that Senior Housing’s failure to qualify as a REIT would not jeopardize our own qualification as a REIT.
Annual Distribution Requirements. In order to qualify for taxation as a REIT under the Internal Revenue Code, we are required to make annual distributions other than capital gain dividends to our shareholders in an amount at least equal to the excess of:
(A) the sum of 90% of our “real estate investment trust taxable income,” as defined in Section 857 of the Internal Revenue Code, computed by excluding any net capital gain and before taking into account any dividends paid deduction for which we are eligible, and 90% of our net income after tax, if any, from property received in foreclosure, over
(B) the sum of our qualifying noncash income, e.g., imputed rental income or income from transactions inadvertently failing to qualify as like-kind exchanges.
The distributions must be paid in the taxable year to which they relate, or in the following taxable year if declared before we timely file our tax return for the earlier taxable year and if paid on or before the first regular distribution payment after that declaration. If a dividend is declared in October, November, or December to shareholders of record during one of those months, and is paid during the following January, then for federal income tax purposes the dividend will be treated as having been both paid and received on December 31 of the prior taxable year. A distribution which is not pro rata within a class of our beneficial interests entitled to a distribution, or which is not consistent with the rights to distributions among our classes of beneficial interests, is a preferential distribution that is not taken into consideration for purposes of the distribution requirements, and accordingly the payment of a preferential distribution could affect our ability to meet the distribution requirements. Taking into account our distribution policies, including the dividend reinvestment plan we have adopted, we expect that we will not make any preferential distributions. The distribution requirements may be waived by the IRS if a REIT establishes that it failed to meet them by reason of distributions previously made to meet the requirements of the 4% excise tax discussed below. To the extent that we do not distribute all of our net capital gain and all of our real estate investment trust taxable income, as adjusted, we will be subject to tax on undistributed amounts.
In addition, we will be subject to a 4% excise tax to the extent we fail within a calendar year to make required distributions to our shareholders of 85% of our ordinary income and 95% of our capital gain net income plus the excess, if any, of the “grossed up required distribution” for the preceding calendar year over the amount treated as distributed for that preceding calendar year. For this purpose, the term “grossed up required distribution” for any calendar year is the sum of our taxable income for the calendar year without regard to the deduction for dividends paid and all amounts from earlier years that are not treated as having been distributed under the provision. We will be treated as having sufficient earnings and profits to treat as a dividend any distribution by us up to the amount required to be distributed in order to avoid imposition of the 4% excise tax.
If we do not have enough cash or other liquid assets to meet the 90% distribution requirements, we may find it necessary and desirable to arrange for new debt or equity financing to provide funds for required distributions in order to maintain our REIT status. We can provide no assurance that financing would be available for these purposes on favorable terms.
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We may be able to rectify a failure to pay sufficient dividends for any year by paying “deficiency dividends” to shareholders in a later year. These deficiency dividends may be included in our deduction for dividends paid for the earlier year, but an interest charge would be imposed upon us for the delay in distribution. Although we may be able to avoid being taxed on amounts distributed as deficiency dividends, we will remain liable for the 4% excise tax discussed above.
In addition to the other distribution requirements above, to preserve our status as a REIT we are required to timely distribute C corporation earnings and profits that we inherit from acquired corporations.
Depreciation and Federal Income Tax Treatment of Leases
Our initial tax bases in our assets will generally be our acquisition cost. We will generally depreciate our real property on a straight-line basis over 40 years and our personal property over 12 years. These depreciation schedules may vary for properties that we acquire through tax-free or carryover basis acquisitions.
We are entitled to depreciation deductions from our facilities only if we are treated for federal income tax purposes as the owner of the facilities. This means that the leases of the facilities must be classified for federal income tax purposes as true leases, rather than as sales or financing arrangements, and we believe this to be the case. In the case of sale-leaseback arrangements, the IRS could assert that we realized prepaid rental income in the year of purchase to the extent that the value of a leased property, at the time of purchase, exceeded the purchase price for that property. While we believe that the value of leased property at the time of purchase did not exceed purchase prices, because of the lack of clear precedent we cannot provide assurances as to whether the IRS might successfully assert the existence of prepaid rental income in any of our sale-leaseback transactions.
Taxation of U.S. Shareholders
The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the maximum individual federal income tax rate for long-term capital gains generally to 15% (for gains properly taken into account during the period beginning May 6, 2003, and ending for taxable years that begin after December 31, 2008) and for most corporate dividends generally to 15% (for taxable years that begin in the years 2003 through 2008). However, because we are not generally subject to federal income tax on the portion of our REIT taxable income or capital gains distributed to our shareholders, dividends on our shares generally are not eligible for the new 15% tax rate on dividends. As a result, our ordinary dividends continue to be taxed at the higher federal income tax rates applicable to ordinary income. However, the 15% federal income tax rate for long-term capital gains and dividends generally applies to:
(1) your long-term capital gains, if any, recognized on the disposition of our shares;
(2) our distributions designated as long-term capital gain dividends (except to the extent attributable to real estate depreciation recapture, in which case the distributions are subject to a 25% federal income tax rate);
(3) our dividends attributable to dividends, if any, received by us from non-REIT corporations such as taxable REIT subsidiaries; and
(4) our dividends to the extent attributable to income upon which we have paid federal corporate income tax.
As long as we qualify as a REIT for federal income tax purposes, a distribution to our U.S. shareholders that we do not designate as a capital gain dividend will be treated as an ordinary income dividend to the extent of our current or accumulated earnings and profits. Distributions made out of our current or accumulated earnings and profits that we properly designate as capital gain dividends will be taxed as long-term capital gains, as discussed below, to the extent they do not exceed our actual net capital gain for the taxable year. However, corporate shareholders may be required to treat up to 20% of any capital gain dividend as ordinary income under Section 291 of the Internal Revenue Code.
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In addition, we may elect to retain net capital gain income and treat it as constructively distributed. In that case:
(1) we will be taxed at regular corporate capital gains tax rates on retained amounts;
(2) each U.S. shareholder will be taxed on its designated proportionate share of our retained net capital gains as though that amount were distributed and designated a capital gain dividend;
(3) each U.S. shareholder will receive a credit for its designated proportionate share of the tax that we pay;
(4) each U.S. shareholder will increase its adjusted basis in our shares by the excess of the amount of its proportionate share of these retained net capital gains over its proportionate share of this tax that we pay; and
(5) both we and our corporate shareholders will make commensurate adjustments in our respective earnings and profits for federal income tax purposes.
If we elect to retain our net capital gains in this fashion, we will notify our U.S. shareholders of the relevant tax information within 60 days after the close of the affected taxable year.
As discussed above, for noncorporate U.S. shareholders, long-term capital gains are generally taxed at maximum rates of 15% or 25%, depending upon the type of property disposed of and the previously claimed depreciation with respect to this property. If for any taxable year we designate capital gain dividends for U.S. shareholders, then the portion of the capital gain dividends we designate will be allocated to the holders of a particular class of shares on a percentage basis equal to the ratio of the amount of the total dividends paid or made available for the year to the holders of that class of shares to the total dividends paid or made available for the year to holders of all classes of our shares. We will similarly designate the portion of any capital gain dividend that is to be taxed to noncorporate U.S. shareholders at the maximum rates of 15% or 25% so that the designations will be proportionate among all classes of our shares.
Distributions in excess of current or accumulated earnings and profits will not be taxable to a U.S. shareholder to the extent that they do not exceed the shareholder’s adjusted tax basis in the shareholder’s shares, but will reduce the shareholder’s basis in those shares. To the extent that these excess distributions exceed the adjusted basis of a U.S. shareholder’s shares, they will be included in income as capital gain, with long-term gain generally taxed to noncorporate U.S. shareholders at a maximum rate of 15%. No U.S. shareholder may include on his federal income tax return any of our net operating losses or any of our capital losses.
Dividends that we declare in October, November or December of a taxable year to U.S. shareholders of record on a date in those months will be deemed to have been received by shareholders on December 31 of that taxable year, provided we actually pay these dividends during the following January. Also, items that are treated differently for regular and alternative minimum tax purposes are to be allocated between a REIT and its shareholders under Treasury regulations which are to be prescribed. It is possible that these Treasury regulations will require tax preference items to be allocated to our shareholders with respect to any accelerated depreciation or other tax preference items that we claim.
A U.S. shareholder will recognize gain or loss equal to the difference between the amount realized and the shareholder’s adjusted basis in our shares which are sold or exchanged. This gain or loss will be capital gain or loss, and will be long-term capital gain or loss if the shareholder’s holding period in the shares exceeds one year. In addition, any loss upon a sale or exchange of our shares held for six months or less will generally be treated as a long-term capital loss to the extent of our long-term capital gain dividends during the holding period.
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Noncorporate U.S. shareholders who borrow funds to finance their acquisition of our shares could be limited in the amount of deductions allowed for the interest paid on the indebtedness incurred. Under Section 163(d) of the Internal Revenue Code, interest paid or accrued on indebtedness incurred or continued to purchase or carry property held for investment is generally deductible only to the extent of the investor’s net investment income. A U.S. shareholder’s net investment income will include ordinary income dividend distributions received from us and, if an appropriate election is made by the shareholder, capital gain dividend distributions received from us; however, distributions treated as a nontaxable return of the shareholder’s basis will not enter into the computation of net investment income.
Taxation of Tax-Exempt Shareholders
In Revenue Ruling 66-106, the IRS ruled that amounts distributed by a REIT to a tax-exempt employees’ pension trust did not constitute “unrelated business taxable income,” even though the REIT may have financed some its activities with acquisition indebtedness. Although revenue rulings are interpretive in nature and subject to revocation or modification by the IRS, based upon the analysis and conclusion of Revenue Ruling 66-106, our distributions made to shareholders that are tax-exempt pension plans, individual retirement accounts, or other qualifying tax-exempt entities should not constitute unrelated business taxable income, unless the shareholder has financed its acquisition of our shares with “acquisition indebtedness” within the meaning of the Internal Revenue Code.
Tax-exempt pension trusts, including so-called 401(k) plans but excluding individual retirement accounts or government pension plans, that own more than 10% by value of a “pension-held REIT” at any time during a taxable year may be required to treat a percentage of all dividends received from the pension-held REIT during the year as unrelated business taxable income. This percentage is equal to the ratio of:
(1) the pension-held REIT’s gross income derived from the conduct of unrelated trades or businesses, determined as if the pension-held REIT were a tax-exempt pension fund, less direct expenses related to that income, to
(2) the pension-held REIT’s gross income from all sources, less direct expenses related to that income,
except that this percentage shall be deemed to be zero unless it would otherwise equal or exceed 5%. A REIT is a pension-held REIT if:
• the REIT is “predominantly held” by tax-exempt pension trusts; and
• the REIT would fail to satisfy the “closely held” ownership requirement discussed above if the stock or beneficial interests in the REIT held by tax-exempt pension trusts were viewed as held by tax-exempt pension trusts rather than by their respective beneficiaries.
A REIT is predominantly held by tax-exempt pension trusts if at least one tax-exempt pension trust owns more than 25% by value of the REIT’s stock or beneficial interests, or if one or more tax-exempt pension trusts, each owning more than 10% by value of the REIT’s stock or beneficial interests, own in the aggregate more than 50% by value of the REIT’s stock or beneficial interests. Because of the share ownership concentration restrictions in our declaration of trust, we believe that we are not and will not be a pension-held REIT. However, because our shares are publicly traded, we cannot completely control whether or not we are or will become a pension-held REIT.
Social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans exempt from federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, are subject to different unrelated business taxable income rules, which generally will require them to characterize distributions from a REIT as unrelated business taxable income. In addition, these prospective investors should consult their own tax advisors concerning any “set aside” or reserve requirements applicable to them.
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Taxation of Non-U.S. Shareholders
The rules governing the United States federal income taxation of non-U.S. shareholders are complex, and the following discussion is intended only as a summary of these rules. If you are a non-U.S. shareholder, we urge you to consult with your own tax advisor to determine the impact of United States federal, state, local, and foreign tax laws, including any tax return filing and other reporting requirements, with respect to your investment in our shares.
In general, a non-U.S. shareholder will be subject to regular United States federal income tax in the same manner as a U.S. shareholder with respect to its investment in our shares if that investment is effectively connected with the non-U.S. shareholder’s conduct of a trade or business in the United States. In addition, a corporate non-U.S. shareholder that receives income that is or is deemed effectively connected with a trade or business in the United States may also be subject to the 30% branch profits tax under Section 884 of the Internal Revenue Code, which is payable in addition to regular United States federal corporate income tax. The balance of this discussion of the United States federal income taxation of non-U.S. shareholders addresses only those non-U.S. shareholders whose investment in our shares is not effectively connected with the conduct of a trade or business in the United States.
A distribution by us to a non-U.S. shareholder that is not attributable to gain from the sale or exchange of a United States real property interest and that is not designated as a capital gain dividend will be treated as an ordinary income dividend to the extent that it is made out of current or accumulated earnings and profits. A distribution of this type will generally be subject to United States federal income tax and withholding at the rate of 30%, or lower rate if the non-U.S. shareholder has in the manner prescribed by the IRS demonstrated its entitlement to benefits under a tax treaty. Because we cannot determine our current and accumulated earnings and profits until the end of the taxable year, withholding at the rate of 30% or applicable lower treaty rate will generally be imposed on the gross amount of any distribution to a non-U.S. shareholder that we make and do not designate a capital gain dividend. Notwithstanding this withholding on distributions in excess of our current and accumulated earnings and profits, these distributions are a nontaxable return of capital to the extent that they do not exceed the non-U.S. shareholder’s adjusted basis in our shares, and the nontaxable return of capital will reduce the adjusted basis in these shares. To the extent that distributions in excess of current and accumulated earnings and profits exceed the non-U.S. shareholder’s adjusted basis in our shares, the distributions will give rise to tax liability if the non-U.S. shareholder would otherwise be subject to tax on any gain from the sale or exchange of these shares, as discussed below. A non-U.S. shareholder may seek a refund from the IRS of amounts withheld on distributions to him in excess of our current and accumulated earnings and profits.
For any year in which we qualify as a REIT, distributions that are attributable to gain from the sale or exchange of a United States real property interest are taxed to a non-U.S. shareholder as if these distributions were gains effectively connected with a trade or business in the United States conducted by the non-U.S. shareholder. Accordingly, a non-U.S. shareholder will be taxed on these amounts at the normal capital gain rates applicable to a U.S. shareholder, subject to any applicable alternative minimum tax and to a special alternative minimum tax in the case of nonresident alien individuals; the non-U.S. shareholder will be required to file a United States federal income tax return reporting these amounts, even if applicable withholding is imposed as described below; and corporate non-U.S. shareholders may owe the 30% branch profits tax under Section 884 of the Internal Revenue Code in respect of these amounts. We will be required to withhold from distributions to non-U.S. shareholders, and remit to the IRS, 35% of the maximum amount of any distribution that could be designated as a capital gain dividend. In addition, for purposes of this withholding rule, if we designate prior distributions as capital gain dividends, then subsequent distributions up to the amount of the designated prior distributions will be treated as capital gain dividends. The amount of any tax withheld is creditable against the non-U.S. shareholder’s United States federal income tax liability, and any amount of tax withheld in excess of that tax liability may be refunded if an appropriate claim for refund is filed with the IRS. If for any taxable year we designate capital gain dividends for our shareholders, then the portion of the capital gain dividends we designate will be allocated to the holders of a particular class of shares on a percentage basis equal to the ratio of the amount of the total dividends paid or made available for the year to the holders of that class of shares to the total dividends paid or made available for the year to holders of all classes of our shares.
Tax treaties may reduce the withholding obligations on our distributions. Under some treaties, however, rates below 30% that are applicable to ordinary income dividends from United States corporations may not apply to ordinary income dividends from a REIT. You must generally use an applicable IRS Form W-8, or substantially similar form, to claim tax treaty benefits. If the amount of tax withheld by us with respect to a distribution to a non-U.S. shareholder
15
exceeds the shareholder’s United States federal income tax liability with respect to the distribution, the non-U.S. shareholder may file for a refund of the excess from the IRS. The 35% withholding tax rate on capital gain dividends corresponds to the maximum income tax rate applicable to corporate non-U.S. shareholders but is higher than the 15% and 25% maximum rates on capital gains generally applicable to noncorporate non-U.S. shareholders. Treasury regulations also provide special rules to determine whether, for purposes of determining the applicability of a tax treaty, our distributions to a non-U.S. shareholder that is an entity should be treated as paid to the entity or to those owning an interest in that entity, and whether the entity or its owners are entitled to benefits under the tax treaty.
If our shares are not “United States real property interests” within the meaning of Section 897 of the Internal Revenue Code, a non-U.S. shareholder’s gain on sale of these shares generally will not be subject to United States federal income taxation, except that a nonresident alien individual who was in the United States for 183 days or more during the taxable year will be subject to a 30% tax on this gain. Our shares will not constitute a United States real property interest if we are a “domestically controlled REIT.” A domestically controlled REIT is a REIT in which at all times during the preceding five-year period less than 50% in value of its shares is held directly or indirectly by foreign persons. We believe that we are and will be a domestically controlled REIT and thus a non-U.S. shareholder’s gain on sale of our shares will not be subject to United States federal income taxation. However, because our shares are publicly traded, we can provide no assurance that we will be a domestically controlled REIT. If we are not a domestically controlled REIT, a non-U.S. shareholder’s gain on sale of our shares will not be subject to United States federal income taxation as a sale of a United States real property interest, if that class of shares is “regularly traded,” as defined by applicable Treasury regulations, on an established securities market like the New York Stock Exchange, and the non-U.S. shareholder has at all times during the preceding five years owned 5% or less by value of that class of shares. If the gain on the sale of our shares were subject to United States federal income taxation, the non-U.S. shareholder will generally be subject to the same treatment as a U.S. shareholder with respect to its gain, will be required to file a United States federal income tax return reporting that gain, and a corporate non-U.S. shareholder might owe branch profits tax under Section 884 of the Internal Revenue Code. A purchaser of our shares from a non-U.S. shareholder will not be required to withhold on the purchase price if the purchased shares are regularly traded on an established securities market or if we are a domestically controlled REIT. Otherwise, a purchaser of our shares from a non-U.S. shareholder may be required to withhold 10% of the purchase price paid to the non-U.S. shareholder and to remit the withheld amount to the IRS.
Backup Withholding and Information Reporting
Information reporting and backup withholding may apply to distributions or proceeds paid to our shareholders under the circumstances discussed below. The backup withholding rate is currently 28%. Amounts withheld under backup withholding are generally not an additional tax and may be refunded or credited against the REIT shareholder’s federal income tax liability.
A U.S. shareholder will be subject to backup withholding when it receives distributions on our shares or proceeds upon the sale, exchange, redemption, retirement or other disposition of our shares, unless the U.S. shareholder properly executes, or has previously properly executed, under penalties of perjury an IRS Form W-9 or substantially similar form that:
• provides the U.S. shareholder’s correct taxpayer identification number; and
• certifies that the U.S. shareholder is exempt from backup withholding because it is a corporation or comes within another exempt category, it has not been notified by the IRS that it is subject to backup withholding, or it has been notified by the IRS that it is no longer subject to backup withholding.
If the U.S. shareholder has not and does not provide its correct taxpayer identification number on the IRS Form W-9 or substantially similar form, it may be subject to penalties imposed by the IRS and the REIT or other withholding agent may have to withhold a portion of any capital gain distributions paid to it. Unless the U.S. shareholder has established on a properly executed IRS Form W-9 or substantially similar form that it is a corporation or comes within another exempt category, distributions on our shares paid to it during the calendar year, and the amount of tax withheld, if any, will be reported to it and to the IRS.
16
Distributions on our shares to a non-U.S. shareholder during each calendar year and the amount of tax withheld, if any, will generally be reported to the non-U.S. shareholder and to the IRS. This information reporting requirement applies regardless of whether the non-U.S. shareholder is subject to withholding on distributions on our shares or whether the withholding was reduced or eliminated by an applicable tax treaty. Also, distributions paid to a non-U.S. shareholder on our shares may be subject to backup withholding, unless the non-U.S. shareholder properly certifies its non-U.S. shareholder status on an IRS Form W-8 or substantially similar form in the manner described above. Similarly, information reporting and backup withholding will not apply to proceeds a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares, if the non-U.S. shareholder properly certifies its non-U.S. shareholder status on an IRS Form W-8 or substantially similar form. Even without having executed an IRS Form W-8 or substantially similar form, however, in some cases information reporting and backup withholding will not apply to proceeds that a non-U.S. shareholder receives upon the sale, exchange, redemption, retirement or other disposition of our shares if the non-U.S. shareholder receives those proceeds through a broker’s foreign office.
Other Tax Consequences
Our and our shareholders’ federal income tax treatment may be modified by legislative, judicial, or administrative actions at any time, which actions may be retroactive in effect. The rules dealing with federal income taxation are constantly under review by the Congress, the IRS and the Treasury Department, and statutory changes, new regulations, revisions to existing regulations, and revised interpretations of established concepts are issued frequently. No prediction can be made as to the likelihood of passage of new tax legislation or other provisions or the direct or indirect effect on us and our shareholders. Revisions to federal income tax laws and interpretations of these laws could adversely affect the tax consequences of an investment in our shares. We and our shareholders may also be subject to taxation by state or local jurisdictions, including those in which we or our shareholders transact business or reside. State and local tax consequences may not be comparable to the federal income tax consequences discussed above.
17
ERISA PLANS, KEOGH PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
General Fiduciary Obligations
Fiduciaries of a pension, profit-sharing or other employee benefit plan subject to Title I of the Employee Retirement Income Security Act of 1974, ERISA, must consider whether:
• their investment in our shares satisfies the diversification requirements of ERISA;
• the investment is prudent in light of possible limitations on the marketability of our shares;
• they have authority to acquire our shares under the applicable governing instrument and Title I of ERISA; and
• the investment is otherwise consistent with their fiduciary responsibilities.
Trustees and other fiduciaries of an ERISA plan may incur personal liability for any loss suffered by the plan on account of a violation of their fiduciary responsibilities. In addition, these fiduciaries may be subject to a civil penalty of up to 20% of any amount recovered by the plan on account of a violation. Fiduciaries of any IRA, Roth IRA, Keogh Plan or other qualified retirement plan not subject to Title I of ERISA, referred to as “non-ERISA plans,” should consider that a plan may only make investments that are authorized by the appropriate governing instrument. Fiduciary shareholders should consult their own legal advisors if they have any concern as to whether the investment is consistent with the foregoing criteria.
Prohibited Transactions
Fiduciaries of ERISA plans and persons making the investment decision for an IRA or other non-ERISA plan should consider the application of the prohibited transaction provisions of ERISA and the Internal Revenue Code in making their investment decision. Sales and other transactions between an ERISA or non-ERISA plan, and persons related to it, are prohibited transactions. The particular facts concerning the sponsorship, operations and other investments of an ERISA plan or non-ERISA plan may cause a wide range of other persons to be treated as disqualified persons or parties in interest with respect to it. A prohibited transaction, in addition to imposing potential personal liability upon fiduciaries of ERISA plans, may also result in the imposition of an excise tax under the Internal Revenue Code or a penalty under ERISA upon the disqualified person or party in interest with respect to the plan. If the disqualified person who engages in the transaction is the individual on behalf of whom an IRA or Roth IRA is maintained or his beneficiary, the IRA or Roth IRA may lose its tax-exempt status and its assets may be deemed to have been distributed to the individual in a taxable distribution on account of the prohibited transaction, but no excise tax will be imposed. Fiduciary shareholders should consult their own legal advisors as to whether the ownership of our shares involves a prohibited transaction.
“Plan Assets” Considerations
The Department of Labor, which has administrative responsibility over ERISA plans as well as non-ERISA plans, has issued a regulation defining “plan assets.” The regulation generally provides that when an ERISA or non-ERISA plan acquires a security that is an equity interest in an entity and that security is neither a “publicly offered security” nor a security issued by an investment company registered under the Investment Company Act of 1940, the ERISA plan’s or non-ERISA plan’s assets include both the equity interest and an undivided interest in each of the underlying assets of the entity, unless it is established either that the entity is an operating company or that equity participation in the entity by benefit plan investors is not significant.
18
Each class of our shares (that is, our common shares and any class of preferred shares that we have issued or may issue) must be analyzed separately to ascertain whether it is a publicly offered security. The regulation defines a publicly offered security as a security that is “widely held,” “freely transferable” and either part of a class of securities registered under the Securities Exchange Act of 1934, or sold under an effective registration statement under the Securities Act of 1933, provided the securities are registered under the Securities Exchange Act of 1934 within 120 days after the end of the fiscal year of the issuer during which the offering occurred. All our outstanding shares have been registered under the Securities Exchange Act of 1934.
The regulation provides that a security is “widely held” only if it is part of a class of securities that is owned by 100 or more investors independent of the issuer and of one another. However, a security will not fail to be “widely held” because the number of independent investors falls below 100 subsequent to the initial public offering as a result of events beyond the issuer’s control. Our common shares and our preferred shares have been widely held and we expect our common shares and our preferred shares to continue to be widely held. We expect the same to be true of any additional class of preferred stock that we may issue, but we can give no assurance in that regard.
The regulation provides that whether a security is “freely transferable” is a factual question to be determined on the basis of all relevant facts and circumstances. The regulation further provides that, where a security is part of an offering in which the minimum investment is $10,000 or less, some restrictions on transfer ordinarily will not, alone or in combination, affect a finding that these securities are freely transferable. The restrictions on transfer enumerated in the regulation as not affecting that finding include:
• any restriction on or prohibition against any transfer or assignment which would result in a termination or reclassification for federal or state tax purposes, or would otherwise violate any state or federal law or court order;
• any requirement that advance notice of a transfer or assignment be given to the issuer and any requirement that either the transferor or transferee, or both, execute documentation setting forth representations as to compliance with any restrictions on transfer which are among those enumerated in the regulation as not affecting free transferability, including those described in the preceding clause of this sentence;
• any administrative procedure which establishes an effective date, or an event prior to which a transfer or assignment will not be effective; and
• any limitation or restriction on transfer or assignment which is not imposed by the issuer or a person acting on behalf of the issuer.
We believe that the restrictions imposed under our declaration of trust on the transfer of shares do not result in the failure of our shares to be “freely transferable.” Furthermore, we believe that there exist no other facts or circumstances limiting the transferability of our shares which are not included among those enumerated as not affecting their free transferability under the regulation, and we do not expect or intend to impose in the future, or to permit any person to impose on our behalf, any limitations or restrictions on transfer which would not be among the enumerated permissible limitations or restrictions.
Assuming that each class of our shares will be “widely held” and that no other facts and circumstances exist which restrict transferability of these shares, we have received an opinion of our counsel, Sullivan & Worcester LLP, that our shares will not fail to be “freely transferable” for purposes of the regulation due to the restrictions on transfer of the shares under our declaration of trust and that under the regulation the shares are publicly offered securities and our assets will not be deemed to be “plan assets” of any ERISA plan or non-ERISA plan that invests in our shares.
19
General. At December 31, 2003, approximately 94% of our total investments included office buildings and leased industrial land, 4% was represented by our equity investment in Senior Housing and 2% was represented by our equity investment in Hospitality Properties. At December 31, 2003, we had real estate investments totaling $3.9 billion at cost, in 238 properties that were leased to over 1,000 tenants.
The following discussion and tables summarize some additional information about our properties as of December 31, 2003.
Occupancy for all properties owned on December 31, 2003 and 2002, was 93.5% and 92.1%, respectively. These results reflect average occupancy rates of approximately 98% at properties that we acquired during 2002 and 2003, and a 1.7 percentage point decrease in occupancy at properties we owned continuously since January 1, 2002. Occupancy data is as follows (square feet in thousands):
|
|
All Properties |
|
Comparable Properties (1) |
|
||||
|
|
2003 |
|
2002 |
|
2003 |
|
2002 |
|
Total properties (2) |
|
238 |
|
212 |
|
187 |
|
187 |
|
Total square feet (2) |
|
35,913 |
|
23,256 |
|
18,962 |
|
18,962 |
|
Square feet leased (3) |
|
33,572 |
|
21,416 |
|
16,968 |
|
17,284 |
|
Percentage leased |
|
93.5 |
% |
92.1 |
% |
89.5 |
% |
91.2 |
% |
(1) Includes properties owned by us continuously since January 1, 2002. |
(2) Total properties and square feet at year end 2003 include 11 land parcels with 9,755 sq. ft. of developed industrial lands in Oahu, Hawaii acquired in December 2003. |
(3) Square feet leased includes space being fitted out for occupancy pursuant to signed leases and space which is leased but being offered for sublease by tenants. |
Properties acquired during the year ended December 31, 2003, were as follows (square feet and dollars in thousands):
Date |
|
Location |
|
Number of |
|
Square |
|
Purchase |
|
Major Tenants |
|
|
1/28/03 |
|
Baltimore, MD |
|
1 |
|
551 |
|
$ |
63,282 |
|
The Johns Hopkins University |
|
2/13/03 |
|
Foxborough, MA |
|
1 |
|
209 |
|
30,214 |
|
Commercial Union Insurance Company |
|
|
5/23/03 |
|
Fort Worth, TX |
|
1 |
|
666 |
|
47,925 |
|
Motorola, Inc. |
|
|
6/30/03 |
|
Erlanger, KY |
|
1 |
|
86 |
|
13,624 |
|
GE Capital Information Technology Solutions |
|
|
7/24/03 |
|
Meriden, CT |
|
1 |
|
48 |
|
7,687 |
|
Verizon Wireless |
|
|
8/01/03 |
|
Mansfield, MA |
|
3 |
|
384 |
|
41,944 |
|
Tyco Healthcare Group LP |
|
|
8/29/03 |
|
Windsor, CT |
|
1 |
|
121 |
|
13,759 |
|
Orion Capital Companies, Inc. |
|
|
9/05/03 |
|
Mansfield, MA |
|
2 |
|
190 |
|
22,854 |
|
Tyco Healthcare Group LP |
|
|
9/17/03 |
|
Albuquerque, NM |
|
2 |
|
291 |
|
40,295 |
|
Boeing-SVS, Inc. |
|
|
11/07/03 |
|
St. Louis, MO |
|
1 |
|
67 |
|
9,030 |
|
MetLife |
|
|
11/10/03 |
|
Santa Ana, CA |
|
1 |
|
68 |
|
13,630 |
|
Collectors Universe, Inc. |
|
|
12/05/03 |
|
Oahu, HI |
|
11 |
|
9,755 |
|
482,033 |
|
Safeway Inc. and various other tenants |
|
|
12/19/03 |
|
Tolleson, AZ |
|
1 |
|
236 |
|
12,575 |
|
Duro Standard Products |
|
|
|
|
|
|
27 |
|
12,672 |
|
$ |
798,852 |
|
|
|
(1) Includes closing costs.
20
Rents charged for 2,381,000 square feet of office space which was renewed or released during the year ended December 31, 2003, were approximately 4% lower than rents previously charged for the same space. Rental rates at which available space may be relet in the future will depend on prevailing market conditions at that time. Approximately 21% of our occupied square feet is occupied under leases scheduled to expire through December 31, 2006, as follows (in thousands):
|
|
Total |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
|||||
Leased properties: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Metro Philadelphia, PA |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet |
|
5,469 |
|
|
|
|
|
|
|
|
|
|||||
Leased square feet (1) |
|
5,223 |
|
533 |
|
317 |
|
829 |
|
3,544 |
|
|||||
Annualized rent (2) |
|
$ |
131,857 |
|
$ |
12,794 |
|
$ |
7,620 |
|
$ |
25,576 |
|
$ |
85,867 |
|
Metro Washington, DC |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet |
|
2,557 |
|
|
|
|
|
|
|
|
|
|||||
Leased square feet (1) |
|
2,369 |
|
278 |
|
667 |
|
166 |
|
1,258 |
|
|||||
Annualized rent (2) |
|
$ |
66,284 |
|
$ |
6,293 |
|
$ |
15,059 |
|
$ |
4,662 |
|
$ |
40,270 |
|
Oahu, HI |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet (3) |
|
9,755 |
|
|
|
|
|
|
|
|
|
|||||
Leased square feet (1) |
|
9,641 |
|
— |
|
— |
|
— |
|
9,641 |
|
|||||
Annualized rent (2) |
|
$ |
41,096 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
41,096 |
|
Southern California |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet |
|
1,797 |
|
|
|
|
|
|
|
|
|
|||||
Leased square feet (1) |
|
1,733 |
|
89 |
|
44 |
|
179 |
|
1,421 |
|
|||||
Annualized rent (2) |
|
$ |
49,627 |
|
$ |
4,643 |
|
$ |
2,505 |
|
$ |
6,969 |
|
$ |
35,510 |
|
Metro Boston, MA |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet |
|
2,574 |
|
|
|
|
|
|
|
|
|
|||||
Leased square feet (1) |
|
2,296 |
|
201 |
|
182 |
|
274 |
|
1,639 |
|
|||||
Annualized rent (2) |
|
$ |
48,180 |
|
$ |
3,574 |
|
$ |
6,775 |
|
$ |
6,246 |
|
$ |
31,585 |
|
Metro Austin, TX |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet |
|
2,843 |
|
|
|
|
|
|
|
|
|
|||||
Leased square feet (1) |
|
2,207 |
|
306 |
|
192 |
|
119 |
|
1,590 |
|
|||||
Annualized rent (2) |
|
$ |
38,355 |
|
$ |
5,708 |
|
$ |
4,620 |
|
$ |
2,254 |
|
$ |
25,773 |
|
Other markets |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet |
|
10,918 |
|
|
|
|
|
|
|
|
|
|||||
Leased square feet (1) |
|
10,103 |
|
639 |
|
884 |
|
1,247 |
|
7,333 |
|
|||||
Annualized rent (2) |
|
$ |
172,983 |
|
$ |
12,697 |
|
$ |
14,593 |
|
$ |
19,961 |
|
$ |
125,732 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Totals: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Total square feet (3) |
|
35,913 |
|
|
|
|
|
|
|
|
|
|||||
Leased square feet (1) |
|
33,572 |
|
2,046 |
|
2,286 |
|
2,814 |
|
26,426 |
|
|||||
Percent of leased square feet |
|
|
|
6.1 |
% |
6.8 |
% |
8.4 |
% |
78.7 |
% |
|||||
Annualized rent (2) |
|
$ |
548,382 |
|
$ |
45,709 |
|
$ |
51,172 |
|
$ |
65,668 |
|
$ |
385,833 |
|
(1) |
|
Leased square feet includes space being fitted out for occupancy pursuant to signed leases and space which is leased but being offered for sublease by tenants. |
(2) |
|
Annualized rent is rents pursuant to signed leases as of December 31, 2003, plus expense reimbursements; includes some triple net lease rents, and excludes Financial Accounting Standards No. 141 “Business Combinations”, or FAS 141, lease value amortization. |
(3) |
|
Total square feet at year end 2003 includes 9,755 square feet of developed industrial land in Oahu, HI acquired in December 2003. |
21
The geographic sources of property level revenue and net operating income (rental income less operating expenses) were as follows (dollars in thousands):
|
|
Quarter
Ended |
|
Year Ended |
|
||||||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
|||||
Property level revenue: (1) |
|
|
|
|
|
|
|
|
|
||||
Metro Philadelphia, PA |
|
$ |
34,035 |
|
$ |
32,600 |
|
$ |
139,647 |
|
$ |
103,081 |
|
Metro Washington, DC |
|
16,583 |
|
16,577 |
|
67,079 |
|
56,613 |
|
||||
Oahu, HI (2) |
|
2,944 |
|
— |
|
2,944 |
|
— |
|
||||
Southern California |
|
11,894 |
|
12,106 |
|
47,442 |
|
42,156 |
|
||||
Metro Boston, MA |
|
12,230 |
|
8,297 |
|
43,018 |
|
33,505 |
|
||||
Metro Austin, TX |
|
10,764 |
|
12,134 |
|
43,155 |
|
49,541 |
|
||||
Other markets |
|
42,229 |
|
33,611 |
|
157,031 |
|
129,177 |
|
||||
Total |
|
$ |
130,679 |
|
$ |
115,325 |
|
$ |
500,316 |
|
$ |
414,073 |
|
|
|
|
|
|
|
|
|
|
|
||||
Property level net operating income: |
|
|
|
|
|
|
|
|
|
||||
Metro Philadelphia, PA |
|
$ |
19,045 |
|
$ |
18,702 |
|
$ |
80,374 |
|
$ |
61,220 |
|
Metro Washington, DC |
|
10,671 |
|
11,102 |
|
43,833 |
|
37,599 |
|
||||
Oahu, HI (2) |
|
2,495 |
|
— |
|
2,495 |
|
— |
|
||||
Southern California |
|
8,295 |
|
8,606 |
|
33,513 |
|
29,713 |
|
||||
Metro Boston, MA |
|
7,902 |
|
6,394 |
|
29,688 |
|
25,390 |
|
||||
Metro Austin, TX |
|
5,756 |
|
6,462 |
|
22,039 |
|
27,123 |
|
||||
Other markets |
|
25,447 |
|
20,667 |
|
95,561 |
|
80,414 |
|
||||
Total |
|
$ |
79,611 |
|
$ |
71,933 |
|
$ |
307,503 |
|
$ |
261,459 |
|
|
(1) |
Includes some triple net lease revenues. |
|
(2) |
The Oahu properties were acquired in December 2003. |
Comparable property level revenue and net operating income (rental income less operating expenses) for properties owned by us continuously since January 1, 2002, were as follows (dollars in thousands):
|
|
Year Ended |
|
||||
|
|
|
2002 |
|
|||
Property level revenue: (1) |
|
|
|
|
|
||
Metro Philadelphia, PA |
|
$ |
90,600 |
|
$ |
93,174 |
|
Metro Washington, DC |
|
51,342 |
|
52,913 |
|
||
Oahu, HI (2) |
|
— |
|
— |
|
||
Southern California |
|
36,287 |
|
38,166 |
|
||
Metro Boston, MA |
|
36,395 |
|
33,505 |
|
||
Metro Austin, TX |
|
43,155 |
|
49,541 |
|
||
Other markets |
|
113,664 |
|
113,890 |
|
||
Total |
|
$ |
371,443 |
|
$ |
381,189 |
|
|
|
|
|
|
|
||
Property level net operating income: |
|
|
|
|
|
||
Metro Philadelphia, PA |
|
$ |
51,657 |
|
$ |
55,861 |
|
Metro Washington, DC |
|
32,968 |
|
35,125 |
|
||
Oahu, HI (2) |
|
— |
|
— |
|
||
Southern California |
|
24,177 |
|
26,361 |
|
||
Metro Boston, MA |
|
24,359 |
|
25,390 |
|
||
Metro Austin, TX |
|
22,039 |
|
27,123 |
|
||
Other markets |
|
68,939 |
|
70,744 |
|
||
Total |
|
$ |
224,139 |
|
$ |
240,604 |
|
(1) Includes some triple net lease revenues. |
|
|
|
|
|
(2) The Oahu properties were acquired in December 2003. |
|
|
|
|
|
22
Our principal source of funds is 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 December 31, 2003, those responsible for more than 1% of total annualized rent were as follows:
Tenant or Subsidiary |
|
Annualized
|
|
% of |
|
|
U. S. Government |
|
$ |
88.7 |
|
16.2 |
% |
GlaxoSmithKline plc |
|
14.4 |
|
2.6 |
% |
|
Towers, Perrin, Forster & Crosby, Inc. |
|
12.8 |
|
2.3 |
% |
|
PNC Financial Services Group |
|
11.5 |
|
2.1 |
% |
|
Tyco International Ltd |
|
9.5 |
|
1.7 |
% |
|
Wachovia Corporation |
|
9.1 |
|
1.7 |
% |
|
Solectron Corporation |
|
8.9 |
|
1.6 |
% |
|
Motorola, Inc. |
|
8.6 |
|
1.5 |
% |
|
Mellon Financial Corporation |
|
7.5 |
|
1.4 |
% |
|
Ballard Spahr Andrews & Ingersoll, LLP |
|
7.4 |
|
1.4 |
% |
|
FMC Corporation |
|
7.4 |
|
1.4 |
% |
|
Fallon Clinics |
|
7.2 |
|
1.3 |
% |
|
Comcast Corporation |
|
6.1 |
|
1.1 |
% |
|
Other tenants |
|
349.3 |
|
63.7 |
% |
|
Over one thousand tenants |
|
$ |
548.4 |
|
100.0 |
% |
(1) Annualized rent is rents pursuant to signed leases as of December 31, 2003, plus expense reimbursements; includes some triple net lease rents, and excludes FAS 141 lease value amortization.
As of December 31, 2003, the breakdown of our tenants based on annualized rent were as follows:
Tenant |
|
Annualized |
|
% of |
|
|
U.S. Government and other governmental tenants |
|
$ |
96.8 |
|
18 |
% |
Medical related tenants |
|
122.2 |
|
22 |
% |
|
Industrial land leases (Oahu, HI) |
|
41.1 |
|
8 |
% |
|
Other investment grade rated tenants (2) |
|
115.6 |
|
21 |
% |
|
Other tenants |
|
172.7 |
|
31 |
% |
|
Total |
|
$ |
548.4 |
|
100 |
% |
(1) Annualized rent is rents pursuant to signed leases as of December 31, 2003, plus expense reimbursements; includes some triple net lease rents, and excludes FAS 141 lease value amortization.
(2) Excludes investment grade rated tenants included above.
23
The states in which we owned real estate at December 31, 2003, were as follows (dollars in thousands):
Location |
|
Number of |
|
Investment |
|
Net Book Value |
|
Annualized |
|
|||
Alaska |
|
1 |
|
$ |
1,032 |
|
$ |
891 |
|
$ |
474 |
|
Arizona |
|
10 |
|
121,555 |
|
112,732 |
|
19,400 |
|
|||
California |
|
19 |
|
344,035 |
|
303,181 |
|
49,627 |
|
|||
Colorado |
|
9 |
|
100,885 |
|
93,631 |
|
16,190 |
|
|||
Connecticut |
|
4 |
|
35,173 |
|
33,045 |
|
5,459 |
|
|||
Delaware |
|
2 |
|
60,635 |
|
53,680 |
|
3,851 |
|
|||
District of Columbia |
|
5 |
|
242,885 |
|
212,453 |
|
32,518 |
|
|||
Florida |
|
4 |
|
11,972 |
|
10,360 |
|
1,429 |
|
|||
Georgia |
|
1 |
|
3,098 |
|
2,686 |
|
485 |
|
|||
Hawaii |
|
11 |
|
482,340 |
|
482,329 |
|
41,096 |
|
|||
Kansas |
|
1 |
|
6,828 |
|
5,591 |
|
1,551 |
|
|||
Kentucky |
|
1 |
|
11,567 |
|
11,438 |
|
2,372 |
|
|||
Maryland |
|
9 |
|
229,962 |
|
205,435 |
|
33,842 |
|
|||
Massachusetts |
|
35 |
|
292,347 |
|
258,952 |
|
45,679 |
|
|||
Minnesota |
|
14 |
|
120,908 |
|
107,178 |
|
16,000 |
|
|||
Missouri |
|
2 |
|
18,071 |
|
16,940 |
|
2,833 |
|
|||
New Hampshire |
|
1 |
|
22,170 |
|
19,862 |
|
2,501 |
|
|||
New Jersey |
|
4 |
|
36,630 |
|
31,942 |
|
5,311 |
|
|||
New Mexico |
|
16 |
|
109,095 |
|
103,848 |
|
20,055 |
|
|||
New York |
|
10 |
|
171,775 |
|
151,333 |
|
27,985 |
|
|||
Ohio |
|
1 |
|
15,289 |
|
13,382 |
|
2,314 |
|
|||
Oklahoma |
|
5 |
|
46,599 |
|
41,058 |
|
4,557 |
|
|||
Pennsylvania |
|
27 |
|
826,530 |
|
740,244 |
|
139,010 |
|
|||
Rhode Island |
|
1 |
|
8,013 |
|
6,755 |
|
1,101 |
|
|||
Tennessee |
|
1 |
|
23,326 |
|
20,145 |
|
3,452 |
|
|||
Texas |
|
31 |
|
420,962 |
|
375,969 |
|
49,369 |
|
|||
Virginia |
|
9 |
|
91,351 |
|
82,061 |
|
15,329 |
|
|||
Washington |
|
2 |
|
21,550 |
|
18,557 |
|
2,541 |
|
|||
West Virginia |
|
1 |
|
4,969 |
|
4,291 |
|
715 |
|
|||
Wyoming |
|
1 |
|
10,414 |
|
8,982 |
|
1,336 |
|
|||
Total real estate |
|
238 |
|
$ |
3,891,966 |
|
$ |
3,528,951 |
|
$ |
548,382 |
|
(1) Annualized rent is rents pursuant to signed leases as of December 31, 2003, plus expense reimbursements; includes some triple net lease rents and excludes FAS 141 lease value amortization.
At December 31, 2003, 11 office complexes we owned comprised of 24 properties with an aggregate cost of $641.9 million were secured by mortgage notes payable aggregating $338.4 million, or $328.5 million net of unamortized discounts.
At December 31, 2003, the carrying book values of our equity ownership of Senior Housing and Hospitality Properties were $160.5 million and $99.7 million, respectively, and the market values of these equity positions were $220.7 million and $165.1 million, respectively. During January through March 2004 we sold 3.1 million of our Senior Housing shares and Senior Housing and Hospitality Properties completed public offerings of common shares that reduced our ownership percentages in each to 15.2% and 6.0%, respectively. At December 31, 2003, Senior Housing owned 150 senior housing properties and Hospitality Properties owned 286 hotels.
In the ordinary course of business we are involved in litigation incidental to our business; however, we are not aware of any material pending legal proceeding affecting us or any of our properties for which we might become liable or the outcome of which we expect to have a material impact on us.
Item 4. Submission of Matters to a Vote of Security Holders
None.
24
Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters
Our common shares are traded on the NYSE (symbol: HRP). The following table sets forth for the periods indicated the high and low closing sale prices for our common shares as reported in the NYSE composite transactions reports:
|
|
High |
|
Low |
|
||
2002 |
|
|
|
|
|
||
|
|
|
|
|
|
||
First Quarter |
|
$ |
9.25 |
|
$ |
8.46 |
|
Second Quarter |
|
9.37 |
|
8.51 |
|
||
Third Quarter |
|
8.83 |
|
7.19 |
|
||
Fourth Quarter |
|
8.50 |
|
7.75 |
|
||
|
|
|
|
|
|
||
2003 |
|
|
|
|
|
||
|
|
|
|
|
|
||
First Quarter |
|
8.90 |
|
8.18 |
|
||
Second Quarter |
|
9.64 |
|
8.67 |
|
||
Third Quarter |
|
9.50 |
|
8.59 |
|
||
Fourth Quarter |
|
10.30 |
|
9.15 |
|
||
The closing price of our common shares on the NYSE on March 8, 2004, was $11.28 per share.
As of March 8, 2004, there were 3,960 shareholders of record, and we estimate that as of such date there were in excess of 89,000 beneficial owners of our common shares.
Information about distributions paid to common shareholders is summarized in the table below. Common share distributions are generally paid in the quarter following the quarter to which they relate.
|
|
Cash
Distributions |
|
||||
|
|
2002 |
|
2003 |
|
||
|
|
|
|
|
|
||
First Quarter |
|
$ |
0.20 |
|
$ |
0.20 |
|
Second Quarter |
|
0.20 |
|
0.20 |
|
||
Third Quarter |
|
0.20 |
|
0.20 |
|
||
Fourth Quarter |
|
0.20 |
|
0.20 |
|
||
Total |
|
$ |
0.80 |
|
$ |
0.80 |
|
All common share distributions shown in the table above have been paid. We currently intend to continue to declare and pay future common share distributions on a quarterly basis.
Distributions are made at the discretion of our board of trustees and depend on our earnings, cash available for distribution, financial condition, capital market conditions, growth prospects and other factors that our board of trustees deems relevant.
On October 8, 2003, pursuant to our incentive share award plan, Tjarda Clagett, a newly elected trustee, received a grant of 500 common shares of beneficial interest, par value $0.01 per share, valued at $9.45 per share, the closing price of our common shares on the New York Stock Exchange on October 8, 2003. This grant was made pursuant to an exemption from registration contained in section 4(2) of the Securities Act of 1933, as amended.
25
Item 6. Selected Financial Data
Set forth below is selected financial data for the periods and dates indicated. This data should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements and accompanying notes included in this Annual Report on Form 10-K. Amounts are in thousands, except per share data.
Income Statement Data
|
|
Year Ended December 31, |
|
|||||||||||||
|
|
|
2002 |
|
2001 |
|
2000 |
|
1999 |
|
||||||
Total revenues |
|
$ |
500,727 |
|
$ |
416,966 |
|
$ |
394,172 |
|
$ |
405,006 |
|
$ |
427,541 |
|
Income before gain on sale of properties |
|
114,446 |
|
106,763 |
|
82,804 |
|
117,697 |
|
105,555 |
|
|||||
Net income |
|
114,446 |
|
106,763 |
|
82,804 |
|
142,272 |
|
113,862 |
|
|||||
Net income available for common |
|
68,446 |
|
79,138 |
|
65,962 |
|
142,272 |
|
113,862 |
|
|||||
Common distributions declared (2) |
|
118,348 |
|
103,056 |
|
113,135 |
|
121,385 |
|
410,152 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Weighted average common shares outstanding |
|
136,270 |
|
128,817 |
|
130,253 |
|
131,937 |
|
131,843 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Per Common Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Income before gain on sale of properties |
|
$ |
0.50 |
|
$ |
0.61 |
|
$ |
0.51 |
|
$ |
0.89 |
|
$ |
0.80 |
|
Net income available for common shareholders (1) |
|
0.50 |
|
0.61 |
|
0.51 |
|
1.08 |
|
0.86 |
|
|||||
Common distributions declared (2) |
|
0.80 |
|
0.80 |
|
0.87 |
|
0.92 |
|
3.05 |
|
Balance Sheet Data
|
|
At December 31, |
|
|||||||||||||
|
|
|
2002 |
|
2001 |
|
2000 |
|
1999 |
|
||||||
Real estate properties, at cost (3) |
|
$ |
3,891,966 |
|
$ |
3,074,656 |
|
$ |
2,592,487 |
|
$ |
2,546,023 |
|
$ |
2,656,344 |
|
Real estate mortgages receivable, net |
|
— |
|
— |
|
— |
|
6,449 |
|
10,373 |
|
|||||
Equity investments |
|
260,208 |
|
264,087 |
|
273,442 |
|
314,099 |
|
311,113 |
|
|||||
Total assets |
|
4,013,244 |
|
3,221,652 |
|
2,805,426 |
|
2,900,143 |
|
2,953,308 |
|
|||||
Total indebtedness, net |
|
1,876,821 |
|
1,215,977 |
|
1,097,217 |
|
1,302,950 |
|
1,349,890 |
|
|||||
Total shareholders’ equity |
|
2,011,651 |
|
1,926,273 |
|
1,656,500 |
|
1,529,212 |
|
1,522,467 |
|
|||||
(1) Net income available for common shareholders is net income reduced by preferred distributions.
(2) Includes non recurring distributions of common shares of Five Star Quality Care, Inc. in 2001 and Senior Housing in 1999. Cash distributions declared with respect to 2001 were $103,783, or $0.80 per common share. Cash distributions declared with respect to 1999 were $184,665, or $1.40 per common share.
(3) Excludes value of acquired real estate leases pursuant to FAS 141.
26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our consolidated financial statements included in this Annual Report.
Results of Operations
Year Ended December 31, 2003, Compared to Year Ended December 31, 2002
Total revenues for the year ended December 31, 2003, were $500.7 million, a 20.1% increase over total revenues of $417.0 million for the year ended December 31, 2002. Rental income increased in 2003 by $86.2 million, or 20.8% and interest and other income decreased in 2003 by $2.5 million, or 85.8% compared to the prior period. Rental income increased primarily from our acquisition of 27 properties in 2003 and 23 properties in 2002, partially offset by a decline in rents resulting from the decrease in occupancy at some of our properties. Average occupied office space and leased land, which includes space and land being prepared for occupancy pursuant to signed leases and space and land which is being offered for sublease by tenants, was 91.8% for the year ended December 31, 2003, and 92.5% for the year ended December 31, 2002. Interest and other income decreased primarily as a result of lower cash balances invested in the 2003 period compared to the 2002 period and lower interest rates. Rental income includes non cash straight line rent adjustments totaling $16.6 million in the 2003 period and $10.8 million in the 2002 period and amortization of acquired real estate leases and obligations pursuant to FAS 141 totaling $1.1 million in 2003. Rental income also includes lease termination fees totaling $3.3 million in 2003 and $1.6 million in 2002.
Total expenses for the year ended December 31, 2003, were $409.8 million, a 24.9% increase over total expenses of $328.0 million for the year ended December 31, 2002. Operating expenses, depreciation and amortization and general and administrative expenses increased by $40.2 million (26.3%), $24.5 million (35.7%), and $2.5 million (15.0%), respectively, due primarily to the acquisition of properties in 2003 and 2002. Interest expense increased by $14.8 million, or 17.1%, due primarily to an increase in total debt outstanding which was used primarily to finance acquisitions in 2003 and 2002. Total expenses for the year ended December 31, 2003, included $3.2 million representing the write off of deferred financing fees associated with the repayment of $90 million of senior notes in February 2003 and $65 million of senior notes in June 2003. Total expenses for the year ended December 31, 2002, included a $3.5 million loss associated with the repayment of $160 million of senior notes in March 2002.
Equity in earnings of equity investments increased by $4.3 million, or 22.1%, for the year ended December 31, 2003, compared to the same period in 2002, reflecting our $6.9 million pro rata share of income from lease terminations recognized by Hospitality Properties in 2003. A loss on equity transactions of equity investments of $1.4 million was recognized in the 2002 period, reflecting the issuance of common shares by Senior Housing at a price below our then per share carrying value.
Net income was $114.4 million for the 2003 period, a 7.2% increase over net income of $106.8 million for the 2002 period. The increase is due primarily to property acquisitions in 2003 and 2002, higher equity in earnings from Hospitality Properties and the loss recognized in 2002 from the issuance of common shares by Senior Housing, offset by amortization during 2003 of acquired real estate leases and obligations recorded pursuant to FAS 141, a decline in rents resulting from a decrease in occupancy at some of our properties, lower income on invested cash balances and the increase in interest expense during 2003 from the issuance of debt. Net income available for common shareholders is net income reduced by preferred distributions and was $68.4 million, or $0.50 per common share, in the 2003 period, a 13.5% decrease from net income available for common shareholders of $79.1 million, or $0.61 per common share in the 2002 period. The decrease reflects distributions during 2003 on our series B preferred shares which were issued in September 2002.
Cash distributions declared for the years ended December 31, 2003 and 2002, were $118.3 million, or $0.80 per common share, and $103.1 million, or $0.80 per common share, respectively. Distributions paid in the first quarter of the year generally are based upon the prior year’s operating results, but are generally taxed to shareholders in the year when payment is made.
27
Cash flows provided by (used for) operating, investing and financing activities were $200.2 million, ($826.2) million and $625.1 million, respectively, for the year ended December 31, 2003, and $178.8 million, ($492.7) million and $275.7 million, respectively, for the year ended December 31, 2002. Changes in all three categories between 2003 and 2002 are primarily related to assets acquired in 2003 and 2002, and the issuances of common shares in 2003 and series B preferred shares in 2002.
Year Ended December 31, 2002, Compared to Year Ended December 31, 2001
Total revenues for the year ended December 31, 2002, increased to $417.0 million from $394.2 million for the year ended December 31, 2001. Rental income increased in 2002 by $26.3 million and interest and other income decreased in 2002 by $3.5 million, compared to the prior period. Rental income increased primarily because of our acquisition of 23 properties in 2002 and two properties in 2001 with an average occupancy rate of 96%, partially offset by a decline in rents resulting from the decrease in occupancy at some of our properties during the 2002 period compared to the 2001 period. Average occupied office space, which includes space being fitted out for occupancy pursuant to signed leases and space which is being offered for sublease by tenants, was 92.5% for the year ended December 31, 2002, and 94.4% for the year ended December 31, 2001. Interest and other income decreased primarily as a result of lower cash balances invested in 2002 compared to 2001 and lower interest rates. Rental income includes non cash straight line rent adjustments totaling $10.8 million in 2002 and $9.1 million in 2001. Rental income also includes lease termination fees totaling $1.6 million in 2002 and $2.6 million in 2001.
Total expenses for the year ended December 31, 2002, increased to $328.0 million from $306.7 million for the year ended December 31, 2001. Included in total expenses for the 2001 period is the reversal of an impairment loss reserve recorded during 1999 totaling $4.0 million related to real estate mortgages receivable that were collected in 2001. Operating expenses, depreciation and amortization and general and administrative expenses increased by $12.0 million, $7.0 million, and $1.2 million, respectively, primarily as a result of our property acquisitions in 2002 and 2001. Interest expense decreased by $4.2 million during 2002 compared to the prior year period, due primarily to the repayment of debt in the first quarter of 2001. Total expenses for the year ended December 31, 2002, included a $3.5 million loss associated with the repayment of $160 million of senior notes in March 2002, compared to the $2.1 million write off of deferred financing fees associated with the repayment of $202 million of convertible subordinated debentures in 2001.
Equity in earnings of equity investments increased by $4.7 million for the year ended December 31, 2002, compared to the same period in 2001, primarily as a result of higher income recognized from our equity investment in Senior Housing. A loss on equity transactions of equity investments of $1.4 million was recognized from the issuance of common shares by Senior Housing during 2002, compared to a net loss of $19.3 million recognized in 2001 from the issuance of common shares by both Senior Housing and Hospitality Properties. The losses in both years primarily reflect common shares issued by Senior Housing at prices below our per share carrying value.
Net income increased to $106.8 million for the 2002 period, from $82.8 million for the 2001 period. The increase is due primarily to property acquisitions in 2002 and 2001, a smaller loss recognized from the issuance of common shares by Senior Housing in 2002 compared to 2001, the decrease in interest expense from the repayment of debt in 2001, and higher equity in earnings from our investment in Senior Housing, offset by the reversal of an impairment loss reserve in 2001, lower interest income on invested cash balances and the increase in the loss recognized during 2002 from the prepayment of debt. Net income available for common shareholders is net income reduced by preferred distributions and was $79.1 million, or $0.61 per common share, in the 2002 period, compared to $66.0 million, or $0.51 per common share in the 2001 period. The increase reflects the foregoing factors, offset by distributions during 2002 on our series B preferred shares which were issued in September 2002.
Cash distributions declared for the years ended December 31, 2002 and 2001, were $103.1 million, or $0.80 per common share, and $103.8 million, or $0.80 per common share, respectively. Distributions paid in the first quarter of the year generally are based upon the prior year’s operating results, but are generally taxed to shareholders in the year when payment is made.
Cash flows provided by (used for) operating, investing and financing activities were $178.8 million, ($492.7) million and $275.7 million, respectively, for the year ended December 31, 2002, and $133.1 million, ($9.4) million and ($165.8) million, respectively, for the year ended December 31, 2001. Changes in all three categories between 2002 and 2001 are primarily related to assets acquired in 2002 and 2001, and the issuance of our series B preferred shares in 2002.
28
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. Rents are generally received from our non-government tenants monthly in advance, and from our government tenants monthly in arrears. 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 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 the need to make distributions or pay operating expenses, we maintain a revolving credit facility with a group of commercial banks that matures in April 2006. Borrowings under the credit facility can be up to $560 million and the credit facility includes a feature under which the maximum borrowing may be expanded to $625 million, in certain circumstances. Borrowings under our credit facility are unsecured. Funds may be borrowed, repaid and reborrowed until maturity, and no principal repayment is due until maturity. Interest on borrowings under the credit facility is payable at a spread above LIBOR. At December 31, 2003, there was $148 million available on our revolving credit facility, and we had cash and cash equivalents of $11.5 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. Our outstanding debt maturities and weighted average interest rates as of December 31, 2003, were as follows (dollars in thousands):
Year of Maturity |
|
Scheduled |
|
Weighted |
|
|
2004 |
|
$ |
6,496 |
|
7.3 |
% |
2005 |
|
107,119 |
|
6.7 |
% |
|
2006 |
|
419,656 |
(1) |
2.0 |
% |
|
2007 |
|
17,400 |
|
7.9 |
% |
|
2008 |
|
23,954 |
|
7.1 |
% |
|
2009 |
|
5,862 |
|
6.9 |
% |
|
2010 |
|
55,567 |
|
8.6 |
% |
|
2011 |
|
226,967 |
|
6.8 |
% |
|
2012 |
|
201,115 |
|
6.9 |
% |
|
2013 and thereafter |
|
829,272 |
(2) |
6.6 |
% |
|
|
|
$ |
1,893,408 |
|
5.7 |
% |
(1) Includes $412 million outstanding on our $560 million revolving credit facility at a variable rate of interest of LIBOR plus a spread, totaling 2.0% per annum at December 31, 2003. This outstanding amount was reduced to zero as of March 8, 2004.
(2) Includes $143 million of 8.50% notes redeemed at par on February 11, 2004.
When amounts are outstanding on our revolving credit facility and as the maturity dates of our revolving credit facility and term debts approach over the longer term, we will explore alternatives for the repayment of amounts due. Such alternatives may include incurring additional term debt and issuing new equity securities. As of December 31, 2003, we had $1.0 billion available on an effective shelf registration statement and $669.2 million available after we issued 34.5 million of our common shares in January 2004. 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.
Total assets increased to $4.0 billion at December 31, 2003, from $3.2 billion at December 31, 2002, primarily due to 2003 property acquisitions.
29
In December 2003 we acquired 9.8 million square feet of leased industrial land in Oahu, Hawaii for $482.0 million, including closing costs. We used borrowings under our revolving credit facility to pay $471.0 million of the purchase price in December 2003. An additional $11 million will be paid when one land parcel of approximately 130,000 square feet, which is being redeveloped in a joint venture by the seller, is completed and conveyed to us, which is expected to occur during the first half of 2004. This $11 million holdback is included in accounts payable and accrued expenses in our consolidated balance sheet at December 31, 2003. All of the Hawaiian lands are located between Honolulu International Airport and Honolulu Harbor, within a short distance (between 0.5 and 5 miles) from the Honolulu Central Business District. The Hawaiian lands are triple net leased to 137 tenants (under 186 separate leases) who have developed various buildings and businesses on their leaseholds. The average remaining lease term for the Hawaiian lands is approximately 22.3 years and no lease expires before 2009, when nine leases for a total of approximately 400,000 square feet will expire. Many of the Hawaiian triple net leases provide that rents are periodically reset to market rates, usually every 5 to 10 years.
During 2003 we purchased an additional 16 properties for $316.8 million, including closing costs, funded improvements to our owned properties totaling $45.0 million and sold one property to an unaffiliated third party for net cash proceeds of $385,000. We allocated $48.6 million of total 2003 acquisition costs to acquired real estate leases and $23.5 million to acquired real estate lease obligations pursuant to FAS 141. As of December 31, 2003, we had an outstanding agreement to purchase three buildings for $24.5 million, plus closing costs. The acquisition of these buildings is subject to various closing conditions customary in real estate transactions and no assurances can be given as to when or if these buildings will be acquired. In January and February 2004 we entered into agreements to purchase two buildings for $16.0 million, plus closing costs; and these two buildings were acquired in February 2004.
During the year ended December 31, 2003 and 2002, cash expenditures made and capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (in thousands):
|
|
Year Ended |
|
||||
|
|
|
2002 |
|
|||
Tenant improvements |
|
$ |
26,932 |
|
$ |
22,392 |
|
Leasing costs |
|
$ |
9,975 |
|
$ |
8,685 |
|
Building improvements |
|
$ |
11,318 |
|
$ |
10,673 |
|
Development and redevelopment activities |
|
$ |
6,721 |
|
$ |
21,046 |
|
Commitments made for expenditures in connection with leasing space during the year ended December 31, 2003, were as follows (in thousands, except as noted):
|
|
Total |
|
Renewals |
|
New Leases |
|
|||
Square feet leased during the year |
|
2,381 |
|
1,404 |
|
977 |
|
|||
Total commitments for tenant improvements and leasing costs |
|
$ |
43,970 |
|
$ |
16,593 |
|
$ |
27,377 |
|
Average lease term (years) |
|
8.1 |
|
8.3 |
|
7.9 |
|
|||
Leasing costs per square foot per year (whole dollars) |
|
$ |
2.28 |
|
$ |
1.42 |
|
$ |
3.55 |
|
30
At December 31, 2003, we owned 12.8 million, or 21.9%, of the common shares of beneficial interest of Senior Housing with a carrying value of $160.5 million and a market value of $220.7 million, and 4.0 million, or 6.4%, of the common shares of beneficial interest of Hospitality Properties with a carrying value of $99.7 million and a market value of $165.1 million. During 2003 we received cash distributions totaling $15.9 million from Senior Housing and $11.5 million from Hospitality Properties. We use the income statement method of accounting 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 January and February 2004 we sold 3.1 million of our Senior Housing shares in an underwritten public offering for $57.3 million; $54.3 million net of commissions and fees. In addition, Senior Housing completed a public offering of common shares in January 2004 that further reduced our ownership percentage. We now own 9.7 million Senior Housing shares and our percentage ownership decreased from 21.9% to 15.2%. We expect to recognize gains from these transactions of approximately $16 million during the first quarter of 2004. We expect cash distributions received by us from Senior Housing to decrease from $15.9 million to $12.0 million per year. In February and March 2004 Hospitality Properties completed a public offering of common shares that reduced our ownership percentage to 6.0%. As a result of this transaction, we expect to recognize a gain of approximately $4 million during the first quarter of 2004. On March 8, 2004, the market values of our Senior Housing and Hospitality Properties shares were $183.7 million and $175.9 million, respectively.
In January 2003 we issued $200 million of unsecured senior notes in a public offering, raising net proceeds of $196.3 million. These notes bear interest at 6.40%, require semiannual interest payments and mature in February 2015. In October 2003 we issued $250 million of unsecured senior notes in a public offering, raising net proceeds of $248.1 million. These notes bear interest at 5.75%, require semiannual interest payments and mature in February 2014. Net proceeds from these offerings were used to acquire properties and repay amounts outstanding under our revolving credit facility. In February 2003 we redeemed at par, all of our $90 million 7.875% senior notes due in April 2009 and in June 2003 we redeemed at par, all of our $65 million 8.375% senior notes due in June 2011. We funded these redemptions with cash on hand and by borrowing under our revolving credit facility. We recognized losses of $3.2 million from the write off of deferred financing fees associated with both redemptions. In November 2003 we repaid a $3.4 million secured mortgage due in April 2004.
In June 2003 we issued 13,250,000 common shares in a public offering and in July 2003 we issued an additional 585,100 common shares pursuant to the underwriters’ overallotment option. Net proceeds of $124.6 million were used to reduce amounts outstanding under our revolving credit facility.
In January 2004 we issued an additional 34,500,000 common shares in a public offering, raising net proceeds of approximately $324 million. Net proceeds of this offering were used to reduce amounts outstanding under our revolving credit facility. In February 2004 we redeemed at par, our $143 million 8.50% senior notes due in November 2013. We funded this redemption by borrowing under our revolving credit facility.
In February 2004 we entered into a new five year $250 million unsecured term loan with a group of banks. Terms of the new loan include interest at a spread above LIBOR, and an accordian feature which allows it to be expanded in certain circumstances by up to $100 million. The new loan matures in February 2009 and is prepayable without penalty, beginning in August 2005. Net proceeds of the term loan were used to repay amounts outstanding under our revolving credit facility and for general business purposes. At March 8, 2004, there was zero outstanding on our revolving credit facility and the outstanding balance on our unsecured term loan was $250 million.
As of December 31, 2003, our contractual obligations were as follows (dollars in thousands):
|
|
Payment due by period |
|
|||||||||||||
|
|
Total |
|
Less
than 1 |
|
1-3 years |
|
3-5 years |
|
More
than |
|
|||||
Long-Term Debt Obligations |
|
$ |
1,893,408 |
|
$ |
6,496 |
|
$ |
526,775 |
|
$ |
41,354 |
|
$ |
1,318,783 |
|
Purchase Obligations (1) |
|
11,000 |
|
11,000 |
|
— |
|
— |
|
— |
|
|||||
Total |
|
$ |
1,904,408 |
|
$ |
17,496 |
|
$ |
526,775 |
|
$ |
41,354 |
|
$ |
1,318,783 |
|
(1) Represents a portion of the price to acquire leased industrial land in Oahu, HI to be held by us in escrow until one land parcel under development is completed and conveyed to us, which is expected to occur during the first half of 2004.
31
Debt Covenants
Our principal debt obligations at December 31, 2003, were our unsecured revolving credit facility and our $1.1 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 December 31, 2003, we were in compliance with all of our covenants under our indenture and related supplements and our revolving credit facility agreement.
In addition to our unsecured debt obligations, we have $338.4 million of mortgage notes outstanding at December 31, 2003. Our mortgage notes are secured by 24 of our properties.
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.
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 facility.
As of December 31, 2003, we have no commercial paper, derivatives, swaps, hedges, guarantees or joint ventures. None of our debt documentation requires us to provide collateral security in the event of a ratings downgrade. We have no “off balance sheet” arrangements.
Related Party Transactions
We have agreements with RMR to provide investment management, property management and administrative services to us. RMR is beneficially owned by Barry M. Portnoy and Gerard M. Martin, each a managing trustee and member of our board of trustees. Each of our executive officers are also officers of RMR. Our independent trustees, including all of our trustees other than Messrs. Portnoy and Martin, review our advisory contract with RMR at least annually and make determinations regarding its renewal. Any termination of our advisory contract with RMR would cause a default under our revolving credit facility, if not approved by a majority of lenders. Our current advisory contract with RMR expires on December 31, 2004. RMR is compensated at an annual rate equal to 0.7% of our average real estate investments, as defined, up to the first $250 million of such investments and 0.5% thereafter, plus an incentive fee based upon increases in funds from operations per common share, as defined, plus property management fees equal to three percent of gross rents and construction management fees equal to five percent of construction costs. The incentive fee to RMR is paid in our common shares.
In October 2003 we entered into an agreement between us and Senior Housing, pursuant to which Senior Housing agreed to file a registration statement with respect to the Senior Housing shares we hold and use reasonable efforts to effect the registration of those shares. We paid the expenses of this registration. The registration statement became effective October 24, 2003. In January and February 2004 Senior Housing completed a public offering of five million of its common shares. In a simultaneous offering, we sold 3,148,500 of the Senior Housing shares we owned. We and Senior Housing were parties to an underwriting agreement in connection with this offering. Senior Housing did not receive any proceeds from the sale of its shares by us, but we paid our pro rata share of the expenses of this offering.
32
Critical Accounting Policies
Our critical accounting policies are those that have the most impact on the reporting of our financial condition and results of operations and those requiring significant judgments and estimates. We believe that our judgments and estimates are consistently applied and produce financial information that fairly presents our results of operations. Our most critical accounting policies involve our investments in real property and our equity investments. These policies affect our:
• allocation of purchase prices between various asset categories and the related impact on the recognition of rental income and depreciation and amortization expense;
• assessment of the carrying values and impairments of long lived assets;
• classification of leases; and
• investments in Senior Housing and Hospitality Properties.
We have historically allocated the purchase prices of properties to land, building and improvements, and each component generally has a different useful life. For properties acquired subsequent to June 1, 2001, the effective date of FAS 141, we allocate the value of real estate acquired among land, building and improvements and identified intangible assets and liabilities, consisting of the value of above market and below market leases, the value of in place leases, and the value of tenant relationships. Purchase price allocations and the determination of useful lives are based on management’s estimates and, under some circumstances, studies commissioned from independent real estate appraisal firms.
Purchase price allocations to land, building and improvements are based on management’s determination of the relative fair values of these assets assuming the property is vacant. Management determines the fair value of a property using methods which we believe are similar to those used by independent appraisers. Purchase price allocations to above market and below market leases are based on the estimated present value (using an interest rate which reflects our management’s assessment of the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in place leases and (ii) our estimate of fair market lease rates for the corresponding leases, measured over a period equal to the remaining non-cancelable terms of the respective leases. Purchase price allocations to in place leases and tenant relationships are determined as the excess of (i) the purchase price paid for a property after adjusting existing in place leases to estimated market rental rates over (ii) the estimated fair value of the property as if vacant. This aggregate value is allocated between in place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in place lease value because such value and related amortization expense is immaterial for acquisitions reflected in our financial statements. Factors we consider in performing these analyses include an estimate of carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs to execute similar leases in current market conditions, such as leasing commissions, legal and other related costs. If the value of tenant relationships are material in the future, those amounts will be separately allocated and amortized over the estimated life of the relationships.
We compute depreciation expense using the straight line method over estimated useful lives of up to 40 years for buildings and improvements, and up to 12 years for personal property. The allocated cost of land is not depreciated. Capitalized above market lease values (included in acquired real estate leases in the accompanying consolidated balance sheet) are amortized as a reduction to rental income over the remaining non-cancelable terms of the respective leases. Capitalized below market lease values (presented as acquired real estate lease obligations in the accompanying consolidated balance sheet) are amortized as an increase to rental income over the remaining initial terms of the respective leases. The value of in place leases exclusive of the value of above market and below market in place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease is written off. Our purchase price allocations require us to make certain assumptions and estimates. Incorrect assumptions and estimates may result in inaccurate depreciation and amortization charges over future periods.
33
We periodically evaluate our real estate properties for impairment indicators. These indicators may include declining tenant occupancy, weak or declining tenant profitability, cash flow or liquidity, our decision to dispose of an asset before the end of its estimated useful life or legislative, economic or market changes that could permanently reduce the value of our investments. If indicators of impairment are present, we evaluate the carrying value of the related real estate property by comparing it to the expected future undiscounted cash flows to be generated from that property. If the sum of these expected future cash flows is less than the carrying value, we reduce the net carrying value of the property to the present value of these expected future cash flows. This analysis requires us to judge whether indicators of impairment exist and to estimate likely future cash flows. If we misjudge or estimate incorrectly or if future tenant profitability, market or industry factors differ from our expectations we may record an impairment charge which is inappropriate or fail to record a charge when we should have done so, or the amount of such charges may be inaccurate.
Some of our real estate properties are leased on a triple net basis, pursuant to non-cancelable, fixed term, leases. Each time we enter a new lease or materially modify an existing lease we evaluate its classification as either a capital lease or operating lease. The classification of a lease as capital or operating affects the carrying value of a property, as well as our recognition of rental payments as revenue. These evaluations require us to make estimates of, among other things, the remaining useful life and market value of a property, discount rates and future cash flows. Incorrect assumptions or estimates may result in misclassification of our leases.
These policies involve significant judgments made based upon our experience, including judgments about current valuations, ultimate realizable value, estimated useful lives, salvage or residual value, the ability of our tenants to perform their obligations to us, current and future economic conditions and competitive factors in the markets in which our properties are located. Recent declines in our occupancy percentages at some of our properties reflect current economic conditions and competition. Competition, economic conditions and other factors may cause additional occupancy declines in the future. In the future we may need to revise our carrying value assessments to incorporate information which is not now known and such revisions could increase or decrease our depreciation expense related to properties we own, result in the classification of our leases as other than operating leases or decrease the carrying values of our assets.
Our investments in Senior Housing and Hospitality Properties are accounted for using the equity method of accounting. Under the equity method we record our percentage share of net earnings from Senior Housing and Hospitality Properties in our consolidated statement of income. Under the equity method, accounting policy judgments made by Senior Housing and Hospitality Properties could have a material effect on our net income. Also, if we determine that there is an other than temporary decline in the fair value of these investments, their cost basis would be written down to fair value and the amount of the write down would be included in our earnings. In evaluating the fair value of these investments, we have considered, among other things, the quoted price, the financial condition and near term prospects of each investee, earnings trends, asset quality, asset valuation models, and the financial condition and prospects for their respective industries generally.
Impact of Inflation
Inflation might have both positive and negative impacts upon us. Inflation might cause the value of our real estate investments to increase. Inflation might also cause our costs of equity and debt capital and other operating costs to increase. An increase in our capital costs or in our operating costs will result in decreased earnings unless it is offset by increased revenues. In periods of rapid inflation, our tenants’ operating costs may increase faster than revenues and this fact may have an adverse impact upon us if our tenants’ operating income becomes insufficient to pay our rent. To mitigate the adverse impact of increased operating costs, we require some of our tenants to guarantee our rent. To mitigate the adverse impact of increased costs of debt capital in the event of material inflation, we may enter into interest rate hedge arrangements in the future. The decision to enter into these agreements will be based on the amount of floating rate debt outstanding, our belief that material interest rate increases are likely to occur and upon requirements of our borrowing arrangements.
34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to risks associated with market changes in interest rates. We manage our exposure to this market risk by monitoring available financing alternatives. Our strategy to manage exposure to changes in interest rates is unchanged from December 31, 2002. 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. At December 31, 2003, our total outstanding term debt of $1.5 billion consisted of the following fixed rate notes:
Amount |
|
Coupon |
|
Maturity |
|
|
Unsecured senior notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
100.0 million |
|
6.70 |
% |
2005 |
|
$ |
30.0 million |
|
8.875 |
% |
2010 |
|
$ |
20.0 million |
|
8.625 |
% |
2010 |
|
$ |
200.0 million |
|
6.95 |
% |
2012 |
|
$ |
200.0 million |
|
6.50 |
% |
2013 |
|
$ |
143.0 million |
|
8.50 |
% |
2013 |
|
$ |
250.0 million |
|
5.75 |
% |
2014 |
|
$ |
200.0 million |
|
6.40 |
% |
2015 |
|
|
|
|
|
|
|
|
Secured notes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
10.3 million |
|
8.40 |
% |
2007 |
|
$ |
16.8 million |
|
7.02 |
% |
2008 |
|
$ |
7.9 million |
|
8.00 |
% |
2008 |
|
$ |
7.2 million |
|
7.66 |
% |
2009 |
|
$ |
252.2 million |
|
6.814 |
% |
2011 |
|
$ |
44.0 million |
|
6.794 |
% |
2029 |
|
The secured notes are secured by 24 of our office properties located in 11 office complexes and require principal and interest payments through maturity pursuant to amortization schedules.
No principal repayments are due under the unsecured senior notes until maturity. Because these notes bear interest at fixed rates, changes in market interest rates during the term of this debt will not affect our operating results. If all of our fixed rate unsecured and secured notes outstanding at December 31, 2003, were to be refinanced at interest rates which are 10% higher or lower than shown above, our per annum interest cost would increase or decrease, respectively, by approximately $10.1 million. Changes in market interest rates also affect the fair value of our debt obligations; increases in market interest rates decrease the fair value of our fixed rate debt while decreases in market interest rates increase the value of our fixed rate debt. Based on the balances outstanding at December 31, 2003, and discounted cash flow analyses, a hypothetical immediate 10% change in interest rates would change the fair value of our fixed rate debt obligations by approximately $60 million.
Each of our fixed rate unsecured and secured debt arrangements allows us to make repayments earlier than the stated maturity date. In some cases, we are not allowed to make early repayment prior to a cutoff date and in most cases we are allowed to make prepayments only at a premium equal to a makewhole amount, as defined, generally designed to preserve a stated yield to the note holder. These prepayment rights may afford us the opportunity to mitigate the risk of refinancing at maturity at higher rates by refinancing prior to maturity. For example, in 2003 we redeemed at par, our $90 million 7.875% senior notes due in April 2009 and our $65 million 8.375% senior notes due in June 2011. We also redeemed all of our $143 million 8.50% senior notes due in November 2013, at par plus accrued interest in February 2004. We funded these redemptions with cash on hand and borrowings under our revolving credit facility.
35
Our unsecured revolving credit facility bears interest at floating rates and matures in April 2006. At December 31, 2003, we had $412 million outstanding and $148 million available for borrowing under this credit facility. Repayments under our revolving credit facility may be made at any time without penalty. We borrow in U.S. dollars and borrowings under our revolving credit facility 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 this floating rate debt but would affect our operating results. For example, the interest rate payable on our outstanding revolving credit facility indebtedness of $412 million at December 31, 2003, was 2.0% per annum. The following table presents the impact a 10% change in interest rates would have on our floating rate interest expense as of December 31, 2003 (dollars in thousands):
|
|
Impact of Changes in Interest Rates |
|
||||||
|
|
Interest
Rate |
|
Outstanding |
|
Total
Interest |
|
||
|
|
|
|
|
|
|
|
||
|
2.0% |
|
$ |
412,000 |
|
$ |
8,240 |
|
|
10% reduction |
|
1.8% |
|
$ |
412,000 |
|
$ |
7,416 |
|
10% increase |
|
2.2% |
|
$ |
412,000 |
|
$ |
9,064 |
|
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 under our floating rate debt.
Item 8. Financial Statements and Supplementary Data
The information required by this item is included in Item 15 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. 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 December 31, 2003, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, including any corrective actions with regard to significant deficiencies and material weaknesses.
36
Item 10. Directors and Executive Officers of the Registrant
In March 2004 we adopted a Code of Business Conduct and Ethics that applies to all our representatives, including our officers and trustees and employees of RMR. Our Code of Business Conduct and Ethics is posted on our website, www.hrpreit.com under the heading “Governance.” A printed copy of our Code of Business Conduct and Ethics is also available free of charge to any shareholder who requests a copy.
The remainder of the information required by Item 10 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.
Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Equity Compensation Plan Information. We may grant common shares to our officers and other employees of RMR, subject to vesting requirements under our 2003 Incentive Share Award Plan, or the Award Plan. In addition, our independent trustees receive 500 shares per year each as part of their annual compensation for serving as our trustees. The terms of grants made under the plan are determined by our trustees at the time of the grant. Payments by us to RMR are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Related Party Transactions”. The following table provides a summary as of December 31, 2003, of our Award Plan.
|
|
Number of
securities |
|
Weighted-average |
|
Number of
securities |
|
|
|
(a) |
|
(b) |
|
(c) |
|
Equity compensation plans approved by security holders |
|
None. |
|
None. |
|
None. |
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders |
|
None. |
|
None. |
|
6,425,978 |
|
|
|
|
|
|
|
|
|
Total |
|
None. |
|
None. |
|
6,425,978 |
|
We have reserved 6,445,978 of our common shares under the terms of our Award Plan. Shares were awarded prior to July 2003 pursuant to our 1992 Incentive Share Award Plan. During the year ended December 31, 2003, 19,500 common shares were awarded to our officers and certain employees of RMR pursuant to the Award Plan. In addition, our Independent Trustees are each awarded 500 common shares annually as part of their annual fees. The shares awarded to our Trustees vest immediately. The shares awarded to our officers and certain employees of RMR vest over a three year period. At December 31, 2003, 6,425,978 of our common shares remain reserved for issuance under the Award Plan.
The remainder of the information required by Item 12 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.
37
Item 13. Certain Relationships and Related Party Transactions
The information required by Item 13 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.
Item 14. Principal Accountant Fees and Services
The information required by Item 14 is incorporated by reference to our definitive Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Index to Financial Statements and Financial Statement Schedules
The following consolidated financial statements and financial statement schedules of HRPT Properties Trust are included on the pages indicated:
|
Page |
Consolidated Statement of Income for each of the three years in the period ended December 31, 2003 |
|
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, or are inapplicable, and therefore have been omitted.
(b) |
|
Reports on Form 8-K |
|
|
|
|
|
During the fourth quarter of 2003, we submitted the following Current Reports on Form 8-K: |
|
|
|
1. |
|
Current Report on Form 8-K, dated October 8, 2003, filing information relating to the appointment of the Company’s new independent trustee and the resignation of one of the Company’s independent trustees. |
|
|
|
2. |
|
Current Report on Form 8-K, dated October 23, 2003, filing information relating to the issuance of $250,000,000 aggregate principal amount of the Company’s 5.75% Senior Notes due February 15, 2014. |
|
|
|
3. |
|
Current Report on Form 8-K, dated November 11, 2003, furnishing the Company’s press release containing the Company’s results of operations and financial condition for the quarter and nine months ended September 30, 2003. |
|
|
|
4. |
|
Current Report on Form 8-K, dated December 5, 2003, filing information relating to property acquisitions, the election of the Company’s new executive vice president and financial statements pursuant to Rule 3-14 of Regulation S-X. |
|
|
|
(c) |
|
Exhibits |
|
|
|
3.1 |
|
Composite Copy of Third Amendment and Restatement of Declaration of Trust of the Company, dated July 1, 1994, as amended to date. (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 7, 2004) |
38
3.2 |
|
Articles Supplementary, dated November 4, 1994, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, creating the Junior Participating Preferred Shares. (incorporated by reference to the Company’s Current Report on Form 8-K, dated May 27, 1998) |
|
|
|
3.3 |
|
Articles Supplementary, dated May 13, 1997, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares. (incorporated by reference to the Company’s Current Report on Form 8-K, dated May 27, 1998) |
|
|
|
3.4 |
|
Articles Supplementary, dated May 22, 1998, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares. (incorporated by reference to the Company’s Current Report on Form 8-K, dated May 27, 1998) |
|
|
|
3.5 |
|
Articles Supplementary, dated May 10, 2000, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, electing for the Trust to be subject to certain sections of the Maryland General Corporation Law. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000) |
|
|
|
3.6 |
|
Articles Supplementary, dated February 16, 2001, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, creating the Series A Cumulative Redeemable Preferred Shares. (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 16, 2001) |
|
|
|
3.7 |
|
Articles Supplementary, dated September 6, 2002, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, creating the Series B Cumulative Redeemable Preferred Shares. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002) |
|
|
|
3.8 |
|
Articles Supplementary, dated June 16, 2003, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares. (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 7, 2004) |
|
|
|
3.9 |
|
Articles Supplementary, dated January 7, 2004, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, increasing the Junior Participating Preferred Shares. (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 7, 2004) |
|
|
|
3.10 |
|
Composite copy of Amended and Restated By-laws of the Company dated March 20, 2003, as amended to date. (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 10, 2004) |
|
|
|
4.1 |
|
Form of Common Share Certificate. (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 11, 1999) |
|
|
|
4.2 |
|
Form of Temporary 9 7/8% Series A Cumulative Redeemable Preferred Share Certificate. (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 16, 2001) |
|
|
|
4.3 |
|
Form of Temporary 8 3/4% Series B Cumulative Redeemable Preferred Share Certificate. (incorporated by reference to the Company’s Current Report on Form 8-K, dated September 6, 2002) |
|
|
|
4.4 |
|
Rights Agreement, dated October 17, 1994, between the Company and State Street Bank & Trust Company (“State Street”), as Rights Agent (including the form of Articles Supplementary relating to the Junior Participating Preferred Shares annexed as an exhibit thereto). (incorporated by reference to the Company’s Current Report on Form 8-K, dated October 24, 1994) |
|
|
|
4.5 |
|
Rights Agreement dated as of March 10, 2004, by and between the Company and EquiServe Trust Company, N.A. (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 10, 2004) |
|
|
|
4.6 |
|
Indenture, dated as of July 9, 1997, by and between the Company and State Street, as Trustee. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997) |
39
4.7 |
|
Supplemental Indenture No. 3, dated as of February 23, 1998, by and between the Company and State Street, relating to the Company’s 6.7% Senior Notes due 2005, including form thereof. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997) |
|
|
|
4.8 |
|
Supplemental Indenture No. 8, dated as of July 31, 2000, by and between the Company and State Street, relating to 8.875% Senior Notes due 2010, including form thereof. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000) |
|
|
|
4.9 |
|
Supplemental Indenture No. 9, dated as of September 29, 2000, by and between the Company and State Street, relating to 8.625% Senior Notes due 2010, including form thereof. (incorporated by reference to the Company’s Current Report on Form 8-K, dated September 28, 2000) |
|
|
|
4.10 |
|
Supplemental Indenture No. 10, dated as of April 10, 2002, by and between the Company and State Street, relating to 6.95% Senior Notes due 2012, including form thereof. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002) |
|
|
|
4.11 |
|
Supplemental Indenture No. 11, dated as of December 6, 2002, by and between the Company and State Street, relating to 6.50% Senior Notes due 2013, including form thereof. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002) |
|
|
|
4.12 |
|
Supplemental Indenture No. 12, dated as of January 30, 2003, by and between the Company and U.S. Bank, relating to 6.40% Senior Notes due 2015, including form thereof. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002) |
|
|
|
4.13 |
|
Supplemental Indenture No. 13, dated as of October 30, 2003, by and between the Company and U.S. Bank, relating to 5.75% Senior Notes due 2014, including form thereof. (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 7, 2004) |
|
|
|
8.1 |
|
Opinion of Sullivan & Worcester LLP as to certain tax matters. (filed herewith) |
|
|
|
10.1 |
|
Advisory Agreement, dated as of January 1, 1998, by and between the Company and REIT Management & Research, Inc. (“RMR, Inc.”). (+) (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 11, 1998) |
|
|
|
10.2 |
|
Amendment No. 1 to Advisory Agreement, dated as of October 12, 1999, by and between the Company and RMR, Inc. (+) (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 16, 1999) |
|
|
|
10.3 |
|
Amendment No. 2 to Advisory Agreement, dated as of March 10, 2004, by and between the Company and RMR LLC (+) (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 10, 2004) |
|
|
|
10.4 |
|
Master Management Agreement, dated as of January 1, 1998, by and between the Company and RMR, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 27, 1998) |
|
|
|
10.5 |
|
Parking Operation Management Agreement, dated as of January 1, 1998, by and between HUB Properties Trust, a subsidiary of the Company, and Garage Management, Inc. (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 27, 1998) |
|
|
|
10.6 |
|
2003 Incentive Share Award Plan. (+) (incorporated by reference to the Company’s Current Report on Form 8-K, dated June 17, 2003) |
|
|
|
10.7 |
|
Form of Restricted Share Agreement. (+) (incorporated by reference to the Company’s Quarterly Report on Form 10-K for the quarter ended June 30, 2003) |
|
|
|
10.8 |
|
Form of Indemnification Agreement (incorporated by reference to the Company’s Current Report on Form 8-K, dated March 10, 2004) |
|
|
|
10.9 |
|
Transaction Agreement, dated as of September 21, 1999, between Senior Housing Properties Trust and the Company. (incorporated by reference to the Company’s Current Report on Form 8-K, dated October 12, 1999) |
40
10.10 |
|
Loan and Security Agreement, dated December 15, 2000, by and between Cedars LA LLC (“Cedars”), Herald Square LLC (“Herald Square”), Indiana Avenue LLC (“Indiana Avenue”), Bridgepoint Property Trust (“Bridgepoint”), Lakewood Property Trust (“Lakewood”) and 1600 Market Street Property Trust (“1600 Market Street”), collectively as Borrowers, and Merrill Lynch Mortgage Lending, Inc. (“Merrill”), as Lender. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.11 |
|
Promissory Note in the amount of $260,000,000, dated December 15, 2000, issued by Cedars, Herald Square, Indiana Avenue, Bridgepoint, Lakewood and 1600 Market Street, collectively as Borrowers, to Merrill, as Lender. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.12 |
|
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Bridgepoint in favor of William Z. Fairbanks, Jr. (“Fairbanks”) and for the benefit of Merrill. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.13 |
|
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Lakewood in favor of Fairbanks and for the benefit of Merrill. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.14 |
|
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Herald Square to Lawyers Title Realty Services, Inc. (“Lawyers Title”) for the benefit of Merrill. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.15 |
|
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Indiana Avenue to Lawyers Title for the benefit of Merrill. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.16 |
|
Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Cedars to Lawyers Title Company for the benefit of Merrill. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.17 |
|
Open-End Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by 1600 Market Street, as Mortgagor, to and for the benefit of Merrill, as Mortgagee. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.18 |
|
Exceptions to Non-Recourse Guaranty, dated December 15, 2000, entered into by Hub Realty College Park I, LLC (“College Park”), as Guarantor, for the benefit of Merrill, as Lender, in reference to the $260,000,000 loan. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.19 |
|
Loan and Security Agreement, dated December 15, 2000, entered into by and between Franklin Plaza Property Trust (“Franklin Plaza”), as Borrower, and Merrill, as Lender. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.20 |
|
Promissory Note in the amount of $44,000,000, dated December 15, 2000, issued by Franklin Plaza, as Borrower, to Merrill, as Lender. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.21 |
|
Open-End Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated December 15, 2000, made by Franklin Plaza, as Mortgagor, to and for the benefit of Merrill, as Mortgagee. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
|
|
|
10.22 |
|
Exceptions to Non-Recourse Guaranty, dated December 15, 2000, entered by College Park, as Guarantor, for the benefit of Merrill, as Lender, in reference to the $44,000,000 loan. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000) |
41
10.23 |
|
Credit Agreement, dated as of April 30, 2001, by and among the Company; the financial institutions signatory thereto; First Union National Bank, as Agent; and other agents. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2001) |
|
|
|
10.24 |
|
First Amendment, dated as of December 19, 2002, to Credit Agreement, dated as of April 30, 2001, by and among the Company, each of the financial institutions signatory thereto and Wachovia Bank, National Association (f/k/a First Union National Bank), as Agent. (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 23, 2003) |
|
|
|
10.25 |
|
Second Amendment, dated as of February 10, 2004, to Credit Agreement, dated as of April 30, 2001, by and among the Company, each of the financial institutions signatory thereto and Wachovia Bank, National Association (f/k/a First Union National Bank), as Agent. (filed herewith) |
|
|
|
10.26 |
|
Term Loan Agreement, dated as of February 25, 2004, by and among the Company, each of the financial institutions a signatory thereto; Wachovia Bank, National Association, as Administrative Agent; and other agents. (filed herewith) |
|
|
|
10.27 |
|
Purchase and Sale Agreement, dated as of November 6, 2003, by and between the Trustees Under the Will and of the Estate of Samuel Damon, Deceased, as seller, and the Company, as purchaser. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 5, 2003) |
|
|
|
10.28 |
|
First Amendment to Purchase and Sale Agreement, dated as of December 4, 2003, between the Trustees Under the Will and of the Estate of Samuel Damon, Deceased, as seller, and the Company, as purchaser. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 5, 2003) |
|
|
|
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) |
|
|
|
21.1 |
|
|
|
|
|
23.1 |
|
Consent of Ernst & Young LLP. (filed herewith) |
|
|
|
23.2 |
|
Consent of Sullivan & Worcester LLP. (included as part of Exhibit 8.1 hereto) |
|
|
|
23.3 |
|
Notice Regarding Consent Of Arthur Andersen LLP. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2002) |
|
|
|
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) |
|
|
|
(+) |
|
Management contract or compensatory plan or arrangement. |
42
Report of Independent Auditors
To the Trustees and Shareholders of HRPT Properties Trust:
We have audited the accompanying consolidated balance sheets of HRPT Properties Trust as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. The financial statements of Hospitality Properties Trust (a real estate investment trust in which the Company has a 6.4% interest as of December 31, 2003 and 2002) for the year ended December 31, 2001 were audited by other auditors who have ceased operation and whose report dated January 15, 2002, which expressed an unqualified opinion on those statements, has been furnished to us; insofar as our opinion on the 2001 consolidated financial statements relates to data included for Hospitality Properties Trust, it is based solely on their report.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of HRPT Properties Trust at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
|
/s/ Ernst & Young LLP |
|
|
|
|
|
ERNST & YOUNG LLP |
|
|
||
|
||
Boston, Massachusetts |
||
except for Note 11, as to which |
||
date is March 8, 2004 |
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Trustees and Shareholders of Hospitality Properties Trust:
We have audited the consolidated balance sheet of Hospitality Properties Trust and subsidiaries (a Maryland real estate investment trust) (the “Company”) as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity and cash flows (not presented herein) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hospitality Properties Trust and subsidiaries as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
|
/s/ Arthur Andersen LLP |
|
|
|
|
|
ARTHUR ANDERSEN LLP |
|
|
||
|
||
Vienna, Virginia |
||
Note:
This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Hospitality Properties Trust and subsidiaries filing on Form 10-K for the year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K.
F-2
HRPT PROPERTIES TRUST
(in thousands, except share data)
|
|
|
|||||
|
|
|
2002 |
|
|||
ASSETS |
|
|
|
|
|
||
Real estate properties, at cost: |
|
|
|
|
|
||
Land |
|
$ |
852,983 |
|
$ |
346,895 |
|
Buildings and improvements |
|
3,038,983 |
|
2,727,761 |
|
||
|
|
3,891,966 |
|
3,074,656 |
|
||
Accumulated depreciation |
|
(363,015 |
) |
(284,548 |
) |
||
|
|
3,528,951 |
|
2,790,108 |
|
||
Acquired real estate leases |
|
68,983 |
|
33,017 |
|
||
Equity investments |
|
260,208 |
|
264,087 |
|
||
Cash and cash equivalents |
|
11,526 |
|
12,384 |
|
||
Restricted cash |
|
9,163 |
|
9,415 |
|
||
Rents receivable, net |
|
83,973 |
|
63,105 |
|
||
Other assets, net |
|
50,440 |
|
49,536 |
|
||
Total assets |
|
$ |
4,013,244 |
|
$ |
3,221,652 |
|
|
|
|
|
|
|
||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
||
Revolving credit facility |
|
$ |
412,000 |
|
$ |
37,000 |
|
Senior notes payable, net |
|
1,136,311 |
|
843,180 |
|
||
Mortgage notes payable, net |
|
328,510 |
|
335,797 |
|
||
Accounts payable and accrued expenses |
|
60,541 |
|
38,402 |
|
||
Acquired real estate lease obligations |
|
33,206 |
|
15,312 |
|
||
Rent collected in advance |
|
13,135 |
|
10,935 |
|
||
Security deposits |
|
9,520 |
|
8,444 |
|
||
Due to affiliates |
|
8,370 |
|
6,309 |
|
||
Total liabilities |
|
2,001,593 |
|
1,295,379 |
|
||
|
|
|
|
|
|
||
Commitments and contingencies |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shareholders’ equity: |
|
|
|
|
|
||
Preferred shares of beneficial interest, $0.01 par value: 50,000,000 shares authorized: |
|
|
|
|
|
||
Series A, 8,000,000 shares issued and outstanding |
|
193,086 |
|
193,086 |
|
||
Series B, 12,000,000 shares issued and outstanding |
|
289,849 |
|
289,849 |
|
||
Common shares of beneficial interest, $0.01 par value: 200,000,000 shares authorized, 142,773,925 and 128,825,247 shares issued and outstanding, respectively |
|
1,428 |
|
1,288 |
|
||
Additional paid in capital |
|
2,071,203 |
|
1,945,753 |
|
||
Cumulative net income |
|
1,124,961 |
|
1,010,515 |
|
||
Cumulative common distributions |
|
(1,584,213 |
) |
(1,475,555 |
) |
||
Cumulative preferred distributions |
|
(84,663 |
) |
(38,663 |
) |
||
Total shareholders’ equity |
|
2,011,651 |
|
1,926,273 |
|
||
Total liabilities and shareholders’ equity |
|
$ |
4,013,244 |
|
$ |
3,221,652 |
|
See accompanying notes
F-3
HRPT PROPERTIES TRUST
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2002 |
|
2001 |
|
||||
Revenues: |
|
|
|
|
|
|
|
|||
Rental income |
|
$ |
500,316 |
|
$ |
414,073 |
|
$ |
387,806 |
|
Interest and other income |
|
411 |
|
2,893 |
|
6,366 |
|
|||
Total revenues |
|
500,727 |
|
416,966 |
|
394,172 |
|
|||
|
|
|
|
|
|
|
|
|||
Expenses: |
|
|
|
|
|
|
|
|||
Operating expenses |
|
192,813 |
|
152,614 |
|
140,592 |
|
|||
Interest (including amortization of note discounts and deferred financing fees of $5,975, $5,276 and $4,919, respectively) |
|
101,144 |
|
86,360 |
|
90,518 |
|
|||
Depreciation and amortization |
|
93,273 |
|
68,750 |
|
61,744 |
|
|||
General and administrative |
|
19,338 |
|
16,815 |
|
15,614 |
|
|||
Loss on early extinguishment of debt |
|
3,238 |
|
3,504 |
|
2,149 |
|
|||
Reversal of impairment of assets |
|
— |
|
— |
|
(3,955 |
) |
|||
Total expenses |
|
409,806 |
|
328,043 |
|
306,662 |
|
|||
|
|
|
|
|
|
|
|
|||
Income before equity in earnings of equity investments |
|
90,921 |
|
88,923 |
|
87,510 |
|
|||
Equity in earnings of equity investments |
|
23,525 |
|
19,261 |
|
14,559 |
|
|||
Loss on equity transactions of equity investments |
|
— |
|
(1,421 |
) |
(19,265 |
) |
|||
Net income |
|
114,446 |
|
106,763 |
|
82,804 |
|
|||
Preferred distributions |
|
(46,000 |
) |
(27,625 |
) |
(16,842 |
) |
|||
Net income available for common shareholders |
|
$ |
68,446 |
|
$ |
79,138 |
|
$ |
65,962 |
|
|
|
|
|
|
|
|
|
|||
Weighted average common shares outstanding |
|
136,270 |
|
128,817 |
|
130,253 |
|
|||
|
|
|
|
|
|
|
|
|||
Basic and diluted earnings per common share: |
|
|
|
|
|
|
|
|||
Net income available for common shareholders |
|
$ |
0.50 |
|
$ |
0.61 |
|
$ |
0.51 |
|
See accompanying notes
F-4
HRPT PROPERTIES TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(in thousands, except share data)
|
|
Preferred Shares |
|
Common Shares |
|
|
|
|
|
Accumulated |
|
|
|
|||||||||||||||||||||
|
|
Series A |
|
Series B |
|
Cumulative |
|
|
|
|
|
Cumulative |
|
Additional |
|
|
|
Other |
|
|
|
|||||||||||||
|
|
Number of |
|
Preferred |
|
Number of |
|
Preferred |
|
Preferred |
|
Number of |
|
Common |
|
Common |
|
Paid in |
|
Cumulative |
|
Comprehensive |
|
Total |
|
|||||||||
Balance at December 31, 2000 |
|
— |
|
$ |
— |
|
— |
|
$ |
— |
|
$ |
— |
|
131,948,847 |
|
$ |
1,319 |
|
$ |
(1,258,739 |
) |
$ |
1,971,679 |
|
$ |
820,948 |
|
$ |
(5,995 |
) |
$ |
1,529,212 |
|
Issuance of shares, net |
|
8,000,000 |
|
193,086 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
193,086 |
|
|||||||||
Stock grants |
|
— |
|
— |
|
— |
|
— |
|
— |
|
14,000 |
|
— |
|
— |
|
132 |
|
— |
|
— |
|
132 |
|
|||||||||
Shares repurchased |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(3,154,100 |
) |
(31 |
) |
— |
|
(26,201 |
) |
— |
|
— |
|
(26,232 |
) |
|||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
82,804 |
|
— |
|
82,804 |
|
|||||||||
Unrealized holding gains on investments |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
5,581 |
|
5,581 |
|
|||||||||
Total comprehensive income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
82,804 |
|
5,581 |
|
88,385 |
|
|||||||||
Distribution of Five Star Quality Care, Inc. shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(9,352 |
) |
— |
|
— |
|
— |
|
(9,352 |
) |
|||||||||
Distributions |
|
— |
|
— |
|
— |
|
— |
|
(14,319 |
) |
— |
|
— |
|
(104,412 |
) |
— |
|
— |
|
— |
|
(118,731 |
) |
|||||||||
Balance at December 31, 2001 |
|
8,000,000 |
|
193,086 |
|
— |
|
— |
|
(14,319 |
) |
128,808,747 |
|
1,288 |
|
(1,372,503 |
) |
1,945,610 |
|
903,752 |
|
(414 |
) |
1,656,500 |
|
|||||||||
Issuance of shares, net |
|
— |
|
— |
|
12,000,000 |
|
289,849 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
289,849 |
|
|||||||||
Stock grants |
|
— |
|
— |
|
— |
|
— |
|
— |
|
16,500 |
|
— |
|
— |
|
143 |
|
— |
|
— |
|
143 |
|
|||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
106,763 |
|
— |
|
106,763 |
|
|||||||||
Unrealized holding gains on investments |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
1,713 |
|
1,713 |
|
|||||||||
Reclassification adjustment for gains realized in net income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(1,299 |
) |
(1,299 |
) |
|||||||||
Total comprehensive income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
106,763 |
|
414 |
|
107,177 |
|
|||||||||
Distributions |
|
— |
|
— |
|
— |
|
— |
|
(24,344 |
) |
— |
|
— |
|
(103,052 |
) |
— |
|
— |
|
— |
|
(127,396 |
) |
|||||||||
Balance at December 31, 2002 |
|
8,000,000 |
|
193,086 |
|
12,000,000 |
|
289,849 |
|
(38,663 |
) |
128,825,247 |
|
1,288 |
|
(1,475,555 |
) |
1,945,753 |
|
1,010,515 |
|
— |
|
1,926,273 |
|
|||||||||
Issuance of shares, net |
|
— |
|
— |
|
— |
|
— |
|
— |
|
13,835,100 |
|
139 |
|
— |
|
124,479 |
|
— |
|
— |
|
124,618 |
|
|||||||||
Stock grants |
|
— |
|
— |
|
— |
|
— |
|
— |
|
114,330 |
|
1 |
|
— |
|
971 |
|
— |
|
— |
|
972 |
|
|||||||||
Cancellation of shares |
|
— |
|
— |
|
— |
|
— |
|
— |
|
(752 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
|||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Net income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
114,446 |
|
— |
|
114,446 |
|
|||||||||
Total comprehensive income |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
114,446 |
|
— |
|
114,446 |
|
|||||||||
Distributions |
|
— |
|
— |
|
— |
|
— |
|
(46,000 |
) |
— |
|
— |
|
(108,658 |
) |
— |
|
— |
|
— |
|
(154,658 |
) |
|||||||||
Balance at December 31, 2003 |
|
8,000,000 |
|
$ |
193,086 |
|
12,000,000 |
|
$ |
289,849 |
|
$ |
(84,663 |
) |
142,773,925 |
|
$ |
1,428 |
|
$ |
(1,584,213 |
) |
$ |
2,071,203 |
|
$ |
1,124,961 |
|
$ |
— |
|
$ |
2,011,651 |
|
See accompanying notes
F-5
HRPT PROPERTIES TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2002 |
|
2001 |
|
||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|||
Net income |
|
$ |
114,446 |
|
$ |
106,763 |
|
$ |
82,804 |
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|||
Depreciation |
|
79,661 |
|
65,489 |
|
59,542 |
|
|||
Amortization of note discounts and deferred financing fees |
|
5,975 |
|
5,276 |
|
4,919 |
|
|||
Amortization of in place leases |
|
6,954 |
|
— |
|
— |
|
|||
Other amortization |
|
5,563 |
|
3,261 |
|
2,202 |
|
|||
Loss on early extinguishment of debt |
|
3,238 |
|
177 |
|
2,149 |
|
|||
Reversal of impairment of assets |
|
— |
|
— |
|
(3,955 |
) |
|||
Equity in earnings of equity investments |
|
(23,525 |
) |
(19,261 |
) |
(14,559 |
) |
|||
Loss on equity transactions of equity investments |
|
— |
|
1,421 |
|
19,265 |
|
|||
Distributions of earnings from equity investments |
|
21,383 |
|
19,261 |
|
14,559 |
|
|||
Change in assets and liabilities: |
|
|
|
|
|
|
|
|||
Increase in rents receivable and other assets |
|
(30,740 |
) |
(15,925 |
) |
(17,530 |
) |
|||
Increase (decrease) in accounts payable and accrued expenses |
|
11,139 |
|
5,514 |
|
(7,748 |
) |
|||
Increase in rent collected in advance |
|
2,200 |
|
3,011 |
|
1,865 |
|
|||
Increase in security deposits |
|
1,076 |
|
1,110 |
|
723 |
|
|||
Increase (decrease) in due to affiliates |
|
2,834 |
|
2,746 |
|
(11,137 |
) |
|||
Cash provided by operating activities |
|
200,204 |
|
178,843 |
|
133,099 |
|
|||
|
|
|
|
|
|
|
|
|||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|||
Real estate acquisitions and improvements |
|
(832,826 |
) |
(500,581 |
) |
(56,976 |
) |
|||
Distributions in excess of earnings from equity investments |
|
6,021 |
|
7,934 |
|
12,092 |
|
|||
Proceeds from repayment of real estate mortgages receivable |
|
— |
|
— |
|
10,404 |
|
|||
Proceeds from sale of real estate |
|
385 |
|
740 |
|
10,583 |
|
|||
Decrease (increase) in restricted cash |
|
252 |
|
(833 |
) |
14,544 |
|
|||
Purchase of Five Star Quality Care, Inc. common shares |
|
— |
|
— |
|
(52 |
) |
|||
Cash used for investing activities |
|
(826,168 |
) |
(492,740 |
) |
(9,405 |
) |
|||
|
|
|
|
|
|
|
|
|||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|||
Proceeds from issuance of preferred shares |
|
— |
|
289,849 |
|
193,086 |
|
|||
Proceeds from issuance of common shares |
|
124,618 |
|
— |
|
— |
|
|||
Proceeds from borrowings |
|
1,223,454 |
|
1,041,282 |
|
— |
|
|||
Payments on borrowings |
|
(564,989 |
) |
(924,200 |
) |
(207,205 |
) |
|||
Deferred financing fees |
|
(3,319 |
) |
(3,809 |
) |
(6,738 |
) |
|||
Distributions to common shareholders |
|
(108,658 |
) |
(103,052 |
) |
(104,412 |
) |
|||
Distributions to preferred shareholders |
|
(46,000 |
) |
(24,344 |
) |
(14,319 |
) |
|||
Repurchase of common shares |
|
— |
|
— |
|
(26,232 |
) |
|||
Cash provided by (used for) financing activities |
|
625,106 |
|
275,726 |
|
(165,820 |
) |
|||
|
|
|
|
|
|
|
|
|||
Decrease in cash and cash equivalents |
|
(858 |
) |
(38,171 |
) |
(42,126 |
) |
|||
Cash and cash equivalents at beginning of period |
|
12,384 |
|
50,555 |
|
92,681 |
|
|||
Cash and cash equivalents at end of period |
|
$ |
11,526 |
|
$ |
12,384 |
|
$ |
50,555 |
|
See accompanying notes
F-6
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2002 |
|
2001 |
|
||||
|
|
|
|
|
|
|
|
|||
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|||
Interest paid (including capitalized interest paid of $3,057 and $787 in 2002 and 2001, respectively) |
|
$ |
82,771 |
|
$ |
83,954 |
|
$ |
89,158 |
|
|
|
|
|
|
|
|
|
|||
NON-CASH INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|||
Receipt of Five Star Quality Care, Inc. common shares |
|
$ |
— |
|
$ |
— |
|
$ |
9,300 |
|
|
|
|
|
|
|
|
|
|||
NON-CASH FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|||
Issuance of common shares |
|
$ |
972 |
|
$ |
143 |
|
$ |
132 |
|
Distribution of Five Star Quality Care, Inc. common shares |
|
— |
|
— |
|
(9,352 |
) |
See accompanying notes
F-7
HRPT PROPERTIES TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
HRPT Properties Trust is a Maryland real estate investment trust, or REIT, which was organized on October 9, 1986. At December 31, 2003, we had investments in 238 properties and owned 21.9% and 6.4% of the common shares of Senior Housing Properties Trust, or Senior Housing, and Hospitality Properties Trust, or Hospitality Properties, respectively. At December 31, 2003, Senior Housing owned 150 senior housing properties and Hospitality Properties owned 286 hotels.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation. The consolidated financial statements include our investments in 100% owned subsidiaries. Our investments in 50% or less owned companies over which we can exercise influence, but do not control, are accounted for using the equity method of accounting. All intercompany transactions have been eliminated. Significant influence is present through common representation on the board of trustees. 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 use the income statement method to account for issuance of common shares of beneficial interest 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 or Hospitality Properties are recognized in our income statement.
Real Estate Property. Real estate properties are recorded at cost. Depreciation on real estate investments is provided for on a straight line basis over estimated useful lives ranging up to 40 years.
We have historically allocated the purchase prices of properties to land, building and improvements, and each component generally has a different useful life. For properties acquired subsequent to June 1, 2001, the effective date of Financial Accounting Standards No. 141, “Business Combinations”, or FAS 141, we allocate the value of real estate acquired among land, building and improvements and identified intangible assets and liabilities, consisting of the value of above market and below market leases, the value of in place leases, and the value of tenant relationships. Purchase price allocations and the determination of useful lives are based on management’s estimates and, under some circumstances, studies commissioned from independent real estate appraisal firms.
Purchase price allocations to land, building and improvements are based on management’s determination of the relative fair values of these assets assuming the property is vacant. Management determines the fair value of a property using methods similar to those used by independent appraisers. Purchase price allocations to above market and below market leases are based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in place leases and (ii) our estimate of fair market lease rates for the corresponding leases, measured over a period equal to the remaining non-cancelable terms of the respective leases. Purchase price allocations to in place leases and tenant relationships are determined as the excess of (i) the purchase price paid for a property after adjusting existing in place leases to market rental rates over (ii) the estimated fair value of the property as if vacant. This aggregate value is allocated between in place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in place lease value because such value and related amortization expense is immaterial for acquisitions reflected in our financial statements. Factors we consider in performing these analyses include an estimate of carrying costs during the expected lease up periods, including real estate taxes, insurance and other operating income and expenses and costs to execute similar leases in current market conditions, such as leasing commissions, legal and other related costs. If the value of tenant relationships are material in the future, those amounts will be separately allocated and amortized over the estimated life of the relationships.
Capitalized above market lease values (included in acquired real estate leases in the accompanying consolidated balance sheet) are amortized as a reduction to rental income over the remaining non-cancelable terms of the respective leases. Capitalized below market lease values (presented as acquired real estate lease obligations in the accompanying consolidated balance sheet) are amortized as an increase to rental income over the non-cancelable periods of the respective leases. Such amortization amounted to a rental income increase of $1.1 million during the year ended December 31, 2003. The value of in place leases exclusive of the value of above market and below market in place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. Such amortization amounted to $8.0 million during the year ended December 31, 2003. If a lease is terminated prior to its stated expiration, all unamortized amounts relating to that lease is written off.
F-8
Intangible lease assets and liabilities recorded by us for properties acquired in 2003 totaled $48.6 million and $23.5 million, respectively. Intangible lease assets and liabilities recorded by us in 2002 totaled $33.0 million and $15.3 million, respectively. Accumulated amortization of capitalized above and below market lease values was $1.1 million at December 31, 2003. Accumulated amortization of the value of in place leases exclusive of the value of above and below market in place leases was $8.0 million at December 31, 2003.
Impairment losses on investments are recognized where indicators of impairment are present and the undiscounted cash flow estimated to be generated by our investments is less than the carrying amount of such investments. The determination of undiscounted cash flow includes consideration of many factors including income to be earned from the investment, holding costs (exclusive of interest), estimated selling prices, and prevailing economic and market conditions.
Cash and Cash Equivalents. Cash, overnight repurchase agreements and short term investments with original maturities of three months or less at the date of purchase are carried at cost plus accrued interest.
Restricted Cash. Restricted cash consists of amounts escrowed for future real estate taxes and capital expenditures.
Other Assets, Net. Other assets consist principally of deferred financing fees and prepaid property operating expenses. Deferred financing fees include issuance costs related to borrowings and are capitalized and amortized over the terms of the respective loans. At December 31, 2003 and 2002, deferred financing fees totaled $25.3 million and $27.1 million, respectively, and accumulated amortization for deferred financing fees totaled $9.8 million and $8.0 million, respectively.
Revenue Recognition. Rental income from operating leases is recognized on a straight line basis over the life of the lease agreements.
Earnings Per Common Share. Basic earnings per common share is computed using the weighted average number of common shares outstanding during the period. We have no common share equivalents, instruments convertible into common shares or other dilutive instruments.
Reclassifications. Reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.
Income Taxes. We are a real estate investment trust under the Internal Revenue Code of 1986, as amended. Accordingly, we expect not to be subject to federal income taxes if we continue to distribute our taxable income and meet other requirements for qualifying as a real estate investment trust. However, we are subject to some state and local taxes on our income and property. The characterization of our distributions paid in 2003, 2002 and 2001 was 69.1%, 76.6% and 78.9% ordinary income, respectively, and 30.9%, 23.4% and 21.1% return of capital, respectively.
Use of Estimates. Preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that may affect the amounts reported in these financial statements and related notes. The actual results could differ from these estimates.
New Accounting Pronouncements. In April 2002 FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”, or FAS 145. The provisions of this standard eliminate the requirement that a gain or loss from the extinguishment of debt be classified as an extraordinary item, unless it can be considered unusual in nature and infrequent in occurrence. We implemented FAS 145 on January 1, 2003. Upon implementation, we reclassified all extraordinary gains or losses from debt extinguishments in 2002 and prior as ordinary income/loss from operations. In January 2003 the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”, or FIN 46, which was required to be adopted in 2003. The adoption of FIN 46 by us in 2003 did not have a material impact on our financial position or results of operations.
F-9
Note 3. Real Estate Properties
In December 2003 we acquired 9.8 million square feet of leased industrial land in Oahu, Hawaii for $482.0 million, including closing costs. We used borrowings under our revolving credit facility to pay $471.0 million of the purchase price in December 2003. An additional $11 million will be paid when one land parcel of approximately 130,000 square feet, which is being redeveloped in a joint venture by the seller, is completed and conveyed to us, which is expected to occur during the first half of 2004. This $11 million holdback is included in accounts payable and accrued expenses in our consolidated balance sheet at December 31, 2003. All of the Hawaiian lands are located between Honolulu International Airport and Honolulu Harbor, within a short distance (between 0.5 and 5 miles) from the Honolulu Central Business District. The Hawaiian lands are triple net leased to 137 tenants (under 186 separate leases) who have developed various buildings and businesses on their leaseholds. The average remaining lease term for the Hawaiian lands is approximately 22.3 years and no lease expires before 2009, when nine leases for a total of approximately 400,000 square feet will expire. Many of the Hawaiian triple net leases provide that rents are periodically reset to market rates, usually every 5 to 10 years.
During 2003 we purchased an additional 16 properties for $316.8 million, including closing costs, funded improvements to our owned properties totaling $45.0 million and sold one property to an unaffiliated third party for net cash proceeds of $385,000. We allocated $48.6 million of total 2003 acquisition costs to acquired real estate leases and $23.5 million to acquired real estate lease obligations pursuant to FAS 141. As of December 31, 2003, we had an outstanding agreement to purchase three buildings for $24.5 million, plus closing costs. The acquisition of these buildings is subject to various closing conditions customary in real estate transactions and no assurances can be given as to when or if these buildings will be acquired. In January and February 2004 we entered into agreements to purchase two buildings for $16.0 million, plus closing costs; and these two buildings were acquired in February 2004.
Our real estate properties are generally leased on gross lease, modified gross lease or triple net lease bases pursuant to non-cancelable, fixed term operating leases expiring between 2004 to 2051. The triple net leases generally require the lessee to pay all property operating costs. Our gross leases and modified gross leases require us to pay all or some property operating expenses and to provide all or most property management services.
The future minimum lease payments to be received by us during the current terms of our leases as of December 31, 2003, are approximately $415.4 million in 2004, $396.7 million in 2005, $346.1 million in 2006, $307.9 million in 2007, $262.9 million in 2008 and $1.5 billion thereafter.
The tenant responsible for the largest percentage of our rents is the United States Government. For the years ended December 31, 2003, 2002 and 2001, revenues from the United States Government were $88.9, $71.1 million and $63.1 million, respectively.
Note 4. Equity Investments
At December 31, 2003 and 2002, we had the following equity investments (dollars in thousands):
|
|
Ownership Percentage |
|
Equity in Earnings |
|
Equity Investments |
|
||||||||||
|
|
December 31, |
|
Year Ended December 31, |
|
|
|||||||||||
|
|
|
2002 |
|
2003 |
|
2002 |
|
2003 |
|
2002 |
|
|||||
Senior Housing |
|
21.9 |
% |
21.9 |
% |
$ |
9,863 |
|
$ |
11,228 |
|
$ |
160,500 |
|
$ |
166,521 |
|
Hospitality Properties |
|
6.4 |
|
6.4 |
|
13,662 |
|
8,033 |
|
99,708 |
|
97,566 |
|
||||
|
|
|
|
|
|
$ |
23,525 |
|
$ |
19,261 |
|
$ |
260,208 |
|
$ |
264,087 |
|
At December 31, 2003, we owned 12,809,238 common shares of beneficial interest of Senior Housing with a carrying value of $160.5 million and a market value, based on quoted market prices, of $220.7 million. Senior Housing is a real estate investment trust that invests principally in senior housing real estate. During 2002 and 2001 Senior Housing completed three public offerings of common shares. As a result of these transactions, our ownership percentage was reduced to 21.9% and we recognized losses of $1.4 million and $18.1 million for the years ended December 31, 2002 and 2001, respectively. In January 2004 Senior Housing completed another public offering of common shares and in January and February 2004 we sold 3,148,500 common shares we owned of Senior Housing. We now own 9,660,738 common shares of Senior Housing and our ownership percentage in Senior Housing is
F-10
15.2%. We expect to recognize a gain on the sale of our common shares of Senior Housing of approximately $16 million in the first quarter of 2004.
Summarized financial data of Senior Housing is as follows (in thousands, except per share data):
|
|
|
|||||
|
|
|
2002 |
|
|||
Real estate properties, net |
|
$ |
1,257,815 |
|
$ |
1,113,448 |
|
Cash and cash equivalents |
|
3,172 |
|
8,654 |
|
||
Other assets |
|
42,839 |
|
36,098 |
|
||
|
|
$ |
1,303,826 |
|
$ |
1,158,200 |
|
|
|
|
|
|
|
||
Unsecured revolving bank credit facility |
|
$ |
102,000 |
|
$ |
81,000 |
|
Senior unsecured notes due 2012 and 2015, net of discount |
|
393,612 |
|
243,746 |
|
||
Other liabilities |
|
80,308 |
|
81,128 |
|
||
Shareholders’ equity |
|
727,906 |
|
752,326 |
|
||
|
|
$ |
1,303,826 |
|
$ |
1,158,200 |
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2002 |
|
2001 |
|
||||
Revenues |
|
$ |
131,148 |
|
$ |
122,297 |
|
$ |
274,644 |
|
Expenses |
|
81,303 |
|
67,473 |
|
255,168 |
|
|||
Income from continuing operations before distributions on trust preferred securities, loss from discontinued operations and loss on sale of properties |
|
49,845 |
|
54,824 |
|
19,476 |
|
|||
Distributions on trust preferred securities |
|
(2,811 |
) |
(2,811 |
) |
(1,455 |
) |
|||
Income from continuing operations before loss from discontinued operations and loss on sale of properties |
|
47,034 |
|
52,013 |
|
18,021 |
|
|||
Loss from discontinued operations |
|
— |
|
(1,829 |
) |
(1,003 |
) |
|||
Loss on sale of properties |
|
(1,160 |
) |
— |
|
— |
|
|||
Net income |
|
$ |
45,874 |
|
$ |
50,184 |
|
$ |
17,018 |
|
|
|
|
|
|
|
|
|
|||
Weighted average shares outstanding |
|
58,445 |
|
56,416 |
|
30,859 |
|
|||
|
|
|
|
|
|
|
|
|||
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|||
Income from continuing operations before loss from discontinued operations and loss on sale of properties |
|
$ |
0.80 |
|
$ |
0.92 |
|
$ |
0.58 |
|
Loss from discontinued operations and loss on sale of properties |
|
(0.02 |
) |
$ |
(0.03 |
) |
$ |
(0.03 |
) |
|
Net income |
|
$ |
0.78 |
|
$ |
0.89 |
|
$ |
0.55 |
|
On December 31, 2001, Senior Housing spun-off its 100% owned subsidiary, Five Star Quality Care, Inc., or Five Star, by distributing substantially all of Five Star’s common shares to its shareholders (the “Five Star Spin-Off”), including us. In connection with the Five Star Spin-Off, we received 1,280,924 common shares of Five Star which were valued at $9.3 million which were distributable to our shareholders. In order to distribute these Five Star common shares on a round lot basis or one Five Star common share for every 100 of our common shares, we purchased 7,163 additional common shares from Five Star, and we distributed all 1,288,087 of these common shares to our shareholders. Five Star, which is not a REIT, leases and operates senior housing properties including some owned by Senior Housing.
At December 31, 2003, we owned 4,000,000 common shares of beneficial interest of Hospitality Properties with a carrying value of $99.7 million and a market value, based on quoted market prices, of $165.1 million. Hospitality Properties is a real estate investment trust that owns hotels. In 2001 Hospitality Properties completed a public stock offering of common shares. As a result of this transaction, our ownership percentage in Hospitality Properties was reduced from 7.1% to 6.4% and we recognized a loss of $1.2 million. In February and March 2004
F-11
Hospitality Properties completed a public offering of common shares that further reduced our ownership percentage to 6.0%. As a result of these transactions, we expect to recognize a gain of approximately $4 million during the first quarter of 2004.
Summarized financial data of Hospitality Properties is as follows (in thousands, except per share data):
|
|
|
|||||
|
|
|
2002 |
|
|||
Real estate properties, net |
|
$ |
2,685,208 |
|
$ |
2,336,412 |
|
Other assets |
|
76,393 |
|
67,344 |
|
||
|
|
$ |
2,761,601 |
|
$ |
2,403,756 |
|
|
|
|
|
|
|
||
Security and other deposits |
|
$ |
175,304 |
|
$ |
269,918 |
|
Other liabilities |
|
940,769 |
|
488,818 |
|
||
Shareholders’ equity |
|
1,645,528 |
|
1,645,020 |
|
||
|
|
$ |
2,761,601 |
|
$ |
2,403,756 |
|
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2002 |
|
2001 |
|
||||
Revenues |
|
$ |
552,801 |
|
$ |
348,706 |
|
$ |
303,877 |
|
Expenses |
|
314,588 |
|
206,504 |
|
171,921 |
|
|||
Net income |
|
238,213 |
|
142,202 |
|
131,956 |
|
|||
Preferred distributions |
|
(14,780 |
) |
(7,572 |
) |
(7,125 |
) |
|||
Net income available for common shareholders |
|
$ |
223,433 |
|
$ |
134,630 |
|
$ |
124,831 |
|
|
|
|
|
|
|
|
|
|||
Weighted average common shares outstanding |
|
62,576 |
|
62,538 |
|
58,986 |
|
|||
|
|
|
|
|
|
|
|
|||
Basic and diluted earnings per common share: |
|
|
|
|
|
|
|
|||
Net income available for common shareholders |
|
$ |
3.57 |
|
$ |
2.15 |
|
$ |
2.12 |
|
Note 5. Shareholders’ Equity
We have reserved 6,445,978 of our common shares under the terms of our new 2003 Incentive Share Award Plan, or the Award Plan. Shares were awarded prior to July 2003 pursuant to our 1992 Incentive Share Award Plan. During the years ended December 31, 2003, 2002 and 2001, 19,500 common shares with an aggregate market value of $181,000, 15,000 common shares with an aggregate market value of $130,000 and 12,500 common shares with an aggregate market value of $119,000, respectively, were awarded to our officers and employees of RMR pursuant to these plans. In addition, our Independent Trustees were each awarded 500 common shares annually as part of their annual fees. The market values of the common shares awarded to each Independent Trustee were $18,000, $13,000 and $13,000 for the years ended December 31, 2003, 2002 and 2001, respectively. A portion of the shares awarded to the officers and employees of RMR vested immediately and the balance will vest over a two year period. The shares awarded to our Trustees vested immediately. We include the value of awarded common shares in general and administrative expenses. At December 31, 2003, 6,425,978 of our common shares remain reserved for issuance under the Award Plan.
Cash distributions per common share paid by us in 2003, 2002 and 2001, were $0.80 per year. We declared a distribution of $0.20 per common share which was paid on February 23, 2004, to shareholders of record on January 21, 2004.
Our 8,000,000 series A cumulative redeemable preferred shares carry dividends of $2.46875 per annum per share, payable in equal quarterly payments and have a liquidation preference of $25.00 per share. The series A preferred shares are redeemable, at our option, for $25.00 each plus accrued and unpaid dividends at any time on or after February 22, 2006. Our 12,000,000 series B cumulative redeemable preferred shares carries dividends of $2.1875 per annum, payable in equal quarterly payments. Each series B preferred share has a liquidation preference of $25.00 and is redeemable, at our option, for $25.00 each plus accrued and unpaid dividends at any time on or after September 12, 2007.
F-12
We have adopted a Shareholders Rights Plan pursuant to which a right to purchase securities is distributable to shareholders in certain circumstances. Each right entitles the holder to purchase or to receive securities or other assets of ours upon the occurrence of certain events. The rights expire on October 17, 2004, and are redeemable at our option at any time.
Note 6. Transactions with Affiliates
We have agreements with RMR to provide investment advice, property management and administrative services to us. These agreements are subject to the annual review and approval of our independent trustees. RMR is owned by Gerard M. Martin and Barry M. Portnoy, who also serve as our managing trustees. RMR is compensated at an annual rate equal to 0.7% of our real estate investments up to $250 million and 0.5% of investments thereafter, plus property management fees equal to three percent of gross rents and construction management fees equal to five percent of construction costs. RMR is also entitled to an incentive fee which is paid in restricted shares of our common stock based on a formula. Incentive fees earned for the year ended December 31, 2002, were approximately $773,000. No incentive fees were earned for the years ended December 31, 2003 and 2001. At December 31, 2003, affiliates of RMR owned 1,343,126 of our common shares. RMR also leases approximately 17,800 square feet of office space from us at rental rates which we believe to be commercially reasonable.
Amounts resulting from transactions with affiliates are as follows (dollars in thousands):
|
|
Year Ended December 31, |
|
|||||||
|
|
|
2002 |
|
2001 |
|
||||
Advisory and incentive fees paid to RMR |
|
$ |
16,904 |
|
$ |
15,060 |
|
$ |
13,279 |
|
Distributions paid to beneficial owners of RMR and their affiliates |
|
1,056 |
|
1,000 |
|
1,091 |
|
|||
Rental income received from RMR |
|
362 |
|
293 |
|
310 |
|
|||
Management fees paid to RMR |
|
15,663 |
|
12,685 |
|
11,565 |
|
|||
F-13
Note 7. Indebtedness
At December 31, 2003 and 2002, our outstanding indebtedness included the following (dollars in thousands):
|
|
|
|||||
|
|
|
2002 |
|
|||
Unsecured revolving credit facility, due April 2006, at LIBOR plus a premium |
|
$ |
412,000 |
|
$ |
37,000 |
|
Senior Notes, due 2005 at 6.70% |
|
100,000 |
|
100,000 |
|
||
Senior Notes, due 2010 at 8.875% |
|
30,000 |
|
30,000 |
|
||
Senior Notes, due 2010 at 8.625% |
|
20,000 |
|
20,000 |
|
||
Senior Notes, due 2012 at 6.95% |
|
200,000 |
|
200,000 |
|
||
Senior Notes, due 2013 at 6.50% |
|
200,000 |
|
200,000 |
|
||
Senior Notes, due 2014 at 5.75% |
|
250,000 |
|
— |
|
||
Senior Notes, due 2015 at 6.40% |
|
200,000 |
|
— |
|
||
Monthly Income Senior Notes, due 2009 at 7.875% |
|
— |
|
90,000 |
|
||
Monthly Income Senior Notes, due 2011 at 8.375% |
|
— |
|
65,000 |
|
||
Monthly Income Senior Notes, due 2013 at 8.50% |
|
143,000 |
|
143,000 |
|
||
Mortgage Notes Payable, due 2004 at 9.12% |
|
— |
|
3,433 |
|
||
Mortgage Notes Payable, due 2007 at 8.40% |
|
10,291 |
|
10,518 |
|
||
Mortgage Notes Payable, due 2008 at 7.02% |
|
16,835 |
|
17,068 |
|
||
Mortgage Notes Payable, due 2008 at 8.00% |
|
7,869 |
|
9,093 |
|
||
Mortgage Notes Payable, due 2009 at 7.66% |
|
7,203 |
|
8,237 |
|
||
Mortgage Notes Payable, due 2011 at 6.814% |
|
252,210 |
|
255,048 |
|
||
Mortgage Notes Payable, due 2029 at 6.794% |
|
44,000 |
|
44,000 |
|
||
|
|
1,893,408 |
|
1,232,397 |
|
||
Less unamortized discounts |
|
16,587 |
|
16,420 |
|
||
|
|
$ |
1,876,821 |
|
$ |
1,215,977 |
|
In 2003 we issued unsecured senior notes aggregating $450 million in two separate public offerings, raising net proceeds of $444.4 million. The notes bear interest at 6.40% and 5.75%, require semiannual interest payments and mature in February 2015 and February 2014, respectively. Net proceeds from these offerings were used to repay amounts outstanding under our revolving credit facility and general business purposes.
During 2003 we redeemed all of our $90 million 7.875% senior notes due in April 2009, at par, and all of our $65 million 8.375% senior notes due in June 2011, at par. These redemptions were funded with cash on hand and borrowings under our revolving credit facility. We recognized losses of $3.2 million from the write off of deferred financing fees associated with these redemptions. During 2003 we repaid a $3.4 million secured mortgage due in April 2004.
We have a $560 million unsecured revolving credit facility that bears interest at LIBOR plus a premium and matures in April 2006. This credit facility also includes an accordian feature which allows it to be expanded, in certain circumstances, up to $625 million. The average interest rate on amounts outstanding under our credit facility during 2003 was 2.1%.
Our public debt indentures and credit facility agreement contain a number of financial and other covenants, including a credit facility 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.
At December 31, 2003, 11 office complexes comprised of 24 properties costing $641.9 million with an aggregate net book value of $552.6 million were secured by mortgage notes totaling $338.4 million maturing from 2007 through 2029 which, net of unamortized discounts, amounted to $328.5 million.
The required principal payments due during the next five years under all debt outstanding at December 31, 2003, are $6.5 million in 2004, $107.1 million in 2005, $419.7 million in 2006, $17.4 million in 2007, $24.0 million in 2008 and $1.3 billion thereafter.
F-14
Note 8. Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, rents receivable, equity investments, senior notes, mortgage notes payable, accounts payable and other accrued expenses and security deposits. At December 31, 2003 and 2002, the fair values of our financial instruments were not materially different from their carrying values, except as follows (dollars in thousands):
|
|
2003 |
|
2002 |
|
||||||||
|
|
Carrying |
|
Fair Value |
|
Carrying |
|
Fair Value |
|
||||
Equity investments |
|
$ |
260,208 |
|
$ |
385,823 |
|
$ |
264,087 |
|
$ |
276,706 |
|
Senior notes and mortgage notes payable |
|
1,464,821 |
|
1,613,336 |
|
1,178,977 |
|
1,274,145 |
|
||||
The fair values of the senior notes and mortgage notes payable are based on estimates using discounted cash flow analysis and currently prevailing rates. The fair value of the equity investments are based on quoted per share prices for Hospitality Properties of $41.28 and $35.20 at December 31, 2003 and 2002, respectively, and quoted per share prices for Senior Housing of $17.23 and $10.61 at December 31, 2003 and 2002, respectively.
Note 9. Selected Quarterly Financial Data (Unaudited)
The following is a summary of our unaudited quarterly results of operations for 2003 and 2002 (dollars in thousands, except per share amounts):
|
|
2003 |
|
||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
||||
Revenues |
|
$ |
120,633 |
|
$ |
121,720 |
|
$ |
127,538 |
|
$ |
130,836 |
|
Income before equity in earnings of equity investments |
|
23,004 |
|
23,718 |
|
20,733 |
|
23,466 |
|
||||
Equity in earnings of equity investments |
|
4,288 |
|
3,653 |
|
3,886 |
|
11,698 |
|
||||
Net income |
|
27,292 |
|
27,371 |
|
24,619 |
|
35,164 |
|
||||
Preferred distributions |
|
(11,500 |
) |
(11,500 |
) |
(11,500 |
) |
(11,500 |
) |
||||
Net income available for common shareholders |
|
15,792 |
|
15,871 |
|
13,119 |
|
23,664 |
|
||||
Per common share data: |
|
|
|
|
|
|
|
|
|
||||
Income before equity in earnings of equity investments |
|
0.18 |
|
0.18 |
|
0.15 |
|
0.16 |
|
||||
Net income available for common shareholders |
|
0.12 |
|
0.12 |
|
0.09 |
|
0.17 |
|
||||
|
|
2002 |
|
||||||||||
|
|
First |
|
Second |
|
Third |
|
Fourth |
|
||||
Revenues |
|
$ |
98,675 |
|
$ |
100,729 |
|
$ |
102,067 |
|
$ |
115,495 |
|
Income before equity in earnings of equity investments |
|
17,870 |
|
22,469 |
|
22,419 |
|
26,165 |
|
||||
Equity in earnings of equity investments |
|
4,715 |
|
4,343 |
|
4,784 |
|
5,419 |
|
||||
Loss on equity transaction of equity investments |
|
(1,421 |
) |
— |
|
— |
|
— |
|
||||
Net income |
|
21,164 |
|
26,812 |
|
27,203 |
|
31,584 |
|
||||
Preferred distributions |
|
(4,938 |
) |
(4,937 |
) |
(6,250 |
) |
(11,500 |
) |
||||
Net income available for common shareholders |
|
16,226 |
|
21,875 |
|
20,953 |
|
20,084 |
|
||||
Per common share data: |
|
|
|
|
|
|
|
|
|
||||
Income before equity in earnings of equity investments |
|
0.14 |
|
0.17 |
|
0.17 |
|
0.20 |
|
||||
Net income available for common shareholders |
|
0.13 |
|
0.17 |
|
0.16 |
|
0.16 |
|
||||
F-15
Note 10. Pro Forma Information (unaudited)
We purchased 16 properties and 9.8 million square feet of leased industrial land in 2003 for $798.9 million, including closing costs, and 23 properties in 2002 for $443.7 million, including closing costs.
The following table presents our pro forma results of operations as if our 2002 and 2003 acquisitions and financings were completed on January 1, 2002. This pro forma data is not necessarily indicative of what actual results of operations would have been for the years 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 structure. Amounts are in thousands, except per share data.
|
|
Year Ended December 31, |
|
||||
|
|
|
2002 |
|
|||
Total revenues |
|
$ |
558,729 |
|
$ |
555,451 |
|
Net income available for common shareholders |
|
$ |
92,663 |
|
$ |
106,508 |
|
Per common share data: |
|
|
|
|
|
||
Net income available for common shareholders |
|
$ |
0.64 |
|
$ |
0.75 |
|
Note 11. Subsequent Events
In January 2004 we issued 34,500,000 common shares in a public offering, raising net proceeds of approximately $324 million. Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility.
In February 2004 we redeemed at par, our $143 million 8.50% senior notes due in November 2013. We funded this redemption by borrowing under our revolving credit facility.
In January and February 2004 we sold 3,148,500 of our Senior Housing shares in an underwritten public offering for $57.3 million, or $54.3 million net of commissions and fees. Net sales proceeds were used to reduce amounts outstanding under our revolving credit facility. During January through March 2004 Senior Housing and Hospitality Properties completed public offerings of common shares that reduced our ownership percentages in each to 15.2% and 6.0%, respectively. As a result of these transactions, we expect to recognize gains of approximately $20 million.
In January and February 2004 we entered into agreements to purchase two buildings for $16.0 million, plus closing costs; and these two buildings were acquired in February 2004.
In February 2004 we entered into a new five year unsecured term loan with a group of banks. Terms of the new loan include interest at a spread above LIBOR, and an accordian feature which allows it to be expanded in certain circumstances by up to $100 million. The new loan matures in February 2009 and is prepayable without penalty, beginning in August 2005. Net proceeds of the term loan were used to repay amounts outstanding under our revolving credit facility and for general business purposes.
F-16
HRPT PROPERTIES TRUST
VALUATION AND QUALIFYING ACCOUNTS
(dollars in thousands)
Description |
|
Balance at |
|
Charged to |
|
Deductions (1) |
|
Balance at |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Year Ended December 31, 2001: |
|
|
|
|
|
|
|
|
|
||||
Allowance for real estate mortgages receivable |
|
$ |
5,393 |
|
$ |
— |
|
$ |
(3,961 |
)(1) |
$ |
1,432 |
|
|
|
|
|
|
|
|
|
|
|
||||
Year Ended December 31, 2002: |
|
|
|
|
|
|
|
|
|
||||
Allowance for real estate mortgages receivable |
|
$ |
1,432 |
|
$ |
— |
|
$ |
— |
|
$ |
1,432 |
|
|
|
|
|
|
|
|
|
|
|
||||
Year Ended December 31, 2003: |
|
|
|
|
|
|
|
|
|
||||
Allowance for real estate mortgages receivable |
|
$ |
1,432 |
|
$ |
— |
|
$ |
(932 |
) |
$ |
500 |
|
(1) Includes $3,955 collection of previously reserved amount.
S-1
HRPT PROPERTIES TRUST
REAL ESTATE AND ACCUMULATED DEPRECIATION
(dollars in thousands)
|
|
|
|
|
|
Initial Cost to Company |
|
|
|
Cost Amount Carried at Close of Period |
|
|
|
|
|
|
|
||||||||||||||
Location |
|
State |
|
Encumbrances |
|
Land |
|
Buildings
and |
|
Costs
Capitalized |
|
Land |
|
Buildings
and |
|
Total(1) |
|
Accumulated |
|
Date Acquired |
|
Original |
|
||||||||
Petersburg |
|
AK |
|
$ |
— |
|
$ |
189 |
|
$ |
811 |
|
$ |
32 |
|
$ |
189 |
|
$ |
843 |
|
$ |
1,032 |
|
$ |
141 |
|
3/31/97 |
|
1983 |
|
Tucson |
|
AZ |
|
— |
|
765 |
|
3,280 |
|
126 |
|
779 |
|
3,392 |
|
4,171 |
|
591 |
|
3/31/97 |
|
1993 |
|
||||||||
Safford |
|
AZ |
|
— |
|
635 |
|
2,729 |
|
122 |
|
647 |
|
2,839 |
|
3,486 |
|
473 |
|
3/31/97 |
|
1992 |
|
||||||||
Phoenix |
|
AZ |
|
— |
|
2,687 |
|
11,532 |
|
707 |
|
2,729 |
|
12,197 |
|
14,926 |
|
1,964 |
|
5/15/97 |
|
1997 |
|
||||||||
Tempe |
|
AZ |
|
— |
|
1,125 |
|
10,122 |
|
1,643 |
|
1,125 |
|
11,765 |
|
12,890 |
|
1,511 |
|
6/30/99 |
|
1987 |
|
||||||||
Phoenix |
|
AZ |
|
— |
|
1,828 |
|
16,453 |
|
(1 |
) |
1,828 |
|
16,452 |
|
18,280 |
|
1,834 |
|
7/30/99 |
|
1982 |
|
||||||||
Phoenix |
|
AZ |
|
— |
|
1,899 |
|
14,872 |
|
115 |
|
1,899 |
|
14,987 |
|
16,886 |
|
699 |
|
2/1/02 |
|
1999 |
|
||||||||
Phoenix |
|
AZ |
|
— |
|
1,041 |
|
8,023 |
|
382 |
|
1,041 |
|
8,405 |
|
9,446 |
|
419 |
|
2/1/02 |
|
1987 |
|
||||||||
Tucson |
|
AZ |
|
— |
|
3,261 |
|
26,357 |
|
1,385 |
|
3,261 |
|
27,742 |
|
31,003 |
|
1,322 |
|
2/27/02 |
|
1986 |
|
||||||||
Tolleson |
|
AZ |
|
— |
|
1,257 |
|
9,210 |
|
— |
|
1,257 |
|
9,210 |
|
10,467 |
|
10 |
|
12/19/03 |
|
1990 |
|
||||||||
San Diego |
|
CA |
|
— |
|
992 |
|
9,040 |
|
285 |
|
992 |
|
9,325 |
|
10,317 |
|
1,690 |
|
12/5/96 |
|
1985 |
|
||||||||
San Diego |
|
CA |
|
— |
|
1,985 |
|
18,096 |
|
571 |
|
1,985 |
|
18,667 |
|
20,652 |
|
3,192 |
|
12/5/96 |
|
1985 |
|
||||||||
San Diego |
|
CA |
|
— |
|
1,228 |
|
11,199 |
|
354 |
|
1,228 |
|
11,553 |
|
12,781 |
|
2,198 |
|
12/5/96 |
|
1985 |
|
||||||||
San Diego |
|
CA |
|
— |
|
502 |
|
4,526 |
|
344 |
|
502 |
|
4,870 |
|
5,372 |
|
828 |
|
12/31/96 |
|
1984 |
|
||||||||
San Diego |
|
CA |
|
— |
|
294 |
|
2,650 |
|
202 |
|
294 |
|
2,852 |
|
3,146 |
|
485 |
|
12/31/96 |
|
1984 |
|
||||||||
San Diego |
|
CA |
|
— |
|
313 |
|
2,820 |
|
214 |
|
313 |
|
3,034 |
|
3,347 |
|
516 |
|
12/31/96 |
|
1984 |
|
||||||||
San Diego |
|
CA |
|
— |
|
316 |
|
2,846 |
|
216 |
|
316 |
|
3,062 |
|
3,378 |
|
520 |
|
12/31/96 |
|
1984 |
|
||||||||
San Diego |
|
CA |
|
— |
|
2,984 |
|
12,859 |
|
2,141 |
|
3,038 |
|
14,946 |
|
17,984 |
|
2,537 |
|
3/31/97 |
|
1981 |
|
||||||||
Kearney Mesa |
|
CA |
|
— |
|
2,916 |
|
12,456 |
|
619 |
|
2,969 |
|
13,022 |
|
15,991 |
|
2,171 |
|
3/31/97 |
|
1994 |
|
||||||||
San Diego |
|
CA |
|
— |
|
4,269 |
|
18,316 |
|
475 |
|
4,347 |
|
18,713 |
|
23,060 |
|
3,161 |
|
3/31/97 |
|
1996 |
|
||||||||
Los Angeles |
|
CA |
|
35,291 |
|
5,055 |
|
49,685 |
|
2,876 |
|
5,060 |
|
52,556 |
|
57,616 |
|
9,190 |
|
5/15/97 |
|
1979 |
|
||||||||
Los Angeles |
|
CA |
|
35,357 |
|
5,076 |
|
49,884 |
|
2,765 |
|
5,071 |
|
52,654 |
|
57,725 |
|
9,417 |
|
5/15/97 |
|
1979 |
|
||||||||
Los Angeles |
|
CA |
|
— |
|
1,921 |
|
8,242 |
|
327 |
|
1,955 |
|
8,535 |
|
10,490 |
|
1,389 |
|
7/11/97 |
|
1996 |
|
||||||||
Anaheim |
|
CA |
|
— |
|
691 |
|
6,223 |
|
2 |
|
692 |
|
6,224 |
|
6,916 |
|
1,012 |
|
12/5/97 |
|
1992 |
|
||||||||
San Diego |
|
CA |
|
— |
|
685 |
|
5,530 |
|
— |
|
685 |
|
5,530 |
|
6,215 |
|
213 |
|
6/24/02 |
|
1986 |
|
||||||||
San Diego |
|
CA |
|
— |
|
475 |
|
4,264 |
|
92 |
|
474 |
|
4,357 |
|
4,831 |
|
164 |
|
6/24/02 |
|
1986 |
|
||||||||
San Diego |
|
CA |
|
— |
|
461 |
|
3,830 |
|
— |
|
461 |
|
3,830 |
|
4,291 |
|
148 |
|
6/24/02 |
|
1986 |
|
||||||||
Fresno |
|
CA |
|
— |
|
7,276 |
|
61,118 |
|
8 |
|
7,277 |
|
61,125 |
|
68,402 |
|
1,991 |
|
8/29/02 |
|
1971 |
|
||||||||
Santa Ana |
|
CA |
|
— |
|
1,363 |
|
10,158 |
|
— |
|
1,363 |
|
10,158 |
|
11,521 |
|
32 |
|
11/10/03 |
|
2000 |
|
||||||||
Golden |
|
CO |
|
— |
|
494 |
|
152 |
|
5,966 |
|
495 |
|
6,117 |
|
6,612 |
|
877 |
|
3/31/97 |
|
1997 |
|
||||||||
Aurora |
|
CO |
|
— |
|
1,152 |
|
13,272 |
|
— |
|
1,152 |
|
13,272 |
|
14,424 |
|
2,154 |
|
11/14/97 |
|
1993 |
|
||||||||
Lakewood |
|
CO |
|
— |
|
1,855 |
|
16,691 |
|
364 |
|
1,856 |
|
17,054 |
|
18,910 |
|
1,730 |
|
11/22/99 |
|
1980 |
|
||||||||
Lakewood |
|
CO |
|
— |
|
787 |
|
7,085 |
|
157 |
|
788 |
|
7,241 |
|
8,029 |
|
734 |
|
11/22/99 |
|
1980 |
|
||||||||
Englewood |
|
CO |
|
— |
|
1,708 |
|
14,616 |
|
83 |
|
1,707 |
|
14,700 |
|
16,407 |
|
790 |
|
11/2/01 |
|
1984 |
|
||||||||
S-2
|
|
|
|
|
|
Initial Cost to Company |
|
|
|
Cost Amount Carried at Close of Period |
|
|
|
|
|
|
|
||||||
Location |
|
State |
|
Encumbrances |
|
Land |
|
Buildings
and |
|
Costs
Capitalized |
|
Land |
|
Buildings
and |
|
Total(1) |
|
Accumulated |
|
Date Acquired |
|
Original |
|
Lakewood |
|
CO |
|
— |
|
915 |
|
9,106 |
|
45 |
|
915 |
|
9,151 |
|
10,066 |
|
275 |
|
10/11/02 |
|
1981 |
|
Lakewood |
|
CO |
|
— |
|
936 |
|
9,160 |
|
52 |
|
936 |
|
9,212 |
|
10,148 |
|
277 |
|
10/11/02 |
|
1981 |
|
Lakewood |
|
CO |
|
— |
|
1,035 |
|
9,271 |
|
97 |
|
1,036 |
|
9,367 |
|
10,403 |
|
281 |
|
10/11/02 |
|
1981 |
|
Englewood |
|
CO |
|
— |
|
649 |
|
5,232 |
|
5 |
|
649 |
|
5,237 |
|
5,886 |
|
136 |
|
12/19/02 |
|
1984 |
|
Wallingford |
|
CT |
|
— |
|
640 |
|
10,017 |
|
598 |
|
640 |
|
10,615 |
|
11,255 |
|
1,453 |
|
6/1/98 |
|
1986 |
|
Wallingford |
|
CT |
|
— |
|
367 |
|
3,301 |
|
730 |
|
366 |
|
4,032 |
|
4,398 |
|
500 |
|
12/22/98 |
|
1988 |
|
Meriden |
|
CT |
|
— |
|
768 |
|
6,164 |
|
— |
|
768 |
|
6,164 |
|
6,932 |
|
70 |
|
7/24/03 |
|
1982 |
|
Windsor |
|
CT |
|
— |
|
1,376 |
|
11,212 |
|
— |
|
1,376 |
|
11,212 |
|
12,588 |
|
105 |
|
8/29/03 |
|
1988 |
|
Washington |
|
DC |
|
— |
|
2,485 |
|
22,696 |
|
4,609 |
|
2,485 |
|
27,305 |
|
29,790 |
|
5,297 |
|
9/13/96 |
|
1976 |
|
Washington |
|
DC |
|
— |
|
12,008 |
|
51,528 |
|
30,914 |
|
12,227 |
|
82,223 |
|
94,450 |
|
9,091 |
|
3/31/97 |
|
1996 |
|
Washington |
|
DC |
|
22,525 |
|
6,979 |
|
29,949 |
|
1,224 |
|
7,107 |
|
31,045 |
|
38,152 |
|
5,373 |
|
3/31/97 |
|
1989 |
|
Washington |
|
DC |
|
— |
|
1,851 |
|
16,511 |
|
1,607 |
|
1,887 |
|
18,082 |
|
19,969 |
|
3,002 |
|
12/19/97 |
|
1966 |
|
Washington |
|
DC |
|
31,097 |
|
5,975 |
|
53,778 |
|
771 |
|
5,975 |
|
54,549 |
|
60,524 |
|
7,669 |
|
6/23/98 |
|
1991 |
|
Wilmington |
|
DE |
|
— |
|
4,409 |
|
39,681 |
|
1,372 |
|
4,413 |
|
41,049 |
|
45,462 |
|
5,439 |
|
7/23/98 |
|
1986 |
|
Wilmington |
|
DE |
|
— |
|
1,478 |
|
13,306 |
|
389 |
|
1,477 |
|
13,696 |
|
15,173 |
|
1,516 |
|
7/13/99 |
|
1984 |
|
Orlando |
|
FL |
|
— |
|
— |
|
362 |
|
60 |
|
36 |
|
386 |
|
422 |
|
41 |
|
2/19/98 |
|
1997 |
|
Orlando |
|
FL |
|
— |
|
722 |
|
6,499 |
|
(59 |
) |
716 |
|
6,446 |
|
7,162 |
|
948 |
|
2/19/98 |
|
1997 |
|
Orlando |
|
FL |
|
— |
|
256 |
|
2,308 |
|
64 |
|
263 |
|
2,365 |
|
2,628 |
|
347 |
|
2/19/98 |
|
1997 |
|
Miami |
|
FL |
|
— |
|
144 |
|
1,297 |
|
319 |
|
144 |
|
1,616 |
|
1,760 |
|
276 |
|
3/19/98 |
|
1987 |
|
Savannah |
|
GA |
|
— |
|
544 |
|
2,330 |
|
224 |
|
553 |
|
2,545 |
|
3,098 |
|
412 |
|
3/31/97 |
|
1990 |
|
Oahu |
|
HI |
|
— |
|
1,343 |
|
— |
|
— |
|
1,343 |
|
— |
|
1,343 |
|
— |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
93,821 |
|
— |
|
— |
|
93,821 |
|
— |
|
93,821 |
|
— |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
2,114 |
|
456 |
|
— |
|
2,114 |
|
456 |
|
2,570 |
|
— |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
78,842 |
|
4,789 |
|
— |
|
78,842 |
|
4,789 |
|
83,631 |
|
5 |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
156,939 |
|
4,320 |
|
— |
|
156,939 |
|
4,320 |
|
161,259 |
|
6 |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
43,419 |
|
223 |
|
— |
|
43,419 |
|
223 |
|
43,642 |
|
— |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
7,982 |
|
— |
|
— |
|
7,982 |
|
— |
|
7,982 |
|
— |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
66,253 |
|
— |
|
— |
|
66,253 |
|
— |
|
66,253 |
|
— |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
11,450 |
|
— |
|
— |
|
11,450 |
|
— |
|
11,450 |
|
— |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
718 |
|
— |
|
— |
|
718 |
|
— |
|
718 |
|
— |
|
12/5/03 |
|
— |
|
Oahu |
|
HI |
|
— |
|
9,671 |
|
— |
|
— |
|
9,671 |
|
— |
|
9,671 |
|
— |
|
12/5/03 |
|
— |
|
Kansas City |
|
KS |
|
— |
|
1,042 |
|
4,469 |
|
1,317 |
|
1,061 |
|
5,767 |
|
6,828 |
|
1,237 |
|
3/31/97 |
|
1990 |
|
Erlanger |
|
KY |
|
— |
|
2,022 |
|
9,545 |
|
— |
|
2,022 |
|
9,545 |
|
11,567 |
|
129 |
|
6/30/03 |
|
1999 |
|
Boston |
|
MA |
|
— |
|
1,447 |
|
13,028 |
|
135 |
|
1,448 |
|
13,162 |
|
14,610 |
|
2,712 |
|
9/28/95 |
|
1993 |
|
S-3
|
|
|
|
|
|
Initial Cost to Company |
|
|
|
Cost Amount Carried at Close of Period |
|
|
|
|
|
|
|
||||||
Location |
|
State |
|
Encumbrances |
|
Land |
|
Buildings
and |
|
Costs
Capitalized |
|
Land |
|
Buildings
and |
|
Total(1) |
|
Accumulated |
|
Date Acquired |
|
Original |
|
Boston |
|
MA |
|
— |
|
3,378 |
|
30,397 |
|
2,383 |
|
3,378 |
|
32,780 |
|
36,158 |
|
7,546 |
|
9/28/95 |
|
1915 |
|
Boston |
|
MA |
|
— |
|
1,500 |
|
13,500 |
|
4,314 |
|
1,500 |
|
17,814 |
|
19,314 |
|
4,988 |
|
12/18/95 |
|
1875 |
|
Westwood |
|
MA |
|
— |
|
303 |
|
2,740 |
|
659 |
|
304 |
|
3,398 |
|
3,702 |
|
721 |
|
11/26/96 |
|
1980 |
|
Westwood |
|
MA |
|
— |
|
537 |
|
4,960 |
|
204 |
|
548 |
|
5,153 |
|
5,701 |
|
869 |
|
1/8/97 |
|
1977 |
|
Milford |
|
MA |
|
— |
|
144 |
|
1,297 |
|
266 |
|
401 |
|
1,306 |
|
1,707 |
|
216 |
|
5/15/97 |
|
1989 |
|
Westborough |
|
MA |
|
— |
|
42 |
|
381 |
|
5 |
|
42 |
|
386 |
|
428 |
|
64 |
|
5/15/97 |
|
1900 |
|
Worcester |
|
MA |
|
— |
|
1,132 |
|
10,186 |
|
38 |
|
1,132 |
|
10,224 |
|
11,356 |
|
1,693 |
|
5/15/97 |
|
1989 |
|
Worcester |
|
MA |
|
— |
|
354 |
|
3,189 |
|
14 |
|
354 |
|
3,203 |
|
3,557 |
|
530 |
|
5/15/97 |
|
1985 |
|
Worcester |
|
MA |
|
— |
|
111 |
|
1,000 |
|
292 |
|
397 |
|
1,006 |
|
1,403 |
|
167 |
|
5/15/97 |
|
1986 |
|
Worcester |
|
MA |
|
— |
|
158 |
|
1,417 |
|
7 |
|
157 |
|
1,425 |
|
1,582 |
|
236 |
|
5/15/97 |
|
1992 |
|
Spencer |
|
MA |
|
— |
|
211 |
|
1,902 |
|
11 |
|
211 |
|
1,913 |
|
2,124 |
|
317 |
|
5/15/97 |
|
1992 |
|
Charlton |
|
MA |
|
— |
|
141 |
|
1,269 |
|
8 |
|
141 |
|
1,277 |
|
1,418 |
|
211 |
|
5/15/97 |
|
1988 |
|
Fitchburg |
|
MA |
|
— |
|
223 |
|
2,004 |
|
10 |
|
223 |
|
2,014 |
|
2,237 |
|
334 |
|
5/15/97 |
|
1994 |
|
Millbury |
|
MA |
|
— |
|
34 |
|
309 |
|
4 |
|
34 |
|
313 |
|
347 |
|
52 |
|
5/15/97 |
|
1950 |
|
Worcester |
|
MA |
|
— |
|
265 |
|
2,385 |
|
12 |
|
265 |
|
2,397 |
|
2,662 |
|
397 |
|
5/15/97 |
|
1972 |
|
Worcester |
|
MA |
|
— |
|
895 |
|
8,052 |
|
41 |
|
895 |
|
8,093 |
|
8,988 |
|
1,340 |
|
5/15/97 |
|
1990 |
|
Northbridge |
|
MA |
|
— |
|
32 |
|
290 |
|
5 |
|
32 |
|
295 |
|
327 |
|
49 |
|
5/15/97 |
|
1962 |
|
Sturbridge |
|
MA |
|
— |
|
83 |
|
751 |
|
6 |
|
83 |
|
757 |
|
840 |
|
125 |
|
5/15/97 |
|
1986 |
|
Webster |
|
MA |
|
— |
|
315 |
|
2,834 |
|
14 |
|
315 |
|
2,848 |
|
3,163 |
|
472 |
|
5/15/97 |
|
1995 |
|
Westborough |
|
MA |
|
— |
|
396 |
|
3,562 |
|
15 |
|
396 |
|
3,577 |
|
3,973 |
|
592 |
|
5/15/97 |
|
1986 |
|
Grafton |
|
MA |
|
— |
|
37 |
|
336 |
|
4 |
|
37 |
|
340 |
|
377 |
|
56 |
|
5/15/97 |
|
1930 |
|
Lexington |
|
MA |
|
— |
|
1,054 |
|
9,487 |
|
522 |
|
1,054 |
|
10,009 |
|
11,063 |
|
1,418 |
|
1/30/98 |
|
1968 |
|
Quincy |
|
MA |
|
— |
|
1,668 |
|
11,097 |
|
2,395 |
|
1,668 |
|
13,492 |
|
15,160 |
|
2,385 |
|
4/3/98 |
|
1988 |
|
Quincy |
|
MA |
|
— |
|
2,477 |
|
16,645 |
|
833 |
|
2,477 |
|
17,478 |
|
19,955 |
|
2,463 |
|
4/3/98 |
|
1988 |
|
Westwood |
|
MA |
|
— |
|
500 |
|
4,562 |
|
76 |
|
500 |
|
4,638 |
|
5,138 |
|
638 |
|
6/8/98 |
|
1990 |
|
Leominster |
|
MA |
|
— |
|
778 |
|
7,003 |
|
26 |
|
781 |
|
7,026 |
|
7,807 |
|
710 |
|
12/27/99 |
|
1966 |
|
Auburn |
|
MA |
|
— |
|
647 |
|
5,827 |
|
22 |
|
650 |
|
5,846 |
|
6,496 |
|
591 |
|
12/27/99 |
|
1977 |
|
Stoneham |
|
MA |
|
— |
|
931 |
|
8,062 |
|
230 |
|
931 |
|
8,292 |
|
9,223 |
|
464 |
|
9/28/01 |
|
1945 |
|
Foxborough |
|
MA |
|
— |
|
3,021 |
|
25,721 |
|
— |
|
3,021 |
|
25,721 |
|
28,742 |
|
563 |
|
2/13/03 |
|
1989 |
|
Mansfield |
|
MA |
|
— |
|
1,183 |
|
9,749 |
|
— |
|
1,183 |
|
9,749 |
|
10,932 |
|
91 |
|
8/1/03 |
|
1978 |
|
Mansfield |
|
MA |
|
— |
|
1,358 |
|
11,658 |
|
— |
|
1,358 |
|
11,658 |
|
13,016 |
|
109 |
|
8/1/03 |
|
2002 |
|
Mansfield |
|
MA |
|
— |
|
1,550 |
|
13,908 |
|
— |
|
1,550 |
|
13,908 |
|
15,458 |
|
130 |
|
8/1/03 |
|
1981 |
|
Mansfield |
|
MA |
|
— |
|
1,033 |
|
— |
|
— |
|
1,033 |
|
— |
|
1,033 |
|
— |
|
8/1/03 |
|
— |
|
Mansfield |
|
MA |
|
— |
|
1,262 |
|
11,103 |
|
4 |
|
1,262 |
|
11,107 |
|
12,369 |
|
81 |
|
9/5/03 |
|
1988 |
|
S-4
|
|
|
|
|
|
Initial Cost to Company |
|
|
|
Cost Amount Carried at Close of Period |
|
|
|
|
|
|
|
||||||
Location |
|
State |
|
Encumbrances |
|
Land |
|
Buildings
and |
|
Costs
Capitalized |
|
Land |
|
Buildings
and |
|
Total(1) |
|
Accumulated |
|
Date Acquired |
|
Original |
|
Mansfield |
|
MA |
|
— |
|
1,023 |
|
8,954 |
|
4 |
|
1,023 |
|
8,958 |
|
9,981 |
|
65 |
|
9/5/03 |
|
1988 |
|
Gaithersburg |
|
MD |
|
— |
|
4,381 |
|
18,798 |
|
1,056 |
|
4,461 |
|
19,774 |
|
24,235 |
|
3,316 |
|
3/31/97 |
|
1995 |
|
Riverdale |
|
MD |
|
— |
|
9,423 |
|
40,433 |
|
1,141 |
|
9,595 |
|
41,402 |
|
50,997 |
|
7,023 |
|
3/31/97 |
|
1994 |
|
Germantown |
|
MD |
|
— |
|
2,305 |
|
9,890 |
|
304 |
|
2,347 |
|
10,152 |
|
12,499 |
|
1,774 |
|
3/31/97 |
|
1995 |
|
Oxon Hill |
|
MD |
|
— |
|
3,181 |
|
13,653 |
|
295 |
|
3,131 |
|
13,998 |
|
17,129 |
|
2,399 |
|
3/31/97 |
|
1992 |
|
Baltimore |
|
MD |
|
— |
|
— |
|
12,430 |
|
2,341 |
|
— |
|
14,771 |
|
14,771 |
|
2,485 |
|
11/18/97 |
|
1988 |
|
Rockville |
|
MD |
|
— |
|
3,251 |
|
29,258 |
|
1,031 |
|
3,248 |
|
30,292 |
|
33,540 |
|
4,424 |
|
2/2/98 |
|
1986 |
|
Baltimore |
|
MD |
|
— |
|
900 |
|
8,097 |
|
377 |
|
901 |
|
8,473 |
|
9,374 |
|
1,112 |
|
10/15/98 |
|
1989 |
|
Pikesville |
|
MD |
|
— |
|
589 |
|
5,305 |
|
227 |
|
590 |
|
5,531 |
|
6,121 |
|
683 |
|
8/11/99 |
|
1987 |
|
Baltimore |
|
MD |
|
— |
|
6,328 |
|
54,645 |
|
323 |
|
6,328 |
|
54,968 |
|
61,296 |
|
1,311 |
|
1/28/03 |
|
1990 |
|
Mendota Heights |
|
MN |
|
— |
|
533 |
|
4,795 |
|
— |
|
533 |
|
4,795 |
|
5,328 |
|
694 |
|
3/19/98 |
|
1995 |
|
Eagan |
|
MN |
|
— |
|
1,424 |
|
12,822 |
|
1 |
|
1,425 |
|
12,822 |
|
14,247 |
|
1,857 |
|
3/19/98 |
|
1986 |
|
Bloomington |
|
MN |
|
— |
|
1,898 |
|
17,081 |
|
2,258 |
|
1,898 |
|
19,339 |
|
21,237 |
|
3,339 |
|
3/19/98 |
|
1957 |
|
St. Paul |
|
MN |
|
— |
|
696 |
|
6,263 |
|
626 |
|
695 |
|
6,890 |
|
7,585 |
|
732 |
|
8/3/99 |
|
1987 |
|
Plymouth |
|
MN |
|
— |
|
563 |
|
5,064 |
|
304 |
|
563 |
|
5,368 |
|
5,931 |
|
625 |
|
8/3/99 |
|
1987 |
|
Minneapolis |
|
MN |
|
— |
|
695 |
|
6,254 |
|
954 |
|
695 |
|
7,208 |
|
7,903 |
|
832 |
|
8/3/99 |
|
1986 |
|
Minneapolis |
|
MN |
|
— |
|
870 |
|
7,831 |
|
1,176 |
|
870 |
|
9,007 |
|
9,877 |
|
1,078 |
|
8/3/99 |
|
1987 |
|
Minneapolis |
|
MN |
|
— |
|
1,891 |
|
17,021 |
|
1,282 |
|
1,893 |
|
18,301 |
|
20,194 |
|
2,011 |
|
9/30/99 |
|
1980 |
|
Roseville |
|
MN |
|
1,737 |
|
295 |
|
2,658 |
|
(2 |
) |
295 |
|
2,656 |
|
2,951 |
|
268 |
|
12/1/99 |
|
1987 |
|
Roseville |
|
MN |
|
1,218 |
|
185 |
|
1,661 |
|
223 |
|
185 |
|
1,884 |
|
2,069 |
|
210 |
|
12/1/99 |
|
1987 |
|
Roseville |
|
MN |
|
4,155 |
|
672 |
|
6,045 |
|
344 |
|
672 |
|
6,389 |
|
7,061 |
|
613 |
|
12/1/99 |
|
1987 |
|
Roseville |
|
MN |
|
6,277 |
|
979 |
|
8,814 |
|
872 |
|
978 |
|
9,687 |
|
10,665 |
|
938 |
|
12/1/99 |
|
1987 |
|
Roseville |
|
MN |
|
3,448 |
|
586 |
|
5,278 |
|
(4 |
) |
586 |
|
5,274 |
|
5,860 |
|
533 |
|
12/1/99 |
|
1987 |
|
Kansas City |
|
MO |
|
— |
|
1,443 |
|
6,193 |
|
1,930 |
|
1,470 |
|
8,096 |
|
9,566 |
|
1,107 |
|
3/31/97 |
|
1995 |
|
St. Louis |
|
MO |
|
— |
|
903 |
|
7,602 |
|
— |
|
903 |
|
7,602 |
|
8,505 |
|
24 |
|
11/7/03 |
|
1998 |
|
Manchester |
|
NH |
|
— |
|
2,201 |
|
19,957 |
|
12 |
|
2,210 |
|
19,960 |
|
22,170 |
|
2,308 |
|
5/10/99 |
|
1979 |
|
Vorhees |
|
NJ |
|
— |
|
1,053 |
|
6,625 |
|
915 |
|
998 |
|
7,595 |
|
8,593 |
|
1,163 |
|
5/26/98 |
|
1990 |
|
Vorhees |
|
NJ |
|
— |
|
673 |
|
4,232 |
|
705 |
|
589 |
|
5,021 |
|
5,610 |
|
687 |
|
5/26/98 |
|
1990 |
|
Vorhees |
|
NJ |
|
— |
|
445 |
|
2,798 |
|
201 |
|
584 |
|
2,860 |
|
3,444 |
|
400 |
|
5/26/98 |
|
1990 |
|
Florham Park |
|
NJ |
|
— |
|
1,412 |
|
12,709 |
|
4,862 |
|
1,412 |
|
17,571 |
|
18,983 |
|
2,438 |
|
7/31/98 |
|
1979 |
|
Sante Fe |
|
NM |
|
— |
|
1,551 |
|
6,650 |
|
487 |
|
1,578 |
|
7,110 |
|
8,688 |
|
1,161 |
|
3/31/97 |
|
1987 |
|
Albuquerque |
|
NM |
|
— |
|
493 |
|
2,119 |
|
126 |
|
503 |
|
2,235 |
|
2,738 |
|
374 |
|
3/31/97 |
|
1984 |
|
Albuquerque |
|
NM |
|
— |
|
877 |
|
7,895 |
|
138 |
|
876 |
|
8,034 |
|
8,910 |
|
869 |
|
8/31/99 |
|
1984 |
|
Albuquerque |
|
NM |
|
— |
|
173 |
|
1,553 |
|
66 |
|
172 |
|
1,620 |
|
1,792 |
|
199 |
|
8/31/99 |
|
1984 |
|
S-5
|
|
|
|
|
|
Initial Cost to Company |
|
|
|
Cost Amount Carried at Close of Period |
|
|
|
|
|
|
|
||||||
Location |
|
State |
|
Encumbrances |
|
Land |
|
Buildings
and |
|
Costs
Capitalized |
|
Land |
|
Buildings
and |
|
Total(1) |
|
Accumulated |
|
Date Acquired |
|
Original |
|
Albuquerque |
|
NM |
|
— |
|
441 |
|
3,970 |
|
81 |
|
441 |
|
4,051 |
|
4,492 |
|
447 |
|
8/31/99 |
|
1984 |
|
Albuquerque |
|
NM |
|
— |
|
422 |
|
3,797 |
|
72 |
|
422 |
|
3,869 |
|
4,291 |
|
418 |
|
8/31/99 |
|
1984 |
|
Albuquerque |
|
NM |
|
— |
|
40 |
|
141 |
|
35 |
|
40 |
|
176 |
|
216 |
|
7 |
|
2/12/02 |
|
1985 |
|
Albuquerque |
|
NM |
|
— |
|
152 |
|
1,526 |
|
204 |
|
152 |
|
1,730 |
|
1,882 |
|
87 |
|
2/12/02 |
|
1985 |
|
Albuquerque |
|
NM |
|
— |
|
39 |
|
351 |
|
8 |
|
39 |
|
359 |
|
398 |
|
17 |
|
2/12/02 |
|
1985 |
|
Albuquerque |
|
NM |
|
— |
|
444 |
|
3,890 |
|
47 |
|
444 |
|
3,937 |
|
4,381 |
|
183 |
|
2/12/02 |
|
1987 |
|
Albuquerque |
|
NM |
|
— |
|
1,778 |
|
14,407 |
|
445 |
|
1,778 |
|
14,852 |
|
16,630 |
|
761 |
|
2/12/02 |
|
1985 |
|
Albuquerque |
|
NM |
|
— |
|
129 |
|
1,217 |
|
65 |
|
129 |
|
1,282 |
|
1,411 |
|
58 |
|
2/12/02 |
|
1985 |
|
Albuquerque |
|
NM |
|
— |
|
1,968 |
|
17,210 |
|
1 |
|
1,968 |
|
17,211 |
|
19,179 |
|
448 |
|
12/6/02 |
|
1974 |
|
Albuquerque |
|
NM |
|
— |
|
3,235 |
|
24,490 |
|
— |
|
3,235 |
|
24,490 |
|
27,725 |
|
177 |
|
9/17/03 |
|
1975 |
|
Albuquerque |
|
NM |
|
— |
|
794 |
|
5,568 |
|
— |
|
794 |
|
5,568 |
|
6,362 |
|
41 |
|
9/17/03 |
|
1975 |
|
White Plains |
|
NY |
|
— |
|
1,200 |
|
10,870 |
|
815 |
|
1,200 |
|
11,685 |
|
12,885 |
|
2,251 |
|
2/6/96 |
|
1952 |
|
Brooklyn |
|
NY |
|
— |
|
775 |
|
7,054 |
|
138 |
|
775 |
|
7,192 |
|
7,967 |
|
1,334 |
|
6/6/96 |
|
1971 |
|
Buffalo |
|
NY |
|
7,203 |
|
4,405 |
|
18,899 |
|
729 |
|
4,485 |
|
19,548 |
|
24,033 |
|
3,301 |
|
3/31/97 |
|
1994 |
|
Irondoquoit |
|
NY |
|
— |
|
1,910 |
|
17,189 |
|
907 |
|
1,910 |
|
18,096 |
|
20,006 |
|
2,442 |
|
6/30/98 |
|
1986 |
|
Islandia |
|
NY |
|
— |
|
813 |
|
7,319 |
|
746 |
|
809 |
|
8,069 |
|
8,878 |
|
917 |
|
6/11/99 |
|
1987 |
|
Mineola |
|
NY |
|
— |
|
3,419 |
|
30,774 |
|
1,522 |
|
3,416 |
|
32,299 |
|
35,715 |
|
3,796 |
|
6/11/99 |
|
1971 |
|
Syracuse |
|
NY |
|
— |
|
1,788 |
|
16,096 |
|
2,016 |
|
1,789 |
|
18,111 |
|
19,900 |
|
2,065 |
|
6/29/99 |
|
1972 |
|
Melville |
|
NY |
|
— |
|
3,155 |
|
28,395 |
|
387 |
|
3,155 |
|
28,782 |
|
31,937 |
|
3,198 |
|
7/22/99 |
|
1985 |
|
Syracuse |
|
NY |
|
— |
|
466 |
|
4,196 |
|
983 |
|
467 |
|
5,178 |
|
5,645 |
|
665 |
|
9/24/99 |
|
1990 |
|
DeWitt |
|
NY |
|
— |
|
454 |
|
4,086 |
|
269 |
|
457 |
|
4,352 |
|
4,809 |
|
473 |
|
12/28/99 |
|
1987 |
|
Mason |
|
OH |
|
— |
|
1,528 |
|
13,748 |
|
13 |
|
1,528 |
|
13,761 |
|
15,289 |
|
1,907 |
|
6/10/98 |
|
1994 |
|
Oklahoma City |
|
OK |
|
— |
|
4,596 |
|
19,721 |
|
1,045 |
|
4,680 |
|
20,682 |
|
25,362 |
|
3,451 |
|
3/31/97 |
|
1992 |
|
Oklahoma City |
|
OK |
|
— |
|
203 |
|
1,828 |
|
23 |
|
205 |
|
1,849 |
|
2,054 |
|
202 |
|
8/13/99 |
|
1993 |
|
Midwest City |
|
OK |
|
— |
|
246 |
|
2,213 |
|
28 |
|
249 |
|
2,238 |
|
2,487 |
|
245 |
|
8/13/99 |
|
1993 |
|
Edmund |
|
OK |
|
— |
|
226 |
|
2,036 |
|
26 |
|
229 |
|
2,059 |
|
2,288 |
|
225 |
|
8/13/99 |
|
1993 |
|
Oklahoma City |
|
OK |
|
— |
|
1,426 |
|
12,826 |
|
156 |
|
1,441 |
|
12,967 |
|
14,408 |
|
1,418 |
|
8/13/99 |
|
1993 |
|
King of Prussia |
|
PA |
|
— |
|
634 |
|
3,251 |
|
295 |
|
634 |
|
3,546 |
|
4,180 |
|
522 |
|
9/22/97 |
|
1964 |
|
FT. Washington |
|
PA |
|
— |
|
1,184 |
|
5,559 |
|
71 |
|
1,184 |
|
5,630 |
|
6,814 |
|
875 |
|
9/22/97 |
|
1967 |
|
FT. Washington |
|
PA |
|
— |
|
1,872 |
|
8,816 |
|
617 |
|
1,872 |
|
9,433 |
|
11,305 |
|
1,403 |
|
9/22/97 |
|
1960 |
|
FT. Washington |
|
PA |
|
— |
|
683 |
|
3,198 |
|
555 |
|
680 |
|
3,756 |
|
4,436 |
|
519 |
|
9/22/97 |
|
1970 |
|
Horsham |
|
PA |
|
— |
|
741 |
|
3,611 |
|
119 |
|
741 |
|
3,730 |
|
4,471 |
|
575 |
|
9/22/97 |
|
1983 |
|
Philadelphia |
|
PA |
|
44,000 |
|
7,884 |
|
71,002 |
|
2,043 |
|
7,883 |
|
73,046 |
|
80,929 |
|
11,680 |
|
11/13/97 |
|
1980 |
|
Plymouth Meeting |
|
PA |
|
— |
|
1,412 |
|
7,415 |
|
2,206 |
|
1,413 |
|
9,620 |
|
11,033 |
|
1,323 |
|
1/15/98 |
|
1996 |
|
S-6
|
|
|
|
|
|
Initial Cost to Company |
|
|
|
Cost Amount Carried at Close of Period |
|
|
|
|
|
|
|
||||||
Location |
|
State |
|
Encumbrances |
|
Land |
|
Buildings
and |
|
Costs
Capitalized |
|
Land |
|
Buildings
and |
|
Total(1) |
|
Accumulated |
|
Date Acquired |
|
Original |
|
FT. Washington |
|
PA |
|
— |
|
1,154 |
|
7,722 |
|
269 |
|
1,154 |
|
7,991 |
|
9,145 |
|
1,148 |
|
1/15/98 |
|
1996 |
|
King of Prussia |
|
PA |
|
— |
|
354 |
|
3,183 |
|
574 |
|
354 |
|
3,757 |
|
4,111 |
|
542 |
|
2/2/98 |
|
1968 |
|
King of Prussia |
|
PA |
|
— |
|
552 |
|
2,893 |
|
48 |
|
552 |
|
2,941 |
|
3,493 |
|
431 |
|
2/2/98 |
|
1996 |
|
Pittsburgh |
|
PA |
|
— |
|
720 |
|
9,589 |
|
1,234 |
|
720 |
|
10,823 |
|
11,543 |
|
1,595 |
|
2/27/98 |
|
1991 |
|
Philadelphia |
|
PA |
|
61,343 |
|
3,462 |
|
111,946 |
|
14,818 |
|
3,462 |
|
126,764 |
|
130,226 |
|
17,796 |
|
3/30/98 |
|
1983 |
|
Greensburg |
|
PA |
|
— |
|
780 |
|
7,026 |
|
15 |
|
780 |
|
7,041 |
|
7,821 |
|
973 |
|
6/3/98 |
|
1997 |
|
Philadelphia |
|
PA |
|
— |
|
24,753 |
|
222,775 |
|
11,086 |
|
24,747 |
|
233,867 |
|
258,614 |
|
32,987 |
|
6/30/98 |
|
1990 |
|
Moon Township |
|
PA |
|
— |
|
1,663 |
|
14,966 |
|
611 |
|
1,663 |
|
15,577 |
|
17,240 |
|
1,985 |
|
9/14/98 |
|
1994 |
|
FT. Washington |
|
PA |
|
— |
|
631 |
|
5,698 |
|
331 |
|
634 |
|
6,026 |
|
6,660 |
|
816 |
|
12/1/98 |
|
1998 |
|
Philadelphia |
|
PA |
|
— |
|
931 |
|
8,377 |
|
1,050 |
|
930 |
|
9,428 |
|
10,358 |
|
1,223 |
|
6/11/99 |
|
1987 |
|
Moon Township |
|
PA |
|
— |
|
202 |
|
1,814 |
|
374 |
|
202 |
|
2,188 |
|
2,390 |
|
201 |
|
8/23/99 |
|
1992 |
|
Moon Township |
|
PA |
|
— |
|
555 |
|
4,995 |
|
735 |
|
556 |
|
5,729 |
|
6,285 |
|
578 |
|
8/23/99 |
|
1991 |
|
Moon Township |
|
PA |
|
— |
|
489 |
|
4,403 |
|
344 |
|
490 |
|
4,746 |
|
5,236 |
|
670 |
|
8/23/99 |
|
1989 |
|
Moon Township |
|
PA |
|
— |
|
612 |
|
5,507 |
|
64 |
|
612 |
|
5,571 |
|
6,183 |
|
629 |
|
8/23/99 |
|
1990 |
|
Moon Township |
|
PA |
|
— |
|
502 |
|
4,519 |
|
384 |
|
502 |
|
4,903 |
|
5,405 |
|
560 |
|
8/23/99 |
|
1987 |
|
Moon Township |
|
PA |
|
— |
|
410 |
|
3,688 |
|
410 |
|
410 |
|
4,098 |
|
4,508 |
|
482 |
|
8/23/99 |
|
1988 |
|
Moon Township |
|
PA |
|
— |
|
6,936 |
|
— |
|
822 |
|
7,758 |
|
— |
|
7,758 |
|
— |
|
8/23/99 |
|
— |
|
Blue Bell |
|
PA |
|
— |
|
723 |
|
6,507 |
|
405 |
|
723 |
|
6,912 |
|
7,635 |
|
706 |
|
9/14/99 |
|
1988 |
|
Blue Bell |
|
PA |
|
— |
|
709 |
|
6,382 |
|
364 |
|
709 |
|
6,746 |
|
7,455 |
|
722 |
|
9/14/99 |
|
1988 |
|
Blue Bell |
|
PA |
|
— |
|
268 |
|
2,414 |
|
126 |
|
268 |
|
2,540 |
|
2,808 |
|
265 |
|
9/14/99 |
|
1988 |
|
Philadelphia |
|
PA |
|
— |
|
18,758 |
|
167,487 |
|
2,243 |
|
18,758 |
|
169,730 |
|
188,488 |
|
5,080 |
|
10/10/02 |
|
1974 |
|
Lincoln |
|
RI |
|
— |
|
320 |
|
7,690 |
|
3 |
|
320 |
|
7,693 |
|
8,013 |
|
1,258 |
|
11/13/97 |
|
1997 |
|
Memphis |
|
TN |
|
— |
|
2,206 |
|
19,856 |
|
1,264 |
|
2,212 |
|
21,114 |
|
23,326 |
|
3,181 |
|
8/31/98 |
|
1985 |
|
Austin |
|
TX |
|
8,124 |
|
1,402 |
|
12,729 |
|
718 |
|
1,402 |
|
13,447 |
|
14,849 |
|
2,115 |
|
12/5/97 |
|
1997 |
|
Austin |
|
TX |
|
12,786 |
|
2,317 |
|
21,037 |
|
16 |
|
2,317 |
|
21,053 |
|
23,370 |
|
3,419 |
|
12/5/97 |
|
1996 |
|
Austin |
|
TX |
|
9,296 |
|
1,621 |
|
14,594 |
|
776 |
|
1,621 |
|
15,370 |
|
16,991 |
|
2,921 |
|
12/5/97 |
|
1997 |
|
Austin |
|
TX |
|
7,017 |
|
1,218 |
|
11,040 |
|
569 |
|
1,218 |
|
11,609 |
|
12,827 |
|
2,182 |
|
12/5/97 |
|
1986 |
|
Austin |
|
TX |
|
6,760 |
|
1,226 |
|
11,126 |
|
5 |
|
1,226 |
|
11,131 |
|
12,357 |
|
1,808 |
|
12/5/97 |
|
1997 |
|
Waco |
|
TX |
|
— |
|
2,030 |
|
8,708 |
|
183 |
|
2,060 |
|
8,861 |
|
10,921 |
|
1,335 |
|
12/23/97 |
|
1997 |
|
Austin |
|
TX |
|
— |
|
466 |
|
4,191 |
|
912 |
|
850 |
|
4,719 |
|
5,569 |
|
701 |
|
1/27/98 |
|
1980 |
|
Irving |
|
TX |
|
— |
|
846 |
|
7,616 |
|
3,089 |
|
846 |
|
10,705 |
|
11,551 |
|
1,422 |
|
3/19/98 |
|
1995 |
|
Irving |
|
TX |
|
— |
|
542 |
|
4,879 |
|
— |
|
542 |
|
4,879 |
|
5,421 |
|
707 |
|
3/19/98 |
|
1995 |
|
Austin |
|
TX |
|
— |
|
1,439 |
|
6,137 |
|
6,360 |
|
1,439 |
|
12,497 |
|
13,936 |
|
1,966 |
|
3/24/98 |
|
1975 |
|
Austin |
|
TX |
|
— |
|
1,529 |
|
13,760 |
|
161 |
|
1,529 |
|
13,921 |
|
15,450 |
|
1,907 |
|
7/16/98 |
|
1993 |
|
S-7
|
|
|
|
|
|
Initial Cost to Company |
|
|
|
Cost Amount Carried at Close of Period |
|
|
|
|
|
|
|
||||||
Location |
|
State |
|
Encumbrances |
|
Land |
|
Buildings
and |
|
Costs
Capitalized |
|
Land |
|
Buildings
and |
|
Total(1) |
|
Accumulated |
|
Date Acquired |
|
Original |
|
Austin |
|
TX |
|
— |
|
1,436 |
|
12,927 |
|
(7 |
) |
1,436 |
|
12,920 |
|
14,356 |
|
1,683 |
|
10/7/98 |
|
1998 |
|
Austin |
|
TX |
|
— |
|
4,878 |
|
43,903 |
|
1,050 |
|
4,875 |
|
44,956 |
|
49,831 |
|
5,827 |
|
10/7/98 |
|
1968 |
|
Austin |
|
TX |
|
— |
|
9,085 |
|
— |
|
6,427 |
|
11,640 |
|
3,872 |
|
15,512 |
|
— |
|
10/7/98 |
|
— |
|
Austin |
|
TX |
|
11,447 |
|
2,072 |
|
18,650 |
|
167 |
|
2,072 |
|
18,817 |
|
20,889 |
|
2,455 |
|
10/20/98 |
|
1998 |
|
Austin |
|
TX |
|
3,078 |
|
562 |
|
5,054 |
|
1 |
|
562 |
|
5,055 |
|
5,617 |
|
658 |
|
10/20/98 |
|
1998 |
|
Austin |
|
TX |
|
8,089 |
|
1,476 |
|
13,286 |
|
(2 |
) |
1,476 |
|
13,284 |
|
14,760 |
|
1,730 |
|
10/20/98 |
|
1998 |
|
Austin |
|
TX |
|
— |
|
688 |
|
6,192 |
|
595 |
|
697 |
|
6,778 |
|
7,475 |
|
796 |
|
6/3/99 |
|
1985 |
|
Austin |
|
TX |
|
— |
|
539 |
|
4,849 |
|
(3 |
) |
539 |
|
4,846 |
|
5,385 |
|
550 |
|
6/16/99 |
|
1999 |
|
Austin |
|
TX |
|
— |
|
906 |
|
8,158 |
|
(40 |
) |
902 |
|
8,122 |
|
9,024 |
|
923 |
|
6/16/99 |
|
1999 |
|
Austin |
|
TX |
|
— |
|
1,731 |
|
14,921 |
|
1,522 |
|
1,731 |
|
16,443 |
|
18,174 |
|
1,892 |
|
6/30/99 |
|
1975 |
|
San Antonio |
|
TX |
|
— |
|
259 |
|
2,331 |
|
515 |
|
264 |
|
2,841 |
|
3,105 |
|
308 |
|
8/3/99 |
|
1986 |
|
Austin |
|
TX |
|
— |
|
1,574 |
|
14,168 |
|
899 |
|
1,573 |
|
15,068 |
|
16,641 |
|
1,641 |
|
8/3/99 |
|
1982 |
|
Austin |
|
TX |
|
— |
|
626 |
|
5,636 |
|
1,065 |
|
621 |
|
6,706 |
|
7,327 |
|
858 |
|
8/18/99 |
|
1987 |
|
Austin |
|
TX |
|
— |
|
2,028 |
|
18,251 |
|
55 |
|
2,027 |
|
18,307 |
|
20,334 |
|
1,923 |
|
10/8/99 |
|
1985 |
|
Austin |
|
TX |
|
10,291 |
|
2,038 |
|
18,338 |
|
466 |
|
2,037 |
|
18,805 |
|
20,842 |
|
1,994 |
|
10/8/99 |
|
1997 |
|
Austin |
|
TX |
|
— |
|
460 |
|
3,345 |
|
1,110 |
|
460 |
|
4,455 |
|
4,915 |
|
670 |
|
6/15/01 |
|
2001 |
|
Ft. Worth |
|
TX |
|
— |
|
4,793 |
|
38,530 |
|
210 |
|
4,793 |
|
38,740 |
|
43,533 |
|
602 |
|
5/23/03 |
|
1996 |
|
Fairfax |
|
VA |
|
— |
|
569 |
|
5,122 |
|
279 |
|
569 |
|
5,401 |
|
5,970 |
|
1,026 |
|
12/4/96 |
|
1990 |
|
Falls Church |
|
VA |
|
— |
|
3,456 |
|
14,828 |
|
1,109 |
|
3,519 |
|
15,874 |
|
19,393 |
|
2,687 |
|
3/31/97 |
|
1993 |
|
Arlington |
|
VA |
|
— |
|
810 |
|
7,289 |
|
383 |
|
811 |
|
7,671 |
|
8,482 |
|
1,123 |
|
8/26/98 |
|
1987 |
|
Alexandria |
|
VA |
|
— |
|
2,109 |
|
18,982 |
|
176 |
|
2,109 |
|
19,158 |
|
21,267 |
|
2,483 |
|
12/30/98 |
|
1987 |
|
Fairfax |
|
VA |
|
— |
|
780 |
|
7,022 |
|
4 |
|
781 |
|
7,025 |
|
7,806 |
|
754 |
|
9/29/99 |
|
1988 |
|
Fairfax |
|
VA |
|
— |
|
594 |
|
5,347 |
|
3 |
|
594 |
|
5,350 |
|
5,944 |
|
574 |
|
9/29/99 |
|
1988 |
|
Norfolk |
|
VA |
|
— |
|
591 |
|
4,048 |
|
167 |
|
592 |
|
4,214 |
|
4,806 |
|
169 |
|
10/25/02 |
|
1999 |
|
Norfolk |
|
VA |
|
— |
|
1,273 |
|
11,083 |
|
62 |
|
1,273 |
|
11,145 |
|
12,418 |
|
335 |
|
10/25/02 |
|
1987 |
|
Norfolk |
|
VA |
|
— |
|
559 |
|
4,535 |
|
171 |
|
559 |
|
4,706 |
|
5,265 |
|
139 |
|
10/25/02 |
|
1986 |
|
Richland |
|
WA |
|
7,869 |
|
3,970 |
|
17,035 |
|
545 |
|
4,042 |
|
17,508 |
|
21,550 |
|
2,993 |
|
3/31/97 |
|
1995 |
|
Falling Waters |
|
WV |
|
— |
|
906 |
|
3,886 |
|
177 |
|
922 |
|
4,047 |
|
4,969 |
|
678 |
|
3/31/97 |
|
1993 |
|
Cheyenne |
|
WY |
|
— |
|
1,915 |
|
8,217 |
|
282 |
|
1,950 |
|
8,464 |
|
10,414 |
|
1,432 |
|
3/31/97 |
|
1995 |
|
Grand Total |
|
|
|
$ 338,408 |
|
$ 847,201 |
|
$ 2,856,307 |
|
$ 188,458 |
|
$ 852,983 |
|
$ 3,038,983 |
|
$ 3,891,966 |
|
$ 363,015 |
|
|
|
|
|
S-8
HRPT PROPERTIES TRUST
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
(dollars in thousands)
Reconciliation of the carrying amount of real estate and equipment and accumulated depreciation at the beginning of the period:
|
|
Real
Estate and |
|
Accumulated |
|
||
Balance at January 1, 2001 |
|
$ |
2,546,023 |
|
$ |
160,015 |
|
Additions |
|
56,976 |
|
59,542 |
|
||
Disposals |
|
(10,512 |
) |
(417 |
) |
||
Balance at December 31, 2001 |
|
2,592,487 |
|
219,140 |
|
||
Additions |
|
482,876 |
|
65,489 |
|
||
Disposals |
|
(707 |
) |
(81 |
) |
||
Balance at December 31, 2002 |
|
3,074,656 |
|
284,548 |
|
||
Additions |
|
818,800 |
|
79,661 |
|
||
Disposals |
|
(1,490 |
) |
(1,194 |
) |
||
Balance at December 31, 2003 |
|
$ |
3,891,966 |
|
$ |
363,015 |
|
(1) Excludes value of acquired real estate leases pursuant to FAS 141. Aggregate cost for federal income tax purposes is approximately $3,771,504.
(2) Depreciation is provided for on buildings and improvements for periods ranging up to 40 years and on equipment up to 12 years.
S-9
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: March 15, 2004 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant, in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ John A. Mannix |
|
President and Chief Operating Officer |
|
|
John A. Mannix |
|
|
|
|
|
|
|
|
|
/s/ John C. Popeo |
|
Treasurer, Chief Financial Officer and Secretary |
|
|
John C. Popeo |
|
|
|
|
|
|
|
|
|
/s/ Frederick N. Zeytoonjian |
|
Trustee |
|
|
Frederick N. Zeytoonjian |
|
|
|
|
|
|
|
|
|
/s/ Patrick F. Donelan |
|
Trustee |
|
|
Patrick F. Donelan |
|
|
|
|
|
|
|
|
|
/s/ Gerard M. Martin |
|
Trustee |
|
|
Gerard M. Martin |
|
|
|
|
|
|
|
|
|
/s/ Barry M. Portnoy |
|
Trustee |
|
|
Barry M. Portnoy |
|
|
|
|
This ‘10-K’ Filing | Date | Other Filings | ||
---|---|---|---|---|
2/15/14 | DFAN14A | |||
12/31/08 | 10-K | |||
9/12/07 | 424B5, 8-K | |||
12/31/06 | 10-K | |||
2/22/06 | ||||
12/31/04 | 10-K | |||
10/17/04 | ||||
5/11/04 | 4, 8-K, DEF 14A | |||
Filed on: | 3/15/04 | 8-K | ||
3/10/04 | 8-K | |||
3/8/04 | SC 13D/A | |||
2/25/04 | ||||
2/23/04 | 4 | |||
2/11/04 | 8-K | |||
2/10/04 | SC 13G | |||
2/6/04 | ||||
1/21/04 | 4 | |||
1/7/04 | 8-K | |||
For Period End: | 12/31/03 | |||
12/5/03 | 8-K | |||
12/4/03 | ||||
11/11/03 | 8-K | |||
11/6/03 | ||||
10/30/03 | ||||
10/24/03 | ||||
10/23/03 | 8-K | |||
10/8/03 | 3, 4, 8-K | |||
9/30/03 | 10-Q | |||
6/30/03 | 10-Q | |||
6/17/03 | 8-K | |||
6/16/03 | 8-K | |||
5/6/03 | DEF 14A | |||
3/20/03 | ||||
1/30/03 | ||||
1/23/03 | 8-K | |||
1/1/03 | ||||
12/31/02 | 10-K | |||
12/19/02 | ||||
12/6/02 | ||||
9/30/02 | 10-Q | |||
9/6/02 | 8-K | |||
6/30/02 | 10-Q | |||
4/10/02 | ||||
1/15/02 | ||||
1/1/02 | ||||
12/31/01 | 10-K405 | |||
6/1/01 | ||||
4/30/01 | ||||
3/31/01 | 10-Q | |||
2/16/01 | 8-K | |||
1/1/01 | ||||
12/31/00 | 10-K405 | |||
12/15/00 | 8-K | |||
9/30/00 | 10-Q | |||
9/29/00 | 424B5, 8-K | |||
9/28/00 | 8-K | |||
7/31/00 | ||||
5/10/00 | ||||
3/31/00 | 10-Q | |||
12/16/99 | 8-K | |||
10/12/99 | 8-K | |||
9/21/99 | 8-K | |||
3/11/99 | 8-K | |||
5/27/98 | 8-K, DEFA14A | |||
5/22/98 | 8-K | |||
2/27/98 | 8-K | |||
2/23/98 | 8-K | |||
2/11/98 | 8-K | |||
1/1/98 | ||||
12/31/97 | 10-K, 10-K/A | |||
7/9/97 | ||||
5/13/97 | ||||
8/20/96 | ||||
11/4/94 | ||||
10/24/94 | 8-A12B, 8-K | |||
10/17/94 | ||||
7/1/94 | 424B5, 8-K | |||
List all Filings |