-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GZywtcpf+BxAPCjBkytWSrCpJ/eLo1NZYGMVZNL3wF8IVWCVoBr3bbhknjyxk64U yRl26XVpsSo91B46aT2wzA== 0001104659-07-015333.txt : 20070301 0001104659-07-015333.hdr.sgml : 20070301 20070301120759 ACCESSION NUMBER: 0001104659-07-015333 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070301 DATE AS OF CHANGE: 20070301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HRPT PROPERTIES TRUST CENTRAL INDEX KEY: 0000803649 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046558834 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09317 FILM NUMBER: 07661491 BUSINESS ADDRESS: STREET 1: 400 CENTRE ST CITY: NEWTON STATE: MA ZIP: 02458 BUSINESS PHONE: 6177968350 MAIL ADDRESS: STREET 1: 400 CENTRE STREET CITY: NEWTON STATE: MA ZIP: 02458 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & RETIREMENT PROPERTIES TRUST DATE OF NAME CHANGE: 19940811 FORMER COMPANY: FORMER CONFORMED NAME: HEALTH & REHABILITATION PROPERTIES TRUST DATE OF NAME CHANGE: 19920703 10-K 1 a07-5534_110k.htm 10-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2006

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

(Exact name of registrant as specified in its charter)

Maryland

 

04-6558834

(State of Organization)

 

(IRS Employer Identification No.)

 

400 Centre Street, Newton, Massachusetts 02458

(Address of principal executive offices)

617-332-3990

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Common Shares of Beneficial Interest

 

New York Stock Exchange

8 3/4% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest

 

New York Stock Exchange

7 1/8% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest

 

New York Stock Exchange

6 1/2% Series D Cumulative Convertible Preferred Shares of Beneficial Interest

 

New York Stock Exchange

 

 

 

Securities registered pursuant to Section 12(g) of the Act:

 

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act     Yes  o    No  x

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days     Yes  x    No  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.    x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “large accelerated filer and accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  x    Accelerated filer  o    Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act     Yes  o    No  x

The aggregate market value of the voting common shares of the registrant held by non-affiliates was $2.4 billion based on the $11.56 closing price per common share for such stock on the New York Stock Exchange on June 30, 2006. For purposes of this calculation, an aggregate of 923,387 common shares of beneficial interest, $0.01 par value, held directly or by affiliates of the trustees and the officers of the registrant, plus 1,000,000 common shares held by Senior Housing Properties Trust, have been included in the number of common shares held by affiliates.

Number of the registrant’s common shares outstanding as of February 26, 2007:  211,056,590.

 




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 Part III of this Annual Report on Form 10-K is incorporated herein by reference from our definitive Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 15, 2007, or our definitive Proxy Statement.


WARNING CONCERNING FORWARD LOOKING STATEMENTS

THIS ANNUAL REPORT CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS.  WHENEVER WE USE WORDS SUCH AS “BELIEVE”, “EXPECT”, “ANTICIPATE”, “INTEND”, “PLAN”, “ESTIMATE” OR SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD LOOKING STATEMENTS.  THESE FORWARD LOOKING STATEMENTS ARE BASED UPON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, BUT FORWARD LOOKING STATEMENTS ARE NOT GUARANTEED TO OCCUR AND MAY NOT OCCUR.  IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN OUR FORWARD LOOKING STATEMENTS ARE:

·                  THE SECURITY OF OUR RENTAL INCOME AND OUR LEASES,

·                  THE CREDIT QUALITY OF OUR TENANTS,

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

·                  OUR ACQUISITION AND SALE OF PROPERTIES,

·                  OUR ABILITY TO COMPETE EFFECTIVELY,

·                  OUR ABILITY TO PAY INTEREST ON AND PRINCIPAL OF OUR DEBT,

·                  OUR ABILITY TO PAY DISTRIBUTIONS TO SHAREHOLDERS,

·                  OUR POLICIES AND PLANS REGARDING INVESTMENTS AND FINANCINGS,

·                  THE FUTURE AVAILABILITY OF BORROWINGS UNDER OUR REVOLVING CREDIT FACILITY,

·                  OUR TAX STATUS AS A REAL ESTATE INVESTMENT TRUST,

·                  OUR ABILITY TO RAISE CAPITAL,

AND OTHER MATTERS.

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 THAT WE CAN CHARGE AT OUR PROPERTIES MAY DECLINE,

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

·                  CHANGES IN CIRCUMSTANCES COULD CAUSE THE CLOSINGS OF OUR COMMITTED ACQUISITIONS NOT TO OCCUR OR BE DELAYED BECAUSE THE RESULTS OF VARIOUS DILIGENCE ITEMS MAY CAUSE TRANSACTIONS TO FAIL TO CLOSE,

·                  WE MAY BE UNABLE TO IDENTIFY PROPERTIES WHICH WE WANT TO BUY OR TO NEGOTIATE ACCEPTABLE PURCHASE PRICES, AND

·                  OTHER RISKS MAY ADVERSELY IMPACT US, AS DESCRIBED MORE FULLY UNDER “ITEM 1A. RISK FACTORS”.

THESE RESULTS COULD OCCUR DUE TO MANY DIFFERENT CIRCUMSTANCES, SOME OF WHICH, SUCH AS CHANGES IN OUR TENANTS’ FINANCIAL CONDITIONS OR NEEDS FOR LEASED SPACE, OR CHANGES IN THE CAPITAL MARKETS OR THE ECONOMY GENERALLY, ARE BEYOND OUR CONTROL.  THE INFORMATION CONTAINED ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K IDENTIFY OTHER IMPORTANT FACTORS THAT COULD CAUSE SUCH DIFFERENCES.

YOU SHOULD NOT PLACE UNDUE RELIANCE UPON FORWARD LOOKING STATEMENTS.

EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW, WE DO NOT INTEND TO IMPLY THAT WE WILL RELEASE PUBLICLY THE RESULT OF ANY REVISION TO THE FORWARD LOOKING STATEMENTS CONTAINED IN THIS ANNUAL REPORT TO REFLECT THE FUTURE OCCURRENCE OF PRESENTLY 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 STATE DEPARTMENT OF ASSESSMENTS AND TAXATION 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

2006 FORM 10-K ANNUAL REPORT

 

 

Table of Contents

 

 

Part I

 

 

 

 

 

 

 

Item 1.

 

Business

 

 

Item 1A.

 

Risk Factors

 

 

Item 1B.

 

Unresolved Staff Comments

 

 

Item 2.

 

Properties

 

 

Item 3.

 

Legal Proceedings

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

 

 

 

 

 

 

 

 

Part II

 

 

 

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

 

Item 6.

 

Selected Financial Data

 

 

Item 7.

 

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

 

 

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

 

Item 8.

 

Financial Statements and Supplementary Data

 

 

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

 

Item 9A.

 

Controls and Procedures

 

 

Item 9B.

 

Other Information

 

 

 

 

 

 

 

 

 

Part III

 

 

 

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

 

Item 11.

 

Executive Compensation*

 

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

 

Item 13.

 

Certain Relationships and Related Transactions*

 

 

Item 14.

 

Principal Accountant Fees and Services*

 

 

 

 

 

 

 

 

 

Part IV

 

 

 

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

 

 

 

 

 

 

 

 

*Incorporated by reference from our Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 15, 2007, to be filed pursuant to Regulation 14A.

 

 

 




PART I

Item 1.    Business

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 and industrial buildings and leased industrial land.  For a discussion and information regarding our operating segments see our financial statements beginning on page F-1.

As of December 31, 2006, we owned 504 properties for a total investment of $5.8 billion at cost, and a depreciated book value of $5.1 billion.  Our portfolio includes 351 office properties with 34.3 million square feet of space and 153 industrial properties with 25.6 million square feet of space.  Our 153 industrial properties include 17.9 million square feet of developed commercial and industrial lands in Oahu, Hawaii.

Our principal executive offices are located at 400 Centre Street, Newton, Massachusetts 02458, and our telephone number is (617) 332-3990.

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.  Our investment goals are current income for distribution to shareholders and capital growth from appreciation in the value of properties.  Our income is derived primarily from rent.

Investment Policies.  In evaluating potential investments and asset sales, we consider various factors including the following:

·                  the historic 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 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 in one geographic area, 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 increase our revenues and profits and diversify their sources.

Disposition Policies.  From time to time we consider the sale of properties or investments.  Disposition decisions are made based on a number of factors including, but not limited to, the following:

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·                  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 with a borrowing capacity of $750 million (which is guaranteed by most of our subsidiaries) that we use for working capital and general business purposes and for acquisition funding on an interim basis until we refinance with equity or long term debt.  In August 2006, we amended and extended this credit facility from April 2009 to August 2010, with an option to extend the facility an additional year.  The annual interest payable for amounts drawn under the facility was reduced from LIBOR plus 0.65% to LIBOR plus 0.55%.  Certain covenants were also amended to reflect current market conditions.  At December 31, 2006, $40 million was outstanding under our revolving credit facility.

Our credit facility agreement and our senior note indenture and its supplements contain financial covenants that, 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 replace our current credit facility or to seek additional capital through equity offerings, debt financings, retention of cash flows in excess of distributions to shareholders or a combination of these methods.  Some 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, some 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 60%.  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.

Manager.  Our day to day operations are conducted by Reit Management & Research LLC, or RMR.  RMR originates and presents investment opportunities to our board of trustees and provides property management and administrative services to us.  RMR is a Delaware limited liability company, that is beneficially owned by Barry M. Portnoy, and his son, Adam D. Portnoy, 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 manager to Hospitality Properties Trust, or Hospitality Properties, and Senior Housing Properties Trust, or Senior Housing, and has other business interests.  The directors of RMR are Gerard M. Martin, Adam D. Portnoy, Barry M. Portnoy and David J. Hegarty.  The executive officers of RMR are Adam D. Portnoy, President and Chief Executive Officer, David J. Hegarty, Executive Vice President and Secretary; John G. Murray, Executive Vice President; Evrett W. Benton, Senior Vice President; Ethan S. Bornstein, Senior Vice President; Jennifer B. Clark, Senior Vice President and General Counsel; John R. Hoadley, Senior Vice President; Mark L. Kleifges, Senior Vice President; David M. Lepore, Senior Vice President; Bruce J. Mackey Jr., Senior Vice President; John A. Mannix, Senior Vice President; Thomas M. O’Brien, Senior Vice President; and John C. Popeo, Senior Vice President, Treasurer and Chief Financial Officer.  Messrs. Mannix, Popeo 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 February 26, 2007, RMR had approximately 450 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, 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

2




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 properties they own, 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 governments for damages and costs they incur in connection with such hazardous substances.  We estimate the cost to remove hazardous substances at some of our properties based in part on environmental surveys of the properties we own prior to their purchase and we considered those costs when determining an acceptable purchase price.  Estimated liabilities related to hazardous substances at properties we own are reflected in our consolidated balance sheet and included in the cost of the real estate acquired.  We do not believe that there are other 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 at our properties or that other costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition.

Certain of our real estate assets contain asbestos.  The asbestos is contained in accordance with current regulations, and we have no current plans to remove it.  If we removed the asbestos or demolished these properties, certain environmental regulations govern the manner in which the asbestos must be handled and removed.

Internet Website.  Our internet website address is www.hrpreit.com.  Copies of our governance guidelines, code of business conduct and 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.  We make available, free of charge, on our website, our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or Exchange Act, as soon as reasonably practicable after these forms are filed with, or furnished to, the Securities and Exchange Commission, or 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 on 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 on 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 all 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 of 1986, as amended, or 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,

3




judicial, or administrative actions or decisions could also affect the accuracy of statements made in this summary.  We have not received a ruling from the Internal Revenue Service, or 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.  The IRS or a court could, for example, take a different position, which could result in significant tax liabilities for applicable parties, from that described in this summary with respect to our acquisitions, operations, restructurings or any other matters described 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 that are in effect as of the date of this Annual Report on 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;

·                  an entity treated as a corporation 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;

·                  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.  If a partnership (including any entity treated as a partnership for federal income tax purposes) is a beneficial owner of our shares, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. A beneficial owner that is a partnership and partners in such a partnership should consult their tax advisors about the federal income tax consequences of the acquisition, ownership and disposition of our shares.

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 then applicable qualification tests, 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 of our dividends is 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.  For all these purposes, our distributions include both cash distributions and any in kind distributions of property that we might make.

The conversion formula of our series D cumulative convertible preferred shares may be adjusted under a number of circumstances; adjustments may include changes in the type or amount of consideration a shareholder receives upon conversion.  Section 305 of the Internal Revenue Code treats some of these adjustments as constructive distributions, in which case they would be taxable in a similar manner to actual distributions.  In general, a shareholder that holds our series D cumulative convertible preferred shares would be deemed to receive a constructive distribution if the conversion price is adjusted for a taxable distribution to the holders of common

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shares. Such a shareholder’s adjusted tax basis in series D cumulative convertible preferred shares would be increased by constructive distributions that are taxable as dividends or gain, and would be unaffected by constructive distributions that were nontaxable returns of capital. Conversely, a failure to appropriately adjust the conversion price of the series D cumulative convertible preferred shares could result in a constructive distribution to shareholders that hold our common shares, which would be taxable to them in a similar manner as actual distributions.  A shareholder may also receive a constructive distribution if a conversion of its series D cumulative convertible preferred shares is accompanied by a change in the conversion formula.

If a shareholder actually or constructively owns none or a small percentage of our common shares, and such shareholder surrenders its preferred shares to us to be repurchased for cash only, then the repurchase of the preferred shares is likely to qualify for sale or exchange treatment because the repurchase would not be “essentially equivalent to a dividend” as defined by the Internal Revenue Code. More specifically, a cash repurchase of preferred shares will be treated under Section 302 of the Internal Revenue Code as a distribution, and hence taxable as a dividend to the extent of our allocable current or accumulated earnings and profits, as discussed above, unless the repurchase satisfies one of the tests set forth in Section 302(b) of the Internal Revenue Code and is therefore treated as a sale or exchange of the repurchased shares. The repurchase will be treated as a sale or exchange if it (1) is “substantially disproportionate” with respect to the surrendering shareholder’s ownership in us, (2) results in a “complete termination” of the surrendering shareholder’s common and preferred share interest in us, or (3) is “not essentially equivalent to a dividend” with respect to the surrendering shareholder, all within the meaning of Section 302(b) of the Internal Revenue Code. In determining whether any of these tests have been met, a shareholder must generally take into account our common and preferred shares considered to be owned by such shareholder by reason of constructive ownership rules set forth in the Internal Revenue Code, as well as our common and preferred shares actually owned by such shareholder.  In addition, if a repurchase is treated as a distribution under the preceding tests, then a shareholder’s tax basis in the repurchased preferred shares will be transferred to the shareholder’s remaining shares of our common or preferred shares, if any, and if such shareholder owns no other shares of our common or preferred shares, such basis may be transferred to a related person or may be lost entirely.  Because the determination as to whether a shareholder will satisfy any of the tests of Section 302(b) of the Internal Revenue Code depends upon the facts and circumstances at the time that the preferred shares are repurchased, we encourage you to consult your own tax advisor to determine your particular tax treatment.

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 2006 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 continued 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.

·                  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 from 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

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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 and to the extent we invest in properties in foreign jurisdictions, our income from those properties will generally be subject to tax in those jurisdictions.  If we continue to operate as we do, then we will distribute our taxable income to our shareholders each year and we will generally not pay federal income tax.  As a result, we cannot recover the cost of foreign income taxes imposed on our foreign investments 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 potentially eligible for the 15% income tax rate discussed below in “Taxation of U.S. Shareholders” 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.  The Internal Revenue Code provides certain relief provisions under which we might avoid automatically ceasing to be a REIT for failure to meet certain REIT requirements, all as discussed in more detail below.

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;

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(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 our most recently completed taxable year, 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.

The Internal Revenue Code provides that we will not automatically fail to be a REIT if we do not meet conditions (1) through (6), provided we can establish reasonable cause for any such failure.  Each such excused failure will result in the imposition of a $50,000 penalty instead of REIT disqualification.  It is impossible to state whether in all circumstances we would be entitled to the benefit of this relief provision.  This relief provision applies to any failure of the applicable conditions, even if the failure first occurred in a prior taxable year, as long as each of the requirements of the relief provision is satisfied after October 22, 2004.

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

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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 generally imputed to us for purposes of the REIT qualification 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% gross income test.

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·                  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% gross income test described above, dividends, interest, gains from the sale or disposition of stock, securities, or real property or, for financial instruments entered into during our 2004 or earlier taxable years, certain payments under interest rate swap or cap agreements, options, futures contracts, forward rate agreements or similar financial instruments.  But for financial instruments entered into during our 2005 or later taxable years, the 95% gross income test has been modified as follows:  except as may be provided in Treasury regulations, gross income for these purposes no longer includes income from a “hedging transaction” as defined under clauses (ii) and (iii) of Section 1221(b)(2)(A) of the Internal Revenue Code, but only to the extent that (A) the transaction hedges indebtedness we incur to acquire or carry real estate assets, and (B) the hedging transaction was “clearly identified,” meaning that the transaction must be identified as a hedging transaction before the end of the day on which it is entered and the risks being hedged must be identified generally within 35 days after the date the transaction is entered.

For purposes of the 75% and 95% gross income tests outlined above, 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 that 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 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 that 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

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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 that 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.

Other than sales of foreclosure property, 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

·                  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 the 95% gross income tests in any taxable year, we may nevertheless qualify as a REIT for that year if we satisfy the following requirements after October 22, 2004:

·                  our failure to meet the test is due to reasonable cause and not due to willful neglect, and

·                  after we identify the failure, we file a schedule describing each item of our gross income included in the 75% or 95% gross income tests for that taxable year.

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 does apply, a 100% tax 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.  This relief provision applies to any failure of the applicable income tests, even if the failure first occurred in a prior taxable year, as long as each of the requirements of the relief provision is satisfied after October 22, 2004.

Under prior law, if we failed to satisfy one or both of the 75% or 95% gross income tests, we nevertheless would have qualified 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 reported 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.  For our 2004 and prior taxable years, we attached 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 prior relief provision for the 75% and 95% gross income tests.  Even if this relief provision did apply, a 100% tax 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 the following 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 temporary investments of new capital (that is, stock or debt instruments purchased with proceeds of a stock offering or a public 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).

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·                  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 or otherwise excepted as discussed below.

·                  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.

In addition, if we fail the 5% value test or the 10% vote or value tests at the close of any quarter and do not cure such failure within 30 days after the close of that quarter, that failure will nevertheless be excused if (a) the failure is de minimis and (b) within 6 months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy the 5% value and 10% vote and value asset tests.  For purposes of this relief provision, the failure will be “de minimis” if the value of the assets causing the failure does not exceed the lesser of (a) 1% of the total value of our assets at the end of the relevant quarter or (b) $10,000,000.  If our failure is not de minimis, or if any of the other REIT asset tests have been violated, we may nevertheless qualify as a REIT if (a) we provide the IRS with a description of each asset causing the failure, (b) the failure was due to reasonable cause and not willful neglect, (c) we pay a tax equal to the greater of (i) $50,000 or (ii) the highest rate of corporate tax imposed (currently 35%) on the net income generated by the assets causing the failure during the period of the failure, and (d) within 6 months after the last day of the quarter in which we identify the failure, we either dispose of the assets causing the failure or otherwise satisfy all of the REIT asset tests.  These relief provisions apply to any failure of the applicable asset tests, even if the failure first occurred in a prior taxable year, as long as each of the requirements of the relief provision is satisfied after October 22, 2004.

The Internal Revenue Code also provides, for our 2001 taxable year and thereafter, an excepted securities safe harbor to the 10% value test that includes among other items (a) “straight debt” securities, (b) certain rental agreements in which payment is to be made in subsequent years, (c) any obligation to pay rents from real property, (d) securities issued by governmental entities that are not dependent in whole or in part on the profits of or payments from a nongovernmental entity, and (e) any security issued by another REIT.

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.

Our Investment in Senior Housing. For several years, we owned a significant minority, in excess of 10%, of Senior Housing shares, and we believe that Senior Housing during these years qualified as a REIT under the Internal Revenue Code.  We sold all our Senior Housing shares in 2006, and no longer own any material stake in that company.  For any of our taxable years in which Senior Housing qualified as a REIT, our investment in Senior Housing counted favorably toward the REIT asset tests and our gains and dividends from Senior Housing shares counted as qualifying income under both REIT gross income tests.  However, because we did not and could not 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 reaffirmed this protective election every January 1 since then through January 1, 2006.  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 have jeopardized our own qualification as a REIT even though we owned more than 10% of it.

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:

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(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.

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.

Acquisition of Publicly Traded Partnership

In 2004, we acquired all of the limited partnership interests and the general partnership interest of a publicly traded partnership as well as certain of the partnership’s affiliated entities.  Prior to our acquisition of the publicly traded partnership and its affiliates, the acquired entities directly or indirectly owned substantially all of the outstanding equity interests in various noncorporate subsidiaries and four C corporations.  However, before our acquisition of these entities, all four C corporation subsidiaries were converted into disregarded entities under Treasury regulations issued under Section 7701 of the Internal Revenue Code, and thus considered liquidated for federal income tax purposes.  Upon our acquisition, the publicly traded partnership itself and its affiliates and subsidiaries became disregarded entities of ours under Treasury regulations issued under Section 7701 of the Internal Revenue Code.  Thus, after the 2004 acquisition, all assets, liabilities and items of income, deduction and credit of these acquired entities have been treated as ours for purposes of the various REIT qualification tests described above.  Our initial tax basis in the acquired assets is our cost for acquiring them, and we believe that we did not succeed to any C corporation earnings and profits in this acquisition.

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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 the applicable shorter periods.  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 maximum individual federal income tax rate for long term capital gains is generally 15% (for taxable years that begin on or before December 31, 2010) and for most corporate dividends is generally also 15% (for taxable years that begin on or before December 31, 2010).  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 such 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 (including any constructive distributions on our common shares or on our series D cumulative convertible preferred shares) 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.

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

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(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 by the end of 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 generally recognize gain or loss equal to the difference between the amount realized and the shareholder’s adjusted basis in our shares that 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.

In contrast to the typical redemption of preferred shares for cash only, discussed above, if a U.S. shareholder receives a number of our common shares as a result of a conversion or repurchase of series D cumulative convertible preferred shares, then the transaction will be treated as a recapitalization. As such, the shareholder would recognize income or gain only to the extent of the lesser of (1) the excess, if any, of the value of the cash and common shares received over such shareholder’s adjusted tax basis in its series D cumulative convertible preferred shares surrendered or (2) the cash received. Any cash a shareholder receives, up to the amount of income or gain recognized, would generally be characterized as a dividend to the extent that a surrender of series D cumulative convertible preferred shares to us for cash only would be taxable as a dividend, taking into account the surrendering shareholder’s continuing actual or constructive ownership interest in our shares, if any, as discussed above, and the balance of the recognized amount, if any, will be gain.  A U.S. shareholder’s basis in its common shares received would be equal to the basis for the series D cumulative convertible preferred shares surrendered less any cash received plus any income or gain recognized.  A U.S. shareholder’s holding period in the common shares received would be the same as the holding period for the series D cumulative convertible preferred shares surrendered.  If, in addition to common shares, upon conversion or repurchase a shareholder receives rights or warrants to acquire our common shares or other of our securities, then the receipt of the rights or warrants may be taxable, and we encourage you to consult your tax advisor as to the consequences of the receipt of rights or warrants upon conversion or repurchase.

A U.S. shareholder generally will not recognize any income, gain or loss upon conversion of series D cumulative convertible preferred shares into common shares except with respect to cash, if any, received in lieu of a fractional common share.  A U.S. shareholder’s basis in its common shares received would be equal to the basis for the series D cumulative convertible preferred shares surrendered less any basis allocable to any fractional share exchanged for cash.  A U.S. shareholder’s holding period in the common shares received would be the same as the holding period for the series D cumulative convertible preferred shares surrendered.  Any cash received in lieu of a

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fractional common share upon conversion will be treated as a payment in exchange for the fractional common share. Accordingly, your receipt of cash in lieu of a fractional share generally will result in capital gain or loss, measured by the difference between the cash received for the fractional share and the adjusted tax basis attributable to the fractional share.  If, in addition to common shares, upon conversion a U.S. shareholder receives rights or warrants to acquire our common shares or other of our securities, then the receipt of the rights or warrants may be taxable, and we encourage you to consult your tax advisor as to the consequences of the receipt of rights or warrants upon conversion.

Effective for federal tax returns with due dates after October 22, 2004, the Internal Revenue Code imposes a penalty for the failure to properly disclose a “reportable transaction.”  A reportable transaction currently includes, among other things, a sale or exchange of our shares resulting in a tax loss in excess of (i) $10 million in any single year or $20 million in any combination of years in the case of our shares held by a C corporation or by a partnership with only C corporation partners or (ii) $2 million in any single year or $4 million in any combination of years in the case of our shares held by any other partnership or an S corporation, trust or individual, including losses that flow through pass through entities to individuals.  A taxpayer discloses a reportable transaction by filing IRS Form 8886 with its federal income tax return and, in the first year of filing, a copy of Form 8886 must be sent to the IRS’s Office of Tax Shelter Analysis.  The penalty for failing to disclose a reportable transaction is generally $10,000 in the case of a natural person and $50,000 in any other case.

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 of 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

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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.

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 at a 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.  In the case of any in kind distributions of property, we or other applicable withholding agents will collect the amount required to be withhold by reducing to cash for remittance to the IRS a sufficient portion of the property that the non-U.S. shareholder would otherwise receive, and the non-U.S. shareholder may bear brokerage or other costs for this withholding procedure.  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.

Capital gain dividends that are received by a non-U.S. shareholder, including dividends attributable to our sales of United States real property interests, and that are deductible by us in respect of our 2005 taxable year and thereafter will be subject to the taxation and withholding regime applicable to ordinary income dividends and the branch profits tax will not apply, provided that (1) the capital gain dividends are received with respect to a class of shares that is “regularly traded” on a domestic “established securities market” such as the New York Stock Exchange, or the NYSE, both as defined by applicable Treasury regulations, and (2) the non-U.S. shareholder does not own more than 5% of that class of shares at any time during the one-year period ending on the date of distribution of the capital gain dividends.  If both of these provisions are satisfied, qualifying non-U.S. shareholders will not be subject to withholding on capital gain dividends as though those amounts were effectively connected with a United States trade or business, and qualifying non-U.S. shareholders will not be required to file United States federal income tax returns or pay branch profits tax in respect of these capital gain dividends.  Instead, these dividends will be subject to United States federal income tax and withholding as ordinary dividends, currently at a 30% tax rate unless reduced by applicable treaty, as discussed below.  We believe that our shares have been and will remain “regularly traded” on an “established securities market” within the definition of each term provided in applicable Treasury regulations; however,

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we can provide no assurance that our shares will continue to be “regularly traded” on an “established securities market” in future taxable years.

Except as discussed above, 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 that does not qualify for the provision above or that received dividends for taxable years before 2005 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; such a 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 such a non-U.S. shareholder that is also a corporation 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 such 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 the non-U.S. shareholder may file for a refund from the IRS of any amount of withheld tax in excess of that tax liability.

Effective generally from and after 2006, a special “wash sale” rule applies to a non-U.S. shareholder who owns any class of our shares if (1) the shareholder owns more than 5% of that class of shares at any time during the one year period ending on the date of the distribution described below, or (2) that class of our shares is not, within the meaning of applicable Treasury Regulations, “regularly traded” on a domestic “established securities market” such as the NYSE.  Although there can be no assurance in this regard, we believe that our common shares and each class of our preferred shares has been and will remain “regularly traded” on a domestic “established securities market” within the meaning of applicable Treasury regulations, all as discussed above.  We thus anticipate this wash sale rule to apply, if at all, only to a non-U.S. shareholder that owns more than 5% of either our common shares or any class of our preferred shares.  Such a non-U.S. shareholder will be treated as having made a “wash sale” of our shares if it (1) disposes of an interest in our shares during the 30 days preceding the ex-dividend date of a distribution by us that, but for such disposition, would have been treated by the non-U.S. shareholder in whole or in part as gain from the sale or exchange of a United States real property interest, and then (2) acquires or enters into a contract to acquire a substantially identical interest in our shares, either actually or constructively through a related party, during the 61 day period beginning 30 days prior to the ex-dividend date.  In the event of such a wash sale, the non-U.S. shareholder will have gain from the sale or exchange of a United States real property interest in an amount equal to the portion of the distribution that, but for the wash sale, would have been a gain from the sale or exchange of a United States real property interest.  As discussed above, a non-U.S. shareholder’s gain from the sale or exchange of a United States real property interest can trigger increased United States taxes, such as the branch profits tax applicable to non-U.S. corporations, and increased United States tax filing requirements.

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 or may apply only if the REIT meets certain additional conditions.  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 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 discussed above on some 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.  In the case of any in kind distributions of property, we or other applicable withholding agents will have to collect the amount required to be withhold by reducing to cash for remittance to the IRS a sufficient portion of the property that the non-U.S. shareholder would otherwise receive, and the non-U.S. shareholder may bear brokerage or other costs for this withholding procedure.

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If our shares are not “United States real property interests” within the meaning of Section 897 of the Internal Revenue Code, then a non-U.S. shareholder’s gain on sale of these shares (including a conversion of our series D cumulative convertible preferred shares into common 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 may 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 have been and will remain 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 NYSE, 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.  In this regard, because the preferred shares of others may be redeemed, and in the case of the series D cumulative convertible preferred shares, are convertible, a non-U.S. shareholder’s percentage interest in a class of our preferred shares may increase even if it acquires no additional preferred shares in that class.  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 by the IRS or credited against the REIT shareholder’s federal income tax liability.  In the case of any in kind distributions of property by us to a shareholder, we or other applicable withholding agents will have to collect any applicable backup withholding by reducing to cash for remittance to the IRS a sufficient portion of the property that our shareholder would otherwise receive, and the shareholder may bear brokerage or other costs for this withholding procedure.

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 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.

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

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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 tax treatment and that of our shareholders 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.  Likewise, the rules regarding taxes other than federal income taxes may also be modified.  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 tax laws and interpretations of these laws could adversely affect the tax or other consequences of an investment in our shares.  We and our shareholders may also be subject to taxation by state, local or other jurisdictions, including those in which we or our shareholders transact business or reside.  These tax consequences may not be comparable to the federal income tax consequences discussed above.

 

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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, as amended, or 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.

Fiduciaries considering an investment in our securities should consult their own legal advisors if they have any concern as to whether the investment is consistent with the foregoing criteria or is otherwise appropriate.  The sale of our securities to a plan is in no respect a representation by us or any underwriter of the securities that the investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that the investment is appropriate for plans generally or any particular plan.

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.  Fiduciaries considering an investment in our securities should consult their own legal advisors as to whether the ownership of our securities 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, as amended, 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.

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 Exchange Act, or sold under an effective registration statement under the Securities Act of 1933, as amended, provided the securities are registered under the Exchange Act within 120 days after the end of the fiscal year

20




of the issuer during which the offering occurred.  Each class of our outstanding shares has been registered under the Exchange Act.

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 that 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 each class of our currently outstanding shares is publicly offered and our assets will not be deemed to be “plan assets” of any ERISA plan or non-ERISA plan that invests in our shares.

21




Item 1A.  Risk Factors

Our business faces many risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that we currently think are immaterial, may also impair our business operations or financial results. If any of the events or circumstances described in the following risks occurs, our business, financial condition or results of operations could suffer and the trading price of our debt or equity securities could decline. Investors and prospective investors should consider the following risks and the information contained under the heading “Warning Concerning Forward Looking Statements” before deciding whether to invest in our securities.

Acquisitions that we make may not be successful.

Our business strategy contemplates additional acquisitions. We cannot assure you that acquisitions we make will prove to be successful. We might encounter unanticipated difficulties and expenditures relating to any acquired properties. Newly acquired properties might require significant management attention that would otherwise be devoted to our ongoing business. We might never realize the anticipated benefits of our acquisitions.

We may be unable to access the capital necessary to repay debts or to grow.

To retain our status as a REIT, we are required to distribute 90% of our taxable income to shareholders and we generally cannot use income from operations to repay debts or to fund our growth. Accordingly, our business and growth strategy depend, in part, upon our ability to raise additional capital at reasonable costs to repay our debts and to fund new investments. We believe we will be able to raise additional debt and equity capital at reasonable costs to refinance our debts at or prior to their maturities and to invest at yields which exceed our cost of capital. However, our ability to raise reasonably priced capital is not guaranteed; we may be unable to raise reasonably priced capital because of reasons related to our business or for reasons beyond our control, such as market conditions. Our business and growth strategy is not assured and may fail.

We are currently dependent upon economic conditions in our six core markets: Metro Philadelphia, Pennsylvania; Metro Washington, DC; Oahu, Hawaii; Metro Boston, Massachusetts; Southern California; and Metro Austin, Texas.

Over 52% of our revenues in fiscal year 2006 were derived from properties located in our six core markets: Metro Philadelphia, PA; Metro Washington, DC; Oahu, HI; Metro Boston, MA; Southern California; and Metro Austin, TX. A downturn in economic conditions in these markets could result in reduced demand for office space. A significant economic downturn in one or more of these areas could adversely affect our results of operations.

We face significant competition.

We plan to continue to acquire properties whenever we are able to identify attractive opportunities. We face competition for acquisition opportunities from other investors and this competition may subject us to the following risks:

·                  we may be unable to acquire a desired property because of competition from other well capitalized real estate investors, including publicly traded and private REITs, private investment funds and others; and

·                  competition from other real estate investors may significantly increase the purchase price we must pay to acquire properties.

In addition, substantially all of our properties face competition for tenants. Many competing properties may have lower occupancy than our properties, which may result in their owners being willing to lease available space at lower prices than the space in our properties. This competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge.

Increasing interest rates would increase our interest costs on variable rate debt and could adversely impact our ability to refinance existing debt or sell assets.

On December 31, 2006, we had approximately $440 million of debt outstanding at variable interest rates. If interest rates increase, so will our interest costs, which could adversely affect our cash flow and our ability to pay principal and interest on our debt and our ability to make distributions to our shareholders. Further, rising interest rates may raise our cost to refinance existing debt when it matures. In addition, an increase in interest rates could

22




decrease the amount buyers may be willing to pay for our properties, thereby limiting our ability to sell property to raise capital or realize gains.

We may from time to time enter into agreements such as interest rate swaps, caps, floors and other interest rate hedging contracts with respect to a portion of our variable rate debt. While these agreements may lessen the impact of rising interest rates on us, they also expose us to the risk that other parties to the agreements will not perform or that the agreements will be unenforceable.

Changes in the healthcare industry may cause us to experience losses.

Approximately 19.0% of our total rents pursuant to signed leases as of December 31, 2006, will come from tenants in healthcare related businesses. Generally, we believe that tenants in healthcare related businesses are less affected by the business cycle than most other tenants and that our concentration of revenues from such tenants may tend to stabilize our cash flows.  However, the healthcare industry is highly regulated and certain aspects of the healthcare industry are currently undergoing rapid regulatory, scientific and technological changes.  Because of such regulations and systemic changes, some of our healthcare related tenants may experience losses which reduce their space needs or make it difficult for them to pay our rents.

Changes in the government’s requirements for leased space may adversely affect us.

Approximately 14.6% of our total rents pursuant to signed leases as of December 31, 2006, will come from government tenants.  Many of our leases with government agencies allow the tenants to vacate the leased premises before the stated term expires with little or no liability.  Historically, our government tenants have regularly renewed leases and only rarely exercised lease termination rights.  Nonetheless, for fiscal policy reasons, security concerns or otherwise some or all of our government tenants may decide to vacate our properties.  If a significant number of such terminations occur, our income and cash flow may materially decline and our ability to pay regular distributions to shareholders may be jeopardized.

Ownership limitations and anti-takeover provisions in our declaration of trust, bylaws and rights plan and under Maryland law may prevent you from receiving a takeover premium.

Our declaration of trust prohibits any shareholder other than RMR and its affiliates from owning more than 9.8% of our outstanding shares. This provision of the declaration of trust may help us comply with REIT tax requirements. However, this provision will also inhibit a change of control. Our declaration of trust and bylaws contain other provisions that may increase the difficulty of acquiring control of us by means of a tender offer, open market purchases, a proxy fight or otherwise, if the acquisition is not approved by our board of trustees. These other anti-takeover provisions include the following:

·                  a staggered board of trustees with three separate classes;

·                  the two thirds majority shareholder vote required for removal of trustees;

·                  the ability of our board of trustees to increase, without shareholder approval, the amount of shares (including common shares) that we are authorized to issue under our declaration of trust and bylaws, and to issue additional shares on terms that it determines;

·                  advance notice procedures with respect to nominations of trustees and shareholder proposals; and

·                  the fact that only the board of trustees may call shareholder meetings and that shareholders are not entitled to act without a meeting.

We have a rights agreement whereby, in the event a person or group of persons acquires or attempts to acquire 10% or more of our outstanding common shares, our shareholders, other than such person or group, will be entitled to purchase additional shares or other securities or property at a discount.  In addition, certain provisions of Maryland law may have an anti-takeover effect.  For all of these reasons, our shareholders may be unable to realize a change of control premium for shares they own.

23




The loss of our tax status as a REIT or tax authority challenges would have significant adverse consequences to us and reduce the market price of our securities.

As a REIT, we generally do not pay federal and state income taxes. However, our continued qualification as a REIT is dependent upon our compliance with complex provisions of the Internal Revenue Code, for which there are available only limited judicial or administrative interpretations. We believe we have operated, and are operating, as a REIT in compliance with the Internal Revenue Code. However, we cannot assure that, upon review or audit, the IRS will agree with this conclusion. If we cease to be a REIT, we would violate a covenant in our credit facility, our ability to raise capital would be adversely affected, we may be subject to material amounts of federal and state income taxes and the value of our shares would likely decline.

Real estate ownership creates risks and liabilities.

Our business is subject to risks associated with real estate ownership, including:

·                  property and casualty losses, some of which may be uninsured;

·                  defaults and bankruptcies by our tenants;

·                  the illiquid nature of real estate markets which limits our ability to sell our assets rapidly to respond to changing market conditions;

·                  leases which are not renewed at expiration or for property which may be relet at lower rents;

·                  costs that may be incurred relating to maintenance and repair, and the need to make expenditures due to changes in governmental regulations, including the Americans with Disabilities Act;

·                  asbestos related liabilities and costs of containment or removal; and

·                  other environmental hazards at our properties for which we may be liable, including those created by prior owners or occupants, existing tenants, abutters or other persons.

Our business dealings with our managing trustees and affiliated entities may create conflicts of interest.

We have no employees. Personnel and other services which we require are provided to us under contract by our manager, RMR. RMR is beneficially owned by our managing trustees, Barry Portnoy and Adam Portnoy, who is also President and Chief Executive Officer of RMR.  In addition, John A. Mannix, our President and Chief Operating Officer, John C. Popeo, our Treasurer, Chief Financial Officer and Secretary, and David M. Lepore and Jennifer B. Clark, our Senior Vice Presidents, are executive officers of RMR.  We pay RMR a fee based in large part upon the amount of our investments.  Our agreement with RMR also provides for payment to RMR of incentive fees under certain circumstances.  Any incentive fees are payable through our issuance of restricted common shares to RMR.  Our fee arrangement with RMR could encourage RMR to advocate property acquisitions and discourage property sales by us.  Our fees to RMR were $29.5 million for 2006.  RMR also acts as the manager for two other publicly owned REITs: Hospitality Properties, which invests in real estate used in hospitality industries; and Senior Housing, which owns senior housing properties.  RMR also provides services to Five Star Quality Care, Inc., or Five Star, under a shared services agreement and to TravelCenters of America LLC, or TravelCenters, under a management and shared services agreement, and RMR has other business interests. Messrs. Barry and Adam Portnoy also serve as managing trustees of Hospitality Properties.  Mr. Barry Portnoy also serves as managing trustee of Senior Housing and as managing director of Five Star and TravelCenters.  The multiple responsibilities to public companies and other businesses could create competition among these companies for the time and efforts of RMR and Messrs. Barry and Adam Portnoy. All of the contractual arrangements between us and RMR have been approved by our independent trustees.  Each of our trustees, other than Messrs. Barry and Adam Portnoy, serve as a trustee or director of one or more other companies with which RMR has contractual arrangements similar to its contracts with us.  We believe that the quality and depth of management available to us by contracting with RMR could not be duplicated by our being a self advised company or by our contracting with unrelated third parties without considerable cost increases.  Also, a termination of our contract with RMR is a default under our revolving credit facility unless approved by a majority of our lenders.  However, the fact that we believe that our relationships with RMR and our managing trustees have been beneficial to us in the past does not guarantee that these related party transactions may not be detrimental to us in the future.

24




We have substantial debt.

At December 31, 2006, we had $2.4 billion in debt outstanding, which was approximately 45% of our total book capitalization.  Our note indenture and revolving credit facility permit us and our subsidiaries to incur additional debt, including secured debt. If we default in paying any debts or honoring our debt covenants, these debts may be accelerated and we could be forced to liquidate our assets for less than the values we would receive in a more orderly process.

Any notes we may issue will be effectively subordinated to the debts of our subsidiaries and to our secured debt.

We conduct substantially all of our business through, and substantially all of our properties are owned by, subsidiaries. Consequently, our ability to pay debt service on our outstanding notes and any notes we issue in the future will be dependent upon the cash flow of our subsidiaries and payments by those subsidiaries to us as dividends or otherwise. Our subsidiaries are separate legal entities and may have their own liabilities. Payments due on our outstanding notes, and any notes we may issue are, or will be, effectively subordinated to liabilities of our subsidiaries, including guaranty liabilities. Substantially all of our subsidiaries have guaranteed our revolving credit facility; none of our subsidiaries guaranty our outstanding notes. In addition, at December 31, 2006, our subsidiaries had $416.1 million of secured debt. Our outstanding notes are, and any notes we may issue will be, also effectively subordinated to our secured debt.

Our notes may permit redemption before maturity, and our noteholders may be unable to reinvest proceeds at the same or a higher rate.

The terms of our notes may permit us to redeem all or a portion of our outstanding notes or notes we may issue in the future after a certain amount of time. Generally, the redemption price will equal the principal amount being redeemed, plus accrued interest to the redemption date, plus any applicable premium. If a redemption occurs, our noteholders may be unable to reinvest the money they receive from the redemption at a rate that is equal to or higher than the rate of return we previously paid on the redeemed notes.

There may be no public market for notes we may issue and one may not develop.

Generally, any notes we may issue will be a new issue for which no trading market exists. We may not list our notes on any securities exchange or seek approval for quotation through any automated quotation system. We can give no assurance that an active trading market for any of our notes will exist in the future. Even if a market does develop, the liquidity of the trading market for any of our notes and the market price quoted for any such notes may be adversely affected by changes in the overall market for fixed income securities, by changes in our financial performance or prospects, or by changes in the prospects for REITs or for the real estate industry generally.

Conversion of our series D preferred shares will dilute the ownership interests of existing shareholders.

The conversion of some or all of our series D preferred shares, including a conversion upon exercise of a “fundamental change” (as such term is defined in the applicable articles supplementary) will dilute the ownership interests of existing shareholders.  Any sales in the public market of the common shares issuable upon such conversion could adversely affect prevailing market prices of our common shares.  In addition, the existence of the series D preferred shares may encourage short selling by market participants because the conversion of the series D preferred shares could depress the price of our common shares or for other reasons.

Item 1B.  Unresolved Staff Comments

None.

25




Item 2.  Properties

General.  At December 31, 2006, we had real estate investments totaling approximately $5.8 billion in 504 properties that were leased to over 2,000 tenants.  Our properties are located in both central business district, or CBD, and suburban areas.  We have concentrations of properties in six major geographic segments:  Metro Philadelphia, PA; Metro Washington, DC; Oahu, HI; Metro Boston, MA; Southern California; and Metro Austin, TX.  For further information by geographic segment, see footnote 10 of the notes to our consolidated financial statements included in this Annual Report on Form 10-K.

The states in which we owned real estate at December 31, 2006, were as follows (dollars in thousands):

Location

 

Number of
Properties

 

Investment
Amount (1)

 


Net Book Value (1)

 


Rent (2)

 

Alabama

 

1

 

$

23,604

 

$

23,582

 

$

3,161

 

Alaska

 

1

 

1,032

 

824

 

342

 

Arizona

 

10

 

123,361

 

106,088

 

18,997

 

California

 

46

 

428,155

 

359,979

 

62,359

 

Colorado

 

10

 

131,735

 

116,042

 

22,029

 

Connecticut

 

18

 

144,586

 

138,461

 

17,562

 

Delaware

 

2

 

69,781

 

57,562

 

5,385

 

District of Columbia

 

5

 

246,425

 

197,268

 

35,817

 

Florida

 

4

 

11,913

 

9,365

 

1,400

 

Georgia

 

43

 

252,900

 

240,049

 

39,889

 

Hawaii

 

56

 

628,318

 

626,494

 

60,953

 

Illinois

 

5

 

121,708

 

118,883

 

17,155

 

Indiana

 

3

 

81,404

 

78,601

 

12,476

 

Kansas

 

1

 

9,514

 

7,987

 

2,572

 

Kentucky

 

1

 

11,527

 

10,684

 

2,275

 

Maryland

 

14

 

374,459

 

326,094

 

56,733

 

Massachusetts

 

35

 

349,254

 

298,861

 

58,783

 

Michigan

 

18

 

65,017

 

61,320

 

14,922

 

Minnesota

 

15

 

142,341

 

118,014

 

17,074

 

Missouri

 

6

 

58,759

 

55,323

 

9,695

 

New Hampshire

 

1

 

22,170

 

18,365

 

2,501

 

New Jersey

 

4

 

37,645

 

28,631

 

5,320

 

New Mexico

 

16

 

113,279

 

100,374

 

19,883

 

New York

 

53

 

406,066

 

367,195

 

63,546

 

Ohio

 

18

 

67,916

 

62,824

 

7,755

 

Oklahoma

 

5

 

46,637

 

37,950

 

4,372

 

Pennsylvania

 

37

 

1,025,439

 

870,875

 

156,029

 

Rhode Island

 

1

 

8,010

 

6,169

 

1,096

 

South Carolina

 

9

 

53,202

 

52,520

 

7,989

 

Tennessee

 

3

 

55,741

 

49,030

 

8,244

 

Texas

 

30

 

436,853

 

362,637

 

55,122

 

Virginia

 

11

 

122,358

 

105,314

 

18,571

 

Washington

 

20

 

74,980

 

67,334

 

11,117

 

West Virginia

 

1

 

5,361

 

4,374

 

691

 

Wyoming

 

1

 

10,823

 

8,740

 

1,381

 

Total real estate

 

504

 

$

5,762,273

 

$

5,093,813

 

$

823,196

 


(1)

 

Excludes purchase price allocations for acquired real estate leases.

 

(2)

 

Rent is pursuant to signed leases as of December 31, 2006, plus estimated expense reimbursements; includes some triple net lease rents and excludes lease value amortization.

 

At December 31, 2006, 50 properties with an aggregate cost of $872.2 million were secured by mortgage notes payable aggregating $415.9 million, and $416.1 million including unamortized discounts and premiums.

26




Item 3.  Legal Proceedings

In the ordinary course of business we are involved in litigation incidental to our business; however, we are not aware of any 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.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common shares are traded on the NYSE (symbol: HRP).  The following table sets forth for the periods indicated the high and low sale prices for our common shares as reported by the NYSE composite transactions reports:

 

High

 

Low

 

 

 

 

 

 

 

2005

 

 

 

 

 

 

 

 

 

 

 

First Quarter

 

$

13.20

 

$

10.95

 

Second Quarter

 

12.60

 

11.35

 

Third Quarter

 

13.25

 

11.75

 

Fourth Quarter

 

12.51

 

10.18

 

 

 

 

 

 

 

2006

 

 

 

 

 

 

 

 

 

 

 

First Quarter

 

$

12.09

 

$

10.30

 

Second Quarter

 

11.80

 

10.50

 

Third Quarter

 

12.22

 

10.80

 

Fourth Quarter

 

12.81

 

11.34

 

The closing price of our common shares on the NYSE on February 26, 2007, was $13.31 per share.

As of February 26, 2007, there were 3,025 shareholders of record, and we estimate that as of such date there were in excess of 99,000 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

 

 

 

Per Common Share

 

 

 

2005

 

2006

 

First Quarter

 

$

0.21

 

$

0.21

 

Second Quarter

 

0.21

 

0.21

 

Third Quarter

 

0.21

 

0.21

 

Fourth Quarter

 

0.21

 

0.21

 

Total

 

$

0.84

 

$

0.84

 

 

All common share distributions shown in the table above have been paid.  We currently intend to continue to declare and pay common share distributions on a quarterly basis.  However, 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 which our board of trustees deems relevant.

Issuances of unregistered shares during the fourth quarter were as follows:  on December 4, 2006, pursuant to our incentive share award plan, certain employees of our manager, RMR, received grants totaling 15,000 common shares of beneficial interest, par value $0.01 per share, valued at $12.74 per share, the closing price of our common

27




shares on the NYSE on that day.  All of these grants were made pursuant to an exemption from registration contained in section 4(2) of the Securities Act of 1933, as amended.

Item 6.  Selected Financial Data

The following table sets forth 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, management’s discussion and analysis of financial condition and results of operations and 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 (1)

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

2003

 

2002

 

Total revenues

 

$

795,821

 

$

708,841

 

$

599,635

 

$

498,315

 

$

412,157

 

Income from continuing operations

 

247,756

 

156,716

 

160,917

 

115,674

 

106,135

 

Net income (2)

 

250,580

 

164,984

 

162,829

 

114,446

 

106,763

 

Net income available for common shareholders (3)

 

198,974

 

118,984

 

116,829

 

68,446

 

79,138

 

Common distributions declared

 

176,410

 

172,065

 

147,156

 

118,348

 

103,056

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — basic

 

209,965

 

197,831

 

176,157

 

136,270

 

128,817

 

Weighted average common shares outstanding — diluted

 

216,524

 

197,831

 

176,157

 

136,270

 

128,817

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations available for common shareholders — basic and diluted

 

$

0.93

 

$

0.56

 

$

0.65

 

$

0.51

 

$

0.61

 

Net income available for common shareholders — basic (3)

 

0.95

 

0.60

 

0.66

 

0.50

 

0.61

 

Net income available for common shareholders — diluted (3)

 

0.94

 

0.60

 

0.66

 

0.50

 

0.61

 

 

 

 

 

 

 

 

 

 

 

 

 

Common distributions declared

 

0.84

 

0.84

 

0.83

 

0.80

 

0.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet Data (1)

 

December 31,

 

 

 

2006

 

2005

 

2004

 

2003

 

2002

 

Real estate properties (4)

 

$

5,762,273

 

$

5,224,574

 

$

4,659,098

 

$

3,874,321

 

$

3,057,330

 

Equity investments

 

 

194,297

 

207,804

 

260,208

 

264,087

 

Total assets

 

5,575,949

 

5,327,167

 

4,813,330

 

4,013,244

 

3,221,652

 

Total indebtedness, net

 

2,397,231

 

2,520,156

 

2,355,031

 

1,876,821

 

1,215,977

 

Total shareholders’ equity

 

2,950,768

 

2,645,486

 

2,307,194

 

2,011,651

 

1,926,273

 


(1)

 

Reclassifications have been made to the prior years’ financial statements to conform to the current year’s presentation.

(2)

 

Changes in net income include income from property acquisitions during all periods presented; gains of $116.3 million recognized in 2006 from the sale of all 7.7 million Senior Housing common shares and 4.0 million Hospitality Properties common shares we owned; gains of $11.8 million recognized in 2005 from equity transactions of equity investments and the sale of 950,000 of our Senior Housing common shares and gains of $30.0 million recognized in 2004 from equity transactions of equity investments and the sale of 4.1 million of our Senior Housing common shares.

(3)

 

Net income available for common shareholders is net income reduced by preferred distributions and the excess redemption price paid over the carrying value of preferred shares.

(4)

 

Excludes value of acquired real estate leases.

28




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 and accompanying notes included in this Annual Report on Form 10-K.

OVERVIEW

We primarily own office and industrial buildings located throughout the United States.  We also own approximately 18 million square feet of leased industrial and commercial lands located in Oahu, Hawaii.

Property Operations

As of December 31, 2006, 93.1% of our total square feet was leased, compared to 94.3% leased as of December 31, 2005.  These results reflect a 1.2 percentage point decrease in occupancy at properties we owned continuously since January 1, 2005.  Occupancy data for 2006 and 2005 is as follows (square feet in thousands):

 

All Properties (1)

 

Comparable Properties (2)

 

 

 

As of the Year Ended
December 31,

 

As of the Year Ended
December 31,

 

 

 

2006

 

2005

 

2006

 

2005

 

Total properties

 

504

 

437

 

367

 

367

 

Total square feet

 

59,865

 

54,933

 

43,759

 

43,759

 

Percent leased (3)

 

93.1

%

94.3

%

93.2

%

94.4

%


(1)

 

Excludes properties sold or under contract for sale

 

(2)

 

Based on properties owned continuously since January 1, 2005, and excludes properties under contract for sale.

 

(3)

 

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

 

During the year ended December 31, 2006, we signed new leases for 2.3 million square feet and lease renewals for 3.7 million square feet, at weighted average rental rates that were 5% above rents previously charged for the same space.  Average lease terms for leases signed during 2006 were 7.8 years.  Commitments for tenant improvement and leasing costs for leases signed during 2006 totaled $82.1 million, or $13.64 per square foot (approximately $1.75/sq. ft. per year of the lease term).

During the past twelve months, the leasing market conditions in some of our markets have been improving.  The quoted rental rates in most of the areas where our properties are located seem to have increased modestly.  Required landlord funded tenant build outs and leasing commissions payable to tenant brokers for new leases and lease renewals have generally stabilized or declined modestly over the past twelve months.  These build out costs and leasing commissions are generally amortized as a reduction of our income during the terms of the affected leases.  However, these improvements in rent rates and reduced tenant inducement costs have been somewhat offset by a modest decline in space requirements in certain markets, as reflected in the slight decline in occupancy we have experienced during this period.  We believe that modest increases in effective rents will improve the financial results at some of our currently owned properties, however, there are too many variables for us to reasonably project what the financial impact of market conditions will be on our results for future periods.

 

29




Approximately 16.2% of our leased square feet and 19.7% of our rents are included in leases scheduled to expire through December 31, 2008.  Lease renewals and rental rates at which available space may be relet in the future will depend on prevailing market conditions at that time.  Lease expirations by year, as of December 31, 2006, are as follows (square feet and dollars in thousands):

Year

 

Square Feet
Expiring 
(1)

 

% of
Square Feet
Expiring

 

Annualized
Rental Income
Expiring 
(2)

 

% of 
Annualized
Rental
Income
Expiring

 

Cumulative
% of
Annualized
Rental
Income
Expiring

 

2007

 

4,373

 

7.8

%

$

80,612

 

9.8

%

9.8

%

2008

 

4,661

 

8.4

%

81,808

 

9.9

%

19.7

%

2009

 

3,818

 

6.9

%

68,737

 

8.4

%

28.1

%

2010

 

5,673

 

10.2

%

96,610

 

11.7

%

39.8

%

2011

 

5,370

 

9.6

%

94,260

 

11.5

%

51.3

%

2012

 

4,053

 

7.3

%

79,591

 

9.7

%

61.0

%

2013

 

2,328

 

4.2

%

42,705

 

5.2

%

66.2

%

2014

 

2,540

 

4.6

%

43,651

 

5.3

%

71.5

%

2015

 

2,560

 

4.6

%

54,061

 

6.6

%

78.1

%

2016

 

1,964

 

3.5

%

34,141

 

4.1

%

82.2

%

2017 and thereafter

 

18,379

 

32.9

%

147,020

 

17.8

%

100.0

%

 

 

55,719

 

100.0

%

$

823,196

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term (in years):

 

9.3

 

 

 

6.4

 

 

 

 

 

 


(1) Square feet is pursuant to signed leases as of December 31, 2006, and includes (i) space being fitted out for occupancy
and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(2) Rents are pursuant to signed leases as of December 31, 2006, plus expense reimbursements; includes some triple net lease
rents and excludes lease value amortization and rents from properties classified in discontinued operations.

 

Our principal source of funds for our operations 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, 2006, tenants responsible for 1% or more of our total rent were as follows (square feet in thousands):

 

Tenant

 

Square
Feet (1)

 

% of Total
Square Feet
(1)

 

% of
Rent (2)

 

Expiration

 

1. U. S. Government

 

4,932

 

8.9

%

13.2

%

2007 to 2020

 

2. GlaxoSmithKline plc

 

608

 

1.1

%

1.8

%

2013

 

3. PNC Financial Services Group

 

460

 

0.8

%

1.4

%

2011, 2021

 

4. Comcast Corporation

 

400

 

0.7

%

1.2

%

2007, 2008

 

5. Solectron Corporation

 

765

 

1.4

%

1.1

%

2014

 

6. The Scripps Research Institute

 

164

 

0.3

%

1.1

%

2019

 

7. JDA Software Group, Inc.

 

283

 

0.5

%

1.1

%

2012

 

8. Ballard Spahr Andrews & Ingersoll, LLP

 

231

 

0.4

%

1.0

%

2008, 2015

 

9. Tyco International Ltd

 

660

 

1.2

%

1.0

%

2007, 2017

 

Total

 

8,503

 

15.3

%

22.9

%

 

 

 


(1) Square feet is pursuant to signed leases as of December 31, 2006, and includes (i) space being fitted out for occupancy and (ii) space which is leased, but is not occupied or is being offered for sublease by tenants.

(2) Rent is pursuant to signed leases as of December 31, 2006, plus estimated expense reimbursements; includes some triple net lease rents and excludes lease value amortization.  Excludes square feet from properties classified in discontinued operations.

30




Investment Activities

 

During 2006, we acquired 64 properties with 4.9 million square feet for total gross purchase prices totaling $456.8 million, including 49 office properties with 3.1 million square feet for $340.1 million and 15 industrial properties with 1.8 million square feet for $116.7 million.  At the time of acquisition, these properties were approximately 93% leased and projected to yield approximately 9% of the aggregate gross purchase price, based on estimated annual net operating income, or NOI, which we define as property rental income less property operating expenses.  During 2006, we sold all 7.7 million Senior Housing common shares we owned and all 4.0 million Hospitality Properties common shares we owned for net proceeds of $308.3 million and gains totaling $116.3 million.

Financing Activities

During 2006, we issued 6.0 million shares of our 7 1/8% series C cumulative redeemable preferred shares, raising net proceeds of $145.0 million and 15.2 million shares of our 6 ½% series D cumulative convertible preferred shares, raising net proceeds of $368.3 million.  We also issued $400 million of floating rate senior notes due 2011.  Proceeds from these financing activities were used to repay amounts outstanding under our revolving credit facility and for general business purposes, including acquisitions.  We also repaid our $350 million floating rate term loan and we redeemed all $200 million of our series A preferred shares using cash on hand and borrowings under our revolving credit facility.

31




RESULTS OF OPERATIONS

Year Ended December 31, 2006, Compared to Year Ended December 31, 2005

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

$ Change

 

% Change

 

 

 

(in thousands, except per share data)

 

 

 

Rental income

 

$

795,821

 

$

708,841

 

$

86,980

 

12.3

%

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating expenses

 

310,712

 

269,563

 

41,149

 

15.3

%

Depreciation and amortization

 

159,826

 

135,890

 

23,936

 

17.6

%

General and administrative

 

32,133

 

30,446

 

1,687

 

5.5

%

Total expenses

 

502,671

 

435,899

 

66,772

 

15.3

%

 

 

 

 

 

 

 

 

 

 

Operating income

 

293,150

 

272,942

 

20,208

 

7.4

%

 

 

 

 

 

 

 

 

 

 

Interest income

 

2,736

 

1,490

 

1,246

 

83.6

%

Interest expense

 

(165,894

)

(143,663

)

(22,231

)

(15.5

)%

Loss on early extinguishment of debt

 

(1,659

)

(168

)

(1,491

)

(887.5

)%

Equity in earnings of equity investments

 

3,136

 

14,352

 

(11,216

)

(78.1

)%

Gain on sale of equity investments

 

116,287

 

5,522

 

110,765

 

200.6

%

Gain on issuance of shares by equity investees

 

 

6,241

 

(6,241

)

(100.0

)%

Income from continuing operations

 

247,756

 

156,716

 

91,040

 

58.1

%

(Loss) income from discontinued operations

 

(93

)

676

 

(769

)

(113.8

)%

Gain on sale of properties

 

2,917

 

7,592

 

(4,675

)

(61.6

)%

Net income

 

250,580

 

164,984

 

85,596

 

51.9

%

Preferred distributions

 

(44,692

)

(46,000

)

1,308

 

2.8

%

Excess redemption price paid over carrying value of preferred shares

 

(6,914

)

 

(6,914

)

(100.0

)%

Net income available for common shareholders

 

$

198,974

 

$

118,984

 

$

79,990

 

67.2

%

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — basic

 

209,965

 

197,831

 

12,134

 

6.1

%

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — diluted

 

216,524

 

197,831

 

18,693

 

9.4

%

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

Income from continuing operations available for common shareholders — basic and diluted

 

$

0.93

 

$

0.56

 

$

0.37

 

66.1

%

Income from discontinued operations — basic and diluted

 

$

0.01

 

$

0.04

 

$

(0.03

)

(75.0

)%

Net income available for common shareholders — basic

 

$

0.95

 

$

0.60

 

$

0.35

 

58.3

%

Net income available for common shareholders — diluted

 

$

0.94

 

$

0.60

 

$

0.34

 

56.7

%

 

32




Rental income.  Rental income increased for the year ended December 31, 2006, compared to the same period in 2005, primarily due to increases in rental income from our Oahu, HI and Other Markets segments, offset by the decrease in rental income from our Metro Philadelphia, PA market, as described in our segment information footnote to our consolidated financial statements.  Rental income for our Oahu, HI segment increased $9.7 million, or 19%, primarily because of the acquisition of 44 properties in June 2005, and increases in weighted average rental rates for new leases and lease renewals signed during 2005 and 2006.  Rental income for our Other Markets segment increased $73.5 million, or 24%, primarily because of the acquisition of 93 properties during 2005 and 2006.  Rental income for our Metro Philadelphia, PA segment decreased $6.3 million, or 5%, primarily because of non-recurring rent recovery income received during 2005 and a decline in occupancy during 2006.  Rental income includes non-cash straight line rent adjustments totaling $25.6 million in 2006 and $30.1 million in 2005 and amortization of acquired real estate leases and obligations totaling ($10.4) million in 2006 and ($7.4) million in 2005.  Rental income also includes lease termination fees totaling $608,000 in 2006 and $3.9 million in 2005.

Total expenses.  Total expenses for the year ended December 31, 2006, increased from the year ended December 31, 2005, due to increases in operating expenses, depreciation and amortization and general and administrative expenses related to our acquisition of properties in 2006 and 2005.

Interest income.  Interest income increased for the year ended December 31, 2006, compared to the year ended December 31, 2005, reflecting the increase in average interest rates on invested cash balances.

Interest expense.  The increase in interest expense in 2006 reflects an increase in average total debt outstanding which was used primarily to finance acquisitions in 2006 and 2005, and the increase in weighted average interest rates on our floating rate debt from 4.0% during the year ended December 31, 2005, to 5.8% during the year ended December 31, 2006.  The weighted average interest rate on all of our outstanding debt at December 31, 2006 and 2005, was 6.3% and 5.9%, respectively.

Loss on early extinguishment of debt.  The loss on early extinguishment of debt in 2006 relates to the write off of deferred financing fees associated with the repayment of our $350 million term loan in March.

Equity in earnings of equity investments.  The decrease in equity in earnings of equity investments in 2006 reflects our sale of all 7.7 million common shares we owned in Senior Housing and all 4.0 million common shares we owned in Hospitality Properties in March 2006.

Gain on sale of equity investments.  The increase in gain on sale of equity investments reflects the sale in March 2006 of all of the common shares we owned in Senior Housing and Hospitality Properties for aggregate net proceeds of $308.3 million.

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

Income from continuing operations.  The increase in income from continuing operations is due primarily to the sale of our investments in Senior Housing and Hospitality Properties in 2006 and properties acquired during 2005 and 2006, offset by an increase in interest expense caused by the increase in floating interest rates during 2006.

(Loss) income from discontinued operations.  The 2006 loss and 2005 income from discontinued operations includes operating results from five office properties sold in 2006 and three industrial properties sold in 2005.

Gain on sale of properties.  Net sales proceeds and gains from properties sold during 2006 were $10.6 million and $2.9 million, respectively.  Net sales proceeds and gains from properties sold during 2005 were $20.1 million and $7.6 million, respectively.

Net income and net income available for common shareholders.  The increase in net income and net income available for common shareholders is due primarily to the sale of our investments in Senior Housing and Hospitality Properties in 2006 and property acquisitions during 2005 and 2006, offset by an increase in interest expense caused by the increase in floating interest rates during 2006.  Net income available for common shareholders is net income reduced by preferred distributions and the excess of the redemption price paid over the carrying value of our 9.875% series A preferred shares that we redeemed in March 2006.

33




Year Ended December 31, 2005, Compared to Year Ended December 31, 2004

 

 

Year Ended December 31,

 

 

 

2005

 

2004

 

$
Change

 


Change

 

 

 

(in thousands, except per share data)

 

 

 

Rental income

 

$

708,841

 

$

599,635

 

$

109,206

 

18.2

%

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Operating expenses

 

269,563

 

226,807

 

42,756

 

18.9

%

Depreciation and amortization

 

135,890

 

111,744

 

24,146

 

21.6

%

General and administrative

 

30,446

 

25,170

 

5,276

 

21.0

%

Total expenses

 

435,899

 

363,721

 

72,178

 

19.8

%

 

 

 

 

 

 

 

 

 

 

Operating income

 

272,942

 

235,914

 

37,028

 

15.7

%

 

 

 

 

 

 

 

 

 

 

Interest income

 

1,490

 

638

 

852

 

133.5

%

Interest expense

 

(143,663

)

(118,212

)

(25,451

)

(21.5

)%

Loss on early extinguishment of debt

 

(168

)

(2,866

)

2,698

 

94.1

%

Equity in earnings of equity investments

 

14,352

 

15,457

 

(1,105

)

(7.1

)%

Gain on sale of equity investments

 

5,522

 

21,550

 

(16,028

)

(74.4

)%

Gain on issuance of shares by equity investees

 

6,241

 

8,436

 

(2,195

)

(26.0

)%

Income from continuing operations

 

156,716

 

160,917

 

(4,201

)

(2.6

)%

Income from discontinued operations

 

676

 

1,912

 

(1,236

)

(64.6

)%

Gain on sale of properties

 

7,592

 

 

7,592

 

100.0

%

Net income

 

164,984

 

162,829

 

2,155

 

1.3

%

Preferred distributions

 

(46,000

)

(46,000

)

 

 

Net income available for common shareholders

 

$

118,984

 

$

116,829

 

$

2,155

 

1.8

%

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

197,831

 

176,157

 

21,674

 

12.3

%

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per common share:

 

 

 

 

 

 

 

 

 

Income from continuing operations available for common shareholders

 

$

0.56

 

$

0.65

 

$

(0.09

)

(13.8

)%

Income from discontinued operations

 

$

0.04

 

$

0.01

 

$

0.03

 

300.0

%

Net income available for common shareholders

 

$

0.60

 

$

0.66

 

$

(0.06

)

(9.1

)%

 

Rental income.  Rental income increased for the year ended December 31, 2005, compared to the same period in 2004, primarily due to our acquisition of 70 properties in 2005 and 136 properties in 2004.  Occupancy, which includes space being prepared for occupancy pursuant to signed leases and space which is being offered for sublease by tenants, at properties we owned continuously since January 1, 2004, was 95.2% at December 31, 2005, compared to 93.6% at December 31, 2004.  Rental income includes non cash straight line rent adjustments totaling $30.1 million in 2005 and $22.3 million in 2004 and amortization of acquired real estate leases and obligations totaling ($7.4) million in 2005 and ($3.0) million in 2004.  Rental income also includes lease termination fees totaling $3.9 million in 2005 and $3.7 million in 2004.

Total expenses.  Total expenses for the year ended December 31, 2005, increased from the year ended December 31, 2004, due to increases in operating expenses, depreciation and amortization and general and administrative expenses related to our acquisition of properties in 2005 and 2004.

34




Interest expense.  Interest expense increased for the year ended December 31, 2005, compared to the year ended December 31, 2004, reflecting an increase in total debt outstanding which was used primarily to finance acquisitions in 2005 and 2004.  In 2005 we issued $250 million unsecured 5.75% senior notes due 2015 and assumed $25.5 million of debt in connection with an acquisition.  The weighted average interest rate on all of our outstanding debt at December 31, 2005 and 2004, was 5.9% and 5.7%, respectively.

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

Equity in earnings of equity investments.  Equity in earnings of equity investments decreased during the year ended December 31, 2005, from the year ended December 31, 2004, due to lower earnings recognized from our investment in Senior Housing.  The decrease in earnings from Senior Housing is due primarily to our sale of 950,000 Senior Housing common shares we owned in 2005 and the sale of 4.1 million Senior Housing common shares we owned in 2004.

Gain on sale of shares of equity investments.  The gain on sale of shares of equity investments reflects the sale of 950,000 Senior Housing common shares we owned in 2005 and 4.1 million Senior Housing common shares we owned in 2004.

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

Income from continuing operations.  The decrease in income from continuing operations primarily represents the 2004 gain on sale of shares of equity investments, offset by income from properties acquired in 2005 and 2004.

Income from discontinued operations and gain on sale of properties.  Income from discontinued operations in 2005 and 2004 represents income from three industrial properties we sold in May 2005 for net proceeds of $20.1 million, and five office properties we sold in 2006 for net proceeds of $10.6 million.  We recognized gains on the sales of the three industrial properties of $7.6 million in 2005.

Net income and net income available for common shareholders.  The increase in net income and net income available for common shareholders for the year ended December 31, 2005, from the year ended December 31, 2004, is due primarily to property acquisitions in 2005 and 2004 and the gain on sale of properties recognized in 2005, offset by the gain on sale of Senior Housing common shares in 2004, a decrease in earnings from equity investments and an increase in interest expense from the issuance of additional debt.  Net income available for common shareholders is net income reduced by preferred distributions.

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.  This flow of funds has historically been sufficient for us to pay our operating expenses, debt service and distributions.  We believe that our operating cash flow will be sufficient to meet our operating expenses, debt service and distribution payments for the foreseeable future.  Our future cash flows from operating activities will depend primarily upon the following factors:

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

·                  our ability to restrain operating cost increases at our properties; and

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

35




As discussed above, we believe that present leasing market conditions in some areas where our properties are located may result in modest increases in effective rents at some of our properties.  Recent rises in fuel prices may cause our future operating costs to increase; however, the impact of these increases is expected to be partially offset by pass through operating cost increases to our tenants pursuant to lease terms.  We generally do not purchase turn around properties or properties which do not generate positive cash flows.  Our future purchases of properties which generate positive cash flows can not be accurately projected because such purchases depend entirely upon available opportunities which come to our attention.

Cash flows provided by (used for) operating, investing and financing activities were $286.4 million, ($206.4) million and ($81.6) million, respectively, for the year ended December 31, 2006, and $226.0 million, ($530.7) million and $302.3 million, respectively, for the year ended December 31, 2005.  Changes in all three categories between 2006 and 2005 are primarily related to property acquisitions and sales in 2006 and 2005, our sale of all our Senior Housing and Hospitality Properties common shares in 2006, our repayments and issuances of debt obligations in 2006 and 2005, our issuances and redemption of preferred shares in 2006 and our issuance of common shares in 2005.

Our Investment and Financing Liquidity and Resources

In order to fund acquisitions and to accommodate cash needs that may result from timing differences between our receipt of rents and our desire or need to make distributions or pay operating or capital expenses, we maintain an unsecured revolving credit facility with a group of institutional lenders.  At December 31, 2006, there was $40 million outstanding and $710 million available on our revolving credit facility, and we had cash and cash equivalents of $17.8 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.  In August 2006, we amended and extended the maturity of our revolving credit facility from April 2009 to August 2010, with an option to extend the facility an additional year, and we reduced the interest rate on borrowings from LIBOR plus 65 basis points to LIBOR plus 55 basis points.  Certain covenants in the facility were also amended to reflect current market conditions.

Our outstanding debt maturities and weighted average interest rates as of December 31, 2006, were as follows (dollars in thousands):

 

 

 

Scheduled Principal Payments During Period

 

 

 

 

 

Secured

 

Unsecured

 

Unsecured

 

 

 

Weighted

 

 

 

Fixed Rate

 

Floating

 

Fixed

 

 

 

Average

 

Year

 

Debt

 

Rate Debt

 

Rate Debt

 

Total (1)

 

Interest Rate

 

2007

 

$

10,232

 

$

 

$

 

$

10,232

 

6.8

%

2008

 

26,369

 

 

 

26,369

 

7.0

%

2009

 

7,879

 

 

 

7,879

 

6.9

%

2010

 

8,303

 

40,000

 

50,000

 

98,303

 

7.3

%

2011

 

229,905

 

400,000

 

 

629,905

 

6.2

%

2012

 

31,113

 

 

200,000

 

231,113

 

7.0

%

2013

 

3,804

 

 

200,000

 

203,804

 

6.5

%

2014

 

15,789

 

 

250,000

 

265,789

 

5.7

%

2015

 

4,029

 

 

450,000

 

454,029

 

6.0

%

2016

 

13,387

 

 

400,000

 

413,387

 

6.3

%

2017 and thereafter

 

65,065

 

 

 

65,065

 

7.3

%

 

 

$

415,875

 

$

440,000

 

$

1,550,000

 

$

2,405,875

 

6.3

%


(1) Total debt as of December 31, 2006, net of unamortized premiums and discounts, equals $2,397,231.

 

36




When significant amounts are outstanding under our revolving credit facility or the maturity dates of our revolving credit facility and term debts approach, we will explore alternatives for the repayment of amounts due.  Such alternatives usually include incurring additional term debt and issuing new equity securities.  We have an effective shelf registration statement that 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 capital expenditures and to pay our debt and other obligations.

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

During 2006, we purchased 49 office properties and 15 industrial properties for $456.8 million, plus closing costs, and funded improvements to our owned properties totaling $116.0 million.  We funded all our 2006 acquisitions and improvements to our owned properties with cash on hand, by borrowing under our revolving credit facility and assuming $49.5 million of mortgage debt.  We sold five office properties with a total of approximately 101,000 square feet of space for gross proceeds of $13.7 million ($10.6 million after closing costs and deposits required to defease related mortgages).

As of December 31, 2006, we had an outstanding agreement to purchase three properties containing 104,000 square feet of space for $8.6 million, plus closing costs.  These properties were acquired in February 2007 with cash on hand and borrowings on our revolving credit facility.  As of February 26, 2007, we have executed purchase agreements for 17 additional properties with an aggregate of 4.3 million square feet of space and an aggregate purchase price of $220.0 million.  The acquisitions of these properties are subject to various closing conditions customary in real estate transactions and no assurances can be given as to when or if we will purchase these properties.

During the year ended December 31, 2006 and 2005, cash expenditures made and capitalized for tenant improvements, leasing costs, building improvements and development and redevelopment activities were as follows (amounts in thousands):

 

 

 

Year Ended
December 31,

 

 

 

2006

 

2005

 

Tenant improvements

 

$

64,671

 

$

84,237

 

Leasing costs

 

25,514

 

22,419

 

Building improvements (1)

 

27,170

 

22,835

 

Development and redevelopment activities (2)

 

24,165

 

14,064

 


 

(1) Building improvements generally include recurring expenditures that are necessary to maintain the value of our properties.

(2) Development, redevelopment and other activities generally include non-recurring expenditures that increase the value of our properties.

 

37




Commitments made for expenditures in connection with leasing space during the year ended December 31, 2006, are as follows (amounts in thousands, except as noted):

 

 

 

Total

 

Renewals

 

New Leases

 

Square feet leased during the year

 

6,020

 

3,690

 

2,330

 

Total commitments for tenant improvements and leasing costs

 

$

82,118

 

$

33,792

 

$

48,326

 

Leasing costs per square foot (whole dollars)

 

$

13.64

 

$

9.16

 

$

20.74

 

Average lease term (years)

 

7.8

 

8.6

 

6.6

 

Leasing costs per square foot per year (whole dollars)

 

$

1.75

 

$

1.06

 

$

3.14

 

 

In March 2006, we sold all 7.7 million common shares of beneficial interest we owned of Senior Housing, and all 4.0 million common shares of beneficial interest we owned of Hospitality Properties for net sales proceeds of $308.3 million and gains of $116.3 million.  Net sales proceeds were used to reduce amounts outstanding on our revolving credit facility.  During the year ended December 31, 2006, we received cash distributions totaling $2.5 million from Senior Housing and $2.9 million from Hospitality Properties.

In February 2006, we issued 6.0 million series C cumulative redeemable preferred shares in a public offering for net proceeds of $145.0 million.  Each series C preferred share has a liquidation preference of $25.00 and requires dividends of $1.78125, 7 1/8% of the liquidation preference per annum, payable in equal quarterly payments.  Our series C preferred shares are redeemable, at our option, for $25.00 each plus accrued and unpaid dividends at any time on or after February 15, 2011.  We applied the net proceeds from this offering to reduce amounts outstanding on our revolving credit facility.  Thereafter, we redeemed all $200 million of our 9.875% series A preferred shares in March 2006 by borrowing under our revolving credit facility.  In March 2006, we issued $400 million unsecured floating rate senior notes in a public offering raising net proceeds of approximately $398.7 million.  The notes bear interest at LIBOR plus a premium (6.0% at December 31, 2006), require quarterly interest payments and mature in March 2011.  Net proceeds from this offering were used to repay our $350 million term loan that was scheduled to mature in August 2009 and for general business purposes.

In October 2006, we issued an aggregate of approximately 15.2 million series D cumulative convertible preferred shares, including approximately 2.0 million shares issued to cover over-allotments, in a public offering for net proceeds of $368.3 million.  Holders of series D preferred shares are entitled to receive cumulative cash distributions at a rate of 6.50% per annum of the $25.00 per share liquidation preference (equivalent to $1.625 per year per share).  Our series D preferred shares are convertible, at the holder’s option, into our common shares at an initial conversion rate of 1.9231 common shares per series D preferred share, which is equivalent to an initial conversion price of $13.00 per common share.  On or after November 20, 2011, if our common shares trade at or above the then applicable conversion price, we may, at our option, convert some or all of the series D preferred shares into common shares at the then applicable conversion rate.  If a fundamental change occurs, which generally will be deemed to occur upon a change in control or a termination of trading, holders of our series D preferred shares will have a special right to convert their series D preferred shares into a number of our common shares per $25.00 liquidation preference, plus accrued and unpaid distributions, divided by 98% of the market price, as defined, of our common shares, unless we exercise our right to repurchase these series D preferred shares for cash, at a purchase price equal to 100% of their liquidation preference, plus accrued and unpaid distributions.  Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility and for general business purposes, including acquisitions.

38




As of December 31, 2006 (except as noted below), our contractual obligations were as follows (dollars in thousands):

 

 

 

Payment Due by Period

 

 

 

Total

 

Less than 1
Year

 

1-3 Years

 

3-5 Years

 

More than 5
Years

 

Long term debt obligations

 

$

2,405,875

 

$

10,232

 

$

34,248

 

$

728,208

 

$

1,633,187

 

Tenant related obligations (1)

 

60,023

 

43,755

 

16,268

 

 

 

Purchase obligations (2)

 

228,600

 

228,600

 

 

 

 

Projected interest expense (3)

 

1,036,314

 

152,888

 

301,691

 

256,935

 

324,800

 

Total

 

$

3,730,812

 

$

435,475

 

$

352,207

 

$

985,143

 

$

1,957,987

 


(1)    Committed tenant related obligations include leasing commissions and tenant improvements and are based on leases executed through December 31, 2006.

(2)    Represents the purchase price to acquire three properties for $8.6 million, which was the subject of an executed purchase agreement on December 31, 2006, plus the purchase price to acquire 17 properties for $220.0 million pursuant to agreements we entered in January and February 2007.

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

Except as otherwise discussed above under “Our Investment and Financing Liquidity and Resources”, we have no commercial paper, derivatives, swaps, hedges, guarantees, joint ventures or off balance sheet arrangements as of December 31, 2006.  None of our debt documentation requires us to provide collateral security in the event of a ratings downgrade.

Debt Covenants

Our principal debt obligations at December 31, 2006, were our unsecured revolving credit facility and our $2.0 billion of publicly issued unsecured term debt.  Our publicly issued debt is governed by an indenture.  Our public debt indenture and related supplements and our revolving credit facility 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, 2006, 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 $415.9 million, excluding unamortized premiums and discounts, of mortgage notes outstanding at December 31, 2006.

None of our indenture and related supplements, our revolving credit facility 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 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.

39




Related Person Transactions

We have agreements with RMR to originate and present investment opportunities to our board of trustees, and provide property management and administrative services to us.  RMR is beneficially owned by Barry M. Portnoy and Adam D. Portnoy, who are our managing trustees.  Each of our executive officers are also officers of RMR.  Our independent trustees, including all of our trustees other than Messrs. Barry and Adam Portnoy, review our contracts with RMR at least annually and make determinations regarding renewals.  Any termination of our contract with RMR would cause a default under our revolving credit facility, if not approved by a majority of lenders.  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 3.0% of gross rents and construction management fees equal to 5.0% of construction costs.  The incentive fee to RMR is paid in our common shares.  RMR also provides the internal audit function for us and for other publicly owned companies to which it provides management or other services. Our pro rata share of RMR’s costs in providing that function was approximately $173,000 in 2006.  Our audit committee appoints our director of internal audit, and our compensation committee approves his salary.  Our compensation committee also approves the costs which we pay with respect to our internal audit function.  All transactions between us and RMR are approved by our compensation committee.  Our audit and compensation committees are 100% composed of trustees who are independent of RMR.  Our fees to RMR were $29.5 million for 2006.

In 2006, we sold all 7.7 million Senior Housing common shares and all 4.0 million Hospitality Properties common shares we owned.  We, along with Senior Housing and Hospitality Properties were parties to underwriting agreements in connection with these sales.  Senior Housing and Hospitality Properties did not receive any proceeds from our sale of their shares.

During 2006, we leased 3,000 square feet of office space to Five Star.  Rent received under this lease totaled approximately $5,000 during 2006.

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.  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; and

·         classification of leases.

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 our estimates and, under some circumstances, studies from independent real estate appraisal firms.

40




Purchase price allocations to land, building and improvements are based on our determination of the relative fair values of these assets assuming the property is vacant. We determine 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 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 our 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 estimates 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 are 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.

We periodically evaluate our real estate properties for impairment.  Impairment 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 and make our stated revenues and income inaccurate.

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.  Competition, economic conditions and other factors may cause 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.

41




IMPACT OF INFLATION

Inflation might have both positive and negative impacts upon us.  Inflation might cause the value of our real estate 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.  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 our floating rate debt outstanding, our belief that material interest rate increases are likely to occur and upon requirements of our borrowing arrangements.

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 provide guarantees or security for our rent.

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, 2005.  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, 2006, our total outstanding fixed rate term debt consisted of the following fixed rate notes:

Amount

 

Coupon

 

Maturity

 

Unsecured senior notes:

 

 

 

 

 

 

 

 

 

 

 

$30.0

million

 

8.875%

 

2010

 

$20.0

million

 

8.625%

 

2010

 

$200.0

million

 

6.950%

 

2012

 

$200.0

million

 

6.500%

 

2013

 

$250.0

million

 

5.750%

 

2014

 

$200.0

million

 

6.400%

 

2015

 

$250.0

million

 

5.750%

 

2015

 

$400.0

million

 

6.250%

 

2016

 

 

No principal repayments are due under the unsecured senior notes until maturity.

Secured notes:

 

 

 

 

 

 

 

 

 

 

 

$16.1

million

 

7.020%

 

2008

 

$3.6

million

 

8.000%

 

2008

 

$3.2

million

 

5.170%

 

2009

 

$242.5

million

 

6.814%

 

2011

 

$25.2

million

 

8.050%

 

2012

 

$5.3

million

 

6.000%

 

2012

 

$13.9

million

 

4.950%

 

2014

 

$13.6

million

 

7.360%

 

2016

 

$4.5

million

 

7.310%

 

2022

 

$2.2

million

 

7.850%

 

2022

 

$5.2

million

 

6.750%

 

2022

 

$9.6

million

 

5.710%

 

2026

 

$29.0

million

 

8.500%

 

2028

 

$42.0

million

 

6.794%

 

2029

 

 

42




Our secured notes are secured by 50 of our properties and require principal and interest payments through maturity pursuant to amortization schedules.

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, 2006, 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 $12.7 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, 2006, 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 $70 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 make whole 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.  The majority of our fixed rate senior notes are separately publicly traded; and we may occasionally take advantage of market opportunities to repurchase notes which will also mitigate future refinancing risks.

At December 31, 2006, we had $40 million outstanding and $710 million available for drawing under our unsecured revolving credit facility and $400 million outstanding on our floating rate senior notes.  Our revolving credit facility and floating rate senior notes mature in August 2010 and March 2011, respectively.  Repayments under our revolving credit facility may be made at any time without penalty.  Repayments under our floating rate senior notes may also be made without penalty.  We borrow in U.S. dollars and borrowings under our revolving credit facility and our floating rate senior notes require interest at LIBOR plus a premium.  Accordingly, we are vulnerable to changes in U.S. dollar based short term rates, specifically LIBOR.  For example, the weighted average interest rate payable on our revolver and floating rate senior notes was 5.8% during 2006.  A change in interest rates would not affect the value of these floating rate debts but would affect our operating results.  The following table presents the impact a 10% change in interest rates would have on our floating rate interest expense as of December 31, 2006 (dollars in thousands):

 

 

Impact of Changes in Interest Rates

 

 

 


Interest Rate
Per Year

 


Outstanding
Debt

 

Total Interest 
Expense
Per Year

 

 

 

 

 

 

 

 

 

At December 31, 2006

 

6.0%

 

$

440,000

 

$

26,400

 

10% reduction

 

5.4%

 

$

440,000

 

$

23,760

 

10% increase

 

6.6%

 

$

440,000

 

$

29,040

 

 

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

43




 

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 & Chief Operating Officer and Treasurer & 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 & Chief Operating Officer and Treasurer & 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, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management Report on Assessment of Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control system is designed to provide reasonable assurance to our management and board of trustees regarding the preparation and fair presentation of published financial statements.  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2006.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework.  Based on our assessment, we believe that, as of December 31, 2006, our internal control over financial reporting is effective.

Ernst & Young LLP, the independent registered public accounting firm that audited our 2006 consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on our assessment of our internal control over financial reporting.  Its report appears elsewhere herein.

Item 9B.  Other Information

None.

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

We have 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.  A printed copy of our code of business conduct and ethics is also available free of charge to any person who requests a copy.  We intend to disclose any amendments or waivers to our code of business conduct and ethics applicable to our principal executive officer, principal financial officer, principal accounting officer or any person performing similar functions on our website.

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.

44




 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 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, each of our trustees receives 2,250 shares per year as part of their annual compensation for serving as our trustees.  The terms of grants made under the Award Plan are determined by our board of trustees or a committee thereof at the time of the grant.    The following table is as of December 31, 2006.

 

Plan Category


 

Number of securities 
to be issued upon 
exercise of 
outstanding options, 
warrants and rights


(a)

 

Weighted average 
exercise price of 
outstanding options, 
warrants and rights


(b)

 

Number of securities 
remaining available for 
future issuance under 
equity compensation 
plans (excluding 
securities reflected in 
column (a))

(c)

 

Equity compensation

plans approved by

security holders

 

None.

 

None.

 

None.

 

 

 

 

 

 

 

 

 

Equity compensation

plans not approved by

security holders

 

None.

 

None.

 

6,261,978

 

 

 

 

 

 

 

 

 

Total

 

None.

 

None.

 

6,261,978

 

 

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 Person Transactions”.

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.

Item 13.  Certain Relationships and Related 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.

 

45




 

PART IV

Item 15.  Exhibits and Financial Statement Schedules

(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

 

Reports of Independent Registered Public Accounting Firm

 

F-1

 

Consolidated Balance Sheet as of December 31, 2006 and 2005

 

F-3

 

Consolidated Statement of Income for each of the three years in the period ended December 31, 2006

 

F-4

 

Consolidated Statement of Shareholders’ Equity for each of the three years in the period ended December 31, 2006

 

F-5

 

Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 2006

 

F-6

 

Notes to Consolidated Financial Statements

 

F-8

 

Schedule II — Valuation and Qualifying Accounts

 

S-1

 

Schedule III — Real Estate and Accumulated Depreciation

 

S-2

 

 

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.

(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 May 25, 2006)

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 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)

3.7                                 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)

46




 

3.8                                 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)

3.9                                 Articles Supplementary, dated March 16, 2005, 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 March 16, 2005)

3.10                           Articles Supplementary, dated September 12, 2005, 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 September 12, 2005)

3.11                           Articles Supplementary, dated February 3, 2006, to Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, creating the Series C Cumulative Redeemable Preferred Shares.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 2, 2006)

3.12                           Articles Supplementary, dated October 10, 2006, to the Third Amendment and Restatement of Declaration of Trust, dated July 1, 1994, creating the 6 ½% Series D Cumulative Convertible Preferred Shares. (incorporated by reference to the Company’s Current Report on Form 8-K dated October 10, 2006)

3.13                           Articles Supplementary, dated December 29, 2006, to the 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 December 29, 2006)

3.14                           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 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)

4.3                                 Form of Temporary 7 1/8% Series C Cumulative Redeemable Preferred Share Certificate.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated February 2, 2006)

4.4                                 Form of Temporary 6½% Series D Cumulative Convertible Preferred Share Certificate. (incorporated by reference to the Company’s Current Report on Form 8-K dated October 5, 2006)

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                                 Appointment of Successor Rights Agent, dated as of December 13, 2004, by and between the Company and Wells Fargo Bank, National Association. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 13, 2004)

4.7                                 Indenture, dated as of July 9, 1997, by and between the Company and State Street Bank and Trust Company, or State Street, as Trustee.  (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 1997)

47




 

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 National Association, or 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)

4.14                           Supplemental Indenture No. 14, dated as of August 5, 2004, by and between the Company and U.S. Bank, relating to 6.25% Senior Notes due 2016, including form thereof. (incorporated by reference to the Company’s Current Report on Form 8-K, dated July 27, 2004)

4.15                           Supplemental Indenture No. 15, dated as of October 31, 2005, by and between the Company and U.S. Bank, relating to 5.75 % Senior Notes due 2015, including form thereof. (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005)

4.16                           Supplemental Indenture No. 16, dated as of March 16, 2006, by and between the Company and U.S. Bank National Association, including the form of Floating Rate Senior Note due 2011. (filed herewith)

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., or 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                           Amended and Restated Master Management Agreement dated as of January 1, 2006, by and between Reit Management and Research, LLC and HRPT Properties Trust. (incorporated by refence to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006)

48




 

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-Q for the quarter ended June 30, 2003)

10.8                           Representative Indemnification Agreement. (+) (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)

10.9                           Summary of Trustee Compensation. (+) (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006)

10.10                     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)

10.11                     Loan and Security Agreement, dated December 15, 2000, by and between Cedars LA LLC, or Cedars, Herald Square LLC, or Herald Square, Indiana Avenue LLC, or Indiana Avenue, Bridgepoint Property Trust, or Bridgepoint, Lakewood Property Trust, or Lakewood, and 1600 Market Street Property Trust, or 1600 Market Street, collectively as Borrowers, and Merrill Lynch Mortgage Lending, Inc., or Merrill, as Lender.  (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 15, 2000)

10.12                     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)

10.13                     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., or 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 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)

10.15                     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., or 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 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)

10.17                     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)

10.18                     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)

49




 

10.19                     Exceptions to Non-Recourse Guaranty, dated December 15, 2000, entered into by Hub Realty College Park I, LLC, or 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)

10.20                     Loan and Security Agreement, dated December 15, 2000, entered into by and between Franklin Plaza Property Trust, or 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)

10.21                     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)

10.22                     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)

10.23                     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)

10.24                     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. (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003)

10.25                     First Amendment to Term Loan Agreement, dated as of August 20, 2004, by and among the Company, each of the financial institutions a signatory thereto; Wachovia Bank, National Association, as Administrative Agent; and other agents.  (incorporated by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004)

10.26                     Amended and Restated Credit Agreement, dated as of January 25, 2005, by and among the Company, Wachovia Bank, National Association, as Administrative Agent, and the additional agents, arrangers and financial institutions signatory thereto. (incorporated by reference to the Company’s Current Report on Form 8-K, dated January 25, 2005)

10.27                     First Amendment to Amended and Restated Credit Agreement, dated as of August 22, 2006, among HRPT Properties Trust, Wachovia Bank, National Association, as Administrative Agent, and the additional agents, arrangers and financial institutions signatory thereto. (Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K dated August 22, 2006)

10.28                     Sales Agreement, dated as of December 29, 2006, between HRPT Properties Trust and Cantor FitzGerald & Co. relating to the issuance and sale of up to 20,000,000 common shares of beneficial interest. (incorporated by reference to the Company’s Current Report on Form 8-K, dated December 29, 2006)

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                           Subsidiaries of the Registrant.  (filed herewith)

23.1                           Consent of Ernst & Young LLP.  (filed herewith)

50




 

23.2                           Consent of Sullivan & Worcester LLP.  (included as part of Exhibit 8.1 hereto)

31.1                           Rule 13a-14(a) Certification.  (filed herewith)

31.2                           Rule 13a-14(a) Certification.  (filed herewith)

31.3                           Rule 13a-14(a) Certification.  (filed herewith)

31.4                           Rule 13a-14(a) Certification.  (filed herewith)

32.1                           Section 1350 Certification. (furnished herewith)

(+)                                 Management contract or compensatory plan or arrangement.

 

51




Report of Independent Registered Public Accounting Firm

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, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006.  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.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of HRPT Properties Trust at December 31, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.  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.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of HRPT Properties Trust’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

 

 

 

 

Boston, Massachusetts

February 23, 2007

F-1




Report of Independent Registered Public Accounting Firm

To the Trustees and Shareholders of HRPT Properties Trust

We have audited management’s assessment, included in Item 9A of HRPT Properties Trust’s Annual Report on Form 10-K under the heading Management Report on Assessment of Internal Control Over Financial Reporting, that HRPT Properties Trust maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).  HRPT Properties Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures for the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that HRPT Properties Trust maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria.  Also in our opinion, HRPT Properties Trust maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2006 consolidated financial statements of HRPT Properties Trust and our report dated February 23, 2007 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

 

 

 

 

Boston, Massachusetts

February 23, 2007

 

F-2




HRPT PROPERTIES TRUST

CONSOLIDATED BALANCE SHEET

(amounts in thousands, except share data)

 

 

 

December 31,

 

 

 

2006

 

2005

 

ASSETS

 

 

 

 

 

Real estate properties:

 

 

 

 

 

Land

 

$

1,143,109

 

$

1,080,563

 

Buildings and improvements

 

4,619,164

 

4,144,011

 

 

 

5,762,273

 

5,224,574

 

Accumulated depreciation

 

(668,460

)

(548,460

)

 

 

5,093,813

 

4,676,114

 

Properties held for sale

 

 

10,779

 

Acquired real estate leases

 

167,879

 

161,787

 

Equity investments

 

 

194,297

 

Cash and cash equivalents

 

17,783

 

19,445

 

Restricted cash

 

21,635

 

18,348

 

Rents receivable, net of allowance for doubtful accounts of $4,737 and $3,767, respectively

 

172,566

 

145,385

 

Other assets, net

 

102,273

 

101,012

 

Total assets

 

$

5,575,949

 

$

5,327,167

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Revolving credit facility

 

$

40,000

 

$

256,000

 

Senior unsecured debt, net

 

1,941,173

 

1,889,991

 

Mortgage notes payable, net

 

416,058

 

374,165

 

Accounts payable and accrued expenses

 

93,734

 

80,125

 

Dividends payable

 

44,111

 

 

Acquired real estate lease obligations

 

41,833

 

38,987

 

Rent collected in advance

 

19,592

 

17,858

 

Security deposits

 

15,972

 

13,679

 

Due to affiliates

 

12,708

 

10,876

 

Total liabilities

 

2,625,181

 

2,681,681

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred shares of beneficial interest, $0.01 par value:

 

 

 

 

 

50,000,000 shares authorized;

 

 

 

 

 

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

 

 

193,086

 

Series B preferred shares; 8 3/4% cumulative redeemable at par on September 12, 2007; 12,000,000 shares issued and outstanding, aggregate liquidation preference $300,000

 

289,849

 

289,849

 

Series C preferred shares; 7 1/8% cumulative redeemable at par on February 15, 2011; 6,000,000 and zero shares issued and outstanding, respectively, aggregate liquidation preference $150,000

 

145,015

 

 

Series D preferred shares; 6 1/2% cumulative convertible; 15,180,000 and zero shares issued and outstanding, respectively, aggregate liquidation preference $379,500

 

368,270

 

 

Common shares of beneficial interest, $0.01 par value:

 

 

 

 

 

300,000,000 shares authorized; 210,051,590 and 209,860,625 shares issued and outstanding, respectively

 

2,101

 

2,099

 

Additional paid in capital

 

2,774,461

 

2,779,159

 

Cumulative net income

 

1,703,354

 

1,452,774

 

Cumulative common distributions

 

(2,115,299

)

(1,894,818

)

Cumulative preferred distributions

 

(216,983

)

(176,663

)

Total shareholders’ equity

 

2,950,768

 

2,645,486

 

Total liabilities and shareholders’ equity

 

$

5,575,949

 

$

5,327,167

 

See accompanying notes

F-3




HRPT PROPERTIES TRUST

CONSOLIDATED STATEMENT OF INCOME

(amounts in thousands, except per share data)

 

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

Rental income

 

$

795,821

 

$

708,841

 

$

599,635

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

Operating expenses

 

310,712

 

269,563

 

226,807

 

Depreciation and amortization

 

159,826

 

135,890

 

111,744

 

General and administrative

 

32,133

 

30,446

 

25,170

 

Total expenses

 

502,671

 

435,899

 

363,721

 

 

 

 

 

 

 

 

 

Operating income

 

293,150

 

272,942

 

235,914

 

 

 

 

 

 

 

 

 

Interest income

 

2,736

 

1,490

 

638

 

Interest expense (including amortization of note discounts and premiums
and deferred financing fees of $4,452, $2,488 and $4,341, respectively)

 

(165,894

)

(143,663

)

(118,212

)

Loss on early extinguishment of debt

 

(1,659

)

(168

)

(2,866

)

Equity in earnings of equity investments

 

3,136

 

14,352

 

15,457

 

Gain on sale of equity investments

 

116,287

 

5,522

 

21,550

 

Gain on issuance of shares by equity investees

 

 

6,241

 

8,436

 

Income from continuing operations

 

247,756

 

156,716

 

160,917

 

(Loss) income from discontinued operations

 

(93

)

676

 

1,912

 

Gain on sale of properties

 

2,917

 

7,592

 

 

Net income

 

250,580

 

164,984

 

162,829

 

Preferred distributions

 

(44,692

)

(46,000

)

(46,000

)

Excess redemption price paid over carrying value of preferred shares

 

(6,914

)

 

 

Net income available for common shareholders

 

$

198,974

 

$

118,984

 

$

116,829

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — basic

 

209,965

 

197,831

 

176,157

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — diluted

 

216,524

 

197,831

 

176,157

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

Income from continuing operations available for common shareholders — basic and diluted

 

$

0.93

 

$

0.56

 

$

0.65

 

Income from discontinued operations — basic and diluted

 

$

0.01

 

$

0.04

 

$

0.01

 

Net income available for common shareholders — basic

 

$

0.95

 

$

0.60

 

$

0.66

 

Net income available for common shareholders — diluted

 

$

0.94

 

$

0.60

 

$

0.66

 

 

See accompanying notes

F-4




HRPT PROPERTIES TRUST

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(amounts in thousands, except share data)

 

 

 

Preferred Shares

 

Common Shares

 

 

 

 

 

 

 

 

 

Series A

 

Series B

 

Series C

 

Series D

 

Cumulative

 

 

 

 

 

Cumulative

 

Additional

 

 

 

 

 

 

 

Number
of
Shares

 

Preferred
Shares

 

Number
of
Shares

 

Preferred 
Shares

 

Number
of
Shares

 

Preferred
Shares

 

Number 
of
Shares

 

Preferred
Shares

 

Preferred
Distributions

 

Number
of
Shares

 

Common
Shares

 

Common
Distributions

 

Paid
in
Capital

 

Cumulative
Net
Income

 


Total

 

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

 

Issuance of shares, net

 

 

 

 

 

 

 

 

 

 

34,500,000

 

345

 

 

323,294

 

 

323,639

 

Stock grants

 

 

 

 

 

 

 

 

 

 

42,600

 

 

 

449

 

 

449

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

162,829

 

162,829

 

Distributions

 

 

 

 

 

 

 

 

 

(46,000

)

 

 

(145,374

)

 

 

(191,374

)

Balance at December 31, 2004

 

8,000,000

 

193,086

 

12,000,000

 

289,849

 

 

 

 

 

(130,663

)

177,316,525

 

1,773

 

(1,729,587

)

2,394,946

 

1,287,790

 

2,307,194

 

Issuance of shares, net

 

 

 

 

 

 

 

 

 

 

32,500,000

 

325

 

 

383,649

 

 

383,974

 

Stock grants

 

 

 

 

 

 

 

 

 

 

44,100

 

1

 

 

564

 

 

565

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

164,984

 

164,984

 

Distributions

 

 

 

 

 

 

 

 

 

(46,000

)

 

 

(165,231

)

 

 

(211,231

)

Balance at December 31, 2005

 

8,000,000

 

193,086

 

12,000,000

 

289,849

 

 

 

 

 

(176,663

)

209,860,625

 

2,099

 

(1,894,818

)

2,779,159

 

1,452,774

 

2,645,486

 

Issuance of shares, net

 

 

 

 

 

6,000,000

 

145,015

 

15,180,000

 

368,270

 

 

 

 

 

 

 

513,285

 

Redemption of shares

 

(8,000,000

)

(193,086

)

 

 

 

 

 

 

 

 

 

 

(6,914

)

 

(200,000

)

Stock grants

 

 

 

 

 

 

 

 

 

 

190,965

 

2

 

 

2,216

 

 

2,218

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

250,580

 

250,580

 

Distributions

 

 

 

 

 

 

 

 

 

(40,320

)

 

 

(220,481

)

 

 

(260,801

)

Balance at December 31, 2006

 

 

$

 

12,000,000

 

$

289,849

 

6,000,000

 

$

145,015

 

15,180,000

 

$

368,270

 

$

(216,983

)

210,051,590

 

$

2,101

 

$

(2,115,299

)

$

2,774,461

 

$

1,703,354

 

$

2,950,768

 

See accompanying notes

 

F-5




HRPT PROPERTIES TRUST

 

CONSOLIDATED STATEMENT OF CASH FLOWS

(amounts in thousands)

 

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

250,580

 

$

164,984

 

$

162,829

 

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

 

 

 

 

 

 

 

Depreciation

 

128,768

 

111,951

 

95,977

 

Amortization of note discounts and premiums and deferred financing fees

 

4,452

 

2,488

 

4,341

 

Amortization of acquired real estate leases

 

30,098

 

23,025

 

13,271

 

Other amortization

 

11,482

 

8,871

 

6,139

 

Loss on early extinguishment of debt

 

1,659

 

 

2,866

 

Equity in earnings of equity investments

 

(3,136

)

(14,352

)

(15,457

)

Gain on sale of equity investments

 

(116,287

)

(5,522

)

(21,550

)

Gain on issuance of shares by equity investees

 

 

(6,241

)

(8,436

)

Distributions of earnings from equity investments

 

3,136

 

14,352

 

15,457

 

Gain on sale of properties

 

(2,917

)

(7,592

)

 

Change in assets and liabilities:

 

 

 

 

 

 

 

(Increase) decrease in restricted cash

 

(3,287

)

3,909

 

(11,583

)

Increase in rents receivable and other assets

 

(36,311

)

(69,972

)

(54,346

)

Increase in accounts payable and accrued expenses

 

12,254

 

1,043

 

7,175

 

Increase in rent collected in advance

 

1,734

 

2,650

 

2,073

 

Increase in security deposits

 

2,322

 

1,902

 

2,400

 

Increase (decrease) in due to affiliates

 

1,832

 

(5,542

)

8,048

 

Cash provided by operating activities

 

286,379

 

225,954

 

209,204

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Real estate acquisitions and improvements

 

(527,661

)

(576,082

)

(765,091

)

Distributions in excess of earnings from equity investments

 

2,251

 

8,294

 

9,115

 

Proceeds from sale of properties

 

10,641

 

20,078

 

 

Proceeds from sale of equity investments

 

308,333

 

16,976

 

73,275

 

Cash used for investing activities

 

(206,436

)

(530,734

)

(682,701

)

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from issuance of preferred shares, net

 

513,285

 

 

 

Redemption of preferred shares

 

(200,000

)

 

 

Proceeds from issuance of common shares, net

 

 

383,974

 

323,639

 

Proceeds from borrowings

 

1,112,000

 

1,058,247

 

1,660,436

 

Payments on borrowings

 

(1,286,688

)

(921,555

)

(1,302,580

)

Deferred financing fees

 

(3,512

)

(7,171

)

(6,189

)

Distributions to common shareholders

 

(176,370

)

(165,231

)

(145,374

)

Distributions to preferred shareholders

 

(40,320

)

(46,000

)

(46,000

)

Cash (used for) provided by financing activities

 

(81,605

)

302,264

 

483,932

 

 

 

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

(1,662

)

(2,516

)

10,435

 

Cash and cash equivalents at beginning of period

 

19,445

 

21,961

 

11,526

 

Cash and cash equivalents at end of period

 

$

17,783

 

$

19,445

 

$

21,961

 

 

See accompanying notes

F-6




HRPT PROPERTIES TRUST

 

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

(amounts in thousands)

 

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Interest paid (including capitalized interest paid of $335 in 2006)

 

$

160,553

 

$

141,890

 

$

101,255

 

 

 

 

 

 

 

 

 

NON-CASH INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Real estate acquisitions

 

$

(50,655

)

$

(29,274

)

$

(119,958

)

 

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Issuance of common shares

 

$

2,218

 

$

565

 

$

449

 

Assumption of mortgage notes payable

 

50,655

 

29,274

 

119,958

 

 

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, 2006, we had investments in 504 office and industrial properties, including approximately 18 million square feet of leased industrial and commercial lands.

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 could exercise influence, but did not control, were accounted for using the equity method of accounting until sold during March 2006.  All intercompany transactions have been eliminated.  Significant influence was present through common representation on the board of trustees.  One of our managing trustees is also a managing trustee of Senior Housing Properties Trust, or Senior Housing, and Hospitality Properties Trust, or Hospitality Properties, and our two managing trustees are owners of Reit Management & Research LLC, or RMR, which is the investment manager to us, Senior Housing and Hospitality Properties.  We used 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 were recognized in our income statement.

Real Estate Properties.  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 Standard 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 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 estimates 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 is 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 our 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 our consolidated balance sheet) are amortized as an increase to rental income over the non-cancelable periods of the respective leases.  Such amortization resulted in changes to rental income of ($10.4) million, ($7.4) million and ($3.0) million during the years ended December 31, 2006, 2005 and 2004, respectively. 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 $19.7 million, $15.7 million and $10.3 million during the years ended December 31, 2006, 2005 and 2004, respectively.  If a lease is terminated prior to its stated expiration, the unamortized amount relating to that lease is written off.

F-8




Intangible lease assets and liabilities recorded by us for properties acquired in 2006 totaled $44.7 million and $9.5 million, respectively.  Intangible lease assets and liabilities recorded by us for properties acquired in 2005 totaled $42.0 million and $5.4 million, respectively.  Accumulated amortization of capitalized above and below market lease values was $20.7 million and $10.1 million at December 31, 2006 and 2005, respectively.  Accumulated amortization of the value of in place leases exclusive of the value of above and below market in place leases was $52.6 million and $33.0 million at December 31, 2006 and 2005, respectively.  Future amortization of intangible lease assets and liabilities to be recognized by us during the current terms of our leases as of December 31, 2006, are approximately $29.5 million in 2007, $26.2 million in 2008, $22.1 million in 2009, $18.1 million in 2010, $10.3 million in 2011 and $19.8 million thereafter.

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.

Certain of our real estate assets contain hazardous substances, including asbestos.  We believe the asbestos at our properties is contained in accordance with current environmental regulations and we have no current plans to remove it.  If these properties were demolished today, certain environmental regulations specify the manner in which the asbestos must be handled and disposed of.  Because the obligation to remove the asbestos has an indeterminable settlement date, we are not able to reasonably estimate the fair value of this asset retirement obligation.  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 that other costs we incur to remediate contamination will not have a material adverse effect on our business or financial condition.

Cash and Cash Equivalents.  Cash 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, insurance, leasing costs, capital expenditures and debt service, as required by some of our mortgage debts.

Other Assets, Net.  Other assets consist principally of deferred financing fees, deferred leasing costs 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, 2006 and 2005, deferred financing fees totaled $34.2 million and $34.3 million, respectively, and accumulated amortization for deferred financing fees totaled $16.9 million and $15.5 million, respectively.  Deferred leasing costs include brokerage, legal and other fees associated with the successful negotiation of leases and are amortized on a straight line basis over the terms of the respective leases.  Deferred leasing costs totaled $95.2 million and $74.8 million at December 31, 2006 and 2005, respectively, and accumulated amortization for deferred leasing costs totaled $25.1 million and $18.9 million, respectively.  Future amortization of deferred financing fees and leasing costs to be recognized by us during the current terms of our loans and leases as of December 31, 2006, are approximately $15.6 million in 2007, $14.4 million in 2008, $13.0 million in 2009, $11.1 million in 2010, $7.8 million in 2011 and $25.5 million thereafter.

Revenue Recognition.  Rental income from operating leases is recognized on a straight line basis over the life of the lease agreements.

Allowance for Doubtful Accounts.  We maintain an allowance for doubtful accounts for estimated losses resulting from the inability or unwillingness of certain tenants to make payments required under their leases.  The computation of the allowance is based on the tenants’ payment histories and current credit profiles, as well as other considerations.

Earnings Per Common Share.  Earnings per common share, or EPS, is computed using the weighted average number of common shares outstanding during the period.  Diluted EPS reflects the potential dilution that could occur if our series D convertible preferred shares were converted into our common shares, where such conversion would result in a lower EPS amount.

Reclassifications.  Reclassifications have been made to the prior years’ financial statements and footnotes to conform to the current year’s presentation.

F-9




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.

Use of Estimates.  Preparation of these financial statements in conformity with U.S. generally accepted accounting principles 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 June 2006, the Financial Accounting Standards Board issued Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48).  FIN 48 is effective for fiscal years beginning after December 15, 2006.  FIN 48 prescribes how we should recognize, measure and present in our financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return.  Pursuant to FIN 48, we can recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit.   To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50% likely of being realized upon settlement. We are currently evaluating the effect that the adoption of FIN 48 will have on our consolidated financial statements; however, we do not anticipate the effect, if any, will be material.

Note 3.  Real Estate Properties

During 2006 we purchased 49 office properties for $340.1 million, plus closing costs, and 15 industrial properties for $116.7 million, plus closing costs.  We also funded $116.0 million of improvements to our owned properties.  We funded all of these transactions with cash on hand, by borrowing under our revolving credit facility and the assumption of $49.5 million of secured mortgage debt.  We allocated $44.7 million of our total 2006 acquisition costs to acquired real estate leases and $9.5 million to acquired real estate lease obligations.

During 2006 we also sold five office properties for net proceeds of $10.6 million and recognized gains of $2.9 million.  Net proceeds from these sales were used to reduce amounts outstanding on our revolving credit facility.

As of December 31, 2006, we had an outstanding agreement to purchase three properties containing 104,000 square feet of space for $8.6 million, plus closing costs.  These properties were acquired in February 2007.

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 2007 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.  We committed $82.1 million for expenditures related to 6.0 million square feet of leases executed during 2006.  Committed but unspent tenant related obligations based on executed leases as of December 31, 2006, were $60.0 million.

The future minimum lease payments scheduled to be received by us during the current terms of our leases as of December 31, 2006, are approximately $648.7 million in 2007, $597.2 million in 2008, $543.4 million in 2009, $491.1 million in 2010, $401.1 million in 2011 and $1.9 billion thereafter.

Note 4.  Equity Investments

At December 31, 2006 and 2005, we had the following equity investments (dollars in thousands):

 

 

Ownership Percentage

 

Equity in Earnings

 

Equity Investments

 

 

 

December 31,

 

Year Ended December 31,

 

December 31,

 

 

 

2006

 

2005

 

2006

 

2005

 

2006

 

2005

 

Senior Housing

 

%

10.7

%

$

1,512

 

$

7,291

 

$

 

$

94,952

 

Hospitality Properties

 

 

5.6

 

1,624

 

7,061

 

 

99,345

 

 

 

 

 

 

 

$

3,136

 

$

14,352

 

$

 

$

194,297

 

 

F-10




In March 2006, we sold all 7,710,738 Senior Housing common shares we owned in an underwritten public offering for $17.60 per common share for gross proceeds of $135.7 million (net $133.1 million) and we realized a gain of $39.1 million.  Senior Housing is a real estate investment trust that invests principally in senior housing real estate and was a 100% owned subsidiary of ours until 1999.

In December 2005, Senior Housing issued 3,250,000 common shares in a public offering for $18.90 per common share for net proceeds of $58.2 million, and we recognized a gain of $1.5 million pursuant to the income statement method of accounting.  Simultaneously with this offering, we sold 950,000 of our Senior Housing common shares for $18.90 per common share for gross proceeds of $18.0 million (net $17.0 million) and we recognized a gain of $5.5 million.  Our ownership percentage in Senior Housing was reduced from 12.6% prior to these transactions to 10.7% after these transactions.

In January 2004, Senior Housing issued 5,000,000 common shares in a public offering for $18.20 per common share for net proceeds of $86.1 million, and we recognized a gain of $966,000 pursuant to the income statement method of accounting.  Simultaneously with this offering, we sold 3,148,500 of our Senior Housing common shares for $18.20 per common share for gross proceeds of $57.3 million (net $54.4 million) and we recognized a gain of $14.8 million.  In December 2004, Senior Housing issued another 5,000,000 common shares in a public offering for $19.86 per common share for net proceeds of $94.1 million, and we recognized a gain of $3.4 million pursuant to the income statement method of accounting.  Simultaneously with this offering, we sold 1,000,000 of our Senior Housing common shares for $19.86 per common share for gross proceeds of $19.9 million (net $18.9 million) and we recognized a gain of $6.7 million.  Our ownership percentage in Senior Housing was reduced from 21.9% prior to these transactions to 12.6% after these transactions.

Summarized financial data of Senior Housing is as follows (amounts in thousands, except per share data):

 

December 31,

 

 

 

2005

 

Real estate properties, net

 

$

1,447,138

 

Cash and cash equivalents

 

14,642

 

Other assets

 

38,861

 

Total assets

 

$

1,500,641

 

 

 

 

 

Unsecured revolving bank credit facility

 

$

64,000

 

Senior unsecured notes due 2012 and 2015, net of discount

 

393,938

 

Other liabilities

 

119,519

 

Shareholders’ equity

 

923,184

 

Total liabilities and shareholders’ equity

 

$

1,500,641

 

 

 

Year Ended December 31,

 

 

 

2005

 

2004

 

Revenues

 

$

163,187

 

$

148,523

 

Expenses

 

105,206

 

93,000

 

Income from continuing operations

 

57,981

 

55,523

 

Gain on sale of properties

 

5,931

 

1,219

 

Net income

 

$

63,912

 

$

56,742

 

 

 

 

 

 

 

Weighted average shares outstanding

 

68,757

 

63,406

 

 

 

 

 

 

 

Basic and diluted earnings per share:

 

 

 

 

 

Income from continuing operations

 

$

0.84

 

$

0.88

 

Gain on sale of properties

 

$

0.09

 

$

0.01

 

Net income

 

$

0.93

 

$

0.89

 

 

In March 2006, we sold all 4,000,000 Hospitality Properties common shares we owned in an underwritten public offering for $44.75 per common share for gross proceeds of $179.0 million (net $175.3 million) and we realized a gain of $77.2 million.  Hospitality Properties is a real estate investment trust that owns hotels and was a 100% owned subsidiary of ours until 1995.

F-11




In 2005, Hospitality Properties issued 4,700,000 common shares in a public offering for $44.39 per common share, raising net proceeds of $199.2 million.  Our ownership percentage in Hospitality Properties was reduced from 6.0% prior to this transaction to 5.6% after this transaction, and we recognized a gain of $4.7 million pursuant to the income statement method of accounting.

In 2004, Hospitality Properties issued 4,600,000 common shares in a public offering for $43.93 per common share for net proceeds of $192.7 million.  Our ownership percentage in Hospitality Properties was reduced from 6.4% prior to this transaction to 6.0% after this transaction, and we recognized a gain of $4.1 million pursuant to the income statement method of accounting.

Summarized financial data of Hospitality Properties is as follows (amounts in thousands, except per share data):

 

December 31,

 

 

 

2005

 

Real estate properties, net

 

$

3,013,686

 

Cash and cash equivalents

 

18,568

 

Other assets

 

82,353

 

 

 

$

3,114,607

 

 

 

 

 

Revolving credit facility

 

$

35,000

 

Senior notes, net of discounts

 

921,606

 

Security deposits

 

185,304

 

Other liabilities

 

117,242

 

Shareholders’ equity

 

1,855,455

 

 

 

$

3,114,607

 

 

 

Year Ended December 31,

 

 

 

2005

 

2004

 

Revenues

 

$

834,412

 

$

645,368

 

Expenses

 

704,509

 

518,480

 

Income before gain on sale of real estate

 

129,903

 

126,888

 

Gain on sale of real estate

 

 

203

 

Net income

 

129,903

 

127,091

 

Preferred distributions

 

(7,656

)

(9,674

)

Excess of liquidation preference over carrying value of preferred shares

 

 

(2,793

)

Net income available for common shareholders

 

$

122,247

 

$

114,624

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

69,866

 

66,503

 

 

 

 

 

 

 

Basic and diluted earnings per common share:

 

 

 

 

 

Net income available for common shareholders

 

$

1.75

 

$

1.72

 

 

F-12




Note 5.      Shareholders’ Equity

We have common shares available for issuance under the terms of our 2003 Incentive Share Award Plan, or the Award Plan.  During the years ended December 31, 2006, 2005 and 2004, 66,050 common shares with an aggregate market value of $798,000, 39,600 common shares with an aggregate market value of $512,000 and 38,100 common shares with an aggregate market value of $409,000, respectively, were awarded to our officers and certain employees of RMR pursuant to this plan.  All of our trustees were each awarded 2,250 common shares in 2006 with an aggregate market value of $122,000, as part of their annual fees.  Our independent trustees were each awarded 1,500 common shares in 2005 with an aggregate market value of $53,000 and 1,500 common shares in 2004 with an aggregate market value of $40,000, as part of their annual fees.  The shares awarded to our trustees vested immediately.  The shares awarded to our officers and certain employees of RMR vest in three or five annual installments beginning on the date of grant.  We include the value of awarded common shares in general and administrative expenses at the time the awards vest.  At December 31, 2006, 6,261,978 of our common shares remain available for issuance under the Award Plan.

Cash distributions per common share paid by us in 2006, 2005 and 2004, were $0.84, $0.84 and $0.82 per year, respectively.  The characterization of our distributions paid in 2006, 2005 and 2004 was 63.5%, 63.2% and 66.5% ordinary income, respectively, 0.0%, 32.7% and 32.9% return of capital, respectively, and 36.5%, 4.1% and 0.6% capital gain, respectively.  In December 2006, we declared a distribution of $0.21 per common share which was paid on January 31, 2007, to shareholders of record on December 29, 2006.  Our credit facility agreement contains a number of financial and other covenants, including a covenant which limits, with certain exceptions, the amount of aggregate distributions on common shares to 90% of operating cash flow available for shareholder distributions as defined in the agreement.

Our 8,000,000 series A cumulative redeemable preferred shares required dividends of $2.46875, 9 7/8% per annum per share, payable in equal quarterly payments and had a liquidation preference of $25.00 per share.  Our series A preferred shares were redeemed for $25.00 each plus accrued and unpaid dividends in March 2006.  Our 12,000,000 series B cumulative redeemable preferred shares carry dividends of $2.1875, 8 ¾% 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.

In February 2006, we issued 6,000,000 series C cumulative redeemable preferred shares in a public offering raising net proceeds of $145.0 million.  Each series C preferred share requires dividends of $1.78125, 7 1/8% per annum, payable in equal quarterly payments.  Each series C 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 February 15, 2011.

In October 2006, we issued an aggregate of 15,180,000 series D cumulative convertible preferred shares, including 1,980,000 shares issued to cover over-allotments, in a public offering raising net proceeds of $368.3 million.  Net proceeds from this offering were used to reduce amounts outstanding on our revolving credit facility and for general business purposes, including acquisitions.  Each series D preferred share has a liquidation preference of $25.00 and requires dividends of $1.625, 6 ½% per annum, payable in equal quarterly payments.  Our series D preferred shares are convertible, at the holder’s option, into our common shares at an initial conversion rate of 1.9231 common shares per series D preferred share, which is equivalent to an initial conversion price of $13.00 per common share, or 29,192,308 additional common shares at December 31, 2006.  On or after November 20, 2011, if our common shares trade at or above the then applicable conversion price, we may, at our option, convert some or all of the series D preferred shares into common shares at the then applicable conversion rate.  If a fundamental change occurs, which generally will be deemed to occur upon a change in control or a termination of trading, holders of our series D preferred shares will have a special right to convert their series D preferred shares into a number of our common shares per $25.00 liquidation preference, plus accrued and unpaid distributions, divided by 98% of the market price, as defined, of our common shares, unless we exercise our right to repurchase these series D preferred shares for cash, at a purchase price equal to 100% of their liquidation preference, plus accrued and unpaid distributions.

In December 2006, we entered into a sales agreement with Cantor Fitzgerald & Co. (“Cantor”) which allows us to initially offer and sell up to 20,000,000 of our common shares from time to time in a controlled equity offering program.  Pursuant to this agreement, Cantor has agreed to use commercially reasonable efforts consistent with its normal trading and sales practices to sell our common shares that we specify from time to time; we have no obligation to specify any of our common shares for sale in this program; and we may at any time suspend sales or terminate the program.  No common shares were issued under this program in 2006.

F-13




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, 2014, and are redeemable at our option.

Note 6.      Transactions with Affiliates

We have agreements with RMR to originate and present investment opportunities to us and to provide property management and administrative services to us.  These agreements are subject to the annual review and approval of our independent trustees.  RMR is beneficially owned by Barry M. Portnoy and Adam D. Portnoy, who are 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 3.0% of gross rents and construction management fees equal to 5.0% of certain 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, 2005, were approximately $1.2 million.  No incentive fees were earned for the years ended December 31, 2006 and 2004.  RMR also is reimbursed a pro-rata amount of its costs of providing internal audit services to us and to other companies managed by RMR.  At December 31, 2006, RMR and its affiliates owned 1,469,291 of our common shares.  RMR also leases approximately 23,000 square feet of office space from us at rental rates which we believe to be commercially reasonable.  All transactions between us and RMR are approved by independent trustees who are not affiliated with RMR.

Amounts resulting from transactions with affiliates are as follows (dollars in thousands):

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

Investment and administration related fees, incentive fees and internal audit costs paid to RMR

 

$

29,487

 

$

26,973

 

$

22,534

 

Distributions paid to beneficial owners of RMR and their affiliates

 

1,208

 

1,132

 

1,102

 

Rental income received from RMR

 

484

 

495

 

401

 

Management fees paid to RMR

 

25,036

 

22,481

 

19,337

 

Dividends received from Hospitality Properties

 

2,920

 

11,560

 

11,520

 

Dividends received from Senior Housing

 

2,467

 

11,086

 

13,052

 

 

F-14




Note 7.      Indebtedness

At December 31, 2006 and 2005, our outstanding indebtedness included the following (dollars in thousands):

 

December 31,

 

 

 

2006

 

2005

 

Unsecured revolving credit facility, due August 2010, at LIBOR plus a premium

 

$

40,000

 

$

256,000

 

Unsecured floating rate senior notes, due March 2011, at LIBOR plus a premium

 

400,000

 

 

Term Loan, due August 2009, at LIBOR plus a premium

 

 

350,000

 

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

 

250,000

 

Senior Notes, due 2015 at 6.40%

 

200,000

 

200,000

 

Senior Notes, due 2015 at 5.75%

 

250,000

 

250,000

 

Senior Notes, due 2016 at 6.25%

 

400,000

 

400,000

 

Mortgage Notes Payable, due 2008 at 7.02%

 

16,056

 

16,328

 

Mortgage Notes Payable, due 2008 at 8.00%

 

3,566

 

5,114

 

Mortgage Notes Payable, due 2009 at 5.17%

 

3,189

 

4,603

 

Mortgage Notes Payable, due 2011 at 6.814%

 

242,479

 

245,965

 

Mortgage Notes Payable, due 2012 at 8.05%

 

25,170

 

25,489

 

Mortgage Notes Payable, due 2012 at 6.0%

 

5,349

 

5,468

 

Mortgage Notes Payable, due 2014 at 4.95%

 

13,949

 

 

Mortgage Notes Payable, due 2016 at 7.36%

 

13,634

 

 

Mortgage Notes Payable, due 2022 at 7.31%

 

4,504

 

 

Mortgage Notes Payable, due 2022 at 7.85%

 

2,190

 

 

Mortgage Notes Payable, due 2022 at 6.75%

 

5,205

 

 

Mortgage Notes Payable, due 2026 at 5.71%

 

9,599

 

 

Mortgage Notes Payable, due 2028 at 8.50%

 

29,016

 

29,399

 

Mortgage Notes Payable, due 2029 at 6.794%

 

41,969

 

42,713

 

 

 

2,405,875

 

2,531,079

 

Less unamortized net premiums and discounts

 

8,644

 

10,923

 

 

 

$

2,397,231

 

$

2,520,156

 

 

In 2006, we issued $400 million of unsecured floating rate senior notes in a public offering, raising net proceeds of $398.7 million.  The notes bear interest at LIBOR plus a premium, require quarterly interest payments and mature in March 2011.  Net proceeds from this offering were used to reduce amounts outstanding under our revolving credit facility and for general business purposes.  We also repaid our $350 million term loan that was scheduled to mature in August 2009.  We recognized a loss of $1.7 million from the write off of deferred financing fees in connection with this repayment.

We have an unsecured revolving credit facility with a borrowing capacity of $750 million that we use for acquisitions, working capital and general business purposes.  In August 2006, we amended and extended the maturity of this credit facility from April 2009 to August 2010, with an option to extend the facility an additional year.  Interest paid on drawings under this facility was reduced from LIBOR plus 65 basis points to LIBOR plus 55 basis points.  Certain covenants were also amended to reflect current market conditions.  The interest rate on this facility averaged 5.6% and 4.0% per annum for the years ended December 31, 2006 and 2005, respectively.

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 agreement.

As part of our 2006 acquisitions, we assumed $49.5 million of secured debt which was recorded at its fair value of $50.7 million.  The related premium on this debt is being amortized to interest expense through its maturity date.

F-15




At December 31, 2006, 50 properties costing $872.2 million with an aggregate net book value of $733.4 million were secured by mortgage notes totaling $415.9 million maturing from 2008 through 2029 which, including unamortized premiums and discounts, amounted to $416.1 million.

The required principal payments due during the next five years and thereafter under all our outstanding debt at December 31, 2006, are $10.2 million in 2007, $26.4 million in 2008, $7.9 million in 2009, $98.3 million in 2010, $629.9 million in 2011 and $1.6 billion thereafter.

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, 2006 and 2005, the fair values of our financial instruments were not materially different from their carrying values, except as follows (dollars in thousands):

 

 

2006

 

2005

 

 

 

Carrying Amount

 


Fair Value

 

Carrying Amount

 


Fair Value

 

Equity investments

 

$

 

$

 

$

194,297

 

$

290,789

 

Senior notes and mortgage notes payable

 

1,957,231

 

2,024,211

 

1,914,156

 

1,997,924

 

 

The fair values of our senior notes and mortgage notes payable are based on estimates using discounted cash flow analyses and current interest rates ranging from 5.5% to 5.9%.  The fair value of our equity investments are based on quoted per share prices for Hospitality Properties and Senior Housing of $40.10 and $16.91, respectively, at December 31, 2005.

Note 9.      Earnings per Common Share

Earnings per common share, or EPS, is computed pursuant to the provisions of SFAS No. 128.  The following table provides a reconciliation of both net income and the number of common shares used in the computations of basic and diluted EPS (amounts in thousands, except per share amounts):

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

 

 

Income

 

Shares

 

Per Share

 

Income

 

Shares

 

Per Share

 

Income

 

Shares

 

Per Share

 

Income from continuing operations

 

$

247,756

 

 

 

 

 

$

156,716

 

 

 

 

 

$

160,917

 

 

 

 

 

(Loss) income from discontinued operations

 

(93

)

 

 

 

 

676

 

 

 

 

 

1,912

 

 

 

 

 

Gain on sale of properties

 

2,917

 

 

 

 

 

7,592

 

 

 

 

 

 

 

 

 

 

Preferred distributions

 

(44,692

)

 

 

 

 

(46,000

)

 

 

 

 

(46,000

)

 

 

 

 

Excess redemption price paid over carrying value of preferred shares

 

(6,914

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts used to calculate basic EPS

 

198,974

 

209,965

 

$

0.95

 

118,984

 

197,831

 

$

0.60

 

116,829

 

176,157

 

$

0.66

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible preferred shares

 

5,482

 

6,559

 

 

 

 

 

 

 

 

 

 

 

Amounts used to calculate diluted EPS

 

$

204,456

 

216,524

 

$

0.94

 

$

118,984

 

197,831

 

$

0.60

 

$

116,829

 

176,157

 

$

0.66

 

 

F-16




Note 10.    Segment Information

Our primary business is the ownership and operation of office and industrial properties, including leased industrial lands in Oahu, HI.  We account for our office and industrial properties in geographic operating segments for financial reporting purposes based on our method of internal reporting.  We define these individual geographic segments as those which currently, or during either of the last two quarters, represent or generate 5% or more of our total square feet, revenues or property net operating income.  Our geographic segments include Metro Philadelphia, PA, Metro Washington DC, Oahu, HI, Metro Boston, MA, Southern California, Metro Austin, TX and Other Markets, which includes properties located throughout the United States.

The following items are accounted for on a corporate level and are not allocated among our segments: depreciation and amortization expense, general and administrative expense, interest income and expense, loss on early extinguishment of debt, and equity in earnings and gains from ownership of common shares of Senior Housing and Hospitality Properties.  The accounting policies of our segments are the same as the accounting policies described in our summary of significant accounting policies.

F-17




As of December 31, 2006, we owned 351 office properties and 153 industrial properties.  Property level information by geographic segment and property type is as follows (amounts in thousands):

As of and for the year ended December 31, 2006:

 

 

As of December 31, 2006

 

 

 

Office
Properties

 

Industrial
Properties

 

Totals

 

Property square feet:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

5,453

 

 

5,453

 

Metro Washington DC

 

2,658

 

 

2,658

 

Oahu, HI

 

 

17,880

 

17,880

 

Metro Boston, MA

 

2,740

 

 

2,740

 

Southern California

 

1,444

 

 

1,444

 

Metro Austin, TX

 

1,491

 

1,316

 

2,807

 

Other Markets

 

20,492

 

6,391

 

26,883

 

Totals

 

34,278

 

25,587

 

59,865

 

 

 

 

 

 

 

 

 

Central business district, or CBD

 

11,332

 

158

 

11,490

 

Suburban

 

22,946

 

25,429

 

48,375

 

Totals

 

34,278

 

25,587

 

59,865

 

 

 

 

Year Ended December 31, 2006

 

 

 

Office
Properties

 

Industrial
Properties

 

Totals

 

Property rental income:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

127,051

 

$

 

$

127,051

 

Metro Washington DC

 

80,154

 

 

80,154

 

Oahu, HI

 

 

61,012

 

61,012

 

Metro Boston, MA

 

60,568

 

 

60,568

 

Southern California

 

48,282

 

 

48,282

 

Metro Austin, TX

 

29,623

 

14,576

 

44,199

 

Other Markets

 

332,954

 

41,601

 

374,555

 

Totals

 

$

678,632

 

$

117,189

 

$

795,821

 

 

 

 

 

 

 

 

 

CBD

 

$

285,605

 

$

1,141

 

$

286,746

 

Suburban

 

393,027

 

116,048

 

509,075

 

Totals

 

$

678,632

 

$

117,189

 

$

795,821

 

 

 

 

 

 

 

 

 

Property net operating income:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

68,025

 

$

 

$

68,025

 

Metro Washington DC

 

50,244

 

 

50,244

 

Oahu, HI

 

 

49,414

 

49,414

 

Metro Boston, MA

 

39,578

 

 

39,578

 

Southern California

 

33,603

 

 

33,603

 

Metro Austin, TX

 

13,417

 

8,124

 

21,541

 

Other Markets

 

194,540

 

28,164

 

222,704

 

Totals

 

$

399,407

 

$

85,702

 

$

485,109

 

 

 

 

 

 

 

 

 

CBD

 

$

158,936

 

$

859

 

$

159,795

 

Suburban

 

240,471

 

84,843

 

325,314

 

Totals

 

$

399,407

 

$

85,702

 

$

485,109

 

 

As of December 31, 2006, our investments in office and industrial properties, net of accumulated depreciation, were $4,067,022 and $1,026,791, respectively.

F-18




As of and for the year ended December 31, 2005:

 

 

As of December 31, 2005

 

 

 

Office
Properties

 

Industrial
Properties

 

Totals

 

Property square feet:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

5,447

 

 

5,447

 

Metro Washington DC

 

2,645

 

 

2,645

 

Oahu, HI

 

 

17,879

 

17,879

 

Metro Boston, MA

 

2,737

 

 

2,737

 

Southern California

 

1,444

 

 

1,444

 

Metro Austin, TX

 

1,490

 

1,316

 

2,806

 

Other Markets

 

17,402

 

4,573

 

21,975

 

Totals

 

31,165

 

23,768

 

54,933

 

 

 

 

 

 

 

 

 

CBD

 

11,327

 

158

 

11,485

 

Suburban

 

19,838

 

23,610

 

43,448

 

Totals

 

31,165

 

23,768

 

54,933

 

 

 

 

Year Ended December 31, 2005

 

 

 

Office
Properties

 

Industrial
Properties

 

Totals

 

Property rental income:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

133,390

 

$

 

$

133,390

 

Metro Washington DC

 

77,751

 

 

77,751

 

Oahu, HI

 

 

51,343

 

51,343

 

Metro Boston, MA

 

57,932

 

 

57,932

 

Southern California

 

47,553

 

 

47,553

 

Metro Austin, TX

 

23,798

 

15,970

 

39,768

 

Other Markets

 

263,340

 

37,764

 

301,104

 

Totals

 

$

603,764

 

$

105,077

 

$

708,841

 

 

 

 

 

 

 

 

 

CBD

 

$

280,184

 

$

1,089

 

$

281,273

 

Suburban

 

323,580

 

103,988

 

427,568

 

Totals

 

$

603,764

 

$

105,077

 

$

708,841

 

 

 

 

 

 

 

 

 

Property net operating income:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

72,909

 

$

 

$

72,909

 

Metro Washington DC

 

50,316

 

 

50,316

 

Oahu, HI

 

 

41,561

 

41,561

 

Metro Boston, MA

 

38,898

 

 

38,898

 

Southern California

 

32,374

 

 

32,374

 

Metro Austin, TX

 

10,316

 

7,834

 

18,150

 

Other Markets

 

160,054

 

25,016

 

185,070

 

Totals

 

$

364,867

 

$

74,411

 

$

439,278

 

 

 

 

 

 

 

 

 

CBD

 

$

159,104

 

$

861

 

$

159,965

 

Suburban

 

205,763

 

73,550

 

279,313

 

Totals

 

$

364,867

 

$

74,411

 

$

439,278

 

 

As of December 31, 2005, our investments in office and industrial properties, net of accumulated depreciation, were $3,772,663 and $903,451, respectively.

F-19




As of and for the year ended December 31, 2004:

 

 

As of December 31, 2004

 

 

 

Office
Properties

 

Industrial
Properties

 


Totals

 

Property square feet:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

5,452

 

 

5,452

 

Metro Washington DC

 

2,645

 

 

2,645

 

Oahu, HI

 

 

9,699

 

9,699

 

Metro Boston, MA

 

2,742

 

 

2,742

 

Southern California

 

1,444

 

 

1,444

 

Metro Austin, TX

 

1,493

 

1,316

 

2,809

 

Other Markets

 

14,452

 

4,573

 

19,025

 

Totals

 

28,228

 

15,588

 

43,816

 

 

 

 

 

 

 

 

 

CBD

 

10,698

 

158

 

10,856

 

Suburban

 

17,530

 

15,430

 

32,960

 

Totals

 

28,228

 

15,588

 

43,816

 

 

 

 

Year Ended December 31, 2004

 

 

 

Office
Properties

 

Industrial
Properties

 


Totals

 

Property rental income:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

131,469

 

$

 

$

131,469

 

Metro Washington DC

 

66,234

 

 

66,234

 

Oahu, HI

 

 

42,205

 

42,205

 

Metro Boston, MA

 

52,157

 

 

52,157

 

Southern California

 

42,622

 

 

42,622

 

Metro Austin, TX

 

21,577

 

16,740

 

38,317

 

Other Markets

 

203,648

 

22,983

 

226,631

 

Totals

 

$

517,707

 

$

81,928

 

$

599,635

 

 

 

 

 

 

 

 

 

CBD

 

$

267,334

 

$

1,070

 

$

268,404

 

Suburban

 

250,373

 

80,858

 

331,231

 

Totals

 

$

517,707

 

$

81,928

 

$

599,635

 

 

 

 

 

 

 

 

 

Property net operating income:

 

 

 

 

 

 

 

Metro Philadelphia, PA

 

$

71,676

 

$

 

$

71,676

 

Metro Washington DC

 

42,752

 

 

42,752

 

Oahu, HI

 

 

34,582

 

34,582

 

Metro Boston, MA

 

37,724

 

 

37,724

 

Southern California

 

27,823

 

 

27,823

 

Metro Austin, TX

 

10,011

 

8,162

 

18,173

 

Other Markets

 

124,315

 

15,783

 

140,098

 

Totals

 

$

314,301

 

$

58,527

 

$

372,828

 

 

 

 

 

 

 

 

 

CBD

 

$

155,508

 

$

873

 

$

156,381

 

Suburban

 

158,793

 

57,654

 

216,447

 

Totals

 

$

314,301

 

$

58,527

 

$

372,828

 

 

F-20




Note 11.    Calculation of Property Net Operating Income

The following table reconciles our calculation of property net operating income, or NOI, to net income available for common shareholders, the most directly comparable financial measure under generally accepted accounting principles, or GAAP, reported in our consolidated financial statements.  We consider NOI to be appropriate supplemental information to net income available for common shareholders because it helps both investors and management to understand the operations of our properties.  We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our results of operations because it reflects only those income and expense items that are incurred at the property level.  Our management also uses NOI to evaluate individual, regional and company wide property level performance.  NOI excludes certain components from net income available for common shareholders in order to provide results that are more closely related to our properties’ results of operations.  NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders or cash flow from operating activities as a measure of financial performance.  A reconciliation of NOI to net income available for common shareholders for the years ended December 31, 2006, 2005 and 2004, is as follows (dollars in thousands):

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

Rental income

 

$

795,821

 

$

708,841

 

$

599,635

 

Operating expenses

 

(310,712

)

(269,563

)

(226,807

)

Property net operating income (NOI)

 

$

485,109

 

$

439,278

 

$

372,828

 

 

 

 

 

 

 

 

 

Property net operating income

 

$

485,109

 

$

439,278

 

$

372,828

 

Depreciation and amortization

 

(159,826

)

(135,890

)

(111,744

)

General and administrative

 

(32,133

)

(30,446

)

(25,170

)

Operating income

 

293,150

 

272,942

 

235,914

 

 

 

 

 

 

 

 

 

Interest income

 

2,736

 

1,490

 

638

 

Interest expense

 

(165,894

)

(143,663

)

(118,212

)

Loss on early extinguishment of debt

 

(1,659

)

(168

)

(2,866

)

Equity in earnings of equity investments

 

3,136

 

14,352

 

15,457

 

Gain on sale of equity investments

 

116,287

 

5,522

 

21,550

 

Gain on issuance of shares by equity investees

 

 

6,241

 

8,436

 

Income from continuing operations

 

247,756

 

156,716

 

160,917

 

(Loss) income from discontinued operations

 

(93

)

676

 

1,912

 

Gain on sale of properties

 

2,917

 

7,592

 

 

Net income

 

250,580

 

164,984

 

162,829

 

Preferred distributions

 

(44,692

)

(46,000

)

(46,000

)

Excess redemption price paid over carrying value of preferred shares

 

(6,914

)

 

 

Net income available for common shareholders

 

$

198,974

 

$

118,984

 

$

116,829

 

 

Note 12.    Tenant Concentration

The United States Government is our only tenant which is responsible for more than five percent of our revenues.  For the years ended December 31, 2006, 2005 and 2004, revenues from the United States Government were $109.8 million, $110.0 million and $96.7 million, respectively.

F-21




Note 13.    Selected Quarterly Financial Data (Unaudited)

The following is a summary of our unaudited quarterly results of operations for 2006 and 2005.  Reclassifications have been made to the prior year results to reflect properties reported in discontinued operations during 2006 (dollars in thousands, except per share amounts):

 

 

2006

 

 

 

First
Quarter

 

Second
Quarter

 

Third
Quarter

 

Fourth
Quarter

 

Total revenues

 

$

189,559

 

$

197,957

 

$

202,542

 

$

205,763

 

Net income available for common shareholders

 

131,413

 

22,280

 

22,120

 

23,161

 

Per common share data:

 

 

 

 

 

 

 

 

 

Net income available for common shareholders — basic and diluted

 

0.63

 

0.11

 

0.11

 

0.11

 

 

 

 

2005

 

 

 

First
Quarter

 

Second
Quarter

 

Third
Quarter

 

Fourth
Quarter

 

Total revenues

 

$

166,554

 

$

173,814

 

$

182,894

 

$

185,579

 

Net income available for common shareholders

 

20,735

 

39,246

 

26,797

 

32,206

 

Per common share data:

 

 

 

 

 

 

 

 

 

Net income available for common shareholders — basic and diluted

 

0.12

 

0.20

 

0.13

 

0.15

 

 

Note 14.    Subsequent Events

In January and February 2007, we sold 1,005,000 of our common shares for net proceeds of $13.0 million pursuant to our controlled equity offering program discussed in Note 5.

In February 2007, we acquired three properties containing 104,000 square feet of space for $8.6 million, plus closing costs.

In January and February 2007, we agreed to acquire 17 properties for $220.0 million plus closing costs.  These acquisitions are subject to various closing conditions customary in real estate transactions and there is no assurance as to when or if these properties will be acquired.

F-22




HRPT PROPERTIES TRUST

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

December 31, 2006

(dollars in thousands)

 

 

Balance at

 

Charged to

 

 

 

Balance at

 

 

 

Beginning of

 

Costs and

 

 

 

End of

 

Description

 

Period

 

Expenses

 

Deductions

 

Period

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2004:
Allowance for doubtful accounts

 

5,068

 

2,021

 

(2,495

)

4,594

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2005:
Allowance for doubtful accounts

 

4,594

 

848

 

(1,675

)

3,767

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2006:
Allowance for doubtful accounts

 

3,767

 

1,925

 

(955

)

4,737

 

S-1




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Birmingham

 

AL

 

$

13,634

 

$

4,000

 

$

19,604

 

$

 

$

4,000

 

$

19,604

 

$

23,604

 

$

22

 

12/27/06

 

2001

 

Petersburg

 

AK

 

 

189

 

811

 

32

 

189

 

843

 

1,032

 

208

 

3/31/97

 

1983

 

Safford

 

AZ

 

 

635

 

2,729

 

148

 

647

 

2,865

 

3,512

 

686

 

3/31/97

 

1992

 

Tucson

 

AZ

 

 

765

 

3,280

 

112

 

779

 

3,378

 

4,157

 

823

 

3/31/97

 

1993

 

Phoenix

 

AZ

 

 

2,687

 

11,532

 

781

 

2,729

 

12,271

 

15,000

 

2,913

 

5/15/97

 

1997

 

Tempe

 

AZ

 

 

1,125

 

10,122

 

326

 

1,125

 

10,448

 

11,573

 

1,973

 

6/30/99

 

1987

 

Phoenix

 

AZ

 

 

1,828

 

16,453

 

(1

)

1,828

 

16,452

 

18,280

 

3,068

 

7/30/99

 

1982

 

Phoenix

 

AZ

 

 

1,899

 

14,872

 

820

 

1,899

 

15,692

 

17,591

 

1,893

 

2/1/02

 

1999

 

Phoenix

 

AZ

 

 

1,041

 

8,023

 

1,178

 

1,041

 

9,201

 

10,242

 

1,256

 

2/1/02

 

1987

 

Tucson

 

AZ

 

 

3,261

 

26,357

 

2,747

 

3,261

 

29,104

 

32,365

 

3,960

 

2/27/02

 

1986

 

Tolleson

 

AZ

 

 

1,257

 

9,210

 

174

 

1,257

 

9,384

 

10,641

 

701

 

12/19/03

 

1990

 

San Diego

 

CA

 

 

992

 

9,040

 

8,025

 

992

 

17,065

 

18,057

 

2,713

 

12/5/96

 

1985

 

San Diego

 

CA

 

 

1,228

 

11,199

 

9,941

 

1,228

 

21,140

 

22,368

 

3,361

 

12/5/96

 

1985

 

San Diego

 

CA

 

 

1,985

 

18,096

 

16,063

 

1,985

 

34,159

 

36,144

 

5,430

 

12/5/96

 

1985

 

San Diego

 

CA

 

 

502

 

4,526

 

823

 

502

 

5,349

 

5,851

 

1,352

 

12/31/96

 

1984

 

San Diego

 

CA

 

 

294

 

2,650

 

482

 

294

 

3,132

 

3,426

 

792

 

12/31/96

 

1984

 

San Diego

 

CA

 

 

313

 

2,820

 

513

 

313

 

3,333

 

3,646

 

842

 

12/31/96

 

1984

 

San Diego

 

CA

 

 

316

 

2,846

 

518

 

316

 

3,364

 

3,680

 

850

 

12/31/96

 

1984

 

Kearney Mesa

 

CA

 

 

2,916

 

12,456

 

975

 

2,969

 

13,378

 

16,347

 

3,231

 

3/31/97

 

1994

 

San Diego

 

CA

 

 

4,269

 

18,316

 

480

 

4,347

 

18,718

 

23,065

 

4,571

 

3/31/97

 

1996

 

San Diego

 

CA

 

 

2,984

 

12,859

 

2,302

 

3,038

 

15,107

 

18,145

 

3,737

 

3/31/97

 

1981

 

Los Angeles

 

CA

 

33,796

 

5,076

 

49,884

 

2,801

 

5,071

 

52,690

 

57,761

 

12,838

 

5/15/97

 

1979

 

Los Angeles

 

CA

 

34,125

 

5,055

 

49,685

 

3,584

 

5,060

 

53,264

 

58,324

 

12,862

 

5/15/97

 

1979

 

Los Angeles

 

CA

 

 

1,921

 

8,242

 

352

 

1,955

 

8,560

 

10,515

 

2,006

 

7/11/97

 

1996

 

Anaheim

 

CA

 

 

691

 

6,223

 

2

 

692

 

6,224

 

6,916

 

1,479

 

12/5/97

 

1992

 

San Diego

 

CA

 

 

461

 

3,830

 

1

 

461

 

3,831

 

4,292

 

435

 

6/24/02

 

1986

 

San Diego

 

CA

 

 

685

 

5,530

 

 

685

 

5,530

 

6,215

 

628

 

6/24/02

 

1986

 

San Diego

 

CA

 

 

475

 

4,264

 

791

 

474

 

5,056

 

5,530

 

800

 

6/24/02

 

1986

 

Fresno

 

CA

 

 

7,276

 

61,118

 

8

 

7,277

 

61,125

 

68,402

 

6,685

 

8/29/02

 

1971

 

Santa Ana

 

CA

 

 

1,363

 

10,158

 

(279

)

1,362

 

9,880

 

11,242

 

774

 

11/10/03

 

2000

 

Rancho Cordova

 

CA

 

 

116

 

1,048

 

8

 

116

 

1,056

 

1,172

 

65

 

7/16/04

 

1977

 

Rancho Cordova

 

CA

 

 

116

 

1,072

 

4

 

116

 

1,076

 

1,192

 

66

 

7/16/04

 

1977

 

Rancho Cordova

 

CA

 

 

89

 

822

 

 

89

 

822

 

911

 

51

 

7/16/04

 

1977

 

S-2




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Sacramento

 

CA

 

 

134

 

720

 

191

 

134

 

911

 

1,045

 

75

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

116

 

1,032

 

31

 

116

 

1,063

 

1,179

 

66

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

67

 

393

 

98

 

67

 

491

 

558

 

26

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

116

 

952

 

39

 

116

 

991

 

1,107

 

68

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

67

 

361

 

59

 

67

 

420

 

487

 

23

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

134

 

676

 

78

 

134

 

754

 

888

 

43

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

116

 

1,017

 

14

 

116

 

1,031

 

1,147

 

66

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

116

 

720

 

188

 

116

 

908

 

1,024

 

54

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

60

 

349

 

23

 

60

 

372

 

432

 

27

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

60

 

333

 

26

 

60

 

359

 

419

 

21

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

116

 

936

 

55

 

116

 

991

 

1,107

 

68

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

116

 

976

 

24

 

116

 

1,000

 

1,116

 

69

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

134

 

1,186

 

63

 

134

 

1,249

 

1,383

 

78

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

91

 

819

 

139

 

91

 

958

 

1,049

 

52

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

74

 

574

 

34

 

74

 

608

 

682

 

45

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

402

 

4,056

 

35

 

402

 

4,091

 

4,493

 

249

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

80

 

623

 

35

 

80

 

658

 

738

 

44

 

7/16/04

 

1977

 

Sacramento

 

CA

 

 

206

 

1,970

 

336

 

206

 

2,306

 

2,512

 

124

 

7/16/04

 

1977

 

San Diego

 

CA

 

 

284

 

2,992

 

482

 

284

 

3,474

 

3,758

 

234

 

7/16/04

 

1980

 

San Diego

 

CA

 

 

654

 

5,467

 

225

 

654

 

5,692

 

6,346

 

370

 

7/16/04

 

1982

 

San Diego

 

CA

 

 

280

 

2,421

 

331

 

280

 

2,752

 

3,032

 

219

 

7/16/04

 

1980

 

San Diego

 

CA

 

 

286

 

2,512

 

624

 

286

 

3,136

 

3,422

 

203

 

7/16/04

 

1980

 

San Diego

 

CA

 

 

330

 

2,843

 

67

 

330

 

2,910

 

3,240

 

177

 

7/16/04

 

1978

 

San Diego

 

CA

 

 

387

 

3,339

 

64

 

387

 

3,403

 

3,790

 

207

 

7/16/04

 

1978

 

Golden

 

CO

 

 

494

 

152

 

6,037

 

495

 

6,188

 

6,683

 

1,337

 

3/31/97

 

1997

 

Aurora

 

CO

 

 

1,152

 

13,272

 

 

1,152

 

13,272

 

14,424

 

3,149

 

11/14/97

 

1993

 

Lakewood

 

CO

 

 

1,855

 

16,691

 

369

 

1,856

 

17,059

 

18,915

 

3,009

 

11/22/99

 

1980

 

Lakewood

 

CO

 

 

787

 

7,085

 

160

 

788

 

7,244

 

8,032

 

1,278

 

11/22/99

 

1980

 

Englewood

 

CO

 

 

1,708

 

14,616

 

1,118

 

1,707

 

15,735

 

17,442

 

2,001

 

11/2/01

 

1984

 

Lakewood

 

CO

 

 

936

 

9,160

 

285

 

936

 

9,445

 

10,381

 

991

 

10/11/02

 

1981

 

Lakewood

 

CO

 

 

915

 

9,106

 

454

 

916

 

9,559

 

10,475

 

989

 

10/11/02

 

1981

 

Lakewood

 

CO

 

 

1,035

 

9,271

 

171

 

1,036

 

9,441

 

10,477

 

999

 

10/11/02

 

1981

 

Englewood

 

CO

 

 

649

 

5,232

 

473

 

642

 

5,712

 

6,354

 

554

 

12/19/02

 

1984

 

S-3




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Longmont

 

CO

 

 

3,714

 

24,397

 

441

 

3,715

 

24,837

 

28,552

 

1,386

 

10/26/04

 

1982

 

Wallingford

 

CT

 

 

640

 

10,017

 

1,652

 

640

 

11,669

 

12,309

 

2,666

 

6/1/98

 

1986

 

Wallingford

 

CT

 

 

367

 

3,301

 

893

 

366

 

4,195

 

4,561

 

926

 

12/22/98

 

1988

 

Meriden

 

CT

 

 

768

 

6,164

 

20

 

768

 

6,184

 

6,952

 

533

 

7/24/03

 

1982

 

Windsor

 

CT

 

 

1,376

 

11,212

 

1,035

 

1,376

 

12,247

 

13,623

 

1,025

 

8/29/03

 

1988

 

Milford

 

CT

 

 

1,712

 

13,969

 

107

 

1,713

 

14,075

 

15,788

 

523

 

7/29/05

 

1987

 

East Windsor

 

CT

 

9,599

 

2,960

 

12,360

 

 

2,960

 

12,360

 

15,320

 

77

 

10/24/06

 

1989

 

Berlin

 

CT

 

 

2,770

 

8,409

 

 

2,770

 

8,409

 

11,179

 

53

 

10/24/06

 

1962

 

Wallingford

 

CT

 

 

2,010

 

7,352

 

 

2,010

 

7,352

 

9,362

 

50

 

10/24/06

 

1978

 

Wallingford

 

CT

 

 

1,470

 

2,165

 

 

1,470

 

2,165

 

3,635

 

18

 

10/24/06

 

1978

 

Wallingford

 

CT

 

 

2,300

 

8,621

 

 

2,300

 

8,621

 

10,921

 

55

 

10/24/06

 

1976

 

Wallingford

 

CT

 

 

620

 

2,168

 

 

620

 

2,168

 

2,788

 

14

 

10/24/06

 

1979

 

Wallingford

 

CT

 

 

470

 

2,280

 

 

470

 

2,280

 

2,750

 

14

 

10/24/06

 

1974

 

Wallingford

 

CT

 

 

800

 

2,251

 

 

800

 

2,251

 

3,051

 

15

 

10/24/06

 

1977

 

Wallingford

 

CT

 

 

740

 

2,552

 

 

740

 

2,552

 

3,292

 

16

 

10/24/06

 

1980

 

Wallingford

 

CT

 

 

680

 

3,144

 

 

680

 

3,144

 

3,824

 

18

 

10/24/06

 

1982

 

Wallingford

 

CT

 

 

720

 

3,067

 

 

720

 

3,067

 

3,787

 

18

 

10/24/06

 

1984

 

Orange

 

CT

 

 

2,270

 

7,943

 

 

2,270

 

7,943

 

10,213

 

50

 

10/24/06

 

1993

 

North Haven

 

CT

 

5,205

 

2,090

 

9,141

 

 

2,090

 

9,141

 

11,231

 

54

 

10/24/06

 

1970

 

Washington

 

DC

 

 

2,485

 

22,696

 

5,029

 

2,485

 

27,725

 

30,210

 

6,847

 

9/13/96

 

1976

 

Washington

 

DC

 

 

12,008

 

51,528

 

29,231

 

12,227

 

80,540

 

92,767

 

17,849

 

3/31/97

 

1996

 

Washington

 

DC

 

21,656

 

6,979

 

29,949

 

1,647

 

7,107

 

31,468

 

38,575

 

7,730

 

3/31/97

 

1989

 

Washington

 

DC

 

 

1,851

 

16,511

 

3,787

 

1,887

 

20,262

 

22,149

 

4,463

 

12/19/97

 

1966

 

Washington

 

DC

 

29,898

 

5,975

 

53,778

 

2,971

 

5,975

 

56,749

 

62,724

 

12,268

 

6/23/98

 

1991

 

Wilmington

 

DE

 

 

4,409

 

39,681

 

10,317

 

4,413

 

49,994

 

54,407

 

9,633

 

7/23/98

 

1986

 

Wilmington

 

DE

 

 

1,478

 

13,306

 

590

 

1,477

 

13,897

 

15,374

 

2,586

 

7/13/99

 

1984

 

Orlando

 

FL

 

 

 

362

 

1

 

36

 

327

 

363

 

65

 

2/19/98

 

1997

 

Orlando

 

FL

 

 

722

 

6,499

 

(59

)

716

 

6,446

 

7,162

 

1,432

 

2/19/98

 

1997

 

Orlando

 

FL

 

 

256

 

2,308

 

64

 

263

 

2,365

 

2,628

 

525

 

2/19/98

 

1997

 

Miami

 

FL

 

 

144

 

1,297

 

319

 

144

 

1,616

 

1,760

 

526

 

3/19/98

 

1987

 

Savannah

 

GA

 

 

544

 

2,330

 

610

 

553

 

2,931

 

3,484

 

659

 

3/31/97

 

1990

 

Atlanta

 

GA

 

474

 

197

 

1,757

 

24

 

197

 

1,781

 

1,978

 

109

 

7/16/04

 

1972

 

Atlanta

 

GA

 

754

 

265

 

2,382

 

501

 

265

 

2,883

 

3,148

 

275

 

7/16/04

 

1972

 

S-4




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

December 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Atlanta

 

GA

 

432

 

202

 

1,580

 

22

 

202

 

1,602

 

1,804

 

98

 

7/16/04

 

1972

 

Atlanta

 

GA

 

717

 

280

 

2,657

 

53

 

280

 

2,710

 

2,990

 

164

 

7/16/04

 

1972

 

Atlanta

 

GA

 

2,549

 

1,070

 

8,930

 

637

 

1,070

 

9,567

 

10,637

 

632

 

7/16/04

 

1972

 

Atlanta

 

GA

 

402

 

157

 

1,505

 

15

 

157

 

1,520

 

1,677

 

93

 

7/16/04

 

1972

 

Atlanta

 

GA

 

645

 

223

 

2,006

 

461

 

223

 

2,467

 

2,690

 

214

 

7/16/04

 

1972

 

Atlanta

 

GA

 

 

1,521

 

11,826

 

 

1,521

 

11,826

 

13,347

 

727

 

7/16/04

 

1972

 

Atlanta

 

GA

 

490

 

210

 

1,779

 

56

 

210

 

1,835

 

2,045

 

111

 

7/16/04

 

1972

 

Atlanta

 

GA

 

2,839

 

1,209

 

9,747

 

890

 

1,209

 

10,637

 

11,846

 

660

 

7/16/04

 

1972

 

Atlanta

 

GA

 

1,983

 

1,126

 

6,930

 

217

 

1,126

 

7,147

 

8,273

 

452

 

7/16/04

 

1972

 

Atlanta

 

GA

 

591

 

245

 

2,006

 

215

 

245

 

2,221

 

2,466

 

126

 

7/16/04

 

1972

 

Atlanta

 

GA

 

837

 

346

 

2,899

 

246

 

346

 

3,145

 

3,491

 

190

 

7/16/04

 

1967

 

Atlanta

 

GA

 

1,257

 

480

 

4,328

 

438

 

480

 

4,766

 

5,246

 

287

 

7/16/04

 

1967

 

Atlanta

 

GA

 

 

1,713

 

7,649

 

157

 

1,713

 

7,806

 

9,519

 

482

 

7/16/04

 

1967

 

Atlanta

 

GA

 

673

 

289

 

2,403

 

115

 

289

 

2,518

 

2,807

 

148

 

7/16/04

 

1967

 

Atlanta

 

GA

 

 

372

 

3,600

 

39

 

372

 

3,639

 

4,011

 

222

 

7/16/04

 

1967

 

Atlanta

 

GA

 

 

364

 

3,527

 

37

 

364

 

3,564

 

3,928

 

217

 

7/16/04

 

1967

 

Atlanta

 

GA

 

1,109

 

425

 

4,119

 

82

 

425

 

4,201

 

4,626

 

255

 

7/16/04

 

1967

 

Atlanta

 

GA

 

 

1,122

 

10,867

 

86

 

1,122

 

10,953

 

12,075

 

669

 

7/16/04

 

1967

 

Atlanta

 

GA

 

3,934

 

1,620

 

13,661

 

1,134

 

1,620

 

14,795

 

16,415

 

1,067

 

7/16/04

 

1967

 

Atlanta

 

GA

 

128

 

52

 

483

 

 

52

 

483

 

535

 

30

 

7/16/04

 

1967

 

Atlanta

 

GA

 

572

 

257

 

2,119

 

10

 

257

 

2,129

 

2,386

 

131

 

7/16/04

 

1972

 

Atlanta

 

GA

 

646

 

268

 

2,380

 

49

 

268

 

2,429

 

2,697

 

148

 

7/16/04

 

1972

 

Atlanta

 

GA

 

1,681

 

685

 

5,837

 

494

 

685

 

6,331

 

7,016

 

370

 

7/16/04

 

1972

 

Atlanta

 

GA

 

2,265

 

939

 

8,387

 

126

 

939

 

8,513

 

9,452

 

536

 

7/16/04

 

1972

 

Atlanta

 

GA

 

2,341

 

1,154

 

8,454

 

158

 

1,154

 

8,612

 

9,766

 

524

 

7/16/04

 

1972

 

Atlanta

 

GA

 

788

 

303

 

2,595

 

391

 

303

 

2,986

 

3,289

 

240

 

7/16/04

 

1972

 

Atlanta

 

GA

 

518

 

235

 

1,906

 

21

 

235

 

1,927

 

2,162

 

118

 

7/16/04

 

1972

 

Atlanta

 

GA

 

 

917

 

 

 

917

 

 

917

 

 

7/16/04

 

1972

 

Atlanta

 

GA

 

391

 

156

 

1,400

 

74

 

156

 

1,474

 

1,630

 

88

 

7/16/04

 

1972

 

Atlanta

 

GA

 

 

2,197

 

 

3

 

2,197

 

3

 

2,200

 

 

7/16/04

 

1972

 

Atlanta

 

GA

 

 

2,459

 

18,549

 

373

 

2,463

 

18,918

 

21,381

 

1,116

 

8/24/04

 

1985

 

Atlanta

 

GA

 

 

952

 

7,643

 

105

 

952

 

7,748

 

8,700

 

440

 

9/9/04

 

1983

 

Atlanta

 

GA

 

 

2,524

 

20,407

 

179

 

2,526

 

20,584

 

23,110

 

706

 

8/23/05

 

1985

 

 

S-5




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

  Land  

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

   Land   

 

Buildings
and
Equipment

 

  Total(1)  

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Roswell

 

GA

 

 

624

 

5,491

 

856

 

624

 

6,347

 

6,971

 

194

 

9/2/05

 

1974

 

Macon

 

GA

 

13,949

 

2,674

 

19,311

 

200

 

2,674

 

19,511

 

22,185

 

353

 

4/28/06

 

1988

 

Oahu

 

HI

 

 

156,939

 

4,320

 

10,857

 

157,420

 

14,696

 

172,116

 

352

 

12/5/03

 

 

Oahu

 

HI

 

 

93,821

 

 

178

 

93,728

 

271

 

93,999

 

8

 

12/5/03

 

 

Oahu

 

HI

 

 

78,842

 

4,789

 

(95

)

78,752

 

4,784

 

83,536

 

364

 

12/5/03

 

 

Oahu

 

HI

 

 

7,982

 

 

(10

)

7,972

 

 

7,972

 

 

12/5/03

 

 

Oahu

 

HI

 

 

66,253

 

 

7,459

 

66,171

 

7,541

 

73,712

 

158

 

12/5/03

 

 

Oahu

 

HI

 

 

718

 

 

(1

)

717

 

 

717

 

 

12/5/03

 

 

Oahu

 

HI

 

 

43,419

 

223

 

2,164

 

33,735

 

12,071

 

45,806

 

609

 

12/5/03

 

 

Oahu

 

HI

 

 

11,450

 

 

(13

)

11,437

 

 

11,437

 

 

12/5/03

 

 

Oahu

 

HI

 

 

9,671

 

 

(11

)

9,660

 

 

9,660

 

 

12/5/03

 

 

Oahu

 

HI

 

 

2,114

 

456

 

(3

)

2,112

 

455

 

2,567

 

35

 

12/5/03

 

 

Oahu

 

HI

 

 

1,343

 

 

(1

)

1,342

 

 

1,342

 

 

12/5/03

 

 

Oahu

 

HI

 

 

2,038

 

 

(3

)

2,035

 

 

2,035

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,354

 

 

(2

)

1,352

 

 

1,352

 

 

6/15/05

 

 

Oahu

 

HI

 

 

3,547

 

 

(6

)

3,541

 

 

3,541

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,572

 

 

(3

)

1,569

 

 

1,569

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,232

 

 

(2

)

1,230

 

 

1,230

 

 

6/15/05

 

 

Oahu

 

HI

 

 

434

 

3,983

 

(8

)

426

 

3,983

 

4,409

 

153

 

6/15/05

 

 

Oahu

 

HI

 

 

11,645

 

 

(21

)

11,624

 

 

11,624

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,509

 

 

(3

)

1,506

 

 

1,506

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,725

 

 

(3

)

1,722

 

 

1,722

 

 

6/15/05

 

 

Oahu

 

HI

 

 

2,190

 

 

(3

)

2,187

 

 

2,187

 

 

6/15/05

 

 

Oahu

 

HI

 

 

2,672

 

 

(5

)

2,667

 

 

2,667

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,764

 

 

(3

)

1,761

 

 

1,761

 

 

6/15/05

 

 

Oahu

 

HI

 

 

294

 

2,297

 

(3

)

294

 

2,294

 

2,588

 

89

 

6/15/05

 

 

Oahu

 

HI

 

 

27,455

 

 

(50

)

27,405

 

 

27,405

 

 

6/15/05

 

 

Oahu

 

HI

 

 

13,904

 

 

(20

)

13,884

 

 

13,884

 

 

6/15/05

 

 

Oahu

 

HI

 

 

651

 

 

(2

)

649

 

 

649

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,497

 

 

(3

)

1,494

 

 

1,494

 

 

6/15/05

 

 

Oahu

 

HI

 

 

963

 

 

(1

)

962

 

 

962

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,624

 

 

(2

)

1,622

 

 

1,622

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,244

 

 

(1

)

1,243

 

 

1,243

 

 

6/15/05

 

 

 

S-6




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

  Land  

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

   Land   

 

Buildings
and
Equipment

 

  Total(1)  

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Oahu

 

HI

 

 

707

 

 

(1

)

706

 

 

706

 

 

6/15/05

 

 

Oahu

 

HI

 

 

381

 

 

 

381

 

 

381

 

 

6/15/05

 

 

Oahu

 

HI

 

 

717

 

 

(1

)

716

 

 

716

 

 

6/15/05

 

 

Oahu

 

HI

 

 

553

 

 

(1

)

552

 

 

552

 

 

6/15/05

 

 

Oahu

 

HI

 

 

243

 

1,457

 

(3

)

242

 

1,455

 

1,697

 

56

 

6/15/05

 

 

Oahu

 

HI

 

 

536

 

 

 

536

 

 

536

 

 

6/15/05

 

 

Oahu

 

HI

 

 

2,949

 

 

(5

)

2,944

 

 

2,944

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,393

 

 

(3

)

1,390

 

 

1,390

 

 

6/15/05

 

 

Oahu

 

HI

 

 

714

 

 

(1

)

713

 

 

713

 

 

6/15/05

 

 

Oahu

 

HI

 

 

419

 

 

(1

)

418

 

 

418

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,384

 

 

(3

)

1,381

 

 

1,381

 

 

6/15/05

 

 

Oahu

 

HI

 

 

218

 

 

 

218

 

 

218

 

 

6/15/05

 

 

Oahu

 

HI

 

 

568

 

 

(1

)

567

 

 

567

 

 

6/15/05

 

 

Oahu

 

HI

 

 

5,839

 

 

(10

)

5,829

 

 

5,829

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,296

 

 

(3

)

1,293

 

 

1,293

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,601

 

 

(2

)

1,599

 

 

1,599

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,829

 

 

(3

)

1,826

 

 

1,826

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,985

 

 

(4

)

1,981

 

 

1,981

 

 

6/15/05

 

 

Oahu

 

HI

 

 

2,658

 

 

(5

)

2,653

 

 

2,653

 

 

6/15/05

 

 

Oahu

 

HI

 

 

7,609

 

 

(14

)

7,595

 

 

7,595

 

 

6/15/05

 

 

Oahu

 

HI

 

 

1,362

 

 

(2

)

1,360

 

 

1,360

 

 

6/15/05

 

 

Oahu

 

HI

 

 

490

 

 

 

490

 

 

490

 

 

6/15/05

 

 

Oahu

 

HI

 

 

3,164

 

 

(5

)

3,159

 

 

3,159

 

 

6/15/05

 

 

Deerfield

 

IL

 

 

2,515

 

20,186

 

62

 

2,521

 

20,242

 

22,763

 

527

 

12/14/05

 

1986

 

Lake Forest

 

IL

 

 

1,258

 

9,630

 

27

 

1,261

 

9,654

 

10,915

 

251

 

12/14/05

 

2001

 

Waukegan

 

IL

 

 

1,769

 

15,141

 

(193

)

1,750

 

14,967

 

16,717

 

392

 

12/14/05

 

1990

 

Waukegan

 

IL

 

 

1,746

 

14,753

 

282

 

1,774

 

15,007

 

16,781

 

388

 

12/14/05

 

1998

 

Bannockburn

 

IL

 

25,170

 

5,846

 

48,568

 

118

 

5,858

 

48,674

 

54,532

 

1,267

 

12/29/05

 

1999

 

Indianapolis

 

IN

 

 

7,495

 

60,465

 

1,080

 

7,496

 

61,544

 

69,040

 

2,524

 

5/10/05

 

1977

 

Indianapolis

 

IN

 

 

665

 

5,215

 

93

 

665

 

5,308

 

5,973

 

202

 

6/17/05

 

1987

 

Carmel

 

IN

 

 

667

 

5,724

 

 

667

 

5,724

 

6,391

 

77

 

6/15/06

 

1982

 

Kansas City

 

KS

 

 

1,042

 

4,469

 

4,003

 

1,061

 

8,453

 

9,514

 

1,527

 

3/31/97

 

1990

 

Erlanger

 

KY

 

 

2,022

 

9,545

 

(40

)

2,020

 

9,507

 

11,527

 

843

 

6/30/03

 

1999

 

 

S-7




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

  Land  

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

   Land   

 

Buildings
and
Equipment

 

  Total(1)  

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Boston

 

MA

 

 

3,378

 

30,397

 

9,064

 

3,378

 

39,461

 

42,839

 

9,667

 

9/28/95

 

1915

 

Boston

 

MA

 

 

1,447

 

13,028

 

271

 

1,448

 

13,298

 

14,746

 

3,709

 

9/28/95

 

1993

 

Boston

 

MA

 

 

1,500

 

13,500

 

2,579

 

1,500

 

16,079

 

17,579

 

3,992

 

12/18/95

 

1875

 

Charlton

 

MA

 

 

141

 

1,269

 

8

 

141

 

1,277

 

1,418

 

307

 

5/15/97

 

1988

 

Fitchburg

 

MA

 

 

223

 

2,004

 

10

 

223

 

2,014

 

2,237

 

485

 

5/15/97

 

1994

 

Grafton

 

MA

 

 

37

 

336

 

4

 

37

 

340

 

377

 

82

 

5/15/97

 

1930

 

Milford

 

MA

 

 

144

 

1,297

 

266

 

401

 

1,306

 

1,707

 

314

 

5/15/97

 

1989

 

Millbury

 

MA

 

 

34

 

309

 

4

 

34

 

313

 

347

 

75

 

5/15/97

 

1950

 

Northbridge

 

MA

 

 

32

 

290

 

5

 

32

 

295

 

327

 

71

 

5/15/97

 

1962

 

Spencer

 

MA

 

 

211

 

1,902

 

11

 

211

 

1,913

 

2,124

 

460

 

5/15/97

 

1992

 

Sturbridge

 

MA

 

 

83

 

751

 

6

 

83

 

757

 

840

 

182

 

5/15/97

 

1986

 

Webster

 

MA

 

 

315

 

2,834

 

14

 

315

 

2,848

 

3,163

 

685

 

5/15/97

 

1995

 

Westborough

 

MA

 

 

42

 

381

 

5

 

42

 

386

 

428

 

93

 

5/15/97

 

1900

 

Westborough

 

MA

 

 

396

 

3,562

 

15

 

396

 

3,577

 

3,973

 

861

 

5/15/97

 

1986

 

Worcester

 

MA

 

 

354

 

3,189

 

14

 

354

 

3,203

 

3,557

 

771

 

5/15/97

 

1985

 

Worcester

 

MA

 

 

895

 

8,052

 

41

 

895

 

8,093

 

8,988

 

1,947

 

5/15/97

 

1990

 

Worcester

 

MA

 

 

111

 

1,000

 

292

 

397

 

1,006

 

1,403

 

242

 

5/15/97

 

1986

 

Worcester

 

MA

 

 

265

 

2,385

 

12

 

265

 

2,397

 

2,662

 

577

 

5/15/97

 

1972

 

Worcester

 

MA

 

 

158

 

1,417

 

7

 

157

 

1,425

 

1,582

 

343

 

5/15/97

 

1992

 

Worcester

 

MA

 

 

1,132

 

10,186

 

38

 

1,132

 

10,224

 

11,356

 

2,460

 

5/15/97

 

1989

 

Lexington

 

MA

 

 

1,054

 

9,487

 

5,381

 

1,054

 

14,868

 

15,922

 

2,208

 

1/30/98

 

1968

 

Quincy

 

MA

 

 

1,668

 

11,097

 

2,214

 

1,668

 

13,311

 

14,979

 

3,341

 

4/3/98

 

1988

 

Quincy

 

MA

 

 

2,477

 

16,645

 

4,862

 

2,477

 

21,507

 

23,984

 

4,281

 

4/3/98

 

1988

 

Auburn

 

MA

 

 

647

 

5,827

 

22

 

650

 

5,846

 

6,496

 

1,029

 

12/27/99

 

1977

 

Leominster

 

MA

 

 

778

 

7,003

 

26

 

781

 

7,026

 

7,807

 

1,237

 

12/27/99

 

1966

 

Stoneham

 

MA

 

 

931

 

8,062

 

895

 

931

 

8,957

 

9,888

 

1,113

 

9/28/01

 

1945

 

Foxborough

 

MA

 

 

3,021

 

25,721

 

 

3,021

 

25,721

 

28,742

 

2,492

 

2/13/03

 

1989

 

Mansfield

 

MA

 

 

1,550

 

13,908

 

2,500

 

1,550

 

16,408

 

17,958

 

1,191

 

8/1/03

 

1981

 

Mansfield

 

MA

 

 

1,358

 

11,658

 

357

 

1,357

 

12,016

 

13,373

 

984

 

8/1/03

 

2002

 

Mansfield

 

MA

 

 

1,183

 

9,749

 

46

 

1,182

 

9,796

 

10,978

 

826

 

8/1/03

 

1978

 

Mansfield

 

MA

 

 

1,033

 

 

 

1,033

 

 

1,033

 

 

8/1/03

 

 

Mansfield

 

MA

 

 

1,262

 

11,103

 

123

 

1,261

 

11,227

 

12,488

 

916

 

9/5/03

 

1988

 

Mansfield

 

MA

 

 

1,023

 

8,954

 

235

 

1,023

 

9,189

 

10,212

 

739

 

9/5/03

 

1988

 

 

S-8




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

  Land  

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

   Land   

 

Buildings
and
Equipment

 

  Total(1)  

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Quincy

 

MA

 

 

774

 

5,815

 

347

 

779

 

6,157

 

6,936

 

432

 

2/24/04

 

1999

 

Quincy

 

MA

 

 

2,586

 

16,493

 

528

 

2,586

 

17,021

 

19,607

 

945

 

9/21/04

 

1980

 

Quincy

 

MA

 

 

3,585

 

23,144

 

469

 

3,584

 

23,614

 

27,198

 

1,336

 

9/21/04

 

1981

 

Gaithersburg

 

MD

 

 

4,381

 

18,798

 

1,024

 

4,461

 

19,742

 

24,203

 

4,719

 

3/31/97

 

1995

 

Germantown

 

MD

 

 

2,305

 

9,890

 

986

 

2,347

 

10,834

 

13,181

 

2,461

 

3/31/97

 

1995

 

Oxon Hill

 

MD

 

 

3,181

 

13,653

 

3,530

 

3,131

 

17,233

 

20,364

 

3,921

 

3/31/97

 

1992

 

Riverdale

 

MD

 

 

9,423

 

40,433

 

7,132

 

9,595

 

47,393

 

56,988

 

10,444

 

3/31/97

 

1994

 

Baltimore

 

MD

 

 

 

12,430

 

2,236

 

 

14,666

 

14,666

 

4,532

 

11/18/97

 

1988

 

Rockville

 

MD

 

 

3,251

 

29,258

 

2,719

 

3,248

 

31,980

 

35,228

 

7,144

 

2/2/98

 

1986

 

Baltimore

 

MD

 

 

900

 

8,097

 

404

 

901

 

8,500

 

9,401

 

1,729

 

10/15/98

 

1989

 

Pikesville

 

MD

 

 

589

 

5,305

 

513

 

590

 

5,817

 

6,407

 

1,064

 

8/11/99

 

1987

 

Baltimore

 

MD

 

 

6,328

 

54,645

 

5,285

 

6,328

 

59,930

 

66,258

 

5,318

 

1/28/03

 

1990

 

Baltimore

 

MD

 

 

2,830

 

22,996

 

4,451

 

2,830

 

27,447

 

30,277

 

1,735

 

7/16/04

 

1972

 

Rockville

 

MD

 

 

2,751

 

22,741

 

1,733

 

2,751

 

24,474

 

27,225

 

1,451

 

7/16/04

 

1980

 

Rockville

 

MD

 

 

1,961

 

16,064

 

2

 

1,961

 

16,066

 

18,027

 

987

 

7/20/04

 

2002

 

Rockville

 

MD

 

 

2,145

 

17,571

 

2

 

2,145

 

17,573

 

19,718

 

1,080

 

7/20/04

 

2002

 

Rockville

 

MD

 

 

3,532

 

28,937

 

47

 

3,533

 

28,983

 

32,516

 

1,780

 

7/20/04

 

2002

 

Dearborn

 

MI

 

 

163

 

1,388

 

100

 

163

 

1,488

 

1,651

 

118

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

227

 

2,108

 

570

 

227

 

2,678

 

2,905

 

140

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

163

 

1,466

 

 

163

 

1,466

 

1,629

 

90

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

163

 

1,320

 

33

 

163

 

1,353

 

1,516

 

92

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

210

 

1,885

 

30

 

210

 

1,915

 

2,125

 

116

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

153

 

1,321

 

44

 

153

 

1,365

 

1,518

 

90

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

92

 

551

 

 

92

 

551

 

643

 

34

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

118

 

1,049

 

61

 

118

 

1,110

 

1,228

 

67

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

4,158

 

33,184

 

3,544

 

4,158

 

36,728

 

40,886

 

2,353

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

179

 

1,352

 

60

 

179

 

1,412

 

1,591

 

83

 

7/16/04

 

1992

 

Dearborn

 

MI

 

 

223

 

1,059

 

39

 

223

 

1,098

 

1,321

 

65

 

7/16/04

 

1992

 

Dearborn

 

MI

 

 

179

 

1,473

 

14

 

179

 

1,487

 

1,666

 

93

 

7/16/04

 

1992

 

Dearborn

 

MI

 

 

52

 

479

 

24

 

52

 

503

 

555

 

30

 

7/16/04

 

1992

 

Dearborn

 

MI

 

 

51

 

439

 

 

51

 

439

 

490

 

27

 

7/16/04

 

1992

 

Dearborn

 

MI

 

 

153

 

1,230

 

28

 

153

 

1,258

 

1,411

 

76

 

7/16/04

 

1973

 

Dearborn

 

MI

 

 

221

 

1,582

 

642

 

221

 

2,224

 

2,445

 

165

 

7/16/04

 

1973

 

 

S-9




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

  Land  

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

   Land   

 

Buildings
and
Equipment

 

  Total(1)  

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

 

Dearborn

 

MI

 

 

104

 

939

 

394

 

104

 

1,333

 

1,437

 

58

 

7/16/04

 

1973

 

Bloomington

 

MN

 

 

1,898

 

17,081

 

2,258

 

1,898

 

19,339

 

21,237

 

5,129

 

3/19/98

 

1957

 

Eagan

 

MN

 

 

1,424

 

12,822

 

3,418

 

1,425

 

16,239

 

17,664

 

2,838

 

3/19/98

 

1986

 

Mendota Heights

 

MN

 

 

533

 

4,795

 

 

533

 

4,795

 

5,328

 

1,054

 

3/19/98

 

1995

 

Minneapolis

 

MN

 

 

870

 

7,831

 

1,710

 

870

 

9,541

 

10,411

 

1,894

 

8/3/99

 

1987

 

Minneapolis

 

MN

 

 

695

 

6,254

 

1,389

 

695

 

7,643

 

8,338

 

1,584

 

8/3/99

 

1986

 

Plymouth

 

MN

 

 

563

 

5,064

 

1,195

 

563

 

6,259

 

6,822

 

1,183

 

8/3/99

 

1987

 

St. Paul

 

MN

 

 

696

 

6,263

 

1,783

 

695

 

8,047

 

8,742

 

1,571

 

8/3/99

 

1987

 

Minneapolis

 

MN

 

 

1,891

 

17,021

 

1,704

 

1,893

 

18,723

 

20,616

 

3,495

 

9/30/99

 

1980

 

Roseville

 

MN

 

3,890

 

672

 

6,045

 

867

 

672

 

6,912

 

7,584

 

1,162

 

12/1/99

 

1987

 

Roseville

 

MN

 

1,643

 

295

 

2,658

 

250

 

295

 

2,908

 

3,203

 

472

 

12/1/99

 

1987

 

Roseville

 

MN

 

1,172

 

185

 

1,661

 

439

 

185

 

2,100

 

2,285

 

480

 

12/1/99

 

1987

 

Roseville

 

MN

 

6,245

 

979

 

8,814

 

2,384

 

978

 

11,199

 

12,177

 

1,868

 

12/1/99

 

1987

 

Roseville

 

MN

 

3,106

 

586

 

5,278

 

191

 

586

 

5,469

 

6,055

 

931

 

12/1/99

 

1987

 

St. Paul

 

MN

 

 

1,303

 

10,451

 

125

 

1,304

 

10,575

 

11,879

 

666

 

6/2/04

 

1970

 

Kansas City

 

MO

 

 

1,443

 

6,193

 

2,185

 

1,470

 

8,351

 

9,821

 

1,917

 

3/31/97

 

1995

 

St. Louis

 

MO

 

 

903

 

7,602

 

52

 

903

 

7,654

 

8,557

 

599

 

11/7/03

 

1998

 

Arnold

 

MO

 

 

834

 

7,302

 

34

 

838

 

7,332

 

8,170

 

528

 

2/11/04

 

1999

 

Kansas City

 

MO

 

 

1,346

 

9,531

 

214

 

1,347

 

9,744

 

11,091

 

283

 

11/1/05

 

1984

 

St. Louis

 

MO

 

 

4,800

 

8,020

 

 

4,800

 

8,020

 

12,820

 

67

 

10/5/06

 

1988

 

Kansas City

 

MO

 

 

1,800

 

6,493

 

7

 

1,800

 

6,500

 

8,300

 

42

 

10/31/06

 

1981

 

Manchester

 

NH

 

 

2,201

 

19,957

 

12

 

2,210

 

19,960

 

22,170

 

3,805

 

5/10/99

 

1979

 

Vorhees

 

NJ

 

 

673

 

4,232

 

608

 

589

 

4,924

 

5,513

 

1,013

 

5/26/98

 

1990

 

Vorhees

 

NJ

 

 

445

 

2,798

 

275

 

584

 

2,934

 

3,518

 

648

 

5/26/98

 

1990

 

Vorhees

 

NJ

 

 

1,053

 

6,625

 

1,458

 

998

 

8,138

 

9,136

 

1,858

 

5/26/98

 

1990

 

Florham Park

 

NJ

 

 

1,412

 

12,709

 

5,357

 

1,412

 

18,066

 

19,478

 

5,495

 

7/31/98

 

1979

 

Albuquerque

 

NM

 

 

493

 

2,119

 

140

 

503

 

2,249

 

2,752

 

542

 

3/31/97

 

1984

 

Sante Fe

 

NM

 

 

1,551

 

6,650

 

846

 

1,578

 

7,469

 

9,047

 

1,795

 

3/31/97

 

1987

 

Albuquerque

 

NM

 

 

173

 

1,553

 

26

 

172

 

1,580

 

1,752

 

292

 

8/31/99

 

1984

 

Albuquerque

 

NM

 

 

422

 

3,797

 

706

 

422

 

4,503

 

4,925

 

722

 

8/31/99

 

1984

 

Albuquerque

 

NM

 

 

877

 

7,895

 

175

 

876

 

8,071

 

8,947

 

1,471

 

8/31/99

 

1984

 

Albuquerque

 

NM

 

 

441

 

3,970

 

821

 

441

 

4,791

 

5,232

 

746

 

8/31/99

 

1984

 

Albuquerque

 

NM

 

 

40

 

141

 

35

 

40

 

176

 

216

 

20

 

2/12/02

 

1985

 

 

S-10




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Albuquerque

 

NM

 

 

129

 

1,217

 

182

 

129

 

1,399

 

1,528

 

168

 

2/12/02

 

1985

 

Albuquerque

 

NM

 

 

39

 

351

 

105

 

39

 

456

 

495

 

44

 

2/12/02

 

1985

 

Albuquerque

 

NM

 

 

1,778

 

14,407

 

1,661

 

1,778

 

16,068

 

17,846

 

2,091

 

2/12/02

 

1985

 

Albuquerque

 

NM

 

 

444

 

3,890

 

227

 

444

 

4,117

 

4,561

 

486

 

2/12/02

 

1987

 

Albuquerque

 

NM

 

 

152

 

1,526

 

217

 

152

 

1,743

 

1,895

 

253

 

2/12/02

 

1985

 

Albuquerque

 

NM

 

 

1,968

 

17,210

 

761

 

1,967

 

17,972

 

19,939

 

1,802

 

12/6/02

 

1974

 

Albuquerque

 

NM

 

 

794

 

5,568

 

9

 

794

 

5,577

 

6,371

 

458

 

9/17/03

 

1975

 

Albuquerque

 

NM

 

 

3,235

 

24,490

 

48

 

3,235

 

24,538

 

27,773

 

2,015

 

9/17/03

 

1975

 

White Plains

 

NY

 

 

1,200

 

10,870

 

872

 

1,200

 

11,742

 

12,942

 

3,130

 

2/6/96

 

1952

 

Brooklyn

 

NY

 

 

775

 

7,054

 

143

 

775

 

7,197

 

7,972

 

1,873

 

6/6/96

 

1971

 

Buffalo

 

NY

 

3,189

 

4,405

 

18,899

 

1,617

 

4,485

 

20,436

 

24,921

 

4,984

 

3/31/97

 

1994

 

Irondoquoit

 

NY

 

 

1,910

 

17,189

 

981

 

1,910

 

18,170

 

20,080

 

3,837

 

6/30/98

 

1986

 

Islandia

 

NY

 

 

813

 

7,319

 

1,874

 

809

 

9,197

 

10,006

 

1,575

 

6/11/99

 

1987

 

Minneola

 

NY

 

 

3,419

 

30,774

 

3,316

 

3,416

 

34,093

 

37,509

 

6,607

 

6/11/99

 

1971

 

Syracuse

 

NY

 

 

1,788

 

16,096

 

3,419

 

1,789

 

19,514

 

21,303

 

3,869

 

6/29/99

 

1972

 

Melville

 

NY

 

 

3,155

 

28,395

 

842

 

3,260

 

29,132

 

32,392

 

5,361

 

7/22/99

 

1985

 

Syracuse

 

NY

 

 

466

 

4,196

 

967

 

467

 

5,162

 

5,629

 

1,111

 

9/24/99

 

1990

 

DeWitt

 

NY

 

 

454

 

4,086

 

659

 

457

 

4,742

 

5,199

 

994

 

12/28/99

 

1987

 

Pittsford

 

NY

 

 

530

 

4,109

 

6

 

531

 

4,114

 

4,645

 

220

 

11/30/04

 

1998

 

Pittsford

 

NY

 

 

683

 

4,889

 

117

 

684

 

5,005

 

5,689

 

278

 

11/30/04

 

1999

 

Pittsford

 

NY

 

 

1,018

 

7,618

 

16

 

1,020

 

7,632

 

8,652

 

408

 

11/30/04

 

2000

 

Pittsford

 

NY

 

 

526

 

3,755

 

19

 

528

 

3,772

 

4,300

 

202

 

11/30/04

 

2003

 

Pittsford

 

NY

 

4,480

 

662

 

4,993

 

9

 

663

 

5,001

 

5,664

 

268

 

11/30/04

 

2002

 

Pittsford

 

NY

 

869

 

119

 

937

 

42

 

119

 

979

 

1,098

 

50

 

11/30/04

 

2002

 

Pittsford

 

NY

 

 

307

 

2,083

 

167

 

308

 

2,249

 

2,557

 

164

 

11/30/04

 

2004

 

Rochester

 

NY

 

 

761

 

6,597

 

12

 

762

 

6,608

 

7,370

 

351

 

11/30/04

 

2002

 

Rochester

 

NY

 

 

614

 

4,498

 

 

614

 

4,498

 

5,112

 

108

 

1/6/06

 

2000

 

Rochester

 

NY

 

 

350

 

2,870

 

 

350

 

2,870

 

3,220

 

69

 

1/6/06

 

2003

 

Rochester

 

NY

 

 

1,462

 

12,482

 

 

1,462

 

12,482

 

13,944

 

299

 

1/6/06

 

1996

 

Rochester

 

NY

 

 

611

 

5,318

 

 

611

 

5,318

 

5,929

 

127

 

1/6/06

 

1999

 

Rochester

 

NY

 

 

126

 

1,066

 

 

126

 

1,066

 

1,192

 

26

 

1/6/06

 

1990

 

Rochester

 

NY

 

 

214

 

1,873

 

 

214

 

1,873

 

2,087

 

45

 

1/6/06

 

1990

 

Rochester

 

NY

 

 

495

 

3,935

 

 

495

 

3,935

 

4,430

 

94

 

1/6/06

 

1996

 

 

S-11




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Rochester

 

NY

 

 

128

 

1,056

 

 

128

 

1,056

 

1,184

 

25

 

1/6/06

 

1992

 

Rochester

 

NY

 

 

207

 

1,769

 

 

207

 

1,769

 

1,976

 

42

 

1/6/06

 

1993

 

Rochester

 

NY

 

 

352

 

2,977

 

 

352

 

2,977

 

3,329

 

71

 

1/6/06

 

1993

 

Rochester

 

NY

 

 

282

 

2,279

 

 

282

 

2,279

 

2,561

 

55

 

1/6/06

 

1998

 

Liverpool

 

NY

 

 

375

 

3,265

 

 

375

 

3,265

 

3,640

 

78

 

1/6/06

 

1997

 

Dewitt

 

NY

 

 

377

 

3,158

 

4

 

377

 

3,162

 

3,539

 

63

 

3/14/06

 

1977

 

Dewitt

 

NY

 

 

288

 

2,506

 

1

 

288

 

2,507

 

2,795

 

50

 

3/14/06

 

1977

 

Dewitt

 

NY

 

 

191

 

1,533

 

1

 

191

 

1,534

 

1,725

 

30

 

3/14/06

 

1982

 

Dewitt

 

NY

 

 

968

 

7,875

 

3

 

968

 

7,878

 

8,846

 

156

 

3/14/06

 

1986

 

Dewitt

 

NY

 

 

736

 

5,722

 

42

 

736

 

5,764

 

6,500

 

114

 

3/14/06

 

1988

 

Dewitt

 

NY

 

 

537

 

5,501

 

92

 

537

 

5,593

 

6,130

 

123

 

3/14/06

 

1989

 

Dewitt

 

NY

 

 

1,023

 

9,038

 

19

 

1,023

 

9,057

 

10,080

 

180

 

3/14/06

 

1991

 

Fairport

 

NY

 

 

462

 

3,911

 

23

 

462

 

3,934

 

4,396

 

78

 

3/14/06

 

1987

 

Fairport

 

NY

 

 

554

 

5,372

 

360

 

554

 

5,732

 

6,286

 

133

 

3/14/06

 

1989

 

Fairport

 

NY

 

 

1,447

 

11,726

 

1

 

1,447

 

11,727

 

13,174

 

232

 

3/14/06

 

1991

 

Fairport

 

NY

 

 

951

 

8,163

 

5

 

951

 

8,168

 

9,119

 

162

 

3/14/06

 

1996

 

Fairport

 

NY

 

 

1,335

 

11,203

 

4

 

1,335

 

11,207

 

12,542

 

222

 

3/14/06

 

1999

 

Fairport

 

NY

 

 

1,789

 

15,563

 

154

 

1,789

 

15,717

 

17,506

 

325

 

3/14/06

 

2004

 

Dewitt

 

NY

 

 

676

 

5,512

 

1

 

676

 

5,513

 

6,189

 

109

 

3/14/06

 

1991

 

East Syracuse

 

NY

 

 

718

 

4,756

 

 

718

 

4,756

 

5,474

 

94

 

3/14/06

 

1995

 

East Syracuse

 

NY

 

6,694

 

1,534

 

7,688

 

 

1,534

 

7,688

 

9,222

 

152

 

3/14/06

 

1999

 

Liverpool

 

NY

 

 

109

 

821

 

1

 

109

 

822

 

931

 

16

 

3/14/06

 

1987

 

North Syracuse

 

NY

 

 

222

 

2,077

 

 

222

 

2,077

 

2,299

 

41

 

3/14/06

 

1972

 

North Syracuse

 

NY

 

 

341

 

2,797

 

5

 

341

 

2,802

 

3,143

 

56

 

3/14/06

 

1973

 

Liverpool

 

NY

 

 

265

 

2,142

 

20

 

265

 

2,162

 

2,427

 

43

 

3/14/06

 

1960

 

Liverpool

 

NY

 

 

47

 

393

 

1

 

47

 

394

 

441

 

8

 

3/14/06

 

1960

 

Sherburne

 

NY

 

 

140

 

1,250

 

 

140

 

1,250

 

1,390

 

25

 

3/14/06

 

1979

 

Pittsford

 

NY

 

 

583

 

4,700

 

97

 

583

 

4,797

 

5,380

 

138

 

3/14/06

 

1986

 

Mason

 

OH

 

 

1,528

 

13,748

 

13

 

1,528

 

13,761

 

15,289

 

2,940

 

6/10/98

 

1994

 

Solon

 

OH

 

 

161

 

1,570

 

37

 

161

 

1,607

 

1,768

 

103

 

7/16/04

 

1975

 

Solon

 

OH

 

 

66

 

586

 

27

 

66

 

613

 

679

 

37

 

7/16/04

 

1975

 

Solon

 

OH

 

 

82

 

717

 

75

 

82

 

792

 

874

 

67

 

7/16/04

 

1975

 

Solon

 

OH

 

 

77

 

693

 

88

 

77

 

781

 

858

 

94

 

7/16/04

 

1975

 

 

S-12




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Solon

 

OH

 

 

116

 

1,035

 

102

 

116

 

1,137

 

1,253

 

66

 

7/16/04

 

1975

 

Solon

 

OH

 

 

400

 

4,157

 

99

 

400

 

4,256

 

4,656

 

258

 

7/16/04

 

1975

 

Solon

 

OH

 

 

122

 

1,111

 

22

 

122

 

1,133

 

1,255

 

69

 

7/16/04

 

1975

 

Solon

 

OH

 

 

146

 

1,352

 

75

 

146

 

1,427

 

1,573

 

91

 

7/16/04

 

1975

 

Solon

 

OH

 

 

514

 

4,856

 

142

 

514

 

4,998

 

5,512

 

305

 

7/16/04

 

1975

 

Solon

 

OH

 

 

96

 

843

 

50

 

96

 

893

 

989

 

58

 

7/16/04

 

1975

 

Solon

 

OH

 

 

100

 

889

 

33

 

100

 

922

 

1,022

 

57

 

7/16/04

 

1975

 

Solon

 

OH

 

 

344

 

3,144

 

316

 

344

 

3,460

 

3,804

 

248

 

7/16/04

 

1975

 

Solon

 

OH

 

 

122

 

1,018

 

42

 

122

 

1,060

 

1,182

 

71

 

7/16/04

 

1975

 

Solon

 

OH

 

 

206

 

1,950

 

63

 

206

 

2,013

 

2,219

 

141

 

7/16/04

 

1975

 

Mason

 

OH

 

 

808

 

6,665

 

17

 

810

 

6,680

 

7,490

 

174

 

12/30/05

 

1999

 

Sharonville

 

OH

 

 

956

 

8,290

 

189

 

1,124

 

8,311

 

9,435

 

216

 

12/30/05

 

1999

 

Blue Ash

 

OH

 

 

883

 

7,175

 

 

883

 

7,175

 

8,058

 

97

 

6/15/06

 

1982

 

Oklahoma City

 

OK

 

 

4,596

 

19,721

 

1,083

 

4,680

 

20,720

 

25,400

 

5,164

 

3/31/97

 

1992

 

Edmund

 

OK

 

 

226

 

2,036

 

26

 

229

 

2,059

 

2,288

 

379

 

8/13/99

 

1993

 

Midwest City

 

OK

 

 

246

 

2,213

 

28

 

249

 

2,238

 

2,487

 

413

 

8/13/99

 

1993

 

Oklahoma City

 

OK

 

 

1,426

 

12,826

 

156

 

1,441

 

12,967

 

14,408

 

2,390

 

8/13/99

 

1993

 

Oklahoma City

 

OK

 

 

203

 

1,828

 

23

 

205

 

1,849

 

2,054

 

341

 

8/13/99

 

1993

 

FT. Washington

 

PA

 

 

1,872

 

8,816

 

2,143

 

1,872

 

10,959

 

12,831

 

2,113

 

9/22/97

 

1960

 

FT. Washington

 

PA

 

 

1,184

 

5,559

 

91

 

1,184

 

5,650

 

6,834

 

1,297

 

9/22/97

 

1967

 

FT. Washington

 

PA

 

 

683

 

3,198

 

698

 

680

 

3,899

 

4,579

 

924

 

9/22/97

 

1970

 

Horsham

 

PA

 

 

741

 

3,611

 

471

 

741

 

4,082

 

4,823

 

858

 

9/22/97

 

1983

 

King of Prussia

 

PA

 

 

634

 

3,251

 

1,036

 

634

 

4,287

 

4,921

 

842

 

9/22/97

 

1964

 

Philadelphia

 

PA

 

41,969

 

7,884

 

71,002

 

4,174

 

7,883

 

75,177

 

83,060

 

17,166

 

11/13/97

 

1980

 

FT. Washington

 

PA

 

 

1,154

 

7,722

 

1,382

 

1,154

 

9,104

 

10,258

 

1,760

 

1/15/98

 

1996

 

Plymouth Meeting

 

PA

 

 

1,412

 

7,415

 

2,874

 

1,413

 

10,288

 

11,701

 

2,178

 

1/15/98

 

1996

 

King of Prussia

 

PA

 

 

354

 

3,183

 

744

 

354

 

3,927

 

4,281

 

841

 

2/2/98

 

1968

 

King of Prussia

 

PA

 

 

552

 

2,893

 

232

 

552

 

3,125

 

3,677

 

662

 

2/2/98

 

1996

 

Pittsburgh

 

PA

 

 

720

 

9,589

 

1,722

 

720

 

11,311

 

12,031

 

2,722

 

2/27/98

 

1991

 

Philadelphia

 

PA

 

58,977

 

3,462

 

111,946

 

18,384

 

3,462

 

130,330

 

133,792

 

28,259

 

3/30/98

 

1983

 

Greensburg

 

PA

 

 

780

 

7,026

 

1,460

 

780

 

8,486

 

9,266

 

1,522

 

6/3/98

 

1997

 

Philadelphia

 

PA

 

 

24,753

 

222,775

 

37,998

 

24,747

 

260,779

 

285,526

 

52,920

 

6/30/98

 

1990

 

Moon Township

 

PA

 

 

1,663

 

14,966

 

684

 

1,663

 

15,650

 

17,313

 

3,439

 

9/14/98

 

1994

 

 

S-13




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

FT. Washington

 

PA

 

 

631

 

5,698

 

486

 

634

 

6,181

 

6,815

 

1,302

 

12/1/98

 

1998

 

Philadelphia

 

PA

 

 

931

 

8,377

 

1,335

 

930

 

9,713

 

10,643

 

1,918

 

6/11/99

 

1987

 

Moon Township

 

PA

 

 

202

 

1,814

 

391

 

202

 

2,205

 

2,407

 

526

 

8/23/99

 

1992

 

Moon Township

 

PA

 

 

555

 

4,995

 

996

 

555

 

5,991

 

6,546

 

1,383

 

8/23/99

 

1991

 

Moon Township

 

PA

 

 

502

 

4,519

 

685

 

502

 

5,204

 

5,706

 

1,073

 

8/23/99

 

1987

 

Moon Township

 

PA

 

 

410

 

3,688

 

965

 

410

 

4,653

 

5,063

 

933

 

8/23/99

 

1988

 

Moon Township

 

PA

 

 

489

 

4,403

 

532

 

490

 

4,934

 

5,424

 

966

 

8/23/99

 

1989

 

Moon Township

 

PA

 

 

612

 

5,507

 

328

 

612

 

5,835

 

6,447

 

1,095

 

8/23/99

 

1990

 

Moon Township

 

PA

 

 

6,936

 

 

822

 

7,758

 

 

7,758

 

 

8/23/99

 

 

Blue Bell

 

PA

 

 

268

 

2,414

 

215

 

268

 

2,629

 

2,897

 

463

 

9/14/99

 

1988

 

Blue Bell

 

PA

 

 

723

 

6,507

 

984

 

723

 

7,491

 

8,214

 

1,445

 

9/14/99

 

1988

 

Blue Bell

 

PA

 

 

709

 

6,382

 

762

 

709

 

7,144

 

7,853

 

1,345

 

9/14/99

 

1988

 

Philadelphia

 

PA

 

 

18,758

 

167,487

 

31,517

 

18,758

 

199,004

 

217,762

 

19,782

 

10/10/02

 

1974

 

Monroeville

 

PA

 

 

6,558

 

51,775

 

60

 

6,564

 

51,829

 

58,393

 

2,969

 

9/16/04

 

1971

 

Pittsburgh

 

PA

 

 

574

 

4,943

 

120

 

574

 

5,063

 

5,637

 

160

 

9/16/05

 

1990

 

Pittsburgh

 

PA

 

 

345

 

2,798

 

626

 

345

 

3,424

 

3,769

 

91

 

9/16/05

 

1994

 

Pittsburgh

 

PA

 

 

469

 

3,884

 

125

 

469

 

4,009

 

4,478

 

127

 

9/16/05

 

1994

 

Pittsburgh

 

PA

 

 

616

 

5,280

 

183

 

616

 

5,463

 

6,079

 

171

 

9/16/05

 

1994

 

Pittsburgh

 

PA

 

 

1,049

 

8,739

 

98

 

1,049

 

8,837

 

9,886

 

285

 

9/16/05

 

1995

 

Pittsburgh

 

PA

 

 

1,151

 

9,664

 

296

 

1,152

 

9,959

 

11,111

 

250

 

9/16/05

 

1995

 

Pittsburgh

 

PA

 

 

907

 

7,381

 

218

 

907

 

7,599

 

8,506

 

244

 

9/16/05

 

1996

 

Pittsburgh

 

PA

 

 

858

 

7,130

 

193

 

859

 

7,322

 

8,181

 

233

 

9/16/05

 

1996

 

Pittsburgh

 

PA

 

 

1,057

 

8,899

 

1,015

 

1,057

 

9,914

 

10,971

 

300

 

9/16/05

 

1987

 

Lincoln

 

RI

 

 

320

 

7,690

 

 

320

 

7,690

 

8,010

 

1,841

 

11/13/97

 

1997

 

Columbia

 

SC

 

 

570

 

4,511

 

22

 

570

 

4,533

 

5,103

 

72

 

5/10/06

 

1988

 

Columbia

 

SC

 

 

479

 

4,021

 

125

 

479

 

4,146

 

4,625

 

63

 

5/10/06

 

1985

 

Columbia

 

SC

 

 

1,237

 

10,165

 

29

 

1,237

 

10,194

 

11,431

 

161

 

5/10/06

 

1989

 

Columbia

 

SC

 

 

575

 

4,903

 

59

 

575

 

4,962

 

5,537

 

77

 

5/10/06

 

1982

 

Columbia

 

SC

 

 

659

 

5,622

 

12

 

659

 

5,634

 

6,293

 

88

 

5/10/06

 

1985

 

Columbia

 

SC

 

 

406

 

3,535

 

77

 

406

 

3,612

 

4,018

 

55

 

5/10/06

 

1982

 

Columbia

 

SC

 

 

632

 

5,418

 

29

 

632

 

5,447

 

6,079

 

85

 

5/10/06

 

1983

 

Columbia

 

SC

 

 

609

 

4,832

 

110

 

609

 

4,942

 

5,551

 

77

 

5/10/06

 

1984

 

Columbia

 

SC

 

 

700

 

3,865

 

 

700

 

3,865

 

4,565

 

4

 

12/28/06

 

2000

 

 

S-14




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Memphis

 

TN

 

 

2,206

 

19,856

 

1,844

 

2,212

 

21,694

 

23,906

 

4,851

 

8/31/98

 

1985

 

Memphis

 

TN

 

 

2,113

 

18,201

 

15

 

2,114

 

18,215

 

20,329

 

1,233

 

4/28/04

 

2000

 

Memphis

 

TN

 

 

1,201

 

9,973

 

332

 

1,201

 

10,305

 

11,506

 

627

 

7/29/04

 

1983

 

Austin

 

TX

 

6,888

 

1,218

 

11,040

 

1,693

 

1,218

 

12,733

 

13,951

 

2,957

 

12/5/97

 

1986

 

Austin

 

TX

 

6,346

 

1,226

 

11,126

 

502

 

1,226

 

11,628

 

12,854

 

2,683

 

12/5/97

 

1997

 

Austin

 

TX

 

13,143

 

2,317

 

21,037

 

3,267

 

2,317

 

24,304

 

26,621

 

5,334

 

12/5/97

 

1996

 

Austin

 

TX

 

8,356

 

1,621

 

14,594

 

710

 

1,621

 

15,304

 

16,925

 

3,739

 

12/5/97

 

1997

 

Austin

 

TX

 

7,553

 

1,402

 

12,729

 

1,167

 

1,402

 

13,896

 

15,298

 

3,335

 

12/5/97

 

1997

 

Waco

 

TX

 

 

2,030

 

8,708

 

463

 

2,060

 

9,141

 

11,201

 

2,011

 

12/23/97

 

1997

 

Austin

 

TX

 

 

466

 

4,191

 

2,166

 

850

 

5,973

 

6,823

 

1,013

 

1/27/98

 

1980

 

Irving

 

TX

 

 

846

 

7,616

 

3,089

 

846

 

10,705

 

11,551

 

2,091

 

3/19/98

 

1995

 

Irving

 

TX

 

 

542

 

4,879

 

432

 

542

 

5,311

 

5,853

 

1,127

 

3/19/98

 

1995

 

Austin

 

TX

 

 

1,439

 

6,137

 

6,181

 

1,439

 

12,318

 

13,757

 

3,153

 

3/24/98

 

1975

 

Austin

 

TX

 

 

1,529

 

13,760

 

412

 

1,529

 

14,172

 

15,701

 

3,012

 

7/16/98

 

1993

 

Austin

 

TX

 

 

1,436

 

12,927

 

(7

)

1,436

 

12,920

 

14,356

 

2,652

 

10/7/98

 

1998

 

Austin

 

TX

 

 

4,878

 

43,903

 

1,170

 

4,875

 

45,076

 

49,951

 

9,250

 

10/7/98

 

1968

 

Austin

 

TX

 

 

9,085

 

 

6,789

 

11,640

 

4,234

 

15,874

 

 

10/7/98

 

 

Austin

 

TX

 

3,640

 

562

 

5,054

 

1,721

 

562

 

6,775

 

7,337

 

1,343

 

10/20/98

 

1998

 

Austin

 

TX

 

10,602

 

2,072

 

18,650

 

648

 

2,072

 

19,298

 

21,370

 

3,977

 

10/20/98

 

1998

 

Austin

 

TX

 

7,499

 

1,476

 

13,286

 

353

 

1,476

 

13,639

 

15,115

 

2,763

 

10/20/98

 

1998

 

Austin

 

TX

 

 

688

 

6,192

 

1,103

 

697

 

7,286

 

7,983

 

1,562

 

6/3/99

 

1985

 

Austin

 

TX

 

 

539

 

4,849

 

1,057

 

538

 

5,907

 

6,445

 

1,240

 

6/16/99

 

1999

 

Austin

 

TX

 

 

906

 

8,158

 

2,158

 

902

 

10,320

 

11,222

 

2,210

 

6/16/99

 

1999

 

Austin

 

TX

 

 

1,731

 

14,921

 

3,661

 

1,731

 

18,582

 

20,313

 

3,363

 

6/30/99

 

1975

 

Austin

 

TX

 

 

1,574

 

14,168

 

2,340

 

1,573

 

16,509

 

18,082

 

3,055

 

8/3/99

 

1982

 

Austin

 

TX

 

 

626

 

5,636

 

1,261

 

621

 

6,902

 

7,523

 

1,298

 

8/18/99

 

1987

 

Austin

 

TX

 

 

2,028

 

18,251

 

453

 

2,027

 

18,705

 

20,732

 

3,373

 

10/8/99

 

1985

 

Austin

 

TX

 

 

2,038

 

18,338

 

1,792

 

2,037

 

20,131

 

22,168

 

3,709

 

10/8/99

 

1997

 

Austin

 

TX

 

 

460

 

3,345

 

571

 

460

 

3,916

 

4,376

 

462

 

6/15/01

 

2001

 

Ft. Worth

 

TX

 

 

4,793

 

38,530

 

148

 

4,785

 

38,686

 

43,471

 

3,504

 

5/23/03

 

1996

 

Fairfax

 

VA

 

 

569

 

5,122

 

569

 

569

 

5,691

 

6,260

 

1,404

 

12/4/96

 

1990

 

Falls Church

 

VA

 

 

3,456

 

14,828

 

4,159

 

3,519

 

18,924

 

22,443

 

3,832

 

3/31/97

 

1993

 

Arlington

 

VA

 

 

810

 

7,289

 

1,341

 

811

 

8,629

 

9,440

 

1,863

 

8/26/98

 

1987

 

 

S-15




HRPT PROPERTIES TRUST

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2006

(dollars in thousands)

 

 

 

 

 

 

 

Initial Cost to Company

 

 

 

Cost Amount Carried at Close of Period

 

 

 

 

 

 

 

Location

 

State

 

Encumbrances

 

Land

 

Buildings
and
Equipment

 

Costs
Capitalized
Subsequent
to
Acquisition

 

Land

 

Buildings
and
Equipment

 

Total(1)

 

Accumulated
Depreciation(2)

 

Date
Acquired

 

Original
Construction
Date

 

Alexandria

 

VA

 

 

2,109

 

18,982

 

806

 

1,966

 

19,931

 

21,897

 

4,423

 

12/30/98

 

1987

 

Fairfax

 

VA

 

 

780

 

7,022

 

4

 

781

 

7,025

 

7,806

 

1,280

 

9/29/99

 

1988

 

Fairfax

 

VA

 

 

594

 

5,347

 

431

 

594

 

5,778

 

6,372

 

989

 

9/29/99

 

1988

 

Norfolk

 

VA

 

 

591

 

4,048

 

328

 

592

 

4,375

 

4,967

 

468

 

10/25/02

 

1999

 

Norfolk

 

VA

 

 

1,273

 

11,083

 

3,691

 

1,273

 

14,774

 

16,047

 

1,546

 

10/25/02

 

1987

 

Norfolk

 

VA

 

 

559

 

4,535

 

1,234

 

559

 

5,769

 

6,328

 

663

 

10/25/02

 

1986

 

Virginia Beach

 

VA

 

 

682

 

5,431

 

344

 

686

 

5,771

 

6,457

 

346

 

6/4/04

 

1991

 

Winchester

 

VA

 

 

1,487

 

12,854

 

 

1,487

 

12,854

 

14,341

 

230

 

4/20/06

 

1964

 

Richland

 

WA

 

3,566

 

3,970

 

17,035

 

640

 

4,042

 

17,603

 

21,645

 

4,384

 

3/31/97

 

1995

 

Bellevue

 

WA

 

 

3,555

 

30,244

 

1,771

 

3,555

 

32,015

 

35,570

 

2,262

 

7/16/04

 

1980

 

Kent

 

WA

 

 

137

 

993

 

 

137

 

993

 

1,130

 

61

 

7/16/04

 

1978

 

Kent

 

WA

 

 

258

 

1,797

 

14

 

258

 

1,811

 

2,069

 

111

 

7/16/04

 

1978

 

Kent

 

WA

 

 

101

 

753

 

58

 

101

 

811

 

912

 

53

 

7/16/04

 

1978

 

Tukwila

 

WA

 

 

82

 

681

 

81

 

82

 

762

 

844

 

47

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

91

 

778

 

4

 

91

 

782

 

873

 

48

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

82

 

582

 

403

 

82

 

985

 

1,067

 

64

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

137

 

1,250

 

26

 

137

 

1,276

 

1,413

 

81

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

108

 

923

 

89

 

108

 

1,012

 

1,120

 

69

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

77

 

674

 

15

 

77

 

689

 

766

 

45

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

96

 

841

 

14

 

96

 

855

 

951

 

54

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

101

 

1,000

 

6

 

101

 

1,006

 

1,107

 

62

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

93

 

844

 

9

 

93

 

853

 

946

 

53

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

92

 

827

 

5

 

92

 

832

 

924

 

51

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

105

 

938

 

37

 

105

 

975

 

1,080

 

58

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

76

 

625

 

9

 

76

 

634

 

710

 

40

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

75

 

676

 

4

 

75

 

680

 

755

 

42

 

7/16/04

 

1975

 

Tukwila

 

WA

 

 

109

 

967

 

22

 

109

 

989

 

1,098

 

61

 

7/16/04

 

1975

 

Falling Waters

 

WV

 

 

906

 

3,886

 

569

 

922

 

4,439

 

5,361

 

987

 

3/31/97

 

1993

 

Cheyenne

 

WY

 

 

1,915

 

8,217

 

691

 

1,950

 

8,873

 

10,823

 

2,083

 

3/31/97

 

1995

 

 

 

 

 

$          415,875

 

$ 1,146,876

 

$     4,155,312

 

$               460,085

 

$ 1,143,809

 

$     4,619,164

 

$ 5,762,273

 

$       668,460

 

 

 

 

 

 

S-16




 

Analysis of the carrying amount of real estate and equipment and accumulated depreciation:

 

 

Real Estate and

 

Accumulated

 

 

 

Equipment

 

Depreciation

 

Balance at January 1, 2004

 

$     3,891,966

 

$        363,015

 

Additions

 

798,335

 

95,977

 

Disposals

 

(5,232

)

(4,581

)

Balance at December 31, 2004

 

4,685,069

 

454,411

 

Additions

 

580,125

 

111,951

 

Disposals

 

(29,093

)

(17,154

)

Balance at December 31, 2005 (3)

 

5,236,101

 

549,208

 

Additions

 

546,384

 

128,768

 

Disposals

 

(20,212

)

(9,516

)

Balance at December 31, 2006

 

$     5,762,273

 

$        668,460

 


(1)             Excludes value of acquired real estate leases.  Aggregate cost for federal income tax purposes is approximately $5,833,622.

(2)             Depreciation is provided for on buildings and improvements for periods ranging up to 40 years and on equipment up to 12 years.

(3)             Includes properties reclassified to discontinued operations in 2006.

 

S-17




 

SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) 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 1, 2007

 

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

 

March 1, 2007

John A. Mannix

 

 

 

 

 

 

 

 

 

/s/ John C. Popeo

 

Treasurer, Chief Financial Officer and Secretary

 

March 1, 2007

John C. Popeo

 

(principal financial officer and principal

 

 

 

 

accounting officer)

 

 

 

 

 

 

 

/s/ Frederick N. Zeytoonjian

 

Trustee

 

March 1, 2007

Frederick N. Zeytoonjian

 

 

 

 

 

 

 

 

 

/s/ Patrick F. Donelan

 

Trustee

 

March 1, 2007

Patrick F. Donelan

 

 

 

 

 

 

 

 

 

/s/ William A. Lamkin

 

Trustee

 

March 1, 2007

William A. Lamkin

 

 

 

 

 

 

 

 

 

/s/ Adam D. Portnoy

 

Trustee

 

March 1, 2007

Adam D. Portnoy

 

 

 

 

 

 

 

 

 

/s/ Barry M. Portnoy

 

Trustee

 

March 1, 2007

Barry M. Portnoy

 

 

 

 

 

 



EX-4.16 2 a07-5534_1ex4d16.htm EX-4.16

Exhibit 4.16


 

 

 

 

SUPPLEMENTAL INDENTURE NO. 16

by and between

HRPT PROPERTIES TRUST

and

U.S. BANK NATIONAL ASSOCIATION

as of March 16, 2006

 

SUPPLEMENTAL TO THE INDENTURE DATED AS OF JULY 9, 1997

 

 


HRPT PROPERTIES TRUST

Floating Rate Senior Notes due 2011


 

 

 

 


 




This SUPPLEMENTAL INDENTURE NO. 16 (this “Supplemental Indenture”) made and entered into as of as of March 16, 2006 between HRPT PROPERTIES TRUST, a Maryland real estate investment trust (the “Company”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as trustee (the “Trustee”),

WITNESSETH THAT:

WHEREAS, the Company and the Trustee are parties to an Indenture, dated as of July 9, 1997 (the “Indenture”), relating to the Company’s issuance, from time to time, of various series of debt securities;

WHEREAS, the Company has determined to issue debt securities known as its Floating Rate Senior Notes due 2011; and

WHEREAS, the Indenture provides that certain terms and conditions for each series of debt securities issued by the Company thereunder may be set forth in an indenture supplemental to the Indenture;

NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH:

ARTICLE 1

DEFINED TERMS

Section 1.1             The following definitions supplement, and, to the extent inconsistent with, replace the definitions in Section 101 of the Indenture:

“Acquired Debt” means Debt of a Person or entity (i) existing at the time such Person or entity becomes a Subsidiary or (ii) assumed in connection with the acquisition of assets from such Person or entity, in each case, other than Debt incurred in connection with, or in contemplation of, such Person or entity becoming a Subsidiary or such acquisition.  Acquired Debt shall be deemed to be incurred on the date of the related acquisition of assets from any Person or entity or the date the acquired Person or entity becomes a Subsidiary.

“Annual Debt Service” as of any date means the maximum amount which is expensed in any 12-month period for interest on Debt of the Company and its Subsidiaries.

“Business Day” means any day other than a Saturday or Sunday or a day on which banking institutions in the City of New York or in the city in which the Corporate Trust Office of the Trustee is located, are required or authorized to close.

“Capital Stock” means, with respect to any Person, any capital stock (including preferred stock), shares, interests, participation or other ownership interests (however designated) of such Person and any rights (other than debt securities convertible into or exchangeable for capital stock), warrants or options to purchase any thereof.




“Calculation Agent” means, initially, the Trustee and thereafter any successor calculation agent appointed and then acting as provided in Section 2.1(b)(iii) of this Supplemental Indenture.

“Consolidated Income Available for Debt Service” for any period means Earnings from Operations of the Company and its Subsidiaries plus amounts which have been deducted, and minus amounts which have been added, for the following (without duplication): (i) interest on Debt of the Company and its Subsidiaries, (ii) provision for taxes of the Company and its Subsidiaries based on income, (iii) amortization of debt discount and deferred financing costs, (iv) provisions for gains and losses on properties and property, depreciation and amortization, (v) the effect of any noncash charge resulting from a change in accounting principles in determining Earnings from Operations for such period and (vi) amortization of deferred charges.

“Corporate Trust Office” means the corporate trust office of the Trustee which it designates as the office at which the agreement in question will be administered (which it may change by notice from time to time), presently located at One Federal Street, 3rd Floor, Boston, Massachusetts 02110.

“Debt” of the Company or any Subsidiary means, without duplication, any indebtedness of the Company or any Subsidiary, whether or not contingent, in respect of (i) borrowed money or evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness for borrowed money secured by any Encumbrance existing on property owned by the Company or any Subsidiary, to the extent of the lesser of (x) the amount of indebtedness so secured and (y) the fair market value of the property subject to such Encumbrance, (iii) the reimbursement obligations, contingent or otherwise, in connection with any letters of credit actually issued (other than letters of credit issued to provide credit enhancement or support with respect to other indebtedness of the Company or any Subsidiary otherwise reflected as Debt hereunder) or amounts representing the balance deferred and unpaid of the purchase price of any property or services, except any such balance that constitutes an accrued expense or trade payable, or all conditional sale obligations or obligations under any title retention agreement, (iv) the principal amount of all obligations of the Company or any Subsidiary with respect to redemption, repayment or other repurchase of any Disqualified Stock, or (v) any lease of property by the Company or any Subsidiary as lessee which is reflected on the Company’s consolidated balance sheet as a capitalized lease in accordance with GAAP, to the extent, in the case of items of indebtedness under (i) through (iii) above, that any such items (other than letters of credit) would appear as a liability on the Company’s consolidated balance sheet in accordance with GAAP, and also includes, to the extent not otherwise included, any obligation by the Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or otherwise (other than for purposes of collection in the ordinary course of business), Debt of another Person (other than the Company or any Subsidiary) (it being understood that Debt shall be deemed to be incurred by the Company or any Subsidiary whenever the Company or such Subsidiary shall create, assume, guarantee or otherwise become liable in respect thereof).

“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which by the terms of such Capital Stock (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than Capital Stock which is redeemable solely in exchange for common stock or shares), (ii) is convertible into or exchangeable or exercisable for Debt or Disqualified Stock, or (iii) is redeemable at the option of the Holder thereof, in whole or in part (other than Capital Stock which is redeemable solely in exchange for common stock

2




or shares), in each case on or prior to the stated maturity of the Notes.

“Earnings from Operations” for any period means net earnings excluding gains and losses on sales of investments, extraordinary items, gains and losses on early extinguishment of debt and property valuation losses, as reflected in the financial statements of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.

“Encumbrance” means any mortgage, lien, charge, pledge or security interest of any kind.

“Interest Payment Date” has the meaning specified in the form of Note attached as Exhibit A hereto.

“Interest Period” has the meaning specified in the form of Note attached as Exhibit A hereto.

“Interest Record Date” has the meaning specified in the form of Note attached as Exhibit A hereto.

“Notes” means the Company’s Floating Rate Senior Notes due 2011, issued under this Supplemental Indenture and the Indenture, as amended or supplemented from time to time.

“Secured Debt” means Debt secured by any mortgage, lien, charge, pledge or security interest of any kind.

“Subsidiary” means any corporation or other entity of which a majority of (i) the voting power of the voting equity securities or (ii) the outstanding equity interests are owned, directly or indirectly, by the Company or one or more other Subsidiaries of the Company.  For the purposes of this definition, “voting equity securities” means equity securities having voting power for the election of directors, whether at all times or only so long as no senior class of security has such voting power by reason of any contingency.

“Total Assets” as of any date means the sum of (i) the Undepreciated Real Estate Assets and (ii) all other assets of the Company and its Subsidiaries determined in accordance with GAAP (but excluding accounts receivable and intangibles).

“Total Unencumbered Assets” means the sum of (i) those Undepreciated Real Estate Assets not subject to an Encumbrance for borrowed money and (ii) all other assets of the Company and its Subsidiaries not subject to an Encumbrance for borrowed money determined in accordance with GAAP (but excluding accounts receivable and intangibles).

“Undepreciated Real Estate Assets” as of any date means the cost (original cost plus capital improvements) of real estate assets of the Company and its Subsidiaries on such date, before depreciation and amortization, determined on a consolidated basis in accordance with GAAP.

3




“Unsecured Debt” means Debt which is not secured by any of the properties of the Company or any Subsidiary.

ARTICLE 2

TERMS OF THE NOTES

Section 2.1             Pursuant to Section 301 of the Indenture, the Notes shall have the following terms and conditions:

(a)           Title; Aggregate Principal Amount; Form of Notes.  The Notes shall be Registered Securities under the Indenture and shall be known as the Company’s “Floating Rate Senior Notes due 2011.”  The Notes will be limited to an aggregate principal amount of $400,000,000, subject to the right of the Company to reopen such series for issuances of additional securities of such series and except as provided in this Section or in Section 306 of the Indenture.  The Notes (together with the Trustee’s certificate of authentication) shall be substantially in the form of Exhibit A hereto, which is hereby incorporated in and made a part of this Supplemental Indenture.

The Notes will be issued in the form of one or more registered global securities without coupons (“Global Notes”) that will be deposited with, or on behalf of, The Depository Trust Company (“DTC”), and registered in the name of DTC’s nominee, Cede & Co.  Except under the circumstance described below, the Notes will not be issuable in definitive form.  Unless and until it is exchanged in whole or in part for the individual Notes represented thereby, a Global Note may not be transferred except as a whole by DTC to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC or by DTC or any nominee of DTC to a successor depositary or any nominee of such successor.

So long as DTC or its nominee is the registered owner of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Global Note for all purposes under this Supplemental Indenture.  Except as described below, owners of beneficial interest in Notes evidenced by a Global Note will not be entitled to have any of the individual Notes represented by such Global Note registered in their names, will not receive or be entitled to receive physical delivery of any such Notes in definitive form and will not be considered the owners or holders thereof under the Indenture or this Supplemental Indenture.

If DTC is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Company will issue individual Notes in exchange for the Global Note or Global Notes representing such Notes.  In addition, the Company may at any time and in its sole discretion, subject to certain limitations set forth in the Indenture, determine not to have any of such Notes represented by one or more Global Notes and, in such event, will issue individual Notes in exchange for the Global Note or Global Notes representing the Notes.  Individual Notes so issued will be issued in denominations of $1,000 and integral multiples thereof.

(b)           Interest; Calculation Agent.

4




(i)            The outstanding principal amount of the Notes will bear interest at the rate per annum specified in the form of Note attached as Exhibit A hereto.  Interest will accrue from March 16, 2006 (or, if this Note was issued upon any reopening of this series of Notes, from the date designated by the Company in connection with such reopening), or from the most recent Interest Payment Date to which interest had been paid or provided for; provided, that if an Interest Payment Date (other than the maturity date) for this Note falls on a day that is not a Business Day, the Interest Payment Date shall be postponed to the next succeeding Business Day unless such next succeeding Business Day would be in the following month, in which case, the Interest Payment Date shall be the immediately preceding Business Day.  Cash interest shall be payable quarterly in arrears on each Interest Payment Date, commencing June 16, 2006, to the Persons in whose names the Notes are registered in the Security Register at the close of business on the Interest Record Date next preceding such Interest Payment Date.  Interest will be computed on the basis of the actual number of days in an Interest Period and a 360-day year.

(ii)           The interest rate for each Interest Period will be determined by the Calculation Agent in accordance with the form of Note attached as Exhibit A hereto.  Promptly upon determination of the interest rate for an Interest Period, the Calculation Agent will inform the Trustee and the Company thereof.  Upon request from any Holder of Notes, the Calculation Agent will provide the interest rate in effect for the Notes for the current Interest Period and, if it has been determined, the interest rate to be in effect for the next Interest Period.  Absent manifest error, each determination of the interest rate by the Calculation Agent shall be binding and conclusive on the Holders and any beneficial owners of Notes, the Trustee and the Company.

(iii)          Initially, the Trustee will act as Calculation Agent.  The Issuer may change any Calculation Agent by notice of the appointment of a successor Calculation Agent to the Trustee and without notice to the Holders of Notes.

(c)           Principal Repayment; Currency.  The stated maturity of the Notes is March 16, 2011; provided, however, the Notes may be earlier redeemed at the option of the Company as provided in paragraph (d) below.  The principal of each Note payable on its maturity date shall be paid against presentation and surrender thereof at the Corporate Trust Office of the Trustee in such coin or currency of the United States of America as at the time of payment is legal tender for the payment of public or private debts.  The Company will not pay Additional Amounts (as defined in the Indenture) on the Notes.

(d)           Redemption at the Option of the Company; Acceleration.  The Notes will be subject to redemption on any Interest Payment Date occurring on or after September 16, 2006 at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days’ notice to each Holder of Notes to be redeemed at its address appearing in the Security Register, at a price equal to the sum of the outstanding principal amount of the Notes being redeemed, plus accrued and unpaid interest to but excluding the applicable Redemption Date.

(e)           Notices.  All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication.  Notices to the Company shall be directed to it at 400 Centre Street, Newton,

5




Massachusetts 02458, Attention: President; notices to the Trustee shall be directed to it at One Federal Street, 3rd Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department, Re: HRPT Properties Trust Floating Rate Senior Notes due 2011; or as to either party, at such other address as shall be designated by such party in a written notice to the other party.

(f)            Global Note Legend.  Each Global Note shall bear the following legend on the face thereof:

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

(g)           Applicability of Discharge, Defeasance and Covenant Defeasance Provisions.  The Discharge, Defeasance and Covenant Defeasance provisions in Article Fourteen of the Indenture will apply to the Notes.

ARTICLE 3

ADDITIONAL COVENANTS

Section 3.1             In addition to the covenants of the Company set forth in Article Ten of the Indenture, for the benefit of the Holders of the Notes:

(a)           Limitations on Incurrence of Debt.

(i)            The Company will not, and will not permit any Subsidiary to, incur any Debt if, immediately after giving effect to the incurrence of such additional Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Debt of the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP is greater than 60% of the sum (“Adjusted Total Assets”) of (without duplication) (A) the Total Assets of the Company and its Subsidiaries as of the end of the calendar quarter covered in the Company’s Annual Report on Form 10-K, or the Quarterly Report on Form 10-Q, as the case may be, most recently filed with the Securities and Exchange Commission (or, if such filing is not permitted under the Securities Exchange Act of 1934, as amended, with the Trustee) prior to the incurrence of such additional Debt and (B) the purchase price of any real estate assets or mortgages receivable acquired, and the amount of any securities offering proceeds received (to the extent that such proceeds were not used to acquire real estate assets or mortgages receivable or used to reduce Debt), by the

6




Company or any Subsidiary since the end of such calendar quarter, including those proceeds obtained in connection with the incurrence of such additional Debt.

(ii)           In addition to the foregoing limitations on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Secured Debt if, immediately after giving effect to the incurrence of such additional Secured Debt and the application of the proceeds thereof, the aggregate principal amount of all outstanding Secured Debt of the Company and its Subsidiaries on a consolidated basis is greater than 40% of Adjusted Total Assets.

(iii)          In addition to the foregoing limitations on the incurrence of Debt, the Company will not, and will not permit any Subsidiary to, incur any Debt if the ratio of Consolidated Income Available for Debt Service to the Annual Debt Service for the four consecutive fiscal quarters most recently ended prior to the date on which such additional Debt is to be incurred shall have been less than 1.5 to 1.0, on a pro forma basis after giving effect thereto and to the application of the proceeds therefrom, and calculated on the assumption that (A) such Debt and any other Debt incurred by the Company and its Subsidiaries since the first day of such four-quarter period and the application of the proceeds therefrom, including to refinance other Debt, had occurred at the beginning of such period; (B) the repayment or retirement of any other Debt by the Company and its Subsidiaries since the first date of such four-quarter period had been repaid or retired at the beginning of such period (except that, in making such computation, the amount of Debt under any revolving credit facility shall be computed based upon the average daily balance of such Debt during such period); (C) in the case of Acquired Debt or Debt incurred in connection with any acquisition since the first day of such four-quarter period, the related acquisition had occurred as of the first day of such period with appropriate adjustments with respect to such acquisition being included in such pro forma calculation; and (D) in the case of any acquisition or disposition by the Company or its Subsidiaries of any asset or group of assets since the first day of such four-quarter period, whether by merger, stock purchase or sale, or asset purchase or sale, such acquisition or disposition or any related repayment of Debt had occurred as of the first day of such period with the appropriate adjustments with respect to such acquisition or disposition being included in such pro forma calculation.  If the Debt giving rise to the need to make the foregoing calculation or any other Debt incurred after the first day of the relevant four-quarter period bears interest at a floating rate then, for purposes of calculating the Annual Debt Service, the interest rate on such Debt shall be computed on a pro forma basis as if the average interest rate which would have been in effect during the entire such four-quarter period had been the applicable rate for the entire such period.

(b)           Maintenance of Total Unencumbered Assets.  The Company and its Subsidiaries will at all times maintain Total Unencumbered Assets of not less than 150% of the aggregate outstanding principal amount of the Unsecured Debt of the Company and its Subsidiaries on a consolidated basis.

7




ARTICLE 4

ADDITIONAL EVENTS OF DEFAULT

Section 4.1             For purposes of this Supplemental Indenture and the Notes, in addition to the Events of Default set forth in Section 501 of the Indenture, it shall also constitute an “Event of Default” if a default under any bond, debenture, note or other evidence of indebtedness of the Company (including a default with respect to any other series of securities), or under any mortgage, indenture or other instrument of the Company under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by the Company (or by any Subsidiary, the repayment of which the Company has guaranteed or for which the Company is directly responsible or liable as obligor or guarantor) having an aggregate principal amount exceeding $20,000,000, whether such indebtedness now exists or shall hereafter be incurred or created, which default shall have resulted in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a period of ten days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Notes, a written notice specifying such default and requiring the Company to cause such indebtedness to be discharged or cause such acceleration to be rescinded or annulled and stating that such notice is a “Notice of Default” hereunder.

ARTICLE 5

EFFECTIVENESS

This Supplemental Indenture shall be effective for all purposes as of the date and time this Supplemental Indenture has been executed and delivered by the Company and the Trustee in accordance with Article Nine of the Indenture.  As supplemented hereby, the Indenture is hereby confirmed as being in full force and effect.

ARTICLE 6

MISCELLANEOUS

Section 6.1             In the event any provision of this Supplemental Indenture shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof or any provision of the Indenture.

Section 6.2             To the extent that any terms of this Supplemental Indenture or the Notes are inconsistent with the terms of the Indenture, the terms of this Supplemental Indenture or the Notes shall govern and supersede such inconsistent terms.

Section 6.3             This Supplemental Indenture shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts.

Section 6.4             This Supplemental Indenture may be executed in several

8




counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

[Remainder of page intentionally left blank.]

9




IN WITNESS WHEREOF, the Company and the Trustee have caused this Supplemental Indenture to be executed as an instrument under seal in their respective corporate names as of the date first above written.

HRPT PROPERTIES TRUST

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ John C. Popeo

 

 

Name:

John C. Popeo

 

 

Title:

Treasurer and Chief Financial Officer

 

 

 

 

 

 

 

 

 

U.S. BANK NATIONAL ASSOCIATION,

 

as Trustee

 

 

 

 

 

 

 

 

 

 

 

 

 

By:

/s/ Marie A. Hattinger

 

 

Name:

Marie A. Hattinger

 

 

Title:

Vice President

 

10




EXHIBIT A

FORM OF NOTE

[Face of Note]

Floating Rate Senior Note due 2011

No. R-

 

$

 

HRPT PROPERTIES TRUST

promises to pay to                                   or registered assigns, the principal sum of                                      ($           ) on March 16, 2011, subject to the terms set forth on the reverse of this Note and the terms of the Indenture referred to therein.

Interest Payment Dates:                                         each March 16, June 16, September 16 and December 16, commencing June 16, 2006 (each, an “Interest Payment Date”)

Interest Record Dates:                                                 the Business Day preceding the Interest Payment Date (the “Interest Record Date”).

CUSIP No:

 

HRPT PROPERTIES TRUST

 

 

 

 

 

By:

 

 

Name:

 

Title:

 

Attest:

[SEAL]

CERTIFICATE OF AUTHENTICATION

Dated:

This is one of the Notes referred to in the within-mentioned Indenture:

U.S. BANK NATIONAL ASSOCIATION, as Trustee

By:

 

 

 

Authorized Officer

 




[THE FOLLOWING CONSTITUTES THE REVERSE OF THE SECURITY]

HRPT PROPERTIES TRUST

Floating Rate Senior Note due 2011

Capitalized terms used herein have the meanings assigned to them in the Indenture (as defined below) unless otherwise indicated.

1.             Interest.  HRPT Properties Trust, a Maryland real estate investment trust (the “Company”), promises to pay interest on the principal amount of this Note at the rate and in the manner specified below.

(a)           The interest rate for the initial Interest Period shall be 5.51688% per annum, and the interest rate for each Interest Period thereafter will be a per annum rate equal to the sum of (i) three-month LIBOR as determined on the related Interest Determination Date as provided in this Section, plus (ii) 0.60%.  The Interest Determination Date for an Interest Period will be the second London Business Day preceding that Interest Period.

(b)           Interest on this Note will accrue from March 16, 2006 (or, if this Note was issued upon any reopening of this series of Notes, from the date designated by the Company in connection with such reopening), or from the most recent Interest Payment Date to which interest had been paid or provided for; provided, that if an Interest Payment Date (other than the maturity date) for this Note falls on a day that is not a Business Day, the Interest Payment Date shall be postponed to the next succeeding Business Day unless such next succeeding Business Day would be in the following month, in which case, the Interest Payment Date shall be the immediately preceding Business Day.  Cash interest on this Note is payable quarterly in arrears on each Interest Payment Date, commencing June 16, 2006.

(c)           An “Interest Period” is a period commencing on, and including, an Interest Payment Date and ending on, and including, the day immediately preceding the next Interest Payment Date with the first Interest Period commencing on March 16, 2006.

(d)           A “London Business Day” is a Business Day on which dealings in deposits in U.S. dollars are transacted in the London interbank market.

(e)           On any Interest Determination Date, LIBOR will be equal to the offered rate for deposits in U.S. dollars having an index maturity of three months, in amounts of at least $1,000,000, as such rate appears on “Telerate Page 3750” at approximately 11:00 a.m., London time, on such Interest Determination Date.  If on an Interest Determination Date, such rate does not appear on the “Telerate Page 3750” as of 11:00 a.m. (London time), or if the “Telerate Page 3750” is not available on such date, the Calculation Agent will obtain such rate from Bloomberg L.P. page “BBAM.”  If no offered rate appears on “Telerate Page 3750” or Bloomberg L.P. page “BBAM” on an Interest Determination Date at approximately 11:00 a.m., London time, then the Calculation Agent (after consultation with the Company) will select four major banks in the London interbank

A-2




market (which may include the Calculation Agent in its individual capacity) and shall request each of their principal London offices to provide a quotation of the rate at which three-month deposits in U.S. dollars in amounts of at least $1,000,000 are offered by it to prime banks in the London interbank market, on that date and at that time, that is representative of single transactions at that time.  If at least two quotations are provided, LIBOR will be the arithmetic average of the quotations provided. Otherwise, the calculation agent will select three major banks (which may include the Calculation Agent in its individual capacity) in New York City and shall request each of them to provide a quotation of the rate offered by them at approximately 11:00 a.m., New York City time, on the Interest Determination Date for loans in U.S. dollars to leading European banks having an index maturity of three months for the applicable Interest Period in an amount of at least $1,000,000 that is representative of single transactions at that time. If three quotations are provided, LIBOR will be the arithmetic average of the quotations provided. Otherwise, the rate of LIBOR for the next Interest Period will be set equal to the rate of LIBOR for the then current Interest Period.

(f)            Dollar amounts resulting from such calculation will be rounded to the nearest cent, with one-half cent being rounded upward.

(g)           The interest rate for each Interest Period will be determined by the Calculation Agent.  Absent manifest error, each determination of the interest rate by the Calculation Agent shall be binding and conclusive on the Holders and any beneficial owners of Notes, the Trustee and the Company.  Interest will be computed on the basis of the actual number of days in an interest period and a 360-day year.

(h)           Upon request from any Holder, the Calculation Agent will provide the interest rate in effect on the Notes for the current Interest Period and, if it has been determined, the interest rate to be in effect for the next Interest Period.

2.             Method of Payment.  The Company will pay interest on this Note (except defaulted interest) on each Interest Payment Date to the Person in whose name this Note is registered in the Security Register at the close of business on the Interest Record Date next preceding such Interest Payment Date.  The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts.  The Company, however, may pay principal, premium, if any, and interest by check payable in such money.  It may mail an interest check to a Holder’s registered address.

3.             Indenture.  The Company issued the Notes under an Indenture, dated as of July 9, 1997, and a Supplemental Indenture No. 16 thereto, dated as of March 16, 2006 (collectively, the “Indenture”), between the Company and the Trustee.  The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 as in effect on the date of the Indenture.  The Notes are subject to all such terms, and Holders of the Notes are referred to the Indenture and such Act for a statement of such terms.  The terms of the Indenture shall govern any inconsistencies between the Indenture and the Notes.  The Notes are unsecured general obligations of the Company initially issued in an $400,000,000 aggregate principal amount.

A-3




4.             Optional Redemption.  The Notes will be subject to redemption on any Interest Payment Date occurring on or after September 16, 2006 at the option of the Company, in whole or in part, at a redemption price equal to the sum of the principal amount of the Notes being redeemed, plus accrued and unpaid interest to but excluding the applicable Redemption Date.

5.             Mandatory Redemption.  The Company shall not be required to make sinking fund or redemption payments with respect to the Notes.
6.             Notice of Redemption.  Notice of redemption shall be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at its registered address.  Notes may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed.  On and after the Redemption Date, interest ceases to accrue on Notes or portions of them called for redemption.
7.             Denominations, Transfer, Exchange.  The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000 in excess thereof.  The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture.  The Security Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture.  The Security Registrar need not exchange or register the transfer of any Note or portion of a Note selected for redemption.  Also, it need not exchange or register the transfer of any Notes for a period of 15 days before the mailing of a notice of redemption of Notes, or during the period between a record date and the corresponding Interest Payment Date.
8.             Defaults and Remedies.  In case an Event of Default (as defined in the Indenture) with respect to the Notes shall have occurred and be continuing, the principal hereof may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the provisions provided in the Indenture.
9.             Actions of Holders.  The Indenture contains provisions permitting the Holders of not less than a majority of the aggregate principal amount of the outstanding Notes, subject to certain exceptions as provided in the Indenture, on behalf of the Holders of all such Notes at a meeting duly called and held as provided in the Indenture, to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided in the Indenture to be made, given or taken by the Holders of the Notes, including without limitation, waiving (a) compliance by the Company with certain provisions of the Indenture, and (b) certain past defaults under the Indenture and their consequences.  Any resolution passed or decision taken at any meeting of the Holders of the Notes in accordance with the provisions of the Indenture shall be conclusive and binding upon such Holders and upon all future Holders of this Note and other Notes issued upon the registration of transfer hereof or in exchange heretofore or in lieu hereof.
10.           Persons Deemed Owners.  The Company, the Trustee, and any agent of the Company or the Trustee may deem and treat the Person in whose name this Note is registered on the Security Register as its absolute owner for all purposes.
11.           Authentication.  This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

A-4




12.           Governing Law.  THE INTERNAL LAW OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN AND BE USED TO CONSTRUE THE INDENTURE AND THE NOTES.
13.           No Personal Liability.  THE THIRD AMENDMENT AND RESTATEMENT OF DECLARATION OF TRUST OF THE COMPANY, AS AMENDED AND SUPPLEMENTED, DATED JULY 1, 1994, A COPY OF WHICH, TOGETHER WITH ALL AMENDMENTS AND SUPPLEMENTS THERETO (THE “DECLARATION”), IS DULY FILED IN THE OFFICE OF THE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE STATE OF MARYLAND, PROVIDES THAT THE NAME “HRPT PROPERTIES TRUST” REFERS TO THE TRUSTEES UNDER THE DECLARATION COLLECTIVELY AS TRUSTEES, BUT NOT INDIVIDUALLY OR PERSONALLY, AND THAT NO TRUSTEE, OFFICER, SHAREHOLDER, EMPLOYEE OR AGENT OF THE COMPANY SHALL BE HELD TO ANY PERSONAL LIABILITY, JOINTLY OR SEVERALLY, FOR ANY OBLIGATION OF, OR CLAIM AGAINST, THE COMPANY. ALL PERSONS DEALING WITH THE COMPANY, IN ANY WAY, SHALL LOOK ONLY TO THE ASSETS OF THE COMPANY FOR THE PAYMENT OF ANY SUM OR THE PERFORMANCE OF ANY OBLIGATION.

The Company will furnish to any Holder upon written request and without charge a copy of the Indenture.  Request may be made to:

HRPT Properties Trust

400 Centre Street

Newton, MA 02458

Telecopier No.:  (617) 332-2261

Attention: President

or such other address as the Company may specify pursuant to the Indenture.

A-5




ASSIGNMENT FORM

To assign this Note, fill in the form below:

[I] [We] assign and transfer this Note to                                                                                                                                                                                                                                                      [Print or type assignee’s name, address and zip code]                                               &nb sp;                                                                   [Insert assignee’s soc. sec. or tax I.D. no.] and irrevocably appoint                                                                                            to transfer this Note on the books of the Company.  The agent may substitute another to act for him.

Date:

Your Signature:

[Sign exactly as your name appears on the face of this Note]

Signature Guarantee:

 

[The signature must be guaranteed by

an officer of a participant in a recognized

signature guarantee program.  Notarized

or witnessed signatures are not acceptable.]

A-6



EX-8.1 3 a07-5534_1ex8d1.htm EX-8.1

 

 

Exhibit 8.1

March 1, 2007

HRPT Properties Trust
400 Centre Street
Newton, Massachusetts  02458

Ladies and Gentlemen:

The following opinion is furnished to HRPT Properties Trust, a Maryland real estate investment trust (the “Company”), to be filed with the Securities and Exchange Commission (the “SEC”) as Exhibit 8.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006 (the “Form 10-K”) under the Securities Exchange Act of 1934, as amended.

We have acted as counsel for the Company in connection with the preparation of the Form 10-K, and we have reviewed originals or copies of such corporate records, such certificates and statements of officers and accountants of the Company and of public officials, and such other documents as we have considered relevant and necessary in order to furnish the opinion hereinafter set forth.  In doing so, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as copies, and the authenticity of the originals of such documents.  Specifically, and without limiting the generality of the foregoing, we have reviewed: (i) the amended and restated declaration of trust and the amended and restated by-laws of the Company, each as amended to date, and in the case of the declaration of trust, as supplemented; and (ii) the sections of Item 1 of the Form 10-K captioned “Federal Income Tax Considerations” and “ERISA Plans, Keogh Plans and Individual Retirement Accounts”.

The opinion set forth below is based upon the Internal Revenue Code of 1986, as amended, the Treasury Regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively, “Tax Laws”), and upon the Employee Retirement Income Security Act of 1974, as amended, the Department of Labor regulations issued thereunder, published administrative interpretations thereof, and judicial decisions with respect thereto, all as of the date hereof (collectively, “ERISA Laws”).  No assurance can be given that Tax Laws or ERISA Laws will not change.  In preparing the discussions with respect to Tax Laws matters and ERISA Laws matters in the sections of Item 1 of the Form 10-K captioned “Federal Income Tax Considerations” and “ERISA Plans, Keogh Plans and Individual Retirement Accounts”, we have made certain

1




 

assumptions therein and expressed certain conditions and qualifications therein, all of which assumptions, conditions and qualifications are incorporated herein by reference.  With respect to all questions of fact on which our opinion is based, we have assumed the initial and continuing truth, accuracy and completeness of:  (i) the information set forth in the Form 10-K and in the documents incorporated therein by reference; and (ii) representations made to us by officers of the Company or contained in the Form 10-K and in the documents incorporated therein by reference, in each such instance without regard to qualifications such as “to the best knowledge of” or “in the belief of”.  We have not independently verified such information.

We have relied upon, but not independently verified, the foregoing assumptions.  If any of the foregoing assumptions are inaccurate or incomplete for any reason, or if the transactions described in the Form 10-K or the documents incorporated therein by reference have been consummated in a manner that is inconsistent with the manner contemplated therein, our opinion as expressed below may be adversely affected and may not be relied upon.

Based upon and subject to the foregoing, we are of the opinion that the discussions with respect to Tax Laws matters and ERISA Laws matters in the sections of Item 1 of the Form 10-K captioned “Federal Income Tax Considerations” and “ERISA Plans, Keogh Plans and Individual Retirement Accounts” in all material respects are accurate and fairly summarize the Tax Laws issues and the ERISA Laws issues addressed therein, and hereby confirm that the opinions of counsel referred to in said sections represent our opinions on the subject matter thereof.

Our opinion above is limited to the matters specifically covered hereby, and we have not been asked to address, nor have we addressed, any other matters or any other transactions.  Further, we disclaim any undertaking to advise you of any subsequent changes of the matters stated, represented or assumed herein or any subsequent changes in Tax Laws or ERISA Laws.

This opinion is intended solely for the benefit and use of the Company, and is not to be used, released, quoted, or relied upon by anyone else for any purpose (other than as required by law) without our prior written consent.  We hereby consent to the filing of a copy of this opinion as an exhibit to the Form 10-K, which is incorporated by reference in the Company’s Registration Statement on Form S-3 (File No. 333-135110) under the Securities Act of 1933, as amended (the “Act”), and to the references to our firm in the Form 10-K and such Registration Statement.  In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Act or under the rules and regulations of the SEC promulgated thereunder.

Very truly yours,

 

/s/ Sullivan & Worcester LLP

 

SULLIVAN & WORCESTER LLP

 

2



EX-12.1 4 a07-5534_1ex12d1.htm EX-12.1

Exhibit 12.1

HRPT PROPERTIES TRUST

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

(dollars in thousands)

 

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

2003

 

2002

 

Earnings:

 

 

 

 

 

 

 

 

 

 

 

Income before equity in earnings and gains (losses) on equity transactions of equity investments

 

$

131,157

 

$

138,869

 

$

117,386

 

$

90,921

 

$

88,923

 

Fixed charges

 

166,229

 

143,663

 

118,212

 

101,144

 

89,417

 

Distributions from equity investments

 

5,387

 

22,646

 

24,572

 

27,404

 

27,195

 

Capitalized interest

 

(335

)

 

 

 

(3,057

)

Adjusted Earnings

 

$

302,438

 

$

305,178

 

$

260,170

 

$

219,469

 

$

202,478

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Charges:

 

 

 

 

 

 

 

 

 

 

 

Interest expense (including amortization of note discounts and premiums and deferred financing fees)

 

$

165,894

 

$

143,663

 

$

118,212

 

$

101,144

 

$

86,360

 

Capitalized interest

 

335

 

 

 

 

3,057

 

Total Fixed Charges

 

$

166,229

 

$

143,663

 

$

118,212

 

$

101,144

 

$

89,417

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of Earnings to Fixed Charges

 

1.8x

 

2.1x

 

2.2x

 

2.2x

 

2.3x

 

 



EX-12.2 5 a07-5534_1ex12d2.htm EX-12.2

Exhibit 12.2

HRPT PROPERTIES TRUST

COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
DISTRIBUTIONS
(dollars in thousands)

 

Year Ended December 31,

 

 

 

2006

 

2005

 

2004

 

2003

 

2002

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings:

 

 

 

 

 

 

 

 

 

 

 

Income before equity in earnings and
gains (losses) on equity transactions of
equity investments

 

$

131,157

 

$

138,869

 

$

117,386

 

$

90,921

 

$

88,923

 

Fixed charges before preferred
distributions

 

166,229

 

143,663

 

118,212

 

101,144

 

89,417

 

Distributions from equity investments

 

5,387

 

22,646

 

24,572

 

27,404

 

27,195

 

Capitalized interest

 

(335

)

 

 

 

(3,057

)

Adjusted Earnings

 

$

302,438

 

$

305,178

 

$

260,170

 

$

219,469

 

$

202,478

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed Charges and Preferred Distributions:

 

 

 

 

 

 

 

 

 

 

 

Interest expense (including amortization of
note discounts and premiums and
deferred financing fees)

 

$

165,894

 

$

143,663

 

$

118,212

 

$

101,144

 

$

86,360

 

Capitalized interest

 

335

 

 

 

 

3,057

 

Preferred distributions

 

44,692

 

46,000

 

46,000

 

46,000

 

27,625

 

Combined Fixed Charges and Preferred
Distributions

 

$

210,921

 

$

189,663

 

$

164,212

 

$

147,144

 

$

117,042

 

Ratio of Earnings to Combined Fixed
Charges and Preferred Distributions

 

1.4x

 

1.6x

 

1.6x

 

1.5x

 

1.7x

 

 

 

 

 

 

 

 

 

 

 

 

 

 



EX-21.1 6 a07-5534_1ex21d1.htm EX-21.1

Exhibit 21.1

HRPT PROPERTIES TRUST

SUBSIDIARIES OF THE REGISTRANT

1600 Market Street Property Trust — (Maryland)

1735 Market Street Properties Trust — (Maryland)

4 Maguire Road Realty Trust (Nominee Trust) — (Massachusetts)

47 Harvard Street Real Estate Trust (Nominee Trust) — (Massachusetts)

ALPHA BT LLC — (Maryland)

Blue Dog Properties Trust — (Maryland)

Bridgepoint Property Trust — (Maryland)

Candler Associates, L.L.C. — (Maryland)

Candler Property Trust — (Maryland)

Causeway Holdings, Inc. — (Massachusetts)

Cedars LA LLC — (Delaware)

First Associates LLC — (Maryland)

Fourth and Roma Property Trust — (Maryland)

Franklin Plaza Property Trust — (Maryland)

HRP Nom L.P. — (Delaware)

HRP Nom 2 L.P. — (Delaware)

Hawaii 2x5 0 Properties Trust — (Maryland)

Hawaii Metamorphosis LLC — (Maryland)

Hawaii MMGD LLC — (Maryland)

Hawaii Phoenix Properties LLC — (Maryland)

Hawaii Soupson LLC — (Maryland)

Health and Retirement Properties International, Inc. — (Delaware)

Herald Square LLC — (Delaware)

HH HUB Properties LLC — (Delaware)

Higgins Properties LLC — (Maryland)

HRP Nom Inc. — (Delaware)

HRP Nom L.L.C. — (Delaware)

HRP Nom 2 Inc. — (Delaware)

HRP Nom 2 L.L.C. — (Delaware)

HRP GP, LLC — (Delaware)

HRPT Medical Buildings Realty Trust (Nominee Trust) — (Massachusetts)

HRPT Memphis LLC — (Delaware)

HRPT TRS, Inc. — (Delaware)

Hub Acquisition Trust — (Maryland)

Hub Albuquerque 25 LLC — (Maryland)

Hub BD Mixed Sec. Properties, L.P. — (Delaware)

Hub Corporate Crossing, LLC — (Delaware)

Hub Corporate Crossing Properties Trust — (Maryland)

Hub Highridge Properties Trust — (Maryland)

Hub Highridge,  LLC — (Delaware)

Hub LA Limited Partnership (98%) — (Delaware)

Hub LA Properties Trust — (Maryland)

Hub MA Realty Trust (Nominee Trust) — (Massachusetts)

Hub Management, Inc. — (Delaware)

Hub Mid-West LLC — (Maryland)

Hub Properties GA LLC — (Maryland)

Hub Properties Trust — (Maryland)

Hub Realty Buffalo, Inc. — (Delaware)

Hub Realty College Park I, LLC — (Maryland)

Hub Realty College Park, Inc. — (Delaware)

Hub Realty Funding, Inc. — (Delaware)

Hub Realty Golden, Inc. — (Delaware)

Hub Realty Kansas City, Inc. — (Delaware)

Hub Realty Richland, Inc. — (Delaware)

Hub RI Properties Trust — (Maryland)

Hub Woodmont Investment Trust — (Maryland)

 




Exhibit 21.1

HRPT PROPERTIES TRUST

SUBSIDIARIES OF THE REGISTRANT

HUB Woodmont Limited Liability Company (99%) — (Delaware)

Indemnity Collection Corporation — (Delaware)

Indiana Avenue LLC — (Delaware)

Lakewood Property Trust — (Maryland)

LTMAC Properties LLC — (Maryland)

Masters Properties LLC — (Maryland)

MOB Realty Trust (Nominee Trust) — (Massachusetts)

Nine Penn Center Associates, L.P. — (Pennsylvania)

Nine Penn Center Properties Trust — (Maryland)

Orville Properties LLC — (Maryland)

Park San Antonio Properties Trust — (Maryland)

Putnam Place Realty Trust (Nominee Trust) — (Massachusetts)

Quarry Lake Properties Trust — (Maryland)

Research Park Properties Trust — (Maryland)

RFRI Properties LLC — (Maryland)

Ridge Lake Properties LLC — (Delaware)

Robin 1 Properties LLC — (Maryland)

Rosedale Corporate Plaza Condominium, Inc. — (Minnesota)

Rosedale Properties Limited Liability Company — (Delaware)

Rosedale Properties Trust — (Maryland)

Rosedale Properties, Inc. — (Delaware)

SP Holding Property Trust — (Maryland)

Tanaka Properties LLC — (Maryland)

TedCal Properties LLC — (Maryland)

TSM Properties LLC — (Maryland)

University Avenue Real Estate Trust (Nominee Trust) — (Massachusetts)

Z&A Properties LLC — (Maryland)

 



EX-23.1 7 a07-5534_1ex23d1.htm EX-23.1

 

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-135110) of HRPT Properties Trust and in the related Prospectus of our reports dated February 23, 2007, with respect to the consolidated financial statements and schedules of HRPT Properties Trust, HRPT Properties Trust management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of HRPT Properties Trust, included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

/s/ Ernst & Young LLP

Boston, Massachusetts
February 23, 2007



EX-31.1 8 a07-5534_1ex31d1.htm EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, John A. Mannix, certify that:

1.                                       I have reviewed this annual report of HRPT Properties Trust;

2.                                       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.                                       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.                                       The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)              Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)             Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.                                       The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

March 1, 2007

 

/s/ John A. Mannix

 

 

 

 

John A. Mannix

 

 

 

President and Chief Operating Officer

 



EX-31.2 9 a07-5534_1ex31d2.htm EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, John C. Popeo, certify that:

1.                                       I have reviewed this annual report of HRPT Properties Trust;

2.                                       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.                                       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.                                       The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)              Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)             Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.                                       The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

March 1, 2007

 

/s/ John C. Popeo

 

 

 

 

 

John C. Popeo

 

 

 

 

Treasurer and Chief Financial Officer

 

 



EX-31.3 10 a07-5534_1ex31d3.htm EX-31.3

EXHIBIT 31.3

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Barry M. Portnoy, certify that:

1.                                       I have reviewed this annual report of HRPT Properties Trust;

2.                                       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.                                       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.                                       The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)              Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)             Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.                                       The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

March 1, 2007

 

/s/ Barry M. Portnoy

 

 

 

 

 

Barry M. Portnoy

 

 

 

 

Managing Trustee

 

 



EX-31.4 11 a07-5534_1ex31d4.htm EX-31.4

EXHIBIT 31.4

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)

I, Adam D. Portnoy, certify that:

1.                                       I have reviewed this annual report of HRPT Properties Trust;

2.                                       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.                                       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.                                       The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)              Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)             Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.                                       The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:

March 1, 2007

 

/s/ Adam D. Portnoy

 

 

 

 

 

Adam D. Portnoy

 

 

 

 

 

Managing Trustee

 

 



EX-32.1 12 a07-5534_1ex32d1.htm EX-32.1

Exhibit 32.1

Certification Pursuant to 18 U.S.C. Sec. 1350
(Section 906 of the Sarbanes — Oxley Act of 2002)
________________________________________________

In connection with the filing by HRPT Properties Trust (the “Company”) of the Annual Report on Form 10-K for the year ending December 31, 2006 (the “Report”), each of the undersigned hereby certifies, to the best of his knowledge:

1)              The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2)              The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Barry M. Portnoy

 

/s/John A. Mannix

Barry M. Portnoy

 

John A. Mannix

Managing Trustee

 

President and Chief Operating Officer

 

 

 

 

 

 

/s/Adam D. Portnoy

 

/s/John C. Popeo

Adam D. Portnoy

 

John C. Popeo

Managing Trustee

 

Treasurer and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date:   March 1, 2007

 

 

 



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