| HRPT PROPERTIES TRUST 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 2005 FORM 10-K ANNUAL REPORT Table of Contents [1]Part I [2]Item 1 |
| 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 actually occurs, our business, financial condition or results of operations could suffer and the trading price of our debt or equity securities may decline |
| Investors and prospective investors should consider the following risks and the information contained under the heading “Warning Concerning Forward Looking Statements” before deciding 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 certain 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 90prca 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 depends, 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 |
| We are currently dependent upon economic conditions in our seven core markets: Metro Philadelphia, Pennsylvania; Metro Washington, DC; Oahu, Hawaii; Metro Boston, Massachusetts; Southern California; Metro Atlanta, Georgia; and Metro Austin, Texas |
| Over 60prca of our revenues in fiscal year 2005 were derived from properties located in our seven core markets: Metro Philadelphia, PA; Metro Washington, DC; Oahu, HI; Metro Boston, MA; Southern California; Metro Atlanta, GA; 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 |
| Changes in the healthcare industry may cause us to experience losses |
| As of December 31, 2005, approximately 18dtta2prca of our total rents came 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 business 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 |
| Also, we currently own approximately 7dtta7 million shares of our former subsidiary, Senior Housing, which invests in healthcare and senior housing real estate; any adverse change in Senior Housing’s business may affect our dividend income from these shares and the value of our investment in those shares |
| Changes in the government’s requirements for leased space may adversely affect us |
| As of December 31, 2005, approximately 15dtta6prca of our total rents came from government tenants |
| Many of our leases with government agencies allow the tenants to vacate the leased premises before stated terms 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 |
| 20 ______________________________________________________________________ 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 majority beneficially owned by one of our trustees, Barry Portnoy |
| The remainder of RMR is beneficially owned by Adam Portnoy, Mr |
| Portnoy’s son, who is also an executive officer of RMR and our Executive Vice President |
| 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 or have served in various capacities with RMR and Gerard Martin, another of our trustees, is a director 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 |
| Our fee arrangement with RMR could encourage RMR to advocate property acquisitions and discourage property sales by us |
| Our fees to RMR were dlra27dtta0 million for 2005, including dlra1dtta2 million which is expected to be paid in restricted common shares as an incentive fee in April 2006 |
| RMR also acts as the manager for two other publicly owned REITs: Hospitality Properties, which primarily owns hotel properties; 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 RMR has other business interests |
| Barry Portnoy and Martin also serve as managing trustees of Hospitality Properties and Senior Housing and as managing directors of Five Star |
| 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 and Martin |
| All of the contractual arrangements between us and RMR have been approved by our trustees other than Messrs |
| Barry Portnoy and Martin |
| One of our other trustees serves as a trustee of Senior Housing |
| 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 the 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 |
| Ownership limitations and anti-takeover provisions in our declaration of trust 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 8dtta5prca 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 10prca 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 |
| 21 ______________________________________________________________________ The loss of our tax status as a REIT would have significant adverse consequences to us and reduce the value of our common shares |
| 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 |
| However, we cannot assure you that, upon review or audit, the IRS will agree with this conclusion |
| A different conclusion may jeopardize our REIT status |
| If we cease to be a REIT, we would violate a covenant in our bank credit facilities, our ability to raise capital could 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 impairs our ability to purchase or 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; and • 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 |
| We face significant competition |
| We plan to continue to acquire properties whenever we are able to identify attractive opportunities |
| We may 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, institutional investment funds and others; • competition from other real estate investments may significantly increase the purchase price we must pay to acquire properties |
| In addition, substantially all of our properties face competition for tenants from properties in the areas we are located |
| This competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge |
| Some competing properties may have vacancy rates higher than our properties, which may result in their owners being willing to lease available space at lower prices than the space in our properties |
| 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, 2005, we had approximately dlra600 million of debt outstanding at variable interest |
| 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 |
| 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 |
| In addition, an increase in interest rates could 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 |
| At December 31, 2005, we had dlra2dtta5 billion in debt outstanding, which was approximately 49prca 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 and our term loan; none of our subsidiaries guaranty our outstanding notes |
| In addition, at December 31, 2005, our subsidiaries have dlra374 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 currently 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 |