10-Q 1 a2062611z10-q.txt FORM 10-Q -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) ~~/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001~~

OR ~~/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ------------ to ------------~~

Commission file number 000-24905 BEACON CAPITAL PARTNERS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Maryland 04-3403281 ------------------------------------------ ------------------------------------------ (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) One Federal Street, 26th Floor, Boston, Massachusetts 02110 ------------------------------------------ ------------------------------------------ (ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE) 617-457-0400 --------------------------------------------------------------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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 __ Number of Common Shares outstanding at the latest practicable date, November 12, 2001: 21,730,888 shares, $.01 par value. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- BEACON CAPITAL PARTNERS, INC. FORM 10-Q INDEX

PART I--FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS BEACON CAPITAL PARTNERS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)

SEE ACCOMPANYING NOTES. 1 BEACON CAPITAL PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED)

SEE ACCOMPANYING NOTES. 2 BEACON CAPITAL PARTNERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)

SEE ACCOMPANYING NOTES. 3 BEACON CAPITAL PARTNERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 1. BASIS OF PRESENTATION The financial statements of Beacon Capital Partners, Inc. ("BCP") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. At September 30, 2001, the Company's investments in marketable equity securities were included in other assets and had a fair value of approximately $51 and an unrealized loss of approximately $164. Comprehensive income after giving effect to the change in the unrealized loss was $47,759 for the nine months ended September 30, 2001. Net income and comprehensive income were the same for the nine months ended September 30, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in BCP's annual report on Form 10-K for the period ended December 31, 2000. 2. ORGANIZATION Beacon Capital Partners, Inc. was incorporated on January 21, 1998 as a Massachusetts corporation, and was initially capitalized through loans from the two founders of BCP, Messrs. Leventhal and Fortin. The loans were repaid in May 1998. BCP qualifies as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended. BCP was established to conduct real estate investment and development activities and currently operates in one segment. On March 17, 1998, BCP was reincorporated as a Maryland corporation and on March 20, 1998, BCP completed an initial private offering in accordance with Section 4(2) of the Securities Act of 1933. BCP initially issued 17,360,769 common shares with proceeds, net of expenses, of $323,110. In April 1998, 3,613,163 additional shares were issued through the exercise of the underwriter's over-allotment, with proceeds, net of expenses, of $66,620. In connection with the reincorporation of BCP in Maryland, BCP established Beacon Capital Partners, L.P. (the "Operating Partnership"). BCP and the Operating Partnership are collectively referred to as the "Company". The Operating Partnership is a Delaware limited partnership. BCP is the sole General Partner of, and, as of September 30, 2001, holds approximately 99% of the economic interest in the Operating Partnership. BCP holds an approximate 1% general partnership interest in the Operating Partnership and the balance is held as a limited partnership interest. The remaining limited partnership interest of the Operating Partnership is held by Beacon Capital Participation Plan, L.P. ("BCPP") and is presented as minority interest in consolidated partnership in the accompanying condensed consolidated financial statements. On June 24, 1998, $51,359 in Operating Partnership units were issued to Luddite Associates, an affiliate of The Prudential Insurance Company of America, in connection with the purchase 4 BEACON CAPITAL PARTNERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2001 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 2. ORGANIZATION (CONTINUED) of the property known as Technology Square and The Draper Building. On October 17, 2000, Luddite Associates converted its Operating Partnership units to common stock of BCP. The term of the Operating Partnership commenced on March 16, 1998 and shall continue until January 1, 2056 or until such time as a Liquidating Event, as defined, has occurred. On April 4, 2001, the Company adopted, and the shareholders approved an asset sale plan (the "Asset Sale Plan") which will permit the Company to sell, transfer or exchange all or substantially all of its assets. 3. REAL ESTATE In September 2000, the Company commenced the sales of the Fort Point Place residential condominiums and as of September 30, 2001, all of the 120 units had been sold. On February 9, 2001, the Company sold Technology Square, a property consisting of existing buildings, buildings under development and permitted land for additional development for approximately $278,785. The Company will continue to oversee the development and the buyer will fund the remaining development costs for the new buildings. Under the terms of the purchase and sale agreement, in order to avoid financial penalties, the Company is required to complete the construction of the new buildings by specific dates and within budget. The development is scheduled to be completed in the third quarter of 2002. As of September 30, 2001, the Company recognized a gain on the sale of approximately $86,264. Pursuant to the applicable accounting rules, an additional gain estimated at approximately $20,604 has been deferred and is expected to be realized in future periods as construction is completed. In June 2001 and August 2001, in three separate transactions, the Company sold 13 of the 14 properties in the Dallas Office and Industrial Portfolio for $66,000 and recognized an aggregate loss of approximately $26,124 on the transactions. On July 10, 2001, the Company sold the two Fort Point Place office buildings for $29,500 and recognized a gain of approximately $17,096 on the transaction. In the fourth quarter of 2001, the Company sold the remaining property in the Dallas Office and Industrial Portfolio for $2,550 and the Company expects to recognize a loss on the transaction. 4. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS The investments in partnership, joint ventures and corporations represent the Company's interest in (i) a joint venture with PW Acquisitions IX, LLC, known as Beacon/PW Kendall LLC ("The Athenaeum Portfolio"), (ii) a joint venture with Mathilda Partners LLC ("Mathilda Research Centre"), (iii) a joint venture with Mathilda Partners II LLC ("Mathilda Research Centre II"), (iv) a joint venture with HA L.L.C. ("Millennium Tower"), and (v) an investment in Beacon Capital Strategic Partners, L.P. ("BCSP"). 5 BEACON CAPITAL PARTNERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2001 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 4. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED) A reconciliation of the underlying net assets to the Company's carrying value of investments in partnership, joint ventures and corporations is as follows:

THE ATHENAEUM PORTFOLIO In 1998, Beacon/PW Kendall LLC, a joint venture of the Company and PW Acquisitions IX, LLC, an affiliate of PaineWebber, purchased The Athenaeum Portfolio, an 11 building 970,000 square foot mixed-use portfolio located in Cambridge, Massachusetts. In 2000, in two separate transactions, the joint venture sold The Athenaeum Portfolio and recognized an aggregate gain on the sales of approximately $64,865, of which the Company's share was approximately $32,432. MATHILDA RESEARCH CENTRE On August 9, 1998, the Company entered into a joint venture agreement with Mathilda Partners LLC, an affiliate of Menlo Equities, a California based developer, to develop two four-story Class A office/R&D buildings with surface parking in Sunnyvale, California, known as Mathilda Research Centre. The Company and Mathilda Partners LLC had funded equity contributions of $17,500 and $2,500, respectively. On November 4, 1998, the venture acquired a twelve-acre site on Mathilda Avenue in Sunnyvale, CA, on which it developed Mathilda Research Centre. The first building (approximately 144,000 square feet) was 6 BEACON CAPITAL PARTNERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2001 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 4. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED) completed in June 2000 and the second building (approximately 123,000 square feet) was completed in March 2001. Both buildings are leased to Juniper Networks, Inc. ("Juniper Networks"). In August 2001, Mathilda Research Centre was refinanced and the joint venture distributed approximately $20,904 to its members. As of October 2, 2001, the joint venture had returned all of the original equity to its members. MATHILDA RESEARCH CENTRE II On August 9, 2000, the Company entered into a joint venture agreement with Mathilda Partners II LLC, an affiliate of Menlo Equities, a California based developer, to develop an additional phase of Mathilda Research Centre in Sunnyvale, California, also for Juniper Networks. The Company and Mathilda Partners II LLC have agreed to fund 87.5% and 12.5% of the equity required, respectively. On November 30, 2000, the joint venture acquired a parcel of land at 1220 N. Mathilda Avenue in Sunnyvale, California on which it is developing the additional phase of Mathilda Research Centre. The estimated cost of the proposed 158,000 square foot building is approximately $40,650. The project will be funded from equity contributions of approximately $8,040, of which the Company's portion will be approximately $7,035, and a $32,610 construction loan from an institutional lender. As of September 30, 2001, the members had funded equity contributions of approximately $8,650, of which the Company's portion was approximately $7,568. The Company currently expects a distribution of approximately $533, representing its excess contributions, from loan proceeds when certain conditions are met. MILLENNIUM TOWER On September 1, 1998 the Company entered into a joint venture agreement with HA L.L.C., an affiliate of Martin Smith Real Estate Services, a Seattle based real estate company, to develop a 20-story office/retail and residential tower in downtown Seattle, Washington, known as Millennium Tower. The Company and HA L.L.C. have agreed to fund 66 2/3% and 33 1/3% of the equity required, respectively. Land was contributed to the joint venture by HA L.L.C. at an agreed value of $10,500, and the Company agreed to fund the first $19,000 of cash requirements for the venture. As of September 30, 2001, the Company has funded its total commitment of $19,000. The joint venture has obtained a $45,000 construction loan from two institutional lenders to finance the balance of the development costs. The estimated cost of the project is $72,000, including the value of the land. The Company's residential portion of this investment is held by BCP Millennium Residential, Inc., a Massachusetts corporation ("BCP Millennium Residential"). Prior to March 2001, in order to comply with certain rules applicable to REITs, the voting common stock of BCP Millennium Residential was controlled by Messrs. Leventhal and Fortin. In March 2001, BCP Millennium Residential was converted to a taxable REIT subsidiary and Messrs. Leventhal and Fortin transferred their ownership to the Company. The Company owns 100% of the economic interests in BCP Millennium Residential and for financial statement presentation purposes, the Company consolidates BCP Millennium Residential. BCSP On October 1, 1999, the Company completed the initial closing for BCSP, a real estate limited partnership, of which BCP Strategic Partners LLC, the Company's wholly-owned subsidiary, is the General 7 BEACON CAPITAL PARTNERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2001 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 4. INVESTMENTS IN PARTNERSHIP, JOINT VENTURES AND CORPORATIONS (CONTINUED) Partner. Subsequent to October 1, 1999, the Company completed additional closings and as of March 28, 2000 (the BCSP final closing date), equity commitments totaled $287,500, of which the Company's equity commitment was $57,500. The commitments include investments from various endowments, foundations, pension funds and other institutional investors. For a period of up to 27 months from October 1, 1999, BCSP will be the Company's exclusive real estate investment vehicle. As of September 30, 2001, the Company has funded approximately $13,200 of its committed investment. In connection with the formation of BCSP, for the nine months ended September 30, 2000, the Company incurred affiliate formation expenses of approximately $2,054. The expenses consist of underwriter commissions and fees for legal and professional services not reimbursed by the partners of BCSP. On March 17, 2000, BCSP obtained a $137,500 secured revolving credit facility. On June 14, 2000, BCSP sold 233 Fremont Street, a property located in San Francisco, California that was undergoing redevelopment. The property was sold for approximately $145,894, including approximately $15,894 held in escrow pending completion of the property's redevelopment. A portion of the escrow funds were subsequently expended. BCSP oversaw the redevelopment and the buyer funded its share of the remaining redevelopment costs. The redevelopment was substantially completed in the second quarter of 2001. For the nine months ended September 30, 2001 and the year ended December 31, 2000, BCSP recognized a gain on the sale of approximately $2,960 and $71,643, respectively. The Company's share of the recognized gain for the nine months ended September 30, 2001 and the year ended December 31, 2000 was approximately $786 and $25,736, respectively. On June 28, 2000, BCSP distributed $70,000 of the sale proceeds, of which the Company's share was approximately $25,169. 5. MORTGAGE NOTES PAYABLE The mortgage notes payable, consisting of one mortgage note payable, collateralized by a certain property and assignment of leases, totals $1,364 at September 30, 2001. It has a fixed interest rate of 9.0% and matures in 2017. The net book value of the mortgaged asset is approximately $3,349 at September 30, 2001. Future minimum principal payments due during the next five years and thereafter are as follows: 2001........................................................ $ 13 2002........................................................ 42 2003........................................................ 46 2004........................................................ 51 2005........................................................ 55 Thereafter.................................................. 1,157 ------- Total $ 1,364 =======

In the fourth quarter of 2001, in conjunction with the sale of the remaining property in the Dallas Office and Industrial Portfolio, the fixed rate mortgage note payable was paid off. 8 BEACON CAPITAL PARTNERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 2001 (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED) 6. NOTE PAYABLE--INTERIM FINANCING On June 28, 1999, the Company obtained $100,000 of secured interim financing (the "Interim Financing") from Bankers Trust Company. On December 3, 1999, the Company executed an amendment to the Interim Financing that increased the loan amount to $130,000. The Draper Building, which was sold on April 19, 2000, was part of the collateral for the Interim Financing and as a condition of the property's release, the Interim Financing was paid down by approximately $32,170. The Interim Financing matured in June 2000 and pursuant to the terms of the note, the Company exercised its option to extend the maturity date to June 2001. On February 9, 2001, in conjunction with the sale of Technology Square, the Interim Financing was paid off. 7. INCENTIVE PLANS The Company's management incentive plan contemplates that the Company's management will participate in all returns realized by the Company after specified benchmarks are achieved. The amended partnership agreement of the Operating Partnership provides BCPP, a partnership whose partners are all members of the Company's senior management, with incentive distributions from the Operating Partnership after defined investor return objectives are met. During the quarter ended September 30, 2001, based upon distributions to date and amounts expected to be realized from assets which continue to be held by the Company and the value estimated for the Voting Trusts, the Company's management expects that the Cumulative Preferred Return and return of Invested Capital, as defined, will likely be exceeded and BCPP will be entitled to share in realized returns. Consequently, during the quarter ended September 30, 2001 an allocation of income in the amount of $24,948 was made to BCPP as a limited partner in the Operating Partnership. This amount is presented as a component of minority interest in consolidated partnership in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2001. No incentive payments will be made to the Company's management until the specified benchmarks are achieved. In addition, during the quarter ended September 30, 2001, the Company cancelled outstanding options held by directors and rank and file employees under its Stock Incentive Plan. The Company recognized an expense during the quarter of approximately $2,246 representing consideration payable under the cancellation agreements. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words "believe", "expect", "anticipate", "intend", "estimate" and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Our actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include the following: the ability to sell properties under the Asset Sale Plan; real estate investment considerations, such as the effect of economic and other conditions in the market area on cash flows and values; the need to renew leases or relet space upon the expiration of current leases, the need to lease new developments and redevelopments and the ability of a property to generate revenue sufficient to meet debt service payments and other operating expenses; risks associated with borrowing, such as the possibility that we will not have sufficient funds available to make principal payments on outstanding debt and outstanding debt may be refinanced at higher interest rates or otherwise on terms less favorable to us; the impact of pending or future litigation; variations in quarterly operating results; securities held for investment are subject to fluctuations in valuation based upon the performance of the underlying businesses; risks that some of our investments could cause us to fail to qualify as a REIT; and those risks and uncertainties contained elsewhere in this report, in our Proxy Statement relating to the adoption of the Asset Sale Plan, and under the heading "Risk Factors" beginning on page 9 of our Form 10-K as filed with the Securities and Exchange Commission on March 23, 2001. The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and notes thereto. RESULTS OF OPERATIONS SUMMARY Changes in revenues and expenses for the nine months ended September 30, 2001 and 2000 were primarily due to the timing of investment, financing and sale transactions and redevelopment and releasing programs during 2000 and 2001. The Technology Square Building 300 development commenced in January 2000; The Athenaeum Portfolio was refinanced in April 2000; The Draper Building was sold in April 2000; the Interim Financing was paid down by $32.2 million in April 2000; some of the assets in The Athenaeum Portfolio (215 First Street, 195 First Street and Doc Linskey Way) were sold in June 2000; BCSP sold 233 Fremont Street in June 2000; the first building in Mathilda Research Centre was completed in June 2000; cash dividends totaling $3.50 per share were paid in the first six months of 2000; the repurchase of common stock of BCP and certain voting trust interests in accordance with the share repurchase program occurred in July 2000; the development of Technology Square Buildings 600 and 700 commenced in August 2000; additional Wyndham preferred stock was distributed in November 2000; $3.2 million of capital was contributed to BCSP in December 2000; the remaining assets in The Athenaeum Portfolio (One Kendall Square) were sold in December 2000; Technology Square was sold in February 2001; the Interim Financing was paid off in February 2001; cash dividends totaling $10.00 per share were paid in the first nine months of 2001; the second building in Mathilda Research Centre was completed in the first quarter of 2001; the office portion of Millennium Tower was completed in the first quarter of 2001; our shareholders adopted the Asset Sale Plan in April 2001 which authorizes us to sell, transfer or exchange all or substantially all of our assets; the Fort Point Place loan was increased in May 2001; 13 of the 14 properties of the Dallas Office and Industrial Portfolio were sold in June 2001 and August 2001; the Fort Point Place office buildings were sold in July 2001; the Mathilda Research Centre was refinanced in August 2001; and $10.0 million of capital was contributed to BCSP in August 2001 and September 2001. 10 Under the new management incentive plan adopted in 2000, members of management will be entitled to participate in all returns realized by the Company after specified benchmarks are achieved. Management expects that the prescribed incentive thresholds will be achieved and that management will be entitled to share in the returns. For the three and nine months ended September 30, 2001, minority interest in consolidated partnership reflects an allocation of income of approximately $24.9 million attributable to the management incentive plan. This allocation is subject to change in future periods as remaining assets are liquidated. To date, no incentive amounts have been distributed and we intend to retain capital in an amount sufficient to fund amounts owed with respect to the incentive allocation. We anticipate that results in future periods will be impacted by future dispositions if any, that are authorized under the Asset Sale Plan. Rental income will decline as a result of the sales of Technology Square in February 2001, all of the properties in the Dallas Office and Industrial Portfolio in June 2001, August 2001 and October 2001 and the Fort Point Place office buildings in July 2001. Equity in earnings of partnership and joint ventures may increase due to earnings generated from BCSP and the completion and lease up of Mathilda Research Centre, Mathilda Research Centre II and Millennium Tower, until such time that they are disposed of under the Asset Sale Plan. Property operating and related expenses are also expected to decline as a result of the sales of properties and the associated payoff of debt. COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 Total revenues were $3.6 million and $12.2 million for the three months ended September 30, 2001 and 2000, respectively. Rental income was $0.2 million and $9.1 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $8.9 million was due to the sales of Technology Square, Fort Point Place office buildings and 13 of the 14 properties of the Dallas Office and Industrial Portfolio. Reimbursement of operating expenses and real estate taxes was $0.0 million and $0.3 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $0.3 million was due to the sales of Technology Square and 13 of the 14 properties of the Dallas Office and Industrial Portfolio. Equity in earnings of partnership and joint ventures was $2.4 million and $1.2 million for the three months ended September 30, 2001 and 2000, respectively. The increase of $1.2 million was due to earnings from BCSP, Mathilda Research Centre and Millennium Tower offset by decreased earnings due to the sale of The Athenaeum Portfolio. Interest and dividend income was $1.0 million and $1.4 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $0.4 million was due to Wyndham dividends received in 2000. Other income was $0.0 million and $0.2 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $0.2 million was due to management fees received from The Athenaeum Portfolio in 2000. Total expenses were $5.1 million and $9.4 million for the three months ended September 30, 2001 and 2000, respectively. Property operating expenses were $0.2 million and $2.6 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $2.4 million was due to the sales of Technology Square, Fort Point Place office buildings and 13 of the 14 properties of the Dallas Office and Industrial Portfolio. Real estate taxes were $0.0 million and $1.3 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $1.3 million was due to the sale of Technology Square and lower estimated taxes for the Dallas Office and Industrial Portfolio. General and administrative expenses were $4.8 million and $2.8 million for the three months ended September 30, 2001 and 2000, respectively. The increase of $2.0 million was primarily due to 2001 charges related to the director and rank and file employee stock option cancellation agreements. Interest expense was $0.0 million and $0.5 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $0.5 million was due to interest on the Interim Financing and mortgage notes offset by capitalized interest. Depreciation and amortization was $0.1 million and $2.2 million for the three months ended September 30, 2001 and 2000, respectively. The decrease of $2.1 million was due to the sales of Technology Square and 13 of the 14 properties of the Dallas Office and Industrial Portfolio. 11 The gains on sales of real estate for the three months ended September 30, 2001 of $23.3 million resulted from the gain from the sale of the Fort Point Place office buildings and the recognized gain from the sale of Technology Square offset by the loss from the sale of one of the 14 properties of the Dallas Office and Industrial Portfolio. The gains on sales of real estate for the three months ended September 30, 2000 of $3.0 million resulted from our share of the recognized gain on the sale of 233 Fremont and the sale of some Fort Point Place residential condominiums. The minority interest in consolidated partnership of ($24.9) and ($0.7) million for the three months ended September 30, 2001 and 2000, respectively, represent the portion of the Operating Partnership that is not owned by BCP. COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 Total revenues were $19.4 million and $44.1 million for the nine months ended September 30, 2001 and 2000, respectively. Rental income was $11.3 million and $26.1 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $14.8 million was due to the sales of Technology Square and 13 of the 14 properties of the Dallas Office and Industrial Portfolio offset by increased rents in Fort Point Place. Reimbursement of operating expenses and real estate taxes was $0.3 million and $1.0 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $0.7 million was primarily due to decreased real estate tax reimbursements in the Dallas Office and Industrial Portfolio. Equity in earnings of partnership and joint ventures was $6.4 and $5.1 million for the nine months ended September 30, 2001 and 2000. The increase of $1.3 million was due to 2001 increased earnings from Mathilda Research Centre and Millennium Tower offset by reduced earnings from BCSP and The Athenaeum Portfolio. Interest and dividend income was $3.2 million and $4.7 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $1.5 million was due to Wyndham dividends received in 2000 and interest earned from cash on hand. Gains (losses) on investments were ($2.2) million and $6.4 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $8.6 million was due to the Cypress gain recognized in 2000 and Cypress and CO Space losses recognized in 2001. Other income was $0.4 million and $0.8 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $0.4 million was due to management fees received from The Athenaeum Portfolio in 2000. Total expenses were $24.0 million and $30.7 million for the nine months ended September 30, 2001 and 2000, respectively. Property operating expenses were $4.2 million and $7.3 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $3.1 million was primarily due to the sales of Technology Square, Fort Point Place office buildings and 13 of the 14 properties of the Dallas Office and Industrial Portfolio. Real estate taxes were $1.3 million and $3.8 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $2.5 million was due to the sale of Technology Square and lower estimated taxes for the Dallas Office and Industrial Portfolio. General and administrative expenses were $14.3 million and $8.6 million for the nine months ended September 30, 2001 and 2000, respectively. The increase of $5.7 million was primarily due to management personnel bonuses for 2000 achievements that were expensed and paid in 2001 and 2001 charges related to the director and rank and file employee stock option cancellation agreements. Affiliate formation expenses were $2.0 million for the nine months ended September 30, 2000. Affiliate formation expenses were costs incurred in the formation of BCSP and consist of underwriter commissions and fees for legal and professional services not reimbursed by the partners of BCSP. Interest expense was $1.6 million and $3.0 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $1.4 million was due to interest on the Interim Financing offset by capitalized interest. Depreciation and amortization was $2.6 million and $6.0 million for the nine months ended September 30, 2001 and 2000, respectively. The decrease of $3.4 million was primarily due to the sales of Technology Square and 13 of the 14 properties of the Dallas Office and Industrial Portfolio. The gains on sales of real estate for the nine months ended September 30, 2001 of $78.0 million resulted from the recognized gain from the sale of Technology Square, the gain from the sale of the Fort 12 Point Place office buildings and our share of the recognized gain on the sale of 233 Fremont, offset by the losses from the sales of 13 of the 14 properties of the Dallas Office and Industrial Portfolio. The gains on sales of real estate for the nine months ended September 30, 2000 of $61.5 million resulted from the sale of The Draper Building, our share of the gain on the sale of some of the assets of The Athenaeum Portfolio, the sale of some Fort Point Place residential condominiums and our share of the recognized gain on the sale of 233 Fremont. The minority interest in consolidated partnership of ($25.4) and ($8.7) million for the nine months ended September 30, 2001 and 2000, respectively, represent the portion of the Operating Partnership that is not owned by BCP. The extraordinary items, net of minority interest of ($4.6) million for the nine months ended September 30, 2000 are primarily due to our share of the write-off of transaction costs and unamortized deferred financing costs as a result of the refinancing of The Athenaeum Portfolio. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $111.8 million at September 30, 2001 as compared to $83.8 million at December 31, 2000. The increase of $28.0 million was primarily the result of (i) proceeds from the sales of Technology Square, Fort Point Place residential condominiums, Fort Point Place office buildings and 13 of the 14 properties of the Dallas Office and Industrial Portfolio, (ii) distributions received from Mathilda Research Centre, (iii) proceeds from the Fort Point Place mortgage note payable, and (iv) cash flow from operations, all offset by (i) the payments of the January 2001, March 2001, May 2001 and July 2001 dividends to stockholders and distributions to unitholders, (ii) the payoff of the Interim Financing, (iii) the payoff of the Fort Point Place mortgage note payable, (iv) the payoff of some of the Dallas Office and Industrial Portfolio mortgage notes payable, and (v) the payment of Technology Square development costs. SHORT AND LONG-TERM LIQUIDITY We have considered our short-term (up to 12 months) liquidity needs and the adequacy of expected liquidity sources to meet these needs. We believe that our principal short-term operating liquidity needs are to fund normal recurring expenses, debt service requirements and the minimum distribution required to maintain the Company's REIT qualification under the Internal Revenue Code of 1986, as amended. We believe that these needs will be provided for by cash flow from operating activities, sales of assets and current cash balances. We believe that our 2001 distribution requirement to maintain our REIT qualification will be met from our 2001 cash distributions to date of $10.00 per share of common stock of BCP and from future distributions expected from the implementation of the Asset Sale Plan. We believe our other short-term liquidity needs are the funding of BCSP capital commitments, the completion of current development projects and funding of the management incentive plan. We expect to fund these needs from current cash balances, mortgages and other debt instruments, and through sales of assets. We expect to meet long-term (greater than 12 months) liquidity requirements for the completion of current development projects, scheduled debt maturities, other non-recurring capital improvements and funding of the management incentive plan through sales of assets, indebtedness, and from current cash balances. CAPITALIZATION As of September 30, 2001, our total consolidated debt was approximately $1.4 million and our total consolidated debt plus our proportionate share of total unconsolidated debt was approximately $147.4 million. The following table sets forth certain information regarding our consolidated and unconsolidated debt obligations, including obligations relating to specific properties. The variable interest rates reflected in the table are the weighted averages of the outstanding LIBOR loan layers. All of the debt is non-recourse to us, with certain exceptions such as liability for fraud, misapplication of insurance proceeds, environmental matters and certain guarantees for completion of construction. 13

-------------------------- (a) Plaza at Walnut Hill loan matures on July 1, 2017. The lender has the right to accelerate the maturity in the sixth, eleventh or sixteenth loan years, on six months' notice. No prepayment penalties apply in that event. (b) Currently prepayable subject to a yield maintenance payment based on the rate of United States Treasury Notes having a term closest to the date of maturity but in no event less than 1% of the then balance. (c) Prepayable after October 1, 2003 subject to a yield maintenance payment based on the rate of United States Treasury Notes having a term closest to the date of maturity but in no event less than 1% of the then balance. (d) Includes a subscription line, a construction loan and other property mortgages with varying maturity dates. (e) Prepayable any time in whole or in part subject to payment of applicable breakage costs and in some cases fees. (f) Closed to prepayment until December 1, 2004. Thereafter subject to payment of applicable breakage costs and fees. (g) The Millennium Tower loan matures on June 1, 2002. The loan may be extended for one year if certain conditions are met. 14 The following table, which includes both consolidated and unconsolidated debt, summarizes the scheduled amortization of principal and maturities of the loans outstanding as of September 30, 2001.

FUNDS FROM OPERATIONS Due to our implementation of the Asset Sale Plan that was approved by our shareholders and adopted in April 2001, we believe that FFO is not a relevant measurement of BCP's 2001 financial results. PROPERTY INFORMATION The following table sets forth the Total Area, the Percentage Leased, the Average Base Rent (as defined below) and the Average Net Effective Rent (as defined below) per square foot for each of the properties we owned or had an interest in (excluding properties controlled by BCSP) as of September 30, 2001. Base Rent is gross rent excluding payments by tenants on account of real estate taxes and operating expense escalation charges. Net Effective Rent is Base Rent adjusted on a straight-line basis for contractual rent step-ups and free rent periods, plus tenant payments on account of real estate tax and operating expense escalation charges, less total operating expenses and real estate taxes.

-------------------------- (1) We own Millennium Tower with our joint venture partner, HA L.L.C., an affiliate of Martin Smith Real Estate Services. Millennium Tower leases are NNN leases. Millennium Tower includes approximately 61,000 square feet of residential condominiums. The joint venture is currently marketing the condominiums for sale and as of September 30, 2001, 2 of the 20 units have been sold. (2) Mathilda Research Centre II, a property located at 1220 N. Mathilda Avenue in Sunnyvale, California, is excluded from this table because it is a development project. We own Mathilda Research Centre II with our joint venture partner, Mathilda Partners II LLC, an affiliate of Menlo Equities. The property is leased to Juniper Networks on a NNN basis and is expected to be completed in early 2002. (3) We own Mathilda Research Centre with our joint venture partner, Mathilda Partners LLC, an affiliate of Menlo Equities. Mathilda Research Centre is comprised of two buildings, 1194 and 1184 Mathilda Avenue. Both buildings are leased to Juniper Networks on a NNN basis. 15 The following table sets forth Lease Expirations (in square feet) for the portfolio of properties we owned or had an interest in (excluding properties controlled by BCSP) as of September 30, 2001.

------------------------ (1) Total area in square feet covered by such leases. (2) Percentage of total square feet of our portfolio. (3) Annualized expiring base rental income represented by such leases in the year of expiration plus the current tenant payments on account of operating expense and real estate tax escalation charges. (4) Calculated as annual rent divided by the total annual rent. (5) The number of tenants whose leases will expire. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to certain financial market risks, the most predominant being fluctuations in the prime, Eurodollar and LIBOR interest rates. Interest rate fluctuations are monitored by management as an integral part of our overall risk management program, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results of operations. The effect of interest rate fluctuations historically has been small relative to other factors affecting operating results, such as rental rates and occupancy. The following table summarizes our debt obligations outstanding as of September 30, 2001. This information should be read in conjunction with Notes 5 and 6 to the condensed consolidated financial statements and with the information contained under Capitalization in Part I--Item 2.

------------------------ (1) In the fourth quarter of 2001, in conjunction with the sale of the remaining property in the Dallas Office and Industrial Portfolio, this fixed rate loan was paid off. 16 BEACON CAPITAL PARTNERS, INC. PART II--OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) 3.1 Articles of Incorporation.(1) 3.2 Certificate of Correction to Articles of Incorporation.(1) 3.3 Amended and Restated By-laws.(1) 3.4 Amended and Restated Agreement of Limited Partnership of Beacon Capital Partners, L.P.(2) (b) 8-K filed July 11, 2001 announcing the sale of properties in the Dallas Office and Industrial Portfolio as well as the office component of the Fort Point Place project. 8-K filed August 22, 2001 announcing second quarter results.

------------------------ (1) Previously filed as an exhibit to BCP's Registration Statement on Form S-11 (SEC File No. 333-56937) filed with the Commission on June 16, 1998. (2) Previously filed as an exhibit to BCP's Annual Report on Form 10-K for the year ended December 31, 2000. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BEACON CAPITAL PARTNERS, INC. /s/ RANDY J. PARKER ------------------------------------------------ Randy J. Parker Chief Financial Officer (Authorized Officer and November 13, 2001 Principal Accounting Officer)

18 EXHIBIT INDEX

BEACON CAPITAL PARTNERS INC 10-Q