<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
________________
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 1998
( ) 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 1-13087
BOSTON PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 04-2473675
(State or other jurisdiction (IRS Employer Id. Number)
of incorporation or organization)
8 Arlington Street
Boston, Massachusetts 02116
- ---------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 859-2600
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[_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, Par Value $.01 61,694,041
(Class) (Outstanding on May 14, 1998)
<PAGE>
BOSTON PROPERTIES, INC.
FORM 10-Q
for the quarter ended March 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
----------
<S> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1 Consolidated and Combined Financial Statements:
a) Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 1
b) Consolidated and Combined Statements of Operations for the Company for the 2
three months ended March 31, 1998 and for the Predecessor Group for the three months
ended March 31, 1997
c) Consolidated and Combined Statements of Cash Flows for the Company for the 3
three months ended March 31, 1998 and for the Predecessor Group for the three months
ended March 31, 1997
d) Notes to the Consolidated and Combined Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 5
PART II. OTHER INFORMATION 7
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
<PAGE>
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
-------------- ---------------
March 31, December 31,
1998 1997
-------------- ---------------
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Real estate: $2,276,100 $1,796,500
Less: accumulated depreciation (306,304) (294,218)
---------- ----------
Total real estate 1,969,796 1,502,282
Cash and cash equivalents 391,404 17,560
Escrows 23,194 14,178
Tenant and other receivables, net 18,853 24,458
Accrued rental income, net 59,066 55,190
Deferred charges, net 36,383 35,485
Prepaid expenses and other assets 13,229 20,225
Investment in joint ventures 3,953 3,143
---------- ----------
Total assets $2,515,878 $1,672,521
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $1,336,592 $1,099,253
Unsecured line of credit - 233,000
Accounts payable and accrued expenses 37,834 23,822
Dividends payable - 22,539
Accrued interest payable 7,852 6,581
Other liabilities 16,141 11,642
---------- ----------
Total liabilities 1,398,419 1,396,837
---------- ----------
Commitments and contingencies - -
---------- ----------
Minority interest in Operating Partnership 257,016 100,636
---------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, 50,000,000 shares
authorized, none issued or outstanding - -
Excess stock, $.01 par value, 150,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.01 par value, 250,000,000 shares
authorized, 61,694,041 and 38,694,041 issued
and outstanding, respectively 617 387
Additional paid-in capital 837,881 172,347
Earnings in excess of dividends 21,945 2,314
---------- ----------
Total stockholders' equity 860,443 175,048
---------- ----------
Total liabilities and stockholders' equity $2,515,878 $1,672,521
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
1
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
The Predecessor
The Company Group
------------ ----------------
Three months Three months
ended ended
March 31, March 31,
1998 1997
------------ ----------------
(unaudited and in thousands, except for per share data)
------------------------------------------------------
REVENUE
<S> <C> <C>
Rental:
Base rent $ 79,270 $ 41,911
Recoveries from tenants 9,557 5,502
Parking and other 1,111 989
--------- ----------
Total rental revenue 89,938 48,402
Hotel operating - 12,796
Development and management services 1,776 1,813
Interest and other 3,889 444
--------- ----------
Total revenue 95,603 63,455
--------- ----------
EXPENSES
Rental:
Operating 12,999 7,107
Real estate taxes 13,531 6,898
Hotel:
Operating - 9,277
Real estate taxes - 724
General and administrative 4,821 2,667
Interest 24,929 27,719
Depreciation and amortization 13,095 8,841
--------- ----------
Total expenses 69,375 63,233
--------- ----------
Income before minority interests 26,228 222
Minority interest in property partnership (123) (126)
--------- ----------
Income before minority interest in Operating
Partnership 26,105 96
Minority interest in Operating Partnership (6,474) -
--------- ----------
Net income $ 19,631 $ 96
========= ==========
Basic earnings per share:
Net income: $ 0.36 -
Weighted average number of common shares
outstanding 54,283 -
Diluted earnings per share:
Net income: $ 0.36 -
Weighted average number of common shares
outstanding 54,902 -
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
The Company The Predecessor Group
------------------ ---------------------
Three months ended Three months ended
March 31, 1998 March 31, 1997
------------------ ---------------------
(unaudited and in thousands)
------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 19,631 $ 96
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 13,095 8,841
Non-cash portion of interest expense 3 617
Minority interest in Operating Partnership 6,474 -
Change in assets and liabilities:
Tenant and other receivables 5,605 (570)
Prepaid expenses and other assets 6,996 (2,808)
Escrows (9,016) (675)
Accrued rental income (3,876) (258)
Accounts payable and accrued expenses 14,012 2,674
Accrued interest payable 1,271 (3,464)
Other liabilities 4,499 (765)
------------ -----------
Total adjustments 39,063 3,592
------------ -----------
Net cash provided by operating activities 58,694 3,688
------------ -----------
Cash flows from investing activities:
Acquisitions/additions to real estate (311,103) (12,613)
Tenant leasing costs (2,653) (1,430)
Investment in joint ventures (810) (433)
------------ -----------
Net cash used in investing activities (314,566) (14,476)
------------ -----------
Cash flows from financing activities:
Net proceeds from sale of common stock 765,668 -
Owners' contributions - 10,239
Owners' distributions - (9,397)
Repayment on Unsecured Line of Credit (233,000) -
Repayments on mortgage notes (2,213) (2,079)
Proceeds from long term debt 121,800 -
Proceeds from notes payable - affiliate - 6,040
Dividends paid (22,539) -
Deferred financing and other costs - (33)
------------ -----------
Net cash provided by financing activities 629,716 4,770
------------ -----------
Net increase (decrease) in cash 373,844 (6,018)
Cash and cash equivalents, beginning of period 17,560 8,998
------------ -----------
Cash and cash equivalents, end of period $ 391,404 $ 2,980
============ ===========
Supplemental disclosures:
Cash paid for interest $ 26,198 $ 23,845
============ ===========
Interest capitalized $ 613 $ 482
============ ===========
Non-cash activities:
Operating activity:
Non-cash portion of interest expense $ 3 $ 617
============ ===========
Investing activities:
Fair value of mortgage notes payable assumed in connection with
acquisitions $ 118,251
============
Issuance of minority interest $ 50,002
============
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
Boston Properties, Inc., and
Boston Properties Predecessor Group
Notes to Consolidated and Combined Financial Statements
1. ORGANIZATION
-------------
Boston Properties, Inc. (the "Company") was formed under the laws of the
State of Delaware on June 23, 1997, to be a self-administered and self-
managed real estate investment trust ("REIT"). The Company is the sole
general partner of Boston Properties Limited Partnership (the "Operating
Partnership") and at March 31, 1998, through its ownership of 61,694,041
units of partnership interest ("OP Units"), owned an approximately 77.0%
general and limited partnership interest in the Operating Partnership.
The Company has been formed to succeed to substantially all of the interests
of Boston Properties, Inc. and its affiliates (the "Predecessor Group") in
(i) a portfolio of office, industrial and hotel properties and (ii) the
acquisition, property management, leasing, development and construction
businesses of the Predecessor Group and its affiliates. The acquisition,
property management, leasing, development and construction businesses are
being carried out by the Operating Partnership and the Company's majority-
owned affiliate, Boston Properties Management, Inc.
On June 23, 1997, the Company commenced operations after completing an
initial public offering (the "Initial Offering") of 36,110,000 common shares
(including 4,710,000 shares issued as a result of the exercise of an over-
allotment option by the underwriters). The 36,110,000 shares of common stock
were issued at a price per share of $25.00, generating gross proceeds of
$902.8 million. The proceeds to the Company, net of underwriters' discount
and offering costs were approximately $839.2 million.
The Company currently owns a portfolio of 95 commercial real estate
properties (94 and 82 properties at March 31, 1998 and December 31, 1997,
respectively) (the "Properties") aggregating approximately 18.8 million
square feet (including nine properties currently under development). The
Properties consist of 82 office properties, including 51 Class A office
buildings and 31 R&D properties; nine industrial properties; three hotels;
and one parking garage. The Company considers Class A office buildings to be
centrally located buildings that are professionally managed and maintained,
attract high-quality tenants and command upper-tier rental rates, and that
are modern structures or have been modernized to compete with newer
buildings.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------------------
The consolidated financial statements of the Company include all the accounts
of the Company, its majority-owned Operating Partnership, and its
subsidiaries. The financial statements reflect the properties acquired at
their historical accounting basis to the extent of the acquisition of
interests from the Predecessor's owners who continued as investors. The
remaining interests acquired for cash from those owners of the Predecessor
who decided to sell their interests have been accounted for as a purchase and
the excess of the purchase price over the related historical cost basis was
allocated to real estate. The combined financial statements of the Boston
Properties Predecessor Group include interests in properties and the third
party commercial real estate development, project management and property
management business of Boston Properties, Inc. The accompanying combined
financial statements for the Boston Properties Predecessor Group have been
presented on a combined basis due to the common ownership and management;
therefore, its combined financial statements are presented for comparative
purposes. All significant intercompany balances and transactions have been
eliminated. These financial statements should be read in conjunction with the
Company's financial statements and notes thereto contained in the Company's
annual report on Form 10-K for its fiscal year ended December 31, 1997.
The accompanying interim financial statements are unaudited; however, the
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and in conjunction
with the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the disclosures required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting solely of normal recurring
matters) necessary for a fair presentation of the financial statements for
these interim periods have been included. The results of operations for the
interim periods are not necessarily indicative of the results to be obtained
for other interim periods or for the full fiscal year.
3. REAL ESTATE ACQUISITIONS DURING THE QUARTER ENDED MARCH 31, 1998
----------------------------------------------------------------
On January 22, 1998, the Company acquired Riverfront Plaza, a Class A office
building located in Richmond, Virginia. The 899,720 square foot property was
acquired for approximately $174.4 million (including closing costs). The
acquisition was funded by a $52.6 million draw down of the Unsecured Line of
Credit and new mortgage financing of $121.8 million.
On February 2, 1998, the Company acquired the Mulligan/Griffin Portfolio for
approximately $257.8 million (including closing costs). The portfolio
consists of nine office properties with approximately 1.3 million net
rentable square feet and six parcels of land aggregating 30.7 acres located
in Fairfax County, Virginia and Montgomery County, Maryland. The acquisition
was funded through the payment of approximately $88.5 million in cash, the
assumption of
4
<PAGE>
Boston Properties, Inc., and
Boston Properties Predecessor Group
Notes to Consolidated and Combined Financial Statements
(Continued)
other liabilities of $984,000 the assumption of mortgage debt with a fair
value of approximately $118.3 million, and the issuance of OP Units valued at
approximately $50.0 million.
On March 31, 1998, the Company acquired 28.0 acres of land in Rockville,
Maryland for approximately $11.5 million. This land can support 850,000
square feet of development.
4. UNSECURED LINE OF CREDIT
-------------------------
On March 31, 1998, the Company amended its Unsecured Line of Credit
agreement, increasing the borrowing capacity from $300 million to $500
million. The Unsecured Line of Credit at the Company's election, bears
interest at either a floating rate based on a spread over LIBOR ranging from
90 basis points to 120 basis points (depending upon the Company's applicable
leverage ratio), or the Line of Credit Bank's prime rate. The Company's
ability to borrow under the Unsecured Line of Credit is subject to the
Company's ongoing compliance with a number of financial and other covenants,
including, but not limited to, maintaining a certain ratio of secured
indebtedness to total asset value, as defined. The Unsecured Line of Credit
expires on June 23, 2000.
5. MINORITY INTEREST IN OPERATING PARTNERSHIP
------------------------------------------
On February 2, 1998, the Operating Partnership issued 1,471,456 OP Units,
valued at approximately $50 million, in connection with the acquisition of
the Mulligan/Griffin portfolio.
Minority interest in the Operating Partnership relates to the interest in the
Operating Partnership that is not owned by the Company, which at March 31,
1998, amounted to approximately 23.0%.
6. STOCKHOLDERS' EQUITY
--------------------
On January 26, 1998, the Company completed a public stock offering and sold
23,000,000 common shares at a price of $35.125 per share (including 3,000,000
shares related to the exercise of the underwriters' over-allotment options).
Net proceeds were approximately $765.7 million.
7. STOCK OPTION AND INCENTIVE PLAN
--------------------------------
At the completion of the Initial Offering, the Company granted 2,290,000
(41,400 have since been cancelled) options to purchase common shares with an
exercise price of $25.00 per share.
As of March 24, 1998, the Company had granted an additional 3,358,563 options
to purchase common shares at the then market price ranging from $27.88 to
$34.375 per share. Included in the option grant were 1,000,000 options to
each of Messrs. Zuckerman and Linde granted on March 24, 1998 at an exercise
price of $34.375 per share, which options vest in five equal annual
installments. The other options granted vest in three equal annual
installments from their date of grant.
As of March 31, 1998, the Company had outstanding 5,607,163 options to
purchase common shares and an additional 2,004,505 common shares were
reserved for issuance under the Company's stock option and incentive plan.
5
<PAGE>
Boston Properties, Inc., and
Boston Properties Predecessor Group
Notes to Consolidated and Combined Financial Statements
(Continued)
8. EARNINGS PER SHARE
------------------
<TABLE>
<CAPTION>
For the quarter ended March 31, 1998
Income (Numerator) Shares (Denominator) Per share amount
<S> <C> <C> <C>
Basic Earnings Per Share:
Income available to common shareholders $19,631 54,283 $0.36
Effect of Dilutive Securities:
Stock Options - 619 -
------- ------ -----
Diluted Earnings Per Share:
Income available to common shareholders $19,631 54,902 $0.36
======= ====== =====
</TABLE>
9. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
-----------------------------------------------------------------
The accompanying unaudited pro forma information for the three month period
ended March 31, 1997 is presented as if the Initial Offering and Formation
Transactions discussed in Note 1 had occurred on January 1, 1997. This pro
forma information is based upon the historical consolidated financial
statements of the Company and the Boston Properties Predecessor Group and
should be read in conjunction with the consolidated and combined financial
statements and the notes thereto.
This unaudited pro forma condensed information does not purport to represent
what the actual results of operations would have been, nor does it purport to
predict the results of operations of future periods.
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended 3/31/98 Ended 3/31/97
(actual) (pro forma)
-------- -----------
<S> <C> <C>
Total revenue $89,938 $54,196
Net income $19,631 $ 9,238
Net income per share of common stock $0.36 $0.27
Weighted average number of shares
of common stock outstanding 54,283 33,984
</TABLE>
10. SUBSEQUENT EVENTS
-----------------
On April 1, 1998, the Company acquired a parcel of land in Reston, Virginia that
is currently under development and will support an approximately 96,000 square
foot Class A office building.
On April 2, 1998, the Company acquired six parcels of land in Dulles, Virginia
on approximately 91.1 improved acres which can support approximately 1.6 million
square feet of development.
On April 29, 1998, the Company declared a dividend of $.405 per share payable on
May 19, 1998 to shareholders of record on May 8, 1998.
On May 7, 1998, the Company entered into an agreement to acquire the commercial
property in the Prudential Center in Boston, Massachusetts for $519.0 million
and a 50% controlling partnership interest in related approved development
rights for consideration valued at approximately $27.0 million.
On May 8, 1998, the Company signed a letter of intent to acquire the six-
building portfolio known as Embarcadero Center in San Francisco, California for
consideration valued at approximately $1.22 billion.
6
<PAGE>
Boston Properties, Inc., and
Boston Properties Predecessor Group
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report.
OVERVIEW
Management's Discussion and Analysis of Financial Condition and Results of
Operations include certain forward-looking statements about the Company's
business, revenues, expenditures and operating and capital requirements. In
addition, forward-looking statements may be included in various other Company
documents to be issued in the future and in various oral statements by Company
representatives to security analysts and investors from time to time. Any such
statements are subject to risks that could cause the actual results to
vary materially. The risks and uncertainties associated with the forward-
looking information include the strength of the commercial office and industrial
real estate markets in which the Company operates, competitive market
conditions, general economic growth, interest rates and capital market
conditions. The Company discusses such risks in detail in its prospectus dated
January 26, 1998 as filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 TO THE THREE MONTHS ENDED MARCH
31, 1997.
The results of operations for the three months ended March 31, 1997 represent
solely the operating results of the Predecessor Group. Consequently, the
comparisons of the periods provide only limited information regarding the
operations of the Company.
Rental revenue increased $41.5 million or 85.7% to $89.9 million from $48.4
million for the three months ended March 31, 1998 compared to the three months
ended March 31, 1997. The increase is due to rental revenue earned on the
properties acquired since the Initial Offering and rental revenue from the
participating leases with ZL Hotel LLC to operate the hotels.
Hotel operating revenue decreased $12.8 million or 100% to $0.0 from $12.8
million for the three months ended March 31, 1998 compared to the three months
ended March 31, 1997. Hotel revenue for the three months ended March 31, 1998
does not include any revenue as a result of the Operating Partnership entering
into participating leases with ZL Hotel LLC to operate the hotels.
Interest and other revenue increased $3.4 million or 775.9% to $3.9 million from
$0.4 million for the three months ended March 31, 1998 compared to the three
months ended March 31, 1997 due to interest income earned on the proceeds from
the Second Offering.
Property expenses increased $12.5 million or 89.4% to $26.5 million from $14.0
million for the three months ended March 31, 1998 compared to the three months
ended March 31, 1997 primarily as a result of property acquisitions.
Hotel operating expenses decreased $10.0 million or 100% to $0.0 from $10.0
million for the three months ended March 31, 1998 compared to the three months
ended March 31, 1997. There were no expenses during the three months ended
March 31, 1998 as a result of the participating leases.
General and administrative expenses increased $2.2 million or 80.8% to $4.8
million from $2.7 million for the three months ended March 31, 1998 compared to
the three months ended March 31, 1997 primarily as a result of increased payroll
costs associated with new acquisitions and costs associated with being a public
company.
Interest expense decreased $2.8 million or 10.1% to $24.9 million from $27.7
million for the three months ended March 31, 1998 compared to the three months
ended March 31, 1997. This decrease is a result of the payoff of certain
mortgage indebtedness with the proceeds from the Initial Offering offset by
increases in mortgage indebtedness from property acquisitions.
Depreciation and amortization expense increased $4.3 million or 48.9% to $13.1
from $8.8 million for the three months ended March 31, 1998 and March 31, 1997.
This increase is attributed to the property acquisitions since the Initial
Offering.
As a result of the foregoing, net income before minority interests increased
$26.0 million to $26.2 million from $0.2 million for the three months ended
March 31, 1998 compared to the three months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the Second Offering, the Company received approximately
$765.7 million in net proceeds. The Company used these funds as follows: (i)
$300.0 million to repay the balance on the Unsecured Line of Credit; (ii)
approximately $88.5 million for the acquisition of the Mulligan/Griffin
Portfolio and; (iii) approximately $377.2 million which was used to fund working
capital and which will be available to fund future acquisitions and development.
7
<PAGE>
Boston Properties, Inc., and
Boston Properties Predecessor Group
On March 31, 1998, the Company amended its Unsecured Line of Credit agreement,
increasing the borrowing capacity from $300 million to $500 million. The
Unsecured Line of Credit at the Company's election, bears interest at either a
floating rate based on a spread over LIBOR ranging from 90 basis points to 120
basis points (depending upon the Company's applicable leverage ratio), or the
Line of Credit Bank's prime rate. The Company's ability to borrow under the
Unsecured Line of Credit is subject to the Company's ongoing compliance with a
number of financial and other covenants, including, but not limited to,
maintaining a certain ratio of secured indebtedness to total asset value, as
defined. The Unsecured Line of Credit expires on June 23, 2000.
The Company's consolidated indebtedness at March 31, 1998 was $1.3 billion at a
weighted average interest rate of 7.5%. Based on the Company's total market
capitalization at March 31, 1998 of approximately $4.2 billion, the Company's
consolidated debt represents 32.2% of its total market capitalization.
The following represents the outstanding principal balances due under the first
mortgages at March 31, 1998:
<TABLE>
<CAPTION>
Properties Interest Rate Principal Maturity Date
---------- ------------- --------- -------------
(in thousands)
<S> <C> <C> <C>
599 Lexington Avenue 7.00% $225,000 July 19, 2005 (1)
280 Park Avenue 7.00 220,000 September 11, 2002 (2)
875 Third Avenue 8.00 185,287 December 31, 2002 (3)
Two Independence Square 8.09 121,596 February 27, 2003 (4)
Riverfront Plaza 6.61 121,479 January 21, 2008
One Independence Square 8.12 77,474 August 21, 2001 (4)
2300 N Street 6.88 66,000 August 3, 2003
Capital Gallery 8.24 59,823 August 15, 2006
The National Imagery and Mapping Agency 7.38 51,604 February 15, 2003 (5)
The Lockheed Martin Building 7.38 44,583 July 15, 2002 (6)
Ten Cambridge Center & North Garage 7.57 40,000 March 29, 2000
10 & 20 Burlington Mall Road 8.33 37,000 October 1, 2001 (7)
191 Spring Street 8.50 23,632 September 1, 2006
Bedford Business Park 8.50 22,984 December 10, 2008
Reston Town Center Office Complex 7.38 21,000 February 1, 2005 (8)
Montvale Center 8.59 7,871 December 1, 2006
Newport Office Park 8.13 6,692 July 1, 2001
Hilltop Business Center LIBOR + 1.50 4,567 December 15, 1998
----------
Total $1,336,592
==========
</TABLE>
(1) At maturity the lender has the option to purchase a 33.33% interest in this
Property in exchange for the cancellation of the loan indebtedness.
(2) Outstanding principal of $213,000 bears interest at a fixed rate of 7.00%.
The remaining $7,000 bears interest at a floating rate equal to LIBOR +
1.00%.
(3) The principal amount and interest rate shown have been adjusted to reflect
the fair value of the note. The actual principal balance at March 31, 1998
was $180,000 and the interest rate was 8.75%.
(4) The principal amount and interest rate shown have been adjusted to reflect
the effective rates on the loans. The actual principal balances at March 31,
1998 were $120,969 and $77,188, respectively. The actual interest rates on
the loans are 8.50%.
8
<PAGE>
Boston Properties, Inc., and
Boston Properties Predecessor Group
(5) Represents two loans that have been adjusted to reflect the fair value of
the notes. The actual principal balances at March 31, 1998 were $ 46,787 and
$1,639 with interest rates of 9.38% and 9.70%, respectively.
(6) The principal amount and interest rate shown have been adjusted to reflect
the fair value of the note. The actual principal balance at March 31, 1998
was $42,042 and the interest rate was 9.38%.
(7) Includes outstanding indebtedness secured by 91 Hartwell Avenue and 92 & 100
Hayden Avenue.
(8) The principal amount and interest rate shown have been adjusted to reflect
the fair value of the note. The actual principal balance at March 31, 1998
was $21,999 and the interest rate was 6.00%.
The Company expects to meet its short-term liquidity requirements generally
through its available cash and net cash provided by operations. The Company's
operating properties and hotels require periodic investments of capital for
tenant-related capital expenditures and for general capital improvements. For
the three months ended March 31, 1998, the Company's recurring capital
expenditures totaled $560,000.
The Company expects to meet its long-term requirements for the funding of
property development, property acquisitions and other non-recurring capital
improvements through long-term secured and unsecured indebtedness (including the
Unsecured Line of Credit) and the issuance of additional equity securities of
the Company.
The Company has development projects currently in process, which require
commitments to fund to completion. Commitments under these arrangements totaled
$209.5 million as of March 31, 1998. The Company expects to fund these
commitments using available cash or the Unsecured Line of Credit. In addition,
the Company has options to acquire land that require minimum deposits that the
Company will fund using available cash or the Unsecured Line of Credit.
FUNDS FROM OPERATIONS
Management believes Funds from Operations is helpful to investors as a measure
of the performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures. The Company computes Funds from
Operations in accordance with standards established by the White Paper on Funds
from Operations approved by the Board of Governors of NAREIT in 1995, which may
differ from the methodology for calculating Funds from Operations utilized by
other equity REITs, and accordingly, may not be comparable to such other REITs.
The White Paper defines Funds from Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring and
sales of property, plus real estate related depreciation and amortization and
after adjustments for unconsolidated partnerships and joint ventures. Further,
Funds from Operations does not represent amounts available for management's
discretionary use because of needed capital replacement or expansion, debt
service obligations, or other commitments and uncertainties. Funds from
Operations should not be considered as an alternative to net income (determined
in accordance with GAAP) as an indication of the Company's financial performance
or to cash flows from operating activities (determined in accordance with GAAP)
as a measure of the Company's liquidity, nor is it indicative of funds available
to fund the Company's cash needs, including its ability to make distributions.
The Company believes that in order to facilitate a clear understanding of the
combined historical operating results of the Boston Properties Predecessor Group
and the Company, Funds from Operations should be examined in conjunction with
net income as presented in the consolidated and combined financial statements.
The following table presents the Company's Funds from Operations for the three
months ended March 31, 1998:
<TABLE>
<CAPTION>
Three months ended
March 31, 1998
------------------
<S> <C>
Income before minority interests $26,228
Add:
Real estate depreciation and amortization 12,944
Less:
Minority property partnership's share of Funds from Operations (144)
-------
Funds from Operations $39,028
=======
Company's share (75.20%) $29,349
=======
</TABLE>
INFLATION
The majority of the Company's tenant leases require tenants to pay most
operating expenses, including real estate taxes and insurance, and increases in
common area maintenance expenses, which reduces the Company's exposure to
increases in costs and operating expenses resulting from inflation.
9
<PAGE>
Boston Properties, Inc., and
Boston Properties Predecessor Group
PART II. OTHER INFORMATION
ITEM 2 - Changes in Securities and Use of Proceeds
On February 2, 1998, the Company acquired the Mulligan/Griffin Portfolio for
consideration which included the issuance of 1,471,456 OP Units. Such OP Units
were issued to 12 accredited investors in a transaction that was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) of such
Act. Under the terms of the Operating Partnership's agreement of limited
partnership and an agreement with the recipients of such OP Units, at any time
after February 2, 1999 the Operating Partnership is obligated to redeem each
such OP Unit at the request of the holder thereof for cash equal to the fair
market value of a share of Common Stock at the time of such redemption, provided
that the Company at its option may elect to acquire any such OP Unit presented
for redemption for one share of Common Stock.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
27.1 Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K dated January 9, 1998 was filed with the Securities and Exchange
Commission to report under Item 5 of such report that the Company had issued a
press release relating to the signing of a letter of intent for the acquisition
of the Prudential Center in Boston, Massachusetts.
A Form 8-K dated January 23, 1998 was filed with the Securities and Exchange
Commission to report under Item 5 of such report that the Company had issued a
press release reporting results for the fourth quarter of 1997.
A Form 8-K dated January 22, 1998 was filed with the Securities and Exchange
Commission to report under Item 2 of such report that (a) the Company had
acquired Riverfront Plaza, a Class A office building in Richmond, Virginia and
(b) the Company had acquired the Mulligan/Griffin Portfolio, a portfolio of nine
Class A office buildings and six parcels of land in Gaithersburg, Maryland,
Rockville, Maryland, Springfield, Virginia and Reston, Virginia. The Company
also filed related pro forma financial statements under Item 7. In addition,
under Item 5, the Company announced the completion of a public offering of
23,000,000 shares of common stock (including 3,000,000 shares issued pursuant to
the exercise of the underwriters' overallotment options).
10
<PAGE>
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.
BOSTON PROPERTIES, INC.
May 14, 1998 /s/ David G. Gaw
--------------------------
David G. Gaw,
Chief Financial Officer
(Duly authorized officer and
principal financial officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 391,404
<SECURITIES> 0
<RECEIVABLES> 18,853
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 509,699
<PP&E> 1,969,796
<DEPRECIATION> 11,842
<TOTAL-ASSETS> 2,515,878
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 617
<OTHER-SE> 859,826
<TOTAL-LIABILITY-AND-EQUITY> 2,515,878
<SALES> 89,938
<TOTAL-REVENUES> 95,603
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 69,375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,929
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,631
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
