<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
_________________
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1998
BOSTON PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
Delaware
(State of Incorporation)
1-13087 04-2473675
(Commission File Number) (IRS Employer Id. Number)
8 Arlington Street
Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
(617) 859-2600
(Registrant's telephone number, including area code)
<PAGE>
Item 5 Other Events
This Form 8-K/A is being filed pursuant to the rules governing the reporting of
transactions on Form 8-K, under Rule 3-14 of Regulation S-X, to update through
December 31, 1997, the interim unaudited financial statements for the nine
months ended September 30, 1997, previously filed on the Current Report on Form
8-K for the Mulligan/Griffin Portfolio dated November 26, 1997 and on the
Current Report on Form 8-K/A for Riverfront Plaza dated October 23, 1997.
Item 7 Financial Statements and Exhibits
The following financial statements are being filed in connection with the
acquisition of Riverfront Plaza, Richmond, Virginia, which closed on January 22,
1998; the acquisition of the Mulligan/Griffin Portfolio, which closed on
February 2, 1998; the acquisition of the Carnegie Center Portfolio, East
Brunswick and Princeton, New Jersey, which closed on June 30, 1998: the
acquisition of the Prudential Center, Boston, Massachusetts, which closed on
July 2, 1998; and the acquisition of Metropolitan Square, Washington, D.C.,
which closed on July 10, 1998. This Form 8-K/A is being filed to amend (i) the
Current Report on Form 8-K filed by the Registrant on July 15, 1998; (ii) the
Current Report on Form 8-K filed by the Registrant on July 17, 1998; and (iii)
the Current Report on Form 8-K filed by the Registrant on July 27, 1998.
The agreements made in connection with the transactions referenced above, were
negotiated at arms length between the Registrant and representatives of the
transferors. Neither the Registrant, any subsidiary of the Registrant nor any
director or officer of the Registrant was affiliated with or had a material
relationship with the transferors. In determining the price to purchase the
Acquired Properties (as defined in the attached financial statements) the
Registrant evaluated various factors, including, among others, the existing
leases, which are the primary source of revenue, the occupancy rates, the
competitive nature of the markets and comparative rental rates. Current and
anticipated operating expenses, maintenance and repair costs, real estate taxes
and capital improvement requirements were also evaluated. After reasonable
inquiry, the Registrant is not aware of any material fators (other than those
stated above) which would cause the reported financial information not to be
indicative of future operating results.
(a) Financial Statements under Rule 3-14 of Regulation S-X.
Statement of Revenue over Certain Operating Expenses of Riverfront Plaza for the
year ended December 31, 1997.
Statement of Revenue over Certain Operating Expenses of the Mulligan/Griffin
Portfolio for the year ended December 31, 1997.
Statement of Revenue over Certain Operating Expenses of the Carnegie Center
Portfolio for the year ended December 31, 1997 and (unaudited) for the period
from January 1, 1998 to June 29, 1998.
Statement of Revenue over Certain Operating Expenses of the Prudential Center
for the year ended December 31, 1997 and (unaudited) for the six months ended
June 30, 1998.
Statement of Revenue over Certain Operating Expenses of Metropolitan Square for
the year ended December 31, 1997 and (unaudited) for the six months ended June
30, 1998.
(b) Pro Forma Financial Statements
Pro Forma Consolidated Balance Sheet as of June 30, 1998 (unaudited).
Pro Forma Consolidated and Combined Statements of Operations for the six months
ended June 30, 1998 (unaudited) and for the year ended December 31, 1997
(unaudited).
(c) Exhibits
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
<PAGE>
BOSTON PROPERTIES, INC.
SIGNATURE
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.
/s/ David G. Gaw
-------------------------------------
David G. Gaw,
Chief Financial Officer
Date: August 24, 1998
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.:
In our opinion, the accompanying statement of revenue over certain operating
expenses of Riverfront Plaza (the "Property") in Richmond, Virginia, presents
fairly, in all material respects, the revenue over certain operating expenses
(as described in Note 2) of the Property for the year ended December 31, 1997 in
conformity with generally accepted accounting principles. This statement is the
responsibility of the Property's management; our responsibility is to express an
opinion on this statement based on our audit. We conducted our audit of this
statement in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the statement of revenue over certain operating expenses is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for the opinion expressed above.
The accompanying statement of revenue over certain operating expenses was
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission, and excludes certain expenses described in Note 2, and
therefore is not intended to be a complete presentation of the Property's
revenue and expenses.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
August 17, 1998
<PAGE>
RIVERFRONT PLAZA
STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
For the
year ended
December 31, 1997
-----------------
<S> <C>
Revenue:
Base rent $14,909
Recoveries from tenants 2,891
Garage - net 2,390
Other income 454
-------
20,644
-------
Certain operating expenses (Note 2):
Repairs and maintenance 752
Utilities 1,498
General and administrative 420
Janitorial and cleaning 738
Security 395
Insurance 151
Real estate taxes 1,625
-------
5,579
-------
Excess of revenue over certain
operating expenses $15,065
=======
</TABLE>
The accompanying notes are an integral part of the statement.
<PAGE>
RIVERFRONT PLAZA
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
1. DESCRIPTION OF THE PROPERTY
The accompanying statement of revenue over certain operating expenses (the
"Statement") includes the operations of an approximately 899,720 square
foot Class A office property located in Richmond, Virginia. The Property
was acquired by Boston Properties, Inc. on January 22, 1998 from an
unrelated third party.
2. BASIS OF ACCOUNTING
The accompanying Statement has been prepared on the accrual basis of
accounting. The Statement has been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real estate
properties acquired or to be acquired. Accordingly, this Statement
excludes certain historical expenses not comparable to the operations of
the Property after acquisition such as amortization, depreciation, property
management fees, certain interest costs, corporate expenses, certain bad
debts and certain other costs not directly related to the future operations
of the Property.
3. SIGNIFICANT ACCOUNTING POLICIES
Rental Revenue
Rental income is recognized on the straight-line method over the terms of
the related leases. The excess of recognized rentals over amounts due
pursuant to lease terms is recorded as accrued rent. The impact of the
straight-line rent adjustment increased revenue by approximately $10 for
the year ended December 31, 1997.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
<PAGE>
RIVERFRONT PLAZA
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
4. DESCRIPTION OF LEASING ARRANGEMENTS
The commercial and office space is leased to tenants under leases with terms
that vary in length. Minimum lease payments excluding reimbursement clauses
and renewal options to be received during the next five years and thereafter
for noncancelable operating leases in effect at December 31, 1997 are
approximately as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
-----------
<S> <C>
1998................................... $14,889
1999................................... 13,983
2000................................... 13,243
2001................................... 11,389
2002................................... 10,562
Thereafter............................. 31,760
</TABLE>
As of December 31, 1997, two tenants occupied approximately 55% of the
leasable square feet and represented 54% of total contract base rent.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.:
In our opinion, the accompanying statement of revenue over certain operating
expenses of the Mulligan/Griffin Portfolio (the "Portfolio") in Greater
Washington D.C., presents fairly, in all material respects, the revenue over
certain operating expenses (as described in Note 2) of the Portfolio for the
year ended December 31, 1997 in conformity with generally accepted accounting
principles. This statement is the responsibility of the Portfolio's management;
our responsibility is to express an opinion on this statement based on our
audit. We conducted our audit of this statement in accordance with
generally accepted auditing standards, which require that we plan and perform
the audit to obtain reasonable assurance about whether the statement of revenue
over certain operating expenses is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
The accompanying statement of revenue over certain operating expenses was
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission, and excludes certain expenses described in Note 2, and
therefore is not intended to be a complete presentation of the Portfolio's
revenue and expenses.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
August 14, 1998
<PAGE>
MULLIGAN/GRIFFIN PORTFOLIO
STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
For the
year ended
December 31, 1997
-----------------
<S> <C>
Revenue:
Base rent $25,924
Recoveries from tenants 5,314
-------
31,238
-------
Certain operating expenses (Notes 2 and 5):
Repairs and maintenance 1,029
Utilities 2,186
General and administrative 45
Janitorial and cleaning 480
Security 32
Insurance 155
Interest 10,363
Real estate taxes 1,608
-------
15,898
-------
Excess of revenue over certain operating
expenses $15,340
=======
</TABLE>
The accompanying notes are an integral part of the statement.
<PAGE>
MULLIGAN/GRIFFIN PORTFOLIO
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
1. DESCRIPTION OF THE PORTFOLIO
The accompanying statement of revenue over certain operating expenses (the
"Statement") includes the combined operations of nine office properties
known as the Mulligan/Griffin Portfolio (the "Portfolio"), located in the
Greater Washington, D.C. area, specifically in the Gaithersburg I-270 and
I-270 Rockville submarkets of Montgomery County, Maryland and the
Springfield and Reston submarkets of Fairfax County, Virginia. The
Portfolio was acquired by Boston Properties, Inc. on February 2, 1998 from
an unrelated third party, and is detailed as follows:
<TABLE>
<CAPTION>
Number of Square
Property Name Buildings Feet
- ------------- ---------- ---------
<S> <C> <C>
National Imagery and Mapping Agency Building ........ 1 263,870
Reston Town Center................................... 2 261,046
Lockheed Martin Building............................. 1 255,244
910 Clopper Road..................................... 1 180,650
Fullerton Square..................................... 2 178,841
Decoverly Two........................................ 1 77,747
930 Clopper Road..................................... 1 60,056
---------
Total............................................ 1,277,454
=========
</TABLE>
2. BASIS OF ACCOUNTING
The accompanying Statement has been prepared on the accrual basis of
accounting. The Statement has been prepared in accordance with Rule 3-14
of Regulation S-X of the Securities and Exchange Commission for real estate
properties acquired or to be acquired. Accordingly, this Statement excludes
certain historical expenses not comparable to the operations of the
Portfolio after acquisition such as amortization, depreciation, property
management fees, certain interest costs, ground lease payments, corporate
expenses, and certain other costs not directly related to the future
operations of the Portfolio.
3. SIGNIFICANT ACCOUNTING POLICIES
Rental Revenue
Rental income is recognized on the straight-line method over the terms of
the related leases. The excess of recognized rentals over amounts due
pursuant to lease terms is recorded as accrued rent. The impact of the
straight-line rent adjustment decreased revenue by approximately $582 for
the year ended December 31, 1997.
<PAGE>
MULLIGAN/GRIFFIN PORTFOLIO
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
4. DESCRIPTION OF LEASING ARRANGEMENTS
The space is leased to tenants under leases with terms that vary in length.
Minimum lease payments excluding reimbursement clauses and renewal options
to be received during the next five years and thereafter for noncancelable
operating leases in effect at December 31, 1997 are approximately as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
-----------
<S> <C>
1998................................... $29,736
1999................................... 29,920
2000................................... 30,249
2001................................... 29,582
2002................................... 27,816
Thereafter............................. 79,836
</TABLE>
As of December 31, 1997, two tenants occupied approximately 61% of the
leasable square feet and represented 81% of total contract base rent.
5. DEBT ASSUMPTION
In connection with the acquisition, certain mortgage notes (the "Notes")
encumbering three of the properties totaling $114,042 at December 31, 1997
were assumed. The interest expense reflected relates to the debt assumed.
The Notes require payments of principal and interest through varying terms
ranging from July 15, 2002 to February 1, 2005. The interest rate on the
Notes range from 6.00% to 9.70%.
<TABLE>
<S> <C>
1998................................... $ 9,728
1999................................... 10,588
2000................................... 11,524
2001................................... 12,549
2002................................... 35,958
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.:
In our opinion, the accompanying statement of revenue over certain
operating expenses of the Carnegie Center Portfolio (the "Portfolio") in
Princeton and East Brunswick, New Jersey present fairly, in all material
respects, the revenue over certain operating expenses (as described in Note 2)
of the Portfolio for the year ended December 31, 1997 in conformity with
generally accepted accounting principles. This statement is the responsibility
of the Portfolio's management; our responsibility is to express an opinion on
this statement based on our audit. We conducted our audit of this statement in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
statement of revenue over certain operating expenses is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above.
The accompanying statement of revenue over certain operating expenses was
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission, and excludes certain expenses described in Note 2, and
therefore is not intended to be a complete presentation of the Portfolio's
revenue and expenses.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
July 30, 1998
<PAGE>
CARNEGIE CENTER PORTFOLIO
STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
For the For the period
year ended January 1, 1998 to
December 31, 1997 June 29, 1998
----------------- ------------------
(unaudited)
<S> <C> <C>
Revenue:
Base rent $27,294 $13,857
Recoveries from tenants 7,128 3,449
Other income 427 232
------- -------
34,849 17,538
------- -------
Certain operating expenses
(Notes 2 and 5):
Repairs and maintenance 3,130 1,217
Utilities 2,296 1,141
General and administrative 303 112
Janitorial and cleaning 1,138 563
Security 167 54
Interest 4,807 2,061
Real estate taxes 4,253 2,127
------- -------
16,094 7,275
------- -------
Excess of revenue over certain
operating expenses $18,755 $10,263
======= =======
</TABLE>
The accompanying notes are an integral part of the statement.
<PAGE>
CARNEGIE CENTER PORTFOLIO
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
1. DESCRIPTION OF THE PORTFOLIO
The accompanying statement of revenue over certain operating expenses
(the "Statement") includes the combined operations of ten office properties
known as the Carnegie Center Portfolio, (the "Portfolio") located in
Princeton and East Brunswick, New Jersey. The Portfolio was acquired on
June 30, 1998 by Boston Properties, Inc. from entities affiliated with the
Landis Group, an unrelated third party, and are detailed as follows:
<TABLE>
<CAPTION>
SQUARE
PROPERTY NAME FEET
------------- ------------
<S> <C>
Tower One...................................... 420,006
210 Carnegie Center............................ 159,498
214 Carnegie Center............................ 153,305
212 Carnegie Center............................ 150,063
101 Carnegie Center............................ 131,982
202 Carnegie Center............................ 128,929
104 Carnegie Center............................ 102,198
105 Carnegie Center............................ 69,648
211 Carnegie Center............................ 47,917
Childcare Property............................. 6,500
------------
Total 1,370,046
------------
</TABLE>
2. BASIS OF ACCOUNTING
The accompanying Statement has been prepared on the accrual basis of
accounting. The Statement has been prepared in accordance with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission for real estate
properties acquired or to be acquired. Accordingly, this Statement excludes
certain historical expenses not comparable to the operations of the
Portfolio after acquisition such as amortization, depreciation, property
management fees, certain interest costs, corporate expenses and certain
other costs not directly related to the future operations of the Portfolio.
3. SIGNIFICANT ACCOUNTING POLICIES
Rental Revenue
Rental income is recognized on the straight-line method over the terms
of the related leases. The excess of recognized rentals over amounts due
pursuant to lease terms is recorded as accrued rent. The impact of the
straight-line rent adjustment decreased
<PAGE>
CARNEGIE CENTER PORTFOLIO
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
revenue by approximately $508 and $343 for the year ended December 31, 1997
and for the period from January 1, 1998 to June 29, 1998 (unaudited),
respectively.
Unaudited Interim Information
The statement of revenue over certain operating expenses for the
period from January 1, 1998 to June 29, 1998 is unaudited. In the opinion
of management, all adjustments necessary for a fair presentation of such
Statement have been included. The results of operations for the period are
not necessarily indicative of future results of operations.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
4. DESCRIPTION OF LEASING ARRANGEMENTS
The space is leased to tenants under leases with terms that vary in
length. Minimum lease payments excluding reimbursement clauses and renewal
options to be received during the next five years and thereafter for
noncancelable operating leases in effect at December 31, 1997 are as
follows:
YEAR ENDING
DECEMBER 31,
------------
1998................................................ $ 27,985
1999................................................ 25,586
2000................................................ 23,847
2001................................................ 15,615
2002................................................ 10,815
Thereafter.......................................... 17,287
As of December 31, 1997, two tenants occupied approximately 47% of the
leasable square feet and represented 47% of total contract base rent.
<PAGE>
CARNEGIE CENTER PORTFOLIO
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
5. DEBT ASSUMPTION
In connection with the acquisition, certain mortgage notes (the
"Notes") encumbering five of the properties totaling $65,252 at December
31, 1997 were assumed. The interest expense reflected relates to the debt
assumed. The Notes require payments of principal and interest through
varying terms ranging from October 31, 2000 to February 1, 2010. The
interest rate on the Notes range from 6.25% to 8.40%
Principal payments due on the Notes during the next five years are
approximately as follows:
1998....................................................... $ 1,338
1999....................................................... 1,469
2000....................................................... 53,580
2001....................................................... 337
2002....................................................... 363
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.:
In our opinion, the accompanying statement of revenue over certain
operating expenses of the Prudential Center (the "Property") in Boston,
Massachusetts, presents fairly, in all material respects, the revenue over
certain operating expenses (as described in Note 2) of the Property for the year
ended December 31, 1997 in conformity with generally accepted accounting
principles. This statement is the responsibility of the Property's management;
our responsibility is to express an opinion on this statement based on our
audit. We conducted our audit of this statement in accordance with generally
accepted auditing standards, which require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenue over certain
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying statement of revenue over certain operating expenses was
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission, and excludes certain expenses described in Note 2, and
therefore is not intended to be a complete presentation of the Property's
revenue and expenses.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
July 24, 1998
<PAGE>
PRUDENTIAL CENTER
STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
For the
For the six months
year ended ended
December 31, 1997 June 30, 1998
----------------- -----------------
(unaudited)
Revenue:
<S> <C> <C>
Base rent - office and retail $45,792 $24,288
Recoveries from tenants 7,273 3,916
Garage - net 10,260 5,481
Other income 4,960 2,365
------- -------
68,285 36,050
------- -------
Certain operating expenses (Notes 2 and 5):
Repairs and maintenance 4,471 1,907
Janitorial and cleaning 3,517 1,722
Security 2,212 1,038
Utilities 6,137 2,232
General and administrative 1,415 765
Insurance 445 167
Real estate taxes 13,543 7,007
Advertising and promotion 1,171 178
------- -------
32,911 15,016
------- -------
Excess of revenue over certain
operating expenses $35,374 $21,034
======= =======
</TABLE>
The accompanying notes are an integral part of the statement.
<PAGE>
PRUDENTIAL CENTER
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
1. DESCRIPTION OF THE PROPERTY
The accompanying statement of revenue over certain operating expenses (the
"Statement") includes the collective operations of two Class A office
towers with approximately 1.72 million net rentable square feet, an
approximately 477,000 net rentable square foot retail complex and a parking
garage with approximately 2,700 parking spaces known as the Prudential
Center ("the Property") located in Boston, Massachusetts. The Property was
acquired by Boston Properties, Inc. on July 2, 1998 from an unrelated third
party.
2. BASIS OF ACCOUNTING
The accompanying Statement has been prepared on the accrual method of
accounting. The Statement has been prepared in accordance with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission for real estate
properties acquired or to be acquired. Accordingly, this Statement excludes
certain historical expenses not comparable to the operations of the Property
after acquisition such as amortization, depreciation, property management
fees, corporate expenses and certain other costs not directly related to the
future operations of the Property.
3. SIGNIFICANT ACCOUNTING POLICIES
Rental Revenue
Rental income is recognized on the straight-line method over the terms of
the related leases. The excess of recognized rentals over amounts due
pursuant to lease terms is recorded as accrued rent. The impact of the
straight-line rent adjustment increased revenue by approximately $1,590
and $300 for the year ended December 31, 1997 and the six months ended June
30, 1998 (unaudited), respectively.
Unaudited Interim Information
The Statement of revenue over certain operating expenses for the six months
ended June 30, 1998 is unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such combined statement
have been included.
<PAGE>
PRUDENTIAL CENTER
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
4. DESCRIPTION OF LEASING ARRANGEMENTS
The office and retail space is leased to tenants under leases with
terms that vary in length. Minimum lease payments excluding reimbursement
clauses, percentage lease revenue and renewal options to be received
during the next five years and thereafter under noncancelable operating
leases in effect at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1998............................................................. $ 38,410
1999............................................................. 39,487
2000............................................................. 39,431
2001............................................................. 35,630
2002............................................................. 38,503
Thereafter....................................................... 104,743
</TABLE>
As of December 31, 1997, three tenants occupied approximately 48% of
the leasable square feet and represented 41% of the contract base rent.
5. RELATED PARTY TRANSACTIONS
Insurance coverage is provided by an affiliated party of the seller.
During the year ended December 31, 1997, affiliates of the seller
leased space at the Property. Rental revenue in 1997 includes approximately
$250 from leases with affiliates.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.:
In our opinion, the accompanying statement of revenue over certain
operating expenses of Metropolitan Square in Washington, D.C. (the "Property")
present fairly, in all material respects, the revenue over certain operating
expenses (as described in Note 2) of the Property for the year ended December
31, 1997 in conformity with generally accepted accounting principles. This
statement is the responsibility of the Property's management; our responsibility
is to express an opinion on this statement based on our audit. We conducted our
audit of this statement in accordance with generally accepted auditing
standards, which require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenue over certain operating expenses
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statement, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for the opinion expressed above.
The accompanying statement of revenue over certain operating expenses was
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission, and excludes certain expenses described in Note 2, and
therefore is not intended to be a complete presentation of the Property's
revenue and expenses.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
July 10, 1998
<PAGE>
METROPOLITAN SQUARE
STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(dollars in thousands)
<TABLE>
<CAPTION>
For the For the
year ended six months ended
December 31, 1997 June 30, 1998
----------------- ----------------
(unaudited)
<S> <C> <C>
Revenue:
Base rent $18,221 $ 9,195
Recoveries from tenants 1,100 449
Garage - net 1,034 549
------- -------
20,355 10,193
------- -------
Certain operating expenses
(Notes 2, 5 and 6):
Repairs and maintenance 843 463
Janitorial and cleaning 772 408
Security 207 114
Utilities 951 502
General and administrative 343 209
Insurance 64 28
Real estate taxes 2,854 1,506
Interest 9,589 4,761
------- -------
15,623 7,991
------- -------
Excess of revenue over certain
operating expenses $ 4,732 $ 2,202
======= =======
</TABLE>
The accompanying notes are an integral part of the statement.
<PAGE>
METROPOLITAN SQUARE
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF THE PROPERTY
The accompanying statement of revenue over certain operating expenses
(the "Statement") includes the operations of an approximately 596,543
square foot Class A office property known as Metropolitan Square, (the
"Property") located in Washington, D.C. The Property was acquired on July
10, 1998 by Boston Properties, Inc. from an unrelated third party.
2. BASIS OF ACCOUNTING
The accompanying Statement has been prepared on the accrual basis of
accounting. The Statement has been prepared in accordance with Rule 3-14 of
Regulation S-X of the Securities and Exchange Commission for real estate
properties acquired or to be acquired. Accordingly, this Statement excludes
certain historical expenses not comparable to the operations of the
Property after acquisition such as amortization, depreciation, certain
property management fees, certain interest costs, corporate expenses and
certain other costs not directly related to the future operations of the
Property.
3. SIGNIFICANT ACCOUNTING POLICIES
Rental Revenue
Rental income is recognized on the straight-line method over the terms
of the related leases. The excess of recognized rentals over amounts due
pursuant to lease terms is recorded as accrued rent. The impact of the
straight-line rent adjustment increased revenue by approximately $847 and
$303 for the year ended December 31, 1997 and for the six months ended June
30, 1998 (unaudited), respectively.
Unaudited Interim Information
The statement of revenue over certain operating expenses for the six
months ended June 30, 1998 is unaudited. In the opinion of management, all
adjustments necessary for a fair presentation of such Statement have been
included. The results of operations for the period are not necessarily
indicative of future results of operations.
<PAGE>
METROPOLITAN SQUARE
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
4. DESCRIPTION OF LEASING ARRANGEMENTS
The space is leased to tenants under leases with terms that vary in
length. Minimum lease payments excluding reimbursement clauses and renewal
options to be received during the next five years and thereafter for
noncancelable operating leases in effect at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1998............................................................. $17,106
1999............................................................. 13,308
2000............................................................. 10,959
2001............................................................. 10,622
2002............................................................. 10,059
Thereafter....................................................... 42,589
</TABLE>
As of December 31, 1997, three tenants occupied approximately 71% of
the leasable square feet and represented 64% of the contract base rent.
<PAGE>
METROPOLITAN SQUARE
NOTES TO STATEMENT OF REVENUE
OVER CERTAIN OPERATING EXPENSES
(DOLLARS IN THOUSANDS)
5. DEBT ASSUMPTION
In connection with the acquisition, the mortgage debt (the "Note")
encumbering the Property totaling $104,674 at December 31, 1997 was
assumed. The terms of the Note were modified upon assumption to eliminate
current principal payments. The Note requires interest only payments at an
interest rate of 9.125% and matures on June 1, 2000.
6. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, parking operations were
managed by an affiliate of the seller. Management fees of approximately
$184 were incurred in 1997.
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO THE
PRO FORMA CONSOLIDATED BALANCE SHEET
(Unaudited)
The accompanying unaudited Pro Forma Consolidated Balance Sheet of Boston
Properties, Inc. (the "Company") is presented as if the following transactions;
(i) the properties acquired subsequent to June 30, 1998 (the "Acquired
Properties"), (ii) the private sale of common stock on July 2, 1998 and,
(iii) repayment of certain notes had been consummated on June 30, 1998.
This Pro Forma Consolidated financial information should be read in
conjunction with Form 10-Q for the six months ended June 30, 1998.
The following Consolidated Balance Sheet is not necessarily indicative of what
the actual financial position would have been assuming the above transactions
had been consummated on June 30, 1998 nor does it purport to represent the
future financial position of the Company.
<PAGE>
BOSTON PROPERTIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
---------------- ----------- --------------
Boston Acquired Other
Properties, Inc. Properties Adjustments
Pro Forma
---------------- ----------- -------------- ----------
ASSETS
<S> <C> <C> <C> <C>
Real Estate $2,675,418 $698,337 $3,373,755
Less: accumulated depreciation (319,414) (319,414)
---------- -------- ---------- ----------
Total real estate 2,356,004 698,337 (A) 3,054,341
Cash and cash equivalents 108,962 (143,249)(B) $ 35,656 (B) 1,369
Escrows 17,833 17,833
Tenant and other receivables, net 24,767 24,767
Accrued rental income, net 62,773 62,773
Deferred charges, net 36,949 36,949
Prepaid expenses and other assets 22,921 22,921
Investment in joint ventures 7,674 27,000 (C) 34,674
---------- -------- ---------- ----------
Total assets $2,637,883 $582,088 $ 35,656 $3,255,627
========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $1,327,575 $408,855 (D) $1,736,430
Unsecured line of credit - 31,089 (D) 31,089
Accounts and notes payable and accrued expenses 62,120 18,181 (E) $(18,181)(B) 62,120
Accrued interest payable 3,276 3,276
Other liabilities 17,395 17,395
---------- -------- ---------- ----------
Total liabilities 1,410,366 458,125 (18,181) 1,850,310
---------- -------- ---------- ----------
Minority interest in Operating Partnership 352,790 123,963 (A) (43,445)(G) 433,308
---------- -------- ---------- ----------
Stockholders' equity:
Excess stock, $.01 par value, 50,000,000 shares
authorized, none issued and outstanding -
Preferred stock, $.01 par value, 50,000,000 shares
authorized, none issued or outstanding -
Common Stock, $.01 par value, 250,000,000 shares
authorized, 61,694,041 issued and outstanding
(historical) and 63,369,887 shares issued and
outstanding (pro forma) 617 17 (F) 634
Additional paid-in capital 847,090 97,265 (B),(G) 944,355
Retained earnings 27,020 27,020
---------- -------- ---------- ----------
Total stockholders' equity 874,727 97,282 972,009
---------- -------- ---------- ----------
Total liabilities and stockholders' equity $2,637,883 $582,088 $ 35,656 $3,255,627
========== ======== ========== ==========
</TABLE>
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO THE
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(A) Represents the purchase price, including closing costs, of the Acquired
Properties as follows:
<TABLE>
<CAPTION>
Purchase
Price
-----
<S> <C>
Prudential Center (1).................................. $518,982
Metropolitan Square (2)................................ 179,355
--------
Total Acquired Properties $698,337
========
</TABLE>
(1) The acquisition of the Prudential Center was funded by the issuance of
$96,163 in restricted Operating Partnership Units (the "OP Units")
based on a price per share of $32.125, mortgage acquisition financing
of $300,000, cash of $118,730 and a drawdown from the Unsecured Line
of Credit of $4,089.
(2) The acquisition of Metropolitan Square was funded by the issuance of
$27,800 in OP Units based on a price per share of $34.09, the
assumption of the fair value of mortgage debt in the amount of
$108,855, the assumption of notes payable of $18,181 and cash of
$24,519.
(B) Represents the cash transactions related as follows:
<TABLE>
<S> <C>
Proceeds received from the private sale of 1,675,846 common shares........ $ 53,837
Paydown on notes payable assumed in the Metropolitan Square acquisition... (18,181)
Working capital used for the Acquired Properties.......................... (143,249)
---------
Net decrease in cash...................................................... $(107,593)
=========
(C) Net increase reflects the following:
Related investment into joint venture for a 50% interest in the future
development at the Prudential Center..................................... $ 27,000
=========
</TABLE>
(D) Represents the following debt transactions related to the Acquired
Properties:
<TABLE>
<S> <C>
MORTGAGE NOTES PAYABLE
Mortgage assumed in connection with the acquisition of
Metropolitan Square at fair value..................................... $108,855
Mortgage financing in connection with the acquisition of
The Prudential Center................................................. 300,000
--------
Net increase in mortgage notes payable $408,855
========
UNSECURED LINE OF CREDIT
Draw from Unsecured Line of Credit for investment into joint venture
related to the future development at the Prudential Center............ $ 27,000
Draw from Unsecured Line of Credit for the Prudential Center
acquisition........................................................... 4,089
--------
Net increase in Unsecured Line of Credit................................. $ 31,089
========
</TABLE>
(E) Reflects notes payable assumed in connection with the acquisition of
Metropolitan Square.
(F) Reflects private sale of 1,675,846 shares of common stock on July 2, 1998.
(G) Adjustment to minority interest to reflect change as a result of the
increase in outstanding OP Units as a result of the acquisitions.
<PAGE>
BOSTON PROPERTIES, INC.
PRO FORMA CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
For the six months ended June 30, 1998 and the year ended December 31, 1997
(Unaudited)
The accompanying unaudited Pro Forma Condensed Consolidated Statement of
Income for the six months ended June 30, 1998 and for the year ended December
31, 1997 is presented as if the following transactions had occurred on January
1, 1997: (i) the consummation of the initial public offering (the "Initial
Offering") and related Formation Transactions, (ii) the consummation of the
second offering and private sale of common stock, (iii) the acquisition of the
previously completed 1997 acquisitions reported on Form 8-K's previously filed
with the Securities and Exchange Commission (the "1997 Acquired Properties")
(iv) the significant acquisitions, (as defined in SEC Rule "3-14") made in 1998
and detailed below (the "1998 Acquisitions") (v) the closing of mortgage
financing and refinancings, and (vi) the drawdown in the Unsecured Line of
Credit as a result of acquisitions.
The operations of the hotel properties and the parking garages have been
included in the pro forma financial information pursuant to participating lease
agreements for the Company to continue to qualify as a REIT under IRC Section
856.
This Pro Forma Consolidated Pro Forma Statement of Income should be read in
conjunction with the historical consolidated and combined financial statement
and notes thereto of the Company and the Predecessor Company, Inc reported on
Form 10-K for the year ended December 31, 1997 and Form 10-Q for the six month
period ended June 30, 1998.
The unaudited Pro Forma Consolidated Pro Forma financial information prepared
by Boston Properties' management is not necessarily indicative of what the
actual results of operations would have been for the six months ended June 30,
1998 or for the year ended December 31, 1997, had the previously described
transactions actually occurred on January 1, 1997 and the effect thereof carried
forward through the six month period ended June 30, 1998, nor do they purport to
present the future results of operations of the Company.
<PAGE>
BOSTON PROPERTIES, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Boston
Properties, Inc.
----------------
Six months 1998
ended Acquired Other
June 30, 1998 Properties Adjustments Pro Forma
--------------- ---------- ----------- ---------
(A)
<S> <C> <C> <C> <C>
Revenue:
Rental:
Base rent $167,075 $59,354 $226,429
Recoveries from tenants 19,362 8,557 27,919
Parking and other 2,706 3,244 5,950
-------- ------- ------- --------
Total rental revenue 189,143 71,155 260,298
Development and management services 6,159 6,159
Interest and other 8,341 $(7,542)(C) 799
-------- ------- ------- --------
Total revenue 203,643 71,155 (7,542) 267,256
-------- ------- ------- --------
Expenses:
Rental:
Operating 26,793 13,462 40,255
Real estate taxes 27,140 10,912 38,052
General and administrative 10,621 150(B) 10,771
Interest 48,743 6,439 8,527(D) 63,709
Depreciation and amortization 29,689 9,936 39,625
-------- ------- ------- --------
Total expenses 142,986 40,749 8,677 192,412
-------- ------- ------- --------
Income before minority interests 60,657 30,406 (16,219) 74,844
Minority interest in property partnership (229) (229)
-------- ------- ------- --------
Income before minority interest in
Operating Partnership 60,428 30,406 (16,219) 74,615
Minority interest in Operating Partnership (14,440) (7,538)(F) (21,978)
-------- ------- ------- --------
Income before extraordinary item $ 45,988 $30,406 $(23,757) $ 52,637
======== ======= ======= ========
Income before extraordinary item
per common share - basic $ .79 $ .83
======== ========
Weighted average number of
common shares outstanding - basic 58,009 63,370
======== ========
Income before extraordinary item
per common share - diluted $ .79 $ .82
======== ========
Weighted average number of
common shares outstanding - diluted 58,613 63,974
======== ========
</TABLE>
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO PRO FORMA CONSOLIDATED
STATEMENT OF INCOME
For the six months ended June 30, 1998
(dollars in thousands, except per share data)
(unaudited)
(A) Reflects the historical results of operations, as adjusted for base rent,
interest and depreciation, for the 1998 Acquired Properties for the six
months ended June 30, 1998 as follows:
<TABLE>
<CAPTION>
Riverfront Mulligan/ Carnegie Prudential Metropolitan Total 1998
Plaza(1) Griffin(1) Center(1) Center Square Acquisitions
-------------- ---------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rental:
Base rent $ 1,121 $ 2,357 $ 13,857 $ 29,769 $ 9,744 $ 56,848
Adjustment(2) - - 537 1,771 198 2,506
------------ --------- --------- ---------- ------------ -----------
Total base rent 1,121 2,357 14,394 31,540 9,942 59,354
Recoveries from tenants 217 526 3,449 3,916 449 8,557
Other income 117 530 232 2,365 - 3,244
------------ --------- --------- ---------- ------------ -----------
Total rental revenue 1,455 3,413 18,075 37,821 10,391 71,155
Expenses:
Operating 255 387 3,087 8,009 1,724 13,462
Real estate taxes 137 135 2,127 7,007 1,506 10,912
Interest - 677 2,076(3) - 3,686(4) 6,439
Depreciation (Note E) 236 452 2,588 4,865 1,795 9,936
------------ --------- --------- ---------- ------------ -----------
Total expenses 628 1,651 9,878 19,881 8,711 40,749
------------ --------- --------- ---------- ------------ -----------
Net income $ 827 $ 1,762 $ 8,197 $ 17,940 $ 1,680 $ 30,406
============ ========= ========= ========== ============ ===========
</TABLE>
(1) Reflects results of operations prior to acquisition.
(2) Represents an adjustment to straight-line rent based on the pro forma
acquisition date of January 1, 1997.
(3) Includes an adjustment of $15 to reflect effective interest expense
on the mortgage debt assumed.
(4) Includes an adjustment of ($1,075) to reflect interest expense on the
mortgage debt assumed.
(B) Reflects and incremental increase in general and administrative costs
related to the 1998 Acquired Properties.
(C) Reflects the net decrease in interest income as a result of cash used to
acquire the 1998 Acquired Properties.
(D) Reflects increase in interest expense as a result of the following
transactions:
<TABLE>
<S> <C>
Interest on mortgage acquisition financing of the Prudential Center in
the principal amount of $300,000 computed at an interest rate of 6.72%.... $ 10,080
Interest reduction on paydown of $30 million related to the 875 Third
Avenue mortgage loan...................................................... (800)
Interest on draw down on unsecured Line of Credit as a result of the 1998
Acquired Properties....................................................... 139
Interest on mortgage acquisition financing of Riverfront Plaza in the
principal amount of $121,800 computed at an interest rate of 6.61%........ 485
Interest reduction on refinancing and partial paydown of the
Mulligan/Griffin Portfolio loans.......................................... (1,377)
--------
Increase in interest expense.............................................. $ 8,527
========
</TABLE>
(E) Detail of pro forma depreciation expense is presented below for the 1998
Acquired Properties:
<TABLE>
<CAPTION>
PURCHASE PRO FORMA
PROPERTIES PRICE DEPRECIATION(1)
---------- ----- ---------------
<S> <C> <C>
Riverfront Plaza(2) $174,361 236
Mulligan/Griffin Portfolio(2) 257,890 452
Carnegie Center Portfolio(2) 276,000 2,588
Prudential Center 518,982 4,865
Metropolitan Square 179,355 1,795
------
$9,936
======
</TABLE>
(1) Represents depreciation expense on the properties which has been
calculated over 40 years for the building and over the life of the
lease for tenant improvements.
(2) Reflects pro forma depreciation expense for the period prior to
acquisition.
(F) This pro forma adjustment reflects the adjustment for the operating
partnership unit holders' share of pro forma income before extraordinary
items, including the distribution on the preferred units at a rate of
7.25%.
<PAGE>
Boston Properties, Inc.
Pro Forma Consolidated and Combined Statement of Income
For the year ended December 31, 1997
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Boston
Properties
Boston Predecessor
Properties, Inc. Group Pro Forma Adjustments
---------------- ---------------- ---------------------------------------
June 23, 1997 Jan. 1, 1997 Initial Offering
to to Formation Acquisition
December 31, 1997 June 22, 1997 Transactions Property
----------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
A B
Revenue:
Rental:
Base rent $126,401 $ 80,122 $9,396 $ 1,498
Recoveries from tenants 12,564 10,283 - 101
Parking and other 676 3,397 (1,061) -
-------- -------- -------- --------
Total rental revenue 139,641 93,802 8,335 1,599
Hotel - 31,185 (31,185) -
Development and management
services 3,813 3,685 (452) -
Interest and other 2,189 1,146 (352) -
-------- -------- -------- --------
Total revenue 145,643 129,818 (23,654) 1,599
-------- -------- -------- --------
Expenses:
Rental:
Operating 19,591 13,650 (353) 437
Real estate taxes 20,502 13,382 1,345 172
Hotel:
Operating - 20,938 (20,938) -
Real estate taxes - 1,514 (1,514) -
General and administrative 6,689 5,116 391 -
Interest 38,264 53,324 (28,151) -
Depreciation and amortization 21,719 17,054 124 210
-------- -------- -------- --------
Total expenses 106,765 124,978 (49,096) 819
-------- -------- -------- --------
Income before minority interests 38,878 4,840 25,442 780
Minority interest in property
Partnership (215) (235) - -
-------- -------- -------- --------
Income before minority interest in
Operating Partnership 38,663 4,605 25,442 780
Minority interest in Operating
Partnership (11,437) - - -
-------- -------- -------- --------
Income before extraordinary item $ 27,226 $ 4,605 $ 25,442 $ 780
======== ======== ======== ========
Income before extraordinary item
per common share - basic $ 0.70
========
Weighted average number of common
shares outstanding - basic 38,694
========
Income before extraordinary item
per common share - diluted $ 0.70
========
Weighted average number of
common shares outstanding - diluted 39,108
========
</TABLE>
<PAGE>
Boston Properties, Inc.
Pro Forma Consolidated and Combined Statement of Income
For the year ended December 31, 1997
(unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------------------------------------------
1997 1998 Pro Forma
Acquired Acquired Other December 31,
Properties Properties Adjustments 1997
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
(C) (C)
Revenue:
Rental:
Base rent $ 54,440 $152,014 $423,871
Recoveries from tenants 7,639 23,706 54,293
Parking and other 347 5,841 9,200
-------- -------- -------- --------
Total rental revenue 62,426 181,561 487,364
Hotel -
Development and management services 7,046
Interest and other (2,566)(D) 417
-------- -------- -------- --------
Total revenue 62,426 181,561 (2,566) 494,827
-------- -------- -------- --------
Expenses:
Rental:
Operating 14,580 37,463 85,368
Real estate taxes 13,049 23,883 72,333
Hotel:
Operating -
Real estate taxes -
General and administrative 1,300(E) 13,496
Interest 11,138 20,861 39,683(F) 135,119
Depreciation and amortization 7,709 27,809 74,625
-------- -------- -------- --------
Total expenses 46,476 110,016 40,983 380,941
-------- -------- -------- --------
Income before minority interests 15,950 71,545 (43,549) 113,886
Minority interest in property
partnership (450)
-------- -------- -------- --------
Income before minority interest in
Operating Partnership 15,950 71,545 (43,549) 113,436
Minority interest in Operating
Partnership (23,038)(H) (34,475)
-------- -------- -------- --------
Income before extraordinary item $ 15,950 $ 71,545 $(66,587) $ 78,961
======== ======== ======== ========
Income before extraordinary item
per common share - basic $ 1.25
========
Weighted average number of common
shares outstanding - basic 63,370
========
Income before extraordinary item
per common share - diluted $ 1.24
========
Weighted average number of common
shares outstanding - diluted 63,783
========
</TABLE>
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO THE PRO FORMA CONSOLIDATED AND COMBINED
STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
Notes to the Pro Forma Consolidated and Combined Statement of Income
for the year ended December 31, 1997
(A) Reflects the pro forma Formation Transactions adjustment summary for the
period from January 1, 1997 to June 22, 1997 ( the "Predecessor Period").
<TABLE>
<CAPTION>
Rent
Hotels Interest Property Property
Pro Forma and Parking Hotel Mgmt and Operating Real Estate
Adjustments Garage Income Revenue Fees Other Expenses Taxes
- ----------- --------- -------- --------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(1) Assignment of contracts...................... $(452)
(2) Equity investment income..................... $ 21
(3) Operation of hotels and garage............... $(1,061) $(31,185) $(353) $1,345
(4) Rental of hotels and garage.................. $9,396
(5) General and administrative...................
(6) Amortization of deferred financing costs.....
(7) Release of restricted cash................... (373)
(8) Depreciation expense.........................
(9) Mortgage interest............................
------ ------ -------- ----- ----- ---- -----
Pro Forma Formation Transactions adjustment
summary total $9,396 $(1,061) $(31,185) $(452) $(352) $(353) $1,345
====== ======= ======== ===== ===== ===== ======
<CAPTION>
Hotel
Hotel Real General
Pro Forma Operating Estate & Interest Depreciation
Adjustments Expenses Taxes Admin Expense Expense
- ----------- --------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
(1) Assignment of contracts..................... $(430)
(2) Equity investment income....................
(3) Operation of hotels and garage.............. $(20,938) $(1,514)
(4) Rental of hotels and garage.................
(5) General and administrative.................. 821
(6) Amortization of deferred financing costs.... $ (189)
(7) Release of restricted cash..................
(8) Depreciation expense........................ $124
(9) Mortgage interest........................... (27,962)
--------- ------- ----- -------- ----
Pro Forma Formation Transactions adjustment
summary total $(20,938) $(1,514) $ 391 $(28,151) $124
========= ======= ===== ======== ====
</TABLE>
(1) In connection with the Formation Transactions, certain third-party
management contracts were assigned to the Development and Management
Company. As a result of the assignment, operating income, expenses and
overhead attributable to the contracts were reflected in the
operations of the Development and Management Company as detailed
below:
<TABLE>
<CAPTION>
<S> <C>
Management services........................................................ $ 452
General and administrative expenses........................................ (430)
-----
Manager contract income............................................... $ 22
=====
</TABLE>
(2) The Operating Partnership holds a 95% economic interest in the
Development and Management Company and records an equity interest of
$21 on the $22 net income.
(3) In connection with the Formation Transactions, the Operating
Partnership entered into participating leases for the operation of the
hotels and parking garage. As a result of these agreements, revenue
and expenses will not be reflected from the operation of these
businesses.
(4) Represents rental income from the leasing of the hotels and parking
garage owned by the Operating Partnership. The hotel lease
arrangements are with an affiliate.
(5) Reflects an increase of $821 in general and administrative expenses as
a result of operating as a public company.
(6) Reflects the net increase of $290 in the amortization of deferred
financing costs for the $1,800 fee and related professional costs on
the Unsecured Line of Credit, less a net reduction of $479 in
amortization of deferred financing costs related to debt paid off with
the Initial Offering proceeds.
(7) Reflects the decrease in interest income as a result of the release of
cash previously required to be held in escrow per the terms of the
various mortgage note payable agreements.
(8) Reflects the increase in depreciation from depreciating over 40 years
the pro forma increase in real estate from the purchase of limited
partners' interests and transfer cost paid.
(9) Reflects the repayment of a portion of the existing mortgage
indebtedness from proceeds of the Initial Offering for the Predecessor
Period:
<TABLE>
<CAPTION>
Principal Interest
Properties Amount Rate Interest
---------- ---------- --------- --------
<S> <C> <C> <C>
599 Lexington Avenue............................................ $225,000 7.00% $ 7,547
Two Independence Square......................................... 122,505 7.90% 4,637
One Independence Square......................................... 78,327 7.90% 2,965
2300 N Street................................................... 66,000 7.00% 2,214
Capital Gallery................................................. 60,559 8.24% 2,391
Ten Cambridge Center............................................ 25,000 7.57% 907
191 Spring Street............................................... 23,883 8.50% 973
Bedford Business Park........................................... 23,376 8.50% 952
10 & 20 Burlington Mall Road.................................... 16,621 8.33% 663
Cambridge Center North Garage................................... 15,000 7.57% 544
91 Hartwell Avenue.............................................. 11,322 8.33% 452
92 & 100 Hayden Avenue.......................................... 9,057 8.33% 362
Montvale Center................................................. 7,969 8.59% 328
Newport Office Park............................................. 6,874 8.13% 268
Hilltop Business Center......................................... 4,750 7.00% 159
-------
Total...................................................... 25,362
Historical interest expense- Predecessor Period................. (53,324)
--------
Pro forma interest expense adjustment for the Predecessor
Period....................................................... $(27,962)
========
</TABLE>
(B) Reflects the results of operations, as adjusted for depreciation, of the
Newport Office Park, acquired concurrent with the Initial Offering, for the
period from January 1, 1997 to June 22, 1997 (the acquisition date).
(C) Reflects the historical results of operations, as adjusted, for base rent,
interest and depreciation, for the 1997 and 1998 Acquired Properties for
the year ended December 31, 1997:
1997 Acquired Properties:
<TABLE>
<CAPTION>
280 Park 100 East Pratt 875 Third Total 1997
Avenue(1) Street(1) Avenue(1) Acquisitions
-------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Rental:
Base rent $17,012 $10,924 $18,646 $46,582
Adjustment(2) 7,437 397 24 7,858
------- ------- ------- -------
Total base rent 24,449 11,321 18,670 54,440
Recoveries from tenants 1,707 2,133 3,799 7,639
Parking and other 80 267 - 347
------- ------- ------- -------
Total rental revenue 26,236 13,721 22,469 62,426
Expenses:
Rental:
Operating 7,772 3,453 3,355 14,580
Real estate taxes 6,677 1,541 4,831 13,049
Interest - - 11,138(3) 11,138
Depreciation (Note G) 3,355 1,934 2,420 7,709
------- ------- ------- -------
Total expenses 17,804 6,928 21,744 46,476
------- ------- ------- -------
Net income $ 8,432 $ 6,793 $ 725 $15,950
======= ======= ======= =======
</TABLE>
(1) Reflects results of operations for the period prior to acquisition.
(2) Represents an adjustment to straight-line rent based on the pro
forma acquisition date of January 1, 1997.
(3) Includes an adjustment of ($675) to reflect effective interest on
the mortgage debt assumed.
1998 Acquired Properties:
<TABLE>
<CAPTION>
Riverfront Mulligan/ Carnegie Prudential Metropolitan Total 1998
Plaza Griffin Center Center Square Acquisitions
--------- --------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Rental:
Base rent $ 17,299 $25,924 $27,294 $56,052 $19,255 $145,824
Adjustment(1) 909 464 1,127 3,542 148 6,190
--------- -------- --------- -------- ---------- -----------
Total base rent 18,208 26,388 28,421 59,594 19,403 152,014
Recoveries from tenants 2,891 5,314 7,128 7,273 1,100 23,706
Parking and other 454 - 427 4,960 - 5,841
--------- -------- --------- -------- ---------- -----------
Total rental revenue 21,553 31,702 35,976 71,827 20,503 181,561
Expenses:
Rental:
Operating 3,954 3,927 7,034 19,368 3,180 37,463
Real estate taxes 1,625 1,608 4,253 13,543 2,854 23,883
Interest - 8,692(2) 4,835(3) - 7,334(4) 20,861
Depreciation (Note G) 3,923 5,480 5,175 9,731 3,500 27,809
--------- -------- --------- -------- ---------- -----------
Total expenses 9,502 19,707 21,297 42,642 16,868 110,016
--------- -------- --------- -------- ---------- -----------
Net income $ 12,051 $11,995 $14,679 $29,185 $ 3,635 $ 71,545
========= ======== ========= ======== ========== ===========
</TABLE>
(1) Represents an adjustment to straight-line rent based on the pro
forma acquisition date of January 1, 1997.
(2) Includes an adjustment of ($1,671) to reflect the effective interest
expense of the mortgage debt assumed.
(3) Includes an adjustment of $28 to reflect effective interest expense
on the mortgage debt assumed.
(4) Includes an adjustment of ($2,255) to reflect effective interest
expense on the mortgage debt assumed.
(D) Reflects reduction in interest income as a result of cash used for the
acquisition of properties.
(E) Reflects the incremental increase in general and administrative costs
related to the 1997 and 1998 Acquired Properties.
(F) Reflects the net increase in interest expense as a result of the following
debt transactions:
<TABLE>
<S> <C>
Interest on anticipated draw down on Unsecured Line of Credit as a result of 1997 and
1998 Acquired Properties....................................................................... $ 8,450
Interest on mortgage acquisition financing of 280 Park Avenue in the original principal amount
of $220 million computed at an interest rate of 7.00% for the period January 1, 1997 to
September 11, 1997 (date of acquisition)....................................................... 10,675
Amortization of deferred financing fees for the period from January 1, 1997 to
September 11, 1997 (date of acquisition) as a result of approximately $1.1 million of fees
associated with the mortgage financing of 280 Park Avenue. The deferred financing fees are
amortized over the five year term of the loan.................................................. 153
Interest on mortgage acquisition financing of Riverfront Plaza in the amount of $121,800
computed at an interest rate of 6.61%.......................................................... 8,051
Interest reduction on paydown of $30 million related to the 875 Third Avenue mortgage loan..... (2,400)
Interest on mortgage acquisition financing of the Prudential Center in the principal
amount of $300,000 computed at an interest rate of 6.72%....................................... 20,160
Interest reduction on refinancing and partial paydown of the
Mulligan/Griffin Portfolio loans'.............................................................. (5,406)
--------
Increase in interest expense $ 39,683
========
</TABLE>
(G) Detail of pro forma depreciation expense is presented below for the 1997
and 1998 Acquired Properties:
<TABLE>
<CAPTION>
Purchase Pro forma
Price Depreciation(1)
----------- ------------
<S> <C> <C>
1997 Acquired Properties
- ------------------------
280 Park Avenue $322,650 $ 3,355
100 East Pratt Street 137,516 1,934
875 Third Avenue 215,118 2,420
-------
$ 7,709
=======
1998 Acquired Properties
- ------------------------
Riverfront Plaza $174,361 $ 3,923
Mulligan/Griffin Portfolio 257,890 5,480
Carnegie Center Portfolio 276,000 5,175
Prudential Center 518,982 9,731
Metropolitan Square 179,255 3,500
-------
$27,809
=======
</TABLE>
(1) Represents depreciation expense on the properties which has been
calculated over 40 years for the building and over the life of the
lease for tenant improvements.
(H) This pro forma adjustment reflects the adjustment for the operating
partnership unit holders' share of pro forma income before extraordinary
items, including the distribution on the preferred units at a rate
of 7.25%.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Boston Properties, Inc. on Forms S-3 (File Nos. 333-60219 and 333-61799)
of our reports indicated below with respect to the financial statements
indicated below, which reports are included in this Form 8-K/A of Boston
Properties Inc., dated August 24, 1998.
Date of Independent
Financial Statements Accountants Report
-------------------- -------------------
Statement of revenue over certain operating
expenses of Riverfront Plaza for the year
ended December 31, 1997. August 17, 1998
Statement of revenue over certain operating
expenses of the Mulligan/Griffin Portfolio for
the year ended December 31, 1997. August 14, 1998
Statement of revenue over certain operating
expenses of the Carnegie Center Portfolio
for the year ended December 31, 1997. July 30, 1998
Statement of revenue over certain operating
expenses of Prudential Center for the year
ended December 31, 1997. July 24, 1998
Statement of revenue over certain operating
expenses of Metropolitan Square for the year
ended December 31, 1997. July 10, 1998
/s/ PricewaterhouseCoopers
Boston, Massachusetts
August 24, 1998
