<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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
Securities registered pursuant to Section 12(b) of the Act: None
Title of Each Class Name of Exchange on Which Registered
------------------- ------------------------------------
Common Stock, Par Value $.01 New York Stock Exchange
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. Yes [X] No [_]
As of March 24, 1998, the aggregate value of the 59,098,500 Common Shares held
by non-affiliates of the Registrant was $2,031,510,938 based upon the closing
price of $34.375 on the New York Stock Exchange composite tape on such date.
(For this computation, the Registrant has excluded the market value of all
Common Shares reported as beneficially owned by executive officers and directors
of the Registrant; such exclusion shall not be deemed to constitute an admission
that any such person is an "affiliate" of the Registrant.) As of March 24, 1998,
there were 61,694,041 Common Shares outstanding.
Certain information contained in the Company's Proxy Statement relating to its
Annual Meeting of Stockholders to be held May 6, 1998 is incorporated by
reference in Part III, Items 10, 11, 12 and 13.
<PAGE>
TABLE OF CONTENTS
ITEM NO. DESCRIPTION PAGE NO.
PART I
1. BUSINESS.................................................... 1
2. PROPERTIES.................................................. 9
3. LEGAL PROCEEDINGS........................................... 11
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 11
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................ 11
6. SELECTED FINANCIAL DATA..................................... 13
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................. 16
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 25
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE................................... 25
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 25
11. EXECUTIVE COMPENSATION...................................... 25
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................. 25
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 26
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K................................................... 27
SIGNATURES.................................................. 28
<PAGE>
PART I
Item 1. Business
General
Boston Properties, Inc. (the "Company") is one of the largest owners and
developers of office properties in the United States, with a significant
presence in Greater Boston, Massachusetts, Greater Washington, D.C., midtown
Manhattan, New York, Baltimore, Maryland and Richmond, Virginia. The Company is
a fully integrated self-administered and self-managed real estate company and
expects to qualify as a real estate investment trust ("REIT") for the taxable
year ended December 31, 1997. The Company was formed to succeed to the real
estate development, redevelopment, acquisition, management, operating and
leasing businesses associated with the predecessor company founded by Mortimer
B. Zuckerman and Edward H. Linde in 1970. The term "Boston Properties
Predecessor Group" or "Predecessor" as used herein refers to the Company and the
entities that owned interests in one or more properties that were contributed to
the Company in connection with the Company's initial public offering in June
1997 (the "Initial Offering"). The term "Company" as used herein means Boston
Properties, Inc. and its subsidiaries on a consolidated basis (including Boston
Properties Limited Partnership and its subsidiaries) or, where the context so
requires, Boston Properties, Inc., and, as the context may require, their
predecessors.
The Company's portfolio currently consists of 92 properties (the
"Properties"), including six properties currently under development by the
Company (the "Development Properties"). The Properties consist of 79 office
properties (the "Office Properties"), including 48 Class A office buildings (the
"Class A Office Buildings") and 31 properties that support both office and
technical uses (the "R&D Properties"); nine industrial properties (the
"Industrial Properties"); three hotels (the "Hotel Properties"); and one parking
garage (the "Garage Property"). Five of the Office Properties are Development
Properties and are referred to as the "Office Development Properties." One Hotel
Property is a Development Property and is referred to as the "Hotel Development
Property." 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.
Over its 27-year history, the Company has developed 83 properties totaling
approximately 15.3 million square feet, including properties developed for third
parties and the six Development Properties currently under development. The
Company's current portfolio of 92 Properties includes 60 of these company-
developed properties.
The Company has a $300 million unsecured line of credit with BankBoston,
N.A., as agent, that expires in June 2000 (the "Unsecured Line of Credit"). As
of March 24, 1998, there were no amounts outstanding under the Unsecured Line of
Credit. Reference is made to "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources"
for additional information regarding the Company's Unsecured Line of Credit and
outstanding indebtedness.
1
<PAGE>
The Company is a full service real estate company, with substantial in-
house expertise and resources in acquisitions, development, financing,
construction management, property management, marketing, leasing, accounting,
tax and legal services. As of December 31, 1997, the Company had 323 employees,
including 109 professionals. The Company's 16 senior officers, together with
Mr. Zuckerman, Chairman of the Board, have an average of 25 years experience in
the real estate industry and an average of 16 years tenure with the Company. The
Company's headquarters are located at 8 Arlington Street, Boston, Massachusetts
02116 and its telephone number is (617) 859-2600. In addition, the Company has
regional offices at the U.S. International Trade Commission Building at 500 E.
Street, SW, Washington, D.C. 20024 and at 599 Lexington Avenue, New York, New
York 10002.
The Operating Partnership
Boston Properties Limited Partnership, a Delaware limited partnership (the
"Operating Partnership"), is the entity through which the Company conducts
substantially all of its business and owns (either directly or through
subsidiaries) substantially all of its assets. As of March 24, 1998, the Company
holds 77.0% of the Operating Partnership's units of general and limited
partnership interest. This structure is commonly referred to as an umbrella
partnership REIT or UPREIT. The Company's partnership interests in the Operating
Partnership entitle it to share in cash distributions from, and in the profits
and losses of, the Operating Partnership in proportion to its percentage
interest therein and generally entitle the Company to vote on all matters
requiring a vote of the partners. The other partners of the Operating
Partnership are persons who contributed their direct or indirect interests in
certain properties to the Operating Partnership in connection with the Company's
Initial Offering or subsequent property acquisitions by the Company for units of
limited partnership interest in the Operating Partnership ("OP Units").
Beginning on August 23, 1998 (or such later date as a holder of OP Units may
have agreed), the Operating Partnership will be obligated to redeem each OP Unit
at the request of the holder thereof for cash equal to the fair market value of
one share of Common Stock at the time of such redemption (determined in
accordance with the provisions of the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership, as amended), provided that the Company
may elect to acquire any such OP Unit presented for redemption for one share of
Common Stock or an amount of cash of the same value. The Company presently
anticipates that it will elect to issue Common Stock in connection with each
such redemption rather than having the Operating Partnership pay cash. With each
such redemption, the Company's percentage ownership in the Operating Partnership
will increase. In addition, whenever the Company issues shares of Common Stock,
the Company will be obligated to contribute any net proceeds therefrom to the
Operating Partnership and the Operating Partnership will be obligated to issue
an equivalent number of OP Units to the Company.
Recent Events
Recent Property Acquisitions
On September 11, 1997, the Company acquired 280 Park Avenue, New York, New
York for approximately $322.7 million (including closing costs). This Class A
Office Building is located in the Park Avenue submarket of midtown Manhattan and
contains approximately 1.2
2
<PAGE>
million net rentable square feet. The Company anticipates investing
approximately $29.0 million in tenant improvements, leasing commissions and
building systems improvements. The Property consists of two linked towers of 30
and 42 stories.
On October 23, 1997, the Company acquired 100 East Pratt Street in
Baltimore, Maryland for $137.5 million in cash (including closing costs) and the
issuance of 500 shares of the Company's Common Stock. This Class A Office
Building contains approximately 635,000 net rentable square feet and an eight-
story parking garage.
On November 21, 1997, the Company acquired 875 Third Avenue, New York, New
York for approximately $215.1 million (including closing costs). This Class A
Office Building is located in the East Side submarket of midtown Manhattan and
contains approximately 682,000 net rentable square feet.
On January 22, 1998, the Company acquired Riverfront Plaza in Richmond,
Virginia for approximately $174.4 million. This Class A Office Building
contains approximately 900,000 net rentable square feet.
On February 2, 1998, the Company acquired the Mulligan/Griffin Portfolio, a
portfolio of nine office buildings and six parcels of land located in Fairfax
County, Virginia and Montgomery County, Maryland for approximately
$257.9 million (including closing costs). The Mulligan/Griffin Portfolio
contains approximately 1,277,000 net rentable square feet of office space and
30.7 acres of land.
Recent Financing Activity
On September 21, 1997, in conjunction with the acquisition of 280 Park
Avenue, the Company obtained a $220.0 million loan from Chase Manhattan Bank.
Under the terms of such loan the Company was required to make interest only
payments based on the contracted London Interbank Offering Rate ("LIBOR") plus
1.0% until the year 2000 when the Company would then be required to make monthly
principal and interest payments. On November 4, 1997, the Company entered into
a swap transaction with Chase Manhattan Bank with respect to this loan. The swap
transaction had the effect of fixing the interest rate with respect to
$213.0 million of the total indebtedness on the loan at 7.0%. The Company
continues to pay interest on the remaining $7.0 million of indebtedness at LIBOR
plus 1.0%.
On January 30, 1998, the Company completed 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) at $35.125 per share,
resulting in gross proceeds of approximately $807.9 million and net proceeds to
the Company of approximately $766.5 million.
3
<PAGE>
Business and Growth Strategies
Business Strategy
The Company's primary business objective is to maximize growth in net cash
available for distribution and to enhance the value of its portfolio in order to
maximize total return to stockholders. The Company's strategy to achieve this
objective is: (i) to selectively acquire and develop properties in the Company's
existing markets, adjacent suburban markets and in new markets that present
favorable opportunities; (ii) to maintain high lease renewal rates at rents that
are at the high end of the markets in which the Properties are located, and to
continue to achieve high room rates and occupancy rates in the Hotel Properties;
and (iii) to selectively provide fee-based development consulting and project
management services to third parties.
Growth Strategies
External Growth
The Company believes that it is well positioned to realize significant
growth through external asset development and acquisition. The Company believes
that this development experience and the Company's organizational depth
positions the Company to continue to develop a range of property types, from
single-story suburban properties to high-rise urban developments, within budget
and on schedule. Other factors that contribute to the Company's competitive
position include: (i) the significant increase in demand for new, high quality
office and industrial space in the Company's core market areas; (ii) the
Company's control of sites (including sites under contract or option to acquire)
in its core markets that will support approximately 2.3 million square feet of
new development through fee ownership, contract ownership, and joint venture
relationships; (iii) the Company's reputation gained through the stability and
strength of its existing portfolio of properties; (iv) the Company's
relationships with leading national corporations and public institutions seeking
new facilities and development services; (v) the Company's relationships with
nationally recognized financial institutions that provide capital to the real
estate industry; and (vi) the substantial amount of commercial real estate owned
by domestic and foreign institutions, private investors, and corporations who
are seeking to sell such assets in the Company's market areas.
The Company has targeted four areas of development and acquisition as
significant opportunities to execute the Company's external growth strategy:
Acquire assets and portfolios of assets from institutions or
individuals. The Company believes that due to its size, management
strength and reputation it will be in an advantageous position to acquire
portfolios of assets or individual properties from institutions or
individuals. Some of these properties may be acquired for cash but the
Company believes that it is particularly well positioned to appeal to
sellers wishing to convert on a tax deferred basis their ownership of
property to the ownership of equity in a diversified real estate operating
company that offers liquidity through access to the public equity markets.
In addition, the Company may pursue mergers with and acquisitions of
compatible real estate firms. The ability to offer OP Units to sellers who
would
4
<PAGE>
otherwise recognize a gain upon a sale of assets for cash or Common Stock
may facilitate this type of transaction on a tax-efficient basis.
Acquire existing underperforming assets and portfolios of assets. The
Company has actively pursued and continues to pursue opportunities to
acquire existing buildings that, while currently generating income, are
either underperforming the market due to poor management or are currently
leased at below market rents with anticipated roll-over of space. These
opportunities may include the acquisition of entire portfolios of
properties. The Company believes that because of its in-depth market
knowledge and development experience in each market in which it currently
operates, its national reputation with brokers, financial institutions and
others involved in the real estate market and its access to competitively-
priced capital, the Company is well-positioned to identify and acquire
existing, underperforming properties for competitive prices and to add
significant additional value to such properties through its effective
marketing strategies and responsive property management program.
Pursue development and land acquisitions in selected submarkets. The
Company believes that development of well-positioned office buildings and
R&D properties is currently or will be justified in many of the submarkets
in which the Company has a presence. The Company believes in acquiring
land in response to market conditions that allow for the development of
such land in the relatively near term. Over its 27 year history, the
Company has established a successful record of carefully timing land
acquisitions in submarkets where the Company can become one of the market
leaders in establishing rent and other business terms. The Company
believes that there are opportunities in its existing and other markets to
acquire land with development potential at key locations in markets which
are experiencing growth.
In the past, the Company has been particularly successful at acquiring
sites or options to purchase sites that need governmental approvals before
the announcement of development. Because of the Company's development
expertise, knowledge of the governmental approval process and reputation
for quality development with local government approval bodies, the Company
generally has been able to secure the permits necessary to allow
development, thereby enabling the Company to profit from the increase in
their value once the necessary permits have been obtained.
Provide third-party development management services. While the
primary objective of the Company has been, and will continue to be, the
development and acquisition of quality, income producing buildings to be
held for long term ownership, a select amount of comprehensive project-
level development management services for third parties will be an element
of the continued growth and strategy of the Company. The Company believes
that third-party development projects permit the Company to: (i) create
relationships with major institutions and corporations that lead to new
development opportunities; (ii) continue to enhance the Company's
reputation in its core markets; (iii) create opportunities to enter new
markets; and (iv) leverage its operating overhead.
5
<PAGE>
Internal Growth
The Company believes that significant opportunities exist to increase cash
flow from its existing Properties because they are high quality properties in
desirable locations in submarkets that, in general, are experiencing rising
rents, low vacancy rates and increasing demand for office and industrial space.
In addition, the Company's Properties are in markets where, in general, supply
is limited by the lack of available sites and the difficulty of receiving the
necessary approvals for development on vacant land. The Company's strategy for
maximizing the benefits from these opportunities is (i) to provide high quality
property management services using its own employees in order to enhance tenant
preferences for renewal, expansion and relocation in the Company's properties,
and (ii) to achieve speed and transaction cost efficiency in replacing departing
tenants through the use of in-house services for marketing, lease negotiation,
and design and construction of tenant improvements. In addition, the Company
believes that the Hotel Properties will add to the Company's internal growth
because of their desirable locations in the downtown Boston and East Cambridge,
Massachusetts submarkets, which are experiencing high occupancy rates and
continued growth in room rates, and their effective management by Marriott/(R)/,
which has achieved high guest satisfaction and limitations on increases in
operating costs.
Cultivate existing submarkets. In choosing locations for its
properties, the Company has paid particular attention to transportation and
commuting patterns, physical environment, adjacency to established business
centers, proximity to sources of business growth and other local factors.
Substantially all of the Company's square footage of Office Properties are
located in fourteen submarkets in Greater Boston, Massachusetts, Greater
Washington, D.C., midtown Manhattan, New York, Baltimore, Maryland, and
Richmond, Virginia.
Many of these submarkets are experiencing increasing rents and as a
result current market rates often exceed the rents being paid by current
tenants in the Properties. The Company expects that leases expiring over
the next three years in these submarkets will be renewed, or space re-let,
at higher rents. Based on leases in place at December 31, 1997, leases
with respect to 7.6% and 5.1% of the Office and Industrial Properties will
expire in calendar years 1998 and 1999, respectively. The actual rental
rates at which available space will be re-let will depend on prevailing
market factors at the time. There can be no assurance that the Company
will re-let such space at an increased, or even at the then current, rental
rate.
Directly manage properties to maximize the potential for tenant
retention. The Company itself provides property management services,
rather than contracting for this service, to achieve awareness of and
responsiveness to tenant needs. The Company and the Properties also
benefit from cost efficiencies produced by an experienced work force
attentive to preventive maintenance and energy management and from the
Company's continuing programs to assure that its property management
personnel at all levels remain aware of their important role in tenant
relations. The Company has long recognized that renewal of existing tenant
leases, as opposed to tenant replacement, often provides the best operating
results, because renewals minimize transaction costs associated with
6
<PAGE>
marketing, leasing and tenant improvements and avoid interruptions in
rental income during periods of vacancy and renovation of space.
Replace tenants quickly at best available market terms and lowest
possible transaction costs. The Company believes that it has a competitive
advantage in attracting new tenants and achieving rental rates at the
higher end of its markets as a result of its well-located, well-designed
and well-maintained properties, its reputation for high quality building
services and responsiveness to tenants, and its ability to offer expansion
and relocation alternatives within its submarkets. The Company's objective
throughout this process is to obtain the highest possible rental terms and
to achieve rent commencement for new tenancies as quickly as possible, and
the Company believes that its use of in-house resources for marketing,
leasing and tenant improvements continues to result in lower than average
transaction costs.
The Hotel Properties
To assist the Company in maintaining its status as a REIT, the Company
leases the two in-service Hotel Properties, pursuant to a lease with a
participation in the gross receipts of such Hotel Properties, to a lessee ("ZL
Hotel LLC") in which Messrs. Zuckerman and Linde are the sole member-managers.
Messrs. Zuckerman and Linde have a 9.8% economic interest in such lessee and one
or more unaffiliated charities have a 90.2% economic interest. Marriott
International, Inc. manages these Hotel Properties under the Marriott/(R)/ name
pursuant to a management agreement with the lessee. Under the REIT
requirements, revenues from a hotel are not considered to be rental income for
purposes of certain income tests which a REIT must meet. Accordingly, in order
to maintain its qualification as a REIT, the Company has entered into the
participating leases described above to provide revenue which qualifies as
rental income under the REIT requirements. The Company intends to make similar
arrangements with respect to the Hotel Development Property.
Environmental Matters
Some of the Properties are located in urban and industrial areas where fill
or current or historical industrial uses of the areas have caused site
contamination. With respect to all of the Properties, independent environmental
consultants have been retained in the past to conduct or update Phase I
environmental assessments (which generally do not involve invasive techniques
such as soil or ground water sampling) and asbestos surveys on all of the
Properties. These environmental assessments have not revealed any environmental
conditions that the Company believes will have a material adverse effect on its
business, assets or results of operations, and the Company is not aware of any
other environmental condition with respect to any of the Properties which the
Company believes would have such a material adverse effect. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Environmental Matters."
7
<PAGE>
Competition
The Company competes in the leasing of office and industrial space with a
considerable number of other realty concerns, some of which may have greater
marketing and financial resources than the Company. In addition, the Company's
in-service Hotel Properties compete for guests with other hotels, some of which
may have greater marketing and financial resources than the Company and
Marriott/(R)/ International, Inc.
8
<PAGE>
Seasonality
The Company's two in-service Hotel Properties traditionally have
experienced significant seasonality in their operating income, with average
weighted net operating income by quarter over the three years 1995 through 1997
as follows:
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
13% 30% 32% 25%
The Company's Office and Industrial Properties and the Garage Property have
not traditionally experienced significant seasonality.
Item 2. Properties
The Company's portfolio currently consists of 92 Properties, including six
Development Properties. The Properties consist of 79 Office Properties,
including 48 Class A Office Buildings and 31 R&D Properties; nine Industrial
Properties; three Hotel Properties; and one Garage Property. In addition, the
Company owns an additional thirteen parcels of land for future development. The
following table sets forth information relating to the Properties currently
owned by the Company:
<TABLE>
<CAPTION>
% Year(s) Built/
Property Name Market Ownership Renovated (1)
-------------- ------ --------- -------------
<S> <C> <C> <C>
Office Properties:
Class A Office Properties:
280 Park Avenue New York, NY 100.0% 1968
599 Lexington Avenue New York, NY 100.0% 1986
Riverfront Plaza Richmond, VA 100.0% 1990
875 Third Avenue New York, NY 100.0% 1982
Democracy Center Bethesda, MD 100.0% 1985-88/94-96
100 East Pratt Street Baltimore, MD 100.0% 1975/1991
Two Independence Square SW, Washington, D.C. 100.0% 1992
Capital Gallery SW, Washington, D.C. 100.0% 1981
One Independence Square SW, Washington, D.C. 100.0% 1991
2300 N Street NW, Washington, D.C. 100.0% 1986
National Imagery and Mapping Agency Building Reston, VA 100.0% 1987/1988
Reston Town Center Office Complex Reston, VA 100.0% 1984
Lockheed Martin Building Reston, VA 100.0% 1987/1988
The U.S. International Trade Commission Building SW, Washington, D.C. 100.0% 1987
One Cambridge Center Cambridge, MA 100.0% 1987
Newport Office Park Quincy, MA 100.0% 1988
Lexington Office Park Lexington, MA 100.0% 1982
191 Spring Street Lexington, MA 100.0% 1971/1995
Ten Cambridge Center Cambridge, MA 100.0% 1990
10 & 20 Burlington Mall Road Burlington, MA 100.0% 1984-1986/95-96
Waltham Office Center Waltham, MA 100.0% 1968-1970/87-88
Montvale Center Gaithersburg, MD 75.0% 1987
91 Hartwell Avenue Lexington, MA 100.0% 1985/96
Three Cambridge Center Cambridge, MA 100.0% 1987
201 Spring Street Lexington, MA 100.0% 1997
Bedford Business Park Bedford, MA 100.0% 1980
Eleven Cambridge Center Cambridge, MA 100.0% 1984
33 Hayden Avenue Lexington, MA 100.0% 1979
Decoverly Two Rockville, MD 100.0% 1987
170 Tracer Lane Waltham, MA 100.0% 1980
32 Hartwell Avenue Lexington, MA 100.0% 1968-1979/1987
195 West Street Waltham, MA 100.0% 1990
100 Hayden Avenue Lexington, MA 100.0% 1985
204 Second Avenue Waltham, MA 100.0% 1981/1993
92 Hayden Avenue Lexington, MA 100.0% 1968/1984
8 Arlington Street Boston, MA 100.0% 1860-1920/1989
Subtotal for Office Properties ............................................................
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
% Year(s) Built/
Property Name Market Ownership Renovated (1)
-------------- ------ --------- -------------
<S> <C> <C> <C>
R & D Properties:
Bedford Business Park Bedford, MA 100.0% 1962-1978/96
910 Clopper Road Gaithersburg, MD 100.0% 1982
Fullerton Square Springfield, VA 100.0% 1987
Hilltop Business Center South San Francisco, CA 35.7% early 1970's
7435 Boston Boulevard, Building One Springfield, VA 100.0% 1982
7601 Boston Boulevard, Building Eight Springfield, VA 100.0% 1986
8000 Grainger Court, Building Five Springfield, VA 100.0% 1984
7700 Boston Boulevard, Building Twelve Springfield, VA 100.0% 1997
7500 Boston Boulevard, Building Six Springfield, VA 100.0% 1985
7501 Boston Boulevard, Building Seven Springfield, VA 100.0% 1997
7600 Boston Boulevard, Building Nine Springfield, VA 100.0% 1987
Fourteen Cambridge Center Cambridge, MA 100.0% 1983
164 Lexington Road Billerica, MA 100.0% 1982
930 Clopper Road Gaithersburg, MD 100.0% 1989
Sugarland Building Two Herndon, VA 100.0% 1986/1997
7374 Boston Boulevard, Building Four Springfield, VA 100.0% 1984
Sugarland Building One Herndon, VA 100.0% 1985/1997
8000 Corporate Court, Building Eleven Springfield, VA 100.0% 1989
7451 Boston Boulevard, Building Two Springfield, VA 100.0% 1982
17 Hartwell Avenue Lexington, MA 100.0% 1968
7375 Boston Boulevard, Building Ten Springfield, VA 100.0% 1988
Subtotal for R & D Properties ...................................................
Industrial Properties:
2391 West Winton Avenue Hayward, CA 100.0% 1974
40-46 Harvard Street Westwood, MA 100.0% 1967/1996
38 Cabot Boulevard Bucks County, PA 100.0% 1972/1984
6201 Columbia Park Road, Building Two Landover, MD 100.0% 1986
2000 South Club Drive, Building Three Landover, MD 100.0% 1988
25-33 Dartmouth Street Westwood, MA 100.0% 1966/1996
1950 Stanford Court, Building One Landover, MD 100.0% 1986
560 Forbes Boulevard South San Francisco, CA 35.7% early 1970's
430 Rozzi Place South San Francisco, CA 35.7% early 1970's
Subtotal for Industrial Properties ..............................................
Development Properties:
One and Two Reston Overlook Reston, VA 25% 1999
One Freedom Square Reston, VA 25% 1999
Eight Cambridge Center Cambridge, MA 100% 1999
181 Spring Street Lexington, MA 100% 1999
Subtotal for Development Properties ...................................................
Consolidated total for all Properties .........................................
Hotel Properties:
Long Wharf Marriott/(R)/ Boston, MA 100.0% 1982
Cambridge Center Marriott/(R)/ Cambridge, MA 100.0% 1986
Residence Inn by Marriott/(R)/ Cambridge, MA 100.0% 1999
Garage Property:
Cambridge Center North Garage Cambridge, MA 100.0% 1990
Structured Parking included in Class
A Office Buildings
Total for all Properties .............................
<CAPTION>
# Of Net
Structured Rentable
Number Parking Square
Property Name Of Buildings Spaces Feet
-------------- ------------ ------ ----
<S> <C> <C> <C>
Office Properties:
Class A Office Properties:
280 Park Avenue 1 - 1,198,769
599 Lexington Avenue 1 - 1,000,070
Riverfront Plaza 1 2,178 899,720
875 Third Avenue 1 - 681,669
Democracy Center 3 1,469 680,000
100 East Pratt Street 1 940 633,482
Two Independence Square 1 700 579,600
Capital Gallery 1 466 399,549
One Independence Square 1 389 337,794
2300 N Street 1 278 280,065
National Imagery and Mapping Agency Building 1 - 263,870
Reston Town Center Office Complex 2 - 261,046
Lockheed Martin Building 1 1,206 255,244
The U.S. International Trade Commission Building 1 214 243,998
One Cambridge Center 1 12 215,385
Newport Office Park 1 - 168,829
Lexington Office Park 2 - 168,500
191 Spring Street 1 - 162,700
Ten Cambridge Center 1 - 152,664
10 & 20 Burlington Mall Road 2 207 152,552
Waltham Office Center 3 - 129,658
Montvale Center 1 - 122,157
91 Hartwell Avenue 1 - 122,135
Three Cambridge Center 1 - 107,484
201 Spring Street 1 - 102,000
Bedford Business Park 1 - 90,000
Eleven Cambridge Center 1 - 79,616
33 Hayden Avenue 1 - 79,564
Decoverly Two 1 - 77,747
170 Tracer Lane 1 - 73,258
32 Hartwell Avenue 1 - 69,154
195 West Street 1 60 63,500
100 Hayden Avenue 1 - 55,924
204 Second Avenue 1 - 40,974
92 Hayden Avenue 1 - 30,980
8 Arlington Street 1 - 30,526
-- ----- ----------
Subtotal for Office Properties ....................... 43 8,119 10,010,183
-- ----- ----------
R&D Properties:
Bedford Business Park 2 - 383,704
910 Clopper Road 1 - 180,650
Fullerton Square 2 - 178,841
Hilltop Business Center 9 - 144,479
7435 Boston Boulevard, Building One 1 - 105,414
7601 Boston Boulevard, Building Eight 1 - 103,750
8000 Grainger Court, Building Five 1 - 90,465
7700 Boston Boulevard, Building Twelve 1 - 82,224
7500 Boston Boulevard, Building Six 1 - 79,971
7501 Boston Boulevard, Building Seven 1 - 75,756
7600 Boston Boulevard, Building Nine 1 - 69,832
Fourteen Cambridge Center 1 - 67,362
164 Lexington Road 1 - 64,140
930 Clopper Road 1 - 60,056
Sugarland Building Two 1 - 59,423
7374 Boston Boulevard, Building Four 1 - 57,321
Sugarland Building One 1 - 52,797
8000 Corporate Court, Building Eleven 1 - 52,539
7451 Boston Boulevard, Building Two 1 - 47,001
17 Hartwell Avenue 1 - 30,000
7375 Boston Boulevard, Building Ten 1 - 26,865
-- ----- ----------
Subtotal for R & D Properties ........................ 31 0 2,012,590
-- ----- ----------
Industrial Properties:
2391 West Winton Avenue 1 - 221,000
40-46 Harvard Street 1 - 169,273
38 Cabot Boulevard 1 - 161,000
6201 Columbia Park Road, Building Two 1 - 99,885
2000 South Club Drive, Building Three 1 - 83,608
25-33 Dartmouth Street 1 - 78,045
1950 Stanford Court, Building One 1 - 53,250
560 Forbes Boulevard 1 - 40,000
430 Rozzi Place 1 - 20,000
-- ----- ----------
Subtotal for Industrial Properties ................... 9 0 926,061
-- ----- ----------
Development Properties:
One and Two Reston Overlook 2 - 444,000
One Freedom Square 1 - 406,980
Eight Cambridge Center 1 - 175,000
181 Spring Street 1 - 52,000
-- ----- ----------
Subtotal for Development Properties .................. 5 - 1,077,980
----------
Consolidated total for all Properties ................ 88 8,119 14,026,814
-- ----- ----------
Hotel Properties:
Long Wharf Marriott/(R)/ 1 - 420,000
Cambridge Center Marriott/(R)/ 1 - 330,400
Residence Inn by Marriott/(R)/ 1 - 187,474
-- ----- ----------
3 - 937,874
-- ----- ----------
Garage Property:
Cambridge Center North Garage 1 1,170 332,442
Structured Parking included in Class
A Office Buildings - - 2,880,530
-- ----- ----------
1 1,170 3,212,972
-- ----- ----------
Total for all Properties ............................. 92 9,289 18,177,660
== ===== ==========
</TABLE>
10
<PAGE>
Item 3. Legal Proceedings
Neither the Company, nor its affiliates is presently subject to any
material litigation or, to the Company's knowledge, has any litigation been
threatened against it or its affiliates other than routine actions and
administrative proceedings substantially all of which are expected to be covered
by liability insurance and in the aggregate are not expected to have a material
adverse effect on the business, financial condition, results of operations, or
liquidity of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the year ended December 31, 1997.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock is listed on the New York Stock Exchange under the
symbol "BXP". The high and low closing sales prices for the periods indicated
in the table below were:
1997
Quarter Ended High Low Distributions
------------- ---- --- -------------
June 30, 1997 $27 1/4 $26 1/6 $.035(a)
September 30, 1997 33 1/4 26 5/8 .405(a)
December 31, 1997 34 3/8 30 .405(b)
(a) The Company paid a distribution of $.44 per share on November 21, 1997 with
respect to the period from June 23, 1997 (the closing of the Initial Offering)
through September 30, 1997 which represents a quarterly distribution rate
of $.405 and an annual distribution rate of $1.62 per share of Common Stock.
(b) Paid on January 28, 1998 to stockholders of record on December 26, 1997.
At March 24, 1998, there were approximately 142 shareholders of record.
This does not include beneficial owners for whom Cede & Co. or others act as
nominee.
The Company has adopted a policy of paying regular quarterly distributions
on its Common Stock and cash distributions have been paid on the Company's
Common Stock with respect to the period since its inception.
In order to maintain its qualification as a REIT, the Company must make
annual distributions to its shareholders of at least 95% of its taxable income
(which does not include net capital gains). Distributions for Federal Income
Tax purposes totaled $.50 per share in 1997. The Company intends that any
dividend paid in respect of its Common Stock during the last quarter of each
year will, if necessary, be adjusted to satisfy the REIT requirement that at
least
11
<PAGE>
95% of taxable income for such taxable year be distributed. The Company has
determined that, for federal income tax purposes, 59% of the total distribution
of $0.845 represented ordinary income to its stockholders.
On October 23, 1997, in connection with the Company's acquisition of 100
East Pratt Street, the Company issued 500 shares of Common Stock to
International Business Machines Corporation, one of the sellers of the Property.
Such shares were issued in reliance on Section 4(2) of, and Regulation D under,
the Securities Act.
On November 21, 1997, in connection with the Company's acquisition of 875
Third Avenue, the Company issued 890,869 OP Units to Kenvic Associates, the
contributor of such property. Such OP Units were issued in reliance on Section
4(2) of, and Regulation D under, the Securities Act.
12
<PAGE>
Item 6. Selected Financial Data
The following sets forth selected financial and operating data for the
Company on a historical consolidated basis and for the Predecessor on a
historical combined basis. The following data should be read in conjunction
with the financial statements and notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Form 10-K.
Historical operating results of the Company and the Predecessor, including
net income, may not be comparable to future operating results.
<TABLE>
<CAPTION>
The Company The Predecessor Group
----------- ---------------------------------------------------------------------
(in thousands, except per share data)
June 23, 1997 January 1, Year ended December 31,
to December 1997 to June -----------------------
31, 1997 22, 1997 1996 1995 1994 1993
-------- -------- ----------------------------------------------------
STATEMENT OF OPERATIONS INFORMATION:
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 145,643 $ 129,818 $269,933 $248,725 $244,083 $245,561
---------- ----------- -------- -------- -------- --------
Property expenses 40,093 27,032 58,195 55,421 53,239 54,766
Hotel expenses - 22,452 46,734 44,018 42,753 40,286
General and administrative 6,689 5,116 10,754 10,372 10,123 9,549
Interest 38,264 53,324 109,394 108,793 97,273 90,335
Depreciation and amortization 21,719 17,054 36,199 33,828 33,112 33,148
---------- ----------- ------ ------ ------ ------
Income (loss) before minority
interests 38,878 4,840 8,657 (3,707) 7,583 17,477
Minority interest in property
partnerships (215) (235) (384) (276) (412) (391)
---------- ----------- ----- ----- ----- -----
Income(loss) before minority
interest in Operating
Partnership 38,663 4,605 8,273 (3,983) 7,171 17,086
Minority interest in Operating
Partnership (11,437) - - - - -
----------- ----------- ----- -------- ------ -------
Income(loss) before extraordinary
item 27,226 4,605 8,273 (3,983) 7,171 17,086
Extraordinary item 7,925 - (994) - - -
---------- ----------- ----- -------- ------ -------
Net income (loss) $35,151 $4,605 $7,279 $(3,983) $7,171 $17,086
========== =========== ====== ======== ====== =======
Basic earnings per share:
Income before extraordinary item $ .70 - - - - -
Extraordinary item .21 - - - - -
-----
Net income $ .91 - - - - -
=====
Weighted average common shares
outstanding 38,694 - - - - -
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Diluted earnings per share:
Income before extraordinary item $ .70 - - - - -
Extraordinary item .20 - - - - -
-----
Net income $ .90 - - - - -
=====
Weighted average common shares
outstanding 39,108 - - - - -
BALANCE SHEET INFORMATION:
Real estate, before
accumulated deprecation $ 1,796,500 - $ 1,035,571 $ 1,012,324 $ 984,853 $ 983,751
Real estate, after
accumulated depreciation 1,502,282 - 771,660 773,810 770,763 789,234
Cash 17,560 - 8,998 25,867 46,289 50,697
Total assets 1,672,521 - 896,511 922,786 940,155 961,715
Total indebtedness 1,332,253 - 1,442,476 1,401,408 1,413,331 1,426,882
Shareholders' and owners
equity (deficit) 175,048 - (576,632) (506,653) (502,230) (495,104)
OTHER INFORMATION:
Funds from Operations $ 60,008 $ 21,450 $ 36,318 $ 29,151 $ 39,568 $ 49,240
Funds from Operations (Company's
share) (1) 42,258 - - - - -
Cash dividends per common share -
annualized 1.62 - - - - -
Cash flow provided by operating
activities 33,843 $ 25,226 51,531 29,092 45,624 59,834
Cash flow used for investing
activities (519,743) (32,844) (23,689) (36,844) (18,424) (9,437)
Cash flow provided by (used in)
financing activities 503,460 9,130 (44,711) (12,670) (31,608) (28,540)
</TABLE>
(1) The White Paper of Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 defines Funds from Operations as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that Funds from Operations is helpful to investors as a measure of the
performance of the equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides
investors with an indication of the ability of the Company to incur and service
debt, to make capital expenditures and to fund other cash needs. The Company
computes Funds from Operations in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by other
REIT's that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition differently than the
Company. Funds from Operations does not represent cash generated from operating
activities determined in accordance with GAAP and should not be considered as an
alternative to net income (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 cash distributions.
14
<PAGE>
Funds from Operations for the respective periods is calculated as follows:
<TABLE>
<CAPTION>
The Company The Predecessor Group
----------- ----------------------------------------------------------------
(in thousands)
June 23,
1997 to January 1, Year ended December 31,
December 1997 to June
31, 1997 22, 1997 1996 1995 1994 1993
-------- -------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before minority interest and
extraordinary item $38,878 $ 4,840 $ 8,657 $(3,707) $ 7,583 $17,477
Add:
Real estate depreciation and
amortization 21,417 16,808 35,643 33,240 32,509 32,300
Less:
Minority property partnership's share
of Funds from Operations (287) (198) (479) (382) (524) (537)
Non-recurring item - significant lease
termination fee - - (7,503) - - -
------- ------- ------- ------- ------- -------
Funds from Operations $60,008 $21,450 $36,318 $29,151 $39,568 $49,240
======= ======= ======= ======= ======= =======
</TABLE>
15
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the selected
financial data and the historical consolidated and combined financial statements
and related notes thereto for the Company and the Predecessor respectively. The
following discussion is based primarily on the consolidated financial statements
of the Company for the period subsequent to formation of the Company and on the
combined financial statements of the Predecessor for the periods prior to the
formation. The combined financial statements of the Predecessor include the
results of operations from 82 properties for the periods presented. Historical
results and percentage relationships in the Consolidated and Combined Financial
Statements, including trends which might appear, should not be taken as
indicative of future operations or financial position.
Overview
Certain statements in this Form 10-K, in the Company's press releases, and
in oral statements made by or with the approval of an authorized executive
officer of the Company, constitute "forward-looking statements" as that term is
defined under the Private Securities Litigation Reform Act of 1995 (the "Act")
and releases issued by the Securities and Exchange Commission. The words
"believe," "expect," "anticipate," "intend,""estimate" and other expressions
which are predictions of or indicate future events and trends and which do not
relate to historical matters identify forward-looking statements. Reliance
should not be placed on forward-looking statements because they involve known
and unknown risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company to differ materially from
anticipated future results, performance or achievements expressed or implied by
such forward-looking statements. Factors that could cause actual results to
differ materially from those set forth in the forward-looking statements include
general economic conditions, local real estate conditions, timely re-leasing of
occupied square footage upon expiration, interest rates, availability of equity
and debt financing and other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission. The Company undertakes no
obligation to publicly update or revise any forward-looking statement, whether
as a result of new information, future events or otherwise.
Results of Operations
The results of operations for the years ended December 31, 1996 and 1995
includes the operations of the Predecessor. The results of operations for the
year ended December 31, 1997 include the operations of the Predecessor for the
period January 1, 1997 through June 22, 1997 and the operations of the Company
from June 23, 1997 through December 31, 1997.
Comparison of the year ended December 31, 1997 to the year ended
December 31, 1996:
Rental revenues increased $38.4 million or 19.7% for the year ended
December 31, 1997 compared to the year ended December 31, 1996 primarily as a
result of (i) the acquisitions of 280 Park Avenue, 100 East Pratt Street and 875
Third Avenue, (ii) the inclusion of revenue from the hotel leases entered into
in connection with the Initial Offering, and (iii) an overall increase in
average occupancy and rental rates. This was offset by a decrease due to no
lease termination fee
16
<PAGE>
received in the year ended December 31, 1997 compared to a $7.5 million fee
received during 1996.
Hotel revenue decreased $34.5 million or 52.5% for the year ended
December 31, 1997 compared to the year ended December 31, 1996 primarily because
hotel operating revenue was only recognized for the period from January 1, 1997
to June 22, 1997 as a result of the Operating Partnership entering into a
participating lease with ZL Hotel LLC at the time of the Initial Offering.
Third party management and development fee income increased $1.8 million or
31.1% for the year ended December 31, 1997 compared to the year ended
December 31, 1996 primarily as a result of new fees for development services for
projects which began during 1997 and increased fees on existing projects.
Interest and other income decreased $195,000 or 5.5% primarily due to
a reduction in interest income resulting from a reduction in cash reserves.
Property expenses increased $8.9 million or 15.3% for the year ended
December 31, 1997 compared to the year ended December 31, 1996 primarily as a
result of the three property acquisitions and overall increases in real estate
taxes.
Hotel expenses decreased $24.3 million or 52.0% for the year ended
December 31, 1997 compared to the year ended December 31, 1996 because after the
Initial Offering the Company did not manage the Hotel Properties but rather
leased them to ZL Hotel LLC under participating leases.
Interest expense decreased $17.8 million or 16.3% for the year ended
December 31, 1997 compared to the year ended December 31, 1996 primarily as the
result of the payoff of certain mortgage indebtedness with the proceeds from the
Initial Offering.
As a result of the foregoing, income before extraordinary items and
minority interest of Boston Properties, Inc. and the Predecessor Group increased
$35.0 million.
Comparison of the year ended December 31, 1996 to the year ended
December 31, 1995:
Rental revenues increased $15.7 million or 8.8% for the year ended
December 31, 1996 compared to the year ended December 31, 1995 primarily as a
result of (i) a $7.5 million lease termination fee received from a tenant at
599 Lexington Avenue for which the space was immediately re-leased, (ii) an
increase of $2.8 million due to the completion of the redevelopment and leasing
of 191 Spring Street and (iii) an overall increase in average occupancy and
rental rates.
Hotel revenue increased $4.4 million or 7.1% for the year ended
December 31, 1996 compared to the year ended December 31, 1995 primarily as a
result of an increase in average daily room rates of 7.6%.
Third party management and development fee income increased $1.3 million or
28.7% for the year ended December 31, 1996 compared to the year ended
December 31, 1995 primarily
17
<PAGE>
as a result of new fees for development services for projects which began during
1996.
Interest and other income decreased $166,000 or 4.5 % primarily due to a
reduction in interest income resulting from a reduction in cash reserves.
Property expenses increased $2.8 million or 5.0% for the year ended
December 31, 1996 compared to the year ended December 31, 1995 primarily as a
result of (i) a $1.1 million increase in utility costs which is partially due to
the increase in occupancy of the properties during 1996 and (ii) an increase of
$0.1 million in real estate taxes.
Hotel expenses increased $2.7 million or 6.2% primarily as a result of an
increase in average occupancy at the hotels.
Interest expense increased $601,000 or 0.6% for the year ended
December 31, 1996 compared to the year ended December 31, 1995 primarily as the
result of an increase in interest expense with respect to 191 Spring Street
resulting from placing the property in service and discontinuing the
capitalization of interest, and an increase in total indebtedness from new loans
on Bedford Business Park and Capital Gallery, partially offset by decreases in
interest rates on variable rate loans.
Depreciation and amortization expense increased $2.4 million or 7.0% as a
result of increased tenant improvement costs incurred during the successful
leasing of available space during 1996 and 1995.
As a result of the foregoing, income before extraordinary items and
minority interest in property partnerships increased $12.3 million.
Liquidity and Capital Resources
Cash and cash equivalents were $17.6 and $9.0 million at December 31, 1997
and December 31, 1996, respectively. The increase in cash is primarily a result
of cash flows provided by operating and financing activities offset by cash used
in investing activities. Net cash provided by operating activities was $ 59.0
million for the year ended December 31, 1997 compared to the $51.5 million for
the year ended December 31, 1996. The increase is primarily due to the
transactions related to the acquisition of real estate assets and the operations
of the Company subsequent to the Initial Offering.
Net cash used in investing activities increased from $23.7 million for the
year ended December 31, 1996 to $552.6 million for the year ended December 31,
1997. This increase is due primarily to the following acquisitions of real
estate assets subsequent to the Initial Offering:
Acquisitions
On September 11, 1997, the Company acquired 280 Park Avenue in
midtown Manhattan, NY, a Class A Office Building, for approximately $322.7
million. The property is located in the Park Avenue submarket of Manhattan
and contains approximately 1.2 million net rentable square feet. The
acquisition was funded by a payment of approximately $102.7 million in cash
and mortgage financing of $220.0 million.
18
<PAGE>
On October 23, 1997, the Company acquired 100 East Pratt Street in
Baltimore, Maryland, a Class A Office Building, for $137.5 million in cash
and the issuance of 500 shares of the Company's Common Stock. The property
contains approximately 635,000 net rentable square feet and an eight-story
parking garage.
On November 21, 1997, the Company acquired 875 Third Avenue, for
approximately $215.1 million. The Property is an approximately 682,000
square foot Class A Office Building located in midtown Manhattan, NY. The
acquisition was funded by the assumption of a mortgage note with a fair
value of $185.6 million, payment of $1.5 million in cash, and the issuance
of OP Units for a value of approximately $28.0 million.
In addition to the above acquisitions which closed in 1997, the
Company closed the following acquisitions during the first quarter of 1998:
On November 11, 1997, the Company entered into a purchase and sale
agreement to acquire, for approximately $174.4 million (including closing
costs), Riverfront Plaza, a Class A Office Building with approximately
900,000 net rentable square feet located in Richmond, VA. The Company
completed its acquisition of this property on January 22, 1998. The
acquisition was funded by a $52.6 million draw under the Unsecured Line of
Credit and mortgage financing of approximately $121.8 million.
On November 26, 1997, the Company entered into agreements to acquire,
for approximately $257.9 million (including closing costs), the
Mulligan/Griffin Portfolio, a portfolio of nine Office Properties with
approximately 1,277,000 net rentable square feet and six parcels of land
aggregating 30.7 acres located in Fairfax County, Virginia and Montgomery
County, Maryland. The Company completed its acquisition of this portfolio
on February 2, 1998. The acquisition was funded through the payment of
approximately $88.5 million in cash, the assumption of mortgage debt with a
fair value of approximately $118.3 million, the assumption of other
liabilities of approximately $1.1 million, and the issuance of OP Units
valued at approximately $50.0 million.
Net cash provided by (used in) financing activities increased from
$44.7 million used for the year ended December 31, 1996 to cash provided of
$512.6 million for the year ended December 31, 1997. This increase is primarily
attributable to transactions relating to the Initial Offering, including
proceeds received from the Initial Offering of approximately $839.2 million and
proceeds and assumption of long term debt of $453.0 million offset by the
prepayment of $707.0 million of mortgage notes from proceeds of the Initial
Offering.
Recent Financing
On January 30, 1998, the Company completed a public offering (the
"Second Offering") of 23,000,000 shares of Common Stock (including 3,000,000
shares issued pursuant to the exercise of the underwriters' overallotment
options) at $35.125 per share, resulting in gross proceeds of approximately
$807.9 million and net proceeds to the Company of approximately $766.5 million.
Cash and cash equivalents increased $8.6 million during the year ended
December 31,
19
<PAGE>
1997 compared to a decrease of $16.9 million during the year ended December 31,
1996. The increase is due to a $557.3 million increase in net cash provided by
financing activities and a $7.5 million increase in cash provided by operating
activities, offset by an increase in cash used for investing activities of
approximately $528.9 million. The increase in cash provided by operating
activities is primarily a result of decreased interest payments and increased
rental receipts.
Capitalization
At December 31, 1997, the Company's total consolidated debt was
approximately $1.3 billion. At December 31, 1997, the Company's outstanding
consolidated debt consisted of approximately $233.0 million under an unsecured
revolving line of credit with BankBoston, as amended (the "Unsecured Line of
Credit") and approximately $1.1 billion of mortgage indebtedness. The weighted
average rate of the Company's consolidated mortgage indebtedness is 7.54% and
the weighted average maturity is approximately 5.6 years.
Based on the Company's total market capitalization of approximately
$3.2 billion at December 31, 1997 (at the December 31, 1997 closing stock price
of $33.0625 and including the 16,957,328 Units of minority interest in the
Operating Partnership and the Company's consolidated debt), the Company's
consolidated debt represented approximately 42.0% of its total market
capitalization. Subsequent to the completion of the Second Offering on
January 30, 1998, based on the Company's total market capitalization of
approximately $4.0 billion (based on the closing price of the Company's Common
Stock on January 26, 1998 of $35.125 and including the 16,957,328 OP Units
(representing the minority interest in the Operating Partnership) and the
Company's consolidated debt), the Company's consolidated debt represented
approximately 30.5% of its total market capitalization.
The Company utilizes the Unsecured Line of Credit primarily to finance
acquisitions of additional properties, for working capital purposes, and to fund
the development of properties. The Unsecured Line of Credit is a non-recourse
obligation of the Operating Partnership and is guaranteed by the Company. The
Company's ability to borrow under the Unsecured Line of Credit is subject to the
Company's compliance with a number of customary financial and other covenants on
an ongoing basis, including (i) loan-to-value ratio against the total borrowing
base not to exceed 65% for the period through April 30, 1998, and 55% subsequent
to April 30, 1998, (ii) a loan-to-value ratio against the total secured
borrowing base not to exceed 55% during the period through April 30, 1998, 50%
during the period from May 1, 1998 through June 30, 1998, and 40% subsequent to
June 30, 1998, (iii) debt service coverage ratio of 1.4 for the borrowing base
and 1.75 for the Company as a whole, a leverage ratio not to exceed 65%, (iv) an
interest rate applicable to any amounts drawn under the Unsecured Line of Credit
for LIBOR based loans shall be equal to a floating rate based on a spread over
LIBOR equal to 125 basis points during the period through January 31, 1998,
140 basis points during the period from February 1, 1998 through April 30, 1998
and from 90 to 110 basis points after April 30, 1998, depending on the Company's
applicable leverage ratio, (v) limitations on additional indebtedness and
stockholders distributions, and (vi) a minimum net worth requirement. At
December 31, 1997, the Company had the ability to borrow an additional
$67.0 million under the Unsecured Line of Credit. On January 30, 1998, the
Company repaid the entire amount outstanding under the Unsecured Line of Credit.
As of March 24, 1998 the Company's Unsecured Line of Credit had a total
borrowing capacity of $300 million. The Company is currently negotiating to
increase the total borrowing capacity thereunder to $500 million and expects
such increase to be effective by the beginning of
20
<PAGE>
the second calendar quarter although no assurances can be made in this regard.
The following table sets forth certain information regarding the Mortgage
Debt at December 31, 1997:
Principal
Properties Amount Interest Rate Maturity
---------- ------ ------------- --------
(in thousands)
599 Lexington Avenue $225,000 7.00% July 19, 2005 (1)
280 Park Avenue 220,000 7.00% (2) September 11, 2002
875 Third Avenue 185,618 8.00% (3) December 31, 2002
Two Independence Square 121,822 8.09% (4) February 27, 2003
One Independence Square 77,743 8.12% (4) August 21, 2001
2300 N Street 66,000 6.88% August 3, 2003
Capital Gallery 60,029 8.24% August 15, 2006
10&20 Burlington Mall Road(5) 37,000 8.33% October 1, 2001
Ten Cambridge Center and
North Garage 40,000 7.57% March 29, 2000
191 Spring Street 23,697 8.50% September 1, 2006
Bedford Business Park 23,085 8.50% December 10, 2008
Montvale Center 7,905 8.59% December 1, 2006
Newport Office Park 6,754 8.13% July 1, 2001
Hilltop Business Center 4,600 LIBOR + 1.50% December 15, 1998
-----
$1,099,253
==========
(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 December 31, 1997
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 December 31,
1997 were $121,344 and $77,438 respectively. The actual interest rates on the
loans are 7.90%. The interest rates increase to 8.50% on March 25, 1998 and
continues at such rate through the loan expiration.
(5) Includes outstanding indebtedness secured by 91 Hartwell Avenue and 92 and
100 Hayden Avenue.
The Company has determined that the adequacy of estimated cash flows as
well as expected liquidity sources are adequate to meet its short-term (up to 12
months) liquidity needs.
21
<PAGE>
The Company believes that its principal short-term liquidity needs are to fund
normal recurring expenses, debt service requirements and the minimum
distribution required to maintain the Company's REIT qualifications under the
Internal Revenue Code of 1986, as amended. The Company believes that these needs
will be fully funded from cash flows provided by operating activities.
The Company expects to meet long-term (greater than 12 months) liquidity
requirements for the costs of development, property acquisitions, scheduled debt
maturities, major renovations, expansions and other non-recurring capital
improvements through the issuance of additional OP Units and equity securities
of the Company and the incurrence of long-term secured and unsecured
indebtedness. In addition, the Company may finance the development,
redevelopment or acquisition of additional properties by using its Unsecured
Line of Credit.
Rental revenues, operating expense reimbursement income from tenants, and
income from the operations of the Company's majority-owned affiliate, Boston
Properties Management, Inc. (the "Development and Management Company") are the
Company's principal sources of capital to pay its operating expenses, debt
service and recurring capital expenditures. The Company seeks to increase income
from its existing Properties by maintaining quality standards for its Properties
that promote high occupancy rates and permit increases in rental rates while
reducing tenant turnover and controlling operating expenses. The Development and
Management Company's sole source of income are fees generated by its office and
industrial real estate management, leasing, development and construction
businesses. Consequently, the Company believes its revenues will continue to
provide the necessary funds for its operating expenses, debt service and
recurring capital expenditures.
Principal sources of funds for acquisitions are expected to include income
from operations, proceeds of offerings, amounts available under the Unsecured
Line of Credit, long-term secured and unsecured indebtedness and sales of real
estate. In addition to funds from the above sources, the Company may acquire
properties or interests therein through the issuance of OP Units.
During the period from June 23, 1997 through December 31, 1997, the Company
paid or declared quarterly dividends totaling $.845 per common share (consisting
of $.035 related to the period from June 23, 1997 to June 30, 1997 and $.405 for
each of the third and fourth calendar quarters). The Company intends to
continue paying dividends quarterly. The Company expects to use cash flows from
operating activities to fund dividends to stockholders.
Funds from Operations
The White Paper of Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in March
1995 defines Funds from Operations as net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. The Company
believes that Funds from Operations is helpful to investors as a measure of the
performance of the equity REIT because, along with cash flow from operating
activities,
22
<PAGE>
financing activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to make
capital expenditures and to fund other cash needs. The Company computes Funds
from Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds from
Operations does not represent cash generated from operating activities
determined in accordance with GAAP and should not be considered as an
alternative to net income (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 cash distributions.
Environmental Matters
Some of the Properties are located in urban and industrial areas where fill
or current or historical industrial uses of the areas have caused site
contamination. With respect to all of the Properties, independent environmental
consultants have been retained in the past to conduct or update Phase I
environmental assessments (which generally do not involve invasive techniques
such as soil or ground water sampling) and asbestos surveys on all of the
Properties. These environmental assessments have not revealed any environmental
conditions that the Company believes will have a material adverse effect on its
business, assets or results of operations, and the Company is not aware of any
other environmental condition with respect to any of the Properties which the
Company believes would have such a material adverse effect.
With respect to 17 Hartwell Avenue in Lexington, Massachusetts, the Company
received a Notice of Potential Responsibility ("NOR") from the state regulatory
authority on January 9, 1997, related to groundwater contamination. In
addition, the Company received a Notice of Downgradient Property Status
Submittal from each of two third parties concerning alleged contamination at two
downgradient properties. 17 Hartwell Avenue is a 30,000 square foot office
building occupied by Kendall Company, a division of Tyco International, which
has been the tenant of the entire building for 20 years. The tenant received a
similar NOR and responded to the state regulatory authority that it would
conduct an investigation. That investigation is underway and has identified the
presence of hazardous substances in a catch basin along the property line. It
is expected that the tenant will take any necessary response actions. The lease
with the tenant contains a provision pursuant to which the tenant indemnifies
the Company against such liability. The Company has notified the state
regulatory authority that it will cooperate with and monitor the tenant's
investigation.
On January 15, 1992, 91 Hartwell Avenue in Lexington, Massachusetts was
listed by the state regulatory authority as an unclassified Confirmed Disposal
Site in connection with groundwater contamination. 91 Hartwell Avenue is a
122,328 square foot office building occupied by five tenants. The Company has
engaged a specially licensed environmental consultant to perform the necessary
investigation and assessment and to prepare submittals to the state regulatory
authority. On August 1, 1997, such consultant submitted to the state regulatory
authority a Phase I - Limited Site Investigation Report and Downgradient
Property Status Opinion. This Opinion concluded that the Property qualifies for
Downgradient Property Status under the state regulatory program. Downgradient
Property Status eliminates certain deadlines for conducting response actions at
a site. Although the Company believes that the current or
23
<PAGE>
former owners of the upgradient source properties may ultimately be responsible
for some or all of the costs of such response actions, the Company will take any
necessary further response actions.
The Company expects that any resolution of the environmental matters
relating to 17 Hartwell Avenue and 91 Hartwell Avenue will not have a material
impact on the financial position, results of operations or liquidity of the
Company.
The Company is in the process of having asbestos-containing material that
is delaminating from a floor deck above a ceiling removed from an area of
approximately 5,500 square feet at 280 Park Avenue. The Company expects that
all removal and related renovation costs (a portion of which may be reimbursable
by the tenant), should not exceed $800,000. This cost will be capitalized into
the carrying value of the property as incurred.
Year 2000
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. Based on preliminary information, costs of
addressing potential problems are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in future periods.
Newly issued Accounting Standards
Financial Accounting Standards Board Statement No. 129 ("FAS 129")
"Disclosure of Information about Capital Structure" is effective for financial
statements issued for periods ending after December 31, 1997. FAS 129
establishes standards for disclosure of information about securities,
liquidation preference of preferred stock and redeemable stock.
Financial Accounting Standards Board Statement No. 130 ("FAS 130")
"Reporting Comprehensive Income" is effective for fiscal years beginning after
December 31, 1997, although earlier application is permitted. The Company
intends to adopt the requirements of this pronouncement in its financial
statements for the year ending December 31, 1998. FAS 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. FAS 130 requires that all
components of comprehensive income shall be reported in the financial statements
in the period in which they are recognized. Furthermore, a total amount for
comprehensive income shall be displayed in the financial statement where the
components of other comprehensive income are reported. The Company was not
previously required to present comprehensive income or the components thereof in
its financial statements under generally accepted accounting principles.
Financial Accounting Standards Board Statement No. 131 ("FAS 131")
"Disclosure about Segments of an Enterprise and Related Information" is
effective for financial statements issued for periods beginning after December
15, 1997. FAS 131 requires disclosures about segments of an enterprise and
related information regarding the different types of business activities in
which an enterprise engages and the different economic environments in which it
24
<PAGE>
operates.
Financial Accounting Standards Board Statement No. 132 ("FAS 132")
"Employers' Capital Disclosures about Pensions and Other Postretirement
Benefits" is effective for fiscal years beginning after December 15, 1997,
although earlier application is encouraged. FAS 132 establishes standards
related to the disclosure requirements for pensions and other postretirement
benefits. FAS 132 requires additional information to be disclosed regarding
changes in the benefit obligation and fair value of plan assets, as well as
eliminates other disclosures no longer considered useful.
The Company does not believe that the implementation of FAS 129, FAS 130,
FAS 131 or FAS 132 will have a material impact on the Company's financial
statements.
Inflation
Substantially all of the office leases provide for separate real estate tax
and operating expense escalations over a base amount. In addition, many of the
leases provide for fixed base rent increases or indexed increases. The Company
believes that inflationary increases may be at least partially offset by the
contractual rent increases described above.
Item 8. Financial Statements and Supplementary Data
See "Index to Financial Statements" on this Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information concerning Directors and Executive Officers of the
Registrant required by Item 10 shall be included in the Proxy Statement to be
filed relating to the 1998 Annual Meeting of the Registrant's Stockholders and
is incorporated herein by reference.
Item 11. Executive Compensation
The information concerning Executive Compensation required by Item 11 shall
be included in the Proxy Statement to be filed relating to the 1998 Annual
Meeting of the Registrant's Stockholders and is incorporated herein by
reference.
Item 12. Security Ownership of Beneficial Owners and Management
The information concerning Directors and Executive Officers of the
Registrant required by Item 12 shall be included in the Proxy Statement to be
filed relating to the 1998 Annual
25
<PAGE>
Meeting of the Registrant's Stockholders and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
The information concerning Directors and Executive Officers of the
Registrant required by Item 13 shall be included in the Proxy Statement to be
filed relating to the 1998 Annual Meeting of the Registrant's Stockholders and
is incorporated herein by reference.
26
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Financial Statements and Financial Statement Schedule
See "Index to Financial Statements" on page F-1 on this Form 10-K.
(b) Reports on Form 8-K
A report on Form 8-K was filed on September 26, 1997 (as amended by Form 8-
K/A) which included information regarding Item 2, 5, and 7. Included in Item 7
was pro forma information and exhibits. The Form 8-K was filed in connection
with the Company's acquisition of 280 Park Avenue and agreement to acquire 875
Third Avenue.
A report on Form 8-K was filed on November 6, 1997 (as amended by Form 8-
K/A) which included information regarding Item 2 and 7. Included in Item 7 was
pro forma information and exhibits. The Form 8-K was filed in connection with
the Company's acquisition of 100 East Pratt Street.
A report on Form 8-K was filed on November 26, 1997 which included
information regarding Item 2, 5 and 7. Included in Item 7 was pro forma
information and exhibits. The Form 8-K was filed in connection with the
Company's acquisition of 875 Third Avenue.
A report on Form 8-K was filed on December 16, 1997 which included
information regarding Item 5 and 7. Included in Item 7 was pro forma
information. The Form 8-K was filed in connection with the Company's agreement
to acquire the Mulligan/Griffin Portfolio.
A report on Form 8-K was filed on January 12, 1998 which included
information regarding Item 5. The Form 8-K was filed in connection with the
Company's press release regarding the potential acquisition of the Prudential
Center.
A report on Form 8-K was filed on January 26, 1998 which included
information regarding Item 5. The Form 8-K was filed in connection with the
Company's press release regarding the Company's fourth quarter earnings.
A report on Form 8-K was filed on February 6, 1998 which included
information regarding Item 2, 5 and 7. Included in Item 7 was pro forma
information. The Form 8-K was filed in connection with the Company's acquisition
of Riverfront Plaza and the Mulligan/Griffin Portfolio.
27
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+1.1 --Form of U.S. Purchase Agreement
+1.2 --Form of International Purchase Agreement
*3.1 --Form of Amended and Restated Certificate of Incorporation of the
Company
*3.2 --Form of Amended and Restated Bylaws of the Company
*4.1 --Form of Shareholder Rights Agreement dated as of June , 1997
between the Company and BankBoston, N.A., as Rights Agent.
*4.2 --Form of Certificate of Designation for Series E Junior
Participating Cumulative Preferred Stock, par value $.01 per
share
*4.3 --Form of Common Stock Certificate
+5.1 --Opinion of Goodwin, Procter & Hoar LLP regarding legality of the
shares of the Common Stock issued
+8.1 --Opinion of Goodwin, Procter & Hoar LLP regarding tax matters
*10.1 --Form of Amended and Restated Agreement of Limited Partnership of
the Operating Partnership
*10.2 --1997 Stock Option and Incentive Plan
*10.3 --Form of Noncompetition Agreement between the Company and
Mortimer B. Zuckerman
*10.4 --Form of Employment and Noncompetition Agreement between the
Company and Edward H. Linde
*10.5 --Form of Employment Agreement between the Company and certain
executive officers
*10.6 --Form of Indemnification Agreement between the Company and each
of its directors and executive officers
*10.7 --Omnibus Option Agreement by and among Boston Properties Limited
Partnership (the "Operating Partnership") and the Grantors named
therein dated as of April 9, 1997
*10.8 --Revolving Credit Agreement with BankBoston, N.A.
*10.9 --Form of Registration Rights Agreement among the Company and the
persons named therein
*10.10 --Form of Lease Agreement dated as of June , 1997 between Edward
H. Linde and Mortimer B. Zuckerman, as Trustees of Downtown
Boston Properties Trust, and ZL Hotel LLC
*10.11 --Form of Lease Agreement dated as of June , 1997 between Edward
H. Linde and Mortimer B. Zuckerman, as Trustees of Two Cambridge
Center Trust, and ZL Hotel LLC
*10.12 --Option Agreement between Boston Properties Limited Partnership
and Square 36 Properties Limited Partnership dated April 15, 1997
*10.13 --Form of Certificate of Incorporation of Boston Properties
Management, Inc.
*10.14 --Form of By-laws of Boston Properties Management, Inc.
*10.15 --Form of Limited Liability Agreement of ZL Hotel LLC
*10.16 --Form of Option Agreement to Acquire the Property known as Sumner
Square
*10.17 --Loan Modification Agreement between Lexreal Associates and
Mitsui Seimei America Corporation relating to loan secured by 599
Lexington Avenue
*10.18 --Loan Modification and Extension Agreement by and between
Southwest Market Limited Partnership, a District of Columbia
limited partnership, Mortimer B. Zuckerman and Edward H. Linde
and the Sumitomo Bank, Limited, for One Independence Square,
dated as of September 26, 1994
*10.19 --Loan Modification and Extension Agreement by and among Southwest
Market Limited Partnership, a District of Columbia limited
partnership, Mortimer B. Zuckerman and Edward H. Linde and the
Sumitomo Bank, Limited, for Two Independence Square, dated as of
September 26, 1994
*10.20 --Construction Loan Agreement by and between the Sumitomo Bank,
Limited and Southwest Market Limited Partnership, dated as of
August 21, 1990
*10.21 --Construction Loan Agreement by and between the Sumitomo Bank,
Limited and Southwest Market Limited Partnership for Two
Independence Square, dated as of February 22, 1991
*10.22 --Consent and Loan Modification Agreement regarding One
Independence Square between the Sumitomo Bank, Limited and
Southwest Market Limited Partnership dated as of June , 1997
*10.23 --Consent and Loan Modification Agreement regarding Two
Independence Square between the Sumitomo Bank, Limited and
Southwest Market Limited Partnership dated as of June , 1997
*10.24 --Form of Amended and Restated Loan Agreement between Square 36
Office Joint Venture and the Sanwa Bank Limited dated as of June
, 1997
*10.25 --Indemnification Agreement between Boston Properties Limited
Partnership and Mortimer B. Zuckerman and Edward H. Linde
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
*10.26 --Compensation Agreement between the Company and Robert Selsam,
dated as of August 10, 1995 relating to 90 Church Street
+10.27 --Contribution Agreement dated as of September 2, 1997 by and
among the Operating Partnership, the Company and Kenvic
Associates.
+10.28 --Lock-Up and Registration Rights Agreement dated November 21,
1997 by and among the Operating Partnership, the Company and
Kenvic Associates.
+10.29 --Agreement dated November 21, 1997 by and between the Operating
Partnership and Kenvic Associates.
+10.30 --Note and Mortgage Modification and Spreader Agreement between
John Hancock, as lender and Boston Properties Limited
Partnership, as borrower.
(2)10.31 --Agreement between Bankers Trust Company as seller and Boston
Properties Limited Partnership, as purchaser, dated September 11,
1997
(1)10.32 --Term loan agreement between Chase Manhattan Bank, as lender and
Boston Properties Limited Partnership, as borrower, dated
September 11, 1997
(1)10.33 --Interest Guarantee and Agreement between Chase Manhattan Bank,
as lender and Boston Properties Limited Partnership, as borrower,
dated September 11, 1997
(1)10.34 --Net Cash Flow Shortfall Guarantee and Agreement between Chase
Manhattan Bank, as lender and Boston Properties Limited
Partnership, as borrower, dated September 11, 1997
(1)10.35 --Hazardous Material Guaranty and Indemnification Agreement
between Chase Manhattan Bank, as lender and Boston Properties
Limited Partnership, as borrower, dated September 11, 1997
(2)10.36 --Swap Transaction Agreement between the Chase Manhattan Bank and
Boston Properties, Inc. dated November 4, 1997
(3)10.37 --Amended and Restated Real Estate Purchase and Sale Contract
Between International Business Machines Corporation, as seller,
and Boston Properties Limited Partnership, as buyer, dated
October 20, 1997
(4)10.38 --First Amendment to Revolving Credit Agreement dated July 29,
1997 by and among the Company, BankBoston, N.A., and the
subsidiaries of the Company and lending institutions named
therein.
(4)10.39 --Second Amendment to Revolving Credit Agreement dated July 30,
1997 by and among the Company, BankBoston, N.A., and the
subsidiaries of the Company and lending institutions named
therein.
(4)10.40 --Third Amendment to Revolving Credit Agreement dated September
11, 1997 by and among the Company, BankBoston N.A., and the
subsidiaries of the Company and lending institutions named
therein.
(4)10.41 --Fourth Amendment to Revolving Credit Agreement dated October 31,
1997 by and among the Company, BankBoston, N.A., and the
subsidiaries of the Company and lending institutions named
therein.
+10.42 --Environmental Indemnity and Agreement made by Boston Properties
Limited Partnership in favor of John Hancock Mutual Life
Insurance Company.
+10.43 --Indemnification Agreement made by Boston Properties Limited
Partnership in favor of John Hancock Mutual Life Insurance
Company.
+10.44 --Consolidation, Extension and Modification Agreement dated as of
May 11, 1988 by and between Kenvic Associates and John Hancock
Mutual Life Insurance Company.
+10.45 --Modification Agreement dated as of May 30, 1990 by and between
Kenvic Associates and John Hancock Mutual Life Insurance Company.
+10.46 --Note and Mortgage Modification Agreement dated as of July 23,
1992 by and between Kenvic Associates and John Hancock Mutual
Life Insurance Company.
+10.47 --Note and Mortgage Modification and Spreader Agreement dated as
of December 29, 1995 by and between Kenvic Associates and John
Hancock Mutual Life Insurance Company.
+10.48 --Contribution Agreement dated November 26, 1997 among the
Operating Partnership, Boston Properties LLC and the contributors
named therein.
+10.49 --Promissory Note dated January , 1998 between the Operating
Partnership and Metropolitan Life Insurance Company.
+10.50 --Deed of Trust, Security Agreement and Fixture Filing dated
January , 1998.
+10.51 --Unsecured Indemnity Agreement dated January , 1998.
+21.1 --Schedule of Subsidiaries of the Company
27.1 --Financial Data Schedule.
27.2 --Financial Data Schedule.
</TABLE>
- --------
* Incorporated herein by reference to the Company's Registration Statement on
Form S-11 (No. 333-25279)
+ Incorporated herein by reference to the Company's Registration Statement on
Form S-11 (No. 333-41449)
(1) Incorporated herein by reference to the Company's Current Report on Form 8-
K/A filed November 14, 1997.
(2) Incorporated herein by reference to the Company's Current Report on Form 8-
K/A-2 filed November 25, 1997.
(3) Incorporated herein by reference to the Company's Current Report on Form 8-
K/A filed November 14, 1997.
(4) Incorporated herein by reference to the Company's Current Report on Form 8-K
filed November 26, 1997.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant, Boston Properties, Inc., has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Boston Properties, Inc.
Date
By: /s/ David G. Gaw
--------------------
March 30, 1998 David G. Gaw
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
By: /s/ Mortimer B. Zuckerman
-----------------------------
March 30, 1998 Mortimer B. Zuckerman
Chairman of the Board of Directors
By: /s/ Edward H. Linde
-----------------------------
Edward H. Linde
President and Chief Executive Officer
By: /s/ David G. Gaw
-----------------------------
David G. Gaw
Chief Financial Officer
By: /s/ Alan J. Patricof
-----------------------------
Alan J. Patricof
Director
By: /s/ Ivan G. Seidenberg
-----------------------------
Ivan G. Seidenberg
Director
By: /s/ Martin Turchin
-----------------------------
Martin Turchin
Director
30
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet of Boston Properties, Inc. (the "Company")
as of December 31, 1997 and Combined Balance Sheet of the
Predecessor Group as of December 31, 1996 . . . . . . . . . . . . F-3
Consolidated Statement of Operations of the Company for the period from
June 23, 1997 (inception of operations) to December 31, 1997
and Combined Statements of Operations for the Predecessor Group
for the period from January 1, 1997 to June 22, 1997 and the years
ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . F-4
Consolidated Statement of Changes in Stockholders' Equity of the Company
for the period June 23, 1997 (inception of operations) to
December 31, 1997 and the Combined Statement of Changes
in Owners' Equity (Deficit) of the Predecessor Group for
the period January 1, 1997 to June 22, 1997 and the years ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statement of Cash Flows of the Company for the period
June 23, 1997 (inception of operations) to December 31, 1997
and Combined Statement of Cash Flows of the Predecessor
Group for the period January 1, 1997 to June 22, 1997 and
the years ended December 31, 1996 and 1995 . . . . . . . . . . . . F-6
Notes to Consolidated and Combined Financial Statements . . . . . . . . F-7
Financial Statement Schedule - Schedule III . . . . . . . . . . . . . F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.
We have audited the accompanying consolidated and combined financial statements
and the financial statement schedule of Boston Properties, Inc. (the "Company")
and the Predecessor Group as listed on the index of this Form 10-K. These
consolidated and combined financial statements and the financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred to
above present fairly, in all material respects, the consolidated and combined
financial position of Boston Properties, Inc. as of December 31, 1997 and the
Predecessor Group as of December 31, 1996, and the consolidated and combined
results of operations and cash flows of the Company for the period from June 23,
1997 to December 31, 1997 and for the Predecessor Group from January 1, 1997 to
June 22, 1997, and the years ended December 31, 1996 and 1995, respectively, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be set forth therein.
/s/Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 23, 1998, except for
Note 16 for which the date
is February 2, 1998
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
CONSOLIDATED AND COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
The
The Predecessor
Company Group
............... ...............
December 31, December 31,
1997 1996
............... ...............
<S> <C> <C>
ASSETS (in thousands)
Real estate: $1,796,500 $1,035,571
Less: accumulated depreciation (294,218) (263,911)
--------------- ---------------
Total real estate 1,502,282 771,660
Cash and cash equivalents 17,560 8,998
Escrows 14,178 25,474
Tenant and other receivables, net 24,458 12,049
Accrued rental income, net 55,190 49,206
Deferred charges, net 35,485 24,722
Prepaid expenses and other assets 20,225 4,402
Investment in joint ventures 3,143 -
--------------- ---------------
Total assets $1,672,521 $896,511
=============== ===============
LIABILITIES AND STOCKHOLDERS' AND OWNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage notes payable $1,099,253 $1,420,359
Unsecured line of credit 233,000 -
Notes payable - affiliate - 22,117
Accounts payable and accrued expenses 23,822 13,795
Dividends payable 22,539 -
Accrued interest payable 6,581 9,667
Other liabilities 11,642 7,205
--------------- ---------------
Total liabilities 1,396,837 1,473,143
--------------- ---------------
Commitments and contingencies - -
--------------- ---------------
Minority interest in Operating Partnership 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, 38,694,041 issued and outstanding 387 -
Additional paid-in capital 172,347 -
Earnings in excess of dividends 2,314 -
Owners' deficit - (576,632)
--------------- ---------------
Total stockholders' and owners' equity (deficit) 175,048 (576,632)
--------------- ---------------
Total liabilities and stockholders' and owners' equity (deficit) $1,672,521 $896,511
=============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
The Company The Predecessor Group
.................. ...........................................
June 23, 1997 January 1, 1997 Year ended December 31,
to to .......................
December 31, 1997 June 22, 1997 1996 1995
................. ................. .......... ...........
(in thousands, except for per share data)
...............................................................
<S> <C> <C> <C> <C>
REVENUE
Rental:
Base rent $126,401 $80,122 $169,420 $155,614
Recoveries from tenants 12,564 10,283 22,607 21,124
Parking and other 676 3,397 2,979 2,527
------------------ ---------------- ---------- -----------
Total rental revenue 139,641 93,802 195,006 179,265
Hotel operating - 31,185 65,678 61,320
Development and management services 3,813 3,685 5,719 4,444
Interest and other 2,189 1,146 3,530 3,696
------------------ ---------------- ---------- -----------
Total revenue 145,643 129,818 269,933 248,725
------------------ ---------------- ---------- -----------
EXPENSES
Rental:
Operating 19,591 13,650 29,823 27,142
Real estate taxes 20,502 13,382 28,372 28,279
Hotel:
Operating - 20,938 43,634 41,501
Real estate taxes - 1,514 3,100 2,517
General and administrative 6,689 5,116 10,754 10,372
Interest 38,264 53,324 109,394 108,793
Depreciation and amortization 21,719 17,054 36,199 33,828
------------------ ---------------- ---------- -----------
Total expenses 106,765 124,978 261,276 252,432
------------------ ---------------- ---------- -----------
Income (loss) before minority interests and extraordinary items 38,878 4,840 8,657 (3,707)
Minority interest in property partnerships (215) (235) (384) (276)
------------------ ---------------- ---------- -----------
Income (loss) before minority interest in Operating Partnership
and extraordinary items 38,663 4,605 8,273 (3,983)
Minority interest in Operating Partnership (11,437) - - -
------------------ ---------------- ---------- -----------
Income (loss) before extraordinary items 27,226 4,605 8,273 (3,983)
Extraordinary gains (losses) on early debt extinguishments,
net of minority interest 7,925 - (994) -
------------------ ---------------- ---------- -----------
Net income (loss) $35,151 $4,605 $7,279 ($3,983)
================== ================ ========== ===========
Basic earnings per share:
Income before extraordinary items $0.70 - - -
Extraordinary items 0.21
------------------
Net income $0.91 - - -
==================
Diluted earnings per share:
Income before extraordinary items $0.70 - - -
Extraordinary items 0.20
------------------
Net income $0.90 - - -
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS'
AND OWNERS' EQUITY (DEFICIT)
(dollars in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Earnings in Owners'
------------ Paid-in excess of Equity
Shares Amount Capital Dividends (Deficit) Total
------ ------ ------- --------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
The Predecessor Company:
Balance, January 1, 1995 ($502,230) ($502,230)
Contributions 44,661 44,661
Net loss (3,983) (3,983)
Distributions (45,101) (45,101)
-------- --------
Balance, December 31, 1995 (506,653) (506,653)
Contributions 33,279 33,279
Net income 7,279 7,279
Distributions and conversion of equity to - -
note payable - affiliate (110,537) (110,537)
--------- ---------
Balance, December 31, 1996 (576,632) (576,632)
Contributions 9,330 9,330
Net income for period January 1, 1997
through June 22, 1997 4,605 4,605
Distributions (32,125) (32,125)
-------- --------
Balance contributed at June 22, 1997 (594,822) (594,822)
The Company:
Reclassification adjustment ($594,822) 594,822 -
Sale of Common Stock net of Offering costs 38,694 $387 838,822 - 839,209
Allocation of minority interest in Operating
Partnership - (71,669) - (71,669)
Stock issued in connection with property acquisition - 16 - 16
Net income, June 23, 1997 to December 31, 1997 - - $35,151 - 35,151
Dividends declared - - (32,837) - (32,837)
---- -------- ------ ------- --------
Stockholders' Equity, December 31, 1997 38,694 $387 $172,347 $2,314 $0 $175,048
====== ==== ======== ====== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
The Company The Predecessor Group
................. .....................
June 23, 1997 to January 1, 1997 to
December 31, 1997 June 22, 1997
................. .....................
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $35,151 $4,605
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 21,719 17,054
Non-cash portion of interest expense 547 1,497
Extraordinary gain on early debt extinguishments (11,216) -
Minority interest in Operating Partnership 7,659 -
Change in assets and liabilities:
Tenant and other receivables (5,295) (7,114)
Prepaid expenses and other assets (14,330) (1,494)
Escrows (874) -
Accrued rental income (5,694) (291)
Accounts payable and accrued expenses 5,611 5,220
Accrued interest payable (5,107) 2,021
Other liabilities 5,672 3,728
---------------- ----------------
Total adjustments (1,308) 20,621
---------------- ----------------
Net cash provided by operating activities 33,843 25,226
---------------- ----------------
Cash flows from investing activities:
Acquisitions/additions to real estate (526,890) (27,721)
Tenant leasing costs (2,793) (2,550)
Escrows - -
Change in accounts payable - -
Investment in joint ventures (570) (2,573)
Cash from contributed assets 10,510 -
---------------- ----------------
Net cash used in investing activities (519,743) (32,844)
---------------- ----------------
Cash flows from financing activities:
Net proceeds from sale of common stock 839,209 -
Owners' contributions - 9,330
Owners' distributions - (32,125)
Borrowings on Unsecured Line of Credit 233,000 -
Proceeds from long term debt 220,000 -
Proceeds (payments) from notes payable - -
Repayments on mortgage notes (703,826) (3,799)
Accounts receivable - affiliates - (804)
Accounts payable - affiliates (19,983) 19,983
Dividends paid (17,026) -
Escrows 12,303 (136)
Costs related to debt extinguishments (8,512) -
Proceeds (repayments) from notes payable - affiliate (38,833) 16,716
Payment of deferred financing and other costs (12,872) (35)
---------------- ----------------
Net cash provided (used) by financing activities 503,460 9,130
---------------- ----------------
Net increase (decrease) in cash 17,560 1,512
Cash and cash equivalents, beginning of period - 8,998
---------------- ----------------
Cash and cash equivalents, end of period $17,560 $10,510
================ ================
Supplemental disclosures:
Cash paid for interest $36,783 $50,917
================ ================
Interest capitalized $1,168 $1,111
================ ================
Non-cash activities:
Investing activities:
Mortgage note payable assumed in connection with acquisition $180,000
================
Issuance of Operating Partnership Units in connection with acquisition $28,000
================
Issuance of common stock related to acquisition $16
================
Financing activities:
Dividends declared $22,539
================
Net liabilities assumed in connection with contribution of properties $592,452
================
Reallocation of additional paid-in capital to minority interest in
Operating Partnership $666,507
================
Conversion of owners' equity to notes payable - affiliate
<CAPTION>
The Predecessor Group
.....................................
Year ended December 31,
.....................................
1996 1995
.....................................
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $7,279 ($3,983)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 36,199 33,828
Non-cash portion of interest expense 644 1,347
Extraordinary gain on early debt extinguishments - -
Minority interest in Operating Partnership - -
Change in assets and liabilities:
Tenant and other receivables 2,313 (1,049)
Prepaid expenses and other assets 2,777 (360)
Escrows (1,033) 692
Accrued rental income 475 (360)
Accounts payable and accrued expenses (1,673) (2,219)
Accrued interest payable 579 1,667
Other liabilities 3,971 (471)
---------------- ----------------
Total adjustments 44,252 33,075
---------------- ----------------
Net cash provided by operating activities 51,531 29,092
---------------- ----------------
Cash flows from investing activities:
Acquisitions/additions to real estate (30,238) (33,960)
Tenant leasing costs (4,077) (3,191)
Escrows 9,525 307
Change in accounts payable 1,101 -
Investment in joint ventures - -
Cash from contributed assets - -
---------------- ----------------
Net cash used in investing activities (23,689) (36,844)
---------------- ----------------
Cash flows from financing activities:
Net proceeds from sale of common stock - -
Owners' contributions 33,279 44,661
Owners' distributions (105,619) (45,101)
Borrowings on Unsecured Line of Credit - -
Proceeds from long term debt 117,269 1,200
Proceeds (payments) from notes payable 11,933 171
Repayments on mortgage notes (93,695) (14,641)
Accounts receivable - affiliates - -
Accounts payable - affiliates - -
Dividends paid - -
Escrows (6,250) -
Costs related to debt extinguishments - -
Proceeds (repayments) from notes payable - affiliate - -
Payment of deferred financing and other costs (1,628) 1,040
---------------- ----------------
Net cash provided (used) by financing activities (44,711) (12,670)
---------------- ----------------
Net increase (decrease) in cash (16,869) (20,422)
Cash and cash equivalents, beginning of period 25,867 46,289
---------------- ----------------
Cash and cash equivalents, end of period $8,998 $25,867
================ ================
Supplemental disclosures:
Cash paid for interest $107,700 $108,618
================ ================
Interest capitalized $366 $1,543
================ ================
Non-cash activities:
Investing activities:
Mortgage note payable assumed in connection with acquisition
Issuance of Operating Partnership Units in connection with acquisition
Issuance of common stock related to acquisition
Financing activities:
Dividends declared
Net liabilities assumed in connection with contribution of properties
Reallocation of additional paid-in capital to minority interest in
Operating Partnership
Conversion of owners' equity to notes payable - affiliate $4,918
================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
1. Organization and Basis of Presentation
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
December 31, 1997, owned an approximately 69.53% limited and general
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") in
(i) a portfolio of office, industrial and hotel properties and (ii) the national
acquisition, property management, leasing, development and construction
businesses of the Predecessor 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. (the "Development and Management Company").
On June 23, 1997, the Company commenced operations after completing an
initial public offering (the "Initial Offering") of 31,400,000 shares of common
stock. The Company issued an additional 4,710,000 shares of common stock
pursuant to the exercise of the underwriters' over-allotment option. The
combined 36,110,000 shares of common stock were issued at a price of $25.00 per
share, generating gross proceeds of $902.8 million. The proceeds to the Company,
net of underwriters' discount and offering costs were approximately $839.2
million. Upon completion of the Initial Offering, the Company contributed
substantially all of the net proceeds of the Initial Offering in exchange for an
approximately 70.66% interest in the Operating Partnership.
Upon completion of the Initial Offering, the Operating Partnership
entered into participating leases with ZL Hotel LLC, an affiliate. Accordingly,
in order to maintain its qualification as a REIT, the participating leases
provide the Company with revenue which qualifies as rental income under the REIT
requirements. Marriott International, Inc. manages the Company's two hotel
properties under the Marriott/(R)/ name.
Properties
At December 31, 1997, the Company owned 82 commercial real estate
properties, consisting of 69 office properties containing approximately 10.9
million (including five office properties under development containing
approximately 1.1 million square feet), nine industrial properties containing
approximately 926,100 net rentable square feet, three hotel properties with
1,054 rooms totaling approximately 938,000 square feet (including one hotel
currently under development which will contain 221 rooms and approximately
187,000 square feet), and one
F-6
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
garage property containing 1,170 spaces and approximately 332,000 square feet.
In addition, the Company owns six parcels of land totaling 39.0 acres (which
will support approximately 629,000 square feet of development) and structured
parking for 4,735 vehicles containing approximately 1,614,000 square feet.
Basis of Presentation
The accompanying combined financial statements comprise interests in
properties and the third party commercial real estate development, project
management and property management business of the Predecessor at December 31,
1996. The accounts are presented on a combined basis because of the affiliates,
general partners and common management which control the business operations of
each entity.
The business combination was structured as an exchange of properties or
partnership interests by the Predecessor for limited partnership interests in
the Operating Partnership, which holds the operating assets of the Company. The
Operating Partnership holds all of the assets of the Predecessor entities as a
result of the business combination. Due to the affiliation of the Predecessor,
the business combination was accounted for as a reorganization of entities under
common control which is similar to the accounting used for a pooling of
interests.
The Company's accompanying consolidated financial statements include the
consolidated financial position of the Operating Partnership, its subsidiaries,
and interests in properties of which the Company had control as of December 31,
1997, and its consolidated results of operations and cash flows for the period
from June 23, 1997 to December 31, 1997.
All significant intercompany transactions have been eliminated in the
combined and consolidated financial statements.
2. Summary of Significant Accounting Policies
Real Estate
Real estate is stated at depreciated cost. In accordance with Statement
of Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," impairment
losses are recorded on long-lived assets used in operation, when events and
circumstances indicate that the assets might be impaired and the estimated
undiscounted cash flows to be generated by those assets are less than the
carrying amount of those assets. The Company periodically reviews its properties
to determine if its carrying costs will be recovered from future operating cash
flows. Upon determination that an impairment has occurred, those assets shall be
reduced to fair value. No such impairment losses
F-7
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
have been recognized to date.
The cost of buildings and improvements includes the purchase price of
property, legal fees and acquisition costs. The cost of buildings under
development includes the capitalization of interest, property taxes and other
costs incurred during the period of development.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets as follows:
Land improvements 25 to 40 years
Building costs 10 to 40 years
Tenant improvements Terms of related lease
Furniture, fixtures, and equipment 5 to 7 years
Depreciation expense for corporate furniture, fixtures, and equipment and
corporate occupied real property was $548, $556 and $588 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Expenditures for repairs and maintenance are charged to operations as
incurred. Significant betterments are capitalized.
When assets are sold or retired, their costs and related accumulated
depreciation are removed from the accounts with the resulting gains or losses
reflected in net income or loss for the period.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and investments with
maturities of three months or less from the date of purchase. The majority of
the Company's cash and cash equivalents are held at major commercial banks. The
Company has not experienced any losses to date on its invested cash.
Escrows
Escrows include amounts established pursuant to various agreements for
security deposits, property taxes, insurance and other costs.
F-8
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Revenue Recognition
Base rental revenue is reported on a straight-line basis over the terms
of the respective leases. The impact of the straight-line rent adjustment
increased revenues by $5,985, decreased revenues by $475, and increased revenues
by $360 for the years ended December 31, 1997, 1996 and 1995, respectively.
Property operating cost reimbursements due from tenants for common area
maintenance, real estate taxes and other recoverable costs are recognized in the
period the expenses are incurred.
Accrued rental income represents rental income earned in excess of rent
payments received pursuant to the terms of the individual lease agreements, net
of an allowance for doubtful accounts.
Fees received for lease terminations are deferred and amortized to income
using the straight-line method over the remaining original lease term until the
space is subsequently leased.
Development fees are recognized ratably over the period of development.
Management fees are recognized as revenue as they are earned.
Deferred Charges
Deferred charges include leasing costs and financing fees. Fees and costs
incurred in the successful negotiation of leases, including brokerage, legal and
other costs have been deferred and are being amortized on a straight-line basis
over the terms of the respective leases. Fees and costs incurred to obtain long-
term financing have been deferred and are being amortized over the terms of the
respective loans on a basis which approximates the effective interest method.
Offering Costs
Underwriting commissions and offering costs incurred in connection with
the Initial Offering have been reflected as a reduction of additional paid-in
capital.
Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ended December 31, 1997. As a result, the Company
generally will not be subject to federal corporate income tax on its taxable
income that is distributed to its shareholders. A REIT is subject to a number
of organizational and operational requirements, including a requirement that
F-9
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
it currently distribute at least 95% of its annual taxable income. Accordingly,
no provision has been made for federal income taxes in the accompanying
consolidated financial statements.
The net difference between the tax basis and the reported amounts of the
Company's assets and liabilities is approximately $149,000.
The Predecessor was not a legal entity subject to income taxes. No
federal or state income taxes were applicable to the entities that managed and
owned the properties; accordingly, no provision has been made for federal income
taxes in the accompanying combined financial statements.
Certain entities included in the Company's consolidated financial
statements and the Predecessor's combined financial statements are subject to
District of Columbia franchise taxes. Franchise taxes are recorded as rental
operating expenses in the accompanying combined financial statements.
Investment in Joint Ventures
The investment in joint ventures represents (i) a 25% interest in an
entity which owns two office buildings in Reston, VA and (ii) a 25% interest in
an entity which owns one office building in Reston, VA. The Company also serves
as development manager for both joint ventures. These investments are accounted
for under the equity method.
Interest Expense
Interest expense on fixed rate debt with periodic rate increases is
computed using the effective interest method over the terms of the respective
loans.
Minority Interests
Minority interest in the Operating Partnership represents the limited
partners' proportionate share of the equity in the Operating Partnership.
Income is allocated to minority interest based on the weighted-average
percentage ownership through the year.
Minority interest in property partnerships represents the limited
partners' proportionate share of the equity in partnerships, of which the
Company a 35.7% controlling general partnership interest in eleven properties
located in South San Francisco, CA. The Operating Partnership has a majority
ownership interest and the equity accounts described above are consolidated into
the Operating Partnership.
F-10
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Concentrations of Credit Risk
Management of the Company performs ongoing credit evaluations of the
tenants and may require tenants to provide some form of credit support such as
corporate guarantees. Although the Company's properties are geographically
diverse and the tenants operate in a variety of industries, to the extent the
Company has a significant concentration of rental revenues from any single
tenant, the inability of that tenant to make its lease payments could have an
adverse effect on the Company. As of December 31, 1997, the Company's largest
tenant (The U.S. Government General Services Administration which has six leases
in six different buildings) accounted for approximately 13.3% of the Company's
total rental income.
Use of Estimates in the Preparation of Financial Statements
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 assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, escrows, receivables,
accounts payable, accrued expenses and other assets and liabilities are
reasonable estimates of their fair values because of the short maturities of
these instruments. Mortgage notes payable have aggregate carrying values which
approximate their estimated fair values based upon the remaining maturities for
certain debt and interest rates for debt with similar terms and remaining
maturities. The fair value of these financial instruments were not materially
different from their carrying or contract values.
Partners' Capital Contributions, Distributions and Profits and Losses
Partners' capital contributions, distributions and profits and losses are
allocated in accordance with the terms of individual partnership agreements.
Dividends
Earnings and profits, which will determine the taxability of dividends to
shareholders, will differ from income reported for financial reporting purposes
due to the differences for federal income tax purposes primarily in the
estimated useful lives used to compute depreciation. Dividends declared in 1997
represent approximately 59% ordinary income for federal income tax purposes for
the period from June 23, 1997 to December 31, 1997.
F-11
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Earnings Per Share
During 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 ("SFAS 128") which provides standards for calculating earnings
per share ("EPS"). Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding during the year. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock-based compensation including stock options.
Stock-Based Compensation
During 1997, the Company adopted Statement of Financial Accounting
Standard No. 123 ("SFAS 123") which provides companies an alternative to
accounting for stock-based compensation as prescribed under Accounting
Principles Board Opinion No. 25 ("APB 25"). SFAS 123 encourages, but does not
require companies to recognize expense for stock-based awards based on their
fair value at date of grant. SFAS 123 allows companies to follow existing
accounting rules (intrinsic value method under APB 25) provided that pro-forma
disclosures are made of what net income and earnings per share would have been
had the new fair value method been used. The Company has elected to adopt the
disclosure requirements of SFAS 123, but will continue to account for stock-
based compensation under APB 25.
3. Real Estate
Real estate consisted of the following at December 31,:
1997 1996
---- ----
Land $ 403,022 $ 169,424
Building and improvements 1,223,892 702,720
Tenant improvements 118,374 107,808
Furniture and fixtures 33,638 34,034
Development in progress 17,574 21,585
---------- ----------
Total 1,796,500 1,035,571
Less: Accumulated depreciation (294,218) (263,911)
---------- ----------
$1,502,282 $ 771,660
========== ==========
4. Deferred Charges
Deferred charges consisted of the following at December 31, :
1997 1996
---- ----
Leasing costs $ 46,769 $ 48,167
Financing costs 29,271 29,182
---------- ----------
76,040 77,349
Less: Accumulated amortization (40,555) (52,627)
---------- ----------
$ 35,485 $ 24,722
========== ==========
F-12
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
5. Mortgage Notes Payable
Mortgage notes payable comprise 14 and 44 loans at December 31, 1997 and
1996, respectively, each collateralized by a building and related land included
in real estate assets. The mortgage notes payable are generally due in monthly
installments and mature at various dates through December 10, 2008. Interest
rates on fixed rate mortgage notes payable aggregating approximately $1,082,000
and $1,013,000 at December 31, 1997 and 1996, respectively, range from 6.70% to
8.59% (averaging 7.55% and 8.18% at December 31, 1997 and 1996, respectively).
Interest expense on variable rate mortgage notes payable was approximately
$11,600 and $385,985 at December 31, 1997 and 1996, respectively, with rates
ranging from 1.0% above the London Interbank Offered Rate ("LIBOR") (5.9% and
5.6% at December 31, 1997 and 1996, respectively) to 1.5% above the LIBOR rate.
The interest rates related to the mortgage notes payable for two properties
aggregating approximately $198,781 at December 31, 1997 and for three properties
aggregating $610,782 at December 31, 1996 are subject to periodic scheduled rate
increases. Interest expense for these mortgage notes payable is computed using
the effective interest method. Additionally, a mortgage note payable in the
amount of $185,618 for one property has been accounted for at fair value at
December 31, 1997. The impact of using these methods increased interest expense
$547, $1,347 and $3,131 for the years ended December 31, 1997, 1996 and 1995
respectively. The cumulative liability related to these adjustments is $6,430
and $21,013 at December 31, 1997 and 1996, respectively, and is included in
mortgage notes payable.
Combined aggregate principal payments of mortgage notes payable at
December 31, 1997 are as follows:
1998 $ 8,995
1999 4,559
2000 48,853
2001 131,169
2002 389,474
Certain mortgage indebtedness aggregating approximately $707.1 million was
repaid in conjunction with the Initial Offering. These repayments, along with
the payment of certain related prepayment penalties, the write-off of the
related previously capitalized deferred financing costs and the extinguishment
of the excess of the mortgage note payable balance over the principal payment
necessitated by this increasing rate loan being accounted for using the
effective interest method, generated a gain of approximately $7.9 million (net
of minority interest share of approximately $3.3 million), which has been
reflected as an extraordinary gain in the financial statements.
F-13
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
6. Unsecured Line of Credit
On June 23, 1997 the Company entered into an agreement for a three year,
$300,000 unsecured revolving credit facility (the "Unsecured Line of Credit")
maturing in June 2000. Outstanding balances under the Unsecured Line of Credit
bear interest at a floating rate based on an increase over LIBOR equal to
(i) 125 basis points during the period from November 21, 1997 through
January 31, 1998, (ii) 140 basis points during the period from February 1, 1998
through April 30, 1998, and (iii) after April 30, 1998, from 90 to 110 basis
points, depending upon the Company's applicable leverage ratio, or the lender's
prime rate. The Unsecured Line of Credit requires monthly payments of interest
only.
The outstanding balance of the Unsecured Line of Credit at December 31,
1997 was $233,000. The weighted average balance outstanding during the period
from June 23, 1997 through December 31, 1997 was approximately $117,000. The
weighted average interest rate on amounts outstanding during the period from
June 23, 1997 through December 31, 1997 was approximately 6.82%. The applicable
interest rate under the Unsecured Line of Credit at December 31, 1997 was 7.13%.
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.
7. Leasing Activity
The properties are leased to tenants under net operating leases with
initial term expiration dates ranging from 1998 to 2014. The future minimum
lease payments to be received (excluding operating expense reimbursements) by
the Company as of December 31, 1997, under non-cancelable operating leases,
which expire on various dates through 2014, are as follows:
Years ending December 31,
1998 $ 280,724
1999 273,534
2000 254,657
2001 235,602
2002 205,299
Thereafter 947,775
F-14
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
The geographic concentration of the future minimum lease payments to be
received is detailed as follows:
Location
--------
Greater Boston, MA $235,263
Greater Washington D.C. 936,982
Baltimore, MD 99,070
Midtown Manhattan, NY 920,804
Greater San Francisco, CA 5,090
Bucks County, PA 382
One tenant represented 13.3% of the Company's total rental income for the
year ended December 31, 1997.
8. Related Party Transactions
Rental income of $10,655, $10,455 and $10,522 has been received from an
affiliate for the years ended December 31, 1997, 1996 and 1995, respectively.
Development fees of $985, $25 and $125 have been received from affiliates
for the years ended December 31, 1997, 1996 and 1995, respectively.
Management fees and other income of $363, $419 and $554 have been received
from affiliates for the years ended December 31, 1997, 1996 and 1995,
respectively.
Notes payable - affiliates consisted of amounts funded by affiliates for
office buildings which were under renovation or construction. The notes bore
interest at the prime rate plus 1% and were due on demand.
9. Employee Benefit Plan
Effective January 1, 1985, the Predecessor adopted a 401(k) Savings Plan
(the "Plan") for its employees. Under the Plan, as amended, employees as
defined, are eligible to participate in the Plan after they have completed three
months of service. In addition, participants may elect to make an after-tax
contribution of up to 10% of their wages. Upon formation, the Company adopted
the Plan and the terms of the Plan.
The Plan provides that matching employer contributions are to be determined
at the discretion of the Company. The Company matches 200% of the first 2% of
pay (utilizing pay that is not in excess of $100). The cost to the Company and
the Predecessor of this matching contribution for the years ended December 31,
1997, 1996 and 1995 was $403, $359 and $319, respectively.
F-15
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
Participants are immediately vested in their pre-tax and after-tax
contributions. Participants vest in the Company's and the Predecessor's matching
contributions and earnings thereon over a seven year period.
10. Stock Option and Incentive Plan
The Company has established a stock option and incentive plan for the
purpose of attracting and retaining qualified executives and rewarding them for
superior performance in achieving the Company's business goals and enhancing
stockholder value. In conjunction with the Initial Offering, the Company
granted options with respect to 2,290,000 common shares to directors, officers
and employees. All of such options were issued at an exercise price of $25.00
per share. The term of each of such option is 10 years from the date of grant.
In general, one-third of each of the options granted to officers and the
chairman of the board (the "Chairman") are exercisable on each of the third,
fourth and fifth anniversary of the date of grant, respectively.
One-third of the options granted to employees who are not officers will be
exercisable on each of the first, second and third anniversary of the date of
grant, respectively. Other than the options granted to the Chairman, one-half
of the options granted to non-employee directors will be exercisable on each of
the first and second anniversary of the date of grant, respectively.
The Company sponsors a share-based incentive compensation plan as described
above. The Company applies APB Opinion No. 25 ("APB 25") and related
Interpretations in accounting for its plan. SFAS 123 was issued by the FASB in
1995 and, if fully adopted, changes the methods for recognition of cost on plans
similar to that of the Company. Adoption of SFAS 123 is optional; however, pro
forma disclosure as if the Company adopted the cost recognition requirements
under SFAS 123 in 1997 are presented below. The Company's compensation expense
under APB 25 was $0.
F-16
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
A summary of the status of the Company's stock options as of December 31,
1997 and changes during the year ended December 31, 1997 are presented below:
Weighted Average
Shares Exercise Price
------ --------------
Outstanding at beginning of year - -
Granted 2,290,000 $25.00
Exercised - -
Canceled 5,900 -
----------
Outstanding at end of year 2,284,100 25.00
==========
Options exercisable at year end -
==========
Weighted average fair value of
options granted during the year $3.81
==========
The fair value of each share option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions for grants in 1997: dividend yield of 6.20%; risk-free
interest rates for each grant of 6.26%; options with expected lives of 6 years;
and volatility of 20% for all grants.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Prices 12/31/97 Contractual Life Exercise Price 12/31/97 Exercise Price
--------------- -------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$25.00 2,284,100 9.47 $25.00 - -
</TABLE>
The compensation cost under SFAS 123 for the stock performance-based plan
would have been $999 in 1997. Had compensation cost for the Company's 1997
grants for stock-based compensation plans been determined consistent with SFAS
123, the Company's net income, and net income per common share for 1997 would
approximate the pro forma amounts below:
As Reported Pro Forma
----------- ---------
Net income $ 35,151 $ 34,152
Net income per common share $ .91 $ .88
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to future anticipated
awards.
F-17
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
11. Minority Interest in Operating Partnership
Minority interest in the Operating Partnership relates to the portion which
is not owned by the Company and, at December 31, 1997 amounted to 30.47%. The
weighted-average minority interest in the Operating Partnership for the period
from June 23, 1997 to December 31, 1997 was approximately 29.58%.
In conjunction with the formation of the Company, persons contributing
interests in properties to the Operating Partnership elected to receive either
common stock or interest in the Operating Partnership ("Units"). Each Unit
may be redeemed for either one share of common stock, or, at the option of the
Company, cash equal to the fair market value of a share of common stock at the
time of redemption. When a Unit holder redeems a Unit for a share of common
stock or cash, minority interest is decreased and the Company's investment in
the Operating Partnership is increased. At December 31, 1997, 16,957,328 OP
Units were outstanding.
12. Commitments and Contingencies
Legal Matters
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. These matters are generally covered by
insurance. Management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or liquidity of the Company.
Environmental Matters
Some of the Properties are located in urban and industrial areas where fill
or current or historical industrial uses of the areas have caused site
contamination. With respect to all of the Properties, independent environmental
consultants have been retained in the past to conduct or update Phase I
environmental assessments (which generally do not involve invasive techniques
such as soil or ground water sampling) and asbestos surveys on all of the
Properties. These environmental assessments have not revealed any environmental
conditions that the Company believes will have a material adverse effect on its
business, assets or results of operations, and the Company is not aware of any
other environmental condition with respect to any of the Properties which the
Company believes would have such a material adverse effect.
With respect to the property located at 17 Hartwell Avenue in Lexington,
Massachusetts, the Company received a Notice of Potential Responsibility ("NOR")
from the state regulatory authority on January 9, 1997, related to groundwater
contamination. In addition, the Company received a Notice of Downgradient
Property Status Submittal from each of two third parties concerning alleged
contamination at two downgradient properties. 17 Hartwell Avenue is a 30,000
square foot office building occupied by Kendall Company, a division of Tyco
International, which has been the tenant of the entire building for 20 years.
The tenant received a similar NOR and responded to the state regulatory
authority that it would conduct an
F-18
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
investigation. That investigation is underway and has identified the presence of
hazardous substances in a catch basin along the property line. It is expected
that the tenant will take any necessary response actions. The lease with the
tenant contains a provision pursuant to which the tenant indemnifies the Company
against such liability. The Company has notified the state regulatory authority
that it will cooperate with and monitor the tenant's investigation.
On January 15, 1992, the property located at 91 Hartwell Avenue in
Lexington, Massachusetts was listed by the state regulatory authority as an
unclassified Confirmed Disposal Site in connection with groundwater
contamination. 91 Hartwell Avenue is a 122,328 square foot office building
occupied by five tenants. The Company has engaged a specially licensed
environmental consultant to perform the necessary investigation and assessment
and to prepare submittals to the state regulatory authority. On August 1, 1997,
such consultant submitted to the state regulatory authority a Phase I - Limited
Site Investigation Report and Downgradient Property Status Opinion. This
Opinion concluded that the property qualifies for Downgradient Property Status
under the state regulatory program. Downgradient Property Status eliminates
certain deadlines for conducting response actions at a site. Although the
Company believes that the current or former owners of the upgradient source
properties may ultimately be responsible for some or all of the costs of such
response actions, the Company will take any necessary further response actions.
The Company expects that any resolution of the environmental matters
relating to 17 Hartwell Avenue and 91 Hartwell Avenue will not have a material
impact on the financial position, results of operations or liquidity of the
Company.
The Company is in the process of having asbestos-containing material that
is delaminating from a floor deck above a ceiling removed from an area of
approximately 5,500 square feet at 280 Park Avenue. The Company expects that
all removal and related renovation costs (a portion of which may be reimbursable
by the tenant), will not exceed $800. This cost will be capitalized into the
carrying value of the building as incurred.
Development
The Company has entered into contracts for the construction and renovation
of properties currently under development. Commitments under these arrangements
totaled approximately $106,100 at December 31, 1997.
Management Contracts
The two in-service hotel properties are leased to an affiliate and managed
pursuant to contracts which expire in 2012 with Marriott International, a
national hotel management company. These agreements include base and incentive
fee provisions. The fees under these agreements aggregated $6,996, $6,246 and
$5,540 for the years ended December 31, 1997, 1996, and 1995 respectively.
F-19
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
Sale of Property
The Operating Partnership Agreement provides that, until June 23, 2007, the
Operating Partnership may not sell or otherwise transfer four designated
properties in a taxable transaction without the prior written consent of the
Chairman and CEO. In connection with the acquisition or contribution of five
other Properties, the Company entered into similar agreements for the benefit of
the selling or contributing parties which specifically state the Company will
not sell or otherwise transfer the Properties in a taxable transaction until a
period ranging from June 2002 to November 2007. The Operating Partnership is
not required to obtain the consent from a party protected thereby if such party
does not continue to hold at least a specified percentage of such party's
original Units.
The Operating Partnership has also entered into agreements providing the
Chairman, CEO and others with the right to guarantee additional and/or
substitute indebtedness of the Company in the event that certain other
indebtedness is repaid or reduced.
13. Earnings Per Share
Consolidated earnings per share is computed as follows:
<TABLE>
<CAPTION>
For the period from June 23, 1997 to
December 31, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic Earnings Per Share:
Income available to common shareholders $35,151 38,694 $ .91
Effect of Dilutive Securities:
Stock Options 414 (.01)
-----------------------------------------
Diluted Earnings Per Share:
Income available to common shareholders $35,151 39,108 $ .90
=========================================
</TABLE>
F-20
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
14. Selected Interim Financial Information (unaudited)
<TABLE>
<CAPTION>
-------------------------1997-------------------------
June 23, 1997 Quarter ended Quarter ended
through June 30, September December
1997 30, 1997 31, 1997
---- -------- --------
<S> <C> <C> <C>
Revenues $5,363 $62,989 $77,291
Income before minority interest in
Operating Partnership 1,520 19,502 17,641
Income before extraordinary item 1,074 13,780 12,372
Per share income before extraordinary item .03 .36 .32
Net income 9,057 13,722 12,372
Basic earnings per share .23 .36 .32
</TABLE>
15. Pro Forma Financial Information (unaudited)
The following Pro Forma Condensed Statements of Income for the years ended
December 31, 1997 and 1996 are presented as if the Initial Offering and related
formation transactions and the property acquisitions had occurred at January 1,
1996. The pro forma information is based upon historical information and does
not purport to present what actual results would have been had such
transactions, in fact, occurred at January 1, 1996, or to project results for
any future period.
Pro Forma Condensed Statements of Income
(Unaudited)
Years ended December 31,
1997 1996
---- -----
Revenues $320,068 $304,458
Expenses $246,220 $252,130
Net income before extraordinary item $ 55,550 $ 39,535
Basic earnings per share (before extra-
ordinary item) $ 1.44 $ 1.02
Diluted earnings per share (before
extraordinary item) $ 1.42 $ 1.01
F-21
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS, continued
(dollars in thousands, except per share data)
16. Subsequent Events
On January 22, 1998, the Company acquired Riverfront Plaza for
approximately $174,400 (including closing costs). Riverfront Plaza, a 899,720
square foot, Class A office building, is located in Richmond, Virginia. The
acquisition was funded through a draw-down from the Unsecured Line of Credit of
$52,600, and mortgage financing of $121,800.
On January 30, 1998, the Company completed a public offering (the
"Offering") of 23,000,000 shares of the Company's Common Stock (including
3,000,000 shares issued pursuant to the exercise of the underwriters'
overallotment options) at $35.125 per share resulting in net proceeds to the
Company of approximately $766,500.
On January 30, 1998, the Company paid down the outstanding balance of
$300,000 on the Unsecured Line of Credit with proceeds from the Offering.
On February 2, 1998, the Company acquired the Mulligan/Griffin Portfolio
for approximately $257,900 (including closing costs). The Portfolio consists of
nine properties (five Class A office buildings and four R&D properties)
aggregating approximately 1.3 million square feet and six parcels of land
aggregating approximately 30.7 acres in Montgomery County, MD and Fairfax
County, VA. The acquisition was funded through the payment of approximately
$88,500 in cash, the assumption of the fair value of mortgage debt of
approximately $118,300, the assumption of other liabilities of approximately
$1,100, and the issuance of Units valued at approximately $50,000.
F-22
<PAGE>
BOSTON PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent Land Building
Encumbran- to and and
Property Name Type Location ces Land Building Acquisition Improvements Improvements
- ------------- ---- -------- ---------- -------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
599 Lexington Avenue Office New York, NY 225,000 81,040 100,507 73,294 81,040 173,801
280 Park Avenue Office New York, NY 220,000 125,288 201,115 50 125,288 201,165
875 Third Avenue Office New York, NY 185,618 74,880 139,151 50 74,880 139,201
One Cambridge Center Office Cambridge, MA - 134 25,110 3,142 134 28,252
Three Cambridge Center Office Cambridge, MA - 174 12,200 631 174 12,831
Ten Cambridge Center Office Cambridge, MA 40,000 1,299 12,943 4,427 1,867 16,802
170 Tracer Lane Office Waltham, MA - 398 4,601 1,289 418 5,870
195 West Street Office Waltham, MA - 758 5,150 2,977 1,611 7,274
Waltham Office Center Office Waltham, MA - 422 2,719 2,484 425 5,200
191 Spring Street Office Lexington, MA 23,697 4,213 27,166 17,726 4,213 44,892
Lexington Office Park Office Lexington, MA - 998 1,426 10,119 1,072 11,471
10&20 Burlington Mall Office Burlington, MA 16,613 930 6,928 8,333 939 15,252
Newport Office Park Office Quincy, MA 6,754 3,500 18,208 - 3,500 18,208
100 East Pratt Street Office Baltimore, MD - 27,562 109,662 50 27,562 109,712
Democracy Center Office Bethesda, MD - 12,550 50,015 19,234 13,695 68,104
Montvale Center Office Gaithersburg, MD 7,905 1,574 9,786 3,988 2,399 12,949
----- ----- ----- ----- ----- ------
Subtotal $725,587 $335,720 $726,687 $147,794 $339,217 $870,984
-------- -------- -------- -------- -------- --------
<CAPTION>
Development
and
Construction Accumulated Year Depreciable
Property Name Type Location in Process Total Depreciation Built/Renovated Lives (Years)
- ------------- ---- -------- ---------- ------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
599 Lexington Avenue Office New York, NY - 254,841 (64,200) 1986 (1)
280 Park Avenue Office New York, NY - 326,453 (1,644) 1968/95-96 (1)
875 Third Avenue Office New York, NY - 214,081 (280) 1982 (1)
One Cambridge Center Office Cambridge, MA - 28,386 (8,967) 1987 (1)
Three Cambridge Center Office Cambridge, MA - 13,005 (3,502) 1987 (1)
Ten Cambridge Center Office Cambridge, MA - 18,669 (5,603) 1990 (1)
170 Tracer Lane Office Waltham, MA - 6,288 (2,464) 1980 (1)
195 West Street Office Waltham, MA - 8,885 (1,485) 1990 (1)
Waltham Office Center Office Waltham, MA - 5,625 (2,819) 1968-70/87-88 (1)
191 Spring Street Office Lexington, MA - 49,105 (10,359) 1971/95 (1)
Lexington Office Park Office Lexington, MA - 12,543 (4,018) 1982 (1)
10&20 Burlington Mall Office Burlington, MA - 16,191 (5,012) 1984-89/95-96 (1)
Newport Office Park Office Quincy, MA - 21,708 (227) 1988 (1)
100 East Pratt Street Office Baltimore, MD - 137,274 (689) 1975/91 (1)
Democracy Center Office Bethesda, MD - 81,799 (20,530) 1985-88/94-96 (1)
Montvale Center Office Gaithersburg, MD - 15,348 (3,892) 1987 (1)
- ------ -------
Subtotal - $1,210,201 $(135,691)
- ---------- ---------
</TABLE>
F-23
<PAGE>
BOSTON PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent Land
to and
Property Name Type Location Encumbrances Land Building Acquisition Improvements
- ------------- ---- -------- ------------ -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal from previous $725,587 $335,720 $726,687 $147,794 $339,217
-------- -------- -------- -------- --------
Two Independence Square Office Washington DC 121,822 14,053 59,883 8,951 15,039
One Independence Square Office Washington DC 77,743 9,356 33,701 17,315 9,634
Capital Gallery Office Washington DC 60,029 4,725 29,560 11,916 4,725
2300 N Street Office Washington DC 66,000 16,509 22,415 12,756 16,509
US International Trade
Commission Building Office Washington DC - 109 22,420 9,870 1,569
Bedford Business Park Office Bedford, MA 4,617 100 631 2,525 100
201/181 Spring Street Office Lexington, MA - - 3,637 12,363 -
32 Hartwell Avenue Office Lexington, MA - 168 1,943 2,725 168
91 Hartwell Avenue Office Lexington, MA 11,322 784 6,464 2,385 784
33 Hayden Avenue Office Lexington, MA - 266 3,234 12 266
92 Hayden Avenue Office Lexington, MA 9,065 230 3,145 396 230
100 Hayden Avenue Office Lexington, MA - 364 3,603 390 364
Eleven Cambridge Center Office Cambridge, MA - 121 5,535 434 121
204 Second Avenue Office Waltham, MA - 37 2,402 723 37
R&D Building
Sugarland Building One Office Herndon, VA - 735 2,739 1,606 735
Sugarland Building Two Office Herndon, VA - 834 3,216 1,883 834
Bedford Business Park Office Bedford, MA 18,468 402 2,772 9,853 402
17 Hartwell Avenue Office Lexington, MA - 26 150 558 26
Fourteen Cambridge Office Cambridge, MA - 110 4,483 569 110
- --- ----- --- ---
Subtotal $1,094,653 $384,649 $938,620 $245,024 $390,870
---------- -------- -------- -------- --------
<CAPTION>
Development
Building and
and Construction
Property Name Type Location Improvements in Process Total
- ------------- ---- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Subtotal from previous $870,984 - $1,210,201
-------- - ----------
Two Independence Square Office Washington DC 67,848 - 82,887
One Independence Square Office Washington DC 50,738 - 60,372
Capital Gallery Office Washington DC 41,476 - 46,201
2300 N Street Office Washington DC 35,171 - 51,680
US International Trade
Commission Building Office Washington DC 30,830 - 32,399
Bedford Business Park Office Bedford, MA 3,156 - 3,256
201/181 Spring Street Office Lexington, MA 11,511 4,489 16,000
32 Hartwell Avenue Office Lexington, MA 4,668 - 4,836
91 Hartwell Avenue Office Lexington, MA 8,849 - 9,633
33 Hayden Avenue Office Lexington, MA 3,246 - 3,512
92 Hayden Avenue Office Lexington, MA 3,541 - 3,771
100 Hayden Avenue Office Lexington, MA 3,993 - 4,357
Eleven Cambridge Center Office Cambridge, MA 5,969 - 6,090
204 Second Avenue Office Waltham, MA 3,125 - 3,162
R&D Building
Sugarland Building One Office Herndon, VA 4,345 - 5,080
Sugarland Building Two Office Herndon, VA 5,099 - 5,933
Bedford Business Park Office Bedford, MA 12,625 - 13,027
17 Hartwell Avenue Office Lexington, MA 708 - 734
Fourteen Cambridge Office Cambridge, MA 5,052 - 5,162
----- ------ -----
Subtotal $1,172,934 $4,489 $1,568,293
---------- ------ ----------
<CAPTION>
Depre-
ciable
Accumulated Year Lives
Property Name Type Location Depreciation Built/Renovated (Years)
- ------------- ---- -------- ------------ --------------- -------
<S> <C> <C> <C> <C> <C>
Subtotal from previous $(135,691)
----------
Two Independence Square Office Washington DC (11,111) 1992 (1)
One Independence Square Office Washington DC (11,392) 1991 (1)
Capital Gallery Office Washington DC (15,699) 1981 (1)
2300 N Street Office Washington DC (9,942) 1986 (1)
US International Trade
Commission Building Office Washington DC (12,007) 1987 (1)
Bedford Business Park Office Bedford, MA (1,297) 1980 (1)
201/181 Spring Street Office Lexington, MA (48) 1997 (1)
32 Hartwell Avenue Office Lexington, MA (2,545) 1968-79/1987 (1)
91 Hartwell Avenue Office Lexington, MA (2,541) 1985 (1)
33 Hayden Avenue Office Lexington, MA (1,450) 1979 (1)
92 Hayden Avenue Office Lexington, MA (1,262) 1968/1984 (1)
100 Hayden Avenue Office Lexington, MA (1,424) 1985 (1)
Eleven Cambridge Center Office Cambridge, MA (2,203) 1984 (1)
204 Second Avenue Office Waltham, MA (1,418) 1981/1993 (1)
R&D Building
Sugarland Building One Office Herndon, VA (88) 1987 (1)
Sugarland Building Two Office Herndon, VA (104) 1986/97 (1)
Bedford Business Park Office Bedford, MA (5,187) 1962-78/96 (1)
17 Hartwell Avenue Office Lexington, MA (409) 1968 (1)
Fourteen Cambridge Office Cambridge, MA (1,688) 1983 (1)
-------
Subtotal $(217,506)
----------
</TABLE>
F-24
<PAGE>
BOSTON PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized Land
Subsequent and
Property Name Type Location Encumbrances Land Building to Acquisition Improvements
- ------------- ---- -------- ------------ ----- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal from previous $1,094,653 $384,649 $938,620 $245,024 $390,870
page ---------- -------- -------- -------- --------
164 Lexington Road Office Billerica, MA - 592 1,370 132 592
7601 Boston Boulevard,
Building Eight Office Springfield, VA - 200 878 3,506 378
7500 Boston Boulevard,
Building Six Office Springfield, VA - 138 3,749 244 273
7600 Boston Boulevard,
Building Nine Office Springfield, VA - 127 2,839 1,415 189
7435 Boston Boulevard,
Building One Office Springfield, VA - 392 3,822 1,581 486
8000 Grainger Court,
Building Five Office Springfield, VA - 366 4,282 710 453
7375 Boston Boulevard,
Building Ten Office Springfield, VA - 23 2,685 565 47
7700 Boston Boulevard,
Building Twelve Office Springfield, VA - 1,105 1,042 7,769 1,105
7501 Boston Boulevard,
Building Seven Office Springfield, VA - 665 878 10,098 665
8000 Corporate Court,
Building Eleven Office Springfield, VA - 136 3,071 95 214
7374 Boston Boulevard,
Building Four Office Springfield, VA - 241 1,605 423 303
7451 Boston Boulevard,
Building Two Office Springfield, VA - 249 1,542 1,429 535
Hilltop Business Center Office San Francisco, 4,600 53 492 208 53
CA
40-46 Harvard Street Industrial Westwood, MA - 351 1,782 1,321 351
25-33 Dartmouth Street Industrial Westwood, MA - 273 1,596 493 273
6201 Columbia Park
Road, Building Two Industrial Landover, MD - 505 2,746 975 960
- --- ----- --- ---
Subtotal $1,099,253 $390,060 $972,999 $275,988 $397,747
---------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
Development Depre-
Building and ciable
and Construction Accumulated Year Lives
Property Name Type Location Improvement in Process Total Depreciation Built/Renovated (Year)
- ------------- ---- -------- ----------- ------------ ----- ------------ --------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal from previous $1,172,934 $4,489 $1,568,293 ($217,506)
page ---------- ------ ---------- ---------
164 Lexington Road Office Billerica, MA 1,502 - 2,094 (78) 1982 (1)
7601 Boston Boulevard,
Building Eight Office Springfield, VA 4,206 - 4,584 (1,380) 1986 (1)
7500 Boston Boulevard,
Building Six Office Springfield, VA 3,858 - 4,131 (1,278) 1985 (1)
7600 Boston Boulevard,
Building Nine Office Springfield, VA 4,192 - 4,381 (1,391) 1987 (1)
7435 Boston Boulevard,
Building One Office Springfield, VA 5,309 - 5,795 (1,783) 1982 (1)
8000 Grainger Court,
Building Five Office Springfield, VA 4,905 - 5,358 (1,656) 1989 (1)
7375 Boston Boulevard,
Building Ten Office Springfield, VA 3,226 - 3,273 (954) 1988 (1)
7700 Boston Boulevard,
Building Twelve Office Springfield, VA 8,811 - 9,916 (48) 1997 (1)
7501 Boston Boulevard,
Building Seven Office Springfield, VA 10,976 - 11,641 (36) 1997 (1)
8000 Corporate Court,
Building Eleven Office Springfield, VA 3,084 4 3,302 (708) 1989 (1)
7374 Boston Boulevard,
Building Four Office Springfield, VA 1,966 - 2,269 (704) 1984 (1)
7451 Boston Boulevard,
Building Two Office Springfield, VA 2,685 - 3,220 (1,410) 1982 (1)
Hilltop Business Center Office San Francisco, 700 - 753 (303) early 1970's (1)
CA
40-46 Harvard Street Industrial Westwood, MA 3,103 - 3,454 (2,468) 1967/1996 (1)
25-33 Dartmouth Street Industrial Westwood, MA 2,089 - 2,362 (1,231) 1966/1996 (1)
6201 Columbia Park
Road, Building Two Industrial Landover, MD 3,266 - 4,226 (1,311) 1986 (1)
----- - ----- -------
Subtotal $1,236,812 $4,493 $1,639,052 ($234,245)
---------- ------ ---------- ----------
</TABLE>
F-25
<PAGE>
BOSTON PROPERTIES INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent Land
to and
Property Name Type Location Encumbrances Land Building Acquisition Improvements
- ------------- ---- -------- ------------ -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal from previous $ $390,060 $ 972,999 $275,988 $397,747
page - -------- ---------- -------- --------
2000 South Club Drive,
Building Three Industrial Landover, MD - 465 2,125 729 859
1950 Stanford Court,
Building One Industrial Landover, MD - 269 1,554 172 350
38 Cabot Boulevard Industrial Bucks County, - 329 1,238 2,036 329
PA
2391 West Winton Industrial Hayward, CA - 182 1,217 281 182
Avenue
560 Forbes Boulevard Industrial San Francisco, - 48 435 183 48
CA
430 Rozzi Place Industrial San Francisco, - 24 217 92 24
CA
Hotel Properties
Long Wharf Marriott Hotel Boston, MA - 1,752 31,904 8,021 1,752
Cambridge Center Hotel Cambridge, MA - 478 37,918 3,992 478
Marriott
Garage Property
Cambridge Center North Garage Cambridge, MA - 1,163 11,633 8 1,163
Development
Develop
Cambridge Master Plan ment Cambridge, MA - - - 4,264 -
Develop
Virginia Master Plan ment Springfield, VA - - - 1,506 -
Develop
Maryland Master Plan ment Landover, MD - - - 506 -
Develop
Cambridge Center Six ment Cambridge, MA - - - 2,277 -
Develop
Cambridge Center Eight ment Cambridge, MA - - - 28 -
Develop
Andover Tech Center ment Andover, MA - - - 4,682 -
Subtotal - 4,710 88,241 28,777 5,185
- ----- ------ ------ -----
Total $ $394,775 $1,061,240 $304,765 $402,932
= ======== ========== ======== ========
<CAPTION>
Development Depre-
Building and ciable
and Construction Accumulated Year Lives
Property Name Type Location Improvement in Process Total Depreciation Built/Renovated (Years)
- ------------- ---- -------- ----------- ---------- ---------- ------------ --------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Subtotal from previous $1,236,812 $4,493 $1,639,052 ($234,245)
page ---------- ------ ---------- ---------
2000 South Club Drive,
Building Three Industrial Landover, MD 2,460 - 3,319 (766) 1988 (1)
1950 Stanford Court,
Building One Industrial Landover, MD 1,645 - 1,995 (491) 1986 (1)
38 Cabot Boulevard Industrial Bucks County, 3,274 - 3,603 (2,818) 1972/1984 (1)
PA
2391 West Winton Industrial Hayward, CA 1,498 - 1,680 (906) 1974 (1)
Avenue
560 Forbes Boulevard Industrial San Francisco, 618 - 666 (268) early 1970's (1)
CA
430 Rozzi Place Industrial San Francisco, 309 - 333 (134) early 1970's (1)
CA
Hotel Properties
Long Wharf Marriott Hotel Boston, MA 39,925 - 41,677 (15,581) 1982 (1)
Cambridge Center Hotel Cambridge, MA 41,910 - 42,388 (11,182) 1986 (1)
Marriott
Garage Property
Cambridge Center North Garage Cambridge, MA 11,641 - 12,804 (2,304) 1990 (1)
Development
Develop
Cambridge Master Plan ment Cambridge, MA 4 4,260 4,264 (1) various N/A
Develop
Virginia Master Plan ment Springfield, VA 178 1,328 1,506 (175) various N/A
Develop
Maryland Master Plan ment Landover, MD - 506 506 - various N/A
Develop
Cambridge Center Six ment Cambridge, MA - 2,277 2,277 various N/A
Develop
Cambridge Center Eight ment Cambridge, MA - 28 28 various N/A
Develop
Andover Tech Center ment Andover, MA - 4,682 4,682 various N/A
Subtotal 103,462 13,081 121,728 (34,626)
------- ------ ------- --------
Total $1,340,274 $17,574 $1,760,780 ($268,871)
========== ======= ========== =========
</TABLE>
(1) Depreciation of the buildings and improvements are calculated over lives
ranging from the life of the lease to 40 years.
(2) The aggregate cost and accumulated depreciation for tax purposes was
approximately $1,820,000 and $479,000, respectively.
F-26
<PAGE>
BOSTON PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(dollars in thousands)
A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- --------
<S> <C> <C> <C>
Real estate:
Balance at beginning of year............................ $1,001,537 $ 979,493 $952,374
Additions to and Improvements of real estate.......... 754,185 28,110 29,660
Write off of fully depreciated assets................. (942) (6,066) (2,541)
---------- ---------- --------
Balance at end of year.................................. $1,760,780 $1,001,537 $979,493
========== ========== ========
Accumulated Depreciation:
Balance at beginning of year............................ $ 238,469 $ 215,303 $189,712
Depreciation expense.................................. 29,460 29,232 28,132
Write off of fully depreciated assets................. (942) (6,066) (2,541)
---------- ---------- --------
Balance at end of year.................................. $ 268,871 $ 238,469 $215,303
========== ========== ========
</TABLE>
F-27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> OTHER OTHER
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUN-23-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 JUN-22-1997
<CASH> 17,560 0
<SECURITIES> 0 0
<RECEIVABLES> 24,458 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 1,796,500 0
<DEPRECIATION> 21,719 17,054
<TOTAL-ASSETS> 1,672,521 0
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 387 0
<OTHER-SE> 174,661 0
<TOTAL-LIABILITY-AND-EQUITY> 1,672,521 0
<SALES> 139,641 93,802
<TOTAL-REVENUES> 145,643 129,818
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 38,264 53,324
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 27,226 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 7,925 0
<CHANGES> 0 0
<NET-INCOME> 35,151 4,605
<EPS-PRIMARY> .91 0
<EPS-DILUTED> .90 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JUN-23-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 25,989 25,989
<SECURITIES> 0 0
<RECEIVABLES> 13,170 13,170
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 113,060 113,060
<PP&E> 1,433,376 1,433,376
<DEPRECIATION> 9,268 10,113
<TOTAL-ASSETS> 1,295,638 1,295,638
<CURRENT-LIABILITIES> 33,375 33,375
<BONDS> 0 0
0 0
0 0
<COMMON> 387 387
<OTHER-SE> 195,094 195,094
<TOTAL-LIABILITY-AND-EQUITY> 1,295,638 1,295,638
<SALES> 59,251 64,253
<TOTAL-REVENUES> 62,989 68,353
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 43,427 47,261
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 14,719 16,091
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 13,780 14,854
<DISCONTINUED> 0 0
<EXTRAORDINARY> (58) 7,925
<CHANGES> 0 0
<NET-INCOME> 13,722 22,779
<EPS-PRIMARY> .36 .59
<EPS-DILUTED> .35 .58
</TABLE>
