<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[_] 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)
04-2473675
Delaware (IRS Employer Id. Number)
(State or Other Jurisdiction
of Incorporation or Organization)
8 Arlington Street 02116
Boston, Massachusetts (Zip Code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (617) 859-2600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which
Common Stock, Par Value $.01 Registered
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate 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 or any
amendment to this Form 10-K. [X]
As of March 26, 1999, the aggregate market value of the 60,956,365 Shares
of Common Stock held by non-affiliates of the Registrant was $1,889,647,315
based upon the closing price of $31.00 on the New York Stock Exchange
composite tape on such date. (For this computation, the Registrant has
excluded the market value of all Shares of Common Stock reported as
beneficially owned by executive officers and trustees 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 26, 1999, there were
63,540,106 Shares of Common Stock outstanding.
Certain information contained in the Company's Proxy Statement relating to
its Annual Meeting of Stockholders to be held May 5, 1999 are incorporated by
reference in Part III, Items 10, 11, 12 and 13.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Boston Properties, Inc. (the "Company") hereby amends Part II, Item 8 and
Part IV, Item 14 of its Form 10-K dated December 31, 1998 filed with the
Securities and Exchange Commission on March 31, 1999 to amend (1) page F-2 to
include an opinion on the financial statement schedule and (2) amend the
financial statement schedule. This amended annual report on Form 10-K/A does
not reflect any change in the Company's reported consolidated financial
condition or results of operations.
Item 8. Financial Statements and Supplementary Data
See "Index to Financial Statements" on page F-1 of this Form 10-K/A.
1
<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/A.
(b) Reports on Form 8-K
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 1997 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 and exhibits. The Form 8-K was filed in connection with the
Company's acquisition of Riverfront Plaza and the Mulligan/Griffin Portfolio.
A report on Form 8-K was filed on June 9, 1998 which included information
regarding Item 5. The Form 8-K was filed in connection with information
presented to investors and analysts.
A report on Form 8-K was filed on July 15, 1998 (as amended by Form 8-K/A
filed on August 25, 1998) 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 the Carnegie Center
portfolio.
A report on Form 8-K was filed on July 17, 1998 (as amended by Form 8-K/A
filed on August 25, 1998) 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 The Prudential Center.
A report on Form 8-K was filed on July 27, 1998 (as amended by Form 8-K/A
filed on August 25, 1998) 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 Metropolitan Square.
A report on Form 8-K was filed on October 27, 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 third quarter 1998 earnings and
information presented to investors and analysts.
A report on Form 8-K was filed on November 25, 1998 (as amended by Form 8-
K/A filed on January 26, 1999) 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 Embarcadero Center.
A report on Form 8-K was filed on January 27, 1999 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 1998 earnings.
2
<PAGE>
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1 Form of Amended and Restated Certificate of Incorporation of the
Company (2)
3.2 Form of Amended and Restated Bylaws of the Company (2)
4.1 Form of Shareholder Rights Agreement dated as of June , 1997
between the Company and BankBoston, N.A., as Rights Agent (2)
4.2 Form of Certificate of Designation for Series E Junior
Participating Cumulative Preferred Stock, par value $.01 per
share (2)
4.3 Form of Certificate of Designations for the Series A Preferred
Stock. (9)
4.4 Form of Common Stock Certificate (2)
10.1 Second Amended and Restated Agreement of Limited Partnership of
the Operating Partnership, dated as of June 29, 1998. (6)
10.2 Certificate of Designations for the Series One Preferred Units,
dated June 30, 1998, constituting an amendment to the Second
Amended and Restated Agreement of Limited Partnership of the
Operating Partnership. (6)
10.3 Certificate of Designations for the Series Two Preferred Units,
dated November 12, 1998, constituting an amendment to the Second
Amendment and Restated Agreement of Limited Partnership of the
Operating Partnership. (9)
10.4 Certificate of Designations for the Series Three Preferred
Units, dated November 12, 1998, constituting an amendment to the
Second Amended and Restated Agreement of Limited Partnership of
the Operating Partnership. (9)
10.5 1997 Stock Option and Incentive Plan (2)
10.6 Form of Noncompetition Agreement between the Company and
Mortimer B. Zuckerman (2)
10.7 Form of Employment and Noncompetition Agreement between the
Company and Edward H. Linde. (2)
10.8 Form of Employment Agreement between the Company and certain
executive officers (2)
10.9 Form of Indemnification Agreement between the Company and each
of its directors and executive officers (2)
10.10 Omnibus Option Agreement by and among the Operating Partnership
and the Grantors named therein dated as of April 9, 1997 (2)
10.11 Revolving Credit Agreement with BankBoston, N.A. (2)
10.12 Form of Registration Rights Agreement among the Company and the
persons named therein (2)
10.13 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 (2)
10.14 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 (2)
10.15 Option Agreement between Boston Properties Limited Partnership
and Square 36 Properties Limited Partnership dated April 15,
1997 (2)
10.16 Form of Certificate of Incorporation of Boston Properties
Management, Inc (2)
10.17 Form of By-laws of Boston Properties Management, Inc. (2)
10.18 Form of Limited Liability Agreement of ZL Hotel LLC (2)
10.19 Form of Option Agreement to Acquire the Property known as Sumner
Square(2)
10.20 Loan Modification Agreement between Lexreal Associates and
Mitsui Seimei America Corporation relating to loan secured by
599 Lexington Avenue (2)
10.21 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 (2)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.22 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 (2)
10.23 Construction Loan Agreement by and between the Sumitomo Bank,
Limited and Southwest Market Limited Partnership, dated as of
August 21, 1990 (2)
10.24 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 (2)
10.25 Consent and Loan Modification Agreement regarding One
Independence Square between the Sumitomo Bank, Limited and
Southwest Market Limited Partnership dated as of June, 1997 (2)
10.26 Consent and Loan Modification Agreement regarding Two
Independence Square between the Sumitomo Bank, Limited and
Southwest Market Limited Partnership dated as of June, 1997 (2)
10.27 Form of Amended and Restated Loan Agreement between Square 36
Office Joint Venture and the Sanwa Bank Limited dated as of June
, 1997 (2)
10.28 Indemnification Agreement between the Operating Partnership and
Mortimer B. Zuckerman and Edward H. Linde (2)
10.29 Compensation Agreement between the Company and Robert Selsam,
dated as of August 10, 1995 relating to 90 Church Street (2)
10.30 Contribution Agreement dated September 2, 1997 by and among the
Operating Partnership, the Company and Kenvic Associates (5)
10.31 Lock-Up and Registration Rights Agreement dated November 21,
1997 by and among the Operating Partnership, the Company and
Kenvic Associates (1)
10.32 Agreement dated November 21, 1997 by and between the Operating
Partnership, the Company and Kenvic Associates (1)
10.33 Note and Mortgage Modification and Spreader Agreement between
John Hancock, as lender, and the Operating Partnership, as
borrower (1)
10.34 Agreement between Bankers Trust Company, as seller, and the
Operating Partnership, as borrower, dated September 11, 1997 (3)
10.35 Term loan agreement between Chase Manhattan Bank, as lender, and
the Operating Partnership, as borrower, dated September 11, 1997
(4)
10.36 Swap Transaction Agreement between the Chase Manhattan Bank and
the Company dated November 4, 1997 (3)
10.37 Interest Guarantee and Agreement between Chase Manhattan Bank,
as lender, and the Operating Partnership, as borrower, dated
September 11, 1997 (4)
10.38 Net Cash Flow Shortfall Guarantee and Agreement between Chase
Manhattan Bank, as lender, and the Operating Partnership, as
borrower, dated September 11, 1997 (4)
10.39 Hazardous Material Guaranty and Indemnification Agreement
between Chase Manhattan Bank, as lender, and the Operating
Partnership, as borrower, dated September 11, 1997 (4)
10.40 Amended and Restated Real Estate Purchase and Sale Contract
between International Business Machines Corporation, as seller,
and the Operating Partnership, as buyer, dated October 20, 1997
(4)
10.41 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 (5)
10.42 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 (5)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.43 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 (5)
10.44 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 (5)
10.45 Environmental Indemnity and Agreement made by the Operating
Partnership in favor of John Hancock Mutual Life Insurance
Company (1)
10.46 Indemnification Agreement made by the Operating Partnership in
favor of John Hancock Mutual Life Insurance Company (1)
10.47 Consolidation, Extension and Modification Agreement dated as of
May 11, 1988 by and between Kenvic Associates and John Hancock
Mutual Life Insurance Company (1)
10.48 Modification Agreement dated as of May 30, 1990 by and between
Kenvic Associates and John Hancock Mutual Life Insurance Company
(1)
10.49 Note and Mortgage Notification Agreement, dated July 23, 1992 by
and between Kenvic Associates and John Hancock Mutual Life
Insurance Company (2)
10.50 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 (1)
10.51 Contribution Agreement dated November 26, 1997 the Operating
Partnership, Boston Properties LLC and the Contributors named
therein. (1)
10.52 Promissory Note dated January , 1998 between the Operating
Partnership and Metropolitan Life Insurance Company (1)
10.53 Deed of Trust, Security Agreement and Fixture Filing dated
January , 1998 (1)
10.54 Unsecured Indemnity Agreement dated January , 1998 (1)
10.55 Contribution and Conveyance Agreement concerning the Carnegie
Portfolio, dated June 30, 1998 by and among the Company, the
Operating Partnership, and the parties named therein as Landis
Parties. (6)
10.56 Contribution Agreement, dated June 30, 1998, by and among the
Company, the Operating Partnership, and the parties named
therein as Landis Parties. (6)
10.57 Registration Rights and Lock-Up Agreement, dated June 30, 1998
by and among the Company, the Operating Partnership and the
parties named therein as Holders. (6)
10.58 Non-Competition Agreement, dated as of June 30, 1998, by and
between Alan B. Landis and the Company. (6)
10.59 Agreement Regarding Directorship, dated as of June 30, 1998, by
and between the Company and Alan B. Landis. (6)
10.60 Purchase and Sale Agreement, dated May 7, 1998, by and between
Prudential and the Operating Partnership. (7)
10.61 Contribution Agreement, dated as of May 7, 1998, by and between
Prudential and the Operating Partnership. (7)
10.62 Registration Rights Agreement, dated as of July 2, 1998, by and
among the Registrant, Strategic Value Investors II, LLC and
Prudential. (7)
10.63 Contribution Agreement dated June 5, 1998, by and among Boston
Properties Limited Partnership, Boston Properties LLC, Square
224 Associates and the Oliver Carr Company. (8)
10.64 Registration Rights and Lock-up Agreement, dated as of July 9,
1998, by and between Boston Properties, Inc. and Square 224
Associates. (8)
10.65 Purchase and Sale Agreement, dated as of November 12, 1998, by
and between Two Embarcadero Center West and BP OFR LLC. (9)
10.66 Contribution Agreement, dated as of November 12, 1998, by and
among the Company, The Operating Partnership, Embarcadero Center
Investors Partnership ("ECIP") and the partners in ECIP listed
on Exhibit A thereto. (9)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.67 Contribution Agreement, dated as of November 12, 1998, by and
among the Company, the Operating Partnership, Three Embarcadero
Center West ("Three ECW") and the partners in Three ECW listed
on Exhibit A thereto. (9)
10.68 Three ECW Redemption Agreement, dated as of November 12, 1998,
by and among Three ECW, the Operating Partnership, BP EC West
LLC, Prudential, PIC Realty Corporation ("PIC") and Prudential
Realty Securities II, Inc. ("PRS II").(9)
10.69 Three ECW Property Contribution Agreement, dated as of November
12, 1998, by and among Three ECW, Prudential, PIC, PRS II, the
Operating Partnership, the Company and BP EC West LLC. (9)
10.70 Registration Rights and Lock-Up Agreement, dated November 12,
1998, by and among the Company, the Operating Partnership and
the Holders named therein.(9)
10.71 Third Amended and Restated Partnership Agreement of One
Embarcadero Center Venture, dated as of November 12, 1998, by
and between Boston Properties LLC ("BPLLC"), as managing general
partner, BP EC1 Holdings LLC ("BP EC1 LLC"), as non-managing
general partner, and PIC, as non-managing general partner (9)
10.72 Third Amended and Restated Partnership Agreement of Embarcardero
Center Associates, dated as of November 12, 1998, by and between
BP LLC, as managing general partner, BP EC2 Holdings LLC ("BP
EC2 LLC"), as non-managing general partner, and PIC, as non-
managing general partner. (9)
10.73 Second Amended and Restated Partnership Agreement of Three
Embarcadero Center Venture, dated as of November 12, 1998, by
and between BPLLC, as managing general partner, BP EC3 Holdings
LLC ("BP EC3 LLC"), as non-managing general partner, and
Prudential, as non-managing general partner. (9)
10.74 Second Amended and Restated Partnership Agreement of Four
Embarcadero Center Venture, dated as of November 12, 1998, by
and between BPLLC, as managing general partner, BP EC4 Holdings
LLC ("BP EC4 LLC"), as non-managing general partner, and
Prudential, as non-managing general partner. (9)
10.75 Note Purchase Agreement, dated as of November 12, 1998, by and
between Prudential Realty Securities, Inc. ("PRS") and One
Embarcadero Center Venture. (9)
10.76 Note Purchase Agreement, dated as of November 12, 1998, by and
between PRS and Embarcadero Center Associates. (9)
10.77 Note Purchase Agreement, dated November 12, 1998, by and between
PRS and Three Embarcadero Center Venture. (9)
10.78 Note Purchase Agreement, dated November 12, 1998, by and between
PRS and Four Embarcadero Center Venture. (9)
10.79 Redemption Agreement, dated as of November 12, 1998, by and
among One Embarcadero Center Venture, BPLLC, BP EC1 LLC and PIC.
(9)
10.80 Redemption Agreement, dated as of November 12, 1998, by and
among Embarcadero Center Associates, BPLLC, BP EC2 LLC and PIC.
(9)
10.81 Redemption Agreement, dated as of November 12, 1998, by and
among Three Embarcadero Center Venture, BPLLC, BP EC3 LLC and
Prudential. (9)
10.82 Redemption Agreement, dated as on November 12, 1998, by and
among Four Embarcadero Center Venture, BPLLC, BP EC4 LLC and
Prudential. (9)
10.83 Option and Put Agreement, dated as of November 12, 1998, by and
between One Embarcadero Center Venture and Prudential. (9)
10.84 Option and Put Agreement, dated as of November 12, 1998, by and
between Embarcadero Center Associates and Prudential. (9)
10.85 Option and Put Agreement, dated as of November 12, 1998, by and
between Three Embarcadero Center Venture and Prudential. (9)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.86 Option and Put Agreement, dated as of November 12, 1998, by and
between Four Embarcadero Center Venture and Prudential. (9)
10.87 Stock Purchase Agreement, dated as of September 28, 1998, by and
between the Company and Prudential. (9)
21.1 Schedule of Subsidiaries of the Company (1)
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
27.1 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-11 (No. 333-41449)
(2) Incorporated herein by reference to the Company's Registration Statement on
Form S-11 (No. 333-25279)
(3) Incorporated herein by reference to the Company's Current Report on Form 8-
K filed on November 25, 1997
(4) Incorporated herein by reference to the Company's Current Report on Form 8-
K/A filed on November 14, 1997
(5) Incorporated herein by reference to the Company's Current Report on Form 8-
K filed on November 26, 1997
(6) Incorporated herein by reference to the Company's Current Report on Form
8-K filed on July 15, 1998.
(7) Incorporated herein by reference to the Company's Current Report on Form 8-
K filed on July 17, 1998.
(8) Incorporated herein by reference to the Company's Current Report on Form 8-
K filed on July 27, 1998.
(9) Incorporated herein by reference to the Company's Current Report on Form 8-
K filed on November 25, 1998.
7
<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.
By: /s/ David G. Gaw
----------------------------------
David G. Gaw
Chief Financial Officer
Date March 31, 1999
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 31, 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
By: /s/ Martin Turchin
----------------------------------
Martin Turchin
Director
By: /s/ Alan B. Landis
----------------------------------
Alan B. Landis
Director
By: /s/ Richard E. Salomon
----------------------------------
Richard E. Salomon
Director
8
<PAGE>
BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES
PREDECESSOR GROUP
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheet of Boston Properties, Inc. (the "Company")
as of December 31, 1998 and December 31, 1997......................... F-3
Consolidated Statement of Operations of the Company for the year ended
December 31, 1998 and for the period from June 23, 1997
(inception of operations) to December 31, 1997and Combined
Statements of Operations for the Predecessor Group for the period
from January 1, 1997 to June 22, 1997 and the year ended
December 31, 1996..................................................... F-4
Consolidated Statement of Changes in Stockholders' Equity of the Company
For the year ended December 31, 1998 and 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 year
ended
December 31, 1996..................................................... F-5
Consolidated Statement of Cash Flows of the Company for the year ended
December 31, 1998 and for the period June 23, 1997 (inception of
operations) to December 31, 1997and Combined Statement of Cash
Flows of the Predecessor Group for the period January 1, 1997 to
June 22, 1997 and the year ended December 31, 1996.................... F-6
Notes to Consolidated and Combined Financial Statements................. F-7
Financial Statement Schedule--Schedule III.............................. F-22
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.
In our opinion, the accompanying consolidated financial statements and the
financial statement schedule listed in the accompanying index present fairly,
in all material respects, (i) the financial position of Boston Properties, Inc.
(the "Company") at December 31, 1998 and 1997, the results of operations and
cash flows for the year ended December 31, 1998, and for the period from June
23, 1997 to December 31, 1997, and (ii) as described in Note 1, the combined
statements of operations and cash flows, for the period from January 1, 1997 to
June 22, 1997 and for the year ended December 31, 1996 of the Boston Properties
Predecessor Group, in conformity with generally accepted accounting principles.
These financial statements and 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 of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
January 24, 1999, except for Note 16, for which the date is February 10, 1999
F-2
<PAGE>
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
(in thousands, except
share amounts)
<S> <C> <C> <C>
ASSETS
</TABLE>
<TABLE>
<S> <C> <C>
Real estate:
Less: accumulated depreciation........................ $4,917,193 $1,796,500
Total real estate................................... (357,384) (294,218)
---------- ----------
4,559,809 1,502,282
Cash and cash equivalents............................... 12,166 17,560
Notes receivable........................................ 420,143 --
Escrows................................................. 19,014 14,178
Tenant and other receivables, net....................... 40,830 24,458
Accrued rental income, net.............................. 64,251 55,190
Deferred charges, net................................... 46,029 35,485
Prepaid expenses and other assets....................... 26,058 20,225
Investments in joint ventures........................... 46,787 3,143
---------- ----------
Total assets........................................ $5,235,087 $1,672,521
========== ==========
</TABLE>
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
</TABLE>
<TABLE>
<S> <C> <C>
Liabilities:
Mortgage notes payable................................ $2,653,581 $1,099,253
Notes payable......................................... 420,143 --
Unsecured line of credit.............................. 15,000 233,000
Accounts payable and accrued expenses................. 33,638 23,822
Dividends payable..................................... 40,494 22,539
Accrued interest payable.............................. 7,307 6,581
Other liabilities..................................... 37,209 11,642
---------- ----------
Total liabilities................................... 3,207,372 1,396,837
---------- ----------
Commitments and contingencies........................... -- --
---------- ----------
Minority interests...................................... 1,079,234 100,636
---------- ----------
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,
63,527,819 and 38,694,041 issued and outstanding in
1998 and 1997, respectively.......................... 635 387
Additional paid-in capital............................ 955,711 172,347
Dividends in excess of earnings....................... (7,865) 2,314
---------- ----------
Total stockholders' equity.......................... 948,481 175,048
---------- ----------
Total liabilities and stockholders' equity........ $5,235,087 $1,672,521
========== ==========
</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 OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
The Company The Predecessor Group
-------------------------- ----------------------------
Period from
June 23, 1997 Period from
Year ended to January 1, 1997 Year ended
December 31, December 31, to December 31,
1998 1997 June 22, 1997 1996
------------ ------------- --------------- ------------
<S> <C> <C> <C> <C>
Revenue
Rental:
Base rent............ $419,756 $126,401 $ 80,122 $169,420
Recoveries from
tenants............. 48,718 12,564 10,283 22,607
Parking and other.... 19,103 676 3,397 2,979
-------- -------- -------- --------
Total rental
revenue........... 487,577 139,641 93,802 195,006
Hotel................. -- -- 31,185 65,678
Development and
management services.. 12,411 3,813 3,685 5,719
Interest and other.... 13,859 2,189 1,146 3,530
-------- -------- -------- --------
Total revenue...... 513,847 145,643 129,818 269,933
-------- -------- -------- --------
Expenses
Rental:
Operating............ 80,894 19,591 13,650 29,823
Real estate taxes.... 69,596 20,502 13,382 28,372
Hotel:
Operating............ -- -- 20,938 43,634
Real estate taxes.... -- -- 1,514 3,100
General and
administrative....... 22,504 6,689 5,116 10,754
Interest.............. 124,860 38,264 53,324 109,394
Depreciation and
amortization......... 75,418 21,719 17,054 36,199
-------- -------- -------- --------
Total expenses..... 373,272 106,765 124,978 261,276
-------- -------- -------- --------
Income before minority
interests.............. 140,575 38,878 4,840 8,657
Minority interests...... (41,982) (11,652) (235) (384)
-------- -------- -------- --------
Income before
extraordinary items.... 98,593 27,226 4,605 8,273
Extraordinary gain
(loss) from early debt
extinguishments, net... (5,481) 7,925 -- (994)
-------- -------- -------- --------
Net income.............. $ 93,112 $ 35,151 $ 4,605 $ 7,279
======== ======== ======== ========
Basic earnings per
share:
Income before
extraordinary items.. $ 1.62 $ 0.70 -- --
Extraordinary gain
(loss), net.......... (0.09) 0.21 -- --
-------- --------
Net income............ $ 1.53 $ 0.91 -- --
======== ========
Weighted average
number of common
shares outstanding... 60,776 38,694 -- --
Diluted earnings per
share:
Income before
extraordinary items.. $ 1.61 $ 0.70 -- --
Extraordinary gain
(loss), net.......... (0.09) 0.20 -- --
-------- --------
Net income............ $ 1.52 $ 0.90 -- --
======== ========
Weighted average
number of common
shares outstanding... 61,308 39,108 -- --
</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 STOCKHOLDERS" AND OWNER' EQUITY
(DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Common Stock
-------------
Additional Dividends
Paid-in in excess of Owners' Equity
Shares Amount Capital Earnings (Deficit) Total
------ ------ ---------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
The Predecessor Group:
Balance, January 1,
1996................. $(506,653) $(506,653)
Contributions....... 33,279 33,279
Net income for the
year............... 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, 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
Stock issued in
connection with
property
acquisition.......... 16 16
Allocation of minority
interest in Operating
Partnership.......... (71,669) (71,669)
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 -- 175,048
Sale of Common Stock
net of Offering
costs................ 23,000 230 764,760 764,990
Unregistered Common
Shares issued........ 1,823 18 58,819 58,837
Conversion of
operating partnership
units to common
stock................ 10 -- 250 250
Allocation of minority
interest............. (40,490) (40,490)
Net income for the
year................. 93,112 93,112
Dividends declared.... (103,291) (103,291)
Stock options
exercised............ 1 -- 25 25
------ ---- ---------- ---------- --------- ---------
Stockholders' Equity,
December 31, 1998.... 63,528 $635 $ 955,711 $ (7,865) $ -- $ 948,481
====== ==== ========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
The Company The Predecessor Group
----------------------------------- ---------------------------------
Period from Period from
June 23, 1997 January 1, 1997
Year ended to to Year ended
December 31, 1998 December 31, 1997 June 22, 1997 December 31, 1996
----------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 93,112 $ 35,151 $ 4,605 $ 7,279
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 75,418 21,719 17,054 36,199
Non-cash portion of
interest expense..... 247 547 1,497 644
Extraordinary loss
(gain) on early debt
extinguishments...... 7,743 (11,216) -- --
Minority interests.... 38,760 7,659 -- --
Change in assets and
liabilities:
Escrows............... (4,836) 11,429 (136) 2,242
Tenant and other
receivables, net..... (16,372) (5,295) (7,114) 2,313
Accrued rental
income............... (9,061) (5,694) (291) 475
Prepaid expenses and
other issues......... (5,833) (14,330) (1,494) 2,777
Accounts payable and
accrued expenses..... 9,816 5,611 5,220 (572)
Accrued interest
payable.............. 726 (5,107) 2,021 579
Other liabilities..... 25,567 5,672 3,728 3,971
----------- --------- -------- ---------
Total adjustments.... 122,175 10,995 20,485 48,628
----------- --------- -------- ---------
Net cash provided by
operating
activities.......... 215,287 46,146 25,090 55,907
----------- --------- -------- ---------
Cash flows from
investing activities:
Acquisitions to real
estate and equipment.. (1,697,449) (526,890) (27,721) (30,238)
Tenant leasing costs... (17,979) (2,793) (2,550) (4,077)
Investments in joint
ventures.............. (43,644) (570) (2,573) --
Notes receivable....... (420,143) -- -- --
Cash from contributed
assets................ -- 10,510 -- --
----------- --------- -------- ---------
Net cash used in
investing
activities.......... (2,179,215) (519,743) (32,844) (34,315)
----------- --------- -------- ---------
Cash flows from
financing activities:
Net proceeds from sales
of common stock....... 819,103 839,209 -- --
Owners' contributions.. -- -- 9,330 33,279
Owners' distributions.. -- -- (32,125) (105,619)
Borrowings on unsecured
line of credit........ 322,000 233,000 -- --
Repayment of unsecured
line of credit........ (540,000) -- -- --
Repayments of mortgage
notes................. (159,714) (712,338) (3,799) (93,695)
Proceeds from mortgage
notes................. 1,226,717 220,000 -- 117,269
Proceeds from notes
payable............... 420,143 -- -- 11,933
Accounts receivable--
affiliate............. -- -- (804) --
Accounts payable--
affiliate............. -- (19,983) 19,983 --
Proceeds from
(repayments of) notes
payable--affiliate.... -- (38,833) 16,716 --
Dividends and
distributions......... (127,307) (17,026) -- --
Deferred financing and
other costs........... (2,408) (12,872) (35) (1,628)
----------- --------- -------- ---------
Net cash provided by
financing
activities.......... 1,958,534 491,157 9,266 (38,461)
----------- --------- -------- ---------
Net increase (decrease)
in cash................ (5,394) 17,560 1,512 (16,869)
Cash and cash
equivalents, beginning
of period.............. 17,560 -- 8,998 25,867
----------- --------- -------- ---------
Cash and cash
equivalents, end of
period................. $ 12,166 $ 17,560 $ 10,510 $ 8,998
=========== ========= ======== =========
Supplemental
disclosures:
Cash paid for
interest.............. $ 46,422 $ 36,783 $ 50,917 $ 107,700
=========== ========= ======== =========
Interest capitalized... $ 6,933 $ 1,168 $ 1,111 $ 366
=========== ========= ======== =========
Non-cash activities:
Operating activity:
Non-cash portion of
interest expense..... $ 247 $ 547 $ 1,497 644
=========== ========= ======== =========
Investing and Financing
activities:
Mortgage notes payable
assumed in connection
with acquisitions.... $ 496,926 -- -- --
===========
Issuance of minority
interest in
connection with
acquisition.......... $ 941,318 -- -- --
===========
Common stock issued in
connection with
acquisition.......... $ 5,000 -- -- --
===========
Dividends and
distributions
declared but not
paid................. $ 40,494 $22,539 -- --
=========== =========
Conversion of owners'
equity to notes
payable--affiliate... -- -- -- $ 4,918
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--continued
(dollars in thousands, except per share amounts)
1. Organization and Basis of Presentation
Organization
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, Greater Washington, D.C., Greater San Francisco,
Midtown Manhattan, Princeton/East Brunswick, New Jersey, Baltimore, Maryland,
and Richmond, Virginia. The Company is a fully integrated self-administered and
self-managed real estate investment trust ("REIT"). The Company was formed to
succeed to the real estate development, redevelopment, acquisition, management,
operating and leasing businesses association with the predecessor company
founded by Mortimer B. Zuckerman and Edward H. Linde in 1970. The term
"Predecessor Group" or "Predecessor" as used herein refers to 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 includes Boston
Properties, Inc. and its subsidiaries on a consolidated basis (including Boston
Properties Limited Partnership (the "Operating Partnership")).
On June 23, 1997, the Company commenced operations after completing an
initial public offering of 36,110,000 common shares at a price per share of
$25.00 (including 4,710,000 shares issued as a result of the exercise of an
over-allotment option by the underwriters). The proceeds to the Company, net of
underwriters' discount and offering costs, were approximately $839.2 million.
Upon the completion of such offering, the Company succeeded to substantially
all of the interests of the Predecessor in (i) a portfolio of office,
industrial and hotel properties and (ii) the acquisition, property management,
leasing, development and construction businesses of the Predecessor Group. The
acquisition, property management, leasing, development and construction
businesses are being carried out by the Operating Partnership and the Company's
majority-owned affiliate, Boston Properties Management, Inc.
On January 26, 1998, the Company completed a second offering of 23,000,000
common shares at a price of $35.125 per share (including 3,000,000 shares
issued as a result of the exercise of an over-allotment option by the
underwriters). The proceeds to the Company, net of underwriters' discount and
offering costs were approximately $765.0 million.
Properties
At December 31, 1998, the Company owned a portfolio of 121 commercial real
estate properties (82 properties at December 31, 1997) (the "Properties")
aggregating approximately 31.6 million square feet (including ten properties
currently under development). The Properties consist of 108 office properties,
including 76 Class A office properties and 32 Research and Development
properties; nine industrial properties; three hotels; and one parking garage.
In addition, the Company owns 21 parcels of land totaling 300.1 acres (which
will support approximately 6.8 million square feet of development) and
structured parking for 11,427 vehicles containing approximately 5.8 million
square feet. The Company considers Class A office properties 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. The Company
considers Research and Development properties to support office, research and
development and other technical uses.
Basis of Presentation
The consolidated financial statements of the Company include all the
accounts of the Company, Boston Properties Limited Partnership, and its
subsidiaries. The financial statements reflect the properties acquired at
F-7
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--continued
(dollars in thousands, except per share amounts)
their historical accounting basis to the extent of the acquisition of
interests from the Predecessor Group's owners who continued as investors. The
remaining interests acquired for cash from those owners of the Predecessor
Group, who decided to sell their interests, have been accounted for as a
purchase and the excess of the purchase price over the related historical cost
basis was allocated to real estate. The combined financial statements of the
Predecessor Group include interests in properties and the third party
commercial real estate development, project management and property management
business. The accompanying combined financial statements for the Predecessor
Group have been presented on a combined basis due to the common ownership and
management of the entities included in the Predecessor Group; therefore, its
combined financial statements are presented for comparative purposes. All
significant intercompany balances and transactions have been eliminated.
Investments in joint ventures where the Company does not have a controlling
interest are accounted for under the equity method. Under the equity method of
accounting the net equity investment of the Company in the joint ventures is
reflected on the consolidated balance sheets.
2. Significant Accounting Policies
Real Estate
Real estate is stated at depreciated cost. 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 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. 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.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Land improvements..................... 25 to 40 years
Buildings............................. 10 to 40 years
Tenant improvements................... Shorter of useful life or terms of
related lease
Furniture, fixtures, and equipment.... 5 to 7 years
</TABLE>
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 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--continued
(dollars in thousands, except per share amounts)
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 and are included in interest expense. Fully amortized deferred
charges are removed from the books upon the expiration of the lease or maturity
of the debt.
Minority Interests
Minority Interests at December 31, 1998 represent minority interests in
partially owned properties and minority holders' share in the Operating
Partnership.
Offering Costs
Underwriting commissions and offering costs incurred in connection with the
initial public offering and follow-on offering have been reflected as a
reduction of additional paid-in capital.
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
represented approximately 85% and 59% ordinary income for federal income tax
purposes for the year ended December 31, 1998 and the period from June 23, 1997
to December 31, 1997, respectively.
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 $18,510 and $5,985 and decreased revenues by $475 for the
years ended December 31, 1998, 1997 and 1996, 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.
Development fees are recognized ratably over the period of development.
Management fees are recognized as revenue as they are earned.
Interest Expense
Interest expense on fixed rate debt with predetermined periodic rate
increases is computed using the effective interest method over the terms of the
respective loans.
Earnings Per Share
Basic earnings per share ("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 and
conversion of the minority interest in the Operating Partnership.
F-9
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--continued
(dollars in thousands, except per share amounts)
Reclassifications
Certain prior year balances have been reclassified in order to conform to
current year presentation.
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 values of these financial instruments were not materially
different from their carrying or contract values.
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 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.
To assist the Company in maintaining its status as a REIT, the Company
leases its 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, the Chairman of the Board and
Chief Executive Officer ("CEO"), respectively, are the sole member-managers.
Marriott International, Inc. manages these hotel properties under the Marriott
name pursuant to a management agreement with the lessee. The Company has made
similar arrangements with respect to a hotel property under development.
The net difference between the tax basis and the reported amounts of the
Company's assets and liabilities is approximately $987,789 and $149,000 as of
December 31, 1998 and 1997, respectively.
The Predecessor Group 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 Group'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.
F-10
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--continued
(dollars in thousands, except per share amounts)
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 and/or other financial 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.
Segment Reporting
In 1998, the Company adopted Statement of Financial Accounting Standards 131
("FAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." FAS 131 supersedes Statement of Financial Accounting Standards
No. 14, "Financial Reporting for Segments of a Business Enterprise", replacing
the "industry segment' approach with a "management" approach. The management
approach designates the internal organization used by management for making
operating decisions and assessing performance as the source of the Company's
segments. FAS 131 also requires disclosures about product and services,
geographic areas, and major customers. The adoption of FAS 131 did not affect
results of operations or financial position of the Company.
3. Real Estate
Real estate consisted of the following at December 31,:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land................................................. $ 926,862 $ 403,022
Buildings and improvements........................... 3,628,212 1,223,892
Tenant improvements.................................. 134,973 118,374
Furniture, fixtures and equipment.................... 35,710 33,638
Developments in progress............................. 191,436 17,574
---------- ----------
Total.............................................. 4,917,193 1,796,500
Less: accumulated depreciation....................... (357,384) (294,218)
---------- ----------
$4,559,809 $1,502,282
---------- ----------
</TABLE>
4. Deferred Charges
Deferred charges consisted of the following at December 31,:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Leasing costs............................................ $ 58,803 $ 46,769
Financing costs.......................................... 28,128 29,271
-------- --------
86,931 76,040
Less: accumulated amortization........................... (40,902) (40,555)
-------- --------
$ 46,029 $ 35,485
-------- --------
</TABLE>
5. Investments in Joint Ventures
The investments in joint ventures represent (i) a 25% interest in a joint
venture which is developing two office buildings in Reston, VA, (ii) a 25%
interest in a joint venture which is developing one office building in Reston,
VA and (iii) a 50% interest in a joint venture which is developing an office
building in Washington,
F-11
<PAGE>
BOSTON PROPERTIES, INC. AND
BOSTON PROPERTIES PREDECESSOR GROUP
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--continued
(dollars in thousands, except per share amounts)
DC. The Company also serves as development manager for these joint ventures.
Under the equity method of accounting the net equity investment is reflected
on the consolidated balance sheets.
The combined summarized balance sheets of the joint ventures are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Balance Sheets:
Land..................................................... $ 43,550 $ 8,167
Developments in progress................................. 128,867 16,748
Other assets............................................. 10,032 1,192
-------- -------
Total Assets........................................... $182,449 $26,107
-------- -------
Construction loans payable............................... $ 55,638 $ 6,969
Other liabilities........................................ 20,595 7,042
Partners' equity......................................... 106,216 12,096
-------- -------
Total Liabilities and Partners' Equity................. $182,449 $26,107
-------- -------
Company's Share of Equity.................................. $ 46,787 $ 3,143
-------- -------
</TABLE>
6. Mortgage Notes Payable
Mortgage notes payable comprise various loans at December 31, 1998 and
1997, 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 February 1, 2010. Interest
rates on fixed rate mortgage notes payable aggregating approximately
$2,623,847 and $1,082,000 at December 31, 1998 and 1997, respectively, range
from 6.40% to 8.59% (averaging 7.05% and 7.55% at December 31, 1998 and 1997,
respectively). Variable rate mortgage notes payable were approximately $11,417
and $11,600 at December 31, 1998 and 1997, respectively, with rates ranging
from 1.0% above the London Interbank Offered Rate ("LIBOR") (5.06% and 5.90%
at December 31, 1998 and 1997, respectively) to 1.5% above the LIBOR rate.
The interest rates related to the mortgage notes payable for three
properties aggregating approximately $209,987 at December 31, 1998 and for two
properties aggregating $198,781 at December 31, 1997 are subject to periodic
scheduled rate increases. Interest expense for these mortgage notes payable is
computed using the effective interest method. Additionally, mortgage notes
payable at December 31, 1998 on three properties in the amount of $320,484 and
a mortgage note payable on one property at December 31, 1997 totaling $185,618
have been accounted for at their fair value. The impact of using these methods
decreased interest expense $2,656 and increased interest expense $547 and
$1,347 for the years ended December 31, 1998, 1997 and 1996 respectively. The
cumulative liability related to these adjustments is $18,317 and $6,430 at
December 31, 1998 and 1997, respectively, and is included in mortgage notes
payable.
Combined aggregate principal payments of mortgage notes payable at December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................ $ 26,940
2000................................ 233,075
2001................................ 146,059
2002................................ 385,394
2003................................ 206,853
</TABLE>
Certain mortgage indebtedness aggregating approximately $707.1 million was
repaid in conjunction with the initial public offering. These repayments,
along with (i) the payment of certain related repayment penalties,
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 amounts)
(ii) the write-off of the related previously capitalized deferred financing
costs and (iii) the extinguishment of the excess of the mortgage not payable
balance over the principal payment necessitated by an 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 during the
period from June 23, 1997 through December 31, 1997 in the financial
statements.
During 1998, the Company incurred an extraordinary loss primarily related
to fees incurred in connection with the repayment of certain mortgages payable
in connection with the Embarcadero Center acquisition.
7. Unsecured Line of Credit
As of December 31, 1998, the Company has an agreement for a $500,000
unsecured revolving credit facility (the "Unsecured Line of Credit") maturing
in June 2000. Outstanding balances under the Unsecured Line of Credit
currently bear interest at a floating rate based on an increase over LIBOR
from 90 to 120 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 was $15,000 and
$233,000 at December 31, 1998 and 1997, respectively. The weighted average
balance outstanding was approximately $68,293 and $117,000 during the year
ended December 31, 1998 and the period from June 23, 1997 through December 31,
1997, respectively. The weighted average interest rate on amounts outstanding
was approximately 6.64% and 6.82% during the year ended December 31, 1998 and
the period from June 23, 1997 through December 31, 1997. The applicable
interest rate under the Unsecured Line of Credit at December 31, 1998 was
6.73%.
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.
8. Leasing Activity
Future minimum lease payments (excluding operating expense reimbursements)
as of December 31, 1998, under non-cancelable operating leases, which expire
on various dates through 2029, are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
-------------------------
<S> <C>
1999............................... $ 547,576
2000............................... 511,158
2001............................... 471,238
2002............................... 411,966
2003............................... 334,378
Thereafter......................... 1,234,584
</TABLE>
The geographic concentration of the future minimum lease payments to be
received is detailed as follows:
<TABLE>
<CAPTION>
Location
--------
<S> <C>
Greater Boston.................... $ 584,318
Greater Washington D.C............ 1,273,401
Midtown Manhattan................. 913,636
Greater San Francisco............. 631,611
New Jersey and Pennsylvania....... 107,934
</TABLE>
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 amounts)
No one tenant represented more than 10% of the Company's total rental income
for the year ended December 31, 1998. One tenant represented 13.3% of the
Company's total rental income for the year ended December 31, 1997.
9. Segment Reporting
The Company has determined that its segments are those that are based on the
Company's method of internal reporting, which classifies its operations by both
geographic area and property type. The Company's segments by geographic area
are: Greater Boston, Greater Washington D.C., midtown Manhattan, Greater San
Francisco, and New Jersey and Pennsylvania. Segments by property type include:
Class A Office, R&D, Industrial, Hotel, and Garage.
Asset information by segment is not reported, since the Company does not use
this measure to assess performance; therefore, the depreciation and
amortization expenses are not allocated among segments. Interest income,
management and development services, interest expense, and general and
administrative expenses are not included in net operating, as the internal
reporting addresses these on a corporate level.
Information by Geographic Area and Property Type:
For the year ended December 31, 1998:
<TABLE>
<CAPTION>
Greater Greater New Jersey
Greater Washington, Midtown San and Grand
Boston D.C. Manhattan Francisco Pennsylvania Totals
-------- ----------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Rental Revenues:
Class A Office........ $ 94,284 $ 169,882 $ 129,644 $ 18,914 $17,407 $430,131
R&D................... 5,955 17,121 -- 1,502 -- 24,578
Industrial............ 1,611 1,431 -- 1,349 789 5,180
Hotels................ 25,944 -- -- -- -- 25,944
Garage................ 1,744 -- -- -- -- 1,744
-------- --------- --------- -------- ------- --------
Total............... 129,538 188,434 129,644 21,765 18,196 487,577
-------- --------- --------- -------- ------- --------
% of Grand Totals....... 26.57% 38.65% 26.59% 4.46% 3.73% 100.00%
-------- --------- --------- -------- ------- --------
Rental Expenses:
Class A Office........ 36,591 45,156 44,787 7,099 5,663 139,296
R&D 1,808 3,644 -- 395 -- 5,847
Industrial............ 525 316 -- 305 107 1,253
Hotels................ 3,562 -- -- -- -- 3,562
Garage................ 532 -- -- -- -- 532
-------- --------- --------- -------- ------- --------
Total............... 43,018 49,116 44,787 7,799 5,770 150,490
-------- --------- --------- -------- ------- --------
% of Grand Totals....... 28.59% 32.64% 29.76% 5.18% 3.83% 100.00%
-------- --------- --------- -------- ------- --------
Net Operating Income.... $86,520 $139,318 $84,857 $13,966 $12,426 $337,087
======== ========= ========= ======== ======= ========
% of Grand Totals....... 25.67% 41.33% 25.17% 4.14% 3.69% 100.00%
======== ========= ========= ======== ======= ========
</TABLE>
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 amounts)
For the year ended December 31, 1997 (includes operations of the Company and
the Predecessor):
<TABLE>
<CAPTION>
Greater Greater New Jersey
Greater Washington, Midtown San and Grand
Boston D.C. Manhattan Francisco Pennsylvania Totals
------- ----------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Rental Revenues:
Class A Office........ $42,082 $87,688 $67,350 -- -- $197,120
R&D................... 5,420 7,848 -- $1,314 -- 14,582
Industrial............ 1,685 1,450 -- 1,082 $829 5,046
Hotels................ 14,611 -- -- -- -- 14,611
Garage................ 2,084 -- -- -- -- 2,084
Hotel Revenues.......... 31,185 -- -- -- -- 31,185
------- ------- ------- ------ ---- --------
Total................. 97,067 96,986 67,350 2,396 829 264,628
------- ------- ------- ------ ---- --------
% of Grand Totals....... 36.68% 36.65% 25.45% 0.91% 0.31% 100.00%
------- ------- ------- ------ ---- --------
Operating Expenses:
Class A Office........ 13,445 23,659 23,341 -- -- 60,445
R&D................... 1,398 1,415 -- 452 -- 3,265
Industrial............ 531 324 -- 183 105 1,143
Hotels................ 1,737 -- -- -- -- 1,737
Garage................ 535 -- -- -- -- 535
Hotel Expenses.......... 22,452 -- -- -- -- 22,452
------- ------- ------- ------ ---- --------
Total................. 40,098 25,398 23,341 635 105 89,577
------- ------- ------- ------ ---- --------
% of Grand Totals....... 44.76% 28.35% 26.06% 0.71% 0.12% 100%
------- ------- ------- ------ ---- --------
Net Operating Income.... $56,969 $71,588 $44,009 $1,761 $724 $175,051
======= ======= ======= ====== ==== ========
% of Grand Totals....... 32.54% 40.90% 25.14% 1.01% 0.41% 100.00%
======= ======= ======= ====== ==== ========
</TABLE>
The following is a reconciliation of net operating income to income before
minority interests:
<TABLE>
<CAPTION>
1998 1997(/1/)
-------- ---------
<S> <C> <C>
Net operating income....................................... $337,087 $175,051
Add:
Development and management services...................... 12,411 7,498
Interest income.......................................... 13,859 3,335
Less:
General and administrative............................... (22,504) (11,805)
Interest expense......................................... (124,860) (91,588)
Depreciation and amortization............................ (75,418) (38,773)
-------- --------
Income before minority interests........................... $140,575 $43,718
======== ========
</TABLE>
- --------
(1) Includes operations of the Company and the Predecessor.
10. Employee Benefit Plan
Effective January 1, 1985, the Predecessor Group 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
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 amounts)
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 year ended December 31,
1998, 1997 and 1996 was $583, $403 and $359, respectively.
Participants are immediately vested in their pre-tax and after-tax
contributions. Participants vest in the Company's and the Predecessor Group's
matching contributions and earnings thereon over a five-year period.
11. Stock Option and Incentive Plan
The Company has established a stock option and incentive plan for the
purpose of attracting and retaining qualified directors, officers and employees
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 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. The Company
applies Accounting Principles Bulletin Opinion No. 25 ("APB 25") and related
Interpretations in accounting for its plan. Statement of Financial Accounting
Standards No.123 ("SFAS 123") was issued by the Financial Accounting Standards
Board in 1995 and, if fully adopted, changes the methods for recognition of
cost on plans similar to that of the Company. Adoption of FAS 123 is optional;
however, pro forma disclosure as if the Company adopted the cost recognition
requirements under FAS 123 are presented below. The Company did not record any
expense under APB 25.
A summary of the status of the Company's stock options as of December 31,
1998 and 1997 and changes during the years ended December 31, 1998 and 1997 are
presented below:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at June 23, 1997..................... 2,290,000 $25.00
Granted.......................................... -- --
Exercised........................................ -- --
Cancelled........................................ (5,900) $25.00
--------- ------
Outstanding at December 31, 1997................. 2,284,100 $25.00
Granted.......................................... 3,621,663 $34.13
Exercised........................................ (1,034) $25.00
Cancelled........................................ (66,779) $31.61
--------- ------
Outstanding at December 31, 1998................. 5,837,950 $30.58
========= ======
</TABLE>
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 amounts)
As of December 31, 1998, there were 9,127,602 shares authorized under the
plan. The weighted average fair value of options granted during the year was
$5.49 and $3.81 for the years ended December 31, 1998 and 1997, respectively.
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 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Dividend yield........................................... 4.80% 6.26%
Expected life of option.................................. 6 years 6 years
Risk-free interest rate.................................. 5.58% 6.32%
Expected stock price volatility.......................... 20% 20%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise Prices at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$25.00--
$34.75 5,837,950 9.66 $30.58 495,261 $25.00
</TABLE>
The compensation cost under SFAS 123 for the stock performance-based plan
would have been $6,847 and $999 in 1998 and 1997, respectively. Had
compensation cost for the Company's 1997 grants for stock-based compensation
plans been determined consistent with FAS 123, the Company's net income, and
net income per common share for 1998 would approximate the pro forma amounts
below:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net income............................................... $86,265 $34,152
Net income per common share--basic....................... $ 1.42 $ 0.88
Net income per common share--diluted..................... $ 1.41 $ 0.87
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. FAS 123 does not apply to future anticipated
awards.
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
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 amounts)
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 a property in Massachusetts, the Company received a Notice
of Potential Responsibility 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. On January 15,
1997, the Company notified the state regulatory authority that the Company
would cooperate with and monitor the tenant at the property (which investigated
the matter and undertook remedial actions). That investigation identified the
presence of hazardous substances in and near a catch basin along the property
line. The tenant completed an Immediate Response Action at the site in April
1998. The Company expects the tenant will likewise take any additional
necessary response actions. The lease with the tenant contains a provision
pursuant to which the tenant indemnifies the Company against such liability.
On January 15, 1992, another property in Massachusetts was listed by the
state regulatory authority as an unclassified Confirmed Disposal Site in
connection with groundwater contamination. 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, which eliminates certain
deadlines for conducting response actions at a site and may qualify the Company
for liability relief under recent statutory amendments. 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.
An investigation at an additional property in Massachusetts identified
groundwater contamination. The Company engaged a specially licensed
environmental consultant to perform the necessary investigation and assessment
and to prepare submittals to the state regulatory authority. On March 11, 1998,
the consultant submitted to the state regulatory authority a Release
Notification and Downgradient Property Status Opinion. This Opinion concluded
that the property qualifies for Downgradient Property Status under the state
regulatory program, which eliminates certain deadlines for conducting response
actions at a site and may qualify the Company for liability relief under recent
statutory amendments. 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 the above will not have a material impact on the financial position,
results of operations or liquidity of the Company.
Development
The Company has entered into contracts for the construction and renovation
of properties currently under development. Commitments under these arrangements
totaled approximately $94,300 and $106,100 at December 31, 1998 and 1997,
respectively.
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 amounts)
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 the CEO. In connection with the acquisition or contribution of 31
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 2008. 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 Operating Partnership units.
13. Earnings Per Share
Earnings per share is computed as follows:
<TABLE>
<CAPTION>
For the year ended December 31,
1998
-----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
<S> <C> <C> <C>
Basic Earnings:
Income available to common shareholders... $93,112 60,776 $1.53
Effect of Dilutive Securities:
Stock Options............................. 532 (.01)
------- ------ -----
Diluted Earnings:
Income available to common shareholders... $93,112 61,308 $1.52
======= ====== =====
</TABLE>
<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:
Income available to common
shareholders.................. $ 35,151 38,694 $ .91
Effect of Dilutive Securities:
Stock Options.................. 414 (.01)
------------- ------------ ----------
Diluted Earnings:
Income available to common
shareholders.................. $ 35,151 39,108 $ .90
============= ============ ==========
</TABLE>
14. Selected Interim Financial Information (unaudited)
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
Quarter Ended Quarter Ended Quarter Ended Quarter Ended
March 31, June 30, September 30, December 31,
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues................ $95,603 $108,041 $140,177 $170,026
Income before minority
interests.............. 26,228 34,430 36,087 43,830
Income before
extraordinary item..... 19,631 26,357 25,341 27,271
Per share income before
extraordinary item..... .36 .42 .40 .43
Net income.............. 19,631 29,921 25,341 18,226
Basic earnings per
share.................. .36 .48 .40 .29
</TABLE>
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 amounts)
15. Pro Forma Financial Information
The following Pro Forma Condensed Statements of Income for the years ended
December 31, 1998 and 1997 are presented as if the Initial Offering, the
related formation transactions and the material property acquisitions
subsequent to the Initial Offering had occurred on January 1, 1997. 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, 1997, or to project results for any future period.
Pro Forma Condensed Statements of Income:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Revenues...................................... $ 704,012 $ 638,548
Expenses...................................... $ 535,825 $ 522,700
Net income before extraordinary items......... $ 105,864 $ 61,323
Basic earnings per share (before extra-
ordinary items............................... $ 1.67 $ .97
Diluted earnings per share (before extra-
ordinary items).............................. $ 1.65 $ .96
</TABLE>
16. Subsequent Events
On January 21, 1999, the Company entered into a binding agreement to acquire
the leasehold interest in the remaining two development sites in New York
City's Times Square for approximately $312.25 million. The sites will support
more than 2 million square feet of development.
On February 10, 1999, the Company closed on phase two of its acquisition of
Embarcadero Center. As a result, the Company owns 100% of the six buildings
comprising the Embarcadero Center. The total purchase price (including both
phases one and two) of approximately $1.2 billion was funded through the
assumption or incurrence of $730.0 million of mortgage financing, the issuance
of Preferred Units having an aggregate value of approximately $286.4 million,
cash of $100.0 million from the proceeds from the sale of the Company's Series
A Convertible Redeemable Preferred Stock, and a draw down of approximately
$97.3 million on the Company's Unsecured Line of Credit.
In connection with the acquisition of Embarcadero Center, the proceeds from
the notes receivable of $420.1 million were used to discharge the notes
payable.
F-20
<PAGE>
BOSTON PROPERTIES, INC.
SCHEDULE 3--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized Development
Subsequent and
to Land and Building and Construction
Property Name Type Location Encumbrances Land Building Acquisition Improvements Improvements in Progress Total
------------- ------ ---------------- ------------ ------- -------- ----------- ------------ ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
280 Park
Avenue.......... Office New York, NY 220,000 125,288 201,115 11,690 125,288 212,805 -- 338,093
599 Lexington
Avenue.......... Office New York, NY 225,000 81,040 100,507 71,487 81,040 171,994 -- 253,034
Riverfront
Plaza........... Office Richmond, VA 119,992 18,000 156,733 587 18,000 157,320 -- 175,320
875 Third
Avenue.......... Office New York, NY 153,807 74,880 139,151 844 74,880 139,995 -- 214,875
Democracy
Center.......... Office Bethesda, MD -- 12,550 50,015 20,278 13,695 69,148 -- 82,843
100 East Pratt
Street.......... Office Baltimore, MD 94,371 27,562 109,662 1,032 27,562 110,694 -- 138,256
Two Independence
Square.......... Office Washington, DC 120,252 14,053 59,883 9,016 15,039 67,913 -- 82,952
Capital
Gallery......... Office Washington, DC 59,103 4,725 29,560 12,417 4,730 41,972 -- 46,702
One Independence
Square.......... Office Washington, DC 76,611 9,356 33,701 17,475 9,634 50,898 -- 60,532
2300 N Street... Office Washington, DC 66,000 16,509 22,415 12,820 16,509 35,235 -- 51,744
NIMA Building... Office Reston, VA 22,291 10,567 67,431 2 10,567 67,433 -- 78,000
Reston Corporate
Center.......... Office Reston, VA 25,727 9,135 41,398 184 9,135 41,582 -- 50,717
Lockheed Martin
Building........ Office Reston, VA 27,249 10,210 58,884 0 10,210 58,884 -- 69,094
500 E Street.... Office Washington, DC -- 109 22,420 11,027 1,569 31,987 -- 33,556
One Cambridge
Center.......... Office Cambridge, MA -- 134 25,110 3,462 134 28,572 -- 28,706
University
Place........... Office Cambridge, MA -- -- 37,091 -- -- 37,091 -- 37,091
Newport Office
Park............ Office Quincy, MA 6,499 3,500 18,208 2 3,500 18,210 -- 21,710
Lexington Office
Park............ Office Lexington, MA -- 998 1,426 10,368 1,072 11,720 -- 12,792
191 Spring
Street.......... Office Lexington, MA 23,430 4,213 27,166 16,453 2,850 44,982 -- 47,832
Ten Cambridge
Center.......... Office Cambridge, MA 40,000 1,299 12,943 4,428 1,868 16,802 -- 18,670
10 and 20
Burlington Mall
Road............ Office Burlington, MA 16,613 930 6,928 8,371 939 15,290 -- 16,229
Waltham Office
Center.......... Office Waltham, MA -- 422 2,719 3,214 425 5,930 -- 6,355
Montvale
Center.......... Office Gaithersburg, MD 7,792 1,574 9,786 3,881 2,399 12,842 -- 15,241
91 Hartwell
Avenue.......... Office Lexington, MA 11,322 784 6,464 2,410 784 8,874 -- 9,658
Three Cambridge
Center.......... Office Cambridge, MA -- 174 12,200 803 174 13,003 -- 13,177
201 Spring
Street.......... Office Lexington, MA -- 2,695 11,712 2,632 2,695 14,344 -- 17,039
Bedford Business
Park............ Office Bedford, MA 22,667 534 3,403 12,936 534 16,339 -- 16,873
Eleven Cambridge
Center.......... Office Cambridge, MA -- 121 5,535 504 121 6,039 -- 6,160
33 Hayden
Avenue.......... Office Lexington, MA -- 266 3,234 76 266 3,310 -- 3,576
Decoverly Two... Office Rockville, MD -- 1,994 8,814 46 1,994 8,860 -- 10,854
Decoverly
Three........... Office Rockville, MD -- 2,220 9,044 0 2,220 9,044 -- 11,264
170 Tracer
Lane............ Office Waltham, MA -- 398 4,601 1,288 418 5,869 -- 6,287
32 Hartwell
Avenue.......... Office Lexington, MA -- 168 1,943 2,724 168 4,667 -- 4,835
<CAPTION>
Accumulated Year (s) Built/ Depreciable
Property Name Depreciation Renovated Lives (Years)
------------- ------------ --------------- -------------
<S> <C> <C> <C>
280 Park
Avenue.......... 7,113 1968/95-96 (1)
599 Lexington
Avenue.......... 69,706 1986 (1)
Riverfront
Plaza........... 3,679 1990 (1)
875 Third
Avenue.......... 3,768 1982 (1)
Democracy
Center.......... 23,628 1985-88/94-96 (1)
100 East Pratt
Street.......... 3,474 1975/1991 (1)
Two Independence
Square.......... 12,990 1992 (1)
Capital
Gallery......... 17,246 1981 (1)
One Independence
Square.......... 13,277 1991 (1)
2300 N Street... 10,932 1986 (1)
NIMA Building... 1,545 1987/1988 (1)
Reston Corporate
Center.......... 948 1984 (1)
Lockheed Martin
Building........ 1,349 1987/1988 (1)
500 E Street.... 13,038 1987 (1)
One Cambridge
Center.......... 9,940 1987 (1)
University
Place........... 479 1985 (1)
Newport Office
Park............ 683 1988 (1)
Lexington Office
Park............ 4,541 1982 (1)
191 Spring
Street.......... 11,905 1971/1995 (1)
Ten Cambridge
Center.......... 6,324 1990 (1)
10 and 20
Burlington Mall
Road............ 5,567 1984-1989/95-96 (1)
Waltham Office
Center.......... 3,044 1968-1970/87-88 (1)
Montvale
Center.......... 3,465 1987 (1)
91 Hartwell
Avenue.......... 3,029 1985 (1)
Three Cambridge
Center.......... 3,887 1987 (1)
201 Spring
Street.......... 414 1997 (1)
Bedford Business
Park............ 7,166 1980 (1)
Eleven Cambridge
Center.......... 2,430 1984 (1)
33 Hayden
Avenue.......... 1,531 1979 (1)
Decoverly Two... 202 1987 (1)
Decoverly
Three........... -- 1989 (1)
170 Tracer
Lane............ 2,804 1980 (1)
32 Hartwell
Avenue.......... 2,845 1968-1979/1987 (1)
</TABLE>
F-21
<PAGE>
BOSTON PROPERTIES, INC.
SCHEDULE 3--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized Development
Subsequent and
to Land and Building and Construction
Property Name Type Location Encumbrances Land Building Acquisition Improvements Improvements in Progress
------------- ------ ----------------- ------------ ------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
195 West
Street.......... Office Waltham, MA -- 1,611 6,652 621 1,611 7,273 --
92-100 Hayden
Avenue.......... Office Lexington, MA 9,065 594 6,748 880 595 7,627 --
204 Second
Avenue.......... Office Waltham, MA -- 37 2,402 632 37 3,034 --
8 Arlington
Street.......... Office Boston, MA -- 90 1,988 61 90 2,049 --
Carnegie
Center/Tower
One............. Office New Jersey 63,693 70,146 216,061 43 70,146 216,104 --
Candler
Building........ Office Baltimore, MD -- 12,500 48,734 4 12,500 48,738 --
Metropolitan
Square.......... Office Washington, DC 107,386 35,000 151,709 424 35,000 152,133 --
Prudential
Center.......... Office Boston, MA 298,686 131,850 443,180 9,083 131,850 449,584 2,679
Reservoir
Place........... Office Waltham, MA 77,006 18,207 88,018 3 18,207 88,021 --
Embarcadero
Center.......... Office San Francisco, CA 729,637 211,297 996,442 -- 211,297 996,422 --
910 Clopper
Road............ Office Gaithersburg, MD -- 2,000 15,448 -- 2,000 15,448 --
Fullerton
Square.......... Office Springfield, VA -- 3,045 11,522 -- 3,045 11,522 --
7450 Boston
Boulevard,
Building Three.. Office Springfield, VA -- 1,165 4,681 27 1,165 4,708 --
Hilltop Business
Center.......... Office San Francisco, CA 4,417 53 492 356 53 848 --
7435 Boston
Boulevard,
Building One.... Office Springfield, VA -- 392 3,822 1,973 486 5,701 --
7601 Boston
Boulevard,
Building Eight.. Office Springfield, VA -- 200 878 3,505 378 4,205 --
8000 Grainger
Court, Building
Five............ Office Springfield, VA -- 366 4,282 966 453 5,161 --
7700 Boston
Boulevard,
Building
Twelve.......... Office Springfield, VA -- 1,105 1,042 8,046 1,105 9,088 --
7500 Boston
Boulevard,
Building Six.... Office Springfield, VA -- 138 3,749 244 273 3,858 --
7501 Boston
Boulevard,
Building Seven.. Office Springfield, VA -- 665 878 8,407 665 9,285 --
7600 Boston
Boulevard,
Building Nine... Office Springfield, VA -- 127 2,839 1,540 189 4,317 --
Fourteen
Cambridge
Center.......... Office Cambridge, MA -- 110 4,483 569 110 5,052 --
164 Lexington
Road............ Office Billerica, MA -- 592 1,370 131 592 1,501 --
930 Clopper
Road............ Office Gaithersburg, MD -- 1,200 6,506 -- 1,200 6,506 --
Sugarland
Building Two.... Office Herndon, VA -- 834 3,216 1,463 834 4,679 --
7374 Boston
Boulevard,
Building Four... Office Springfield, VA -- 241 1,605 423 303 1,966 --
Sugarland
Building One.... Office Herndon, VA -- 735 2,739 2,577 735 5,316 --
8000 Corporate
Court, Building
Eleven.......... Office Springfield, VA -- 136 3,071 109 214 3,096 6
7451 Boston
Boulevard,
Building Two.... Office Springfield, VA -- 249 1,542 1,430 535 2,686 --
17 Hartwell
Avenue.......... Office Lexington, MA -- 26 150 596 26 746 --
<CAPTION>
Accumulated Year(s) Built/ Depreciable
Property Name Total Depreciation Renovated Lives (Years)
------------- --------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
195 West
Street.......... 8,884 1,692 1990 (1)
92-100 Hayden
Avenue.......... 8,222 2,946 1985 (1)
204 Second
Avenue.......... 3,071 1,431 1981/1993 (1)
8 Arlington
Street.......... 2,139 2,032 1860-1920/1989 (1)
Carnegie
Center/Tower
One............. 286,250 2,700 1983-1998 (1)
Candler
Building........ 61,238 545 1911/1990 (1)
Metropolitan
Square.......... 187,133 1,813 1982/1986 (1)
Prudential
Center.......... 584,113 5,537 1965/1993 (1)
Reservoir
Place........... 106,228 379 1955/1987 (1)
Embarcadero
Center.......... 1,207,719 3,436 1924/1989 (1)
910 Clopper
Road............ 17,448 354 1982 (1)
Fullerton
Square.......... 14,567 264 1987 (1)
7450 Boston
Boulevard,
Building Three.. 5,873 63 1987 (1)
Hilltop Business
Center.......... 901 1,305 early 1970's (1)
7435 Boston
Boulevard,
Building One.... 6,187 2,075 1982 (1)
7601 Boston
Boulevard,
Building Eight.. 4,583 1,491 1986 (1)
8000 Grainger
Court, Building
Five............ 5,614 1,735 1984 (1)
7700 Boston
Boulevard,
Building
Twelve.......... 10,193 273 1997 (1)
7500 Boston
Boulevard,
Building Six.... 4,131 1,383 1985 (1)
7501 Boston
Boulevard,
Building Seven.. 9,950 319 1997 (1)
7600 Boston
Boulevard,
Building Nine... 4,506 1,572 1987 (1)
Fourteen
Cambridge
Center.......... 5,162 1,814 1983 (1)
164 Lexington
Road............ 2,093 115 1982 (1)
930 Clopper
Road............ 7,706 149 1989 (1)
Sugarland
Building Two.... 5,513 162 1986/1997 (1)
7374 Boston
Boulevard,
Building Four... 2,269 768 1984 (1)
Sugarland
Building One.... 6,051 321 1985/1997 (1)
8000 Corporate
Court, Building
Eleven.......... 3,316 825 1989 (1)
7451 Boston
Boulevard,
Building Two.... 3,221 1,717 1982 (1)
17 Hartwell
Avenue.......... 772 463 1968 (1)
</TABLE>
F-22
<PAGE>
BOSTON PROPERTIES,INC.
SCHEDULE 3--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized Development
Subsequent and
to Land and Building and Construction
Property Name Type Location Encumbrances Land Building Acquisition Improvements Improvements in Progress
------------- ----------- ----------------- ------------ ----- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7375 Boston
Boulevard,
Building Ten.... Office Springfield, VA -- 23 2,685 627 47 3,288 --
2391 West Winton
Avenue.......... Industrial Hayward, CA -- 182 1,217 606 182 1,823 --
40-46 Harvard
Street.......... Industrial Westwood, MA -- 351 1,782 1,327 351 3,109 --
38 Cabot
Boulevard....... Industrial Bucks County, PA -- 329 1,238 2,037 329 3,275 --
6201 Columbia
Park Road,
Building Two.... Industrial Landover, MD -- 505 2,746 1,146 960 3,437 --
2000 South Club
Drive, Building
Three........... Industrial Landover, MD -- 465 2,125 729 859 2,460 --
25-33 Dartmouth
Street.......... Industrial Westwood, MA -- 273 1,596 495 273 2,091 --
1950 Stanford
Court, Building
One............. Industrial Landover, MD -- 269 1,554 196 350 1,669 --
560 Forbes
Boulevard....... Industrial San Francisco, CA -- 48 435 262 48 697 --
430 Rozzi
Place........... Industrial San Francisco, CA -- 24 217 119 24 336 --
Long Wharf
Marriott........ Hotel Boston, MA -- 1,752 31,904 8,535 1,752 40,439 --
Cambridge Center
Marriott........ Hotel Cambridge, MA -- 478 37,918 4,018 478 41,936 --
Cambridge Center
North Garage.... Garage Cambridge, MA -- 1,163 11,633 8 1,163 11,641 --
1301 New York
Ave............. Development Washington, DC 24,965 9,250 18,750 4,155 9,250 18,750 4,155
Cambridge Master
Plan............ Development Cambridge, MA -- -- -- 3,542 1,117 4 2,421
Virginia Master
Plan............ Development Springfield, VA -- -- -- 1,520 655 175 690
Maryland Master
Plan............ Development Landover, MD -- -- -- 506 464 -- 42
Cambridge Center
Eight........... Development Cambridge, MA -- -- -- 15,937 1,046 -- 14,891
181 Spring
Street.......... Development Lexington, MA -- -- -- 9,000 1,685 -- 7,315
Residence Inn by
Marriott........ Development Cambridge, MA -- -- -- 22,243 816 -- 21,427
Andover Tech
Center.......... Development Andover, MA -- -- -- 5,299 4,300 -- 999
200 West
Street.......... Development Waltham, MA -- -- -- 26,278 13,119 -- 13,159
Decoverly Four.. Development Rockville, MD -- -- -- 1,749 1,650 -- 99
Decoverly Five.. Development Rockville, MD -- -- -- 1,706 1,665 -- 41
Decoverly Six... Development Rockville, MD -- -- -- 2,028 1,979 -- 49
Decoverly
Seven........... Development Rockville, MD -- -- -- 5,067 4,521 -- 546
12050 Sunset
Hills Road...... Development Reston, VA -- -- -- 5,415 4,714 -- 701
12280 Sunrise
Valley Drive.... Development Reston, VA -- -- -- 3,824 3,593 -- 231
Arboretum....... Development Reston, VA -- -- -- 10,369 2,850 -- 7,519
Tower Oaks...... Development Rockville, MD -- -- -- 26,403 24,652 -- 1,751
Washingtonian
North........... Development Gaithersburg, MD -- -- -- 16,834 11,770 -- 5,064
Broad Run
Business Park... Development Loudon County, VA -- -- -- 5,641 5,457 -- 184
<CAPTION>
Accumulated Year(s)Built/ Depreciable
Property Name Total Depreciation Renovated Lives (Years)
------------- ------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
7375 Boston
Boulevard,
Building Ten.... 3,335 1,039 1988 (1)
2391 West Winton
Avenue.......... 2,005 972 1974 (1)
40-46 Harvard
Street.......... 3,460 2,724 1967/1996 (1)
38 Cabot
Boulevard....... 3,604 2,410 1972/1984 (1)
6201 Columbia
Park Road,
Building Two.... 4,397 981 1986 (1)
2000 South Club
Drive, Building
Three........... 3,319 848 1988 (1)
25-33 Dartmouth
Street.......... 2,364 1,343 1966/1996 (1)
1950 Stanford
Court, Building
One............. 2,019 537 1986 (1)
560 Forbes
Boulevard....... 745 874 early 1970's (1)
430 Rozzi
Place........... 360 69 early 1970's (1)
Long Wharf
Marriott........ 42,191 16,685 1982 (1)
Cambridge Center
Marriott........ 42,414 12,240 1986 (1)
Cambridge Center
North Garage.... 12,804 2,638 1990 (1)
1301 New York
Ave............. 32,155 -- 1983/1998 N/A
Cambridge Master
Plan............ 3,542 2 Various N/A
Virginia Master
Plan............ 1,520 175 Various N/A
Maryland Master
Plan............ 506 -- Various N/A
Cambridge Center
Eight........... 15,937 -- Various N/A
181 Spring
Street.......... 9,000 -- Various N/A
Residence Inn by
Marriott........ 22,243 -- 1999 (1)
Andover Tech
Center.......... 5,299 -- Various N/A
200 West
Street.......... 26,278 -- Various N/A
Decoverly Four.. 1,749 -- Various N/A
Decoverly Five.. 1,706 -- Various N/A
Decoverly Six... 2,028 -- Various N/A
Decoverly
Seven........... 5,067 -- Various N/A
12050 Sunset
Hills Road...... 5,415 -- Various N/A
12280 Sunrise
Valley Drive.... 3,824 -- Various N/A
Arboretum....... 10,369 -- Various N/A
Tower Oaks...... 26,403 -- Various N/A
Washingtonian
North........... 16,834 -- Various N/A
Broad Run
Business Park... 5,641 -- Various N/A
</TABLE>
F-23
<PAGE>
BOSTON PROPERTIES, INC.
SCHEDULE 3--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Costs Development
Capitalized and
Subsequent to Land and Building and Construction
Property Name Type Location Encumbrances Land Building Acquisition Improvements Improvements in Progress
------------- ----------- ----------- ------------ -------- ---------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
New Dominion
Tech Park....... Development Herndon, VA -- -- -- 7,830 7,396 -- 434
$2,653,581 $946,231 $3,453,231 $482,021 $1,045,628 $3,751,452 $84,403
========== ======== ========== ======== ========== ========== =======
<CAPTION>
Accumulated Year (s) Built/ Depreciable
Property Name Total Depreciation Renovated Lives (Years)
------------- ---------- ------------ --------------- -------------
<S> <C> <C> <C> <C>
New Dominion
Tech Park....... 7,830 -- Various N/A
$4,881,483 $336,165
========== ============
</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 $4,000,000 and $411,000, respectively.
F-24
<PAGE>
BOSTON PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(dollars in thousands)
A summary of activity for real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Real Estate:
Balance at the beginning of the year..... $1,754,780 $1,001,537 $ 979,493
Additions to and improvements of real
estate................................ 3,129,121 754,185 28,110
Write-off of fully depreciated assets.. (2,418) (942) (6,066)
---------- ---------- ----------
Balance at the end of the year........... $4,881,483 $1,754,780 $1,001,537
========== ========== ==========
Accumulated Depreciation:
Balance at the beginning of the year..... $ 266,987 $ 238,469 $ 215,303
Depreciation expense................... 71,596 29,460 29,232
Write-off of fully depreciated assets.. (2,418) (942) (6,066)
---------- ---------- ----------
Balance at the end of the year........... $ 336,165 $ 266,987 $ 238,469
========== ========== ==========
</TABLE>
F-25
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Boston Properties, Inc. on Forms S-3 (File Numbers 333-60219, 333-61799, 333-
68379, 333-69375 and 333-70765) and on Forms S-8 (File Numbers 333-52845 and
333-70321) of our report dated January 24, 1999, except for Note 16, for which
the date is February 10, 1999, on our audits of the consolidated financial
statements of Boston Properties, Inc. as of December 31, 1998 and 1997, and for
the year ended December 31, 1998 and the period from June 23, 1997 to December
31, 1997 and our audits of the combined financial statements of the Boston
Properties Predecessor Group for the period from January 1, 1997 to June 22,
1997 and for the year ended December 31, 1996, which is included in the Annual
Report on Form 10-K filed on March 31, 1999 and on Form 10-K/A filed on April 5,
1999.
April 5, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,166
<SECURITIES> 0
<RECEIVABLES> 40,830
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,917,193
<DEPRECIATION> 75,418
<TOTAL-ASSETS> 5,235,087
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 635
<OTHER-SE> 947,846
<TOTAL-LIABILITY-AND-EQUITY> 5,235,087
<SALES> 487,577
<TOTAL-REVENUES> 513,847
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124,860
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 98,593
<DISCONTINUED> 0
<EXTRAORDINARY> (5,481)
<CHANGES> 0
<NET-INCOME> 93,112
<EPS-PRIMARY> 1.53
<EPS-DILUTED> 1.52
</TABLE>
