<PAGE>
--------------------------------------------------------------------------------
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-13087
------------------------
BOSTON PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 04-2473675
(State or other jurisdiction (IRS Employer Id. Number)
of incorporation or organization)
800 BOYLSTON STREET, 02199
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (617) 236-3300
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
<TABLE>
<S> <C>
COMMON STOCK, PAR VALUE $.01 68,823,159
(CLASS) (OUTSTANDING ON AUGUST 11, 2000)
</TABLE>
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--------------------------------------------------------------------------------
<PAGE>
BOSTON PROPERTIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements:
a) Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999........................................... 1
b) Consolidated Statements of Operations for the six months
ended June 30, 2000 and 1999................................ 2
c) Consolidated Statements of Operations for the three
months ended June 30,2000 and 1999.......................... 3
d) Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999................................ 4
e) Notes to the Consolidated Financial Statements........... 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 15
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 22
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities....................................... 23
ITEM 4. Submission of Matters to a Vote of Security Holders......... 23
ITEM 6. Exhibits and Reports on Form 8-K............................ 23
Signatures............................................................ 24
</TABLE>
<PAGE>
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR
SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Real estate:................................................ $5,701,704 $5,609,424
Less: accumulated depreciation............................ (525,201) (470,591)
---------- ----------
Total real estate....................................... 5,176,503 5,138,833
Cash and cash equivalents................................... 6,319 12,035
Escrows..................................................... 33,025 40,254
Investments in securities................................... 28,283 14,460
Tenant and other receivables, net........................... 32,340 28,362
Accrued rental income, net.................................. 84,425 82,228
Deferred charges, net....................................... 69,599 53,733
Prepaid expenses and other assets........................... 39,074 28,452
Investments in joint ventures............................... 69,486 36,415
---------- ----------
Total assets............................................ $5,539,054 $5,434,772
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................... $3,157,068 $2,955,584
Unsecured line of credit.................................. 238,000 366,000
Accounts payable and accrued expenses..................... 53,922 66,780
Dividends and distributions payable....................... 59,812 50,114
Accrued interest payable.................................. 6,127 8,486
Other liabilities......................................... 52,497 48,282
---------- ----------
Total liabilities....................................... 3,567,426 3,495,246
---------- ----------
Commitments and contingencies............................... -- --
---------- ----------
Minority interests.......................................... 797,451 781,962
---------- ----------
Series A Convertible Redeemable Preferred Stock, liquidation
preference $50.00 per share, 2,000,000 shares issued and
outstanding............................................... 100,000 100,000
---------- ----------
Stockholders' equity:
Excess stock, $.01 par value, 150,000,000 shares
authorized, none issued or outstanding.................. -- --
Common stock, $.01 par value, 250,000,000 shares
authorized, 68,026,797 and 67,910,434 issued and
outstanding in 2000 and 1999, respectively.............. 680 679
Additional paid-in capital................................ 1,076,593 1,067,778
Dividends in excess of earnings........................... (11,670) (10,893)
Unearned compensation..................................... (954) --
Accumulated other comprehensive income.................... 9,528 --
---------- ----------
Total stockholders' equity.............................. 1,074,177 1,057,564
---------- ----------
Total liabilities and stockholders' equity............ $5,539,054 $5,434,772
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
2000 1999
------------- -------------
(UNAUDITED AND IN THOUSANDS,
EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C>
Revenue
Rental:
Base rent............................................... $ 348,290 $ 309,679
Recoveries from tenants................................. 46,070 34,666
Parking and other....................................... 25,297 23,011
---------- ----------
Total rental revenue.................................. 419,657 367,356
Development and management services....................... 5,739 7,658
Interest and other........................................ 2,117 4,266
---------- ----------
Total revenue......................................... 427,513 379,280
---------- ----------
Expenses
Operating................................................. 129,212 117,656
General and administrative................................ 15,997 13,962
Interest.................................................. 111,458 99,678
Depreciation and amortization............................. 64,626 57,237
---------- ----------
Total expenses........................................ 321,293 288,533
---------- ----------
Income before minority interests and joint venture income... 106,220 90,747
Minority interests in property partnerships................. (436) (4,294)
Income from unconsolidated joint ventures................... 807 442
---------- ----------
Income before minority interest in Operating Partnership.... 106,591 86,895
Minority interest in Operating Partnership.................. (37,745) (32,217)
---------- ----------
Income before gain on sale of real estate................... 68,846 54,678
Gain on sale of real estate, net............................ 297 --
---------- ----------
Net income before preferred dividend........................ 69,143 54,678
Preferred dividend.......................................... (3,286) (2,521)
---------- ----------
Net income available to common shareholders................. $ 65,857 $ 52,157
========== ==========
Basic earnings per share:
Net income available to common shareholders............... $ 0.97 $ 0.81
========== ==========
Weighted average number of common shares outstanding...... 67,973 64,539
========== ==========
Diluted earnings per share:
Net income available to common shareholders............... $ 0.96 $ 0.80
========== ==========
Weighted average number of common and common equivalent
shares outstanding...................................... 69,157 65,161
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-----------------------------
2000 1999
------------- -------------
(UNAUDITED AND IN THOUSANDS,
EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C>
Revenue
Rental:
Base rent............................................... $ 177,953 $ 158,070
Recoveries from tenants................................. 22,734 17,252
Parking and other....................................... 12,289 12,087
---------- ----------
Total rental revenue.................................. 212,976 187,409
Development and management services....................... 2,876 3,611
Interest and other........................................ 1,407 620
---------- ----------
Total revenue......................................... 217,259 191,640
---------- ----------
Expenses
Operating................................................. 64,035 60,306
General and administrative................................ 8,589 7,352
Interest.................................................. 56,243 49,219
Depreciation and amortization............................. 32,395 29,443
---------- ----------
Total expenses........................................ 161,262 146,320
---------- ----------
Income before minority interests and joint venture income... 55,997 45,320
Minority interests in property partnership.................. (240) (139)
Income from unconsolidated joint ventures................... 662 229
---------- ----------
Income before minority interest in Operating Partnership.... 56,419 45,410
Minority interest in Operating Partnership.................. (20,193) (16,505)
---------- ----------
Income before gain on sale of real estate................... 36,226 28,905
Gain on sale of real estate, net............................ 297 --
---------- ----------
Net income before preferred dividend........................ 36,523 28,905
Preferred dividend.......................................... (1,643) (1,682)
---------- ----------
Net income available to common shareholders................. $ 34,880 $ 27,223
========== ==========
Basic earnings per share:
Net income available to common shareholders............... $ 0.51 $ 0.42
========== ==========
Weighted average number of common shares outstanding...... 67,991 65,534
========== ==========
Diluted earnings per share:
Net income available to common shareholders............... $ 0.50 $ 0.41
========== ==========
Weighted average number of common and common equivalent
shares outstanding...................................... 69,582 66,337
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- ---------
(UNAUDITED AND IN
THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred dividend...................... $ 69,143 $ 54,678
Adjustments to reconcile net income before preferred
dividend to net cash provided by operating activities:
Depreciation and amortization........................... 64,626 57,237
Gain on sale of real estate............................. (403) --
Non-cash portion of interest expense.................... 1,989 995
Income from unconsolidated joint ventures............... (807) (442)
Compensation related to restricted shares............... 106 --
Minority interests...................................... 37,851 29,329
Change in assets and liabilities:
Escrows................................................. 7,229 (5,068)
Tenant and other receivables, net....................... (3,978) (12,229)
Accrued rental income, net.............................. (6,915) (8,284)
Prepaid expenses and other assets....................... 2,601 (2,084)
Accounts payable and accrued expenses................... (14,534) 18,122
Accrued interest payable................................ (2,359) 530
Other liabilities....................................... 2,215 (5,004)
--------- ---------
Total adjustments..................................... 87,621 73,102
--------- ---------
Net cash provided by operating activities............. 156,764 127,780
--------- ---------
Cash flows from investing activities:
Acquisitions/additions to real estate..................... (200,506) (178,216)
Net proceeds from sale of real estate..................... 46,713 --
Deposits on real estate................................... (13,223) --
Tenant leasing costs...................................... (11,131) (7,299)
Investments in securities................................. (2,295) --
Investments in/distributions from joint ventures, net..... 4,742 5,152
--------- ---------
Net cash used in investing activities................. (175,700) (180,363)
--------- ---------
Cash flows from financing activities:
Net proceeds from sales of common and preferred stock..... -- 240,952
Borrowings on unsecured line of credit.................... 96,000 387,000
Repayments of unsecured line of credit.................... (224,000) (260,000)
Repayments of mortgage notes.............................. (161,092) (18,005)
Proceeds from mortgage notes.............................. 411,662 136,000
Repayment of notes payable................................ -- (328,143)
Dividends and distributions............................... (96,578) (83,799)
Proceeds from exercise of stock options................... 214 566
Proceeds from employee stock purchase plan................ 1,070 --
Deferred financing and other costs........................ (14,056) (1,929)
--------- ---------
Net cash provided by financing activities............. 13,220 72,642
--------- ---------
Net increase (decrease) in cash............................. (5,716) 20,059
Cash and cash equivalents, beginning of period.............. 12,035 12,166
--------- ---------
Cash and cash equivalents, end of period.................... $ 6,319 $ 32,225
========= =========
Supplemental disclosures:
Cash paid for interest.................................... $ 128,498 $ 106,906
========= =========
Interest capitalized...................................... $ 17,039 $ 6,721
========= =========
Non-cash operating activities:
Assets assigned in connection with sale of real estate.... $ 4,718 $ --
========= =========
Liabilities assigned in connection with sale of real
estate.................................................. $ 112 $ --
========= =========
Non-cash investing and financing activities:
Additions to real estate included in accounts payable..... $ 1,788 $ 841
========= =========
Assets assigned in connection with sale of real estate.... $ 4,040 $ --
========= =========
Mortgage notes payable assumed in connection with
acquisitions............................................ $ 117,831 $ 28,331
========= =========
Mortgage notes payable assigned in connection with the
sale of real estate..................................... $ 166,547 $ --
========= =========
Issuance of minority interest in connection with
acquisitions............................................ $ 20,467 $ 2,888
========= =========
Dividends and distributions declared but not paid......... $ 59,812 $ 45,559
========= =========
Notes receivable assigned in connection with an
acquistion.............................................. $ -- $ 420,143
========= =========
Notes payable assigned in connection with an
acquisition............................................. $ -- $ 92,000
========= =========
Conversion of Operating Partnership Units to Common
Stock................................................... $ 116 $ --
========= =========
Issuance of restricted shares to employees................ $ 1,060 $ --
========= =========
Unrealized gain related to investements in securities..... $ 9,528 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AND IN THOUSANDS)
1. ORGANIZATION
Boston Properties, Inc. (the "Company"), a Delaware corporation, is a
self-administered and self-managed real estate investment trust ("REIT"). The
Company is the sole general partner of Boston Properties Limited Partnership
(the "Operating Partnership") and at June 30, 2000, owned an approximate 67%
general and limited partnership interest in the Operating Partnership.
Partnership interests in the Operating Partnership are denominated as "common
units of partnership interest" (also referred to as "OP Units") or "preferred
units of partnership interest" (also referred to as "Preferred Units"). All
references to OP Units and Preferred Units exclude such units held by the
Company. A holder of an OP Unit may present such OP Unit to the Operating
Partnership for redemption at any time (subject to restrictions agreed upon the
issuance of OP Units to particular holders that may restrict such right for a
period of time, generally one year from issuance). Upon presentation of an OP
Unit for redemption, the Operating Partnership must redeem such OP Unit for cash
equal to the then value of a share of common stock, except that, the Company
may, at its election, in lieu of a cash redemption, acquire such OP Unit for one
share of common stock of the Company ("Common Stock"). Because the number of
shares of Common Stock outstanding at all times equals the number of OP Units
that the Company owns, one share of Common Stock is generally the economic
equivalent of one OP Unit, and the quarterly distribution that may be paid to
the holder of an OP Unit equals the quarterly dividend that may be paid to the
holder of a share of Common Stock. Each series of Preferred Units bear a
distribution that is set in accordance with an amendment to the partnership
agreement of the Operating Partnership. Preferred Units may also be convertible
into OP Units at the election of the holder thereof or the Company.
All references to the Company refer to Boston Properties, Inc. and its
subsidiaries, including the Operating Partnership, collectively, unless the
context otherwise requires.
To assist the Company in maintaining its status as a REIT, the Company
leases its three 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, respectively, are the sole member-managers.
Messrs. Zuckerman and Linde have a 9.8% economic interest in such lessee and one
or more unaffiliated public charities have a 90.2% economic interest. Marriott
International, Inc. manages these hotel properties under the
Marriott-Registered Trademark- name pursuant to a management agreement with the
lessee. Under the REIT requirements, revenues from a hotel are not considered to
be rental income for purposes of certain income tests that a REIT must meet.
Accordingly, in order to maintain its qualification as a REIT, the Company has
entered into the participating leases described above to provide revenue that
qualifies as rental income under the REIT requirements.
As of June 30, 2000, the Company and the Operating Partnership had
68,026,797 and 24,465,219 shares of Common Stock and OP Units outstanding,
respectively. In addition, the Company had 2,000,000 shares of Preferred Stock
and the Operating Partnership had 8,713,131 Preferred Units outstanding.
THE PROPERTIES:
As of June 30, 2000, the Company owns a portfolio of 142 commercial real
estate properties (136 and 127 properties at December 31, 1999 and June 30,
1999, respectively) (the "Properties") aggregating over 36.3 million square
feet. The properties consist of 129 office properties with
5
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
1. ORGANIZATION (CONTINUED)
approximately 28.7 million net rentable square feet (including 13 properties
under development expected to contain approximately 3.8 million net rentable
square feet) and approximately 5.5 million additional square feet of structured
parking for 15,556 vehicles, nine industrial properties with approximately
0.9 million net rentable square feet, three hotels with a total of 1,054 rooms
(consisting of approximately 0.9 million square feet), and a parking garage with
1,170 spaces (consisting of approximately 0.3 million square feet). In addition,
the Company owns, has under contract, or has an option to acquire 49 parcels of
land totaling approximately 487.9 acres, which will support approximately
10.3 million square feet of development.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company include all the
accounts of the Company, its majority-owned Operating Partnership and
subsidiaries. The financial statements reflect the properties acquired at their
historical basis of accounting to the extent of the acquisition of interests
from the predecessor's owners who continued as investors. The remaining
interests acquired for cash from those owners of the predecessor who decided to
sell their interests have been accounted for as a purchase and the excess of the
purchase price over the related historical cost basis was allocated to real
estate. All significant intercompany balances and transactions have been
eliminated. These financial statements should be read in conjunction with the
Company's financial statements and notes thereto contained in the Company's
annual report on Form 10-K for its fiscal year ended December 31, 1999.
The accompanying interim financial statements are unaudited; however, the
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and in
conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the disclosures required by
accounting principles generally accepted in the United States for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring matters) necessary for a fair presentation of the
financial statements for these interim periods have been included. The results
of operations for the interim periods are not necessarily indicative of the
results to be obtained for other interim periods or for the full fiscal year.
Certain prior-year balances have been reclassified in order to conform to
the current-year presentation.
3. REAL ESTATE ACQUIRED AND PLACED IN SERVICE DURING THE QUARTER ENDED
JUNE 30, 2000
The Company placed in service the Orbital Sciences Phase I project,
consisting of two Class A office buildings comprising 174,832 square feet
located in Dulles, Virginia. The project was developed by the Company for a
total cost of approximately $29.7 million.
On May 12, 2000, an unrelated third party acquired partial interests in two
wholly-owned properties. The Company retained a 51% interest in Metropolitan
Square, a 582,194 square foot office property in Washington, DC and a 25%
interest in 140 Kendrick Street, a 381,000 square foot build-to-suit development
property in Needham, Massachusetts. The interests in the properties were
acquired for cash of approximately $46.7 million and the assumption of debt of
approximately $88.2 million and resulted in a gain of $0.4 million.
6
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
3. REAL ESTATE ACQUIRED AND PLACED IN SERVICE DURING THE QUARTER ENDED
JUNE 30, 2000 (CONTINUED)
On June 19, 2000, the Company acquired a 26-acre site in Chelmsford,
Massachusetts for approximately $3.1 million. The site will support
approximately 260,000 square feet of development. The Company issued 82,215 OP
Units valued at $3.0 million in connection with the acquisition.
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
At June 30, 2000, the investments in unconsolidated joint ventures represent
(i) a 25% interest in a joint venture that owns and operates an office building
in Reston, Virginia and (ii) a 50% interest in a joint venture that owns and
operates an office building and a residential apartment building in Washington,
DC (iii) a 51% interest in a joint venture that owns and operates an office
building in Washington, DC and (iv) a 25% interest in a joint venture that is
developing an office building in Needham, Massachusetts. The Company serves as
development manager for the joint venture under development. 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>
JUNE 30, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate and development in process, net.......... $462,354 $236,995
Other assets......................................... 24,519 10,473
-------- --------
Total assets..................................... $486,873 $247,468
======== ========
LIABILITIES AND PARTNERS' EQUITY
Mortgage and construction loans payable.............. $325,246 $164,185
Other liabilities.................................... 17,457 6,770
Partners' equity..................................... 144,170 76,513
-------- --------
Total liabilities and partners' equity........... $486,873 $247,468
======== ========
Company's share of equity............................ $ 69,486 $ 36,415
======== ========
</TABLE>
The summarized statements of operations of the joint ventures are as
follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE THREE
ENDED MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total revenue.............................................. $12,608 $4,438 $8,626 $2,647
Total expenses............................................. 10,178 2,662 6,696 1,723
------- ------ ------ ------
Net income............................................... $ 2,430 $1,776 $1,930 $ 924
======= ====== ====== ======
Company's share of net income.............................. $ 807 $ 442 $ 662 $ 229
======= ====== ====== ======
</TABLE>
7
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
5. INVESTMENTS IN SECURITIES
On April 14, 2000, the Company invested approximately $2.3 million in
preferred shares of a company that provides video units that deliver subscriber
messaging, commercial advertising, news and other information in building
elevators. The Company has also entered into a master license agreement to
provide for these video units in the Company's buildings. In exchange, the
Company received 605,555 warrants to purchase shares of common stock in the
company and will share in the revenues generated from these video units in the
Company's buildings. The Company has recorded this investment at cost, as these
securities are not marketable under SFAS No. 115
At June 30, 2000, the Company accounts for its other investments in
securities in accordance with SFAS No. 115 "Accounting for Certain Investments
in Debt and Equity Securities" and has classified the securities as
available-for-sale. As of June 30, 2000, the fair value of the investments in
stock and warrants was approximately $28.3 million. The gross unrealized holding
gain of approximately $9.5 million is included in other comprehensive income on
the consolidated balance sheet.
6. MORTGAGE NOTES PAYABLE AND UNSECURED LINE OF CREDIT
On April 6, 2000, the Company refinanced the mortgage loan on Ten Cambridge
Center and the Cambridge Center North Garage which consisted of replacing the
$40.0 million mortgage loan with a $36.0 million loan and removing the Cambridge
Center North Garage as collateral. The new financing bears interest at a rate
equal to 8.27% and matures in April 2010.
On April 13, 2000, the Company obtained construction financing totaling
$32.0 million collateralized by the 2600 Tower Oaks Boulevard development
project in Rockville, Maryland. Such financing bears interest at a rate equal to
LIBOR + 1.90% and matures in October 2002.
On April 20, 2000, the Company refinanced the mortgage loan on Metropolitan
Square that consisted of replacing the $104.0 million mortgage loan with a
$140.0 million loan. The new financing bears interest at a rate equal to 8.23%
and matures in April 2010. On May 12, 2000, an unrelated third party acquired an
interest in Metropolitan Square. As a result, the Company now accounts for this
property using the equity method of accounting and therefore it is not
consolidated with the Company.
On April 24, 2000, the Company obtained construction financing totaling
$78.0 million collateralized by the 140 Kendrick Street development project in
Needham, Massachusetts. Such financing matures in July 2002 and consists of two
tranches: $16.4 million bearing interest at a rate of LIBOR + 1.35% and
$61.6 million bearing interest at a rate of LIBOR + 1.65%. On May 12, 2000, an
unrelated third party acquired an interest in 140 Kendrick Street. As a result,
the Company now accounts for this property using the equity method of accounting
and therefore it is not consolidated with the Company.
During May 2000, the Company entered into two interest rate hedge agreements
with major financial institutions for a notional amount of $300.0 million. The
agreements provide for a fixed interest rate when LIBOR floats between 7.50% or
7.75% to 9.00% for terms ranging from two to three years, per terms of the
agreements.
8
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
7. MINORITY INTERESTS
Minority interests in the Company relate to the interest in the Operating
Partnership not owned by Boston Properties, Inc. and interests in property
partnerships that are not owned by the Company. As of June 30, 2000, the
minority interest in the Operating Partnership consisted of 24,465,219 OP Units
and 8,713,131 Preferred Units held by parties other than Boston
Properties, Inc.
On May 3, 2000, Boston Properties, Inc., as general partner of the Operating
Partnership determined a distribution on the OP Units in the amount of $0.53 per
OP Unit payable on July 28, 2000 to OP Unit holders of record on June 30, 2000.
On May 15, 2000, the Operating Partnership paid a distribution on the
2,500,000 Series One Preferred Units at $0.61625 per unit, based on an annual
distribution of $2.465 per unit and paid a distribution on the 6,213,131 Series
Two and Three Preferred Units of $0.69349 per unit.
On June 19, 2000, the Operating Partnership issued 82,215 OP Units valued at
$3.0 million in connection with the acquisition of land in Chelmsford,
Massachusetts.
8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
On May 3, 2000, the Board of Directors of the Company declared a second
quarter dividend in the amount of $0.53 per share of Common Stock payable on
July 28, 2000 to shareholders of record on June 30, 2000.
On May 15, 2000, the Company paid a dividend on the 2,000,000 shares of
Series A Convertible Redeemable Preferred Stock (the "Preferred Stock"), $50
liquidation preference per share, of approximately $0.69349 per share. In
addition, on May 3, 2000, the Board of Directors of the Company declared a
dividend of $0.70890 per share on the Preferred Stock payable on August 15, 2000
to shareholders of record on June 30, 2000. These shares of Preferred Stock are
not classified as equity as in certain instances they are convertible into
shares of Common Stock at the election of the holder after December 31, 2002 or
are redeemable for cash at the election of the holder after May 12, 2009.
9
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
9. EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 2000
-------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- -----------
<S> <C> <C> <C>
Basic Earnings:
Income available to common shareholders................. $34,880 67,991 $0.51
Effect of Dilutive Securities:
Stock Options and other................................. 244 1,591 (.01)
Diluted Earnings:
------- ------ -----
Net income.............................................. $35,124 69,582 $0.50
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1999
-------------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- -----------
<S> <C> <C> <C>
Basic Earnings:
Income available to common shareholders................. $27,223 65,534 $ 0.42
Effect of Dilutive Securities:
Stock Options........................................... -- 803 (0.01)
Diluted Earnings:
------- ------ ------
Net income.............................................. $27,223 66,337 $ 0.41
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
<S> <C> <C> <C>
Basic Earnings:
Income available to common shareholders................. $65,857 67,973 $0.97
Effect of Dilutive Securities:
Stock Options and other................................. 479 1,184 (0.01)
Diluted Earnings:
------- ------ -----
Net income.............................................. $66,336 69,157 $0.96
======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
<S> <C> <C> <C>
Basic Earnings:
Income available to common shareholders................. $52,157 64,539 $0.81
Effect of Dilutive Securities:
Stock Options........................................... -- 622 (0.01)
Diluted Earnings:
------- ------ -----
Net income.............................................. $52,157 65,161 $0.80
======= ====== =====
</TABLE>
10
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
10. SEGMENT INFORMATION
The Company's segments 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, Hotels 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 income, as the internal reporting addresses
these on a corporate level.
Information by Geographic Area and Property Type:
For the three months ended June 30, 2000:
<TABLE>
<CAPTION>
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ---------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
RENTAL REVENUE
CLASS A................... $45,366 $53,031 $35,176 $44,304 $15,116 $192,993
R&D....................... 1,381 4,952 -- 466 -- 6,799
INDUSTRIAL................ 469 364 -- 561 173 1,567
HOTELS.................... 10,721 -- -- -- -- 10,721
GARAGE.................... 896 -- -- -- -- 896
------- ------- ------- ------- ------- --------
TOTAL....................... 58,833 58,347 35,176 45,331 15,289 212,976
------- ------- ------- ------- ------- --------
% OF GRAND TOTALS......... 27.62% 27.40% 16.52% 21.28% 7.18% 100.00%
------- ------- ------- ------- ------- --------
RENTAL EXPENSES
CLASS A................... 15,927 13,984 11,428 15,002 4,861 61,202
R&D....................... 401 893 -- 97 -- 1,391
INDUSTRIAL................ 132 103 -- 38 39 312
HOTELS.................... 829 -- -- -- -- 829
GARAGE.................... 301 -- -- -- -- 301
------- ------- ------- ------- ------- --------
TOTAL....................... 17,590 14,980 11,428 15,137 4,900 64,035
------- ------- ------- ------- ------- --------
% OF GRAND TOTALS......... 27.47% 23.39% 17.85% 23.64% 7.65% 100.00%
------- ------- ------- ------- ------- --------
NET OPERATING INCOME........ $41,243 $43,367 $23,748 $30,194 $10,389 $148,941
======= ======= ======= ======= ======= ========
% OF GRAND TOTALS......... 27.69% 29.12% 15.94% 20.27% 6.98% 100.00%
======= ======= ======= ======= ======= ========
</TABLE>
11
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
10. SEGMENT INFORMATION (CONTINUED)
For the three months ended June 30, 1999:
<TABLE>
<CAPTION>
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ---------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
RENTAL REVENUE
CLASS A................... $38,322 $50,827 $33,943 $37,644 $9,551 $170,287
R&D....................... 1,483 4,565 -- 386 -- 6,434
INDUSTRIAL................ 413 378 -- 344 174 1,309
HOTELS.................... 8,849 -- -- -- -- 8,849
GARAGE.................... 530 -- -- -- -- 530
------- ------- ------- ------- ------ --------
TOTAL....................... 49,597 55,770 33,943 38,374 9,725 187,409
------- ------- ------- ------- ------ --------
% OF GRAND TOTALS......... 26.46% 29.76% 18.11% 20.48% 5.19% 100.00%
------- ------- ------- ------- ------ --------
RENTAL EXPENSES
CLASS A................... 14,816 13,486 11,719 14,084 2,904 57,009
R&D....................... 421 819 -- 114 -- 1,354
INDUSTRIAL................ 124 127 -- 72 35 358
HOTELS.................... 1,371 -- -- -- -- 1,371
GARAGE.................... 214 -- -- -- -- 214
------- ------- ------- ------- ------ --------
TOTAL....................... 16,946 14,432 11,719 14,270 2,939 60,306
------- ------- ------- ------- ------ --------
% OF GRAND TOTALS......... 28.11% 23.93% 19.43% 23.66% 4.87% 100.00%
------- ------- ------- ------- ------ --------
NET OPERATING INCOME........ $32,651 $41,338 $22,224 $24,104 $6,786 $127,103
======= ======= ======= ======= ====== ========
% OF GRAND TOTALS......... 25.69% 32.52% 17.49% 18.96% 5.34% 100.00%
======= ======= ======= ======= ====== ========
</TABLE>
The following is a reconcilition of net operating income to income before
minority interests and joint venture income:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net Operating Income.................................... $148,941 $127,103
Add:
Development and management services................... 2,876 3,611
Interest income....................................... 1,407 620
Less:
General and administrative............................ (8,589) (7,352)
Interest expense...................................... (56,243) (49,219)
Depreciation and amortization......................... (32,395) (29,443)
-------- --------
Income before minority interests and joint venture
income................................................ $ 55,997 $ 45,320
======== ========
</TABLE>
12
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
10. SEGMENT INFORMATION (CONTINUED)
Information by Geographic Area and Property Type:
For the six months ended June 30, 2000:
<TABLE>
<CAPTION>
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ---------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
RENTAL REVENUE
CLASS A................... $90,235 $108,376 $70,128 $87,557 $28,243 $384,539
R&D....................... 2,942 9,659 -- 893 -- 13,494
INDUSTRIAL................ 915 725 -- 903 353 2,896
HOTELS.................... 17,161 -- -- -- -- 17,161
GARAGE.................... 1,567 -- -- -- -- 1,567
------- -------- ------- ------- ------- --------
TOTAL....................... 112,820 118,760 70,128 89,353 28,596 419,657
------- -------- ------- ------- ------- --------
% OF GRAND TOTALS......... 26.88% 28.30% 16.71% 21.29% 6.82% 100.00%
------- -------- ------- ------- ------- --------
RENTAL EXPENSES
CLASS A................... 32,696 28,553 23,331 29,776 8,792 123,148
R&D....................... 847 1,867 -- 163 -- 2,877
INDUSTRIAL................ 295 217 -- 85 67 664
HOTELS.................... 2,013 -- -- -- -- 2,013
GARAGE.................... 510 -- -- -- -- 510
------- -------- ------- ------- ------- --------
TOTAL....................... 36,361 30,637 23,331 30,024 8,859 129,212
------- -------- ------- ------- ------- --------
% OF GRAND TOTALS......... 28.13% 23.71% 18.06% 23.24% 6.86% 100.00%
------- -------- ------- ------- ------- --------
NET OPERATING INCOME........ $76,459 $ 88,123 $46,797 $59,329 $19,737 $290,445
======= ======== ======= ======= ======= ========
% OF GRAND TOTALS......... 26.32% 30.34% 16.11% 20.43% 6.80% 100.00%
======= ======== ======= ======= ======= ========
</TABLE>
13
<PAGE>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
10. SEGMENT INFORMATION (CONTINUED)
For the six months ended June 30, 1999:
<TABLE>
<CAPTION>
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ---------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
RENTAL REVENUE
CLASS A................... $75,277 $99,758 $68,134 $74,837 $19,008 $337,014
R&D....................... 3,166 9,098 -- 835 -- 13,099
INDUSTRIAL................ 819 701 -- 618 354 2,492
HOTELS.................... 13,700 -- -- -- -- 13,700
GARAGE.................... 1,051 -- -- -- -- 1,051
------- ------- ------- ------- ------- --------
TOTAL....................... 94,013 109,557 68,134 76,290 19,362 367,356
------- ------- ------- ------- ------- --------
% OF GRAND TOTALS......... 25.59% 29.82% 18.55% 20.77% 5.27% 100.00%
------- ------- ------- ------- ------- --------
RENTAL EXPENSES
CLASS A................... 29,969 26,125 23,020 26,711 5,427 111,252
R&D....................... 949 1,789 -- 202 -- 2,940
INDUSTRIAL................ 266 215 -- 122 63 666
HOTELS.................... 2,395 -- -- -- -- 2,395
GARAGE.................... 403 -- -- -- -- 403
------- ------- ------- ------- ------- --------
TOTAL....................... 33,982 28,129 23,020 27,035 5,490 117,656
------- ------- ------- ------- ------- --------
% OF GRAND TOTALS......... 28.87% 23.91% 19.57% 22.98% 4.67% 100.00%
------- ------- ------- ------- ------- --------
NET OPERATING INCOME........ $60,031 $81,428 $45,114 $49,255 $13,872 $249,700
======= ======= ======= ======= ======= ========
% OF GRAND TOTALS......... 24.04% 32.60% 18.07% 19.73% 5.56% 100.00%
======= ======= ======= ======= ======= ========
</TABLE>
The following is a reconcilition of net operating income to income before
minority interests and joint venture income:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Net Operating Income.................................... $290,445 $249,700
Add:
Development and management services................... 5,739 7,658
Interest and other.................................... 2,117 4,266
Less:
General and administrative............................ (15,997) (13,962)
Interest expense...................................... (111,458) (99,678)
Depreciation and amortization......................... (64,626) (57,237)
-------- --------
Income before minority interests and joint venture
income................................................ $106,220 $ 90,747
======== ========
</TABLE>
14
<PAGE>
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this report. This Report on
Form 10-Q contains forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results or developments could differ
materially from those projected in such statements as a result of certain
factors set forth in the section below entitled "Certain Factors Affecting
Future Operating Results" and elsewhere in this report.
Since January 1, 1999, the Company has increased its in-service portfolio
from 110 properties to 127 properties (the "Total Portfolio"). As a result of
the growth in the Company's Total Portfolio, the financial data presented below
shows significant changes in revenues and expenses from period to period. The
Company does not believe that its period-to-period financial data are
comparable. Therefore, the comparison of operating results for the three and six
months ended June 30, 2000 and 1999 show separately changes attributable to the
properties that were owned by the Company for all of each period compared (the
"Same Property Portfolio") and the changes attributable to the Total Portfolio.
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED
JUNE 30, 1999.
The table below reflects selected operating information for the Same
Property Portfolio and the Total Portfolio. The Same Property Portfolio consists
of the 110 properties acquired or placed in service on or prior to January 1,
1999.
<TABLE>
<CAPTION>
SAME PROPERTY PORTFOLIO
-------------------------------------------
INCREASE/ %
2000 1999 (DECREASE) CHANGE
-------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Rental revenue................................ $365,616 $343,953 $21,663 6.30%
Development and management services........... -- -- -- --
Interest and other............................ -- -- -- --
-------- -------- ------- ----
Total revenue............................... 365,616 343,953 21,663 6.30%
-------- -------- ------- ----
Expenses:
Operating..................................... 114,115 107,592 6,523 6.06%
-------- -------- ------- ----
Net Operating Income............................ 251,501 236,361 15,140 6.41%
-------- -------- ------- ----
General and administrative.................... -- -- -- --
Interest...................................... -- -- -- --
Depreciation and amortization................. 57,031 54,215 2,816 5.19%
-------- -------- ------- ----
Income before minority interests and joint venture
income.......................................... $194,470 $182,146 $12,324 6.77%
======== ======== ======= ====
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
-------------------------------------------
INCREASE/ %
2000 1999 (DECREASE) CHANGE
-------- -------- ---------- --------
(DOLLARS IN THOUANDS)
<S> <C> <C> <C> <C>
Revenue:
Rental revenue................................ $419,657 $367,356 $52,301 14.24%
Development and management services........... 5,739 7,658 (1,919) -25.06%
Interest and other............................ 2,117 4,266 (2,149) -50.38%
-------- -------- ------- ------
Total revenue............................... 427,513 379,280 48,233 12.72%
Expenses:
Operating..................................... 129,212 117,656 11,556 9.82%
-------- -------- ------- ------
Net Operating Income............................ 298,301 261,624 36,677 14.02%
-------- -------- ------- ------
General and administrative.................... 15,997 13,962 2,035 14.58%
Interest...................................... 111,458 99,678 11,780 11.82%
Depreciation and amortization................. 64,626 57,237 7,389 12.91%
-------- -------- ------- ------
Income before minority interests and joint venture
income.......................................... $106,220 $ 90,747 $15,473 17.05%
======== ======== ======= ======
</TABLE>
The increase in rental revenues in the Same Property Portfolio is primarily
a result of an overall increase in rental rates on new leases and rollovers and
a small increase in occupancy. The increase in rental revenues for the Total
Portfolio is primarily a result of the revenues earned on the properties
acquired or placed-in-service after January 1, 1999.
The decrease in development and management services revenue is due to a
non-recurring development fee of approximately $1.2 million earned during the
six months ended June 30, 1999 and fees earned on projects totaling
approximately $0.6 million which were completed during 1999.
The decrease in interest and other revenue is primarily due to interest
income earned on $420.1 million of notes receivable related to the Embarcadero
Center acquisition during the six months ended June 30, 1999.
Property operating expenses (real estate taxes, utilities, repairs and
maintenance, cleaning and other property related expenses) in the Same Property
Portfolio increased mainly due to increases in real estate taxes and cleaning.
Property operating expenses for the Total Portfolio increased mainly due to the
properties acquired or placed-in-service after January 1, 1999.
General and administrative expenses increased due to the increase in the
overall size of the Total Portfolio since January 1, 1999. The Company has hired
additional employees as a result of the new acquisitions.
Interest expense increased due to new and assumed mortgage indebtedness and
the increased use of the Company's unsecured revolving line of credit (the
"Unsecured Line of Credit") since June 30, 1999.
Depreciation and amortization expense for the Same Property Portfolio
increased as a result of capital and tenant improvements made since June 30,
1999. Depreciation and amortization expense for the Total Portfolio increased
mainly due to the properties acquired or placed-in-service after January 1,
1999.
16
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED
JUNE 30, 1999.
The table below reflects selected operating information for the Same
Property Portfolio and the Total Portfolio. The Same Property Portfolio consists
of the 111 properties acquired or placed in service on or prior to April 1,
1999.
<TABLE>
<CAPTION>
SAME PROPERTY PORTFOLIO
-------------------------------------------
INCREASE/ %
2000 1999 (DECREASE) CHANGE
-------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Rental revenue................................ $185,628 $174,904 $10,724 6.13%
Development and management services........... -- -- -- --
Interest and other............................ -- -- -- --
-------- -------- ------- ----
Total revenue............................... 185,628 174,904 10,724 6.13%
-------- -------- ------- ----
Expenses:
Operating..................................... 56,777 55,252 1,525 2.76%
-------- -------- ------- ----
Net Operating Income.............................. 128,851 119,652 9,199 7.69%
-------- -------- ------- ----
General and administrative.................... -- -- -- --
Interest...................................... -- -- -- --
Depreciation and amortization................. 28,527 27,902 625 2.24%
-------- -------- ------- ----
Income before minority interests and joint
venture income.............................. $100,324 $ 91,750 $ 8,574 9.34%
======== ======== ======= ====
</TABLE>
<TABLE>
<CAPTION>
TOTAL PORTFOLIO
-------------------------------------------
INCREASE/ %
2000 1999 (DECREASE) CHANGE
-------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Rental revenue................................ $212,976 $187,409 $25,567 13.64%
Development and management services........... 2,876 3,611 (735) -20.35%
Interest and other............................ 1,407 620 787 126.94%
-------- -------- ------- ------
Total revenue............................... 217,259 191,640 25,619 13.37%
-------- -------- ------- ------
Expenses:
Operating..................................... 64,035 60,306 3,729 6.18%
-------- -------- ------- ------
Net Operating Income.............................. 153,224 131,334 21,890 16.67%
-------- -------- ------- ------
General and administrative.................... 8,589 7,352 1,237 16.83%
Interest...................................... 56,243 49,219 7,024 14.27%
Depreciation and amortization................. 32,395 29,443 2,952 10.03%
-------- -------- ------- ------
Income before minority interests and joint
venture income.............................. $ 55,997 $ 45,320 $10,677 23.56%
======== ======== ======= ======
</TABLE>
The increase in rental revenues in the Same Property Portfolio is primarily
a result of an overall increase in rental rates on new leases and rollovers. The
increase in rental revenues for the Total Portfolio is primarily a result of the
properties acquired or placed-in-service after April 1, 1999.
The decrease in development and management services revenue is due to fees
earned on projects totaling approximately $0.3 million that were completed
during 1999.
17
<PAGE>
The increase in interest and other revenue is primarily due to higher
average cash balances maintained during the quarter ended June 30, 2000.
Property operating expenses (real estate taxes, utilities, repairs and
maintenance, cleaning and other property related expenses) in the Total
Portfolio increased mainly due to the properties acquired or placed-in-service
after April 1, 1999.
General and administrative expenses increased due to the increase in the
overall size of the Total Portfolio since June 30, 1999. The Company has hired
additional employees as a result of the new acquisitions.
Interest expense increased due to new and assumed mortgage indebtedness and
the increased use of the Unsecured Line of Credit.
Depreciation and amortization expense for the Same Property Portfolio
increased as a result of capital and tenant improvements made since June 30,
1999. Depreciation and amortization expense for the Total Portfolio increased
mainly due to the properties acquired or placed-in-service after April 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated indebtedness at June 30, 2000 was approximately
$3.4 billion and bore interest at a weighted average interest rate of
approximately 7.27% per annum. Based on the Company's total market
capitalization at June 30, 2000 of approximately $7.5 billion, the Company's
consolidated debt represents 45.5% of its total market capitalization.
The Company has a $500 million Unsecured Line of Credit with Fleet National
Bank, as agent. The Company uses the Unsecured Line of Credit principally to
facilitate its development and acquisition activities and for working capital
purposes. As of August 11, 2000, the Company had $269.0 million outstanding
under the Unsecured Line of Credit.
The following represents the outstanding principal balances due under the
first mortgages at June 30, 2000:
<TABLE>
<CAPTION>
PROPERTIES INTEREST RATE PRINCIPAL AMOUNT MATURITY DATE
---------- ------------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Prudential Center.......................... 6.72% $ 293,639 July 1, 2008
599 Lexington Avenue....................... 7.00% 225,000(1) July 19, 2005
280 Park Avenue............................ 7.00% 220,000(2) September 11, 2002
Embarcadero Center One..................... 6.70% 157,374 December 10, 2008
Embarcadero Center Two..................... 6.70% 157,374 December 10, 2008
Embarcadero Center Four.................... 6.79% 155,889 February 1, 2008
875 Third Ave.............................. 8.00% 151,977(3) December 31, 2002
Five Times Square.......................... 8.66% 149,680(4) January 26, 2003
Embarcadero Center Three................... 6.40% 147,243 January 1, 2007
Two Independence Square.................... 8.09% 117,354(5) February 27, 2003
Riverfront Plaza........................... 6.61% 116,788 January 21, 2008
Democracy Center........................... 7.05% 108,342 April 9, 2009
Embarcadero Center West Tower.............. 6.50% 98,196 January 1, 2006
100 East Pratt Street...................... 6.73% 92,619 November 1, 2008
The Gateway................................ 8.25% 75,000(6) September 30, 2000
Reservoir Place............................ 6.88% 74,777(7) November 1, 2006
One Independence Square.................... 8.12% 74,743(5) August 21, 2001
One and Two Reston Overlook................ 7.45% 68,468 September 1, 2004
2300 N Street.............................. 6.88% 66,000 August 3, 2003
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
PROPERTIES INTEREST RATE PRINCIPAL AMOUNT MATURITY DATE
---------- ------------- ---------------- ------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Capital Gallery............................ 8.24% 57,677 August 15, 2006
10 and 20 Burlington Mall Road............. 8.33% 37,000(8) October 1, 2001
Ten Cambridge Center....................... 8.27% 35,927 April 1, 2010
111 Huntington Avenue...................... 8.65% 33,890(9) September 27, 2002
1301 New York Avenue....................... 7.19% 33,135(10) August 15, 2009
Eight Cambridge Center..................... 7.73% 28,587 July 15, 2010
510 Carnegie Center........................ 7.39% 27,912 January 1, 2008
Lockheed Martin Building................... 6.61% 26,536 June 1, 2008
University Place........................... 6.94% 25,525 August 1, 2021
Reston Corporate Center.................... 6.56% 25,046 May 1, 2008
New Dominion Technology Park............... 8.25% 24,188(11) March 4, 2002
Sumner Square.............................. 8.19% 23,653(12) April 22, 2004
Orbital Sciences........................... 8.30% 23,014(13) August 19, 2002
191 Spring Street.......................... 8.50% 22,959 September 1, 2006
Bedford Business Park...................... 8.50% 21,970 December 10, 2008
NIMA Building.............................. 6.51% 21,700 June 1, 2008
212 Carnegie Center........................ 7.25% 20,453 December 31, 2000
202 Carnegie Center........................ 7.25% 19,017 December 31, 2000
506 Carnegie Center........................ 7.39% 17,654 November 30, 2007
508 Carnegie Center........................ 7.39% 16,406 November 30, 2007
504 Carnegie Center........................ 7.39% 14,712 November 30, 2007
214 Carnegie Center........................ 8.19% 13,126(14) October 31, 2000
101 Carnegie Center........................ 7.66% 8,513 April 1, 2006
Montvale Center............................ 8.59% 7,627 December 1, 2006
Newport Office Park........................ 8.13% 6,076 July 1, 2001
Hilltop Business Center.................... 6.81% 5,816 March 1, 2019
Tower Oaks................................. 8.56% 4,226 October 10, 2002
302 Carnegie Center........................ 8.55% 3,754(15) March 15, 2003
201 Carnegie Center........................ 7.08% 506 February 1, 2010
----------
Total..................................................... $3,157,068
==========
</TABLE>
------------------------
(1) At maturity the lender has the option to purchase a 33.33% interest in this
Property in exchange for the cancellation of the principal balance of
approximately $225 million.
(2) Outstanding principal of $213,000 bears interest at a fixed rate of 7.00%.
The remaining $7,000 bears interest at a floating rate equal to
LIBOR + 1.00%.
(3) The principal amount and interest rate shown has been adjusted to reflect
the fair value of the note. The actual principal balance at June 30, 2000
was $149,473 and the interest rate was 8.75%.
(4) Total construction loan in the amount of $420.0 million at a variable rate
of LIBOR + 2.00%.
(5) The principal amount and interest rate shown has been adjusted to reflect
the effective rates on the loans. The actual principal balances at June 30,
2000 were $117,594 and $74,938, respectively. The actual interest rates are
8.50% and continue at such rates through the loan expiration.
(6) Outstanding principal bears interest at a floating rate equal to
LIBOR + 1.60%.
(7) The principal amount and interest rate shown has been adjusted to reflect
the fair value of the note. The actual principal balance at June 30, 2000
was $65,774 and the interest rate was 9.09%.
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<PAGE>
(8) Includes outstanding indebtedness secured by 91 Hartwell Avenue and 92 and
100 Hayden Avenue.
(9) Total construction loan in the amount of $203.0 million at a variable rate
of LIBOR + 2.00%.
(10) Includes outstanding principal in the amounts of $20,000, $8,742 and $4,393
which bear interest at fixed rates of 6.70%, 8.54% and 6.75%, respectively.
(11) Total construction loan in the amount of $48.6 million at a variable rate
of LIBOR + 1.60%.
(12) The outstanding principal bears interest at a rate equal to
LIBOR + 1.50%.
(13) Total construction loan in the amount of $27.0 million at a variable rate
of LIBOR + 1.65%.
(14) The principal amount and interest rate shown has been adjusted to reflect
the effective rate on the loan. The actual principal balance at June 30,
2000 was $13,115 and the interest rate was 8.40%.
(15) Total construction loan in the amount of $10.0 million at a variable rate
of LIBOR + 1.90%.
The Company expects to meet its short-term liquidity requirements generally
through its existing working capital and net cash provided by operations. The
Company's operating properties and hotels require periodic investments of
capital for tenant-related capital expenditures and for general capital
improvements. For the three months ended June 30, 2000, the Company's recurring
capital expenditures totaled $2.3 million.
The Company expects to meet its long-term requirements for the funding of
property development, property acquisitions and other non-recurring capital
improvements through long-term secured and unsecured indebtedness (including the
Unsecured Line of Credit) and the issuance of additional equity securities of
the Company.
The Company has development projects currently in process, which require
commitments to fund to completion. Commitments under these arrangements totaled
approximately $639.8 million as of June 30, 2000. The Company expects to fund
these commitments using available cash, construction loans and the Unsecured
Line of Credit. In addition, the Company has options to acquire land that
require minimum deposits that the Company will fund using available cash or the
Unsecured Line of Credit.
FUNDS FROM OPERATIONS
Management believes that Funds from Operations is helpful to investors as a
measure of the performance of an equity REIT because, along with cash flows from
operating activities, financing activities and investing activities, it provides
investors with an understanding of the ability of the Company to incur and
service debt and make capital expenditures. The Company computes Funds from
Operations in accordance with standards established by the White Paper on Funds
from Operations approved by the Board of Governors of NAREIT in 1995 and
clarified in 1999, which may differ from the methodology for calculating Funds
from Operations utilized by other equity REITs, and accordingly, may not be
comparable to such other REITs. The White Paper defines Funds from Operations as
net income (loss) (computed in accordance with accounting principles generally
accepted in the United States, "GAAP"), excluding gains (or losses) from sales
of property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. Effective
January 1, 2000, the calculation of FFO includes non-recurring events, except
for those that are defined as "extraordinary items" under GAAP and gains and
losses from sales of depreciable operating property. The revised definition of
Funds from Operations did not have a material impact on the Company's
calculation. Funds from Operations does not represent amounts available for
management's discretionary use because of needed capital replacement or
expansion, debt service obligations, or other commitments and uncertainties.
Funds from Operations should not be
20
<PAGE>
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flows from
operating activities (determined in accordance with GAAP) as a measure of the
Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions. The Company
believes that in order to facilitate a clear understanding of the historical
operating results of the Company, Funds from Operations should be examined in
conjunction with net income as presented in the consolidated financial
statements.
The following table presents the Company's Funds from Operations for the
three months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------ ------------------
<S> <C> <C>
Income before minority interests and joint venture
income................................................. $55,997 $45,320
Add:
Real estate depreciation and amortization.............. 32,497 29,238
Income from unconsolidated joint ventures.............. 662 229
Less:
Minority property partnership's share of Funds from
Operations........................................... (266) (128)
Preferred dividends and distributions.................. (8,250) (8,293)
------- -------
Funds from Operations.................................... $80,640 $66,366
======= =======
Funds from Operations Available to Common Shareholders
(73.59% and 73.34%, respectively)...................... $59,347 $48,673
======= =======
</TABLE>
Reconciliation to Diluted Funds from Operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, 2000 JUNE 30, 1999
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Funds from Operations..................... $80,640 92,385 $66,366 89,352
Effect of Dilutive Securities
Convertible Preferred Units............. 6,607 10,376 6,611 10,364
Convertible Preferred Stock............. 1,643 2,625 1,682 2,625
Stock Options and other................. 316 1,590 -- 806
------- ------- ------- --------
Diluted Funds from Operations............. $89,206 106,976 $74,659 103,147
======= ======= ======= ========
Company's share of Diluted Funds From
Operations (77.20% and 76.91%,
respectively)........................... $68,864 82,583 $57,419 79,329
======= ======= ======= ========
</TABLE>
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<PAGE>
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, regarding the
Company's business, strategies, revenues, expenditures and operating and capital
requirements. The following factors, among others, could cause actual results,
performance or achievements of the Company to differ materially from those set
forth or contemplated in the forward-looking statements made in this report:
general risks affecting the real estate industry (including, without limitation,
the inability to enter into or renew leases, dependence on tenants' financial
condition, and competition from other developers, owners and operators of real
estate); risks associated with the availability and terms of financing and the
use of debt to fund acquisitions and developments; failure to manage effectively
the Company's growth and expansion into new markets or to integrate acquisitions
successfully; risks and uncertainties affecting property development and
construction (including, without limitation, construction delays, cost overruns,
inability to obtain necessary permits and public opposition to such activities);
risks associated with downturns in the national and local economies, increases
in interest rates, and volatility in the securities markets; costs of compliance
with the Americans with Disabilities Act and other similar laws; potential
liability for uninsured losses and environmental contamination; risks associated
with the Company's potential failure to qualify as a REIT under the Internal
Revenue Code of 1986, as amended, and possible adverse changes in tax and
environmental laws; and risks associated with the Company's dependence on key
personnel whose continued service is not guaranteed.
NEWLY ISSUED ACCOUNTING STANDARD
During the quarter ended June 30, 2000, the Financial Accounting Standards
Board issued Statements of Financial Accounting Standards No. 138, "Accounting
for Certain Derivative Instruments and Hedging Activities--an Amendment of
Statement of Financial Accounting Standards No. 133" ("SFAS 138"). SFAS 138
expands the scope of SFAS 133. The Company does not expect SFAS 138 to have a
material impact on the Company's financial position and results of operations.
INFLATION
Substantially all of the office leases provide for separate real estate tax
and operating expense escalations over a base amount. In addition, many of the
leases provide for fixed base rent increases or indexed increases. The Company
believes that inflationary increases may be at least partially offset by the
contractual rent increases described above.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
interest rates. The primary market risk facing the Company is mortgage debt,
which bears interest primarily at fixed rates, and therefore, the fair value of
these instruments is affected by changes in the market interest rates. The
following table presents principal cash flows (in thousands) based upon maturity
dates of the debt obligations and the related weighted average interest rates by
expected maturity dates for the fixed rate debt. The interest rate of the
variable rate debt as of June 30, 2000 ranged from LIBOR plus 1.00% to LIBOR
plus 2.00%. During January 2000, the Company entered into three interest rate
hedge agreements for a total amount of $450.0 million. The agreements provide
for a fixed interest rate when LIBOR floats between 0% and 5.80% or 5.00% to
5.60% and when LIBOR ranges from 6.35% to 7.95% for terms ranging from three to
five years, per terms of the agreements.
<TABLE>
<CAPTION>
MORTGAGE DEBT
-------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate........... $71,755 $159,272 $391,800 $215,147 $103,499 $1,878,192 $2,819,665 $2,819,665
Average Interest
Rate............... 7.39% 7.89% 7.38% 7.53% 7.27% 6.91% 7.10% --
Variable Rate........ $75,000 $ 24,187 $ 60,575 $153,988 $ 23,653 $ -- $ 337,403 $ 337,403
</TABLE>
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 2--CHANGES IN SECURITIES
On June 19, 2000, the Company acquired land in Chelmsford, Massachusetts for
consideration that included the issuance of 82,215 OP Units. Such OP Units were
issued to accredited investors in a transaction that was exempt from
registration under the Securities Act of 1933 pursuant to Section 4(2) of such
Act.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 3, 2000. The
stockholders voted to elect Edward H. Linde and Ivan J. Seidenberg as Class III
Directors of the Company to serve until 2003. 47,542,402 and 52,733,350 votes
were cast for the elections of Mr. Linde and Mr. Seidenberg, respectively and
5,710,061 and 519,113 votes were withheld, respectively. Mortimer B. Zuckerman,
Alan B. Landis and Richard E. Salomon will continue to serve as Class I
Directors and Alan J. Patricof and Martin Turchin will continue to serve as
Class II Directors until their present term expires in 2001 and 2002,
respectively and their successors are duly elected.
The stockholders voted on a shareholder proposal concerning the annual
election of directors. 23,608,579 votes were cast for the proposal, 22,911,358
votes were cast against the proposal, and 291,776 votes abstained.
The stockholders voted to amend and restate the 1997 Stock Option and
Incentive Plan. 36,620,189 votes were cast for, 9,931,018 votes were cast
against, and 260,510 votes abstained from this proposal.
The stockholders also voted to ratify the Board of Directors' selection of
PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal
year ending December 31, 2000. 53,124,037 votes were cast for, 107,527 votes
were cast against, and 20,899 votes abstained from this proposal.
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
A Form 8-K dated April 26, 2000 was filed with the Securities and Exchange
Commission to report under Item 5 of such report the information presented to
investors and analysts and the Company's press release for the quarter ended
March 31, 2000.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
BOSTON PROPERTIES, INC.
August 11, 2000 By: /s/ DAVID G. GAW
-----------------------------------------
David G. Gaw,
Chief Financial Officer
(duly authorized officer and
principal financial officer)
</TABLE>
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