- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 MARCH 31, 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 of (IRS Employer Id. Number) 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 67,967,131 (CLASS) (OUTSTANDING ON MAY 10, 2000) </TABLE> - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
BOSTON PROPERTIES, INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 TABLE OF CONTENTS <TABLE> <CAPTION> PAGE -------- <S> <C> <C> PART 1. FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements: a) Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999........................................ 1 b) Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999........................ 2 c) Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999........................ 3 d) Notes to the Consolidated Financial Statements........... 4 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 14 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk........................................................ 19 PART II. OTHER INFORMATION ITEM 2. Changes in Securities....................................... 20 ITEM 6. Exhibits and Reports on Form 8-K............................ 20 Signatures.......................................................................... 21 </TABLE> i
BOSTON PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2000 1999 ------------ ------------- (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS) <S> <C> <C> ASSETS Real estate: $5,848,141 $5,609,424 Less: accumulated depreciation............................ (501,554) (470,591) ---------- ---------- Total real estate....................................... 5,346,587 5,138,833 Cash and cash equivalents................................... 18,335 12,035 Escrows..................................................... 30,085 40,254 Investments in securities................................... 73,023 14,460 Tenant and other receivables, net........................... 34,539 28,362 Accrued rental income, net.................................. 85,089 82,228 Deferred charges, net....................................... 67,711 53,733 Prepaid expenses and other assets........................... 24,407 28,452 Investments in unconsolidated joint ventures................ 36,541 36,415 ---------- ---------- Total assets............................................ $5,716,317 $5,434,772 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable.................................... $3,186,399 $2,955,584 Unsecured line of credit.................................. 344,000 366,000 Accounts payable and accrued expenses..................... 57,098 66,780 Dividends and distributions payable....................... 51,205 50,114 Accrued interest payable.................................. 5,154 8,486 Other liabilities......................................... 55,553 48,282 ---------- ---------- Total liabilities....................................... 3,699,409 3,495,246 ---------- ---------- Commitments and contingencies............................... -- -- ---------- ---------- Minority interests.......................................... 808,826 781,962 ---------- ---------- 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, 67,954,225 and 67,910,434 issued and outstanding in 2000 and 1999, respectively.............. 680 679 Additional paid-in capital................................ 1,060,341 1,067,778 Dividends in excess of earnings........................... (10,495) (10,893) Unearned compensation..................................... (1,007) -- Accumulated other comprehensive income.................... 58,563 -- ---------- ---------- Total stockholders' equity.............................. 1,108,082 1,057,564 ---------- ---------- Total liabilities and stockholders' equity............ $5,716,317 $5,434,772 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements. 1
BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------ 2000 1999 --------- --------- (UNAUDITED AND IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) <S> <C> <C> Revenue Rental: Base rent............................................... $170,337 $151,609 Recoveries from tenants................................. 23,336 17,414 Parking and other....................................... 13,008 10,924 -------- -------- Total rental revenue.................................. 206,681 179,947 Development and management services....................... 2,863 4,047 Interest and other........................................ 710 3,646 -------- -------- Total revenue......................................... 210,254 187,640 -------- -------- Expenses Operating................................................. 65,177 57,350 General and administrative................................ 7,408 6,610 Interest.................................................. 55,215 50,459 Depreciation and amortization............................. 32,231 27,794 -------- -------- Total expenses........................................ 160,031 142,213 -------- -------- Income before minority interests and joint venture income... 50,223 45,427 Minority interests in property partnerships................. (196) (4,155) Income from unconsolidated joint ventures................... 145 213 -------- -------- Income before minority interest in Operating Partnership.... 50,172 41,485 Minority interest in Operating Partnership.................. (17,552) (15,712) -------- -------- Net income before preferred dividend........................ 32,620 25,773 Preferred dividend.......................................... (1,643) (839) -------- -------- Net income available to common shareholders................. $ 30,977 $ 24,934 ======== ======== Basic earnings per share: Net income available to common shareholders............... $ 0.46 $ 0.39 ======== ======== Weighted average number of common shares outstanding...... 67,943 63,534 ======== ======== Diluted earnings per share: Net income available to common shareholders............... $ 0.45 $ 0.39 ======== ======== Weighted average number of common and common equivalent shares outstanding................................................. 68,380 64,078 ======== ======== </TABLE> The accompanying notes are an integral part of these financial statements. 2
BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------------------ 2000 1999 --------- --------- (UNAUDITED AND IN THOUSANDS) <S> <C> <C> Cash flows from operating activities: Net income before preferred dividend...................... $ 32,620 $ 25,773 Adjustments to reconcile net income before preferred dividend to net cash provided by operating activities: Depreciation and amortization........................... 32,231 27,794 Non-cash portion of interest expense.................... 1,169 (508) Compensation related to restricted shares............... 53 -- Income from unconsolidated joint ventures............... (145) (213) Minority interests...................................... 10,945 15,612 Change in assets and liabilities: Escrows................................................. 10,169 (4,351) Tenant and other receivables, net....................... (6,177) (1,358) Accrued rental income, net.............................. (2,861) (4,364) Prepaid expenses and other assets....................... 4,045 892 Accounts payable and accrued expenses................... (9,682) 13,618 Accrued interest payable................................ (3,332) 4,721 Other liabilities....................................... 7,271 (14,521) --------- --------- Total adjustments..................................... 43,686 37,322 --------- --------- Net cash provided by operating activities............. 76,306 63,095 --------- --------- Cash flows from investing activities: Acquisitions/additions to real estate..................... (100,641) (97,630) Tenant leasing costs...................................... (2,656) (2,034) Investments in unconsolidated joint ventures, net......... 19 (12,664) --------- --------- Net cash used in investing activities................. (103,278) (112,328) --------- --------- Cash flows from financing activities: Net proceeds from sales of common and preferred stock..... -- 100,000 Payment of offering costs................................. (35) (31) Borrowings on unsecured line of credit.................... 88,000 347,000 Repayments of unsecured line of credit.................... (110,000) (110,000) Repayments of mortgage notes.............................. (48,284) (9,618) Proceeds from mortgage notes.............................. 161,393 116,000 Repayment of notes payable................................ -- (328,143) Dividends and distributions............................... (47,961) (42,615) Proceeds from employee stock purchase plan................ 214 -- Deferred financing and other costs........................ (10,055) (1,929) --------- --------- Net cash provided by financing activities............. 33,272 70,664 --------- --------- Net increase in cash........................................ 6,300 21,431 Cash and cash equivalents, beginning of period.............. 12,035 12,166 --------- --------- Cash and cash equivalents, end of period.................... $ 18,335 $ 33,597 ========= ========= Supplemental disclosures: Cash paid for interest.................................... $ 65,842 $ 46,246 ========= ========= Interest capitalized...................................... $ 8,464 $ 2,985 ========= ========= Non-cash investing and financing activities: Additions to real estate included in accounts payable..... $ 714 $ 4,026 ========= ========= Mortgage notes payable assumed in connection with acquisitions............................................ $ 117,831 $ -- ========= ========= Issuance of minority interest in connection with acquisitions............................................ $ 17,467 $ 100 ========= ========= Dividends and distributions declared but not paid......... $ 51,205 $ 43,342 ========= ========= Notes receivable assigned in connection with an acquisition............................................. $ -- $ 420,143 ========= ========= Notes payable assigned in connection with an acquisition............................................. $ -- $ 92,000 ========= ========= Conversion of Operating Partnership Units to Common Stock................................................... $ 50 $ 35 ========= ========= Issuance of restricted shares to employees................ $ 1,060 $ -- ========= ========= Unrealized gain related to investments in securities...... $ 58,563 $ -- ========= ========= </TABLE> The accompanying notes are an integral part of these financial statements. 3
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 March 31, 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 March 31, 2000, the Company and the Operating Partnership had 67,954,225 and 24,385,628 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. 4
BOSTON PROPERTIES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 1. ORGANIZATION (CONTINUED) THE PROPERTIES: As of March 31, 2000, the Company owns a portfolio of 139 commercial real estate properties (136 and 124 properties at December 31, 1999 and March 31, 1999, respectively) (the "Properties") aggregating over 36.0 million square feet. The properties consist of 126 office properties with approximately 28.4 million net rentable square feet (including 12 properties under development expected to contain approximately 3.6 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 510.3 acres, which will support approximately 10.5 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 DURING THE QUARTER ENDED MARCH 31, 2000 On January 12, 2000, the Company acquired its joint venture partner's 75% interest in One and Two Reston Overlook, an unconsolidated joint venture, for cash of approximately $15.2 million. The acquisition was accounted for using the purchase method of accounting and is now consolidated with the Company. 5
BOSTON PROPERTIES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 3. REAL ESTATE ACQUIRED DURING THE QUARTER ENDED MARCH 31, 2000 (CONTINUED) On March 1, 2000, the Company acquired three Class A office buildings totaling approximately 408,163 square feet at Carnegie Center in Princeton, New Jersey, under terms of the original Carnegie Center contribution agreement dated June 30, 1998. The properties are located within the existing Carnegie Center Portfolio. The properties were acquired from a related party for approximately $66.5 million, which was funded through the assumption of debt of approximately $49.0 million at a rate of 7.39% and the issuance of 577,817 common units of partnership interest in the operating partnership valued at approximately $17.5 million. The acquisition was approved by a vote of the independent directors of the Company. On March 23, 2000, the Company acquired an 8.9-acre site in Herndon, Virginia for approximately $3.2 million. The site will support approximately 135,000 square feet of development. 4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES 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 which owns and operates an office building and a residential apartment building in Washington, D.C. 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> MARCH 31, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) <S> <C> <C> ASSETS Real estate and development in process, net................. $184,119 $236,995 Other assets................................................ 7,411 10,473 -------- -------- Total assets.......................................... $191,530 $247,468 ======== ======== LIABILITIES AND PARTNERS' EQUITY Mortgage and construction loans payable..................... $107,564 $164,185 Other liabilities........................................... 5,121 6,770 Partners' equity............................................ 78,845 76,513 -------- -------- Total liabilities and partners' equity................ $191,530 $247,468 ======== ======== Company's share of equity................................... $ 36,541 $ 36,415 ======== ======== </TABLE> 6
BOSTON PROPERTIES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED) The summarized statements of operations of the joint ventures are as follows: <TABLE> <CAPTION> MARCH 31, MARCH 31, 2000 1999 ----------- ----------- (UNAUDITED) (UNAUDITED) <S> <C> <C> Total revenue............................................... $3,982 $1,791 Total expenses.............................................. 3,482 939 ------ ------ Net income............................................ $ 500 $ 852 ------ ------ Company's share of net income............................... $ 145 $ 213 ====== ====== </TABLE> 5. INVESTMENTS IN SECURITIES At March 31, 2000, the Company accounts for investments in securities in accordance with SFAS No. 115, "Accounting for Certain Debt and Equity Securities" and has classified the securities as available-for-sale. As of March 31, 2000, the fair value of the investments in common stock and warrants was approximately $73.0 million. The gross unrealized holding gain of approximately $58.6 million is included in other comprehensive income on the consolidated balance sheet. 6. MORTGAGE NOTES PAYABLE AND UNSECURED LINE OF CREDIT During January 2000, the Company entered into three interest rate hedge agreements with a major financial institution for a notional 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. On January 12, 2000, the Company assumed mortgage indebtedness of approximately $68.8 million in connection with the acquisition of the Company's joint venture partner's 75% interest in One and Two Reston Overlook in Reston, Virginia. The mortgage loan bears interest at 7.45% and matures on September 1, 2004. On January 26, 2000, the Company obtained construction financing totaling $420.0 million collateralized by the Five Times Square development project in New York City. Such financing bears interest at a rate equal to LIBOR + 2.00% and matures in January 2003. As of March 31, 2000, the construction loan balance is $137.2 million. On March 1, 2000, the Company assumed mortgage indebtedness of approximately $49.0 million in connection with the acquisition of three office properties at Carnegie Center in Princeton, New Jersey. The mortgage loan bears interest at 7.39% and matures on January 1, 2008. On March 15, 2000, the Company obtained construction financing totaling $10.0 million collateralized by the 302 Carnegie Center development project in Princeton, New Jersey. Such financing bears interest at a rate equal to LIBOR + 1.90% and matures in March 2003. As of March 31, 2000, the construction loan balance is $1.0 million. On March 29, 2000, the Company repaid the mortgage loan on Ten Cambridge Center and the North Garage totaling $40.0 million. 7
BOSTON PROPERTIES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 6. MORTGAGE NOTES PAYABLE AND UNSECURED LINE OF CREDIT (CONTINUED) On March 31, 2000, the Company amended and restated its $500.0 million unsecured line of credit agreement (the "Unsecured Line of Credit") that was due to expire on June 23, 2000, extending the term to March 31, 2003. The Unsecured Line of Credit is a non-recourse obligation of the Operating Partnership. The Company's ability to borrow under the Unsecured Line of Credit is subject to the Company's compliance with a number of customary financial and other covenants on an ongoing basis. 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 March 31, 2000, the minority interest in the Operating Partnership consisted of 24,385,628 OP Units and 8,713,131 Preferred Units held by parties other than Boston Properties, Inc. On February 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 $0.70086 per unit. On March 1, 2000, the Operating Partnership issued 577,817 OP Units valued at approximately $17.5 million in connection with the acquisition of three office properties at Carnegie Center. On March 21, 2000, Boston Properties, Inc., as general partner of the Operating Partnership determined a distribution on the OP Units in the amount of $0.45 per OP Unit payable on April 28, 2000 to OP Unit holders of record on March 31, 2000. 8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY On February 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 $0.70086 per share. In addition, on March 21, 2000, the Board of Directors of the Company declared a dividend of $0.69349 per share on the Preferred Stock payable on May 15, 2000 to shareholders of record on March 31, 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. On March 21, 2000, the Board of Directors of the Company declared a first quarter dividend in the amount of $0.45 per share of Common Stock payable on April 28, 2000 to shareholders of record on March 31, 2000. 9. STOCK OPTION AND INCENTIVE PLAN During the quarter ended March 31, 2000, the Company issued 1,032,750 options at $30.4375 per share. The options vest over a three-year period, with one-third of the options vesting each year. In addition, the Company issued 34,822 shares of restricted stock valued at approximately $1.0 million ($30.4375 per share). The restricted stock vests over a five-year period, with one-fifth of the shares vesting each year and has been recognized as unearned compensation on the consolidated balance sheet. As of March 31, 2000, the Company has outstanding options with respect to 8,629,982 common shares. 8
BOSTON PROPERTIES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 10. EARNINGS PER SHARE <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED MARCH 31, 2000 --------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- <S> <C> <C> <C> Basic Earnings: Income available to common shareholders................. $30,977 67,943 $0.46 Effect of Dilutive Securities: Stock Options........................................... -- 437 (.01) ------- ------ ----- Diluted Earnings: Net income.............................................. $30,977 68,380 $0.45 ======= ====== ===== </TABLE> <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED MARCH 31, 1999 --------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- <S> <C> <C> <C> Basic Earnings: Income available to common shareholders................. $24,934 63,534 $0.39 Effect of Dilutive Securities: Stock Options........................................... -- 544 -- ------- ------ ----- Diluted Earnings: Net income.............................................. $24,934 64,078 $0.39 ======= ====== ===== </TABLE> 11. 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. 9
BOSTON PROPERTIES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 11. SEGMENT INFORMATION (CONTINUED) Information by Geographic Area and Property Type: For the three months ended March 31, 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.................. $44,869 $55,345 $34,952 $43,253 $13,127 $191,546 R&D...................... 1,561 4,707 -- 427 -- 6,695 INDUSTRIAL............... 446 361 -- 342 180 1,329 HOTELS................... 6,440 -- -- -- -- 6,440 GARAGE................... 671 -- -- -- -- 671 ------- ------- ------- ------- ------- -------- TOTAL...................... 53,987 60,413 34,952 44,022 13,307 206,681 ------- ------- ------- ------- ------- -------- % OF GRAND TOTALS.... 26.12% 29.23% 16.91% 21.30% 6.44% 100.00% ------- ------- ------- ------- ------- -------- RENTAL EXPENSES CLASS A.................. $16,769 $14,569 $11,903 $14,774 $ 3,931 61,946 R&D...................... 446 974 -- 66 -- 1,486 INDUSTRIAL............... 163 114 -- 47 28 352 HOTELS................... 1,184 -- -- -- -- 1,184 GARAGE................... 209 -- -- -- -- 209 ------- ------- ------- ------- ------- -------- TOTAL...................... 18,771 15,657 11,903 14,887 3,959 65,177 ------- ------- ------- ------- ------- -------- % OF GRAND TOTALS.... 28.80% 24.02% 18.26% 22.84% 6.08% 100.00% ------- ------- ------- ------- ------- -------- NET OPERATING INCOME....... $35,216 $44,756 $23,049 $29,135 $ 9,348 $141,504 ======= ======= ======= ======= ======= ======== % OF GRAND TOTALS.......... 24.89% 31.62% 16.29% 20.59% 6.61% 100.00% ======= ======= ======= ======= ======= ======== </TABLE> 10
BOSTON PROPERTIES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 11. SEGMENT INFORMATION (CONTINUED) For the three months ended March 31, 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.................. $36,955 $48,931 $34,191 $37,193 $9,457 $166,727 R&D...................... 1,683 4,533 -- 449 -- 6,665 INDUSTRIAL............... 406 323 -- 274 180 1,183 HOTELS................... 4,851 -- -- -- -- 4,851 GARAGE................... 521 -- -- -- -- 521 ------- ------- ------- ------- ------ -------- TOTAL...................... 44,416 53,787 34,191 37,916 9,637 179,947 ------- ------- ------- ------- ------ -------- % OF GRAND TOTALS.... 24.68% 29.89% 19.00% 21.07% 5.36% 100.00% ------- ------- ------- ------- ------ -------- RENTAL EXPENSES CLASS A.................. 15,153 12,639 11,301 12,627 2,523 54,243 R&D...................... 528 970 -- 88 -- 1,586 INDUSTRIAL............... 142 88 -- 50 28 308 HOTELS................... 1,024 -- -- -- -- 1,024 GARAGE................... 189 -- -- -- -- 189 ------- ------- ------- ------- ------ -------- TOTAL...................... 17,036 13,697 11,301 12,765 2,551 57,350 ------- ------- ------- ------- ------ -------- % OF GRAND TOTALS.... 29.71% 23.88% 19.70% 22.26% 4.45% 100.00% ------- ------- ------- ------- ------ -------- NET OPERATING INCOME....... $27,380 $40,090 $22,890 $25,151 $7,086 $122,597 ======= ======= ======= ======= ====== ======== % OF GRAND TOTALS.... 22.33% 32.70% 18.67% 20.52% 5.78% 100.00% ======= ======= ======= ======= ====== ======== </TABLE> 11
BOSTON PROPERTIES, INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 11. SEGMENT INFORMATION (CONTINUED) The following is a reconciliation of net operating income to income before minority interests and joint venture income: <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, ------------------- 2000 1999 -------- -------- <S> <C> <C> Net Operating Income $141,504 $122,597 Add: Development and management services....................... 2,863 4,047 Interest income........................................... 710 3,646 Less: General and administrative................................ (7,408) (6,610) Interest expense.......................................... (55,215) (50,459) Depreciation and amortization............................. (32,231) (27,794) -------- -------- Income before minority interests and joint venture income... $ 50,223 $ 45,427 ======== ======== </TABLE> 12. SUBSEQUENT EVENTS On April 6, 2000, the Company refinanced the mortgage loan on Ten Cambridge Center and the North Garage which consisted of replacing the $40.0 million mortgage loan with a $36.0 million loan and removing the 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 which 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 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 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. 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 unitholders of record on June 30, 2000. In addition, Boston Properties, Inc. declared a dividend of $0.7089 per share on the Preferred Stock payable on August 15, 2000 to shareholders of record on June 30, 2000. 12
BOSTON PROPERTIES, INC. 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 months ended March 31, 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 THREE MONTHS ENDED MARCH 31, 2000 TO THE THREE MONTHS ENDED MARCH 31, 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/ % (DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE - ---------------------- -------- -------- ------------- --------- <S> <C> <C> <C> <C> Revenue: Rental revenue............................................ $188,299 $178,622 $9,677 5.42% Development and management services....................... -- -- -- -- Interest and other........................................ -- -- -- -- -------- -------- ------ ---- Total revenue......................................... 188,299 178,622 9,677 5.42% -------- -------- ------ ---- Expenses: Operating................................................. 60,291 57,136 3,155 5.52% -------- -------- ------ ---- Net Operating Income........................................ 128,008 121,486 6,522 5.37% -------- -------- ------ ---- General and administrative................................ -- -- -- -- Interest.................................................. -- -- -- -- Depreciation and amortization............................. 29,454 27,781 1,673 6.02% -------- -------- ------ ---- Income before minority interests and joint venture income... $ 98,554 $ 93,705 $4,849 5.17% ======== ======== ====== ==== </TABLE> <TABLE> <CAPTION> TOTAL PORTFOLIO ----------------------------------------------- INCREASE/ % (DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE - ---------------------- -------- -------- ------------- --------- <S> <C> <C> <C> <C> Revenue: Rental revenue............................................ $206,681 $179,947 $26,734 14.86% Development and management services....................... 2,863 4,047 (1,184) (29.26)% Interest and other........................................ 710 3,646 (2,936) (80.53)% -------- -------- ------- ------ Total revenue......................................... 210,254 187,640 22,614 12.05% -------- -------- ------- ------ Expenses: Operating................................................. 65,177 57,350 7,827 13.65% -------- -------- ------- ------ Net Operating Income........................................ 145,077 130,290 14,787 11.35% -------- -------- ------- ------ General and administrative................................ 7,408 6,610 798 12.07% Interest.................................................. 55,215 50,459 4,756 9.43% Depreciation and amortization............................. 32,231 27,794 4,437 15.96% -------- -------- ------- ------ Income before minority interests and joint venture income... $ 50,223 $ 45,427 $ 4,796 10.56% ======== ======== ======= ====== </TABLE> 13
BOSTON PROPERTIES, INC. 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, offset by a decrease in lease termination fees from $1.2 million to $0.1 million. The increase in rental revenues for the Total Portfolio is primarily a result of 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 $0.9 million earned during the three months ended March 31, 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 three months ended March 31, 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 an increase in real estate taxes. 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 use of the Company's unsecured revolving line of credit (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 March 31, 1999. Depreciation and amortization expense for the Total Portfolio increased mainly due to the properties acquired or placed-in-service after January 1, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated indebtedness at March 31, 2000 was approximately $3.5 billion and bore interest at a weighted average interest rate of approximately 7.09% per annum. Based on the Company's total market capitalization at March 31, 2000 of approximately $6.9 billion, the Company's consolidated debt represents 51.3% of its total market capitalization. The Company has a $500 million unsecured revolving line of credit (the "Unsecured Line of Credit"). The Company uses the Unsecured Line of Credit principally to facilitate its development and acquisition activities and for working capital purposes. As of May 10, 2000, the Company had $296.0 million outstanding under the Unsecured Line of Credit. 14
BOSTON PROPERTIES, INC. The following represents the outstanding principal balances due under the first mortgages at March 31, 2000: <TABLE> <CAPTION> PROPERTIES INTEREST RATE PRINCIPAL AMOUNT MATURITY DATE ---------- ------------- ---------------- ------------------ (IN THOUSANDS) <S> <C> <C> <C> Prudential Center................................ 6.72% $ 294,542 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% 157,830 December 10, 2008 Embarcadero Center Two........................... 6.70% 157,830 December 10, 2008 Embarcadero Center Four.......................... 6.79% 156,571 February 1, 2008 875 Third Ave.................................... 8.00% 152,733(3) December 31, 2002 Embarcadero Center Three......................... 6.40% 147,697 January 1, 2007 Five Times Square................................ 7.91% 137,170(4) January 26, 2003 Two Independence Square.......................... 8.09% 117,842(5) February 27, 2003 Riverfront Plaza................................. 6.61% 117,346 January 21, 2008 Democracy Center................................. 7.05% 108,709 April 9, 2009 Metropolitan Square.............................. 6.75% 104,528(6) June 1, 2000 Embarcadero Center West Tower.................... 6.50% 98,493 January 1, 2006 100 East Pratt Street............................ 6.73% 92,993 November 1, 2008 Reservoir Place.................................. 6.88% 75,225(7) November 1, 2006 One Independence Square.......................... 8.12% 75,117(5) August 21, 2001 The Gateway...................................... 7.51% 75,000(8) September 30, 2000 One and Two Reston Overlook...................... 7.45% 68,631 September 1, 2004 2300 N Street.................................... 6.88% 66,000 August 3, 2003 Capital Gallery.................................. 8.24% 57,927 August 15, 2006 504,506,508 Carnegie Center...................... 7.39% 48,902 January 1, 2008 10 and 20 Burlington Mall Road................... 8.33% 37,000(9) October 1, 2001 1301 New York Avenue............................. 7.19% 33,356(10) August 15, 2009 Eight Cambridge Center........................... 7.73% 28,722 July 15, 2010 510 Carnegie Center.............................. 7.39% 27,985 January 1, 2008 Lockheed Martin Building......................... 6.61% 26,661 June 1, 2008 University Place................................. 6.94% 25,657 August 1, 2021 Reston Corporate Center.......................... 6.56% 25,165 May 1, 2008 111 Huntington Avenue............................ 8.04% 24,663(11) September 27, 2002 191 Spring Street................................ 8.50% 23,064 September 1, 2006 Bedford Business Park............................ 8.50% 22,092 December 10, 2008 NIMA Building.................................... 6.51% 21,804 June 1, 2008 Sumner Square.................................... 7.44% 21,624(12) April 22, 2004 212 Carnegie Center.............................. 7.25% 20,548 December 31, 2000 202 Carnegie Center.............................. 7.25% 19,106 December 31, 2000 Orbital Sciences................................. 7.69% 15,659(13) August 19, 2002 New Dominion Technology Park..................... 7.64% 14,197(14) March 4, 2002 214 Carnegie Center.............................. 8.19% 13,269(15) October 31, 2000 101 Carnegie Center.............................. 7.66% 8,559 April 1, 2006 Montvale Center.................................. 8.59% 7,648 December 1, 2006 Newport Office Park.............................. 8.13% 6,150 July 1, 2001 Hilltop Business Center.......................... 6.81% 5,854 March 1, 2019 302 Carnegie Center.............................. 7.94% 1,014(16) March 15, 2003 201 Carnegie Center.............................. 7.08% 516 February 1, 2010 ----------- Total............................................ $ 3,186,399 =========== </TABLE> 15
BOSTON PROPERTIES, INC. - -------------------------- (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 March 31, 2000 was $150,000 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 March 31, 2000 were $117,969 and $75,188, respectively. The actual interest rates are 8.50% and continue at such rates through the loan expiration. (6) The principal amount and interest rate shown has been adjusted to reflect the fair value of the note. The actual principal balance at March 31, 2000 was $104,040 and the interest rate was 9.13%. (7) The principal amount and interest rate shown has been adjusted to reflect the fair value of the note. The actual principal balance at March 31, 2000 was $65,925 and the interest rate was 9.09%. (8) Outstanding principal bears interest at a floating rate equal to LIBOR + 1.60%. (9) Includes outstanding indebtedness secured by 91 Hartwell Avenue and 92 and 100 Hayden Avenue. (10) Includes outstanding principal in the amounts of $20,000, $8,742 and $4,614 which bear interest at fixed rates of 6.70%, 8.54% and 6.75%, respectively. (11) Total construction loan in the amount of $203.0 million at a variable rate of LIBOR + 2.00%. (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) Total construction loan in the amount of $48.6 million at a variable rate of LIBOR + 1.60%. (15) The principal amount and interest rate shown has been adjusted to reflect the effective rate on the loan. The actual principal balance at March 31, 2000 was $13,250 and the interest rate was 8.40%. (16) 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 March 31, 2000, the Company's recurring capital expenditures totaled $2.0 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 $680.0 million as of March 31, 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 16
BOSTON PROPERTIES, INC. 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 FFO 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 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 March 31, 2000 and 1999: <TABLE> <CAPTION> THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2000 MARCH 31, 1999 ------------------ ------------------ <S> <C> <C> Income before minority interests and joint venture income................................................. $50,223 $45,427 Add: Real estate depreciation and amortization.............. 32,052 27,549 Income from unconsolidated joint ventures.............. 145 213 Less: Minority property partnerships' share of Funds from Operations........................................... (224) (3,163) Preferred dividends and distributions.................. (8,250) (7,212) ------- ------- Funds from Operations.................................... $73,946 $62,814 ------- ------- Funds from Operations Available to Common Shareholders (73.89% and 72.75%, respectively)...................... $54,641 $45,697 ======= ======= </TABLE> Reconciliation to Diluted Funds from Operations: <TABLE> <CAPTION> THREE MONTHS ENDED THREE MONTHS ENDED MARCH 31, 2000 MARCH 31, 1999 --------------------------- --------------------------- INCOME SHARES INCOME SHARES (NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR) ----------- ------------- ----------- ------------- <S> <C> <C> <C> <C> Funds from Operations....................... $73,946 91,948 $62,814 87,330 Effect of Dilutive Securities Convertible Preferred Units............... 6,607 10,377 6,373 10,325 Convertible Preferred Stock............... 1,643 2,625 839 1,458 Stock Options............................. -- 437 -- 545 ------- ------- ------- ------ Diluted Funds from Operations............... $82,196 105,387 $70,026 99,658 ------- ------- ------- ------ Company's share of Diluted Funds From Operations (77.22% and 76.12%, respectively) $63,473 81,381 $53,306 75,862 ======= ======= ======= ====== </TABLE> 17
BOSTON PROPERTIES, INC. 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. 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 March 31, 2000 ranged from LIBOR plus 1.00% to LIBOR plus 2.00%. During January 2000, the Company entered into three interest rate hedge agreements totaling $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 the individual agreements. <TABLE> <CAPTION> MORTGAGE DEBT, INCLUDING CURRENT PORTION ------------------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE -------- -------- -------- -------- -------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Fixed Rate........... $182,022 $154,717 $390,464 $214,583 $102,969 $1,845,317 $2,890,072 $2,890,072 Average Interest Rate............... 7.2% 7.9% 7.4% 7.5% 7.3% 6.9% Variable Rate........ $ 77,933 $ 4,067 $ 54,519 $138,184 $ 21,624 $ -- $ 296,327 $ 296,327 </TABLE> 18
BOSTON PROPERTIES, INC. PART II. OTHER INFORMATION ITEM 2--CHANGES IN SECURITIES On March 1, 2000, the Company acquired three office buildings at Carnegie Center for consideration that included the issuance of 577,817 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 6--EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits <TABLE> <CAPTION> EXHIBIT NUMBER DESCRIPTION - ------- ------------------------------------------------------------ <C> <S> 10.1 Second Amended and Restated Revolving Credit Agreement dated as of March 31, 2000 by and among Boston Properties Limited Partnership, certain wholly-owned subsidiaries of either or both Boston Properties, Inc. or Boston Properties Limited Partnership, Fleet National Bank and lending institutions named therein. 27.1 Financial Data Schedule </TABLE> (b) Reports on Form 8-K A Form 8-K dated January 25, 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 December 31, 1999. 19
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. May 15, 2000 By: /s/ DAVID G. GAW ----------------------------------------- David G. Gaw Chief Financial Officer (duly authorized officer and principal financial officer) </TABLE> 20