The accompanying notes are an integral part of these financial statements.

BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these financial statements

BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these financial statements

BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF

CONSOLIDATED STATEMENTS OF CASH FLOWSCOMPREHENSIVE INCOME

(Unaudited)

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 September 30, 2005March 31, 2006 owned an approximate 80.8% (80.0%81.0% (80.2% at September 30, 2004)March 31, 2005) 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 in this report as “OP Units”), “long term incentive units of partnership interest” (also referred to as “LTIP Units”) or “preferred units of partnership interest” (also referred to as “Preferred Units”).

Unless specifically noted otherwise, all references to OP Units exclude 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 at the time of issuance of OP Units to particular holders that may restrict such redemption 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 of the Company (“Common Stock”). In lieu of a cash redemption, the Company may elect to acquire such OP Unit for one share of 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. An LTIP Unit is generally the economic equivalent of a share of restricted common stock of the Company. LTIP Units, whether vested or not, will receive the same quarterly per unit distributions as OP Units, which equal per share dividends on Common Stock (See Note 12).

Stock.

At Septemebr 30, 2005,March 31, 2006, there was one series of Preferred Units outstanding (i.e., Series Two Preferred Units). The Series Two 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 converted into OP Units at the election of the holder thereof or the Operating Partnership in accordance with the amendment to the partnership agreement (See also Note 8).

All references to the Company refer to Boston Properties, Inc. and its consolidated subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires.

Properties

At September 30, 2005,March 31, 2006, the Company owned or had interests in a portfolio of 123 commercial real estate properties (125(121 and 126125 properties at December 31, 20042005 and September 30, 2004,March 31, 2005, respectively) (the “Properties”) aggregating approximately 42.042.7 million net rentable square feet (approximately 44.142.0 million and 44.244.1 million net rentable square feet at December 31, 20042005 and September 30, 2004,March 31, 2005, respectively), including threefour properties under construction and one redevelopment/expansion project collectively totaling approximately 1.11.2 million net rentable square feet, and structured parking for approximately 28,60232,925 vehicles containing approximately 8.79.6 million square feet. At September 30, 2005,March 31, 2006, the Properties consist of:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company owns or controls undeveloped land parcels totaling approximately 530.8522.3 acres. In addition, the Company has a 25% interest in the Boston Properties Office Value-Added Fund, L.P. (the “Value-Added Fund”), which is a strategic partnership with two institutional investors through which the Company intends to

pursue the acquisition of value-added investments in assets within its existing markets. The Company’s investments through the Value-Added Fund are not included in its portfolio information or any other portfolio level statistics. At September 30, 2005,March 31, 2006, the Value-Added Fund had one investmentinvestments in an office complex in Herndon, Virginia.

Virginia and an office property in Chelmsford, Massachusetts.

The Company considers Class A office properties to be centrally located buildings that are professionally managed and maintained, that attract high-quality tenants and command upper-tier rental rates, and that are modern structures or have been modernized to compete with newer buildings. The Company considers Office/Technical properties to be properties that support office, research and development, laboratory and other technical uses.

2.    Basis of Presentation and Summary of Significant Accounting Policies

Boston Properties, Inc. does not have any other significant assets, liabilities or operations, other than its investment in the Operating Partnership, nor does it have employees of its own. The Operating Partnership, not Boston Properties, Inc., executes all significant business relationships. All majority-owned subsidiaries and affiliates over which the Company has financial and operating control and variable interest entities (“VIE”s) in which the Company has determined it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. The Company accounts for all other unconsolidated joint ventures using the equity method of accounting. Accordingly, the Company’s share of the earnings of these joint ventures and companies is included in consolidated net income.

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 of America 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 of America 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. The year end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosure required by accounting principles generally accepted in the United States of America. 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, 2004.

Summary of Significant Accounting Policies

Stock-based employee compensation plan

At September 30, 2005, the Company has stock-based employee compensation plans. Effective January 1, 2005, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123,” using the modified prospective application method for stock compensation awards. In addition, effective January 1, 2005, the Company adopted early SFAS No. 123 (revised) (“SFAS No. 123R”), “Share-Based Payment,” which revised the fair value based method of accounting for share-based payment liabilities, forfeitures and modifications of stock-based awards and clarified SFAS No. 123’s guidance in several areas, including measuring fair value, classifying an award as equity or as a

BOSTON PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

liability and attributing compensation cost to reporting periods. In 2003, the Company transitioned to granting restricted stock and/or LTIP Units (at the election of the eligible employee), as opposed to granting stock options, as its primary vehicle for employee equity compensation under its stock-based employee compensation plan. The Company had previously accounted for its stock-based employee compensation plans under the recognition and measurement principles of the Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. All outstanding options had an exercise price equal to the market value of the underlying common stock on the date of grant, and all outstanding options are currently exercisable. As a result, the following table only illustrates the effect on net income available to common shareholders and earnings per common share if the Company had applied the fair value recognition provisions to stock-based employee compensation for the three and nine months ended September 30, 2004.

2005.

3.    Real Estate Activity During the NineThree Months Ended September 30, 2005March 31, 2006

Held for SaleDevelopment

On August 5,January 17, 2006, the Company placed-in-service its Seven Cambridge Center development project located in Cambridge, Massachusetts. Seven Cambridge Center is a fully-leased, build-to-suit project with approximately 231,000 net rentable square feet of office, research laboratory and retail space. The Company has leased 100% of the space to the Massachusetts Institute of Technology for occupancy by its affiliate, the Eli and Edythe L. Broad Institute. On October 1, 2005, the Company executedhad placed-in-service the West Garage phase of the project consisting of parking for approximately 800 cars.

On March 31, 2006, the Company commenced construction of South of Market, a contract for the saleClass A office project consisting of 40-46 Harvard Street, an industrial property totalingtwo buildings aggregating approximately 152,000402,000 net rentable square feet located in Westwood, Massachusetts, at a sale price of approximately $7.8 million. Effective September 20, 2005, the Company held a non-refundable deposit from the buyer totaling $0.4 million. This property has been categorized as “held for sale” at September 30, 2005 in accordance with the provisions of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets.” The Company completed the sale on November 7, 2005 (See Note 16). This property has been categorized as discontinued operations in the accompanying Consolidated Statements of Operations (See Note 10).

Reston, Virginia.

Dispositions

On February 23, 2005, the Company sold a parcel of land at the Prudential Center located in Boston, Massachusetts for a net sale price of approximately $31.5 million and an additional obligation of the buyer to

fund an estimated $18.6approximately $19.6 million of future costs at the Prudential Center (of which approximately $17.5 million has been received as of September 30, 2005) for aggregate proceeds of $50.1$51.1 million. Due to the structure of the transaction and certain continuing involvement provisions related to the development of the property, this

BOSTON PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

transaction doesdid not qualify as a sale for financial reporting purposes and hashad been accounted for as a financing transaction. Under the financing method, the cost of real estate and other assets totaling approximately $44.4 million continues to be reflected within the accompanying Consolidated Balance Sheets and the cash received from the buyer totaling approximately $49.0 million has been recorded in “Other liabilities” within the accompanying Consolidated Balance Sheets. At such time asOn January 3, 2006, the continuing involvement provisions expire or otherwise are terminated,expired and the Company will record the transaction as a sale for financial reporting purposes and the gain on sale will be recognized in accordance with the provisions of SFAS No. 66 “Accounting for Sales of Real Estate.”

On February 28, 2005, the Company sold Decoverly Four and Five, consisting of two undeveloped land parcels located in Rockville, Maryland for net cash proceeds of approximately $5.3 million, resulting in a gain on sale of approximately $1.2$4.8 million (net of minority interest share of approximately $0.2$0.9 million).

On April 20, 2005, the Company completed the sale of the Old Federal Reserve, a Class A office property totaling approximately 150,000 net rentable square feet located in San Francisco, California, at a sale price of approximately $46.8 million. Net cash proceeds totaled approximately $45.9 million, resulting in a gain on sale of approximately $8.4 million (net of minority interest share of approximately $1.7 million). This property has been categorized as discontinued operations in the accompanying Consolidated Statements of Operations (See Note 10).

On May 12, 2005, the Company completed the sale of 100 East Pratt Street, a 639,000 net rentable square foot Class A office property located in Baltimore, Maryland, for approximately $207.5 million. Net cash proceeds totaled approximately $92.8 million after the repayment of mortgage indebtedness of $84.0 million, a prepayment penalty of approximately $6.5 million and unfunded tenant obligations and other closing costs totaling $24.2 million, resulting in a gain on sale of approximately $45.2 million (net of minority interest share of approximately $9.2 million). Due to the Company’s continuing involvement through an agreement with the buyer to manage the property for a fee after the sale, this property has not been categorized as discontinued operations in the accompanying Consolidated Statements of Operations (See Note 10).

On May 16, 2005, the Company completed the sale of Riverfront Plaza, a 910,000 net rentable square foot Class A office property located in Richmond, Virginia, for approximately $247.1 million. Net proceeds totaled approximately $129.9 million after the repayment of mortgage indebtedness of $104.0 million, a prepayment penalty of approximately $4.3 million and unfunded tenant obligations and other closing costs totaling $8.9 million, resulting in a gain on sale of approximately $57.0 million (net of minority interest share of approximately $11.5 million). Due to the Company’s continuing involvement through an agreement with the buyer to manage the property for a fee after the sale, this property has not been categorized as discontinued operations in the accompanying Consolidated Statements of Operations (See Note 10).

BOSTON PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.4.Investments in Unconsolidated Joint Ventures

The investments in unconsolidated joint ventures consist of the following at September 30, 2005:March 31, 2006:

Certain of the Company’s joint venture agreements include provisions whereby, at certain specified times, each partner has the right to initiate a purchase or sale of its interest in the joint ventures at an agreed upon fair value. Under these provisions, the Company is not compelled to purchase the interest of its outside joint venture partners.

On March 8, 2005, the Company entered into13, 2006, a joint venture with an unrelated third party to develop a build-to-suit Class A office building totaling 323,000 net rentable square feet at 505 9th Street in Washington, D.C. The joint venture partner contributed the land for a 50% interest. The joint venture subsequently entered into a 15-year lease with a law firm to occupy 230,000 net rentable square feet of the building. On September 26, 2005, the joint venture commenced construction on the project. In conjunction with the commencement of construction, the Company’s Operating Partnership issued 253,860 OP Units and cash of approximately $4.9 million to the owners of its joint venture partner as consideration for the Company’s 50% interest in the joint venture.

On March 11, 2005, the Wisconsin Place joint venture entity, which owns and is developing the land and infrastructure components of the project (the “Land and Infrastructure Entity”), obtained construction financing totaling $96.5 million collateralized by the Wisconsin Place development project in Chevy Chase, Maryland. Wisconsin Place is a mixed-use development project consisting of office, retail and residential properties. The construction financing bears interest at a variable rate equal to LIBOR plus 1.50% per annum and matures in March 2009 with a one-year extension option. The Company has guaranteed approximately $4.6 million of the loan amount on behalf of the Land and Infrastructure Entity.

The Company placed-in-service 901 New York Avenue, a 539,000 net rentable square foot Class A office property located in Washington, D.C., in which the Company has a 25% interest. At September 30, 2005, the property was 96% leased.

BOSTON PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

50% interest acquired a land parcel located in New York City for a purchase price of approximately $6.0 million.

The combined summarized balance sheets of the unconsolidated joint ventures are as follows:

The Company and its third-party joint venture partners in the Wisconsin Place ventures have guaranteed the seller financing totaling $23.5 million related to the acquisition of the land by the Land and Infrastructure Entity. The fair value of the Company’s stand-ready obligation related to the issuance of this guarantee is immaterial. In addition, the Company has agreed to guarantee up to approximately $4.6 million of the construction loan on behalf of the Land and Infrastructure Entity.

The combined summarized statements of operations of the joint ventures are as follows:

BOSTON PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5.    Mortgage Notes Payable

On February 17, 2005,January 31, 2006, the Company obtained construction financing of up to $47.2 million collateralized byrepaid the Capital Gallery property in Washington, D.C. Capital Gallery is a Class A office property currently totaling approximately 397,000 net rentable square feet. The purpose of the financing is to fund a portion of the cost of an expansion project at the property. The expansion project entails removing a three-story low-rise section of the property comprised of 100,000 net rentable square feet from in-service status and redeveloping it into a ten-story office building. Upon completion, the total complex size will approximate 610,000 net rentable square feet. The construction financing bears interest at a variable rate equal to LIBOR plus 1.65% per annum and matures in February 2008. At September 30, 2005, the outstanding balance on the construction loan facility was $8.5 million. The construction financing is provided by the same lender as the existing mortgage loan collateralized by its 101 Carnegie Center property located in Princeton, New Jersey totaling approximately $6.6 million using available cash. There was no prepayment penalty associated with the property, which, at September 30, 2005, had an outstanding principal balance of approximately $51.0 million and bearsrepayment. The mortgage loan bore interest at a fixed rate equal to 8.24%of 7.66% per annum with a maturity in Augustand was scheduled to mature on April 1, 2006. The agreement with

On February 24, 2006, the lender provides an extension provision for the existing mortgage loan to coincide with the February 2008 maturity date ofCompany repaid the construction financing.

On April 12, 2005, the Company obtained construction financing of up to $125.0 million collateralized by its Seven Cambridge Center development projectproperty located in Cambridge, Massachusetts. Seven Cambridge Center is a fully-leased, build-to-suit project withMassachusetts totaling approximately 231,000 net rentable square feet$112.5 million using approximately $7.5 million of office, research laboratoryavailable cash and retail space plus parking for approximately 800 cars. The construction financing bears interest at a variable rate equal to LIBOR plus 1.25% per annum and matures in April 2007 with a one-year extension option. At September 30, 2005,$105.0 million drawn under the outstanding balance on the construction loan facilityCompany’s Unsecured Line of Credit. There was $73.6 million.

In connectionno prepayment penalty associated with the sale of the Old Federal Reserve on April 20, 2005, the Company modified the mortgage loans collateralized by Embarcadero Center One, Two and the Old Federal Reserve properties totaling approximately $293.8 million.repayment. The modification consisted solely of the release of the Old Federal Reserve property from the collateral in exchange for the payment of a release fee totaling approximately $0.6 million. As the modification was not considered substantial, the Company has amortized the release fee and remaining unamortized deferred financing costs over the remaining term of the modified mortgage loans using the effective interest method.

On May 12, 2005, the Company modified its $83.8 million mortgage loan collateralized by 601 and 651 Gateway Boulevard located in South San Francisco, California. The loan required monthly payments equal to the net cash flow from the property which was allocated first to interest based on a rate of 3.50% per annum with the remainder applied to principal. The loan was scheduled to mature in September 2006 with an option held by the lender, subject to certain conditions, to extend the term to October 2010. If extended, the loan was to require payments of principal and interest at a fixed interest rate of 8.00% per annum based on a 27-year amortization period. The loan provided for the payment of contingent interest up to a maximum of $10.8 million, under certain circumstances, during the extension period. The modified mortgage loan of $83.8 million matures on December 31, 2005 and continues to require monthly payments equal to the net cash flow from the property, which will be allocated first to interest based on a rate of 3.50% per annum with the remainder applied to principal, through the end of the term, with a balloon payment due at maturity. In addition, the Operating Partnership has guaranteed the repayment of the mortgage loan. The Company has not recognized any gain or loss as a result of the modification, and has accounted for the modified terms prospectively.

In connection with the sale of 100 East Pratt Street on May 12, 2005, the Company repaid the mortgage loans collateralized by the property totaling approximately $84.0 million. During the nine months ended September 30, 2005, the Company recognized a loss from early extinguishment of debt totaling approximately $6.7 million, consisting of prepayment fees of approximately $6.5 million and the write-off of unamortized

BOSTON PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

deferred financing costs of approximately $0.2 million. The mortgage loans bore interest at a fixed rate of 6.73% per annum and were scheduled to mature in November 2008.

In connection with the sale of Riverfront Plaza on May 16, 2005, the Company repaid the mortgage loan collateralized by the property totaling approximately $104.0 million. During the nine months ended September 30, 2005, the Company recognized a loss from early extinguishment of debt totaling approximately $4.3 million, consisting of a prepayment fee. The mortgage loan bore interest at a fixed rate of 6.61% per annum and was scheduled to mature in February 2008.

On June 21, 2005, the Company refinanced its construction loan facility collateralized by Times Square Tower located in New York City. The original construction loan facility totaled $475.0 million and was comprised of two tranches. The first tranche consisted of a $300.0 million loan commitment bearing interest at LIBOR plus 0.90% per annum and maturing in January 2006. The first tranche included a provision for a one-year extension at the option of the Company. The second tranche consisted of a $175.0 million term loan bearing interest at LIBOR plus 1.00% per annum and maturing in January 2007. On June 21, 2005, the outstanding balance under the construction loan facility was $448.4 million. During the nine months ended September 30, 2005, the Company recognized a loss from early extinguishment of debt totaling approximately $1.8$0.5 million consisting of the write-off of unamortized deferred financing costs. The new mortgage loan totaling $475.0 million bearsconstruction financing bore interest at a variable rate equal to LIBOR plus 0.50%1.10% per annum and matures on July 9, 2008. The new mortgage loan includes provisions for two one-year extensions at the option of the Company. In addition, the Company entered into an agreementwas scheduled to cap the interest rate at 10.5% per annum.

On July 19, 2005, the Company refinanced at maturity its mortgage loan collateralized by 599 Lexington Avenue locatedmature in New York City. The mortgage loan totaling $225.0 million bore interest at a fixed rate of 7.00% per annum. The mortgage loan was refinanced through a $225.0 million secured draw from the Company’s revolving credit facility.

April 2007.

During August 2005, the Company entered into forward-starting interest rate swap contracts which fix the ten-year treasury rate for a financing in February 2007 at a weighted-average rate of 4.32%4.34% per annum on notional amounts aggregating $425.0 million, which$500.0 million. The swaps go into effect in February 2007 and expire in February 2017. The Company entered into the interest rate swap contracts designated and qualifying as a cash flow hedges to reduce its exposure to the variability in future cash flows attributable to changes in the Treasury rate in contemplation of obtaining ten-year fixed-rate financing in early 2007. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended and interpreted, establishes accounting and reporting standards for derivative instruments. The Company has formally documented all of its relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The Company also assesses and documents, both at the hedging instrument’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. All

components of the forward-starting interest rate swap contracts were included in the assessment of hedge effectiveness. At September 30, 2005,March 31, 2006, derivatives with a fair value of $3.4$22.3 million were included in Prepaid Expenses and Other Assets and derivatives with a fair value of $0.3 million were included in Other Liabilities within the Company’s Consolidated Balance Sheets. TheFor the three months ended March 31, 2006, the Company has recorded the changes in fair value of the swap contracts related to the effective portion of the interest rate contracts totaling approximately $3.1$16.2 million in Accumulated Other Comprehensive Income (Loss) within the Company’s Consolidated Balance Sheets. The amount of hedge ineffectiveness was not material. The accumulated comprehensive income (loss) will be reclassified to interest expense over the term of the forecasted fixed-rate debt. The Company does not expect to reclassify any amounts recorded within accumulated other comprehensive income (loss)Accumulated Other Comprehensive Income (Loss) relating to the forward-starting interest rate swap contracts within the next twelve months.

BOSTON PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6.    Unsecured Line of Credit

On May 19, 2005, the Company modified its $605.0 million unsecured revolving credit facility (the “Unsecured Line of Credit”) by extending the maturity date from January 17, 2006 to October 30, 2007, with a provision for a one-year extension at the option of the Company, subject to certain conditions, and by reducing the per annum variable interest rate on outstanding balances from Eurodollar plus 0.70% to Eurodollar plus 0.65% per annum. Under the Unsecured Line of Credit, a facility fee equal to 15 basis points per annum is payable in quarterly installments. The interest rate and facility fee are subject to adjustment in the event of a change in the Operating Partnership’s unsecured debt ratings. The Unsecured Line of Credit involves a syndicate of lenders. The Unsecured Line of Credit contains a competitive bid option that allows banks that are part of the lender consortium to bid to make loan advances to the Company at a reduced Eurodollar rate. For those lenders that participated in both the original facility and the modified facility, the initial direct debt issuance costs and the costs incurred with the modification are being amortized over the new term of the facility. For the lender that did not participate in the modification, the Company has reflected the write-off of the unamortized initial direct debt issuance costs as an extinguishment of debt, which did not have a significant impact on the Company’s Consolidated Financial Statements. At September 30, 2005, theThe Company had an outstanding balance on the Unsecured Line of Credit of $265.0 million at March 31, 2006, of which $225.0 million which is collateralized by the Company’s 599 Lexington Avenue property and therefore is included in Mortgage Notes Payable in the Company’s Consolidated Balance Sheet.

Sheets.

The terms of the Unsecured Line of Credit require that the Company maintain a number of customary financial and other covenants on an ongoing basis, including: (1) a leverage ratio not to exceed 60%, however for a single period of not more than five consecutive quarters the leverage ratio can exceed 60% (but may not exceed 65%), (2) a secured debt leverage ratio not to exceed 55%, (3) a fixed charge coverage ratio of at least 1.40, (4) an unsecured leverage ratio not to exceed 60%, (5) a minimum net worth requirement, (6) an unsecured interest coverage ratio of at least 1.75 and (7) limitations on permitted investments, development, partially owned entities, business outside of commercial real estate and commercial non-office properties.

7.    Commitments and Contingencies

General

In the normal course of business, the Company guarantees its performance of services or indemnifies third parties against its negligence.

The Company has letter of credit and performance obligations of approximately $19.7$15.5 million related to lender and development requirements.

The Company and its third-party joint venture partners have guaranteed the seller financing totaling $23.5$15.5 million related to the acquisition of the land by the WP Project Developer LLC, the Land and Infrastructure Entity of the Wisconsin Place joint venture entities. In addition, the Company has agreed to guarantee up to approximately $4.6 million of the construction loan on behalf of WP Project Developer LLC.

The Company had agreed to guarantee up to $3.0 million of mortgage financing on behalf of its 901 New York Avenue joint venture entity. The guarantee was released by the lender in April 2005.

The Company’s agreement for its Citigroup Center consolidated joint venture includes a provision whereby, after a certain specified time, the joint venture partner has the right to initiate a purchase or sale of its interest in the joint venture. Under this provision, the Company is compelled to purchase, at fair value, the joint venture partner’s interest. Certain of the Company’s other joint venture agreements include provisions whereby, at certain specified times, each partner has the right to initiate a purchase or sale of its interest in the joint ventures. Under

BOSTON PROPERTIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Under these other provisions, the Company is not compelled to purchase the interest of its outside joint venture partners.

Insurance

The Company carries insurance coverage on its properties of types and in amounts and with deductibles that it believes are in line with coverage customarily obtained by owners of similar properties. In response to the uncertainty in the insurance market following the terrorist attacks of September 11, 2001, the Federal Terrorism Risk Insurance Act, or TRIA, was enacted in November 2002 to require regulated insurers to make available coverage for certified acts of terrorism (as defined by the statute) through December 31, 2004, which date was extended to December 31, 2005 by the United States Department of Treasury on June 18, 2004.2004 and which date was further extended to December 31, 2007 by the Terrorism Risk Insurance Extension Act of 2005 (the “TRIA Extension Act”). TRIA expires on December 31, 2005,2007, and the Company cannot currently anticipate whether it will be extended. Effective as of April 15, 2005,March 1, 2006, the Company’s property insurance program per occurrence limits were increaseddecreased from $890 million to $1 billion to $800 million, including coverage for both “certified” and “non-certified” acts of terrorism as defined by TRIA. The amount of such insurance available in the market has decreased because of the natural disasters which occurred during 2005. The Company also carries nuclear, biological, chemical and chemicalradiological terrorism insurance coverage (“NBCNBCR Coverage”) for “certified” acts of terrorism as defined by TRIA, which is provided by IXP, Inc. as a direct insurer. Effective as of AprilMarch 1, 2005,2006, the Company extended the NBCNBCR Coverage to March 1, 2007, excluding the Company’s Value-Added Fund properties. Effective as of March 1, 2006, and the per occurrence limit for the NBCNBCR Coverage was increaseddecreased from $640 million$1 billion to $890$800 million. Effective as of May 2, 2005, this limit for NBC Coverage was increased to $1 billion. Under TRIA, the NBC Coverage is backstopped by the Federal Government after the payment of the required deductible and 10% coinsurance. Incoinsurance the eventNBCR Coverage is backstopped by the Federal Government if the aggregate industry insured losses resulting from a certified act of terrorism exceed a “program trigger.” Under the TRIA Extension Act (a) the program trigger is not extended beyond$5 million through March 31, 2006, $50 million from April 1, 2006 through December 31, 2005, (1)2006 and $100 million from January 1, 2007 through December 31, 2007 and (b) the NBC Coverage provided by IXP will terminate,coinsurance is 10% through December 31, 2006 and (2) a portion of the Company’s coverage for what would have constituted “certified” and “non-certified” acts of terrorism (other than NBC Coverage) had TRIA not expired will terminate and the Company will have the right to replace a portion of such terminated coverage. In the event TRIA is extended on terms which could expose IXP to a material increase in risk, the15% through December 31, 2007. The Company may elect to terminate the NBC coverage provided by IXP.NBCR Coverage when the program trigger increases on January 1, 2007, if there is a change in its portfolio or for any other reason. The Company intends to continue to monitor the scope, nature and cost of available terrorism insurance and maintain insurance in amounts and on terms that are commercially reasonable.

The Company also currently carries earthquake insurance on its properties located in areas known to be subject to earthquakes in an amount and subject to deductibles and self-insurance that itthe Company believes isare commercially reasonable. In addition, this insurance is subject to a deductible in the amount of 5% of the value of the affected property. Specifically, the Company currently carries earthquake insurance which covers its San Francisco portfolio with a $120 million per occurrence limit and a $120 million aggregate limit, $20 million of which is provided by IXP, Inc., as a direct insurer. The amount of the Company’s earthquake insurance coverage may not be sufficient to cover losses from earthquakes. As a result of increased costs of coverage and limited availability, the amount of third-party earthquake insurance that the Company may be able to purchase on commercially reasonable terms may be reduced. In addition, the Company may discontinue earthquake insurance on some or all of its properties in the future if the premiums exceed the Company’s estimation of the value of the coverage.

In January 2002, the Company formed a wholly-owned taxable REIT subsidiary, IXP, Inc., or IXP, to act as a captive insurance company and be one of the elements of itsthe Company’s overall insurance program. IXP acts as a direct insurer with respect to a portion of the Company’s earthquake insurance coverage for its Greater San Francisco properties and its NBCthe Company’s NBCR Coverage for “certified acts of terrorism” under TRIA. Insofar as the Company owns IXP, it is responsible for its liquidity and capital resources, and the accounts of IXP are part of the Company’s consolidated financial statements. In particular, if a loss occurs which is covered by the Company’s NBCR Coverage but is less than the applicable program trigger under TRIA, IXP would be responsible for the full amount of the loss without any backstop by the Federal Government. If the Company experiences a loss and IXP is required to pay under its insurance policy, the Company would ultimately record the loss to the extent of IXP’s required payment. Therefore, insurance coverage provided by IXP should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance.

The Company continues to monitor the state of the insurance market in general, and the scope and costs of coverage for acts of terrorism in particular, but itthe Company cannot anticipate what coverage will be available on

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

commercially reasonable terms in future policy years. There are other types of losses, such as from wars or the presence of mold at the Company’s properties, for which itthe Company cannot obtain insurance at all or at a reasonable cost. With respect to such losses and losses from acts of terrorism, earthquakes or other catastrophic events, if the Company experiences a loss that is uninsured or that exceeds policy limits, itthe Company could lose the capital invested in the damaged properties, as well as the anticipated future revenues from those properties. Depending on the specific circumstances of each affected property, it is possible that the Company could be liable for mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect the Company’s business and financial condition and results of operations.

8.    Minority Interests

Minority interests relate to the interest in the Operating Partnership not owned by the Company and interests in property partnerships not wholly-owned by the Company. As of September 30, 2005,March 31, 2006, the minority interest in the Operating Partnership consisted of 21,413,72421,167,704 OP Units, 380,820374,119 LTIP Units and 3,701,335 Series Two Preferred Units (or 4,857,395 OP Units on an as converted basis) held by parties other than the Company.

The minority interests in property partnerships consist of the outside equity interests in the ventures that own Citigroup Center and the office entity at Wisconsin Place. These ventures are consolidated with the financial results of the Company because the Company exercises control over the entities that own the properties. The equity interests in thethese ventures that are not owned by the Company, totaling approximately $19.1$17.6 million and $26.9$18.0 million at September 30, 2005March 31, 2006 and December 31, 2004,2005, respectively, are included in Minority Interests on the accompanying Consolidated Balance Sheets. The minority interest holder’s share of income for Citigroup Center is reflective of the Company’s preferential return on and of its capital.

On August 15, 2005, the Operating Partnership paid a distribution on its outstanding Series Two Preferred Units of $0.89239 per unit.

During August 2005, 381,000 Series Two Preferred Units of the Operating Partnership were converted by the holders into 500,000 OP Units. The OP Units were subsequently presented by the holders for redemption and were redeemed by the Company in exchange for an equal number of shares of Common Stock. The aggregate book value of the Preferred Units that were converted, as measured for each Preferred Unit on the date of its conversion, was approximately $13.2 million. The difference between the aggregate book value and the purchase price of these Preferred Units was approximately $22.3 million, which increased the recorded value of the Company’s net assets. In addition, the Company paid the accrued preferred distributions due to the holders of Preferred Units that were converted.

The Preferred Units at September 30, 2005March 31, 2006 consist solely of 3,701,335 Series Two Preferred Units, which bear a preferred distribution equal to the greater of (1) the distribution which would have been paid in respect of the Series Two Preferred Unit had such Series Two Preferred Unit been converted into an OP Unit (including both regular and special distributions) or (2) an increasing rate, ranging from 5.00% to 7.00% per annum (7.00% for the three months ended September 30, 2005March 31, 2006 and 2004)2005) on a liquidation preference of $50.00 per unit, and are convertible into OP Units at a rate of $38.10 per Preferred Unit (1.312336 OP Units for each Preferred Unit). Distributions to holders of Preferred Units are recognized on a straight-line basis that approximates the effective interest method.

On July 21, 2005, Boston Properties, Inc., as general partnerDuring the three months ended March 31, 2006, 210,020 OP Units were presented by the holders for redemption and were redeemed by the Company in exchange for an equal number of the Operating Partnership, declared a special cash distribution onshares of Common Stock. The aggregate book value of the OP Units that were redeemed, as measured for each OP Unit on the date of its redemption, was approximately $2.6 million. The difference between the aggregate book value and LTIPthe purchase price of these OP Units inwas approximately $6.3 million, which increased the amount of $2.50 per unit payable on October 31, 2005 to unitholders of record asrecorded value of the close of business on September 30, 2005. The special cash distribution is in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

addition to the regular quarterly distribution of $0.68 per unit which was declared by Boston Properties, Inc., as general partner of the Operating Partnership, on September 19, 2005 and paid on October 31, 2005 to unitholders of record as of the close of business on September 30, 2005.

Holders of Series Two Preferred Units will participate in the special cash distribution on an as-converted basis in connection with their regular February 2006 distribution payment as provided for in the Operating Partnership’s partnership agreement. As a result, the Company has accrued approximately $12.1 million related to the special cash distribution payable to holders of the Series Two Preferred Units and has allocated earnings to the Series Two Preferred Units of approximately $12.1 million, which amount has been reflected in Minority Interest in Operating Partnership within the Consolidated Statements of Operations for the three and nine months ended September 30, 2005.

Company’s net assets.

On July 29, 2005,January 30, 2006, the Operating Partnership paid a distribution on the OP Units and LTIP Units in the amount of $0.68 per unit to holders of record as of the close of business on JuneDecember 30, 2005.

On September 26, 2005,February 15, 2006, the Operating Partnership issued 253,860paid a distribution on its outstanding Series Two Preferred Units of $4.17323 per unit, which amount includes the impact of the special cash distribution on the OP Units toand LTIP Units declared by Boston Properties, Inc., as general partner of the ownersOperating Partnership, in July 2005 and paid on October 31, 2005.

On March 17, 2006, Boston Properties, Inc., as general partner of its joint venture partner as consideration for the Company’s 50% interestOperating Partnership, declared a distribution on the OP Units and LTIP Units in the joint venture which is developing 505 9^th Street in Washington, D.C.amount of $0.68 per unit payable on April 28, 2006 to holders of record on March 31, 2006.

9.    Stockholders’ Equity

As of September 30, 2005,March 31, 2006, the Company had 112,500,887112,813,657 shares of Common Stock outstanding.

During the three months ended March 31, 2006, the Company issued 210,020 shares of its Common Stock in connection with the redemption of an equal number of OP Units.

On July 21, 2005, the Board of Directors of the Company declared a special cash dividend of $2.50 per share of Common Stock payable on October 31, 2005 to shareholders of record as of the close of business on SeptemberJanuary 30, 2005. The special cash dividend is in addition to the regular quarterly dividend of $0.68 per share of Common Stock which was declared by the Company’s Board of Directors on September 19, 2005 and paid on October 31, 2005 to shareholders of record as of the close of business on September 30, 2005.

On July 29, 2005,2006, the Company paid a dividend in the amount of $0.68 per share of Common Stock to shareholders of record as of the close of business on JuneDecember 30, 2005.

DuringOn March 17, 2006, the nine months ended September 30, 2005,Company’s Board of Directors declared a dividend in the Company issued 913,976 sharesamount of its$0.68 per share of Common Stock in connection withpayable on April 28, 2006 to shareholders of record as of the redemptionclose of an equal number of OP Units.

During the nine months ended September 30, 2005, the Company issued 1,240,060 shares of its Common Stock upon the exercise of options to purchase Common Stock by certain employees.

business on March 31, 2006.

10.    Discontinued Operations

Effective January 1, 2002, the Company adopted the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions.

At September 30, 2005, the Company had designated as held for sale 40-46 Harvard Street, an industrial property totaling approximately 152,000 net rentable square feet located in Westwood, Massachusetts. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Company completed the sale on November 7, 2005 (See Note 16). The sale price exceeded the carrying value of the property. The Company has presented this property as discontinued operations indid not sell any operating properties during the accompanying Consolidated Statements of Operations for all periods presented.

three months ended March 31, 2006. During the nine monthsyear ended September 30,December 31, 2005, the Company sold the following operating properties:

During the year ended December 31, 2004, the Company sold the following operating properties: