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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-13087
------------------------
BOSTON PROPERTIES, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 04-2473675
(State or other jurisdiction of (IRS Employer Id. Number)
incorporation or organization)
800 BOYLSTON STREET 02199
BOSTON, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
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.
COMMON STOCK, PAR VALUE $.01 67,967,131
(CLASS) (OUTSTANDING ON MAY 10, 2000)
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BOSTON PROPERTIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
PAGE
--------
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
i
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2000 1999
------------ -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
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
========== ==========
The accompanying notes are an integral part of these financial statements.
1
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
--------- ---------
(UNAUDITED AND IN THOUSANDS,
EXCEPT FOR PER SHARE AMOUNTS)
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
======== ========
The accompanying notes are an integral part of these financial statements.
2
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
--------- ---------
(UNAUDITED AND IN THOUSANDS)
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 $ --
========= =========
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:
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
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
======== ========
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:
MARCH 31, MARCH 31,
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
Total revenue............................................... $3,982 $1,791
Total expenses.............................................. 3,482 939
------ ------
Net income............................................ $ 500 $ 852
------ ------
Company's share of net income............................... $ 145 $ 213
====== ======
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
FOR THE THREE MONTHS ENDED
MARCH 31, 2000
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
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
======= ====== =====
FOR THE THREE MONTHS ENDED
MARCH 31, 1999
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
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
======= ====== =====
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:
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- ----------- ---------- ------------- --------
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%
======= ======= ======= ======= ======= ========
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:
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- ----------- ---------- ------------- --------
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%
======= ======= ======= ======= ====== ========
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:
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
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
======== ========
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.
SAME PROPERTY PORTFOLIO
-----------------------------------------------
INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE
- ---------------------- -------- -------- ------------- ---------
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%
======== ======== ====== ====
TOTAL PORTFOLIO
-----------------------------------------------
INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE
- ---------------------- -------- -------- ------------- ---------
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%
======== ======== ======= ======
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:
PROPERTIES INTEREST RATE PRINCIPAL AMOUNT MATURITY DATE
---------- ------------- ---------------- ------------------
(IN THOUSANDS)
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
===========
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:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
------------------ ------------------
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
======= =======
Reconciliation to Diluted Funds from Operations:
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
--------------------------- ---------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
----------- ------------- ----------- -------------
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
======= ======= ======= ======
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.
MORTGAGE DEBT, INCLUDING CURRENT PORTION
-------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- ---------- ----------
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
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
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------
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
(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.
BOSTON PROPERTIES, INC.
May 15, 2000 By: /s/ DAVID G. GAW
-----------------------------------------
David G. Gaw
Chief Financial Officer
(duly authorized officer and
principal financial officer)
20