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Exhibit 99.1
SELECTED FINANCIAL DATA
The following sets forth the selected financial and operating data for
Boston Properties, Inc., and Boston Properties Limited Partnership, together
with their subsidiaries on a historical consolidated basis and for our
predecessor business on a historical combined basis. The following data should
be read in conjunction with the financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Form 10-K.
Historical operating results for Boston Properties, Inc., and Boston
Properties Limited Partnership, together with their subsidiaries and for our
predecessor business, including net income, may not be comparable to our future
operating results.
<Table>
<Caption>
THE PREDECESSOR
THE COMPANY GROUP
----------------------------------------------------------------------- ----------------
FOR THE YEAR ENDED DECEMBER 31, PERIOD FROM PERIOD FROM
--------------------------------------------------- JUNE 23, 1997 TO JANUARY 1, 1997
2001 2000 1999 1998 DECEMBER 31, 1997 TO JUNE 22, 1997
----------- ---------- ---------- ----------- ----------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Information
Total revenue........................ $ 1,028,251 $ 874,858 $ 782,022 $ 510,191 $ 144,961 $129,410
----------- ---------- ---------- ----------- ---------- --------
Expenses:
Operating.......................... 311,371 263,914 248,546 149,830 40,010 26,967
Hotel.............................. -- -- -- -- -- 22,452
General and administrative......... 38,312 35,659 29,455 22,504 6,689 5,116
Interest........................... 223,389 217,064 205,410 124,793 38,161 53,132
Depreciation and amortization...... 149,348 132,330 119,311 74,701 21,564 16,924
Loss on investments in
securities....................... 6,500 -- -- -- -- --
----------- ---------- ---------- ----------- ---------- --------
Income before income from
unconsolidated joint ventures,
net derivative losses and
minority interests............... 299,331 225,891 179,300 138,363 38,537 4,819
Income from unconsolidated joint
ventures......................... 4,186 1,758 468 -- -- --
Net derivative losses.............. (26,488) -- -- -- -- --
Minority interests................. (73,747) (76,242) (68,718) (41,419) (11,551) (235)
----------- ---------- ---------- ----------- ---------- --------
Income before gain (loss) on sale
of real estate................... 203,282 151,407 111,050 96,944 26,986 4,584
Gain (loss) on sale of real estate,
net of minority interest......... 9,089 (234) 6,467 -- -- --
----------- ---------- ---------- ----------- ---------- --------
Income before discontinued
operations....................... 212,371 151,173 117,517 96,944 26,986 4,584
Discontinued operations, net of
minority interest................ 2,428 2,159 2,259 1,649 240 21
----------- ---------- ---------- ----------- ---------- --------
Income before extraordinary
items............................ 214,799 153,332 119,776 98,593 27,226 4,605
Extraordinary gain (loss), net of
minority interest................ -- (334) -- (5,481) 7,925 --
----------- ---------- ---------- ----------- ---------- --------
Income before cumulative effect of
a change in accounting
principle........................ 214,799 152,998 119,776 93,112 35,151 4,605
Cumulative effect of a change in
accounting principle, net of
minority interest................ (6,767) -- -- -- -- --
----------- ---------- ---------- ----------- ---------- --------
Net income before preferred
dividend......................... 208,032 152,998 119,776 93,112 35,151 4,605
Preferred dividend................. (6,592) (6,572) (5,829) -- -- --
----------- ---------- ---------- ----------- ---------- --------
Net income available to common
shareholders..................... $ 201,440 $ 146,426 $ 113,947 $ 93,112 $ 35,151 $ 4,605
----------- ---------- ---------- ----------- ---------- --------
Basic earnings per share:
Income before discontinued
operations, extraordinary items
and cumulative effect of a
change in accounting
principle...................... $ 2.28 $ 2.02 $ 1.69 $ 1.59 $ 0.69
Discontinued operations, net of
minority interest.............. 0.03 0.03 0.03 0.03 0.01
Extraordinary gain (loss), net of
minority interest.............. -- -- -- (0.09) 0.21
Cumulative effect of a change in
accounting principle, net of
minority interest.............. (0.07) -- -- -- --
----------- ---------- ---------- ----------- ----------
Net income....................... $ 2.24 $ 2.05 $ 1.72 $ 1.53 $ 0.91
----------- ---------- ---------- ----------- ----------
Weighted average number of common
shares outstanding............. 90,002 71,424 66,235 60,776 38,694
</Table>
1
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<Table>
<Caption>
THE PREDECESSOR
THE COMPANY GROUP
----------------------------------------------------------------------- ----------------
FOR THE YEAR ENDED DECEMBER 31, PERIOD FROM PERIOD FROM
--------------------------------------------------- JUNE 23, 1997 TO JANUARY 1, 1997
2001 2000 1999 1998 DECEMBER 31, 1997 TO JUNE 22, 1997
----------- ---------- ---------- ----------- ----------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Diluted earnings per share:
Income before discontinued
operations, extraordinary items
and cumulative effect of a
change in accounting
principle...................... $ 2.23 $ 1.98 $ 1.68 $ 1.58 $ 0.69
Discontinued operations, net of
minority interest.............. 0.03 0.03 0.03 0.03 0.01
Extraordinary gain (loss), net of
minority interest.............. -- -- -- (0.09) 0.20
Cumulative effect of a change in
accounting principle, net of
minority interest.............. (0.07) -- -- -- --
----------- ---------- ---------- ----------- ----------
Net income....................... $ 2.19 $ 2.01 $ 1.71 $ 1.52 $ 0.90
----------- ---------- ---------- ----------- ----------
Weighted average number of common
and common equivalent shares
outstanding.................... 92,200 72,741 66,776 61,308 39,108
Balance Sheet Information:
Real estate, gross................. $ 7,457,906 $6,112,779 $5,609,424 $ 4,917,193 $1,796,500 --
Real estate, net................... 6,738,052 5,526,060 5,138,833 4,559,809 1,502,282 --
Cash............................... 98,067 280,957 12,035 12,166 17,560 --
Total assets....................... 7,253,510 6,226,470 5,434,772 5,235,087 1,672,521 --
Total indebtedness................. 4,314,942 3,414,891 3,321,584 3,088,724 1,332,253 --
Minority interests................. 844,740 877,715 781,962 -- -- --
Convertible Redeemable Preferred
Stock............................ 100,000 100,000 100,000 -- -- --
Stockholders' and owners' equity
(deficit)........................ 1,754,073 1,647,727 1,057,564 948,481 175,048 --
Other Information:
Funds from operations, as
adjusted(1)...................... $ 337,823 $ 247,371 $ 196,101 $ 153,045 $ 42,258 --
Dividends per share................ 2.27 2.04 1.75 1.64 1.62a --
Cash flow provided by operating
activities....................... 419,403 329,474 290,027 215,287 46,146 25,090
Cash flow used in investing
activities....................... (1,303,622) (563,173) (641,554) (2,179,215) (519,743) (32,844)
Cash flow provided by financing
activities....................... 701,329 502,621 351,396 1,958,534 491,157 9,266
Total square feet at end of year... 40,718 37,926 35,621 31,077 16,101 --
Occupancy rate at end of year...... 95.3% 98.9% 98.4% 97.1% 98.4% --
</Table>
- ------------------------------
a--annualized
(1) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts in March 1995
defines funds from operations as net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains (or losses)
from debt restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. During 1999, the National Association of
Real Estate Investment Trusts clarified the definition of funds from
operations to include non-recurring events, except for those that are
defined as "extraordinary items" under accounting principles generally
accepted in the United States of America and gains and losses from sales of
depreciable operating properties. This clarification is effective for
periods ending subsequent to January 1, 2000. We adopted this definition for
the quarters ended on or after March 31, 2000. We believe that funds from
operations is helpful to investors as a measure of the performance of an
equity REIT because, along with cash flow from operating activities,
financing activities and investing activities, it provides investors with an
indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. We compute funds from operations
in accordance with standards established by the National Association of Real
Estate Investment Trusts which may not be comparable to funds from
operations reported by other REITs that do not define the term in accordance
with the current National Association of Real Estate Investment Trusts
definition or that interpret the current National Association of Real Estate
Investment Trusts definition differently. In addition to Funds from
Operations (as defined by the National Association of Real Estate Investment
Trusts), we also disclose Funds from Operations after certain supplemental
adjustments. Funds from Operations does not represent cash generated from
operating activities determined in accordance with accounting principles
generally accepted in the United States of America and should not be
considered as an alternative to net income (determined in accordance with
accounting principles generally accepted in the United States of America) as
a measure of our liquidity, nor is it indicative of funds available to fund
our cash needs, including our ability to make cash distributions. For a
reconciliation of income to funds from operations see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Funds from Operations."
2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the selected
financial data and the historical consolidated and combined financial statements
and related notes thereto.
FORWARD LOOKING STATEMENTS
Statements made under the caption "Risk Factors," elsewhere in this
Form 10-K, in our press releases, and in oral statements we make by or with the
approval of our authorized executives contain "forward-looking statements"
within the meaning of federal securities laws. When we use the words
"anticipate," "assume," "believe," "estimate," "expect," "intend" and other
similar expressions, they generally identify forward-looking statements.
Forward-looking statements include, for example, statements relating to
acquisitions and related financial information, development activities, business
strategy and prospects, future capital expenditures, sources and availability of
capital, environmental and other regulations, and competition.
You should exercise caution in interpreting and relying on forward-looking
statements since they involve known and unknown risks, uncertainties and other
factors which are, in some cases, beyond our control and could materially affect
our actual results, performance or achievements. Some of the factors that could
cause our actual results, performance or achievements to differ materially from
those expressed or implied by forward-looking statements include, but are not
limited to, the following:
- we are subject to general risks affecting the real estate industry, such
as the need to enter into new leases or renew leases on favorable terms to
generate rental revenues, and dependence on our tenants' financial
condition;
- we may fail to identify, acquire, construct or develop additional
properties; we may develop properties that do not produce a desired yield
on invested capital; or we may fail to effectively integrate acquisitions
of properties or portfolios of properties;
- financing may not be available, or may not be available on favorable
terms;
- we need to make distributions to our stockholders for us to qualify as a
real estate investment trust, and if we need to borrow the funds to make
such distributions such borrowings may not be available on favorable
terms;
- we depend on the primary markets where our properties are located and
these markets may be adversely affected by local economic and market
conditions which are beyond our control;
- we are subject to potential environmental liabilities;
- we are subject to complex regulations relating to our status as a real
estate investment trust and would be adversely affected if we failed to
qualify as a real estate investment trust; and
- market interest rates could adversely affect the market prices for our
common stock, as well as our performance and cash flow.
We caution you that, while forward-looking statements reflect our good faith
beliefs when we make them, they are not guarantees of future performance and are
impacted by actual events when they occur after we make such statements. We
expressly disclaim any obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
OVERVIEW
We are a fully integrated, self-administered and self-managed real estate
investment trust or "REIT" and are one of the largest owners and developers of
office and industrial properties in the United States. Our properties are
concentrated in four core markets--Boston, Washington, D.C.,
3
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midtown Manhattan and San Francisco. We conduct substantially all of our
business through Boston Properties Limited Partnership. At December 31, 2001, we
owned 147 properties totaling 40.7 million net rentable square feet. The
properties consisted of 139 office properties, including 107 Class A office
buildings and 32 properties that support both office and technical uses,
including twelve properties under construction, five industrial properties, and
three hotels.
In 2001, we continued to identify and complete acquisitions and development
transactions. During 2001, we added 2.6 million net rentable square feet to our
portfolio by completing an acquisition totaling approximately $755.0 million and
completing developments totaling approximately $168.0 million. In addition, as
of December 31, 2001, we had construction in progress representing a total
anticipated investment of approximately $1.8 billion and a total of
approximately 4.9 million net rentable square feet.
We are focused on increasing the cash flow from our existing portfolio of
properties by maintaining high occupancy levels and increasing effective rents.
On the 2.7 million net rentable square feet of second generation space renewed
or re-leased during the year, new net rents were on average approximately 49.2%
higher than the expiring net rents. At December 31 2001, our in-service
portfolio was 95.3% occupied.
RESULTS OF OPERATIONS
The following discussion is based on our Consolidated Financial Statements
for the years ended December 31, 2001, 2000 and 1999.
We receive income primarily from rental revenue from our office, hotel,
parking and industrial properties, including reimbursements from certain tenants
for certain operating costs.
From January 1, 1999 through December 31, 2001, we increased our total
portfolio of properties from 121 properties to 147 properties and from
31.6 million net rentable square feet to 40.7 million net rentable square feet.
As a result of this rapid growth of our total portfolio, the financial data
presented below shows significant changes in revenues and expenses from period
to period and we do not believe our period to period financial data are
comparable. Therefore, the comparison of operating results for the years ended
December 31, 2001, 2000 and 1999 show changes resulting from properties that we
owned for each period compared (we refer to this comparison as our "Same
Property Portfolio" for the applicable period) and the changes attributable to
our total portfolio.
Effective January 1, 2002, we adopted the provisions of Statement of
Financial Accounting Standards No. 144 ("SFAS No. 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses the
financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS No. 144 extends the reporting requirements of
discontinued operations to include components of an entity that have either
been disposed of or are classified as held for sale. During the nine months
ended September 30, 2002, we disposed of five office/technical properties in
Springfield, Virginia consisting of approximately 374,680 square feet. The
operating results of these properties have been reclassified as discontinued
operations in the consolidated statements of operations for each of the three
years in the period ended December 31, 2001 included herein.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 TO THE YEAR ENDED DECEMBER 31,
2000
The table below shows selected operating information for our total portfolio
and the 109 buildings acquired or placed in service on or prior to January 1,
2000 and that remained in the total portfolio
4
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through September 30, 2002 (which constitute the Same Property Portfolio for the
years ended December 31, 2001 and 2000). The table below does not reflect the
results of operations of the properties sold during 2002 as the results of
operations have been reclassified as discontinued operations.
<Table>
<Caption>
SAME PROPERTY PORTFOLIO TOTAL PORTFOLIO
-------------------------------------------- ----------------------------------------------
INCREASE/ INCREASE/
2001 2000 (DECREASE) % CHANGE 2001 2000 (DECREASE) % CHANGE
-------- -------- ---------- --------- ---------- -------- ---------- ---------
(DOLLARS IN THOUSANDS)
Revenue:
Rental.......................... $887,734 $817,216 $70,518 8.63% $1,002,878 $854,463 $148,415 17.37%
Development and management
services...................... -- -- -- -- 13,190 11,837 1,353 11.43%
Interest and other.............. -- -- -- -- 12,183 8,558 3,625 42.36%
-------- -------- ------- ----- ---------- -------- -------- -----
Total revenue................. 887,734 817,216 70,518 8.63% 1,028,251 874,858 153,393 17.53%
-------- -------- ------- ----- ---------- -------- -------- -----
Expenses:
Operating....................... 278,311 254,711 23,600 9.27% 311,371 263,914 47,457 17.98%
General and administrative...... -- -- -- -- 38,312 35,659 2,653 7.44%
Interest........................ -- -- -- -- 223,389 217,064 6,325 2.91%
Depreciation and amortization... 130,183 126,859 3,324 2.62% 149,348 132,330 17,018 12.86%
Loss on investments in
securities.................... -- -- -- -- 6,500 -- 6,500 --
-------- -------- ------- ----- ---------- -------- -------- -----
Total expenses................ 408,494 381,570 26,924 7.06% 728,920 648,967 79,953 12.32%
-------- -------- ------- ----- ---------- -------- -------- -----
Income before net derivative
losses, minority interest in
property partnerships and
income from unconsolidated
joint ventures................ $479,240 $435,646 $43,594 10.01% $ 299,331 $225,891 $ 73,440 32.51%
======== ======== ======= ===== ========== ======== ======== =====
</Table>
The increase in rental revenue in our Same Property Portfolio is primarily a
result of an overall increase in rental rates on new leases and rollovers, an
increase in reimbursable operating expenses as well as an increase in
termination fees and early surrender income offset by a decrease in occupancy
from year to year. Rental revenue is comprised of base rent, including
termination fees and early surrender income, recoveries from tenants and parking
and other. Base rental revenue is recognized on a straight-line basis over the
terms of the respective leases. Accrued rental income represents the amount by
which straight-line rental revenue exceeds rents currently billed in accordance
with the lease agreements. Straight line rent for the year ended December 31,
2001 was $27.8 million compared to $12.9 million for the year ended
December 31, 2000. Termination fees and early surrender income increased from
$3.7 million for the year ended December 31, 2000 to $21.6 million for the year
ended December 31, 2001. Included in the $21.6 million is $12.4 million related
to the early surrender of space of a tenant at 875 Third Avenue, of which
approximately $9.2 million has been received to date. We expect to receive the
remaining amount on a monthly basis through July 2002. The occupancy for our
Same Property Portfolio decreased from 98.9% as of December 31, 2000 to 95.8% as
of December 31, 2001. Additional increases in rental revenues in our total
portfolio are primarily the result of rental revenues earned on properties we
acquired or placed in service after January 1, 2000 offset by a decrease in
overall occupancy from 98.9% to 95.3%.
The Company has not recognized $0.4 million of rental revenue during the
year ended December 31, 2001, related to a tenant who has filed for bankruptcy.
Although the tenant vacated the space during 2001, the rental payments, to the
extent the space is not re-let, are guaranteed by a third party. Revenue of
approximately $0.2 million per month relating to this space will be recognized,
when and if, collection is reasonably assured.
The increase in development and management services income in our total
portfolio is mainly due to an increase in development and management income
earned on contracts starting in 2001 and 2000 and an increase of approximately
$0.4 million of work order profits earned on the entire portfolio. This was
offset by certain management and development contracts ending in 2000 and some
reductions in charges for management fees.
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The increase in interest and other income in our total portfolio is
primarily due to more interest earned as a result of higher average cash
balances in 2001 resulting from the remaining proceeds from the public offering
in October 2000 offset by lower interest rates.
Property operating expenses (real estate taxes, utilities, repairs and
maintenance, cleaning and other property-related expenses) in our Same Property
Portfolio increased mainly due to increases in real estate taxes of
$6.0 million, or 2.3%, and increases in utilities of $7.4 million, or 2.9%. Most
office leases include reimbursement for these operating expenses. The increase
in real estate taxes was primarily due to higher property tax assessments. Small
increases in the other property operating expenses account for the remaining
difference. Additional increases in property operating expenses in our total
portfolio were due to properties we acquired or placed in service after
January 1, 2000.
General and administrative expenses in our total portfolio increased mainly
due to an overall increase in payroll due to an increase in the overall size of
our total portfolio and the number of employees since January 1, 2000 as well as
salary increases to employees. We wrote off $1.4 million of abandoned projects
in 2001 compared to a $0.7 million write-off in 2000. In addition, the 2001
expense does not include $3.0 million that was included in the prior year
related to the departure of two senior employees.
Interest expense for our total portfolio increased as a result of having a
higher average outstanding debt balance as compared to the prior period. Our
debt outstanding at December 31, 2001 was approximately $4.3 billion, compared
to $3.4 billion at December 31, 2000. This was partially offset by a decrease in
our weighted average interest rates over the year from 7.37% at December 31,
2000 to 6.57% at December 31, 2001.
Costs directly related to the development of rental properties are
capitalized. Capitalized development costs include interest, wages, property
taxes, insurance and other project costs incurred during the period of
development. Capitalized wages for the years ended December 31, 2001 and 2000
were $6.5 million and $5.0 million, respectively. These costs are not included
in the general and administrative expenses discussed above. Interest capitalized
for the years ended December 31, 2001 and 2000 was $59.3 million and
$37.7 million, respectively. These costs are not included in the interest
expense discussed above.
Depreciation and amortization expense for our Same Property Portfolio
increased as a result of capital and tenant improvements made during 2001.
Additional increases in depreciation and amortization expense for our total
portfolio were mainly due to the properties we acquired or placed in service
after January 1, 2000 and related capital and tenant improvements.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 2000 TO THE YEAR ENDED DECEMBER 31,
1999
The table below shows selected operating information for our total portfolio
and the 102 buildings acquired or placed in service on or prior to January 1,
1999 and that remained in the total portfolio
6
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through December 31, 2000 and excluding properties sold during 2002 (which
constitute the Same Property Portfolio for the years ended December 31, 2000
and 1999). The table below does not reflect the results of operations of the
properties sold during 2002 as the results of operations have been
reclassified as discontinued operations.
<Table>
<Caption>
SAME PROPERTY PORTFOLIO TOTAL PORTFOLIO
-------------------------------------------- --------------------------------------------
INCREASE/ INCREASE/
2000 1999 (DECREASE) % CHANGE 2000 1999 (DECREASE) % CHANGE
-------- -------- ---------- --------- -------- -------- ---------- ---------
(DOLLARS IN THOUSANDS)
Revenue:
Rental............................ $761,662 $713,112 $48,550 6.81% $854,463 $760,875 $93,588 12.30%
Development and management
services........................ -- -- -- -- 11,837 14,708 (2,871) -19.52%
Interest and other................ -- -- -- -- 8,558 6,439 2,119 32.91%
-------- -------- ------- ---- -------- -------- ------- ------
Total revenue................... 761,662 713,112 48,550 6.81% 874,858 782,022 92,836 11.87%
-------- -------- ------- ---- -------- -------- ------- ------
Expenses:
Operating......................... 236,320 229,456 6,864 2.99% 263,914 248,546 15,368 6.18%
General and administrative........ -- -- -- -- 35,659 29,455 6,204 21.06%
Interest.......................... -- -- -- -- 217,064 205,410 11,654 5.67%
Depreciation and amortization..... 117,043 111,715 5,328 4.77% 132,330 119,311 13,019 10.91%
-------- -------- ------- ---- -------- -------- ------- ------
Total expenses.................. 353,363 341,171 12,192 3.57% 648,967 602,722 46,245 7.67%
-------- -------- ------- ---- -------- -------- ------- ------
Income before net derivative losses,
minority interest in property
partnerships and income from
unconsolidated joint ventures..... $408,299 $371,941 $36,358 9.78% $225,891 $179,300 $46,591 25.98%
======== ======== ======= ==== ======== ======== ======= ======
</Table>
The increase in rental revenue in our Same Property Portfolio is primarily a
result of an overall increase in rental rates on new leases and rollovers, an
increase in reimbursable operating expenses, in addition to an increase in
occupancy from year to year and an increase in termination fees from
$2.3 million to $3.3 million. Rental revenue is comprised of base rent,
including termination fees, recoveries from tenants and parking and other. Base
rental revenue is recognized on a straight-line basis over the terms of the
respective leases. Unbilled rents receivable represents the amount by which
straight-line rental revenue exceeds rents currently billed in accordance with
the lease agreements. Straight line rent for the year ended December 31, 2000
was $12.9 million compared to $16.8 million for the year ended December 31,
1999. The occupancy for our Same Property Portfolio increased from 97.4% as of
December 31, 1999 to 98.8% as of December 31, 2000. The additional increases in
rental revenues in our total portfolio are primarily the result of rental
revenues earned on properties we acquired or placed in service after January 1,
1999.
The decrease in development and management services income in the total
portfolio is mainly due to contracts expiring during 1999 and 2000.
The increase in interest and other income in the total portfolio is a result
of interest earned on proceeds received from the public offering of our common
stock in October 2000 which resulted in higher average cash balances for the
year ended December 31, 2000.
Property operating expenses (real estate taxes, utilities, repairs and
maintenance, cleaning and other property-related expenses) in our Same Property
Portfolio increased mainly due to increases in real estate taxes of
$4.0 million, or 4.2%. Most office leases include reimbursement for these
operating expenses. Small increases in other property operating expenses account
for the balance of the increase. Additional increases in property operating
expenses in our total portfolio were mainly due to properties we acquired or
placed-in-service after January 1, 1999 as well as increases in other
property-related expenses.
General and administrative expenses increased due to increases in the
overall size of our total portfolio since January 1, 1999. In addition, we
incurred a $3.0 million charge related to the departure of two senior employees,
which included a non-cash charge of approximately $2.0 million.
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Interest expense for our total portfolio increased due to net increase in
mortgage indebtedness and increased amounts outstanding under our unsecured
revolving line of credit with Fleet National Bank, as agent, from $3.3 billion
to $3.4 billion.
Costs directly related to the development of rental properties are
capitalized. Capitalized development costs include interest, wages, property
taxes, insurance and other project costs incurred during the period of
development. Capitalized wages for the years ended December 31, 2000 and 1999
were $5.0 million and $3.2 million, respectively. These costs are not included
in the general and administrative expenses discussed above. Interest capitalized
for the years ended December 31, 2000 and 1999 was $37.7 million and
$17.0 million, respectively.
Depreciation and amortization expense for our Same Property Portfolio
increased as a result of capital and tenant improvements made during 2000.
Additional increases in depreciation and amortization expense for our total
portfolio were due to properties we acquired or placed in service after
January 1, 2000 and related capital and tenant improvements.
FUNDS FROM OPERATIONS
Pursuant to the National Association of Real Estate Investment Trusts
revised definition of Funds from Operations, we calculate Funds From
Operations by adjusting net income (loss) (computed in accordance with
accounting principles generally accepted in the United States of America,
including non-recurring items), for gains (or losses) from debt restructuring
and sales of properties (except gains and losses from sales of depreciable
operating properties), real estate related depreciation and amortization and
unconsolidated partnerships and joint ventures. We consider Funds from
Operations, after supplemental adjustments, one measure of REIT performance.
We believe that Funds From Operations is helpful to investors as a measure of
the performance of an equity REIT because, along with cash flow from
operating activities, financing activities and investing activities, it
provides investors with an indication of our ability to incur and service
debt, to make capital expenditures and to fund other cash needs. We compute
Funds From Operations in accordance with standards established by the
National Association of Real Estate Investment Trusts which may not be
comparable to Funds From Operations reported by other REITs that do not
define the term in accordance with the current National Association of Real
Estate Investment Trusts definition or that interpret the current National
Association of Real Estate Investment Trusts definition differently. In
addition to Funds from Operations (as defined by the National Association of
Real Estate Investment Trusts), we also disclose Funds from Operations after
certain supplemental adjustments. Funds From Operations does not represent
cash generated from operating activities determined in accordance with
accounting principles generally accepted in the United States of America and
should not be considered as an alternative to net income (determined in
accordance with accounting principles generally accepted in the United States
of America) as a measure of our liquidity, nor is it indicative of funds
available to fund our cash needs, including our ability to make cash
distributions.
8
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Our funds from operations for the respective periods is calculated as
follows:
<Table>
<Caption>
THE PREDECESSOR
GROUP
THE COMPANY ---------------
------------------------------------------------------------- PERIOD FROM
YEAR ENDED DECEMBER 31, PERIOD FROM JANUARY 1, 1997
----------------------------------------- JUNE 23, 1997 TO TO JUNE 22,
2001 2000 1999 1998 DECEMBER 31, 1997 1997
-------- -------- -------- -------- ----------------- ---------------
(IN THOUSANDS)
Income before net derivative losses, minority
interests and income from unconsolidated
joint ventures............................. $299,331 $225,891 $179,300 $138,363 $38,537 $ 4,819
Add:
Real estate depreciation and
amortization............................. 153,550 134,386 119,583 74,649 21,417 16,808
Income from discontinued operations........ 2,989 2,888 3,072 2,212 341 21
Income from unconsolidated joint
ventures................................. 4,186 1,758 468 --
Less:
Net derivative losses...................... (26,488) -- -- -- --
Minority property partnerships' share of
funds from operations.................... (2,322) (1,061) (3,681) (4,185) (287) (198)
Preferred dividends and distributions...... (33,312) (32,994) (32,111) (5,830) -- --
-------- -------- -------- -------- ------- -------
Funds from operations........................ 397,934 330,868 266,631 205,209 60,008 21,450
-------- -------- -------- -------- ------- -------
Add (subtract):
Net derivative losses(1)................... 26,488 -- -- -- -- --
Early surrender lease adjustment(2)........ (8,518) -- -- -- -- --
-------- -------- -------- -------- ------- -------
Funds from operations before net derivative
losses and after early surrender lease
adjustment................................. $415,904 $330,868 $266,631 $205,209 $60,008 $21,450
======== ======== ======== ======== ======= =======
Funds from operations available to common
stockholders before net derivative losses
and after early surrender lease
adjustment................................. $337,823 $247,371 $196,101 $153,045 $42,258 --
======== ======== ======== ======== ======= =======
Weighted average shares outstanding--basic... 90,002 71,424 66,235 60,776 38,694 --
======== ======== ======== ======== ======= =======
</Table>
- ------------------------------
(1) Expense recognized for adjustment to fair value related to SFAS 133.
(2) Represents the remaining payment expected to be received from a previous
tenant relating to the early surrender of space.
9
<Page>
<Table>
<Caption>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000 DECEMBER 31, 1999
---------------------------- ---------------------------- ----------------------------
INCOME SHARES/UNITS INCOME SHARES/UNITS INCOME SHARES/UNITS
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
------------ ------------- ------------ ------------- ------------ -------------
(IN THOUSANDS)
Basic Funds from Operations
before net derivative losses
and after early surrender lease
adjustment..................... $415,904 110,803 $330,868 95,532 $266,631 90,058
Effect of Dilutive Securities
Convertible Preferred Units.... 26,720 11,012 26,422 10,393 26,428 10,360
Convertible Preferred Stock.... 6,592 2,625 6,572 2,625 5,834 2,337
Stock Options and other........ -- 1,547 -- 1,280 -- 541
-------- ------- -------- ------- -------- -------
Diluted Funds from Operations
before net derivative losses
and after early surrender lease
adjustment..................... $449,216 125,987 $363,862 109,830 $298,893 103,296
======== ======= ======== ======= ======== =======
Diluted Funds from Operations
available to common
stockholders before net
derivative losses and after
early surrender lease
adjustment..................... $375,046 105,185 $283,994 85,723 $229,961 79,473
======== ======= ======== ======= ======== =======
</Table>
<Table>
<Caption>
FOR THE PERIOD FROM
FOR THE YEAR ENDED JUNE 23, 1997 TO
DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------- ----------------------------
INCOME SHARES/UNITS INCOME SHARES/UNITS
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
------------ ------------- ------------ -------------
(IN THOUSANDS)
Basic Funds from Operations........................... $205,209 81,487 $60,008 54,950
Effect of Dilutive Securities
Convertible Preferred Units......................... 2,819 1,135 -- --
Convertible Preferred Stock......................... -- -- -- --
Stock Options....................................... -- 532 -- 414
-------- ------ ------- ------
Diluted Funds from Operations......................... $208,028 83,154 $60,008 55,364
======== ====== ======= ======
Company's share of Diluted Funds from Operations...... $156,215 62,443 $42,258 39,108
======== ====== ======= ======
</Table>
10
<Page>
BOSTON PROPERTIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
--------
Report of Independent Accountants........................... 12
Consolidated Balance Sheets as of December 31, 2001 and
2000...................................................... 13
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999.......................... 14
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 2001, 2000 and 1999.............. 16
Consolidated Statements of Comprehensive Income for the
years ended December 31, 2001, 2000 and 1999.............. 17
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.......................... 18
Notes to Consolidated Financial Statements.................. 20
Financial Statement Schedule--Schedule III.................. 44
</Table>
All other schedules for which a provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
11
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Boston Properties, Inc.:
In our opinion, the accompanying consolidated financial statements and
the financial statement schedule listed in the accompanying index present
fairly, in all material respects, the financial position of Boston
Properties, Inc. (the "Company") at December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in
the period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial statement schedule are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
financial statement schedule, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 19 to the consolidated financial statements, the
Company, on January 1, 2001, adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended and interpreted. Also, as discussed in Note 20 to the
consolidated financial statements, in 2002 the Company adopted the provisions
of Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets".
Boston, Massachusetts
January 25, 2002, except for Notes 20 and 21,
as to which the date is November 14, 2002
12
<Page>
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2001 2000
------------ ------------
(IN THOUSANDS, EXCEPT FOR
SHARE AMOUNTS)
ASSETS
Real estate:................................................ $7,457,906 $6,112,779
Less: accumulated depreciation............................ (719,854) (586,719)
---------- ----------
Total real estate....................................... 6,738,052 5,526,060
Cash and cash equivalents................................... 98,067 280,957
Escrows..................................................... 23,000 85,561
Investments in securities................................... 4,297 7,012
Tenant and other receivables (net of allowance for doubtful
accounts of $2,394 and $2,112, respectively).............. 43,546 26,852
Accrued rental income (net of allowance of $3,300 and
$3,300, respectively)..................................... 119,494 91,684
Deferred charges, net....................................... 107,573 77,319
Prepaid expenses and other assets........................... 20,996 41,154
Investments in unconsolidated joint ventures................ 98,485 89,871
---------- ----------
Total assets............................................ $7,253,510 $6,226,470
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes and bonds payable.......................... $4,314,942 $3,414,891
Accounts payable and accrued expenses..................... 81,108 57,338
Dividends and distributions payable....................... 79,561 71,274
Interest rate contracts................................... 11,147 --
Accrued interest payable.................................. 9,080 5,599
Other liabilities......................................... 58,859 51,926
---------- ----------
Total liabilities....................................... 4,554,697 3,601,028
---------- ----------
Commitments and contingencies............................... -- --
---------- ----------
Minority interests.......................................... 844,740 877,715
---------- ----------
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, 90,780,591 and 86,630,089 issued and
outstanding in 2001 and 2000, respectively.............. 908 866
Additional paid-in capital................................ 1,789,521 1,673,349
Dividends in excess of earnings........................... (17,669) (13,895)
Treasury common stock, at cost............................ (2,722) --
Unearned compensation..................................... (2,097) (848)
Accumulated other comprehensive loss...................... (13,868) (11,745)
---------- ----------
Total stockholders' equity.............................. 1,754,073 1,647,727
---------- ----------
Total liabilities and stockholders' equity............ $7,253,510 $6,226,470
========== ==========
</Table>
The accompanying notes are an integral part of these financial statements.
13
<Page>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
2001* 2000* 1999*
---------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER
SHARE AMOUNTS)
Revenue
Rental:
Base rent............................................... $ 843,854 $711,744 $643,174
Recoveries from tenants................................. 107,025 91,827 71,950
Parking and other....................................... 51,999 50,892 45,751
---------- -------- --------
Total rental revenue.................................. 1,002,878 854,463 760,875
Development and management services....................... 13,190 11,837 14,708
Interest and other........................................ 12,183 8,558 6,439
---------- -------- --------
Total revenue......................................... 1,028,251 874,858 782,022
---------- -------- --------
Expenses
Operating................................................. 311,371 263,914 248,546
General and administrative................................ 38,312 35,659 29,455
Interest.................................................. 223,389 217,064 205,410
Depreciation and amortization............................. 149,348 132,330 119,311
Loss on investments in securities......................... 6,500 -- --
---------- -------- --------
Total expenses........................................ 728,920 648,967 602,722
---------- -------- --------
Income before net derivative losses, minority interests in
property partnerships, income from unconsolidated joint
ventures, minority interest in Operating Partnership, gain
(loss) on sale of real estate, discontinued operations,
extraordinary items, cumulative effect of a change in
accounting principle and preferred dividend............... 299,331 225,891 179,300
Net derivative losses....................................... (26,488) -- --
Minority interests in property partnerships................. 1,085 (932) (4,614)
Income from unconsolidated joint ventures................... 4,186 1,758 468
---------- -------- --------
Income before minority interest in Operating Partnership,
gain (loss) on sale of real estate, discontinued
operations, extraordinary items, cumulative effect of a
change in accounting principle and preferred dividend..... 278,114 226,717 175,154
Minority interest in Operating Partnership.................. (74,832) (75,310) (64,104)
---------- -------- --------
Income before gain (loss) on sale of real estate,
discontinued operations, extraordinary items, cumulative
effect of a change in accounting principle and preferred
dividend.................................................. 203,282 151,407 111,050
Gain (loss) on sale of real estate, net of minority
interest.................................................. 9,089 (234) 6,467
---------- -------- --------
Income before discontinued operations, extraordinary items,
cumulative effect of a change in accounting principle and
preferred dividend........................................ 212,371 151,173 117,517
Discontinued operations, net of minority interest........... 2,428 2,159 2,259
---------- -------- --------
Income before extraordinary items, cumulative effect of a
change in accounting principle and preferred dividend..... 214,799 153,332 119,776
Extraordinary items, net of minority interest............... -- (334) --
---------- -------- --------
Income before cumulative effect of a change in accounting
principle and preferred dividend.......................... 214,799 152,998 119,776
Cumulative effect of a change in accounting principle, net
of minority interest...................................... (6,767) -- --
---------- -------- --------
Net income before preferred dividend........................ 208,032 152,998 119,776
Preferred dividend.......................................... (6,592) (6,572) (5,829)
---------- -------- --------
Net income available to common shareholders................. $ 201,440 $146,426 $113,947
========== ======== ========
</Table>
14
<Page>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
2001* 2000* 1999*
---------- -------- --------
(IN THOUSANDS, EXCEPT FOR PER
SHARE AMOUNTS)
Basic earnings per share:
Income available to common shareholders before
discontinued operations, extraordinary items and
cumulative effect of a change in accounting principle... $ 2.28 $ 2.02 $ 1.69
Discontinued operations, net of minority interest......... 0.03 0.03 0.03
Extraordinary items, net of minority interest............. -- -- --
Cumulative effect of a change in accounting principle, net
of minority interest.................................... (0.07) -- --
---------- -------- --------
Net income available to common shareholders............... $ 2.24 $ 2.05 $ 1.72
========== ======== ========
Weighted average number of common shares outstanding...... 90,002 71,424 66,235
========== ======== ========
Diluted earnings per share:
Income available to common shareholders before
discontinued operations, extraordinary items and
cumulative effect of a change in accounting principle... $ 2.23 $ 1.98 $ 1.68
Discontinued operations, net of minority interest......... 0.03 0.03 0.03
Extraordinary items, net of minority interest............. -- -- --
Cumulative effect of a change in accounting principle, net
of minority interest.................................... (0.07) -- --
---------- -------- --------
Net income available to common shareholders............... $ 2.19 $ 2.01 $ 1.71
========== ======== ========
Weighted average number of common and common equivalent
shares outstanding...................................... 92,200 72,741 66,776
========== ======== ========
</Table>
* Reclassified as described in Note 20.
The accompanying notes are an integral part of these financial statements.
15
<Page>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<Table>
<Caption>
ACCUMULATED
COMMON STOCK ADDITIONAL DIVIDENDS TREASURY OTHER
------------------- PAID-IN IN EXCESS OF STOCK, UNEARNED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS AT COST COMPENSATION LOSS
-------- -------- ---------- ------------ -------- ------------- --------------
Stockholders' Equity,
December 31, 1998......... 63,528 $635 $ 955,711 $ (7,865)
Sale of Common Stock net of
offering costs............ 4,000 40 140,648
Unregistered Common Stock
issued.................... 343 4 12,321
Conversion of operating
partnership units to
Common Stock.............. 10 -- 260
Allocation of minority
interest.................. (41,965)
Net income for the year..... 113,947
Dividends declared.......... (116,975)
Shares issued pursuant to
stock purchase plan....... 5 -- 181
Stock options exercised..... 24 -- 622
------ ---- ---------- --------- ------- ------- --------
Stockholders' Equity,
December 31, 1999......... 67,910 679 1,067,778 (10,893)
Sale of Common Stock net of
offering costs............ 17,110 171 633,591
Unregistered Common Stock
issued.................... 439 4 18,156
Conversion of operating
partnership units to
Common Stock.............. 614 6 20,239
Allocation of minority
interest.................. (85,809)
Net income for the year..... 146,426
Dividends declared.......... (149,428)
Shares issued pursuant to
stock purchase plan....... 11 -- 374
Stock options exercised..... 511 5 17,961
Issuance of restricted
stock..................... 35 1 1,059 $(1,060)
Amortization of restricted
stock award............... 212
Unrealized holding losses... $(11,745)
------ ---- ---------- --------- ------- ------- --------
Stockholders' Equity,
December 31, 2000......... 86,630 866 1,673,349 (13,895) (848) (11,745)
Conversion of operating
partnership units to
Common Stock.............. 3,765 38 149,588
Allocation of minority
interest.................. (47,852)
Net income for the year..... 201,440
Dividends declared.......... (205,214)
Shares issued pursuant to
stock purchase plan....... 8 -- 213
Stock options exercised..... 412 4 12,396
Treasury stock, at cost..... (79) $(2,722)
Issuance of restricted
stock..................... 45 1,827 (1,827)
Amortization of restricted
stock award............... 578
Other comprehensive losses,
net....................... (2,123)
------ ---- ---------- --------- ------- ------- --------
Stockholders' Equity,
December 31, 2001......... 90,781 $908 $1,789,521 $ (17,669) $(2,722) $(2,097) $(13,868)
====== ==== ========== ========= ======= ======= ========
<Caption>
TOTAL
----------
Stockholders' Equity,
December 31, 1998......... $ 948,481
Sale of Common Stock net of
offering costs............ 140,688
Unregistered Common Stock
issued.................... 12,325
Conversion of operating
partnership units to
Common Stock.............. 260
Allocation of minority
interest.................. (41,965)
Net income for the year..... 113,947
Dividends declared.......... (116,975)
Shares issued pursuant to
stock purchase plan....... 181
Stock options exercised..... 622
----------
Stockholders' Equity,
December 31, 1999......... 1,057,564
Sale of Common Stock net of
offering costs............ 633,762
Unregistered Common Stock
issued.................... 18,160
Conversion of operating
partnership units to
Common Stock.............. 20,245
Allocation of minority
interest.................. (85,809)
Net income for the year..... 146,426
Dividends declared.......... (149,428)
Shares issued pursuant to
stock purchase plan....... 374
Stock options exercised..... 17,966
Issuance of restricted
stock..................... --
Amortization of restricted
stock award............... 212
Unrealized holding losses... (11,745)
----------
Stockholders' Equity,
December 31, 2000......... 1,647,727
Conversion of operating
partnership units to
Common Stock.............. 149,626
Allocation of minority
interest.................. (47,852)
Net income for the year..... 201,440
Dividends declared.......... (205,214)
Shares issued pursuant to
stock purchase plan....... 213
Stock options exercised..... 12,400
Treasury stock, at cost..... (2,722)
Issuance of restricted
stock..................... --
Amortization of restricted
stock award............... 578
Other comprehensive losses,
net....................... (2,123)
----------
Stockholders' Equity,
December 31, 2001......... $1,754,073
==========
</Table>
The accompanying notes are an integral part of these financial statements.
16
<Page>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2001 2000 1999
--------- --------- ---------
(IN THOUSANDS)
Net income.................................................. $208,032 $152,998 $119,776
Other comprehensive loss:
Realized loss on investments in securities included in net
income available to common shareholders................. 6,500 -- --
Unrealized gains (losses) on investments in securities:
Unrealized holding losses arising during the period..... (1,608) (11,745) --
Less: reclassification adjustment for the cumulative
effect of a change in accounting principle included in
net income available to common shareholders........... 6,853 -- --
Unrealized derivative losses:
Transition adjustment of interest rate contracts........ (11,414) -- --
Effective portion of interest rate contracts............ (2,454) -- --
-------- -------- --------
Other comprehensive loss.................................... (2,123) (11,745) --
-------- -------- --------
Comprehensive income........................................ $205,909 $141,253 $119,776
======== ======== ========
</Table>
The accompanying notes are an integral part of these financial statements
17
<Page>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
2001 2000 1999
----------- --------- ---------
(IN THOUSANDS)
Cash flows from operating activities:
Net income before preferred dividend.................... $ 208,032 $ 152,998 $ 119,776
Adjustments to reconcile net income before preferred
dividend to net cash provided by operating activities:
Depreciation and amortization......................... 150,163 133,150 120,059
Non-cash portion of interest expense.................. 3,937 3,693 2,364
Non-cash compensation expense......................... 578 2,170 --
Loss on investments in securities..................... 6,500 -- --
Non-cash portion of derivative losses................. (2,473) -- --
Minority interest in property partnerships............ (1,085) 932 4,614
Earnings in excess of distributions from
unconsolidated joint ventures....................... (1,451) 90 504
Minority interest in Operating Partnership............ 75,878 75,860 67,186
Loss (gain) on sales of real estate................... (11,239) 314 (8,736)
Extraordinary loss.................................... -- 433 --
Cumulative effect of a change in accounting
principle........................................... 8,432 -- --
Change in assets and liabilities:
Escrows............................................... 4,951 12,303 (21,240)
Tenant and other receivables, net..................... (16,694) 1,407 12,571
Accrued rental income, net............................ (27,961) (14,509) (17,977)
Prepaid expenses and other assets..................... 10,154 (2,792) (14,040)
Accounts payable and accrued expenses................. 29,265 (14,300) 19,264
Interest rate contracts............................... (2,541) -- --
Accrued interest payable.............................. 3,481 (2,887) 1,179
Other liabilities..................................... 8,580 1,644 15,832
Tenant leasing costs.................................. (27,104) (21,032) (11,329)
----------- --------- ---------
Total adjustments................................... 211,371 176,476 170,251
----------- --------- ---------
Net cash provided by operating activities........... 419,403 329,474 290,027
----------- --------- ---------
Cash flows from investing activities:
Acquisitions/additions to real estate................... (1,322,565) (615,006) (657,922)
Investments in unconsolidated joint ventures............ (7,163) (16,582) 9,765
Net proceeds from the sales of real estate.............. 26,106 70,712 13,103
Investments in securities............................... -- (2,297) (6,500)
----------- --------- ---------
Net cash used in investing activities............... (1,303,622) (563,173) (641,554)
----------- --------- ---------
</Table>
The accompanying notes are an integral part of these financial statements
18
<Page>
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- --------- ---------
(IN THOUSANDS)
Cash flows from financing activities:
Net proceeds from the issuance of common stock............ -- 633,762 240,688
Borrowings on unsecured line of credit.................... 111,200 184,000 696,000
Repayments of unsecured line of credit.................... (111,200) (550,000) (345,000)
Repayments of mortgage notes.............................. (229,021) (525,241) (33,362)
Proceeds from mortgage notes.............................. 1,128,534 976,390 307,525
Bonds payable proceeds released from escrow............... 57,610 -- --
Repayments of notes payable............................... -- -- (328,143)
Dividends and distributions............................... (276,538) (209,723) (181,493)
Proceeds from stock transactions.......................... 12,665 16,382 803
Purchase of treasury common stock......................... (2,722) -- --
Net contributions from minority interest holder........... 37,539 -- --
Deferred financing costs.................................. (26,738) (22,949) (5,622)
---------- --------- ---------
Net cash provided by financing activities............... 701,329 502,621 351,396
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ (182,890) 268,922 (131)
Cash and cash equivalents, beginning of period.............. 280,957 12,035 12,166
---------- --------- ---------
Cash and cash equivalents, end of period.................... $ 98,067 $ 280,957 $ 12,035
========== ========= =========
Supplemental disclosures:
Cash paid for interest.................................... $ 275,263 $ 253,971 $ 218,820
========== ========= =========
Interest capitalized...................................... $ 59,292 $ 37,713 $ 16,953
========== ========= =========
Non-cash investing and financing activities:
Additions to real estate included in accounts payable..... $ 5,547 $ 4,858 $ 606
========== ========= =========
Mortgage notes payable assumed in connection with the
acquisition of real estate.............................. $ -- $ 117,831 $ 28,331
========== ========= =========
Mortgage notes payable assigned in connection with the
sale of real estate..................................... $ -- $ 166,547 $ --
========== ========= =========
Bonds payable proceeds escrowed........................... $ -- $ 57,610 $ --
========== ========= =========
Issuance of minority interest in connection with the
acquisition of real estate.............................. $ -- $ 44,712 $ 2,063
========== ========= =========
Dividends and distributions declared but not paid......... $ 79,561 $ 71,274 $ 50,114
========== ========= =========
Notes receivable assigned in connection with an
acquisition............................................. $ -- $ -- $ 420,143
========== ========= =========
Notes payable assigned in connection with an
acquisition............................................. $ -- $ -- $ 92,000
========== ========= =========
Common stock issued in connection with an acquisition of
real estate............................................. $ -- $ 2,660 $ 825
========== ========= =========
Common stock issued in connection with an acquisition of
minority interest....................................... $ -- $ 15,500 $ 11,500
========== ========= =========
Conversions of Minority Interest to Stockholders'
Equity.................................................. $ 119,604 $ 20,245 $ 260
========== ========= =========
Basis adjustment in connection with conversions of
Minority Interest to Stockholders' Equity............... $ 33,927 $ -- $ --
========== ========= =========
Real estate contributed to joint ventures................. $ -- $ 36,999 $ --
========== ========= =========
Issuance of restricted shares to employees................ $ 1,827 $ 1,060 $ --
========== ========= =========
Unrealized loss related to investments in securities...... $ 1,608 $ 11,745 $ --
========== ========= =========
</Table>
The accompanying notes are an integral part of these financial statements
19
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
Boston Properties, Inc. (the "Company"), a Delaware corporation, is a
self-administered and self-managed real estate investment trust ("REIT"). Boston
Properties, Inc. is the sole general partner of Boston Properties Limited
Partnership (the "Operating Partnership") and at December 31, 2001, owned an
approximate 75.0% 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 at
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 of the Company ("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. 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 bears 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, subject to
the terms of such Preferred Units.
All references to the Company hereafter refer to Boston Properties, Inc. and
its subsidiaries, including the Operating Partnership, collectively, unless the
context otherwise requires.
PROPERTIES
At December 31, 2001, the Company owned a portfolio of 147 commercial real
estate properties (145 properties at December 31, 2000) (the "Properties")
aggregating more than 40.7 million net rentable square feet (including 12
properties under construction totaling approximately 4.9 million net rentable
square feet). The Properties consist of 139 office properties, including 107
Class A office properties and 32 Office/Technical properties; five industrial
properties; three hotels; and structured parking for 17,645 vehicles containing
approximately 6.0 million square feet. In addition, the Company owns or controls
44 parcels of land totaling 568.6 acres (which will support approximately
9.7 million net rentable square feet of development). 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 and other technical uses.
20
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
BASIS OF PRESENTATION
The consolidated financial statements of the Company include all the
accounts of the Company, its majority-owned Operating Partnership, and
subsidiaries. All significant intercompany balances and transactions have been
eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE
Real estate is stated at depreciated cost. The Company periodically reviews
its properties to determine if their carrying amounts will be recovered from
future operating cash flows. If the Company determines that an impairment has
occurred, those assets shall be reduced to fair value. No such impairment losses
have been recognized to date.
The cost of buildings and improvements include the purchase price of
property, legal fees and acquisition costs.
The costs of land and buildings under development include specifically
identifiable costs. The capitalized costs include pre-construction costs
essential to the development of the property, development costs, construction
costs, interest costs, real estate taxes, salaries and related costs and other
costs incurred during the period of development. Interest costs capitalized for
the years ended December 31, 2001, 2000 and 1999 were $59.3 million,
$37.7 million and $17.0 million, respectively. Salaries and related costs
capitalized for the years ended December 31, 2001, 2000 and 1999 were
$6.5 million, $5.0 million and $3.2 million, respectively.
The acquisitions of minority interests for shares of the Company's Common
Stock are recorded under the purchase method with assets acquired reflected at
the fair market value of the Company's Common Stock on the date of acquisition.
The acquisition amounts are allocated to real estate based on their estimated
fair values.
Expenditures for repairs and maintenance are charged to operations as
incurred. Significant betterments are capitalized. When assets are sold or
retired, their costs and related accumulated depreciation are removed from the
accounts with the resulting gains or losses reflected in net income or loss for
the period.
Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets as follows:
<Table>
Land improvements.................... 25 to 40 years
Buildings and improvements........... 10 to 40 years
Tenant improvements.................. Shorter of useful life or terms of
related lease
Furniture, fixtures, and equipment... 3 to 7 years
</Table>
21
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and investments with
maturities of three months or less from the date of purchase. The majority of
the Company's cash and cash equivalents are held at major commercial banks. The
Company has not experienced any losses to date on its invested cash.
ESCROWS
Escrows include amounts established pursuant to various agreements for
security deposits, property taxes, insurance and other costs. At December 31,
2000, proceeds of $57.6 million from the permanent financing of a development
property had been deposited into an escrow account and recorded in mortgage
notes and bonds payable until the completion of construction on the development
property, at which time the construction loan was repaid and the proceeds were
made available to the Company.
INVESTMENTS IN SECURITIES
The Company accounts for investments in securities of publicly traded
companies in accordance with Statement of Financial Accounting Standard ("SFAS")
No. 115 "Accounting for Certain Investments in Debt and Equity Investments" and
has classified the securities as available-for-sale. Investments in securities
of non-publicly traded companies are recorded at cost, as they are not
considered marketable under SFAS 115. During the year ended December 31, 2001,
the Company realized a loss totaling $6.5 million related to the write-down of
securities of two publicly traded telecommunications companies. The Company
determined that the decline in the fair value of these securities was other than
temporary as defined by SFAS No. 115. As of December 31, 2000, the fair value of
the investments in common stocks and warrants was approximately $7.0 million and
the gross unrealized holding loss of approximately $11.7 million was included in
accumulated other comprehensive loss on the consolidated balance sheets.
DEFERRED CHARGES
Deferred charges include leasing costs and financing fees. Fees and costs
incurred in the successful negotiation of leases, including brokerage, legal,
leasing employee salaries and other costs have been deferred and are being
amortized on a straight-line basis over the terms of the respective leases. Fees
and costs incurred to obtain long-term financing have been deferred and are
being amortized over the terms of the respective loans on a basis that
approximates the effective interest method and are included with interest
expense. Unamortized financing and leasing costs are charged to expense upon the
early repayment of financing or upon the early termination of the lease. Fully
amortized deferred charges are removed from the books upon the expiration of the
lease or maturity of the debt.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The Company accounts for its investments in joint ventures, which it does
not control, using the equity method of accounting. Under the equity method of
accounting, the net equity investment of the Company is reflected on the
consolidated balance sheets, and the Company's share of net income or loss from
the joint ventures is included on the consolidated statements of operations.
22
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company serves as the development manager for the joint ventures
currently under development. The profit on development fees received from joint
ventures is recognized to the extent attributable to the outside interests in
the joint ventures.
OFFERING COSTS
Underwriting commissions and offering costs have been reflected as a
reduction of additional paid-in capital.
DIVIDENDS
Earnings and profits, which determine the taxability of dividends to
stockholders, will differ from income reported for financial reporting purposes
due to the differences for federal income tax purposes primarily in the
estimated useful lives used to compute depreciation. Dividends declared
represented 100% ordinary income for federal income tax purposes for the years
ended December 31, 2001, 2000 and 1999.
REVENUE RECOGNITION
Base rental revenue is reported on a straight-line basis over the terms of
the respective leases. The impact of the straight-line rent adjustment increased
revenue by $27.8 million, $12.9 million and $16.8 million for the years ended
December 31, 2001, 2000 and 1999, respectively. Accrued rental income represents
rental income earned in excess of rent payments received pursuant to the terms
of the individual lease agreements, net of an allowance for doubtful accounts.
Property operating cost reimbursements due from tenants for common area
maintenance, real estate taxes and other recoverable costs are recognized in the
period the expenses are incurred.
Development fees are recognized ratably over the period of development.
Management fees are recognized as revenue as they are earned.
The estimated fair value of warrants received in conjunction with
communications license agreements are recognized over the ten-year effective
terms of the license agreements.
The Company recognizes gains from sales of real estate at the time of sale
using the full accrual method, provided that various criteria related to the
terms of the transactions and any subsequent involvement by us with the
properties sold are met. If the criteria are not met, the Company defers the
gains and recognizes them when the criteria are met or using the installment or
cost recovery methods, as appropriate under the circumstances.
INTEREST EXPENSE AND INTEREST RATE PROTECTION AGREEMENTS
Interest expense on fixed rate debt with predetermined periodic rate
increases is computed using the effective interest method over the terms of the
respective loans.
The Company has entered into certain interest rate protection agreements to
reduce the impact of changes in interest rates on its variable rate debt. The
fair value of these agreements is reflected on the Consolidated Balance Sheets.
Changes in the fair value of these agreements are recorded in the
23
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Consolidated Statements of Operations to the extent the agreements are not
effective for accounting purposes.
EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares of Common Stock outstanding during the year.
Diluted EPS reflects the potential dilution that could occur from shares
issuable through stock-based compensation including stock options, conversion of
the minority interests in the Operating Partnership and conversion of the
preferred stock of the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, escrows, receivables,
accounts payable, accrued expenses and other assets and liabilities are
reasonable estimates of their fair values because of the short maturities of
these instruments. Mortgage notes payable have aggregate carrying values that
approximate their estimated fair values based upon the remaining maturities for
certain debt and interest rates for debt with similar terms and remaining
maturities. The fair value of these financial instruments were not materially
different from their carrying or contract values.
INCOME TAXES
The Company has elected to be treated as a REIT under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing
with its taxable year ended December 31, 1997. As a result, the Company
generally will not be subject to federal corporate income tax on its taxable
income that is distributed to its stockholders. A REIT is subject to a number of
organizational and operational requirements, including a requirement that it
currently distribute at least 90% of its annual taxable income. The Company's
policy is to distribute 100% of its taxable income. Accordingly, no provision
has been made for federal income taxes in the accompanying consolidated
financial statements.
To assist the Company in maintaining its status as a REIT, the Company
leases its three in-service hotel properties, pursuant to leases 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. Marriott
International, Inc. manages these hotel properties under the
Marriott-Registered Trademark- name pursuant to management agreements with the
lessee. Rental revenue from these leases totaled approximately $31.3 million,
$38.1 million and $32.1 million for the years ended December 31, 2001, 2000 and
1999, respectively.
The net difference between the tax basis and the reported amounts of the
Company's assets and liabilities is approximately $1.2 billion as of
December 31, 2001 and 2000.
Certain entities included in the Company's consolidated financial statements
are subject to District of Columbia franchise taxes. Franchise taxes are
recorded as operating expenses in the accompanying consolidated financial
statements.
24
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior-year balances have been reclassified in order to conform to
current-year presentation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. These estimates include such items as
depreciation and allowances for doubtful accounts. Actual results could differ
from those estimates.
3. REAL ESTATE
Real estate consisted of the following at December 31:
<Table>
<Caption>
2001 2000
---------- ----------
Land................................................. $1,194,050 $ 965,140
Land held for future development..................... 182,672 107,005
Buildings and improvements........................... 4,640,684 3,939,857
Tenant improvements.................................. 264,658 225,305
Furniture, fixtures and equipment.................... 66,540 57,994
Development in process............................... 1,109,302 817,478
---------- ----------
Total................................................ 7,457,906 6,112,779
Less: Accumulated depreciation....................... (719,854) (586,719)
---------- ----------
$6,738,052 $5,526,060
========== ==========
</Table>
4. DEFERRED CHARGES
Deferred charges consisted of the following at December 31:
<Table>
<Caption>
2001 2000
-------- --------
Leasing costs........................................... $114,811 $ 88,681
Financing costs......................................... 74,394 51,453
-------- --------
189,205 140,134
Less: Accumulated amortization.......................... (81,632) (62,815)
-------- --------
$107,573 $ 77,319
======== ========
</Table>
25
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
The investments in unconsolidated joint ventures consists of the following:
<Table>
<Caption>
%
ENTITY PROPERTY LOCATION OWNERSHIP
- ------ -------------------- ---------------- ---------
One Freedom Square LLC................... One Freedom Square Reston, VA 25%(1)
Square 407 LP............................ Market Square North Washington, D.C. 50%
The Metropolitan Square Associates LLC... Metropolitan Square Washington, D.C. 51%
BP 140 Kendrick Street LLC............... 140 Kendrick Street Needham, MA 25%(1)
BP/CRF 265 Franklin Street Holdings 265 Franklin Street
LLC.................................... Boston, MA 35%
Discovery Square LLC..................... Discovery Square (2) Reston, VA 50%
BP/CRF 901 New York Avenue LLC........... 901 New York Avenue(3) Washington, D.C. 25%(1)
Two Freedom Square LLC................... Two Freedom Square (2) Reston, VA 50%
</Table>
- ------------------------
(1) Ownership can increase based on certain return hurdles
(2) Property is currently under development
(3) Land held for development
The combined summarized financial information of the unconsolidated joint
ventures is as follows:
<Table>
<Caption>
DECEMBER 31,
-------------------
BALANCE SHEETS 2001 2000
- -------------- -------- --------
Real estate and development in process, net............. $720,568 $640,688
Other assets............................................ 40,670 30,919
-------- --------
Total assets.......................................... $761,238 $671,607
======== ========
Mortgage and construction loans payable................. $507,865 $446,520
Other liabilities....................................... 16,497 10,904
Partners' equity........................................ 236,876 214,183
-------- --------
Total liabilities and partners' equity................ $761,238 $671,607
======== ========
Company's share of equity............................... $ 98,485 $ 89,871
======== ========
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
------------------------------
STATEMENTS OF OPERATIONS 2001 2000 1999
- ------------------------ -------- -------- --------
Total revenue.................................... $80,813 $42,754 $12,836
Expenses
Operating...................................... 23,024 12,479 3,298
Interest....................................... 32,434 17,697 3,777
Depreciation and amortization.................. 13,557 7,802 3,308
------- ------- -------
Total expenses................................... 69,015 37,978 10,383
------- ------- -------
Net income....................................... $11,798 $ 4,776 $ 2,453
======= ======= =======
Company's share of net income.................... $ 4,186 $ 1,758 $ 468
======= ======= =======
</Table>
26
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. MORTGAGE NOTES AND BONDS PAYABLE
The Company had outstanding mortgage notes and bonds payable totaling
$4.3 billion and $3.4 billion as of December 31, 2001 and 2000, respectively,
each collateralized by one or more buildings and related land included in real
estate assets. The mortgage notes payable are generally due in monthly
installments and mature at various dates through August 1, 2021.
Fixed rate mortgage notes and bonds payable totaled approximately
$3.4 billion and $3.0 billion at December 31, 2001 and 2000, respectively, with
interest rates ranging from 6.40% to 9.65% (averaging 7.27% and 7.21% at
December 31, 2001 and 2000, respectively).
Variable rate mortgage notes payable (including construction loans payable)
totaled approximately $866.0 million and $404.1 million at December 31, 2001 and
2000, respectively, with interest rates ranging from 1.60% above the London
Interbank Offered Rate ("LIBOR") (1.87% and 6.57% at December 31, 2001 and 2000,
respectively) to 2.00% above LIBOR.
At December 31, 2001, the Company was a party to hedge contracts totaling
$150.0 million. The hedging agreements provide for a fixed interest rate when
LIBOR is less than 5.76% and when LIBOR is between 6.35% and 7.45% and between
7.51% and 9.00% for terms ranging from three to five years per the individual
hedging agreements.
Mortgage notes payable aggregating approximately $115.1 million and
$190.5 million at December 31, 2001 and 2000, respectively, are subject to
periodic scheduled interest rate increases. Interest expense for these mortgage
notes payable is computed using the effective interest method. Mortgage notes
payable aggregating approximately $220.7 million and $224.8 million at
December 31, 2001 and 2000, respectively, have been accounted for at their fair
value on the date the mortgage loans were assumed. The impact of using these
accounting methods decreased interest expense by $1.7 million, $3.6 million and
$4.7 million for the years ended December 31, 2001, 2000 and 1999, respectively.
The cumulative liability related to these accounting methods was $7.9 million
and $9.6 million at December 31, 2001 and 2000, respectively, and is included in
mortgage notes and bonds payable.
Combined aggregate principal payments of mortgage notes and bonds payable at
December 31, 2001 are as follows:
<Table>
<Caption>
(IN THOUSANDS)
--------------
2002........................................................ $ 282,139
2003........................................................ 809,695
2004........................................................ 306,567
2005........................................................ 277,880
2006........................................................ 284,516
Thereafter.................................................. 2,354,145
</Table>
7. UNSECURED LINE OF CREDIT
As of December 31, 2001, the Company had an agreement for a $605.0 million
unsecured revolving credit facility (the "Unsecured Line of Credit") maturing in
March 2003. Outstanding balances under the Unsecured Line of Credit currently
bear interest at a floating rate based on an increase over Eurodollar from 105
to 170 basis points or an increase over the lender's prime rate from
27
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. UNSECURED LINE OF CREDIT (CONTINUED)
zero to 75 basis points, depending upon the Company's applicable leverage ratio.
The Unsecured Line of Credit requires payments of interest only.
There were no outstanding balances on the Unsecured Line of Credit at
December 31, 2001 and 2000. The weighted-average balance outstanding was
approximately $11.3 million and $233.1 million during the year ended
December 31, 2001 and 2000, respectively. The weighted-average interest rate on
amounts outstanding was approximately 5.49% and 7.65% during the year ended
December 31, 2001 and 2000, respectively.
The Company's ability to borrow under the Unsecured Line of Credit is
subject to the Company's ongoing compliance with a number of financial and other
covenants, including, but not limited to, maintaining a certain ratio of secured
indebtedness to total asset value, as defined.
8. COMMITMENTS AND CONTINGENCIES
CONCENTRATIONS OF CREDIT RISK
Management of the Company performs ongoing credit evaluations of tenants and
may require tenants to provide some form of credit support such as corporate
guarantees and/or other financial guarantees. Although the Company's properties
are geographically diverse and the tenants operate in a variety of industries,
to the extent the Company has a significant concentration of rental revenue from
any single tenant, the inability of that tenant to make its lease payments could
have an adverse effect on the Company.
LEGAL MATTERS
The Company is subject to various legal proceedings and claims that arise in
the ordinary course of business. These matters are generally covered by
insurance. Management believes that the final outcome of such matters will not
have a material adverse effect on the financial position, results of operations
or liquidity of the Company.
ENVIRONMENTAL MATTERS
It is the Company's policy to retain independent environmental consultants
to conduct or update Phase I environmental assessments (which generally do not
involve invasive techniques such as soil or ground water sampling) and asbestos
surveys with respect to its properties. These pre-purchase environmental
assessments have not revealed environmental conditions that the Company believes
will have a material adverse effect on its business, assets or results of
operations, and the Company is not otherwise aware of environmental conditions
with respect to its properties which it believes would have such a material
adverse effect. However, from time to time pre-existing environmental conditions
at its properties have required environmental testing and/or regulatory filings.
In February 1999, one of the Company's affiliates acquired from Exxon
Corporation a property in Massachusetts that was formerly used as a petroleum
bulk storage and distribution facility and was known by the state regulatory
authority to contain soil and groundwater contamination. The Company recently
completed development of an office park on the property. The Company's affiliate
engaged a specially licensed environmental consultant to oversee the management
of contaminated soil and
28
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
groundwater that was disturbed in the course of construction. Pursuant to the
property acquisition agreement, Exxon agreed to (1) bear the liability arising
from releases or discharges of oil and hazardous substances which occurred at
the site prior to the Company's ownership, (2) continue remediating such
releases and discharges as necessary and appropriate to comply with applicable
requirements, and (3) indemnify the Company's affiliate for certain losses
arising from preexisting site conditions. Any indemnity claim may be subject to
various defenses.
Environmental investigations at two of the Company's properties in
Massachusetts have identified groundwater contamination migrating from off-site
source properties. In both cases the Company engaged a specially licensed
environmental consultant to perform the necessary investigations and assessments
and to prepare submittals to the state regulatory authority, including
Downgradient Property Status Opinions. These Opinions concluded that the
properties qualify for Downgradient Property Status under the state regulatory
program, which eliminates certain deadlines for conducting response actions at a
site. The Company also believes that these properties qualify for liability
relief under certain statutory amendments regarding upgradient releases.
Although the Company believes that the current or former owners of the
upgradient source properties may ultimately be responsible for some or all of
the costs of addressing the identified groundwater contamination, the Company
will take necessary further response actions (if any are required). No such
additional response actions are anticipated at this time.
One of the Company's affiliates recently acquired a property in
Massachusetts where historic groundwater contamination was identified prior to
acquisition. The Company engaged a specially licensed environmental consultant
to perform investigations and to prepare necessary submittals to the state
regulatory authority. The environmental consultant has concluded that
(1) certain identified groundwater contaminants are migrating to the subject
property from an off-site source property and (2) certain other detected
contaminants are likely related to a historic release on the subject property.
The consultant has recommended filing a Downgradient Property Status Opinion
(described above) with respect to contamination migrating from off-site and
conducting additional investigations, including the installation of off-site
monitoring wells, to determine the nature and extent of contamination
potentially associated with the historic use of the subject property. The
Company's affiliate has authorized such additional investigations and will take
necessary further response actions (if any are required).
Some of the Company's properties and certain properties owned by its
affiliates are located in urban, industrial and other previously developed areas
where fill or current or historical uses of the areas have caused site
contamination. Accordingly, it is sometimes necessary to institute special soil
and/or groundwater handling procedures in connection with construction and other
property operations in order to achieve regulatory closure and ensure that
contaminated materials are addressed in an appropriate manner. In these
situations it is the Company's practice to investigate the nature and extent of
detected contamination and estimate the costs of required response actions and
special handling procedures. The Company then uses this information as part of
its decision-making process with respect to the acquisition and/or development
of the property. For example, the Company recently acquired a parcel in
Massachusetts, formerly used as a quarry/asphalt batching facility, which it may
develop in the future. Pre-purchase testing indicated that the site contains
relatively low levels of certain contaminants. The Company anticipates that this
contamination will be addressed in concert
29
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
with future construction activities. When appropriate, the Company expects to
file a plan detailing such activities with the state regulatory authority and to
submit it for public review and comment pursuant to the state regulatory
authority's public information process.
The Company expects that resolution of the environmental matters relating to
the above will not have a material impact on its financial position, results of
operations or liquidity.
DEVELOPMENT
The Company has twelve properties currently under construction. Commitments
to complete these projects totaled approximately $672.3 million and
$677.7 million at December 31, 2001 and 2000, respectively. Of the remaining
commitment, $657.0 of the costs will be covered under its existing construction
loans.
SALE OF PROPERTY
The Operating Partnership Agreement provides that, until June 23, 2007, the
Operating Partnership may not sell or otherwise transfer four designated
properties in a taxable transaction without the prior written consent of the
Chairman and Chief Executive Officer. In connection with the acquisition or
contribution of 32 other Properties, the Company entered into similar agreements
for the benefit of the selling or contributing parties which specifically state
the Company will not sell or otherwise transfer the Properties in a taxable
transaction until specified dates ranging from June 2002 to April 2016. The
Operating Partnership is not required to obtain the consent from a party
protected thereby if such party does not continue to hold at least a specified
percentage of such party's OP Units issued in connection with such acquisition
or contribution.
9. MINORITY INTERESTS
Minority interests relate to the interest in the Operating Partnership not
owned by the Company and interests in property partnerships not owned by the
Company. As of December 31, 2001, the minority interest in the Operating
Partnership consisted of 20,212,776 OP Units and 9,346,033 Preferred Units held
by parties other than the Company.
On April 25, 2001, the Company acquired Citigroup Center through a venture
with a private real estate investment company. This venture is consolidated with
the financial results of the Company because the Company exercises control over
the entity that owns the property. The equity interest in the venture that is
not owned by the Company, totaling approximately $34.4 million at December 31,
2001, is included in Minority Interests on the accompanying Consolidated Balance
Sheet. The minority interest holder's share of income for Citigroup Center is
reflective of the Company's preferential return on and of its capital.
The Preferred Units at December 31, 2001 consist of 2,486,026 Series One
Preferred Units of limited partnership in the Operating Partnership (the "Series
One Preferred Units"), which bear a preferred distribution of 7.25% per annum on
a liquidation preference of $34.00 per unit and are convertible into OP Units at
a rate of $38.25 per Preferred Unit; 6,213,131 Series Two and Three Preferred
Units of limited partnership in the Operating Partnership (the "Series Two and
Three Preferred Units"), which bear a preferred distribution at an increasing
rate, ranging from 5.00% to
30
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. MINORITY INTERESTS (CONTINUED)
7.00% per annum on a liquidation preference of $50.00 per unit and will be
convertible into OP Units after December 31, 2002 at a rate of $38.10 per
Preferred Unit; and 650,876 Series Z Preferred Units, which bear distributions
at a rate ranging from zero to the distribution rate of an OP Unit, with a
liquidation preference of $37.25 per unit and are convertible into OP Units at a
rate equal to the greater of (1) one-for-one or (2) $37.25 divided by the fair
market value of an OP Unit on the earlier of (1) the date of each such
conversion or (2) the date on which the Company registers the Common Stock that
may be issued in exchange for any OP Units issued upon such conversion.
Distributions to holders of Preferred Units are recognized on a straight-line
basis that approximates the effective interest method.
10. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
As of December 31, 2001, the Company had 90,780,591 shares of Common Stock
and 2,000,000 shares of Series A Convertible Redeemable Preferred Stock (the
"Preferred Stock") outstanding. The Preferred Stock bears a preferred dividend
at an increasing rate, ranging from 5.00% to 7.00% per annum on a liquidation
preference of $50.00 per share and will be convertible into Common Stock after
December 31, 2002 at a rate of $38.10 per share. The preferred dividend is
recognized on a straight-line basis that approximates the effective interest
method. These shares of Preferred Stock are not classified as equity in certain
instances as 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 in six annual tranches commencing on May 12, 2009.
On September 14, 2001, the Board of Directors of the Company authorized a
stock repurchase program under which the Company is permitted to purchase up to
$100 million of the Company's outstanding Common Stock. As of December 31, 2001,
the Company had repurchased 78,900 shares of Common Stock for an aggregate cost
of approximately $2.7 million.
11. FUTURE MINIMUM RENTS
The Properties are leased to tenants under net operating leases with
initial term expiration dates ranging from 2002 to 2029. The future minimum
lease payments to be received (excluding operating expense reimbursements) by
the Company as of December 31, 2001 (excluding properties sold during 2002),
under non-cancelable operating leases (including leases for properties under
development), which expire on various dates through 2029, are as follows:
<Table>
<Caption>
YEARS ENDING DECEMBER 31, (IN THOUSANDS)
- ------------------------- --------------
2002........................................................ $ 918,435
2003........................................................ 938,176
2004........................................................ 917,959
2005........................................................ 840,564
2006........................................................ 743,294
Thereafter.................................................. 4,840,639
</Table>
31
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. FUTURE MINIMUM RENTS (CONTINUED)
The geographic concentration of the future minimum lease payments to be
received is detailed as follows:
<Table>
<Caption>
LOCATION (IN THOUSANDS)
- -------- --------------
Midtown Manhattan........................................... $4,739,448
Greater Washington, D.C..................................... 1,611,025
Greater Boston.............................................. 1,598,361
Greater San Francisco....................................... 900,526
New Jersey and Pennsylvania................................. 349,707
</Table>
No one tenant represented more than 10.0% of the Company's total rental
revenue for the years ended December 31, 2001, 2000 and 1999.
12. SEGMENT REPORTING
The Company has determined that its reportable segments are those that are
based on the Company's method of internal reporting, which classifies its
operations by both geographic area and property type. The Company's reportable
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, Office/Technical, Industrial
and Hotel.
Asset information by reportable 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. Development and
management services revenue, interest and other revenue, general and
administrative expenses and interest expense are not included in operating
income, as the internal reporting addresses these on a corporate level.
32
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. SEGMENT REPORTING (CONTINUED)
Information by Geographic Area and Property Type:
For the year ended December 31, 2001:
<Table>
<Caption>
GREATER NEW JERSEY
GREATER WASHINGTON, MIDTOWN GREATER SAN AND
BOSTON D.C. MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- --------- ----------- ------------ ----------
Rental Revenue:
Class A..................... $220,126 $223,865 $222,490 $213,378 $62,357 $ 942,216
Office/Technical............ 7,837 14,420 -- 2,019 -- 24,276
Industrial.................. 1,199 677 -- 1,456 724 4,056
Hotels...................... 32,330 -- -- -- -- 32,330
-------- -------- -------- -------- ------- ----------
Total..................... 261,492 238,962 222,490 216,853 63,081 1,002,878
% of Grand Totals............. 26.07% 23.83% 22.19% 21.62% 6.29% 100.00%
Rental Expenses:
Class A..................... 76,472 58,164 70,360 74,358 20,493 299,847
Office/Technical............ 1,871 2,470 -- 354 -- 4,695
Industrial.................. 425 260 -- 241 122 1,048
Hotels...................... 5,781 -- -- -- -- 5,781
-------- -------- -------- -------- ------- ----------
Total..................... 84,549 60,894 70,360 74,953 20,615 311,371
% of Grand Totals............. 27.15% 19.57% 22.60% 24.07% 6.61% 100.00%
-------- -------- -------- -------- ------- ----------
Net operating income.......... $176,943 $178,068 $152,130 $141,900 $42,466 $ 691,507
======== ======== ======== ======== ======= ==========
% of Grand Totals............. 25.59% 25.74% 22.00% 20.53% 6.14% 100.00%
</Table>
For the year ended December 31, 2000:
<Table>
<Caption>
GREATER NEW JERSEY
GREATER WASHINGTON, MIDTOWN GREATER SAN AND
BOSTON D.C. MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- --------- ----------- ------------ ---------
Rental Revenue:
Class A...................... $190,900 $212,512 $141,400 $182,657 $59,442 $ 786,911
Office/Technical............. 5,912 15,367 -- 1,851 -- 23,130
Industrial................... 1,921 1,348 -- 1,736 714 5,719
Hotels....................... 38,703 -- -- -- -- 38,703
-------- -------- -------- -------- ------- ---------
Total...................... 237,436 229,227 141,400 186,244 60,156 854,463
% of Grand Totals.............. 27.78% 26.83% 16.55% 21.80% 7.04% 100.00%
Rental Expenses:
Class A...................... 67,704 56,078 47,537 62,940 18,255 252,514
Office/Technical............. 2,315 2,711 -- 334 -- 5,360
Industrial................... 553 452 -- 224 117 1,346
Hotels....................... 4,694 -- -- -- -- 4,694
-------- -------- -------- -------- ------- ---------
Total...................... 75,266 59,241 47,537 63,498 18,372 263,914
% of Grand Totals.............. 28.52% 22.45% 18.01% 24.06% 6.96% 100.00%
-------- -------- -------- -------- ------- ---------
Net operating income........... $162,170 $169,986 $ 93,863 $122,746 $41,784 $ 590,549
======== ======== ======== ======== ======= =========
% of Grand Totals.............. 27.46% 28.78% 15.89% 20.79% 7.08% 100.00%
</Table>
33
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. SEGMENT REPORTING (CONTINUED)
For the year ended December 31, 1999:
<Table>
<Caption>
GREATER NEW JERSEY
GREATER WASHINGTON, MIDTOWN GREATER SAN AND
BOSTON D.C. MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- --------- ----------- ------------ ---------
Rental Revenue:
Class A...................... $162,109 $202,323 $136,814 $158,127 $41,852 $ 701,225
Office/Technical............. 5,892 14,185 -- 1,672 -- 21,749
Industrial................... 1,671 1,433 -- 1,220 675 4,999
Hotels....................... 32,902 -- -- -- -- 32,902
-------- -------- -------- -------- ------- ---------
Total...................... 202,574 217,941 136,814 161,019 42,527 760,875
% of Grand Totals.............. 26.63% 28.64% 17.98% 21.16% 5.59% 100.00%
Rental Expenses:
Class A...................... 63,493 55,346 46,938 59,076 12,695 237,548
Office/Technical............. 1,744 2,846 -- 381 -- 4,971
Industrial................... 506 450 -- 215 83 1,254
Hotels....................... 4,773 -- -- -- -- 4,773
-------- -------- -------- -------- ------- ---------
Total...................... 70,516 58,642 46,938 59,672 12,778 248,546
% of Grand Totals.............. 28.37% 23.59% 18.89% 24.01% 5.14% 100.00%
-------- -------- -------- -------- ------- ---------
Net operating income........... $132,058 $159,299 $ 89,876 $101,347 $29,749 $ 512,329
======== ======== ======== ======== ======= =========
% of Grand Totals.............. 25.78% 31.09% 17.54% 19.78% 5.81% 100.00%
</Table>
The following is a reconciliation of net operating income to income before
net derivative losses, minority interests and income from unconsolidated joint
ventures:
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
Net operating income........................................ $691,507 $590,549 $512,329
Add:
Development and management services....................... 13,190 11,837 14,708
Interest and other........................................ 12,183 8,558 6,439
Less:
General and administrative................................ 38,312 35,659 29,455
Interest expense.......................................... 223,389 217,064 205,410
Depreciation and amortization............................. 149,348 132,330 119,311
Loss on investments in securities......................... 6,500 -- --
-------- -------- --------
Income before net derivative losses, minority interests and
income from unconsolidated joint ventures................. $299,331 $225,891 $179,300
======== ======== ========
</Table>
34
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. GAIN ON SALE OF REAL ESTATE AND EXTRAORDINARY ITEMS
The Company realized a gain of $9.1 million (net of minority interest share
of $2.1 million) for the year ended December 31, 2001 related to the sales of
various properties. The Company realized a loss of $0.2 million (net of minority
interest share of $0.1 million) for the year ended December 31, 2000 related to
the sales of various properties. The Company realized a gain of $6.5 million
(net of minority interest share of $2.2 million) for the year ended
December 31, 1999 from the sale of a property.
The Company incurred an extraordinary loss of $0.3 million (net of minority
interest share of $0.1 million) for the year ended December 31, 2000 from the
write-off of unamortized deferred financing costs related to the early
extinguishment of a mortgage note payable.
14. EARNINGS PER SHARE
Earnings per share is computed as follows:
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31, 2001
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic Earnings Per Share:
Income available to common stockholders................. $201,440 90,002 $2.24
Effect of Dilutive Securities:
Stock Options and other................................. 244 2,198 (.05)
-------- ------ -----
Diluted Earnings Per Share:
Income available to common stockholders................. $201,684 92,200 $2.19
======== ====== =====
</Table>
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31, 2000
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic Earnings Per Share:
Income available to common stockholders................. $146,426 71,424 $2.05
Effect of Dilutive Securities:
Stock Options and other................................. -- 1,317 (.04)
-------- ------ -----
Diluted Earnings Per Share:
Income available to common stockholders................. $146,426 72,741 $2.01
======== ====== =====
</Table>
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31, 1999
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic Earnings Per Share:
Income available to common stockholders................. $113,947 66,235 $1.72
Effect of Dilutive Securities:
Stock Options........................................... -- 541 (.01)
-------- ------ -----
Diluted Earnings Per Share:
Income available to common stockholders................. $113,947 66,776 $1.71
======== ====== =====
</Table>
35
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. EMPLOYEE BENEFIT PLAN
Effective January 1, 1985, the predecessor of the Company adopted a 401(k)
Savings Plan (the "Plan") for its employees. Under the Plan, as amended,
employees as defined, are eligible to participate in the Plan after they have
completed three months of service. In addition, participants may elect to make
an after-tax contribution of up to 10% of their wages. Upon formation, the
Company adopted the Plan and the terms of the Plan.
In November 1999, the Company amended the Plan by increasing the Company's
matching contribution to 200% of the first 3% from 200% of the first 2% of
participant's pay contributed (utilizing pay that is not in excess of $100) and
by eliminating the vesting requirement. The effective date of these changes was
January 1, 2000.
The Plan provides that matching employer contributions are to be determined
at the discretion of the Company. The Company's matching contribution for the
years ended December 31, 2001, 2000 and 1999 was $1.8 million, $1.7 million and
$0.9 million, respectively.
16. STOCK OPTION AND INCENTIVE PLAN AND STOCK PURCHASE PLAN
The Company has established a stock option and incentive plan for the
purpose of attracting and retaining qualified executives and rewarding them for
superior performance in achieving the Company's business goals and enhancing
stockholder value.
Under the plan, the number of shares available for option grant is
14,699,162 shares plus as of the first day of each calendar quarter after
January 1, 2000, 9.5% of any net increase since the first day of the preceding
calendar quarter in the total number of shares of Common Stock outstanding, on a
fully converted basis (excluding Preferred Stock). At December 31, 2001, the
number of shares available for option grants under the plan was 4,673,521. The
strike price on the shares granted is equal to the market price of the Company's
Common Stock on the grant date. Shares granted under the plan vest over two,
three or five years. The term of each option is ten years from the date of
grant.
The Company issued 44,842 and 34,822 shares of restricted stock during the
years ended December 31, 2001 and 2000, respectively. There was no restricted
stock issued prior to the year 2000. The shares of restricted stock were valued
at approximately $1.8 million ($40.75 per share) and $1.1 million ($30.4375 per
share) for the years ended December 31, 2001 and 2000, respectively. The
restricted stock vests over a five-year period, with one-fifth of the shares
vesting each year and has been recognized net of amortization as unearned
compensation on the consolidated balance sheets. Compensation expense related to
the restricted stock totaled $0.6 million and $0.2 million for the years ended
December 31, 2001 and 2000, respectively. There was no compensation expense
related to restricted stock during the year ended December 31, 1999.
36
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. STOCK OPTION AND INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)
A summary of the status of the Company's stock options as of December 31,
2001, 2000 and 1999 and changes during the years ended December 31, 2001, 2000
and 1999 are presented below:
<Table>
<Caption>
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
---------- --------------
Outstanding at January 1, 1999...................... 5,837,950 $30.58
Granted............................................. 1,777,408 $33.20
Exercised........................................... (24,023) $25.87
Canceled............................................ (35,877) $33.38
---------- ------
Outstanding at December 31, 1999.................... 7,555,458 $31.20
Granted............................................. 1,072,750 $30.60
Exercised........................................... (511,281) $30.59
Canceled............................................ (15,245) $33.20
---------- ------
Outstanding at December 31, 2000.................... 8,101,682 $31.15
Granted............................................. 3,247,250 $41.60
Exercised........................................... (406,371) $30.40
Canceled............................................ (35,003) $33.60
---------- ------
Outstanding at December 31, 2001.................... 10,907,558 $34.28
========== ======
</Table>
The per share weighted-average fair value of options granted was $5.01,
$3.79 and $3.98 for the years ended December 31, 2001, 2000 and 1999,
respectively. The per share fair value of each option granted is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants in 2001, 2000 and 1999.
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
Dividend yield................................... 5.72% 6.90% 6.08%
Expected life of option.......................... 6 Years 6 Years 6 Years
Risk-free interest rate.......................... 5.13% 6.51% 5.07%
Expected stock price volatility.................. 20% 20% 20%
</Table>
The following table summarizes information about stock options outstanding
at December 31, 2001:
<Table>
<Caption>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ ----------------------------
WEIGHTED- WEIGHTED-
RANGE OF NUMBER AVERAGE AVERAGE NUMBER WEIGHTED-
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE AVERAGE
PRICES AT 12/31/01 CONTRACTUAL LIFE PRICE AT 12/31/01 EXERCISE PRICE
- --------------------- ----------- ---------------- --------- ----------- --------------
$25.00 - $36.81...... 7,665,308 6.46 Years $31.19 4,999,346 $31.37
$39.07 - $42.12...... 3,242,250 9.08 Years $41.59 -- --
</Table>
In addition, the Company had 3,397,714 and 1,328,955 options exercisable at
weighted-average exercise prices of $32.11 and 33.26 at December 31, 2000 and
1999, respectively.
37
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
16. STOCK OPTION AND INCENTIVE PLAN AND STOCK PURCHASE PLAN (CONTINUED)
The Company adopted the 1999 Non-Qualified Employee Stock Purchase Plan (the
"Stock Purchase Plan") to encourage the ownership of Common Stock by eligible
employees. The Stock Purchase Plan became effective on January 1, 1999 with an
aggregate maximum of 250,000 shares of Common Stock available for issuance. The
Stock Purchase Plan provides for eligible employees to purchase at the end of
the biannual purchase periods shares of Common Stock for 85% of the average
closing price during the valuation period, as defined. The Company issued 8,538,
11,105 and 5,115 shares with the weighted average fair value of the purchase
right equal to $36.02 per share, $28.15 per share and $30.24 per share under the
Stock Purchase Plan as of December 31, 2001, 2000 and 1999, respectively.
The Company applies Accounting Practice Bulletin 25 and related
interpretations in accounting for its stock option and stock purchase plan.
Accordingly, no compensation cost has been recognized.
The compensation cost under SFAS 123 for the stock performance-based plan
would have been $11.7 million, $12.0 million and $10.5 million for the years
ended December 31, 2001, 2000 and 1999, respectively. Had compensation cost for
the Company's grants for stock-based compensation plans been determined
consistent with SFAS 123, the Company's net income, and net income per common
share for 2001, 2000 and 1999 would approximate the pro forma amounts below:
<Table>
<Caption>
2001 2000 1999
-------- -------- --------
Net income.................................... $189,786 $134,386 $103,481
Net income per common share--basic............ $ 2.11 $ 1.88 $ 1.56
Net income per common share--diluted.......... $ 2.06 $ 1.85 $ 1.55
</Table>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to future anticipated
awards.
38
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
17. SELECTED INTERIM FINANCIAL INFORMATION (UNAUDITED)
<Table>
<Caption>
2001 QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
Total revenue...................................... $232,246 $255,083 $275,959 $264,963
Income before minority interest in Operating
Partnership...................................... 67,650 66,214 71,381 72,869
Income before extraordinary items.................. 54,017 50,686 53,168 56,928
Net income available to common stockholders........ 45,607 49,038 51,515 55,280
Income before extraordinary items per
share--basic..................................... .59 .54 .57 .61
Income before extraordinary items per
share--diluted................................... .57 .53 .56 .60
</Table>
<Table>
<Caption>
2000 QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
Total revenue...................................... $209,121 $216,121 $222,228 $227,388
Income before minority interest in Operating
Partnership...................................... 49,473 55,716 57,666 63,862
Income before extraordinary items.................. 32,620 37,327 38,173 45,212
Net income available to common stockholders........ 30,977 35,684 36,530 43,235
Income before extraordinary items per
share--basic..................................... .46 .52 .53 .54
Income before extraordinary items per
share--diluted................................... .45 .51 .52 .53
</Table>
18. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The accompanying unaudited pro forma information for the years ended
December 31, 2001 and 2000 is presented as if the follow-on offering of
17,110,000 shares of Common Stock issued on October 31, 2000 and the acquisition
of Citigroup Center on April 25, 2001 had occurred on January 1, 2000. This pro
forma information is based upon the historical consolidated financial statements
and should be read in conjunction with the consolidated financial statements and
notes thereto.
39
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
18. PRO FORMA FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
This unaudited pro forma information does not purport to represent what the
actual results of operations of the Company would have been had the above
occurred, nor do they purport to predict the results of operations of future
periods.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
-------------------------
PRO FORMA 2001 2000
- --------- ------------ ----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Total revenue......................................... $1,060,053 $970,346
Income before cumulative effect of a change in
accounting principle................................ $ 209,707 $163,720
Net income available to common stockholders........... $ 202,940 $163,720
Basic earnings per share:
Income before cumulative effect of a change in
accounting principle................................ $ 2.33 $ 1.85
Net income available to common stockholders........... $ 2.25 $ 1.85
Weighted average number of common shares
outstanding......................................... 90,002 88,534
Diluted earnings per share:
Income before cumulative effect of a change in
accounting principle................................ $ 2.27 $ 1.82
Net income available to common stockholders........... $ 2.20 $ 1.82
Weighted average number of common and common
equivalent shares outstanding....................... 92,200 89,851
</Table>
19. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as amended by SFAS No. 137 and SFAS No. 138 ("SFAS
No. 133"), as of January 1, 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. It requires the
recognition of all derivative instruments as assets or liabilities in the
Company's consolidated balance sheets at fair value. Changes in the fair value
of derivative instruments that are not designated as hedges or that do not meet
the hedge accounting criteria in SFAS No. 133 are required to be reported
through earnings. For derivatives designated as hedging instruments in
qualifying cash flow hedges, the effective portion of changes in fair value of
the derivatives are recognized in accumulated other comprehensive income (loss)
until the forecasted transactions occur and the ineffective portions are
recognized in earnings.
On the date that the Company enters into a derivative contract, it
designates the derivative as (1) a hedge of the variability of cash flows that
are to be received or paid in connection with a recognized liability (a "cash
flow" hedge), or (2) an instrument that is held for non-hedging purposes (a
"non-hedging" instrument). Changes in the fair value of a derivative that is
highly effective as--and that is designated and qualifies as--a cash flow hedge,
to the extent that the hedge is effective, are recorded in other comprehensive
income, until earnings are affected by the hedged transaction (i.e. until
periodic settlements of a variable-rate liability are recorded in earnings). Any
hedge
40
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
19. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)
ineffectiveness (which represents the amount by which the changes in the fair
value of the derivative exceed the variability in the cash flows of the
forecasted transaction) is recorded in current-period earnings. Changes in the
fair value of non-hedging instruments are reported in current-period earnings.
The Company occasionally purchases a financial instrument in which a
derivative instrument is "embedded." Upon purchasing the financial instrument,
the Company assesses whether the economic characteristics of the embedded
derivative are clearly and closely related to the economic characteristics of
the remaining component of the financial instrument (i.e., the host contract)
and whether a separate, non-embedded instrument with the same terms as the
embedded instrument would meet the definition of a derivative instrument. When
it is determined that (1) the embedded derivative possesses economic
characteristics that are not clearly and closely related to the economic
characteristics of the host contract and (2) a separate, stand-alone instrument
with the same terms would qualify as a derivative instrument, the embedded
derivative is separated from the host contract, carried at fair value, and
designated as either (1) a fair-value or cash flow hedge or (2) a trading or
non-hedging derivative instrument. However, if the entire contract were to be
measured at fair value, with changes in fair value reported in current earnings,
or if the Company could not reliably identify and measure the embedded
derivative for purposes of separating that derivative from its host contract,
the entire contract would be carried on the balance sheet at fair value and not
be designated as a hedging instrument. Pursuant to SFAS No. 137, the Company has
selected January 1, 1999 as the transition date for embedded derivatives.
The Company formally documents all relationships between hedging instruments
and hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as cash flow hedges to (1) specific assets and
liabilities on the balance sheet or (2) forecasted 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. When it is determined that a derivative is not (or has ceased to
be) highly effective as a hedge, the Company discontinues hedge accounting
prospectively, as discussed below.
The Company discontinues hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the cash flows of a hedged item; (2) the derivative expires or is sold,
terminated, or exercised; (3) it is no longer probable that the forecasted
transaction will occur; or (4) management determines that designating the
derivative as a hedging instrument is no longer appropriate.
When the Company discontinues hedge accounting because it is no longer
probable that the forecasted transaction will occur in the originally expected
period, the gain or loss on the derivative remains in accumulated other
comprehensive income and is reclassified into earnings when the forecasted
transaction affects earnings. However, if it is probable that a forecasted
transaction will not occur by the end of the originally specified time period or
within an additional two-month period of time thereafter, the gains and losses
that were accumulated in other comprehensive income will be recognized
immediately in earnings. In all situations in which hedge accounting is
discontinued and the derivative remains outstanding, the Company will carry the
derivative at its fair value on the balance sheet, recognizing changes in the
fair value in current-period earnings.
41
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
19. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)
The Company entered into interest rate protection agreements during 2000,
generally for the purpose of fixing interest rates on variable rate construction
loans in order to reduce the budgeted interest costs on the Company's
development projects, which would translate into higher returns on investment as
the development projects come on-line. These interest rate protection agreements
expire at varying dates through February 2005. Other derivatives are not linked
to specific assets or liabilities but are used by the Company to manage risk of
the overall portfolio. Amounts included in accumulated other comprehensive
income related to the effective portion of cash flow hedges will be reclassified
into earnings over the estimated life of the constructed asset. No material
amounts are expected to be reclassified within the next twelve months.
Upon adoption of SFAS No. 133, the Company recorded an asset of
approximately $0.2 million (included in prepaid expenses and other assets) and
recorded a liability of approximately $11.4 million for the fair values of these
agreements. The offset for these entries was to a cumulative effect of a change
in accounting principle and accumulated other comprehensive loss, respectively.
Finally, the Company wrote-off deferred charges of approximately $1.6 million as
a cumulative effect of a change in accounting principle.
The Company's derivatives also include investments in warrants to purchase
shares of common stock of other companies. Based on the terms of the warrant
agreements, the warrants meet the definition of a derivative and accordingly
must be marked to fair value through earnings. The Company had been recording
the warrants at fair value through accumulated other comprehensive loss as
available-for-sale securities under SFAS No. 115. Upon adoption of SFAS
No. 133, the Company reclassified approximately $6.9 million, the fair value of
the warrants, from accumulated other comprehensive loss to a cumulative effect
of a change in accounting principle.
For the year ended December 31, 2001, the Company recorded derivative gains
(losses) of approximately ($29.0) million, $3.6 million and ($1.1) million
through earnings, which represented the total ineffectiveness of all cash flow
hedges and other non-hedging instruments, the changes in value of the embedded
derivatives and the change in value of the warrants, respectively. All
components of each derivative's gain or loss were included in the assessment of
hedge effectiveness, except for the time value of option contracts. During 2001,
the Company paid the fair value of the swap arrangement and two hedge contracts
that were entered into during 2000 and part of 2001 in order to terminate the
contracts. In addition, the Company recorded unrealized derivative losses
through other comprehensive income of approximately $2.5 million related to the
effective portion of an interest rate swap agreement.
20. DISCONTINUED OPERATIONS
In October 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes
FASB SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" and the accounting and reporting provisions
for disposals of a segment of a business as addressed in APB Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions". SFAS No. 144 establishes a single accounting model for
long-lived assets to be disposed of by sale and addresses various
42
<Page>
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
20. DISCONTINUED OPERATIONS (CONTINUED)
implementation issues of SFAS No. 121. In addition, SFAS No. 144 extends the
reporting requirements of discontinued operations to include components of an
entity that have either been disposed of or are classified as held for sale. The
Company adopted SFAS No. 144 as of January 1, 2002.
On March 4, 2002 the Company disposed of Fullerton Square consisting of two
office/technical properties totaling 179,453 net rentable square feet in
Springfield, Virginia. In addition, the Company disposed of 7600, 7700 and 7702
Boston Boulevard consisting of three office/technical properties totaling
approximately 195,227 net rentable square feet in Springfield, Virginia.
The Company's adoption of SFAS No. 144 resulted in the presentation of
the net operating results of these properties sold during 2002, as
discontinued operations for all periods presented. The adoption of SFAS No.
144 did not have an impact on net income available to common shareholders.
SFAS No. 144 only resulted in the reclassification of the operating results
of the properties sold during 2002 within the consolidated statements of
operations for the years ended December 31, 2001, 2000 and 1999.
21. SUBSEQUENT EVENT
On September 25, 2002, the Company acquired 399 Park Avenue, a 1.68 million
square foot building in New York City for approximately $1.06 billion. The
acquisition was funded with an unsecured bridge loan totaling $1.0 billion,
maturing in September 2003, and cash of approximately $60.0 million.
43
<Page>
BOSTON PROPERTIES, INC.
SCHEDULE 3--REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
COSTS
CAPITALIZED
ORIGINAL SUBSEQUENT
----------------------- TO LAND AND
PROPERTY NAME TYPE LOCATION ENCUMBRANCES LAND BUILDING ACQUISITION IMPROVEMENTS
- ------------- ------------ ------------------ ------------ ---------- ---------- ----------- ------------
Embarcadero Center... Office San Francisco, CA $ 701,245 $ 211,297 $ 996,442 $ 57,448 $ 212,149
Prudential Center.... Office Boston, MA 472,423 77,850 443,180 391,227 50,539
Citigroup Center..... Office New York, NY 522,044 241,600 494,782 446 241,600
Carnegie Center...... Office Princeton, NJ 152,500 101,772 349,089 14,718 109,691
280 Park Avenue...... Office New York, NY 267,789 125,288 201,115 34,642 125,288
599 Lexington
Avenue............. Office New York, NY 225,000 81,040 100,507 71,456 81,040
875 Third Avenue..... Office New York, NY 148,796 74,880 139,151 16,824 74,880
Riverfront Plaza..... Office Richmond, VA 113,250 18,000 156,733 956 18,274
Gateway Center....... Office San Francisco, CA 89,184 21,516 86,395 49,398 22,290
100 East Pratt
Street............. Office Baltimore, MD 90,375 27,562 109,662 2,556 27,562
Reservoir Place...... Office Waltham, MA 71,935 18,207 88,018 7,979 18,515
Democracy Center..... Office Bethesda, MD 106,002 12,550 50,015 26,318 13,689
Two Independence
Square............. Office Washington, DC 115,093 14,053 59,883 9,292 15,039
One and Two Reston
Overlook........... Office Reston, VA 67,485 16,456 66,192 21 16,456
NIMA Building........ Office Reston, VA 21,056 10,567 67,431 118 10,567
Lockheed Martin
Building........... Office Reston, VA 25,759 10,210 58,884 -- 10,210
Candler Building..... Office Baltimore, MD -- 12,500 48,734 1,343 12,555
One Independence
Square............. Office Washington, DC 75,000 9,356 33,701 17,448 9,634
Orbital Sciences..... Office Dulles, VA 49,231 5,702 51,082 357 5,702
2300 N Street........ Office Washington, DC 66,000 16,509 22,415 13,479 16,509
Reston Corporate
Center............. Office Reston, VA 24,303 9,135 41,398 632 9,135
New Dominion
Technology Park,
One................ Office Herndon, VA 57,610 3,880 43,227 -- 3,880
Capital Gallery...... Office Washington, DC 56,064 4,725 29,560 15,257 4,730
191 Spring Street.... Office Lexington, MA 22,480 2,850 27,166 18,783 2,850
1301 New York
Avenue............. Office Washington, DC 31,669 9,250 18,750 17,533 9,250
200 West Street...... Office Waltham, MA -- 16,148 24,983 (18) 16,148
University Place..... Office Cambridge, MA 24,679 -- 37,091 2,486 27
Sumner Square........ Office Washington, DC 30,183 624 28,745 8,943 958
2600 Tower Oaks
Boulevard.......... Office Rockville, MD 27,318 4,243 31,125 -- 4,243
<Caption>
DEVELOPMENT
LAND AND
BUILDING AND HELD FOR CONSTRUCTION ACCUMULATED YEAR(S) BUILT/ DEPRECIABLE
PROPERTY NAME IMPROVEMENTS DEVELOPMENT IN PROGRESS TOTAL DEPRECIATION RENOVATED LIVES (YEARS)
- ------------- ------------ ----------- ------------ ---------- ------------ --------------- -------------
Embarcadero Center... $1,053,038 $ -- $ -- $1,265,187 $ 85,363 1924/1989 (1)
Prudential Center.... 522,165 38,521 301,032 912,257 44,027 1965/1993 (1)
Citigroup Center..... 495,228 -- -- 736,828 8,444 1977/1997 (1)
Carnegie Center...... 355,888 -- -- 465,579 26,868 1983-1999 (1)
280 Park Avenue...... 235,757 -- -- 361,045 27,891 1968/95-96 (1)
599 Lexington
Avenue............. 171,963 -- -- 253,003 84,552 1986 (1)
875 Third Avenue..... 155,975 -- -- 230,855 14,475 1982 (1)
Riverfront Plaza..... 157,415 -- -- 175,689 15,636 1990 (1)
Gateway Center....... 88,683 4,233 42,103 157,309 5,203 1984/1986 (1)
100 East Pratt
Street............. 112,218 -- -- 139,780 12,470 1975/1991 (1)
Reservoir Place...... 95,689 -- -- 114,204 8,022 1955/1987 (1)
Democracy Center..... 75,194 -- -- 88,883 31,524 1985-88/94-96 (1)
Two Independence
Square............. 68,189 -- -- 83,228 18,693 1992 (1)
One and Two Reston
Overlook........... 66,213 -- -- 82,669 4,381 1999 (1)
NIMA Building........ 67,549 -- -- 78,116 6,602 1987/1988 (1)
Lockheed Martin
Building........... 58,884 -- -- 69,094 5,765 1987/1988 (1)
Candler Building..... 50,022 -- -- 62,577 4,238 1911/1990 (1)
One Independence
Square............. 50,871 -- -- 60,505 18,758 1991 (1)
Orbital Sciences..... 51,439 -- -- 57,141 1,811 2000/2001 (1)
2300 N Street........ 35,894 -- -- 52,403 14,240 1986 (1)
Reston Corporate
Center............. 42,030 -- -- 51,165 4,222 1984 (1)
New Dominion
Technology Park,
One................ 43,227 -- -- 47,107 1,299 2001 (1)
Capital Gallery...... 44,812 -- -- 49,542 22,886 1981 (1)
191 Spring Street.... 45,949 -- -- 48,799 16,695 1971/1995 (1)
1301 New York
Avenue............. 36,283 -- -- 45,533 3,059 1983/1998 (1)
200 West Street...... 24,965 -- -- 41,113 2,461 1999 (1)
University Place..... 39,550 -- -- 39,577 3,352 1985 (1)
Sumner Square........ 37,354 -- -- 38,312 2,829 1985 (1)
2600 Tower Oaks
Boulevard.......... 31,125 -- -- 35,368 561 2001 (1)
</Table>
44
<Page>
<Table>
<Caption>
COSTS
CAPITALIZED
ORIGINAL SUBSEQUENT
----------------------- TO LAND AND
PROPERTY NAME TYPE LOCATION ENCUMBRANCES LAND BUILDING ACQUISITION IMPROVEMENTS
- ------------- ------------ ------------------ ------------ ---------- ---------- ----------- ------------
500 E Street......... Office Washington, DC $ -- $ 109 $ 22,420 $ 12,074 $ 1,569
Quorum Office Park... Office Chelmsford, MA 27,295 3,076 30,443 -- 3,076
One Cambridge
Center............. Office Cambridge, MA -- 134 25,110 8,111 134
Eight Cambridge
Center............. Office Cambridge, MA 27,988 921 25,042 36 850
Bedford Business
Park............... Office Bedford, MA 21,178 534 3,403 18,494 534
Ten Cambridge
Center............. Office Cambridge, MA 35,226 1,299 12,943 7,637 1,868
Newport Office Park.. Office Quincy, MA -- 3,500 18,208 66 3,500
201 Spring Street.... Office Lexington, MA -- 2,849 15,303 70 2,849
10 and 20 Burlington
Mall Road.......... Office Burlington, MA 21,921 930 6,928 9,707 938
Montvale Center...... Office Gaithersburg, MD 7,418 1,574 9,786 4,771 2,399
40 Shattuck Road..... Office Andover, MA 14,822 709 14,740 -- 709
Fullerton Square..... Office Springfield, VA -- 3,045 11,522 761 3,045
The Arboretum........ Office Reston, VA -- 2,850 9,025 2,380 2,850
Lexington Office
Park............... Office Lexington, MA -- 998 1,426 11,459 1,073
Three Cambridge
Center............. Office Cambridge, MA -- 174 12,200 1,301 174
181 Spring Street.... Office Lexington, MA -- 1,066 9,520 1,970 1,066
Sugarland Business
Park............... Office Herndon, VA -- 1,569 5,955 4,194 1,569
Decoverly Three...... Office Rockville, MD -- 2,650 8,465 313 2,650
Decoverly Two........ Office Rockville, MD -- 1,994 8,814 94 1,994
7700 Boston
Boulevard, Building
Twelve............. Office Springfield, VA -- 1,105 9,077 186 1,105
7501 Boston
Boulevard, Building
Seven.............. Office Springfield, VA -- 665 9,273 9 665
91 Hartwell Avenue... Office Lexington, MA 17,936 784 6,464 2,446 784
92-100 Hayden
Avenue............. Office Lexington, MA -- 594 6,748 2,265 594
Waltham Office
Center............. Office Waltham, MA -- 422 2,719 5,799 425
195 West Street...... Office Waltham, MA -- 1,611 6,652 658 1,611
Eleven Cambridge
Center............. Office Cambridge, MA -- 121 5,535 2,399 121
170 Tracer Lane...... Office Waltham, MA -- 398 4,601 1,693 418
7435 Boston
Boulevard, Building
One................ Office Springfield, VA -- 392 3,822 2,304 486
7450 Boston
Boulevard, Building
Three.............. Office Springfield, VA -- 1,165 4,681 277 1,327
<Caption>
DEVELOPMENT
LAND AND
BUILDING AND HELD FOR CONSTRUCTION ACCUMULATED YEAR(S) BUILT/ DEPRECIABLE
PROPERTY NAME IMPROVEMENTS DEVELOPMENT IN PROGRESS TOTAL DEPRECIATION RENOVATED LIVES (YEARS)
- ------------- ------------ ----------- ------------ ---------- ------------ --------------- -------------
500 E Street......... $ 33,034 $ -- $ -- $ 34,603 $ 16,256 1987 (1)
Quorum Office Park... 30,443 -- -- 33,519 287 2001 (1)
One Cambridge
Center............. 33,221 -- -- 33,355 13,047 1987 (1)
Eight Cambridge
Center............. 25,149 -- -- 25,999 1,616 1999 (1)
Bedford Business
Park............... 21,897 -- -- 22,431 9,667 1980 (1)
Ten Cambridge
Center............. 20,011 -- -- 21,879 8,033 1990 (1)
Newport Office Park.. 18,274 -- -- 21,774 2,052 1988 (1)
201 Spring Street.... 15,373 -- -- 18,222 2,233 1997 (1)
10 and 20 Burlington
Mall Road.......... 16,627 -- -- 17,565 7,446 1984-1989/95-96 (1)
Montvale Center...... 13,732 -- -- 16,131 5,940 1987 (1)
40 Shattuck Road..... 14,740 -- -- 15,449 173 2001 (1)
Fullerton Square..... 12,283 -- -- 15,328 1,223 1987 (1)
The Arboretum........ 11,405 -- -- 14,255 1,134 1999 (1)
Lexington Office
Park............... 12,810 -- -- 13,883 6,253 1982 (1)
Three Cambridge
Center............. 13,501 -- -- 13,675 5,008 1987 (1)
181 Spring Street.... 11,490 -- -- 12,556 606 1999 (1)
Sugarland Business
Park............... 10,149 -- -- 11,718 1,995 1986/1997 (1)
Decoverly Three...... 8,778 -- -- 11,428 773 1989 (1)
Decoverly Two........ 8,908 -- -- 10,902 886 1987 (1)
7700 Boston
Boulevard, Building
Twelve............. 9,263 -- -- 10,368 1,130 1997 (1)
7501 Boston
Boulevard, Building
Seven.............. 9,282 -- -- 9,947 1,005 1997 (1)
91 Hartwell Avenue... 8,910 -- -- 9,694 4,506 1985 (1)
92-100 Hayden
Avenue............. 9,013 -- -- 9,607 4,046 1985 (1)
Waltham Office
Center............. 8,515 -- -- 8,940 4,338 1968-1970/87-88 (1)
195 West Street...... 7,310 -- -- 8,921 2,368 1990 (1)
Eleven Cambridge
Center............. 7,934 -- -- 8,055 3,334 1984 (1)
170 Tracer Lane...... 6,274 -- -- 6,692 3,992 1980 (1)
7435 Boston
Boulevard, Building
One................ 6,032 -- -- 6,518 3,253 1982 (1)
7450 Boston
Boulevard, Building
Three.............. 4,796 -- -- 6,123 501 1987 (1)
</Table>
45
<Page>
<Table>
<Caption>
COSTS
CAPITALIZED
ORIGINAL SUBSEQUENT
----------------------- TO LAND AND
PROPERTY NAME TYPE LOCATION ENCUMBRANCES LAND BUILDING ACQUISITION IMPROVEMENTS
- ------------- ------------ ------------------ ------------ ---------- ---------- ----------- ------------
8000 Grainger Court,
Building Five...... Office Springfield, VA $ -- $ 366 $ 4,282 $ 1,250 $ 453
Fourteen Cambridge
Center............. Office Cambridge, MA -- 110 4,483 569 110
32 Hartwell Avenue... Office Lexington, MA -- 168 1,943 2,893 168
7600 Boston
Boulevard, Building
Nine............... Office Springfield, VA -- 127 2,839 1,738 189
7601 Boston
Boulevard, Building
Eight.............. Office Springfield, VA -- 200 878 3,506 378
7500 Boston
Boulevard, Building
Six................ Office Springfield, VA -- 138 3,749 485 273
33 Hayden Avenue..... Office Lexington, MA -- 266 3,234 476 266
8000 Corporate Court,
Building Eleven.... Office Springfield, VA -- 136 3,071 405 504
7375 Boston
Boulevard, Building
Ten................ Office Springfield, VA -- 23 2,685 715 47
7451 Boston
Boulevard, Building
Two................ Office Springfield, VA -- 249 1,542 1,547 535
204 Second Avenue.... Office Waltham, MA -- 37 2,402 812 37
7374 Boston
Boulevard, Building
Four............... Office Springfield, VA -- 241 1,605 440 303
Hilltop Business
Center............. Office San Francisco, CA 5,588 53 492 1,640 109
164 Lexington Road... Office Billerica, MA -- 592 1,370 132 592
17 Hartwell Avenue... Office Lexington, MA -- 26 150 587 26
38 Cabot Boulevard... Industrial Langhorne, PA -- 329 1,238 2,608 329
40-46 Harvard
Street............. Industrial Westwood, MA -- 351 1,782 1,327 351
2391 West Winton
Avenue............. Industrial Hayward, CA -- 182 1,217 615 182
430 Rozzi Place...... Industrial San Francisco, CA -- 9 217 33 9
560 Forbes
Boulevard.......... Industrial San Francisco, CA -- 9 120 -- 9
Cambridge Center
Marriott........... Hotel Cambridge, MA -- 478 37,918 8,621 478
Long Wharf Marriott.. Hotel Boston, MA -- 1,752 31,904 9,574 1,708
Residence Inn by
Marriott........... Hotel Cambridge, MA -- 2,307 22,732 (99) 2,039
Cambridge Center
North Garage....... Garage Cambridge, MA -- 1,163 11,633 204 1,162
Five Times Square.... Development New York, NY 289,179 -- -- 409,324 --
Times Square Tower... Development New York, NY 145,472 -- -- 234,058 --
Waltham/Weston
Corporate Center... Development Waltham, MA 46,446 -- -- 54,799 --
Weston Corporate
Center............. Development Weston, MA -- -- -- 20,895 --
Broad Run Business
Park, Building E... Development Loudon County, VA -- -- -- 11,703 --
<Caption>
DEVELOPMENT
LAND AND
BUILDING AND HELD FOR CONSTRUCTION ACCUMULATED YEAR(S) BUILT/ DEPRECIABLE
PROPERTY NAME IMPROVEMENTS DEVELOPMENT IN PROGRESS TOTAL DEPRECIATION RENOVATED LIVES (YEARS)
- ------------- ------------ ----------- ------------ ---------- ------------ --------------- -------------
8000 Grainger Court,
Building Five...... $ 5,445 $ -- $ -- $ 5,898 $ 2,283 1984 (1)
Fourteen Cambridge
Center............. 5,052 -- -- 5,162 2,194 1983 (1)
32 Hartwell Avenue... 4,836 -- -- 5,004 3,780 1968-1979/1987 (1)
7600 Boston
Boulevard, Building
Nine............... 4,515 -- -- 4,704 2,136 1987 (1)
7601 Boston
Boulevard, Building
Eight.............. 4,206 -- -- 4,584 1,821 1986 (1)
7500 Boston
Boulevard, Building
Six................ 4,099 -- -- 4,372 1,710 1985 (1)
33 Hayden Avenue..... 3,710 -- -- 3,976 1,805 1979 (1)
8000 Corporate Court,
Building Eleven.... 3,108 -- -- 3,612 1,062 1989 (1)
7375 Boston
Boulevard, Building
Ten................ 3,376 -- -- 3,423 1,292 1988 (1)
7451 Boston
Boulevard, Building
Two................ 2,803 -- -- 3,338 2,147 1982 (1)
204 Second Avenue.... 3,214 -- -- 3,251 1,755 1981/1993 (1)
7374 Boston
Boulevard, Building
Four............... 1,983 -- -- 2,286 947 1984 (1)
Hilltop Business
Center............. 2,076 -- -- 2,185 1,023 early 1970's (1)
164 Lexington Road... 1,502 -- -- 2,094 240 1982 (1)
17 Hartwell Avenue... 737 -- -- 763 640 1968 (1)
38 Cabot Boulevard... 3,846 -- -- 4,175 2,708 1972/1984 (1)
40-46 Harvard
Street............. 3,109 -- -- 3,460 3,101 1967/1996 (1)
2391 West Winton
Avenue............. 1,832 -- -- 2,014 1,169 1974 (1)
430 Rozzi Place...... 250 -- -- 259 79 early 1970's (1)
560 Forbes
Boulevard.......... 120 -- -- 129 77 early 1970's (1)
Cambridge Center
Marriott........... 46,539 -- -- 47,017 16,472 1986 (1)
Long Wharf Marriott.. 41,522 -- -- 43,230 20,057 1982 (1)
Residence Inn by
Marriott........... 22,901 -- -- 24,940 1,355 1999 (1)
Cambridge Center
North Garage....... 11,838 -- -- 13,000 3,640 1990 (1)
Five Times Square.... -- -- 409,324 409,324 -- Various N/A
Times Square Tower... -- -- 234,058 234,058 -- Various N/A
Waltham/Weston
Corporate Center... -- -- 54,799 54,799 -- Various N/A
Weston Corporate
Center............. -- -- 20,895 20,895 -- Various N/A
Broad Run Business
Park, Building E... -- -- 11,703 11,703 -- Various N/A
</Table>
46
<Page>
<Table>
<Caption>
COSTS
CAPITALIZED
ORIGINAL SUBSEQUENT
------------------------- TO
PROPERTY NAME TYPE LOCATION ENCUMBRANCES LAND BUILDING ACQUISITION
- ------------- ------------ ------------------ ------------ ---------- ---------- -----------
One Preserve
Parkway............ Development Rockville, MD $ -- $ -- $ -- $ 10,660
12050 Sunset Hills
Road............... Development Reston, VA -- -- -- 6,472
Decoverly Seven...... Development Rockville, MD -- -- -- 5,290
New Dominion
Technology Park,
Two................ Development Herndon, VA -- -- -- 3,934
Decoverly Six........ Development Rockville, MD -- -- -- 3,798
ITT Educational
Services
Building........... Development Springfield, VA -- -- -- 3,767
Autometric
Expansion.......... Development Springfield, VA -- -- -- 1,467
Plaza at Almaden..... Land San Jose, CA -- -- -- 35,676
Tower Oaks Master
Plan............... Land Rockville, MD -- -- -- 25,999
Washingtonian
North.............. Land Gaithersburg, MD -- -- -- 17,406
77 4th Avenue........ Land Waltham, MA -- -- -- 14,272
Reston Eastgate...... Land Reston, VA -- -- -- 8,693
Crane Meadow......... Land Marlborough, MA -- -- -- 8,521
Reston Gateway....... Land Reston, VA -- -- -- 7,216
Broad Run Business
Park............... Land Loudon County, VA -- -- -- 6,733
599 Van Buren
Street............. Land Herndon, VA -- -- -- 4,020
12280 Sunrise Valley
Drive.............. Land Reston, VA -- -- -- 3,975
Decoverly Five....... Land Rockville, MD -- -- -- 1,827
Decoverly Four....... Land Rockville, MD -- -- -- 1,801
Cambridge Master
Plan............... Land Cambridge, MA -- -- -- 1,649
30 Shattuck Road..... Land Andover, MA -- -- -- 1,110
Seven Cambridge
Center............. Land Cambridge, MA -- -- -- 956
Virginia Master
Plan............... Land Springfield, VA -- -- -- 64
---------- ---------- ---------- ----------
$4,314,942 $1,204,320 $4,359,767 $1,827,279
========== ========== ========== ==========
<Caption>
DEVELOPMENT
LAND AND
LAND AND BUILDING AND HELD FOR CONSTRUCTION ACCUMULATED
PROPERTY NAME IMPROVEMENTS IMPROVEMENTS DEVELOPMENT IN PROGRESS TOTAL DEPRECIATION
- ------------- ------------ ------------ ----------- ------------ ---------- ------------
One Preserve
Parkway............ $ -- $ -- $ -- $ 10,660 $ 10,660 $ --
12050 Sunset Hills
Road............... -- -- -- 6,472 6,472 --
Decoverly Seven...... -- -- -- 5,290 5,290 --
New Dominion
Technology Park,
Two................ -- -- -- 3,934 3,934 --
Decoverly Six........ -- -- -- 3,798 3,798 --
ITT Educational
Services
Building........... -- -- -- 3,767 3,767 --
Autometric
Expansion.......... -- -- -- 1,467 1,467 --
Plaza at Almaden..... -- -- 35,676 -- 35,676 --
Tower Oaks Master
Plan............... -- -- 25,999 -- 25,999 --
Washingtonian
North.............. -- -- 17,406 -- 17,406 --
77 4th Avenue........ -- -- 14,272 -- 14,272 --
Reston Eastgate...... -- -- 8,693 -- 8,693 --
Crane Meadow......... -- -- 8,521 -- 8,521 --
Reston Gateway....... -- -- 7,216 -- 7,216 --
Broad Run Business
Park............... -- -- 6,733 -- 6,733 --
599 Van Buren
Street............. -- -- 4,020 -- 4,020 --
12280 Sunrise Valley
Drive.............. -- -- 3,975 -- 3,975 --
Decoverly Five....... -- -- 1,827 -- 1,827 --
Decoverly Four....... -- -- 1,801 -- 1,801 --
Cambridge Master
Plan............... -- -- 1,649 -- 1,649 --
30 Shattuck Road..... -- -- 1,110 -- 1,110 --
Seven Cambridge
Center............. -- -- 956 -- 956 --
Virginia Master
Plan............... -- -- 64 -- 64 --
---------- ---------- -------- ---------- ---------- --------
$1,194,050 $4,905,342 $182,672 $1,109,302 $7,391,366 $682,921
========== ========== ======== ========== ========== ========
<Caption>
YEAR(S) BUILT/ DEPRECIABLE
PROPERTY NAME RENOVATED LIVES (YEARS)
- ------------- --------------- -------------
One Preserve
Parkway............ Various N/A
12050 Sunset Hills
Road............... Various N/A
Decoverly Seven...... Various N/A
New Dominion
Technology Park,
Two................ Various N/A
Decoverly Six........ Various N/A
ITT Educational
Services
Building........... Various N/A
Autometric
Expansion.......... Various N/A
Plaza at Almaden..... Various N/A
Tower Oaks Master
Plan............... Various N/A
Washingtonian
North.............. Various N/A
77 4th Avenue........ Various N/A
Reston Eastgate...... Various N/A
Crane Meadow......... Various N/A
Reston Gateway....... Various N/A
Broad Run Business
Park............... Various N/A
599 Van Buren
Street............. Various N/A
12280 Sunrise Valley
Drive.............. Various N/A
Decoverly Five....... Various N/A
Decoverly Four....... Various N/A
Cambridge Master
Plan............... Various N/A
30 Shattuck Road..... Various N/A
Seven Cambridge
Center............. Various N/A
Virginia Master
Plan............... Various N/A
</Table>
- ----------------------------------
(1) Depreciation of the buildings and improvements are calculated over lives
ranging from the life of the lease to 40 years.
(2) The aggregate cost and accumulated depreciation for tax purposes was
approximately $6.4 billion and $0.9 billion, respectively.
47
<Page>
BOSTON PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
(DOLLARS IN THOUSANDS)
A summary of activity for real estate and accumulated depreciation is as
follows:
<Table>
<Caption>
2001 2000 1999
---------- ---------- ----------
Real Estate:
Balance at the beginning of the year................... $6,054,785 $5,570,887 $4,881,483
Additions to and improvements of real estate......... 1,357,543 759,540 691,199
Assets sold and written-off.......................... (20,962) (275,642) (1,795)
---------- ---------- ----------
Balance at the end of the year......................... $7,391,366 $6,054,785 $5,570,887
========== ========== ==========
Accumulated Depreciation:
Balance at the beginning of the year................... $ 553,264 $ 445,138 $ 336,165
Depreciation expense................................. 134,019 118,748 110,768
Assets sold and written-off.......................... (4,362) (10,622) (1,795)
---------- ---------- ----------
Balance at the end of the year......................... $ 682,921 $ 553,264 $ 445,138
========== ========== ==========
</Table>
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