Boston Properties, Inc. Announces Second Quarter 2008 Results
Reports diluted FFO per share of $1.19
Reports diluted EPS of $0.66
BOSTON, July 22 /PRNewswire-FirstCall/ -- Boston Properties, Inc. (NYSE: BXP), a real estate investment trust, reported results today for the second quarter ended June 30, 2008.
Funds from Operations (FFO) for the quarter ended June 30, 2008 were $145.0 million, or $1.21 per share basic and $1.19 per share diluted. This compares to FFO for the quarter ended June 30, 2007 of $142.9 million, or $1.20 per share basic and $1.18 per share diluted. The weighted average number of basic and diluted shares outstanding totaled 119,752,889 and 122,775,797, respectively, for the quarter ended June 30, 2008 and 118,961,276 and 122,660,356, respectively, for the quarter ended June 30, 2007.
Net income available to common shareholders was $79.5 million for the quarter ended June 30, 2008, compared to $102.3 million for the quarter ended June 30, 2007. Net income available to common shareholders per share (EPS) for the quarter ended June 30, 2008 was $0.66 basic and $0.66 on a diluted basis. This compares to EPS for the second quarter of 2007 of $0.86 basic and $0.84 on a diluted basis. EPS includes $0.04 and $0.11, on a diluted basis, related to gains on sales of real estate and discontinued operations for the quarters ended June 30, 2008 and 2007, respectively. The gains on sales of real estate for the quarter ended June 30, 2007 primarily resulted from the sales of Newport Office Park for a gross sale price of $37.0 million and our share of the gain on sale of Worldgate Plaza of approximately $15.5 million, which is included in income from unconsolidated joint ventures, for a gross sale price of $109.0 million.
The reported results are unaudited and there can be no assurance that the results will not vary from the final information for the quarter ended June 30, 2008. In the opinion of management, all adjustments considered necessary for a fair presentation of these reported results have been made.
As of June 30, 2008, the Company's portfolio consisted of 142 properties comprising approximately 46.8 million square feet, including 14 properties under construction totaling 4.4 million square feet and one hotel. The overall percentage of leased space for the 127 properties in service as of June 30, 2008 was 94.9%.
Significant events during the second quarter included:
- On April 1, 2008, the Company used available cash to repay the mortgage loan collateralized by its Prudential Center property located in Boston, Massachusetts totaling approximately $258.2 million. There was no prepayment penalty associated with the repayment. The mortgage loan bore interest at a fixed rate of 6.72% per annum and was scheduled to mature on July 1, 2008.
- On April 1, 2008, the Company cash-settled at maturity nine of its treasury lock contracts with notional amounts aggregating $325.0 million and made cash payments to the counterparties totaling approximately $33.5 million.
- On April 14, 2008, the Company sold a parcel of land located in Washington, D.C. for approximately $33.7 million. The Company had previously entered into a development management agreement with the buyer to develop a Class A office property on the parcel totaling approximately 165,000 net rentable square feet.
- On April 22, 2008, the Company executed a 15-year lease with Wellington Management Company, LLP for its development project located at 280 Congress Street (Russia Wharf) in Boston, Massachusetts. Wellington Management will occupy approximately 450,000 square feet out of the approximately 552,000 square feet of office space (82%) in this approximately 815,000 net rentable square foot mixed-use project. The lease is scheduled to commence in the spring of 2011.
- On April 29, 2008, the Company's Wisconsin Place joint venture entity that owns and is developing the land and infrastructure components of the project (a joint venture entity in which the Company owns an effective interest of approximately 23.89%) repaid the balance of its construction loan totaling approximately $29.6 million. The loan was scheduled to mature in March 2009. Wisconsin Place is a mixed-use development project consisting of office, retail and residential properties located in Chevy Chase, Maryland.
- On May 12, 2008, the Company acquired the remaining development rights for its 250 West 55th Street development project located in New York City for an aggregate purchase price of approximately $34.2 million. The acquisition was financed with approximately $19.2 million of cash and the issuance to the selling entity of 150,000 common units of limited partnership interest in the Company's Operating Partnership.
- On May 30, 2008, the Company's Value-Added Fund obtained mortgage financing totaling $120.0 million (of which $103.0 million was drawn at closing, with the remaining $17.0 million available to fund future tenant and capital costs) collateralized by its Mountain View Research Park properties. Mountain View Research Park consists of sixteen Class A office and office/technical properties aggregating approximately 601,000 net rentable square feet located in Mountain View, California. The mortgage financing bears interest at a variable rate equal to LIBOR plus 1.75% per annum and matures on May 31, 2011 with two, one-year extension options. The Value-Added Fund entered into three interest rate swap contracts with notional amounts aggregating $103.0 million to fix the one-month LIBOR index rate at 3.63% per annum through April 1, 2011. The proceeds of the mortgage financing were used to repay the remaining $100.0 million of financing provided by the Company to the Value-Added Fund in connection with the Company's transfer of the Mountain View Research and Technology Park properties to the Value-Added Fund in January 2008. In addition, on June 12, 2008, the Value-Added Fund entered into an interest rate swap contract related to the mortgage loan collateralized by its Mountain View Technology Park properties with a notional amount of $24.0 million to fix the one-month LIBOR index rate at 4.085% per annum through maturity on March 31, 2011.
- On June 6, 2008, the Company's Operating Partnership utilized an accordion feature under its unsecured revolving credit facility with a consortium of lenders to increase the current maximum borrowing amount under the facility from $605.0 million to $923.3 million. On July 21, 2008, the Company's Operating Partnership further increased the maximum borrowing amount to $1.0 billion. All other material terms under the facility remain unchanged.
- On June 9, 2008, the Company completed the acquisition of the General Motors Building in New York City for a purchase price of approximately $2.8 billion. The General Motors Building is an approximately 2,000,000 (as re- measured) rentable square foot office building located at the corner of 5th Avenue and Central Park South in New York City. The acquisition was completed through a joint venture among the Company, US Real Estate Opportunities I, L.P., which is a partnership managed by Goldman Sachs, and Meraas Capital LLC, a Dubai-based private equity firm. The Company has a 60% interest in the venture and will provide customary property management and leasing services for the venture. The purchase price consisted of approximately $890 million of cash, the issuance to the selling entity of 102,883 common units of limited partnership interest in the Company's Operating Partnership and the assumption of approximately $1.9 billion of secured and mezzanine loans having a weighted average fixed interest rate of 5.97% per annum, all of which mature in September 2017. In addition, the venture acquired the lenders' interest in a portion of the assumed mezzanine loans having an aggregate principal amount of $294.0 million and a stated interest rate of 6.02% per annum. The Company expects that the acquired mezzanine loans will remain outstanding pending a decision to either sell them or retire them. The Company now projects its share of the General Motors Building's annualized 2008 Unleveraged Cash Return, including fee income, to be approximately 4.6% and its share of the property's annualized 2008 Unleveraged FFO Return, including fee income, to be approximately 10.0%. The Company now projects its share of the General Motors Building's 2009 Unleveraged Cash Return, including fee income, to be approximately 5.0% and its share of the property's 2009 Unleveraged FFO Return, including fee income, to be approximately 10.3%. The calculation of the updated projected returns and related disclosures are presented on the accompanying table entitled "Projected 2008 and 2009 Returns on Acquisition." There can be no assurances that actual returns will not differ materially from these projections.
The Company expects to consummate the previously announced acquisitions of 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower, also located in New York City, through joint ventures in each of which the Company will own a 60% interest. 540 Madison Avenue is a 39-story building located at Madison Avenue at 55th Street that contains approximately 292,000 rentable square feet. 125 West 55th Street is a 23-story building, spanning from 55th to 56th Streets between Avenue of the Americas and Seventh Avenue, that contains approximately 591,000 rentable square feet. Two Grand Central Tower is a 44-story mid-block tower that runs from 44th to 45th Street between Lexington and Third Avenue and contains approximately 664,000 rentable square feet. The purchase prices for these properties are: 540 Madison Avenue, $277.1 million; 125 West 55th Street, $444.0 million; and Two Grand Central Tower, $427.9 million. The debt that is expected to be assumed as part of the transactions consists of the following: 540 Madison Avenue - two secured loans having an aggregate principal amount of $120 million and a weighted average interest rate of 5.28% per annum, each of which matures in July 2013; 125 West 55th Street - an aggregate principal amount of $263.5 million of secured and mezzanine loans having a weighted average interest rate of 6.31% per annum, all of which mature in March 2010; and Two Grand Central Tower - a $190 million secured loan having a per annum interest rate of 5.10%, which matures in July 2010. Upon the closing of the General Motors Building, the deposit on these assets (which are in the form of letters of credit) was increased by an aggregate of $20 million, bringing the total remaining deposit to $75 million. The closings of the remaining acquisitions are expected to occur in multiple steps and are subject to customary conditions and termination rights for transactions of this type. There can be no assurance that the closings will occur on the terms currently contemplated or at all.
- On June 19, 2008, the Company obtained construction financing totaling $65.0 million collateralized by its Democracy Tower (formerly South of Market - Phase II) development project located in Reston, Virginia. The Democracy Tower development project consists of a Class A office property with approximately 225,000 net rentable square feet. The construction financing bears interest at a variable rate equal to LIBOR plus 1.75% per annum and matures on December 19, 2010 with two one-year extension options.
- During the quarter ended June 30, 2008, the Company commenced construction on its mixed-use project at Pennsylvania Avenue and Washington Circle in the District of Columbia comprised of approximately 450,000 square feet of office space and 330,000 square feet of residential space. In February 2008, the Company had executed a 60-year ground lease with The George Washington University for the redevelopment of the site.
EPS and FFO per Share Guidance:
The Company's guidance for the third quarter and full year 2008 for EPS (diluted) and FFO per share (diluted) is set forth and reconciled below.
Third Quarter 2008 Full Year 2008
Low - High Low - High
Projected EPS (diluted) $0.53 - $0.54 $2.60 - $2.66
Add:
Projected Company Share of
Real Estate Depreciation and
Amortization 0.70 - 0.70 2.50 - 2.50
Less:
Projected Company Share of
Gains on Sales of Real Estate
0.01 - 0.01 0.24 - 0.24
Projected FFO per Share (diluted) $1.22 - 1.23 $4.86 - 4.92
Except as described below, the foregoing estimates reflect management's view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of the events referenced in this release and previously disclosed. The estimates do not include the impact on operating results from the anticipated acquisitions of 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower. The estimates also do not include possible future gains or losses or the impact on operating results from other possible future property acquisitions or dispositions. EPS estimates may be subject to fluctuations as a result of several factors, including changes in the recognition of depreciation and amortization expense and any gains or losses associated with disposition activity. The Company is not able to assess at this time the potential impact of these factors on projected EPS. By definition, FFO does not include real estate-related depreciation and amortization or gains or losses associated with disposition activities. There can be no assurance that the Company's actual results will not differ materially from the estimates set forth above.
On May 9, 2008, the Financial Accounting Standards Board (the "FASB") issued FASB Staff Position No. APB 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" ("FSP No. APB 14-1") that requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to be separately accounted for in a manner that reflects the issuer's nonconvertible debt borrowing rate. FSP No. APB 14-1 requires that the initial debt proceeds from the sale of Boston Properties Limited Partnership's ("BPLP") $862.5 million of 2.875% exchangeable senior notes due 2037 and $450.0 million of 3.75% exchangeable senior notes due 2036 be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt. The resulting debt discount will be amortized over the period during which the debt is expected to be outstanding (i.e., through the first optional redemption dates) as additional non-cash interest expense. Based on the Company's understanding of the application of FSP No. APB 14-1, this will result in an aggregate of approximately $0.13 - $0.14 per share (net of incremental capitalized interest) of additional non-cash interest expense for fiscal 2008. Excluding the impact of capitalized interest, the additional non-cash interest expense will be approximately $0.15 - $0.16 per share for fiscal 2008, and this amount (before netting) will increase in subsequent reporting periods through the first optional redemption dates as the debt accretes to its par value over the same period. FSP No. APB 14-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. Upon adoption, FSP No. APB 14-1 requires companies to retrospectively apply the requirements of the pronouncement to all periods presented. The guidance set forth in the table above does not include the impact of FSP No. APB 14-1 as the Company is not permitted to early adopt the pronouncement. However, commencing in 2009, the Company will present prior period comparative results reflecting the impact of FSP No. APB 14-1.
Boston Properties will host a conference call on Wednesday, July 23, 2008 at 10:00 AM Eastern Time, open to the general public, to discuss the second quarter 2008 results, the 2008 projections and related assumptions, and other related matters that may be of interest to investors. The number to call for this interactive teleconference is (800) 240-5318 (Domestic) or (303) 262-2004 (International); no passcode required. A replay of the conference call will be available through July 30, 2008, by dialing (800) 405-2236 (Domestic) or (303) 590-3000 (International) and entering the passcode 11116665. There will also be a live audio webcast of the call which may be accessed on the Company's website at www.bostonproperties.com in the Investor Relations section. Shortly after the call a replay of the webcast will be available in the Investor Relations section of the Company's website and archived for up to twelve months following the call.
Additionally, a copy of Boston Properties' second quarter 2008 "Supplemental Operating and Financial Data" and this press release are available in the Investor Relations section of the Company's website at www.bostonproperties.com.
Boston Properties is a fully integrated, self-administered and self-managed real estate investment trust that develops, redevelops, acquires, manages, operates and owns a diverse portfolio of Class A office properties and one hotel. The Company is one of the largest owners and developers of Class A office properties in the United States, concentrated in five markets -- Boston, Midtown Manhattan, Washington, D.C., San Francisco and Princeton, N.J.
This press release contains forward-looking statements within the meaning of the Federal securities laws. You can identify these statements by our use of the words "assumes," "believes," "estimates," "expects," "guidance," "intends," "plans," "projects" and similar expressions that do not relate to historical matters. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond Boston Properties' control and could materially affect actual results, performance or achievements. These factors include, without limitation, the ability of our joint venture partners to satisfy their obligations, the ability to enter into new leases or renew leases on favorable terms, dependence on tenants' financial condition, the uncertainties of real estate development, acquisition and disposition activity, the ability to effectively integrate acquisitions, the costs and availability of financing, the effectiveness of our interest rate hedging program, the effects of local economic and market conditions, the effects of acquisitions and dispositions (including possible impairment charges) on our operating results, the impact of newly adopted accounting principles on the Company's accounting policies and on period-to-period comparisons of financial results, regulatory changes and other risks and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission. Boston Properties does not undertake a duty to update or revise any forward-looking statement, including its guidance for the third quarter and full fiscal year 2008, whether as a result of new information, future events or otherwise.
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
(in thousands, except for per share
amounts)
(unaudited)
Revenue
Rental:
Base rent $281,072 $268,272 $562,466 $538,944
Recoveries from tenants 49,848 46,783 98,732 93,069
Parking and other 17,317 16,488 33,818 31,809
Total rental revenue 348,237 331,543 695,016 663,822
Hotel revenue 9,708 9,335 16,232 16,044
Development and management
services 6,460 5,130 11,937 9,857
Interest and other 4,115 26,205 15,894 43,193
Total revenue 368,520 372,213 739,079 732,916
Expenses
Operating:
Rental 119,103 112,998 236,836 225,869
Hotel 6,449 6,417 12,346 12,431
General and administrative 17,467 16,291 37,055 33,099
Interest 64,564 73,743 132,403 147,669
Depreciation and amortization 74,389 73,921 149,060 143,693
Net derivative losses (257) - 3,531 -
Losses from early
extinguishments of debt - - - 722
Total expenses 281,715 283,370 571,231 563,483
Income before minority interests
in property partnerships,
income from unconsolidated
joint ventures, minority
interest in Operating Partnership,
gains on sales of real estate and
discontinued operations 86,805 88,843 167,848 169,433
Minority interests in property
partnerships (420) - (1,045) -
Income from unconsolidated joint
ventures 1,855 17,268 2,897 18,233
Income before minority interest
in Operating Partnership, gains
on sales of real estate and
discontinued operations 88,240 106,111 169,700 187,666
Minority interest in Operating
Partnership (14,009) (16,840) (27,044) (27,798)
Income before gains on sales of
real estate and discontinued
operations 74,231 89,271 142,656 159,868
Gains on sales of real estate,
net of minority interest 5,303 - 25,331 620,262
Income before discontinued
operations 79,534 89,271 167,987 780,130
Discontinued operations:
Income from discontinued
operations, net of minority
interest - 1,357 - 3,985
Gains on sales of real estate
from discontinued operations,
net of minority interest - 11,716 - 173,815
Net income available to common
shareholders $79,534 $102,344 $167,987 $957,930
Basic earnings per common share:
Income available to common
shareholders before
discontinued operations $0.66 $0.75 $1.40 $6.49
Discontinued operations, net
of minority interest - 0.11 - 1.50
Net income available to common
shareholders $0.66 $0.86 $1.40 $7.99
Weighted average number of
common shares outstanding 119,753 118,961 119,644 118,565
Diluted earnings per common
share:
Income available to common
shareholders before
discontinued operations $0.66 $0.73 $1.39 $6.37
Discontinued operations, net
of minority interest - 0.11 - 1.47
Net income available to common
shareholders $0.66 $0.84 $1.39 $7.84
Weighted average number of
common and common equivalent
shares outstanding 121,315 120,984 121,168 120,811
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2008 2007
(in thousands, except for share amounts)
(unaudited)
ASSETS
Real estate $9,277,500 $9,077,528
Real estate held for sale, net - 221,606
Construction in progress 735,372 700,762
Land held for future development 253,313 249,999
Less: accumulated depreciation (1,647,145) (1,531,707)
Total real estate 8,619,040 8,718,188
Cash and cash equivalents 112,110 1,506,921
Cash held in escrows 59,644 186,839
Marketable securities 20,372 22,584
Tenant and other receivables, net of
allowance for doubtful accounts of
$1,545 and $1,901, respectively 42,116 58,074
Note receivable 270,000 -
Accrued rental income, net of
allowance of $1,164 and $829,
respectively 326,149 300,594
Deferred charges, net 305,287 287,199
Prepaid expenses and other assets 26,511 30,566
Investments in unconsolidated joint
ventures 606,696 81,672
Total assets $10,387,925 $11,192,637
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $2,535,496 $2,726,127
Unsecured senior notes, net of
discount 1,472,141 1,471,913
Unsecured exchangeable senior
notes, net of discount 1,296,252 1,294,126
Unsecured line of credit 200,000 -
Accounts payable and accrued
expenses 183,192 145,692
Dividends and distributions payable 96,451 944,870
Accrued interest payable 55,979 54,487
Other liabilities 187,104 232,705
Total liabilities 6,026,615 6,869,920
Commitments and contingencies - -
Minority interests 663,313 653,892
Stockholders' equity:
Excess stock, $.01 par value,
150,000,000 shares authorized,
none issued or outstanding - -
Preferred stock, $.01 par value,
50,000,000 shares authorized, none
issued or outstanding - -
Common stock, $.01 par value,
250,000,000 shares authorized,
119,835,140 and 119,581,385
shares issued and 119,756,240
and 119,502,485 shares outstanding
in 2008 and 2007, respectively 1,198 1,195
Additional paid-in capital 3,341,887 3,305,219
Earnings in excess of dividends 399,502 394,324
Treasury common stock, at cost (2,722) (2,722)
Accumulated other comprehensive loss (41,868) (29,191)
Total stockholders' equity 3,697,997 3,668,825
Total liabilities and
stockholders' equity $10,387,925 $11,192,637
BOSTON PROPERTIES, INC.
FUNDS FROM OPERATIONS (1)
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
(in thousands, except for per share amounts)
(unaudited)
Net income available to common
shareholders $79,534 $102,344 $167,987 $957,930
Add:
Minority interest in Operating
Partnership 14,009 16,840 27,044 27,798
Minority interests in property
partnerships 420 - 1,045 -
Less:
Income from unconsolidated joint
ventures 1,855 17,268 2,897 18,233
Gains on sales of real estate,
net of minority interest 5,303 - 25,331 620,262
Income from discontinued
operations, net of minority
interest - 1,357 - 3,985
Gains on sales of real estate
from discontinued operations,
net of minority interest - 11,716 - 173,815
Income before minority interests
in property partnerships, income
from unconsolidated joint ventures,
minority interest in Operating
Partnership, gains on sales of
real estate and discontinued
operations 86,805 88,843 167,848 169,433
Add:
Real estate depreciation and
amortization (2) 82,838 76,264 160,457 149,134
Income from discontinued
operations - 1,589 - 4,675
Income from unconsolidated joint
ventures (3) 1,855 1,815 2,897 2,780
Less:
Minority interests in property
partnerships' share of funds
from operations 928 - 2,039 -
Preferred distributions (4) 949 1,084 1,854 2,286
Funds from operations (FFO) 169,621 167,427 327,309 323,736
Less:
Minority interest in the
Operating Partnership's share
of funds from operations 24,620 24,483 47,587 47,795
Funds from operations available to
common shareholders $145,001 $142,944 $279,722 $275,941
Our percentage share of funds from
operations - basic 85.49% 85.38% 85.46% 85.24%
Weighted average shares
outstanding - basic 119,753 118,961 119,644 118,565
FFO per share basic $1.21 $1.20 $2.34 $2.33
Weighted average shares
outstanding - diluted 122,776 122,660 122,629 122,609
FFO per share diluted $1.19 $1.18 $2.30 $2.28
(1) Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), we calculate Funds from Operations, or "FFO," by adjusting net income (loss) (computed in accordance with GAAP, including non-recurring items) for gains (or losses) from sales of properties, real estate related depreciation and amortization, and after adjustment for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for reviewing our comparative operating and financial performance because, by excluding gains and losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company's real estate between periods or as compared to different companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.
(2) Real estate depreciation and amortization consists of depreciation and amortization from the Consolidated Statements of Operations of $74,389, $73,921, $149,060 and $143,693, our share of unconsolidated joint venture real estate depreciation and amortization of $8,972, $2,085, $12,235 and $4,184 and depreciation and amortization from discontinued operations of $0, $700, $0 and $2,014, less corporate-related depreciation and amortization of $523, $442, $838 and $757 for the three months and six months ended June 30, 2008 and 2007, respectively.
(3) Excludes approximately $15.5 million related to our share of the gain on sale and related loss from early extinguishment of debt associated with the sale of Worldgate Plaza for the three months and six months ended June 30, 2007.
(4) Excludes an adjustment of approximately $3.1 million for the six months ended June 30, 2007 to the income allocated to the holders of Series Two Preferred Units to account for their right to participate on an as- converted basis in the special dividend that followed previously completed sales of real estate.
BOSTON PROPERTIES, INC.
PROJECTED 2008 AND 2009 RETURNS ON ACQUISITION
(dollars in thousands)
The General Motors Building
Six Months Year
2008 2009
Base rent and recoveries from tenants $94,030 $198,800
Straight-line rent 4,950 8,850
Fair value lease revenue 70,410 138,110
Parking and other 3,540 7,020
Total rental revenue 172,930 352,780
Operating Expenses 36,370 74,830
Revenue less Operating Expenses 136,560 277,950
Interest expense (1) 72,650 139,410
Fair value interest expense 3,920 8,270
Depreciation and amortization 79,050 151,300
Net loss $(19,060) $(21,030)
Add:
Interest expense (1) 72,650 139,410
Fair value interest expense 3,920 8,270
Depreciation and amortization 79,050 151,300
Unleveraged FFO (2) $136,560 $277,950
Less:
Straight-line rent (4,950) (8,850)
Fair value lease revenue (70,410) (138,110)
Unleveraged Cash $61,200 $130,990
Purchase Price $2,800,000
Closing costs (9,000)
Total Unleveraged Investment $2,791,000
Unleveraged FFO Return (2) 10.0% 10.3%
Unleveraged Cash Return (3) 4.6% 5.0%
(1) Projected interest expense includes interest on partner loans totaling $450 million, of which approximately $294 million has been projected to be refinanced with third-party debt in the first quarter of 2009.
(2) Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), we calculate Funds from Operations, or "FFO," by adjusting net income (loss) (computed in accordance with GAAP, including non-recurring items) for gains (or losses) from sales of properties, real estate related depreciation and amortization, and after adjustment for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure. Unleveraged FFO excludes, among other items, interest expense, which may vary depending on the level of corporate debt or property-specific debt. Unleveraged FFO Return is also a non-GAAP financial measure that is determined by dividing (A) the Company's share (60%) of Unleveraged FFO (based on the projected results for the six months ending December 31, 2008 (annualized) and the year ending December 31, 2009) plus the Company's share of fee income by (B) the Company's share of Total Unleveraged Investment. Management believes projected Unleveraged FFO Return is a useful measure in the real estate industry when determining the appropriate purchase price for a property or estimating a property's value. When evaluating acquisition opportunities, management considers, among other factors, projected Unleveraged FFO Return because it excludes, among other items, interest expense (which may vary depending on the level of corporate debt or property-specific debt), as well as depreciation and amortization expense (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates). Other factors that management considers include its cost of capital and available financing alternatives. Other companies may compute FFO, Unleveraged FFO and Unleveraged FFO Return differently and these are not indicators of a real estate asset's capacity to generate cash flow.
(3) Unleveraged Cash Return is a non-GAAP financial measure that is determined by dividing (A) the Company's share of Unleveraged Cash (based on the projected results for the six months ending December 31, 2008 (annualized) and the year ending December 31, 2009) plus the Company's share of fee income by (B) the Company's share of the Total Unleveraged Investment. Other real estate companies may calculate this return differently. Management believes that projected Unleveraged Cash Return is also a useful measure of a property's value when used in addition to Unleveraged FFO Return because, by eliminating the effect of straight-lining of rent and the SFAS No. 141 treatment of in-place above- and below-market leases, it enables an investor to assess the projected cash on cash return from the property over the forecasted period.
Management is presenting these projected returns and related calculations to assist investors in analyzing the Company's recent acquisition. Management does not intend to present this data for any other purpose, for any other period or for its other properties, and is not intending for these measures to otherwise provide information to investors about the Company's financial condition or results of operations. The Company does not undertake a duty to update any of these projections.
BOSTON PROPERTIES, INC.
PORTFOLIO LEASING PERCENTAGES
% Leased by Location
June 30, 2008 December 31, 2007
Greater Boston 92.8% 93.3%
Greater Washington, D.C. 98.1% 99.1%
Midtown Manhattan 99.8% 99.5%
Princeton/East Brunswick, NJ 82.2% 83.3%
Greater San Francisco 92.1% 91.1%
Total Portfolio 94.9% 94.9%
% Leased by Type
June 30, 2008 December 31, 2007
Class A Office Portfolio 95.6% 95.4%
Office/Technical Portfolio 81.9% 86.1%
Total Portfolio 94.9% 94.9%
SOURCE: Boston Properties, Inc.
CONTACT: Michael Walsh, Senior Vice President, Finance, +1-617-236-3410,
or Arista Joyner, Investor Relations Manager, +1-617-236-3343, both of Boston
Properties, Inc.; or Marilynn Meek, General Information of Financial Relations
Board, +1-212-827-3773, for Boston Properties, Inc.
Web site: http://www.bostonproperties.com