SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT _________________ Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): June 30, 1998 BOSTON PROPERTIES, INC. (Exact name of Registrant as specified in its Charter) Delaware (State of Incorporation) 1-13087 04-2473675 (Commission File Number) (IRS Employer Id. Number) 8 Arlington Street Boston, Massachusetts 02116 (Address of principal executive offices) (Zip Code) (617) 859-2600 (Registrant's telephone number, including area code) Item 5 Other Events This Form 8-K/A is being filed pursuant to the rules governing the reporting of transactions on Form 8-K, under Rule 3-14 of Regulation S-X, to update through December 31, 1997, the interim unaudited financial statements for the nine months ended September 30, 1997, previously filed on the Current Report on Form 8-K for the Mulligan/Griffin Portfolio dated November 26, 1997 and on the Current Report on Form 8-K/A for Riverfront Plaza dated October 23, 1997. Item 7 Financial Statements and Exhibits The following financial statements are being filed in connection with the acquisition of Riverfront Plaza, Richmond, Virginia, which closed on January 22, 1998; the acquisition of the Mulligan/Griffin Portfolio, which closed on February 2, 1998; the acquisition of the Carnegie Center Portfolio, East Brunswick and Princeton, New Jersey, which closed on June 30, 1998: the acquisition of the Prudential Center, Boston, Massachusetts, which closed on July 2, 1998; and the acquisition of Metropolitan Square, Washington, D.C., which closed on July 10, 1998. This Form 8-K/A is being filed to amend (i) the Current Report on Form 8-K filed by the Registrant on July 15, 1998; (ii) the Current Report on Form 8-K filed by the Registrant on July 17, 1998; and (iii) the Current Report on Form 8-K filed by the Registrant on July 27, 1998. The agreements made in connection with the transactions referenced above, were negotiated at arms length between the Registrant and representatives of the transferors. Neither the Registrant, any subsidiary of the Registrant nor any director or officer of the Registrant was affiliated with or had a material relationship with the transferors. In determining the price to purchase the Acquired Properties (as defined in the attached financial statements) the Registrant evaluated various factors, including, among others, the existing leases, which are the primary source of revenue, the occupancy rates, the competitive nature of the markets and comparative rental rates. Current and anticipated operating expenses, maintenance and repair costs, real estate taxes and capital improvement requirements were also evaluated. After reasonable inquiry, the Registrant is not aware of any material fators (other than those stated above) which would cause the reported financial information not to be indicative of future operating results. (a) Financial Statements under Rule 3-14 of Regulation S-X. Statement of Revenue over Certain Operating Expenses of Riverfront Plaza for the year ended December 31, 1997. Statement of Revenue over Certain Operating Expenses of the Mulligan/Griffin Portfolio for the year ended December 31, 1997. Statement of Revenue over Certain Operating Expenses of the Carnegie Center Portfolio for the year ended December 31, 1997 and (unaudited) for the period from January 1, 1998 to June 29, 1998. Statement of Revenue over Certain Operating Expenses of the Prudential Center for the year ended December 31, 1997 and (unaudited) for the six months ended June 30, 1998. Statement of Revenue over Certain Operating Expenses of Metropolitan Square for the year ended December 31, 1997 and (unaudited) for the six months ended June 30, 1998. (b) Pro Forma Financial Statements Pro Forma Consolidated Balance Sheet as of June 30, 1998 (unaudited). Pro Forma Consolidated and Combined Statements of Operations for the six months ended June 30, 1998 (unaudited) and for the year ended December 31, 1997 (unaudited). (c) Exhibits 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants BOSTON PROPERTIES, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOSTON PROPERTIES, INC. /s/ David G. Gaw ------------------------------------- David G. Gaw, Chief Financial Officer Date: August 24, 1998 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Properties, Inc.: In our opinion, the accompanying statement of revenue over certain operating expenses of Riverfront Plaza (the "Property") in Richmond, Virginia, presents fairly, in all material respects, the revenue over certain operating expenses (as described in Note 2) of the Property for the year ended December 31, 1997 in conformity with generally accepted accounting principles. This statement is the responsibility of the Property's management; our responsibility is to express an opinion on this statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The accompanying statement of revenue over certain operating expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission, and excludes certain expenses described in Note 2, and therefore is not intended to be a complete presentation of the Property's revenue and expenses. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts August 17, 1998 RIVERFRONT PLAZA STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) The accompanying notes are an integral part of the statement.
For the year ended December 31, 1997 ----------------- Revenue: Base rent $14,909 Recoveries from tenants 2,891 Garage - net 2,390 Other income 454 ------- 20,644 ------- Certain operating expenses (Note 2): Repairs and maintenance 752 Utilities 1,498 General and administrative 420 Janitorial and cleaning 738 Security 395 Insurance 151 Real estate taxes 1,625 ------- 5,579 ------- Excess of revenue over certain operating expenses $15,065 ======= RIVERFRONT PLAZA NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) 1. DESCRIPTION OF THE PROPERTY The accompanying statement of revenue over certain operating expenses (the "Statement") includes the operations of an approximately 899,720 square foot Class A office property located in Richmond, Virginia. The Property was acquired by Boston Properties, Inc. on January 22, 1998 from an unrelated third party. 2. BASIS OF ACCOUNTING The accompanying Statement has been prepared on the accrual basis of accounting. The Statement has been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for real estate properties acquired or to be acquired. Accordingly, this Statement excludes certain historical expenses not comparable to the operations of the Property after acquisition such as amortization, depreciation, property management fees, certain interest costs, corporate expenses, certain bad debts and certain other costs not directly related to the future operations of the Property. 3. SIGNIFICANT ACCOUNTING POLICIES Rental Revenue Rental income is recognized on the straight-line method over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as accrued rent. The impact of the straight-line rent adjustment increased revenue by approximately $10 for the year ended December 31, 1997. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. RIVERFRONT PLAZA NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) 4. DESCRIPTION OF LEASING ARRANGEMENTS The commercial and office space is leased to tenants under leases with terms that vary in length. Minimum lease payments excluding reimbursement clauses and renewal options to be received during the next five years and thereafter for noncancelable operating leases in effect at December 31, 1997 are approximately as follows: As of December 31, 1997, two tenants occupied approximately 55% of the leasable square feet and represented 54% of total contract base rent.
Year Ending December 31, ----------- 1998................................... $14,889 1999................................... 13,983 2000................................... 13,243 2001................................... 11,389 2002................................... 10,562 Thereafter............................. 31,760 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Properties, Inc.: In our opinion, the accompanying statement of revenue over certain operating expenses of the Mulligan/Griffin Portfolio (the "Portfolio") in Greater Washington D.C., presents fairly, in all material respects, the revenue over certain operating expenses (as described in Note 2) of the Portfolio for the year ended December 31, 1997 in conformity with generally accepted accounting principles. This statement is the responsibility of the Portfolio's management; our responsibility is to express an opinion on this statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The accompanying statement of revenue over certain operating expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission, and excludes certain expenses described in Note 2, and therefore is not intended to be a complete presentation of the Portfolio's revenue and expenses. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts August 14, 1998 MULLIGAN/GRIFFIN PORTFOLIO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) The accompanying notes are an integral part of the statement.
For the year ended December 31, 1997 ----------------- Revenue: Base rent $25,924 Recoveries from tenants 5,314 ------- 31,238 ------- Certain operating expenses (Notes 2 and 5): Repairs and maintenance 1,029 Utilities 2,186 General and administrative 45 Janitorial and cleaning 480 Security 32 Insurance 155 Interest 10,363 Real estate taxes 1,608 ------- 15,898 ------- Excess of revenue over certain operating expenses $15,340 ======= MULLIGAN/GRIFFIN PORTFOLIO NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) 1. DESCRIPTION OF THE PORTFOLIO The accompanying statement of revenue over certain operating expenses (the "Statement") includes the combined operations of nine office properties known as the Mulligan/Griffin Portfolio (the "Portfolio"), located in the Greater Washington, D.C. area, specifically in the Gaithersburg I-270 and I-270 Rockville submarkets of Montgomery County, Maryland and the Springfield and Reston submarkets of Fairfax County, Virginia. The Portfolio was acquired by Boston Properties, Inc. on February 2, 1998 from an unrelated third party, and is detailed as follows: 2. BASIS OF ACCOUNTING The accompanying Statement has been prepared on the accrual basis of accounting. The Statement has been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for real estate properties acquired or to be acquired. Accordingly, this Statement excludes certain historical expenses not comparable to the operations of the Portfolio after acquisition such as amortization, depreciation, property management fees, certain interest costs, ground lease payments, corporate expenses, and certain other costs not directly related to the future operations of the Portfolio. 3. SIGNIFICANT ACCOUNTING POLICIES Rental Revenue Rental income is recognized on the straight-line method over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as accrued rent. The impact of the straight-line rent adjustment decreased revenue by approximately $582 for the year ended December 31, 1997.
Number of Square Property Name Buildings Feet - ------------- ---------- --------- National Imagery and Mapping Agency Building ........ 1 263,870 Reston Town Center................................... 2 261,046 Lockheed Martin Building............................. 1 255,244 910 Clopper Road..................................... 1 180,650 Fullerton Square..................................... 2 178,841 Decoverly Two........................................ 1 77,747 930 Clopper Road..................................... 1 60,056 --------- Total............................................ 1,277,454 ========= MULLIGAN/GRIFFIN PORTFOLIO NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 4. DESCRIPTION OF LEASING ARRANGEMENTS The space is leased to tenants under leases with terms that vary in length. Minimum lease payments excluding reimbursement clauses and renewal options to be received during the next five years and thereafter for noncancelable operating leases in effect at December 31, 1997 are approximately as follows: As of December 31, 1997, two tenants occupied approximately 61% of the leasable square feet and represented 81% of total contract base rent. 5. DEBT ASSUMPTION In connection with the acquisition, certain mortgage notes (the "Notes") encumbering three of the properties totaling $114,042 at December 31, 1997 were assumed. The interest expense reflected relates to the debt assumed. The Notes require payments of principal and interest through varying terms ranging from July 15, 2002 to February 1, 2005. The interest rate on the Notes range from 6.00% to 9.70%.
Year Ending December 31, ----------- 1998................................... $29,736 1999................................... 29,920 2000................................... 30,249 2001................................... 29,582 2002................................... 27,816 Thereafter............................. 79,836
1998................................... $ 9,728 1999................................... 10,588 2000................................... 11,524 2001................................... 12,549 2002................................... 35,958 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Properties, Inc.: In our opinion, the accompanying statement of revenue over certain operating expenses of the Carnegie Center Portfolio (the "Portfolio") in Princeton and East Brunswick, New Jersey present fairly, in all material respects, the revenue over certain operating expenses (as described in Note 2) of the Portfolio for the year ended December 31, 1997 in conformity with generally accepted accounting principles. This statement is the responsibility of the Portfolio's management; our responsibility is to express an opinion on this statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The accompanying statement of revenue over certain operating expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission, and excludes certain expenses described in Note 2, and therefore is not intended to be a complete presentation of the Portfolio's revenue and expenses. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts July 30, 1998 CARNEGIE CENTER PORTFOLIO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) The accompanying notes are an integral part of the statement.
For the For the period year ended January 1, 1998 to December 31, 1997 June 29, 1998 ----------------- ------------------ (unaudited) Revenue: Base rent $27,294 $13,857 Recoveries from tenants 7,128 3,449 Other income 427 232 ------- ------- 34,849 17,538 ------- ------- Certain operating expenses (Notes 2 and 5): Repairs and maintenance 3,130 1,217 Utilities 2,296 1,141 General and administrative 303 112 Janitorial and cleaning 1,138 563 Security 167 54 Interest 4,807 2,061 Real estate taxes 4,253 2,127 ------- ------- 16,094 7,275 ------- ------- Excess of revenue over certain operating expenses $18,755 $10,263 ======= ======= CARNEGIE CENTER PORTFOLIO NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) 1. DESCRIPTION OF THE PORTFOLIO The accompanying statement of revenue over certain operating expenses (the "Statement") includes the combined operations of ten office properties known as the Carnegie Center Portfolio, (the "Portfolio") located in Princeton and East Brunswick, New Jersey. The Portfolio was acquired on June 30, 1998 by Boston Properties, Inc. from entities affiliated with the Landis Group, an unrelated third party, and are detailed as follows: 2. BASIS OF ACCOUNTING The accompanying Statement has been prepared on the accrual basis of accounting. The Statement has been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for real estate properties acquired or to be acquired. Accordingly, this Statement excludes certain historical expenses not comparable to the operations of the Portfolio after acquisition such as amortization, depreciation, property management fees, certain interest costs, corporate expenses and certain other costs not directly related to the future operations of the Portfolio. 3. SIGNIFICANT ACCOUNTING POLICIES Rental Revenue Rental income is recognized on the straight-line method over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as accrued rent. The impact of the straight-line rent adjustment decreased
SQUARE PROPERTY NAME FEET ------------- ------------ Tower One...................................... 420,006 210 Carnegie Center............................ 159,498 214 Carnegie Center............................ 153,305 212 Carnegie Center............................ 150,063 101 Carnegie Center............................ 131,982 202 Carnegie Center............................ 128,929 104 Carnegie Center............................ 102,198 105 Carnegie Center............................ 69,648 211 Carnegie Center............................ 47,917 Childcare Property............................. 6,500 ------------ Total 1,370,046 ------------ CARNEGIE CENTER PORTFOLIO NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) revenue by approximately $508 and $343 for the year ended December 31, 1997 and for the period from January 1, 1998 to June 29, 1998 (unaudited), respectively. Unaudited Interim Information The statement of revenue over certain operating expenses for the period from January 1, 1998 to June 29, 1998 is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such Statement have been included. The results of operations for the period are not necessarily indicative of future results of operations. Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 4. DESCRIPTION OF LEASING ARRANGEMENTS The space is leased to tenants under leases with terms that vary in length. Minimum lease payments excluding reimbursement clauses and renewal options to be received during the next five years and thereafter for noncancelable operating leases in effect at December 31, 1997 are as follows: YEAR ENDING DECEMBER 31, ------------ 1998................................................ $ 27,985 1999................................................ 25,586 2000................................................ 23,847 2001................................................ 15,615 2002................................................ 10,815 Thereafter.......................................... 17,287 As of December 31, 1997, two tenants occupied approximately 47% of the leasable square feet and represented 47% of total contract base rent. CARNEGIE CENTER PORTFOLIO NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) 5. DEBT ASSUMPTION In connection with the acquisition, certain mortgage notes (the "Notes") encumbering five of the properties totaling $65,252 at December 31, 1997 were assumed. The interest expense reflected relates to the debt assumed. The Notes require payments of principal and interest through varying terms ranging from October 31, 2000 to February 1, 2010. The interest rate on the Notes range from 6.25% to 8.40% Principal payments due on the Notes during the next five years are approximately as follows: 1998....................................................... $ 1,338 1999....................................................... 1,469 2000....................................................... 53,580 2001....................................................... 337 2002....................................................... 363 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Properties, Inc.: In our opinion, the accompanying statement of revenue over certain operating expenses of the Prudential Center (the "Property") in Boston, Massachusetts, presents fairly, in all material respects, the revenue over certain operating expenses (as described in Note 2) of the Property for the year ended December 31, 1997 in conformity with generally accepted accounting principles. This statement is the responsibility of the Property's management; our responsibility is to express an opinion on this statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The accompanying statement of revenue over certain operating expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission, and excludes certain expenses described in Note 2, and therefore is not intended to be a complete presentation of the Property's revenue and expenses. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts July 24, 1998 PRUDENTIAL CENTER STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) The accompanying notes are an integral part of the statement.
For the For the six months year ended ended December 31, 1997 June 30, 1998 ----------------- ----------------- (unaudited) Revenue: Base rent - office and retail $45,792 $24,288 Recoveries from tenants 7,273 3,916 Garage - net 10,260 5,481 Other income 4,960 2,365 ------- ------- 68,285 36,050 ------- ------- Certain operating expenses (Notes 2 and 5): Repairs and maintenance 4,471 1,907 Janitorial and cleaning 3,517 1,722 Security 2,212 1,038 Utilities 6,137 2,232 General and administrative 1,415 765 Insurance 445 167 Real estate taxes 13,543 7,007 Advertising and promotion 1,171 178 ------- ------- 32,911 15,016 ------- ------- Excess of revenue over certain operating expenses $35,374 $21,034 ======= ======= PRUDENTIAL CENTER NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) 1. DESCRIPTION OF THE PROPERTY The accompanying statement of revenue over certain operating expenses (the "Statement") includes the collective operations of two Class A office towers with approximately 1.72 million net rentable square feet, an approximately 477,000 net rentable square foot retail complex and a parking garage with approximately 2,700 parking spaces known as the Prudential Center ("the Property") located in Boston, Massachusetts. The Property was acquired by Boston Properties, Inc. on July 2, 1998 from an unrelated third party. 2. BASIS OF ACCOUNTING The accompanying Statement has been prepared on the accrual method of accounting. The Statement has been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for real estate properties acquired or to be acquired. Accordingly, this Statement excludes certain historical expenses not comparable to the operations of the Property after acquisition such as amortization, depreciation, property management fees, corporate expenses and certain other costs not directly related to the future operations of the Property. 3. SIGNIFICANT ACCOUNTING POLICIES Rental Revenue Rental income is recognized on the straight-line method over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as accrued rent. The impact of the straight-line rent adjustment increased revenue by approximately $1,590 and $300 for the year ended December 31, 1997 and the six months ended June 30, 1998 (unaudited), respectively. Unaudited Interim Information The Statement of revenue over certain operating expenses for the six months ended June 30, 1998 is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such combined statement have been included. PRUDENTIAL CENTER NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 4. DESCRIPTION OF LEASING ARRANGEMENTS The office and retail space is leased to tenants under leases with terms that vary in length. Minimum lease payments excluding reimbursement clauses, percentage lease revenue and renewal options to be received during the next five years and thereafter under noncancelable operating leases in effect at December 31, 1997 are as follows: As of December 31, 1997, three tenants occupied approximately 48% of the leasable square feet and represented 41% of the contract base rent. 5. RELATED PARTY TRANSACTIONS Insurance coverage is provided by an affiliated party of the seller. During the year ended December 31, 1997, affiliates of the seller leased space at the Property. Rental revenue in 1997 includes approximately $250 from leases with affiliates.
Year Ending December 31, ------------ 1998............................................................. $ 38,410 1999............................................................. 39,487 2000............................................................. 39,431 2001............................................................. 35,630 2002............................................................. 38,503 Thereafter....................................................... 104,743 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Properties, Inc.: In our opinion, the accompanying statement of revenue over certain operating expenses of Metropolitan Square in Washington, D.C. (the "Property") present fairly, in all material respects, the revenue over certain operating expenses (as described in Note 2) of the Property for the year ended December 31, 1997 in conformity with generally accepted accounting principles. This statement is the responsibility of the Property's management; our responsibility is to express an opinion on this statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenue over certain operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The accompanying statement of revenue over certain operating expenses was prepared for the purpose of complying with Rule 3-14 of the Securities and Exchange Commission, and excludes certain expenses described in Note 2, and therefore is not intended to be a complete presentation of the Property's revenue and expenses. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts July 10, 1998 METROPOLITAN SQUARE STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) The accompanying notes are an integral part of the statement.
For the For the year ended six months ended December 31, 1997 June 30, 1998 ----------------- ---------------- (unaudited) Revenue: Base rent $18,221 $ 9,195 Recoveries from tenants 1,100 449 Garage - net 1,034 549 ------- ------- 20,355 10,193 ------- ------- Certain operating expenses (Notes 2, 5 and 6): Repairs and maintenance 843 463 Janitorial and cleaning 772 408 Security 207 114 Utilities 951 502 General and administrative 343 209 Insurance 64 28 Real estate taxes 2,854 1,506 Interest 9,589 4,761 ------- ------- 15,623 7,991 ------- ------- Excess of revenue over certain operating expenses $ 4,732 $ 2,202 ======= ======= METROPOLITAN SQUARE NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (DOLLARS IN THOUSANDS) 1. DESCRIPTION OF THE PROPERTY The accompanying statement of revenue over certain operating expenses (the "Statement") includes the operations of an approximately 596,543 square foot Class A office property known as Metropolitan Square, (the "Property") located in Washington, D.C. The Property was acquired on July 10, 1998 by Boston Properties, Inc. from an unrelated third party. 2. BASIS OF ACCOUNTING The accompanying Statement has been prepared on the accrual basis of accounting. The Statement has been prepared in accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange Commission for real estate properties acquired or to be acquired. Accordingly, this Statement excludes certain historical expenses not comparable to the operations of the Property after acquisition such as amortization, depreciation, certain property management fees, certain interest costs, corporate expenses and certain other costs not directly related to the future operations of the Property. 3. SIGNIFICANT ACCOUNTING POLICIES Rental Revenue Rental income is recognized on the straight-line method over the terms of the related leases. The excess of recognized rentals over amounts due pursuant to lease terms is recorded as accrued rent. The impact of the straight-line rent adjustment increased revenue by approximately $847 and $303 for the year ended December 31, 1997 and for the six months ended June 30, 1998 (unaudited), respectively. Unaudited Interim Information The statement of revenue over certain operating expenses for the six months ended June 30, 1998 is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such Statement have been included. The results of operations for the period are not necessarily indicative of future results of operations. METROPOLITAN SQUARE NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (DOLLARS IN THOUSANDS) Risks and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 4. DESCRIPTION OF LEASING ARRANGEMENTS The space is leased to tenants under leases with terms that vary in length. Minimum lease payments excluding reimbursement clauses and renewal options to be received during the next five years and thereafter for noncancelable operating leases in effect at December 31, 1997 are as follows: As of December 31, 1997, three tenants occupied approximately 71% of the leasable square feet and represented 64% of the contract base rent.
Year Ending December 31, ------------ 1998............................................................. $17,106 1999............................................................. 13,308 2000............................................................. 10,959 2001............................................................. 10,622 2002............................................................. 10,059 Thereafter....................................................... 42,589 METROPOLITAN SQUARE NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (DOLLARS IN THOUSANDS) 5. DEBT ASSUMPTION In connection with the acquisition, the mortgage debt (the "Note") encumbering the Property totaling $104,674 at December 31, 1997 was assumed. The terms of the Note were modified upon assumption to eliminate current principal payments. The Note requires interest only payments at an interest rate of 9.125% and matures on June 1, 2000. 6. RELATED PARTY TRANSACTIONS During the year ended December 31, 1997, parking operations were managed by an affiliate of the seller. Management fees of approximately $184 were incurred in 1997. BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) The accompanying unaudited Pro Forma Consolidated Balance Sheet of Boston Properties, Inc. (the "Company") is presented as if the following transactions; (i) the properties acquired subsequent to June 30, 1998 (the "Acquired Properties"), (ii) the private sale of common stock on July 2, 1998 and, (iii) repayment of certain notes had been consummated on June 30, 1998. This Pro Forma Consolidated financial information should be read in conjunction with Form 10-Q for the six months ended June 30, 1998. The following Consolidated Balance Sheet is not necessarily indicative of what the actual financial position would have been assuming the above transactions had been consummated on June 30, 1998 nor does it purport to represent the future financial position of the Company. BOSTON PROPERTIES, INC. PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 1998 (unaudited) (dollars in thousands)
---------------- ----------- -------------- Boston Acquired Other Properties, Inc. Properties Adjustments Pro Forma ---------------- ----------- -------------- ---------- ASSETS Real Estate $2,675,418 $698,337 $3,373,755 Less: accumulated depreciation (319,414) (319,414) ---------- -------- ---------- ---------- Total real estate 2,356,004 698,337 (A) 3,054,341 Cash and cash equivalents 108,962 (143,249)(B) $ 35,656 (B) 1,369 Escrows 17,833 17,833 Tenant and other receivables, net 24,767 24,767 Accrued rental income, net 62,773 62,773 Deferred charges, net 36,949 36,949 Prepaid expenses and other assets 22,921 22,921 Investment in joint ventures 7,674 27,000 (C) 34,674 ---------- -------- ---------- ---------- Total assets $2,637,883 $582,088 $ 35,656 $3,255,627 ========== ======== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable $1,327,575 $408,855 (D) $1,736,430 Unsecured line of credit - 31,089 (D) 31,089 Accounts and notes payable and accrued expenses 62,120 18,181 (E) $(18,181)(B) 62,120 Accrued interest payable 3,276 3,276 Other liabilities 17,395 17,395 ---------- -------- ---------- ---------- Total liabilities 1,410,366 458,125 (18,181) 1,850,310 ---------- -------- ---------- ---------- Minority interest in Operating Partnership 352,790 123,963 (A) (43,445)(G) 433,308 ---------- -------- ---------- ---------- Stockholders' equity: Excess stock, $.01 par value, 50,000,000 shares authorized, none issued and 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, 61,694,041 issued and outstanding (historical) and 63,369,887 shares issued and outstanding (pro forma) 617 17 (F) 634 Additional paid-in capital 847,090 97,265 (B),(G) 944,355 Retained earnings 27,020 27,020 ---------- -------- ---------- ---------- Total stockholders' equity 874,727 97,282 972,009 ---------- -------- ---------- ---------- Total liabilities and stockholders' equity $2,637,883 $582,088 $ 35,656 $3,255,627 ========== ======== ========== ========== BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED) (DOLLARS IN THOUSANDS) (A) Represents the purchase price, including closing costs, of the Acquired Properties as follows: (1) The acquisition of the Prudential Center was funded by the issuance of $96,163 in restricted Operating Partnership Units (the "OP Units") based on a price per share of $32.125, mortgage acquisition financing of $300,000, cash of $118,730 and a drawdown from the Unsecured Line of Credit of $4,089. (2) The acquisition of Metropolitan Square was funded by the issuance of $27,800 in OP Units based on a price per share of $34.09, the assumption of the fair value of mortgage debt in the amount of $108,855, the assumption of notes payable of $18,181 and cash of $24,519. (B) Represents the cash transactions related as follows:
Purchase Price ----- Prudential Center (1).................................. $518,982 Metropolitan Square (2)................................ 179,355 -------- Total Acquired Properties $698,337 ======== (D) Represents the following debt transactions related to the Acquired Properties:
Proceeds received from the private sale of 1,675,846 common shares........ $ 53,837 Paydown on notes payable assumed in the Metropolitan Square acquisition... (18,181) Working capital used for the Acquired Properties.......................... (143,249) --------- Net decrease in cash...................................................... $(107,593) ========= (C) Net increase reflects the following: Related investment into joint venture for a 50% interest in the future development at the Prudential Center..................................... $ 27,000 ========= (E) Reflects notes payable assumed in connection with the acquisition of Metropolitan Square. (F) Reflects private sale of 1,675,846 shares of common stock on July 2, 1998. (G) Adjustment to minority interest to reflect change as a result of the increase in outstanding OP Units as a result of the acquisitions.
MORTGAGE NOTES PAYABLE Mortgage assumed in connection with the acquisition of Metropolitan Square at fair value..................................... $108,855 Mortgage financing in connection with the acquisition of The Prudential Center................................................. 300,000 -------- Net increase in mortgage notes payable $408,855 ======== UNSECURED LINE OF CREDIT Draw from Unsecured Line of Credit for investment into joint venture related to the future development at the Prudential Center............ $ 27,000 Draw from Unsecured Line of Credit for the Prudential Center acquisition........................................................... 4,089 -------- Net increase in Unsecured Line of Credit................................. $ 31,089 ======== BOSTON PROPERTIES, INC. PRO FORMA CONSOLIDATED AND COMBINED STATEMENTS OF INCOME For the six months ended June 30, 1998 and the year ended December 31, 1997 (Unaudited) The accompanying unaudited Pro Forma Condensed Consolidated Statement of Income for the six months ended June 30, 1998 and for the year ended December 31, 1997 is presented as if the following transactions had occurred on January 1, 1997: (i) the consummation of the initial public offering (the "Initial Offering") and related Formation Transactions, (ii) the consummation of the second offering and private sale of common stock, (iii) the acquisition of the previously completed 1997 acquisitions reported on Form 8-K's previously filed with the Securities and Exchange Commission (the "1997 Acquired Properties") (iv) the significant acquisitions, (as defined in SEC Rule "3-14") made in 1998 and detailed below (the "1998 Acquisitions") (v) the closing of mortgage financing and refinancings, and (vi) the drawdown in the Unsecured Line of Credit as a result of acquisitions. The operations of the hotel properties and the parking garages have been included in the pro forma financial information pursuant to participating lease agreements for the Company to continue to qualify as a REIT under IRC Section 856. This Pro Forma Consolidated Pro Forma Statement of Income should be read in conjunction with the historical consolidated and combined financial statement and notes thereto of the Company and the Predecessor Company, Inc reported on Form 10-K for the year ended December 31, 1997 and Form 10-Q for the six month period ended June 30, 1998. The unaudited Pro Forma Consolidated Pro Forma financial information prepared by Boston Properties' management is not necessarily indicative of what the actual results of operations would have been for the six months ended June 30, 1998 or for the year ended December 31, 1997, had the previously described transactions actually occurred on January 1, 1997 and the effect thereof carried forward through the six month period ended June 30, 1998, nor do they purport to present the future results of operations of the Company. BOSTON PROPERTIES, INC. PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 (unaudited) (dollars in thousands, except per share data)
Boston Properties, Inc. ---------------- Six months 1998 ended Acquired Other June 30, 1998 Properties Adjustments Pro Forma --------------- ---------- ----------- --------- (A) Revenue: Rental: Base rent $167,075 $59,354 $226,429 Recoveries from tenants 19,362 8,557 27,919 Parking and other 2,706 3,244 5,950 -------- ------- ------- -------- Total rental revenue 189,143 71,155 260,298 Development and management services 6,159 6,159 Interest and other 8,341 $(7,542)(C) 799 -------- ------- ------- -------- Total revenue 203,643 71,155 (7,542) 267,256 -------- ------- ------- -------- Expenses: Rental: Operating 26,793 13,462 40,255 Real estate taxes 27,140 10,912 38,052 General and administrative 10,621 150(B) 10,771 Interest 48,743 6,439 8,527(D) 63,709 Depreciation and amortization 29,689 9,936 39,625 -------- ------- ------- -------- Total expenses 142,986 40,749 8,677 192,412 -------- ------- ------- -------- Income before minority interests 60,657 30,406 (16,219) 74,844 Minority interest in property partnership (229) (229) -------- ------- ------- -------- Income before minority interest in Operating Partnership 60,428 30,406 (16,219) 74,615 Minority interest in Operating Partnership (14,440) (7,538)(F) (21,978) -------- ------- ------- -------- Income before extraordinary item $ 45,988 $30,406 $(23,757) $ 52,637 ======== ======= ======= ======== Income before extraordinary item per common share - basic $ .79 $ .83 ======== ======== Weighted average number of common shares outstanding - basic 58,009 63,370 ======== ======== Income before extraordinary item per common share - diluted $ .79 $ .82 ======== ======== Weighted average number of common shares outstanding - diluted 58,613 63,974 ======== ======== BOSTON PROPERTIES, INC. NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF INCOME For the six months ended June 30, 1998 (dollars in thousands, except per share data) (unaudited) (A) Reflects the historical results of operations, as adjusted for base rent, interest and depreciation, for the 1998 Acquired Properties for the six months ended June 30, 1998 as follows: (1) Reflects results of operations prior to acquisition. (2) Represents an adjustment to straight-line rent based on the pro forma acquisition date of January 1, 1997. (3) Includes an adjustment of $15 to reflect effective interest expense on the mortgage debt assumed. (4) Includes an adjustment of ($1,075) to reflect interest expense on the mortgage debt assumed. (B) Reflects and incremental increase in general and administrative costs related to the 1998 Acquired Properties. (C) Reflects the net decrease in interest income as a result of cash used to acquire the 1998 Acquired Properties. (D) Reflects increase in interest expense as a result of the following transactions:
Riverfront Mulligan/ Carnegie Prudential Metropolitan Total 1998 Plaza(1) Griffin(1) Center(1) Center Square Acquisitions -------------- ---------- --------- ---------- ------------ ------------- Revenue: Rental: Base rent $ 1,121 $ 2,357 $ 13,857 $ 29,769 $ 9,744 $ 56,848 Adjustment(2) - - 537 1,771 198 2,506 ------------ --------- --------- ---------- ------------ ----------- Total base rent 1,121 2,357 14,394 31,540 9,942 59,354 Recoveries from tenants 217 526 3,449 3,916 449 8,557 Other income 117 530 232 2,365 - 3,244 ------------ --------- --------- ---------- ------------ ----------- Total rental revenue 1,455 3,413 18,075 37,821 10,391 71,155 Expenses: Operating 255 387 3,087 8,009 1,724 13,462 Real estate taxes 137 135 2,127 7,007 1,506 10,912 Interest - 677 2,076(3) - 3,686(4) 6,439 Depreciation (Note E) 236 452 2,588 4,865 1,795 9,936 ------------ --------- --------- ---------- ------------ ----------- Total expenses 628 1,651 9,878 19,881 8,711 40,749 ------------ --------- --------- ---------- ------------ ----------- Net income $ 827 $ 1,762 $ 8,197 $ 17,940 $ 1,680 $ 30,406 ============ ========= ========= ========== ============ =========== (E) Detail of pro forma depreciation expense is presented below for the 1998 Acquired Properties:
Interest on mortgage acquisition financing of the Prudential Center in the principal amount of $300,000 computed at an interest rate of 6.72%.... $ 10,080 Interest reduction on paydown of $30 million related to the 875 Third Avenue mortgage loan...................................................... (800) Interest on draw down on unsecured Line of Credit as a result of the 1998 Acquired Properties....................................................... 139 Interest on mortgage acquisition financing of Riverfront Plaza in the principal amount of $121,800 computed at an interest rate of 6.61%........ 485 Interest reduction on refinancing and partial paydown of the Mulligan/Griffin Portfolio loans.......................................... (1,377) -------- Increase in interest expense.............................................. $ 8,527 ======== (1) Represents depreciation expense on the properties which has been calculated over 40 years for the building and over the life of the lease for tenant improvements. (2) Reflects pro forma depreciation expense for the period prior to acquisition. (F) This pro forma adjustment reflects the adjustment for the operating partnership unit holders' share of pro forma income before extraordinary items, including the distribution on the preferred units at a rate of 7.25%.
PURCHASE PRO FORMA PROPERTIES PRICE DEPRECIATION(1) ---------- ----- --------------- Riverfront Plaza(2) $174,361 236 Mulligan/Griffin Portfolio(2) 257,890 452 Carnegie Center Portfolio(2) 276,000 2,588 Prudential Center 518,982 4,865 Metropolitan Square 179,355 1,795 ------ $9,936 ====== Boston Properties, Inc. Pro Forma Consolidated and Combined Statement of Income For the year ended December 31, 1997 (unaudited) (dollars in thousands, except per share data)
Boston Properties Boston Predecessor Properties, Inc. Group Pro Forma Adjustments ---------------- ---------------- --------------------------------------- June 23, 1997 Jan. 1, 1997 Initial Offering to to Formation Acquisition December 31, 1997 June 22, 1997 Transactions Property ----------------- ------------- ------------ ----------- A B Revenue: Rental: Base rent $126,401 $ 80,122 $9,396 $ 1,498 Recoveries from tenants 12,564 10,283 - 101 Parking and other 676 3,397 (1,061) - -------- -------- -------- -------- Total rental revenue 139,641 93,802 8,335 1,599 Hotel - 31,185 (31,185) - Development and management services 3,813 3,685 (452) - Interest and other 2,189 1,146 (352) - -------- -------- -------- -------- Total revenue 145,643 129,818 (23,654) 1,599 -------- -------- -------- -------- Expenses: Rental: Operating 19,591 13,650 (353) 437 Real estate taxes 20,502 13,382 1,345 172 Hotel: Operating - 20,938 (20,938) - Real estate taxes - 1,514 (1,514) - General and administrative 6,689 5,116 391 - Interest 38,264 53,324 (28,151) - Depreciation and amortization 21,719 17,054 124 210 -------- -------- -------- -------- Total expenses 106,765 124,978 (49,096) 819 -------- -------- -------- -------- Income before minority interests 38,878 4,840 25,442 780 Minority interest in property Partnership (215) (235) - - -------- -------- -------- -------- Income before minority interest in Operating Partnership 38,663 4,605 25,442 780 Minority interest in Operating Partnership (11,437) - - - -------- -------- -------- -------- Income before extraordinary item $ 27,226 $ 4,605 $ 25,442 $ 780 ======== ======== ======== ======== Income before extraordinary item per common share - basic $ 0.70 ======== Weighted average number of common shares outstanding - basic 38,694 ======== Income before extraordinary item per common share - diluted $ 0.70 ======== Weighted average number of common shares outstanding - diluted 39,108 ======== Boston Properties, Inc. Pro Forma Consolidated and Combined Statement of Income For the year ended December 31, 1997 (unaudited) (dollars in thousands, except per share data)
Pro Forma Adjustments ---------------------------------------------------------------------- 1997 1998 Pro Forma Acquired Acquired Other December 31, Properties Properties Adjustments 1997 ---------- ---------- ----------- ------------ (C) (C) Revenue: Rental: Base rent $ 54,440 $152,014 $423,871 Recoveries from tenants 7,639 23,706 54,293 Parking and other 347 5,841 9,200 -------- -------- -------- -------- Total rental revenue 62,426 181,561 487,364 Hotel - Development and management services 7,046 Interest and other (2,566)(D) 417 -------- -------- -------- -------- Total revenue 62,426 181,561 (2,566) 494,827 -------- -------- -------- -------- Expenses: Rental: Operating 14,580 37,463 85,368 Real estate taxes 13,049 23,883 72,333 Hotel: Operating - Real estate taxes - General and administrative 1,300(E) 13,496 Interest 11,138 20,861 39,683(F) 135,119 Depreciation and amortization 7,709 27,809 74,625 -------- -------- -------- -------- Total expenses 46,476 110,016 40,983 380,941 -------- -------- -------- -------- Income before minority interests 15,950 71,545 (43,549) 113,886 Minority interest in property partnership (450) -------- -------- -------- -------- Income before minority interest in Operating Partnership 15,950 71,545 (43,549) 113,436 Minority interest in Operating Partnership (23,038)(H) (34,475) -------- -------- -------- -------- Income before extraordinary item $ 15,950 $ 71,545 $(66,587) $ 78,961 ======== ======== ======== ======== Income before extraordinary item per common share - basic $ 1.25 ======== Weighted average number of common shares outstanding - basic 63,370 ======== Income before extraordinary item per common share - diluted $ 1.24 ======== Weighted average number of common shares outstanding - diluted 63,783 ======== BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONSOLIDATED AND COMBINED STATEMENT OF INCOME (DOLLARS IN THOUSANDS) Notes to the Pro Forma Consolidated and Combined Statement of Income for the year ended December 31, 1997 (A) Reflects the pro forma Formation Transactions adjustment summary for the period from January 1, 1997 to June 22, 1997 ( the "Predecessor Period"). (1) In connection with the Formation Transactions, certain third-party management contracts were assigned to the Development and Management Company. As a result of the assignment, operating income, expenses and overhead attributable to the contracts were reflected in the operations of the Development and Management Company as detailed below:
Rent Hotels Interest Property Property Pro Forma and Parking Hotel Mgmt and Operating Real Estate Adjustments Garage Income Revenue Fees Other Expenses Taxes - ----------- --------- -------- --------- -------- ----------- ----------- ----------- (1) Assignment of contracts...................... $(452) (2) Equity investment income..................... $ 21 (3) Operation of hotels and garage............... $(1,061) $(31,185) $(353) $1,345 (4) Rental of hotels and garage.................. $9,396 (5) General and administrative................... (6) Amortization of deferred financing costs..... (7) Release of restricted cash................... (373) (8) Depreciation expense......................... (9) Mortgage interest............................ ------ ------ -------- ----- ----- ---- ----- Pro Forma Formation Transactions adjustment summary total $9,396 $(1,061) $(31,185) $(452) $(352) $(353) $1,345 ====== ======= ======== ===== ===== ===== ====== Hotel Hotel Real General Pro Forma Operating Estate & Interest Depreciation Adjustments Expenses Taxes Admin Expense Expense - ----------- --------- ---------- ------------ ------------- ------------- (1) Assignment of contracts..................... $(430) (2) Equity investment income.................... (3) Operation of hotels and garage.............. $(20,938) $(1,514) (4) Rental of hotels and garage................. (5) General and administrative.................. 821 (6) Amortization of deferred financing costs.... $ (189) (7) Release of restricted cash.................. (8) Depreciation expense........................ $124 (9) Mortgage interest........................... (27,962) --------- ------- ----- -------- ---- Pro Forma Formation Transactions adjustment summary total $(20,938) $(1,514) $ 391 $(28,151) $124 ========= ======= ===== ======== ==== (2) The Operating Partnership holds a 95% economic interest in the Development and Management Company and records an equity interest of $21 on the $22 net income. (3) In connection with the Formation Transactions, the Operating Partnership entered into participating leases for the operation of the hotels and parking garage. As a result of these agreements, revenue and expenses will not be reflected from the operation of these businesses. (4) Represents rental income from the leasing of the hotels and parking garage owned by the Operating Partnership. The hotel lease arrangements are with an affiliate. (5) Reflects an increase of $821 in general and administrative expenses as a result of operating as a public company. (6) Reflects the net increase of $290 in the amortization of deferred financing costs for the $1,800 fee and related professional costs on the Unsecured Line of Credit, less a net reduction of $479 in amortization of deferred financing costs related to debt paid off with the Initial Offering proceeds. (7) Reflects the decrease in interest income as a result of the release of cash previously required to be held in escrow per the terms of the various mortgage note payable agreements. (8) Reflects the increase in depreciation from depreciating over 40 years the pro forma increase in real estate from the purchase of limited partners' interests and transfer cost paid. (9) Reflects the repayment of a portion of the existing mortgage indebtedness from proceeds of the Initial Offering for the Predecessor Period:
Management services........................................................ $ 452 General and administrative expenses........................................ (430) ----- Manager contract income............................................... $ 22 ===== (B) Reflects the results of operations, as adjusted for depreciation, of the Newport Office Park, acquired concurrent with the Initial Offering, for the period from January 1, 1997 to June 22, 1997 (the acquisition date). (C) Reflects the historical results of operations, as adjusted, for base rent, interest and depreciation, for the 1997 and 1998 Acquired Properties for the year ended December 31, 1997: 1997 Acquired Properties:
Principal Interest Properties Amount Rate Interest ---------- ---------- --------- -------- 599 Lexington Avenue............................................ $225,000 7.00% $ 7,547 Two Independence Square......................................... 122,505 7.90% 4,637 One Independence Square......................................... 78,327 7.90% 2,965 2300 N Street................................................... 66,000 7.00% 2,214 Capital Gallery................................................. 60,559 8.24% 2,391 Ten Cambridge Center............................................ 25,000 7.57% 907 191 Spring Street............................................... 23,883 8.50% 973 Bedford Business Park........................................... 23,376 8.50% 952 10 & 20 Burlington Mall Road.................................... 16,621 8.33% 663 Cambridge Center North Garage................................... 15,000 7.57% 544 91 Hartwell Avenue.............................................. 11,322 8.33% 452 92 & 100 Hayden Avenue.......................................... 9,057 8.33% 362 Montvale Center................................................. 7,969 8.59% 328 Newport Office Park............................................. 6,874 8.13% 268 Hilltop Business Center......................................... 4,750 7.00% 159 ------- Total...................................................... 25,362 Historical interest expense- Predecessor Period................. (53,324) -------- Pro forma interest expense adjustment for the Predecessor Period....................................................... $(27,962) ======== (1) Reflects results of operations for the period prior to acquisition. (2) Represents an adjustment to straight-line rent based on the pro forma acquisition date of January 1, 1997. (3) Includes an adjustment of ($675) to reflect effective interest on the mortgage debt assumed. 1998 Acquired Properties:
280 Park 100 East Pratt 875 Third Total 1997 Avenue(1) Street(1) Avenue(1) Acquisitions -------------- ---------------- --------------- -------------- Revenue: Rental: Base rent $17,012 $10,924 $18,646 $46,582 Adjustment(2) 7,437 397 24 7,858 ------- ------- ------- ------- Total base rent 24,449 11,321 18,670 54,440 Recoveries from tenants 1,707 2,133 3,799 7,639 Parking and other 80 267 - 347 ------- ------- ------- ------- Total rental revenue 26,236 13,721 22,469 62,426 Expenses: Rental: Operating 7,772 3,453 3,355 14,580 Real estate taxes 6,677 1,541 4,831 13,049 Interest - - 11,138(3) 11,138 Depreciation (Note G) 3,355 1,934 2,420 7,709 ------- ------- ------- ------- Total expenses 17,804 6,928 21,744 46,476 ------- ------- ------- ------- Net income $ 8,432 $ 6,793 $ 725 $15,950 ======= ======= ======= ======= (1) Represents an adjustment to straight-line rent based on the pro forma acquisition date of January 1, 1997. (2) Includes an adjustment of ($1,671) to reflect the effective interest expense of the mortgage debt assumed. (3) Includes an adjustment of $28 to reflect effective interest expense on the mortgage debt assumed. (4) Includes an adjustment of ($2,255) to reflect effective interest expense on the mortgage debt assumed. (D) Reflects reduction in interest income as a result of cash used for the acquisition of properties. (E) Reflects the incremental increase in general and administrative costs related to the 1997 and 1998 Acquired Properties. (F) Reflects the net increase in interest expense as a result of the following debt transactions:
Riverfront Mulligan/ Carnegie Prudential Metropolitan Total 1998 Plaza Griffin Center Center Square Acquisitions --------- --------- -------- ---------- ------------ ------------ Revenue: Rental: Base rent $ 17,299 $25,924 $27,294 $56,052 $19,255 $145,824 Adjustment(1) 909 464 1,127 3,542 148 6,190 --------- -------- --------- -------- ---------- ----------- Total base rent 18,208 26,388 28,421 59,594 19,403 152,014 Recoveries from tenants 2,891 5,314 7,128 7,273 1,100 23,706 Parking and other 454 - 427 4,960 - 5,841 --------- -------- --------- -------- ---------- ----------- Total rental revenue 21,553 31,702 35,976 71,827 20,503 181,561 Expenses: Rental: Operating 3,954 3,927 7,034 19,368 3,180 37,463 Real estate taxes 1,625 1,608 4,253 13,543 2,854 23,883 Interest - 8,692(2) 4,835(3) - 7,334(4) 20,861 Depreciation (Note G) 3,923 5,480 5,175 9,731 3,500 27,809 --------- -------- --------- -------- ---------- ----------- Total expenses 9,502 19,707 21,297 42,642 16,868 110,016 --------- -------- --------- -------- ---------- ----------- Net income $ 12,051 $11,995 $14,679 $29,185 $ 3,635 $ 71,545 ========= ======== ========= ======== ========== =========== (G) Detail of pro forma depreciation expense is presented below for the 1997 and 1998 Acquired Properties:
Interest on anticipated draw down on Unsecured Line of Credit as a result of 1997 and 1998 Acquired Properties....................................................................... $ 8,450 Interest on mortgage acquisition financing of 280 Park Avenue in the original principal amount of $220 million computed at an interest rate of 7.00% for the period January 1, 1997 to September 11, 1997 (date of acquisition)....................................................... 10,675 Amortization of deferred financing fees for the period from January 1, 1997 to September 11, 1997 (date of acquisition) as a result of approximately $1.1 million of fees associated with the mortgage financing of 280 Park Avenue. The deferred financing fees are amortized over the five year term of the loan.................................................. 153 Interest on mortgage acquisition financing of Riverfront Plaza in the amount of $121,800 computed at an interest rate of 6.61%.......................................................... 8,051 Interest reduction on paydown of $30 million related to the 875 Third Avenue mortgage loan..... (2,400) Interest on mortgage acquisition financing of the Prudential Center in the principal amount of $300,000 computed at an interest rate of 6.72%....................................... 20,160 Interest reduction on refinancing and partial paydown of the Mulligan/Griffin Portfolio loans'.............................................................. (5,406) -------- Increase in interest expense $ 39,683 ======== (1) Represents depreciation expense on the properties which has been calculated over 40 years for the building and over the life of the lease for tenant improvements. (H) This pro forma adjustment reflects the adjustment for the operating partnership unit holders' share of pro forma income before extraordinary items, including the distribution on the preferred units at a rate of 7.25%.
Purchase Pro forma Price Depreciation(1) ----------- ------------ 1997 Acquired Properties - ------------------------ 280 Park Avenue $322,650 $ 3,355 100 East Pratt Street 137,516 1,934 875 Third Avenue 215,118 2,420 ------- $ 7,709 ======= 1998 Acquired Properties - ------------------------ Riverfront Plaza $174,361 $ 3,923 Mulligan/Griffin Portfolio 257,890 5,480 Carnegie Center Portfolio 276,000 5,175 Prudential Center 518,982 9,731 Metropolitan Square 179,255 3,500 ------- $27,809 =======
EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of Boston Properties, Inc. on Forms S-3 (File Nos. 333-60219 and 333-61799) of our reports indicated below with respect to the financial statements indicated below, which reports are included in this Form 8-K/A of Boston Properties Inc., dated August 24, 1998. Date of Independent Financial Statements Accountants Report -------------------- ------------------- Statement of revenue over certain operating expenses of Riverfront Plaza for the year ended December 31, 1997. August 17, 1998 Statement of revenue over certain operating expenses of the Mulligan/Griffin Portfolio for the year ended December 31, 1997. August 14, 1998 Statement of revenue over certain operating expenses of the Carnegie Center Portfolio for the year ended December 31, 1997. July 30, 1998 Statement of revenue over certain operating expenses of Prudential Center for the year ended December 31, 1997. July 24, 1998 Statement of revenue over certain operating expenses of Metropolitan Square for the year ended December 31, 1997. July 10, 1998 /s/ PricewaterhouseCoopers Boston, Massachusetts August 24, 1998