SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): NOVEMBER 12, 1998 BOSTON PROPERTIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 1-13087 04-2473675 (State or other jurisdiction (Commission File (I.R.S. employer of incorporation) Number) Identification No.) 8 ARLINGTON STREET BOSTON, MASSACHUSETTS 02116 (Address of principal executive offices and zip code) Registrant's telephone number, including area code: (617) 859-2600 Boston Properties, Inc. (the "Company") hereby amends its Current Report on Form 8-K dated November 12, 1998, filed with the Securities and Exchange Commission on November 25, 1998, to (i) add Item 5 below to describe certain 1998 acquisitions that are individually insignificant under Rule 3-14 of Regulation S-X, but when aggregated with all other individually insignificant 1998 acquisitions are significant under Rule 3-14 and (ii) amend Item 7 in its entirety to include required financial statements, pro forma financial information and certain exhibits. ITEM 5. OTHER EVENTS On June 25, 1998, the Company acquired University Place, an approximately 196,000 square foot Class A office property located in Cambridge, Massachusetts, for a total purchase price of approximately $37.0 million. The Company financed the acquisition with cash. On November 3, 1998, the Company acquired Reservoir Place, an approximately 530,000 square foot Class A office property located in Waltham, Massachusetts, for a total purchase price of approximately $104.2 million. The Company financed the acquisition through the issuance of common operating partnership units valued at approximately $27.1 million and the assumption of debt with a fair value of approximately $77.1 million. The agreements made in connection with the acquisition of Reservoir Place and University Place (the "Properties"), were negotiated at arms length between the Company and representatives of the transferors. Neither the Company, any subsidiary of the Company nor any director or officer of the Company was affiliated with or had a material relationship with the transferors. In determining the price to purchase the Properties, the Company 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 Company is not aware of any material factors (other than those stated above) which would cause the reported financial information not to be indicative of future operating results. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) Financial Statements of Assets Acquired: Statement of Revenue over Certain Operating Expenses of University Place for the fiscal year ended September 30, 1997 and (unaudited) for the period from October 1, 1997 through June 24, 1998 (date of acquisition). Statement of Revenue over Certain Operating Expenses of Reservoir Place for the year ended December 31, 1997 and (unaudited) for the nine months ended September 30, 1998. Combined Statement of Revenue over Certain Operating Expenses of the Embarcadero Center Portfolio for the year ended December 31, 1997 and (unaudited) for the nine months ended September 30, 1998. (b) Pro Forma Financial Information: The information contained in the following pro forma financial statements assumes that both phases of the Embarcadero Center acquisition have occurred in accordance with the agreements filed on November 12, 1998. Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1998 (unaudited). Pro Forma Condensed Consolidated and Combined Statements of Income for the nine months ended September 30, 1998 (unaudited) and for the year ended December 31, 1997 (unaudited). (c) Exhibits EXHIBIT NO. 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.2 Consent of KPMG LLP, Independent Accountants. 99.1 Purchase and Sale Agreement, dated as of November 12, 1998, by and between Two Embarcadero Center West and BP OFR LLC.* 99.2 Contribution Agreement, dated as of November 12, 1998, by and among the Company, the Operating Partnership, Embarcadero Center Investors Partnership ("ECIP") and the partners in ECIP listed on Exhibit A thereto.* 99.3 Contribution Agreement, dated as of November 12, 1998, by and among the Company, the Operating Partnership, Three Embarcadero Center West ("Three ECW") and the partners in Three ECW listed on Exhibit A thereto.* 99.4 Three ECW Redemption Agreement, dated as of November 12, 1998, by and among Three ECW, the Operating Partnership, BP EC West LLC, Prudential, PIC Realty Corporation ("PIC") and Prudential Realty Securities II, Inc. ("PRS II").* 99.5 Three ECW Property Contribution Agreement, dated as of November 12, 1998, by and among Three ECW, Prudential, PIC, PRS II, the Operating Partnership, the Company and BP EC West LLC.* 99.6 Registration Rights and Lock-Up Agreement, dated November 12, 1998, by and among the Company, the Operating Partnership and the Holders named therein.* 99.7 Third Amended and Restated Partnership Agreement of One Embarcadero Center Venture, dated as of November 12, 1998, by and between Boston Properties LLC ("BPLLC"), as managing general partner, BP EC1 Holdings LLC ("BP EC1 LLC"), as non-managing general partner, and PIC, as non-managing general partner.* 99.8 Third Amended and Restated Partnership Agreement of Embarcadero Center Associates, dated as of November 12, 1998, by and between BPLLC, as managing general partner, BP EC2 Holdings LLC ("BP EC2 LLC"), as non-managing general partner, and PIC, as non-managing general partner.* 99.9 Second Amended and Restated Partnership Agreement of Three Embarcadero Center Venture, dated as of November 12, 1998, by and between BPLLC, as managing general partner, BP EC3 Holdings LLC ("BP EC3 LLC"), as non-managing general partner, and Prudential, as non-managing general partner.* 99.10 Second Amended and Restated Partnership Agreement of Four Embarcadero Center Venture, dated as of November 12, 1998, by and between BPLLC, as managing general partner, BP EC4 Holdings LLC ("BP EC4 LLC"), as non-managing general partner, and Prudential, as non-managing general partner.* 99.11 Note Purchase Agreement, dated as of November 12, 1998, by and between Prudential Realty Securities, Inc. ("PRS") and One Embarcadero Center Venture.* 99.12 Note Purchase Agreement, dated as of November 12, 1998, by and between PRS and Embarcadero Center Associates.* 99.13 Note Purchase Agreement, dated as of November 12, 1998, by and between PRS and Three Embarcadero Center Venture.* 99.14 Note Purchase Agreement, dated as of November 12, 1998, by and between PRS and Four Embarcadero Center Venture.* 99.15 Redemption Agreement, dated as of November 12, 1998, by and among One Embarcadero Center Venture, BPLLC, BP EC1 LLC and PIC.* 99.16 Redemption Agreement, dated as of November 12, 1998, by and among Embarcadero Center Associates, BPLLC, BP EC2 LLC and PIC.* 99.17 Redemption Agreement, dated as of November 12, 1998, by and among Three Embarcadero Center Venture, BPLLC, BP EC3 LLC and Prudential.* 99.18 Redemption Agreement, dated as of November 12, 1998, by and among Four Embarcadero Center Venture, BPLLC, BP EC4 LLC and Prudential.* 99.19 Option and Put Agreement, dated as of November 12, 1998, by and between One Embarcadero Center Venture and Prudential.* 99.20 Option and Put Agreement, dated as of November 12, 1998, by and between Embarcadero Center Associates and Prudential.* 99.21 Option and Put Agreement, dated as of November 12, 1998, by and between Three Embarcadero Center Venture and Prudential.* 99.22 Option and Put Agreement, dated as of November 12, 1998, by and between Four Embarcadero Center Venture and Prudential.* 99.23 Stock Purchase Agreement, dated as of September 28, 1998, by and between the Company and Prudential.* 99.24 Certificate of Designations for the Series Two Preferred Units, dated November 12, 1998.* 99.25 Certificate of Designations for the Series Three Preferred Units, dated November 12, 1998.* 99.26 Form of Certificate of Designations for the Series A Preferred Stock.* - ------------------------------- *Previously filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: January 26, 1999 BOSTON PROPERTIES, INC. By: /S/ DAVID G. GAW ------------------------- David G. Gaw Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Properties, Inc.: We have audited the accompanying statement of revenue over certain operating expenses of University Place in Cambridge, Massachusetts (the "Property") for the fiscal year ended September 30, 1997. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. 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. In our opinion, the statement referred to above presents fairly, in all material respects, the revenue over certain operating expenses (as described in Note 2) of the Property for the fiscal year ended September 30, 1997 in conformity with generally accepted accounting principles. /s/ PricewaterhouseCoopers LLP December 11, 1998 UNIVERSITY PLACE STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (in thousands) The accompanying notes are an integral part of the statement.
For the For the Period year ended from October 1, 1997 September 30, 1997 through June 24, 1998 ------------------ --------------------- (Unaudited) Revenue: Base rent $ 5,381 $ 4,085 Recoveries from tenants 222 159 Garage, net 1,132 870 ------- ------- 6,735 5,114 ------- ------- Certain operating expenses: Repairs and maintenance 247 220 Utilities 330 218 General and administrative 291 267 Janitorial and cleaning 168 131 Security 92 66 Insurance 30 23 Ground rent 566 425 Real estate taxes 1,248 920 ------- ------- 2,972 2,270 ------- ------- Excess of revenue over certain operating expenses $ 3,763 $ 2,844 ------- ------- ------- ------- UNIVERSITY PLACE 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 196,000 square foot Class A office property known as University Place, (the "Property") located in Cambridge, Massachusetts. The Property was acquired on June 25, 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 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 $233 and $72 for the fiscal year ended September 30, 1997 and for the period from October 1, 1997 through June 24, 1998 (unaudited), respectively. UNAUDITED INTERIM INFORMATION The statement of revenue over certain operating expenses for the period from October 1, 1997 through June 24, 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. UNIVERSITY PLACE 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 September 30, 1997 are as follows: As of September 30, 1997, three tenants occupied approximately 65% of the leasable square feet and represented approximately 67% of the contract rent. 5. GROUND RENT The Property is subject to a ground lease that expires December 31, 2028 (the "Ground Lease"). The Ground Lease, as amended, requires a minimum payment of $500 per annum, plus the greater of escalation rent and percentage rent, as defined in the agreement. The ground lease provides the holder with an option to purchase the lease interest commencing January 1, 2001. The purchase option is at the greater of the fair market value or a calculated amount as defined in the agreement.
YEAR ENDING SEPTEMBER 30, (IN THOUSANDS) ------------ 1998.......................... $5,433 1999.......................... 5,216 2000.......................... 3,587 2001.......................... 2,976 2002.......................... 2,981 Thereafter.................... 8,297 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Properties, Inc.: We have audited the accompanying statement of revenue over certain operating expenses of Reservoir Place in Waltham, Massachusetts (the "Property") for the year ended December 31, 1997. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement presentation. We believe that our audit provides a reasonable basis for our opinion. 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. In our opinion, the statement referred to above 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. /s/ PricewaterhouseCoopers LLP December 18, 1998 RESERVOIR PLACE STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (in thousands) The accompanying notes are an integral part of the Statement.
For the For the nine months year ended ended December 31, 1997 September 30, 1998 ----------------- ------------------- (Unaudited) Revenue: Base rent $ 11,387 $ 9,414 Recoveries from tenants 835 657 Other income 58 16 ------- -------- 12,280 10,087 ------- -------- Certain operating expenses: Repairs and maintenance 714 644 Janitorial and cleaning 463 420 Security 179 153 Utilities 201 236 General and administrative 109 84 Insurance 93 81 Real estate taxes 1,741 1,315 Interest expense 6,038 4,528 ------- -------- 9,538 7,461 ------- -------- Excess of revenue over certain operating expenses $ 2,742 $ 2,626 ------- -------- --------------- RESERVOIR PLACE 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 530,000 square foot Class A office property known as Reservoir Place, (the "Property") located in Waltham, Massachusetts. The Property was acquired on November 3, 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, 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 $149 and $37 for the year ended December 31, 1997 and for the nine months ended September 30, 1998 (unaudited), respectively. UNAUDITED INTERIM INFORMATION The statement of revenue over certain operating expenses for the nine months ended September 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. 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. RESERVOIR PLACE NOTES TO STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) 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 37% of the leasable square feet and represented approximately 33% of the contract rent. 5. DEBT ASSUMPTION In connection with the acquisition, the mortgage debt (the "Note") encumbering the Property totaling $66,444 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 through May 1, 1999 at an interest rate of 9.0866% and principal and interest payments at an interest rate of 9.6457% thereafter until maturity on November 1, 2006. Principal payments due on the Note during the next five years and thereafter are approximately as follows:
YEAR ENDING DECEMBER 31, (IN THOUSANDS) ------------ 1998............................ $12,866 1999............................ 11,935 2000............................ 9,620 2001............................ 7,409 2002............................ 3,642 Thereafter...................... 3,988 6. RELATED PARTY TRANSACTIONS The property reimbursed an affiliate for salary and wages and administrative costs totaling approximately $337 and $255 for the year ended December 31, 1997 and the nine month period ended September 30, 1998 (unaudited), respectively.
1998.................... $ -- 1999.................... 326 2000.................... 603 2001.................... 712 2002.................... 1,342 Thereafter 63,461 Independent Auditors' Report The Board of Directors and Stockholders of Boston Properties, Inc.: We have audited the accompanying Combined Statement of Revenue over Certain Operating Expenses (the Statement) of the Embarcadero Center Portfolio, which is comprised of One Embarcadero Center, Two Embarcadero Center, Three Embarcadero Center, Four Embarcadero Center, Two Embarcadero Center West and Three Embarcadero Center West, for the year ended December 31, 1997. The Statement is the responsibility of management. Our responsibility is to express an opinion on the Statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the Statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the Statement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall Statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying Statement was prepared to comply with the requirements of Rule 3-14 of Regulation S-X of the Securities and Exchange Commission and excludes certain expenses, described in note 2, that would not be comparable to those resulting from the proposed future operations of the properties. It is not intended to be a complete presentation of the operations of the properties. In our opinion, the Statement referred to above presents fairly, in all material respects, the revenue over certain operating expenses, as described in Note 2, of the Embarcadero Center Portfolio for the year ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG LLP San Francisco, California December 18, 1998 EMBARCADERO CENTER PORTFOLIO COMBINED STATEMENTS OF REVENUE OVER CERTAIN OPERATING EXPENSES (in thousands) See accompanying notes to combined statements of revenue over certain operating expenses.
For the For the nine months year ended ended December 31, September 30, 1997 1998 ------------------ ------------------ (Unaudited) Rental: Office rent (note 5) $ 93,594 $ 72,990 Retail rent 8,925 6,591 Escalation 2,672 2,281 Retail area charges 2,592 1,935 ------------------ ------------------ Total rental 107,783 83,797 Other: Storage 505 378 Parking (note 5) 7,854 6,546 Other income 3,130 2,594 ------------------ ------------------ Total other 11,489 9,518 ------------------ ------------------ Total revenue 119,272 93,315 ------------------ ------------------ Certain operating expenses (notes 5 and 6): Utilities 8,259 6,649 Security 3,427 2,565 Repairs and maintenance 16,167 11,876 Advertising and promotions 1,576 1,088 Insurance 4,150 2,501 Property tax 6,154 5,005 Interest on assumed loan 10,618 5,578 Other 1,291 955 ------------------ ------------------ Total expenses 51,642 36,217 ------------------ ------------------ Excess of revenue over certain operating expenses $ 67,630 $ 57,098 ------------------ ------------------ ------------------ ------------------ EMBARCADERO CENTER NOTES TO COMBINED STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) (1) DESCRIPTION OF THE PROPERTIES The accompanying statements of revenue over certain operating expenses (the "Statement") includes the collective operations of the Embarcadero Center Portfolio, which is comprised of six Class A buildings with approximately 3.6 million square feet of net rentable office space, 354,000 square feet of retail space and 2,090 underground parking spaces, known as One Embarcadero Center, Two Embarcadero Center, Three Embarcadero Center, Four Embarcadero Center, Two Embarcadero Center West, and Three Embarcadero Center West (the "Properties") located in San Francisco, California. The Properties were acquired by Boston Properties, Inc. on November 12, 1998 from an unrelated third party. (2) BASIS OF ACCOUNTING The accompanying Statement has been prepared on the accrual method of accounting. The Statements have 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, these Statements exclude certain historical expenses not comparable to the operations of the Properties after acquisition such as amortization, depreciation, administrative and management fees and interest as these expenses would not be comparable to the proposed future operations of the Properties. The acquisition of the Properties may result in a new valuation for purposes of determining future property tax assessments. (3) SIGNIFICANT ACCOUNTING POLICIES (A) RENTAL REVENUE Rental income of the Properties is recognized on a straight-line basis 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 $431 for the year ended December 31, 1997 and decreased revenue by approximately $148 for the nine months ended September 30, 1998 (unaudited). (B) UNAUDITED INTERIM INFORMATION The statement of revenue over certain operating expenses for the nine months ended September 30, 1998 is unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such combined statement have been included. (C) 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. EMBARCADERO CENTER NOTES TO COMBINED STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) (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 of $663 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: (5) RELATED PARTY TRANSACTIONS During the year ended December 31, 1997, affiliates of the Properties leased space, including parking spaces, at the Properties. In 1997, parking revenue includes approximately $579 from leased parking spaces with affiliates and rental revenue includes $1,196 from leased facilities with affiliates. The Properties reimburse an affiliate for their pro rata share of advertising and promotions expense. In addition, the Properties reimburse the affiliate for salaries and wages, including benefits, of affiliate employees who work on the Properties. Such salaries and wages are included in security, repairs and maintenance, administration, advertising and promotions, and other expenses line items. Included in the Statement are the following fees and reimbursements:
YEAR ENDING DECEMBER 31: (IN THOUSANDS) ------------------------ -------------- 1998 $ 100,414 1999 91,165 2000 82,546 2001 74,271 2002 61,618 Thereafter 190,737 The Properties participate in an insurance purchasing arrangement administered by an affiliate whereby the affiliate purchases certain insurance for the Properties and are reimbursed for such cost. The affiliate is not an insurer under the arrangement. The total reimbursements to the affiliate during 1997 totaled $73.
1997 -------- Security $ 138 Repairs and maintenance 56 Advertising and promotions 374 Other expenses 100 -------- $ 668 -------- -------- EMBARCADERO CENTER NOTES TO COMBINED STATEMENT OF REVENUE OVER CERTAIN OPERATING EXPENSES (dollars in thousands) (6) DEBT ASSUMPTION In connection with the acquisition of the Embarcadero Center Portfolio Boston Properties, Inc. assumed a mortgage note payable secured by the Four Embarcadero Center property. The assumed note had resulted from a refinancing that was completed as of January 26, 1998. The interest expense reflected in the Statement relates to the debt assumed. Prepayment penalties and related swap termination costs incurred in 1998 are not reflected in the accompanying financial statements. The principal amount of the note assumed was $108,698. The note bears interest at a fixed rate of 6.83% and is payable in equal monthly installments, including principal and interest, of $766. The note is based on a 25 year amortization schedule, with the remaining principal balance due and payable at maturity on February 1, 2008. BOSTON PROPERTIES, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET September 30, 1998 (Unaudited) The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet of Boston Properties, Inc. (the "Company") is presented as if the acquisitions subsequent to September 30, 1998, Embarcadero Center and Reservoir Place (the "Acquisition Properties"), had been consummated on September 30, 1998. This Pro Forma Consolidated financial information should be read in conjunction with Form 10-Q for the nine months ended September 30, 1998 (unaudited). The following Pro Forma Condensed Consolidated Balance Sheet is not necessarily indicative of what the actual financial position would have been assuming the above transactions had been consummated on September 30, 1998 nor does it purport to represent the future financial position of the Company. Boston Properties Pro Forma Condensed Consolidated Balance Sheet September 30, 1998 (unaudited) (dollars in thousands)
---------------- ----------- BOSTON ACQUISITION PROPERTIES, INC. PROPERTIES PRO FORMA ---------------- ----------- ----------- ASSETS Real Estate and equipment: $3,562,645 $1,312,022 $4,874,667 Less accumulated depreciation (335,821) -- (335,821) ---------------- ----------- ----------- Total real estate and equipment 3,226,824 1,312,022 (A) 4,538,846 Cash and cash equivalents 15,544 15,544 Escrows 19,668 -- 19,668 Tenant and other receivables 33,160 -- 33,160 Accrued rental income 67,692 67,692 Deferred charges 41,244 2,013 (B) 43,257 Prepaid expenses and other assets 23,064 -- 23,064 Investment in joint ventures 32,136 -- 32,136 ---------------- ----------- ----------- Total assets $3,459,332 $1,314,035 $4,773,367 ---------------- ----------- ----------- ---------------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable $1,752,430 $ 807,128 (C) $2,559,558 Unsecured line of credit 195,000 93,447 (C) 288,447 Accounts payable and accrued expenses 41,502 -- 41,502 Accrued interest payable 4,784 -- 4,784 Other liabilities 26,357 -- 26,357 ---------------- ----------- ----------- Total liabilities 2,020,073 900,575 2,920,648 Minority interests 462,015 413,460 (D) 875,475 Stockholders' equity: Excess stock, $.01 par value, 150,000,000 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, 63,527,552 issued and outstanding 635 -- 635 Additional paid in capital 949,972 -- 949,972 Retained earnings 26,637 -- 26,637 ---------------- ----------- ----------- Total stockholders' equity 977,244 -- 977,244 ---------------- ----------- ----------- Total liabilities and stockholders' equity $3,459,332 $1,314,035 $4,773,367 ---------------- ----------- ----------- ---------------- ----------- ----------- BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (dollars in thousands) (A) Represents the acquisition price, including closing costs, of the Acquisition Properties as follows: 1) The acquisition of the Embarcadero Center includes the issuance of $386.4 million in Preferred Operating Partnership Units (the "Preferred Units), the assumption of debt and new mortgage acquisition financing totaling $730,000 and a draw from the Unsecured Line of Credit of approximately $91,434. 2) The acquisition of Reservoir Place was funded through the assumption of mortgage debt with a fair value of $77,128 and the issuance of approximately $27,060 of Operating Partnership Units (the "OP Units"). (B) Represents costs incurred to refinance debt in connection with the acquisition of Embarcadero Center. (C) Represents the following debt transactions related to the Acquired Properties: MORTGAGE NOTES PAYABLE
Embarcadero Center (1)................... $1,207,834 Reservoir Place (2)...................... 104,188 ---------- Total Acquired Properties $1,312,022 ---------- ---------- (D) Adjustment to minority interest to reflect change as a result of the increase in outstanding OP Units as a result of the issuance of OP Units with a fair value of approximately $27.1 million in connection with the acquisition of Reservoir Place and the issuance of Preferred Units of $386.4 million in connection with the acquisition of Embarcadero Center.
Mortgage assumed in connection with the acquisition of Embarcadero Center............................ $ 108,698 Mortgage financing in connection with the acquisition of Embarcadero Center .......................... 621,302 Mortgage assumed in connection with the acquisition of Reservoir Place at fair value ........................................................................................... 77,128 -------- Net increase in mortgage notes payable ............................................................... $807,128 -------- -------- UNSECURED LINE OF CREDIT Draw down on Unsecured Line of Credit in connection with the acquisition and refinancing of Embarcadero Center .................................................................... $ 93,447 -------- BOSTON PROPERTIES, INC. PRO FORMA CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF INCOME For the nine months ended September 30, 1998 and the year ended December 31, 1997 (Unaudited) The accompanying unaudited Pro Forma Condensed Consolidated Statements of Income for the nine months ended September 30, 1998 and for the year ended December 31, 1997 are 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 1998 acquisitions for which financial statements are required to be filed pursuant to Rule 3-14 (the "1998 Acquired Properties"), (v) the closing of mortgage financing and refinancings, and (vi) the drawdown on the Unsecured Line of Credit as a result of acquisitions. The operations of the hotel properties and certain 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 Condensed Consolidated and Combined Statements 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, reported on Form 10-K for the year ended December 31, 1997 and on Form 10-Q for the nine month period ended September 30, 1998. The unaudited Pro Forma Condensed Consolidated financial information prepared by Boston Properties' management is not necessarily indicative of what the actual results of operations would have been for the nine month period ended September 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 nine month period ended September 30, 1998, nor do they purport to present the future results of operations of the Company. Boston Properties, Inc. Pro Forma Condensed Consolidated and Combined Statements of Income For the nine months ended September 30, 1998 (unaudited) (dollars in thousands, except per share date)
Boston Properties, Inc. ------------------ Nine months ended 1998 Other September 30, 1998 Acquisitions Adjustments Pro Forma ------------------ ------------ ----------- --------- (A) Revenue: Rental Base rent $286,610 $155,457 $442,067 Recoveries from tenants 33,027 13,602 46,629 Parking and other 5,880 13,373 19,253 -------- -------- ------- -------- Total rental revenue 325,517 182,432 507,949 Development and management services 8,893 8,893 Interest and other 9,410 $ (8,353)(B) 1,057 -------- -------- ------- -------- Total revenue 343,820 182,432 (8,353) 517,899 -------- -------- ------- -------- Expenses Rents: Operating 50,444 41,780 92,224 Real estate taxes 46,744 17,994 64,738 General and administrative 16,750 - 2,325 (C) 19,075 Interest 81,926 16,251 44,177 (D) 142,354 Depreciation and amortization 51,212 30,559 (E) 81,771 -------- -------- ------- -------- Total expenses 247,076 106,584 46,502 400,162 -------- -------- ------- -------- Income before minority interests 96,744 75,848 (54,855) 117,737 Minority interest in property partnership (390) - - (390) -------- -------- ------- -------- Income before minority interest in Operating Partnership and extraordinary item 96,354 75,848 (54,855) 117,347 Minority interest in Operating Partnership (25,025) - (20,374)(F) (45,399) -------- -------- ------- -------- Income before extraordinary item $ 71,329 $ 75,848 $(75,229) $ 71,948 -------- -------- ------- -------- -------- -------- ------- -------- Income before extraordinary item per common share-basic $ 1.19 $1.13 -------- --------- -------- --------- Weighted average number of common shares outstanding-basic 60,101 63,528 -------- --------- -------- --------- BOSTON PROPERTIES, INC NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) (A) Reflects the historical results of operations, as adjusted for base rent, interest and depreciation, for the 1998 Acquired Properties for the nine months ended September 30, 1998 as follows:
Riverfront Mulligan/ Carnegie Prudential Metropolitan Plaza (1) Griffin(1) Center (1) Center (1) Square (1) ----------- ------------ ---------- -------------- ------------ Revenue: Rental: Base rent $ 1,121 $ 2,357 $ 13,857 $ 30,098 $ 10,282 Adjustment (2) -- -- 537 1,791 209 -------- -------- -------- -------- -------- Total base rent 1,121 2,357 14,394 31,889 10,491 Recoveries from tenants 217 526 3,449 3,959 474 Other 117 530 232 2,391 -- -------- -------- -------- -------- -------- Total rental revenue 1,455 3,413 18,075 38,239 10,965 Expenses: Operating 255 387 3,087 8,097 1,819 Real estate taxes 137 135 2,127 7,084 1,589 Interest -- 677 2,076 (3) -- 3,922 (4) Depreciation and amortization 236 452 2,588 4,879 1,832 -------- -------- -------- -------- -------- Total expenses 628 1,651 9,878 20,060 9,162 -------- -------- -------- -------- -------- Net income $ 827 $ 1,762 $ 8,197 $ 18,179 $ 1,803 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (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 ($1,098) to reflect effective interest expense on the mortgage debt assumed. (5) Includes an adjustment of ($530) to reflect effective interest expense on the mortgage debt assumed. (B) Reflects the net decrease in interest income as a result of cash used to acquire the 1998 Acquired Properties. (C) Reflects an incremental increase in general and administrative costs related to the 1998 Acquired Properties and the establishment of regional offices. (D) Reflects increase in interest expense as a result of the following transactions:
University Embarcadero Reservoir Total 1998 Place (1) Center (1) Place (1) Acquisitions ------------ ------------ ------------ -------------- Revenue: Rental: Base rent $ 2,672 $ 79,581 $ 9,414 $149,382 Adjustment (2) 33 3,449 56 6,075 -------- -------- -------- --------- Total base rent 2,705 83,030 9,470 155,457 Recoveries from tenants 104 4,216 657 13,602 Other 569 9,518 16 13,373 -------- -------- -------- --------- Total rental revenue 3,378 96,764 10,143 182,432 Expenses: Operating 883 25,634 1,618 41,780 Real estate taxes 602 5,005 1,315 17,994 Interest -- 5,578 3,998 (5) 16,251 Depreciation and amortization 353 18,632 1,587 30,559 -------- -------- -------- --------- Total expenses 1,838 54,849 8,518 106,584 -------- -------- -------- --------- Net income $ 1,540 $ 41,915 $ 1,625 $ 75,848 -------- -------- -------- --------- -------- -------- -------- --------- (E) Detail of pro forma depreciation expense is presented below for the 1998 Acquired Properties:
Interest on mortgage acquisition financing of Embarcadero Center in the principal amount of $621,302 computed at an average interest rate of 6.63% ..................... $ 30,894 Interest on mortgage acquisition financing of the Prudential Center in the principal amount of $300,000 computed at an interest rate of 6.72% . .................................................................................... 10,108 Interest on Unsecured Line of Credit as a result of the 1998 Acquired Properties ..... 4,694 Interest on mortgage acquisition financing of Riverfront Plaza in the principal amount of $121,800 computed at an interest rate of 6.61% .................................... 485 Amortization of deferred financing fees as a result of approximately $2.0 million of fees associated with the mortgage financing of Embarcadero Center. The deferred fees are amortized over a weighted average of 8.7 years ................................................................................ 173 Interest reduction on refinancing and partial paydown of the Mulligan/Griffin Portfolio loans ...................................................................... (1,377) Interest reduction on paydown of $30 million related to the 875 Third Avenue mortgage loan ........................................................................ (800) -------- Net increase in interest expense ..................................................... $ 44,177 -------- -------- (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.
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(2) 518,982 4,879 Metropolitan Square(2) 175,000 1,832 Embarcadero Center 1,207,834 18,632 Reservoir Place 104,188 1,587 University Place(2) 37,000 353 ----------------- $ 30,559 ----------------- ----------------- BOSTON PROPERTIES, INC NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) (F) Reflects the adjustment for the Operating Partnership unit holders' share of pro forma income before extraordinary items, including a distribution on the preferred units. Boston Properties, Inc. Pro Forma Condensed Consolidated Statements 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 IPO 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 and extraordinary item 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 --------- ---------
Pro Forma Adjustments -------------------------------------------------------------------- 1997 1998 Other Acquisitions Acquisitions Adjustments Pro Forma ------------ ------------ ----------- --------- (C) (C) Revenue: Rental: Base rent $ 54,440 $ 277,152 -- $ 549,009 Recoveries from tenants 7,639 30,027 -- 60,614 Parking and other 347 18,520 -- 21,879 --------- --------- --------- --------- Total rental revenue 62,426 325,699 -- 631,502 Hotel -- -- Development and management services -- 7,046 Interest and other $ (2,983)(D) -- --------- --------- --------- --------- Total revenue 62,426 325,699 (2,983) 638,548 --------- --------- --------- --------- Expenses: Rental: Operating 14,580 75,816 123,721 Real estate taxes 13,049 33,026 81,476 Hotel: Operating -- Real estate taxes -- General and administrative 4,300 (E) 16,496 Interest 11,138 36,851 87,182 (F) 198,608 Depreciation and amortization 7,709 55,583(G) 102,399 --------- --------- --------- --------- Total expenses 46,476 201,276 91,482 522,700 --------- --------- --------- --------- Income before minority interests 15,950 124,423 (94,465) 115,848 Minority interest in property partnership -- -- -- (450) --------- --------- --------- --------- Income before minority interest in Operating Partnership and extraordinary item 15,950 124,423 (94,465) 115,398 Minority interest in Operating Partnership -- -- (42,638) (H) (54,075) --------- --------- --------- --------- Income before extraordinary item $ 15,950 $ 124,423 ($137,103) $ 61,323 --------- --------- --------- --------- --------- --------- --------- --------- Income before extraordinary item per common share-basic $ 0.97 --------- --------- Weighted average number of common shares outstanding-basic 63,528 --------- --------- BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED AND COMBINED STATEMENTS 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 as follows:
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 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.
280 Park Ave 100 East Pratt 875 Third Ave Total 1997 (1) (1) (1) Acquisitions ------------ -------------- ------------- ------------ Revenue: Rental: Base rent $17,012 $10,924 $18,646 $46,582 Adjustment(2) 7,437 397 24 7,858 --------- --------- --------- --------- Total rental revenue 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 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 Depreciation and amortization 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 --------- --------- --------- --------- --------- --------- --------- ---------
Riverfront Mulligan/ Carnegie Prudential Metropolitan Plaza Griffin Center Center Square ------------ ---------- ---------- ---------- -------------- Revenue: Rental: Base rent $ 17,299 $ 25,924 $ 27,294 $ 56,052 $ 19,255 Adjustment (1) 909 464 1,127 3,542 148 -------- -------- -------- -------- -------- Total base rent 18,208 26,388 28,421 59,594 19,403 Recoveries from tenants 2,891 5,314 7,128 7,273 1,100 Parking and Other 454 -- 427 4,960 -- -------- -------- -------- -------- -------- Total rental revenue 21,553 31,702 35,976 71,827 20,503 Expenses: Rental: Operating 3,954 3,927 7,034 19,368 3,180 Real estate taxes 1,625 1,608 4,253 13,543 2,854 Interest -- 8,692(2) 4,835(3) -- 7,334(4) Depreciation and amortization 3,923 5,480 5,175 9,731 3,500 -------- -------- -------- -------- -------- Total expenses 9,502 19,707 21,297 42,642 16,868 -------- -------- -------- -------- -------- Net income $ 12,051 $ 11,995 $ 14,679 $ 29,185 $ 3,635 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- (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 and 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. (5) Includes an adjustment of ($666) 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 an incremental increase in general and administrative costs related to the 1997 and 1998 Acquired Properties and the establishment of regional offices. (F) Reflects increase in interest expense as a result of the following transactions:
Embarcadero Reservoir University Total 1998 Center Place Place Acquisitions ----------- --------- ---------- ------------ Revenue: Rental: Base rent $102,519 $ 11,387 $ 5,381 $265,111 Adjustment (1) 5,706 78 67 12,041 -------- -------- -------- -------- Total base rent 108,225 11,465 5,448 277,152 Recoveries from tenants 5,264 835 222 30,027 Other 11,489 58 1,132 18,520 -------- -------- -------- -------- Total rental revenue 124,978 12,358 6,802 325,699 -------- -------- -------- -------- Expenses: Rental: Operating 34,870 1,759 1,724 75,816 Real estate taxes 6,154 1,741 1,248 33,026 Interest 10,618 5,372(5) -- 36,851 Depreciation and amortization 24,912 2,122 740 55,583 -------- -------- -------- -------- Total expenses 76,554 10,994 3,712 201,276 -------- -------- -------- -------- Net income $ 48,424 $ 1,364 $ 3,090 $124,423 -------- -------- -------- -------- -------- -------- -------- --------
Interest on mortgage acquisition financing of Embarcadero Center in the principal amount of $621,302 computed at an average interest rate of 6.63% ..................... $ 41,192 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 on Unsecured Line of Credit as a result of the 1997 and 1998 Acquired Properties ........................................................................... 14,526 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 Interest on mortgage acquisition financing of Riverfront Plaza in the principal amount of $121,800 computed at an interest rate of 6.61% .................................... 8,051 BOSTON PROPERTIES, INC NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands) (G) Detail of pro forma depreciation expense is presented below for the 1998 Acquired Properties:
Amortization of deferred financing fees as a result of approximately $2.0 million of fees associated with the mortgage financing of Embarcadero Center. The deferred fees are amortized over a weighted average of 8.7 years ................................................................................ 231 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 reduction on refinancing and partial paydown of the Mulligan/Griffin Portfolio loans ...................................................................... (5,406) Interest reduction on paydown of $30 million related to the 875 Third Avenue mortgage loan ........................................................................ (2,400) -------- Net increase in interest expense ..................................................... $ 87,182 -------- -------- (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) Reflects the adjustment for the operating partnership unit holders' share of pro forma income before extraordinary items, including the distribution on the preferred units.
Purchase Pro forma Properties Price Depreciation(1) ----------------------------- ------------------ --------------- 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 175,000 3,500 Embarcadero Center 1,207,834 24,912 Reservoir Place 104,188 2,122 University Place 37,000 740 -------------- $ 55,583 -------------- --------------
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 (files Nos. 333-69375, 333-70765 and 333-68379) 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, dated January 26, 1999. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts January 25, 1999
Date of Independent Financial Statements Accountants Report -------------------- ------------------ Statement of revenue over certain expenses of University Place for the year ended September 30, 1997.......... December 11, 1998 Statement of revenue over certain operating expenses of Reservoir Place for the year ended December 31, 1997............ December 18, 1998
Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the registration statement Nos. 333-69375, 333-70765, and 333-68379 on Form S-3 of Boston Properties, Inc. of our report dated December 18, 1998 relating to the Combined Statement of Revenues over Certain Operating Expenses of Embarcadero Center Portfolio for the year ended December 31, 1997, which report appears in this Form 8-K/A. Our report on the Combined Statement of Revenues over Certain Operating Expenses contains a paragraph indicating that the Statement was prepared for the purpose of complying with the requirements of Rule 3-14 of Regulation S-X of the Securities and Exchange Commission and excludes certain expenses that would not be comparable to those resulting from the proposed future operations of the properties. It is not intended to be a complete presentation of the operations of the properties. /s/ KPMG LLP San Francisco, California January 21, 1999