SEC Filing

- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 1-13087 ------------------------ BOSTON PROPERTIES, INC. (Exact name of Registrant as specified in its Charter) DELAWARE 04-2473675 (State or other jurisdiction (IRS Employer Id. Number) of incorporation or organization) 800 BOYLSTON STREET, 02199 BOSTON, MASSACHUSETTS (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (617) 236-3300 ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. COMMON STOCK, PAR VALUE $.01 68,823,159 (CLASS) (OUTSTANDING ON AUGUST 11, 2000) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

BOSTON PROPERTIES, INC. FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2000 TABLE OF CONTENTS PAGE -------- PART I. FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements: a) Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999........................................... 1 b) Consolidated Statements of Operations for the six months ended June 30, 2000 and 1999................................ 2 c) Consolidated Statements of Operations for the three months ended June 30,2000 and 1999.......................... 3 d) Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999................................ 4 e) Notes to the Consolidated Financial Statements........... 5 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 15 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk........................................................ 22 PART II. OTHER INFORMATION ITEM 2. Changes in Securities....................................... 23 ITEM 4. Submission of Matters to a Vote of Security Holders......... 23 ITEM 6. Exhibits and Reports on Form 8-K............................ 23 Signatures............................................................ 24

BOSTON PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) (IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS) ASSETS Real estate:................................................ $5,701,704 $5,609,424 Less: accumulated depreciation............................ (525,201) (470,591) ---------- ---------- Total real estate....................................... 5,176,503 5,138,833 Cash and cash equivalents................................... 6,319 12,035 Escrows..................................................... 33,025 40,254 Investments in securities................................... 28,283 14,460 Tenant and other receivables, net........................... 32,340 28,362 Accrued rental income, net.................................. 84,425 82,228 Deferred charges, net....................................... 69,599 53,733 Prepaid expenses and other assets........................... 39,074 28,452 Investments in joint ventures............................... 69,486 36,415 ---------- ---------- Total assets............................................ $5,539,054 $5,434,772 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable.................................... $3,157,068 $2,955,584 Unsecured line of credit.................................. 238,000 366,000 Accounts payable and accrued expenses..................... 53,922 66,780 Dividends and distributions payable....................... 59,812 50,114 Accrued interest payable.................................. 6,127 8,486 Other liabilities......................................... 52,497 48,282 ---------- ---------- Total liabilities....................................... 3,567,426 3,495,246 ---------- ---------- Commitments and contingencies............................... -- -- ---------- ---------- Minority interests.......................................... 797,451 781,962 ---------- ---------- Series A Convertible Redeemable Preferred Stock, liquidation preference $50.00 per share, 2,000,000 shares issued and outstanding............................................... 100,000 100,000 ---------- ---------- Stockholders' equity: Excess stock, $.01 par value, 150,000,000 shares authorized, none issued or outstanding.................. -- -- Common stock, $.01 par value, 250,000,000 shares authorized, 68,026,797 and 67,910,434 issued and outstanding in 2000 and 1999, respectively.............. 680 679 Additional paid-in capital................................ 1,076,593 1,067,778 Dividends in excess of earnings........................... (11,670) (10,893) Unearned compensation..................................... (954) -- Accumulated other comprehensive income.................... 9,528 -- ---------- ---------- Total stockholders' equity.............................. 1,074,177 1,057,564 ---------- ---------- Total liabilities and stockholders' equity............ $5,539,054 $5,434,772 ========== ========== The accompanying notes are an integral part of these financial statements. 1

BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, ----------------------------- 2000 1999 ------------- ------------- (UNAUDITED AND IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Revenue Rental: Base rent............................................... $ 348,290 $ 309,679 Recoveries from tenants................................. 46,070 34,666 Parking and other....................................... 25,297 23,011 ---------- ---------- Total rental revenue.................................. 419,657 367,356 Development and management services....................... 5,739 7,658 Interest and other........................................ 2,117 4,266 ---------- ---------- Total revenue......................................... 427,513 379,280 ---------- ---------- Expenses Operating................................................. 129,212 117,656 General and administrative................................ 15,997 13,962 Interest.................................................. 111,458 99,678 Depreciation and amortization............................. 64,626 57,237 ---------- ---------- Total expenses........................................ 321,293 288,533 ---------- ---------- Income before minority interests and joint venture income... 106,220 90,747 Minority interests in property partnerships................. (436) (4,294) Income from unconsolidated joint ventures................... 807 442 ---------- ---------- Income before minority interest in Operating Partnership.... 106,591 86,895 Minority interest in Operating Partnership.................. (37,745) (32,217) ---------- ---------- Income before gain on sale of real estate................... 68,846 54,678 Gain on sale of real estate, net............................ 297 -- ---------- ---------- Net income before preferred dividend........................ 69,143 54,678 Preferred dividend.......................................... (3,286) (2,521) ---------- ---------- Net income available to common shareholders................. $ 65,857 $ 52,157 ========== ========== Basic earnings per share: Net income available to common shareholders............... $ 0.97 $ 0.81 ========== ========== Weighted average number of common shares outstanding...... 67,973 64,539 ========== ========== Diluted earnings per share: Net income available to common shareholders............... $ 0.96 $ 0.80 ========== ========== Weighted average number of common and common equivalent shares outstanding...................................... 69,157 65,161 ========== ========== The accompanying notes are an integral part of these financial statements. 2

BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, ----------------------------- 2000 1999 ------------- ------------- (UNAUDITED AND IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) Revenue Rental: Base rent............................................... $ 177,953 $ 158,070 Recoveries from tenants................................. 22,734 17,252 Parking and other....................................... 12,289 12,087 ---------- ---------- Total rental revenue.................................. 212,976 187,409 Development and management services....................... 2,876 3,611 Interest and other........................................ 1,407 620 ---------- ---------- Total revenue......................................... 217,259 191,640 ---------- ---------- Expenses Operating................................................. 64,035 60,306 General and administrative................................ 8,589 7,352 Interest.................................................. 56,243 49,219 Depreciation and amortization............................. 32,395 29,443 ---------- ---------- Total expenses........................................ 161,262 146,320 ---------- ---------- Income before minority interests and joint venture income... 55,997 45,320 Minority interests in property partnership.................. (240) (139) Income from unconsolidated joint ventures................... 662 229 ---------- ---------- Income before minority interest in Operating Partnership.... 56,419 45,410 Minority interest in Operating Partnership.................. (20,193) (16,505) ---------- ---------- Income before gain on sale of real estate................... 36,226 28,905 Gain on sale of real estate, net............................ 297 -- ---------- ---------- Net income before preferred dividend........................ 36,523 28,905 Preferred dividend.......................................... (1,643) (1,682) ---------- ---------- Net income available to common shareholders................. $ 34,880 $ 27,223 ========== ========== Basic earnings per share: Net income available to common shareholders............... $ 0.51 $ 0.42 ========== ========== Weighted average number of common shares outstanding...... 67,991 65,534 ========== ========== Diluted earnings per share: Net income available to common shareholders............... $ 0.50 $ 0.41 ========== ========== Weighted average number of common and common equivalent shares outstanding...................................... 69,582 66,337 ========== ========== The accompanying notes are an integral part of these financial statements. 3

BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, --------------------- 2000 1999 --------- --------- (UNAUDITED AND IN THOUSANDS) Cash flows from operating activities: Net income before preferred dividend...................... $ 69,143 $ 54,678 Adjustments to reconcile net income before preferred dividend to net cash provided by operating activities: Depreciation and amortization........................... 64,626 57,237 Gain on sale of real estate............................. (403) -- Non-cash portion of interest expense.................... 1,989 995 Income from unconsolidated joint ventures............... (807) (442) Compensation related to restricted shares............... 106 -- Minority interests...................................... 37,851 29,329 Change in assets and liabilities: Escrows................................................. 7,229 (5,068) Tenant and other receivables, net....................... (3,978) (12,229) Accrued rental income, net.............................. (6,915) (8,284) Prepaid expenses and other assets....................... 2,601 (2,084) Accounts payable and accrued expenses................... (14,534) 18,122 Accrued interest payable................................ (2,359) 530 Other liabilities....................................... 2,215 (5,004) --------- --------- Total adjustments..................................... 87,621 73,102 --------- --------- Net cash provided by operating activities............. 156,764 127,780 --------- --------- Cash flows from investing activities: Acquisitions/additions to real estate..................... (200,506) (178,216) Net proceeds from sale of real estate..................... 46,713 -- Deposits on real estate................................... (13,223) -- Tenant leasing costs...................................... (11,131) (7,299) Investments in securities................................. (2,295) -- Investments in/distributions from joint ventures, net..... 4,742 5,152 --------- --------- Net cash used in investing activities................. (175,700) (180,363) --------- --------- Cash flows from financing activities: Net proceeds from sales of common and preferred stock..... -- 240,952 Borrowings on unsecured line of credit.................... 96,000 387,000 Repayments of unsecured line of credit.................... (224,000) (260,000) Repayments of mortgage notes.............................. (161,092) (18,005) Proceeds from mortgage notes.............................. 411,662 136,000 Repayment of notes payable................................ -- (328,143) Dividends and distributions............................... (96,578) (83,799) Proceeds from exercise of stock options................... 214 566 Proceeds from employee stock purchase plan................ 1,070 -- Deferred financing and other costs........................ (14,056) (1,929) --------- --------- Net cash provided by financing activities............. 13,220 72,642 --------- --------- Net increase (decrease) in cash............................. (5,716) 20,059 Cash and cash equivalents, beginning of period.............. 12,035 12,166 --------- --------- Cash and cash equivalents, end of period.................... $ 6,319 $ 32,225 ========= ========= Supplemental disclosures: Cash paid for interest.................................... $ 128,498 $ 106,906 ========= ========= Interest capitalized...................................... $ 17,039 $ 6,721 ========= ========= Non-cash operating activities: Assets assigned in connection with sale of real estate.... $ 4,718 $ -- ========= ========= Liabilities assigned in connection with sale of real estate.................................................. $ 112 $ -- ========= ========= Non-cash investing and financing activities: Additions to real estate included in accounts payable..... $ 1,788 $ 841 ========= ========= Assets assigned in connection with sale of real estate.... $ 4,040 $ -- ========= ========= Mortgage notes payable assumed in connection with acquisitions............................................ $ 117,831 $ 28,331 ========= ========= Mortgage notes payable assigned in connection with the sale of real estate..................................... $ 166,547 $ -- ========= ========= Issuance of minority interest in connection with acquisitions............................................ $ 20,467 $ 2,888 ========= ========= Dividends and distributions declared but not paid......... $ 59,812 $ 45,559 ========= ========= Notes receivable assigned in connection with an acquistion.............................................. $ -- $ 420,143 ========= ========= Notes payable assigned in connection with an acquisition............................................. $ -- $ 92,000 ========= ========= Conversion of Operating Partnership Units to Common Stock................................................... $ 116 $ -- ========= ========= Issuance of restricted shares to employees................ $ 1,060 $ -- ========= ========= Unrealized gain related to investements in securities..... $ 9,528 $ -- ========= ========= The accompanying notes are an integral part of these financial statements. 4

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED AND IN THOUSANDS) 1. ORGANIZATION Boston Properties, Inc. (the "Company"), a Delaware corporation, is a self-administered and self-managed real estate investment trust ("REIT"). The Company is the sole general partner of Boston Properties Limited Partnership (the "Operating Partnership") and at June 30, 2000, owned an approximate 67% general and limited partnership interest in the Operating Partnership. Partnership interests in the Operating Partnership are denominated as "common units of partnership interest" (also referred to as "OP Units") or "preferred units of partnership interest" (also referred to as "Preferred Units"). All references to OP Units and Preferred Units exclude such units held by the Company. A holder of an OP Unit may present such OP Unit to the Operating Partnership for redemption at any time (subject to restrictions agreed upon the issuance of OP Units to particular holders that may restrict such right for a period of time, generally one year from issuance). Upon presentation of an OP Unit for redemption, the Operating Partnership must redeem such OP Unit for cash equal to the then value of a share of common stock, except that, the Company may, at its election, in lieu of a cash redemption, acquire such OP Unit for one share of common stock of the Company ("Common Stock"). Because the number of shares of Common Stock outstanding at all times equals the number of OP Units that the Company owns, one share of Common Stock is generally the economic equivalent of one OP Unit, and the quarterly distribution that may be paid to the holder of an OP Unit equals the quarterly dividend that may be paid to the holder of a share of Common Stock. Each series of Preferred Units bear a distribution that is set in accordance with an amendment to the partnership agreement of the Operating Partnership. Preferred Units may also be convertible into OP Units at the election of the holder thereof or the Company. All references to the Company refer to Boston Properties, Inc. and its subsidiaries, including the Operating Partnership, collectively, unless the context otherwise requires. To assist the Company in maintaining its status as a REIT, the Company leases its three in-service hotel properties, pursuant to a lease with a participation in the gross receipts of such hotel properties, to a lessee ("ZL Hotel LLC") in which Messrs. Zuckerman and Linde, the Chairman of the Board and Chief Executive Officer, respectively, are the sole member-managers. Messrs. Zuckerman and Linde have a 9.8% economic interest in such lessee and one or more unaffiliated public charities have a 90.2% economic interest. Marriott International, Inc. manages these hotel properties under the Marriott-Registered Trademark- name pursuant to a management agreement with the lessee. Under the REIT requirements, revenues from a hotel are not considered to be rental income for purposes of certain income tests that a REIT must meet. Accordingly, in order to maintain its qualification as a REIT, the Company has entered into the participating leases described above to provide revenue that qualifies as rental income under the REIT requirements. As of June 30, 2000, the Company and the Operating Partnership had 68,026,797 and 24,465,219 shares of Common Stock and OP Units outstanding, respectively. In addition, the Company had 2,000,000 shares of Preferred Stock and the Operating Partnership had 8,713,131 Preferred Units outstanding. THE PROPERTIES: As of June 30, 2000, the Company owns a portfolio of 142 commercial real estate properties (136 and 127 properties at December 31, 1999 and June 30, 1999, respectively) (the "Properties") aggregating over 36.3 million square feet. The properties consist of 129 office properties with 5

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 1. ORGANIZATION (CONTINUED) approximately 28.7 million net rentable square feet (including 13 properties under development expected to contain approximately 3.8 million net rentable square feet) and approximately 5.5 million additional square feet of structured parking for 15,556 vehicles, nine industrial properties with approximately 0.9 million net rentable square feet, three hotels with a total of 1,054 rooms (consisting of approximately 0.9 million square feet), and a parking garage with 1,170 spaces (consisting of approximately 0.3 million square feet). In addition, the Company owns, has under contract, or has an option to acquire 49 parcels of land totaling approximately 487.9 acres, which will support approximately 10.3 million square feet of development. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of the Company include all the accounts of the Company, its majority-owned Operating Partnership and subsidiaries. The financial statements reflect the properties acquired at their historical basis of accounting to the extent of the acquisition of interests from the predecessor's owners who continued as investors. The remaining interests acquired for cash from those owners of the predecessor who decided to sell their interests have been accounted for as a purchase and the excess of the purchase price over the related historical cost basis was allocated to real estate. All significant intercompany balances and transactions have been eliminated. These financial statements should be read in conjunction with the Company's financial statements and notes thereto contained in the Company's annual report on Form 10-K for its fiscal year ended December 31, 1999. The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for other interim periods or for the full fiscal year. Certain prior-year balances have been reclassified in order to conform to the current-year presentation. 3. REAL ESTATE ACQUIRED AND PLACED IN SERVICE DURING THE QUARTER ENDED JUNE 30, 2000 The Company placed in service the Orbital Sciences Phase I project, consisting of two Class A office buildings comprising 174,832 square feet located in Dulles, Virginia. The project was developed by the Company for a total cost of approximately $29.7 million. On May 12, 2000, an unrelated third party acquired partial interests in two wholly-owned properties. The Company retained a 51% interest in Metropolitan Square, a 582,194 square foot office property in Washington, DC and a 25% interest in 140 Kendrick Street, a 381,000 square foot build-to-suit development property in Needham, Massachusetts. The interests in the properties were acquired for cash of approximately $46.7 million and the assumption of debt of approximately $88.2 million and resulted in a gain of $0.4 million. 6

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 3. REAL ESTATE ACQUIRED AND PLACED IN SERVICE DURING THE QUARTER ENDED JUNE 30, 2000 (CONTINUED) On June 19, 2000, the Company acquired a 26-acre site in Chelmsford, Massachusetts for approximately $3.1 million. The site will support approximately 260,000 square feet of development. The Company issued 82,215 OP Units valued at $3.0 million in connection with the acquisition. 4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES At June 30, 2000, the investments in unconsolidated joint ventures represent (i) a 25% interest in a joint venture that owns and operates an office building in Reston, Virginia and (ii) a 50% interest in a joint venture that owns and operates an office building and a residential apartment building in Washington, DC (iii) a 51% interest in a joint venture that owns and operates an office building in Washington, DC and (iv) a 25% interest in a joint venture that is developing an office building in Needham, Massachusetts. The Company serves as development manager for the joint venture under development. Under the equity method of accounting, the net equity investment is reflected on the consolidated balance sheets. The combined summarized balance sheets of the joint ventures are as follows: JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS Real estate and development in process, net.......... $462,354 $236,995 Other assets......................................... 24,519 10,473 -------- -------- Total assets..................................... $486,873 $247,468 ======== ======== LIABILITIES AND PARTNERS' EQUITY Mortgage and construction loans payable.............. $325,246 $164,185 Other liabilities.................................... 17,457 6,770 Partners' equity..................................... 144,170 76,513 -------- -------- Total liabilities and partners' equity........... $486,873 $247,468 ======== ======== Company's share of equity............................ $ 69,486 $ 36,415 ======== ======== The summarized statements of operations of the joint ventures are as follows: FOR THE SIX MONTHS FOR THE THREE ENDED MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (UNAUDITED) Total revenue.............................................. $12,608 $4,438 $8,626 $2,647 Total expenses............................................. 10,178 2,662 6,696 1,723 ------- ------ ------ ------ Net income............................................... $ 2,430 $1,776 $1,930 $ 924 ======= ====== ====== ====== Company's share of net income.............................. $ 807 $ 442 $ 662 $ 229 ======= ====== ====== ====== 7

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 5. INVESTMENTS IN SECURITIES On April 14, 2000, the Company invested approximately $2.3 million in preferred shares of a company that provides video units that deliver subscriber messaging, commercial advertising, news and other information in building elevators. The Company has also entered into a master license agreement to provide for these video units in the Company's buildings. In exchange, the Company received 605,555 warrants to purchase shares of common stock in the company and will share in the revenues generated from these video units in the Company's buildings. The Company has recorded this investment at cost, as these securities are not marketable under SFAS No. 115 At June 30, 2000, the Company accounts for its other investments in securities in accordance with SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" and has classified the securities as available-for-sale. As of June 30, 2000, the fair value of the investments in stock and warrants was approximately $28.3 million. The gross unrealized holding gain of approximately $9.5 million is included in other comprehensive income on the consolidated balance sheet. 6. MORTGAGE NOTES PAYABLE AND UNSECURED LINE OF CREDIT On April 6, 2000, the Company refinanced the mortgage loan on Ten Cambridge Center and the Cambridge Center North Garage which consisted of replacing the $40.0 million mortgage loan with a $36.0 million loan and removing the Cambridge Center North Garage as collateral. The new financing bears interest at a rate equal to 8.27% and matures in April 2010. On April 13, 2000, the Company obtained construction financing totaling $32.0 million collateralized by the 2600 Tower Oaks Boulevard development project in Rockville, Maryland. Such financing bears interest at a rate equal to LIBOR + 1.90% and matures in October 2002. On April 20, 2000, the Company refinanced the mortgage loan on Metropolitan Square that consisted of replacing the $104.0 million mortgage loan with a $140.0 million loan. The new financing bears interest at a rate equal to 8.23% and matures in April 2010. On May 12, 2000, an unrelated third party acquired an interest in Metropolitan Square. As a result, the Company now accounts for this property using the equity method of accounting and therefore it is not consolidated with the Company. On April 24, 2000, the Company obtained construction financing totaling $78.0 million collateralized by the 140 Kendrick Street development project in Needham, Massachusetts. Such financing matures in July 2002 and consists of two tranches: $16.4 million bearing interest at a rate of LIBOR + 1.35% and $61.6 million bearing interest at a rate of LIBOR + 1.65%. On May 12, 2000, an unrelated third party acquired an interest in 140 Kendrick Street. As a result, the Company now accounts for this property using the equity method of accounting and therefore it is not consolidated with the Company. During May 2000, the Company entered into two interest rate hedge agreements with major financial institutions for a notional amount of $300.0 million. The agreements provide for a fixed interest rate when LIBOR floats between 7.50% or 7.75% to 9.00% for terms ranging from two to three years, per terms of the agreements. 8

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 7. MINORITY INTERESTS Minority interests in the Company relate to the interest in the Operating Partnership not owned by Boston Properties, Inc. and interests in property partnerships that are not owned by the Company. As of June 30, 2000, the minority interest in the Operating Partnership consisted of 24,465,219 OP Units and 8,713,131 Preferred Units held by parties other than Boston Properties, Inc. On May 3, 2000, Boston Properties, Inc., as general partner of the Operating Partnership determined a distribution on the OP Units in the amount of $0.53 per OP Unit payable on July 28, 2000 to OP Unit holders of record on June 30, 2000. On May 15, 2000, the Operating Partnership paid a distribution on the 2,500,000 Series One Preferred Units at $0.61625 per unit, based on an annual distribution of $2.465 per unit and paid a distribution on the 6,213,131 Series Two and Three Preferred Units of $0.69349 per unit. On June 19, 2000, the Operating Partnership issued 82,215 OP Units valued at $3.0 million in connection with the acquisition of land in Chelmsford, Massachusetts. 8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY On May 3, 2000, the Board of Directors of the Company declared a second quarter dividend in the amount of $0.53 per share of Common Stock payable on July 28, 2000 to shareholders of record on June 30, 2000. On May 15, 2000, the Company paid a dividend on the 2,000,000 shares of Series A Convertible Redeemable Preferred Stock (the "Preferred Stock"), $50 liquidation preference per share, of approximately $0.69349 per share. In addition, on May 3, 2000, the Board of Directors of the Company declared a dividend of $0.70890 per share on the Preferred Stock payable on August 15, 2000 to shareholders of record on June 30, 2000. These shares of Preferred Stock are not classified as equity as in certain instances they are convertible into shares of Common Stock at the election of the holder after December 31, 2002 or are redeemable for cash at the election of the holder after May 12, 2009. 9

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 9. EARNINGS PER SHARE FOR THE THREE MONTHS ENDED JUNE 30, 2000 ------------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ -------------- ----------- Basic Earnings: Income available to common shareholders................. $34,880 67,991 $0.51 Effect of Dilutive Securities: Stock Options and other................................. 244 1,591 (.01) Diluted Earnings: ------- ------ ----- Net income.............................................. $35,124 69,582 $0.50 ======= ====== ===== FOR THE THREE MONTHS ENDED JUNE 30, 1999 ------------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------ -------------- ----------- Basic Earnings: Income available to common shareholders................. $27,223 65,534 $ 0.42 Effect of Dilutive Securities: Stock Options........................................... -- 803 (0.01) Diluted Earnings: ------- ------ ------ Net income.............................................. $27,223 66,337 $ 0.41 ======= ====== ====== FOR THE SIX MONTHS ENDED JUNE 30, 2000 ---------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ---------- Basic Earnings: Income available to common shareholders................. $65,857 67,973 $0.97 Effect of Dilutive Securities: Stock Options and other................................. 479 1,184 (0.01) Diluted Earnings: ------- ------ ----- Net income.............................................. $66,336 69,157 $0.96 ======= ====== ===== FOR THE SIX MONTHS ENDED JUNE 30, 1999 ---------------------------------------- INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- ---------- Basic Earnings: Income available to common shareholders................. $52,157 64,539 $0.81 Effect of Dilutive Securities: Stock Options........................................... -- 622 (0.01) Diluted Earnings: ------- ------ ----- Net income.............................................. $52,157 65,161 $0.80 ======= ====== ===== 10

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 10. SEGMENT INFORMATION The Company's segments are based on the Company's method of internal reporting, which classifies its operations by both geographic area and property type. The Company's segments by geographic area are: Greater Boston, Greater Washington, D.C., Midtown Manhattan, Greater San Francisco, and New Jersey and Pennsylvania. Segments by property type include: Class A Office, R&D, Industrial, Hotels and Garage. Asset information by segment is not reported, since the Company does not use this measure to assess performance: therefore, the depreciation and amortization expenses are not allocated among segments. Interest income, management and development services, interest expense and general and administrative expenses are not included in net operating income, as the internal reporting addresses these on a corporate level. Information by Geographic Area and Property Type: For the three months ended June 30, 2000: GREATER GREATER NEW JERSEY GREATER WASHINGTON MIDTOWN SAN AND BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL -------- ---------- --------- --------- ------------ -------- RENTAL REVENUE CLASS A................... $45,366 $53,031 $35,176 $44,304 $15,116 $192,993 R&D....................... 1,381 4,952 -- 466 -- 6,799 INDUSTRIAL................ 469 364 -- 561 173 1,567 HOTELS.................... 10,721 -- -- -- -- 10,721 GARAGE.................... 896 -- -- -- -- 896 ------- ------- ------- ------- ------- -------- TOTAL....................... 58,833 58,347 35,176 45,331 15,289 212,976 ------- ------- ------- ------- ------- -------- % OF GRAND TOTALS......... 27.62% 27.40% 16.52% 21.28% 7.18% 100.00% ------- ------- ------- ------- ------- -------- RENTAL EXPENSES CLASS A................... 15,927 13,984 11,428 15,002 4,861 61,202 R&D....................... 401 893 -- 97 -- 1,391 INDUSTRIAL................ 132 103 -- 38 39 312 HOTELS.................... 829 -- -- -- -- 829 GARAGE.................... 301 -- -- -- -- 301 ------- ------- ------- ------- ------- -------- TOTAL....................... 17,590 14,980 11,428 15,137 4,900 64,035 ------- ------- ------- ------- ------- -------- % OF GRAND TOTALS......... 27.47% 23.39% 17.85% 23.64% 7.65% 100.00% ------- ------- ------- ------- ------- -------- NET OPERATING INCOME........ $41,243 $43,367 $23,748 $30,194 $10,389 $148,941 ======= ======= ======= ======= ======= ======== % OF GRAND TOTALS......... 27.69% 29.12% 15.94% 20.27% 6.98% 100.00% ======= ======= ======= ======= ======= ======== 11

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 10. SEGMENT INFORMATION (CONTINUED) For the three months ended June 30, 1999: GREATER GREATER NEW JERSEY GREATER WASHINGTON MIDTOWN SAN AND BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL -------- ---------- --------- --------- ------------ -------- RENTAL REVENUE CLASS A................... $38,322 $50,827 $33,943 $37,644 $9,551 $170,287 R&D....................... 1,483 4,565 -- 386 -- 6,434 INDUSTRIAL................ 413 378 -- 344 174 1,309 HOTELS.................... 8,849 -- -- -- -- 8,849 GARAGE.................... 530 -- -- -- -- 530 ------- ------- ------- ------- ------ -------- TOTAL....................... 49,597 55,770 33,943 38,374 9,725 187,409 ------- ------- ------- ------- ------ -------- % OF GRAND TOTALS......... 26.46% 29.76% 18.11% 20.48% 5.19% 100.00% ------- ------- ------- ------- ------ -------- RENTAL EXPENSES CLASS A................... 14,816 13,486 11,719 14,084 2,904 57,009 R&D....................... 421 819 -- 114 -- 1,354 INDUSTRIAL................ 124 127 -- 72 35 358 HOTELS.................... 1,371 -- -- -- -- 1,371 GARAGE.................... 214 -- -- -- -- 214 ------- ------- ------- ------- ------ -------- TOTAL....................... 16,946 14,432 11,719 14,270 2,939 60,306 ------- ------- ------- ------- ------ -------- % OF GRAND TOTALS......... 28.11% 23.93% 19.43% 23.66% 4.87% 100.00% ------- ------- ------- ------- ------ -------- NET OPERATING INCOME........ $32,651 $41,338 $22,224 $24,104 $6,786 $127,103 ======= ======= ======= ======= ====== ======== % OF GRAND TOTALS......... 25.69% 32.52% 17.49% 18.96% 5.34% 100.00% ======= ======= ======= ======= ====== ======== The following is a reconcilition of net operating income to income before minority interests and joint venture income: THREE MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Net Operating Income.................................... $148,941 $127,103 Add: Development and management services................... 2,876 3,611 Interest income....................................... 1,407 620 Less: General and administrative............................ (8,589) (7,352) Interest expense...................................... (56,243) (49,219) Depreciation and amortization......................... (32,395) (29,443) -------- -------- Income before minority interests and joint venture income................................................ $ 55,997 $ 45,320 ======== ======== 12

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 10. SEGMENT INFORMATION (CONTINUED) Information by Geographic Area and Property Type: For the six months ended June 30, 2000: GREATER GREATER NEW JERSEY GREATER WASHINGTON MIDTOWN SAN AND BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL -------- ---------- --------- --------- ------------ -------- RENTAL REVENUE CLASS A................... $90,235 $108,376 $70,128 $87,557 $28,243 $384,539 R&D....................... 2,942 9,659 -- 893 -- 13,494 INDUSTRIAL................ 915 725 -- 903 353 2,896 HOTELS.................... 17,161 -- -- -- -- 17,161 GARAGE.................... 1,567 -- -- -- -- 1,567 ------- -------- ------- ------- ------- -------- TOTAL....................... 112,820 118,760 70,128 89,353 28,596 419,657 ------- -------- ------- ------- ------- -------- % OF GRAND TOTALS......... 26.88% 28.30% 16.71% 21.29% 6.82% 100.00% ------- -------- ------- ------- ------- -------- RENTAL EXPENSES CLASS A................... 32,696 28,553 23,331 29,776 8,792 123,148 R&D....................... 847 1,867 -- 163 -- 2,877 INDUSTRIAL................ 295 217 -- 85 67 664 HOTELS.................... 2,013 -- -- -- -- 2,013 GARAGE.................... 510 -- -- -- -- 510 ------- -------- ------- ------- ------- -------- TOTAL....................... 36,361 30,637 23,331 30,024 8,859 129,212 ------- -------- ------- ------- ------- -------- % OF GRAND TOTALS......... 28.13% 23.71% 18.06% 23.24% 6.86% 100.00% ------- -------- ------- ------- ------- -------- NET OPERATING INCOME........ $76,459 $ 88,123 $46,797 $59,329 $19,737 $290,445 ======= ======== ======= ======= ======= ======== % OF GRAND TOTALS......... 26.32% 30.34% 16.11% 20.43% 6.80% 100.00% ======= ======== ======= ======= ======= ======== 13

BOSTON PROPERTIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED AND IN THOUSANDS) 10. SEGMENT INFORMATION (CONTINUED) For the six months ended June 30, 1999: GREATER GREATER NEW JERSEY GREATER WASHINGTON MIDTOWN SAN AND BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL -------- ---------- --------- --------- ------------ -------- RENTAL REVENUE CLASS A................... $75,277 $99,758 $68,134 $74,837 $19,008 $337,014 R&D....................... 3,166 9,098 -- 835 -- 13,099 INDUSTRIAL................ 819 701 -- 618 354 2,492 HOTELS.................... 13,700 -- -- -- -- 13,700 GARAGE.................... 1,051 -- -- -- -- 1,051 ------- ------- ------- ------- ------- -------- TOTAL....................... 94,013 109,557 68,134 76,290 19,362 367,356 ------- ------- ------- ------- ------- -------- % OF GRAND TOTALS......... 25.59% 29.82% 18.55% 20.77% 5.27% 100.00% ------- ------- ------- ------- ------- -------- RENTAL EXPENSES CLASS A................... 29,969 26,125 23,020 26,711 5,427 111,252 R&D....................... 949 1,789 -- 202 -- 2,940 INDUSTRIAL................ 266 215 -- 122 63 666 HOTELS.................... 2,395 -- -- -- -- 2,395 GARAGE.................... 403 -- -- -- -- 403 ------- ------- ------- ------- ------- -------- TOTAL....................... 33,982 28,129 23,020 27,035 5,490 117,656 ------- ------- ------- ------- ------- -------- % OF GRAND TOTALS......... 28.87% 23.91% 19.57% 22.98% 4.67% 100.00% ------- ------- ------- ------- ------- -------- NET OPERATING INCOME........ $60,031 $81,428 $45,114 $49,255 $13,872 $249,700 ======= ======= ======= ======= ======= ======== % OF GRAND TOTALS......... 24.04% 32.60% 18.07% 19.73% 5.56% 100.00% ======= ======= ======= ======= ======= ======== The following is a reconcilition of net operating income to income before minority interests and joint venture income: SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Net Operating Income.................................... $290,445 $249,700 Add: Development and management services................... 5,739 7,658 Interest and other.................................... 2,117 4,266 Less: General and administrative............................ (15,997) (13,962) Interest expense...................................... (111,458) (99,678) Depreciation and amortization......................... (64,626) (57,237) -------- -------- Income before minority interests and joint venture income................................................ $106,220 $ 90,747 ======== ======== 14

ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results or developments could differ materially from those projected in such statements as a result of certain factors set forth in the section below entitled "Certain Factors Affecting Future Operating Results" and elsewhere in this report. Since January 1, 1999, the Company has increased its in-service portfolio from 110 properties to 127 properties (the "Total Portfolio"). As a result of the growth in the Company's Total Portfolio, the financial data presented below shows significant changes in revenues and expenses from period to period. The Company does not believe that its period-to-period financial data are comparable. Therefore, the comparison of operating results for the three and six months ended June 30, 2000 and 1999 show separately changes attributable to the properties that were owned by the Company for all of each period compared (the "Same Property Portfolio") and the changes attributable to the Total Portfolio. RESULTS OF OPERATIONS COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2000 TO THE SIX MONTHS ENDED JUNE 30, 1999. The table below reflects selected operating information for the Same Property Portfolio and the Total Portfolio. The Same Property Portfolio consists of the 110 properties acquired or placed in service on or prior to January 1, 1999. SAME PROPERTY PORTFOLIO ------------------------------------------- INCREASE/ % 2000 1999 (DECREASE) CHANGE -------- -------- ---------- -------- (DOLLARS IN THOUSANDS) Revenue: Rental revenue................................ $365,616 $343,953 $21,663 6.30% Development and management services........... -- -- -- -- Interest and other............................ -- -- -- -- -------- -------- ------- ---- Total revenue............................... 365,616 343,953 21,663 6.30% -------- -------- ------- ---- Expenses: Operating..................................... 114,115 107,592 6,523 6.06% -------- -------- ------- ---- Net Operating Income............................ 251,501 236,361 15,140 6.41% -------- -------- ------- ---- General and administrative.................... -- -- -- -- Interest...................................... -- -- -- -- Depreciation and amortization................. 57,031 54,215 2,816 5.19% -------- -------- ------- ---- Income before minority interests and joint venture income.......................................... $194,470 $182,146 $12,324 6.77% ======== ======== ======= ==== 15

TOTAL PORTFOLIO ------------------------------------------- INCREASE/ % 2000 1999 (DECREASE) CHANGE -------- -------- ---------- -------- (DOLLARS IN THOUANDS) Revenue: Rental revenue................................ $419,657 $367,356 $52,301 14.24% Development and management services........... 5,739 7,658 (1,919) -25.06% Interest and other............................ 2,117 4,266 (2,149) -50.38% -------- -------- ------- ------ Total revenue............................... 427,513 379,280 48,233 12.72% Expenses: Operating..................................... 129,212 117,656 11,556 9.82% -------- -------- ------- ------ Net Operating Income............................ 298,301 261,624 36,677 14.02% -------- -------- ------- ------ General and administrative.................... 15,997 13,962 2,035 14.58% Interest...................................... 111,458 99,678 11,780 11.82% Depreciation and amortization................. 64,626 57,237 7,389 12.91% -------- -------- ------- ------ Income before minority interests and joint venture income.......................................... $106,220 $ 90,747 $15,473 17.05% ======== ======== ======= ====== The increase in rental revenues in the Same Property Portfolio is primarily a result of an overall increase in rental rates on new leases and rollovers and a small increase in occupancy. The increase in rental revenues for the Total Portfolio is primarily a result of the revenues earned on the properties acquired or placed-in-service after January 1, 1999. The decrease in development and management services revenue is due to a non-recurring development fee of approximately $1.2 million earned during the six months ended June 30, 1999 and fees earned on projects totaling approximately $0.6 million which were completed during 1999. The decrease in interest and other revenue is primarily due to interest income earned on $420.1 million of notes receivable related to the Embarcadero Center acquisition during the six months ended June 30, 1999. Property operating expenses (real estate taxes, utilities, repairs and maintenance, cleaning and other property related expenses) in the Same Property Portfolio increased mainly due to increases in real estate taxes and cleaning. Property operating expenses for the Total Portfolio increased mainly due to the properties acquired or placed-in-service after January 1, 1999. General and administrative expenses increased due to the increase in the overall size of the Total Portfolio since January 1, 1999. The Company has hired additional employees as a result of the new acquisitions. Interest expense increased due to new and assumed mortgage indebtedness and the increased use of the Company's unsecured revolving line of credit (the "Unsecured Line of Credit") since June 30, 1999. Depreciation and amortization expense for the Same Property Portfolio increased as a result of capital and tenant improvements made since June 30, 1999. Depreciation and amortization expense for the Total Portfolio increased mainly due to the properties acquired or placed-in-service after January 1, 1999. 16

COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2000 TO THE THREE MONTHS ENDED JUNE 30, 1999. The table below reflects selected operating information for the Same Property Portfolio and the Total Portfolio. The Same Property Portfolio consists of the 111 properties acquired or placed in service on or prior to April 1, 1999. SAME PROPERTY PORTFOLIO ------------------------------------------- INCREASE/ % 2000 1999 (DECREASE) CHANGE -------- -------- ---------- -------- (DOLLARS IN THOUSANDS) Revenue: Rental revenue................................ $185,628 $174,904 $10,724 6.13% Development and management services........... -- -- -- -- Interest and other............................ -- -- -- -- -------- -------- ------- ---- Total revenue............................... 185,628 174,904 10,724 6.13% -------- -------- ------- ---- Expenses: Operating..................................... 56,777 55,252 1,525 2.76% -------- -------- ------- ---- Net Operating Income.............................. 128,851 119,652 9,199 7.69% -------- -------- ------- ---- General and administrative.................... -- -- -- -- Interest...................................... -- -- -- -- Depreciation and amortization................. 28,527 27,902 625 2.24% -------- -------- ------- ---- Income before minority interests and joint venture income.............................. $100,324 $ 91,750 $ 8,574 9.34% ======== ======== ======= ==== TOTAL PORTFOLIO ------------------------------------------- INCREASE/ % 2000 1999 (DECREASE) CHANGE -------- -------- ---------- -------- (DOLLARS IN THOUSANDS) Revenue: Rental revenue................................ $212,976 $187,409 $25,567 13.64% Development and management services........... 2,876 3,611 (735) -20.35% Interest and other............................ 1,407 620 787 126.94% -------- -------- ------- ------ Total revenue............................... 217,259 191,640 25,619 13.37% -------- -------- ------- ------ Expenses: Operating..................................... 64,035 60,306 3,729 6.18% -------- -------- ------- ------ Net Operating Income.............................. 153,224 131,334 21,890 16.67% -------- -------- ------- ------ General and administrative.................... 8,589 7,352 1,237 16.83% Interest...................................... 56,243 49,219 7,024 14.27% Depreciation and amortization................. 32,395 29,443 2,952 10.03% -------- -------- ------- ------ Income before minority interests and joint venture income.............................. $ 55,997 $ 45,320 $10,677 23.56% ======== ======== ======= ====== The increase in rental revenues in the Same Property Portfolio is primarily a result of an overall increase in rental rates on new leases and rollovers. The increase in rental revenues for the Total Portfolio is primarily a result of the properties acquired or placed-in-service after April 1, 1999. The decrease in development and management services revenue is due to fees earned on projects totaling approximately $0.3 million that were completed during 1999. 17

The increase in interest and other revenue is primarily due to higher average cash balances maintained during the quarter ended June 30, 2000. Property operating expenses (real estate taxes, utilities, repairs and maintenance, cleaning and other property related expenses) in the Total Portfolio increased mainly due to the properties acquired or placed-in-service after April 1, 1999. General and administrative expenses increased due to the increase in the overall size of the Total Portfolio since June 30, 1999. The Company has hired additional employees as a result of the new acquisitions. Interest expense increased due to new and assumed mortgage indebtedness and the increased use of the Unsecured Line of Credit. Depreciation and amortization expense for the Same Property Portfolio increased as a result of capital and tenant improvements made since June 30, 1999. Depreciation and amortization expense for the Total Portfolio increased mainly due to the properties acquired or placed-in-service after April 1, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated indebtedness at June 30, 2000 was approximately $3.4 billion and bore interest at a weighted average interest rate of approximately 7.27% per annum. Based on the Company's total market capitalization at June 30, 2000 of approximately $7.5 billion, the Company's consolidated debt represents 45.5% of its total market capitalization. The Company has a $500 million Unsecured Line of Credit with Fleet National Bank, as agent. The Company uses the Unsecured Line of Credit principally to facilitate its development and acquisition activities and for working capital purposes. As of August 11, 2000, the Company had $269.0 million outstanding under the Unsecured Line of Credit. The following represents the outstanding principal balances due under the first mortgages at June 30, 2000: PROPERTIES INTEREST RATE PRINCIPAL AMOUNT MATURITY DATE - ---------- ------------- ---------------- ------------------ (IN THOUSANDS) Prudential Center.......................... 6.72% $ 293,639 July 1, 2008 599 Lexington Avenue....................... 7.00% 225,000(1) July 19, 2005 280 Park Avenue............................ 7.00% 220,000(2) September 11, 2002 Embarcadero Center One..................... 6.70% 157,374 December 10, 2008 Embarcadero Center Two..................... 6.70% 157,374 December 10, 2008 Embarcadero Center Four.................... 6.79% 155,889 February 1, 2008 875 Third Ave.............................. 8.00% 151,977(3) December 31, 2002 Five Times Square.......................... 8.66% 149,680(4) January 26, 2003 Embarcadero Center Three................... 6.40% 147,243 January 1, 2007 Two Independence Square.................... 8.09% 117,354(5) February 27, 2003 Riverfront Plaza........................... 6.61% 116,788 January 21, 2008 Democracy Center........................... 7.05% 108,342 April 9, 2009 Embarcadero Center West Tower.............. 6.50% 98,196 January 1, 2006 100 East Pratt Street...................... 6.73% 92,619 November 1, 2008 The Gateway................................ 8.25% 75,000(6) September 30, 2000 Reservoir Place............................ 6.88% 74,777(7) November 1, 2006 One Independence Square.................... 8.12% 74,743(5) August 21, 2001 One and Two Reston Overlook................ 7.45% 68,468 September 1, 2004 2300 N Street.............................. 6.88% 66,000 August 3, 2003 18

PROPERTIES INTEREST RATE PRINCIPAL AMOUNT MATURITY DATE - ---------- ------------- ---------------- ------------------ (IN THOUSANDS) Capital Gallery............................ 8.24% 57,677 August 15, 2006 10 and 20 Burlington Mall Road............. 8.33% 37,000(8) October 1, 2001 Ten Cambridge Center....................... 8.27% 35,927 April 1, 2010 111 Huntington Avenue...................... 8.65% 33,890(9) September 27, 2002 1301 New York Avenue....................... 7.19% 33,135(10) August 15, 2009 Eight Cambridge Center..................... 7.73% 28,587 July 15, 2010 510 Carnegie Center........................ 7.39% 27,912 January 1, 2008 Lockheed Martin Building................... 6.61% 26,536 June 1, 2008 University Place........................... 6.94% 25,525 August 1, 2021 Reston Corporate Center.................... 6.56% 25,046 May 1, 2008 New Dominion Technology Park............... 8.25% 24,188(11) March 4, 2002 Sumner Square.............................. 8.19% 23,653(12) April 22, 2004 Orbital Sciences........................... 8.30% 23,014(13) August 19, 2002 191 Spring Street.......................... 8.50% 22,959 September 1, 2006 Bedford Business Park...................... 8.50% 21,970 December 10, 2008 NIMA Building.............................. 6.51% 21,700 June 1, 2008 212 Carnegie Center........................ 7.25% 20,453 December 31, 2000 202 Carnegie Center........................ 7.25% 19,017 December 31, 2000 506 Carnegie Center........................ 7.39% 17,654 November 30, 2007 508 Carnegie Center........................ 7.39% 16,406 November 30, 2007 504 Carnegie Center........................ 7.39% 14,712 November 30, 2007 214 Carnegie Center........................ 8.19% 13,126(14) October 31, 2000 101 Carnegie Center........................ 7.66% 8,513 April 1, 2006 Montvale Center............................ 8.59% 7,627 December 1, 2006 Newport Office Park........................ 8.13% 6,076 July 1, 2001 Hilltop Business Center.................... 6.81% 5,816 March 1, 2019 Tower Oaks................................. 8.56% 4,226 October 10, 2002 302 Carnegie Center........................ 8.55% 3,754(15) March 15, 2003 201 Carnegie Center........................ 7.08% 506 February 1, 2010 ---------- Total..................................................... $3,157,068 ========== - ------------------------ (1) At maturity the lender has the option to purchase a 33.33% interest in this Property in exchange for the cancellation of the principal balance of approximately $225 million. (2) Outstanding principal of $213,000 bears interest at a fixed rate of 7.00%. The remaining $7,000 bears interest at a floating rate equal to LIBOR + 1.00%. (3) The principal amount and interest rate shown has been adjusted to reflect the fair value of the note. The actual principal balance at June 30, 2000 was $149,473 and the interest rate was 8.75%. (4) Total construction loan in the amount of $420.0 million at a variable rate of LIBOR + 2.00%. (5) The principal amount and interest rate shown has been adjusted to reflect the effective rates on the loans. The actual principal balances at June 30, 2000 were $117,594 and $74,938, respectively. The actual interest rates are 8.50% and continue at such rates through the loan expiration. (6) Outstanding principal bears interest at a floating rate equal to LIBOR + 1.60%. (7) The principal amount and interest rate shown has been adjusted to reflect the fair value of the note. The actual principal balance at June 30, 2000 was $65,774 and the interest rate was 9.09%. 19

(8) Includes outstanding indebtedness secured by 91 Hartwell Avenue and 92 and 100 Hayden Avenue. (9) Total construction loan in the amount of $203.0 million at a variable rate of LIBOR + 2.00%. (10) Includes outstanding principal in the amounts of $20,000, $8,742 and $4,393 which bear interest at fixed rates of 6.70%, 8.54% and 6.75%, respectively. (11) Total construction loan in the amount of $48.6 million at a variable rate of LIBOR + 1.60%. (12) The outstanding principal bears interest at a rate equal to LIBOR + 1.50%. (13) Total construction loan in the amount of $27.0 million at a variable rate of LIBOR + 1.65%. (14) The principal amount and interest rate shown has been adjusted to reflect the effective rate on the loan. The actual principal balance at June 30, 2000 was $13,115 and the interest rate was 8.40%. (15) Total construction loan in the amount of $10.0 million at a variable rate of LIBOR + 1.90%. The Company expects to meet its short-term liquidity requirements generally through its existing working capital and net cash provided by operations. The Company's operating properties and hotels require periodic investments of capital for tenant-related capital expenditures and for general capital improvements. For the three months ended June 30, 2000, the Company's recurring capital expenditures totaled $2.3 million. The Company expects to meet its long-term requirements for the funding of property development, property acquisitions and other non-recurring capital improvements through long-term secured and unsecured indebtedness (including the Unsecured Line of Credit) and the issuance of additional equity securities of the Company. The Company has development projects currently in process, which require commitments to fund to completion. Commitments under these arrangements totaled approximately $639.8 million as of June 30, 2000. The Company expects to fund these commitments using available cash, construction loans and the Unsecured Line of Credit. In addition, the Company has options to acquire land that require minimum deposits that the Company will fund using available cash or the Unsecured Line of Credit. FUNDS FROM OPERATIONS Management believes that Funds from Operations is helpful to investors as a measure of the performance of an equity REIT because, along with cash flows from operating activities, financing activities and investing activities, it provides investors with an understanding of the ability of the Company to incur and service debt and make capital expenditures. The Company computes Funds from Operations in accordance with standards established by the White Paper on Funds from Operations approved by the Board of Governors of NAREIT in 1995 and clarified in 1999, which may differ from the methodology for calculating Funds from Operations utilized by other equity REITs, and accordingly, may not be comparable to such other REITs. The White Paper defines Funds from Operations as net income (loss) (computed in accordance with accounting principles generally accepted in the United States, "GAAP"), excluding gains (or losses) from sales of property, plus real estate related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. Effective January 1, 2000, the calculation of FFO includes non-recurring events, except for those that are defined as "extraordinary items" under GAAP and gains and losses from sales of depreciable operating property. The revised definition of Funds from Operations did not have a material impact on the Company's calculation. Funds from Operations does not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, or other commitments and uncertainties. Funds from Operations should not be 20

considered as an alternative to net income (determined in accordance with GAAP) as an indication of the Company's financial performance or to cash flows from operating activities (determined in accordance with GAAP) as a measure of the Company's liquidity, nor is it indicative of funds available to fund the Company's cash needs, including its ability to make distributions. The Company believes that in order to facilitate a clear understanding of the historical operating results of the Company, Funds from Operations should be examined in conjunction with net income as presented in the consolidated financial statements. The following table presents the Company's Funds from Operations for the three months ended June 30, 2000 and 1999: THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 2000 JUNE 30, 1999 ------------------ ------------------ Income before minority interests and joint venture income................................................. $55,997 $45,320 Add: Real estate depreciation and amortization.............. 32,497 29,238 Income from unconsolidated joint ventures.............. 662 229 Less: Minority property partnership's share of Funds from Operations........................................... (266) (128) Preferred dividends and distributions.................. (8,250) (8,293) ------- ------- Funds from Operations.................................... $80,640 $66,366 ======= ======= Funds from Operations Available to Common Shareholders (73.59% and 73.34%, respectively)...................... $59,347 $48,673 ======= ======= Reconciliation to Diluted Funds from Operations: THREE MONTHS ENDED THREE MONTHS ENDED --------------------------- --------------------------- JUNE 30, 2000 JUNE 30, 1999 INCOME SHARES INCOME SHARES (NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR) ----------- ------------- ----------- ------------- Funds from Operations..................... $80,640 92,385 $66,366 89,352 Effect of Dilutive Securities Convertible Preferred Units............. 6,607 10,376 6,611 10,364 Convertible Preferred Stock............. 1,643 2,625 1,682 2,625 Stock Options and other................. 316 1,590 -- 806 ------- ------- ------- -------- Diluted Funds from Operations............. $89,206 106,976 $74,659 103,147 ======= ======= ======= ======== Company's share of Diluted Funds From Operations (77.20% and 76.91%, respectively)........................... $68,864 82,583 $57,419 79,329 ======= ======= ======= ======== 21

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS This Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding the Company's business, strategies, revenues, expenditures and operating and capital requirements. The following factors, among others, could cause actual results, performance or achievements of the Company to differ materially from those set forth or contemplated in the forward-looking statements made in this report: general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants' financial condition, and competition from other developers, owners and operators of real estate); risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; failure to manage effectively the Company's growth and expansion into new markets or to integrate acquisitions successfully; risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; costs of compliance with the Americans with Disabilities Act and other similar laws; potential liability for uninsured losses and environmental contamination; risks associated with the Company's potential failure to qualify as a REIT under the Internal Revenue Code of 1986, as amended, and possible adverse changes in tax and environmental laws; and risks associated with the Company's dependence on key personnel whose continued service is not guaranteed. NEWLY ISSUED ACCOUNTING STANDARD During the quarter ended June 30, 2000, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Hedging Activities--an Amendment of Statement of Financial Accounting Standards No. 133" ("SFAS 138"). SFAS 138 expands the scope of SFAS 133. The Company does not expect SFAS 138 to have a material impact on the Company's financial position and results of operations. INFLATION Substantially all of the office leases provide for separate real estate tax and operating expense escalations over a base amount. In addition, many of the leases provide for fixed base rent increases or indexed increases. The Company believes that inflationary increases may be at least partially offset by the contractual rent increases described above. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in market prices and interest rates. The primary market risk facing the Company is mortgage debt, which bears interest primarily at fixed rates, and therefore, the fair value of these instruments is affected by changes in the market interest rates. The following table presents principal cash flows (in thousands) based upon maturity dates of the debt obligations and the related weighted average interest rates by expected maturity dates for the fixed rate debt. The interest rate of the variable rate debt as of June 30, 2000 ranged from LIBOR plus 1.00% to LIBOR plus 2.00%. During January 2000, the Company entered into three interest rate hedge agreements for a total amount of $450.0 million. The agreements provide for a fixed interest rate when LIBOR floats between 0% and 5.80% or 5.00% to 5.60% and when LIBOR ranges from 6.35% to 7.95% for terms ranging from three to five years, per terms of the agreements. MORTGAGE DEBT ------------------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE -------- -------- -------- -------- -------- ---------- ---------- ---------- Fixed Rate........... $71,755 $159,272 $391,800 $215,147 $103,499 $1,878,192 $2,819,665 $2,819,665 Average Interest Rate............... 7.39% 7.89% 7.38% 7.53% 7.27% 6.91% 7.10% -- Variable Rate........ $75,000 $ 24,187 $ 60,575 $153,988 $ 23,653 $ -- $ 337,403 $ 337,403 22

PART II. OTHER INFORMATION ITEM 2--CHANGES IN SECURITIES On June 19, 2000, the Company acquired land in Chelmsford, Massachusetts for consideration that included the issuance of 82,215 OP Units. Such OP Units were issued to accredited investors in a transaction that was exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) of such Act. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of stockholders on May 3, 2000. The stockholders voted to elect Edward H. Linde and Ivan J. Seidenberg as Class III Directors of the Company to serve until 2003. 47,542,402 and 52,733,350 votes were cast for the elections of Mr. Linde and Mr. Seidenberg, respectively and 5,710,061 and 519,113 votes were withheld, respectively. Mortimer B. Zuckerman, Alan B. Landis and Richard E. Salomon will continue to serve as Class I Directors and Alan J. Patricof and Martin Turchin will continue to serve as Class II Directors until their present term expires in 2001 and 2002, respectively and their successors are duly elected. The stockholders voted on a shareholder proposal concerning the annual election of directors. 23,608,579 votes were cast for the proposal, 22,911,358 votes were cast against the proposal, and 291,776 votes abstained. The stockholders voted to amend and restate the 1997 Stock Option and Incentive Plan. 36,620,189 votes were cast for, 9,931,018 votes were cast against, and 260,510 votes abstained from this proposal. The stockholders also voted to ratify the Board of Directors' selection of PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal year ending December 31, 2000. 53,124,037 votes were cast for, 107,527 votes were cast against, and 20,899 votes abstained from this proposal. ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27.1 Financial Data Schedule (b) Reports on Form 8-K A Form 8-K dated April 26, 2000 was filed with the Securities and Exchange Commission to report under Item 5 of such report the information presented to investors and analysts and the Company's press release for the quarter ended March 31, 2000. 23

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOSTON PROPERTIES, INC. August 11, 2000 By: /s/ DAVID G. GAW ----------------------------------------- David G. Gaw, Chief Financial Officer (duly authorized officer and principal financial officer) 24

5 1,000 3-MOS 6-MOS DEC-31-2000 DEC-31-2000 APR-01-2000 JAN-01-2000 JUN-30-2000 JUN-30-2000 6,319 6,319 28,283 28,283 32,340 32,340 0 0 0 0 0 0 5,701,704 5,701,704 525,201 525,201 5,539,054 5,539,054 0 0 3,395,068 3,395,068 0 0 100,000 100,000 680 680 1,073,497 1,073,497 5,539,054 5,539,054 212,976 419,657 217,259 427,513 0 0 64,035 129,212 40,984 80,623 0 0 56,243 111,458 34,880 65,857 0 0 34,880 65,857 0 0 0 0 0 0 34,880 65,857 .51 .97 .50 .96