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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
/ / 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 of (IRS Employer Id. Number)
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 86,429,849
(CLASS) (OUTSTANDING ON NOVEMBER 13, 2000)
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BOSTON PROPERTIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
PAGE
--------
PART 1. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements:
a) Consolidated Balance Sheets as of September 30, 2000 and
December 31, 1999........................................ 1
b) Consolidated Statements of Operations for the nine months
ended September 30, 2000 and 1999........................... 2
c) Consolidated Statements of Operations for the three
months ended September 30, 2000 and 1999.................... 3
d) Consolidated Statements of Cash Flows for the nine months
ended September 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....................................... 24
ITEM 6. Exhibits and Reports on Form 8-K............................ 24
Signatures.............................................................. 25
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
ASSETS
Real estate:................................................ $5,782,961 $5,609,424
Less: accumulated depreciation............................ (554,339) (470,591)
---------- ----------
Total real estate....................................... 5,228,622 5,138,833
Cash and cash equivalents................................... 12,430 12,035
Escrows..................................................... 29,509 40,254
Investments in securities................................... 14,065 14,460
Tenant and other receivables, net........................... 40,039 28,362
Accrued rental income, net.................................. 89,072 82,228
Deferred charges, net....................................... 74,743 53,733
Prepaid expenses and other assets........................... 49,519 28,452
Investments in joint ventures............................... 73,118 36,415
---------- ----------
Total assets............................................ $5,611,117 $5,434,772
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................... $3,218,135 $2,955,584
Unsecured line of credit.................................. 235,000 366,000
Accounts payable and accrued expenses..................... 59,542 66,780
Dividends and distributions payable....................... 61,217 50,114
Accrued interest payable.................................. 5,951 8,486
Other liabilities......................................... 60,831 48,282
---------- ----------
Total liabilities....................................... 3,640,676 3,495,246
---------- ----------
Commitments and contingencies............................... -- --
---------- ----------
Minority interests.......................................... 774,365 781,962
---------- ----------
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, 69,317,999 and 67,910,434 issued and
outstanding in 2000 and 1999, respectively.............. 693 679
Additional paid-in capital................................ 1,112,855 1,067,778
Dividends in excess of earnings........................... (11,879) (10,893)
Unearned compensation..................................... (901) --
Accumulated other comprehensive loss...................... (4,692) --
---------- ----------
Total stockholders' equity.............................. 1,096,076 1,057,564
---------- ----------
Total liabilities and stockholders' equity............ $5,611,117 $5,434,772
========== ==========
The accompanying notes are an integral part of these financial statements.
1
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
--------- ---------
(UNAUDITED AND IN
THOUSANDS, EXCEPT FOR PER
SHARE AMOUNTS)
Revenue
Rental:
Base rent............................................... $532,039 $476,261
Recoveries from tenants................................. 68,956 53,878
Parking and other....................................... 38,095 34,272
-------- --------
Total rental revenue.................................. 639,090 564,411
Development and management services....................... 8,432 11,364
Interest and other........................................ 3,304 5,642
-------- --------
Total revenue......................................... 650,826 581,417
-------- --------
Expenses
Operating................................................. 197,366 184,321
General and administrative................................ 25,868 21,345
Interest.................................................. 166,210 151,446
Depreciation and amortization............................. 97,062 88,315
-------- --------
Total expenses........................................ 486,506 445,427
-------- --------
Income before minority interests and joint venture income... 164,320 135,990
Minority interest in property partnerships.................. (681) (4,473)
Income from unconsolidated joint ventures................... 1,356 648
-------- --------
Income before minority interest in Operating Partnership.... 164,995 132,165
Minority interest in Operating Partnership.................. (56,505) (48,465)
-------- --------
Income before gain (loss) on sale of real estate............ 108,490 83,700
Gain (loss) on sales of real estate, net.................... (307) 50
-------- --------
Net income before preferred dividend........................ 108,183 83,750
Preferred dividend.......................................... (4,929) (4,175)
-------- --------
Net income available to common shareholders................. $103,254 $ 79,575
======== ========
Basic earnings per share:
Net income available to common shareholders............... $ 1.51 $ 1.21
======== ========
Weighted average number of common shares outstanding...... 68,568 65,672
======== ========
Diluted earnings per share:
Net income available to common shareholders............... $ 1.48 $ 1.20
======== ========
Weighted average number of common and common equivalent
shares outstanding...................................... 69,600 66,280
======== ========
The accompanying notes are an integral part of these financial statements.
2
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
--------- ---------
(UNAUDITED AND IN
THOUSANDS, EXCEPT FOR PER
SHARE AMOUNTS)
Revenue
Rental:
Base rent............................................... $183,749 $166,582
Recoveries from tenants................................. 22,886 19,212
Parking and other....................................... 12,798 11,261
-------- --------
Total rental revenue.................................. 219,433 197,055
Development and management services....................... 2,693 3,706
Interest and other........................................ 1,187 1,376
-------- --------
Total revenue......................................... 223,313 202,137
-------- --------
Expenses
Operating................................................. 68,154 66,665
General and administrative................................ 9,871 7,383
Interest.................................................. 54,752 51,768
Depreciation and amortization............................. 32,436 31,078
-------- --------
Total expenses........................................ 165,213 156,894
-------- --------
Income before minority interests and joint venture income... 58,100 45,243
Minority interest in property partnership................... (245) (179)
Income from unconsolidated joint ventures................... 549 206
-------- --------
Income before minority interest in Operating Partnership.... 58,404 45,270
Minority interest in Operating Partnership.................. (19,627) (16,248)
-------- --------
Income before gain (loss) on sales of real estate........... 38,777 29,022
Gain (loss) on sales of real estate, net.................... (604) 50
-------- --------
Net income before preferred dividend........................ 38,173 29,072
Preferred dividend.......................................... (1,643) (1,654)
-------- --------
Net income available to common shareholders................. $ 36,530 $ 27,418
======== ========
Basic earnings per share:
Net income available to common shareholders............... $ 0.53 $ 0.40
======== ========
Weighted average number of common shares outstanding...... 68,752 67,901
======== ========
Diluted earnings per share:
Net income available to common shareholders............... $ 0.52 $ 0.40
======== ========
Weighted average number of common and common equivalent
shares outstanding...................................... 70,661 68,484
======== ========
The accompanying notes are an integral part of these financial statements.
3
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
-------- ---------
(UNAUDITED AND IN
THOUSANDS)
Cash flows from operating activities:
Net income before preferred dividend...................... $108,183 $ 83,750
Adjustments to reconcile net income before preferred
dividend to net cash provided by operating activities:
Depreciation and amortization........................... 97,062 88,315
Loss on sale of real estate............................. 413 --
Non-cash portion of interest expense.................... 2,764 1,676
Income from unconsolidated joint ventures............... (1,356) (648)
Compensation related to restricted shares issued to
employees.............................................. 159 --
Minority interests...................................... 56,399 45,595
Change in assets and liabilities:
Escrows................................................. 10,745 (6,872)
Tenant and other receivables, net....................... (11,677) 19,410
Accrued rental income, net.............................. (11,562) (14,162)
Prepaid expenses and other assets....................... (7,844) (3,136)
Accounts payable and accrued expenses................... (7,126) 3,766
Accrued interest payable................................ (2,535) 2,304
Other liabilities....................................... 10,549 6,969
-------- ---------
Total adjustments..................................... 135,991 143,217
-------- ---------
Net cash provided by operating activities............. 244,174 226,967
-------- ---------
Cash flows from investing activities:
Acquisitions/additions to real estate..................... (312,519) (554,430)
Net proceeds from sale of real estate..................... 70,838 --
Tenant leasing costs...................................... (13,176) (7,440)
Investments in securities................................. (2,297) --
Investments in joint ventures............................. (10,347) 11,628
-------- ---------
Net cash used in investing activities................. (267,501) (550,242)
-------- ---------
Cash flows from financing activities:
Net proceeds from sales of common and preferred stock..... -- 240,749
Borrowings on unsecured line of credit.................... 142,000 589,000
Repayments of unsecured line of credit.................... (273,000) (270,000)
Repayments of mortgage notes.............................. (223,028) (24,697)
Proceeds from mortgage notes.............................. 534,853 287,039
Repayment of notes payable................................ -- (328,143)
Dividends and distributions............................... (152,923) (130,451)
Proceeds from exercise of stock options................... 10,491 815
Proceeds from employee stock purchase plan................ 1,230 --
Deferred financing and other costs........................ (15,901) (2,788)
-------- ---------
Net cash provided by financing activities............. 23,722 361,524
-------- ---------
Net increase in cash........................................ 395 38,249
Cash and cash equivalents, beginning of period.............. 12,035 12,166
-------- ---------
Cash and cash equivalents, end of period.................... $ 12,430 $ 50,415
======== =========
Supplemental disclosures:
Cash paid for interest.................................... $192,332 $ 158,652
======== =========
Interest capitalized...................................... $ 26,908 $ 11,186
======== =========
Non-cash operating activities:
Assets assigned in connection with the sale of real
estate.................................................. $ 4,718 $ --
======== =========
Liabilities assigned in connection with the sale of real
estate.................................................. $ 112 $ --
======== =========
Non-cash investing and financing activities:
Additions to real estate included in accounts payable..... $ 1,362 $ 2,407
======== =========
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......... $ 61,217 $ 48,483
======== =========
Notes receivable assigned in connection with an
acquistion.............................................. $ -- $ 420,143
======== =========
Notes payable assigned in connection with an
acquisition............................................. $ -- $ 92,000
======== =========
Common Stock issued in connection with an acquisition..... $ 18,160 $ --
======== =========
Conversion of Operating Partnership Units to Common
Stock................................................... $ 12,760 $ --
======== =========
Issuance of restricted stock to employees................. $ 1,060 $ --
======== =========
Unrealized loss related to investments in securities...... $ 4,692 $ --
======== =========
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 September 30, 2000, owned an approximate
68% 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 September 30, 2000, the Company and the Operating Partnership had
69,317,999 and 23,965,195 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 8,706,659 Preferred Units outstanding.
THE PROPERTIES:
As of September 30, 2000, the Company owns a portfolio of 144 commercial
real estate properties (136 and 132 properties at December 31, 1999 and
September 30, 1999, respectively) (the "Properties") aggregating over
37.1 million square feet. The properties consist of 132 office properties with
5
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
1. ORGANIZATION (CONTINUED)
approximately 29.4 million net rentable square feet (including 17 properties
under development expected to contain approximately 4.6 million net rentable
square feet) and approximately 5.9 million additional square feet of structured
parking for approximately 16,726 vehicles, nine industrial properties with
approximately 0.9 million net rentable square feet and three hotels with a total
of 1,054 rooms (consisting of approximately 0.9 million square feet). In
addition, the Company owns, has under contract, or has an option to acquire 52
parcels of land totaling approximately 640.9 acres, which will support
approximately 13.6 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 DISPOSED OF DURING THE QUARTER ENDED SEPTEMBER 30,
2000
On August 22, 2000, the Company acquired the remaining 50% interest in the
development rights at the Prudential Center in Boston, Massachusetts for
approximately $18.2 million, which was funded through the issuance of 439,059
shares of the Company's Common Stock.
On September 29, 2000, the Company disposed of 910 and 930 Clopper Road, two
office/technical use properties totaling 240,596 square feet in Gaithersburg,
Maryland for approximately $24.1 million.
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
On September 13, 2000, the Company acquired a 35% interest in 265 Franklin
Street, a 326,714 square foot office property in Boston, Massachusetts through a
joint venture. Our interest in the property was acquired for cash and new debt
financing totaling approximately $34.3 million.
6
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
At September 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 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 and (v) a 35% interest in a joint venture that owns and
operates an office building in Boston, Massachusetts. The Company serves as the
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:
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
ASSETS
Real estate and development in process, net......... $558,909 $236,995
Other assets........................................ 13,826 10,473
-------- --------
Total assets...................................... $572,735 $247,468
======== ========
LIABILITIES AND PARTNERS' EQUITY
Mortgage and construction loans payable............. $403,935 $164,185
Other liabilities................................... 8,034 6,770
Partners' equity.................................... 160,766 76,513
-------- --------
Total liabilities and partners' equity............ $572,735 $247,468
======== ========
Company's share of equity........................... $ 73,118 $ 36,415
======== ========
The summarized statements of operations of the joint ventures are as
follows:
FOR THE NINE FOR THE THREE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED)
Total revenue............................. $25,948 $8,002 $13,340 $3,564
Total expenses............................ 22,375 5,152 12,197 2,490
------- ------ ------- ------
Net income.............................. $ 3,573 $2,850 $ 1,143 $1,074
======= ====== ======= ======
Company's share of net income............. $ 1,356 $ 648 $ 549 $ 206
======= ====== ======= ======
5. INVESTMENTS IN SECURITIES
At September 30, 2000, the Company accounts for certain of its investments
in securities in accordance with SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Investments" and has classified the securities as
available-for-sale. As of September 30, 2000, the fair value of the investments
in common stock and warrants was approximately $14.1 million. The gross
unrealized
7
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
5. INVESTMENTS IN SECURITIES (CONTINUED)
holding loss of approximately $4.7 million is included in other comprehensive
loss on the consolidated balance sheet.
6. MORTGAGE NOTES PAYABLE AND UNSECURED LINE OF CREDIT
On August 25, 2000, the Company obtained construction financing totaling
$32.25 million collateralized by the Quorum Office Park development project in
Chelmsford, Massachusetts. Such financing bears interest at a rate equal to
LIBOR + 1.65% and matures in August 2003.
On September 20, 2000, the Company amended the Unsecured Line of Credit
agreement increasing the borrowing capacity from $500 million to $605 million.
On September 28, 2000, the Company refinanced mortgage loans totaling
$52.3 million collateralized by 202, 212 and 214 Carnegie Center in Princeton,
New Jersey with mortgage loans totaling $63.0 million collateralized by 202,
206, and 214 Carnegie Center. Such financing bears interest at a rate of 8.13%
and matures in October 2010.
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 September 30, 2000, the
minority interest in the Operating Partnership consisted of 23,965,195 OP Units
and 8,706,659 Preferred Units held by parties other than Boston
Properties, Inc.
On August 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 6,213,130 Series
Two and Three Preferred Units of $0.7089 per unit.
On September 18, 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 October 27, 2000 to OP Unit holders of record on
September 29, 2000.
8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
On August 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 $0.7089 per share. In
addition, on September 18, 2000, the Board of Directors of the Company declared
a dividend of $0.7089 per share on the Preferred Stock payable on November 15,
2000 to shareholders of record on September 29, 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 in six annual
tranches commencing on May 12, 2009.
On August 22, 2000, the Company issued 439,059 shares of Common Stock,
valued at approximately $18.2 million, in connection with the acquisition of the
remaining 50% interest in the development rights associated with the Prudential
Center in Boston, Massachusetts.
8
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
8. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (CONTINUED)
On September 18, 2000, the Board of Directors of the Company declared a
third quarter dividend in the amount of $0.53 per share of Common Stock payable
on October 27, 2000 to shareholders of record on September 29, 2000.
9. EARNINGS PER SHARE
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 2000
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic Earnings:
Income available to common shareholders................. $ 36,530 68,752 $0.53
Effect of Dilutive Securities:
Stock Options........................................... -- 1,909 (.01)
-------- ------ -----
Diluted Earnings:
Net income.............................................. $ 36,530 70,661 $0.52
======== ====== =====
FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1999
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic Earnings:
Income available to common shareholders................. $ 27,418 67,901 $0.40
Effect of Dilutive Securities:
Stock Options........................................... -- 583 --
-------- ------ -----
Diluted Earnings:
Net income.............................................. $ 27,418 68,484 $0.40
======== ====== =====
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2000
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic Earnings:
Income available to common shareholders................. $103,254 68,568 $1.51
Effect of Dilutive Securities:
Stock Options........................................... -- 1,032 (0.03)
-------- ------ -----
Diluted Earnings:
Net income.............................................. $103,254 69,600 $1.48
======== ====== =====
9
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
9. EARNINGS PER SHARE (CONTINUED)
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1999
---------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic Earnings:
Income available to common shareholders................. $ 79,575 65,672 $1.21
Effect of Dilutive Securities:
Stock Options........................................... -- 608 (0.01)
-------- ------ -----
Diluted Earnings:
Net income.............................................. $ 79,575 66,280 $1.20
======== ====== =====
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 NINE MONTHS ENDED SEPTEMBER 30, 2000:
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- ----------- ---------- ------------- --------
RENTAL REVENUE
CLASS A.................. $137,524 $159,851 $105,595 $134,538 $43,628 $581,136
R&D...................... 4,323 15,744 -- 1,372 -- 21,439
INDUSTRIAL............... 1,364 1,053 -- 1,319 542 4,278
HOTELS................... 29,660 -- -- -- -- 29,660
GARAGE................... 2,577 -- -- -- -- 2,577
-------- -------- -------- -------- ------- --------
TOTAL...................... 175,448 176,648 105,595 137,229 44,170 639,090
-------- -------- -------- -------- ------- --------
% OF GRAND TOTALS........ 27.45% 27.64% 16.52% 21.47% 6.92% 100.00%
-------- -------- -------- -------- ------- --------
RENTAL EXPENSES
CLASS A.................. 49,742 43,128 35,578 45,945 13,439 87,832
R&D...................... 1,355 2,780 -- 248 -- 4,383
INDUSTRIAL............... 417 329 -- 140 87 973
10
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
10. SEGMENT INFORMATION (CONTINUED)
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- ----------- ---------- ------------- --------
HOTELS................... 3,418 -- -- -- -- 3,418
GARAGE................... 760 -- -- -- -- 760
-------- -------- -------- -------- ------- --------
TOTAL...................... 55,692 46,237 35,578 46,333 13,526 197,366
% OF GRAND TOTALS........ 28.21% 23.43% 18.03% 23.48% 6.85% 100.00%
-------- -------- -------- -------- ------- --------
NET OPERATING INCOME....... $119,756 $130,411 $ 70,017 $ 90,896 $30,644 $441,724
======== ======== ======== ======== ======= ========
% OF GRAND TOTALS........ 27.11% 29.52% 15.85% 20.58% 6.94% 100.00%
======== ======== ======== ======== ======= ========
INFORMATION BY GEOGRAPHIC AREA AND PROPERTY TYPE:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- ----------- ---------- ------------- --------
RENTAL REVENUE
CLASS A.................. $116,722 $150,840 $102,515 $115,235 $29,652 $514,964
R&D...................... 4,655 13,967 -- 1,332 -- 19,954
INDUSTRIAL............... 1,251 1,062 -- 905 525 3,743
HOTELS................... 23,999 -- -- -- -- 23,999
GARAGE................... 1,751 -- -- -- -- 1,751
-------- -------- -------- -------- ------- --------
TOTAL...................... 148,378 165,869 102,515 117,472 30,177 564,411
-------- -------- -------- -------- ------- --------
% OF GRAND TOTALS........ 26.29% 29.39% 18.16% 20.81% 5.35% 100.00%
-------- -------- -------- -------- ------- --------
RENTAL EXPENSES
CLASS A.................. 46,520 41,500 35,341 42,398 8,895 174,654
R&D...................... 1,369 2,731 -- 331 -- 4,431
INDUSTRIAL............... 388 300 -- 173 86 947
HOTELS................... 3,682 -- -- -- -- 3,682
GARAGE................... 607 -- -- -- -- 607
-------- -------- -------- -------- ------- --------
TOTAL...................... 52,566 44,531 35,341 42,902 8,981 184,321
-------- -------- -------- -------- ------- --------
% OF GRAND TOTALS........ 28.52% 24.16% 19.17% 23.28% 4.87% 100.00%
-------- -------- -------- -------- ------- --------
NET OPERATING INCOME....... $95,812 $121,338 $ 67,174 $ 74,570 $21,196 $380,090
======== ======== ======== ======== ======= ========
% OF GRAND TOTALS........ 25.21% 31.92% 17.67% 19.62% 5.58% 100.00%
======== ======== ======== ======== ======= ========
11
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
10. SEGMENT INFORMATION (CONTINUED)
The following is a reconcilition of net operating income to income before
minority interests and joint venture income:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
Net Operating Income
$441,724 $380,090
Add:
Development and management services....................... 8,432 11,364
Interest income........................................... 3,304 5,642
Less:
General and administrative................................ (25,868) (21,345)
Interest expense.......................................... (166,210) (151,446)
Depreciation and amortization............................. (97,062) (88,315)
-------- --------
Income before minority interests and joint venture income... $164,320 $135,990
======== ========
INFORMATION BY GEOGRAPHIC AREA AND PROPERTY TYPE:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000:
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- ----------- ---------- ------------- --------
RENTAL REVENUE
CLASS A.................. $47,289 $51,475 $35,467 $46,981 $15,385 $196,597
R&D...................... 1,381 6,085 -- 479 -- 7,945
INDUSTRIAL............... 449 328 -- 416 189 1,382
HOTELS................... 12,499 -- -- -- -- 12,499
GARAGE................... 1,010 -- -- -- -- 1,010
------- ------- ------- ------- ------- --------
TOTAL...................... 62,628 57,888 35,467 47,876 15,574 219,433
------- ------- ------- ------- ------- --------
% OF GRAND TOTALS........ 28.54% 26.38% 16.16% 21.82% 7.10% 100.00%
------- ------- ------- ------- ------- --------
RENTAL EXPENSES
CLASS A.................. 17,046 14,575 12,247 16,169 4,647 64,684
R&D...................... 508 913 -- 85 -- 1,506
INDUSTRIAL............... 122 112 -- 55 20 309
HOTELS................... 1,405 -- -- -- -- 1,405
GARAGE................... 250 -- -- -- -- 250
------- ------- ------- ------- ------- --------
TOTAL...................... 19,331 15,600 12,247 16,309 4,667 68,154
------- ------- ------- ------- ------- --------
% OF GRAND TOTALS........ 28.36% 22.89% 17.97% 23.93% 6.85% 100.00%
------- ------- ------- ------- ------- --------
NET OPERATING INCOME....... $43,297 $42,288 $23,220 $31,567 $10,907 $151,279
======= ======= ======= ======= ======= ========
% OF GRAND TOTALS........ 28.62% 27.95% 15.35% 20.87% 7.21% 100.00%
======= ======= ======= ======= ======= ========
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 THREE MONTHS ENDED SEPTEMBER 30, 1999:
GREATER GREATER NEW JERSEY
GREATER WASHINGTON MIDTOWN SAN AND
BOSTON DC MANHATTAN FRANCISCO PENNSYLVANIA TOTAL
-------- ----------- ----------- ---------- ------------- --------
RENTAL REVENUE
CLASS A.................. $41,445 $51,083 $34,381 $40,398 $10,644 $177,951
R&D...................... 1,489 4,869 -- 497 -- 6,855
INDUSTRIAL............... 432 361 -- 287 170 1,250
HOTELS................... 10,299 -- -- -- -- 10,299
GARAGE................... 700 -- -- -- -- 700
------- ------- ------- ------- ------- --------
TOTAL...................... 54,365 56,313 34,381 41,182 10,814 197,055
------- ------- ------- ------- ------- --------
% OF GRAND TOTALS........ 27.59% 28.57% 17.45% 20.90% 5.49% 100.00%
------- ------- ------- ------- ------- --------
RENTAL EXPENSES
CLASS A.................. 16,551 15,375 12,321 15,687 3,468 63,402
R&D...................... 420 942 -- 129 -- 1,491
INDUSTRIAL............... 122 85 -- 51 23 281
HOTELS................... 1,287 -- -- -- -- 1,287
GARAGE................... 204 -- -- -- -- 204
------- ------- ------- ------- ------- --------
TOTAL...................... 18,584 16,402 12,321 15,867 3,491 66,665
------- ------- ------- ------- ------- --------
% OF GRAND TOTALS........ 27.88% 24.60% 18.48% 23.80% 5.24% 100.00%
------- ------- ------- ------- ------- --------
NET OPERATING INCOME....... $35,781 $39,911 $22,060 $25,315 $ 7,323 $130,390
======= ======= ======= ======= ======= ========
% OF GRAND TOTALS........ 27.44% 30.61% 16.92% 19.41% 5.62% 100.00%
======= ======= ======= ======= ======= ========
The following is a reconcilition of net operating income to income before
minority interests and joint venture income:
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
Net Operating Income........................................ $151,279 $130,390
Add:
Development and management services....................... 2,693 3,706
Interest income........................................... 1,187 1,376
Less:
General and administrative................................ (9,871) (7,383)
Interest expense.......................................... (54,752) (51,768)
Depreciation and amortization............................. (32,436) (31,078)
-------- --------
Income before minority interests and joint venture income... $ 58,100 $ 45,243
======== ========
13
BOSTON PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED AND IN THOUSANDS)
11. SUBSEQUENT EVENTS
On October 2, 2000, the Company refinanced the mortgage loan on 601 and 651
Gateway Boulevard that consisted of replacing the $75.0 million mortgage loan
with a $90.0 million loan. The new financing bears interest at a fixed rate
equal to 8.40% and matures in October 2010.
On October 6, 2000, the Company entered into a joint venture that was formed
to develop One and Two Discovery Square, two Class A office buildings in Reston,
Virginia totaling 362,868 square feet. The Company's interest in this joint
venture is 50%.
On October 12, 2000, the Company closed on bond financing totaling
$57.61 million collateralized by the New Dominion Tech Park, Building One
development project in Herndon, Virginia. Such financing matures in
October 2020 and bears interest at a rate of 7.58%. The proceeds of
$57.61 million will be funded into an escrow and held until the New Dominion
Tech Park, Building One is completed, which is estimated to be in
December 2000. At that time, the current construction loan will be paid off and
the remaining proceeds will be available to the Company.
On October 13, 2000, the Company disposed of 1950 Stanford Court, a single
story industrial building totaling 53,250 square feet, and an adjacent parcel of
land totaling approximately two acres in Landover, Maryland, for approximately
$2.2 million.
On October 31, 2000 the Company completed a public offering of 17,110,000
shares of Common Stock at a price per share to the public of $39.0625 (including
2,110,000 shares issued as a result of the exercise of an overallotment option
by the underwriters) resulting in net proceeds of approximately $634 million.
The Company used a portion of the proceeds to repay the balance on the Unsecured
Line of Credit.
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.
From January 1, 1999 through September 30, 2000, the Company 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 nine months ended September 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 NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 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 109 properties acquired or placed in service on or prior to January 1,
1999.
SAME PROPERTY PORTFOLIO
-------------------------------------------
INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE
- ---------------------- -------- -------- ---------- --------
Revenue:
Rental revenue.................................. $559,908 $528,102 $31,806 6.02%
Development and management services............. -- -- -- --
Interest and other.............................. -- -- -- --
-------- -------- ------- ----
Total revenue................................. 559,908 528,102 31,806 6.02%
-------- -------- ------- ----
Expenses:
Operating....................................... 173,930 169,847 4,083 2.40%
-------- -------- ------- ----
Net Operating Income.............................. 385,978 358,255 27,723 7.74%
-------- -------- ------- ----
General and administrative...................... -- -- -- --
Interest........................................ -- -- -- --
Depreciation and amortization................... 85,382 82,573 2,809 3.40%
-------- -------- ------- ----
Income before minority interests and joint venture
income.......................................... $300,596 $275,682 $24,914 9.04%
======== ======== ======= ====
15
TOTAL PORTFOLIO
-------------------------------------------
INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE
- ---------------------- -------- -------- ---------- --------
Revenue:
Rental revenue.................................. $639,090 $564,411 $74,679 13.23%
Development and management services............. 8,432 11,364 (2,932) (25.80)%
Interest and other.............................. 3,304 5,642 (2,338) (41.44)%
-------- -------- ------- ------
Total revenue................................... 650,826 581,417 69,409 11.94%
-------- -------- ------- ------
Expenses:
Operating....................................... 197,366 184,321 13,045 7.08%
-------- -------- ------- ------
Net Operating Income.............................. 453,460 397,096 56,364 14.19%
-------- -------- ------- ------
General and administrative...................... 25,868 21,345 4,523 21.19%
Interest........................................ 166,210 151,446 14,764 9.75%
Depreciation and amortization................... 97,062 88,315 8,747 9.90%
-------- -------- ------- ------
Income before minority interests and joint venture
income.......................................... $164,320 $135,990 $28,330 20.83%
======== ======== ======= ======
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
an increase in occupancy. The additional 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 mainly due to
contracts ending in 1999 which totaled approximately $3.4 million for the nine
months ended September 30, 1999 offset by new contracts for management and
development services for the three months ended September 30, 2000 of
approximately $0.8 million.
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 nine months ended September 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. In addition, the
Company incurred a $2.3 million charge, including a non-cash component of $2.0
million during the quarter ended September 30, 2000 related to departure of a
former Senior Officer.
Interest expense increased due to new and assumed mortgage indebtedness,
including draws on construction loans and the increased use of the Company's
unsecured revolving line of credit (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
September 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 SEPTEMBER 30, 2000 TO THE THREE MONTHS
ENDED SEPTEMBER 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 112 properties acquired or placed in service on or prior to July 1, 1999.
SAME PROPERTY PORTFOLIO
-------------------------------------------
INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE
- ---------------------- -------- -------- ---------- --------
Revenue:
Rental revenue.................................. $201,865 $187,938 $13,927 7.41%
Development and management services............. -- -- -- --
Interest and other.............................. -- -- -- --
-------- -------- ------- ------
Total revenue................................. 201,865 187,938 13,927 7.41%
-------- -------- ------- ------
Expenses:
Operating....................................... 62,578 62,799 (221) (0.35)%
-------- -------- ------- ------
Net Operating Income.............................. 139,287 125,139 14,148 11.31%
-------- -------- ------- ------
General and administrative...................... -- -- -- --
Interest........................................ -- -- -- --
Depreciation and amortization................... 30,097 29,316 781 2.66%
-------- -------- ------- ------
Income before minority interests and joint venture
income.......................................... $109,190 $ 95,823 $13,367 13.95%
======== ======== ======= ======
TOTAL PORTFOLIO
-------------------------------------------
INCREASE/ %
(DOLLARS IN THOUSANDS) 2000 1999 (DECREASE) CHANGE
- ---------------------- -------- -------- ---------- --------
Revenue:
Rental revenue.................................. $219,433 $197,055 $22,378 11.36%
Development and management services............. 2,693 3,706 (1,013) (27.33)%
Interest and other.............................. 1,187 1,376 (189) (13.74)%
-------- -------- ------- ------
Total revenue................................. 223,313 202,137 21,176 10.48%
-------- -------- ------- ------
Expenses:
Operating....................................... 68,154 66,665 1,489 2.23%
-------- -------- ------- ------
Net Operating Income.............................. 155,159 135,472 19,687 14.53%
-------- -------- ------- ------
General and administrative...................... 9,871 7,383 2,488 33.70%
Interest........................................ 54,752 51,768 2,984 5.76%
Depreciation and amortization................... 32,436 31,078 1,358 4.37%
-------- -------- ------- ------
Income before minority interests and joint venture
income.......................................... $ 58,100 $ 45,243 $12,857 28.42%
======== ======== ======= ======
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, an
overall increase in occupancy and $2.4 million of lease termination fees
recognized during the quarter. The additional increase in rental revenues for
the Total Portfolio is primarily a result of the properties acquired or
placed-in-service after July 1, 1999.
The decrease in development and management services revenue is mainly due to
contracts which ended in 1999 and totaled approximately $1.4 million for the
three months ended September 30, 1999 offset by fees earned on new management
and development deals of approximately $0.4 for the three months ended
September 30, 2000.
17
The decrease in interest and other revenue is primarily due to lower average
cash balances maintained during the quarter ended September 30, 2000.
Property operating expenses (real estate taxes, utilities, repairs and
maintenance, cleaning and other property related expenses) in the Total
Portfolio increased due to the properties acquired or placed-in-service after
July 1, 1999.
General and administrative expenses increased mainly due to the
$2.3 million charge, including a non-cash component of $2.0 million, related to
the departure of a former Senior Officer. The remaining increase is due to the
increase in the overall size of the Total Portfolio since September 30, 1999
resulting from property acquisitions and properties placed in service.
Interest expense increased mainly due to new mortgage indebtedness,
including draws on construction loans, and the increased use of the Unsecured
Line of Credit.
Depreciation and amortization expense for the Total Portfolio increased due
to the properties acquired or placed-in-service on or after July 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated indebtedness at September 30, 2000 was
approximately $3.5 billion and bore interest at a weighted average interest rate
of approximately 7.30% per annum. Based on the Company's total market
capitalization at September 30, 2000 of approximately $8.0 billion, the
Company's consolidated debt represents 43.1% of its total market capitalization.
The Company has a $605 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 November 7, 2000, the Company had $0 drawn under the Unsecured
Line of Credit.
The following represents the outstanding principal balances due under the
first mortgages at September 30, 2000:
INTEREST
PROPERTIES RATE PRINCIPAL AMOUNT MATURITY DATE
- ---------- -------- ---------------- ------------------
(IN THOUSANDS)
Embarcadero Center One, Two and Federal
Reserve...................................... 6.70% $ 313,819 December 10, 2008
Prudential Center.............................. 6.72% 292,775 July 1, 2008
599 Lexington Avenue........................... 7.00% 225,000(1) July 19, 2005
280 Park Avenue................................ 7.00% 219,267(2) September 11, 2002
5 Times Square................................. 8.62% 161,199(3) January 26, 2003
Embarcadero Center Four........................ 6.79% 155,225 February 1, 2008
875 Third Ave.................................. 8.00% 151,473(4) December 31, 2002
Embarcadero Center Three....................... 6.40% 146,782 January 1, 2007
Two Independence Square........................ 8.09% 116,865(5) February 27, 2003
Riverfront Plaza............................... 6.61% 116,222 February 1, 2008
Democracy Center............................... 7.05% 107,843 April 1, 2009
Embarcadero Center West Tower.................. 6.50% 97,894 January 1, 2006
100 East Pratt Street.......................... 6.73% 92,238 November 1, 2008
The Gateway.................................... 8.23% 75,000(6) September 30, 2000
One Independence Square........................ 8.12% 74,429(5) August 21, 2001
Reservoir Place................................ 6.88% 74,321(7) November 1, 2006
One and Two Reston Overlook.................... 7.45% 68,302 September 1, 2004
2300 N Street.................................. 6.88% 66,000 August 3, 2003
Capital Gallery................................ 8.24% 57,336 August 15, 2006
18
INTEREST
PROPERTIES RATE PRINCIPAL AMOUNT MATURITY DATE
- ---------- -------- ---------------- ------------------
(IN THOUSANDS)
111 Huntington Avenue.......................... 8.62% 52,533(8) September 27, 2002
10 and 20 Burlington Mall Road................. 8.33% 37,000(9) October 1, 2001
Ten Cambridge Center........................... 8.27% 35,816 May 1, 2010
1301 New York Avenue........................... 6.70% 32,833(10) August 15, 2009
New Dominion Technology Park................... 8.22% 31,883(11) January 4, 2001
Eight Cambridge Center......................... 7.73% 28,483 July 15, 2010
510 Carnegie Center............................ 7.39% 27,764 January 1, 2008
Sumner Square.................................. 8.19% 26,825(12) April 22, 2004
Lockheed Martin Building....................... 6.61% 26,414 June 1, 2008
University Place............................... 6.94% 25,390 August 1, 2021
Orbital Sciences, Buildings One and Three...... 8.27% 25,207(13) August 9, 2002
Reston Corporate Center........................ 6.56% 24,928 May 1, 2008
206 Carnegie Center............................ 8.13% 23,000 October 1, 2010
191 Spring Street.............................. 8.50% 22,879 September 1, 2006
Bedford Business Park.......................... 8.50% 21,845 December 10, 2008
NIMA Building.................................. 6.51% 21,598 June 1, 2008
214 Carnegie Center............................ 8.13% 21,000 October 1, 2010
202 Carnegie Center............................ 8.13% 19,000 October 1, 2010
506 Carnegie Center............................ 7.39% 17,558 January 1, 2008
508 Carnegie Center............................ 7.39% 16,317 January 1, 2008
504 Carnegie Center............................ 7.39% 14,632 January 1, 2008
2600 Tower Oaks Boulevard...................... 8.53% 11,218 October 10, 2002
101 Carnegie Center............................ 7.66% 8,419 April 1, 2006
Montvale Center................................ 8.59% 7,586 December 1, 2006
Newport Office Park............................ 8.13% 6,001 July 1, 2001
Hilltop Business Center........................ 6.81% 5,790 March 1, 2019
302 Carnegie Center............................ 8.52% 5,033(14) March 15, 2003
Quorum Way..................................... 8.27% 4,456(15) August 30, 2003
Orbital Sciences, Building Two................. 8.27% 4,243 June 13, 2003
201 Carnegie Center............................ 7.08% 494 February 1, 2010
----------
Total.......................................... $3,218,135
==========
- ------------------------
(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) As a result of a swap agreement, outstanding principal of $213,000 bears
interest at a fixed rate of 7.00%. The remaining $6,267 bears interest at a
floating rate equal to LIBOR + 1.00%.
(3) Total construction loan in the amount of $420.0 million at a variable rate
of LIBOR + 2.00%.
(4) The principal amount and interest rate shown has been adjusted to reflect
the fair value of the note at its inception. The actual principal balance
at September 30, 2000 was $149,200 and the interest rate was 8.75%.
(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 $117,219 and $74,688, respectively. The actual interest
rates are 8.50% and continue at such rates through the loan expiration.
19
(6) Outstanding principal bears interest at a floating rate equal to
LIBOR + 1.60%. This loan was replaced on October 2, 2000 with a ten-year
mortgage for a principal amount of $90 million bearing interest at a rate
of 8.4% per annum.
(7) The principal amount and interest rate shown has been adjusted to reflect
the fair value of the note. The actual principal balance at September 30,
2000 was $65,620 and the interest rate was 9.09%.
(8) Total construction loan in the amount of $203.0 million at a variable rate
of LIBOR + 2.00%.
(9) Includes outstanding indebtedness collateralized by 91 Hartwell Avenue and
92 and 100 Hayden Avenue.
(10) Includes outstanding principal in the amounts of $20,000, $8,742 and
$4,091 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%. We have entered into an agreement to replace this
construction loan. This new 20-year bond financing is for a principal
amount of $57.6 million and bears interest at a rate equivalent to 7.58%
per annum and will remain in escrow until initial occupancy, which is
expected in December 2000.
(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) Total construction loan in the amount of $10.0 million at a variable rate
of LIBOR + 1.90%.
(15) Total construction loan in the amount of $32.25 million at a variable rate
of LIBOR + 1.65%.
The Company expects to meet its short-term liquidity requirements, including
its quarterly dividend and distribution 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 September 30, 2000, the Company's recurring capital
expenditures totaled $3.3 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 $740.1 million as of September 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, FFO, 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 FFO in
accordance with standards established by the White Paper on FFO approved by the
Board of Governors of NAREIT in 1995 and clarified in 1999, which may differ
from the methodology for calculating FFO operations utilized by other equity
REITs, and accordingly, may not be comparable to
20
such other REITs. The White Paper defines FFO as net income (loss) (computed in
accordance with accounting principles generally accepted in the United States,
"GAAP"), excluding gains (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. FFO 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. FFO should not be 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, FFO 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 September 30, 2000 and 1999 (in thousands):
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------
Income before minority interests and joint venture
income................................................. $58,100 $45,243
Add:
Real estate depreciation and amortization.............. 33,007 30,882
Income from unconsolidated joint ventures.............. 549 206
Less:
Minority property partnerships' share of Funds from
Operations........................................... (284) (211)
Preferred dividends and distributions.................. (8,248) (8,303)
------- -------
Funds from Operations.................................... $83,124 $67,817
======= =======
Funds from Operations Available to Common Shareholders
(74.04% and 74.03%, respectively)...................... $61,543 $50,207
======= =======
Reconciliation to Diluted Funds from Operations:
THREE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
--------------------------- ---------------------------
INCOME SHARES INCOME SHARES
(NUMERATOR) (DENOMINATOR) (NUMERATOR) (DENOMINATOR)
----------- ------------- ----------- -------------
Funds from Operations....................... $83,124 92,860 $67,817 91,718
Effect of Dilutive Securities
Convertible Preferred Units............... 6,605 10,370 6,649 10,377
Convertible Preferred Stock............... 1,643 2,625 1,654 2,625
Stock Options............................. -- 1,909 -- 583
------- ------- ------- -------
Diluted Funds from Operations............... $91,372 107,764 $76,120 105,303
======= ======= ======= =======
Company's share of Diluted Funds From
Operations (77.63% and 77.38%,
respectively)............................. $70,931 83,657 $58,902 81,485
======= ======= ======= =======
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
Financial Accounting Standards No. 133 "Accounting for Certain Derivative
Instruments and Hedging Activities", as amended by Financial Accounting
Standards No. 137 and 138, is effective for the first quarter of 2001. The
Company is in the process of evaluating the effect of implementing these
standards.
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 September 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. During May, 2000, the Company
entered into an additional interest rate hedge agreement for another
$150.0 million. The
22
agreement provides for a fixed interest rate when LIBOR floats between 7.51% and
9.00%, for a term of 3 years, per terms of the agreement
MORTGAGE DEBT
(IN THOUSANDS)
-------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 THEREAFTER TOTAL FAIR VALUE
-------- -------- -------- -------- -------- ---------- ---------- ----------
Fixed Rate.................. $ 9,715 $159,790 $385,363 $215,758 $104,162 $1,938,750 $2,813,538 $2,813,538
Weighted Average Interest
Rate...................... 6.99% 7.84% 7.37% 7.49% 7.17% 6.84% 7.11%
Variable Rate............... $75,000 $ 31,883 $ 95,958 $174,931 $ 26,825 -- $ 404,597 $ 404,597
23
PART II. OTHER INFORMATION
ITEM 2--CHANGES IN SECURITIES
On August 22, 2000, the Company acquired the remaining 50% interest in the
development rights at the Prudential Center in Boston, Massachusetts for
consideration that included the issuance of 439,059 shares of Common Stock. Such
Common Stock was 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 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 July 25, 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 June 30, 2000.
24
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.
November 14, 2000 By: /s/ DOUGLAS T. LINDE
-----------------------------------------
Douglas T. Linde
CHIEF FINANCIAL OFFICER (DULY AUTHORIZED
OFFICER AND PRINCIPAL FINANCIAL OFFICER)
25
5
1,000
9-MOS 3-MOS
DEC-31-2000 DEC-31-2000
JAN-01-2000 JUL-01-2000
SEP-30-2000 SEP-30-2000
12,430 0
14,065 0
40,039 0
0 0
0 0
0 0
5,228,622 0
554,339 0
5,611,117 0
0 0
3,453,135 0
0 0
100,000 0
693 0
1,095,383 0
5,611,117 0
639,090 219,433
650,826 223,313
0 0
197,366 68,154
122,930 42,307
0 0
166,210 54,752
164,320 58,100
0 0
0 0
0 0
0 0
0 0
103,254 36,530
1.51 0.53
1.48 0.52
