Boston Properties Forms Joint Venture and Completes Acquisition of the General Motors Building
BOSTON, June 10 /PRNewswire-FirstCall/ -- Boston Properties, Inc. (NYSE: BXP), a real estate investment trust, announced today that it has completed the previously announced acquisition of the General Motors Building in New York City from affiliates of Macklowe Properties for a purchase price of approximately $2.8 billion.
Occupying a full city block, offering nearly 2 million square feet of rentable area, and rising 50 stories and more than 750 feet on Fifth Avenue at the corner of Central Park and 59th Street, the General Motors Building enjoys unmatched prestige, convenience and breathtaking Central Park views. The property's stunning architecture and dominating location are the very definition of "Iconic" status. With the newly created flagship Apple Store defined by its signature glass cube entranceway and CBS Studios' daily live broadcast of the "Early Show," the General Motors Building has become one of the most renowned destination points in Manhattan.
Mortimer B. Zuckerman, Chairman of Boston Properties, commented that "This acquisition is consistent with our philosophy of acquiring and building office properties with outstanding design, construction and location and our belief that the best real estate performs very well in rising markets and, on a relative basis, even better in more challenging times. The addition of the General Motors Building in New York to our other iconic assets, such as the Prudential Center in Boston, Embarcadero Center in San Francisco, Freedom Square and South of Market in Reston, Virginia, and Citigroup Center, 399 Park Avenue, 599 Lexington Avenue and Times Square Tower in New York City, has resulted in what we believe to be the highest quality portfolio of Class A office buildings in the United States."
The acquisition was completed through a joint venture among Boston Properties, US Real Estate Opportunities I, L.P., which is a partnership managed by Goldman Sachs, and Meraas Capital LLC, a Dubai-based private equity firm. Boston Properties has a 60% interest in the venture and will provide customary property management and leasing services for the venture. Boston Properties expects to account for its investment in the joint venture under the equity method of accounting rather than on a consolidated basis.
The purchase price consisted of approximately $890 million of cash, the issuance to the selling entity of 102,883 common units of limited partnership interest in Boston Properties Limited Partnership and the assumption of approximately $1.9 billion of secured and mezzanine loans having a weighted average fixed interest rate of 5.97% per annum, all of which mature in September 2017. In addition, the venture acquired the lenders' interest in a portion of the assumed mezzanine loans having an aggregate principal amount of $294 million and a stated interest rate of 6.02% for a purchase price of approximately $263 million in cash. Boston Properties expects that the acquired mezzanine loans will remain outstanding pending a decision to either sell them or retire them.
Boston Properties projects its share of the General Motors Building's 2009 Unleveraged Cash Return, including fee income, to be approximately 5.0% and its share of the property's 2009 Unleveraged FFO Return, including fee income, to be approximately 7.9% - 8.1%. In addition, Boston Properties estimates that current market rents are, on average, approximately twice the rents on in-place leases at the property. The calculation of the projected returns and related disclosures are presented on the accompanying table entitled "Projected 2008 and 2009 Returns on Acquisition." There can be no assurances that actual returns will not differ materially from these projections.
Boston Properties expects to consummate the previously announced acquisitions of 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower, also located in New York City, through one or more joint ventures with partners in which it owns a minority interest(s). Upon the closing of the General Motors Building, the deposit on these assets (which are in the form of letters of credit) was increased by an aggregate of $20 million, bringing the total remaining deposit to $75 million. The closings of the remaining acquisitions are expected to occur in multiple steps over the next few months and are subject to customary conditions and termination rights for transactions of this type. There can be no assurance that the closings will occur on the terms currently contemplated or at all.
540 Madison Avenue is a 39-story building located at Madison Avenue at 55th Street that contains approximately 292,000 rentable square feet. 125 West 55th Street is a 23-story building, spanning from 55th to 56th Streets between Avenue of the Americas and Seventh Avenue, that contains approximately 591,000 rentable square feet. Two Grand Central Tower is a 44-story mid-block tower that runs from 44th to 45th Street between Lexington and Third Avenue and contains approximately 664,000 rentable square feet.
Boston Properties will host a conference call on Thursday, June 12 at 10:00 AM Eastern Time, open to the general public, to discuss the acquisition of the General Motors Building and other related matters that may be of interest to investors. The number to call for this interactive teleconference is (800) 240-6709 (Domestic) or (303) 205-0044 (International); no passcode required. A replay of the conference call will be available through June 19, 2008, by dialing (800) 405-2236 (Domestic) or (303) 590-3000 (International) and entering the passcode 11115690. There will also be a live audio webcast of the call which may be accessed on the Company's website at www.bostonproperties.com in the Investor Relations section. Shortly after the call a replay of the webcast will be available on the Company's website, www.bostonproperties.com, in the Investor Relations section, and archived for up to twelve months following the call.
This press release contains forward-looking statements within the meaning of the Federal securities laws. You can identify these statements by our use of the words "expects," "plans," "estimates," "projects," "intends," "believes" and similar expressions that do not relate to historical matters. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond Boston Properties' control and could materially affect actual results, performance or achievements. These factors include, without limitation, the ability of our joint venture partners to satisfy their obligations, the ability to enter into new leases or renew leases on favorable terms, dependence on tenants' financial condition, the uncertainties of real estate development and acquisition activity, the ability to effectively integrate acquisitions, the costs and availability of financing, the effects of local economic and market conditions, the impact of newly adopted accounting principles on the Company's accounting policies and on period-to-period comparisons of financial results, regulatory changes and other risks and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission. Boston Properties does not undertake a duty to update or revise any forward-looking statement whether as a result of new information, future events or otherwise.
Boston Properties is a fully integrated, self-administered and self-managed real estate investment trust that develops, redevelops, acquires, manages, operates and owns a diverse portfolio consisting primarily of Class A office properties and one hotel. The Company is one of the largest owners and developers of Class A office properties in the United States, concentrated in five select markets - Boston, Midtown Manhattan, Washington, D.C., San Francisco, and Princeton, N.J. Visit the Company's web site at http://www.bostonproperties.com.
BOSTON PROPERTIES, INC.
PROJECTED 2008 AND 2009 RETURNS ON ACQUISITION
(dollars in thousands)
The General Motors Building
Six Months 2008 Year 2009
Low High Low High
Base rent and recoveries
from tenants $94,034 $94,034 $198,800 $198,800
Straight-line rent 4,954 4,954 8,849 8,849
Fair value lease revenue 36,000 40,000 74,000 80,000
Parking and other 3,539 3,539 7,023 7,023
Total rental revenue 138,527 142,527 288,672 294,672
Operating Expenses 36,374 36,374 74,826 74,826
Revenue less Operating Expenses 102,153 106,153 213,846 219,846
Interest expense (1) 70,440 70,440 136,470 136,470
Fair value interest expense 7,500 3,500 15,000 7,000
Depreciation and amortization 83,500 81,500 167,000 163,000
Net loss $(59,287) $(49,287) $(104,624) $(86,624)
Add:
Interest expense (1) 70,440 70,440 136,470 136,470
Fair value interest expense 7,500 3,500 15,000 7,000
Depreciation and amortization 83,500 81,500 167,000 163,000
Unleveraged FFO (2) $102,153 $106,153 $213,846 $219,846
Less:
Straight-line rent (4,954) (4,954) (8,849) (8,849)
Fair value lease revenue (36,000) (40,000) (74,000) (80,000)
Unleveraged Cash $61,199 $61,199 $130,997 $130,997
Purchase Price $2,800,000
Debt discount (30,870)
Closing costs 24,000
Total Unleveraged Investment $2,793,130
Unleveraged FFO Return (2) 7.6% 7.8% 7.9% 8.1%
Unleveraged Cash Return (3) 4.6% 4.6% 5.0% 5.0%
(1) Projected interest expense includes interest on partner loans totaling
$450 million, of which approximately $294 million has been projected
to be refinanced with third-party debt in the fourth quarter of 2008.
(2) Pursuant to the revised definition of Funds from Operations adopted by
the Board of Governors of the National Association of Real Estate
Investment Trusts ("NAREIT"), we calculate Funds from Operations, or
"FFO," by adjusting net income (loss) (computed in accordance with
GAAP, including non-recurring items) for gains (or losses) from sales
of properties, real estate related depreciation and amortization, and
after adjustment for unconsolidated partnerships and joint ventures.
FFO is a non-GAAP financial measure. Unleveraged FFO excludes, among
other items, interest expense, which may vary depending on the level
of corporate debt or property-specific debt. Unleveraged FFO Return
is also a non-GAAP financial measure that is determined by dividing
(A) the Company's share (60%) of Unleveraged FFO (based on the
projected results for the six months ending December 31, 2008
(annualized) and the year ending December 31, 2009) plus the
Company's share of fee income by (B) the Company's share of Total
Unleveraged Investment. Management believes projected Unleveraged FFO
Return is a useful measure in the real estate industry when
determining the appropriate purchase price for a property or
estimating a property's value. When evaluating acquisition
opportunities, management considers, among other factors, projected
Unleveraged FFO Return because it excludes, among other items,
interest expense (which may vary depending on the level of corporate
debt or property-specific debt), as well as depreciation and
amortization expense (which can vary among owners of identical assets
in similar condition based on historical cost accounting and useful
life estimates). Other factors that management considers include its
cost of capital and available financing alternatives. Other companies
may compute FFO, Unleveraged FFO and Unleveraged FFO Return
differently and these are not indicators of a real estate asset's
capacity to generate cash flow.
(3) Unleveraged Cash Return is a non-GAAP financial measure that is
determined by dividing (A) the Company's share (60%) of Unleveraged
Cash (based on the projected results for the six months ending
December 31, 2008 (annualized) and the year ending December 31, 2009)
plus the Company's share of fee income by (B) the Company's share of
the Total Unleveraged Investment. Other real estate companies may
calculate this return differently. Management believes that projected
Unleveraged Cash Return is also a useful measure of a property's value
when used in addition to Unleveraged FFO Return because, by
eliminating the effect of straight-lining of rent and the SFAS No. 141
treatment of in-place above- and below-market leases, it enables an
investor to assess the projected cash on cash return from the property
over the forecasted period.
Management is presenting these projected returns and related
calculations to assist investors in analyzing the Company's recent
acquisition. Management does not intend to present this data for any
other purpose, for any other period or for its other properties, and
is not intending for these measures to otherwise provide information
to investors about the Company's financial condition or results of
operations. The Company does not undertake a duty to update any of
these projections.
CONTACT:
Arista Joyner
+1-617-236-3343
Investor Relations Manager
Boston Properties, Inc.
Marilynn Meek
General Information
Financial
Relations Board
+1-212-827-3773