SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT -------------- Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 22, 1998 BOSTON PROPERTIES, INC. (Exact name of Registrant as specified in its Charter) Delaware (State of Incorporation) 1-13087 04-2473675 (Commission File Number) (IRS Employer Id. Number) 8 Arlington Street Boston, Massachusetts 02116 (Address of principal executive offices) (Zip Code) (617) 859-2600 (Registrant's telephone number, including area code) Item 2 Acquisition or Disposition of Assets (a) On January 22, 1998, the Company, through its Operating Partnership subsidiary, completed its acquisition of Riverfront Plaza, an approximately 900,000 net rentable square foot class A office building in Richmond, Virginia, for a total investment of approximately $174.4 million, consisting of $52.6 million of cash and mortgage financing in the amount of $121.8 million. (b) On February 2, 1998, the Company, through its Operating Partnership subsidiary, completed its acquisition of the Mulligan/Griffin Portfolio, a portfolio of nine Class A office buildings aggregating approximately 1.3 million net rentable square feet and six parcels of land aggregating 30.7 acres. These properties are located in Gaithersburg, MD, Rockville, MD, Springfield, VA, and Reston, VA. The Company acquired the Mulligan/Griffin Portfolio for approximately $252.9 million, consisting of $88.5 million of cash, the assumption of $113.3 million of indebtedness, the assumption of other liabilities in the amount of $1.1 million, and the issuance of 1,471,456 units of limited partnership of the Company's Operating Partnership subsidiary. Item 5 Other Events On January 30, 1998, the Company completed a public offering of 23,000,000 shares of the Company's Common Stock (including 3,000,000 shares issued pursuant to the exercise of the underwriters' overallotment options) at $35.125 per share resulting in net proceeds to the Company of approximately $766.5 million. Item 7 Financial Statements and Exhibits (a) Financial Statements under Rule 3-14 of Regulation S-X. Previously filed. (b) Pro Forma Financial Statements Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1997 (unaudited) Pro Forma Condensed Consolidated Statement of Operations for the nine months ended September 30, 1997 (unaudited) and the year ended December 31, 1996 (unaudited) (c) Exhibits *10.1 Contribution Agreement dated November 26, 1997 among the Operating Partnership, Boston Properties LLC and the Contributors named therein. * Incorporated herein by reference to the Company's Registration Statement on Form S-11 (No. 333-41449). BOSTON PROPERTIES, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOSTON PROPERTIES, INC. /s/ David G. Gaw -------------------------------------- David G. Gaw Senior Vice President and Chief Financial Officer Date: February 6, 1998 BOSTON PROPERTIES, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 (UNAUDITED) The following unaudited Pro Forma Condensed Consolidated Balance Sheet of Boston Properties, Inc. (the "Company") is presented as if the following transactions had been consummated on September 30, 1997; (i) properties acquired subsequent to September 30, 1997 (the "Acquisition Properties"), and (ii) the completion of the offering as described hereafter (the "Offering"). This Pro Forma Condensed Consolidated Balance Sheet should be read in conjunction with the Pro Forma Condensed Consolidated Statement of Income of the Company for the nine months ended September 30, 1997 and the year ended December 31, 1996 and the historical consolidated and combined financial statements and notes thereto of the Company and the Boston Properties Predecessor Group (the "Predecessor Group"). In management's opinion, all adjustments necessary to reflect the above transactions have been made. The following Pro Forma Condensed Consolidated Balance Sheet is not necessarily indicative of what the actual financial position would have been assuming the above transactions had been consummated at September 30, 1997, nor does it purport to represent the future financial position of the Company. The Offering On January 30, 1998, the Company completed a public offering of 23,000,000 shares of the Company's Common Stock (including 3,000,000 issued pursuant to the exercise of the underwriters' overallotment options) at $35.125 per share resulting in net proceeds to the Company of approximately $766.5 million. The Properties The Company owns a portfolio of 92 commercial real estate properties (the "Properties") aggregating approximately 18.2 million square feet. The properties consist of 74 office properties with approximately 13.1 million net rentable square feet (including five office properties under development containing approximately 1.1 million net rentable square feet) and approximately 2.9 million additional square feet of structured parking for 8,119 vehicles, nine industrial properties with approximately 925,000 net rentable square feet, three hotels with a total of 1,054 rooms (consisting of approximately 940,000 square feet) (including one hotel currently under development), and a parking garage with 1,170 spaces (consisting of approximately 330,000 square feet). In addition, the Company has under contract or has an option to acquire six parcels of land totaling 120.0 acres, which will support approximately 2,249,100 square feet of development. Acquisitions included in pro forma: (1) The Company issued Operating Partnership Units in the amount of 890,869 for 875 Third Avenue (valued at $31.43 per OP unit). (2) The Company issued Operating Partnership Units in the amount of 1,471,456 for the Mulligan/Griffin Portfolio (valued at $33.98 per unit). F-1
Net Rentable Date of Property Name Location Sq. Ft. Acquisition ------------- -------- ------- ----------- Newport Office Park Quincy, MA 168,829 6/23/97 280 Park Avenue New York, NY 1,198,769 9/11/97 100 East Pratt Street Baltimore, MD 633,482 10/23/97 875 Third Avenue New York, NY 681,669 11/21/97 Riverfront Plaza Richmond, VA 899,720 1/22/98 Mulligan/Griffin Portfolio Reston, VA 1,277,454 2/2/98 Springfield, VA Rockville, MD Gaithersburg, MD Purchase Price (dollars in thousands) Common Property Name Cash Debt Other OP Units Stock Total ------------- ---- ---- ----- -------- ------ ------ Newport Office Park -- $ 21,700 -- -- -- $ 21,700 280 Park Avenue $ 102,650 220,000 -- -- -- 322,650 100 East Pratt Street 137,500 -- -- -- $ 16 137,516 875 Third Avenue 1,500 180,000 -- $ 28,000(1) -- 209,500 Riverfront Plaza 52,561 121,800 -- -- -- 174,361 Mulligan/Griffin Portfolio 88,516 113,262 1,123 50,000(2) -- 252,901 BOSTON PROPERTIES, INC. PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS) The accompanying notes are an integral part of the pro forma condensed consolidated balance sheet. F-2
PRO FORMA ADJUSTMENTS BOSTON ----------------------------------- PROPERTIES, ACQUISITION OFFERING OTHER INC. PROPERTIES (A) ADJUSTMENTS PRO FORMA ----------- ----------- -------- ----------- ---------- ASSETS Real estate and equipment.............. $1,433,376 $784,885(B) -- -- $2,218,261 Less: accumulated depreciation.......... (285,505) -- -- -- (285,505) ---------- -------- -------- ---------- ---------- Total real estate and equipment............. 1,147,871 784,885 -- -- 1,932,756 Cash ................... 25,989 (78,374)(C) $765,462 $ (275,561)(C) 437,516 Escrows................. 10,673 2,631 (D) -- -- 13,304 Tenant and other receivables............ 13,170 227 (E) -- -- 13,397 Accrued rental income... 50,377 -- -- -- 50,377 Deferred charges........ 34,707 -- -- -- 34,707 Prepaid expenses and other assets........... 8,933 -- -- -- 8,933 Investment in Joint Venture................ 3,918 -- -- -- 3,918 ---------- -------- -------- ---------- ---------- Total assets........... $1,295,638 $709,369 $765,462 $(275,561) $2,494,908 ========== ======== ======== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable............... $ 914,614 $425,669(F) -- -- $1,340,283 Unsecured Line of Credit................ 71,000 204,561(F) -- $(275,561)(F) -- Accounts payable and accrued expenses...... 16,073 1,123(G) -- -- 17,196 Accrued interest payable............... 3,639 -- -- -- 3,639 Rent received in advance, security deposits and other liabilities........... 13,663 -- -- -- 13,663 ---------- -------- -------- ---------- ---------- Total liabilities...... 1,018,989 631,353 -- (275,561) 1,374,781 ---------- -------- -------- ---------- ---------- Minority interest in Operating Partnership.. 81,168 78,000(B) -- -- 159,168 ---------- -------- -------- ---------- ---------- Stockholders' equity: Preferred stock, $.01 par value, 50,000,000 shares authorized, none issued or outstanding........... -- -- -- -- -- Common stock, $.01 par value, 250,000,000 shares authorized, 38,693,541 issued and outstanding (historical) and 61,694,041 shares issued and outstanding (pro forma)........... 387 -- $ 230 -- 617 Additional paid in capital............... 172,315 16(B) 765,232 -- 937,563 Retained earnings...... 22,779 -- -- -- 22,779 ---------- -------- -------- ---------- ---------- Total stockholders' equity................ 195,481 16 765,462 -- 960,959 ---------- -------- -------- ---------- ---------- Total liabilities and stockholders' equity.. $1,295,638 $709,369 $765,462 $(275,561) $2,494,908 ========== ======== ======== ========== ========== BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997: (A) Represents the net proceeds obtained from the issuance of 23.0 million common shares (including 3.0 million shares issued pursuant to the exercise of the underwriters' overallotment options) in the Offering as follows: - -------- (/1/) Represents the issuance of 23.0 million ($.01 par value per share) common shares in the Offering at an offering price of $35.125 per share. (B) Represents the purchase price, including closing costs, of the 1997 Acquired Properties as follows:
Gross proceeds from the Offering................................... $807,875 Underwriters' discount and other offering expenses................. (42,413) -------- Net cash proceeds.................................................. 765,462 Par value of common shares(/1/).................................... (230) -------- $765,232 ======== -------- (/1/) The acquisition of 100 East Pratt Street was funded by a draw-down of $137,500 from the Unsecured Line of Credit and the issuance of 500 shares of common stock (valued at approximately $16, based on a value of $32.00 per share). (/2/) The acquisition of 875 Third Avenue was funded by the assumption of the fair value of mortgage debt in the amount of $185,618, payment of $1,500 in cash and the issuance of 890,869 Operating Partnership Units (the "OP Units"). To the extent that, for the ten trading days through and including December 31, 1998 the average daily closing price on the New York Stock Exchange of shares of common stock is less than $31.43 per share (such average, the "Share Average"), the Operating Partnership shall issue to the contributor of 875 Third Avenue a number of additional OP Units (the "Additional OP Units") such that the product of (x) the Share Average, multiplied by (y) the sum of 890,869 plus the Additional OP Units, equals $28,000. Consequently, for accounting purposes, the OP Units were valued at approximately $28,000, based on a value of $31.43 per unit. (/3/) The acquisition of Riverfront Plaza was funded through a draw-down from the unsecured line of credit of $52,561 in cash and mortgage acquisition financing of $121,800. (/4/) The acquisition of the Mulligan/Griffin Portfolio was funded through the payment of $74,016 in cash, a draw-down of $14,500 from the Unsecured Line of Credit, the assumption of the fair value of mortgage debt in the amount of $118,251, the assumption of other liabilities in the amount of $1,123 and the issuance of $50,000 in restricted OP Units based on a price per unit of approximately $33.98. (C) Represents the cash transactions as follows:
PURCHASE ACQUISITION PROPERTIES PRICE ---------------------- -------- 100 East Pratt Street (/1/)........................................ $137,516 875 Third Avenue (/2/)............................................. 215,118 Riverfront Plaza (/3/)............................................. 174,361 Mulligan/Griffin Portfolio(/4/).................................... 257,890 -------- Total Acquisition Properties................................... $784,885 ======== F-3
Net proceeds of the Offering described in Note (A) ............. $ 765,462 Proceeds and working capital used for the Acquisition Properties..................................................... (78,374) Paydown of Unsecured Line of Credit with proceeds from the Offering....................................................... (275,561) --------- Net increase in cash............................................ $ 411,527 ========= (D) Net increase reflects the following: Required escrow deposit for the debt assumed on the acquisition of 875 Third Avenue............................ $ 2,631 ========= BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET--(CONTINUED) (DOLLARS IN THOUSANDS) (E) Reflects a tenant note receivable purchased in connection with the acquisition of Riverfront Plaza. (F) Represents the debt transactions as follows: MORTGAGE NOTES PAYABLE UNSECURED LINE OF CREDIT
Debt assumed in connection with the acquisition of 875 Third Avenue........................................................... $185,618 Seller financing in connection with the acquisition of Riverfront Plaza............................................................ 121,800 Debt assumed in connection with the acquisition of the Mulligan/Griffin Portfolio....................................... 118,251 -------- Net increase in mortgage indebtedness............................. $425,669 ======== (G) Reflects other liabilities assumed in connection with the acquisition of the Mulligan/Griffin Portfolio. F-4
Draw-down from the Unsecured Line of Credit in connection with the acquisition of 100 East Pratt Street...................... $ 137,500 Draw-down from the Unsecured Line of Credit in connection with the acquisition of Riverfront Plaza........................... 52,561 Draw-down from the Unsecured Line of Credit in connection with two properties in the Mulligan/Griffin Portfolio.............. 14,500 Paydown of the Unsecured Line of Credit from proceeds of the Offering, net ................................................ (275,561) --------- Net decrease in Unsecured Line of Credit....................... $ (71,000) ========= BOSTON PROPERTIES, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) The following unaudited Pro Forma Condensed Consolidated Statement of Income for the nine months ended September 30, 1997 and for the year ended December 31, 1996 is presented as if the following transactions had occurred on January 1, 1996; (i) the consummation of the initial public offering (the "Initial Offering") and related Formation Transactions, and the Offering (ii) the acquisition of the property acquired concurrent with the Initial Offering (the "Initial Offering Acquisition Property"), (iii) the acquisition of properties acquired subsequent to the Initial Offering (the "Acquisition Properties"), and (iv) the closing of the mortgage financing. The Development and Management Company has been included in the pro forma financial information under the equity method of accounting due to the Operating Partnership's ownership of a noncontrolling, 1% voting interest. The operations of the hotel properties and the parking garages have been included in the pro forma financial information pursuant to participating lease agreements to be entered into in order for the Company to continue to qualify as a REIT under IRC Section 856. The unaudited Pro Forma Condensed Consolidated Statement of Income is not necessarily indicative of what the actual results of operations would have been for the nine months ended September 30, 1997, or for the year ended December 31, 1996, had the previously described transactions actually occurred on January 1, 1996 and the effect thereof carried forward through the nine month period ended September 30, 1997, nor do they purport to present the future results of operations of the Company. F-5 BOSTON PROPERTIES, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The accompanying notes are an integral part of the pro forma condensed consolidated statement of income. F-6
BOSTON PROPERTIES PREDECESSOR GROUP PRO FORMA ADJUSTMENTS BOSTON PROPERTIES, INC. JANUARY 1, --------------------------------------------------- JUNE 23, 1997 1997 INITIAL TO TO OFFERING SEPTEMBER 30, JUNE 22, FORMATION ACQUISITION PROPERTIES OTHER 1997 1997 TRANSACTIONS PROPERTY ACQUISITION ADJUSTMENTS ----------------------- ----------- ------------ ----------- ----------- ----------- (A) (B) (C) Revenue: Rental: Base rent........ $57,892 $80,122 $ 9,396 $1,498 $87,663 -- Recoveries from tenants.......... 6,144 10,283 -- 101 13,698 -- Parking and other............ 217 3,397 (1,061) -- 729 -- ------- ------- -------- ------ ------- -------- Total rental revenue......... 64,253 93,802 8,335 1,599 102,090 -- Hotel............ -- 31,185 (31,185) -- -- -- Development and management services......... 2,221 3,685 (452) -- -- -- Interest and other............ 1,879 1,146 (352) -- -- $(1,200) (D) ------- ------- -------- ------ ------- -------- Total revenue... 68,353 129,818 (23,654) 1,599 102,090 (1,200) ------- ------- -------- ------ ------- -------- Expenses: Rental: Operating........ 8,828 13,650 (353) 437 20,607 -- Real estate taxes............ 9,065 13,382 1,345 172 15,476 -- Hotel: Operating........ -- 20,938 (20,938) -- -- -- Real estate tax- es............... -- 1,514 (1,514) -- -- -- General and administrative... 3,164 5,116 391 -- -- 725 (E) Interest......... 16,091 53,324 (28,151) -- 17,657 16,455 (F) Depreciation and amortization..... 10,113 17,054 124 210(G) 15,479 -- ------- ------- -------- ------ ------- -------- Total expenses.. 47,261 124,978 (49,096) 819 69,219 17,180 ------- ------- -------- ------ ------- -------- Income before minority interests .................. 21,092 4,840 25,442 780 32,871 (18,380) Minority interest in property partnership....... (69) (235) -- -- -- -- ------- ------- -------- ------ ------- -------- Income before minority interest in Operating Partnership ...... 21,023 4,605 25,442 780 32,871 (18,380) Minority interest in Operating Partnership....... (6,169) -- -- -- -- (9,089)(H) ------- ------- -------- ------ ------- -------- Income before extraordinary item.............. $14,854 $ 4,605 $ 25,442 $ 780 $32,871 $(27,469) ======= ======= ======== ====== ======= ======== Income before ex- traordinary item per common share.. $ .38 ======= Weighted average number of common shares outstand- ing............... 38,694 ======= PRO FORMA --------- Revenue: Rental: Base rent........ $236,571 Recoveries from tenants.......... 30,226 Parking and other............ 3,282 --------- Total rental revenue......... 270,079 Hotel............ -- Development and management services......... 5,454 Interest and other............ 1,473 --------- Total revenue... 277,006 --------- Expenses: Rental: Operating........ 43,169 Real estate taxes............ 39,440 Hotel: Operating........ -- Real estate tax- es............... -- General and administrative... 9,396 Interest......... 75,376 Depreciation and amortization..... 42,980 --------- Total expenses.. 210,361 --------- Income before minority interests .................. 66,645 Minority interest in property partnership....... (304) --------- Income before minority interest in Operating Partnership ...... 66,341 Minority interest in Operating Partnership....... (15,258) --------- Income before extraordinary item.............. $ 51,083 ========= Income before ex- traordinary item per common share.. $ .83 ========= Weighted average number of common shares outstand- ing............... 61,694 ========= BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS) NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 A. Reflects the pro forma Formation Transactions adjustment summary for the period from January 1, 1997 to June 22, 1997 (the "Predecessor Period"). (1) In connection with the Formation Transactions, certain third-party management contracts were assigned to the Development and Management Company. As a result of the assignment, operating income, expenses and overhead attributable to the contracts were reflected in the operations of the Development and Management Company as detailed below:
RENT HOTEL HOTELS INTEREST PROPERTY PROPERTY HOTEL REAL GENERAL PRO FORMA AND PARKING HOTEL MGMT AND OPERATING REAL ESTATE OPERATING ESTATE & INTEREST ADJUSTMENTS GARAGE INCOME REVENUE FEES OTHER EXPENSES TAXES EXPENSES TAXES ADMIN EXPENSE - ----------- ------ ------- -------- ----- -------- --------- ----------- --------- ------- ------- -------- (1)Assignment of contracts..... $(452) $(430) (2)Equity investment income........ $21 (3)Operation of hotels and garage........ $(1,061) $(31,185) $(353) $1,345 $(20,938) $(1,514) (4)Rental of hotels and garage........ $9,396 (5)General and administrative.. 821 (6)Amortization of deferred financing costs......... $ (189) (7)Release of restricted cash.......... (373) (8)Depreciation expense....... (9)Mortgage interest...... (27,962) ------ ------- -------- ----- ----- ----- ------ -------- ------- ----- -------- Pro Forma Formation Transactions adjustment summary total... $9,396 $(1,061) $(31,185) $(452) $(352) $(353) $1,345 $(20,938) $(1,514) $ 391 $(28,151) ====== ======= ======== ===== ===== ===== ====== ======== ======= ===== ======== PRO FORMA DEPRECIATION ADJUSTMENTS EXPENSE - ----------- ------------ (1)Assignment of contracts..... (2)Equity investment income........ (3)Operation of hotels and garage........ (4)Rental of hotels and garage........ (5)General and administrative.. (6)Amortization of deferred financing costs......... (7)Release of restricted cash.......... (8)Depreciation expense....... $124 (9)Mortgage interest...... ------------ Pro Forma Formation Transactions adjustment summary total... $124 ============ (2) The Operating Partnership holds a 95% economic interest in the Development and Management Company and records an equity interest of $21 on the $22 net income. (3) In connection with the Formation Transactions, the Operating Partnership entered into participating leases for the operation of the hotels and parking garage. As a result of these agreements, revenue and expenses will not be reflected from the operation of these businesses. (4) Represents rental income from the leasing of the hotels and parking garage owned by the Operating Partnership. The hotel lease arrangements are with an affiliate. (5) Reflects an increase of $821 in general and administrative expenses as a result of operating as a public company. (6) Reflects the net increase of $290 in the amortization of deferred financing costs for the $1,800 fee and related professional costs on the Unsecured Line of Credit, less a net reduction of $479 in amortization of deferred financing costs related to debt paid off with the Initial Offering proceeds. F-7
Management services................................................ $ 452 General and administrative expenses................................ (430) ----- Manager contract income........................................... $ 22 ===== BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME--(CONTINUED) (DOLLARS IN THOUSANDS) (7) Reflects the decrease in interest income as a result of the release of cash previously required to be held in escrow per the terms of the various mortgage note payable agreements. (8) Reflects the increase in depreciation from depreciating over 40 years the pro forma increase to real estate from the purchase of limited partners' interests and transfer costs paid. (9) Reflects the repayment of a portion of the existing mortgage indebtedness from proceeds of the Initial Offering for the Predecessor Period: B. Reflects the results of operations, as adjusted for depreciation, of the Newport Office Park, acquired concurrent with the Initial Offering, for the period from January 1, 1997 to June 22, 1997 (the acquisition date). F-8
PRINCIPAL INTEREST PROPERTIES AMOUNT RATE INTEREST ---------- --------- -------- -------- 599 Lexington Avenue........................... $225,000 7.00% $ 7,547 Two Independence Square........................ 122,505 7.90% 4,637 One Independence Square........................ 78,327 7.90% 2,965 2300 N Street.................................. 66,000 7.00% 2,214 Capital Gallery................................ 60,559 8.24% 2,391 Ten Cambridge Center........................... 25,000 7.57% 907 191 Spring Street.............................. 23,883 8.50% 973 Bedford Business Park.......................... 23,376 8.50% 952 10 & 20 Burlington Mall Road................... 16,621 8.33% 663 Cambridge Center North Garage.................. 15,000 7.57% 544 91 Hartwell Avenue............................. 11,322 8.33% 452 92 & 100 Hayden Avenue......................... 9,057 8.33% 362 Montvale Center................................ 7,969 8.59% 328 Newport Office Park............................ 6,874 8.13% 268 Hilltop Business Center........................ 4,750 7.00% 159 -------- Total......................................... 25,362 Historical interest expense - Predecessor Peri- od............................................ (53,324) -------- Pro forma interest expense adjustment for the Predecessor Period............................ $(27,962) ======== BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME--(CONTINUED) (DOLLARS IN THOUSANDS) C. Reflects the historical results of operations, as adjusted for base rent and depreciation, for the Acquisition Properties for the nine months ended September 30, 1997 as follows: ACQUISITION PROPERTIES - -------- (1) Reflects the results of operations for the period from January 1, 1997 through September 11, 1997 (the acquisition date). (2) Represents an adjustment to straight-line rent based on the pro forma acquisition date of January 1, 1996 and also includes an adjustment for rental income from Banker's Trust during the period they occupied 280 Park Avenue as owner/occupant of the building (the rental figure is based upon the lease entered into by Banker's Trust concurrent with the sale of the building to the Company on September 11, 1997). (3) Includes an adjustment of ($675) to reflect effective interest on the fair value of mortgage debt assumed. (4) Includes an adjustment of $300 to reflect the Company's estimate of additional property level operating expenses. (5) Includes an adjustment of ($1,323) to reflect effective interest on the fair value of mortgage debt assumed. F-9
280 PARK 100 EAST PRATT 875 THIRD RIVERFRONT MULLIGAN/ AVENUE(1) STREET AVENUE PLAZA GRIFFIN PORTFOLIO TOTAL --------- -------------- --------- ---------- ----------------- ------- Revenue: Base rent.......................... $17,012 $10,924 $18,646 $13,023 $19,523 $79,128 Adjustment(2)...................... 7,437 397 24 389 288 8,535 ------- ------- ------- ------- ------- ------- Total base rent.................. 24,449 11,321 18,670 13,412 19,811 87,663 Recoveries from tenants............ 1,707 2,133 3,799 2,017 4,042 13,698 Other.............................. 80 267 -- 382 -- 729 ------- ------- ------- ------- ------- ------- Total rental revenue............. 26,236 13,721 22,469 15,811 23,853 102,090 ------- ------- ------- ------- ------- ------- Expenses: Operating.......................... 7,772 3,453 3,355 2,761 3,266 (4) 20,607 Real estate taxes.................. 6,677 1,541 4,831 1,219 1,208 15,476 Interest........................... -- -- 11,138 (3) -- 6,519 (5) 17,657 Depreciation(Note G)............... 3,355 1,934 2,420 2,288 5,482 15,479 ------- ------- ------- ------- ------- ------- Total expenses................... 17,804 6,928 21,744 6,268 16,475 69,219 ------- ------- ------- ------- ------- ------- Net income......................... $ 8,432 $ 6,793 $ 725 $ 9,543 $ 7,378 $32,871 ======= ======= ======= ======= ======= ======= BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME--(CONTINUED) (DOLLARS IN THOUSANDS) D. Reflects the reduction in interest income as a result of cash used for the acquisition of 280 Park Avenue. E. Reflects the incremental increase in general and administrative costs related to the Acquisition Properties. F. Reflects the net increase in interest as a result of the following debt transactions: G. Detail of pro forma depreciation expense is presented below for the Initial Offering Acquisition Property and the Acquisition Properties:
Payoff of the Unsecured Line of Credit with proceeds from the Of- fering for the period subsequent to the Initial Offering, net of amounts capitalized............................................. $ (411) Mortgage acquisition financing of 280 Park Avenue in the original principal amount of $220 million computed at an interest rate of 7.00% for the period January 1, 1997 to September 11, 1997 (date of acquisition)................................................. 10,675 Amortization of deferred financing fees for the period from January 1, 1997 to September 11, 1997 (date of acquisition) as a result of approximately $1.1 million of fees associated with the mortgage financing of 280 Park Avenue. The deferred financing fees are amortized over the five year term of the loan ......... 153 Mortgage acquisition financing of Riverfront Plaza in the principal amount of $121,800 computed at an interest rate of 6.61% .......................................................... 6,038 ------- Increase in interest expense for the period subsequent to the Initial Offering................................................ $16,455 ======= - -------- (1) Represents the depreciation expense on the properties which has been calculated over 40 years for the building and over the life of the lease for tenant improvements. (2) Reflects pro forma depreciation expense for the periods prior to acquisition. H. Adjustment to minority interest to reflect the minority investors interest in the Operating Partnership following the Offering and issuance of OP Units and common shares. F-10
PURCHASE PRO FORMA PROPERTY(IES) PRICE DEPRECIATION(1) - ------------- -------- --------------- INITIAL OFFERING ACQUISITION PROPERTY Newport Office Park(2)................................. $ 21,700 $ 210 ======= ACQUISITION PROPERTIES 280 Park Avenue(2)..................................... $322,650 $ 3,355 100 East Pratt Street.................................. 137,516 1,934 875 Third Avenue....................................... 215,118 2,420 Riverfront Plaza....................................... 174,361 2,288 Mulligan/Griffin Portfolio............................. 257,890 5,482 ------- $15,479 ======= BOSTON PROPERTIES, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The accompanying notes are an integral part of the pro forma condensed consolidated statement of income. F-11
PRO FORMA ADJUSTMENTS BOSTON ----------------------------------------------------------------------- PROPERTIES INITIAL PREDECESSOR FORMATION OFFERING ACQUISITION OTHER PRO GROUP TRANSACTIONS ACQUISITION PROPERTY PROPERTIES ADJUSTMENTS FORMA ----------- ------------ -------------------- ------------ ----------- -------- (A) (B) (C) Revenue: Rental: Base rent.............. $169,420 $22,371 $2,908 $108,969 -- $303,668 Recoveries from tenants................ 22,607 -- 180 19,795 -- 42,582 Parking and other...... 2,979 (2,043) -- 848 -- 1,784 -------- ------- ------ ------- -------- -------- Total rental revenue.. 195,006 20,328 3,088 129,612 -- 348,034 Hotel.................. 65,678 (65,678) -- -- -- -- Development and management services.... 5,719 (936) -- -- -- 4,783 Interest and other..... 3,530 (705) -- -- -- 2,825 -------- ------- ------ ------- -------- -------- Total revenue......... 269,933 (46,991) 3,088 129,612 -- 355,642 -------- ------- ------ ------- -------- -------- Expenses: Rental: Operating.............. 29,823 (713) 879 27,274 -- 57,263 Real estate taxes...... 28,372 2,754 347 21,421 -- 52,894 Hotel: Operating.............. 43,634 (43,634) -- -- -- -- Real estate taxes...... 3,100 (3,100) -- -- -- -- General and administrative......... 10,754 834 -- -- $ 950(D) 12,538 Interest............... 109,394 (54,398) -- 23,571 23,671(E) 102,238 Depreciation and amortization........... 36,199 257 434 21,005(F) -- 57,895 -------- ------- ------ ------- -------- -------- Total expenses........ 261,276 (98,000) 1,660 93,271 24,621 282,828 -------- ------- ------ ------- -------- -------- Income before minority interests .............. 8,657 51,009 1,428 36,341 (24,621) 72,814 Minority interest in property partnership.... (384) -- -- -- -- (384) -------- ------- ------ ------- -------- -------- Income before minority interest in Operating Partnership ............ 8,273 51,009 1,428 36,341 (24,621) 72,430 Minority interest in Operating Partnership... -- -- -- -- (16,659)(G) (16,659) -------- ------- ------ ------- -------- -------- Net income.............. $ 8,273 $51,009 $1,428 $36,341 $(41,280) $ 55,771 ======== ======= ====== ======= ======== ======== Net income per common share................... $ .90 ======== Weighted average number of common shares outstanding............. 61,694 ======== BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN THOUSANDS) NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 A. Reflects the pro forma Formation Transactions adjustment summary for the year ended December 31, 1996 - ---- (1) In connection with the Formation Transactions, certain third-party management contracts are assigned to the Development and Management Company. As a result of the assignment, current operating income, expenses and overhead attributable to the contracts are reflected in the operations of the Development and Management Company as detailed below:
RENT HOTEL HOTELS INTEREST PROPERTY PROPERTY HOTEL REAL PRO FORMA AND PARKING HOTEL MGMT AND OPERATING REAL ESTATE OPERATING ESTATE GENERAL & INTEREST ADJUSTMENTS GARAGE INCOME REVENUE FEES OTHER EXPENSES TAXES EXPENSES TAXES ADMIN EXPENSE - ----------- ------ ------- -------- ----- -------- --------- ----------- --------- -------- --------- -------- (1) Assignment of contracts....... $(936) $ (866) (2)Equity investment income.......... $66 (3)Operation of hotels and garage.......... $(2,043) $(65,678) $(713) $2,754 $(43,634) $ (3,100) (4)Rental of hotels and garage...... $22,371 (5)General and administrative.. 1,700 (6)Amortization of deferred financing costs........... $ (731) (7)Release of restricted cash............ (771) (8)Depreciation expense......... (9)Mortgage interest........ (53,667) ------- ------- -------- ----- ----- ----- ------ -------- -------- ------ -------- Pro forma formation transactions adjustment summary total... $22,371 $(2,043) $(65,678) $(936) $(705) $(713) $2,754 $(43,634) $(3,100) $ 834 $(54,398) ======= ======= ======== ===== ===== ===== ====== ======== ======== ====== ======== DEPREC- PRO FORMA IATION ADJUSTMENTS EXPENSE - ----------- ------- (1) Assignment of contracts....... (2)Equity investment income.......... (3)Operation of hotels and garage.......... (4)Rental of hotels and garage...... (5)General and administrative.. (6)Amortization of deferred financing costs........... (7)Release of restricted cash............ (8)Depreciation expense......... $257 (9)Mortgage interest........ ------- Pro forma formation transactions adjustment summary total... $257 ======= (2) The Operating Partnership holds a 95% economic interest in the Development and Management Company and records an equity interest of $66 on the $70 net income. (3) In connection with the Formation Transactions, the Operating Partnership entered into participating leases for the operation of the hotels and parking garage. As a result of these agreements, revenue and expenses are not reflected from the operation of these businesses. (4) Represents rental income from the leasing of the hotels and parking garage owned by the Operating Partnership. The hotel lease arrangements are with an affiliate. (5) Reflects an increase of $1,700 in general and administrative expenses as a result of operating as a public company. (6) Reflects the net increase of $600 in the amortization of deferred financing costs for the $1,800 fee and related professional costs on the Unsecured Line of Credit, less a net reduction of $1,331 in amortization of deferred financing costs related to debt paid off with the Initial Offering proceeds. (7) Reflects the decrease in interest income as a result of the release of cash previously required to be held in escrow per the terms of the various mortgage note payable agreements. (8) Reflects the increase in depreciation from depreciating over 40 years the pro forma increase to real estate from the purchase of limited partners' interests and transfer costs paid. F-12
Management services.................................................. $936 General and administrative expenses.................................. (866) ---- Manager contract income............................................. $ 70 ==== BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME--(CONTINUED) (DOLLARS IN THOUSANDS) (9) Reflects the repayment of a portion of the existing mortgage indebtedness from proceeds of the Initial Offering and the corresponding adjustment to interest expense incurred in 1996. - -------- (1) The interest expense used in this calculation assumes the mortgage loan was outstanding during all of 1996. B. Reflects the historical results of operations, as adjusted for depreciation, for Newport Office Park, acquired concurrent with the Initial Offering for the year ended December 31, 1996. C. Reflects the historical results of operations, as adjusted for base rent and depreciation, for the Acquisition Properties for the year ended December 31, 1996 as follows: ACQUISITION PROPERTIES
PRINCIPAL INTEREST PROPERTY(IES) AMOUNT RATE INTEREST ------------- --------- -------- --------- 599 Lexington Avenue................... $225,000 7.00% $ 15,750(1) Two Independence Square................ 122,855 7.90% 9,813 One Independence Square................ 78,700 7.90% 6,276 2300 N Street.......................... 66,000 7.00% 4,620(1) Capital Gallery........................ 60,751 8.24% 5,761 Ten Cambridge Center................... 25,000 7.57% 1,924 191 Spring Street...................... 23,942 8.50% 1,697 Bedford Business Park.................. 23,500 8.50% 1,998(1) 10 & 20 Burlington Mall Road........... 16,621 8.33% 1,385 Cambridge Center North Garage.......... 15,000 7.57% 1,183 91 Hartwell Avenue..................... 11,322 8.33% 943 92 & 100 Hayden Avenue................. 9,057 8.33% 754 Montvale Center........................ 7,992 8.59% 474 Newport Office Park.................... 6,874 8.13% 558 Hilltop Business Center................ 4,817 7.00% 318 --------- Pro forma totals....................... 53,454 Historical interest expense for the year ended December 31, 1996.......... (107,121) --------- Pro forma interest expense adjustment.. $ (53,667) ========= - -------- (1) Represents an adjustment to straight-line rent based on the pro forma acquisition date of January 1, 1996 and also includes an adjustment for rental income from Banker's Trust during the period they occupied 280 Park Avenue as owner/occupant of the building (the rental figure is based upon the lease entered into by Banker's Trust concurrent with the sale of the building to the Company on September 11, 1997). (2) Includes an adjustment of ($900) to reflect effective interest on the fair value of mortgage debt assumed. F-13
280 PARK 100 EAST PRATT 875 THIRD RIVERFRONT MULLIGAN/GRIFFIN AVENUE STREET AVENUE PLAZA PORTFOLIO TOTAL -------- -------------- --------- ---------- ---------------- -------- Revenue: Base rent............. $16,786 $14,046 $25,255 $15,898 $25,548 $ 97,533 Adjustment(1)......... 9,991 528 31 522 364 11,436 ------- ------- ------- ------- ------- -------- Total base rent..... 26,777 14,574 25,286 16,420 25,912 108,969 Recoveries from ten- ants................. 2,600 2,966 5,813 2,976 5,440 19,795 Other................. 59 353 -- 436 -- 848 ------- ------- ------- ------- ------- -------- Total rental revenue............ 29,436 17,893 31,099 19,832 31,352 129,612 ------- ------- ------- ------- ------- -------- Expenses: Operating............. 10,169 4,333 4,249 3,865 4,658(3) 27,274 Real estate taxes..... 9,908 2,054 6,365 1,638 1,456 21,421 Interest.............. -- -- 14,850(2) -- 8,721(4) 23,571 Depreciation(Note F).. 4,840 2,578 3,227 3,051 7,309 21,005 ------- ------- ------- ------- ------- -------- Total expenses...... 24,917 8,965 28,691 8,554 22,144 93,271 ------- ------- ------- ------- ------- -------- Net income............ $ 4,519 $ 8,928 $ 2,408 $11,278 $ 9,208 $ 36,341 ======= ======= ======= ======= ======= ======== BOSTON PROPERTIES, INC. NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME--(CONTINUED) (DOLLARS IN THOUSANDS) (3) Includes an adjustment of $400 to reflect the Company's estimate of additional property level operating expenses. (4) Includes an adjustment of ($2,364) to reflect effective interest on the fair value of the mortgage debt assumed. D. Reflects the incremental increase in general and administrative costs related to the Acquisition Properties. E. Reflects the net increase in interest expense as a result of the following debt transactions: F. Detail of pro forma depreciation expense is presented below for the Initial Offering Acquisition Property and the Acquisition Properties:
Acquisition mortgage financing of 280 Park Avenue in the original principal amount of $220 million computed at an interest rate of 7.00% for the year ended December 31, 1996.......................... $15,400 Amortization of deferred financing fees as a result of approximately $1.1 million of fees associated with the mortgage financing of 280 Park Avenue. The deferred financing fees are amortized over the five year term of the loan .............................................. 220 Mortgage acquisition financing of Riverfront Plaza in the principal amount of $121,800 computed at an interest rate of 6.61%............ 8,051 ------- Increase in interest expense......................................... $23,671 ======= - -------- (1) Represents depreciation expense on the properties which has been calculated over 40 years for the building and over the life of the lease for tenant improvements. G. Adjustment to minority interest to reflect the minority investors interest in the Operating Partnership following the Offering and issuance of OP Units and common shares. F-14
PURCHASE PRO FORMA PROPERTY(IES) PRICE DEPRECIATION(1) - ------------- -------- --------------- INITIAL OFFERING ACQUISITION PROPERTY Newport Office Park.................................... $ 21,700 $ 434 ======= ACQUISITION PROPERTIES 280 Park Avenue........................................ $322,650 $ 4,840 100 East Pratt Street.................................. 137,516 2,578 875 Third Avenue....................................... 215,118 3,227 Riverfront Plaza....................................... 174,361 3,051 Mulligan/Griffin Portfolio............................. 257,890 7,309 ------- $21,005 =======