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Boston Properties Announces Second Quarter 2009 Results
Reports diluted FFO per share of $1.32
Reports diluted EPS of $0.53

BOSTON--(BUSINESS WIRE)--Jul. 21, 2009-- Boston Properties, Inc. (NYSE: BXP), a real estate investment trust, reported results today for the second quarter ended June 30, 2009.

Funds from Operations (FFO) for the quarter ended June 30, 2009 were $166.7 million, or $1.33 per share basic and $1.32 per share diluted. This compares to FFO for the quarter ended June 30, 2008 of $141.0 million, or $1.18 per share basic and $1.16 per share diluted. FFO for the quarter ended June 30, 2009 includes (1) $0.10 per share on a diluted basis related to lease termination income, (2) a non-cash impairment charge of $0.05 per share on a diluted basis related to the Company’s investment in its Value-Added Fund, specifically its Mountain View, CA and San Carlos, CA properties, and (3) additional non-cash interest expense of $0.06 per share on a diluted basis related to the Company’s adoption of FSP No. APB 14-1. FFO for the quarter ended June 30, 2008 includes $0.03 per share on a diluted basis related to the additional non-cash interest expense associated with the Company’s adoption of FSP No. APB 14-1. The weighted average number of basic and diluted shares outstanding totaled 125,266,846 and 127,080,589, respectively, for the quarter ended June 30, 2009 and 119,752,889 and 122,775,797, respectively, for the quarter ended June 30, 2008. The weighted average number of basic and diluted shares outstanding for the quarter ended June 30, 2009 includes the impact of the Company’s public offering of 17,250,000 shares of common stock on June 10, 2009, as discussed below.

In the second quarter ended June 30, 2009, the Company recognized a non-cash impairment charge of approximately $7.4 million, or $0.05 per share diluted, representing the other-than-temporary decline in the fair value below the carrying value of the Company’s investment in its Value-Added Fund, which is an unconsolidated joint venture. In accordance with Accounting Principles Board Opinion No. 18 “The Equity Method of Accounting for Investments in Common Stock” (APB No. 18), a loss in value of an investment under the equity method of accounting, which is other than a temporary decline, must be recognized. As a result, the Company recognized a non-cash impairment charge on its investment in its Value-Added Fund.

Net income available to common shareholders was $67.2 million for the quarter ended June 30, 2009, compared to $75.5 million for the quarter ended June 30, 2008. Net income available to common shareholders per share (EPS) for the quarter ended June 30, 2009 was $0.54 basic and $0.53 on a diluted basis. This compares to EPS for the second quarter of 2008 of $0.63 basic and $0.62 on a diluted basis. EPS includes $0.03 and $0.04, on a diluted basis, related to gains on sales of real estate for the quarters ended June 30, 2009 and 2008, respectively.

The reported results are unaudited and there can be no assurance that the results will not vary from the final information for the quarter ended June 30, 2009. In the opinion of management, all adjustments considered necessary for a fair presentation of these reported results have been made.

As of June 30, 2009, the Company’s portfolio consisted of 146 properties comprising approximately 49.1 million square feet, including 7 properties under construction totaling 2.3 million square feet and one hotel. The overall percentage of leased space for the 138 properties in service as of June 30, 2009 was 92.0%.

Significant events during the second quarter included:

  • On April 1, 2009, the Company placed in-service One Preserve Parkway, an approximately 184,000 net rentable square foot Class A office property located in Rockville, Maryland. The property is 20% leased.
  • On April 21, 2009, the Company obtained construction financing totaling $215.0 million collateralized by its Atlantic Wharf development project located at 280 Congress Street in Boston, Massachusetts. Atlantic Wharf, formerly known as Russia Wharf, is a mixed-use project totaling approximately 815,000 net rentable square feet. Wellington Management Company, LLP has leased approximately 450,000 square feet of the office space in the development. The construction financing bears interest at a variable rate equal to LIBOR plus 3.00% per annum and matures on April 21, 2012 with two, one-year extension options.
  • On April 30, 2009, Lehman Brothers, Inc., then the Company’s tenth largest tenant (by square feet) with approximately 437,000 net rentable square feet in the Company’s 399 Park Avenue property, rejected its lease in bankruptcy. The Company had previously established a reserve for the full amount of the Lehman Brothers, Inc. accrued straight-line rent balance in the third quarter of 2008. Lehman Brothers, Inc. paid rent through the month of April 2009 for all of its space and continued to occupy approximately 180,000 net rentable square feet through June 22, 2009, for which the Company received an aggregate of approximately $6.5 million in the quarter ended June 30, 2009. In addition, the Company has signed leases with tenants for approximately 37,000 net rentable square feet of the vacated space. Lehman Brothers, Inc. had contributed approximately $44.9 million per year on a contractual basis to the Company’s revenues from this lease.
  • On May 31, 2009, a consolidated joint venture in which the Company has a 66.67% interest placed in-service the Offices at Wisconsin Place, an approximately 299,000 net rentable square foot Class A office property located in Chevy Chase, Maryland. The property is 91% leased.
  • On June 1, 2009, General Motors Corporation filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York. At that time, the Company leased approximately 120,000 square feet of office space to General Motors Corporation at 601 Lexington Avenue (formerly known as Citigroup Center). Rent commencement for the lease at 601 Lexington Avenue began on June 1, 2009 and the lease was to expire on May 31, 2019. However, on June 12, 2009, General Motors Corporation rejected the lease in bankruptcy effective as of June 30, 2009. The contribution from this lease, on a contractual basis, from July 1, 2009 through December 31, 2009, was projected to be approximately $6.6 million.

    In addition, the unconsolidated joint venture that owns the General Motors Building (of which the Company owns 60%) currently leases approximately 101,000 square feet of space to General Motors Corporation. General Motors Corporation currently occupies the space (other than approximately 7,000 square feet that is subleased to a third party) and the lease expires on March 31, 2010.
  • On June 9, 2009, the Company used available cash to repay the mortgage loan collateralized by its Reservoir Place property located in Waltham, Massachusetts totaling approximately $47.8 million. There was no prepayment penalty associated with the repayment. The mortgage loan bore interest at a fixed rate of 7.00% and was scheduled to mature on July 1, 2009.
  • On June 10, 2009, the Company completed a public offering of 17,250,000 shares of its common stock (including 2,250,000 shares issued as a result of the exercise of an overallotment option by the underwriters) at a price to the public of $50.00 per share. The proceeds from this public offering, net of underwriters’ discounts and offering costs, totaled approximately $842.0 million. The Company used a portion of the net proceeds to repay the outstanding balance of its revolving credit facility totaling $100.0 million and to repay its mortgage loan totaling approximately $30.1 million collateralized by its Ten Cambridge Center property, discussed below.
  • On June 17, 2009, the Company announced that its Board of Directors declared a regular quarterly cash dividend of $0.50 per share of common stock for the period April 1, 2009 to June 30, 2009 payable on July 31, 2009 to shareholders of record as of the close of business on June 30, 2009.
  • On June 26, 2009, the Company used available cash to repay the mortgage loan collateralized by its Ten Cambridge Center property located in Cambridge, Massachusetts totaling approximately $30.1 million. The Company paid a prepayment penalty totaling $0.5 million in connection with the repayment. The mortgage loan bore interest at a fixed rate of 8.27% and was scheduled to mature on May 1, 2010.

On July 16, 2009, the Board of Directors appointed Alan J. Patricof to the Nominating and Corporate Governance Committee. Mr. Patricof, who will continue to serve as the Chairman of the Company’s Audit Committee, joins Zoë Baird (Chair) and David A. Twardock as members of the Nominating and Corporate Governance Committee.

EPS and FFO per Share Guidance:

The Company’s guidance for the third quarter and full year 2009 for EPS (diluted) and FFO per share (diluted) is set forth and reconciled below.

  Third Quarter 2009       Full Year 2009
Low   -   High Low   -   High
Projected EPS (diluted) $ 0.43   -   $ 0.46 $ 1.73   -   $ 1.81
 
Add:

Projected Company Share of Real Estate
Depreciation and Amortization

0.68

-

0.68

2.90

-

2.90

 
Less:

Projected Company Share of Gains on
Sales of Real Estate

 

0.03

 

-

   

0.03

 

0.08

 

-

   

0.08

Projected FFO per Share (diluted)

$

1.08

 

-

 

$

1.11

$

4.55

 

-

 

$

4.63

Except as described below, the foregoing estimates reflect management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of the events referenced in this release and previously disclosed. The guidance above includes the additional non-cash interest expense resulting from the change in accounting for convertible debt instruments. In addition, the estimates do not include possible future gains or losses or the impact on operating results from other possible future property acquisitions or dispositions, or possible future impairment charges. EPS estimates may be subject to fluctuations as a result of several factors, including changes in the recognition of depreciation and amortization expense and any gains or losses associated with disposition activity. The Company is not able to assess at this time the potential impact of these factors on projected EPS. By definition, FFO does not include real estate-related depreciation and amortization or gains or losses associated with disposition activities. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth above.

Boston Properties will host a conference call on Wednesday, July 22, 2009 at 10:00 AM Eastern Time, open to the general public, to discuss the second quarter 2009 results, the 2009 projections and related assumptions, and other related matters that may be of interest to investors. The number to call for this interactive teleconference is (888) 282-4591 (Domestic) or (719) 325-2223 (International); no passcode required. A replay of the conference call will be available through August 5, 2009, by dialing (888) 203-1112 (Domestic) or (719) 457-0820 (International) and entering the passcode 3810114. 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 in the Investor Relations section of the Company’s website and archived for up to twelve months following the call.

Additionally, a copy of Boston Properties’ second quarter 2009 “Supplemental Operating and Financial Data” and this press release are available in the Investor Relations section of the Company’s website at www.bostonproperties.com.

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 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 markets – Boston, Midtown Manhattan, Washington, D.C., San Francisco and Princeton, N.J.

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 “assumes,” “believes,” “estimates,” “expects,” “guidance,” “intends,” “plans,” “projects” 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 to enter into new leases or renew leases on favorable terms, dependence on tenants’ financial condition, the uncertainties of real estate development, acquisition and disposition activity, the ability to effectively integrate acquisitions, the costs and availability of financing, the effectiveness of our interest rate hedging contracts, the ability of our joint venture partners to satisfy their obligations, the effects of local economic and market conditions, the effects of acquisitions, dispositions and possible impairment charges on our operating results, 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, including its guidance for the third quarter and full fiscal year 2009, whether as a result of new information, future events or otherwise.

BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
               
 
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
 
(in thousands, except for per share amounts)
(unaudited)
 
Revenue
Rental:
Base rent $ 304,864 $ 281,072 $ 598,381 $ 562,466
Recoveries from tenants 49,821 49,848 102,229 98,732
Parking and other   18,416     17,317     35,357     33,818  
Total rental revenue 373,101 348,237 735,967 695,016
Hotel revenue 7,396 9,708 13,458 16,232
Development and management services 8,551 6,460 16,847 11,937
Interest and other   442     4,275     762     16,927  
Total revenue   389,490     368,680     767,034     740,112  
 
Expenses
Operating:
Rental 124,730 119,103 248,591 236,836
Hotel 5,359 6,449 10,831 12,346
General and administrative 18,532 17,467 35,952 37,055
Interest 78,633 69,302 157,563 141,798
Depreciation and amortization 87,005 74,389 164,375 149,060
Loss from suspension of development - - 27,766 -
Net derivative losses (gains) - (257 ) - 3,531
Losses from early extinguishments of debt 494 - 494 -
Losses (gains) from investments in securities   (1,194 )   160     (607 )   1,033  
Total expenses   313,559     286,613     644,965     581,659  
Income before income (loss) from unconsolidated joint ventures, gains on
sales of real estate and net income attributable to noncontrolling interests 75,931 82,067 122,069 158,453
Income (loss) from unconsolidated joint ventures (351 ) 1,855 4,746 2,897
Gains on sales of real estate   4,493     6,203     7,288     29,641  
Net income 80,073 90,125 134,103 190,991
Net income attributable to noncontrolling interests:
Noncontrolling interests in property partnerships (691 ) (420 ) (1,201 ) (1,045 )
Noncontrolling interest - common units of the Operating Partnership (10,629 ) (12,373 ) (18,091 ) (23,824 )
Noncontrolling interest in gains on sales of real estate - common units of
the Operating Partnership (629 ) (900 ) (1,032 ) (4,310 )
Noncontrolling interest - redeemable preferred units of the Operating
Partnership   (972 )   (949 )   (1,962 )   (1,854 )
Net income attributable to Boston Properties, Inc. $ 67,152   $ 75,483   $ 111,817   $ 159,958  
 
Basic earnings per common share attributable to Boston Properties, Inc.:
Net income $ 0.54   $ 0.63   $ 0.91   $ 1.34  
 
Weighted average number of common shares outstanding   125,267     119,753     123,272     119,644  
 
Diluted earnings per common share attributable to Boston Properties, Inc.:
Net income $ 0.53   $ 0.62   $ 0.91   $ 1.32  
 
Weighted average number of common and common equivalent shares
outstanding   125,620     121,315     123,554     121,168  
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
     
 
June 30, December 31,
2009 2008
 

(in thousands, except for share amounts)

(unaudited)

ASSETS

 
Real estate $ 9,687,069 $ 9,560,924
Construction in progress 934,397 835,983
Land held for future development 240,377 228,300
Less: accumulated depreciation   (1,901,558 )   (1,768,785 )
Total real estate 8,960,285 8,856,422
 
Cash and cash equivalents 819,245 241,510
Cash held in escrows 22,289 21,970
Investments in securities 11,173 11,590
Tenant and other receivables, net of allowance for doubtful accounts of $4,618 and $4,006, respectively 78,495 68,743
Related party note receivable 270,000 270,000
Accrued rental income, net of allowance of $2,698 and $15,440, respectively 340,123 316,711
Deferred charges, net 283,830 325,369
Prepaid expenses and other assets 22,905 22,401
Investments in unconsolidated joint ventures   772,319     782,760  
Total assets $ 11,580,664   $ 10,917,476  
 

LIABILITIES AND EQUITY

 
Liabilities:
Mortgage notes payable $ 2,603,597 $ 2,660,642
Unsecured senior notes, net of discount 1,472,617 1,472,375
Unsecured exchangeable senior notes, net of discount 1,881,482 1,859,867
Unsecured line of credit - 100,000
Accounts payable and accrued expenses 223,909 171,791
Dividends and distributions payable 80,475 97,162
Accrued interest payable 66,463 67,132
Other liabilities   126,560     173,750  
Total liabilities   6,455,103     6,602,719  
 
Commitments and contingencies   -     -  
 
Noncontrolling interest:
Redeemable preferred units of the Operating Partnership   55,652     55,652  
 
Equity:
Stockholders' equity attributable to Boston Properties, Inc.
Excess stock, $.01 par value, 150,000,000 shares authorized, none issued or outstanding - -
Preferred stock, $.01 par value, 50,000,000 shares authorized, none issued or outstanding - -
Common stock, $.01 par value, 250,000,000 shares authorized, 138,627,561 and 121,259,555 shares
issued and 138,548,661 and 121,180,655 shares outstanding in 2009 and 2008, respectively 1,385 1,212
Additional paid-in capital 4,358,830 3,565,466
Earnings in excess of dividends 115,027 154,953
Treasury common stock, at cost (2,722 ) (2,722 )
Accumulated other comprehensive loss   (28,464 )   (29,916 )
Total stockholders' equity attributable to Boston Properties, Inc. 4,444,056 3,688,993
 
Noncontrolling interests:
Common units of the Operating Partnership 620,752 563,212
Property partnerships 5,101 6,900
           
Total equity   5,069,909     4,259,105  
           
Total liabilities and equity $ 11,580,664   $ 10,917,476  
BOSTON PROPERTIES, INC.
FUNDS FROM OPERATIONS (1)
         
 
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
 
(in thousands, except for per share amounts)
(unaudited)
 
Net income attributable to Boston Properties, Inc. $ 67,152 $ 75,483 $ 111,817 $ 159,958
 
Add:
Noncontrolling interest - redeemable preferred units of the
Operating Partnership 972 949 1,962 1,854
Noncontrolling interest in gains on sales of real estate - common
units of the Operating Partnership 629 900 1,032 4,310
Noncontrolling interest - common units of the Operating
Partnership 10,629 12,373 18,091 23,824
Noncontrolling interests in property partnerships 691 420 1,201 1,045
Less:
Gains on sales of real estate 4,493 6,203 7,288 29,641
Income (loss) from unconsolidated joint ventures   (351 )   1,855     4,746     2,897  
 
Income before income (loss) from unconsolidated joint ventures,
gains on sales of real estate and net income attributable to
noncontrolling interests 75,931 82,067 122,069 158,453
 
Add:
Real estate depreciation and amortization (2) 120,359 82,838 228,590 160,457
Income (loss) from unconsolidated joint ventures (351 ) 1,855 4,746 2,897
Less:
Noncontrolling interests in property partnerships' share of
funds from operations 1,199 928 2,259 2,039
Noncontrolling interest - redeemable preferred units of the
Operating Partnership   972     949     1,962     1,854  
 
Funds from operations (FFO) 193,768 164,883 351,184 317,914
 
Less:
Noncontrolling interest - common units of the Operating
Partnership's share of funds from operations   27,100     23,932     49,722     46,221  
 
Funds from operations attributable to Boston Properties, Inc. $ 166,668   $ 140,951   $ 301,462   $ 271,693  
 
Our percentage share of funds from operations - basic   86.01 %   85.49 %   85.84 %   85.46 %
 
Weighted average shares outstanding - basic   125,267     119,753     123,272     119,644  
 
FFO per share basic $ 1.33   $ 1.18   $ 2.45   $ 2.27  
 
Weighted average shares outstanding - diluted   127,081     122,776     125,016     122,629  
 
FFO per share diluted $ 1.32   $ 1.16   $ 2.43   $ 2.24  
 
(1)

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. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for reviewing our comparative operating and financial performance because, by excluding gains and losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company's real estate between periods or as compared to different companies.

 
Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
 
FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.
 
(2) Real estate depreciation and amortization consists of depreciation and amortization from the Consolidated Statements of Operations of $87,005, $74,389, $164,375 and $149,060, our share of unconsolidated joint venture real estate depreciation and amortization of $33,798, $8,972, $65,174 and $12,235, less corporate-related depreciation and amortization of $444, $523, $959 and $838 for the three months and six months ended June 30, 2009 and 2008, respectively.
BOSTON PROPERTIES, INC.
PORTFOLIO LEASING PERCENTAGES
     
 
 
% Leased by Location
June 30, 2009 December 31, 2008
Greater Boston 91.7% 92.9%
Greater Washington, D.C. 94.9% 96.1%
Midtown Manhattan 91.6% 98.4%
Princeton/East Brunswick, NJ 82.5% 83.8%
Greater San Francisco 92.1% 92.8%
Total Portfolio 92.0% 94.5%
 
 
 
 
% Leased by Type
June 30, 2009 December 31, 2008
Class A Office Portfolio 92.5% 95.2%
Office/Technical Portfolio 81.9% 81.9%
Total Portfolio 92.0% 94.5%

Source: Boston Properties, Inc.

Boston Properties, Inc.
Michael Walsh, 617-236-3410
Senior Vice President, Finance
or
Arista Joyner, 617-236-3343
Investor Relations Manager