Exhibit 99.1

 

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Supplemental Operating and Financial Data

for the Quarter Ended December 31, 2017


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FOURTH QUARTER 2017

 

Table of Contents

 

 

     Page  

Company Profile

     3  

Investor Information

     4  

Research Coverage

     5  

Guidance and Assumptions

     6  

Financial Highlights

     7-8  

Consolidated Balance Sheets

     9  

Consolidated Income Statements

     10  

Funds From Operations

     11  

Funds Available for Distribution

     12  

Interest Coverage Ratios

     13  

Capital Structure

     14  

Debt Analysis

     15-16  

Unconsolidated Joint Ventures

     17-18  

Consolidated Joint Ventures

     19-20  

Reconciliation of Net Income Attributable to Boston Properties, Inc. Common Shareholders to Same Property Performance

     21-22  

Same Property Net Operating Income by Reportable Segment

     23  

Residential and Hotel Performance

     24  

Capital Expenditures, Tenant Improvements and Leasing Commissions

     25  

Portfolio Overview

     26  

In-Service Property Listing

     27-29  

Occupancy by Location

     30  

Top 20 Tenants and Tenant Diversification

     31  

Aggregate Lease Expiration Roll Out

     32  

Boston Lease Expiration Roll Out

     33-34  

New York Lease Expiration Roll Out

     35-36  

San Francisco and Los Angeles Lease Expiration Roll Out

     37-38  

Washington, DC Lease Expiration Roll Out

     39-40  

CBD/Suburban Lease Expiration Roll Out

     41-42  

Leasing Activity

     43  

Acquisitions/Dispositions

     44  

Value Creation Pipeline - Construction in Progress

     45  

Value Creation Pipeline - Land Parcels and Purchase Options

     46  

Definitions

     47-48  

This supplemental package 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,” “budgeted,” “estimates,” “expects,” “guidance,” “intends,” “may,” “might,” “plans,” “projects,” “should,” “will” 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 that 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 uncertainties of investing in new markets, the ability of our joint venture partners to satisfy their obligations, the costs and availability of financing, the effectiveness of our interest rate hedging programs, the effects of local, national and international 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. These forward-looking statements speak only as of the date of issuance of this report and are not guarantees of future results, performance or achievements. 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.

(Cover photo: Rendering of 7750 Wisconsin Avenue (Marriott International Headquarters), Bethesda, MD)

 

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FOURTH QUARTER 2017

 

COMPANY PROFILE

The Company

Boston Properties, Inc. (“Boston Properties,” “BXP” or the “Company”), a self-administered and self-managed real estate investment trust (REIT), is one of the largest owners, managers, and developers of Class A office properties in the United States, with a significant presence in five markets: Boston, Los Angeles, New York, San Francisco and Washington, DC. The Company was founded in 1970 by Mortimer B. Zuckerman and Edward H. Linde in Boston, where it maintains its headquarters. Boston Properties became a public company in June 1997. Boston Properties is a fully integrated real estate investment trust that develops, redevelops, acquires, manages, operates and owns a diverse portfolio of primarily Class A office space totaling 50.3 million square feet and consisting of 167 office properties (including eight properties under construction/redevelopment), six residential properties (including four properties under construction), five retail properties, and one hotel. Boston Properties is well-known for its in-house building management expertise and responsiveness to tenants’ needs. The Company holds a superior track record in developing premium Central Business District (CBD) office buildings, successful mixed-use complexes, suburban office centers and build-to-suit projects for a diverse array of creditworthy tenants.

Management

Boston Properties’ senior management team is among the most respected and accomplished in the REIT industry. Our deep and talented team of 36 individuals averages 30 years of real estate experience and 19 years with Boston Properties. We believe that our size, management depth, financial strength, reputation, and relationships of key personnel provide a competitive advantage to realize growth through property development and acquisitions. Boston Properties benefits from the reputation and relationships of key personnel, including Owen D. Thomas, Chief Executive Officer; Douglas T. Linde, President; Raymond A. Ritchey, Senior Executive Vice President; and Michael E. LaBelle, Executive Vice President, Chief Financial Officer and Treasurer. Our senior management team’s national reputation helps us attract business and investment opportunities. In addition, our other executive officers that serve as Regional Managers have strong reputations that assist in identifying and closing on new opportunities, having opportunities brought to us, and in negotiating with tenants and build-to-suit prospects. Additionally, Boston Properties’ Board of Directors consists of 11 distinguished members, the majority of whom are Independent Directors.

Strategy

Boston Properties’ primary business objective is to maximize return on investment in an effort to provide its investors with the greatest possible total return in all points of the economic cycle. To achieve this objective, the Company maintains consistent strategies that include the following:

 

    concentrating on select targeted markets characterized by high barriers to the creation of new supply and strong real estate fundamentals where tenants have demonstrated a preference for high-quality office buildings and other facilities - currently Boston, Los Angeles, New York, San Francisco and Washington, DC;

 

    investing in the highest quality buildings (primarily office) with unique amenities and locations that are able to maintain high occupancy and achieve premium rental rates through economic cycles;

 

    in our core markets, maintaining scale and a full-service real estate capability (leasing, development, construction and property management) to ensure we (1) see all relevant investment deal flow, (2) maintain an ability to execute on all types of real estate opportunities, such as acquisitions, dispositions, repositioning and development, throughout the real estate investment cycle and (3) provide superior service to our tenants;

 

    be astute in market timing for investment decisions by acquiring properties in times of opportunity, developing into economic growth and selectively selling assets at attractive prices, resulting in continuous portfolio refreshment;

 

    taking on complex, technically challenging development projects that leverage the skills of our management team to successfully develop, acquire, and reposition properties;

 

    exploring joint-venture opportunities with partners who seek to benefit from our depth of development and management expertise;

 

    ensuring a strong balance sheet to maintain consistent access to capital and the resultant ability to make opportunistic investments; and

 

    fostering a culture and reputation of integrity and fair dealing, making us the counterparty of choice for tenants and real estate industry participants and employer of choice for talented real estate professionals.

 

Snapshot     
(as of December 31, 2017)     

Corporate Headquarters

   Boston, Massachusetts

Markets

   Boston, Los Angeles, New York, San Francisco and Washington, DC

Fiscal Year-End

   December 31

Total Properties (includes unconsolidated joint ventures)

   179

Total Square Feet (includes unconsolidated joint ventures)

   50.3 million

Common shares outstanding, plus common units and LTIP units (other than unearned Multi-Year Long-Term Incentive Program (“MYLTIP”) Units) on an as-converted basis (1)

   172.0 million

Dividend - Quarter/Annualized (2)

   $0.80/$3.20

Dividend Yield

   2.46%

Consolidated Market Capitalization

   $32.8 billion

BXP’s Share of Market Capitalization (3)

   $32.2 billion

Senior Debt Ratings

   A- (S&P); BBB+ (Fitch); Baa2 (Moody’s)

 

(1) For additional detail, see page 14.
(2) The Company increased its regular quarterly cash dividend to $0.80 from $0.75 per share of common stock beginning with the period from October 1, 2017 to December 31, 2017.
(3) For the Company’s definition of BXP’s Share of Market Capitalization and related disclosures, see page 47. For a reconciliation of Consolidated Market Capitalization to BXP’s Share of Market Capitalization, see page 14.

 

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FOURTH QUARTER 2017

 

INVESTOR INFORMATION

 

Board of Directors

  

Management

Joel I. Klein    Dr. Jacob A. Frenkel    Raymond A. Ritchey    John F. Powers
Lead Independent Director    Director, Chair of Nominating & Corporate Governance Committee    Senior Executive Vice President   

Executive Vice President,

New York Region

        
Owen D. Thomas       Michael E. LaBelle    Frank D. Burt
Chief Executive Officer and Director   

Matthew J. Lustig

Director

   Executive Vice President, Chief Financial Officer and Treasurer    Senior Vice President, General Counsel
        
Douglas T. Linde         
President and Director    Alan J. Patricof    Peter D. Johnston    Michael R. Walsh
   Director   

Executive Vice President,

Washington, DC Region

   Senior Vice President, Chief Accounting Officer
Bruce W. Duncan         
Director    Martin Turchin      
   Director    Bryan J. Koop   
Karen E. Dykstra       Executive Vice President,   
Director    David A. Twardock    Boston Region   
   Director, Chair of Audit Committee      
Carol B. Einiger       Robert E. Pester   
Director, Chair of Compensation Committee       Executive Vice President,   
      San Francisco Region   

Chairman Emeritus

         

Mortimer B. Zuckerman

        

Company Information

Corporate Headquarters    Trading Symbol    Investor Relations    Inquires

800 Boylston Street

Suite 1900

Boston, MA 02199

(t) 617.236.3300

(f) 617.236.3311

  

BXP

 

Stock Exchange Listing New York Stock Exchange

  

Boston Properties, Inc.

800 Boylston Street, Suite 1900

Boston, MA 02199

(t) 617.236.3322

(f) 617.236.3311

www.bostonproperties.com

  

Inquiries should be directed to Michael E. LaBelle

Executive Vice President, Chief Financial Officer and Treasurer at 617.236.3352 or

mlabelle@bostonproperties.com

 

Arista Joyner, Investor Relations Manager

at 617.236.3343 or

ajoyner@bostonproperties.com

        
        
        
        
        
        
        
        

Common Stock Data (NYSE: BXP)

 

Boston Properties’ common stock has the following characteristics (based on information reported by the New York Stock Exchange):

 

     Q4 2017     Q3 2017     Q2 2017     Q1 2017     Q4 2016  

High Closing Price

   $ 130.96     $ 124.95     $ 136.87     $ 139.88     $ 133.39  

Low Closing Price

   $ 120.68     $ 117.70     $ 120.27     $ 127.00     $ 114.07  

Average Closing Price

   $ 125.40     $ 121.10     $ 126.45     $ 132.59     $ 124.31  

Closing Price, at the end of the quarter

   $ 130.03     $ 122.88     $ 123.02     $ 132.41     $ 125.78  

Dividends per share

   $ 0.80 (1)    $ 0.75     $ 0.75     $ 0.75     $ 0.75  

Closing dividend yield - annualized

     2.46     2.44     2.44     2.27     2.39

Closing common shares outstanding, plus common units and LTIP units (other than unearned MYLTIP Units) on an as-converted basis (thousands) (2)

     171,954       171,951       171,949       171,938       171,774  

Closing market value of outstanding shares and units (thousands) (2)

   $ 22,559,179     $ 21,329,339     $ 21,353,166     $ 22,966,310     $ 21,805,734  

 

(1) The Company increased its regular quarterly cash dividend to $0.80 from $0.75 per share of common stock beginning with the period from October 1, 2017 to December 31, 2017.
(2) For additional detail, see page 14.

Timing

 

Quarterly results for the next four quarters will be announced according to the following schedule:

 

First Quarter, 2018    Tentatively April 24, 2018
Second Quarter, 2018    Tentatively July 31, 2018
Third Quarter, 2018    Tentatively October 30, 2018
Fourth Quarter, 2018    Tentatively January 29, 2019

 

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RESEARCH COVERAGE

 

Equity Research Coverage

 

Debt Research Coverage

 

Rating Agencies

Jacob Kilstein   Anthony Paolone   Andrew Mollay   Stephen Boyd
Argus Research Company   J.P. Morgan Securities   Bank of America Merrill Lynch   Fitch Ratings
646.747.5447   212.622.6682   646.855.6435   212.908.9153
Jeffrey Spector / Jamie Feldman   Craig Mailman / Jordan Sadler   Peter Troisi   Ranjini Venkatesan
Bank of America Merrill Lynch   KeyBanc Capital Markets   Barclays   Moody’s Investors Service
646.855.1363 / 646.855.5808   917.368.2316 / 917.368.2280   212.412.3695   212.553.3828
Ross Smotrich   Richard Anderson   Mark Streeter   Anita Ogbara
Barclays Capital   Mizuho Securities   J.P. Morgan Securities   Standard & Poor’s
212.526.2306   212.205.8445   212.834.5086   212.438.5077
John Kim   Vikram Malhotra   Thierry Perrein / Kevin McClure  
BMO Capital   Morgan Stanley   Wells Fargo  
212.885.4115   212.761.7064   704.715.8455 / 704.410.3252  
Tom Catherwood   Brad Schwer    
BTIG   Morningstar    
212.738.6140   312.244.7061    
Michael Bilerman / Emmanuel Korchman   Mike Carroll    
Citigroup Global Markets   RBC Capital Markets    
212.816.1383 / 212.816.1382   440.715.2649    
Barry Oxford   David Rodgers / Richard Schiller    
D.A. Davidson & Co.   RW Baird    
212.240.9871   216.737.7341 / 312.609.5485    
Vincent Chao / Mike Husseini   Alexander Goldfarb / Daniel Santos    
Deutsche Bank Securities   Sandler O’Neill & Partners    
212.250.6799 / 212.250.7703   212.466.7937 / 212.466.7927    
Steve Sakwa / Robert Simone   John Guinee / Aaren Wolf    
Evercore ISI   Stifel, Nicolaus & Company    
212.446.9462 / 212.446.9459   443.224.1307 / 443.224.1206    
Jed Reagan   Michael Lewis    
Green Street Advisors   SunTrust Robinson Humphrey    
949.640.8780   212.319.5659    
Andrew Rosivach   Nick Yulico    
Goldman Sachs   UBS Securities    
212.902.2796   212.713.3402    
Jonathan Petersen / Omotayo Okusanya   Blaine Heck    
Jefferies & Co.   Wells Fargo Securities    
212.284.1705 / 212.336.7076   443.263.6529    

With the exception of Green Street Advisors, an independent research firm, the equity analysts listed above are those analysts that, according to First Call Corporation, have published research material on the Company and are listed as covering the Company. Please note that any opinions, estimates or forecasts regarding Boston Properties’ performance made by the analysts listed above do not represent the opinions, estimates or forecasts of Boston Properties or its management. Boston Properties does not by its reference above imply its endorsement of or concurrence with any information, conclusions or recommendations made by any of such analysts.

 

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FOURTH QUARTER 2017

 

GUIDANCE

 

The Company’s guidance for the first quarter 2018 and full year 2018 for diluted earnings per common share attributable to Boston Properties, Inc. common shareholders (“EPS”) and diluted funds from operations (“FFO”) per common share attributable to Boston Properties, Inc. common shareholders is set forth and reconciled below. Except as described below, the estimates reflect management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels, the timing of the lease-up of available space and development deliveries and the earnings impact of the events referenced in the earnings release issued on January 30, 2018 and otherwise referenced during the Company’s conference call scheduled for January 31, 2018. The estimates do not include possible future gains or losses or the impact on operating results from other possible future property acquisitions or dispositions, other possible capital markets activity 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, impairment losses on depreciable real estate or gains or losses associated with disposition activities. For a complete definition of FFO and statements of the reasons why management believes it provides useful information to investors, see page 48. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth below.

 

     First Quarter 2018      Full Year 2018  
     Low             High      Low             High  

Projected EPS (diluted)

   $ 1.15             $ 1.17      $ 3.24             $ 3.37  

Add:

                 

Projected Company share of real estate depreciation and amortization

     0.88               0.88        3.55               3.55  

Less:

                 

Projected Company share of gains on sales of real estate

     0.56               0.56        0.56               0.56  
  

 

 

       

 

 

    

 

 

       

 

 

 

Projected FFO per share (diluted)

   $ 1.47             $ 1.49      $ 6.23             $ 6.36  
  

 

 

       

 

 

    

 

 

       

 

 

 

ASSUMPTIONS

(dollars in thousands)

 

 

     Full Year 2018  
     Low            High  

Operating property activity:

       

Average In-service portfolio occupancy

     90.0            92.0

Increase in BXP’s Share of Same Property net operating income (excluding termination income)

     0.50            2.50

Increase in BXP’s Share of Same Property net operating income - cash (excluding termination income)

     0.50            2.50

BXP’s Share of Non Same Properties’ incremental contribution to net operating income over prior year (excludes asset sales)

   $ 40,000            $ 50,000  

BXP’s Share of incremental net operating income related to asset sales over prior year

   $ (8,000      $ (8,000

BXP’s Share of straight-line rent and fair value lease revenue (non-cash revenue)

   $ 55,000            $ 75,000  

Hotel net operating income

   $ 13,000            $ 15,000  

Termination income

   $ 4,000            $ 8,000  

Other income (expense):

       

Development and management services income

   $ 29,000            $ 34,000  

General and administrative expense

   $ (120,000          $ (115,000

Net interest expense

   $ (380,000          $ (365,000

Noncontrolling interest:

       

Noncontrolling interest in property partnerships’ share of FFC

   $ (140,000          $ (127,000

 

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FOURTH QUARTER 2017

 

FINANCIAL HIGHLIGHTS

(unaudited and in thousands, except ratios and per share amounts)

This section includes non-GAAP financial measures, which are accompanied by what the Company considers the most directly comparable financial measures calculated and presented in accordance with GAAP. Quantitative reconciliations of the differences between the most directly comparable GAAP financial measures and the non-GAAP financial measures presented are shown on pages 11-13. Definitions of these non-GAAP financial measures and statements of the reasons why management believes the non-GAAP measures provide useful information to investors about the Company’s financial condition and results of operations, and, if applicable, the other purposes for which management uses the measures, can be found on pages 47-48.

 

     Three Months Ended  
     31-Dec-17     30-Sep-17     30-Jun-17     31-Mar-17     31-Dec-16  

Net income attributable to Boston Properties, Inc. common shareholders

   $ 103,829     $ 117,337     $ 133,709     $ 97,083     $ 147,214  

Net income attributable to Boston Properties, Inc. per share - basic

   $ 0.67     $ 0.76     $ 0.87     $ 0.63     $ 0.96  

Net income attributable to Boston Properties, Inc. per share - diluted

   $ 0.67     $ 0.76     $ 0.87     $ 0.63     $ 0.96  

FFO attributable to Boston Properties, Inc. (1)

   $ 230,132     $ 243,015     $ 257,881     $ 228,383     $ 236,898  

Diluted FFO per share (1)

   $ 1.49     $ 1.57     $ 1.67     $ 1.48     $ 1.54  

Dividends per common share

   $ 0.80     $ 0.75     $ 0.75     $ 0.75     $ 0.75  

Funds available for distribution to common shareholders and common unitholders (FAD) (1) (2)

   $ 157,576     $ 193,686     $ 172,723     $ 178,002     $ 151,183  

Ratios:

          

Interest Coverage Ratio (excluding capitalized interest) (3)

     4.00       4.25       4.28       3.88       3.86  

Interest Coverage Ratio (including capitalized interest) (3)

     3.31       3.54       3.67       3.40       3.46  

FFO Payout Ratio (2)

     53.69     47.77     44.91     50.68     48.70

FAD Payout Ratio (2)

     87.36     66.63     74.72     72.49     85.28

Selected Items (4):

          

Revenue

   $ 655,229     $ 657,712     $ 656,907     $ 632,228     $ 636,061  

Partners’ share of revenue from consolidated joint ventures

     (71,299     (72,598     (73,027     (70,178     (69,766

BXP’s share of revenue from unconsolidated joint ventures

     26,725       26,047       26,174       25,650       24,828  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s Share of revenue

   $ 610,655     $ 611,161     $ 610,054     $ 587,700     $ 591,123  

Straight-line rent

   $ 22,323     $ 16,105     $ 3,060     $ 12,023     $ 14,711  

Partners’ share of straight-line rent from consolidated joint ventures

     (3,373     (1,960     3,326       (590     (1,103

BXP’s share of straight-line rent from unconsolidated joint ventures

     2,864       2,691       2,435       3,563       3,696  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s Share of straight-line rent

   $ 21,814     $ 16,836     $ 8,821     $ 14,996     $ 17,304  

Fair value lease revenue (5)

   $ 5,655     $ 5,781     $ 5,464     $ 5,390     $ 6,840  

Partners’ share of fair value lease revenue from consolidated joint ventures (5)

     (1,696     (1,721     (1,580     (1,575     (2,194

BXP’s share of fair value lease revenue from unconsolidated joint ventures (5)

     457       415       492       493       494  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s Share of fair value lease revenue

   $ 4,416     $ 4,475     $ 4,376     $ 4,308     $ 5,140  

Lease termination fees

   $ 756     $ 4,783     $ 13,601     $ 3,918     $ 504  

Partners’ share of lease termination fees from consolidated joint ventures

     (6     (1,233     (2,506     (1,310     (31

BXP’s share of termination income from unconsolidated joint ventures

     66       28       404       316       13  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s Share of termination income

   $ 816     $ 3,578     $ 11,499     $ 2,924     $ 486  

Fair value interest adjustment and hedge amortization

   $ (1,602   $ (1,606   $ 7,319     $ 10,323     $ 10,145  

Partners’ share of fair value interest adjustment and hedge amortization from consolidated joint ventures

     144       144       (3,464     (4,627     (4,598

BXP’s share of fair value interest adjustment and hedge amortization from unconsolidated joint ventures

     —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s Share of fair value interest adjustment and hedge amortization

   $ (1,458   $ (1,462   $ 3,855     $ 5,696     $ 5,547  

Ground rent expense (6)

   $ 3,531     $ 3,702     $ 3,462     $ 3,459     $ 3,460  

Gains (losses) from early extinguishments of debt

   $ (13,858   $ —       $ 14,354     $ —       $ —    

Capitalized interest

   $ 17,784     $ 16,658     $ 14,283     $ 12,345     $ 10,281  

Capitalized wages (7)

   $ 4,996     $ 4,710     $ 4,930     $ 3,947     $ 5,376  

Operating margins [(rental revenue - rental expense)/rental revenue]

     63.1     62.6     63.8     63.1     63.6

Income from unconsolidated joint ventures

   $ 4,197     $ 843     $ 3,108     $ 3,084     $ 2,585  

BXP’s share of FFO from unconsolidated joint ventures

   $ 10,507 (8)    $ 10,125     $ 12,737     $ 12,125     $ 11,277  

Net income attributable to noncontrolling interests in property partnerships

   $ 13,865     $ 14,340     $ 15,203     $ 4,424     $ (2,121

FFO attributable to noncontrolling interests in property partnerships

   $ 32,761 (9)    $ 32,892     $ 34,530     $ 25,839     $ 25,135  

 

(1) For the Company’s definitions and related disclosures, see pages 47-48.
(2) FFO Payout Ratio equals dividends per common share (excluding any special dividends) divided by Diluted FFO per share. For a quantitative reconciliation of FFO, see page 11. FAD Payout Ratio equals distributions to common shareholders and unitholders (excluding any special distributions) divided by FAD. For a quantitative reconciliation of FAD, see page 12.
(3) For a quantitative reconciliation and related disclosures, see page 13.
(4) Partners’ share and BXP’s share of line items below are based upon percentage ownership interests in the applicable joint ventures. For additional details, see page 47.
(5) Represents the net adjustment for above- and below-market leases that are being amortized over the terms of the respective leases in place at the property acquisition dates.
(6) Includes non-cash straight-line adjustments to ground rent expense. See page 13 for the straight-line adjustments to the ground rent expense.
(7) Includes internal wages, associated with leasing, of $1,515, $1,531, $1,414, $899 and $2,606 for the three months ended December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.
(8) For additional detail, see page 18.
(9) For additional detail, see page 20.

 

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FOURTH QUARTER 2017

 

FINANCIAL HIGHLIGHTS (continued)

(unaudited and in thousands, except ratios and per share amounts)

 

This section includes non-GAAP financial measures, which are accompanied by what the Company considers the most directly comparable financial measures calculated and presented in accordance with GAAP. Definitions of these non-GAAP financial measures and statements of the reasons why management believes the non-GAAP measures provide useful information to investors about the Company’s financial condition and results of operations and, if applicable, the other purposes for which management uses the measures, can be found on pages 47-48.

 

    31-Dec-17     30-Sep-17     30-Jun-17     31-Mar-17     31-Dec-16  

Balance Sheet Items:

         

Above-market rents (included within Prepaid Expenses and Other Assets)

  $ 25,393     $ 28,112     $ 30,810     $ 33,923     $ 37,079  

Below-market rents (included within Other Liabilities)

  $ 98,753     $ 107,127     $ 115,869     $ 123,545     $ 132,495  

Accrued rental income liability (included within Other Liabilities)

  $ 36,305     $ 32,490     $ 34,600     $ 38,468     $ 31,829  

Accrued ground rent expense, net liability (included within Prepaid Expenses and Other Assets and Other Liabilities)

  $ 45,205     $ 44,307     $ 43,753     $ 43,356     $ 42,717  

Investments in unconsolidated joint ventures with deficit balances (included within Other Liabilities) (1)

  $ 25,945     $ 22,863     $ 20,605     $ 21,610     $ 22,087  

Outside members’ notes payable

  $ —       $ —       $ —       $ 180,000     $ 180,000  

Accrued interest payable on outside members’ notes payable (included within Accrued Interest Payable)

  $ —       $ —       $ —       $ 162,936     $ 153,758  

Capitalization:

         

Common Stock Price @ Quarter End

  $ 130.03     $ 122.88     $ 123.02     $ 132.41     $ 125.78  

Equity Value @ Quarter End

  $ 22,559,179     $ 21,329,339     $ 21,353,166     $ 22,966,310     $ 21,805,734  

Consolidated Debt

  $ 10,271,611     $ 10,234,634     $ 10,236,639     $ 9,886,845     $ 9,796,133  

Add:

         

BXP’s share of Unconsolidated Joint Venture Debt (2)

    608,874       591,622       317,724       317,719       318,193  

Less:

         

Partners’ share of Consolidated Debt (3)

    1,209,280       1,210,389       1,211,485       1,138,446       1,144,473  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s Share of Debt (4)(5)

    $9,671,205       $9,615,867       $9,342,878       $9,066,118       $8,969,853  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Market Capitalization

  $ 32,830,790     $ 31,563,973     $ 31,589,805     $ 32,853,155     $ 31,601,867  

Consolidated Debt/Consolidated Market Capitalization

    31.29     32.43     32.40     30.09     31.00

BXP’s Share of Market Capitalization (4)(5)

  $ 32,230,384 (6)    $ 30,945,206     $ 30,696,044     $ 32,032,428     $ 30,775,587  

BXP’s Share of Debt/BXP’s Share of Market Capitalization (4)(5)

    30.01 %(6)      31.07     30.44     28.30     29.15

 

(1) For additional detail, see page 17.
(2) Amount is calculated based on the Company’s percentage ownership interest in the unconsolidated joint venture entities. For additional detail, see page 17.
(3) Amount is calculated based on the outside partners’ percentage ownership interest in the consolidated joint venture entities. For additional detail, see page 19.
(4) For the Company’s definitions, see pages 47-48.
(5) BXP’s Share of a line item is based upon the Company’s percentage ownership interests in the applicable joint ventures. For additional details, see page 47.
(6) For additional detail, see page 14.

 

8


LOGO

FOURTH QUARTER 2017

 

CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)

 

     31-Dec-17     30-Sep-17     30-Jun-17     31-Mar-17     31-Dec-16  

ASSETS

          

Real estate

   $ 19,610,199     $ 19,260,022     $ 19,015,077     $ 18,931,136     $ 18,862,648  

Construction in progress (1)

     1,269,338       1,386,638       1,348,838       1,211,324       1,037,959  

Land held for future development (2)

     204,925       212,585       250,451       249,800       246,656  

Less accumulated depreciation

     (4,577,454     (4,484,798     (4,379,446     (4,302,283     (4,222,235
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total real estate

     16,507,008       16,374,447       16,234,920       16,089,977       15,925,028  

Cash and cash equivalents

     434,767       493,055       492,435       302,939       356,914  

Cash held in escrows

     70,602       83,779       47,345       51,244       63,174  

Investments in securities

     29,161       27,981       26,781       25,817       23,814  

Tenant and other receivables, net

     92,186       79,750       88,687       73,012       92,548  

Accrued rental income, net

     861,575       835,415       820,022       812,124       799,138  

Deferred charges, net

     679,038       657,474       658,219       666,677       686,163  

Prepaid expenses and other assets

     77,971       144,817       93,985       150,905       129,666  

Investments in unconsolidated joint ventures

     619,925       611,800       819,368       793,932       775,198  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 19,372,233     $ 19,308,518     $ 19,281,762     $ 18,966,627     $ 18,851,643  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

          

Liabilities:

          

Mortgage notes payable, net

   $ 2,979,281     $ 2,982,067     $ 2,986,283     $ 2,046,959     $ 2,063,087  

Unsecured senior notes, net

     7,247,330       7,252,567       7,250,356       7,248,152       7,245,953  

Unsecured line of credit

     45,000       —         —         105,000       —    

Unsecured term loan

     —         —         —         —         —    

Mezzanine notes payable

     —         —         —         306,734       307,093  

Outside members’ notes payable

     —         —         —         180,000       180,000  

Accounts payable and accrued expenses

     331,500       325,440       303,559       313,723       298,524  

Dividends and distributions payable

     139,040       130,434       130,432       130,418       130,308  

Accrued interest payable

     83,646       99,100       85,172       266,714       243,933  

Other liabilities

     443,980       419,215       452,608       446,489       450,821  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     11,269,777       11,208,823       11,208,410       11,044,189       10,919,719  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Commitments and contingencies

     —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity:

          

Stockholders’ equity attributable to Boston Properties, Inc.:

          

Excess stock, $0.01 par value, 150,000,000 shares authorized, none issued or outstanding

     —         —         —         —         —    

Preferred stock, $0.01 par value, 50,000,000 shares authorized; 5.25% Series B cumulative redeemable preferred stock, $0.01 par value, liquidation preference $2,500 per share, 92,000 shares authorized, 80,000 shares issued and outstanding

     200,000       200,000       200,000       200,000       200,000  

Common stock, $0.01 par value, 250,000,000 shares authorized, 154,325,286, 154,322,266, 154,307,529, 153,849,231 and 153,790,175 outstanding, respectively

     1,543       1,543       1,543       1,538       1,538  

Additional paid-in capital

     6,377,908       6,370,932       6,363,034       6,339,970       6,333,424  

Dividends in excess of earnings

     (712,343     (692,739     (694,320     (712,270     (693,694

Treasury common stock, at cost

     (2,722     (2,722     (2,722     (2,722     (2,722

Accumulated other comprehensive loss

     (50,429     (51,796     (53,161     (50,983     (52,251
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity attributable to Boston Properties, Inc.

     5,813,957       5,825,218       5,814,374       5,775,533       5,786,295  

Noncontrolling interests:

          

Common units of the Operating Partnership

     604,739       605,802       604,997       617,252       614,982  

Property partnerships

     1,683,760       1,668,675       1,653,981       1,529,653       1,530,647  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     8,102,456       8,099,695       8,073,352       7,922,438       7,931,924  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 19,372,233     $ 19,308,518     $ 19,281,762     $ 18,966,627     $ 18,851,643  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Represents the portion of the Company’s consolidated development projects that qualifies for interest capitalization. Such portion generally excludes intangible assets.
(2) Includes land held for future development and pre-development costs.

 

9


LOGO

FOURTH QUARTER 2017

 

CONSOLIDATED INCOME STATEMENTS

(unaudited and in thousands, except for per share amounts)

 

     Three Months Ended  
     31-Dec-17     30-Sep-17     30-Jun-17     31-Mar-17     31-Dec-16  

Revenue

          

Rental

          

Base rent

   $ 511,995     $ 513,269     $ 520,542     $ 503,562     $ 498,941  

Recoveries from tenants

     94,697       94,476       89,163       89,164       91,123  

Parking and other

     26,836       26,092       26,462       25,610       25,334  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total rental revenue

     633,528       633,837       636,167       618,336       615,398  

Hotel revenue

     11,744       13,064       13,375       7,420       10,965  

Development and management services

     9,957       10,811       7,365       6,472       9,698  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     655,229       657,712       656,907       632,228       636,061  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses

          

Operating

     121,066       120,274       116,415       116,415       113,669  

Real estate taxes

     112,399       115,040       109,509       109,435       108,556  

Demolition costs

     430       2,027       4,530       2,437       1,873  

Hotel operating

     8,117       8,447       8,404       7,091       7,736  

General and administrative (1)

     29,396       25,792       27,141       31,386       25,293  

Transaction costs

     96       239       299       34       1,200  

Depreciation and amortization

     154,259       152,164       151,919       159,205       178,032  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     425,763       423,983       418,217       426,003       436,359  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     229,466       233,729       238,690       206,225       199,702  

Other income (expense)

          

Income from unconsolidated joint ventures

     4,197       843       3,108       3,084       2,585  

Gain on sale of investment in unconsolidated joint venture

     —         —         —         —         59,370  

Interest and other income

     2,336       1,329       1,504       614       573  

Gains from investments in securities (1)

     962       944       730       1,042       560  

Interest expense

     (91,772     (92,032     (95,143     (95,534     (97,896

Gains (losses) from early extinguishments of debt

     (13,858     —         14,354       —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before gains on sales of real estate

     131,331       144,813       163,243       115,431       164,894  

Gains on sales of real estate

     872       2,891       3,767       133       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     132,203       147,704       167,010       115,564       164,894  

Net income attributable to noncontrolling interests

          

Noncontrolling interest in property partnerships

     (13,865     (14,340     (15,203     (4,424     2,121  

Noncontrolling interest - common units of the Operating Partnership (2)

     (11,884     (13,402     (15,473     (11,432     (17,097
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Boston Properties, Inc.

     106,454       119,962       136,334       99,708       149,918  

Preferred dividends

     (2,625     (2,625     (2,625     (2,625     (2,704
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Boston Properties, Inc. common shareholders

   $ 103,829     $ 117,337     $ 133,709     $ 97,083     $ 147,214  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

INCOME PER SHARE OF COMMON STOCK (EPS)

          

Net income attributable to Boston Properties, Inc. per share - basic

   $ 0.67     $ 0.76     $ 0.87     $ 0.63     $ 0.96  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Boston Properties, Inc. per share - diluted

   $ 0.67     $ 0.76     $ 0.87     $ 0.63     $ 0.96  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) General and administrative expense includes $(962), $(944), $(730), $(1,042) and $(560) and gains from investments in securities include $962, $944, $730, $1,042 and $560 for the three months ended December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively, related to the Company’s deferred compensation plan.
(2) Equals noncontrolling interest - common units of the Operating Partnership’s share of 10.10%, 10.10%, 10.19%, 10.33% and 10.25% of income before net income attributable to noncontrolling interests in Operating Partnership after deduction for preferred distributions for the three months ended December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

 

10


LOGO

FOURTH QUARTER 2017

 

FUNDS FROM OPERATIONS (FFO)

(unaudited and in thousands, except for per share amounts)

 

    Three Months Ended  
    31-Dec-17     30-Sep-17     30-Jun-17     31-Mar-17     31-Dec-16  

Net income attributable to Boston Properties, Inc. common shareholders

  $ 103,829     $ 117,337     $ 133,709     $ 97,083     $ 147,214  

Add:

         

Preferred dividends

    2,625       2,625       2,625       2,625       2,704  

Noncontrolling interest - common units of the Operating Partnership

    11,884       13,402       15,473       11,432       17,097  

Noncontrolling interests in property partnerships

    13,865       14,340       15,203       4,424       (2,121

Less:

         

Gains on sales of real estate

    872       2,891       3,767       133       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before gains on sales of real estate

    131,331       144,813       163,243       115,431       164,894  

Add:

         

Depreciation and amortization

    154,259       152,164       151,919       159,205       178,032  

Noncontrolling interests in property partnerships’ share of depreciation and amortization

    (18,896     (18,552     (19,327     (21,415     (27,256

BXP’s share of depreciation and amortization from unconsolidated joint ventures

    6,310       9,282       9,629       9,041       8,692  

Corporate-related depreciation and amortization

    (541     (434     (486     (525     (449

Less:

         

Gain on sale of investment in unconsolidated joint venture

    —         —         —         —         59,370  

Noncontrolling interests in property partnerships

    13,865       14,340       15,203       4,424       (2,121

Preferred dividends

    2,625       2,625       2,625       2,625       2,704  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FFO attributable to the Operating Partnership common unitholders (including Boston Properties, Inc.) (“Basic FFO”)

    255,973       270,308       287,150       254,688       263,960  

Less:

         

Noncontrolling interest - common units of the Operating Partnership’s share of FFO

    25,841       27,293       29,269       26,305       27,062  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

FFO attributable to Boston Properties, Inc. common shareholders

  $ 230,132     $ 243,015     $ 257,881     $ 228,383     $ 236,898  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boston Properties, Inc.’s percentage share of Basic FFO

    89.90     89.90     89.81     89.67     89.75
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic FFO per share

  $ 1.49     $ 1.57     $ 1.67     $ 1.48     $ 1.54  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - basic

    154,362       154,355       154,177       153,860       153,814  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted FFO per share

  $ 1.49     $ 1.57     $ 1.67     $ 1.48     $ 1.54  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding - diluted

    154,526       154,483       154,331       154,214       153,991  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation to Diluted FFO:

         

Basic FFO

  $ 255,973     $ 270,308     $ 287,150     $ 254,688     $ 263,960  

Add:

         

Effect of dilutive securities - stock-based compensation

    —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted FFO

    255,973       270,308       287,150       254,688       263,960  

Less:

         

Noncontrolling interest - common units of the Operating Partnership’s share of diluted FFO

    25,816       27,272       29,243       26,251       27,034  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boston Properties, Inc.’s share of Diluted FFO

  $ 230,157     $ 243,036     $ 257,907     $ 228,437     $ 236,926  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of Shares/Units for Diluted FFO:

         

Shares/units for Basic FFO

    171,695       171,691       171,675       171,581       171,385  

Add:

         

Effect of dilutive securities - stock-based compensation (shares/units)

    164       128       154       354       177  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares/units for Diluted FFO

    171,859       171,819       171,829       171,935       171,562  

Less:

         

Noncontrolling interest - common units of the Operating Partnership’s share of Diluted FFO (shares/units)

    17,333       17,336       17,498       17,721       17,571  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boston Properties, Inc.’s share of shares/units for Diluted FFO

    154,526       154,483       154,331       154,214       153,991  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Boston Properties, Inc.’s percentage share of Diluted FFO

    89.91     89.91     89.82     89.69     89.76
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

11


LOGO

FOURTH QUARTER 2017

 

FUNDS AVAILABLE FOR DISTRIBUTION (FAD)

(in thousands, except for ratio amounts)

 

    Three Months Ended  
    31-Dec-17     30-Sep-17     30-Jun-17     31-Mar-17     31-Dec-16  

Net income attributable to Boston Properties, Inc. common shareholders

  $ 103,829     $ 117,337     $ 133,709     $ 97,083     $ 147,214  

Add:

         

Preferred dividends

    2,625       2,625       2,625       2,625       2,704  

Noncontrolling interest - common units of the Operating Partnership

    11,884       13,402       15,473       11,432       17,097  

Noncontrolling interests in property partnerships

    13,865       14,340       15,203       4,424       (2,121

Less:

         

Gains on sales of real estate

    872       2,891       3,767       133       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before gains on sales of real estate

    131,331       144,813       163,243       115,431       164,894  

Add:

         

Depreciation and amortization

    154,259       152,164       151,919       159,205       178,032  

Noncontrolling interests in property partnerships’ share of depreciation and amortization

    (18,896     (18,552     (19,327     (21,415     (27,256

BXP’s share of depreciation and amortization from unconsolidated joint ventures

    6,310       9,282       9,629       9,041       8,692  

Corporate-related depreciation and amortization

    (541     (434     (486     (525     (449

Less:

         

Gain on sale of investment in unconsolidated joint venture

    —         —         —         —         59,370  

Noncontrolling interests in property partnerships

    13,865       14,340       15,203       4,424       (2,121

Preferred dividends

    2,625       2,625       2,625       2,625       2,704  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic FFO

    255,973       270,308       287,150       254,688       263,960  

Straight-line rent

    (22,323     (16,105     (3,060     (12,023     (14,711

Partners’ share of straight-line rent from consolidated joint ventures

    3,373       1,960       (3,326     590       1,103  

BXP’s share of straight-line rent from unconsolidated joint ventures

    (2,864     (2,691     (2,435     (3,563     (3,696

Lease transaction costs that qualify as rent inducements (1)

    225       (102     115       682       487  

Partners’ share of lease transaction costs that qualify as rent inducements from consolidated joint ventures (1)

    (16     (9     —         —         —    

BXP’s share of lease transaction costs that qualify as rent inducements from unconsolidated joint ventures (1)

    485       208       223       132       43  

Fair value lease revenue (2)

    (5,655     (5,781     (5,464     (5,390     (6,840

Partners’ share of fair value lease revenue from consolidated joint ventures (2)

    1,696       1,721       1,580       1,575       2,194  

BXP’s share of fair value lease revenue from unconsolidated joint ventures (2)

    (457     (415     (492     (493     (494

Non-cash losses (gains) from early extinguishments of debt

    —         —         (14,444     —         —    

Partners’ share of non-cash losses (gains) from early extinguishments of debt from consolidated joint ventures

    —         —         5,878       —         —    

BXP’s share of non-cash losses (gains) from early extinguishments of debt from unconsolidated joint ventures

    —         —         —         —         —    

Non-cash termination income adjustment (fair value lease amounts)

    —         (243     (525     (403     7  

Partners’ share of non-cash termination income adjustment (fair value lease amounts) from consolidated joint ventures

    —         97       210       161       (3

BXP’s share of non-cash termination income adjustment (fair value lease amounts) from unconsolidated joint ventures

    —         —         (214     —         —    

Straight-line ground rent expense adjustment (3)

    898       554       398       639       998  

Stock-based compensation

    8,101       8,023       8,435       10,802       7,621  

Non-real estate depreciation

    541       434       486       525       449  

Fair value interest adjustment and hedge amortization

    1,602       1,606       (7,319     (10,323     (10,145

Partners’ share of fair value interest adjustment and hedge amortization from consolidated joint ventures

    (144     (144     3,464       4,627       4,598  

BXP’s share of fair value interest adjustment and hedge amortization from unconsolidated joint ventures

    —         —         —         —         —    

2nd generation tenant improvements and leasing commissions

    (82,343     (54,238     (85,427     (48,730     (75,708

Partners’ share of 2nd generation tenant improvements and leasing commissions from consolidated joint ventures

    6,379       1,050       200       123       449  

BXP’s share of 2nd generation tenant improvements and leasing commissions from unconsolidated joint ventures

    (2,857     (1,163     (159     (1,164     (1,472

Unearned portion of capitalized fees from consolidated joint ventures

    8,030       591       607       537       1,787  

Maintenance capital expenditures (4)

    (14,221     (12,032     (11,643     (10,677     (16,334

Partners’ share of maintenance capital expenditures from consolidated joint ventures (4)

    2,021       457       1,004       2,129       1,197  

BXP’s share of maintenance capital expenditures from unconsolidated joint ventures (4)

    (243     (111     (17     (211     (437

Hotel improvements, equipment upgrades and replacements

    (625     (289     (2,502     (6,231     (3,870
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Funds available for distribution to common shareholders and common unitholders (FAD) (A)

  $ 157,576     $ 193,686     $ 172,723     $ 178,002     $ 151,183  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to common shareholders and unitholders (excluding any special distributions) (B)

  $ 137,659     $ 129,056     $ 129,055     $ 129,040     $ 128,930  

FAD Payout Ratio (B÷A)

    87.36     66.63     74.72     72.49     85.28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Consists of lease transaction costs that qualify as rent inducements in accordance with GAAP. Lease transaction costs are generally included in 2nd generation tenant improvements and leasing commissions in the period the lease commences.
(2) Represents the net adjustment for above- and below-market leases that are being amortized over the terms of the respective leases in place at the property acquisition dates.
(3) Includes the straight-line impact of the Company’s 99-year ground and air rights lease related to the Company’s 100 Clarendon Street garage and Back Bay Transit Station. The Company has allocated contractual ground lease payments aggregating approximately $34.4 million, which it expects to incur by the end of 2021 with no payments thereafter. The Company is recognizing these amounts on a straight-line basis over the 99-year term of the ground and air rights lease. See page 7.
(4) Maintenance capital expenditures do not include planned capital expenditures related to acquisitions and repositioning capital expenditures. See page 25 for additional detail.

 

12


LOGO

FOURTH QUARTER 2017

 

INTEREST COVERAGE RATIOS

(in thousands, except for ratio amounts)

 

    Three Months Ended  
    31-Dec-17     30-Sep-17     30-Jun-17     31-Mar-17     31-Dec-16  

Net income attributable to Boston Properties, Inc. common shareholders

  $ 103,829     $ 117,337     $ 133,709     $ 97,083     $ 147,214  

Add:

         

Preferred dividends

    2,625       2,625       2,625       2,625       2,704  

Noncontrolling interest - common units of the Operating Partnership

    11,884       13,402       15,473       11,432       17,097  

Noncontrolling interests in property partnerships

    13,865       14,340       15,203       4,424       (2,121

Less:

         

Gains on sales of real estate

    872       2,891       3,767       133       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before gains on sales of real estate

    131,331       144,813       163,243       115,431       164,894  

Noncontrolling interests in property partnerships

    (13,865     (14,340     (15,203     (4,424     2,121  

Interest expense

    91,772       92,032       95,143       95,534       97,896  

Partners’ share of interest expense from consolidated joint ventures

    (11,624     (11,816     (16,401     (17,259     (17,579

BXP’s share of interest expense from unconsolidated joint ventures

    6,406       5,661       3,822       3,749       3,654  

Depreciation and amortization expense

    154,259       152,164       151,919       159,205       178,032  

Noncontrolling interests in property partnerships’ share of depreciation and amortization

    (18,896     (18,552     (19,327     (21,415     (27,256

BXP’s share of depreciation and amortization from unconsolidated joint ventures

    6,310       9,282       9,629       9,041       8,692  

Gain on sale of investment in unconsolidated joint venture

    —         —         —         —         (59,370

Non-cash losses (gains) from early extinguishments of debt

    —         —         (14,444     —         —    

Partners’ share of non-cash losses (gains) from early extinguishments of debt from consolidated joint ventures

    —         —         5,878       —         —    

BXP’s share of non-cash losses (gains) from early extinguishments of debt from unconsolidated joint ventures

    —         —         —         —         —    

Non-cash termination income adjustment (fair value lease amounts)

    —         (243     (525     (403     7  

Partners’ share of non-cash termination income adjustment (fair value lease amounts) from consolidated joint ventures

    —         97       210       161       (3

BXP’s share of non-cash termination income adjustment (fair value lease amounts) from unconsolidated joint ventures

    —         —         (214     —         —    

Stock-based compensation

    8,101       8,023       8,435       10,802       7,621  

Straight-line ground rent expense adjustment (1)

    898       554       398       639       998  

Straight-line rent

    (22,323     (16,105     (3,060     (12,023     (14,711

Partners’ share of straight-line rent from consolidated joint ventures

    3,373       1,960       (3,326     590       1,103  

BXP’s share of straight-line rent from unconsolidated joint ventures

    (2,864     (2,691     (2,435     (3,563     (3,696

Lease transaction costs that qualify as rent inducements (2)

    225       (102     115       682       487  

Partners’ share of lease transaction costs that qualify as rent inducements from consolidated joint ventures (2)

    (16     (9     —         —         —    

BXP’s share of lease transaction costs that qualify as rent inducements from unconsolidated joint ventures (2)

    485       208       223       132       43  

Fair value lease revenue (3)

    (5,655     (5,781     (5,464     (5,390     (6,840

Partners’ share of fair value lease revenue from consolidated joint ventures (3)

    1,696       1,721       1,580       1,575       2,194  

BXP’s share of fair value lease revenue from unconsolidated joint ventures (3)

    (457     (415     (492     (493     (494
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal (A)

  $ 329,156     $ 346,461     $ 359,704     $ 332,571     $ 337,793  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Divided by:

         

Interest expense

  $ 91,772     $ 92,032     $ 95,143     $ 95,534     $ 97,896  

Partners’ share of interest expense from consolidated joint ventures

    (11,624     (11,816     (16,401     (17,259     (17,579

BXP’s share of interest expense from unconsolidated joint ventures

    6,406       5,661       3,822       3,749       3,654  

Fair value interest adjustment and hedge amortization

    (1,602     (1,606     7,319       10,323       10,145  

Partners’ share of fair value interest adjustment and hedge amortization from consolidated joint ventures

    144       144       (3,464     (4,627     (4,598

BXP’s share of fair value interest adjustment and hedge amortization from unconsolidated joint ventures

    —         —         —         —         —    

Amortization of financing costs

    (3,108     (3,070     (2,442     (1,967     (1,964

Partners’ share of amortization of financing costs from consolidated joint ventures

    382       382       206       9       39  

BXP’s share of amortization of financing costs from unconsolidated joint ventures

    (118     (112     (102     (100     (100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted interest expense excluding capitalized interest (B)

    82,252       81,615       84,081       85,662       87,493  

Capitalized interest

    17,784       16,658       14,283       12,345       10,281  

Partners’ share of capitalized interest from consolidated joint ventures

    (693     (518     (238     (251     (203

BXP’s share of capitalized interest from unconsolidated joint ventures

    9       8       (6     (6     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted interest expense including capitalized interest (C)

  $ 99,352     $ 97,763     $ 98,120     $ 97,750     $ 97,571  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest Coverage Ratio (excluding capitalized interest) (A÷B) (4)

    4.00       4.25       4.28       3.88       3.86  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest Coverage Ratio (including capitalized interest) (A÷C) (4)

    3.31       3.54       3.67       3.40       3.46  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes the straight-line impact of the Company’s 99-year ground and air rights lease related to the 100 Clarendon Street garage and Back Bay Transit Station. The Company has allocated contractual ground lease payments aggregating approximately $34.4 million, which it expects to incur by the end of 2021 with no payments thereafter. The Company is recognizing these amounts on a straight-line basis over the 99-year term of the ground and air rights lease. See page 7.
(2) Consists of lease transaction costs that qualify as rent inducements in accordance with GAAP. Lease transaction costs are generally included in 2nd generation tenant improvements and leasing commissions.
(3) Represents the net adjustment for above- and below-market leases that are being amortized over the terms of the respective leases in place at the property acquisition dates.
(4) The Company believes that the presentation of its Interest Coverage Ratio provides investors with useful information about the Company’s financial condition because it measures the margin it has for paying interest expense as of a certain date. In addition, by analyzing interest coverage ratios over a period of time, trends may emerge that provide investors a better sense of whether a company’s financial condition is improving or declining. The ratios may also be used to compare the financial condition of different companies, which can help when making an investment decision. The Company presents its Interest Coverage Ratio in two ways - including capitalized interest and excluding capitalized interest. GAAP requires the capitalization of interest expense during development. Therefore, for a company like Boston Properties, Inc. that is an active developer of real estate, presenting the Interest Coverage Ratio (excluding capitalized interest) provides an alternative measure of financial condition that may be more indicative of the Company’s ability to meet its interest expense obligations and therefore its overall financial condition.

 

13


LOGO

FOURTH QUARTER 2017

 

CAPITAL STRUCTURE

(in thousands, except percentages)

Consolidated Debt

 

 

     Aggregate Principal  
     December 31, 2017  

Mortgage Notes Payable

   $ 3,013,961  

Unsecured Line of Credit

     45,000  

Unsecured Senior Notes, at face value

     7,300,000  
  

 

 

 

Subtotal

     10,358,961  

Discount on Unsecured Senior Notes

     (17,893

Deferred Financing Costs, Net

     (69,457
  

 

 

 

Consolidated Debt

   $ 10,271,611  
  

 

 

 

Boston Properties Limited Partnership Unsecured Senior Notes (1)

 

 

Settlement

Date

   Maturity Date      Principal      Effective Yield
(on issue date)
    Coupon     Public Offering
Price
    Discount      Deferred Financing
Costs, Net
     Unsecured Senior
Notes, Net
 

10/9/2009

     10/15/2019        700,000        5.967     5.875     99.931     111        1,006        698,883  

4/19/2010

     11/15/2020        700,000        5.708     5.625     99.891     251        1,607        698,142  

11/18/2010

     5/15/2021        850,000        4.289     4.125     99.260     2,321        2,282        845,397  

6/11/2012

     2/1/2023        1,000,000        3.954     3.850     99.779     1,158        3,974        994,868  

4/11/2013

     9/1/2023        500,000        3.279     3.125     99.379     1,828        2,278        495,894  

6/27/2013

     2/1/2024        700,000        3.916     3.800     99.694     1,318        3,421        695,261  

1/20/2016

     2/1/2026        1,000,000        3.766     3.650     99.708     2,439        6,584        990,977  

8/17/2016

     10/1/2026        1,000,000        3.495     2.750     99.271     6,441        7,085        986,474  

12/4/2017

     1/15/2025        850,000        3.350     3.200     99.757     2,026        6,540        841,434  
     

 

 

          

 

 

    

 

 

    

 

 

 
      $ 7,300,000            $ 17,893      $ 34,777      $ 7,247,330  
     

 

 

          

 

 

    

 

 

    

 

 

 

Equity

 

 

    Shares/Units              
    Outstanding     Common Stock     Equivalent  
    as of 12/31/2017     Equivalents     Value (2)  

Common Stock

    154,325       154,325     $ 20,066,880  

Common Operating Partnership Units

    17,629       17,629       2,292,299  

5.25% Series B Cumulative Redeemable Preferred Stock (non-callable through March 27, 2018)

    80       —         200,000  
   

 

 

   

 

 

 

Total Equity

      171,954     $ 22,559,179  
   

 

 

   

 

 

 

Consolidated Debt

      $ 10,271,611  

Add:

     

BXP’s share of unconsolidated joint venture debt (3)

        608,874  

Less:

     

Partners’ share of consolidated debt (4)

        1,209,280  
     

 

 

 

BXP’s Share of Debt (5)

      $ 9,671,205  
     

 

 

 

Consolidated Market Capitalization

      $ 32,830,790  
     

 

 

 

BXP’s Share of Market Capitalization (5)

      $ 32,230,384  
     

 

 

 

 

(1) All unsecured senior notes are rated A- (stable), BBB+ (stable) and Baa2 (positive) by S&P, Fitch and Moody’s, respectively.
(2) Values based on December 31, 2017 closing price of $130.03 per share of common stock, except the Series B Preferred Stock is valued at its fixed liquidation preference.
(3) Amount is calculated based on the Company’s percentage ownership interest in the unconsolidated joint venture entities. For additional detail, see page 17.
(4) Amount is calculated based on the outside partners’ percentage ownership interest in the consolidated joint venture entities. For additional detail, see page 19.
(5) For the Company’s definitions, see pages 47-48.

 

14


LOGO

FOURTH QUARTER 2017

 

DEBT ANALYSIS (1)

as of December 31, 2017

(dollars in thousands)

Debt Maturities and Principal Payments

 

 

    2018     2019     2020     2021     2022     Thereafter     Total  

Floating Rate Debt:

             

Mortgage Notes Payable

  $ —       $ —       $ —       $ —       $ —       $ —       $ —    

Unsecured Line of Credit

    —         —         —         —         45,000       —         45,000  

Unsecured Term Loan

    —         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Floating Rate Debt

  $ —       $ —       $ —       $ —       $ 45,000     $ —       $ 45,000  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed Rate Debt:

             

767 Fifth Avenue (The GM Building) (60% ownership)

  $ —       $ —       $ —       $ —       $ —       $ 2,300,000     $ 2,300,000  

601 Lexington Avenue (55% ownership)

    13,684       14,349       15,045       15,776       614,710       —         673,564  

New Dominion Technology Park, Building One

    3,100       3,340       3,598       22,906       —         —         32,944  

University Place

    1,849       1,981       2,123       1,500       —         —         7,453  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage Notes Payable

    18,633       19,670       20,766       40,182       614,710       2,300,000       3,013,961  

Deferred Financing Costs, Net

    (3,925     (3,925     (3,925     (3,836     (3,578     (15,491     (34,680
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage Notes Payable, Net

  $ 14,708     $ 15,745     $ 16,841     $ 36,346     $ 611,132     $ 2,284,509     $ 2,979,281  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unsecured Senior Notes, Face Amount

  $ —       $ 700,000     $ 700,000     $ 850,000     $ —       $ 5,050,000     $ 7,300,000  

Discount Amortization

    (2,686     (2,774     (2,807     (2,352     (2,149     (5,125     (17,893

Deferred Financing Costs, Net

    (6,114     (5,971     (5,445     (4,583     (4,305     (8,359     (34,777
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unsecured Senior Notes, Net

  $ (8,800   $ 691,255     $ 691,748     $ 843,065     $ (6,454   $ 5,036,516     $ 7,247,330  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Fixed Rate Debt

  $ 5,908     $ 707,000     $ 708,589     $ 879,411     $ 604,678     $  7,321,025     $ 10,226,611  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Debt

  $ 5,908     $ 707,000     $ 708,589     $ 879,411     $ 649,678     $ 7,321,025     $ 10,271,611  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of Consolidated Debt

    0.06     6.88     6.90     8.56     6.33     71.27     100.00
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balloon Payments

  $ —       $ 700,000     $ 700,000     $ 872,906     $ 655,648     $ 7,350,000     $ 10,278,554  

Scheduled Principal Amortization

  $ 18,633     $ 19,670     $ 20,766     $ 17,276     $ 4,062     $ —       $ 80,407  

GAAP Weighted Average Floating Rate Debt (2)

    —         —         —         —         2.46     —         2.46
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Weighted Average Fixed Rate Debt (2)

    5.52     5.96     5.70     4.39     4.79     3.65     4.09
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total GAAP Weighted Average Rate (2)

    5.52     5.96     5.70     4.39     4.63     3.65     4.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Stated Weighted Average Rate

    5.46     5.87     5.63     4.32     4.59     3.52     3.98
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Unsecured Credit Facility - Matures April 24, 2022

 

 

            Outstanding      Letters of      Remaining Capacity  
     Facility      at 12/31/2017      Credit      at 12/31/2017  

Unsecured Line of Credit

   $ 1,500,000      $ 45,000      $ 1,610      $ 1,453,390  

Unsecured Term Loan (3)

   $ 500,000      $ —          N/A      $ 500,000  

Unsecured and Secured Debt Analysis

 

 

           Stated Weighted     GAAP Weighted     Weighted Average  
     % of Total Debt     Average Rate     Average Rate     Maturity (years)  

Unsecured Debt

     70.99     4.05     4.14     5.6  

Secured Debt

     29.01     3.78     3.95     8.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Debt

     100.00     3.98     4.08     6.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Floating and Fixed Rate Debt Analysis

 

 

           Stated Weighted     GAAP Weighted     Weighted Average  
     % of Total Debt     Average Rate     Average Rate     Maturity (years)  

Floating Rate Debt

     0.44     2.35     2.46     4.3  

Fixed Rate Debt

     99.56     3.98     4.09     6.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated Debt

     100.00     3.98     4.08     6.4  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Excludes unconsolidated joint ventures. For information on BXP’s share of unconsolidated joint venture debt, see page 17.
(2) The GAAP interest rate differs from the stated interest rate due to the inclusion of the amortization of financing charges and the effects of hedging transactions.
(3) The Company’s ability to draw upon the Unsecured Term Loan will expire on April 24, 2018.

 

15


LOGO

FOURTH QUARTER 2017

 

SENIOR UNSECURED DEBT COVENANT COMPLIANCE RATIOS

(dollars in thousands)

In the fourth quarter of 2002, the Company’s Operating Partnership (Boston Properties Limited Partnership) received investment grade ratings on its senior unsecured debt securities and thereafter issued unsecured notes. The notes were issued under an indenture, dated as of December 13, 2002, by and between Boston Properties Limited Partnership and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented from time to time (the “Indenture”), which, among other things, requires us to comply with the following limitations on incurrence of debt: Limitation on Outstanding Debt; Limitation on Secured Debt; Ratio of Annualized Consolidated EBITDA to Annualized Interest Expense; and Maintenance of Unencumbered Assets. Compliance with these restrictive covenants requires us to apply specialized terms the meanings of which are described in detail in our filings with the SEC, and to calculate ratios in the manner prescribed by the Indenture.

This section presents such ratios as of December 31, 2017 to show that the Company’s Operating Partnership was in compliance with the terms of the Indenture, which has been filed with the SEC. Management is not presenting these ratios and the related calculations for any other purpose or for any other period, and is not intending for these measures to otherwise provide information to investors about the Company’s financial condition or results of operations. Investors should not rely on these measures other than for purposes of testing our compliance with the Indenture. This section also presents certain other indenture-related data that we believe assists investors in evaluating the Company’s unsecured debt securities.

 

          

Senior Notes

Issued Prior to

December 4, 2017

    Senior Notes
issued On or After
December 4, 2017
 
           December 31, 2017  

Total Assets:

      

Capitalized Property Value (1)

     $ 24,478,671     $ 26,753,978  

Cash and Cash Equivalents

       434,767       434,767  

Investments in Securities

       29,161       29,161  

Undeveloped Land, at Cost (including BXP’s share of unconsolidated joint ventures)

       250,930       250,930  

Development in Process, at Cost (including BXP’s share of unconsolidated joint ventures)

       1,858,002       1,858,002  
    

 

 

   

 

 

 

Total Assets

     $ 27,051,531     $ 29,326,838  
    

 

 

   

 

 

 

Unencumbered Assets

     $ 20,631,707     $ 22,424,361  
    

 

 

   

 

 

 

Consolidated Secured Debt (Fixed and Variable) (2)

     $ 3,067,141     $ 3,067,141  

Unconsolidated Joint Venture Debt (3)

       611,395       611,395  

Contingent Liabilities & Letters of Credit

       9,076       9,076  

Unsecured Debt (4)

       7,345,000       7,345,000  
    

 

 

   

 

 

 

Total Outstanding Debt

     $ 11,032,612     $ 11,032,612  
    

 

 

   

 

 

 

Consolidated EBITDA:

      

Income before Gains on Sales of Real Estate (per Consolidated Income Statement)

     $ 131,331     $ 131,331  

Subtract: Income from Unconsolidated Joint Ventures (per Consolidated Income Statement)

       (4,197     (4,197

Subtract: Gains from Investments in Securities (per Consolidated Income Statement)

       (962     (962

Add: Losses from Early Extinguishments of Debt (per Consolidated Income Statement)

       13,858       13,858  

Add: Interest Expense (per Consolidated Income Statement)

       91,772       91,772  

Add: Depreciation and Amortization (per Consolidated Income Statement)

       154,259       154,259  
    

 

 

   

 

 

 

EBITDA

       386,061       386,061  

Add: BXP’s share of unconsolidated joint venture EBITDA

       16,459       16,459  
    

 

 

   

 

 

 

Consolidated EBITDA

     $ 402,520     $ 402,520  
    

 

 

   

 

 

 

Adjusted Interest Expense:

      

Interest Expense (per Consolidated Income Statement)

     $ 91,772     $ 91,772  

Add: BXP’s share of unconsolidated joint venture interest expense

       6,406       6,406  

Less: Amortization of financing costs (including BXP’s share of unconsolidated joint ventures)

       (3,226     (3,226

Less: Interest expense funded by construction loan draws

       —         —    
    

 

 

   

 

 

 

Adjusted Interest Expense

     $ 94,952     $ 94,952  
    

 

 

   

 

 

 
     Test     Actual     Actual  

Covenant Ratios and Related Data

      

Total Outstanding Debt/Total Assets

     Less than 60%       40.8     37.6

Secured Debt/Total Assets

     Less than 50%       13.6     12.5

Interest Coverage (Annualized Consolidated EBITDA to Annualized Interest Expense)

     Greater than 1.50x       4.24       4.24  

Unencumbered Assets/ Unsecured Debt

     Greater than 150%       280.9     305.3
      

Unencumbered Consolidated Property EBITDA (5)

     $ 332,993     $ 332,993  
    

 

 

   

 

 

 

Unencumbered Interest Coverage (Unencumbered Consolidated Property EBITDA to Unsecured Interest Expense)

       4.42       4.42  
 

 

 

   

 

 

 

% of Unencumbered Consolidated Property EBITDA to Consolidated EBITDA

       82.7     82.7
    

 

 

   

 

 

 

# of in-service unencumbered properties

       147       147  
    

 

 

   

 

 

 

 

(1) Capitalized Property Value for senior notes issued prior to December 4, 2017 is determined for each property and is the greater of (A) annualized EBITDA capitalized at an 8.0% rate for CBD properties and a 9.0% rate for non-CBD properties, and (B) the undepreciated book value as determined under GAAP. Capitalized property value for senior notes issued on or after December 4, 2017 is determined for each property and is the greater of (a) annualized EBITDA capitalized at 7.0% and (b) the undepreciated book value as determined under GAAP.
(2) Includes capital lease obligations of $53,180 and excludes deferred financing costs, net of $34,680.
(3) Excludes aggregate deferred financing costs, net of $2,521.
(4) Excludes aggregate debt discount of $17,893 and deferred financing costs, net of $34,777.
(5) Unencumbered Consolidated Property EBITDA is a non-GAAP financial measure equal to Consolidated EBITDA excluding corporate revenue and expenses, encumbered consolidated Property EBITDA, EBITDA from land and properties that have either been disposed of or not fully placed in-service and items that, in the Company’s view, are not representative of a property’s standard ongoing performance, such as termination income and other similar items. For the three months ended December 31, 2017, these excluded amounts were approximately $(16,841), $84,994, $551 and $823, respectively.

 

16


LOGO

FOURTH QUARTER 2017

 

UNCONSOLIDATED JOINT VENTURES (1)

as of December 31, 2017

(dollars in thousands)

Balance Sheet Information

 

 

Property

   BXP’s Nominal
Ownership
    Net Equity      Mortgage/
Construction
Loans
Payable, Net
 

540 Madison Avenue

     60.00   $ 66,179      $ 71,949  

Market Square North

     50.00     (8,258      60,446  

Metropolitan Square

     20.00     3,339        32,659  

901 New York Avenue

     25.00     (13,811      55,937  

Wisconsin Place Parking Facility

     33.33     39,710        —    

Annapolis Junction (2)

     50.00     18,381        44,506  

500 North Capitol Street, N.W.

     30.00     (3,876      31,404  

Colorado Center

     50.00     254,439        274,505  

The Hub on Causeway - Podium

     50.00     67,121        431  

The Hub on Causeway - Hotel

     50.00     1,690        —    

The Hub on Causeway - Residential

     50.00     28,212        —    

1001 6th Street

     50.00     42,657        —    

Dock 72

     50.00     72,104        17,370  

7750 Wisconsin Avenue

     50.00     21,452        —    

1265 Main Street

     50.00     4,641        19,667  
    

 

 

    
       593,980     

Investments with deficit balances reflected within Other Liabilities

 

    25,945     
    

 

 

    

Investment in Joint Ventures

     $ 619,925     
    

 

 

    

 

 

 

Mortgage/Construction Loans Payable, Net

        $ 608,874  
       

 

 

 

Debt Maturities and Principal Payments by Property

 

 

Property

   2018     2019     2020     2021     2022     Thereafter     Total  

540 Madison Avenue (60%)

   $ 72,000     $ —       $ —       $ —       $ —       $ —       $ 72,000  

Market Square North (50%)

     1,205       1,265       58,090       —         —         —         60,560  

901 New York Avenue (25%)

     —         —         970       1,095       1,135       53,050       56,250  

Metropolitan Square (20%)

     586       620       31,501       —         —         —         32,707  

500 North Capitol Street, N.W. (30%)

     —         —         —         —         —         31,500       31,500  

1265 Main Street (50%)

     383       398       413       429       445       17,793       19,861  

Annapolis Junction Building One (50%)

     19,775       —         —         —         —         —         19,775 (3) 

Annapolis Junction Buildings Seven & Eight (50%)

     326       17,723       —         —         —         —         18,049  

Annapolis Junction Building Six (50%)

     6,808       —         —         —         —         —         6,808  

Colorado Center (50%)

     —         —         —         —         —         275,000       275,000  

The Hub on Causeway - Podium (50%)

     —         —         —         431       —         —         431  

Dock 72 (50%)

     —         —         18,454       —         —         —         18,454  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     101,083       20,006       109,428       1,955       1,580       377,343       611,395  

Deferred Financing Costs, Net

     (681     (598     (527     (128     (128     (459     (2,521
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Mortgage/Construction Loans Payable, Net

   $ 100,402     $ 19,408     $ 108,901     $ 1,827     $ 1,452     $ 376,884     $ 608,874  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

GAAP Weighted Average Rate

     3.84     3.83     4.96     3.07     3.43     3.66     3.95

% of Total Mortgage/Construction Loans Payable, Net

     16.49     3.19     17.88     0.30     0.24     61.90     100.00

Balloon Payments

   $ 98,288     $ 17,424     $ 106,840     $ 431     $ —       $ 370,031     $ 593,014  

Scheduled Amortization

   $ 2,795     $ 2,582     $ 2,588     $ 1,524     $ 1,580     $ 7,312     $ 18,381  

Floating and Fixed Rate Debt Analysis

 

 

     % of Total Debt     Stated Weighted
Average Rate
    GAAP Weighted
Average Rate
    Weighted Average
Maturity (years)
 

Floating Rate Debt

     22.05     3.68     3.88     1.0  

Fixed Rate Debt

     77.95     3.93     3.97     7.8  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Debt

     100.00     3.87     3.95     6.3  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Amounts represent the Company’s share based on its ownership percentage. For additional details, see page 47.
(2) Annapolis Junction includes four in-service properties and two undeveloped land parcels.
(3) On April 11, 2016, a notice of event of default was received from the lender because the loan to value ratio is not in compliance with the applicable covenant in the loan agreement. On October 17, 2016, the lender notified the joint venture that it has elected to charge the default rate on the loan. The default rate is defined as LIBOR plus 5.75% per annum. Subsequently, the cash flows generated from the property have become insufficient to fund debt service payments and capital improvements necessary to lease and operate the property and the joint venture is not prepared to fund additional cash shortfalls at this time. Consequently, the joint venture is not current on making debt service payments and remains in default. The loan has one, three-year extension option, subject to certain conditions including that no event of default exists or is ongoing.

 

17


LOGO

FOURTH QUARTER 2017

 

UNCONSOLIDATED JOINT VENTURES (continued)

(unaudited and dollars in thousands)

 

Results of Operations

for the three months ended December 31, 2017

 

 

     540 Madison
Avenue
    Market Square
North
    Metropolitan
Square
    901 New York
Avenue
    Wisconsin
Place
Parking
Facility
    Annapolis
Junction (1)
    500 North Capitol
Street, N.W.
    Colorado
Center
    1265 Main
Street
    Other
Joint
Ventures (2)
    Total
Unconsolidated
Joint Ventures
 

REVENUE

                      

Rental (3)

   $ 6,135     $ 4,668     $ 4,998     $ 7,081     $ 1,009     $ 2,231     $ 2,992     $ 13,326     $ 994     $ 789     $ 44,223  

Operating recoveries

     738       778       1,446       1,275       430       701       1,246       509       315       —         7,438  

Straight-line rent

     89       82       1,533       468       —         245       19       2,859       —         —         5,295  

Fair value lease revenue

     —         —         —         —         —         —         —         96       —         —         96  

Termination income

     111       —         —         —         —         —         —         —         —         —         111  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     7,073       5,528       7,977       8,824       1,439       3,177       4,257       16,790       1,309       789       57,163  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

                      

Operating

     3,311       2,334       3,983       3,623       783       1,731       1,442       5,330       334       359       23,230  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET OPERATING INCOME/(LOSS)

     3,762       3,194       3,994       5,201       656       1,446       2,815       11,460       975       430       33,933  

Interest

     894       1,492       2,335       2,075       —         1,223       1,128       5,033       382       —         14,562  

Depreciation and amortization

     1,994       1,018       1,949       1,465       1,383       1,075       948       4,325       397       —         14,554  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

SUBTOTAL

     2,888       2,510       4,284       3,540       1,383       2,298       2,076       9,358       779       —         29,116  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME/(LOSS)

   $ 874     $ 684     $ (290   $ 1,661     $ (727   $ (852   $ 739     $ 2,102     $ 196     $ 430     $ 4,817  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s nominal ownership percentage

     60.00     50.00     20.00     25.00     33.33     50.00     30.00     50.00     50.00     50.00  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

BXP’s share of net income/(loss)

   $ 524     $ 342     $ (58   $ 3,955 (4)    $ (240   $ (426   $ 222     $ 1,051     $ 98     $ 413     $ 5,881  

Basis differential

                      

Straight-line rent

   $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 680 (5)    $ —       $ —       $ 680  

Fair value lease revenue

     —         —         —         —         —         —         —         409 (5)      —         —         409  

Depreciation and amortization

     168       (180     (201     (20     (8     (12     4       (2,516 )(5)      (8     —         (2,773
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total basis differential (6)

     168       (180     (201     (20     (8     (12     4       (1,427 )(5)      (8     —         (1,684
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income/(loss) from unconsolidated joint ventures

   $ 692     $ 162     $ (259   $ 3,935 (4)    $ (248   $ (438   $ 226     $ (376   $ 90     $ 413     $ 4,197  

Gain on investment

     —         —         —         —         —         —         —         —         —         —         —    

BXP’s share of depreciation & amortization

     1,093       693       602       (2,352 )(4)      466       553       294       4,754       207       —         6,310  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of Funds from Operations (FFO)

   $ 1,785     $ 855     $ 343     $ 1,583     $ 218     $ 115     $ 520     $ 4,378     $ 297     $ 413     $ 10,507  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of interest expense

   $ 537     $ 746     $ 467     $ 999 (4)    $ —       $ 612     $ 338     $ 2,516     $ 191     $ —       $ 6,406  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of amortization of financing costs

   $ 31     $ 12     $ 5     $ 21     $ —       $ 29     $ 4     $ 13     $ 3     $ —       $ 118  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of capitalized interest

   $ —       $ —       $ 9     $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of revenue (7)

   $ 4,244     $ 2,764     $ 1,595     $ 4,246 (4)    $ 479     $ 1,588     $ 1,277     $ 9,483     $ 655     $ 394     $ 26,725  

BXP’s share of operating expenses

     1,987       1,167       797       1,744 (4)      261       866       433       2,665       167       179       10,266  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of net operating income/(loss) (7)

     2,257       1,597       798       2,502 (4)      218       722       844       6,818       488       215       16,459  

Less:

                      

BXP’s share of termination income

     66       —         —         —   (4)      —         —         —         —         —         —         66  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of net operating income/(loss) (excluding termination income) (7)

     2,191       1,597       798       2,502 (4)      218       722       844       6,818       488       215       16,393  

Less:

                      

BXP’s share of straight-line rent

     54       41       307       225 (4)      —         122       6       2,109       —         —         2,864  

BXP’s share of fair value lease revenue

     —         —         —         —   (4)      —         —         —         457       —         —         457  

Add:

                      

BXP’s share of lease transaction costs that qualify as rent inducements

     —         51       345       —   (4)      —         89       —         —         —         —         485  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of net operating income/(loss) - cash (excluding termination income) (7)

   $ 2,137     $ 1,607     $ 836     $ 2,277 (4)    $ 218     $ 689     $ 838     $ 4,252     $ 488     $ 215     $ 13,557  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Annapolis Junction includes four properties in service and two undeveloped land parcels.
(2) Includes The Hub on Causeway, 1001 6th Street, Dock 72 and 7750 Wisconsin Avenue.
(3) Includes approximately $70 of management services income and approximately $346 of interest and other income.
(4) Reflects the allocation percentages pursuant to the achievement of specified investment return thresholds as provided for in the joint venture agreement.
(5) The Company’s purchase price allocation under ASC 805 for Colorado Center differs from the historical basis of the venture resulting in the majority of the basis differential for this venture.
(6) Represents adjustments related to the carrying values and depreciation of certain of the Company’s investment in unconsolidated joint ventures.
(7) Includes the Company’s share of approximately $39 of management services income and approximately $172 of interest and other income.

 

18


LOGO

FOURTH QUARTER 2017

 

CONSOLIDATED JOINT VENTURES

(unaudited and in thousands)

Balance Sheets

as of December 31, 2017

 

 

BXP’s ownership percentage

     60.00     55.00     95.00  
  

 

 

   

 

 

   

 

 

   
           Norges Joint Ventures              
     767 Fifth Avenue
(The GM Building) 
(1)
    Times Square Tower
601 Lexington Avenue
100 Federal Street
Atlantic Wharf Office 
(1)
    Salesforce Tower (1)     Total
Consolidated
Joint Ventures
 

ASSETS

        

Real estate, net

   $ 3,426,370     $ 2,266,834     $ 986,278     $ 6,679,482  

Cash and cash held in escrows

     143,055       162,996       5,039       311,090  

Other assets

     109,157       175,403       210       284,770  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 3,678,582     $ 2,605,233     $ 991,527     $ 7,275,342  
  

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND EQUITY

        

Liabilities:

        

Mortgage notes payable, net

   $ 2,266,986     $ 672,142     $ —       $ 2,939,128  

Other liabilities

     141,418       85,336       56,382       283,136  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     2,408,404       757,478       56,382       3,222,264  
  

 

 

   

 

 

   

 

 

   

 

 

 

Equity:

        

Boston Properties, Inc.

     763,170       695,741       910,317       2,369,228  

Noncontrolling interests

     507,008       1,152,014       24,828       1,683,850 (2) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     1,270,178       1,847,755       935,145       4,053,078  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 3,678,582     $ 2,605,233     $ 991,527     $ 7,275,342  
  

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ share of consolidated debt

   $ 906,816     $ 302,464     $ —       $ 1,209,280  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Certain balances contain amounts that eliminate in consolidation.
(2) Amount excludes preferred shareholders’ capital of approximately $0.1 million.

 

19


LOGO

FOURTH QUARTER 2017

 

CONSOLIDATED JOINT VENTURES (continued)

(unaudited and in thousands)

 

Income Statements

for the three months ended December 31, 2017

 

 

           Norges Joint Ventures              
           Times Square Tower              
           601 Lexington Avenue           Total  
     767 Fifth Avenue     100 Federal Street           Consolidated  
     (The GM Building)     Atlantic Wharf Office     Salesforce Tower     Joint Ventures  

REVENUE

        

Rental

   $ 65,932     $ 86,046     $ 3,462     $ 155,440  

Straight-line rent

     3,573       4,630       (2,791     5,412  

Fair value lease revenue

     3,976       236       —         4,212  

Termination income

     —         14       —         14  

Parking and other

     776       1,435       —         2,211  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     74,257       92,361       671       167,289  
  

 

 

   

 

 

   

 

 

   

 

 

 

EXPENSES

        

Operating

     28,462       32,792       291       61,545  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET OPERATING INCOME

     45,795       59,569       380       105,744  

Development and management services income

     (537     (910     (50     (1,497

Interest and other income

     (336     (424     (33     (793

Interest expense

     21,103       7,073       —         28,176  

Depreciation and amortization

     24,151       20,604       129       44,884  

Other

     —         39       —         39  
  

 

 

   

 

 

   

 

 

   

 

 

 

SUBTOTAL

     44,381       26,382       46       70,809  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME/(LOSS)

   $ 1,414     $ 33,187     $ 334     $ 34,935  
  

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s ownership percentage

     60.00     55.00     95.00  
  

 

 

   

 

 

   

 

 

   

Partners’ share of NOI (1)

   $ 18,318     $ 26,806     $ 19     $ 45,143  
  

 

 

   

 

 

   

 

 

   

 

 

 

BXP’s share of NOI

   $ 27,477     $ 32,763     $ 361     $ 60,601  
  

 

 

   

 

 

   

 

 

   

 

 

 

Unearned portion of capitalized fees (2)

   $ 4,613     $ 3,408     $ 9     $ 8,030  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of partners’ noncontrolling interest (NCI):

        

Net income/(loss)

   $ 1,414     $ 33,187     $ 334     $ 34,935  

Add depreciation & amortization - BXP’s basis difference

     52       49       14       115  

Special allocation - BXP’s basis

     —         (88     —         (88
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) before interest allocation

   $ 1,466     $ 33,148     $ 348     $ 34,962  
  

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ share of net income before interest allocation (1)

   $ 586     $ 14,917     $ 17     $ 15,520  

Allocation of management and other fees to non-controlling partners (1)

     (720     (783     (16     (1,519

Accretion and adjustments (1)

     —         39       (175     (136
  

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ NCI (1)

   $ (134   $ 14,173     $ (174   $ 13,865  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of partners’ share of FFO:

        

Net income/(loss)

   $ 1,414     $ 33,187     $ 334     $ 34,935  

Add depreciation & amortization

     24,151       20,604       129       44,884  
  

 

 

   

 

 

   

 

 

   

 

 

 

Entity FFO

   $ 25,565     $ 53,791     $ 463     $ 79,819  
  

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ NCI (1)

   $ (134   $ 14,173     $ (174   $ 13,865  

Partners’ share of depreciation and amortization after BXP’s basis differential (1)

     9,640       9,250       6       18,896  
  

 

 

   

 

 

   

 

 

   

 

 

 

Partners’ share FFO (1)

   $ 9,506     $ 23,423     $ (168   $ 32,761  
  

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of BXP’s share of FFO:

        

BXP’s share of net income/(loss) adjusted for partners’ NCI

   $ 1,548     $ 19,014     $ 508     $ 21,070