Boston Properties, Inc. Announces Third Quarter 2006 Results

BOSTON, Oct. 24 /PRNewswire-FirstCall/ -- Boston Properties, Inc. , a real estate investment trust, reported results today for the third quarter ended September 30, 2006.

Funds from Operations (FFO) for the quarter ended September 30, 2006 were $137.3 million, or $1.19 per share basic and $1.16 per share diluted. This compares to FFO for the quarter ended September 30, 2005 of $123.7 million, or $1.11 per share basic and $1.07 per share diluted. The weighted average number of basic and diluted shares outstanding totaled 115,431,903 and 120,726,865, respectively, for the quarter ended September 30, 2006 and 111,775,512 and 119,176,703, respectively, for the quarter ended September 30, 2005.

Net income available to common shareholders was $108.0 million for the three months ended September 30, 2006, compared to $57.6 million for the quarter ended September 30, 2005. Net income available to common shareholders per share (EPS) for the quarter ended September 30, 2006 was $0.93 basic and $0.91 on a diluted basis. This compares to EPS for the third quarter of 2005 of $0.51 basic and $0.50 on a diluted basis. EPS for the quarter ended September 30, 2006 includes $0.28, on a diluted basis, related to (1) gains on sales of real estate of $0.15 and (2) our share of the gain on sale of 265 Franklin Street of $0.13 which is included in income from unconsolidated joint ventures.

The reported results are unaudited and there can be no assurance that the results will not vary from the final information for the quarter ended September 30, 2006. In the opinion of management, all adjustments considered necessary for a fair presentation of these reported results have been made.

As of September 30, 2006, the Company's portfolio consisted of 128 properties comprising approximately 42.5 million square feet, including five properties under construction totaling 1.2 million square feet and two hotels. The overall percentage of leased space for the 121 properties in service as of September 30, 2006 was 93.8%.

Significant events of the third quarter include: * During July 2006, the Company placed-in-service its Capital Gallery expansion project, consisting of a ten-story addition totaling approximately 319,000 net rentable square feet of Class A office space located in Washington, D.C. The Company has leased 97% of the space. * On August 1, 2006, the Company used available cash to repay the construction financing and permanent financing totaling approximately $34.0 million and $49.7 million, respectively, collateralized by the Capital Gallery property in Washington, D.C. The construction financing bore interest at a variable rate equal to LIBOR plus 1.65% per annum and was scheduled to mature in February 2008. The permanent financing bore interest at a fixed rate equal to 8.24% per annum and was scheduled to mature on August 15, 2006. * On August 3, 2006, the Company amended and restated its $605.0 million Unsecured Line of Credit by extending the maturity date from October 30, 2007 to August 3, 2010, with a provision for a one-year extension at the option of the Company, subject to certain conditions, and by reducing the per annum variable interest rate on outstanding balances from Eurodollar plus 0.65% to Eurodollar plus 0.55% per annum. A facility fee equal to 15 basis points per annum is payable in quarterly installments. The interest rate and facility fee are subject to adjustment in the event of a change in the Company's Operating Partnership's unsecured debt ratings. The Unsecured Line of Credit contains a competitive bid option that allows banks that are part of the lender consortium to bid to make loan advances to the Company at a reduced Eurodollar rate. * On August 10, 2006, the Company acquired 3200 Zanker Road, an approximately 544,000 net rentable square foot Class A office complex located in San Jose, California, at a purchase price of approximately $126.0 million. The acquisition was financed with available cash. 3200 Zanker Road is currently 100% leased with an average rental rate that is below market. The Company projects this property's 2007 Unleveraged FFO Return to be 6.9% and 2007 Unleveraged Cash Return to be 5.9%. The calculation of these returns and related disclosures are presented on the accompanying table entitled "Projected 2007 Returns on Acquisition." There can be no assurance that actual returns will not differ materially from these projections. * On August 31, 2006, the Company's Value-Added Fund acquired One and Two Circle Star Way, a 208,000 net rentable square foot office complex located in San Carlos, California, at a purchase price of approximately $63.5 million. The acquisition was financed with new mortgage indebtedness totaling $42.0 million and approximately $21.5 million in cash, of which the Company's share was approximately $5.4 million. The mortgage financing requires interest-only payments at a fixed interest rate of 6.57% per annum and matures in September 2013. * On September 1, 2006, the Company used available cash to repay the mortgage loan collateralized by its Montvale Center property located in Gaithersburg, Maryland totaling approximately $6.6 million. There was no prepayment penalty associated with the repayment. The mortgage loan bore interest at a fixed rate of 8.59% per annum and was scheduled to mature on December 1, 2006. * On September 15, 2006, a joint venture in which the Company has a 35% interest sold 265 Franklin Street, a Class A office property with approximately 347,000 net rentable square feet located in Boston, Massachusetts, at a sale price of approximately $170.0 million ($490 psf). Net cash proceeds totaled approximately $108.3 million, of which the Company's share was approximately $37.9 million, after the repayment of mortgage indebtedness of approximately $60.8 million and closing costs of approximately $0.9 million. * On September 18, 2006, the Company commenced construction of 77 Fourth Avenue, a Class A office project with approximately 210,000 net rentable square feet, located in Waltham, Massachusetts. The Company expects the development to be available for occupancy in the first quarter of 2008. * During the three months ended September 30, 2006, the Company signed new qualifying leases for 26,681 net rentable square feet of its 74,340 net rentable square foot master lease obligation related to the sale of 280 Park Avenue resulting in the recognition of approximately $21.0 million as gain on sale of real estate. The Company had deferred approximately $67.3 million of the gain on sale of 280 Park Avenue, which amount represented the maximum obligation under the master lease. Transactions completed subsequent to September 30, 2006: * On October 2, 2006, the Company used available cash to repay the mortgage loan collateralized by its Embarcadero Center Three property located in San Francisco, California totaling approximately $133.4 million. There was no prepayment penalty associated with the repayment. The mortgage loan bore interest at a fixed rate of 6.40% per annum and was scheduled to mature on January 1, 2007. EPS and FFO per Share Guidance:

The Company's guidance for the fourth quarter 2006 and full year 2007 for EPS (diluted) and FFO per share (diluted) is set forth and reconciled below. In addition to the assumptions described below the table, the guidance for the full year 2007 assumes that the Company's Board of Directors declares a special dividend in the amount of $5.25 per common share/unit in December 2006, payable by the end of January 2007, relating to the gain on sale of 280 Park Avenue; there can be no assurance, however, as to the exact amount or timing of this special dividend.

Fourth Quarter 2006 Full Year 2007 Low - High Low - High Projected EPS (diluted) $0.63 - $0.64 $2.33 - $2.48 Add: Projected Company Share of Real Estate Depreciation and Amortization 0.51 - 0.51 2.07 - 2.07 Projected FFO per Share (diluted) $1.14 - $1.15 $4.40 - $4.55

Except as otherwise noted above, the foregoing estimates reflect management's view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and earnings impact of the events referenced in this release. The estimates do not include possible future gains or losses or the impact on operating results from possible future property acquisitions or dispositions. EPS estimates may be subject to fluctuations as a result of several factors, including changes in the recognition of depreciation and amortization expense and any gains or losses associated with disposition activity. The Company is not able to assess at this time the potential impact of these factors on projected EPS. By definition, FFO does not include real estate-related depreciation and amortization or gains or losses associated with disposition activities. There can be no assurance that the Company's actual results will not differ materially from the estimates set forth above.

Boston Properties will host a conference call tomorrow, October 25, 2006 at 10:00 AM Eastern Time, open to the general public, to discuss the third quarter 2006 results, the fourth quarter 2006 and 2007 projections and related assumptions, and other related matters that may be of interest to investors. The number to call for this interactive teleconference is [phone] (Domestic) or [phone] (International); no passcode required. A replay of the conference call will be available through November 1, 2006, by dialing [phone] (Domestic) or [phone] (International) and entering the passcode 11072412. There will also be a live audio webcast of the call which may be accessed on the Company's website at http://www.bostonproperties.com/ in the Investor Relations section, through http://www.fulldisclosure.com/ for individual investors, or through the password-protected event management site, http://www.streetevents.com/, for institutional investors. Shortly after the call a replay of the webcast and a podcast will be available on the Company's website, http://www.bostonproperties.com/, in the Investor Relations section, and archived for up to twelve months following the call.

Additionally, a copy of Boston Properties' third quarter 2006 "Supplemental Operating and Financial Data" and this press release are available in the Investor Relations section of the Company's website at http://www.bostonproperties.com/. These materials are also available by contacting Investor Relations at [phone] or by written request to:

Investor Relations Boston Properties, Inc. 111 Huntington Avenue, Suite 300 Boston, MA 02199-7610

Boston Properties is a fully integrated, self-administered and self- managed real estate investment trust that develops, redevelops, acquires, manages, operates and owns a diverse portfolio of Class A office properties and also includes two hotels. The Company is one of the largest owners and developers of Class A office properties in the United States, concentrated in five markets - Boston, Midtown Manhattan, Washington, D.C., San Francisco and Princeton, N.J.

This press release contains forward-looking statements within the meaning of the Federal securities laws. You can identify these statements by our use of the words "assumes," "believes," "estimates," "expects," "guidance," "intends," "plans," "projects" and similar expressions that do not relate to historical matters. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond Boston Properties' control and could materially affect actual results, performance or achievements. These factors include, without limitation, the ability to enter into new leases or renew leases on favorable terms, dependence on tenants' financial condition, the uncertainties of real estate development, acquisition and disposition activity, the ability to effectively integrate acquisitions, the costs and availability of financing (including the impact of interest rates on our hedging program), the effects of local economic and market conditions, the effects of acquisitions and dispositions (including the exact amount and timing of any related special dividend and possible impairment charges) on our operating results, the impact of newly adopted accounting principles on the Company's accounting policies and on period-to-period comparisons of financial results, regulatory changes and other risks and uncertainties detailed from time to time in the Company's filings with the Securities and Exchange Commission. Boston Properties does not undertake a duty to update or revise any forward-looking statement whether as a result of new information, future events or otherwise, including its guidance for the fourth quarter of 2006 and full fiscal year 2007.

BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 (in thousands, except for per share amounts) (unaudited) Revenue Rental: Base rent $273,034 $274,523 $826,587 $830,630 Recoveries from tenants 45,954 43,983 138,653 129,156 Parking and other 14,431 13,470 42,479 41,516 Total rental revenue 333,419 331,976 1,007,719 1,001,302 Hotel revenue 19,847 17,453 51,864 47,115 Development and management services 4,558 4,923 14,164 13,596 Interest and other 14,636 4,742 25,166 9,289 Total revenue 372,460 359,094 1,098,913 1,071,302 Expenses Operating: Rental 111,594 111,112 334,440 326,051 Hotel 13,899 12,260 38,146 35,564 General and administrative 12,739 13,270 43,177 42,335 Interest 73,571 75,700 226,837 233,287 Depreciation and amortization 71,548 65,717 206,307 200,539 Losses from early extinguishments of debt 208 - 32,132 12,896 Total expenses 283,559 278,059 881,039 850,672 Income before minority interest in property partnership, income from unconsolidated joint ventures, minority interest in Operating Partnership, gains on sales of real estate and discontinued operations 88,901 81,035 217,874 220,630 Minority interest in property partnership - 1,527 2,013 4,651 Income from unconsolidated joint ventures 20,200 1,117 23,167 3,299 Income before minority interest in Operating Partnership, gains on sales of real estate and discontinued operations 109,101 83,679 243,054 228,580 Minority interest in Operating Partnership (19,028) (26,874) (46,261) (57,140) Income before gains on sales of real estate and discontinued operations 90,073 56,805 196,793 171,440 Gains on sales of real estate, net of minority interest 17,889 - 604,200 103,384 Income before discontinued operations 107,962 56,805 800,993 274,824 Discontinued operations: Income from discontinued operations, net of minority interest - 746 - 1,180 Gains on sales of real estate from discontinued operations, net of minority interest - - - 8,397 Net income available to common shareholders $107,962 $57,551 $800,993 $284,401 Basic earnings per common share: Income available to common shareholders before discontinued operations $0.93 $0.51 $6.88 $2.48 Discontinued operations, net of minority interest - - - 0.08 Net income available to common shareholders $0.93 $0.51 $6.88 $2.56 Weighted average number of common shares outstanding 115,432 111,776 113,989 110,915 Diluted earnings per common share: Income available to common shareholders before discontinued operations $0.91 $0.50 $6.74 $2.43 Discontinued operations, net of minority interest - - - 0.08 Net income available to common shareholders $0.91 $0.50 $6.74 $2.51 Weighted average number of common and common equivalent shares outstanding 117,728 114,090 116,365 113,195 BOSTON PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS September 30, December 31, 2006 2005 (in thousands, except for share amounts) (unaudited) ASSETS Real estate $9,040,264 $8,724,954 Construction in progress 57,392 177,576 Land held for future development 210,336 248,645 Less: accumulated depreciation (1,372,826) (1,265,073) Total real estate 7,935,166 7,886,102 Cash and cash equivalents 1,049,026 261,496 Cash held in escrows 21,436 25,618 Tenant and other receivables, net of allowance for doubtful accounts of $2,509 and $2,519, respectively 42,128 52,668 Accrued rental income, net of allowance of $922 and $2,638, respectively 310,560 302,356 Deferred charges, net 263,675 242,660 Prepaid expenses and other assets 72,033 41,261 Investments in unconsolidated joint ventures 83,485 90,207 Total assets $9,777,509 $8,902,368 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Mortgage notes payable $2,811,953 $3,297,192 Unsecured senior notes, net of discount 1,471,370 1,471,062 Unsecured exchangeable senior notes 450,000 - Unsecured line of credit - 58,000 Accounts payable and accrued expenses 103,581 109,823 Dividends and distributions payable 95,607 107,643 Accrued interest payable 45,703 47,911 Other liabilities 236,350 154,123 Total liabilities 5,214,564 5,245,754 Commitments and contingencies - - Minority interests 746,416 739,268 Stockholders' equity: Excess stock, $.01 par value, 150,000,000 shares authorized, none issued or outstanding - - Preferred stock, $.01 par value, 50,000,000 shares authorized, none issued or outstanding - - Common stock, $.01 par value, 250,000,000 shares authorized, 116,675,935 and 112,621,162 shares issued and 116,597,035 and 112,542,262 shares outstanding in 2006 and 2005, respectively 1,166 1,125 Additional paid-in capital 3,068,952 2,745,719 Earnings in excess of dividends 749,940 182,105 Treasury common stock, at cost (2,722) (2,722) Accumulated other comprehensive loss (807) (8,881) Total stockholders' equity 3,816,529 2,917,346 Total liabilities and stockholders' equity $9,777,509 $8,902,368 BOSTON PROPERTIES, INC. FUNDS FROM OPERATIONS (1) Three months ended Nine months ended September 30, September 30, 2006 2005 2006 2005 (in thousands, except for per share amounts) (unaudited) Net income available to common shareholders $107,962 $57,551 $800,993 $284,401 Add: Minority interest in Operating Partnership 19,028 26,874 46,261 57,140 Less: Minority interest in property partnership - 1,527 2,013 4,651 Income from unconsolidated joint ventures 20,200 1,117 23,167 3,299 Gains on sales of real estate, net of minority interest 17,889 - 604,200 103,384 Income from discontinued operations, net of minority interest - 746 - 1,180 Gains on sales of real estate from discontinued operations, net of minority interest - - - 8,397 Income before minority interest in property partnership, income from unconsolidated joint ventures, minority interest in Operating Partnership, gains on sales of real estate and discontinued operations 88,901 81,035 217,874 220,630 Add: Real estate depreciation and amortization (2) 73,408 67,702 211,855 206,489 Income from discontinued operations - 890 - 1,410 Income from unconsolidated joint ventures 2,283 (3) 1,117 5,250 (3) 3,299 Less: Minority interest in property partnership's share of funds from operations - (32) 479 (1) Preferred distributions 1,912 3,200 (4) 7,987 9,820 (4) Funds from operations (FFO) 162,680 147,576 426,513 422,009 Add: Losses from early extinguishments of debt associated with the sales of real estate - - 31,444 11,041 Funds from operations after a supplemental adjustment to exclude losses from early extinguishments of debt associated with the sales of real estate 162,680 147,576 457,957 433,050 Less: Minority interest in the Operating Partnership's share of funds from operations after a supplemental adjustment to exclude losses from early extinguishments of debt associated with the sales of real estate 25,404 23,905 72,105 70,770 Funds from operations available to common shareholders after a supplemental adjustment to exclude losses from early extinguishments of debt associated with the sales of real estate $137,276 $123,671 $385,852 $362,280 Our percentage share of funds from operations - basic 84.38% 83.80% 84.26% 83.66% Weighted average shares outstanding - basic 115,432 111,776 113,989 110,915 FFO per share basic after a supplemental adjustment to exclude losses from early extinguishments of debt associated with the sales of real estate $1.19 $1.11 $3.38 $3.27 FFO per share basic $1.19 $1.11 $3.15 $3.18 Weighted average shares outstanding - diluted 120,727 119,177 120,454 118,461 FFO per share diluted after a supplemental adjustment to exclude losses from early extinguishments of debt associated with the sales of real estate $1.16 $1.07 $3.29 $3.16 FFO per share diluted $1.16 $1.07 $3.07 $3.08 (1) Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"), we calculate Funds from Operations, or "FFO," by adjusting net income (loss) (computed in accordance with GAAP, including non-recurring items) for gains (or losses) from sales of properties, real estate related depreciation and amortization, and after adjustment for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for reviewing our comparative operating and financial performance because, by excluding gains and losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company's real estate between periods or as compared to different companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently. In addition to presenting FFO in accordance with the NAREIT definition, we also disclose FFO after a specific and defined supplemental adjustment to exclude losses from early extinguishments of debt associated with the sales of real estate. The adjustment to exclude losses from early extinguishments of debt results when the sale of real estate encumbered by debt requires us to pay the extinguishment costs prior to the debt's stated maturity and to write- off unamortized loan costs at the date of the extinguishment. Such costs are excluded from the gains on sales of real estate reported in accordance with GAAP. However, we view the losses from early extinguishments of debt associated with the sales of real estate as an incremental cost of the sale transactions because we extinguished the debt in connection with the consummation of the sale transactions and we had no intent to extinguish the debt absent such transactions. We believe that this supplemental adjustment more appropriately reflects the results of our operations exclusive of the impact of our sale transactions. Although our FFO as adjusted clearly differs from NAREIT's definition of FFO, and may not be comparable to that of other REITs and real estate companies, we believe it provides a meaningful supplemental measure of our operating performance because we believe that, by excluding the effects of the losses from early extinguishments of debt associated with the sales of real estate, management and investors are presented with an indicator of our operating performance that more closely achieves the objectives of the real estate industry in presenting FFO. Neither FFO nor FFO as adjusted should be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. Neither FFO nor FFO as adjusted represents cash generated from operating activities determined in accordance with GAAP, and neither is a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance, FFO and FFO as adjusted should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements. (2) Real estate depreciation and amortization consists of depreciation and amortization from the Consolidated Statements of Operations of $71,548, $65,717, $206,307 and $200,539, our share of unconsolidated joint venture real estate depreciation and amortization of $2,253, $2,188, $6,837 and $6,380 and depreciation and amortization from discontinued operations of $0, $190, $0 and $749, less corporate related depreciation and amortization of $393, $393, $1,289 and $1,179 for the three months and nine months ended September 30, 2006 and 2005, respectively. (3) Excludes approximately $17.9 million related to our share of the gain on sale and related loss from early extinguishment of debt associated with the sale of 265 Franklin Street. (4) Excludes approximately $12.1 million of income allocated to the holders of Series Two Preferred Units to account for their right to participate on an as-converted basis in the special dividend that followed previously completed sales of real estate. BOSTON PROPERTIES, INC. PROJECTED 2007 RETURNS ON ACQUISITION 3200 Zanker Road (dollars in thousands) Base rent and recoveries from tenants $9,515 Straight-line rent 154 Fair value lease revenue 1,143 Total rental revenue 10,812 Operating Expenses 2,116 Revenue less Operating Expenses 8,696 Depreciation and amortization (2,162) Net income $6,534 Add: Depreciation and amortization 2,162 Unleveraged FFO $8,696 Less: Straight-line rent (154) Fair value lease revenue (1,143) Unleveraged Cash $7,399 Cash $118,500 Closing costs 250 Tenant and capital improvements 7,571 Total Investment $126,321 Total Investment Per Square Foot of Net Rentable Building Area $232 Unleveraged FFO Return (1) 6.9% Unleveraged Cash Return (2) 5.9% (1) Unleveraged FFO Return is determined by dividing the Unleveraged FFO (based on the projected results for the year ending December 31, 2007) by Total Investment. Other real estate companies may calculate this return differently. Management believes projected Unleveraged FFO Return is a useful measure in the real estate industry when determining the appropriate purchase price for a property or estimating a property's value. When evaluating acquisition opportunities, management considers, among other factors, projected Unleveraged FFO Return because it excludes, among other items, interest expense (which may vary depending on the level of corporate debt or property-specific debt), as well as depreciation and amortization expense (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates). In addition, management considers its cost of capital and available financing alternatives in making decisions concerning acquisitions. (2) Unleveraged Cash Return is determined by dividing the Unleveraged Cash (based on the projected results for the year ending December 31, 2007) by Total Investment. Other real estate companies may calculate this return differently. Management believes that projected Unleveraged Cash Return is also a useful measure of a property's value when used in addition to Unleveraged FFO Return because, by eliminating the effect of straight-lining of rent and the SFAS No. 141 treatment of in-place above- and below-market leases, it enables an investor to assess the cash on cash return from the property over the forecasted period. Management is presenting these projected returns and related calculations to assist investors in analyzing the Company's recent acquisition. Management does not intend to present this data for any other purpose, for any other period or for its other properties, and is not intending for these measures to otherwise provide information to investors about the Company's financial condition or results of operations. The Company does not undertake a duty to update any of these projections. BOSTON PROPERTIES, INC. PORTFOLIO LEASING PERCENTAGES % Leased by Location September 30, 2006 December 31, 2005 Greater Boston 90.5% 89.9% Greater Washington, D.C. 96.3% 97.2% Midtown Manhattan 99.9% 98.3% Princeton/East Brunswick, NJ 88.0% 86.9% Greater San Francisco 89.6% 90.8% Total Portfolio 93.8% 93.8% % Leased by Type September 30, 2006 December 31, 2005 Class A Office Portfolio 94.4% 93.7% Office/Technical Portfolio 84.5% 97.6% Total Portfolio 93.8% 93.8%