UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

 

Date of report (Date of earliest event reported): November 1, 2017

 

 

BOSTON PROPERTIES, INC.

BOSTON PROPERTIES LIMITED PARTNERSHIP

(Exact Name of Registrants As Specified in its Charter)

 

 

 

Boston Properties, Inc.		Delaware		1-13087		04-2473675
		(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)
Boston Properties Limited Partnership		Delaware		0-50209		04-3372948
		(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

800 Boylston Street, Suite 1900, Boston, Massachusetts 02199

(Address of Principal Executive Offices) (Zip Code)

(617) 236-3300

(Registrants’ telephone number, including area code)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions (see General Instruction A.2. below):

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 

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Item 2.02.

Results of Operations and Financial Condition.

The information in this Item 2.02 - “Results of Operations and Financial Condition” is being furnished. Such information, including Exhibits 99.1 and 99.2 hereto, shall not be deemed “filed” for any purpose, including for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information in this Item 2.02, including Exhibits 99.1 and 99.2, shall not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act regardless of any general incorporation language in such filing.

On November 1, 2017, Boston Properties, Inc. (the “Company”), the general partner of Boston Properties Limited Partnership, issued a press release announcing its financial results for the third quarter of 2017. That press release referred to certain supplemental information that is available on the Company’s website. The text of the supplemental information and the press release are attached hereto as Exhibits 99.1 and 99.2, respectively, and are incorporated by reference herein.

 

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit No.		Description
*99.1		Boston Properties, Inc. Supplemental Operating and Financial Data for the quarter ended September 30, 2017.
*99.2		Press release dated November 1, 2017.

 

*	Filed herewith.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized.

 

 

 

Date: November 1, 2017

 

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EXHIBIT INDEX

 

Exhibit No.		Description
*99.1		Boston Properties, Inc. Supplemental Operating and Financial Data for the quarter ended September 30, 2017.
*99.2		Press release dated November 1, 2017.

 

*	Filed herewith.

 

4

Exhibit 99.1

 

Supplemental Operating and Financial Data for the Quarter Ended September 30, 2017

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THIRD 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 photos: Rendering of the completed renovation at 399 Park Avenue, New York, NY)

 

2

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THIRD 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 49.8 million square feet and consisting of 166 office properties (including seven properties under construction/redevelopment), five retail properties, five residential properties (including three properties under construction) 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 September 30, 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)		177
Total Square Feet (includes unconsolidated joint ventures)		49.8 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		$0.75/$3.00
Dividend Yield		2.44%
Consolidated Market Capitalization		$31.6 billion
BXP’s Share of Market Capitalization (2)		$30.9 billion
Senior Debt Ratings		A- (S&P); BBB+ (Fitch); Baa2 (Moody’s)

 

(1)	For additional detail, see page 14.

(2)	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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THIRD 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		Matthew J. Lustig		Michael E. LaBelle		Frank D. Burt
Chief Executive Officer and Director		Director		Executive Vice President, Chief Financial Officer and Treasurer		Senior Vice President, General Counsel
Douglas T. Linde		Alan J. Patricof		Peter D. Johnston		Michael R. Walsh
President and Director		Director		Executive Vice President, Washington, DC Region		Senior Vice President, Chief Accounting Officer
Bruce W. Duncan		Martin Turchin		Bryan J. Koop
Director		Director		Executive Vice President,
				Boston Region
Karen E. Dykstra		David A. Twardock		Robert E. Pester
Director		Director, Chair of Audit Committee		Executive Vice President, San Francisco Region
Carol B. Einiger
Director, Chair of Compensation Committee
Chairman Emeritus
Mortimer B. Zuckerman

Company Information

 

Corporate Headquarters		Trading Symbol		Investor Relations		Inquires
800 Boylston Street Suite 1900		BXP		Boston Properties, Inc. 800 Boylston Street, Suite 1900		Inquiries should be directed to Michael E. LaBelle
Boston, MA 02199		Stock Exchange Listing		Boston, MA 02199		Executive Vice President, Chief Financial Officer
(t) 617.236.3300		New York Stock Exchange		(t) 617.236.3322		and Treasurer
(f) 617.236.3311				(f) 617.236.3311		at 617.236.3352 or
				www.bostonproperties.com		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):

 

						Q3 2017				Q2 2017				Q1 2017				Q4 2016				Q3 2016
High Closing Price						$	124.95			$	136.87			$	139.88			$	133.39			$	143.61
Low Closing Price						$	117.70			$	120.27			$	127.00			$	114.07			$	130.03
Average Closing Price						$	121.10			$	126.45			$	132.59			$	124.31			$	138.78
Closing Price, at the end of the quarter						$	122.88			$	123.02			$	132.41			$	125.78			$	136.29
Dividends per share						$	0.75			$	0.75			$	0.75			$	0.75			$	0.65
Closing dividend yield—annualized							2.44	%			2.44	%			2.27	%			2.39	%			1.91	%
Closing common shares outstanding, plus common units and LTIP units (other than unearned MYLTIP Units) on an as-converted basis (thousands) (1)							171,951				171,949				171,938				171,774				171,775
Closing market value of outstanding shares and units (thousands)						$	21,329,339			$	21,353,166			$	22,966,310			$	21,805,734			$	23,611,215
(1)    For additional detail, see page 14.

Timing

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

 

Fourth Quarter, 2017		Tentatively January 30, 2018
First Quarter, 2018		Tentatively April 24, 2018
Second Quarter, 2018		Tentatively July 31, 2018
Third Quarter, 2018		Tentatively October 30, 2018

 

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THIRD QUARTER 2017

 

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 / Jason Jones
BMO Capital		Morgan Stanley		Wells Fargo
212.885.4115		212.761.7064		704.715.8455 / 704.715.7932
Tom Catherwood		Brad Schwer
BTIG		Morningstar
212.593.7510		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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THIRD QUARTER 2017

 

GUIDANCE

The Company’s guidance for the full year 2017 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 November 1, 2017 and otherwise referenced during the Company’s conference call scheduled for November 2, 2017. 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.

 

				Full Year 2017												Full Year 2018
				Low								High				Low								High
Projected EPS (diluted)				$	2.80				—			$	2.81			$	2.65				—			$	2.81
Add:
Projected Company share of real estate depreciation and amortization					3.48				—				3.48				3.55				—				3.55
Less:
Projected Company share of gains on sales of real estate					0.04				—				0.04				—				—				—
Projected FFO per share (diluted)				$	6.24				—			$	6.25			$	6.20				—			$	6.36

ASSUMPTIONS

(dollars in thousands)

 

		Full Year 2017												Full Year 2018
		Low								High				Low								High
Operating property activity:
Average In-service portfolio occupancy			90.0	%			—				91.0	%			90.0	%			—				92.0	%
Increase in BXP’s Share of Same Property net operating income (excluding termination income)			2.00	%			—				3.00	%			0.50	%			—				2.50	%
Increase in BXP’s Share of Same Property net operating income—cash (excluding termination income)			1.00	%			—				3.00	%			0.50	%			—				2.50	%
BXP’s Share of Non Same Properties’ incremental contribution to net operating income over prior year		$	17,000				—			$	20,000			$	40,000				—			$	50,000
BXP’s Share of Straight-line rent and fair value lease revenue (non-cash revenue)		$	75,000				—			$	85,000			$	45,000				—			$	75,000
Hotel net operating income		$	13,000				—			$	15,000			$	13,000				—			$	15,000
Termination income		$	23,000				—			$	25,000			$	4,000				—			$	8,000
Other income (expense):
Development and management services income		$	32,000				—			$	34,000			$	29,000				—			$	34,000
General and administrative expense		$	(115,000	)			—			$	(110,000	)		$	(120,000	)			—			$	(115,000	)
Net interest expense		$	(360,000	)			—			$	(355,000	)		$	(390,000	)			—			$	(375,000	)
Noncontrolling interest:
Noncontrolling interest in property partnerships’ share of FFO		$	(130,000	)			—			$	(120,000	)		$	(140,000	)			—			$	(127,000	)

 

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THIRD 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
		30-Sep-17				30-Jun-17				31-Mar-17				31-Dec-16				30-Sep-16
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	133,709			$	97,083			$	147,214			$	76,753
Net income attributable to Boston Properties, Inc. per share—basic		$	0.76			$	0.87			$	0.63			$	0.96			$	0.50
Net income attributable to Boston Properties, Inc. per share—diluted		$	0.76			$	0.87			$	0.63			$	0.96			$	0.50
FFO attributable to Boston Properties, Inc. (1)		$	243,015			$	257,881			$	228,383			$	236,898			$	219,564
Diluted FFO per share (1)		$	1.57			$	1.67			$	1.48			$	1.54			$	1.42
Dividends per common share		$	0.75			$	0.75			$	0.75			$	0.75			$	0.65
Funds available for distribution to common shareholders and common unitholders (FAD) (1) (2)		$	193,686			$	172,723			$	178,002			$	151,183			$	149,725
Ratios:
Interest Coverage Ratio (excluding capitalized interest) (3)			4.25				4.28				3.88				3.86				3.49
Interest Coverage Ratio (including capitalized interest) (3)			3.54				3.67				3.40				3.46				3.17
FFO Payout Ratio (2)			47.77	%			44.91	%			50.68	%			48.70	%			45.77	%
FAD Payout Ratio (2)			66.63	%			74.72	%			72.49	%			85.28	%			74.63	%
Selected Items (4):
Revenue		$	657,712			$	656,907			$	632,228			$	636,061			$	625,228
Partners’ share of revenue from consolidated joint ventures			(72,598	)			(73,027	)			(70,178	)			(69,766	)			(69,391	)
BXP’s share of revenue from unconsolidated joint ventures			26,047				26,174				25,650				24,828				25,271
BXP’s Share of revenue		$	611,161			$	610,054			$	587,700			$	591,123			$	581,108
Straight-line rent		$	16,105			$	3,060			$	12,023			$	14,711			$	11,107
Partners’ share of straight-line rent from consolidated joint ventures			(1,960	)			3,326				(590	)			(1,103	)			(707	)
BXP’s share of straight-line rent from unconsolidated joint ventures			2,691				2,435				3,563				3,696				3,285
BXP’s Share of straight-line rent		$	16,836			$	8,821			$	14,996			$	17,304			$	13,685
Fair value lease revenue (5)		$	5,781			$	5,464			$	5,390			$	6,840			$	6,547
Partners’ share of fair value lease revenue from consolidated joint ventures (5)			(1,721	)			(1,580	)			(1,575	)			(2,194	)			(2,084	)
BXP’s share of fair value lease revenue from unconsolidated joint ventures (5)			415				492				493				494				511
BXP’s Share of fair value lease revenue		$	4,475			$	4,376			$	4,308			$	5,140			$	4,974
Lease termination fees		$	4,783			$	13,601			$	3,918			$	504			$	(170	)
Partners’ share of lease termination fees from consolidated joint ventures			(1,233	)			(2,506	)			(1,310	)			(31	)			421
BXP’s share of termination income from unconsolidated joint ventures			28				404				316				13				8
BXP’s Share of termination income		$	3,578			$	11,499			$	2,924			$	486			$	259
Fair value interest adjustment and hedge amortization		$	(1,606	)		$	7,319			$	10,323			$	10,145			$	10,378
Partners’ share of fair value interest adjustment and hedge amortization from consolidated joint ventures			144				(3,464	)			(4,627	)			(4,598	)			(4,569	)
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		$	(1,462	)		$	3,855			$	5,696			$	5,547			$	5,809
Ground rent expense (6)		$	3,702			$	3,462			$	3,459			$	3,460			$	3,471
Gains (losses) from early extinguishments of debt		$	—			$	14,354			$	—			$	—			$	(371	)
Capitalized interest		$	16,658			$	14,283			$	12,345			$	10,281			$	9,788
Capitalized wages		$	4,710			$	4,930			$	3,947			$	5,376			$	4,155
Operating margins [(rental revenue—rental expense)/rental revenue]			62.6	%			63.8	%			63.1	%			63.6	%			62.3	%
Income from unconsolidated joint ventures		$	843			$	3,108			$	3,084			$	2,585			$	1,464
BXP’s share of FFO from unconsolidated joint ventures		$	10,125	(7)		$	12,737			$	12,125			$	11,277			$	10,592
Net income attributable to noncontrolling interests in property partnerships		$	14,340			$	15,203			$	4,424			$	(2,121	)		$	(17,225	)
FFO attributable to noncontrolling interests in property partnerships		$	32,892	(8)		$	34,530			$	25,839			$	25,135			$	23,682

 

(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)	For additional detail, see page 18.

(8)	For additional detail, see page 20.

 

7

---

THIRD 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.

 

		30-Sep-17				30-Jun-17				31-Mar-17				31-Dec-16				30-Sep-16
Balance Sheet Items:
Above-market rents (included within Prepaid Expenses and Other Assets)		$	28,112			$	30,810			$	33,923			$	37,079			$	40,346
Below-market rents (included within Other Liabilities)		$	107,127			$	115,869			$	123,545			$	132,495			$	142,595
Accrued rental income liability (included within Other Liabilities)		$	32,490			$	34,600			$	38,468			$	31,829			$	32,545
Accrued ground rent expense, net liability (included within Prepaid Expenses and Other Assets and Other Liabilities)		$	44,307			$	43,753			$	43,356			$	42,717			$	41,718
Investments in unconsolidated joint ventures with deficit balances (included within Other Liabilities) (1)		$	22,863			$	20,605			$	21,610			$	22,087			$	22,776
Outside members’ notes payable		$	—			$	—			$	180,000			$	180,000			$	180,000
Accrued interest payable on outside members’ notes payable (included within Accrued Interest Payable)		$	—			$	—			$	162,936			$	153,758			$	144,825
Capitalization:
Common Stock Price @ Quarter End		$	122.88			$	123.02			$	132.41			$	125.78			$	136.29
Equity Value @ Quarter End		$	21,329,339			$	21,353,166			$	22,966,310			$	21,805,734			$	23,611,215
Consolidated Debt		$	10,234,634			$	10,236,639			$	9,886,845			$	9,796,133			$	9,808,922
Add:
BXP’s share of Unconsolidated Joint Venture Debt (2)			591,622				317,724				317,719				318,193				350,225
Less:
Partners’ share of Consolidated Debt (3)			1,210,389				1,211,485				1,138,446				1,144,473				1,150,462
BXP’s Share of Debt (4)(5)		$	9,615,867			$	9,342,878			$	9,066,118			$	8,969,853			$	9,008,685
Consolidated Market Capitalization		$	31,563,973			$	31,589,805			$	32,853,155			$	31,601,867			$	33,420,137
Consolidated Debt/Consolidated Market Capitalization			32.43	%			32.40	%			30.09	%			31.00	%			29.35	%
BXP’s Share of Market Capitalization (4)(5)		$	30,945,206	(6)		$	30,696,044			$	32,032,428			$	30,775,587			$	32,619,900
BXP’s Share of Debt/BXP’s Share of Market Capitalization (4)(5)			31.07	%(6)			30.44	%			28.30	%			29.15	%			27.62	%

 

(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

---

THIRD QUARTER 2017

 

CONSOLIDATED BALANCE SHEETS

(unaudited and in thousands)

 

		30-Sep-17				30-Jun-17				31-Mar-17				31-Dec-16				30-Sep-16
ASSETS
Real estate		$	19,260,022			$	19,015,077			$	18,931,136			$	18,862,648			$	18,704,856
Construction in progress (1)			1,386,638				1,348,838				1,211,324				1,037,959				954,013
Land held for future development (2)			212,585				250,451				249,800				246,656				243,887
Less accumulated depreciation			(4,484,798	)			(4,379,446	)			(4,302,283	)			(4,222,235	)			(4,113,553	)
Total real estate			16,374,447				16,234,920				16,089,977				15,925,028				15,789,203
Cash and cash equivalents			493,055				492,435				302,939				356,914				419,323
Cash held in escrows			83,779				47,345				51,244				63,174				63,980
Investments in securities			27,981				26,781				25,817				23,814				23,022
Tenant and other receivables, net			79,750				88,687				73,012				92,548				76,258
Accrued rental income, net			835,415				820,022				812,124				799,138				785,569
Deferred charges, net			657,474				658,219				666,677				686,163				680,192
Prepaid expenses and other assets			144,817				93,985				150,905				129,666				176,693
Investments in unconsolidated joint ventures			611,800				819,368				793,932				775,198				775,659
Total assets		$	19,308,518			$	19,281,762			$	18,966,627			$	18,851,643			$	18,789,899
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net		$	2,982,067			$	2,986,283			$	2,046,959			$	2,063,087			$	2,077,707
Unsecured senior notes, net			7,252,567				7,250,356				7,248,152				7,245,953				7,243,767
Unsecured line of credit			—				—				105,000				—				—
Unsecured term loan			—				—				—				—				—
Mezzanine notes payable			—				—				306,734				307,093				307,448
Outside members’ notes payable			—				—				180,000				180,000				180,000
Accounts payable and accrued expenses			325,440				303,559				313,723				298,524				312,979
Dividends and distributions payable			130,434				130,432				130,418				130,308				113,038
Accrued interest payable			99,100				85,172				266,714				243,933				234,628
Other liabilities			419,215				452,608				446,489				450,821				461,079
Total liabilities			11,208,823				11,208,410				11,044,189				10,919,719				10,930,646
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, 154,322,266, 154,307,529, 153,849,231, 153,790,175 and 153,773,012 outstanding, respectively			1,543				1,543				1,538				1,538				1,538
Additional paid-in capital			6,370,932				6,363,034				6,339,970				6,333,424				6,326,580
Dividends in excess of earnings			(692,739	)			(694,320	)			(712,270	)			(693,694	)			(725,522	)
Treasury common stock, at cost			(2,722	)			(2,722	)			(2,722	)			(2,722	)			(2,722	)
Accumulated other comprehensive loss			(51,796	)			(53,161	)			(50,983	)			(52,251	)			(73,943	)
Total stockholders’ equity attributable to Boston Properties, Inc.			5,825,218				5,814,374				5,775,533				5,786,295				5,725,931
Noncontrolling interests:
Common units of the Operating Partnership			605,802				604,997				617,252				614,982				608,280
Property partnerships			1,668,675				1,653,981				1,529,653				1,530,647				1,525,042
Total equity			8,099,695				8,073,352				7,922,438				7,931,924				7,859,253
Total liabilities and equity		$	19,308,518			$	19,281,762			$	18,966,627			$	18,851,643			$	18,789,899

 

(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

---

THIRD QUARTER 2017

 

CONSOLIDATED INCOME STATEMENTS

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

 

		Three Months Ended
		30-Sep-17				30-Jun-17				31-Mar-17				31-Dec-16				30-Sep-16
Revenue
Rental
Base rent		$	513,269			$	520,542			$	503,562			$	498,941			$	489,312
Recoveries from tenants			94,476				89,163				89,164				91,123				92,560
Parking and other			26,092				26,462				25,610				25,334				24,638
Total rental revenue			633,837				636,167				618,336				615,398				606,510
Hotel revenue			13,064				13,375				7,420				10,965				12,354
Development and management services			10,811				7,365				6,472				9,698				6,364
Total revenue			657,712				656,907				632,228				636,061				625,228
Expenses
Operating			120,274				116,415				116,415				113,669				117,728
Real estate taxes			115,040				109,509				109,435				108,556				109,480
Demolition costs			2,027				4,530				2,437				1,873				1,352
Hotel operating			8,447				8,404				7,091				7,736				8,118
General and administrative (1)			25,792				27,141				31,386				25,293				25,165
Transaction costs			239				299				34				1,200				249
Impairment loss			—				—				—				—				1,783
Depreciation and amortization			152,164				151,919				159,205				178,032				203,748
Total expenses			423,983				418,217				426,003				436,359				467,623
Operating income			233,729				238,690				206,225				199,702				157,605
Other income (expense)
Income from unconsolidated joint ventures			843				3,108				3,084				2,585				1,464
Gain on sale of investment in unconsolidated joint venture			—				—				—				59,370				—
Interest and other income			1,329				1,504				614				573				3,628
Gains from investments in securities (1)			944				730				1,042				560				976
Interest expense (2)			(92,032	)			(95,143	)			(95,534	)			(97,896	)			(104,641	)
Gains (losses) from early extinguishments of debt			—				14,354				—				—				(371	)
Losses from interest rate contracts			—				—				—				—				(140	)
Income before gains on sales of real estate			144,813				163,243				115,431				164,894				58,521
Gains on sales of real estate			2,891				3,767				133				—				12,983
Net income			147,704				167,010				115,564				164,894				71,504
Net income attributable to noncontrolling interests
Noncontrolling interest in property partnerships			(14,340	)			(15,203	)			(4,424	)			2,121				17,225
Noncontrolling interest—common units of the Operating Partnership (3)			(13,402	)			(15,473	)			(11,432	)			(17,097	)			(9,387	)
Net income attributable to Boston Properties, Inc.			119,962				136,334				99,708				149,918				79,342
Preferred dividends			(2,625	)			(2,625	)			(2,625	)			(2,704	)			(2,589	)
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	133,709			$	97,083			$	147,214			$	76,753
INCOME PER SHARE OF COMMON STOCK (EPS)
Net income attributable to Boston Properties, Inc. per share—basic		$	0.76			$	0.87			$	0.63			$	0.96			$	0.50
Net income attributable to Boston Properties, Inc. per share—diluted		$	0.76			$	0.87			$	0.63			$	0.96			$	0.50

 

(1)

General and administrative expense includes $(944), $(730), $(1,042), $(560) and $(976) and gains from investments in securities include $944, $730, $1,042, $560 and $976 for the three months ended September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively, related to the Company’s deferred compensation plan.

(2)

For the three months ended June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, interest expense includes $7,078, $9,178, $8,933 and $8,694, respectively, consisting of the interest expense on the partner loans for the 767 Fifth Avenue (The GM Building) consolidated joint venture, which amount is allocated to the partners within noncontrolling interests in property partnerships. The Company’s share of the interest expense on its loan to the joint venture eliminates in consolidation. For further information, reference the Company’s second quarter earnings press release.

(3)

Equals noncontrolling interest—common units of the Operating Partnership’s share of 10.10%, 10.19%, 10.33%, 10.25% and 10.28% of income before net income attributable to noncontrolling interests in Operating Partnership after deduction for preferred distributions for the three months ended September 30, 2017, June 30, 2017, March 31, 2017, December 31, 2016 and September 30, 2016, respectively.

 

10

---

THIRD QUARTER 2017

 

FUNDS FROM OPERATIONS (FFO)

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

 

		Three Months Ended
		30-Sep-17				30-Jun-17				31-Mar-17				31-Dec-16				30-Sep-16
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	133,709			$	97,083			$	147,214			$	76,753
Add:
Preferred dividends			2,625				2,625				2,625				2,704				2,589
Noncontrolling interest—common units of the Operating Partnership			13,402				15,473				11,432				17,097				9,387
Noncontrolling interests in property partnerships			14,340				15,203				4,424				(2,121	)			(17,225	)
Less:
Gains on sales of real estate			2,891				3,767				133				—				12,983
Income before gains on sales of real estate			144,813				163,243				115,431				164,894				58,521
Add:
Depreciation and amortization			152,164				151,919				159,205				178,032				203,748
Noncontrolling interests in property partnerships’ share of depreciation and amortization			(18,552	)			(19,327	)			(21,415	)			(27,256	)			(40,907	)
BXP’s share of depreciation and amortization from unconsolidated joint ventures			9,282				9,629				9,041				8,692				9,128
Corporate-related depreciation and amortization			(434	)			(486	)			(525	)			(449	)			(393	)
Less:
Gain on sale of investment in unconsolidated joint venture			—				—				—				59,370				—
Noncontrolling interests in property partnerships			14,340				15,203				4,424				(2,121	)			(17,225	)
Preferred dividends			2,625				2,625				2,625				2,704				2,589
FFO attributable to the Operating Partnership common unitholders (including Boston Properties, Inc.) (“Basic FFO”)			270,308				287,150				254,688				263,960				244,733
Less:
Noncontrolling interest—common units of the Operating Partnership’s share of FFO			27,293				29,269				26,305				27,062				25,169
FFO attributable to Boston Properties, Inc. common shareholders		$	243,015			$	257,881			$	228,383			$	236,898			$	219,564
Boston Properties, Inc.’s percentage share of Basic FFO			89.90	%			89.81	%			89.67	%			89.75	%			89.72	%
Basic FFO per share		$	1.57			$	1.67			$	1.48			$	1.54			$	1.43
Weighted average shares outstanding—basic			154,355				154,177				153,860				153,814				153,754
Diluted FFO per share		$	1.57			$	1.67			$	1.48			$	1.54			$	1.42
Weighted average shares outstanding—diluted			154,483				154,331				154,214				153,991				154,136
Reconciliation to Diluted FFO:
Basic FFO		$	270,308			$	287,150			$	254,688			$	263,960			$	244,733
Add:
Effect of dilutive securities—stock-based compensation			—				—				—				—				—
Diluted FFO			270,308				287,150				254,688				263,960				244,733
Less:
Noncontrolling interest—common units of the Operating Partnership’s share of diluted FFO			27,272				29,243				26,251				27,034				25,113
Boston Properties, Inc.’s share of Diluted FFO		$	243,036			$	257,907			$	228,437			$	236,926			$	219,620
Reconciliation of Shares/Units for Diluted FFO:
Shares/units for Basic FFO			171,691				171,675				171,581				171,385				171,379
Add:
Effect of dilutive securities—stock-based compensation (shares/units)			128				154				354				177				382
Shares/units for Diluted FFO			171,819				171,829				171,935				171,562				171,761
Less:
Noncontrolling interest—common units of the Operating Partnership’s share of Diluted FFO (shares/units)			17,336				17,498				17,721				17,571				17,625
Boston Properties, Inc.’s share of shares/units for Diluted FFO			154,483				154,331				154,214				153,991				154,136
Boston Properties, Inc.’s percentage share of Diluted FFO			89.91	%			89.82	%			89.69	%			89.76	%			89.74	%

 

11

---

THIRD QUARTER 2017

 

FUNDS AVAILABLE FOR DISTRIBUTION (FAD)

(in thousands, except for ratio amounts)

 

		Three Months Ended
		30-Sep-17				30-Jun-17				31-Mar-17				31-Dec-16				30-Sep-16
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	133,709			$	97,083			$	147,214			$	76,753
Add:
Preferred dividends			2,625				2,625				2,625				2,704				2,589
Noncontrolling interest—common units of the Operating Partnership			13,402				15,473				11,432				17,097				9,387
Noncontrolling interests in property partnerships			14,340				15,203				4,424				(2,121	)			(17,225	)
Less:
Gains on sales of real estate			2,891				3,767				133				—				12,983
Income before gains on sales of real estate			144,813				163,243				115,431				164,894				58,521
Add:
Depreciation and amortization			152,164				151,919				159,205				178,032				203,748
Noncontrolling interests in property partnerships’ share of depreciation and amortization			(18,552	)			(19,327	)			(21,415	)			(27,256	)			(40,907	)
BXP’s share of depreciation and amortization from unconsolidated joint ventures			9,282				9,629				9,041				8,692				9,128
Corporate-related depreciation and amortization			(434	)			(486	)			(525	)			(449	)			(393	)
Less:
Gain on sale of investment in unconsolidated joint venture			—				—				—				59,370				—
Noncontrolling interests in property partnerships			14,340				15,203				4,424				(2,121	)			(17,225	)
Preferred dividends			2,625				2,625				2,625				2,704				2,589
Basic FFO			270,308				287,150				254,688				263,960				244,733
Straight-line rent			(16,105	)			(3,060	)			(12,023	)			(14,711	)			(11,107	)
Partners’ share of straight-line rent from consolidated joint ventures			1,960				(3,326	)			590				1,103				707
BXP’s share of straight-line rent from unconsolidated joint ventures			(2,691	)			(2,435	)			(3,563	)			(3,696	)			(3,285	)
Lease transaction costs that qualify as rent inducements (1)			(102	)			115				682				487				861
Partners’ share of lease transaction costs that qualify as rent inducements from consolidated joint ventures (1)			(9	)			—				—				—				—
BXP’s share of lease transaction costs that qualify as rent inducements from unconsolidated joint ventures (1)			208				223				132				43				15
Fair value lease revenue (2)			(5,781	)			(5,464	)			(5,390	)			(6,840	)			(6,547	)
Partners’ share of fair value lease revenue from consolidated joint ventures (2)			1,721				1,580				1,575				2,194				2,084
BXP’s share of fair value lease revenue from unconsolidated joint ventures (2)			(415	)			(492	)			(493	)			(494	)			(511	)
Non-cash losses (gains) from early extinguishments of debt			—				(14,444	)			—				—				371
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)			554				398				639				998				1,031
Stock-based compensation			8,023				8,435				10,802				7,621				7,643
Non-real estate depreciation			434				486				525				449				393
Impairment loss			—				—				—				—				1,783
Fair value interest adjustment and hedge amortization			1,606				(7,319	)			(10,323	)			(10,145	)			(10,378	)
Partners’ share of fair value interest adjustment and hedge amortization from consolidated joint ventures			(144	)			3,464				4,627				4,598				4,569
BXP’s share of fair value interest adjustment and hedge amortization from unconsolidated joint ventures			—				—				—				—				—
2nd generation tenant improvements and leasing commissions			(54,238	)			(85,427	)			(48,730	)			(75,708	)			(69,742	)
Partners’ share of 2nd generation tenant improvements and leasing commissions from consolidated joint ventures			1,050				200				123				449				805
BXP’s share of 2nd generation tenant improvements and leasing commissions from unconsolidated joint ventures			(1,163	)			(159	)			(1,164	)			(1,472	)			(18	)
Unearned portion of capitalized fees from consolidated joint ventures			591				607				537				1,787				250
Maintenance capital expenditures (4)			(12,032	)			(11,643	)			(10,677	)			(16,334	)			(11,889	)
Partners’ share of maintenance capital expenditures from consolidated joint ventures (4)			457				1,004				2,129				1,197				377
BXP’s share of maintenance capital expenditures from unconsolidated joint ventures (4)			(111	)			(17	)			(211	)			(437	)			(283	)
Hotel improvements, equipment upgrades and replacements			(289	)			(2,502	)			(6,231	)			(3,870	)			(2,137	)
Funds available for distribution to common shareholders and common unitholders (FAD) (A)		$	193,686			$	172,723			$	178,002			$	151,183			$	149,725
Distributions to common shareholders and unitholders (excluding any special distributions) (B)		$	129,056			$	129,055			$	129,040			$	128,930			$	111,739
FAD Payout Ratio (B÷A)			66.63	%			74.72	%			72.49	%			85.28	%			74.63	%

 

(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 2020 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

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THIRD QUARTER 2017

 

INTEREST COVERAGE RATIOS

(in thousands, except for ratio amounts)

 

		Three Months Ended
		30-Sep-17				30-Jun-17				31-Mar-17				31-Dec-16				30-Sep-16
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	133,709			$	97,083			$	147,214			$	76,753
Add:
Preferred dividends			2,625				2,625				2,625				2,704				2,589
Noncontrolling interest—common units of the Operating Partnership			13,402				15,473				11,432				17,097				9,387
Noncontrolling interests in property partnerships			14,340				15,203				4,424				(2,121	)			(17,225	)
Less:
Gains on sales of real estate			2,891				3,767				133				—				12,983
Income before gains on sales of real estate			144,813				163,243				115,431				164,894				58,521
Noncontrolling interests in property partnerships			(14,340	)			(15,203	)			(4,424	)			2,121				17,225
Interest expense			92,032				95,143				95,534				97,896				104,641
Partners’ share of interest expense from consolidated joint ventures			(11,816	)			(16,401	)			(17,259	)			(17,579	)			(17,460	)
BXP’s share of interest expense from unconsolidated joint ventures			5,661				3,822				3,749				3,654				4,025
Depreciation and amortization expense			152,164				151,919				159,205				178,032				203,748
Noncontrolling interests in property partnerships’ share of depreciation and amortization			(18,552	)			(19,327	)			(21,415	)			(27,256	)			(40,907	)
BXP’s share of depreciation and amortization from unconsolidated joint ventures			9,282				9,629				9,041				8,692				9,128
Gain on sale of investment in unconsolidated joint venture			—				—				—				(59,370	)			—
Non-cash losses (gains) from early extinguishments of debt			—				(14,444	)			—				—				371
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			—				—				—				—				—
Impairment loss			—				—				—				—				1,783
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			8,023				8,435				10,802				7,621				7,643
Straight-line ground rent expense adjustment (1)			554				398				639				998				1,031
Straight-line rent			(16,105	)			(3,060	)			(12,023	)			(14,711	)			(11,107	)
Partners’ share of straight-line rent from consolidated joint ventures			1,960				(3,326	)			590				1,103				707
BXP’s share of straight-line rent from unconsolidated joint ventures			(2,691	)			(2,435	)			(3,563	)			(3,696	)			(3,285	)
Lease transaction costs that qualify as rent inducements (2)			(102	)			115				682				487				861
Partners’ share of lease transaction costs that qualify as rent inducements from consolidated joint ventures (2)			(9	)			—				—				—				—
BXP’s share of lease transaction costs that qualify as rent inducements from unconsolidated joint ventures (2)			208				223				132				43				15
Fair value lease revenue (3)			(5,781	)			(5,464	)			(5,390	)			(6,840	)			(6,547	)
Partners’ share of fair value lease revenue from consolidated joint ventures (3)			1,721				1,580				1,575				2,194				2,084
BXP’s share of fair value lease revenue from unconsolidated joint ventures (3)			(415	)			(492	)			(493	)			(494	)			(511	)
Subtotal (A)		$	346,461			$	359,704			$	332,571			$	337,793			$	331,966
Divided by:
Interest expense		$	92,032			$	95,143			$	95,534			$	97,896			$	104,641
Partners’ share of interest expense from consolidated joint ventures			(11,816	)			(16,401	)			(17,259	)			(17,579	)			(17,460	)
BXP’s share of interest expense from unconsolidated joint ventures			5,661				3,822				3,749				3,654				4,025
Fair value interest adjustment and hedge amortization			(1,606	)			7,319				10,323				10,145				10,378
Partners’ share of fair value interest adjustment and hedge amortization from consolidated joint ventures			144				(3,464	)			(4,627	)			(4,598	)			(4,569	)
BXP’s share of fair value interest adjustment and hedge amortization from unconsolidated joint ventures			—				—				—				—				—
Amortization of financing costs			(3,070	)			(2,442	)			(1,967	)			(1,964	)			(1,889	)
Partners’ share of amortization of financing costs from consolidated joint ventures			382				206				9				39				38
BXP’s share of amortization of financing costs from unconsolidated joint ventures			(112	)			(102	)			(100	)			(100	)			(113	)
Adjusted interest expense excluding capitalized interest (B)			81,615				84,081				85,662				87,493				95,051
Capitalized interest			16,658				14,283				12,345				10,281				9,788
Partners’ share of capitalized interest from consolidated joint ventures			(518	)			(238	)			(251	)			(203	)			(21	)
BXP’s share of capitalized interest from unconsolidated joint ventures			8				(6	)			(6	)			—				—
Adjusted interest expense including capitalized interest (C)		$	97,763			$	98,120			$	97,750			$	97,571			$	104,818
Interest Coverage Ratio (excluding capitalized interest) (A÷B) (4)			4.25				4.28				3.88				3.86				3.49
Interest Coverage Ratio (including capitalized interest) (A÷C) (4)			3.54				3.67				3.40				3.46				3.17

 

(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 2020 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

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THIRD QUARTER 2017

 

CAPITAL STRUCTURE

(in thousands, except percentages)

Consolidated Debt

 

		Aggregate Principal September 30, 2017
Mortgage Notes Payable		$	3,017,725
Unsecured Line of Credit			—
Delayed Draw Term Loan			—
Unsecured Senior Notes, at face value			7,300,000
Subtotal			10,317,725
Discount on Unsecured Senior Notes			(16,810	)
Deferred Financing Costs, Net			(66,281	)
Consolidated Debt		$	10,234,634

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
	11/10/2011				11/15/2018			$	850,000				3.853	%			3.700	%			99.767	%		$	349			$	1,092			$	848,559
	10/9/2009				10/15/2019				700,000				5.967	%			5.875	%			99.931	%			125				1,150				698,725
	4/19/2010				11/15/2020				700,000				5.708	%			5.625	%			99.891	%			271				1,749				697,980
	11/18/2010				5/15/2021				850,000				4.289	%			4.125	%			99.260	%			2,481				2,449				845,070
	6/11/2012				2/1/2023				1,000,000				3.954	%			3.850	%			99.779	%			1,210				4,169				994,621
	4/11/2013				9/1/2023				500,000				3.279	%			3.125	%			99.379	%			1,901				2,379				495,720
	6/27/2013				2/1/2024				700,000				3.916	%			3.800	%			99.694	%			1,366				3,561				695,073
	1/20/2016				2/1/2026				1,000,000				3.766	%			3.650	%			99.708	%			2,504				6,787				990,709
	8/17/2016				10/1/2026				1,000,000				3.495	%			2.750	%			99.271	%			6,603				7,287				986,110
								$	7,300,000															$	16,810			$	30,623			$	7,252,567

Equity

 

		Shares/Units Outstanding as of 9/30/2017				Common Stock Equivalents				Equivalent Value (2)
Common Stock			154,322				154,322			$	18,963,087
Common Operating Partnership Units			17,629				17,629				2,166,252
5.25% Series B Cumulative Redeemable Preferred Stock (non-callable through March 27, 2018)			80				—				200,000
Total Equity							171,951			$	21,329,339
Consolidated Debt										$	10,234,634
Add:
BXP’s share of unconsolidated joint venture debt (3)											591,622
Less:
Partners’ share of consolidated debt (4)											1,210,389
BXP’s Share of Debt (5)										$	9,615,867
Consolidated Market Capitalization										$	31,563,973
BXP’s Share of Market Capitalization (5)										$	30,945,206

 

(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 September 30, 2017 closing price of $122.88 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

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THIRD QUARTER 2017

 

DEBT ANALYSIS (1)

as of September 30, 2017

(dollars in thousands)

Debt Maturities and Principal Payments

 

		2017				2018				2019				2020				2021				Thereafter				Total
Floating Rate Debt:
Mortgage Notes Payable		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Unsecured Line of Credit			—				—				—				—				—				—				—
Unsecured Term Loan			—				—				—				—				—				—				—
Total Floating Rate Debt		$	—			$	—			$	—			$	—			$	—			$	—			$	—
Fixed Rate Debt:
767 Fifth Avenue (The GM Building) (60% ownership)		$	—			$	—			$	—			$	—			$	—			$	2,300,000			$	2,300,000
601 Lexington Avenue (55% ownership)			3,321				13,684				14,349				15,045				15,776				614,710				676,885
New Dominion Technology Park, Building One			—				3,100				3,340				3,598				22,906				—				32,944
University Place			443				1,849				1,981				2,123				1,500				—				7,896
Mortgage Notes Payable			3,764				18,633				19,670				20,766				40,182				2,914,710				3,017,725
Deferred Financing Costs, Net			(982	)			(3,925	)			(3,925	)			(3,925	)			(3,836	)			(19,065	)			(35,658	)
Mortgage Notes Payable, Net		$	2,782			$	14,708			$	15,745			$	16,841			$	36,346			$	2,895,645			$	2,982,067
Unsecured Senior Notes, Face Amount		$	—			$	850,000			$	700,000			$	700,000			$	850,000			$	4,200,000			$	7,300,000
Discount Amortization			(670	)			(2,696	)			(2,503	)			(2,528	)			(2,063	)			(6,350	)			(16,810	)
Deferred Financing Costs, Net			(1,546	)			(6,019	)			(5,036	)			(4,510	)			(3,648	)			(9,864	)			(30,623	)
Unsecured Senior Notes, Net		$	(2,216	)		$	841,285			$	692,461			$	692,962			$	844,289			$	4,183,786			$	7,252,567
Total Fixed Rate Debt		$	566			$	855,993			$	708,206			$	709,803			$	880,635			$	7,079,431			$	10,234,634
Consolidated Debt		$	566			$	855,993			$	708,206			$	709,803			$	880,635			$	7,079,431			$	10,234,634
% of Consolidated Debt			0.01	%			8.36	%			6.92	%			6.94	%			8.60	%			69.17	%			100.00	%
Balloon Payments		$	—			$	850,000			$	700,000			$	700,000			$	872,906			$	7,110,648			$	10,233,554
Scheduled Principal Amortization		$	3,764			$	18,633			$	19,670			$	20,766			$	17,276			$	4,062			$	84,171
GAAP Weighted Average Floating Rate Debt (2)			—				—				—				—				—				—				—
GAAP Weighted Average Fixed Rate Debt (2)			5.04	%			3.89	%			5.96	%			5.70	%			4.39	%			3.78	%			4.13	%
Total GAAP Weighted Average Rate (2)			5.04	%			3.89	%			5.96	%			5.70	%			4.39	%			3.78	%			4.13	%
Total Stated Weighted Average Rate			4.99	%			3.77	%			5.87	%			5.63	%			4.32	%			3.67	%			4.02	%

Unsecured Credit Facility - Matures April 24, 2022

 

		Facility				Outstanding at 9/30/2017				Letters of Credit				Remaining Capacity at 9/30/2017
Unsecured Line of Credit		$	1,500,000			$	—			$	1,610			$	1,498,390
Unsecured Term Loan		$	500,000			$	—				N/A			$	500,000

Unsecured and Secured Debt Analysis

		% of Total Debt				Stated Weighted Average Rate				GAAP Weighted Average Rate				Weighted Average Maturity (years)
Unsecured Debt			70.86	%			4.12	%			4.21	%			5.2
Secured Debt			29.14	%			3.78	%			3.96	%			8.4
Consolidated Debt			100.00	%			4.02	%			4.13	%			6.1

Floating and Fixed Rate Debt Analysis

		% of Total Debt				Stated Weighted Average Rate				GAAP Weighted Average Rate				Weighted Average Maturity (years)
Floating Rate Debt			—				—				—				—
Fixed Rate Debt			100.00	%			4.02	%			4.13	%			6.1
Consolidated Debt			100.00	%			4.02	%			4.13	%			6.1

 

(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.

 

15

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THIRD 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 September 30, 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.

 

						September 30, 2017
Total Assets:
Capitalized Property Value (1)						$	24,343,952
Cash and Cash Equivalents							493,055
Investments in Securities							27,981
Undeveloped Land, at Cost (including BXP’s share of unconsolidated joint ventures)							258,590
Development in Process, at Cost (including BXP’s share of unconsolidated joint ventures)							1,633,769
Total Assets						$	26,757,347
Unencumbered Assets						$	20,548,003
Consolidated Secured Debt (Fixed and Variable) (2)						$	3,070,323
Unconsolidated Joint Venture Debt (3)							593,186
Contingent Liabilities & Letters of Credit							9,076
Unsecured Debt (4)							7,300,000
Total Outstanding Debt						$	10,972,585
Consolidated EBITDA:
Income before Gains on Sales of Real Estate (per Consolidated Income Statement)						$	144,813
Subtract: Income from Unconsolidated Joint Ventures (per Consolidated Income Statement)							(843	)
Subtract: Gains from Investments in Securities (per Consolidated Income Statement)							(944	)
Add: Interest Expense (per Consolidated Income Statement)							92,032
Add: Depreciation and Amortization (per Consolidated Income Statement)							152,164
EBITDA							387,222
Add: BXP’s share of unconsolidated joint venture EBITDA							15,634
Consolidated EBITDA						$	402,856
Adjusted Interest Expense:
Interest Expense (per Consolidated Income Statement)						$	92,032
Add: BXP’s share of unconsolidated joint venture interest expense							5,661
Less: Amortization of financing costs (including BXP’s share of unconsolidated joint ventures)							(3,182	)
Less: Interest expense funded by construction loan draws							—
Adjusted Interest Expense						$	94,511
Covenant Ratios and Related Data		Test				Actual
Total Outstanding Debt/Total Assets			Less than 60%				41.0	%
Secured Debt/Total Assets			Less than 50%				13.7	%
Interest Coverage (Annualized Consolidated EBITDA to Annualized Interest Expense)			Greater than 1.50x				4.26
Unencumbered Assets/ Unsecured Debt			Greater than 150%				281.5	%
Unencumbered Consolidated Property EBITDA (5)						$	331,547
Unencumbered Interest Coverage (Unencumbered Consolidated Property EBITDA to Unsecured Interest Expense)							4.45
% of Unencumbered Consolidated Property EBITDA to Consolidated EBITDA							82.3	%
# of in-service unencumbered properties							147

 

(1)	Capitalized Property Value 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.

(2)	Includes capital lease obligations of $52,598 and excludes deferred financing costs, net of $35,658.

(3)	Excludes aggregate deferred financing costs, net of $1,564.

(4)	Excludes aggregate debt discount of $16,810 and deferred financing costs, net of $30,623.

(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 September 30, 2017, these excluded amounts were approximately $(15,122), $84,429, $(1,607) and $3,609, respectively.

 

16

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THIRD QUARTER 2017

 

UNCONSOLIDATED JOINT VENTURES (1)

as of September 30, 2017

(dollars in thousands)

Balance Sheet Information

 

Property		BXP’s Nominal Ownership				Net Equity				Mortgage/ Construction Loans Payable, Net
540 Madison Avenue			60.00	%		$	67,046			$	71,888
Market Square North			50.00	%			(8,474	)			60,727
Metropolitan Square			20.00	%			2,537				32,795
901 New York Avenue			25.00	%			(10,747	)			55,926
Wisconsin Place Parking Facility			33.33	%			40,158				—
Annapolis Junction (2)			50.00	%			18,771				44,626
500 North Capitol Street, N.W.			30.00	%			(3,642	)			31,399
Colorado Center (3)			50.00	%			263,834				274,504
The Hub on Causeway - Podium (4)			50.00	%			55,917				—
The Hub on Causeway - Hotel			50.00	%			1,596				—
The Hub on Causeway - Residential			50.00	%			25,811				—
1001 6th Street			50.00	%			42,442				—
Dock 72			50.00	%			67,901				—
7750 Wisconsin Avenue (5)			50.00	%			21,101				—
1265 Main Street			50.00	%			4,686				19,757
							588,937
Investments with deficit balances reflected within Other Liabilities							22,863
Investment in Joint Ventures						$	611,800			$	591,622

Debt Maturities and Principal Payments by Property

 

Property		2017				2018				2019				2020				2021				Thereafter				Total
540 Madison Avenue (60%)		$	—			$	72,000			$	—			$	—			$	—			$	—			$	72,000
Market Square North (50%)			292				1,205				1,265				58,091				—				—				60,853
901 New York Avenue (25%)			—				—				—				970				1,095				54,185				56,250
Metropolitan Square (20%)			141				586				620				31,501								—				32,848
500 North Capitol Street, N.W. (30%)			—				—				—				—				—				31,500				31,500
1265 Main Street (50%)			94				383				398				413				429				18,238				19,955
Annapolis Junction Building One (50%)			256				19,519				—				—				—				—				19,775	(6)
Annapolis Junction Buildings Seven & Eight (50%)			81				326				17,723				—				—				—				18,130
Annapolis Junction Building Six (50%)			135				6,740				—				—				—				—				6,875
Colorado Center (50%)			—				—				—				—				—				275,000				275,000	(3)
The Hub on Causeway - Podium (50%)			—				—				—				—				—				—				—	(4)
Dock 72 (50%)			—				—				—				—				—				—				—
			999				100,759				20,006				90,975				1,524				378,923				593,186
Deferred Financing Costs, Net			(150	)			(319	)			(223	)			(165	)			(127	)			(580	)			(1,564	)
Mortgage/Construction Loans Payable, Net		$	849			$	100,440			$	19,783			$	90,810			$	1,397			$	378,343			$	591,622
GAAP Weighted Average Rate			4.64	%			3.81	%			3.93	%			5.20	%			3.42	%			3.65	%			3.94	%
% of Total Mortgage/Construction Loans Payable, Net			0.14	%			16.98	%			3.34	%			15.35	%			0.24	%			63.95	%			100.00	%
Balloon Payments		$	—			$	97,964			$	17,397			$	88,387			$	—			$	370,437			$	574,185
Scheduled Amortization		$	1,000			$	2,795			$	2,609			$	2,588			$	1,524			$	8,486			$	19,002

Floating and Fixed Rate Debt Analysis

 

		% of Total Debt				Stated Weighted Average Rate				GAAP Weighted Average Rate				Weighted Average Maturity (years)
Floating Rate Debt			19.69	%			3.63	%			3.82	%			0.9
Fixed Rate Debt			80.31	%			3.93	%			3.97	%			8.1
Total Debt			100.00	%			3.87	%			3.94	%			6.7

 

(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 July 10, 2017, the Company acquired an additional 0.2% interest in the unconsolidated joint venture that owns Colorado Center for approximately $2.1 million in cash. On July 28, 2017, the joint venture obtained mortgage financing collateralized by the property totaling $550.0 million. The mortgage financing matures on August 9, 2027.

(4)

On September 6, 2017, a joint venture in which the Company has a 50% interest obtained construction financing with a total commitment of $204.6 million collateralized by its Hub on Causeway development project. The construction financing matures on September 6, 2021, with two one-year extension options, subject to certain conditions. As of September 30, 2017, there have been no amounts drawn under the loan.

(5)

On August 7, 2017, the Company entered into a joint venture to develop an approximately 722,000 net rentable square foot (subject to adjustment based on finalized building design) build-to-suit Class A office building and below-grade parking garage at 7750 Wisconsin Avenue in Bethesda, Maryland. See page 44 for further detail.

(6)

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

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THIRD QUARTER 2017

 

UNCONSOLIDATED JOINT VENTURES (continued)

(unaudited and dollars in thousands)

Results of Operations

for the three months ended September 30, 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)		$	6,376			$	4,498			$	4,527			$	6,978			$	938			$	2,043			$	2,930			$	13,786			$	995			$	325			$	43,396
Operating recoveries			734				822				1,281				1,206				272				433				1,239				591				298				—				6,876
Straight-line rent			62				103				1,735				542				—				348				75				2,238				—				—				5,103
Fair value lease revenue			—				—				—				—				—				—				—				96				—				—				96
Termination income			57				—				—				—				—				—				—				(12	)			—				—				45
Total revenue			7,229				5,423				7,543				8,726				1,210				2,824				4,244				16,699				1,293				325				55,516
EXPENSES
Operating			3,671				2,235				3,593				3,449				554				1,592				1,413				5,944				303				374				23,128
NET OPERATING INCOME/(LOSS)			3,558				3,188				3,950				5,277				656				1,232				2,831				10,755				990				(49	)			32,388
Interest			880				1,498				2,350				2,075				—				1,218				1,128				3,555				384				—				13,088
Depreciation and amortization			1,947				2,965				1,897				1,490				1,391				1,092				955				4,298				405				—				16,440
SUBTOTAL			2,827				4,463				4,247				3,565				1,391				2,310				2,083				7,853				789				—				29,528
NET INCOME/(LOSS)		$	731			$	(1,275	)		$	(297	)		$	1,712			$	(735	)		$	(1,078	)		$	748			$	2,902			$	201			$	(49	)		$	2,860
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)		$	438			$	(638	)		$	(59	)		$	2,232	(4)		$	(278	)		$	(539	)		$	225			$	1,451			$	101			$	(24	)		$	2,909
Basis differential
Straight-line rent		$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	681	(5)		$	—			$	—			$	681
Fair value lease revenue			—				—				—				—				—				—				—				366	(5)			—				—				366
Depreciation and amortization			166				(377	)			(5	)			(266	)			(8	)			(84	)			4				(2,542	)(5)			(4	)			3				(3,113	)
Total basis differential (6)			166				(377	)			(5	)			(266	)			(8	)			(84	)			4				(1,495	)(5)			(4	)			3				(2,066	)
Income/(loss) from unconsolidated joint ventures		$	604			$	(1,015	)		$	(64	)		$	1,966	(4)		$	(286	)		$	(623	)		$	229			$	(44	)		$	97			$	(21	)		$	843
Gain on investment			—				—				—				—				—				—				—				—				—				—				—
BXP’s share of depreciation & amortization			1,066				1,865				394				(327	)(4)			475				635				295				4,673				206				—				9,282
BXP’s share of Funds from Operations (FFO)		$	1,670			$	850			$	330			$	1,639			$	189			$	12			$	524			$	4,629			$	303			$	(21	)		$	10,125
BXP’s share of interest expense		$	528			$	749			$	470			$	998	(4)		$	—			$	609			$	338			$	1,777			$	192			$	—			$	5,661
BXP’s share of amortization of financing costs		$	31			$	10			$	5			$	21			$	—			$	30			$	4			$	8			$	3			$	—			$	112
BXP’s share of capitalized interest		$	—			$	—			$	8			$	—			$	—			$	—			$	—			$	—			$	—			$	—			$	8
BXP’s share of revenue (7)		$	4,337			$	2,711			$	1,509			$	4,195	(4)		$	403			$	1,412			$	1,273			$	9,398			$	646			$	163			$	26,047
BXP’s share of operating expenses			2,203				1,118				719				1,658	(4)			184				796				424				2,972				152				187				10,413
BXP’s share of net operating income/(loss) (7)			2,134				1,593				790				2,537	(4)			219				616				849				6,426				494				(24	)			15,634
Less:
BXP’s share of termination income			34				—				—				—	(4)			—				—				—				(6	)			—				—				28
BXP’s share of net operating income/(loss)
(excluding termination income) (7)			2,100				1,593				790				2,537	(4)			219				616				849				6,432				494				(24	)			15,606
Less:
BXP’s share of straight-line rent			37				51				347				260	(4)			—				174				22				1,800				—				—				2,691
BXP’s share of fair value lease revenue			—				—				—				—	(4)			—				—				—				415				—				—				415
Add:
BXP’s share of lease transaction costs that qualify as rent inducements			—				4				125				25	(4)			—				54				—				—				—				—				208
BXP’s share of net operating income/(loss)
- cash (excluding termination income) (7)		$	2,063			$	1,546			$	568			$	2,302	(4)		$	219			$	496			$	827			$	4,217			$	494			$	(24	)		$	12,708

 

(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 $56 of management services income and approximately $271 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 $31 of management services income and approximately $134 of interest and other income.

 

18

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THIRD QUARTER 2017

 

CONSOLIDATED JOINT VENTURES

(unaudited and in thousands)

Balance Sheets

as of September 30, 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		$	3,415,920			$	2,225,849			$	953,818			$	6,595,587
Cash and cash held in escrows			119,794				166,305				5,169				291,268
Other assets			132,346				187,007				1,205				320,558
Total assets		$	3,668,060			$	2,579,161			$	960,192			$	7,207,413
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net		$	2,266,115			$	675,379			$	—			$	2,941,494
Other liabilities			131,977				90,222				58,143				280,342
Total liabilities			2,398,092				765,601				58,143				3,221,836
Equity:
Boston Properties, Inc.			762,971				676,803				877,048				2,316,822
Noncontrolling interests			506,997				1,136,757				25,001				1,668,755	(2)
Total equity			1,269,968				1,813,560				902,049				3,985,577
Total liabilities and equity		$	3,668,060			$	2,579,161			$	960,192			$	7,207,413
Partners’ share of consolidated debt		$	906,468			$	303,921			$	—			$	1,210,389

 

(1)	Certain balances contain amounts that eliminate in consolidation.

(2)	Amount excludes preferred shareholders’ capital of approximately $0.1 million.

 

19

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THIRD QUARTER 2017

 

CONSOLIDATED JOINT VENTURES (continued)

(unaudited and in thousands)

Income Statements

for the three months ended September 30, 2017

 

						Norges Joint Ventures
		767 Fifth Avenue (The GM Building)				Times Square Tower 601 Lexington Avenue 100 Federal Street Atlantic Wharf Office				Salesforce Tower				Total Consolidated Joint Ventures
REVENUE
Rental		$	68,932			$	87,063			$	—			$	155,995
Straight-line rent			1,887				2,678				—				4,565
Fair value lease revenue			4,037				236				—				4,273
Termination income			3,035				43				—				3,078
Parking and other			755				1,402				—				2,157
Total revenue			78,646				91,422				—				170,068
EXPENSES
Operating			30,075				34,179				—				64,254
NET OPERATING INCOME			48,571				57,243				—				105,814
Management services income			(862	)			(859	)							(1,721	)
Interest and other income			(351	)			(346	)			(19	)			(716	)
Interest expense			21,225				7,391				—				28,616
Depreciation and amortization			23,783				20,173				—				43,956
SUBTOTAL			43,795				26,359				(19	)			70,135
NET INCOME/(LOSS)		$	4,776			$	30,884			$	19			$	35,679
BXP’s ownership percentage			60.00	%			55.00	%			95.00	%
Partners’ share of NOI (1)		$	19,428			$	25,760			$	—			$	45,188
BXP’s share of NOI		$	29,143			$	31,483			$	—			$	60,626
Unearned portion of capitalized fees (2)		$	136			$	446			$	9			$	591
Reconciliation of partners’ noncontrolling interest (NCI):
Net income/(loss)		$	4,776			$	30,884			$	19			$	35,679
Add depreciation & amortization - BXP’s basis difference			46				45				—				91
Special allocation - BXP’s basis			—				(89	)			—				(89	)
Net income/(loss) before interest allocation		$	4,822			$	30,840			$	19			$	35,681
Partners’ share of net income before interest allocation (1)		$	1,929			$	13,878			$	1			$	15,808
Allocation of management and other fees to non-controlling partners (1)			(750	)			(774	)			—				(1,524	)
Accretion and adjustments (1)			—				217				(161	)			56
Partners’ NCI (1)		$	1,179			$	13,321			$	(160	)		$	14,340
Reconciliation of partners’ share of FFO:
Net income/(loss)		$	4,776			$	30,884			$	19			$	35,679
Add depreciation & amortization			23,783				20,173				—				43,956
Entity FFO		$	28,559			$	51,057			$	19			$	79,635
Partners’ NCI (1)		$	1,179			$	13,321			$	(160	)		$	14,340
Partners’ share of depreciation and amortization after BXP’s basis differential (1)			9,495				9,057				—				18,552
Partners’ share FFO (1)		$	10,674			$	22,378			$	(160	)		$	32,892
Reconciliation of BXP’s share of FFO:
BXP’s share of net income/(loss) adjusted for partners’ NCI		$	3,597			$	17,563			$	179			$	21,339
Depreciation & amortization - BXP’s basis difference			46				45				—				91
BXP’s share of depreciation & amortization			14,248				11,070				—				25,318
BXP’s share of FFO		$	17,891			$	28,678			$	179			$	46,748
Partners’ share of select items (1):
Partners’ share of revenue		$	31,458			$	41,140			$	—			$	72,598
Partners’ share of interest expense		$	8,490			$	3,326			$	—			$	11,816
Partners’ share of hedge amortization		$	144			$	—			$	—			$	144
Partners’ share of amortization of financing costs		$	346			$	36			$	—			$	382
Partners’ share of capitalized interest		$	68			$	450			$	—			$	518
Partners’ share of non-cash termination income adjustment (fair value lease amounts)		$	(97	)		$	—			$	—			$	(97	)
Reconciliation of Partners’ share of NOI (1):
Rental revenue		$	31,458			$	41,140			$	—			$	72,598
Less: Termination income			1,214				19				—				1,233
Rental revenue (excluding termination income)			30,244				41,121				—				71,365
Operating expenses			12,030				15,380				—				27,410
NOI (excluding termination income)		$	18,214			$	25,741			$	—			$	43,955
Rental revenue (excluding termination income)		$	30,244			$	41,121				—			$	71,365
Less: Straight-line rent			755				1,205				—				1,960
Fair value lease revenue			1,615				106				—				1,721
Add: Lease transaction costs that qualify as rent inducements (3)			9				—				—				9
Subtotal			27,883				39,810				—				67,693
Less: Operating expenses			12,030				15,380				—				27,410
NOI - cash (excluding termination income)		$	15,853			$	24,430			$	—			$	40,283

 

(1)	Amounts represent the partners’ share based on their respective ownership percentage.

(2)	Capitalized fees are eliminated in consolidation and recognized over the life of the asset as depreciation and amortization are added back to the Company’s net income.

(3)	Consists of lease transaction costs that qualify as rent inducements in accordance with GAAP. Leasing transaction costs are generally included in 2nd generation tenant improvements and leasing commissions in the Company’s FAD calculation on page 12.

 

20

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THIRD QUARTER 2017

 

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO BOSTON PROPERTIES, INC. COMMON SHAREHOLDERS TO NET OPERATING INCOME (NOI)

(in thousands)

 

		For the three months ended
		September 30, 2017				September 30, 2016
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	76,753
Preferred dividends			2,625				2,589
Net income attributable to Boston Properties, Inc.			119,962				79,342
Net income attributable to noncontrolling interests:
Noncontrolling interest - common units of the Operating Partnership			13,402				9,387
Noncontrolling interest in property partnerships			14,340				(17,225	)
Net income			147,704				71,504
Gains on sales of real estate			(2,891	)			(12,983	)
Income before gains on sales of real estate			144,813				58,521
Add:
Interest expense			92,032				104,641
Losses from interest rate contracts			—				140
Losses from early extinguishments of debt			—				371
Impairment loss			—				1,783
Depreciation and amortization			152,164				203,748
Transaction costs			239				249
General and administrative expense			25,792				25,165
Subtract:
Gains from investments in securities			(944	)			(976	)
Interest and other income			(1,329	)			(3,628	)
Income from unconsolidated joint ventures			(843	)			(1,464	)
Development and management services income			(10,811	)			(6,364	)
Net Operating Income (NOI)			401,113				382,186
Add:
BXP’s share of NOI from unconsolidated joint ventures			15,634	(1)			14,436
Subtract:
Partners’ share of NOI from consolidated joint ventures			(45,188	)(2)			(42,271	)
BXP’s Share of NOI			371,559				354,351
Subtract:
Termination income			(4,783	)			170
BXP’s share of termination income from unconsolidated joint ventures			(28	)(1)			(8	)
Add:
Partners’ share of termination income from consolidated joint ventures			1,233	(2)			(421	)
BXP’s Share of NOI (excluding termination income)		$	367,981			$	354,092
Net Operating Income (NOI)		$	401,113			$	382,186
Subtract:
Termination income			(4,783	)			170
NOI from non Same Properties (excluding termination income) (3)			(1,423	)			1,079
Same Property NOI (excluding termination income)			394,907				383,435
Subtract:
Partners’ share of NOI from consolidated joint ventures (excluding termination income)			(43,955	)(2)			(42,692	)
Add:
Partners’ share of NOI from non Same Properties from consolidated joint ventures (excluding termination income) (3)			(592	)			(459	)
BXP’s share of NOI from unconsolidated joint ventures (excluding termination income)			15,606	(1)			14,428
Subtract:
BXP’s share of NOI from non Same Properties from unconsolidated joint ventures (excluding termination income) (3)			(494	)			(1,303	)
BXP’s Share of Same Property NOI (excluding termination income)		$	365,472			$	353,409

 

(1)	For disclosures related to the calculation of BXP’s share from unconsolidated joint ventures, see page 18.

(2)	For disclosures related to the calculation of Partners’ share from consolidated joint ventures, see page 20.

(3)	Pages 27-29 indicate by footnote the properties that are not included as part of Same Property NOI. In addition, non Same Properties include properties that were sold prior to September 30, 2017 and therefore are no longer a part of the Company’s property portfolio.

 

 

21

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THIRD QUARTER 2017

 

RECONCILIATION OF NET INCOME ATTRIBUTABLE TO BOSTON PROPERTIES, INC. COMMON SHAREHOLDERS TO NET OPERATING INCOME (NOI) - CASH

(in thousands)

 

		For the three months ended
		September 30, 2017				September 30, 2016
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	76,753
Preferred dividends			2,625				2,589
Net income attributable to Boston Properties, Inc.			119,962				79,342
Net income attributable to noncontrolling interests:
Noncontrolling interest - common units of the Operating Partnership			13,402				9,387
Noncontrolling interest in property partnerships			14,340				(17,225	)
Net income			147,704				71,504
Gains on sales of real estate			(2,891	)			(12,983	)
Income before gains on sales of real estate			144,813				58,521
Add:
Interest expense			92,032				104,641
Losses from interest rate contracts			—				140
Losses from early extinguishments of debt			—				371
Impairment loss			—				1,783
Depreciation and amortization			152,164				203,748
Transaction costs			239				249
General and administrative expense			25,792				25,165
Subtract:
Gains from investments in securities			(944	)			(976	)
Interest and other income			(1,329	)			(3,628	)
Income from unconsolidated joint ventures			(843	)			(1,464	)
Development and management services income			(10,811	)			(6,364	)
Net Operating Income (NOI)			401,113				382,186
Subtract:
Straight-line rent			(16,105	)			(11,107	)
Fair value lease revenue			(5,781	)			(6,547	)
Termination income			(4,783	)			170
Add:
Straight-line ground rent expense adjustment (1)			929				971
Lease transaction costs that qualify as rent inducements (2)			(102	)			861
NOI - cash (excluding termination income)			375,271				366,534
Subtract:
NOI - cash from non Same Properties (excluding termination income) (3)			(467	)			532
Same Property NOI - cash (excluding termination income)			374,804				367,066
Subtract:
Partners’ share of NOI - cash from consolidated joint ventures (excluding termination income)			(40,283	)(4)			(39,901	)
Add:
Partners’ share of NOI - cash from non Same Properties from consolidated joint ventures (excluding termination income) (3)			(589	)			(231	)
BXP’s share of NOI - cash from unconsolidated joint ventures (excluding termination income)			12,708	(5)			10,647
Subtract:
BXP’s share of NOI - cash from non Same Properties from unconsolidated joint ventures (excluding termination income) (3)			(494	)			(696	)
BXP’s Share of Same Property NOI - cash (excluding termination income)		$	346,146			$	336,885

 

(1)

In light of the front-ended, uneven rental payments required by the Company’s 99-year ground and air rights lease for the 100 Clarendon Street garage and Back Bay Transit Station in Boston, MA, and to make period-to-period comparisons more meaningful to investors, the adjustment does not include the straight-line impact of approximately $(375) and $60 for the three months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the Company has remaining lease payments aggregating approximately $26.6 million, all of which it expects to incur by the end of 2020 with no payments thereafter. Under GAAP, the Company is recognizing expense of $(87) per quarter on a straight-line basis over the term of the lease. However, unlike more traditional ground and air rights leases, the timing and amounts of the rental payments by the Company correlate to the uneven timing and funding by the Company of capital expenditures related to improvements at Back Bay Transit Station. As a result, the amounts excluded from the adjustment each quarter through 2020 may vary significantly.

(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 in the Company’s FAD calculation on page 12.

(3)	Pages 27-29 indicate by footnote the properties that are not included as part of Same Property NOI. In addition, non Same Properties include dispositions that occurred prior to September 30, 2017 and therefore are no longer a part of the Company’s property portfolio.

(4)	For disclosures related to the calculation of Partners’ share from consolidated joint ventures, see page 20.

(5)	For disclosures related to the calculation of BXP’s share from unconsolidated joint ventures, see page 18.

 

 

22

---

THIRD QUARTER 2017

 

SAME PROPERTY NET OPERATING INCOME (NOI) BY REPORTABLE SEGMENT

(dollars in thousands)

 

		Office (1)																Hotel & Residential
		For the three months ended																For the three months ended
		30-Sep-17				30-Sep-16				$ Change				% Change				30-Sep-17				30-Sep-16				$ Change				% Change
Rental Revenue		$	623,670			$	600,287											$	17,359			$	16,726
Less: Termination income			4,740				836												—				—
Rental revenue (excluding termination income) (2)			618,930				599,451			$	19,479				3.2	%			17,359				16,726			$	633				3.8	%
Less: Operating expenses and real estate taxes			231,351				223,024				8,327				3.7	%			10,031				9,718				313				3.2	%
NOI (excluding termination income) (3)		$	387,579			$	376,427			$	11,152				3.0	%		$	7,328			$	7,008			$	320				4.6	%
Rental revenue (excluding termination income) (2)		$	618,930			$	599,451											$	17,359			$	16,726
Less: Straight-line rent and fair value lease revenue			20,927				18,186				2,741				15.1	%			3				15				(12	)			(80.0	)%
Add: Lease transaction costs that qualify as rent inducements (4)			(102	)			861				(963	)			(111.8	)%			—				—				—				—
Subtotal			597,901				582,126				15,775				2.7	%			17,356				16,711				645				3.9	%
Less: Operating expenses and real estate taxes			231,351				223,024				8,327				3.7	%			10,031				9,718				313				3.2	%
Add: Straight-line ground rent expense (5)			929				971				(42	)			(4.3	)%			—				—				—				—
NOI (excluding termination income)—cash		$	367,479			$	360,073			$	7,406				2.1	%		$	7,325			$	6,993			$	332				4.7	%
		Consolidated Total (1)																Unconsolidated Joint Ventures (BXP’s share)
		For the three months ended																For the three months ended
		30-Sep-17				30-Sep-16				$ Change				% Change				30-Sep-17				30-Sep-16				$ Change				% Change
Rental Revenue		$	641,029			$	617,013											$	25,401			$	22,842
Less: Termination income			4,740				836												28				11
Rental revenue (excluding termination income) (2)			636,289				616,177			$	20,112				3.3	%			25,373				22,831			$	2,542				11.1	%
Less: Operating expenses and real estate taxes			241,382				232,742				8,640				3.7	%			10,261				9,706				555				5.7	%
NOI (excluding termination income) (3)		$	394,907			$	383,435			$	11,472				3.0	%		$	15,112			$	13,125			$	1,987				15.1	%
Rental revenue (excluding termination income) (2)		$	636,289			$	616,177											$	25,373			$	22,831
Less: Straight-line rent and fair value lease revenue			20,930				18,201				2,729				15.0	%			3,107				3,180				(73	)			(2.3	)%
Add: Lease transaction costs that qualify as rent inducements (4)			(102	)			861				(963	)			(111.8	)%			208				6				202				3,366.7	%
Subtotal			615,257				598,837				16,420				2.7	%			22,474				19,657				2,817				14.3	%
Less: Operating expenses and real estate taxes			241,382				232,742				8,640				3.7	%			10,261				9,706				555				5.7	%
Add: Straight-line ground rent expense (5)			929				971				(42	)			(4.3	)%			—				—				—				—
NOI (excluding termination income)—cash (6)		$	374,804			$	367,066			$	7,738				2.1	%		$	12,213			$	9,951			$	2,262				22.7	%
		Partners’ share of Consolidated Joint Ventures																BXP’s Share (7)
		For the three months ended																For the three months ended
		30-Sep-17				30-Sep-16				$ Change				% Change				30-Sep-17				30-Sep-16				$ Change				% Change
Rental Revenue		$	72,186			$	69,343											$	594,244			$	570,512
Less: Termination income			1,213				32												3,555				815
Rental revenue (excluding termination income) (2)			70,973				69,311			$	1,662				2.4	%			590,689				569,697			$	20,992				3.7	%
Less: Operating expenses and real estate taxes			26,426				26,160				266				1.0	%			225,217				216,288				8,929				4.1	%
NOI (excluding termination income) (3)		$	44,547			$	43,151			$	1,396				3.2	%		$	365,472			$	353,409			$	12,063				3.4	%
Rental revenue (excluding termination income) (2)		$	70,973			$	69,311											$	590,689			$	569,697
Less: Straight-line rent and fair value lease revenue			3,685				3,019				666				22.1	%			20,352				18,362				1,990				10.8	%
Add: Lease transaction costs that qualify as rent inducements (4)			9				—				9				100.0	%			97				867				(770	)			(88.8	)%
Subtotal			67,297				66,292				1,005				1.5	%			570,434				552,202				18,232				3.3	%
Less: Operating expenses and real estate taxes			26,426				26,160				266				1.0	%			225,217				216,288				8,929				4.1	%
Add: Straight-line ground rent expense (5)			—				—				—				—				929				971				(42	)			(4.3	)%
NOI (excluding termination income)—cash (6)		$	40,871			$	40,132			$	739				1.8	%		$	346,146			$	336,885			$	9,261				2.7	%

 

(1)

Includes 100% share of consolidated joint ventures. Same Property consolidated joint venture properties includes (a) 767 Fifth Avenue (The GM Building), 601 Lexington Avenue (excluding the portion removed from the complex as part of a planned redevelopment) and Times Square Tower in New York City and (b) 100 Federal Street and Atlantic Wharf Office Building in Boston, MA.

(2)

Rental Revenue (excluding termination income) is used internally by the Company as a performance measure and provides investors with additional information regarding operating performance at a property level that allows them to compare operating performance between periods without taking into account termination income, which can distort the results for any given period because they generally represent multiple months or years of a tenant’s rental obligations that are paid in a lump sum in connection with a negotiated early termination of the tenant’s lease and are not reflective of the core ongoing operating performance of the Company’s properties.

(3)	For a quantitative reconciliation of net income attributable to Boston Properties, Inc. common shareholders to net operating income (NOI) (excluding termination income), see page 21. For disclosures relating to the Company’s use of NOI, see page 48.

(4)	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 Company’s FAD calculation on page 12.

(5)

Excludes the straight-line impact of approximately $(375) and $60 for the three months ended September 30, 2017 and 2016, respectively, in connection with the Company’s 99-year ground and air rights lease at 100 Clarendon Street garage and Back Bay Transit Station. For additional information, see page 22.

(6)	For a quantitative reconciliation of net income attributable to Boston Properties, Inc. common shareholders to NOI - cash (excluding termination income), see page 22. For disclosures relating to the Company’s use of NOI, see page 48.

(7)	For disclosures relating to the Company’s definition and use of BXP’s Share, see page 47.

 

23

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THIRD QUARTER 2017

 

RESIDENTIAL and HOTEL PERFORMANCE

Rental Rates and Occupancy

 

 

		Third Quarter								Percent Change				YTD								Percent Change
		2017				2016								2017				2016
The Avant at Reston Town Center (359 units)
Reston, VA
Average Monthly Rental Rate (1)		$	2,418			$	2,429				(0.5	)%		$	2,391			$	2,375				0.7	%
Average Rental Rate Per Occupied Square Foot (1)		$	2.68			$	2.68				—			$	2.63			$	2.61				0.8	%
Average Physical Occupancy (1) (2)			95.7	%			95.6	%			0.1	%			93.8	%			94.2	%			(0.4	)%
Average Economic Occupancy (2)			94.4	%			95.6	%			(1.3	)%			92.9	%			94.1	%			(1.3	)%
The Lofts at Atlantic Wharf (86 units)
Boston, MA
Average Monthly Rental Rate (3)		$	4,295			$	4,146				3.6	%		$	4,248			$	4,150				2.4	%
Average Rental Rate Per Occupied Square Foot (3)		$	4.74			$	4.63				2.4	%		$	4.71			$	4.59				2.6	%
Average Physical Occupancy (2) (3)			94.2	%			97.3	%			(3.2	)%			94.4	%			96.3	%			(2.0	)%
Average Economic Occupancy (2)			95.5	%			97.7	%			(2.3	)%			95.3	%			97.3	%			(2.1	)%
Boston Marriott Cambridge (437 rooms)
Cambridge, MA
Average Occupancy			90.3	%(4)			87.2	%			3.6	%			81.0	%(4)			82.2	%			(1.5	)%
Average Daily Rate		$	283.76	(4)		$	279.03				1.7	%		$	273.96	(4)		$	269.10				1.8	%
Revenue per available room		$	256.32	(4)		$	243.19				5.4	%		$	221.98	(4)		$	221.28				0.3	%

Net Operating Income (dollars in thousands) (5)

 

 

		Residential												Hotel
		Third Quarter								Percent Change				Third Quarter								Percent Change
		2017				2016								2017				2016
Rental Revenue		$	4,295	(6)		$	4,372	(6)			(1.8	)%		$	13,064			$	12,354				5.7	%
Less: Operating expenses and real estate taxes			1,577				2,223	(7)			(29.1	)%			8,447				8,118				4.1	%
Net Operating Income		$	2,718	(6)		$	2,149	(6)			26.5	%		$	4,617			$	4,236				9.0	%
Rental Revenue		$	4,295	(6)		$	4,372	(6)						$	13,064			$	12,354
Less: Straight-line rent and fair value lease revenue			9				14				(35.7	)%			(6	)			1				(700.0	)%
Subtotal			4,286				4,358				(1.7	)%			13,070				12,353				5.8	%
Less: Operating expenses and real estate taxes			1,577				2,223	(7)			(29.1	)%			8,447				8,118				4.1	%
Net Operating Income—cash basis		$	2,709	(6)		$	2,135	(6)			26.9	%		$	4,623			$	4,235				9.2	%

 

(1)	Excludes 26,179 square feet of retail space which is 100% leased.

(2)	For disclosures related to the Company’s definition of Average Physical Occupancy and Average Economic Occupancy, see page 47.

(3)	Excludes 9,617 square feet of retail space which is 100% leased.

(4)	The hotel underwent a room renovation project, on all of its 437 rooms, which was completed during the three months ended September 30, 2017. For additional information, see page 25.

(5)	For disclosures related to the Company’s definition of Net Operating Income, see page 48.

(6)	Includes 35,796 square feet of retail space, which had revenue of approximately $582 and $672 for the three months ended September 30, 2017 and 2016, respectively.

(7)	Includes approximately $623 of demolition costs related to the Proto Kendall Square development project.

 

24

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THIRD QUARTER 2017

 

CAPITAL EXPENDITURES, TENANT IMPROVEMENT COSTS and LEASING COMMISSIONS

(dollars in thousands, except PSF amounts)

Capital Expenditures

 

 

		Q3 2017				Q2 2017				Q1 2017				2016				2015				2014
Maintenance capital expenditures		$	12,032			$	11,643			$	10,677			$	59,838			$	56,383			$	45,618
Partners’ share of maintenance capital expenditures from consolidated joint ventures			(457	)			(1,004	)			(2,129	)			(2,569	)			(5,565	)			(4,377	)
BXP’s share of maintenance capital expenditures from unconsolidated joint ventures			111				17				211				1,029				1,653				1,369
Hotel improvements, equipment upgrades and replacements (1)			289				2,502				6,231				6,801				2,430				2,894
Planned capital expenditures associated with acquisition properties			—				—				—				87				6,914				14,652
Partners’ share of planned capital expenditures associated with acquisition properties from consolidated joint ventures			—				—				—				—				(845	)			(1,565	)
BXP’s share of planned capital expenditures associated with acquisition properties from unconsolidated joint ventures			538				396				62				230				—				—
Repositioning capital expenditures (2)			41,155				39,582				30,722				58,446				9,744				—
Partners’ share of repositioning capital expenditures from consolidated joint ventures			(11,050	)			(9,357	)			(5,740	)			(2,746	)			—				—
BXP’s share of repositioning capital expenditures from unconsolidated joint ventures (3)			144				105				41				494				76				—
Total BXP’s Share of Capital Expenditures		$	42,762			$	43,884			$	40,075			$	121,610			$	70,790			$	58,591

2nd Generation Tenant Improvements and Leasing Commissions (4)

 

 

		Q3 2017				Q2 2017				Q1 2017				2016				2015				2014
Square feet			1,296,142				1,340,600				914,880				4,970,991				5,204,123				3,936,046
Tenant improvements and lease commissions PSF		$	43.66			$	63.96			$	55.92			$	62.04			$	45.40			$	29.60

 

(1)	Includes capital expenditures related to a rooms renovation project that was completed during Q3 2017.

(2)

Q3 2017 amount includes capital expenditures related to the repositioning activities designed to enhance revenue potential at (a) 1330 Connecticut Avenue and 1333 New Hampshire Avenue in Washington, DC, (b) 100 Federal Street (55% ownership) and Prudential Center Retail Improvements in Boston, MA, and (c) 399 Park Avenue and 767 Fifth Avenue (the GM Building) (60% ownership) in New York City.

(3)	Includes capital expenditures related to the repositioning activities designed to enhance revenue potential at Metropolitan Square in Washington, DC.

(4)	Includes 100% of unconsolidated joint ventures.

 

25

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THIRD QUARTER 2017

 

PORTFOLIO OVERVIEW

for the three months ended September 30, 2017

(dollars in thousands)

Rentable Square Footage of In-Service Properties by Location and Unit Type (1) (2)

 

 

Geographic Area				Office				Retail				Residential				Hotel				Total
Boston				13,006,748					911,615				77,480				330,000				14,325,843
New York				11,243,697					386,612				—				—				11,630,309
San Francisco and Los Angeles				6,846,627					354,961				—				—				7,201,588
Washington, DC				9,902,783					695,785				329,195				—				10,927,763
Total				40,999,855					2,348,973				406,675				330,000				44,085,503
% of Total				93.1%					5.3	%			0.9	%			0.7	%			100.0	%

Rentable Square Footage and Rental Revenue of In-Service Properties by Unit Type (1) (2)

 

 

				Rental Revenue
Unit Type		Square Feet		Consolidated				Partners’ share from Consolidated Joint Ventures (3)				BXP’s share from Unconsolidated Joint Ventures (4)				Total				% of Total
Office		40,999,855		$	555,211			$	(64,930	)		$	22,604			$	512,885				85.4	%
Retail		2,348,973			49,045				(6,735	)			877				43,187				7.2	%
Residential		406,675			3,578				—				—				3,578				0.6	%
Hotel		330,000			12,975	(5)			—				—				12,975				2.2	%
Parking and other		N/A			26,092	(6)			(933	)			2,401				27,560				4.6	%
Total		44,085,503		$	646,901			$	(72,598	)		$	25,882			$	600,185				100.0	%

Rentable Square Footage of In-Service Same Properties by Unit Type (1) (2) (7)

 

 

Same Properties		Office				Retail				Residential				Hotel				Total
Square Feet			40,351,989				2,295,184				406,675				330,000				43,383,848
% of Properties In-Service			98.4	%			97.7	%			100.0	%			100.0	%			98.4	%

Percentage of BXP’s Share of Net Operating Income (excluding termination income) by Location and Type of Property (8)

 

 

Geographic Area		Office				Residential				Hotel				Total
Boston			30.6	%			0.2	%			1.3	%			32.1	%
New York			29.6	%			—				—				29.6	%
San Francisco and Los Angeles			18.2	%			—				—				18.2	%
Washington, DC			19.6	%			0.5	%			—				20.1	%
Total			98.0	%			0.7	%			1.3	%			100.0	%
Geographic Area						CBD				Suburban				Total
Boston							25.2	%			6.9	%			32.1	%
New York							27.0	%			2.6	%			29.6	%
San Francisco and Los Angeles							14.9	%			3.3	%			18.2	%
Washington, DC							8.8	%			11.3	%			20.1	%
Total							75.9	%			24.1	%			100.0	%

 

(1)	For the definition of In-Service Properties and related disclosures, see page 48.

(2)	Includes 100% of the rentable square footage of the Company’s In-Service Properties. For additional detail relating to the Company’s In-Service Properties, see pages 27-29.

(3)	For additional information, see page 20.

(4)	For additional information, see page 18.

(5)	Excludes approximately $89 of revenue from retail tenants that is included in Retail above.

(6)	Includes approximately $2,020 of other income.

(7)	Pages 27-29 indicate by footnote the properties that are not included as part of Same Properties.

(8)

BXP’s Share of Net Operating Income (NOI) (excluding termination income) is a non-GAAP financial measure. For a quantitative reconciliation of net income attributable to Boston Properties, Inc. common shareholders to BXP’s Share of NOI (excluding termination income), see page 21. For disclosures relating to the Company’s use of BXP’s Share of NOI (excluding termination income), see pages 47-48.

 

26

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THIRD QUARTER 2017

 

IN-SERVICE PROPERTY LISTING

as of September 30, 2017

 

		Sub Market		Number of Buildings				Square Feet				Leased % (1)				Annualized Rental Obligations Per Leased SF (2)				Encumbered with secured debt (Y/N)				Central Business District (CBD) or Suburban (S)
Boston
Office
200 Clarendon Street		CBD Boston MA			1				1,759,329				87.2	%		$	64.05				N			CBD
100 Federal Street (55% ownership)		CBD Boston MA			1				1,241,473				93.5	%			53.88				N			CBD
800 Boylston Street—The Prudential Center		CBD Boston MA			1				1,235,881				98.0	%			61.02				N			CBD
111 Huntington Avenue—The Prudential Center		CBD Boston MA			1				860,455				97.3	%			62.65				N			CBD
Atlantic Wharf Office (55% ownership)		CBD Boston MA			1				793,827				100.0	%			69.79				N			CBD
(3) Prudential Center (retail shops)		CBD Boston MA			1				595,826				95.0	%			88.06				N			CBD
101 Huntington Avenue—The Prudential Center		CBD Boston MA			1				505,583				89.5	%			49.57				N			CBD
(4)(5) 888 Boylston Avenue—The Prudential Center		CBD Boston MA			1				363,307				74.3	%			59.66				N			CBD
(3) Star Market at the Prudential Center		CBD Boston MA			1				57,235				100.0	%			54.44				N			CBD
					9				7,412,916				92.8	%		$	63.09
355 Main Street		East Cambridge MA			1				265,342				100.0	%		$	69.80				N			CBD
90 Broadway		East Cambridge MA			1				223,771				99.7	%			52.69				N			CBD
255 Main Street		East Cambridge MA			1				215,629				100.0	%			55.85				N			CBD
300 Binney Street		East Cambridge MA			1				195,191				100.0	%			53.13				N			CBD
150 Broadway		East Cambridge MA			1				177,226				100.0	%			47.57				N			CBD
105 Broadway		East Cambridge MA			1				152,664				100.0	%			61.51				N			CBD
325 Main Street		East Cambridge MA			1				115,361				100.0	%			49.67				N			CBD
250 Binney Street		East Cambridge MA			1				67,362				100.0	%			43.40				N			CBD
University Place		Mid-Cambridge MA			1				195,282				100.0	%			47.80				Y			CBD
					9				1,607,828				100.0	%		$	55.06
Bay Colony Corporate Center		Route 128 Mass Turnpike MA			4				996,060				80.3	%		$	40.81				N			S
Reservoir Place		Route 128 Mass Turnpike MA			1				526,985				99.3	%			37.15				N			S
140 Kendrick Street		Route 128 Mass Turnpike MA			3				380,987				100.0	%			37.96				N			S
Weston Corporate Center		Route 128 Mass Turnpike MA			1				356,995				100.0	%			52.54				N			S
Waltham Weston Corporate Center		Route 128 Mass Turnpike MA			1				301,667				93.4	%			37.20				N			S
230 CityPoint		Route 128 Mass Turnpike MA			1				298,890				89.7	%			36.62				N			S
200 West Street		Route 128 Mass Turnpike MA			1				256,245				96.9	%			37.02				N			S
10 CityPoint		Route 128 Mass Turnpike MA			1				241,460				96.6	%			48.70				N			S
77 CityPoint		Route 128 Mass Turnpike MA			1				209,707				100.0	%			48.18				N			S
(5)(6)1265 Main Street (50% ownership)		Route 128 Mass Turnpike MA			1				114,969				100.0	%			44.81				Y			S
(5) Reservoir Place North		Route 128 Mass Turnpike MA			1				73,258				0.0	%			—				N			S
195 West Street		Route 128 Mass Turnpike MA			1				63,500				100.0	%			41.24				N			S
Quorum Office Park		Route 128 Northwest MA			2				267,527				90.0	%			19.47				N			S
Lexington Office Park		Route 128 Northwest MA			2				166,693				68.4	%			28.03				N			S
91 Hartwell Avenue		Route 128 Northwest MA			1				119,216				93.2	%			28.03				N			S
201 Spring Street		Route 128 Northwest MA			1				106,300				100.0	%			37.84				N			S
33 Hayden Avenue		Route 128 Northwest MA			1				80,872				100.0	%			43.43				N			S
32 Hartwell Avenue		Route 128 Northwest MA			1				69,154				100.0	%			28.33				N			S
164 Lexington Road		Route 128 Northwest MA			1				64,140				0.0	%			—				N			S
100 Hayden Avenue		Route 128 Northwest MA			1				55,924				100.0	%			42.77				N			S
181 Spring Street		Route 128 Northwest MA			1				55,793				100.0	%			31.25				N			S
92 Hayden Avenue		Route 128 Northwest MA			1				31,100				100.0	%			41.96				N			S
17 Hartwell Avenue		Route 128 Northwest MA			1				30,000				100.0	%			53.79				N			S
(3) The Point		Route 128 Northwest MA			1				16,300				84.7	%			57.53				N			S
					31				4,883,742				89.9	%		$	39.27
		Total Boston Office:			49				13,904,486				92.6	%		$	53.92
Residential
The Lofts at Atlantic Wharf (86 units)		CBD Boston MA			1				87,097												N			CBD
		Total Boston Residential:			1				87,097
Hotel
Boston Marriott Cambridge (437 rooms)		East Cambridge MA			1				334,260												N			CBD
		Total Boston Hotel:			1				334,260
		Total Boston:			51				14,325,843

 

(1)	Represents signed leases for which revenue recognition has commenced in accordance with GAAP.

(2)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(3)	This is a retail property.

(4)	Excludes approximately 54,000 square feet of retail space included in Prudential Center (retail shops) that is excluded from Same Property analysis.

(5)	Not included in Same Property analysis.

(6)	This is an unconsolidated joint venture property.

 

27

---

THIRD QUARTER 2017

 

IN-SERVICE PROPERTY LISTING (continued)

as of September 30, 2017

 

		Sub Market		Number of Buildings				Square Feet				Leased % (1)				Annualized Rental Obligations Per Leased SF (2)				Encumbered with secured debt (Y/N)				Central Business District (CBD) or Suburban (S)
New York
Office
767 Fifth Avenue (The GM Building) (60% ownership)		Plaza District NY			1				1,855,282				89.0	%		$	150.90				Y			CBD
399 Park Avenue		Park Avenue NY			1				1,722,480				78.3	%			88.25				N			CBD
(3) 601 Lexington Avenue (55% ownership)		Park Avenue NY			1				1,437,044				98.3	%			96.38				Y			CBD
599 Lexington Avenue		Park Avenue NY			1				1,062,481				91.4	%			90.47				N			CBD
Times Square Tower (55% ownership)		Times Square NY			1				1,252,191				95.8	%			78.94				N			CBD
250 West 55th Street		Times Square / West Side NY			1				980,927				88.2	%			88.16				N			CBD
510 Madison Avenue		Fifth/Madison Avenue NY			1				355,598				95.1	%			126.39				N			CBD
(4) 540 Madison Avenue (60% ownership)		Fifth/Madison Avenue NY			1				283,665				94.6	%			101.34				Y			CBD
					8				8,949,668				90.0	%		$	103.42
One Tower Center		East Brunswick NJ			1				412,997				21.7	%		$	30.46				N			S
510 Carnegie Center		Princeton NJ			1				234,160				100.0	%			35.00				N			S
210 Carnegie Center		Princeton NJ			1				159,468				100.0	%			37.96				N			S
206 Carnegie Center		Princeton NJ			1				161,763				100.0	%			31.79				N			S
212 Carnegie Center		Princeton NJ			1				151,547				54.6	%			37.39				N			S
214 Carnegie Center		Princeton NJ			1				148,942				61.2	%			36.30				N			S
506 Carnegie Center		Princeton NJ			1				140,312				27.7	%			40.05				N			S
508 Carnegie Center		Princeton NJ			1				134,433				100.0	%			34.42				N			S
202 Carnegie Center		Princeton NJ			1				134,381				82.5	%			38.19				N			S
804 Carnegie Center		Princeton NJ			1				130,000				100.0	%			37.10				N			S
504 Carnegie Center		Princeton NJ			1				121,990				100.0	%			30.75				N			S
101 Carnegie Center		Princeton NJ			1				121,620				100.0	%			36.35				N			S
502 Carnegie Center		Princeton NJ			1				121,460				71.8	%			35.88				N			S
701 Carnegie Center		Princeton NJ			1				120,000				100.0	%			39.76				N			S
104 Carnegie Center		Princeton NJ			1				102,830				39.2	%			36.41				N			S
(5) 103 Carnegie Center		Princeton NJ			1				96,332				83.4	%			28.94				N			S
105 Carnegie Center		Princeton NJ			1				69,955				56.3	%			32.99				N			S
302 Carnegie Center		Princeton NJ			1				64,926				100.0	%			33.72				N			S
211 Carnegie Center		Princeton NJ			1				47,025				100.0	%			33.40				N			S
201 Carnegie Center		Princeton NJ			—				6,500				100.0	%			34.36				N			S
					19				2,680,641				73.2	%		$	35.11
		Total New York:			27				11,630,309				86.1	%		$	90.04
San Francisco and Los Angeles
Office
Embarcadero Center Four		CBD San Francisco CA			1				938,344				88.7	%		$	69.62				N			CBD
Embarcadero Center One		CBD San Francisco CA			1				831,936				92.8	%			63.20				N			CBD
Embarcadero Center Two		CBD San Francisco CA			1				788,929				95.2	%			67.59				N			CBD
Embarcadero Center Three		CBD San Francisco CA			1				781,160				89.7	%			61.24				N			CBD
680 Folsom Street		CBD San Francisco CA			2				524,793				98.9	%			60.65				N			CBD
535 Mission Street		CBD San Francisco CA			1				307,235				100.0	%			74.67				N			CBD
690 Folsom Street		CBD San Francisco CA			1				26,080				100.0	%			72.62				N			CBD
					8				4,198,477				93.1	%		$	65.66
601 and 651 Gateway		South San Francisco CA			2				504,776				100.0	%		$	41.32				N			S
611 Gateway		South San Francisco CA			1				260,337				36.9	%			39.39				N			S
Mountain View Research Park		Mountain View CA			15				540,433				100.0	%			44.72				N			S
2440 West El Camino Real		Mountain View CA			1				141,392				100.0	%			66.38				N			S
453 Ravendale Drive		Mountain View CA			1				29,620				65.7	%			38.29				N			S
(6) 3625-3635 Peterson Way		Santa Clara CA			1				218,366				100.0	%			22.22				N			S
(6) North First Business Park		San Jose CA			5				190,636				64.3	%			23.64				N			S
					26				1,885,560				87.1	%		$	40.59
(4) Colorado Center (50.0% ownership)		West Los Angeles CA			6				1,117,551				82.7	%		$	57.50				Y			CBD
		Total San Francisco and Los Angeles:			40				7,201,588				89.9	%		$	58.13

 

(1)	Represents signed leases for which revenue recognition has commenced in accordance with GAAP.

(2)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(3)

Approximately 13% of this complex was removed from the in-service portfolio upon commencement of construction of the planned redevelopment that occurred during the third quarter of 2016. As a result, the portion related to the planned redevelopment is not included in the Company’s Same Property analysis.

(4)	This is an unconsolidated joint venture property.

(5)	Not included in Same Property analysis.

(6)	Property held for redevelopment.

 

28

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THIRD QUARTER 2017

 

IN-SERVICE PROPERTY LISTING (continued)

as of September 30, 2017

 

		Sub Market		Number of Buildings				Square Feet				Leased % (1)				Annualized Rental Obligations Per Leased SF (2)				Encumbered with secured debt (Y/N)		Central Business District (CBD) or Suburban (S)
Washington, DC
Office
Capital Gallery		Southwest Washington DC			1				631,029				100.0	%		$	60.76			N		CBD
500 E Street, S.W.		Southwest Washington DC			1				262,202				100.0	%			45.56			N		CBD
(3)(4) Metropolitan Square (20% ownership)		East End Washington DC			1				606,927				74.8	%			62.27			Y		CBD
(3) 901 New York Avenue (25% ownership)		East End Washington DC			1				539,435				90.9	%			66.49			Y		CBD
601 Massachusetts Avenue		East End Washington DC			1				478,818				95.8	%			72.36			N		CBD
(3) Market Square North (50% ownership)		East End Washington DC			1				415,795				74.7	%			66.92			Y		CBD
2200 Pennsylvania Avenue		CBD Washington DC			1				458,831				100.0	%			91.54			N		CBD
1333 New Hampshire Avenue		CBD Washington DC			1				315,371				100.0	%			48.27			N		CBD
1330 Connecticut Avenue		CBD Washington DC			1				253,145				98.0	%			61.30			N		CBD
Sumner Square		CBD Washington DC			1				208,892				98.5	%			51.42			N		CBD
(3) 500 North Capitol Street, N.W. (30% ownership)		Capitol Hill Washington DC			1				230,860				100.0	%			69.11			Y		CBD
					11				4,401,305				92.4	%		$	64.81
South of Market		Reston VA			3				623,666				98.7	%		$	56.82			N		S
Fountain Square		Reston VA			2				518,345				88.8	%			49.87			N		S
One Freedom Square		Reston VA			1				432,585				99.7	%			48.71			N		S
Two Freedom Square		Reston VA			1				421,757				100.0	%			47.74			N		S
One and Two Discovery Square		Reston VA			2				366,990				93.7	%			46.30			N		S
One Reston Overlook		Reston VA			1				319,519				100.0	%			39.99			N		S
Reston Corporate Center		Reston VA			2				261,046				100.0	%			40.76			N		S
Democracy Tower		Reston VA			1				259,441				100.0	%			62.08			N		S
(5) Fountain Square Retail		Reston VA			1				237,209				97.4	%			50.45			N		S
Two Reston Overlook		Reston VA			1				134,615				100.0	%			39.39			N		S
					15				3,575,173				97.3	%		$	49.28
Wisconsin Place Office		Montgomery County MD			1				299,186				100.0	%		$	51.85			N		S
2600 Tower Oaks Boulevard		Montgomery County MD			1				179,421				52.5	%			33.19			N		S
New Dominion Technology Park—Building Two		Herndon VA			1				257,400				100.0	%			42.87			N		S
New Dominion Technology Park—Building One		Herndon VA			1				235,201				100.0	%			35.42			Y		S
Kingstowne Two		Springfield VA			1				156,251				75.6	%			40.08			N		S
Kingstowne One		Springfield VA			1				151,483				75.6	%			41.42			N		S
7601 Boston Boulevard		Springfield VA			1				114,028				100.0	%			18.88			N		S
7435 Boston Boulevard		Springfield VA			1				103,557				83.4	%			23.10			N		S
8000 Grainger Court		Springfield VA			1				88,775				100.0	%			20.93			N		S
(5) Kingstowne Retail		Springfield VA			1				88,288				100.0	%			36.53			N		S
7500 Boston Boulevard		Springfield VA			1				79,971				100.0	%			16.41			N		S
7501 Boston Boulevard		Springfield VA			1				75,756				100.0	%			29.01			N		S
7450 Boston Boulevard		Springfield VA			1				62,402				100.0	%			15.44			N		S
7374 Boston Boulevard		Springfield VA			1				57,321				100.0	%			18.05			N		S
8000 Corporate Court		Springfield VA			1				52,539				100.0	%			14.70			N		S
7451 Boston Boulevard		Springfield VA			1				45,615				67.4	%			26.69			N		S
7300 Boston Boulevard		Springfield VA			1				32,000				0.0	%			—			N		S
7375 Boston Boulevard		Springfield VA			1				26,865				100.0	%			26.41			N		S
(3) Annapolis Junction Building Seven (50% ownership)		Anne Arundel County MD			1				127,229				100.0	%			31.79			Y		S
(3) Annapolis Junction Building Eight (50% ownership)		Anne Arundel County MD			1				125,685				0.0	%			—			Y		S
(3) Annapolis Junction Building Six (50% ownership)		Anne Arundel County MD			1				119,339				75.2	%			30.57			Y		S
(3) Annapolis Junction Building One (50% ownership)		Anne Arundel County MD			1				117,599				29.6	%			95.89			Y		S
					22				2,595,911				82.2	%		$	35.00
		Total Washington Office:			48				10,572,389				91.5	%		$	52.66
Residential
The Avant at Reston Town Center (359 units)		Reston VA			1				355,374											N		S
		Total Washington Residential:			1				355,374
		Total Washington, DC:			49				10,927,763
		Total In-Service Properties:			167				44,085,503				90.2	%(6)		$	63.57	(6)

 

(1)	Represents signed leases for which revenue recognition has commenced in accordance with GAAP.

(2)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(3)	This is an unconsolidated joint venture property.

(4)

On October 20, 2016, the Company and its partner in the unconsolidated joint venture that owns Metropolitan Square, completed the sale of an 80% interest in the joint venture. Prior to the sale, the Company owned a 51% interest in the joint venture. Following the sale, the Company continues to own a 20% interest in the joint venture. As a result, 31% of operating activities prior to the sale is not included in the Company’s Same Property analysis.

(5)	This is a retail property.

(6)	Excludes Hotel and Residential properties. For disclosures relating to the Company’s Hotel and Residential properties, see page 24.

 

29

---

THIRD QUARTER 2017

 

OCCUPANCY BY LOCATION

 

Total In-Service Properties (1)
		CBD								Suburban								Total
Location		30-Sep-17				30-Sep-16				30-Sep-17				30-Sep-16				30-Sep-17				30-Sep-16
Boston			94.1	%			92.3	%			89.9	%			85.9	%			92.6	%			90.0	%
New York			90.0	%			94.2	%			73.2	%			76.1	%			86.1	%			90.1	%
San Francisco and Los Angeles			90.9	%			86.4	%			87.1	%			89.8	%			89.9	%			87.3	%
Washington, DC			92.4	%			92.5	%			90.9	%			88.3	%			91.5	%			90.1	%
Total Portfolio			91.9	%			91.8	%			87.1	%			85.7	%			90.2	%			89.6	%
Same Property Portfolio (1) (2)
		CBD								Suburban								Total
Location		30-Sep-17				30-Sep-16				30-Sep-17				30-Sep-16				30-Sep-17				30-Sep-16
Boston			95.1	%			92.2	%			91.0	%			89.0	%			93.7	%			91.1	%
New York			90.0	%			94.2	%			72.8	%			76.1	%			86.2	%			90.1	%
San Francisco and Los Angeles			90.9	%			86.4	%			87.1	%			89.8	%			89.9	%			87.3	%
Washington, DC			92.4	%			92.5	%			90.9	%			88.3	%			91.5	%			90.1	%
Total Portfolio			92.2	%			91.8	%			87.5	%			86.7	%			90.5	%			89.9	%

 

(1)	Represents signed leases for which revenue recognition has commenced in accordance with GAAP. Includes 100% of joint venture properties. Does not include residential and hotel properties.

(2)	For disclosures related to the Company’s definition of Same Properties, see page 48.

 

30

---

THIRD QUARTER 2017

 

TOP 20 TENANTS LISTING AND PORTFOLIO TENANT DIVERSIFICATION

 

TOP 20 TENANTS (1)
Tenant		% of BXP’s Share of Annualized Rental Obligations
1. Arnold & Porter Kaye Scholer			3.22	%
2. US Government			2.72	%
3. Biogen			1.93	%
4. Shearman & Sterling			1.72	%
5. Kirkland & Ellis			1.65	%
6. Ropes & Gray			1.57	%
7. Citibank			1.50	%
8. O’Melveny & Myers			1.29	%
9. Wellington Management			1.22	%
10. Bank of America			1.18	%
11. Google			1.09	%
12. Weil Gotshal & Manges			1.06	%
13. Aramis (Estee Lauder)			1.01	%
14. Mass Financial Services			0.97	%
15. Microsoft			0.86	%
16. Hunton & Williams			0.85	%
17. Morrison & Foerster			0.85	%
18. WeWork			0.83	%
19. Starr Indemnity & Liability Co.			0.81	%
20. Smithsonian Institution			0.79	%
BXP’s Share of Annualized Rental Obligations			27.12	%
BXP’s Share of Square Feet			22.95	%

 

NOTABLE SIGNED DEALS (2)
Tenant		Property		Square Feet
salesforce.com		Salesforce Tower			881,000
Marriott International		7750 Wisconsin Avenue			722,000	(3)
US Government		6595 Springfield Center Drive			625,000
Akamai Technologies		145 Broadway			477,000

TENANT DIVERSIFICATION (1)

 

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations and Rental Obligations, see pages 47-48.

(2)	Represents leases signed with occupancy commencing in the future.

(3)	Subject to adjustment based on finalized building design which is currently estimated to be approximately 740,000 rentable square feet, see page 45.

 

31

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THIRD QUARTER 2017

 

LEASE EXPIRATIONS (1) (2) (3)

 

IN-SERVICE OFFICE PROPERTIES
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases p.s.f.				Annualized Rental Obligations Under Expiring Leases with future step-ups				Annualized Rental Obligations Under Expiring Leases with future step-ups - p.s.f.				Percentage of Total Square Feet
2017			710,895			$	40,732,621			$	57.30			$	40,743,840			$	57.31				1.82	%(4)
2018			1,584,644				96,432,151				60.85				96,963,195				61.19				4.07	%
2019			3,363,211				180,558,061				53.69				183,760,693				54.64				8.63	%
2020			4,113,907				253,176,884				61.54				257,686,642				62.64				10.56	%
2021			3,738,907				199,526,837				53.37				211,823,333				56.65				9.60	%
2022			4,123,884				247,722,468				60.07				260,350,140				63.13				10.58	%
2023			1,621,099				93,433,718				57.64				106,565,060				65.74				4.16	%
2024			2,851,146				167,676,440				58.81				182,523,535				64.02				7.32	%
2025			2,469,586				143,750,401				58.21				162,167,343				65.67				6.34	%
2026			2,616,145				199,080,095				76.10				218,102,873				83.37				6.71	%
Thereafter			9,500,853				645,513,745				67.94				838,102,066				88.21				24.39	%

 

IN-SERVICE RETAIL PROPERTIES
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases p.s.f.				Annualized Rental Obligations Under Expiring Leases with future step-ups				Annualized Rental Obligations Under Expiring Leases with future step-ups - p.s.f.				Percentage of Total Square Feet
2017			18,790			$	1,727,161			$	91.92			$	1,727,161			$	91.92				0.92	%(4)
2018			74,141				15,615,297				210.62				15,898,764				214.44				3.64	%
2019			111,900				7,775,884				69.49				7,845,241				70.11				5.49	%
2020			198,811				12,773,149				64.25				13,072,981				65.76				9.75	%
2021			159,421				21,848,151				137.05				23,449,955				147.09				7.82	%
2022			260,106				22,614,044				86.94				24,038,335				92.42				12.75	%
2023			202,690				16,373,373				80.78				17,720,755				87.43				9.94	%
2024			115,562				10,832,531				93.74				12,320,161				106.61				5.67	%
2025			132,139				8,883,277				67.23				9,789,701				74.09				6.48	%
2026			111,807				13,760,744				123.08				16,093,093				143.94				5.48	%
Thereafter			654,075				54,282,560				82.99				86,831,233				132.75				32.07	%

 

TOTAL IN-SERVICE PROPERTIES
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases p.s.f.				Annualized Rental Obligations Under Expiring Leases with future step-ups				Annualized Rental Obligations Under Expiring Leases with future step-ups—p.s.f.				Percentage of Total Square Feet
2017			729,685			$	42,459,781			$	58.19			$	42,471,001			$	58.20				1.78	%(4)
2018			1,658,785				112,047,449				67.55				112,861,959				68.04				4.05	%
2019			3,475,111				188,333,945				54.20				191,605,934				55.14				8.48	%
2020			4,312,718				265,950,033				61.67				270,759,623				62.78				10.52	%
2021			3,898,328				221,374,989				56.79				235,273,288				60.35				9.51	%
2022			4,383,990				270,336,513				61.66				284,388,475				64.87				10.69	%
2023			1,823,789				109,807,091				60.21				124,285,815				68.15				4.45	%
2024			2,966,708				178,508,971				60.17				194,843,696				65.68				7.24	%
2025			2,601,725				152,633,678				58.67				171,957,044				66.09				6.35	%
2026			2,727,952				212,840,839				78.02				234,195,967				85.85				6.65	%
Thereafter			10,154,928				699,796,305				68.91				924,933,299				91.08				24.77	%

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties. Does not include residential units and hotel.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the current quarter.

 

32

---

THIRD QUARTER 2017

 

IN-SERVICE BOSTON REGION PROPERTIES

Lease Expirations—Boston Region (1) (2) (3)

 

OFFICE
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			180,220			$	9,646,603			$	53.53			$	9,646,603			$	53.53	(4)
2018			358,123				15,051,713				42.03				15,198,777				42.44
2019			902,001				43,823,550				48.58				44,014,179				48.80
2020			481,386				23,894,307				49.64				24,590,904				51.08
2021			1,082,427				44,227,734				40.86				45,314,446				41.86
2022			1,503,133				78,389,416				52.15				79,582,113				52.94
2023			590,415				31,041,763				52.58				36,019,178				61.01
2024			740,300				35,958,779				48.57				38,854,189				52.48
2025			1,077,292				62,011,202				57.56				68,919,842				63.98
2026			1,063,282				71,751,228				67.48				78,900,356				74.20
Thereafter			3,902,867				202,275,709				51.83				243,004,392				62.26
RETAIL
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			8,122			$	1,067,464			$	131.43			$	1,067,464			$	131.43
2018			19,623				2,692,920				137.23				2,697,540				137.47
2019			11,787				1,988,674				168.72				1,992,032				169.00
2020			93,193				6,156,193				66.06				6,303,431				67.64
2021			37,303				2,999,366				80.41				3,137,127				84.10
2022			110,729				7,189,645				64.93				7,309,280				66.01
2023			80,257				7,777,405				96.91				8,226,184				102.50
2024			72,205				4,404,860				61.00				4,834,235				66.95
2025			30,224				3,802,390				125.81				4,166,524				137.85
2026			18,912				5,059,807				267.54				5,894,796				311.70
Thereafter			359,486				22,537,103				62.69				24,296,946				67.59
TOTAL PROPERTY TYPES
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			188,342			$	10,714,068			$	56.89			$	10,714,068			$	56.89	(4)
2018			377,746				17,744,634				46.98				17,896,317				47.38
2019			913,788				45,812,224				50.13				46,006,212				50.35
2020			574,579				30,050,500				52.30				30,894,335				53.77
2021			1,119,730				47,227,099				42.18				48,451,572				43.27
2022			1,613,862				85,579,061				53.03				86,891,393				53.84
2023			670,672				38,819,168				57.88				44,245,362				65.97
2024			812,505				40,363,639				49.68				43,688,425				53.77
2025			1,107,516				65,813,592				59.42				73,086,366				65.99
2026			1,082,194				76,811,035				70.98				84,795,152				78.35
Thereafter			4,262,353				224,812,813				52.74				267,301,339				62.71

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties. Does not include residential units and hotel.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the current quarter.

 

33

---

THIRD QUARTER 2017

 

IN-SERVICE BOSTON REGION PROPERTIES

Quarterly Lease Expirations - Boston Region (1) (2) (3)

 

OFFICE
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future  step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			603				29,780				49.39				29,780				49.39	(4)
Q4 2017			179,617				9,616,824				53.54				9,616,824				53.54
Total 2017			180,220			$	9,646,603			$	53.53			$	9,646,603			$	53.53
Q1 2018			65,160			$	2,851,347			$	43.76			$	2,851,347			$	43.76
Q2 2018			94,415				4,105,925				43.49				4,107,461				43.50
Q3 2018			27,899				1,098,306				39.37				1,106,286				39.65
Q4 2018			170,649				6,996,136				41.00				7,133,682				41.80
Total 2018			358,123			$	15,051,713			$	42.03			$	15,198,777			$	42.44
RETAIL
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			—				—				—				—				—
Q4 2017			8,122				1,067,464				131.43				1,067,464				131.43
Total 2017			8,122			$	1,067,464			$	131.43			$	1,067,464			$	131.43
Q1 2018			1,972			$	470,504			$	238.59			$	470,504			$	238.59
Q2 2018			88				9,680				110.00				9,680				110.00
Q3 2018			2				104,000				51,999.96				104,000				51,999.96
Q4 2018			17,561				2,108,737				120.08				2,113,357				120.34
Total 2018			19,623			$	2,692,920			$	137.23			$	2,697,540			$	137.47
TOTAL PROPERTY TYPES
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			603				29,780				49.39				29,780				49.39	(4)
Q4 2017			187,739				10,684,288				56.91				10,684,288				56.91
Total 2017			188,342			$	10,714,068			$	56.89			$	10,714,068			$	56.89
Q1 2018			67,132			$	3,321,851			$	49.48			$	3,321,851			$	49.48
Q2 2018			94,503				4,115,605				43.55				4,117,141				43.57
Q3 2018			27,901				1,202,306				43.09				1,210,286				43.38
Q4 2018			188,210				9,104,872				48.38				9,247,039				49.13
Total 2018			377,746			$	17,744,634			$	46.98			$	17,896,317			$	47.38

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties. Does not include residential units and hotel.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the quarter.

 

 

34

---

THIRD QUARTER 2017

 

IN-SERVICE NEW YORK REGION PROPERTIES

Lease Expirations—New York Region (1) (2) (3)

 

OFFICE
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			283,098			$	20,202,916			$	71.36			$	20,211,888			$	71.40	(4)
2018			415,333				39,419,298				94.91				39,445,699				94.97
2019			533,679				40,935,218				76.70				41,411,777				77.60
2020			1,606,613				123,562,755				76.91				124,297,917				77.37
2021			402,266				35,313,500				87.79				35,721,168				88.80
2022			921,993				84,111,837				91.23				85,518,673				92.75
2023			133,929				9,988,391				74.58				10,851,604				81.03
2024			1,063,681				74,491,691				70.03				81,176,149				76.32
2025			554,375				40,163,067				72.45				44,241,693				79.80
2026			865,233				74,485,404				86.09				77,340,772				89.39
Thereafter			2,947,494				274,380,540				93.09				373,190,854				126.61
RETAIL
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			761			$	51,386			$	67.52			$	51,386			$	67.52
2018			10,291				9,818,947				954.13				10,085,692				980.05
2019			—				—				—				—				—
2020			14,562				789,723				54.23				789,723				54.23
2021			26,225				12,704,596				484.45				13,713,757				522.93
2022			70,721				11,163,958				157.86				12,203,408				172.56
2023			1,847				1,893,637				1,025.25				2,256,696				1,221.82
2024			11,919				4,389,430				368.27				5,225,743				438.44
2025			1,872				656,702				350.80				732,638				391.37
2026			34,807				4,665,743				134.05				5,719,108				164.31
Thereafter			108,722				23,969,840				220.47				52,913,684				486.69
TOTAL PROPERTY TYPES
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			283,859			$	20,254,302			$	71.35			$	20,263,273			$	71.38	(4)
2018			425,624				49,238,245				115.68				49,531,391				116.37
2019			533,679				40,935,218				76.70				41,411,777				77.60
2020			1,621,175				124,352,478				76.71				125,087,640				77.16
2021			428,491				48,018,096				112.06				49,434,925				115.37
2022			992,714				95,275,795				95.98				97,722,081				98.44
2023			135,776				11,882,028				87.51				13,108,300				96.54
2024			1,075,600				78,881,122				73.34				86,401,892				80.33
2025			556,247				40,819,769				73.38				44,974,331				80.85
2026			900,040				79,151,147				87.94				83,059,880				92.28
Thereafter			3,056,216				298,350,380				97.62				426,104,538				139.42

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the quarter.

 

35

---

THIRD QUARTER 2017

 

IN-SERVICE NEW YORK REGION PROPERTIES

Quarterly Lease Expirations - New York Region (1) (2) (3)

 

OFFICE
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			134,472				7,786,666				57.91				7,786,666				57.91	(4)
Q4 2017			148,626				12,416,250				83.54				12,425,222				83.60
Total 2017			283,098			$	20,202,916			$	71.36			$	20,211,888			$	71.40
Q1 2018			98,365			$	10,888,048			$	110.69			$	10,888,048			$	110.69
Q2 2018			98,399				10,122,897				102.88				10,122,897				102.88
Q3 2018			109,237				10,406,435				95.26				10,406,435				95.26
Q4 2018			109,332				8,001,919				73.19				8,028,320				73.43
Total 2018			415,333			$	39,419,298			$	94.91			$	39,445,699			$	94.97
RETAIL
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			—				—				—				—				—
Q4 2017			761				51,386				67.52				51,386				67.52
Total 2017			761			$	51,386			$	67.52			$	51,386			$	67.52
Q1 2018			1,600			$	327,428			$	204.64			$	327,428			$	204.64
Q2 2018			2,177				480,551				220.74				480,551				220.74
Q3 2018			—				—				—				—				—
Q4 2018			6,514				9,010,968				1,383.32				9,277,713				1,424.27
Total 2018			10,291			$	9,818,947			$	954.13			$	10,085,692			$	980.05
TOTAL PROPERTY TYPES
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			134,472				7,786,666				57.91				7,786,666				57.91	(4)
Q4 2017			149,387				12,467,636				83.46				12,476,607				83.52
Total 2017			283,859			$	20,254,302			$	71.35			$	20,263,273			$	71.38
Q1 2018			99,965			$	11,215,476			$	112.19			$	11,215,476			$	112.19
Q2 2018			100,576				10,603,448				105.43				10,603,448				105.43
Q3 2018			109,237				10,406,435				95.26				10,406,435				95.26
Q4 2018			115,846				17,012,887				146.86				17,306,033				149.39
Total 2018			425,624			$	49,238,245			$	115.68			$	49,531,391			$	116.37

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the quarter.

 

36

---

THIRD QUARTER 2017

 

IN-SERVICE SAN FRANCISCO AND LOS ANGELES REGIONS PROPERTIES

Lease Expirations—San Francisco and Los Angeles Regions (1) (2) (3)

OFFICE

 

Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			95,005			$	3,933,928			$	41.41			$	3,936,176			$	41.43	(4)
2018			242,922				14,808,945				60.96				14,847,957				61.12
2019			873,103				43,104,526				49.37				44,567,098				51.04
2020			686,530				44,133,552				64.28				44,874,141				65.36
2021			1,022,864				52,038,426				50.88				57,460,532				56.18
2022			861,646				47,353,137				54.96				53,418,957				62.00
2023			406,783				28,193,288				69.31				32,133,322				78.99
2024			397,923				23,415,582				58.84				24,056,862				60.46
2025			334,363				19,497,419				58.31				23,208,336				69.41
2026			280,908				19,871,220				70.74				23,125,823				82.33
Thereafter			927,571				61,996,008				66.84				83,552,742				90.08
RETAIL
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future  step-ups				Per Square Foot
2017			6,747			$	472,954			$	70.10			$	472,954			$	70.10
2018			17,467				1,183,410				67.75				1,191,671				68.22
2019			13,325				714,353				53.61				725,413				54.44
2020			31,336				1,971,665				62.92				2,047,392				65.34
2021			22,163				1,453,692				65.59				1,519,725				68.57
2022			39,360				1,830,843				46.52				1,960,938				49.82
2023			36,402				2,060,448				56.60				2,177,325				59.81
2024			9,388				650,124				69.25				730,329				77.79
2025			22,933				1,478,050				64.45				1,671,387				72.88
2026			24,494				1,759,627				71.84				1,980,777				80.87
Thereafter			61,332				2,702,530				44.06				3,627,812				59.15
TOTAL PROPERTY TYPES
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future  step-ups				Per Square Foot
2017			101,752			$	4,406,882			$	43.31			$	4,409,130			$	43.33	(4)
2018			260,389				15,992,355				61.42				16,039,628				61.60
2019			886,428				43,818,879				49.43				45,292,512				51.10
2020			717,866				46,105,217				64.23				46,921,533				65.36
2021			1,045,027				53,492,118				51.19				58,980,257				56.44
2022			901,006				49,183,981				54.59				55,379,895				61.46
2023			443,185				30,253,737				68.26				34,310,647				77.42
2024			407,311				24,065,706				59.08				24,787,191				60.86
2025			357,296				20,975,468				58.71				24,879,723				69.63
2026			305,402				21,630,847				70.83				25,106,599				82.21
Thereafter			988,903				64,698,538				65.42				87,180,554				88.16

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the quarter.

 

37

---

THIRD QUARTER 2017

 

IN-SERVICE SAN FRANCISCO AND LOS ANGELES REGIONS PROPERTIES

Quarterly Lease Expirations—San Francisco and Los Angeles Regions (1) (2) (3)

 

OFFICE
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			55,512				2,266,472				40.83				2,266,472				40.83	(4)
Q4 2017			39,493				1,667,456				42.22				1,669,704				42.28
Total 2017			95,005			$	3,933,928			$	41.41			$	3,936,176			$	41.43
Q1 2018			128,322			$	8,735,883			$	68.08			$	8,740,506			$	68.11
Q2 2018			56,023				3,355,276				59.89				3,362,547				60.02
Q3 2018			32,200				1,512,859				46.98				1,519,344				47.18
Q4 2018			26,377				1,204,926				45.68				1,225,560				46.46
Total 2018			242,922			$	14,808,945			$	60.96			$	14,847,957			$	61.12
RETAIL
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring  Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			—				—				—				—				—
Q4 2017			6,747				472,954				70.10				472,954				70.10
Total 2017			6,747			$	472,954			$	70.10			$	472,954			$	70.10
Q1 2018			7,250			$	490,431			$	67.65			$	490,431			$	67.65
Q2 2018			1,847				117,541				63.64				117,541				63.64
Q3 2018			2,771				136,427				49.23				137,352				49.57
Q4 2018			5,599				439,011				78.41				446,348				79.72
Total 2018			17,467			$	1,183,410			$	67.75			$	1,191,671			$	68.22
TOTAL PROPERTY TYPES
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			55,512				2,266,472				40.83				2,266,472				40.83	(4)
Q4 2017			46,240				2,140,410				46.29				2,142,658				46.34
Total 2017			101,752			$	4,406,882			$	43.31			$	4,409,130			$	43.33
Q1 2018			135,572			$	9,226,314			$	68.05			$	9,230,936			$	68.09
Q2 2018			57,870				3,472,817				60.01				3,480,088				60.14
Q3 2018			34,971				1,649,287				47.16				1,656,696				47.37
Q4 2018			31,976				1,643,937				51.41				1,671,907				52.29
Total 2018			260,389			$	15,992,355			$	61.42			$	16,039,628			$	61.60

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the quarter.

 

38

---

THIRD QUARTER 2017

 

IN-SERVICE WASHINGTON, DC REGION PROPERTIES

Lease Expirations—Washington, DC Region (1) (2) (3)

 

OFFICE
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future  step-ups				Per Square Foot
2017			152,572			$	6,949,173			$	45.55			$	6,949,173			$	45.55	(4)
2018			568,266				27,152,195				47.78				27,470,763				48.34
2019			1,054,428				52,694,768				49.97				53,767,638				50.99
2020			1,339,378				61,586,270				45.98				63,923,679				47.73
2021			1,231,350				67,947,177				55.18				73,327,188				59.55
2022			837,112				37,868,078				45.24				41,830,396				49.97
2023			489,972				24,210,275				49.41				27,560,956				56.25
2024			649,242				33,810,387				52.08				38,436,335				59.20
2025			503,556				22,078,714				43.85				25,797,472				51.23
2026			406,722				32,972,241				81.07				38,735,922				95.24
Thereafter			1,722,921				106,861,488				62.02				138,354,078				80.30
RETAIL
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			3,160			$	135,357			$	42.83			$	135,357			$	42.83
2018			26,760				1,920,020				71.75				1,923,860				71.89
2019			86,788				5,072,857				58.45				5,127,796				59.08
2020			59,720				3,855,569				64.56				3,932,436				65.85
2021			73,730				4,690,498				63.62				5,079,346				68.89
2022			39,296				2,429,598				61.83				2,564,710				65.27
2023			84,184				4,641,883				55.14				5,060,549				60.11
2024			22,050				1,388,117				62.95				1,529,854				69.38
2025			77,110				2,946,135				38.21				3,219,152				41.75
2026			33,594				2,275,568				67.74				2,498,412				74.37
Thereafter			124,535				5,073,087				40.74				5,992,791				48.12
TOTAL PROPERTY TYPES
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			155,732			$	7,084,530			$	45.49			$	7,084,530			$	45.49	(4)
2018			595,026				29,072,215				48.86				29,394,623				49.40
2019			1,141,216				57,767,625				50.62				58,895,433				51.61
2020			1,399,098				65,441,838				46.77				67,856,115				48.50
2021			1,305,080				72,637,675				55.66				78,406,534				60.08
2022			876,408				40,297,676				45.98				44,395,106				50.66
2023			574,156				28,852,158				50.25				32,621,505				56.82
2024			671,292				35,198,504				52.43				39,966,189				59.54
2025			580,666				25,024,850				43.10				29,016,625				49.97
2026			440,316				35,247,809				80.05				41,234,334				93.65
Thereafter			1,847,456				111,934,574				60.59				144,346,868				78.13

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties. Does not include residential units.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the quarter.

 

39

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THIRD QUARTER 2017

 

IN-SERVICE WASHINGTON, DC REGION PROPERTIES    

Quarterly Lease Expirations—Washington, DC Region (1) (2) (3)    

 

OFFICE
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			17,068				990,115				58.01				990,115				58.01	(4)
Q4 2017			135,504				5,959,058				43.98				5,959,058				43.98
Total 2017			152,572			$	6,949,173			$	45.55			$	6,949,173			$	45.55
Q1 2018			148,534			$	5,178,152			$	34.86			$	5,178,152			$	34.86
Q2 2018			182,433				10,231,072				56.08				10,355,438				56.76
Q3 2018			130,896				6,622,228				50.59				6,704,027				51.22
Q4 2018			106,403				5,120,743				48.13				5,233,146				49.18
Total 2018			568,266			$	27,152,195			$	47.78			$	27,470,763			$	48.34
RETAIL
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			—				—				—				—				—
Q4 2017			3,160				135,357				42.83				135,357				42.83
Total 2017			3,160			$	135,357			$	42.83			$	135,357			$	42.83
Q1 2018			7,698			$	523,569			$	68.01			$	523,569			$	68.01
Q2 2018			6,774				481,260				71.05				482,655				71.25
Q3 2018			1,082				85,997				79.48				85,997				79.48
Q4 2018			11,206				829,193				74.00				831,638				74.21
Total 2018			26,760			$	1,920,020			$	71.75			$	1,923,860			$	71.89
TOTAL PROPERTY TYPES
Lease Expiration by Quarter		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
Q1 2017			—			$	—			$	—			$	—			$	—
Q2 2017			—				—				—				—				—
Q3 2017			17,068				990,115				58.01				990,115				58.01	(4)
Q4 2017			138,664				6,094,415				43.95				6,094,415				43.95
Total 2017			155,732			$	7,084,530			$	45.49			$	7,084,530			$	45.49
Q1 2018			156,232			$	5,701,721			$	36.50			$	5,701,721			$	36.50
Q2 2018			189,207				10,712,332				56.62				10,838,093				57.28
Q3 2018			131,978				6,708,225				50.83				6,790,025				51.45
Q4 2018			117,609				5,949,936				50.59				6,064,784				51.57
Total 2018			595,026			$	29,072,215			$	48.86			$	29,394,623			$	49.40

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties. Does not include residential units.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the quarter.

 

40

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THIRD QUARTER 2017

 

CBD PROPERTIES    

Lease Expirations (1) (2) (3)    

 

		Boston																				San Francisco and Los Angeles
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future  step-ups				Per Square Foot				Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future  step-ups				Per Square Foot
2017			165,772			$	9,933,653			$	59.92			$	9,933,653			$	59.92	(4)			26,199			$	1,674,945			$	63.93			$	1,674,945			$	63.93	(4)
2018			122,401				8,651,615				70.68				8,664,564				70.79				190,573				13,297,355				69.78				13,324,722				69.92
2019			403,128				25,191,193				62.49				25,272,263				62.69				376,922				22,633,057				60.05				23,245,464				61.67
2020			288,994				18,434,555				63.79				18,872,044				65.30				616,447				41,516,073				67.35				42,070,473				68.25
2021			428,476				25,341,914				59.14				25,558,416				59.65				699,346				43,859,908				62.72				48,704,450				69.64
2022			1,017,444				62,491,227				61.42				63,796,286				62.70				458,024				29,050,867				63.43				32,128,449				70.15
2023			443,068				29,676,629				66.98				34,024,203				76.79				381,444				25,960,638				68.06				29,494,580				77.32
2024			345,424				20,967,085				60.70				22,804,730				66.02				382,799				23,081,059				60.30				23,576,199				61.59
2025			638,672				42,425,128				66.43				47,936,065				75.06				351,654				20,774,800				59.08				24,626,361				70.03
2026			949,605				72,024,302				75.85				79,311,274				83.52				305,402				21,630,847				70.83				25,106,599				82.21
Thereafter			3,550,176				196,845,941				55.45				235,758,021				66.41				988,903				64,698,538				65.42				87,180,554				88.16
		New York																				Washington, DC
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot				Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			217,625			$	17,761,379			$	81.61			$	17,761,379			$	81.61	(4)			31,616			$	1,857,313			$	58.75			$	1,857,313			$	58.75	(4)
2018			334,641				46,012,880				137.50				46,279,625				138.30				87,426				5,116,001				58.52				5,175,126				59.19
2019			353,766				34,374,884				97.17				34,761,322				98.26				468,760				30,542,174				65.16				31,287,628				66.75
2020			1,299,085				113,084,021				87.05				113,479,770				87.35				470,019				26,954,947				57.35				28,077,379				59.74
2021			315,470				44,338,420				140.55				45,694,025				144.84				592,007				39,767,161				67.17				43,215,888				73.00
2022			910,467				92,453,930				101.55				94,687,578				104.00				129,424				7,462,308				57.66				8,127,801				62.80
2023			91,631				10,588,633				115.56				11,743,990				128.17				51,216				3,299,530				64.42				3,844,668				75.07
2024			684,054				65,284,911				95.44				72,011,005				105.27				193,400				12,830,587				66.34				14,705,364				76.04
2025			286,397				31,167,857				108.83				33,838,160				118.15				86,404				4,622,044				53.49				5,501,394				63.67
2026			717,436				73,261,289				102.12				76,387,600				106.47				354,808				30,926,427				87.16				36,049,549				101.60
Thereafter			2,801,911				290,193,752				103.57				416,065,727				148.49				1,516,422				98,252,545				64.79				126,857,019				83.66

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties. Does not include residential units and hotel.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the current quarter.

 

41

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THIRD QUARTER 2017

 

SUBURBAN PROPERTIES

Lease Expirations (1) (2) (3)

 

		Boston																				San Francisco
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot				Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			22,570			$	780,415			$	34.58			$	780,415			$	34.58	(4)			75,553			$	2,731,937			$	36.16			$	2,734,185			$	36.19	(4)
2018			255,345				9,093,018				35.61				9,231,753				36.15				69,816				2,695,000				38.60				2,714,907				38.89
2019			510,660				20,621,031				40.38				20,733,949				40.60				509,506				21,185,822				41.58				22,047,048				43.27
2020			285,585				11,615,944				40.67				12,022,291				42.10				101,419				4,589,144				45.25				4,851,060				47.83
2021			691,254				21,885,186				31.66				22,893,157				33.12				345,681				9,632,211				27.86				10,275,807				29.73
2022			596,418				23,087,834				38.71				23,095,106				38.72				442,982				20,133,114				45.45				23,251,446				52.49
2023			227,604				9,142,539				40.17				10,221,159				44.91				61,741				4,293,098				69.53				4,816,068				78.00
2024			467,081				19,396,554				41.53				20,883,694				44.71				24,512				984,647				40.17				1,210,992				49.40
2025			468,844				23,388,463				49.89				25,150,301				53.64				5,642				200,669				35.57				253,362				44.91
2026			132,589				4,786,733				36.10				5,483,878				41.36				—				—				—				—				—
Thereafter			712,177				27,966,872				39.27				31,543,317				44.29				—				—				—				—				—
		New York																				Washington, DC
Year of Lease Expiration		Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot				Rentable Square Footage Subject to Expiring Leases				Current Annualized Rental Obligations Under Expiring Leases				Per Square Foot				Annualized Rental Obligations Under Expiring Leases with future step-ups				Per Square Foot
2017			66,234			$	2,492,923			$	37.64			$	2,501,894			$	37.77	(4)			124,116			$	5,227,217			$	42.12			$	5,227,217			$	42.12	(4)
2018			90,983				3,225,365				35.45				3,251,766				35.74				507,600				23,956,214				47.20				24,219,496				47.71
2019			179,913				6,560,334				36.46				6,650,455				36.96				672,456				27,225,450				40.49				27,607,805				41.06
2020			322,090				11,268,457				34.99				11,607,870				36.04				929,079				38,486,891				41.42				39,778,736				42.82
2021			113,021				3,679,676				32.56				3,740,900				33.10				713,073				32,870,514				46.10				35,190,646				49.35
2022			82,247				2,821,865				34.31				3,034,502				36.89				746,984				32,835,368				43.96				36,267,305				48.55
2023			44,145				1,293,396				29.30				1,364,310				30.91				522,940				25,552,628				48.86				28,776,837				55.03
2024			391,546				13,596,211				34.72				14,390,887				36.75				477,892				22,367,917				46.81				25,260,825				52.86
2025			269,850				9,651,912				35.77				11,136,170				41.27				494,262				20,402,806				41.28				23,515,231				47.58
2026			182,604				5,889,858				32.25				6,672,281				36.54				85,508				4,321,382				50.54				5,184,786				60.64
Thereafter			254,305				8,156,628				32.07				10,038,811				39.48				331,034				13,682,029				41.33				17,489,849				52.83

 

(1)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(2)	Includes 100% of joint venture properties. Does not include residential units and hotel.

(3)	Does not include data for leases expiring in a particular year when leases for the same space have already been signed with replacement tenants with future commencement dates. In those cases, the data is included in the year in which the future lease expires.

(4)	Includes square feet expiring on the last day of the current quarter.

 

42

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THIRD QUARTER 2017

 

LEASING ACTIVITY

for the three months ended September 30, 2017

 

All In-Service Properties
		Total
Vacant space available at July 1, 2017 (sf)			3,952,331
Properties placed in-service (sf) (1)			303,861
Leases expiring or terminated beginning July 1, 2017 through September 30, 2017 (sf)			1,523,017
Total space available for lease (sf)			5,779,209
1st generation leases (sf)			225,125
2nd generation leases with new tenants (sf)			624,427
2nd generation lease renewals (sf)			671,715
Total space leased (sf)			1,521,267
Vacant space available for lease at September 30, 2017 (sf)			4,257,942
Net (increase)/decrease in available space (sf)			(305,611	)
Second generation leasing information: (2)
Leases commencing during the period (sf)			1,296,142
Weighted average lease term (months)			93
Weighted average free rent period (days)			102
Total transaction costs per square foot (3)		$	43.66
Increase (decrease) in gross rents (4)			1.34	%
Increase (decrease) in net rents (5)			1.54	%

 

		All leases 1st Generation (sf)				All leases 2nd Generation (sf)				Incr (decr) in 2nd gen. gross cash rents (4)				Incr (decr) in 2nd gen. net cash rents (5)				Total Leased (sf) (6)				Total square feet of leases executed in the quarter (7)
Boston			191,135				423,044				7.49	%			11.68	%			614,179				472,972
New York			15,050				277,979				(1.85	%)			(3.65	%)			293,029				468,832
San Francisco and Los Angeles			—				185,101				16.69	%			24.30	%			185,101				86,003
Washington, DC			18,940				410,018				(5.88	%)			(9.99	%)			428,958				1,538,164
Total / Weighted Average			225,125				1,296,142				1.34	%			1.54	%			1,521,267				2,565,971

 

(1)	Total square feet placed in-service in Q3 2017 consists of 273,536 square feet at 888 Boylston Street and 30,325 square feet at Prudential Center Retail.

(2)	Second generation leases are defined as leases for space that had previously been leased by the Company. Of the 1,296,142 square feet of second generation leases that commenced in Q3 2017, leases for 1,032,703 square feet were signed in prior periods.

(3)	Total transaction costs include tenant improvements and leasing commissions and exclude free rent concessions.

(4)

Represents the increase/(decrease) in gross rent (base rent plus expense reimbursements) on the new vs. expired leases on the 1,005,495 square feet of second generation leases that had been occupied within the prior 12 months; excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis (e.g., the tenant is occupying “swing space”).

(5)

Represents the increase/(decrease) in net rent (gross rent less operating expenses) on the new vs. expired leases on the 1,005,495 square feet of second generation leases that had been occupied within the prior 12 months; excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis (e.g., the tenant is occupying “swing space”).

(6)	Represents leases for which rental revenue recognition has commenced in accordance with GAAP during the quarter.

(7)

Represents leases executed in the quarter for which the Company either (1) commenced rental revenue recognition in such quarter or (2) will commence rental revenue recognition in subsequent quarters, in accordance with GAAP, and includes leases at properties currently under development. The total square feet of leases executed in the current quarter for which the Company recognized rental revenue in the current quarter is 263,439.

 

43

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THIRD QUARTER 2017

 

ACQUISITIONS/DISPOSITIONS

as of September 30, 2017

ACQUISITIONS

 

For the period from January 1, 2017 through September 30, 2017

 

Property		Location				Date Acquired				Square Feet				Initial Investment				Anticipated Future Investment				Total Investment				Percentage Leased
103 Carnegie Center			Princeton, NJ				May 15, 2017				96,332			$	15,760,000			$	2,000,000			$	17,760,000				83	%
7750 Wisconsin Avenue (50% ownership interest) (1)			Bethesda, MD				August 7, 2017				740,000				20,757,000				190,343,000				211,100,000				100	%
Total Acquisitions											836,332			$	36,517,000			$	192,343,000			$	228,860,000				98	%

 

(1)

On August 7, 2017, the Company entered into a joint venture to develop an approximately 722,000 net rentable square foot (subject to adjustment based on finalized building design) build-to-suit Class A office building and below-grade parking garage at 7750 Wisconsin Avenue in Bethesda, Maryland. The joint venture entered into a lease agreement with an affiliate of Marriott International, Inc., under which Marriott will lease 100% of the office building and garage for a term of 20 years, and the building will serve as Marriott’s new worldwide headquarters. For its initial contribution, the joint venture partner contributed land with an initial fair value of $72.0 million and cash and improvements aggregating approximately $4.9 million. The Company contributed cash and improvements aggregating approximately $20.8 million for its initial contribution, of which $11.0 million was distributed to the joint venture partner.

DISPOSITIONS

 

For the period from January 1, 2017 through September 30, 2017

 

Property		Location		Date Disposed		Square Feet				Gross Sales Price				Net Cash Proceeds				Book Gain
30 Shattuck Road (land parcel)		Andover, MA		April 19, 2017			N/A			$	5,000,000			$	4,977,000			$	3,739,000
40 Shattuck Road		Andover, MA		June 13, 2017			121,542				12,000,000				11,939,000				28,000
Reston Eastgate (land parcel)		Reston, VA		August 30, 2017			N/A				14,000,000				13,179,000				2,833,000
Total Dispositions							121,542			$	31,000,000			$	30,095,000			$	6,600,000

 

44

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THIRD QUARTER 2017

 

VALUE CREATION PIPELINE—CONSTRUCTION IN PROGRESS (1)

as of September 30, 2017

 

 

																						BXP’s Share
Construction Properties		Actual / Estimated Initial Occupancy				Actual / Estimated Stabilization Date				Location				# of Buildings				Square feet				Investment to Date (2)				Estimated Total Investment (2)				Total Financing				Amount Drawn at September 30, 2017				Estimated Future Equity Requirement (2)				Percentage Leased (3)				Percentage Placed in service (4)
Office and Retail
Salesforce Tower (95% ownership)			Q1 2018				Q3 2019				San Francisco, CA				1				1,400,000				913,515,250				1,073,500,000				(25,389,074	)(5)			(15,213,972	)(5)			170,159,852				87	%			—
The Hub on Causeway (50% ownership)			Q1 2019				Q4 2019				Boston, MA				1				385,000				46,272,234				141,870,000				102,300,000				—				—				42	%			—
145 Broadway			Q4 2019				Q4 2019				Cambridge, MA				1				485,000				70,097,050				375,000,000				—				—				304,902,950				98	%			—
Dock 72 (50% ownership)			Q3 2018				Q1 2020				Brooklyn, NY				1				670,000				70,334,770				204,900,000				125,000,000				—				9,565,230				33	%			—
6595 Springfield Center Drive (TSA Headquarters)			Q3 2020				Q4 2020				Springfield, VA				1				634,000				34,400,582				313,700,000				—				—				279,299,418				98	%			—
7750 Wisconsin Avenue (Marriott International Headquarters) (50% ownership)			Q3 2022				Q3 2022				Bethesda, MD				1				740,000	(6)			11,205,923				211,100,000				—				—				199,894,077				100	%			—
Total Office Properties under Construction															6				4,314,000			$	1,145,825,809			$	2,320,070,000			$	201,910,926			$	(15,213,972	)		$	963,821,527				80	%			0	%
Residential																																															—
Proto Kendall Square (280 units)			Q2 2018				Q2 2019				Cambridge, MA				1				149,600			$	59,422,471			$	140,170,000			$	—			$	—			$	80,747,529				N/ A				—
Proto Kendall Square—Retail															—				14,400				—				—				—				—				—				15	%			—
Signature at Reston (508 units)			Q1 2018				Q2 2020				Reston, VA				1				490,000				171,649,397	(7)			234,854,000	(7)			—				—				63,204,603				N/ A				—
Signature at Reston—Retail															—				24,600				—				—				—				—				—				81	%			—
MacArthur Station Residences (402 units) (8)			Q2 2020				Q4 2021				Oakland, CA				1				324,000				3,132,530				263,600,000				—				—				260,467,470				N/ A				—
Total Residential Properties under Construction															3				1,002,600			$	234,204,398			$	638,624,000			$	—			$	—			$	404,419,602				57	%			—
Redevelopment Properties
191 Spring Street			Q4 2017				Q4 2018				Lexington, MA				1				160,000			$	30,221,019			$	53,920,000			$	—			$	—			$	23,698,981				49	%			—
One Five Nine East 53rd (55% ownership) (9)			Q4 2018				Q4 2019				New York, NY				—				220,000				52,170,839				106,000,000				—				—				53,829,161				—				—
Total Redevelopment Properties under Construction															1				380,000			$	82,391,858			$	159,920,000			$	—			$	—			$	77,528,142				21	%			—
Total Properties Under Construction and Redevelopment															10				5,696,600			$	1,462,422,065			$	3,118,614,000			$	201,910,926			$	(15,213,972	)		$	1,445,769,271				75	%			0	%

PROJECTS FULLY PLACED IN-SERVICE DURING 2017

 

 

																						BXP’s Share
		Actual / Estimated Initial Occupancy				Actual / Estimated Stabilization Date				Location				# of Buildings				Square feet				Investment to Date (2)				Estimated Total Investment (2)				Total Financing				Amount Drawn at September 30, 2017				Estimated Future Equity Requirement (2)				Percentage Leased (3)
Prudential Center Retail Expansion			Q1 2016				Q3 2017				Boston, MA				—				15,000			$	9,795,523			$	10,760,000			$	—			$	—			$	964,477				100	%
888 Boylston Street			Q3 2016				Q4 2017				Boston, MA				1				417,000				245,085,999				271,500,000				—				—				26,414,001				93	%
Reservoir Place North			Q1 2019				Q1 2019				Waltham, MA				1				73,000				16,421,324				24,510,000				—				—				8,088,676				—
Total Projects placed In-Service															2				505,000			$	271,302,846			$	306,770,000			$	—			$	—			$	35,467,154				80	%
IN-SERVICE PROPERTIES HELD FOR REDEVELOPMENT
										Sub Market				# of Buildings				Existing Square Feet				Leased %				Annualized Rental Obligations Per Leased SF (10)				Encumbered with secured debt (Y/N)				Central Business District (CBD) or Suburban (S)				Incremental Estimated Future SF (11)
North First Business Park											San Jose CA				5				190,636				64.3	%		$	23.64				N				S				1,359,364
3625-3635 Peterson Way											Santa Clara CA				1				218,366				100.0	%			22.22				N				S				413,690
Total Properties held for Redevelopment															6				409,002				83.4	%		$	22.73												1,773,054

 

(1)	A project is classified as Construction in Progress when construction or supply contracts have been signed, physical improvements have commenced or a lease has been signed and capitalized interest has commenced.

(2)	Includes income (loss) and interest carry on debt and equity investment.

(3)	Represents percentage leased as of October 26, 2017, including leases with future commencement dates and excluding residential units.

(4)	Represents the portion of the project that no longer qualifies for capitalization of interest in accordance with GAAP.

(5)

Under the joint venture agreement, if the project is funded with 100% equity, the Company has agreed to fund 50% of its partner’s equity requirement, structured as preferred equity. The Company will fund approximately $25.4 million at a rate of LIBOR plus 3.0% per annum and receive priority distributions from all distributions to its partner until the principal and interest are repaid. As of September 30, 2017, the Company has funded $15,213,972.

(6)	Represents estimate of rentable square feet based on current building design.

(7)	Includes approximately $17 million for overbuilding parking structure to support future development requirements and excludes $10 million of the purchase price for the site that is allocated to rights for future development in Reston Town Center.

(8)	Project is subject to a 99 year ground lease (including extension options) with an option to purchase in the future.

(9)	The low-rise portion of 601 Lexington Avenue.

(10)	For disclosures relating to the Company’s definition of Annualized Rental Obligations, see page 47.

(11)	Incremental Future Square Footage is included in Approximate Developable Square Feet of Value Creation Pipeline—Owned Land Parcels and Land Purchase Options on page 46.

 

45

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THIRD QUARTER 2017

 

VALUE CREATION PIPELINE

as of September 30, 2017

Owned Land Parcels

 

Location		Approximate Developable Square Feet
San Jose, CA (1)			2,199,000
Reston, VA (2)			810,000
Waltham, MA			805,000
Rockville, MD			759,000
Washington, DC (50% ownership)			520,000
Springfield, VA (3)			422,000
Santa Clara, CA (1)			414,000
Marlborough, MA			400,000
Boston, MA (50% Ownership)			320,000
Dulles, VA			310,000
Annapolis, MD (50% ownership)			300,000
Gaithersburg, MD			240,000
			7,499,000

Land Purchase Options

 

Location		Approximate Developable Square Feet
Princeton, NJ			1,650,000
Boston, MA			1,300,000
Cambridge, MA			623,000
Brooklyn, NY (50% ownership)			600,000
Boston, MA (50% ownership)			525,000
Washington, DC			482,000
San Francisco, CA			TBD
			5,180,000

 

(1)	Excludes the existing square footage related to in-service properties being held for future re-development included on page 45.

(2)	On August 30, 2017 the Company closed on the sale of the real property in Reston, VA. The approximate remaining entitled developable square footage is 810,000 square feet, and we are in process of entitling additional FAR that will result in approximately three million square feet.

(3)	On August 24, 2017, the Company executed a lease with TSA to develop their 637,000 square foot headquarters.

 

46

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THIRD QUARTER 2017

 

DEFINITIONS

This section contains definitions of certain non-GAAP financial measures and other terms that the Company uses in this supplemental report and, where applicable, the reasons why management believes these non-GAAP financial measures provide useful information to investors about the Company’s financial condition and results of operations and the other purposes for which management uses the measures. Additional detail can be found in the Company’s most recent annual report on Form 10-K and quarterly report on Form 10-Q, as well as other documents the Company files or furnishes to the SEC from time to time.

The Company also presents “BXP’s Share” of certain of these measures, which are non-GAAP financial measures that are calculated as the consolidated amount calculated in accordance with GAAP, plus the Company’s share of the amount from the Company’s unconsolidated joint ventures (calculated based upon the Company’s percentage ownership interest), minus the Company’s partners’ share of the amount from its consolidated joint ventures (calculated based upon the partners’ percentage ownership interests). Management believes that presenting “BXP’s Share” of these measures provides useful information to investors regarding the Company’s financial condition and/or results of operations because the Company has several significant joint ventures and presenting various financial measures in this manner can help investors better understand the Company’s financial condition and/or results of operations after taking into account its economic interest in these joint ventures. The Company cautions investors that the ownership percentages used in calculating “BXP’s Share” of these measures may not completely and accurately depict all of the legal and economic implications of holding an interest in a consolidated or unconsolidated joint venture. For example, in addition to partners’ interests in profits and capital, venture agreements vary in the allocation of rights regarding decision making (both routine and major decisions), distributions, transferability of interests, liquidations and other matters. Moreover, in some cases, the Company exercises significant influence over, but does not control, the joint venture, in which case GAAP requires that the Company account for the joint venture entity using the equity method of accounting and the Company does not consolidate it for financial reporting purposes. As a result, presentations of BXP’s Share of a financial measure should not be considered a substitute for, and should only be considered together with and as a supplement to, the Company’s financial information presented in accordance with GAAP.

Annualized Rental Obligations

Annualized Rental Obligations is defined as monthly Rental Obligations, as of the last day of the reporting period, multiplied by twelve (12).

Average Economic Occupancy

Average Economic Occupancy is defined as (1) total possible revenue less vacancy loss divided by (2) total possible revenue, expressed as a percentage. Total possible revenue is determined by valuing average occupied units at contract rates and average vacant units at Market Rents. Vacancy loss is determined by valuing vacant units at current Market Rents. By measuring vacant units at their Market Rents, Average Economic Occupancy takes into account the fact that units of different sizes and locations within a residential property have different economic impacts on a residential property’s total possible gross revenue.

Average Monthly Rental Rates

Average Rental Rates are calculated by the Company as rental revenue in accordance with GAAP, divided by the weighted monthly average number of occupied units.

Average Physical Occupancy

Average Physical Occupancy is defined as (1) the average number of occupied units divided by (2) the total number of units, expressed as a percentage.

Debt to Market Capitalization Ratio

Consolidated Debt to Consolidated Market Capitalization Ratio is defined as consolidated debt as a percentage of the sum of (1) market value of the Company’s outstanding equity securities plus (2) the Company’s consolidated debt, and it is a measure of leverage commonly used by analysts in the REIT sector. Consolidated Market Capitalization is the sum of (A) the Company’s consolidated debt plus (B) the market value of the Company’s outstanding equity securities calculated using the closing price per share of common stock of the Company, as reported by the New York Stock Exchange, multiplied by the sum of (1) outstanding shares of common stock of the Company, (2) outstanding common units of limited partnership interest in Boston Properties Limited Partnership (excluding common units held by the Company), (3) common units issuable upon conversion of all outstanding LTIP Units, assuming all conditions have been met for the conversion of the LTIP Units, (4) on and after February 6, 2015, which was the end of the performance period for 2012 OPP Units and thus the date earned, common units issuable upon conversion of 2012 OPP Units that were issued in the form of LTIP Units, (5) on and after February 4, 2016, which was the end of the performance period for 2013 MYLTIP Units and thus the date earned, common units issuable upon conversion of 2013 MYLTIP Units that were issued in the form of LTIP Units and (6) on and after February 3, 2017, which was the end of the performance period for 2014 MYLTIP Units and thus the date earned, common units issuable upon conversion of 2014 MYLTIP Units that were issued in the form of LTIP Units plus (C) outstanding shares of 5.25% Series B Cumulative Redeemable Preferred Stock multiplied by their fixed liquidation preference of $2,500 per share. The calculation of Consolidated Market Capitalization does not include LTIP Units issued in the form of MYLTIP Awards unless and until certain performance thresholds are achieved and they are earned. Because their three-year performance periods have not yet ended, 2015, 2016 and 2017 MYLTIP Units are not included. The Company also presents BXP’s Share of Market Capitalization, which is calculated in a similar manner, except that BXP’s Share of Debt is utilized instead of the Company’s consolidated debt in both the numerator and the denominator. The Company presents these ratios because its degree of leverage could affect its ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes and because different investors and lenders consider one or both of these ratios. Investors should understand that these ratios are, in part, a function of the market price of the common stock of the Company, and as such will fluctuate with changes in such price and does not necessarily reflect the Company’s capacity to incur additional debt to finance its activities or its ability to manage its existing debt obligations. However, for a company like Boston Properties, Inc., whose assets are primarily income-producing real estate, these ratios may provide investors with an alternate indication of leverage, so long as they are evaluated along with the ratio of indebtedness to other measures of asset value used by financial analysts and other financial ratios, as well as the various components of the Company’s outstanding indebtedness.

Funds Available for Distribution (FAD) and FAD Payout Ratio

In addition to FFO, the Company presents Funds Available for Distribution to common shareholders and common unitholders (FAD), which is a non-GAAP financial measure that is calculated by (1) adding to FFO lease transaction costs that qualify as rent inducements, non-real estate depreciation, non-cash losses (gains) from early extinguishments of debt, stock-based compensation expense, partners’ share of consolidated and unconsolidated joint venture 2nd generation tenant improvement and leasing commissions (included in the period in which the lease commences) and unearned portion of capitalized fees, (2) eliminating the effects of straight-line rent, straight-line ground rent expense adjustment, fair value interest adjustment and fair value lease revenue, and (3) subtracting maintenance capital expenditures, hotel improvements, equipment upgrades and replacements, 2nd generation tenant improvement and leasing commissions (included in the period in which the lease commences), non-cash termination income adjustment (fair value lease amounts) and impairments of non-depreciable real estate. The Company believes that the presentation of FAD provides useful information to investors regarding the Company’s results of operations because FAD provides supplemental information regarding the Company’s operating performance that would not otherwise be available and may be useful to investors in assessing the Company’s operating performance. Additionally, although the Company does not consider FAD to be a liquidity measure, as it does not make adjustments to reflect changes in working capital or the actual timing of the payment of income or expense items that are accrued in the period, the Company believes that FAD may provide investors with useful supplemental information regarding the Company’s ability to generate cash from its operating performance and the impact of the Company’s operating performance on its ability to make distributions to its shareholders. Furthermore, the Company believes that FAD is frequently used by analysts, investors and other interested parties in the evaluation of its performance as a REIT and, as a result, by presenting FAD the Company is assisting these parties in their evaluation. FAD should not be considered as a substitute for net income (loss) attributable to Boston Properties, Inc.’s common shareholders determined in accordance with GAAP or any other GAAP financial measures and should only be considered together with and as a supplement to the Company’s financial information prepared in accordance with GAAP.

FAD Payout Ratio is defined as distributions to common shareholders and unitholders (excluding any special distributions) divided by FAD.

 

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THIRD QUARTER 2017

 

DEFINITIONS (continued)

Funds from Operations (FFO)

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”), the Company calculates Funds from Operations, or “FFO,” by adjusting net income (loss) attributable to Boston Properties, Inc. common shareholders (computed in accordance with GAAP) for gains (or losses) from sales of properties, impairment losses on depreciable real estate consolidated on the Company’s balance sheet, impairment losses on its investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures and real estate-related depreciation and amortization. FFO is a non-GAAP financial measure, but the Company believes the presentation of FFO, combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO and FFO per share to be useful measures for understanding and comparing the Company’s operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies.

The Company’s 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 order to facilitate a clear understanding of the Company’s operating results, FFO should be examined in conjunction with net income attributable to Boston Properties, Inc. common shareholders as presented in the Company’s consolidated financial statements. FFO should not be considered as a substitute for net income attributable to Boston Properties, Inc. common shareholders (determined in accordance with GAAP) or any other GAAP financial measures and should only be considered together with and as a supplement to the Company’s financial information prepared in accordance with GAAP.

In-Service Properties

The Company treats a property as being “in-service” upon the earlier of (1) lease-up and completion of tenant improvements or (2) one year after cessation of major construction activity as determined under GAAP. The determination as to when an entire property should be treated as “in-service” involves a degree of judgment and is made by management based on the relevant facts and circumstances of the particular property. For portfolio operating and occupancy statistics, the Company specifies a single date for treating a property as “in-service,” which is generally later than the date the property is partially placed in-service under GAAP. Under GAAP, a property may be placed in-service in stages as construction is completed and the property is held available for occupancy. In addition, under GAAP, when a portion of a property has been substantially completed and either occupied or held available for occupancy, the Company ceases capitalizing costs on that portion, even though it may not treat the property as being “in-service,” and continues to capitalize only those costs associated with the portion still under construction. In-service properties include properties held by the Company’s unconsolidated joint ventures.

Market Rents

Market Rents used by the Company in calculating Average Economic Occupancy are based on the current market rates set by the managers of the Company’s residential properties based on their experience in renting their residential property’s units and publicly available market data. Trends in market rents for a region as reported by others could therefore vary materially. Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions.

Net Operating Income (NOI)

Net operating income (NOI) is a non-GAAP financial measure equal to net income attributable to Boston Properties, Inc. common shareholders, the most directly comparable GAAP financial measure, plus (1) preferred dividends, net income attributable to noncontrolling interests, corporate general and administrative expense, transaction costs, depreciation and amortization, impairment loss, losses from early extinguishment of debt, losses from interest rate contracts and interest expense, less (2) gains on sales of real estate, development and management services income, income from unconsolidated joint ventures, interest and other income and gains from investments in securities. In some cases the Company also presents (1) NOI – cash, which is NOI after eliminating the effects of straight-lining of rent, fair value lease revenue, ground rent expense and lease transaction costs that qualify as rent inducements in accordance with GAAP, and (2) NOI and NOI – cash, in each case excluding termination income.

The Company uses these measures internally as performance measures and believes they provide useful information to investors regarding the Company’s results of operations and financial condition because, when compared across periods, they reflect the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and development activity on an unleveraged basis, providing perspective not immediately apparent from net income. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. Similarly, interest expense may be incurred at the property level even though the financing proceeds may be used at the corporate level (e.g., used for other investment activity). In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance measures at the property level. Presenting NOI – cash allows investors to compare NOI performance across periods without taking into account the effect of certain non-cash rental revenues and ground rent expenses. Similar to depreciation and amortization, fair value lease revenues, because of historical cost accounting, may distort operating performance measures at the property level. Additionally, presenting NOI excluding the impact of the straight-lining of rent provides investors with an alternative view of operating performance at the property level that more closely reflects net cash generated at the property level on an unleveraged basis. Presenting NOI measures that exclude termination income provides investors with additional information regarding operating performance at a property level that allows them to compare operating performance between periods without taking into account termination income, which can distort the results for any given period because they generally represent multiple months or years of a tenant’s rental obligations that are paid in a lump sum in connection with a negotiated early termination of the tenant’s lease and are not reflective of the core ongoing operating performance of the Company’s properties.

Rental Obligations

Rental Obligations is defined as the contractual base rents (but excluding percentage rent) and budgeted reimbursements from tenants under existing leases. These amounts exclude rent abatements.

Same Properties

In the Company’s analysis of NOI, particularly to make comparisons of NOI between periods meaningful, it is important to provide information for properties that were in-service and owned by the Company throughout each period presented. The Company refers to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by the Company through the end of the latest period presented as “Same Properties.” “Same Properties” therefore exclude properties placed in-service, acquired, repositioned or in development or redevelopment after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented. Accordingly, it takes at least one year and one quarter after a property is acquired or treated as “in-service” for that property to be included in “Same Properties.” Pages 27-29 indicate by footnote the “In-Service Properties” that are not included in “Same Properties.”

 

48

Exhibit 99.2

 

800 Boylston Street

Boston, MA 02199

BOSTON PROPERTIES ANNOUNCES

THIRD QUARTER 2017 RESULTS

BOSTON, MA, November 1, 2017 - Boston Properties, Inc. (NYSE: BXP), a real estate investment trust and one of the largest owners, managers and developers of Class A office properties in the United States, reported results today for the third quarter ended September 30, 2017.

 

•

Net income attributable to common shareholders was $117.3 million compared to $76.8 million for the quarter ended September 30, 2016.

 

•

Net income attributable to common shareholders per share (EPS) was $0.76 basic and $0.76 on a diluted basis, compared to $0.50 basic and $0.50 on a diluted basis for the quarter ended September 30, 2016.

 

•

Funds from Operations (FFO) were $243.0 million, or $1.57 per share basic and $1.57 per share diluted. This compares to FFO of $219.6 million, or $1.43 per share basic and $1.42 per share diluted, for the quarter ended September 30, 2016.

 

•

FFO of $1.57 per share diluted was greater than the mid-point of the Company’s guidance previously provided of $1.52—$1.54 per share diluted primarily due to:

 

•

$0.02 per share of additional development and management services revenue;

 

•

$0.01 per share due to better than expected portfolio operations; and

 

•

$0.01 per share of less than projected general and administrative expenses.

 

•

The Company provided its guidance for full year 2018 EPS and FFO per share as follows:

 

•

Projected EPS (diluted) for 2018 of $2.55—$2.71 per share; and

 

•

Projected FFO per share (diluted) for 2018 of $6.20—$6.36 per share.

 

•

Development Highlights - Signed leases and commenced development of the new office headquarters for Marriott International, Inc. and the Transportation Security Administration (“TSA”) aggregating 1.4 million square feet and fully placed in-service 888 Boylston Street, a 417,000 square foot office building development that is 93% leased.

 

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The reported results are unaudited, and there can be no assurance that these reported results will not vary from the final information for the quarter ended September 30, 2017. In the opinion of management, the Company has made all adjustments considered necessary for a fair presentation of these reported results.

At September 30, 2017, the Company’s portfolio consisted of 177 properties aggregating approximately 49.8 million square feet, including ten properties under construction/redevelopment totaling approximately 5.7 million square feet. The overall percentage of leased space for the 164 properties in service (excluding the Company’s two residential properties and hotel) as of September 30, 2017 was 90.2%.

Significant events during the third quarter included:

Development activities

 

•

On August 7, 2017, the Company entered into a joint venture with The Bernstein Companies to develop an approximately 722,000 net rentable square foot (subject to adjustment based on finalized building design) build-to-suit Class A office building and below-grade parking garage at 7750 Wisconsin Avenue in Bethesda, Maryland. The joint venture entered into a lease agreement with an affiliate of Marriott International, Inc., under which Marriott will lease 100% of the office building and garage for a term of 20 years, and the building will serve as Marriott’s new worldwide headquarters. Marriott has agreed to fund 100% of the related tenant improvement costs and leasing commissions for the office building. The Company will serve as co-development manager for the venture and expects to commence construction in 2018. The Company and The Bernstein Companies each own a 50% interest in the joint venture.

 

•

On August 24, 2017, the Company entered into a 15-year lease with the General Services Administration under which the Company will develop the new headquarters for the TSA. The TSA will occupy 100% of the approximately 623,000 net rentable square feet of Class A office space and a parking garage at 6595 Springfield Center Drive located in Springfield, Virginia. Concurrently with the execution of the lease, the Company has commenced development of the project and expects the building to be available for occupancy by the fourth quarter of 2020.

 

•

On September 16, 2017, the Company completed and fully placed in-service 888 Boylston Street, a Class A office and retail project with approximately 417,000 net rentable square feet located in Boston, Massachusetts. The property is 93% leased.

Acquisition and disposition activities

 

•

On August 30, 2017, the Company completed the sale of its Reston Eastgate property located in Reston, Virginia for a gross sale price of $14.0 million. Net cash proceeds totaled approximately $13.2 million, resulting in a gain on sale of real estate totaling approximately $2.8 million. Reston Eastgate is a parcel of land containing approximately 21.7 acres located at 11011 Sunset Hills Road.

 

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Capital markets activities

 

•

On July 28, 2017, a joint venture in which the Company has a 50% interest obtained mortgage financing collateralized by its Colorado Center property located in Santa Monica, California totaling $550.0 million. The mortgage financing bears interest at a fixed rate of 3.56% per annum and matures on August 9, 2027. The loan requires interest-only payments during the 10-year term of the loan, with the entire principal amount due at maturity. The joint venture distributed $502.0 million to the partners, of which the Company’s share was $251.0 million. Colorado Center is a six-building office complex that sits on a 15-acre site and contains an aggregate of approximately 1,118,000 net rentable square feet with an underground parking garage for 3,100 vehicles.

 

•

On September 6, 2017, a joint venture in which the Company has a 50% interest obtained construction financing with a total commitment of $204.6 million collateralized by its Hub on Causeway development project. The construction financing bears interest at a variable rate equal to LIBOR plus 2.25% per annum and matures on September 6, 2021, with two, one-year extension options, subject to certain conditions. As of September 30, 2017, the venture had not drawn any funds under the loan. The Hub on Causeway is an approximately 385,000 net rentable square foot project containing retail and office space located in Boston, Massachusetts.

EPS and FFO per Share Guidance:

The Company’s guidance for the fourth quarter 2017, full year 2017 and full year 2018 for EPS (diluted) and FFO per share (diluted) 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 and the earnings impact of the events referenced in this release and otherwise referenced during the conference call referred to below. 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

 

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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 below.

As set forth below, the Company has updated its projected EPS (diluted) for the full year 2017 to $2.80 - $2.81 per share from $2.72 - $2.77 per share. This is an increase of approximately $0.06 per share at the mid-point of the Company’s guidance consisting of $0.02 per share of better than expected portfolio performance and additional development services revenue, $0.02 per share of lower depreciation and amortization expense, and $0.02 per share resulting from an unbudgeted land sale during the third quarter of 2017. In addition, the Company has updated its projected guidance for FFO per share (diluted) for the full year to $6.24 - $6.25 per share from $6.20 - $6.25 per share. This is an increase of approximately $0.02 per share at the mid-point of the Company’s guidance primarily consisting of better than expected portfolio performance and additional development services revenue.

 

		Fourth Quarter 2017								Full Year 2017
		Low				High				Low				High
Projected EPS (diluted)		$	0.66			$	0.67			$	2.80			$	2.81
Add:
Projected Company Share of Real Estate Depreciation and Amortization			0.87				0.87				3.48				3.48
Less:
Projected Company Share of Gains on Sales of Real Estate			—				—				0.04				0.04
Projected FFO per Share (diluted)		$	1.53			$	1.54			$	6.24			$	6.25

The Company’s guidance for the full year 2018 for EPS (diluted) and FFO per share (diluted) is set forth and reconciled below. When compared to the full year 2017, the estimates for 2018 include, among other assumptions, (1) an incremental contribution of $0.26 per share at the mid-point from development deliveries and (2) an increase in the Company’s Share of Same Property net operating income (“NOI”) (excluding termination income) of 0.5% to 2.5% resulting in an incremental $0.13 per share at the mid-point of the range. These items are partially offset by (1) an increase in net interest expense (including the Company’s share of unconsolidated joint venture debt at Colorado Center) of $0.17 per share at the mid-point, (2) a decrease in lease termination fees of $0.10 per share at the mid-point, (3) an increase in depreciation expense primarily due to development deliveries of $0.07 per share, (4) an increase in noncontrolling interests in property partnerships of $0.05 per share at the mid-point, (5) an increase in G & A expense of $0.03 per share at the mid-point and (6) a decrease in development and management services revenue of $0.01 per share at the mid-point.

 

		Full Year 2018
		Low				High
Projected EPS (diluted)		$	2.65			$	2.81
Add:
Projected Company Share of Real Estate Depreciation and Amortization			3.55				3.55
Less:
Projected Company Share of Gains on Sales of Real Estate			—				—
Projected FFO per Share (diluted)		$	6.20			$	6.36

Boston Properties will host a conference call on Thursday, November 2, 2017 at 10:00 AM Eastern Time, open to the general public, to discuss the third quarter 2017 results, the fourth quarter 2017, full fiscal year 2017 and full fiscal year 2018 projections and related assumptions, and other related matters that may be of interest to investors. The number to call for this interactive teleconference is (877) 796-3880 (Domestic) or (443) 961-9013 (International) and entering the passcode 41547548. A replay of the conference call will be available through November 16, 2017, by dialing (855) 859-2056 (Domestic) or (404) 537-3406 (International) and entering the passcode 41547548. There will also be a live audio webcast of the call which may be accessed on the Company’s website at www.bostonproperties.com in the Investor Relations section. Shortly after the call a replay of the webcast will be available in the Investor Relations section of the Company’s website and archived for up to twelve months following the call.

Additionally, a copy of Boston Properties’ third quarter 2017 “Supplemental Operating and Financial Data” and this press release are available in the Investor Relations section of the Company’s website at www.bostonproperties.com.

 

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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 49.8 million square feet and consisting of 166 office properties (including seven properties under construction), five retail properties, five residential properties (including three properties under construction) and one hotel. The Company is one of the largest owners and developers of Class A office properties in the United States, concentrated in five markets—Boston, Los Angeles, New York, San Francisco and Washington, DC.

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,” “budgeted,” “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 Company’s ability to satisfy the closing conditions to the pending transactions described above, the Company’s 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 costs and availability of financing, the effectiveness of our interest rate hedging contracts, the ability of our joint venture partners to satisfy their obligations, the effects of local, 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. Boston Properties does not undertake a duty to update or revise any forward-looking statement, including its guidance for the fourth quarter 2017, full fiscal year 2017 and full fiscal year 2018, whether as a result of new information, future events or otherwise.

Financial tables follow.

 

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BOSTON PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		September 30, 2017				December 31, 2016
		(in thousands, except for share and par value amounts)
ASSETS
Real estate, at cost		$	19,260,022			$	18,862,648
Construction in progress			1,386,638				1,037,959
Land held for future development			212,585				246,656
Less: accumulated depreciation			(4,484,798	)			(4,222,235	)
Total real estate			16,374,447				15,925,028
Cash and cash equivalents			493,055				356,914
Cash held in escrows			83,779				63,174
Investments in securities			27,981				23,814
Tenant and other receivables, net			79,750				92,548
Accrued rental income, net			835,415				799,138
Deferred charges, net			657,474				686,163
Prepaid expenses and other assets			144,817				129,666
Investments in unconsolidated joint ventures			611,800				775,198
Total assets		$	19,308,518			$	18,851,643
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net		$	2,982,067			$	2,063,087
Unsecured senior notes, net			7,252,567				7,245,953
Unsecured line of credit			—				—
Unsecured term loan			—				—
Mezzanine notes payable			—				307,093
Outside members’ notes payable			—				180,000
Accounts payable and accrued expenses			325,440				298,524
Dividends and distributions payable			130,434				130,308
Accrued interest payable			99,100				243,933
Other liabilities			419,215				450,821
Total liabilities			11,208,823				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 at September 30, 2017 and December 31, 2016			200,000				200,000
Common stock, $0.01 par value, 250,000,000 shares authorized, 154,401,166 and 153,869,075 issued and 154,322,266 and 153,790,175 outstanding at September 30, 2017 and December 31, 2016, respectively			1,543				1,538
Additional paid-in capital			6,370,932				6,333,424
Dividends in excess of earnings			(692,739	)			(693,694	)
Treasury common stock at cost, 78,900 shares at September 30, 2017 and December 31, 2016			(2,722	)			(2,722	)
Accumulated other comprehensive loss			(51,796	)			(52,251	)
Total stockholders’ equity attributable to Boston Properties, Inc.			5,825,218				5,786,295
Noncontrolling interests:
Common units of the Operating Partnership			605,802				614,982
Property partnerships			1,668,675				1,530,647
Total equity			8,099,695				7,931,924
Total liabilities and equity		$	19,308,518			$	18,851,643

 

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BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2017				2016				2017				2016
		(in thousands, except for per share amounts)
Revenue
Rental
Base rent		$	513,269			$	489,312			$	1,537,373			$	1,518,826
Recoveries from tenants			94,476				92,560				272,803				267,852
Parking and other			26,092				24,638				78,164				75,576
Total rental revenue			633,837				606,510				1,888,340				1,862,254
Hotel revenue			13,064				12,354				33,859				33,919
Development and management services			10,811				6,364				24,648				18,586
Total revenue			657,712				625,228				1,946,847				1,914,759
Expenses
Operating
Rental			237,341				228,560				696,082				665,670
Hotel			8,447				8,118				23,942				23,730
General and administrative			25,792				25,165				84,319				79,936
Transaction costs			239				249				572				1,187
Impairment loss			—				1,783				—				1,783
Depreciation and amortization			152,164				203,748				463,288				516,371
Total expenses			423,983				467,623				1,268,203				1,288,677
Operating income			233,729				157,605				678,644				626,082
Other income (expense)
Income from unconsolidated joint ventures			843				1,464				7,035				5,489
Interest and other income			1,329				3,628				3,447				6,657
Gains from investments in securities			944				976				2,716				1,713
Gains (losses) from early extinguishments of debt			—				(371	)			14,354				(371	)
Losses from interest rate contracts			—				(140	)			—				(140	)
Interest expense			(92,032	)			(104,641	)			(282,709	)			(314,953	)
Income before gains on sales of real estate			144,813				58,521				423,487				324,477
Gains on sales of real estate			2,891				12,983				6,791				80,606
Net income			147,704				71,504				430,278				405,083
Net income attributable to noncontrolling interests
Noncontrolling interests in property partnerships			(14,340	)			17,225				(33,967	)			(53	)
Noncontrolling interest—common units of the Operating Partnership			(13,402	)			(9,387	)			(40,350	)			(42,120	)
Net income attributable to Boston Properties, Inc.			119,962				79,342				355,961				362,910
Preferred dividends			(2,625	)			(2,589	)			(7,875	)			(7,796	)
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	76,753			$	348,086			$	355,114
Basic earnings per common share attributable to Boston Properties, Inc. common shareholders:
Net income		$	0.76			$	0.50			$	2.26			$	2.31
Weighted average number of common shares outstanding			154,355				153,754				154,132				153,681
Diluted earnings per common share attributable to Boston Properties, Inc. common shareholders:
Net income		$	0.76			$	0.50			$	2.26			$	2.31
Weighted average number of common and common equivalent shares outstanding			154,483				154,136				154,344				153,971

 

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BOSTON PROPERTIES, INC.

FUNDS FROM OPERATIONS (1)

(Unaudited)

 

		Three months ended September 30,								Nine months ended September 30,
		2017				2016				2017				2016
		(in thousands, except for per share amounts)
Net income attributable to Boston Properties, Inc. common shareholders		$	117,337			$	76,753			$	348,086			$	355,114
Add:
Preferred dividends			2,625				2,589				7,875				7,796
Noncontrolling interest—common units of the Operating Partnership			13,402				9,387				40,350				42,120
Noncontrolling interests in property partnerships			14,340				(17,225	)			33,967				53
Less:
Gains on sales of real estate			2,891				12,983				6,791				80,606
Income before gains on sales of real estate			144,813				58,521				423,487				324,477
Add:
Depreciation and amortization			152,164				203,748				463,288				516,371
Noncontrolling interests in property partnerships’ share of depreciation and amortization			(18,552	)			(40,907	)			(59,294	)			(79,831	)
Company’s share of depreciation and amortization from unconsolidated joint ventures			9,282				9,128				27,952				18,242
Corporate-related depreciation and amortization			(434	)			(393	)			(1,445	)			(1,119	)
Less:
Noncontrolling interests in property partnerships			14,340				(17,225	)			33,967				53
Preferred dividends			2,625				2,589				7,875				7,796
Funds from operations (FFO) attributable to the Operating Partnership common unitholders (including Boston Properties, Inc.)			270,308				244,733				812,146				770,291
Less:
Noncontrolling interest—common units of the Operating Partnership’s share of funds from operations			27,293				25,169				82,881				79,440
Funds from operations attributable to Boston Properties, Inc. common shareholders		$	243,015			$	219,564			$	729,265			$	690,851
Boston Properties, Inc.’s percentage share of funds from operations—basic			89.90	%			89.72	%			89.79	%			89.69	%
Weighted average shares outstanding—basic			154,355				153,754				154,132				153,861
FFO per share basic		$	1.57			$	1.43			$	4.73			$	4.50
Weighted average shares outstanding—diluted			154,483				154,136				154,344				153,971
FFO per share diluted		$	1.57			$	1.42			$	4.73			$	4.49

 

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(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) attributable to Boston Properties, Inc. common shareholders (computed in accordance with GAAP) for gains (or losses) from sales of properties, impairment losses on depreciable real estate consolidated on our balance sheet, impairment losses on our investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures and real estate-related depreciation and amortization. FFO is a non-GAAP financial measure, but we believe the presentation of FFO, combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO and FFO per share to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other 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 order to facilitate a clear understanding of the Company’s operating results, FFO should be examined in conjunction with net income attributable to Boston Properties, Inc. common shareholders as presented in the Company’s consolidated financial statements. FFO should not be considered as a substitute for net income attributable to Boston Properties, Inc. common shareholders (determined in accordance with GAAP) or any other GAAP financial measures and should only be considered together with and as a supplement to the Company’s financial information prepared in accordance with GAAP.

 

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BOSTON PROPERTIES, INC.

PORTFOLIO LEASING PERCENTAGES

 

		% Leased by Location
		September 30, 2017				December 31, 2016
Boston			92.6	%			90.7	%
New York			86.1	%			90.2	%
San Francisco and Los Angeles			89.9	%			89.8	%
Washington, DC			91.5	%			89.9	%
Total Portfolio			90.2	%			90.2	%

AT THE COMPANY

Michael LaBelle

Executive Vice President,

Chief Financial Officer and Treasurer

(617) 236-3352

Arista Joyner

Investor Relations Manager

(617) 236-3343

 

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