Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the Quarterly Period Ended June 30, 2008
 
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the transition period from            to            
Commission File Number 0-50209

BOSTON PROPERTIES LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its Charter)

 
 	 	 	
Delaware	 	04-3372948	
(State or other jurisdiction of
incorporation or organization)	 	(IRS Employer Id. Number)	
Prudential Center, 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103
(Address of Principal Executive Offices) (Zip Code)
(617) 236-3300
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x	  	Accelerated filer  ¨	
Non-accelerated filer  ¨     (Do not check if a smaller reporting company)	  	Smaller reporting company  ¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

Table of Contents
BOSTON PROPERTIES LIMITED PARTNERSHIP
FORM 10-Q
for the quarter ended June 30, 2008
TABLE OF CONTENTS

 	  	Page	
PART I.	  	FINANCIAL INFORMATION	  	 	
 	 	 	
ITEM 1.	  	Financial Statements (unaudited).	  	 	
 	 	 	
 	  	a) Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007	  	1	
 	 	 	
 	  	b) Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007	  	2	
 	 	 	
 	  	c) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2008 and 2007	  	3	
 	 	 	
 	  	d) Consolidated Statements of Cash Flows for the six months ended June 30, 2008 and 2007	  	4	
 	 	 	
 	  	e) Notes to the Consolidated Financial Statements	  	6	
 	 	 	
ITEM 2.	  	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	29	
 	 	 	
ITEM 3.	  	Quantitative and Qualitative Disclosures about Market Risk	  	73	
 	 	 	
ITEM 4.	  	Controls and Procedures	  	75	
 	 	 	
PART II.	  	OTHER INFORMATION	  	 	
 	 	 	
ITEM 1.	  	Legal Proceedings	  	76	
 	 	 	
ITEM 1A.	  	Risk Factors	  	76	
 	 	 	
ITEM 2.	  	Unregistered Sales of Equity Securities and Use of Proceeds	  	76	
 	 	 	
ITEM 3.	  	Defaults Upon Senior Securities	  	77	
 	 	 	
ITEM 4.	  	Submission of Matters to a Vote of Security Holders	  	77	
 	 	 	
ITEM 5.	  	Other Information	  	77	
 	 	 	
ITEM 6.	  	Exhibits	  	78	
 	 	
SIGNATURES	  	79	

Table of Contents
PART I. FINANCIAL INFORMATION
 
ITEM 1—Financial	Statements.	
BOSTON PROPERTIES LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except for unit amounts)

 	  	June 30,
2008	 	 	December 31,
2007	 	
ASSETS	  	 	 	 	 	 	 	 	
Real estate, at cost	  	$	8,851,187	 	 	$	8,662,928	 	
Real estate held for sale, net	  	 	—  	 	 	 	221,606	 	
Construction in progress	  	 	735,372	 	 	 	700,762	 	
Land held for future development	  	 	249,408	 	 	 	246,094	 	
Less: accumulated depreciation	  	 	(1,626,669	)	 	 	(1,515,195	)	
 	  	 	 	 	 	 	 	 	
Total real estate	  	 	8,209,298	 	 	 	8,316,195	 	
Cash and cash equivalents	  	 	112,110	 	 	 	1,506,921	 	
Cash held in escrows	  	 	59,644	 	 	 	186,839	 	
Investments in securities	  	 	20,372	 	 	 	22,584	 	
Tenant and other receivables (net of allowance for doubtful accounts of $1,545 and $1,901, respectively)	  	 	42,116	 	 	 	58,074	 	
Related party note receivable	  	 	270,000	 	 	 	—  	 	
Accrued rental income (net of allowance of $1,164 and $829, respectively)	  	 	326,149	 	 	 	300,594	 	
Deferred charges, net	  	 	305,287	 	 	 	287,199	 	
Prepaid expenses and other assets	  	 	26,511	 	 	 	30,566	 	
Investments in unconsolidated joint ventures	  	 	606,696	 	 	 	81,672	 	
 	  	 	 	 	 	 	 	 	
Total assets	  	$	9,978,183	 	 	$	10,790,644	 	
 	  	 	 	 	 	 	 	 	
LIABILITIES, REDEEMABLE PARTNERSHIP UNITS AND PARTNERS' CAPITAL	  	 	 	 	 	 	 	 	
Liabilities:	  	 	 	 	 	 	 	 	
Mortgage notes payable	  	$	2,535,496	 	 	$	2,726,127	 	
Unsecured senior notes (net of discount of $2,859 and $3,087, respectively)	  	 	1,472,141	 	 	 	1,471,913	 	
Unsecured exchangeable senior notes (net of discount of $16,248 and $18,374, respectively)	  	 	1,296,252	 	 	 	1,294,126	 	
Unsecured line of credit	  	 	200,000	 	 	 	—  	 	
Accounts payable and accrued expenses	  	 	183,192	 	 	 	145,692	 	
Distributions payable	  	 	96,451	 	 	 	944,870	 	
Accrued interest payable	  	 	55,979	 	 	 	54,487	 	
Other liabilities	  	 	187,104	 	 	 	232,705	 	
 	  	 	 	 	 	 	 	 	
Total liabilities	  	 	6,026,615	 	 	 	6,869,920	 	
 	  	 	 	 	 	 	 	 	
Commitments and contingencies	  	 	—  	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	
Minority interests in property partnerships	  	 	24,648	 	 	 	25,805	 	
 	  	 	 	 	 	 	 	 	
Redeemable partnership units—1,113,044 and 1,113,044 preferred units outstanding (1,460,688 and 1,460,688 common units at redemption value, if converted) at June 30, 2008 and December 31, 2007, and 20,283,854 and 20,271,341 common units and 946,226 and 676,067 long term incentive units outstanding at redemption value at June 30, 2008 and December 31, 2007, respectively	  	 	2,047,161	 	 	 	2,057,287	 	
 	  	 	 	 	 	 	 	 	
Partners’ capital—1,409,863 and 1,404,499 general partner units and 118,346,377 and 118,097,986 limited partner units outstanding at June 30, 2008 and December 31, 2007, respectively (such amounts are inclusive of accumulated other comprehensive loss of $41,868 and $29,191 at June 30, 2008 and December 31, 2007, respectively)	  	 	1,879,759	 	 	 	1,837,632	 	
 	  	 	 	 	 	 	 	 	
Total liabilities, redeemable partnership units and partners’ capital	  	$	9,978,183	 	 	$	10,790,644	 	
 	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements.
 
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Table of Contents
BOSTON PROPERTIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 	 	Three months ended
June 30,	 	 	Six months ended
June 30,	 	
 	 	2008	 	 	2007	 	 	2008	 	 	2007	 	
 	 	(in thousands, except for per unit amounts)	 	
Revenue	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Base rent	 	$	281,072	 	 	$	268,272	 	 	$	562,466	 	 	$	538,944	 	
Recoveries from tenants	 	 	49,848	 	 	 	46,783	 	 	 	98,732	 	 	 	93,069	 	
Parking and other	 	 	17,317	 	 	 	16,488	 	 	 	33,818	 	 	 	31,809	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total rental revenue	 	 	348,237	 	 	 	331,543	 	 	 	695,016	 	 	 	663,822	 	
Hotel revenue	 	 	9,708	 	 	 	9,335	 	 	 	16,232	 	 	 	16,044	 	
Development and management services	 	 	6,460	 	 	 	5,130	 	 	 	11,937	 	 	 	9,857	 	
Interest and other	 	 	4,115	 	 	 	26,205	 	 	 	15,894	 	 	 	43,193	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenue	 	 	368,520	 	 	 	372,213	 	 	 	739,079	 	 	 	732,916	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Real estate operating:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental	 	 	119,103	 	 	 	112,998	 	 	 	236,836	 	 	 	225,869	 	
Hotel	 	 	6,449	 	 	 	6,417	 	 	 	12,346	 	 	 	12,431	 	
General and administrative	 	 	17,467	 	 	 	16,291	 	 	 	37,055	 	 	 	33,099	 	
Interest	 	 	64,564	 	 	 	73,743	 	 	 	132,403	 	 	 	147,669	 	
Depreciation and amortization	 	 	72,392	 	 	 	72,000	 	 	 	145,096	 	 	 	139,877	 	
Net derivative losses	 	 	(257	)	 	 	—  	 	 	 	3,531	 	 	 	—  	 	
Losses from early extinguishments of debt	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	722	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total expenses	 	 	279,718	 	 	 	281,449	 	 	 	567,267	 	 	 	559,667	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interests in property partnerships, income from unconsolidated joint ventures, gains on sales of real estate, discontinued operations and preferred distributions and allocation of undistributed earnings	 	 	88,802	 	 	 	90,764	 	 	 	171,812	 	 	 	173,249	 	
Minority interests in property partnerships	 	 	(420	)	 	 	—  	 	 	 	(1,045	)	 	 	—  	 	
Income from unconsolidated joint ventures	 	 	1,855	 	 	 	17,268	 	 	 	2,897	 	 	 	18,233	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before gains on sales of real estate, discontinued operations and preferred distributions and allocation of undistributed earnings	 	 	90,237	 	 	 	108,032	 	 	 	173,664	 	 	 	191,482	 	
Gains on sales of real estate	 	 	6,203	 	 	 	—  	 	 	 	29,641	 	 	 	754,216	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before discontinued operations and preferred distributions and allocation of undistributed earnings	 	 	96,440	 	 	 	108,032	 	 	 	203,305	 	 	 	945,698	 	
Discontinued operations:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from discontinued operations	 	 	—  	 	 	 	1,589	 	 	 	—  	 	 	 	4,675	 	
Gain on sale of real estate from discontinued operations	 	 	—  	 	 	 	14,455	 	 	 	—  	 	 	 	208,724	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income before preferred distributions and allocation of undistributed earnings	 	 	96,440	 	 	 	124,076	 	 	 	203,305	 	 	 	1,159,097	 	
Preferred distributions and allocation of undistributed earnings	 	 	(1,072	)	 	 	(1,557	)	 	 	(2,208	)	 	 	(11,797	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available to common unitholders	 	$	95,368	 	 	$	122,519	 	 	$	201,097	 	 	$	1,147,300	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income available to common unitholders before discontinued operations	 	$	0.68	 	 	$	0.76	 	 	$	1.44	 	 	$	6.72	 	
Discontinued operations	 	 	—  	 	 	 	0.12	 	 	 	—  	 	 	 	1.53	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available to common unitholders	 	$	0.68	 	 	$	0.88	 	 	$	1.44	 	 	$	8.25	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of common units outstanding	 	 	140,086	 	 	 	139,336	 	 	 	139,998	 	 	 	139,101	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted earnings per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income available to common unitholders before discontinued operations	 	$	0.67	 	 	$	0.76	 	 	$	1.42	 	 	$	6.61	 	
Discontinued operations	 	 	—  	 	 	 	0.11	 	 	 	—  	 	 	 	1.51	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available to common unitholders	 	$	0.67	 	 	$	0.87	 	 	$	1.42	 	 	$	8.12	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of common and common equivalent units outstanding	 	 	141,648	 	 	 	141,359	 	 	 	141,522	 	 	 	141,347	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements
 
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Table of Contents
BOSTON PROPERTIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)

 	  	Three months ended
June 30,	 	 	Six months ended
June 30,	 	
 	  	2008	 	 	2007	 	 	2008	 	 	2007	 	
 	  	(in thousands)	 	
Net income before preferred distributions and allocation of undistributed earnings	  	$	96,440	 	 	$	124,076	 	 	$	203,305	 	 	$	1,159,097	 	
 	 	 	 	 	
Other comprehensive income (loss):	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Effective portion of interest rate contracts	  	 	11,321	 	 	 	—  	 	 	 	(12,481	)	 	 	—  	 	
Amortization of interest rate contracts	  	 	(98	)	 	 	(99	)	 	 	(196	)	 	 	(15	)	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other comprehensive income (loss)	  	 	11,223	 	 	 	(99	)	 	 	(12,677	)	 	 	(15	)	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income	  	$	107,663	 	 	$	123,977	 	 	$	190,628	 	 	$	1,159,082	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements
 
3

Table of Contents
BOSTON PROPERTIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 	  	For the six months ended
June 30,	 	
 	  	2008	 	 	2007	 	
 	  	(in thousands)	 	
Cash flows from operating activities:	  	 	 	 	 	 	 	 	
Net income before preferred distributions and allocation of undistributed earnings	  	$	203,305	 	 	$	1,159,097	 	
Adjustments to reconcile net income before preferred distributions and allocation of undistributed earnings to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation and amortization	  	 	145,096	 	 	 	141,891	 	
Non-cash portion of interest expense	  	 	4,800	 	 	 	4,798	 	
Non-cash compensation expense	  	 	11,064	 	 	 	6,271	 	
Losses from early extinguishments of debt	  	 	—  	 	 	 	722	 	
Net derivative losses	  	 	3,531	 	 	 	—  	 	
Losses on investments in securities	  	 	862	 	 	 	—  	 	
Minority interests in property partnerships	  	 	1,045	 	 	 	—  	 	
Distributions (earnings) in excess of earnings (distributions) from unconsolidated joint ventures	  	 	164	 	 	 	(14,500	)	
Gains on sales of real estate	  	 	(29,641	)	 	 	(962,940	)	
Change in assets and liabilities:	  	 	 	 	 	 	 	 	
Cash held in escrows	  	 	874	 	 	 	289	 	
Tenant and other receivables, net	  	 	17,773	 	 	 	8,654	 	
Accrued rental income, net	  	 	(25,555	)	 	 	(21,605	)	
Prepaid expenses and other assets	  	 	(6,752	)	 	 	(6,273	)	
Accounts payable and accrued expenses	  	 	(838	)	 	 	(800	)	
Accrued interest payable	  	 	1,492	 	 	 	11,664	 	
Other liabilities	  	 	(45,631	)	 	 	(4,252	)	
Tenant leasing costs	  	 	(32,227	)	 	 	(11,160	)	
 	  	 	 	 	 	 	 	 	
Total adjustments	  	 	46,057	 	 	 	(847,241	)	
 	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	249,362	 	 	 	311,856	 	
 	  	 	 	 	 	 	 	 	
Cash flows from investing activities:	  	 	 	 	 	 	 	 	
Acquisitions/additions to real estate	  	 	(230,620	)	 	 	(622,086	)	
Proceeds from redemptions of investments in securities	  	 	9,657	 	 	 	—  	 	
Net investments in unconsolidated joint ventures	  	 	(517,003	)	 	 	5,267	 	
Net proceeds from the sale of real estate released from escrow	  	 	126,321	 	 	 	—  	 	
Issuance of note receivable	  	 	(270,000	)	 	 	—  	 	
Proceeds from note receivable	  	 	123,000	 	 	 	—  	 	
Net proceeds from the sales of real estate	  	 	128,258	 	 	 	1,494,450	 	
 	  	 	 	 	 	 	 	 	
Net cash provided by (used in) investing activities	  	 	(630,387	)	 	 	877,631	 	
 	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements
 
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Table of Contents
BOSTON PROPERTIES LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
(Unaudited)
 	 	 	 	 	 	 	 	 	
 	  	For the six months ended
June 30,	 	
 	  	2008	 	 	2007	 	
 	  	(in thousands)	 	
Cash flows from financing activities:	  	 	 	 	 	 	 	 	
Borrowings on unsecured line of credit	  	 	629,000	 	 	 	260,000	 	
Repayments of unsecured line of credit	  	 	(429,000	)	 	 	(260,000	)	
Proceeds from mortgage notes payable	  	 	106,462	 	 	 	994,326	 	
Repayments of mortgage notes payable	  	 	(297,093	)	 	 	(884,749	)	
Proceeds from unsecured exchangeable senior notes	  	 	—  	 	 	 	840,363	 	
Proceeds from real estate financing transaction	  	 	—  	 	 	 	1,610	 	
Payments on real estate financing transactions	  	 	(3,065	)	 	 	(5,724	)	
Advance from joint venture partners	  	 	30,000	 	 	 	—  	 	
Distributions	  	 	(1,041,884	)	 	 	(950,869	)	
Net proceeds from equity transactions	  	 	(1,226	)	 	 	13,526	 	
Contributions from (distributions to) minority interest holders, net	  	 	(2,202	)	 	 	2,448	 	
Redemption of minority interest	  	 	—  	 	 	 	(35,625	)	
Deferred financing costs	  	 	(4,778	)	 	 	(5,263	)	
 	  	 	 	 	 	 	 	 	
Net cash used in financing activities	  	 	(1,013,786	)	 	 	(29,957	)	
 	  	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	  	 	(1,394,811	)	 	 	1,159,530	 	
Cash and cash equivalents, beginning of period	  	 	1,506,921	 	 	 	725,788	 	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	  	$	112,110	 	 	$	1,885,318	 	
 	  	 	 	 	 	 	 	 	
Supplemental disclosures:	  	 	 	 	 	 	 	 	
Cash paid for interest	  	$	145,332	 	 	$	143,459	 	
 	  	 	 	 	 	 	 	 	
Interest capitalized	  	$	19,221	 	 	$	12,252	 	
 	  	 	 	 	 	 	 	 	
Non-cash investing and financing activities:	  	 	 	 	 	 	 	 	
Additions to real estate included in accounts payable	  	$	13,412	 	 	$	8,677	 	
 	  	 	 	 	 	 	 	 	
Distributions declared but not paid	  	$	96,451	 	 	$	96,192	 	
 	  	 	 	 	 	 	 	 	
Issuance of OP Units in connection with the acquisition of real estate	  	$	15,000	 	 	$	—  	 	
 	  	 	 	 	 	 	 	 	
Issuance of OP Units in connection with an investment in an unconsolidated joint venture	  	$	10,000	 	 	$	—  	 	
 	  	 	 	 	 	 	 	 	
Conversions of Redeemable partnership units to Partners’ capital	  	$	4,743	 	 	$	23,303	 	
 	  	 	 	 	 	 	 	 	
Mortgage notes payable assumed in connection with the acquisition of real estate	  	$	—  	 	 	$	65,224	 	
 	  	 	 	 	 	 	 	 	
Note receivable issued in connection with the transfer of real estate	  	$	123,000	 	 	$	—  	 	
 	  	 	 	 	 	 	 	 	
Issuance of restricted securities to employees and directors	  	$	43,283	 	 	$	17,658	 	
 	  	 	 	 	 	 	 	 	
The accompanying notes are an integral part of these financial statements
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Boston Properties Limited Partnership (the “Company”), a Delaware limited partnership, is the entity through which Boston Properties, Inc., a self-administered and self-managed real estate investment trust (“REIT”), conducts substantially all of its business and owns (either directly or through subsidiaries) substantially all of its assets. Boston Properties, Inc. is the sole general partner of the Company and at June 30, 2008 owned an approximate 84.1% (84.0% at June 30, 2007) general and limited partnership interest in the Company. Partnership interests in the Company are denominated as “common units of partnership interest” (also referred to as “OP Units”), “long term incentive units of partnership interest” (also referred to as “LTIP Units”) or “preferred units of partnership interest” (also referred to as “Preferred Units”). In addition, during February 2008, the Company issued LTIP Units in connection with the granting to employees of 2008 outperformance awards (also referred to as “2008 OPP Units”). Because the rights, preferences and privileges of 2008 OPP Units differ from other LTIP Units granted to employees as part of the annual compensation process, unless specifically noted otherwise, all references to LTIP Units exclude 2008 OPP Units. For a complete description of the terms of the 2008 OPP Units, see Note 12.
Unless specifically noted otherwise, all references to OP Units exclude units held by Boston Properties, Inc. A holder of an OP Unit may present such OP Unit to the Company for redemption at any time (subject to restrictions agreed upon at the time of issuance of OP Units to particular holders that may restrict such redemption right for a period of time, generally one year from issuance). Upon presentation of an OP Unit for redemption, the Company must redeem such OP Unit for cash equal to the then value of a share of common stock of Boston Properties, Inc. (“Common Stock”). In lieu of a cash redemption, Boston Properties, Inc. may elect to acquire such OP Unit for one share of Common Stock. Because the number of shares of Common Stock outstanding at all times equals the number of OP Units that Boston Properties, Inc. owns, one share of Common Stock is generally the economic equivalent of one OP Unit, and the quarterly distribution that may be paid to the holder of an OP Unit equals the quarterly dividend that may be paid to the holder of a share of Common Stock. An LTIP Unit is generally the economic equivalent of a share of restricted common stock of Boston Properties, Inc. LTIP Units, whether vested or not, will receive the same quarterly per unit distributions as OP Units, which equal per share dividends on Common Stock (See Note 12).
At June 30, 2008, there was one series of Preferred Units outstanding (i.e., Series Two Preferred Units). The Series Two Preferred Units bear a distribution that is set in accordance with an amendment to the partnership agreement of the Company. Preferred Units may also be converted into OP Units at the election of the holder thereof or the Company in accordance with the amendment to the partnership agreement (See also Note 8).
All references herein to the Company refer to Boston Properties Limited Partnership and its consolidated subsidiaries, collectively, unless the context otherwise requires.
Properties
At June 30, 2008, the Company owned or had interests in a portfolio of 142 commercial real estate properties (compared to 139 and 134 properties at December 31, 2007 and June 30, 2007, respectively) (the “Properties”) aggregating approximately 46.8 million net rentable square feet (compared to approximately 43.8 million and 42.7 million net rentable square feet at December 31, 2007 and June 30, 2007, respectively), including 14 properties under construction totaling approximately 4.4 million net rentable square feet, and structured parking for approximately 32,414 vehicles containing approximately 10.3 million square feet. At June 30, 2008, the Properties consist of:
 
 	•	 	138 office properties, including 118 Class A office properties (including 14 properties under construction) and 20 Office/Technical properties;	
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
 	•	 	one hotel; and	
 
 	•	 	three retail properties.	
The Company owns or controls undeveloped land parcels totaling approximately 582.0 acres. In addition, the Company has a minority interest in the Boston Properties Office Value-Added Fund, L.P. (the “Value-Added Fund”), which is a strategic partnership with two institutional investors through which the Company has pursued the acquisition of value-added investments in assets within its existing markets. The Company’s investments through the Value-Added Fund are not included in its portfolio information or any other portfolio level statistics. At June 30, 2008, the Value-Added Fund had investments in 26 buildings comprised of an office property in Chelmsford, Massachusetts and office complexes in San Carlos, California and Mountain View, California.
The Company considers Class A office properties to be centrally located buildings that are professionally managed and maintained, that attract high-quality tenants and command upper-tier rental rates, and that are modern structures or have been modernized to compete with newer buildings. The Company considers Office/Technical properties to be properties that support office, research and development, laboratory and other technical uses.
2. Basis of Presentation and Summary of Significant Accounting Policies
Boston Properties, Inc. does not have any other significant assets, liabilities or operations, other than its investment in the Company, nor does it have employees of its own. The Company, not Boston Properties, Inc., executes all significant business relationships. All majority-owned subsidiaries and affiliates over which the Company has financial and operating control and variable interest entities (“VIE”s) in which the Company has determined it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. The Company accounts for all other unconsolidated joint ventures using the equity method of accounting. Accordingly, the Company’s share of the earnings of these joint ventures and companies is included in consolidated net income.
The accompanying interim financial statements are unaudited; however, the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring matters) necessary for a fair statement of the financial statements for these interim periods have been included. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for other interim periods or for the full fiscal year. The year end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosure required by accounting principles generally accepted in the United States of America. These financial statements should be read in conjunction with the Company’s financial statements and notes thereto contained in the Company’s Annual Report in the Company’s Form 10-K for its fiscal year ended December 31, 2007.
3. Real Estate Activity During the Six Months Ended June 30, 2008
Development
On February 5, 2008, the Company executed a 60-year ground lease with The George Washington University for the redevelopment of a site at Pennsylvania Avenue and Washington Circle in the District of Columbia as a mixed-use project comprised of approximately 450,000 square feet of office space and 330,000 square feet of residential space. During the three months ended June 30, 2008, the Company commenced construction on the project.
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
On May 12, 2008, the Company acquired the remaining development rights for its 250 West 55th Street development project located in New York City for an aggregate purchase price of approximately $34.2 million. The acquisition was financed with approximately $19.2 million of cash and the issuance to the selling entity of 150,000 OP Units.
During the six months ended June 30, 2008, a consolidated joint venture in which the Company has a 50% interest placed in-service 505 9th Street, a 322,000 net rentable square foot Class A office property located in Washington, D.C.
During the six months ended June 30, 2008, the Company partially placed in-service the following development properties:
 
 	•	 	77 CityPoint, a Class A office project with approximately 210,000 net rentable square feet located in Waltham, Massachusetts;	
 
 	•	 	South of Market, comprised of three Class A office properties aggregating approximately 652,000 net rentable square feet located in Reston, Virginia; and	
 
 	•	 	One Preserve Parkway, a Class A office project with approximately 183,000 net rentable square feet located in Rockville, Maryland.	
Dispositions
On January 7, 2008, the Company transferred at cost Mountain View Research Park and Mountain View Technology Park to its Value-Added Fund for an aggregate of approximately $221.6 million. The Research Park properties are comprised of sixteen Class A office and office/technical properties aggregating approximately 601,000 net rentable square feet located in Mountain View, California. The Technology Park properties are comprised of seven office/technical properties aggregating approximately 135,000 net rentable square feet located in Mountain View, California. In consideration for the transfer, the Company received approximately $98.6 million of cash and a promissory note having a principal amount of $123.0 million. The promissory note bore interest at a fixed rate of 7% per annum and was scheduled to mature in October 2008, subject to extension at the option of the Value-Added Fund until April 2009. On March 27, 2008, the Value-Added Fund repaid $23.0 million of the financing with proceeds from third-party mortgage financing collateralized by the Mountain View Technology Park properties. On May 30, 2008, the Value-Added Fund repaid the remaining $100.0 million of the financing with proceeds from third-party mortgage financing collateralized by the Mountain View Research Park properties.
On April 14, 2008, the Company sold a parcel of land located in Washington, D.C. for approximately $33.7 million. The Company had previously entered into a development management agreement with the buyer to develop a Class A office property on the parcel totaling approximately 165,000 net rentable square feet. Due to the Company’s involvement in the construction of the project, the gain on sale has been deferred and will be recognized over the project construction period generally based on the percentage of total project costs incurred to estimated total project costs. As a result, the Company recognized a gain on sale during the three months ended June 30, 2008 of approximately $6.2 million.
During the six months ended June 30, 2008, the Company signed a new qualifying lease for approximately 17,454 net rentable square feet of its remaining 25,409 net rentable square foot master lease obligation related to the 2006 sale of 280 Park Avenue resulting in the recognition of approximately $23.4 million as additional gain on sale of real estate. The Company had deferred approximately $67.3 million of the gain on sale of 280 Park Avenue, which amount represented the maximum obligation under the master lease. As of June 30, 2008, the remaining master lease obligation totaled approximately $1.8 million.
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. Investments in Unconsolidated Joint Ventures
The investments in unconsolidated joint ventures consist of the following at June 30, 2008:

Entity	  	Properties	  	Nominal %
Ownership	 	
Square 407 Limited Partnership	  	Market Square North	  	50.0	%	
 	 	 	
The Metropolitan Square Associates LLC	  	Metropolitan Square	  	51.0	%(1)	
 	 	 	
BP/CRF 901 New York Avenue LLC	  	901 New York Avenue	  	25.0	%(2)	
 	 	 	
WP Project Developer LLC	  	Wisconsin Place Land and Infrastructure	  	23.9	%(3)(4)	
 	 	 	
Wisconsin Place Retail LLC	  	Wisconsin Place Retail	  	5.0	%(3)	
 	 	 	
Eighth Avenue and 46th Street Entities	  	Eighth Avenue and 46th Street	  	50.0	%(3)	
 	 	 	
Boston Properties Office Value-Added Fund, L.P.	  	300 Billerica Road, One & Two Circle Star Way and Mountain View Research and Technology Parks	  	36.9	%(2)(5)	
 	 	 	
Annapolis Junction NFM, LLC	  	Annapolis Junction	  	50.0	%(3)	
 	 	 	
767 Venture, LLC	  	The General Motors Building	  	60.0	%(6)	
 
(1)	This joint venture is accounted for under the equity method due to participatory rights of the outside partners.	
(2)	The Company’s economic ownership can increase based on the achievement of certain return thresholds.	
(3)	These properties have been partially placed in-service or are not in operation (i.e., under construction or assembled land).	
(4)	Represents the Company’s effective ownership interest. The Company has a 66.67%, 5% and 0% interest in the office, retail and residential joint venture entities, respectively, which each own a 33.33% interest in the entity developing and owning the land and infrastructure of the project.	
(5)	Represents the Company’s effective ownership interest. The Company has a 25.0% interest in the 300 Billerica Road and One & Two Circle Star Way properties and a 39.5% interest in the Mountain View Research and Technology Park properties.	
(6)	The Company has determined that 767 Venture, LLC is not a variable interest entity (VIE) and that its joint venture partners have substantive participating rights with respect to the assets and operations of the General Motors Building, pursuant to the joint venture agreement.	
Certain of the Company’s joint venture agreements include provisions whereby, at certain specified times, each partner has the right to initiate a purchase or sale of its interest in the joint ventures at an agreed upon fair value. Under these provisions, the Company is not compelled to purchase the interest of its outside joint venture partners.
On January 7, 2008, the Company transferred at cost Mountain View Research Park and Mountain View Technology Park to its Value-Added Fund for an aggregate of approximately $221.6 million. The Research Park properties are comprised of sixteen Class A office and office/technical properties aggregating approximately 601,000 net rentable square feet located in Mountain View, California. The Technology Park properties are comprised of seven office/technical properties aggregating approximately 135,000 net rentable square feet located in Mountain View, California. In consideration for the transfer, the Company received approximately $98.6 million of cash and a promissory note having a principal amount of $123.0 million. The promissory note bore interest at a fixed rate of 7% per annum and was scheduled to mature in October 2008, subject to extension at the option of the Value-Added Fund until April 2009. In connection with the transfer of the Research Park and
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
Technology Park properties to the Value-Added Fund, the Company and its partners agreed to certain modifications to the Value-Added Fund’s original terms, including bifurcating the Value-Added Fund’s promote structure such that Research Park and Technology Park will be accounted for separately from the non-Mountain View properties owned by the Value-Added Fund (i.e., Circle Star and 300 Billerica Road). As a result of the modifications, the Company’s interest in the Mountain View properties is approximately 39.5% and its interest in the non-Mountain View properties is 25%. This investment completes the investment commitments for new properties from the Value-Added Fund partners.
On March 27, 2008, the Value-Added Fund obtained third-party mortgage financing totaling $26.0 million (of which $24.0 million has been disbursed as of June 30, 2008) collateralized by the Mountain View Technology Park properties. The third-party mortgage financing bears interest at a variable rate equal to LIBOR plus 1.50% per annum and matures on March 31, 2011 with two, one-year extension options. The proceeds of the third-party mortgage financing were used to repay $23.0 million of the financing provided by the Company. On June 12, 2008, the Value-Added Fund entered into an interest rate swap contract related to the mortgage loan collateralized by the Mountain View Technology Park properties with a notional amount of $24.0 million to fix the one-month LIBOR index rate at 4.085% per annum through maturity on March 31, 2011.
On May 30, 2008, the Company’s Value-Added Fund obtained mortgage financing totaling $120.0 million (of which $103.0 million was drawn at closing, with the remaining $17.0 million available to fund future tenant and capital costs) collateralized by the Mountain View Research Park properties. The mortgage financing bears interest at a variable rate equal to LIBOR plus 1.75% per annum and matures on May 31, 2011 with two, one-year extension options. The Value-Added Fund entered into three interest rate swap contracts with notional amounts aggregating $103.0 million to fix the one-month LIBOR index rate at 3.63% per annum through April 1, 2011. The proceeds of the mortgage financing were used to repay the remaining $100.0 million of financing provided by the Company.
On January 29, 2008, the Wisconsin Place joint venture entity that owns and is developing the land and infrastructure components of the project (the “Land and Infrastructure Entity”) (a joint venture entity in which the Company owns an effective interest of approximately 23.89%) executed a second amendment to its construction loan agreement. The construction financing consisted of a $69.1 million commitment, bearing interest at a per annum variable rate equal to LIBOR plus 1.50% and maturing on March 11, 2009. The outstanding balance on the construction loan was approximately $52.6 million on the $69.1 million commitment. The amended agreement provides for a reduction in the loan commitment amount to $36.9 million. The reduction relates to the repayment of the office portion of the outstanding balance totaling approximately $24.9 million and an additional reduction in the borrowing capacity of approximately $7.3 million with a corresponding release of collateral in conjunction with the Wisconsin Place joint venture entity that owns and is developing the office component of the project (a consolidated joint venture entity in which the Company owns a 66.67% interest) obtaining new construction financing for its project. On April 29, 2008, the Land and Infrastructure Entity repaid the balance of the construction loan totaling approximately $29.4 million. The repayment relates to the repayment of the residential portion of the outstanding balance in conjunction with the Wisconsin Place joint venture entity that owns and is developing the residential component of the project (a joint venture entity in which the Company does not own an interest) obtaining new construction financing for its project.
On June 9, 2008, the Company completed the acquisition of the General Motors Building in New York City for a purchase price of approximately $2.8 billion. The General Motors Building is an approximately 2,000,000 rentable square foot office building located at the corner of 5th Avenue and Central Park South in New York City. The acquisition was completed through a joint venture among the Company, US Real Estate Opportunities I, L.P., which is a partnership managed by Goldman Sachs, and Meraas Capital LLC, a Dubai-based private equity firm. The Company has a 60% interest in the venture and will provide customary property management
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
and leasing services for the venture. The purchase price consisted of approximately $890 million of cash, the issuance to the selling entity of 102,883 OP Units and the assumption of approximately $1.9 billion of secured and mezzanine loans having a weighted average fixed interest rate of 5.97% per annum, all of which mature in October 2017. In addition, the venture acquired the lenders’ interest in a portion of the assumed mezzanine loans having an aggregate principal amount of $294.0 million and a stated interest rate of 6.02% per annum for a purchase price of approximately $263.1 million in cash. The purchase price was financed in part with loans from the venture’s partners on a pro rata basis totaling $450.0 million, which bear interest at a fixed rate of 11.0% per annum and mature on June 9, 2017. The Company’s share of the partner loans totaling $270.0 million has been reflected in Related Party Note Receivable on the Company’s Consolidated Balance Sheets. The Company has eliminated interest income from its partner loan totaling approximately $1.8 million in the caption. In connection with the closing, the Company and the joint venture executed a tax protection agreement that restricts the joint venture’s ability to sell the General Motors Building in a taxable transaction and requires the Company and the joint venture to maintain certain amounts of indebtedness associated with the property and its acquisition for a period of up to nine years.
The following table summarizes the allocation of the purchase price, in accordance with SFAS No. 141, for the General Motors Building at the date of acquisition (in thousands).

Land	  	$	1,139,394	 	
Building and improvements	  	 	1,957,257	 	
Tenant improvements	  	 	76,384	 	
Tenant leasing costs	  	 	574,004	 	
Below market assumed debt adjustment	  	 	101,395	 	
Below market rents	  	 	(1,057,256	)	
 	  	 	 	 	
Total aggregate purchase price	  	$	2,791,178	 	
Less: Indebtedness assumed, net	  	 	(1,606,000	)	
 	  	 	 	 	
Net assets acquired	  	$	1,185,178	 	
 	  	 	 	 	
On May 23, 2008, the Company entered into agreements to acquire 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower, also located in New York City. The Company expects to acquire the properties through joint ventures in each of which the Company will own a 60% interest. 540 Madison Avenue is a 39-story building located at Madison Avenue at 55th Street that contains approximately 292,000 rentable square feet. 125 West 55th Street is a 23-story building, spanning from 55th to 56th Streets between Avenue of the Americas and Seventh Avenue, that contains approximately 591,000 rentable square feet. Two Grand Central Tower is a 44-story mid-block tower that runs from 44th to 45th Street between Lexington and Third Avenue and contains approximately 664,000 rentable square feet. The purchase prices, including assumed debt, for these properties are: 540 Madison Avenue, $277.1 million; 125 West 55th Street, $444.0 million; and Two Grand Central Tower, $427.9 million. Carrying value of the debt to be assumed as part of the transactions consists of the following: 540 Madison Avenue-two secured loans having an aggregate principal amount of $120 million and a weighted average interest rate of 5.28% per annum, each of which matures in July 2013; 125 West 55th Street-an aggregate principal amount of $263.5 million of secured and mezzanine loans having a weighted average interest rate of 6.31% per annum, all of which mature in March 2010; and Two Grand Central Tower-a $190 million secured loan having a per annum interest rate of 5.10%, which matures in July 2010. Upon the closing of the General Motors Building, the deposit on these assets (which is in the form of letters of credit) was increased by an aggregate of $20 million, bringing the total remaining deposit to $75 million. The closings of the remaining acquisitions are subject to customary conditions and termination rights for transactions of this type. In addition, under certain circumstances provided in the purchase and sale agreement, we may be obligated to pay the seller a per diem amount equal to (1) $64,259 with respect to 125 West 55th Street, (2) $89,367 with respect to 2 Grand Central Tower, and (3) $59,152 with respect to 540 Madison Avenue if the closing of the respective acquisition does not occur on the scheduled closing date.
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
The combined summarized balance sheets of the unconsolidated joint ventures are as follows:

 	  	June 30,
2008	  	December 31,
2007	
 	  	(in thousands)	
ASSETS	  	 	 	  	 	 	
Real estate and development in process, net	  	$	4,111,612	  	$	700,646	
Other assets	  	 	670,362	  	 	109,318	
 	  	 	 	  	 	 	
Total assets	  	$	4,781,974	  	$	809,964	
 	  	 	 	  	 	 	
LIABILITIES AND MEMBERS’/PARTNERS’ EQUITY	  	 	 	  	 	 	
Mortgage and notes payable	  	$	2,610,140	  	$	565,568	
Other liabilities	  	 	1,112,969	  	 	39,290	
Members’/Partners’ equity	  	 	1,058,865	  	 	205,106	
 	  	 	 	  	 	 	
Total liabilities and members’/partners’ equity	  	$	4,781,974	  	$	809,964	
 	  	 	 	  	 	 	
Company’s share of equity	  	$	604,128	  	$	79,074	
Basis differentials(1)	  	 	2,568	  	 	2,598	
 	  	 	 	  	 	 	
Carrying value of the Company’s investments in unconsolidated joint ventures	  	$	606,696	  	$	81,672	

(1)	This amount represents the aggregate difference between the Company’s historical cost basis and the basis reflected at the joint venture level, which is typically amortized over the life of the related asset. Basis differentials occur primarily upon the transfer of assets that were previously owned by the Company into a joint venture. In addition, certain acquisition, transaction and other costs may not be reflected in the net assets at the joint venture level.	
The combined summarized statements of operations of the joint ventures are as follows:

 	  	For the three months ended
June 30,	  	For the six months ended
June 30,	
 	  	2008	 	 	2007	  	2008	  	2007	
 	  	(in thousands)	  	(in thousands)	
Total revenue(1)	  	$	51,554	 	 	$	25,224	  	$	81,894	  	$	49,006	
Expenses	  	 	 	 	 	 	 	  	 	 	  	 	 	
Operating	  	 	16,182	 	 	 	8,925	  	 	26,767	  	 	17,523	
Interest	  	 	18,654	 	 	 	8,101	  	 	28,469	  	 	16,522	
Depreciation and amortization	  	 	17,623	 	 	 	5,240	  	 	26,229	  	 	10,824	
Loss from early extinguishment of debt	  	 	112	 	 	 	146	  	 	152	  	 	146	
 	  	 	 	 	 	 	 	  	 	 	  	 	 	
Total expenses	  	 	52,571	 	 	 	22,412	  	 	81,617	  	 	45,015	
 	  	 	 	 	 	 	 	  	 	 	  	 	 	
Income (loss) before gain on sale of real estate	  	 	(1,017	)	 	 	2,812	  	 	277	  	 	3,991	
Gain on sale of real estate	  	 	—  	 	 	 	32,777	  	 	—  	  	 	32,777	
 	  	 	 	 	 	 	 	  	 	 	  	 	 	
Net income (loss)	  	$	(1,017	)	 	$	35,589	  	$	277	  	$	36,768	
 	  	 	 	 	 	 	 	  	 	 	  	 	 	
Company’s share of net income	  	$	40	 	 	$	17,268	  	$	1,082	  	$	18,233	
Elimination of inter-entity interest on partner loan	  	 	1,815	 	 	 	—  	  	 	1,815	  	 	—  	
 	  	 	 	 	 	 	 	  	 	 	  	 	 	
Income from unconsolidated joint ventures	  	$	1,855	 	 	$	17,268	  	$	2,897	  	$	18,233	

(1)	Includes straight-line rent adjustments of $0.4 million, $0.4 million, $0.6 million and $0.4 million, respectively, for the three and six months ended June 30, 2008 and June 30, 2007. Includes “above” and “below” market rent adjustments of $5.6 million, $(0.2) million, $6.0 million and $(0.4) million, respectively, for the three and six months ended June 30, 2008 and June 30, 2007.	
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
5. Mortgage Notes Payable
On January 29, 2008, the Wisconsin Place joint venture entity that owns and is developing the office component of the project (a consolidated joint venture entity in which the Company owns a 66.67% interest) obtained construction financing totaling $115.0 million collateralized by the office property. Wisconsin Place is a mixed-use development project consisting of office, retail and residential properties located in Chevy Chase, Maryland. The construction financing bears interest at a variable rate equal to LIBOR plus 1.25% per annum and matures on January 29, 2011 with two, one-year extension options.
On February 1, 2008, the Company used available cash to repay the mortgage loan collateralized by its Reston Corporate Center property located in Reston, Virginia totaling approximately $20.5 million. There was no prepayment penalty associated with the repayment. The mortgage loan bore interest at a fixed rate of 6.56% per annum and was scheduled to mature on May 1, 2008.
On April 1, 2008, the Company used available cash to repay the mortgage loan collateralized by its Prudential Center property located in Boston, Massachusetts totaling approximately $258.2 million. There was no prepayment penalty associated with the repayment. The mortgage loan bore interest at a fixed rate of 6.72% per annum and was scheduled to mature on July 1, 2008.
On June 19, 2008, the Company obtained construction financing totaling $65.0 million collateralized by its Democracy Tower (formerly South of Market-Phase II) development project located in Reston, Virginia. The Democracy Tower development project consists of a Class A office property with approximately 225,000 net rentable square feet. The construction financing bears interest at a variable rate equal to LIBOR plus 1.75% per annum and matures on December 19, 2010 with two one-year extension options.
During 2007, the Company commenced an interest rate hedging program for its expected financing activity in 2008 and entered into 11 treasury locks based on a weighted-average 10-year treasury rate of 4.68% per annum on notional amounts aggregating $375.0 million. Nine of the treasury locks with notional amounts aggregating $325.0 million matured on April 1, 2008 at which time the Company cash-settled the contracts and made cash payments to the counterparties totaling approximately $33.5 million. The remaining two treasury locks with notional amounts aggregating $50.0 million matured on July 31, 2008. In addition, the Company entered into five forward-starting interest rate swap contracts to lock the 10-year LIBOR swap rate on notional amounts aggregating $150.0 million at a weighted-average forward-starting 10-year swap rate of 5.19% per annum. The 10-year treasury rate is a component of the 10-year swap rate and the swap contracts effectively fixed the 10-year treasury rate at a weighted-average interest rate of 4.51% per annum. The swap contracts go into effect on July 31, 2008 and expire on July 31, 2018. Collectively, all of the foregoing contracts have effectively fixed the 10-year treasury rate at a weighted-average interest rate of 4.63% per annum on notional amounts aggregating $525.0 million. The Company entered into the treasury locks and interest rate swap contracts designated and qualifying as cash flow hedges to reduce its exposure to the variability in future cash flows attributable to changes in the hedged rate in contemplation of obtaining ten-year fixed-rate financings in 2008. In addition, during 2007, the Company entered into an interest rate swap to fix the one-month LIBOR index rate at 4.57% per annum on a notional amount of $96.7 million. This interest rate swap went into effect on October 22, 2007 and expires on October 29, 2008. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended and interpreted, establishes accounting and reporting standards for derivative instruments. The Company has formally documented all of its relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. The Company also assesses and documents, both at the hedging instrument’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. All components of the treasury locks and forward-starting interest rate swap contracts were included in the assessment of hedge effectiveness.
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
During the six months ended June 30, 2008, the Company modified the estimated dates with respect to its anticipated financings under the interest rate hedging program. As a result, the Company recognized a net derivative loss of approximately $3.5 million representing the partial ineffectiveness of the interest rate contracts. The Company has recorded the changes in fair value of the treasury lock and swap contracts related to the effective portion totaling approximately $38.1 million at June 30, 2008 in Accumulated Other Comprehensive Loss within the Company’s Consolidated Balance Sheets. Based on interest rates in effect as of June 30, 2008 and assuming the Company completes financing transactions in accordance with its current plans, the Company expects that within the next twelve months it will reclassify into earnings as an increase in interest expense approximately $2.7 million of the $38.1 million recorded within Accumulated Other Comprehensive Loss relating to the treasury locks and forward-starting interest rate swap contracts.
6. Unsecured Line of Credit
On June 6, 2008, the Company utilized an accordion feature under its unsecured revolving credit facility (the “Unsecured Line of Credit”) with a consortium of lenders to increase the lenders’ total commitment under the Unsecured Line of Credit from $605.0 million to $923.3 million. All other material terms under the facility remain unchanged. The Company’s Unsecured Line of Credit bears interest at a variable interest rate equal to Eurodollar plus 0.475% per annum and matures on August 3, 2010, with a provision for a one-year extension at the option of the Company, subject to certain conditions. The Unsecured Line of Credit is a recourse obligation of the Company. Under the Unsecured Line of Credit, a facility fee equal to 0.125% per annum is payable in quarterly installments. The interest rate and facility fee are subject to adjustment in the event of a change in the Company’s unsecured debt ratings. The Unsecured Line of Credit involves a syndicate of lenders. The Unsecured Line of Credit contains a competitive bid option that allows banks that are part of the lender consortium to bid to make loan advances to the Company at a negotiated LIBOR-based rate. The Company had an outstanding balance on the Unsecured Line of Credit of $200.0 million at June 30, 2008.
The terms of the Unsecured Line of Credit require that the Company maintain customary financial and other covenants on an ongoing basis, including: (1) a leverage ratio not to exceed 60%, however, the leverage ratio may increase to no greater than 65% provided that it is reduced back to 60% within 180 days, (2) a secured debt leverage ratio not to exceed 55%, (3) a fixed charge coverage ratio of at least 1.40, (4) an unsecured debt leverage ratio not to exceed 60%, however, the unsecured debt leverage ratio may increase to no greater than 65% provided that it is reduced back to 60% within 180 days, (5) a minimum net worth requirement, (6) an unsecured debt interest coverage ratio of at least 1.75 and (7) limitations on permitted investments, development, partially owned entities, business outside of commercial real estate and commercial non-office properties. At June 30, 2008, the Company was in compliance with each of these financial and other covenant requirements.
7. Commitments and Contingencies
General
In the normal course of business, the Company guarantees its performance of services or indemnifies third parties against its negligence.
The Company has letter of credit and performance obligations of approximately $98.4 million related to lender requirements, acquisition deposits and development requirements.
Certain of the Company’s joint venture agreements include provisions whereby, at certain specified times, each partner has the right to initiate a purchase or sale of its interest in the joint ventures. Under these provisions, the Company is not compelled to purchase the interest of its outside joint venture partners.
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
Insurance
The Company carries insurance coverage on its properties of types and in amounts and with deductibles that it believes are in line with coverage customarily obtained by owners of similar properties. In response to the uncertainty in the insurance market following the terrorist attacks of September 11, 2001, the Federal Terrorism Risk Insurance Act (as amended, “TRIA”) was enacted in November 2002 to require regulated insurers to make available coverage for certified acts of terrorism (as defined by the statute). The expiration date of TRIA was extended to December 31, 2014 by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”). Prior to TRIPRA, only acts of foreign terrorism could be “certified” for coverage under TRIA. Under TRIPRA, acts of both foreign and domestic terrorism can be “certified” for coverage under TRIA. Currently, the Company’s property insurance program per occurrence limits are $1.0 billion for its portfolio insurance program, including coverage for both foreign and domestic acts of terrorism “certified” under TRIA. The Company currently insures certain properties, including the General Motors Building located at 767 Fifth Avenue in New York, New York (“767 Fifth Avenue”), in separate stand alone insurance programs. The property insurance program per occurrence limits for 767 Fifth Avenue are $1.625 billion, including coverage for both foreign and domestic acts of terrorism “certified” under TRIA, with $1.375 billion of coverage for losses in excess of $250 million being provided by NYXP, LLC, as a direct insurer. The Company also currently carries nuclear, biological, chemical and radiological terrorism insurance coverage (“NBCR Coverage”) for both foreign and domestic acts of terrorism “certified” under TRIA, which is provided by IXP, LLC as a direct insurer, excluding the Company’s Value-Added Fund properties and 767 Fifth Avenue. The per occurrence limit for NBCR Coverage is $1.0 billion. Under TRIA, after the payment of the required deductible and coinsurance, the NBCR Coverage is backstopped by the Federal Government if the aggregate industry insured losses resulting from a certified act of terrorism exceed a “program trigger.” The program trigger is $100 million and the coinsurance is 10%. Under TRIPRA, if the Federal Government pays out for a loss under TRIA, it is mandatory that the Federal Government recoup the full amount of the loss from insurers offering TRIA coverage after the payment of the loss pursuant to a formula in TRIPRA. The Company may elect to terminate the NBCR Coverage if the Federal Government seeks recoupment for losses paid under TRIA, if there is a change in its portfolio or for any other reason. The Company intends to continue to monitor the scope, nature and cost of available terrorism insurance and maintain insurance in amounts and on terms that are commercially reasonable.
The Company also currently carries earthquake insurance on its properties located in areas known to be subject to earthquakes in an amount and subject to self-insurance that the Company believes are commercially reasonable. In addition, this insurance is subject to a deductible in the amount of 5% of the value of the affected property. Specifically, the Company currently carries earthquake insurance which covers its San Francisco region with a $120 million per occurrence limit and a $120 million annual aggregate limit, $20 million of which is provided by IXP, LLC, as a direct insurer. The amount of the Company’s earthquake insurance coverage may not be sufficient to cover losses from earthquakes. In addition, the amount of earthquake coverage could impact the Company’s ability to finance properties subject to earthquake risk. The Company may discontinue earthquake insurance on some or all of its properties in the future if the premiums exceed the Company’s estimation of the value of the coverage.
In January 2002, the Company formed a wholly-owned taxable REIT subsidiary, IXP, Inc., to act as a captive insurance company and be one of the elements of the Company’s overall insurance program. On September 27, 2006, IXP, Inc. was merged into IXP, LLC, a wholly-owned subsidiary, and all insurance policies issued by IXP, Inc. were cancelled and reissued by IXP, LLC. The term “IXP” refers to IXP, Inc. for the period prior to September 27, 2006 and to IXP, LLC for the period on and subsequent to September 27, 2006. IXP acts as a direct insurer with respect to a portion of the Company’s earthquake insurance coverage for its Greater San Francisco properties and the Company’s NBCR Coverage for both foreign and domestic acts of terrorism “certified” under TRIA. In May 2008, the Company formed a wholly-owned subsidiary, NYXP, LLC (“NYXP”),
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
to act as a captive insurance company and be one of the elements of the Company’s insurance program for 767 Fifth Avenue. NYXP acts as a direct insurer with respect to a portion of the Company’s coverage for both foreign and domestic acts of terrorism “certified” under TRIA for 767 Fifth Avenue. Currently, NYXP only insures losses which exceed the program trigger under TRIA and NYXP reinsures with a third-party insurance company any coinsurance payable under TRIA. Insofar as the Company owns IXP and NYXP, it is responsible for their liquidity and capital resources, and the accounts of IXP and NYXP are part of the Company’s consolidated financial statements. In particular, if a loss occurs which is covered by the Company’s NBCR Coverage but is less than the applicable program trigger under TRIA, IXP would be responsible for the full amount of the loss without any backstop by the Federal Government. IXP and NYXP would also be responsible for any recoupment charges by the Federal Government in the event losses are paid out and their insurance policies are maintained after the payout by the Federal Government. If the Company experiences a loss and IXP or NYXP are required to pay under their insurance policies, the Company would ultimately record the loss to the extent of the required payment. Therefore, insurance coverage provided by IXP and NYXP should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance.
The Company continues to monitor the state of the insurance market in general, and the scope and costs of coverage for acts of terrorism in particular, but the Company cannot anticipate what coverage will be available on commercially reasonable terms in future policy years. There are other types of losses, such as from wars or the presence of mold at the Company’s properties, for which the Company cannot obtain insurance at all or at a reasonable cost. With respect to such losses and losses from acts of terrorism, earthquakes or other catastrophic events, if the Company experiences a loss that is uninsured or that exceeds policy limits, the Company could lose the capital invested in the damaged properties, as well as the anticipated future revenues from those properties. Depending on the specific circumstances of each affected property, it is possible that the Company could be liable for mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect the Company’s business and financial condition and results of operations.
8. Redeemable Partnership Units
As of June 30, 2008, redeemable partnership units consisted of 20,283,854 OP Units, 946,226 LTIP Units, 1,085,861 2008 OPP Units and 1,113,044 Series Two Preferred Units (or 1,460,688 OP Units on an as converted basis) held by parties other than Boston Properties, Inc.
During the six months ended June 30, 2008, 256,130 OP Units were presented by the holders for redemption and were redeemed by Boston Properties, Inc. in exchange for an equal number of shares of Common Stock. The aggregate book value of the OP Units that were redeemed, as measured for each OP Unit on the date of its redemption, was approximately $4.7 million.
On February 5, 2008, the Company issued 1,085,861 2008 OPP Units to its employees. Prior to the measurement date on February 5, 2011, 2008 OPP Units will be entitled to receive per unit distributions equal to one-tenth (10%) of the regular quarterly distributions payable on an OP Unit, but will not be entitled to receive any special distributions. After the measurement date, the number of 2008 OPP Units, both vested and unvested, which 2008 OPP award recipients have earned based on the establishment of an outperformance pool, will be entitled to receive distributions in an amount per unit equal to distributions, both regular and special, payable on an OP Unit. For a complete description of the terms of the 2008 OPP Units, see Note 12.
On May 12, 2008, the Company issued 150,000 OP Units to the selling entity as partial consideration for the Company’s acquisition of the remaining development rights for its 250 West 55th Street development project located in New York City.
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
On June 9, 2008, the Company issued 102,883 OP Units to the selling entity as partial consideration for the Company’s acquisition of its interest in the General Motors Building located in New York City.
The Preferred Units at June 30, 2008 consist solely of 1,113,044 Series Two Preferred Units, which bear a preferred distribution equal to the greater of (1) the distribution which would have been paid in respect of the Series Two Preferred Unit had such Series Two Preferred Unit been converted into an OP Unit (including both regular and special distributions) or (2) an increasing rate, ranging from 5.00% to 7.00% per annum (7.00% for the six months ended June 30, 2008 and 2007) on a liquidation preference of $50.00 per unit, and are convertible into OP Units at a rate of $38.10 per Preferred Unit (1.312336 OP Units for each Preferred Unit). Distributions to holders of Preferred Units are recognized on a straight-line basis that approximates the effective interest method.
On January 30, 2008, the Company paid a distribution on the OP Units and LTIP Units in the amount of $0.68 per unit to holders of record as of the close of business on December 31, 2007. In addition, the Company paid a special cash distribution on the OP Units and LTIP Units in the amount of $5.98 per unit to holders of record as of the close of business on December 31, 2007. On April 30, 2008, the Company paid a distribution on the OP Units and LTIP Units in the amount of $0.68 per unit and a distribution on the 2008 OPP Units in the amount of $0.068 per unit, in each case payable to holders of record as of the close of business on March 31, 2008.
Holders of Series Two Preferred Units participated in the $5.98 per unit special cash distribution on an as-converted basis in connection with their regular May 2008 distribution payment as provided for in the Company’s partnership agreement. At December 31, 2007, the Company had accrued approximately $8.7 million related to the $5.98 per unit special cash distribution payable to holders of the Series Two Preferred Units.
On February 15, 2008, the Company paid a distribution on its outstanding Series Two Preferred Units of $0.89239 per unit. On May 15, 2008, the Company paid a distribution on its outstanding Series Two Preferred Units of $8.7402 per unit, which amount included the impact of the special cash distribution described above.
On June 17, 2008, Boston Properties, Inc., as general partner of the Company, declared a distribution on the OP Units and LTIP Units in the amount of $0.68 per unit and a distribution on the 2008 OPP Units in the amount of $0.068 per unit, in each case payable on July 31, 2008 to holders of record as of the close of business on June 30, 2008.
The Series Two Preferred Units may be converted into OP Units at the election of the holder thereof at any time. A holder of an OP Unit may present such OP Unit to the Company for redemption at any time (subject to restrictions agreed upon at the time of issuance of OP Units to particular holders that may restrict such redemption right for a period of time, generally one year from issuance). Upon presentation of an OP Unit for redemption, the Company must redeem such OP Unit for cash equal to the then value of a share of common stock of Boston Properties, Inc. In lieu of a cash redemption, Boston Properties, Inc. may elect to acquire such OP Unit for one share of Common Stock. Due to the redemption option and the conversion option existing outside the control of the Company, such Preferred Units and OP Units (not owned by Boston Properties, Inc.) are not included in Partners’ Capital and are reflected in the Consolidated Balance Sheets within Redeemable Partnership Units at an amount equivalent to the value of such units had such units been redeemed at June 30, 2008. The value of the OP Units (not owned by Boston Properties, Inc. and including LTIP Units assuming that all conditions have been met for the conversion thereof) and Series Two Preferred Units had such units been redeemed at June 30, 2008 was approximately $1,915.4 million and $131.8 million, respectively, based on the closing price of Boston Properties, Inc.’s common stock of $90.22 per share on June 30, 2008. Included in Preferred Distributions and Allocation of Undistributed Earnings in the Consolidated Statements of Operations is
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
accretion of approximately $0.1 million and $0.1 million for the three months ended June 30, 2008 and 2007, respectively, and $0.2 million and $0.3 million for the six months ended June 30, 2008 and 2007, respectively, which represents the accretion of the Preferred Units from the value at issuance to the liquidation value.
9. Partners’ Capital
As of June 30, 2008, Boston Properties, Inc. owned 1,409,863 general partnership units and 118,346,377 limited partnership units.
During the six months ended June 30, 2008, Boston Properties, Inc. acquired 256,130 OP Units in connection with the redemption of an equal number of redeemable partnership units from third parties.
On January 30, 2008, the Company paid a distribution in the amount of $0.68 per OP Unit to unitholders of record as of the close of business on December 31, 2007. In addition, the Company paid a special cash distribution of $5.98 per OP Unit to unitholders of record as of the close of business on December 31, 2007. On April 30, 2008, the Company paid a distribution in the amount of $0.68 per OP Unit to unitholders of record as of the close of business on March 31, 2008.
On June 17, 2008, Boston Properties, Inc., as general partner of the Company, declared a distribution in the amount of $0.68 per OP Unit payable on July 31, 2008 to unitholders of record as of the close of business on June 30, 2008.
10. Held for Sale/Discontinued Operations
The Company applies the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lesser of (1) book value or (2) fair value less cost to sell. In addition, it requires that one accounting model be used for long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions.
On January 7, 2008, the Company transferred at cost Mountain View Research Park and Mountain View Technology Park to its Value-Added Fund for an aggregate of approximately $221.6 million (See Note 3). At December 31, 2007, the Company had categorized the properties as “Held for Sale” in its Consolidated Balance Sheets. Due to the Company’s continuing involvement through its ownership interest in the Value-Added Fund, these properties have not been categorized as discontinued operations in the accompanying Consolidated Statements of Operations.
During the year ended December 31, 2007, the Company sold the following operating properties:
 
 	•	 	Orbital Sciences Campus and Broad Run Business Park, Building E, comprised of three Class A office properties aggregating approximately 337,000 net rentable square feet and an office/technical property totaling approximately 127,000 net rentable square feet, respectively, located in Loudon County, Virginia;	
 
 	•	 	Democracy Center, a Class A office complex totaling approximately 685,000 net rentable square feet located in Bethesda, Maryland;	
 
 	•	 	Newport Office Park, a Class A office property totaling approximately 172,000 net rentable square feet located in Quincy, Massachusetts;	
 
 	•	 	Long Wharf Marriott, a 402-room hotel located in Boston, Massachusetts; and	
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
 	•	 	5 Times Square, a Class A office property totaling approximately 1,102,000 net rentable square feet located in New York City.	
Due to the Company’s continuing involvement in the management, for a fee, of Democracy Center and 5 Times Square through agreements with the buyers, Democracy Center and 5 Times Square have not been categorized as discontinued operations in the accompanying Consolidated Statements of Operations. As a result, the gain on sale related to 5 Times Square has been reflected under the caption “Gains on sales of real estate,” in the Consolidated Statements of Operations. The Company has presented the other properties listed above as discontinued operations in its Consolidated Statements of Operations for the three and six months ended June 30, 2008 and 2007, as applicable.
The following table summarizes income from discontinued operations and the related realized gains on sales of real estate from discontinued operations for the three and six months ended June 30, 2008 and 2007 (in thousands):

 	  	For the three months ended
June 30,	  	For the six months ended
June 30,	
 	  	2008	  	2007	  	2008	  	2007	
Total revenue	  	$	—  	  	$	2,963	  	$	—  	  	$	15,129	
Operating expenses	  	 	—  	  	 	674	  	 	—  	  	 	8,440	
Depreciation and amortization	  	 	—  	  	 	700	  	 	—  	  	 	2,014	
 	  	 	 	  	 	 	  	 	 	  	 	 	
Income from discontinued operations	  	$	—  	  	$	1,589	  	$	—  	  	$	4,675	
 	  	 	 	  	 	 	  	 	 	  	 	 	
Realized gains on sales of real estate	  	$	—  	  	$	14,455	  	$	—  	  	$	208,724	
 	  	 	 	  	 	 	  	 	 	  	 	 	
The Company’s application of SFAS No. 144 results in the presentation of the net operating results of those qualifying properties sold or held for sale during the applicable periods as income from discontinued operations. The application of SFAS No. 144 does not have an impact on net income available to common unitholders. SFAS No. 144 only impacts the presentation of these properties within the Consolidated Statements of Operations.
11. Earnings Per Common Unit
Earnings per common unit has been computed pursuant to the provisions of SFAS No. 128. The following table provides a reconciliation of both the net income and the number of common units used in the computation of basic earnings per common unit, which is calculated by dividing net income available to common unitholders by the weighted-average number of common units outstanding during the period. During 2004, the Company adopted EITF 03-6 “Participating Securities and the Two-Class Method under FASB 128” (“EITF 03-6”), which provides further guidance on the definition of participating securities. Pursuant to EITF 03-6, the Company’s Series Two Preferred Units, which are reflected as Redeemable Partnership Units in the Company’s Consolidated Balance Sheets, are considered participating securities and are included in the computation of basic and diluted earnings per common unit of the Company if the effect of applying the if-converted method is dilutive. The terms of the Series Two Preferred Units enable the holders to obtain OP Units. Accordingly, for the reporting periods in which the Company’s net income is in excess of distributions paid on the OP Units, LTIP Units and Series Two Preferred Units, such income is allocated to the OP Units, LTIP Units and Series Two Preferred Units in proportion to their respective interests and the impact is included in the Company’s consolidated basic and diluted earnings per common unit computation. For the three months ended June 30, 2008 and 2007, approximately $0.0 million and $0.3 million, respectively, was allocated to the Series Two Preferred Units in excess of distributions paid during the reporting period and is included in the Company’s computation of basic
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
and diluted earnings per common unit. For the six months ended June 30, 2008 and 2007, approximately $0.1 million and $12.3 million, respectively, was allocated to the Series Two Preferred Units in excess of distributions paid during the reporting period and is included in the Company’s computation of basic and diluted earnings per share. Because the 2008 OPP Units require Boston Properties, Inc. to outperform absolute and relative return thresholds, unless such thresholds have been met by the end of the applicable reporting period, the Company excludes all contingently issuable units from the diluted earnings per common unit calculation. Other potentially dilutive common units and the related impact on earnings, are considered when calculating diluted earnings per common unit. Included in the number of units (the denominator) below are approximately 20,333,000 and 20,375,000 redeemable common units for the three months ended June 30, 2008 and 2007, respectively, and 20,354,000 and 20,536,000 redeemable common units for the six months ended June 30, 2008 and 2007, respectively.

 	  	For the three months ended June 30, 2008	 	
 	  	Income
(Numerator)	  	Units
(Denominator)	  	Per Unit
Amount	 	
 	  	(in thousands, except for per unit amounts)	 	
Basic Earnings:	  	 	 	  	 	  	 	 	 	
Net income available to common unitholders	  	$	95,368	  	140,086	  	$	0.68	 	
Effect of Dilutive Securities:	  	 	 	  	 	  	 	 	 	
Stock Based Compensation	  	 	—  	  	1,562	  	 	(0.01	)	
Diluted Earnings:	  	 	 	  	 	  	 	 	 	
 	  	 	 	  	 	  	 	 	 	
Net income	  	$	95,368	  	141,648	  	$	0.67	 	

 	  	For the three months ended June 30, 2007	 	
 	  	Income
(Numerator)	  	Units
(Denominator)	  	Per Unit
Amount	 	
 	  	(in thousands, except for per unit amounts)	 	
Basic Earnings:	  	 	 	  	 	  	 	 	 	
Income available to common unitholders before discontinued operations	  	$	106,475	  	139,336	  	$	0.76	 	
Discontinued operations	  	 	16,044	  	—  	  	 	0.12	 	
 	  	 	 	  	 	  	 	 	 	
Net income available to common unitholders	  	 	122,519	  	139,336	  	 	0.88	 	
Effect of Dilutive Securities:	  	 	 	  	 	  	 	 	 	
Stock Based Compensation	  	 	—  	  	1,789	  	 	(0.01	)	
Exchangeable Senior Notes	  	 	—  	  	234	  	 	(0.00	)	
Diluted Earnings:	  	 	 	  	 	  	 	 	 	
 	  	 	 	  	 	  	 	 	 	
Net income	  	$	122,519	  	141,359	  	$	0.87	 	

 	 	 	 	 	 	 	 	 	 	
 	  	For the six months ended June 30, 2008	 	
 	  	Income
(Numerator)	  	Units
(Denominator)	  	Per Unit
Amount	 	
 	  	(in thousands, except for per unit amounts)	 	
Basic Earnings:	  	 	 	  	 	  	 	 	 	
Net income available to common unitholders	  	$	201,097	  	139,998	  	$	1.44	 	
Effect of Dilutive Securities:	  	 	 	  	 	  	 	 	 	
Stock Based Compensation	  	 	—  	  	1,524	  	 	(0.02	)	
Diluted Earnings:	  	 	 	  	 	  	 	 	 	
 	  	 	 	  	 	  	 	 	 	
Net income	  	$	201,097	  	141,522	  	$	1.42	 	

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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 	  	For the six months ended June 30, 2007	 	
 	  	Income
(Numerator)	  	Units
(Denominator)	  	Per Unit
Amount	 	
 	  	(in thousands, except for per unit amounts)	 	
Basic Earnings:	  	 	 	  	 	  	 	 	 	
Income available to common unitholders before discontinued operations	  	$	933,901	  	139,101	  	$	6.72	 	
Discontinued operations	  	 	213,399	  	—  	  	 	1.53	 	
 	  	 	 	  	 	  	 	 	 	
Net income available to common unitholders	  	 	1,147,300	  	139,101	  	 	8.25	 	
Effect of Dilutive Securities:	  	 	 	  	 	  	 	 	 	
Stock Based Compensation	  	 	—  	  	1,890	  	 	(0.11	)	
Exchangeable Senior Notes	  	 	—  	  	356	  	 	(0.02	)	
Diluted Earnings:	  	 	 	  	 	  	 	 	 	
 	  	 	 	  	 	  	 	 	 	
Net income	  	$	1,147,300	  	141,347	  	$	8.12	 	
 	  	 	 	  	 	  	 	 	 	
12. Stock Option and Incentive Plan
On January 24, 2008, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of Boston Properties, Inc. approved outperformance awards under the Second Amendment and Restatement of the Boston Properties, Inc.’s Stock Option and Incentive Plan (“the 1997 Plan”) to officers and key employees of Boston Properties, Inc. These awards (the “2008 OPP Awards”) are part of a new broad-based, long-term incentive compensation program designed to provide the Company’s management team at several levels within the organization with the potential to earn equity awards subject to Boston Properties, Inc. “outperforming” and creating shareholder value in a pay-for-performance structure. 2008 OPP Awards utilize total return to shareholders (“TRS”) over a three-year measurement period as the performance metric and include two years of time-based vesting after the end of the performance measurement period (subject to acceleration in certain events) as a retention tool. Recipients of 2008 OPP Awards will share in an outperformance pool if Boston Properties, Inc.’s TRS, including both share appreciation and dividends, exceeds absolute and relative hurdles over a three-year measurement period from February 5, 2008 to February 5, 2011, based on the average closing price of a share of Boston Properties, Inc.’s common stock (a “REIT Share”) of $92.8240 for the five trading days prior to and including February 5, 2008. The aggregate reward that recipients of all 2008 OPP Awards can earn, as measured by the outperformance pool, is subject to a maximum cap of $110 million, although only awards for an aggregate of up to approximately $104.8 million have been granted to date. The balance remains available for future grants, with OPP awards exceeding a potential reward of $1 million requiring the Committee’s approval.
The outperformance pool will consist of (i) three percent (3%) of the excess total return above a cumulative absolute TRS hurdle of 30% over the full three-year measurement period (the “Absolute TRS Component”) and (ii) three percent (3%) of the excess or deficient excess total return above or below a relative TRS hurdle equal to the total return of the SNL Equity REIT Index over the three-year measurement period (the “Relative TRS Component”). In the event that the Relative TRS Component is potentially positive because Boston Properties, Inc.’s TRS is higher than the total return of the SNL Equity REIT Index, the actual contribution to the outperformance pool from the Relative TRS Component will be subject to a sliding scale factor as follows: (i) 100% of the potential Relative TRS Component will be earned if Boston Properties, Inc.’s TRS is equal to or greater than a cumulative 30% over three years (equivalent to 10% per annum), (ii) 0% will be earned if Boston Properties, Inc.’s TRS is equal to or less than a cumulative 21% over three years (equivalent to 7% per annum), and (iii) a percentage from 0% to 100% calculated by linear interpolation will be earned if Boston Properties, Inc.’s cumulative TRS over three years is between 21% and 30%. The potential Relative TRS Component before
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
application of the sliding scale factor will be capped at $110 million (or such lesser amount as corresponds to the OPP awards actually granted). In the event that the Relative TRS Component is negative because Boston Properties, Inc.’s TRS is less than the total return of the SNL Equity REIT Index, any outperformance reward potentially earned under the Absolute TRS Component will be reduced dollar for dollar, provided that the potential Absolute TRS Component before reduction for any negative Relative TRS Component will be capped at $110 million (or such lesser amount as corresponds to the OPP awards actually granted). The algebraic sum of the Absolute TRS Component and the Relative TRS Component determined as described above will never exceed $110 million (or such lesser amount as corresponds to the OPP awards actually granted).
Each employee’s 2008 OPP Award is designated as a specified percentage of the aggregate outperformance pool. Assuming the applicable absolute and/or relative TRS thresholds are achieved at the end of the measurement period, the algebraic sum of the Absolute TRS Component and the Relative TRS Component will be calculated and then allocated among the 2008 OPP Award recipients in accordance with each individual’s percentage. Rewards earned with respect to 2008 OPP Awards will vest 25% on February 5, 2011, 25% on February 5, 2012, and 50% on February 5, 2013, based on continued employment. Vesting will be accelerated in the event of a change of control of Boston Properties, Inc., termination of employment by Boston Properties, Inc. without cause or termination of employment by the award recipient for good reason, death, disability or retirement, although restrictions on transfer will continue to apply in certain of these situations. 2008 OPP Awards are in the form of LTIP units of limited partnership interest of the Company, which are referred to herein as “2008 OPP Units.” 2008 OPP Units were issued prior to the determination of the outperformance pool, but will remain subject to forfeiture depending on the extent of rewards earned with respect to 2008 OPP Awards. The number of 2008 OPP Units issued initially to recipients of the 2008 OPP Awards was an estimate of the maximum number of 2008 OPP Units that they could earn, based on certain assumptions. The number of 2008 OPP Units actually earned by each award recipient will be determined at the end of the performance measurement period by dividing his or her share of the outperformance pool by the average closing price of a REIT Share for the 15 trading days immediately preceding the measurement date. Total return for Boston Properties, Inc. and for the SNL Equity REIT Index over the three-year measurement period and other circumstances will determine how many 2008 OPP Units are earned by each recipient; if they are fewer than the number issued initially, the balance will be forfeited as of the performance measurement date.
Prior to the measurement date, 2008 OPP Units will be entitled to receive per unit distributions equal to one-tenth (10%) of the regular quarterly distributions payable on an OP Unit, but will not be entitled to receive any special distributions. After the measurement date, the number of 2008 OPP Units, both vested and unvested, which employees have earned based on the establishment of an outperformance pool, will be entitled to receive distributions in an amount per unit equal to distributions, both regular and special, payable on an OP Unit.
During the six months ended June 30, 2008, Boston Properties, Inc. issued 4,723 shares of restricted stock and the Company issued 287,328 LTIP Units and 1,085,861 2008 OPP Units. The shares of restricted stock were valued at approximately $0.5 million ($96.09 per share). The 2008 OPP Units were valued at approximately $19.7 million utilizing a Monte Carlo simulation to estimate the probability of the performance vesting conditions being satisfied. The Monte Carlo simulation used a statistical formula underlying the Black-Scholes and binomial formulas and such simulation was run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, which is then discounted to the award date at a risk-free interest rate. The average of the values over all simulations is the expected value of the unit on the award date. Assumptions used in the valuations included (1) factors associated with the underlying performance of Boston Properties, Inc.’s stock price and total shareholder return over the term of the performance awards including total stock return volatility and risk-free interest and (2) factors associated with the relative performance of Boston Properties, Inc.’s stock price and total
 
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
shareholder return when compared to the SNL Equity REIT Index. The valuation was performed in a risk-neutral framework, so no assumption was made with respect to an equity risk premium. The LTIP Units were valued at approximately $25.3 million ($88.17 per unit weighted-average fair value) using a Monte Carlo simulation method model in accordance with the provisions of SFAS No. 123R. The per unit fair value of each LTIP Unit granted was estimated on the date of grant using the following assumptions: an expected life of 5.6 years, a risk-free interest rate of 2.75% and an expected price volatility of 25.0%. An LTIP Unit is generally the economic equivalent of a share of restricted stock in Boston Properties, Inc. The aggregate value of the LTIP Units is included in Redeemable Partnership Units in the Consolidated Balance Sheets. The restricted stock and LTIP Units granted to employees between January 1, 2004 and November 2006 vest over a five-year term. Grants of restricted stock and LTIP Units made in and after November 2006 vest in four equal annual installments. Restricted stock and LTIP Units are measured at fair value on the date of grant based on the number of shares or units granted, as adjusted for forfeitures and the closing price of Boston Properties, Inc.’s Common Stock on the date of grant as quoted on the New York Stock Exchange. Such value is recognized as an expense ratably over the corresponding employee service period. Dividends paid on both vested and unvested shares of restricted stock are charged directly to Partners’ Capital in the Consolidated Balance Sheets. Stock-based compensation expense associated with restricted stock, LTIP Units and 2008 OPP Units was approximately $5.4 million and $2.8 million for the three months ended June 30, 2008 and 2007, respectively, and approximately $10.6 million and $5.8 million for the six months ended June 30, 2008 and 2007, respectively. At June 30, 2008, there was $58.0 million of unrecognized compensation cost related to unvested restricted stock, LTIP Units and 2008 OPP Units that is expected to be recognized over a weighted-average period of approximately 3.2 years.
13. Segment Information
The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by both geographic area and property type. The Company’s segments by geographic area are Greater Boston, Greater Washington, D.C., Midtown Manhattan, Greater San Francisco and New Jersey. Segments by property type include: Class A Office, Office/Technical and Hotel.
Asset information by segment is not reported because the Company does not use this measure to assess performance. Therefore, depreciation and amortization expense is not allocated among segments. Interest and other income, development and management services, general and administrative expenses, interest expense, depreciation and amortization expense, minority interests in property partnerships, income from unconsolidated joint ventures, gains on sales of real estate, income from discontinued operations, gains on sales of real estate from discontinued operations, net derivative losses and losses from early extinguishments of debt are not included in Net Operating Income as the internal reporting addresses these items on a corporate level.
Net Operating Income is not a measure of operating results or cash flows from operating activities as measured by accounting principles generally accepted in the United States of America, and it is not indicative of cash available to fund cash needs and should not be considered an alternative to cash flows as a measure of liquidity. All companies may not calculate Net Operating Income in the same manner. The Company considers Net Operating Income to be an appropriate supplemental measure to net income because it helps both investors and management to understand the core operations of the Company’s properties.
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
Information by geographic area and property type (dollars in thousands):
Three months ended June 30, 2008 (dollars in thousands):

 	  	Greater
Boston	 	 	Greater
Washington, D.C.	 	 	Midtown
Manhattan	 	 	Greater
San Francisco	 	 	New
Jersey	 	 	Total	 	
Rental Revenue:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A	  	$	89,075	 	 	$	70,891	 	 	$	110,902	 	 	$	50,273	 	 	$	15,830	 	 	$	336,971	 	
Office/Technical	  	 	7,528	 	 	 	3,738	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	11,266	 	
Hotel	  	 	9,708	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	9,708	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	106,311	 	 	 	74,629	 	 	 	110,902	 	 	 	50,273	 	 	 	15,830	 	 	 	357,945	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	29.70	%	 	 	20.85	%	 	 	30.98	%	 	 	14.05	%	 	 	4.42	%	 	 	100.00	%	
Real Estate Operating Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A	  	 	33,978	 	 	 	20,043	 	 	 	34,442	 	 	 	19,541	 	 	 	7,881	 	 	 	115,885	 	
Office/Technical	  	 	2,312	 	 	 	906	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	3,218	 	
Hotel	  	 	6,449	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	6,449	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	42,739	 	 	 	20,949	 	 	 	34,442	 	 	 	19,541	 	 	 	7,881	 	 	 	125,552	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	34.04	%	 	 	16.69	%	 	 	27.43	%	 	 	15.56	%	 	 	6.28	%	 	 	100.00	%	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Operating Income	  	$	63,572	 	 	$	53,680	 	 	$	76,460	 	 	$	30,732	 	 	$	7,949	 	 	$	232,393	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	27.36	%	 	 	23.10	%	 	 	32.90	%	 	 	13.22	%	 	 	3.42	%	 	 	100.00	%	
Three months ended June 30, 2007 (dollars in thousands):

 	  	Greater
Boston	 	 	Greater
Washington, D.C.	 	 	Midtown
Manhattan	 	 	Greater
San Francisco	 	 	New
Jersey	 	 	Total	 	
Rental Revenue:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A	  	$	82,557	 	 	$	62,703	 	 	$	108,226	 	 	$	50,791	 	 	$	16,448	 	 	$	320,725	 	
Office/Technical	  	 	7,204	 	 	 	3,614	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	10,818	 	
Hotel	  	 	9,335	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	9,335	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	99,096	 	 	 	66,317	 	 	 	108,226	 	 	 	50,791	 	 	 	16,448	 	 	 	340,878	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	29.07	%	 	 	19.45	%	 	 	31.75	%	 	 	14.90	%	 	 	4.83	%	 	 	100.00	%	
Operating Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A	  	 	31,534	 	 	 	17,434	 	 	 	33,530	 	 	 	19,876	 	 	 	7,506	 	 	 	109,880	 	
Office/Technical	  	 	2,359	 	 	 	759	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	3,118	 	
Hotel	  	 	6,417	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	6,417	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	40,310	 	 	 	18,193	 	 	 	33,530	 	 	 	19,876	 	 	 	7,506	 	 	 	119,415	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	33.76	%	 	 	15.23	%	 	 	28.08	%	 	 	16.64	%	 	 	6.29	%	 	 	100.00	%	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Operating Income	  	$	58,786	 	 	$	48,124	 	 	$	74,696	 	 	$	30,915	 	 	$	8,942	 	 	$	221,463	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	26.54	%	 	 	21.73	%	 	 	33.73	%	 	 	13.96	%	 	 	4.04	%	 	 	100.00	%	
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
Six months ended June 30, 2008 (dollars in thousands):

 	  	Greater
Boston	 	 	Greater
Washington, D.C.	 	 	Midtown
Manhattan	 	 	Greater
San Francisco	 	 	New
Jersey	 	 	Total	 	
Rental Revenue:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A	  	$	177,316	 	 	$	137,459	 	 	$	220,628	 	 	$	104,498	 	 	$	32,521	 	 	$	672,422	 	
Office/Technical	  	 	15,123	 	 	 	7,471	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	22,594	 	
Hotel	  	 	16,232	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	16,232	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	208,671	 	 	 	144,930	 	 	 	220,628	 	 	 	104,498	 	 	 	32,521	 	 	 	711,248	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	29.34	%	 	 	20.38	%	 	 	31.02	%	 	 	14.69	%	 	 	4.57	%	 	 	100.00	%	
Operating Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A	  	 	67,431	 	 	 	39,661	 	 	 	69,032	 	 	 	38,680	 	 	 	15,369	 	 	 	230,173	 	
Office/Technical	  	 	4,907	 	 	 	1,756	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	6,663	 	
Hotel	  	 	12,346	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	12,346	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	84,684	 	 	 	41,417	 	 	 	69,032	 	 	 	38,680	 	 	 	15,369	 	 	 	249,182	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	33.99	%	 	 	16.62	%	 	 	27.70	%	 	 	15.52	%	 	 	6.17	%	 	 	100.00	%	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Operating Income	  	$	123,987	 	 	$	103,513	 	 	$	151,596	 	 	$	65,818	 	 	$	17,152	 	 	$	462,066	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	26.83	%	 	 	22.40	%	 	 	32.81	%	 	 	14.25	%	 	 	3.71	%	 	 	100.00	%	
Six months ended June 30, 2007 (dollars in thousands):

 	  	Greater
Boston	 	 	Greater
Washington, D.C.	 	 	Midtown
Manhattan	 	 	Greater
San Francisco	 	 	New
Jersey	 	 	Total	 	
Rental Revenue:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A	  	$	162,766	 	 	$	120,133	 	 	$	224,228	 	 	$	100,341	 	 	$	34,916	 	 	$	642,384	 	
Office/Technical	  	 	14,225	 	 	 	7,213	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	21,438	 	
Hotel	  	 	16,044	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	16,044	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	193,035	 	 	 	127,346	 	 	 	224,228	 	 	 	100,341	 	 	 	34,916	 	 	 	679,866	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	28.39	%	 	 	18.73	%	 	 	32.98	%	 	 	14.76	%	 	 	5.14	%	 	 	100.00	%	
Operating Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Class A	  	 	62,866	 	 	 	34,141	 	 	 	69,129	 	 	 	38,587	 	 	 	14,810	 	 	 	219,533	 	
Office/Technical	  	 	4,726	 	 	 	1,610	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	6,336	 	
Hotel	  	 	12,431	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	12,431	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	80,023	 	 	 	35,751	 	 	 	69,129	 	 	 	38,587	 	 	 	14,810	 	 	 	238,300	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	33.58	%	 	 	15.00	%	 	 	29.01	%	 	 	16.19	%	 	 	6.22	%	 	 	100.00	%	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Operating Income	  	$	113,012	 	 	$	91,595	 	 	$	155,099	 	 	$	61,754	 	 	$	20,106	 	 	$	441,566	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
% of Total	  	 	25.59	%	 	 	20.74	%	 	 	35.13	%	 	 	13.99	%	 	 	4.55	%	 	 	100.00	%	
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
The following is a reconciliation of net operating income to net income available to common unitholders:

 	  	Three months ended
June 30,	 	 	Six months ended
June 30,	 	
 	  	2008	 	 	2007	 	 	2008	 	 	2007	 	
Net operating income	  	$	232,393	 	 	$	221,463	 	 	$	462,066	 	 	$	441,566	 	
Add:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Development and management services income	  	 	6,460	 	 	 	5,130	 	 	 	11,937	 	 	 	9,857	 	
Interest and other income	  	 	4,115	 	 	 	26,205	 	 	 	15,894	 	 	 	43,193	 	
Income from unconsolidated joint ventures	  	 	1,855	 	 	 	17,268	 	 	 	2,897	 	 	 	18,233	 	
Gains on sales of real estate	  	 	6,203	 	 	 	—  	 	 	 	29,641	 	 	 	754,216	 	
Income from discontinued operations	  	 	—  	 	 	 	1,589	 	 	 	—  	 	 	 	4,675	 	
Gains on sales of real estate from discontinued operations	  	 	—  	 	 	 	14,455	 	 	 	—  	 	 	 	208,724	 	
Less:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General and administrative expense	  	 	(17,467	)	 	 	(16,291	)	 	 	(37,055	)	 	 	(33,099	)	
Interest expense	  	 	(64,564	)	 	 	(73,743	)	 	 	(132,403	)	 	 	(147,669	)	
Depreciation and amortization expense	  	 	(72,392	)	 	 	(72,000	)	 	 	(145,096	)	 	 	(139,877	)	
Net derivative losses	  	 	257	 	 	 	—  	 	 	 	(3,531	)	 	 	—  	 	
Losses from early extinguishments of debt	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(722	)	
Minority interests in property partnerships	  	 	(420	)	 	 	—  	 	 	 	(1,045	)	 	 	—  	 	
Preferred distributions and allocation of undistributed earnings	  	 	(1,072	)	 	 	(1,557	)	 	 	(2,208	)	 	 	(11,797	)	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income available to common unitholders	  	$	95,368	 	 	$	122,519	 	 	$	201,097	 	 	$	1,147,300	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
14. Newly Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value and establishes a framework for measuring fair value, which includes a hierarchy based on the quality of inputs used to measure fair value. SFAS No. 157 also expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 requires the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs. SFAS No. 157 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. The levels of the SFAS No. 157 fair value hierarchy are described as follows:
 
 	•	 	Level 1—Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.	
 
 	•	 	Level 2—Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.	
 
 	•	 	Level 3—Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.	
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
SFAS No. 157 became effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB deferred the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FASB also removed certain leasing transactions from the scope of SFAS No. 157. On January 1, 2008, the Company adopted SFAS No. 157. The Company has financial instruments consisting of investments in securities and interest rate contracts that are required to be measured under SFAS No. 157. The Company currently does not have any non-financial assets or non-financial liabilities that are required to be measured under SFAS No. 157. The Company does not have any fair value measurements using significant unobservable inputs (Level 3) as of June 30, 2008.
The Company’s investments in securities, which were valued at approximately $20.4 million at June 30, 2008, classified as Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency.
The Company’s treasury lock and swap contracts were valued at approximately $8.2 million at June 30, 2008, using Level 2 inputs. The fair value of these instruments is determined using interest rate market pricing models based upon the estimated amounts the Company would receive or pay to terminate the contracts as of June 30, 2008. In accordance with SFAS No. 157, the Company has included the impact of credit valuation adjustments to reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements, which adjustments did not have a material impact on the Company’s assessment of fair value.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses shall be reported on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 became effective for fiscal years beginning after November 15, 2007. On January 1, 2008, the Company adopted SFAS No. 159 and has currently not elected to measure any financial instruments or other items (not currently required to be measured at fair value) at fair value.
In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows. These disclosure requirements include a tabular summary of the fair values of derivative instruments and their gains and losses, disclosure of derivative features that are credit risk related to provide more information regarding an entity’s liquidity and cross-referencing within footnotes to make it easier for financial statement users to locate important information about derivative instruments. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 with early application encouraged. The Company does not expect the adoption of SFAS No. 161 to have a material impact to the Company.
In May 2008, the FASB issued FASB Staff Position (“FSP”) No. APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1”) that requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. FSP No. APB 14-1 requires that the initial debt proceeds
 
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BOSTON PROPERTIES LIMITED PARTNERSHIP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
from the sale of the Company’s $862.5 million of 2.875% exchangeable senior notes due 2037 and $450.0 million of 3.75% exchangeable senior notes due 2036 be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt. The resulting debt discount will be amortized over the period during which the debt is expected to be outstanding (i.e., through the first optional redemption dates) as additional non-cash interest expense. Based on the Company’s understanding of the application of FSP No. APB 14-1, this will result in an aggregate of approximately $0.13 – $0.14 per share (net of incremental capitalized interest) of additional non-cash interest expense for fiscal 2008. Excluding the impact of capitalized interest, the additional non-cash interest expense will be approximately $0.15 – $0.16 per share for fiscal 2008, and this amount (before netting) will increase in subsequent reporting periods through the first optional redemption dates as the debt accretes to its par value over the same period. FSP No. APB 14-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. Upon adoption, FSP No. APB 14-1 requires companies to retrospectively apply the requirements of the pronouncement to all periods presented.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”), which is intended to improve financing reporting by identifying a consistent framework or hierarchy for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s (“SEC”) approval of the Public Company Accounting Oversight Board amendment to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The Company does not expect the adoption of SFAS No. 162 to have a material impact on the Company.
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-06-1”). FSP EITF 03-06-1 clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. FSP EITF 03-06-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. All prior-period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of the FSP. Early application is not permitted. The Company is currently assessing the potential impact that the adoption of FSP EITF 03-06-1 will have on its results of operations.
15. Subsequent Events
On July 21, 2008, the Company further increased the lenders’ total commitment under its Unsecured Line of Credit from $923.3 million to $1.0 billion (See Note 6). All other material terms under the facility remain unchanged.
On July 31, 2008, the Company cash-settled at maturity its two remaining treasury lock contracts and one forward-starting interest rate swap contract with notional amounts aggregating $100.0 million and made cash payments to the counterparties totaling approximately $3.9 million.
 
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ITEM 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used herein, the terms “BPLP,”, “we,” “us,” and “our” refer collectively to Boston Properties Limited Partnership, a Delaware limited partnership, and its subsidiaries and its respective predecessor entities, considered a single enterprise.
The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. We caution investors that any forward-looking statements presented in this report, or which management may make orally or in writing from time to time, are based on beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “result,” “should,” “will” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected by the forward-looking statements. We caution you that while forward-looking statements reflect our good-faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
 
 	•	 	general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate);	
 
 	•	 	failure to manage effectively our growth and expansion into new markets and sub-markets or to integrate acquisitions and developments successfully;	
 
 	•	 	the ability of our joint venture partners to satisfy their obligations;	
 
 	•	 	risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities);	
 
 	•	 	risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments, including the risk associated with interest rates impacting the cost and/or availability of financing;	
 
 	•	 	risks associated with interest rate hedging contracts and the effectiveness of such arrangements;	
 
 	•	 	risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets;	
 
 	•	 	risks associated with actual or threatened terrorist attacks;	
 
 	•	 	costs of compliance with the Americans with Disabilities Act and other similar laws;	
 
 	•	 	potential liability for uninsured losses and environmental contamination;	
 
 	•	 	risks associated with Boston Properties, Inc.’s potential failure to qualify as a REIT under the Internal Revenue Code of 1986, as amended;	
 
 	•	 	possible adverse changes in tax and environmental laws;	
 
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 	•	 	the impact of newly adopted accounting principles on our accounting policies and on period-to-period comparisons of financial results;	
 
 	•	 	risks associated with possible state and local tax audits;	
 
 	•	 	risks associated with our dependence on key personnel whose continued service is not guaranteed; and	
 
 	•	 	the other risk factors identified in our most recently filed Annual Report on Form 10-K, including those described under the caption “Risk Factors.”	
The risks set forth above are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can it assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q for future periods and Current Reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Forms 8-K or otherwise, for a discussion of risks and uncertainties that may cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements. We expressly disclaim any responsibility to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or otherwise, and you should not rely upon these forward-looking statements after the date of this report.
Overview
Boston Properties Limited Partnership is the entity through which Boston Properties, Inc. conducts substantially all of its business and owns (either directly or through subsidiaries) substantially all of its assets. Our properties are concentrated in five markets—Boston, midtown Manhattan, Washington, D.C., San Francisco and Princeton, NJ. We generate revenue and cash primarily by leasing our Class A office space to our tenants. Factors we consider when we lease space include the creditworthiness of the tenant, the length of the lease, the rental rate to be paid, the costs of tenant improvements, current and anticipated operating costs and real estate taxes, our current and anticipated vacancy, current and anticipated future demand for office space generally and general economic factors. We also generate cash through the sale of assets, which may be either non-core assets or core assets that command premiums from real estate investors.
We expect the impact of the current state of the economy, including rising unemployment, constrained capital and the dramatic deleveraging of the financial system, to have a dampening effect on the fundamentals of our business, including overall market occupancy and rental rates. Our core strategy has always been to operate in supply constrained markets with high barriers to entry and to focus on executing long-term leases with financially strong tenants. Historically, this combination has tended to reduce our exposure to down cycles and, based on our current occupancy and recent leasing success, lack of available supply in the majority of our markets and limited lease rollover, we believe we are well positioned to withstand a slowing economy. While the loss of market liquidity affecting all classes of debt securities has translated into a decline of funding availability and increased borrowing costs, as an investment grade issuer we believe we have the financial flexibility to raise additional capital in the unsecured debt market, through traditional term loans from banks and/or through traditional secured loans to meet our future capital needs. We recently utilized an accordion feature under our Unsecured Line of Credit to increase the lenders’ total commitment under the facility from $605.0 million to $1.0 billion and we will continue to proactively manage our capital position. We believe our strong balance sheet and access to capital is a competitive advantage in the current environment and, for example, enabled us to opportunistically pursue and ultimately acquire the General Motors Building with our joint venture partners. We intend to continue to explore acquisitions of other high-quality real estate at attractive returns.
 
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Although we intend to pursue such acquisitions, we continue to believe, in general, that the returns we can generate from developments will be greater than those we can expect from acquisitions. Since the beginning of 2005 we have completed over $4.3 billion of asset sales and have redeployed a significant amount of the proceeds into our development pipeline. We started approximately $1.7 billion of developments in 2007, including commencing construction on our approximately 1.0 million square foot office tower in New York City at 250 West 55th Street and on our 815,000 square foot mixed-use development at 280 Congress Street (Russia Wharf) in Boston. We recently signed a 15-year lease with Wellington Management Company, LLP to occupy 82% of the office space at 280 Congress Street. We currently have an active development program of approximately $2.4 billion that is 50% preleased to tenants. We believe our focus on new development will enhance our long-term return on equity and earnings growth as these developments are placed in-service in 2009, 2010 and 2011.
In recent years, we have been an active seller of real estate assets, and, although we will consider additional asset sales, we do not expect our sales volume to be comparable to that of prior years and we currently do not have any assets on the market.
Transactions during the three months ended June 30, 2008 included the following:
 
 	•	 	On April 1, 2008, we used available cash to repay the mortgage loan collateralized by our Prudential Center property located in Boston, Massachusetts totaling approximately $258.2 million. There was no prepayment penalty associated with the repayment. The mortgage loan bore interest at a fixed rate of 6.72% per annum and was scheduled to mature on July 1, 2008.	
 
 	•	 	On April 1, 2008, we cash-settled at maturity nine of our treasury lock contracts with notional amounts aggregating $325.0 million and made cash payments to the counterparties totaling approximately $33.5 million.	
 
 	•	 	On April 14, 2008, we sold a parcel of land located in Washington, D.C. for approximately $33.7 million. We had previously entered into a development management agreement with the buyer to develop a Class A office property on the parcel totaling approximately 165,000 net rentable square feet.	
 
 	•	 	On April 22, 2008, we executed a 15-year lease with Wellington Management Company, LLP for our development project located at 280 Congress Street (Russia Wharf) in Boston, Massachusetts. Wellington Management will occupy approximately 450,000 square feet out of the approximately 552,000 square feet of office space (82%) in this approximately 815,000 net rentable square foot mixed-use project. The lease is scheduled to commence in the spring of 2011.	
 
 	•	 	On April 29, 2008, our Wisconsin Place joint venture entity that owns and is developing the land and infrastructure components of the project (a joint venture entity in which we own an effective interest of approximately 23.89%) repaid the balance of its construction loan totaling approximately $29.4 million. The loan was scheduled to mature in March 2009. Wisconsin Place is a mixed-use development project consisting of office, retail and residential properties located in Chevy Chase, Maryland.	
 
 	•	 	On May 12, 2008, we acquired the remaining development rights for our 250 West 55th Street development project located in New York City for an aggregate purchase price of approximately $34.2 million. The acquisition was financed with approximately $19.2 million of cash and the issuance to the selling entity of 150,000 OP Units.	
 
 	•	 	On May 30, 2008, our Value-Added Fund obtained mortgage financing totaling $120.0 million (of which $103.0 million was drawn at closing, with the remaining $17.0 million available to fund future tenant and capital costs) collateralized by its Mountain View Research Park properties. Mountain View Research Park consists of sixteen Class A office and office/technical properties aggregating approximately 601,000 net rentable square feet located in Mountain View, California. The mortgage financing bears interest at a variable rate equal to LIBOR plus 1.75% per annum and matures on May 31, 2011 with two, one-year extension options. The Value-Added Fund entered into three interest rate swap contracts with notional amounts aggregating $103.0 million to fix the one-month LIBOR	
 
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 	index rate at 3.63% per annum through April 1, 2011. The proceeds of the mortgage financing were used to repay the remaining $100.0 million of financing provided by us to the Value-Added Fund in connection with our transfer of the Mountain View Research and Mountain View Technology Park properties to the Value-Added Fund in January 2008. In addition, on June 12, 2008, the Value-Added Fund entered into an interest rate swap contract related to the mortgage loan collateralized by its Mountain View Technology Park properties with a notional amount of $24.0 million to fix the one-month LIBOR index rate at 4.085% per annum through maturity on March 31, 2011.	
 
 	•	 	On June 6, 2008, we utilized an accordion feature under our Unsecured Line of Credit with a consortium of lenders to increase the total commitment under the facility from $605.0 million to $923.3 million. All other material terms under the facility remain unchanged.	
 
 	•	 	On June 9, 2008, we completed the acquisition of the General Motors Building at 767 Fifth Avenue in New York City for a purchase price of approximately $2.8 billion. The General Motors Building is an approximately 2,000,000 rentable square foot office building located at the corner of 5th Avenue and Central Park South in New York City. The acquisition was completed through a joint venture among us, US Real Estate Opportunities I, L.P., which is a partnership managed by Goldman Sachs, and Meraas Capital LLC, a Dubai-based private equity firm. We have a 60% interest in the venture and will provide customary property management and leasing services for the venture. The purchase price consisted of approximately $890 million of cash, the issuance to the selling entity of 102,883 OP Units and the assumption of approximately $1.9 billion of secured and mezzanine loans having a weighted average fixed interest rate of 5.97% per annum, all of which mature in October 2017. In addition, the venture acquired the lenders’ interest in a portion of the assumed mezzanine loans having an aggregate principal amount of $294.0 million and a stated interest rate of 6.02% per annum for a purchase price of approximately $263.1 million in cash. We expect that the acquired mezzanine loans will remain outstanding pending a decision to either sell them or retire them.	
We expect to consummate the previously announced acquisitions of 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower, also located in New York City. We expect to acquire these properties through joint ventures in each of which we will own a 60% interest. 540 Madison Avenue is a 39-story building located at Madison Avenue at 55th Street that contains approximately 292,000 rentable square feet. 125 West 55th Street is a 23-story building, spanning from 55th to 56th Streets between Avenue of the Americas and Seventh Avenue, that contains approximately 591,000 rentable square feet. Two Grand Central Tower is a 44-story mid-block tower that runs from 44th to 45th Street between Lexington and Third Avenue and contains approximately 664,000 rentable square feet. The purchase prices for these properties, including assumed debt, are: 540 Madison Avenue, $277.1 million; 125 West 55th Street, $444.0 million; and Two Grand Central Tower, $427.9 million. The debt that is expected to be assumed as part of the transactions consists of the following: 540 Madison Avenue-two secured loans having an aggregate principal amount of $120 million and a weighted-average interest rate of 5.28% per annum, each of which matures in July 2013; 125 West 55th Street-an aggregate principal amount of $263.5 million of secured and mezzanine loans having a weighted-average interest rate of 6.31% per annum, all of which mature in March 2010; and Two Grand Central Tower-a $190 million secured loan having a per annum interest rate of 5.10%, which matures in July 2010. Upon the closing of the General Motors Building, the deposit on these assets (which is in the form of letters of credit) was increased by an aggregate of $20 million, bringing the total remaining deposit to $75 million. The closings of the remaining acquisitions are expected to occur in multiple steps and are subject to customary conditions and termination rights for transactions of this type. In addition, under certain circumstances provided in the purchase and sale agreement, we may be obligated to pay the seller a per diem amount equal to (1) $64,259 with respect to 125 West 55th Street, (2) $89,367 with respect to 2 Grand Central Tower, and (3) $59,152 with respect to 540 Madison Avenue if the closing of the respective acquisition does not occur on the scheduled closing date. There can be no assurance that the closings will occur on the terms currently contemplated or at all.
 
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 	•	 	On June 19, 2008, we obtained construction financing totaling $65.0 million collateralized by our Democracy Tower (formerly South of Market-Phase II) development project located in Reston, Virginia. The Democracy Tower development project consists of a Class A office property with approximately 225,000 net rentable square feet. The construction financing bears interest at a variable rate equal to LIBOR plus 1.75% per annum and matures on December 19, 2010 with two, one-year extension options.	
 
 	•	 	During the quarter ended June 30, 2008, we commenced construction on our mixed-use project at Pennsylvania Avenue and Washington Circle in the District of Columbia comprised of approximately 450,000 square feet of office space and 330,000 square feet of residential space. In February 2008, we executed a 60-year ground lease with The George Washington University for the redevelopment of the site.	
Transactions completed subsequent to June 30, 2008:
 
 	•	 	On July 21, 2008, we further increased the lenders’ total commitment under our Unsecured Line of Credit from $923.3 million to $1.0 billion. All other material terms under the facility remain unchanged.	
 
 	•	 	On July 31, 2008, we cash-settled at maturity our two remaining treasury lock contracts and one forward-starting interest rate swap contract with notional amounts aggregating $100.0 million and made cash payments to the counterparties totaling approximately $3.9 million.	
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management to use judgment in the application of accounting policies, including making estimates and assumptions. We base our estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied resulting in a different presentation of our financial statements. From time to time, we evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current information. Below is a discussion of accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain.
Real Estate
Upon acquisitions of real estate, we assess the fair value of acquired tangible and intangible assets, including land, buildings, tenant improvements, “above-” and “below-market” leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” and allocate the purchase price to the acquired assets and assumed liabilities, including land at appraised value and buildings at replacement cost. We assess and consider fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that we deem appropriate, as well as available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends, and market and economic conditions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. We also consider an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. Based on our acquisitions to date, our allocation to customer relationship intangible assets has been immaterial.
 
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We record acquired “above-” and “below-market” leases at their fair values (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses.
Real estate is stated at depreciated cost. The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. Costs directly related to the development of properties are capitalized. Capitalized development costs include interest, internal wages, property taxes, insurance, and other project costs incurred during the period of development.
Management reviews its long-lived assets used in operations for impairment following the end of each quarter and when there is an event or change in circumstances that indicates an impairment in value. An impairment loss is recognized if the carrying amount of its assets is not recoverable and exceeds its fair value. If such impairment is present, an impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Since cash flows on properties considered to be “long-lived assets to be held and used” as defined by SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) are considered on an undiscounted basis to determine whether an asset has been impaired, our established strategy of holding properties over the long term directly decreases the likelihood of recording an impairment loss. If our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized and such loss could be material. If we determine that impairment has occurred, the affected assets must be reduced to their fair value. No such impairment losses have been recognized to date.
SFAS No. 144 requires that qualifying assets and liabilities and the results of operations that have been sold, or otherwise qualify as “held for sale,” be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and we will not have significant continuing involvement following the sale. The components of the property’s net income that is reflected as discontinued operations include the net gain (or loss) upon the disposition of the property held for sale, operating results, depreciation and interest expense (if the property is subject to a secured loan). We generally consider assets to be “held for sale” when the transaction has been approved by Boston Properties. Inc.’s Board of Directors, or a committee thereof, and there are no known significant contingencies relating to the sale, such that the property sale within one year is considered probable. Following the classification of a property as “held for sale,” no further depreciation is recorded on the assets.
A variety of costs are incurred in the acquisition, development and leasing of properties. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project commences and capitalization begins, and when a development project is substantially complete and held available for occupancy and capitalization must cease, involves a degree of judgment. Our capitalization policy on development properties is guided by SFAS No. 34 “Capitalization of Interest Cost” and SFAS No. 67 “Accounting for Costs and the Initial Rental Operations of Real Estate Projects.” The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs necessary to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. We begin the capitalization of costs during the pre-construction period which we
 
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define as activities that are necessary to the development of the property. We consider a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity. We cease capitalization on the portion (1) substantially completed and (2) occupied or held available for occupancy, and we capitalize only those costs associated with the portion under construction.
Investments in Unconsolidated Joint Ventures
Except for ownership interests in variable interest entities, we account for our investments in joint ventures under the equity method of accounting because we exercise significant influence over, but do not control, these entities. Our judgment with respect to our level of influence or control of an entity and whether we are the primary beneficiary of a variable interest entity involves the consideration of various factors including the form of our ownership interest, our representation in the entity’s governance, the size of our investment (including loans), estimates of future cash flows, our ability to participate in policy making decisions and the rights of the other investors to participate in the decision making process and to replace us as manager and/or liquidate the venture, if applicable. Our assessment of our influence or control over an entity affects the presentation of these investments in our consolidated financial statements.
These investments are recorded initially at cost, as Investments in Unconsolidated Joint Ventures, and subsequently adjusted for equity in earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on our balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated joint ventures over the life of the related asset. Under the equity method of accounting, our net equity is reflected within the Consolidated Balance Sheets, and our share of net income or loss from the joint ventures is included within the Consolidated Statements of Operations. The joint venture agreements may designate different percentage allocations among investors for profits and losses, however, our recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds. For ownership interests in variable interest entities, we consolidate those in which we are the primary beneficiary. Our investments in unconsolidated joint ventures are reviewed for impairment periodically and if events or circumstances change indicating that the carrying amount of our investments may not be recoverable. The ultimate realization of our investment in unconsolidated joint ventures is dependent on a number of factors, including the performance of each investment and market conditions. We will record an impairment charge if we determine that a decline in the value of an unconsolidated joint venture is other than temporary.
Revenue Recognition
Base rental revenue is reported on a straight-line basis over the terms of our respective leases. In accordance with SFAS No. 141, we recognize rental revenue of acquired in-place “above-” and “below-market” leases at their fair values over the terms of the respective leases. Accrued rental income as reported on the Consolidated Balance Sheet represents rental income recognized in excess of rent payments actually received pursuant to the terms of the individual lease agreements.
For the three and six months ended June 30, 2008, we recorded $1.5 million and $2.6 million, respectively, of rental revenue representing the adjustments of rents from “above” and “below” market leases in accordance with SFAS No. 141. For the three and six months ended June 30, 2008, the impact of the straight-line rent adjustment increased rental revenue by approximately $10.8 million and $23.7 million, respectively, as the revenue recorded exceeded amounts billed. Amounts exclude SFAS No. 141 and straight-line income from unconsolidated joint ventures, which is disclosed on page 12.
Our leasing strategy is generally to secure creditworthy tenants that meet our underwriting guidelines. Furthermore, following the initiation of a lease, we continue to actively monitor the tenant’s creditworthiness to ensure that all tenant related assets are recorded at their realizable value. When assessing tenant credit quality, we:
 
 	•	 	review relevant financial information, including:	
 
 	•	 	financial ratios;	
 
 	•	 	net worth;	
 
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 	•	 	debt to market capitalization; and	
 
 	•	 	liquidity;	
 
 	•	 	evaluate the depth and experience of the tenant’s management team; and	
 
 	•	 	assess the strength/growth of the tenant’s industry.	
As a result of the underwriting process, tenants are then categorized into one of three categories:
 
 	(1)	low risk tenants;	
 
 	(2)	the tenant’s credit is such that we require collateral, in which case we:	
 
 	•	 	require a security deposit; and/or	
 
 	•	 	reduce upfront tenant improvement investments; or	
 
 	(3)	the tenant’s credit is below our acceptable parameters.	
We consistently monitor the credit quality of our tenant base. We provide an allowance for doubtful accounts arising from estimated losses that could result from the tenant’s inability to make required current rent payments and an allowance against accrued rental income for future potential losses that we deem to be unrecoverable over the term of the lease.
Tenant receivables are assigned a credit rating of 1-4. A rating of 1 represents the highest possible rating and no allowance is recorded. A rating of 4 represents the lowest credit rating, in which case we record a full reserve against the receivable balance. Among the factors considered in determining the credit rating include:
 
 	•	 	payment history;	
 
 	•	 	credit status and change in status (credit ratings for public companies are used as a primary metric);	
 
 	•	 	change in tenant space needs (i.e., expansion/downsize);	
 
 	•	 	tenant financial performance;	
 
 	•	 	economic conditions in a specific geographic region; and	
 
 	•	 	industry specific credit considerations.	
If our estimates of collectability differ from the cash received, the timing and amount of our reported revenue could be impacted. The average remaining term of our in-place tenant leases, including unconsolidated joint ventures, was approximately 7.5 years as of June 30, 2008. The credit risk is mitigated by the high quality of our existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and frequent monitoring of our portfolio to identify potential problem tenants.
Recoveries from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, are recognized as revenue in the period during which the expenses are incurred. Tenant reimbursements are recognized and presented in accordance with Emerging Issues Task Force, or EITF, Issue 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent,” or Issue 99-19. Issue 99-19 requires that these reimbursements be recorded on a gross basis, as we are generally the primary obligor with respect to purchasing goods and services from third-party suppliers, have discretion in selecting the supplier and have credit risk. We also receive reimbursement of payroll and payroll related costs from third parties which we reflect on a net basis in accordance with Issue 99-19.
Our hotel revenues are derived from room rentals and other sources such as charges to guests for long-distance telephone service, fax machine use, movie and vending commissions, meeting and banquet room revenue and laundry services. Hotel revenues are recognized as earned.
 
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We receive management and development fees from third parties. Management fees are recorded and earned based on a percentage of collected rents at the properties under management, and not on a straight-line basis, because such fees are contingent upon the collection of rents. We review each development agreement and record development fees as earned depending on the risk associated with each project. Profit on development fees earned from joint venture projects is recognized as revenue to the extent of the third-party partners’ ownership interest.
Gains on sales of real estate are recognized pursuant to the provisions of SFAS No. 66, “Accounting for Sales of Real Estate.” The specific timing of the sale is measured against various criteria in SFAS No. 66 related to the terms of the transactions and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria are not met, we defer gain recognition and account for the continued operations of the property by applying the finance, installment or cost recovery methods, as appropriate, until the sales criteria are met.
Depreciation and Amortization
We compute depreciation and amortization on our properties using the straight-line method based on estimated useful asset lives. In accordance with SFAS No. 141, we allocate the acquisition cost of real estate to land, building, tenant improvements, acquired “above-” and “below-market” leases, origination costs and acquired in-place leases based on an assessment of their fair value and depreciate or amortize these assets over their useful lives. The amortization of acquired “above-” and “below-market” leases and acquired in-place leases is recorded as an adjustment to revenue and depreciation and amortization, respectively, in the Consolidated Statements of Operations.
Fair Value of Financial Instruments
For purposes of disclosure, we calculate the fair value of our mortgage notes payable and unsecured senior notes. We discount the spread between the future contractual interest payments and hypothetical future interest payments on our mortgage debt and unsecured notes based on a current market rate. In determining the current market rate, we add our estimate of a market spread to the quoted yields on federal government treasury securities with similar maturity dates to our own debt. Because our valuations of our financial instruments are based on these types of estimates, the actual fair value of our financial instruments may differ materially if our estimates do not prove to be accurate.
Derivative Instruments and Hedging Activities
Derivative instruments and hedging activities require management to make judgments on the nature of its derivatives and their effectiveness as hedges. These judgments determine if the changes in fair value of the derivative instruments are reported in the consolidated statements of operations as a component of net income or as a component of comprehensive income and as a component of equity on the consolidated balance sheets. While management believes its judgments are reasonable, a change in a derivative’s effectiveness as a hedge could affect expenses, net income and equity.
Results of Operations
The following discussion is based on our Consolidated Financial Statements for the three and six months ended June 30, 2008 and 2007.
At June 30, 2008 and June 30, 2007, we owned or had interests in a portfolio of 142 and 134 properties, respectively (in each case, the “Total Property Portfolio”). As a result of changes within our Total Property Portfolio, the financial data presented below shows significant changes in revenue and expenses from period-to-period. Accordingly, we do not believe that our period-to-period financial data with respect to the Total Property Portfolio are necessarily meaningful. Therefore, the comparison of operating results for the three and
 
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six months ended June 30, 2008 and 2007 show separately the changes attributable to the properties that were owned by us throughout each period compared (the “Same Property Portfolio”) and the changes attributable to the properties included in Properties Acquired, Sold, Repositioned and Placed In-Service.
In our analysis of operating results, particularly to make comparisons of net operating income between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us through the end of the latest period presented as our Same Property Portfolio. The Same Property Portfolio therefore excludes properties placed in-service, acquired or repositioned after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented.
Net operating income, or “NOI,” is a non-GAAP financial measure equal to net income available to common unitholders, the most directly comparable GAAP financial measure, plus preferred distributions and allocation of undistributed earnings, losses from early extinguishment of debt, net derivative losses, depreciation and amortization, interest expense, general and administrative expense, less income from discontinued operations, gains on sales of real estate, gains on sales of real estate from discontinued operations, income from unconsolidated joint ventures, minority interest in property partnerships, interest and other income and development and management services revenue. We use NOI internally as a performance measure and believe NOI provides useful information to investors regarding our financial condition and results of operations because it reflects only those income and expense items that are incurred at the property level. Therefore, we believe NOI is a useful measure for evaluating the operating performance of our real estate assets.
Our management also uses NOI to evaluate regional property level performance and to make decisions about resource allocations. Further, we believe NOI is useful to investors as a performance measure because, when compared across periods, NOI reflects 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. NOI excludes certain components from net income in order to provide results that are more closely related to a property’s results of operations. 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. In addition, depreciation and amortization, because of historical cost accounting and useful life estimates, may distort operating performance at the property level. NOI presented by us may not be comparable to NOI reported by other REITs that define NOI differently. We believe that in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income as presented in our consolidated financial statements. NOI should not be considered as an alternative to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions.
Comparison of the six months ended June 30, 2008 to the six months ended June 30, 2007.
The table below shows selected operating information for the Same Property Portfolio and the Total Property Portfolio. The Same Property Portfolio consists of 114 properties totaling approximately 28.9 million net rentable square feet of space. The Same Property Portfolio includes properties acquired or placed in-service on or prior to January 1, 2007 and owned through June 30, 2008. In addition, the Same Property Portfolio includes our Cambridge Center Marriott hotel property, but does not include the Long Wharf Marriott hotel property, which was sold on March 23, 2007. The Total Property Portfolio includes the effects of the other properties either placed in-service, acquired or repositioned after January 1, 2007 or disposed of on or prior to June 30, 2008. This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the six months ended June 30, 2008 and 2007 with respect to the properties which were acquired, placed in-service, repositioned or sold.
 
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 	 	Same Property Portfolio	 	 	Properties
Sold	 	Properties
Acquired	 	 	Properties
Placed
In-Service	 	Properties
Repositioned	 	Total Property Portfolio	 	
 	 	2008	 	2007	 	Increase/
(Decrease)	 	 	%
Change	 	 	2008	 	2007	 	2008	 	2007	 	 	2008	 	2007	 	2008	 	2007	 	2008	 	 	2007	 	 	Increase/
(Decrease)	 	 	%
Change	 	
 	 	(dollars in thousands)	 	
Rental Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental Revenue	 	$	663,888	 	$	636,532	 	$	27,356	 	 	4.30	%	 	$	90	 	$	19,841	 	$	8,967	 	$	4,170	 	 	$	18,691	 	$	—  	 	$	—  	 	$	—  	 	$	691,636	 	 	$	660,543	 	 	$	31,093	 	 	4.71	%	
Termination Income	 	 	3,380	 	 	3,279	 	 	101	 	 	3.08	%	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	3,380	 	 	 	3,279	 	 	 	101	 	 	3.08	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Rental Revenue	 	 	667,268	 	 	639,811	 	 	27,457	 	 	4.29	%	 	 	90	 	 	19,841	 	 	8,967	 	 	4,170	 	 	 	18,691	 	 	—  	 	 	—  	 	 	—  	 	 	695,016	 	 	 	663,822	 	 	 	31,194	 	 	4.70	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Real Estate Operating Expenses	 	 	229,448	 	 	219,488	 	 	9,960	 	 	4.54	%	 	 	46	 	 	5,138	 	 	3,034	 	 	1,243	 	 	 	4,308	 	 	—  	 	 	—  	 	 	—  	 	 	236,836	 	 	 	225,869	 	 	 	10,967	 	 	4.86	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Operating Income, excluding hotels	 	 	437,820	 	 	420,323	 	 	17,497	 	 	4.16	%	 	 	44	 	 	14,703	 	 	5,933	 	 	2,927	 	 	 	14,383	 	 	—  	 	 	—  	 	 	—  	 	 	458,180	 	 	 	437,953	 	 	 	20,227	 	 	4.62	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hotel Net Operating Income(1)	 	 	3,886	 	 	3,613	 	 	273	 	 	7.56	%	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	3,886	 	 	 	3,613	 	 	 	273	 	 	7.56	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated Net Operating Income(1)	 	 	441,706	 	 	423,936	 	 	17,770	 	 	4.19	%	 	 	44	 	 	14,703	 	 	5,933	 	 	2,927	 	 	 	14,383	 	 	—  	 	 	—  	 	 	—  	 	 	462,066	 	 	 	441,566	 	 	 	20,500	 	 	4.64	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Development and Management Services	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	11,937	 	 	 	9,857	 	 	 	2,080	 	 	21.10	%	
Interest and Other	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	15,894	 	 	 	43,193	 	 	 	(27,299	)	 	(63.20	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Other Revenue	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	27,831	 	 	 	53,050	 	 	 	(25,219	)	 	(47.54	)%	
Other Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General and administrative expense	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	37,055	 	 	 	33,099	 	 	 	3,956	 	 	11.95	%	
Interest	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	132,403	 	 	 	147,669	 	 	 	(15,266	)	 	(10.34	)%	
Depreciation and amortization	 	 	136,800	 	 	133,984	 	 	2,816	 	 	2.10	%	 	 	—  	 	 	2,767	 	 	4,528	 	 	3,126	 	 	 	3,768	 	 	—  	 	 	—  	 	 	—  	 	 	145,096	 	 	 	139,877	 	 	 	5,219	 	 	3.73	%	
Net derivative losses	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	3,531	 	 	 	—  	 	 	 	3,531	 	 	100.0	%	
Losses from early extinguishments of debt	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	722	 	 	 	(722	)	 	(100.0	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Other Expenses	 	 	136,800	 	 	133,984	 	 	2,816	 	 	2.10	%	 	 	—  	 	 	2,767	 	 	4,528	 	 	3,126	 	 	 	3,768	 	 	—  	 	 	—  	 	 	—  	 	 	318,085	 	 	 	321,367	 	 	 	(3,282	)	 	(1.02	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interests	 	$	304,906	 	$	289,952	 	$	14,954	 	 	5.16	%	 	$	44	 	$	11,936	 	$	1,405	 	$	(199	)	 	$	10,615	 	$	—  	 	$	—  	 	$	—  	 	$	171,812	 	 	$	173,249	 	 	$	(1,437	)	 	(0.83	)%	
Income from unconsolidated joint ventures	 	$	2,867	 	$	18,191	 	$	(15,324	)	 	(84.24	)%	 	$	—  	 	$	42	 	$	30	 	$	—  	 	 	$	—  	 	$	—  	 	$	—  	 	$	—  	 	 	2,897	 	 	 	18,233	 	 	 	(15,336	)	 	(84.11	)%	
Income from discontinued operations	 	$	—  	 	$	—  	 	$	—  	 	 	—  	 	 	$	—  	 	$	4,675	 	$	—  	 	$	—  	 	 	$	—  	 	$	—  	 	$	—  	 	$	—  	 	 	—  	 	 	 	4,675	 	 	 	(4,675	)	 	(100.0	)%	
Minority interests in property partnerships	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(1,045	)	 	 	—  	 	 	 	(1,045	)	 	(100.0	)%	
Gains on sales of real estate,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	29,641	 	 	 	754,216	 	 	 	(724,575	)	 	(96.07	)%	
Gains on Sales of real estate from discontinued operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—  	 	 	 	208,724	 	 	 	(208,724	)	 	(100.0	)%	
Preferred distributions and allocation of undistributed earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(2,208	)	 	 	(11,797	)	 	 	9,589	 	 	81.28	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income available to common unitholders	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	201,097	 	 	$	1,147,300	 	 	$	(946,203	)	 	(82.47	)%	

(1)	For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see page 38. Hotel Net Operating Income for the six months ended June 30, 2008 and 2007 are comprised of Hotel Revenue of $16,232 and $16,044 less Hotel Expenses of $12,346 and $12,431 respectively per the Consolidated Income Statement.	
 
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Rental Revenue
The increase of approximately $31.1 million in the Total Property Portfolio Rental Revenue is comprised of increases and decreases within four of the categories that comprise our Total Property Portfolio. Rental revenue from the Same Property Portfolio increased approximately $27.4 million, Properties Sold decreased approximately $19.8 million, Properties Acquired increased approximately $4.8 million and Properties Placed In-Service increased approximately $18.7 million.
Rental revenue from the Same Property Portfolio increased approximately $27.4 million for the six months ended June 30, 2008 compared to 2007. Included in rental revenue is an overall increase in base rental revenue of approximately $26.6 million partially offset by a decrease of approximately $6.7 million in straight-line rent. Approximately $3.8 million of the increase from the Same Property Portfolio was due to an increase in recoveries from tenants which correlates with the increase in operating expenses. The remaining $3.7 million increase relates to parking and other income. We expect the aggregate impact of straight-line rents for the remainder of 2008 to be between $20 million and $22 million.
The acquisitions of Kingstowne Towne Center, North First Business Park, 103 Fourth Avenue, 6601 & 6605 Springfield Center Drive and Springfield Metro Center during 2007 increased rental revenue from Properties Acquired by approximately $4.8 million for the six months ended June 30, 2008 as detailed below:

Property	  	Date Acquired	  	Rental Revenue
for the six months ended June 30	 	 	
 	  	 	  	2008	  	2007	  	Change	 	 	 	
 	  	 	  	(in thousands)	 	 	 	
Kingstowne Towne Center	  	March 30, 2007	  	$	7,135	  	$	3,335	  	$	3,800	 	 	 	
North First Business Park	  	December 13, 2007	  	 	1,243	  	 	—  	  	 	1,243	 	 	 	
103 Fourth Avenue	  	January 29, 2007	  	 	403	  	 	344	  	 	59	 	 	 	
6601 & 6605 Springfield Center Drive	  	January 18, 2007	  	 	186	  	 	491	  	 	(305	)	 	 	
Springfield Metro Center	  	April 11, 2007	  	 	—  	  	 	—  	  	 	—  	 	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
Total	  	 	  	$	8,967	  	$	4,170	  	$	4,797	 	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
The increase in rental revenue from Properties Placed In-Service relates to fully placing in-service our 505 9th Street development project in the first quarter of 2008, partially placing in-service the 77 CityPoint and South of Market development projects during the first quarter of 2008, and partially placing in-service the One Preserve Parkway development project during the second quarter of 2008. Rental Revenue from Properties Placed In-Service increased approximately $18.7 million, as detailed below:

Property	  	Date Placed In-Service	  	Rental Revenue
for the six months ended June 30	 	
 	  	 	  	2008	  	2007	  	Change	 	 	
 	  	 	  	(in thousands)	 	 	
505 9th Street	  	First Quarter, 2008	  	$	9,512	  	$	—  	  	$	9,512	 	 	
South Of Market	  	First Quarter, 2008	  	 	8,190	  	 	—  	  	 	8,190	 	 	
77 CityPoint	  	First Quarter, 2008	  	 	629	  	 	—  	  	 	629	 	 	
One Preserve Parkway	  	Second Quarter, 2008	  	 	360	  	 	—  	  	 	360	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
Total	  	 	  	$	18,691	  	$	—  	  	$	18,691	 	 	

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The aggregate increase in rental revenue was offset by the sales of Democracy Center in August 2007 and 5 Times Square in February 2007 and the transfer of Mountain View Research Park and Mountain View Technology Park to the Value-Added Fund in January 2008. These properties have not been classified as discontinued operations due to our continuing involvement as the property manager for each property. Rental Revenue from Properties Sold decreased by approximately $19.8 million, as detailed below:

Property	  	Date Sold	  	Rental Revenue
for the six months ended June 30	 	 	
 	  	 	  	2008	  	2007	  	Change	 	 	 	
 	  	 	  	(in thousands)	 	 	 	
Mountain View Properties	  	January 7, 2008	  	$	90	  	$	—  	  	$	90	 	 	 	
5 Times Square	  	February 15, 2007	  	 	—  	  	 	9,771	  	 	(9,771	)	 	 	
Democracy Center	  	August 7, 2007	  	 	—  	  	 	10,070	  	 	(10,070	)	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
Total	  	 	  	$	90	  	$	19,841	  	$	(19,751	)	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
Termination Income
Termination income for the six months ended June 30, 2008 was related to nine tenants across the Total Property Portfolio that terminated their leases, and we recognized termination income totaling approximately $3.4 million. This compared to termination income of approximately $3.3 million for the six months ended June 30, 2007 related to ten tenants. We currently anticipate realizing approximately $1.0 million in termination income per quarter for the remainder of 2008.
Real Estate Operating Expenses
The $11.0 million increase in property operating expenses (real estate taxes, utilities, insurance, repairs and maintenance, cleaning and other property-related expenses) in the Total Property Portfolio is comprised of increases and decreases within four of the categories that comprise our Total Property Portfolio. Operating expenses for the Same Property Portfolio increased approximately $10.0 million, Properties Sold decreased approximately $5.1 million, Properties Acquired increased approximately $1.8 million and Properties Placed In-Serviced increased approximately $4.3 million.
Operating expenses from the Same Property Portfolio increased approximately $10.0 million for the six months ended June 30, 2008 compared to 2007. Included in Same Property Portfolio operating expenses is an increase in repairs and maintenance of $1.6 million and a decrease in other property-related expenses of approximately $0.8 million. In addition, utility expenses increased by $2.9 million, which represents an increase of approximately 7% over the prior year. Real estate taxes also increased approximately $6.3 million, or 7.3%, due to increased real estate tax assessments.
The acquisitions of Kingstowne Towne Center, North First Business Park, 103 Fourth Avenue, 6601 & 6605 Springfield Center Drive and Springfield Metro Center during 2007 increased operating expenses from Properties Acquired by approximately $1.8 million for the six months ended June 30, 2008 as detailed below:

Property	  	Date Acquired	  	Real Estate Operating Expenses
for the six months ended June 30	 	
 	  	 	  	2008	  	2007	  	Change	 	 	
 	  	 	  	(in thousands)	 	 	
Kingstowne Towne Center	  	March 30, 2007	  	$	1,939	  	$	812	  	$	1,127	 	 	
North First Business Park	  	December 13, 2007	  	 	539	  	 	—  	  	 	539	 	 	
103 Fourth Avenue	  	January 29, 2007	  	 	333	  	 	312	  	 	21	 	 	
6601 & 6605 Springfield Center Drive	  	January 18, 2007	  	 	129	  	 	92	  	 	37	 	 	
Springfield Metro Center	  	April 11, 2007	  	 	94	  	 	27	  	 	67	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
Total	  	 	  	$	3,034	  	$	1,243	  	$	1,791	 	 	

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The increase in operating expenses from Properties Placed In-Service relates to fully placing in-service our 505 9th Street development project in the first quarter of 2008, partially placing in-service the 77 CityPoint and South of Market development projects during the first quarter of 2008, and partially placing in-service the One Preserve Parkway development project during the second quarter of 2008. Operating Expenses from Properties Placed In-Service increased approximately $4.3 million, as detailed below:

Property	  	Date Placed In-Service	  	Real Estate Operating Expenses
for the six months ended June 30	 	
 	  	 	  	2008	  	2007	  	Change	 	 	
 	  	 	  	(in thousands)	 	 	
505 9th Street	  	First Quarter, 2008	  	$	2,615	  	$	—  	  	$	2,615	 	 	
South Of Market	  	First Quarter, 2008	  	 	1,321	  	 	—  	  	 	1,321	 	 	
77 CityPoint	  	First Quarter, 2008	  	 	265	  	 	—  	  	 	265	 	 	
One Preserve Parkway	  	Second Quarter, 2008	  	 	107	  	 	—  	  	 	107	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
Total	  	 	  	$	4,308	  	$	—  	  	$	4,308	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
A decrease of approximately $5.1 million in the Total Property Portfolio operating expenses was due to the sales of Democracy Center in August 2007 and 5 Times Square in February 2007 and the transfer of Mountain View Research Park and Mountain View Technology Park to the Value-Added Fund in January 2008, as detailed below. These properties have not been classified as discontinued operations due to our continuing involvement as the property manager for each property.

Property	  	Date Sold	  	Real Estate Operating Expenses
for the six months ended June 30	 	 	
 	  	 	  	2008	  	2007	  	Change	 	 	 	
 	  	 	  	(in thousands)	 	 	 	
Mountain View Properties	  	January 7, 2008	  	$	46	  	$	—  	  	$	46	 	 	 	
Democracy Center	  	August 7, 2007	  	 	—  	  	 	3,448	  	 	(3,448	)	 	 	
5 Times Square	  	February 15, 2007	  	 	—  	  	 	1,690	  	 	(1,690	)	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
Total	  	 	  	$	46	  	$	5,138	  	$	(5,092	)	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
We continue to review and monitor the impact of rising insurance and energy costs, as well as other factors, on our operating budgets for fiscal year 2008. Because some operating expenses are not recoverable from tenants, an increase in operating expenses due to one or more of the foregoing factors could have an adverse effect on our results of operations.
Hotel Net Operating Income
Net operating income for the Cambridge Center Marriott hotel property increased by approximately $0.3 million for the six months ended June 30, 2008 as compared to 2007. For the six months ended June 30, 2007, the operations of the Long Wharf Marriott have been included as part of discontinued operations due to its sale on March 23, 2007.
The following reflects our occupancy and rate information for the Cambridge Center Marriott hotel for the six months ended June 30, 2008 and 2007.

 	  	2008	 	 	2007	 	 	Percentage
Change	 	
Occupancy	  	 	76.2	%	 	 	78.4	%	 	(2.9	)%	
Average daily rate	  	$	208.59	 	 	$	202.76	 	 	2.9	%	
Revenue per available room, REVPAR	  	$	161.32	 	 	$	158.86	 	 	1.5	%	
 
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Development and Management Services
Development and management services income increased approximately $2.1 million for the six months ended June 30, 2008 compared to 2007. The increase is attributed to (1) higher fee income due to a leasing commission earned under our management contract with the buyer of 280 Park Avenue and greater work order income in New York City, (2) higher fees related to faster than projected development progress at two of our joint venture development projects, (3) construction management fees related to tenant improvements completed in the portfolio and (4) development fees for our 20 F Street third-party development. We have maintained management contracts following the sale of Democracy Center on August 7, 2007, 5 Times Square on February 15, 2007 and 280 Park Avenue on June 6, 2006. We also recognized management fees following the acquisition of the General Motors Building. We currently anticipate realizing approximately $14-$15 million in development and management services income for the remainder of 2008, excluding the impact of the pending acquisitions of 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower.
Interest and Other Income
Interest and other income decreased approximately $27.3 million for the six months ended June 30, 2008 compared to 2007 as a result of lower overall interest rates and decreased average cash balances. In February 2007, our Operating Partnership issued $862.5 million of 2.875% unsecured exchangeable senior notes. On March 23, 2007 we completed the sale of the Long Wharf Marriott for approximately $225.6 million in cash, on April 5, 2007 we completed the sale of Newport Office Park for approximately $33.7 million in cash and on August 7, 2007 we completed the sale of Democracy Center for approximately $184.5 million in cash. On January 30, 2008 we paid a special cash distribution and regular quarterly distribution totaling $6.66 per common and LTIP unit. On February 1, 2008 we repaid the mortgage loan collateralized by our Reston Corporate Center property for approximately $20.5 million. On April 1, 2008, we repaid the mortgage loan collateralized by our Prudential Center property for approximately $258.2 million. On June 9, 2008, we completed the acquisition of the General Motors Building through a joint venture, and our share of the necessary net cash, which is net of a $200.0 million draw on our Unsecured Line of Credit, totaled $510 million. The net result of these transactions was a reduction in our average cash balances for the six months ended June 30, 2008 compared to June 30, 2007. Based on our current cash balances and current assumptions regarding the closing of our previously announced acquisitions, we currently anticipate realizing approximately $1-$2 million in interest income for the remainder of 2008.
Other Expenses
General and Administrative
General and administrative expenses increased approximately $4.0 million for the six months ended June 30, 2008 compared to 2007. During the six months ended June 30, 2008, we recognized additional expense related to abandoned project costs of approximately $1.4 million. The remaining increase is primarily due to increased base compensation. Offsetting the increase was lower than projected legal costs and payroll tax savings owing to more limited stock option activity than normal. In addition, due to the negative results in the broad equity market we also experienced a reduction in value in our deferred compensation plan which reduced general and administrative expense by $0.4 million, although such amount was offset by a corresponding equivalent reduction in interest income. As we continue to fully fund this plan, it results in reduced compensation costs. We anticipate our general and administrative expenses to be between approximately $18 million and $18.5 million per quarter for the remainder of 2008.
On January 24, 2008, the compensation committee of the Board of Directors of Boston Properties, Inc. approved outperformance awards under the 1997 Plan to our officers and employees. These awards (the “2008 OPP Awards”) are part of a new broad-based long-term incentive compensation program designed to provide our management team at several levels within the organization with the potential to earn equity awards subject to “outperforming” and creating shareholder value in a pay-for-performance structure. 2008 OPP Awards utilize total return to shareholders (“TRS”) over a three-year measurement period as the performance metric and include two years of time-based vesting after the end of the performance measurement period (subject to acceleration in
 
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certain events) as a retention tool. Recipients of 2008 OPP Awards will share in an outperformance pool if our TRS, including both share appreciation and dividends, exceeds absolute and relative hurdles over a three-year measurement period from February 5, 2008 to February 5, 2011, based on the average closing price of a share of Boston Properties, Inc.’s common stock of $92.8240 for the five trading days prior to and including February 5, 2008. The aggregate reward that recipients of all 2008 OPP Awards can earn, as measured by the outperformance pool, is subject to a maximum cap of $110 million, although only awards for an aggregate of up to approximately $104.8 million have been granted to date. The balance remains available for future grants. Under Statement of Financial Accounting Standards No. 123(R) “Share-Based Payment,” the 2008 OPP Awards have an aggregate value of approximately $19.7 million, which amount will generally be amortized into earnings over the five-year plan period (although awards for retirement-eligible employees will be amortized over a three-year period). Because the 2008 OPP Awards require Boston Properties, Inc. to outperform absolute and relative return thresholds, unless such thresholds have been met by the end of the applicable reporting period, we will exclude all contingently issuable units from the diluted EPS calculation. See Note 11 to the Consolidated Financial Statements. Compensation expense associated with the 2008 OPP Awards was approximately $2.2 million for the six months ended June 30, 2008.
Commencing in 2003, Boston Properties, Inc. issued restricted stock and/or LTIP Units, as opposed to granting stock options and restricted stock, under the 1997 Plan as the primary vehicle for employee equity compensation. An LTIP Unit is generally the economic equivalent of a share of Boston Properties, Inc’s restricted stock. Employees vest in restricted stock and LTIP Units over a four- or five-year term (for awards granted between 2003 and November 2006, vesting is over a five-year term with annual vesting of 0%, 0%, 25%, 35% and 40%; and for awards granted after November 2006, vesting occurs in equal annual installments over a four-year term). Restricted stock and LTIP Units are valued based on observable market prices for similar instruments. Such value is recognized as an expense ratably over the corresponding employee service period. LTIP Units that were issued in January 2005 and any future LTIP Unit awards will be valued using an option pricing model in accordance with the provisions of SFAS No. 123R. To the extent restricted stock or LTIP Units are forfeited prior to vesting, the corresponding previously recognized expense is reversed as an offset to “stock-based compensation.” Stock-based compensation associated with approximately $27.6 million of restricted stock and LTIP Units granted in February 2008 and approximately $18.5 million of restricted stock and LTIP Units granted in January 2007 will be incurred ratably over the four-year vesting period. Stock-based compensation associated with approximately $11.3 million of restricted stock and LTIP Units granted in April 2006 will be incurred ratably over the five-year vesting period.
Interest Expense
Interest expense for the Total Property Portfolio decreased approximately $15.3 million for the six months ended June 30, 2008 compared to 2007. The decrease is primarily due to (1) the repayment of outstanding mortgage debt in connection with the sale of Democracy Center in August 2007, which decreased interest expense by $3.4 million, (2) the repayment of our mortgages for the Prudential Center, Reston Corporate Center, 504, 506, 508 and 510 Carnegie Center and Embarcadero Center Four, which decreased interest expense by an aggregate of approximately $11.9 million, and (3) an increase in capitalized interest costs, which resulted in a decrease of interest expense of approximately $8.6 million. These decreases were offset by (1) an increase of approximately $2.6 million related to interest paid on our $862.5 million unsecured exchangeable senior notes issued in the first quarter of 2007 at an effective per annum interest rate of 3.438% and (2) an increase of approximately $7.0 million related to the acquisition of Kingstowne Towne Center on March 30, 2007, the consolidation of our 505 9 th  Street joint venture property due to the involvement we now have because the property is operating and the partial placement in-service of our South of Market development project, (3) a net increase of approximately $1.8 million related to the refinancing of 599 Lexington Avenue with a new mortgage of approximately $750 million, the net proceeds from which were used to repay the $225 million draw on our Unsecured Line of Credit and repay the mortgage loan collateralized by Times Square Tower. The remaining decrease is attributable to scheduled loan amortization on our outstanding debt.
 
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On May 9, 2008, the FASB issued FASB Staff Position No. APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1). This pronouncement and the estimated effect that it will have on interest expense is discussed in “Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Newly Issued Accounting Standards.”
At June 30, 2008, our variable rate debt consisted of our construction loans at South of Market, Democracy Tower (formerly South of Market Phase II) and Wisconsin Place Office construction projects, as well as our borrowings under our Unsecured Line of Credit. The following summarizes our outstanding consolidated debt as of June 30, 2008 and June 30, 2007:

 	  	June 30,	 	
 	  	2008	 	 	2007	 	
 	  	(dollars in thousands)	 	
Debt Summary:	  	 	 	 	 	 	 	 	
Balance	  	 	 	 	 	 	 	 	
Fixed rate	  	$	5,074,504	 	 	$	5,548,786	 	
Variable rate	  	 	429,385	 	 	 	70,816	 	
 	  	 	 	 	 	 	 	 	
Total	  	$	5,503,889	 	 	$	5,619,602	 	
 	  	 	 	 	 	 	 	 	
Percent of total debt:	  	 	 	 	 	 	 	 	
Fixed rate	  	 	92.20	%	 	 	98.74	%	
Variable rate	  	 	7.80	%	 	 	1.26	%	
 	  	 	 	 	 	 	 	 	
Total	  	 	100.00	%	 	 	100.00	%	
 	  	 	 	 	 	 	 	 	
GAAP weighted-average interest rate at end of period:	  	 	 	 	 	 	 	 	
Fixed rate	  	 	5.52	%	 	 	5.71	%	
Variable rate	  	 	4.31	%	 	 	6.63	%	
 	  	 	 	 	 	 	 	 	
Total	  	 	5.42	%	 	 	5.72	%	
 	  	 	 	 	 	 	 	 	
Depreciation and Amortization
Depreciation and amortization expense for the Total Property Portfolio increased approximately $5.4 million for the six months ended June 30, 2008 compared to 2007. Approximately $3.0 million related to an increase in the Same Property Portfolio and approximately $1.4 million related to acquisition activity. An increase of approximately $3.8 million was attributed to Properties Placed In-Service. These increases were offset by a decrease of approximately $2.8 million due to the sale of Democracy Center in August 2007 and 5 Times Square in February 2007.
Capitalized Costs
Costs directly related to the development of rental properties are not included in our operating results. These costs are capitalized and included in real estate assets on our Consolidated Balance Sheets and amortized over their useful lives. Capitalized development costs include interest, wages, property taxes, insurance and other project costs incurred during the period of development. Capitalized wages for the six months ended June 30, 2008 and 2007 were $6.2 million and $5.1 million, respectively. These costs are not included in the general and administrative expenses discussed above. We expect capitalized wages to increase with our increased development activity into 2008. Interest capitalized for the six months ended June 30, 2008 and 2007 was $19.2 million and $12.3 million, respectively. These costs are not included in the interest expense referenced above.
Net derivative losses
During the six months ended June 30, 2008, we modified the estimated dates with respect to our anticipated financings under our interest rate hedging program. As a result, we recognized a net derivative loss of approximately $3.5 million representing the partial ineffectiveness of our interest rate contracts. We have
 
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recorded the changes in fair value of the treasury lock and swap contracts related to the effective portion totaling approximately $38.1 million at June 30, 2008 Accumulated Other Comprehensive Loss within our Consolidated Balance Sheets.
Losses from early extinguishments of debt
On February 12, 2007, we refinanced the mortgage loan collateralized by 599 Lexington Avenue located in New York City. The new mortgage financing totaling $750.0 million bears interest at a fixed interest rate of 5.57% per annum and matures on March 1, 2017. We used a portion of the net proceeds to repay the $225.0 million draw on our Unsecured Line of Credit, which draw was collateralized by 599 Lexington Avenue. In addition, we used the net proceeds from the refinancing to repay the mortgage loan collateralized by Times Square Tower located in New York City totaling $475.0 million. There was no prepayment penalty associated with the repayment. We recognized a loss from early extinguishment of debt totaling approximately $0.7 million consisting of the write-off of unamortized deferred financing costs. In connection with the refinancing, the lien of the Times Square Tower mortgage was spread to 599 Lexington Avenue and released from Times Square Tower so that Times Square Tower is no longer encumbered by any mortgage debt.
Income from Unconsolidated Joint Ventures
For the six months ended June 30, 2008, income from unconsolidated joint ventures decreased by approximately $15.3 million compared to June 30, 2007. On June 1, 2007, the Value-Added Fund sold Worldgate Plaza located in Herndon, Virginia for approximately $109.0 million. Worldgate Plaza is an office complex consisting of approximately 322,000 net rentable square feet. Net cash proceeds totaled approximately $50.5 million, of which our share was approximately $20.3 million, after the repayment of the mortgage indebtedness of $57.0 million. Our share of the gain that is included as income in joint ventures was approximately $15.5 million. This amount reflects the achievement of certain return thresholds as provided for in the joint venture agreement.
On June 9, 2008, we completed the acquisition of the General Motors Building for a purchase price of approximately $2.8 billion. The acquisition was completed through a joint venture among us, US Real Estate Opportunities I, L.P., which is a partnership managed by Goldman Sachs, and Meraas Capital LLC, a Dubai-based private equity firm. We have a 60% interest in the venture and provide customary property management and leasing services for the venture. The following table presents selected projected financial information for the joint venture for the six months ending December 31, 2008, which is expected to impact our income from unconsolidated joint ventures in future periods.

 	  	Six months ending
December 31, 2008
(projected)	 	
 	  	(in thousands)	 	
Base rent and recoveries from tenants	  	$	94,030	 	
Straight-line rent	  	 	4,950	 	
Fair value lease revenue	  	 	70,410	 	
Parking and other	  	 	3,540	 	
 	  	 	 	 	
Total rental revenue	  	 	172,930	 	
 	 	
Operating expenses	  	 	36,370	 	
 	  	 	 	 	
Revenue less operating expenses	  	 	136,560	 	
 	 	
Interest expense	  	 	72,650	 	
Fair value interest expense	  	 	3,920	 	
Depreciation and amortization	  	 	79,050	 	
 	  	 	 	 	
Loss before elimination of inter-entity interest on partner loan	  	 	(19,060	)	
 	 	
Elimination of inter-entity interest on partner loan	  	 	14,850	 	
 	  	 	 	 	
Net loss	  	$	(4,210	)	

 	  	 	 	 	
Company’s share of net loss (60%)	  	$	(2,526	)	

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The projected financial information described above contains forward-looking statements within the meaning of the federal securities laws. Actual results may differ materially from those projected as a result of the risks and uncertainties described or referred to in the first several paragraphs in “Item 2. - Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Our anticipated acquisitions of 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower in New York City through joint ventures are also expected to impact our income from unconsolidated joint ventures in future periods once these acquisitions are completed. There can be no assurance that these acquisitions will be completed.
Minority interests in property partnerships
Minority interests in property partnerships for the six months ended June 30, 2008 consists of the outside equity owners’ interests in the income from our 505 9 th  Street property as well as our Wisconsin Place Office property.
Gains on sales of real estate
On February 15, 2007, we completed the sale of 5 Times Square resulting in a gain of $736.2 million. Due to our continuing involvement in the management, for a fee, of 5 Times Square through agreements with the buyer and other financial obligations to the buyer, 5 Times Square has not been categorized as discontinued operations in the Consolidated Statements of Operations.
Pursuant to the purchase and sale agreement related to the sale of 280 Park Avenue, we entered into a master lease agreement with the buyer at closing. Under the master lease agreement, we guaranteed that the buyer will receive at least a minimum amount of base rent from approximately 74,340 square feet of space during the ten-year period following the expiration of the leases for this space. The leases for this space expired at various times between June 2006 and October 2007. The aggregate amount of base rent we guaranteed over the entire period from 2006 to 2017 is approximately $67.3 million. During the six months ended June 30, 2008 and 2007, we signed new qualifying leases for approximately 17,454 and 22,250 net rentable square feet of the remaining master lease obligation, resulting in the recognition of approximately $23.4 million and $18.0 million of additional gain on sale of real estate, respectively. As of June 30, 2008, the remaining master lease obligation totaled approximately $1.8 million.
On April 14, 2008, we sold a parcel of land located in Washington, D.C. for approximately $33.7 million. We had previously entered into a development management agreement with the buyer to develop a Class A office property on the parcel totaling approximately 165,000 net rentable square feet. Due to our involvement in the construction of the project, the gain on sale estimated to total $22.3 million has been deferred and will be recognized over the project construction period generally based on the percentage of total project costs incurred to estimated total project costs. As a result, we recognized a gain on sale during the six months ended June 30, 2008 of approximately $6.2 million.
Income from discontinued operations
For the six months ended June 30, 2007, Orbital Sciences Campus, Broad Run Business Park, Building E, Newport Office Park and Long Wharf Marriott were included as part of income from discontinued operations.
 
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Gains on sales of real estate from discontinued operations
On March 23, 2007, we completed the sale of the Long Wharf Marriott, a 402-room hotel located in Boston, Massachusetts for a total sale price of $231.0 million, or approximately $575,000 per room. The net gain on sale was approximately $194.4 million. On April 5, 2007, we sold Newport Office Park, an approximately 172,000 net rentable square foot Class A office property located in Quincy, Massachusetts, for approximately $37.0 million. Net cash proceeds totaled approximately $33.7 million, resulting in a gain on sale of approximately $14.3 million.
Preferred distributions and allocation of undistributed earnings
Preferred distributions and allocation of undistributed earnings decreased $9.6 million for the six months ended June 30, 2008, due to a decrease in the underlying income that needs to be allocated.
Comparison of the three months ended June 30, 2008 to the three months ended June 30, 2007.
The table below shows selected operating information for the Same Property Portfolio and the Total Property Portfolio. The Same Property Portfolio consists of 121 properties totaling approximately 29.8 million net rentable square feet of space. The Same Property Portfolio includes properties acquired or placed in-service on or prior to April 1, 2007 and owned through June 30, 2008. The Total Property Portfolio includes the effects of the other properties either placed in-service, acquired or repositioned after April 1, 2007 or disposed of on or prior to June 30, 2008. This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the three months ended June 30, 2008 and 2007 with respect to the properties which were acquired, placed in-service, repositioned or sold.
 
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 	 	Same Property Portfolio	 	 	Properties Sold	 	Properties
Acquired	 	 	Properties
Placed
In-Service	 	Properties
Repositioned	 	Total Property Portfolio	 	
 	 	2008	 	2007	 	Increase/
(Decrease)	 	 	%
Change	 	 	2008	  	2007	 	2008	 	 	2007	 	 	2008	 	2007	 	2008	 	2007	 	2008	 	 	2007	 	 	Increase/
(Decrease)	 	 	%
Change	 	
 	 	(dollars in thousands)	 	
Rental Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rental Revenue	 	$	336,644	 	$	325,741	 	$	10,903	 	 	3.35	%	 	$	—  	  	$	5,074	 	$	569	 	 	$	—  	 	 	$	11,024	 	$	—  	 	$	—  	 	$	—  	 	$	348,237	 	 	$	330,815	 	 	$	17,422	 	 	5.27	%	
Termination Income	 	 	—  	 	 	728	 	 	(728	)	 	(100.00	)%	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	728	 	 	 	(728	)	 	(100.0	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Rental Revenue	 	 	336,644	 	 	326,469	 	 	10,175	 	 	3.12	%	 	 	—  	  	 	5,074	 	 	569	 	 	 	—  	 	 	 	11,024	 	 	—  	 	 	—  	 	 	—  	 	 	348,237	 	 	 	331,543	 	 	 	16,694	 	 	5.04	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Real Estate Operating Expenses	 	 	116,264	 	 	111,110	 	 	5,154	 	 	4.64	%	 	 	—  	  	 	1,861	 	 	283	 	 	 	27	 	 	 	2,556	 	 	—  	 	 	—  	 	 	—  	 	 	119,103	 	 	 	112,998	 	 	 	6,105	 	 	5.40	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Operating Income, excluding hotels	 	 	220,380	 	 	215,359	 	 	5,021	 	 	2.33	%	 	 	—  	  	 	3,213	 	 	286	 	 	 	(27	)	 	 	8,468	 	 	—  	 	 	—  	 	 	—  	 	 	229,134	 	 	 	218,545	 	 	 	10,589	 	 	4.85	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Hotel Net Operating Income(1)	 	 	3,259	 	 	2,918	 	 	341	 	 	11.69	%	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	3,259	 	 	 	2,918	 	 	 	341	 	 	11.69	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consolidated Net Operating Income(1)	 	 	223,639	 	 	218,277	 	 	5,362	 	 	2.46	%	 	 	—  	  	 	3,213	 	 	286	 	 	 	(27	)	 	 	8,468	 	 	—  	 	 	—  	 	 	—  	 	 	232,393	 	 	 	221,463	 	 	 	10,930	 	 	4.94	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Revenue:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Development and Management Services	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	6,460	 	 	 	5,130	 	 	 	1,330	 	 	25.93	%	
Interest and Other	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	4,115	 	 	 	26,205	 	 	 	(22,090	)	 	(84.30	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Other Revenue	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	10,575	 	 	 	31,335	 	 	 	(20,760	)	 	(66.25	)%	
Other Expenses:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
General and administrative expense	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	17,467	 	 	 	16,291	 	 	 	1,176	 	 	7.22	%	
Interest	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	64,564	 	 	 	73,743	 	 	 	(9,179	)	 	(12.45	)%	
Depreciation and amortization	 	 	69,588	 	 	70,581	 	 	(993	)	 	(1.41	)%	 	 	—  	  	 	1,419	 	 	522	 	 	 	—  	 	 	 	2,282	 	 	—  	 	 	—  	 	 	—  	 	 	72,392	 	 	 	72,000	 	 	 	392	 	 	0.54	%	
Net derivative losses	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	(257	)	 	 	—  	 	 	 	(257	)	 	(100.0	)%	
Losses from early extinguishments of debt	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	  	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	(0.0	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Other Expenses	 	 	69,588	 	 	70,581	 	 	(993	)	 	(1.41	)%	 	 	—  	  	 	1,419	 	 	522	 	 	 	—  	 	 	 	2,282	 	 	—  	 	 	—  	 	 	—  	 	 	154,166	 	 	 	162,034	 	 	 	(7,868	)	 	(4.86	)%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interests	 	$	154,051	 	$	147,696	 	$	6,335	 	 	4.30	%	 	$	—  	  	$	1,794	 	$	(236	)	 	$	(27	)	 	$	6,186	 	$	—  	 	$	—  	 	$	—  	 	$	88,802	 	 	$	90,764	 	 	$	(1,962	)	 	(2.16	)%	
Income from unconsolidated joint ventures	 	$	1,825	 	$	17,238	 	$	(15,413	)	 	(89.41	)%	 	$	—  	  	$	30	 	$	30	 	 	$	—  	 	 	$	—  	 	$	—  	 	$	—  	 	$	—  	 	 	1,855	 	 	 	17,268	 	 	 	(15,413	)	 	(89.26	)%	
Income from discontinued operations	 	$	—  	 	$	—  	 	$	—  	 	 	—  	 	 	$	—  	  	$	1,589	 	$	—  	 	 	$	—  	 	 	$	—  	 	$	—  	 	$	—  	 	$	—  	 	 	—  	 	 	 	1,589	 	 	 	(1,589	)	 	(100.0	)%	
Minority interests in property partnerships	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(420	)	 	 	—  	 	 	 	(420	)	 	(100.0	)%	
Gains on sales of real estate,	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	6,203	 	 	 	—  	 	 	 	6,203	 	 	100.0	%	
Gains on Sales of real estate from discontinued operations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	—  	 	 	 	14,455	 	 	 	(14,455	)	 	(100.0	)%	
Preferred distributions and allocation of undistributed earnings	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	(1,072	)	 	 	(1,557	)	 	 	485	 	 	31.15	%	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Income available to common unitholders	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	95,368	 	 	$	122,519	 	 	$	(27,151	)	 	(22.16	)%	

(1)	For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see page 38. Hotel Net Operating Income for the three months ended June 30, 2008 and 2007 are comprised of Hotel Revenue of $9,708 and $9,335 less Hotel Expenses of $6,449 and $6,417 respectively per the Consolidated Income Statement.	
 
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Rental Revenue
The increase of approximately $17.4 million in the Total Property Portfolio Rental Revenue is comprised of increases and decreases within four of the categories that comprise our Total Property Portfolio. Rental revenue from the Same Property Portfolio increased approximately $10.9 million, Properties Sold decreased approximately $5.1 million, Properties Acquired increased approximately $0.6 million and Properties Placed In-Service increased approximately $11.0 million.
Rental revenue from the Same Property Portfolio increased approximately $10.9 million for the three months ended June 30, 2008 compared to 2007. Included in rental revenue is an overall increase in base rental revenue of approximately $12.4 million partially offset by a decrease of approximately $4.3 million in straight-line rent. Approximately $1.1 million of the increase from the Same Property Portfolio was due to an increase in recoveries from tenants which correlates with the increase in operating expenses. The remaining $1.7 million increase relates to parking and other income. We expect the aggregate impact of straight-line rents for the remainder of 2008 to be between $20 million and $22 million.
The acquisitions of North First Business Park, and Springfield Metro Center during 2007 increased rental revenue from Properties Acquired by approximately $0.6 million for the three months ended June 30, 2008 as detailed below:

Property	  	Date Acquired	  	Rental Revenue
for the three months ended June 30	 	
 	  	 	  	2008	  	2007	  	Change	 	 	
 	  	 	  	(in thousands)	 	 	
North First Business Park	  	December 13, 2007	  	$	569	  	$	—  	  	$	569	 	 	
Springfield Metro Center	  	April 11, 2007	  	 	—  	  	 	—  	  	 	—  	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
Total	  	 	  	$	569	  	$	—  	  	$	569	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
The increase in rental revenue from Properties Placed In-Service relates to fully placing in-service our 505 9th Street development project in the first quarter of 2008, partially placing in-service the 77 CityPoint and South of Market development projects during the first quarter of 2008, and partially placing in-service the One Preserve Parkway development project during the second quarter of 2008. Rental Revenue from Properties Placed In-Service increased approximately $11.0 million, as detailed below:

Property	  	Date Placed In-Service	  	Rental Revenue
for the three months ended June 30	 	
 	  	 	  	2008	  	2007	  	Change	 	 	
 	  	 	  	(in thousands)	 	 	
505 9th Street	  	First Quarter, 2008	  	$	4,856	  	$	—  	  	$	4,856	 	 	
South Of Market	  	First Quarter, 2008	  	 	5,399	  	 	—  	  	 	5,399	 	 	
77 CityPoint	  	First Quarter, 2008	  	 	409	  	 	—  	  	 	409	 	 	
One Preserve Parkway	  	Second Quarter, 2008	  	 	360	  	 	—  	  	 	360	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
Total	  	 	  	$	11,024	  	$	—  	  	$	11,024	 	 	

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The aggregate increase in rental revenue was offset by the sales of Democracy Center in August 2007 and the transfer of Mountain View Research Park and Mountain View Technology Park to the Value-Added Fund in January 2008. These properties have not been classified as discontinued operations due to our continuing involvement as the property manager for each property. Rental Revenue from Properties Sold decreased by approximately $5.1 million, as detailed below:

Property	  	Date Sold	  	Rental Revenue
for the three months ended June 30	 	 	
 	  	 	  	2008	  	2007	  	Change	 	 	 	
 	  	 	  	(in thousands)	 	 	 	
Mountain View Properties	  	January 7, 2008	  	$	—  	  	$	—  	  	$	—  	 	 	 	
Democracy Center	  	August 7, 2007	  	 	—  	  	 	5,074	  	 	(5,074	)	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
Total	  	 	  	$	—  	  	$	5,074	  	$	(5,074	)	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
Termination Income
There was no termination income for the three months ended June 30, 2008. This compared to termination income of approximately $0.7 million for the three months ended June 30, 2007 related to six tenants. We currently anticipate realizing approximately $1.0 million in termination income per quarter for the remainder of 2008.
Real Estate Operating Expenses
The $6.1 million increase in property operating expenses (real estate taxes, utilities, insurance, repairs and maintenance, cleaning and other property-related expenses) in the Total Property Portfolio is comprised of increases and decreases within four of the categories that comprise our Total Property Portfolio. Operating expenses for the Same Property Portfolio increased approximately $5.1 million, Properties Sold decreased approximately $1.9 million, Properties Acquired increased approximately $0.3 million and Properties Placed In-Serviced increased approximately $2.6 million.
Operating expenses from the Same Property Portfolio increased approximately $5.1 million for the three months ended June 30, 2008 compared to 2007. Included in Same Property Portfolio operating expenses is an increase in repairs and maintenance of $0.6 million and a decrease in other property-related expenses of approximately $0.3 million. In addition, utility expenses increased by $1.6 million which represents an increase of approximately 8.2% over the prior year. Real estate taxes also increased approximately $3.2 million, or 7.2%, due to increased real estate tax assessments.
The acquisitions of North First Business Park and Springfield Metro Center during 2007 increased operating expenses from Properties Acquired by approximately $0.3 million for the three months ended June 30, 2008 as detailed below:

Property	  	Date Acquired	  	Real Estate Operating Expenses
for the three months ended June 30	 	
 	  	 	  	2008	  	2007	  	Change	 	 	
 	  	 	  	(in thousands)	 	 	
North First Business Park	  	December 13, 2007	  	$	236	  	$	—  	  	$	236	 	 	
Springfield Metro Center	  	April 11, 2007	  	 	47	  	 	27	  	 	20	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
Total	  	 	  	$	283	  	$	27	  	$	256	 	 	

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The increase in operating expenses from Properties Placed In-Service relates to fully placing in-service our 505 9th Street development project in the first quarter of 2008, partially placing in-service the 77 CityPoint and South of Market development projects during the first quarter of 2008, and partially placing in-service the One Preserve Parkway development project during the second quarter of 2008. Operating Expenses from Properties Placed In-Service increased approximately $2.6 million, as detailed below:

Property	  	Date Placed In-Service	  	Real Estate Operating Expenses
for the three months ended June 30	 	
 	  	 	  	2008	  	2007	  	Change	 	 	
 	  	 	  	(in thousands)	 	 	
505 9th Street	  	First Quarter, 2008	  	$	1,321	  	$	—  	  	$	1,321	 	 	
South Of Market	  	First Quarter, 2008	  	 	931	  	 	—  	  	 	931	 	 	
77 CityPoint	  	First Quarter, 2008	  	 	199	  	 	—  	  	 	199	 	 	
One Preserve Parkway	  	Second Quarter, 2008	  	 	105	  	 	—  	  	 	105	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
Total	  	 	  	$	2,556	  	$	—  	  	$	2,556	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	
A decrease of approximately $1.9 million in the Total Property Portfolio operating expenses was due to the sales of Democracy Center in August 2007 and the transfer of Mountain View Research Park and Mountain View Technology Park to the Value-Added Fund in January 2008, as detailed below. These properties have not been classified as discontinued operations due to our continuing involvement as the property manager for each property.

Property	  	Date Sold	  	Real Estate Operating Expenses
for the three months ended June 30	 	 	
 	  	 	  	2008	  	2007	  	Change	 	 	 	
 	  	 	  	(in thousands)	 	 	 	
Mountain View Properties	  	January 7, 2008	  	$	—  	  	$	—  	  	$	—  	 	 	 	
Democracy Center	  	August 7, 2007	  	 	—  	  	 	1,861	  	 	(1,861	)	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
Total	  	 	  	$	—  	  	$	1,861	  	$	(1,861	)	 	 	
 	  	 	  	 	 	  	 	 	  	 	 	 	 	 	
We continue to review and monitor the impact of rising insurance and energy costs, as well as other factors, on our operating budgets for fiscal year 2008. Because some operating expenses are not recoverable from tenants, an increase in operating expenses due to one or more of the foregoing factors could have an adverse effect on our results of operations.
Hotel Net Operating Income
Net operating income for the Cambridge Center Marriott hotel property increased by approximately $0.3 million for the three months ended June 30, 2008 as compared to 2007.
The following reflects our occupancy and rate information for the Cambridge Center Marriott hotel for the three months ended June 30, 2008 and 2007.

 	  	2008	 	 	2007	 	 	Percentage
Change	 	
Occupancy	  	 	83.7	%	 	 	82.9	%	 	0.9	%	
Average daily rate	  	$	236.58	 	 	$	229.81	 	 	2.9	%	
Revenue per available room, REVPAR	  	$	197.94	 	 	$	190.52	 	 	3.9	%	
 
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Development and Management Services
Development and management services income increased approximately $1.3 million for the three months ended June 30, 2008 compared to 2007. The increase was the result of (1) higher fees related to faster than projected development progress at two of our joint venture development projects, (2) construction management fees related to tenant improvements completed in the portfolio and (3) development fees for our 20 F Street third-party development. We also recognized management fees following the acquisition of the General Motors Building.
Interest and Other Income
Interest and other income decreased approximately $22.1 million for the three months ended June 30, 2008 compared to 2007 as a result of lower overall interest rates and decreased average cash balances. On April 5, 2007 we completed the sale of Newport Office Park for approximately $33.7 million in cash and on August 7, 2007 we completed the sale of Democracy Center for approximately $184.5 million in cash. On January 30, 2008 we paid a special cash distribution and regular quarterly distribution totaling $6.66 per common and LTIP unit. On February 1, 2008 we repaid the mortgage loan collateralized by our Reston Corporate Center property for approximately $20.5 million. On April 1, 2008 we repaid the mortgage loan collateralized by our Prudential Center property for approximately $258.2 million. On June 9, 2008 we completed the acquisition of the General Motors Building through a joint venture, and our share of the necessary net cash, which is net of a $200.0 million draw on our Unsecured Line of Credit, totaled $510 million. The net result of these transactions is a reduction in our average cash balances for the three months ended June 30, 2008 compared to June 30, 2007.
Other Expenses
General and Administrative
General and administrative expenses increased approximately $1.2 million for the three months ended June 30, 2008 compared to 2007. Although there was an increase for the three months ended June 30, 2008 compared to 2007, the increase would have been greater had it not been for lower than projected legal costs and payroll taxes due to more limited stock option activity than normal. In addition, due to the negative results in the broad equity market we also experienced a reduction in value in our deferred compensation plan which reduced general and administrative expense, although such amount was offset by a corresponding equivalent reduction in interest income. As we continue to fully fund this plan, it results in reduced compensation costs. We anticipate our general and administrative expenses to be between approximately $18 million and $18.5 million per quarter for the remainder of 2008.
On January 24, 2008, the compensation committee of the Board of Directors of Boston Properties, Inc. approved outperformance awards under the 1997 Plan to our officers and employees. These awards (the “2008 OPP Awards”) are part of a new broad-based long-term incentive compensation program designed to provide our management team at several levels within the organization with the potential to earn equity awards subject to “outperforming” and creating shareholder value in a pay-for-performance structure. 2008 OPP Awards utilize total return to shareholders (“TRS”) over a three-year measurement period as the performance metric and include two years of time-based vesting after the end of the performance measurement period (subject to acceleration in certain events) as a retention tool. Recipients of 2008 OPP Awards will share in an outperformance pool if our TRS, including both share appreciation and dividends, exceeds absolute and relative hurdles over a three-year measurement period from February 5, 2008 to February 5, 2011, based on the average closing price of a share of Boston Properties, Inc.’s common stock of $92.8240 for the five trading days prior to and including February 5, 2008. The aggregate reward that recipients of all 2008 OPP Awards can earn, as measured by the outperformance pool, is subject to a maximum cap of $110 million, although only awards for an aggregate of up to approximately $104.8 million have been granted to date. The balance remains available for future grants. Under Statement of Financial Accounting Standards No. 123(R) “Share-Based Payment,” the 2008 OPP Awards have an aggregate value of approximately $19.7 million, which amount will generally be amortized into earnings over the five-year
 
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plan period (although awards for retirement-eligible employees will be amortized over a three-year period). Because the 2008 OPP Awards require Boston Properties, Inc. to outperform absolute and relative return thresholds, unless such thresholds have been met by the end of the applicable reporting period, we will exclude all contingently issuable units from the diluted EPS calculation. See Note 11 to the Consolidated Financial Statements. Compensation expense associated with the 2008 OPP Awards was approximately $1.3 million for the three months ended June 30, 2008.
Commencing in 2003, Boston Properties, Inc. issued restricted stock and/or LTIP Units, as opposed to granting stock options and restricted stock, under the 1997 Plan as our primary vehicle for employee equity compensation. An LTIP Unit is generally the economic equivalent of a share of Boston Properties, Inc’s restricted stock. Employees vest in restricted stock and LTIP Units over a four- or five-year term (for awards granted between 2003 and November 2006, vesting is over a five-year term with annual vesting of 0%, 0%, 25%, 35% and 40%; and for awards granted after November 2006, vesting occurs in equal annual installments over a four-year term). Restricted stock and LTIP Units are valued based on observable market prices for similar instruments. Such value is recognized as an expense ratably over the corresponding employee service period. LTIP Units that were issued in January 2005 and any future LTIP Unit awards will be valued using an option pricing model in accordance with the provisions of SFAS No. 123R. To the extent restricted stock or LTIP Units are forfeited prior to vesting, the corresponding previously recognized expense is reversed as an offset to “stock-based compensation.” Stock-based compensation associated with approximately $27.6 million of restricted stock and LTIP Units granted in February 2008 and approximately $18.5 million of restricted stock and LTIP Units granted in January 2007 will be incurred ratably over the four-year vesting period. Stock-based compensation associated with approximately $11.3 million of restricted stock and LTIP Units granted in April 2006 will be incurred ratably over the five-year vesting period.
Interest Expense
Interest expense for the Total Property Portfolio decreased approximately $9.2 million for the three months ended June 30, 2008 compared to 2007. The decrease is primarily due to (1) the repayment of outstanding mortgage debt in connection with the sale of Democracy Center in August 2007, which decreased interest expense by $1.7 million, (2) the repayment of our mortgages for the Prudential Center, Reston Corporate Center, 504, 506, 508 and 510 Carnegie Center and Embarcadero Center Four, which decreased interest expense by an aggregate of approximately $8.2 million, and (3) an increase in capitalized interest costs, which resulted in a decrease of interest expense of approximately $2.6 million. These decreases were offset by an increase of approximately $3.5 million related to the consolidation of our 505 9 th  Street joint venture property due to the involvement we now have because the property is operating and the partial placement in-service of our South of Market development project. The remaining decrease is attributable to scheduled loan amortization on our outstanding debt.
On May 9, 2008, the FASB issued FASB Staff Position No. APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1). This pronouncement and the estimated effect that it will have on interest expense is discussed in “Item 2.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Newly Issued Accounting Standards.”
 
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At June 30, 2008, our variable rate debt consisted of our construction loans at South of Market, Democracy Tower (formerly South of Market Phase II) and Wisconsin Place Office construction projects, as well as our borrowings under our Unsecured Line of Credit. The following summarizes our outstanding consolidated debt as of June 30, 2008 and June 30, 2007:

 	  	June 30,	 	
 	  	2008	 	 	2007	 	
 	  	(dollars in thousands)	 	
Debt Summary:	  	 	 	 	 	 	 	 	
Balance	  	 	 	 	 	 	 	 	
Fixed rate	  	$	5,074,504	 	 	$	5,548,786	 	
Variable rate	  	 	429,385	 	 	 	70,816	 	
 	  	 	 	 	 	 	 	 	
Total	  	$	5,503,889	 	 	$	5,619,602	 	
 	  	 	 	 	 	 	 	 	
Percent of total debt:	  	 	 	 	 	 	 	 	
Fixed rate	  	 	92.20	%	 	 	98.74	%	
Variable rate	  	 	7.80	%	 	 	1.26	%	
 	  	 	 	 	 	 	 	 	
Total	  	 	100.00	%	 	 	100.00	%	
 	  	 	 	 	 	 	 	 	
GAAP weighted-average interest rate at end of period:	  	 	 	 	 	 	 	 	
Fixed rate	  	 	5.52	%	 	 	5.71	%	
Variable rate	  	 	4.31	%	 	 	6.63	%	
 	  	 	 	 	 	 	 	 	
Total	  	 	5.42	%	 	 	5.72	%	
 	  	 	 	 	 	 	 	 	
Depreciation and Amortization
Depreciation and amortization expense for the Total Property Portfolio increased approximately $0.5 million for the three months ended June 30, 2008 compared to 2007. Approximately $0.5 million of the increase related to the acquisition of North First Business Park. An increase of approximately $2.3 million was attributed to Properties Placed In-Service. These increases were offset by a decrease of approximately $1.4 million due to the sales of Democracy Center in August 2007 and a decrease in the Same Property Portfolio of approximately $0.9 million.
Capitalized Costs
Costs directly related to the development of rental properties are not included in our operating results. These costs are capitalized and included in real estate assets on our Consolidated Balance Sheets and amortized over their useful lives. Capitalized development costs include interest, wages, property taxes, insurance and other project costs incurred during the period of development. Capitalized wages for the three months ended June 30, 2008 and 2007 were $3.0 million and $2.8 million, respectively. These costs are not included in the general and administrative expenses discussed above. We expect capitalized wages to increase with our increased development activity into 2008. Interest capitalized for the three months ended June 30, 2008 and 2007 was $9.7 million and $7.9 million, respectively. These costs are not included in the interest expense referenced above.
Net derivative losses
Net derivative income (losses) for the three months ended June 30, 2008 totaled approximately $0.3 million, which represented the partial ineffectiveness of our hedging contracts.
Income from Unconsolidated Joint Ventures
For the three months ended June 30, 2008 compared to 2007, income from unconsolidated joint ventures decreased by $15.4 million. On June 1, 2007, the Value-Added Fund sold Worldgate Plaza located in Herndon,
 
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Virginia for approximately $109.0 million. Worldgate Plaza is an office complex consisting of approximately 322,000 net rentable square feet. Net cash proceeds totaled approximately $50.5 million, of which our share was approximately $20.3 million, after the repayment of the mortgage indebtedness of $57.0 million. Our share of the gain that is included as income in joint ventures was approximately $15.5 million. This amount reflects the achievement of certain return thresholds as provided for in the joint venture agreement. For discussion of the General Motors Building’s projected impact on income from unconsolidated joint ventures, refer to page 46.
Minority interests in property partnerships
Minority interests in property partnerships for the three months ended June 30, 2008 consists of the outside equity owners’ interests in the income from our 505 9 th  Street property as well as our Wisconsin Place Office property.
Gains on sales of real estate
On April 14, 2008, we sold a parcel of land located in Washington, D.C. for approximately $33.7 million. We had previously entered into a development management agreement with the buyer to develop a Class A office property on the parcel totaling approximately 165,000 net rentable square feet. Due to our involvement in the construction of the project, the gain on sale estimated to total $22.3 million has been deferred and will be recognized over the project construction period generally based on the percentage of total project costs incurred to estimated total project costs. As a result, we recognized a gain on sale during the three months ended June 30, 2008 of approximately $6.2 million.
Income from discontinued operations
For the three months ended June 30, 2007, Orbital Science Campus, Broad Run Business Park, Building E, and Newport Office were included as part of income from discontinued operations.
Gains on sales of real estate from discontinued operations
On April 5, 2007, we sold Newport Office Park, an approximately 172,000 net rentable square foot Class A office property located in Quincy, Massachusetts, for approximately $37.0 million. Net cash proceeds totaled approximately $33.7 million, resulting in a gain on sale of approximately $14.5 million.
Preferred distributions and allocation of undistributed earnings
Preferred distributions and allocation of undistributed earnings decreased $0.5 million for the three months ended June 30, 2008, due to a decrease in the underlying income that needs to be allocated and preferred distributions.
Liquidity and Capital Resources
General
Our principal liquidity needs for the next twelve months are to:
 
 	•	 	fund normal recurring expenses;	
 
 	•	 	fund current development costs not covered under construction loans;	
 
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 	•	 	meet debt service and principal repayment obligations, including balloon payments on maturing debt;	
 
 	•	 	fund capital expenditures, including tenant improvements and leasing costs;	
 
 	•	 	fund the costs associated with the settlement of our hedge agreements at maturity;	
 
 	•	 	fund the acquisitions, through joint ventures, of 540 Madison Avenue, 125 West 55th Street and Two Grand Central Tower located in New York City;	
 
 	•	 	fund other possible property acquisitions; and	
 
 	•	 	make the minimum distribution necessary to enable Boston Properties, Inc. to maintain its REIT qualification under the Internal Revenue Code of 1986, as amended.	
On December 17, 2007, Boston Properties, Inc., our general partner, declared a special cash distribution of $5.98 per common unit and LTIP unit that was paid on January 30, 2008 to unitholders of record as of the close of business on December 31, 2007. The decision to declare a special distribution was the result of the sales of assets in 2007, including 5 Times Square, Orbital Sciences Campus, Broad Run Business Park—Building E, Worldgate Plaza and Newport Office Park. The Board of Directors of Boston Properties, Inc. did not make any change in our policy with respect to regular quarterly distributions. The payment of the regular quarterly distribution of $0.68 per unit and the special distribution of $5.98 per unit resulted in a total payment of $6.66 per unit on January 30, 2008.
We believe that our liquidity needs will be satisfied using our cash on hand, cash flows generated by operations, availability under our Unsecured Line of Credit and cash flows provided by other financing activities. We may also generate cash from asset sales. Base rental revenue, recovery income from tenants, other income from operations, available cash balances, draws on our Unsecured Line of Credit and refinancing of maturing indebtedness are our principal sources of capital used to pay operating expenses, debt service, recurring capital expenditures and the minimum distribution necessary to enable Boston Properties, Inc. to maintain its REIT qualification. We seek to increase income from our existing properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Our sources of revenue also include third-party fees generated by our office real estate management, leasing, development and construction businesses. Consequently, we believe our revenue, together with proceeds from financing activities, will continue to provide the necessary funds for our short-term liquidity needs. However, material changes in these factors may adversely affect our net cash flows. Such changes, in turn, could adversely affect our ability to fund distributions, debt service payments and tenant improvements. In addition, a material adverse change in our cash provided by operations may affect our ability to comply with the financial performance covenants under our Unsecured Line of Credit and unsecured senior notes.
Our principal liquidity needs for periods beyond twelve months are for the costs of developments, possible property acquisitions, scheduled debt maturities, major renovations, expansions and other non-recurring capital improvements. We expect to satisfy these needs using one or more of the following:
 
 	•	 	construction loans;	
 
 	•	 	long-term secured and unsecured indebtedness (including unsecured exchangeable indebtedness);	
 
 	•	 	income from operations;	
 
 	•	 	income from joint ventures;	
 
 	•	 	sales of real estate;	
 
 	•	 	issuances of equity securities of Boston Properties, Inc. and/or additional preferred or common units of partnership interest; and	
 
 	•	 	our Unsecured Line of Credit or other short-term bridge facilities.	
 
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We draw on multiple financing sources to fund our long-term capital needs. Our Unsecured Line of Credit is utilized primarily as a bridge facility to fund acquisition opportunities, to refinance outstanding indebtedness and to meet short-term development and working capital needs. We generally fund our development projects with construction loans that we may partially guarantee until project completion or lease-up thresholds are achieved.
To the extent that we sell assets and cannot efficiently use the proceeds for either our development activities or attractive acquisitions, the Board of Directors of Boston Properties, Inc. would, at the appropriate time, decide whether it is better to declare a special distribution, adopt a stock repurchase program, reduce our indebtedness or retain the cash for future investment opportunities. Such a decision will depend on many factors including, among others, the timing, availability and terms of development and acquisition opportunities, our then-current and anticipated leverage, the price of Boston Properties, Inc.’s common stock and Boston Properties, Inc.’s REIT distribution requirements. At a minimum, we expect that we would distribute at least that amount of proceeds necessary for Boston Properties, Inc. to avoid paying corporate level tax on the applicable gains realized from any asset sales.
Cash Flow Summary
The following summary discussion of our cash flows is based on the consolidated statements of cash flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.
Cash and cash equivalents were approximately $112.1 million and $1.9 billion at June 30, 2008 and 2007, respectively, representing a decrease of approximately $1.8 billion. The following table sets forth increases and decreases in cash flows:

 	  	Six months ended June 30	 	
 	  	2008	 	 	2007	 	 	Increase
(Decrease)	 	
 	  	(in thousands)	 	
Net cash provided by operating activities	  	$	249,362	 	 	$	311,856	 	 	$	(62,494	)	
Net cash provided by (used in) investing activities	  	 	(630,387	)	 	 	877,631	 	 	 	(1,508,018	)	
Net cash used in financing activities	  	 	(1,013,786	)	 	 	(29,957	)	 	 	(983,829	)	
Our principal source of cash flow is related to the operation of our office properties. The average term of our in-place tenant leases, including our unconsolidated joint ventures, is approximately 7.5 years with occupancy rates historically in the range of 92% to 98%. Our properties provide a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund quarterly distribution payment requirements. In addition, over the past two years, we have raised capital through the sale of some of our properties and raised proceeds from secured and unsecured borrowings.
In 2007, our total distributions exceeded our cash flow from operating activities due to the special distribution which was declared in December 2006 and paid to common and LTIP unitholders on January 30, 2007. The cash flows distributed were generated from sales of real estate assets and proceeds from the sales are included as part of cash flows from investment activities. We expect that in 2008 our total distributions will exceed our cash flow from operating activities due to the special distribution paid in January 2008. Distributions will generally exceed cash flows from operating activities during periods in which we sell significant real estate assets and distribute gains on sale that would otherwise be taxable.
 
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Cash is used in investing activities to fund acquisitions, development and recurring and nonrecurring capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing and property management skills and invest in existing buildings that meet our investment criteria. Cash provided by investing activities for the six months ended June 30, 2008 consisted of the following:

 	  	Six months ended
June 30, 2008	 	
 	  	(in thousands)	 	
Net proceeds from the sales of real estate	  	$	128,258	 	
Proceeds from the sale of real estate released from escrow	  	 	126,321	 	
Proceeds from note receivable	  	 	123,000	 	
Issuance of note receivable	  	 	(270,000	)	
Proceeds from redemptions of investments in securities	  	 	9,657	 	
Net investments in unconsolidated joint ventures	  	 	(517,003	)	
Acquisitions/additions to real estate	  	 	(230,620	)	
 	  	 	 	 	
Net cash used in investing activities	  	$	(630,387	)	
 	  	 	 	 	
Cash used in financing activities for the six months ended June 30, 2008 totaled approximately $1.01 billion. This consisted primarily of the payments of distributions to unitholders, including the special cash distribution of $5.98 per unit paid in January 2008 offset by the net proceeds from mortgage notes payable and borrowings under our Unsecured Line of Credit. Future debt payments are discussed below under the heading “Debt Financing.”
Capitalization
At June 30, 2008, our total consolidated debt was approximately $5.5 billion. The GAAP weighted-average annual interest rate on our consolidated indebtedness was 5.42% and the weighted-average maturity was approximately 4.8 years.
Consolidated debt to total consolidated market capitalization ratio, defined as total consolidated debt as a percentage of the market value of our outstanding equity securities plus our total consolidated debt, is a measure of leverage commonly used by analysts in the REIT sector. Our total consolidated market capitalization was approximately $18.4 billion at June 30, 2008. Total consolidated market capitalization was calculated using the Boston Properties, Inc.’s June 30, 2008 closing stock price of $90.22 per common share and the following: (1)140,040,094 outstanding common units of partnership interest (including 119,756,240 common units held by Boston Properties, Inc.), (2) an aggregate of 1,460,688 common units issuable upon conversion of all outstanding Series Two Preferred Units of partnership interest, (3) an aggregate of 946,226 common units issuable upon conversion of all outstanding LTIP Units, assuming all conditions have been met for the conversion of the LTIP Units, and (4) our consolidated debt totaling approximately $5.5 billion. The calculation of total consolidated market capitalization does not include 1,085,861 2008 OPP Units because, unlike other LTIP Units, they are not earned until certain return thresholds are achieved. Our total consolidated debt, which excludes debt collateralized by our unconsolidated joint ventures, at June 30, 2008 represented approximately 29.99% of our total consolidated market capitalization. This percentage will fluctuate with changes in the market price of our common units (and therefore with changes in the value of Boston Properties, Inc.’s common stock) and does not necessarily reflect our capacity to incur additional debt to finance our activities or our ability to manage our existing debt obligations. However, for a company like ours, whose assets are primarily income-producing real estate, the consolidated debt to total consolidated market capitalization ratio may provide investors with an alternate indication of leverage, so long as it is evaluated along with other financial ratios and the various components of our outstanding indebtedness.
 
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Debt Financing
As of June 30, 2008, we had approximately $5.5 billion of outstanding consolidated indebtedness, representing 29.99% of our total consolidated market capitalization as calculated above consisting of (1) $1.472 (net of discount) billion in publicly traded unsecured debt having a weighted-average interest rate of 5.95% per annum and maturities in 2013 and 2015; (2) $450 million of publicly traded exchangeable unsecured debt having an interest rate of 3.75% per annum, an initial optional redemption date in 2013 and maturity in 2036; (3) $846.3 million of publicly traded exchangeable unsecured debt having an interest rate of 2.875% per annum (an effective rate of 3.438% per annum) having an initial optional redemption in 2012 and maturing in 2037; (4) $2.5 billion of property-specific mortgage debt having a GAAP weighted-average interest rate of 6.16% per annum and weighted-average term of 5.0 years, and (5) $200 million drawn on our Unsecured Line of Credit. The table below summarizes our mortgage notes payable, our senior unsecured notes and our Unsecured Line of Credit at June 30, 2008:

 	  	June 30	 	
 	  	2008	 	 	2007	 	
 	  	(dollars in thousands)	 	
Debt Summary:	  	 	 	 	 	 	 	 	
Balance	  	 	 	 	 	 	 	 	
Fixed rate mortgage notes payable	  	$	2,306,111	 	 	$	2,785,073	 	
Variable rate mortgage notes payable	  	 	229,385	 	 	 	70,816	 	
Unsecured senior notes, net of discount	  	 	1,472,141	 	 	 	1,471,691	 	
Unsecured exchangeable senior notes, net of discount	  	 	1,296,252	 	 	 	1,292,022	 	
Unsecured Line of Credit	  	 	200,000	 	 	 	—  	 	
 	  	 	 	 	 	 	 	 	
Total	  	$	5,503,889	 	 	$	5,619,602	 	
 	  	 	 	 	 	 	 	 	
Percent of total debt:	  	 	 	 	 	 	 	 	
Fixed rate	  	 	92.20	%	 	 	98.74	%	
Variable rate	  	 	7.80	%	 	 	1.26	%	
 	  	 	 	 	 	 	 	 	
Total	  	 	100.00	%	 	 	100.00	%	
 	  	 	 	 	 	 	 	 	
GAAP weighted-average interest rate at end of period:	  	 	 	 	 	 	 	 	
Fixed rate	  	 	5.52	%	 	 	5.71	%	
Variable rate	  	 	4.31	%	 	 	6.63	%	
 	  	 	 	 	 	 	 	 	
Total	  	 	5.42	%	 	 	5.72	%	
 	  	 	 	 	 	 	 	 	
The variable rate debt shown above bears interest based on various spreads over the London Interbank Offered Rate or Eurodollar rates. As of June 30, 2008, the weighted-average interest rate on our variable rate debt was LIBOR/Eurodollar plus 0.86% per annum. During 2007, we entered into an interest rate swap contract to fix the one-month LIBOR index rate at 4.57% per annum on a notional amount of $96.7 million. The swap contract went into effect on October 22, 2007 and expires on October 29, 2008.
Unsecured Line of Credit
On June 6, 2008, we utilized an accordion feature under our Unsecured Line of Credit with a consortium of lenders to increase the total commitment under the Unsecured Line of Credit from $605.0 million to $923.3 million. On July 21, 2008, we further increased the total commitment to $1.0 billion. All other material terms under the facility remain unchanged. Our Unsecured Line of Credit bears interest at a variable interest rate equal to Eurodollar plus 0.475% per annum and matures on August 3, 2010, with a provision for a one-year extension at our option, subject to certain conditions. The Unsecured Line of Credit is a recourse obligation of BPLP. Under the Unsecured Line of Credit, a facility fee equal to 0.125% per annum is payable in quarterly installments. The interest rate and facility fee are subject to adjustment in the event of a change in our unsecured debt ratings. The Unsecured Line of Credit involves a syndicate of lenders. The Unsecured Line of Credit
 
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contains a competitive bid option that allows banks that are part of the lender consortium to bid to make loan advances to the Company at a negotiated LIBOR-based rate. Our ability to borrow under our Unsecured Line of Credit is subject to our compliance with a number of customary financial and other covenants on an ongoing basis, including:
 
 	•	 	a leverage ratio not to exceed 60%, however the leverage ratio may increase to no greater than 65% provided that it is reduced back to 60% within 180 days;	
 
 	•	 	a secured debt leverage ratio not to exceed 55%;	
 
 	•	 	a fixed charge coverage ratio of at least 1.40;	
 
 	•	 	an unsecured leverage ratio not to exceed 60%, however the leverage ratio may increase to no greater than 65% provided that it is reduced back to 60% within 180 days;	
 
 	•	 	a minimum net worth requirement;	
 
 	•	 	an unsecured debt interest coverage ratio of at least 1.75; and	
 
 	•	 	limitations on permitted investments.	
We believe we are in compliance with the financial and other covenants listed above.
As of June 30, 2008, we had borrowings of $200 million and letters of credit outstanding totaling $91.7 million under the Unsecured Line of Credit, with the ability to borrow $631.6 million. As of August 11, 2008, we have borrowings of $335.0 million outstanding under the Unsecured Line of Credit.
Unsecured Senior Notes
The following summarizes the unsecured senior notes outstanding as of June 30, 2008 (dollars in thousands):

 	  	Coupon/
Stated Rate	 	 	Effective
Rate(1)	 	 	Principal
Amount	 	 	Maturity Date(2)	
10 Year Unsecured Senior Notes	  	6.250	%	 	6.296	%	 	$	750,000	 	 	January 15, 2013	
10 Year Unsecured Senior Notes	  	6.250	%	 	6.280	%	 	 	175,000	 	 	January 15, 2013	
12 Year Unsecured Senior Notes	  	5.625	%	 	5.636	%	 	 	300,000	 	 	April 15, 2015	
12 Year Unsecured Senior Notes	  	5.000	%	 	5.075	%	 	 	250,000	 	 	June 1, 2015	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total principal	  	 	 	 	 	 	 	 	1,475,000	 	 	 	
Net discount	  	 	 	 	 	 	 	 	(2,859	)	 	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	 	 	 	 	 	$	1,472,141	 	 	 	

(1)	Yield on issuance date including the effects of discounts on the notes.	
(2)	No principal amounts are due prior to maturity.	
Our unsecured senior notes are redeemable at our option, in whole or in part, at a redemption price equal to the greater of (i) 100% of their principal amount or (ii) the sum of the present value of the remaining scheduled payments of principal and interest discounted at a rate equal to the yield on U.S. Treasury securities with a comparable maturity plus 35 basis points (the $250 million 12 Year Unsecured Senior Notes that mature on June 1, 2015 are calculated at the U.S. Treasury yield plus 25 basis points), in each case plus accrued and unpaid interest to the redemption date. The indenture under which our senior unsecured notes were issued contains restrictions on incurring debt and using our assets as security in other financing transactions and other customary financial and other covenants, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 50%, (3) an interest coverage ratio of 1.5, and (4) unencumbered asset value to be no less than 150% of our unsecured debt. As of June 30, 2008, we were in compliance with each of these financial restrictions and requirements.
 
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Investment grade ratings on our senior unsecured notes are as follows:

Rating Organization	  	Rating	
Moody’s	  	Baa2 (stable)	
Standard & Poor’s	  	A-(stable)	
Fitch Ratings	  	BBB (stable)	
The security rating is not a recommendation to buy, sell or hold securities, as it may be subject to revision or withdrawal at any time by the rating organization. Each rating should be evaluated independently of any other rating.
Unsecured exchangeable senior notes
3.75% Exchangeable Senior Notes due 2036
On April 6, 2006, we completed a public offering of $400 million in aggregate principal amount of our 3.75% exchangeable senior notes due 2036. On May 2, 2006, we issued an additional $50 million aggregate principal amount of the notes as a result of the exercise by the underwriter of our over-allotment option. The notes mature on May 15, 2036, unless earlier repurchased, exchanged or redeemed.
Upon the occurrence of specified events, holders of the notes may exchange their notes prior to the close of business on the scheduled trading day immediately preceding May 18, 2013 into cash and, at our option, shares of Boston Properties, Inc.’s common stock at an exchange rate of 10.0066 shares per $1,000 principal amount of notes (or an exchange price of approximately $99.93 per share of common stock). The initial exchange rate of 8.9461 shares per $1,000 principal amount of notes and the initial exchange price of approximately $111.78 per share of Boston Properties, Inc.’s common stock were adjusted to 9.3900 and $106.50, respectively, effective as of December 29, 2006 in connection with the special distribution declared on December 15, 2006. In connection with the special distribution declared on December 17, 2007, the exchange rate was further adjusted from 9.3900 to 10.0066 shares per $1,000 principal amount of notes effective as of December 31, 2007, resulting in the current exchange price of approximately $99.93 per share of Boston Properties, Inc.’s common stock. On and after May 18, 2013, the notes will be exchangeable at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date at the option of the holder at the applicable exchange rate. The exchange rate is subject to adjustment in certain circumstances.
Prior to May 18, 2013, we may not redeem the notes except to preserve Boston Properties, Inc.’s status as a REIT. On or after May 18, 2013, we may redeem all or a portion of the notes for cash at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest. We must make at least 12 semi-annual interest payments (including interest payments on November 15, 2006 and May 15, 2013) before redeeming any notes at our option. Note holders may require us to repurchase all or a portion of the notes on May 18, 2013 and May 15 of 2016, 2021, 2026 and 2031 at a purchase price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the repurchase date. We will pay cash for all notes so repurchased.
If we undergo a “fundamental change,” note holders will have the option to require us to purchase all or any portion of the notes at a purchase price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the fundamental change purchase date. We will pay cash for all notes so purchased. In addition, if a fundamental change occurs prior to May 18, 2013, we will increase the exchange rate for a holder who elects to exchange its notes in connection with such a fundamental change under certain circumstances.
2.875% Exchangeable Senior Notes due 2037
On February 6, 2007, we completed an offering of $862.5 million in aggregate principal amount (including $112.5 million as a result of the exercise by the initial purchasers of their over-allotment option) of our 2.875% exchangeable senior notes due 2037. The notes were priced at 97.433333% of their face amount, resulting in an
 
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effective interest rate of approximately 3.438% per annum and net proceeds to us of approximately $840.0 million. The notes mature on February 15, 2037, unless earlier repurchased, exchanged or redeemed.
Upon the occurrence of specified events, holders of the notes may exchange their notes prior to the close of business on the scheduled trading day immediately preceding February 20, 2012 into cash and, at our option, shares of Boston Properties, Inc.’s common stock at an exchange rate of 7.0430 shares per $1,000 principal amount of notes (or an exchange price of approximately $141.98 per share of Boston Properties, Inc.’s common stock). In connection with the special distribution declared on December 17, 2007, the initial exchange rate of 6.6090 was adjusted to 7.0430 shares per $1,000 principal amount of notes effective as of December 31, 2007, resulting in an exchange price of approximately $141.98 per share of Boston Properties, Inc.’s common stock. On and after February 20, 2012, the notes will be exchangeable at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date at the option of the holder at the applicable exchange rate. The initial exchange rate is subject to adjustment in certain circumstances.
Prior to February 20, 2012, we may not redeem the notes except to preserve Boston Properties, Inc.’s status as a REIT. On or after February 20, 2012, we may redeem all or a portion of the notes for cash at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest. Note holders may require us to repurchase all or a portion of the notes on February 15 of 2012, 2017, 2022, 2027 and 2032 at a purchase price equal to 100% of the principal amount plus accrued and unpaid interest up to, but excluding, the repurchase date. We will pay cash for all notes so repurchased.
If we undergo a “fundamental change,” note holders will have the option to require us to purchase all or any portion of the notes at a purchase price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the fundamental change purchase date. We will pay cash for all notes so purchased. In addition, if a fundamental change occurs prior to February 20, 2012, we will increase the exchange rate for a holder who elects to exchange its notes in connection with such a fundamental change under certain circumstances.
 
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Mortgage Notes Payable
The following represents the outstanding principal balances due under the mortgages notes payable at June 30, 2008:

Properties	 	GAAP
Interest Rate(1)	 	 	Principal
Amount	 	 	Maturity Date	
 	 	 	 	 	(in thousands)	 	 	 	
599 Lexington Avenue	 	5.41	%	 	$	750,000	(2)(3)	 	March 1, 2017	
Citigroup Center	 	7.24	%	 	 	480,972	(4)	 	May 11, 2011	
Embarcadero Center One and Two	 	6.74	%	 	 	275,824	 	 	December 10, 2008	
South of Market	 	5.28	%	 	 	168,468	(3)(5)	 	November 21, 2009	
505 9th Street	 	5.87	%	 	 	130,000	 	 	November 1, 2017	
One Freedom Square	 	5.34	%	 	 	74,779	(6)	 	June 30, 2012	
New Dominion Tech Park, Bldg. Two	 	5.58	%	 	 	63,000	(3)	 	October 1, 2014	
202, 206 & 214 Carnegie Center	 	8.22	%	 	 	57,767	 	 	October 1, 2010	
140 Kendrick Street	 	5.25	%	 	 	56,271	(7)	 	July 1, 2013	
New Dominion Tech. Park, Bldg. One	 	7.84	%	 	 	53,315	(3)	 	January 15, 2021	
Wisconsin Place Office	 	4.12	%	 	 	53,173	(3)(8)	 	January 29, 2011	
1330 Connecticut Avenue	 	4.74	%	 	 	51,539	(9)	 	February 26, 2011	
Reservoir Place	 	5.84	%	 	 	49,531	(10)	 	July 1, 2009	
Kingstowne Two and Retail	 	5.61	%	 	 	42,423	(11)	 	January 1, 2016	
10 and 20 Burlington Mall Road	 	7.31	%	 	 	35,060	(12)	 	October 1, 2011	
Ten Cambridge Center	 	8.35	%	 	 	31,023	 	 	May 1, 2010	
Sumner Square	 	7.54	%	 	 	26,595	 	 	September 1, 2013	
Montvale Center	 	6.07	%	 	 	25,000	(3)	 	June 6, 2012	
Eight Cambridge Center	 	7.74	%	 	 	24,115	 	 	July 15, 2010	
1301 New York Avenue	 	7.24	%	 	 	22,536	(13)	 	August 15, 2009	
Kingstowne One	 	5.68	%	 	 	20,091	(14)	 	May 5, 2013	
University Place	 	6.99	%	 	 	19,885	 	 	August 1, 2021	
Bedford Business Park	 	8.60	%	 	 	16,385	 	 	December 10, 2008	
Democracy Tower (formerly South of Market–Phase II)	 	4.43	%	 	 	7,744	 	 	December 19, 2010	
 	 	 	 	 	 	 	 	 	 	
Total	 	 	 	 	$	2,535,496	 	 	 	

(1)	GAAP interest rate differs from the stated interest rate due to the inclusion of the amortization of financing charges and adjustments required by EITF 98-1. All adjustments related to EITF 98-1 are noted below.	
(2)	On December 19, 2006, we terminated the forward-starting interest rate swap contracts related to this financing and received approximately $10.9 million, which amount will reduce our interest expense for this mortgage over the term of the financing, resulting in an effective interest rate of 5.38% per annum for the financing. The stated interest rate is 5.57% per annum. The mortgage loan requires interest only payments with a balloon payment due at maturity.	
(3)	The mortgage loan requires interest only payments with a balloon payment due at maturity.	
(4)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon redemption of the outside members’ equity interest in the limited liability company that owns the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $479.2 million and the stated interest rate was 7.19%.	
(5)	The construction financing bears interest at a variable rate equal to LIBOR plus 1.25% per annum. In addition, we entered into an interest rate swap contract to fix the one-month LIBOR index rate at 4.57% per annum plus 1.25% on a notional amount of $96.7 million. The swap contract went into effect on October 22, 2007 and expires on October 29, 2008.	
(6)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon acquisition of the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $70.4 million and the stated interest rate was 7.75% per annum.	
 
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(7)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon acquisition of the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $52.4 million and the stated interest rate was 7.51% per annum.	
(8)	The construction financing bears interest at a variable rate equal to LIBOR plus 1.25% per annum.	
(9)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon acquisition of the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $48.1 million and the stated interest rate was 7.58% per annum.	
(10)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon acquisition of the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $49.0 million and the stated interest rate was 7.0% per annum.	
(11)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon acquisition of the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $41.4 million and the stated interest rate was 5.99% per annum.	
(12)	Includes outstanding indebtedness secured by 91 Hartwell Avenue.	
(13)	Includes outstanding principal in the amounts of $17.8 million, $3.3 million and $1.4 million which bear interest at fixed rates of 6.70%, 8.54% and 6.75% per annum, respectively.	
(14)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon acquisition of the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $19.7 million and the stated interest rate was 5.96% per annum.	
Off Balance Sheet Arrangements- Joint Venture Indebtedness
We have investments in nine unconsolidated joint ventures (including our investment in the Value-Added Fund) with our effective ownership interests ranging from 5% to 60%. Eight of these ventures have mortgage indebtedness. We exercise significant influence over, but do not control, these entities and therefore they are presently accounted for using the equity method of accounting. See also Note 4 to the Consolidated Financial Statements. At June 30, 2008, the aggregate debt, including both ours and our partners’ share, incurred by these ventures was approximately $2.610 billion. The table below summarizes the outstanding debt of these joint venture properties at June 30, 2008:

Properties	  	Venture
Ownership %	 	 	GAAP
Interest Rate	 	 	Principal Amount	 	 	Maturity Date	
 	  	(in thousands)	
General Motors Building	  	 	 	 	 	 	 	 	 	 	 	 	
Secured 1st Mortgage	  	60	%	 	6.50	%	 	$	1,243,918	(1)	 	October 7, 2017	
Mezzanine Loan	  	60	%	 	8.00	%	 	 	261,247	(2)(3)	 	October 7, 2017	
Partner Loans	  	60	%	 	11.00	%	 	 	450,000	(4)	 	June 9, 2017	
Metropolitan Square	  	51	%	 	8.23	%	 	 	127,707	 	 	May 1, 2010	
Market Square North	  	50	%	 	7.74	%	 	 	86,806	 	 	December 19, 2010	
Eighth Avenue and 46th Street	  	50	%	 	8.34	%	 	 	23,600	(5)	 	May 8, 2009	
Annapolis Junction	  	50	%	 	4.77	%	 	 	28,833	 	 	September 12, 2010	
Mountain View Tech. Park	  	39.5	%	 	4.50	%	 	 	24,000	(6)(7)	 	March 31, 2011	
Mountain View Research Park	  	39.5	%	 	7.46	%	 	 	103,000	(6)(8)	 	May 31, 2011	
901 New York Avenue	  	25	%	 	5.27	%	 	 	169,005	 	 	January 1, 2015	
One & Two Circle Star Way	  	25	%	 	6.57	%	 	 	42,000	(6)	 	September 1, 2013	
300 Billerica Road	  	25	%	 	5.69	%	 	 	7,500	(6)	 	January 1, 2016	
Wisconsin Place Retail	  	5	%	 	6.36	%	 	 	42,524	(9)	 	March 29, 2010	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Total	  	 	 	 	 	 	 	$	2,610,140	 	 	 	

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(1)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon acquisition of the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $1.3 billion and the stated interest rate was 5.95% per annum.	
(2)	In accordance with EITF 98-1, the principal amount and interest rate shown were adjusted upon acquisition of the property to reflect the fair value of the note. The stated principal balance at June 30, 2008 was $306.0 million and the stated interest rate was 6.02% per annum.	
(3)	Principal amount does not include the assumed mezzanine loan with an aggregate principal amount of $294.0 million and a stated rate of 6.02% per annum, as the venture acquired the lenders’ interest in this loan for a purchase price of approximately $263.1 million in cash.	
(4)	In connection with the capitalization of the joint venture, loans in an aggregate of $450.0 million were funded by the venture’s partners on a pro-rata basis. Our share of the partner loans totaling $270.0 million has been reflected in Related Party Note Receivable on our Consolidated Balance Sheets.	
(5)	The financing bears interest at a variable rate equal to LIBOR plus 2.25% per annum. On May 8, 2008, the maturity date of the loan was extended to May 8, 2009.	
(6)	This property is owned by the Value-Added Fund.	
(7)	The mortgage bears interest at a variable rate of LIBOR plus 1.50% and matures on March 31, 2011 with two, one-year extension options. The Value-Added Fund has entered into an interest rate swap contract to fix the one-month LIBOR index rate at 4.085% per annum on a notional amount of $24 million. The swap contract went into effect on June 12, 2008 and expires on March 31, 2011.	
(8)	The mortgage bears interest at a variable rate of LIBOR plus 1.75% and matures on May 31, 2011 with two, one-year extension options. The Value-Added Fund has entered into three interest rate swap contracts to fix the one-month LIBOR index rate at 3.63% per annum on an aggregate notional amount of $103 million. The swap contracts went into effect on June 2, 2008 and expire on April 1, 2011.	
(9)	Amount represents outstanding construction financing under a $66.0 million loan commitment collateralized by the retail entity of Wisconsin Place. Wisconsin Place is a mixed-use development project consisting of office, retail and residential properties located in Chevy Chase, Maryland. The construction financing bears interest at a variable rate equal to LIBOR plus 1.375% per annum and matures on March 29, 2010 with two one-year extension options.	
State and Local Tax Matters
Because Boston Properties, Inc. is organized and qualifies as a REIT, it is generally not subject to federal income taxes, but subject to certain state and local taxes. In the normal course of business, certain entities through which we own real estate either have undergone, or are currently undergoing, tax audits or other inquiries. Although we believe that we have substantial arguments in favor of our positions in the ongoing audits, in some instances there is no controlling precedent or interpretive guidance on the specific point at issue. Collectively, tax deficiency notices received to date from the jurisdictions conducting the ongoing audits have not been material. However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations.
Insurance
We carry insurance coverage on our properties of types and in amounts and with deductibles that we believe are in line with coverage customarily obtained by owners of similar properties. In response to the uncertainty in the insurance market following the terrorist attacks of September 11, 2001, the Federal Terrorism Risk Insurance Act (as amended, “TRIA”) was enacted in November 2002 to require regulated insurers to make available coverage for certified acts of terrorism (as defined by the statute). The expiration date of TRIA was extended to December 31, 2014 by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”). Prior to TRIPRA, only acts of foreign terrorism could be “certified” for coverage under TRIA. Under TRIPRA, acts of both foreign and domestic terrorism can be “certified” for coverage under TRIA. Currently, the Company’s
 
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property insurance program per occurrence limits are $1 billion for our portfolio insurance program, including coverage for both foreign and domestic acts of terrorism “certified” under TRIA. We currently insure certain properties, including the General Motors Building located at 767 Fifth Avenue in New York, New York (“767 Fifth Avenue”), in a separate stand alone insurance program. The property insurance program per occurrence limits for 767 Fifth Avenue are $1.625 billion, including coverage for both foreign and domestic acts of terrorism “certified” under TRIA, with $1.375 billion of coverage for losses in excess of $250 million being provided by NYXP, LLC, as a direct insurer. We also currently carry nuclear, biological, chemical and radiological terrorism insurance coverage (“NBCR Coverage”) for both foreign and domestic acts of terrorism “certified” under TRIA, which is provided by IXP, LLC as a direct insurer, excluding our Value-Added Fund properties and 767 Fifth Avenue. The per occurrence limit for NBCR Coverage is $1 billion. Under TRIA, after the payment of the required deductible and coinsurance, the NBCR Coverage is backstopped by the Federal Government if the aggregate industry insured losses resulting from a certified act of terrorism exceed a “program trigger.” The program trigger is $100 million and the coinsurance is 10%. Under TRIPRA, if the Federal Government pays out for a loss under TRIA, it is mandatory that the Federal Government recoup the full amount of the loss from insurers offering TRIA coverage after the payment of the loss pursuant to a formula in TRIPRA. We may elect to terminate the NBCR Coverage if the Federal Government seeks recoupment for losses paid under TRIA, if there is a change in our portfolio or for any other reason. We intend to continue to monitor the scope, nature and cost of available terrorism insurance and maintain insurance in amounts and on terms that are commercially reasonable.
We also currently carry earthquake insurance on our properties located in areas known to be subject to earthquakes in an amount and subject to self-insurance that we believe are commercially reasonable. In addition, this insurance is subject to a deductible in the amount of 5% of the value of the affected property. Specifically, we currently carry earthquake insurance which covers our San Francisco region with a $120 million per occurrence limit and a $120 million annual aggregate limit, $20 million of which is provided by IXP, LLC, as a direct insurer. The amount of our earthquake insurance coverage may not be sufficient to cover losses from earthquakes. In addition, the amount of earthquake coverage could impact our ability to finance properties subject to earthquake risk. We may discontinue earthquake insurance on some or all of our properties in the future if the premiums exceed our estimation of the value of the coverage.
In January 2002, we formed a wholly-owned taxable REIT subsidiary, IXP, Inc., to act as a captive insurance company and be one of the elements of our overall insurance program. On September 27, 2006, IXP, Inc. was merged into IXP, LLC, a wholly-owned subsidiary, and all insurance policies issued by IXP, Inc. were cancelled and reissued by IXP, LLC. The term “IXP” refers to IXP, Inc. for the period prior to September 27, 2006 and to IXP, LLC for the period on and subsequent to September 27, 2006. IXP acts as a direct insurer with respect to a portion of our earthquake insurance coverage for our Greater San Francisco properties and our NBCR Coverage for foreign and domestic acts of terrorism “certified” under TRIA. In May 2008, we formed a wholly-owned subsidiary, NYXP, LLC (“NYXP”), to act as a captive insurance company and be one of the elements of our insurance program for 767 Fifth Avenue. NYXP acts as a direct insurer with respect to a portion of our coverage for both foreign and domestic acts of terrorism “certified” under TRIA for 767 Fifth Avenue. Currently, NYXP only insures losses which exceed the program trigger under TRIA and NYXP reinsures with a third-party insurance company any coinsurance payable under TRIA. Insofar as we own IXP and NYXP, we are responsible for their liquidity and capital resources, and the accounts of IXP and NYXP are part of our consolidated financial statements. In particular, if a loss occurs which is covered by our NBCR Coverage but is less than the applicable program trigger under TRIA, IXP would be responsible for the full amount of the loss without any backstop by the Federal Government. IXP and NYXP would also be responsible for any recoupment charges by the Federal Government in the event losses are paid out and their insurance policies are maintained after the payout by the Federal Government. If we experience a loss and IXP or NYXP are required to pay under their insurance policies, we would ultimately record the loss to the extent of the required payment. Therefore, insurance coverage provided by IXP and NYXP should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance.
 
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We continue to monitor the state of the insurance market in general, and the scope and costs of coverage for acts of terrorism in particular, but we cannot anticipate what coverage will be available on commercially reasonable terms in future policy years. There are other types of losses, such as from wars or the presence of mold at our properties, for which we cannot obtain insurance at all or at a reasonable cost. With respect to such losses and losses from acts of terrorism, earthquakes or other catastrophic events, if we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties, as well as the anticipated future revenues from those properties. Depending on the specific circumstances of each affected property, it is possible that we could be liable for mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect our business and financial condition and results of operations.
Funds from Operations
Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), we calculate Funds from Operations, or “FFO,” by adjusting net income (loss) (computed in accordance with GAAP, including non-recurring items) for gains (or losses) from sales of properties, real estate related depreciation and amortization, and after adjustment for unconsolidated joint ventures and preferred distributions. FFO is a non-GAAP financial measure. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for reviewing our comparative operating and financial performance because, by excluding gains and losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company’s real estate between periods or as compared to different companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our performance. FFO does not represent cash generated from operating activities determined in accordance with GAAP and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance, FFO should be compared with our reported net income and considered in addition to cash flows in accordance with GAAP, as presented in our Consolidated Financial Statements.
 
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The following table presents a reconciliation of net income available to common unitholders to FFO for the three months ended June 30, 2008 and 2007:

 	  	Three Months Ended
June 30,	
 	  	2008	  	2007	
 	  	(in thousands)	
Net income available to common unitholders	  	$	95,368	  	$	122,519	
Add:	  	 	 	  	 	 	
Minority interests in property partnerships	  	 	420	  	 	—  	
Preferred distribution and allocation of undistributed earnings	  	 	1,072	  	 	1,557	
Less:	  	 	 	  	 	 	
Income from unconsolidated joint ventures	  	 	1,855	  	 	17,268	
Gains on sales of real estate	  	 	6,203	  	 	—  	
Income from discontinued operations	  	 	—  	  	 	1,589	
Gains on sales of real estate from discontinued operations	  	 	—  	  	 	14,455	
 	  	 	 	  	 	 	
Income before minority interests in property partnerships, income from unconsolidated joint ventures gains on sales of real estate and discontinued operations	  	 	88,802	  	 	90,764	
Add:	  	 	 	  	 	 	
Real estate depreciation and amortization(1)	  	 	80,841	  	 	74,343	
Income from discontinued operations	  	 	—  	  	 	1,589	
Income from unconsolidated joint ventures(2)	  	 	1,855	  	 	1,815	
Less:	  	 	 	  	 	 	
Minority interest in the Property Partnership’s share of Funds from Operations	  	 	928	  	 	—  	
Preferred distributions	  	 	949	  	 	1,084	
 	  	 	 	  	 	 	
Funds from Operations available to common unitholders	  	$	169,621	  	$	167,427	
 	  	 	 	  	 	 	
Weighted-average units outstanding—basic	  	 	140,086	  	 	139,336	
 
(1)	Real estate depreciation and amortization consists of depreciation and amortization from the Consolidated Statements of Operations of $72,392 and $72,000, our share of unconsolidated joint venture real estate depreciation and amortization of $8,972 and $2,085 and depreciation and amortization from discontinued operations of $0 and $700 less corporate related depreciation and amortization of $523 and $442 for the three months ended June 30, 2008 and 2007, respectively.	
(2)	Excludes approximately $15.5 million related to our share of the gain on sale and related loss from early extinguishment of debt associated with the sale of Worldgate Plaza for the three months ended June 30, 2007.	
Reconciliation to Diluted Funds from Operations:

 	  	Three Months Ended
June 30, 2008	  	Three Months Ended
June 30, 2007	
 	  	Income
(Numerator)	  	Units
(Denominator)	  	Income
(Numerator)	  	Units
(Denominator)	
 	  	(in thousands)	  	(in thousands)	
Basic FFO	  	$	169,621	  	140,086	  	$	167,427	  	139,336	
Effect of Dilutive Securities	  	 	 	  	 	  	 	 	  	 	
Convertible Preferred Units	  	 	949	  	1,461	  	 	1,084	  	1,676	
Stock Options and Exchangeable Notes	  	 	—  	  	1,562	  	 	—  	  	2,023	
 	  	 	 	  	 	  	 	 	  	 	
Diluted FFO	  	$	170,570	  	143,109	  	$	168,511	  	143,035	

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Contractual Obligations
We have various standing or renewable service contracts with vendors related to our property management. In addition, we have certain other utility contracts we enter into in the ordinary course of business which may extend beyond one year, which vary based on usage. These contracts include terms that provide for cancellation with insignificant or no cancellation penalties. Contract terms are generally one year or less.
In connection with the sale of 280 Park Avenue, we entered into a master lease agreement with the buyer at closing. Under the master lease agreement, we guaranteed that the buyer will receive at least a minimum amount of base rent from approximately 74,340 square feet of space during the ten-year period following the expiration of the leases for this space. The leases for this space expired at various times between June 2006 and October 2007. The aggregate amount of base rent we have guaranteed over the entire period from 2006 to 2017 is approximately $67.3 million. Our guarantee obligations, which are in the form of base rent payments to the buyer, will be reduced by the amount of base rent payable, whether or not actually paid, under qualifying leases for this space that we obtain from prospective tenants. We will remain responsible for any free rent periods. The buyer will bear all customary leasing costs for this space, including tenant improvements and leasing commissions. Our remaining master lease obligation as of June 30, 2008 is approximately $1.8 million which is included in Other Liabilities within our Consolidated Balance Sheet.
Under the purchase and sale agreement for 280 Park Avenue, we also agreed to provide to the buyer fixed monthly revenue support from the closing date until December 31, 2008. The aggregate amount of the revenue support payments is approximately $22.5 million and has been recorded as a purchase price adjustment and included in Other Liabilities within our Consolidated Balance Sheets. As of June 30, 2008, the remaining revenue support obligation totaled approximately $3.1 million.
On May 31, 2007 and June 15, 2007, we paid an aggregate of $25.0 million in connection with the agreement entered into in May 2006 to redeem the outside members’ equity interest in the limited liability company that owns Citigroup Center. The remaining unpaid redemption price, which was to be paid on May 31, 2008 and has been extended to August 31, 2008 and is reflected in Other Liabilities in our Consolidated Balance Sheets and totaled $25.0 million at June 30, 2008.
On May 23, 2008, we entered into an agreement to acquire 540 Madison Avenue, 125 West 55th Street and Two Grand Central, also located in New York City. We expect to acquire these properties through joint ventures in each of which we will own a 60% interest. 540 Madison Avenue is a 39-story building located at Madison Avenue at 55th Street that contains approximately 292,000 rentable square feet. 125 West 55th Street is a 23-story building, spanning from 55th to 56th Streets between Avenue of the Americas and Seventh Avenue, that contains approximately 591,000 rentable square feet. Two Grand Central Tower is a 44-story mid-block tower that runs from 44th to 45th Street between Lexington and Third Avenue and contains approximately 664,000 rentable square feet. The purchase prices for these properties, including assumed debt, are: 540 Madison Avenue, $277.1 million; 125 West 55th Street, $444.0 million; and Two Grand Central Tower, $427.9 million. The debt that is expected to be assumed as part of the transactions consists of the following: 540 Madison Avenue-two secured loans having an aggregate principal amount of $120 million and a weighted-average interest rate of 5.28% per annum, each of which matures in July 2013; 125 West 55th Street-an aggregate principal amount of $263.5 million of secured and mezzanine loans having a weighted-average interest rate of 6.31% per annum, all of which mature in March 2010; and Two Grand Central Tower-a $190 million secured loan having a per annum interest rate of 5.10%, which matures in July 2010. Upon the closing of the General Motors Building, the deposit on these assets (which is in the form of letters of credit) was increased by an aggregate of $20 million, bringing the total remaining deposit to $75 million. The closings of the remaining acquisitions are subject to customary conditions and termination rights for transactions of this type. There can be no assurance that the closings will occur on the terms currently contemplated or at all.
 
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Newly Issued Accounting Standards
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value and establishes a framework for measuring fair value, which includes a hierarchy based on the quality of inputs used to measure fair value. SFAS No. 157 also expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 requires the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs. SFAS No. 157 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. The levels of the SFAS No. 157 fair value hierarchy are described as follows:
 
 	•	 	Level 1—Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.	
 
 	•	 	Level 2—Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.	
 
 	•	 	Level 3—Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.	
SFAS No. 157 became effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB deferred the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. The FASB also removed certain leasing transactions from the scope of SFAS No. 157. On January 1, 2008, we adopted SFAS No. 157. We have financial instruments consisting of investments in securities and interest rate contracts that are required to be measured under SFAS No. 157. We currently do not have any non-financial assets or non-financial liabilities that are required to be measured under SFAS No. 157. We do not have any fair value measurements using significant unobservable inputs (Level 3) as of June 30, 2008.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses shall be reported on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 became effective for fiscal years beginning after November 15, 2007. On January 1, 2008, we adopted SFAS No. 159 and have currently not elected to measure any financial instruments or other items (not currently required to be measured at fair value) at fair value.
In March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”). SFAS No. 161 amends and expands
 
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the disclosure requirements of SFAS No. 133 with the intent to provide users of financial statements with an enhanced understanding of how derivative instruments and hedging activities affect an entity’s financial position, financial performance and cash flows. These disclosure requirements include a tabular summary of the fair values of derivative instruments and their gains and losses, disclosure of derivative features that are credit risk related to provide more information regarding an entity’s liquidity and cross-referencing within footnotes to make it easier for financial statement users to locate important information about derivative instruments. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008 with early application encouraged. We do not expect the adoption of SFAS No. 161 to have a material impact to us.
On May 9, 2008, the FASB issued FASB Staff Position No. APB 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP No. APB 14-1”) that requires the liability and equity components of convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) to be separately accounted for in a manner that reflects the issuer’s nonconvertible debt borrowing rate. FSP No. APB 14-1 requires that the initial debt proceeds from the sale of our $862.5 million of 2.875% exchangeable senior notes due 2037 and $450.0 million of 3.75% exchangeable senior notes due 2036 be allocated between a liability component and an equity component in a manner that reflects interest expense at the interest rate of similar nonconvertible debt. The resulting debt discount will be amortized over the period during which the debt is expected to be outstanding (i.e., through the first optional redemption dates) as additional non-cash interest expense. Based on our understanding of the application of FSP No. APB 14-1, this will result in an aggregate of approximately $0.13 – $0.14 per share (net of incremental capitalized interest) of additional non-cash interest expense for fiscal 2008. Excluding the impact of capitalized interest, the additional non-cash interest expense will be approximately $0.15 – $0.16 per share for fiscal 2008, and this amount (before netting) will increase in subsequent reporting periods through the first optional redemption dates as the debt accretes to its par value over the same period. FSP No. APB 14-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is not permitted. Upon adoption, FSP No. APB 14-1 requires companies to retrospectively apply the requirements of the pronouncement to all periods presented. Our current estimate of the incremental interest expense for each reporting period is as follows:

For the year ended December 31:	  	Amount	
 	  	(in thousands)	
2006	  	$	4,154	
2007	  	 	19,327	
2008	  	 	22,381	
2009	  	 	23,814	
2010	  	 	25,336	
2011	  	 	26,950	
2012	  	 	11,704	
2013	  	 	3,653	
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”), which is intended to improve financing reporting by identifying a consistent framework or hierarchy for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s (“SEC”) approval of the Public Company Accounting Oversight Board amendment to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” We do not expect the adoption of SFAS No. 162 to have a material impact on us.
 
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In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” (“FSP EITF 03-06-1”). FSP EITF 03-06-1 clarifies that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of EPS pursuant to the two-class method. FSP EITF 03-06-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. All prior-period EPS data presented shall be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of the FSP. Early application is not permitted. We are currently assessing the potential impact that the adoption of FSP EITF 03-06-1 will have on our results of operations.
ITEM 3—Quantitative and Qualitative Disclosures about Market Risk
Approximately $5.3 billion of our consolidated borrowings bear interest at fixed rates, and therefore the fair value of these instruments is affected by changes in the market interest rates. As of June 30, 2008, the weighted-average interest rate on our variable rate debt was LIBOR/Eurodollar plus 0.86% (4.31%) per annum. The following table presents our aggregate fixed rate debt obligations with corresponding weighted-average interest rates sorted by maturity date and our aggregate variable rate debt obligations sorted by maturity date. The table below does not include our unconsolidated joint venture debt. For a discussion concerning our unconsolidated joint venture debt, refer to Note 4 to the Consolidated Financial Statements and “Item 2. – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off Balance Sheet Arrangements – Joint Venture Indebtedness.”

 	  	2008	 	 	2009	 	 	2010	 	 	2011	 	 	2012	 	 	2013+	 	 	Total	 	 	Fair Value	
 	  	Secured debt	
 	  	(dollars in thousands)	
Fixed Rate	  	$	306,209	 	 	$	95,442	 	 	$	132,870	 	 	$	545,153	 	 	$	99,672	 	 	$	1,126,765	 	 	$	2,306,111	 	 	$	2,335,106	
Average Interest Rate	  	 	6.84	%	 	 	6.38	%	 	 	7.86	%	 	 	7.02	%	 	 	3.62	%	 	 	5.64	%	 	 	6.28	%	 	 	 	
Variable Rate	  	 	—  	 	 	 	168,468	 	 	 	7,744	 	 	 	53,173	 	 	 	—  	 	 	 	—  	 	 	 	229,385	 	 	 	229,385	
 	 	
 	  	Unsecured debt	
Fixed Rate	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	$	1,472,141	 	 	$	1,472,141	 	 	$	1,436,845	
Average Interest Rate	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	5.95	%	 	 	5.95	%	 	 	 	
Variable Rate	  	 	—  	 	 	 	—  	 	 	 	200,000	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	200,000	 	 	 	200,000	
 	 	
 	  	Unsecured exchangeable debt	
Fixed Rate	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	846,252	 	 	$	450,000	 	 	$	1,296,252	 	 	$	1,314,750	
Average Interest Rate	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	3.46	%	 	 	3.79	%	 	 	3.55	%	 	 	 	
Variable Rate	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	—  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt	  	$	306,209	 	 	$	263,910	 	 	$	340,614	 	 	$	598,326	 	 	$	945,924	 	 	$	3,048,906	 	 	$	5,503,889	 	 	$	5,086,701	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
During 2007, we commenced an interest rate hedging program for our expected financing activity in 2008 and entered into 11 treasury locks based on a weighted-average 10-year treasury rate of 4.68% per annum on notional amounts aggregating $375.0 million. Nine of the treasury locks with notional amounts aggregating $325.0 million matured on April 1, 2008. The remaining two treasury locks with notional amounts aggregating $50.0 million matured on July 31, 2008. In addition, we entered into five forward-starting interest rate swap contracts to lock the 10-year LIBOR swap rate on notional amounts aggregating $150.0 million at a weighted-average forward-starting 10-year swap rate of 5.19% per annum. The 10-year treasury rate is a component of the 10-year swap rate and the swap contracts effectively fixed the 10-year treasury rate at a weighted-average interest rate of 4.51% per annum. The swap contracts go into effect on July 31, 2008 and expire on July 31, 2018. The contracts have effectively fixed the 10-year treasury rate at a weighted-average interest rate of 4.63% per annum
 
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on notional amounts aggregating $525.0 million. We entered into the treasury locks and interest rate swap contracts designated and qualifying as cash flow hedges to reduce our exposure to the variability in future cash flows attributable to changes in the hedged rate in contemplation of obtaining ten-year fixed-rate financings in 2008. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), as amended and interpreted, establishes accounting and reporting standards for derivative instruments. We have formally documented all of the relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking various hedge transactions. We also assess and document, both at the hedging instrument’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. All components of the treasury locks and forward-starting interest rate swap contracts were included in the assessment of hedge effectiveness.
We had expected a financing to occur on or about April 1, 2008 in conjunction with the payoff of our mortgage loan on Prudential Center totaling $258.2 million, but instead elected to repay the maturing loan with available cash balances temporarily due to the dislocation in the capital markets, which caused credit spreads to be unattractively wide. We still anticipate completing a replacement financing, in addition to additional financing activity, later in the year to replace our maturing debt. As a result of the changes in our financing plans, we determined our best estimate of the date of our projected financings to be later in 2008. In accordance with SFAS No. 133, this change in turn required that we re-assess hedge effectiveness for all components of each interest rate contract’s gain or loss, including the treasury locks we settled on April 1, 2008. As a result, during the six months ended June 30, 2008, we recognized a net derivative loss of approximately $3.5 million representing the partial ineffectiveness of the interest rate contracts. We have recorded a reduction in fair value of the treasury lock and swap contracts related to the effective portion totaling approximately $38.1 million in Accumulated Other Comprehensive Loss within the Consolidated Balance Sheets. On April 1, 2008, we cash-settled at maturity nine of the treasury lock contracts with notional amounts aggregating $325.0 million and made cash payments to the counterparties totaling approximately $33.5 million. Based on interest rates in effect as of June 30, 2008 and assuming we complete financing transactions in accordance with our current plans, we expect that within the next twelve months we will reclassify into earnings as an increase in interest expense approximately $2.7 million of the amounts recorded within Accumulated Other Comprehensive Loss relating to the treasury locks and forward-starting interest rate swap contracts. If the forecasted financing transactions do not occur by the anticipated date or in the additional time period permitted by SFAS No. 133, we may be required to recognize net investment gains or losses which represent the ineffective portion of our cash flow hedges, the amount of which will depend on market conditions and may be material.
If the 10-year treasury rate is below the fixed strike rate at the time we settle each contract, we would be required to make a payment to the contract counterparties; if the 10-year treasury rate is above the fixed strike rate at the time we cash settle each contract, we would receive a payment from the contract counterparties. The amount that we either pay or receive will equal the present value of the basis point differential between the applicable fixed strike rate and the 10-year treasury rate at the time we settle each contract. If the 10-year swap rate is below the fixed strike rate at the time we settle each contract, we would be required to make a payment to the contract counter-parties; if the 10-year swap rate is above the fixed strike rate at the time we cash settle each contract, we would receive a payment from the contract counterparties. The amount that we either pay or receive will equal the present value of the basis point differential between the applicable fixed strike rate and the 10-year swap rate at the time we settle each contract. We believe that these contracts qualify as highly-effective cash flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended.
On September 27, 2007, we entered into an interest rate swap contract to fix the one-month LIBOR index rate (including a 1.25% spread), at 5.82% per annum on a notional amount of $96.7 million. The swap contract went into effect on October 22, 2007 and expires on October 29, 2008.
 
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If market interest rates had been 100 basis points greater at June 30, 2008, then the liability associated with our outstanding treasury lock and swap contracts would have decreased by approximately $16.0 million resulting in an asset value equal to approximately $7.9 million. If market interest rates had been 100 basis points lower at June 30, 2008, then the liability associated with our outstanding treasury lock and swap contracts would have increased by approximately $17.4 million.
At June 30, 2008, our outstanding variable rate debt based on LIBOR totaled approximately $429.3 million. Approximately $96.7 million of this debt has been effectively fixed at 5.82% due to the interest rate swap contract we entered into in September 2007, as described above. At June 30, 2008, the interest rate on our unhedged variable rate debt was approximately 4.97%. If market interest rates on our variable rate debt had been 100 basis points greater, total interest expense would have increased approximately $1.6 million for the six months ended June 30, 2008.
These amounts were determined solely by considering the impact of hypothetical interest rates on our financial instruments. Due to the uncertainty of specific actions we may undertake to minimize possible effects of market interest rate increases, this analysis assumes no changes in our financial structure.
ITEM 4—Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, the management of Boston Properties, Inc., with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer of Boston Properties, Inc. concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in Internal Control Over Financial Reporting. No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the second quarter of our fiscal year ending December 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
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PART II. OTHER INFORMATION
ITEM 1—Legal Proceedings.
We are subject to legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. Boston Properties, Inc. believes that the final outcome of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.
ITEM 1A—Risk Factors.
There were no material changes to the risk factors disclosed in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2007, except to the extent previously updated or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors (including, without limitation, the matters discussed in Part I, “Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations—Update on Recent Regulatory Initiatives”). In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on the Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
ITEM 2—Unregistered Sales of Equity Securities and Use of Proceeds.
(a) On May 12, 2008, we issued 150,000 OP Units as partial consideration for the acquisition of the remaining development rights at 250 West 55th Street in New York, NY. We issued the units in reliance on an exemption form registration under Section 4(2) of the Securities Act of 1933, as amended, based upon factual representations received from the limited partner who received the OP Units.
On June 9, 2008, we issued 102,883 OP Units as partial consideration for the acquisition through a joint venture of the General Motors Building in New York, NY. We issued the units in reliance on an exemption form registration under Section 4(2) of the Securities Act of 1933, as amended, based upon factual representations received from the limited partner who received the OP Units.
Each time Boston Properties, Inc. issues shares of stock (other than in exchange for common units when such common units are presented for redemption), it contributes the proceeds of such issuance to us in return for an equivalent number of partnership units with rights and preferences analogous to the shares issued. During the three months ended June 30, 2008, in connection with issuances of common stock by Boston Properties, Inc. pursuant to exercises of stock options, we issued an aggregate of approximately 8,624 common units to Boston Properties, Inc. in exchange for approximately $279,000, the aggregate proceeds of such common stock issuances to Boston Properties, Inc. Such units were issued in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.
(b) Not applicable.
 
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(c) Issuer Purchases of Equity Securities.

Period	  	(a) Total
Number of
Common
Units
Purchased	 	 	(b) Average
Price Paid per
Common Unit	  	(c) Total Number of
Units Purchased as
Part of Publicly
Announced Plans
or Programs	  	(d) Maximum
Number (or
Approximate Dollar
Value) of Units that
May Yet be
Purchased	
April 1, 2008 – April 30, 2008	  	1,406	(1)	 	$	0.25	  	    N/A	  	    N/A	
May 1, 2008 – May 31, 2008	  	—  	 	 	 	—  	  	    N/A	  	    N/A	
June 1, 2008 – June 30, 2008	  	—  	 	 	 	—  	  	    N/A	  	    N/A	
 	  	 	 	 	 	 	  	 	  	 	
Total	  	1,406	 	 	$	0.25	  	N/A	  	N/A	
 
(1)	Represents LTIP Units that were repurchased in connection with the termination of an employee’s employment with the Company. Under the terms of the applicable LTIP Unit vesting agreement, these LTIP Units were repurchased by the Company at a price of $0.25 per unit, which was the amount originally paid by such employee for the units.	
ITEM 3—Defaults Upon Senior Securities.
None.
ITEM 4—Submission of Matters to a Vote of Security Holders.
None.
ITEM 5—Other Information.
(a) None.
(b) None.
 
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ITEM 6—Exhibits
(a) Exhibits

10.1	 	—	  	Contribution Agreement, dated as of May 23, 2008, between Fifth Avenue 58/59 Acquisition Co. L.P., BP 767 Fifth LLC and 767 Venture, LLC, and (for purposes of Sections 10(h), 18, 20(c)(i) and 38(c)) Boston Properties Limited Partnership (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Boston Properties, Inc. filed on May 28, 2008).	
 	 	 	
10.2	 	—	  	Purchase and Sale Agreement, dated as of May 23, 2008, between 125 West 55th Street Owner LLC, Two Grand Central Tower LLC, 540 Investment Land Company LLC, 540 Madison Avenue Lease LLC and BP Manhattan LLC, and (for purposes of Sections 10(h), 20(c)(i), 38(e) and 38(f)) Boston Properties Limited Partnership (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Boston Properties, Inc. filed on May 28, 2008).	
 	 	 	
10.3	 	—	  	Contribution Agreement, dated as of May 23, 2008, between Fifth Avenue 58/59 Acquisition Co. L.P. and Boston Properties Limited Partnership (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Boston Properties, Inc. filed on May 28, 2008).	
 	 	 	
10.4	 	—	  	Commitment Increase Agreement, dated as of June 6, 2008, among Boston Properties Limited Partnership and the lenders identified therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Boston Properties, Inc. filed on June 12, 2008).	
 	 	 	
10.5	 	—	  	Commitment Increase Agreement, dated as of July 21, 2008, among Boston Properties Limited Partnership and the lenders identified therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Boston Properties, Inc. filed on July 21, 2008).	
 	 	 	
12.1	 	—	  	Calculation of Ratios of Earnings to Fixed Charges and Calculation of Ratios of Earnings to Combined Fixed Charges and Preferred Distributions.	
 	 	 	
31.1	 	—	  	Certification of Chief Executive Officer of Boston Properties, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
31.2	 	—	  	Certification of Chief Financial Officer of Boston Properties, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	 	
32.1	 	—	  	Certification of Chief Executive Officer Boston Properties, Inc. pursuant to Section 906 of the Sarbanes Oxley Act of 2002.	
 	 	 	
32.2	 	—	  	Certification of Chief Financial Officer Boston Properties, Inc. pursuant to Section 906 of the Sarbanes Oxley Act of 2002.	
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 	 	BOSTON PROPERTIES LIMITED PARTNERSHIP	
August 11, 2008	 	By Boston Properties, Inc., its General Partner	
 	 	
 	 	/s/    MICHAEL E. LABELLE        	
 	 	Michael E. LaBelle
Chief Financial Officer
(duly authorized officer and principal financial officer)	
 
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EXHIBIT 12.1
BOSTON PROPERTIES LIMITED PARTNERSHIP
CALCULATION OF RATIOS OF EARNINGS TO FIXED CHARGES
CALCULATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DISTRIBUTIONS
Boston Properties Limited Partnership’s ratios of earnings to fixed charges and ratios of earnings to combined fixed charges and preferred distributions for the six months ended June 30, 2008 and the five years ended December 31, 2007 were as follows:

 	 	Six
Months
Ended
June 30,
2008	 	 	Year Ended December 31,	 	 	
 	 	 	 	 	2007	 	 	2006	 	 	2005	 	 	2004	 	 	2003	 	 	 	 	 	
 	 	(dollars in thousands)	 	 	 	 	 	
Earnings:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Add:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before minority interests in property partnerships, income from unconsolidated joint ventures, gains on sales of real estate and other assets, discontinued operations, cumulative effect of a change in accounting principle and preferred distributions and allocation of undistributed earnings	 	$	171,812	 	 	$	361,249	 	 	$	298,767	 	 	$	290,947	 	 	$	290,984	 	 	$	276,132	 	 	 	 	 	
Gains on sales of real estate and other assets	 	 	29,641	 	 	 	957,406	 	 	 	727,131	 	 	 	188,546	 	 	 	9,822	 	 	 	70,627	 	 	 	 	 	
Amortization of interest capitalized	 	 	1,131	 	 	 	2,394	 	 	 	3,387	 	 	 	3,298	 	 	 	2,845	 	 	 	2,640	 	 	 	 	 	
Distributions from unconsolidated joint ventures	 	 	3,060	 	 	 	7,157	 	 	 	8,206	 	 	 	7,179	 	 	 	6,663	 	 	 	8,412	 	 	 	 	 	
Combined fixed charges and preferred distributions (see below)	 	 	153,722	 	 	 	327,362	 	 	 	326,995	 	 	 	340,589	 	 	 	334,082	 	 	 	342,244	 	 	 	 	 	
Subtract:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest capitalized	 	 	(19,221	)	 	 	(31,046	)	 	 	(5,921	)	 	 	(5,718	)	 	 	(10,849	)	 	 	(19,200	)	 	 	 	 	
Preferred distributions	 	 	(2,098	)	 	 	(10,429	)	 	 	(22,814	)	 	 	(26,780	)	 	 	(17,063	)	 	 	(23,608	)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total earnings	 	$	338,047	 	 	$	1,614,093	 	 	$	1,335,751	 	 	$	798,061	 	 	$	616,484	 	 	$	657,247	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed charges:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest expensed	 	$	132,403	 	 	$	285,887	 	 	$	298,260	 	 	$	308,091	 	 	$	306,170	 	 	$	299,436	 	 	 	 	 	
Interest capitalized	 	 	19,221	 	 	 	31,046	 	 	 	5,921	 	 	 	5,718	 	 	 	10,849	 	 	 	19,200	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed charges	 	$	151,624	 	 	$	316,933	 	 	$	304,181	 	 	$	313,809	 	 	$	317,019	 	 	$	318,636	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred distributions	 	 	2,098	 	 	 	10,429	 	 	 	22,814	 	 	 	26,780	 	 	 	17,063	 	 	 	23,608	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total combined fixed charges and preferred distributions	 	$	153,722	 	 	$	327,362	 	 	$	326,995	 	 	$	340,589	 	 	$	334,082	 	 	$	342,244	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to fixed charges	 	 	2.23	 	 	 	5.09	 	 	 	4.39	 	 	 	2.54	 	 	 	1.94	 	 	 	2.06	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Ratio of earnings to combined fixed charges and preferred distributions	 	 	2.20	 	 	 	4.93	 	 	 	4.08	 	 	 	2.34	 	 	 	1.85	 	 	 	1.92	 	 	 	 	 	

Exhibit 31.1
CERTIFICATION
I, Edward H. Linde, certify that:
 
1.	I have reviewed this Quarterly Report on Form 10-Q of Boston Properties Limited Partnership;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Date: August 11, 2008

/s/    EDWARD H. LINDE        	
Edward H. Linde
Chief Executive Officer of Boston Properties, Inc.
General Partner of Boston Properties Limited Partnership	

Exhibit 31.2
CERTIFICATION
I, Michael E. LaBelle, certify that:
 
1.	I have reviewed this Quarterly Report on Form 10-Q of Boston Properties Limited Partnership;	
 
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	
 
 	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 
 	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 
 	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 
 	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	
 
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	
 
 	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 
 	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Date: August 11, 2008

/s/    MICHAEL E. LABELLE        	
Michael E. LaBelle
Chief Financial Officer of Boston Properties, Inc.
General Partner of Boston Properties Limited Partnership	

Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Boston Properties, Inc., the sole general partner of Boston Properties Limited Partnership (the “Company”), hereby certifies to my knowledge that the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification shall not be deemed “filed” for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 regardless of any general incorporation language in such filing.
Date: August 11, 2008

/s/    EDWARD H. LINDE        	
Edward H. Linde
Chief Executive Officer of Boston Properties, Inc.
General Partner of Boston Properties Limited Partnership	

Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned officer of Boston Properties, Inc., the sole general partner of Boston Properties Limited Partnership (the “Company”), hereby certifies to my knowledge that the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2008 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification shall not be deemed “filed” for any purpose, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934 regardless of any general incorporation language in such filing.
Date: August 11, 2008

/s/    MICHAEL E. LABELLE        	
Michael E. LaBelle
Chief Financial Officer of Boston Properties, Inc.
General Partner of Boston Properties Limited Partnership