BOSTON PROPERTIES, INC. 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, including the documents incorporated by reference, contain forward-looking statements within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions, in each case, to the extent applicable. Such statements are contained principally, but not only, under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." We caution investors that any such forward-looking statements are based on current beliefs or expectations of future events and on assumptions made by, and information currently available to, our management. When used, the words "anticipate," "believe," "budget," "could", "estimate," "expect," "intend," "may," "might," "plan," "project," "should," "will" and similar expressions that 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 or occurrences, which may be affected by known and unknown risks, trends, uncertainties and factors that are, in some cases, beyond our control. Should one or more of these known or unknown risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied 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 or occurrences 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. The most significant factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements include the ongoing impact of the global COVID-19 pandemic on theU.S. and global economies, which has impacted, and is likely to continue to impact, us, the risks described in (i) our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 including those described under the caption "Risk Factors," (ii) our subsequent filings under the Exchange Act and (iii) the risk factors set forth in this Form 10-Q in Part II, Item 1A, and the following: •the risks and uncertainties related to the impact of the COVID-19 global pandemic, including the duration, scope and severity of the pandemic domestically and internationally; federal, state and local government actions or restrictive measures implemented in response to COVID-19, the effectiveness of such measures, as well as the effect of any relaxation of current restrictions, and the direct and indirect impact of such measures on our and our tenants' businesses, financial condition, results of operations, cash flows, liquidity, performance and demand for office space, and theU.S. and international economy and economic activity generally; the emergence and characteristics of new variants, the speed, effectiveness and distribution of vaccines (including effectiveness against COVID-19 variant strains), whether new or existing actions and measures continue to impact the ability of our residential tenants to generate sufficient income to pay, or make them unwilling to pay rent in a timely manner, in full or at all; the health, continued service and availability of our personnel, including our key personnel and property management teams; and the effectiveness or lack of effectiveness of governmental relief in providing assistance to individuals and large and small businesses, including our tenants, that have suffered significant adverse effects from COVID-19; •volatile or adverse global economic and political conditions, health crises and dislocations in the credit markets could adversely affect our access to cost-effective capital and have a resulting material adverse effect on our business opportunities, results of operations and financial condition; •general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, tenant space utilization, 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; 47 -------------------------------------------------------------------------------- Table of Contents •risks and uncertainties affecting property development and construction (including, without limitation, construction delays, increased construction costs, cost overruns, inability to obtain necessary permits, tenant accounting considerations that may result in negotiated lease provisions that limit a tenant's liability during construction, 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 or refinance existing indebtedness, including the impact of higher interest rates on the cost and/or availability of financing; •risks associated with forward interest rate 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 the physical effects of climate change; •risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems, which support our operations and our buildings; •risks associated with BXP'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; •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 for the fiscal year endedDecember 31, 2020 or described herein, including those 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, particularly in light of the circumstances relating to COVID-19. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can we 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 Quarterly Reports on Form 10-Q for future periods and Current Reports on Form 8-K as we file them with theSEC , and to other materials we may furnish to the public from time to time through Current Reports on Form 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 BXP is one of the largest publicly traded office real estate investment trusts (REITs) (based on total market capitalization as ofSeptember 30, 2021 ) inthe United States that develops, owns and manages primarily Class A office properties. Our properties are concentrated in six markets inthe United States -Boston ,Los Angeles ,New York ,San Francisco ,Seattle andWashington, DC . BPLP is the entity through which BXP conducts substantially all of its business and owns (either directly or through subsidiaries) substantially all of its assets. We generate revenue and cash primarily by leasing Class A office space to our tenants. When making leasing decisions, we consider, among other things, the creditworthiness of the tenant and the industry in which it conducts business, the length of 48 -------------------------------------------------------------------------------- Table of Contents the lease, the rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements, free rent periods and other landlord concessions, anticipated operating expenses and real estate taxes, current and anticipated vacancy in our properties and the market overall (including sublease space), current and expected future demand for the space, the impact of any expansion rights and general economic factors. Our core strategy has always been to develop, acquire and manage high-quality properties in supply-constrained markets with high barriers-to-entry and attractive demand drivers, and to focus on executing long-term leases with financially strong tenants. Historically, these factors have minimized our exposure in weaker economic cycles and enhanced revenues as market conditions improve. Our tenant base is diverse across market sectors and the weighted-average lease term for our in-place leases, excluding residential units, was approximately 7.5 years, as ofSeptember 30, 2021 , including leases signed by our unconsolidated joint ventures. The weighted-average lease term for our 20 largest office tenants was approximately 10.5 years as ofSeptember 30, 2021 . To be successful in any leasing environment, we believe we must consider all aspects of the tenant-landlord relationship. In this regard, we believe that our competitive leasing advantage is based on the following attributes: •our understanding of tenants' short- and long-term space utilization and amenity needs in the local markets; •our track record of developing and operating Class A office properties in a sustainable and responsible manner; •our reputation as a premier developer, owner and manager of primarily Class A office properties; •our financial strength and our ability to maintain high building standards; and •our relationships with local brokers. OutlookThe United States economy continues to recover from the COVID-19 pandemic, although quarter-over-quarter GDP growth slowed to an annual rate of 2.0% in the third quarter of 2021 compared to 6.7% in the second quarter of 2021. This slowdown reflects the impacts of the Delta variant and moderation in government stimulus spending. Since the end of the third quarter, however, daily COVID infection levels have decreased by more than 50% from the recent highs inSeptember 2021 . We believe the positive trend in infection rates, combined with relatively low unemployment rates, bodes well for continuing economic growth in our markets. The overall economic recovery is having a positive impact on our leasing activity. Although additional COVID variants and supply-chain issues may emerge, we believe as the number of vaccinations increases and employees return to their offices in greater numbers, our strategically located, high-quality office properties will remain a vital component of the strategies of today's forward-thinking organizations that prioritize fostering collaboration, innovation, productivity and culture, and we expect tenants will take advantage of the availability of Class A space and upgrade. Annual inflation increased to 5.4% inSeptember 2021 , driven largely by energy prices, which increased approximately 25% compared to one year ago. Energy is a component of our operating expenses our largest energy cost is electricity. We have limited most of our exposure to additional potential increases through 2022, and we have been increasing our procurement from green power. We remain exposed to the marginal cost of electrical generation in theBoston region where we expect increases in 2022 of greater than 10% compared to last year. Costs for security, cleaning and engineering labor continues to increase due to labor shortages across all trades. However, we are able to mitigate the risks from these increased costs to our results due to the nature of our lease contracts, which generally take one of two forms: (1) net leases, under which all of the operating expense and real estate taxes are paid by the tenant, and (2) gross leases with a base year that is set upon the lease commencement with increases in expenses over that base year added to the rental obligation of the tenant. Our near-term exposure to increases in operating expenses is primarily on our vacant space and for new or renewal leases where we are setting a base year. Our vacancy was approximately 11.6% atSeptember 30, 2021 , and our 2021 and 2022 lease expirations total approximately 7.6% of our portfolio. We do not expect an increase in operating expenses to have a material adverse effect on our results of operations for the remainder of 2021 or 2022. BXP Priorities Despite the concerns surrounding COVID-19 and the lingering impact on economic conditions in our markets, we remain optimistic for our industry generally and our company in particular, given low interest rates, the demand 49 -------------------------------------------------------------------------------- Table of Contents for workers across sectors, the high quality of our properties, the supply and demand characteristics of our markets and the success of our development efforts. We remain focused on the following priorities: •ensuring tenant health, safety and satisfaction; •leasing available space in our in-service and development properties, as well as proactively focusing on future lease expirations; •completing the construction of our development properties; •continuing and completing the redevelopment and repositioning of several key properties to increase future revenue and asset values over the long-term; •identifying new investment opportunities that meet our criteria while maintaining discipline in our underwriting; •managing our near-term debt maturities and maintaining our conservative balance sheet; and •actively managing our operations in a sustainable and responsible manner. The following is an overview of portfolio activity, leasing activity and capital markets activity in the third quarter of 2021. Leasing Activity and Occupancy In the third quarter of 2021, we signed approximately 1.4 million square feet of new leases and renewals with a weighted-average lease term of approximately 9.2 years, indicating that many new and existing tenants continue to commit to the long-term use of space and view our properties as their preferred choice for a premium Class A office environment. The volume of leasing in the third quarter of 2021 (measured by square feet) was more than double the volume achieved in the first quarter of 2021 and approximately 90% of our pre-pandemic historical third quarter average. The overall occupancy of our in-service office and retail properties was 88.4% atSeptember 30, 2021 , a decrease of 0.2% compared to 88.6% atJune 30, 2021 . We anticipate occupancy for the remainder of 2021 will be relatively flat with occupancy for the third quarter of 2021, but will begin to improve as we head into 2022, as our remaining 2021 and 2022 lease expirations are backfilled by signed leases that have not yet commenced and new leases. Our parking and other revenue was approximately$23.5 million in the third quarter of 2021, an increase of approximately$5.2 million from the second quarter of 2021. The increase was primarily due to improved transient parking and greater insurance proceeds from a water main break at aNew York property. The third quarter 2021 parking and other revenue was 92% of pre-pandemic parking and other revenue from the third quarter of 2019. We expect to return to pre-pandemic levels of parking revenue as workers increasingly return to work in their offices. Our hotel property, theBoston Marriott Cambridge , generated approximately$1.2 million of net operating income during the third quarter of 2021. This was the first quarter since the start of the pandemic in which the hotel made a positive contribution to our results. Given the hotel's location in the heart ofCambridge, Massachusetts and adjacent toMIT , we expect hotel occupancy and REVPAR to improve to pre-pandemic levels over time as business and leisure travel return to historical levels. Investment Activity We remain committed to developing and acquiring assets to enhance our long-term growth and to meet tenant demand for high-quality office and lab space. We continually evaluate current and prospective markets for possible acquisitions of "value-add" assets that require lease-up or repositioning, and acquisitions that are otherwise consistent with our long-term strategy of owning, managing, developing and improving, premier Class A properties in each of our chosen markets. During the third quarter of 2021, we continued to execute on our strategy and completed two acquisitions. We believe these investments align with several elements of our growth strategy, including entering new markets or submarkets that exhibit strong demand and limitations on supply, uncovering opportunities that utilize our leasing and redevelopment skills to increase value, broadening our portfolio to meet the current and anticipated future 50 -------------------------------------------------------------------------------- Table of Contents demand of tenants in the life sciences sector and employing our Strategic Capital Program ("SCP") (Refer to the heading "Liquidity and Capital Resources" within "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations" for a description of the SCP.) to utilize private equity to increase our returns and enhance our investment capacity. These acquisitions included: •Safeco Plaza, an approximately 765,000 net rentable square-foot Class A office building inSeattle, Washington . The property was approximately 91% leased atSeptember 30, 2021 . This acquisition marked our initial entry into theSeattle market, one of the most vibrant markets inthe United States for companies in the technology, life sciences, manufacturing and financial services sectors. The acquisition was completed through a newly formed joint venture with two institutional partners that are part of our SCP. •Shady Grove Bio+Tech Campus, consisting of seven buildings totaling approximately 435,000 square-feet in theShady Grove area ofRockville, Maryland , a region that is home to more than 400 companies in the biotechnology and life sciences sector. We plan to convert the office buildings on the campus to lab space to meet current and growing demand in the region from biotechnology companies for new, Class A lab space. In the third quarter of 2021, we continued the construction of the developments and redevelopment projects in our pipeline, which consists of nine properties that, when completed, we expect will total approximately 4.3 million net rentable square feet. As ofSeptember 30, 2021 , our share of the estimated total cost for these projects is approximately$2.7 billion , of which approximately$1.1 billion of equity remained to be invested. The total development pipeline, inclusive of both office and lab/life sciences developments, but excluding theView Boston Observatory at ThePrudential Center , is 72% pre-leased as ofNovember 2, 2021 . The office development projects in our current pipeline, which total approximately 3.3 million square feet, are approximately 87% pre-leased, as ofNovember 2, 2021 , to predominately credit-strong tenants with long-lease terms. In addition, during September and October of 2021, we completed and delivered approximately 1.5 million square feet of space to tenants from our development pipeline. In early 2021 we added several new development and redevelopment projects to our development pipeline focused on the specific needs of tenants in the life sciences sector. Our lab/life sciences developments in our pipeline total approximately 920,000 square feet and include properties inWaltham, Massachusetts andSouth San Francisco, California . Although Shady Grove Bio+Tech Campus is not currently included in our development pipeline, we anticipate converting the office buildings on the campus to lab space. Our lab/life sciences developments are located in some of the largest life sciences clusters inthe United States , with strong demand from tenants because of the close proximity to universities, research institutions and related businesses and concentrations of labor with specialized skills and knowledge. Supply-chain concerns impact our business both in time to completion and increased costs. Our construction schedule is one of the criteria we use when we evaluate bids for development projects and capital improvements. We have been successful in awarding bids and maintaining schedules through the pandemic. However, there are fewer choices for materials, and we are working closely with our consultants and contractors to ensure there are not items used in the development or redevelopment process that could impact schedules. We are intentionally minimizing the amount of materials we acquire from overseas, releasing material packages as early as possible and stock-piling materials off-site. In addition, when budgeting new development projects, we are including projected cost increases of approximately 5-6%. We currently expect to deliver all active developments and redevelopments on time and budget, but we cannot assure you that we will not experience greater cost increases or that the materials we need will continue to be available so that we are able to complete the project. A failure to deliver a project on time could expose us to additional costs under the signed pre-leases for those projects. As we continue to focus on new investments to drive future growth, we also continually review our portfolio to identify properties as potential sales candidates because they may either no longer fit within our portfolio strategy or they could attract premium pricing in the current market environment. OnOctober 25, 2021 , we completed the sale of 181,191 and 201 Spring Street , a three-building complex aggregating approximately 333,000 net rentable square feet inLexington, Massachusetts , for an aggregate gross sales price of$191.5 million . The three buildings are 100% leased. We will continue to evaluate the sale of similar properties. ExcludingSeattle , which we entered onSeptember 1, 2021 , a brief overview of each of our markets follows. 51 -------------------------------------------------------------------------------- Table of Contents Boston TheBoston region is home to the largest cluster of life sciences companies in the world, and these companies are growing and increasing demand and rents in the region. During the third quarter of 2021, we signed approximately 769,000 square feet of leases and approximately 782,000 square feet of leases commenced. Approximately 148,000 square feet of the leases that commenced had been vacant for less than one year and represent an increase in net rental obligations of approximately 17% over the prior leases. OurBoston central business district ("CBD") in-service portfolio was approximately 94% leased as ofSeptember 30, 2021 . During the third quarter of 2021, we executed an approximately 524,000 square foot, 10-year lease extension with Wellington Management atAtlantic Wharf , approximately four years prior to the lease expiration, supporting our belief in the commitment of employers to office space and the attractiveness of our asset. In addition, we completed and delivered 440,000 square feet of space leased to an affiliate of Verizon Communications at our100 Causeway Street development project inBoston, Massachusetts .100 Causeway Street is an approximately 632,000 square foot office building in which we have a 50% ownership interest. Our approximately 2.0 million square foot in-service office portfolio inCambridge was approximately 99% leased as ofSeptember 30, 2021 . During the third quarter of 2021, we continued our development of325 Main Street at Kendall Center inCambridge, Massachusetts , which is 90% pre-leased to an office tenant for a term of 15 years and we expect to deliver the building into service in 2022. In early 2021, we received approximately one million square feet of new entitlements atKendall Center for potential future development.Waltham and the area surrounding the Route 128-Mass Turnpike interchange continue to comprise a popular submarket ofBoston for leading and emerging companies in the life sciences, biotechnology and technology sectors. Since the third quarter of 2021, we signed leases for approximately 52,000 square feet at880 Winter Street , an approximately 224,000 square foot office property inWaltham, Massachusetts that is being converted into lab space. We expect to deliver this project in early 2023. We also continued the conversion of200 West Street inWaltham, Massachusetts into life sciences/lab space and we continued the development of 180 CityPoint, an approximately 329,000 square foot lab development inWaltham, Massachusetts , which is expected to be delivered in 2024. We own or control a significant amount of land in theBoston region that we expect will enable us to aggressively compete for and meet the demand from the emerging and growing tenants in these industries.Los Angeles OurLos Angeles ("LA") in-service portfolio of approximately 2.3 million square feet is currently focused in West LA and includes Colorado Center, a 1.1 million square foot property of which we own 50%, andSanta Monica Business Park , a 21-building, approximately 1.2 million square foot property of which we own 55%. As ofSeptember 30, 2021 , our LA in-service properties were approximately 83% leased. We expect our occupancy to increase later this year upon commencement of an approximately 140,000 square foot lease expansion that was signed in the second quarter of 2021 with a technology company atSanta Monica Business Park inSanta Monica, California . New York As ofSeptember 30, 2021 , our New York CBD in-service portfolio was approximately 90% leased. During the third quarter of 2021, (1) we signed leases covering approximately 169,000 square feet, including an approximately 39,000 square foot expansion with a financial services company at399 Park Avenue , increasing their total square footage to approximately 373,000 square feet, and (2) approximately 259,000 square feet of leases commenced. Approximately 200,000 square feet of the leases that commenced had been vacant for less than one year and represent a decrease in net rental obligations of approximately 27% over the prior leases. Excluding approximately 55,000 square feet of short term leases that commenced, the net rental obligations decreased approximately 13% over the prior leases. In the third quarter of 2021, sublease space continued to be removed from the market and high-quality buildings experienced increased leasing activity. We are actively negotiating approximately 340,000 square feet of leases, of which approximately 200,000 square feet is atDock 72 , our joint venture property inBrooklyn, New York . InOctober 2021 , we signed a 42,000 square foot lease atDock 72 . 52 -------------------------------------------------------------------------------- Table of Contents San Francisco The recovery inSan Francisco continues to lag our other markets as fewer businesses have commenced their return to work, street-level retail remains closed or slow and the streets are quiet. As restrictions are lifted, we believe the pace of new leasing activity will begin to increase. Our San Francisco CBD in-service properties were approximately 92% leased as ofSeptember 30, 2021 . During the third quarter of 2021, we executed approximately 185,000 square feet of leases, including over 100,000 square feet atEmbarcadero Center. We executed four full floor leases at Embarcadero Center at average rental rates of over$100 per square foot. In addition, we commenced approximately 91,000 square feet of leases in theSan Francisco region. Of these leases, approximately 57,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 9% over the prior leases. Life sciences activity at ourGateway Commons joint venture in which we own an approximately 52% interest continues to be productive. The joint venture has signed a letter of intent to lease the entirety of 751Gateway Commons , a 229,000 square foot project in our development pipeline. During the third quarter of 2021, we completed two full-building leases aggregating approximately 58,000 square feet in theMountain View submarket. We are experiencing greater tour activity, including large technology tenant requirements for existing and new products. Due to the limited supply of new, high-quality office space in this submarket, we are evaluating when to restart the first phase of our Platform 16 development project, an approximately 1.1 million aggregate square foot future development next toDiridon Station inSan Jose . Washington, DC During the third quarter of 2021, we executed approximately 300,000 square feet of leases and we commenced approximately 163,000 square feet of leases in theWashington, DC region. Of these leases, approximately 96,000 square feet had been vacant for less than one year and represent a decrease in net rental obligations of approximately 22% over the prior leases. OurWashington, DC CBD in-service properties were approximately 84% leased, as ofSeptember 30, 2021 , with modest near-term rollover exposure, and we have reduced our exposure in theWashington, DC CBD market significantly over the past few years through the dispositions of assets. OurWashington, DC suburban properties include our significant presence inReston, Virginia , where demand from technology and cybersecurity tenants remains strong. OurWashington, DC suburban properties were approximately 86% leased as ofSeptember 30, 2021 . During the third quarter of 2021, we completed approximately 70,000 square feet of office leases inReston and are in negotiations for another 125,000 square feet. In October, we completed and delivered approximately 285,000 square feet at Reston Next, a Class A office project with approximately 1.1 million net rentable square feet located inReston, Virginia . This project is 85% pre-leased as ofNovember 2, 2021 . In addition, onOctober 29, 2021 , a joint venture in which we own a 50% interest, fully placed in-service7750 Wisconsin Avenue , a Class A office project with approximately 734,000 net rentable square feet located inBethesda, Maryland . 53 -------------------------------------------------------------------------------- Table of Contents Leasing Statistics The table below details the leasing activity, including 100% of the unconsolidated joint ventures, that commenced during the three and nine months endedSeptember 30, 2021 : Three months ended Nine months ended September 30, 2021 September 30, 2021 (Square Feet) Vacant space available at the beginning of the period 5,186,818 4,517,385 Property dispositions/properties taken out of service (1) - (104,613) Vacant space in properties acquired (2) 143,848 143,848 Properties placed (and partially placed) in-service (3) 503,024 732,454 Leases expiring or terminated during the period 862,505 4,061,176 Total space available for lease 6,696,195 9,350,250 1st generation leases 585,933 789,489 2nd generation leases with new tenants 407,240 1,824,259 2nd generation lease renewals 311,332 1,344,812 Total space leased (4) 1,304,505 3,958,560 Vacant space available for lease at the end of the period 5,391,690 5,391,690 Leases executed during the period, in square feet (5) 1,431,817 3,262,850 Second generation leasing information: (6) Leases commencing during the period, in square feet 718,572 3,169,071 Weighted Average Lease Term 58 Months 81 Months Weighted Average Free Rent Period 124 Days 158 Days Total Transaction Costs Per Square Foot (7)$43.95 $70.21 Increase (Decrease) in Gross Rents (8) (9.42) % (0.03) % Increase (Decrease) in Net Rents (9) (14.23) % (0.11) %
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(1)Total square feet of property dispositions during the nine months endedSeptember 30, 2021 consists of 29,595 square feet due to the sale of Annapolis JunctionBuilding Six . Total square feet of properties taken out of service during the nine months endedSeptember 30, 2021 consists of 34,290 square feet at880 Winter Street and 40,728 square feet at800 Boylston Street - ThePrudential Center , both due to redevelopment. (2)Total square feet of vacant space in properties acquired during the three and nine months endedSeptember 30, 2021 consists of 69,581 square feet atSafeco Plaza and 74,267 square feet at Shady Grove Bio+Tech Campus. (3)Total square feet of properties placed (and partially placed) in-service during the three months endedSeptember 30, 2021 consists of 6,709 square feet at 685Gateway and 496,315 square feet at100 Causeway Street . Total square feet of properties placed (and partially placed) in-service during the nine months endedSeptember 30, 2021 consists of 195,326 square feet of office and 31,950 square feet of retail at One Five NineEast 53rd Street , 6,709 square feet at 685Gateway and 498,469 square feet at100 Causeway Street . (4)Represents leases for which lease revenue recognition has commenced in accordance with GAAP during the three and nine months endedSeptember 30, 2021 . (5)Represents leases executed during the three and nine months endedSeptember 30, 2021 for which we either (1) commenced lease revenue recognition in such period or (2) will commence lease revenue recognition in subsequent periods, in accordance with GAAP, and includes leases at properties currently under development. The total square feet of leases executed and recognized in the three and nine months endedSeptember 30, 2021 is 320,719 and 734,797, respectively. (6)Second generation leases are defined as leases for space that had previously been leased by us. Of the 718,572 and 3,169,071 square feet of second generation leases that commenced during the three and nine months endedSeptember 30, 2021 , respectively, leases for 397,853 and 2,439,402 square feet, respectively, were signed in prior periods. (7)Total transaction costs include tenant improvements and leasing commissions but exclude free rent concessions and other inducements in accordance with GAAP. 54 -------------------------------------------------------------------------------- Table of Contents (8)Represents the decrease in gross rent (base rent plus expense reimbursements) on the new versus expired leases on the 507,899 and 2,219,080 square feet of second generation leases that had been occupied within the prior 12 months for the three and nine months endedSeptember 30, 2021 , respectively; excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis. (9)Represents the decrease in net rent (gross rent less operating expenses) on the new versus expired leases on the 507,899 and 2,219,080 square feet of second generation leases that had been occupied within the prior 12 months for the three and nine months endedSeptember 30, 2021 , respectively. Transactions during the three months endedSeptember 30, 2021 included the following: Acquisition/disposition activities •OnAugust 2, 2021 , we acquired Shady Grove Bio+Tech Campus inRockville, Maryland , for a purchase price, including transaction costs, of approximately$118.5 million in cash. Shady Grove Bio+Tech Campus is an approximately 435,000 net rentable square foot, seven-building office park situated on an approximately 31-acre site. We intend to reposition three of the buildings, which are currently vacant, to support lab or life sciences uses. As a result, the three vacant buildings are not part of our in-service portfolio. We anticipate that we will redevelop or convert the remaining four buildings to lab or life sciences-related uses as each becomes vacant. •OnJuly 13, 2021 , we entered into an agreement to sell our 181,191 and 201 Spring Street properties located inLexington, Massachusetts for an aggregate gross sales price of$191.5 million . 181,191 and 201 Spring Street are three Class A office properties aggregating approximately 333,000 net rentable square feet and are 100% leased. The sale was completed onOctober 25, 2021 (See below). Unconsolidated joint venture activities •OnAugust 31, 2021 , a joint venture in which we have a 50% interest extended the construction loan collateralized by its The Hub on Causeway - Podium property. At the time of the extension, the outstanding balance of the loan totaled approximately$174.3 million , bore interest at a variable rate equal to LIBOR plus 2.25% per annum and was scheduled to mature onSeptember 6, 2021 , with two, one-year extension options, subject to certain conditions. The extended loan continues to bear interest at a variable rate equal to LIBOR plus 2.25% per annum and matures onSeptember 6, 2023 . The Hub on Causeway - Podium is a retail and office property with approximately 382,000 net rentable square feet located inBoston, Massachusetts . •OnSeptember 1, 2021 , we entered into a joint venture to acquireSafeco Plaza , a Class A office property located inSeattle, Washington , for a gross purchase price of approximately$465.0 million .Safeco Plaza is a 50-story, approximately 765,000 net rentable square-foot, Class A office property. The acquisition was completed through a newly formed joint venture with two institutional partners. Each of the institutional partners invested approximately$71.9 million of cash for its 33.165% ownership interest in the joint venture. We invested approximately$72.6 million for our 33.67% interest in the joint venture and are providing customary operating, property management and leasing services to the joint venture. Our ownership includes (1) a 33.0% direct interest in the joint venture, and (2) an additional 1% interest in each of the two entities (each, a "Safeco Partner Entity") through which each partner owns its interest in the joint venture. Subject to the occurrence of certain events and the joint venture achieving certain return thresholds, we are entitled to earn promote distributions. Some of the promote distributions may be payable in cash or, at our election, equity interest(s) in the Safeco Partner Entity(ies). The purchase price was funded with cash and proceeds from a new mortgage loan secured by the property. The mortgage loan has a principal amount of$250.0 million , bears interest at a variable rate equal to the greater of (x) 2.35% or (y) LIBOR plus 2.20% per annum and matures onSeptember 1, 2026 . Debt Transaction •OnSeptember 29, 2021 , BPLP completed a public offering of$850.0 million in aggregate principal amount of its 2.450% unsecured senior notes due 2033. The notes were priced at 99.959% of the principal amount to yield an effective rate (including financing fees) of approximately 2.524% per annum to maturity. The notes will mature onOctober 1, 2033 , unless earlier redeemed. The aggregate net 55 -------------------------------------------------------------------------------- Table of Contents proceeds from the offering were approximately$842.5 million after deducting underwriting discounts and transaction expenses. Transactions completed subsequent toSeptember 30, 2021 included the following: •OnOctober 15, 2021 , BPLP used available cash and funds under its unsecured revolving credit agreement (the "2021 Credit Facility") to complete the redemption of$1.0 billion in aggregate principal amount of its 3.85% senior notes dueFebruary 1, 2023 . The redemption price was approximately$1.05 billion , which included approximately$7.9 million of accrued and unpaid interest to, but not including, the redemption date and an early redemption premium and unamortized financing costs totaling approximately$43.9 million . •OnOctober 19, 2021 , we partially placed in-service Reston Next, a Class A office project with approximately 1.1 million net rentable square feet located inReston, Virginia . •OnOctober 25, 2021 , we completed the sale of our 181,191 and 201 Spring Street properties located inLexington, Massachusetts for an aggregate gross sales price of$191.5 million , as described above under "- Acquisition/disposition activities". •OnOctober 29, 2021 , a joint venture in which we have a 50% interest fully placed in-service7750 Wisconsin Avenue , a Class A office project with approximately 734,000 net rentable square feet located inBethesda, Maryland . Critical Accounting Policies Management's Discussion and Analysis of Financial Condition and Results of Operations discuss our Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles ("GAAP"). The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Certain accounting policies are considered to be critical accounting policies, as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in accounting estimate are reasonably likely to occur from period to period. Management bases its estimates and assumptions on historical experience and current economic conditions. On an on-going basis, management evaluates its estimates and assumptions including those related to revenue, impairment of long-lived assets and the allowance for doubtful accounts. Actual results may differ from those estimates and assumptions. Our Annual Report on Form 10-K for the year endedDecember 31, 2020 contains a discussion of our critical accounting policies. Management discusses and reviews our critical accounting policies and management's judgments and estimates with BXP's Audit Committee. Results of Operations for the Nine Months EndedSeptember 30, 2021 and 2020 Net income attributable toBoston Properties, Inc. common shareholders and net income attributable toBoston Properties Limited Partnership common unitholders decreased approximately$542.9 million and$616.3 million for the nine months endedSeptember 30, 2021 compared to 2020, respectively, as set forth in the following tables and for the reasons discussed below under the heading "Comparison of the nine months endedSeptember 30, 2021 to the nine months endedSeptember 30, 2020 " within "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations." The following are reconciliations of Net Income Attributable toBoston Properties, Inc. Common Shareholders to Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to Net Operating Income for the nine months endedSeptember 30, 2021 and 2020 (in thousands): 56 -------------------------------------------------------------------------------- Table of ContentsBoston Properties, Inc. Nine months ended September 30, Increase/ % 2021 2020 (Decrease) Change Net Income Attributable toBoston Properties , Inc. Common Shareholders$ 311,680 $ 854,541 $ (542,861) (63.53) % Preferred stock redemption charge 6,412 - 6,412 100.00 % Preferred dividends 2,560 7,875 (5,315) (67.49) % Net Income Attributable toBoston Properties , Inc. 320,652 862,416 (541,764) (62.82) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interest-common units of the Operating Partnership 35,393 97,090 (61,697) (63.55) % Noncontrolling interests in property partnerships 52,602 34,280 18,322 53.45 % Net Income 408,647 993,786 (585,139) (58.88) % Other Expenses: Add: Interest expense 320,015 319,726 289 0.09 % Losses from early extinguishment of debt 898 - 898 100.00 % Loss from unconsolidated joint ventures 1,745 5,410 (3,665) (67.74) % Other Income: Less: Gains from investments in securities 3,744 965 2,779 287.98 % Interest and other income (loss) 4,140 4,277 (137) (3.20) % Gains on sales of real estate 8,104 613,723 (605,619) (98.68) % Other Expenses: Add: Depreciation and amortization expense 539,815 515,738 24,077 4.67 % Transaction costs 2,970 1,254 1,716 136.84 % Payroll and related costs from management services contracts 9,166 8,617 549 6.37 % General and administrative expense 117,924 102,059 15,865 15.54 % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 9,166 8,617 549 6.37 % Development and management services revenue 20,181 23,285 (3,104) (13.33) % Net Operating Income$ 1,355,845 $ 1,295,723 $ 60,122 4.64 % 57
-------------------------------------------------------------------------------- Table of ContentsBoston Properties Limited Partnership Nine months ended September 30, Increase/ % 2021 2020 (Decrease) Change Net Income Attributable toBoston Properties Limited Partnership Common Unitholders$ 353,633 $ 969,932 $ (616,299) (63.54) % Preferred unit redemption charge 6,412 - 6,412 100.00 % Preferred distributions 2,560 7,875 (5,315) (67.49) % Net Income Attributable toBoston Properties Limited Partnership 362,605 977,807 (615,202) (62.92) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interests in property partnerships 52,602 34,280 18,322 53.45 % Net Income 415,207 1,012,087 (596,880) (58.98) % Other Expenses: Add: Interest expense 320,015 319,726 289 0.09 % Losses from early extinguishment of debt 898 - 898 100.00 % Loss from unconsolidated joint ventures 1,745 5,410 (3,665) (67.74) % Other Income: Less: Gains from investments in securities 3,744 965 2,779 287.98 % Interest and other income (loss) 4,140 4,277 (137) (3.20) % Gains on sales of real estate 8,104 626,686 (618,582) (98.71) % Other Expenses: Add: Depreciation and amortization expense 533,255 510,400 22,855 4.48 % Transaction costs 2,970 1,254 1,716 136.84 % Payroll and related costs from management services contracts 9,166 8,617 549 6.37 % General and administrative expense 117,924 102,059 15,865 15.54 % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 9,166 8,617 549 6.37 % Development and management services revenue 20,181 23,285 (3,104) (13.33) % Net Operating Income$ 1,355,845 $ 1,295,723 $ 60,122 4.64 % AtSeptember 30, 2021 and 2020, we owned or had joint venture interests in a portfolio of 202 and 196 commercial real estate 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 provides a complete understanding of our operating results. Therefore, the comparison of operating results for the three and nine months endedSeptember 30, 2021 and 2020 show separately the changes attributable to the properties that were owned by us and in-service throughout each period compared (the "Same Property Portfolio") and the changes attributable to the properties included in the Acquired, Placed In-Service, Development or Redevelopment or Sold Portfolios. In our analysis of operating results, particularly to make comparisons of net operating income between periods more 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 and in-service through the end of the latest period presented as our Same Property Portfolio. The Same Property Portfolio therefore excludes properties acquired, placed in-service or in development or redevelopment after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented. 58 -------------------------------------------------------------------------------- Table of Contents Net operating income ("NOI") is a non-GAAP financial measure equal to net income attributable toBoston Properties, Inc. common shareholders and net income attributable toBoston Properties Limited Partnership common unitholders, as applicable, the most directly comparable GAAP financial measures, plus (1) preferred stock/unit redemption charge, preferred dividends/distributions, net income attributable to noncontrolling interests, interest expense, losses from early extinguishment of debt, loss from unconsolidated joint ventures, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts and corporate general and administrative expense less (2) gains (losses) from investments in securities, interest and other income (loss), gains (losses) on sales of real estate, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue. We use NOI internally as a performance measure and believe it provides useful information to investors regarding our results of operations and financial condition because, when compared across periods, it 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 attributable toBoston Properties, Inc. common shareholders and net income attributable toBoston Properties Limited Partnership common unitholders. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. Similarly, interest expense may be incurred at the property level even though the financing proceeds may be used at the corporate level (e.g., used for other investment activity). In addition, depreciation and amortization expense, because of historical cost accounting and useful life estimates, may distort operating performance measures at the property level. NOI presented by us may not be comparable to NOI reported by other REITs or real estate companies 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 attributable toBoston Properties, Inc. common shareholders and net income attributable toBoston Properties Limited Partnership common unitholders as presented in our Consolidated Financial Statements. NOI should not be considered as a substitute for net income attributable toBoston Properties, Inc. common shareholders or net income attributable toBoston Properties Limited Partnership common unitholders (determined in accordance with GAAP) or any other GAAP financial measures and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. The gains on sales of real estate, depreciation expense and impairment losses may differ between BXP and BPLP as a result of previously applied acquisition accounting by BXP for the issuance of common stock in connection with non-sponsor OP Unit redemptions by BPLP. This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties. The difference between the real estate assets of BXP as compared to BPLP for certain properties having an allocation of the real estate step-up will result in a corresponding difference in gains on sales of real estate, depreciation expense and impairment losses, when those properties are sold. For additional information see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q. Comparison of the nine months endedSeptember 30, 2021 to the nine months endedSeptember 30, 2020 The table below shows selected operating information for the Same Property Portfolio and the Total Property Portfolio. The Same Property Portfolio consists of 140 properties totaling approximately 39.0 million net rentable square feet, excluding unconsolidated joint ventures. The Same Property Portfolio includes properties acquired or placed in-service on or prior toJanuary 1, 2020 and owned and in service throughSeptember 30, 2021 . The Total Property Portfolio includes the effects of the other properties either acquired, placed in-service, in development or redevelopment afterJanuary 1, 2020 or disposed of on or prior toSeptember 30, 2021 . This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the nine months endedSeptember 30, 2021 and 2020 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold. 59
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Properties
Properties Acquired Placed In-Service Properties in Development or
Same Property Portfolio Portfolio Portfolio Redevelopment Portfolio
Properties Sold Portfolio Total
Property Portfolio
Increase/ % Increase/ %
2021 2020 (Decrease) Change 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 (Decrease) Change
(dollars in thousands)
Rental Revenue: (1)
Lease Revenue (Excluding
Termination Income) $ 1,969,391 $ 1,917,628 $ 51,763 2.70 % $ 4,617 $ 297 $ 51,516 2.62 % Termination Income 11,499 8,363 3,136 37.50 % - - - - - - - 59 11,499 8,422 3,077 36.54 % Lease Revenue 1,980,890 1,925,991 54,899 2.85 % 4,617 297
31,200 13,115 8,928 14,771
7,258 24,126 2,032,893 1,978,300 54,593 2.76 %
Parking and Other 56,398 53,136 3,262 6.14 % 488 3 14 16 201 - 1,003 1,150 58,104 54,305 3,799 7.00 %
Total Rental Revenue (1) 2,037,288 1,979,127 58,161 2.94 % 5,105 300 31,214 13,131 9,129 14,771 8,261 25,276 2,090,997 2,032,605 58,392 2.87 %
Real Estate Operating Expenses 728,119 726,296 1,823 0.25 % 2,294 443 8,586 5,778 4,414 6,224 2,860 9,289 746,273 748,030 (1,757) (0.23) %
Net Operating Income (Loss),
Excluding Residential and Hotel 1,309,169 1,252,831 56,338 4.50 % 2,811 (143) 22,628 7,353 4,715 8,547 5,401 15,987 1,344,724 1,284,575 60,149 4.68 %
Residential Net Operating Income
(Loss) (2) 14,833 16,809 (1,976) (11.76) % - - (3,101) (717) - - - - 11,732 16,092 (4,360) (27.09) %
Hotel Net Operating Loss (2) (611) (4,944) 4,333 87.64 % - - - - - - - - (611) (4,944) 4,333 87.64 %
Net Operating Income (Loss) $ 1,323,391 $ 1,264,696 $ 58,695 4.64 % $ 2,811 $ (143) $ 19,527 $ 6,636 $ 4,715 $ 8,547 $ 5,401 $ 15,987 $ 1,355,845 $ 1,295,723 $ 60,122 4.64 %
_______________
(1)Rental Revenue is equal to Revenue less Development and Management Services
Revenue and Direct Reimbursements of Payroll and Related Costs from Management
Services Revenue per the Consolidated Statements of Operations, excluding the
residential and hotel revenue that is noted below. We use Rental Revenue
internally as a performance measure and in calculating other non-GAAP financial
measures (e.g., NOI), which provides investors with information regarding our
performance that is not immediately apparent from the comparable non-GAAP
measures and allows investors to compare operating performance between periods.
(2)For a detailed discussion of NOI, including the reasons management believes
NOI is useful to investors, see page 59. Residential Net Operating Income for
the nine months ended September 30, 2021 and 2020 is comprised of Residential
Revenue of $29,832 and $29,076 less Residential Expenses of $18,100 and $12,984 ,
respectively. Hotel Net Operating Loss for the nine months ended September 30,
2021 and 2020 is comprised of Hotel Revenue of $7,382 and $7,014 less Hotel
Expenses of $7,993 and $11,958 , respectively, per the Consolidated Statements of
Operations.
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Same Property Portfolio
Lease Revenue (Excluding Termination Income)
Lease revenue (excluding termination income) from the Same Property Portfolio
increased by approximately $51.8 million for the nine months ended September 30,
2021 compared to 2020. Approximately $59.6 million of the increase was related
to write-offs of accrued rent and accounts receivable balances that occurred
during the nine months ended September 30, 2020 and did not recur in 2021, for
primarily retail tenants that either terminated their leases or we determined
that the accrued rent and/or accounts receivable balances were no longer
probable of collection. Excluding the write-offs, the Same Property Portfolio
decreased by approximately $7.8 million due to average occupancy decreasing from
93.4% to 91.7%, resulting in a decrease of approximately $62.9 million ,
partially offset by an increase in average revenue per square foot by
approximately $1.08 , contributing approximately $55.1 million .
We continue to evaluate the collectability of our accrued rent and accounts
receivable balances related to lease revenue. If after a write-off has been
recorded, (1) we subsequently determine that we are probable we will collect
substantially all the remaining lessee's lease payments under the lease term and
(2) the lease has not been modified since the write-off, we will then reinstate
the accrued rent and accounts receivable write-offs, adjusting for the amount
related to the period when the lease payments were considered not probable of
collection. If our estimate of collectability differs from the cash received,
then the timing and amount of our reported revenue could be impacted.
Each quarter since the second quarter of 2020, the number of executed COVID-19
lease modifications has decreased and as of the third quarter of 2021, we are
executing COVID-19 modifications on a limited basis.
Termination Income
Termination income increased by approximately $3.1 million for the nine months
ended September 30, 2021 compared to 2020.
Termination income for the nine months ended September 30, 2021 related to 23
tenants across the Same Property Portfolio and totaled approximately
$11.5 million , which was primarily related to tenants that terminated leases
early in New York City and the Boston region.
Termination income for the nine months ended September 30, 2020 related to 34
tenants across the Same Property Portfolio and totaled approximately $8.4
million , which was primarily related to tenants that terminated leases early in
New York City .
Parking and Other Revenue
Parking and other revenue increased by approximately $3.3 million for the nine
months ended September 30, 2021 compared to 2020. Parking revenue and other
revenue increased by approximately $0.8 million and $2.5 million , respectively.
The increase in parking revenue was primarily due to an increase in transient
parking. The increase in other revenue was primarily due to approximately $5.1
million in insurance proceeds related to damage at one of our properties in the
New York region due to a water main break, partially offset by a decrease in
other revenue of approximately $2.6 million related to tenant restoration
obligation payments in 2020 that did not recur in 2021. Expenses of $5.1 million
related to the insurance claim are included within real estate operating
expenses.
We expect to see an increase in parking revenue as the return to office work
grows. For the nine months ended September 30, 2021 , monthly parking decreased
by approximately $4.3 million , offset by an increase in transient parking of
approximately $5.6 million , compared to the nine months ended September 30,
2020 . Some of our monthly parking revenues are contractual agreements embedded
in our leases, and some are at will individual agreements.
Real Estate Operating Expenses
Real estate operating expenses from the Same Property Portfolio increased by
approximately $1.8 million , or 0.3%, for the nine months ended September 30,
2021 compared to 2020, due primarily to an increase in utility expense and
expenses related to the insurance claim mentioned above, partially offset by a
decrease in real estate taxes and cleaning expenses. The increase in utility
expense was experienced across the portfolio and was primarily driven by an
increase in physical tenant occupancy, which led to higher demand for
electricity and HVAC.
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Properties Acquired Portfolio
The table below lists the properties acquired between January 1, 2020 and
September 30, 2021 . Rental revenue and real estate operating expenses increased
by approximately $4.8 million and $1.9 million , respectively, for the nine
months ended September 30, 2021 compared to 2020, as detailed below.
Rental Revenue Real Estate Operating Expenses
Name Date acquired Square Feet 2021 2020 Change 2021 2020 Change
(dollars in thousands)
777 Harrison Street
(1) June 26, 2020 N/A $ 1,509 $ 300 $ 1,209 $ 1,641 $ 443 $ 1,198
153 & 211 Second
Avenue June 2, 2021 136,882 3,101 - 3,101 319 - 319
Shady Grove Bio+Tech
Campus August 2, 2021 233,452 495 - 495 334 - 334
370,334 $ 5,105 $ 300 $ 4,805 $ 2,294 $ 443 $ 1,851
_______________
(1)Formerly known as Fourth + Harrison and 425 Fourth Street and includes
operating results for 759 Harrison Street , which was fully acquired on December
16, 2020 .
Properties Placed In-Service Portfolio
The table below lists the properties that were placed in-service or partially
placed in-service between January 1, 2020 and September 30, 2021 . Rental revenue
and real estate operating expenses from our Properties Placed In-Service
Portfolio increased by approximately $19.9 million and $7.0 million ,
respectively, for the nine months ended September 30, 2021 compared to 2020, as
detailed below.
Quarter Initially Rental Revenue Real Estate Operating Expenses
Name Placed In-Service Quarter Fully Placed In-Service Square Feet 2021 2020 Change 2021 2020 Change
(dollars in thousands)
Office
20 CityPoint Second Quarter, 2019 Second Quarter, 2020 211,476 $ 5,781 $ 5,485 $ 296 $ 2,248 $ 2,053 $ 195
17Fifty Presidents
Street First Quarter, 2020 First Quarter, 2020 275,809 14,833 8,878 5,955 4,292 2,576 1,716
One Five Nine East
53rd Street (1) First Quarter, 2021 First Quarter, 2021 220,000 10,600 (1,232) 11,832 2,046 1,149 897
Total Office 707,285 31,214 13,131 18,083 8,586 5,778 2,808
Residential
The Skylyne Third Quarter, 2020 Third Quarter, 2020 330,996 1,817 23 1,794 4,918 740 4,178
Total Residential 330,996 1,817 23 1,794 4,918 740 4,178
1,038,281 $ 33,031 $ 13,154 $ 19,877 $ 13,504 $ 6,518 $ 6,986
_____________
(1)This is the low-rise portion of
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Properties in Development or Redevelopment Portfolio
The table below lists the properties that were in development or redevelopment
between January 1, 2020 and September 30, 2021 . Rental revenue and real estate
operating expenses from our Properties in Development or Redevelopment Portfolio
decreased by approximately $5.6 million and $1.8 million , respectively, for the
nine months ended September 30, 2021 compared to 2020, as detailed below.
Rental Revenue Real Estate Operating Expenses
Date Commenced
Development /
Name Redevelopment Square Feet 2021 2020 Change 2021 2020 Change
(dollars in thousands)
325 Main Street (1) May 9, 2019 115,000 $ - $ 36 $ (36) $ 278 $ 281 $ (3)
200 West Street (2) September 30, 2019 261,000 4,900 3,826 1,074 2,168 2,565 (397)
880 Winter Street (3) February 25, 2021 224,000 2,476 6,290 (3,814) 1,509 2,338 (829)
3625-3635 Peterson
Way (4) April 16, 2021 218,000 1,753 4,619 (2,866) 459 1,040 (581)
818,000 $ 9,129 $ 14,771 $ (5,642) $ 4,414 $ 6,224 $ (1,810)
_______________
(1)Real estate operating expenses for the nine months ended September 30, 2021
and 2020 were related to demolition costs.
(2)Conversion of a 126,000 square foot portion of the property to life sciences
space from office space.
(3)On February 25, 2021 , we commenced the redevelopment and conversion of 880
Winter Street , a 224,000 square foot office property located in Waltham,
Massachusetts , to laboratory space.
(4)On April 16, 2021 , we removed 3625-3635 Peterson Way , located in Santa Clara,
California , from our in-service portfolio. We are demolishing the building and
expect to redevelop the site at a future date.
Properties Sold Portfolio
The table below lists the properties we sold between January 1, 2020 and
September 30, 2021 . Rental revenue and real estate operating expenses from our
Properties Sold Portfolio decreased by approximately $17.0 million and $6.4
million , respectively, for the nine months ended September 30, 2021 compared to
2020, as detailed below.
Rental Revenue Real Estate Operating Expenses
Name Date Sold Property Type Square Feet 2021 2020 Change 2021 2020 Change
(dollars in thousands)
601, 611 and 651
Gateway January 28, 2020 Office 768,000 $ - $ 1,946 $ (1,946) $ - $ 881 $ (881)
New Dominion
Technology Park February 20, 2020 Office 493,000 - 2,551 (2,551) - 772 (772)
Capital Gallery (1) June 25, 2020 Office 631,000 8,261 20,779 (12,518) 2,860 7,636 (4,776)
1,892,000 $ 8,261 $ 25,276 $ (17,015) $ 2,860 $ 9,289 $ (6,429)
______________
(1)We completed the sale of a portion of our Capital Gallery property located in
Washington, DC . Capital Gallery is an approximately 631,000 net rentable square
foot Class A office property. The portion sold was comprised of approximately
455,000 net rentable square feet of commercial office space. We continue to own
the land, underground parking garage and remaining commercial office and retail
space. The amounts shown represent the entire property and not just the portion
sold.
For additional information on the sales of the above properties refer to
"Results of Operations-Other Income and Expense Items-Gains on Sales of Real
Estate" within "Item 2-Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Residential Net Operating Income
Net operating income for our residential same properties decreased by
approximately $2.0 million for the nine months ended September 30, 2021 compared
to 2020. Net operating income for the nine months ended September 30, 2020
includes approximately $0.7 million of termination income from a retail tenant.
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The following reflects our occupancy and rate information for The Lofts at
Atlantic Wharf , The Avant at Reston Town Center , Signature at Reston and Proto
Kendall Square for the nine months ended September 30, 2021 and 2020.
The Lofts at Atlantic Wharf The Avant at Reston Town Center Signature at Reston
2021 2020 Change (%) 2021 2020 Change (%) 2021 2020 Change (%) 2021 2020 Change (%)
Average Monthly
Rental Rate (1) $ 3,459 $ 4,424 (21.8) % $ 2,255 $ 2,381 (5.3) % $ 2,279 $ 2,327 (2.1) % $ 2,577 $ 2,865 (10.1) %
Average Rental
Rate Per Occupied
Square Foot $ 3.89 $ 4.89 (20.4) % $ 2.46 $ 2.61 (5.7) % $ 2.36 $ 2.46 (4.1) % $ 4.73 $ 5.26 (10.1) %
Average Physical
Occupancy (2) 93.4 % 89.0 % 4.9 % 94.2 % 90.2 % 4.4 % 86.8 % 82.0 % 5.9 % 92.2 % 91.2 % 1.1 %
Average Economic
Occupancy (3) 91.0 % 88.9 % 2.4 % 93.6 % 89.2 % 4.9 % 83.6 % 77.3 % 8.2 % 91.0 % 90.0 % 1.1 %
_______________
(1)Average Monthly Rental Rate is calculated as the average of the quotients
obtained by dividing (A) rental revenue as determined in accordance with GAAP,
by (B) the number of occupied units for each month within the applicable fiscal
period.
(2)Average Physical Occupancy is defined as (1) the average number of occupied
units divided by (2) the total number of units, expressed as a percentage.
(3)Average Economic Occupancy is defined as (1) total possible revenue less
vacancy loss divided by (2) total possible revenue, expressed as a percentage.
Total possible revenue is determined by valuing average occupied units at
contract rates and average vacant units at Market Rents. Vacancy loss is
determined by valuing vacant units at current Market Rents. By measuring vacant
units at their Market Rents, Average Economic Occupancy takes into account the
fact that units of different sizes and locations within a residential property
have different economic impacts on a residential property's total possible gross
revenue. Market Rents used by us in calculating Economic Occupancy are based on
the current market rates set by the managers of our residential properties based
on their experience in renting their residential property's units and publicly
available market data. Actual market rents and trends in such rents for a region
as reported by others may vary materially from Market Rents used by us. Market
Rents for a period are based on the average Market Rents during that period and
do not reflect any impact for cash concessions.
Hotel Net Operating Loss
The Boston Marriott Cambridge hotel property operated at a loss of approximately
$0.6 million for the nine months ended September 30, 2021 . This is approximately
$4.3 million less than the nine months ended September 30, 2020 .
The Boston Marriott Cambridge closed in March 2020 due to COVID-19. The hotel
re-opened on October 2, 2020 and has operated at lower occupancy levels due to
the continued impact of COVID-19 on business and leisure travel. The closing of
the hotel for more than two fiscal quarters, and the lower demand and low
occupancy since its re-opening, have had, and are expected to continue to have,
a material adverse effect on the hotel's operations. We expect hotel occupancy
to remain low until the demand for business and leisure travel returns to
historical levels.
The following reflects our occupancy and rate information for the Boston
Marriott Cambridge hotel for the nine months ended September 30, 2021 and 2020.
2021 2020 Change (%)
Occupancy 27.8 % 19.8 % 40.4 %
Average daily rate $ 192.67 $ 211.36 (8.8) %
REVPAR $ 53.59 $ 41.85 28.1 %
Other Operating Revenue and Expense Items
Development and Management Services Revenue
Development and management services revenue decreased by approximately $3.1
million for the nine months ended September 30, 2021 compared to 2020.
Development services revenue decreased by approximately $3.8 million while
management services revenue increased by approximately $0.7 million . The
decrease in development
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services revenue was primarily related to a decrease in development fees earned
from a building owned by a third-party in the Washington, DC region and an
unconsolidated joint venture in New York City and fees associated with tenant
improvement projects earned from a third-party owned building in the Washington,
DC region. The increase in management services revenue was primarily related to
an increase in leasing commissions earned from a third-party owned building in
the Washington, DC region.
General and Administrative Expense
General and administrative expense increased by approximately $15.9 million for
the nine months ended September 30, 2021 compared to 2020 primarily due to an
increase in compensation and health care expenses of approximately $17.5
million , partially offset by an approximately $1.6 million decrease in other
general and administrative expenses. The increase in compensation expense was
related to (1) an approximately $2.7 million increase in the value of our
deferred compensation plan, (2) an approximately $13.4 million increase in other
compensation expenses, primarily due to age-based vesting and (3) an
approximately $1.4 million increase in health care costs. The decrease in other
general and administrative expenses was primarily related to a decrease in
professional fees.
Wages directly related to the development of rental properties are capitalized
and included in real estate assets on our Consolidated Balance Sheets and
amortized over the useful lives of the applicable asset or lease term.
Capitalized wages for the nine months ended September 30, 2021 and 2020 were
approximately $10.1 million and $9.6 million , respectively. These costs are not
included in the general and administrative expenses discussed above.
Transaction Costs
Transaction costs increased by approximately $1.7 million for the nine months
ended September 30, 2021 compared to 2020 due primarily to costs incurred in
connection with the pursuit and formation of new joint ventures. In general,
transaction costs relating to the formation of new and pending joint ventures
and the pursuit of other transactions are expensed as incurred.
Depreciation and Amortization Expense
Depreciation expense may differ between BXP and BPLP as a result of previously
applied acquisition accounting by BXP for the issuance of common stock in
connection with non-sponsor OP Unit redemptions by BPLP. This accounting
resulted in a step-up of the real estate assets at BXP that was allocated to
certain properties. The difference between the real estate assets of BXP as
compared to BPLP for certain properties having an allocation of the real estate
step-up will result in a corresponding difference in depreciation expense. For
additional information see the Explanatory Note that follows the cover page of
this Quarterly Report on Form 10-Q.
Boston Properties, Inc.
Depreciation and amortization expense increased by approximately $24.1 million
for the nine months ended September 30, 2021 compared to 2020, as detailed
below.
Depreciation and Amortization for the nine months
ended September 30,
Portfolio 2021 2020 Change
(in thousands)
Same Property Portfolio (1) $ 498,208 $ 498,585 $ (377)
Properties Acquired Portfolio 4,742 - 4,742
Properties Placed In-Service Portfolio 14,936 5,144 9,792
Properties in Development or Redevelopment Portfolio (2)
20,855 8,397 12,458
Properties Sold Portfolio 1,074 3,612 (2,538)
$ 539,815 $ 515,738 $ 24,077
_______________
(1)During the nine months ended September 30, 2021 , we commenced redevelopment
of View Boston Observatory at The Prudential Center , a 59,000 net rentable
square foot redevelopment of the top three floors of 800 Boylston Street - The
Prudential Center , located in Boston, Massachusetts . As a result, during the
nine months ended September 30, 2021 , we recorded approximately $2.6 million of
accelerated depreciation expense for the demolition of the space, of which
approximately $0.8 million related to the step-up of real estate assets.
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(2)On February 25, 2021 , we commenced redevelopment of 880 Winter Street in
Waltham, Massachusetts . As a result, during the nine months ended September 30,
2021 , we recorded approximately $13.7 million of accelerated depreciation
expense for the demolition of a portion of the building.
Boston Properties Limited Partnership
Depreciation and amortization expense increased by approximately $22.9 million
for the nine months ended September 30, 2021 compared to 2020, as detailed
below.
Depreciation and Amortization for the nine months
ended September 30,
Portfolio 2021 2020 Change
(in thousands)
Same Property Portfolio (1) $ 491,648 $ 493,247 $ (1,599)
Properties Acquired Portfolio 4,742 - 4,742
Properties Placed In-Service Portfolio 14,936 5,144 9,792
Properties in Development or Redevelopment Portfolio (2)
20,855 8,397 12,458
Properties Sold Portfolio 1,074 3,612 (2,538)
$ 533,255 $ 510,400 $ 22,855
_______________
(1)During the nine months ended September 30, 2021 , we commenced redevelopment
of View Boston Observatory at The Prudential Center , a 59,000 net rentable
square foot redevelopment of the top three floors of 800 Boylston Street - The
Prudential Center , located in Boston, Massachusetts . As a result, during the
nine months ended September 30, 2021 , we recorded approximately $1.8 million of
accelerated depreciation expense for the demolition of the space.
(2)On February 25, 2021 , we commenced redevelopment of 880 Winter Street in
Waltham, Massachusetts . As a result, during the nine months ended September 30,
2021 , we recorded approximately $13.7 million of accelerated depreciation
expense for the demolition of a portion of the building.
Direct Reimbursements of Payroll and Related Costs From Management Services
Contracts and Payroll and Related Costs From Management Service Contracts
We have determined that amounts reimbursed for payroll and related costs
received from third parties in connection with management services contracts
should be reflected on a gross basis instead of on a net basis as we have
determined that we are the principal under these arrangements. We anticipate
that these two financial statement line items will generally offset each other.
Other Income and Expense Items
Loss from Unconsolidated Joint Ventures
For the nine months ended September 30, 2021 compared to 2020, loss from
unconsolidated joint ventures decreased by approximately $3.7 million primarily
due to an approximately $10.3 million gain on sale of investment from the sale
of our Annapolis Junction joint venture interest during the nine months ended
September 30, 2021 (See Note 5 to the Consolidated Financial Statements). This
increase was partially offset by (1) an approximately $5.8 million gain on sale
of real estate from the sale of Annapolis Junction Building Eight and two
undeveloped land parcels during the nine months ended September 30, 2020 and (2)
an approximately $1.1 million decrease in net income from our Metropolitan
Square joint venture, primarily related to increased interest expense related to
the mortgage refinancing.
Gains on Sales of Real Estate
Gains on sales of real estate may differ between BXP and BPLP as a result of
previously applied acquisition accounting by BXP for the issuance of common
stock in connection with non-sponsor OP Unit redemptions by BPLP. This
accounting resulted in a step-up of the real estate assets at BXP that was
allocated to certain properties. The difference between the real estate assets
of BXP as compared to BPLP for certain properties having an allocation of the
real estate step-up will result in a corresponding difference in the gains on
sales of real estate when those properties are sold. For additional information,
see the Explanatory Note that follows the cover page of this Quarterly Report on
Form 10-Q.
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Boston Properties, Inc.
Gains on sales of real estate decreased by approximately $605.6 million for the
nine months ended September 30, 2021 compared to 2020, as detailed below.
Gain (Loss) on
Net Cash Sale of Real
Name Date Sold Property Type Square Feet Sale Price Proceeds Estate
(dollars in millions)
2021
6595 Springfield Center
Drive December 13, 2018 Office 634,000 N/A N/A $ 8.1 (1)
N/A N/A $ 8.1
2020
601, 611 and 651 Gateway January 28, 2020 Office 768,000 $ 350.0 $ - $ 217.7
New Dominion Technology
Park February 20, 2020 Office 493,000 256.0 254.0 192.3
Capital Gallery June 25, 2020 Office 455,000 253.7 246.6 203.6
$ 859.7 $ 500.6 $ 613.6 (2)
___________
(1)On December 13, 2018 , we sold our 6595 Springfield Center Drive development
project located in Springfield, Virginia . Concurrently with the sale, we agreed
to act as development manager and guaranteed the completion of the project (See
Note 9 to the Consolidated Financial Statements). The development project
achieved final completion during the third quarter of 2021 and, upon completion
of the project, the total cost of development was determined to be below the
estimated total investment at the time of sale. As a result, we recognized a
gain of approximately $8.1 million .
(2)Excludes approximately $0.1 million of gains on sales of real estate
recognized during the nine months ended September 30, 2020 related to gain
amounts from sales of real estate occurring in the prior year.
Boston Properties Limited Partnership
Gains on sales of real estate decreased by approximately $618.6 million for the
nine months ended September 30, 2021 compared to 2020, as detailed below.
Gain (Loss) on
Net Cash Sale of Real
Name Date Sold Property Type Square Feet Sale Price Proceeds Estate
(dollars in millions)
2021
6595 Springfield Center
Drive December 13, 2018 Office 634,000 N/A N/A $ 8.1 (1)
N/A N/A $ 8.1
2020
601, 611 and 651 Gateway January 28, 2020 Office 768,000 $ 350.0 $ - $ 222.4
New Dominion Technology
Park February 20, 2020 Office 493,000 256.0 254.0 197.1
Capital Gallery June 25, 2020 Office 455,000 253.7 246.6 207
$ 859.7 $ 500.6 $ 626.5 (2)
___________
(1)On December 13, 2018 , we sold our 6595 Springfield Center Drive development
project located in Springfield, Virginia . Concurrently with the sale, we agreed
to act as development manager and guaranteed the completion of the project (See
Note 9 to the Consolidated Financial Statements). The development project
achieved final completion during the third quarter of 2021 and, upon completion
of the project, the total cost of development was determined to be below the
estimated total investment at the time of sale. As a result, we recognized a
gain of approximately $8.1 million .
(2)Excludes approximately $0.2 million of gains on sales of real estate
recognized during the nine months ended September 30, 2020 related to gain
amounts from sales of real estate occurring in the prior year.
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Interest and Other Income (Loss)
Interest and other income (loss) decreased by approximately $0.1 million for the
nine months ended September 30, 2021 compared to 2020, due primarily to a
decrease of approximately $2.9 million in interest income as a result of lower
interest earned on our deposits, partially offset by an approximately $2.8
million decrease in the allowance for current expected credit losses, which
results in higher income.
On January 1, 2020 , we adopted Accounting Standards Update ("ASU") 2016-13,
"Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments" ("ASU 2016-13") and, as a result, we were required to
record an allowance for current expected credit losses related to our
outstanding (1) related party note receivable, (2) notes receivable and (3)
off-balance sheet credit exposures.
Gains from Investments in Securities
Gains from investments in securities for the nine months ended September 30,
2021 and 2020 related to investments that we have made to reduce our market risk
relating to deferred compensation plans that we maintain for BXP's officers and
former non-employee directors. Under the deferred compensation plans, each
officer or non-employee director who is eligible to participate is permitted to
defer a portion of the officer's current income or the non-employee director's
compensation on a pre-tax basis and receive a tax-deferred return on these
deferrals based on the performance of specific investments selected by the
officer or non-employee director. In order to reduce our market risk relating to
these plans, we typically acquire, in a separate account that is not restricted
as to its use, similar or identical investments as those selected by each
officer or non-employee director. This enables us to generally match our
liabilities to BXP's officers or former non-employee directors under our
deferred compensation plans with equivalent assets and thereby limit our market
risk. The performance of these investments is recorded as gains from investments
in securities. During the nine months ended September 30, 2021 and 2020, we
recognized gains of approximately $3.7 million and $1.0 million , respectively,
on these investments. By comparison, our general and administrative expense
increased by approximately $3.7 million and $1.0 million during the nine months
ended September 30, 2021 and 2020, respectively, as a result of increases in our
liability under our deferred compensation plans that was associated with the
performance of the specific investments selected by officers and former
non-employee directors of BXP participating in the plans.
Losses From Early Extinguishment of Debt
On February 14, 2021 , BPLP completed the redemption of $850.0 million in
aggregate principal amount of its 4.125% senior notes due May 15, 2021 . The
redemption price was approximately $858.7 million , which was equal to the stated
principal plus approximately $8.7 million of accrued and unpaid interest to, but
not including, the redemption date. Excluding the accrued and unpaid interest,
the redemption price was equal to the principal amount being redeemed. We
recognized a loss from early extinguishment of debt totaling approximately
$0.4 million related to unamortized origination costs.
On March 16, 2021 , BPLP repaid $500.0 million , representing all amounts
outstanding on its delayed draw term loan ("Delayed Draw Facility") under our
prior unsecured revolving credit agreement (the "2017 Credit Facility"). We
recognized a loss from early extinguishment of debt totaling approximately $0.5
million related to unamortized financing costs.
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Interest Expense
Interest expense increased by approximately $0.3 million for the nine months
ended September 30, 2021 compared to 2020, as detailed below.
Change in interest
expense for the nine
months ended
September 30, 2021
compared to
Component September 30, 2020
(in thousands)
Increases to interest expense due to:
Issuance of $1.25 billion in aggregate principal of 3.250% senior
notes due 2031 on May 5, 2020 $ 14,155
Issuance of
11,897
Decrease in capitalized interest related to development projects 3,645
Increase in interest due to finance leases for two in-service properties
1,604
Increase in interest due to finance leases that are related to development properties
1,052
Issuance of
116
Total increases to interest expense 32,469
Decreases to interest expense due to:
Redemption of
(22,550)
Decrease in interest rates for the 2017 and 2021 Credit Facilities
and the repayment of the unsecured term loan on
(5,196)
Increase in capitalized interest related to development projects that had finance leases
(3,645)
Other interest expense (excluding senior notes) (658)
Decrease in interest related to the repayment of the
(131)
Total decreases to interest expense (32,180)
Total change in interest expense $ 289
_______________
(1)OnJune 15, 2021 , BPLP entered into the 2021 Credit Facility, which replaced the 2017 Credit Facility (See Note 8 to the Consolidated Financial Statements). Interest expense directly related to the development of rental properties is capitalized and included in real estate assets on our Consolidated Balance Sheets and amortized over the useful lives of the real estate or lease term. As portions of properties are placed in-service, we cease capitalizing interest on that portion and interest is then expensed. Interest capitalized for the nine months endedSeptember 30, 2021 and 2020 was approximately$36.6 million and$41.3 million , respectively. These costs are not included in the interest expense referenced above. OnOctober 15, 2021 , BPLP used available cash and funds under its 2021 Credit Facility to complete the redemption of$1.0 billion in aggregate principal amount of its 3.85% senior notes dueFebruary 1, 2023 . The redemption price was approximately$1.05 billion , which was equal to par plus approximately$7.9 million of accrued and unpaid interest to, but not including, the redemption date and an early redemption premium and unamortized financing costs totaling approximately$43.9 million . We expect to recognize a loss from early extinguishment of debt related primarily to the payment of the redemption premium in the fourth quarter. AtSeptember 30, 2021 , our variable rate debt consisted of BPLP's$1.5 billion revolving facility (the "Revolving Facility"). The Revolving Facility did not have an outstanding balance as ofSeptember 30, 2021 . For a summary of our consolidated debt as ofSeptember 30, 2021 andSeptember 30, 2020 refer to the heading "Liquidity and Capital Resources-Capitalization-Debt Financing" within "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations." 69 -------------------------------------------------------------------------------- Table of Contents Noncontrolling Interests in Property Partnerships Noncontrolling interests in property partnerships increased by approximately$18.3 million for the nine months endedSeptember 30, 2021 compared to 2020, as detailed below. Noncontrolling
Interests in Property Partnerships for
the nine months ended September 30,
Property 2021 2020 Change
(in thousands)
767 Fifth Avenue (the General Motors Building )
(1) $ 8,873 $ 4,205 $ 4,668
Times Square Tower (2) 14,915 198 14,717
601 Lexington Avenue (3) 11,245 12,317 (1,072)
100 Federal Street 10,211 10,874 (663)
Atlantic Wharf Office Building 7,358 6,686 672
$ 52,602 $ 34,280 $ 18,322
_______________
(1)The increase was primarily attributable to an increase in lease revenue from
our tenants. In addition, during the nine months ended September 30, 2020 , we
accelerated amortization expense related to a below-market lease that terminated
early.
(2)During the nine months ended September 30, 2020 , we wrote off approximately
$26.8 million of accrued rent and accounts receivable balances for tenants that
either terminated their leases or for which we determined their accrued rent
and/or accounts receivable balances, primarily retail tenants, were no longer
probable of collection. Approximately $12.0 million represents our partners'
share of the write-offs.
(3)The decrease was primarily due to a decrease in lease revenue from our retail
tenants and a tenant that terminated its space during the nine months ended
September 30, 2020 , partially offset by the increase in revenue related to
placing in-service One Five Nine East 53rd Street . During the nine months ended
September 30, 2020 , we wrote off approximately $2.9 million of accrued rent and
accounts receivable balances for tenants that either terminated their leases or
for which we determined their accrued rent and/or accounts receivable balances,
primarily retail tenants, were no longer probable of collection. Approximately
$1.3 million represents our partners' share of the write-offs.
Noncontrolling Interest-Common Units of the Operating Partnership
For BXP, noncontrolling interest-common units of the Operating Partnership
decreased by approximately $61.7 million for the nine months ended September 30,
2021 compared to 2020 due primarily to a decrease in allocable income, which was
the result of recognizing a greater gain on sales of real estate amount during
2020. Due to our ownership structure, there is no corresponding line item on
BPLP's financial statements.
Results of Operations for the Three Months Ended September 30, 2021 and 2020
Net income attributable to Boston Properties, Inc. common shareholders and net
income attributable to Boston Properties Limited Partnership common unitholders
increased approximately $18.4 million and $20.4 million for the three months
ended September 30, 2021 compared to 2020, respectively, as detailed in the
following tables and for the reasons discussed below under the heading
"Comparison of the three months ended September 30, 2021 to the three months
ended September 30, 2020 " within "Item 2-Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Below are reconciliations of net income attributable to Boston Properties, Inc.
common shareholders to NOI and net income attributable to Boston Properties
Limited Partnership common unitholders to NOI for the three months ended
September 30, 2021 and 2020. For a detailed discussion of NOI, including the
reasons management believes NOI is useful to investors, see page 59.
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Boston Properties, Inc.
Three months ended September 30,
Increase/ %
2021 2020 (Decrease) Change
(in thousands)
Net Income Attributable to Boston Properties ,
Inc. Common Shareholders $ 108,297 $ 89,854 $ 18,443 20.53 %
Preferred dividends - 2,625 (2,625) (100.00) %
Net Income Attributable to Boston Properties ,
Inc. 108,297 92,479 15,818 17.10 %
Net Income Attributable to Noncontrolling
Interests:
Noncontrolling interest-common units of the
Operating Partnership 11,982 10,020 1,962 19.58 %
Noncontrolling interests in property partnerships 18,971 15,561 3,410 21.91 %
Net Income 139,250 118,060 21,190 17.95 %
Other Expenses:
Add:
Interest expense 105,794 110,993 (5,199) (4.68) %
Loss from unconsolidated joint ventures 5,597 6,873 (1,276) (18.57) %
Other Income:
Less:
Gains (losses) from investments in securities (190) 1,858 (2,048) (110.23) %
Interest and other income (loss) 1,520 (45) 1,565 3,477.78 %
Gains (losses) on sales of real estate 348 (209) 557 266.51 %
Other Expenses:
Add:
Depreciation and amortization expense 179,412 166,456 12,956 7.78 %
Transaction costs 1,888 307 1,581 514.98 %
Payroll and related costs from management
services contracts 3,006 2,896 110 3.80 %
General and administrative expense 34,560 27,862 6,698 24.04 %
Other Revenue:
Less:
Direct reimbursements of payroll and related
costs from management services contracts 3,006 2,896 110 3.80 %
Development and management services revenue 6,094 7,281 (1,187) (16.30) %
Net Operating Income $ 458,729 $ 421,666 $ 37,063 8.79 %
71-------------------------------------------------------------------------------- Table of ContentsBoston Properties Limited Partnership Three months ended September 30, Increase/ % 2021 2020 (Decrease) Change (in thousands) Net Income Attributable toBoston Properties Limited Partnership Common Unitholders$ 122,014 $ 101,624 $ 20,390 20.06 % Preferred distributions - 2,625 (2,625) (100.00) % Net Income Attributable toBoston Properties Limited Partnership 122,014 104,249 17,765 17.04 % Net Income Attributable to Noncontrolling Interests: Noncontrolling interests in property partnerships 18,971 15,561 3,410 21.91 % Net Income 140,985 119,810 21,175 17.67 % Other Expenses: Add: Interest expense 105,794 110,993 (5,199) (4.68) % Loss from unconsolidated joint ventures 5,597 6,873 (1,276) (18.57) % Other Income: Less: Gains (losses) from investments in securities (190) 1,858 (2,048) (110.23) % Interest and other income (loss) 1,520 (45) 1,565 3,477.78 % Gains (losses) on sales of real estate 348 (209) 557 266.51 % Other Expenses: Add: Depreciation and amortization expense 177,677 164,706 12,971 7.88 % Transaction costs 1,888 307 1,581 514.98 % Payroll and related costs from management services contracts 3,006 2,896 110 3.80 % General and administrative expense 34,560 27,862 6,698 24.04 % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 3,006 2,896 110 3.80 % Development and management services revenue 6,094 7,281 (1,187) (16.30) % Net Operating Income$ 458,729 $ 421,666 $ 37,063 8.79 % Comparison of the three months endedSeptember 30, 2021 to the three months endedSeptember 30, 2020 The table below shows selected operating information for the Same Property Portfolio and the Total Property Portfolio. The Same Property Portfolio consists of 143 properties totaling approximately 39.7 million net rentable square feet, excluding unconsolidated joint ventures. The Same Property Portfolio includes properties acquired or placed in-service on or prior toJuly 1, 2020 and owned and in-service throughSeptember 30, 2021 . The Total Property Portfolio includes the effects of the other properties either acquired, placed in-service, in development or redevelopment afterJuly 1, 2020 or disposed of on or prior toSeptember 30, 2021 . This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the three months endedSeptember 30, 2021 and 2020 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold. We did not sell any properties during the three months endedSeptember 30, 2021 and 2020. 72
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Properties in
Properties Development or
Properties Placed In-Service Redevelopment
Same Property Portfolio Acquired Portfolio Portfolio Portfolio
Total Property Portfolio
Increase/ % Increase/ %
2021 2020 (Decrease) Change 2021 2020 2021 2020 2021 2020 2021 2020 (Decrease) Change
(dollars in thousands)
Rental Revenue: (1)
Lease Revenue (Excluding
Termination Income) $ 671,248 $ 649,484 $ 21,764 3.35 % $ 2,840 $ - $ 3,904 $ 157 $ 1,752 $ 4,753 $ 679,744 $ 654,394 $ 25,350 3.87 %
Termination Income 1,874 2,715 (841) (30.98) % - - - - - - 1,874 2,715 (841) (30.98) %
Lease Revenue 673,122 652,199 20,923 3.21 % 2,840 - 3,904 157 1,752 4,753 681,618 657,109 24,509 3.73 %
Parking and Other 23,250 16,170 7,080 43.78 % - - 5 4 - - 23,255 16,174 7,081 43.78 %
Total Rental Revenue (1) 696,372 668,369 28,003 4.19 % 2,840 - 3,909 161 1,752 4,753 704,873 673,283 31,590 4.69 %
Real Estate Operating
Expenses 249,844 250,951 (1,107) (0.44) % 582 - 648 307 1,162 2,048 252,236 253,306 (1,070) (0.42) %
Net Operating Income
(Loss), Excluding
Residential and Hotel 446,528 417,418 29,110 6.97 % 2,258 - 3,261 (146) 590 2,705 452,637 419,977 32,660 7.78 %
Residential Net Operating
Income (Loss) (2) 5,731 5,480 251 4.58 % - - (882) (717) - - 4,849 4,763 86 1.81 %
Hotel Net Operating Income
(Loss) (2) 1,243 (3,074) 4,317 140.44 % - - - - - - 1,243 (3,074) 4,317 140.44 %
Net Operating Income (Loss) $ 453,502 $ 419,824 $ 33,678 8.02 % $ 2,258 $ - $ 2,379 $ (863) $ 590 $ 2,705 $ 458,729 $ 421,666 $ 37,063 8.79 %
_______________
(1)Rental Revenue is equal to Revenue less Development and Management Services
Revenue and Direct Reimbursements of Payroll and Related Costs from Management
Services Revenue per the Consolidated Statements of Operations, excluding the
residential and hotel revenue that is noted below. We use Rental Revenue
internally as a performance measure and in calculating other non-GAAP financial
measures (e.g., NOI), which provides investors with information regarding our
performance that is not immediately apparent from the comparable non-GAAP
measures and allows investors to compare operating performance between periods.
(2)For a detailed discussion of NOI, including the reasons management believes
NOI is useful to investors, see page 59. Residential Net Operating Income for
the three months ended September 30, 2021 and 2020 is comprised of Residential
Revenue of $10,894 and $9,718 less Residential Expenses of $6,045 and $4,955 ,
respectively. Hotel Net Operating Income (Loss) for the three months ended
September 30, 2021 and 2020 is comprised of Hotel Revenue of $5,189 and $90 less
Hotel Expenses of $3,946 and $3,164 , respectively, per the Consolidated
Statements of Operations.
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Same Property Portfolio
Lease Revenue (Excluding Termination Income)
Lease revenue from the Same Property Portfolio increased by approximately $21.8
million for the three months ended September 30, 2021 compared to 2020.
Approximately $7.5 million of the increase related to write-offs of accrued rent
and accounts receivable balances that occurred during the three months ended
September 30, 2020 and did not recur in 2021, for primarily retail tenants that
either terminated their leases or we determined that the accrued rent and/or
accounts receivable balances were no longer probable of collection. Excluding
the write-offs, the Same Property Portfolio increased by approximately $14.3
million primarily due to our average revenue per square foot increasing by
approximately $2.77 , resulting in an increase of approximately $24.1 million ,
partially offset by an approximately $9.8 million decrease due to our average
occupancy decreasing from 92.4% to 91.0%.
We continue to evaluate the collectability of our accrued rent and accounts
receivable balances related to lease revenue. If after a write-off has been
recorded, (1) we subsequently determine that we are probable we will collect
substantially all the remaining lessee's lease payments under the lease term and
(2) the lease has not been modified since the write-off, we will then reinstate
the accrued rent and accounts receivable write-offs, adjusting for the amount
related to the period when the lease payments were considered not probable of
collection. If our estimate of collectability differs from the cash received,
then the timing and amount of our reported revenue could be impacted.
Each quarter since the second quarter of 2020, the number of executed COVID-19
lease modifications has decreased and as of the third quarter of 2021, we are
executing COVID-19 modifications on a limited basis.
Termination Income
Termination income decreased by approximately $0.8 million for the three months
ended September 30, 2021 compared to 2020.
Termination income for the three months ended September 30, 2021 related to six
tenants across the Same Property Portfolio and totaled approximately $1.9
million , which was primarily related to tenants that terminated leases early in
New York City .
Termination income for the three months ended September 30, 2020 related to 10
tenants across the Same Property Portfolio and totaled approximately $2.7
million , which was primarily related to tenants that terminated leases early in
New York City and the Washington, DC region.
Parking and Other Revenue
Parking and other revenue increased by approximately $7.1 million for the three
months ended September 30, 2021 compared to 2020. Parking revenue and other
revenue increased by approximately $6.3 million and $0.8 million , respectively.
The increase in parking revenue was primarily due to an increase in transient
parking.
Real Estate Operating Expenses
Real estate operating expenses from the Same Property Portfolio decreased by
approximately $1.1 million , or 0.4%, for the three months ended September 30,
2021 compared to 2020, due primarily to a decrease in real estate taxes of
approximately $5.9 million , or 4.4%, offset by an increase in utility and other
real estate operating expenses of approximately $3.1 million , or 12.1%, and $1.7
million , or 1.9%, respectively. The decrease in real estate taxes was primarily
experienced in New York City . The increase in utility expense was experienced
across the portfolio and was primarily driven by an increase in physical tenant
occupancy, which led to higher demand for electricity and HVAC.
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Properties Acquired Portfolio
The table below lists the properties acquired between July 1, 2020 and
September 30, 2021 . Rental revenue and real estate operating expenses increased
by approximately $2.8 million and $0.6 million , respectively, for the three
months ended September 30, 2021 compared to 2020, as detailed below.
Rental Revenue Real Estate Operating Expenses
Name Date acquired Square Feet 2021 2020 Change 2021 2020 Change
(dollars in thousands)
153 & 211 Second
Avenue June 2, 2021 136,882 $ 2,345 $ - $ 2,345 $ 248 $ - $ 248
Shady Grove Bio+Tech
Campus August 2, 2021 233,452 495 - 495 334 - 334
370,334 $ 2,840 $ - $ 2,840 $ 582 $ - $ 582
Properties Placed In-Service Portfolio
The table below lists the properties that were placed in-service or partially
placed in-service between July 1, 2020 and September 30, 2021 . Rental revenue
and real estate operating expenses from our Properties Placed In-Service
Portfolio increased by approximately $4.5 million and $1.3 million ,
respectively, for the three months ended September 30, 2021 compared to 2020, as
detailed below.
Quarter Initially Rental Revenue Real Estate Operating Expenses
Name Placed In-Service Quarter Fully Placed In-Service Square Feet 2021 2020 Change 2021 2020 Change
(dollars in thousands)
Office
One Five Nine East
53rd Street (1) First Quarter, 2021 First Quarter, 2021 220,000 $ 3,909 $ 161 $ 3,748 $ 648 $ 307 $ 341
Total Office 220,000 3,909 161 3,748 648 307 341
Residential
The Skylyne Third Quarter, 2020 Third Quarter, 2020 330,996 806 23 783 1,688 740 948
Total Residential 330,996 806 23 783 1,688 740 948
550,996 $ 4,715 $ 184 $ 4,531 $ 2,336 $ 1,047 $ 1,289
_______________
(1)This is the low-rise portion of
Properties in Development or Redevelopment Portfolio The table below lists the properties that were in development or redevelopment betweenJuly 1, 2020 andSeptember 30, 2021 . Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio decreased by approximately$3.0 million and$0.9 million , respectively, for the three months endedSeptember 30, 2021 compared to 2020. Rental Revenue Real Estate Operating Expenses Date Commenced Development / Name Redevelopment Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) 325 Main Street (1) May 9, 2019 115,000 $ - $ - $ -$ 169 $ 207 $ (38) 200 West Street (2) September 30, 2019 261,000 1,752 1,233 519 932 784 148 880 Winter Street (3) February 25, 2021 224,000 - 1,977 (1,977) 61 706 (645) 3625-3635 Peterson Way (4) April 16, 2021 218,000 - 1,543 (1,543) - 351 (351) 818,000$ 1,752 $ 4,753 $ (3,001) $ 1,162 $ 2,048 $ (886) 75
-------------------------------------------------------------------------------- Table of Contents _______________ (1)Real estate operating expenses for the three months endedSeptember 30, 2021 and 2020 were related to demolition costs. (2)Conversion of a 126,000 square foot portion of the property to life sciences space from office space. (3)OnFebruary 25, 2021 , we commenced the redevelopment and conversion of880 Winter Street , a 224,000 square foot office property located inWaltham, Massachusetts , to laboratory space. (4)OnApril 16, 2021 , we removed3625-3635 Peterson Way , located inSanta Clara, California , from our in-service portfolio. We are demolishing the building and expect to redevelop the site at a future date. Residential Net Operating Income Net operating income for our residential same properties increased by approximately$0.3 million for the three months endedSeptember 30, 2021 compared to 2020. Net operating income for the three months endedSeptember 30, 2020 includes approximately$0.7 million of termination income from a retail tenant. The following reflects our occupancy and rate information for The Lofts atAtlantic Wharf , The Avant atReston Town Center , Signature atReston andProto Kendall Square for the three months endedSeptember 30, 2021 and 2020. The Lofts atAtlantic Wharf The Avant atReston Town Center Signature atReston
2021 2020 Change (%) 2021 2020 Change (%) 2021 2020 Change (%) 2021 2020 Change (%)
Average Monthly
Rental Rate (1) $ 3,747 $ 4,231 (11.4) % $ 2,299 $ 2,352 (2.3) % $ 2,429 $ 2,319 4.7 % $ 2,642 $ 2,676 (1.3) %
Average Rental
Rate Per Occupied
Square Foot $ 4.17 $ 4.62 (9.7) % $ 2.50 $ 2.57 (2.7) % $ 2.51 $ 2.42 3.7 % $ 4.82 $ 4.91 (1.8) %
Average Physical
Occupancy (2) 96.5 % 80.2 % 20.3 % 96.3 % 89.7 % 7.4 % 93.2 % 82.2 % 13.4 % 94.5 % 85.7 % 10.3 %
Average Economic
Occupancy (3) 95.4 % 80.7 % 18.2 % 96.3 % 88.9 % 8.3 % 92.0 % 78.2 % 17.6 % 93.9 % 83.1 % 13.0 %
_______________
(1)Average Monthly Rental Rate is calculated as the average of the quotients
obtained by dividing (A) rental revenue as determined in accordance with GAAP,
by (B) the number of occupied units for each month within the applicable fiscal
period.
(2)Average Physical Occupancy is defined as (1) the average number of occupied
units divided by (2) the total number of units, expressed as a percentage.
(3)Average Economic Occupancy is defined as (1) total possible revenue less
vacancy loss divided by (2) total possible revenue, expressed as a percentage.
Total possible revenue is determined by valuing average occupied units at
contract rates and average vacant units at Market Rents. Vacancy loss is
determined by valuing vacant units at current Market Rents. By measuring vacant
units at their Market Rents, Average Economic Occupancy takes into account the
fact that units of different sizes and locations within a residential property
have different economic impacts on a residential property's total possible gross
revenue. Market Rents used by us in calculating Economic Occupancy are based on
the current market rates set by the managers of our residential properties based
on their experience in renting their residential property's units and publicly
available market data. Actual market rents and trends in such rents for a region
as reported by others may vary materially from Market Rents used by us. Market
Rents for a period are based on the average Market Rents during that period and
do not reflect any impact for cash concessions.
Hotel Net Operating Income (Loss)
The Boston Marriott Cambridge hotel property operated at an approximately $1.2
million profit during the three months ended September 30, 2021 . This is
approximately $4.3 million greater than the three months ended September 30,
2020 .
The Boston Marriott Cambridge closed in March 2020 due to COVID-19. The hotel
re-opened on October 2, 2020 and has operated at lower occupancy levels due to
the continued impact of COVID-19 on business and leisure travel. The closing of
the hotel for more than two fiscal quarters, and the lower demand and low
occupancy since its re-opening, have had, and are expected to continue to have,
a material adverse effect on the hotel's operations. We expect hotel occupancy
to remain low until the demand for business and leisure travel returns to
historical levels.
The following reflects our occupancy and rate information for the Boston
Marriott Cambridge hotel for the three months ended September 30, 2021 and 2020.
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2021 2020 Change (%)
Occupancy 49.4 % - % 100.0 %
Average daily rate $ 222.31 $ - 100.0 %
REVPAR $ 109.86 $ - 100.0 %
Other Operating Revenue and Expense Items
Development and Management Services Revenue
Development and management services revenue decreased by approximately $1.2
million for the three months ended September 30, 2021 compared to 2020.
Development and management services revenue decreased by approximately $1.1
million and $0.1 million , respectively. The decrease in development services
revenue was primarily related to a decrease of approximately $0.6 million in
development fees earned in New York City from an unconsolidated joint venture
and a decrease of approximately $0.5 million in fees associated with tenant
improvement projects earned from a building owned by a third-party in the
Washington, DC region. The decrease in management services revenue was primarily
related to a decrease in property management fees earned from third-party owned
buildings in the Washington, DC region.
General and Administrative Expense
General and administrative expense increased by approximately $6.7 million for
the three months ended September 30, 2021 compared to 2020 primarily due to an
increase in compensation expense of approximately $6.4 million , and an increase
of approximately $0.3 million in other general and administrative expenses. The
increase in compensation expense was partially offset by a decrease of
approximately $2.1 million in the value of our deferred compensation plan. The
increase in other general and administrative expenses was primarily related to
an increase in meals and travel expense.
Wages directly related to the development of rental properties are capitalized
and included in real estate assets on our Consolidated Balance Sheets and
amortized over the useful lives of the applicable asset or lease term.
Capitalized wages for the three months ended September 30, 2021 and 2020 were
approximately $3.4 million . These costs are not included in the general and
administrative expenses discussed above.
Transaction Costs
Transaction costs increased by approximately $1.6 million for the three months
ended September 30, 2021 compared to 2020 due primarily to costs incurred in
connection with the pursuit and formation of new joint ventures. In general,
transaction costs relating to the formation of new and pending joint ventures
and the pursuit of other transactions are expensed as incurred.
Depreciation and Amortization Expense
Depreciation expense may differ between BXP and BPLP as a result of previously
applied acquisition accounting by BXP for the issuance of common stock in
connection with non-sponsor OP Unit redemptions by BPLP. This accounting
resulted in a step-up of the real estate assets at BXP that was allocated to
certain properties. The difference between the real estate assets of BXP as
compared to BPLP for certain properties having an allocation of the real estate
step-up will result in a corresponding difference in depreciation expense. For
additional information see the Explanatory Note that follows the cover page of
this Quarterly Report on Form 10-Q.
Boston Properties, Inc.
Depreciation and amortization expense increased by approximately $13.0 million
for the three months ended September 30, 2021 compared to 2020, as detailed
below.
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Depreciation and Amortization for the three months
ended September 30,
Portfolio 2021 2020 Change
(in thousands)
Same Property Portfolio $ 171,977 $ 163,114 $ 8,863
Properties Acquired Portfolio 3,761 - 3,761
Properties Placed In-Service Portfolio 3,295 695 2,600
Properties in Development or Redevelopment Portfolio 379 2,647 (2,268)
$ 179,412 $ 166,456 $ 12,956
Boston Properties Limited Partnership
Depreciation and amortization expense increased by approximately $13.0 million
for the three months ended September 30, 2021 compared to 2020, as detailed
below.
Depreciation and Amortization for the three months
ended September 30,
Portfolio 2021 2020 Change
(in thousands)
Same Property Portfolio $ 170,242 $ 161,364 $ 8,878
Properties Acquired Portfolio 3,761 - 3,761
Properties Placed In-Service Portfolio 3,295 695 2,600
Properties in Development or Redevelopment Portfolio 379 2,647 (2,268)
$ 177,677 $ 164,706 $ 12,971
Direct Reimbursements of Payroll and Related Costs From Management Services
Contracts and Payroll and Related Costs From Management Service Contracts
We have determined that amounts reimbursed for payroll and related costs
received from third parties in connection with management services contracts
should be reflected on a gross basis instead of on a net basis as we have
determined that we are the principal under these arrangements. We anticipate
that these two financial statement line items will generally offset each other.
Other Income and Expense Items
Loss from Unconsolidated Joint Ventures
For the three months ended September 30, 2021 compared to 2020, loss from
unconsolidated joint ventures decreased by approximately $1.3 million due to a
$2.2 million increase in net income at our Colorado Center joint venture,
primarily due to a write-off of lease revenue during the three months ended
September 30, 2020 . This increase was partially offset by an approximately $1.1
million decrease in net income from our Dock 72 joint venture, primarily related
to depreciation and amortization.
Gains (Losses) on Sales of Real Estate
Gains (losses) on sales of real estate increased by approximately $0.6 million
for the three months ended September 30, 2021 compared to 2020. During the three
months ended September 30, 2021 , we recognized a gain of approximately $0.3
million related to the sale of 6595 Springfield Center Drive (See Note 3 to the
Consolidated Financial Statements). During the three months ended September 30,
2020 , we incurred approximately $0.2 million of additional expenses related to
the sale of a portion of Capital Gallery in Washington, DC , thus resulting in a
loss on sale of real estate.
Interest and Other Income (Loss)
Interest and other income (loss) increased by approximately $1.6 million for the
three months ended September 30, 2021 compared to 2020, due to an approximately
$1.9 million decrease in the allowance for current
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expected credit losses, which results in higher income, partially offset by a
decrease of approximately $0.3 million in interest income as a result of lower
interest earned on our deposits.
On January 1, 2020 , we adopted ASU 2016-13 and, as a result, we were required to
record an allowance for current expected credit losses related to our
outstanding (1) related party note receivable, (2) notes receivable and (3)
off-balance sheet credit exposures.
Gains (Losses) from Investments in Securities
Gains (losses) from investments in securities for the three months ended
September 30, 2021 and 2020 related to investments that we have made to reduce
our market risk relating to deferred compensation plans that we maintain for
BXP's officers and former non-employee directors. Under the deferred
compensation plans, each officer or non-employee director who is eligible to
participate is permitted to defer a portion of the officer's current income or
the non-employee director's compensation on a pre-tax basis and receive a
tax-deferred return on these deferrals based on the performance of specific
investments selected by the officer or non-employee director. In order to reduce
our market risk relating to these plans, we typically acquire, in a separate
account that is not restricted as to its use, similar or identical investments
as those selected by each officer or non-employee director. This enables us to
generally match our liabilities to BXP's officers or former non-employee
directors under our deferred compensation plans with equivalent assets and
thereby limit our market risk. The performance of these investments is recorded
as gains (losses) from investments in securities. During the three months ended
September 30, 2021 and 2020, we recognized gains (losses) of approximately
$(0.2) million and $1.9 million , respectively, on these investments. By
comparison, our general and administrative expense increased (decreased) by
approximately $(0.2) million and $1.9 million during the three months ended
September 30, 2021 and 2020, respectively, as a result of increases (decreases)
in our liability under our deferred compensation plans that was associated with
the performance of the specific investments selected by officers and former
non-employee directors of BXP participating in the plans.
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Interest Expense
Interest expense decreased by approximately $5.2 million for the three months
ended September 30, 2021 compared to 2020, as detailed below.
Change in interest
expense for the three
months ended
September 30, 2021
compared to September 30,
Component 2020
(in thousands)
Increases to interest expense due to:
Issuance of $850 million in aggregate principal of 2.550% senior
notes due 2032 on March 16, 2021 $ 5,491
Decrease in capitalized interest related to development projects 2,876
Increase in interest due to finance leases for two in-service properties
447
Issuance of
116
Total increases to interest expense 8,930
Decreases to interest expense due to:
Redemption of
(8,945)
Increase in capitalized interest related to development projects that had finance leases
(2,876)
Decrease in interest due to finance leases that are related to development properties
(999)
Decrease in interest rates for the 2017 and 2021 Credit Facilities
and the repayment of the unsecured term loan on
(981)
Other interest expense (excluding senior notes) (286)
Decrease in interest related to the repayment of
(42)
Total decreases to interest expense (14,129)
Total change in interest expense $ (5,199)
_______________
(1) OnJune 15, 2021 , BPLP entered into the 2021 Credit Facility, which replaced the 2017 Credit Facility (See Note 8 to the Consolidated Financial Statements). Interest expense directly related to the development of rental properties is capitalized and included in real estate assets on our Consolidated Balance Sheets and amortized over the useful lives of the real estate or lease term. As portions of properties are placed in-service, we cease capitalizing interest on that portion and interest is then expensed. Interest capitalized for the three months endedSeptember 30, 2021 and 2020 was approximately$11.6 million and$13.5 million , respectively. These costs are not included in the interest expense referenced above. OnOctober 15, 2021 , BPLP used available cash and funds under its 2021 Credit Facility to complete the redemption of$1.0 billion in aggregate principal amount of its 3.85% senior notes dueFebruary 1, 2023 . The redemption price was approximately$1.05 billion , which was equal to par plus approximately$7.9 million of accrued and unpaid interest to, but not including, the redemption date and an early redemption premium and unamortized financing costs totaling approximately$43.9 million . We expect to recognize a loss from early extinguishment of debt related primarily to the payment of the redemption premium in the fourth quarter. AtSeptember 30, 2021 , our outstanding variable rate debt consisted of BPLP's$1.5 billion Revolving Facility. The Revolving Facility did not have an outstanding balance as ofSeptember 30, 2021 . For a summary of our consolidated debt as ofSeptember 30, 2021 andSeptember 30, 2020 refer to the heading "Liquidity and Capital Resources-Capitalization-Debt Financing" within "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations." 80 -------------------------------------------------------------------------------- Table of Contents Noncontrolling Interests in Property Partnerships Noncontrolling interests in property partnerships increased by approximately$3.4 million for the three months endedSeptember 30, 2021 compared to 2020, as detailed below. Noncontrolling
Interests in Property Partnerships for
the three months ended September 30,
Property 2021 2020 Change
(in thousands)
767 Fifth Avenue (the General Motors Building )
(1) $ 3,406 $ 2,104 $ 1,302
Times Square Tower (1) 4,995 3,545 1,450
601 Lexington Avenue 4,436 4,352 84
100 Federal Street 3,421 3,565 (144)
Atlantic Wharf Office Building (2) 2,713 1,995 718
$ 18,971 $ 15,561 $ 3,410
_______________
(1)The increase was primarily attributable to an increase in lease revenue from
our tenants.
(2)During the three months ended September 30, 2020 , we wrote off approximately
$0.5 million of accrued rent and accounts receivable balances for retail tenants
whose balances we determined were no longer probable of collection.
Approximately $0.2 million represents our partners' share of the write-offs.
Noncontrolling Interest-Common Units of the Operating Partnership
For BXP, noncontrolling interest-common units of the Operating Partnership
increased by approximately $2.0 million for the three months ended September 30,
2021 compared to 2020 due primarily to an increase in allocable income. Due to
our ownership structure, there is no corresponding line item on BPLP's financial
statements.
Liquidity and Capital Resources
General
Our principal liquidity needs for the next twelve months and beyond are to:
•fund normal recurring expenses;
•meet debt service and principal repayment obligations, including balloon
payments on maturing debt;
•fund development and redevelopment costs;
•fund capital expenditures, including major renovations, tenant improvements and
leasing costs;
•fund pending and possible acquisitions of properties, either directly or
indirectly through the acquisition of equity interests therein; and
•make the minimum distribution required to enable BXP to maintain its REIT
qualification under the Internal Revenue Code of 1986, as amended.
We expect to satisfy these needs using one or more of the following:
•cash flow from operations;
•distribution of cash flows from joint ventures;
•cash and cash equivalent balances;
•borrowings under BPLP's 2021 Credit Facility, short-term bridge facilities and
construction loans;
•long-term secured and unsecured indebtedness (including unsecured exchangeable
indebtedness);
•sales of real estate; and
•issuances of BXP equity securities and/or preferred or common units of
partnership interest in BPLP.
We draw on multiple financing sources to fund our long-term capital needs. We
expect to fund our current development properties primarily with our available
cash balances, construction loans and BPLP's Revolving Facility. We use BPLP's
Revolving Facility primarily as a bridge facility to fund acquisition
opportunities, refinance outstanding indebtedness and meet short-term
development and working capital needs. Although we may seek to fund our
development projects with construction loans, which may require guarantees by
BPLP, the financing for each particular project ultimately depends on several
factors, including, among others, the project's size and duration, the extent of
pre-leasing and our available cash and access to cost effective capital at the
given time.
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The following table presents information on properties under construction and
redevelopment as of September 30, 2021 (dollars in thousands):
Financings
Estimated Total Estimated Future
Investment to Investment Total Outstanding at Equity Requirement PercentageLeased
Construction Properties Estimated Stabilization Date Location # of Buildings Estimated Square Feet Date (1)(2)(3) (1)(2) Available (1)9/30/2021 (1) (1)(2)(4) (5)
Office
325 Main Street Third Quarter, 2022Cambridge, MA 1 420,000$ 283,920 $ 418,400 $ - $ -$ 134,480 90 %100 Causeway Street (50% ownership) Third Quarter, 2022Boston, MA 1 632,000 229,627 267,300 200,000 148,603 - 95 % (6)7750 Wisconsin Avenue (Marriott International Headquarters) (50% ownership) First Quarter, 2022Bethesda, MD 1 734,000 168,945 198,900 127,500 104,036 6,491 100 % (7) Reston Next Fourth Quarter, 2023Reston, VA 2 1,062,000 507,726 715,300 - - 207,574 85 % (8)2100 Pennsylvania Avenue Third Quarter, 2024Washington, DC 1 480,000 209,193 356,100 - - 146,907 56 %Total Office Properties under Construction 6 3,328,000 1,399,411 1,956,000 327,500 252,639 495,452 87 % Lab/Life Sciences200 West Street (Redevelopment) Fourth Quarter, 2021Waltham, MA - 138,000 29,340 47,800 - - 18,460 100 % (9)880 Winter Street (Redevelopment) Second Quarter, 2024Waltham, MA 1 224,000 6,964 108,000 - - 101,036 23 % 751 Gateway (49% ownership) Third Quarter, 2024
South San Francisco, CA 1
229,000 28,723 127,600 - - 98,877 - % 180 CityPoint Fourth Quarter, 2024Waltham, MA 1 329,000 41,442 274,700 - - 233,258 - %Total Lab/Life Sciences Properties under Construction 3 920,000 106,469 558,100 - - 451,631 21 % OtherView Boston Observatory at ThePrudential Center (Redevelopment) N/ABoston, MA - 59,000 45,158 182,300 - - 137,142
N/A
Total Properties under Construction 9 4,307,000$ 1,551,038 $ 2,696,400 $ 327,500 $ 252,639 $ 1,084,225 72 % (10) ___________ (1)Represents our share. (2)Investment to Date, Estimated Total Investment and Estimated Future Equity Requirement all include our share of acquisition expenses, as applicable, and reflect our share of the estimated net revenue/expenses that we expect to incur prior to stabilization of the project, including any amounts actually received or paid throughSeptember 30, 2021 . (3)Includes approximately$77.8 million of unpaid but accrued construction costs and leasing commissions. (4)Excludes approximately$77.8 million of unpaid but accrued construction costs and leasing commissions. (5)Represents percentage leased as ofNovember 2, 2021 , including leases with future commencement dates. (6)This property was 79% placed in-service as ofSeptember 30, 2021 . (7)OnOctober 29, 2021 , this project was fully placed in-service (See Note 15 to the Consolidated Financial Statements). (8)OnOctober 19, 2021 , approximately 285,000 square feet of the project was placed in-service. (9)Represents a portion of the property under redevelopment for conversion to laboratory space. (10)Percentage leased excludesView Boston Observatory at ThePrudential Center (redevelopment) at800 Boylston Street - ThePrudential Center . 82 -------------------------------------------------------------------------------- Table of Contents Lease revenue (which includes recoveries from tenants), other income from operations, available cash balances, mortgage financings, unsecured indebtedness and draws on BPLP's Revolving Facility are the principal sources of capital that we use to fund operating expenses, debt service, maintenance and repositioning capital expenditures, tenant improvements and the minimum distribution required to enable BXP to maintain its REIT qualification. We seek to maximize 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 property management, leasing and development and construction businesses, as well as the sale of assets from time to time. We believe these sources of capital will continue to provide the funds necessary for our short-term liquidity needs, including our properties under development and redevelopment. Material adverse changes in one or more sources of capital, whether due to the impacts of the COVID-19 pandemic or otherwise, may adversely affect our net cash flows. Leasing activity and revenue from transient parking and our hotel improved during the third quarter of 2021. We signed approximately 1.4 million square feet of leases in the quarter, which represents more than double the leasing volume in the first quarter of 2021 and is approximately 90% of our pre-pandemic average for the third quarter. Our parking and hotel revenue also increased approximately 36% compared to the second quarter of 2021. We expect parking revenue to continue to improve gradually as the return to in-person work accelerates and hotel occupancy to remain low until the demand for business and leisure travel returns to historical levels. Our primary uses of capital over the next twelve months will be the completion of our current and committed development and redevelopment projects, servicing the principal and interest payments on our outstanding indebtedness and satisfying our REIT distribution requirements. As ofSeptember 30, 2021 , we had nine properties under development or redevelopment. Our share of the remaining development and redevelopment costs that we expect to fund through 2024 was approximately$1.1 billion . During the third quarter of 2021, BPLP completed a public "green bond" offering of$850.0 million of 2.450% unsecured senior notes dueOctober 2033 . The offering marked BPLP's fourth green bond offering and represented the lowest coupon ever issued by BPLP. The net proceeds from the offering along with available cash and borrowings under BPLP's Revolving Facility were used to fully redeem the$1.0 billion aggregate principal amount of 3.85% unsecured senior notes that were scheduled to mature inFebruary 2023 . The early repayment will result in a loss from early extinguishment of debt of approximately$43.9 million in the fourth quarter of 2021. This amount includes approximately$1.0 million of unamortized financing and other costs. We have a SCP that provides us the opportunity to partner with large institutional investors and capitalize our investment opportunities partially through private equity. The SCP enhances our access to capital and investment capacity and further enhances our returns through fees paid to us, and in certain partnerships, a greater share of income upon achieving certain success criteria. These large financial partners include some of the world's largest sovereign wealth funds and pension plans. Our use of the SCP is consistent with our ongoing strategy to create value through opportunistic investments in high-quality office properties in markets with the strongest economic growth over time while maintaining a strong balance sheet and modest leverage. As part of the broader SCP, we announced inJuly 2021 the formation of an investment program with two large partners committing a targeted equity investment of$1.0 billion , including$250 million from us. Under this agreement, we will provide these partners, for up to two years, exclusive first offers to form joint ventures with us to invest in assets that meet the SCP's target criteria. All investments are discretionary to each partner. For example, during the third quarter of 2021, we partnered with two SCP partners to acquireSafeco Plaza , a 50-story, approximately 765,000 net rentable square foot, LEED-Platinum certified, Class A office property located inSeattle, Washington . After mortgage financing, the partners contributed approximately$215 million to fund the acquisition. Each partner owns approximately a one-third ownership interest in the property (See Note 5 to the Consolidated Financial Statements). In addition, we expect to acquire360 Park Avenue South , located inNew York, New York , for a purchase price of approximately$300 million in the fourth quarter of 2021. At closing, we will assume approximately$202 million of mortgage debt and issue approximately$98 million of OP Units, with a floor price of$111 per OP Unit. Other than customary closing costs, no cash is required to close the transaction. We expect to fund future investment in this asset through a joint venture with one or more financial partners from the SC Program. There can be no assurance that this acquisition will be consummated on the terms currently contemplated or at all. 83 -------------------------------------------------------------------------------- Table of Contents OnOctober 25, 2021 , we completed the sale of our 181,191 and 201 Spring Street properties, located inLexington, Massachusetts , for a gross sales price of$191.5 million . We have no debt maturities during the remainder of 2021. We have one loan maturing in 2022 that has an outstanding principal balance of approximately$618.7 million (of which our share is approximately$340.3 million ). The loan is secured by our601 Lexington Avenue property inNew York . Our unconsolidated joint ventures have two loans maturing in 2022, of which our share of outstanding principal is approximately$147.0 million . We are currently in the market to refinance the601 Lexington Avenue mortgage. Due to the increase in cash flow from this asset, due in part to the redevelopment completed earlier in 2021, we anticipate increasing the principal amount of the mortgage and reducing the interest rate as part of the refinancing. There can be no assurance that this refinancing will be consummated on the terms currently contemplated or at all. Although the current and future impact of COVID-19 on our liquidity and capital resources will depend on a wide range of factors, we believe that our access to capital and our strong liquidity, including the approximately$1.2 billion available under the 2021 Credit Facility and available cash of approximately$362.7 million (of which approximately$122.2 million is attributable to our consolidated joint venture partners), as ofNovember 2, 2021 , is sufficient to fund our remaining capital requirements on existing development and redevelopment projects, repay our maturing indebtedness when due, satisfy our REIT distribution requirements and still allow us to act opportunistically on attractive investment opportunities. We have not sold any shares under BXP's$600.0 million "at the market" equity offering program. We may seek to enhance our liquidity to fund our foreseeable potential development activity, pursue additional attractive investment opportunities and refinance or repay indebtedness. Depending on interest rates and overall conditions in the debt and equity markets, we may decide to access either or both of these markets in advance of the need for the funds. Doing so may result in us carrying additional cash and cash equivalents pending our use of the proceeds, which would increase our net interest expense and be dilutive to our earnings. REIT Tax Distribution Considerations Dividend BXP as a REIT is subject to a number of organizational and operational requirements, including a requirement that BXP currently distribute at least 90% of its annual taxable income (excluding capital gains and with certain other adjustments). Our policy is for BXP to distribute at least 100% of its taxable income, including capital gains, to avoid paying federal tax. BXP's Board of Directors will continue to evaluate BXP's dividend rate in light of our actual and projected taxable income (including gains on sales), liquidity requirements and other circumstances, including the impact of COVID-19, and there can be no assurance that the future dividends declared by BXP's Board of Directors will not differ materially from the current quarterly dividend amount. Sales To the extent that we sell assets at a gain and cannot efficiently use the proceeds in a tax deferred manner for either our development activities or attractive acquisitions, BXP would, at the appropriate time, decide whether it is better to declare a special dividend, adopt a stock repurchase program, reduce 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 cost and availability of capital from other sources, the price of BXP's common stock and REIT distribution requirements. At a minimum, we expect that BXP would distribute at least that amount of proceeds necessary for BXP to avoid paying corporate level tax on the applicable gains realized from any asset sales. From time to time in select cases, whether due to a change in use, structuring issues to comply with applicable REIT regulations or other reasons, we may sell an asset that is held by a taxable REIT subsidiary ("TRS"). Such a sale by a TRS would be subject to federal and local taxes. 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. 84 -------------------------------------------------------------------------------- Table of Contents Cash and cash equivalents and cash held in escrows aggregated approximately$1.1 billion and$1.8 billion atSeptember 30, 2021 and 2020, respectively, representing a decrease of approximately$0.7 billion . The following table sets forth changes in cash flows: Nine months ended September 30, Increase 2021 2020 (Decrease) (in thousands) Net cash provided by operating activities$ 786,859 $ 782,423 $ 4,436 Net cash used in investing activities (998,368) (388,411) (609,957)
Net cash provided by (used in) financing activities (425,899)
678,891 (1,104,790)
Our principal source of cash flow is related to the operation of our properties.
The weighted-average term of our in-place leases, excluding residential units,
was approximately 7.5 years as of September 30, 2021 , including leases signed by
our unconsolidated joint ventures, with occupancy rates historically in the
range of 88% to 94%. Generally, our properties generate a relatively consistent
stream of cash flow that provides us with resources to pay operating expenses,
debt service and fund regular quarterly dividend and distribution payment
requirements. In addition, over the past several years, we have raised capital
through the sale of some of our properties and through secured and unsecured
borrowings.
The full extent of the impact of COVID-19 on our business, operations and
financial results will depend on numerous evolving factors that we may not be
able to accurately predict. In addition, we cannot predict the impact that
COVID-19 will have on our tenants, employees, contractors, lenders, suppliers,
vendors and joint venture partners; any material adverse effect on these parties
could also have a material adverse effect on us.
Cash is used in investing activities to fund acquisitions, development, net
investments in unconsolidated joint ventures and maintenance and repositioning
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 to enhance or maintain our market
position. Cash used in investing activities for the nine months ended
September 30, 2021 consisted primarily of acquisitions of real estate,
development projects, building and tenant improvements and capital contributions
to unconsolidated joint ventures, partially offset by proceeds from sale of
investment in unconsolidated joint ventures. Cash used in investing activities
for the nine months ended September 30, 2020 consisted primarily of acquisitions
of real estate, development projects, building and tenant improvements and
capital contributions to unconsolidated joint ventures, partially offset by the
proceeds from the sale of real estate and capital distribution from
unconsolidated joint ventures, as detailed below:
Nine months ended
2021 2020
(in thousands)
Acquisitions of real estate (1) $ (218,679) $ (135,698)
Construction in progress (2) (381,104) (358,824)
Building and other capital improvements (103,840) (116,894)
Tenant improvements (218,878) (172,401)
Proceeds from sales of real estate (3) - 505,679
Capital contributions to unconsolidated joint ventures (4) (95,462) (158,374)
Capital distributions from unconsolidated joint ventures (5) 122 55,123
Proceeds from sale of investment in unconsolidated joint venture (6)
17,789 -
Issuance of note receivable, net (7) - (9,800)
Investments in securities, net 1,684 2,778
Net cash used in investing activities $
(998,368)
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Cash used in investing activities changed primarily due to the following:
(1)On August 2, 2021 , we acquired Shady Grove Bio+Tech Campus in Rockville,
Maryland , for a purchase price, including transaction costs, of approximately
$118.5 million in cash. Shady Grove Bio+Tech Campus is an approximately 435,000
net rentable square foot, seven-building office park situated on an
approximately 31-acre site.
On June 2, 2021 , we acquired 153 & 211 Second Avenue located in Waltham,
Massachusetts for a purchase price of approximately $100.2 million in cash.
153 & 211 Second Avenue consists of two life sciences lab buildings totaling
approximately 137,000 net rentable square feet.
On July 31, 2020 , we acquired an undivided ownership interest in real property
at 759 Harrison Street located in San Francisco, California for a purchase price
totaling approximately $2.3 million .
On June 26, 2020 , we completed the acquisition of real property at 777 Harrison
Street (known as Fourth + Harrison and formerly known as 425 Fourth Street )
located in San Francisco, California for a gross purchase price, including
entitlements, totaling approximately $140.1 million . Fourth + Harrison is
expected to support the development of approximately 804,000 square feet of
primarily commercial office space.
(2)Construction in progress for the nine months ended September 30, 2021
includes ongoing expenditures associated with One Five Nine East 53rd Street ,
which was completed and fully placed in-service during the nine months ended
September 30, 2021 . In addition, we incurred costs associated with our continued
development/redevelopment of 200 West Street , 325 Main Street , 2100 Pennsylvania
Avenue , Reston Next, 180 CityPoint, View Boston Observatory at The Prudential
Center and 880 Winter Street .
Construction in progress for the nine months ended September 30, 2020 includes
ongoing expenditures associated with 17Fifty Presidents Street , 20 CityPoint and
The Skylyne, which were partially or fully placed in-service during the nine
months ended September 30, 2020 . In addition, we incurred costs associated with
our continued development/redevelopment of One Five Nine East 53rd Street ,
Reston Next, 2100 Pennsylvania Avenue , 200 West Street and 325 Main Street .
(3)On June 25, 2020 , we completed the sale of a portion of our Capital Gallery
property located in Washington, DC for a gross sales price of approximately
$253.7 million . Net cash proceeds totaled approximately $246.6 million ,
resulting in a gain on sale of real estate totaling approximately $203.6 million
for BXP and approximately $207.0 million for BPLP. Capital Gallery is an
approximately 631,000 net rentable square foot Class A office property. The
portion sold is comprised of approximately 455,000 net rentable square feet of
commercial office space. We continue to own the land, underground parking garage
and remaining commercial office and retail space containing approximately
176,000 net rentable square feet at the property.
On February 20, 2020 , we completed the sale of New Dominion Technology Park
located in Herndon, Virginia for a gross sales price of $256.0 million . Net cash
proceeds totaled approximately $254.0 million , resulting in a gain on sale of
real estate totaling approximately $192.3 million for BXP and approximately
$197.1 million for BPLP. New Dominion Technology Park is comprised of two Class
A office properties aggregating approximately 493,000 net rentable square feet.
(4)Capital contributions to unconsolidated joint ventures for the nine months
ended September 30, 2021 consisted primarily of cash contributions of
approximately $72.6 million and $11.4 million to our Safeco Plaza and Santa
Monica Business Park joint ventures, respectively. On September 1, 2021 , we
entered into a new joint venture for Safeco Plaza located in Seattle, Washington
(See Note 5 to the Consolidated Financial Statements).
Capital contributions to unconsolidated joint ventures for the nine months ended
September 30, 2020 consisted primarily of cash contributions of approximately
$75.0 million , $39.0 million , $27.2 million and $7.5 million to our Platform 16,
3 Hudson Boulevard , Beach Cities Media Center and Metropolitan Square joint
ventures, respectively.
(5)Capital distributions from unconsolidated joint ventures for the nine months
ended September 30, 2020 consisted of cash distributions totaling (1)
approximately $22.5 million from our Metropolitan Square joint venture resulting
from the excess proceeds from the refinancing of the mortgage loan on the
property, (2) approximately $17.9 million from our Annapolis Junction joint
venture resulting from available cash and the
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net proceeds from the sale of Annapolis Junction Building Eight and two land
parcels after the pay down of the mortgage loan and (3) approximately $14.0
million from our Colorado Center joint venture resulting from the excess
proceeds from the mortgage financing on the property that occurred during 2017,
which proceeds were released from lender reserves.
(6)On March 30, 2021 , we completed the sale of our 50% ownership interest in
Annapolis Junction NFM LLC (the "Annapolis Junction Joint Venture") to the joint
venture partner for a gross sales price of $65.9 million . Net cash proceeds to
us totaled approximately $17.8 million after repayment of our share of debt
totaling approximately $15.1 million .
(7)Issuance of notes receivable, net consisted of the $10.0 million of financing
provided to an affiliate of our partner in the joint venture that owns and is
developing 7750 Wisconsin Avenue located in Bethesda, Maryland . The financing
bears interest at a fixed rate of 8.00% per annum, compounded monthly, and
matures on the fifth anniversary of the date on which the base building of the
affiliate of our partner's hotel property is substantially completed. The loan
is collateralized by a pledge of the partner's equity interest in our joint
venture that owns and is developing 7750 Wisconsin Avenue .
Cash used in financing activities for the nine months ended September 30, 2021
totaled approximately $425.9 million . This amount consisted primarily of (1) the
redemption of BPLP's $850.0 million in aggregate principal amount of its 4.125%
senior notes due 2021, (2) the repayment of the Delayed Draw Facility under the
2017 Credit Facility, (3) redemption of the Series B Preferred Stock, (4)
payment of our regular dividends and distributions to our shareholders and
unitholders and (5) distributions to noncontrolling interest holders in property
partnership. These decreases were partially offset by the proceeds from the
issuance by BPLP of (1) $850.0 million in aggregate principal amount of its
2.550% senior unsecured notes due 2032 and (2) $850.0 million in aggregate
principal amount of its 2.450% senior unsecured notes due 2033. Future debt
payments are discussed below under the heading "Capitalization-Debt Financing."
Capitalization
The following table presents Consolidated Market Capitalization and BXP's Share
of Market Capitalization, as well as the corresponding ratios of Consolidated
Debt to Consolidated Market Capitalization and BXP's Share of Debt to BXP's
Share of Market Capitalization (in thousands except for percentages):
September 30, 2021
Shares / Units Equivalent Value
Outstanding Common Stock Equivalent (1)
Common Stock 156,206 156,206 $ 16,924,920
Common Operating Partnership Units 17,477 17,477 1,893,633 (2)
Total Equity 173,683 $ 18,818,553
Consolidated Debt $ 13,378,350
Add:
BXP's share of unconsolidated joint venture debt
(3) 1,289,582
Subtract:
Partners' share of Consolidated Debt (4) (1,190,479) BXP's Share of Debt$ 13,477,453 Consolidated Market Capitalization$ 32,196,903 BXP's Share of Market Capitalization$ 32,296,006 Consolidated Debt/Consolidated Market Capitalization 41.55 % BXP's Share of Debt/BXP's Share of Market Capitalization 41.73 % _______________ (1)Values are based on the closing price per share of BXP's Common Stock on theNew York Stock Exchange onSeptember 30, 2021 of$108.35 . (2)Includes long-term incentive plan units (including 2012 OPP Units and 2013 - 2018 MYLTIP Units) but excludes MYLTIP Units granted between 2019 and 2021 because the three-year performance period has not ended. 87 -------------------------------------------------------------------------------- Table of Contents (3)See page 92 for additional information. (4)See page 91 for additional information. Consolidated Debt to Consolidated Market Capitalization Ratio is a measure of leverage commonly used by analysts in the REIT sector. We present this measure as a percentage and it is calculated by dividing (A) our consolidated debt by (B) our consolidated market capitalization, which is the market value of our outstanding equity securities plus our consolidated debt. Consolidated market capitalization is the sum of: (1) our consolidated debt; plus (2) the product of (x) the closing price per share of BXP common stock onSeptember 30, 2021 , as reported by theNew York Stock Exchange , multiplied by (y) the sum of: (i) the number of outstanding shares of common stock of BXP, (ii) the number of outstanding OP Units in BPLP (excluding OP Units held by BXP), (iii) the number of OP Units issuable upon conversion of all outstanding LTIP Units, assuming all conditions have been met for the conversion of the LTIP Units, and (iv) the number of OP Units issuable upon conversion of 2012 OPP Units, 2013 - 2018 MYLTIP Units that were issued in the form of LTIP Units. The calculation of consolidated market capitalization does not include LTIP Units issued in the form of MYLTIP Awards unless and until certain performance thresholds are achieved and they are earned. Because their three-year performance periods have not yet ended, 2019 - 2021 MYLTIP Units are not included in this calculation as ofSeptember 30, 2021 . We also present BXP's Share of Market Capitalization and BXP's Share of Debt/BXP's Share of Market Capitalization, which are calculated in the same manner, except that BXP's Share of Debt is utilized instead of our consolidated debt in both the numerator and the denominator. BXP's Share of Debt is defined as our consolidated debt plus our share of debt from our unconsolidated joint ventures (calculated based upon our ownership percentage), minus our partners' share of debt from our consolidated joint ventures (calculated based upon the partners' percentage ownership interests adjusted for basis differentials). Management believes that BXP's Share of Debt provides useful information to investors regarding our financial condition because it includes our share of debt from unconsolidated joint ventures and excludes our partners' share of debt from consolidated joint ventures, in each case presented on the same basis. We have several significant joint ventures and presenting various measures of financial condition in this manner can help investors better understand our financial condition and/or results of operations after taking into account our economic interest in these joint ventures. We caution investors that the ownership percentages used in calculating BXP's Share of Debt may not completely and accurately depict all of the legal and economic implications of holding an interest in a consolidated or unconsolidated joint venture. For example, in addition to partners' interests in profits and capital, venture agreements vary in the allocation of rights regarding decision making (both for routine and major decisions), distributions, transferability of interests, financing and guarantees, liquidations and other matters. Moreover, in some cases we exercise significant influence over, but do not control, the joint venture in which case GAAP requires that we account for the joint venture entity using the equity method of accounting and we do not consolidate it for financial reporting purposes. In other cases, GAAP requires that we consolidate the venture even though our partner(s) own(s) a significant percentage interest. As a result, management believes that the presentation of BXP's Share of a financial measure should not be considered a substitute for, and should only be considered with and as a supplement to our financial information presented in accordance with GAAP. We present these supplemental ratios because our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes and because different investors and lenders consider one or both of these ratios. Investors should understand that these ratios are, in part, a function of the market price of the common stock of BXP and as such will fluctuate with changes in such price, and they do 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 BXP, whose assets are primarily income-producing real estate, these ratios may provide investors with an alternate indication of leverage, so long as they are evaluated along with the ratio of indebtedness to other measures of asset 88 -------------------------------------------------------------------------------- Table of Contents value used by financial analysts and other financial ratios, as well as the various components of our outstanding indebtedness. For a discussion of our unconsolidated joint venture indebtedness, see "Liquidity and Capital Resources-Capitalization-Off-Balance Sheet Arrangements-Joint Venture Indebtedness" within "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations" and for a discussion of our consolidated joint venture indebtedness see "Liquidity and Capital Resources-Capitalization-Mortgage Notes Payable" within "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations." Debt Financing As ofSeptember 30, 2021 , we had approximately$13.4 billion of outstanding consolidated indebtedness, representing approximately 41.55% of our Consolidated Market Capitalization as calculated above consisting of approximately (1)$10.5 billion (net of discount and deferred financing fees) in publicly traded unsecured senior notes having a GAAP weighted-average interest rate of 3.48% per annum and maturities in 2023 through 2033 and (2)$2.9 billion (net of deferred financing fees) of property-specific mortgage debt having a GAAP weighted-average interest rate of 3.89% per annum and a weighted-average term of 4.6 years. The table below summarizes the aggregate carrying value of our mortgage notes payable and BPLP's unsecured senior notes, line of credit and term loan, as well as Consolidated Debt Financing Statistics atSeptember 30, 2021 andSeptember 30, 2020 . 89
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September 30,
2021 2020
(dollars in thousands)
Debt Summary:
Balance
Fixed rate mortgage notes payable, net $ 2,898,699 $ 2,912,494
Unsecured senior notes, net 10,479,651 9,636,397
Unsecured line of credit - -
Unsecured term loan, net - 499,270
Consolidated Debt 13,378,350 13,048,161
Add:
BXP's share of unconsolidated joint venture debt, net (1) 1,289,582 1,114,031
Subtract:
Partners' share of consolidated mortgage notes payable, net (2) (1,190,479) (1,195,957) BXP's Share of Debt $
13,477,453
2021 2020
Consolidated Debt Financing Statistics:
Percent of total debt:
Fixed rate 100.00 % 96.17 %
Variable rate - % 3.83 %
Total 100.00 % 100.00 %
GAAP Weighted-average interest rate at end of period:
Fixed rate 3.57 % 3.75 %
Variable rate - % 1.18 %
Total 3.57 % 3.65 %
Coupon/Stated Weighted-average interest rate at end of period:
Fixed rate 3.47 % 3.65 %
Variable rate - % 1.09 %
Total 3.47 % 3.55 %
Weighted-average maturity at end of period (in years):
Fixed rate 5.9 5.8
Variable rate - 1.6
Total 5.9 5.6
_______________
(1)See page 92 for additional information.
(2)See page 91 for additional information.
Unsecured Credit Facility
On March 16, 2021 , BPLP repaid $500.0 million , representing all amounts
outstanding, on the Delayed Draw Facility under the 2017 Credit Facility. We
recognized a loss from early extinguishment of debt totaling approximately $0.5
million , related to unamortized financing costs.
On June 15, 2021 , BPLP amended and restated the 2017 Credit Facility and entered
into the 2021 Credit Facility. The 2021 Credit Facility provides for borrowings
of up to $1.5 billion through the Revolving Facility, subject to customary
conditions. Among other things, the amendment and restatement (1) extended the
maturity date to June 15, 2026 , (2) eliminated the $500.0 million Delayed Draw
Facility provided under the 2017 Credit Facility, (3) reduced the per annum
variable interest rates on borrowings and (4) added a sustainability-linked
pricing component. Under the 2021 Credit Facility, BPLP may increase the total
commitment by up to $500.0 million by
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increasing the amount of the Revolving Facility and/or by incurring one or more
term loans, in each case, subject to syndication of the increase and other
conditions (See Note 8 to the Consolidated Financial Statements).
The 2021 Credit Facility replaces the 2017 Credit Facility, which consisted of a
$1.5 billion unsecured revolving line of credit and a $500.0 million Delayed
Draw Facility, and was scheduled to expire on April 24, 2022 .
As of September 30, 2021 , BPLP had no borrowings under its 2021 Credit Facility
and outstanding letters of credit totaling approximately $6.3 million , with the
ability to borrow approximately $1.5 billion . As of November 2, 2021 , BPLP had
$310.0 million of borrowings under its 2021 Credit Facility and outstanding
letters of credit totaling approximately $6.3 million , with the ability to
borrow approximately $1.2 billion .
Unsecured Senior Notes
For a description of BPLP's outstanding unsecured senior notes as of
September 30, 2021 , see Note 7 to the Consolidated Financial Statements.
On February 14, 2021 , BPLP completed the redemption of $850.0 million in
aggregate principal amount of its 4.125% senior notes due May 15, 2021 . The
redemption price was approximately $858.7 million , which was equal to the stated
principal plus approximately $8.7 million of accrued and unpaid interest to, but
not including, the redemption date. Excluding the accrued and unpaid interest,
the redemption price was equal to the principal amount being redeemed. We
recognized a loss from early extinguishment of debt totaling approximately
$0.4 million , related to unamortized origination costs.
On March 16, 2021 , BPLP completed a public offering of $850.0 million in
aggregate principal amount of its 2.550% unsecured senior notes due 2032. The
notes were priced at 99.570% of the principal amount to yield an effective rate
(including financing fees) of approximately 2.671% per annum to maturity. The
notes will mature on April 1, 2032 , unless earlier redeemed. The aggregate net
proceeds from the offering were approximately $839.2 million after deducting
underwriting discounts and transaction expenses.
On September 29, 2021 , BPLP completed a public offering of $850.0 million in
aggregate principal amount of its 2.450% unsecured senior notes due 2033. The
notes were priced at 99.959% of the principal amount to yield an effective rate
(including financing fees) of approximately 2.524% per annum to maturity. The
notes will mature on October 1, 2033 , unless earlier redeemed. The aggregate net
proceeds from the offering were approximately $842.5 million after deducting
underwriting discounts and transaction expenses.
On October 15, 2021 , BPLP used available cash and funds under its 2021 Credit
Facility to complete the redemption of $1.0 billion in aggregate principal
amount of its 3.85% senior notes due February 1, 2023 . The redemption price was
approximately $1.05 billion , which included approximately $7.9 million of
accrued and unpaid interest to, but not including, the redemption date and an
early redemption premium and unamortized financing costs totaling approximately
$43.9 million .
The indenture relating to the unsecured senior notes contains certain financial
restrictions and requirements, 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 greater than 1.50, and (4) an unencumbered asset value of not less than
150% of unsecured debt. At September 30, 2021 , BPLP was in compliance with each
of these financial restrictions and requirements.
Mortgage Notes Payable
The following represents the outstanding principal balances due under the
mortgage notes payable at September 30, 2021 :
Deferred Carrying Amount
Stated GAAP Interest Rate Stated Principal Financing (Partners'
Properties Interest Rate (1) Amount Costs, Net Carrying Amount Share) Maturity Date
(dollars in thousands)
Consolidated Joint Ventures
767 Fifth Avenue (the General
Motors Building ) 3.43 % 3.64 % $ 2,300,000 $ (19,857) $ 2,280,143 $ 912,128 (2)(3)(4) June 9, 2027
601 Lexington Avenue 4.75 % 4.79 % 618,725 (169) 618,556 278,351 (5) April 10, 2022
Total $ 2,918,725 $ (20,026) $ 2,898,699 $ 1,190,479
91-------------------------------------------------------------------------------- Table of Contents _______________ (1)GAAP interest rate differs from the stated interest rate due to the inclusion of the amortization of financing charges and the effects of hedging transactions (if any). (2)The mortgage loan requires interest only payments with a balloon payment due at maturity. (3)This property is owned by a consolidated entity in which we have a 60% interest. The partners' share of the carrying amount has been adjusted for basis differentials. (4)In connection with the refinancing of the loan, we guaranteed the consolidated entity's obligation to fund various reserves for tenant improvement costs and allowances, leasing commissions and free rent obligations in lieu of cash deposits. As ofSeptember 30, 2021 , the maximum funding obligation under the guarantee was approximately$20.3 million . We earn a fee from the joint venture for providing the guarantee and have an agreement with our partners to reimburse the joint venture for their share of any payments made under the guarantee (See Note 9 to the Consolidated Financial Statements). (5)This property is owned by a consolidated entity in which we have a 55% interest. Off-Balance Sheet Arrangements-Joint Venture Indebtedness We have investments in unconsolidated joint ventures with our effective ownership interests ranging from 20% to 55%. Fourteen of these ventures have mortgage indebtedness. We exercise significant influence over, but do not control, these entities. As a result, we account for them using the equity method of accounting. See also Note 5 to the Consolidated Financial Statements. AtSeptember 30, 2021 , the aggregate carrying amount of debt, including both our and our partners' share, incurred by these ventures was approximately$3.0 billion (of which our proportionate share is approximately$1.3 billion ). The table below summarizes the outstanding debt of these joint venture properties atSeptember 30, 2021 . In addition to other guarantees specifically noted in the table, we have agreed to customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) as well as the completion of development projects on certain of the loans. Deferred Nominal % Stated GAAP Interest Stated Principal Financing Carrying Amount Properties Ownership Interest Rate Rate (1) Amount Costs, Net Carrying Amount (Our share) Maturity Date (dollars in thousands) Santa Monica Business Park 55.00 % 4.06 % 4.24 %$ 300,000 $ (2,003) $ 297,997 $ 163,899 (2)(3)July 19, 2025 Market Square North 50.00 % 2.80 % 2.96 % 125,000 (848) 124,152 62,076 (2)(4)November 10, 2025 1265 Main Street 50.00 % 3.77 % 3.84 % 36,694 (285) 36,409 18,204January 1, 2032 Colorado Center 50.00 % 3.56 % 3.58 % 550,000 (602) 549,398 274,699 (2)August 9, 2027 Dock 72 50.00 % 3.10 % 3.32 % 196,412 (1,178) 195,234 97,617 (2)(5)December 18, 2023 The Hub on Causeway - Podium 50.00 % 2.34 % 2.50 % 174,329 (561) 173,768 86,884 (2)(6)September 6, 2023 Hub50House 50.00 % 2.08 % 2.37 % 176,468 (297) 176,171 88,085 (2)(7)April 19, 2022 100 Causeway Street 50.00 % 1.59 % 1.81 % 297,206 (1,624) 295,582 147,791 (2)(8)September 5, 2023 7750 Wisconsin Avenue (Marriott International Headquarters) 50.00 % 1.34 % 1.88 % 208,071 (2,204) 205,867 102,933 (2)(9)April 26, 2023 Safeco Plaza 33.67 % 2.35 % 2.50 % 250,000 (1,798) 248,202 83,570 (2)(10)September 1, 2026 500 North Capitol Street, NW 30.00 % 4.15 % 4.20 % 105,000 (99) 104,901 31,470 (2)June 6, 2023 901 New York Avenue 25.00 % 3.61 % 3.69 % 217,851 (581) 217,270 54,318January 5, 2025 3 Hudson Boulevard 25.00 % 3.59 % 3.67 % 80,000 (112) 79,888 19,972 (2)(11)July 13, 2023 Metropolitan Square 20.00 % 5.40 % 6.90 % 294,073 (3,751) 290,322 58,064 (2)(12) July 7, 2022 Total$ 3,011,104 $ (15,943) $ 2,995,161 $ 1,289,582
_______________
(1)GAAP interest rate differs from the stated interest rate due to the inclusion
of the amortization of financing charges, which includes mortgage recording
fees.
(2)The loan requires interest only payments with a balloon payment due at
maturity.
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(3)The loan bears interest at a variable rate equal to LIBOR plus 1.28% per
annum and matures on July 19, 2025 . A subsidiary of the joint venture entered
into interest rate swap contracts with notional amounts aggregating $300.0
million through April 1, 2025 , resulting in a fixed rate of approximately 4.063%
per annum through the expiration of the interest rate swap contracts.
(4)The loan bears interest at a variable rate equal to (1) the greater of (x)
LIBOR or (y) 0.50%, plus (2) 2.30% per annum and matures on November 10, 2025 ,
with one, one-year extension option, subject to certain conditions.
(5)The construction financing has a borrowing capacity of $250.0 million . The
construction financing bears interest at a variable rate equal to (1) the
greater of (x) LIBOR or (y) 0.25%, plus (2) 2.85% per annum and matures on
December 18, 2023 .
(6)The construction financing had a borrowing capacity of $204.6 million . On
September 16, 2019 , the joint venture paid down the construction loan principal
balance in the amount of approximately $28.8 million , reducing the borrowing
capacity to $175.8 million . The construction financing bears interest at a
variable rate equal to LIBOR plus 2.25% per annum and matures on September 6,
2023 .
(7)The construction financing has a borrowing capacity of $180.0 million . The
construction financing bears interest at a variable rate equal to LIBOR plus
2.00% per annum and matures on April 19, 2022 , with two, one-year extension
options, subject to certain conditions.
(8)The construction financing has a borrowing capacity of $400.0 million . The
construction financing bears interest at a variable rate equal to LIBOR plus
1.50% per annum (LIBOR plus 1.375% per annum upon stabilization, as defined in
the loan agreement) and matures on September 5, 2023 , with two, one-year
extension options, subject to certain conditions.
(9)The construction financing has a borrowing capacity of $255.0 million . The
construction financing bears interest at a variable rate equal to LIBOR plus
1.25% per annum and matures on April 26, 2023 , with two, one-year extension
options, subject to certain conditions.
(10)The loan bears interest at a variable rate equal to the greater of (x) 2.35%
or (y) LIBOR plus 2.20% per annum and matures on September 1, 2026 .
(11)We provided $80.0 million of mortgage financing to the joint venture. The
loan bears interest at a variable rate equal to LIBOR plus 3.50% per annum and
matures on July 13, 2023 , with extension options, subject to certain conditions.
The loan has been reflected as Related Party Note Receivable, Net on our
Consolidated Balance Sheets. As of September 30, 2021 , the loan has
approximately $13.1 million of accrued interest due at the maturity date.
(12)The loan bears interest at a variable rate equal to (1) the greater of (x)
LIBOR or (y) 0.65%, plus (2) 4.75% per annum and matures on July 7, 2022 with
two, one-year extension options, subject to certain conditions. The joint
venture entered into an interest rate cap agreement with a financial institution
to limit its exposure to increases in the LIBOR rate at a cap of 3.00% per annum
on a notional amount of $325.0 million through July 7, 2022 .
State and Local Tax Matters
Because BXP is organized and qualifies as a REIT, it is generally not subject to
federal income taxes, but is 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 position 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
For information concerning our insurance program, see Note 9 to the Consolidated
Financial Statements.
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," for each of BXP and
BPLP by adjusting net income (loss) attributable to Boston Properties, Inc.
common shareholders and net income (loss) attributable to Boston Properties
Limited Partnership common unitholders (computed in accordance with GAAP),
respectively, for gains (or losses) from sales of properties, impairment losses
on depreciable real estate consolidated on our balance sheet, impairment losses
on our investments in unconsolidated joint ventures driven by a measurable
decrease in the fair value of depreciable real estate held by the unconsolidated
joint ventures and our share of real estate-related depreciation and
amortization. FFO is a non-GAAP financial measure. We believe the presentation
of FFO, combined with the presentation of required GAAP financial measures,
improves the understanding of operating results of REITs among the investing
public and helps make comparisons
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of REIT operating results more meaningful. Management generally considers FFO to
be useful measures for understanding and comparing our operating results
because, by excluding gains and losses related to sales of previously
depreciated operating real estate assets, impairment losses and real estate
asset depreciation and amortization (which can differ across owners of similar
assets in similar condition based on historical cost accounting and useful life
estimates), FFO can help investors compare the operating performance of a
company's real estate across reporting periods and to the operating performance
of other companies.
Our computation of FFO may not be comparable to FFO reported by other REITs or
real estate companies that do not define the term in accordance with the current
Nareit definition or that interpret the current Nareit definition differently.
We believe that in order to facilitate a clear understanding of our operating
results, FFO should be examined in conjunction with net income attributable to
Boston Properties, Inc. common shareholders and net income attributable to
Boston Properties Limited Partnership as presented in our Consolidated Financial
Statements. FFO should not be considered as a substitute for net income
attributable to Boston Properties, Inc. common shareholders or net income
attributable to Boston Properties Limited Partnership common unitholders
(determined in accordance with GAAP) or any other GAAP financial measures and
should only be considered together with and as a supplement to our financial
information prepared in accordance with GAAP.
The impact that COVID-19 has had on our business, financial position and results
of operations is discussed throughout this report. The full extent of the impact
of COVID-19 on our business, operations and financial results will depend on
numerous evolving factors that we may not be able to accurately predict.
Boston Properties, Inc.
The following table presents a reconciliation of net income attributable to
Boston Properties, Inc. common shareholders to FFO attributable to Boston
Properties, Inc. common shareholders for the three months ended September 30,
2021 and 2020:
Three months ended September 30,
2021 2020
(in thousands)
Net income attributable to
$ 108,297 $ 89,854 Add: Preferred dividends - 2,625
Noncontrolling interest-common units of the
11,982 10,020 Noncontrolling interests in property partnerships 18,971 15,561 Net income 139,250 118,060 Add: Depreciation and amortization 179,412 166,456
Noncontrolling interests in property partnerships' share of depreciation and amortization
(16,773) (15,833)
BXP's share of depreciation and amortization from unconsolidated joint ventures
17,803 20,413
Corporate-related depreciation and amortization (443) (444)
Less:
Gains (losses) on sales of real estate 348 (209) Noncontrolling interests in property partnerships 18,971 15,561 Preferred dividends - 2,625
Funds from Operations (FFO) attributable to the
299,930 270,675
Less:
Noncontrolling interest-common units of the
29,453 26,697
Funds from Operations attributable to
$ 270,477 $ 243,978 Our percentage share of Funds from Operations-basic 90.18 % 90.14 % Weighted average shares outstanding-basic 156,183 155,645 94 -------------------------------------------------------------------------------- Table of Contents Reconciliation to Diluted Funds from Operations: Three months ended September 30, 2021 2020 Income Shares/Units Income Shares/Units (Numerator) (Denominator) (Numerator) (Denominator) (in thousands) Basic Funds from Operations $ 299,930 173,194$ 270,675 172,677 Effect ofDilutive Securities : Stock based compensation - 415 - 25 Diluted Funds from Operations $ 299,930 173,609$ 270,675 172,702
Less:
Noncontrolling interest-common units of theOperating Partnership's share of diluted Funds from Operations 29,393 17,011 26,693 17,032 Diluted Funds from Operations attributable to Boston Properties, Inc. (1) $ 270,537 156,598$ 243,982 155,670 _______________
(1)BXP's share of diluted Funds from Operations was 90.20% and 90.14% for the
three months ended
Boston Properties Limited Partnership The following table presents a reconciliation of net income attributable toBoston Properties Limited Partnership common unitholders to FFO attributable toBoston Properties Limited Partnership common unitholders for the three months endedSeptember 30, 2021 and 2020: Three months ended September 30, 2021 2020 (in thousands) Net income attributable toBoston Properties Limited Partnership common unitholders$ 122,014 $ 101,624 Add: Preferred distributions - 2,625 Noncontrolling interests in property partnerships 18,971 15,561 Net income 140,985 119,810 Add: Depreciation and amortization 177,677 164,706
Noncontrolling interests in property partnerships' share of depreciation and amortization
(16,773) (15,833)
BXP's share of depreciation and amortization from unconsolidated joint ventures
17,803 20,413
Corporate-related depreciation and amortization (443) (444)
Less:
Gains (losses) on sales of real estate 348 (209) Noncontrolling interests in property partnerships 18,971 15,561 Preferred distributions - 2,625
Funds from Operations attributable to
$ 299,930 $ 270,675 Weighted average shares outstanding-basic 173,194 172,677
_______________
(1)Our calculation includes OP Units and vested LTIP Units (including vested 2012 OPP Units and vested 2013 - 2018 MYLTIP Units).
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Reconciliation to Diluted Funds from Operations:
Three months ended
2021 2020
(in thousands)
Income Shares/Units Income Shares/Units
(Numerator) (Denominator) (Numerator) (Denominator)
Basic Funds from Operations $ 299,930 173,194 $ 270,675 172,677
Effect of Dilutive Securities :
Stock based compensation - 415 - 25
Diluted Funds from Operations $ 299,930 173,609 $ 270,675 172,702
Contractual Obligations
We have various service contracts with vendors related to our property
management. In addition, we have certain other contracts we enter into in the
ordinary course of business that may extend beyond one year. These contracts
include terms that provide for cancellation with insignificant or no
cancellation penalties. Contract terms are generally between three and five
years.
During the three months ended September 30, 2021 , we paid approximately $67.8
million to fund tenant-related obligations, including tenant improvements and
leasing commissions.
In addition, during the three months ended September 30, 2021 , we and our
unconsolidated joint venture partners incurred approximately $102.9 million of
new tenant-related obligations associated with approximately 1.4 million square
feet of second generation leases, or approximately $73 per square foot. We did
not sign any first generation leases during the three months ended September 30,
2021 . The tenant-related obligations for the development properties are included
within the projects' "Estimated Total Investment" referred to in "Item
2-Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
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