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. One of the most significant factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements is 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 and, directly or indirectly, many of the other important factors below and 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. Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: •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; 46 -------------------------------------------------------------------------------- Ta ble of Contents •the ability of our joint venture partners to satisfy their obligations; •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 ofJune 30, 2021 ) inthe United States that develops, owns and manages primarily Class A office properties. Our properties are concentrated in five markets inthe United States -Boston ,Los Angeles ,New York ,San Francisco andWashington, DC - with the expected addition ofSeattle as a sixth market in the third quarter of 2021. 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 47 -------------------------------------------------------------------------------- Ta ble of Contents 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 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 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 7.6 years, as ofJune 30, 2021 , including leases signed by our unconsolidated joint ventures. The weighted-average lease term for our top 20 office tenants was approximately 11 years as ofJune 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. Outlook Employment growth, economic growth and low interest rates typically create a positive environment for real estate performance, particularly for companies in the office sector. Following a significant drop inU.S. GDP in 2020 due to the COVID-19 pandemic, overall economic conditions began to improve in the first half of 2021 as millions of Americans began receiving COVID-19 vaccines. The second quarter of 2021 marked ongoing economic improvement both year-over-year compared to the second quarter of 2020 and sequentially as compared to the first quarter of 2021. In the second quarter of 2021, GDP growth was 6.5%, an increase as compared to the first quarter of 2021, and the unemployment rate was approximately 5.9%, only 2.4% greater than the pre-pandemic rate inFebruary 2020 . As the economic recovery continues, many companies are evaluating their space requirements based on their current and projected headcounts and employees' desire for more work-location flexibility. 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. We believe these factors combined to result in improved leasing activity during the second quarter of 2021, with signed leases having terms consistent with our historical averages. BXP Priorities Despite the concerns surrounding the COVID-19 pandemic 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 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. As a leading developer, owner and manager of marquee Class A office properties inthe United States , our priorities remain focused on the following: •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; 48 -------------------------------------------------------------------------------- Ta ble of Contents •continuing and completing the redevelopment and repositioning of several key properties to increase future revenue and asset values over the long-term; •maintaining discipline in our underwriting of investment opportunities; •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 second quarter of 2021. Leasing Activity and Occupancy When compared to periods prior to the pandemic, our second quarter 2021 revenue continued to be adversely affected due to (1) declines in revenue from our retail tenants, parking and our hotel, and (2) a decline in occupancy in our in-service office and retail properties due to a slowdown in new leasing activity for vacant and expiring space. However, in the second quarter of 2021, as vaccination rates in our markets increased and economic conditions began to improve, we began to see meaningful growth in tour and leasing activity across the portfolio and increases in revenue from our retail tenants, parking and our hotel as compared to the second quarter of 2020 and the first quarter of 2021, indicating that these revenue streams are slowly beginning to recover. Lease revenue from our retail leases was approximately$42.3 million in the second quarter of 2021, a decrease of$3.4 million from the first quarter of 2021. However, lease revenue in the first quarter of 2021 included approximately$4.5 million of lease termination income, compared to termination income of approximately$0.8 million in the second quarter of 2021. Excluding termination income in both quarters, our revenue from retail leases increased approximately$0.3 million from the first quarter of 2021. These amount represents our consolidated lease revenue plus our share of the lease revenue from the unconsolidated joint ventures (calculated based on our ownership percentage) minus our partners' share of lease revenue from our consolidated joint ventures (calculated based upon the partners' percentage ownership interests). Our parking and other revenue was approximately$17.9 million in the second quarter of 2021, an increase of approximately$3.9 million from the second quarter of 2020 and an increase of approximately$3.4 million from the first quarter of 2021. The increase was primarily due to improved transient parking. We do not expect to return to pre-pandemic levels of parking revenue until the COVID-19 pandemic is sufficiently contained and monthly parking permits increase. Our hotel property, theBoston Marriott Cambridge , is currently operating at diminished occupancy. The hotel generated only approximately$1.6 million in revenue in the second quarter of 2021, an increase of approximately$1.5 million compared to the second quarter of 2020 and an increase of approximately$0.9 million compared to the first quarter of 2021. While this increase marks an improvement, we expect hotel occupancy and REVPAR to remain below pre-pandemic levels until business and leisure travel return to historical levels. The overall occupancy of our in-service office and retail properties was 88.6% atJune 30, 2021 , a decrease of 0.1% compared to 88.7% atMarch 31, 2021 . In the second quarter of 2021, we signed approximately 1.2 million square feet of new leases and renewals with a weighted-average lease term of approximately 7.5 years, indicating that many prospective 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 second quarter of 2021 was more than double the volume achieved in the first quarter of 2021 and only 10% below our long-term second quarter average. We expect leasing volume in 2021 to remain below pre-pandemic levels as many existing and prospective tenants defer decisions on their office space needs as they focus on workforce management strategies, safely returning their employees to an in-person work environment and managing their businesses through the economic recovery. We anticipate occupancy for the remainder of 2021 will be relatively steady with occupancy for the second quarter of 2021, as our remaining 2021 lease expirations are backfilled by signed leases that have not yet commenced and we are actively pursuing new leases and lease renewals. 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 49 -------------------------------------------------------------------------------- Ta ble of Contents 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. Since the beginning of the second quarter of 2021, we have entered into agreements to acquire four properties. 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 demand of tenants in the life sciences sector and utilizing private equity to increase our returns and enhance our investment capacity. The four recent acquisitions and pending acquisitions include: •Safeco Plaza, an approximately 800,000 square-foot Class A office building inSeattle, Washington . The property is approximately 90% leased. This potential acquisition marks our initial entry into theSeattle market, one of the most vibrant markets in theU.S. for companies in the technology, life sciences, manufacturing and financial services sectors. We expect to close the acquisition in the third quarter of 2021 for a purchase price of approximately$465 million . We expect to purchase this in a joint venture and to hold up to a 51% ownership in the property. •360 Park Avenue South, an approximately 450,000 square-foot, 20-story Class A office property located in the Midtown South submarket ofManhattan, New York . The property is fully leased to a single tenant who will be vacating in late 2021, providing us with the opportunity to complete extensive upgrades and transform the property into a premier modern building that will attract Class A clients. We expect to close the acquisition in the fourth quarter of 2021 for a purchase price of approximately$300 million , including the assumption of approximately$202 million of debt and the issuance of approximately$98 million of operating partnership units. •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. We expect to begin reconstruction on three of the buildings, which are currently vacant, promptly after closing. OnAugust 2, 2021 , we closed on this acquisition for a purchase price of approximately$116.5 million . •153 &211 Second Avenue , two lab properties comprising approximately 137,000 square-feet inWaltham, Massachusetts , a highly desirable location for leading and emerging companies in the life sciences and biotechnology sector. We acquired the two lab buildings inJune 2021 for a gross purchase price of approximately$100.2 million in cash. The properties were 100% leased as ofJune 30, 2021 . These strategic value-add acquisitions and pending acquisitions complement our focus on development and redevelopment, which also continues to be a cornerstone of our long-term growth strategy, specifically focused on properties in supply-constrained markets with the strongest economic growth over time. In the second quarter of 2021, we continued the construction of our 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 ofJune 30, 2021 , our share of the estimated total cost for these projects is approximately$2.7 billion , of which approximately$1.2 billion of equity remained to be invested. The total development pipeline, inclusive of both office and lab/life sciences developments, but excludingThe Prudential Center Observatory , is 71% pre-leased as ofAugust 3, 2021 . The office development projects in our current pipeline, which total approximately 3.3 million square feet, are 87% pre-leased, as ofAugust 2, 2021 , to predominately credit-strong tenants with long-lease terms. 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 920,000 square feet and include properties inWaltham, Massachusetts andSouth San Francisco, California , which have been, and continue to be, two 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. We expect all active developments and redevelopments in our pipeline to be delivered on time and budget. 50 -------------------------------------------------------------------------------- Ta ble of Contents 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. InJuly 2021 , we entered into an agreement to sell 181,191 and 201 Spring Street , a three-building complex aggregating approximately 333,000 square feet inLexington, Massachusetts , for an aggregate gross sales price of$191.5 million . The three-buildings are 100% leased. We anticipate closing on the sale in the third quarter of 2021. We will continue to evaluate the sale of similar properties. There can be no assurance that the acquisitions and disposition outlined above will be consummated on the terms currently contemplated or at all. A brief overview of each of our markets follows.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. OurBoston central business district ("CBD") in-service portfolio was approximately 96% leased as ofJune 30, 2021 . During the second quarter of 2021, we executed approximately 194,000 square feet of leases and approximately 420,000 square feet of leases commenced in theBoston region. Approximately 273,000 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 56% over the prior leases. Our approximately 2.0 million square foot in-service office portfolio inCambridge was approximately 99% leased as ofJune 30, 2021 . During the second quarter of 2021, we continued our development of325 Main Street atKendall Center inCambridge, Massachusetts , which is 90% pre-leased to an office tenant for a term of 15 years and we expect to deliver into service in 2022. In early 2021, we received approximately one million square feet of new entitlements at Kendall Center inCambridge, Massachusetts 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. In the second quarter of 2021, we continued the redevelopment of880 Winter Street , an approximately 224,000 square foot office property inWaltham, Massachusetts that will be converted into lab space. 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. To further enable us to meet current and future demand from tenants in the life sciences sector in this region, in the second quarter of 2021, we acquired 153 &211 Second Avenue inWaltham, Massachusetts , two life sciences lab buildings aggregating approximately 137,000 square feet that are adjacent to our200 West Street redevelopment.The Second Avenue properties consist primarily of lab space, are 100% leased to a pharmaceutical company and have 120,000 square feet of additional development rights, which may be increased when combined with excess development capacity of our adjacent200 West Street site. 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 on 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 ofJune 30, 2021 , our LA in-service properties were approximately 84% leased. In the second quarter of 2021, we signed a 351,000 square-foot, seven-year renewal and expansion lease with a leading entertainment company atColorado Center and a 140,000 square-foot expansion lease with a technology company atSanta Monica Business Park inSanta Monica, California . We expect our occupancy to increase later this year upon commencement of this 140,000 square foot lease expansion. In total, we executed approximately 491,000 square feet of leases and approximately 204,000 square feet of leases commenced in theLos Angeles region. Approximately 184,000 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 5% over the prior leases. 51 -------------------------------------------------------------------------------- Ta ble of Contents New York As ofJune 30, 2021 , our New York CBD in-service portfolio was approximately 90% leased. During the second quarter of 2021, (1) we signed leases covering approximately 152,000 square feet, including a 25,000 square foot, 11-year expansion with a financial services company at399 Park Avenue inNew York City , and (2) approximately 194,000 square feet of leases commenced. Approximately 71,000 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 44% over the prior leases. Excluding 33,289 square feet of retail leases that commenced, however, net rental obligations increased approximately 8% over the prior leases. In the second quarter of 2021, overall leasing activity increased from the first quarter of 2021 as we conducted more physical tours inNew York City than we had in the comparable quarter in either 2019 or 2020. We are actively negotiating approximately 400,000 square feet of leases, of which approximately 250,000 square feet is atDock 72 , our joint venture property inBrooklyn, New York . We are also seeing a significant reduction in the amount of sublease space available inNew York due to a combination of tenants taking back sublease space and market absorption of sublease space.San Francisco In the second quarter of 2021, governmental authorities inSan Francisco lifted all remaining travel quarantines, stay-at-home orders and restrictions on the types of businesses that could continue to operate, including offices.California was the last state among our regions to lift these restrictions. As these restrictions were lifted, the pace of new leasing activity began to increase, although activity remains well below pre-pandemic levels due to the lagging impact of these restrictions and the increase in sublease space in the market that occurred during the pandemic. Our San Francisco CBD in-service properties were approximately 93% leased as ofJune 30, 2021 . During the second quarter of 2021, we executed approximately 120,000 square feet of leases and we commenced approximately 220,000 square feet of leases in theSan Francisco region. Of these leases, approximately 194,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 47% over the prior leases. We are actively negotiating leases for over 140,000 square feet in theSan Francisco CBD. Washington, DC During the second quarter of 2021, we executed approximately 283,000 square feet of leases and we commenced approximately 317,000 square feet of leases in theWashington, DC region, including over 170,000 square feet inReston, Virginia . Of these leases, approximately 254,000 square feet had been vacant for less than one year and represent a decrease in net rental obligations of approximately 8% over the prior leases. OurWashington, DC CBD in-service properties were approximately 84% leased, as ofJune 30, 2021 , with modest near-term 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 ofJune 30, 2021 . 52 -------------------------------------------------------------------------------- Ta ble of Contents Leasing Statistics The table below details the leasing activity, including 100% of the unconsolidated joint ventures, that commenced during the three and six months endedJune 30, 2021 : Three months ended June Six months ended June 30, 30, 2021 2021 Total Square Feet Total Square Feet Vacant space available at the beginning of the period 5,131,799 4,517,385 Property dispositions/properties taken out of service (1) - (104,613) Properties placed (and partially placed) in-service (2) 2,154 229,430 Leases expiring or terminated during the period 1,410,005 3,198,671 Total space available for lease 6,543,958 7,840,873 1st generation leases 2,154 203,556 2nd generation leases with new tenants 814,522 1,417,019 2nd generation lease renewals 540,464 1,033,480 Total space leased (3) 1,357,140 2,654,055 Vacant space available for lease at the end of the period 5,186,818 5,186,818 Leases executed during the period, in square feet (4) 1,239,218 1,831,033 Second generation leasing information: (5) Leases commencing during the period, in square feet 1,354,986 2,450,499 Weighted Average Lease Term 90 Months 87 Months Weighted Average Free Rent Period 194 Days 168 Days Total Transaction Costs Per Square Foot (6)$74.26 $77.92 Increase (Decrease) in Gross Rents (7) (0.13) % 3.42 % Increase (Decrease) in Net Rents (8) (0.28) % 4.89 %
__________________
(1)Total square feet of property dispositions during the six months endedJune 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 six months endedJune 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 properties placed (and partially placed) in-service during the three months endedJune 30, 2021 consists of 2,154 square feet at100 Causeway Street . Total square feet of properties placed (and partially placed) in-service during the six months endedJune 30, 2021 consists of 195,326 square feet of office and 31,950 square feet of retail at One Five NineEast 53rd Street and 2,154 square feet at100 Causeway Street . (3)Represents leases for which lease revenue recognition has commenced in accordance with GAAP during the three and six months endedJune 30, 2021 . (4)Represents leases executed during the three and six months endedJune 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 six months endedJune 30, 2021 is 327,426 and 414,078, respectively. Amounts for the three and six months endedJune 30, 2021 exclude lease modifications related to COVID-19 to provide cash rent deferrals and/or abatements. (5)Second generation leases are defined as leases for space that had previously been leased by us. Of the 1,354,986 and 2,450,499 square feet of second generation leases that commenced during the three and six months endedJune 30, 2021 , respectively, leases for 1,029,714 and 2,041,549 square feet, respectively, were signed in prior periods. (6)Total transaction costs include tenant improvements and leasing commissions but exclude free rent concessions and other inducements in accordance with GAAP. (7)Represents the increase in gross rent (base rent plus expense reimbursements) on the new versus expired leases on the 975,749 and 1,711,181 square feet of second generation leases that had been occupied within the prior 12 months for the three and six months endedJune 30, 2021 , respectively; excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis. Excluding retail leases, gross rent increased 14.14% on the new versus expired leases on the 928,977 53 -------------------------------------------------------------------------------- Ta ble of Contents square feet of second generation leases that had been occupied within the prior 12 months for the three months endedJune 30, 2021 . (8)Represents the increase in net rent (gross rent less operating expenses) on the new versus expired leases on the 975,749 and 1,711,181 square feet of second generation leases that had been occupied within the prior 12 months for the three and six months endedJune 30, 2021 , respectively; excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis. Excluding retail leases, net rent increased 21.03% on the new versus expired leases on the 928,977 square feet of second generation leases that had been occupied within the prior 12 months for the three months endedJune 30, 2021 . Transactions during the three months endedJune 30, 2021 included the following: Acquisitions/pending acquisitions activities •OnApril 19, 2021 , we entered into an agreement to acquire11251 Roger Bacon Drive , inReston, Virginia , for an aggregate purchase price of approximately$5.6 million . The closing is scheduled to occur in the first quarter of 2022.11251 Roger Bacon Drive is an approximately 65,000 square foot office building situated on approximately 2.6 acres. The property is 100% leased to a single tenant with a lease expiration prior to the planned closing. There can be no assurance that the acquisition will be consummated on the terms currently contemplated or at all. •OnJune 2, 2021 , we acquired 153 &211 Second Avenue located inWaltham, Massachusetts for an aggregate 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. The properties are 100% leased. •OnJune 7, 2021 , we entered into an agreement to acquire Shady Grove Bio+Tech Campus inRockville, Maryland , for an aggregate purchase price of approximately$116.5 million . The closing is scheduled to occur in the third quarter of 2021. Our refundable deposit of$10.0 million is reflected as Cash and Cash Equivalents in our Consolidated Balance Sheets. 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 life sciences uses (See Note 15 to the Consolidated Financial Statements). •OnJune 25, 2021 , we entered into an agreement to acquire360 Park Avenue South inNew York City ,New York for an aggregate purchase price of approximately$300.0 million , including (1) the assumption of the mortgage loan collateralized by the property totaling approximately$202.0 million and (2) BPLP's issuance of approximately$98.0 million of OP Units, with a floor price of$111.00 per OP Unit. The closing is scheduled to occur in the fourth quarter of 2021. Our deposit of$30.0 million is reflected as Cash Held in Escrows in our Consolidated Balance Sheets.360 Park Avenue South is an approximately 450,000 square foot Class A office building. Upon acquisition, the building will be vacant and we intend to redevelop or reposition the building. There can be no assurance that the acquisition will be consummated on the terms currently contemplated or at all. •OnJune 29, 2021 , we entered into an escrow agreement in connection with an option granted to us to purchaseSafeco Plaza inSeattle, Washington . Our refundable deposit of$46.5 million is reflected as Cash and Cash Equivalents in our Consolidated Balance Sheets.Safeco Plaza is an approximately 800,000 square foot Class A office building. There can be no assurance that the acquisition will be consummated on the terms currently contemplated or at all (See Note 15 to the Consolidated Financial Statements). Developments/redevelopments activities •OnApril 16, 2021 , we removed3625-3635 Peterson Way from our in-service portfolio following the lease expiration of the last tenant onApril 15, 2021 . We intend to demolish the building and redevelop the site at a future date.3625-3635 Peterson Way is an approximately 218,000 net rentable square foot Class A office building located inSanta Clara, California . 54 -------------------------------------------------------------------------------- Ta ble of Contents Unconsolidated joint venture activities •OnJune 11, 2021 , a joint venture in which we have a 50% interest partially placed in-service100 Causeway Street , a Class A office project with approximately 632,000 net rentable square feet located inBoston, Massachusetts . •OnJune 29, 2021 , we enhanced our investment capacity through the creation of a co-investment program with two partners, which will target an aggregate equity investment of$1.0 billion . The program expects to employ leverage allowing for an initial investment capacity of approximately$2.0 billion . Under the two-year agreement, we will provide our partners first offers to form joint ventures with us to invest in acquisition opportunities that meet the program's target investment criteria. Each investment opportunity is discretionary. Leases •OnMay 19, 2021 , we amended the ground lease atSumner Square inWashington, DC . The amendment extends the ground lease for an additional 15 years. Prior to the amendment, the ground lease was scheduled to expire onAugust 10, 2066 . The ground lease will now expire onAugust 9, 2081 .Sumner Square is an approximately 210,000 net rentable square foot Class A office building. Equity Transaction •OnApril 1, 2021 , BXP redeemed 80,000 shares of Series B Preferred Stock (including the corresponding 8,000,000 Depositary Shares), which represented all of the outstanding shares of Series B Preferred Stock and all of the outstanding Depositary Shares. The redemption price for all outstanding shares of Series B Preferred Stock was approximately$201.3 million , including approximately$1.3 million of accrued and unpaid dividends to, but not including, the redemption date. Capital markets activities •OnJune 15, 2021 , BPLP amended and restated its unsecured revolving credit agreement (as amended and restated, the "2021 Credit Facility"). The 2021 Credit Facility provides for borrowings of up to$1.5 billion (the "Revolving Facility"), subject to customary conditions. Among other things, the amendment and restatement (1) extended the maturity date toJune 15, 2026 , (2) eliminated the$500.0 million delayed draw term loan facility ("Delayed Draw Facility") provided under the previous credit agreement (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 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. The 2021 Credit Facility replaced the 2017 Credit Facility, which was scheduled to expire onApril 24, 2022 . Transactions completed subsequent toJune 30, 2021 included the following: •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 sale 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. •OnJuly 20, 2021 , we agreed to acquireSafeco Plaza inSeattle, Washington for an aggregate cash purchase price of approximately$465.0 million . We and our prospective partner have funded a deposit of$51.5 million of which our share of the deposit is$26.3 million .Safeco Plaza is an approximately 800,000 square foot Class A office building. The acquisition is subject to customary closing conditions for a transaction of this type, and there can be no assurance that the acquisition will be consummated on the terms currently contemplated or at all (See Note 3 to the Consolidated Financial Statements). •OnAugust 2, 2021 , we acquired Shady Grove Bio+Tech Campus inRockville, Maryland for an aggregate purchase price of approximately$116.5 million . 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 life sciences uses (See Note 3 to the Consolidated Financial Statements). 55 -------------------------------------------------------------------------------- Ta ble of Contents 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 Six Months EndedJune 30, 2021 and 2020 Net income attributable toBoston Properties, Inc. common shareholders and net income attributable toBoston Properties Limited Partnership common unitholders decreased approximately$560.9 million and$636.7 million for the six months endedJune 30, 2021 compared to 2020, respectively, as set forth in the following tables and for the reasons discussed below under the heading "Comparison of the six months endedJune 30, 2021 to the six months endedJune 30, 2020 " within "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations." The following are reconciliations of Net Income Attributable toBoston Properties, Inc. Common Shareholders to Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to Net Operating Income for the six months endedJune 30, 2021 and 2020 (in thousands): 56 -------------------------------------------------------------------------------- Ta ble of ContentsBoston Properties, Inc. Six months ended June 30, Increase/ % 2021 2020 (Decrease) Change Net Income Attributable toBoston Properties , Inc. Common Shareholders$ 203,372 $ 764,232 $ (560,860) (73.39) % Preferred stock redemption charge 6,412 - 6,412 100.00 % Preferred dividends 2,560 5,250 (2,690) (51.24) % Net Income Attributable toBoston Properties , Inc. 212,344 769,482 (557,138) (72.40) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interest-common units of the Operating Partnership 23,422 87,525 (64,103) (73.24) %
Noncontrolling interests in property partnerships 33,631
18,719 14,912 79.66 % Net Income 269,397 875,726 (606,329) (69.24) % Other Expenses: Add: Interest expense 214,221 208,733 5,488 2.63 % Losses from early extinguishment of debt 898 - 898 100.00 % Other Income: Less: Gains (losses) from investments in securities 3,934 (893) 4,827 540.54 % Interest and other income (loss) 2,620 4,322 (1,702) (39.38) % Gains on sales of real estate 7,756 613,932 (606,176) (98.74) % Income from unconsolidated joint ventures 3,852 1,463 2,389 163.29 % Other Expenses: Add: Depreciation and amortization expense 360,403 349,282 11,121 3.18 % Transaction costs 1,082 947 135 14.26 % Payroll and related costs from management services contracts 6,160 5,721 439 7.67 % General and administrative expense 83,364 74,197 9,167 12.35 % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 6,160 5,721 439 7.67 % Development and management services revenue 14,087 16,004 (1,917) (11.98) % Net Operating Income$ 897,116 $ 874,057 $ 23,059 2.64 % 57
-------------------------------------------------------------------------------- Ta ble of ContentsBoston Properties Limited Partnership Six months ended June 30, Increase/ % 2021 2020 (Decrease) Change Net Income Attributable toBoston Properties Limited Partnership Common Unitholders$ 231,619 $ 868,308 $ (636,689) (73.33) % Preferred unit redemption charge 6,412 - 6,412 100.00 % Preferred distributions 2,560 5,250 (2,690) (51.24) % Net Income Attributable toBoston Properties Limited Partnership 240,591 873,558 (632,967) (72.46) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interests in property partnerships 33,631 18,719 14,912 79.66 % Net Income 274,222 892,277 (618,055) (69.27) % Other Expenses: Add: Interest expense 214,221 208,733 5,488 2.63 % Losses from early extinguishment of debt 898 - 898 100.00 % Other Income: Less: Gains (losses) from investments in securities 3,934 (893) 4,827 540.54 % Interest and other income (loss) 2,620 4,322 (1,702) (39.38) % Gains on sales of real estate 7,756 626,895 (619,139) (98.76) % Income from unconsolidated joint ventures 3,852 1,463 2,389 163.29 % Other Expenses: Add: Depreciation and amortization expense 355,578 345,694 9,884 2.86 % Transaction costs 1,082 947 135 14.26 % Payroll and related costs from management services contracts 6,160 5,721 439 7.67 % General and administrative expense 83,364 74,197 9,167 12.35 % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 6,160 5,721 439 7.67 % Development and management services revenue 14,087 16,004 (1,917) (11.98) % Net Operating Income$ 897,116 $ 874,057 $ 23,059 2.64 % AtJune 30, 2021 and 2020, we owned or had joint venture interests in a portfolio of 197 and 195 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 is meaningful. Therefore, the comparison of operating results for the three and six months endedJune 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 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 -------------------------------------------------------------------------------- Ta ble 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, 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 on sales of real estate, income (loss) from unconsolidated joint ventures, 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 six months endedJune 30, 2021 to the six months endedJune 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 throughJune 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 toJune 30, 2021 . This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the six months endedJune 30, 2021 and 2020 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold. 59
--------------------------------------------------------------------------------
Ta ble of Contents
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) $ 1,308,237 $ 1,277,590 $ 30,647 2.40 % $ 1,351 $ 16 $ 26,165 1.99 % Termination Income 9,625 5,648 3,977 70.41 % - - - - - - - 59 9,625 5,707 3,918 68.65 % Lease Revenue 1,317,862 1,283,238 34,624 2.70 % 1,351 16 20,189 6,162 7,176 10,018 4,696 21,757 1,351,274 1,321,191 30,083 2.28 % Parking and Other 33,873 37,187 (3,314) (8.91) % 213 - 9 12 201 - 554 932 34,850 38,131 (3,281) (8.60) % Total Rental Revenue (1) 1,351,735 1,320,425 31,310 2.37 % 1,564 16 20,198 6,174 7,377 10,018 5,250 22,689 1,386,124 1,359,322 26,802 1.97 % Real Estate Operating Expenses 482,026 478,972 3,054 0.64 % 1,130 1 5,814 3,440 3,252 4,176 1,815 8,135 494,037 494,724 (687) (0.14) % Net Operating Income, ExcludingResidential and Hotel 869,709 841,453 28,256 3.36 % 434 15 14,384 2,734 4,125 5,842 3,435 14,554 892,087 864,598 27,489 3.18 % Residential Net Operating Income (Loss) (2) 9,102 11,329 (2,227) (19.66) % - - (2,219) - - - - - 6,883 11,329 (4,446) (39.24) %Hotel Net Operating Loss (2) (1,854) (1,870) 16 0.86 % - - - - - - - - (1,854) (1,870) 16 0.86 % Net Operating Income$ 876,957 $ 850,912 $ 26,045 3.06 %$ 434 $ 15 $ 12,165 $ 2,734 $ 4,125 $ 5,842 $ 3,435 $ 14,554 $ 897,116 $ 874,057 $ 23,059 2.64 %
_______________
(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 six months endedJune 30, 2021 and 2020 is comprised of Residential Revenue of$18,938 and$19,358 less Residential Expenses of$12,055 and$8,029 , respectively.Hotel Net Operating Income for the six months endedJune 30, 2021 and 2020 is comprised ofHotel Revenue of$2,193 and$6,924 lessHotel Expenses of$4,047 and$8,794 , respectively, per the Consolidated Statements of Operations. 60 -------------------------------------------------------------------------------- Ta ble of Contents Same Property Portfolio Lease Revenue (Excluding Termination Income) Lease revenue (excluding termination income) from the Same Property Portfolio increased by approximately$30.6 million for the six months endedJune 30, 2021 compared to 2020. The increase was primarily due to approximately$52.1 million of write-offs, which are discussed below. The increase was partially offset by an approximately$35.2 million decrease due to our average occupancy decreasing from 93.9% to 91.4%, which was partially offset by our average revenue per square foot increasing by approximately$0.81 , contributing approximately$13.7 million . Under Accounting Standards Codification ("ASC") 842, any write-off for bad debt, including accrued rent, is recorded as a reduction to lease revenue. As a result, during the six months endedJune 30, 2021 , for our Same Property Portfolio, we wrote off approximately$1.1 million and$0.1 million of accrued rent and accounts receivable balances, respectively. During the six months endedJune 30, 2020 , for our Same Property Portfolio, we wrote off approximately$35.1 million and$18.2 million of accrued rent and accounts receivable balances, respectively. These write-offs were for tenants, primarily in the retail sector, that either terminated their leases or we determined that their accrued rent and/or accounts receivable balances were no longer probable of collection. Each quarter since the second quarter of 2020, the number of executed COVID-19 lease modifications has decreased. We expect the volume of lease modifications to further decrease as the economy recovers. However, the degree to which our tenants' businesses have been negatively impacted by COVID-19 and any resulting downturn in their business may leave some tenants still unable to meet their rental payment obligations and result in a reduction in our cash flows. Termination Income Termination income increased by approximately$4.0 million for the six months endedJune 30, 2021 compared to 2020. Termination income for the six months endedJune 30, 2021 related to 19 tenants across the Same Property Portfolio and totaled approximately$9.6 million , which was primarily related to tenants that terminated leases early inNew York City and theBoston region. Termination income for the six months endedJune 30, 2020 related to 28 tenants across the Same Property Portfolio and totaled approximately$5.6 million , which was primarily related to tenants that terminated leases early inNew York City and theBoston region. Parking and Other Revenue Parking and other revenue decreased by approximately$3.3 million for the six months endedJune 30, 2021 compared to 2020. Parking revenue decreased by approximately$5.0 million while other revenue increased by approximately$1.7 million . The decrease in parking revenue was primarily due to a decrease in monthly parking. The increase in other revenue was primarily due to insurance proceeds related to damage at one of our properties in theNew York region due to a water main break, offset by a decrease in other revenue. Expenses of$2.8 million related to this 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 six months endedJune 30, 2021 , monthly parking decreased by approximately$4.6 million , offset by an increase in transient parking of approximately$0.7 million , compared to the six months endedJune 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$3.1 million , or 0.6%, for the six months endedJune 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 cleaning expense. 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. 61 -------------------------------------------------------------------------------- Ta ble of Contents Properties Acquired Portfolio The table below lists the properties acquired betweenJanuary 1, 2020 andJune 30, 2021 . Rental revenue and real estate operating expenses increased by approximately$1.5 million and$1.1 million , respectively, for the six months endedJune 30, 2021 compared to 2020, as detailed below. Rental Revenue Real Estate Operating Expenses Name Date acquired Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) 777 Harrison Street (1) June 26, 2020 N/A$ 808 $ 16 $ 792 $ 1,059 $ 1 $ 1,058 153 & 211 Second Avenue June 4, 2021 136,882 756 - 756 71 - 71 136,882$ 1,564 $ 16 $ 1,548 $ 1,130 $ 1 $ 1,129 _______________ (1)Formerly known as Fourth + Harrison and425 Fourth Street and includes operating results for759 Harrison Street , which was fully acquired onDecember 16, 2020 . Properties Placed In-Service Portfolio The table below lists the properties that were placed in-service or partially placed in-service betweenJanuary 1, 2020 andJune 30, 2021 . Rental revenue and real estate operating expenses from our Properties Placed In-Service Portfolio increased by approximately$15.0 million and$5.6 million , respectively, for the six months endedJune 30, 2021 compared to 2020, as detailed below. Quarter Initially Rental Revenue Real Estate Operating ExpensesName Placed In-Service Quarter Fully Placed In-Service Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) Office 20 CityPoint Second Quarter, 2019 Second Quarter, 2020 211,476$ 3,531 $ 3,624 $ (93) $ 1,489 $ 1,322 $ 167 17Fifty Presidents Street First Quarter, 2020 First Quarter, 2020 275,809 9,976 3,943 6,033 2,927 1,276 1,651 One Five Nine East53rd Street (1) First Quarter, 2021 First Quarter, 2021 220,000 6,691 (1,393) 8,084 1,398 842 556 Total Office 707,285 20,198 6,174 14,024 5,814 3,440 2,374 Residential The Skylyne Third Quarter, 2020 Third Quarter, 2020 330,996 1,011 - 1,011 3,230 - 3,230 Total Residential 330,996 1,011 - 1,011 3,230 - 3,230 1,038,281$ 21,209 $ 6,174 $ 15,035 $ 9,044 $ 3,440 $ 5,604 _____________ (1)This is the low-rise portion of601 Lexington Avenue , which was in development for the six months endedJune 30, 2020 . Rental revenue for the six months endedJune 30, 2020 includes an approximately$2.9 million write-off of accrued rent and accounts receivable balances for a terminated tenant. 62 -------------------------------------------------------------------------------- Ta ble of Contents Properties in Development or Redevelopment Portfolio The table below lists the properties that were in development or redevelopment betweenJanuary 1, 2020 andJune 30, 2021 . Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio decreased by approximately$2.6 million and$0.9 million , respectively, for the six months endedJune 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) $ 109 $ 74 $ 35 200 West Street (2) September 30, 2019 261,000 3,148 2,593 555 1,236 1,781 (545) 880 Winter Street (3) February 25, 2021 224,000 2,476 4,313 (1,837) 1,448 1,632 (184) 3625-3635 Peterson Way (4) April 16, 2021 218,000 1,753 3,076 (1,323) 459 689 (230) 818,000$ 7,377 $ 10,018 $ (2,641) $ 3,252 $ 4,176 $ (924) _______________ (1)Real estate operating expenses for the six months endedJune 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 intend to demolish the building and redevelop the site at a future date. Properties Sold Portfolio The table below lists the properties we sold betweenJanuary 1, 2020 andJune 30, 2021 . Rental revenue and real estate operating expenses from our Properties Sold Portfolio decreased by approximately$17.4 million and$6.3 million , respectively, for the six months endedJune 30, 2021 compared to 2020, as detailed below. Rental Revenue Real Estate Operating ExpensesName Date Sold Property Type Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) 601, 611 and 651Gateway 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 5,250 18,192 (12,942) 1,815 6,482 (4,667) 1,892,000$ 5,250 $ 22,689 $ (17,439) $ 1,815 $ 8,135 $ (6,320) ______________ (1)We completed the sale of a portion of ourCapital Gallery property located inWashington, 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 and land parcel 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$2.2 million for the six months endedJune 30, 2021 compared to 2020. 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 six months endedJune 30, 2021 and 2020. 63
--------------------------------------------------------------------------------
Ta ble of Contents
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) $ 3,315 $ 4,520 (26.7) % $ 2,233 $ 2,395 (6.8) % $ 2,204 $ 2,331 (5.4) % $ 2,544 $ 2,959 (14.0) %
Average Rental
Rate Per Occupied
Square Foot $ 3.75 $ 5.02 (25.3) % $ 2.45 $ 2.63 (6.8) % $ 2.29 $ 2.48 (7.7) % $ 4.69 $ 5.44 (13.8) %
Average Physical
Occupancy (2) 91.9 % 93.4 % (1.6) % 93.2 % 90.5 % 3.0 % 83.6 % 81.9 % 2.1 % 91.0 % 94.0 % (3.2) %
Average Economic
Occupancy (3) 88.8 % 93.0 % (4.5) % 92.2 % 89.3 % 3.2 % 79.4 % 76.8 % 3.4 % 89.5 % 93.5 % (4.3) %
_______________
(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 continues to operate at a loss,
however, the net operating loss has decreased approximately $16,000 for the six
months ended June 30, 2021 compared to 2020.
The Boston Marriott Cambridge closed in March 2020 due to COVID-19. The hotel
re-opened on October 2, 2020 but has operated at a reduced occupancy 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 weak 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 six months ended June 30, 2021 and 2020.
2021 2020 Change (%)
Occupancy 16.5 % 29.8 % (44.6) %
Average daily rate $ 147.66 $ 211.29 (30.1) %
REVPAR $ 24.36 $ 62.98 (61.3) %
Other Operating Revenue and Expense Items
Development and Management Services Revenue
Development and management services revenue decreased by approximately $1.9
million for the six months ended June 30, 2021 compared to 2020. Development
services revenue decreased by approximately $2.8 million while management
services revenue increased by approximately $0.9 million . The decrease in
development services revenue was primarily related to a decrease in development
fees 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 in the Washington, DC region and from an
unconsolidated joint venture in the Los Angeles region.
64
--------------------------------------------------------------------------------
Ta ble of Contents
General and Administrative Expense
General and administrative expense increased by approximately $9.2 million for
the six months ended June 30, 2021 compared to 2020 primarily due to an increase
in compensation expense of approximately $11.1 million , partially offset by an
approximately $1.9 million decrease in other general and administrative
expenses. The increase in compensation expense was related to (1) an
approximately $4.8 million increase in the value of our deferred compensation
plan and (2) an approximately $6.3 million increase in other compensation
expenses, primarily due to age-based vesting. 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 six months ended June 30, 2021 and 2020 were
approximately $6.8 million and $6.2 million , respectively. These costs are not
included in the general and administrative expenses discussed above.
Transaction Costs
Transaction costs increased by approximately $0.1 million for the six months
ended June 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 $11.1 million
for the six months ended June 30, 2021 compared to 2020, as detailed below.
Depreciation and Amortization for the six months
ended June 30,
Portfolio 2021 2020 Change
(in thousands)
Same Property Portfolio (1) $ 328,597 $ 337,703 $ (9,106)
Properties Acquired Portfolio 979 - 979
Properties Placed In-Service Portfolio 9,641 2,544 7,097
Properties in Development or Redevelopment Portfolio (2)
20,522 5,750 14,772
Properties Sold Portfolio 664 3,285 (2,621)
$ 360,403 $ 349,282 $ 11,121
_______________
(1)During the six months ended June 30, 2021 , we commenced redevelopment of The
Prudential Center Observatory , 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 six months ended June 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.
(2)On February 25, 2021 , we commenced redevelopment of 880 Winter Street in
Waltham, Massachusetts . As a result, during the six months ended June 30, 2021 ,
we recorded approximately $13.7 million of accelerated depreciation expense for
the demolition of a portion of the building.
65
--------------------------------------------------------------------------------
Ta ble of Contents
Boston Properties Limited Partnership
Depreciation and amortization expense increased by approximately $9.9 million
for the six months ended June 30, 2021 compared to 2020, as detailed below.
Depreciation and Amortization for the six months
ended June 30,
Portfolio 2021 2020 Change
(in thousands)
Same Property Portfolio (1) $ 323,772 $ 334,115 $ (10,343)
Properties Acquired Portfolio 979 - 979
Properties Placed In-Service Portfolio 9,641 2,544 7,097
Properties in Development or Redevelopment Portfolio
(2) 20,522 5,750 14,772
Properties Sold Portfolio 664 3,285 (2,621)
$ 355,578 $ 345,694 $ 9,884
_______________
(1)During the six months ended June 30, 2021 , we commenced redevelopment of The
Prudential Center Observatory , 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 six months ended June 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 six months ended June 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
Income from Unconsolidated Joint Ventures
For the six months ended June 30, 2021 compared to 2020, income from
unconsolidated joint ventures increased by approximately $2.4 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 six months ended
June 30, 2021 (See Note 5 to the Consolidated Financial Statements), partially
offset by an approximately (1) $5.8 million gain on sale of real estate from the
sale of Annapolis Junction Building Eight and two undeveloped land parcels
during the six months ended June 30, 2020 and (2) $3.3 million decrease in net
income from our Dock 72 joint venture, primarily related to depreciation and
amortization.
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.
66
--------------------------------------------------------------------------------
Ta ble of Contents
Boston Properties, Inc.
Gains on sales of real estate decreased by approximately $606.2 million for the
six months ended June 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 $ 7.8 (1)
N/A N/A $ 7.8
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 455,000 253.7 246.9 203.8
$ 859.7 $ 500.9 $ 613.8 (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 was
completed during the second 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, upon completion, we recognized a
gain of approximately $7.8 million .
(2)Excludes approximately $0.2 million of gains on sales of real estate
recognized during the six months ended June 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 $619.1 million for the
six months ended June 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 $ 7.8 (1)
N/A N/A $ 7.8
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 455,000 253.7 246.9 207.2
$ 859.7 $ 500.9 $ 626.7 (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 was
completed during the second 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, upon completion, we recognized a
gain of approximately $7.8 million .
(2)Excludes approximately $0.2 million of gains on sales of real estate
recognized during the six months ended June 30, 2020 related to gain amounts
from sales of real estate occurring in the prior year.
67
--------------------------------------------------------------------------------
Ta ble of Contents
Interest and Other Income (Loss)
Interest and other income decreased by approximately $1.7 million for the six
months ended June 30, 2021 compared to 2020, due primarily to a decrease of
approximately $2.6 million in interest income as a result of lower interest
earned on our deposits, partially offset by an approximately $0.9 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 (losses) from Investments in Securities
Gains (losses) from investments in securities for the six months ended June 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 six months ended June 30, 2021 and 2020, we recognized
gains (losses) of approximately $3.9 million and $(0.9) million , respectively,
on these investments. By comparison, our general and administrative expense
increased (decreased) by approximately $3.9 million and $(0.9) million during
the six months ended June 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.
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 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.
68
--------------------------------------------------------------------------------
Ta ble of Contents
Interest Expense
Interest expense increased by approximately $5.5 million for the six months
ended June 30, 2021 compared to 2020, as detailed below.
Change in interest
expense for the six
months ended June 30,
2021 compared to
Component June 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
6,406
Increase in interest due to finance leases that are related to development properties
2,051
Increase in interest due to finance leases for two in-service properties
1,157
Decrease in capitalized interest related to development projects 769
Total increases to interest expense 24,538
Decreases to interest expense due to:
Redemption of
(13,605)
Decrease in interest rates for the 2017 and 2021 Credit Facilities
and the repayment of the unsecured term loan on
(4,215)
Increase in capitalized interest related to development projects that had finance leases
(769)
Other interest expense (excluding senior notes) (372)
Decrease in interest related to the repayment of the
(89)
Total decreases to interest expense (19,050)
Total change in interest expense $ 5,488
_______________
(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 six months endedJune 30, 2021 and 2020 was approximately$25.0 million and$27.9 million , respectively. These costs are not included in the interest expense referenced above. AtJune 30, 2021 , our variable rate debt consisted of BPLP's$1.5 billion Revolving Facility. The Revolving Facility did not have an outstanding balance as ofJune 30, 2021 . For a summary of our consolidated debt as ofJune 30, 2021 andJune 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 -------------------------------------------------------------------------------- Ta ble of Contents Noncontrolling Interests in Property Partnerships Noncontrolling interests in property partnerships increased by approximately$14.9 million for the six months endedJune 30, 2021 compared to 2020, as detailed below. Noncontrolling
Interests in Property Partnerships for
the six months ended June 30,
Property 2021 2020 Change
(in thousands)
767 Fifth Avenue (the General Motors Building )
(1) $ 5,467 $ 2,101 $ 3,366
Times Square Tower (2) 9,920 (3,347) 13,267
601 Lexington Avenue (3) 6,809 7,965 (1,156)
100 Federal Street 6,790 7,309 (519)
Atlantic Wharf Office Building 4,645 4,691 (46)
$ 33,631 $ 18,719 $ 14,912
_______________
(1)The increase was primarily attributable to an increase in lease revenue from
our tenants. In addition, during the six months ended June 30, 2020 , we
accelerated amortization expense related to a below-market lease that terminated
early.
(2)During the six months ended June 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 six months ended June
30, 2020 , partially offset by the increase in revenue related to placing
in-service One Five Nine East 53rd Street . During the six months ended June 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 $64.1 million for the six months ended June 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 June 30, 2021 and 2020
Net income attributable to Boston Properties, Inc. common shareholders and net
income attributable to Boston Properties Limited Partnership common unitholders
decreased approximately $154.8 million and $176.1 million for the three months
ended June 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 June 30, 2021 to the three months ended June 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
June 30, 2021 and 2020. For a detailed discussion of NOI, including the reasons
management believes NOI is useful to investors, see page 59.
70
--------------------------------------------------------------------------------
Ta ble of Contents
Boston Properties, Inc.
Three months ended June 30,
Increase/ %
2021 2020 (Decrease) Change
(in thousands)
Net Income Attributable to Boston Properties ,
Inc. Common Shareholders $ 111,703 $ 266,525 $ (154,822) (58.09) %
Preferred dividends - 2,625 (2,625) (100.00) %
Net Income Attributable to Boston Properties ,
Inc. 111,703 269,150 (157,447) (58.50) %
Net Income Attributable to Noncontrolling
Interests:
Noncontrolling interest-common units of the
Operating Partnership 12,383 30,197 (17,814) (58.99) %
Noncontrolling interests in property partnerships 17,164
(767) 17,931 2,337.81 %
Net Income 141,250 298,580 (157,330) (52.69) %
Other Expenses:
Add:
Interest expense 106,319 107,142 (823) (0.77) %
Other Income:
Less:
Gains from investments in securities 2,275 4,552 (2,277) (50.02) %
Interest and other income (loss) 1,452 1,305 147 11.26 %
Gains on sales of real estate 7,756 203,767 (196,011) (96.19) %
Income (loss) from unconsolidated joint ventures (1,373) 1,832 (3,205) (174.95) %
Other Expenses:
Add:
Depreciation and amortization expense 183,838 178,188 5,650 3.17 %
Transaction costs 751 332 419 126.20 %
Payroll and related costs from management
services contracts 2,655 2,484 171 6.88 %
General and administrative expense 38,405 37,743 662 1.75 %
Other Revenue:
Less:
Direct reimbursements of payroll and related
costs from management services contracts 2,655 2,484 171 6.88 %
Development and management services revenue 7,284 8,125 (841) (10.35) %
Net Operating Income $ 453,169 $ 402,404 $ 50,765 12.62 %
71-------------------------------------------------------------------------------- Ta ble of ContentsBoston Properties Limited Partnership Three months ended June 30, Increase/ % 2021 2020 (Decrease) Change (in thousands) Net Income Attributable toBoston Properties Limited Partnership Common Unitholders$ 125,846 $ 301,975 $ (176,129) (58.33) % Preferred distributions - 2,625 (2,625) (100.00) % Net Income Attributable toBoston Properties Limited Partnership 125,846 304,600 (178,754) (58.68) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interests in property partnerships 17,164 (767) 17,931 2,337.81 % Net Income 143,010 303,833 (160,823) (52.93) % Other Expenses: Add: Interest expense 106,319 107,142 (823) (0.77) % Other Income: Less: Gains from investments in securities 2,275 4,552 (2,277) (50.02) % Interest and other income (loss) 1,452 1,305 147 11.26 % Gains on sales of real estate 7,756 207,241 (199,485) (96.26) % Income (loss) from unconsolidated joint ventures (1,373) 1,832 (3,205) (174.95) % Other Expenses: Add: Depreciation and amortization expense 182,078 176,409 5,669 3.21 % Transaction costs 751 332 419 126.20 % Payroll and related costs from management services contracts 2,655 2,484 171 6.88 % General and administrative expense 38,405 37,743 662 1.75 % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 2,655 2,484 171 6.88 % Development and management services revenue 7,284 8,125 (841) (10.35) % Net Operating Income$ 453,169 $ 402,404 $ 50,765 12.62 % Comparison of the three months endedJune 30, 2021 to the three months endedJune 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 141 properties totaling approximately 39.3 million net rentable square feet, excluding unconsolidated joint ventures. The Same Property Portfolio includes properties acquired or placed in-service on or prior toApril 1, 2020 and owned and in-service throughJune 30, 2021 . The Total Property Portfolio includes the effects of the other properties either acquired, placed in-service, in development or redevelopment afterApril 1, 2020 or disposed of on or prior toJune 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 endedJune 30, 2021 and 2020 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold. 72
--------------------------------------------------------------------------------
Ta ble of Contents
Properties in
Properties Development or
Properties Placed In-Service Redevelopment
Same Property Portfolio Acquired Portfolio Portfolio 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) $ 656,819 $ 605,044 $ 51,775 8.56 % $ 1,041 $ 16 $
5,849
8.35 %
Termination Income 5,355 3,264 2,091 64.06 % - - - - - - - 45 5,355 3,309 2,046 61.83 %
Lease Revenue 662,174 608,308 53,866 8.86 % 1,041 16 5,849 (510) 2,904 4,932 2,493 8,129 674,461 620,875 53,586 8.63 %
Parking and Other 17,396 13,549 3,847 28.39 % 176 - 3 6 201 - 307 233 18,083 13,788 4,295 31.15 %
Total Rental Revenue (1) 679,570 621,857 57,713 9.28 % 1,217 16 5,852 (504) 3,105 4,932 2,800 8,362 692,544 634,663 57,881 9.12 %
Real Estate Operating
Expenses 237,923 229,685 8,238 3.59 % 679 1 1,441 1,013 1,755 2,046 977 3,077 242,775 235,822 6,953 2.95 %
Net Operating Income (Loss),
Excluding Residential and
Hotel 441,647 392,172 49,475 12.62 % 538 15 4,411 (1,517) 1,350 2,886 1,823 5,285 449,769 398,841 50,928 12.77 %
Residential Net Operating
Income (Loss) (2) 4,689 5,437 (748) (13.76) % - - (854) - - - - - 3,835 5,437 (1,602) (29.46) %
Hotel Net Operating Loss (2) (435) (1,874) 1,439 76.79 % - - - - - - - - (435) (1,874) 1,439 76.79 %
Net Operating Income (Loss) $ 445,901 $ 395,735 $ 50,166 12.68 % $ 538 $ 15 $ 3,557 $ (1,517) $ 1,350 $ 2,886 $ 1,823 $ 5,285 $ 453,169 $ 402,404 $ 50,765 12.62 %
_______________
(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 endedJune 30, 2021 and 2020 is comprised of Residential Revenue of$9,763 and$9,402 less Residential Expenses of$5,928 and$3,965 , respectively.Hotel Net Operating Income for the three months endedJune 30, 2021 and 2020 is comprised ofHotel Revenue of$1,561 and$99 lessHotel Expenses of$1,996 and$1,973 , respectively, per the Consolidated Statements of Operations. 73 -------------------------------------------------------------------------------- Ta ble of Contents Same Property Portfolio Lease Revenue (Excluding Termination Income) Lease revenue from the Same Property Portfolio increased by approximately$51.8 million for the three months endedJune 30, 2021 compared to 2020. Approximately$50.3 million of the increase was related to write-offs, which are discussed below. Excluding the write-offs, the remaining increase was a result of our average revenue per square foot increasing by approximately$2.23 , contributing approximately$19.1 million , partially offset by an approximately$17.6 million decrease due to our average occupancy decreasing from 93.7% to 91.2%. Under ASC 842, any write-off for bad debt, including accrued rent, is recorded as a reduction to lease revenue. As a result, during the three months endedJune 30, 2021 , for our Same Property Portfolio, we wrote off approximately$0.5 million and$0.3 million of accrued rent and accounts receivable balances, respectively. During the three months endedJune 30, 2020 , for our Same Property Portfolio, we wrote off approximately$33.7 million and$17.4 million of accrued rent and accounts receivable balances, respectively. These write-offs were for tenants, primarily in the retail sector, that either terminated their leases or we determined that their accrued rent and/or accounts receivable balances were no longer probable of collection. Each quarter since the second quarter of 2020, the number of executed COVID-19 lease modifications has decreased. We expect the volume of lease modifications to further decrease as the economy recovers. However, the degree to which our tenants' businesses have been negatively impacted by COVID-19 and any resulting downturn in their business may leave some tenants still unable to meet their rental payment obligations and result in a reduction in our cash flows. Termination Income Termination income increased by approximately$2.1 million for the three months endedJune 30, 2021 compared to 2020. Termination income for the three months endedJune 30, 2021 related to 13 tenants across the Same Property Portfolio and totaled approximately$5.4 million , which was primarily related to tenants that terminated leases early inNew York City . Termination income for the three months endedJune 30, 2020 related to 17 tenants across the Same Property Portfolio and totaled approximately$3.3 million , which was primarily related to tenants that terminated leases early inNew York City . Parking and Other Revenue Parking and other revenue increased by approximately$3.8 million for the three months endedJune 30, 2021 compared to 2020. Parking revenue increased by approximately$4.3 million while other revenue decreased by approximately$0.5 million . 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 increased by approximately$8.2 million , or 3.6%, for the three months endedJune 30, 2021 compared to 2020, due primarily to increases in utility and other real estate operating expenses of approximately$3.7 million , or 21.2%, and$4.5 million , or 2.1%, respectively. 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. 74 -------------------------------------------------------------------------------- Ta ble of Contents Properties Acquired Portfolio The table below lists the properties acquired betweenApril 1, 2020 andJune 30, 2021 . Rental revenue and real estate operating expenses increased by approximately$1.2 million and$0.7 million , respectively, for the three months endedJune 30, 2021 compared to 2020, as detailed below. Rental Revenue Real Estate Operating Expenses Name Date acquired Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) 777 Harrison Street (1) June 26, 2020 N/A$ 461 $ 16 $ 445 $ 608 $ 1 $ 607 153 & 211 Second Avenue June 4, 2021 136,882 756 - 756 71 - 71 136,882$ 1,217 $ 16 $ 1,201 $ 679 $ 1 $ 678 _______________ (1)Formerly known as Fourth + Harrison and425 Fourth Street and includes operating results for759 Harrison Street , which was fully acquired onDecember 16, 2020 . Properties Placed In-Service Portfolio The table below lists the properties that were placed in-service or partially placed in-service betweenApril 1, 2020 andJune 30, 2021 . Rental revenue and real estate operating expenses from our Properties Placed In-Service Portfolio increased by approximately$7.0 million and$2.0 million , respectively, for the three months endedJune 30, 2021 compared to 2020, as detailed below. Quarter Initially Rental Revenue Real Estate Operating ExpensesName Placed In-Service Quarter Fully Placed In-Service Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) Office 20 CityPoint Second Quarter, 2019 Second Quarter, 2020 211,476$ 1,837 $ 1,775 $ 62 $ 762 $ 734 $ 28 One Five Nine East53rd Street (1) First Quarter, 2021 First Quarter, 2021 220,000 4,015 (2,279) 6,294 679 279 400 Total Office 431,476 5,852 (504) 6,356 1,441 1,013 428 Residential The Skylyne Third Quarter, 2020 Third Quarter, 2020 330,996 690 - 690 1,544 - 1,544 Total Residential 330,996 690 - 690 1,544 - 1,544 762,472$ 6,542 $ (504) $ 7,046 $ 2,985 $ 1,013 $ 1,972 _______________
(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 betweenApril 1, 2020 andJune 30, 2021 . Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio decreased by approximately$1.8 million and$0.3 million , respectively, for the three months endedJune 30, 2021 compared to 2020. 75
--------------------------------------------------------------------------------
Ta ble of Contents
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) $ 92 $ (75) $ 167
200 West Street (2) September 30, 2019 261,000 1,647 1,325 322 866 938 (72)
880 Winter Street (3) February 25, 2021 224,000 1,141 2,033 (892) 690 827 (137)
3625-3635 Peterson
Way (4) April 16, 2021 218,000 317 1,538 (1,221) 107 356 (249)
818,000 $ 3,105 $ 4,932 $ (1,827) $ 1,755 $ 2,046 $ (291)
_______________
(1)Real estate operating expenses for the three months ended June 30, 2021 are
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 intend to demolish the building
and redevelop the site at a future date.
Properties Sold Portfolio
The table below lists the properties we sold between April 1, 2020 and June 30,
2021 . Rental revenue and real estate operating expenses from our Properties Sold
Portfolio decreased by approximately $5.6 million and $2.1 million ,
respectively, for the three months ended June 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)
Capital Gallery
(1) June 25, 2020 Office 631,000 $ 2,800 $ 8,362 $ (5,562) $ 977$ 3,077 $ (2,100) 631,000$ 2,800 $ 8,362 $ (5,562) $ 977 $ 3,077 $ (2,100) _______________ (1)We completed the sale of a portion of ourCapital Gallery property located inWashington, 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 and land parcel refer to "Results of Operations-Other Income and Expense Items - Losses 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$0.7 million for the three months endedJune 30, 2021 compared to 2020. Net operating income for the three months endedJune 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 endedJune 30, 2021 and 2020. 76
--------------------------------------------------------------------------------
Ta ble of Contents
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) $ 3,156 $ 4,530 (30.3) % $ 2,180 $ 2,371 (8.1) % $ 2,143 $ 2,320 (7.6) % $ 2,504 $ 2,891 (13.4) %
Average Rental
Rate Per Occupied
Square Foot $ 3.51 $ 5.01 (29.9) % $ 2.38 $ 2.60 (8.5) % $ 2.22 $ 2.45 (9.4) % $ 4.60 $ 5.31 (13.4) %
Average Physical
Occupancy (2) 96.1 % 91.9 % 4.6 % 95.0 % 89.5 % 6.1 % 87.2 % 81.5 % 7.0 % 91.7 % 92.5 % (0.9) %
Average Economic
Occupancy (3) 93.7 % 91.7 % 2.2 % 94.3 % 88.4 % 6.7 % 83.1 % 76.7 % 8.3 % 90.2 % 91.9 % (1.8) %
_______________
(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 continues to operate at a loss,
however, the net operating loss has decreased approximately $1.4 million for the
three months ended June 30, 2021 compared to 2020.
The Boston Marriott Cambridge closed in March 2020 due to COVID-19. The hotel
re-opened on October 2, 2020 but has operated at a reduced occupancy 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 weak 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 June 30, 2021 and 2020.
2021 2020 Change (%)
Occupancy 21.7 % - % 100.0 %
Average daily rate $ 160.96 $ - 100.0 %
REVPAR $ 34.86 $ - 100.0 %
Other Operating Revenue and Expense Items
Development and Management Services Revenue
Development and management services revenue decreased by approximately $0.8
million for the three months ended June 30, 2021 compared to 2020. Development
services revenue decreased by approximately $1.3 million while management
services revenue increased by approximately $0.5 million . The decrease in
development services revenue was primarily related to a decrease in development
fees earned in the Boston region and 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 in the Washington, DC
region and from an unconsolidated joint venture in the Los Angeles region.
77
--------------------------------------------------------------------------------
Ta ble of Contents
General and Administrative Expense
General and administrative expense increased by approximately $0.7 million for
the three months ended June 30, 2021 compared to 2020 primarily due to an
increase in compensation expense of approximately $1.8 million , partially offset
by a decrease of approximately $1.1 million in other general and administrative
expenses. The increase in compensation expense was related to an approximately
$4.1 million increase in other compensation-related expenses, partially offset
by a decrease in compensation expense related to an approximately $2.3 million
decrease in the value of our deferred compensation plan. 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 three months ended June 30, 2021 and 2020 were
approximately $3.5 million and $3.4 million , respectively. These costs are not
included in the general and administrative expenses discussed above.
Transaction Costs
Transaction costs increased by approximately $0.4 million for the three months
ended June 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 $5.7 million
for the three months ended June 30, 2021 compared to 2020, as detailed below.
Depreciation and Amortization for the three months
ended June 30,
Portfolio 2021 2020 Change
(in thousands)
Same Property Portfolio $ 164,320 $ 173,666 $ (9,346)
Properties Acquired Portfolio 977 - 977
Properties Placed In-Service Portfolio 3,821 577 3,244
Properties in Development or Redevelopment Portfolio (1)
14,390 2,759 11,631
Properties Sold Portfolio 330 1,186 (856)
$ 183,838 $ 178,188 $ 5,650
_______________
(1)On
78
--------------------------------------------------------------------------------
Ta ble of Contents
Boston Properties Limited Partnership
Depreciation and amortization expense increased by approximately $5.7 million
for the three months ended June 30, 2021 compared to 2020, as detailed below.
Depreciation and Amortization for the three months
ended June 30,
Portfolio 2021 2020 Change
(in thousands)
Same Property Portfolio $ 162,560 $ 171,887 $ (9,327)
Properties Acquired Portfolio 977 - 977
Properties Placed In-Service Portfolio 3,821 577 3,244
Properties in Development or Redevelopment Portfolio (1)
14,390 2,759 11,631
Properties Sold Portfolio 330 1,186 (856)
$ 182,078 $ 176,409 $ 5,669
_______________
(1)On February 25, 2021 , we commenced redevelopment of 880 Winter Street in
Waltham, Massachusetts . As a result, during the three months ended June 30,
2021 , we recorded approximately $10.5 million in 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
Income (loss) from Unconsolidated Joint Ventures
For the three months ended June 30, 2021 compared to 2020, income (loss) from
unconsolidated joint ventures decreased by approximately $3.2 million due to a
$5.8 million gain on sale of real estate from the sale of Annapolis Junction
Building Eight and two undeveloped land parcels during the three months ended
June 30, 2020 . This decrease was partially offset by an approximately $1.0
million increase in net income from our Hub on Causeway - Podium joint venture,
primarily related to termination income.
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.
79
--------------------------------------------------------------------------------
Ta ble of Contents
Boston Properties, Inc.
Gains on sales of real estate decreased by approximately $196.0 million for the
three months ended June 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 $ 7.8 (1)
N/A N/A $ 7.8
2020
Capital Gallery June 25, 2020 Office 455,000 $ 253.7 $ 246.9 $ 203.8
$ 253.7 $ 246.9 $ 203.8
___________
(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 was
completed during the second 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, upon completion, we recognized a
gain of approximately $7.8 million .
Boston Properties Limited Partnership
Gains on sales of real estate decreased by approximately $199.5 million for the
three months ended June 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 $ 7.8 (1)
N/A N/A $ 7.8
2020
Capital Gallery June 25, 2020 Office 455,000 $ 253.7 $ 246.9 $ 207.2
$ 253.7 $ 246.9 $ 207.2
___________
(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 was
completed during the second 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, upon completion, we recognized a
gain of approximately $7.8 million .
Interest and Other Income (Loss)
Interest and other income (loss) decreased by approximately $0.1 million for the
three months ended June 30, 2021 compared to 2020, due to a decrease of
approximately $0.9 million in interest income as a result of lower interest
earned on our deposits, partially offset by an approximately $0.8 million
decrease in the allowance for current expected credit losses, which results in
higher income.
On January 1, 2020 , we adopted 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 three months ended June 30, 2021
and 2020 related to investments that we have made to reduce our market risk
relating to deferred compensation plans that we maintain
80
--------------------------------------------------------------------------------
Ta ble of Contents
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 three months ended June 30,
2021 and 2020, we recognized gains of approximately $2.3 million and $4.6
million , respectively, on these investments. By comparison, our general and
administrative expense increased by approximately $2.3 million and $4.6 million
during the three months ended June 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.
Interest Expense
Interest expense decreased by approximately $0.8 million for the three months
ended June 30, 2021 compared to 2020, as detailed below.
Change in interest
expense for the three
months ended June 30,
2021 compared to
Component June 30, 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
Issuance of
3,962
Increase in interest due to finance leases for two in-service properties
624
Decrease in capitalized interest related to development projects 424
Increase in interest due to finance leases that are related to development properties
279
Total increases to interest expense 10,780
Decreases to interest expense due to:
Redemption of
(8,943)
Decrease in interest rates for the 2017 and 2021 Credit Facilities
and the repayment of the unsecured term loan on
(2,016)
Increase in capitalized interest related to development projects that had finance leases
(424)
Other interest expense (excluding senior notes) (169)
Decrease in interest related to the repayment of
(51)
Total decreases to interest expense (11,603)
Total change in interest expense $ (823)
_______________
(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 endedJune 30, 2021 and 2020 was approximately$13.0 million and$13.7 million , respectively. These costs are not included in the interest expense referenced above. 81 -------------------------------------------------------------------------------- Ta ble of Contents AtJune 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 ofJune 30, 2021 . For a summary of our consolidated debt as ofJune 30, 2021 andJune 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." Noncontrolling Interests in Property Partnerships Noncontrolling interests in property partnerships increased by approximately$17.9 million for the three months endedJune 30, 2021 compared to 2020, as detailed below. Noncontrolling
Interests in Property Partnerships for
the three months ended June 30,
Property 2021 2020 Change
(in thousands)
767 Fifth Avenue (the General Motors Building )
(1) $ 3,171 $ 441 $ 2,730
Times Square Tower (2) 5,020 (10,216) 15,236
601 Lexington Avenue 3,057 3,115 (58)
100 Federal Street 3,441 3,648 (207)
Atlantic Wharf Office Building 2,475 2,245 230
$ 17,164 $ (767) $ 17,931
_______________
(1)The increase was primarily attributable to an increase in lease revenue from
our tenants. In addition, during the three months ended June 30, 2020 , we
accelerated amortization expense related to a below-market lease that terminated
early.
(2)During the three months ended June 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.
Noncontrolling Interest-Common Units of the Operating Partnership
For BXP, noncontrolling interest-common units of the Operating Partnership
decreased by approximately $17.8 million for the three months ended June 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.
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);
82
--------------------------------------------------------------------------------
Ta ble of Contents
•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.
83
--------------------------------------------------------------------------------
Ta ble of Contents
The following table presents information on properties under construction and
redevelopment as of June 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)6/30/2021 (1) (1)(2)(4) (5)
Office
325 Main Street Third Quarter, 2022Cambridge, MA 1 420,000$ 251,146 $ 418,400 $ - $ -$ 167,254 90 %100 Causeway Street (50% ownership) Third Quarter, 2022Boston, MA 1 632,000 217,179 267,300 200,000 137,894 - 95 % (6)7750 Wisconsin Avenue (Marriott International Headquarters) (50% ownership) Second Quarter, 2022Bethesda, MD 1 734,000 165,438 198,900 127,500 99,426 5,388 100 % Reston Next Fourth Quarter, 2023Reston, VA 2 1,062,000 461,282 715,300 - - 254,018 85 %2100 Pennsylvania Avenue Third Quarter, 2024Washington, DC 1 480,000 184,957 356,100 - - 171,143 56 %Total Office Properties under Construction 6 3,328,000 1,280,002 1,956,000 327,500 237,320 597,803 87 % Lab/Life Sciences200 West Street (Redevelopment) Fourth Quarter, 2021Waltham, MA - 138,000 19,300 47,800 - - 28,500 100 % (7)880 Winter Street (Redevelopment) Second Quarter, 2024Waltham, MA 1 224,000 2,079 108,000 - - 105,921 - % 751 Gateway (49% ownership) Third Quarter, 2024
South San Francisco, CA 1
229,000 22,852 127,600 - - 104,748 - % 180 CityPoint Fourth Quarter, 2024Waltham, MA 1 329,000 27,291 274,700 - - 247,409 - %Total Lab/Life Sciences Properties under Construction 3 920,000 71,522 558,100 - - 486,578 15 % OtherThe Prudential Center Observatory (Redevelopment) N/ABoston, MA - 59,000 31,409 182,300 - - 150,891 N/ATotal Properties under Construction 9 4,307,000$ 1,382,933 $ 2,696,400 $ 327,500 $ 237,320 $ 1,235,272 71 % (8) ___________ (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 throughJune 30, 2021 . (3)Includes approximately$73.3 million of unpaid but accrued construction costs and leasing commissions. (4)Excludes approximately$73.3 million of unpaid but accrued construction costs and leasing commissions. (5)Represents percentage leased as ofAugust 2, 2021 , including leases with future commencement dates. (6)This property was 2% placed in-service as ofJune 30, 2021 . (7)Represents a portion of the property under redevelopment for conversion to laboratory space. (8)Percentage leased excludesThe Prudential Center Observatory redevelopment at800 Boylston Street - ThePrudential Center . 84 -------------------------------------------------------------------------------- Ta ble 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 ancillary revenue from transient parking and our hotel improved during the second quarter of 2021. We signed approximately 1.2 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 second quarter. Our parking and hotel revenue also increased approximately 28% as compared to the first quarter 2021. As the return to in-person work accelerates, we expect these trends to continue to improve over time. Our primary uses of capital over the next twelve months will be the completion of our current and committed development and redevelopment projects, funding the capital required to close our pending acquisitions, servicing the principal and interest payments on our outstanding indebtedness and satisfying our REIT distribution requirements. During the second quarter of 2021 we amended and restated our 2017 Credit Facility, to among other things, extend the maturity throughJune 15, 2026 . In addition, we fully redeemed 80,000 shares of Series B Preferred Stock at par utilizing$200.0 million of cash. As ofJune 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$1.2 billion . During the second quarter of 2021, we enhanced our investment capacity through the creation of a co-investment program with two partners, which will target an aggregate equity investment of$1.0 billion . The program expects to employ leverage allowing for an initial investment capacity of approximately$2.0 billion . Under the two-year agreement, we will provide our partners first offers to form joint ventures with us to invest in acquisition opportunities that meet the program's target investment criteria. Each investment opportunity is discretionary. Since the beginning of the second quarter of 2021, we announced the following planned investments: •We entered into an agreement to acquireSafeCo Plaza , located inSeattle, Washington , for a purchase price of approximately$465 million . We expect to obtain mortgage debt secured by the property and partner with one or more partners investing up to 51% of the equity required. Assuming 50% debt and a 51% ownership by us in the joint venture that ownsSafeCo Plaza , our share of equity at closing is estimated to be approximately$118.6 million . The transaction is expected to close in the third quarter of 2021. •We entered into an agreement to acquire360 Park Avenue South , located inNew York, New York , for a purchase price of approximately$300 million . 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 an approximate 50%/50% joint venture with an equity partner. •OnAugust 2, 2021 , we acquired Shady Grove Bio+Tech Campus, located inRockville, Maryland , for a purchase price of approximately$116.5 million , funded through available cash and funds from BPLP's 2021 Credit Facility. •We entered into an agreement to acquire11251 Roger Bacon Drive , located inReston, Virginia , for a purchase price of approximately$5.6 million . The transaction is expected to close in the first quarter of 2022. 85 -------------------------------------------------------------------------------- Ta ble of Contents In addition, we entered into an agreement to sell our 181,191 and 201 Spring Street properties, located inLexington, Massachusetts , for a gross sales price of$191.5 million . The transaction is expected to close in the third quarter of 2021. There can be no assurance that the acquisitions and disposition outlined above will be consummated on the terms currently contemplated or at all. We have no debt maturities during the remainder of 2021, other than one loan borrowed by an unconsolidated joint venture of which our share is approximately$87.1 million . We have one loan totaling approximately$622.7 million maturing in 2022 and our unconsolidated joint ventures have two loans maturing in 2022, of which our share is approximately$145.8 million . 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$1.3 billion available under the 2021 Credit Facility and available cash of approximately$236.6 million (of which approximately$102.1 million is attributable to our consolidated joint venture partners), as ofAugust 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. Common and LTIP unitholders of limited partnership interest in BPLP, received the same total distribution per unit. 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. 86 -------------------------------------------------------------------------------- Ta ble of Contents Cash and cash equivalents and cash held in escrows aggregated approximately$0.6 billion and$2.0 billion atJune 30, 2021 and 2020, respectively, representing a decrease of approximately$1.4 billion . The following table sets forth changes in cash flows: Six months ended June 30, Increase 2021 2020 (Decrease) (in thousands) Net cash provided by operating activities$ 560,476 $ 554,272 $ 6,204 Net cash used in investing activities (563,611) (120,522) (443,089)
Net cash provided by (used in) financing activities (1,078,914)
866,019 (1,944,933)
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 7.6 years as of June 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 their market
position. Cash used in investing activities for the six months ended June 30,
2021 consisted primarily of 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 six months ended June 30,
2020 consisted of 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:
Six months ended June 30,
2021 2020
(in thousands)
Acquisitions of real estate (1) $ (100,176) $ (133,406)
Construction in progress (2) (235,577) (247,615)
Building and other capital improvements (66,033) (68,386)
Tenant improvements (161,619) (118,903)
Proceeds from sales of real estate (3) - 506,337
Capital contributions to unconsolidated joint ventures (4) (20,032) (106,168)
Capital distributions from unconsolidated joint ventures 122 54,413
Proceeds from sale of investment in unconsolidated joint venture (5)
17,789 - Issuance of note receivable, net (6) - (9,800) Investments in securities, net 1,915 3,006 Net cash used in investing activities$ (563,611) $ (120,522)
Cash used in investing activities changed primarily due to the following:
(1)On
87
--------------------------------------------------------------------------------
Ta ble of Contents
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 six months ended June 30, 2021 includes
ongoing expenditures associated with One Five Nine East 53rd Street , which was
completed and fully placed in-service during the six months ended June 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, The Prudential Center Observatory and 880
Winter Street .
Construction in progress for the six months ended June 30, 2020 includes ongoing
expenditures associated with 17Fifty Presidents Street and 20 CityPoint, which
were completed and placed in-service during the six months ended June 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 , The Skylyne 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 sale price of approximately
$253.7 million . Net cash proceeds totaled approximately $246.9 million ,
resulting in a gain on sale of real estate totaling approximately $203.8 million
for BXP and approximately $207.2 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 sale 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 six months
ended June 30, 2021 consisted primarily of cash contributions of approximately
$11.4 million to our Santa Monica Business Park joint venture.
Capital contributions to unconsolidated joint ventures for the six months ended
June 30, 2020 consisted primarily of cash contributions of approximately $70.2
million , $23.9 million and $6.5 million to our Platform 16, 3 Hudson Boulevard
and Metropolitan Square joint ventures, respectively.
(5)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 .
(6)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 six months ended June 30, 2021 totaled
approximately $1.1 billion . 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 $850.0 million in aggregate principal amount of its 2.550%
senior unsecured notes due 2032. Future debt payments are discussed below under
the heading "Capitalization-Debt Financing."
88
--------------------------------------------------------------------------------
Ta ble of Contents
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):
June 30, 2021
Equivalent Value
Shares / Units Outstanding Common Stock Equivalent (1)
Common Stock 156,136 156,136 $ 17,891,624
Common Operating Partnership Units 17,528 17,528 2,008,534 (2)
Total Equity 173,664 $ 19,900,158
Consolidated Debt $ 12,536,065
Add:
BXP's share of unconsolidated joint venture debt
(3) 1,190,473
Subtract:
Partners' share of Consolidated Debt (4) (1,191,879) BXP's Share of Debt$ 12,534,659 Consolidated Market Capitalization$ 32,436,223 BXP's Share of Market Capitalization$ 32,434,817 Consolidated Debt/Consolidated Market Capitalization 38.65 % BXP's Share of Debt/BXP's Share of Market Capitalization 38.65 % _______________ (1)Values are based on the closing price per share of BXP's Common Stock on theNew York Stock Exchange onJune 30, 2021 of$114.59 . (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. (3)See page 93 for additional information. (4)See page 92 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 onJune 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 ofJune 30, 2021 . 89 -------------------------------------------------------------------------------- Ta ble of Contents 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 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, Net" within "Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations." Debt Financing As ofJune 30, 2021 , we had approximately$12.5 billion of outstanding consolidated indebtedness, representing approximately 38.65% of our Consolidated Market Capitalization as calculated above consisting of approximately (1)$9.6 billion (net of discount and deferred financing fees) in publicly traded unsecured senior notes having a GAAP weighted-average interest rate of 3.57% per annum and maturities in 2023 through 2032 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 4.8 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 atJune 30, 2021 andJune 30, 2020 . 90
--------------------------------------------------------------------------------
Ta ble of Contents
June 30,
2021 2020
(dollars in thousands)
Debt Summary:
Balance
Fixed rate mortgage notes payable, net $ 2,901,709 $ 2,915,852
Unsecured senior notes, net 9,634,356 9,633,577
Unsecured line of credit - -
Unsecured term loan, net - 499,150
Consolidated Debt 12,536,065 13,048,579
Add:
BXP's share of unconsolidated joint venture debt, net (1) 1,190,473 1,067,400
Subtract:
Partners' share of consolidated mortgage notes payable, net (2) (1,191,879) (1,197,276) BXP's Share of Debt $
12,534,659
June 30,
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 3.64 % 3.75 %
Variable rate - % 1.24 %
Total 3.64 % 3.66 %
Coupon/Stated Weighted-average interest rate at end of period:
Fixed rate 3.54 % 3.65 %
Variable rate - % 1.15 %
Total 3.54 % 3.55 %
Weighted-average maturity at end of period (in years):
Fixed rate 5.8 6.0
Variable rate - 1.8
Total 5.8 5.9
_______________
(1)See page 93 for additional information.
(2)See page 92 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
91
--------------------------------------------------------------------------------
Ta ble of Contents
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 June 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 August 2, 2021 , BPLP had
$205 million of borrowings under its 2021 Credit Facility and outstanding
letters of credit totaling approximately $6.3 million , with the ability to
borrow approximately $1.3 billion .
Unsecured Senior Notes
For a description of BPLP's outstanding unsecured senior notes as of June 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.
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 June 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 June 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 $ (20,731) $ 2,279,269 $ 911,781 (2)(3)(4) June 9, 2027
601 Lexington Avenue 4.75 % 4.79 % 622,691 (251) 622,440 280,098 (5) April 10, 2022
Total $ 2,922,691 $ (20,982) $ 2,901,709 $ 1,191,879
_______________
(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 of June 30, 2021 , the maximum funding obligation under the
guarantee was approximately $21.5 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.
92
--------------------------------------------------------------------------------
Ta ble of Contents
Off-Balance Sheet Arrangements-Joint Venture Indebtedness
We have investments in unconsolidated joint ventures with our effective
ownership interests ranging from 20% to 60%. Thirteen 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.
At June 30, 2021 , the aggregate carrying amount of debt, including both our and
our partners' share, incurred by these ventures was approximately $2.7 billion
(of which our proportionate share is approximately $1.2 billion ). The table
below summarizes the outstanding debt of these joint venture properties at
June 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 % 4.06 % 4.24 % $ 300,000 $ (2,133) $ 297,867 $ 163,827 (2)(3) July 19, 2025
Market Square North 50 % 2.80 % 2.96 % 125,000 (899) 124,101 62,050 (2)(4) November 10, 2025
1265 Main Street 50 % 3.77 % 3.84 % 36,909 (292) 36,617 18,309 January 1, 2032
Colorado Center 50 % 3.56 % 3.58 % 550,000 (628) 549,372 274,686 (2) August 9, 2027
Dock 72 50 % 3.10 % 3.32 % 196,412 (1,328) 195,084 97,542 (2)(5) December 18, 2023
The Hub on Causeway -
Podium 50 % 2.35 % 2.84 % 174,329 (175) 174,154 87,077 (2)(6) September 6, 2021
Hub50House 50 % 2.10 % 2.39 % 176,468 (425) 176,043 88,021 (2)(7) April 19, 2022
100 Causeway Street 50 % 1.61 % 1.82 % 275,788 (1,836) 273,952 136,976 (2)(8) September 5, 2023
7750 Wisconsin Avenue
(Marriott
International
Headquarters) 50 % 1.35 % 1.89 % 198,853 (2,553) 196,300 98,150 (2)(9) April 26, 2023
500 North Capitol
Street, NW 30 % 4.15 % 4.20 % 105,000 (113) 104,887 31,466 (2) June 6, 2023
901 New York Avenue 25 % 3.61 % 3.69 % 218,951 (625) 218,326 54,581 January 5, 2025
3 Hudson Boulevard 25 % 3.60 % 3.68 % 80,000 (128) 79,872 19,968 (2)(10) July 13, 2023
Metropolitan Square 20 % 5.40 % 6.90 % 294,073 (4,971) 289,102 57,820 (2)(11) July 7, 2022
Total $ 2,731,783 $ (16,106) $ 2,715,677 $ 1,190,473 _______________
(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. (3)The loan bears interest at a variable rate equal to LIBOR plus 1.28% per annum and matures onJuly 19, 2025 . A subsidiary of the joint venture entered into interest rate swap contracts with notional amounts aggregating$300.0 million throughApril 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 onNovember 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 onDecember 18, 2023 . (6)The construction financing had a borrowing capacity of$204.6 million . OnSeptember 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 onSeptember 6, 2021 , with two, one-year extension options, subject to certain conditions. (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 onApril 19, 2022 , with two, one-year extension options, subject to certain conditions. 93 -------------------------------------------------------------------------------- Ta ble of Contents (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 onSeptember 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 onApril 26, 2023 , with two, one-year extension options, subject to certain conditions. (10)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 onJuly 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. (11)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 onJuly 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 throughJuly 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 theBoard of Governors of theNational 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 toBoston Properties, Inc. common shareholders and net income (loss) attributable toBoston 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 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 toBoston Properties, Inc. common shareholders and net income attributable toBoston Properties Limited Partnership as presented in our Consolidated Financial Statements. FFO 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. 94 -------------------------------------------------------------------------------- Ta ble of Contents 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 toBoston Properties, Inc. common shareholders to FFO attributable toBoston Properties, Inc. common shareholders for the three months endedJune 30, 2021 and 2020: Three months endedJune 30, 2021 2020 (in thousands)
Net income attributable to
$ 111,703 $ 266,525 Add: Preferred dividends - 2,625
Noncontrolling interest-common units of the
12,383 30,197 Noncontrolling interests in property partnerships 17,164 (767) Net income 141,250 298,580 Add: Depreciation and amortization 183,838 178,188
Noncontrolling interests in property partnerships' share of depreciation and amortization
(17,113) (22,480)
BXP's share of depreciation and amortization from unconsolidated joint ventures
15,350 21,012
Corporate-related depreciation and amortization (444) (486)
Less:
Gain on sale of investment included within income (loss) from unconsolidated joint ventures
- 5,946
Gains on sales of real estate 7,756 203,767
Noncontrolling interests in property partnerships 17,164 (767)
Preferred dividends - 2,625
Funds from Operations (FFO) attributable to the
297,961 263,243
Less:
Noncontrolling interest-common units of the
29,319 26,335
Funds from Operations attributable to
$ 268,642 $ 236,908 Our percentage share of Funds from Operations-basic 90.16 % 90.00 % Weighted average shares outstanding-basic 156,107 155,386 95 -------------------------------------------------------------------------------- Ta ble of Contents Reconciliation to Diluted Funds from Operations: Three months ended June 30, 2021 2020 Income Shares/Units Income Shares/Units (Numerator) (Denominator) (Numerator) (Denominator) (in thousands) Basic Funds from Operations$ 297,961 173,150$ 263,243 172,659 Effect ofDilutive Securities : Stock based compensation - 412 - 21 Diluted Funds from Operations$ 297,961 173,562$ 263,243 172,680
Less:
Noncontrolling interest-common units of theOperating Partnership's share of diluted Funds from Operations 29,259 17,043 26,331 17,273 Diluted Funds from Operations attributable to Boston Properties, Inc. (1)$ 268,702 156,519$ 236,912 155,407 _______________
(1)BXP's share of diluted Funds from Operations was 90.18% and 90.00% 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 endedJune 30, 2021 and 2020: Three months ended June 30, 2021 2020 (in thousands) Net income attributable toBoston Properties Limited Partnership common unitholders$ 125,846 $ 301,975 Add: Preferred distributions - 2,625 Noncontrolling interests in property partnerships 17,164 (767) Net income 143,010 303,833 Add: Depreciation and amortization 182,078 176,409
Noncontrolling interests in property partnerships' share of depreciation and amortization
(17,113) (22,480)
BXP's share of depreciation and amortization from unconsolidated joint ventures
15,350 21,012
Corporate-related depreciation and amortization (444) (486)
Less:
Gain on sale of investment included within (loss) income from unconsolidated joint ventures - 5,946 Gains on sales of real estate 7,756 207,241 Noncontrolling interests in property partnerships 17,164 (767) Preferred distributions - 2,625
Funds from Operations attributable to
$ 297,961 $ 263,243 Weighted average shares outstanding-basic 173,150 172,659
_______________
(1)Our calculation includes OP Units and vested LTIP Units (including vested 2012 OPP Units and vested 2013 - 2018 MYLTIP Units).
96--------------------------------------------------------------------------------
Ta ble of Contents
Reconciliation to Diluted Funds from Operations:
Three months ended June 30,
2021 2020
(in thousands)
Income Shares/Units Income Shares/Units
(Numerator) (Denominator) (Numerator) (Denominator)
Basic Funds from Operations $ 297,961 173,150 $ 263,243 172,659
Effect of Dilutive Securities :
Stock based compensation - 412 - 21
Diluted Funds from Operations $ 297,961 173,562 $ 263,243 172,680
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 June 30, 2021 , we paid approximately $78.9 million
to fund tenant-related obligations, including tenant improvements and leasing
commissions.
In addition, during the three months ended June 30, 2021 , we and our
unconsolidated joint venture partners incurred approximately $122 million of new
tenant-related obligations associated with approximately 1.2 million square
feet, which included lease modifications related to COVID-19, of second
generation leases, or approximately $98 per square foot. We did not sign any
first generation leases. 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."
97--------------------------------------------------------------------------------
Ta ble of Contents
© Edgar Online, source
